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As filed with the Securities and Exchange Commission on January , 1997
Registration No. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
_______________
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
_______________
PEOPLES-SIDNEY FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 6035 Applied For
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation Classification Code Number) Identification No.)
or organization)
101 E. Court Street, Sidney, Ohio 45365 (937)492-6129
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
_______________
Douglas Stewart, President and Chief Executive Officer
Peoples-Sidney Financial Corporation
101 E. Court Street
Sidney, Ohio 45365
(937) 492-6129
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
_______________
Please send copies of all communications to:
Jeffrey M. Werthan, P.C.
SILVER, FREEDMAN & TAFF, L.L.P.
(A limited liability partnership including professional corporations)
1100 New York Avenue, N.W.
Seventh Floor, East Tower
Washington, DC 20005
(202) 414-6100
_______________
Approximate date of commencement of proposed sale to the public:
As soon as practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are being offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
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Title of Each Amount Proposed Maximum Proposed Maximum
Class of Securities to be Offering Price Aggregate Offering Amount of
to be Registered Registered(1) Per Share(1) Price(1) Registration Fee
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.01 par value 1,653,125 shares $10.00 $16,531,250 $5,010
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</TABLE>
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(1) Estimated solely for the purpose of calculating the registration fee.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
Prospectus
[LOGO]
PEOPLES-SIDNEY FINANCIAL CORPORATION
(Proposed Holding Company for Peoples Federal Savings and Loan Association)
$10.00 Per Share
1,437,500 Shares of Common Stock
(Anticipated Maximum)
Peoples-Sidney Financial Corporation (the "Holding Company") is offering up
to 1,437,500 shares of common stock, par value $0.01 per share (the "Common
Stock"), in connection with the conversion of Peoples Federal Savings and Loan
Association of Sidney, Sidney, Ohio ("Peoples Federal" or the "Association")
from a federally chartered mutual savings and loan association to a federally
chartered stock savings and loan association and the issuance of all of Peoples
Federal's outstanding stock to the Holding Company (the "Conversion"). Pursuant
to the Association's plan of conversion (the "Plan of Conversion" or the
"Plan"), non-transferable rights to subscribe for the Common Stock
("Subscription Rights") have been given, in order or priority, to (i) Peoples
Federal's depositors as of October 31, 1995 ("Eligible Account Holders"), (ii)
tax-qualified employee plans of Peoples Federal and the Holding Company
("Tax-Qualified Employee Plans"), provided, however, that the Tax-Qualified
Employee Plans shall have first priority Subscription Rights to the extent that
the total number of shares of Common Stock sold in the Conversion exceeds the
maximum of the Estimated Valuation Range as defined below, (iii) Peoples
Federal's depositors as of December 31, 1996 ("Supplemental Eligible Account
Holders"), (iv) depositors as of ________, 1997 ("Other Members"), and (v) its
employees, officers and directors (the "Subscription Offering").
(continued on next page)
---------------------
FOR INFORMATION ON HOW TO SUBSCRIBE, CALL THE STOCK
INFORMATION CENTER AT (___) ___-____.
---------------------
FOR A DISCUSSION OF CERTAIN FACTORS TO BE CONSIDERED,
SEE "RISK FACTORS" AT PAGE 13
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, ANY STATE SECURITIES REGULATOR, THE OFFICE OF THRIFT
SUPERVISION OR THE FEDERAL DEPOSIT INSURANCE CORPORATION, NOR HAS SUCH
COMMISSION, REGULATOR, OFFICE OR CORPORATION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE. THE SHARES OF COMMON STOCK OFFERED
HEREBY ARE NOT SAVINGS ACCOUNTS OR SAVINGS DEPOSITS
AND ARE NOT INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION OR ANY OTHER
GOVERNMENT AGENCY.
<PAGE>
<TABLE>
<CAPTION>
====================================================================================================================================
Estimated Underwriting Fees
Commissions and Other Estimated Net
Purchase Price(1) Expenses(2) Conversion Proceeds(3)
<S> <C> <C> <C>
Per Share(4)................................. $10.00 $0.40 $9.60
Minimum Total................................ $10,625,000 $478,000 $10,147,000
Midpoint Total............................... $12,500,000 $504,000 $11,996,000
Maximum Total................................ $14,375,000 $530,000 $13,845,000
Maximum Total, As Adjusted(5)................ $16,531,250 $560,000 $15,971,250
====================================================================================================================================
</TABLE>
- ---------------------
(1) Determined on the basis of an appraisal prepared by Keller & Company, Inc..
("Keller") dated January 10, 1997, which states that the estimated pro forma
market value of the Common Stock ranged from $10.7 million to $14.4 million
or between 1,062,500 shares and 1,437,500 shares, of Common Stock at $10.00
per share. See "The Conversion - Stock Pricing and Number of Shares to be
Issued."
(2) Consists of the estimated costs to the Association and the Holding Company
arising from the Conversion, including the payment to Charles Webb &
Company, a Division of Keefe, Bruyette & Woods, Inc. ("Webb") of a
management fee and estimated expenses of $35,000 and estimated sales
commissions ranging from $120,450 (at the minimum) to $172,200 (at the
maximum) in connection with the sale of shares in the Offering. Such fees
may be deemed to be underwriting fees. See "Use of Proceeds" and "Pro Forma
Data" for the assumptions used to arrive at these estimates. The Holding
Company has agreed to indemnify Webb against certain liabilities, including
liabilities arising under the Securities Act of 1933, as amended (the
"Securities Act"). See "The Conversion - Marketing Arrangements" for a more
detailed description of underwriting fees and expenses.
(3) Net Conversion proceeds may vary from the estimated amounts, depending on
the number of shares issued and the number of shares sold subject to
commissions. The actual number of shares of Common Stock to be issued in the
Conversion will not be determined until after the close of the Offering.
(4) Assumes the sale of the midpoint number of shares. If the minimum, maximum
or 15% above the maximum number of shares are sold, estimated expenses per
share would be $0.45, $0.37 or $0.34, respectively, resulting in estimated
net Conversion proceeds per share of $9.55, $9.63 or $9.66, respectively.
(5) As adjusted to give effect to the sale of up to an additional 215,625 shares
(15% above the maximum of the Estimated Valuation Range) which may be
offered in the Conversion without the resolicitation of subscribers or any
right of cancellation, to reflect changes in market and financial conditions
following the commencement of the Offering. See "Pro Forma Data," and "The
Conversion - Stock Pricing and Number of Shares to be Issued."
CHARLES WEBB & COMPANY
A Division of Keefe, Bruyette & Woods, Inc.
The date of this Prospectus is ___________, 1997
<PAGE>
(continued from prior page)
Concurrently, and subject to the prior rights of holders of Subscription
Rights, the Holding Company is offering the Common Stock for sale in a direct
community offering to members of the general public, with a first preference to
natural persons residing in Shelby, County, Ohio (the "Community Offering" and
when combined with the Subscription Offering are referred collectively as the
"Subscription and Community Offering"). The Association and the Holding Company
reserve the right, in their absolute discretion, to accept or reject, in whole
or in part, any or all orders in the Community Offering. Subscription Rights are
non-transferrable. Persons found to be selling or otherwise transferring their
right to purchase stock in the Subscription Offering or purchasing Common Stock
on behalf of another person will be subject to forfeiture of such rights and
possible further sanctions and penalties imposed by the Office of Thrift
Supervision (the "OTS"), an agency of the United States Government.
The total number of shares to be issued in the Conversion will be based
upon an appraised valuation of the estimated aggregate pro forma market value of
the Holding Company and the Association as converted. The purchase price per
share ("Purchase Price") has been fixed at $10.00. Based on the current
aggregate valuation range of $10.6 million to $14.4 million (the "Estimated
Valuation Range"), the Holding Company is offering for sale up to 1,437,500
shares. Depending upon the market and financial conditions at the time of the
completion of the Public Offering, if any, the total number of shares to be
issued in the Conversion may be increased or decreased from the 1,437,500 shares
offered hereby, provided that the product of the total number of shares
multiplied by the price per share remains within, or does not exceed by more
than 15% the maximum of the Estimated Valuation Range. If the aggregate Purchase
Price of the Common Stock sold in the Conversion is below $10,625,000 or above
$16,531,250, or if the Offering is extended beyond _____________, 1997,
subscribers will be permitted to modify or cancel their subscriptions and to
have their subscription funds returned promptly with interest. Under such
circumstances, if subscribers take no action, their subscription funds will be
promptly returned to them with interest. In all other circumstances,
subscriptions are irrevocable by subscribers. See "The Conversion - Offering of
Holding Company Common Stock."
With the exception of the Tax-Qualified Employee Plans and certain large
depositors, no Eligible Account Holder, Supplemental Eligible Account Holder or
Other Member may purchase in their capacity as such in the Subscription Offering
more than $100,000 of Common Stock. As part of the Community Offering, no
person, together with associates of and persons acting in concert with such
person, may purchase more than $100,000 of Common Stock. In the aggregate, no
person, together with associates of and persons acting in concert with such
person, may purchase more than $200,000 of Common Stock offered in the
Conversion based on the Estimated Valuation Range. Under certain circumstances,
the maximum purchase limitations may be increased or decreased at the sole
discretion of the Association and the Holding Company up to 9.99% of the total
number of shares of Common Stock sold in the Conversion or to one percent of
shares of Common Stock offered in the Conversion. The minimum purchase is 25
shares. See "The Conversion - Additional Purchase Restrictions."
<PAGE>
The Association and the Holding Company have engaged Webb as financial
advisor to assist in the distribution of shares of Common Stock, on a
best-efforts basis, in the Subscription and Community Offering. For such
services, Webb will receive a management fee and estimated expenses of $35,000
and a 1.5% sales commission, excluding purchases by directors, officers,
employees and their immediate family members, and the Association's employee
stock ownership for common Stock sold in the Subscription and Community
Offering. In addition, if selected dealers are utilized to assist in selling
stock in the Community Offering commissions of 5.5% of the Common stock sold by
them will be paid, and no other fees will be payable to Webb with respect to
those shares sold through selected dealers. See "The Conversion - Marketing
Arrangements" and "The Conversion - Offering of Holding Company Common Stock."
The Holding Company must receive an order form and certification form
(together referred to as the "Order Form"), together with full payment at $10.00
per share (or appropriate instructions authorizing a withdrawal from a deposit
account at the Association) for all shares for which subscription is made, at
any office of the Association, by 5:00 p.m., Sidney, Ohio time, on __________,
1997, unless the Subscription and Community Offering is extended, at the
discretion of the Board of Directors, up to an additional 45 days with the
approval of the OTS, if necessary, but without additional notice to subscribers
(the "Expiration Date"). See "The Conversion - Offering of Holding Company
Common Stock." Subscriptions paid by check, bank draft or money order will be
placed in a segregated account at the Association and will earn interest at the
Association's passbook rate from the date of receipt until completion or
termination of the Conversion. Payments authorized by withdrawal from deposit
accounts at the Association will continue to earn interest at the contractual
rate until the Conversion is completed or terminated; these funds will be
otherwise unavailable to the depositor until such time. Subscription funds will
be returned promptly with interest to each subscriber unless he or she
affirmatively indicates otherwise. Authorized withdrawals from certificate
accounts for the purchase of Common Stock will be permitted without the
imposition of early withdrawal penalties or loss of interest.
The Holding Company has received preliminary approval to have the Common
Stock listed on the Nasdaq National Stock Market under the symbol "PSFC." Prior
to this Offering there has not been a public market for the Common Stock, and
there can be no assurance that an active and liquid trading market for the
Common Stock will develop or that resales of the Common Stock can be made at or
above the Purchase Price. See "Market for Common Stock" and "The Conversion -
Stock Pricing and Number of Shares to be Issued."
2
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[MAP TO COME]
3
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PROSPECTUS SUMMARY
The following summary does not purport to be complete and is qualified
in its entirety by the detailed information and financial statements appearing
elsewhere herein.
Peoples-Sidney Financial Corporation
The Holding Company, Peoples-Sidney Financial Corporation, was formed
in 1997 by Peoples Federal under the laws of Delaware for the purpose of
becoming a savings and loan holding company which will own all of the
outstanding capital stock that Peoples Federal will issue in connection with the
Conversion. Immediately following the Conversion, the only significant assets of
the Holding Company will be the capital stock of Peoples Federal and up to
approximately 50% of the net proceeds from the Conversion, a portion of which is
expected to be used to fund the Holding Company's loan to its Employee Stock
Ownership Plan ("ESOP"). See "Use of Proceeds." Upon completion of the
Conversion, the Holding Company's business initially will consist only of the
business of Peoples Federal.
The executive office of the Holding Company is located at 101 East
Court Street, Sidney, Ohio 45365 and its telephone number at that address is
(937) 492-6129. See "Peoples-Sidney Financial Corporation"
Peoples Federal
Peoples Federal was founded in 1886 as an Ohio-chartered mutual
association and converted to a federally chartered association in 1958. Peoples
Federal serves the financial needs of families and local businesses in its
primary market area through its office located at 101 East Court Street, Sidney,
Ohio. Its deposits are insured up to applicable limits by the Federal Deposit
Insurance Corporation ("FDIC"). At October 31, 1996, Peoples Federal had total
assets of $90.0 million, deposits of $79.9 million and retained earnings of $9.2
million (or 10.2% of total assets).
Peoples Federal seeks to provide financial services to families and
local businesses residing in Shelby County, Ohio. Peoples Federal's business
involves attracting deposits from the general public and using such deposits to
originate one- to four-family permanent and construction residential mortgage
and, to a lesser extent, commercial real estate, consumer, land, multi-family
and commercial business loans in its market area, consisting primarily of Shelby
County, Ohio and to a lesser extent, contiguous counties in Ohio. The
Association also invests in investment securities consisting primarily of U.S.
government obligations and various types of short-term liquid assets. See
"Business."
The Association's basic mission is to maintain its focus as an
independent, community- oriented financial institution serving customers in its
primary market area. The Board of Directors has sought to accomplish this
mission through the adoption of a strategy designed to maintain a strong capital
position and high asset quality, manage the Association's sensitivity to
4
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changes in interest rates and optimize the Association's net interest margin.
This strategy has been effected by (i) emphasizing one- to four-family permanent
and construction residential mortgage lending, (ii) supplementing residential
lending with investments in commercial real estate, consumer and other loans,
(iii) emphasizing the origination of adjustable rate and short-and medium-term
(up to 15 years) loans and investments; and (iv) maintaining its core deposit
base.
Financial highlights of the Association include the following:
o Capital Position. - At October 31, 1996, the Association had
retained earnings of $9.2 million (10.2% of total assets). Peoples
Federal's regulatory capital exceeds all regulatory capital
requirements. At October 31, 1996, Peoples Federal's risk-based
capital totalled $9.5 million which was approximately $4.9 million
above the Association's capital requirement at such date. Assuming
on a pro forma basis that $14.4 million of shares, the maximum of
the Estimated Valuation Range, were sold in the Conversion and
approximately 50% of the net Conversion proceeds were contributed to
Peoples Federal by the Holding Company, as of October 31, 1996, the
Association's risk-based capital would have been $15.3 million
(25.0% of risk adjusted total assets). See "Regulation - Regulatory
Capital Requirements."
o Asset Quality. - Reflecting the Association's heavy emphasis on
residential mortgage lending, the Association's ratio of
non-performing assets to total assets was 1.3% at October 31, 1996.
While this is a significant improvement over prior years, the
Association's ratio of such loans is higher than the peer group
average of 1.2%. See "Business - Delinquencies and Non-Performing
Assets."
o Diversified Lending Activities. - In order to supplement its
residential lending program, the Association focuses a portion of
its lending activities on construction and commercial real estate
loans. While management believes that such loans carry a higher
level of risk than residential loans, they are generally more
interest rate sensitive and carry higher yields than residential
loans. At October 31, 1996, the Association had $9.1 million of
construction and development loans or 10.4% of total gross loans
receivable and $5.5 million of commercial real estate loans or 6.2%
of total gross loans receivable. At such date, no construction and
development loans were non-performing and $304,000 of commercial
real estate loans were non-performing.
o Interest Rate Spread. - The Association's interest rate spread, an
important component of profitability, was 2.9% and 3.0% for the four
months ended October 31, 1996 and for the year ended June 30, 1996,
respectively. Net interest income was $951,000 and $2.8 million for
the four months ended October 31,1996 and the year ended June 30,
1996, respectively.
5
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The information set forth above should be considered in light of the
factors described under the caption "Risk Factors." For additional information
regarding the implementation of the Association's business strategy, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Asset/Liability Management."
Forward-Looking Statements
In addition to the historical information contained herein, the
following discussion contains forward-looking statements that involve risks and
uncertainties. Economic circumstances, the Association's operations and actual
results could differ significantly from those discussed in the forward-looking
statements. Some of the factors that could cause or contribute to such
differences are discussed herein but also include changes in the economy and
interest rates in the nation and in the Association's market area.
The Conversion
Plan of Conversion. Under the Plan of Conversion, the Conversion is
subject to certain conditions, including the prior approval of the Plan by the
Association's members at a Special Meeting to be held on ________, 1997. After
the Conversion, the Association's current voting members (who include certain
deposit account holders and borrowers) will have no voting rights in Peoples
Federal and will have no voting rights in the Holding Company unless they become
Holding Company stockholders. Eligible Account Holders and Supplemental Eligible
Account Holders, however, will have certain liquidation rights in the
Association. See "The Con version - Effects of Conversion to Stock Form on
Depositors and Borrowers of the Association - Liquidation Rights."
The Subscription and Community Offering. The shares of Common Stock to
be issued in the Conversion are being offered at a Purchase Price of $10.00 per
share in the Subscription Offering pursuant to nontransferable Subscription
Rights in the following order of priority: (i) Eligible Account Holders (i.e.,
depositors in the Association on October 31, 1995); (ii) Tax- Qualified Employee
Plans (in this case, the Company's ESOP); provided, however, that the Tax-
Qualified Employee Plans shall have first priority Subscription Rights to the
extent that the total number of shares of Common Stock sold in the Conversion
exceeds the maximum of the Estimated Valuation Range; (iii) Supplemental
Eligible Account Holders (i.e., depositors in the Association on December 31,
1996); (iv) Other Members (i.e., depositors of the Association as of __________,
1997); and (v) employees, officers and directors of the Association.
Subscription Rights received in any of the foregoing categories will be
subordinated to the Subscription Rights received by those in a prior category.
Subscription Rights will expire if not exercised by 5:00 p.m., Sidney, Ohio
time, on ________, 1997, unless extended (the "Expiration Date").
Concurrently, and subject to the prior rights of holders of
Subscription Rights, any shares of Common Stock not subscribed for in the
Subscription Offering are being offered at the same price in the Community
Offering to members of the general public, with a preference given to natural
persons residing in Shelby County, Ohio. The Association and the Holding Company
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have engaged Webb as financial advisor and to assist in the distribution of
shares of Common stock. Depending on market conditions and subject to the prior
rights of holders of Subscription Rights, the Common Stock may be offered for
sale to the general public on a best efforts basis in the Community Offering
through a selected dealers arrangement to be coordinated by Webb.
The Association has established a Stock Information Center, which will
be managed by Webb, to coordinate the Subscription and Community Offering,
including tabulating orders and answering questions about the Subscription and
Community Offering received by telephone. All subscribers will be instructed to
mail payment to the Stock Information Center or deliver payment directly to the
Association's office. Payment for shares of Common Stock may be made by cash (if
delivered in person), check or money order or by authorization of withdrawal
from deposit accounts maintained with the Association. Such funds will not be
available for withdrawal and will not be released until the Conversion is
completed or terminated. See "The Conversion - Method of Payment for
Subscriptions."
Purchase Limitations. The Plan of Conversion places limitations on the
number of shares which may be purchased in the Conversion by various categories
of persons. With the exception of the Tax-Qualified Employee Plans and certain
large depositors, no Eligible Account Holder, Supplemental Eligible Account
Holder or Other Member may purchase in their capacity as such in the
Subscription Offering more than $100,000 of Common Stock offered in the
Conversion. As part of the Community Offering, no person, together with
associates of and persons acting in concert with such person, may purchase more
than $100,000 of Common Stock. In the aggregate, no person or group of persons
acting in concert (other than the Tax- Qualified Employee Plans) may purchase
more than $200,000 of Common Stock offered in the Conversion, except that
certain large depositors may be entitled to purchase Common Stock in excess of
these limits. These purchase limits may be increased or decreased consistent
with OTS regulations at the sole discretion of the Holding Company and the
Association. See "The Con version - Offering of Holding Company Common Stock."
Prospectus Delivery and Procedure for Purchasing Shares. To ensure that
each purchaser receives a prospectus at least 48 hours prior to the Expiration
Date in accordance with Rule 15c2-8 under the Securities Exchange Act of 1934,
as amended (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 be distributed only with a
prospectus. The Association will accept for processing orders submitted on
original order forms with an executed certification. Photocopies or facsimile
copies of order forms or the form of certification will not be accepted. Payment
by cash, check, money order, bank draft or debit authorization to an existing
account at the Association must accompany the order form. No wire transfers will
be accepted. See "The Conversion - Method of Payment for Subscriptions."
In order to ensure that Eligible Account Holders, Supplemental Eligible
Account Holders and Other Members receive their stock purchase priorities,
depositors must list all accounts on the Order Form, giving all names on each
account and the account number as of the applicable record date.
7
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Restrictions on Transfer of Subscription Rights. Prior to the
completion of the Conversion, no person may transfer or enter into any agreement
or understanding to transfer the legal or beneficial ownership of the
Subscription Rights 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. Persons found to be selling or otherwise transferring their right
to purchase stock in the Subscription Offering or purchasing Common Stock on
behalf of another person will be subject to forfeiture of such rights and
possible federal penalties and sanctions. See "The Conversion - Restrictions on
Transfer of Subscription Rights and Shares."
Stock Pricing. The price of the Common Stock is $10.00 per share and is
the same for all purchasers. The aggregate pro forma market value of the Holding
Company and Peoples Federal, as converted, was estimated by Keller, which is
experienced in appraising converting thrift institutions, to range from $10.6
million to $14.4 million at January 10, 1997 (the "Estimated Valuation Range").
Depending on market and financial conditions at the completion of the
Subscription and Community Offering, the number of shares of Common Stock to be
issued in the Conversion may be increased or decreased significantly from the
1,437,500 shares offered hereby and the price per share may be decreased.
However, subscribers will be permitted to modify or rescind their subscriptions
if the product of the number of shares to be issued multiplied by the price per
share is less than $10.6 million or more than $16.5 million. See "Pro Forma
Data" and "The Conversion - Stock Pricing and Number of Shares to be Issued" for
a description of the manner in which such valuation was made and the limitations
on its use.
The appraisal by Keller is not intended to be, and must not be
interpreted as, a recommendation of any kind as to the advisability of voting to
approve the Conversion or of purchasing shares of Common Stock. The appraisal
considers Peoples Federal and the Holding Company only as going concerns and
should not be considered as any indication of the liquidation value of Peoples
Federal or the Holding Company. Moreover, the appraisal is necessarily based on
many factors which change from time to time. There can be no assurance that
persons who purchase shares in the Conversion will be able to sell such shares
at prices at or above the Purchase Price.
Purchases by Directors and Officers
The directors and officers of Peoples Federal intend to purchase, in
the Subscription Offering for investment purposes and at the same price as the
shares are sold to other investors in the Conversion, approximately $1,745,000
of Common Stock or 15.2% of the shares to be issued in the Conversion at the
midpoint of the Estimated Valuation Range (exclusive of an aggregate of 8% of
the shares to be issued in the Conversion which are anticipated to be purchased
by the ESOP). See "The Conversion - Participation by the Board."
8
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Potential Benefits of Conversion to Directors and Executive Officers
Employee Stock Ownership Plan. The Board of Directors of the
Association has adopted an ESOP, a tax-qualified employee benefit plan for
officers and employees of the Holding Company and the Association. The ESOP
intends to buy up to 8% of the Common Stock issued in the Conversion
(approximately $850,000 to $1,150,000 of the Common Stock based on the issuance
of the minimum and the maximum of the Estimated Valuation Range and the $10.00
per share Purchase Price). The ESOP will purchase the shares with funds borrowed
from the Holding Company, and it is anticipated that the ESOP will repay the
loans through periodic tax-deductible contributions from the Association over a
ten-year period. These contributions will increase the compensation expense of
the Association. See "Management - Benefit Plans - Employee Stock Ownership
Plan" for a description of this plan.
Employment Agreements. The Association intends to enter into employment
agreements with Douglas Stewart, President and Chief Executive Officer; David R.
Fogt, Vice President of Operations and Financial Services; Gary N. Fullenkamp,
Vice President of Mortgage Loans and Corporate Secretary; Debra A. Geuy,
Treasurer; and Steven Goins, Assistant Vice President of Financial Services. It
is anticipated that such agreements will provide for a salary equal to each
employee's current salary, will have an initial term of three years for Mr.
Stewart and one year for each of the other officers, subject to an annual
extension for an additional year following the Association's annual performance
review, and will become effective upon the completion of the Conversion. Under
certain circumstances including a change in control, as defined in the
employment agreements, such employees would be entitled to a severance payment
in lieu of salary equal to a percentage of his base amount of compensation, as
defined. See "Management of the Association - Executive Compensation."
Other Stock Benefit Plans. In addition to the ESOP and the employment
agreements, in the future the Holding Company may consider the implementation of
a stock option plan and recognition and retention plan ("RRP") for the benefit
of selected directors, officers and employees of the Holding Company and the
Association. Any such stock option plan or RRP will not be implemented within
one year of the date of the consummation of the Stock Conversion. If a
determination is made to implement a stock option plan or RRP, it is anticipated
that any such plans will be submitted to stockholders for their consideration at
which time stockholders would be provided with detailed information regarding
such plan. If such plans are approved, they will have a dilutive effect on the
Holding Company's stockholders as well as effect the Holding Company's net
income and stockholders' equity, although the actual effects cannot be
determined until such plans are implemented.
Use of Proceeds
The net proceeds from the sale of Common Stock in the Conversion
(estimated at $10.1 million, $12.0 million, $13.8 million and $16.0 million
based on the minimum, midpoint, maximum and 15% above the maximum respectively,
number of shares) will substantially increase the capital of Peoples Federal.
See "Pro Forma Data." The Holding Company will utilize approximately 50% of the
net proceeds from the issuance of the Common Stock to
9
<PAGE>
purchase all of the common stock of Peoples Federal to be issued upon Conversion
and will retain approximately 50% of the net proceeds. The proceeds retained by
the Holding Company will be invested initially in short-term securities of a
type similar to those invested in by the Association. In addition, the Holding
Company, subject to regulatory approval, is expected to fund the ESOP loan. Such
proceeds will also be available for general corporate purposes, including the
possible repurchase of shares of the Common Stock, as permitted by the OTS, and
the possible expansion of facilities. The Holding Company currently has no
specific plan to make any such repurchases of any of its Common Stock. The net
proceeds received by Peoples Federal will become part of Peoples Federal's
general funds for use in its business, subject to applicable regulatory
restrictions, and will be available to use for the acquisition of deposits or
assets or both from other institutions, although no such acquisitions are being
contemplated at this time. See "Use of Proceeds" for additional information on
the utilization of the offering proceeds as well as on the OTS restrictions on
repurchases of the Holding Company's stock.
Dividends
The Holding Company's Board of Directors may consider the payment of
dividends on its Common Stock. The declaration and payment of dividends are
subject to, among other things, the Holding Company's financial condition and
results of operations, Peoples Federal's compliance with its regulatory capital
requirements, tax considerations, industry standards, economic conditions,
regulatory restrictions, general business practices and other factors. See
"Dividends."
Market for Common Stock
The Holding Company has applied to have the Common Stock quoted on the
Nasdaq National Stock Market under the symbol "PSFC." No assurance can be given,
however, that the Holding Company's stock will be quoted on the Nasdaq National
Stock Market or that an active and liquid market for the Common Stock will
develop. Further, no assurance can be given that an investor will be able to
resell the Common Stock at or above the Purchase Price after the Conversion. See
"Market for Common Stock."
Risk Factors
Special attention should be given to the following factors discussed
under "Risk Factors": non-traditional lending activities; vulnerability to
changes in interest rates; competition; geographical concentration of loans;
certain anti-takeover provisions; voting control of shares by the board,
management and employee plans; low return on equity; ESOP compensation expense;
absence of prior market for common stock; proposed federal legislation; and risk
of delay.
10
<PAGE>
SELECTED FINANCIAL INFORMATION
<TABLE>
<CAPTION>
At October 31,
1996(1)
------------------------------
<S> <C>
Selected Financial Condition Data:
Total assets......................................................... $89,962
Loans receivable, net(2)............................................. 83,721
Investment securities (held to maturity)............................. 2,099
Federal Home Loan Bank ("FHLB") stock................................ 679
Time deposits with other financial institutions...................... 100
Deposits............................................................. 79,879
Retained earnings - substantially restricted......................... 9,188
</TABLE>
<TABLE>
<CAPTION>
Four Months Ended
October 31,
------------------------------
1996(1) 1995(1)
------------------------------
<S> <C> <C>
Selected Operations Data:
Total interest income................................................ $2,263 $2,123
Total interest expense............................................... 1,312 1,181
------- ------
Net interest income............................................... 951 942
Provision for loan losses............................................ 20 8
-------- --------
Net interest income after provision for loan losses.................. 931 934
Service fees and other charges....................................... 21 16
Other noninterest income(3).......................................... --- ---
---------- ---------
Total noninterest income............................................. 21 16
Total noninterest expense(3)......................................... 989 489
-------- --------
Income (loss) before income taxes and accounting change.............. (37) 461
Provision for income taxes........................................... (12) 157
Cumulative effect of change in accounting for income taxes........... --- ---
--------- ---------
Net income (loss)................................................ $ (25) $ 304
======== ========
<PAGE>
</TABLE>
<TABLE>
<CAPTION>
June 30,
------------------------------------------------------------
1996 1995 1994 1993 1992
------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Selected Financial Condition Data: (In Thousands)
Total assets........................................... $86,882 $78,976 $76,134 $72,276 $72,885
Loans receivable, net(2)............................... 78,233 71,933 66,610 62,867 57,848
Investment securities (held to maturity)............... 2,598 3,098 3,596 4,434 4,101
Federal Home Loan Bank ("FHLB") stock.................. 667 622 572 545 535
Time deposits with other financial institutions........ 1,100 --- --- --- ---
Deposits............................................... 77,318 70,306 68,367 65,168 66,540
Retained earnings - substantially restricted........... 9,213 8,361 7,526 6,940 6,165
</TABLE>
<TABLE>
<CAPTION>
Year Ended June 30,
-------------------------------------------------------------
1996 1995 1994 1993 1992
-------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Selected Operations Data: (In Thousands)
Total interest income....................................... $6,513 $5,725 $5,071 $5,357 $6,106
Total interest expense...................................... 3,706 2,968 2,637 2,898 4,081
------- ------- ------- ------- -------
Net interest income...................................... 2,807 2,757 2,434 2,459 2,025
Provision for loan losses................................... 68 55 83 41 53
-------- -------- -------- -------- --------
Net interest income after provision for loan losses......... 2,739 2,702 2,351 2,418 1,972
Service fees and other charges.............................. 57 60 65 91 90
Other noninterest income(3)................................. --- --- --- 95 71
--------- --------- --------- -------- --------
Total noninterest income.................................... 57 60 65 186 161
Total noninterest expense(3)................................ 1,504 1,495 1,427 1,394 1,704
------- ------- ------- ------- -------
Income (loss) before income taxes and accounting change..... 1,292 1,267 989 1,210 429
Provision for income taxes.................................. 440 432 334 435 284
Cumulative effect of change in accounting for income taxes.. --- --- (69) --- ---
--------- --------- -------- --------- ---------
Net income (loss)....................................... $ 852 $ 835 $ 586 $ 775 $ 145
======= ======= ======= ======= =======
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
At or For the Four
Months Ended
October 31,
Selected Financial Ratios and Other Data(4): 1996(1) 1995(1)
- ------------------------------------------- ------------ -----------
<S> <C> <C>
Performance Ratios:
Return on assets (ratio of net income to average total assets)..................... (0.09)% 1.12%
Return on retained earnings (ratio of net income to average equity)................ (0.80) 10.72
Interest rate spread information(5):
Average during period............................................................. 2.90 3.13
End of period..................................................................... 2.66 2.77
Net interest margin(6)............................................................. 3.32 3.55
Ratio of operating expense to average total assets................................. 3.37 1.80
Ratio of average interest-earning assets to average interest-bearing liabilities... 1.09x 1.10x
Quality Ratios:
Non-performing assets to total assets at end of period(7).......................... 1.28% 1.36%
Allowance for loan losses to non-performing loans.................................. 28.27 22.50
Allowance for loan losses to gross loans receivable(8)............................. 0.37 0.35
Capital Ratios:
Retained earnings to total assets at end of period................................. 10.21 10.27
Average retained earnings to average assets........................................ 10.49 10.45
Other Data:
Number of full-service offices..................................................... 1 1
</TABLE>
<TABLE>
<CAPTION>
At or For
Year Ended June 30,
Selected Financial Ratios and Other Data(4): 1996 1995 1994 1993 1992
- ------------------------------------------- -------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Performance Ratios:
Return on assets (ratio of net income to average total assets).......... 1.01% 1.07% 0.79% 1.07% 0.20%
Return on retained earnings (ratio of net income to average equity)..... 9.70 10.55 8.10 11.84 2.60
Interest rate spread information(5):
Average during period.................................................. 2.97 3.30 3.05 3.19 2.50
End of period.......................................................... 2.74 3.08 2.99 3.12 2.40
Net interest margin(6).................................................. 3.41 3.66 3.35 3.49 2.88
Ratio of operating expense to average total assets...................... 1.78 1.93 1.91 1.92 2.37
Ratio of average interest-earning assets to average interest-bearing
liabilities............................................................ 1.10x 1.09x 1.08x 1.07x 1.07x
Quality Ratios:
Non-performing assets to total assets at end of period(7)............... 1.41% 1.80% 2.10% 3.26% 3.09%
Allowance for loan losses to non-performing loans....................... 25.14 17.70 12.98 5.79 4.18
Allowance for loan losses to gross loans receivable(8).................. 0.37 0.33 0.29 0.19 0.16
Capital Ratios:
Retained earnings to total assets at end of period...................... 10.60 10.59 9.88 9.60 8.46
Average retained earnings to average assets............................. 10.43 10.24 9.70 9.03 7.74
Other Data:
Number of full-service offices.......................................... 1 1 1 1 1
</TABLE>
<PAGE>
- ---------------------------
(1) Financial information at October 31, 1996 and for the four month periods
ended October 31, 1996 and 1995 is derived from unaudited financial data,
but in the opinion of management, reflects all adjustments (consisting only
of normal recurring adjustments) which are necessary to present fairly the
results for such interim periods. Ratio data for the four month periods
ended October 31, 1996 and 1995 are annualized. Interim results at and for
the four months ended October 31, 1996 are not necessarily indicative of the
results that may be expected for the year ending June 30, 1997.
(2) Loans receivable are shown net of loans in process, net deferred loan
origination fees and the allowance for loan losses.
(3) During 1992, the Association lost an appeal with the Internal Revenue
Service regarding adjustments to its federal income taxes for calendar years
1973 through 1980. Net federal income taxes, interest expense and interest
income associated with these adjustments amounted to $117,000, $383,000 and
$71,000, respectively, and have been included in the Statement of Income for
the year ending June 30, 1992. The Association overestimated the interest
associated with the Internal Revenue Service federal income tax adjustments
for the years noted. As a result, the Association received a refund of
interest of $95,000 which was included in noninterest income for the year
ended June 30, 1993. During the four months ended October 31, 1996, the
Association accrued $456,000 as a result of a special SAIF deposit insurance
assessment.
(4) Quality Ratios are end of period ratios. With the exception of end of period
ratios, all ratios are based on average monthly balances during the
indicated periods and are annualized where appropriate.
(5) The average interest rate spread represents the difference between the
weighted average yield on interest-earning assets and the weighted averaged
cost of interest-bearing liabilities.
(6) The net interest margin represents net interest income as a percent of
average interest-earning assets.
(7) Non-performing assets consist of non-performing loans and foreclosed assets.
Non-performing loans consist of all accruing loans 90 days or more past due
and all non-accrual loans.
(8) Gross loans receivable are stated at unpaid principal balances.
12
<PAGE>
RISK FACTORS
The following factors, in addition to those discussed elsewhere in this
Prospectus, should be considered by investors before deciding whether to
purchase the Common Stock offered in the Subscription and Community Offering.
Non-Traditional Lending Activities
As a part of its effort to provide more comprehensive financial
services to families and community businesses in its primary market area, obtain
higher yields on its lending portfolio and reduce its vulnerability to changes
in interest rates, the Association has, during the last five years, offered loan
products other than traditional one- to four-family residential loans. Included
among these diversified loans are construction, commercial real estate,
consumer, land, multi-family, and commercial business loans. While such loans
are generally more interest rate sensitive and carry higher yields than do
residential loans, they are generally believed to carry a higher level of credit
risk than do residential loans. In addition, diversified loans are generally
more expensive to administer than are residential loans. At October 31, 1996,
the Association's allowance for loan losses was 28.3% of its non-performing
loans, and the Association had $1.2 million of non-performing assets
(representing 1.3% of total assets). There can be no assurance that the
Association will not be required to make additional provisions for loan losses
in the future that may have a material adverse impact on operations. See
"Business - Lending Activities" and "-Delinquencies and Non-Performing Assets."
Vulnerability to Changes in Interest Rates
The Association's profitability, like that of many financial
institutions, is dependent to a large extent upon its net interest income, which
is the difference between its interest income on interest-earning assets, such
as loans and investments, and its interest expense on interest-bearing
liabilities, such as deposits. When interest-bearing liabilities mature or
reprice more quickly than interest-earning assets in a given period, a
significant increase in market rates of interest could adversely affect net
interest income. Similarly, when interest-earning assets mature or reprice more
quickly than interest-bearing liabilities, falling interest rates could result
in a decrease in net interest income. At October 31, 1996, fixed-rate loans
totalled $23.2 million or 26.4% of the Association's loan portfolio while
adjustable-rate loans totalled $64.8 million or 73.6% of the Association's loan
portfolio. Notwithstanding the relatively small size of the Association's fixed
rate loan portfolio, the Association would still likely experience a decrease in
net income in the event of an increase in general interest rates. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Asset and Liability Management."
Competition
The Association experiences strong competition in its local market area
in both originating loans and attracting deposits. This competition arises from
a highly competitive market area with numerous savings institutions and
commercial banks, as well as credit unions, mortgage bankers and national and
local securities firms. The Association recognizes its need
13
<PAGE>
to monitor competition and modify its products and services as necessary and
possible, taking into consideration the cost impact. As a result, such
competition may limit Peoples Federal's growth and profitability in the future.
See "Business - Competition" and "- Originations, Purchases and Sales of Loans."
Geographical Concentration of Loans
At October 31, 1996, substantially all of the Association's real estate
mortgage loans were secured by properties located in the Association's market
area of Shelby County and its contiguous counties in Ohio. While the Association
currently believes that its loans are adequately secured or reserved for, in the
event that real estate prices in the Association's market area substantially
weaken or economic conditions in its market area deteriorate, reducing the value
of properties securing the Association's loans, some borrowers may default and
the value of the real estate collateral may be insufficient to fully secure the
loan. In either event, the Association may experience increased levels of
delinquencies and related losses having an adverse impact on net income.
Certain Anti-Takeover Provisions
Certain provisions of the Holding Company's certificate of
incorporation and bylaws, including a provision limiting voting rights of
beneficial owners of more than 10% of the Common Stock, and Peoples Federal's
stock charter and bylaws as well as certain Delaware laws and regulations, will
assist the Holding Company in maintaining its status as an independent publicly
owned corporation and may have certain anti-takeover effects. See "Restrictions
on Acquisition of Stock and Related Takeover Defensive Provisions."
Certificate of Incorporation and Bylaws of the Holding Company. The
Holding Company's certificate of incorporation and bylaws provide for, among
other things, a limit on voting more than 10% of the Common Stock described
above, staggered terms for members of its Board of Directors, noncumulative
voting for directors, limits on the calling of special meetings of stockholders
and director nominations, a fair price or supermajority stockholder approval
requirement for certain business combinations and certain shareholder proposal
notice requirements.
Federal Stock Charter of the Association. Provisions in Peoples
Federal's federal stock charter that have an anti-takeover effect could also be
applicable to changes in control of the Holding Company as the sole shareholder
of the Association. Peoples Federal's federal stock charter will include a
provision applicable for five years which prohibits the acquisition or offer to
acquire directly or indirectly the beneficial ownership of more than 10% of
Peoples Federal's securities by any person or entity other than the Holding
Company. Any person violating this restriction may not vote Peoples Federal's
securities in excess of 10%.
These provisions in the Holding Company's and Peoples Federal's
governing instruments may discourage potential proxy contests and other takeover
attempts by making the Holding Company less attractive to a potential acquiror,
particularly those takeover attempts which have not been negotiated with the
Board of Directors of the Holding Company and/or Peoples Federal, as the case
may be. These provisions may also have the effect of discouraging a future
14
<PAGE>
takeover attempt which would not be approved by the Holding Company's Board, but
pursuant to which stockholders may receive a substantial premium for their
shares over then current market prices. As a result, stockholders who might
desire to participate in such a transaction may not have any opportunity to do
so. In addition, certain of these provisions that limit the ability of persons
(including management or others) owning more than 10% of the shares to vote
their shares will be enforced by the Board of Directors of the Holding Company
or Peoples Federal, as the case may be, to limit the voting rights of 10% or
greater stockholders and thus could have the effect in a proxy contest or other
solicitation to defeat a proposal that is desired by the holders of a majority
of the shares of Common Stock.
Federal Law and Regulations. Federal law also requires OTS approval
prior to the acquisition of "control" (as defined in OTS regulations) of an
insured institution, including a holding company thereof. In the event any
person or group of persons acquires shares in violation of these limitations,
such person or group may be restricted from voting his shares in excess of 10%
of the outstanding Common Stock. Such laws and regulations may also limit a
person's ability without regulatory approval to solicit proxies enabling him to
elect one third or more of the Holding Company's Board of Directors or exert a
controlling influence on the operations of Peoples Federal or the Holding
Company.
In addition, certain of these provisions may limit the ability of
persons (including management or others) owning more than 10% of the shares to
vote their shares (by proxy or otherwise) for proposals that they believe to be
in the best interests of shareholders. See "Management of the Association -
Benefit Plans," "Description of Capital Stock" and "Restrictions on Acquisitions
of Stock and Related Takeover Defensive Provisions."
Voting Control of Shares by the Board, Management and Employee Plans
The proposed purchases by the Board of Directors, management and
employees in the Subscription and Community Offerings could render it more
difficult to obtain majority support for stockholder proposals opposed by the
Board and management. Assuming the sale of shares at the minimum, midpoint and
maximum of the Estimated Valuation Range, the proposed purchases of $1,745,000
of shares of the Common Stock by the Board and the executive officers would
represent 16.4%, 14.0% and 12.1%, respectively, of the shares to be outstanding
upon completion of the Stock Conversion. In addition, the ESOP intends to
purchase 8% of the shares of Common Stock sold in the Subscription and Community
Offerings. (Prior to allocation, shares held by the ESOP will be voted by the
independent trustee in its sole discretion.) See "Management - Benefit Plans,"
"Description of Capital Stock" and "Takeover Defensive Provisions."
Low Return on Equity
As a result of the Association's high capital levels and the additional
capital that will be raised in the Conversion, its ability to leverage quickly
the net proceeds from the Conversion is likely to be limited. Accordingly, for
the near term, return on equity is likely to be low.
15
<PAGE>
ESOP Compensation Expense
In November, 1993, the American Institute of Certified Public
Accountants ("AICPA") issued Statement of Position 93-6 "Employers' Accounting
for Employee Stock Ownership Plans" ("SOP 93-6"). SOP 93-6 requires an employer
to record compensation expense in an amount equal to the fair value of shares
committed to be released to employees from an employee stock ownership plan.
Assuming shares of Common Stock appreciate in value over time, the adoption of
SOP 93-6 will increase compensation expense relating to the ESOP to be
established in connection with the Conversion. It is impossible to determine at
this time the extent of such impact on future net income.
Absence of Prior Market for Common Stock
Peoples Federal, as a mutual thrift institution, and the Holding
Company, as a newly organized company, have never issued capital stock.
Consequently, there is not at this time an existing market for the Common Stock.
The Holding Company has applied to have the Common Stock quoted on the Nasdaq
National Stock Market under the symbol "PSFC" upon completion of the Conversion
and expects to receive approval to be so quoted prior to the completion of the
Conversion.
There can be no assurance that an active and liquid market for the
Common Stock will develop or be maintained, or that resales of the Common Stock
can be made at or above the conversion offering price after the completion of
the Conversion. See "Market for Common Stock."
A public trading market having the desirable characteristics of depth,
liquidity and orderliness depends upon the presence in the marketplace of both
willing buyers and sellers of the Common Stock at any given time. Accordingly,
there can be no assurance that an active and liquid market for the Common Stock
will develop or be maintained or that resales of the Common Stock can be made at
or above the Purchase Price. See "Market for Common Stock" and "The Conversion -
Stock Pricing and Number of Shares to be Issued."
Proposed Federal Legislation
The United States Congress is considering legislation that would
require all federal thrift institutions, such as Peoples Federal, to either
convert to a national bank or a state chartered financial institution by a
specified date to be determined. In addition, under the legislation the Holding
Company would not be regulated as a thrift holding company, but rather as a bank
holding company. The OTS would also be abolished and its functions transferred
among the other federal banking regulators. Certain aspects of the legislation
remain to be resolved and therefore no assurance can be given as to whether or
in what form the legislation will be enacted or its effect on the Holding
Company and the Association.
Risk of Delay
The Subscription and Community Offering will expire at 5:00 p.m.,
Sidney, Ohio time on ______ ___, 1997 unless extended by the Association and the
Holding Company. However,
16
<PAGE>
unless waived by the Holding Company or the Association, all orders will be
irrevocable unless the Conversion is not completed by ______ __, 1997. In the
event the Conversion is not completed by ______ __, 1997, subscribers will have
the right to modify or rescind their subscriptions and to have their
subscription funds returned with interest.
USE OF PROCEEDS
Although the actual net proceeds from the sale of the Common Stock
cannot be determined until the Conversion is completed, it is presently
anticipated that such net proceeds will be between $10.1 million and $13.8
million (or up to $16.0 million in the event of an increase in the aggregate pro
forma market value of the Common Stock of up to 15% above the maximum of the
Estimated Valuation Range. See "Pro Forma Data" and "The Conversion Stock
Pricing and Number of Shares to be Issued" as to the assumptions used to arrive
at such amounts.
The net proceeds from the sale of the Common Stock in the Conversion
will substantially increase the capital of Peoples Federal and will be used for
general corporate purposes including its lending and investment activities and
possible expansion of its facilities. For information on the amount of pro forma
net proceeds assuming the sale of various amounts of Common Stock, see "Pro
Forma Data."
While the new capital resulting from the Conversion could increase the
Association's return on assets (as a result of the earnings on the new capital),
it will probably result in a decline in return on equity because it is unlikely
that the Association will quickly be able to (i) invest the new capital in
assets with rates equal to the average rates earned on the Association's
seasoned asset portfolio and (ii) leverage the new capital by increasing
liabilities to fund asset growth.
In exchange for all of the common stock of Peoples Federal issued upon
conversion, the Holding Company will contribute to Peoples Federal approximately
50% of the net proceeds from the sale of the Holding Company's Common Stock and
the Holding Company will retain the remaining 50% of the net proceeds. On an
interim basis, the proceeds will be invested by the Holding Company and Peoples
Federal in short-term investments or to repay borrowings. Such short-term
investments are generally anticipated to be similar to those currently contained
in the Association's portfolio. The specific types and amounts of short-term
assets will be determined based on market conditions at the time of the
completion of the Conversion. In addition, the Holding Company, subject to
regulatory approval, is expected to provide the funding for the ESOP loan. See
"Business - Lending Activities" and " - Investment Activities" and "Management
of the Association - Benefit Plans - Employee Stock Ownership Plan."
In the future the Holding Company may consider the adoption of a
restricted stock plan (i.e., the RRP), at the earliest, one-year following the
Conversion and subject to stockholder ratification. If such a plan is
implemented, the Holding Company may use a portion of the net proceeds to fund
the purchase by the plan of the Holding Company's Common Stock.
17
<PAGE>
After the completion of the Conversion, it is anticipated that the
Association will reinvest the proceeds of the interim short-term investments in
loans and, to a lesser extent, investment securities. Proceeds reinvested in
loans are anticipated to be allocated among the Association's loan programs in
proportions similar to recent lending volumes, provided suitable opportunities
are available to the Association. Investment securities are anticipated to be
similar to those in the Association's current portfolio. However, the
reinvestment of the proceeds will be based on future market conditions and
investment opportunities. The timing and amount of such investments cannot now
be determined nor can the Association identify the specific assets in which
investments will be made.
The proceeds may also be utilized by the Holding Company to repurchase
(at prices which may be above or below the initial offering price) shares of the
Common Stock through an open market repurchase program available to all
stockholders subject to limitations contained in OTS regulations, although the
Holding Company currently has no specific plan to repurchase any of its stock.
In the future, the Board of Directors of the Holding Company will make decisions
on the repurchase of the Common Stock based on its view of the appropriateness
of the price of the Common Stock as well as the Holding Company's and the
Association's investment opportunities and capital needs. Under current OTS
regulations, no repurchases may be made within the first year following
Conversion except with OTS approval under "exceptional circumstances." During
the second and third years following Conversion, OTS regulations permit, subject
to certain limitations, the repurchase of up to 5% of the outstanding shares of
stock during each twelve-month period with a greater amount permitted with OTS
approval. In general, the OTS regulations do not restrict repurchases thereafter
other than indirectly by virtue of limits on the Association's ability to pay
dividends to the Holding Company which may be necessary to fund the repurchase.
For a description of the restrictions on the Association's ability to provide
the Holding Company with funds through dividends or other distributions, see
"Dividends" and "The Conversion -Restrictions on Repurchase of Stock."
The Holding Company or Peoples Federal may consider expansion through
the acquisition of other financial services providers (or branches, deposits or
assets thereof), although there are no specific plans, negotiations or written
or oral agreements regarding any acquisitions at this time. In general, the
Board will evaluate acquisition and diversification opportunities, if any, by
whether they would enhance the Holding Company's and the Association's ability
to fulfill their financial goals. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations." The Holding Company may use
remaining net proceeds to engage in activities not permissible for the
Association. See "Regulation - Holding Company Regulation."
DIVIDENDS
The Holding Company's Board of Directors may consider a policy of
paying cash dividends on the Common Stock in the future. The declaration and
payment of dividends are subject to, among other things, the Holding Company's
financial condition and results of operations, the Association's regulatory
capital requirements, tax considerations, industry
18
<PAGE>
standards, economic conditions, regulatory restrictions, general business
practices and other factors.
It is not presently anticipated that the Holding Company will conduct
significant operations independent of those of Peoples Federal for some time
following Conversion. Therefore, the Holding Company does not expect to have any
significant source of income other than earnings on the net Conversion proceeds
retained by the Holding Company (which proceeds are currently estimated to range
from $10.1 million to $13.8 million based on the minimum and the maximum of the
Estimated Valuation Range, respectively) and dividends from Peoples Federal, if
any. Consequently, the ability of the Holding Company to pay cash dividends to
its stockholders will be dependent upon such retained proceeds and earnings
thereon, and upon the ability of Peoples Federal to pay dividends to the Holding
Company. See "Description of Capital Stock - Holding Company Capital Stock -
Dividends." Peoples Federal, like all savings associations regulated by the OTS,
is subject to certain restrictions on the payment of dividends based on its net
income, its capital in excess of the regulatory capital requirements and the
amount of regulatory capital required for the liquidation account to be
established in connection with the Conversion. At October 31, 1996, the
Association had available $4.9 million (without giving effect to any proceeds
received upon Conversion or the requirement to maintain a liquidation account
upon Conversion for the benefit of depositors) which could be distributed
pursuant to OTS regulations. See "The Conversion - Effects of Conversion to
Stock Form on Depositors and Borrowers of the Association - Liquidation Rights
in Proposed Converted Institution" and "Regulation - Regulatory Capital
Requirements" and "- Limitations on Dividends and Other Capital Distributions."
Earnings allocated to Peoples Federal's "excess" bad debt reserves and deducted
for federal income tax purposes cannot be used by Peoples Federal to pay cash
dividends to the Holding Company without adverse tax consequences. See
"Regulation - Federal and State Taxation."
MARKET FOR COMMON STOCK
Peoples Federal, as a mutual thrift institution, and the Holding
Company, as a newly organized company, have never issued capital stock.
Consequently, there is not at this time an existing market for the Common Stock.
The Holding Company has applied to have the Common Stock quoted on the Nasdaq
National Stock Market under the symbol "PSFC" upon completion of the Conversion.
In order to be quoted in the Nasdaq National Stock Market, there must be at
least three market makers for the Common Stock. Keefe, Bruyette & Woods, Inc.
has agreed to act as a market maker in the Holding Company's Common Stock. The
Holding Company anticipates that it will be able to secure two other market
makers to enable the stock to be quoted on the Nasdaq National Stock Market.
However, a public trading market having the desirable characteristics of depth,
liquidity and orderliness depends upon the presence in the marketplace of both
willing buyers and sellers of the Common Stock at any given time. Accordingly,
there can be no assurance that an active and liquid market for the Common Stock
will develop or be maintained or that resales of the Common Stock can be made at
or above the Purchase Price. See also, "The Conversion - Stock Pricing and
Number of Shares to be Issued."
19
<PAGE>
PRO FORMA DATA
The following table sets forth the historical net income and retained
earnings of Peoples Federal at and for the year ended June 30, 1996 and at and
for the four months ended October 31, 1996 and, after giving effect to the
Conversion, the pro forma consolidated net income, capital stock and
stockholders' equity of the Holding Company at and for the year ended June 30,
1996 and at and for the four months ended October 31, 1996. The pro forma data
is computed on the assumptions that (i) the specified number of shares of Common
Stock was sold at the beginning of the specified periods and yielded net
proceeds to the Holding Company as indicated, (ii) 50% of such net proceeds were
retained by the Holding Company and the remainder were used to purchase all of
the stock of Peoples Federal, and (iii) such net proceeds, less the amount of
the ESOP funding, were invested by the Association and Holding Company at the
beginning of the periods to yield a net after-tax return of 3.66% and 3.62% for
the year ended June 30, 1996 and for the four months ended October 31, 1996,
respectively. The assumed return is based on the one year treasury bills, as
adjusted for applicable federal taxes totalling 34.0% of such assumed returns.
The use of this current rate is viewed to be more relevant in the current low
rate environment than the use of an arithmetic average of the weighted average
yield earned by the Association on its interest-earning assets and the weighted
average rate paid on its deposits during such periods. In calculating the
underwriting fees, the table assumes that (i) no commission was paid on
$1,745,000 of shares sold to directors and officers, (ii) 8% of the total shares
sold in the Conversion were sold to the ESOP at no commission, (iii) the
remaining shares were sold at a 1.5% commission. (These assumptions represent
management's estimate as to the distribution of stock orders in the Conversion.
However, there can be no assurance that such estimate will be accurate and that
a greater proportion of shares will not be sold at a higher commission, thus
increasing offering expenses.) Fixed expenses are estimated to be $358,000.
Actual Conversion expenses may be more or less than those estimated because the
fees paid to Webb and other brokers will depend upon the categories of
purchasers, the Purchase Price and market conditions and other factors. The pro
forma net income amounts derived from the assumptions set forth herein should
not be considered indicative of the actual results of operations of the Holding
Company that would have been attained for any period if the Conversion had been
actually consummated at the beginning of such period, and the assumptions
regarding investment yields should not be considered indicative of the actual
yields expected to be achieved during any future period.
The total number of shares to be issued in the Conversion may be
increased or decreased significantly, and/or the price per share decreased, to
reflect changes in market and financial conditions prior to the close of the
Subscription and Community Offering. However, if the aggregate Purchase Price of
the Common Stock sold in the Conversion is below $10.6 million (the minimum of
the Estimated Valuation Range) or more than $16.5 million (15% above the
Estimated Valuation Range), subscribers will be offered the opportunity to
modify or cancel their subscriptions. See "The Conversion - Stock Pricing and
Number of Shares to be Issued."
20
<PAGE>
<TABLE>
<CAPTION>
At or For the Four Months Ended October 31, 1996
--------------------------------------------------------------
15%
Above
Minimum Midpoint Maximum Maximum
1,062,500 1,250,000 1,437,500 1,653,125
Shares at Shares at Shares at Shares at
$10.00 per $10.00 per $10.00 per $10.00 per
Share Share Share Share
----------- ----------- ----------- -----------
(Dollars in Thousands, Except Per Share Amounts)
<S> <C> <C> <C> <C>
Gross proceeds .................................. $ 10,625 $ 12,500 $ 14,375 $ 16,531
Less offering expenses and commissions .......... (478) (504) (530) (560)
----------- ----------- ----------- -----------
Estimated net conversion proceeds(1) ........... 10,147 11,996 13,845 15,971
Less ESOP funding ............................... (850) (1,000) (1,150) (1,322)
----------- ----------- ----------- -----------
Estimated proceeds available for investment .... $ 9,297 $ 10,996 $ 12,695 $ 14,649
=========== =========== =========== ===========
Net Income (loss):
Historical .................................... $ (25) $ (25) $ (25) $ (25)
Pro Forma Adjustments:
Net earnings from proceeds(2) ................ 112 133 153 177
ESOP(3) ...................................... (19) (22) (25) (29)
----------- ----------- ----------- -----------
Pro forma net income ....................... $ 68 $ 86 $ 103 $ 123
=========== =========== =========== ===========
Net Income (loss) Per Share:
Historical(4) ............................... $ (0.02) $ (0.02) $ (0.02) $ (0.02)
Pro forma Adjustments:
Net earnings from proceeds ................. 0.11 0.12 0.12 0.12
ESOP(3) .................................... (0.02) (0.02) (0.02) (0.02)
----------- ----------- ----------- -----------
Pro forma net income per share ......... $ 0.07 $ 0.08 $ 0.08 $ 0.08
=========== =========== =========== ===========
Pro forma price to earnings per share (P/E ratio) 47.62x 41.67x 41.67x 41.67x
Number of shares ................................ 980,333 1,153,333 1,326,333 1,525,283
Stockholders' Equity (Book Value)(5):
Historical .................................... $ 9,188 $ 9,188 $ 9,188 $ 9,188
Pro Forma Per Share Adjustments:
Estimated net Conversion proceeds ............. 10,147 11,996 13,845 15,971
Less common stock acquired by:
ESOP(3) ...................................... (850) (1,000) (1,150) (1,322)
----------- ----------- ----------- -----------
Pro forma stockholder's equity ........... $ 18,485 $ 20,184 $ 21,883 $ 23,837
=========== =========== =========== ===========
Stockholders' Equity (Book Value)(5):
Per Share(4):
Historical .................................... $ 8.65 $ 7.35 $ 6.39 $ 5.56
Pro Forma Per Share Adjustments:
Estimated net Conversion proceeds ............. 9.55 9.60 9.63 9.66
Less common stock acquired by:
ESOP(3) ...................................... (0.80) (0.80) (0.80) (0.80)
----------- ----------- ----------- -----------
Pro forma book value per share ........... $ 17.40 $ 16.15 $ 15.22 $ 14.42
=========== =========== =========== ===========
Pro forma price to book value ................... 57.47% 61.92% 65.70% 69.35%
Number of shares ................................ 1,062,500 1,250,000 1,437,500 1,653,125
</TABLE>
21
<PAGE>
<TABLE>
<CAPTION>
At or For the Four Months Ended October 31, 1996
--------------------------------------------------------------
15%
Above
Minimum Midpoint Maximum Maximum
1,062,500 1,250,000 1,437,500 1,653,125
Shares at Shares at Shares at Shares at
$10.00 per $10.00 per $10.00 per $10.00 per
Share Share Share Share
----------- ----------- ----------- -----------
(Dollars in Thousands, Except Per Share Amounts)
<S> <C> <C> <C> <C>
Gross proceeds .................................. $ 10,625 $ 12,500 $ 14,375 $ 16,531
Less offering expenses and commissions .......... (478) (504) (530) (560)
----------- ----------- ----------- -----------
Estimated net conversion proceeds(1) ........... 10,147 11,996 13,845 15,971
Less ESOP funding ............................... (850) (1,000) (1,150) (1,322)
----------- ----------- ----------- -----------
Estimated proceeds available for investment .... $ 9,297 $ 10,996 $ 12,695 $ 14,649
=========== =========== =========== ===========
Net Income:
Historical .................................... $ 852 $ 852 $ 852 $ 852
Pro Forma Adjustments:
Net earnings from proceeds(2) ................ 341 402 465 536
ESOP(3) ...................................... (56) (66) (76) (87)
----------- ----------- ----------- -----------
Pro forma net income ....................... $ 1,136 $ 1,188 $ 1,241 $ 1,301
=========== =========== =========== ===========
Net Income Per Share:
Historical(4) ............................... $ 0.86 $ 0.73 $ 0.64 $ 0.56
Pro forma Adjustments:
Net earnings from proceeds ................. 0.35 0.35 0.35 0.35
ESOP(3) .................................... (0.06) (0.06) (0.06) (0.06)
----------- ----------- ----------- -----------
Pro forma net income per share ......... $ 1.15 $ 1.02 $ 0.93 $ 0.85
=========== =========== =========== ===========
Pro forma price to earnings per share (P/E ratio) 8.69x 9.80x 10.75x 11.76x
Number of shares ................................ 986,000 1,160,000 1,334,000 1,534,100
Stockholders' Equity (Book Value)(5):
Historical .................................... $ 9,213 $ 9,213 $ 9,213 $ 9,213
Pro Forma Per Share Adjustments:
Estimated net Conversion proceeds ............. 10,147 11,996 13,845 15,971
Less common stock acquired by:
ESOP(3) ...................................... (850) (1,000) (1,150) (1,322)
----------- ----------- ----------- -----------
Pro forma stockholder's equity ........... $ 18,510 $ 20,209 $ 21,908 $ 23,862
=========== =========== =========== ===========
Stockholders' Equity (Book Value)(5):
Per Share(4):
Historical .................................... $ 8.67 $ 7.37 $ 6.41 $ 5.57
Pro Forma Per Share Adjustments:
Estimated net Conversion proceeds ............. 9.55 9.60 9.63 9.66
Less common stock acquired by:
ESOP(3) ...................................... (0.80) (0.80) (0.80) (0.80)
----------- ----------- ----------- -----------
Pro forma book value per share ........... $ 17.42 $ 16.17 $ 15.24 $ 14.43
=========== =========== =========== ===========
Pro forma price to book value ................... 57.41% 61.84% 65.62% 69.30%
Number of shares ................................ 1,062,500 1,250,000 1,437,500 1,653,125
</TABLE>
<PAGE>
(1) It is assumed that the cost of the ESOP will be funded from the net proceeds
retained by the Holding Company.
(2) No effect has been given to withdrawals from savings accounts for the
purpose of purchasing Common Stock in the Conversion. For purposes of
calculating pro forma net income, proceeds attributable to purchases by the
ESOP, which purchases are to be funded by the Holding Company and the
Association, have been deducted from net proceeds.
(3) It is assumed that 8% of the shares of Common Stock offered in the
Conversion will be purchased by the ESOP. The funds used to acquire such
shares are expected to be borrowed by the ESOP from the net proceeds from
the Conversion retained by the Holding Company. The Association intends to
make contributions to the ESOP in amounts at least equal to the principal
and interest requirement of the debt. The Association's payment of the ESOP
debt is based upon equal installments of principal and interest over a
10-year period. However, assuming the Holding Company makes the ESOP loan,
interest income earned by the Holding Company on the ESOP debt will offset
the interest paid by the Association. Accordingly, only the principal
payments on the ESOP debt are
22
<PAGE>
recorded as an expense (tax-effected) to the Holding Company on a
consolidated basis. The amount of ESOP debt is reflected as a reduction of
stockholders' equity. In the event that the ESOP were to receive a loan from
an independent third party, both ESOP expense and earnings on the proceeds
retained by the Holding Company would be expected to increase.
For purposes of this table, the Purchase Price of $10.00 was utilized to
calculate ESOP expense. The Holding Company intends to record compensation
expense related to the ESOP in accordance with Statement of Accounting
Principles 93-6 ("SOP 93-6"). As a result, to the extent the value of the
Common Stock appreciates over time, compensation expense related to the ESOP
will increase. SOP 93-6 also requires that, for the earnings per share
computations for leveraged ESOPs, outstanding shares include only such
shares as have been committed to be released to participants. See
"Management of the Association - Benefit Plans - Employee Stock Ownership
Plan."
(4) Historical pro forma per share amounts have been computed as if the shares
of Common Stock indicated had been outstanding at the beginning of the
periods or on the dates shown, but without any adjustment of historical net
income or historical equity to reflect the investment of the estimated net
proceeds of the sale of shares in the Conversion as described above. All
ESOP shares have been considered outstanding for purposes of computing book
value per share. Pro forma share amounts have been computed by dividing the
pro forma net income or stockholders' equity (book value) by the number of
shares indicated.
(5) "Book value" represents the difference between the stated amounts of the
Association's assets (based on historical cost) and liabilities computed in
accordance with generally accepted accounting principles. The amounts shown
do not reflect the effect of the Liquidation Account which will be
established for the benefit of Eligible and Supplemental Eligible Account
Holders in the Conversion, or the federal income tax consequences of the
restoration to income of the Association's special bad debt reserves for
income tax purposes which would be required in the unlikely event of
liquidation. See "The Conversion - Effects of Conversion to Stock Form on
Depositors and Borrowers of the Association" and "Regulation - Federal and
State Taxation." The amounts shown for book value do not represent fair
market values or amounts, if any, distributable to stockholders in the
unlikely event of liquidation.
23
<PAGE>
PRO FORMA REGULATORY CAPITAL ANALYSIS
At October 31, 1996, the Association exceeded each of the three OTS
capital requirements. Set forth below is a summary of the Association's
compliance with the OTS capital standards as of October 31, 1996 on a historical
basis, in accordance with generally accepted accounting principles ("GAAP"), and
on a pro forma basis using the assumptions contained under the caption "Pro
Forma Data" and assuming that the indicated number of shares were sold as of
such date.
<TABLE>
<CAPTION>
Pro Forma at
October 31, 1996
----------------------
1,062,500 Shares
Historical Minimum
Amount Percent(1) Amount Percent(1)
---------------------------------------------------
<S> <C> <C> <C> <C>
GAAP Capital(2)............ $9,188 10.2% $13,412 14.2%
====== ==== ======= =====
Tangible Capital:
Capital level............ $9,188 10.2% $13,412 14.2%
Requirement.............. 1,351 1.5 1,414 1.5
------ ----- -------- -----
Excess................... $7,837 8.7% $11,998 12.7%
====== ===== ======= =====
Core Capital:
Capital level............ $9,188 10.2% $13,412 14.2%
Requirement.............. 2,701 3.0 2,828 3.0
------ ----- -------- -----
Excess................... $6,487 7.2% $10,584 11.2%
====== ===== ======= =====
Risk-Based Capital:
Capital level(3)......... $9,514 16.5% $13,738 23.4%
Requirement(4)........... 4,627 8.0 4,694 8.0
------ ----- -------- -----
Excess................... $4,887 8.5% $ 9,044 15.4%
====== ===== ======= =====
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Pro Forma at October 31, 1996
---------------------------------------------------------------------------
1,653,125 Shares
1,250,000 Shares 1,437,500 Shares 15% above
Midpoint Maximum Maximum
Amount Percent(1) Amount Percent(1) Amount Percent(1)
-----------------------------------------------------------------------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
GAAP Capital(2)............ $14,186 14.9% $14,961 15.6% $15,851 16.4%
======= ==== ======= ==== ======= =====
Tangible Capital:
Capital level............ $14,186 14.9% $14,961 15.6% $15,851 16.4%
Requirement.............. 1,426 1.5 1,437 1.5 1,451 1.5
-------- ----- -------- ----- -------- -----
Excess................... $12,760 13.4% $13,524 14.1% $14,400 14.9%
======= ==== ======= ===== ======= =====
Core Capital:
Capital level............ $14,186 14.9% $14,961 15.6% $15,851 16.4%
Requirement.............. 2,851 3.0 2,875 3.0 2,901 3.0
-------- ---- -------- ----- -------- -----
Excess................... $11,335 11.9% $12,086 12.6% $12,950 13.4%
======= ==== ======= ===== ======= =====
Risk-Based Capital:
Capital level(3)......... $14,512 24.7% $15,287 25.9% $16,177 27.3%
Requirement(4)........... 4,706 8.0 4,719 8.0 4,733 8.0
-------- ----- -------- ----- -------- -----
Excess................... $ 9,806 16.7% $10,568 17.9% $11,444 19.3%
======= ===== ======= ==== ======= ====
</TABLE>
- --------------------
(1) Tangible and core capital levels are shown as a percentage of adjusted total
assets; risk-based capital levels are shown as a percentage of risk-weighted
assets.
(2) Total retained earnings as calculated under GAAP. Assumes that the
Association receives 50% of the net proceeds, offset in part by the
aggregate purchase price of Common Stock acquired at $10.00 per share by the
ESOP in the Conversion. The amount expected to be borrowed by the ESOP is
deducted from pro forma capital to illustrate the possible impact on the
Association.
(3) Includes $326,000 of general valuation allowances, all of which qualify as
supplementary capital. See "Regulation - Regulatory Capital Requirements."
(4) Assumes reinvestment of net proceeds in 20% risk-weighted assets.
24
<PAGE>
CAPITALIZATION
Set forth below is the capitalization, including deposits, of Peoples
Federal as of October 31, 1996, and the pro forma capitalization of the Holding
Company at the minimum, the midpoint, the maximum and 15% above the maximum of
the Estimated Valuation Range, after giving effect to the Conversion and based
on other assumptions set forth in the table and under the caption "Pro Forma
Data."
<TABLE>
<CAPTION>
Holding Company - Pro Forma Based
Upon Sale at $10.00 per share
----------------------------------------------------
Existing 15% Above
Capitalization Minimum Midpoint Maximum Maximum
for 1,062,500 1,250,000 1,437,500 1,653,125
Association Shares Shares Shares Shares
--------------------------------------------------------------------
(In Thousands)
<S> <C> <C> <C> <C> <C>
Deposits(1)................................. $79,879 $79,879 $79,879 $79,879 $79,879
======= ======= ======= ======= =======
Stockholders' Equity:
Serial Preferred Stock ($0.01 par value)
authorized - 500,000 shares; none to be
outstanding............................... $ --- $ --- $ --- $ --- $ ---
Common Stock ($0.01 par value) authorized
- 3,500,000 shares; to be outstanding (as
shown)(2)................................. --- 11 13 14 17
Additional paid-in capital................. --- 10,136 11,983 13,831 15,954
Retained earnings, substantially
restricted(3)............................. 9,188 9,188 9,188 9,188 9,188
Less:
Common Stock acquired by ESOP(4).......... --- 850 1,000 1,150 1,322
---------- -------- -------- ------- --------
Total Stockholders' Equity.................. $ 9,188 $18,485 $20,184 $21,883 $23,837
======= ======= ======= ======= =======
</TABLE>
- -----------------
(1) No effect has been given to withdrawals from deposit accounts for the
purpose of purchasing Common Stock in the Conversion. Any such withdrawals
will reduce pro forma deposits by the amount of such withdrawals.
(2) Does not reflect the shares of Common Stock that may be reserved for
issuance pursuant to the Stock Option Plan.
(3) See "Dividends" and "Regulation - Limitations on Dividends and Other Capital
Distributions" regarding restrictions on future dividend payments and "The
Conversion - Effects of Conversion to Stock Form on Depositors and Borrowers
of the Association" regarding the liquidation account to be established upon
Conversion.
(4) Assumes that 8% of the shares sold in the Conversion will be purchased by
the ESOP. The funds used to acquire the ESOP shares will be borrowed from
the Holding Company. The Association intends to make contributions to the
ESOP sufficient to service and ultimately retire the ESOP's debt. The amount
to be borrowed by the ESOP is reflected as a reduction of stockholders'
equity. See "Management - Benefit Plans - Employee Stock Ownership Plan."
25
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
The following is management's analysis of the financial condition and
the results of operations of Peoples Federal during recent periods. This
discussion is designed to provide a more comprehensive review of the operating
results and financial position than could be obtained from an examination of the
financial statements alone. This analysis should be read in conjunction with the
financial statements and related footnotes and the selected financial data
included elsewhere in this prospectus.
The Association is a financial intermediary primarily engaged in the
business of attracting savings deposits from the general public and investing
such funds in permanent mortgage loans secured by one- to four-family
residential real estate located primarily in Shelby County, Ohio, and to a
lesser extent in the contiguous counties of Logan, Auglaize, Miami, Darke and
Champaign. The Association also originates, to a lesser extent, loans for the
construction of one- to four-family real estate, loans secured by multi-family
real estate (over four units) and nonresidential real estate, and consumer loans
and invests in U.S. government obligations, interest bearing deposits in other
financial institutions and other investments permitted by applicable law.
Financial Condition
Comparison of Financial Condition at October 31, 1996 and June 30,
1996. Total assets at October 31, 1996 were $90.0 million compared to $86.9
million at June 30, 1996, an increase of $3.1 million, or 3.6%. The increase in
total assets was primarily due to increases in loans receivable of $5.5 million,
partially offset by decreases in cash and cash equivalents of $900,000,
investment securities of $500,000 and time deposits with other financial
institutions of $1.0 million. The increase in loans receivable was largely in
one- to four-family residential loans, increasing $3.5 million, and real estate
construction loans, increasing $2.0 million. These increases are reflective of a
strong local economy coupled with attractive construction loan rates and
products compared to the local competition. Consumer loan balances remained
relatively stable, with a only slight increase of $47,000. The decrease in cash
and cash equivalents, investment securities and time deposits with other
financial institutions was the result of the redirection of funds provided from
the maturities of time deposits and investment securities and other available
funds to provide for loan growth.
Total liabilities at October 31, 1996 were $80.8 million compared to
$77.7 million at June 30, 1996, an increase of $3.1 million, or 4.0%. Total
deposits increased $2.6 million from $77.3 million at June 30, 1996 to $79.9
million at October 31, 1996. The growth in total deposits was a combination of
an increase of $4.7 million in certificates of deposit and a $2.1 million
decrease in savings accounts. The movement of funds from savings accounts to
certificates of deposit, as well as the additional growth in certificates, was
the result of several special promotions conducted by the Association. In
addition, accrued expenses and other liabilities increased by $544,000, which
was primarily the result of a special deposit insurance
26
<PAGE>
assessment resulting from legislation passed and enacted into law on September
30, 1996 to recapitalize the Savings Association Insurance Fund ("SAIF") of the
FDIC. For a further discussion of the special assessment, see "- Results of
Operations."
Comparison of Financial Condition at June 30, 1996 and 1995. Total
assets at June 30, 1996 were $86.9 million compared to $79.0 million at June 30,
1995, an increase of $7.9, or 10.0%. Growth in net loans receivable accounted
for $6.3 million of the asset growth increasing from $71.9 million at June 30,
1995 to $78.2 million at June 30, 1996. The growth in loans receivable was
primarily comprised of one- to four-family residential mortgage loans. The
increase is attributable to a new 20-year mortgage loan product which the
Association began offering in fiscal 1996, as well as a strong local economy.
Time deposits with other financial institutions totaled $1.1 million at June 30,
1996 while there were none at June 30, 1995. Additionally, cash and cash
equivalents increased approximately $880,000 from June 30, 1995 to June 30,
1996. These increases are the result of the short-term investment of excess
funds provided by maturities of investment securities and deposit growth.
Total liabilities were $77.7 million at June 30, 1996 compared to $70.6
million at June 30, 1995, an increase of $7.1 million, or $10.1%. Total deposit
accounts increased by $7.0 million from $70.3 million at June 30, 1995 to $77.3
million at June 30, 1996. Deposit growth was primarily limited to certificates
of deposit accounts. The growth was attributable to several interest rate
promotions combined with an increasing interest rate environment.
Equity at June 30, 1996 was $9.2 million compared to $8.4 million at
June 30, 1995. The increase of $852,000, or 10.1% was comprised completely of
the net income for the fiscal year ended June 30, 1996.
Results of Operations
The operating results of the Association are affected by the general
economic conditions, the monetary and fiscal policies of federal agencies and
the regulatory policies of agencies that regulate financial institutions. The
Association's cost of funds is influenced by interest rates on competing
investments and general market rates of interest. Lending activities are
influenced by the demand for real estate loans and other types of loans, which
in turn is affected by the interest rates at which such loans are made, general
economic conditions and the availability of funds for lending activities.
The Association's net income primarily depends upon its net interest
income, which is the difference between the interest income earned on
interest-earning assets, such as loans and securities, and interest expense
incurred on interest-bearing liabilities, such as deposits and other borrowings.
The level of net interest income is dependent upon the interest rate environment
and the volume and composition of interest-earning assets and interest-bearing
liabilities. Net income is also affected by provisions for loan losses, service
charges, gains on the sale of assets and other income, noninterest expense and
income taxes.
27
<PAGE>
Comparison of Results of Operations for the Four Months Ended October 31, 1996
and 1995
Net Income. The Association experienced a net loss of $25,000 for the
four months ended October 31, 1996, compared to net income of $304,000 for the
four months ended October 31, 1995. The decrease in net income was primarily the
result of a special SAIF deposit insurance assessment of $456,000, as more fully
discussed below.
Net Interest Income. Net interest income totaled $951,000 for the four
months ended October 31, 1996, as compared to $942,000 for the four months ended
October 31, 1995, an increase of $9,000, or 1.0%. The change in net interest
income is attributable to higher average balances of interest earning assets
partially offset by an overall increase in the cost of funds for an increased
volume of deposits with a larger portion of the deposit base being in higher
yielding certificates of deposit and an increased level of borrowed funds. See
"-- Yields Earned and Rates Paid."
Interest and fees on loans increased approximately $175,000, or 8.8%,
from $1,992,000 for the four months ended October 31, 1995 to $2,167,000 the
four months ended October 31, 1996. The increase in interest income was due to
higher average loans receivable, partially offset by a decline in the average
yield earned from 8.25% for the four months ended October 31, 1995 to 8.04% for
the four months ended October 31, 1996.
Interest earned on investment securities totaled $44,000 for the four
months ended October 31, 1996, as compared to $51,000 for the four months ended
October 31, 1995. The decrease was a result of lower average balances of
investment securities combined with a decreased yield earned.
Interest on interest-bearing deposits and overnight deposits decreased
approximately $30,000 for the four months ended October 31, 1996, as compared to
the four months ended October 31, 1995. The decline was the result of lower
average balances of interest-bearing deposits and overnight funds, partially
offset by higher rates earned.
Dividends on FHLB stock increased slightly for the four months ended
October 31, 1996, compared to the four months ended October 31, 1995, primarily
due to an increase in the number of shares of FHLB stock owned.
Interest paid on deposits increased approximately $97,000 for the four
months ended October 31, 1996, as compared the four months ended October 31,
1995. The increase in interest expense was due to an increase in average deposit
balances combined with an increase in the cost of funds. The average cost of
deposits increased from 4.88% for the four months ended October 31, 1995, to
4.98% for the four months ended October 31, 1996. The increase in the average
cost of deposits was the result of a shift in deposit accounts from savings and
demand deposit accounts to higher yielding certificates of deposits as a result
of special interest rate promotions for certificates of deposit. Certificates of
deposit increased from 69.9% of total deposits at October 31, 1995 to 73.2% of
total deposits at October 31, 1996. The yield on certificates of deposits was
5.79% for the four months ended October 31, 1995, compared to
28
<PAGE>
5.83% for the four months ended October 31, 1996, while the average yield on
savings and demand deposit accounts remained stable at 2.92% for the same four
month periods.
Interest on the borrowings totaled $33,000 for the four months ended
October 31, 1996. The average yield paid on the borrowings was 5.68%. The
Association borrowed funds for the first time from the FHLB of Cincinnati during
the four months ended October 31, 1996. The borrowings were used as a source of
short-term liquidity to provide funding for loan demand and were repaid prior to
October 31, 1996.
Provision for Loan Losses. The Association maintains an allowance for
loan losses in an amount which, in management's judgment, is adequate to absorb
reasonably foreseeable losses inherent in the loan portfolio. While management
utilizes its best judgment and information available, the ultimate adequacy of
the allowance is dependent upon a variety of factors, including the performance
of the Association's loan portfolio, the economy, changes in real estate values
and interest rates and the view of the regulatory authorities toward loan
classifications. The provision for loan losses is determined by management as
the amount to be added to the allowance for loan losses after net charge-offs
have been deducted to bring the allowance to a level which is considered
adequate to absorb losses inherent in the loan portfolio. The amount of the
provision is based on management's monthly review of the loan portfolio and
consideration of such factors as historical loss experience, general prevailing
economic conditions, changes in the size and composition of the loan portfolio
and specific borrower considerations, including the ability of the borrower to
repay the loan and the estimated value of the underlying collateral.
The provision for loan losses for the four months ended October 31,
1996 totaled $21,000 compared to $8,000 for the four months ended October 31,
1995, an increase of $13,000, or 162.5%. The allowance for loan losses totaled
$326,000, or 0.37% of gross loans receivable and 28.3% of total non-performing
loans at October 31, 1996, compared to $259,000, or 0.35% of gross loans
receivable and 22.5% of total non-performing loans at October 31, 1995. The
increase in the provision for loan losses was attributable to an increase in the
total loan portfolio as well as an increase in the level of non-performing
assets for the four months ended October 31, 1996 as compared to the four months
ended October 31, 1995.
Noninterest income. Noninterest income for the four months ended
October 31, 1996 was $21,000 compared to $16,000 for the four months ended
October 31, 1995, an increase of $5,000, or 31.3%. The increase was primarily a
result of an increase in service fees collected on deposit accounts and other
miscellaneous fees.
Noninterest expense. Noninterest expense was $989,000 for the four
months ended October 31, 1996 compared to $489,000 for the four months ended
October 31, 1995, an increase of $500,000, or 102.2%. The increase was primarily
a result of $456,000 accrued for a special deposit insurance assessment
resulting from legislation passed and enacted into law on September 30, 1996 to
recapitalize the SAIF of the FDIC. The SAIF was below the level required by law
because a significant portion of the assessments paid into the SAIF by thrifts,
like the Association, were used to pay the cost of prior thrift failures. The
legislation called for a one-time assessment of $.0657 for each $100 in deposits
held as of March 31, 1995. As a result of the recapitalization of the SAIF, the
current disparity between bank and thrift insurance
29
<PAGE>
assessments will be reduced. Thrifts had generally been paying assessments of
$.23 per $100 of deposits, which, for most thrifts, will be reduced to $.064 per
$100 in deposits in January 1997 and to $.024 per $100 in deposits no later than
January 2000.
The legislation also provides for the merger of the SAIF and the Bank
Insurance Fund ("BIF") effective January 1, 1999, assuming there are no savings
associations chartered under federal law. Under separate proposed legislation,
Congress is considering the elimination of the federal thrift charter and the
separate federal regulation of thrifts. As a result, the Association would be
required to convert to a different financial institution charter and possibly
become subject to more restrictive activity limits. The Association cannot
predict the impact of any such legislation until it is enacted.
For the four months ended October 31, 1996 as compared to the same
period during 1995, there were no significant changes in the various other
noninterest expense categories.
Income Tax Expense. The volatility of income tax expense is primarily
attributable to the change in net income before income taxes. The provision for
income taxes totaled $(13,000) for the four months ended October 31, 1996
compared to $157,000 for the four months ended October 31, 1995, a decrease of
$170,000, or 108.3%. The decrease was largely due to the tax effect of
$(155,000) for the special assessment discussed above. The effective tax rates
were (34.0)% and 34.0% for the four months ended October 31, 1996 and 1995,
respectively.
Prior to the enactment of legislation discussed below, thrifts which
met certain tests relating to the composition of assets had been permitted to
establish reserves for bad debts and to make annual additions thereto which
could, within specified formula limits, be taken as a deduction in computing
taxable income for federal income tax purposes. The amount of the bad debt
reserve deduction for "nonqualifying loans" was computed under the experience
method. The amount of the bad debt reserve deduction for "qualifying real
property loans" could be computed under either the experience method or the
percentage of taxable income method, based on an annual election.
In August 1996, legislation was enacted that repeals the reserve method
of accounting used by many thrifts to calculate their bad debt reserve for
federal income tax purposes. As a result, small thrifts such as the Association
must recapture that portion of the reserve that exceeds the amount that could
have been taken under the experience method for tax years beginning after
December 31, 1987. The legislation also requires thrifts to account for bad
debts for federal income tax purposes on the same basis as commercial banks for
tax years beginning after December 31, 1995. The recapture will occur over a
six-year period, the commencement of which will be delayed until the first
taxable year beginning after December 31, 1997, provided the institution meets
certain residential lending requirements. At October 31, 1996, the Association
had approximately $607,000 in bad debt reserves subject to recapture for federal
income tax purposes. The deferred tax liability related to the recapture has
been previously established so there will be no effect on future net income.
30
<PAGE>
Comparison of Results of Operations for the Years Ended June 30, 1996 and 1995
Net Income. Net income for the year ended June 30, 1996 was $852,000,
an increase of $17,000, or 2.0%, from net earnings of $835,000 for the year
ended June 30, 1995. The increase was primarily a result of an increase in net
interest income partially offset by increases in noninterest expense and
provision for income taxes.
Net Interest Income. Net interest income increased approximately
$50,000, or 1.8%, from $2,756,000 for the year ended June 30, 1995 compared to
$2,806,000 for the year ended June 30, 1996. The increase in net interest income
was the result of an increase in average balances of higher yielding
interest-earning assets, partially offset by an overall increase in the cost of
funds for an increased volume of deposits with a larger portion of the deposit
base being in higher yielding certificates of deposit. See "-- Yields Earned and
Rates Paid."
Interest and fees on loans increased approximately $644,000, or 11.9%,
from $5,404,000 for the year ended June 30, 1995, to $6,048,000 for the year
ended June 30, 1996. The increase in interest income was due to higher average
loans receivable related to the origination of new one- to four-family
residential real estate loans, combined with an increase in the average yield
earned on loans receivable from 7.78% for the year ended June 30, 1995 to 8.17%
for the year ended June 30, 1996.
Interest earned on investment securities totaled $150,000 for the year
ended June 30, 1996, as compared to $161,000 for the year ended June 30, 1995.
The decrease was a result of lower average balances of investment securities
partially offset by an increase in the yield earned.
Interest on interest-bearing deposits and overnight deposits increased
approximately $149,000, or 123.1%, from $121,000 for the year ended June 30,
1995 to $270,000 for the year ended June 30, 1996. The increase was the result
of higher average balances due to the temporary investment of excess funds
received from deposit growth in short-term time deposits with other financial
institutions and overnight deposits with the FHLB. Additionally, the average
yield earned on such investments increased slightly from 5.33% for the year
ended June 30, 1995 to 5.45% for the year ended June 30, 1996.
Dividends on FHLB stock increased slightly for the year ended June 30,
1996, compared to the year ended June 30, 1995, primarily due to an increase in
the number of shares of FHLB stock owned.
Interest paid on deposits totaled $3,706,000 for the year ended June
30, 1996, as compared to $2,968,000 for the year ended June 30, 1995, an
increase of $738,000, or 24.9%. The increase in interest expense was due to an
increase in average deposit balances combined with an increase in the cost of
funds. The average cost of deposits increased from 4.30% for the year ended June
30, 1995, to 4.94% for the year ended June 30, 1996. The increase in the average
cost of deposits was the result a shift in deposit accounts from savings and
demand deposit accounts to higher yielding certificates of deposits as a result
of special interest rate promotions for certificates of deposit as well as a
general increase in the interest rates on certificates of deposit offered by the
Association. Certificates of deposit increased from 66.8%
31
<PAGE>
of total deposits at June 30, 1995 to 69.5% of total deposits at June 30, 1996.
The yield on certificates of deposits was 5.02% for the year ended June 30,
1995, compared to 5.84% for the year ended June 30, 1996, while the average
yield on savings and demand deposit accounts declined from 2.96% at 2.91% over
the same periods.
Provision for Loan Losses. The provision for loan losses for the year
ended June 30, 1996 was $68,000 compared to $55,000 for the year ended June 30,
1995, an increase of $13,000, or 23.6%. The allowance for loan losses totaled
$307,000, or 0.37% of gross loans receivable and 25.1% of total non-performing
loans at June 30, 1996, compared with $251,000, or 0.33% of gross loans
receivable and 17.7% of total non-performing loans at June 30, 1995. The amount
of the provision and allowance for estimated losses on loans is influenced by
loan volume, current economic conditions, actual loss experience, industry
trends and other factors. The increase in the provision for loan losses was the
result of a higher volume of loans receivable during the year ended June 30,
1996 when compared to the year ended June 30, 1995.
Noninterest income. Noninterest income remained relatively stable
totaling $57,000 for the year ended June 30, 1996, compared to $60,000 for the
year ended June 30, 1995.
Noninterest expense. Noninterest expense increased $8,000, or 0.5%,
from $1,495,000 for the year ended June 30, 1995 to $1,503,000 for the year
ended June 30, 1996. There were no significant changes in the various
noninterest expense categories.
Income Tax Expense. The volatility of income tax expense is primarily
attributable to the change in net income before income taxes. The provision for
income taxes totaled $441,000 for the year ended June 30, 1996, compared to
$432,000 for the year ended June 30, 1995, resulting in an effective tax rate of
34.1% for both years.
Comparison of Results of Operations for the Years Ended June 30, 1995 and 1994
Net Income. Net income for the year ended June 30, 1995 totaled
$835,000, an increase of $249,000, or 42.5%, from net earnings of $586,000 for
the year ended June 30, 1994. The increase was primarily the result of an
increase in net interest income combined with the nonrecurrence of the
cumulative effect of the change in the method for accounting for income taxes
partially offset by an increase in noninterest expense.
Interest and fees on loans increased approximately $653,000, or 13.7%,
from $4,751,000 for the year ended June 30, 1994, to $5,404,000 for the year
ended June 30, 1995. The increase in interest income was due to higher average
loans receivable related to the origination of new one- to four-family
residential real estate loans and consumer loans, combined with an increase in
the average yield earned on loans receivable from 7.32% for the year ended June
30, 1994 to 7.78% for the year ended June 30, 1995.
Interest earned on investment securities totaled $161,000 for the year
ended June 30, 1995, as compared to $180,000 for the year ended June 30, 1994.
The decrease was a result of lower average balances of investment securities
combined with a slight decrease in the yield earned.
32
<PAGE>
Interest on interest-bearing deposits and overnight deposits increased
approximately $8,000, or 7.1%, from $113,000 for the year ended June 30, 1995 to
$121,000 for the year ended June 30, 1996. The increase was the result of an
increase in the average yield earned on such investments from 2.92% for the year
ended June 30, 1994 to 5.28% for the year ended June 30, 1995. The increase in
interest income from the higher yield earned on interest-bearing deposits and
overnight deposits was mostly offset by the decrease in interest income
resulting from a decrease in the average balances of such investments held
during fiscal 1995.
Dividends on FHLB stock increased slightly for the year ended June 30,
1995, compared to the year ended June 30, 1994, primarily due to an increase in
the number of shares of FHLB stock owned.
Interest paid on deposits totaled $2,968,000 for the year ended June
30, 1995, compared to $2,637,000 for the year ended June 30, 1994, an increase
of $331,000, or 12.6%. The increase in interest paid was the combined result of
an increase in the volume of certificates of deposit accounts resulting from
various special promotions and new products offered throughout fiscal 1995 and
an increase in the overall cost of funds. The increase in the overall cost of
funds was a result of consumers shifting funds from lower yielding savings and
demand deposit accounts and shorter-term certificates of deposits to higher
yielding, longer-term certificates of deposit. As such, certificates of deposit
increased from 62.3% of total deposits at June 30, 1994 to 66.8% of total
deposits at June 30, 1995. The yield on certificates of deposits increased from
4.53% for the year ended June 30, 1994, to 5.02% for the year ended June 30,
1995, while the average yield on savings and demand deposit accounts remained
relatively stable increasing from 2.95% to 2.96% over the same periods.
Provision for Loan Losses. The provision for loan losses for the year
ended June 30, 1995 was $55,000 compared to $83,000 for the year ended June 30,
1994, a decrease of $28,000, or 33.7%. The allowance for loan losses totaled
$251,000, or 0.33% of gross loans receivable and 17.7% of total non-performing
loans at June 30, 1995, compared with $198,000, or 0.29% of gross loans
receivable and 12.4% of total non-performing loans at June 30, 1994. The amount
of the provision and allowance for estimated losses on loans is influenced by
loan volume, current economic conditions, actual loss experience, industry
trends and other factors. The provision for loan losses was higher for the year
ended June 30, 1994, as compared to the year ended June 30, 1995, as a result of
a change in the methodology for determining the appropriate level of the
allowance for loan losses. In fiscal 1994, management began allocating a
percentage of the allowance for loan losses to loans which performed pursuant to
their terms in order to recognize the inherent potential of unforeseen risks and
in response to an increase in the size of the loan portfolio. As such,
management increased the provision for fiscal 1994 to bring the allowance for
loan losses to the newly required level.
Noninterest income. Noninterest income remained relatively stable
totaling $60,000 for the year ended June 30, 1995, compared to $65,000 for the
year ended June 30, 1994.
Noninterest expense. Noninterest expense totaled $1,495,000 for the
year ended June 30, 1995, compared to $1,427,000 for the year ended June 30,
1994, an increase of $68,000, or 4.8%. The major components of the increase were
increases in compensation and
33
<PAGE>
benefits expense of $43,000, primarily due to annual merit increases, and a
$17,000 increase in occupancy and equipment expense.
Income Tax Expense. The volatility of income tax expense is primarily
attributable to the change in net income before income taxes. The provision for
income taxes totaled $432,000 for the year ended June 30, 1995 and $334,000 for
the year ended June 30, 1994, resulting in effective tax rates of 34.1% and
33.8%, respectively.
During the year ended June 30, 1994, the Association adopted Statement
of Financial Accounting Standards No. 109, "Accounting for Income Taxes," which
requires the Association to follow the liability method in accounting for income
taxes. The liability method provides that deferred tax assets and liabilities
are recorded based on the difference between the tax basis of assets and
liabilities and their carrying amounts for financial reporting purposes, at
enacted tax rates. The cumulative effect on changing to this method of
accounting was a $69,000 reduction in income in fiscal 1994.
34
<PAGE>
Yields Earned and Rates Paid
The following table sets forth certain information relating to the
Association's average balance sheet information and reflects the average yield
on interest-earning assets and the average cost of interest-bearing liabilities
for the periods indicated. Such yields and costs are derived by dividing income
or expense by the average balances of interest-earning assets or
interest-bearing liabilities, respectively, for the periods presented. Average
balances are derived from average month-end balances. Nonaccruing loans have
been included in the table as loans carrying a zero yield.
<TABLE>
<CAPTION>
Four Months Ended October 31,
1996 1995
--------------------------------- -----------------------------------
Average Interest Average Interest
Outstanding Earned/ Yield/ Outstanding Earned/ Yield/
Balance Paid Rate Balance Paid Rate
---------------------- ---------- ---------------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Interest-Earning Assets:
Loans receivable(1)................ $80,873 $2,167 8.04% $72,397 $1,992 8.25%
Interest-bearing deposits.......... 1,894 36 5.70 3,724 66 5.32
Investment securities(2)........... 2,519 44 5.24 2,799 51 5.47
FHLB stock......................... 672 16 7.14 625 14 6.72
-------- ------- ------- ------
Total interest-earning assets..... $85,958 2,263 7.90 $79,545 2,123 8.01
======= ------ ======= ------
Interest-Bearing Liabilities:
Savings deposits................... $17,988 183 3.05 $18,241 187 3.08
Demand and NOW deposits............ 4,412 35 2.38 4,745 37 2.34
Certificate accounts............... 54,504 1,061 5.83 49,615 957 5.79
Borrowings......................... 1,744 33 5.68 --- --- ---
--------- ------- ------- ------
Total interest-bearing liabilities $78,648 1,312 5.00 $72,601 1,181 4.88
======= ------ ======= ------
Net interest income................. $ 951 $ 942
====== ======
Net interest rate spread(3)......... 2.90% 3.13%
==== ====
Net earning assets.................. $ 7,310 $ 6,944
======= =======
Net interest margin(4)..............
3.32% 3.55%
==== ====
Average interest-earning assets to
average interest-bearing 1.09x 1.10x
liabilities........................ ==== ====
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Year Ended June 30,
1996 1995 1994
------------------------------------------------------------------ -----------------------------
Average Interest Average Interest Average Interest
Outstanding Earned/ Yield/ Outstanding Earned/ Yield/ Outstanding Earned/ Yield/
Balance Paid Rate Balance Paid Rate Balance Paid Rate
---------------------- -------------------------------- ---------- -----------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-Earning Assets:
Loans receivable(1)................ $74,071 $6,048 8.17% $69,453 $5,404 7.78% $64,886 $4,751 7.32%
Interest-bearing deposits.......... 4,849 270 5.57 2,293 121 5.28 3,865 113 2.92
Investment securities(2)........... 2,752 150 5.45 3,020 161 5.33 3,317 180 5.43
FHLB stock......................... 640 45 7.03 591 38 6.43 556 27 4.86
------- ------ ------- ------ ------- ------
Total interest-earning assets..... $82,312 6,513 7.91 $75,357 5,724 7.60 $72,624 5,071 6.98
======= ------ ======= ------ ======= ------
Interest-Bearing Liabilities:
Savings deposits................... $18,484 563 3.05 $19,491 602 3.09 $20,330 628 3.09
Demand and NOW deposits............ 4,580 108 2.36 4,819 118 2.45 5,182 125 2.41
Certificate accounts............... 52,012 3,035 5.84 44,760 2,248 5.02 41,573 1,884 4.53
Borrowings......................... --- --- --- --- --- --- --- --- ---
------- ------ ------- ------ ------- ------
Total interest-bearing liabilities $75,076 3,706 4.94 $69,070 2,968 4.30 $67,085 2,637 3.93
======= ------ ======= ------ ======= ------
Net interest income................. $2,807 $2,756 $2,434
====== ====== ======
Net interest rate spread(3)......... 2.97% 3.30% 3.05%
==== ===== ====
Net earning assets.................. $ 7,236 $ 6,287 $ 5,539
======== ======= ========
Net interest margin(4)..............
3.41% 3.66% 3.35%
==== ===== ====
Average interest-earning assets to
average interest-bearing 1.10x 1.09x 1.08x
liabilities........................ ==== ==== ====
</TABLE>
- -----------------
(1) Amount is net of loans in process, net deferred loan origination fees and
allowance for loan losses and includes non-performing loans.
(2) Includes unamortized discounts and premiums
(3) Net interest rate spread represents the difference between the yield on
interest-earning assets and the cost of interest-bearing liabilities.
(4) Net interest margin represents net interest income divided by average
interest-earning assets.
35
<PAGE>
The following table presents the weighted average yields earned on
loans, investments and other interest-earning assets, and the weighted average
rates paid on savings deposits and the resultant interest rate spreads at the
dates indicated.
<TABLE>
<CAPTION>
At At June 30,
October 31, ----------------------------------
1996 1996 1995 1994
-------------- ----------------------------------
<S> <C> <C> <C> <C>
Weighted average yield on:
Loans receivable.......................................... 7.92% 7.89% 7.98% 7.17%
Time deposits............................................. 5.50 5.68 --- ---
Investment securities..................................... 5.59 5.71 5.73 5.25
Overnight deposits........................................ --- 5.20 6.05 4.90
Interest-bearing checking accounts........................ 5.40 5.10 5.95 4.80
FHLB stock................................................ 7.04 6.96 6.61 5.73
Combined weighted average yield on
interest-earning assets.............................. 7.83 7.72 7.85 6.97
Weighted average rate paid on:
Savings deposits.......................................... 3.05 3.05 3.05 3.05
Demand and NOW deposits................................... 2.42 2.41 2.41 2.42
Certificate accounts...................................... 6.00 5.88 5.68 4.62
Money market accounts..................................... 2.50 2.50 2.50 2.50
Combined weighted average rate paid on interest-
bearing liabilities................................... 5.17 4.98 4.77 3.98
Spread..................................................... 2.66 2.74 3.08 2.99
</TABLE>
36
<PAGE>
Rate Volume Analysis
The following schedule presents the dollar amount of changes in
interest income and interest expense for major components of interest-earning
assets and interest-bearing liabilities. It distinguishes between the changes
related to outstanding balances and that due to the changes in interest rates.
For each category of interest-earning assets and interest-bearing liabilities,
information is provided on changes attributable to (i) changes in volume (i.e.,
changes in volume multiplied by old rate) and (ii) changes in rate (i.e.,
changes in rate multiplied by old volume). For purposes of this table, changes
attributable to both rate and volume, which cannot be segregated, have been
allocated proportionately to the change due to volume and the change due to
rate.
<TABLE>
<CAPTION>
Four Months Ended
October 31, Year Ended June 30,
--------------------------------- -----------------------------------
1995 vs. 1996 1995 vs. 1996
--------------------------------- ----------------------------------
Increase Increase
(Decrease) Total (Decrease)
Due to Increase Due to Total
---------------------------------------------------- Increase
Volume Rate (Decrease) Volume Rate (Decrease)
-----------------------------------------------------------------------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable...................... $228 $(53) $ 175 $371 $273 $644
Interest-earning deposits............. (34) 4 (30) 142 7 149
Investment securities................. (5) (2) (7) (15) 4 (11)
FHLB stock............................ 1 1 2 3 4 7
----- ----- ------ ------ ----- ------
Total interest-earning assets....... $190 $(50) 140 $501 $288 789
==== ==== ----- ==== ==== -----
Interest-bearing liabilities:
Savings deposits...................... $ (3) $ (1) (4) $ (31) $ (8) (39)
Demand and NOW deposits............... (3) 1 (2) (6) (4) (10)
Certificate accounts.................. 95 9 104 393 394 787
Borrowings............................ 33 --- 33 --- --- ---
----- ------ ----- ------ ----- ------
Total interest-bearing liabilities.. $122 $ 9 131 $356 $382 738
==== ===== ----- ==== ==== -----
Net interest income.................... $ 9 $ 51
====== =====
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Year Ended June 30,
---------------------------------
1994 vs. 1995
---------------------------------
Increase
(Decrease)
Due to Total
----------------- Increase
Volume Rate (Decrease)
---------------------------------
<S> <C> <C> <C>
Interest-earning assets:
Loans receivable...................... $345 $308 $653
Interest-earning deposits............. (58) 66 8
Investment securities................. (16) (3) (19)
FHLB stock............................ 2 9 11
------ ----- -----
Total interest-earning assets....... $273 $380 653
==== ==== -----
Interest-bearing liabilities:
Savings deposits...................... $ (26) $ --- (26)
Demand and NOW deposits............... (9) 2 (7)
Certificate accounts.................. 151 213 364
Borrowings............................ --- --- ---
------- ----- ------
Total interest-bearing liabilities.. $116 $215 331
==== ==== -----
Net interest income.................... $322
====
</TABLE>
37
<PAGE>
Asset and Liability Management
The Association, like other financial institutions, is subject to
interest rate risk to the extent that its interest-earning assets reprice
differently than its interest-bearing liabilities. As part of its effort to
monitor and manage interest rate risk, the Association uses the "net portfolio
value" ("NPV") methodology adopted by the OTS as part of its capital
regulations. Although the Association is not currently subject to NPV regulation
because such regulation does not apply to institutions with less than $300
million in assets and risk-based capital in excess of 12%, application of NPV
methodology may illustrate the Association's interest rate risk.
Generally, NPV is the discounted present value of the difference
between incoming cash flows on interest-earning and other assets and outgoing
cash flows on interest-bearing and other liabilities. The application of the
methodology attempts to quantify interest rate risk as the change in the NPV
that would result from a theoretical 200 basis point (1 basis point equals
0.01%) change in market interest rates. Both a 200 basis point increase in
market interest rates and a 200 basis point decrease in market interest rates
are considered. If the NPV would decrease by more than 2% of the present value
of the institution's assets with either an increase or a decrease in market
rates, the institution must deduct 50% of the amount of decrease in excess of
such 2% in the calculation of the institution's risk-based capital. See "--
Liquidity and Capital Resources."
At September 30, 1996, 2% of the present value of the Association's
assets was $1,772,000. Because the interest rate risk of a 200 basis point
increase in market interest rates (which was greater than the interest rate risk
of a 200 basis point decrease) was $907,000 at September 30, 1996, the
Association would not have been required to make additional deductions from its
capital in determining whether the Association met its risk-based capital
requirement.
Presented below, as of September 30, 1996, is an analysis of the
Association's interest rate risk as measured by changes in NPV for instantaneous
and sustained parallel shifts of 100 basis points in market interest rates. As
illustrated in the table, NPV is more sensitive to rising rates than declining
rates. Such difference in sensitivity occurs principally because, as rates rise,
borrowers do not prepay adjustable-rate loans which reprice less frequently than
on an annual basis, adjustable-rate loans with interest rate adjustment caps and
fixed-rate loans as quickly as they do when interest rates are declining. Thus,
in a rising interest rate environment, the amount of interest the Association
would receive on its loans would increase relatively slowly as loans are slowly
prepaid and new loans at higher rates are made. Moreover, the interest the
Association would pay on its deposits would increase rapidly because the
Association's deposits generally have shorter periods to repricing.
38
<PAGE>
<TABLE>
<CAPTION>
NPV as % of
Net Portfolio Value Portfolio Value
Change ---------------------------------------------- of Assets
in Rates $ Amount $ Change % Change NPV Ratio % Change
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
+400 $5,888 $(2,919) (33.1)% 6.64% (33.2)%
+300 6,904 (1,903) (21.6) 7.79 (21.8)
+200 7,900 (907) (10.3) 8.91 (10.4)
+100 8,638 (169) (1.9) 9.75 (2.0)
Static 8,807 0 0.0 9.94 0.0
(100) 8,668 (138) (1.6) 9.78 (1.6)
(200) 8,092 (715) (8.1) 9.13 (8.2)
(300) 7,624 (1,182) (13.4) 8.60 (13.5)
(400) 7,632 (1,175) (13.3) 8.61 (13.4)
</TABLE>
As with any method of measuring interest rate risk, certain
shortcomings are inherent in the NPV approach. For example, 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. Also, the
interest rates on certain types of assets and liabilities may fluctuate in
advance of changes in market interest rates, while interest rates on other types
may lag behind changes in market rates. Further, in the event of a change in
interest rates, expected rates of prepayment on loans and mortgage-backed
securities and early withdrawal levels from certificates of deposit would likely
deviate significantly from those assumed in making risk calculations.
39
<PAGE>
Liquidity and Capital Resources
The Association's liquidity, primarily represented by cash equivalents,
is a result of its operating, investing and financing activities. These
activities are summarized below for the four months ended October 31, 1996 and
1995, and years ended June 30, 1996, 1995 and 1994.
<TABLE>
<CAPTION>
Four Months
Ended October 31, Year Ended June 30,
1996 1995 1996 1995 1994
----------- ----------- ---------------- ------------ --------
(In Thousands)
<S> <C> <C> <C> <C> <C>
Net income $ (25) $ 304 $ 852 $ 835 $ 586
Adjustments to reconcile net
income to net cash from
operating activities 545 202 (15) (2) 165
--------- --------- --------- --------- ----------
Net cash from operating
activities 520 506 837 833 751
Net cash from investing
activities (4,008) (1,920) (6,968) (4,887) (2,817)
Net cash from financing
activities 2,561 4,910 7,012 1,939 3,199
--------- --------- --------- --------- ----------
Net change in cash and cash
equivalents (927) 3,496 881 (2,115) 1,133
Cash and cash equivalents
at beginning of period 2,721 1,840 1,840 3,955 2,822
--------- --------- --------- --------- ----------
Cash and cash equivalents
at end of period $ 1,794 $ 5,336 $ 2,721 $ 1,840 $ 3,955
========= ========= ========= ========= ==========
</TABLE>
The Association's principal sources of funds are deposits, loan
repayments, maturities of securities, and other funds provided by operations.
The Association also has the ability to borrow from the FHLB. While scheduled
loan repayments and maturing investments are relatively predictable, deposit
flows and early loan prepayments are more influenced by interest rates, general
economic conditions, and competition. The Association maintains investments in
liquid assets based upon management's assessment of (1) need for funds, (2)
expected deposit flows, (3) yields available on short-term liquid assets and (4)
objectives of the asset/liability management program.
OTS regulations presently require the Association to maintain an
average daily balance of investments in United States Treasury, federal agency
obligations and other investments having maturities of five years or less in an
amount equal to 5% of the sum of the Association's average daily balance of net
withdrawable deposit accounts and borrowings payable in one year or less. The
liquidity requirement, which may be changed from time to time by the OTS to
reflect changing economic conditions, is intended to provide a source of
relatively liquid funds upon which the Association may rely, if necessary, to
fund deposit withdrawals or other short-term funding needs. At October 31, 1996,
the Association's regulatory liquidity was 6.8%. On October 31, 1996, the
Association had commitments to originate fixed-rate commercial and
40
<PAGE>
residential loans totaling $264,000, and variable rate commercial and
residential real estate mortgage loans totaling $574,000. Loan commitments are
generally for 30 days. The Association considers its liquidity and capital
reserves sufficient to meet its outstanding short- and long-term needs.
The Association is required by OTS regulations to meet certain minimum
capital requirements, which must be generally as stringent as the requirements
established for banks. Current capital requirements call for tangible capital of
1.5% of adjusted total assets, core capital (which for the Association consists
solely of tangible capital) of 3.0% of adjusted total assets and risk-based
capital (which for the Association consists of core capital and general
valuation allowances) of 8% of risk-weighted assets (assets are weighted at
percentage levels ranging from 0% to 100% depending on their relative risk). The
OTS has proposed to amend the core capital requirement so that those
associations that do not have the highest examination rating and an acceptable
level of risk will be required to maintain core capital of from 4% to 5%,
depending on the association's examination rating and overall risk. The
Association does not anticipate that it will be adversely affected if the core
capital requirements regulations are amended as proposed.
The following table summarizes the Association's regulatory capital
requirements and actual capital at October 31, 1996. (See Note 10 of Notes to
Financial Statements for a reconciliation of capital under generally accepted
accounting principles and regulatory capital amounts.)
<TABLE>
<CAPTION>
Excess of Actual
Capital Over Current
Actual Capital Current Requirement Requirement Applicable
Amount Percent Amount Percent Amount Percent Asset Total
------ ------- ------ ------- -------- ----------- -----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Tangible Capital $ 9,188 10.2% $ 1,351 1.5% $ 7,837 8.7% $ 90,049
Core Capital 9,188 10.2 2,701 3.0 6,487 7.2 90,049
Risk-based Capital 9,514 16.5 4,627 8.0 4,887 8.5 57,833
</TABLE>
At October 31, 1996, the Association had no material commitments for capital
expenditures.
Impact of New Accounting Standards
The Association became subject to SFAS No. 122, "Accounting for
Mortgage Servicing Rights," on July 1, 1996. SFAS No. 122 requires companies to
recognize, as separate assets, rights to service mortgage loans for others,
regardless of how these rights are acquired. Mortgage servicing rights acquired
through either the purchase or the origination of mortgage loans which are
subsequently sold with servicing rights retained should be determined by
allocating the total cost of the mortgage loans to mortgage servicing rights and
to loans (without the mortgage servicing rights) based on their relative fair
values. Mortgage servicing rights recorded as a separate asset are amortized in
proportion to, and over the period of, estimated net servicing income. This
pronouncement was superseded by SFAS No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities," which extends
the accounting
41
<PAGE>
and disclosure rules for mortgage servicing rights to all servicing rights
including mortgage, consumer and commercial loans. SFAS 122 did not have a
material impact on the Association's financial statements at July 1, 1996
because the Association does not sell loans. SFAS 125 will be effective on July
1, 1997 and is not expected to have a material impact on the Association's
financial statements.
On July 1, 1996, the Association became subject to SFAS No. 123,
"Accounting for Stock-Based Compensation." SFAS No. 123 encourages, but does not
require, entities to use a "fair value based method" to account for stock-based
compensation plans. If the fair value accounting encouraged by SFAS No. 123 is
not adopted, entities must disclose the pro forma effect on net income and on
earnings per share had the fair value accounting been adopted. Fair value of a
stock option is to be estimated using an option pricing model which considers
the current price of the stock, expected price volatility, expected dividends on
the stock and the risk- free interest rate. Once estimated, the fair value of an
option is not later changed. The accounting and disclosure requirements of this
statement are effective for transactions entered into in fiscal years beginning
after December 15, 1995. Pro forma disclosures required for entities that elect
to continue to measure compensation cost using existing accounting methods must
include the effects of all awards granted in the first fiscal year beginning
after December 15, 1994. Currently, the Association does not have any stock
options outstanding.
Impact of Inflation and Changing Prices
The Financial Statements and Notes included herein have been prepared
in accordance with generally accepted accounting principles ("GAAP"). Presently,
GAAP requires the Association to measure financial position and operating
results primarily in terms of historic dollars. Changes in the relative value of
money due to inflation or recession are generally not considered.
In management's opinion, changes in interest rates affect the financial
condition of a financial institution to a far greater degree than changes in the
inflation rate. While interest rates are greatly influenced by changes in the
inflation rate, they do not change at the same rate or in the same magnitude as
the inflation rate. Rather, interest rate volatility is based on changes in the
expected rate of inflation, as well as on changes in monetary and fiscal
policies.
42
<PAGE>
PEOPLES-SIDNEY FINANCIAL CORPORATION
The Holding Company was incorporated by Peoples Federal under the laws
of the State of Delaware in January 1997 for the purpose of owning all of the
outstanding stock of Peoples Federal issued in the Conversion. The Holding
Company has applied to the OTS to acquire all of the common stock of Peoples
Federal which will be outstanding upon completion of the Conversion.
As a Delaware corporation, the Holding Company is authorized to engage
in any activity that is permitted by the Delaware General Corporation Law. The
Board of Directors of the Holding Company anticipates that, after completion of
the Conversion, the Holding Company will conduct its business as a thrift
institution holding company. The holding company structure will provide the
Holding Company with greater flexibility than the Association by itself would
have to diversify its business activities, through existing or newly formed
subsidiaries, or through acquisitions or mergers of both mutual and stock thrift
institutions as well as other companies. Although there are no current
arrangements, understandings or agreements regarding any such acquisition, the
Holding Company will be in a position after the Conversion to take advantage of
any favorable acquisition opportunities that may arise, subject to regulatory
restrictions.
The assets of the Holding Company will initially consist of the stock
of Peoples Federal and approximately 50% of the net proceeds from the
Conversion. The initial activities of the Holding Company are anticipated to be
funded by such retained proceeds and the income thereon. Thereafter, activities
of the Holding Company may also be funded through dividends from Peoples
Federal, if any, sales of additional securities, borrowings and income generated
by other activities of the Holding Company. At this time, there are no plans
regarding such activities. See "Dividends" and "Regulation-Holding Company
Regulation."
BUSINESS
General
The Association is a financial intermediary primarily engaged in the
business of attracting savings deposits from the general public and investing
such funds in permanent mortgage loans secured by one- to four-family
residential real estate located primarily in Shelby County, Ohio, and to a
lesser extent in the contiguous counties of Logan, Auglaize, Miami, Darke and
Champaign. The Association also originates, to a lesser extent, loans for the
construction of one- to four-family real estate, loans secured by multi-family
real estate (over four units) and nonresidential real estate, and consumer loans
and invests in U.S. government obligations, interest bearing deposits in other
financial institutions and other investments permitted by applicable law.
Market Area
Peoples Federal has one office located in Sidney, Shelby County, Ohio.
The Association considers its market area to be Shelby County, Ohio, and its
contiguous counties. Sidney is located on the Interstate 75 corridor,
approximately 45 miles north of Dayton, Ohio between Dayton and Toledo, Ohio.
43
<PAGE>
The unemployment rate for Shelby County at October 1996 was 4.0%. The
unemployment rate for Shelby County was lower than the rates of 4.3% for the
State of Ohio and 4.9% for the United States.
The per capita income level in Shelby County is lower than the national
level, but its growth rate between 1990 and 1995 exceeded that of the Ohio and
United States averages during the same period. During this period, the per
capita income in Shelby County rose approximately 47.6% from $11,082 to $16,362;
in Ohio, the per capita income rose 30.6% from $12,030 to $15,708; and in the
United States, the per capita income rose 33.2% from $12,313 to $16,405.
Shelby County is primarily agricultural with the services and
manufacturing industries also contributing to the economy. Shelby County's
earnings are predominantly generated by automobile manufacturing, automotive
parts and metal products. Some of Shelby County's largest employers are: Honda,
Emerson Electric, Alcoa, and Clopay Corporation.
Lending Activities
General. The principal lending activity of the Association is
originating for its portfolio first mortgage loans secured by owner-occupied
one- to four-family residential properties located in its primary market areas.
In addition, in order to increase the yield and/or the interest rate sensitivity
of its portfolio and in order to provide more comprehensive financial services
to families and community businesses in the Association's primary market area,
Peoples Federal also originates construction or development, commercial real
estate, consumer, land, multi-family and commercial business loans. See "-
Originations, Purchases and Sales of Loans." The Association reserves the right
in the future to adjust or discontinue any product offerings to respond to
competitive or economic factors.
44
<PAGE>
Loan Portfolio Composition. The following information sets forth the
composition of the Association's loan portfolios in dollar amounts and in
percentages (before deductions for loans in process, deferred fees and discounts
and allowances for losses) as of the dates indicated.
<TABLE>
<CAPTION>
Four Months Ended June 30,
October 31, -----------------------------------------------------------------
1996 1996 1995 1994
------------------------ ------------------------ ------------------ --------------------
Amount Percent Amount Percent Amount Percent Amount Percent
-------- --------- -------- --------- -------- --------- -------- ---------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Real Estate Loans:
One- to four-family.............. $68,969 78.38% $65,448 79.60% $59,181 78.95% $53,531 77.64%
Construction and development..... 9,121 10.37 7,091 8.63 6,639 8.86 6,254 9.07
Commercial....................... 5,490 6.24 5,302 6.45 5,750 7.67 6,080 8.82
Multi-family..................... 456 0.52 485 0.59 335 0.45 579 0.84
Land............................. 1,357 1.54 1,342 1.63 909 1.21 805 1.16
-------- ------ -------- -------- -------- ------- -------- --------
Total real estate loans...... 85,393 97.05 79,668 96.90 72,814 97.14 67,249 97.53
-------- ------ ------- -------- -------- ------- -------- --------
Other Loans:
Consumer Loans:
Automobile...................... 1,272 1.44 1,274 1.55 1,042 1.39 706 1.02
Deposit account................. 226 0.26 167 0.20 262 0.35 190 0.28
Home equity..................... 254 0.29 183 0.22 43 0.05 --- ---
Other........................... 803 0.91 844 1.03 778 1.04 749 1.09
--------- ----- -------- -------- -------- ------ -------- -------
Total consumer loans......... 2,555 2.90 2,468 3.00 2,125 2.83 1,645 2.39
--------- ------- ------- ------- -------- ------ -------- -------
Commercial business loans........ 41 0.05 81 0.10 22 0.03 55 0.08
---------- ------- -------- -------- -------- ------- -------- -------
Total loans.................. 87,989 100.00% 82,217 100.00% 74,961 100.00% 68,949 100.00%
====== ====== ====== ======
Less:
Loans in process................. (3,773) (3,508) (2,579) (1,929)
Deferred fees and discounts...... (169) (169) (198) (212)
Allowance for losses............. (326) (307) (251) (198)
-------- -------- -------- --------
Total loans receivable, net...... $83,721 $78,233 $71,933 $66,610
======= ======= ======= =======
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
June 30,
---------------------------------------------
1993 1992
---------------------------------------------
Amount Percent Amount Percent
-------- --------- -------- --------
<S> <C> <C> <C> <C>
Real Estate Loans:
One- to four-family.............. $51,547 78.72% $46,079 76.97%
Construction and development..... 5,185 7.92 4,498 7.51
Commercial....................... 5,595 8.54 5,726 9.56
Multi-family..................... 624 0.95 855 1.43
Land............................. 810 1.24 805 1.35
--------- ------- ------- ------
Total real estate loans...... 63,761 97.37 57,963 96.82
--------- ------ ------- ------
Other Loans:
Consumer Loans:
Automobile...................... 689 1.05 835 1.39
Deposit account................. 188 0.29 292 0.49
Home equity..................... --- --- --- ---
Other........................... 764 1.17 683 1.14
---------- -------- ------- ------
Total consumer loans......... 1,641 2.51 1,810 3.02
---------- ------- ------- ------
Commercial business loans........ 79 0.12 93 0.16
----------- ------- ------- ------
Total loans.................. 65,481 100.00% 59,866 100.00%
====== ======
Less:
Loans in process................. (2,213) (1,575)
Deferred fees and discounts...... (278) (349)
Allowance for losses............. (123) (94)
---------- ---------
Total loans receivable, net...... $62,867 $57,848
======= =======
</TABLE>
45
<PAGE>
The following table shows the composition of the Association's loan
portfolios by fixed- and adjustable-rate at the dates indicated.
<TABLE>
<CAPTION>
Four Months Ended June 30,
October 31, --------------------------------------------------------
1996 1996 1995 1994
-------------------- ----------------- --------------------------------------
Amount Percent Amount Percent Amount Percent Amount Percent
-------------------------- ----------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Fixed-Rate Loans:
Real estate:
One- to four-family................ $18,930 21.51% $17,166 20.88% $12,254 16.35% $11,708 16.98%
Construction and development....... 1,579 1.80 775 0.94 526 0.70 768 1.11
Commercial......................... 43 0.05 179 0.22 313 0.42 395 0.57
Multi-family....................... --- --- --- --- --- --- 12 0.02
Land............................... 42 0.05 20 0.02 5 0.01 0.04
-------- ------ ------- ------ ------- ------- ------- -------
Total real estate loans......... 20,594 23.41 18,140 22.06 13,098 17.48 12,912 18.72
-------- ------ ------- ------ ------- ------- ------- -------
Consumer............................ 2,555 2.90 2,468 3.00 2,125 2.83 1,645 2.39
Commercial business................. 41 0.05 81 0.10 22 0.03 55 .08
--------- ------ ------- ------ ------- ------- ------- -------
Total fixed-rate loans.......... 23,190 26.36 20,689 25.16 15,245 20.34 14,612 21.19
Adjustable-Rate Loans:
Real estate:
One- to four-family................ 50,039 56.87 48,282 58.73 46,927 62.60 41,823 60.66
Construction and development....... 7,542 8.57 6,316 7.68 6,113 8.15 5,486 7.96
Commercial......................... 5,447 6.19 5,123 6.23 5,437 7.25 5,685 8.25
Multi-family....................... 456 0.52 485 0.59 335 0.45 567 0.82
Land............................... 1,315 1.49 1,322 1.61 904 1.21 776 1.12
-------- ------ ------- ------ ------- ------ -------- -------
Total real estate loans......... 64,799 73.64 61,528 74.84 59,716 79.66 54,337 78.81
-------- ------ -------- ------ ------- ------- ------- -------
Total adjustable-rate loans..... 87,989 100.00% 82,217 100.00% 74,961 100.00% 68,949 100.00%
====== ====== ====== ======
Less:
Loans in process.................... (3,773) (3,508) (2,579) (1,929)
Deferred fees and discounts......... (169) (169) (198) (212)
Allowance for loan losses........... (326) (307) (251) (198)
--------- --------- ------- ---------
Total loans receivable, net...... $83,721 $78,233 $71,933 $66,610
======= ======= ======= =======
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
June 30,
----------------------------------------------
1993 1992
-------------------------- -------------------
Amount Percent Amount Percent
-------------------------- -------------------
<S> <C> <C> <C> <C>
Fixed-Rate Loans:
Real estate:
One- to four-family................ $12,792 19.54% $15,712 26.24%
Construction and development....... 448 0.68 1,113 1.86
Commercial......................... 494 0.75 656 1.10
Multi-family....................... 57 0.09 325 0.54
Land............................... 26 0.04 48 0.08
------- -------- -------- -------
Total real estate loans......... 13,817 21.10 17,854 29.82
------- ------- -------- -------
Consumer............................ 1,641 2.51 1,810 3.02
Commercial business................. 79 .12 93 .16
-------- --------- -------- -------
Total fixed-rate loans.......... 15,537 23.73 19,757 33.00
Adjustable-Rate Loans:
Real estate:
One- to four-family................ 38,755 59.18 30,367 50.73
Construction and development....... 4,737 7.23 3,385 5.65
Commercial......................... 5,101 7.79 5,070 8.47
Multi-family....................... 567 0.87 530 0.89
Land............................... 784 1.20 757 1.26
------- ------- -------- -------
Total real estate loans......... 49,944 76.27 40,109 67.00
------- ------- -------- -------
Total adjustable-rate loans..... 65,481 100.00% 59,866 100.00%
====== ======
Less:
Loans in process.................... (2,213) (1,575)
Deferred fees and discounts......... (278) (349)
Allowance for loan losses........... (123) (94)
-------- --------
Total loans receivable, net...... $62,867 $57,848
======= =======
</TABLE>
46
<PAGE>
The following schedule presents the loan maturities of the
Association's loan portfolio at October 31, 1996. Mortgages which have
adjustable or renegotiable interest rates are shown as terms to repricing. The
Association is unable to provide this information based on contractual
maturities. The schedule does not reflect the effects of possible prepayments or
enforcement of due-on-sale clauses.
<TABLE>
<CAPTION>
Real Estate
--------------------------------------------------------
One- to Four-Family and Multi-family,
Construction and Development Commercial and Land Consumer
---------------------------- ---------------------------------------------------------------
Weighted Weighted Weighted
Average Average Average
Amount Rate Amount Rate Amount Rate
-------------------------------- ---------------------------------------------------------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
1 year or less(1).......... $22,834 7.74% $4,693 7.96% $819 9.89%
Over 1 year - 3 years...... 18,623 7.88 1,055 7.94 806 9.79
Over 3 years - 5 years..... 15,191 7.73 894 7.86 883 9.66
Over 5 years -
10 years.................. 3,386 8.45 286 8.56 47 10.34
Over 10 years -
20 years.................. 17,414 7.92 375 8.47 --- ---
Over 20 years.............. 642 8.09 --- --- --- ---
--------- ---- -------- ----- ------ -------
Total.................. $78,090 7.85% $7,303 7.99% $2,555 9.79%
======= ==== ====== ==== ====== ======
</TABLE>
<TABLE>
<CAPTION>
Commercial Business Total
------------------------------------------------------
Weighted Weighted
Average Average
Amount Rate Amount Rate
------------- -----------------------------------------
<S> <C> <C> <C> <C>
1 year or less(1).......... $30 12.50% $28,376 7.84%
Over 1 year - 3 years...... 11 9.49 20,495 7.96
Over 3 years - 5 years..... --- --- 16,968 7.84
Over 5 years -
10 years.................. --- --- 3,719 8.48
Over 10 years -
20 years.................. --- --- 17,789 7.93
Over 20 years.............. --- --- 642 8.09
----- ------ -------- ----
Total.................. $41 11.69% $87,989 7.92%
=== ===== ======= ====
</TABLE>
(1) Includes demand loans, loans having no stated maturity and
overdraft loans.
The total amount of loans due after October 31, 1997 which have
predetermined interest rates is $22,185,000, while the total amount of loans due
after such dates which have floating or adjustable interest rates is
$37,428,000.
47
<PAGE>
Under federal law, the aggregate amount of loans that the Association
is permitted to make to any one borrower is generally limited to 15% of
unimpaired capital and surplus (25% if the security for such loan has a "readily
ascertainable" value or 30% for certain residential development loans). At
October 31, 1996, based on the above, the Association's regulatory loan-to-one
borrower limit was approximately $1.38 million. On the same date, the
Association had no borrowers with outstanding balances in excess of this amount.
As of October 31, 1996, the largest dollar amount of indebtedness to one
borrower or group of related borrowers was a single loan of $891,000 secured by
commercial property leased to tenants involved in retail businesses. The next
largest loan had an outstanding balance of $349,000 at October 31, 1996 and is
secured by farm real estate and several single family homes. Such loans are
performing in accordance with their terms.
Loan applications are accepted by salaried loan officers at the
Association's office. Loan applications are presented for approval to the
Executive Committee of the Board of Directors or to the full Board of Directors,
depending on loan amount. All loans of $100,000 or more are approved by the full
Board of Directors. Decisions on loan applications are made on the basis of
detailed applications and property valuations (consistent with the Association's
written appraisal policy), by qualified independent appraisers (unless the
Association's exposure will be $25,000 or less). The loan applications are
designed primarily to determine the borrower's ability to repay and include
length of employment, past credit history and the amount of current
indebtedness. Significant items on the application are verified through use of
credit reports, financial statements, tax returns and/or confirmations. The
Association is an equal opportunity lender.
Generally, the Association requires an attorney's title opinion on its
mortgage loans as well as fire and extended coverage casualty insurance in
amounts at least equal to the principal amount of the loan or the value of
improvements on the property, depending on the type of loan. The Association
also requires flood insurance to protect the property securing its interest when
the property is located in a flood plain.
One- to Four-Family Residential Real Estate Lending
The cornerstone of the Association's lending program has long been the
origination of long-term permanent loans secured by mortgages on owner-occupied
one- to four-family residences. At October 31, 1996, $69.0 million, or 78.4% of
the Association's loan portfolio consisted of permanent loans on one- to
four-family residences. At that date, the average outstanding residential loan
balance was $48,000 and the largest outstanding residential loan had a principal
balance of $314,000. Virtually all of the residential loans originated by
Peoples Federal are secured by properties located in the Association's market
area. See "- Originations, Purchases and Sales of Loans."
Historically, Peoples Federal originated for retention in its own
portfolio 30-year fixed-rate loans secured by one- to four-family residential
real estate. Beginning in 1979, in order to reduce its exposure to changes in
interest rates, Peoples Federal began to originate adjustable rate mortgage
loans ("ARMs"), subject to market conditions and consumer preference. The
Association traditionally has not sold either its ARM nor its fixed-rate loan
production, and as a result of continued consumer demand, particularly during
periods of relatively low interest
48
<PAGE>
rates, for fixed-rate loans, Peoples Federal has continued to originate
fixed-rate residential loans in amounts and at rates which are monitored for
compliance with the Association's asset/liability management policy. Currently,
the Association originates fixed-rate loans with maturities of up to 20 years
for retention in it own portfolio. Limiting the contractual term to 20 years, as
opposed to the more traditional 30 year period, allows for accelerated principal
repayment and equity build up for the borrower. Currently, all such loans are
made on owner-occupied properties. All ARMs originated by the Association are
retained and serviced by it. At October 31, 1996, the Association had $18.9
million of fixed-rate permanent residential loans, constituting 21.5% of the
Association's loan portfolio at such date. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Asset/Liability
Management."
The Association has offered ARM loans at rates, terms and points
determined in accordance with market and competitive factors. The Association's
current one- to four-family residential ARMs are fully amortizing loans with
contractual maturities of up to 30 years. Applicants are qualified using a fully
indexed rate, and no ARMs allow for negative amortization. The interest rates on
the ARMs originated by Peoples Federal are generally subject to adjustment at
one, three, and five-year intervals based on a margin over the analogous
Treasury Securities Constant Maturity Index. Decreases or increases in the
interest rate of the Association's ARMs are generally limited to 6% above or
below the initial interest rate over the life of the loan, and up to 2% per
adjustment period. The Association's ARMs are not convertible into fixed-rate
loans, and do not contain prepayment penalties. ARM loans may be assumed on a
case by case basis with the Association's consent. At October 31, 1996, the
total balance of one- to four-family ARMs was $50.0 million, or 56.9% of the
Association's loan portfolio.
The Association offers several types of ARMs. One new offering is the
"7/1" loan. This product maintains a constant interest rate, and payment, for
the first seven years of the loan. Amortizable for up to 30 years, the loan will
adjust beginning in the eighth year, subject to the rate caps discussed above.
At October 31, 1996, the Association had $190,000 in "7/1" loans. In 1992, the
Association initiated a program specifically tailored to first time buyers.
These loans are made on a five year adjustable basis with a term up to 30 years.
The margin, which is lower than other products currently offered, is 200 basis
points. Additionally, somewhat higher debt-to-income ratios are permitted,
although mandatory escrows for taxes and insurance, an acceptable credit rating
and an employment history of at least one year are required. The maximum loan
amount under this program, which requires that the property be owner-occupied,
is currently $75,000, which can be the lesser of the purchase price or 90% of
appraised value. At October 31, 1996, the Association had approximately $6.5
million of new first-time home buyer loans in its portfolio.
As discussed above, the Association evaluates both the borrower's
ability to make principal, interest and escrow payments and the value of the
property that will secure the loan. Peoples Federal originates residential
mortgage loans with loan-to-value ratios up to 90%. On mortgage loans exceeding
an 90% loan-to-value ratio at the time of origination, Peoples Federal will
generally require private mortgage insurance in an amount intended to reduce the
Association's exposure to less than 90% of the appraised value of the underlying
property.
49
<PAGE>
The Association's residential mortgage loans customarily include
due-on-sale clauses giving the Association the right to declare the loan
immediately due and payable in the event that, among other things, the borrower
sells or otherwise disposes of the property subject to the mortgage and the loan
is not repaid.
Construction and Development Lending
The Association makes construction loans to individuals for the
construction of their primary or secondary residences and loans to builders or
developers for the construction of single-family homes, multi-family units and
commercial real estate projects. Loans to individuals for the construction of
their residences typically run for 12 months. The borrower pays interest only
during the construction period. Residential construction loans are generally
underwritten pursuant to the same guidelines used for originating permanent
residential loans. At October 31, 1996, the Association had 87 construction
loans with outstanding aggregate balances of $9.1 million secured by residential
property. Of such amount, $6.7 million was outstanding directly to borrowers
intending to live in the properties upon completion of construction. At that
same date, the Association had 18 construction loans with outstanding aggregate
balances of $2.2 million secured by one- to four-family residential property
built by builders who have pre-sold their houses to individual purchasers.
The Association makes loans to builders and developers to finance the
construction of residential property. Such loans generally have adjustable
interest rates based upon prime or treasury indexes with terms of from six
months to one year. The proceeds of the loan are advanced during construction
based upon the percentage of completion as determined by an inspection. The loan
amount normally does not exceed 90% of projected completed value for homes that
have been pre-sold to the ultimate occupant. For loans to builders for the
construction of homes not yet presold, which may carry a higher risk, the
loan-to value ratio is generally limited to 80%. Whether the Association is
willing to provide permanent takeout financing to the purchaser of the home is
determined independently of the construction loan by separate underwriting. In
the event that upon completion the house is not sold, the builder is required to
make principal and interest payments until the house is sold. The Association
also makes a limited number of commercial real estate construction loans on
substantially the same terms as loans to builders and developers to finance the
construction of residential property.
Development loans, which include loans to develop vacant or raw land,
are made to various builders and developers with whom the Association has had
long-standing relationships. All of such loans are secured by land zoned for
residential developments and located within the Association's market area.
Proceeds are used for excavation, utility placements and street improvements.
Disbursements related to acquisition and development land loans are typically
based on the construction cost estimate of an independent architect or engineer
who inspects the project in connection with significant disbursement requests.
As lots are sold, a portion of the sale price is applied to the principal of the
outstanding loan. Interest payments are required at regular intervals (quarterly
or semi-annually) and loan terms typically are written for three years. At
October 31, 1996, the Association had $246,000 or 0.28% of gross loans
receivable in this category.
50
<PAGE>
Construction and development lending generally affords the Association
an opportunity to receive interest at rates higher than those obtainable from
residential lending and to receive higher origination and other loan fees. In
addition, such loans are generally made for relatively short terms.
Nevertheless, construction lending to persons other than owner-occupants is
generally considered to involve a higher level of credit risk than one- to
four-family permanent residential lending due to the concentration of principal
in a limited number of loans and borrowers and the effects of general economic
conditions on construction projects, real estate developers and managers. In
addition, the nature of these loans is such that they are more difficult to
evaluate and monitor. The Association's risk of loss on a construction or
development loan is dependent largely upon the accuracy of the initial estimate
of the property's value upon completion of the project and the estimated cost
(including interest) of the project. If the estimate of value proves to be
inaccurate, the Association may be confronted, at or prior to the maturity of
the loan, with a project with a value which is insufficient to assure full
repayment and/or the possibility of having to make substantial investments to
complete and sell the project. Because defaults in repayment may not occur
during the construction period, it may be difficult to identify problem loans at
an early stage. When loan payments become due, the cash flow from the property
may not be adequate to service the debt. In such cases, the Association may be
required to modify the terms of the loan.
Commercial Real Estate Lending
The Association's commercial real estate loan portfolio consists of
loans on a variety of non-residential properties including retail facilities,
small office buildings, farm real estate and churches. At October 31, 1996, the
Association's largest commercial real estate loan totalled $891,000. At that
date, the Association had 60 other commercial real estate loans, all totalling
$5.5 million or 6.2 % of gross loans receivable. As of October 31, 1996,
$304,000 of these loans were non-performing.
The Association has originated both adjustable- and fixed-rate
commercial real estate loans, although most current originations have adjustable
rates. Rates on the Association's adjustable-rate commercial real estate loans
generally adjust in a manner consistent with the Association's one- to
four-family residential ARMs, although five year adjustment periods are not
currently offered. Commercial real estate loans are generally underwritten in
amounts of up to 75% of the appraised value of the underlying property.
Appraisals on properties securing commercial real estate loans
originated by the Association are performed by a qualified independent appraiser
at the time the loan is made. In addition, the Association's underwriting
procedures generally require verification of the borrower's credit history,
income and financial statements, banking relationships, references and income
projections for the property. Personal guarantees are generally obtained for the
Association's commercial real estate loans.
Substantially all of the commercial real estate loans originated by the
Association are secured by properties located within the Association's market
area.
51
<PAGE>
The table below sets forth by type of security property the estimated
number, loan amount and outstanding balance of Peoples Federal's commercial real
estate loans at October 31, 1996.
<TABLE>
<CAPTION>
Outstanding
Number of Original Principal
Loans Loan Amount Balance
---------------------------------------------------------
(Dollars in Thousands)
<S> <C> <C> <C>
Office......................................... 21 $2,244 $1,624
Retail......................................... 2 1,021 989
Farm real estate............................... 37 3,902 2,780
Churches....................................... 1 120 97
--- ------- --------
Total....................................... 61 $7,287 $5,490
== ====== ======
</TABLE>
Commercial real estate loans generally present a higher level of risk
than loans secured by one- to four-family residences. This greater risk is due
to several factors, including the concentration of principal in a limited number
of loans and borrowers, the effects of general economic conditions on income
producing properties and the increased difficulty of evaluating and monitoring
these types of loans. Furthermore, the repayment of loans secured by commercial
real estate is typically dependent upon the successful operation of the related
real estate project. If the cash flow from the project is reduced (for example,
if leases are not obtained or renewed), the borrower's ability to repay the loan
may be impaired.
Multi-Family Lending
The Association has historically made permanent multi-family loans in
its primary market area. However, the Association has generally decreased this
component as a percentage of its loan portfolio in recent years and the current
amount of such loans is insignificant, totalling $456,000 or .5% of gross loans
receivable. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Asset/Liability Management."
The Association's multi-family loan portfolio includes loans secured by
five or more unit residential buildings located primarily in the Association's
market area.
Consumer Lending
Management believes that offering consumer loan products helps to
expand the Association's customer base and to create stronger ties to its
existing customer base. In addition, because consumer loans generally have
shorter terms to maturity and carry higher rates of interest than do residential
mortgage loans, they can be valuable asset/liability management tools. The
Association currently originates substantially all of its consumer loans in its
market area. At October 31, 1996, the Association's consumer loans totalled $2.6
million or 2.9% of the Association's gross loan portfolio.
52
<PAGE>
Peoples Federal offers a variety of secured consumer loans, including
automobile loans, loans secured by savings deposits, home equity lines of credit
and home improvement loans. Although the Association primarily originates
consumer loans secured by real estate, deposits or other collateral, the
Association also makes unsecured personal loans.
The largest component of the Association's consumer lending program is
its automobile loans. At October 31, 1996, automobile loans totalled $1.3
million or 1.4% of gross loans receivable. The Association makes loans directly
to the consumer to aid in the purchase of new and used vehicles, which serve as
collateral for the loan. The Association also employs other underwriting
criteria discussed below in deciding whether to extend credit.
The Association otherwise uses the same underwriting standards for
home equity lines of credit as it uses for one- to four-family residential
mortgage loans. The Association's home equity lines of credit are originated in
amounts which, together with the amount of the first mortgage, generally do not
exceed 80% of the appraised value of the property securing the loan.
At October 31, 1996, the Association had $254,000 of home equity lines of
credit and an additional $342,000 of additional funds committed, but undrawn,
under such lines.
The Association also offers a credit card program as an accommodation
to existing customers. At October 31, 1996, approximately 260 credit cards had
been issued, with an aggregate outstanding loan balance of $66,000 and unused
credit available of $305,000. The Association presently charges an annual
membership fee of $10.00 and a fixed annual rate of interest on these credit
cards.
The terms of other types of consumer loans vary according to the type
of collateral, length of contract and creditworthiness of the borrower. The
underwriting standards employed by the Association for consumer loans include a
determination of the applicant's payment history on other debts and an
assessment of the borrower's ability to meet payments on the proposed loan along
with his existing obligations. In addition to the creditworthiness of the
applicant, the underwriting process also includes a comparison of the value of
the security, if any, in relation to the proposed loan amount.
Consumer loans may entail greater risk than residential mortgage loans,
particularly in the case of consumer loans which are unsecured or secured by
rapidly depreciable assets such as automobiles. In such cases, any repossessed
collateral for defaulted consumer loans may not provide adequate sources of
repayment for the outstanding loan balances as a result of the greater
likelihood of damage, loss or depreciation. In addition, consumer loan
collections are dependent on the borrower's continuing financial stability, and
thus are more likely to be affected by adverse personal circumstances.
Furthermore, the application of various federal and state laws, including
federal and state bankruptcy and insolvency laws, may limit the amount which can
be recovered on such loans.
Land Lending
Peoples Federal makes loans to individuals who purchase and hold land
for various reasons, such as the future construction of a residence. Such loans
are generally originated with
53
<PAGE>
terms of three years and have maximum loan to value ratios of 75%. At October
31, 1996, the Association had $1.4 million or 1.5% of gross loans receivable in
land loans.
Land lending generally affords the Association an opportunity to
receive interest at rates higher than those obtainable from residential lending.
In addition, land loans are limited to a maximum 75% loan-to-value and are made
with fixed and adjustable rates of interest and for relatively short terms.
Nevertheless, land lending is generally considered to involve a higher level of
credit risk due to the fact that funds are advanced upon the security of the
land, which is of uncertain value prior to its development.
Commercial Business Lending
In order to increase the yield and interest rate sensitivity of its
loan portfolio and in order to satisfy the demand for financial services
available to individuals and businesses in its primary market area, the
Association has maintained a very small portfolio of commercial business loans.
Unlike residential mortgage loans, which generally are made on the basis of the
borrower's ability to make repayment from his or her employment and other
income, and which are secured by real property whose value tends to be more
easily ascertainable, commercial business loans are generally of higher risk and
typically are made on the basis of the borrower's ability to make repayment from
the cash flow of the borrower's business. As a result, the availability of funds
for the repayment of commercial business loans may be substantially dependent on
the success of the business itself (which, in turn, may be dependent upon the
general economic environment). During the past five years, the Association has
made commercial business loans to businesses such as small retail operations,
small manufacturing concerns and professional firms. The Association's
commercial business loans almost always include personal guarantees and are
usually, but not always, secured by business assets, such as accounts
receivable, equipment, inventory and real estate. However, the collateral
securing the loans may depreciate over time, may be difficult to appraise and
may fluctuate in value based on the success of the business.
Most of the Association's commercial business loans have terms ranging
from three months to one year and carry fixed interest rates. The underwriting
process for commercial business loans generally includes consideration of the
borrower's financial statements, tax returns, projections of future business
operations and inspection of the subject collateral, if any. At October 31,
1996, commercial business loans totalled $41,000 or .05% of the Association's
gross loans receivable.
Originations, Purchases and Sales of Loans
The Association originates real estate and other loans through
employees located at the Association's office. Walk-in customers and referrals
from real estate brokers and builders are also important sources of loan
originations. The Association has historically not utilized the services of
mortgage or loan brokers, nor purchased or sold loans from or to other lenders.
While a portfolio lender, the Association may in the future evaluate loan sale
opportunities as they arise and make sales depending on market conditions.
54
<PAGE>
The following table shows the loan origination and repayment activities
of the Association for the periods indicated.
<TABLE>
<CAPTION>
Four Months
Ended
October 31, Year Ended June 30,
1996 1996 1995 1994
--------------------------------------------------
(In Thousands)
Originations by type:
Adjustable rate:
<S> <C> <C> <C> <C>
Real estate - one- to four-family.................. $ 6,648 $15,044 $13,961 $15,175
- commercial......................... 1,030 1,366 747 1,391
- multi-family....................... --- 180 --- 265
Non-real estate - consumer......................... --- --- --- ---
- commercial business........... --- --- --- ---
--------- ---------- ---------- ----------
Total adjustable-rate....................... 7,678 16,590 14,708 16,831
------- -------- ------- --------
Fixed rate:
Real estate - one- to four-family.................. 3,532 9,458 2,964 3,958
- commercial......................... 201 121 25 77
- multi-family....................... --- --- --- ---
Non-real estate - consumer......................... 802 2,087 1,855 1,245
- commercial business........... --- 87 79 135
--------- --------- --------- ---------
Total fixed-rate............................ 4,535 11,753 4,923 5,415
------- ------- -------- --------
Total loans originated...................... 12,213 28,343 19,631 22,246
------- -------- -------- --------
Principal repayments............................... (6,599) (21,939) (14,115) (18,112)
-------- -------- -------- --------
Total reductions............................ (6,599) (21,939) (14,115) (18,112)
Increase (decrease) in other items, net(1)........... (63) (52) (149) (269)
--------- -------- -------- --------
Net increase (decrease)..................... $ 5,551 $ 6,352 $ 5,367 $ 3,865
======== ======= ======= =======
</TABLE>
- --------------
(1) Includes provision for loan losses, net deferred loan origination fees and
transfers to foreclosed assets.
Delinquencies and Non-Performing Assets
Delinquency Procedures. When a borrower fails to make a required
payment on a loan, the Association attempts to cause the delinquency to be cured
by contacting the borrower. A late notice is sent on all loans over 30 days
delinquent. Another late notice is sent 60 days after the due date followed by a
letter from the President of the Association.
If the delinquency is not cured by the 90th day, the customer may be
provided written notice that the account will be referred to counsel for
collection and foreclosure, if necessary. A good faith effort by the borrower at
this time will defer foreclosure for a reasonable length of time depending on
individual circumstances. The Association may agree to accept a deed in lieu of
foreclosure. If it becomes necessary to foreclose, the property is sold at
public sale and the Association may bid on the property to protect its interest.
The decision to foreclose is made by the Senior Loan Officer after discussion
with the members of the Executive Committee or Board of Directors.
Consumer loans are charged off if they remain delinquent for 120 days
unless the borrower and lender agree on a payment plan. If terms of the plan are
not met, they are then
55
<PAGE>
subject to charge off. The Association's procedures for repossession and sale of
consumer collateral are subject to various requirements under Ohio consumer
protection laws.
Real estate acquired by Peoples Federal as a result of foreclosure or
by deed in lieu of foreclosure is classified as real estate owned until it is
sold. When property is acquired by foreclosure or deed in lieu of foreclosure,
it is recorded at the lower of cost or estimated fair value, less estimated
selling costs, at the date of acquisition, and any write-down resulting
therefrom is charged to the allowance for loan losses. Subsequent decreases in
the value of the property are charged to operations through the creation of a
valuation allowance. After acquisition, all costs incurred in maintaining the
property are expensed. Costs relating to the development and improvement of the
property, however, are capitalized to the extent of estimated fair value less
estimated costs to sell.
The following table sets forth the Association's loan delinquencies by
type, by amount and by percentage of type at October 31, 1996.
<TABLE>
<CAPTION>
Loans Delinquent For:
60-89 Days 90 Days and Over Total Delinquent Loans
---------------------------------------------------------------------- --------------------------------
Percent Percent Percent
of Loan of Loan of Loan
Number Amount Category Number Amount Category Number Amount Category
--------------------------------------------------------------------------------------------------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Real Estate:
One- to four-family...... 14 $599 0.87% 29 $ 778 1.13% 43 $1,377 2.00%
Construction and
development............. 1 33 0.36 --- --- --- 1 33 0.36
Commercial............... --- --- --- 5 304 5.54 5 304 5.54
Multi-family............. --- --- --- --- --- --- --- --- ---
Land..................... --- --- --- 1 49 3.61 1 49 3.61
Consumer................... 7 29 1.14 7 22 0.86 14 51 2.00
Commercial business........ --- --- --- --- --- --- --- --- ---
---- ------ ----- -------- ---- -------
Total................. 22 $661 0.75% 42 $1,153 1.31% 64 $1,814 2.06%
==== ==== ==== ====== === ======
</TABLE>
Classification of Assets. Federal regulations require that each savings
institution classify its own assets on a regular basis. In addition, in
connection with examinations of savings institutions, OTS and FDIC examiners
have authority to identify problem assets and, if appropriate, require them to
be classified. There are three classifications for problem assets: Substandard,
Doubtful and Loss. Substandard assets have one or more defined weaknesses and
are characterized by the distinct possibility that the Association will sustain
some loss if the deficiencies are not corrected. Doubtful assets have the
weaknesses of Substandard assets, with the additional characteristics that the
weaknesses make collection or liquidation in full on the basis of currently
existing facts, conditions and values questionable, and there is a high
possibility of loss. An asset classified Loss is considered uncollectible and of
such little value that continuance as an asset on the balance sheet of the
institution, without establishment of a specific valuation allowance or
charge-off, is not warranted. Assets classified as Substandard or Doubtful
require the institution to establish prudent general allowances for loan losses.
If an asset or portion thereof is classified as a Loss, the institution may
charge off such amount
56
<PAGE>
against the loan loss allowance. If an institution does not agree with an
examiner's classification of an asset, it may appeal this determination to the
District Director of the OTS.
On the basis of management's review of its assets, at October 31, 1996,
the Association had classified a total of $902,000 of its loans, as follows:
<TABLE>
<CAPTION>
One- to Four- Commercial
Family Real Estate Land Consumer Total
---------------------------------------------------------------------------------
(In Thousands)
<S> <C> <C> <C> <C> <C>
Substandard................ $620 $211 $49 $15 $895
Doubtful................... --- --- --- --- ---
Loss....................... --- --- --- 7 7
------ ------ ---- ---- -----
$620 $211 $49 $22 $902
==== ==== === === ====
</TABLE>
Peoples Federal's classified assets consist of the (i) non-performing
loans and (ii) loans and other assets of concern discussed herein. As of the
date hereof, these asset classifications are consistent with those of the OTS
and FDIC.
57
<PAGE>
The table below sets forth the amounts and categories of non-performing
assets. Interest income on loans is accrued over the term of the loans based
upon the principal outstanding except where serious doubt exists as to the
collectibility of a loan, in which case the accrual of interest is discontinued.
For all years presented, the Association has had no troubled debt restructurings
(which involve forgiving a portion of interest or principal on any loans or
making loans at a rate materially less than that of market rates). Foreclosed
assets include assets acquired in settlement of loans.
<TABLE>
<CAPTION>
June 30,
October 31, -------------------------------------------------------------
1996 1996 1995 1994 1993 1992
------------- ---------- ---------- ---------- ---------- -------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Non-accruing loans:
One- to four-family........................... $ 620 $ 564 $ 494 $ 711 $ 664 $ 753
Construction and development.................. --- --- --- --- --- ---
Commercial real estate........................ 211 211 --- 17 18 47
Multi-family.................................. --- --- --- --- --- ---
Land.......................................... 49 51 214 192 --- ---
Consumer...................................... --- --- --- --- --- ---
Commercial business........................... --- --- --- --- --- ---
------- ------- ------- ------- ------- -------
Total...................................... 880 826 708 920 682 800
------- ------- ------- ------- ------- -------
Accruing loans delinquent more than 90 days:
One- to four-family........................... 158 326 604 564 1,337 1,221
Construction and development.................. --- --- --- --- --- ---
Commercial real estate........................ 93 58 86 35 105 218
Multi-family.................................. --- --- --- --- --- ---
Land.......................................... --- --- --- --- --- ---
Consumer...................................... 22 11 20 7 --- 12
Commercial business........................... --- --- --- --- 17 ---
------- ------- ------- ------- ------- -------
Total...................................... 273 395 710 606 1,459 1,451
------- ------- ------- ------- ------- -------
Foreclosed assets:
One- to four-family........................... --- --- --- --- --- ---
Construction and development.................. --- --- --- --- --- ---
Commercial real estate........................ --- --- --- --- 218 ---
Multi-family.................................. --- --- --- 74 --- ---
Land.......................................... --- --- --- --- --- ---
Consumer...................................... --- --- --- --- --- ---
Commercial business........................... --- --- --- --- --- ---
------- ------- ------- ------- ------- -------
Total...................................... --- --- --- 74 218 ---
------- ------- ------- ------- ------- -------
Total non-performing assets..................... $1,153 $1,221 $1,418 $1,600 $2,359 $2,251
======= ======= ====== ====== ====== ======
Total as a percentage of total assets........... 1.28% 1.41% 1.80% 2.10% 3.26% 3.09%
==== ==== ==== ==== ==== ====
</TABLE>
For the four months ended October 31, 1996 gross interest income which
would have been recorded had the non-accruing loans been current in accordance
with their original terms amounted to $26,057. The amount that was included in
interest income on such loans was $16,059 for the four months ended October 31,
1996.
58
<PAGE>
Other Assets of Concern. As of October 31, 1996, the Association had no
assets that are not now disclosed because of known information about the
possible credit problems of the borrowers or the cash flows of the security
property which would cause management to have some doubts as to the ability of
the borrowers to comply with present loan repayment terms and which may result
in the future inclusion of such item in the non-performing asset categories.
Allowance for Loan Losses. The allowance for loan losses is established
through a provision for loan losses charged to earnings based on management's
evaluation of the risk inherent in its entire loan portfolio and changes in the
nature and volume of its loan activity. Such evaluation, which includes a review
of all loans of which full collectibility may not be reasonably assured,
considers the estimated net realizable value of the underlying collateral,
economic conditions, historical loan loss experience and other factors that
warrant recognition in providing for an adequate allowance for loan losses. In
determining the general reserves under these policies, historical charge-offs
and recoveries, changes in the mix and levels of the various types of loans, net
realizable values, the current loan portfolio and current economic conditions
are considered. Management also considers the Association's non-performing
assets in establishing its allowance for loan losses.
As of October 31, 1996, the Association's allowance for loan losses as
a percent of gross loans receivable and as a percent of non-performing loans
amounted to 0.37% and 28.3%, respectively. In light of the level of
non-performing assets to total assets and the nature of these assets, management
believes that the allowance for loan losses is adequate. While management
believes that it uses the best information available to determine the allowance
for loan losses, unforeseen market conditions could result in adjustments to the
allowance for loan losses, and net earnings could be significantly affected, if
circumstances differ substantially from the assumptions used in making the final
determination.
59
<PAGE>
The following table sets forth an analysis of the Association's
allowance for loan losses.
<TABLE>
<CAPTION>
Four Months
Ended Year Ended June 30,
October 31, ------------------------------------------
1996 1996 1995 1994 1993 1992
------------ -------------------------------------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Balance at beginning of period....................... $307 $251 $198 $123 $ 94 $ 54
Charge-offs:
One- to four-family................................ 2 9 --- 1 --- 3
Construction and development....................... --- --- --- --- --- ---
Commercial real estate............................. --- --- --- --- --- ---
Multi-family....................................... --- --- --- --- --- ---
Consumer........................................... 3 6 4 14 18 14
Commercial business................................ --- --- --- --- --- ---
------ ------ ------ ------ ------ ------
5 15 4 15 18 17
----- ----- ----- ----- ----- -----
Recoveries:
One- to four-family................................ --- 1 --- --- --- ---
Construction and development....................... --- --- --- --- --- ---
Commercial real estate............................. --- --- --- --- --- ---
Multi-family....................................... --- --- --- --- --- ---
Consumer........................................... 4 2 2 7 6 4
Commercial business................................ --- --- --- --- --- ---
------ ------ ------ ------ ------ ------
4 3 2 7 6 4
------ ------ ------ ------ ----- ------
Net charge-offs...................................... 1 12 2 8 12 13
Additions charged to operations...................... 20 68 55 83 41 53
----- ----- ----- ----- ----- ------
Balance at end of period............................. $326 $307 $251 $198 $123 $ 94
==== ==== ==== ==== ==== =====
Ratio of net charge-offs during the period to
average loans outstanding(1) during the period...... ---% 0.02% ---% 0.01% 0.02% 0.02%
===== ==== ==== ==== ==== ====
Ratio of net charge-offs during the period to
non-performing assets at the end of the period...... 0.09% 0.98% 0.14% 0.50% 0.51% 0.58%
==== ==== ==== ==== ==== ====
</TABLE>
(1) Calculated net of deferred loan fees, loan discounts, loans in
process, and loss reserves.
60
<PAGE>
The distribution of the Association's allowance for losses on loans at
the dates indicated is summarized as follows:
<TABLE>
<CAPTION>
June 30,
October 31, -------------------------------------------------------------------------
1996 1996 1995
-------------------------------------------------------------------- ----------------------------------
Percent Percent Percent
of Loans of Loans of Loans
Loan in Each Loan in Each Loan in Each
Amount of Amounts Category Amount of Amounts Category Amount of Amounts Category Amount of
Loan Loss by to Total Loan Loss by to Total Loan Loss by to Total Loan Loss
Allowance Category Loans Allowance Category Loans Allowance Category Loans Allowance
--------- -------- ------- --------- -------- ------- --------- -------- ------- ---------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
One- to four-family..... $ 227 $68,969 78.38% $ 211 $65,448 79.60% $ 179 $59,181 78.95% $ 126
Construction and
development........... 7 9,121 10.37 4 7,091 8.63 5 6,639 8.86 3
Commercial real estate.. 36 5,490 6.24 36 5,302 6.45 7 5,750 7.67 2
Multi-family............ 1 456 .52 1 485 .59 --- 335 .45 ---
Land.................... 2 1,357 1.54 2 1,342 1.63 21 909 1.21 29
Consumer................ 53 2,555 2.90 53 2,468 3.00 39 2,125 2.83 38
Commercial business..... --- 41 .05 --- 81 .10 --- 22 .03 ---
Unallocated............. --- --- --- --- --- --- --- --- --- ---
------- ---------- ------ ------- --------- ------ ------- -------- ------ -----
Total.............. $ 326 $87,989 100.00% $ 307 $82,217 100.00% $ 251 $74,961 100.00% $ 198
===== ======= ====== ===== ======= ====== ===== ======= ====== =====
</TABLE>
<TABLE>
<CAPTION>
June 30,
1994 1993 1992
-----------------------------------------------------------------------------------------
Percent Percent Percent
of Loans of Loans of Loans
Loan in Each Loan in Each Loan in Each
Amounts Category Amount of Amounts Category Amount of Amounts Category
by to total Loan Loss by to Total Loan Loss by to Total
Category Loans Allowance Category Loans Allowance Category Loans
-------- ------- --------- -------- -------- ---------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
One- to four-family..... $53,531 77.64% $ 85 $51,547 78.72% $ 58 $46,079 76.97%
Construction and
development........... 6,254 9.07 --- 5,185 7.92 --- 4,498 7.51
Commercial real estate.. 6,080 8.82 --- 5,595 8.54 --- 5,726 9.56
Multi-family............ 579 .84 --- 624 .95 --- 855 1.43
Land.................... 805 1.16 --- 810 1.24 --- 805 1.35
Consumer................ 1,645 2.39 38 1,641 2.51 36 1,810 3.02
Commercial business..... 55 .08 --- 79 .12 --- 93 .16
Unallocated............. --- --- --- --- --- --- --- ---
---------- ---- ------- ---------- ---- ------- ------- -------
Total.............. $68,949 100.00% $ 123 $65,481 100.00% $ 94 $59,866 100.00%
======= ====== ===== ======= ====== ===== ======= ======
</TABLE>
61
<PAGE>
Investment Activities
As part of its asset/liability management strategy, the Association
invests in U.S. government and agency obligations to supplement its lending
activities. The Association's investment policy also allows for investments in
overnight funds, mortgage-backed securities and certificates of deposit. The
Association may consider the expansion of investments into other securities if
deemed appropriate. At October 31, 1996, the Association did not own any
securities of a single issuer which exceeded 10% of the Association's retained
earnings, other than U.S. government or federal agency obligations. See Note 2
of the Notes to the Financial Statements for additional information regarding
the Association's investment securities portfolio.
The Association is required by federal regulations to maintain a
minimum amount of liquid assets that may be invested in specified securities and
is also permitted to make certain other securities investments. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital." Cash flow projections are regularly
reviewed and updated to assure that adequate liquidity is provided. As of
October 31, 1996, the Association's liquidity ratio (liquid assets as a
percentage of net withdrawable savings and current borrowings) was 6.8% as
compared to the OTS requirement of 5.0%.
All of the Association's investment securities are classified as held
to maturity. The Association may elect to classify investment securities
acquired in the future as trading securities or as available for sale, instead
of as held to maturity, but there are no current plans to do so.
62
<PAGE>
The following table sets forth the composition of the Association's
investment securities at the dates indicated.
<TABLE>
<CAPTION>
October 31, June 30,
1996 1996 1995
-------------------------- -------------------------- -----------------------
Book % of Book % of Book % of
Value Total Value Total Value Total
(Dollars in Thousands)
Investment securities:
<S> <C> <C> <C> <C>
U.S. government securities...................... $ --- -- $ --- ---% $ 498 13.39%
Federal agency obligations...................... 2,099 72.93 2,598 59.52 2,600 69.89
Time deposits................................... 100 3.48 1,100 25.20 --- ---
-------- ------ ------ ------ ------- ------
Subtotal..................................... 2,199 76.41 3,698 84.72 3,098 83.28
FHLB stock........................................ 679 23.59 667 15.28 622 16.72
-------- ------ ------ ------ ------- ------
Total investment securities and FHLB stock... $ 2,878 100.00% $4,365 100.00% $ 3,720 100.00%
======= ====== ====== ====== ======= ======
Average remaining life of investment securities
and time deposits............................... 1.52 years 1.21 years 1.89 years
Other interest-earning assets:
Interest-bearing deposits with banks............ $ 1,181 100.00% $1,355 57.54% $ 655 56.71%
Overnight deposits.............................. --- --- 1,000 42.46 500 43.29
-------- ------ ------ ------ ------- ------
Total........................................ $ 1,181 100.00% $2,355 100.00% $1,155 100.00%
======= ====== ====== ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
June 30,
1994
----------------------
Book % of
Value Total
----- -----
<S> <C> <C>
Investment securities:
U.S. government securities...................... $ 496 11.90%
Federal agency obligations...................... 3,100 74.38
Time deposits................................... --- ---
------- -------
Subtotal..................................... 3,596 86.28
FHLB stock........................................ 572 13.72
------- -------
Total investment securities and FHLB stock... $4,168 100.00%
======= =======
Average remaining life of investment securities
and time deposits............................... 1.91 years
Other interest-earning assets:
Interest-bearing deposits with banks............ $1,171 36.93%
Overnight deposits.............................. 2,000 63.07
------ ------
Total........................................ $3,171 100.00%
====== ======
</TABLE>
63
<PAGE>
The composition and maturities of the time deposit and investment
securities portfolios, excluding FHLB stock, are indicated in the following
table.
<TABLE>
<CAPTION>
October 31, 1996
-------------------------------------------------------------------------------
Less Than 1 to 5 5 to 10 Over Total Investment Securities
1 Year Years Years 10 Years and Time Deposit
-------------------------------------------------------------------------------
Book Value Book Value Book Value Book Value Book Value Fair Value
-------------------------------------------------------------------------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Time deposits............................... $100 $ --- $ --- $ --- $ 100 $ 100
Federal agency obligations.................. 100 1,999 --- --- 2,099 2,091
---- ------- ------ ------ ------- -------
Total investment securities and time
deposits.................................. $200 $1,999 $ --- $ --- $2,199 $2,191
==== ====== ====== ====== ====== ======
Weighted average yield...................... 4.85% 5.66% ---% ---% 5.59% 5.59%
</TABLE>
Mortgage-Backed Securities. The Association has no mortgage-backed
securities. From time to time, the Association has considered purchasing such
securities to supplement loan production or for other reasons, and reserves the
right to do so in the future, but the Association currently has no plans to
purchase such securities.
Sources of Funds
General. The Association's primary sources of funds are deposits,
amortization and prepayment of loan principal, maturities of investment
securities, short-term investments and funds provided from operations as well as
FHLB advances.
Deposits. Peoples Federal offers a variety of deposit accounts having a
wide range of interest rates and terms. The Association's deposits consist of
passbook accounts, statement savings, NOW accounts, Christmas Club and money
market and certificate accounts. The Association relies primarily on
advertising, including newspaper and radio, competitive pricing policies and
customer service to attract and retain these deposits. Neither premiums nor
brokered deposits are utilized.
The flow of deposits is influenced significantly by general economic
conditions, changes in money market and prevailing interest rates and
competition. See "- Competition."
The variety of deposit accounts offered by the Association has allowed
it to be competitive in obtaining funds and to respond with flexibility to
changes in consumer demand. The Association has become more susceptible to
short-term fluctuations in deposit flows, as customers have become more interest
rate conscious. The Association manages the pricing of its deposits in keeping
with its asset/liability management, profitability and growth objectives. Based
on its experience, the Association believes that its passbook, demand and NOW
accounts are relatively stable sources of deposits. However, the ability of the
Association to attract and maintain certificate deposits, and the rates paid on
these deposits, has been and will continue to be significantly affected by
market conditions.
64
<PAGE>
The following table sets forth the savings flows at the Association
during the periods indicated.
<TABLE>
<CAPTION>
Four Months
Ended Year Ended June 30,
October 31, ----------------------------------
1996 1996 1995 1994
------- ------- ------- -------
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Opening balance............................. $77,318 $70,306 $68,367 $65,168
Deposits.................................... 29,506 70,928 63,924 63,469
Withdrawals................................. 27,878 66,928 64,399 62,427
Interest credited........................... 933 3,012 2,414 2,157
------- ------- ------- -------
Ending balance.............................. $79,879 $77,318 $70,306 $68,367
======= ======= ======= =======
Net increase (decrease)..................... $ 2,561 $ 7,012 $ 1,939 $ 3,199
======= ======= ======= =======
Percent increase (decrease) 3.31% 9.97% 2.84% 4.91%
==== ==== ==== ====
</TABLE>
65
<PAGE>
The following table sets forth the dollar amount of savings deposits in
the various types of deposit programs offered by the Association at the periods
indicated.
<TABLE>
<CAPTION>
October 31, June 30,
1996 1996 1995 1994
-------------------------------------------------------------------------------------------
Percent Percent Percent Percent
Amount of Total Amount of Total Amount of Total Amount of Total
(Dollars in Thousands)
Transactions and Savings Deposits:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Noninterest bearing demand........ $ 142 0.18% $ 118 0.15 $ 158 0.22 $ 94 0.14%
Savings Accounts - 3.05%......... 16,950 21.16 19,039 24.60 18,439 26.19 20,791 30.38
NOW Accounts - 2.42%.............. 3,256 4.07 3,184 4.11 3,257 4.63 3,026 4.42
Money Market Accounts - 2.50%..... 1,053 1.31 1,236 1.60 1,455 2.07 1,889 2.76
------- ------- --------- -------- -------- ------- ------- -------
Total Non-Certificates............ 21,401 26.72 23,577 30.46 23,309 33.11 25,800 37.70
------- ------- -------- ------- -------- ------ ------- ------
Certificates:
0.00 - 1.99%.................... --- --- --- --- --- --- --- ---
2.00 - 3.99%.................... 2 --- 2 --- 35 0.05 8,057 11.77
4.00 - 5.99%.................... 28,681 35.82 32,233 41.64 31,129 44.22 33,781 49.36
6.00 - 7.99%.................... 29,795 37.20 21,506 27.79 15,775 22.41 314 0.46
8.00 - 9.99%.................... --- --- --- --- 58 0.08 415 0.61
10.00% and over................... --- --- --- --- --- --- --- ---
---------- ------- ---------- -------- ---------- -------- --------- -------
Total Certificates................ 58,478 73.02 53,741 69.43 46,997 66.76 42,567 62.20
-------- ------ -------- ------ -------- ------ ------- ------
Accrued Interest.................. 211 0.26 82 0.11 92 0.13 74 0.10
--------- ------- --------- ------- --------- ------- --------- -------
Total Deposits.................... $80,090 100.00% $77,400 100.00% $70,398 100.00% $68,441 100.00%
======= ====== ======= ====== ======= ====== ======= ======
</TABLE>
66
<PAGE>
The following table shows rate and maturity information for the
Association's certificates of deposit as of October 31, 1996.
<TABLE>
<CAPTION>
2.00- 4.00- 6.00- Percent
3.99% 5.99% 7.99% Total of Total
-------------------------- -------------------------- ----------
(Dollars in Thousands)
Certificate accounts
maturing
in quarter ending:
<S> <C> <C> <C> <C> <C>
December 31, 1996.............. $ --- $3,956 $ 753 $4,709 8.05%
March 31, 1997................. --- 5,008 2,744 7,752 13.26
June 30, 1997.................. --- 3,855 1,469 5,324 9.10
September 30, 1997............. --- 2,845 3,100 5,945 10.17
December 31, 1997.............. --- 2,664 2,221 4,885 8.35
March 31, 1998................. --- 1,224 4,435 5,659 9.68
June 30, 1998.................. --- 2,008 6,227 8,235 14.08
September 30, 1998............. --- 2,322 2,852 5,174 8.85
December 31, 1998.............. --- 1,604 1,083 2,687 4.60
March 31, 1999................. --- 2,525 470 2,995 5.12
June 30, 1999.................. --- 265 643 908 1.55
September 30, 1999............. --- 42 59 101 .17
Thereafter..................... 2 363 3,739 4,104 7.02
---- --------- -------- --------- -------
Total....................... $ 2 $28,681 $29,795 $ 58,478 100.00%
==== ======= ======= ======== ======
Percent of total............ ---% 49.05% 50.95%
===== ====== ======
</TABLE>
At October 31, 1996 the Association had approximately $4.8 million in
certificate accounts in amounts of $100,000 or more maturing as follows:
<TABLE>
<CAPTION>
Weighted
Maturity Period Amount Average Rate
--------------- ------ ------------
(Dollars in thousands)
<S> <C> <C>
Three months or less.......................................... $ 518 4.92%
Over three through six months................................. 804 5.81
Over six through 12 months.................................... 745 5.59
Over 12 months................................................ 2,743 6.20
-------
Total......................................................... $4,810 5.90
======
</TABLE>
For additional information regarding the composition of the
Association's deposits, see Note 7 of Notes to Financial Statements.
Borrowings. Peoples Federal's other available sources of funds, not
currently utilized, include advances from the FHLB of Cincinnati and other
borrowings. As a member of the FHLB of Cincinnati, the Association is required
to own capital stock in the FHLB of Cincinnati and is authorized to apply for
advances from the FHLB of Cincinnati. Each FHLB credit program has its own
interest rate, which may be fixed or variable, and range of maturities. The
67
<PAGE>
FHLB of Cincinnati may prescribe the acceptable uses for these advances, as well
as limitations on the size of the advances and repayment provisions.
The following table sets forth the maximum month-end balance and
average balance of FHLB advances for the periods indicated. The Association did
not have any outstanding borrowings at the periods indicated.
<TABLE>
<CAPTION>
Four Months
Ended Year Ended June 30,
October 31, --------------------------------
1996 1996 1995 1994
----------- ---- ---- ----
(In Thousands)
<S> <C> <C> <C> <C>
FHLB advances........................................... $3,500 $ --- $ --- $ ---
Average Balance:
FHLB advances........................................... $1,744 $ --- $ --- $ ---
Weighted Average Rate................................... 5.68% ---% ---% ---%
</TABLE>
Service Corporations
As a federally chartered savings association, Peoples Federal is
permitted by OTS regulations to invest up to 2% of its assets, or $1.8 million
at October 31, 1996, in the stock of, or loans to, service corporation
subsidiaries. As of such date, Peoples Federal had no investment in service
corporations.
Competition
Peoples Federal experiences strong competition both in originating real
estate loans and in attracting deposits. This competition arises from a highly
competitive market area with numerous savings institutions and commercial banks,
as well as credit unions, mortgage bankers and national and local securities
firms. The Association competes for loans principally on the basis of the
interest rates and loan fees it charges, the types of loans it originates and
the quality of services it provides to borrowers.
The Association attracts all of its deposits through the community in
which its office is located; therefore, competition for those deposits is
principally from other savings institutions, commercial banks, securities firms,
money market and mutual funds and credit unions located in the same community.
The ability of the Association to attract and retain deposits depends on its
ability to provide an investment opportunity that satisfies the requirements of
investors as to rate of return, liquidity, risk, convenient locations and other
factors. The Association competes for these deposits by offering a variety of
deposit accounts at competitive rates, convenient business hours and a
customer-oriented staff. At October 31, 1996, Shelby County had six banks with
20 offices and one home-based thrift with one office. The Association estimates
its market share of savings deposits in the Shelby County market area to be
approximately 12%.
68
<PAGE>
Employees
At October 31, 1996, the Association had a total of 16 full-time
employees, 12 of which have been employed by Peoples Federal for at least 10
years, and four part-time employees. None of the Association's employees are
represented by any collective bargaining group.
Management considers its employee relations to be good.
Properties
The following table sets forth information concerning the main office
and a drive-in facility of the Association at October 31, 1996. The Association
believes that its current facilities are adequate. The Association also
maintains a 24-hour ATM at its main office location.
Net Book
Owned Value at
Year or October 31,
Location Opened Leased 1996
-------- ------ ------ -----------
Main Office:
101 East Court Street 1963 Owned $257,000
Sidney, Ohio 45365
Drive-In:
232 S. Ohio Avenue 1975 Owned $192,000
Sidney, Ohio 45365
The Association's depositor and borrower customer files are maintained
by an independent data processing company. The net book value of the data
processing and computer equipment utilized by the Association at October 31,
1996 was approximately $67,000.
Legal Proceedings
From time to time, Peoples Federal is involved as plaintiff or
defendant in various legal proceedings arising in the normal course of its
business. While the ultimate outcome of these various legal proceedings cannot
be predicted with certainty, it is the opinion of management that the resolution
of these legal actions should not have a material effect on Peoples Federal's
financial position or results of operations.
69
<PAGE>
REGULATION
General
Peoples Federal is a federally chartered savings association, the
deposits of which are federally insured and backed by the full faith and credit
of the United States Government. Accordingly, Peoples Federal is subject to
broad federal regulation and oversight extending to all its operations. Peoples
Federal is a member of the FHLB of Cincinnati and is subject to certain limited
regulation by the Board of Governors of the Federal Reserve System ("Federal
Reserve Board"). As the savings and loan holding company of Peoples Federal, the
Holding Company also is subject to federal regulation and oversight. The purpose
of the regulation of the Holding Company and other holding companies is to
protect subsidiary savings associations. Peoples Federal is a member of the
SAIF, which together with the BIF are the two deposit insurance funds
administered by the FDIC, and the deposits of Peoples Federal are insured by the
FDIC. As a result, the FDIC has certain regulatory and examination authority
over Peoples Federal.
Certain of these regulatory requirements and restrictions are discussed
below or elsewhere in this document.
Federal Regulation of Savings Associations
The OTS has extensive authority over the operations of savings
associations. As part of this authority, Peoples Federal is required to file
periodic reports with the OTS and is subject to periodic examinations by the OTS
and the FDIC. The last regular OTS examination of Peoples Federal was as of
June, 1995. Under agency scheduling guidelines, it is likely that another
examination will be initiated in the near future. When these examinations are
conducted by the OTS and the FDIC, the examiners may require the Association to
provide for higher general or specific loan loss reserves. All savings
associations are subject to a semi-annual assessment, based upon the savings
association's total assets, to fund the operations of the OTS. The Association's
OTS assessment for the fiscal year ended June 30, 1996, was $27,000.
The OTS also has extensive enforcement authority over all savings
institutions and their holding companies, including Peoples Federal and the
Holding Company. This enforcement authority includes, among other things, the
ability to assess civil money penalties, to issue cease- and-desist or removal
orders and to initiate injunctive actions. In general, these enforcement actions
may be initiated for violations of laws and regulations and unsafe or unsound
practices. Other actions or inactions may provide the basis for enforcement
action, including misleading or untimely reports filed with the OTS. Except
under certain circumstances, public disclosure of final enforcement actions by
the OTS is required.
In addition, the investment, lending and branching authority of the
Association is prescribed by federal laws and it is prohibited from engaging in
any activities not permitted by such laws. For instance, no savings institution
may invest in non-investment grade corporate debt securities. In addition, the
permissible level of investment by federal associations in loans secured by
non-residential real property may not exceed 400% of total capital, except with
70
<PAGE>
approval of the OTS. Federal savings associations are also generally authorized
to branch nationwide. Peoples Federal is in compliance with the noted
restrictions.
Peoples Federal's general permissible lending limit for
loans-to-one-borrower is equal to the greater of $500,000 or 15% of unimpaired
capital and surplus (except for loans fully secured by certain readily
marketable collateral, in which case this limit is increased to 25% of
unimpaired capital and surplus). At October 31, 1996, the Association's lending
limit under this restriction was $1.38 million. Assuming the sale of the minimum
number of shares in the Conversion at October 31, 1996, that limit would be
increased to $2.7 million. Peoples Federal is in compliance with the
loans-to-one-borrower limitation.
The OTS, as well as the other federal banking agencies, has adopted
guidelines establishing safety and soundness standards on such matters as loan
underwriting and documentation, asset quality, earnings standards, internal
controls and audit systems, interest rate risk exposure and compensation and
other employee benefits. Any institution which fails to comply with these
standards must submit a compliance plan.
Insurance of Accounts and Regulation by the FDIC
Peoples Federal is a member of the SAIF, which is administered by the
FDIC. Deposits are insured up to applicable limits by the FDIC and such
insurance is backed by the full faith and credit of the United States
Government. As insurer, the FDIC imposes deposit insurance premiums and is
authorized to conduct examinations of and to require reporting by FDIC-insured
institutions. It also may prohibit any FDIC-insured institution from engaging in
any activity the FDIC determines by regulation or order to pose a serious risk
to the SAIF or the BIF. The FDIC also has the authority to initiate enforcement
actions against savings associations, after giving the OTS an opportunity to
take such action, and may terminate the deposit insurance if it determines that
the institution has engaged in unsafe or unsound practices or is in an unsafe or
unsound condition.
The FDIC's deposit insurance premiums are assessed through a risk-based
system under which all insured depository institutions are placed into one of
nine categories and assessed insurance premiums based upon their level of
capital and supervisory evaluation. Under the system, institutions classified as
well capitalized (i.e., a core capital ratio of at least 5%, a ratio of Tier 1
or core capital to risk-weighted assets ("Tier 1 risk-based capital") of at
least 6% and a risk-based capital ratio of at least 10%) and considered healthy
pay the lowest premium while institutions that are less than adequately
capitalized (i.e., core or Tier 1 risk-based capital ratios of less than 4% or a
risk-based capital ratio of less than 8%) and considered of substantial
supervisory concern pay the highest premium. Risk classification of all insured
institutions is made by the FDIC for each semi-annual assessment period.
The FDIC is authorized to increase assessment rates, on a semiannual
basis, if it determines that the reserve ratio of the SAIF will be less than the
designated reserve ratio of 1.25% of SAIF insured deposits. In setting these
increased assessments, the FDIC must seek to restore the reserve ratio to that
designated reserve level, or such higher reserve ratio as established by the
FDIC. The FDIC may also impose special assessments on SAIF members
71
<PAGE>
to repay amounts borrowed from the United States Treasury or for any other
reason deemed necessary by the FDIC.
For the first six months of 1995, the assessment schedule for BIF
members and SAIF members ranged from .23% to .31% of deposits. As is the case
with the SAIF, the FDIC is authorized to adjust the insurance premium rates for
banks that are insured by the BIF of the FDIC in order to maintain the reserve
ratio of the BIF at 1.25% of BIF insured deposits. As a result of the BIF
reaching its statutory reserve ratio the FDIC revised the premium schedule for
BIF insured institutions to provide a range of .04% to .31% of deposits. The
revisions became effective in the third quarter of 1995. In addition, the BIF
rates were further revised, effective January 1996, to provide a range of 0% to
.27%. The SAIF rates, however, were not adjusted. At the time the FDIC revised
the BIF premium schedule, it noted that, absent legislative action (as discussed
below), the SAIF would not attain its designated reserve ratio until the year
2002. As a result, SAIF insured members would continue to be generally subject
to higher deposit insurance premiums than BIF insured institutions until, all
things being equal, the SAIF attained its required reserve ratio.
In order to eliminate this disparity and any competitive disadvantage
between BIF and SAIF member institutions with respect to deposit insurance
premiums, legislation to recapitalize the SAIF was enacted in September 1996.
The legislation provides for a one-time assessment to be imposed on all deposits
assessed at the SAIF rates, as of March 31, 1995, in order to recapitalize the
SAIF. It also provides for the merger of the BIF and the SAIF on January 1, 1999
if no savings associations then exist. The special assessment rate was
established at .657% of deposits by the FDIC and the resulting assessment of
$456,000 on the Association was paid in November 1996. This special assessment
significantly increased noninterest expense and adversely affected Peoples
Federal's results of operations for the four months ended October 31, 1996. As a
result of the special assessment, Peoples Federal's deposit insurance premiums
were reduced to .065 basis points based upon its current risk classification and
the new assessment schedule for SAIF insured institutions. These premiums are
subject to change in future periods.
Prior to the enactment of the legislation, a portion of the SAIF
assessment imposed on savings associations was used to repay obligations issued
by a federally chartered corporation to provide financing ("FICO") for resolving
the thrift crisis in the 1980s. Although the FDIC has proposed that the SAIF
assessment be equalized with the BIF assessment schedule, effective October 1,
1996, SAIF-insured institutions will continue to be subject to a FICO assessment
as a result of this continuing obligation. Although the legislation also now
requires assessments to be made on BIF-assessable deposits for this purpose,
effective January 1, 1997, that assessment will be limited to 20% of the rate
imposed on SAIF assessable deposits until the earlier of September 30, 1999 or
when no savings association continues to exist, thereby imposing a greater
burden on SAIF member institutions such as Peoples Federal. Thereafter, however,
assessments on BIF-member institutions will be made on the same basis as SAIF-
member institutions.
Regulatory Capital Requirements
Federally insured savings associations, such as Peoples Federal, are
required to maintain a minimum level of regulatory capital. The OTS has
established capital standards, including a
72
<PAGE>
tangible capital requirement, a leverage ratio (or core capital) requirement and
a risk-based capital requirement applicable to such savings associations. These
capital requirements must be generally as stringent as the comparable capital
requirements for national banks. The OTS is also authorized to impose capital
requirements in excess of these standards on individual associations on a
case-by-case basis.
The capital regulations require tangible capital of at least 1.5% of
adjusted total assets (as defined by regulation). Tangible capital generally
includes common stockholders' equity and retained income, and certain
noncumulative perpetual preferred stock and related income. In addition, all
intangible assets, other than a limited amount of purchased mortgage servicing
rights, must be deducted from tangible capital for calculating compliance with
the requirement. At October 31, 1996, the Association did not have any
intangible assets.
The OTS regulations establish special capitalization requirements for
savings associations that own subsidiaries. In determining compliance with the
capital requirements, all subsidiaries engaged solely in activities permissible
for national banks or engaged in certain other activities solely as agent for
its customers are "includable" subsidiaries that are consolidated for capital
purposes in proportion to the association's level of ownership. For excludable
subsidiaries the debt and equity investments in such subsidiaries are deducted
from assets and capital. Peoples Federal does not have any subsidiaries.
At October 31, 1996, Peoples Federal had tangible capital of $9.2
million, or 10.2% of total assets, which is approximately $7.8 million above the
minimum requirement of 1.5% of adjusted total assets in effect on that date. On
a pro forma basis, after giving effect to the sale of the minimum, midpoint and
maximum number of shares of Common Stock offered in the Conversion and
investment of 50% of the net proceeds in assets not excluded for tangible
capital purposes, Peoples Federal would have had tangible capital equal to
14.2%, 14.9% and 15.6%, respectively, of adjusted total assets at October 31,
1996, which is $12.0 million, $12.8 million and $13.5 million, respectively,
above the requirement.
The capital standards also require core capital equal to at least 3% of
adjusted total assets. Core capital generally consists of tangible capital plus
certain intangible assets, including a limited amount of purchased credit card
relationships. As a result of the prompt corrective action provisions discussed
below, however, a savings association must maintain a core capital ratio of at
least 4% to be considered adequately capitalized unless its supervisory
condition is such to allow it to maintain a 3% ratio. At October 31, 1996,
Peoples Federal had no intangibles which were subject to these tests.
At October 31, 1996, Peoples Federal had core capital equal to $9.2
million, or 10.2% of adjusted total assets, which is $6.5 million above the
minimum leverage ratio requirement of 3% as in effect on that date. On a pro
forma basis, after giving effect to the sale of the minimum, midpoint and
maximum number of shares of Common Stock offered in the Conversion and
investment of 50% of the net proceeds in assets not excluded from core capital,
Peoples Federal would have had core capital equal to 14.2%, 14.9% and 15.6%,
respectively, of adjusted total assets at October 31, 1996, which is $10.6
million, $11.3 million and $12.1 million, respectively, above the requirement.
73
<PAGE>
The OTS risk-based requirement requires savings associations to have
total capital of at least 8% of risk-weighted assets. Total capital consists of
core capital, as defined above, and supplementary capital. Supplementary capital
consists of certain permanent and maturing capital instruments that do not
qualify as core capital and general valuation loan and lease loss allowances up
to a maximum of 1.25% of risk-weighted assets. Supplementary capital may be used
to satisfy the risk-based requirement only to the extent of core capital. The
OTS is also authorized to require a savings association to maintain an
additional amount of total capital to account for concentration of credit risk
and the risk of non-traditional activities. At October 31, 1996, Peoples Federal
had $326,000 of general loss reserves, which was less than 1.25% of
risk-weighted assets.
Certain exclusions from capital and assets are required to be made for
the purpose of calculating total capital. Such exclusions consist of equity
investments (as defined by regulation) and that portion of land loans and
nonresidential construction loans in excess of an 80% loan-to-value ratio and
reciprocal holdings of qualifying capital instruments. Peoples Federal had no
such exclusions from capital and assets at October 31, 1996.
In determining the amount of risk-weighted assets, all assets,
including certain off-balance sheet items, will be multiplied by a risk weight,
ranging from 0% to 100%, based on the risk inherent in the type of asset. For
example, the OTS has assigned a risk weight of 50% for prudently underwritten
permanent one- to four-family first lien mortgage loans not more than 90 days
delinquent and having a loan to value ratio of not more than 80% at origination
unless insured to such ratio by an insurer approved by the FNMA or FHLMC.
OTS regulations also require that every savings association with more
than normal interest rate risk exposure to deduct from its total capital, for
purposes of determining compliance with such requirement, an amount equal to 50%
of its interest-rate risk exposure multiplied by the present value of its
assets. This exposure is a measure of the potential decline in the net portfolio
value of a savings association, greater than 2% of the present value of its
assets, based upon a hypothetical 200 basis point increase or decrease in
interest rates (whichever results in a greater decline). Net portfolio value is
the present value of expected cash flows from assets, liabilities and
off-balance sheet contracts. The rule will not become effective until the OTS
evaluates the process by which savings associations may appeal an interest rate
risk deduction determination. It is uncertain as to when this evaluation may be
completed. Any savings association with less than $300 million in assets and a
total capital ratio in excess of 12% is exempt from this requirement unless the
OTS determines otherwise. At the present time, the proposal is not expected to
have a material impact on the Association.
On October 31, 1996, Peoples Federal had total capital of $9.5 million
(including $9.2 million in core capital and $326,000 in qualifying supplementary
capital) and risk-weighted assets of $57.8 million; or total capital of 16.5% of
risk-weighted assets. This amount was $4.9 million above the 8% requirement in
effect on that date. On a pro forma basis, after giving effect to the sale of
the minimum, midpoint and maximum number of shares of Common Stock offered in
the Conversion, the infusion to the Association of 50% of the net Conversion
proceeds and the investment of those proceeds in 20% risk-weighted government
securities, Peoples Federal would have had total capital of 23.4%, 24.7% and
25.9%, respectively, of risk-weighted
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assets, which is above the current 8% requirement by $9.0 million, $9.8 million
and $10.6 million, respectively.
The OTS and the FDIC are authorized and, under certain circumstances
required, to take certain actions against savings associations that fail to meet
their capital requirements. The OTS is generally required to take action to
restrict the activities of an "undercapitalized association" (generally defined
to be one with less than either a 4% core capital ratio, a 4% Tier 1 risked-
based capital ratio or an 8% risk-based capital ratio). Any such association
must submit a capital restoration plan and until such plan is approved by the
OTS may not increase its assets, acquire another institution, establish a branch
or engage in any new activities, and generally may not make capital
distributions. The OTS is authorized to impose the additional restrictions that
are applicable to significantly undercapitalized associations.
As a condition to the approval of the capital restoration plan, any
company controlling an undercapitalized association must agree that it will
enter into a limited capital maintenance guarantee with respect to the
institution's achievement of its capital requirements.
Any savings association that fails to comply with its capital plan or
is "significantly undercapitalized" (i.e., Tier 1 risk-based or core capital
ratios of less than 3% or a risk-based capital ratio of less than 6%) must be
made subject to one or more of additional specified actions and operating
restrictions which may cover all aspects of its operations and include a forced
merger or acquisition of the association. An association that becomes
"critically undercapitalized" (i.e., a tangible capital ratio of 2% or less) is
subject to further mandatory restrictions on its activities in addition to those
applicable to significantly undercapitalized associations. In addition, the OTS
must appoint a receiver (or conservator with the concurrence of the FDIC) for a
savings association, with certain limited exceptions, within 90 days after it
becomes critically undercapitalized. Any undercapitalized association is also
subject to the general enforcement authority of the OTS and the FDIC, including
the appointment of a conservator or a receiver.
The OTS is also generally authorized to reclassify an association into
a lower capital category and impose the restrictions applicable to such category
if the institution is engaged in unsafe or unsound practices or is in an unsafe
or unsound condition.
The imposition by the OTS or the FDIC of any of these measures on the
Association may have a substantial adverse effect on its operations and
profitability.
Limitations on Dividends and Other Capital Distributions
OTS regulations impose various restrictions on savings associations
with respect to their ability to make distributions of capital, which include
dividends, stock redemptions or repurchases, cash-out mergers and other
transactions charged to the capital account. OTS regulations also prohibit a
savings association from declaring or paying any dividends or from repurchasing
any of its stock if, as a result, the regulatory capital of the association
would be reduced below the amount required to be maintained for the liquidation
account established in connection with its mutual to stock conversion. See "The
Conversion--Effects of Conversion
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to Stock Form on Depositors and Borrowers of the Association" and
"--Restrictions on Repurchase of Stock".
Generally, savings associations, such as the Peoples Federal, that
before and after the proposed distribution meet their capital requirements, may
make capital distributions during any calendar year equal to the greater of 100%
of net income for the year-to-date plus 50% of the amount by which the lesser of
the association's tangible, core or risk-based capital exceeds its capital
requirement for such capital component, as measured at the beginning of the
calendar year, or 75% of their net income for the most recent four quarter
period. However, an association deemed to be in need of more than normal
supervision by the OTS may have its dividend authority restricted by the OTS.
Peoples Federal may pay dividends in accordance with this general authority.
Savings associations proposing to make any capital distribution need
only submit written notice to the OTS 30 days prior to such distribution.
Savings associations that do not, or would not meet their current minimum
capital requirements following a proposed capital distribution, however, must
obtain OTS approval prior to making such distribution. The OTS may object to the
distribution during that 30-day period notice based on safety and soundness
concerns. See "- Regulatory Capital Requirements."
The OTS has proposed regulations that would revise the current capital
distribution restrictions. Under the proposal a savings association may make a
capital distribution without notice to the OTS (unless it is a subsidiary of a
holding company) provided that it has a CAMEL 1 or 2 rating, is not of
supervisory concern, and would remain adequately capitalized (as defined in the
OTS prompt corrective action regulations) following the proposed distribution.
Savings associations that would remain adequately capitalized following the
proposed distribution but do not meet the other noted requirements must notify
the OTS 30 days prior to declaring a capital distribution. The OTS stated it
will generally regard as permissible that amount of capital distributions that
do not exceed 50% of the institution's excess regulatory capital plus net income
to date during the calendar year. A savings association may not make a capital
distribution without prior approval of the OTS and the FDIC if it is
undercapitalized before, or as a result of, such a distribution. As under the
current rule, the OTS may object to a capital distribution if it would
constitute an unsafe or unsound practice. No assurance may be given as to
whether or in what form the regulations may be adopted.
Liquidity
All savings associations, including Peoples Federal, are required to
maintain an average daily balance of liquid assets equal to a certain percentage
of the sum of its average daily balance of net withdrawable deposit accounts and
borrowings payable in one year or less. For a discussion of what Peoples Federal
includes in liquid assets, see "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Liquidity and Capital
Resources." This liquid asset ratio requirement may vary from time to time
(between 4% and 10%) depending upon economic conditions and savings flows of all
savings associations. At the present time, the minimum liquid asset ratio is 5%.
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In addition, short-term liquid assets (e.g., cash, certain time
deposits, certain bankers acceptances and short-term United States Treasury
obligations) currently must constitute at least 1% of the association's average
daily balance of net withdrawable deposit accounts and current borrowings.
Penalties may be imposed upon associations for violations of either liquid asset
ratio requirement. At October 31, 1996, the Association was in compliance with
both requirements, with an overall liquid asset ratio of 6.8% and a short-term
liquid assets ratio of 4.2%.
Qualified Thrift Lender Test
All savings associations, including Peoples Federal, are required to
meet a qualified thrift lender ("QTL") test to avoid certain restrictions on
their operations. This test requires a savings association to have at least 65%
of its portfolio assets (as defined by regulation) in qualified thrift
investments on a monthly average for nine out of every 12 months on a rolling
basis. As an alternative, the savings association may maintain 60% of its assets
in those assets specified in Section 7701(a)(19) of the Internal Revenue Code.
Under either test, such assets primarily consist of residential housing related
loans and investments. At October 31, 1996, the Association met the test and has
always met the test since its effectiveness.
Any savings association that fails to meet the QTL test must convert to
a national bank charter, unless it requalifies as a QTL and thereafter remains a
QTL. If an association does not requalify and converts to a national bank
charter, it must remain SAIF-insured until the FDIC permits it to transfer to
the BIF. If such an association has not yet requalified or converted to a
national bank, its new investments and activities are limited to those
permissible for both a savings association and a national bank, and it is
limited to national bank branching rights in its home state. In addition, the
association is immediately ineligible to receive any new FHLB borrowings and is
subject to national bank limits for payment of dividends. If such association
has not requalified or converted to a national bank within three years after the
failure, it must divest of all investments and cease all activities not
permissible for a national bank. In addition, it must repay promptly any
outstanding FHLB borrowings, which may result in prepayment penalties. If any
association that fails the QTL test is controlled by a holding company, then
within one year after the failure, the holding company must register as a bank
holding company and become subject to all restrictions on bank holding
companies. See "- Holding Company Regulation."
Community Reinvestment Act
Under the Community Reinvestment Act ("CRA"), every FDIC insured
institution has a continuing and affirmative obligation consistent with safe and
sound banking practices to help meet the credit needs of its entire community,
including low and moderate income neighborhoods. The CRA does not establish
specific lending requirements or programs for financial institutions nor does it
limit an institution's discretion to develop the types of products and services
that it believes are best suited to its particular community, consistent with
the CRA. The CRA requires the OTS, in connection with the examination of Peoples
Federal, to assess the institution's record of meeting the credit needs of its
community and to take such record into account in its evaluation of certain
applications, such as a merger or the establishment of a
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branch, by Peoples Federal. An unsatisfactory rating may be used as the basis
for the denial of an application by the OTS.
The federal banking agencies, including the OTS, have recently revised
the CRA regulations and the methodology for determining an institution's
compliance with the CRA. Due to the heightened attention being given to the CRA
in the past few years, the Association may be required to devote additional
funds for investment and lending in its local community. The Association was
examined for CRA compliance in 1995 and received a rating of satisfactory.
Transactions with Affiliates
Generally, transactions between a savings association or its
subsidiaries and its affiliates are required to be on terms as favorable to the
association as transactions with non-affiliates. In addition, certain of these
transactions, such as loans to an affiliate, are restricted to a percentage of
the association's capital. Affiliates of Peoples Federal include the Holding
Company and any company which is under common control with the Association. In
addition, a savings association may not lend to any affiliate engaged in
activities not permissible for a bank holding company or acquire the securities
of most affiliates. The OTS has the discretion to treat subsidiaries of savings
associations as affiliates on a case by case basis.
Certain transactions with directors, officers or controlling persons
are also subject to conflict of interest regulations enforced by the OTS. These
conflict of interest regulations and other statutes also impose restrictions on
loans to such persons and their related interests. Among other things, such
loans must be made on terms substantially the same as for loans to unaffiliated
individuals.
Holding Company Regulation
The Holding Company will be a unitary savings and loan holding company
subject to regulatory oversight by the OTS. As such, the Holding Company is
required to register and file reports with the OTS and is subject to regulation
and examination by the OTS. In addition, the OTS has enforcement authority over
the Holding Company and its non-savings association subsidiaries which also
permits the OTS to restrict or prohibit activities that are determined to be a
serious risk to the subsidiary savings association.
As a unitary savings and loan holding company, the Holding Company
generally is not subject to activity restrictions. If the Holding Company
acquires control of another savings association as a separate subsidiary, it
would become a multiple savings and loan holding company, and the activities of
the Holding Company and any of its subsidiaries (other than Peoples Federal or
any other SAIF-insured savings association) would become subject to such
restrictions unless such other associations each qualify as a QTL and were
acquired in a supervisory acquisition.
If Peoples Federal fails the QTL test, the Holding Company must obtain
the approval of the OTS prior to continuing after such failure, directly or
through its other subsidiaries, any business activity other than those approved
for multiple savings and loan holding companies or their subsidiaries. In
addition, within one year of such failure the Holding Company must
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register as, and will become subject to, the restrictions applicable to bank
holding companies. The activities authorized for a bank holding company are more
limited than are the activities authorized for a unitary or multiple savings and
loan holding company. See "--Qualified Thrift Lender Test."
The Holding Company must obtain approval from the OTS before acquiring
control of any other SAIF-insured association. Such acquisitions are generally
prohibited if they result in a multiple savings and loan holding company
controlling savings associations in more than one state. However, such
interstate acquisitions are permitted based on specific state authorization or
in a supervisory acquisition of a failing savings association.
Federal Securities Law
The stock of the Holding Company will be registered with the SEC under
the Securities Exchange Act of 1934, as amended (the "Exchange Act"). The
Holding Company will be subject to the information, proxy solicitation, insider
trading restrictions and other requirements of the SEC under the Exchange Act.
Holding Company stock held by persons who are affiliates (generally
officers, directors and principal stockholders) of the Holding Company may not
be resold without registration or unless sold in accordance with certain resale
restrictions. If the Holding Company meets specified current public information
requirements, each affiliate of the Holding Company is able to sell in the
public market, without registration, a limited number of shares in any
three-month period.
Federal Reserve System
The Federal Reserve Board requires all depository institutions to
maintain noninterest bearing reserves at specified levels against their
transaction accounts (primarily checking, NOW and Super NOW checking accounts).
At October 31, 1996, Peoples Federal was in compliance with these reserve
requirements. The balances maintained to meet the reserve requirements imposed
by the Federal Reserve Board may be used to satisfy liquidity requirements that
may be imposed by the OTS. See "--Liquidity."
Savings associations are authorized to borrow from the Federal Reserve
Association "discount window," but Federal Reserve Board regulations require
associations to exhaust other reasonable alternative sources of funds, including
FHLB borrowings, before borrowing from the Federal Reserve Association.
Federal Home Loan Bank System
Peoples Federal is a member of the FHLB of Cincinnati, which is one of
12 regional FHLBs, that administers the home financing credit function of
savings associations. Each FHLB serves as a reserve or central bank for its
members within its assigned region. It is funded primarily from proceeds derived
from the sale of consolidated obligations of the FHLB System. It makes loans to
members (i.e., advances) in accordance with policies and procedures, established
by the board of directors of the FHLB, which are subject to the oversight of the
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Federal Housing Finance Board. All advances from the FHLB are required to be
fully secured by sufficient collateral as determined by the FHLB. In addition,
all long-term advances are required to provide funds for residential home
financing.
As a member, Peoples Federal is required to purchase and maintain stock
in the FHLB of Cincinnati. At October 31, 1996, Peoples Federal had $679,000 in
FHLB stock, which was in compliance with this requirement. In past years,
Peoples Federal has received substantial dividends on its FHLB stock. Over the
past five fiscal years such dividends have averaged 5.16% and were 7.03% for
calendar year 1996.
Under federal law the FHLBs are required to provide funds for the
resolution of troubled savings associations and to contribute to low- and
moderately priced housing programs through direct loans or interest subsidies on
advances targeted for community investment and low- and moderate-income housing
projects. These contributions have affected adversely the level of FHLB
dividends paid and could continue to do so in the future. These contributions
could also have an adverse effect on the value of FHLB stock in the future. A
reduction in value of Peoples Federal's FHLB stock may result in a corresponding
reduction in Peoples Federal's capital.
For the year ended June 30, 1996, dividends paid by the FHLB of
Cincinnati to Peoples Federal totaled $45,000, which constitutes a $7,000
increase over the amount of dividends received in fiscal year 1995. The $16,000
dividend for the four months ended October 31, 1996 reflects an annualized rate
of 7.14%, or 0.11% above the rate for fiscal 1996.
Federal and State Taxation
Savings associations such as Peoples Federal that meet certain
definitional tests relating to the composition of assets and other conditions
prescribed by the Internal Revenue Code of 1986, as amended (the "Code"), had
been permitted to establish reserves for bad debts and to make annual additions
thereto which may, within specified formula limits, be taken as a deduction in
computing taxable income for federal income tax purposes. The amount of the bad
debt reserve deduction for "non-qualifying loans" is computed under the
experience method. The amount of the bad debt reserve deduction for "qualifying
real property loans" (generally loans secured by improved real estate) may be
computed under either the experience method or the percentage of taxable income
method (based on an annual election). Under the experience method, the bad debt
reserve deduction is an amount determined under a formula based generally upon
the bad debts actually sustained by the savings association over a period of
years.
The percentage of specially computed taxable income that is used to
compute a savings association's bad debt reserve deduction under the percentage
of taxable income method (the "percentage bad debt deduction") is 8%. The
percentage bad debt deduction thus computed is reduced by the amount permitted
as a deduction for non-qualifying loans under the experience method. The
availability of the percentage of taxable income method permits qualifying
savings associations to be taxed at a lower effective federal income tax rate
than that applicable to corporations generally (approximately 31.3% assuming the
maximum percentage bad debt deduction).
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If an association's specified assets (generally, loans secured by
residential real estate or deposits, educational loans, cash and certain
government obligations) constitute less than 60% of its total assets, the
association may not deduct any addition to a bad debt reserve and generally must
include existing reserves in income over a four year period.
Under the percentage of taxable income method, the percentage bad debt
deduction cannot exceed the amount necessary to increase the balance in the
reserve for "qualifying real property loans" to an amount equal to 6% of such
loans outstanding at the end of the taxable year or the greater of (i) the
amount deductible under the experience method or (ii) the amount which when
added to the bad debt deduction for "non-qualifying loans" equals the amount by
which 12% of the amount comprising savings accounts at year-end exceeds the sum
of surplus, undivided profits and reserves at the beginning of the year. At
October 31, 1996, the 6% and 12% limitations did not restrict the percentage bad
debt deduction available to Peoples Federal. It is not expected that these
limitations would be a limiting factor in the foreseeable future.
In August 1996, legislation was enacted that repeals the reserve method
of accounting (including the percentage of taxable income method) used by many
thrifts, including the Association, to calculate their bad debt reserve for
federal income tax purposes. As a result, small thrifts such as the Association
must recapture that portion of the reserve that exceeds the amount that could
have been taken under the experience method for tax years beginning after
December 31, 1987. The legislation also requires thrifts to account for bad
debts for federal income tax purposes on the same basis as commercial banks for
tax years beginning after December 31, 1995. The recapture will occur over a
six-year period, the commencement of which will be delayed until the first
taxable year beginning after December 31, 1997, provided the institution meets
certain residential lending requirements. At October 31, 1996, the Association
had approximately $607,000 in bad debt reserves subject to recapture for federal
income tax purposes. The deferred tax liability related to the recapture has
been previously established so there will be no effect on future net income.
In addition to the regular income tax, corporations, including savings
associations such as Peoples Federal, generally are subject to a minimum tax. An
alternative minimum tax is imposed at a minimum tax rate of 20% on alternative
minimum taxable income, which is the sum of a corporation's regular taxable
income (with certain adjustments) and tax preference items, less any available
exemption. The alternative minimum tax is imposed to the extent it exceeds the
corporation's regular income tax and net operating losses can offset no more
than 90% of alternative minimum taxable income. For taxable years beginning
after 1986 and before 1996, corporations, including savings associations such as
Peoples Federal, are also subject to an environmental tax equal to 0.12% of the
excess of alternative minimum taxable income for the taxable year (determined
without regard to net operating losses and the deduction for the environmental
tax) over $2 million.
To the extent earnings appropriated to a savings association's bad debt
reserves for "qualifying real property loans" and deducted for federal income
tax purposes exceed the allowable amount of such reserves computed under the
experience method and to the extent of the association's supplemental reserves
for losses on loans ("Excess"), such Excess may not, without adverse tax
consequences, be utilized for the payment of cash dividends or other
distributions to a shareholder (including distributions on redemption,
dissolution or liquidation)
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or for any other purpose (except to absorb bad debt losses). As of October 31,
1996, Peoples Federal's Excess for tax purposes totaled approximately $1.7
million.
Peoples Federal files federal income tax returns on a fiscal year basis
using the accrual method of accounting. The Holding Company may file
consolidated federal income tax returns with Peoples Federal. Savings
associations that file federal income tax returns as part of a consolidated
group are required by applicable Treasury regulations to reduce their taxable
income for purposes of computing the percentage bad debt deduction for losses
attributable to activities of the non-savings association members of the
consolidated group that are functionally related to the activities of the
savings association member.
Peoples Federal has been audited by the IRS with respect to federal
income tax returns through December, 1991. With respect to years examined by the
IRS, either all deficiencies have been satisfied or sufficient reserves have
been established to satisfy asserted deficiencies. In the opinion of management,
any examination of still open returns (including returns of subsidiaries and
predecessors of, or entities merged into, Peoples Federal) would not result in a
deficiency which could have a material adverse effect on the financial condition
of Peoples Federal.
Ohio Taxation. The Association conducts its business in Ohio and
consequently is subject to the Ohio corporate franchise tax. A financial
institution subject to the Ohio corporate franchise tax levied in Ohio Revised
Code pays a tax equal to 15 mills (.015) times its apportioned net worth. The
apportionment factor consists of a business done factor, determined by reference
to the total receipts of the financial institution from all sources, and a
property factor, determined by reference to the net book value of all property
owned by the financial institution. The financial institution may claim a credit
equal to the annual assessment paid to the State pursuant to the Ohio Revised
Code.
Delaware Taxation. As a Delaware holding company, the Holding Company
is exempted from Delaware corporate income tax but is required to file an annual
report with and pay an annual fee to the State of Delaware. The Holding Company
is also subject to an annual franchise tax imposed by the State of Delaware.
MANAGEMENT OF THE HOLDING COMPANY
Directors and Executive Officers
The Board of Directors of the Holding Company consists of Douglas
Stewart, Richard T. Martin, Robert W. Bertsch, Harry N. Faulkner, James W.
Kerber and John W. Sargeant, all of whom are current members of the Board of
Directors of the Association. See "Management of the Association - Directors."
Each Director of the Holding Company has served as such since the Holding
Company's incorporation in 1997. Directors of the Holding Company will serve
three-year staggered terms so that approximately one-third of the directors will
be elected at each annual meeting of stockholders. The terms of the current
directors of the Holding Company are the same as their terms as directors of the
Association. The Holding Company intends to pay directors a fee of $500 per
meeting attended which is in addition to any
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fees payable to such persons for attendance at meetings of the Board of
Directors of the Association.
The executive officers of the Holding Company are elected annually and
hold office until their respective successors have been elected and qualified or
until death, resignation or removal by the Board of Directors. The executive
officers of the Holding Company are the same as the executive officers of the
Association. It is not anticipated that the executive officers of the Holding
Company will receive any remuneration in their capacity as Holding Company
executive officers. For information regarding compensation of directors and
executive officers of the Association, see "Management of the Association -
Meetings and Committees of the Board of Directors of the Association" and "-
Executive Compensation."
Indemnification
The Certificate of Incorporation of the Holding Company provides that a
director or officer of the Holding Company shall be indemnified by the Holding
Company to the fullest extent authorized by the General Corporation Law of the
State of Delaware against all expenses, liability and loss reasonably incurred
or suffered by such person in connection with his activities as a director or
officer or as a director or officer of another company, if the director or
officer held such position at the request of the Holding Company. Delaware law
requires that such director, officer, employee or agent, in order to be
indemnified, must have acted in good faith and in a manner reasonably believed
to be not opposed to the best interests of the Holding Company, and, with
respect to any criminal action or proceeding, did not have reasonable cause to
believe his conduct was unlawful.
The Certificate of Incorporation and Delaware law also provide that the
indemnification provisions of such Certificate and the statute are not exclusive
of any other right which a person seeking indemnification may have or later
acquire under any statute, provision of the Certificate of Incorporation, Bylaws
of the Holding Company, agreement, vote of stockholders or disinterested
directors or otherwise.
These provisions may have the effect of deterring shareholder
derivative actions, since the Holding Company may ultimately be responsible for
expenses for both parties to the action. A similar effect would not be expected
for third party claims.
In addition, the Certificate of Incorporation and Delaware law also
provide that the Holding Company may maintain insurance, at its expense, to
protect itself and any director, officer, employee or agent of the Holding
Company or another corporation, partnership, joint venture, trust or other
enterprise against any expense, liability or loss, whether or not the Holding
Company has the power to indemnify such person against such expense, liability
or loss under the Delaware General Corporation Law. The Holding Company intends
to obtain such insurance.
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MANAGEMENT OF THE ASSOCIATION
Directors
Prior to the Conversion, the direction and control of the Association,
as a mutual savings institution, has been vested in its Board of Directors. Upon
conversion of the Association to stock form, each of the directors of the
Association will continue to serve as a director of the converted Association.
The Board of Directors of the Association currently consists of seven directors.
The directors are divided into three classes. Approximately one-third of the
directors are elected at each annual meeting of members. Because the Holding
Company will own all of the issued and outstanding shares of capital stock of
the Association after the Conversion, the Holding Company, through its
directors, will elect the directors of the Association.
The following table sets forth certain information regarding the
directors of the Association.
<TABLE>
<CAPTION>
Position(s) Held Director Term
With the Association Age(1) Since Expires
--------------------- ------ -------- -------
<S> <C> <C> <C> <C>
Douglas Stewart President, Chief Executive 47 1979 1998
Officer and Director
Richard T. Martin Chairman of the Board 56 1987 1999
Robert W. Bertsch Director 71 1982 1999
Harry N. Faulkner Director 55 1979 1997
George R. Hoellrich Director 79 1963 1998
James W. Kerber Director 55 1990 1998
John W. Sargeant Director 66 1987 1997
- -------------------
</TABLE>
(1) At October 31, 1996.
The business experience of each director is set forth below. All
directors have held their present positions for at least the past five years,
except as otherwise indicated.
Douglas Stewart. Mr. Stewart is the President and Chief Executive
Officer of the Association, a position he has held since 1982. Mr. Stewart
originally joined the Association in 1971 as a teller.
Richard T. Martin. Mr. Martin was appointed as Chairman of the Board in
November 1996. Mr. Martin is a certified public accountant and maintains a
private practice of accounting and tax counseling. He also owns and operates a
family farm.
Robert W. Bertsch. Mr. Bertsch retired as treasurer of Peoples Federal
in 1990 after 34 years of service.
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Harry N. Faulkner. Mr. Faulkner is a partner in the law firm of
Faulkner, Garmhausen, Keister & Shenk LPA. Such firm has acted as counsel to the
Association since 1979.
George R. Hoellrich. Mr. Hoellrich retired as President and Chief
Executive Officer of Peoples Federal in 1982 after 20 years of service.
James W. Kerber. Mr. Kerber is the owner of James W. Kerber CPA, a
private practice accounting firm. He has been in private practice since 1968.
John W. Sargeant. Mr. Sargeant is the part owner of Sidney Tool and Die
Co., and BenSar Development, a warehouse provider.
Executive Officers
Each of the executive officers of the Association will retain his or
her office in the converted Association. Officers are elected annually by the
Board of Directors of the Association. The business experience of each executive
officer who is not also a director is set forth below.
David R. Fogt. Mr. Fogt, age 45, is Vice President of Operations and
Financial Services of the Association. He is responsible for the overall
administration of the Association with direct responsibilities in consumer
lending and asset and liability management. He has been employed by Peoples
Federal since 1983.
Gary N. Fullenkamp. Mr. Fullenkamp, age 41, is Vice President of
Mortgage Loans and Corporate Secretary of the Association. He is responsible for
mortgage lending operations of the Association, including underwriting and
processing of mortgage loan activity. He has been employed by Peoples Federal
since 1979.
Debra A. Geuy. Mrs. Geuy, age 38, is Treasurer of the Association. She
is responsible for overseeing the financial functions of the Association. She
has been employed by Peoples Federal since 1978.
Meetings and Committees of the Board of Directors
The Holding Company. The Holding Company's Board of Directors intends
to meet on a monthly basis. Since the Holding Company was not established in
1996, no meetings were held. The Holding Company intends to pay directors a fee
of $500 per meeting attended which is in addition to any fees payable to such
persons for attendance at meetings of the Board of Directors of the Association.
The Association. The Association's Board of Directors meets bi-monthly.
Additional special meetings may be called by the President or the Board of
Directors. The Board of Directors met 24 times during the year ended June 30,
1996. During fiscal year 1996, no director of the Association attended fewer
than 75% of the aggregate of the total number of Board meetings and the total
number of meetings held by the committees of the Board of Directors on which he
served. Non-employee directors are paid an annual retainer of $12,000,
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plus a fee of $200 per Board of Directors meeting attended. Directors do not
receive any additional compensation for committee meeting attendance. The
Association has standing Executive, Audit, Investment, Personnel and Benefits,
and Nominating Committees.
The Executive Committee is responsible for the review and approval of
mortgage loans, consumer loans and any business arising between regularly
scheduled board meetings. The committee is composed of Directors Kerber, Martin,
Sargeant and Hoellrich, and Officers Stewart, Fogt, Fullenkamp and Goins. During
the fiscal year ended June 30, 1996, 25 meetings of the Executive Committee were
held.
The Audit Committee is comprised of Directors Martin (Chairman), Kerber
and Sargeant. The Audit Committee contracts for the annual audit of the
Association and meets with the audit firm to discuss findings. This committee
met two times during fiscal year 1996.
The Investment Committee is responsible for reviewing and approving
investments of the Association and setting investment strategies. The committee
is composed of Directors Bertsch and Faulkner, and Officers Stewart and Fogt.
The committee met 12 times during fiscal 1996.
The Personnel and Benefits Committee meets to review salaries and the
Association's benefit plans, and analysis and determines discretionary bonuses.
This committee is comprised of Directors Faulkner (Chairman), Kerber and Martin.
This committee met two times during fiscal year 1996.
The Nominating Committee is responsible for making nominations for
members of the Board of Directors and is composed of those non-employee
directors whose term is not expiring. While the committee will consider nominees
nominated by other members in writing at least 10 days prior to the annual
meeting, the committee has not actively solicited nominations nor established
any procedures for this purpose. The committee held one meeting during fiscal
1996.
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Executive Compensation
The following table sets forth information concerning the compensation
paid or granted to the Association and Holding Company's Chief Executive
Officer. No other executive officer of the Company had aggregate cash
compensation exceeding $100,000.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
Summary Compensation Table(1)
- ---------------------------------------------------------------------------------------------
Annual
Compensation
- ------------------------------------------------------------------------
All Other
Name and Principal Position Year Salary($) Bonus($) Compensation($)(2)
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Douglas Stewart, President and 1996 $70,000 $35,000 $11,500
Chief Executive Officer
- ---------------------------------------------------------------------------------------------
</TABLE>
(1) In accordance with the transitional provisions applicable to the rules
on executive compensation disclosure adopted by the SEC, summary
compensation information is excluded for the years ended June 30, 1995
and 1994, as the Association was not a public company during such
periods.
(2) Includes pension costs under the Association's defined benefit plan
which was terminated on January 31, 1997.
Employment Agreements
The Association intends to enter into employment agreements with
Douglas Stewart, President and Chief Executive Officer; David R. Fogt, Vice
President of Operations and Financial Services; Gary N. Fullenkamp, Vice
President of Mortgage Loans and Corporate Secretary; Debra A. Geuy, Treasurer;
and Steven Goins, Assistant Vice President of Financial Services. The employment
agreements are designed to assist the Association in maintaining a stable and
competent management team after the Conversion. The continued success of the
Association depends to a significant degree on the skills and competence of its
officers. These agreements have been filed with the OTS as part of the
application of the Holding Company for approval to become a savings and loan
holding company. The employment agreements will become effective upon completion
of the Conversion and provide for an annual base salary in an amount not less
than each employee's current salary. The initial term of Mr. Stewart's agreement
will be three years and each of the other officers' agreements will be for one
year. The agreements provide for extensions for a period of one year on each
annual anniversary date, subject to review and approval of the extension by
disinterested members of the Board of Directors of the Association. The
agreements provide for termination upon each employee's death, for cause or in
certain events specified by OTS regulations. The employment agreements are also
terminable by the employee upon 90 days notice to the Association.
The employment agreements provide for payment to each employee of his
salary for the remainder of the term of the agreement, plus up to 299%, in the
case of Mr. Stewart and 100% for each of the other officers, of the employee's
base compensation, in the event there is a
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"change in control" of the Association and employment terminates involuntarily
in connection with such change in control or within twelve months thereafter.
This termination payment may not exceed three times the employee's average
annual compensation over the most recent five year period or be non-deductible
by the Association for federal income tax purposes. For the purposes of the
employment agreements, a "change in control" is defined as any event which would
require the filing of an application for acquisition of control or notice of
change in control pursuant to OTS change in control regulations (12 C.F.R. ss.
574.3 or 4). Such filings are generally triggered prior to the acquisition or
control of 10% of the Holding Company's common stock. See "Restrictions on
Acquisitions of Stock and Related Takeover Defensive Provisions." The agreements
guarantee participation in an equitable manner in employee benefits applicable
to executive personnel.
Based on current salaries, if the employment of Mr. Stewart had been
terminated as of October 31, 1996, under circumstances entitling him to
severance pay as described above, he would have been entitled to receive a lump
sum cash payment of approximately $281,000.
Benefit Plans
General. Peoples Federal currently provides health care benefits to its
employees, including hospitalization, disability and major medical insurance,
subject to certain deductibles and copayments by employees.
Pension Plan. Prior to January 31, 1997, the Association maintained a
defined benefit pension plan for the benefit of its employees. The pension plan
was terminated as of January 31, 1997. The noncontributory pension plan covered
all employees who met certain minimum service requirements. The benefits under
the pension plan were distributed upon termination.
See Note 9 of the Notes to Financial Statements.
Incentive Bonus Plan. The Association has an incentive bonus plan which
provides for annual cash bonuses to certain officers as a means of recognizing
achievement on the part of such employees. The bonuses are determined based on a
combination of Peoples Federal's and the individual employee's performance
during the year. No amounts were paid or accrued pursuant to the incentive plan
during fiscal 1996.
401(k) Plan. In connection with the termination of its defined benefit
pension plan, the Association has recently adopted a qualified, tax-exempt
pension plan with a "cash-or-deferred arrangement" qualifying under Section
401(k) of the Internal Revenue Code (the "401(k) Plan"). With certain
exceptions, all employees who have attained age 21 and who have completed one
year of employment, during which they worked at least 1,000 hours, are eligible
to participate in the 401(k) Plan as of the earlier of the first day of the plan
year or the next July 1 or January 1. Eligible employees are permitted to
contribute up to 15% of their compensation to the 401(k) Plan on a pre-tax
basis, up to a maximum of $8,728. The Association matches 50% of the first 3% of
each participant's salary reduction contribution to the 401(k) Plan.
Participant contributions to the 401(k) Plan are fully and immediately
vested. Withdrawals are not permitted before age 62 except in the event of
death, disability, termination of employment or reasons of proven financial
hardship. With certain limitations, participants
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may make withdrawals from their accounts while actively employed. Upon
termination of employment, the participant's accounts will be distributed,
unless he or she elects to defer the payment.
The 401(k) Plan may be amended by the Board of Directors, except that
no amendment may be made which would reduce the interest of any participant in
the 401(k) Plan trust fund or divert any of the assets of the 401(k) Plan trust
fund to purposes other than the benefit of participants or their beneficiaries.
No contributions have been made by the Association to the Plan.
Employee Stock Ownership Plan. The Boards of Directors of Peoples
Federal and the Holding Company have approved the adoption of an ESOP for the
benefit of employees of the Holding Company and its subsidiaries, including
Peoples Federal. The ESOP is designed to meet the requirements of an employee
stock ownership plan as described at Section 4975(e)(7) of the Code and Section
407(d)(6) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"). The ESOP may borrow in order to finance purchases of the Holding
Company's Common Stock.
It is anticipated that the ESOP will be funded with a loan from the
Holding Company (not to exceed an amount equal to 8% of the gross conversion
proceeds). The Holding Company intends to apply to the OTS to permit it to lend
funds to the ESOP. In the event the Holding Company is not permitted to lend
funds to the ESOP and the ESOP is unable to obtain financing from an unrelated
lender for its stock purchase, the Holding Company may contribute funds to the
ESOP to enable it purchase up to 3% of the shares of Common Stock in the
Conversion; provided, however that the total contributions of the Holding
Company to the ESOP and RRPs for stock purchases in the Conversion may not
exceed 4% of the Common Stock sold in the Conversion.
GAAP generally requires that any borrowing by the ESOP from an
unaffiliated lender be reflected as a liability in the Holding Company's
consolidated financial statements, whether or not such borrowing is guaranteed
by, or constitutes a legally binding contribution commitment of, the Holding
Company or the Association. The funds used to acquire the ESOP shares are
expected to be borrowed from the Holding Company. If the Holding Company
finances the ESOP debt, the ESOP debt will be eliminated through consolidation
and no liability will be reflected on the Holding Company's consolidated
financial statements. In addition, shares purchased with borrowed funds will, to
the extent of the borrowings, be excluded from stockholders' equity,
representing unearned compensation to employees for future services not yet
performed. Consequently, if the ESOP purchases already-issued shares in the open
market, the Holding Company's consolidated liabilities will increase to the
extent of the ESOP's borrowings, and total and per share stockholders' equity
will be reduced to reflect such borrowings. If the ESOP purchases newly issued
shares from the Holding Company, total stockholders' equity would neither
increase nor decrease, but per share stockholders' equity and per share net
income would decrease because of the increase in the number of outstanding
shares. In either case, as the borrowings used to fund ESOP purchases are
repaid, total stockholders' equity will correspondingly increase.
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All employees of the Association are eligible to participate in the
ESOP after they attain age 21 and complete one year of service. Employees will
be credited for years of service to the Association prior to the adoption of the
ESOP for participation and vesting purposes. The Association's contribution to
the ESOP is allocated among participants on the basis of compen sation. Each
participant's account will be credited with cash and shares of Holding Company
Common Stock based upon compensation earned during the year with respect to
which the contribution is made. Contributions credited to a participant's
account are vested on a graduated basis and become fully vested when such
participant completes ten years of service. ESOP participants are entitled to
receive distributions from their ESOP accounts only upon termination of service.
Distributions will be made in cash and in whole shares of the Holding Company's
Common Stock. Fractional shares will be paid in cash. Participants will not
incur a tax liability until a distribution is made.
Each participating employee is entitled to instruct the trustee of the
ESOP as to how to vote the shares allocated to his or her account. The trustee
will not be affiliated with the Holding Company or Peoples Federal.
The ESOP may be amended by the Board of Directors, except that no
amendment may be made which would reduce the interest of any participant in the
ESOP trust fund or divert any of the assets of the ESOP trust fund to purposes
other than the benefit of participants or their beneficiaries.
Other Stock Benefit Plans. In addition to the above-described benefit
plan, in the future, the Holding Company may consider the implementation of a
stock option plan and RRP. It is not anticipated, however, that such plan or
plans will be adopted until, at the earliest, the first anniversary after the
completion of the Conversion. If a determination is made to implement a stock
option plan or RRP, it is anticipated that any such plans will be submitted to
stockholders for their consideration at which time stockholders would be
provided with detailed information regarding such plan. If such plans are
approved, they will have a dilutive effect on the Holding Company's stockholders
as well as effect the Holding Company's net income and stockholders' equity;
although such effects cannot be determined until such plans are implemented. See
"Summary - Benefits of Stock Conversion to Directors and Executive Officers."
Certain Transactions
The Association has followed a policy of granting loans to eligible
directors, officers, employees and members of their immediate families for the
financing of their personal residences and for consumer purposes. Under the
Association's current policy, all such loans to directors and senior officers
are required to be made in the ordinary course of business and on the same
terms, including collateral and interest rates, as those prevailing at the time
for comparable transactions and do not involve more than the normal risk of
collectibility. However, prior to August 1989, the Association waived loan
origination fees on loans to directors and employees. At October 31, 1996, the
Association's loans to directors, officers and employees totalled approximately
$1,406,000 or 10.5, 9.9%, 9.4% and 8.9% of pro forma stockholders' equity based
on the sale of the dollar amount of shares aggregating the minimum, midpoint,
maximum and 15% above the Estimated Valuation Range, respectively.
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THE CONVERSION
The Board of Directors of the Association and the OTS have approved the
Plan of Conversion. OTS approval does not constitute a recommendation or
endorsement of the Plan of Conversion. Certain terms used in the following
summary of the material terms of the Conversion are defined in the Plan of
Conversion, a copy of which may be obtained by contacting Peoples Federal.
General
The Board of Directors of the Association has adopted the Plan, subject
to approval by the OTS and the members of the Association. Pursuant to the Plan,
the Association is to be converted from a federally chartered mutual savings
association to a federally chartered stock savings association, with the
concurrent formation of a holding company. The OTS has approved the Plan,
subject to its approval by the affirmative vote of the members of the
Association holding not less than a majority of the total number of votes
eligible to be cast at a special meeting called for that purpose (the "Special
Meeting"), to be held on ________, 1997.
The Conversion will be accomplished through amendment of the
Association's federal charter to authorize capital stock, at which time the
Association will become a wholly owned subsidiary of the Holding Company. The
Conversion will be accounted for as a pooling of interests.
Subscription Rights have been granted to Eligible Account Holders as of
October 31, 1995, the Tax-Qualified Employee Plans of the Association and
Holding Company, Supplemental Eligible Account Holders as of December 31, 1996,
other members, and officers, directors and employees of the Association.
Additionally, members of the general public are being afforded the opportunity
to subscribe for Holding Company Common Stock in a direct Community Offering,
with a preference to natural persons who reside in Shelby County, Ohio. See
"- Offering of Holding Company Common Stock." Depending upon market conditions,
any shares not initially subscribed for in the Subscription and Community
Offering may be offered for sale on a best efforts basis by a selling group of
broker-dealers. Subscriptions for shares will be subject to the maximum and
minimum purchase limitations set forth in the Plan of Conversion.
Business Purposes
Peoples Federal has several business purposes for the Conversion. The
sale of Holding Company Common Stock will have the immediate result of providing
the Association with additional equity capital in order to support the
Association's existing operating strategies, subject to applicable regulatory
restrictions. The sale of the Common Stock is the most effective means of
increasing the Association's permanent capital and does not involve the high
interest cost and repayment obligation of subordinated debt. In addition,
investment of that part of the net Conversion proceeds paid by the Holding
Company to the Association is expected to provide additional operating income to
further increase the Association's capital on a continuing basis.
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The Board of Directors of the Association believes that a holding
company structure could facilitate the acquisition of other savings institutions
in the future as well as other companies. If a multiple holding company
structure is utilized in a future acquisition, the acquired savings institution
would be able to operate on a more autonomous basis as a wholly owned subsidiary
of the Holding Company rather than as a division of the Association. For
example, the acquired savings institution could retain its own directors,
officers and corporate name as well as having representation on the Board of
Directors of the Holding Company. As of the date hereof, there are no plans or
understandings regarding the acquisition of any other institutions.
The Board of Directors of the Association also believes that a holding
company structure can facilitate the diversification of the Association's
business activities. While the potential for diversification will be maximized
if a unitary holding company structure is utilized because the types of business
activities permitted to a unitary holding company are broader than those of a
multiple holding company, either type of holding company may engage in a broader
range of activities than may a thrift institution directly. Currently, there are
no plans that the Holding Company engage in any material activities apart from
holding the shares of the Association and investing the remaining net proceeds
from the sale of Common Stock in the Conversion.
The preferred stock and additional common stock of the Holding Company
being authorized in the Conversion will be available for future acquisitions and
for issuance and sale to raise additional equity capital, generally without
stockholder approval, but subject to market conditions. Although the Holding
Company currently has no plans with respect to future issuances of equity
securities, the more flexible operating structure provided by the Holding
Company and the stock form of ownership is expected to assist the Association in
competing more aggressively with other financial institutions in its principal
market area.
The Conversion will structure the Association in the stock form used in
the United States by all commercial banks, most major business corporations and
an increasing number of savings institutions. The Conversion will permit the
Association's members to become stockholders of the Holding Company, thereby
allowing members to own stock in the financial organization in which they
maintain deposit accounts or with which they have a borrowing relationship. Such
ownership should encourage members to promote the Association to others, thereby
further contributing to the Association's earnings potential.
The Association is also expected to benefit from its management and
employees owning stock, because stock ownership is viewed as an effective
performance incentive and a means of attracting, retaining and compensating
personnel.
Effects of Conversion to Stock Form on Depositors and Borrowers
of the Association
Voting Rights. Deposit account holders will have no voting rights in
the converted Association or the Holding Company and will therefore not be able
to elect directors of either entity or to control their affairs. These rights
are currently accorded to deposit account holders with regard to the
Association. Subsequent to Conversion, voting rights will be vested exclusively
in the Holding Company as the sole stockholder of the Association. Voting rights
as to the Holding Company will be held exclusively by its stockholders. Each
purchaser of
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Holding Company Common Stock shall be entitled to vote on any matters to be
considered by the Holding Company stockholders. A stockholder will be entitled
to one vote for each share of Common Stock owned, subject to certain limitations
applicable to holders of 10% or more of the shares of the Common Stock. See
"Description of Capital Stock."
Deposit Accounts and Loans. The general terms of the Association's
deposit accounts, the balances of the individual accounts and the existing FDIC
insurance coverage will not be affected by the Conversion. Furthermore, the
Conversion will not affect the loan accounts, the balances of these accounts, or
the obligations of the borrowers under their individual contractual arrangements
with the Association.
Tax Effects. The Association has received an opinion from Silver,
Freedman & Taff, L.L.P. with regard to federal income taxation, and an opinion
from Crowe, Chizek and Company LLP with regard to Ohio taxation, to the effect
that the adoption and implementation of the Plan of Conversion set forth herein
will not be taxable for federal or Ohio tax purposes to the Association or the
Holding Company. See "- Income Tax Consequences."
Liquidation Rights. The Association has no plans to liquidate, either
before or subsequent to the completion of the Conversion. However, if there
should ever be a complete liquidation, either before or after Conversion,
deposit account holders would receive the protection of insurance by the FDIC up
to applicable limits. Subject thereto, liquidation rights before and after
Conversion would be as follows:
Liquidation Rights in Present Mutual Institution. In addition to the
protection of FDIC insurance up to applicable limits, in the event of a complete
liquidation of the Association, each holder of a deposit account in the
Association in its present mutual form would receive his or her pro rata share
of any assets of the Association remaining after payment of claims of all
creditors (including the claims of all depositors in the amount of the
withdrawal value of their accounts). Such holder's pro rata share of such
remaining assets, if any, would be in the same proportion of such assets as the
balance in his or her deposit account was to the aggregate balance in all
deposit accounts in the Association at the time of liquidation.
Liquidation Rights in Proposed Converted Institution. After Conversion,
each deposit account holder, in the event of a complete liquidation of the
Association, would have a claim of the same general priority as the claims of
all other general creditors of the Association in addition to the protection of
FDIC insurance up to applicable limits. Therefore, except as described below,
the deposit account holder's claim would be solely in the amount of the balance
in his or her deposit account plus accrued interest. The holder would have no
interest in the assets of the Association above that amount.
The Plan of Conversion provides that there shall be established, upon
the completion of the Conversion, a special "liquidation account" for the
benefit of Eligible Account Holders and Supplemental Eligible Account Holders
(i.e., depositors at October 31, 1995 and December 31, 1996) in an amount equal
to the net worth of the Association as of the date of its latest statement of
financial condition contained in the final prospectus relating to the sales of
shares of Holding Company Common Stock in the Conversion. Each Eligible Account
Holder and Supplemental
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Eligible Account Holder would have an initial interest in such liquidation
account for each deposit account held in the Association on the applicable
record date. A deposit account holder's interest as to each deposit account
would be in the same proportion of the total liquidation account as the balance
in his or her account on the applicable record date, was to the aggregate
balance in all deposit accounts of Eligible Account Holders and/or Supplemental
Eligible Account Holders on such dates. For deposit accounts in existence on
both dates separate subaccounts shall be determined on the basis of the
qualifying deposits in such deposit accounts on such record dates. However, if
the amount in the deposit account on any annual closing date of the Association
is less than the lowest amount in such account on October 31, 1995 or December
31, 1996 and on any subsequent closing date (each December 31st), then the
account holder's interest in this special liquidation account would be reduced
by an amount proportionate to any such reduction, and the account holder's
interest would cease to exist if such deposit account were closed.
In addition, the interest in the special liquidation account would
never be increased despite any increase in the balance of the account holders'
related accounts after Conversion, and could only decrease.
Any assets remaining after the above liquidation rights of Eligible
Account Holders and Supplemental Eligible Account Holders were satisfied would
be distributed to the Holding Company as the sole stockholder of the
Association.
No merger, consolidation, purchase of bulk assets with assumption of
deposit accounts and other liabilities, or similar transaction, whether the
Association, as converted, or another SAIF-insured institution is the surviving
institution, is deemed to be a complete liquidation for purposes of distribution
of the liquidation account and, in any such transaction, the liquidation account
would be assumed to the full extent authorized by regulations of the OTS as then
in effect. The OTS has stated that the consummation of a transaction of the type
described in the preceding sentence in which the surviving entity is not a
SAIF-insured institution would be reviewed on a case-by-case basis to determine
whether the transaction should constitute a "complete liquidation" requiring
distribution of any then remaining balance in the liquidation account. While the
Association believes that such a transaction should not constitute a complete
liquidation, there can be no assurance that the OTS will not adopt a contrary
position.
Common Stock. For information as to the characteristics of the Common
Stock to be issued under the Plan of Conversion, see "Dividends" and
"Description of Capital Stock." Common Stock issued under the Plan of Conversion
cannot, and will not, be insured by the FDIC or any other governmental agency.
The Association will continue, immediately after completion of the
Conversion, to provide its services to depositors and borrowers pursuant to its
existing policies and will maintain the existing management and employees of the
Association. Other than for payment of expenses incident to the Conversion, no
assets of the Association will be distributed in the Conversion. Peoples Federal
will continue to be a member of the FHLB System, and its deposit accounts will
continue to be insured by the FDIC. The affairs of Peoples Federal will continue
to be directed by the existing Board of Directors and management.
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Offering of Holding Company Common Stock
Under the Plan of Conversion, 1,437,500 shares of Holding Company
Common Stock will be offered for sale, subject to certain restrictions described
below, initially through a Subscription Offering. Federal conversion regulations
require, with certain exceptions, that at least the minimum number of shares
offered in a conversion be sold in order for the conversion to become effective.
The Subscription and Community Offering will expire at 5:00 p.m.,
Sidney, Ohio time, on ________, 1997 (the "Subscription Expiration Date") unless
extended by the Association and the Holding Company. Regulations of the OTS
require that all shares to be offered in the Conversion be sold within a period
ending not more than 45 days after the Subscription Expiration Date (or such
longer period as may be approved by the OTS) or, despite approval of the Plan of
Conversion by members, the Conversion will not be effected and Peoples Federal
will remain in mutual form. This period expires on _____________, 1997, unless
extended with the approval of the OTS. If the Subscription and Community
Offering is extended beyond ________, 1997, all subscribers will have the right
to modify or rescind their subscriptions and to have their subscription funds
returned promptly with interest. In the event that the Conversion is not
effected, all funds submitted and not previously refunded pursuant to the
Subscription and Community Offering will be promptly refunded to subscribers
with interest at the Association's current passbook rate, and all withdrawal
authorizations will be terminated.
Stock Pricing and Number of Shares to be Issued
Federal regulations require that the aggregate purchase price of the
securities of a thrift institution sold in connection with its conversion must
be based on an appraised aggregate market value of the institution as converted
(i.e., taking into account the expected receipt of proceeds from the sale of the
securities in the conversion), as determined by an independent valuation.
Keller, which is experienced in the valuation and appraisal of business
entities, including thrift institutions involved in the conversion process, was
retained by the Association to prepare an appraisal of the estimated pro forma
market value of the Association and the Holding Company upon Conversion.
Keller will receive a fee of approximately $17,000 for its appraisal.
The Association has agreed to indemnify Keller under certain circumstances
against liabilities and expenses (including legal fees) arising out of, related
to, or based upon the Conversion.
Keller has prepared an appraisal of the estimated pro forma market
value of the Association as converted. The Keller appraisal concluded that, at
January 10, 1997, an appropriate range for the estimated pro forma market value
of the Association and the Holding Company was from a minimum of $10,625,000 to
a maximum of $14,375,000 with a midpoint of $12,500,000. Assuming that the
shares are sold at $10.00 per share in the Conversion, the estimated number of
shares to be issued in the Conversion is expected to be between 1,062,500 and
1,437,500. The Purchase Price of $10.00 was determined by discussion among the
Boards of Directors of the Association, the Holding Company and Keller, taking
into account, among other factors, (i) the requirement under OTS regulation that
the Common Stock be offered in a
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manner that would achieve the widest distribution of shares and (ii) liquidity
in the Common Stock subsequent to the Conversion.
The appraisal involved a comparative evaluation of the operating and
financial statistics of the Association with those of other thrift institutions.
The appraisal also took into account such other factors as the market for thrift
institution stocks generally, prevailing economic conditions, both nationally
and in Ohio which affect the operations of thrift institutions, the competitive
environment within which the Association operates and the effect of the
Association becoming a subsidiary of the Holding Company. No detailed individual
analysis of the separate components of the Holding Company's and the
Association's assets and liabilities was performed in connection with the
evaluation. The Plan of Conversion requires that all of the shares subscribed
for in the Subscription and Community Offering be sold at the same price per
share. The Board of Directors reviewed and discussed with Keller the appraisal,
including the methodology and the appropriateness of the assumptions utilized
and determined that in its opinion the Appraisal was not unreasonable. The
Estimated Valuation Range may be amended with the approval of the OTS in
connection with changes in the financial condition or operating results of the
Association or market conditions generally. As described below, an amendment to
the Estimated Valuation Range would not be made without a resolicitation of
subscriptions and/or proxies except in limited circumstances.
If, upon completion of the Subscription and Community Offering, at
least the minimum number of shares are subscribed for, Keller, after taking into
account factors similar to those involved in its prior Appraisal, will determine
its estimate of the pro forma market value of the Association and the Holding
Company upon Conversion, as of the close of the Subscription and Community
Offering.
If, based on the estimate of Keller, the aggregate pro forma market
value is not within the Estimated Valuation Range, Keller, upon the consent of
the OTS, will determine a new Estimated Valuation Range ("Amended Valuation
Range"). If the aggregate pro forma market value of the Association as converted
and the Holding Company has increased in the Amended Valuation Range to an
amount that does not exceed $16,531,250 (i.e., 15% above the maximum of the
Estimated Valuation Range), then the number of shares to be issued may be
increased to accommodate such increase in value without a resolicitation of
subscriptions and/or proxies. In such event the Association and the Holding
Company do not intend to resolicit subscriptions and/or proxies unless the
Association and the Holding Company then determine, after consultation with the
OTS, that circumstances otherwise require such a resolicitation. If, however,
the aggregate pro forma market value of the Holding Company and the Association,
as converted, at that time is less than $10,625,000 or more than $16,531,250, a
resolicitation of subscribers and/or proxies may be made, the Plan of Conversion
may be terminated or such other actions as the OTS may permit may be taken. In
the event that upon completion of the Subscription and Community Offering, the
pro forma market value of the Holding Company and Association, as converted, is
below $10,625,000 or above $16,531,250 (15% above the maximum of the Estimated
Valuation Range), the Holding Company intends to file the revised appraisal with
the SEC by post-effective amendment to its Registration Statement on Form S-1.
See "Additional Information." If the Plan of Conversion is terminated, all funds
would be returned promptly with interest at the rate of the Association's
current passbook rate, and holds on funds authorized for withdrawal from deposit
accounts would be released. If there is a
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resolicitation of subscriptions, subscribers will be given the opportunity to
cancel or change their subscriptions and to the extent subscriptions are so
canceled or reduced, funds will be returned with interest at the Association's
current passbook savings rate, and holds on funds authorized for withdrawal from
deposit accounts will be released or reduced. Unless there is a resolicitation,
stock subscriptions received by the Holding Company and the Association may not
be withdrawn by the subscriber and, if accepted by the Holding Company and the
Association, are final. If the Conversion is not completed prior to ___________,
1999 (two years after the date of the Special Meeting), the Plan of Conversion
will automatically terminate.
Any increase in the total number of shares of Common Stock to be
offered in the Conversion will dilute a subscriber's percentage ownership
interest and will reduce the pro forma net income and net worth on a per share
basis. A decrease in the number of shares to be issued in the Conversion will
increase a subscriber's proportionate ownership interest and will increase both
pro forma net income and net worth on a per share basis while decreasing that
amount on an aggregate basis.
No sale of the shares will take place unless, prior thereto, Keller
confirms to the OTS that, to the best of Keller's knowledge and judgment,
nothing of a material nature has occurred which would cause Keller to conclude
that the actual Purchase Price on an aggregate basis is incompatible with its
estimate of the aggregate pro forma market value of the Holding Company and the
Association as converted at the time of the sale. If, however, the facts do not
justify such a statement, the Subscription and Community Offering or other sale
may be canceled, or a new Estimated Valuation Range set and a new offering held.
In preparing its valuation of the pro forma market value of the
Association and the Holding Company upon Conversion, Keller relied upon and
assumed the accuracy and completeness of all financial and statistical
information provided by the Association and the Holding Company. Keller also
considered information based upon other publicly available sources which it
believes are reliable. However, Keller does not guarantee the accuracy and
completeness of such information and did not independently verify the financial
statements and other data provided by the Association and the Holding Company or
independently value the assets or liabilities of the Association and the Holding
Company. The appraisal is not intended to be, and must not be interpreted as, a
recommendation of any kind as to the advisability of voting to approve the
Conversion or of purchasing shares of Common Stock. The appraisal considers
Peoples Federal and the Holding Company only as going concerns and should not be
considered as any indication of the liquidation value of Peoples Federal or the
Holding Company. Moreover, the appraisal is necessarily based on many factors
which change from time to time. There can be no assurance that persons who
purchase shares in the Conversion will be able to sell such shares at prices at
or above the Purchase Price.
Subscription Offering
In accordance with OTS regulations, nontransferable Subscription Rights
have been granted under the Plan of Conversion to the following persons in the
following order of priority: (1) Eligible Account Holders (deposit account
holders of the Association as of October 31, 1995; (2) Tax-Qualified Employee
Plans; (3) Supplemental Eligible Account Holders (deposit account holders of the
Association as of December 31, 1996; (4) Other Members (depositors of the
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Association, other than Eligible Account Holders or Supplemental Eligible
Account Holders at the close of business on __________, 1997, the voting record
date for the Special Meeting); and (4) officers, directors and employees of the
Association. All subscriptions received will be subject to the availability of
Holding Company Common Stock after satisfaction of all subscriptions of all
persons having prior rights in the Subscription Offering, and to the maximum and
minimum purchase limitations set forth in the Plan of Conversion. The preference
categories are more fully described below.
Category No. 1 is reserved for the Association's Eligible Account
Holders. Subscription Rights to purchase shares under this category will be
allocated among Eligible Account Holders to permit each such depositor to
purchase shares in an amount equal to the greater of $100,000 of Common Stock or
one-tenth of one percent (.10%) of the total shares offered in the Subscription
and Community Offering, or 15 times the product (rounded down to the next whole
number) obtained by multiplying the total number of shares of Common Stock to be
issued by a fraction of which the numerator is the amount of the qualifying
deposits of the Eligible Account Holder and the denominator is the total amount
of the qualifying deposits of all Eligible Account Holders in the Association,
in each case on the Eligibility Record Date, subject to the overall purchase
limitation and exclusive of shares issued pursuant to an increase in the
Estimated Valuation Range of up to 15% after satisfying the subscriptions of
Tax-Qualified Employee Plans. To the extent shares are oversubscribed in this
category, shares shall be allocated among subscribing Eligible Account Holders
to permit each such depositor, to the extent possible, to purchase a number of
shares sufficient to make his total allocations equal 100 shares. Any shares not
so allocated shall be allocated among the subscribing Eligible Account Holders
pro rata in the same proportion that each such subscriber's Qualifying Deposit,
as defined in the Plan of Conversion, bears to the total Qualifying Deposits of
all subscribing Eligible Account Holders whose subscriptions remain unsatisfied.
Category No. 2 provides for the issuance of Subscription Rights to
Tax-Qualified Employee Plans to purchase up to 10% of the total amount of shares
of Common Stock issued in the Subscription and Community Offering on a second
priority basis. However, such plans shall not, in the aggregate, purchase more
than 10% of the Holding Company Common Stock issued. The ESOP intends to
purchase a total of 8% of the Common Stock issued in the Conversion under this
category. Subscription Rights received pursuant to this category shall be
subordinated to all rights received by Eligible Account Holders to purchase
shares pursuant to Category No. 1; provided, however, that notwithstanding any
provision of the Plan of Conversion to the contrary, the Tax-Qualified Employee
Plans shall have first priority Subscription Rights to the extent that the total
number of shares of Common Stock sold in the Conversion exceeds the maximum of
the Estimated Valuation Range.
Category No. 3 is reserved for the Association's Supplemental Eligible
Account Holders. Subscription Rights to purchase shares under this category will
be allocated among Supplemental Eligible Account Holders to permit each such
depositor to purchase shares in an amount equal to the greater of $100,000,
one-tenth of one percent (.10%) of the total shares of Common Stock offered in
the Conversion, or 15 times the product (rounded down to the next whole number)
obtained by multiplying the total number of shares of Common Stock to be issued
by a fraction of which the numerator is the amount of the qualifying deposit of
the Supplemental Eligible Account Holder and the denominator is the total amount
of the qualifying deposit of the
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Supplemental Eligible Account Holders in the converting Association in each case
on December 31, 1996 (the "Supplemental Eligibility Record Date"), subject to
the overall purchase limitation after satisfying the subscriptions of Eligible
Account Holders and Tax Qualified Employee Plans. In the event of an
oversubscription for shares, the shares available shall be allocated first to
permit each subscribing Supplemental Eligible Account Holder, to the extent
possible, to purchase a number of shares sufficient to make his total allocation
(including the number of shares, if any, allocated in accordance with Category
No. 1) equal to 100 shares, and thereafter among each subscribing Supplemental
Eligible Account Holder pro rata in the same proportion that his Qualifying
Deposit bears to the total Qualifying Deposits of all subscribing Supplemental
Eligible Account Holders whose subscriptions remain unsatisfied.
Category No. 4 provides, to the extent that shares are then available
after satisfying the subscriptions of Eligible Account Holders, Tax-Qualified
Employee Plans and Supplemental Eligible Account Holders, for the issuance of
Subscription Rights to Other Members to purchase shares equal to the greater of
$100,000 of Common Stock or one-tenth of one percent (.10%) of the total amount
of shares of Common Stock offered in the Subscription and Community Offering. In
the event of an oversubscription, the available shares will be allocated on a
pro rata basis in the same proportion as a subscriber's total votes on the
Voting Record Date for the Special Meeting bears to the total votes of all
subscribing Other Members on such date.
Each depositor (including IRA and Keogh account beneficiaries) is
entitled at the Special Meeting to cast one vote for each $100, or fraction
thereof, of the aggregate withdrawal value of all of such depositor's savings
accounts in the Association as of the applicable voting record date, up to a
maximum of 1,000 votes. Each borrower member of the Association as of the Voting
Record Date will be entitled to cast one vote as a borrower member.
Category No. 5 provides for the issuance of Subscription Rights to
officers, directors and employees of the Association, to purchase up to $100,000
of Common Stock to the extent that shares are available after satisfying the
subscriptions of eligible subscribers in preference Categories 1, 2, 3 and 4.
The total number of shares which may be purchased under this Category may not
exceed 24% of the total number of shares sold in the Conversion. In the event of
an oversubscription, the available shares will be allocated on a pro rata basis
in the same proportion that orders of each person bear to the total orders of
all subscribers in this Category.
Community Offering
To the extent that shares remain available for purchase after
satisfaction of all subscriptions received and accepted in the Subscription
Offering, the Association has determined to offer shares pursuant to the Plan to
certain members of the general public in the Community Offering with a
preference given to natural persons residing in Shelby County, Ohio. Any excess
of shares available will be available for purchase by the general public in such
a manner as to promote a wide distribution of the Common Stock. Finally,
depending on market conditions, the Association may offer shares to the general
public in a Syndicated Community Offering on a best efforts basis through a
selected dealer arrangement.
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The opportunity to subscribe for shares of Common Stock in the
Community Offering (including a Syndicated Community Offering, if any) is
subject to the right of the Association and the Holding Company, in their 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. Regulations of the OTS require that all shares to
be offered in the Conversion be sold within a period ending not more than 45
days after the Subscription Expiration Date (or such longer period as may be
approved by the OTS). This period expires on ____________, 1997 unless extended
with the approval of the OTS. In addition, if the Subscription and Community
Offering is extended beyond ____________, 1997 all subscribers will be
resolicited and notified of their rights to confirm, modify or rescind their
subscriptions and to have their subscription funds returned promptly with
interest. No person, together with associates of and persons acting in concert
with such person, may purchase more than $100,000 of Common Stock in the
Community Offering. Subject to the foregoing, in the event of an
oversubscription in the Community Offering, shares will be allocated first to
cover orders of natural persons residing in Shelby County, next to cover orders
of other persons (whose order is accepted by the Association) so that such
person may receive up to 1,000 shares and thereafter, to the extent shares
remain available, on a pro rata basis in the same proportion that unfilled
orders of each person bears to the total unfilled orders of all persons.
Additional Purchase Restrictions
In addition to the purchase limitations for each priority category
described above under "Subscription Offering" and for purchases in the Public
Offering, the Plan also provides for certain additional limitations to be placed
upon the aggregate purchase of shares in the Conversion. Specifically, no person
(other than a Tax-Qualified Employee Plan or certain large depositors) by
himself or herself or with an associate, and no group of persons acting in
concert, may subscribe for or purchase more than $200,000 of Common Stock
offered in the Conversion based on the Estimated Valuation Range, without regard
to an increase in the number of shares to be issued. For purposes of this
limitation, an associate of a person does not include a Tax- Qualified Employee
Plan or Non-Tax Qualified Employee Plan in which the person has a substantial
beneficial interest or serves as a trustee or in a similar fiduciary capacity.
Moreover, for purposes of this paragraph, shares held by one or more Tax
Qualified or Non-Tax Qualified Employee Plans attributed to a person shall not
be aggregated with shares purchased directly by or otherwise attributable to
that person except for that portion of a plan which is self-directed by a
person. See "-Stock Pricing and Number of Shares to be Issued" regarding
potential changes in Subscription Rights in the event of a decrease in the
number of shares to be issued in the Conversion. Officers and directors and
their associates may not purchase, in the aggregate, more than 34% of the shares
to be sold in the Conversion. For purposes of the Plan, the members of the Board
of Directors are not deemed to be acting in concert solely by reason of their
Board membership. For purposes of this limitation, an associate of an officer or
director does not include a Tax-Qualified Employee Plan. Moreover, any shares
attributable to the officers and directors and their associates, but held by a
Tax-Qualified Employee Plan (other than that portion of a plan which is
self-directed) shall not be included in calculating the number of shares which
may be purchased under the limitations in this paragraph. Shares purchased by
employees who are not officers or directors of the Association, or their
associates, are not subject to this limitation. The term "associate" is used
above to indicate any of the following relationships with a person: (i) any
corporation or organization (other than the Holding
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Company or the Association or a majority-owned subsidiary of the Holding Company
or the Association) of which a person is an officer or partner or is, directly
or indirectly, the beneficial owner of 10% or more of any class of equity
security; (ii) any trust or other estate in which such person has a substantial
beneficial interest or as to which such person serves as trustee or in a similar
fiduciary capacity; and (iii) any relative or spouse of such person or any
relative of such spouse who has the same home as such person or who is a
director or officer of the Holding Company or the Association or any subsidiary
of the Holding Company or the Association.
The Boards of Directors of the Holding Company and the Association, in
their sole discretion, may increase the maximum purchase limitations referred to
above up to 9.99% of the total shares sold in the Subscription and Community
Offering, provided that the percentage by which each such order exceeds 5% of
the shares being offered in the Subscription and Community Offering shall not
exceed, in the aggregate, 10% of the shares being offered in the Subscription
and Community Offering. Requests to purchase additional shares of Holding
Company Common Stock under this provision will be allocated by the Boards of
Directors on a pro rata basis giving priority in accordance with the priority
rights set forth above. Depending on market and financial conditions, the Boards
of Directors of the Holding Company and the Association, with the approval of
the OTS and without further approval of the members, may increase any of the
above purchase limitations or decrease the maximum purchase limitation to as low
as 1% of the shares of Common Stock offered in the Conversion.
To the extent that shares are available, each subscriber must subscribe
for a minimum of 25 shares. In computing the number of shares to be allocated,
all numbers will be rounded down to the next whole number.
Common Stock purchased in the Conversion will be freely transferable
except for shares purchased by executive officers and directors of the
Association or the Holding Company. See "- Restrictions on Transfer of
Subscription Rights and Shares."
Marketing and Underwriting Arrangements
The Association has retained the services of Webb to consult with and
to advise the Association and the Holding Company, and to assist the
Association, on a best efforts basis, in the distribution of shares in the
Subscription and Community Offering. Webb is an SEC-registered firm and is a
member of the National Association of Securities Dealers, Inc. (the "NASD"). Its
telephone number is (614) 766-8400. Webb will render services to the Association
and the Holding Company including: 1) assistance in structuring the offering and
analysis of the depositor base and community served by the Association; 2)
providing its employees on site to staff the Stock Information Center to
maintain records of all stock subscriptions; 3) training the Association's
personnel regarding the mechanics and regulatory requirements of the Conversion
process; 4) conducting information meetings for subscribers and other potential
purchasers; and 5) assistance in obtaining proxies from the Association's
members with respect to the special meeting.
For its services, Webb will receive a management fee and estimated
expenses of $35,000, and will be paid a commission of 1.5% of the aggregate
Purchase Price of Common Stock sold in the Subscription and Community Offering,
excluding Common Stock purchased by directors,
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officers and employees of the Association, or members of their immediate
families and ESOP purchases. The Holding Company will also pay a fee of 5.5% of
the aggregate Purchase Price of shares of Common Stock sold in the Subscription
and Community Offering through a syndicate of a broker dealers should such
brokers or registered representatives be engaged. The Association has agreed to
reimburse Webb for its out-of-pocket expenses and its legal fees and expenses
and to indemnify Webb against certain claims or liabilities, including certain
liabilities under the Securities Act of 1933, as amended.
Sales of Common Stock will be made primarily by registered
representatives affiliated with Webb or by the broker-dealers managed by Webb. A
Stock Information Center will be established at the main office of the
Association. The Holding Company will rely on Rule 3a4-1 under the Exchange Act
and sales of Common Stock will be conducted within the requirements of Rule
3a4-1, so as to permit officers, directors and employees to participate in the
sale of Common Stock. No officer, director or employee of the Holding Company or
the Association will be compensated in connection with his participation by the
payment of commissions or other remuneration based either directly or indirectly
on the transactions in the Common Stock. In addition, directors and executive
officers of the Association may participate in the solicitation of offers to
purchase Common Stock and other employees of the Association may participate in
the Subscription and Community Offering in ministerial capacities.
Method of Payment for Subscriptions
To purchase shares in the Subscription and Community Offering, an
executed original Order Form, including the certification form (facsimile and
photocopies will not be accepted) with the required payment for each share
subscribed for, or with appropriate authorization for withdrawal from the
subscriber's deposit account at the Association (which may be given by
completing the appropriate blanks in the order form), must be received by the
Holding Company at an office of the Association by 5:00 p.m., Sidney, Ohio time
on ________, 1997, the Subscription Expiration Date. Order Forms which are not
received by such time or are executed defectively or are received without full
payment (or appropriate withdrawal instructions) are not required to be
accepted.
Payment for subscriptions may be made (i) in cash if delivered in
person at the office of the Association, (ii) by check, bank draft or money
order or (iii) by authorization of withdrawal from deposit accounts maintained
with the Association. Interest will be paid on payments made by cash, check,
bank draft or money order, whether or not the Conversion is completed or
terminated, at the regular passbook rate of 3.05% per annum from the date
payment is received until the completion or termination of the Conversion. If
payment is made by authorization of withdrawal from deposit accounts, the funds
authorized to be withdrawn from a deposit account will continue to accrue
interest at the contractual rates until completion or termination of the
Conversion, but a hold will be placed on such funds, thereby making them
unavailable to the depositor until completion or termination of the Conversion.
If a subscriber authorizes the Association to withdraw the amount of
the purchase price from his certificate account, the Association will do so as
of the effective date of Conversion. The Association will waive any applicable
penalties for early withdrawal from certificate accounts. If the remaining
balance in a certificate account is reduced below the applicable
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minimum balance requirement at the time that the funds actually are transferred
under the authorization, the rate paid on the remaining balance of the
certificate account will earn interest at the then-current passbook rate.
If the ESOP subscribes for shares during the Subscription Offering, the
ESOP will not be required to pay for the shares subscribed for at the time it
subscribes, but rather, may pay for such shares of Common Stock subscribed for
at the Purchase Price upon consummation of the Conversion, provided that there
is in force from the time of its subscription until such time a loan commitment
to lend to the ESOP, at such time, the aggregate Purchase Price of the shares
for which it subscribed.
Certificates representing shares of Common Stock purchased will be
mailed to purchasers at the last address of such persons appearing on the
records of the Holding Company, or to such other address as may be specified in
properly completed order forms, as soon as practicable following consummation of
the sale of all shares of Common Stock. Any certificates returned as
undeliverable will be disposed of in accordance with applicable law.
To ensure that each purchaser receives a prospectus at least 48 hours
prior to the Expiration Date in accordance with Rule 15c2-8 under the Exchange
Act, no prospectus will be mailed any later than five days prior to such date or
hand delivered any later than two days prior to such date. Execution of the
order form will confirm receipt or delivery in accordance with Rule 15c2-8.
Order forms will only be distributed with a prospectus. The Holding Company will
accept for processing only orders submitted on original order forms with the
form of certification. Photocopies or facsimile copies of order forms or
certifications will not be accepted. Payment by cash, check, money order, bank
draft or debit authorization to an existing account at the Association must
accompany the order form. No wire transfers will be accepted.
In order to ensure that Eligible Account Holders, Supplemental Eligible
Account Holders and Other Members receive their stock purchase priorities,
depositors as of the Eligibility Record Date (October 31, 1995), the
Supplemental Eligibility Record Date (December 31, 1996) and/or the Voting
Record Date (___________, 1997) must list all accounts on the stock order form
giving all names on each account and the account number as of the applicable
record date.
In addition to the foregoing, if shares are offered through selected
dealers in the 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 Holding Company for deposit in a
segregated account at the Association on or before noon of the business day
following receipt of the order form or execution of the order form by the
selected dealer. Alternatively, selected dealers may solicit indications of
interest from their customers and thereafter seek their confirmation as to their
intent to purchase. Those indicating an intent to purchase shall forward
executed order forms and certifications to their selected dealer or authorize
the selected dealer to execute such forms. The selected dealer will acknowledge
receipt of the order to its customer in writing on the following business day
and will debit such customer's account on the third business day after the
customer has confirmed his intent to purchase (the "debit date") and on
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or before noon of the next business day following the debit date will send order
forms and funds to the Holding Company for deposit in a segregated account at
the Association. If such alternative procedure is employed, purchasers' funds
are not required to be in their accounts with selected dealers until the debit
date.
Restrictions on Transfer of Subscription Rights and Shares
Prior to the completion of the Conversion, the OTS conversion
regulations prohibit any person with Subscription Rights, including the
Tax-Qualified Employee Plans, Eligible Account Holders, Supplement Eligible
Account Holders and Other Members of the Association, from transferring or
entering into any agreement or understanding to transfer the legal or beneficial
ownership of the Subscription Rights issued under the Plan or the shares of
Common Stock to be issued upon their exercise. Such rights may be executed only
by the person to whom they are granted and only for his account. Each person
exercising Subscription Rights will be required to certify that he is purchasing
shares solely for his own account and that he has no agreement or understanding
regarding the sale or transfer of such shares. The regulations also prohibit any
person from offering or making an announcement of an offer or intent to make an
offer to purchase Subscription Rights or shares of Common Stock prior to the
completion of the Conversion.
The Association and the Holding Company may pursue any and all legal
and equitable remedies in the event they become aware of the transfer of
Subscription Rights and will not honor orders known by them to involve the
transfer of such rights.
Except as to directors and executive officers of the Association and
the Holding Company, the shares of Common Stock sold in the Conversion will be
freely transferable. Shares purchased by directors, executive officers or their
associates in the Conversion shall be subject to the restrictions that said
shares shall not be sold during the period of one year following the date of
purchase, except in the event of the death of the stockholder. Accordingly,
stock certificates issued by the Holding Company to directors, executive
officers and associates shall bear a legend giving appropriate notice of such
restriction and, in addition, the Holding Company will give appropriate
instructions to the transfer agent for the Holding Company's Common Stock with
respect to the applicable restriction upon transfer of any restricted shares.
Any shares issued at a later date as a stock dividend, stock split or otherwise,
to holders of restricted stock, shall be subject to the same restrictions that
may apply to such restricted stock. Holding Company Common Stock (like the stock
of most companies) is subject to the requirements of the Securities Act of 1933,
as amended (the "Securities Act"). Accordingly, the Holding Company's Common
Stock may be offered and sold only in compliance with registration requirements
or pursuant to an applicable exemption from registration.
Holding Company's Common Stock received in the Conversion by persons
who are not "affiliates" of the Holding Company may be resold without
registration. Shares received by affiliates of the Holding Company (primarily
the directors, officers and principal stockholders of the Holding Company) will
be subject to the resale restrictions of Rule 144 under the Securities Act. Rule
144 generally requires that there be publicly available certain information
concerning the Holding Company, and that sales thereunder be made in routine
brokerage transactions or through a market maker. If the conditions of Rule 144
are satisfied, each
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affiliate (or group of persons acting in concert with one or more affiliates) is
entitled to sell in the public market, without registration, in any three-month
period, a number of shares which does not exceed the greater of (i) 1% of the
number of outstanding shares of Holding Company stock, or (ii) if the stock is
admitted to trading on a national securities exchange or reported through the
automated quotation system of a registered securities bank, the average weekly
reported volume of trading during the four weeks preceding the sale.
Participation by the Board and Executive Officers
The directors and executive officers of Peoples Federal have indicated
their intention to purchase in the Conversion an aggregate of $1,745,000 of
Common Stock, equal to 16.4%, 14.0%, 12.1% or 10.6% of the number of shares to
be issued in the Subscription and Community Offering, at the minimum, midpoint,
maximum and 15% above the maximum of the Estimated Valuation Range,
respectively. The following table sets forth information regarding Subscription
Rights to Common Stock intended to be exercised by each of the directors of the
Association, including members of their immediate family and their IRAs, and by
all directors and executive officers as a group. The following table assumes
that 1,250,000 shares, the midpoint of the Estimated Valuation Range, of Common
Stock are issued at the Purchase Price of $10.00 per share and that sufficient
shares will be available to satisfy the subscriptions indicated. The table does
not include shares to be purchased through the ESOP (8% of shares issued in the
Conversion).
<TABLE>
<CAPTION>
Number of
Aggregate Shares at Percent of
Purchase $10.00 Shares at
Name Title Price per Share Midpoint
---- ----- --------- --------- ---------
<S> <C> <C> <C> <C>
Douglas Stewart President, Chief Executive $ 200,000 20,000 1.6%
Officer and Director
Richard T. Martin Chairman of the Board 200,000 20,000 1.6
Harry N. Faulkner Director 200,000 20,000 1.6
George R. Hoellrich Director 20,000 2,000 0.2
James W. Kerber Director 200,000 20,000 1.6
Robert W. Bertsch Director 200,000 20,000 1.6
John W. Sargeant Director 200,000 20,000 1.6
All directors and officers as a 1,745,000 174,500 14.0
group (11 persons)
</TABLE>
Risk of Delayed Offering
The completion of the sale of all unsubscribed shares in the
Subscription and Community Offering will be dependent, in part, upon the
Association's operating results and market conditions at the time of the
Subscription and Community Offering. Under the Plan of Conversion, all shares
offered in the Conversion must be sold within a period ending 24 months from the
date of the Special Meeting. While the Association and the Holding Company
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anticipate completing the sale of shares offered in the Conversion within this
period, if the Board of Directors of the Association and the Holding Company are
of the opinion that economic conditions generally or the market for publicly
traded thrift institution stocks make undesirable a sale of the Holding
Company's Common Stock, then the Subscription and Community Offering may be
delayed until such conditions improve.
A material delay in the completion of the sale of all unsubscribed
shares in the Subscription and Community Offering may result in a significant
increase in the costs of completing the Conversion. Significant changes in the
Association's operations and financial condition, the aggregate market value of
the shares to be issued in the Conversion and general market conditions may
occur during such material delay. In the event the Conversion is not consummated
within 24 months after the date of the Special Meeting of Members, the
Association would charge accrued Conversion costs to then current period
operations.
Approval, Interpretation, Amendment and Termination
All interpretations of the Plan of Conversion, as well as the
completeness and validity of order forms and stock order and account withdrawal
authorizations, will be made by the Association and the Holding Company and will
be final, subject to the authority of the OTS and the requirements of applicable
law. The Plan of Conversion provides that, if deemed necessary or desirable by
the Boards of Directors of the Association and the Holding Company, the Plan of
Conversion may be substantively amended (including an amendment to eliminate the
formation of the Holding Company as part of the Conversion) by the Boards of
Directors of the Association and the Holding Company, as a result of comments
from regulatory authorities or otherwise, at any time with the concurrence of
the OTS. In the event the Plan of Conversion is substantially amended, other
than a change in the maximum purchase limits set forth herein, the Holding
Company intends to notify subscribers of the change and to permit subscribers to
modify or cancel their subscriptions. The Plan of Conversion will terminate if
the sale of all shares is not completed within 24 months after the date of the
Special Meeting of Members. The Plan of Conversion may be terminated by the
Boards of Directors of the Holding Company and the Association with the
concurrence of the OTS, at any time. A specific resolution approved by a
two-thirds vote of the Boards of Directors of the Holding Company and the
Association would be required to terminate the Plan of Conversion prior to the
end of such 24-month period.
Restrictions on Repurchase of Stock
For a period of three years following Conversion, the Holding Company
may not repurchase any shares of its capital stock, except in the case of an
offer to repurchase on a pro rata basis made to all holders of capital stock of
the Holding Company. Any such offer shall be subject to the prior approval of
the OTS. Furthermore, the Holding Company may not repurchase any of its stock
(i) if the result thereof would be to reduce the regulatory capital of the
Association below the amount required for the liquidation account to be
established pursuant to OTS regulations and (ii) except in compliance with the
requirements of the OTS' capital distribution rule.
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The above limitations are subject to the OTS conversion rules which
generally provide that the Holding Company may repurchase its capital stock
provided (i) no repurchases occur within one year following the Conversion
(subject to certain exceptions), (ii) repurchases during the second and third
year after conversion are part of an open market stock repurchase program that
does not allow for a repurchase of more than 5% of the Holding Company's
outstanding capital stock during a 12-month period, (iii) the repurchases do not
cause the Association to become undercapitalized, and (iv) the Holding Company
provides notice to the OTS at lease 10 days prior to the commencement of a
repurchase program and the OTS does not object to such regulations. In addition,
the above limitations do not preclude repurchases of capital stock by the
Holding Company in the event applicable federal regulatory limitations are
subsequently liberalized.
Income Tax Consequences
Consummation of the Conversion is expressly conditioned upon prior
receipt by the Association of either a ruling from the IRS or an opinion of
Silver, Freedman & Taff, L.L.P. with respect to federal taxation, and an opinion
of Crowe, Chizek and Company LLP with respect to Ohio taxation, to the effect
that consummation of the Conversion will not be taxable to the converted
Association or the Holding Company. The full text of the Silver, Freedman &
Taff, L.L.P. opinion, the Keller opinion and the Crowe, Chizek and Company LLP
opinion, which opinions are summarized herein, were filed with the SEC as
exhibits to the Holding Company's Registration Statement on Form S-1. See
"Additional Information."
An opinion which is summarized below has been received from Silver,
Freedman & Taff, L.L.P. with respect to the proposed Conversion of the
Association to the stock form. The Silver, Freedman Taff, L.L.P. opinion states
that (i) the Conversion will qualify as a reorganization under Section
368(a)(1)(F) of the Internal Revenue Code of 1986, as amended, and no gain or
loss will be recognized to the Association in either its mutual form or its
stock form by reason of the proposed Conversion, (ii) no gain or loss will be
recognized to the Association in its stock form upon the receipt of money and
other property, if any, from the Holding Company for the stock of the
Association; and no gain or loss will be recognized to the Holding Company upon
the receipt of money for Common Stock of the Holding Company; (iii) the assets
of the Association in either its mutual or its stock form will have the same
basis before and after the Conversion; (iv) the holding period of the assets of
the Association in its stock form will include the period during which the
assets were held by the Association in its mutual form prior to Conversion; (v)
gain, if any, will be realized by the depositors of the Association upon the
constructive issuance to them of withdrawable deposit accounts of the
Association in its stock form, nontransferable subscription rights to purchase
Holding Company Common Stock and/or interests in the Liquidation Account (any
such gain will be recognized by such depositors, but only in an amount not in
excess of the fair market value of the subscription rights and Liquidation
Account interests received); (vi) the basis of the account holder's savings
accounts in the Association after the Conversion will be the same as the basis
of his or her savings accounts in the Association prior to the Conversion; (vii)
the basis of each account holder's interest in the Liquidation Account is
assumed to be zero; (viii) based on the Keller Letter, as hereinafter defined,
the basis of the subscription rights will be zero; (ix) the basis of the Holding
Company Common Stock to its stockholders will be the purchase price thereof; (x)
a stockholder's holding period for Holding Company Common Stock acquired
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through the exercise of subscription rights shall begin on the date on which the
subscription rights are exercised and the holding period for the Conversion
Stock purchased in the Subscription and Community Offering will commence on the
date following the date on which such stock is purchased; (xi) the Association
in its stock form will succeed to and take into account the earnings and profits
or deficit in earnings and profits, of the Association, in its mutual form, as
of the date of Conversion; (xii) the Association, immediately after Conversion,
will succeed to and take into account the bad debt reserve accounts of the
Association, in mutual form, and the bad debt reserves will have the same
character in the hands of the Association after Conversion as if no Conversion
had occurred; and (xiii) the creation of the Liquidation Account will have no
effect on the Association's taxable income, deductions or addition to reserve
for bad debts either in its mutual or stock form.
The opinion from Silver, Freedman & Taff, L.L.P. is based, among other
things, on certain assumptions, including the assumptions that the exercise
price of the Subscription Rights to purchase Holding Company Common Stock will
be approximately equal to the fair market value of that stock at the time of the
completion of the proposed Conversion. With respect to the Subscription Rights,
the Association will receive a letter from Keller (the "Keller Letter") which,
based on certain assumptions, will conclude that the Subscription Rights to be
received by Eligible Account Holders, Supplemental Eligible Account Holders and
other eligible subscribers do not have any economic value at the time of
distribution or at the time the Subscription Rights are exercised, whether or
not a Public Offering takes place.
The Association has also received an opinion of Silver, Freedman &
Taff, L.L.P. to the effect that, based in part on the Keller Letter: (i) no
taxable income will be realized by depositors as a result of the exercise of
non-transferable Subscription Rights to purchase shares of Holding Company
Common Stock at fair market value; (ii) no taxable income will be recognized by
borrowers, directors, officers and employees of the Association on the receipt
or exercise of Subscription Rights to purchase shares of Holding Company Common
Stock at fair market value; and (iii) no taxable income will be realized by the
Association or Holding Company on the issuance of Subscription Rights to
eligible subscribers to purchase shares of Holding Company Common Stock at fair
market value.
Notwithstanding the Keller Letter, if the Subscription Rights are
subsequently found to have a fair market value and are deemed a distribution of
property, it is Silver, Freedman & Taff, L.L.P.'s opinion that gain or income
will be recognized by various recipients of the Subscription Rights (in certain
cases, whether or not the rights are exercised) and the Association and/or the
Holding Company may be taxable on the distribution of the Subscription Rights.
In any event, all recipients are encouraged to consult with their own tax
advisors as to the tax consequences which may result.
With respect to Ohio taxation, the Association has received an opinion
from Crowe, Chizek and Company LLP to the effect that the Ohio tax consequences
to the Association, in its mutual or stock form, the Holding Company, eligible
account holders, parties receiving subscription rights, parties purchasing
conversion stock, and other parties participating in the Conversion will be the
same as the federal income tax consequences described above.
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Unlike a private letter ruling, the opinions of Silver, Freedman &
Taff, L.L.P. and Crowe, Chizek and Company LLP, as well as the Keller Opinion,
have no binding effect or official status, and no assurance can be given that
the conclusions reached in any of those opinions would be sustained by a court
if contested by the IRS or the Ohio State tax authorities.
RESTRICTIONS ON ACQUISITIONS OF STOCK AND
RELATED TAKEOVER DEFENSIVE PROVISIONS
Although the Boards of Directors of the Association and the Holding
Company are not aware of any effort that might be made to obtain control of the
Holding Company after Conversion, the Board of Directors, as discussed below,
believes that it is appropriate to include certain provisions as part of the
Holding Company's certificate of incorporation to protect the interests of the
Holding Company and its stockholders from takeovers which the Board of Directors
of the Holding Company might conclude are not in the best interests of the
Association, the Holding Company or the Holding Company's stockholders.
The following discussion is a general summary of material provisions of
the Holding Company's certificate of incorporation and bylaws and certain other
regulatory provisions which may be deemed to have an "anti-takeover" effect. The
following description of certain of these provisions is necessarily general and,
with respect to provisions contained in the Holding Company's certificate of
incorporation and bylaws and the Association's proposed federal stock charter
and bylaws, reference should be made in each case to the document in question,
each of which is part of the Association's Conversion Application filed with the
OTS and the Holding Company's Registration Statement filed with the SEC. See
"Additional Information."
Provisions of the Holding Company's Certificate of Incorporation and Bylaws
Directors. Certain provisions of the Holding Company's certificate of
incorporation and bylaws will impede changes in majority control of the Board of
Directors. The Holding Company's certificate of incorporation provides that the
Board of Directors of the Holding Company will be divided into three classes,
with directors in each class elected for three-year staggered terms except for
the initial directors. Thus, assuming a Board of six directors, it would take
two annual elections to replace a majority of the Holding Company's Board. The
Holding Company's bylaws provide that the size of the Board of Directors may be
increased or decreased only by a majority vote of the whole Board or by a vote
of 80% of the shares eligible to be voted at a duly constituted meeting of
stockholders called for such purpose. The bylaws also provide that any vacancy
occurring in the Board of Directors, including a vacancy created by an increase
in the number of directors, shall be filled for the remainder of the unexpired
term by a majority vote of the directors then in office. Finally, the bylaws
impose certain notice and information requirements in connection with the
nomination by stockholders of candidates for election to the Board of Directors
or the proposal by stockholders of business to be acted upon at an annual
meeting of stockholders.
The certificate of incorporation provides that a director may only be
removed for cause by the affirmative vote of 80% of the shares eligible to vote.
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Restrictions on Call of Special Meetings. The certificate of
incorporation of the Holding Company provides that a special meeting of
stockholders may be called only pursuant to a resolution of the Board of
Directors and for only such business as directed by the Board.
Stockholders are not authorized to call a special meeting.
Absence of Cumulative Voting. The Holding Company's certificate of
incorporation does not provide for cumulative voting rights in the election of
directors.
Authorization of Preferred Stock. The certificate of incorporation of
the Holding Company authorizes 500,000 shares of serial preferred stock, $.01
par value. The Holding Company is authorized to issue preferred stock from time
to time in one or more series subject to applicable provisions of law, and the
Board of Directors is authorized to fix the designations, powers, preferences
and relative participating, optional and other special rights of such shares,
including voting rights (which could be multiple or as a separate class) and
conversion rights. In the event of a proposed merger, tender offer or other
attempt to gain control of the Holding Company that the Board of Directors does
not approve, it might be possible for the Board of Directors to authorize the
issuance of a series of preferred stock with rights and preferences that would
impede the completion of such a transaction. If the Holding Company issues any
preferred stock which disparately reduces the voting rights of the Common Stock
within the meaning of Rule 19c-4 under the Exchange Act, the Common Stock could
be required to be delisted from the Nasdaq System. An effect of the possible
issuance of preferred stock, therefore, may be to deter a future takeover
attempt. The Board of Directors has no present plans or understandings for the
issuance of any preferred stock and does not intend to issue any preferred stock
except on terms which the Board deems to be in the best interests of the Holding
Company and its stockholders.
Limitation on Voting Rights. The certificate of incorporation of the
Holding Company provides that in no event shall any record owner of any
outstanding Common Stock which is beneficially owned, directly or indirectly, by
a person who beneficially owns in excess of 10% of the then outstanding shares
of Common Stock (the "Limit"), be entitled or permitted to have any vote in
respect of the shares held in excess of the Limit. This limitation would not
inhibit any person from soliciting (or voting) proxies from other beneficial
owners for more than 10% of the Common Stock or from voting such proxies.
Beneficial ownership is to be determined pursuant to Rule 13d-3 of the General
Rules and Regulations of the Exchange Act, and in any event includes shares
beneficially owned by any affiliate of such person, shares which such person or
his affiliates (as defined in the certificate of incorporation) have the right
to acquire upon the exercise of conversion rights or options and shares as to
which such person and his affiliates have or share investment or voting power.
Directors and officers of the Holding Company by reason of their acting in such
capacity, shall not be deemed to beneficially own any shares owned by any other
director or officer. This provision will be enforced by the Board of Directors
to limit the voting rights of persons beneficially owning more than 10% of the
stock and thus could be utilized in a proxy contest or other solicitation to
defeat a proposal that is desired by a majority of the stockholders.
Procedures for Certain Business Combinations. The Holding Company's
certificate of incorporation requires that certain business combinations
(including transactions initiated by
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management) between the Holding Company (or any majority-owned subsidiary
thereof) and a 10% or more stockholder either (i) be approved by at least 80% of
the total number of outstanding voting shares, voting as a single class, of the
Holding Company, (ii) be approved by two-thirds of the continuing Board of
Directors (i.e., persons serving prior to the 10% stockholder becoming such) or
(iii) involve consideration per share generally equal to that paid by such 10%
stockholder when it acquired its block of stock.
It should be noted that since the Board and executive officers intend
to purchase approximately $1,745,000 of the shares offered in the Conversion and
may control the voting of additional shares through the ESOP, the Board and
management may be able to block the approval of combinations requiring an 80%
vote even where a majority of the stockholders vote to approve such
combinations.
Amendment to Certificate of Incorporation and Bylaws. Amendments to the
Holding Company's certificate of incorporation must be approved by the Holding
Company's Board of Directors and also by a majority of the outstanding shares of
the Holding Company's voting stock, provided, however, that approval by at least
80% of the outstanding voting stock is generally required for certain provisions
(i.e., provisions relating to number, classification, election and removal of
directors; amendment of bylaws; call of special stockholder meetings; offers to
acquire and acquisitions of control; director liability; certain business
combinations; power of indemnification; and amendments to provisions relating to
the foregoing in the certificate of incorporation).
The bylaws may be amended by a majority vote of the Board of Directors
or the affirmative vote of at least 80% of the total votes eligible to be voted
at a duly constituted meeting of stockholders.
Purpose and Takeover Defensive Effects of the Holding Company's
Certificate of Incorporation and Bylaws. The Board of Directors of the
Association believes that the provisions described above are prudent and will
reduce the Holding Company's vulnerability to takeover attempts and certain
other transactions which have not been negotiated with and approved by its Board
of Directors. These provisions will also assist the Association in the orderly
deployment of the Conversion proceeds into productive assets during the initial
period after the Conversion. The Board of Directors believes these provisions
are in the best interest of the Association and of the Holding Company and its
stockholders. In the judgment of the Board of Directors, the Holding Company's
Board will be in the best position to determine the true value of the Holding
Company and to negotiate more effectively for what may be in the best interests
of its stockholders. Accordingly, the Board of Directors believes that it is in
the best interests of the Holding Company and its stockholders to encourage
potential acquirors to negotiate directly with the Board of Directors of the
Holding Company and that these provisions will encourage such negotiations and
discourage hostile takeover attempts. It is also the view of the Board of
Directors that these provisions should not discourage persons from proposing a
merger or other transaction at prices reflective of the true value of the
Holding Company and which is in the best interests of all stockholders.
Attempts to take over financial institutions and their holding
companies have recently become increasingly common. Takeover attempts which have
not been negotiated with and
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approved by the Board of Directors present to stockholders the risk of a
takeover on terms which may be less favorable than might otherwise be available.
A transaction which is negotiated and approved by the Board of Directors, on the
other hand, can be carefully planned and undertaken at an opportune time in
order to obtain maximum value for the Holding Company and its stockholders, with
due consideration given to matters such as the management and business of the
acquiring corporation and maximum strategic development of the Holding Company's
assets.
An unsolicited takeover proposal can seriously disrupt the business and
management of a corporation and cause it great expense. Although a tender offer
or other takeover attempt may be made at a price substantially above then
current market price, such offers are sometimes made for less than all of the
outstanding shares of a target company. As a result, stockholders may be
presented with the alternative of partially liquidating their investment at a
time that may be disadvantageous, or retaining their investment in an enterprise
which is under different management and whose objectives may not be similar to
those of the remaining stockholders. The concentration of control, which could
result from a tender offer or other takeover attempt, could also deprive the
Holding Company's remaining stockholders of the benefits of certain protective
provisions of the Exchange Act, if the number of beneficial owners becomes less
than the 300 required for Exchange Act registration.
Despite the belief of the Association and the Holding Company as to the
benefits to stockholders of these provisions of the Holding Company's
certificate of incorporation and bylaws, these provisions may also have the
effect of discouraging a future takeover attempt which would not be approved by
the Holding Company's Board, but pursuant to which stockholders may receive a
substantial premium for their shares over then current market prices. As a
result, stockholders who might desire to participate in such a transaction may
not have any opportunity to do so. Such provisions will also render the removal
of the Holding Company's Board of Directors and of management more difficult.
The Board will enforce the voting limitation provisions of the charter in proxy
solicitations and accordingly could utilize these provisions to defeat proposals
that are favored by a majority of the stockholders. The Boards of Directors of
the Association and the Holding Company, however, have concluded that the
potential benefits outweigh the possible disadvantages.
Pursuant to applicable law, at any annual or special meeting of its
stockholders after the Conversion, the Holding Company may adopt additional
charter provisions regarding the acquisition of its equity securities that would
be permitted to a Delaware corporation. The Holding Company and the Association
do not presently intend to propose the adoption of further restrictions on the
acquisition of the Holding Company's equity securities.
Other Restrictions on Acquisitions of Stock
Delaware Anti-Takeover Statute. The Delaware General Corporation Law
(the "DGCL") provides that buyers who acquire more than 15% of the outstanding
stock of a Delaware corporation, such as the Holding Company, are prohibited
from completing a hostile takeover of such corporation for three years. However,
the takeover can be completed if (i) the buyer, while acquiring the 15%
interest, acquires at least 85% of the corporation's outstanding stock (the 85%
requirement excludes shares held by directors who are also officers and certain
shares held under employee stock plans), or (ii) the takeover is approved by the
target corporation's
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board of directors and two-thirds of the shares of outstanding stock of the
corporation (excluding shares held by the bidder).
However, these provisions of the DGCL do not apply to Delaware
corporations with less than 2,000 stockholders or which do not have voting stock
listed on a national exchange or listed for quotation with a registered national
securities association. The Holding Company's common stock has been approved for
listing on the Nasdaq National Stock Market. Peoples Federal may exempt itself
from the requirements of the statute by adopting an amendment to its Certificate
of Incorporation or Bylaws electing not to be governed by this provision. At the
present time, the Board of Directors does not intend to propose any such
amendment.
Federal Regulation. A federal regulation prohibits any person prior to
the completion of a conversion from transferring, or entering into any agreement
or understanding to transfer, the legal or beneficial ownership of the
subscription rights issued under a plan of conversion or the stock to be issued
upon their exercise. This regulation also prohibits any person prior to the
completion of a conversion from offering, or making an announcement of an offer
or intent to make an offer, to purchase such subscription rights or stock. For
three years following conversion, this regulation prohibits any person, without
the prior approval of the OTS, from acquiring or making an offer to acquire more
than 10% of the stock of any converted savings institution if such person is, or
after consummation of such acquisition would be, the beneficial owner of more
than 10% of such stock. In the event that any person, directly or indirectly,
violates this regulation, the securities beneficially owned by such person in
excess of 10% may not be counted as shares entitled to vote and may not be voted
by any person or counted as voting shares in connection with any matter
submitted to a vote of stockholders. Like the charter provisions outlined above,
these federal regulations can make a change in control more difficult, even if
desired by the holders of the majority of the shares of the stock. The Board of
Directors reserves the right to ask the OTS or other federal regulators to
enforce these restrictions against persons seeking to obtain control of the
Company, whether in a proxy solicitation or otherwise. The policy of the Board
is that these legal restrictions must be observed in every case, including
instances in which an acquisition of control of the Company is favored by a
majority of the stockholders.
Federal law provides that no company, "directly or indirectly or acting
in concert with one or more persons, or through one or more subsidiaries, or
through one or more transactions," may acquire "control" of a savings
association at any time without the prior approval of the OTS. In addition,
federal regulations require that, prior to obtaining control of a savings
association, a person, other than a company, must give 60 days' prior notice to
the OTS and have received no OTS objection to such acquisition of control. Any
company that acquires such control becomes a "savings and loan holding company"
subject to registration, examination and regulation as a savings and loan
holding company. Under federal law (as well as the regulations referred to
below) the term "savings association" includes state and federally chartered
SAIF-insured institutions and federally chartered savings banks whose accounts
are insured by the SAIF and holding companies thereof.
Control, as defined under federal law, in general means ownership,
control of or holding irrevocable proxies representing more than 25% of any
class of voting stock, control in any manner of the election of a majority of a
savings association's directors, or a determination by
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the OTS that the acquiror has the power to direct, or directly or indirectly to
exercise a controlling influence over, the management or policies of the
institution. Acquisition of more than 10% of any class of a savings
association's voting stock, if the acquiror also is subject to any one of eight
"control factors," constitutes a rebuttable determination of control under the
regulations. Such control factors include the acquiror being one of the two
largest stockholders. The determination of control may be rebutted by submission
to the OTS, prior to the acquisition of stock or the occurrence of any other
circumstances giving rise to such determination, of a statement setting forth
facts and circumstances which would support a finding that no control
relationship will exist and containing certain undertakings. The regulations
provide that persons or companies which acquire beneficial ownership exceeding
10% or more of any class of a savings association's stock must file with the OTS
a certification that the holder is not in control of such institution, is not
subject to a rebuttable determination of control and will take no action which
would result in a determination or rebuttable determination of control without
prior notice to or approval of the OTS, as applicable.
DESCRIPTION OF CAPITAL STOCK
Holding Company Capital Stock
The 4.0 million shares of capital stock authorized by the Holding
Company certificate of incorporation are divided into two classes, consisting of
3.5 million shares of Common Stock (par value $.01 per share) and 500,000 shares
of serial preferred stock (par value $.01 per share). The Holding Company
currently expects to issue between 1,062,500 and 1,437,500 shares of Common
Stock in the Conversion and no shares of serial preferred stock. The aggregate
par value of the issued shares will constitute the capital account of the
Holding Company on a consolidated basis. Upon payment of the Purchase Price, all
shares issued in the Conversion will be duly authorized, fully paid and
nonassessable. The balance of the Purchase Price of Common Stock, less expenses
of Conversion, will be reflected as paid-in capital on a consolidated basis. See
"Capitalization."
Each share of the Common Stock will have the same relative rights and
will be identical in all respects with each other share of the Common Stock. The
Common Stock of the Holding Company will represent non-withdrawable capital,
will not be of an insurable type and will not be insured by the FDIC.
Under Delaware law, the holders of the Common Stock will possess
exclusive voting power in the Holding Company. Each stockholder will be entitled
to one vote for each share held on all matters voted upon by stockholders,
subject to the limitation discussed under "Restrictions on Acquisitions of Stock
and Related Takeover Defensive Provisions - Provisions of the Holding Company's
Certificate of Incorporation and Bylaws - Limitation on Voting Rights." If the
Holding Company issues preferred stock subsequent to the Conversion, holders of
the preferred stock may also possess voting powers.
Liquidation or Dissolution. In the event of any liquidation,
dissolution or winding up of the Association, the Holding Company, as the sole
holder of the Association's capital stock
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would be entitled to receive, after payment or provision for payment of all
debts and liabilities of the Association (including all deposit accounts and
accrued interest thereon) and after distribution of the balance in the special
liquidation account to Eligible and Supplemental Eligible Account Holders, all
assets of the Association available for distribution. In the event of
liquidation, dissolution or winding up of the Holding Company, the holders of
its Common Stock would be entitled to receive, after payment or provision for
payment of all its debts and liabilities, all of the assets of the Holding
Company available for distribution. See "The Conversion - Effects of Conversion
to Stock Form on Depositors and Borrowers of the Association." If preferred
stock is issued subsequent to the Conversion, the holders thereof may have a
priority over the holders of Common Stock in the event of liquidation or
dissolution.
No Preemptive Rights. Holders of the Common Stock will not be entitled
to preemptive rights with respect to any shares which may be issued. The Common
Stock will not be subject to call for redemption, and, upon receipt by the
Holding Company of the full Purchase Price therefor, each share of the Common
Stock will be fully paid and nonassessable.
Preferred Stock. After Conversion, the Board of Directors of the
Holding Company will be authorized to issue preferred stock in series and to fix
and state the voting powers, designations, preferences and relative,
participating, optional or other special rights of the shares of each such
series and the qualifications, limitations and restrictions thereof. Preferred
stock may rank prior to the Common Stock as to dividend rights, liquidation
preferences, or both, and may have full or limited voting rights. The holders of
preferred stock will be entitled to vote as a separate class or series under
certain circumstances, regardless of any other voting rights which such holders
may have.
Except as discussed above, the Holding Company has no present plans for
the issuance of the additional authorized shares of Common Stock or for the
issuance of any shares of preferred stock. In the future, the authorized but
unissued and unreserved shares of Common Stock will be available for general
corporate purposes, including but not limited to possible issuance as stock
dividends or stock splits, in future mergers or acquisitions, under a cash
dividend reinvestment and stock purchase plan, in a future underwritten or other
public offering, or under a stock based employee plan. The authorized but
unissued shares of preferred stock will similarly be available for issuance in
future mergers or acquisitions, in a future underwritten public offering or
private placement or for other general corporate purposes. Except as described
above or as otherwise required to approve the transaction in which the
additional authorized shares of common stock or authorized shares of preferred
stock would be issued, no stockholder approval will be required for the issuance
of these shares. Accordingly, the Board of Directors of the Holding Company,
without stockholder approval, can issue preferred stock with voting and
conversion rights which could adversely affect the voting power of the holders
of Common Stock.
Restrictions on Acquisitions. See "Restrictions on Acquisitions of
Stock and Related Takeover Defensive Provisions" for a description of certain
provisions of the Holding Company's certificate of incorporation and bylaws
which may affect the ability of the Holding Company's stockholders to
participate in certain transactions relating to acquisitions of control of the
Holding Company.
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Dividends. The Holding Company's Board of Directors may consider a
policy of paying cash dividends on the Common Stock in the future. No decision
has been made, however, as to the amount or timing of such dividends, if any.
The declaration and payment of dividends are subject to, among other things, the
Holding Company's then current and projected consolidated operating results,
financial condition, regulatory restrictions, future growth plans and other
factors the Board deems relevant. Therefore, no assurance can be given that any
dividends will be declared.
The ability of the Holding Company to pay cash dividends to its
stockholders will be dependent, in part, upon the ability of the Association to
pay dividends to the Holding Company. OTS regulations do not permit the
Association to declare or pay a cash dividend on its stock or repurchase shares
of its stock if the effect thereof would be to cause its regulatory capital to
be reduced below the amount required for the liquidation account or to meet
applicable regulatory capital requirements.
Delaware law generally limits dividends of the Holding Company to an
amount equal to the excess of its net assets over its paid-in capital or, if
there is no such excess, to its net earnings for the current and immediately
preceding fiscal year. In addition, as the Holding Company does not anticipate,
for the immediate future, engaging in activities other than (i) investing in
cash, short-term securities and investment and mortgage-backed securities
similar to those invested in by the Association and (ii) holding the stock of
Peoples Federal, the Holding Company's ability to pay dividends will be limited,
in part, by the Association's ability to pay dividends, as set forth above.
Earnings appropriated to the Association's "Excess" bad debt reserves
and deducted for federal income tax purposes cannot be used by the Association
to pay cash dividends to the Holding Company without adverse tax consequences.
See "Regulation - Federal and State Taxation."
LEGAL MATTERS
The legality of the Common Stock and the federal income tax
consequences of the Conversion will be passed upon for Peoples Federal by the
firm of Silver, Freedman & Taff, L.L.P. (a limited liability partnership
including professional corporations), 1100 New York Avenue, N.W., Washington,
D.C. 20005. Silver, Freedman & Taff, L.L.P. has consented to the references
herein to its opinions. The Ohio tax consequences of the Conversion will be
passed upon by Crowe, Chizek and Company LLP. Crowe, Chizek and Company LLP has
consented to references herein to its opinion. Charles Webb & Company, a
Division of Keefe, Bruyette & Woods, Inc. has been represented in the Conversion
by Barnes and Thornburg, Indianapolis, Indiana.
116
<PAGE>
EXPERTS
The financial statements of Peoples Federal as of June 30, 1995 and
1996 and for each of the three years in the period ended June 30, 1996,
appearing in this Prospectus and Registration Statement have been audited by
Crowe, Chizek and Company LLP, independent auditors, as set forth in their
report appearing elsewhere herein and in the Registration Statement, and are
included in reliance upon such report given upon the authority of said firm as
experts in accounting and auditing.
Keller has consented to the inclusion herein of the summary of its
appraisal report to the Association setting forth its opinion as to the
estimated pro forma market value of the Holding Company and the Association as
converted and to the reference to its opinion that Subscription Rights do not
have any economic value.
ADDITIONAL INFORMATION
The Holding Company has filed with the SEC a registration statement
under the Securities Act of 1933, as amended, with respect to the Common Stock
offered hereby. As permitted by the rules and regulations of the SEC, this
Prospectus does not contain all the information set forth in the registration
statement. Such information can be examined without charge at the public
reference facilities of the SEC located at 450 Fifth Street, N.W., Washington,
D.C. 20549, and copies of such material can be obtained from the SEC at
prescribed rates. The statements contained herein as to the contents of any
contract or other document filed as an exhibit to the registration statement
are, of necessity, brief descriptions thereof and are not necessarily complete;
each such statement is qualified by reference to such contract or document.
The Association has filed an Application for Conversion with the OTS
with respect to the Conversion. Pursuant to the rules and regulations of the
OTS, this Prospectus omits certain information contained in that Application.
The Application may be examined at the principal offices of the OTS, 1700 G
Street, N.W., Washington, D.C. 20552 and at the Chicago District Office of the
OTS, 200 West Madison Street, Suite 1300, Chicago, Illinois 60606, without
charge.
In connection with the Conversion, the Holding Company will register
the Common Stock with the SEC under Section 12(g) of the Exchange Act, and, upon
such registration, the Holding Company and the holders of its Common Stock will
become subject to the proxy solicitation rules, reporting requirements and
restrictions on stock purchases and sales by directors, officers and greater
than 10% stockholders, the annual and periodic reporting and certain other
requirements of the Exchange Act. Under the Plan, the Holding Company has
undertaken that it will not terminate such registration for a period of at least
three years following the Conversion.
A copy of the Certificate of Incorporation and Bylaws of the Holding
Company are available without charge from the Association.
117
<PAGE>
PEOPLES FEDERAL SAVINGS AND LOAN ASSOCIATION
Sidney, Ohio
FINANCIAL STATEMENTS
CONTENTS
REPORT OF INDEPENDENT AUDITORS ...................................... F-2
FINANCIAL STATEMENTS
BALANCE SHEETS ................................................ F-3
STATEMENTS OF INCOME .......................................... F-4
STATEMENTS OF RETAINED EARNINGS ............................... F-5
STATEMENTS OF CASH FLOWS ...................................... F-6
NOTES TO FINANCIAL STATEMENTS ................................. F-8
All schedules are omitted because the required information is not applicable or
is included in the financial statements and related notes.
The financial statements of the Holding Company have been omitted because the
Holding Company has not issued any stock, has no assets, no liabilities and has
not conducted any business other than of an organizational nature.
F-1.
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Peoples Federal Savings and Loan Association
Sidney, Ohio
We have audited the accompanying balance sheets of Peoples Federal Savings and
Loan Association as of June 30, 1996 and 1995 and the related statements of
income, retained earnings and cash flows for each of the three years in the
period ended June 30, 1996. These financial statements are the responsibility of
the Association's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Peoples Federal Savings and
Loan Association as of June 30, 1996 and 1995, and the results of its operations
and its cash flows for each of the three years in the period ended June 30, 1996
in conformity with generally accepted accounting principles.
As discussed in Note 1 to the financial statements, the Association changed its
method of accounting for impaired loans in 1996, its method of accounting for
certain investment securities in 1995 and its method of accounting for income
taxes in 1994 to comply with new accounting guidance.
/s/ Crowe, Chizek and Company LLP
------------------------------------
Crowe, Chizek and Company LLP
Columbus, Ohio
July 11, 1996
- -------------------------------------------------------------------------------
F-2.
<PAGE>
PEOPLES FEDERAL SAVINGS AND LOAN ASSOCIATION
BALANCE SHEETS
October 31, 1996 (unaudited) and June 30, 1996 and 1995
<TABLE>
<CAPTION>
October 31, June 30,
----------- -----------------------------------
1996 1996 1995
---- ---- ----
(Unaudited)
<S> <C> <C> <C>
ASSETS
Cash and amounts due from depository
institutions (Note 11) $ 612,568 $ 365,614 $ 684,739
Interest-bearing deposits in other banks 1,181,319 1,355,195 655,429
Overnight deposits 1,000,000 500,000
--------------- --------------- ----------------
Total cash and cash equivalents 1,793,887 2,720,809 1,840,168
Time deposits with other financial institutions 100,000 1,100,000
Investment securities held to maturity
(Estimated fair value of $2,091,170, $2,575,990
and $3,074,998 at October 31,
1996, June 30, 1996 and June 30, 1995,
respectively)(Note 2) 2,098,734 2,598,404 3,098,335
Loans receivable, net (Note 3) 83,720,691 78,232,660 71,932,721
Accrued interest receivable (Note 4) 643,602 622,962 555,928
Premises and equipment, net (Note 5) 780,009 797,671 814,382
Federal Home Loan Bank stock available for sale 678,700 667,000 622,400
Other assets 146,915 142,469 112,511
--------------- --------------- ----------------
$ 89,962,538 $ 86,881,975 $ 78,976,445
=============== =============== ================
LIABILITIES
Deposits (Note 7) $ 79,878,905 $ 77,317,506 $ 70,305,950
Accrued expense and other liabilities (Note 8) 895,712 351,932 309,684
--------------- --------------- ----------------
80,774,617 77,669,438 70,615,634
Commitments and contingencies (Note 11)
MEMBERS' EQUITY
Retained earnings-substantially restricted
(Notes 6 and 10) 9,187,921 9,212,537 8,360,811
--------------- --------------- ----------------
$ 89,962,538 $ 86,881,975 $ 78,976,445
=============== =============== ================
</TABLE>
- -------------------------------------------------------------------------------
See accompanying notes to financial statements.
F-3.
<PAGE>
PEOPLES FEDERAL SAVINGS AND LOAN ASSOCIATION
STATEMENTS OF INCOME
Four months ended October 31, 1996 and 1995 (unaudited) and
years ended June 30, 1996, 1995 and 1994
<TABLE>
<CAPTION>
Four Months Ended October 31, Years Ended June 30,
---------------------------- --------------------
1996 1995 1996 1995 1994
---- ---- ---- ---- ----
(unaudited)
<S> <C> <C> <C> <C> <C>
Interest income
Interest and fees on loans $ 2,166,958 $ 1,991,456 $ 6,048,141 $ 5,404,797 $ 4,750,726
Interest on investments 43,613 51,052 150,483 160,846 179,851
Interest on interest-bearing
deposits and overnight
deposits 36,607 66,430 269,849 121,059 113,099
Dividends on Federal Home
Loan Bank stock 15,659 14,706 44,781 37,730 27,047
------------- ------------- ------------- ------------- --------------
Total interest income 2,262,837 2,123,644 6,513,254 5,724,432 5,070,723
Interest expense
Interest on deposits 1,278,401 1,181,418 3,706,608 2,968,012 2,636,990
Interest on other borrowings 33,221
------------- ------------- ------------- ------------- --------------
Total interest expense 1,311,622 1,181,418 3,706,608 2,968,012 2,636,990
------------- ------------- ------------- ------------- --------------
Net interest income 951,215 942,226 2,806,646 2,756,420 2,433,733
Provision for loan
losses (Note 3) 20,589 8,477 68,447 54,734 82,585
------------- ------------- ------------- ------------- --------------
Net interest income after
provision for loan losses 930,626 933,749 2,738,199 2,701,686 2,351,148
------------- ------------- ------------- ------------- --------------
Noninterest income
Service fees and
other charges 20,710 16,324 57,473 59,941 65,174
------------- ------------- ------------- ------------- --------------
Noninterest expense
Compensation and
benefits (Note 9) 222,400 216,735 665,728 675,126 632,155
Occupancy and equipment 47,136 39,817 123,922 127,580 109,795
Computer processing
expense 47,141 47,150 138,926 143,495 140,515
FDIC deposit insurance
premiums (Note 8) 514,654 53,273 165,917 156,672 149,850
State franchise taxes 42,302 37,846 120,222 108,594 98,515
Other 115,000 94,646 288,720 283,295 296,441
------------- ------------- ------------- ------------- --------------
Total noninterest expense 988,633 489,467 1,503,435 1,494,762 1,427,271
------------- ------------- ------------- ------------- --------------
Income (loss) before income taxes
and accounting change (37,297) 460,606 1,292,237 1,266,865 989,051
Provision for income
taxes (Note 6) (12,681) 156,606 440,511 431,686 334,018
------------- ------------- ------------- ------------- --------------
Income (loss) before
accounting change (24,616) 304,000 851,726 835,179 655,033
Cumulative effect of change in
accounting for income taxes
(Note 1) (69,424)
------------- ------------- ------------- ------------- --------------
Net income (loss) $ (24,616) $ 304,000 $ 851,726 $ 835,179 $ 585,609
============= ============= ============= ============= ==============
</TABLE>
- -------------------------------------------------------------------------------
See accompanying notes to financial statements.
F-4.
<PAGE>
PEOPLES FEDERAL SAVINGS AND LOAN ASSOCIATION
STATEMENTS OF RETAINED EARNINGS
Four months ended October 31, 1996 (unaudited) and
years ended June 30, 1996, 1995 and 1994
- -------------------------------------------------------------------------------
Balance, July 1, 1993 $ 6,940,023
Net income for the year ended June 30, 1994 585,609
---------------
Balance, June 30, 1994 7,525,632
Net income for the year ended June 30, 1995 835,179
---------------
Balance, June 30, 1995 8,360,811
Net income for the year ended June 30, 1996 851,726
---------------
Balance, June 30, 1996 9,212,537
Net loss for the four months ended
October 31, 1996 (unaudited) (24,616)
---------------
Balance, October 31, 1996 (unaudited) $ 9,187,921
===============
- -------------------------------------------------------------------------------
See accompanying notes to financial statements.
F-5.
<PAGE>
PEOPLES FEDERAL SAVINGS AND LOAN ASSOCIATION
STATEMENTS OF CASH FLOWS
Four months ended October 31, 1996 and 1995 (unaudited) and
years ended June 30, 1996, 1995 and 1994
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Four Months
Ended October 31, Years Ended June 30,
----------------------------- ----------------------------------------------
1996 1995 1996 1995 1994
---- ---- ---- ---- ----
(unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from operating
activities
Net income $ (24,616) $ 304,000 $ 851,726 $ 835,179 $ 585,609
Adjustments to reconcile net
income to net cash from
operating activities
Depreciation 17,662 17,988 55,445 52,460 41,440
Provision for loan losses 20,589 8,477 68,447 54,734 82,585
FHLB stock dividends (11,700) (10,900) (44,600) (37,600) (26,800)
Deferred taxes (144,688) 24,026 44,507 55,961 25,942
Cumulative effective of
accounting change 69,424
Gain on sale of real
estate owned (394)
(Gain)/loss on sale or
disposal of premises
and equipment (8,890) 5,891
Change in
Accrued interest
receivable and
other assets (25,416) 21,909 (99,015) (134,780) 55,417
Accrued expense and
other liabilities 688,468 155,342 (2,259) 11,960 (21,836)
Deferred loan fees (676) (14,742) (28,282) (10,746) (60,594)
------------- ------------- ------------- ------------- --------------
Net cash from
operating activities 519,623 506,100 837,079 832,665 751,187
------------- ------------- ------------- ------------- --------------
Cash flows from investing
activities
Proceeds from maturities
of investment securities 500,000 500,000 3,000,000 1,500,000 2,334,020
Purchase of investment
securities (499,922) (2,498,047) (1,000,000) (1,500,000)
Proceeds from maturities of
time deposits in other
financial institutions 1,000,000
Purchase of time deposits in
other financial institutions (1,000,000) (1,100,000)
Purchase of Federal Home
Loan Bank stock (12,900)
Net increase in loans (5,550,596) (887,067) (6,352,041) (5,366,558) (3,864,585)
Premises and equipment
expenditures (32,442) (39,844) (81,561) (33,118)
Proceeds from sale of
premises and equipment 10,000 125
Capital improvement
expenditures on real
estate owned (30,899)
Proceeds from sale of
real estate owned 42,652 11,938 105,000 246,879
------------- ------------- ------------- ------------- --------------
Net cash from investing
activities (4,007,944) (1,919,431) (6,967,994) (4,886,793) (2,816,804)
------------- ------------- ------------- ------------- --------------
</TABLE>
- -------------------------------------------------------------------------------
(Continued)
F-6.
<PAGE>
PEOPLES FEDERAL SAVINGS AND LOAN ASSOCIATION
STATEMENTS OF CASH FLOWS (Continued)
Four months ended October 31, 1996 and 1995 (unaudited) and
years ended June 30, 1996, 1995 and 1994
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Four Months
Ended October 31, Years Ended June 30,
----------------------------- -------------------------------------
1996 1995 1996 1995 1994
---- ---- ---- ---- ----
(unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from financing
activities
Net increase in deposits $ 2,561,399 $ 4,909,569 $ 7,011,556 $ 1,939,089 $ 3,198,916
------------- ------------- ------------- ------------- --------------
Net cash from
financing activities 2,561,399 4,909,569 7,011,556 1,939,089 3,198,916
Net change in cash and
cash equivalents (926,922) 3,496,238 880,641 (2,115,039) 1,133,299
Cash and cash equivalents
at beginning of period 2,720,809 1,840,168 1,840,168 3,955,207 2,821,908
------------- ------------- ------------- ------------- --------------
Cash and cash equivalents
at end of period $ 1,793,887 $ 5,336,406 $ 2,720,809 $ 1,840,168 $ 3,955,207
============= ============= ============= ============= ==============
Supplemental disclosures of
cash flow information
Cash paid during the year for
Interest $ 1,169,760 $ 1,062,558 $ 3,716,477 $ 2,950,679 $ 2,580,178
Income taxes 40,000 94,444 406,444 378,955 419,000
Noncash transactions
Transfer from loans to
real estate owned 42,652 11,938 101,204
</TABLE>
- -------------------------------------------------------------------------------
See accompanying notes to financial statements.
F-7.
<PAGE>
PEOPLES FEDERAL SAVINGS AND LOAN ASSOCIATION
NOTES TO FINANCIAL STATEMENTS
October 31, 1996 and 1995 (unaudited) and June 30, 1996, 1995 and 1994
- -------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed in the
preparation of the accompanying financial statements.
Nature of Operations: Peoples Federal Savings & Loan Association ("Association")
is engaged primarily in the business of making residential real estate loans and
accepting deposits. Its operations are conducted solely through its main office
located in Sidney, Ohio. The Association's market area consists of Shelby and
surrounding counties.
Estimates: In preparing financial statements, management must make estimates and
assumptions. These estimates and assumptions affect the amounts reported for
assets, liabilities, revenues and expenses, as well as affecting disclosures
provided. Future results could differ from current estimates. Areas involving
the use of management's estimates and assumptions include the allowance for loan
losses, the fair value of certain securities, the determination and carrying
value of impaired loans, the carrying value of other real estate owned, the
recognition and measurement of loss contingencies, the depreciation of premises
and equipment, and the actuarial present value of pension benefit obligations,
net periodic pension expense and accrued pension costs recognized in the
Association's financial statements.
Cash and Cash Equivalents: For purposes of reporting cash flows, cash and cash
equivalents include cash on hand, deposits with financial institutions,
overnight deposits and time deposits with an original maturity of 90 days or
less. Overnight deposits are sold for one-day periods. The Association reports
net cash flows for customer loan and deposit transactions, as well as short-term
borrowings under its cash management line of credit with the Federal Home Loan
Bank of Cincinnati.
Investment Securities: The Association classifies securities into
held-to-maturity and available-for-sale categories. Held-to-maturity securities
are those which the Association has the positive intent to hold to maturity, and
are reported at amortized cost. Available-for-sale securities are those which
the Association may sell, if needed, for liquidity, asset-liability management,
or other reasons even if the Association does not presently intend such sale.
Available-for-sale securities are reported at fair value, with unrealized gains
or losses included as a separate component of equity, net of tax.
- -------------------------------------------------------------------------------
(Continued)
F-8.
<PAGE>
PEOPLES FEDERAL SAVINGS AND LOAN ASSOCIATION
NOTES TO FINANCIAL STATEMENTS
October 31, 1996 and 1995 (unaudited) and June 30, 1996, 1995 and 1994
- -------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
On July 1, 1994, the Association adopted Statement of Financial Accounting
Standards ("SFAS") No. 115 and accordingly classified its securities into the
categories discussed above. The Association classified all of its U.S. Treasury
notes and bonds and U.S. Government agencies as held to maturity. The
Association's Federal Home Loan Bank stock was classified as available for sale.
However, as cost approximated fair value for this stock, this reclassification
did not have any impact on the financial statements. Prior to this date,
securities were reported at amortized cost.
Loans Receivable: Loans receivable that management has the intent and ability to
hold for the foreseeable future or until maturity or pay-off are reported at
their outstanding principal adjusted for any charge-offs, the allowance for loan
losses, and any deferred fees or costs on originated loans.
Allowance for Losses on Loans: The allowance for loan losses is increased by
charges to income and decreased by charge-offs, net of recoveries. Management's
periodic evaluation of the adequacy of the allowance is based on the
Association's past loan loss experience, known and inherent risks in the
portfolio, adverse situations that may affect the borrower's ability to repay,
the estimated value of any underlying collateral and current economic
conditions.
SFAS No. 114, as amended by SFAS No. 118, was adopted at July 1, 1995. These
statements require recognition and measurement of impaired loans. Loans are
considered to be impaired if full principal and interest payments are not
anticipated. Impaired loans are reduced to the present value of expected future
cash flows or to the fair value of collateral, by allocating a portion of the
allowance for loan losses to such loans. If these allocations cause the
allowance for loan losses to require an increase, such increase is reported as
bad debt expense. The effect of adopting these standards did not materially
affect the allowance for loan losses at July 1, 1995, at June 30, 1996 or at
October 31, 1996.
Smaller-balance homogenous loans are evaluated for impairment in total. Such
loans include residential first mortgage loans secured by one- to four-family
residences, residential construction loans, credit card, automobile, home equity
and second mortgage loans. Commercial loans and mortgage loans secured by other
properties are evaluated individually for impairment. When analysis of borrower
operating results and financial condition indicate that underlying cash flows of
the borrower's business are not adequate to meet its debt service requirements,
the loan is evaluated for impairment. Often this is associated with a delay or
shortfall of payments of 30 days or more. The accrual of interest is
discontinued on a loan-by-loan basis, depending on the severity of delinquencies
and management's estimates of the collateral value. These loans are often
considered impaired. Impaired loans, or portions thereof, are charged off when
deemed uncollectible. The nature of disclosures for impaired loans generally is
considered comparable to prior nonaccrual loan disclosures.
- -------------------------------------------------------------------------------
(Continued)
F-9.
<PAGE>
PEOPLES FEDERAL SAVINGS AND LOAN ASSOCIATION
NOTES TO FINANCIAL STATEMENTS
October 31, 1996 and 1995 (unaudited) and June 30, 1996, 1995 and 1994
- -------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Interest and Fees on Loans: Interest on loans is accrued over the term of the
loans based upon the principal outstanding. Under SFAS No. 114, as amended by
SFAS No. 118, the carrying value of impaired loans is periodically adjusted to
reflect cash payments, revised estimates of future cash flows and increases in
the present value of expected cash flows due to the passage of time. Cash
payments representing interest income are reported as such and other cash
payments are reported as reductions in carrying value. Increases or decreases in
carrying value due to changes in estimates of future payments or the passage of
time are reported as reductions or increases in bad debt expense.
Loan fees collected and certain direct costs associated with originating and
acquiring loans are deferred over the life of the related loans, as an
adjustment of the yield.
Real Estate Owned: Real estate acquired through foreclosure or
deed-in-lieu-of-foreclosure is recorded at fair value less estimated costs to
sell. Upon foreclosure, the asset is transferred from loans to real estate owned
and any gain or loss is recorded through the allowance for loan losses. Any
subsequent change in the property's value is recorded in the valuation account
with a corresponding charge to income. Expenses incurred to carry real estate
owned are charged to operations as incurred. The Association had no real estate
owned at October 31, 1996 (unaudited), June 30, 1996 or June 30, 1995.
Premises and Equipment: Land is stated at cost. Buildings, furniture and
equipment are stated at cost less accumulated depreciation. Depreciation is
computed principally on the straight-line method over the estimated useful lives
of the respective properties and equipment. Maintenance and repairs are charged
to expense as incurred and improvements are capitalized.
Income Taxes: Effective July 1, 1993, the Association adopted SFAS No. 109,
"Accounting for Income Taxes" which requires that the Association follow the
liability method in accounting for income taxes. The liability method provides
that deferred tax assets and liabilities are recorded based on the difference
between the tax basis of assets and liabilities and their carrying amounts for
financial reporting purposes.
The effect on years prior to 1994 of changing to this method was a $69,424
decrease to net income and this amount is reflected in the Statement of Income
as a cumulative effect of change in accounting for income taxes. This change has
no significant effect on the provision for income taxes for the four months
ended October 31, 1996 and 1995 (unaudited) and the years ended June 30, 1996,
1995 and 1994, respectively.
- -------------------------------------------------------------------------------
(Continued)
F-10.
<PAGE>
PEOPLES FEDERAL SAVINGS AND LOAN ASSOCIATION
NOTES TO FINANCIAL STATEMENTS
October 31, 1996 and 1995 (unaudited) and June 30, 1996, 1995 and 1994
- -------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Concentration of Credit Risk: The Association's loan portfolio consists
principally of long-term conventional loans secured by first mortgage deeds on
single family residences located in its primary lending area of Shelby County,
Ohio. Mortgage loans comprise approximately 97% of the Association's loan
portfolio at October 31, 1996 and at June 30, 1996 and 1995. The remaining 3% of
the portfolio consists of consumer loans secured by automobiles, deposit
balances at the Association, and various other assets.
Basis of Presentation: In connection with the Association's initial public
offering, the Association reclassified certain items for all periods presented
to correspond with the October 31, 1996 presentation.
Interim Financial Information: The unaudited balance sheet as of October 31,
1996 and the related unaudited statements of income, retained earnings and cash
flows for the four months ended October 31, 1996 and 1995 have been prepared in
a manner consistent with the audited financial information presented. Management
believes that all adjustments, which were all of a normal and recurring nature,
have been recorded to the best of its knowledge and that the unaudited financial
information fairly presents the financial position and results of operations and
cash flows of the Association in accordance with generally accepted accounting
principles.
NOTE 2 - INVESTMENT SECURITIES
The amortized cost and estimated fair values of investments in debt securities
are summarized as follows:
<TABLE>
<CAPTION>
October 31, 1996 (unaudited)
-----------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
<S> <C> <C> <C> <C>
U.S. Government agencies $ 2,098,734 $ 7,564 $ 2,091,170
============== =========== ===============
June 30, 1996
-----------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
U.S. Government agencies $ 2,598,404 $ 600 $ 23,014 $ 2,575,990
============== ========== =========== ===============
</TABLE>
- -------------------------------------------------------------------------------
(Continued)
F-11.
<PAGE>
PEOPLES FEDERAL SAVINGS AND LOAN ASSOCIATION
NOTES TO FINANCIAL STATEMENTS
October 31, 1996 and 1995 (unaudited) and June 30, 1996, 1995 and 1994
- -------------------------------------------------------------------------------
NOTE 2 - INVESTMENT SECURITIES (Continued)
<TABLE>
<CAPTION>
June 30, 1995
----------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
<S> <C> <C> <C> <C>
U.S. Treasury notes and bonds $ 498,418 $ 605 $ 497,813
U.S. Government agencies 2,599,917 $ 3,160 25,892 2,577,185
-------------- ---------- ----------- ---------------
$ 3,098,335 $ 3,160 $ 26,497 $ 3,074,998
============== ========== =========== ===============
</TABLE>
The amortized cost and estimated fair values of debt securities, by contractual
maturity, are as follows at October 31, 1996 (unaudited):
<TABLE>
<CAPTION>
Estimated
Amortized Fair
Cost Value
---- -----
<S> <C> <C>
Due in one year or less $ 99,972 $ 98,750
Due after one year through five years 1,998,762 1,992,420
-------------- ---------------
$ 2,098,734 $ 2,091,170
============== ===============
</TABLE>
The amortized cost and estimated fair values of debt securities, by contractual
maturity, are as follows at June 30, 1996:
<TABLE>
<CAPTION>
Estimated
Amortized Fair
Cost Value
---- -----
<S> <C> <C>
Due in one year or less $ 599,968 $ 599,350
Due after one year through five years 1,998,436 1,976,640
-------------- ---------------
$ 2,598,404 $ 2,575,990
============== ===============
</TABLE>
Actual maturities could differ from contractual maturities because borrowers may
have the right to call or prepay obligations with or without call or prepayment
penalties.
No investment securities were pledged as collateral at October 31, 1996
(unaudited), June 30, 1996 or June 30, 1995.
No securities were sold during the four months ended October 31, 1996 and 1995
(unaudited) or during the years ended June 30, 1996, 1995 and 1994.
- -------------------------------------------------------------------------------
(Continued)
F-12.
<PAGE>
PEOPLES FEDERAL SAVINGS AND LOAN ASSOCIATION
NOTES TO FINANCIAL STATEMENTS
October 31, 1996 and 1995 (unaudited) and June 30, 1996, 1995 and 1994
- -------------------------------------------------------------------------------
NOTE 3 - LOANS RECEIVABLE
Loans receivable are summarized as follows:
<TABLE>
<CAPTION>
October 31, June 30,
----------- -----------------------------------
1996 1996 1995
---- ---- ----
(unaudited)
<S> <C> <C> <C>
Mortgage loans:
1-4 family residential $ 68,969,125 $ 65,448,109 $ 59,181,152
Multi-family residential 456,051 485,379 335,124
Commercial real estate 5,490,368 5,301,864 5,749,921
Real estate construction 9,121,165 7,090,779 6,638,875
Land 1,356,681 1,342,146 908,449
---------------- --------------- ----------------
Total mortgage loans 85,393,390 79,668,277 72,813,521
Consumer and other loans 2,595,506 2,549,131 2,147,092
---------------- --------------- ----------------
Total loans receivable 87,988,896 82,217,408 74,960,613
Less:
Allowance for loan losses (326,136) (307,308) (250,880)
Loans in process (3,773,155) (3,507,850) (2,579,059)
Deferred loan fees (168,914) (169,590) (197,872)
Unearned discount (81)
---------------- --------------- ----------------
$ 83,720,691 $ 78,232,660 $ 71,932,721
================ =============== ================
</TABLE>
Activity in the allowance for loan losses is summarized as follows:
<TABLE>
<CAPTION>
Four Months
Ended October 31, Years Ended June 30,
---------------------------- -------------------------------------------
1996 1995 1996 1995 1994
---- ---- ---- ---- ----
(unaudited)
<S> <C> <C> <C> <C> <C>
Balance at beginning
of period $ 307,308 $ 250,880 $ 250,880 $ 197,800 $ 123,294
Provision for losses 20,589 8,477 68,447 54,734 82,585
Charge-offs (5,073) (14,748) (3,733) (14,980)
Recoveries 3,312 115 2,729 2,079 6,901
------------ ------------ ------------ ------------ ------------
Balance at end
of period $ 326,136 $ 259,472 $ 307,308 $ 250,880 $ 197,800
============ ============ ============ ============ ============
</TABLE>
As of and for the four months ended October 31, 1996 and 1995 (unaudited) and
the year ended June 30, 1996, no loans were considered impaired within the scope
of SFAS No. 114.
Loans on nonaccrual status totaled approximately $880,000 at October 31, 1996
(unaudited) and $826,000 and $708,000 at June 30, 1996 and 1995, respectively.
- -------------------------------------------------------------------------------
(Continued)
F-13.
<PAGE>
PEOPLES FEDERAL SAVINGS AND LOAN ASSOCIATION
NOTES TO FINANCIAL STATEMENTS
October 31, 1996 and 1995 (unaudited) and June 30, 1996, 1995 and 1994
- -------------------------------------------------------------------------------
NOTE 3 - LOANS RECEIVABLE (Continued)
In the ordinary course of business, the Association has and expects to continue
to have transactions, including borrowings, with its officers, directors and
their affiliates. In the opinion of management, such transactions were on
substantially the same terms, including interest rates and collateral, as those
prevailing at the time for comparable transactions with other persons and did
not involve more than a normal risk of collectibility or present any other
unfavorable features to the Association. A summary of activity on related party
loans aggregating $60,000 or more to any one related party is as follows:
<TABLE>
<CAPTION>
Four Months Ended Year Ended
October 31, June 30,
----------- --------
1996 1996
---- ----
(unaudited)
<S> <C> <C>
Balance at beginning of period $ 461,503 $ 475,254
Principal repayments (6,658) (13,751)
Other changes 62,221
--------------- --------------
Balance at end of period $ 517,066 $ 461,503
=============== ==============
</TABLE>
Other changes result from an existing loan to an employee who became an officer
during the four months ended October 31, 1996 (unaudited).
NOTE 4 - ACCRUED INTEREST RECEIVABLE
Accrued interest receivable is summarized as follows:
<TABLE>
<CAPTION>
October 31, June 30,
----------- ------------------------------
1996 1996 1995
---- ---- ----
(unaudited)
<S> <C> <C> <C>
Investment securities and Federal Home
Home Loan Bank stock $ 29,519 $ 40,008 $ 44,692
Interest-bearing deposits in other
financial institutions 2,154 40,017
Loans receivable 611,929 542,937 511,236
------------ ------------ ------------
$ 643,602 $ 622,962 $ 555,928
============ ============ ============
</TABLE>
- -------------------------------------------------------------------------------
(Continued)
F-14.
<PAGE>
PEOPLES FEDERAL SAVINGS AND LOAN ASSOCIATION
NOTES TO FINANCIAL STATEMENTS
October 31, 1996 and 1995 (unaudited) and June 30, 1996, 1995 and 1994
- -------------------------------------------------------------------------------
NOTE 5 - PREMISES AND EQUIPMENT
Premises and equipment is summarized as follows:
<TABLE>
<CAPTION>
October 31, June 30,
----------- ----------------------------------
1996 1996 1995
---- ---- ----
(unaudited)
<S> <C> <C> <C>
Land $ 185,166 $ 185,166 $ 185,166
Buildings and improvements 989,091 989,091 989,091
Furniture and equipment 552,434 552,434 512,589
Automobile 13,016
--------------- -------------- --------------
Total cost 1,726,691 1,726,691 1,699,862
Accumulated depreciation 946,682 929,020 885,480
--------------- -------------- --------------
$ 780,009 $ 797,671 $ 814,382
=============== ============== ==============
</TABLE>
NOTE 6 - FEDERAL INCOME TAXES
The provision for federal income tax consisted of the following:
<TABLE>
<CAPTION>
Four Months
Ended October 31, Years Ended June 30,
-------------------------- -----------------------------------------
1996 1995 1996 1995 1994
---- ---- ---- ---- ----
(unaudited)
<S> <C> <C> <C> <C> <C>
Current tax expense $ 132,007 $ 132,580 $ 396,004 $ 375,725 $ 308,076
Deferred tax (benefit)
expense (144,688) 24,026 44,507 55,961 25,942
------------ ------------ ------------ ------------ ------------
$ (12,681) $ 156,606 $ 440,511 $ 431,686 $ 334,018
============ ============ ============ ============ ============
</TABLE>
- -------------------------------------------------------------------------------
(Continued)
F-15.
<PAGE>
PEOPLES FEDERAL SAVINGS AND LOAN ASSOCIATION
NOTES TO FINANCIAL STATEMENTS
October 31, 1996 and 1995 (unaudited) and June 30, 1996, 1995 and 1994
- -------------------------------------------------------------------------------
NOTE 6 - FEDERAL INCOME TAXES (Continued)
The sources of gross deferred tax assets and gross deferred tax liabilities are
as follows:
<TABLE>
<CAPTION>
October 31, June 30,
----------- ------------------------------
1996 1996 1995
---- ---- ----
(unaudited)
<S> <C> <C> <C>
Items giving rise to deferred tax assets
Deferred loan fees $ 36,964 $ 37,741 $ 49,364
Reserve for delinquent interest 8,455 10,108 9,875
Accrued pension 1,321 81 3,479
Accrued SAIF assessment 155,006
------------ ------------ ------------
Total deferred tax assets 201,746 47,930 62,718
------------ ------------ ------------
Items giving rise to deferred tax liabilities
Depreciation (42,722) (43,428) (38,013)
Federal Home Loan Bank
stock dividends (62,730) (57,426) (42,262)
Allowance for loan losses (95,609) (91,079) (81,939)
------------ ------------ ------------
Total deferred tax liabilities (201,061) (191,933) (162,214)
------------ ------------ ------------
Net deferred tax asset (liability) $ 685 $ (144,003) $ (99,496)
============ ============ ============
</TABLE>
The difference between the financial statement tax provision and amounts
computed by applying the statutory federal income tax rate of 34% to income
before income taxes is as follows:
<TABLE>
<CAPTION>
Four Months
Ended October 31, Years Ended June 30,
------------------ ----------------------------------------
1996 1995 1996 1995 1994
---- ---- ---- ---- ----
(unaudited)
<S> <C> <C> <C> <C> <C>
Income taxes computed
at the statutory tax
rate on pretax income $ (12,681) $ 156,606 $ 439,361 $ 430,734 $ 336,277
Add tax effect of:
Nondeductible
expenses and other -- -- 1,150 952 (2,259)
----------- ----------- ----------- ----------- -----------
$ (12,681) $ 156,606 $ 440,511 $ 431,686 $ 334,018
=========== =========== =========== =========== ===========
Statutory tax rate 34.0% 34.0% 34.0% 34.0% 34.0%
====== ===== ===== ===== ======
Effective tax rate (34.0)% 34.0% 34.1% 34.1% 33.8%
===== ===== ===== ===== ======
</TABLE>
- -------------------------------------------------------------------------------
(Continued)
F-16.
<PAGE>
PEOPLES FEDERAL SAVINGS AND LOAN ASSOCIATION
NOTES TO FINANCIAL STATEMENTS
October 31, 1996 and 1995 (unaudited) and June 30, 1996, 1995 and 1994
- -------------------------------------------------------------------------------
NOTE 6 - FEDERAL INCOME TAXES (Continued)
Retained earnings at October 31, 1996 (unaudited), June 30, 1996 and 1995
included approximately $1,732,000 for which no provision for federal income
taxes had been made. This amount represents the qualifying and nonqualifying tax
bad debt reserve as of December 31, 1987, which is the end of the Association's
base year for purposes of calculating the bad debt deduction for tax purposes.
If this portion of retained earnings is used in the future for any purpose other
than to absorb bad debts, it will be added to future taxable income.
NOTE 7 - DEPOSITS
A summary of deposits is as follows:
<TABLE>
<CAPTION>
October 31, June 30,
----------- ------------------------------------
1996 1996 1995
---- ---- ----
(unaudited)
<S> <C> <C> <C>
Noninterest-bearing
demand deposits $ 141,617 $ 117,725 $ 158,308
NOW accounts 3,255,458 3,183,873 3,256,691
Money market accounts 1,053,163 1,236,293 1,454,959
Savings accounts 16,950,432 19,038,989 18,439,470
Certificates of deposit 58,478,235 53,740,626 46,996,522
---------------- --------------- ----------------
$ 79,878,905 $ 77,317,506 $ 70,305,950
================ =============== ================
</TABLE>
The aggregate amount of certificates of deposit with a minimum denomination of
$100,000 was $4,810,232 at October 31, 1996 (unaudited) and $4,342,762 and
$4,704,378 at June 30, 1996 and 1995, respectively.
The scheduled maturities of certificates of deposit as of October 31, 1996
(unaudited) are as follows:
Years Ended
October 31,
-----------
(unaudited)
1997 $ 26,265,835
1998 23,132,718
1999 5,999,090
2000 2,387,776
2001 690,594
Thereafter 2,222
-----------------
$ 58,478,235
=================
- -------------------------------------------------------------------------------
(Continued)
F-17.
<PAGE>
PEOPLES FEDERAL SAVINGS AND LOAN ASSOCIATION
NOTES TO FINANCIAL STATEMENTS
October 31, 1996 and 1995 (unaudited) and June 30, 1996, 1995 and 1994
- -------------------------------------------------------------------------------
NOTE 7 - DEPOSITS (Continued)
The scheduled maturities of certificates of deposit as of June 30, 1996 are as
follows:
Years Ended
June 30,
--------
1997 $ 28,901,529
1998 15,622,228
1999 6,214,194
2000 1,225,671
2001 1,774,799
Thereafter 2,205
-----------------
$ 53,740,626
=================
NOTE 8 - SAVINGS ASSOCIATION INSURANCE FUND RECAPITALIZATION (UNAUDITED)
Included in accrued expense and other liabilities and FDIC deposit insurance
premium expense is $455,901 for a special assessment resulting from legislation
passed and enacted into law on September 30, 1996 to recapitalize the Savings
Association Insurance Fund of the Federal Deposit Insurance Corporation. Thrifts
such as the Association paid a one-time assessment in November, 1996 of $0.657
for each $100 in deposits as of March 31, 1995. As a result of the
recapitalization, the Association began paying lower deposit insurance premiums
in January, 1997.
NOTE 9 - PENSION PLAN
The Association maintains a defined benefit pension plan covering substantially
all employees. The Plan's funds are invested in certificates of deposit of the
Association with varying maturities and interest rates, as selected by the
trustees. The amount of benefit is computed based upon average monthly
compensation and number of years of employment. The Association's funding policy
is to contribute annually an amount that can be deducted for federal income tax
purposes.
- -------------------------------------------------------------------------------
(Continued)
F-18.
<PAGE>
PEOPLES FEDERAL SAVINGS AND LOAN ASSOCIATION
NOTES TO FINANCIAL STATEMENTS
October 31, 1996 and 1995 (unaudited) and June 30, 1996, 1995 and 1994
- -------------------------------------------------------------------------------
NOTE 9 - PENSION PLAN (Continued)
The following table sets forth the Plan's funded status and amounts recognized
in the Association's financial statements.
<TABLE>
<CAPTION>
October 31, June 30,
----------- ------------------------------
1996 1996 1995
---- ---- ----
(unaudited)
<S> <C> <C> <C>
Actuarial present value of accumulated benefit obligation:
Vested $ 229,550 $ 200,961 $ 156,175
Nonvested 586 377 85
------------ ------------ ------------
Total accumulated benefit obligation 230,136 201,338 156,260
Additional benefits based on estimated
future salary levels 243,817 219,340 206,164
------------ ------------ ------------
Projected benefit obligation 473,953 420,678 362,424
Plan assets at fair value, consisting of
certificates of deposit of the Association 369,556 338,658 270,867
------------ ------------ ------------
Excess of projected benefit obligation
over plan assets (104,397) (82,020) (91,557)
Items not yet recognized in income:
Unrecognized transition amount 61,784 62,930 65,681
Unrecognized prior service cost 22,923 23,350 24,374
Unrecognized net (gain)/loss 1,180 (26,807) (18,197)
Contribution adjustment 13,100 22,785 9,466
------------ ------------ ------------
Prepaid/(accrued) pension cost $ 5,410 $ 238 $ (10,233)
============ ============ ============
</TABLE>
Net pension cost included the following components:
<TABLE>
<CAPTION>
Four Months
Ended October 31, Years Ended June 30,
----------------- ---------------------------------------------
1996 1995 1996 1995 1994
---- ---- ---- ---- ----
(unaudited)
<S> <C> <C> <C> <C> <C>
Service cost - benefits earned
during the period $ 8,966 $ 8,136 $ 24,407 $ 26,407 $ 34,062
Interest cost on projected
benefit obligation 10,517 9,061 27,182 25,880 25,274
Actual return on plan assets (5,744) (10,214) (30,641) 20,693 (22,254)
Net amortization
and deferral 1,258 6,882 20,648 (29,496) 19,460
------------ ------------ ------------ ------------ ------------
$ 14,997 $ 13,865 $ 41,596 $ 43,484 $ 56,542
============ ============ ============ ============ ============
</TABLE>
- -------------------------------------------------------------------------------
(Continued)
F-19.
<PAGE>
PEOPLES FEDERAL SAVINGS AND LOAN ASSOCIATION
NOTES TO FINANCIAL STATEMENTS
October 31, 1996 and 1995 (unaudited) and June 30, 1996, 1995 and 1994
- -------------------------------------------------------------------------------
NOTE 9 - PENSION PLAN (Continued)
<TABLE>
<CAPTION>
Four Months
Ended October 31, Years Ended June 30,
----------------- ------------------------------------------
1996 1995 1996 1995 1994
---- ---- ---- ---- ----
(unaudited)
<S> <C> <C> <C> <C> <C>
Significant assumptions used:
Discount rate 7.50% 7.50% 7.50% 7.50% 7.00%
Rate of increase in
compensation levels 4.00 4.00 4.00 4.00 4.00
Expected long-term rate of
return on assets 5.00 5.00 5.00 5.00 5.00
</TABLE>
The unrecognized transition amount and prior service cost are being amortized
over 30 years on a straight-line basis.
NOTE 10 - REGULATORY CAPITAL REQUIREMENTS
Savings institutions insured by the FDIC are required to meet three regulatory
capital requirements. If a requirement is not met, regulatory authorities may
take legal or administrative actions, including restrictions on growth or
operations or, in extreme cases, seizure. Institutions not in compliance may
apply for an exemption from the requirements and submit a recapitalization or
merger plan.
Under these capital requirements, the Association had:
<TABLE>
<CAPTION>
October 31, 1996 (unaudited)
---------------------------------------------------------------------------
Percent Percent Percent
Tangible of Asset Core of Asset Risk-Based of Asset
(In thousands) Capital Base Capital Base Capital Base
------- ---- ------- ---- ------- ----
<S> <C> <C> <C> <C> <C> <C>
GAAP capital $ 9,188 10.2% $ 9,188 10.2% $ 9,188 15.9%
Additional capital items:
General valuation
allowances - limited 326 .6
--------- -------- --------- ------ -------- -------
Regulatory capital - computed 9,188 10.2 9,188 10.2 9,514 16.5
Minimum capital requirement 1,351 1.5 2,701 3.0 4,627 8.0
--------- -------- --------- ------ -------- -------
Regulatory capital - excess $ 7,837 8.7% $ 6,487 7.2% $ 4,887 8.5%
========= ======== ========= ====== ======== =======
Regulatory asset base $ 90,049 $ 90,049 $ 57,833
========= ========= ========
</TABLE>
- -------------------------------------------------------------------------------
(Continued)
F-20.
<PAGE>
PEOPLES FEDERAL SAVINGS AND LOAN ASSOCIATION
NOTES TO FINANCIAL STATEMENTS
October 31, 1996 and 1995 (unaudited) and June 30, 1996, 1995 and 1994
- -------------------------------------------------------------------------------
NOTE 10 - REGULATORY CAPITAL REQUIREMENTS (Continued)
<TABLE>
<CAPTION>
June 30, 1996
--------------------------------------------------------------------------
Percent Percent Percent
Tangible of Asset Core of Asset Risk-Based of Asset
(In thousands) Capital Base Capital Base Capital Base
------- ---- ------- ---- ------- ----
<S> <C> <C> <C> <C> <C> <C>
GAAP capital $ 9,213 10.6% $ 9,213 10.6% $ 9,213 16.3%
Additional capital items:
General valuation
allowances - limited 307 .5
--------- -------- --------- ------ -------- -------
Regulatory capital - computed 9,213 10.6 9,213 10.6 9,520 16.8
Minimum capital requirement 1,304 1.5 2,607 3.0 4,532 8.0
--------- -------- --------- ------ -------- -------
Regulatory capital - excess $ 7,909 9.1% $ 6,606 7.6% $ 4,988 8.8%
========= ======== ========= ====== ======== =======
Regulatory asset base $ 86,902 $ 86,902 $ 56,656
========= ========= ========
</TABLE>
NOTE 11 - COMMITMENTS AND CONTINGENCIES
The Association is a party to financial instruments with off-balance-sheet risk
in the normal course of business to meet the financing needs of its customers.
These financial instruments include commitments to make loans. The Association's
exposure to credit loss in the event of nonperformance by the other party to the
financial instrument for commitments to make loans is represented by the
contractual amount of those instruments. The Association follows the same credit
policy to make such commitments as is followed for those loans recorded in the
financial statements.
As of October 31, 1996 and June 30, 1996 and 1995, the Association had
commitments to make fixed rate commercial and residential real estate mortgage
loans at current market rates approximating $264,000 (unaudited), $581,000 and
$45,000, respectively, and variable rate commercial and residential real estate
mortgage loans at current market rates approximating $574,000 (unaudited),
$1,708,000 and $186,000, respectively. Loan commitments are generally for 30
days. The interest rates on fixed rate commitments ranged from 8.00% to 10.25%
at October 31, 1996 (unaudited), 7.25% to 8.50% at June 30, 1996 and 8.50% to
11.00% at June 30, 1995. The interest rates on variable rate commitments ranged
from 6.75% to 9.00% at October 31, 1996 (unaudited), 7.00% to 8.75% at June 30,
1996 and 6.75% to 9.00% at June 30, 1995.
The Association also had unused lines of credit approximating $647,000, $614,000
and $419,000 at October 31, 1996 (unaudited), and June 30, 1996 and 1995,
respectively.
- -------------------------------------------------------------------------------
(Continued)
F-21.
<PAGE>
PEOPLES FEDERAL SAVINGS AND LOAN ASSOCIATION
NOTES TO FINANCIAL STATEMENTS
October 31, 1996 and 1995 (unaudited) and June 30, 1996, 1995 and 1994
- -------------------------------------------------------------------------------
NOTE 11 - COMMITMENTS AND CONTINGENCIES (Continued)
Since commitments to make loans and lines of credit may expire without being
used, the amounts do not necessarily represent future cash commitments.
Collateral obtained upon exercise of the commitment is determined using
management's credit evaluation of the borrower, and generally consists of
residential or commercial real estate.
At October 31, 1996, the Association had a cash management line of credit
enabling it to borrow up to $5,000,000 with the Federal Home Loan Bank (FHLB) of
Cincinnati. The line of credit must be renewed on an annual basis. No borrowings
were outstanding on this line of credit at October 31, 1996 (unaudited), June
30, 1996 or June 30, 1995. Additionally, as a member of the Federal Home Loan
Bank system, the Association has the ability to obtain up to approximately
$13,574,000 of advances from the FHLB. The Association had no borrowings as a
result of this membership at October 31, 1996 (unaudited), June 30, 1996 or June
30, 1995. Advances under the borrowing agreements are collateralized by a
blanket pledge of the Association's residential mortgage loan portfolio and
Federal Home Loan Bank stock.
At October 31, 1996 (unaudited), and June 30, 1996 and 1995, the Association was
required to have $271,000, $269,000 and $244,000, respectively, on deposit with
its correspondent banks as a compensating clearing requirement.
NOTE 12 - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following table shows the estimated fair values of the Association's
financial instruments and the related carrying values. Items which are not
financial instruments are not included.
<TABLE>
<CAPTION>
October 31, 1996
--------------------------------------
Estimated
Carrying Fair
Value Value
----- -----
(unaudited)
<S> <C> <C>
Financial assets:
Cash and cash equivalents $ 1,793,887 $ 1,794,000
Time deposits with other financial
institutions 100,000 100,000
Investment securities held to maturity 2,098,734 2,091,000
Loans receivable, net 83,720,691 83,345,000
Accrued interest receivable 643,602 644,000
Federal Home Loan Bank stock 678,700 679,000
Financial liabilities:
Deposits $ (79,878,905) $ (80,304,000)
Accrued interest payable (223,733) (224,000)
</TABLE>
- -------------------------------------------------------------------------------
(Continued)
F-22.
<PAGE>
PEOPLES FEDERAL SAVINGS AND LOAN ASSOCIATION
NOTES TO FINANCIAL STATEMENTS
October 31, 1996 and 1995 (unaudited) and June 30, 1996, 1995 and 1994
- -------------------------------------------------------------------------------
NOTE 12 - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
(Continued)
<TABLE>
<CAPTION>
June 30, 1996
-------------
Estimated
Carrying Fair
Value Value
----- -----
<S> <C> <C>
Financial assets:
Cash and cash equivalents $ 2,720,809 $ 2,721,000
Time deposits with other financial
institutions 1,100,000 1,102,000
Investment securities held to maturity 2,598,404 2,576,000
Loans receivable, net 78,232,660 77,744,000
Accrued interest receivable 622,962 623,000
Federal Home Loan Bank stock 667,000 667,000
Financial liabilities:
Deposits $ (77,317,506) $ (77,736,000)
Accrued interest payable (81,871) (82,000)
</TABLE>
The estimated fair value for cash and cash equivalents is considered to
approximate cost. The estimated fair value for investment securities is based on
quoted market values for the individual securities or for equivalent securities.
Carrying value is considered to approximate fair value for Federal Home Loan
Bank stock, for loans that contractually reprice at intervals of less than one
year, for accrued interest receivable, for deposit liabilities subject to
immediate withdrawal and for accrued interest payable. The fair values of
fixed-rate loans, loans that reprice less frequently than each year, time
deposits with other financial institutions and certificates of deposit are
approximated by a discount rate value technique utilizing estimated market
interest rates as of October 31, 1996 (unaudited) and June 30, 1996,
respectively. The fair values of unrecorded commitments at October 31, 1996
(unaudited) and June 30, 1996 are not material.
While these estimates are based on management's judgment of the appropriate
valuation factors, the Association can give no assurance that, if the
Association were to have liquidated such items at October 31, 1996 (unaudited)
and June 30, 1996, the estimated fair values would necessarily have been
realized. The estimated fair values should not be considered to apply at
subsequent dates.
Other assets and liabilities of the Association that are not defined as
financial instruments are not included in the above disclosures. These would
include, among others, such items as property and equipment, other assets and
the intangible value of the Association's customer base and profit potential.
- -------------------------------------------------------------------------------
(Continued)
F-23.
<PAGE>
PEOPLES FEDERAL SAVINGS AND LOAN ASSOCIATION
NOTES TO FINANCIAL STATEMENTS
October 31, 1996 and 1995 (unaudited) and June 30, 1996, 1995 and 1994
- -------------------------------------------------------------------------------
NOTE 13 - ADOPTION OF PLAN OF CONVERSION (UNAUDITED)
On November 8, 1996, the Board of Directors of the Association, subject to
regulatory approval and approval by the members of the Association, unanimously
adopted a Plan of Conversion to convert from a federally chartered mutual
savings and loan association to a federally chartered stock savings and loan
association with the concurrent formation of a holding company. The conversion
is expected to be accomplished through amendment of the Association's charter
and the sale of the holding company's common stock in an amount equal to the pro
forma market value of the Association after giving effect to the conversion. A
subscription offering of the shares of the holding company's common stock will
be offered to the Association's depositors, then to an employee stock benefit
plan and then to other members. Any shares of the holding company's common stock
not sold in the subscription offering may be offered for sale to the general
public.
At the time of conversion, the Association will establish a liquidation account
in an amount equal to its regulatory capital as of the latest practicable date
prior to the conversion at which such regulatory capital can be determined. The
liquidation account will be maintained for the benefit of eligible depositors
who continue to maintain their accounts at the Association after the conversion.
The liquidation account will be reduced annually to the extent that eligible
depositors have reduced their qualifying deposits. Subsequent increases will not
restore an eligible account holder's interest in the liquidation account. In the
event of a complete liquidation, each eligible depositor will be entitled to
receive a distribution from the liquidation account in an amount proportionate
to the current adjusted qualifying balances for accounts then held. The
Association may not pay dividends that would reduce stockholders' equity below
the required liquidation account balance.
Under Office of Thrift Supervision (OTS) regulations, limitations have been
imposed on all "capital distributions" by savings institutions, including cash
dividends. The regulation establishes a three-tiered system of restrictions,
with the greatest flexibility afforded to thrifts which are both
well-capitalized and given favorable qualitative examination ratings by the OTS.
Conversion costs will be deferred and deducted from the proceeds of the shares
sold in the conversion. If the conversion is not completed, all costs will be
charged to expense. At October 31, 1996, no costs have been deferred.
- -------------------------------------------------------------------------------
F-24.
<PAGE>
==============================================================================
No person has been authorized to give any information or to make any
representations in connection with this offering other than those contained in
this Prospectus and, if given or made, such other information and
representations must not be relied upon as having been authorized by the Holding
Company. Neither the delivery of this Prospectus nor any sale made hereunder
shall, under any circumstances, create any implication that there has been no
change in the affairs of the Holding Company since the date hereof or that the
information contained herein is correct as of any time subsequent to its date.
This Prospectus does not constitute an offer to sell or a solicitation of an
offer to buy any securities other than the registered securities to which it
relates. This Prospectus does not constitute an offer to sell or a solicitation
of a offer to buy such securities in any circumstances or jurisdictions in which
such offer or solicitation is unlawful.
-----------------
TABLE OF CONTENTS
Page
Prospectus Summary................................... 4
Selected Financial Information....................... 11
Risk Factors......................................... 13
Use of Proceeds...................................... 17
Dividends............................................ 18
Market for Common Stock.............................. 19
Pro Forma Data....................................... 20
Pro Forma Regulatory Capital Analysis................ 24
Capitalization....................................... 25
Management's Discussion and Analysis of
Financial Condition and Results of Operations....... 26
Peoples-Sidney Financial Corporation................. 43
Business............................................. 43
Regulation........................................... 71
Management of the Holding Company.................... 82
Management of the Association........................ 84
The Conversion....................................... 91
Restrictions on Acquisitions of Stock and
Related Takeover Defensive Provisions............... 109
Description of Capital Stock......................... 114
Legal Matters........................................ 116
Experts.............................................. 117
Additional Information............................... 117
Index to Financial Statements........................ F-1
Until the later of ____________, 1997 or 25 days after commencement of the
Offering all dealers effecting transactions in the registered securities,
whether or not participating in this distribution, may be required to deliver a
prospectus. This is in addition to the obligation of dealers to deliver a
prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
<PAGE>
===============================================================================
1,437,500 Shares
[LOGO]
PEOPLES-SIDNEY FINANCIAL
CORPORATION
(Proposed Holding Company for
Peoples Federal Savings
and Loan Association of Sidney)
Common Stock
----------
Prospectus
----------
Charles Webb & Company
A Division of
Keefe, Bruyette & Woods, Inc.
___________, 1997
===============================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
Set forth below is an estimate of the amount of fees and expenses
(other than underwriting discounts and commissions) to be incurred in connection
with the issuance of the shares.
Counsel fees and expenses.............................................$105,000
Accounting fees and expenses.......................................... 75,000
Appraisal preparation fees............................................ 17,000
Conversion Agent...................................................... 10,000
Underwriting fees(1) (including management
fee and expenses of $35,000)....................................... 207,200
Printing, postage and mailing......................................... 50,000
NASD fee.............................................................. 2,500
OTS fee............................................................... 8,400
SEC Registration fee.................................................. 5,000
Blue Sky fees and expenses (including legal fees) .................... 35,000
Business Plan......................................................... 5,000
Other expenses........................................................ 10,000
------
TOTAL............................................................$530,100
=======
- ------------------
(1) Based on maximum of Estimated Valuation Range and assumptions set forth
under "Pro Forma Data" in the Prospectus.
Item 14. Indemnification of Directors and Officers
Article Eleventh of the Holding Company's Certificate of Incorporation
provides for indemnification of directors and officers of the Holding Company
against any and all liabilities, judgments, fines and reasonable settlements,
costs, expenses and attorneys' fees incurred in any actual, threatened or
potential proceeding, except to the extent that such indemnification is limited
by Delaware law and such law cannot be varied by contract or bylaw. Article
Eleventh also provides for the authority to purchase insurance with respect
thereto.
Section 145 of the General Corporation Law of the State of Delaware
authorizes a corporation's Board of Directors to grant indemnity under certain
circumstances to directors and officers, when made, or threatened to be made,
parties to certain proceedings by reason of such
II-1
<PAGE>
status with the corporation, against judgments, fines, settlements and expenses,
including attorneys' fees. In addition, under certain circumstances such persons
may be indemnified against expenses actually and reasonably incurred in defense
of a proceeding by or on behalf of the corporation. Similarly, the corporation,
under certain circumstances, is authorized to indemnify directors and officers
of other corporations or enterprises who are serving as such at the request of
the corporation, when such persons are made, or threatened to be made, parties
to certain proceedings by reason of such status, against judgments, fines,
settlements and expenses, including attorneys' fees; and under certain
circumstances, such persons may be indemnified against expenses actually and
reasonably incurred in connection with the defense or settlement of a proceeding
by or in the right of such other corporation or enterprise. Indemnification is
permitted where such person (i) was acting in good faith; (ii) was acting in a
manner he reasonably believed to be in or not opposed to the best interests of
the corporation or other corporation or enterprise, as appropriate; (iii) with
respect to a criminal proceeding, has no reasonable cause to believe his conduct
was unlawful; and (iv) was not adjudged to be liable to the corporation or other
corporation or enterprise (unless the court where the proceeding was brought
determines that such person is fairly and reasonably entitled to indemnity).
Unless ordered by a court, indemnification may be made only following a
determination that such indemnification is permissible because the person being
indemnified has met the requisite standard of conduct. Such determination may be
made (i) by the Board of Directors of the Holding Company by a majority vote of
a quorum consisting of directors not at the time parties to such proceeding; or
(ii) if such a quorum cannot be obtained or the quorum so directs, then by
independent legal counsel in a written opinion; or (iii) by the stockholders.
Section 145 also permits expenses incurred by directors and officers in
defending a proceeding to be paid by the corporation in advance of the final
disposition of such proceedings upon the receipt of an undertaking by the
director or officer to repay such amount if it is ultimately determined that he
is not entitled to be indemnified by the corporation against such expenses.
Item 15. Recent Sales of Unregistered Securities
The Registrant is newly incorporated, solely for the purpose of acting
as the holding company of Peoples Federal Savings and Loan Association of Sidney
pursuant to the Plan of Conversion (filed as Exhibit 2 herein), and no sales of
its securities have occurred to date.
II-2
<PAGE>
Item 16. Exhibits and Financial Statement Schedules
(a) Exhibits:
1.1 Letter Agreement regarding marketing and consulting services
1.2 Form of Agency Agreement*
2 Plan of Conversion
3.1 Certificate of Incorporation of the Holding Company
3.2 Bylaws of the Holding Company
3.3 Charter of Peoples Federal in stock form
3.4 Bylaws of Peoples Federal in stock form
4 Form of Stock Certificate of the Holding Company
5 Opinion of Silver, Freedman & Taff, L.L.P. with Respect to Legality
of Stock
8.1 Opinion of Silver, Freedman & Taff, L.L.P. with respect to Federal
income tax consequences of the Conversion
8.2 Opinion of Crowe, Chizek and Company LLP with respect to Ohio income
tax consequences of the Conversion*
8.3 Opinion of Keller & Company, Inc. with respect to Subscription Rights
10.1 Employee Stock Ownership Plan
10.2 Form of Employment Agreement with Douglas Stewart
10.3 Form of Employment Agreement with David R. Fogt, Gary N. Fullenkamp,
Debra A.Geuy and Steven Goins
10.4 401k Plan*
10.5 Incentive Bonus Plan*
10.6 Letter Agreement regarding Appraisal Services and Business Plan
Preparation
23.1 Consent of Silver, Freedman & Taff, L.L.P.
23.2 Consent of Crowe, Chizek and Company LLP
23.3 Consent of Keller & Company
24 Power of Attorney (set forth on signature page)
27 Financial Data Schedule
99.1 Appraisal*
99.2 Proxy Statement and form of proxy to be furnished to Peoples Federal
account holders
99.3 Stock Order Form, Order Form Instructions and Certification
99.4 Question and Answer Brochure
99.5 Advertising, Training and Community Informational Meeting Materials
__________________________
* To be filed by amendment
II-3
<PAGE>
Item 17. Undertakings
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this Registration Statement:
(i) To include any Prospectus required by Section 10(a)(3) of the Securities
Act of 1933;
(ii) To reflect in the Prospectus any facts or events arising after the
effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
Registration Statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) (Section 230.424(b) of this chapter) if, in the
aggregate, the changes in volume and price represent no more than a 20%
change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective registration
statement; and
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or any
material change to such information in the Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new Registration Statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and it will be governed by the final adjudication
of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the Registrant pursuant
II-4
<PAGE>
to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to
be part of this Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new Registration Statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized in the City of Sidney, State of Ohio, on
January 23, 1997.
PEOPLES-SIDNEY FINANCIAL CORPORATION
By: /S/DOUGLAS STEWART
-----------------------------------------------
Douglas Stewart
President, Chief Executive Officer and Director
(Duly Authorized Representative)
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Douglas Stewart or Gary N. Fullenkamp, his true
and lawful attorney-in-fact and agent, with full power of substitution and
re-substitution, for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments (including post-effective amendments)
to this Registration Statement, and to file the same, with all exhibits thereto,
and all other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorney-in-fact and agent full power
and authority to do and perform each and every act and thing requisite and
necessary to be done, as fully to all intents and purposes as he might or could
do in person, hereby ratifying and confirming said attorney-in-fact and agent or
his substitutes or substitute may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following person in the
capacities and on the dates indicated.
<PAGE>
/S/DOUGLAS STEWART /S/JAMES W. KERBER
- ---------------------------------- ------------------------
Douglas Stewart James W. Kerber
President, Chief Executive Officer Director
and Director
(Principal Executive Officer)
Date: January 23, 1997 Date: January 23, 1997
---------------------------- --------------------------------------
/S/RICHARD T. MARTIN /S/JOHN W. SARGEANT
- ---------------------------------- --------------------------------------------
Richard T. Martin John W. Sargeant
Chairman of the Board Director
Date: January 23, 1997 Date: January 23, 1997
---------------------------- --------------------------------------
/S/ROBERT W. BERTSCH /S/DEBRA A. GEUY
- ---------------------------------- --------------------------------------------
Robert W. Bertsch Debra A. Geuy
Director Treasurer
(Principal Financial and Accounting Officer)
Date: January 23, 1997 Date: January 23, 1997
---------------------------- --------------------------------------
/S/HARRY N. FAULKNER
- ----------------------------------
Harry N. Faulkner
Director
Date: January 23, 1997
----------------------------
<PAGE>
As filed with the Securities and Exchange Commission on January 27, 1997
Registration No. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
__________________
EXHIBITS TO THE
FORM S-1
UNDER
THE SECURITIES ACT OF 1933
__________________
PEOPLES-SIDNEY FINANCIAL CORPORATON
101 E. Court Street
Sidney, Ohio 45365
================================================================================
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
<S> <C> <C>
Exhibits:
1.1 Letter Agreement regarding marketing and consulting services
1.2 Form of Agency Agreement*
2 Plan of Conversion
3.1 Certificate of Incorporation of the Holding Company
3.2 Bylaws of the Holding Company
3.3 Charter of Peoples Federal in stock form
3.4 Bylaws of Peoples Federal in stock form
4 Form of Stock Certificate of the Holding Company
5 Opinion of Silver, Freedman & Taff, L.L.P. with Respect to Legality of Stock
8.1 Opinion of Silver, Freedman & Taff, L.L.P. with respect to Federal income
tax consequences of the Conversion
8.2 Opinion of Crowe, Chizek and Company LLP with respect to Ohio income tax
consequences of the Conversion*
8.3 Opinion of Keller & Company, Inc. with respect to Subscription Rights
10.1 Employee Stock Ownership Plan
10.2 Form of Employment Agreement with Douglas Stewart
10.3 Form of Employment Agreement with David R. Fogt, Gary N. Fullenkamp,
Debra A. Geuy and Steven Goins
10.4 401k Plan*
10.5 Incentive Bonus Plan*
10.6 Letter Agreement regarding Appraisal Services and Business Plan Preparation
23.1 Consent of Silver, Freedman & Taff, L.L.P.
23.2 Consent of Crowe, Chizek and Company LLP
23.3 Consent of Keller & Company, Inc.
24 Power of Attorney (set forth on signature page)
27 Financial Data Schedule
99.1 Appraisal*
99.2 Proxy Statement and form of proxy to be furnished to Peoples Federal account
holders
99.3 Stock Order Form, Order Form Instructions and Certification Form
99.4 Question and Answer Brochure
99.5 Advertising, Training and Community Informational Meeting Materials
</TABLE>
____________________
* To be filed by amendment
<PAGE>
November 11, 1996
Mr. Douglas Stewart
President & Chief Executive Officer
Peoples Federal Savings & Loan Association
101 East Court Street
Sidney, Ohio 45365-3021
Dear Mr. Stewart:
This proposal is in connection with Peoples Federal Savings & Loan Association's
(the "Bank") intention to convert from a mutual to a capital stock form of
organization (the "Conversion"). In order to effect the Conversion, it is
contemplated that all of the Bank's common stock to be outstanding pursuant to
the Conversion will be issued to a holding company (the "Company") to be formed
by the Bank, and that the Company will offer and sell shares of its common stock
first to eligible persons (pursuant to the Bank's Plan of Conversion) in a
Subscription Offering and then in a Community Offering.
Charles Webb & Company, a Division of Keefe, Bruyette, & Woods ("Webb") will act
as the Bank's and the Company's exclusive financial advisor and marketing agent
in connection with the Conversion. This letter sets forth selected terms and
conditions of our engagement.
1. Advisory/Conversion Services. As the Bank's and Company's financial advisor
and marketing agent, Webb will provide the Bank and the Company with a
comprehensive program of conversion services designed to promote an orderly,
efficient, cost-effective and long-term stock distribution. Webb will provide
financial and logistical advice to the Bank and the Company concerning the
offering and related issues. Webb will assist in providing of conversion
enhancement services intended to maximize stock sales in the Subscription
Offering and to residents of the Bank's market area, if necessary, in the
Community Offering.
Webb shall provide financial advisory services to the Bank which are typical in
connection with an equity offering and include, but are not limited to, overall
financial analysis of the client with a focus on identifying factors which
impact the valuation of an equity security and provide the appropriate
recommendations for the betterment of the equity valuation.
<PAGE>
Additionally, post conversion financial advisory services will be provided for a
one-year period, at no additional fee, including advice on shareholder
relations, NASDAQ listing, dividend policy, stock repurchase strategy and
communication with market makers. Prior to the closing of the offering, Webb
shall furnish to client a Post-conversion reference manual which will include
specifics relative to these items. (The nature of the services to be provided by
Webb as the Bank's and the Company's financial advisor and marketing agent are
further described in Exhibit A attached hereto.)
2. Preparation of Offering Documents. The Bank, the Company and their counsel
will draft the Registration Statement, Application for Conversion, Prospectus
and other documents to be used in connection with the Conversion. Webb will
attend meetings to review these documents and advise you on their form and
content. Webb and their counsel will draft appropriate agency agreement and
related documents as well as marketing materials other than the Prospectus.
3. Due Diligence Review. Prior to filing the Registration Statement, Application
for Conversion or any offering or other documents naming Webb as the Bank's and
the Company's financial advisor and marketing agent, Webb and their
representatives will undertake substantial investigations to learn about the
Bank's business and operations ("due diligence review") in order to confirm
information provided to us and to evaluate information to be contained in the
Bank's and/or the Company's offering documents. The Bank agrees that it will
make available to Webb all relevant information, whether or not publicly
available, which Webb reasonably request, and will permit Webb to discuss
personnel and the operations and prospects of the Bank with management. Webb
will treat all material non-public information as confidential. The Bank
acknowledges that Webb will rely upon the accuracy and completeness of all
information received from the Bank, its officers, directors, employees, agents
and representatives, accountants and counsel including this letter of intent to
serve as the Bank's and the Company's financial advisor and marketing agent.
4. Regulatory Filings. The Bank and/or the Company will cause appropriate
offering documents to be filed with all regulatory agencies including, the
Securities and Exchange Commission ("SEC"), the National Association of
Securities Dealers ("NASD"), and such state securities commissioners as may be
determined by the Bank.
5. Agency Agreement. The specific terms of the conversion services, conversion
offering enhancement and syndicated offering services contemplated in this
letter shall be set forth in an Agency Agreement between Webb and the Bank and
the Company to be executed prior to commencement of the offering, and dated the
date that the Company's Prospectus is declared effective and/or authorized to be
disseminated by the appropriate regulatory agencies, the SEC, the NASD and such
state securities commissioners and other regulatory agencies as required by
applicable law.
<PAGE>
6. Representations, Warranties and Covenants. The Agency Agreement will provide
for customary representations, warranties and covenants by the Bank and Webb,
and for the Company to indemnify Webb and their controlling persons (and, if
applicable, the members of the selling group and their controlling persons), and
for Webb to indemnify the Bank and the Company against certain liabilities,
including, without limitation, liabilities under the Securities Act of 1933.
7. Fees. For the services hereunder, the Bank and/or Company shall pay the
following fees to Webb at closing unless stated otherwise:
(a) A Management Fee of $25,000 payable in four consecutive monthly
installments of $6,250 commencing with the signing of this letter. Such
fees shall be deemed to have been earned when due. Should the Conversion
be terminated for any reason not attributable to the action or inaction of
Webb, Webb shall have earned and be entitled to be paid fees accruing
through the stage at which point the termination occurred.
(b) A Success Fee of 1.5% of the aggregate Purchase Price of Common Stock
sold in the Subscription Offering and Community Offering excluding shares
purchased by the Bank's officers, directors, or employees (or members of
their immediate families) plus any ESOP, tax-qualified or stock based
compensation plans (except IRA's) or similar plan created by the Bank for
some or all of its directors or employees.
(c) If any shares of the Company's stock remain available after the
subscription offering, at the request of the Bank, Webb will seek to form
a syndicate of registered broker-dealers to assist in the sale of such
common stock on a best efforts basis, subject to the terms and conditions
set forth in the selected dealers agreement. Webb will endeavor to
distribute the common stock among dealers in a fashion which best meets
the distribution objectives of the Bank and the Plan of Conversion. Webb
will be paid a fee not to exceed 5.5% of the aggregate Purchase Price of
the shares of common stock sold by them. Webb will pass onto selected
broker-dealers, who assist in the syndicated community, an amount
competitive with gross underwriting discounts charged at such time for
comparable amounts of stock sold at a comparable price per share in a
similar market environment. Fees with respect to purchases affected with
the assistance of a broker/dealer other than Webb shall be transmitted by
Webb to such broker/dealer. The decision to utilize selected
broker-dealers will be made by the Bank upon consultation with Webb. In
<PAGE>
the event, with respect to any stock purchases, fees are paid pursuant to
this subparagraph 7(c), such fees shall be in lieu of, and not in addition
to, payment pursuant to subparagraph 7(a) and 7(b).
8. Expenses. The Bank will bear those expenses of the proposed offering
customarily borne by issuers, including, without limitation, regulatory filing
fees, SEC, "Blue Sky," and NASD filing and registration fees; the fees of the
Bank's accountants, attorneys, appraiser, conversion agent, transfer agent and
registrar, printing, mailing and marketing and syndicate expenses associated
with the Conversion; the fees set forth in Section 7; and fees for "Blue Sky"
legal work.
Due to Client's close proximity to our office, Webb will not request any expense
reimbursement for travel and accommodation expenses. Webb shall be reimbursed
for the reasonable fees and expenses of their Counsel. The selection of such
counsel will be done by Webb, with the approval of the Bank.
9. Conditions. Webb's willingness and obligation to proceed hereunder shall be
subject to, among other things, satisfaction of the following conditions in
Webb's opinion, which opinion shall have been formed in good faith by Webb after
reasonable determination and consideration of all relevant factors: (a) full and
satisfactory disclosure of all relevant material, financial and other
information in the disclosure documents and a determination by Webb, in their
sole discretion, that the sale of stock on the terms proposed is reasonable
given such disclosures; (b) no material adverse change in the condition or
operations of the Bank subsequent to the execution of the agreement; and (c) no
market conditions at the time of offering which in Webb's opinion make the sale
of the shares by the Company inadvisable.
10. Benefit. This Agreement shall inure to the benefit of the parties hereto and
their respective successors and to the parties indemnified hereunder and their
successors, and the obligations and liabilities assumed hereunder by the parties
hereto shall be binding upon their respective successors provided, however, that
this Agreement shall not be assignable by Webb.
11. Definitive Agreement. This letter reflects Webb's present intention of
proceeding to work with the Bank on its proposed conversion. It does not create
a binding obligation on the part of the Bank, the Company or Webb except as to
the agreement to maintain the confidentiality of non-public information set
forth in Section 3, the payment of certain fees as set forth in Section 7(a) and
7(b) and the assumption of expenses as set forth in Section 9, all of which
shall constitute the binding obligations of the parties hereto and which shall
survive the termination of this Agreement or the completion of the services
furnished hereunder and shall remain operative and in full force and effect. You
further acknowledge that any report or analysis rendered by Webb pursuant to
this engagement is rendered for use solely by the management of the Bank and its
<PAGE>
agents in connection with the Conversion. Accordingly, you agree that you will
not provide any such information to any other person without our prior written
consent.
Webb acknowledges that in offering the Company's stock no person will be
authorized to give any information or to make any representation not contained
in the offering prospectus and related offering materials filed as part of a
registration statement to be declared effective in connection with the offering.
Accordingly, Webb agrees that in connection with the offering it will not give
any unauthorized information or make any unauthorized representation. We will be
pleased to elaborate on any of the matters discussed in this letter at your
convenience.
If the foregoing correctly sets forth our mutual understanding, please so
indicate by signing and returning the original copy of this letter to the
undersigned.
Very truly yours,
CHARLES WEBB & COMPANY,
A DIVISION OF KEEFE, BRUYETTE, & WOODS
By: /s/_____________________________
Harold T. Hanley III
Senior Vice President
PEOPLES FEDERAL SAVINGS & LOAN ASSOCIATION
November 15,1996
By: /s/_______________________________________ __________________
DOUGLAS STEWART, Date
President & Chief Executive Officer
<PAGE>
EXHIBIT A
CONVERSION SERVICES PROPOSAL
TO PEOPLES FEDERAL SAVINGS & LOAN ASSOCIATION
Charles Webb & Company provides thrift institutions converting from mutual to
stock form of ownership with a comprehensive program of conversion services
designed to promote an orderly, efficient, cost-effective and long-term stock
distribution. The following list is representative of the conversion services,
if appropriate, we propose to perform on behalf of the Bank.
General Services
Assist management and legal counsel with the design of the transaction
structure.
Analyze and make recommendations on bids from printing, transfer agent, and
appraisal firms.
Assist officers and directors in obtaining bank loans to purchase stock, if
requested.
Assist in drafting and distribution of press releases as required or
appropriate.
Conversion Offering Enhancement Services
Establish and manage Conversion Center at the Bank. Conversion Center personnel
will track prospective investors; record stock orders; mail order confirmations;
provide the Bank's senior management with daily reports; answer customer
inquiries; and handle special situations as they arise.
Assign Webb's personnel to be at the Bank through completion of the Subscription
and Community Offerings to manage the Conversion Center, meet with prospective
shareholders at individual and community information meetings, solicit local
investor interest through a tele-marketing campaign, answer inquiries, and
otherwise assist in the sale of stock in the Subscription and Community
Offerings. This effort will be lead by a Principal of Webb.
Create target investor list based upon review of the Bank's depositor base.
Provide intensive financial and marketing input for drafting of the prospectus.
<PAGE>
Conversion Offering Enhancement Services- Continued
Prepare other marketing materials, including prospecting letters and brochures,
and media advertisements.
Arrange logistics of community information meeting(s) as required.
Prepare audio-visual presentation by senior management for community information
meeting(s).
Prepare management for question-and-answer period at community information
meeting(s).
Attend and address community information meeting(s) and be available to answer
questions.
Broker-Assisted Sales Services.
Arrange for broker information meeting(s) as required.
Prepare audio-visual presentation for broker information meeting(s).
Prepare script for presentation by senior management at broker information
meeting(s).
Prepare management for question-and-answer period at broker information
meeting(s).
Attend and address broker information meeting(s) and be available to answer
questions.
Produce confidential broker memorandum to assist participating brokers in
selling the Bank's common stock.
Aftermarket Support Services.
Keefe, Bruyette & Woods will make a market and provide on-going research to the
Company. In addition, Webb will use its best efforts to secure another market
maker.
<PAGE>
Exhibit 3.1
CERTIFICATE OF INCORPORATION
OF
PEOPLES-SIDNEY FINANCIAL CORPORATION
FIRST: The name of the Corporation is Peoples-Sidney Financial Corporation
(hereinafter sometimes referred to as the "Corporation").
SECOND: The address of the registered office of the Corporation in the
State of Delaware is Corporation Trust Center, 1209 Orange Street, in the City
of Wilmington, County of New Castle. The name of the registered agent at that
address is The Corporation Trust Company.
THIRD: The purpose of the Corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General Corporation
Law of Delaware.
FOURTH:
A. The total number of shares of all classes of stock which the Corporation
shall have the authority to issue is four million (4,000,000) consisting of:
1. Five hundred thousand (500,000) shares of preferred stock, par value one
cent ($.01) per share (the "Preferred Stock"); and
2. Three million five hundred thousand (3,500,000) shares of common stock, par
value one cent ($.01) per share (the "Common Stock").
B. The Board of Directors is hereby expressly authorized, subject to any
limitations prescribed by law, to provide for the issuance of the shares of
Preferred Stock in series, and by filing a certificate pursuant to the
applicable law of the State of Delaware (such certificate being hereinafter
referred to as a "Preferred Stock Designation"), to establish from time to time
the number of shares to be included in each such series, and to fix the
designation, powers, preferences and rights of the shares of each such series
and any qualifications, limitations or restrictions thereof. The number of
authorized shares of the Preferred Stock may be increased or decreased (but not
below the number of shares thereof then outstanding) by the affirmative vote of
the holders of a majority of the Common Stock, without a vote of the holders of
the Preferred Stock, or of any series thereof, unless a vote of any such holders
is required pursuant to the terms of any Preferred Stock Designation.
C.1. Notwithstanding any other provision of this Certificate of
Incorporation, in no event shall any record owner of any outstanding Common
Stock which is beneficially owned, directly or indirectly, by a person who, as
of any record date for the determination of stockholders entitled to vote on any
matter, beneficially owns in excess of 10% of the then-outstanding shares of
Common Stock (the "Limit"), be entitled, or permitted to any vote in respect of
the shares held in excess of the Limit. The number of votes which may be cast by
any record owner by virtue of the provisions hereof in respect of Common Stock
beneficially owned by such person
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owning shares in excess of the Limit shall be a number equal to the total number
of votes which a single record owner of all Common Stock owned by such person
would be entitled to cast, multiplied by a fraction, the numerator of which is
the number of shares of such class or series beneficially owned by such person
and owned of record by such record owner and the denominator of which is the
total number of shares of Common Stock beneficially owned by such person owning
shares in excess of the Limit.
C.2. The following definitions shall apply to this Section C of this
Article FOURTH:
(a) An "affiliate" of a specified person shall mean a person that directly, or
indirectly through one or more intermediaries, controls, or is controlled
by, or is under common control with, the person specified.
(b) "Beneficial ownership" shall be determined pursuant to Rule 13d-3 of the
General Rules and Regulations under the Securities Exchange Act of 1934
(or any successor rule or statutory provision), or, if said Rule 13d-3
shall be rescinded and there shall be no successor rule or statutory
provision thereto, pursuant to said Rule 13d-3 as in effect on January 1,
1997; provided, however, that a person shall, in any event, also be
deemed the "beneficial owner" of any Common Stock:
(1) which such person or any of its affiliates beneficially owns, directly
or indirectly; or
(2) which such person or any of its affiliates has (i) the right to
acquire (whether such right is exercisable immediately or only after
the passage of time), pursuant to any agreement, arrangement or
understanding (but shall not be deemed to be the beneficial owner of
any voting shares solely by reason of an agreement, contract, or other
arrangement with this Corporation to effect any transaction which is
described in any one or more of the clauses of Section A of Article
EIGHTH) or upon the exercise of conversion rights, exchange rights,
warrants, or options or otherwise, or (ii) sole or shared voting or
investment power with respect thereto pursuant to any agreement,
arrangement, understanding, relationship or otherwise (but shall not
be deemed to be the beneficial owner of any voting shares solely by
reason of a revocable proxy granted for a particular meeting of
stockholders, pursuant to a public solicitation of proxies for such
meeting, with respect to shares of which neither such person nor any
such affiliate is otherwise deemed the beneficial owner); or
(3) which are beneficially owned, directly or indirectly, by any other
person with which such first mentioned person or any of its affiliates
acts as a partnership, limited partnership, syndicate or other group
pursuant to any agreement, arrangement or understanding for the
purpose of acquiring, holding, voting or disposing of any shares of
capital stock of this Corporation;
and provided further, however, that (1) no director or officer of this
Corporation (or any affiliate of any such director or officer) shall,
solely by reason of any or all of such directors or officers acting in
their capacities as such, be deemed, for any purposes hereof,
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to beneficially own any Common Stock beneficially owned by any other such
director or officer (or any affiliate thereof), and (2) neither any
employee stock ownership or similar plan of this Corporation or any
subsidiary of this Corporation nor any trustee with respect thereto (or any
affiliate of such trustee) shall, solely by reason of such capacity of such
trustee, be deemed, for any purposes hereof, to beneficially own any Common
Stock held under any such plan. For purposes of computing the percentage
beneficial ownership of Common Stock of a person, the outstanding Common
Stock shall include shares deemed owned by such person through application
of this subsection but shall not include any other Common Stock which may
be issuable by this Corporation pursuant to any agreement, or upon exercise
of conversion rights, warrants or options, or otherwise. For all other
purposes, the outstanding Common Stock shall include only Common Stock then
outstanding and shall not include any Common Stock which may be issuable by
this Corporation pursuant to any agreement, or upon the exercise of
conversion rights, warrants or options, or otherwise.
(c) A "person" shall mean any individual, firm, corporation, or other entity.
(d) The Board of Directors shall have the power to construe and apply the
provisions of this section and to make all determinations necessary or
desirable to implement such provisions, including but not limited to
matters with respect to (1) the number of shares of Common Stock
beneficially owned by any person, (2) whether a person is an affiliate of
another, (3) whether a person has an agreement, arrangement, or
understanding with another as to the matters referred to in the definition
of beneficial ownership, (4) the application of any other definition or
operative provision of this Section to the given facts, or (5) any other
matter relating to the applicability or effect of this Section.
C.3. The Board of Directors shall have the right to demand that any person
who is reasonably believed to beneficially own Common Stock in excess of the
Limit (or holds of record Common Stock beneficially owned by any person in
excess of the Limit) (a "Holder in Excess") supply the Corporation with complete
information as to (1) the record owner(s) of all shares beneficially owned by
such Holder in Excess, and (2) any other factual matter relating to the
applicability or effect of this section as may reasonably be requested of such
Holder in Excess. The Board of Directors shall further have the right to receive
from any Holder in Excess reimbursement for all expenses incurred by the Board
in connection with its investigation of any matters relating to the
applicability or effect of this section on such Holder in Excess, to the extent
such investigation is deemed appropriate by the Board of Directors as a result
of the Holder in Excess refusing to supply the Corporation with the information
described in the previous sentence.
C.4. Except as otherwise provided by law or expressly provided in this
Section C, the presence, in person or by proxy, of the holders of record of
shares of capital stock of the Corporation entitling the holders thereof to cast
one-third of the votes (after giving effect, if required, to the provisions of
this Section) entitled to be cast by the holders of shares of capital stock of
the Corporation entitled to vote shall constitute a quorum at all meetings of
the stockholders, and every reference in this Certificate of Incorporation to a
majority or other proportion of capital stock (or the holders thereof) for
purposes of determining any quorum requirement or any requirement for
stockholder consent or approval shall be deemed to refer to
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such majority or other proportion of the votes (or the holders thereof) then
entitled to be cast in respect of such capital stock.
C.5. Any constructions, applications, or determinations made by the Board
of Directors, pursuant to this Section in good faith and on the basis of such
information and assistance as was then reasonably available for such purpose,
shall be conclusive and binding upon the Corporation and its stockholders.
C.6. In the event any provision (or portion thereof) of this Section C
shall be found to be invalid, prohibited or unenforceable for any reason, the
remaining provisions (or portions thereof) of this Section shall remain in full
force and effect, and shall be construed as if such invalid, prohibited or
unenforceable provision had been stricken herefrom or otherwise rendered
inapplicable, it being the intent of this Corporation and its stockholders that
each such remaining provision (or portion thereof) of this Section C remain, to
the fullest extent permitted by law, applicable and enforceable as to all
stockholders, including stockholders owning an amount of stock over the Limit,
notwithstanding any such finding.
FIFTH: The following provisions are inserted for the management of the
business and the conduct of the affairs of the Corporation, and for further
definition, limitation and regulation of the powers of the Corporation and of
its directors and stockholders:
A. The business and affairs of the Corporation shall be managed by or under
the direction of the Board of Directors. In addition to the powers and authority
expressly conferred upon them by Statute or by this Certificate of Incorporation
or the By-laws of the Corporation, the directors are hereby empowered to
exercise all such powers and do all such acts and things as may be exercised or
done by the Corporation.
B. The directors of the Corporation need not be elected by written ballot
unless the By-laws so provide.
C. Subject to the rights of holders of any class or series of Preferred
Stock, any action required or permitted to be taken by the stockholders of the
Corporation must be effected at a duly called annual or special meeting of
stockholders of the Corporation and may not be effected by any consent in
writing by such stockholders.
D. Subject to the rights of holders of any class or series of Preferred
Stock, special meetings of stockholders of the Corporation may be called only by
the Board of Directors pursuant to a resolution adopted by a majority of the
total number of directors which the Corporation would have if there were no
vacancies on the Board of Directors (the "Whole Board").
E. Stockholders shall not be permitted to cumulate their votes for the
election of directors.
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SIXTH:
A. The number of directors shall be fixed from time to time exclusively by
the Board of Directors pursuant to a resolution adopted by a majority of the
Whole Board. The directors, other than those who may be elected by the holders
of any class or series of Preferred Stock, shall be divided into three classes,
as nearly equal in number as reasonably possible, with the term of office of the
first class to expire at the conclusion of the first annual meeting of
stockholders, the term of office of the second class to expire at the conclusion
of the annual meeting of stockholders one year thereafter and the term of office
of the third class to expire at the conclusion of the annual meeting of
stockholders two years thereafter, with each director to hold office until his
or her successor shall have been duly elected and qualified. At each annual
meeting of stockholders following such initial classification and election,
directors elected to succeed those directors whose terms expire shall be elected
for a term of office to expire at the third succeeding annual meeting of
stockholders after their election, with each director to hold office until his
or her successor shall have been duly elected and qualified.
B. Subject to the rights of the holders of any series of Preferred Stock
then outstanding, newly created directorships resulting from any increase in the
authorized number of directors or any vacancies in the Board of Directors
resulting from death, resignation, retirement, disqualification, removal from
office or other cause may be filled only by a majority vote of the directors
then in office, though less than a quorum, and directors so chosen shall hold
office for a term expiring at the annual meeting of stockholders at which the
term of office of the class to which they have been elected expires, and until
such director's successor shall have been duly elected and qualified. No
decrease in the number of directors constituting the Board of Directors shall
shorten the term of any incumbent director.
C. Advance notice of stockholder nominations for the election of directors
and of business to be brought by stockholders before any meeting of the
stockholders of the Corporation shall be given in the manner provided in the
By-laws of the Corporation.
D. Subject to the rights of the holders of any series of Preferred Stock
then outstanding, any directors, or the entire Board of Directors, may be
removed from office at any time, but only for cause and only by the affirmative
vote of the holders of at least 80% of the voting power of all of the
then-outstanding shares of capital stock of the Corporation entitled to vote
generally in the election of directors (after giving effect to the provisions of
Article FOURTH of this Certificate of Incorporation), voting together as a
single class.
SEVENTH: The Board of Directors is expressly empowered to adopt, amend or
repeal the By-laws of the Corporation. Any adoption, amendment or repeal of the
By-laws of the Corporation by the Board of Directors shall require the approval
of a majority of the Whole Board. The stockholders shall also have power to
adopt, amend or repeal the By-laws of the Corporation. In addition to any vote
of the holders of any class or series of stock of this Corporation required by
law or by this Certificate of Incorporation, the affirmative vote of the holders
of at least 80% of the voting power of all of the then-outstanding shares of the
capital stock of the Corporation entitled to vote generally in the election of
directors (after giving effect to the provisions of Article FOURTH hereof),
voting together as a single class, shall be required to adopt, amend or repeal
any provisions of the By-laws of the Corporation.
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EIGHTH:
A. In addition to any affirmative vote required by law or this Certificate
of Incorporation, and except as otherwise expressly provided in this Section:
1. any merger or consolidation of the Corporation or any Subsidiary (as
hereinafter defined) with (i) any Interested Stockholder (as hereinafter
defined) or (ii) any other corporation (whether or not itself an Interested
Stockholder) which is, or after such merger or consolidation would be, an
Affiliate (as hereinafter defined) of an Interested Stockholder; or
2. any sale, lease, exchange, mortgage, pledge, transfer or other disposition
(in one transaction or a series of transactions) to or with any Interested
Stockholder, or any Affiliate of any Interested Stockholder, of any assets
of the Corporation or any Subsidiary having an aggregate Fair Market Value
(as hereafter defined) equaling or exceeding 25% or more of the combined
assets of the Corporation and its Subsidiaries; or
3. the issuance or transfer by the Corporation or any Subsidiary (in one
transaction or a series of transactions) of any securities of the
Corporation or any Subsidiary to any Interested Stockholder or any
Affiliate of any Interested Stockholder in exchange for cash, securities or
other property (or a combination thereof) having an aggregate Fair Market
Value equaling or exceeding 25% of the combined assets of the Corporation
and its Subsidiaries except pursuant to an employee benefit plan of the
Corporation or any Subsidiary thereof; or
4. the adoption of any plan or proposal for the liquidation or dissolution of
the Corporation proposed by or on behalf of any Interested Stockholder or
any Affiliate of any Interested Stockholder; or
5. any reclassification of securities (including any reverse stock split), or
recapitalization of the Corporation, or any merger or consolidation of the
Corporation with any of its Subsidiaries or any other transaction (whether
or not with or into or otherwise involving an Interested Stockholder) which
has the effect, directly or indirectly, of increasing the proportionate
share of the outstanding shares of any class of equity or convertible
securities of the Corporation or any Subsidiary which is directly or
indirectly owned by any Interested Stockholder or any Affiliate of any
Interested Stockholder (a "Disproportionate Transaction"); provided,
however, that no such transaction shall be deemed a Disproportionate
Transaction if the increase in the proportionate ownership of the
Interested Stockholder or Affiliate as a result of such transaction is no
greater than the increase experienced by the other stockholders generally;
shall require the affirmative vote of the holders of at least 80% of the voting
power of the then-outstanding shares of stock of the Corporation entitled to
vote in the election of directors (the "Voting Stock"), voting together as a
single class. Such affirmative vote shall be required notwithstanding the fact
that no vote may be required, or that a lesser percentage may be specified, by
law or by any other provisions of this Certificate of Incorporation or any
Preferred
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Stock Designation or in any agreement with any national securities exchange or
quotation system or otherwise.
The term "Business Combination" as used in this Article EIGHTH shall mean
any transaction which is referred to in any one or more of Paragraphs 1 through
5 of Section A of this Article EIGHTH.
B. The provisions of Section A of this Article EIGHTH shall not be
applicable to any particular Business Combination, and such Business Combination
shall require only the affirmative vote of the majority of the outstanding
shares of capital stock entitled to vote, or such vote as is required by law or
by this Certificate of Incorporation, if, in the case of any Business
Combination that does not involve any cash or other consideration being received
by the stockholders of the Corporation solely in their capacity as stockholders
of the Corporation, the condition specified in the following Paragraph 1 is met
or, in the case of any other Business Combination, all of the conditions
specified in either of the following Paragraphs 1 and 2 are met:
1. The Business Combination shall have been approved by a majority of the
Disinterested Directors (as hereinafter defined).
2. All of the following conditions shall have been met:
(a) The aggregate amount of the cash and the Fair Market Value as of the
date of the consummation of the Business Combination of consideration
other than cash to be received per share by the holders of Common
Stock in such Business Combination shall at least be equal to the
higher of the following:
I. (if applicable) the Highest Per Share Price, including any
brokerage commissions, transfer taxes and soliciting dealers'
fees, paid by the Interested Stockholder or any of its Affiliates
for any shares of Common Stock acquired by it (X) within the
two-year period immediately prior to the first public
announcement of the proposal of the Business Combination (the
"Announcement Date"), or (Y) in the transaction in which it
became an Interested Stockholder, whichever is higher.
II. the Fair Market Value per share of Common Stock on the
Announcement Date or on the date on which the Interested
Stockholder became an Interested Stockholder (such latter date is
referred to in this Article EIGHTH as the "Determination Date"),
whichever is higher.
(b) The aggregate amount of the cash and the Fair Market Value as of the
date of the consummation of the Business Combination of consideration
other than cash to be received per share by holders of shares of any
class of outstanding Voting Stock other than Common Stock shall be at
least equal to the highest of the following (it being intended that
the requirements of this subparagraph (b) shall be required to be met
with respect to every such class of outstanding Voting Stock, whether
or not the
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Interested Stockholder has previously acquired any shares of a
particular class of Voting Stock):
I. (if applicable) the Highest Per Share Price (as hereinafter
defined), including any brokerage commissions, transfer taxes and
soliciting dealers' fees, paid by the Interested Stockholder for
any shares of such class of Voting Stock acquired by it (X)
within the two-year period immediately prior to the Announcement
Date, or (Y) in the transaction in which it became an Interested
Stockholder, whichever is higher;
II. (if applicable) the highest preferential amount per share to
which the holders of shares of such class of Voting Stock are
entitled in the event of any voluntary or involuntary
liquidation, dissolution or winding up of the Corporation; and
III. the Fair Market Value per share of such class of Voting Stock on
the Announcement Date or on the Determination Date, whichever is
higher.
(c) The consideration to be received by holders of a particular class of
outstanding Voting Stock (including Common Stock) shall be in cash or
in the same form as the Interested Stockholder has previously paid for
shares of such class of Voting Stock. If the Interested Stockholder
has paid for shares of any class of Voting Stock with varying forms of
consideration, the form of consideration to be received per share by
holders of shares of such class of Voting Stock shall be either cash
or the form used to acquire the largest number of shares of such class
of Voting Stock previously acquired by the Interested Stockholder. The
price determined in accordance with subparagraph B.2 of this Article
EIGHTH shall be subject to appropriate adjustment in the event of any
stock dividend, stock split, combination of shares or similar event.
(d) After such Interested Stockholder has become an Interested Stockholder
and prior to the consummation of such Business Combination; (i) except
as approved by a majority of the Disinterested Directors, there shall
have been no failure to declare and pay at the regular date therefor
any full quarterly dividends (whether or not cumulative) on any
outstanding stock having preference over the Common Stock as to
dividends or liquidation; (ii) there shall have been (X) no reduction
in the annual rate of dividends paid on the Common Stock (except as
necessary to reflect any subdivision of the Common Stock), except as
approved by a majority of the Disinterested Directors, and (Y) an
increase in such annual rate of dividends as necessary to reflect any
reclassification (including any reverse stock split),
recapitalization, reorganization or any similar transaction which has
the effect of reducing the number of outstanding shares of Common
Stock, unless the failure to so increase such annual rate is approved
by a majority of the Disinterested Directors; and (iii) neither such
Interested Stockholder nor any of its Affiliates shall have become the
beneficial owner of any additional shares of Voting Stock except as
part of the transaction which results in such Interested Stockholder
becoming an Interested Stockholder.
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(e) After such Interested Stockholder has become an Interested
Stockholder, such Interested Stockholder shall not have received the
benefit, directly or indirectly (except proportionately as a
stockholder), of any loans, advances, guarantees, pledges or other
financial assistance or any tax credits or other tax advantages
provided by the Corporation, whether in anticipation of or in
connection with such Business Combination or otherwise.
(f) A proxy or information statement describing the proposed Business
Combination and complying with the requirements of the Securities
Exchange Act of 1934 and the rules and regulations thereunder (or any
subsequent provisions replacing such Act, rules or regulations) shall
be mailed to stockholders of the Corporation at least 30 days prior to
the consummation of such Business Combination (whether or not such
proxy or information statement is required to be mailed pursuant to
such Act or subsequent provisions).
C. For the purposes of this Article EIGHTH:
1. A "Person" shall include an individual, a group acting in concert, a
corporation, a partnership, an association, a joint venture, a pool, a
joint stock company, a trust, an unincorporated organization or similar
company, a syndicate or any other group formed for the purpose of
acquiring, holding or disposing of securities.
2. "Interested Stockholder" shall mean any Person (other than the Corporation
or any holding company or Subsidiary thereof) who or which:
(a) is the beneficial owner, directly or indirectly, of more than 10% of
the voting power of the outstanding Voting Stock; or
(b) is an Affiliate of the Corporation and at any time within the two-year
period immediately prior to the date in question was the beneficial
owner, directly or indirectly, of 10% or more of the voting power of
the then-outstanding Voting Stock; or
(c) is an assignee of or has otherwise succeeded to any shares of Voting
Stock which were at any time within the two-year period immediately
prior to the date in question beneficially owned by any Interested
Stockholder, if such assignment or succession shall have occurred in
the course of a transaction or series of transactions not involving a
public offering within the meaning of the Securities Act of 1933.
3. A Person shall be a "beneficial owner" of any Voting Stock:
(a) which such Person or any of its Affiliates or Associates (as
hereinafter defined) beneficially owns, directly or indirectly within
the meaning of Rule 13d-3 under the Securities Exchange Act of 1934,
as in effect on January 1, 1997; or
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(b) which such Person or any of its Affiliates or Associates has (i) the
right to acquire (whether such right is exercisable immediately or
only after the passage of time), pursuant to any agreement,
arrangement or understanding or upon the exercise of conversion
rights, exchange rights, warrants or options, or otherwise, or (ii)
the right to vote pursuant to any agreement, arrangement or
understanding (but neither such Person nor any such Affiliate or
Associate shall be deemed to be the beneficial owner of any shares of
Voting Stock solely by reason of a revocable proxy granted for a
particular meeting of stockholders, pursuant to a public solicitation
of proxies for such meeting, and with respect to which shares neither
such Person nor any such Affiliate or Associate is otherwise deemed
the beneficial owner); or
(c) which are beneficially owned, directly or indirectly within the
meaning of Rule 13d-3 under the Securities Exchange Act of 1934, as in
effect on January 1, 1997, by any other Person with which such Person
or any of its Affiliates or Associates has any agreement, arrangement
or understanding for the purposes of acquiring, holding, voting (other
than solely by reason of a revocable proxy as described in
Subparagraph (b) of this Paragraph 3) or in disposing of any shares of
Voting Stock;
provided, however, that, in the case of any employee stock ownership or
similar plan of the Corporation or of any Subsidiary in which the
beneficiaries thereof possess the right to vote any shares of Voting Stock
held by such plan, no such plan nor any trustee with respect thereto (nor
any Affiliate of such trustee), solely by reason of such capacity of such
trustee, shall be deemed, for any purposes hereof, to beneficially own any
shares of Voting Stock held under any such plan.
4. For the purpose of determining whether a Person is an Interested
Stockholder pursuant to Paragraph 2 of this Section C, the number of shares
of Voting Stock deemed to be outstanding shall include shares deemed owned
through application of Paragraph 3 of this Section C but shall not include
any other shares of Voting Stock which may be issuable pursuant to any
agreement, arrangement or understanding, or upon exercise of conversion
rights, warrants or options, or otherwise.
5. "Affiliate" and "Associate" shall have the respective meanings ascribed to
such terms in Rule 12b-2 of the General Rules and Regulations under the
Securities Exchange Act of 1934, as in effect on January 1, 1997
6. "Subsidiary" means any corporation of which a majority of any class of
equity security is owned, directly or indirectly, by the Corporation;
provided, however, that for the purposes of the definition of Interested
Stockholder set forth in Paragraph 2 of this Section C, the term
"Subsidiary" shall mean only a corporation of which a majority of each
class of equity security is owned, directly or indirectly, by the
Corporation.
7. "Disinterested Director" means any member of the Board of Directors who is
unaffiliated with the Interested Stockholder and was a member of the Board
of Directors prior to the time that the Interested Stockholder became an
Interested Stockholder, and any director
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who is thereafter chosen to fill any vacancy on the Board of Directors or
who is elected and who, in either event, is unaffiliated with the
Interested Stockholder, and in connection with his or her initial
assumption of office is recommended for appointment or election by a
majority of Disinterested Directors then on the Board of Directors.
8. "Fair Market Value" means: (a) in the case of stock, the highest closing
sales price of the stock during the 30-day period immediately preceding the
date in question of a share of such stock of the Nasdaq System or any
system then in use, or, if such stock is admitted to trading on a principal
United States securities exchange registered under the Securities Exchange
Act of 1934, Fair Market Value shall be the highest sale price reported
during the 30-day period preceding the date in question, or, if no such
quotations are available, the Fair Market Value on the date in question of
a share of such stock as determined by the Board of Directors in good
faith, in each case with respect to any class of stock, appropriately
adjusted for any dividend or distribution in shares of such stock or in
combination or reclassification of outstanding shares of such stock into a
smaller number of shares of such stock, and (b) in the case of property
other than cash or stock, the Fair Market Value of such property on the
date in question as determined by the Board of Directors in good faith.
9. Reference to "Highest Per Share Price" shall in each case with respect to
any class of stock reflect an appropriate adjustment for any dividend or
distribution in shares of such stock or any stock split or reclassification
of outstanding shares of such stock into a greater number of shares of such
stock or any combination or reclassification of outstanding shares of such
stock into a smaller number of shares of such stock.
10. In the event of any Business Combination in which the Corporation survives,
the phrase "consideration other than cash to be received" as used in
Subparagraphs (a) and (b) of Paragraph 2 of Section B of this Article
EIGHTH shall include the shares of Common Stock and/or the shares of any
other class of outstanding Voting Stock retained by the holders of such
shares.
D. A majority of the Disinterested Directors of the Corporation shall have
the power and duty to determine for the purposes of this Article EIGHTH, on the
basis of information known to them after reasonable inquiry, (a) whether a
person is an Interested Stockholder; (b) the number of shares of Voting Stock
beneficially owned by any person; (c) whether a person is an Affiliate or
Associate of another; and (d) whether the assets which are the subject of any
Business Combination have, or the consideration to be received for the issuance
or transfer of securities by the Corporation or any Subsidiary in any Business
Combination has an aggregate Fair Market Value equaling or exceeding 25% of the
combined assets of the Corporation and its Subsidiaries. A majority of the
Disinterested Directors shall have the further power to interpret all of the
terms and provisions of this Article EIGHTH.
E. Nothing contained in this Article EIGHTH shall be construed to relieve
any Interested Stockholder from any fiduciary obligation imposed by law.
F. Notwithstanding any other provisions of this Certificate of
Incorporation or any provision of law which might otherwise permit a lesser vote
or no vote, but in addition to any
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affirmative vote of the holders of any particular class or series of the Voting
Stock required by law, this Certificate of Incorporation or any Preferred Stock
Designation, the affirmative vote of the holders of at least 80% of the voting
power of all of the then-outstanding shares of the Voting Stock, voting together
as a single class, shall be required to alter, amend or repeal this Article
EIGHTH.
NINTH: The Board of Directors of the Corporation, when evaluating any offer
of another Person (as defined in Article EIGHTH hereof) to (A) make a tender or
exchange offer for any equity security of the Corporation, (B) merge or
consolidate the Corporation with another corporation or entity or (C) purchase
or otherwise acquire all or substantially all of the properties and assets of
the Corporation, may, in connection with the exercise of its judgment in
determining what is in the best interest of the Corporation and its
stockholders, give due consideration to all relevant factors, including, without
limitation, the social and economic effect of acceptance of such offer on the
Corporation's present and future customers and employees and those of its
Subsidiaries (as defined in Article EIGHTH hereof); on the communities in which
the Corporation and its Subsidiaries operate or are located; on the ability of
the Corporation to fulfill its corporate objectives as a financial institution
holding company and on the ability of its subsidiary financial institution to
fulfill the objectives of a federally insured financial institution under
applicable statutes and regulations.
TENTH:
A. Except as set forth in Section B of this Article TENTH, in addition to
any affirmative vote of stockholders required by law or this Certificate of
Incorporation, any direct or indirect purchase or other acquisition by the
Corporation of any Equity Security (as hereinafter defined) of any class from
any Interested Person (as hereinafter defined) shall require the affirmative
vote of the holders of at least 80% of the Voting Stock of the Corporation that
is not beneficially owned (for purposes of this Article TENTH beneficial
ownership shall be determined in accordance with Section C.2(b) of Article
FOURTH hereof) by such Interested Person, voting together as a single class.
Such affirmative vote shall be required notwithstanding the fact that no vote
may be required, or that a lesser percentage may be specified, by law or by any
other provisions of this Certificate of Incorporation or any Preferred Stock
Designation or in any agreement with any national securities exchange or
quotation system, or otherwise. Certain defined terms used in this Article TENTH
are as set forth in Section C below.
B. The provisions of Section A of this Article TENTH shall not be
applicable with respect to:
1. any purchase or other acquisition of securities made as part of a tender or
exchange offer by the Corporation or a Subsidiary (which term, as used in
this Article TENTH, is as defined in the first clause of Section C.6 of
Article EIGHTH hereof) of the Corporation to purchase securities of the
same class made on the same terms to all holders of such securities and
complying with the applicable requirements of the Securities Exchange Act
of 1934 and the rules and regulations thereunder (or any subsequent
provision replacing such Act, rules or regulations);
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2. any purchase or acquisition made pursuant to an open market purchase
program approved by a majority of the Board of Directors, including a
majority of the Disinterested Directors (which term, as used in this
Article TENTH, is as defined in Article EIGHTH hereof); or
3. any purchase or acquisition which is approved by a majority of the Board of
Directors, including a majority of the Disinterested Directors, and which
is made at no more than the Market Price (as hereinafter defined), on the
date that the understanding between the Corporation and the Interested
Person is reached with respect to such purchase (whether or not such
purchase is made or a written agreement relating to such purchase is
executed on such date), of shares of the class of Equity Security to be
purchased.
C. For the purposes of this Article TENTH:
1. The term Interested Person shall mean any Person (other than the
Corporation, Subsidiaries of the Corporation, pension, profit sharing,
employee stock ownership or other employee benefit plans of the Corporation
and its Subsidiaries, entities organized or established by the Corporation
or any of its Subsidiaries pursuant to the terms of such plans and trustees
and fiduciaries with respect to any such plan acting in such capacity) that
is the direct or indirect beneficial owner of 5% or more of the Voting
Stock of the Corporation, and any Affiliate or Associate of any such
person.
2. The Market Price of shares of a class of Equity Security on any day shall
mean the highest sale price of shares of such class of Equity Security on
such day, or, if that day is not a trading day, on the trading day
immediately preceding such day, on the national securities exchange or the
Nasdaq System or any other system then in use on which such class of Equity
Security is traded.
3. The term Equity Security shall mean any security described in Section
3(a)(11) of the Securities Exchange Act of 1934, as in effect on January 1,
1997, which is traded on a national securities exchange or the Nasdaq
System or any other system then in use.
4. For purposes of this Article TENTH, all references to the term Interested
Stockholder in the definition of Disinterested Director shall be deemed to
refer to the term Interested Person.
ELEVENTH:
A. Each person who was or is made a party or is threatened to be made a
party to or is otherwise involved in any action, suit or proceeding, whether
civil, criminal, administrative or investigative (hereinafter a "proceeding"),
by reason of the fact that he or she is or was a director or an officer of the
Corporation or is or was serving at the request of the Corporation as a director
or officer of another corporation, including, without limitation, any Subsidiary
(as defined in Article EIGHTH herein), partnership, joint venture, trust or
other enterprise, including service with respect to an employee benefit plan
(hereinafter an "indemnitee"), whether the basis of such proceeding is alleged
action in an official capacity as a director or officer or in any other capacity
while serving as a director or officer, shall be indemnified and held harmless
by the Corporation to the fullest extent authorized by the Delaware General
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Corporation Law, as the same exists or may hereafter be amended (but, in the
case of any such amendment, only to the extent that such amendment permits the
Corporation to provide broader indemnification rights than such law permitted
the Corporation to provide prior to such amendment), against all expense,
liability and loss (including attorneys' fees, judgments, fines, ERISA excise
taxes or penalties and amounts paid in settlement) reasonably incurred or
suffered by such indemnitee in connection therewith; provided, however, that,
except as provided in Section C hereof with respect to proceedings to enforce
rights to indemnification, the Corporation shall indemnify any such indemnitee
in connection with a proceeding (or part thereof) initiated by such indemnitee
only if such proceeding (or part thereof) was authorized by the Board of
Directors of the Corporation.
B. The right to indemnification conferred in Section A of this Article
shall include the right to be paid by the Corporation the expenses incurred in
defending any such proceeding in advance of its final disposition (hereinafter
an "advancement of expenses"); provided, however, that, if the Delaware General
Corporation Law requires, an advancement of expenses incurred by an indemnitee
in his or her capacity as a director or officer (and not in any other capacity
in which service was or is rendered by such indemnitee, including, without
limitation, service to an employee benefit plan) shall be made only upon
delivery to the Corporation of an undertaking (hereinafter an "undertaking"), by
or on behalf of such indemnitee, to repay all amounts so advanced if it shall
ultimately be determined by final judicial decision from which there is no
further right to appeal (hereinafter a "final adjudication"), that such
indemnitee is not entitled to be indemnified for such expenses under this
Section or otherwise. The rights to indemnification and to the advancement of
expenses conferred in Sections A and B of this Article shall be contract rights
and such rights shall continue as to an indemnitee who has ceased to be a
director or officer and shall inure to the benefit of the indemnitee's heirs,
executors and administrators.
C. If a claim under Section A or B of this Article is not paid in full by
the Corporation within sixty days after a written claim has been received by the
Corporation, except in the case of a claim for an advancement of expenses, in
which case the applicable period shall be twenty days, the indemnitee may at
any time thereafter bring suit against the Corporation to recover the unpaid
amount of the claim. If successful in whole or in part in any such suit, or in a
suit brought by the Corporation to recover an advancement of expenses pursuant
to the terms of an undertaking, the indemnitee shall also be entitled to be paid
the expense of prosecuting or defending such suit. In (i) any suit brought by
the indemnitee to enforce a right to indemnification hereunder (but not in a
suit brought by the indemnitee to enforce a right to an advancement of expenses)
it shall be a defense that, and (ii) in any suit by the Corporation to recover
an advancement of expenses pursuant to the terms of an undertaking the
Corporation shall be entitled to recover such expenses upon a final adjudication
that, the indemnitee has not met any applicable standard for indemnification set
forth in the Delaware General Corporation Law. Neither the failure of the
Corporation (including its Board of Directors, independent legal counsel, or its
stockholders) to have made a determination prior to the commencement of such
suit that indemnification of the indemnitee is proper in the circumstances
because the indemnitee has met the applicable standard of conduct set forth in
the Delaware General Corporation Law, nor an actual determination by the
Corporation (including its Board of Directors, independent legal counsel, or its
stockholders) that the indemnitee has not met such applicable standard of
conduct, shall create a presumption that the indemnitee has not met the
applicable standard of
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conduct or, in the case of such a suit brought by the indemnitee, be a defense
to such suit. In any suit brought by the indemnitee to enforce a right to
indemnification or to an advancement of expenses hereunder, or by the
Corporation to recover an advancement of expenses pursuant to the terms of an
undertaking, the burden of proving that the indemnitee is not entitled to be
indemnified, or to such advancement of expenses, under this Article or otherwise
shall be on the Corporation.
D. The rights to indemnification and to the advancement of expenses
conferred in this Article shall not be exclusive of any other right which any
person may have or hereafter acquire under any statute, the Corporation's
Certificate of Incorporation, By-laws, agreement, vote of stockholders or
Disinterested Directors or otherwise.
E. The Corporation may maintain insurance, at its expense, to protect
itself and any director, officer, employee or agent of the Corporation or
another corporation, partnership, joint venture, trust or other enterprise
against any expense, liability or loss, whether or not the Corporation would
have the power to indemnify such person against such expense, liability or loss
under the Delaware General Corporation Law.
F. The Corporation may, to the extent authorized from time to time by a
majority vote of the disinterested directors, grant rights to indemnification
and to the advancement of expenses to any employee or agent of the Corporation
to the fullest extent of the provisions of this Article with respect to the
indemnification and advancement of expenses of directors and officers of the
Corporation.
TWELFTH: A director of this Corporation shall not be personally liable
to the Corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director, except for liability (i) for any breach of the
director's duty of loyalty to the Corporation or its stockholders, (ii) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the Delaware General
Corporation Law, or (iv) for any transaction from which the director derived an
improper personal benefit. If the Delaware General Corporation Law is hereafter
amended to further eliminate or limit the personal liability of directors, then
the liability of a director of the Corporation shall be eliminated or limited to
the fullest extent permitted by the Delaware General Corporation Law, as so
amended.
Any repeal or modification of the foregoing paragraph by the stockholders
of the Corporation shall not adversely affect any right or protection of a
director of the Corporation existing at the time of such repeal or modification.
THIRTEENTH: The Corporation reserves the right to amend or repeal any
provision contained in this Certificate of Incorporation in the manner
prescribed by the laws of the State of Delaware and all rights conferred upon
stockholders are granted subject to this reservation; provided, however, that,
notwithstanding any other provision of this Certificate of Incorporation or any
provision of law which might otherwise permit a lesser vote or no vote, but in
addition to any vote of the holders of any class or series of the stock of this
Corporation required by law or by this Certificate of Incorporation, the
affirmative vote of the holders of at least 80% of the voting power of all of
the then-outstanding shares of the capital stock of the Corporation entitled
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to vote generally in the election of directors (after giving effect to the
provisions of Article FOURTH), voting together as a single class, shall be
required to amend or repeal this Article THIRTEENTH, clauses B or C of Article
FOURTH, clauses C or D of Article FIFTH, Article SIXTH, Article SEVENTH, Article
EIGHTH, Article TENTH or Article ELEVENTH.
FOURTEENTH: The name and mailing address of the sole incorporator are
as follows:
NAME MAILING ADDRESS
-------------------- -----------------------------------------
Douglas Stewart Peoples-Sidney Financial Corporation
101 East Court Street
Sidney, Ohio 45365-3021
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I, THE UNDERSIGNED, being the incorporator, for the purpose of forming
a corporation under the laws of the State of Delaware, do make, file and record
this Certificate of Incorporation, do certify that the facts herein stated are
true, and, accordingly, have hereto set my hand this 24th day of January, 1997.
/s/ Douglas Stewart
-----------------------------------------
Douglas Stewart, Incorporator
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Exhibit 3.2
PEOPLES-SIDNEY FINANCIAL CORPORATION
BY-LAWS
ARTICLE I
STOCKHOLDERS
Section 1. Annual Meeting.
An annual meeting of the stockholders, for the election of directors to
succeed those whose terms expire and for the transaction of such other business
as may properly come before the meeting, shall be held at such place, on such
date, and at such time as the Board of Directors shall each year fix.
Section 2. Special Meetings.
Subject to the rights of the holders of any class or series of
preferred stock of the Corporation, special meetings of stockholders of the
Corporation may be called only by the Board of Directors pursuant to a
resolution adopted by a majority of the total number of directors which the
Corporation would have if there were no vacancies on the Board of Directors
(hereinafter the "Whole Board").
Section 3. Notice of Meetings.
Written notice of the place, date, and time of all meetings of the
stockholders shall be given, not less than ten nor more than 60 days before the
date on which the meeting is to be held, to each stockholder entitled to vote at
such meeting, except as otherwise provided herein or required by law (meaning,
here and hereinafter, as required from time to time by the Delaware General
Corporation Law or the Certificate of Incorporation of the Corporation).
When a meeting is adjourned to another place, date or time, written
notice need not be given of the adjourned meeting if the place, date and time
thereof are announced at the meeting at which the adjournment is taken;
provided, however, that if the date of any adjourned meeting is more than 30
days after the date for which the meeting was originally noticed, or if a new
record date is fixed for the adjourned meeting, written notice of the place,
date and time of the adjourned meeting shall be given in conformity herewith. At
any adjourned meeting, any business may be transacted which might have been
transacted at the original meeting.
Section 4. Quorum.
At any meeting of the stockholders, the holders of at least one-third
of all of the shares of the stock entitled to vote at the meeting, present in
person or by proxy, shall constitute a quorum for all purposes, unless or except
to the extent that the presence of a larger number may be required by law. Where
a separate vote by a class or classes is required, a majority of the shares of
such class or classes, present in person or represented by proxy, shall
constitute a quorum entitled to take action with respect to that vote on that
matter.
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If a quorum shall fail to attend any meeting, the chairman of the
meeting or the holders of a majority of the shares of stock entitled to vote who
are present, in person or by proxy, may adjourn the meeting to another place,
date or time.
If a notice of any adjourned special meeting of stockholders is sent to
all stockholders entitled to vote thereat, stating that it will be held with
those present constituting a quorum, then except as otherwise required by law,
those present at such adjourned meeting shall constitute a quorum, and all
matters shall be determined by a majority of the votes cast at such meeting.
Section 5. Organization.
Such person as the Board of Directors may have designated or, in the
absence of such a person, the President of the Corporation or, in his or her
absence, such person as may be chosen by the holders of a majority of the shares
entitled to vote who are present, in person or by proxy, shall call to order any
meeting of the stockholders and act as chairman of the meeting. In the absence
of the Secretary of the Corporation, the secretary of the meeting shall be such
person as the chairman appoints.
Section 6. Conduct of Business.
(a) The chairman of any meeting of stockholders shall determine the
order of business and the procedure at the meeting, including such regulation of
the manner of voting and the conduct of discussion as seem to him or her in
order.
(b) At any annual meeting of the stockholders, only such business shall
be conducted as shall have been brought before the meeting (i) by or at the
direction of the Board of Directors or (ii) by any stockholder of the
Corporation who is entitled to vote with respect thereto and who complies with
the notice procedures set forth in this Section 6(b). For business to be
properly brought before an annual meeting by a stockholder, the stockholder must
have given timely notice thereof in writing to the Secretary of the Corporation.
To be timely, a stockholder's notice must be delivered or mailed to and received
at the principal executive offices of the Corporation not less than 60 days
prior to the anniversary of the preceding year's annual meeting; provided,
however, that in the event that the date of the annual meeting is advanced by
more than twenty days, or delayed by more than 60 days from such anniversary
date, notice by the stockholder to be timely must be so delivered not later than
the close of business on the later of the 60th day prior to such annual meeting
or the tenth day following the day on which notice of the date of the annual
meeting was mailed or public announcement of the date of such meeting is first
made. A stockholder's notice to the Secretary shall set forth as to each matter
such stockholder proposes to bring before the annual meeting (i) a brief
description of the business desired to be brought before the annual meeting and
the reasons for conducting such business at the annual meeting, (ii) the name
and address, as they appear on the Corporation's books, of the stockholder who
proposed such business, (iii) the class and number of shares of the
Corporation's capital stock that are beneficially owned by such stockholder and
(iv) any material interest of such stockholder in such business. Notwithstanding
anything in these Bylaws to the contrary, no business shall be brought before or
conducted at an annual meeting except in accordance with the provisions of this
Section 6(b). The officer of the Corporation or other person presiding over the
annual meeting shall, if the facts so warrant, determine and
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declare to the meeting that business was not properly brought before the meeting
in accordance with the provisions of this Section 6(b) and, if he should so
determine, he shall so declare to the meeting and any such business so
determined to be not properly brought before the meeting shall not be
transacted.
At any special meeting of the stockholders, only such business shall be
conducted as shall have been brought before the meeting by or at the direction
of the Board of Directors.
(c) Only persons who are nominated in accordance with the procedures
set forth in these By-laws shall be eligible for election as directors.
Nominations of persons for election to the Board of Directors of the Corporation
may be made at a meeting of stockholders at which directors are to be elected
only (i) by or at the direction of the Board of Directors or (ii) by any
stockholder of the Corporation entitled to vote for the election of directors at
the meeting who complies with the notice procedures set forth in this Section
6(c). Such nominations, other than those made by or at the direction of the
Board of Directors, shall be made by timely notice in writing to the Secretary
of the Corporation and contain the following information and any other
information reasonably requested by the Board of Directors: (i) the personal
history, business background and experience of the nominee, including his or her
material business activities and affiliations during the past five years from
the date of nomination, (ii) a description of any material pending legal or
administrative proceedings in which the nominee is a party and any criminal
indictment or conviction of such nominee by a State or Federal court, (iii) a
statement of the assets and liabilities of the nominee as of the end of the
fiscal year for each of the five fiscal years immediately preceding the date of
the nomination, together with related statements of income and source or
application of funds for each of the fiscal years then concluded, all prepared
in accordance with generally accepted accounting principles consistently
applied, and an interim statement of the assets and liabilities of the nominee,
together with related statements of income and source and application of funds,
as of a date not more than ninety (90) days prior to the date of his or her
nomination, and (iv) a notarized certification from the nominee indicating
whether the nominee has been the subject of any criminal, civil or
administrative judgements, consents, undertakings or orders, or any past or
ongoing indictments, formal investigations, examinations, or administrative
proceeding (excluding routine or customary audits, inspections and
investigations) issued by any federal or state court, any department, agency, or
commission of the United States Government, any state or municipality, any
self-regulatory trade or professional organization or any foreign government or
governmental agency, which involve: (a) commission of a felony, fraud, moral
turpitude, dishonesty or breach of trust; (b) violation of securities or
commodities laws or regulations; (c) violation of depository institution laws or
regulations; (d) violation of housing authority laws or regulations; (e)
violation of the rules, regulations, codes of professional conduct or ethics of
a self-regulatory trade or professional organization; and (f) adjudication of
bankruptcy or insolvency or appointment of a receiver, conservator, trustee,
referee, or guardian. To be timely, a stockholder's notice shall be delivered or
mailed to and received at the principal executive offices of the Corporation not
less than 30 days prior to the date of the meeting; provided, however, that in
the event that less than 40 days' notice of the date of the meeting is given or
made to stockholders, notice by the stockholder to be timely must be so received
not later than the close of business on the tenth day following the day on which
such notice of the date of the meeting was mailed. Such stockholder's notice
shall set forth (i) as to each person whom such stockholder proposes to nominate
for election or re-election as a director, all information relating
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to such person that is required to be disclosed in solicitations of proxies for
election of directors, or is otherwise required, in each case pursuant to
Regulation 14A under the Securities Exchange Act of 1934, as amended (including
such person's written consent to being named in the proxy statement as a nominee
and to serving as a director if elected); and (ii) as to the stockholder giving
the notice: (x) the name and address, as they appear on the Corporation's books,
of such stockholder and (y) the class and number of shares of the Corporation's
capital stock that are beneficially owned by such stockholder. At the request of
the Board of Directors, any person nominated by the Board of Directors for
election as a director shall furnish to the Secretary of the Corporation that
information required to be set forth in a stockholder's notice of nomination
which pertains to the nominee. No person shall be eligible for election as a
director of the Corporation unless nominated in accordance with the provisions
of this Section 6(c). The officer of the Corporation or other person presiding
at the meeting shall, if the facts so warrant, determine that a nomination was
not made in accordance with such provisions and, if he or she should so
determine, he or she shall so declare to the meeting and the defective
nomination shall be disregarded.
Section 7. Proxies and Voting.
At any meeting of the stockholders, every stockholder entitled to vote
may vote in person or by proxy authorized by an instrument in writing (or as
otherwise permitted under applicable law) by the stockholder or his duly
authorized attorney-in-fact filed in accordance with the procedure established
for the meeting. Proxies solicited on behalf of the management shall be voted as
directed by the stockholder or in the absence of such direction, as determined
by a majority of the Board of Directors. No proxy shall be valid after eleven
months from the date of its execution except for a proxy coupled with an
interest.
Each stockholder shall have one vote for every share of stock entitled
to vote which is registered in his or her name on the record date for the
meeting, except as otherwise provided herein or in the Certificate of
Incorporation of the Corporation or as required by law.
All voting, including on the election of directors but excepting where
otherwise required by law, may be by a voice vote; provided, however, that upon
demand therefore by a stockholder entitled to vote or his or her proxy, a stock
vote shall be taken. Every stock vote shall be taken by ballot, each of which
shall state the name of the stockholder or proxy voting and such other
information as may be required under the procedure established for the meeting.
Every vote taken by ballot shall be counted by an inspector or inspectors
appointed by the chairman of the meeting.
All elections shall be determined by a plurality of the votes cast, and
except as otherwise required by law or as provided in the Certificate of
Incorporation, all other matters shall be determined by a majority of the votes
cast.
Section 8. Stock List.
The officer who has charge of the stock transfer books of the
Corporation shall prepare and make, in the time and manner required by
applicable law, a list of stockholders entitled to vote and shall make such list
available for such purposes, at such places, at such times and to
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such persons as required by applicable law. The stock transfer books shall be
the only evidence as to the identity of the stockholders entitled to examine the
stock transfer books or to vote in person or by proxy at any meeting of
stockholders.
Section 9. Consent of Stockholders in Lieu of Meeting.
Subject to the rights of the holders of any class or series of
preferred stock of the Corporation, any action required or permitted to be taken
by the stockholders of the Corporation must be effected at a duly called annual
or special meeting of stockholders of the Corporation and may not be effected by
any consent in writing by such stockholders.
Section 10. Inspectors of Election
The Board of Directors shall, in advance of any meeting of
stockholders, appoint one or more persons as inspectors of election, to act at
the meeting or any adjournment thereof and make a written report thereof, in
accordance with applicable law.
ARTICLE II
BOARD OF DIRECTORS
Section 1. General Powers, Number and Term of Office.
The business and affairs of the Corporation shall be managed by or
under the direction of the Board of Directors. The number of directors shall be
as provided for in the Certificate of Incorporation. The Board of Directors
shall annually elect a Chairman of the Board and a President from among its
members and shall designate, when present, either the Chairman of the Board or
the President to preside at its meetings.
The directors, other than those who may be elected by the holders of
any class or series of preferred stock, shall be divided into three classes, as
nearly equal in number as reasonably possible, with the term of office of the
first class to expire at the conclusion of the first annual meeting of
stockholders, the term of office of the second class to expire at the conclusion
of the annual meeting of stockholders one year thereafter and the term of office
of the third class to expire at the conclusion of the annual meeting of
stockholders two years thereafter, with each director to hold office until his
or her successor shall have been duly elected and qualified. At each annual
meeting of stockholders, commencing with the first annual meeting, directors
elected to succeed those directors whose terms expire shall be elected for a
term of office to expire at the third succeeding annual meeting of stockholders
after their election, with each director to hold office until his or her
successor shall have been duly elected and qualified.
Section 2. Vacancies and Newly Created Directorships.
Subject to the rights of the holders of any class or series of
preferred stock then outstanding, newly created directorships resulting from any
increase in the authorized number of directors or any vacancies in the Board of
Directors resulting from death, resignation, retirement, disqualification,
removal from office or other cause may be filled only by a majority
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vote of the directors then in office, though less than a quorum, and directors
so chosen shall hold office for a term expiring at the annual meeting of
stockholders at which the term of office of the class to which they have been
elected expires, and until such director's successor shall have been duly
elected and qualified. No decrease in the number of authorized directors
constituting the Board shall shorten the term of any incumbent director.
Section 3. Regular Meetings.
Regular meetings of the Board of Directors shall be held at such place
or places, on such date or dates, and at such time or times as shall have been
established by the Board of Directors and publicized among all directors. A
notice of each regular meeting shall not be required.
Section 4. Special Meetings.
Special meetings of the Board of Directors may be called by one-third
(1/3) of the directors then in office (rounded up to the nearest whole number)
or by the President and shall be held at such place, on such date, and at such
time as they or he or she shall fix. Notice of the place, date, and time of each
such special meeting shall be given to each director by whom it is not waived by
mailing written notice not less than five days before the meeting or by
telegraphing or telexing or by facsimile transmission of the same not less than
twenty-four (24) hours before the meeting. Unless otherwise indicated in the
notice thereof, any and all business may be transacted at a special meeting.
Section 5. Quorum.
At any meeting of the Board of Directors, a majority of the authorized
number of directors then constituting the Board shall constitute a quorum for
all purposes. If a quorum shall fail to attend any meeting, a majority of those
present may adjourn the meeting to another place, date, or time, without further
notice or waiver thereof.
Section 6. Participation in Meetings By Conference Telephone.
Members of the Board of Directors, or of any committee thereof, may
participate in a meeting of such Board or committee by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other and such participation shall
constitute presence in person at such meeting.
Section 7. Conduct of Business.
At any meeting of the Board of Directors, business shall be transacted
in such order and manner as the Board may from time to time determine, and all
matters shall be determined by the vote of a majority of the directors present,
except as otherwise provided herein or required by law. Action may be taken by
the Board of Directors without a meeting if all members thereof consent thereto
in writing, and the writing or writings are filed with the minutes of
proceedings of the Board of Directors.
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Section 8. Powers.
The Board of Directors may, except as otherwise required by law,
exercise all such powers and do all such acts and things as may be exercised or
done by the Corporation, including, without limiting the generality of the
foregoing, the unqualified power:
(1) To declare dividends from time to time in accordance with law;
(2) To purchase or otherwise acquire any property, rights or privileges
on such terms as it shall determine;
(3) To authorize the creation, making and issuance, in such form as it
may determine, of written obligations of every kind, negotiable or
non-negotiable, secured or unsecured, and to do all things necessary in
connection therewith;
(4) To remove any officer of the Corporation with or without cause, and
from time to time to devolve the powers and duties of any officer upon any other
person for the time being;
(5) To confer upon any officer of the Corporation the power to appoint,
remove and suspend subordinate officers, employees and agents;
(6) To adopt from time to time such stock, option, stock purchase,
bonus or other compensation plans for directors, officers, employees and agents
of the Corporation and its subsidiaries as it may determine;
(7) To adopt from time to time such insurance, retirement, and other
benefit plans for directors, officers, employees and agents of the Corporation
and its subsidiaries as it may determine; and
(8) To adopt from time to time regulations, not inconsistent with these
By-laws, for the management of the Corporation's business and affairs.
Section 9. Compensation of Directors.
Directors, as such, may receive, pursuant to resolution of the Board of
Directors, fixed fees and other compensation for their services as directors,
including, without limitation, their services as members of committees of the
Board of Directors.
Section 10. Age Limitation.
No person 75 years of age shall be eligible for election, reelection,
appointment, or reappointment to the Board of Directors. No director shall serve
as such beyond the annual meeting of the Corporation immediately following the
director becoming 75.
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Section 11. Qualifications.
Any member of the Board of Directors shall, in order to qualify as
such, be domiciled in or have his or her primary place of business located in
Shelby County, Ohio or its contiguous counties.
ARTICLE III
COMMITTEES
Section 1. Committees of the Board of Directors.
The Board of Directors, by a vote of a majority of the Board of
Directors, may from time to time designate committees of the Board, with such
lawfully delegable powers and duties as it thereby confers, to serve at the
pleasure of the Board and shall, for those committees and any others provided
for herein, elect a director or directors to serve as the member or members,
designating, if it desires, other directors as alternate members who may replace
any absent or disqualified member at any meeting of the committee. Any committee
so designated may exercise the power and authority of the Board of Directors to
declare a dividend, to authorize the issuance of stock or to adopt a certificate
of ownership and merger pursuant to Section 253 of the Delaware General
Corporation Law if the resolution which designated the committee or a
supplemental resolution of the Board of Directors shall so provide. In the
absence or disqualification of any member of any committee and any alternate
member in his or her place, the member or members of the committee present at
the meeting and not disqualified from voting, whether or not he or she or they
constitute a quorum, may by unanimous vote appoint another member of the Board
of Directors to act at the meeting in the place of the absent or disqualified
member.
Section 2. Conduct of Business.
Each committee may determine the procedural rules for meeting and
conducting its business and shall act in accordance therewith, except as
otherwise provided herein or required by law. Adequate provision shall be made
for notice to members of all meetings; one-third (1/3) of the members shall
constitute a quorum unless the committee shall consist of one or two members, in
which event one member shall constitute a quorum; and all matters shall be
determined by a majority vote of the members present. Action may be taken by any
committee without a meeting if all members thereof consent thereto in writing,
and the writing or writings are filed with the minutes of the proceedings of
such committee.
Section 3. Nominating Committee.
The Board of Directors may appoint a Nominating Committee of the Board,
consisting of not less than three members, one of which shall be the President
if, and only so long as, the President remains in office as a member of the
Board of Directors. The Nominating Committee shall have authority (i) to review
any nominations for election to the Board of Directors made by a stockholder of
the Corporation pursuant to Section 6(c)(ii) of Article I of these By-laws in
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order to determine compliance with such By-law and (ii) to recommend to the
Whole Board nominees for election to the Board of Directors to replace those
directors whose terms expire at the annual meeting of stockholders next ensuing.
ARTICLE IV
OFFICERS
Section 1. Generally.
(a) The Board of Directors as soon as may be practicable after the
annual meeting of stockholders shall choose a President, a Secretary and a
Treasurer and from time to time may choose such other officers as it may deem
proper. The President shall be chosen from among the directors. Any number of
offices may be held by the same person.
(b) The term of office of all officers shall be until the next annual
election of officers and until their respective successors are chosen, but any
officer may be removed from office at any time by the affirmative vote of a
majority of the authorized number of directors then constituting the Board of
Directors.
(c) All officers chosen by the Board of Directors shall each have such
powers and duties as generally pertain to their respective offices, subject to
the specific provisions of this Article IV. Such officers shall also have such
powers and duties as from time to time may be conferred by the Board of
Directors or by any committee thereof.
Section 2. President.
The President shall be the chief executive officer and, subject to the
control of the Board of Directors, shall have general power over the management
and oversight of the administration and operation of the Corporation's business
and general supervisory power and authority over its policies and affairs. The
President shall see that all orders and resolutions of the Board of Directors
and of any committee thereof are carried into effect.
Each meeting of the stockholders and of the Board of Directors shall be
presided over by such officer as has been designated by the Board of Directors
or, in his absence, by such officer or other person as is chosen at the meeting.
The Secretary or, in the Secretary's absence, the General Counsel of the
Corporation or such officer as has been designated by the Board of Directors or,
in his absence, such officer or other person as is chosen by the person
presiding, shall act as secretary of each such meeting.
Section 3. Vice President.
The Vice President or Vice Presidents, if any, shall perform the duties
of the President in his absence or during his disability to act. In addition,
the Vice Presidents shall perform the duties and exercise the powers usually
incident to their respective offices and/or such other duties and powers as may
be properly assigned to them from time to time by the Board of Directors, the
Chairman of the Board or the President.
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Section 4. Secretary.
The Secretary or an Assistant Secretary shall issue notices of
meetings, shall keep their minutes, shall have charge of the seal and the
corporate books, shall perform such other duties and exercise such other powers
as are usually incident to such offices and/or such other duties and powers as
are properly assigned thereto by the Board of Directors, the Chairman of the
Board or the President.
Section 5. Treasurer.
The Treasurer shall have charge of all monies and securities of the
Corporation, other than monies and securities of any division of the Corporation
which has a treasurer or financial officer appointed by the Board of Directors,
and shall keep regular books of account. The funds of the Corporation shall be
deposited in the name of the Corporation by the Treasurer with such banks or
trust companies or other entities as the Board of Directors from time to time
shall designate. The Treasurer shall sign or countersign such instruments as
require his signature, shall perform all such duties and have all such powers as
are usually incident to such office and/or such other duties and powers as are
properly assigned to him by the Board of Directors, the Chairman of the Board or
the President, and may be required to give bond, payable by the Corporation, for
the faithful performance of his duties in such sum and with such surety as may
be required by the Board of Directors.
Section 6. Assistant Secretaries and Other Officers.
The Board of Directors may appoint one or more assistant secretaries
and one or more assistant treasurers, or one appointee to both such positions,
which officers shall have such powers and shall perform such duties as are
provided in these By-laws or as may be assigned to them by the Board of
Directors, the Chairman of the Board or the President.
Section 7. Action with Respect to Securities of Other Corporations
Unless otherwise directed by the Board of Directors, the President or
any officer of the Corporation authorized by the President shall have power to
vote and otherwise act on behalf of the Corporation, in person or by proxy, at
any meeting of stockholders of or with respect to any action of stockholders of
any other corporation in which this Corporation may hold securities and
otherwise to exercise any and all rights and powers which this Corporation may
possess by reason of its ownership of securities in such other Corporation.
ARTICLE V
STOCK
Section 1. Certificates of Stock.
Each stockholder shall be entitled to a certificate signed by, or in
the name of the Corporation by, the President or a Vice President, and by the
Secretary or an Assistant
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Secretary, or the Treasurer or an Assistant Treasurer, certifying the number of
shares owned by him or her. Any or all of the signatures on the certificate may
be by facsimile.
Section 2. Transfers of Stock.
Transfers of stock shall be made only upon the transfer books of the
Corporation kept at an office of the Corporation or by transfer agents
designated to transfer shares of the stock of the Corporation. Except where a
certificate is issued in accordance with Section 4 of Article V of these
By-laws, an outstanding certificate for the number of shares involved shall be
surrendered for cancellation before a new certificate is issued therefore.
Section 3. Record Date.
In order that the Corporation may determine the stockholders entitled
to notice of or to vote at any meeting of stockholders, or to receive payment of
any dividend or other distribution or allotment of any rights or to exercise any
rights in respect of any change, conversion or exchange of stock or for the
purpose of any other lawful action, the Board of Directors may fix a record
date, which record date shall not precede the date on which the resolution
fixing the record date is adopted and which record date shall not be more than
60 nor less than ten days before the date of any meeting of stockholders, nor
more than 60 days prior to the time for such other action as hereinbefore
described; provided, however, that if no record date is fixed by the Board of
Directors, the record date for determining stockholders entitled to notice of or
to vote at a meeting of stockholders shall be at the close of business on the
day next preceding the day on which notice is given or, if notice is waived, at
the close of business on the day next preceding the day on which the meeting is
held, and, for determining stockholders entitled to receive payment of any
dividend or other distribution or allotment of rights or to exercise any rights
of change, conversion or exchange of stock or for any other purpose, the record
date shall be at the close of business on the day on which the Board of
Directors adopts a resolution relating thereto.
A determination of stockholders of record entitled to notice of or to
vote at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board of Directors may fix a new record date for the
adjourned meeting.
Section 4. Lost, Stolen or Destroyed Certificates.
In the event of the loss, theft or destruction of any certificate of
stock, another may be issued in its place pursuant to such regulations as the
Board of Directors may establish concerning proof of such loss, theft or
destruction and concerning the giving of a satisfactory bond or bonds of
indemnity.
Section 5. Regulations.
The issue, transfer, conversion and registration of certificates of
stock shall be governed by such other regulations as the Board of Directors may
establish.
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ARTICLE VI
NOTICES
Section 1. Notices.
Except as otherwise specifically provided herein or required by law,
all notices required to be given to any stockholder, director, officer, employee
or agent shall be in writing and may in every instance be effectively given by
hand delivery to the recipient thereof, by depositing such notice in the mail,
postage paid, by sending such notice by prepaid telegram or mailgram or by
sending such notice by facsimile machine or other electronic transmission. Any
such notice shall be addressed to such stockholder, director, officer, employee
or agent at his or her last known address as the same appears on the books of
the Corporation. The time when such notice is received, if hand delivered, or
dispatched, if delivered through the mail, by telegram or mailgram or by
facsimile machine or other electronic transmission, shall be the time of the
giving of the notice.
Section 2. Waivers.
A written waiver of any notice, signed by a stockholder, director,
officer, employee or agent, whether before or after the time of the event for
which notice is to be given, shall be deemed equivalent to the notice required
to be given to such stockholder, director, officer, employee or agent. Neither
the business nor the purpose of any meeting need be specified in such a waiver.
ARTICLE VII
MISCELLANEOUS
Section 1. Facsimile Signatures.
In addition to the provisions for use of facsimile signatures elsewhere
specifically authorized in these By-laws, facsimile signatures of any officer or
officers of the Corporation may be used whenever and as authorized by the Board
of Directors or a committee thereof.
Section 2. Corporate Seal.
The Board of Directors may provide a suitable seal, containing the name
of the Corporation, which seal shall be in the charge of the Secretary. If and
when so directed by the Board of Directors or a committee thereof, duplicates of
the seal may be kept and used by the Treasurer or by an Assistant Secretary or
Assistant Treasurer.
Section 3. Reliance upon Books, Reports and Records.
Each director, each member of any committee designated by the Board of
Directors, and each officer of the Corporation shall, in the performance of his
or her duties, be fully protected in relying in good faith upon the books of
account or other records of the Corporation and upon
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such information, opinions, reports or statements presented to the Corporation
by any of its officers or employees, or committees of the Board of Directors so
designated, or by any other person as to matters which such director or
committee member reasonably believes are within such other person's professional
or expert competence and who has been selected with reasonable care by or on
behalf of the Corporation.
Section 4. Fiscal Year.
The fiscal year of the Corporation shall be as fixed by the Board of
Directors.
Section 5. Time Periods.
In applying any provision of these By-laws which requires that an act
be done or not be done a specified number of days prior to an event or that an
act be done during a period of a specified number of days prior to an event,
calendar days shall be used, the day of the doing of the act shall be excluded
and the day of the event shall be included.
ARTICLE VIII
AMENDMENTS
The By-laws of the Corporation may be adopted, amended or repealed as
provided in Article SEVENTH of the Certificate of Incorporation of the
Corporation.
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FEDERAL STOCK CHARTER
PEOPLES FEDERAL SAVINGS AND LOAN ASSOCIATION OF SIDNEY
Section 1. Corporate Title. The full corporate title of the association
is Peoples Federal Savings and Loan Association of Sidney.
Section 2. Office. The home office shall be located in Sidney, Ohio.
Section 3. Duration. The duration of the association is perpetual.
Section 4. Purpose and Powers. The purpose of the association is to
pursue any or all of the lawful objectives of a Federal association chartered
under Section 5 of the Home Owners' Loan Act and to exercise all of the express,
implied, and incidental powers conferred thereby and by all acts amendatory
thereof and supplemental thereto, subject to the Constitution and laws of the
United States as they are now in effect, or as they may hereafter be amended,
and subject to all lawful and applicable rules, regulations, and orders of the
Office of Thrift Supervision ("Office").
Section 5. Capital Stock. The total number of shares of all classes of
the capital stock which the association has the authority to issue is 3,500,000,
of which 3,000,000 shall be common stock of par value of $.01 per share and of
which 500,000 shall be serial preferred stock of no par value. The shares may be
issued from time to time as authorized by the board of directors without further
approval of stockholders, except as otherwise provided in this Section 5 or to
the extent that such approval is required by governing law, rule, or regulation.
The consideration for the issuance of the shares shall be paid in full before
their issuance and shall not be less than the par value. Neither promissory
notes nor future services shall constitute payment or part payment for the
issuance of shares of the association. The consideration for the shares shall be
cash, tangible or intangible property (to the extent direct investment in such
property would be permitted), labor, or services actually performed for the
association, 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 association, 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 retained
earnings of the association that is transferred to common stock or paid-in
capital accounts upon the issuance of shares as a stock dividend shall be deemed
to be the consideration for their issuance.
Except for shares issued in the initial organization of the association
or in connection with the conversion of the association from the mutual to the
stock form of capitalization, no shares of capital stock (including shares
issuable upon conversion, exchange, or exercise of other securities) shall be
issued, directly or indirectly, to officers, directors, or controlling persons
of the association other than as part of a general public offering or as
qualifying shares to a director, unless their issuance or the plan under which
they would be issued has been approved by a majority of the total votes eligible
to be cast at a legal meeting.
Nothing contained in this Section 5 (or in any supplementary sections
hereto) shall entitle the holders of any class of a series of capital stock to
vote as a separate class or series or to
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more than one vote per share, except as to the cumulation of votes for the
election of directors unless the charter otherwise provides that there shall be
no such cumulative voting; Provided, That this restriction on voting separately
by class or series shall not apply:
(i) To any provision which would authorize the holders of preferred stock,
voting as a class or series, to elect some members of the board of
directors, less than a majority thereof, in the event of default in the
payment of dividends on any class or series of preferred stock;
(ii) To any provision that would require the holders of preferred stock,
voting as a class or series, to approve the merger or consolidation of
the association with another corporation or the sale, lease, or
conveyance (other than by mortgage or pledge) of properties or business
in exchange for securities of a corporation other than the association
if the preferred stock is exchanged for securities of such other
corporation; Provided, That no provision may require such approval for
transactions undertaken with the assistance or pursuant to the
direction of the Office or the Federal Deposit Insurance Corporation;
(iii) To any amendment which would adversely change the specific terms of any
class or series of capital stock as set forth in this Section 5 (or in
any supplementary sections hereto), including any amendment which would
create or enlarge any class or series ranking prior thereto in rights
and preferences. An amendment which increases the number of authorized
shares of any class or series of capital stock, or substitutes the
surviving association in a merger or consolidation for the association,
shall not be considered to be such an adverse change.
A description of the different classes and series (if any) of the
association's capital stock and a statement of the designations, and the
relative rights, preferences, and limitations of the shares of each class and
series (if any) of capital stock are as follows:
A. Common Stock. Except as provided in this Section 5 (or in any
supplementary sections thereto) the holders of the common stock shall
exclusively possess all voting power. Each holder of shares of the common stock
shall be entitled to one vote for each share held by each holder, except as to
the cumulation of votes for the election of directors, unless the charter
otherwise provides that there shall be no such cumulative voting.
Whenever there shall have been paid, or declared and set aside for
payment, to the holders of the outstanding shares of any class of stock having
preference over the common stock as to the payment of dividends, the full amount
of dividends and of sinking fund, retirement fund, or other retirement payments,
if any, to which such holders are respectively entitled in preference to the
common stock, then dividends may be paid on the common stock and on any class or
series of stock entitled to participate therewith as to dividends out of any
assets legally available for the payment of dividends.
In the event of any liquidation, dissolution, or winding up of the
association, the holders of the common stock (and the holders of any class or
series of stock entitled to participate with the common stock in the
distribution of assets) shall be entitled to receive, in cash or in kind,
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the assets of the association available for distribution remaining after: (i)
payment or provision for payment of the association's debts and liabilities;
(ii) distributions or provision for distributions in settlement of its
liquidation account; and (iii) distributions or provisions for distributions to
holders of any class or series of stock having preference over the common stock
in the liquidation, dissolution, or winding up of the association. Each share of
common stock shall have the same relative rights as and be identical in all
respects with all the other shares of common stock.
B. Preferred Stock. The association may provide in supplementary
sections to its charter for one or more classes of preferred stock, which shall
be separately identified. The shares of any class may be divided into and issued
in series, with each series separately designated so as to distinguish the
shares thereof from the shares of all other series and classes. The terms of
each series shall be set forth in a supplementary section to the charter. All
shares of the same class shall be identical except as to the following relative
rights and preferences, as to which there may be variations between different
series:
(a) The distinctive serial designation and the number of shares constituting
such series;
(b) The dividend rate or the amount of dividends to be paid on the shares of
such series, whether dividends shall be cumulative and, if so, from which
date(s) the payment date(s) for dividends, and the participating or other
special rights, if any, with respect to dividends;
(c) The voting powers, full or limited, if any, of shares of such series;
(d) Whether the shares of such series shall be redeemable and, if so, the
price(s) at which, and the terms and conditions on which, such shares may
be redeemed;
(e) The amount(s) payable upon the shares of such series in the event of
voluntary or involuntary liquidation, dissolution, or winding up of the
association;
(f) Whether the shares of such series shall be entitled to the benefit of a
sinking or retirement fund to be applied to the purchase or redemption of
such shares, and if so entitled, the amount of such fund and the manner
of its application, including the price(s) at which such shares may be
redeemed or purchased through the application of such fund;
(g) Whether the shares of such series shall be convertible into, or
exchangeable for, shares of any other class or classes of stock of the
association and, if so, the conversion price(s) or the rate(s) of
exchange, and the adjustments thereof, if any, at which such conversion
or exchange may be made, and any other terms and conditions of such
conversion or exchange;
(h) The price or other consideration for which the shares of such series
shall be issued; and
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(i) Whether the shares of such series which are redeemed or converted shall
have the status of authorized but unissued shares of serial preferred
stock and whether such shares may be reissued as shares of the same or
any other series of serial preferred stock.
Each share of each series of serial preferred stock shall have the same
relative rights as and be identical in all respects with all the other shares of
the same series.
The board of directors shall have authority to divide, by the adoption of
supplementary charter sections, any authorized class of preferred stock into
series, and, within the limitations set forth in this section and the remainder
of this charter, fix and determine the relative rights and preferences of the
shares of any series so established.
Prior to the issuance of any preferred shares of a series established by
a supplementary charter section adopted by the board of directors, the
association shall file with the Secretary to the Office a dated copy of that
supplementary section of this charter establishing and designating the series
and fixing and determining the relative rights and preferences thereof.
Section 6. Preemptive Rights. Holders of the capital stock of the
association shall not be entitled to preemptive rights with respect to any
shares of the association which may be issued.
Section 7. Liquidation Account. Pursuant to the requirements of the
Office's regulations (12 C.F.R. Subchapter D), the association shall establish
and maintain a liquidation account for the benefit of its savings account
holders as of October 31, 1995, and its supplemental eligible account holders as
of December 31, 1996 ("eligible savers"). In the event of a complete liquidation
of the association, it shall comply with such regulations with respect to the
amount and the priorities on liquidation of each of the association's eligible
savers' inchoate interest in the liquidation account, to the extent it is still
in existence; Provided, That an eligible saver's inchoate interest in the
liquidation account shall not entitle such eligible saver to any voting rights
at meetings of the association's stockholders.
Section 8. Certain Provisions Applicable for Five Years. Notwithstanding
anything contained in the association's charter or bylaws to the contrary, for a
period of five years from the date of completion of the conversion of the
association from mutual to stock form, the following provisions shall apply:
A. Beneficial Ownership Limitation. No person shall directly or
indirectly offer to acquire or acquire the beneficial ownership of more than 10
percent of any class of an equity security of the association. This limitation
shall not apply to a transaction in which the association forms a holding
company without change in the respective beneficial ownership interests of its
stockholders other than pursuant to the exercise of any dissenter and appraisal
rights, the purchase of shares by underwriters in connection with a public
offering, or the purchase of shares by a tax-qualified employee stock benefit
plan which is exempt from the approval requirements under Section
574.3(c)(1)(vi) of the Office's regulations.
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In the event shares are acquired in violation of this Section 8, all
shares beneficially owned by any person in excess of 10 percent shall be
considered "excess shares" and shall not be counted as shares entitled to vote
and shall not be voted by any person or counted as voting shares in connection
with any matters submitted to the stockholders for a vote.
For purposes of this Section 8, the following definitions apply:
(1) The term "person" includes an individual, a group acting in concert, a
corporation, a partnership, an association, a joint stock company, a
trust, an unincorporated organization or similar company, a syndicate or
any other group formed for the purpose of acquiring, holding or disposing
of the equity securities of the association.
(2) The term "offer" includes every offer to buy or otherwise acquire,
solicitation of an offer to sell, tender offer for, or request or
invitation for tenders of, a security or interest in a security for
value.
(3) The term "acquire" includes every type of acquisition, whether effected
by purchase, exchange, operation of law or otherwise.
(4) The term "acting in concert" means (a) knowing participation in a joint
activity or conscious parallel action towards a common goal whether or
not pursuant to an express agreement, or (b) a combination or pooling of
voting or other interests in the securities of an issuer for a common
purpose pursuant to any contract, understanding, relationship, agreement
or other arrangements, whether written or otherwise.
B. Cumulative Voting Limitation. Stockholders shall not be permitted to
cumulate their votes for election of directors.
C. Call for Special Meetings. Special meetings of stockholders relating
to changes in control of the association or amendments to its charter shall be
called only upon direction of the board of directors.
Section 9. Directors. The association shall be under the direction of a
board of directors. The authorized number of directors, as stated in the
association's bylaws, shall not be fewer than five nor more than fifteen except
when a greater number is approved by the Director of the Office.
Section 10. Amendment of Charter. Except as provided in Section 5, no
amendment, addition, alteration, change, or repeal of this charter shall be
made, unless such is first proposed by the board of directors of the
association, then preliminarily approved by the Office, which preliminary
approval may be granted by the Office pursuant to regulations specifying
preapproved charter amendments, and thereafter approved by the stockholders by a
majority of the total votes eligible to be cast at a legal meeting. Any
amendment, addition, alteration, change, or repeal so acted upon shall be
effective upon filing with the Office in accordance with regulatory procedures
or on such other date as the Office may specify in its preliminary approval.
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By: ________________________________________________________________
Douglas Stewart
President and Chief Executive Officer of the Association
ATTEST: ________________________________________________________________
Gary N. Fullenkamp
Secretary of the Association
By: ________________________________________________________________
Director of the Office of Thrift Supervision
ATTEST: ________________________________________________________________
Secretary of the Office of Thrift Supervision
Declared effective this ________ day of ___________________, 1997.
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BYLAWS OF
PEOPLES FEDERAL SAVINGS AND LOAN ASSOCIATION OF SIDNEY
ARTICLE I
HOME OFFICE
The home office of the savings bank shall be in Sidney, Ohio.
ARTICLE II
SHAREHOLDERS
Section 1. Place of Meetings. All annual and special meetings of
shareholders shall be held at such place as the board of directors may determine
in the state in which the association has its principal place of business or at
such other convenient place as the board of directors may determine.
Section 2. Annual Meeting. A meeting of the shareholders of the savings
bank for the election of directors and for the transaction of any other business
of the savings bank shall be held annually within 150 days after the end of the
savings bank's fiscal year on the third Wednesday of each 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 p.m., or at such other date and time within such
150-day period as the board of directors may determine.
Section 3. Special Meetings. Special meetings of the shareholders for
any purpose or purposes, unless otherwise prescribed by the regulations of the
Office of Thrift Supervision ("Office"), may be called at any time by the
chairman of the board, the president, or a majority of the board of directors,
and shall be called by the chairman of the board, the president, or the
secretary upon the written request of the holders of not less than one-tenth of
all of the outstanding capital stock of the savings bank entitled to vote at the
meeting. Such written request shall state the purpose or purposes of the meeting
and shall be delivered to the home office of the savings bank addressed to the
chairman of the board, the president, or the secretary.
Section 4. Conduct of Meetings. Annual and special meetings shall be
conducted in accordance with the most current edition of Robert's Rules of Order
unless otherwise prescribed by regulations of the Office or these bylaws. The
board of directors shall designate, when present, either the chairman of the
board or the president to preside at such meetings.
Section 5. Notice of Meetings. Written notice stating the place, day,
and hour of the meeting and the purpose(s) for which the meeting is called shall
be delivered not fewer than 10 nor more than 50 days before the date of the
meeting, either personally or by mail, by or at the direction of the chairman of
the board, the president, or the secretary, or the directors calling the
meeting, to each shareholder of record entitled to vote at such meeting. If
mailed, such notice shall be deemed to be delivered when deposited in the mail,
addressed to the shareholder at the address as it appears on the stock transfer
books or records of the savings bank as of the
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record date prescribed in Section 6 of this Article II with postage prepaid.
When any shareholders' meeting, either annual or special, is adjourned for 30
days or more, notice of the adjourned meeting shall be given as in the case of
an original meeting. It shall not be necessary to give any notice of the time
and place of any meeting adjourned for less than 30 days or of the business to
be transacted at the meeting, other than an announcement at the meeting at which
such adjournment is taken. Notwithstanding anything in this section, however, a
federal stock association that is wholly owned shall not be subject to the
shareholder notice requirement.
Section 6. Fixing of Record Date. For the purpose of determining
shareholders entitled to notice of or to vote at any meeting of shareholders or
any adjournment, or shareholders entitled to receive payment of any dividend, or
in order to make a determination of shareholders for any other proper purpose,
the board of directors shall fix in advance a date as the record date for any
such determination of shareholders. Such date in any case shall be not more than
60 days and, in case of a meeting of shareholders, not fewer than 10 days prior
to the date on which the particular action, requiring such determination of
shareholders, is to be taken. When a determination of shareholders entitled to
vote at any meeting of shareholders has been made as provided in this section,
such determination shall apply to any adjournment.
Section 7. Voting Lists. At least 20 days before each meeting of the
shareholders, the officer or agent having charge of the stock transfer books for
shares of the savings bank shall make a complete list of the shareholders of
record entitled to vote at such meeting, or any adjournment, arranged in
alphabetical order, with the address and the number of shares held by each. This
list of shareholders shall be kept on file at the home office of the savings
bank and shall be subject to inspection by any shareholder of record or the
stockholder's agent during the entire time of the meeting. The original stock
transfer book shall constitute prima facie evidence of the shareholders entitled
to examine such list or transfer books or to vote at any meeting of
shareholders. Notwithstanding anything in this section, however, a federal stock
association that is wholly owned shall not be subject to the shareholder notice
requirement.
In lieu of making the shareholder list available for inspection by
shareholders as provided in the preceding paragraph, the board of directors may
elect to follow the procedures prescribed in ss. 552.6(d) of the Office's
regulations as now or hereafter in effect.
Section 8. Quorum. A majority of the outstanding shares of the savings
bank entitled to vote, represented in person or by proxy, shall constitute a
quorum at a meeting of shareholders. If less than a majority of the outstanding
shares is represented at a meeting, a majority of the shares so represented may
adjourn the meeting from time to time without further notice. At such adjourned
meeting at which a quorum shall be present or represented, any business may be
transacted which might have been transacted at the meeting as originally
notified. The shareholders present at a duly organized meeting may continue to
transact business until adjournment, notwithstanding the withdrawal of enough
shareholders to constitute less than a quorum. If the quorum is present, the
affirmative vote of the majority of the shares represented at the meeting and
entitled to vote on the subject matter shall be the act of the stockholders,
unless the vote of a greater number of stockholders voting together or voting by
classes is required by law or the charter. Directors, however, are elected by a
plurality of the votes cast at an election of directors.
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Section 9. Proxies. At all meetings of shareholders, a shareholder may
vote by proxy executed in writing by the shareholder or by his or her duly
authorized attorney in fact. Proxies may be given telephonically or
electronically as long as the holder uses a procedure for verifying the identity
of the shareholder. A proxy may designate as holder a corporation, partnership
or company as defined in Part 574 of the OTS regulations, or other person.
Proxies solicited on behalf of the management shall be voted as directed by the
shareholder or, in the absence of such direction, as determined by a majority of
the board of directors. No proxy shall be valid more than eleven months from the
date of its execution except for a proxy coupled with an interest.
Section 10. Voting of Shares in the Name of Two or More Persons. When
ownership stands in the name of two or more persons, in the absence of written
directions to the savings bank to the contrary, at any meeting of the
shareholders of the savings bank any one or more of such shareholders may cast,
in person or by proxy, all votes to which such ownership is entitled. In the
event an attempt is made to cast conflicting votes, in person or by proxy, by
the several persons in whose names shares of stock stand, the vote or votes to
which those persons are entitled shall be cast as directed by a majority of
those holding such stock and present in person or by proxy at such meeting, but
no votes shall be cast for such stock if a majority cannot agree.
Section 11. Voting of Shares by Certain Holders. Shares standing in the
name of another corporation may be voted by any officer, agent, or proxy as the
bylaws of such corporation may prescribe, or, in the absence of such provision,
as the board of directors of such corporation may determine. Shares held by an
administrator, executor, guardian, or conservator may be voted by him or her,
either in person or by proxy, without a transfer of such shares into his or her
name. Shares standing in the name of a trustee may be voted by him or her,
either in person or by proxy, but no trustee shall be entitled to vote shares
held by him or her without a transfer of such shares into his or her name.
Shares standing in the name of a receiver may be voted by such receiver, and
shares held by or under the control of a receiver may be voted by such receiver
without the transfer into his or her name if authority to do so is contained in
an appropriate order of the court or other public authority by which such
receiver was appointed.
A shareholder whose shares are pledged shall be entitled to vote such
shares until the shares have been transferred into the name of the pledgee, and
thereafter the pledgee shall be entitled to vote the shares so transferred.
Neither treasury shares of its own stock held by the savings bank nor
shares held by another corporation, if a majority of the shares entitled to vote
for the election of directors of such other corporation are held by the savings
bank, shall be voted at any meeting or counted in determining the total number
of outstanding shares at any given time for purposes of any meeting.
Section 12. Cumulative Voting. Unless otherwise provided in the charter
of the savings bank, every shareholder entitled to vote at an election for
directors shall have the right to vote, in person or by proxy, the number of
shares owned by the shareholder for as many persons as there are directors to be
elected and for whose election the shareholder has a right
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to vote, or to cumulate the votes by giving one candidate as many votes as the
number of such directors to be elected multiplied by the number of shares shall
equal or by distributing such votes on the same principle among any number of
candidates.
Section 13. Inspectors of Election. In advance of any meeting of
shareholders, the board of directors may appoint any persons other than nominees
for office as inspectors of election to act at such meeting or any adjournment.
The number of inspectors shall be either one or three. Any such appointment
shall not be altered at the meeting. If inspectors of election are not so
appointed, the chairman of the board or the president may, or on the request of
not fewer than 10 percent of the votes represented at the meeting shall, make
such appointment at the meeting. If appointed at the meeting, the majority of
the votes present shall determine whether one or three inspectors are to be
appointed. In case any person appointed as inspector fails to appear or fails or
refuses to act, the vacancy may be filled by appointment by the board of
directors in advance of the meeting or at the meeting by the chairman of the
board or the president.
Unless otherwise prescribed by regulations of the Office, the duties of
such inspectors shall include: determining the number of shares and the voting
power of each share, the shares represented at the meeting, the existence of a
quorum, and the authenticity, validity, and effect of proxies; receiving votes,
ballots, or consents; hearing and determining all challenges and questions in
any way arising in connection with the rights to vote; counting and tabulating
all votes or consents; determining the result; and such acts as may be proper to
conduct the election or vote with fairness to all shareholders.
Section 14. Nominating Committee. The board of directors shall act as a
nominating committee for selecting the management nominees for election as
directors. Except in the case of a nominee substituted as a result of the death
or other incapacity of a management nominee, the nominating committee shall
deliver written nominations to the secretary at least 20 days prior to the date
of the annual meeting. Upon delivery, such nominations shall be posted in a
conspicuous place in each office of the savings bank. No nominations for
directors except those made by the nominating committee shall be voted upon at
the annual meeting unless other nominations by shareholders are made in writing
and delivered to the secretary of the savings bank at least five days prior to
the date of the annual meeting. Upon delivery, such nominations shall be posted
in a conspicuous place in each office of the savings bank. Ballots bearing the
names of all persons nominated by the nominating committee and by shareholders
shall be provided for use at the annual meeting. However, if the nominating
committee shall fail or refuse to act at least 20 days prior to the annual
meeting, nominations for directors may be made at the annual meeting by any
shareholder entitled to vote and shall be voted upon.
Section 15. New Business. At an annual meeting of shareholders only
such new business shall be conducted, and only such proposals shall be acted
upon, as shall have been properly brought before the meeting. For any new
business proposed by management to be properly brought before the annual meeting
such new business shall be approved by the board of directors, either directly
or through its approval of proxy solicitation materials related thereto, and
shall be stated in writing and filed with the secretary of the savings bank at
least 20 days before the date of the annual meeting, and all business so stated,
proposed, and filed shall be
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considered at the annual meeting. Any shareholder may make any other proposal at
the annual meeting and the same may be discussed and considered, but unless
properly brought before the meeting such proposal shall not be acted upon at the
meeting. For a proposal to be properly brought before an annual meeting by a
shareholder, the shareholder must have given timely notice thereof in writing to
the secretary of the savings bank. To be timely, a shareholder's notice must be
delivered to or received at the principal executive offices of the savings bank,
not less than 20 days prior to the meeting; provided, however, that in the event
that less than 30 days' notice of the date of the meeting is given to
shareholders (which notice shall be accompanied by a proxy or information
statement which describes each matter proposed by the board of directors to be
acted upon at the meeting), notice by the shareholder to be timely must be so
received not later than the close of business on the 10th day following the day
on which such notice of the date of the annual meeting was mailed. A
shareholder's notice to the secretary shall set forth as to each matter the
shareholder proposes to bring before the annual meeting: (a) a brief description
of the proposal desired to be brought before the annual meeting; (b) the name
and address of the shareholder proposing such business; and (c) the class and
number of shares of the savings bank which are owned of record by the
shareholder. Notwithstanding anything in the bylaws to the contrary, no business
shall be conducted at an annual meeting except in accordance with the procedures
set forth in this Section 15.
Section 16. Informal Action by Shareholders. Any action required to be
taken at a meeting of the shareholders, or any other action which may be taken
at a meeting of shareholders, may be taken without a meeting if consent in
writing, setting forth the action so taken, shall be given by all of the
shareholders entitled to vote with respect to the subject matter.
ARTICLE III
BOARD OF DIRECTORS
Section 1. General Powers. The business and affairs of the savings bank
shall be under the direction of its board of directors. The board of directors
shall annually elect a chairman of the board and a president from among its
members and shall designate, when present, either the chairman of the board or
the president to preside at its meetings.
Section 2. Number and Term. The board of directors shall consist of
seven members and shall be divided into three classes as nearly equal in number
as possible. The members of each class shall be elected for a term of three
years and until their successors are elected and qualified. One class shall be
elected by ballot annually.
Section 3. Regular Meetings. A regular meeting of the board of
directors shall be held without other notice than this bylaw immediately after,
and at the same place as, the annual meeting of shareholders. The board of
directors may provide, by resolution, the time and place, within the savings
bank's normal lending territory, for the holding of additional regular meetings
without other notice than such resolution.
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Section 4. Qualification. Each director shall at all times be the
beneficial owner of not less than 100 shares of capital stock of the savings
bank unless the savings bank is a wholly owned subsidiary of a holding company.
Section 5. Special Meetings. Special meetings of the board of directors
may be called by or at the request of the chairman of the board, the president,
or one-third of the directors. The persons authorized to call special meetings
of the board of directors may fix any place, within the savings bank's normal
lending territory, as the place for holding any special meeting of the board of
directors called by such persons.
Members of the board of directors may participate in special meetings
by means of conference telephone or similar communications equipment by which
all persons participating in the meeting can hear each other. Such participation
shall constitute presence in person but shall not constitute attendance for the
purpose of compensation pursuant to Section 12 of this Article.
Section 6. Notice. Written notice of any special meeting shall be given
to each director at least two days prior thereto when delivered personally or by
telegram or at least five days prior thereto when delivered by mail at the
address at which the director is most likely to be reached. Such notice shall be
deemed to be delivered when deposited in the mail so addressed, with postage
prepaid if mailed or when delivered to the telegraph company if sent by
telegram. Any director may waive notice of any meeting by a writing filed with
the secretary. The attendance of a director at a meeting shall constitute a
waiver of notice of such meeting, except where a director attends a meeting for
the express purpose of objecting to the transaction of any business because the
meeting is not lawfully called or convened. Neither the business to be
transacted at, nor the purpose of, any meeting of the board of directors need be
specified in the notice or waiver of notice of such meeting.
Section 7. Quorum. A majority of the number of directors fixed by
Section 2 of this Article III shall constitute a quorum for the transaction of
business at any meeting of the board of directors; but if less than such
majority is present at a meeting, a majority of the directors present may
adjourn the meeting from time to time. Notice of any adjourned meeting shall be
given in the same manner as prescribed by Section 6 of this Article III.
Section 8. Manner of Acting. The act of the majority of the directors
present at a meeting at which a quorum is present shall be the act of the board
of directors, unless a greater number is prescribed by regulation of the Office
or by these bylaws.
Section 9. Action Without a Meeting. Any action required or permitted
to be taken by the board of directors at a meeting may be taken without a
meeting if a consent in writing, setting forth the action so taken, shall be
signed by all of the directors.
Section 10. Resignation. Any director may resign at any time by sending
a written notice of such resignation to the home office of the savings bank
addressed to the chairman of the board or the president. Unless otherwise
specified, such resignation shall take effect upon receipt by the chairman of
the board or the president. More than three consecutive absences
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from regular meetings of the board of directors, unless excused by resolution of
the board of directors, shall automatically constitute a resignation, effective
when such resignation is accepted by the board of directors.
Section 11. Vacancies. Any vacancy occurring on the board of directors
may be filled by the affirmative vote of a majority of the remaining directors
although less than a quorum of the board of directors. A director elected to
fill a vacancy shall be elected to serve only until the next election of
directors by the shareholders. Any directorship to be filled by reason of an
increase in the number of directors may be filled by election by the board of
directors for a term of office continuing only until the next election of
directors by the shareholders.
Section 12. Compensation. Directors, as such, may receive a stated
salary for their services. By resolution of the board of directors, a reasonable
fixed sum, and reasonable expenses of attendance, if any, may be allowed for
actual attendance at each regular or special meeting of the board of directors.
Members of either standing or special committees may be allowed such
compensation for actual attendance at committee meetings as the board of
directors may determine.
Section 13. Presumption of Assent. A director of the savings bank who
is present at a meeting of the board of directors at which action on any savings
bank matter is taken shall be presumed to have assented to the action taken
unless his or her dissent or abstention shall be entered in the minutes of the
meeting or unless he or she shall file a written dissent to such action with the
person acting as the secretary of the meeting before the adjournment thereof or
shall forward such dissent by registered mail to the secretary of the savings
bank within five days after the date a copy of the minutes of the meeting is
received. Such right to dissent shall not apply to a director who voted in favor
of such action.
Section 14. Removal of Directors. At a meeting of shareholders called
expressly for that purpose, any director may be removed only for cause, as
defined in 12 C.F.R. Section 563.39, by a vote of the holders of a majority of
the shares then entitled to vote at an election of directors. If less than the
entire board is to be removed, no one of the directors may be removed if the
votes cast against the removal would be sufficient to elect a director if then
cumulatively voted at an election of the class of directors of which such
director is a part. Whenever the holders of the shares of any class are entitled
to elect one or more directors by the provisions of the charter or supplemental
sections thereto, the provisions of this section shall apply, in respect to the
removal of a director or directors so elected, to the vote of the holders of the
outstanding shares of that class and not to the vote of the outstanding shares
as a whole.
ARTICLE IV
EXECUTIVE AND OTHER COMMITTEES
Section 1. Appointment. The board of directors, by resolution adopted
by a majority of the full board, may designate the chief executive officer and
two or more of the other directors to constitute an executive committee. The
designation of any committee pursuant to
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this Article IV and the delegation of authority shall not operate to relieve the
board of directors, or any director, of any responsibility imposed by law or
regulation.
Section 2. Authority. The executive committee, when the board of
directors is not in session, shall have and may exercise all of the authority of
the board of directors except to the extent, if any, that such authority shall
be limited by the resolution appointing the executive committee; and except also
that the executive committee shall not have the authority of the board of
directors with reference to: the declaration of dividends; the amendment of the
charter or bylaws of the savings bank, or recommending to the shareholders a
plan of merger, consolidation, or conversion; the sale, lease, or other
disposition of all or substantially all of the property and assets of the
savings bank otherwise than in the usual and regular course of its business; a
voluntary dissolution of the savings bank; a revocation of any of the foregoing;
or the approval of a transaction in which any member of the executive committee,
directly or indirectly, has any material beneficial interest.
Section 3. Tenure. Subject to the provisions of Section 8 of this
Article IV, each member of the executive committee shall hold office until the
next regular annual meeting of the board of directors following his or her
designation and until a successor is designated as a member of the executive
committee.
Section 4. Meetings. Regular meetings of the executive committee may be
held without notice at such times and places as the executive committee may fix
from time to time by resolution. Special meetings of the executive committee may
be called by any member thereof upon not less than one day's notice stating the
place, date, and hour of the meeting, which notice may be written or oral. Any
member of the executive committee may waive notice of any meeting and no notice
of any meeting need be given to any member thereof who attends in person. The
notice of a meeting of the executive committee need not state the business
proposed to be transacted at the meeting.
Section 5. Quorum. A majority of the members of the executive committee
shall constitute a quorum for the transaction of business at any meeting
thereof, and action of the executive committee must be authorized by the
affirmative vote of a majority of the members present at a meeting at which a
quorum is present.
Section 6. Action Without a Meeting. Any action required or permitted
to be taken by the executive committee at a meeting may be taken without a
meeting if a consent in writing, setting forth the action so taken, shall be
signed by all of the members of the executive committee.
Section 7. Vacancies. Any vacancy in the executive committee may be
filled by a resolution adopted by a majority of the full board of directors.
Section 8. Resignations and Removal. Any member of the executive
committee may be removed at any time with or without cause by resolution adopted
by a majority of the full board of directors. Any member of the executive
committee may resign from the executive committee at any time by giving written
notice to the president or secretary of the savings bank.
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Unless otherwise specified, such resignation shall take effect upon its receipt;
the acceptance of such resignation shall not be necessary to make it effective.
Section 9. Procedure. The executive committee shall elect a presiding
officer from its members and may fix its own rules of procedure which shall not
be inconsistent with these bylaws. It shall keep regular minutes of its
proceedings and report the same to the board of directors for its information at
the meeting held next after the proceedings shall have occurred.
Section 10. Other Committees. The board of directors may by resolution
establish an audit, loan, or other committee composed of directors as it may
determine to be necessary or appropriate for the conduct of the business of the
savings bank and may prescribe the duties, constitution and procedures thereof.
ARTICLE V
OFFICERS
Section 1. Positions. The officers of the savings bank shall be a
president, one or more vice presidents, a secretary, and a treasurer or
comptroller, 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 or comptroller may be held by the same person and a vice president may
also be either the secretary or the treasurer or comptroller. The board of
directors may designate one or more vice presidents as executive vice president
or senior vice president. The board of directors may also elect or authorize the
appointment of such other officers as the business of the savings bank may
require. The officers shall have such authority and perform such duties as the
board of directors may from time to time authorize or determine. In the absence
of action by the board of directors, the officers shall have such powers and
duties as generally pertain to their respective offices.
Section 2. Election and Term of Office. The officers of the savings
bank shall be elected annually at the first meeting of the board of directors
held after each annual meeting of the shareholders. If the election of officers
is not held at such meeting, such election shall be held as soon thereafter as
possible. Each officer shall hold office until a successor has been duly elected
and qualified or until the officer's death, resignation, or removal in the
manner hereinafter provided. Election or appointment of an officer, employee, or
agent shall not of itself create contractual rights. The board of directors may
authorize the savings bank to enter into an employment contract with any officer
in accordance with regulations of the Office, but no such contract shall impair
the right of the board of directors to remove any officer at any time in
accordance with Section 3 of this Article V.
Section 3. Removal. Any officer may be removed by the board of
directors whenever in its judgment the best interests of the savings bank will
be served thereby, but such removal, other than for cause, shall be without
prejudice to the contractual rights, if any, of the person so removed.
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Section 4. Vacancies. A vacancy in any office because of death,
resignation, removal, disqualification, or otherwise may be filled by the board
of directors for the unexpired portion of the term.
Section 5. Remuneration. The remuneration of the officers shall be
fixed from time to time by the board of directors.
ARTICLE VI
CONTRACTS, LOANS, CHECKS, AND DEPOSITS
Section 1. Contracts. To the extent permitted by regulations of the
Office, and except as otherwise prescribed by these bylaws with respect to
certificates for shares, the board of directors may authorize any officer,
employee, or agent of the savings bank to enter into any contract or execute and
deliver any instrument in the name of and on behalf of the savings bank.
Such authority may be general or confined to specific instances.
Section 2. Loans. No loans shall be contracted on behalf of the savings
bank and no evidence of indebtedness shall be issued in its name unless
authorized by the board of directors. Such authority may be general or confined
to specific instances.
Section 3. Checks, Drafts, etc. All checks, drafts, or other orders for
the payment of money, notes or other evidences of indebtedness issued in the
name of the savings bank shall be signed by one or more officers, employees or
agents of the savings bank in such manner as shall from time to time be
determined by the board of directors.
Section 4. Deposits. All funds of the savings bank not otherwise
employed shall be deposited from time to time to the credit of the savings bank
in any duly authorized depositories as the board of directors may select.
ARTICLE VII
CERTIFICATES FOR SHARES AND THEIR TRANSFER
Section 1. Certificates for Shares. Certificates representing shares of
capital stock of the savings bank shall be in such form as shall be determined
by the board of directors and approved by the Office. Such certificates shall be
signed by the chief executive officer or by any other officer of the savings
bank authorized by the board of directors, attested by the secretary or an
assistant secretary, and sealed with the corporate seal or a facsimile thereof.
The signatures of such officers upon a certificate may be facsimiles if the
certificate is manually signed on behalf of a transfer agent or a registrar
other than the savings bank itself or one of its employees. Each certificate for
shares of capital stock shall be consecutively numbered or otherwise identified.
The name and address of the person to whom the shares are issued, with the
number of shares and date of issue, shall be entered on the stock transfer books
of the savings bank. All certificates surrendered to the savings bank for
transfer shall be cancelled and
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no new certificate shall be issued until the former certificate for a like
number of shares has been surrendered and cancelled, except that in the case of
a lost or destroyed certificate, a new certificate may be issued upon such terms
and indemnity to the savings bank as the board of directors may prescribe.
Section 2. Transfer of Shares. Transfer of shares of capital stock of
the savings bank shall be made only on its stock transfer books. Authority for
such transfer shall be given only by the holder of record or by his or her legal
representative, who shall furnish proper evidence of such authority, or by his
or her attorney authorized by a duly executed power of attorney and filed with
the savings bank. Such transfer shall be made only on surrender for cancellation
of the certificate for such shares. The person in whose name shares of capital
stock stand on the books of the savings bank shall be deemed by the savings bank
to be the owner for all purposes.
ARTICLE VIII
FISCAL YEAR; ANNUAL AUDIT
The fiscal year of the savings bank shall end on the last day of
December of each year. The savings bank shall be subject to an annual audit as
of the end of its fiscal year by independent public accountants appointed by and
responsible to the board of directors. The appointment of such accountants shall
be subject to annual ratification by the shareholders.
ARTICLE IX
DIVIDENDS
Subject to the terms of the savings bank's charter and the regulations
and orders of the Office, the board of directors may, from time to time,
declare, and the savings bank may pay, dividends on its outstanding shares of
capital stock.
ARTICLE X
CORPORATE SEAL
The board of directors shall provide a savings bank seal which shall be
two concentric circles between which shall be the name of the savings bank. The
year of incorporation or an emblem may appear in the center.
ARTICLE XI
AMENDMENTS
These bylaws may be amended in a manner consistent with regulations of
the Office at any time by a majority of the full board of directors or by a
majority of the votes cast by the shareholders of the savings bank at any legal
meeting.
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NUMBER____________
COMMON STOCK
CUSIP No.____________
PEOPLES-SIDNEY FINANCIAL CORPORATION
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
This Certifies that
is the owner of
FULLY PAID AND NONASSESSABLE SHARES OF COMMON STOCK, PAR VALUE $.01 PER SHARE OF
PEOPLES-SIDNEY FINANCIAL CORPORATION (the "Corporation"), a Delaware
corporation. The shares represented by this certificate are transferable only on
the stock transfer books of the Corporation by the holder of record hereof, or
by his duly authorized attorney or legal representative, upon the surrender of
this certificate properly endorsed. This certificate is not valid until
countersigned and registered by the Corporation's transfer agent and registrar.
This security is not a deposit or account and is not federally insured or
guaranteed.
IN WITNESS WHEREOF, the Corporation has caused this certificate to be
executed by the facsimile signatures of its duly authorized officers and has
caused a facsimile of its corporate seal to be hereunto affixed.
DATED__________________________
___________________________________ _________________________________
Gary N. Fullenkamp, Douglas Stewart, President
Corporate Secretary and Chief Executive Officer
[Seal]
Countersigned and Registered
____________________________
Transfer Agent and Registrar
<PAGE>
PEOPLES-SIDNEY FINANCIAL CORPORATION
The shares represented by this certificate are issued subject to all
the provisions of the certificate of incorporation and bylaws of the Corporation
as from time to time amended (copies of which are on file at the principal
executive offices of the Corporation).
The Corporation's certificate of incorporation provides that no
"person" (as defined in the certificate of incorporation) who "beneficially
owns" (as defined in the certificate of incorporation) in excess of 10% of the
outstanding shares of the Corporation shall be entitled to vote any shares held
in excess of such limit. This provision of the certificate of incorporation
shall not apply to an acquisition of securities of the Corporation by an
employee stock purchase plan or other employee benefit plan of the Corporation
or any of its subsidiaries.
The Corporation's certificate of incorporation also includes a
provision the general effect of which is to require the affirmative vote of the
holders of 80% of the outstanding voting shares of the Corporation to approve
certain "business combinations" (as defined in the certificate of incorporation)
between the Corporation and a stockholder owning in excess of 10% of the
outstanding shares of the Corporation. However, only the affirmative vote of a
majority of the outstanding shares or such vote as is otherwise required by law
(rather than the 80% voting requirement) is applicable to the particular
transaction if it is approved by a majority of the "disinterested directors" (as
defined in the certificate of incorporation) or, alternatively, the transaction
satisfies certain minimum price and procedural requirements. The Corporation's
certificate of incorporation also contains a provision which requires the
affirmative vote of holders of at least 80% of the outstanding voting shares of
the Corporation which are not beneficially owned by the "interested person" (as
defined in the certificate of incorporation) to approve the direct or indirect
purchase or other acquisition by the Corporation of any "equity security" (as
defined in the certificate of incorporation) from such interested person.
The Corporation will furnish to any stockholder upon request and
without charge a full statement of the powers, designations, preferences and
relative participating, optional or other special rights of each authorized
class of stock or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights, to the extent that the same have
been fixed, and of the authority of the board of directors to designate the same
with respect to other series. Such request may be made to the Corporation or to
its transfer agent and registrar.
The following abbreviations, when used in the inscription on the face
of this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in UNIF GIFT MIN ACT ------- Custodian -------
common (Cust) (Minor)
TEN ENT - as tenants by Under Uniform Gift to Minors Act - _______
the entirety (State)
JT TEN - as joint tenants UNIF TRANS MIN ACT ------- Custodian -------
with rig survivorship (Cust) (Minor)
and not as tenants. Under Uniform Transfers to Minors Act - ______
in common (State)
Additional abbreviations may also be used though not in the above list.
For Value Received, ____________________________________________ hereby sell,
assign and transfer unto
PLEASE
INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
______________________________
| |
|______________________________|
______________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
____________________________________________ Shares of Common Stock represented
by the within certificate, and do hereby irrevocably constitute and appoint
________________________________________ Attorney to transfer the said shares on
the books of the within named Association with full power of substitution in the
premises.
Dated ________________________ __________________________________
NOTICE:THE SIGNATURE TO THIS ASSIGNMENT
MUST CORRESPOND WITH THE NAME AS
WRITTEN UPON THE FACE OF THE
CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT
OR ANY CHANGE WHATEVER.
<PAGE>
Exhibit 5
January 23, 1997
The Board of Directors
Peoples-Sidney Financial Corporation
101 E. Court Street
Sidney, Ohio 45365
Re: Registration Statement Under the Securities Act of 1933
Gentlemen:
This opinion is rendered in connection with the Registration Statement
to be filed on Form S-1 with the Securities and Exchange Commission under the
Securities Act of 1933 relating to the 1,653,125 shares of Common Stock of
Peoples-Sidney Financial Corporation (the "Company"), par value $.01 per share,
to be issued. As counsel, we have reviewed the Certificate of Incorporation of
the Company and such other documents as we have deemed appropriate for the
purpose of this opinion. We are rendering this opinion as of the time the
Registration Statement referred to above becomes effective.
Based on the foregoing, we are of the opinion that the shares of Common
Stock of the Company covered by the aforesaid Registration Statement will, when
sold, be validly issued, fully paid and non-assessable shares of Common Stock of
the Company.
Very truly yours,
/S/
---------------------------------------
SILVER FREEDMAN & TAFF, L.L.P.
<PAGE>
Exhibit 8.1
[LETTERHEAD OF SILVER, FREEDMAN & TAFF, L.L.P.]
January 23, 1997
Board of Directors
Peoples Federal Savings & Loan Association
101 East Court Street
Sidney, Ohio 45365
RE: Federal Income Tax Opinion Relating To The Conversion Of Peoples
Federal Savings & Loan Association From A Federally-Chartered
Mutual Savings Institution To A Federally-Chartered Stock Savings
Institution Under Section 368(a)(1)(F) of the Internal Revenue Code
of 1986, As Amended
Gentlemen:
In accordance with your request set forth hereinbelow is the
opinion of this firm relating to the federal income tax consequences of the
conversion of Peoples Savings & Loan Association ("Mutual") from a
federally-chartered mutual savings institution to a federally-chartered stock
savings institution ("Stock Institution") pursuant to the provisions of Section
368(a)(1)(F) of the Internal Revenue Code of 1986, as amended (the "Code").
Capitalized terms used herein which are not expressly defined
herein shall have the meaning ascribed to them in the Plan of Conversion dated
November 8, 1996 (the "Plan").
The following assumptions have been made in connection with
our opinions hereinbelow:
1. The Conversion is implemented in accordance with the terms
of the Plan and all conditions precedent contained in the Plan shall be
performed or waived prior to the consummation of the Conversion.
<PAGE>
Board of Directors
Peoples Federal Savings & Loan Association
January 23, 1997
Page 2
- -------------------------------------------------------------------------------
2. No amount of the savings accounts and deposits of Mutual,
as of the Eligibility Record Date or the Supplemental Eligibility Record Date,
will be excluded from participating in the liquidation account of Stock
Institution. To the best of the knowledge of the management of Mutual there is
not now, nor will there be at the time of the Conversion, any plan or intention,
on the part of the depositors in Mutual to withdraw their deposits following the
Conversion. Deposits withdrawn immediately prior to or immediately subsequent to
the Conversion (other than maturing deposits) are considered in making these
assumptions.
3. Holding Company and Stock Institution each have no plan or
intention to redeem or otherwise acquire any of the Holding Company Conversion
Stock to be issued in the proposed transaction.
4. Immediately following the consummation of the proposed
transaction, Stock Institution will possess the same assets and liabilities as
Mutual held immediately prior to the proposed transaction, plus substantially
all of the net proceeds from the sale of its stock to Holding Company except for
assets used to pay expenses of the Conversion. The liabilities transferred to
Stock Institution were incurred by Mutual in the ordinary course of business.
5. No cash or property will be given to deposit account
holders in lieu of Subscription Rights or an interest in the liquidation account
of Stock Institution.
6. Following the Conversion, Stock Institution will continue
to engage in its business in substantially the same manner as Mutual engaged in
business prior to the Conversion, and it has no plan or intention to sell or
otherwise dispose of any of its assets, except in the ordinary course of
business.
7. There is no plan or intention for Stock Institution to be
liquidated or merged with another corporation following the consummation of the
Conversion.
8. The fair market value of each savings account plus an
interest in the liquidation account of Stock Institution will, in each instance,
be approximately equal to the fair market value of each savings account of
Mutual plus the interest in the residual equity of Mutual surrendered in
exchange therefor.
9. Mutual utilizes a reserve for bad debts in accordance with
Section 593 of the Code and following the Conversion, Stock Institution shall
likewise continue to utilize a reserve for bad debts in accordance with Section
593 of the Code.
<PAGE>
Board of Directors
Peoples Federal Savings & Loan Association
January 23, 1997
Page 3
- -------------------------------------------------------------------------------
10. Mutual, Stock Institution and Holding Company are each
corporations within the meaning of Section 7701(a)(3) of the Code. Mutual and
Stock Institution are domestic building and loan associations within the meaning
of Section 7701(a)(19)(C) of the Code.
11. Holding Company has no plan or intention to sell or
otherwise dispose of the stock of Stock Institution received by it in the
proposed transaction.
12. Both Stock Institution and Holding Company have no plan or
intention, either currently or at the time of Conversion, to issue additional
shares of common stock following the proposed transaction, other than shares
that may be issued to employees and/or directors pursuant to certain stock
option and stock incentive plans or that may be issued to employee benefit
plans.
13. If all of the net proceeds from the sale of Holding
Company Conversion Stock had been contributed by Holding Company to Stock
Institution in exchange for common stock of Stock Institution in the
transaction, as opposed to Holding Company retaining a portion of such net
proceeds (the "retained proceeds"), and Stock Institution immediately thereafter
made a distribution of the retained proceeds to Holding Company, Stock
Institution would have sufficient current and accumulated earnings and profits
for tax purposes such that the distribution would not result in the recapture of
any portion of the bad debt reserves of Stock Institution under Section 593(e)
of the Code.
14. Assets used to pay expenses of the Conversion and all
distributions (except for regular, normal interest payments and other payments
in the normal course of business made by Mutual immediately preceding the
transaction) will in the aggregate constitute less than 1% of the net assets of
Mutual and any such expenses and distributions will be paid by Stock Institution
from the proceeds of the sale of Holding Company Conversion Stock.
15. All distributions to deposit account holders in their
capacity as deposit account holders (except for regular, normal interest
payments made by Mutual), will, in the aggregate, constitute less than 1% of the
fair market value of the net assets of Mutual.
16. At the time of the proposed transaction, the fair market
value of the assets of Mutual on a going concern basis (including intangibles)
will equal or exceed the amount of its liabilities plus the amount of
liabilities to which such assets are subject. Mutual will have a positive
regulatory net worth at the time of the Conversion.
<PAGE>
Board of Directors
Peoples Federal Savings & Loan Association
January 23, 1997
Page 4
- -------------------------------------------------------------------------------
17. Mutual is not under the jurisdiction of a court in a Title
11 or similar case within the meaning of Section 368(a)(3)(A) of the Code. The
proposed transaction does not involve a receivership, foreclosure, or similar
proceeding before a federal or state agency involving a financial institution to
which Section 585 or 593 of the Code applies.
18. Mutual's Eligible Account Holders and Supplemental
Eligible Account Holders will pay expenses of the Conversion solely attributable
to them, if any.
19. The liabilities of Mutual assumed by Stock Institution
plus the liabilities, if any, to which the transferred assets are subject were
incurred by Mutual in the ordinary course of its business and are associated
with the assets being transferred.
20. There will be no purchase price advantage for Mutual's
deposit account holders who purchase Holding Company Conversion Stock.
21. Neither Mutual nor Stock Institution is an investment
company as defined in Sections 368(a)(2)(F)(iii) and (iv) of the Code.
22. None of the compensation to be received by any deposit
account holder-employees of Mutual or Holding Company will be separate
consideration for, or allocable to, any of their deposits in Mutual. No interest
in the liquidation account of Stock Institution will be received by any deposit
account holder-employees as separate consideration for, or will otherwise be
allocable to, any employment agreement, and the compensation paid to each
deposit account holder-employee, during the twelve-month period preceding or
subsequent to the Conversion, will be for services actually rendered and will be
commensurate with amounts paid to the third parties bargaining at arm's-length
for similar services. No shares of Holding Company Conversion Stock will be
issued to or purchased by any deposit account holder-employee of Mutual or
Holding Company at a discount or as compensation in the proposed transaction.
23. No creditors of Mutual or the depositors in their role as
creditors, have taken any steps to enforce their claims against Mutual by
instituting bankruptcy or other legal proceedings, in either a court or
appropriate regulatory agency, that would eliminate the proprietary interests of
the Members prior to the Conversion of Mutual including depositors as the equity
holders of Mutual.
24. The proposed transaction does not involve the payment to
Stock Institution or Mutual of financial assistance from federal agencies within
the meaning of Notice 89-102, 1989-40 C.B. 1.
<PAGE>
Board of Directors
Peoples Federal Savings & Loan Association
January 23, 1997
Page 5
- -------------------------------------------------------------------------------
25. On a per share basis, the purchase price of Holding
Company Conversion Stock will be equal to the fair market value of such stock at
the time of the completion of the proposed transaction.
26. Mutual has received or will receive an opinion from Keller
& Company, Inc. ("Appraiser's Opinion"), which concludes that the Subscription
Rights to be received by Eligible Account Holders, Supplemental Eligible Account
Holders and other eligible subscribers do not have any ascertainable fair market
value, since they are acquired by the recipients without cost, are
non-transferable and of short duration, and afford the recipients a right only
to purchase Holding Company Conversion Stock at a price equal to its estimated
fair market value, which will be the same price as the Public Offering Price for
unsubscribed shares of Holding Company Conversion Stock.
27. Mutual will not have any net operating losses, capital
loss carryovers or built-in losses at the time of the Conversion.
OPINION
-------
Based solely on the assumptions set forth hereinabove and our
analysis and examination of applicable federal income tax laws, rulings,
regulations, judicial precedents and the Appraiser's Opinion, we are of the
opinion that if the transaction is undertaken in accordance with the above
assumptions:
(1) The Conversion will constitute a reorganization within the
meaning of Section 368(a)(1)(F) of the Code. Neither Mutual nor Stock
Institution will recognize any gain or loss as a result of the transaction (Rev.
Rul. 80-105, 1980-1 C.B. 78). Mutual and Stock Institution will each be a party
to a reorganization within the meaning of Section 368(b) of the Code.
(2) Stock Institution will recognize no gain or loss upon the
receipt of money and other property, if any, in the Conversion, in exchange for
its shares. (Section 1032(a) of the Code.)
(3) No gain or loss will be recognized by Holding Company upon
the receipt of money for Holding Company Conversion Stock. (Section 1032(a) of
the Code.)
(4) The basis of Mutual's assets in the hands of Stock
Institution will be the same as the basis of those assets in the hands of Mutual
immediately prior to the transaction. (Section 362(b) of the Code.)
<PAGE>
Board of Directors
Peoples Federal Savings & Loan Association
January 23, 1997
Page 6
- -------------------------------------------------------------------------------
(5) Stock Institution's holding period of the assets of Mutual
will include the period during which such assets were held by Mutual prior to
the Conversion. (Section 1223(2) of the Code).
(6) Stock Institution, for purposes of Section 381 of the
Code, will be treated as if there had been no reorganization. The tax attributes
of Mutual enumerated in Section 381(a) of the Code will be taken into account by
Stock Institution as if there had been no reorganization. Accordingly, the tax
year of Mutual will not end on the effective date of the Conversion. The part of
the tax year of Mutual before the Conversion will be includible in the tax year
of Stock Institution after the Conversion. Therefore, Mutual will not have to
file a federal income tax return for the portion of the tax year prior to the
Conversion. (Rev. Rul. 57-276, 1957-1 C.B. 126).
(7) Depositors will realize gain, if any, upon the
constructive issuance to them of withdrawable deposit accounts of Stock
Institution, Subscription Rights and/or interests in the liquidation account of
Stock Institution. Any gain resulting therefrom will be recognized, but only in
an amount not in excess of the fair market value of the liquidation accounts
and/or Subscription Rights received. The liquidation accounts will have nominal,
if any, fair market value. Based solely on the accuracy of the conclusion
reached in the Appraiser's Opinion, and our reliance on such opinion, that the
Subscription Rights have no value at the time of distribution or exercise, no
gain or loss will be required to be recognized by depositors upon receipt or
distribution of Subscription Rights. (Section 1001 of the Code); See Paulsen v.
Commissioner, 469 U.S. 131,139 (1985). Likewise, based solely on the accuracy of
the aforesaid conclusion reached in the Appraiser's Opinion, and our reliance
thereon, we give the following opinions: (a) no taxable income will be
recognized by the borrowers, directors, officers and employees of Mutual upon
the distribution to them of Subscription Rights or upon the exercise or lapse of
the Subscription Rights to acquire Holding Company Conversion Stock at fair
market value; (b) no taxable income will be realized by the depositors of Mutual
as a result of the exercise or lapse of the Subscription Rights to purchase
Holding Company Conversion Stock at fair market value. Rev. Rul. 56-572, 1956-2
C.B. 182; and (c) no taxable income will be realized by Mutual, Stock
Institution or Holding Company on the issuance or distribution of Subscription
Rights to depositors of Mutual to purchase shares of Holding Company Conversion
Stock at fair market value. (Section 311 of the Code.)
Notwithstanding the Appraiser's Opinion, if the Subscription
Rights are subsequently found to have a fair market value, income may be
recognized by various recipients of the Subscription Rights (in certain cases,
whether or not the rights are exercised) and Holding Company and/or Stock
Institution may be taxable on the distribution of the Subscription Rights.
(Section 311 of the Code). In this regard, the Subscription Rights may be taxed
partially or entirely at ordinary income tax rates.
<PAGE>
Board of Directors
Peoples Federal Savings & Loan Association
January 23, 1997
Page 7
- -------------------------------------------------------------------------------
(8) The creation of the liquidation account on the records of
Stock Institution will have no effect on Mutual's or Stock Institution's taxable
income, deductions, or additions to the reserve for bad debts under Section 593
of the Code, or distributions to shareholders under Section 593(e).
(9) Pursuant to the provisions of Section 381(c)(4) of the
Code and Section 1.381(c)(4)-1(a)(1)(ii) of the Income Tax Regulations, Stock
Institution will succeed to and take into account, immediately after the
reorganization, the dollar amounts of those accounts of Mutual which represent
bad debt reserves in respect of which Mutual has taken a bad debt deduction for
taxable years ending on or before the date of the reorganization. The bad debt
reserves will not be required to be restored to the gross income of either
Mutual or Stock Institution as a result of the Conversion for the taxable year
of the reorganization, and such bad debt reserves will have the same character
in the hands of Stock Institution as they would have had in the hands of Mutual
if no reorganization had occurred. No opinion is being expressed as to whether
the bad debt reserves will be required to be restored to the gross income of
either Mutual or Stock Institution for the taxable year of the transfer if
Mutual or Stock Institution fails to meet the requirements of Section 593(a)(2)
of the Code during such taxable year.
(10) A depositor's basis in the savings deposits of Stock
Institution will be the same as the basis of his savings deposits in Mutual.
(Section 1012 of the Code). Based upon the Appraiser's Opinion, the basis of the
Subscription Rights will be zero. The basis of the interest in the liquidation
account of Stock Institution received by Eligible Account Holders and
Supplemental Eligible Account Holders will be equal to the cost of such
property, i.e., the fair market value of the proprietary interest in Mutual,
which in this transaction we assume to be zero.
(11) The basis of Holding Company Conversion Stock to its
shareholders will be the purchase price thereof. (Section 1012 of the Code).
(12) A shareholder's holding period for Holding Company
Conversion Stock acquired through the exercise of the Subscription Rights shall
begin on the date on which the Subscription Rights are exercised. (Section
1223(6) of the Code). The holding period for the Holding Company Conversion
Stock purchase pursuant to the direct community offering, public offering or
under other purchase arrangements will commence on the date following the date
on which such stock is purchased. (Rev. Rul. 70-598, 1970-2 C.B. 168).
(13) Regardless of any book entries that are made for the
establishment of a liquidation account, the reorganization will not diminish the
accumulated earnings and profits of Mutual available for the subsequent
distribution of dividends, within the meaning of Section 316 of the Code.
Section 1.312-11(b) and (c) of the Regulations. Stock Institution will succeed
to and take into account the earnings and profits or deficit in earnings and
profits, of Mutual as of the date of Conversion.
<PAGE>
Board of Directors
Peoples Federal Savings & Loan Association
January 23, 1997
Page 8
- -------------------------------------------------------------------------------
The above opinions are effective to the extent that Mutual is
solvent. No opinion is expressed about the tax treatment of the transaction if
Mutual is insolvent. Whether or not Mutual is solvent will be determined at the
end of the taxable year in which the transaction is consummated.
No opinion is expressed as to the tax treatment of the
transaction under the provisions of any of the other sections of the Code and
Income Tax Regulations which may also be applicable thereto, or to the tax
treatment of any conditions existing at the time of, or effects resulting from,
the transaction which are not specifically covered by the opinions set forth
above.
Respectfully submitted,
SILVER, FREEDMAN & TAFF, L.L.P.
/s/ Barry P. Taff, P.C.
---------------------------------------
<PAGE>
Exhibit 8.3
January 21, 1997
Board of Directors
Peoples Federal Savings and Loan Association
101 E. Court Street
P.O. Box 727
Sidney, Ohio 45365-4217
Re: Subscription Rights -- Conversion of Peoples Federal Savings and Loan
Association of Sidney
Sidney, Ohio
Gentlemen:
The purpose of this letter is to provide an opinion of the value of the
subscription rights of the "to be issued" common stock of Peoples-Sidney
Financial Corporation ("Peoples-Sidney" or the "Corporation"), Sidney, Ohio, in
regard to the conversion of Peoples Federal Savings and Loan Association of
Sidney ("Peoples") from a federally-chartered mutual savings and loan
association to a federally-chartered stock savings and loan association.
Because the Subscription Rights to purchase shares of Common Stock in
Peoples-Sidney, which are to be issued to the depositors of Peoples and the
other members of Peoples and will be acquired by such recipients without cost,
will be nontransferable and of short duration and will afford the recipients the
right only to purchase shares of Common Stock at the same price as will be paid
by members of the general public in a Direct Community Offering, we are of the
opinion that:
(1) The Subscription Rights will have no ascertainable fair market
value, and;
(2) The price at which the Subscription Rights are exercisable will not
be more or less than the fair market value of the shares on the date of the
exercise.
Further, it is our opinion that the Subscription Rights will have no economic
value on the date of distribution or at the time of exercise, whether or not a
community offering takes place.
Sincerely,
KELLER & COMPANY, INC.
/s/ Michael R. Keller
- -----------------------------------
Michael R. Keller
President
<PAGE>
Exhibit 10.1
PEOPLES-SIDNEY FINANCIAL CORPORATION
EMPLOYEE STOCK OWNERSHIP PLAN
Effective as of July 1, 1996
<PAGE>
PEOPLES-SIDNEY FINANCIAL CORPORATION
EMPLOYEE STOCK OWNERSHIP PLAN
TABLE OF CONTENTS
Page
----
PREAMBLE 1
ARTICLE I DEFINITION OF TERMS AND CONSTRUCTION
1.1 Definitions
(a) "Act" 2
(b) "Administrator" 2
(c) "Annual Additions" 2
(d) "Authorized Leave of Absence" 2
(e) "Beneficiary" 2
(f) "Board of Directors" 3
(g) "Break" 3
(h) "Code" 3
(i) "Compensation" 3
(j) "Date of Hire" 3
(k) "Disability" 4
(l) "Disability Retirement Date" 4
(m) "Early Retirement Date" 4
(n) "Effective Date" 4
(o) "Eligibility Period" 4
(p) "Employee" 4
(q) "Employer" 4
(r) "Employer Securities" 4
(s) "Entry Date" 4
(t) "Exempt Loan" 4
(u) "Former Participant" 5
(v) "Fund" 5
(w) "Hour of Service" 5
(x) "Investment Adjustments" 6
(y) "Limitation Year" 6
(z) "Normal Retirement Date" 6
(aa) "Participant" 6
(bb) "Plan" 6
(cc) "Plan Year" 6
(dd) "Qualified Domestic Relations Order" 6
(ee) "Retirement" 7
(ff) "Service" 7
(gg) "Sponsor" 7
(hh) "Trust Agreement" 7
(ii) "Trustee" 7
-i-
<PAGE>
Page
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(jj) "Valuation Date" 7
(kk) "Year of Service" 7
1.2 Plurals and Gender 8
1.3 Incorporation of Trust Agreement 8
1.4 Headings 8
1.5 Severability 8
1.6 References to Governmental Regulations 8
ARTICLE II PARTICIPATION
2.1 Commencement of Participation 9
2.2 Termination of Participation 9
2.3 Resumption of Participation 9
2.4 Determination of Eligibility 10
ARTICLE III CREDITED SERVICE
3.1 Service Counted for Eligibility Purposes 11
3.2 Service Counted for Vesting Purposes 11
3.3 Credit for Pre-Break Service 11
3.4 Service Credit During Authorized Leaves 11
3.5 Service Credit During Maternity or
Paternity Leave 12
3.6 Ineligible Employees 12
ARTICLE IV CONTRIBUTIONS
4.1 Employee Stock Ownership Contributions 13
4.2 Time and Manner of Employee Stock Ownership
Contributions 13
4.3 Records of Contributions 14
4.4 Erroneous Contributions 14
ARTICLE V ACCOUNTS, ALLOCATIONS AND INVESTMENTS
5.1 Establishment of Separate Participant
Accounts 16
5.2 Establishment of Suspense Account 16
5.3 Allocation of Earnings, Losses and Expenses 17
5.4 Allocation of Forfeitures 17
5.5 Allocation of Annual Employee Stock
Ownership Contributions 17
5.6 Limitation on Annual Additions 18
5.7 Erroneous Allocations 21
5.8 Value of Participant's Interest in Fund 22
5.9 Investment of Account Balances 22
-ii-
<PAGE>
Page
----
ARTICLE VI RETIREMENT, DEATH AND DESIGNATION
OF BENEFICIARY
6.1 Normal Retirement 23
6.2 Early Retirement 23
6.3 Disability Retirement 23
6.4 Death Benefits 23
6.5 Designation of Death Beneficiary and
Manner of Payment 24
ARTICLE VII VESTING AND FORFEITURES
7.1 Vesting on Death, Disability, Normal Retirement 25
7.2 Vesting on Termination of Participation 25
7.3 Disposition of Forfeitures 25
ARTICLE VIII EMPLOYEE STOCK OWNERSHIP RULES
8.1 Right to Demand Employer Securities 27
8.2 Voting Rights 27
8.3 Nondiscrimination in Employee Stock Ownership
Contributions 28
8.4 Dividends 28
8.5 Exempt Loans 29
8.6 Exempt Loan Payments 30
8.7 Put Option 31
8.8 Diversification Requirements 32
8.9 Independent Appraiser 32
ARTICLE IX PAYMENTS AND DISTRIBUTIONS
9.1 Payments on Termination of Service
- In General 33
9.2 Commencement of Payments 33
9.3 Mandatory Commencement of Benefits 34
9.4 Required Beginning Dates 36
9.5 Form of Payment 37
9.6 Payments Upon Termination of Plan 37
9.7 Distribution Pursuant to Qualified
Domestic Relations Orders 38
9.8 Cash-Out Distributions 38
9.9 ESOP Distribution Rules 39
9.10 Withholding 39
9.11 Waiver of 30-day Notice 40
-iii-
<PAGE>
Page
----
ARTICLE X PROVISIONS RELATING TO TOP-HEAVY PLANS
10.1 Top-Heavy Rules to Control 41
10.2 Top-Heavy Plan Definitions 41
10.3 Calculation of Accrued Benefits 43
10.4 Determination of Top-Heavy Status 44
10.5 Determination of Super Top-Heavy Status 45
10.6 Minimum Contribution 45
10.7 Vesting 46
10.8 Maximum Benefit Limitation 47
ARTICLE XI ADMINISTRATION
11.1 Appointment of Administrator 48
11.2 Resignation or Removal of Administrator 48
11.3 Appointment of Successors: Terms of
Office, Etc. 48
11.4 Powers and Duties of Administrator 48
11.5 Action by Administrator 50
11.6 Participation by Administrators 50
11.7 Agents 50
11.8 Allocation of Duties 50
11.9 Delegation of Duties 50
11.10 Administrator's Action Conclusive 51
11.11 Compensation and Expenses of
Administrator 51
11.12 Records and Reports 51
11.13 Reports of Fund Open to Participants 51
11.14 Named Fiduciary 51
11.15 Information from Employer 52
11.16 Reservation of Rights by Employer 52
11.17 Liability and Indemnification 52
11.18 Service as Trustee and Administrator 53
ARTICLE XII CLAIMS PROCEDURE
12.1 Notice of Denial 54
12.2 Right to Reconsideration 54
12.3 Review of Documents 54
12.4 Decision by Administrator 54
12.5 Notice by Administrator 54
ARTICLE XIII AMENDMENTS, TERMINATION AND MERGER
13.1 Amendments 55
13.2 Consolidation, Merger or Other
Transactions of Employer 56
13.3 Consolidation or Merger of Trust 56
-iv-
<PAGE>
Page
----
13.4 Bankruptcy or Insolvency of Employer 56
13.5 Voluntary Termination 57
13.6 Partial Termination of Plan or Permanent
Discontinuance of Contributions 57
ARTICLE XIV MISCELLANEOUS
14.1 No Diversion of Funds 58
14.2 Liability Limited 58
14.3 Incapacity 58
14.4 Spendthrift Clause 58
14.5 Benefits Limited to Fund 59
14.6 Cooperation of Parties 59
14.7 Payments Due Missing Persons 59
14.8 Governing Law 60
14.9 Nonguarantee of Employment 60
14.10 Counsel 60
-v-
<PAGE>
PEOPLES-SIDNEY FINANCIAL CORPORATION
EMPLOYEE STOCK OWNERSHIP PLAN
PREAMBLE
--------
Effective as of July 1, 1996, Peoples-Sidney Financial Corporation, a
Delaware corporation, (the "Sponsor"), has adopted the Peoples-Sidney Financial
Corporation Employee Stock Ownership Plan in order to enable Participants to
share in the growth and prosperity of the Sponsor and its wholly owned
subsidiary, Peoples Federal Savings and Loan Association, and to provide
Participants with an opportunity to accumulate capital for their future economic
security by accumulating funds to provide retirement, death and disability
benefits. The Plan is a stock bonus plan designed to meet the requirements of an
employee stock ownership plan as described at Section 4975(e)(7) of the Code and
Section 407(d)(6) of ERISA. The primary purpose of the employee stock ownership
plan is to invest in employer securities. The Sponsor intends that the Plan will
qualify under Sections 401(a) and 501(a) of the Code and will comply with the
provisions of ERISA. The Plan has been drafted to comply with the Tax Reform Act
of 1986, the Omnibus Budget Reconciliation Act of 1986, the Omnibus Budget
Reconciliation Act of 1987, the Technical and Miscellaneous Revenue Act of 1988,
the Revenue Reconciliation Act of 1989, the Omnibus Budget Reconciliation Act of
1993, and the Small Business Job Protection Act of 1986.
The terms of this Plan shall apply only with respect to Employees of
the Employer on and after July 1, 1996.
-1-
<PAGE>
ARTICLE I
DEFINITION OF TERMS AND CONSTRUCTION
------------------------------------
1.1 Definitions.
Unless a different meaning is plainly implied by the context, the
following terms as used in this Plan shall have the following meanings:
(a) "Act" shall mean the Employee Retirement Income Security Act of
1974, as amended from time to time, or any successor statute.
(b) "Administrator" shall mean the administrative committee provided
for in Article XI.
(c) "Annual Additions" shall mean, with respect to each Participant,
the sum of those amounts allocated to the Participant's accounts under this Plan
and under any other qualified defined contribution plan to which the Employer
contributes for any Limitation Year, consisting of the following:
(1) Employer contributions;
(2) Forfeitures; and
(3) Voluntary contributions (if any).
(d) "Authorized Leave of Absence" shall mean an absence from Service
with respect to which the Employee may or may not be entitled to Compensation
and which meets any one of the following requirements:
(1) Service in any of the armed forces of the United States
for up to 36 months, provided that the Employee resumes Service within 90 days
after discharge, or such longer period of time during which such Employee's
employment rights are protected by law; or
(2) Any other absence or leave expressly approved and granted
by the Employer which does not exceed 24 months, provided that the Employee
resumes Service at or before the end of such approved leave period. In approving
such leaves of absence, the Employer shall treat all Employees on a uniform and
nondiscriminatory basis.
(e) "Beneficiary" shall mean such persons as may be designated by the
Participant to receive benefits after the death of the Participant, or such
persons designated by the Administrator to receive benefits after the death of
the Participant, all as provided in Section 6.5.
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(f) "Board of Directors" shall mean the Board of Directors of the
Sponsor.
(g) "Break" shall mean a Plan Year during which an Employee fails to
complete more than 500 Hours of Service.
(h) "Code" shall mean the Internal Revenue Code of 1986, as amended
from time to time, or any successor statute.
(i) "Compensation" shall mean the amount of remuneration paid to an
Employee by the Employer, after the date on which the Employee becomes a
Participant, for services rendered to the Employer during a Plan Year, including
base salary, bonuses, overtime and commissions, and any amount of compensation
contributed pursuant to a salary reduction election under Code Section 401(k)
and any amount of compensation contributed to a cafeteria plan described at
Section 125 of the Code, but excluding amounts paid by the Employer or accrued
with respect to this Plan or any other qualified or non-qualified unfunded plan
of deferred compensation or other employee welfare plan to which the Employer
contributes, payments for group insurance, medical benefits, reimbursement for
expenses, and other forms of extraordinary pay, and excluding amounts accrued
for a prior year.
Notwithstanding the foregoing, for purposes of complying with Code Section 415,
a Participant's contributions to the 401(k) Plan and cafeteria plan shall not be
included in the Participant's compensation. Notwithstanding anything herein to
the contrary, the annual Compensation of each Participant taken into account
under the Plan for any Plan Year shall not exceed $150,000, as adjusted from
time to time in accordance with Section 415(d) of the Code. In determining the
compensation of a Participant for purposes of this limitation, the rules of
section 414(q)(6) of the Code shall apply, except in applying such rules, the
term "family" shall include only the spouse of the Participant and any lineal
descendants of the Participant who have not attained age 19 before the close of
the year. If, as a result of such rules, the adjusted $150,000 limitation is
exceeded, then (except for purposes of determining the portion of compensation
up to the integration level), the limitation shall be prorated among the
affected individuals in proportion to each such individual's compensation as
determined under this section prior to the application of this limitation.
(j) "Date of Hire" shall mean the date on which a person shall perform
his first Hour of Service. Notwithstanding the foregoing, in the event a person
incurs one or more consecutive Breaks after his initial Date of Hire which
results in the forfeiture of his pre-Break Service pursuant to Section 3.3, his
"Date of Hire" shall thereafter be the date on which he completes his first Hour
of Service after such Break or Breaks.
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(k) "Disability" shall mean a physical or mental impairment which
prohibits a Participant from engaging in any occupation for wages or profit and
which has caused the Social Security Administration to classify the individual
as "disabled" for purposes of Social Security.
(l) "Disability Retirement Date" shall mean the first day of
the month after which a Participant incurs a Disability.
(m) "Early Retirement Date" shall mean the first day of the month
coincident with or next following the date on which a Participant attains age 55
and completes 5 Years of Service.
(n) "Effective Date" shall mean July 1, 1996.
(o) "Eligibility Period" shall mean the period of 12 consecutive months
commencing on an Employee's Date of Hire. Succeeding eligibility computation
periods after the initial eligibility computation period shall be based on Plan
Years which include the first anniversary of an Employee's Date of Hire.
(p) "Employee" shall mean any person employed by the Employer,
including officers but excluding directors in their capacity as such; provided,
however, that the term "Employee" shall not include leased employees, employees
regularly employed outside the employer's own offices in connection with the
operation and maintenance of buildings or other properties acquired through
foreclosure or deed, and any employee included in a unit of employees covered by
a collective-bargaining agreement with the Employer that does not expressly
provide for participation of such employees in this Plan, where there has been
good-faith bargaining between the Employer and employees' representatives on the
subject of retirement benefits.
(q) "Employer" shall mean Peoples-Sidney Financial Corporation, a
Delaware corporation, and its wholly owned subsidiary, Peoples Federal Savings
and Loan Association, or any successors to the aforesaid corporations by merger,
consolidation or otherwise, which may agree to continue this Plan, or any
affiliated or subsidiary corporation or business organization of any Employer
which, with the consent of the Sponsor, shall agree to become a party to this
Plan.
(r) "Employer Securities" shall mean the common stock issued
by Peoples-Sidney Financial Corporation, a Delaware corporation.
(s) "Entry Date" shall mean each January 1 and July 1, so long as this
Plan shall remain in effect.
(t) "Exempt Loan" shall mean a loan described at Section 4975(d)(1) of
the Code to the Trustee to purchase Employer Securities for the Plan, made or
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guaranteed by a disqualified person, as defined at Section 4975(e)(2) of the
Code, including, but not limited to, a direct loan of cash, a purchase money
transaction, an assumption of an obligation of the Trustee, an unsecured
guarantee or the use of assets of such disqualified person as collateral for
such a loan.
(u) "Former Participant" shall mean any previous Participant
whose participation has terminated but who has a vested interest in
the Plan which has not been distributed in full.
(v) "Fund" shall mean the Fund maintained by the Trustee pursuant to
the Trust Agreement in order to provide for the payment of the benefits
specified in the Plan.
(w) "Hour of Service" shall mean each hour for which an Employee is
directly or indirectly paid or entitled to payment by an Employer for the
performance of duties or for reasons other than the performance of duties (such
as vacation time, holidays, sickness, disability, paid lay-offs, jury duty and
similar periods of paid nonworking time). To the extent not otherwise included,
Hours of Service shall also include each hour for which back pay, irrespective
of mitigation of damages, is either awarded or agreed to by the Employer. Hours
of working time shall be credited on the basis of actual hours worked, even
though compensated at a premium rate for overtime or other reasons. In computing
and crediting Hours of Service for an Employee under this Plan, the rules set
forth in Sections 2530.200b-2(b) and (c) of the Department of Labor Regulations
shall apply, said Sections being herein incorporated by reference. Hours of
Service shall be credited to the Plan Year or other relevant period during which
the services were performed or the nonworking time occurred, regardless of the
time when Compensation therefor may be paid. Any Employee for whom no hourly
employment records are kept by the Employer shall be credited with 45 Hours of
Service for each calendar week in which he would have been credited with a least
one Hour or Service under the foregoing provisions, if hourly records were
available. Effective January 1, 1985, for absences commencing on or after that
date, solely for purposes of determining whether a Break for participation and
vesting purposes has occurred in an Eligibility Period or Plan Year, an
individual who is absent from work for maternity or paternity reasons shall
receive credit for the Hours of Service which would otherwise have been credited
to such individual but for such absence, or in any case in which such hours
cannot be determined, 8 Hours of Service per day of such absence. For purposes
of this Section 1.1(w), an absence from work for maternity or paternity reasons
means an absence (1) by reason of the pregnancy of the individual, (2) by reason
of a birth of a child of the individual, (3) by reason of the placement of a
child with the individual in connection with the adoption of such child by such
individual, or (4) for purposes of caring for such child for a period beginning
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immediately following such birth or placement. The Hours of Service credited
under this provision shall be credited (1) in the computation period in which
the absence begins if the crediting is necessary to prevent a Break in that
period, or (2) in all other cases, in the following computation period.
(x) "Investment Adjustments" shall mean the increases and/or decreases
in the value of a Participant's accounts attributable to earnings, gains, losses
and expenses of the Fund, as set forth in Section 5.3.
(y) "Limitation Year" shall mean the Plan Year.
(z) "Normal Retirement Date" shall mean the first day of the month
coincident with or during which a Participant attains age 65 and completes the
fifth anniversary of his participation in the Plan.
(aa) "Participant" shall mean an Employee who has met all of the
eligibility requirements of the Plan and who is currently included in the Plan
as provided in Article II hereof.
(bb) "Plan" shall mean the Peoples-Sidney Financial Corporation
Employee Stock Ownership Plan, as described herein or as hereafter amended from
time to time.
(cc) "Plan Year" shall mean any 12 consecutive month period commencing
on July 1 and ending on June 30.
(dd) "Qualified Domestic Relations Order" shall mean any judgment,
decree or order (including approval of a property settlement agreement) that
relates to the provision of child support, alimony, marital property rights to a
spouse, former spouse, child or other dependent of the Participant (all such
persons hereinafter termed "alternate payee") and is made pursuant to a State
domestic relations law (including community property law) and, further, that
creates or recognizes the existence of an alternate payee's right to, or assigns
to an alternate payee the right to receive all or a portion of the benefits
payable with respect to a Participant and that clearly specifies the following:
(1) the name and last known mailing address (if available) of
the Participant and the name and mailing address of each alternate
payee to which the order relates;
(2) the amount or percentage of the Participant's benefits
to be paid to an alternate payee or the manner in which the
amount is to be determined; and
(3) the number of payments or period for which payments
are required.
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A domestic relations order is not a Qualified Domestic Relations Order
if it:
(1) requires the Plan to provide any type or form of
benefit or any option not otherwise provided under the Plan;
or,
(2) requires the Plan to provide increased benefits, or
(3) requires payment of benefits to an alternate payee that is
required to be paid to another alternate payee under a previously
existing Qualified Domestic Relations Order.
(ee) "Retirement" shall mean termination of employment which qualifies
as early, normal or Disability retirement as described in Article VI.
(ff) "Service" shall mean employment with the Employer.
(gg) "Sponsor" shall mean Peoples-Sidney Financial Corporation,
a Delaware corporation.
(hh) "Trust Agreement" shall mean the agreement, dated February ___,
1997 by and between Peoples-Sidney Financial Corporation, a Delaware
corporation, and First Bankers Trust Co., N.A., of Quincy, Illinois.
(ii) "Trustee" shall mean the Trustee or Trustees by whom the assets of
the Plan are held, as provided in the Trust Agreement, or his or their
successors.
(jj) "Valuation Date" shall mean the last day of each Plan Year. The
Trustee may make additional valuations, at the instruction of the Administrator,
but in no event may the Administrator request additional valuations by the
Trustee more frequently than quarterly. Whenever such date falls on a Saturday,
Sunday or holiday, the preceding business day shall be the Valuation Date.
(kk) "Year of Service" shall mean any Plan Year during which an
Employee has completed at least 1,000 Hours of Service, except as otherwise
specified in Article III, in the determination of Years of Service for
eligibility and vesting purposes under this Plan, the term "Year of Service"
shall also mean any Plan Year during which an Employee has completed at least
1,000 Hours of Service with an entity that is:
(1) a member of a controlled group including the Employer,
while it is a member of such controlled group (within the meaning of
Section 414(b) of the Code);
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(2) in a group of trades or businesses under common control
with the Employer, while it is under common control (within the meaning
of Section 414(c) of the Code);
(3) a member of an affiliated service group including the
Employer, while it is a member of such affiliated service group (within
the meaning of Section 414(m) of the Code); or
(4) a leasing organization, under the circumstances
described in Section 414(n) of the Code.
1.2 Plurals and Gender.
Where appearing in the Plan and the Trust Agreement, the masculine
gender shall include the feminine and neuter genders, and the singular shall
include the plural, and vice versa, unless the context clearly indicates a
different meaning.
1.3 Incorporation of Trust Agreement.
The Trust Agreement, as the same may be amended from time to time, is
intended to be and hereby is incorporated by reference into this Plan and for
all purposes shall be deemed a part of the Plan.
1.4 Headings.
The headings and sub-headings in this Plan are inserted for the
convenience of reference only and are to be ignored in any construction of the
provisions hereof.
1.5 Severability.
In case any provision of this Plan shall be held illegal or void, such
illegality or invalidity shall not affect the remaining provisions of this Plan,
but shall be fully severable, and the Plan shall be construed and enforced as if
said illegal or invalid provisions had never been inserted herein.
1.6 References to Governmental Regulations.
References in this Plan to regulations issued by the Internal Revenue
Service, the Department of Labor, or other governmental agencies shall include
all regulations, rulings, procedures, releases and other position statements
issued by any such agency.
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ARTICLE II
PARTICIPATION
-------------
2.1 Commencement of Participation.
(a) Any Employee who completes at least 1,000 Hours of Service during
his Eligibility Period or during any Plan Year beginning after his Date of Hire
shall initially become a Participant on the Entry Date coincident with or next
following the later of the following dates, provided he is employed by the
Employer on that Entry Date:
(1) The date which is 12 months after his Date of Hire;
and
(2) The date on which he attains age 21.
(b) Any Employee who had satisfied the requirements set forth in
Section 2.1(a) during the 12-month period prior to the Effective Date shall
become a Participant on the Effective Date, provided he is still employed by the
Employer on the Effective Date.
2.2 Termination of Participation.
After commencement or resumption of his participation, an Employee
shall remain a Participant during each consecutive Plan Year thereafter until
the earliest of the following dates:
(a) His actual Retirement date;
(b) His date of death; or
(c) The last day of a Plan Year during which he incurs a Break.
2.3 Resumption of Participation.
(a) Any Participant whose employment terminates and who resumes Service
before he incurs a Break shall resume participation immediately on the date he
is reemployed.
(b) Except as otherwise provided in Section 2.3(c), any Participant who
incurs one or more Breaks and resumes Service shall resume participation
retroactively as of the first day of the first Plan Year in which he completes a
Year of Service after such Break(s).
(c) Any Participant who incurs one or more Breaks and resumes Service,
but whose pre-Break Service is not reinstated to his credit pursuant to Section
3.3, shall be treated as a new Employee and shall again be required to satisfy
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the eligibility requirements contained in Section 2.1 before resuming
participation on the appropriate Entry Date, as specified in Section 2.1.
2.4 Determination of Eligibility.
The Administrator shall determine the eligibility of Employees in
accordance with the provisions of this Article. For each Plan Year, the Employer
shall furnish the Administrator a list of all Employees, indicating the original
date of their reemployment with the Employer and any Breaks they may have
incurred.
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ARTICLE III
CREDITED SERVICE
----------------
3.1 Service Counted for Eligibility Purposes.
Except as provided in Section 3.3, all Years of Service completed by an
Employee shall be counted in determining his eligibility to become a Participant
on and after the Effective Date, whether such Service was completed before or
after the Effective Date.
3.2 Service Counted for Vesting Purposes.
All Years of Service completed by an Employee (including Years of
Service completed prior to the Effective Date) shall be counted in determining
his vested interest in this Plan, except the following:
(a) Service which is disregarded under the provisions of Section 3.3;
(b) Service prior to the Effective Date of this Plan if such Service
would have been disregarded under the "break in service" rules (within the
meaning of Section 1.411(a)-5(b)(6) of the Treasury Regulations).
3.3 Credit for Pre-Break Service.
Upon his resumption of participation following one or a series of
consecutive Breaks, an Employee's pre-Break Service shall be reinstated to his
credit for all purposes of this Plan only if either:
(a) He was vested in any portion of his accrued benefit at the time
the Break(s) began; or
(b) The number of his consecutive Breaks does not equal or exceed the
greater of 5 or the number of his Years of Service credited to him before the
Breaks began.
Except as provided in the foregoing, none of an Employee's Service
prior to one or a series of consecutive Breaks shall be counted for any purpose
in connection with his participation in this Plan thereafter.
3.4 Service Credit During Authorized Leaves.
An Employee shall receive no Service credit under Section 3.1 or 3.2
during any Authorized Leave of Absence. However, solely for the purpose of
determining whether he has incurred a Break during any Plan Year in which he is
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absent from Service for one or more Authorized Leaves of Absence, he shall be
credited with 45 Hours of Service for each week during any such leave period.
Notwithstanding the foregoing, if an Employee fails to return to Service on or
before the end of a leave period, he shall be deemed to have terminated Service
as of the first day of such leave period and his credit for Hours of Service,
determined under this Section 3.4, shall be revoked. Notwithstanding anything
contained herein to the contrary, an Employee who is absent by reason of
military service as set forth in Section 1.1(d)(1) shall be given Service credit
under this Plan for such military leave period to the extent, and for all
purposes, required by law.
3.5 Service Credit During Maternity or Paternity Leave.
Effective for absences beginning on or after January 1, 1985, for
purposes of determining whether a Break has occurred for participation and
vesting purposes, an individual who is on maternity or paternity leave as
described in Section 1.1(w), shall be deemed to have completed Hours of Service
during such period of absence, all in accordance with Section 1.1(w).
Notwithstanding the foregoing, no credit shall be given for such Hours of
Service unless the individual furnishes to the Administrator such timely
information as the Administrator may reasonably require to determine:
(a) that the absence from Service was attributable to one of
the maternity or paternity reasons enumerated in Section 1.1(w); and
(b) the number of days for which such absence lasted.
In no event, however, shall any credit be given for such leave other than for
determining whether a Break has occurred.
3.6 Ineligible Employees.
Notwithstanding any provisions of this Plan to the contrary, any person
who is employed by the Employer, but who is ineligible to participate in this
Plan, either because of his failure
(a) To meet the eligibility requirements contained in Article II; or
(b) To be an Employee, as defined in Section 1.1(p), shall,
nevertheless, earn Years of Service for eligibility and vesting purposes
pursuant to the rules contained in this Article III. However, such a person
shall not be entitled to receive any contributions hereunder unless and until he
becomes a Participant in this Plan, and then, only during his period of
participation.
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ARTICLE IV
CONTRIBUTIONS
-------------
4.1 Employee Stock Ownership Contributions.
(a) Subject to all of the provisions of this Article IV, for each Plan
Year commencing on or after the Effective Date, the Employer shall make an
Employee Stock Ownership contribution to the Fund, in such amount as may be
determined by the Board of Directors in its discretion. Such contribution shall
be in the form of cash or Employer Securities. In determining the value of
Employer Securities transferred to the Fund as an Employee Stock Ownership
contribution, the Administrator may determine the average of closing prices of
such securities for a period of up to 90 consecutive days immediately preceding
the date on which the securities are contributed to the Fund. In the event that
the Employer Securities are not readily tradable on an established securities
market, the value of the Employer Securities transferred to the Fund shall be
determined by an independent appraiser in accordance with Section 8.9.
(b) In no event shall such contribution by the Employer exceed for any
Plan Year the maximum amount that may be deducted by the Employer under Section
404 of the Code, nor shall such contribution cause the Employer to violate its
regulatory capital requirements. Each Employee Stock Ownership contribution by
the Employer shall be deemed to be made on the express condition that the Plan,
as then in effect, shall be qualified under Sections 401 and 501 of the Code and
that the amount of such contribution shall be deductible from the Employer's
income under Section 404 of the Code.
4.2 Time and Manner of Employee Stock Ownership Contributions.
(a) The Employee Stock Ownership contribution (if any) for each Plan
Year shall be paid to the Trustee in one lump sum or installments at any time on
or before the expiration of the time prescribed by law (including any
extensions) for filing of the Employer's federal income tax return for its
fiscal year ending concurrent with or during such Plan Year. Any portion of the
Employee Stock Ownership contribution for each Plan Year that may be made prior
to the last day of the Plan Year shall be maintained by the Trustee in the
Employee Stock Ownership suspense account described in Section 5.2 until the
last day of such Plan Year.
(b) If an Employee Stock Ownership contribution for a Plan Year is paid
after the close of the Employer's fiscal year which ends concurrent with or
during such Plan Year but on or prior to the due date (including any extensions)
for filing of the Employer's federal income tax return for such fiscal year, it
shall be considered, for allocation purposes, as an Employee Stock Ownership
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contribution to the Fund for the Plan Year for which it was computed and
accrued, unless such contribution is accompanied by a statement to the Trustee,
signed by a representative of the Employer, which specifies that the Employee
Stock Ownership contribution is made with respect to the Plan Year in which it
is received by the Trustee. Any Employee Stock Ownership contribution paid by
the Employer during any Plan Year but after the due date (including any
extensions) for filing of its federal income tax return for the fiscal year of
the Employer ending on or before the last day of the preceding Plan Year shall
be treated, for allocation purposes, as an Employee Stock Ownership contribution
to the Fund for the Plan Year in which the contribution is paid to the Trustee.
(c) Notwithstanding anything contained herein to the contrary, no
Employee Stock Ownership contribution shall be made for any year during which a
"limitations account" created pursuant to Section 5.6(c)(2) is in existence
until the balance of such limitations account has been reallocated in accordance
with Section 5.6(c)(2).
4.3 Records of Contributions.
The Employer shall deliver at least annually to the Trustee, with
respect to the contributions contemplated in Section 4.1, a certificate of the
Administrator, in such form as the Trustee shall approve, setting forth:
(a) The aggregate amount of contributions, if any, to the Fund for such
Plan Year;
(b) The names, Internal Revenue Service identifying numbers and current
residential addresses of all Participants in the Plan;
(c) The amount and category of contributions to be allocated to each
such Participant; and
(d) Any other information reasonably required for the proper operation
of the Plan.
4.4 Erroneous Contributions.
(a) Notwithstanding anything herein to the contrary, upon the
Employer's request, a contribution which was made by a mistake of fact, or
conditioned upon the initial qualification of the Plan, under Code Section 401,
or upon the deductibility of the contribution under Section 404 of the Code,
shall be returned to the Employer by the Trustee within one year after the
payment of the contribution, the denial of the qualification or the disallowance
of the deduction (to the extent disallowed), whichever is applicable; provided,
however, that in the case of denial of the initial qualification of the Plan, a
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contribution shall not be returned unless an Application for Determination has
been timely filed with the Internal Revenue Service. Any portion of a
contribution returned pursuant to this Section 4.4 shall be adjusted to reflect
its proportionate share of the losses of the fund, but shall not be adjusted to
reflect any earnings or gains. Notwithstanding any provisions of this Plan to
the contrary, the right or claim of any Participant or Beneficiary to any asset
of the Fund or any benefit under this Plan shall be subject to and limited by
this Section 4.4.
(b) In no event shall voluntary Employee contributions be accepted. Any
such voluntary Employee contributions (and any earnings attributable thereto)
mistakenly received by the Trustee shall promptly be returned to the
Participant.
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ARTICLE V
ACCOUNTS, ALLOCATIONS AND INVESTMENTS
--------------------------------------
5.1 Establishment of Separate Participant Accounts.
The Administrator shall establish and maintain separate individual
accounts for Participants in the Plan and for each Former Participant in
accordance with the provisions of this Article V. Such separate accounts shall
be for accounting purposes only and shall not require a segregation of the Fund,
and no Participant, Former Participant or Beneficiary shall acquire any right to
or interest in any specific assets of the Fund as a result of the allocations
provided for under this Plan, except where segregation is expressly provided for
in this Plan.
(a) Employee Stock Ownership Accounts.
The Administrator shall establish a separate Employee Stock Ownership
Account in the Fund for each Participant. The account shall be credited as of
the last day of each Plan Year with the amounts allocated to the Participant
under Sections 5.4 and 5.5. The Administrator may establish subaccounts
hereunder, an Employer Stock Account reflecting a Participant's interest in
Employer Securities held by the Trust and an Other Investments Account
reflecting the Participant's interest in his Employee Stock Ownership Account
other than Employer Securities.
(b) Distribution Accounts.
In any case where distribution of a terminated Participant's vested
interest in the Plan is to be deferred, the Administrator shall establish a
separate, nonforfeitable account in the Fund to which the balance in his
Employee Stock Ownership Account in the Plan shall be transferred after such
Participant incurs a Break. Unless the Former Participant's distribution
accounts are segregated for investment purposes pursuant to section 9.4, they
shall share in Investment Adjustments.
(c) Other Accounts.
The Administrator shall establish such other separate accounts for each
Participant as may be necessary or desirable for the convenient administration
of the Fund.
5.2 Establishment of Suspense Accounts.
The Administrator shall establish separate accounts to be known as
"suspense accounts." There shall be credited to such appropriate suspense
accounts any Employee Stock Ownership contributions that may be made prior to
the last day of the Plan Year, as provided in Section 4.2. The suspense accounts
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shall share proportionately as to time and amount in any Investment Adjustments.
As of the last day of each Plan Year, the balance of the Employee Stock
Ownership suspense account shall be added to the Employee Stock Ownership
contribution and allocated to the Employee Stock Ownership Accounts of
Participants as provided in Section 5.5, except as provided herein. In the event
that the Plan takes an Exempt Loan, the Employer Securities purchased thereby
shall be allocated to a separate Exempt Loan Suspense Account, from which
allocations shall be made in accordance with Section 8.5.
5.3 Allocation of Earnings, Losses and Expenses.
As of each Valuation Date, any increase or decrease in the net worth of
the aggregate Employee Stock Ownership Accounts held in the Fund attributable to
earnings, losses, expenses and unrealized appreciation or depreciation in each
such aggregate Account, as determined by the Trustee pursuant to the Trust
Agreement, shall be credited to or deducted from the appropriate suspense
accounts and all Participants' Employee Stock Ownership Accounts (except
segregated distribution accounts described in Section 5.1(b) and the
"limitations account" described in Section 5.6(c)(4)) in the proportion that the
value of each such Account (determined immediately prior to such allocation and
before crediting any Employee Stock Ownership contributions and forfeitures for
the current Plan Year but after adjustment for any transfer to or from such
Accounts and for the time such funds were in such Accounts) bears to the value
of all Employee Stock Ownership Accounts.
5.4 Allocation of Forfeitures.
As of the last day of each Plan Year, all forfeitures attributable to
the Employee Stock Ownership Accounts which are then available for reallocation
shall be, as appropriate, added to the Employee Stock Ownership contribution (if
any) for such year and allocated among the Participants' Employee Stock
Ownership Accounts, as appropriate, in the manner provided in Sections 5.5 and
5.6.
5.5 Allocation of Annual Employee Stock Ownership Contributions.
As of the last day of each Plan Year for which the Employer shall make
an Employee Stock Ownership contribution, the Administrator shall allocate the
Employee Stock Ownership contribution (including reallocable forfeitures) for
such Plan Year to the Employee Stock Ownership account of each Participant who
completed at least 1,000 Hours of Service during that Plan Year, provided that
he is still employed by the Employer on the last day of the Plan Year. Such
allocation shall be made in the same proportion that each such Participant's
Compensation for such Plan Year bears to the total Compensation of all such
Participants for such Plan Year, subject to Section 5.6. Notwithstanding the
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foregoing, if a Participant attains his Normal Retirement Date and terminates
Service prior to the last day of the Plan Year but after completing 1,000 Hours
of Service, he shall be entitled to an allocation based on his Compensation
earned prior to his termination and during the Plan Year. Furthermore, if a
Participant completes 1,000 Hours of Service and is on a Leave of Absence on the
last day of the Plan Year because of pregnancy or other medical reason, such a
Participant shall be entitled to an allocation based on his Compensation earned
during such Plan Year.
5.6 Limitation on Annual Additions.
(a) Notwithstanding any provisions of this Plan to the contrary, the
total Annual Additions credited to a Participant's accounts under this Plan (and
under any other defined contribution plan to which the Employer contributes) for
any Limitation Year shall not exceed the lesser of:
(1) 25% of the Participant's compensation for such
Limitation Year; or
(2) $30,000 (or, if greater, one-fourth of the defined benefit
dollar limitation set forth in Section 415(b)(1)(A) of the Code).
Whenever otherwise allowed by law, the maximum amount of $30,000 shall
be automatically adjusted annually for cost-of-living increases in
accordance with Section 415(d) of the Code and the highest such
increase effective at any time during the Limitation Year shall be
effective for the entire Limitation Year, without any amendment to this
Plan.
(b) Solely for the purpose of this Section 5.6, the term "compensation"
is defined as wages, salaries, and fees for professional services and other
amounts received (without regard to whether or not an amount is paid in cash)
for personal services actually rendered in the course of employment with the
Employer maintaining the Plan to the extent that the amounts are includable in
gross income (including, but not limited to, commissions paid to salesmen,
compensation for services on the basis of a percentage of profits, commissions
on insurance premiums, tips, bonuses, fringe benefits, and reimbursements or
other expense allowances under a nonaccountable plan (as described in Treas.
Regs. ss. 1.62-2(c)), and excluding the following:
(1) Employer contributions to a plan of deferred compensation
which are not includible in the Employee's gross income for the taxable year in
which contributed, or Employer contributions under a simplified employee pension
plan to the extent such contributions are deductible by the Employee, or any
distributions from a plan of deferred compensation;
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(2) Amounts realized from the exercise of a non-qualified
stock option, or when restricted stock (or property) held by the employee either
becomes freely transferable or is no longer subject to a substantial risk of
forfeiture;
(3) Amounts realized from the sale, exchange or other
disposition of stock acquired under a qualified stock option; and
(4) Other amounts which received special tax benefits, or
contributions made by the employer (whether or not under a salary reduction
agreement) towards the purchase of an annuity contract described in section
403(b) of the Code (whether or not the contributions are actually excludable
from the gross income of the Employee).
(c) In the event that the limitations on Annual Additions described in
this Section 5.6(a) above are exceeded with respect to any Participant in any
Limitation Year, then the contributions allocable to the Participant for such
year shall be reduced to the minimum extent required by such limitations in the
following order of priority:
(1) If any further reductions in Annual Additions are
necessary, then the Employee Stock Ownership contributions and
forfeitures allocated during such Limitation Year to the Participant's
Employee Stock Ownership Account shall be reduced. The amount of any
such reductions in the Employee Stock Ownership contributions and
forfeitures shall be reallocated to all other Participants in the same
manner as set forth under Sections 5.4 and 5.5.
(2) Any amounts which cannot be reallocated to other
Participants in a current Limitation Year in accordance with Section
5.6(c)(1) above because of the limitations contained in Sections 5.6(a)
and (d) shall be credited to an account designated as the "limitations
account" and carried forward to the next and subsequent Limitation
Years until it can be reallocated to all Participants as set forth in
Sections 5.4, and 5.5, as appropriate. No Investment Adjustments shall
be allocated to this limitations account. In the next and subsequent
Limitation Years, all amounts in the limitations account must be
allocated in the manner described in Sections 5.4 and 5.5, as
appropriate, before any Employee Stock Ownership contributions may be
made to this Plan for that Limitation Year.
(3) The Administrator shall determine to what extent the
Annual Additions to any Participant's Employee Stock Ownership Account
must be reduced in each Limitation Year. The Administrator shall reduce
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the Annual Additions to all other qualified, tax-exempt retirement
plans maintained by the Employer in accordance with the terms contained
therein for required reductions or reallocations mandated by Section
415 of the Code before reducing any Annual Additions in this Plan.
(4) In the event this Plan is voluntarily terminated by the
Employer under Section 13.5, any amounts credited to the limitations
account described in Section 5.6(c)(2) above which have not be
reallocated as set forth herein shall be distributed to the
Participants who are still employed by the Employer on the date of
termination, in the proportion that each Participant's Compensation
bears to the Compensation of all Participants.
(d) The Annual Additions credited to a Participant's accounts for each
Limitation Year are further limited so that in the case of an Employee who is a
Participant in both this Plan and any qualified defined benefit plan
(hereinafter referred to as a "pension plan") of the Employer, the sum of (1)
and (2) below will not exceed 1.0:
(1) (A) The projected annual normal retirement benefit
of a Participant under the pension plan, divided by
(B) The lesser of:
(i) The product of 1.25 multiplied by the dollar
limitation in effect under Section 415(b)(1)(A) of the Code
for such Limitation Year, or
(ii) The product of 1.4 multiplied by the amount of
compensation which may be taken into account under Section
415(b)(1)(B) of the Code for the Participant for such
Limitation Year; plus
(2) (A) The sum of Annual Additions credited to the
Participant under this Plan for all Limitation Years, divided by:
(B) The sum of the lesser of the following amounts
determined for such Limitation Year and for each prior year of service
with the Employer:
(i) The product of 1.25 multiplied by the dollar
limitation in effect under Section 415(b)(1)(A) of the Code
for such Limitation Year, or
(ii) The product of 1.4 multiplied by the amount of
compensation which may be taken into account under Section
415(b)(1)(B) of the Code for the Participant for such
Limitation Year.
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The Administrator may, in calculating the defined contribution plan
fraction described in Section 5.6(d)(2), elect to use the transitional rule
pursuant to Section 415(e)(6) of the Code, if applicable. If the sum of the
fractions produced above will exceed 1.0, even after the use of the "fresh
start" rule contained in Section 235 of the Tax Equity and Fiscal Responsibility
Act of 1982 ("TEFRA"), if applicable, then the same provisions as stated in
Section 5.6(c) above shall apply. If, even after the reductions provided for in
Section 5.6(c), the sum of the fractions still exceed 1.0, then the benefits of
the Participant provided under the pension plan shall be reduced to the extent
necessary, in accordance with Treasury Regulations issued under the Code. Solely
for the purposes of this Section 5.6(d), the term "years of service" shall mean
all years of service defined by Treasury Regulations issued under Section 415 of
the Code.
(e) In the event that the Employer is a member of (1) a controlled
group of corporations or a group of trades or businesses under common control
(as described in Section 414(b) or (c) of the Code, as modified by Section
415(h) thereof), or (2) an affiliated service group (as described in Section
414(m) of the Code), the Annual Additions credited to any Participant's accounts
in any such Limitation Year shall be further limited by reason of the existence
of all other qualified retirement plans maintained by such affiliated
corporations, other entities under common control or other members of the
affiliated service group, to the extent such reduction is required by Section
415 of the Code and the regulations promulgated thereunder. The Administrator
shall determine if any such reduction in the Annual Additions to a Participant's
accounts is required for this reason, and if so, the same provisions as stated
in 5.6(c) and (d) above shall apply.
(f) Annual Additions shall not include any Employer contributions which
are used by the Trust to pay interest on an Exempt Loan nor any forfeitures of
Employer Securities purchased with the proceeds of an Exempt Loan, provided that
not more than one-third of the Employer contributions are allocated to
Participants who are among the group of employees deemed "highly compensated
employees" within the meaning of Code Section 414(q).
5.7 Erroneous Allocations.
No Participant shall be entitled to any Annual Additions or other
allocations to his accounts in excess of those permitted under Sections 5.3,
5.4, 5.5, and 5.6. If it is determined at anytime that the Administrator and/or
Trustees have erred in accepting and allocating any contributions or forfeitures
under this Plan, or in allocating Investment Adjustments, or in excluding or
including any person as a Participant, then the Administrator, in a uniform and
nondiscriminatory manner, shall determine the manner in which such error shall
be corrected and shall promptly advise the Trustee in writing of such error and
of the method for correcting such error. The accounts of any or all Participants
may be revised, if necessary, in order to correct such error.
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5.8 Value of Participant's Interest in Fund.
At any time, the value of a Participant's interest in the Fund shall
consist of the aggregate value of his Employee Stock Ownership Account and his
distribution account, if any, determined as of the next-preceding Valuation
Date. The Administrator shall maintain adequate records of the cost basis of
Employer Securities allocated to each Participant's Employer Stock Ownership
Account.
5.9 Investment of Account Balances.
The Employee Stock Ownership Accounts shall be invested primarily in
Employer Securities. Employer Securities shall constitute at least 51% of the
assets of all Employee Stock Ownership Accounts. All sales of Employer
Securities by the Trustee attributable to the Employee Stock Ownership Accounts
of all Participants shall be charged pro rata to the Employee Stock Ownership
Accounts of all Participants.
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ARTICLE VI
RETIREMENT, DEATH AND DESIGNATION OF BENEFICIARY
------------------------------------------------
6.1 Normal Retirement.
A Participant who reaches his Normal Retirement Date and who shall
retire at that time shall thereupon be entitled to retirement benefits based on
the value of his interest in the Fund, payable pursuant to the provisions of
Section 9.1. A Participant who remains in Service after his Normal Retirement
Date shall not be entitled to any retirement benefits until his actual
termination of Service thereafter (except as provided in Section 9.3(g)) and he
shall meanwhile continue to participate in this Plan.
6.2 Early Retirement.
A Participant who reaches his Early Retirement Date may retire at such
time (or, at his election, as of the first day of any month thereafter prior to
his Normal Retirement Date) and shall thereupon be entitled to retirement
benefits based on the value of his interest in the Fund, payable pursuant to the
provisions of Section 9.1.
6.3 Disability Retirement.
In the event a Participant incurs a Disability, he may retire on his
Disability Retirement Date and shall thereupon be entitled to retirement
benefits based on the value of his interest in the Fund, payable pursuant to the
provisions of Section 9.1.
6.4 Death Benefits.
(a) Upon the death of a Participant before his Retirement or other
termination of Service, the value of his interest in the Fund shall be payable
pursuant to the provisions of Section 9.1. The Administrator shall direct the
Trustee to distribute his interest in the Fund to any surviving Beneficiary
designated by the Participant or, if none, to such persons designated by the
Administrator pursuant to Section 6.5.
(b) Upon the death of a Former Participant, the Administrator shall
direct the Trustee to distribute any undistributed balance of his interest in
the Fund to any surviving Beneficiary designated by him or, if none, to such
persons designated by the Administrator pursuant to Section 6.5.
(c) The Administrator may require such proper proof of death and such
evidence of the right of any person to receive the interest in the Fund of a
deceased Participant or Former Participant as the Administrator may deem
desirable. The Administrator's determination of death and of the right of any
person to receive payment shall be conclusive.
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6.5 Designation of Death Beneficiary and Manner of Payment.
(a) Each Participant shall have the right to designate a Beneficiary or
Beneficiaries to receive the sum or sums to which he may be entitled upon his
death. The Participant may also designate the manner in which any death benefits
under this Plan shall be payable to his Beneficiary, provided that such
designation is in accordance with Section 9.4. Such designation of Beneficiary
and manner of payment shall be in writing and delivered to the Administrator,
and shall be effective when received by the Administrator. The Participant shall
have the right to change such designation by notice in writing to the
Administrator. Such change of Beneficiary or the manner of payment shall become
effective upon its receipt by the Administrator. Any such change shall be deemed
to revoke all prior designations.
(b) If a Participant shall fail to designate validly a Beneficiary or
if no designated Beneficiary survives the Participant, his interest in the Fund
shall be paid to the person or persons in the first of the following classes of
successive preference Beneficiaries surviving at the death of the Participant:
the Participant's (1) widow or widower, (2) children, (3) parents, and (4)
estate. The Administrator shall decide what Beneficiaries, if any, shall have
been validly designated, and its decision shall be binding and conclusive on all
persons.
(c) Notwithstanding the foregoing, if a Participant has been married
throughout the 12 month period preceding the date of his death, the sum or sums
to which he may be entitled under this Plan upon his death shall be paid to his
spouse, unless the Participant's spouse shall have consented to the election of
another Beneficiary. Such a spousal consent shall be in writing and shall be
witnessed either by a representative of the Plan or a notary public. If it is
established to the satisfaction of the Administrator that such spousal consent
cannot be obtained because there is no spouse, because the spouse cannot be
located, or other reasons prescribed by governmental regulations, the consent of
the spouse may be waived, and the Participant may designate a Beneficiary or
Beneficiaries other than his spouse.
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ARTICLE VII
VESTING AND FORFEITURES
-----------------------
7.1 Vesting on Death, Disability and Normal Retirement.
Unless his participation in this Plan shall have terminated prior
thereto, upon a Participant's death, Disability or upon his attainment of Normal
Retirement Date (whether or not he actually retires at that time) while he is
still employed by the Employer, the Participant's entire interest in the Fund
shall be fully vested and nonforfeitable.
7.2 Vesting on Termination of Participation.
Upon termination of his participation in this Plan for any reason other
than death, Disability, or Normal Retirement, a Participant shall be vested in a
percentage of his Employee Stock Ownership Account, such vested percentages to
be determined under the following table, based on the Years of Service
(including Years of Service prior to the Effective Date) credited to him for
vesting purposes at the time of his termination of participation:
Years of Service Completed Percentage Vested
-------------------------- -----------------
Less than 5 0%
5 or more 100%
Any portion of the Participant's Employee Stock Ownership Account which
is not vested at the time he incurs a Break shall thereupon be forfeited and
disposed of pursuant to Section 7.3. Distribution of the vested portion of a
terminated Participant's interest in the Plan may be authorized by the
Administrator in any manner permitted under Section 9.1.
7.3 Disposition of Forfeitures.
(a) In the event a Participant incurs a Break and subsequently resumes
both his Service and his participation in the Plan prior to incurring at least 5
Breaks, the forfeitable portion of his Employee Stock Ownership Account shall be
reinstated to the credit of the Participant as of the date he resumes
participation.
(b) In the event a Participant terminates Service and subsequently
incurs a Break and receives a distribution, or in the event a Participant does
not terminate Service, but incurs at least 5 Breaks, or in the event that a
Participant terminates Service and incurs at least 5 Breaks but has not received
a distribution, then the forfeitable portion of his Employer Account, including
Investment Adjustments, shall be reallocated to other Participants, pursuant to
Section 5.4 as of the date the Participant incurs such Break or Breaks, as the
case may be.
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(c) In the event a former Participant who had received a distribution
from the Plan is rehired, he shall repay the amount of his distribution before
the earlier of 5 years after the date of his rehire by the Employer, or the
close of the first period of 5 consecutive Breaks commencing after the
withdrawal in order for any forfeited amounts to be restored to him.
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ARTICLE VIII
EMPLOYEE STOCK OWNERSHIP PROVISIONS
-----------------------------------
8.1 Right to Demand Employer Securities.
A Participant entitled to a distribution from his Employee Stock
Ownership Account shall be entitled to demand that his interest in the Account
be distributed to him in the form of Employer Securities, all subject to Section
9.9. In the event that the Employer Securities are not readily tradable on an
established market, the Participant shall be entitled to require that the
Employer repurchase the Employer Securities under a fair valuation formula, as
provided by governmental regulations. The Participant or Beneficiary shall be
entitled to exercise the put option described in the preceding sentence for a
period of not more than 60 days following the date of distribution of Employer
Securities to him. If the put option is not exercised within such 60-day period,
the Participant or Beneficiary may exercise the put option during an additional
period of not more than 60 days after the beginning of the first day of the
first Plan Year following the Plan Year in which the first put option period
occurred, all as provided in regulations promulgated by the Secretary of the
Treasury.
8.2 Voting Rights.
Each Participant with an Employee Stock Ownership Account shall be
entitled to direct the Trustee as to the manner in which the Employer Securities
in such Account are to be voted. Employer Securities held in the Employee Stock
Ownership Suspense Account or the Exempt Loan Suspense Account shall be voted by
the Trustee on each issue with respect to which shareholders are entitled to
vote in the manner directed by the majority of the Participants who directed the
Trustee as to the manner of voting their shares in the Employee Stock Ownership
Accounts with respect to such issue. Prior to the initial allocation of shares,
the Trustee shall be entitled to vote the shares in the Suspense Account without
prior direction from the Participants or the Administrator. In the event that a
Participant fails to give timely voting instructions to the Trustee with respect
to the voting of his allocated Employer Securities, the Trustee shall be
entitled to vote such shares in its discretion.
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8.3 Nondiscrimination in Employee Stock Ownership Contributions.
In the event that the amount of the Employee Stock Ownership
contributions that would be required in any Plan Year to make the scheduled
payments on an Exempt Loan would exceed the amount that would otherwise be
deductible by the Employer for such Plan Year under Code Section 404, then no
more than one-third of the Employee Stock Ownership contributions for the Plan
Year, which is also the Employer's taxable year, shall be allocated to the group
of Employees who, during the Plan Year or the preceding Plan Year:
(a) Was at any time a 5 percent owner of the Employer;
(b) Received compensation from the Employer in excess of $75,000, as
adjusted under Code Section 414(q);
(c) Received compensation from the Employer in excess of $50,000, as
adjusted under Code Section 414(q), and was in the "top-paid group" of employees
(as defined below) for such year; or
(d) Was at any time an officer and received compensation greater than
50 percent of the amount in effect under Code Section 415(b)(1)(A), as adjusted
for cost-of-living increases permitted under Code Section 415(d)(1), but without
regard to any adjustment under Code Section 415(c)(6)(A).
An Employee shall be deemed a member of the "top-paid group" of employees for a
given Plan Year if such Employee is in the group of the top 20% of the employees
of the Employer when ranked on the basis of compensation.
8.4 Dividends.
Dividends paid with respect to Employer Securities credited to a
Participant's Employee Stock Ownership account as of the record date for the
dividend payment may be paid in cash to the Participants, pursuant to the
directions of the Board of Directors of the Sponsor. If the Board of Directors
shall direct that the aforesaid dividends shall be paid directly to
Participants, the quarterly dividends paid with respect to such Employer
Securities shall be paid to the Plan, from which dividend distributions in cash
shall be made to the Participants with respect to the Employer Securities in
their Employee Stock Ownership Accounts within 90 days of the close of the Plan
Year in which the dividends were paid. Dividends on Employer Securities obtained
pursuant to an Exempt Loan and still held in the Suspense Account may be used to
make payments on an Exempt Loan, as described in Section 8.5.
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8.5 Exempt Loans.
(a) The Sponsor may direct the Trustee to obtain Exempt Loans. The
Exempt Loan may take the form of (i) a loan from a bank or other commercial
lender to purchase Employer Securities (ii) a loan from the Employer to the
Plan; or (iii) an installment sale of Employer Securities to the Plan. The
proceeds of any such Exempt Loan shall be used, within a reasonable time after
the Exempt Loan is obtained, only to purchase Employer Securities, repay the
Exempt Loan, or repay any prior Exempt Loan. Any such Exempt Loan shall provide
for no more than a reasonable rate of interest and shall be without recourse
against the Plan. The number of years to maturity under the Exempt Loan must be
definitely ascertainable at all times. The only assets of the Plan that may be
given as collateral for an Exempt Loan are Employer Securities acquired with the
proceeds of the Exempt Loan and Employer Securities that were used as collateral
for a prior Exempt Loan repaid with the proceeds of the current Exempt Loan.
Such Employer Securities so pledged shall be placed in an Exempt Loan Suspense
Account. No person or institution entitled to payment under an Exempt Loan shall
have recourse against Trust assets other than the aforesaid collateral, Employer
Stock Ownership contributions (other than contributions of Employer Securities)
that are available under the Plan to meet obligations under the Exempt Loan and
earnings attributable to such collateral and the investment of such
contributions. All Employee Stock Ownership contributions paid during the Plan
Year in which an Exempt Loan is made (whether before or after the date the
proceeds of the Exempt Loan are received), all Employee Stock Ownership
contributions paid thereafter until the Exempt Loan has been repaid in full, and
all earnings from investment of such Employee Stock Ownership contributions,
without regard to whether any such Employee Stock Ownership contributions and
earnings have been allocated to Participants' Employee Stock Ownership Accounts,
shall be available to meet obligations under the Exempt Loan as such obligations
accrue, or prior to the time such obligations accrue, unless otherwise provided
by the Employer at the time any such contribution is made. Any pledge of
Employer Securities shall provide for the release of shares so pledged upon the
payment of any portion of the Exempt Loan.
(b) For each Plan Year during the duration of the Exempt Loan, the
number of shares of Employer Securities released from such pledge shall equal
the number of encumbered shares held immediately before release for the current
Plan Year multiplied by a fraction. The numerator of the fraction is the sum of
principal and interest paid in such Plan Year. The denominator of the fraction
is the sum of the numerator plus the principal and interest to be paid for all
future years. Such years will be determined without taking into account any
possible extension or renewal periods. If interest on any Exempt Loan is
variable, the interest to be paid in future years under the Exempt Loan shall be
computed by using the interest rate applicable as of the end of the Plan Year.
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(c) Notwithstanding the foregoing, the Trustee may obtain an Exempt
Loan pursuant to the terms of which the number of Employer Securities to be
released from encumbrance shall be determined solely with reference to principal
payments. In the event that such an Exempt Loan is obtained, annual payments of
principal and interest shall be at a cumulative rate that is not less rapid at
any time than level payments of such amounts for not more than 10 years. The
amount of interest in any such annual loan repayment shall be disregarded only
to the extent that it would be determined to be interest under standard loan
amortization tables. The requirement set forth in the preceding sentence shall
not be applicable from the time that, by reason of a renewal, extension, or
refinancing, the sum of the expired duration of the Exempt Loan, the renewal
period, the extension period, and the duration of a new Exempt Loan exceeds 10
years.
8.6 Exempt Loan Payments.
(a) Payments of principal and interest on any Exempt Loan
during a Plan Year shall be made by the Trustee (as directed by the
Administrator) only from (1) Employee Stock Ownership contributions to the Trust
made to meet the Plan's obligation under an Exempt Loan (other than
contributions of Employer Securities) and from any earnings attributable to
Employer Securities held as collateral for an Exempt Loan and investments of
such contributions (both received during or prior to the Plan Year); (2) the
proceeds of a subsequent Exempt Loan made to repay a prior Exempt Loan; and (3)
the proceeds of the sale of any Employer Securities held as collateral for an
Exempt Loan. Such contribution and earnings shall be accounted for separately by
the Plan until the Exempt Loan is repaid.
(b) Employer Securities released by reason of the payment of
principal or interest on an Exempt Loan from amounts allocated to Participants'
Employee Stock Ownership Accounts shall immediately upon payment be allocated as
set forth in Section 5.5.
(c) The Employer shall contribute to the Trust sufficient
amounts to enable the Trust to pay principal and interest on any such Exempt
Loans as they are due, provided however that no such contribution shall exceed
the limitations in Section 5.6. In the event that such contributions by reason
of the limitations in Section 5.6 are insufficient to enable the Trust to pay
principal and interest on such Exempt Loan as it is due, then upon the Trustee's
request the Employer shall:
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(1) Make an Exempt Loan to the Trust in sufficient amounts to
meet such principal and interest payments. Such new Exempt Loan shall
be subordinated to the prior Exempt Loan. Securities released from the
pledge of the prior Exempt Loan shall be pledged as collateral to
secure the new Exempt Loan. Such Employer Securities will be released
from this new pledge and allocated to the Employee Stock Ownership
Accounts of the Participants in accordance with applicable provisions
of the Plan;
(2) Purchase any Employer Securities pledged as collateral in
an amount necessary to provide the Trustee with sufficient funds to
meet the principal and interest repayments. Any such sale by the Plan
shall meet the requirements of Section 408(e) of ERISA; or
(3) Any combination of the foregoing. However, the Employer
shall not, pursuant to the provisions of this subsection, do, fail to
do or cause to be done any act or thing which would result in a
disqualification of the Plan as an Employee Stock Ownership Plan under
the Code.
(d) Except as provided in Section 8.1 above and notwithstanding any
amendment to or termination of the Plan which causes it to cease to qualify as
an Employee Stock Ownership plan within the meaning of Section 4975(e)(7) of the
Code, or any repayment of an Exempt Loan, no shares of Employer Securities
acquired with the proceeds of an Exempt Loan obtained by the Trust to purchase
Employer Securities may be subject to a put, call or other option, or buy-sell
or similar arrangement while such shares are held by the Plan or when such
Shares are distributed from the Plan.
8.7 Put Option.
If a Participant exercises a put option (as set forth in Section 8.1)
with respect to Employer Securities that were distributed as part of a total
distribution pursuant to which a Participant's Employee Stock Ownership Account
is distributed to him in a single taxable year, the Employer or the Plan may
elect to pay the purchase price of the Employer Securities over a period not to
exceed 5 years. Such payments shall be made in substantially equal installments
not less frequently than annually over a period beginning not later than 30 days
after the exercise of the put option. Reasonable interest shall be paid to the
Participant with respect to the unpaid balance of the purchase price and
adequate security shall be provided with respect thereto. In the event that a
Participant exercises a put option with respect to Employer Securities that are
distributed as part of an installment distribution, the amount to be paid for
such securities shall be paid not later than 30 days after the exercise of the
put option.
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8.8 Diversification Requirements
Each Participant who has completed at least 10 years of participation
in the Plan and has attained age 55 may elect within 90 days after the close of
each Plan Year during his "qualified election period" to direct the Plan as to
the investment of at least 25 percent of his Employee Stock Ownership Account
(to the extent such percentage exceeds the amount to which a prior election
under this Section 8.8 had been made). For purposes of this Section 8.8, the
term "qualified election period" shall mean the 5-Plan-Year period beginning
with the Plan Year after the Plan Year in which the Participant attains age 55
(or, if later, beginning with the Plan Year after the first Plan Year in which
the Employee first completes at least 10 years of participation in the Plan). In
the case of the Employee who has attained age 60 and completed 10 years of
participation in the prior Plan Year and in the case of the election year in
which any other Participant who has met the minimum age and service requirements
for diversification can make his last election hereunder, he shall be entitled
to direct the Plan as to the investment of at least 50 percent of his Employee
Stock Ownership Account (to the extent such percentage exceeds the amount to
which a prior election under this Section 8.8 had been made). The Plan shall
make available at least 3 investment options (not inconsistent with regulations
prescribed by the Department of Treasury) to each Participant making an election
hereunder. The Plan shall be deemed to have met the requirements of this Section
if the portion of the Participant's Employee Stock Ownership Account covered by
the election hereunder is distributed to the Participant or his designated
Beneficiary within 90 days after the period during which the election may be
made. In the absence of such a distribution, the Trustee shall implement the
Participant's election within 90 days following the expiration of the qualified
election period.
8.9 Independent Appraiser.
An independent appraiser meeting the requirements of Code 170(a)(1)
shall value the Employer Securities in those Plan Years when such securities are
not readily tradable on an established securities market.
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ARTICLE IX
PAYMENTS AND DISTRIBUTIONS
--------------------------
9.1 Payments on Termination of Service - In General.
All benefits provided under this Plan shall be funded by the value of a
Participant's vested interest in the Fund. As soon as practicable after a
Participant's Retirement, death or termination of Service, the Administrator
shall ascertain the value of his vested interest in the Fund, as provided in
Article V, and the Administrator shall hold or dispose of the same in accordance
with the following provisions of this Article IX.
9.2 Commencement of Payments.
(a) Distributions upon Retirement or Death. Upon a Participant's
Retirement or Death, payment of benefits under this Plan shall, unless the
Participant otherwise elects (in accordance with Section 9.3), commence no later
than 6 months after the close of the Plan Year in which occurs the date of the
Participant's Retirement or death.
(b) Distribution following Termination of Service. Unless a Participant
elects otherwise, if a Participant terminates Service prior to Retirement or
death, he shall be accorded an opportunity to commence receipt of distributions
from his Accounts within six (6) months after the Valuation Date next following
the date of his termination of service. A Participant who terminates Service
with a deferred vested benefit shall be entitled to receive from the
Administrator a statement of his benefits. In the event that a Participant
elects not to commence receipt of distributions from his Accounts in accordance
with this Section 9.2(b), after the Participant incurs a Break, the
Administrator shall transfer his deferred vested interest to a distribution
account. If a Participant's vested Employer Account does not exceed (or at the
time of any prior distribution did not exceed) $3,500, the Plan Administrator
may distribute the vested portion of his Employer Account as soon as
administratively feasible without the consent of the Participant or his spouse.
(c) Distribution of Accounts Greater Than $3,500. If the value of a
Participant's vested Account balance exceeds (or at the time of any prior
distribution exceeded) $3,500, and the Account balance is immediately
distributable, the Participant must consent to any distribution of such Account
balance. The Plan Administrator shall notify the Participant of the right to
defer any distribution until the Participant's Account balance is no longer
immediately distributable. The consent of the Participant shall not be required
to the extent that a distribution is required to satisfy Code ss.401(a)(9) or
Code ss.415.
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9.3 Mandatory Commencement of Benefits.
(a) Unless a Participant elects otherwise, in writing, distribution of
benefits will begin no later than the 60th day after the latest of the close of
the Plan Year in which (i) the Participant attains age 65, (ii) occurs the tenth
anniversary of the year in which the Participant commenced participation in the
Plan Year, or (iii) the Participant terminates Service with the Employer.
(b) In the event that the Plan shall be subsequently amended to provide
for a form of distribution other than a lump sum, as of the first distribution
calendar year, distributions, if not made in a lump sum, may be made only over
one of the following periods (or a combination thereof):
(i) the life of the Participant,
(ii) the life of the Participant and the designated
beneficiary,
(iii) a period certain not extending beyond the life
expectancy of the Participant, or
(iv) a period certain not extending beyond the joint and
last survivor expectancy of the Participant and a
designated beneficiary.
(c) In the event that the Plan shall be subsequently amended to provide
for a form of distribution other than a lump sum, if the participant's interest
is to be distributed in other than a lump sum, the following minimum
distribution rules shall apply on or after the required beginning date:
(i) If a Participant's benefit is to be distributed over (1) a
period not extending beyond the life expectancy of the Participant or the joint
life and last survivor expectancy of the Participant and the Participant's
designated beneficiary or (2) a period not extending beyond the life expectancy
of the designated beneficiary, the amount required to be distributed for each
calendar year, beginning with distributions for the first distribution calendar
year, must at least equal the quotient obtained by dividing the Participant's
benefit by the applicable life expectancy.
(ii) For calendar years beginning after December 31, 1988, the
amount to be distributed each year, beginning with distributions for the first
distribution calendar year shall not be less than the quotient obtained by
dividing the Participant's benefit by the lesser of (1) the applicable life
expectancy or (2) if the Participant's spouse is not the designated beneficiary,
the applicable divisor determined from the table set forth in Q&A-4 of section
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1.401(a)(9)-2 of the Proposed Regulations. Distributions after the death of the
participant shall be distributed using the applicable life expectancy in
sub-section (iii) above as the relevant divisor without regard to Proposed
Regulations 1.401(a)(9)-2.
(iii) The minimum distribution required for the Participant's
first distribution calendar year must be made on or before the Participant's
required beginning date. The minimum distribution for other calendar years,
including the minimum distribution for the distribution calendar year in which
the employee's required beginning date occurs, must be made on or before
December 31 of the distribution calendar year.
(d) If a Participant dies after a distribution has commenced in
accordance with Section 8.3(b) but before his entire interest has been
distributed to him, the remaining portion of such interest shall be distributed
to his Beneficiary at least as rapidly as under the method of distribution in
effect as of the date of his death.
(e) If a Participant shall die before the distribution of his interest
in the Plan has begun, the entire interest of the Participant shall be
distributed by December 31 of the calendar year containing the fifth anniversary
of the death of the Participant, except in the following events:
(i) If any portion of the Participant's interest is payable to
(or for the benefit of) a designated beneficiary over a period not extending
beyond the life expectancy of such beneficiary and such distributions begin not
later than December 31 of the calendar year immediately following the calendar
year in which the Participant died.
(ii) If any portion of the Participant's interest is payable
to (or for the benefit of) the Participant's spouse over a period not extending
beyond the life expectancy of such spouse and such distributions begin no later
than December 31 of the calendar year in which the Participant would have
attained age 70-1/2.
If the Participant has not made a distribution election by the time of
his death, the Participant's designated beneficiary shall elect the method of
distribution no later than the earlier of (1) December 31 of the calendar year
in which distributions would be required to begin under this Article or (2)
December 31 of the calendar year which contains the fifth anniversary of the
date of death of the Participant. If the Participant has no designated
beneficiary, or if the designated beneficiary does not elect a method of
distribution, distribution of the Participant's entire interest shall be
completed by December 31 of the calendar year containing the fifth anniversary
of the Participant's death.
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(f) For purposes of this Article, the life expectancy of a Participant
and his spouse may be redetermined but not more frequently than annually. The
life expectancy (or joint and last survivor expectancy) shall be calculated
using the attained age of the Participant (or designated beneficiary) as of the
Participant's (or designated beneficiary's) birthday in the applicable calendar
year reduced by one for each calendar year which has elapsed since the date life
expectancy was first calculated. If life expectancy is being recalculated, the
applicable life expectancy shall be the life expectancy as so recalculated. The
applicable calendar year shall be the first distribution calendar year, and if
life expectancy is being recalculated, such succeeding calendar year. Unless
otherwise elected by the Participant (or his spouse, if applicable) by the time
distributions are required to begin, life expectancies shall be recalculated
annually. Any such election not to recalculate shall be irrevocable and shall
apply to all subsequent years. The life expectancy of a nonspouse beneficiary
may not be recalculated.
(g) For purposes of Section 9.3(b) and 9.3(e), any amount paid to a
child shall be treated as if it had been paid to a surviving spouse if such
amount will become payable to the surviving spouse upon such child reaching
majority (or other designated event permitted under regulations).
(h) For distributions beginning before the Participant's death, the
first distribution calendar year is the calendar year immediately preceding the
calendar year which contains the Participant's required beginning date. For
distributions beginning after the Participant's death, the first distribution
calendar year is the calendar year in which distributions are required to begin
pursuant to this Article.
9.4 Required Beginning Dates.
(a) General Rule. The required beginning date of a Participant is the
first day of April of the calendar year following the calendar year in which the
participant attains age 70-1/2.
(b) Transitional rules. The required beginning date of a Participant
who attains age 70-1/2 before January 1, 1988, shall be determined in accordance
with (1) or (2) below:
(1) Non-5-percent owners. The required beginning date
of a Participant who is not a 5-percent owner is the first day of
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April of the calendar year following the calendar year in which the later of
retirement or attainment or age 70-1/2 occurs.
(2) 5-percent owners. The required beginning date of a
Participant who is a 5-percent owner during any year beginning after December
31, 1989, is the first day of April following the later of:
(i) the calendar year in which the Participant attains age
70-1/2, or
(ii) the earlier of the calendar year with or within which
ends the Plan Year in which the Participant becomes a 5-percent owner, or the
calendar year in which the Participant retires.
The required beginning date of a Participant who is not a 5-percent
owner who attains age 70-1/2 during 1988 and who has not retired as of January
1, 1989, is April 1, 1990.
(c) 5-percent owner. A Participant is treated as a 5-percent owner for
purposes of this section if such Participant is a 5-percent owner as defined in
section 416(i) of the Code (determined in accordance with section 416 but
without regard to whether the plan is top-heavy) at any time during the Plan
Year ending with or within the calendar year in which such owner attains age
66-1/2 or any subsequent Plan Year. Once distributions have begun to a 5-percent
owner under this section, they must continue to be distributed, even if the
Participant ceases to be a 5-percent owner in a subsequent year.
9.5 Form of Payment.
Each Participant's vested interest shall be distributed in a lump sum
payment. Notwithstanding the preceding sentence, but subject to Section 9.3, the
Administrator may not distribute a lump sum when the present value of a
Participant's total Account balances is in excess of $3,500 without the
Participant's consent. This form of payment shall be the normal form of
distribution. Furthermore, however, in the event that the Administrator must
commence distributions with respect to an Employee who has attained age 70-1/2
and is still employed by the Employer, if the Employee does not elect a lump sum
distribution, payments shall be made in installments in such amounts as shall
satisfy the minimum distribution rules of Section 9.3.
9.6 Payments Upon Termination of Plan.
Upon termination of this Plan pursuant to Sections 13.2, 13.4, 13.5 or
13.6, the Administrator shall continue to perform its duties and the Trustee
shall make all payments upon the following terms, conditions and provisions: All
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interests of Participants shall immediately become fully vested; the value of
the interests of all Participants shall be determined within 60 days after such
termination, and the Administrator shall have the same powers to direct the
Trustee in making payments as contained in Sections 9.1 and 13.5.
9.7 Distributions Pursuant to Qualified Domestic Relations Orders.
Upon receipt of a domestic relations order, the Administrator shall
notify promptly the Participant and any alternate payee of receipt of the order
and the Plan's procedure for determining whether the order is a Qualified
Domestic Relations Order. While the issue of whether a domestic relations order
is a Qualified Domestic Relations Order is being determined, if the benefits
would otherwise be paid, the Administrator shall segregate in a separate account
in the Plan the amounts that would be payable to the alternate payee during such
period if the order were a Qualified Domestic Relations Order. If within 18
months the order is determined to be a Qualified Domestic Relations Order, the
amounts so segregated, along with the interest or investment earnings
attributable thereto shall be paid to the alternate payee. Alternatively, if
within 18 months, it is determined that the order is not a Qualified Domestic
Relations Order or if the issue is still unresolved, the amounts segregated
under this Section 9.6, with the earnings attributable thereto, shall be paid to
the Participant or Beneficiary who would have been entitled to such amounts if
there had been no order. The determination as to whether the order is qualified
shall be applied prospectively. Thus, if the Administrator determines that the
order is a Qualified Domestic Relations Order after the 18-month period, the
Plan shall not be liable for payments to the alternative payee for the period
before the order is determined to be a Qualified Domestic Relations Order.
9.8 Cash-Out Distributions
If a Participant receives a distribution of the entire present value of
his vested Account balances under this Plan because of the termination of his
participation in the Plan, the Plan shall disregard a Participant's Service with
respect to which such cash-out distribution shall have been made, in computing
his accrued benefit under the Plan in the event that a Former Participant shall
again become an Employee and become eligible to participate in the Plan. Such a
distribution shall be deemed to be made on termination of participation in the
Plan if it is made not later than the close of the second Plan Year following
the Plan Year in which such termination occurs. The forfeitable portion of a
Participant's accrued benefit shall be restored upon repayment to the Plan by
such former Participant of the full amount of the cash-out distribution,
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provided that the former Participant again becomes an Employee. Such repayment
must be made by the Employee not later than the end of the 5-year period
beginning with the date of the distribution. Forfeitures required to be restored
by virtue of such repayment shall be restored from the following sources in the
following order of preference: (i) current forfeitures; (ii) additional employee
stock ownership contributions, as appropriate and as subject to Section 5.6; and
(iii) investment earnings of the Fund. In the event that a Participant's
interest in the Plan is totally forfeitable, a Participant shall be deemed to
have received a distribution of zero upon his termination of Service. In the
event of a return to Service within 5 years of the date of his deemed
distribution, the Participant shall be deemed to have repaid his distribution in
accordance with the rules of this Section 9.8.
9.9 ESOP Distribution Rules.
Notwithstanding any provision of this Article IX to the contrary, the
distribution of a Participant's Employee Stock Ownership Account (unless the
Participant elects otherwise in writing), shall commence as soon as
administratively feasible as of the first Valuation Date coincident with or next
following his death, disability or termination of Service, but not later than 1
year after the close of the Plan Year in which the Participant separates from
Service by reason of the attainment of his Normal Retirement Date, disability,
death or separation from Service. In addition, all distributions hereunder
shall, to the extent that the Participant's Account is invested in Employer
Securities, be made in the form of Employer Securities. Fractional shares,
however, may be distributed in the form of cash.
9.10 Withholding.
(a) Notwithstanding any provision of the Plan to the contrary that
would otherwise limit a distributee's election under this Article IX, a
distributee may elect, at the time and in the manner prescribed by the Plan
Administrator, to have any portion of an "eligible rollover distribution" paid
directly to an "eligible retirement plan" specified by the distributee in a
"direct rollover."
(b) For purposes of this Section 9.10, an "eligible rollover
distribution" is any distribution of all or any portion of the balance to the
credit of the distributee, except that an "eligible rollover distribution" does
not include: any distribution that is one of a series of substantially equal
periodic payments (not less frequently than annually) made for the life (or life
expectancy) of the distributee or the joint lives (or joint life expectancies)
of the distributee and the distributee's designated beneficiary, or for a
specified period of ten years or more; any distribution to the extent such
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distribution is required under section 401(a)(9) of the Code; and the portion of
any distribution that is not includible in gross income (determined without
regard to the exclusion for net unrealized appreciation with respect to Employer
Securities).
(c) For purposes of this Section 9.10, an "eligible retirement plan" is
an individual retirement account described in section 408(a) of the Code, an
individual retirement annuity described in section 408(b) of the Code, an
annuity plan described in section 403(a) of the Code, or a qualified trust
described in section 401(a) of the Code, that accepts the distributee's eligible
rollover distribution. However, in the case of an "eligible rollover
distribution" to the surviving spouse, an "eligible retirement plan" is an
individual retirement account or individual retirement annuity.
(d) For purposes of this Section 9.10, a distributee includes a
Participant or former Participant. In addition, the Participant's or former
Participant's surviving spouse and the Participant's or former Participant's
spouse or former spouse who is the alternate payee under a qualified domestic
relations order, as defined in section 414(p) of the Code, are "distributees"
with regard to the interest of the spouse or former spouse.
(e) For purposes of this Section 9.10, a "direct rollover" is a payment
by the Plan to the "eligible retirement plan" specified by the distributee.
9.11 Waiver of 30-day Notice.
If a distribution is one to which sections 401(a)(11) and 417 of the
Code do not apply, such distribution may commence less than 30 days after the
notice required under section 1.411(a)-11(c) of the Income Tax Regulations is
given, provided that: (1) the Plan Administrator clearly informs the Participant
that the Participant has a right to a period of at least 30 days after receiving
the notice to consider the decision of whether or not to elect a distribution
(and, if applicable, a particular distribution option), and (2) the Participant,
after receiving the notice, affirmatively elects a distribution.
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ARTICLE X
PROVISIONS RELATING TO TOP-HEAVY PLANS
10.1 Top-Heavy Rules to Control.
Anything contained in this Plan to the contrary notwithstanding, if for
any Plan Year the Plan is a top-heavy plan, as determined pursuant to Section
416 of the Code, then the Plan must meet the requirements of this Article X for
such Plan Year.
10.2 Top-Heavy Plan Definitions.
Unless a different meaning is plainly implied by the context, the
following terms as used in this Article X shall have the following meanings:
(a) "Accrued Benefit" shall mean the account balances or accrued
benefits of an Employee, calculated pursuant to Section 10.3.
(b) "Determination Date" shall mean, with respect to any particular
Plan Year of this Plan, the last day of the preceding Plan Year (or, in the case
of the first Plan Year of the Plan, the last day of the first Plan Year). In
addition, the term "Determination Date" shall mean, with respect to any
particular plan year of any plan (other than this Plan) in a Required
Aggregation Group or a Permissive Aggregation Group, the last day of the plan
year of such plan which falls within the same calendar year as the Determination
Date for this Plan.
(c) "Employer" shall mean the Employer (as defined in Section 1.1(q))
and any entity which is (1) a member of a controlled group including such
Employer, while it is a member of such controlled group (within the meaning of
Section 414(b) of the Code), (2) in a group of trades or businesses under common
control with such Employer, while it is under common control (within the meaning
of Section 414(c) of the Code), and (3) a member of an affiliated service group
including such Employer, while it is a member of such affiliated service group
(within the meaning of Section 414(m) of the Code).
(d) "Key Employee" shall mean any Employee or former Employee (or any
Beneficiary of such Employee or former Employee, as the case may be) who, at any
time during the Plan Year or during the 4 immediately preceding Plan Years is
one of the following:
(1) An officer of the Employer who has compensation greater
than 50% of the amount in effect under Code 415(b)(1)(A) for the Plan
Year; provided, however, that no more than 50 Employees (or, if lesser,
the greater of 3 or 10% of the Employees) shall be deemed officers;
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(2) One of the 10 Employees having annual compensation (as
defined in Section 415 of the Code) in excess of the limitation in
effect under Section 415(c)(1)(A) of the Code, and owning (or
considered as owning, within the meaning of Section 318 of the Code)
the largest interests in the Employer;
(3) Any Employee owning (or considered as owning, within the
meaning of Section 318 of the Code) more than 5% of the outstanding
stock of the Employer or stock possessing more than 5% of the total
combined voting power of all stock of the Employer; or
(4) Any Employee having annual compensation (as defined in
Section 415 of the Code) of more than $150,000 and who would be
described in Section 10.2(d)(3) if "1%" were substituted for "5%"
wherever the latter percentage appears.
For purposes of applying Section 318 of the Code to the provisions of
this Section 10.2(d), Section 318(a)(2)(C) of the Code shall be applied by
substituting "5%" for "50%" wherever the latter percentage appears. In addition,
for purposes of this Section 10.2(d), the provisions of Section 414(b), (c) and
(m) shall not apply in determining ownership interests in the Employer. However,
for purposes of determining whether an individual has compensation in excess of
$150,000, or whether an individual is a Key Employee under Section 10.2(d)(1)
and (2), compensation from each entity required to be aggregated under Sections
414(b), (c) and (m) of the Code shall be taken into account. Notwithstanding
anything contained herein to the contrary, all determinations as to whether a
person is or is not a Key Employee shall be resolved by reference to Section 416
of the Code and any rules and regulations promulgated thereunder.
(e) "Non-Key Employee" shall mean any Employee or former Employee (or
any Beneficiary of such Employee or former Employee, as the case may be) who is
not considered to be a Key Employee with respect to this Plan.
(f) "Permissive Aggregation Group" shall mean all plans in the Required
Aggregation Group and any other plans maintained by the Employer which satisfy
Sections 401(a)(4) and 410 of the Code when considered together with the
Required Aggregation Group.
(g) "Required Aggregation Group" shall mean each plan (including any
terminated plan) of the Employer in which a Key Employee is (or in the case of a
terminated plan, had been) a Participant in the Plan Year containing the
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Determination Date or any of the 4 preceding Plan Years, and each other plan of
the Employer which enables any plan of the Employer in which a Key Employee is a
Participant to meet the requirement of Sections 401(a)(4) and 410 of the Code.
10.3 Calculation of Accrued Benefits.
(a) An Employee's Accrued Benefit shall be equal to:
(1) With respect to this Plan or any other defined
contribution plan (other than a defined contribution pension plan) in a
Required Aggregation Group or a Permissive Aggregation Group, the
Employee's account balances under the respective plan, determined as of
the most recent plan valuation date within a 12-month period ending on
the Determination Date, including contributions actually made after the
valuation date but before the Determination Date (and, in the first
plan year of a plan, also including any contributions made after the
Determination Date which are allocated as of a date in the first plan
year).
(2) With respect to any defined contribution pension plan in a
Required Aggregation Group or a Permissive Aggregation Group, the
Employee's account balances under the plan, determined as of the most
recent plan valuation date within a 12-month period ending on the
Determination Date, including contributions which have not actually
been made, but which are due to be made as of the Determination Date.
(3) With respect to any defined benefit plan in a Required
Aggregation Group or a Permissive Aggregation Group, the present value
of the Employee's accrued benefits under the plan, determined as of the
most recent plan valuation date within a 12-month period ending on the
Determination Date, pursuant to the actuarial assumptions used by such
plan, and calculated as if the Employee terminated Service under such
plan as of the valuation date (except that, in the first plan year of a
plan, a current Participant's estimated Accrued Benefit Plan as of the
Determination Date shall be taken into account).
(4) If any individual has not performed services for the
Employer maintaining the Plan at any time during the 5-year period
ending on the Determination Date, any Accrued Benefit for such
individual shall not be taken into account.
(b) The Accrued Benefit of any Employee shall be further adjusted as
follows:
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(1) The Accrued Benefit shall be calculated to include all
amounts attributable to both Employer and Employee contributions, but
shall exclude amounts attributable to voluntary deductible Employee
contributions, if any.
(2) The Accrued Benefit shall be increased by the aggregate
distributions made with respect to an Employee under the plan or plans,
as the case may be, during the 5-year period ending on the
Determination Date.
(3) Rollover and direct plan-to-plan transfers shall be taken
into account as follows:
(A) If the transfer is initiated by the Employee and made
from a plan maintained by one employer to a plan maintained by
another unrelated employer, the transferring plan shall
continue to count the amount transferred; the receiving plan
shall not count the amount transferred.
(B) If the transfer is not initiated by the Employee or
is made between plans maintained by related employers, the
transferring plan shall no longer count the amount
transferred; the receiving plan shall count the amount
transferred.
(c) If any individual has not performed services for the Employer at
any time during the 5-year period ending on the Determination Date, any accrued
benefit for such individual (and the account of such individual) shall not be
taken into account.
10.4 Determination of Top-Heavy Status.
This Plan shall be considered to be a top-heavy plan for any Plan Year
if, as of the Determination Date, the value of the Accrued Benefits of Key
Employees exceeds 60% of the value of the Accrued Benefits of all eligible
Employees under the Plan. Notwithstanding the foregoing, if the Employer
maintains any other qualified plan, the determination of whether this Plan is
top-heavy shall be made after aggregating all other plans of the Employer in the
Required Aggregation Group and, if desired by the Employer as a means of
avoiding top-heavy status, after aggregating any other plan of the Employer in
the Permissive Aggregation Group. If the required Aggregation Group is
top-heavy, then each plan contained in such group shall be deemed to be
top-heavy, notwithstanding that any particular plan in such group would not
otherwise be deemed to be top-heavy. Conversely, if the Permissive Aggregation
Group is not top-heavy, then no plan contained in such group shall be deemed to
be top-heavy, notwithstanding that any particular plan in such group would
otherwise be deemed to be top-heavy. In no event shall a plan included in a
top-heavy Permissive Aggregation Group be deemed a top-heavy plan unless such
plan is also included in a top-heavy Required Aggregation Group.
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10.5 Determination of Super Top-Heavy Status.
The Plan shall be considered to be a super top-heavy plan if, as of the
Determination Date, the Plan would meet the test specified in Section 10.4 above
for classification as a top-heavy plan, except that "90%" shall be substituted
for "60%" whenever the latter percentage appears.
10.6 Minimum Contribution.
(a) For any year in which the Plan is top-heavy, each Non-Key Employee
who has met the age and service requirements, if any, contained in the Plan,
shall be entitled to a minimum contribution (which may include forfeitures
otherwise allocable) equal to a percentage of such Non-Key Employee's
compensation (as defined in Section 415 of the Code) as follows:
(1) If the Non-Key Employee is not covered by a defined
benefit plan maintained by the Employer, then the minimum contribution
under this Plan shall be 3% of such Non-Key Employee's compensation.
(2) If the Non-Key Employee is covered by a defined benefit
plan maintained by the Employer, then the minimum contribution under
this Plan shall be 5% of such Non-Key Employee's compensation.
(b) Notwithstanding the foregoing, the minimum contribution otherwise
allocable to a Non-Key Employee under this Plan shall be reduced in the
following circumstances:
(1) The percentage minimum contribution required under this
Plan shall in no event exceed the percentage contribution made for the
Key Employee for whom such percentage is the highest for the Plan Year
after taking into account contributions under other defined
contribution plans in this Plan's Required Aggregation Group; provided,
however, that this Section 10.7(b)(1) shall not apply if this Plan is
included in a Required Aggregation Group and this Plan enables a
defined benefit plan in such Required Aggregation Group to meet the
requirements of Section 401(a)(4) or 410 of the Code.
(2) No minimum contribution shall be required (or the minimum
contribution shall be reduced, as the case may be) for a Non-Key
Employee under this Plan for any Plan Year if the Employer maintains
another qualified plan under which a minimum benefit or contribution is
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being accrued or made on account of such Plan Year, in whole or in
part, on behalf of the Non-Key Employee, in accordance with Section
416(c) of the Code.
(c) For purposes of this Section 10.6, there shall be disregarded (1)
any Employer contributions attributable to a salary reduction or similar
arrangement, or (2) any Employer contributions to or any benefits under Chapter
21 of the Code (relating to the Federal Insurance Contributions Act), Title II
of the Social Security Act, or any other federal or state law.
(d) For purposes of this Section 10.6, minimum contributions shall be
required to be made on behalf of only those Non-Key Employees, as described in
Section 10.7(a), who have not terminated Service as of the last day of the Plan
Year. If a Non-Key Employee is otherwise entitled to receive a minimum
contribution pursuant to this Section 10.6(d), the fact that such Non-Key
Employee failed to complete 1,000 Hours of Service or failed to make any
mandatory or elective contributions under this Plan, if any are so required,
shall not preclude him from receiving such minimum contribution.
10.7 Vesting.
(a) For any Plan Year in which the Plan is a top-heavy plan, a
Participant's Employer account shall continue to vest according to the following
schedule:
Years of Service Completed Percentage Vested
-------------------------- -----------------
Less than 1 0%
1 but less than 2 20%
2 but less than 3 40%
3 but less than 4 60%
4 but less than 5 80%
5 or more 100%
(b) For purposes of Section 10.7(a), the term "year of service" shall
have the same meaning as set forth in Section 1.1(kk), as modified by Section
3.2
(c) If for any Plan Year the Plan becomes top-heavy and the vesting
schedule set forth in Section 10.7(a) becomes effective, then, even if the Plan
ceases to be top-heavy in any subsequent Plan Year, the vesting schedule set
forth in Section 10.7(a) shall remain applicable with respect to any Participant
who has completed 3 Years of Service.
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10.8 Maximum Benefit Limitation.
For any Plan Year in which the Plan is a top-heavy plan, Section
5.6(d)(1)(B)(i) and Section 5.6(d)(2)(B)(i)shall be read by substituting "1.0"
for "1.25" wherever the latter figure appears; provided, however, that such
substitution shall not have the effect of reducing any benefit accrued under a
defined benefit plan prior to the first day of the plan year in which this
Section 10.8 becomes applicable.
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ARTICLE XI
ADMINISTRATION
--------------
11.1 Appointment of Administrator.
This Plan shall be administered by a committee consisting of up to 5
persons, whether or not Employees or Participants, who shall be appointed from
time to time by the Board of Directors to serve at its pleasure. The Sponsor may
require that each person appointed as an Administrator shall signify his
acceptance by filing an acceptance with the Sponsor. The term "Administrator" as
used in this Plan shall refer to the members of the committee, either
individually or collectively, as appropriate. In the event that the Sponsor
shall elect not to appoint any individuals to constitute a committee to
administer the Plan, the Sponsor shall serve as the Administrator hereunder.
11.2 Resignation or Removal of Administrator.
An Administrator shall have the right to resign at any time by giving
notice in writing, mailed or delivered to the Employer and to the Trustee. Any
Administrator who was an employee of the Employer at the time of his appointment
shall be deemed to have resigned as an Administrator upon his termination of
Service. The Board of Directors may, in its discretion, remove any Administrator
with or without cause, by giving notice in writing, mailed or delivered to the
Administrator and to the Trustee.
11.3 Appointment of Successors: Terms of Office, Etc.
Upon the death, resignation or removal of an Administrator, the
Employer may appoint, by Board of Directors' resolution, a successor or
successors. Notice of termination of an Administrator and notice of appointment
of a successor shall be made by the Employer in writing, with copies mailed or
delivered to the Trustee, and the successor shall have all the rights and
privileges and all of the duties and obligations of the predecessor.
11.4 Powers and Duties of Administrator.
The Administrator shall have the following duties and responsibilities
in connection with the administration of this Plan:
(a) To promulgate and enforce such rules, regulations and procedures as
shall be proper for the efficient administration of the Plan, such rules,
regulations and procedures to apply uniformly to all Employees, Participants and
Beneficiaries;
(b) To determine all questions arising in the administration,
interpretation and application of the Plan, including questions of eligibility
and of the status and rights of Participants, Beneficiaries and any other
persons hereunder;
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(c) To decide any dispute arising hereunder strictly in accordance with
the terms of the Plan; provided, however, that no Administrator shall
participate in any matter involving any questions relating solely to his own
participation or benefits under this Plan;
(d) To advise the Employer and the Trustee regarding the known future
needs for funds to be available for distribution in order that the Trustee may
establish investments accordingly;
(e) To correct defects, supply omissions and reconcile inconsistencies
to the extent necessary to effectuate the Plan;
(f) To advise the Employer of the maximum deductible contribution to
the Plan for each fiscal year;
(g) To direct the Trustee concerning all payments which shall be made
out of the Fund pursuant to the provisions of this Plan;
(h) To advise the Trustee on all terminations of Service by
Participants, unless the Employer has so notified the Trustee;
(i) To confer with the Trustee on the settling of any claims against
the Fund;
(j) To make recommendations to the Board of Directors with respect to
proposed amendments to the Plan and the Trust Agreement;
(k) To file all reports with government agencies, Employees and other
parties as may be required by law, whether such reports are initially the
obligation of the Employer, the Plan or the Trustee; and
(l) To have all such other powers as may be necessary to discharge its
duties hereunder.
Reasonable discretion is granted to the Administrator to affect the
benefits, rights and privileges of Participants, Beneficiaries or other persons
affected by this Plan. The Administrator shall exercise reasonable discretion
under the terms of this Plan and shall administer the Plan strictly in
accordance with its terms, such administration to be exercised uniformly so that
all persons similarly situated shall be similarly treated.
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11.5 Action by Administrator.
The Administrator may elect a Chairman and Secretary from among its
members and may adopt rules for the conduct of its business. A majority of the
members then serving shall constitute a quorum for the transaction of business.
All resolutions or other action taken by the Administrator shall be by vote of a
majority of those present at such meeting and entitled to vote. Resolutions may
be adopted or other action taken without a meeting upon written consent signed
by at least a majority of the members. All documents, instruments, orders,
requests, directions, instructions and other papers shall be executed on behalf
of the Administrator by either the Chairman or the Secretary of the
Administrator, if any, or by any member or agent of the Administrator duly
authorized to act on the Administrator's behalf.
11.6 Participation by Administrators.
No Administrator shall be precluded from becoming a Participant in the
Plan if he would be otherwise eligible, but he shall not be entitled to vote or
act upon matters or to sign any documents relating specifically to his own
participation under the Plan, except when such matters or documents relate to
benefits generally. If this disqualification results in the lack of a quorum,
then the Board of Directors shall appoint a sufficient number of temporary
Administrators who shall serve for the sole purpose of determining such a
question.
11.7 Agents.
The Administrator may employ agents and provide for such clerical,
legal, actuarial, accounting, medical, advisory or other services as it deems
necessary to perform its duties under this Plan. The cost of such services and
all other expenses incurred by the Administrator in connection with the
administration of the Plan shall be paid from the Fund, unless paid by the
Employer.
11.8 Allocation of Duties.
The duties, powers and responsibilities reserved to the Administrator
may be allocated among its members so long as such allocation is pursuant to
written procedures adopted by the Administrator, in which case, except as may be
required by the Act, no Administrator shall have any liability, with respect to
any duties, powers or responsibilities not allocated to him, for the acts of
omissions of any other Administrator.
11.9 Delegation of Duties.
The Administrator may delegate any of its duties to other employees of
the Employer, to the Trustee with its consent, or to any other person or firm,
provided that the Administrator shall prudently choose such agents and rely in
good faith on their actions.
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11.10 Administrator's Action Conclusive.
Any action on matters within the authority of the Administrator shall
be final and conclusive except as provided in Article XII.
11.11 Compensation and Expenses of Administrator.
No Administrator who is receiving compensation from the Employer as a
full-time employee, as a director or agent, shall be entitled to receive any
compensation or fee for his services hereunder. Any other Administrator shall be
entitled to receive such reasonable compensation for his services as an
Administrator hereunder as may be mutually agreed upon between the Employer and
such Administrator. Any such compensation shall be paid from the Fund, unless
paid by the Employer. Each Administrator shall be entitled to reimbursement by
the Employer for any reasonable and necessary expenditures incurred in the
discharge of his duties.
11.12 Records and Reports.
The Administrator shall maintain adequate records of its actions and
proceedings in administering this Plan and shall file all reports and take all
other actions as it deems appropriate in order to comply with the Act, the Code
and governmental regulations issued thereunder.
11.13 Reports of Fund Open to Participants.
The Administrator shall keep on file, in such form as it shall deem
convenient and proper, all annual reports of the Fund received by the
Administrator from the Trustee, and a statement of each Participant's interest
in the Fund as from time to time determined. The annual reports of the Fund and
the statement of his own interest in the Fund, as well as a complete copy of the
Plan and the Trust Agreement and copies of annual reports to the Internal
Revenue Service, shall be made available by the Administrator to the Employer
for examination by each Participant during reasonable hours at the office of the
Employer, provided, however, that the statement of a Participant's interest
shall not be made available for examination by any other Participant.
11.14 Named Fiduciary.
The Administrator is the named fiduciary for purposes of the Act and
shall be the designated agent for receipt of service of process on behalf of the
Plan. It shall use ordinary care and diligence in the performance of its duties
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under this Plan. Nothing in this Plan shall preclude the Employer from
indemnifying the Administrator for all actions under this Plan, or from
purchasing liability insurance to protect it with respect to its duties under
this Plan.
11.15 Information from Employer.
The Employer shall promptly furnish all necessary information to the
Administrator to permit it to perform its duties under this Plan. The
Administrator shall be entitled to rely upon the accuracy and completeness of
all information furnished to it by the Employer, unless it knows or should have
known that such information is erroneous.
11.16 Reservation of Rights by Employer.
Where rights are reserved in this Plan to the Employer, such rights
shall be exercised only by action of the Board of Directors, except where the
Board of Directors, by written resolution, delegates any such rights to one or
more officers of the Employer or to the Administrator. Subject to the rights
reserved to the Board of Directors acting on behalf of the Employer as set forth
in this Plan, no member of the Board of Directors shall have any duties or
responsibilities under this Plan, except to the extent he shall be acting in the
capacity of an Administrator or Trustee.
11.17 Liability and Indemnification.
(a) The Administrator shall perform all duties required of it under
this Plan in a prudent manner. To the extent not prohibited by the Act, the
Administrator shall not be responsible in any way for any action or omission of
the Employer, the Trustee or any other fiduciaries in the performance of their
duties and obligations set forth in this Plan and in the Trust Agreement. To the
extent not prohibited by the Act, the Administrator shall also not be
responsible for any act or omission of any of its agents, or with respect to
reliance upon advice of its counsel (whether or not such counsel is also counsel
to the Employer or the Trustee), provided that such agents or counsel were
prudently chosen by the Administrator and that the Administrator relied in good
faith upon the action of such agent or the advice of such counsel.
(b) The Administrator shall not be relieved from responsibility or
liability for any responsibility, obligation or duty imposed upon it under this
Plan or under the Act. Except for its own gross negligence, willful misconduct
or willful breach of the terms of this Plan, the Administrator shall be
indemnified and held harmless by the Employer against liability or losses
occurring by reason of any act or omission of the Administrator to the extent
that such indemnification does not violate the Act or any other federal or state
laws.
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11.18 Service as Trustee and Administrator.
Nothing in this Plan shall prevent one or more Trustees from serving as
Administrator under this Plan.
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ARTICLE XII
CLAIMS PROCEDURE
----------------
12.1 Notice of Denial.
If a Participant or his Beneficiary is denied any benefits under this
Plan, either in whole or in part, the Administrator shall advise the claimant in
writing of the amount of his benefit, if any, and the specific reasons for the
denial. The Administrator shall also furnish the claimant at that time with a
written notice containing:
(a) A specific reference to pertinent Plan provisions;
(b) A description of any additional material or information necessary
for the claimant to perfect his claim, if possible, and an explanation of why
such material or information is needed; and
(c) An explanation of the Plan's claim review procedure.
12.2 Right to Reconsideration.
Within 60 days of receipt of the information described in 12.1 above,
the claimant shall, if he desires further review, file a written request for
reconsideration with the Administrator.
12.3 Review of Documents.
So long as the claimant's request for review is pending (including the
60-day period described in Section 12.2 above), the claimant or his duly
authorized representative may review pertinent Plan documents and the Trust
Agreement (and any pertinent related documents) and may submit issues and
comments in writing to the Administrator.
12.4 Decision by Administrator.
A final and binding decision shall be made by the Administrator within
60 days of the filing by the claimant of his request for reconsideration;
provided, however, that if the Administrator feels that a hearing with the
claimant or his representative present is necessary or desirable, this period
shall be extended an additional 60 days.
12.5 Notice by Administrator.
The Administrator's decision shall be conveyed to the claimant in
writing and shall include specific reasons for the decision, written in a manner
calculated to be understood by the claimant, with specific references to the
pertinent Plan provisions on which the decision is based.
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ARTICLE XIII
AMENDMENTS, TERMINATION AND MERGER
----------------------------------
13.1 Amendments.
The Employer reserves the right at any time and from time to time, and
retroactively if deemed necessary or appropriate by it, to the extent
permissible under law, to conform with governmental regulations or other
policies, to amend in whole or in part any or all of the provisions of this
Plan, provided that:
(a) No amendment shall make it possible for any part of the Fund to be
used for, or diverted to, purposes other than for the exclusive benefit of
Participants or their Beneficiaries under the Trust Agreement, except to the
extent provided in Section 4.4;
(b) No amendment may, directly or indirectly, reduce the vested portion
of any Participant's interest as of the effective date of the amendment or
change the vesting schedule with respect to the future accrual of Employer
contributions for any Participants unless each Participant with 3 or more Years
of Service with the Employer is permitted to elect to have the vesting schedule
in effect before the amendment used to determine his vested benefit; and
(c) No amendment may eliminate an optional form of benefit.
(d) No amendment may increase the duties of the Trustee without its
consent.
(e) No amendment that shall change any of the following types of
provisions shall be made more than once every 6 months, other than to comport
with changes in the Code, the Act or the regulations thereunder: (i) any
provision stating the amount and price of Employer Securities to be awarded to
designated officers and directors or categories of officers and directors; (ii)
any provisions specifying the timing of awards or allocations to officers and
directors; (iii) any provision setting forth a formula that determines the
amount, price and timing of allocations or awards, using objective criteria such
as earnings of the issuer, value of the Employer Securities, Years of Service,
job classification and Compensation levels.
Amendments may be made in the form of Board of Directors' resolutions
or separate written document. Copies of all amendments shall be delivered to the
Trustee.
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13.2 Consolidation, Merger or Other Transactions of Employer.
Nothing in this Plan shall prevent the consolidation, merger,
reorganization or liquidation of the Employer, or prevent the sale by Employer
of any or all of its property. Any successor corporation or other entity formed
and resulting from any such transaction shall have the right to become a party
to this Plan by adopting the same by resolution and by appointing a new Trustee
as though the Trustee had resigned in accordance with the Trust Agreement, and
by executing a proper supplemental agreement with the Trustee. If, within 180
days from the effective date of such transaction, such new entity does not
become a party to this Plan as above provided, this Plan shall automatically be
terminated and the Trustee shall make payments to the persons entitled thereto
in accordance with Section 9.5.
13.3 Consolidation or Merger of Trust.
In the event of any merger or consolidation of the Fund with, or
transfer in whole or in part of the assets and liabilities of the Fund to,
another trust fund held under any other plan of deferred compensation maintained
or to be established for the benefit of all or some of the Participants of this
Plan, the assets of the Fund applicable to such Participants shall be
transferred to the other trust fund only if:
(a) Each Participant would receive a benefit under such successor trust
fund immediately after the merger, consolidation or transfer which is equal to
or greater than the benefit he would have been entitled to receive immediately
before the merger, consolidation or transfer (determined as if this Plan and
such transferee trust fund had then terminated);
(b) Resolutions of the Board of Directors under this Plan, or of any
new or successor employer of the affected Participants, shall authorize such
transfer of assets, and, in the case of the new or successor employer of the
affected Participants, its resolutions shall include an assumption of
liabilities with respect to such Participants' inclusion in the new employer's
plan; and
(c) Such other plan and trust are qualified under Sections 401(a) and
501(a) of the Code.
13.4 Bankruptcy or Insolvency of Employer.
In the event of (a) the Employer's legal dissolution or liquidation by
any procedure other than a consolidation or merger, (b) the Employer's
receivership, insolvency, or cessation of its business as a going concern, or
(c) the commencement of any proceeding by or against the Employer under the
federal bankruptcy laws, and similar federal or state statute, or any federal or
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state statute or rule providing for the relief of debtors, compensation of
creditors, arrangement, receivership, liquidation or any similar event which is
not dismissed within 30 days, this Plan shall terminate automatically on such
date (provided, however, that if a proceeding is brought against the Employer
for reorganization under Chapter 11 of the United States Bankruptcy Code or any
similar federal or state statute, then this Plan shall terminate automatically
if and when said proceeding results in a liquidation of the Employer, or the
approval of any Plan providing therefor, or the proceeding is converted to a
case under Chapter 7 of the Bankruptcy Code or any similar conversion to a
liquidation proceeding under federal or state law including, but not limited to,
a receivership proceeding). In the event of any such termination as provided in
the foregoing sentence, the Trustee shall make payments to the persons entitled
thereto in accordance with Section 9.5 hereof.
13.5 Voluntary Termination.
The Board of Directors reserves the right to terminate this Plan at any
time by giving to the Trustee and the Administrator notice in writing of such
desire to terminate. The Plan shall terminate upon the date of receipt of such
notice, the interests of all Participants shall become fully vested, and the
Trustee shall make payments to each Participant or Beneficiary in accordance
with Section 9.5. Alternatively, the Employer, in its discretion, may determine
to continue the Trust Agreement and to continue the maintenance of the Fund, in
which event distributions shall be made upon the contingencies and in all the
circumstances which would have been entitled such distributions on a fully
vested basis, had there been no termination of the Plan.
13.6 Partial Termination of Plan or Permanent Discontinuance of
Contributions.
In the event that a partial termination of the Plan shall be deemed to
have occurred, or if the Employer shall discontinue completely its contributions
hereunder, the right of each affected Participant to his interest in the Fund
shall be fully vested. The Employer, in its discretion, shall decide whether to
direct the Trustee to make immediate distribution of such portion of the Fund
assets to the persons entitled thereto or to make distribution in the
circumstances and contingencies which would have controlled such distributions
if there had been no partial termination or discontinuance of contributions.
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ARTICLE XIV
MISCELLANEOUS
-------------
14.1 No Diversion of Funds.
It is the intention of the Employer that it shall be impossible for any
part of the corpus or income of the Fund to be used for, or diverted to,
purposes other than for the exclusive benefit of the Participants or their
Beneficiaries, except to extent that a return of the Employer's contribution is
permitted under Section 4.4.
14.2 Liability Limited.
Neither the Employer nor the Administrator, nor any agents, employees,
officers, directors or shareholders of any of them, nor the Trustee, nor any
other person shall have any liability or responsibility with respect to this
Plan, except as expressly provided herein.
14.3 Incapacity.
If the Administrator shall receive evidence satisfactory to it that a
Participant or Beneficiary entitled to receive any benefit under the Plan is, at
the time when such benefit becomes payable, a minor, or is physically or
mentally incompetent to receive such benefit and to give a valid release
therefor, and that another person or an institution is then maintaining or has
custody of such Participant or Beneficiary, and that no guardian, committee or
other representative of the estate of such Participant or Beneficiary shall have
been duly appointed, the Administrator may direct the Trustee to make payment of
such benefit otherwise payable to such Participant or Beneficiary, to such other
person or institution, including a custodian under a Uniform Gifts to Minor Act,
or corresponding legislation (who shall be an adult, a guardian of the minor or
a trust company), and the release of such other person or institution shall be a
valid and complete discharge for the payment of such benefit.
14.4 Spendthrift Clause.
Except as permitted by the Act or the Code, no benefits or other
amounts payable under the Plan shall be subject in any manner to anticipation,
sale, transfer, assignment, pledge, encumbrance, charge or alienation. If the
Administrator determines that any person entitled to any payments under the Plan
has become insolvent or bankrupt or has attempted to anticipate, sell, transfer,
assign, pledge, encumber, charge or otherwise in any manner alienate any benefit
or other amount payable to him under the Plan or that there is any danger of any
levy or attachment or other court process or encumbrance on the part of any
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creditor of such person entitled to payments under the Plan against any benefit
or other accounts payable to such person, the Administrator may, at any time, in
its discretion, direct the Trustee to withhold any or all payments to such
person under the Plan and apply the same for the benefit of such person, in such
manner and in such proportion as the Administrator may deem proper.
14.5 Benefits Limited to Fund.
All contributions by the Employer to the Fund shall be voluntary, and
the Employer shall be under no legal liability to make any such contributions.
The benefits of this Plan shall be only as can be provided by the assets of the
Fund, and no liability for the payment of benefits under the Plan or for any
loss of assets due to any action or inaction of the Trustee shall be imposed
upon the Employer.
14.6 Cooperation of Parties.
All parties to this Plan and any party claiming interest hereunder
agree to perform any and all acts and execute any and all documents and papers
which are necessary and desirable for carrying out this Plan or any of its
provisions.
14.7 Payments Due Missing Persons.
The Administrator shall direct the Trustee to make a reasonable effort
to locate all persons entitled to benefits under the Plan; however,
notwithstanding any provision in the Plan to the contrary, if, after a period of
5 years from the date such benefit shall be due, any such persons entitled to
benefits have not been located, their rights under the Plan shall stand
suspended. Before this provision becomes operative, the Trustee shall send a
certified letter to all such persons at their last known address advising them
that their interest in benefits under the Plan shall be suspended. Any such
suspended amounts shall be held by the Trustee for a period of 3 additional
years (or a total of 8 years from the time the benefits first became payable),
and thereafter such amounts shall be reallocated among current Participants in
the same manner that a current contribution would be allocated. However, if a
person subsequently makes a valid claim with respect to such reallocated amounts
and any earnings thereon, the Plan earnings or the Employer's contribution to be
allocated for the year in which the claim shall be paid shall be reduced by the
amount of such payment. Any such suspended amounts shall be handled in a manner
not inconsistent with regulations issued by the Internal Revenue Service and
Department of Labor.
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14.8 Governing Law.
This Plan has been executed in the State of Ohio and all questions
pertaining to its validity, construction and administration shall be determined
in accordance with the laws of that State, except to the extent superseded by
the Act.
14.9 Nonguarantee of Employment.
Nothing contained in this Plan shall be construed as a contract of
employment between the Employer and any Employee, or as a right of any Employee
to be continued in the employment of the Employer, or as a limitation of the
right of the Employer to discharge any of its Employees, with or without cause.
14.10 Counsel.
The Trustee and the Administrator may consult with legal counsel, who
may be counsel for the Employer and for the Administrator or the Trustee (as the
case may be), with respect to the meaning or construction of this Plan and the
Trust Agreement, their respective obligations or duties hereunder or with
respect to any action or proceeding or any question of law, and they shall be
fully protected with respect to any action taken or omitted by them in good
faith pursuant to the advice of legal counsel.
IN WITNESS WHEREOF, the Sponsor has caused these presents to be
executed by its duly authorized officers and its corporate seal to be affixed on
this _____ day of February, 1997.
PEOPLES-SIDNEY FINANCIAL
CORPORATION
ATTEST:
____________________________ By_____________________________
Gary N. Fullenkamp, Douglas Stewart,
Secretary President
[Corporate Seal]
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Exhibit 10.2
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement") is made and entered into as of
this ___ day of __________, 1997, by and between Peoples Federal Savings and
Loan Association of Sidney (hereinafter referred to as the "Association" whether
in mutual or stock form), and Douglas Stewart (the "Employee").
WHEREAS, the Employee is currently serving as President and Chief
Executive Officer of the Association; and
WHEREAS, the Association has adopted a plan of conversion whereby the
Association will convert to capital stock form as the subsidiary of
Peoples-Sidney Financial Corporation (the "Holding Company"), subject to the
approval of the Association's members and the Office of Thrift Supervision (the
"Conversion"); and
WHEREAS, the board of directors of the Association ("Board of
Directors") recognizes that, as is the case with publicly held corporations
generally, the possibility of a change in control of the Holding Company and/or
the Association may exist and that such possibility, and the uncertainty and
questions which it may raise among management, may result in the departure or
distraction of key management personnel to the detriment of the Association, the
Holding Company and their respective stockholders; and
WHEREAS, the Board of Directors believes it is in the best interests of
the Association to enter into this Agreement with the Employee in order to
assure continuity of management of the Association and to reinforce and
encourage the continued attention and dedication of the Employee to the
Employee's assigned duties without distraction in the face of potentially
disruptive circumstances arising from the possibility of a change in control of
the Holding Company or the Association, although no such change is now
contemplated; and
WHEREAS, the Board of Directors has approved and authorized the
execution of this Agreement with the Employee to take effect as stated in
Section 2 hereof;
NOW, THEREFORE, in consideration of the foregoing and of the respective
covenants and agreements of the parties herein, it is AGREED as follows:
1. Definitions.
(a) The term "Change in Control" means (1) an event of a nature
that (i) results in a change in control of the Association or the Holding
Company within the meaning of the Home Owners' Loan Act of 1933 and 12 C.F.R.
Part 574 as in effect on the date hereof; or (ii) would be required to be
reported in response to Item 1 of the current report on Form 8-K, as in effect
on the date hereof, pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 (the "Exchange Act"); (2) any person (as the term is used in
Sections 13(d) and 14(d) of the Exchange Act) is or becomes the beneficial owner
(as defined in Rule 13d-3 under the Exchange Act), directly or indirectly of
securities of the Association or the Holding Company representing 20% or more of
the Association's or the Holding Company's outstanding securities; (3)
individuals who are members of the board of directors of the Association or the
Holding
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Company on the date hereof (the "Incumbent Board") cease for any reason to
constitute at least a majority thereof, provided that any person becoming a
director subsequent to the date hereof whose election was approved by a vote of
at least three-quarters of the directors comprising the Incumbent Board, or
whose nomination for election by the Holding Company's stockholders was approved
by the nominating committee serving under an Incumbent Board, shall be
considered a member of the Incumbent Board; or (4) a reorganization, merger,
consolidation, sale of all or substantially all of the assets of the Association
or the Holding Company or a similar transaction in which the Association or the
Holding Company is not the resulting entity. The term "Change in Control" shall
not include an acquisition of securities by an employee benefit plan of the
Association or the Holding Company or the acquisition of securities of the
Association by the Holding Company in connection with the Conversion. In the
application of 12 C.F.R. Part 574 to a determination of a Change in Control,
determinations to be made by the OTS or its Director under such regulations
shall be made by the Board of Directors.
(b) The term "Commencement Date" means the date of completion of
Conversion.
(c) The term "Date of Termination" means the earlier of (1) the
date upon which the Association gives notice to the Employee of the termination
of the Employee's employment with the Association or (2) the date upon which
the Employee ceases to serve as an employee of the Association.
(d) The term "Involuntarily Termination" means termination of
the employment of Employee without the Employee's express written consent, and
shall include a material diminution of or interference with the Employee's
duties, responsibilities and benefits as President and Chief Executive Officer
of the Association, including (without limitation) any of the following actions
unless consented to in writing by the Employee: (1) a change in the principal
workplace of the Employee to a location outside of a 30 mile radius from the
Association's headquarters office as of the date hereof; (2) a material demotion
of the Employee; (3) a material reduction in the number or seniority of other
Association personnel reporting to the Employee or a material reduction in the
frequency with which, or in the nature of the matters with respect to which,
such personnel are to report to the Employee, other than as part of a
Association-or Holding Company-wide reduction in staff; (4) a material adverse
change in the Employee's salary, perquisites, benefits, contingent benefits or
vacation, other than as part of an overall program applied uniformly and with
equitable effect to all members of the senior management of the Association or
the Holding Company; and (5) a material permanent increase in the required hours
of work or the workload of the Employee. The term "Involuntary Termination" does
not include Termination for Cause or termination of employment due to
retirement, death, disability or suspension or temporary or permanent
prohibition from participation in the conduct of the Association's affairs under
Section 8 of the Federal Deposit Insurance Act ("FDIA").
(e) The terms "Termination for Cause" and "Terminated for Cause"
mean termination of the employment of the Employee because of the Employee's
personal dishonesty, incompetence, willful misconduct, breach of a fiduciary
duty involving personal profit, intentional failure to perform stated duties,
willful violation of any law, rule, or regulation (other than traffic violations
or similar offenses) or final cease-and-desist order, or material breach of
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any provision of this Agreement. The Employee shall not be deemed to have been
Terminated for Cause unless and until there shall have been delivered to the
Employee a copy of a resolution, duly adopted by the affirmative vote of not
less than a majority of the entire membership of the Board of Directors at a
meeting of the Board called and held for such purpose (after reasonable notice
to the Employee and an opportunity for the Employee, together with the
Employee's counsel, to be heard before the Board), stating that in the good
faith opinion of the Board the Employee has engaged in conduct described in the
preceding sentence and specifying the particulars thereof in detail.
2. Term. The term of this Agreement shall be a period of three years
commencing on the Commencement Date, subject to earlier termination as provided
herein. Beginning on the first anniversary of the Commencement Date, and on each
anniversary thereafter, the term of this Agreement shall be extended for a
period of one year in addition to the then-remaining term, provided that (1) the
Association has not given notice to the Employee in writing at least 90 days
prior to such anniversary that the term of this Agreement shall not be extended
further; and (2) prior to such anniversary, the Board of Directors of the
Association explicitly reviews and approves the extension. Reference herein to
the term of this Agreement shall refer to both such initial term and such
extended terms.
3. Employment. The Employee is employed as President and Chief
Executive Officer of the Association. As such, the Employee shall render
administrative and management services as are customarily performed by persons
situated in similar executive capacities, and shall have such other powers and
duties of an officer of the Association as the Board of Directors may prescribe
from time to time.
4. Compensation.
(a) Salary. The Association agrees to pay the Employee during
the term of this Agreement the salary established by the Board of Directors,
which shall be at least the Employee's salary in effect as of the Commencement
Date. The amount of the Employee's salary shall be reviewed by the Board of
Directors, beginning not later than the first anniversary of the Commencement
Date. Adjustments in salary or other compensation shall not limit or reduce any
other obligation of the Association under this Agreement. The Employee's salary
in effect from time to time during the term of this Agreement shall not
thereafter be reduced.
(b) Discretionary Bonuses. The Employee shall be entitled to
participate in an equitable manner with all other executive officers of the
Association in discretionary bonuses as authorized and declared by the Board of
Directors to its executive employees. No other compensation provided for in this
Agreement shall be deemed a substitute for the Employee's right to participate
in such bonuses when and as declared by the Board of Directors.
(c) Expenses. The Employee shall be entitled to receive prompt
reimbursement for all reasonable expenses incurred by the Employee in performing
services under this Agreement in accordance with the policies and procedures
applicable to the executive officers of the Association, provided that the
Employee accounts for such expenses as required under such policies and
procedures.
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5. Benefits.
(a) Participation in Retirement and Employee Benefit Plans. The
Employee shall be entitled to participate in all plans relating to pension,
thrift, profit-sharing, group life insurance, medical and dental coverage,
education, cash bonuses, and other retirement or employee benefits or
combinations thereof, in which the Association's executive officers participate.
(b) Fringe Benefits. The Employee shall be eligible to
participate in, and receive benefits under, any fringe benefit plans which are
or may become applicable to the Association's executive officers.
6. Vacations; Leave. The Employee shall be entitled to annual paid
vacation in accordance with the policies established by the Association's Board
of Directors for executive officers and for voluntary leave of absence, with or
without pay, from time to time at such times and upon such conditions as the
Board of Directors may determine in its discretion.
7. Termination of Employment.
(a) Involuntary Termination. The Board of Directors may terminate
the Employee's employment at any time, but, except in the case of Termination
for Cause, termination of employment shall not prejudice the Employee's right to
compensation or other benefits under this Agreement. In the event of Involuntary
Termination other than in connection with or within 12 months after a Change in
Control, (1) the Association shall pay to the Employee during the remaining term
of this Agreement the Employee's salary at the rate in effect immediately prior
to the Date of Termination, payable in such manner and at such times as such
salary would have been payable to the Employee under Section 4(a) if the
Employee had continued to be employed by the Association, and (2) the
Association shall provide to the Employee during the remaining term of this
Agreement health benefits as maintained by the Association for the benefit of
its executive officers from time to time during the remaining term of the
Agreement or substantially the same health benefits as the Association
maintained for its executive officers immediately prior to the Date of
Termination.
(b) Termination for Cause. In the event of Termination for Cause,
the Association shall pay the Employee the Employee's salary through the Date of
Termination, and the Association shall have no further obligation to the
Employee under this Agreement.
(c) Voluntary Termination. The Employee's employment may be
voluntarily terminated by the Employee at any time upon 90 days' written notice
to the Association or such shorter period as may be agreed upon between the
Employee and the Board of Directors of the Association. In the event of such
voluntary termination, the Association shall be obligated to continue to pay to
the Employee the Employee's salary and benefits only through the Date of
Termination, at the time such payments are due, and the Association shall have
no further obligation to the Employee under this Agreement.
(d) Change in Control. In the event of Involuntary Termination in
connection with or within 12 months after a Change in Control which occurs at
any time while the
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Employee is employed under this Agreement, the Association shall, subject to
Section 8 of this Agreement, (1) pay to the Employee in a lump sum in cash
within 25 business days after the Date of Termination an amount equal to 299% of
the Employee's "base amount" as defined in Section 280G of the Internal Revenue
Code of 1986, as amended (the "Code"); and (2) provide to the Employee during
the remaining term of this Agreement such health benefits as are maintained for
executive officers of the Association from time to time during the remaining
term of this Agreement or substantially the same health benefits as the
Association maintained for its executive officers immediately prior to the Date
of Termination.
(e) Death; Disability. In the event of the death of the
Employee while employed under this Agreement and prior to any termination of
employment, the Employee's estate, or such person as the Employee may have
previously designated in writing, shall be entitled to receive from the
Association the salary of the Employee through the last day of the calendar
month in which the Employee died. If the Employee becomes disabled as defined in
the Association's then current disability plan, if any, or if the Employee is
otherwise unable to serve as President and Chief Executive Officer, the Employee
shall be entitled to receive group and other disability income benefits of the
type, if any, then provided by the Association for executive officers.
(f) Temporary Suspension or Prohibition. If the Employee is
suspended and/or temporarily prohibited from participating in the conduct of the
Association's affairs by a notice served under Section 8(e)(3) or (g)(1) of the
FDIA, 12 U.S.C. Section 1818(e)(3) and (g)(1), the Association's obligations
under this Agreement shall be suspended as of the date of service, unless stayed
by appropriate proceedings. If the charges in the notice are dismissed, the
Association may in its discretion (i) pay the Employee all or part of the
compensation withheld while its obligations under this Agreement were suspended
and (ii) reinstate in whole or in part any of its obligations which were
suspended.
(g) Permanent Suspension or Prohibition. If the Employee is
removed and/or permanently prohibited from participating in the conduct of the
Association's affairs by an order issued under Section 8(e)(4) or (g)(1) of the
FDIA, 12 U.S.C. ss. 1818(e)(4) and (g)(1), all obligations of the Association
under this Agreement shall terminate as of the effective date of the order, but
vested rights of the contracting parties shall not be affected.
(h) Default of the Association. If the Association is in default
(as defined in Section 3(x)(1) of the FDIA), all obligations under this
Agreement shall terminate as of the date of default, but this provision shall
not affect any vested rights of the contracting parties.
(i) Termination by Regulators. All obligations under this
Agreement shall be terminated, except to the extent determined that continuation
of this Agreement is necessary for the continued operation of the Association:
(1) by the Director of the Office of Thrift Supervision (the "Director") or his
or her designee, at the time the Federal Deposit Insurance Corporation or the
Resolution Trust Corporation enters into an agreement to provide assistance to
or on behalf of the Association under the authority contained in Section 13(c)
of the FDIA; or (2) by the Director or his or her designee, at the time the
Director or his or her designee approves a supervisory merger to resolve
problems related to operation of the Association or when the Association is
determined by the Director to be in an unsafe or unsound condition.
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Any rights of the parties that have already vested, however, shall not be
affected by any such action.
8. Certain Reduction of Payments by the Association.
(a) Notwithstanding any other provision of this Agreement, if
the value and amounts of benefits under this Agreement, together with any other
amounts and the value of benefits received or to be received by the Employee in
connection with a Change in Control would cause any amount to be nondeductible
by the Association or the Holding Company for federal income tax purposes
pursuant to Section 280G of the Code, then amounts and benefits under this
Agreement shall be reduced (not less than zero) to the extent necessary so as to
maximize amounts and the value of benefits to the Employee without causing any
amount to become nondeductible by the Association or the Holding Company
pursuant to or by reason of such Section 280G. The Employee shall determine the
allocation of such reduction among payments and benefits to the Employee.
(b) Any payments made to the Employee pursuant to this Agreement,
or otherwise, are subject to and conditioned upon their compliance with
12 U.S.C. 1828(k) and any regulations promulgated thereunder.
9. No Mitigation. The Employee shall not be required to mitigate the
amount of any salary or other payment or benefit provided for in this Agreement
by seeking other employment or otherwise, nor shall the amount of any payment or
benefit provided for in this Agreement be reduced by any compensation earned by
the Employee as the result of employment by another employer, by retirement
benefits after the Date of Termination or otherwise.
10. Attorneys Fees. In the event the Association exercises its right of
Termination for Cause, but it is determined by a court of competent jurisdiction
or by an arbitrator pursuant to Section 17 that cause did not exist for such
termination, or if in any event it is determined by any such court or arbitrator
that the Association has failed to make timely payment of any amounts owed to
the Employee under this Agreement, the Employee shall be entitled to
reimbursement for all reasonable costs, including attorneys' fees, incurred in
challenging such termination or collecting such amounts. Such reimbursement
shall be in addition to all rights to which the Employee is otherwise entitled
under this Agreement.
11. No Assignments.
(a) This Agreement is personal to each of the parties hereto,
and neither party may assign or delegate any of its rights or obligations
hereunder without first obtaining the written consent of the other party;
provided, however, that the Association shall require any successor or assign
(whether direct or indirect, by purchase, merger, consolidation or otherwise) to
all or substantially all of the business and/or assets of the Association, by an
assumption agreement in form and substance satisfactory to the Employee, to
expressly assume and agree to perform this Agreement in the same manner and to
the same extent that the Association would be required to perform it if no such
succession or assignment had taken place. Failure of the Association to obtain
such an assumption agreement prior to the effectiveness of any such succession
or assignment shall be a breach of this Agreement and shall entitle the Employee
to
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<PAGE>
compensation from the Association in the same amount and on the same terms as
the compensation pursuant to Section 7(d) hereof. For purposes of implementing
the provisions of this Section 11(a), the date on which any such succession
becomes effective shall be deemed the Date of Termination.
(b) This Agreement and all rights of the Employee hereunder
shall inure to the benefit of and be enforceable by the Employee's personal and
legal representatives, executors, administrators, successors, heirs,
distributees, devisees and legatees. If the Employee should die while any
amounts would still be payable to the Employee hereunder if the Employee had
continued to live, all such amounts, unless otherwise provided herein, shall be
paid in accordance with the terms of this Agreement to the Employee's devisee,
legatee or other designee or if there is no such designee, to the Employee's
estate.
12. Notice. For the purposes of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when personally delivered or sent by certified
mail, return receipt requested, postage prepaid, to the Association at its home
office, to the attention of the Board of Directors with a copy to the Secretary
of the Association, or, if to the Employee, to such home or other address as the
Employee has most recently provided in writing to the Association.
13. Amendments. No amendments or additions to this Agreement shall be
binding unless in writing and signed by both parties, except as herein otherwise
provided.
14. Headings. The headings used in this Agreement are included solely
for convenience and shall not affect, or be used in connection with, the
interpretation of this Agreement.
15. Severability. The provisions of this Agreement shall be deemed
severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability of the other provisions hereof.
16. Governing Law. This Agreement shall be governed by the laws of the
United States to the extent applicable and otherwise by the laws of the State
of Ohio.
17. Arbitration. Any dispute or controversy arising under or in
connection with this Agreement shall be settled exclusively by arbitration in
accordance with the rules of the American Arbitration Association then in
effect. Judgment may be entered on the arbitrator's award in any court having
jurisdiction.
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
THIS AGREEMENT CONTAINS A BINDING ARBITRATION PROVISION WHICH MAY BE
ENFORCED BY THE PARTIES.
Attest: PEOPLES FEDERAL SAVINGS AND LOAN
ASSOCIATION OF SIDNEY
_____________________________ ___________________________________
Secretary By:
Its:
EMPLOYEE
___________________________________
Douglas Stewart
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EMPLOYMENT AGREEMENTS
The Association is proposing to enter into employment agreements with
the following named executive officers. The proposed agreements are
substantially similar.
<TABLE>
Name Title
- ----------------- ------------------------------------------------------
<S> <C>
David R. Fogt Vice President of Operations and Financial Services
Gary N. Fullenkamp Vice President of Mortgage Loans and Corporate Secretary
Debra A. Geuy Treasurer
Steven Goins Assistant Vice President of Financial Services
</TABLE>
<PAGE>
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement") is made and entered into as of
this ___ day of __________, 1997, by and between Peoples Federal Savings and
Loan Association of Sidney (hereinafter referred to as the "Association" whether
in mutual or stock form), and _______________________ ("Employee").
WHEREAS, the Employee is currently serving as _________________________
of the Association; and
WHEREAS, the Association has adopted a plan of conversion whereby the
Association will convert to capital stock form as the subsidiary of
Peoples-Sidney Financial Corporation (the "Holding Company"), subject to the
approval of the Association's members and the Office of Thrift Supervision (the
"Conversion"); and
WHEREAS, the board of directors of the Association ("Board of
Directors") recognizes that, as is the case with publicly held corporations
generally, the possibility of a change in control of the Holding Company and/or
the Association may exist and that such possibility, and the uncertainty and
questions which it may raise among management, may result in the departure or
distraction of key management personnel to the detriment of the Association, the
Holding Company and their respective stockholders; and
WHEREAS, the Board of Directors believes it is in the best interests of
the Association to enter into this Agreement with the Employee in order to
assure continuity of management of the Association and to reinforce and
encourage the continued attention and dedication of the Employee to the
Employee's assigned duties without distraction in the face of potentially
disruptive circumstances arising from the possibility of a change in control of
the Holding Company or the Association, although no such change is now
contemplated; and
WHEREAS, the Board of Directors has approved and authorized the
execution of this Agreement with the Employee to take effect as stated in
Section 2 hereof;
NOW, THEREFORE, in consideration of the foregoing and of the respective
covenants and agreements of the parties herein, it is AGREED as follows:
1. Definitions.
(a) The term "Change in Control" means (1) an event of a
nature that (i) results in a change in control of the Association or the Holding
Company within the meaning of the Home Owners' Loan Act of 1933 and 12 C.F.R.
Part 574 as in effect on the date hereof; or (ii) would be required to be
reported in response to Item 1 of the current report on Form 8-K, as in effect
on the date hereof, pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 (the "Exchange Act"); (2) any person (as the term is used in
Sections 13(d) and 14(d) of the Exchange Act) is or becomes the beneficial owner
(as defined in Rule 13d-3 under the Exchange Act), directly or indirectly of
securities of the Association or the Holding Company representing 20% or more of
the Association's or the Holding Company's outstanding securities; (3)
individuals who are members of the board of directors of the Association or the
Holding
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Company on the date hereof (the "Incumbent Board") cease for any reason to
constitute at least a majority thereof, provided that any person becoming a
director subsequent to the date hereof whose election was approved by a vote of
at least three-quarters of the directors comprising the Incumbent Board, or
whose nomination for election by the Holding Company's stockholders was approved
by the nominating committee serving under an Incumbent Board, shall be
considered a member of the Incumbent Board; or (4) a reorganization, merger,
consolidation, sale of all or substantially all of the assets of the Association
or the Holding Company or a similar transaction in which the Association or the
Holding Company is not the resulting entity. The term "Change in Control" shall
not include an acquisition of securities by an employee benefit plan of the
Association or the Holding Company or the acquisition of securities of the
Association by the Holding Company in connection with the Conversion. In the
application of 12 C.F.R. Part 574 to a determination of a Change in Control,
determinations to be made by the OTS or its Director under such regulations
shall be made by the Board of Directors.
(b) The term "Commencement Date" means the date of completion
of Conversion.
(c) The term "Date of Termination" means the earlier of (1)
the date upon which the Association gives notice to the Employee of the
termination of the Employee's employment with the Association or (2) the date
upon which the Employee ceases to serve as an employee of the Association.
(d) The term "Involuntarily Termination" means termination of
the employment of Employee without the Employee's express written consent, and
shall include a material diminution of or interference with the Employee's
duties, responsibilities and benefits as _________________________________ of
the Association, including (without limitation) any of the following actions
unless consented to in writing by the Employee: (1) a change in the principal
workplace of the Employee to a location outside of a 30 mile radius from the
Association's headquarters office as of the date hereof; (2) a material demotion
of the Employee; (3) a material reduction in the number or seniority of other
Association personnel reporting to the Employee or a material reduction in the
frequency with which, or in the nature of the matters with respect to which,
such personnel are to report to the Employee, other than as part of a
Association- or Holding Company-wide reduction in staff; (4) a material adverse
change in the Employee's salary, perquisites, benefits, contingent benefits or
vacation, other than as part of an overall program applied uniformly and with
equitable effect to all members of the senior management of the Association or
the Holding Company; and (5) a material permanent increase in the required hours
of work or the workload of the Employee. The term "Involuntary Termination" does
not include Termination for Cause or termination of employment due to
retirement, death, disability or suspension or temporary or permanent
prohibition from participation in the conduct of the Association's affairs under
Section 8 of the Federal Deposit Insurance Act ("FDIA").
(e) The terms "Termination for Cause" and "Terminated for
Cause" mean termination of the employment of the Employee because of the
Employee's personal dishonesty, incompetence, willful misconduct, breach of a
fiduciary duty involving personal profit, intentional failure to perform stated
duties, willful violation of any law, rule, or regulation (other than traffic
violations or similar offenses) or final cease-and-desist order, or material
breach of
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any provision of this Agreement. The Employee shall not be deemed to have been
Terminated for Cause unless and until there shall have been delivered to the
Employee a copy of a resolution, duly adopted by the affirmative vote of not
less than a majority of the entire membership of the Board of Directors at a
meeting of the Board called and held for such purpose (after reasonable notice
to the Employee and an opportunity for the Employee, together with the
Employee's counsel, to be heard before the Board), stating that in the good
faith opinion of the Board the Employee has engaged in conduct described in the
preceding sentence and specifying the particulars thereof in detail.
2. Term. The term of this Agreement shall be a period of one year
commencing on the Commencement Date, subject to earlier termination as provided
herein. Beginning on the first anniversary of the Commencement Date, and on each
anniversary thereafter, the term of this Agreement shall be extended for a
period of one year in addition to the then-remaining term, provided that (1) the
Association has not given notice to the Employee in writing at least 90 days
prior to such anniversary that the term of this Agreement shall not be extended
further; and (2) prior to such anniversary, the Board of Directors of the
Association explicitly reviews and approves the extension. Reference herein to
the term of this Agreement shall refer to both such initial term and such
extended terms.
3. Employment. The Employee is employed as ___________________________
of the Association. As such, the Employee shall render administrative and
management services as are customarily performed by persons situated in similar
executive capacities, and shall have such other powers and duties of an officer
of the Association as the Board of Directors may prescribe from time to time.
4. Compensation.
(a) Salary. The Association agrees to pay the Employee during
the term of this Agreement the salary established by the Board of Directors,
which shall be at least the Employee's salary in effect as of the Commencement
Date. The amount of the Employee's salary shall be reviewed by the Board of
Directors, beginning not later than the first anniversary of the Commencement
Date. Adjustments in salary or other compensation shall not limit or reduce any
other obligation of the Association under this Agreement. The Employee's salary
in effect from time to time during the term of this Agreement shall not
thereafter be reduced.
(b) Discretionary Bonuses. The Employee shall be entitled to
participate in an equitable manner with all other executive officers of the
Association in discretionary bonuses as authorized and declared by the Board of
Directors to its executive employees. No other compensation provided for in this
Agreement shall be deemed a substitute for the Employee's right to participate
in such bonuses when and as declared by the Board of Directors.
(c) Expenses. The Employee shall be entitled to receive prompt
reimbursement for all reasonable expenses incurred by the Employee in performing
services under this Agreement in accordance with the policies and procedures
applicable to the executive officers of the Association, provided that the
Employee accounts for such expenses as required under such policies and
procedures.
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5. Benefits.
(a) Participation in Retirement and Employee Benefit Plans.
The Employee shall be entitled to participate in all plans relating to pension,
thrift, profit-sharing, group life insurance, medical and dental coverage,
education, cash bonuses, and other retirement or employee benefits or
combinations thereof, in which the Association's executive officers participate.
(b) Fringe Benefits. The Employee shall be eligible to
participate in, and receive benefits under, any fringe benefit plans which are
or may become applicable to the Association's executive officers.
6. Vacations; Leave. The Employee shall be entitled to annual paid
vacation in accordance with the policies established by the Association's Board
of Directors for executive officers and for voluntary leave of absence, with or
without pay, from time to time at such times and upon such conditions as the
Board of Directors may determine in its discretion.
7. Termination of Employment.
(a) Involuntary Termination. The Board of Directors may
terminate the Employee's employment at any time, but, except in the case of
Termination for Cause, termination of employment shall not prejudice the
Employee's right to compensation or other benefits under this Agreement. In the
event of Involuntary Termination other than in connection with or within 12
months after a Change in Control, (1) the Association shall pay to the Employee
during the remaining term of this Agreement the Employee's salary at the rate in
effect immediately prior to the Date of Termination, payable in such manner and
at such times as such salary would have been payable to the Employee under
Section 4(a) if the Employee had continued to be employed by the Association,
and (2) the Association shall provide to the Employee during the remaining term
of this Agreement health benefits as maintained by the Association for the
benefit of its executive officers from time to time during the remaining term of
the Agreement or substantially the same health benefits as the Association
maintained for its executive officers immediately prior to the Date of
Termination.
(b) Termination for Cause. In the event of Termination for
Cause, the Association shall pay the Employee the Employee's salary through the
Date of Termination, and the Association shall have no further obligation to the
Employee under this Agreement.
(c) Voluntary Termination. The Employee's employment may be
voluntarily terminated by the Employee at any time upon 90 days' written notice
to the Association or such shorter period as may be agreed upon between the
Employee and the Board of Directors of the Association. In the event of such
voluntary termination, the Association shall be obligated to continue to pay to
the Employee the Employee's salary and benefits only through the Date of
Termination, at the time such payments are due, and the Association shall have
no further obligation to the Employee under this Agreement.
(d) Change in Control. In the event of Involuntary Termination
in connection with or within 12 months after a Change in Control which occurs at
any time while the
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<PAGE>
Employee is employed under this Agreement, the Association shall, subject to
Section 8 of this Agreement, (1) pay to the Employee in a lump sum in cash
within 25 business days after the Date of Termination an amount equal to 100% of
the Employee's "base amount" as defined in Section 280G of the Internal Revenue
Code of 1986, as amended (the "Code"); and (2) provide to the Employee during
the remaining term of this Agreement such health benefits as are maintained for
executive officers of the Association from time to time during the remaining
term of this Agreement or substantially the same health benefits as the
Association maintained for its executive officers immediately prior to the Date
of Termination.
(e) Death; Disability. In the event of the death of the
Employee while employed under this Agreement and prior to any termination of
employment, the Employee's estate, or such person as the Employee may have
previously designated in writing, shall be entitled to receive from the
Association the salary of the Employee through the last day of the calendar
month in which the Employee died. If the Employee becomes disabled as defined in
the Association's then current disability plan, if any, or if the Employee is
otherwise unable to serve as ________________________________, the Employee
shall be entitled to receive group and other disability income benefits of the
type, if any, then provided by the Association for executive officers.
(f) Temporary Suspension or Prohibition. If the Employee is
suspended and/or temporarily prohibited from participating in the conduct of the
Association's affairs by a notice served under Section 8(e)(3) or (g)(1) of the
FDIA, 12 U.S.C. Section 1818(e)(3) and (g)(1), the Association's obligations
under this Agreement shall be suspended as of the date of service, unless stayed
by appropriate proceedings. If the charges in the notice are dismissed, the
Association may in its discretion (i) pay the Employee all or part of the
compensation withheld while its obligations under this Agreement were suspended
and (ii) reinstate in whole or in part any of its obligations which were
suspended.
(g) Permanent Suspension or Prohibition. If the Employee is
removed and/or permanently prohibited from participating in the conduct of the
Association's affairs by an order issued under Section 8(e)(4) or (g)(1) of the
FDIA, 12 U.S.C. Section 1818(e)(4) and (g)(1), all obligations of the
Association under this Agreement shall terminate as of the effective date of the
order, but vested rights of the contracting parties shall not be affected.
(h) Default of the Association. If the Association is in
default (as defined in Section 3(x)(1) of the FDIA), all obligations under this
Agreement shall terminate as of the date of default, but this provision shall
not affect any vested rights of the contracting parties.
(i) Termination by Regulators. All obligations under this
Agreement shall be terminated, except to the extent determined that continuation
of this Agreement is necessary for the continued operation of the Association:
(1) by the Director of the Office of Thrift Supervision (the "Director") or his
or her designee, at the time the Federal Deposit Insurance Corporation or the
Resolution Trust Corporation enters into an agreement to provide assistance to
or on behalf of the Association under the authority contained in Section 13(c)
of the FDIA; or (2) by the Director or his or her designee, at the time the
Director or his or her designee approves a supervisory merger to resolve
problems related to operation of the Association or when the Association is
determined by the Director to be in an unsafe or unsound condition.
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Any rights of the parties that have already vested, however, shall not be
affected by any such action.
8. Certain Reduction of Payments by the Association.
(a) Notwithstanding any other provision of this Agreement, if
the value and amounts of benefits under this Agreement, together with any other
amounts and the value of benefits received or to be received by the Employee in
connection with a Change in Control would cause any amount to be nondeductible
by the Association or the Holding Company for federal income tax purposes
pursuant to Section 280G of the Code, then amounts and benefits under this
Agreement shall be reduced (not less than zero) to the extent necessary so as to
maximize amounts and the value of benefits to the Employee without causing any
amount to become nondeductible by the Association or the Holding Company
pursuant to or by reason of such Section 280G. The Employee shall determine the
allocation of such reduction among payments and benefits to the Employee.
(b) Any payments made to the Employee pursuant to this
Agreement, or otherwise, are subject to and conditioned upon their compliance
with 12 U.S.C. 1828(k) and any regulations promulgated thereunder.
9. No Mitigation. The Employee shall not be required to mitigate the
amount of any salary or other payment or benefit provided for in this Agreement
by seeking other employment or otherwise, nor shall the amount of any payment or
benefit provided for in this Agreement be reduced by any compensation earned by
the Employee as the result of employment by another employer, by retirement
benefits after the Date of Termination or otherwise.
10. Attorneys Fees. In the event the Association exercises its right of
Termination for Cause, but it is determined by a court of competent jurisdiction
or by an arbitrator pursuant to Section 17 that cause did not exist for such
termination, or if in any event it is determined by any such court or arbitrator
that the Association has failed to make timely payment of any amounts owed to
the Employee under this Agreement, the Employee shall be entitled to
reimbursement for all reasonable costs, including attorneys' fees, incurred in
challenging such termination or collecting such amounts. Such reimbursement
shall be in addition to all rights to which the Employee is otherwise entitled
under this Agreement.
11. No Assignments.
(a) This Agreement is personal to each of the parties hereto,
and neither party may assign or delegate any of its rights or obligations
hereunder without first obtaining the written consent of the other party;
provided, however, that the Association shall require any successor or assign
(whether direct or indirect, by purchase, merger, consolidation or otherwise) to
all or substantially all of the business and/or assets of the Association, by an
assumption agreement in form and substance satisfactory to the Employee, to
expressly assume and agree to perform this Agreement in the same manner and to
the same extent that the Association would be required to perform it if no such
succession or assignment had taken place. Failure of the Association to obtain
such an assumption agreement prior to the effectiveness of any such succession
or assignment shall be a breach of this Agreement and shall entitle the Employee
to
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<PAGE>
compensation from the Association in the same amount and on the same terms as
the compensation pursuant to Section 7(d) hereof. For purposes of implementing
the provisions of this Section 11(a), the date on which any such succession
becomes effective shall be deemed the Date of Termination.
(b) This Agreement and all rights of the Employee hereunder
shall inure to the benefit of and be enforceable by the Employee's personal and
legal representatives, executors, administrators, successors, heirs,
distributees, devisees and legatees. If the Employee should die while any
amounts would still be payable to the Employee hereunder if the Employee had
continued to live, all such amounts, unless otherwise provided herein, shall be
paid in accordance with the terms of this Agreement to the Employee's devisee,
legatee or other designee or if there is no such designee, to the Employee's
estate.
12. Notice. For the purposes of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when personally delivered or sent by certified
mail, return receipt requested, postage prepaid, to the Association at its home
office, to the attention of the Board of Directors with a copy to the Secretary
of the Association, or, if to the Employee, to such home or other address as the
Employee has most recently provided in writing to the Association.
13. Amendments. No amendments or additions to this Agreement shall be
binding unless in writing and signed by both parties, except as herein otherwise
provided.
14. Headings. The headings used in this Agreement are included solely
for convenience and shall not affect, or be used in connection with, the
interpretation of this Agreement.
15. Severability. The provisions of this Agreement shall be deemed
severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability of the other provisions hereof.
16. Governing Law. This Agreement shall be governed by the laws of the
United States to the extent applicable and otherwise by the laws of the State of
Ohio.
17. Arbitration. Any dispute or controversy arising under or in
connection with this Agreement shall be settled exclusively by arbitration in
accordance with the rules of the American Arbitration Association then in
effect. Judgment may be entered on the arbitrator's award in any court having
jurisdiction.
7
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
THIS AGREEMENT CONTAINS A BINDING ARBITRATION PROVISION WHICH MAY BE
ENFORCED BY THE PARTIES.
Attest: PEOPLES FEDERAL SAVINGS AND LOAN
ASSOCIATION OF SIDNEY
- --------------------- ---------------------------
Secretary By:
Its:
EMPLOYEE
----------------------------
8
<PAGE>
KELLER & COMPANY, INC.
555 Metro Place North
Suite 524
Dublin, Ohio 43017
(614) 766-1426
(614) 766-1459 FAX
November 20, 1996
Via: Federal Express
Mr. Douglas Stewart
President
Peoples Federal Savings & Loan Association
Corner of Court & Ohio Streets
Sidney, Ohio 45365
Re: Conversion Appraisal and Business Plan Proposal
Dear Doug:
Pursuant to my conversation with Pat McJoynt, I have enclosed a proposal to
prepare a Conversion Appraisal and a Business Plan for Peoples Federal Savings &
Loan Association ("Peoples Federal" or the "Association"), relating to the
Association's planned conversion from mutual to stock form.
We have completed twelve conversion appraisals in 1996, and are currently
completing another conversion appraisal. We have completed all of the business
plans for each of these institutions, with timing always a key factor, as it
will be for Peoples Federal.
Our firm is very experienced, having served the financial institution industry
for over ten years. Our background, experience and education is discussed in our
brochure. However, all contact with you and your board will be conducted by me.
I will perform the on-site due diligence review and attend the drafting session,
which is our policy. Many firms do not attend the drafting sessions, but I feel
that key discussions are conducted at such sessions and should be contributed by
and shared with all professional participants. I will review the preliminary
valuation figure at the drafting session after having discussed it previously
with you. As discussed in our conversion appraisal proposal, I will also make a
presentation to your board regarding the conversion appraisal.
I would plan to meet with you as soon as possible to discuss future strategic
plans and begin the preparation of your Business Plan insuring timely completion
to satisfy OTS pre-filing requirements. Prompt completion of the Business Plan
is very important.
Regarding our fee for the conversion appraisal, I have proposed a flat fee of
$17,000, including out-of-pocket expenses, as stated in the enclosed Conversion
<PAGE>
Mr. Douglas Stewart
November 20, 1996
Page 2
Valuation Agreement. Our fee for the completion of your Business Plan is $5,000,
including out-of-pocket expenses. It has been my observation that in most cases,
the total fees for these services are equivalent to the fee plus maximum
allowable expenses. I have, therefore, capped our fee at a very competitive
level to assure that your total cost, including expenses, will be both
reasonable and predictable. Our total fees and expenses for your Conversion
Appraisal and Business Plan will be $22,000, should you desire our services for
both projects.
Our firm is known for providing quality service and is very focused on detail in
preparing business plans. We recognize the importance of the business plan to
the OTS and providing a detailed explanation of the use of proceeds, which
satisfies potential CRA issues and clearly indicates a more active lending
program subsequent to the conversion. The use of proceeds for offerings such as
yours can become an issue of concern if not adequately discussed in the Business
Plan. I share these comments because we have assisted institutions in refiling
business plans which were deemed inadequate.
I appreciate the opportunity to provide this proposal, and look forward to
possibly working with you on your conversion. I would be pleased to meet with
you to show you samples of our work and answer any questions.
Sincerely,
KELLER & COMPANY, INC.
/s/ Michael R. Keller
- ---------------------
Michael R. Keller
President
MRK:jmm
enclosures
cc: Jeffrey M. Werthan, Esq.
Patricia McJoynt
<PAGE>
CONSENT OF COUNSEL
We consent to the use of our opinions, to the incorporation by
reference of such opinions as an exhibits to the Form S-1 and to the reference
to our firm under the headings "The Conversion - Income Tax Consequences" and
"Legal and Tax Matters" in the Prospectus included in this Form S-1. In giving
this consent, we do not admit that we are within the category of persons whose
consent is required under Section 7 of the Securities Act of 1933, as amended,
or the rules and regulations of the Securities and Exchange Commission
thereunder.
/S/
SILVER, FREEDMAN & TAFF, L.L.P.
Washington, D.C.
January 23, 1997
<PAGE>
ACCOUNTANT'S CONSENT
We have issued our report dated July 11, 1996, accompanying the balance
sheets of Peoples Federal Savings and Loan Association as of June 30, 1996 and
1995 and the related statements of income, retained earnings and cash flows for
each of the three years in the period ended June 30, 1996, included in the S-1
to be filed with the Securities and Exchange Commission on or about January 24,
1997. We consent to the use of our report and our name as it appears in the
Prospectus under the caption "Experts."
/S/
Crowe, Chizek and Company LLP
Columbus, Ohio
January 23, 1997
<PAGE>
Exhibit 23.3
January 21, 1997
Re: Valuation Appraisal of Peoples-Sidney Financial Corporation
Peoples Federal Savings and Loan Association of Sidney
Sidney, Ohio
We hereby consent to the use of our firm's name, Keller & Company,
Inc., and the reference to our firm as experts in the Application for Conversion
on Form AC to be filed by Peoples Federal Savings and Loan Association of Sidney
with the Office of Thrift Supervision and the Registration Statement on Form S-1
to be filed by Peoples-Sidney Financial Corporation with the Securities and
Exchange Commission and any amendments thereto, and to the statements with
respect to us and the references to our Valuation Appraisal Report in the
Prospectus, in the said Form AC and in the said Form S-1 and any amendments
thereto.
Very truly yours,
KELLER & COMPANY, INC.
by: /s/ Michael R. Keller
-------------------------------
Michael R. Keller
President
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE AUDITED
FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED JUNE 30, 1996 AND FOR THE INTERIM
PERIOD ENDED OCTOBER 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE BY
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 4-MOS
<FISCAL-YEAR-END> JUN-30-1996 JUN-30-1996
<PERIOD-END> JUN-30-1996 OCT-31-1996
<CASH> 366 613
<INT-BEARING-DEPOSITS> 1,355 1,181
<FED-FUNDS-SOLD> 1,000 0
<TRADING-ASSETS> 0 0
<INVESTMENTS-HELD-FOR-SALE> 667 667
<INVESTMENTS-CARRYING> 2,598 2,099
<INVESTMENTS-MARKET> 2,576 2,091
<LOANS> 78,233 83,721
<ALLOWANCE> (307) (326)
<TOTAL-ASSETS> 86,882 89,962
<DEPOSITS> 77,318 79,879
<SHORT-TERM> 0 0
<LIABILITIES-OTHER> 352 896
<LONG-TERM> 0 0
0 0
0 0
<COMMON> 0 0
<OTHER-SE> 9,213 9,188
<TOTAL-LIABILITIES-AND-EQUITY> 86,882 89,962
<INTEREST-LOAN> 6,048 2,167
<INTEREST-INVEST> 195 59
<INTEREST-OTHER> 270 37
<INTEREST-TOTAL> 6,513 2,263
<INTEREST-DEPOSIT> 3,706 1,278
<INTEREST-EXPENSE> 3,706 1,312
<INTEREST-INCOME-NET> 2,807 951
<LOAN-LOSSES> 68 20
<SECURITIES-GAINS> 0 0
<EXPENSE-OTHER> 1,504 989
<INCOME-PRETAX> 1,292 (37)
<INCOME-PRE-EXTRAORDINARY> 852 (25)
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 852 (25)
<EPS-PRIMARY> 0 0
<EPS-DILUTED> 0 0
<YIELD-ACTUAL> 3.41 3.32
<LOANS-NON> 826 880
<LOANS-PAST> 395 273
<LOANS-TROUBLED> 0 0
<LOANS-PROBLEM> 0 0
<ALLOWANCE-OPEN> 251 307
<CHARGE-OFFS> (15) (5)
<RECOVERIES> 3 4
<ALLOWANCE-CLOSE> 307 326
<ALLOWANCE-DOMESTIC> 307 326
<ALLOWANCE-FOREIGN> 0 0
<ALLOWANCE-UNALLOCATED> 0 0
</TABLE>
<PAGE>
PEOPLES FEDERAL SAVINGS AND LOAN ASSOCIATION OF SIDNEY
101 East Court Street
Sidney, Ohio 45365
(937) 492-6129
---------------------------
NOTICE OF SPECIAL MEETING OF MEMBERS
---------------------------
Notice is hereby given that a Special Meeting of Members (the "Special
Meeting") of Peoples Federal Savings and Loan Association of Sidney, ("Peoples
Federal" or the "Association"), will be held at the main office of the
Association located at 101 East Court Street, Sidney, Ohio 45365 on ___________,
1997 at __:__ _.m., Sidney, Ohio time. The purpose of this Special Meeting is to
consider and vote upon:
A plan to convert the Association from a federally chartered mutual
savings association to a federally chartered stock savings association,
including the adoption of a federal stock charter and bylaws, with the
concurrent sale of all the Association's common stock to Peoples-Sidney
Financial Corporation, a Delaware corporation (the "Holding Company"),
and sale by the Holding Company of shares of its common stock; and
such other business as may properly come before the Special Meeting or any
adjournment thereof. Management is not aware of any such other business.
The members who shall be entitled to notice of and to vote at the
Special Meeting and any adjournment thereof are depositors of the Association at
the close of business on __________, 1997 who continue to be depositors as of
the date of the Special Meeting. In the event there are not sufficient votes for
approval of the Plan of Conversion at the time of the Special Meeting, the
Special Meeting may be adjourned from time to time in order to permit further
solicitation of proxies.
BY ORDER OF THE BOARD OF DIRECTORS
Gary N. Fullenkamp
Corporate Secretary
Sidney, Ohio
__________, 1997
- --------------------------------------------------------------------------------
YOUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE
FOR APPROVAL OF THE PLAN OF CONVERSION BY COMPLETING THE
ENCLOSED PROXY CARD AND RETURNING IT IN THE ENCLOSED
POSTAGE-PAID ENVELOPE AS SOON AS POSSIBLE.
YOUR VOTE IS VERY IMPORTANT.
- --------------------------------------------------------------------------------
<PAGE>
SUMMARY OF PROPOSED CONVERSION
This summary does not purport to be complete and is qualified in its
entirety by the more detailed information contained in the remainder of this
Proxy Statement and the accompanying Prospectus.
Under its present "mutual" form of organization, Peoples Federal has no
stockholders. Its deposit account holders are members of the Association and
have voting rights in that capacity. In the unlikely event of liquidation, the
Association's deposit account holders would have the sole right to receive any
assets of the Association remaining after payment of its liabilities (including
the claims of all deposit account holders to the withdrawal value of their
deposits). Under the Plan of Conversion (the "Plan of Conversion") to be voted
on at the Special Meeting, the Association would be converted into a federally
chartered savings association organized in stock form, and all of the
Association's common stock would be sold concurrently to the Holding Company
(the "Conversion"). The Holding Company will offer and sell its common stock
(the "Common Stock") in an offering (1) to account holders on October 31, 1995
("Eligible Account Holders"), (2) tax-qualified employee plans of the
Association or the Holding Company ("Tax-Qualified Employee Plans"), (3) account
holders of the Association as of December 31, 1996 ("Supplemental Eligible
Account Holders"), (4) certain other members of the Association as of
__________, 1997 who are not Eligible or Supplemental Eligible Account Holders
("Other Members") and (5) directors, officers and employees of the Association
on a priority basis (the "Subscription Offering"). Notwithstanding the
foregoing, to the extent orders for shares exceed the maximum of the appraisal
range, Tax-Qualified Employee Plans shall be afforded a first priority to
purchase shares sold above the maximum of the appraisal range. It is anticipated
that Tax-Qualified Employee Plans will purchase 8% of the Common Stock sold in
the Conversion.
Concurrent with the Subscription Offering, to the extent the Common
Stock is not all sold to the persons in the foregoing categories, the Holding
Company will offer Common Stock to members of the general public to whom a
prospectus (the "Prospectus") has been delivered, with first preference to
natural persons residing in Shelby County, Ohio ("the Community Offering"). The
Subscription Offering and the Community Offering are referred to collectively as
the "Subscription and Community Offerings." Voting and liquidation rights with
respect to the Association would thereafter be held by the Holding Company,
except to the limited extent of the liquidation account (the "Liquidation
Account") that will be established for the benefit of Eligible and Supplemental
Eligible Account Holders of the Association and voting and liquidation rights in
the Holding Company would be held only by those persons who become stockholders
of the Holding Company through purchase of shares of its Common Stock. See
"Description of the Plan of Conversion - Principal Effects of Conversion -
Liquidation Rights of Depositor Members."
THE CONVERSION WILL NOT AFFECT THE BALANCE, INTEREST RATE OR FEDERAL
INSURANCE PROTECTION OF ANY SAVINGS DEPOSIT, AND NO PERSON WILL BE OBLIGATED
TO PURCHASE ANY STOCK IN THE CONVERSION.
Business Purposes for Conversion
Net Conversion proceeds are expected to increase the capital of Peoples Federal,
which will support the expansion of its financial services to the public. The
conversion to stock form and the use of a holding company structure are also
expected to enhance its ability to expand through possible mergers and
acquisitions (although no such transactions are contemplated at this time) and
will facilitate its future access to the capital markets. The Association will
continue to be subject to comprehensive regulation and examination by the Office
of Thrift Supervision, Department of Treasury ("OTS") and the Federal Deposit
Insurance Corporation ("FDIC").
Subscription Offering
As part of the Conversion, Common Stock is being offered for sale in the
Subscription Offering, in the priorities summarized below, to the Association's
(1) Eligible Account Holders, (2) Tax-Qualified Employee Plans, (3) Supplemental
Eligible Account Holders (4) Other Members, and (5) employees, officers and
directors. In addition, in the Community Offering, members of the general public
to whom a Prospectus has been delivered ("Other Subscribers) may purchase Common
Stock to the extent
i
<PAGE>
shares are available after satisfaction of subscriptions in the Subscription
Offering, with a first preference to natural persons residing in Shelby County,
Ohio.
Subscription Rights of Eligible Account Holders
Each Eligible Account Holder has been given non-transferable rights to subscribe
for an amount equal to the greater of $100,000 of Common Stock, one-tenth of one
percent of the total number of shares offered in the Subscription Offering or 15
times the product (rounded down to the whole next number) obtained by
multiplying the total number of shares to be issued by a fraction of which the
numerator is the amount of qualifying deposits of such subscriber and the
denominator is the total qualifying deposits of all account holders in this
category on the qualifying date.
Subscription Rights of Tax-Qualified Employee Plans
The Association's Tax-Qualified Employee Plans have been given non-transferable
rights to subscribe, individually and in the aggregate, for up to 10% of the
total number of shares sold in the Conversion after satisfaction of
subscriptions of Eligible Account Holders. Notwithstanding the foregoing, to the
extent orders for shares exceed the maximum of the appraisal range,
Tax-Qualified Employee Plans shall be afforded a first priority to purchase
shares sold above the maximum of the appraisal range. It is anticipated that
Tax-Qualified Employee Plans will purchase 8% of the Common Stock sold in the
Conversion.
Subscription Rights of Supplemental Eligible Account Holders
After satisfaction of subscriptions of Eligible Account Holders and Tax-
Qualified Employee Plans, each Supplemental Eligible Account Holder (other than
directors and officers of the Association) has been given non-transferable
rights to subscribe for an amount equal to the greater of $100,000 of Common
Stock, one-tenth of one percent of the total number of shares offered in the
Conversion or 15 times the product (rounded down to the whole next number)
obtained by multiplying the total number of shares to be issued by a fraction of
which the numerator is the amount of qualifying deposits of such subscriber and
the denominator is the total qualifying deposits of all account holders in this
category on the qualifying date. The subscription rights of each Supplemental
Eligible Account Holder shall be reduced to the extent of such person's
subscription rights as an Eligible Account Holder.
Subscription Rights of Othe Members
Each Other Member has been given non-transferable rights to subscribe
for an amount equal to the greater of $100,000 of Common Stock or one-tenth of
one percent of the total number of shares offered in the Conversion after
satisfaction of the subscriptions of the Association's Eligible Account Holders,
Tax-Qualified Employee Plans and Supplemental Eligible Account Holders
Subscription Rights of Association Personnel
Each individual employee, officer and director of the Association has been given
the right to subscribe for an amount equal to the greater of $100,000 of Common
Stock after satisfaction of the subscriptions of Eligible Account Holders,
Tax-Qualified Employee Plans, Supplemental Eligible Account Holders and Other
Members. Total shares subscribed for by the employees, officers and directors in
this category may not exceed 24% of the total shares offered in the Conversion.
Purchase Limitations
With the exception of the Tax-Qualified Employee Plans and certain large
depositors, no Eligible Account Holder, Supplement Eligible Account Holder or
Other Member may purchase in their capacity as such in the
ii
<PAGE>
Subscription Offering more than $100,000 of Common Stock . As part of the
Community Offering, no person, together with associates, and persons acting in
concert, may purchase more than $100,000 of Common Stock. In the aggregate, no
person, together with associates of and persons acting in concert with such
person, may purchase more than $200,000 of Common Stock sold in the Conversion.
The aggregate purchases of directors and executive officers and their associates
may not exceed 34% of the total number of shares offered in the Conversion.
Expiration Date of the Subscription Offering
All subscriptions for Common Stock
must be received by 5:00 p.m., Sidney, Ohio time on ________ __, 1997.
How to Subscribe for Shares
For information on how to subscribe for Common Stock being offered in the
Conversion, please read the Prospectus and the order form and instructions
accompanying this Proxy Statement. Subscriptions will not become effective until
the Plan of Conversion has been approved by the Association's members and all of
the Common Stock offered in the Conversion has been subscribed for or sold in
the Subscription and Community Offerings or through such other means as may be
approved by the OTS.
Price of Common Stock
All sales of Common Stock in the Offering will be made at the same price per
share which is currently expected to be $10.00 per share on the basis of an
independent appraisal of the pro forma market value of the Association and the
Holding Company upon Conversion. On the basis of a preliminary appraisal by
Keller & Company, Inc. ("Keller"), which has been reviewed by the OTS, a minimum
of 1,062,500 and a maximum of 1,653,125 shares will be offered in the
Conversion. See "The Conversion Stock Pricing and Number of Shares to be Issued"
in the Prospectus.
Tax Consequences
The Association has received an opinion from its special counsel, Silver,
Freedman & Taff, L.L.P., stating that the Conversion is a nontaxable
reorganization under Section 368(a)(1)(F) of the Internal Revenue Code. The
Association has also received an opinion from Crowe, Chizek and Company LLP
("Crowe Chizek") stating that the Conversion will not be a taxable transaction
for Ohio income tax purposes.
Required Vote
Approval of the Plan of Conversion will require the affirmative vote of a
majority of all votes eligible to be cast at the Special Meeting.
YOUR BOARD OF DIRECTORS URGES YOU TO VOTE FOR
THE PLAN OF CONVERSION
iii
<PAGE>
PEOPLES FEDERAL SAVINGS AND LOAN ASSOCIATION OF SIDNEY
PROXY STATEMENT
SPECIAL MEETING OF MEMBERS TO BE HELD ON ___________, 1997
PURPOSE OF MEETING
This Proxy Statement is being furnished to you in connection with the
solicitation on behalf of the Board of Directors of Peoples Federal Savings and
Loan Association of Sidney ("Peoples Federal" or the "Association") of the
proxies to be voted at the Special Meeting of Members (the "Special Meeting") of
the Association to be held at the Association's main office located at 101 East
Court Street, Sidney, Ohio, on ___________, 1997 at __:__ _.m., Sidney, Ohio
time, and at any adjournments thereof. The Special Meeting is being held for the
purpose of considering and voting upon a Plan of Conversion under which the
Association would be converted (the "Conversion") from a federally chartered
mutual savings association into a federally chartered stock savings association,
the concurrent sale of all the common stock of the stock savings association to
Peoples-Sidney Financial Corporation (the "Holding Company"), a Delaware
corporation, and the sale by the Holding Company of shares of its common stock
(the "Common Stock") and such other business as may properly come before the
meeting and any adjournment thereof.
RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS OF THE ASSOCIATION UNANIMOUSLY RECOMMENDS THAT
YOU VOTE TO APPROVE THE PLAN OF CONVERSION.
The Association is currently organized in "mutual" rather than "stock"
form, meaning that it has no stockholders and no authority under its federal
mutual charter to issue capital stock. The Association's Board of Directors has
adopted the Plan of Conversion providing for the Conversion. The sale of Common
Stock of the Holding Company, which was recently formed to become the holding
company of the Association, will substantially increase the Association's net
worth. The Holding Company will exchange 50% of the net proceeds from the sale
of the Common Stock for the common stock of the Association to be issued upon
Conversion. The Holding Company expects to retain the balance of the net
proceeds as its initial capitalization, a portion of which the Holding Company
intends to lend to the ESOP to fund its purchase of Common Stock. This increased
capital will support the expansion of the Association's financial services to
the public. The Board of Directors of the Association also believes that the
conversion to stock form and the use of a holding company structure will enhance
the Association's ability to expand through possible mergers and acquisitions
(although no such transactions are contemplated at this time) and will
facilitate its future access to the capital markets.
The Board of Directors of the Association believes that the Conversion
will further benefit the Association by enabling it to attract and retain key
personnel through prudent use of stock-related incentive compensation and
benefit plans.
Voting in favor of the Plan of Conversion will not obligate any person
to purchase any Common Stock.
THE OFFICE OF THRIFT SUPERVISION ("OTS") HAS APPROVED THE PLAN OF
CONVERSION SUBJECT TO THE APPROVAL OF THE ASSOCIATION'S MEMBERS AND THE
SATISFACTION OF CERTAIN OTHER CONDITIONS. HOWEVER, SUCH APPROVAL DOES NOT
CONSTITUTE A RECOMMENDATION OR ENDORSEMENT OF THE PLAN OF CONVERSION BY THE OTS.
INFORMATION RELATING TO VOTING AT THE SPECIAL MEETING
The Board of Directors of the Association has fixed __________, 1997 as
the voting record date ("Voting Record Date") for the determination of members
entitled to notice of the Special Meeting. All Association depositors are
members of the Association under its current charter. All Association members of
record as of the
1
<PAGE>
close of business on the Voting Record Date who continue to be members as of the
date of the Special Meeting will be entitled to vote at the Special Meeting or
any adjournment thereof.
Each depositor member (including IRA and Keogh account beneficiaries)
will be entitled at the Special Meeting to cast one vote for each $100, or
fraction thereof, of the aggregate withdrawal value of all of such depositor's
accounts in the Association as of the Voting Record Date, up to a maximum of
1,000 votes. In general, accounts held in different ownership capacities will be
treated as separate memberships for purposes of applying the 1,000 vote
limitation. For example, if two persons hold a $100,000 account in their joint
names and each of the persons also holds a separate account for $100,000 in his
own name, each person would be entitled to 1,000 votes for each separate account
and they would together be entitled to cast 1,000 votes on the basis of the
joint account. Where no proxies are received from IRA and Keogh account
beneficiaries, after due notification, the Association, as trustee of these
accounts, is entitled to vote these accounts in favor of the Plan of Conversion.
Approval of the Plan of Conversion requires the affirmative vote of a
majority of the total outstanding votes of the Association's members eligible to
be cast at the Special Meeting. As of __________, 1997, the Association had
approximately _____ members who were entitled to cast a total of approximately
_______ votes at the Special Meeting.
Association members may vote at the Special Meeting or any adjournment
thereof in person or by proxy. Any member giving a proxy will have the right to
revoke the proxy at any time before it is voted by giving written notice to the
Secretary of the Association, provided that such written notice is received by
the Secretary prior to the Special Meeting or any adjournment thereof, or upon
request if the member is present and chooses to vote in person.
All properly executed proxies received by the Board of Directors of the
Association will be voted in accordance with the instructions indicated thereon
by the members giving such proxies. If no instructions are given, such proxies
will be voted in favor of the Plan of Conversion. If any other matters are
properly presented at the Special Meeting and may properly be voted on, the
proxies solicited hereby will be voted on such matters in accordance with the
best judgment of the proxy holders named thereon. Management is not aware of any
other business to be presented at the Special Meeting.
If a proxy is not executed and is returned or the member does not vote
in person, the Association is prohibited by OTS regulations from using a
previously executed proxy to vote for the Conversion. As a result, failure to
vote may have the same effect as a vote against the Plan of Conversion.
To the extent necessary to permit approval of the Plan of Conversion,
proxies may be solicited by officers, directors or regular employees of the
Association, in person, by telephone or through other forms of communication
and, if necessary, the Special Meeting may be adjourned to a later date. In
addition, Charles Webb will assist the Association in the solicitation of
proxies. Such persons will be reimbursed by the Association for their expenses
incurred in connection with such solicitation. The Association will bear all
costs of this solicitation. The proxies solicited hereby will be used only at
the Special Meeting and at any adjournment thereof.
DESCRIPTION OF THE PLAN OF CONVERSION
The Plan of Conversion to be presented for approval at the Special
Meeting provides for the Conversion to be accomplished through adoption of
amended charter and bylaws for the Association to authorize the issuance of
capital stock along with the concurrent formation of a holding company. As part
of the Conversion, the Plan of Conversion provides for the subscription offering
(the "Subscription Offering") of the Common Stock to the Association's (i)
Eligible Account Holders (deposit account holders as of October 31, 1995); (ii)
Tax-Qualified Employee Plans, (iii) Supplemental Eligible Account Holders
(deposit account holders as of December 31, 1996); (iv) Other Members (deposit
account holders eligible to vote at the Special Meeting who are not as Eligible
Account Holders or Supplemental Eligible Account Holders); and (v) the
Association's employees, officers and directors. Notwithstanding the foregoing,
to the extent orders for shares exceed the maximum of the appraisal range, Tax-
Qualified Employee Plans shall be afforded a first priority to purchase shares
sold above the maximum of the appraisal range. It is anticipated that
Tax-Qualified Employee Plans will purchase 8% of the Common Stock sold in the
Conversion. In addition, in the Community Offering, concurrent with the
Subscription Offering, members
2
<PAGE>
of the general public, with a first preference to natural persons residing in
Shelby County, Ohio, will be afforded the opportunity to purchase the Common
Stock not subscribed for in the Subscription Offering.
THE SUBSCRIPTION OFFERING HAS COMMENCED AS OF THE DATE OF MAILING OF
THIS PROXY STATEMENT. A PROSPECTUS EXPLAINING THE TERMS OF THE SUBSCRIPTION
OFFERING, INCLUDING HOW TO ORDER AND PAY FOR SHARES AND DESCRIBING THE BUSINESS
OF THE ASSOCIATION AND THE HOLDING COMPANY; ACCOMPANIES THIS PROXY STATEMENT AND
SHOULD BE READ BY ALL PERSONS WHO WISH TO CONSIDER SUBSCRIBING FOR COMMON STOCK.
THE SUBSCRIPTION OFFERING EXPIRES AT 5:00 P.M., SIDNEY, OHIO TIME ON
___________, 1997 UNLESS EXTENDED BY THE ASSOCIATION AND THE HOLDING COMPANY.
The federal conversion regulations require that all stock offered in a
conversion must be sold in order for the conversion to become effective. The
conversion regulations require that the offering be completed within 45 days
after completion of the Subscription Offering period unless extended by the
Association and the Holding Company with the approval of the OTS. This 45-day
period expires ___________, 1997 unless the Subscription Offering is extended.
If this is not possible, an occurrence that is currently not anticipated, the
Board of Directors of the Association and the Holding Company will consult with
the OTS to determine an appropriate alternative method of selling all
unsubscribed shares offered in the Conversion. The Plan of Conversion provides
that the Conversion must be completed within 24 months after the date of the
Special Meeting.
The Subscription and Community Offerings or any other sale of the
unsubscribed shares will be made as soon as practicable after the date of the
Special Meeting. No sales of shares may be completed, either in the Subscription
and Community Offerings or otherwise, unless the Plan of Conversion is approved
by the members of the Bank.
The commencement and completion of the Subscription and Community
Offerings, however, is subject to market conditions and other factors beyond the
Association's control. Due to adverse conditions in the stock market in the
past, a number of converting thrift institutions encountered significant delays
in completing their stock offerings or were not able to complete them at all. No
assurance can be given as to the length of time after approval of the Plan of
Conversion at the Special Meeting that will be required to complete the
Subscription and Community Offerings or other sale of the Common Stock to be
offered in the Conversion. If delays are experienced, significant changes may
occur in the estimated pro forma market value of the Holding Company's Common
Stock, together with corresponding changes in the offering price and the net
proceeds realized by the Association and the Holding Company from the sale of
the Common Stock. The Association and the Holding Company may also incur
substantial additional printing, legal, accounting and other expenses in
completing the Conversion.
The following is a brief summary of the Conversion and is qualified in
its entirety by reference to the Plan of Conversion, a complete copy of which is
attached hereto. The Association's federal stock charter and bylaws that will
become effective upon completion of the Conversion are available from the
Association upon request. A copy of the Holding Company's articles of
incorporation and bylaws are also available from the Association upon request.
Principal Effects of Conversion
Depositors. The Conversion will not change the amount, interest rate,
withdrawal rights or federal insurance protection of deposit accounts, or affect
deposit accounts in any way other than with respect to voting and liquidation
rights as discussed below.
Borrowers. The rights and obligations of borrowers under their loan
agreements with the Association will remain unchanged by the Conversion. The
principal amount, interest rate and maturity date of loans will remain as they
were contractually fixed prior to the Conversion.
Voting Rights of Members. Under the Association's current federal
mutual charter, depositors have voting rights as members of the Association with
respect to the election of directors and certain other affairs of the
Association. After the Conversion, exclusive voting rights with respect to all
such matters will be vested in the Holding Company as the sole stockholder of
the Association. Depositors will no longer have any voting rights,
3
<PAGE>
except to the extent that they become stockholders of the Holding Company
through the purchase of its Common Stock. Voting rights in the Holding Company
will be held exclusively by its stockholders.
Liquidation Rights of Depositor Members. Currently, in the unlikely
event of liquidation of the Association, any assets remaining after satisfaction
of all creditors' claims in full (including the claims of all depositors to the
withdrawal value of their accounts) would be distributed pro rata among the
depositors of the Association, with the pro rata share of each being the same
proportion of all such remaining assets as the withdrawal value of each
depositor's account is of the total withdrawal value of all accounts in the
Association at the time of liquidation. After the Conversion, the assets of the
Association would first be applied, in the event of liquidation, against the
claims of all creditors (including the claims of all depositors to the
withdrawal value of their accounts). Any remaining assets would then be
distributed to the persons who qualified as Eligible Account Holders or
Supplemental Eligible Account Holders under the Plan of Conversion to the extent
of their interests in a "Liquidation Account" that will be established at the
time of the completion of the Conversion and then to the Holding Company as the
sole stockholder of the Association's outstanding common stock. The
Association's depositors who did not qualify as Eligible Account Holders or
Supplemental Eligible Account Holders would have no right to share in any
residual net worth of the Association in the event of liquidation after the
Conversion, but would continue to have the right as creditors of the Association
to receive the full withdrawal value of their deposits prior to any distribution
to the Holding Company as the Association's sole stockholder. In addition, the
Association's deposit accounts will continue to be insured by the FDIC to the
maximum extent permitted by law, currently up to $100,000 per insured account.
The Liquidation Account will initially be established in an amount equal to the
net worth of the Association as of the date of the Association's latest
statement of financial condition contained in the final prospectus used in
connection with the Conversion. Each Eligible Account Holder and/or Supplemental
Eligible Account Holder will receive an initial interest in the Liquidation
Account in the same proportion as the balance in all of his qualifying deposit
accounts was of the aggregate balance in all qualifying deposit accounts of all
Eligible Account Holders and Supplemental Eligible Account Holders on October
31, 1995 or December 31, 1996, respectively. For accounts in existence on both
dates, separate subaccounts shall be determined on the basis of the qualifying
deposits in such accounts on the record dates. However, if the amount in the
qualifying deposit account on any annual closing date of the Association is less
than the lowest amount in such deposit account on the Eligibility Record Date
and/or Supplemental Eligibility Record Date, and any subsequent annual closing
date, this interest in the Liquidation Account will be reduced by an amount
proportionate to such reduction in the related deposit account and will not
thereafter be increased despite any subsequent increase in the related deposit
account.
The Association. Under federal law, the stock savings association
resulting from the Conversion will be deemed to be a continuation of the mutual
savings association rather than a new entity and will continue to have all of
the rights, privileges, properties, assets and liabilities of the Association
prior to the Conversion. The Conversion will enable the Association to issue
capital stock, but will not change the general objectives, purposes or types of
business currently conducted by the Association, and no assets of the
Association will be distributed in order to effect the Conversion, other than to
pay the expenses incident thereto. After the Conversion, the Association will
remain subject to examination and regulation by the OTS and will continue to be
a member of the Federal Home Loan Bank System. The Conversion will not cause any
change in the executive officers or directors of the Association.
Tax Consequences. Consummation of the Conversion is expressly
conditioned upon prior receipt of either a ruling of the United States Internal
Revenue Service ("IRS") or an opinion letter of the Association's counsel with
respect to federal taxation, and either a ruling of the Ohio taxation
authorities or an opinion letter with respect to Ohio taxation, to the effect
that the Conversion will not be a taxable transaction to the Holding Company,
the Association or the Association's deposit account holders receiving
subscription rights.
The Association has received an opinion of its special counsel, Silver,
Freedman & Taff, L.L.P., to the effect that (i) the Conversion will qualify as a
reorganization under Section 368(a)(1)(F) of the Internal Revenue Code of 1986,
as amended, and no gain or loss will be recognized to the Association in either
its mutual form or its stock form by reason of the proposed Conversion, (ii) no
gain or loss will be recognized to the Association upon the receipt of money
from the Holding Company for stock of the Association; and no gain or loss will
be recognized to the Holding Company upon the receipt of money for Common Stock
of the Holding Company; (iii) the assets of the Association in either its mutual
or its stock form will have the same basis before and after the Conversion; (iv)
the holding period of the assets of the Association will include the period
during which the assets were held by the Association in its mutual form prior to
conversion; (v) gain, if any, will be realized by the Eligible Account
4
<PAGE>
Holders and Supplemental Eligible Account Holders of the Association, upon the
constructive issuance to them of withdrawable deposit accounts of the
Association immediately after the proposed Conversion, interests in the
Liquidation Account, and on the receipt or distribution to them of the
nontransferable Subscription Rights to purchase Holding Company Common Stock
(any such gain will be recognized by such account holder, but only to the
extent, if any, of an amount not in excess of the fair market value of the
Subscription Rights and Liquidation Account interests received); (vi) the basis
of the account holder's savings accounts in the Association after the Conversion
will be the same as the basis of his or her savings accounts in the Association
prior to the Conversion; (vii) the basis of each account holder's interest in
the Liquidation Account will be zero; (viii) the basis of the Holding Company
Common Stock to its shareholders will be the Purchase Price thereof and a
shareholder's holding period for Holding Company Common Stock acquired through
the exercise of Subscription Rights shall begin on the date on which the
Subscription Rights are exercised; (ix) the converted Association, immediately
after Conversion, will succeed to the bad debt reserve accounts of the
Association, in mutual form, and the bad debt reserves will have the same
character in the hands of the Association after Conversion as if no distribution
or transfer had occurred; and (x) the creation of the liquidation account will
have no effect on the Association's taxable income, deductions or addition to
reserve for bad debts either in its mutual or stock form.
The opinion from Silver, Freedman & Taff, L.L.P. is based, among other
things, on certain assumptions, including the assumptions that the exercise
price of the Subscription Rights to purchase Holding Company Common Stock will
be approximately equal to the fair market value of that stock at the time of the
completion of the proposed Conversion. With respect to the Subscription Rights,
the Association has received the letter of Keller (the "Appraiser Letter")
which, based on certain assumptions, concludes that the Subscription Rights to
be received by Eligible Account Holders, Supplemental Eligible Account Holders
and other eligible subscribers do not have any economic value at the time of
distribution or at the time the Subscription Rights are exercised, whether or
not a public offering takes place.
The Association has also received an opinion of Silver, Freedman &
Taff, L.L.P. to the effect that, based in part on the Appraiser Letter, no
taxable income will be realized by a stock subscriber as a result of the
exercise of non-transferable Subscription Rights to purchase shares of Holding
Company Common Stock or upon the lapse of such rights.
If it is subsequently established that the subscription rights received
by such persons have an ascertainable fair market value, or in the case of
employees, directors and officers are compensatory in nature, then, in such
event, the subscription rights will be taxable to the recipient in the amount of
their fair market value. In this regard, the subscription rights may be taxed
partially or entirely at ordinary income tax rates.
With respect to Ohio taxation, the Association has received an opinion
from Crowe Chizek, to the effect that, assuming the Conversion does not result
in any federal taxable income, gain or loss to the Association in its mutual or
stock form, the Holding Company, the account holders, borrowers, officers,
directors and employees and Tax-Qualified Employee Plans of the Association, the
Conversion should not result in any Ohio income tax liability to such entities
or persons.
Unlike a private letter ruling, the opinions of Silver, Freedman &
Taff, L.L.P. and Crowe Chizek, as well as the Appraiser Letter, have no binding
effect or official status, and no assurance can be given that the conclusions
reached in any of those opinions would be sustained by a court if contested by
the IRS or the Ohio tax authorities.
Approval, Interpretation, Amendment and Termination
Under the Plan of Conversion, the letter from the OTS giving approval
thereto, and applicable regulations, consummation of the Conversion is subject
to the satisfaction of the following conditions: (a) approval of the Plan of
Conversion by members of the Association casting at least a majority of the
votes eligible to be cast at the Special Meeting; (b) sale of all of the Common
Stock to be offered in the Conversion; and (c) receipt of favorable rulings or
opinions of counsel as to the federal and Ohio tax consequences of the
Conversion.
The Plan of Conversion may be substantively amended by the Boards of
Directors of the Association and the Holding Company with the concurrence of the
OTS. If the Plan of Conversion is amended, proxies which have been received
prior to such amendment will not be resolicited unless otherwise required by the
OTS. Also, as required by the federal regulations, the Plan of Conversion
provides that the transactions contemplated thereby may
5
<PAGE>
be terminated by the Board of Directors of the Association alone at any time
prior to the Special Meeting and may be terminated by the Board of Directors of
the Association at any time thereafter with the concurrence of the OTS,
notwithstanding approval of the Plan of Conversion by the members of the
Association at the Special Meeting. All interpretations by the Association and
the Holding Company of the Plan of Conversion and of the order forms and related
materials for the Subscription Offering will be final, except as regards or
affects the OTS.
Judicial Review
Section 5(i)(2)(B) of the Home Owners' Loan Act, as amended, 12 U.S.C.
ss.1464(i)(2)(B) and Section 563b.8(u) of the Rules and Regulations promulgated
thereunder (12 C.F.R. Section 563b.8(u)) provide: (i) that persons aggrieved by
a final action of the OTS which approves, with or without conditions, or
disapproves a plan of conversion, may obtain review of such final action only by
filing a written petition in the United States Court of Appeals for the circuit
in which the principal office or residence of such person is located, or in the
United States Court of Appeals for the District of Columbia, requesting that the
final action of the OTS be modified, terminated or set aside, and (ii) that such
petition must be filed within 30 days after publication of notice of such final
action in the Federal Register, or 30 days after the date of mailing of the
notice and proxy statement for the meeting of the converting institution's
members at which the conversion is to be voted on, whichever is later. The
notice of the Special Meeting of the Association's members to vote on the Plan
of Conversion described herein is included at the beginning of this Proxy
Statement. The statute and regulation referred to above should be consulted for
further information.
ADDITIONAL INFORMATION
The information contained in the accompanying Prospectus, including a
more detailed description of the Plan of Conversion, consolidated financial
statements of the Association and a description of the capitalization and
business of the Association and the Holding Company, including the Association's
directors and executive officers and their compensation, the anticipated use of
the net proceeds from the sale of the Common Stock and a description of the
Common Stock, is intended to help you evaluate the Conversion and is
incorporated by this reference.
YOUR VOTE IS VERY IMPORTANT TO US. PLEASE TAKE A MOMENT NOW TO COMPLETE
AND RETURN YOUR PROXY CARD IN THE POSTAGE-PAID ENVELOPE PROVIDED. YOU MAY STILL
ATTEND THE SPECIAL MEETING AND VOTE IN PERSON EVEN THOUGH YOU HAVE VOTED YOUR
PROXY. FAILURE TO SUBMIT A PROXY WILL HAVE THE SAME EFFECT AS VOTING AGAINST THE
CONVERSION.
If you have any questions, please call our Stock Information Center at
(___) ___-____.
IMPORTANT: YOU MAY BE ENTITLED TO VOTE IN MORE THAN ONE CAPACITY.
PLEASE SIGN, DATE AND PROMPTLY RETURN EACH PROXY CARD YOU RECEIVE.
_________________
THIS PROXY STATEMENT IS NOT AN OFFER TO SELL OR THE SOLICITATION OF AN
OFFER TO BUY STOCK. THE OFFER WILL BE MADE ONLY BY THE PROSPECTUS.
THE COMMON STOCK IS NOT A DEPOSIT OR ACCOUNT AND IS NOT FEDERALLY
INSURED OR GUARANTEED.
6
<PAGE>
REVOCABLE PROXY
PEOPLES FEDERAL SAVINGS AND LOAN ASSOCIATION OF SIDNEY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF PEOPLES
FEDERAL SAVINGS AND LOAN ASSOCIATION OF SIDNEY.
The undersigned member of Peoples Federal Savings and Loan Association
of Sidney (the "Association") hereby appoints the Board of Directors of the
Association as proxies to cast all votes which the undersigned member is
entitled to cast at a Special Meeting of Members to be held at the Association's
office located at 101 East Court Street, Sidney, Ohio 45365, at the hour and
date stated in the Proxy Statement, and at any and all adjournments and
postponements thereof, and to act with respect to all votes that the undersigned
would be entitled to cast, if then personally present, in accordance with the
instructions on the reverse side hereof:
to vote FOR or AGAINST the adoption of the Plan of Conversion to
convert the Association from a federally chartered mutual savings association to
a federally chartered stock savings association, including the adoption of a
federal stock charter and bylaws, with the simultaneous issuance of its common
stock to Peoples-Sidney Financial Corporation, a Delaware corporation (the
"Holding "Company") and sale by the Holding Company of shares of its Common
Stock.
This proxy will be voted as directed by the undersigned member. UNLESS
CONTRARY DIRECTION IS GIVEN, THIS PROXY WILL BE VOTED FOR ADOPTION OF THE PLAN
OF CONVERSION. In addition, this proxy will be voted at the discretion of the
Board of Directors upon any other matter as may properly come before the Special
Meeting.
The undersigned member may revoke this proxy at any time before it is
voted by delivering to the Secretary of the Association either by a written
revocation of the proxy or a duly executed proxy bearing a later date, or by
appearing at the Special Meeting and voting in person. The undersigned member
hereby acknowledges receipt of the Notice of Special Meeting and Proxy
Statement.
(IMPORTANT: PLEASE VOTE, DATE AND SIGN ON REVERSE SIDE)
<PAGE>
PEOPLES FEDERAL SAVINGS AND LOAN ASSOCIATION OF SIDNEY
Please Mark Votes Below
Approval of the Plan of Conversion
FOR [ ] AGAINST [ ] DATE:_________________________________, 1997
X______________________________________________
X______________________________________________
IMPORTANT: Please sign your name exactly as it
appears on this proxy. Joint accounts need only
one signature. When signing as an attorney,
administrator, agent, corporation, officer,
executor, trustee or guardian, etc., please add
your full title to your signature.
NOTE: IF YOU RECEIVE MORE THAN ONE PROXY CARD, PLEASE SIGN AND
RETURN ALL CARDS IN THE ACCOMPANYING ENVELOPE.
<PAGE>
Exhibit 99.3
Stock Order Form, Order Form Instructions, Acknowledgement
and Certification
<PAGE>
STOCK ORDER FORM & PEOPLES SIDNEY
CERTIFICATION FORM FINANCIAL CORPORATION
Note: Please read the Stock Order Form Guide and Instructions on the back of
this form before completion.
________________________________________________________________________________
DEADLINE
The Subscription and Community Offering ends at 5:00 p.m., Sidney, Ohio time,
XXXX xx, 1997. Your Stock Order Form and Certification Form, properly executed
and with the correct payment, must be received at the address on the bottom of
this form by this deadline, or it will be considered void.
________________________________________________________________________________
NUMBER OF SHARES
(1) Number of Shares Price Per Share (2) Total Amount Due
- --------------------- --------------------
- --------------------- x $10.00 = --------------------
The minimum number of shares that may be subscribed for is 25 and the maximum
purchase is x,xxx shares in the Subscription Offering and Community Offering,
respectively. No person, together with associates of and persons acting in
concert with such person, may purchase more than xx,xxx shares of the Common
Stock in the Subscription Offering. The price per share is based upon a
valuation that is subject to review prior to filling individual stock orders.
________________________________________________________________________________
Method of Payment
(3) / / I authorize Peoples Federal to make withdrawals from my Peoples
Federal account(s) shown below, and understand that the amounts will not
otherwise be available for withdrawal:
(4) / / Enclosed is a check, bank draft or money order payable to Peoples
Sidney Financial Corporation for $___________________ (or cash if
presented in person).
Account Number(s) Amount(s)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Total Withdrawal ------------------
===============================================================================
PURCHASER INFORMATION
(5) / / Check here if you are a director, officer or employee of Peoples
Federal or a member of such person's immediate family.
/ / Check here if you are a depositor or a borrower and enter below
information for all accounts you had at the Elgibility Record Date
(October 31, 1995), Supplemental Eligibility Record Date (December 31,
1996) or the Voting Record Date (Xxxxxx 00, 1997). If additional space
is needed, please utilize the back of this form. Please confirm
account(s) by initializing here. ___________________
Account Title (Names on Accounts) Account Number
- --------------------------------------------------------------------------------
- ---------------------------------
- --------------------------------------------------------------------------------
- ---------------------------------
- --------------------------------------------------------------------------------
________________________________________________________________________________
<PAGE>
(6) STOCK REGISTRATION
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
--- Individual --- Uniform Transfer to Minors --- Partnership
--- Joint Tenants --- Uniform Gift to Minors --- Individual Retirement Account
--- Tenants in Common --- Corporation --- Fiduciary/Trust (Under Agreement Dated ___________)
</TABLE>
- --------------------------------------------------------------------------------
Name Social Security or Tax I.D.
- --------------------------------------------------------------------------------
Name Daytime Telephone
- --------------------------------------------------------------------------------
Street Address Evening Telephone
- --------------------------------------------------------------------------------
City State Zip Code County of Residence
- --------------------------------------------------------------------------------
<PAGE>
NASD AFFILIATION (This section only applies to those individuals who meet the
delineated criteria)
/ / Check here if you are a member of the National Association of Securities
Dealers, Inc. ("NASD"), a person associated with an NASD member, a member of the
immediate family of any such person to whose support such person contributes,
directly or indirectly, or the holder of an account in which an NASD member or
person associted with an NASD member has a beneficial interest. To comply with
conditions under which an exemption from the NASD's Interpretation With Respect
to Free-Riding and Withholding is available, you agree, if you have checked the
NASD affiliation box: (1) not to sell, transfer or hypothecate the stock for a
period of 90 days following the issuance, and (2) to report this subscription in
writing to the applicable NASD member within one day of the payment therefor.
________________________________________________________________________________
ACKNOWLEDGMENT By signing below, I acknowledge receipt of the Prospectus dated
XXXX xx, 1997 and understand I may not change or revoke my order once it is
received by Peoples Federal. I also certify that this stock order is for my
account and there is no agreement or understanding regarding any further sale or
transfer of these shares. Federal regulations prohibit any persons from
transferring, or entering into any agreement directly or indirectly to transfer,
the legal or beneficial ownership of conversion subscription rights or the
underlying securities to the account of another person. Peoples Federal will
pursue any and all legal and equitable remedies in the event it becomes aware of
the transfer of subscription rights and will not honor orders known by it to
involve such transfer. Under penalties of perjury, I further certify that: (1)
the social security number or taxpayer identification number given above is
correct; and (2) I am not subject to backup withholding. You must cross out this
item, (2) above, if you have been notified by the Internal Revenue Service that
you are subject to backup withholding because of underreporting interest or
dividends on your tax return. BY SIGNING BELOW, I ALSO ACKNOWLEDGE THAT I HAVE
NOT WAIVED ANY RIGHTS UNDER THE SECURITIES ACT OF 1933 AND THE SECURITIES
EXCHANGE ACT OF 1934.
________________________________________________________________________________
SIGNATURE Sign and date this form. When purchasing as a custodian, corporate
officer, etc., include your full title. An additional signature is required only
if payment is by withdrawal from an account that requires more than one
signature to withdraw funds. YOUR ORDER WILL BE FILLED IN ACCORDANCE WITH THE
PROVISIONS OF THE PROSPECTUS. THIS ORDER IS NOT VALID IF THE STOCK ORDER FORM
AND CERTIFICATION FORM ARE NOT BOTH SIGNED. If you need help completing this
Form, you may call the Stock Information Center at (215) xxx-xxxx.
- -----------------------------------------------------------
Signature Title (if applicant) Date
- -----------------------------------------------------------
Signature Title (if applicant) Date
- -----------------------------------------------------------
THE SHARES OF COMMON STOCK OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS AND ARE NOT
INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSUANCE CORPORATION, THE SAVINGS
ASSOCIATION INSUANCE FUND OR ANY OTEHR GOVERNMENTAL AGENCY.
- --------------------------------------------------------------------------------
Date Rec'd___/___/___ Order #________ Batch #________
OFFICE USE Check #______________ Category_______
Amount $_____________ Initials_______
- --------------------------------------------------------------------------------
STOCK INFORMATION CENTER
101 East Court Street
Sidney, Ohio 45365
(xxx) xxx-xxxx
<PAGE>
PEOPLES SIDNEY
FINANCIAL CORPORATION
STOCK OWNERSHIP GUIDE
________________________________________________________________________________
INDIVIDUAL - The Stock is to be registered in an individual's name only. You may
not list beneficiaries for this ownership.
JOINT TENANTS - Joint tenants with right of survivorship identifies two or more
owners. When stock is held by joint tenants with rights of survivorship,
ownership automatically passes to the surviving joint tenant(s) upon the death
of any joint tenant. You may not list beneficiaries for this ownership.
TENANTS IN COMMON - Tenants in common may also identify two or more owners. When
stock is to be held by tenants in common, upon the death of one co-tenant,
ownership of the stock will be held by the surviving co-tenant(s) and by the
heirs of the deceased co-tenant. All parties must agree to the transfer or sale
of shares held by tenants in common. You may not list beneficiaries for this
ownership.
INDIVIDUAL RETIREMENT ACCOUNT - Individual Retirement Account ("IRA") holders
may make stock purchases from their deposits through a pre-arranged
"trustee-to-trustee" transfer. Stock may only be held in a self-directed IRA.
Peoples Federal does not offer a self-directed IRA. Please contact the Stock
Information Center if you have any questions about your IRA account or to obtain
a list of local brokers who will open a self-directed IRA, or check with your
broker. There will be no early withdrawal or IRS penalties incurred by these
transactions.
UNIFORM GIFT TO MINORS - For residents of many states, stock may be held in the
name of a custodian for the benefit of a minor under the Uniform Transfer to
Minors Act. For residents in other states, stock may be held in a similar type
of ownership under the Uniform Gift to Minors Act of the individual states. For
either ownership, the minor is the actual owner of the stock with the adult
custodian being responsible for the investment until the child reaches legal
age.
Instructions: See your legal advisor if you are unsure about the correct
registration of your stock.
On the first line, print the first name, middle initial and last name of the
custodian, with the abbreviation "CUST" after the name. Print the first name,
middle initial and last name of the minor on the second "NAME" line. Only one
custodian and one minor may be designated.
<PAGE>
CORPORATION/PARTNERSHIP - Corporations/Partnerships may purchase stock. Please
provide the Corporation/Partnership's legal name and Tax I.D. To have depositor
rights, the Corporation/Partnership must have an account in the legal name.
Please contact the Stock Information Center to verify depositor rights and
purchase limitations.
FIDUCIARY/TRUST - Generally, fiduciay relationships (such as Trusts, Estates,
Guardianships, etc.) are established under a form of trust agreement or are
pursuant to a court order. Without a legal document establishing a fiduciary
relationship, your stock may not be registered in a fiduciary capacity.
Instructions: On the first "NAME" line, print the first name, middle initial and
last name of the fiduciary if the the fiduciary is an individual. If the
fiduciary is a corporation, list the corporate title on the first "NAME" line.
Following the name, print the fiduciary "title" such as trustee, executor,
personal representative, etc.
On the second "NAME" line, print either the name of the maker, donor or testator
OR the name of the beneficiary. Following the name, indicate the type of legal
document establishing the fiduciary relationship (agreement, court order, etc.).
In the blank after "Under Agreement Dated", fill in the date of the document
governing the relationship. The date of the document need not be provided for a
trust created by a will.
An example of fiduciary ownership of stock in the case of a trust is: John D.
Smith, Trustee for Thomas A. Smith Under Agreement Dated 06/09/87.
<PAGE>
DEFINITION OF ASSOCIATE
________________________________________________________________________________
The term "associate" of a person is defined to mean (i) any corporation or other
organization (other than the Primary Parties or a majority owned subsidiary of
the Bank) of which such person is a director, officer or partner or is directly
or indirectly the beneficial owner of 10% or more of any class of equity
securities; (ii) any trust or other estate in which such person has a
substantial beneficial interest or as to which such person serves a trustee or
in a similar fiduciary capacity, provided, however, that such term shall not
include any tax-qualified employee stock benefit plan of the Primary Parties in
which such person has a substantial beneficial interest or serves as a trustee
or in a similar fiduciary capacity; and (iii) any relative or spouse of such
person, or any relative of such person, who either has the same home as such
person or who is a director or officer of the Primary Parties or any of their
subsidiaries.
<PAGE>
CERTIFICATION FORM
(This Form Must Accompany A Signed Stock Order Form)
I ACKNOWLEDGE THAT THE SHARES OF COMMON STOCK, 0.01% PAR VALUE PER SHARE
("COMMON STOCK"), OF PEOPLES SIDNEY FINANCIAL CORPORATION ("PEOPLES FEDERAL")
ARE NOT FEDERALLY INSURED AND ARE NOT GUARANTEED BY, PEOPLES FEDERAL OR THE
FEDERAL GOVERNMENT.
If anyone asserts that the shares of Common Stock are federally insured or
guaranteed, or are as safe as an insured deposit, I should call the Office of
Thrift Supervision Central Regional Director, Ronald N. Karr, at (312) 917-5000.
I further certify that, before purchasing the shares of Common Stock of Peoples
Sidney Financial Corporation, I received a copy of the Offering Circular dated
XXXXX xx, 1997 which discloses the nature of the shares of Common Stock being
offered thereby and describes the following risks involved in an investment in
the Common Stock under the heading "Risk Factors" beginning on page X of the
Offering Circular:
1. Non-Traditinoal Lending Activities
2. Vulnerability to Changes in Interest Rates
3. Geographical Concentration of Loans
4. Certain Anti-Takeover Provisions
5. Voting Control by the Board, Management and Employee Plans
6. Difficulty in Fully Leveraging Capital
7. ESOP Compensation Expense
8. Absence of Active Market from the Common Stock
9. Insurance Premiums
10. Competition
11. Risk of Delay
- --------------------------------- ---------------------------------
Signature Signature
- --------------------------------- ---------------------------------
(NOTE: IF STOCK IS TO BE HELD JOINTLY, BOTH PARTIES MUST SIGN)
Date:________________________
<PAGE>
ITEM INSTRUCTION
________________________________________________________________________________
ITEMS 1 AND 2 - Fill in the number of shares that you wish to purchase and the
total payment due. The amount due is determined by multiplying the number of
shares by the subscription price of $10.00 per share. The minimum purchase if 25
shares. The maximum purchase amount in the Conversion by any person is xxx
shares in the Subscription and Community Offering. No person, together with
associates of and persons acting in concert with such person, may purchase more
than xxxx shares of the Common Stock in the Subscription Offering.
Peoples Sidney Financial Corporation has reserved the right to reject the
subscription of any order received in the Community Offering, in whole or in
part.
ITEM 3 - Payment for shares may be made in cash (only if delivered by you in
person) or by check, bank draft or money order made payable to Peoples Sidney
Financial Corporation. DO NOT MAIL CASH. If you choose to make a cash payment,
take your Stock Order Form, signed Certification Form and payment in person to
Peoples Sidney Financial Corporation. Your funds will earn interest at Peoples
Sidney Financial Corporation's passbook rate, currently xxx% per annum.
ITEM 4 - To pay be withdrawal from a savings account or certificate at Peoples
Sidney Financial Corporation, insert the account number(s) and the Amount(s) you
wish to withdraw from each account. If more than one signature is required to
withdraw, each must sign in the Signature box on the front of this form. To
withdraw from an account with checking privileges, please write a check. No
early withdrawal penalty will be charged on funds used to purchase our stock. A
hold will be placed on the account(s) for the amount(s) you show. Payments will
remain in certificate account(s) until the stock offering closes. However, if a
partial withdrawal reduces the balance of a certificate account to less than the
applicable minimum, the remaining balance will thereafter earn interest at the
passbook rate.
ITEM 5 - Please check this box if you were a depositor on the Eligibility Record
Date (October 31, 1995), and/or a depositor on the Supplemental Eligibility
Record Date (December 31, 1996) or a depositor on the Voting Record Date (Xxxxx
00, 1997) and list all names on the account(s) and all account number(s) of
those accounts you had at these dates to ensure proper identification of your
purchase rights.
ITEMS 6 AND 7 - The stock transfer industry has developed a uniform system of
shareholder registrations that we will use in the issuance of Peoples Sidney
Financial Corporation common stock. Print the name(s) in which you want the
stock registered and the mailing address of the registration. Include the first
name, middle initial and last name of the shareholder. Avoid the use of two
initials. Please omit words that do not affect ownership rights, such as "Mrs.",
"Mr.", "Dr.", "special account", etc.
Subscription rights are not transferable. If you are a qualified member, to
protect your priority over other purchasers as described in the Prospectus, you
must take ownership in at least one of the account holder's names.
Enter the Social Security or Tax I.D. number of one registered owner. This
registered owner must be listed on the first "NAME" line. Be sure to include
your telephone number because we will need to contact you if we cannot execute
your order as given. Review the Stock Ownership Guide on this page and refer to
the instructions for Uniform Gift to Minors/Uniform Transfer to Minors and
Fiduciaries.
ACCOUNT TITLE (NAMES ON ACCOUNTS) ACCOUNT NUMBER
_____________________________________________________________________
- -------------------------------------
_____________________________________________________________________
- -------------------------------------
_____________________________________________________________________
- -------------------------------------
_____________________________________________________________________
- -------------------------------------
_____________________________________________________________________
<PAGE>
FACTS ABOUT CONVERSION
The Board of Directors of Peoples Federal Savings and Loan Association ("Peoples
Federal") unanimously adopted a Plan of Conversion (the "Conversion") to convert
from a federally chartered mutual savings and loan association to a federally
chartered stock savings and loan association.
This brochure answers some of the most frequently asked questions about the
Conversion and about your opportunity to invest in Peoples Sidney Financial
Corporation, (the "Holding Company"), the newly formed corporation that will
serve as holding company for Peoples Federal following the conversion.
Investment in the stock of Peoples Sidney Financial Corporation involves certain
risks. For a discussion of these risks and other factors, investors are urged to
read the accompanying Prospectus, especially the discussion under the heading
"Risk Factors".
WHY IS PEOPLES FEDERAL CONVERTING TO STOCK FORM?
- --------------------------------------------------------------------------------
The stock form of ownership is used by most business corporations and an
increasing number of savings institutions. Through the sale of stock, Peoples
Federal will raise additional capital enabling it to:
o support and expand its current financial and other services.
o allow customers and friends to purchase stock and share in the Holding
Company's and Peoples Federal's future.
<PAGE>
WILL THE CONVERSION AFFECT ANY OF MY DEPOSIT ACCOUNTS OR LOANS?
- --------------------------------------------------------------------------------
No. The Conversion will have no effect on the balance or terms of any savings
account or loan, and your deposits will continue to be federally insured by the
Federal Deposit Insurance Corporation ("FDIC") to the maximum legal limit. Your
savings account is not being converted to stock.
WHO IS ELIGIBLE TO PURCHASE STOCK IN THE SUBSCRIPTION AND COMMUNITY OFFERINGS?
- --------------------------------------------------------------------------------
Certain past and present depositors of Peoples Federal, the Holding Company's
Employee Stock Ownership Plan and members of the general public.
HOW MANY SHARES OF STOCK ARE BEING OFFERED AND AT WHAT PRICE?
- --------------------------------------------------------------------------------
Peoples Sidney Financial Corporation is offering up to X,XXX,XXX shares of
common stock, subject to adjustment as described in the Prospectus, at a price
of $10.00 per share through the Prospectus.
HOW MUCH STOCK MAY I BUY?
- --------------------------------------------------------------------------------
The minimum order is 25 shares. No person, together with associates of and
persons acting in concert with such person, may purchase more than $200,000 of
the common stock sold.
DO MEMBERS HAVE TO BUY STOCK?
- --------------------------------------------------------------------------------
No. However, the Conversion will allow Peoples Federal's depositors an
opportunity to buy stock and become charter shareholders of the holding company
for the local financial institution with which they do business.
<PAGE>
HOW DO I ORDER STOCK?
- --------------------------------------------------------------------------------
You must complete the enclosed Stock Order Form and Certification Form.
Instructions for completing your Stock Order Form and Certification Form are
contained in this packet. Your order must be received by 5:00 p.m. on
Xxxxxxxx X, 1997.
HOW MAY I PAY FOR MY SHARES OF STOCK?
- --------------------------------------------------------------------------------
First, you may pay for stock by check, cash or money order. Interest will be
paid by Peoples Federal on these funds at the passbook rate, which is currently
2.0% per annum, from the day the funds are received until the completion or
termination of the Conversion. Second, you may authorize us to withdraw funds
from your Peoples Federal savings account or certificate of deposit for the
amount of funds you specify for payment. You will not have access to these funds
from the day we receive your order until completion or termination of the
Conversion.
CAN I PURCHASE SHARES USING FUNDS IN MY PEOPLES FEDERAL IRA ACCOUNT?
- --------------------------------------------------------------------------------
Federal regulations do not permit the purchase of conversion stock from your
existing Peoples Federal IRA account. To accommodate our depositors, we have
made arrangements with an outside trustee to allow such purchases. Please call
our Stock Information Center for additional information.
<PAGE>
WILL THE STOCK BE INSURED?
- --------------------------------------------------------------------------------
No. Like any other common stock, the Holding Company's stock will not be
insured.
WILL DIVIDENDS BE PAID ON THE STOCK?
- --------------------------------------------------------------------------------
The Board of Directors of the Holding Company will consider whether to pay a
cash dividend in the future, subject to regulatory limits and requirements. No
decision has been made as to the amount or timing of such dividends, if any.
HOW WILL THE STOCK BE TRADED?
- --------------------------------------------------------------------------------
The Holding Company's stock will trade on the Nasdaq National Market under the
symbol "XXXX". However, no assurance can be given that an active and liquid
market will develop.
ARE OFFICERS AND DIRECTORS OF PEOPLES FEDERAL PLANNING TO PURCHASE STOCK?
- --------------------------------------------------------------------------------
Yes! Peoples Federal's officers and directors plan to purchase, in the
aggregate, $XXX,XXX worth of stock or approximately % of the stock offered at
the midpoint of the offering range.
MUST I PAY A COMMISSION?
- --------------------------------------------------------------------------------
No. You will not be charged a commission or fee on the purchase of shares in the
Conversion.
SHOULD I VOTE?
- --------------------------------------------------------------------------------
Yes. Your "YES" vote is very important!
PLEASE VOTE, SIGN AND RETURN ALL PROXY CARDS!
<PAGE>
WHY DID I GET SEVERAL PROXY CARDS?
- --------------------------------------------------------------------------------
If you have more than one account, you could receive more than one proxy card,
depending on the ownership structure of your accounts.
HOW MANY VOTES DO I HAVE?
- --------------------------------------------------------------------------------
Your proxy card(s) show(s) the number of votes you have. Every depositor
entitled to vote may cast one vote for each $100, or fraction thereof, on
deposit as of the voting record date.
MAY I VOTE IN PERSON AT THE SPECIAL MEETING?
- --------------------------------------------------------------------------------
Yes, but we would still like you to sign and mail your proxy today. If you
decide to revoke your proxy you may do so by giving notice at the special
meeting.
FOR ADDITIONAL INFORMATION YOU MAY CALL OUR STOCK INFORMATION CENTER BETWEEN
9:00 A.M. AND 6:00 P.M. MONDAY THROUGH FRIDAY.
- --------------------------------------------------------------------------------
STOCK INFORMATION CENTER (937) XXX-XXXX
- --------------------------------------------------------------------------------
Peoples Sidney Financial Corporation
101 East Court Street
Sidney, Ohio 45365
Phone (937) XXX-XXXX
Fax (937) XXX-XXXX
<PAGE>
- --------------------------------------------------------------------------------
STOCK OFFERING
QUESTIONS
AND ANSWERS
- --------------------------------------------------------------------------------
Peoples Sidney Financial
Corporation
THE SHARES OF COMMON STOCK BEING OFFERED ARE NOT SAVINGS ACCOUNTS OR DEPOSITS
AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE BANK
INSURANCE FUND, THE SAVINGS ASSOCIATION INSURANCE FUND OR ANY OTHER GOVERNMENTAL
AGENCY. THIS IS NOT AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY STOCK.
THE OFFER IS MADE ONLY BY THE PROSPECTUS.
<PAGE>
Exhibit 99.5
[GRAPHIC OMITTED] [GRAPHIC OMITTED]
Charles Webb & Company
A Division of
KEEFE, BRUYETTE & WOODS, INC.
To Members and Friends of
Peoples Sidney Financial Corporation
________________________________________________________________________________
Charles Webb & Company, a member of the National Association of Securities
Dealers, Inc. ("NASD"), is assisting Peoples Federal Savings and Loan
Association ("Peoples Federal ") in its conversion from a federally chartered
mutual savings and loan association to a federally chartered stock savings and
loan association and the concurrent offering of shares of common stock by
Peoples Sidney Financial Corporation (the "Holding Company"), the newly formed
corporation that will serve as holding company for Peoples Federal following the
conversion.
At the request of the Holding Company, we are enclosing materials explaining
this process and your options, including an opportunity to invest in shares of
the Holding Company's common stock being offered to customers and the community
through XXXXXXXX X, 1997. Please read the enclosed offering materials carefully.
The Holding Company has asked us to forward these documents to you in view of
certain requirements of the securities laws in your state.
If you have any questions, please visit our Stock Information Center at
101 East Court Street, Sidney, Ohio or feel free to call the Stock Information
Center at (937) XXX-XXXX.
Very truly yours,
Charles Webb & Company
<PAGE>
XXXXXXXX XX, 1997
Dear Friend:
We are pleased to announce that Peoples Federal Savings and Loan
Association, ("Peoples Federal") is converting from a federally chartered mutual
savings and loan association to a federally chartered stock savings and loan
association (the "Conversion"). In conjunction with the Conversion, Peoples
Sidney Financial Corporation, the newly-formed corporation that will serve as
holding company for Peoples Federal, is offering shares of common stock in a
subscription offering and community offering. The sale of stock in connection
with the Conversion will enable Peoples Federal to raise additional capital to
support and enhance its current operations.
Because we believe you may be interested in learning more about the
merits of Peoples Sidney Financial Corporation's stock as an investment, we are
sending you the following materials which describe the stock offering.
PROSPECTUS: This document provides detailed information about
operations at Peoples Federal and the proposed stock offering.
QUESTIONS AND ANSWERS: Key questions and answers about the stock
offering are found in this pamphlet.
STOCK ORDER FORM & CERTIFICATION FORM: This form is used to purchase
stock by returning it with your payment in the enclosed business reply
envelope. All individuals or entities, registered as the Stock
Certificate, must sign the attached Certification Form. The deadline
for ordering stock is 5:00 p.m., XXXXXX X, 1997.
As a friend of Peoples Federal, you will have the opportunity to buy
stock directly from Peoples Sidney Financial Corporation in the Conversion
without commission or fee. If you have additional questions regarding the
Conversion and stock offering, please call us at (937) XXX-XXXX, Monday through
Friday from 9:00 a.m. to 6:00 p.m. or stop by the Stock Information Center at
101 East Court Street, Sidney, Ohio.
We are pleased to offer you this opportunity to become a charter
shareholder of Peoples Sidney Financial Corporation.
Sincerely,
Douglas Stewart
President and Chief Executive Officer
THE SHARES OF COMMON STOCK BEING OFFERED ARE NOT SAVINGS ACCOUNTS OR DEPOSITS
AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE BANK
INSURANCE FUND, THE SAVINGS ASSOCIATION INSURANCE FUND OR ANY OTHER GOVERNMENTAL
AGENCY. THIS IS NOT AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY STOCK.
THE OFFER IS MADE ONLY BY THE PROSPECTUS.
<PAGE>
Xxxxxxxx XX, 1997
Dear Member:
We are pleased to announce that Peoples Federal Savings and Loan
Association ("Peoples Federal") is converting from a federally chartered mutual
savings and loan association to a federally chartered stock savings and loan
association (the "Conversion"). In conjunction with the Conversion, Peoples
Sidney Financial Corporation, the newly-formed corporation that will serve as
holding company for Peoples Federal, is offering shares of common stock in a
subscription offering and community offering to certain of our depositors and
borrowers and to our Employee Stock Ownership Plan pursuant to a Plan of
Conversion.
To accomplish this Conversion, we need your participation in an
important vote. Enclosed is a proxy statement describing the Plan of Conversion
and your voting and subscription rights. Peoples Sidney Financial Corporation
Plan of Conversion has been approved by the Federal Deposit Insurance
Corporation and now must be approved by you. YOUR VOTE IS VERY IMPORTANT.
Enclosed, as part of the proxy material, is your proxy card located
behind the window of your mailing envelope. This proxy should be signed and
returned to us prior to the Special Meeting scheduled on Xxxxxxxx X, 1997.
Please take a moment to sign the enclosed proxy card and return it to us in the
postage-paid envelope provided. FAILURE TO VOTE HAS THE SAME EFFECT AS VOTING
AGAINST THE CONVERSION.
The Board of Directors of Peoples Federal feels that the Conversion
will offer a number of advantages, such as an opportunity for depositors and
customers of Peoples Federal to become shareholders. Please remember:
o Your accounts at Peoples Federal will continue to be insured up to the
maximum legal limit by the Federal Deposit Insurance Corporation
("FDIC").
o There will be no change in the balance, interest rate, or maturity of
any deposit accounts because of the Conversion.
o Members have a right, but no obligation, to buy stock before it is
offered to the public.
o Like all stock, stock issued in this offering will not be insured by
the FDIC.
Enclosed are materials describing the stock offering. We urge you to
read these materials carefully. If you are interested in purchasing the common
stock of Peoples Sidney Financial Corporation, you must submit your Stock Order
Form and Certification Form, and payment prior to 5:00 p.m. Xxxxxxxx X, 1997.
If you have additional questions regarding the stock offering, please
call us at (937) XXX-XXXX, Monday through Friday from 9:00 a.m. to 6:00 p.m., or
stop by the Stock Information Center located at 101 East Court Street in Sidney,
Ohio.
Sincerely,
Douglas Stewart
President and Chief Executive Officer
THE SHARES OF COMMON STOCK BEING OFFERED IN THIS OFFERING ARE NOT SAVINGS
ACCOUNTS OR DEPOSITS AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE BANK INSURANCE FUND OR THE SAVINGS ASSOCIATION INSURANCE FUND
OR ANY OTHER GOVERNMENT AGENCY. THIS IS NOT AN OFFER TO SELL OR A SOLICITATION
OF AN OFFER TO BUY STOCK. THE OFFER WILL BE MADE ONLY BY THE PROSPECTUS.
<PAGE>
Xxxxxxxx X, 1997
Dear Member:
We are pleased to announce that Peoples Federal Savings and Loan
Association is converting from a federally chartered mutual savings and loan
association to a federally chartered stock savings and loan association (the
"Conversion"). In conjunction with the Conversion, Peoples Sidney Financial
Corporation, the newly-formed corporation that will serve as holding company for
Peoples Federal, is offering shares of common stock in a subscription offering
and community offering.
Unfortunately, Peoples Sidney Financial Corporation is unable to either
offer or sell its common stock to you because the small number of eligible
subscribers in your jurisdiction makes registration or qualification of the
common stock under the securities laws of your jurisdiction impractical, for
reasons of cost or otherwise. Accordingly, this letter should not be considered
an offer to sell or a solicitation of an offer to buy the common stock of
Peoples Sidney Financial Corporation.
However, as a member of Peoples Federal, you have the right to vote on
the Plan of Conversion at the Special Meeting of Members to be held on Xxxxxxxx
X, 1997. Therefore, enclosed is a proxy card, a Proxy Statement (which includes
the Notice of the Special Meeting), Prospectus (which contains information
incorporated into the Proxy Statement) and a return envelope for your proxy
card.
I invite you to attend the Special Meeting on Xxxxxxxx X, 1997.
However, whether or not you are able to attend, please complete the enclosed
proxy card and return it in the enclosed envelope.
Sincerely,
Douglas Stewart
President and Chief Executive Officer
<PAGE>
Xxxxxxxx X, 1997
Dear Prospective Investor:
We are pleased to announce that Peoples Federal Savings and Loan
Association, ("Peoples Federal") is converting from a federally chartered mutual
savings and loan association to a federally chartered stock savings and loan
association (the "Conversion"). In conjunction with the Conversion, Peoples
Sidney Financial Corporation, the newly-formed corporation that will serve as
holding company for Peoples Federal, is offering shares of common stock in a
subscription offering and community offering. The sale of stock in connection
with the Conversion will enable Peoples Federal to raise additional capital to
support and enhance its current operations.
We have enclosed the following materials which will help you learn more
about the merits of Peoples Sidney Financial Corporation's common stock as an
investment. Please read and review the materials carefully.
PROSPECTUS: This document provides detailed information about
operations at Peoples Federal and the proposed stock offering.
QUESTIONS AND ANSWERS: Key questions and answers about the stock
offering are found in this pamphlet.
STOCK ORDER FORM & CERTIFICATION FORM: This form is used to purchase
stock by returning it with your payment in the enclosed business reply
envelope. All individuals and entities, registered as the Stock
Certificate, must sign the attached Certification Form. The deadline
for ordering stock is 5:00 p.m., Xxxxxxxx X 1997.
We invite our loyal customers and local community members to become
charter shareholders of Peoples Sidney Financial Corporation. Through this
offering you have the opportunity to buy stock directly from Peoples Sidney
Financial Corporation, without commission or fee. The board of directors and
senior management of Peoples Federal fully support the stock offering.
If you have additional questions regarding the Conversion and stock
offering, please call us at (937) XXX-XXXX, Monday through Friday from 9:00 a.m.
to 6:00 p.m. or stop by the Stock Information Center located at 101 East Court
Street, Sidney, Ohio.
Sincerely,
Douglas Stewart
President and Chief Executive Officer
THE SHARES OF COMMON STOCK BEING OFFERED ARE NOT SAVINGS ACCOUNTS OR DEPOSITS
AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE BANK
INSURANCE FUND, THE SAVINGS ASSOCIATION INSURANCE FUND OR ANY OTHER GOVERNMENTAL
AGENCY. THIS IS NOT AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY STOCK.
THE OFFER IS MADE ONLY BY THE PROSPECTUS.
<PAGE>
================================================================================
PROXY GRAM
We recently forwarded to you a proxy statement and related materials regarding
a proposal to convert Peoples Sidney Financial Corporation from a federally
chartered mutual savings and loan association to a federally chartered stock
savings and loan association.
Your vote on our Plan of Conversion has not yet been received. Failure to Vote
has the Same Effect as Voting Against the Conversion.
Your vote is important to us, and we, therefore, are requesting that you sign
the enclosed proxy card and return it promptly in the enclosed postage-paid
envelope.
Voting for the Conversion does not obligate you to purchase stock or affect the
terms or insurance on your accounts.
The Board of Directors unanimously recommend you vote "FOR" the Conversion.
PEOPLES SIDNEY FINANCIAL CORPORATION
Sidney, Ohio
Douglas Stewart
President and Chief Executive Officer
If you mailed the proxy, please accept our thanks and disregard this request.
For further information call (937) 000-0000.
The shares of common stock being offered are not savings accounts or deposits
and are not insured by the Federal Deposit Insurance Corporation, the Bank
Insurance Fund or any other governmental agency. This is not an offer to sell or
a solicitation of an offer to buy stock. The offer is made only by the
Prospectus.
================================================================================
<PAGE>
================================================================================
STOCK GRAM
We are pleased to announce that Peoples Federal Savings and Loan Association,
("Peoples Federal") is offering shares of common stock in a subscription and
community Offering. The sale of stock in connection with the offering will
enable Peoples Federal to raise additional capital to support and enhance its
current franchise.
We previously mailed to you a Prospectus providing detailed information about
Peoples Federal's operations and the proposed stock offering. We urge you to
read this carefully.
We invite our loyal customers and community members to become shareholders of
Peoples Sidney Financial Corporation (the proposed Holding Company for Peoples
Federal Savings and Loan Association). If you are interested in purchasing the
common stock of Peoples Sidney Financial Corporation, you must submit your Stock
Order Form, Certification Form and payment prior to 5:00 p.m., Sidney, Ohio
Time, on Xxxxxxx X, 1997.
Should you have additional questions regarding the stock offering or need
additional materials, please call the Stock Information Center at (937) 000-0000
or stop by the Stock Information Center at 101 East Court Street in Sidney.
The shares of common stock being offered are not savings accounts or deposits
and are not insured by the Federal Deposit Insurance Corporation, the Bank
Insurance Fund or any other governmental agency. This is not an offer to sell or
a solicitation of an offer to buy stock. The offer is made only by the
Prospectus.
================================================================================
