<PAGE>
As filed with the Securities and Exchange Commission on March 14, 1997
Registration No. 333-_____
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
(Including Exhibits)
FIRSTBANK CORP.
-------------------------------------
(Exact name of registrant as specified in charter)
Delaware 6035 [to be applied for]
- ------------------------------- ----------------- -------------------
(State or other jurisdiction of (Primary SICC No.) (I.R.S. Employer
incorporation or organization) Identification No.)
920 Main Street
Lewiston, Idaho 83501
(208) 746-9610
------------------------------
(Address and telephone number of principal executive offices)
John F. Breyer, Jr., Esquire
Aaron M. Kaslow, Esquire
BREYER & AGUGGIA
Suite 470 East
1300 I Street, N.W.
Washington, D.C. 20005
------------------------------
(Name and address of agent for service)
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 to be 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 of 1933, 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 of 1933, 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. [_]
<TABLE>
<CAPTION>
======================================================================================================
Calculation of Registration Fee
======================================================================================================
Title of Each Class of Securities Proposed Proposed Proposed Maximum Amount of
Being Registered Maximum Offering Aggregate Offering Registration Fee
Amount Being Price(1) Price(1)
Registered(1)
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $0.01 Par Value 1,983,750 $10.00 $19,837,500 $6,012
Participation interests 90,590 -- -- (2)
======================================================================================================
</TABLE>
(1) Estimated solely for purposes of calculating the registration fee. As
described in the Prospectus, the actual number of shares to be issued and sold
are subject to adjustment based upon the estimated pro forma market value of the
registrant and market and financial conditions.
(2) The securities of FirstBank Corp. to be purchased by the First Federal Bank
of Idaho, F.S.B. 401(k) Plan are included in the amount shown for Common Stock.
Accordingly, pursuant to Rule 457(h) of the Securities Act of 1933, as amended,
no separate fee is required for the participation interests. Pursuant to such
rule, the amount being registered has been calculated on the basis of the number
of shares of Common Stock that may be purchased with the current assets of such
Plan.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
<PAGE>
PROSPECTUS SUPPLEMENT
FIRSTBANK CORP.
FIRSTBANK NORTHWEST
401(k) PLAN
This Prospectus Supplement relates to the offer and sale to participants
(the "Participants") in the FirstBank Northwest 401(k) Plan (the "Plan" or the
"401(k) Plan") of participation interests and shares of FirstBank Corp. common
stock, par value $.01 per share (the "Common Stock"), as set forth herein.
In connection with the proposed conversion of FirstBank Northwest (the
"Bank" or "Employer") from a federally chartered mutual savings bank to a
federally chartered stock savings bank (and, thereafter, to a Washington-
chartered savings bank), a holding company, FirstBank Corp. (the "Holding
Company"), has been formed. The simultaneous conversion of the Bank to stock
form, the issuance of the Bank's common stock to the Holding Company and the
offer and sale of the Holding Company's Common Stock to the public are herein
referred to as the "Conversion." Applicable provisions of the 401(k) Plan
permit the investment of the Plan assets in Common Stock of the Holding Company
at the direction of a Plan Participant. This Prospectus Supplement relates to
the election of a Participant to direct the purchase of Common Stock in
connection with the Conversion.
The Prospectus dated ___________, 1997 of the Holding Company (the
"Prospectus") which is attached to this Prospectus Supplement includes detailed
information with respect to the Conversion, the Common Stock and the financial
condition, results of operation and business of the Bank and the Holding
Company. This Prospectus Supplement, which provides detailed information with
respect to the Plan, should be read only in conjunction with the Prospectus.
Terms not otherwise defined in this Prospectus Supplement are defined in the
Plan or the Prospectus.
A PARTICIPANT'S ELIGIBILITY TO PURCHASE COMMON STOCK IN THE CONVERSION
THROUGH THE PLAN IS SUBJECT TO THE PARTICIPANT'S GENERAL ELIGIBILITY TO PURCHASE
SHARES OF COMMON STOCK IN THE CONVERSION AND THE MAXIMUM AND MINIMUM LIMITATIONS
SET FORTH IN THE PLAN OF CONVERSION. SEE "THE CONVERSION" AND "-- LIMITATIONS
ON PURCHASES OF SHARES" IN THE PROSPECTUS.
FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY EACH
PARTICIPANT, SEE "RISK FACTORS" IN THE PROSPECTUS.
<PAGE>
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION ("SEC"), THE OFFICE OF THRIFT
SUPERVISION ("OTS"), THE FEDERAL DEPOSIT INSURANCE CORPORATION
("FDIC") OR ANY OTHER FEDERAL AGENCY OR ANY STATE SECURITIES
COMMISSION, NOR HAS THE SEC, THE OTS, THE FDIC OR ANY OTHER
AGENCY OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this Prospectus Supplement is ___________, 1997.
S-2
<PAGE>
No person has been authorized to give any information or to make any
representations other than those contained in the Prospectus or this Prospectus
Supplement in connection with the offering made hereby, and, if given or made,
such information and representations must not be relied upon as having been
authorized by the Holding Company, the Bank or the Plan. This Prospectus
Supplement does not constitute an offer to sell or solicitation of an offer to
buy any securities in any jurisdiction to any person to whom it is unlawful to
make such offer or solicitation in such jurisdiction. Neither the delivery of
this Prospectus Supplement and the Prospectus nor any sale made hereunder shall
under any circumstances create any implication that there has been no change in
the affairs of the Bank or the Plan since the date hereof, or that the
information herein contained or incorporated by reference is correct as of any
time subsequent to the date hereof. This Prospectus Supplement should be read
only in conjunction with the Prospectus that is attached herein and should be
retained for future reference.
S-3
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
The Offering
Securities Offered...................................................... S-5
Election to Purchase Common Stock in the Conversion..................... S-5
Value of Participation Interests........................................ S-5
Method of Directing Transfer............................................ S-6
Time for Directing Transfer............................................. S-6
Irrevocability of Transfer Direction.................................... S-6
Direction to Purchase Common Stock After the Conversion................. S-6
Purchase Price of Common Stock.......................................... S-6
Nature of a Participant's Interest in the Holding Company Common Stock.. S-7
Voting and Tender Rights of Common Stock................................ S-7
Description of the Plan
Introduction............................................................ S-7
Eligibility and Participation........................................... S-8
Contributions Under the Plan............................................ S-8
Limitations on Contributions............................................ S-9
Investment of Contributions............................................. S-11
The Employer Stock Fund................................................. S-12
Benefits Under the Plan................................................. S-13
Withdrawals and Distributions from the Plan............................. S-13
Administration of the Plan.............................................. S-14
Reports to Plan Participants............................................ S-15
Plan Administrator...................................................... S-15
Amendment and Termination............................................... S-15
Merger, Consolidation or Transfer....................................... S-15
Federal Income Tax Consequences......................................... S-15
Restrictions on Resale.................................................. S-18
Legal Opinions............................................................... S-19
Investment Form.............................................................. S-20
</TABLE>
S-4
<PAGE>
THE OFFERING
SECURITIES OFFERED
The securities offered hereby are participation interests in the Plan and
up to _________ shares, at the actual purchase price of $10.00 per share, of
Common Stock which may be acquired by the Plan for the accounts of employees
participating in the Plan. The Holding Company is the issuer of the Common
Stock. Only employees and former employees of the Bank and their beneficiaries
may participate in the Plan. Information with regard to the Plan is contained
in this Prospectus Supplement and information with regard to the Conversion and
the financial condition, results of operation and business of the Bank and the
Holding Company is contained in the attached Prospectus. The address of the
principal executive office of the Bank is 920 Main Street, Lewiston, Idaho
83501. The Bank's telephone number is (208) 746-9610.
ELECTION TO PURCHASE COMMON STOCK IN THE CONVERSION
In connection with the Bank's Conversion, each Participant in the 401(k)
plan may direct the trustees of the Plan ("Trustees") to transfer up to 100% of
a Participant's beneficial interest in the assets of the Plan at ___________,
1997 to a newly created Employer Stock Fund and to use such funds to purchase
Common Stock issued in connection with the Conversion. Amounts transferred will
include salary deferral, Employer matching, profit sharing contributions and
account balances transferred from the First Federal Bank of Idaho, FSB
____________, which was terminated on _______, 199_. The Employer Stock Fund
will consist of investments in the Common Stock made on or after the effective
date of the Conversion. Funds not transferred to the Employer Stock Fund will
be invested at the Participant's discretion in the other investment options
available under the Plan. See "INVESTMENT OF CONTRIBUTIONS" below. A
PARTICIPANT'S ABILITY TO TRANSFER FUNDS TO THE EMPLOYER STOCK FUND IN THE
CONVERSION IS SUBJECT TO THE PARTICIPANT'S GENERAL ELIGIBILITY TO PURCHASE
SHARES OF COMMON STOCK IN THE CONVERSION. FOR GENERAL INFORMATION AS TO THE
ABILITY OF THE PARTICIPANTS TO PURCHASE SHARES IN THE CONVERSION, SEE "THE
CONVERSION -- THE SUBSCRIPTION, DIRECT COMMUNITY AND SYNDICATED COMMUNITY
OFFERINGS" IN THE ATTACHED PROSPECTUS.
VALUE OF PARTICIPATION INTERESTS
The assets of the Plan are valued on an ongoing basis and each Participant
is informed of the value of his or her beneficial interest in the Plan on an
annual basis. This value represents the market value of past contributions to
the Plan by the Bank and by the Participants and earnings thereon, less previous
withdrawals, and transfers from the Savings Fund.
S-5
<PAGE>
METHOD OF DIRECTING TRANSFER
The last page of this Prospectus Supplement is an investment form to direct
a transfer to the Employer Stock Fund (the "Investment Form"). If a Participant
wishes to transfer funds to the Employer Stock Fund to purchase Common Stock
issued in connection with the Conversion, the Participant should indicate that
decision in Part 2 of the Investment Form. If a Participant does not wish to
make such an election, he or she does not need to take any action.
TIME FOR DIRECTING TRANSFER
THE DEADLINE FOR SUBMITTING A DIRECTION TO TRANSFER AMOUNTS TO THE EMPLOYER
STOCK FUND IN ORDER TO PURCHASE COMMON STOCK ISSUED IN CONNECTION WITH THE
CONVERSION IS ____________, 1997. The Investment Form should be returned to
____________ at the Bank no later than the close of business on such date.
IRREVOCABILITY OF TRANSFER DIRECTION
A Participant's direction to transfer amounts credited to such
Participant's account in the Plan to the Employer Stock Fund in order to
purchase shares of Common Stock in connection with the Conversion shall be
irrevocable. Participants, however, will be able to direct the sale of Common
Stock, as explained below.
DIRECTION TO PURCHASE COMMON STOCK AFTER THE CONVERSION
After the Conversion, a Participant will be able to direct that a certain
percentage of such Participant's interests in the trust assets ("Trust") be
transferred to the Employer Stock Fund and invested in Common Stock, or to the
other investment funds available under the Plan. Alternatively, a Participant
may direct that a certain percentage of such Participant's interest in the
Employer Stock Fund be transferred from the Employer Stock Fund to other
investment funds available under the Plan. Participants will be permitted to
direct that future contributions made to the Plan by or on their behalf be
invested in Common Stock. Following the initial election, the allocation of
Participant's interest in the Employer Stock Fund may be changed by the
Participant on a _________ basis. Special restrictions may apply to transfers
directed by those Participants who are executive officers, directors and
principal stockholders of the Holding Company who are subject to the provisions
of Section 16(b) of the Securities and Exchange Act of 1934, as amended (the
"Exchange Act").
PURCHASE PRICE OF COMMON STOCK
The funds transferred to the Employer Stock Fund for the purchase of Common
Stock in connection with the Conversion will be used by the Trustees to purchase
shares of Common Stock. The price paid for such shares of Common Stock will be
the same price as is paid by all other persons who purchase shares of Common
Stock in the Conversion.
S-6
<PAGE>
NATURE OF A PARTICIPANT'S INTEREST IN THE HOLDING COMPANY STOCK
The Holding Company Stock purchased for an account of a Participant will be
held in the name of the Trustee of the Plan in the Employer Stock Fund. Any
earnings, losses or expenses with respect to the Holding Company Stock,
including dividends and appreciation or depreciation in value, will be credited
or debited to the account and will not be credited to or borne by any other
accounts.
VOTING AND TENDER RIGHTS OF COMMON STOCK
The Trustees generally will exercise voting and tender rights attributable
to all Common Stock held by the Trust as directed by Participants with an
interest in the Employer Stock Fund. With respect to each matter as to which
holders of Common Stock have the right to vote, each Participant will be
allocated a number of voting instruction rights reflecting such Participant's
proportionate interest in the Employer Stock Fund. The percentage of shares of
Common Stock held in the Employer Stock Fund that are voted in the affirmative
or negative on each matter shall be the same percentage of the total number of
voting instruction rights that are exercised in either the affirmative or
negative, respectively.
DESCRIPTION OF THE PLAN
INTRODUCTION
The Bank adopted the Plan effective January 1, 1994. The Plan is a cash or
deferred arrangement established in accordance with the requirement under
Section 401(a) and Section 401(k) of the Internal Revenue Code of 1986, as
amended (the "Code").
The Bank intends that the Plan, in operation, will comply with the
requirements under Section 401(a) and Section 401(k) of the Code. The Bank will
adopt any amendments to the Plan that may be necessary to ensure the qualified
status of the Plan under the Code and applicable Treasury Regulations. The Bank
has received a determination from the Internal Revenue Service ("IRS") that the
Plan is qualified under Section 401(a) of the Code and that it satisfies the
requirements for a qualified cash or deferred arrangement under Section 401(k)
of the Code.
EMPLOYEE RETIREMENT INCOME SECURITY ACT. The Plan is an "individual
account plan" other than a "money purchase pension plan" within the meaning of
the Employee Retirement Income Security Act of 1974, as amended ("ERISA"). As
such, the Plan is subject to all of the provisions of Title I (Protection of
Employee Benefit Rights) and Title II (Amendments to the Internal Revenue Code
Relating to Retirement Plans) of ERISA, except the funding requirements
contained in Part 3 of Title I of ERISA, which by their terms do not apply to an
individual account plan (other than a money purchase pension plan). The Plan is
not subject to Title IV (Plan Termination Insurance) of ERISA. Neither the
funding requirements contained in Title IV
S-7
<PAGE>
of ERISA nor the plan termination insurance provisions contained in Title IV
will be extended to Participants or beneficiaries under the Plan.
APPLICABLE FEDERAL LAW REQUIRES THE PLAN TO IMPOSE SUBSTANTIAL RESTRICTIONS
ON THE RIGHT OF A PLAN PARTICIPANT TO WITHDRAW AMOUNTS HELD FOR HIS OR HER
BENEFIT UNDER THE PLAN PRIOR TO THE PARTICIPANT'S TERMINATION OF EMPLOYMENT WITH
THE BANK. A SUBSTANTIAL FEDERAL TAX PENALTY MAY ALSO BE IMPOSED ON WITHDRAWALS
MADE PRIOR TO THE PARTICIPANT'S ATTAINMENT OF AGE 59 1/2, UNLESS A PARTICIPANT
RETIRES AS PERMITTED UNDER THIS PLAN REGARDLESS OF WHETHER SUCH A WITHDRAWAL
OCCURS DURING HIS OR HER EMPLOYMENT WITH THE BANK OR AFTER TERMINATION OF
EMPLOYMENT.
REFERENCE TO FULL TEXT OF PLAN. THE FOLLOWING STATEMENTS ARE SUMMARIES OF
CERTAIN PROVISIONS OF THE PLAN. THEY ARE NOT COMPLETE AND ARE QUALIFIED IN
THEIR ENTIRETY BY THE FULL TEXT OF THE PLAN, WHICH IS FILED AS AN EXHIBIT TO THE
REGISTRATION STATEMENT FILED WITH THE SEC. COPIES OF THE PLAN ARE AVAILABLE TO
ALL EMPLOYEES BY FILING A REQUEST WITH THE PLAN ADMINISTRATOR. EACH EMPLOYEE IS
URGED TO READ CAREFULLY THE FULL TEXT OF THE PLAN.
ELIGIBILITY AND PARTICIPATION
Any employee of the Bank is eligible to participate and will become a
Participant in the Plan following completion of a minimum of 1,000 hours of
service with the Bank within a consecutive 12 month period of employment and the
attainment of age 21. The Plan fiscal year is the calendar year ("Plan Year").
Directors who are not employees of the Bank are not eligible to participate in
the Plan.
During 1996, approximately __ employees participated in the Plan.
CONTRIBUTIONS UNDER THE PLAN
PARTICIPANT CONTRIBUTIONS. Each Participant in the Plan is permitted to
elect to reduce such Participant's Compensation (as defined below) pursuant to a
salary reduction agreement and have that amount contributed to the Plan on such
Participant's behalf. Such amounts are credited to the Participant's deferral
contributions account. For purposes of the Plan, "Compensation" means a
Participant's total amount of earnings reportable W-2 wages for federal income
tax withholding purposes plus a Participant's elective deferrals pursuant to a
salary reduction agreement under the Plan or any elective deferrals to a Section
125 plan. Due to recent statutory changes, the annual Compensation of each
Participant taken into account under the Plan is limited to $160,000 as adjusted
periodically (adjusted as permitted by the Code). A Participant may elect to
modify the amount contributed to the Plan under the participant's salary
reduction agreement during the Plan Year. Deferral contributions are
transferred by the Bank to the Trustee of the Plan on a periodic basis.
S-8
<PAGE>
EMPLOYER CONTRIBUTIONS. The Bank currently makes a discretionary matching
contribution to the Plan in an amount equal to a percentage of each
Participant's annual salary reduction contributions.
DISCRETIONARY CONTRIBUTIONS. The Bank may also make discretionary
nonmatching contributions to the Plan for each Plan Year. Participants who are
in service on the last day of the Plan Year and have completed 1,000 hours of
service during the Plan Year are eligible to share in the allocation of the
discretionary contributions (if any) for the Plan Year. The Bank's
discretionary contributions are allocated among Participants eligible to share
in the allocation according to the relationship of each such Participant's
Compensation for the Plan Year to the total Compensation of all such
Participants for such Plan Year. In addition, the Bank may make discretionary
contributions on behalf of certain non-highly compensated employees to the
extent necessary to satisfy the Code's nondiscrimination requirements (see
below).
LIMITATIONS ON CONTRIBUTIONS
LIMITATIONS ON ANNUAL ADDITIONS AND BENEFITS. Pursuant to the requirements
of the Code, the Plan provides that the amount of contributions allocated to
each Participant's Account during any Plan Year may not exceed the lesser of 25%
of the Participant's "Section 415 Compensation" for the Plan Year or $30,000 (as
adjusted periodically as permitted by the Code). A Participant's "Section 415
Compensation" is a Participant's Compensation, excluding any amount contributed
to the Plan under a salary reduction agreement or any employer contribution to
the Plan or to any other plan or deferred compensation or any distributions from
a plan of deferred compensation. In addition, annual additions are limited to
the extent necessary to prevent the limitations for the combined plans of the
Bank from being exceeded. To the extent that these limitations would be
exceeded by reason of excess annual additions to the Plan with respect to a
Participant, the excess must be reallocated to the remaining Participants who
are eligible for an allocation of Employer contributions for the Plan Year.
LIMITATION ON 401(k) PLAN CONTRIBUTIONS. The annual amount of deferred
compensation of a Participant (when aggregated with any elective deferrals of
the Participant under any other employer plan, a simplified employee pension
plan or a tax-deferred annuity) may not exceed $9,500 (as adjusted periodically
as permitted by the Code). Contributions in excess of this limitation ("excess
deferrals") will be included in the Participant's gross federal income tax
purposes in the year they are made. In addition, any such excess deferral will
again be subject to federal income tax when distributed by the Plan to the
Participant, unless the excess deferral (together with any income allocable
thereto) is distributed to the Participant not later than the first April 15th
following the close of the taxable year in which the excess deferral is made.
Any income on the excess deferral that is distributed not later than such date
shall be treated, for federal income tax purposes, as earned and received by the
Participant in the taxable year in which the excess deferral is made.
LIMITATION ON PLAN CONTRIBUTIONS FOR HIGHLY COMPENSATED EMPLOYEES.
Sections 401(k) and 401(m) of the Code limit the amount of deferred compensation
contributed to the Plan
S-9
<PAGE>
in any Plan Year on behalf of Highly Compensated Employees (defined below) in
relation to the amount of deferred compensation contributed by or on behalf of
all other employees eligible to participate in the Plan. Specifically, the
actual deferral percentage for a Plan Year (i.e., the average of the ratios,
----
calculated separately for each eligible employee in each group, by dividing the
amount of salary reduction contributions credited to the salary reduction
contribution account of such eligible employee by such employee's compensation
for the Plan Year) of the Highly Compensated Employees may not exceed the
greater of (a) 125% of the actual deferred percentage of all other eligible
employees, or (b) the lesser of (i) 200% of the actual deferred percentage of
all other eligible employees, or (ii) the actual deferral percentage of all
other eligible employees plus two percentage points. In addition, the actual
contribution percentage for a Plan Year (i.e., the average of the ratios
----
calculated separately for each eligible employee in each group, by dividing the
amount of employer contributions credited to the Matching contributions account
of such eligible employee by each eligible employee's compensation for the Plan
Year) of the Highly Compensated Employees may not exceed the greater of (a) 125%
of the actual contribution percentage of all other eligible employees, or (b)
the lesser of (i) 200% of the actual contributions percentage of all other
eligible employees, or (ii) the actual contribution percentage of all other
eligible employees plus two percentage points.
In general, a Highly Compensated Employee includes any employee who, during
the Plan Year or the preceding Plan Year, (1) was at any time a 5% owner (i.e.,
----
owns directly or indirectly more than 5% of the stock of the Employer, or stock
possessing more than 5% of the total combines voting power of all stock of the
Employer) or, (2) during the preceding Plan Year, received Section 415
Compensation in excess of $80,000 (as adjusted periodically as permitted by the
Code) and, if elected by the Bank, was in the top paid group of employees for
such Plan Year.
In order to prevent disqualification of the Plan, any amounts contributed
by Highly Compensated Employees that exceed the average deferral limitation in
any Plan Year ("excess contributions"), together with any income allocable
thereto, must be distributed to such Highly Compensated Employees before the
close of the following Plan Year. However, the Bank will be subject to a 10%
excise tax on any excess contributions unless such excess contributions,
together with any income allocable thereto, either are recharacterized or are
distributed before the close of the first 2 1/2 months following the Plan Year
to which such excess contributions relate. In addition, in order to avoid
disqualification of the Plan, any contributions by Highly Compensated Employees
that exceed the average contribution limitation in any Plan Year ("excess
aggregate contributions") together with any income allocable thereto, must be
distributed to such Highly Compensated Employees before the close of the
following Plan Year. However, the 10% excise tax will be imposed on the Bank
with respect to any excess aggregate contributions, unless such amounts, plus
any income allocable thereto, are distributed within 2 1/2 months following the
close of the Plan Year in which they arose.
TOP-HEAVY PLAN REQUIREMENTS. If, for any Plan Year, the Plan is a Top-
Heavy Plan (as defined below), then (i) the Bank may be required to make certain
minimum contributions to the Plan on behalf of non-key employees (as defined
below), and (ii) certain additional restrictions
S-10
<PAGE>
would apply with respect to the combination of annual additions to the Plan and
projected annual benefits under any defined plan maintained by the Bank.
In general, the Plan will be regarded as a "Top-Heavy Plan" for any Plan
Year, if as of the last day of the preceding Plan Year, the aggregate balance of
the accounts of all Participants who are key Employees exceeds 60% of the
aggregate balance of the Accounts of the Participants. "Key Employees"
generally include any employee, who at any time during the Plan Year or any
other the four preceding Plan Years, if (1) an officer of the Bank having annual
compensation in excess of $60,000 who is in administrative or policy-making
capacity, (2) one of the ten employees having annual compensation in excess of
$30,000 and owing, directly or indirectly, the largest interest in the employer,
(3) a 5% owner of the employer (i.e., owns directly or indirectly more than 5%
----
of the stock of the employer, or stock possessing more than 5% of the total
combined voting power of all stock of the employer), or (4) a 1% of owner of the
employer having compensation in excess of $150,000.
INVESTMENT OF CONTRIBUTIONS
All amounts credited to Participant's Accounts under the Plan are held in
the Trust which is administered by the Trustee. The Trustee is appointed by the
Bank's Board of Directors. The Plan provides that a Participant may direct the
Trustee to invest all or a portion of his Accounts in various managed investment
portfolios, as described below, A Participant may periodically elect to change
his investment directions with respect to both past contributions and for more
additions to the Participant's accounts invested in these investment
alternatives.
Under the Plan, prior to the effective date of the Conversion, the
Accounts of Participant held in the Trust will be invested by the Trustee at the
direction of the Participant in the following managed portfolios:
[TO BE PROVIDED]
Investment Fund A -
Investment Fund B -
Investment Fund C -
Investment Fund D -
Investment Fund E -
Effective upon the Conversion, a Participant may invest all or a portion of
his or her Accounts in the portfolios described above and in Fund __, described
below:
S-11
<PAGE>
Investment Fund __ - Employer Stock Fund which invests in common stock of the
Holding Company.
A Participant may elect (in increments of __%), to have both past and
future contributions and additions to the Participant's Account invested either
in the Employer Stock Fund or in any of the other managed portfolios listed
above. Any amounts credited to a Participant's Accounts for which investment
directions are not given will be invested in _____________. Because investment
allocations only are required to be made in increments of __%, Participants can
invest their Accounts in each of the __ available investment funds.
The net gain (or loss) in the Accounts from investments (including interest
payments, dividends, realized and unrealized gains and losses on securities, and
expenses paid from the Trust) are determined monthly on a quarterly basis. For
purposes of such allocation, all assets of the Trust are valued at their fair
market value.
THE EMPLOYER STOCK FUND
The Employer Stock Fund will consist of investments in Common Stock made on
and after the effective date of the Conversion. In connection with the
Conversion, pursuant to the attached Investment Form, Participants will be able
to change their investments at a time other than the normal election intervals.
Any cash dividends paid on Common Stock held in the Employer Stock Fund will be
credited to a cash dividend subaccount for each Participant investing in the
Employer Stock Fund. The Trustee will, to the extent practicable, use all
amounts held by it in the Employer Stock Fund (except the amounts credited to
cash dividend subaccounts) to purchase shares of Common Stock. It is expected
that all purchases will be made at prevailing market prices. Under certain
circumstances, the Trustee may be required to limit the daily volume of shares
purchased. Pending investment in Common Stock, assets held in the Employer
Stock Fund will be placed in bank deposits and other short-term investments.
When Common Stock is purchased or sold, the cost or net proceeds are
charged or credited to the Accounts of Participants affected by the purchase or
sale. A Participant's Account will be adjusted to reflect changes in the value
of shares of Common Stock resulting from stock dividends, stock splits and
similar changes.
To the extent dividends are not paid on Common Stock held in the Employer
Stock Fund, the return on any investment in the Employer Stock Fund will consist
only of the market value appreciation of the Common Stock subsequent to its
purchase. Following the conversion, the Board of the Holding Company may
consider a policy of paying dividends on the Common Stock, however, no decision
has been made by the Board of the Holding Company regarding the amount or timing
of dividends, if any.
As of the date of this Prospectus Supplement, none of the shares of Common
Stock have been issued or are outstanding and there is no established market for
the Common Stock. Accordingly, there is no record of the historical performance
of the Employer Stock Fund.
S-12
<PAGE>
INVESTMENTS IN THE EMPLOYER STOCK FUND MAY INVOLVE CERTAIN RISK FACTORS
ASSOCIATED WITH INVESTMENTS IN COMMON STOCK OF THE HOLDING COMPANY. FOR A
DISCUSSION OF THESE RISK FACTORS, SEE "RISK FACTORS" ON PAGES 1 THROUGH 7 IN THE
PROSPECTUS.
BENEFITS UNDER THE PLAN
VESTING. A Participant, has at all times a fully vested, nonforfeitable
interest in all of his or her deferred contributions and the earnings thereon
under the Plan. A Participant is 100% vested in his or her matching
contributions account and employer discretionary contributions after the
completion of five years of service under the Plan's vesting schedule (40%
vested upon completion of four years of service).
WITHDRAWALS AND DISTRIBUTIONS FROM THE PLAN
APPLICABLE FEDERAL LAW REQUIRES THE PLAN TO IMPOSE SUBSTANTIAL RESTRICTIONS
ON THE RIGHT OF A PLAN PARTICIPANT TO WITHDRAW AMOUNTS HELD FOR HIS OR HER
BENEFIT UNDER THE PLAN PRIOR TO THE PARTICIPANT'S ATTAINMENT OF AGE 59 1/2
UNLESS A PARTICIPANT RETIRES AS PERMITTED UNDER THE PLAN REGARDLESS OF WHETHER
SUCH A WITHDRAWAL OCCURS DURING HIS OR HER EMPLOYMENT WITH THE BANK.
DISTRIBUTION UPON RETIREMENT, DISABILITY OR TERMINATION OF EMPLOYMENT.
Payment of benefits to a Participant who retires, incurs a disability, or
otherwise terminates employment generally shall be made in a lump sum cash
payment. At the request of the Participant, the distribution may include an in-
kind distribution of Common Stock of the Holding Company credited to the
Participant's Account. A Participant whose total vested account balance equals
or exceeds $3,500 at the time of termination, may elect, in lieu of a lump sum
payments, to be paid in annual installments over a period not exceeding the life
expectancy of the Participant or the joint life expectancies of the Participant
and his or her designated beneficiary. Benefits payments ordinarily shall be
made not later than 60 days following the end of the Plan Year in which occurs
later of the Participant's: (i) termination of employment; (ii) attainment of
age 65; or (iii) tenth anniversary of commencement of participation in the Plan;
but in no event later than April 1 following the calendar year in which the
Participant attains age 70 1/2 (if the Participant is retired). However, if the
vested portion of the Participant's Account balances exceeds $3,500, no
distribution shall be made from the Plan prior to the Participant's attaining
age 65 unless the Participant consents to an earlier distribution. Special
restrictions may apply to the distribution of Common Stock of the Holding
Company to those Participants who are executive officers, directors and
principal shareholders of the Holding Company who are subject to the provisions
of Section 16(b) of the Exchange Act.
DISTRIBUTION UPON DEATH. A Participant who dies prior to the benefit
commencement date for retirement, disability or termination of employment, and
who has a surviving spouse, shall have his or her benefits paid to the surviving
spouse in a lump sum, or if the payment of
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<PAGE>
his or her benefits had commenced before his or her death, in accordance with
the distribution method in effect at his or her death. With respect to an
unmarried Participant, and in the case of a married Participant with spousal
consent to the designation of another beneficiary, payment of benefits to the
beneficiary, payments of benefits to the beneficiary of a deceased Participant
shall be made in the form of a lump sum payment in cash or in Common Stock, or
if the payment of his or her benefit had commenced before his or her death, in
accordance with the distribution method if effect at death.
NONALIENATION OF BENEFITS. Except with respect to federal income tax
withholding and as provided with respect to a qualified domestic relations order
(as defined in the Code), benefits payable under the Plan shall not be subject
in any manner to anticipation, alienation, sale, transfer, assignment, pledge,
encumbrance, charge, garnishment, execution, or levy of any kind, either
voluntary or involuntary, and any attempt to anticipate, alienate, sell,
transfer, assign, pledge, encumber, charge or otherwise dispose of any rights to
benefits payable under the Plan shall be void.
ADMINISTRATION OF THE PLAN
TRUSTEES. The Trustees with respect to the Plan are currently Larry K.
Moxley, Mary K. Barker, G.J. Cole, Rocky Dover and Dona M. Miller (collectively,
the "Trustee").
Pursuant to the terms of the Plan, the Trustee receives and holds
contributions to the Plan in trust and has exclusive authority and discretion to
manage and control the assets of the Plan pursuant to the terms of the Plan and
to manage, invest and reinvest the Trust and income therefrom. The Trustee has
the authority to invest and reinvest the Trust and may sell or otherwise dispose
of Trust investments at any time and may hold trust funds uninvested. The
Trustee has authority to invest the assets of the Trust in "any type of
property, investment or security" as defined under ERISA.
The Trustee has full power to vote any corporate securities in the Trust in
person or by proxy; provided, however, that the Participants will direct the
Trustee as to voting and tendering of all Common Stock held in the Employer
Stock Fund.
The Trustee is entitled to reasonable compensation for its services and is
also entitled to reimbursement for expenses properly and actually incurred in
the administration of the Trust. The expenses of the Trustee and the
compensation of the persons so employed is paid out of the Trust except to the
extent such expenses and compensation are paid by the Bank.
The Trustee must render at least annual reports to the Bank and to the
Participants in such form and containing information that the Trustee deems
necessary.
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<PAGE>
REPORTS TO PLAN PARTICIPANTS
The administrator will furnish to each Participant a statement at least
semiannually showing (i) the balance in the Participant's Account as of the end
of that period, (ii) the amount of contributions allocated to such Participant's
Account for that period, and (iii) the adjustments to such Participant's Account
to reflect earnings or losses (if any).
PLAN ADMINISTRATOR
Mr. Larry K. Moxley, the Bank's Chief Financial Officer, has been
designated by the Board of Directors of the Bank to act on the Bank's behalf as
the Plan Administrator. The Administrator is responsible for the administration
of the Plan, interpretation of the provisions of the Plan, prescribing
procedures for filing applications for benefits, preparation and distribution of
information explaining the Plan, maintenance of plan records, books of account
and all other data necessary for the proper administration of the Plan, and
preparation and filing of all returns and reports relating to the Plan which are
required to be filed with the U.S. Department of Labor and the IRS, and for all
disclosures required to be made to Participants, beneficiaries and others under
Sections 104 and 105 of ERISA.
AMENDMENT AND TERMINATION
The Bank may terminate the Plan at any time. If the Plan is terminated in
whole or in part, then regardless of other provisions in the Plan, each employee
who ceases to be a Participant shall have a fully vested interest in his or her
Account. The Bank reserves the right to make, from time to time, any amendment
or amendments to the Plan which do not cause any part of the Trust to be used
for, or diverted to, any purpose other than the exclusive benefit of the
Participants or their beneficiaries.
MERGER, CONSOLIDATION OR TRANSFER
In the event of the merger or consolidation of the Plan with another plan,
or the transfer of the Trust to another plan, the Plan requires that each
Participant (if either the Plan or the other plan then terminated) receive a
benefit immediately after the merger, consolidation or transfer which is equal
to or greater than the benefit he or she would have been entitled to receive
immediately before the merger, consolidation or transfer (if the Plan had then
terminated).
FEDERAL INCOME TAX CONSEQUENCES
THE FOLLOWING IS ONLY A BRIEF SUMMARY OF CERTAIN FEDERAL INCOME TAX ASPECTS
OF THE PLAN WHICH ARE OF GENERAL APPLICATION UNDER THE CODE AND IS NOT INTENDED
TO BE A COMPLETE OR DEFINITIVE DESCRIPTION OF THE FEDERAL INCOME TAX
CONSEQUENCES OF PARTICIPATING IN OR RECEIVING DISTRIBUTIONS FROM THE PLAN. THE
SUMMARY IS NECESSARILY GENERAL IN NATURE AND DOES NOT PURPORT TO BE COMPLETE.
MOREOVER, STATUTORY PROVISIONS ARE SUBJECT TO CHANGE, AS ARE THEIR
INTERPRETATIONS, AND THEIR APPLICATION MAY VARY IN INDIVIDUAL CIRCUMSTANCES.
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<PAGE>
FINALLY, THE CONSEQUENCES UNDER APPLICABLE STATE AND LOCAL INCOME TAX LAWS MAY
NOT BE THE SAME AS UNDER THE FEDERAL INCOME TAX LAWS.
PARTICIPANTS ARE URGED TO CONSULT THEIR TAX ADVISORS WITH RESPECT TO ANY
DISTRIBUTION FROM THE PLAN AND TRANSACTIONS INVOLVING THE PLAN.
The Plan has received a determination from the IRS that it is qualified
under Section 401(a) and 401(k) of the Code, and that the related Trust is
exempt from tax under Section 501(a) of the Code. A plan that is "qualified"
under these sections of the Code is afforded special tax treatment which include
the following: (1) the sponsoring employer is allowed an immediate tax deduction
for the amount contributed to the Plan of each year; (2) Participants pay no
current income tax on amounts contributed by the employer on their behalf; and
(3) earnings of the Plan are tax-exempt thereby permitting the tax-free
accumulation of income and gains on investments. The Plan will be administered
to comply in operation with the requirements of the Code as of the applicable
effective date of any change in the law. The Bank expects to timely adopt any
amendments to the Plan that may be necessary to maintain the qualified status of
the Plan under the Code. Following such an amendment, the Plan will be
submitted to the IRS for a determination that the Plan, as amended, continues to
qualify under Sections 401(a) and 501(a) of the Code and that it continues to
satisfy the requirements for a qualified cash or deferred arrangement under
Section 401(k) of the Code.
Assuming that the Plan is administered in accordance with the requirements
of the Code, participation in the Plan under existing federal income tax laws
will have the following effects:
(a) Amounts contributed to a Participant's 401(k) account and the
investment earnings are actually distributed or withdrawn from the Plan.
Special tax treatment may apply to the taxable portion of any distribution that
includes Common Stock or qualified as a "Lump Sum Distribution" (as described
below).
(b) Income earned on assets held by the Trust will not be taxable to the
Trust.
LUMP SUM DISTRIBUTION. A distribution from the Plan to a Participant or
the beneficiary of a Participant will qualify as a "Lump Sum Distribution" if it
is made: (i) within a single taxable year of the Participant or beneficiary;
(ii) on account of the Participant's death or separation from service, or after
the Participant attains age 59 1/2; and (iii) consists of the balance to the
credits of the Participant under the Plan and all other profit sharing plans, if
any, maintained by the Bank. The portion of any Lump Sum Distribution that is
required to be included in the Participant's or beneficiary's taxable income for
federal income tax purposes (the "total taxable amount") consists of the entire
amount of such Lump Sum Distribution less the amount of after-tax contributions,
if any, made by the Participant to any other profit sharing plans maintained by
the Bank which is included in such distribution.
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<PAGE>
AVERAGING RULES. The portion of the total taxable amount of a Lump Sum
Distribution (the "ordinary income portion") will be taxable generally as
ordinary income for federal income tax purposes. However, for distributions
occurring prior to January 1, 2000, a Participant who has completed at least
five years of participation in the Plan before the taxable year in which the
distribution is made, or a beneficiary who receives a Lump Sum Distribution on
account of the Participant's death (regardless of the period of the
Participant's participation in the Plan or any other profit sharing plan
maintained by the Employer), may elect to have the ordinary income portion of
such Lump Sum Distribution taxed according to a special averaging rule ("five-
year averaging"). The election of the special averaging rules may apply only to
one Lump Sum Distribution received by the Participant or beneficiary, provided
such amount is received on or after the Participant turns 59 1/2 and the
recipient elects to have any other Lump Sum Distribution from a qualified plan
received in the same taxable year taxed under the special averaging rule. The
special five-year averaging rule has been repealed for distributions occurring
after December 31, 1999. Under a special grandfather rule, individuals who
turned 50 by 1986 may elect to have their Lump Sum Distribution taxed under
either the five-year averaging rule (if available) or the prior law ten-year
averaging rule. Such individuals also may elect to have that portion of the
Lump Sum Distribution attributable to the Participant's pre-1974 participation
in the Plan taxed at a flat 20% rate as gain from the sale of a capital asset.
COMMON STOCK INCLUDED IN LUMP SUM DISTRIBUTION. If a Lump Sum Distribution
includes Common Stock, the distribution generally will be taxed in the manner
described above, except that the total taxable amount will be reduced by the
amount of any net unrealized appreciation with respect to such Common Stock,
i.e., the excess of the value of such Common Stock at the time of the
- ----
distribution over its cost to the Plan. The tax basis of such Common Stock to
the Participant or beneficiary for purposes of computing gain or loss on its
subsequent sale will be the value of the Common Stock at the time of
distribution less the amount of net unrealized appreciation. Any gain on a
subsequent sale or other taxable disposition of such Common Stock, to the extent
of the amount of net unrealized appreciation at the time of distribution, will
be considered long-term capital gain regardless of the holding period of such
Common Stock. Any gain on a subsequent sale or other taxable disposition of the
Common Stock in excess of the amount of net unrealized appreciation at the time
of distribution will be considered either short-term capital gain or long-term
capital gain depending upon the length of the holding period of the Common
Stock. The recipient of a distribution may elect to include the amount of any
net unrealized appreciation in the total taxable amount of such distribution to
the extent allowed by the regulations by the IRS.
DISTRIBUTIONS: ROLLOVERS AND DIRECT TRANSFERS TO ANOTHER QUALIFIED PLAN OR
TO AN IRA. Pursuant to a change in the law, effective January 1, 1993,
virtually all distributions from the Plan may be rolled over to another
qualified Plan or to an individual retirement account ("IRA") without regard to
whether the distribution is a Lump Sum Distribution or Partial Distribution.
Effective January 1, 1993, Participants have the right to elect to have the
Trustee transfer all or any portion of an "eligible rollover distribution"
directly to another plan qualified under Section 401(a) of the Code or to an
IRA. If the Participant does not elect to have an "eligible rollover
distribution" transferred directly to another qualified plan of to an IRA, the
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<PAGE>
distribution will be subject to a mandatory federal withholding tax equal to 20%
of the taxable distribution. An "eligible rollover distribution" means any
amount distributed from the Plan except: (1) a distribution that is (a) one of
a series of substantially equal periodic payments made (not less frequently than
annually) over the Participant's life of the joint life of the Participant and
the Participant's designated beneficiary, or (b) for a specified period of ten
years or more; (2) any amount that is required to be distributed under the
minimum distribution rules; and (3) any other distributions excepted under
applicable federal law. The tax law change described above did not modify the
special tax treatment of Lump Sum Distributions, that are not rolled over or
transferred, i.e., forward averaging, capital gains tax treatment and the
----
nonrecognition of net unrealized appreciation, discussed earlier.
ADDITIONAL TAX ON EARLY DISTRIBUTIONS. A Participant who receives a
distribution from the Plan prior to attaining age 59 1/2 will be subject to an
additional income tax equal to 10% of the taxable amount of the distribution.
The 10% additional income tax will not apply, however, to the extent the
distribution is rolled or onto an IRA or another qualified plan or the
distribution is (i) made to a beneficiary (or to the estate of a Participant) on
or after the death of the Participant, (ii) attributable to the Participant's
being disabled within the meaning of Section 72(m)(7) of the Code, (iii) part of
a series of substantially equal periodic payments (not less frequently than
annually) made for the life (or life expectancy) of the Participant or the joint
lives (or joint life expectancies) of the Participant and his or her
beneficiary, (iv) made to the Participant after separation from service on
account of early retirement under the Plan after attainment of age 55, (v) made
to pay medical expenses to the extent deductible for federal income tax
purposes, (vi) pursuant to a qualified domestic relations order, or (vii) made
to effect the distribution of excess contributions or excess deferrals.
THE FOREGOING IS ONLY A BRIEF SUMMARY OF CERTAIN FEDERAL INCOME TAX ASPECTS
OF THE PLAN WHICH ARE OF GENERAL APPLICATION UNDER THE CODE AND IS NOT INTENDED
TO BE A COMPLETE OR DEFINITIVE DESCRIPTION OF THE FEDERAL INCOME TAX
CONSEQUENCES OF PARTICIPATING IN OR RECEIVING DISTRIBUTIONS FROM THE PLAN.
ACCORDINGLY, EACH PARTICIPANT IS URGED TO CONSULT A TAX ADVISOR CONCERNING THE
FEDERAL, STATE AND LOCAL TAX CONSEQUENCES OF PARTICIPATING IN AND RECEIVING
DISTRIBUTIONS FROM THE PLAN.
RESTRICTIONS ON RESALE
Any person receiving shares of the Common Stock under the Plan who is an
"affiliate" of the Bank or the Holding Company as the term "affiliate" is used
in Rules 144 and 405 under the Securities Act of 1933, as amended ("Securities
Act") (e.g., directors, officers and substantial shareholders of the Bank) may
reoffer or resell such shares only pursuant to a registration statement filed
under the Securities Act (the Holding Company and the Bank having no obligation
to file such registration statement) or, assuming the availability thereof,
pursuant to Rule 144 or some other exemption from the registration requirements
of the Securities Act. Any person who may be an "affiliate" of the Bank of the
Holding Company may wish to consult with
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<PAGE>
counsel before transferring any Common Stock owned by him. In addition,
Participants are advised to consult with counsel as to the applicability of the
reporting and short-swing profit liability rules of Section 16 of the Exchange
Act which may affect the purchase and sale of the Common Stock where acquired
under the Plan, or other sales of the Common Stock.
LEGAL OPINIONS
The validity of the issuance of the Common Stock will be passed upon
by Breyer & Aguggia, Washington, D.C., which firm is acting as special counsel
for the Holding Company in connection with the Bank's Conversion from a
federally chartered mutual savings bank to a federally chartered stock savings
bank and the concurrent formation of the Holding Company.
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<PAGE>
Investment Form
(Employer Stock Fund)
FIRSTBANK NORTHWEST
401(k) PLAN
Name of Participant: __________________________________________________________
Social Security Number: _______________________________________________________
1. Instructions. In connection with the proposed conversion of FirstBank
Northwest (the "Bank") to a stock savings bank and the simultaneous formation of
a holding company (the "Conversion"), participants in the FirstBank Northwest
401(k) Plan (the "Plan") may elect to direct the investment of up to 100% of
their ___________, 1997 account balances into the Employer Stock Fund (the
"Employer Stock Fund"). Amounts transferred at the direction of Participants
into the Employer Stock Fund will be used to purchase shares of the common stock
of FirstBank Corp. (the "Common Stock"), the proposed holding company for the
Bank. A PARTICIPANT'S ELIGIBILITY TO PURCHASE SHARES OF COMMON STOCK IS SUBJECT
TO THE PARTICIPANT'S GENERAL ELIGIBILITY TO PURCHASE SHARES OF COMMON STOCK IN
THE CONVERSION AND THE MAXIMUM AND MINIMUM LIMITATIONS SET FORTH IN THE PLAN
CONVERSION. SEE THE PROSPECTUS FOR ADDITIONAL INFORMATION.
You may use this form to direct a transfer of funds credited to your
account to the Employer Stock Fund, to purchase Common Stock in the Conversion.
To direct such a transfer to the Employer Stock Fund, you should complete this
form and return it to ______ _____ at the Bank, no later than the close of
business on ____________, 1997. The Bank will keep a copy of this form and
return a copy to you. (If you need assistance in completing this form, please
contact ____________.
2. Transfer Direction. I hereby direct the Plan Administrator to
transfer $__________ (in increments of $10) from my Plan account to the Employer
Stock Fund.
3. Effectiveness of Direction. I understand that this Investment Form
shall be subject to all of the terms and conditions of the Plan and the terms
and conditions of the Conversion. I acknowledge that I have received a copy of
the Prospectus and the Prospectus Supplement.
_________________________________ ______________________________
Signature Date
* * * * *
4. Acknowledgement of Receipt. This Investment Form was received by the
Plan Administrator and will become effective on the date noted below.
_________________________________ ______________________________
Plan Administrator Date
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<PAGE>
PROSPECTUS FIRSTBANK CORP.
(PROPOSED HOLDING COMPANY FOR FIRSTBANK NORTHWEST)
1,725,000 SHARES OF COMMON STOCK
FirstBank Corp. (the "Holding Company"), a Delaware corporation, is
offering between 1,275,000 and 1,725,000 shares of its common stock, $0.01 par
value per share (the "Common Stock"), in connection with the conversion of
FirstBank Northwest (formerly known as First Federal Bank of Idaho, a Federal
Savings Bank) (the "Bank") from a federally chartered mutual savings bank to a
federally chartered capital stock savings bank and the simultaneous issuance of
the Bank's capital stock to the Holding Company. The conversion of the Bank to
a capital stock savings bank and the acquisition of the Bank by the Holding
Company are collectively referred to herein as the "Stock Conversion."
Following consummation of the Stock Conversion, the Bank intends to relocate its
main office to Clarkston, Washington and convert from a federally chartered
stock savings bank to a Washington-chartered savings bank (the "Charter
Conversion"). The closing of the Stock Conversion is not contingent upon the
closing of the Charter Conversion. See "FIRSTBANK NORTHWEST" and "THE
CONVERSION -- Purposes of Conversion." In connection with the Charter
Conversion, the Holding Company anticipates becoming a bank holding company
under the Bank Holding Company Act of 1956, as amended ("BHCA"). The Stock
Conversion and the Charter Conversion are referred to herein collectively as the
"Conversion" and are being undertaken pursuant to a plan of conversion adopted
by the Board of Directors of the Bank ("Plan" or "Plan of Conversion"). In
certain circumstances, the Holding Company may increase the amount of Common
Stock offered hereby to 1,983,750 shares. See Footnote 3 to the table below.
(cover continued on following page)
FOR INFORMATION ON HOW TO SUBSCRIBE FOR SHARES OF COMMON STOCK, CALL THE
CONVERSION CENTER AT (___) __________.
FOR A DISCUSSION OF CERTAIN RISKS THAT SHOULD BE CONSIDERED BY EACH
PROSPECTIVE INVESTOR, SEE "RISK FACTORS" BEGINNING ON PAGE 1.
THE SECURITIES OFFERED HEREBY ARE NOT DEPOSITS OR ACCOUNTS AND WILL NOT BE
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION ("FDIC"), THE BANK
INSURANCE FUND ("BIF"), THE SAVINGS ASSOCIATION INSURANCE FUND ("SAIF") OR ANY
OTHER GOVERNMENT AGENCY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION ("SEC"), THE OTS, THE FDIC OR ANY OTHER FEDERAL AGENCY OR
ANY STATE SECURITIES COMMISSION, NOR HAS THE SEC, THE OTS, THE FDIC OR ANY OTHER
AGENCY OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
SANDLER O'NEILL & PARTNERS, L.P.
The date of this Prospectus is _______________ ___, 1997.
<PAGE>
<TABLE>
<CAPTION>
Estimated Underwriting
Purchase Commissions and Estimated Net
Price(1) Other Fees and Expenses(2) Proceeds
----------------------- -------------------------- -------------
<S> <C> <C> <C>
Minimum Per Share.................. $ 10.00 $ 0.49 $ 9.51
Midpoint Per Share................. $ 10.00 $ 0.44 $ 9.56
Maximum Per Share.................. $ 10.00 $ 0.40 $ 9.60
Maximum Per Share, as adjusted(3).. $ 10.00 $ 0.35 $ 9.65
Minimum Total(4)................... $12,750,000 $625,000 $12,125,000
Midpoint Total(5).................. $15,000,000 $656,000 $14,344,000
Maximum Total(6)................... $17,250,000 $687,000 $16,563,000
Maximum Total, as adjusted(3)(7)... $19,837,500 $697,000 $19,140,500
</TABLE>
(1) Determined in accordance with an independent appraisal prepared by RP
Financial, LC. ("RP Financial") as of February 28, 1997 which states that
the estimated aggregate pro forma market value of the Holding Company and
the Bank, as converted, ranged from $12,750,000 to $17,250,000, with a
midpoint of $15,000,000 ("Estimated Valuation Range"). RP Financial's
appraisal is based upon estimates and projections that are subject to
change, and the valuation must not be construed as a recommendation as to
the advisability of purchasing such shares or that a purchaser will
thereafter be able to sell such shares at or above the Purchase Price. See
"THE CONVERSION -- Stock Pricing and Number of Shares to be Issued."
(2) Consists of estimated costs to the Holding Company and the Bank arising
from the Conversion, including fees to be paid to Sandler O'Neill &
Partners, L.P. ("Sandler O'Neill") in connection with the Offerings. Such
fees may be deemed to be underwriting fees and Sandler O'Neill may be
deemed to be an underwriter. The Holding Company and the Bank have agreed
to indemnify Sandler O'Neill against certain liabilities, including
liabilities that may arise under the Securities Act of 1933, as amended
("Securities Act"). See "USE OF PROCEEDS" and "THE CONVERSION -- Marketing
and Underwriting Arrangements."
(3) Gives effect to the sale of up to an additional 15% of the shares offered,
without the resolicitation of subscribers or any right of cancellation, due
to an increase in the pro forma market value of the Holding Company and the
Bank, as converted. The ESOP shall have a first priority right to
subscribe for such additional shares up to an aggregate of 8% of the Common
Stock issued in the Conversion. See "THE CONVERSION -- Stock Pricing and
Number of Shares to be Issued."
(4) Assumes the issuance of 1,275,000 shares at $10.00 per share.
(5) Assumes the issuance of 1,500,000 shares at $10.00 per share.
(6) Assumes the issuance of 1,725,000 shares at $10.00 per share.
(7) Assumes the issuance of 1,983,750 shares at $10.00 per share.
Pursuant to the Plan of Conversion, nontransferable rights to subscribe for
the Common Stock ("Subscription Rights") have been granted, in order of
priority, to (i) depositors with $50.00 or more on deposit at the Bank as of
December 31, 1995 ("Eligible Account Holders"), (ii) the Bank's employee stock
ownership plan ("ESOP"), a tax-qualified employee benefit plan, (iii) depositors
with $50.00 or more on deposit at the Bank as of March 31, 1997 ("Supplemental
Eligible Account Holders"), and (iv) depositors of the Bank as of ___________,
1997 ("Voting Record Date") and borrowers of the Bank with loans outstanding as
of April 25, 1990 which continue to be outstanding as of the Voting Record Date
("Other Members"), subject to the priorities and purchase limitations set forth
in the Plan of Conversion ("Subscription Offering"). SUBSCRIPTION RIGHTS ARE
NONTRANSFERABLE. PERSONS SELLING OR OTHERWISE TRANSFERRING THEIR RIGHTS TO
SUBSCRIBE FOR COMMON STOCK IN THE SUBSCRIPTION OFFERING OR SUBSCRIBING FOR
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 ("OTS") OR ANOTHER AGENCY OF THE U.S. GOVERNMENT. See "THE
CONVERSION -- The Subscription, Direct Community and Syndicated Community
Offerings" and "-- Limitations on Purchases of Shares."
Concurrently, but subject to the prior rights of holders of Subscription
Rights, the Holding Company is offering the Common Stock to certain members of
the general public through a direct community offering ("Direct Community
Offering") with preference being given to natural persons and trusts of natural
persons who are permanent residents of NezPerce, Latah, Kootenai, or Idaho
Counties of Idaho ("Local Community"), subject to the right of the Holding
Company to accept or reject orders in the Direct Community Offering in whole or
in part. The
<PAGE>
Subscription Offering and the Direct Community Offering are referred to herein
as the "Subscription and Direct Community Offering." It is anticipated that
shares of Common Stock not subscribed for or purchased in the Subscription and
Direct Community Offering will be offered to eligible members of the general
public in a syndicated offering ("Syndicated Community Offering") (the
Subscription Offering, Direct Community Offering and Syndicated Community
Offering are referred to collectively as the "Offerings").
With the exception of the ESOP, which is expected to purchase 8% of the
shares of Common Stock issued in the Conversion, NO PERSON OR ENTITY MAY
PURCHASE MORE THAN $125,000 OF COMMON STOCK (OR 12,500 SHARES BASED ON THE
PURCHASE PRICE); AND NO PERSON OR ENTITY, TOGETHER WITH ASSOCIATES OF AND
PERSONS ACTING IN CONCERT WITH SUCH PERSON OR ENTITY, MAY PURCHASE IN THE
AGGREGATE MORE THAN $250,000 OF COMMON STOCK (OR 25,000 SHARES BASED ON THE
PURCHASE PRICE). Under certain circumstances, the maximum purchase limitation
may be increased or decreased at the sole discretion of the Bank and the Holding
Company subject to any required regulatory approval. See "THE CONVERSION -- The
Subscription, Direct Community and Syndicated Community Offerings," "--
Limitations on Purchases of Shares" and "-- Procedure for Purchasing Shares in
the Subscription and Direct Community Offering" for other purchase and sale
limitations. The minimum order is 25 shares.
THE SUBSCRIPTION OFFERING WILL EXPIRE AT _____ __.M., PACIFIC TIME, ON
___________, 1997 ("EXPIRATION DATE"), UNLESS EXTENDED BY THE BANK AND THE
HOLDING COMPANY FOR UP TO __ DAYS TO ____________, 1997. SUCH EXTENSION MAY BE
GRANTED WITHOUT ADDITIONAL NOTICE TO SUBSCRIBERS. THE DIRECT COMMUNITY OFFERING
WILL ALSO TERMINATE AT ___ _.M., PACIFIC TIME, ON THE EXPIRATION DATE UNLESS
EXTENDED BY THE HOLDING COMPANY AND THE BANK, WITH APPROVAL OF THE OTS, IF
NECESSARY. The Holding Company must receive a properly completed and signed
stock order form ("Order Form") and certification along with full payment (or
appropriate instructions authorizing a withdrawal of the full payment from a
deposit account at the Bank) of $10.00 per share for all shares subscribed for
or ordered. Funds so received will be placed in a segregated account created
for this purpose at the Bank, and interest will be paid at the Bank's passbook
rate from the date payment is received until the Conversion is consummated or
terminated; these funds will be otherwise unavailable to the depositor until
such time. Payments authorized by withdrawals from deposit accounts will
continue to earn interest at the contractual rate until the Conversion is
consummated or terminated, although such funds will be unavailable for
withdrawal until the Conversion is consummated or terminated. ONCE TENDERED,
SUBSCRIPTION ORDERS CANNOT BE REVOKED OR MODIFIED WITHOUT THE CONSENT OF THE
BANK AND THE HOLDING COMPANY. The Holding Company is not obligated to accept
orders submitted on photocopied or telecopied Order Forms. If the Conversion is
not consummated within 45 days after the last day of the Subscription Offering
(which date will be no later than ________ __, 1997) and the OTS consents to an
extension of time to complete the Conversion, subscribers will be given the
right to increase, decrease or rescind their orders. Such extensions may not go
beyond _________ __, 1999.
The Bank and the Holding Company have engaged Sandler O'Neill to consult
with and advise them in the sale of the Common Stock in the Offerings. In
addition, in the event the Common Stock is not fully subscribed for in the
Subscription and Direct Community Offering, Sandler O'Neill will manage the
Syndicated Community Offering. Neither Sandler O'Neill nor any other registered
broker-dealer is obligated to take or purchase any shares of Common Stock in the
Offerings. The Holding Company and the Bank reserve the right, in their
absolute discretion, to accept or reject, in whole or in part, any or all orders
in the Direct Community or Syndicated Community Offerings either at the time of
receipt of an order or as soon as practicable following the termination of the
Offerings. See "THE CONVERSION -- Marketing and Underwriting Arrangements."
Prior to the Offerings, the Holding Company has not issued any capital
stock and accordingly there has been no market for the shares offered hereby.
There can be no assurance that an active and liquid trading market for the
Common Stock will develop or, if developed, will be maintained. The Holding
Company has received conditional approval to have its Common Stock listed on the
Nasdaq National Market under the symbol "FBNW." Sandler O'Neill has advised the
Holding Company that it intends to act as a market maker for the Common Stock
following consummation of the Conversion. See "RISK FACTORS -- Absence of
Active Market for the Common Stock" and "MARKET FOR COMMON STOCK."
<PAGE>
[map appears here]
[MAP TO BE FILED BY AMENDMENT]
THE CONVERSION IS CONTINGENT UPON APPROVAL OF THE BANK'S PLAN OF CONVERSION BY
ITS ELIGIBLE VOTING MEMBERS, THE SALE OF AT LEAST 1,275,000 SHARES
OF COMMON STOCK PURSUANT TO THE PLAN OF CONVERSION, AND RECEIPT
OF ALL REGULATORY APPROVALS.
<PAGE>
- --------------------------------------------------------------------------------
THE SECURITIES OFFERED HEREBY ARE NOT DEPOSITS OR ACCOUNTS AND WILL NOT BE
INSURED OR GUARANTEED BY THE FDIC, THE BIF, THE SAIF OR ANY OTHER GOVERNMENT
AGENCY.
- --------------------------------------------------------------------------------
PROSPECTUS SUMMARY
The information set forth below should be read in conjunction with and is
qualified in its entirety by the more detailed information and Consolidated
Financial Statements (including the Notes thereto) presented elsewhere in this
Prospectus. The purchase of Common Stock is subject to certain risks. See
"RISK FACTORS."
FIRSTBANK CORP.
The Holding Company is a Delaware corporation organized in March 1997 at
the direction of the Bank for the purpose of serving as the holding company of
the Bank upon consummation of the Stock Conversion. The Holding Company has not
engaged in any significant business to date. The Holding Company has received
the approval of the OTS to become a savings and loan holding company and to
acquire 100% of the capital stock of the Bank. The Holding Company has applied
for approval of the Board of Governors of the Federal Reserve System ("Federal
Reserve") to become a bank holding company under the BHCA through the continued
ownership of the Bank following the Charter Conversion. The Holding Company
expects to receive such approval. Immediately following the Stock Conversion,
the only significant assets of the Holding Company will be the capital stock of
the Bank, that portion of the net proceeds of the Offerings permitted by the OTS
to be retained by the Holding Company and a note receivable from the ESOP
evidencing a loan from the Holding Company to fund the Bank's ESOP. The Holding
Company has received approval from the OTS to retain 50% of the net proceeds of
the Offerings. Funds retained by the Holding Company will be used for general
business activities, including a loan by the Holding Company directly to the
ESOP to enable the ESOP to purchase 8% of the Common Stock issued in the
Conversion. See "USE OF PROCEEDS." Management believes that the holding
company structure and retention of proceeds may facilitate the expansion and
diversification of its operations, should it decide to do so. The holding
company structure will also enable the Holding Company to repurchase its stock
without adverse tax consequences, subject to applicable regulatory restrictions
and waiting periods. There are no present plans, arrangements, agreements, or
understandings, written or oral, regarding any such activities or repurchases.
The main office of the Holding Company is located at 920 Main Street, Lewiston,
Idaho 83501, and its telephone number is (208) 746-9610.
FIRSTBANK NORTHWEST
The Bank, founded in 1920, is a federally chartered mutual savings bank
located in Lewiston, Idaho. The Bank, which was formed as an Idaho mutual
savings and loan association, converted to a federal mutual savings and loan
association in 1935 and adopted the federal mutual savings bank charter in 1990.
In April 1997, in anticipation of the Charter Conversion, the Bank changed its
name from "First Federal Bank of Idaho, a federal savings bank" to "FirstBank
Northwest." In connection with the Stock Conversion, the Bank will convert to a
federally chartered capital stock savings bank and will become a subsidiary of
the Holding Company. The Bank is currently regulated by the OTS, its primary
regulator, and the FDIC, the insurer of its deposits. The Bank's deposits are
insured by the FDIC's Savings Association Insurance Fund ("SAIF") and have been
federally insured since 1933. The Bank has been a member of the Federal Home
Loan Bank ("FHLB") System since 1933. At December 31, 1996, the Bank had total
assets of $133.2 million, total deposits of $105.3 million and total equity of
$10.8 million on a consolidated basis. In connection with the Charter
Conversion, the Bank will relocate its main office to Clarkston, Washington and
convert to a Washington-chartered savings bank.
The Bank is a community-oriented financial institution that engages
primarily in the business of attracting deposits from the general public and
using those funds to originate residential mortgage loans within the Bank's
market area. At December 31, 1996, one- to four-family residential mortgage
loans totalled $72.7 million, or 61.3%
(i)
<PAGE>
of total loans receivable. The Bank also is active in originating construction
and agricultural real estate loans. At December 31, 1996, construction loans
totalled $14.9 million, or 12.6% of total loans receivable, and agricultural
real estate loans totalled $11.9 million, or 10.0% of total loans receivable.
To a lesser extent, the Bank also originates commercial real estate and consumer
and other non-real estate loans, although it intends to increase its
originations of these types of loans, subject to market conditions and other
factors. See "BUSINESS OF THE BANK -- Lending Activities." The Bank has
adopted a mortgage banking strategy pursuant to which it generally sells a
majority of the fixed-rate residential mortgage loans that it originates while
retaining the servicing rights on most of the conventional loans it sells. At
December 31, 1996, the Bank serviced $131.5 million of loans for others. The
administrative office of the Bank is located at 920 Main Street, Lewiston,
Idaho, 83501, and its telephone number is (208) 746-9610. The Bank operates
five full-service offices in Lewiston, Lewiston Orchards, Moscow, Grangeville
and Coeur d'Alene, Idaho and two loan production offices in Lewiston and Coeur
d'Alene, Idaho.
As part of its asset/liability management, subsequent to December 31, 1996,
the Bank intends to retain for its portfolio $5.0 million of 30-year, fixed-rate
conventional mortgage loans and to purchase $5.0 million of short-term mortgage-
backed securities. These investments will be funded with additional FHLB
advances, which may be retired with the proceeds of the Offerings. See "USE OF
PROCEEDS."
As soon as practicable following the Stock Conversion, the Bank will
relocate its main office to Clarkston, Washington, which is adjacent to
Lewiston, Idaho across the Snake River, and convert to a Washington-chartered
savings bank. The main office relocation will be accomplished by opening a
full-service office in Clarkston, Washington and designating that office as the
Bank's main office. The Bank's administrative offices will remain in their
present location. The Bank is in the process of evaluating locations for its
Clarkston, Washington office and expects that the Charter Conversion will not be
completed until several months after the consummation of the Stock Conversion.
The Board of Directors believes that conversion to a Washington-chartered
savings bank is in the best interests of the Bank, its members and the
communities it serves. As a Washington-chartered savings bank with offices in
Washington and Idaho, the Bank will have the flexibility to expand in Washington
and Idaho, should it decide to do so, through branch acquisitions, opening new
branches, or acquiring other institutions. While the current federal thrift
charter permits nationwide branching, the possible elimination of the federal
thrift charter in favor of a common charter for federal thrifts and banks may
limit the Bank's branching authority in the future. See "RISK FACTORS --
Potential Operational Restrictions Associated with Regulatory Oversight."
Furthermore, the Washington savings bank charter will provide the Bank with the
authority to pursue its community banking strategy.
The Bank, as a Washington-chartered savings bank, will succeed to all of
the assets and liabilities of the Bank as a federally chartered savings bank.
In anticipation of the Charter Conversion, the Bank has adopted a community
banking strategy pursuant to which it intends to expand the products and
services it offers in order to improve market share and increase the average
yield of its interest-earning assets. Specifically, the Bank intends to expand
its agricultural real estate and commercial real estate lending activities. The
Bank also intends to expand its non-mortgage lending activities by increasing
its emphasis on originating agricultural operating loans and commercial business
loans. Management anticipates that the Bank will incur initial start-up and
ongoing expenses in connection with the opening of its Clarkston, Washington
office and as various programs and services, such as its commercial real estate
and business lending operations, are introduced or expanded. These expenses
could reduce earnings for a period of time while income from new programs and
services increases to a degree sufficient to cover the additional expenses.
Following the Charter Conversion, the deposits of the Bank will continue to
be insured by the SAIF of the FDIC. In addition, following the Charter
Conversion, the Bank will not be regulated and supervised by the OTS, but rather
by the Washington Department of Financial Institutions, Division of Banks
("Department") and the FDIC. The Bank intends to remain a member of the FHLB-
Seattle.
(ii)
<PAGE>
THE CONVERSION
The Bank is in the process of converting from a federally chartered mutual
savings bank to a federally chartered capital stock savings bank and, in
connection with the Conversion, has formed the Holding Company. Following
consummation of the Stock Conversion, the Bank intends to relocate its main
office to Clarkston, Washington and convert to a Washington-chartered savings
bank. The closing of the Stock Conversion is not contingent upon the closing of
the Charter Conversion. As a result of the Charter Conversion, the Holding
Company intends to become a bank holding company under the BHCA. As part of the
Stock Conversion, the Bank will issue all of its capital stock to the Holding
Company in exchange for 50% of the net proceeds of the Offerings.
Simultaneously, the Holding Company will sell its Common Stock in the Offerings.
AFTER CONSUMMATION OF THE STOCK CONVERSION, DEPOSITORS AND BORROWERS OF THE BANK
WILL HAVE NO VOTING RIGHTS IN THE HOLDING COMPANY UNLESS THEY BECOME
STOCKHOLDERS.
Consummation of the Stock Conversion is subject to the approval of the Plan
of Conversion by the Bank's members and approval by the OTS of the Plan of
Conversion and the Holding Company's acquisition of the Bank. Consummation of
the Charter Conversion is subject to the approval by the OTS and the Department
and approval by the Federal Reserve of the Holding Company's continued ownership
of the Bank.
The Plan of Conversion requires that the aggregate purchase price of the
Common Stock to be issued in the Conversion be based upon an independent
appraisal of the estimated pro forma market value of the Holding Company and the
Bank as converted. RP Financial has advised the Bank that in its opinion, at
February 28, 1997, the aggregate estimated pro forma market value of the Holding
Company and the Bank as converted ranged from $12,750,000 to $17,250,000. The
appraisal of the pro forma market value of the Holding Company and the Bank as
converted is based on a number of factors and should not be considered a
recommendation to buy shares of the Common Stock or any assurance that after the
Stock Conversion shares of Common Stock will be able to be resold at or above
the Purchase Price. The appraisal will be updated or confirmed prior to
consummation of the Conversion.
The Board of Directors and management believe that the Conversion is in the
best interests of the Bank's members and its communities. The Conversion is
intended: (i) to improve the competitive position of the Bank in its market
area and support possible future expansion and diversification of operations
(currently, there are no specific plans, arrangements or understandings, written
or oral, regarding any such activities); (ii) to afford members of the Bank and
others the opportunity to become stockholders of the Holding Company and thereby
participate more directly in, and contribute to, any future growth of the
Holding Company and the Bank; and (iii) to provide future access to capital
markets. See "THE CONVERSION."
THE SUBSCRIPTION, DIRECT COMMUNITY AND SYNDICATED COMMUNITY OFFERINGS
The Holding Company is offering up to 1,725,000 shares of Common Stock at
$10.00 per share to holders of Subscription Rights in the following order of
priority: (i) Eligible Account Holders; (ii) the Bank's ESOP; (iii) Supplemental
Eligible Account Holders; and (iv) Other Members. In the event the number of
shares offered in the Stock Conversion is increased above the maximum of the
Estimated Valuation Range, the Bank's ESOP shall have a priority right to
purchase any such shares exceeding the maximum of the Estimated Valuation Range
up to an aggregate of 8% of the Common Stock issued in the Offerings.
Concurrently, but subject to the prior rights of holders of Subscription Rights,
the Holding Company is offering the Common Stock in the Direct Community
Offering to certain members of the general public with preference being given to
natural persons and trusts of natural persons who are permanent residents of the
Local Community. ONCE TENDERED, SUBSCRIPTION ORDERS CANNOT BE REVOKED OR
MODIFIED WITHOUT THE CONSENT OF THE BANK AND THE HOLDING COMPANY. The Bank has
engaged Sandler O'Neill to consult with and advise the Holding Company and the
Bank in the Offerings, and Sandler O'Neill has agreed to use its best efforts to
assist the Holding Company with the solicitation of subscriptions and purchase
orders for shares of Common Stock in the Offerings. Sandler O'Neill is not
obligated to take or purchase any shares of Common Stock in the Offerings. If
all shares of Common Stock to be issued in the Stock Conversion are not sold
through the Subscription and Direct Community Offering, then the Holding Company
expects to offer the
(iii)
<PAGE>
remaining shares in a Syndicated Community Offering managed by Sandler O'Neill,
which would occur as soon as practicable following the close of the Subscription
and Direct Community Offering. All shares of Common Stock will be sold at the
same price per share in the Syndicated Community Offering as in the Subscription
and Direct Community Offering. See "USE OF PROCEEDS," "PRO FORMA DATA" and "THE
CONVERSION -- Stock Pricing and Number of Shares to be Issued." The
Subscription Offering will expire at ____ _.m., Pacific Time, on the Expiration
Date, unless extended by the Bank and the Holding Company for up to __ days.
The Direct Community Offering will also terminate on the Expiration Date unless
extended by the Holding Company and the Bank to no later than 45 days after the
expiration of the Subscription Offering, unless further extended with the
consent of the OTS. The Syndicated Community Offering, if one is held, will
terminate no later than 45 days after the expiration of the Subscription
Offering, unless extended with the consent of the OTS.
PROSPECTUS DELIVERY AND PROCEDURE FOR PURCHASING SHARES
To ensure that each purchaser receives a prospectus at least 48 hours prior
to the Expiration Date in accordance with Rule 15c2-8 of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), no prospectus will be mailed any
later than five days prior to the Expiration Date or hand delivered any later
than two days prior to such date. Execution of the Order Form will confirm
receipt of the Prospectus in accordance with Rule 15c2-8. Order Forms will only
be distributed with a prospectus. The Bank is not obligated to accept for
processing orders not submitted on original Order Forms. Order Forms
unaccompanied by an executed certification form will not be accepted. Payment
by check, money order, bank draft, cash or debit authorization to an existing
account at the Bank must accompany the order and certification forms. No wire
transfers will be accepted. The Bank is prohibited from lending funds to any
person or entity for the purpose of purchasing shares of Common Stock in the
Conversion. See "THE CONVERSION -- Procedure for Purchasing Shares in
Subscription and Direct Community Offering."
In order to ensure that Eligible Account Holders, Supplemental Eligible
Account Holders and Other Members are properly identified as to their stock
purchase priorities, depositors as of December 31, 1995 (the "Eligibility Record
Date"), March 31, 1997 (the "Supplemental Eligibility Record Date") or
____________, 1997 ("Voting Record Date") and borrowers with loans outstanding
on April 25, 1990 which continue to be outstanding as of the Voting Record Date
must list all deposit and/or loan accounts on the Order Form, giving all names
on each account and the account numbers. Failure to list all account numbers
may result in the inability of the Holding Company or the Bank to fill all or
part of a subscription order. In addition, registration of shares in a name or
title different from the names or titles listed on the account may adversely
affect such subscriber's purchase priority. See "THE CONVERSION -- Procedure
for Purchasing Shares in Subscription and Direct Community Offering."
RESTRICTIONS ON TRANSFER OF SUBSCRIPTION RIGHTS
No person may transfer or enter into any agreement or understanding to
transfer the legal or beneficial ownership of the Subscription Rights issued
under the Plan or the shares of Common Stock to be issued upon their exercise.
Each person exercising Subscription Rights will be required to certify that a
purchase of Common Stock is solely for the purchaser's own account and that
there is no agreement or understanding regarding the sale or transfer of such
shares. THE HOLDING COMPANY AND THE BANK WILL PURSUE ANY AND ALL LEGAL AND
EQUITABLE REMEDIES IN THE EVENT THEY BECOME AWARE OF THE TRANSFER OF
SUBSCRIPTION RIGHTS AND WILL NOT HONOR ORDERS KNOWN BY THEM TO INVOLVE THE
TRANSFER OF SUCH RIGHTS.
PURCHASE LIMITATIONS
With the exception of the ESOP, which is expected to subscribe for 8% of
the shares of Common Stock issued in the Conversion, no person or entity may
purchase more than $125,000 of Common Stock (or 12,500 shares based on the
Purchase Price); and no person or entity, together with associates of and
persons acting in concert with such person or entity, may purchase in the
aggregate more than $250,000 of Common Stock (or 25,000 shares based on the
Purchase Price). THIS MAXIMUM PURCHASE LIMITATION MAY BE INCREASED OR DECREASED
AS CONSISTENT WITH OTS REGULATIONS IN THE SOLE DISCRETION OF THE HOLDING COMPANY
AND THE BANK SUBJECT TO ANY REQUIRED
(iv)
<PAGE>
REGULATORY APPROVAL. The minimum purchase is 25 shares. In addition, stock
orders received either through the Direct Community Offering or the Syndicated
Community Offering, if held, may be accepted or rejected, in whole or in part,
at the discretion of the Holding Company and the Bank. See "THE CONVERSION --
Limitations on Purchases of Shares." If an order is rejected in part, the
purchaser does not have the right to cancel the remainder of the order. In the
event of an oversubscription, shares will be allocated in accordance with the
Plan of Conversion. See "THE CONVERSION -- The Subscription, Direct Community
and Syndicated Community Offerings."
STOCK PRICING AND NUMBER OF SHARES TO BE ISSUED IN THE CONVERSION
The Purchase Price in the Offerings is a uniform price for all subscribers,
including members of the Holding Company's and the Bank's Boards of Directors,
their management and tax-qualified employee plans, and was set by the Board of
Directors. The number of shares to be offered at the Purchase Price is based
upon an independent appraisal of the aggregate pro forma market value of the
Holding Company and the Bank as converted. The aggregate pro forma market value
was estimated by RP Financial to range from $12,750,000 to $17,250,000 as of
February 28, 1997. See "THE CONVERSION -- Stock Pricing and Number of Shares to
be Issued." The appraisal of the pro forma value of the Holding Company and the
Bank as converted will be updated or confirmed at the completion of the
Offerings. The maximum of the Estimated Valuation Range may be increased by up
to 15% to $19,837,500 and the number of shares of Common Stock to be issued in
the Conversion may be increased to 1,983,750 shares due to material changes in
the financial condition or performance of the Bank or changes in market
conditions or general financial and economic conditions. No resolicitation of
subscribers will be made and subscribers will not be permitted to modify or
cancel their subscriptions unless the gross proceeds from the sale of the Common
Stock are less than the minimum or more than 15% above the maximum of the
current Estimated Valuation Range. THE APPRAISAL IS NOT INTENDED TO BE AND
SHOULD NOT BE CONSTRUED AS A RECOMMENDATION OF ANY KIND AS TO THE ADVISABILITY
OF PURCHASING COMMON STOCK IN THE OFFERINGS NOR CAN ASSURANCE BE GIVEN THAT
PURCHASERS OF THE COMMON STOCK IN THE OFFERINGS WILL BE ABLE TO SELL SUCH SHARES
AFTER CONSUMMATION OF THE CONVERSION AT A PRICE THAT IS EQUAL TO OR ABOVE THE
PURCHASE PRICE. Furthermore, the pro forma stockholders' equity is not intended
to represent the fair market value of the Common Stock and may be greater than
amounts that would be available for distribution to stockholders in the event of
liquidation.
USE OF PROCEEDS
The net proceeds from the sale of the Common Stock are estimated to range
from $12.1 million to $16.6 million, or up to $19.1 million if the Estimated
Valuation Range is increased by 15%, depending upon the number of shares sold
and the expenses of the Conversion. The Holding Company has received the
approval of the OTS to purchase all of the capital stock of the Bank to be
issued in the Conversion in exchange for 50% of the net proceeds of the
Offerings. This will result in the Holding Company retaining approximately $6.1
million to $8.3 million of the net proceeds, or up to $9.6 million if the
Estimated Valuation Range is increased by 15%, and the Bank receiving an equal
amount.
Receipt of 50% of the net proceeds of the sale of the Common Stock will
increase the Bank's capital and will support the expansion of the Bank's
existing business activities. The Bank will use the funds contributed to it for
general corporate purposes, including increased local lending, the establishment
of its Clarkston, Washington office, the expansion of its community banking
activities and possible future acquisitions of branches or banks. The Bank may
also use a portion of the funds contributed to it to retire outstanding FHLB
advances. Pending deployment of funds, the Bank plans initially to invest the
net proceeds in short-term U.S. Government and agency securities. Shares of
Common Stock may be purchased with funds on deposit at the Bank, which will
reduce deposits by the amounts of such purchases. As a result, the net amount
of funds available to the Bank for investment following receipt of the
Conversion proceeds will be reduced by the amount of deposit withdrawals used to
fund stock purchases.
A portion of the net proceeds retained by the Holding Company will be used
for a loan by the Holding Company to the ESOP to enable it to purchase 8% of the
shares of Common Stock issued in the Conversion. Such
(v)
<PAGE>
loan would fund the entire purchase price of the ESOP shares ($1,380,000 at the
maximum of the Estimated Valuation Range) and would be repaid principally from
the Bank's contributions to the ESOP and from dividends payable on the Common
Stock held by the ESOP. The remaining proceeds retained by the Holding Company
initially will be invested in short-term U.S. Government and agency securities.
Such proceeds will be available for additional contributions to the Bank in the
form of debt or equity, to support future growth and diversification activities,
as a source of dividends to the stockholders of the Holding Company and for
future repurchases of Common Stock (including possible repurchases to fund the
MRP or to provide shares to be issued upon exercise of stock options) to the
extent permitted under Delaware law and OTS regulations (following the Charter
Conversion, dividend payments will be regulated by Delaware law and the
regulations and policies of the Federal Reserve). Currently, as discussed below
under "USE OF PROCEEDS," there are no specific plans, arrangements, agreements
or understandings, written or oral, regarding any of such activities.
MARKET FOR COMMON STOCK
The Holding Company has never issued capital stock to the public and,
consequently, there is no existing market for the Common Stock. The Holding
Company has received conditional approval to have the Common Stock listed on the
Nasdaq National Market under the symbol "FBNW." Although under no obligation to
do so, Sandler O'Neill has indicated its intention to act as a market maker for
the Holding Company's Common Stock following consummation of the Conversion. No
assurance can be given that an active and liquid trading market for the Common
Stock will develop. Further, no assurance can be given that purchasers will be
able to sell their shares at or above the Purchase Price after the Conversion.
See "RISK FACTORS -- Absence of Active Market for the Common Stock" and "MARKET
FOR COMMON STOCK."
DIVIDENDS
The Board of Directors of the Holding Company has not formulated a dividend
policy, but intends to consider a policy of paying cash dividends in the future.
Declarations and payments of dividends by the Board of Directors will depend
upon a number of factors, including the amount of the net proceeds retained by
the Holding Company, capital requirements, regulatory limitations, the Bank's
and the Holding Company's financial condition and results of operations, tax
considerations and general economic conditions. No assurances can be given that
any dividends will be declared or, if declared, what the amount of dividends
will be or whether such dividends, once declared, will continue. The Holding
Company may pay stock dividends in lieu of or in addition to cash dividends, or
may combine periodic special dividends with regular dividends. See "DIVIDEND
POLICY."
OFFICERS' AND DIRECTORS' COMMON STOCK PURCHASES AND BENEFICIAL OWNERSHIP
Officers and directors of the Bank (12 persons) are expected to subscribe
for an aggregate of approximately 155,000 shares of Common Stock, or 12.2% and
9.0% of the shares based on the minimum and the maximum of the Estimated
Valuation Range, respectively. See "THE CONVERSION -- Shares to be Purchased by
Management Pursuant to Subscription Rights." In addition, purchases by the
ESOP, allocations of stock under the Management Recognition Plan ("MRP"), and
the exercise of stock options issued under the Stock Option Plan ("Stock Option
Plan"), will increase the number of shares beneficially owned by officers,
directors and employees. See "RISK FACTORS -- Antitakeover Effects of Governing
Documents, Delaware and Federal Law, Control by Insiders and Employment
Agreements -- Voting Control by Insiders." The MRP and Stock Option Plan are
subject to approval by the stockholders of the Holding Company at a meeting to
be held no earlier than six months following consummation of the Conversion.
RISK FACTORS
See "RISK FACTORS" beginning on page 1 for a discussion of certain risks
related to the Offerings that should be considered by all prospective investors.
(vi)
<PAGE>
SELECTED CONSOLIDATED FINANCIAL INFORMATION
The following tables set forth certain information concerning the
consolidated financial position and results of operations of the Bank and its
subsidiary at the dates and for the periods indicated. This information is
qualified in its entirety by reference to the detailed information contained in
the Consolidated Financial Statements and Notes thereto presented elsewhere in
this Prospectus.
<TABLE>
<CAPTION>
At March 31, At
------------------------------------------------ December 31,
1992 1993 1994 1995 1996 1996
------- ------- --------- -------- -------- --------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C>
FINANCIAL CONDITION DATA:
Total assets................................. $95,951 $96,816 $102,223 $104,121 $129,832 $133,194
Loans receivable, net........................ 60,711 77,574 76,217 82,777 93,817 111,085
Cash and cash equivalents.................... 9,042 3,988 12,754 4,172 13,581 5,765
Investment securities available for sale..... 1,353 1,414 1,335 1,289 1,328 --
Investment securities held to maturity....... 3,236 2,692 4,110 6,732 10,545 5,189
Mortgage-backed securities held to maturity.. 6,776 5,013 3,446 2,840 2,488 2,343
Deposits..................................... 86,941 83,182 91,858 88,787 115,324 105,349
Borrowings................................... 544 4,044 -- 4,000 2,304 15,060
Total equity................................. 6,634 7,807 8,797 9,504 10,356 10,818
</TABLE>
<TABLE>
<CAPTION>
Nine
Months Ended
Year Ended March 31, December 31,
-------------------------------------------------- ----------------
1992 1993 1994 1995 1996 1995 1996
------- ------- -------- -------- -------- -------- ------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
SELECTED OPERATING DATA:
Interest income.............................. $ 7,726 $ 7,335 $ 7,418 $ 7,658 $ 9,552 $ 7,025 $7,640
Interest expense............................. 5,104 3,928 3,625 3,596 5,158 3,672 4,014
------- ------- -------- -------- -------- -------- ------
Net interest income.......................... 2,622 3,407 3,793 4,062 4,394 3,353 3,626
Provision for loan losses.................... 82 267 79 27 150 78 194
------- ------- -------- -------- -------- -------- ------
Net interest income
after provision for loan losses............ 2,540 3,140 3,714 4,035 4,244 3,275 3,432
Non-interest income.......................... 1,085 2,307 3,054 1,891 2,212 1,661 1,815
Non-interest expense......................... 2,672 3,558 4,624 4,721 5,493 3,709 4,674
------- ------- -------- -------- -------- -------- ------
Income before income taxes and cumulative
effect of accounting change................ 953 1,889 2,144 1,205 963 1,227 573
Income taxes................................. 361 797 963 452 375 428 150
------- ------- -------- -------- -------- -------- ------
Income before cumulative effect
of accounting change....................... 592 1,092 1,181 753 588 799 423
Cumulative effect of accounting change(1).... -- -- (116) -- -- -- --
------- ------- -------- -------- -------- -------- ------
Net income................................... $ 592 $ 1,092 $ 1,065 $ 753 $ 588 $ 799 $ 423
======= ======= ======== ======== ======== ======== ======
</TABLE>
- -------------
(1) Reflects adoption of Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes."
(vii)
<PAGE>
<TABLE>
<CAPTION>
At March 31, At
----------------------------------------------- December 31,
1992 1993 1994 1995 1996 1996
----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
OTHER DATA:
Number of:
Real estate loans outstanding 1,423 1,581 1,440 1,425 1,456 1,470
Deposit accounts............. 15,379 15,205 15,730 16,303 18,206 18,099
Full-service offices......... 4 4 5 5 5 5
<CAPTION>
At or for
At or For the the Nine Months
Year Ended March 31, Ended December 31,
----------------------------------------------- ------------------
1992 1993 1994 1995 1996 1995 1996
----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C>
KEY FINANCIAL RATIOS:
Performance Ratios (1):
Return on average assets (2).. 0.64% 1.15% 1.05% 0.74% 0.50% 0.71% 0.33%
Return on average equity (3).. 9.40 15.28 12.48 8.19 5.81 8.03 3.94
Average total equity to
average assets (4)........... 6.85 7.51 8.43 9.03 8.55 8.85 8.32
Total equity to total assets
at end of period............. 6.91 8.06 8.61 9.13 7.98 7.78 8.12
Interest rate spread (5)...... 2.72 3.64 3.61 3.87 3.61 3.88 3.68
Net interest margin (6)....... 2.97 3.80 3.88 4.15 3.89 4.17 3.93
Average interest-earning
assets
to average interest-bearing
liabilities................ 104.30 103.54 107.27 107.44 106.09 106.46 105.67
Non-interest expense as a
percent of average total
assets..................... 2.91 3.74 4.57 4.64 4.64 4.40 4.82
Efficiency ratio (7).......... 72.08 62.27 67.53 79.30 83.15 73.97 85.90
Equity Ratios:
Core capital.................. 6.91 8.06 8.61 9.13 7.98 7.78 8.12
Tangible capital.............. 6.91 8.06 8.61 9.13 7.98 7.78 8.12
Risk-based capital............ 11.64 14.02 15.42 15.66 14.14 14.04 13.27
Asset Quality Ratios:
Nonaccrual and 90 days or
more past due
loans as a percent of loans
receivable, net............ 3.02 0.99 0.28 0.64 0.74 0.68 0.91
Nonperforming assets as a
percent of total assets..... 4.41 0.95 0.21 0.51 0.59 0.55 0.90
Allowance for loan losses as a
percent of total loans
receivable................. 0.48 0.56 0.66 0.62 0.70 0.63 0.74
Allowance for loan losses as a
percent of nonperforming
loans...................... 7.08 49.84 252.38 104.32 91.28 85.62 73.21
Net charge-offs to average
outstanding loans........... 0.02 0.15 0.01 0.00 0.00 0.00 0.01
</TABLE>
- ------------------
(1) Ratios for the nine-month periods are annualized.
(2) Net earnings divided by average total assets.
(3) Net earnings divided by average equity.
(4) Average total equity divided by average total assets.
(5) Difference between weighted average yield on interest-earning assets and
weighted average rate on interest-bearing liabilities.
(6) Net interest income as a percentage of average interest-earning assets.
(7) Represents the ratio of non-interest expenses divided by the sum of net
interest income and non-interest income.
(viii)
<PAGE>
RISK FACTORS
Before investing in shares of the Common Stock offered hereby, prospective
investors should carefully consider the matters presented below, in addition to
matters discussed elsewhere in this Prospectus.
DIVERSIFIED LENDING RISKS
RISKS OF CONSTRUCTION LENDING. At December 31, 1996, construction loans
totalled $14.9 million, or 12.6% of the Bank's total loan portfolio. During the
year ended March 31, 1996 and the nine months ended December 31, 1996,
construction loans constituted 24.5% and 23.8%, respectively, of total loan
originations. Construction loans are generally considered to involve a higher
degree of risk than single-family permanent mortgage lending because of (i) the
concentration of principal among relatively few borrowers, (ii) the increased
difficulty at the time the loan is made of accurately estimating total building
costs and the eventual selling price of the residence to be built, (iii) the
increased difficulty and costs of monitoring the loan, (iv) the higher degree of
sensitivity to increases in market rates of interest, and (v) the increased
difficulty of working out problem loans. Speculative construction loans, which
constituted 44.6% of the total construction loan portfolio at December 31, 1996,
have the added risk associated with identifying an end-purchaser for the
finished home. Additionally, working out of problem construction loans is
complicated by the fact that in-process homes are difficult to sell and
typically must be completed in order to be sold. This may require the Bank to
advance additional funds and contract with another builder to complete the
residence. In addition, because much of the Bank's construction lending is in
the Coeur d'Alene area, changes in the local economy and real estate market
could adversely affect the Bank's construction loan portfolio. Accordingly, the
Bank closely monitors the Coeur d'Alene real estate market and will limit the
amount of speculative loans if it perceives there are unfavorable market
conditions. The Bank has sought to address the foregoing risks of its
construction lending by developing and adhering to underwriting policies,
disbursement procedures, and monitoring practices. See "BUSINESS OF THE BANK --
Lending Activities -- Construction Lending."
RISKS OF AGRICULTURAL LENDING. At December 31, 1996, agricultural real
estate loans totalled $11.9 million, or 10.0% of the Bank's total loan
portfolio. Agricultural real estate lending involves a greater degree of risk
than residential real estate loans. Payments on agricultural real estate loans
are dependent on the successful operation or management of the farm property
securing the loan. The success of the farm may be affected by many factors
outside the control of the farm borrower, including adverse weather conditions
that limit crop yields (such as hail, drought and floods), declines in market
prices for agricultural products and the impact of government regulations
(including changes in price supports, subsidies and environmental regulations.)
In addition, many farms are dependent on a limited number of key individuals
whose injury or death may significantly affect the successful operation of the
farm. The primary crop in the Bank's market area is wheat. Accordingly,
adverse circumstances affecting the area's wheat crop could have an adverse
effect on the Bank's agricultural real estate loan portfolio. The Bank also
originates agricultural operating loans. At December 31, 1996, such loans
totalled $1.0 million. As with agricultural real estate loans, the repayment of
operating loans is dependent on the successful operation or management of the
farm property. Agricultural operating loans entail greater risk than do
residential mortgage loans, particularly in the case of loans that are unsecured
or secured by rapidly depreciating assets such as farm equipment. In such
cases, any repossessed collateral for a defaulted loan may not provide an
adequate source of repayment of the outstanding loan balance as a result of the
greater likelihood of damage, loss or depreciation. See "BUSINESS OF THE BANK -
- - Lending Activities -- Agricultural Lending" and "-- Lending Activities --
Consumer and Other Lending."
RELIANCE ON MORTGAGE BANKING OPERATIONS
Mortgage banking activities significantly influence the Bank's results of
operations. The Bank's mortgage banking operations involve the origination and
sale of mortgage loans for the purpose of generating income from the sale of
mortgage loans and from servicing fees (from loans sold on a servicing-retained
basis). Income from the sale of mortgage loans is derived primarily from the
sale of government insured loans, which are sold on a servicing-released basis,
whereas servicing fees are derived primarily from conventional mortgage loans
sold on a servicing-
1
<PAGE>
retained basis. The profitability of mortgage banking operations depends
primarily on managing the volume of loan originations and sales and the expenses
associated with loan originations so that gains on the sale of loans together
with fee income exceeds the costs of this activity. Changes in the level of
interest rates and the condition of the local and national economies affect the
amount of loans originated by the Bank and demanded by investors to whom the
loans are sold. Generally, the Bank's loan origination and sale activity and,
therefore, its results of operations, may be adversely affected by an increasing
interest rate environment to the extent such environment results in decreased
loan demand by borrowers and/or investors. Accordingly, the volume of loan
originations and the profitability of this activity can vary significantly from
period to period. Furthermore, the Bank's mortgage banking activities have been
dependent on the growth of the Coeur d'Alene area in recent years and the high
volume of construction and real estate activity there. Changes in the Coeur
d'Alene economy or a decrease in real estate activity there could adversely
affect the Bank's volume of loan originations and sales. In addition, the
Bank's results of operations are affected by the amount of non-interest expenses
associated with mortgage-banking activities, such as compensation and benefits,
occupancy and equipment expenses, and other operating costs. During periods of
reduced loan demand, the Bank's results of operations may be adversely affected
to the extent that it is unable to reduce expenses commensurate with the decline
in loan originations.
The Bank's loan servicing portfolio consists of retained loan servicing
rights that relate to loans originated by the Bank and sold to investors. In a
decreasing interest rate environment the Bank may experience a higher volume of
prepayments as borrowers refinance their loans, which would reduce the size and
adversely impact the income received from the loan servicing portfolio. See
"BUSINESS OF THE BANK -- Lending Activities -- Loan Servicing."
RISKS OF DEPENDENCE ON LOCAL ECONOMY
The Bank has been and intends to continue to operate as a community-
oriented financial institution, with a focus on servicing customers in its
market area. Although the Bank has experienced strong loan demand in recent
years, because the Bank operates in a market area with a small population, the
Bank's ability to achieve loan and deposit growth may be limited. Future growth
opportunities for the Bank depend largely on market area growth and the Bank's
ability to compete effectively within its market area. As a result of limited
growth opportunities in Lewiston, the Bank expanded into Coeur d'Alene in 1992.
At December 31, 1996, most of the Bank's loan portfolio consisted of loans made
to borrowers and collateralized by properties located in its market area. As a
result of this concentration, a downturn in the economy of the Bank's market
area could increase the risk of loss associated with the Bank's loan portfolio.
RISKS OF COMMUNITY BANKING STRATEGY
The Bank's lending strategy involves a shift from a primary focus on
residential and construction lending to a community banking approach. As part
of the expansion of its community banking activities, the Bank intends to
increase its efforts to originate commercial real estate loans, agricultural
real estate and operating loans and commercial business loans. The Bank's
community banking strategy may take a period of time to implement fully and may
require the incurrence of additional expenses to originate the desired volume of
non-residential loans. There can be no assurances that the Bank will meet its
objectives in increasing the size of its non-mortgage loan portfolio. Factors
that may effect the ability of the Bank to increase its originations of such
loans include the demand for such loans, interest rates and the state of the
local and national economy.
Commercial lending affords the Bank an opportunity to originate loans that
contain interest rates that are higher than those generally available from
residential mortgage loans. However, loans secured by commercial real estate
usually are greater in amount, more difficult to evaluate and monitor and,
therefore, involve a greater degree of risk than one- to four-family residential
mortgage loans. Because payments on loans secured by commercial properties are
often dependent on the successful operation and management of the properties,
repayment of such loans may be affected by adverse conditions in the real estate
market or the economy. While commercial business loans are often collateralized
by equipment, inventory, accounts receivable or other business assets, the
liquidation
2
<PAGE>
of collateral in the event of a borrower default may be an insufficient source
of repayment because accounts receivable may be uncollectible and inventories
and equipment may be obsolete or of limited use, among other things.
COMPETITION WITHIN MARKET AREA
The Bank faces competition both in originating loans and attracting
deposits. Its most direct competition for savings deposits has historically
come from commercial banks, credit unions and other thrifts operating in its
market area. The Bank's competitors include large regional and superregional
banks. These institutions are significantly larger than the Bank and therefore
have greater financial and marketing resources than the Bank. In recent years,
the Bank has experienced an increased level of competition for deposits from
securities firms, insurance companies and other investment vehicles, such as
money market and mutual funds. This competition could adversely affect the
Bank's future growth prospects. The Bank's competition for loans comes from
commercial banks and other thrifts operating in its market as well as from
mortgage bankers and brokers, consumer finance companies, and, with respect to
agricultural loans, government sponsored lending programs. Because the
profitability of mortgage banking operations generally depends on maintaining a
sufficient volume of loan originations, such competition may limit the Bank's
profitability in the future. See "BUSINESS OF THE BANK -- Market Area" and "--
Competition."
ANTI-TAKEOVER EFFECTS OF GOVERNING DOCUMENTS, DELAWARE AND FEDERAL LAW, CONTROL
BY INSIDERS AND EMPLOYMENT AGREEMENTS
PROVISIONS IN THE HOLDING COMPANY'S GOVERNING INSTRUMENTS AND DELAWARE AND
FEDERAL LAW. Certain provisions included in the Holding Company's Certificate
of Incorporation and in the Delaware General Corporation Law ("DGCL") might
discourage potential proxy contests and other potential takeover attempts,
particularly those that have not been negotiated with the Board of Directors.
As a result, these provisions might preclude takeover attempts that certain
stockholders may deem to be in their best interest and might tend to perpetuate
existing management. These provisions include, among other things, a provision
limiting voting rights of beneficial owners of more than 10% of the Common
Stock, supermajority voting requirements for certain business combinations,
staggered terms for directors, non-cumulative voting for directors, the removal
of directors without cause only upon the vote of holders of 80% of the
outstanding voting shares, limitations on the calling of special meetings, and
specific notice requirements for stockholder nominations and proposals. Certain
provisions of the Certificate of Incorporation of the Holding Company cannot be
amended by stockholders unless an 80% stockholder vote is obtained. The
existence of these anti-takeover provisions could result in the Holding Company
being less attractive to a potential acquiror and in stockholders receiving less
for their shares than otherwise might be available in the event of a takeover
attempt. Furthermore, federal regulations prohibit for three years after
consummation of the Conversion the ownership of more than 10% of the Bank or the
Holding Company without prior OTS approval. Federal law also requires
regulatory approval prior to the acquisition of "control" (as defined in federal
regulations) of an insured institution. For a more detailed discussion of these
provisions, see "RESTRICTIONS ON ACQUISITION OF THE HOLDING COMPANY."
VOTING CONTROL BY INSIDERS. Directors and officers of the Bank and the
Holding Company expect to purchase 155,000 shares of Common Stock, or 12.2% and
9.0% of the shares issued in the Offerings at the minimum and the maximum of the
Estimated Valuation Range, respectively. Directors and officers are also
expected to control indirectly the voting of approximately 8% of the shares of
Common Stock issued in the Conversion through the ESOP. Under the terms of the
ESOP, the unallocated shares will be voted by the ESOP trustees in the same
proportion as the votes cast by participants with respect to the allocated
shares.
At a meeting of stockholders to be held no earlier than six months
following the consummation of the Conversion, the Holding Company expects to
seek approval of the Holding Company's MRP, which is a non-tax-qualified
restricted stock plan for the benefit of key employees and directors of the
Holding Company and the Bank. Assuming the receipt of stockholder approval, the
Holding Company expects to acquire common stock of the Holding Company on behalf
of the MRP in an amount equal to 4% of the Common Stock issued in the
Conversion, or 51,000
3
<PAGE>
and 69,000 shares at the minimum and the maximum of the Estimated Valuation
Range, respectively. These shares will be acquired either through open market
purchases or from authorized but unissued shares of Common Stock. Under the
terms of the MRP, the MRP committee or the MRP trustees will have the power to
vote unallocated and unvested shares. The Holding Company also intends to seek
approval of the Stock Option Plan at a meeting of stockholders to be held no
earlier than six months following the consummation of the Conversion. The
Holding Company intends to reserve for future issuance pursuant to the Stock
Option Plan a number of authorized shares of Common Stock equal to 10% of the
Common Stock issued in the Conversion (127,500 and 172,500 shares at the minimum
and the maximum of the Estimated Valuation Range, respectively).
Assuming (i) the receipt of stockholder approval for the MRP and the Stock
Option Plan, (ii) the open market purchase of shares on behalf of the MRP, (iii)
the purchase by the ESOP of 8% of the Common Stock sold in the Offerings, and
(iv) the exercise of stock options equal to 10% of the number of shares of
Common Stock issued in the Conversion, directors, officers and employees of the
Holding Company and the Bank would have voting control, on a fully diluted
basis, of 31.1% and 28.1% of the Common Stock, based on the issuance of Common
Stock at the minimum and maximum of the Estimated Valuation Range, respectively.
Management's potential voting control alone, as well as together with additional
stockholder support, might preclude or make more difficult takeover attempts
that certain stockholders deem to be in their best interest and might tend to
perpetuate existing management.
SEVERANCE PAYMENTS UPON CHANGE IN CONTROL. The proposed employment
agreements with the Chief Executive Officer and Chief Financial Officer provide
for cash severance payments in the event of a change in control of the Holding
Company or the Bank. Such agreements also provide for the continuation of
certain employee benefits following the change in control. Assuming a change in
control occurred as of December 31, 1996, the aggregate amounts payable under
these agreements would have been approximately $450,000. These provisions may
have the effect of increasing the cost of acquiring the Holding Company, thereby
discouraging future attempts to take over the Holding Company or the Bank.
See "MANAGEMENT OF THE BANK -- Benefits," "RESTRICTIONS ON ACQUISITION OF
THE HOLDING COMPANY" and "DESCRIPTION OF CAPITAL STOCK OF THE HOLDING COMPANY."
INTEREST RATE RISK EXPOSURE
The financial condition and operations of the Bank, and of savings
institutions in general, are influenced significantly by general economic
conditions, by the related monetary and fiscal policies of the federal
government and by the regulations of the OTS and the FDIC. The Bank's
profitability, like that of most financial institutions, is dependent to a large
extent on its net interest income, which is the difference between its interest
income on interest-earning assets, such as loans and investments, and its
interest expense on interest-bearing liabilities, such as deposits and
borrowings. The interest earned by the Bank on such loans and paid by the Bank
on such accounts are significantly impacted by market interest rates.
Accordingly, the Bank's results of operations are significantly influenced by
movements in market interest rates and the Bank's ability to manage its assets
and liabilities in response to such movements.
To manage the impact of changes in interest rates, the Bank has sought to
improve the match between asset and liability maturities or repricing periods
and rates by emphasizing the origination of adjustable-rate mortgage ("ARM")
loans and shorter term consumer loans, offering certificates of deposit with
terms of up to five years and selling most of the fixed-rate loans that it
originates. At December 31, 1996, out of total gross loans of $118.6 million,
the Bank had $71.8 million of ARM loans in its loan portfolio. However, the
Bank originates ARM loans at initial "teaser" rates below the rate that would
prevail were the market rate index used for repricing applied initially.
Furthermore, the Bank's ARM loans contain periodic and lifetime interest rate
adjustment limits which, in a rising interest rate environment, may prevent such
loans from repricing to market interest rates. While management anticipates
that the Bank's ARM loans will better offset the adverse effects of an increase
in interest rates as compared to fixed-rate mortgages, the increased mortgage
payments required of ARM borrowers in a rising interest rate environment could
potentially cause an increase in delinquencies and defaults. The Bank has not
4
<PAGE>
historically had an increase in such delinquencies and defaults on ARM loans,
but no assurance can be given that such delinquencies or defaults would not
occur in the future. The marketability of the underlying property also may be
adversely affected in a high interest rate environment. Moreover, the Bank's
ability to originate ARM loans may be affected by changes in the level of
interest rates and by market acceptance of the terms of such loans. For further
information regarding the Bank's asset and liability management, see
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS -- Asset and Liability Management."
Changes in the level of interest rates affect the market value of the
Bank's investment securities and other interest-earning assets. Changes in
interest rates also can affect the average life of loans. Decreases in interest
rates may result in increased prepayments of loans, as borrowers refinance to
reduce borrowing costs. Under these circumstances, the Bank is subject to
reinvestment risk to the extent that it is not able to reinvest such prepayments
at rates that are comparable to the rates on the maturing loans or securities.
Moreover, volatility in interest rates also can result in disintermediation, or
the flow of funds away from savings institutions into direct investments, such
as U.S. Government and corporate securities and other investment vehicles which,
because of the absence of federal insurance premiums and reserve requirements,
generally pay higher rates of return than savings institutions.
ABSENCE OF ACTIVE MARKET FOR THE COMMON STOCK
The Holding Company has never issued capital stock and, consequently, there
is no existing market for the Common Stock. Although the Holding Company has
received conditional approval to list the Common Stock on the Nasdaq National
Market under the symbol "FBNW," there can be no assurance that the Holding
Company will meet Nasdaq National Market listing requirements, which include a
minimum market capitalization, at least two market makers and a minimum number
of holders of record. Although under no obligation to do so, Sandler O'Neill
has indicated its intention to act as a market maker. While Sandler O'Neill will
assist the Holding Company in encouraging another market maker to establish and
maintain a market in the Common Stock, there can be assurance that another
market maker will make a market in the Common Stock. Making a market in
securities involves maintaining bid and ask quotations and being able, as
principal, to effect transactions in reasonable quantities at those quoted
prices, subject to various securities laws and other regulatory requirements.
The development of a public trading market depends upon the existence of willing
buyers and sellers, the presence of which is not within the control of the
Holding Company, the Bank or any market maker. Accordingly, there can be no
assurance that an active and liquid trading market for the Common Stock will
develop, or once developed, will continue. Furthermore, there can be no
assurance that purchasers will be able to sell their shares at or above the
Purchase Price. See "MARKET FOR COMMON STOCK."
POSSIBLE DILUTIVE EFFECT OF BENEFIT PROGRAMS
At a meeting to be held no earlier than six months following consummation
of the Conversion, the Holding Company intends to seek stockholder approval of
the MRP. If approved, the MRP intends to acquire an amount of Common Stock of
the Holding Company equal to 4% of the shares issued in the Conversion. Such
shares of Common Stock of the Holding Company may be acquired by the Holding
Company in the open market or from authorized but unissued shares of Common
Stock of the Holding Company. In the event that the MRP acquires authorized but
unissued shares of Common Stock from the Holding Company, the voting interests
of existing stockholders will be diluted and net income per share and
stockholders' equity per share will be decreased. See "PRO FORMA DATA" and
"MANAGEMENT OF THE BANK -- Benefits -- Management Recognition Plan."
At a meeting to be held no earlier than six months following consummation
of the Conversion, the Holding Company intends to seek stockholder approval of
the Stock Option Plan. If approved, the Stock Option Plan will provide for
options for up to a number of shares of Common Stock of the Holding Company
equal to 10% of the shares issued in the Conversion. Such shares may be
authorized but unissued shares of Common Stock of the Holding Company and, upon
exercise of the options, will result in the dilution of the voting interests of
existing
5
<PAGE>
stockholders and may decrease net income per share and stockholders' equity per
share. See "MANAGEMENT OF THE BANK -- Benefits -- Stock Option Plan."
If the ESOP is not able to purchase 8% of the shares of Common Stock issued
in the Offerings, the ESOP may purchase newly issued shares from the Holding
Company. In such event, the voting interests of existing stockholders will be
diluted and net income per share and stockholders' equity per share will be
decreased. See "MANAGEMENT OF THE BANK -- Benefits -- Employee Stock Ownership
Plan."
POSSIBLE ADVERSE INCOME TAX CONSEQUENCES OF THE DISTRIBUTION OF SUBSCRIPTION
RIGHTS
If the Subscription Rights granted to Eligible Account Holders,
Supplemental Eligible Account Holders and Other Members of the Bank are deemed
to have an ascertainable value, receipt of such rights may be a taxable event
(either as capital gain or ordinary income) to those Eligible Account Holders,
Supplemental Eligible Account Holders or Other Members who receive and/or
exercise the Subscription Rights in an amount equal to such value.
Additionally, the Bank could be required to recognize a gain for tax purposes on
such distribution. Whether Subscription Rights are considered to have
ascertainable value is an inherently factual determination. The Bank has been
advised by RP Financial that such rights have no value; however, RP Financial's
conclusion is not binding on the Internal Revenue Service ("IRS"). See "THE
CONVERSION -- Effects of Conversion to Stock Form on Depositors and Borrowers of
the Bank -- Tax Effects."
POSSIBLE INCREASE IN ESTIMATED PRICE RANGE AND NUMBER OF SHARES ISSUED
The number of shares to be sold in the Conversion may be increased as a
result of an increase in the Estimated Price Range of up to 15% to reflect
changes in market and financial conditions following the commencement of the
Subscription and Direct Community Offering. In the event that the Estimated
Price Range is so increased, it is expected that the Holding Company will issue
up to 1,983,750 shares of Common Stock at the Purchase Price for an aggregate
price of up to $19,837,500. An increase in the number of shares will decrease
pro forma net earnings per share and stockholders' equity per share and will
increase the Holding Company's pro forma consolidated stockholders' equity and
net earnings. Such an increase will also increase the Purchase Price as a
percentage of pro forma stockholders' equity per share and net earnings per
share.
POTENTIAL OPERATIONAL RESTRICTIONS ASSOCIATED WITH REGULATORY OVERSIGHT
The Bank is, and the Holding Company upon consummation of the Conversion
will be, subject to extensive government regulation and oversight. Such
regulation and supervision govern the activities in which an institution can
engage and is designed primarily to protect the federal deposit insurance fund
and depositors. Regulatory authorities have extensive discretion in connection
with their supervisory and enforcement activities, including the imposition of
restrictions on the operation of an institution, the classification of assets by
the institution and the determination of the adequacy of an institution's
allowance for loan losses. See "REGULATION." Such regulation often has a
material impact on the Bank's financial condition and results of operations.
The Deposit Insurance Funds Act of 1996 ("DIF Act") required the Bank to pay a
one-time assessment of $584,000 to the FDIC to recapitalize the SAIF. See
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS -- Comparison of Operating Results for the Nine Months Ended
December 31, 1996 and 1995."
The U.S. Congress is expected to consider legislation that may eliminate
the thrift industry as a separate industry. The DIF Act provides that the SAIF
will be merged with the BIF on January 1, 1999, but only if there are no thrift
institutions in existence. The DIF Act requires the Treasury Department to
study the development of a common charter for banks and thrifts and to submit a
report of its findings to Congress by March 31, 1997. The Bank cannot predict
what the attributes of such common charter would be or whether any legislation
will result from this study. If developed, the common charter may not offer all
the advantages that a federal savings association now enjoys (e.g., unrestricted
----
nationwide branching). Furthermore, holding companies for institutions with the
common
6
<PAGE>
charter may not have the same advantages as a unitary savings and loan holding
company now possesses (e.g., the absence of non-banking activities
----
restrictions). Because of the uncertainties with regard to the future of the
thrift industry, the Bank has determined to undertake the Charter Conversion.
See "THE CONVERSION -- Purposes of Conversion." If Congress fails to create a
common charter, or does not act otherwise to end the thrift industry's separate
existence, the merger of the SAIF and BIF contemplated by the DIF Act would not
likely occur. Although the SAIF currently meets its statutory reserve ratios,
there can be no assurance that it will continue to do so. The financial burden
of any future recapitalization would likely fall on a smaller assessment base,
potentially increasing the burden on individual institutions, including the
Bank.
FIRSTBANK CORP.
The Holding Company is a Delaware corporation organized in March 1997 at
the direction of the Bank for the purpose of serving as the holding company of
the Bank upon consummation of the Stock Conversion. The Holding Company has not
engaged in any significant business to date. The Holding Company has received
the approval of the OTS to become a savings and loan holding company and to
acquire 100% of the capital stock of the Converted Bank. Immediately following
the Stock Conversion, the only significant assets of the Holding Company will be
the capital stock of the Bank, that portion of the net proceeds of the Offerings
permitted by the OTS to be retained by the Holding Company and a note receivable
from the ESOP evidencing a loan from the Holding Company to fund the Bank's
ESOP. See "BUSINESS OF THE HOLDING COMPANY."
The Holding Company has applied for approval of the Federal Reserve to
become a bank holding company under the BHCA, through the continued ownership of
the Bank. The Holding Company expects to receive such approval. If there is a
significant delay in obtaining the approval of the Federal Reserve for the
Holding Company to become a bank holding company, the Holding Company may elect
to be regulated by the OTS as a savings and loan holding company and the Bank
may complete the Charter Conversion.
The holding company structure will permit the Holding Company to expand the
financial services currently offered through the Bank. Management believes that
the holding company structure and retention of a portion of the proceeds of the
Offerings will facilitate the expansion and diversification of its operations.
The holding company structure also will enable the Holding Company to repurchase
its stock without adverse tax consequences. There are no present plans,
arrangements, agreements, or understandings, written or oral, regarding any
such activities or repurchases. See "REGULATION -- Bank Holding Company
Regulation."
FIRSTBANK NORTHWEST
The Bank, founded in 1920, is a federally chartered mutual savings bank
located in Lewiston, Idaho. The Bank, which was formed as an Idaho mutual
savings and loan association, converted to a federal mutual savings and loan
association in 1935 and adopted the federal mutual savings bank charter in 1990.
In April 1997, in anticipation of the Charter Conversion, the Bank changed its
name from "First Federal Bank of Idaho, a Federal Savings Bank" to "FirstBank
Northwest." In connection with the Stock Conversion, the Bank will convert to a
federally chartered capital stock savings bank and will become a subsidiary of
the Holding Company. The Bank is currently regulated by the OTS, its primary
regulator, and the FDIC, the insurer of its deposits. The Bank's deposits are
insured by the SAIF and have been federally insured since 1933. The Bank has
been a member of the FHLB System since 1933. At December 31, 1996, the Bank had
total assets of $133.2 million, total deposits of $105.3 million and total
equity of $10.8 million on a consolidated basis. In connection with the Charter
Conversion, the Bank will relocate its main office to Clarkston, Washington and
convert to a Washington-chartered savings bank.
The Bank is a community-oriented financial institution that engages
primarily in the business of attracting deposits from the general public and
using those funds to originate residential mortgage loans within the Bank's
market area. At December 31, 1996, one- to four-family residential mortgage
loans totalled $72.7 million, or 61.3%
7
<PAGE>
of total loans receivable. The Bank also is active in originating construction
and agricultural real estate loans. At December 31, 1996, construction loans
totalled $14.9 million, or 12.6% of total loans receivable, and agricultural
real estate loans totalled $11.9 million, or 10.0% of total loans receivable.
To a lesser extent, the Bank also originates commercial real estate and consumer
and other non-real estate loans, although it intends to increase its
originations of these types of loans, subject to market conditions and other
factors. See "BUSINESS OF THE BANK -- Lending Activities." The Bank has
adopted a mortgage banking strategy pursuant to which it generally sells a
majority of the fixed-rate residential mortgage loans that it originates while
retaining the servicing rights on most of the conventional loans it sells. At
December 31, 1996, the Bank serviced $131.5 million of loans for others.
As part of its asset/liability management, subsequent to December 31, 1996,
the Bank intends to retain for its portfolio $5.0 million of 30-year, fixed-rate
conventional mortgage loans and to purchase $5.0 million of short-term mortgage-
backed securities. These investments will be funded with additional FHLB
advances, which may be retired with the proceeds of the Offerings. See "USE OF
PROCEEDS."
As soon as practicable following the Stock Conversion, the Bank will
relocate its main office to Clarkston, Washington, which is adjacent to
Lewiston, Idaho across the Snake River, and convert to a Washington-chartered
savings bank. The main office relocation will be accomplished by opening a
full-service office in Clarkston, Washington and designating that office as the
Bank's main office. The Bank's administrative offices will remain in their
present location. The Bank is in the process of evaluating locations for its
Clarkston, Washington office and expects that the Charter Conversion will not be
completed until several months after the consummation of the Stock Conversion.
The Board of Directors believes that conversion to a Washington-chartered
savings bank is in the best interests of the Bank, its members and the
communities it serves. As a Washington-chartered savings bank with offices in
Washington and Idaho, the Bank will have the flexibility to expand in Washington
and Idaho, should it decide to do so, through branch acquisitions, opening new
branches, or acquiring other institutions. While the current federal thrift
charter permits nationwide branching, the possible elimination of the federal
thrift charter in favor of a common charter for federal thrifts and banks may
limit the Bank's branching authority in the future. See "RISK FACTORS --
Potential Operational Restrictions Associated with Regulatory Oversight."
Furthermore, the Washington savings bank charter will provide the Bank with the
authority to pursue its community banking strategy.
The Bank, as a Washington-chartered savings bank, will succeed to all of
the assets and liabilities of the Bank as a federally chartered savings bank.
In anticipation of the Charter Conversion, the Bank has adopted a community
banking strategy pursuant to which it intends to expand the products and
services it offers in order to improve market share and increase the average
yield of its interest-earning assets. Specifically, the Bank intends to expand
its agricultural real estate and commercial real estate lending activities. The
Bank also intends to expand its non-mortgage lending activities by increasing
its emphasis on originating agricultural operating loans and commercial business
loans.
Management anticipates that the Bank will incur initial start-up and
ongoing expenses in connection with the opening of its Clarkston, Washington
office and as various programs and services, such as its commercial real estate
and business lending operations, are introduced or expanded. These expenses
could reduce earnings for a period of time while income from new programs and
services increases to a degree sufficient to cover the additional expenses.
Following the Charter Conversion, the deposits of the Bank will continue
to be insured by the SAIF of the FDIC. In addition, following the Charter
Conversion, the Bank will not be regulated and supervised by the OTS, but rather
by the Department and the FDIC. The Bank intends to remain a member of the
FHLB-Seattle.
USE OF PROCEEDS
The net proceeds from the sale of the Common Stock offered hereby are
estimated to range from $12.1 million to $16.6 million, or up to $19.1 million
if the Estimated Valuation Range is increased by 15%. See "PRO
8
<PAGE>
FORMA DATA" for the assumptions used to arrive at such amounts. The Holding
Company has received the approval of the OTS to purchase all of the capital
stock of the Bank to be issued in the Conversion in exchange for 50% of the net
proceeds of the Offerings. This will result in the Holding Company retaining
approximately $6.1 million to $8.3 million of net proceeds, or up to $9.6
million if the Estimated Valuation Range is increased by 15%, and the Bank
receiving an equal amount.
Receipt of 50% of the net proceeds of the sale of the Common Stock will
increase the Bank's capital and will support the expansion of the Bank's
existing business activities. The Bank will use the funds contributed to it for
general corporate purposes, including increased local lending, the establishment
of its Clarkston, Washington office, the expansion of its community banking
activities and possible future acquisitions of branches or banks. The Bank may
also use a portion of the funds contributed to it to retire outstanding FHLB
advances, depending on market conditions, the cost of other sources of funds and
other factors. Pending deployment of funds, the Bank plans initially to invest
the net proceeds in short-term U.S. Government and agency securities. Shares of
Common Stock may be purchased with funds on deposit at the Bank, which will
reduce deposits by the amount of such purchases. As a result, the net amount of
funds available to the Bank for investment following receipt of the Conversion
proceeds will be reduced by the amount of deposit withdrawals used to fund stock
purchases.
In connection with the Conversion and the establishment of the ESOP, the
Holding Company intends to loan the ESOP the amount necessary to purchase 8% of
the shares of Common Stock sold in the Conversion. The Holding Company's loan
to fund the ESOP may range from $1,020,000 to $1,380,000 based on the sale to
the ESOP of 102,000 shares (at the minimum of the Estimated Valuation Range) and
138,000 shares (at the maximum of the Estimated Valuation Range), respectively,
at $10.00 per share. If 15% above the maximum of the Estimated Valuation Range,
or 1,983,750 shares, are sold in the Conversion, the Holding Company's loan to
the ESOP would be approximately $1,587,000. It is anticipated that the ESOP
loan will have a seven-year term with interest payable at the prime rate as
published in The Wall Street Journal on the closing date of the Conversion. The
loan will be repaid principally from the Bank's contributions to the ESOP and
from any dividends paid on shares of Common Stock held by the ESOP.
The remaining proceeds retained by the Holding Company initially will be
invested in short-term U.S. Government and agency securities. Such proceeds
will be available for additional contributions to the Bank in the form of debt
or equity, to support future diversification or acquisition activities, as a
source of dividends to the stockholders of the Holding Company and for future
repurchases of Common Stock to the extent permitted under Delaware law and
federal regulations. Currently, there are no specific plans, arrangements,
agreements or understandings, written or oral, regarding any diversification
activities.
Following consummation of the Conversion, the Board of Directors will have
the authority to adopt plans for repurchases of Common Stock or other returns of
capital to stockholders, subject to statutory and regulatory requirements.
Since the Holding Company has not yet issued stock, there currently is
insufficient information upon which an intention to repurchase stock could be
based. The facts and circumstances upon which the Board of Directors may
determine to repurchase stock in the future may include but are not limited to:
(i) market and economic factors, such as the price at which the stock is trading
in the market, the volume of trading, the attractiveness of other investment
alternatives in terms of the rate of return and risk involved in the investment,
the ability to increase the book value and/or earnings per share of the
remaining outstanding shares, and the ability to improve the Holding Company's
return on equity; (ii) the avoidance of dilution to stockholders by not having
to issue additional shares to cover the exercise of stock options or to fund
employee stock benefit plans; and (iii) any other circumstances in which
repurchases would be in the best interests of the Holding Company and its
stockholders. Any stock repurchases or return of capital will be subject to a
determination by the Board of Directors that both the Holding Company and the
Bank will be capitalized in excess of all applicable regulatory requirements
after any such repurchases or return of capital and that capital will be
adequate, taking into account, among other things, the level of nonperforming
and classified assets, the Holding Company's and the Bank's current and
projected results of
9
<PAGE>
operations and asset/liability structure, the economic environment and tax and
other regulatory considerations. See "THE CONVERSION -- Restrictions on
Repurchase of Stock."
DIVIDEND POLICY
GENERAL
The Board of Directors of the Holding Company has not formulated a dividend
policy, but intends to consider a policy of paying cash dividends in the future.
The payment of dividends on the Common Stock will be subject to the requirements
of applicable law and the determination by the Board of Directors of the Holding
Company that the net income, capital and financial condition of the Holding
Company, industry trends and general economic conditions justify the payment of
dividends. The rate of such dividends and the initial or continued payment
thereon will depend upon various factors at the intended time of declaration and
payment, including the Bank's profitability and liquidity, alternative
investment opportunities, and regulatory restrictions on dividend payments and
on capital levels applicable to the Bank. Accordingly, there can be no present
assurance that any dividends will be paid. Periodically, the Board of
Directors, if market, economic and regulatory conditions permit, may combine or
substitute periodic special dividends with or for regular dividends. In
addition, since the Holding Company initially will have no significant source of
income other than dividends from the Bank and earnings from investment of the
net proceeds of the Conversion retained by the Holding Company, the payment of
dividends by the Holding Company will depend in part upon the amount of the net
proceeds from the Conversion retained by the Holding Company and the Holding
Company's earnings thereon and the receipt of dividends from the Bank, which are
subject to various tax and regulatory restrictions on the payment of dividends.
Dividend payments by the Holding Company are subject to regulatory restriction
under Federal Reserve policy as well as to limitation under applicable
provisions of Delaware corporate law. Under Delaware law, dividends may be paid
either out of surplus or, if there is no surplus, out of net profits for the
fiscal year in which the dividend is declared and/or the preceding fiscal year.
For additional information, see "REGULATION -- Bank Holding Company Regulation -
- - Dividends."
CURRENT REGULATORY RESTRICTIONS
Dividends from the Holding Company may depend, in part, upon receipt of
dividends from the Bank because the Holding Company initially will have no
source of income other than dividends from the Bank and earnings from the
investment of the net proceeds from the Offerings retained by the Holding
Company. OTS regulations require federal savings associations to give the OTS
30 days' advance notice of any proposed declaration of dividends, and the OTS
has the authority under its supervisory powers to prohibit the payment of
dividends. The OTS imposes certain limitations on the payment of dividends
which utilizes a three-tiered approach that permits various levels of
distributions based primarily upon a savings association's capital level. In
addition, the Bank may not declare or pay a cash dividend on its capital stock
if the effect thereof would be to reduce the regulatory capital of the Bank
below the amount required for the liquidation account to be established pursuant
to the Bank's Plan of Conversion. The Bank currently meets the criteria to be
designated a Tier 1 association, as hereinafter defined, and consequently could
at its option (after prior notice to and no objection made by the OTS)
distribute up to 100% of its net income during the calendar year plus 50% of its
surplus capital ratio at the beginning of the calendar year less any
distributions previously paid during the year. See "REGULATION -- Federal
Regulation of Savings Associations -- Limitations on Capital Distributions,"
"THE CONVERSION -- Effects of Conversion to Stock Form on Depositors and
Borrowers of the Bank -- Liquidation Account" and Note 15 of Notes to the
Consolidated Financial Statements included elsewhere herein. After the Charter
Conversion, dividends from the Bank to the Holding Company will be subject to
the requirements of Washington law. Under Washington law, the Bank may not
declare or pay a cash dividend on its capital stock if it would cause its net
worth to be reduced below the amount required for the liquidation account or net
worth requirements, if any, imposed by the Department. See "REGULATION --
Regulation of Washington Savings Banks -- Dividends."
10
<PAGE>
MARKET FOR COMMON STOCK
The Holding Company has never issued capital stock and, consequently,
there is no existing market for the Common Stock. Although the Holding Company
has received conditional approval to list the Common Stock on the Nasdaq
National Market under the symbol "FBNW," there can be no assurance that the
Holding Company will meet Nasdaq National Market listing requirements, which
include a minimum market capitalization, at least two market makers and a
minimum number of record holders. Although under no obligation to do so,
Sandler O'Neill has indicated its intention to make a market for the Holding
Company's Common Stock following consummation of the Conversion and will assist
the Holding Company in seeking to encourage at least one additional market maker
to establish and maintain a market in the Common Stock. Making a market involves
maintaining bid and ask quotations and being able, as principal, to effect
transactions in reasonable quantities at those quoted prices, subject to various
securities laws and other regulatory requirements. While the Holding Company has
attempted to obtain commitments from broker-dealers to act as market makers, and
anticipates that prior to the completion of the Conversion it will be able to
obtain the commitment from at least one additional broker-dealer to act as
market maker for the Common Stock, there can be no assurance that there will be
two or more market makers for the Common Stock. Additionally, the development of
a liquid public market depends on the existence of willing buyers and sellers,
the presence of which is not within the control of the Holding Company, the Bank
or any market maker. There can be no assurance that an active and liquid trading
market for the Common Stock will develop or that, if developed, it will
continue. The number of active buyers and sellers of the Common Stock at any
particular time may be limited. Under such circumstances, investors in the
Common Stock could have difficulty disposing of their shares on short notice and
should not view the Common Stock as a short-term investment. Furthermore, there
can be no assurance that purchasers will be able to sell their shares at or
above the Purchase Price or that quotations will be available on the Nasdaq
National Market as contemplated.
11
<PAGE>
CAPITALIZATION
The following table presents the historical capitalization of the Bank
at December 31, 1996, and the pro forma consolidated capitalization of the
Holding Company after giving effect to the assumptions set forth under "PRO
FORMA DATA," based on the sale of the number of share of Common Stock set forth
below in the conversion at the minimum, midpoint and maximum of the Estimated
Valuation Range, and based on the sale of 1,983,750 shares (representing the
shares that would be issued in the Conversion after giving effect to an
additional 15% increase in the maximum valuation in the Estimated Valuation
Range, subject to receipt of an updated appraisal confirming such valuation and
OTS approval). A CHANGE IN THE NUMBER OF SHARES TO BE ISSUED IN THE CONVERSION
MAY MATERIALLY AFFECT PRO FORMA CONSOLIDATED CAPITALIZATION.
<TABLE>
<CAPTION>
Holding Company
Pro Forma Consolidated Capitalization
Based Upon the Sale of
----------------------------------------------------------------------
1,275,000 1,500,000 1,725,000 1,983,750
Capitalization Shares at Shares at Shares at Shares at
as of $10.00 $10.00 $10.00 $10.00
December 31, 1996 Per Share (1) Per Share (1) Per Share (1) Per Share (2)
----------------- ------------- ------------- ------------- -------------
(In Thousands)
<S> <C> <C> <C> <C> <C>
Deposits(3)................... $105,349 $105,349 $105,349 $105,349 $105,349
Advances from FHLB............ 15,060 15,060 15,060 15,060 15,060
-------- -------- -------- -------- --------
Total deposits and
advances from FHLB.......... $120,409 $120,409 $120,409 $120,409 $120,409
======== ======== ======== ======== ========
Stockholders' equity:
Preferred Stock:
500,000 shares, $.01
par value per share,
authorized; none issued
or outstanding............ $ -- $ -- $ -- $ -- $ --
Common Stock:
5,000,000 shares, $.01 par
value per share, authorized;
specified number of shares
assumed to be issued and
outstanding(4)............ -- 13 15 17 20
Additional paid-in capital.. -- 12,112 14,329 16,546 19,121
Retained earnings(5)....... 10,818 10,818 10,818 10,818 10,818
Less:
Common Stock acquired
by ESOP(6)............. -- (1,020) (1,200) (1,380) (1,587)
Common Stock to be acquired
by MRP(7).............. -- (510) (600) (690) (794)
------- ------- ------- ------- -------
Total Stockholders' equity... $10,818 $21,413 $23,362 $25,311 $27,578
======= ======= ======= ======= =======
</TABLE>
(footnotes on following page)
12
<PAGE>
- ------
(1) Does not reflect the possible increase in the Estimated Valuation Range to
reflect material changes in the financial condition or performance of the
Bank or changes in market conditions or general financial and economic
conditions, or the issuance of additional shares under the Stock Option
Plan.
(2) This column represents the pro forma capitalization of the Holding Company
in the event the aggregate number of shares of Common Stock issued in the
Conversion is 15% above the maximum of the Estimated Valuation Range. See
"PRO FORMA DATA" and Footnote 1 thereto.
(3) Withdrawals from deposit accounts for the purchase of Common Stock are not
reflected. Such withdrawals will reduce pro forma deposits by the amounts
thereof.
(4) The Bank's authorized capital will consist solely of 1,000 shares of common
stock, par value $1.00 per share, 1,000 shares of which will be issued to
the Holding Company, and 9,000 shares of preferred stock, no par value per
share, none of which will be issued in connection with the Conversion.
(5) Retained earnings are substantially restricted by applicable regulatory
capital requirements. Additionally, the Bank will be prohibited from paying
any dividend that would reduce its regulatory capital below the amount in
the liquidation account, which will be established for the benefit of the
Bank's Eligible Account Holders and Supplemental Eligible Account Holders at
the time of the Conversion and adjusted downward thereafter as such account
holders reduce their balances or cease to be depositors. See "THE
CONVERSION -- Effects of Conversion to Stock Form on Depositors and
Borrowers of the Bank -- Liquidation Account."
(6) Assumes that 8% of the Common Stock sold in the Conversion will be acquired
by the ESOP in the Conversion with funds borrowed from the Holding Company.
In accordance with generally accepted accounting principles ("GAAP"), the
amount of Common Stock to be purchased by the ESOP represents unearned
compensation and is, accordingly, reflected as a reduction of capital. As
shares are released to ESOP participants' accounts, a corresponding
reduction in the charge against capital will occur. Since the funds are
borrowed from the Holding Company, the borrowing will be eliminated in
consolidation and no liability will be reflected in the consolidated
financial statements of the Holding Company. See "MANAGEMENT OF THE BANK --
Benefits -- Employee Stock Ownership Plan."
(7) Assumes the purchase in the open market at the Purchase Price, pursuant to
the proposed MRP, of a number of shares equal to 4% of the shares of Common
Stock issued in the Conversion at the minimum, midpoint, maximum and 15%
above the maximum of the Estimated Valuation Range. The issuance of an
additional 4% of the shares of Common Stock for the MRP from authorized but
unissued shares of Holding Company Common Stock would dilute the voting and
ownership interest of stockholders by 3.85%. The shares are reflected as a
reduction of stockholders' equity. See "RISK FACTORS -- Possible Dilutive
Effect of Benefit Programs," "PRO FORMA DATA" and "MANAGEMENT OF THE BANK --
Benefits -- Management Recognition Plan." The MRP is subject to stockholder
approval, which is expected to be sought at a meeting to be held no earlier
than six months following consummation of the Conversion.
13
<PAGE>
HISTORICAL AND PRO FORMA CAPITAL COMPLIANCE
The Bank is currently subject to OTS regulatory capital requirements.
After the Charter Conversion, the Bank will be required to satisfy FDIC
regulatory capital requirements. The following table presents the Bank's
historical and pro forma capital position relative to the OTS capital
requirements at December 31, 1996. The amount of capital infused into the Bank
for purposes of the following table is 50% of the net proceeds of the Offerings.
For purposes of the table below, the amount expected to be borrowed by the ESOP
and the cost of the shares expected to be acquired by the MRP are deducted from
pro forma regulatory capital. For a discussion of the assumptions underlying the
pro forma capital calculations presented below, see "USE OF PROCEEDS,"
"CAPITALIZATION" and "PRO FORMA DATA." The definitions of the terms used in the
table are those provided in the capital regulations issued by the OTS. For a
discussion of the capital standards applicable to the Bank, see "REGULATION --
Federal Regulation of Savings Associations -- Capital Requirements."
<TABLE>
<CAPTION>
PRO FORMA AT DECEMBER 31, 1996
---------------------------------------------------------
Minimum of Estimated Midpoint of Estimated
Valuation Range Valuation Range
------------------------- --------------------------
1,275,000 Shares 1,500,000 Shares
December 31, 1996 at $10.00 Per Share at $10.00 Per Share
--------------------------- ------------------------- --------------------------
Percent of Percent of Percent of
Total Total Total
Amount Assets (1) Amount Assets (1) Amount Assets (1)
------- ---------- ------ ---------- ------ ----------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
GAAP capital............ $10,818 8.12% $15,351 11.06% $16,190 11.58%
======= ===== ======= ===== ======= =====
Tangible capital........ $10,818 8.12% $15,351 11.06% $16,190 11.58%
Tangible capital
requirement............ 1,998 1.50 2,081 1.50 2,096 1.50
------- ----- ------- ---- ------- -----
Excess.................. $ 8,820 6.62% $13,270 9.56% $14,094 10.08%
======= ===== ======= ===== ======= =====
Core capital............ $10,818 8.12% $15,351 11.06% $16,190 11.58%
Core capital
requirement(2)......... 3,996 3.00 4,162 3.00 4,193 3.00
------- ----- ------- ----- ------- -----
Excess.................. $ 6,822 5.12% $11,189 8.06% $11,997 8.58%
======= ===== ======= ===== ======= =====
Risk-based capital(3)... $11,698 13.27% $16,231 17.85% $17,070 18.67%
Risk-based
capital requirement.... 7,052 8.00 7,274 8.00 7,315 8.00
------- ----- ------- ------ ------- ------
Excess.................. $ 4,646 5.27% $8,957 9.85% $9,755 10.67%
======= ===== ====== ==== ====== =====
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA AT DECEMBER 31, 1996
---------------------------------------------------------
15% Above
Maximum of Estimated Maximum of Estimated
Valuation Range Valuation Range
------------------------- --------------------------
1,725,000 Shares 1,983,750 Shares
at $10.00 Per Share at $10.00 Per Share
------------------------- --------------------------
Percent of Percent of
Total Total
Amount Assets (1) Amount Assets (1)
------ ---------- ------ ----------
<S> <C> <C> <C> <C>
GAAP capital............ $17,030 12.10% $18,008 12.68%
======= ===== ======= =====
Tangible capital........ $17,030 12.10% $18,008 12.68%
Tangible capital
requirement............ 2,112 1.50 2,130 1.50
------- ------ -------- ------
Excess.................. $14,918 10.60% $15,878 11.18%
======= ===== ======= =====
Core capital............ $17,030 12.10% $18,008 12.68%
Core capital
requirement(2)......... 4,224 3.00 4,259 3.00
------- ------ ------- ------
Excess.................. $12,806 9.10% $13,749 9.68%
======= ===== ======= =====
Risk-based capital(3)... $17,910 19.48% $18,888 20.41%
Risk-based
capital requirement.... 7,356 8.00 7,403 8.00
------- ------ ------- ------
Excess.................. $10,554 11.48% $11,485 12.41%
======= ===== ======= =====
</TABLE>
- -------------------
(1) Tangible capital levels are shown as a percentage of tangible assets. Core
capital levels are shown as percentage of total adjusted assets. Risk based
capital levels are shown as a percentage of risk-weighted assets.
(2) The current OTS core capital requirement for savings associations is 3% of
total adjusted assets. The OTS has proposed core capital requirements which
would require a core capital ratio of 3% of total adjusted assets for
thrifts that receive the highest supervisory rating for safety and soundness
and a core capital ratio of 4% to 5% for all other thrifts.
(3) Assumes net proceeds are invested in assets that carry a 50% risk-weighting.
14
<PAGE>
The following table presents the Bank's historical and pro forma capital
position relative to FDIC capital requirements at December 31, 1996. The amount
of capital infused into the Bank for purposes of the following table is 50% of
the net proceeds of the Offerings. For purposes of the table below, the amount
expected to be borrowed by the ESOP and the cost of the shares expected to be
acquired by the MRP are deducted from pro forma regulatory capital. For a
discussion of the assumptions underlying the pro forma capital calculations
presented below, see "USE OF PROCEEDS," "CAPITALIZATION" and "PRO FORMA DATA."
The definitions of the terms used in the table are those provided in the capital
regulations issued by the FDIC. For a discussion of the capital standards
applicable to the Bank following the Charter Conversion, see "REGULATION --
Regulation of Washington Savings Banks -- Capital Requirements."
<TABLE>
<CAPTION>
PRO FORMA AT DECEMBER 31, 1996
---------------------------------------------------------
Minimum of Estimated Minimum of Estimated
Valuation Range Valuation Range
------------------------- --------------------------
1,725,000 Shares 1,983,750 Shares
December 31, 1996 at $10.00 Per Share at $10.00 Per Share
--------------------------- ------------------------- --------------------------
Percent of Percent of Percent of
Total Total Total
Amount Assets (1) Amount Assets (1) Amount Assets (1)
------- ---------- ------ ---------- ------ ----------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
GAAP capital............ $10,818 8.12% $15,351 11.06% $16,190 11.58%
======= ===== ======= ===== ======= =====
Tier I (leverage)
capital................ $10,818 8.12% $15,351 11.06% $16,190 11.58%
Tier I (leverage) capital
requirements (2)....... 5,328 4.00 5,550 4.00 5,591 4.00
------- ----- ------- ---- ------- -----
Excess.................. $ 5,490 4.12% $ 9,801 7.06% $10,599 7.58%
======= ===== ======= ===== ======= =====
Tier I risk-based
capital (3)............ $10,818 12.27% $15,351 16.88% $16,190 17.71%
Tier I risk based capital
requirement............ 3,526 4.00 3,637 4.00 3,657 4.00
------- ----- ------- ----- ------- -----
Excess.................. $ 7,292 8.27% $11,714 12.88% $12,533 13.71%
======= ===== ======= ===== ======= =====
Total risk-based
capital(3)............. $11,698 13.27% $16,231 17.85% $17,070 18.67%
Total risk-based
capital requirement.... 7,052 8.00 7,274 8.00 7,315 8.00
------- ----- ------- ------ ------- ------
Excess.................. $ 4,646 5.27% $8,957 9.85% $9,755 10.67%
======= ===== ====== ==== ====== =====
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA AT DECEMBER 31, 1996
---------------------------------------------------------
Minimum of Estimated Minimum of Estimated
Valuation Range Valuation Range
------------------------- --------------------------
1,275,000 Shares 1,500,000 Shares
at $10.00 Per Share at $10.00 Per Share
------------------------- --------------------------
Percent of Percent of
Total Total
Amount Assets (1) Amount Assets (1)
------ ---------- ------ ----------
<S> <C> <C> <C> <C>
GAAP capital............ $17,030 12.10% $18,008 12.68%
======= ===== ======= =====
Tier I (leverage)
capital................ $17,030 12.10% $18,008 12.68%
Tier I (leverage) capital
requirements (2)....... 5,631 4.00 5,679 4.00
------- ------ -------- ------
Excess.................. $11,399 8.10% $12,329 8.68%
======= ===== ======= =====
Tier I risk-based
capital (3)............ $17,030 18.52% $18,008 19.46%
Tier I risk based capital
requirement............ 3,678 4.00 3,702 4.00
------- ------ ------- ------
Excess.................. $13,352 14.52% $14,306 15.46%
======= ==== ======= ====
Total risk-based
capital(3)............. $17,910 19.48% $18,888 20.41%
Total risk-based
capital requirement.... 7,356 8.00 7,403 8.00
------- ------ ------- ------
Excess.................. $10,554 11.48% $11,485 12.41%
======= ===== ======= =====
</TABLE>
- -------------------
(1) Tier I capital levels are shown as a percentage of tangible assets. Tier I
risk-based capital levels and Total risk-based capital levels are shown as a
percentage of risk-weighted assets.
(2) The FDIC requires state-chartered savings banks to have a minimum leverage
ratio of Tier I capital to total assets of at least 3%; provided, however,
that all institutions, other than those receiving the highest rating during
the examination process and not anticipating any significant growth, are
required to maintain a ratio of 1% to 2% above the stated minimum, with an
absolute minimum leverage ratio of at least 4%. For purposes of this table,
it has been assumed that the leverage capital requirement is 4% of total
average assets.
(3) Assumes net proceeds are invested in assets that carry a 50% risk-weighting.
15
<PAGE>
PRO FORMA DATA
Under the Plan of Conversion, the Common Stock must be sold at an aggregate
price equal to the estimated pro forma market value of the Holding Company and
the Bank as converted, based upon an independent valuation. The Estimated
Valuation Range as of February 28, 1997 is from a minimum of $12,750,000 to a
maximum of $17,250,000 with a midpoint of $15,000,000, or, at a price per share
of $10.00, a minimum number of shares of 1,275,000, a maximum number of shares
of 1,725,000 and a midpoint number of shares of 1,500,000. The actual net
proceeds from the sale of the Common Stock cannot be determined until the
Conversion is completed. However, net proceeds set forth on the following table
are based upon the following assumptions: (i) Sandler O'Neill will receive a fee
equal to 1.5% of the aggregate Purchase Price of shares sold in the Subscription
and Direct Community Offering, excluding shares purchased by directors,
officers, employees and any immediate family member thereof, and the ESOP,
subject to a maximum fee equal to 1.5% of the aggregate gross proceeds at the
midpoint of the Estimated Valuation Range; (ii) all of the Common Stock will be
sold in the Subscription and Direct Community Offerings; and (iii) Conversion
expenses, excluding the fees paid to Sandler O'Neill, will total approximately
$472,000. Actual expenses may vary from those estimated.
The pro forma consolidated net income of the Bank for the year ended March
31, 1996 and the nine months ended December 31, 1996 has been calculated as if
the Conversion had been consummated at the beginning of each such period and the
estimated net proceeds received by the Holding Company and the Bank had been
invested at 5.68% at the beginning of each period, which represents the one year
U.S. Treasury Bill yield as of December 31, 1996. While OTS regulations provide
for the use of a yield representing the arthimetic average of the weighted
average yield earned by the Bank on its interest-earning assets and the rates
paid on its deposits, the Holding Company believes that the U.S. Treasury Bill
represents a more realistic yield on the Bank's investment. As discussed under
"USE OF PROCEEDS," the Holding Company expects to retain 50% of the net proceeds
of the Offerings from which it will fund the ESOP loan. A pro forma after-tax
return of 3.52% is used for both the Holding Company and the Bank for the year
ended March 31, 1996 and the nine months ended December 31, 1996, after giving
effect to an incremental combined federal and state tax rate of 38%. Historical
and pro forma per share amounts have been calculated by dividing historical and
pro forma amounts by the number of shares of Common Stock indicated in the
footnotes to the table. Per share amounts have been computed as if the Common
Stock had been outstanding at the beginning of the period or at the dates
indicated, but without any adjustment of per share historical or pro forma
stockholders' equity to reflect the earnings on the estimated net proceeds.
The following tables summarize the historical net income and retained
earnings of the Bank and the pro forma consolidated net income and stockholders'
equity of the Holding Company for the periods and at the dates indicated, based
on the minimum, midpoint and maximum of the Estimated Valuation Range and based
on a 15% increase in the maximum of the Estimated Valuation Range. No effect has
been given to: (i) the shares to be reserved for issuance under the Holding
Company's Stock Option Plan, which is expected to be voted upon by stockholders
at a meeting to be held no earlier than six months following consummation of the
Conversion; (ii) withdrawals from deposit accounts for the purpose of purchasing
Common Stock in the Conversion; (iii) the issuance of shares from authorized but
unissued shares to the MRP, which is expected to be voted upon by stockholders
at a meeting to be held no earlier than six months following consummation of the
Conversion; or (iv) the establishment of a liquidation account for the benefit
of Eligible Account Holders and Supplemental Eligible Account Holders. See
"MANAGEMENT" OF THE BANK--Benefits--Stock Option Plan" and "THE CONVERSION--
Stock Pricing and Number of Shares Issued." Shares of Common Stock may be
purchased with funds on deposit at the Bank, which will reduce deposits by the
amounts of such purchases. Accordingly, the net amount of funds available for
investment will be reduced by the amount of deposit withdrawals used to fund
stock purchases.
The following pro forma information may not be representative of the
financial effects of the Conversion at the date on which the Conversion actually
occurs and should not be taken as indicative of future results of operations.
Stockholders' equity represents the difference between the stated amounts of
consolidated assets and liabilities of the Holding Company computed in
accordance with GAAP. Stockholders' equity has not been increased or decreased
to reflect the difference between the carrying value of loans and
16
<PAGE>
other assets and market value. Stockholders' equity is not intended to represent
fair market value nor does it represent amounts that would be available for
distribution to stockholders in the event of liquidation.
<TABLE>
<CAPTION>
At or For the Year-Ended March 31, 1996
-------------------------------------------------------
Minimum of Midpoint of Maximum of 15% Above
Estimated Estimated Estimated Maximum of
Valuation Valuation Valuation Estimated
Range Range Range Valuation Range
--------- ---------- --------- ---------------
1,275,000 1,500,000 1,725,000 1,983,750(1)
Shares Shares Shares Shares
at $10.00 at $10.00 at $10.00 at $10.00
Per Share Per Share Per Share Per Share
--------- --------- --------- ---------
(In Thousands, Except Per Share Amounts)
<S> <C> <C> <C> <C>
Gross proceeds.................................................. $12,750 $15,000 $17,250 $19,838
Less: estimated expenses........................................ 625 656 687 697
-------- -------- -------- --------
Estimated net proceeds.......................................... 12,125 14,344 16,563 19,141
Less: Common Stock acquired by ESOP............................. (1,020) (1,200) (1,380) (1,587)
Less: Common Stock to be acquired by MRP........................ (510) (600) (690) (794)
-------- -------- -------- --------
Net investable proceeds.................................... $10,595 $12,544 $14,493 $16,760
======== ======= ======= =======
Consolidated net income:
Historical..................................................... $588 $588 $588 $588
Pro forma income on net proceeds(2)............................ 373 442 510 590
Pro forma ESOP adjustments(3).................................. (90) (106) (122) (141)
Pro forma MRP adjustments(4)................................... (63) (74) (86) (98)
-------- -------- -------- --------
Pro forma net income......................................... $808 $850 $890 $939
======== ======== ======== ========
Consolidated net income per share (5)(6):
Historical..................................................... $0.50 $0.42 $0.36 $0.32
Pro forma income on net proceeds............................... 0.31 0.32 0.32 0.32
Pro forma ESOP adjustments(3).................................. (0.08) (0.08) (0.08) (0.08)
Pro forma MRP adjustments(4)................................... (0.05) (0.05) (0.05) (0.05)
-------- -------- -------- --------
Pro forma net income per share............................... $0.68 $0.61 $0.55 $0.51
======== ======== ======== ========
Consolidated stockholders' equity (book value):
Historical..................................................... $10,356 $10,356 $10,356 $10,356
Estimated net proceeds......................................... 12,125 14,344 16,563 19,141
Less: Common Stock acquired by ESOP............................ (1,020) (1,200) (1,380) (1,587)
Less: Common Stock to be acquired by MRP(4).................... (510) (600) (690) (794)
-------- -------- -------- --------
Pro forma stockholders' equity(7)............................ $20,951 $22,900 $24,849 $27,116
======== ======== ======== ========
Consolidated stockholders' equity per share(6)(8):
Historical(6).................................................. $8.12 $6.90 $6.00 $5.22
Estimated net proceeds......................................... 9.51 9.57 9.61 9.65
Less: Common Stock acquired by ESOP............................ (0.80) (0.80) (0.80) (0.80)
Less: Common Stock to be acquired by MRP(4).................... (0.40) (0.40) (0.40) (0.40)
-------- -------- -------- --------
Pro forma stockholders' equity per share(9).................. $16.43 $15.27 $14.41 $13.67
======== ======== ======== ========
Purchase Price as a multiple of pro forma
net income per share........................................... 14.71x 16.39x 18.18x 19.61x
Purchase Price as a percentage of pro forma
stockholders' equity per share................................. 60.86% 65.48% 69.40% 73.15%
</TABLE>
(footnotes on page 19)
17
<PAGE>
<TABLE>
<CAPTION>
At or For the Nine Months Ended December 31, 1996
----------------------------------------------------------
Minimum of Midpoint of Maximum of 15% Above
Estimated Estimated Estimated Maximum of
Valuation Valuation Valuation Estimated
Range Range Range Valuation Range
--------- --------- --------- ---------------
1,275,000 1,500,000 1,725,000 1,983,750(1)
Shares Shares Shares Shares
at $10.00 at $10.00 at $10.00 at $10.00
Per Share Per Share Per Share Per Share
(In Thousands, Except Per Share Amounts)
<S> <C> <C> <C> <C>
Gross proceeds.................................................. $12,750 $15,000 $17,250 $19,838
Less: estimated expenses........................................ 625 656 687 697
-------- -------- -------- --------
Estimated net proceeds.......................................... 12,125 14,344 16,563 19,141
Less: Common Stock acquired by ESOP............................. (1,020) (1,200) (1,380) (1,587)
Less: Common Stock to be acquired by MRP........................ (510) (600) (690) (794)
Net investable proceeds................................... $10,595 $12,544 $14,493 $16,760
======= ======= ======= =======
Consolidated net income:
Historical.................................................... $423 $423 $423 $423
Pro forma income on net proceeds(2)........................... 280 331 383 443
Pro forma ESOP adjustments(3)................................. (68) (80) (92) (105)
Pro forma MRP adjustments(4).................................. (47) (56) (64) (74)
-------- -------- -------- --------
Pro forma net income........................................ $588 $618 $650 $687
======== ======== ======== ========
Consolidated net income per share (5)(6):
Historical.................................................... $0.36 $0.30 $0.26 $0.23
Pro forma income on net proceeds.............................. 0.23 0.24 0.24 0.24
Pro forma ESOP adjustments(3)................................. (0.06) (0.06) (0.06) (0.06)
Pro forma MRP adjustments(4).................................. (0.04) (0.04) (0.04) (0.04)
-------- -------- -------- --------
Pro forma net income per share.............................. $0.49 $0.44 $0.40 $0.37
======== ======== ======== ========
Consolidated stockholders' equity (book value):
Historical.................................................... $10,818 $10,818 $10,818 $10,818
Estimated net proceeds........................................ 12,125 14,344 16,563 19,141
Less: Common Stock acquired by ESOP........................... (1,020) (1,200) (1,380) (1,587)
Less: Common Stock to be acquired by MRP(4)................... (510) (600) (690) (794)
======== ======== ======== ========
Pro forma stockholders' equity(7)........................... $21,413 $23,362 $25,311 $27,578
======== ======== ======== ========
Consolidated stockholders' equity per share(6)(8):
Historical(6)................................................. $8.48 $7.21 $6.27 $5.45
Estimated net proceeds........................................ 9.51 9.56 9.60 9.65
Less: Common Stock acquired by ESOP........................... (0.80) (0.80) (0.80) (0.80)
Less: Common Stock to be acquired by MRP(4)................... (0.40) (0.40) (0.40) (0.40)
-------- -------- -------- --------
Pro forma stockholders' equity per share(9)................. $16.79 $15.57 $14.65 $13.90
======== ======== ======== ========
Purchase Price as a multiple of pro forma
net income per share(10)...................................... 16.39x 18.18x 20.00x 21.74x
Purchase Price as a percentage of pro forma
stockholders' equity per share................................ 59.56% 64.23% 68.26% 71.94%
</TABLE>
(footnotes on following page)
18
<PAGE>
- -----------------------
(1) Gives effect to the sale of an additional 258,750 shares in the Conversion,
which may be issued to cover an increase in the pro forma market value of
the Holding Company and the Bank as converted, without the resolicitation
of subscribers or any right of cancellation. The issuance of such
additional shares will be conditioned on a determination of the independent
appraiser that such issuance is compatible with its determination of the
estimated pro forma market value of the Holding Company and the Bank as
converted. See "THE CONVERSION --Stock Pricing and Number of Shares to be
Issued."
(2) No effect has been given to withdrawals from savings accounts for the
purpose of purchasing Common Stock in the Conversion.
(3) It is assumed that 8% of the shares of Common Stock offered in the
Conversion will be purchased by the ESOP. The funds used to acquire such
shares will be borrowed by the ESOP (at an interest rate equal to the prime
rate as published in The Wall Street Journal on the closing date of the
Conversion, which rate is currently ________%) from the net proceeds from
the Offerings retained by the Holding Company. The amount of this borrowing
has been reflected as a reduction from gross proceeds to determine
estimated net investable proceeds. The Bank intends to make contributions
to the ESOP in amounts at least equal to the principal and interest
requirement of the debt. As the debt is paid down, stockholders' equity
will be increased. The Bank's payment of the ESOP debt is based upon equal
installments of principal over a seven-week period, assuming a combined
federal and state tax rate of 38%. Shares purchased by the ESOP with the
proceeds of the loan will be held in a suspense account and released on a
pro rata basis as the loan is repaid. Interest income earned by the Holding
Company on the ESOP debt offsets the interest paid by the Bank on the ESOP
loan. No reinvestment is assumed on proceeds contributed to fund the ESOP.
The ESOP expense reflects adoption of Statement of Position ("SOP") 93-6,
"Employers' Accounting for Employee Stock Ownership Plans," which will
require recognition of expense based upon shares committed to be released
and the exclusion of unallocated shares from earnings per share
computations. The valuation of shares committed to be released would be
based upon the average market value of the shares during the year, which,
for purposes of this calculation, was assumed to be equal to the $10.00 per
share Purchase Price. See "MANAGEMENT OF THE BANK -- Benefits -- Employee
Stock Ownership Plan."
(4) Gives effect to the MRP expected to be adopted by the Holding Company
following the Conversion. If the MRP is approved by stockholders, the MRP
intends to acquire an amount of Common Stock equal to 4% of the shares of
Common Stock issued in the Conversion either through open market purchases
or from authorized but unissued shares of Common Stock. In calculating the
pro forma effect of the MRP, it is assumed that the required stockholder
approval has been received, that the shares were acquired by the MRP at the
beginning of the period presented in the open market purchases at the
Purchase Price and that 20% of the amount contributed was an amortized
expense during such period. The issuance of authorized by unissued shares
in Common Stock instead of open market purchases would dilute the voting
and ownership interest of existing stockholders by approximately 3.85% and
pro forma net income per share would be $0.65, $0.58, $0.53 and $0.47 at
the minimum, midpoint, maximum and 15% above the maximum of the Estimated
Valuation Range, respectively, for the year ended March 31, 1996, and
$0.47, $0.42, $0.39 and $0.34 at the minimum, midpoint, maximum and 15%
above the maximum of the Estimated Valuation Range, respectively, for the
nine months ended December 31, 1996, and pro forma stockholders' equity
per share would be $15.80, $14.67, $13,85 and $12.66 at the minimum,
midpoint, maximum and 15% above the maximum of the Estimated Valuation
Range, respectively, at March 31, 1996 and $16.14, $14.97, $14.11 and
$12.87 at the minimum, midpoint, maximum and 15% above the maximum of the
Estimated Valuation Range, respectively, for the nine months ended December
31, 1996. Shares issued under the MRP vest over a five-year period at 20%
per year and, for purposes of this table, compensation expense is
recognized on a straight-line basis over each vesting period. In the event
the fair market value per share is greater than $10.00 per share on the
date of stockholder approval of the MRP, total MRP expense would increase.
No effect has been given to the share reserved for issuance under the
proposed Stock Option Plan. If stockholders approve the Stock Option Plan
following the Conversion, the Holding Company will have reserved for
issuance under the Stock Option Plan authorized but unissued shares of
Common Stock representing an amount of shares equal to 10% of the shares
sold in the Conversion. If all of the options were to be exercised
utilizing these authorized but unissued shares rather than
19
<PAGE>
treasury shares which could be acquired, the voting and ownership interests
of existing stockholders would be diluted by approximately 9.1%. See
"MANAGEMENT OF THE BANK -- Benefits -- Stock Option Plan" and "--
Management Recognition Plan" and "RISK FACTORS -- Possible Dilutive Effect
of Benefit Programs."
(5) Per share amounts are based upon shares outstanding of 1,187,571,
1,397,143, 1,606,714 and 1,847,721 at the minimum, midpoint, maximum and
15% above the maximum of the Estimated Valuation Range, respectively, for
the year ended March 31, 1996 and 1,192,429, 1,402,857, 1,613,286 and
1,855,279 at the minimum, midpoint, maximum and 15% above the maximum of
the Estimated Valuation Range, respectively, for the nine months ended
December 31, 1996, which includes the shares of Common Stock sold in the
Conversion less the number of shares assumed to be held by the ESOP not
committed to be released within the first year following the Conversion.
(6) Historical per share amounts have been computed as if the shares of Common
Stock expected to be issued in the Conversion had been outstanding at the
beginning of the period or on the date shown, but without any adjustment of
historical net income or historical retained earnings to reflect the
investment of the estimated net proceeds of the sale of shares in the
Conversion, the additional ESOP expense or the proposed MRP expense, as
described above.
(7) "Book value" represents the difference between the stated amounts of the
Bank's assets and liabilities. The amounts shown do not reflect the
liquidation account which will be established for the benefit of Eligible
Account Holders and Supplemental Eligible Account Holders in the
Conversion, or the federal income tax consequences of the restoration to
income of the Bank's special bad debt reserves for income tax purposes
which would be required in the unlikely event of liquidation. See "THE
CONVERSION -- Effects of Conversion to Stock Form on Depositors and
Borrowers of the Bank" and "TAXATION." The amounts shown for book value do
not represent fair market values or amounts distributable to stockholders
in the unlikely event of liquidation.
(8) Per share amounts are based upon shares outstanding of 1,257,000,
1,500,000, 1,725,000 and 1,983,750 at the minimum, midpoint, maximum and
15% above the maximum of the Estimated Valuation Range, respectively.
(9) Does not represent possible future price appreciation or depreciation of
the Common Stock.
(10) Annualized.
20
<PAGE>
FIRST FEDERAL BANK OF IDAHO, A FEDERAL SAVINGS BANK
CONSOLIDATED STATEMENTS OF INCOME
The following Consolidated Statements of Income of First Federal Bank of
Idaho, a Federal Savings Bank (now known as "FirstBank Northwest") and
Subsidiary for the fiscal years ended March 31, 1995 and 1996 have been audited
by BDO Seidman, LLP, Spokane, Washington, independent auditors, whose report
thereon appears elsewhere in this Prospectus. These statements should be read in
conjunction with the Consolidated Financial Statements and related Notes
included elsewhere herein. The Consolidated Statements of Income for the nine
months ended December 31, 1995 and 1996 are unaudited but, in the opinion of
management, reflect all adjustments consisting only of normal recurring
adjustments necessary for a fair presentation of the results of such periods.
The results for the nine month period ended December 31, 1996 are not
necessarily indicative of the results of the Bank that may be expected for the
entire fiscal year.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED MARCH 31, DECEMBER 31,
-------------------- -----------------
1995 1996 1995 1996
---- ---- ---- ----
(unaudited)
<S> <C> <C> <C> <C>
Interest Income:
Loans receivable............................. $6,825,840 $8,407,900 $6,324,493 $6,878,474
Mortgage backed and related securities....... 135,654 156,879 117,219 101,322
Investment securities........................ 501,505 456,907 340,724 506,202
Other interest earning assets................ 195,209 530,207 242,260 154,418
---------- ---------- ---------- ----------
Total interest income...................... 7,658,208 9,551,893 7,024,696 7,640,416
Interest Expense:
Deposits (Note 6)............................ 3,494,263 4,792,837 3,349,758 3,698,993
Advances from FHLB........................... 101,552 365,093 321,994 315,383
---------- ---------- ---------- ----------
Total interest expense..................... 3,595,815 5,157,930 3,671,752 4,014,376
Net interest income........................ 4,062,393 4,393,963 3,352,944 3,626,040
Provision for loan losses (Note 3)............. 27,453 150,000 78,312 193,619
---------- ---------- ---------- ----------
Net interest income after provision
for loan losses............................ 4,034,940 4,243,963 3,274,632 3,432,421
========== ========== ========== ==========
Non-interest Income:
Gain on sale of loans........................ 1,044,831 1,370,352 1,036,973 1,094,716
Service fees and charges..................... 782,490 812,751 596,804 673,953
Commissions.................................. 63,951 28,838 27,147 46,607
---------- ---------- ---------- ----------
Total non-interest income.................. 1,891,272 2,211,941 1,660,924 1,815,276
Non-interest Expense:
Compensation and related benefits
(Notes 10 and 11).......................... 2,862,441 3,280,163 2,285,225 2,462,006
Occupancy.................................... 661,654 671,258 490,060 504,181
Deposit insurance premiums................... 206,400 234,728 154,800 696,925
Advertising.................................. 103,326 122,162 73,442 123,352
Data processing.............................. 83,603 88,432 66,768 93,940
Supplies and postage......................... 207,040 270,525 192,578 196,630
Other........................................ 596,359 825,851 445,527 597,278
---------- ---------- ---------- ---------
Total non-interest expense................. 4,720,823 5,493,119 3,708,400 4,674,312
Income before income tax expense........... 1,205,389 962,785 1,227,156 573,385
Income tax expense (Note 7).................... 452,226 375,000 427,826 150,675
----------- ---------- ---------- ---------
Net income................................. $ 753,163 $ 587,785 $ 799,330 $ 422,710
========== ========== ========== ==========
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
21
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
Management's discussion and analysis of financial condition and results of
operations is intended to assist in understanding the financial condition and
results of operations of the Bank. The information contained in this section
should be read in conjunction with the Consolidated Financial Statements and
accompanying Notes thereto and the other sections contained in this Prospectus.
The profitability of the Bank's operations depends primarily on its net
interest income, its non-interest income (principally from mortgage banking
activities) and its non-interest expense. Net interest income is the difference
between the income the Bank receives on its loan and investment portfolio and
its cost of funds, which consists of interest paid on deposits and borrowings.
Net interest income is a function of the Bank's interest rate spread, which is
the difference between the yield earned on interest-earning assets and the rate
paid on interest-bearing liabilities, as well as a function of the average
balance of interest-earning assets as compared to the average balance of
interest-bearing liabilities. Non-interest income is comprised of income from
mortgage banking activities, gain on the occasional sale of assets and
miscellaneous fees and income. Mortgage banking generates income from the sale
of mortgage loans and from servicing fees on loans serviced for others. The
contribution of mortgage banking activities to the Bank's results of operations
is highly dependent on the demand for loans by borrowers and investors, and
therefore the amount of gain on sale of loans may vary significantly from period
to period as a result of changes in market interest rates and the local and
national economy. The Bank's profitability is also affected by the level of
non-interest expense. Non-interest expenses include compensation and benefits,
occupancy and equipment expenses, deposit insurance premiums, data servicing
expenses, advertising expenses, supplies and postage, and other operating costs.
The Bank's results of operations may be adversely affected during periods of
reduced loan demand to the extent that non-interest expenses associated with
mortgage banking activities are not reduced commensurate with the decrease in
loan originations.
OPERATING STRATEGY
The Bank's primary goal has been to improve the Bank's profitability while
maintaining a sound capital position. To accomplish this goal, the Bank has
employed an operating strategy that includes: (1) originating for its portfolio
residential mortgage loans, primarily with adjustable rates or with fixed rates
with terms of 15 years or less, secured by properties located in its primary
market area; (2) enhancing net income and controlling interest rate risk by
originating fixed-rate residential mortgage loans for sale in the secondary
market, as market conditions permit, as a means of generating current income
through the recognition of cash gains on loan sales and loan servicing fees; (3)
increasing its average yield on interest-earning assets by originating for
portfolio higher yielding construction, commercial real estate and agricultural
real estate loans; and (4) controlling asset growth to a level sustainable by
the Bank's capital position. In anticipation of the Charter Conversion, the
Bank has adopted a community banking strategy pursuant to which it will expand
the products and services it offers within its primary market area in order to
improve market share and increase the average yield of its interest-earning
assets. Specifically, the Bank intends to expand its agricultural real estate
and commercial real estate lending activities. The Bank also intends to expand
its non-mortgage lending activities by increasing its emphasis on originating
agricultural operating loans and commercial business loans. These loans afford
the Bank the opportunity to achieve higher interest rates with shorter terms to
maturity than residential mortgage loans. As part of this strategy, the Bank
recently hired an experienced commercial loan officer. There can be no
assurances that the Bank will be successful in its efforts to increase its
originations of these types of loans. Management anticipates that the Bank will
incur initial start-up and ongoing expenses in connection with the opening of
its Clarkston, Washington office and as various programs and services, such as
its commercial real estate and business lending operations, are introduced or
expanded. These expenses could reduce earnings for a period of time while
income from new programs and services increases to a level sufficient to cover
the additional expenses.
22
<PAGE>
COMPARISON OF FINANCIAL CONDITION AT DECEMBER 31, 1996 AND MARCH 31, 1996
Total assets increased $3.4 million, or 2.6%, from $129.8 million at March
31, 1996 to $133.2 million at December 31, 1996. The growth in assets is
primarily attributable to an increase in loans receivable, which was partially
offset by a decrease in cash and securities. Net loans receivable increased
from $93.8 million at March 31, 1996 to $111.1 million at December 31, 1996.
During the nine months ended December 31, 1996, the Bank retained for its
portfolio some fixed-rate mortgage loans with terms of 15 years or less.
Adjustable-rate mortgage loans that adjust after a fixed period of three or five
years, which the Bank retains for its portfolio, were in higher demand by
borrowers during this period. Between March 31, 1996 and December 31, 1996, the
Bank decreased its cash and cash equivalents and investment and mortgage-backed
securities. Cash and cash equivalents decreased from $13.6 million to $5.8
million and investment securities decreased from $11.9 million to $5.2 million
as the Bank used available cash and the proceeds from the sale and maturity of
investment securities to fund loan originations and deposit withdrawals.
Mortgage-backed securities decreased from $2.5 million to $2.3 million as a
result of principal repayments.
Total liabilities increased from $119.5 million at March 31, 1996 to $122.4
million at December 31, 1996. Deposits decreased $10.0 million from $115.3
million at March 31, 1996 to $105.3 million at December 31, 1996. In late 1995,
the Bank offered a 75-day certificate of deposit with a 7.5% interest rate to
promote the Bank's 75th anniversary. This promotion attracted approximately $20
million in new deposits. Upon the expiration of the promotional certificates of
deposit in early 1996, most of the funds were rolled over into six month or two
year certificates of deposit. The decrease in deposits from March 31, 1996 to
December 31, 1996 reflects the withdrawal of funds following the maturity of
these six month certificates as well as withdrawals following the maturity of
some higher yielding five-year certificates of deposit. FHLB advances increased
from $2.3 million at March 31, 1996 to $15.1 million at December 31, 1996.
Because of the decrease in deposits, the Bank increased its use of borrowings
to fund asset growth.
COMPARISON OF OPERATING RESULTS FOR THE NINE MONTHS ENDED DECEMBER 31, 1995 AND
1996
NET INCOME. Net income decreased $376,000, or 47.1%, from $799,000 for the
nine months ended December 31, 1995 to $423,000 for the nine months ended
December 31, 1996. The Bank experienced greater net interest income during
1996, but this was more than offset by increases in non-interest expense and the
provision for loan losses. Non-interest expense for the nine months ended
December 31, 1996 included a one-time, special assessment of $584,000 for the
purpose of recapitalizing the SAIF. Excluding the special assessment, net
income would have been $778,000 for the nine months ended December 31, 1996.
NET INTEREST INCOME. Net interest income increased by $273,000, or 8.1%,
from $3.4 million for the nine months ended December 31, 1995 to $3.6 million
for the nine months ended December 31, 1996. This increase resulted from the
growth of the Bank, as the average balance of interest-earning assets increased
$15.8 million, or 14.8%, between the periods. This growth was partially offset
by a 20 basis point decrease in the spread between the yield on interest-earning
assets and the rate paid on interest-bearing liabilities from 3.88% for the nine
months ended December 31, 1995 to 3.68% for the same period in 1996.
Total interest income increased $616,000, or 8.8%, from $7.0 million for
the nine months ended December 31, 1995 to $7.6 million for the nine months
ended December 31, 1996. Interest income on loans receivable increased $554,000
from $6.3 million to $6.9 million as a result of an increase in the average
balance of loans from $90.9 million for the nine months ended December 31, 1995
to $103.4 million for the nine months ended December 31, 1996. The Bank
increased its loan portfolio by offering ARM loans that adjust after a fixed
period of three or five years and by retaining some fixed-rate mortgage loans in
its portfolio. The increase in the average balance of loans was partially
offset by a decrease in the average yield on the loan portfolio from 9.28% to
8.87%. Interest income on mortgage-backed and related securities decreased
$16,000 between the periods primarily as a result of a smaller average balance
in 1996. Interest income on investment securities increased $166,000 between
the periods as a result of a larger average balance in 1996, which was partially
offset by a decrease in the average yield. Interest
23
<PAGE>
income on other interest-earning assets decreased $88,000 between the periods
primarily as a result of the decrease in the average yield on such assets from
4.50% to 3.05%.
Total interest expense increased $343,000, or 9.3%, from $3.7 million for
the nine months ended December 31, 1995 to $4.0 million for the nine months
ended December 31, 1996. Interest expense on deposits increased $350,000
between the periods from $3.3 million for the nine months ended December 31,
1995 to $3.7 million for the nine months ended December 31, 1996. Interest paid
on transaction accounts decreased $49,000 between the periods as a result of a
decrease in the rate paid from 2.49% to 2.27%. The decrease in the average rate
paid on transaction accounts was partially offset by a $559,000 increase in the
average balance of such accounts. Interest paid on certificates of deposit
increased $399,000 between the periods. This increase was the result of an
increase in the average balance of certificate accounts from $58.5 million to
$74.1 million, which was partially offset by a decrease in the average rate paid
from 6.12% to 5.55%. In late 1995, the Bank offered a 75-day certificate of
deposit to promote the Bank's 75th anniversary, which resulted in the receipt of
$20 million of new deposits. Much of this amount remained on deposit with the
Bank at lower rates after the maturity of the promotional certificate of
deposit. Interest paid on FHLB advances decreased $7,000 between the periods as
a $349,000 decrease in the average balance of advances was partially offset by a
21 basis point increase in the average rate paid.
PROVISION FOR LOAN LOSSES. Provisions for loan losses are charged to
operations to bring the total allowance for loan losses to a level considered by
management to be adequate to provide for estimated losses based on management's
evaluation of the portfolio, past experience, prevailing market conditions and
other relevant factors. Management also reviews individual loans for which full
collectibility may not be reasonably assured and considers, among other factors,
the present value of expected future cash flows, including the estimated fair
value of the underlying collateral. Provisions for loan losses totalled
$194,000 during the nine months ended December 31, 1996 compared to provisions
of $78,000 during the nine months ended December 31, 1995. The Bank made larger
provisions in 1996 after considering the growth of its loan portfolio, including
the growth of its commercial real estate and consumer loans, which generally are
riskier than residential mortgage loans.
The Bank's allowance for loan losses was $880,000, or 0.74% of total loans
receivable, at December 31, 1996, compared to $631,000, or 0.63% of total loans
receivable, at December 31, 1995. Net loan charge-offs during the nine months
ended December 31, 1996 were $15,000 compared to $2,000 during the same period
in 1995. Based on the level of the allowance for loan losses in relation to
loans receivable and delinquent loans, management believes the allowance for
loan losses was adequate at December 31, 1996. Although management uses the
best information available, future adjustments to the allowance may be necessary
due to economic, operating, regulatory and other conditions that may be beyond
the Bank's control. While the Bank maintains its allowance for loan losses at a
level which it considers to be adequate to provide for potential losses, there
can be no assurance that further additions will not be made to the allowance for
loan losses and that actual losses will not exceed the estimated amounts.
Management anticipates making additional provisions for loan losses in future
periods as the Bank increases the amount of its agricultural real estate,
commercial real estate and non-real estate loans.
NON-INTEREST INCOME. Total non-interest income increased $154,000, from
$1.7 million for the nine months ended December 31, 1995 to $1.8 million for the
nine months ended December 31, 1996. Income on gain on sales of loans, which is
derived primarily from the sale of government insured loans on a servicing-
released basis, increased $58,000 between the periods as a result of the
adoption of Statement of Financial Accounting Standard ("SFAS") No. 122 combined
with a smaller volume of loans sold on a servicing-released basis in 1996.
Total loans sold servicing-released decreased from $38.0 million during the nine
months ended December 31, 1995 to $26.0 million during the nine months ended
December 31, 1996. This was offset by an increase of $77,000 in service fees
and charges and $20,000 in commissions. Service fees and charges increased as a
result of the growth of the amount of loans serviced for others and increased
fees on transaction accounts, while commissions increased as a result of higher
annuity sales by the Bank's subsidiary.
Pursuant to SFAS No. 122, since April 1, 1996, the Bank has been required
to recognize as separate assets servicing rights that were generated by the Bank
through the sale of loans on a servicing retained basis. As a result, when a
loan is sold servicing-retained, the Bank recognizes additional gain during the
period in which loan is sold
24
<PAGE>
for the capitalized cost of those mortgage servicing rights. Furthermore, SFAS
No. 122 requires the Bank to periodically evaluate all capitalized mortgage
servicing rights for impairment based upon the current fair value of these
rights. Accordingly, future changes in the fair value of the Bank's capitalized
mortgage servicing rights may require the Bank to reduce the carrying value of
these rights by taking a charge against earnings. As a result of the adoption
of SFAS No. 122, from time to time the Bank may reassess its practice of selling
loans on a servicing-retained basis.
NON-INTEREST EXPENSE. Total non-interest expense increased $1.0 million,
or 26.1%, from $3.7 million for the nine months ended December 31, 1995 to $4.7
million for the nine months ended December 31, 1996. Deposit insurance premiums
increased from $155,000 for the nine months ended December 31, 1995 to $697,000
for the nine months ended December 31, 1996. Included in deposit insurance
premiums for the 1996 period is a one-time, special assessment of $584,000.
Pursuant to legislation enacted in September 1996, the FDIC imposed a special
assessment on each depository institution with SAIF-assessable deposits which
resulted in the SAIF achieving its designated reserve ratio. In connection
therewith, the FDIC reduced deposit insurance premiums. Compensation and
related benefits increased $177,000, or 7.7%, between the periods as a result of
an increase in the number of employees and a contribution of $130,000 in
connection with the termination of a defined benefit pension plan that was
suspended in 1995. Occupancy expense increased $14,000, or 2.9%, between the
periods as a result of opening of the Coeur d'Alene branch in November 1995.
Other non-interest expenses increased $233,000, or 30.0%, primarily due to a
loss of $90,000 on the sale of mutual funds, an increase of $50,000 in
advertising expenses and an increase of $27,000 in data processing costs. The
Bank's non-interest expenses are higher than the average expenses of
institutions of comparable size because of the greater resources required for
the Bank's mortgage banking operations, diversified lending activities and
branch network. The Bank expects to incur additional expenses in connection
with the opening and operation of its Clarkston, Washington office. In
addition, the Bank expects to experience increased costs following consummation
of the Conversion because of expenses associated with the ESOP and the other
stock benefit plans as well as the additional costs of operating as a public
company.
INCOME TAXES. Income taxes were $428,000 for the nine months ended
December 31, 1995 (resulting in an effective tax rate of 34.9%) compared with
$150,000 for the nine months ended December 31, 1996 (resulting in an effective
tax rate of 26.3%). The decrease of $278,000 in tax expense is principally
attributable to a decrease in pre-tax income between the periods.
COMPARISON OF OPERATING RESULTS FOR THE YEARS ENDED MARCH 31, 1995 AND 1996
NET INCOME. Net income decreased $165,000, or 22.0%, from $753,000 for the
year ended March 31, 1995 to $588,000 for the year ended March 31, 1996. The
Bank experienced greater net interest income and non-interest income in fiscal
1996 compared to fiscal 1995. However, these gains were more than offset by
increases in non-interest expense and the provision for loan losses.
NET INTEREST INCOME. Net interest income increased by $332,000, or 8.2%,
from $4.1 million for the year ended March 31, 1995 to $4.4 million for the year
ended March 31, 1996. This increase resulted from the growth of the Bank's
assets as the average balance of interest-earning assets increased $15.1
million, or 15.4%, from fiscal 1995 to fiscal 1996. The Bank's spread between
the yield on interest-earning assets and the rate paid on interest-bearing
liabilities decreased 26 basis points from 3.87% for the year ended March 31,
1995 to 3.61% for the year ended March 31, 1996.
Total interest income increased $1.9 million, or 24.7%, from $7.7 million
for the year ended March 31, 1995 to $9.6 million for the year ended March 31,
1996. The increase in interest income between the periods was primarily the
result of an increase in interest income on loans, which increased by $1.6
million, or 23.2%, from $6.8 million during fiscal 1995 to $8.4 million during
fiscal 1996. The average balance of loans grew from $79.9 million in fiscal
1995 to $91.8 in fiscal 1996. Most of the increase was in the Bank's
residential loan portfolio. The growth of the loan portfolio was funded with
FHLB advances and a decrease in cash and cash equivalents. In addition, the
average yield on the loan portfolio increased from 8.54% to 9.15% as a result of
upward adjustments on ARM loans and the retention of 15-year fixed-rate loans
and ARM loans with initial fixed periods of three and five years.
25
<PAGE>
Interest income on mortgage-backed and related securities increased $21,000 due
to upward adjustments on adjustable-rate securities. Interest income on
investment securities decreased by $45,000 as a result of a smaller average
balance in fiscal 1996, which was partially offset by a higher average yield.
Interest income on other interest-earning assets increased $335,000 as a result
of an increase in the average balance of such assets and an increase in the
average yield from 2.79% to 4.41%.
Interest expense increased by $1.6 million, or 43.4%, from $3.6 million for
the year ended March 31, 1995 to $5.2 million for the year ended March 31, 1996.
The increase in interest expense was due to an increase in both interest paid on
deposits and interest paid on FHLB advances. Interest expense on deposits
increased $1.3 million, or 37.2%, from $3.5 million for fiscal 1995 to $4.8
million for fiscal 1996 primarily as a result of the increase in the average
balance of deposits. The average balance of transaction accounts decreased by
$4.5 million and the average cost of such accounts decreased from 2.62% to
2.50%, resulting in a decrease in interest expense of $160,000. However, the
decrease in interest expense on transaction accounts was more than offset by an
increase in interest expense on certificates of deposit. The average balance of
certificates of deposit increased by $15.7 million and the average cost of such
accounts increased from 4.88% to 5.93%, resulting in an increase in interest
expense on certificates of deposit of $1.5 million. The increase in the average
balance of certificates of deposit and in the average rate paid on such accounts
was due, in part, to the promotion in late 1995 of a 75-day, 7.5% certificate of
deposit in honor of the Bank's 75th anniversary. The promotion attracted $25
million, of which $20 million were new deposits. As a result of strong loan
demand, the Bank utilized FHLB advances to a greater extent during fiscal 1996,
which increased interest expense on FHLB advances by $263,000, from $102,000 in
fiscal 1995 to $365,000 in fiscal 1996.
PROVISION FOR LOAN LOSSES. The provision for loan losses was $150,000 for
the year ended March 31, 1996 compared to $27,000 for the year ended March 31,
1995. Management increased the provision for loan losses in fiscal 1996 as a
result of the growth of the loan portfolio and the increased emphasis on
commercial and agricultural real estate loans, which generally are riskier than
residential real estate loans. The Bank's allowance for loan losses was
$701,000, or 0.70% of total loans receivable, at March 31, 1996, compared to
$555,000, or 0.62% of total loans receivable, at March 31, 1995. Net loan
charge-offs were $4,000 during fiscal 1996 compared to $3,000 during fiscal
1995.
NON-INTEREST INCOME. Total non-interest income increased $321,000, or
17.0%, from fiscal 1995 to fiscal 1996. The Bank experienced increased income
from gain on sales of loans and from service fees and charges while income from
commissions decreased. Loans sold servicing-released increased from $24.6
million for the year ended March 31, 1995 to $48.6 million for the year ended
March 31, 1996. As a result, gain on sales of loans increased $326,000 from
$1.0 million during fiscal 1995 to $1.4 million in fiscal 1996. Service fees
and charges increased $30,000 between the periods, primarily as a result of a
larger balance of loans serviced for others. Commission income decreased
$35,000 between the periods because of decreased annuity sales by the Bank's
subsidiary.
NON-INTEREST EXPENSE. Total non-interest expense increased $772,000 from
$4.7 million for the year ended March 31, 1995 to $5.5 million for the year
ended March 31, 1996. During fiscal 1996, compensation and related benefits
increased by $418,000, or 14.6%, over fiscal 1995 primarily as a result of an
increase in the number of employees and an increase in commissions paid, which
are tied directly to increased loan originations. Included in compensation
expense for fiscal 1995 is a charge of $96,000 relating to the suspension of a
defined benefit pension plan. Occupancy costs remained steady, increasing by
$10,000, or 1.5%, between the periods. Deposit insurance increased by $28,000
between the periods as a result of greater deposit balances in fiscal 1996.
Other non-interest expenses increased by $317,000, or 32.0%, as a result of
increased expenses associated with operational audits and consulting services
and a charge of $200,000 for the impairment of mutual funds owned by the Bank.
INCOME TAXES. Income taxes were $452,000 for the year ended March 31, 1995
(resulting in an effective tax rate of 37.5%) compared with $375,000 for the
year ended March 31, 1996 (resulting in an effective tax rate of 38.9%). The
decrease of $77,000 in tax expense is principally attributable to a decrease in
pre-tax income between the periods.
26
<PAGE>
AVERAGE BALANCES, INTEREST AND AVERAGE YIELDS/COST
The following table sets forth certain information for the periods
indicated regarding average balances of assets and liabilities as well as the
total dollar amounts of interest income from average interest-earning assets and
interest expense on average interest-bearing liabilities and average yields and
costs. Such yields and costs for the periods indicated are derived by dividing
income or expense by the average monthly balance of assets or liabilities,
respectively, for the periods presented. Average balances are derived from
month-end balances. Management does not believe that the use of month-end
balances instead of daily balances has caused any material difference in the
information presented.
27
<PAGE>
<TABLE>
<CAPTION>
Year Ended March 31, Nine Months Ended December 31,
------------------------------ -----------------------------
1995 1996 1995(2)
------------------------------ ----------------------------- -----------------------------
Interest Average Interest Average Interest Average
Average and Yield/ Average and Yield/ Average and Yield/
Balance Dividends Cost Balance Dividends Cost Balance Dividends Cost
- --------------------------- ---------- --------- -------- ---------- --------- -------- ---------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets(1):
Loans receivable.......... $ 79,912 $6,826 8.54% $ 91,849 $8,408 9.15% $ 90,916 $6,325 9.28%
Mortgage-backed securities 2,981 136 4.56 2,622 157 5.99 2,658 117 5.87
Investment securities..... 8,075 501 6.20 6,553 457 6.97 6,450 341 7.05
Other earning assets...... 6,986 195 2.79 12,026 530 4.41 7,168 242 4.50
-------- ------ -------- ------ -------- ------
Total interest-earning
assets................. 97,954 7,658 7.82 113,050 9,552 8.45 107,192 7,025 8.74
------ ------ ------
Non-interest-earning
assets.................... 3,873 5,460 5,247
-------- -------- --------
Total assets............ $101,827 $118,510 $112,439
======== ======== ========
Interest-earning
liabilities:
Passbook, NOW and money
market accounts......... $ 39,546 1,036 2.62 $ 35,072 876 2.50 $ 35,551 665 2.49
Certificates of deposit... 50,319 2,458 4.88 66,066 3,917 5.93 58,538 2,685 6.12
-------- ------ -------- ------ -------- ------
Total deposits.......... 89,865 3,494 3.89 101,138 4,793 4.74 94,089 3,350 4.75
Advances from FHLB........ 1,305 102 7.82 5,419 365 6.74 6,599 322 6.51
-------- ------ -------- ------ -------- ------
Total interest-bearing
liabilities............ 91,170 3,596 3.95 106,557 5,158 4.84 100,688 3,672 4.86
------ ------ ------
Non-interest-bearing
liabilities............... 1,458 1,826 1,796
-------- -------- --------
Total liabilities....... 92,628 108,383 102,484
-------- -------- --------
Total equity............... 9,199 10,127 9,955
-------- -------- --------
Total liabilities and
total equity........... $101,827 $118,510 $112,439
======== ======== ========
Net interest income........ $4,062 $4,394 $3,353
====== ====== ======
Interest rate spread....... 3.87% 3.61% 3.88%
==== ==== ====
Net interest margin........ 4.15% 3.89% 4.17%
====== ====== ======
Ratio of average
interest-earning
assets to average
interest-
bearing liabilities....... 107.44% 106.09% 106.46%
======== ======== ========
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Nine Months Ended December 31,
---------------------------------------------
1996(2)
---------------------------------------------
Interest Average
Average and Yield/
Balance Dividends Cost
---------- --------- --------
(Dollars in Thousands)
<S> <C> <C> <C>
Interest-earning assets(1):
Loans receivable.......... $103,407 $6,878 8.87%
Mortgage-backed securities 2,381 101 5.66
Investment securities..... 10,466 506 6.45
Other earning assets...... 6,783 155 3.05
-------- ------
Total interest-earning
assets................. 123,037 7,640 8.28
------
Non-interest-earning
assets.................... 6,173
--------
Total assets............ $129,210
========
Interest-earning
liabilities:
Passbook, NOW and money
market accounts......... $ 36,110 615 2.27
Certificates of deposit... 74,074 3,084 5.55
-------- ------
Total deposits.......... 110,184 3,699 4.48
Advances from FHLB........ 6,250 315 6.72
-------- ------
Total interest-bearing
liabilities............ 116,434 4,014 4.60
------
Non-interest-bearing
liabilities............... 2,027
--------
Total liabilities....... 118,461
--------
Total equity............... 10,749
--------
Total liabilities and
total equity........... $129,210
========
Net interest income........ $3,626
======
Interest rate spread....... 3.68%
====
Net interest margin........ 3.93%
======
Ratio of average
interest-earning
assets to average
interest-
bearing liabilities....... 105.67%
========
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Does not include interest on loans 90 days or more past due.
(2) Yields and ratios for the nine-month periods are annualized.
28
<PAGE>
YIELDS EARNED AND RATES PAID
The following table sets forth (on a consolidated basis) for the periods
and at the date indicated the weighted average yields earned on the Bank's
assets and the weighted average interest rates paid on the Bank's liabilities,
together with the net yield on interest-earning assets. Amounts for the nine
month periods are annualized.
<TABLE>
<CAPTION>
Year Nine Months Ended
Ended March 31, December 31, At December 31,
----------------- -------------------
1995 1996 1995 1996 1996
-------- ------- --------- -------- ----------------
<S> <C> <C> <C> <C> <C>
Weighted average yield earned on:
Loans receivable....................... 8.54% 9.15% 9.28% 8.87% 8.43%
Mortgage-backed securities............. 4.56 5.99 5.87 5.66 6.03
Investment securities.................. 6.20 6.97 7.05 6.45 6.14
All interest-earning assets............ 7.82 8.45 8.74 8.28 8.29
Weighted average rate paid on:
Passbook, NOW and money market
accounts.............................. 2.62 2.50 2.49 2.27 2.26
Certificates of deposit................ 4.88 5.93 6.12 5.55 5.60
FHLB advances.......................... 7.82 6.74 6.51 6.72 5.88
All interest-bearing liabilities....... 3.95 4.84 4.86 4.60 4.52
Interest rate spread (spread between
weighted average yield earned on all
interest-earning assets and weighted
average rate paid on all interest-
bearing liabilities)................... 3.87 3.61 3.88 3.68 3.77
Net interest margin (net interest income
as a percentage of average
interest-earning assets)............... 4.15 3.89 4.17 3.93 3.92
</TABLE>
29
<PAGE>
RATE/VOLUME ANALYSIS
The following table sets forth the effects of changing rates and volumes on
the interest income and interest expense of the Bank. Information is provided
with respect to: (i) effects attributable to changes in rate (changes in rate
multiplied by prior volume); (ii) effects attributable to changes in volume
(changes in volume multiplied by prior rate); and (iii) effects attributable to
changes in rate/volume (changes in rate multiplied by changes in volume).
<TABLE>
<CAPTION>
Year Ended March 31, Nine Months Ended December 31,
1996 Compared to Year Ended 1996 Compared to Nine Months Ended
March 31, 1995 December 31, 1995
----------------------------------------------------------- ------------------------------------------
Increase (Decrease) Increase (Decrease)
Due to Due to
------------------------------------------------- ---------------------------------
Rate/ Rate/
Rate Volume Volume Net Rate Volume Volume Net
------------------- ------------------ ------- -------- ------- ----------- ---------- --------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable(1)....... $489 $1,020 $ 73 $1,582 $(277) $ 869 $(38) $554
Mortgage-backed securities 42 (16) (5) 21 (4) (12) -- (16)
Investment securities..... 62 (94) (12) (44) (28) 212 (18) 166
Other earning assets...... 113 141 81 335 (78) (14) 4 (88)
---- ------ ---- ------ ----- ------ ---- ----
Total net change in income
on interest-earning assets 706 1,051 137 1,894 (387) 1,055 (52) 616
---- ------ ---- ------ ----- ------ ---- ----
Interest-bearing
liabilities:
Passbook, NOW and money
market accounts......... (48) (117) 5 (160) (59) 11 (1) (49)
Certificates of deposit... 525 769 164 1,458 (248) 713 (66) 399
FHLB advances............. (14) 322 (44) 264 11 (18) -- (7)
---- ------ ---- ------ ----- ------ ---- ----
Total net change in expense
on interest-bearing
liabilities.............. 463 974 125 1,562 (296) 706 (67) 343
---- ------ ---- ------ ----- ------ ---- ----
Net increase (decrease) in
net
interest income.......... $243 $ 77 $ 12 $ 332 $ (91) $ 349 $ 15 $273
==== ====== ==== ====== ===== ====== ==== ====
- ---------------
</TABLE>
(1) Does not include interest on loans 90 days or more past due.
ASSET AND LIABILITY MANAGEMENT
The Bank's principal financial objective is to achieve long-term
profitability while reducing its exposure to fluctuating interest rates. The
Bank has sought to reduce exposure of its earnings to changes in market interest
rates by attempting to manage the mismatch between asset and liability
maturities and interest rates. The principal element in achieving this
objective is to increase the interest-rate sensitivity of the Bank's interest-
earning assets by retaining for its portfolio shorter term loans and loans with
interest rates subject to periodic adjustment to market conditions and by
selling substantially all of its longer term, fixed-rate residential mortgage
loans. The Bank has historically relied on retail deposits as its primary
source of funds. Management believes retail deposits, compared to brokered
deposits, reduce the effects of interest rate fluctuations because they
generally represent a more stable source of funds. As part of its interest rate
risk management strategy, the Bank promotes non-interest-bearing
30
<PAGE>
transaction accounts and certificates of deposit with longer maturities (up to
five years) to reduce the interest sensitivity of its interest-bearing
liabilities.
In order to encourage institutions to reduce their interest rate risk, the
OTS adopted a rule incorporating an interest rate risk component into the risk-
based capital rules. Using data from the Bank's quarterly reports to the OTS,
the Bank receives a report which measures interest rate risk by modeling the
change in Net Portfolio Value ("NPV") over a variety of interest rate scenarios.
This procedure for measuring interest rate risk was developed by the OTS to
replace the "gap" analysis (the difference between interest-earning assets and
interest-bearing liabilities that mature or reprice within a specific time
period). NPV is the present value of expected cash flows from assets,
liabilities and off-balance sheet contracts. The calculation is intended to
illustrate the change in NPV that will occur in the event of an immediate change
in interest rates of at least 200 basis points with no effect given to any steps
that management might take to counter the effect of that interest rate movement.
Under proposed OTS regulations, an institution with a greater than "normal"
level of interest rate risk will be subject to a deduction from total capital
for purposes of calculating its risk-based capital. An institution with a
"normal" level of interest rate risk is defined as one whose "measured interest
rate risk" is less than 2.0%. Institutions with assets of less than $300
million and a risk-based capital ratio of more than 12.0% are exempt. The Bank
meets these qualifications and therefore is exempt. Assuming this proposed rule
was in effect at December 31, 1996 and the Bank was not exempt from the rule,
the Bank's level of interest rate risk would not have caused it to be treated as
an institution with greater than "normal" interest rate risk.
The following table is provided by the OTS and illustrates the change in
NPV at December 31, 1996, based on OTS assumptions, that would occur in the
event of an immediate change in interest rates, with no effect given to any
steps that management might take to counter the effect of that interest rate
movement.
<TABLE>
<CAPTION>
Net Portfolio as % of
Net Portfolio Value Portfolio Value of Assets
-------------------------- --------------------------------
Basis Point ("bp")
Change in Rates $ Amount $ Change(1) % Change NPV Ratio(2) Change(bp)(3)
- ------------------------- -------- ----------- --------- ------------ -----------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
400 11,802 (4,815) (29) 8.99 (298)
300 13,362 (3,254) (20) 10.01 (196)
200 14,769 (1,847) (11) 10.90 (107)
100 15,903 (714) (4) 11.58 (39)
0 16,617 -- -- 11.97 --
(100) 16,784 168 1 12.01 4
(200) 16,440 (177) (1) 11.73 (24)
(300) 16,222 (395) (2) 11.52 (45)
(400) 16,485 (132) (1) 11.62 (35)
</TABLE>
- --------------------
(1) Represents the increase (decrease) of the estimated NPV at the indicated
change in interest rates compared to the NPV assuming no change in interest
rates.
(2) Calculated as the estimated NPV divided by the portfolio value of total
assets ("PV").
(3) Calculated as the increase (decrease) of the NPV ratio assuming the
indicated change in interest rates over the estimated NPV ratio assuming no
change in interest rates.
31
<PAGE>
The following table is provided by the OTS and is based on the calculations
in the above table. It sets forth the interest rate risk capital component that
will be deducted from risk-based capital in determining the level of risk-based
capital. At December 31, 1996, the change in NPV as a percentage of portfolio
value of total assets is negative 1.33%, which is less than negative 2.0%,
indicating that the Bank has a "normal" level of interest rate risk.
<TABLE>
<CAPTION>
At At At
December 31, September 30, December 31,
1995 1996 1996
------------- -------------- -------------
<S> <C> <C> <C>
RISK MEASURES: 200 BP RATE SHOCK:
Pre-Shock NPV Ratio: NPV as % of PV of Assets.. 10.92% 12.25% 11.97%
Exposure Measure: Post-Shock NPV Ratio......... 10.61% 11.14% 10.90%
Sensitivity Measure: Change in NPV Ratio....... (31)bp (111)bp (107)bp
CALCULATION OF CAPITAL COMPONENT:
Change in NPV as % of PV of Assets.............. (0.36)% (1.36)% (1.33)%
Interest Rate Risk Capital Component (1)........ -- -- --
</TABLE>
- ------------------------
(1) No amounts are shown on the interest rate risk capital component line
because the Bank is exempt from the interest rate risk capital component.
As with any method of measuring interest rate risk, certain shortcomings
are inherent in the method of analysis presented in the foregoing tables. For
example, although certain assets and liabilities may have similar maturities or
periods to repricing, they may react in different degrees to changes in market
interest rates. Also, the interest rates on certain types of assets and
liabilities may fluctuate in advance of changes in market interest rates, while
interest rates on other types may lag behind changes in market rates.
Additionally, certain assets, such as ARM loans, have features which restrict
changes in interest rates on a short-term basis and over the life of the asset.
Further, in the event of a change in interest rates, expected rates of
prepayments on loans and early withdrawals from certificates could likely
deviate significantly from those assumed in calculating the table.
LIQUIDITY AND CAPITAL RESOURCES
The Bank's primary sources of funds are customer deposits, proceeds from
principal and interest payments on loans, proceeds from sales of loans maturing
securities and FHLB advances. While maturities and scheduled amortization of
loans are a predictable source of funds, deposit flows and mortgage prepayments
are greatly influenced by general interest rates, economic conditions and
competition.
The Bank must maintain an adequate level of liquidity to ensure the
availability of sufficient funds to support loan growth and deposit withdrawals,
to satisfy financial commitments and to take advantage of investment
opportunities. The Bank generally maintains sufficient cash and short-term
investments to meet short-term liquidity needs. At December 31, 1996, cash and
cash equivalents totalled $5.8 million, or 4.3% of total assets, and investment
securities that matured in one year or less totalled $500,000, or 0.4% of total
assets. The Bank did not hold any securities classified as available for sale
at December 31, 1996. In addition, the Bank maintains a credit facility with
the FHLB-Seattle, which provides for immediately available advances. Advances
under this credit facility totalled $15.1 million at December 31, 1996.
The OTS requires a savings institution to maintain an average daily balance
of liquid assets (cash and eligible investments) equal to at least 5.0% of the
average daily balance of its net withdrawable deposits and short-
32
<PAGE>
term borrowings. In addition, short-term liquid assets currently must
constitute 1.0% of the sum of net withdrawable deposit accounts plus short-term
borrowings. The Bank's actual long- and short-term liquidity ratios at December
31, 1996 were 5.32% and 1.03%, respectively.
The primary investing activity of the Bank is the origination of mortgage
loans. During the years ended March 31, 1995 and 1996, and the nine months
ended December 31, 1996, the Bank originated loans in the amounts of $89.8
million, $120.9 million, and $97.4 million, respectively. At December 31, 1996,
the Bank had loan commitments totalling $16.4 million and undisbursed lines of
credit totalling $21.3 million and undisbursed loans in process totalling $6.2
million. The Bank anticipates that it will have sufficient funds available to
meet its current loan origination commitments. Certificates of deposit that are
scheduled to mature in less than one year from December 31, 1996 totalled $49.2
million. Historically, the Bank has been able to retain a significant amount of
its deposits as they mature. In addition, management of the Bank believes that
it can adjust the offering rates of savings certificates to retain deposits in
changing interest rate environments.
The Bank is required to maintain specific amounts of capital pursuant to
OTS requirements. As of December 31, 1996, the Bank was in compliance with all
regulatory capital requirements which were effective as of such date with
tangible, core and risk-based capital ratios of 8.12%, 8.12% and 13.27%,
respectively. For a detailed discussion of regulatory capital requirements, see
"REGULATION -- Federal Regulation of Savings Associations -- Capital
Requirements." See also "HISTORICAL AND PRO FORMA CAPITAL COMPLIANCE."
IMPACT OF NEW ACCOUNTING STANDARDS
ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS. In March 1995, the
Financial Accounting Standards Board ("FASB") issued SFAS No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of." SFAS No. 121 applies prospectively in fiscal years beginning after
December 31, 1995, and establishes new guidelines regarding when impairment
losses on long-lived assets, which include plant and equipment, certain
identifiable intangible assets and goodwill, should be recognized and how
impairment losses should be measured. SFAS No. 121 became effective for the Bank
for the fiscal year beginning April 1, 1996. The adoption of SFAS No. 121 has
not had a material impact on the Bank's results of operations or financial
position.
ACCOUNTING FOR MORTGAGE SERVICING RIGHTS. In May 1995, the FASB issued
SFAS No. 122, "Accounting for Mortgage Servicing Rights." SFAS No. 122
eliminates distinctions between servicing rights that were purchased and those
that were retained upon the sale of loans. The statement requires mortgage
servicers to recognize as separate assets rights to service loans, no matter how
the rights were acquired. Institutions that sell loans and retain the servicing
rights will be required to allocate the total cost of the loans to servicing
rights and loans based on their relative fair values if that value can be
estimated. Furthermore, SFAS No. 122 requires that all capitalized mortgage
servicing rights be periodically evaluated for impairment based upon the current
fair value of these rights. SFAS No. 122 became effective for the Bank for the
fiscal year beginning April 1, 1996. The effect of adopting SFAS No. 122 was to
increase income before income taxes for the nine months ended December 31, 1996,
approximately $204,000.
ACCOUNTING FOR STOCK-BASED COMPENSATION. In October 1995, the FASB issued
SFAS No. 123, "Accounting for Stock-Based Compensation," establishing financial
accounting and reporting standards for stock-based employee compensation plans.
This statement encourages all entities to adopt a new method of accounting to
measure compensation cost of all employee stock compensation plans based on the
estimated fair value of the award at the date it is granted. The accounting
requirements of this statement are effective for transactions entered into in
fiscal years that begin after December 15, 1995; however, companies are required
to disclose information for awards granted in their first fiscal year beginning
after December 15, 1994. Management of the Bank has not completed an analysis
of the potential effects of this statement on its financial condition or results
of operations.
33
<PAGE>
ACCOUNTING FOR TRANSFERS AND SERVICING OF FINANCIAL ASSETS AND
EXTINGUISHMENT OF LIABILITIES. In June 1996, the FASB issued SFAS No. 125,
"Accounting for Transfers and Servicing of Financial Assets and Extinguishment
of Liabilities," which provides accounting and reporting standards for transfers
and servicing of financial assets and extinguishment of liabilities. This
statement applies prospectively in fiscal years beginning after December 31,
1996, and establishes new standards that focus on control whereas, after a
transfer of financial assets, an entity recognizes the financial and servicing
assets it controls and the liabilities it has incurred, derecognizes financial
assets when control has been surrendered, and derecognizes liabilities when
extinguished. The Bank does not expect adoption of SFAS No. 125 to have a
material impact on the Bank's results of operations or financial position.
EFFECT OF INFLATION AND CHANGING PRICES
The consolidated financial statements and related financial data presented
herein have been prepared in accordance with GAAP, which require the measurement
of financial position and operating results in terms of historical dollars
without considering the change in the relative purchasing power of money over
time due to inflation. The primary impact of inflation is reflected in the
increased cost of the Bank's operations. Unlike most industrial companies,
virtually all the assets and liabilities of a financial institution are monetary
in nature. As a result, interest rates generally have a more significant impact
on a financial institution's performance than do general levels of inflation.
Interest rates do not necessarily move in the same direction or to the same
extent as the prices of goods and services.
BUSINESS OF THE HOLDING COMPANY
GENERAL
The Holding Company was organized as a Delaware business corporation at the
direction of the Bank in March 1997 for the purpose of becoming a holding
company for the Bank upon completion of the Stock Conversion. Upon completion
of the Conversion, the Bank will be a wholly-owned subsidiary of the Holding
Company.
BUSINESS
Prior to the Conversion, the Holding Company will not engage in any
significant operations. Upon completion of the Conversion, the Holding
Company's sole business activity will be the ownership of the stock of the Bank
and investment of the net proceeds of the Offerings retained by it. In the
future, the Holding Company may acquire or organize other operating
subsidiaries, although there are no current plans, arrangements, agreements or
understandings, written or oral, to do so.
Initially, the Holding Company will neither own nor lease any property but
will instead use the premises, equipment and furniture of the Bank with the
payment of appropriate rental fees, as required by applicable law.
Since the Holding Company will only hold the capital stock of the Bank, the
competitive conditions applicable to the Holding Company will be the same as
those currently confronting the Bank. See "BUSINESS OF THE BANK --
Competition."
BUSINESS OF THE BANK
GENERAL
The Bank is a community oriented financial institution that engages
primarily in the business of attracting deposits from the general public in the
areas surrounding its branch offices and using those funds, together with funds
34
<PAGE>
generated from operations and borrowings, to originate residential mortgage
loans within the Bank's market area. The Bank also is active in originating
construction and agricultural real estate loans. To a lesser extent, the Bank
originates commercial real estate, and consumer and other non-real estate loans.
The Bank has adopted a mortgage banking strategy pursuant to which it generally
sells a majority of the fixed-rate residential mortgage loans that it originates
while retaining the servicing rights on the conventional loans it sells.
MARKET AREA
The Bank is headquartered in Lewiston, Idaho and operates five full-service
offices in Lewiston, Lewiston Orchards, Moscow, Grangeville and Coeur d'Alene,
Idaho. The Bank also operates two loan production offices, one in Lewiston and
one in Coeur d'Alene. Most of the Bank's depositors reside in the communities
surrounding the Bank's offices. Most of the Bank's loans are made to borrowers
residing in the counties in which the Bank's offices are located and in the
surrounding counties.
In general, the market areas served by the Bank are dependent on
agriculture, mining, tourism and the forest products industry, and the local
economies reflect the health or weakness of those industries. Agriculture in
the Bank's market area is dry land farming. The primary crop is wheat. Other
major crops are barley, peas, lentils, beans and grass seed. Livestock is also
raised in the Bank's market area. Lewiston is the largest city in northern
Idaho and serves as the regional center for state government. The economy of
Lewiston, in NezPerce County, is connected to that of Clarkston, Washington,
which is separated from Lewiston by the Snake River. The Lewis-Clark Valley has
a population of approximately 50,000. Forest products and agriculture are the
dominant industries in the Lewiston-Clarkston area. Medical services, light
manufacturing and tourism have helped keep the economy stable in recent years.
Moscow, Idaho, in Latah County, has a population of 20,000. The county
population is approximately 30,000. Agriculture and higher education are the
primary industries in Moscow. The University of Idaho is located in Moscow and
is the city's largest employer. In addition, Washington State University is
located eight miles west of Moscow in Pullman, Washington. Both universities
have been expanding in recent years, which resulted in increased demand for
housing. The growth of the universities has slowed recently, which has caused
some slow down in the real estate market. Grangeville, Idaho, in Idaho County,
has an economy based mostly on agriculture, the forest products industry and the
U.S. Forest Service. Declines in the forest products industry has resulted in a
decline in population in Idaho County over the last decade. Tourism has become
increasingly important to the Grangeville economy in recent years. Coeur
D'Alene, Idaho, in Kootenai County, has a population of approximately 25,000 in
a county with almost 70,000 residents. Tourism, forest products, mining and
agriculture are the major industries of this region. Coeur d'Alene has
experienced significant growth in the past ten years, primarily because of the
expanding tourism industry and migration from more populous parts of the western
and northwestern United States. As a result, real estate activity has been high
with a large amount of new home construction.
The Bank faces competition from many financial institutions for deposits
and loan originations. See "--Competition" and "RISK FACTORS -- Competition
Within Market Area."
LENDING ACTIVITIES
GENERAL. The principal lending activity of the Bank is the origination of
conventional mortgage loans for the purpose of purchasing or refinancing owner-
occupied, one- to four-family residential property. The Bank also is active in
originating construction and agricultural real estate loans. To a lesser
extent, the Bank also originates commercial real estate and consumer and other
non-real estate loans, although it intends to increase its originations of these
types of loans. The Bank's net loans receivable totalled $111.1 million at
December 31, 1996, representing 83.5% of consolidated total assets.
35
<PAGE>
LOAN PORTFOLIO ANALYSIS. The following table sets forth the composition of
the Bank's loan portfolio by type of loan at the dates indicated. The Bank had
no concentration of loans exceeding 10% of total gross loans other than as
disclosed below.
<TABLE>
<CAPTION>
At March 31,
------------------------------------- At December 31,
1995 1996 1996
----------------- ------------------ ------------------
Amount Percent Amount Percent Amount Percent
------- -------- -------- -------- -------- --------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Real estate loans:
Residential................ $53,307 60.02% $ 62,818 62.41% $ 72,656 61.26%
Construction............... 12,259 13.80 13,832 13.74 14,945 12.60
Agricultural............... 11,887 13.39 11,945 11.87 11,876 10.01
Commercial................. 5,068 5.71 4,036 4.01 6,007 5.07
------- ------ -------- ------ -------- ------
Total real estate loans.. 82,521 92.92 92,631 92.03 105,184 88.94
Consumer and other loans:
Home equity................ 3,826 4.31 5,229 5.20 9,721 8.20
Agricultural operating..... 561 0.63 589 0.58 1,024 0.86
Other consumer............. 1,902 2.14 2,206 2.19 2,368 2.00
------- ------ -------- ------ -------- ------
Total consumer and
other loans............. 6,289 7.08 8,024 7.98 13,113 11.06
------- ------ -------- ------ -------- ------
Total loans receivable... 88,810 100.00% 100,655 100.00% 118,597 100.00%
------- ====== -------- ====== -------- ======
Less:
Loans in process........... 5,052 5,726 6,224
Unearned loan fees and
discounts................ 426 411 408
Allowance for loan losses.. 555 701 880
------- -------- --------
Loans receivable, net.... $82,777 $ 93,817 $111,085
======= ======== ========
</TABLE>
RESIDENTIAL REAL ESTATE LENDING. The principal lending activity of the Bank
is the origination of mortgage loans to enable borrowers to purchase existing
residential real estate. At December 31, 1996, $72.7 million, or 61.3%, of the
Bank's total gross loan portfolio consisted of loans secured by residential real
estate. The Bank presently originates both ARM loans and fixed-rate mortgage
loans with maturities of up to 30 years. Substantially all of the Bank's
residential mortgage loans are secured by property located in the Bank's primary
market area. Very few of the properties securing the Bank's residential
mortgage loans are second homes or vacation properties. The Bank's conventional
mortgage loans are generally underwritten and documented in accordance with the
guidelines established by the Federal Home Loan Mortgage Corporation ("Freddie
Mac").
The Bank generally retains all of the conventional fixed-rate mortgages with
maturities of 15 years or less and sells all of the fixed-rate mortgage loans
with maturities in excess of 15 years that it originates, although in the nine
months ended December 31, 1996 the Bank retained some 30-year, fixed-rate loans
for its portfolio. The Bank generally retains all of the ARM loans that it
originates. Most of the loans sold by the Bank are sold to Freddie Mac. The
remainder of loans sold are purchased by the Federal National Mortgage
Association ("Fannie Mae") or private investors. The Bank sells loans to
Freddie Mac and Fannie Mae on a servicing-retained basis, while loans sold to
private investors are sold servicing-released. Generally, all loans are sold
without recourse, although in the past the Bank has sold loans with recourse.
As of December 31, 1996, the Bank remains contingently liable for approximately
$1.8 million of loans sold with recourse. The Bank's decision to hold or sell
loans is based on its asset/liability management policies and goals and the
market conditions for mortgages. See "-- Lending Activities -- Loan
Originations, Sales and Purchases."
36
<PAGE>
The Bank offers ARM loans at rates and terms competitive with market
conditions. The Bank currently offers ARM products that adjust annually after
an initial fixed period of one, three or five years based on the One Year U.S.
Treasury Note Constant Maturity Rate. ARM loans held in the Bank's portfolio do
not permit negative amortization of principal and carry no prepayment
restrictions. The periodic interest rate cap (the maximum amount by which the
interest rate may be increased or decreased in a given period) on the Bank's ARM
loans is generally 2% per adjustment period and the lifetime interest rate cap
is generally 6% over the initial interest rate of the loan. The terms and
conditions of the ARM loans offered by the Bank, including the index for
interest rates, may vary from time to time. Borrower demand for ARM loans
versus fixed-rate mortgage loans is a function of the level of interest rates,
the expectations of changes in the level of interest rates and the difference
between the initial interest rates and fees charged for each type of loan. The
relative amount of fixed-rate mortgage loans and ARM loans that can be
originated at any time is largely determined by the demand for each in a
competitive environment.
The Bank also originates residential mortgage loans that are insured by the
Federal Housing Administration, the Veterans Administration, the Farm Home
Administration or the Idaho Housing Authority. A significant portion of the
Bank's residential mortgage loan originations in recent years has consisted of
government insured loans. Most of these loans have been originated in the Coeur
d'Alene area, where there has been a significant increase in entry-level
housing. The Bank generally sells the government insured loans that it
originates to private investors on a servicing-released basis.
A significant portion of the Bank's ARM loans are not readily saleable in
the secondary market because they are not originated in accordance with the
purchase requirements of Freddie Mac or Fannie Mae. The Bank requires that non-
conforming loans demonstrate appropriate compensating factors that offset their
lack of conformity. Although such loans satisfy the Bank's underwriting
requirements, they are "non-conforming" because they do not satisfy property
limits, credit requirements, repayment capacities or various other requirements
imposed by Freddie Mac and Fannie Mae. Accordingly, the Bank's non-conforming
loans can be sold only to private investors on a negotiated bases. At December
31, 1996, the Bank's residential loan portfolio included $24.0 million of non-
conforming ARM loans. Generally, the Bank's non-conforming ARM loans bear a
higher rate of interest than similar conforming ARM loans. The Bank has
historically found that its origination of non-conforming loans has not resulted
in high amounts of nonperforming loans.
The retention of ARM loans in the Bank's loan portfolio helps reduce the
Bank's exposure to changes in interest rates. There are, however,
unquantifiable credit risks resulting from the potential of increased costs due
to increased rates to be paid by the customer. It is possible that during
periods of rising interest rates the risk of default on ARM loans may increase
as a result of repricing and the increased payments required by the borrower.
Furthermore, because the ARM loans originated by the Bank generally provide, as
a marketing incentive, for "teaser rates" (i.e., initial rates of interest below
the rates that would apply were the adjusted index plus the applicable margin
initially used for pricing), these loans are subject to increased risks of
default or delinquency. See "RISK FACTORS -- Interest Rate Risk Exposure." The
Bank attempts to reduce the potential for delinquencies and defaults on ARM
loans by qualifying the borrower based on the borrower's ability to repay the
ARM loan assuming a rate 200 basis points above the initial interest rate or the
fully indexed rate, whichever is higher. Another consideration is that although
ARM loans allow the Bank to increase the sensitivity of its asset base to
changes in interest rates, the extent of this interest sensitivity is limited by
the periodic and lifetime interest rate adjustment limits. Because of these
considerations, the Bank has no assurance that yields on ARM loans will be
sufficient to offset increases in the Bank's cost of funds.
While one- to four-family residential real estate loans are normally
originated with 15 to 30 year terms, such loans typically remain outstanding for
substantially shorter periods. This is because borrowers often prepay their
loans in full upon sale of the property pledged as security or upon refinancing
the original loan. In addition, substantially all mortgage loans in the Bank's
loan portfolio contain due-on-sale clauses providing that the Bank may declare
the unpaid amount due and payable upon the sale of the property securing the
loan. Typically, the Bank enforces these due-on-sale clauses to the extent
permitted by law and as business judgment dictates. Thus, average
37
<PAGE>
loan maturity is a function of, among other factors, the level of purchase and
sale activity in the real estate market, prevailing interest rates and the
interest rates payable on outstanding loans.
The Bank generally obtains title insurance insuring the status of its lien
on all loans where real estate is the primary source of security. The Bank also
requires that fire and casualty insurance (and, if appropriate, flood insurance)
be maintained in an amount at least equal to the outstanding loan balance.
The Bank's lending policies generally limit the maximum loan-to-value ratio
on mortgage loans secured by owner-occupied properties to 90% of the lesser of
the appraised value or the purchase price, with the condition that private
mortgage insurance is generally required on loans with loan-to-value ratios
greater than 80%. Higher loan-to value ratios are available on certain
government insured programs.
CONSTRUCTION LENDING. The Bank invests a significant proportion of its
loan portfolio in residential construction loans. This activity has been
prompted by favorable economic conditions in northern Idaho, especially in the
area around Coeur d'Alene, lower long-term interest rates and an increased
demand for housing units as a result of the population growth in northern Idaho.
At December 31, 1996, construction loans totalled $14.9 million, or 12.6% of
total loans. At such date, the average amount of the Bank's construction loans
was approximately $112,000, which reflects that much of the construction in the
Coeur d'Alene area is of entry-level housing. The largest construction loan in
the Bank's portfolio at December 31, 1996 was $332,000. During the year ended
March 31, 1996 and the nine months ended December 31, 1996, construction loans
constituted 24.5% and 23.8%, respectively, of total loan originations.
The Bank originates construction loans to professional home builders and to
individuals building their primary residence. In addition, the Bank
occasionally makes loans to builders for the acquisition of building lots.
Construction loans made by the Bank to professional home builders include both
those with a sales contract or permanent loan in place for the finished homes
and those for which purchasers for the finished homes may be identified either
during or following the construction period (speculative loans). At December
31, 1996, speculative loans totalled $5.3 million, or 35.5% of the total
construction loan portfolio. Construction loans to individuals generally
convert to permanent mortgage loans upon completion of the construction period.
At December 31, 1996, custom construction loans to individuals totalled $1.5
million, or 10.0% of the total construction loan portfolio.
Construction lending affords the Bank the opportunity to achieve higher
interest rates and fees with shorter terms to maturity than does its single-
family permanent mortgage lending. Construction lending, however, is generally
considered to involve a higher degree of risk than single-family permanent
mortgage lending because of the inherent difficulty in estimating both a
property's value at completion of the project and the estimated cost of the
project. The nature of these loans is such that they are generally more
difficult to evaluate and monitor. If the estimate of construction cost proves
to be inaccurate, the Bank may be required to advance funds beyond the amount
originally committed to permit completion of the project. If the estimate of
value upon completion proves to be inaccurate, the Bank may be confronted with a
project whose value is insufficient to assure full repayment. Projects may also
be jeopardized by disagreements between borrowers and builders and by the
failure of builders to pay subcontractors. Loans to builders to construct homes
for which no purchaser has been identified carry more risk because the payoff
for the loan is dependent on the builder's ability to sell the property prior to
the time that the construction loan is due. The Bank has sought to address
these risks by adhering to strict underwriting policies, disbursement
procedures, and monitoring practices. In addition, because much of the Bank's
construction lending is in the Coeur d'Alene area, changes in the local economy
and real estate market could adversely affect the Bank's construction loan
portfolio. Accordingly, the Bank closely monitors sales and listings in the
Coeur d'Alene real estate market and will limit the amount of speculative loans
if it perceives there are unfavorable market conditions.
Loans to builders for the construction of one- to four-family residences
are generally made for a term of 12 months. The Bank's loan policy includes a
maximum loan-to-value ratio of 75%. The Bank maintains a list of major builders
and establishes an aggregate credit limit for each major builder based on the
builder's financial strength, experience and reputation and monitors their
borrowings on a monthly basis. Each major builder is required
38
<PAGE>
to provide the Bank with annual financial statements and other credit
information. At December 31, 1996, the Bank had approved five major builders,
the largest borrowing capacity of which was approximately $1.3 million. At
December 31, 1996, the Bank's major builders had total loans of $2.4 million
outstanding. For all other builders, the Bank reviews the financial strength
and credit of the builder on a loan by loan basis.
The construction loan documents require that construction loan proceeds be
disbursed in increments as construction progresses. Disbursements are based on
periodic on-site inspections by both Bank personnel and independent fee
inspectors. At inception, the Bank also requires the builder (other than
approved major builders) to deposit funds to the loans-in-process account
covering the difference between the actual cost of construction and the loan
amount. Alternatively, the Bank may require that the borrower pay for the first
portion of construction costs before the loan proceeds are used. Major builders
are permitted to utilize the loan proceeds from the initiation of construction
and to carry the short-fall between construction costs and the loan amount,
based on their financial strength, until the property is sold.
AGRICULTURAL LENDING. Agricultural real estate lending has been an
important part of the Bank's lending strategy since the mid-1980s. The Chief
Executive Officer has 24 years of experience and the Vice President,
Agricultural and Consumer Lending has 18 years of experience in agricultural
real estate lending. See "MANAGEMENT OF THE BANK." At December 31, 1996,
agricultural real estate loans totalled $11.9 million, or 10.0% of the Bank's
total loan portfolio.
The Bank presently originates both adjustable-rate and fixed-rate loans
secured by farmland located in the Bank's market area, primarily around
Lewiston. The Bank offers adjustable-rate loans that adjust annually after an
initial fixed period of one, three or five years. Such loans generally provide
for up to a 25-year term. The Bank also offers fixed-rate loans with a ten-year
term and a ten-year amortization schedule. The Bank also makes agricultural
operating loans. See "-- Consumer and Other Lending."
Agricultural real estate loans generally are underwritten to Federal
Agricultural Mortgage Corporation ("Farmer Mac") standards so as to qualify for
sale in the secondary market, although the Bank currently retains most of these
loans for its portfolio. In originating an agricultural real estate loan, the
Bank considers the debt service coverage of the borrower's cash flow, the amount
of working capital available to the borrower, the financial history of the
farmer and the appraised value of the underlying property as well as the Bank's
experience with and knowledge of the borrower. An environmental assessment is
also performed. The maximum loan-to-value for agricultural real estate loans is
75%. At December 31, 1996, the largest agricultural real estate loan was
$620,000 and the average amount of the Bank's agricultural real estate loans was
approximately $100,000.
The Bank is approved to originate agricultural real estate loans qualifying
for purchase by the Farmer Mac II program, which requires Farm House
Administration guarantees up to a maximum of 90% of the principal and interest.
Once the guaranteed loan has been funded, the Bank generally sells the
guaranteed portion of the loan to Farmer Mac II, while retaining the servicing
rights on the entire loan.
Agricultural real estate lending affords the Bank the opportunity to earn
yields higher than those obtainable on residential real estate lending.
However, agricultural real estate lending involves a greater degree of risk than
residential real estate loans. Payments on agricultural real estate loans are
dependent on the successful operation or management of the farm property
securing the loan. The success of the farm may be affected by many factors
outside the control of the farm borrower, including adverse weather conditions
that limit crop yields (such as hail, drought and floods), declines in market
prices for agricultural products and the impact of government regulations
(including changes in price supports, subsidies and environmental regulations).
In addition, many farms are dependent on a limited number of key individuals
whose injury or death may significantly affect the successful operation of the
farm. Farming in the Bank's market area is generally dry-land farming, with
wheat being the primary crop. Accordingly, adverse circumstances affecting the
area's wheat crop could have an adverse effect on the Bank's agricultural loan
portfolio.
39
<PAGE>
The risk of crop damage by weather conditions can be reduced by the farmer
with multi-peril crop insurance which can guarantee set yields to provide
certainty of repayment. Unless the circumstances of the borrower merit
otherwise, the Bank generally does not require its borrowers to procure multi-
peril crop or hail insurance. Farmers may mitigate the effect of price declines
through the use of futures contracts, options or forward contracts. The Bank
does not monitor or require the use by borrowers of these instruments.
COMMERCIAL REAL ESTATE LENDING. Commercial real estate lending has been a
minor part of the Bank's lending strategy in recent years. At December 31,
1996, the Bank's commercial real estate loan portfolio totalled $6.0 million, or
5.1% of total loans. The Bank has been more active in originating commercial
real estate loans in recent periods. During the year ended March 31, 1996 and
the nine months ended December 31, 1996, originations of commercial real estate
loans totalled $1.5 million and $3.4 million, respectively. In connection with
the expansion of the Bank's community banking activities, the Bank intends to
further increase its emphasis on commercial real estate lending. However, there
can be no assurances that the Bank will meet its objectives in increasing the
size of its commercial real estate portfolio.
The Bank's commercial real estate loans include loans secured by a storage
facility, a manufactured home park, small office buildings, retail shops, a
multi-family residential property and other small commercial properties.
Commercial real estate loans in the Bank's portfolio include loans originated by
the Bank and participation interests in loans originated by other institutions.
At December 31, 1996, the average size of the Bank's commercial real estate
loans was $122,000 and the largest was a $1.8 million loan secured by a storage
facility near Seattle, Washington. Such loan was restructured in 1992 and is
performing according to its terms. Appraisals on properties that secure
commercial real estate loans are performed by an independent appraiser engaged
by the Bank before the loan is made. An environmental assessment is also
performed. Underwriting of commercial real estate loans includes a thorough
analysis of the cash flows generated by the real estate or the borrower's
business to support the debt service and the financial resources, experience,
and income level of the borrowers. Annual operating statements on each
commercial real estate loan are required and reviewed by management.
In addition to loans secured by commercial properties, the Bank's
commercial real estate portfolio includes loans for the development of
residential subdivisions . Such loans totalled $489,000 at December 31, 1996.
During the year ended March 31, 1996 and the nine months ended December 31,
1996, originations of loans for the development of residential subdivisions
totalled $411,000 and $1.2 million, respectively.
Commercial real estate lending affords the Bank an opportunity to receive
interest at rates higher than those generally available from residential
mortgage loans. However, loans secured by such properties usually are greater
in amount, more difficult to evaluate and monitor and, therefore, involve a
greater degree of risk than one- to four-family residential mortgage loans.
Because payments on loans secured by commercial properties are often dependent
on the successful operation and management of the properties, repayment of such
loans may be affected by adverse conditions in the real estate market or the
economy. The Bank seeks to minimize these risks by limiting the maximum loan-
to-value ratio to 75% and strictly scrutinizing the financial condition of the
borrower, the quality of the collateral and the management of the property
securing the loan. The Bank also obtains loan guarantees from financially
capable parties based on a review of personal financial statements.
CONSUMER AND OTHER LENDING. The Bank originates a variety of consumer and
other non-mortgage loans. Such loans generally have shorter terms to maturity
and higher interest rates than mortgage loans. At December 31, 1996, the Bank's
consumer and other non-mortgage loans totalled approximately $8.4 million, or
7.1% of the Bank's total loans. The Bank's consumer loans consist primarily of
secured and unsecured consumer loans, automobile loans, boat loans, recreation
vehicle loans, home improvement and equity loans and deposit account loans. The
Bank also originates a small amount of agricultural operating loans and
equipment loans. The growth of the consumer loan portfolio in recent years has
consisted primarily of an increase in home equity loans, which the Bank has more
aggressively marketed.
40
<PAGE>
At December 31, 1996, home equity loans totalled $9.7 million. The Bank
offers both home equity second mortgage loans and lines of credit.
Substantially all of the Bank's home equity loans are primarily secured by
second mortgages on residential real estate located in the Bank's primary market
area. Home equity second mortgage loans are generally offered with terms of
five or ten years and only with fixed interest rates. Home equity lines of
credit generally have adjustable interest rates based on the prime rate.
At December 31, 1996, agricultural operating loans totalled $1.0 million.
Agricultural operating loans or lines of credit generally are made for a term of
one to three years and may be secured or unsecured. Such loans may be secured
by a first or second mortgage, or liens on property, vehicles, accounts
receivable, crop held or growing crop. Personal guarantees are frequently
required for loans made to corporations and other business entities.
As part of the expansion of its community banking activities, the Bank
intends to increase its efforts to originate agricultural operating loans and
commercial business loans. The Bank has established a commercial loan
department and recently hired a loan officer with 18 years of commercial lending
experience as part of this effort. The Bank is also implementing a VISA credit
card program, which initially will be marketed to existing customers. However
there can be no assurances that the Bank will meet its objectives in increasing
the size of its non-mortgage loan portfolio. Factors that may effect the
ability of the Bank to increase its originations in this area include the demand
for such loans, interest rates and the state of the local and national economy.
Consumer and non-mortgage loans entail greater risk than do residential
mortgage loans, particularly in the case of loans that are unsecured or secured
by rapidly depreciating assets such as automobiles and farm equipment. In such
cases, any repossessed collateral for a defaulted consumer loan may not provide
an adequate source of repayment of the outstanding loan balance as a result of
the greater likelihood of damage, loss or depreciation. The remaining
deficiency often does not warrant further substantial collection efforts against
the borrower beyond obtaining a deficiency judgment. In addition, consumer loan
collections are dependent on the borrower's continuing financial stability, and
thus are more likely to be adversely affected by job loss, divorce, illness or
personal bankruptcy. Similarly, payments on agricultural operating loans depend
on the successful operation of the farm, which may be adversely affected by
weather conditions that limit crop yields, fluctuations in market prices for
agricultural products, and changes in government regulations and subsidies.
Furthermore, the application of various federal and state laws, including
federal and state bankruptcy and insolvency laws, may limit the amount that can
be recovered on such loans. At December 31, 1996, the Bank had $28,000 of
consumer and non-mortgage loans accounted for on a nonaccrual basis.
41
<PAGE>
MATURITY OF LOAN PORTFOLIO. The following table sets forth certain
information at December 31, 1996 regarding the dollar amount of principal
repayments for loans becoming due during the periods indicated. All loans are
included in the period in which the final contractual payment is due. Demand
loans, loans having no stated schedule of repayments and no stated maturity, and
overdrafts are reported as due within one year. The table does not include any
estimate of prepayments which significantly shorten the average life of all
loans and may cause the Bank's actual repayment experience to differ from that
shown below.
<TABLE>
<CAPTION>
After After After After 10
One Year 3 Years 5 Years Years
Within Through Through Through Through Beyond
One Year 3 Years 5 Years 10 Years 15 Years 15 Years Total
-------- ------- ------- -------- -------- -------- --------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Real estate loans:
Residential............. $ 276 $1,506 $3,897 $ 3,573 $12,059 $51,345 $ 72,656
Construction............ 14,945 -- -- -- -- -- 14,945
Commercial.............. 412 394 2,005 529 519 2,148 6,007
Agricultural............ -- 110 102 1,078 2,618 7,968 11,876
Consumer and other loans.. 2,849 1,295 1,883 6,628 239 219 13,113
------- ------ ------ ------- ------- ------- --------
Total gross loans..... $18,482 $3,305 $7,887 $11,808 $15,435 $61,680 $118,597
======= ====== ====== ======= ======= ======= ========
</TABLE>
The following table sets forth the dollar amount of all loans due after
December 31, 1997, that have fixed interest rates and have floating or
adjustable interest rates.
<TABLE>
<CAPTION>
Fixed Floating or
Rates Adjustable Rates
------- ----------------
(In Thousands)
<S> <C> <C>
Real estate loans:
Residential............. $33,712 $42,664
Construction............ -- --
Commercial.............. 2,575 1,776
Agricultural............ 699 11,373
Consumer and other loans.. 3,151 4,165
------- -------
Total gross loans.... $40,137 $59,978
======= =======
</TABLE>
42
<PAGE>
Scheduled contractual principal repayments of loans do not reflect the
actual life of such assets. The average life of a loan is substantially less
than its contractual terms because of prepayments. In addition, due-on-sale
clauses on loans generally give the Bank the right to declare loans immediately
due and payable in the event, among other things, that the borrower sells the
real property subject to the mortgage and the loan is not repaid. The average
life of mortgage loans tends to increase, however, when current mortgage loan
market rates are substantially higher than rates on existing mortgage loans and,
conversely, decrease when rates on existing mortgage loans are substantially
higher than current mortgage loan market rates.
LOAN SOLICITATION AND PROCESSING. Loan applicants come primarily through
existing customers, referrals by realtors and homebuilders, and walk-ins. The
Bank also uses radio and newspaper advertising to create awareness of its loan
products. In addition to originating loans through its branch offices, the Bank
operates two mortgage loan centers, one in Coeur d'Alene and one in Lewiston, to
supplement residential real estate loan originations. The Bank does not utilize
any loan correspondents, mortgage brokers or other forms of wholesale loan
origination. Upon receipt of a loan application from a prospective borrower, a
credit report and other data are obtained to verify specific information
relating to the loan applicant's employment, income and credit standing. An
appraisal of the real estate offered as collateral generally is undertaken by a
certified, independent fee appraiser.
Residential real estate loans up to $214,600 that qualify for sale in the
secondary market may be approved by the Bank's underwriters. All other
portfolio real estate loans up to $500,000 must be approved by two members of
the management loan committee. Delegated loan approval authority to residential
lending centers is authorized within prescribed limits for approved major
builder loans. All other construction loans resulting in total extension of
credit to one borrower up to $500,000 must be approved by two members of the
management loan committee. Any loan that would result in the total extension of
credit to one borrower to be in excess of $500,000 or to a major builder in
excess of its maximum credit limit must be approved by the Board of Directors
Loan Committee. Consumer loans up to $25,000 and home equity loans up to
$100,000 may be approved by designated underwriters. All other consumer and
home equity loans must be approved by two members of the management loan
committee.
LOAN ORIGINATIONS, SALES AND PURCHASES. While the Bank originates both
adjustable-rate and fixed-rate loans, its ability to generate each type of loan
is dependent upon relative customer demand for loans in its market. For the
year ended March 31, 1996, and the nine months ended December 31, 1996, the Bank
originated $120.9 million and $97.4 million of loans, respectively. Residential
real estate loan originations totalled $83.6 million for the year ended March
31, 1996 and $64.9 million for the nine months ended December 31, 1996. Of the
$97.4 million of loans originated during the nine months ended December 31,
1996, 16.2% were adjustable-rate loans and 83.8% were fixed-rate loans.
In the early 1990s the Bank adopted a mortgage banking strategy pursuant to
which it seeks to generate income from the sale of loans (which may be sold
either servicing-retained or servicing-released) and from servicing fees from
loans sold on a servicing-retained basis. Generally, the level of loan sale
activity and, therefore, its contribution to the Bank's profitability depends on
maintaining a sufficient volume of loan originations. Changes in the level of
interest rates and the local economy affect the amount of loans originated by
the Bank and, thus, the amount of loan sales as well as origination and loan
fees earned. Gains on sales of loans totalled $1.0 million, $1.4 million and
$891,000 during the years ended March 31, 1995 and 1996 and the nine months
ended December 31, 1996, respectively. See "RISK FACTORS -- Reliance on
Mortgage Banking Operations" and "-- Competition Within Market Area." The Bank
sells loans on a loan by loan basis. Generally a loan is committed to be sold
and a price for the loan is fixed at the time the interest rate on the loan is
fixed, which may be at the time the Bank issues a loan commitment or at the time
the loan closes. This eliminates the risk to the Bank that a rise in market
interest rates will reduce the value of a mortgage before it can be sold. Where
a loan is committed to be sold before it is closed, the Bank is subject to the
risk that the loan fails to close or that the closing of the loan is delayed
beyond the specified delivery date. In such event, the Bank may be required to
compensate the purchaser for failure to deliver the loan. Generally, all loans
are sold without recourse, although in the past the Bank has sold loans with
recourse. As of December 31, 1996, the Bank remains contingently liable for
approximately $1.8 million of loans sold with recourse.
43
<PAGE>
In the past, the Bank has purchased loans and loan participations in its
primary market during periods of reduced loan demand. However, in recent years,
because of strong loan demand, the Bank has purchased few loans. Through a
consortium of local financial institutions, the Bank occasionally purchases
participation interests in loans secured by local low-income housing projects.
The Bank intends to supplement its origination of agricultural and commercial
real estate loans and agricultural operating and commercial business loans by
purchasing participations in such loans originated by other community banks in
northern Idaho and eastern Washington. All such purchases will be made in
conformance with the Bank's underwriting standards. The Bank anticipates that
it will purchase only a small portion of such loans and that the originating
institution will retain a majority of the loan.
The following table shows total loans originated, purchased, sold and repaid
during the periods indicated.
<TABLE>
<CAPTION>
Nine Months Ended
Year Ended March 31, December 31,
---------------------- ------------------
1995 1996 1995 1996
---- ---- ---- ----
(In Thousands)
<S> <C> <C> <C> <C>
Total loans receivable at
beginning of period.............. $ 80,780 $ 88,810 $ 88,810 $100,655
-------- -------- -------- --------
Loans originated:
Real estate loans:
Residential..................... 61,030 83,551 63,030 64,912
Construction.................... 22,385 29,569 23,341 23,153
Agricultural.................... 2,402 1,023 692 798
Commercial...................... -- 1,481 1,202 3,419
Consumer and other loans......... 3,957 5,270 4,366 5,147
-------- -------- -------- --------
Total loans originated........ 89,774 120,894 92,631 97,429
-------- -------- -------- --------
Loans purchased:
Real estate loans:
Residential..................... 88 25 25 43
Construction.................... -- -- -- --
Agricultural.................... -- -- -- --
Commercial...................... -- -- -- --
Consumer and other loans......... -- -- -- --
-------- -------- -------- --------
Total loans purchased......... 88 25 25 43
-------- -------- -------- --------
Loans sold:
Servicing retained............... (26,996) (21,219) (14,339) (20,377)
Servicing released............... (24,570) (48,550) (38,037) (26,030)
-------- -------- -------- --------
Total loans sold.............. (51,566) (69,769) (52,376) (46,407)
Loan principal repayments......... (26,199) (32,112) (25,138) (25,818)
Other(1).......................... (4,067) (7,193) (3,973) (7,305)
-------- -------- -------- --------
Change in total loans receivable.. 8,030 11,845 11,169 17,942
-------- -------- -------- --------
Total receivable loans
at end of period................. $ 88,810 $100,655 $ 99,979 $118,597
======== ======== ======== ========
</TABLE>
- ------------
(1) Consists of refinanced loans.
44
<PAGE>
LOAN COMMITMENTS. The Bank issues commitments to originate loans
conditioned upon the occurrence of certain events. Such commitments are made on
specified terms and conditions and are honored for up to 90 days from the date
of loan approval. The Bank had outstanding loan commitments of approximately
$16.4 million at December 31, 1996.
LOAN ORIGINATION AND OTHER FEES. The Bank, in some instances, receives
loan origination fees. Loan fees are a fixed dollar amount or a percentage of
the principal amount of the mortgage loan that is charged to the borrower for
funding the loan. The amount of fees charged by the Bank generally is 1% of the
loan amount. Current accounting standards require fees received (net of certain
loan origination costs) for originating loans to be deferred and amortized into
interest income over the contractual life of the loan. Net deferred fees or
costs associated with loans that are prepaid are recognized as income at the
time of prepayment. The Bank had $408,000 of net deferred loan fees at December
31, 1996.
LOAN SERVICING. The Bank sells residential real estate loans to Freddie Mac
and Fannie Mae on a servicing-retained basis and receives fees in return for
performing the traditional services of collecting individual payments and
managing the loans. In the past, the Bank has sold agricultural real estate
loans to private investors on a servicing-retained basis. At December 31, 1996,
the Bank was servicing $131.5 million of loans for others. Loan servicing
includes processing payments, accounting for loan funds and collecting and
paying real estate taxes, hazard insurance and other loan-related items, such as
private mortgage insurance. When the Bank receives the gross mortgage payment
from individual borrowers, it remits to the investor in the mortgage a
predetermined net amount based on the yield on that mortgage. The difference
between the coupon on the underlying mortgage and the predetermined net amount
paid to the investor is the gross loan servicing fee. For a discussion of the
adoption SFAS No. 122, See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS -- Comparison of Operating Results for the
Nine Months Ended December 31, 1995 and 1996 -- Non-interest Income." In
addition, the Bank retains certain amounts in escrow for the benefit of the
investor for which the Bank incurs no interest expense but is able to invest.
At December 31, 1996, the Bank held $734,000 in escrow for its portfolio of
loans serviced for others.
DELINQUENCIES AND CLASSIFIED ASSETS
DELINQUENT LOANS. When a mortgage loan borrower fails to make a required
payment when due, the Bank institutes collection procedures. During the first
three months of the term of a loan, the borrower is contacted by telephone
approximately ten days after the payment is due in order to permit the borrower
to make the payment before the imposition of a late fee. The first notice is
mailed to the borrower when the payment is 16 days past due. Attempts to
contact the borrower by telephone generally begin when a payment becomes 25 days
past due. If the loan has not been brought current by the 60th day of
delinquency, the Bank attempts to interview the borrower in person and to
physically inspect the property securing the loan.
In most cases, delinquencies are cured promptly; however, if by the 91st day
of delinquency, or sooner if the borrower is chronically delinquent and all
reasonable means of obtaining payment on time have been exhausted, foreclosure,
according to the terms of the security instrument and applicable law, is
initiated. Interest income on loans is reduced by the full amount of accrued
and uncollected interest.
45
<PAGE>
The following table sets forth information with respect to the Bank's
nonperforming assets and restructured loans within the meaning of SFAS No. 15 at
the dates indicated. It is the policy of the Bank to cease accruing interest on
loans more than 90 days past due.
<TABLE>
<CAPTION>
At March 31, At December 31,
---------------------
1995 1996 1996
------- ------------- ----------------
(In Thousands)
<S> <C> <C> <C>
Loans accounted for on a
nonaccrual basis:
Real estate loans:
Residential............................... $ 407 $ 399 $ 189
Construction.............................. -- 194 789
Agricultural.............................. -- -- --
Commercial................................ -- -- --
Consumer and other loans................... -- -- 28
------ ------ ------
Total................................... 407 593 1,006
------ ------ ------
Accruing loans which are contractually
past due 90 days or more:
Real estate loans:
Residential............................... 4 97 --
Construction.............................. 119 -- --
Agricultural.............................. -- -- --
Commercial................................ -- -- --
Consumer and other loans................... 2 2 --
------ ------ ------
Total................................... 125 99 --
------ ------ ------
Total of nonaccrual and 90 days past
due loans.................................. 532 692 1,006
Real estate owned............................ -- 76 196
------ ------ ------
Total nonperforming assets................ $ 532 $ 768 $1,202
====== ====== ======
Restructured loans........................... $3,333 $1,760 $1,746
Nonaccrual and 90 days or more past
due loans as a percentage of net loans..... 0.64% 0.74% 0.91%
Nonaccrual and 90 days or more past
due loans as a percentage of total assets.. 0.51 0.53 0.76
Total nonperforming assets to
total assets............................... 0.51 0.59 0.90
</TABLE>
Interest income that would have been recorded for the year ended March 31,
1996 and the nine months ended December 31, 1996 had nonaccruing loans been
current in accordance with their original terms amounted to approximately
$24,000 and $59,000, respectively. The amount of interest included in interest
income on such loans for the year ended March 31, 1996 and the nine months
ended December 31, 1996 amounted to approximately $64,000 and $33,000,
respectively.
46
<PAGE>
REAL ESTATE OWNED. Real estate acquired by the Bank as a result of
foreclosure or by deed-in-lieu of foreclosure is classified as real estate owned
("REO") until it is sold. When property is acquired it is recorded at the lower
of its cost, which is the unpaid principal balance of the related loan plus
foreclosure costs, or fair market value. Subsequent to foreclosure, REO is
carried at the lower of the foreclosed amount or fair value, less estimated
selling costs. At December 31, 1996, the Bank had $196,000 of REO, which
consisted of two building lots and one single family residence.
ASSET CLASSIFICATION. The OTS has adopted various regulations regarding
problem assets of savings institutions. The regulations require that each
insured institution review and classify its assets on a regular basis. In
addition, in connection with examinations of insured institutions, OTS 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 insured
institution will sustain some loss if the deficiencies are not corrected.
Doubtful assets have the weaknesses of substandard assets with the additional
characteristic that the weaknesses make collection or liquidation in full on the
basis of currently existing facts, conditions and values questionable, and there
is a high possibility of loss. An asset classified as loss is considered
uncollectible and of such little value that continuance as an asset of the
institution is not warranted. If an asset or portion thereof is classified as
loss, the insured institution establishes specific allowances for loan losses
for the full amount of the portion of the asset classified as loss. All or a
portion of general loan loss allowances established to cover possible losses
related to assets classified substandard or doubtful may be included in
determining an institution's regulatory capital, while specific valuation
allowances for loan losses generally do not qualify as regulatory capital.
Assets that do not currently expose the insured institution to sufficient risk
to warrant classification in one of the aforementioned categories but possess
weaknesses are classified as special mention and monitored by the Bank.
At December 31, 1996, classified assets totalled $2.4 million. Assets
classified as loss totalled $16,000 and consisted of one construction loan in
the amount of $10,000 and overdrawn NOW accounts totalling $6,000. Assets
classified as substandard totalled $1.7 million and consisted of REO totalling
$196,000, one consumer loan in the amount of $5,000, five construction loans
totalling $736,000, 11 residential real estate loans totalling and $699,000 and
overdrawn NOW accounts totalling $35,000. Assets designated as special mention
totalled $753,000 and consisted of five residential real estate loans totalling
$191,000, two agricultural real estate loans totalling $548,000 and one consumer
loan in the amount of $14,000. The aggregate amounts of the Bank's classified
assets at the dates indicated were as follows:
<TABLE>
<CAPTION>
At March 31, At December 31,
--------------
1995 1996 1996
------ ------ ---------------
<S> <C> <C> <C>
(In Thousands)
Loss...................... $ 4 $ 2 $ 16
Doubtful.................. -- -- --
Substandard............... 846 1,219 1,671
Special mention........... 246 342 753
------ ------ ------
Total classified assets.. $1,096 $1,563 $2,440
====== ====== ======
</TABLE>
ALLOWANCE FOR LOAN LOSSES. The Bank has established a systematic
methodology for the determination of provisions for loan losses. The
methodology is set forth in a formal policy and takes into consideration the
need for an overall general valuation allowance as well as specific allowances
that are tied to individual loans.
In originating loans, the Bank recognizes that losses will be experienced
and that the risk of loss will vary with, among other things, the type of loan
being made, the creditworthiness of the borrower over the term of the loan,
general economic conditions and, in the case of a secured loan, the quality of
the security for the loan. The Bank increases its allowance for loan losses by
charging provisions for loan losses against income.
47
<PAGE>
The general allowance is maintained to cover losses inherent in the
portfolio of performing loans. Management's periodic evaluation of the adequacy
of the allowance is based on management's evaluation of probable losses in the
loan portfolio. Specific valuation allowances are established to absorb losses
on loans for which full collectibility may not be reasonably assured, based
upon, among other factors, the estimated fair market value of the underlying
collateral and estimated holding and selling costs. Generally, a provision for
losses is charged against income on a quarterly basis to maintain the
allowances.
At December 31, 1996, the Bank had an allowance for loan losses of
$880,000. The allowance for loan losses is maintained at an amount management
considers adequate to absorb losses inherent in the portfolio. Although
management believes that it uses the best information available to make such
determinations, future adjustments to the allowance for loan losses may be
necessary and results of operations could be significantly and adversely
affected if circumstances differ substantially from the assumptions used in
making the determinations.
While the Bank believes it has established its existing allowance for loan
losses in accordance with GAAP, there can be no assurance that regulators, in
reviewing the Bank's loan portfolio, will not request the Bank to increase
significantly its allowance for loan losses. In addition, because future events
affecting borrowers and collateral cannot be predicted with certainty, there can
be no assurance that the existing allowance for loan losses is adequate or that
substantial increases will not be necessary should the quality of any loans
deteriorate as a result of the factors discussed above. Any material increase
in the allowance for loan losses may adversely affect the Bank's financial
condition and results of operations.
48
<PAGE>
The following table sets forth an analysis of the Bank's allowance for loan
losses at and for the periods indicated. Where specific loan loss reserves have
been established, any differences between the loss allowances and the amount of
loss realized has been charged or credited to current income.
<TABLE>
<CAPTION>
Nine Months Ended
Year Ended March 31, December 31,
---------------------- ------------------
1995 1996 1995 1996
---- ---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C> <C>
Allowance at beginning of period.. $ 530 $ 555 $ 555 $ 701
Provision for loan losses(1)...... 28 150 78 194
Recoveries........................ -- -- -- --
Charge-offs:
Real estate loans:
Residential.................... -- -- -- 14
Construction................... -- -- -- --
Agricultural................... -- -- -- --
Commercial..................... -- -- -- --
Consumer and other loans........ 3 4 2 1
----- ----- ----- -----
Total charge-offs............ 3 4 2 15
----- ----- ----- -----
Net charge-offs.............. 3 4 2 15
----- ----- ----- -----
Balance at end of period..... $ 555 $ 701 $ 631 $ 880
===== ===== ===== =====
Ratio of allowance to total
loans outstanding
at the end of the period......... 0.62% 0.70% 0.63% 0.74%
Ratio of net charge-offs to
average loans outstanding
during the period................ -- -- -- 0.01%
</TABLE>
- -----------
(1) See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS -- Comparison of Operating Results for the Nine Months Ended
December 31, 1995 and 1996 -- Provisions for Loan Losses" and "-- Comparison
of Operating Results for the Years Ended March 31, 1995 and 1996 --
Provisions for Loan Losses" for a discussion of the factors responsible for
changes in the Bank's provision for loan losses between the periods.
49
<PAGE>
The following table sets forth the breakdown of the allowance for loan losses
by loan category for the periods indicated. Management believes that the
allowance can be allocated by category only on an approximate basis. The
allocation of the allowance to each category is not necessarily indicative of
future losses and does not restrict the use of the allowance to absorb losses
in any other category.
<TABLE>
<CAPTION>
At March 31,
------------------------------------ At December 31,
1995 1996 1996
----------------- ----------------- -----------------
% of % of % of
Loans in Loans in Loans in
Category Category Category
to Total to Total to Total
Amount Loans Amount Loans Amount Loans
------ --------- ------ --------- -------- -------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Real estate loans:
Residential............. $117 62.34% $375 65.23% $ 304 65.22%
Construction............ 136 13.80 135 13.74 206 12.60
Agricultural............ 119 13.38 119 11.87 191 10.01
Commercial.............. 108 5.71 -- 4.01 100 5.07
Consumer and other loans.. 75 4.76 72 5.15 79 7.10
---- ------ ---- ------ ----- ------
Total allowance for
loan losses.......... $555 100.00% $701 100.00% $ 880 100.00%
==== ====== ==== ====== ===== ======
</TABLE>
INVESTMENT ACTIVITIES
- ---------------------
The Bank is permitted under federal law to invest in various types of
liquid assets, including U.S. Treasury obligations, securities of various
federal agencies and of state and municipal governments, deposits at the FHLB-
Seattle, certificates of deposit of federally insured institutions, certain
bankers' acceptances and federal funds. Subject to various restrictions, the
Bank may also invest a portion of its assets in commercial paper and corporate
debt securities. Savings institutions like the Bank are also required to
maintain an investment in FHLB stock. The Bank is required under federal
regulations to maintain a minimum amount of liquid assets. See "REGULATION" and
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS -- Liquidity and Capital Resources."
SFAS No. 115, "Accounting for Certain Investments in Debt and Equity
Securities," requires that investments be categorized as "held to maturity,"
"trading securities" or "available for sale," based on management's intent as to
the ultimate disposition of each security. SFAS No. 115 allows debt securities
to be classified as "held to maturity" and reported in financial statements at
amortized cost only if the reporting entity has the positive intent and ability
to hold those securities to maturity. Securities that might be sold in response
to changes in market interest rates, changes in the security's prepayment risk,
increases in loan demand, or other similar factors cannot be classified as "held
to maturity." Debt and equity securities held for current resale are classified
as "trading securities." Such securities are reported at fair value, and
unrealized gains and losses on such securities would be included in earnings.
Debt and equity securities not classified as either "held to maturity" or
"trading securities" are classified as "available for sale." Such securities
are reported at fair value, and unrealized gains and losses on such securities
are excluded from earnings and reported as a net amount in a separate component
of equity. Currently, all of the Bank's investments are classified as held to
maturity.
The Chief Executive Officer and the Chief Financial Officer determine
appropriate investments in accordance with the Board of Directors' approved
investment policies and procedures. The Bank's investment
50
<PAGE>
policies generally limit investments to FHLB obligations, certificates of
deposit, U.S. Government and agency securities, municipal bonds rated AAA,
mortgage-backed securities and certain types of mutual funds. The Bank's
investment policy does not permit engaging directly in hedging activities or
purchasing high risk mortgage derivative products. Investments are made based
on certain considerations, which include the interest rate, yield, settlement
date and maturity of the investment, the Bank's liquidity position, and
anticipated cash needs and sources (which in turn include outstanding
commitments, upcoming maturities, estimated deposits and anticipated loan
amortization and repayments). The effect that the proposed investment would
have on the Bank's credit and interest rate risk, and risk-based capital is also
given consideration during the evaluation.
Investment securities are purchased primarily for managing liquidity.
Generally, the Bank purchases mortgage-backed securities only during times of
reduced loan demand. Because the Bank has experienced strong loan demand in
recent years, it has not purchased any mortgage-backed securities recently.
However, the Bank has entered into a commitment to purchase $1.6 million of a
collaterized mortgage obligation ("CMO") to be issued and guaranteed by the
Idaho Housing Authority. This purchase, which is expected to occur in June
1997, will be funded through an advance from the FHLB-Seattle pursuant to its
Community Investment Program. The CMO will represent an interest in a loan
secured by a low-income, multi-family housing project located in Lewiston.
The following table sets forth the composition of the Bank's investment and
mortgage-backed securities portfolios at the dates indicated.
<TABLE>
<CAPTION>
At March 31, At December 31,
---------------------------------------------------
1995 1996 1996
--------------------------- ---------------------- -----------------------
Carrying Percent of Carrying Percent of Carrying Percent of
Value Portfolio Value Portfolio Value Portfolio
------------ --------- -------- --------- --------- ---------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C>
AVAILABLE FOR SALE:
Mutual funds................. $ 1,289 11.87% $ 1,328 9.25% $ -- --%
HELD TO MATURITY:
U.S. Government and federal
agency obligations......... 6,732 61.98 10,545 73.43 5,189 68.89
Mortgage-backed securities... 2,840 26.15 2,488 17.32 2,343 31.11
------- ------ ------- ------ ------ ------
Total held to maturity.. 9,572 88.13 13,033 90.75 7,532 100.00
Total.................... $10,861 100.00% $14,361 100.00% $7,532 100.00%
======= ====== ======= ====== ====== ======
</TABLE>
The table below sets forth certain information regarding the carrying value,
weighted average yields and maturities of the Bank's investment and mortgage-
backed securities at December 31, 1996.
<TABLE>
<CAPTION>
Over Over
Less Than One to Five to Over Ten
One Year Five Years Ten Years Years
--------------------- ----------------- --------------- -------------
Amount Yield Amount Yield Amount Yield Amount Yield
-------- ----------- --------- ------ ------- ------ ------ ------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Government and federal
agency obligations......... $500 5.64% $4,689 6.21% --$ --% $ -- --%
Mortgage-backed securities... 7 7.12 14 7.06 -- -- 2,322 6.02
---- ------ ------
Total.................... $507 5.66 $4,703 6.21 -- -- $2,322 6.02
==== ====== ======
</TABLE>
51
<PAGE>
DEPOSIT ACTIVITIES AND OTHER SOURCES OF FUNDS
GENERAL. Deposits and loan repayments are the major sources of the Bank's
funds for lending and other investment purposes. Scheduled loan repayments are
a relatively stable source of funds, while deposit inflows and outflows and loan
prepayments are influenced significantly by general interest rates and money
market conditions. Borrowings through the FHLB-Seattle are used to compensate
for reductions in the availability of funds from other sources. Presently, the
Bank has no other borrowing arrangements.
DEPOSIT ACCOUNTS. Savings deposits are the primary source of funds for the
Bank's lending and investment activities and for its general business purposes.
Substantially all of the Bank's depositors are residents of the States of Idaho
and Washington. Deposits are attracted from within the Bank's market area
through the offering of a broad selection of deposit instruments, including NOW
accounts, money market deposit accounts, regular savings accounts, certificates
of deposit and retirement savings plans. The Bank also offers "TT&L" (treasury
taxes and loans) accounts for local businesses. Deposit account terms vary,
according to the minimum balance required, the time periods the funds must
remain on deposit and the interest rate, among other factors. In determining
the terms of its deposit accounts, the Bank considers current market interest
rates, profitability to the Bank, matching deposit and loan products and its
customer preferences and concerns. The Bank reviews its deposit mix and pricing
weekly. Currently, the Bank does not accept brokered deposits, nor has it
aggressively sought jumbo certificates of deposit, although the Bank has in the
past accepted brokered certificates of deposit. At December 31, 1996, the Bank
had one brokered deposit in the amount of $1.1 million. At December 31, 1996,
certificates of deposit that are scheduled to mature in less than one year
totalled $49.2 million. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS -- Liquidity and Capital Resources."
The Bank currently offers certificates of deposit for terms not exceeding 60
months. As a result, the Bank believes that it is better able to match the
repricing of its liabilities to the repricing of its loan portfolio. See
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS -- Asset and Liability Management."
In the unlikely event the Bank is liquidated after the Conversion,
depositors will be entitled to full payment of their deposit accounts prior to
any payment being made to the Holding Company, as the sole stockholder of the
Bank.
52
<PAGE>
The following table sets forth information concerning the Bank's deposits at
December 31, 1996.
<TABLE>
<CAPTION>
Weighted Percentage
Average Minimum of Total
Interest Rate Term Checking and Savings Deposits Amount Balance Deposits
- --------------- ------------------------------- ----------------------------- ------ -------- -----------
(In Thousands)
<S> <C> <C> <C> <C> <C>
1.23% -- NOW $ -- $ 15,211 14.44%
3.00 -- Money Market Deposit -- 13,456 12.77
3.03 -- Passbook -- 7,428 7.05
Certificates of Deposit
-----------------------------
4.25 7 days to 179 days Fixed term, fixed rate 2,500 5,306 5.04
5.46 11 months special/non-renewable Fixed term, fixed rate 500 2,979 2.83
5.27 6 months to less than 1 year Fixed term, fixed rate 1,000 14,577 13.84
5.58 14 months special/non-renewable Fixed term, fixed rate 500 4,856 4.61
5.29 1 year to less than 2 years Fixed term, fixed rate 500 8,237 7.82
5.75 27 months special/non-renewable Fixed term, fixed rate 500 1,646 1.56
6.20 2 years to less than 3 years Fixed term, fixed rate 500 15,151 14.38
5.96 New 2 years to 5 years - add on Fixed term, fixed rate 100 4,530 4.30
5.65 3 years to less than 4 years Fixed term, fixed rate 500 2,578 2.45
5.85 4 years to less than 5 years Fixed term, fixed rate 500 1,229 1.16
6.09 5 years to less than 10 years Fixed term, fixed rate 500 7,239 6.87
5.45 IRA Variable Fixed term, adjustable rate -- 926 0.88
-------- ------
Total $105,349 100.00%
======== ======
</TABLE>
The following table indicates the amount of the Bank's jumbo certificates
of deposit by time remaining until maturity as of December 31, 1996. Jumbo
certificates of deposit are certificates in amounts of $100,000 or more.
<TABLE>
<CAPTION>
Maturity Period Amount
- ------------------------------- --------------
(In Thousands)
<S> <C>
Three months or less $4,029
Over three through six months 2,032
Over six through 12 months 1,767
Over 12 months 1,558
------
Total jumbo certificates
of deposit $9,386
======
</TABLE>
53
<PAGE>
DEPOSIT FLOW. The following table sets forth the balances (inclusive of
interest credited) and changes in dollar amounts of deposits in the various
types of accounts offered by the Bank between the dates indicated.
<TABLE>
<CAPTION>
At March 31, At December 31,
------------------------------------------------- -----------------------------
1995 1996 1996
----------------- ------------------------------ -----------------------------
Percent Percent Percent
of of Increase of Increase
Amount Total Amount Total (Decrease) Amount Total (Decrease)
------- -------- -------- -------- ---------- -------- -------- ----------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NOW accounts......................... $13,146 14.81% $ 14,617 12.67% $ 1,471 $ 15,211 14.44% 594
Passbook accounts.................... 15,610 17.58 13,861 12.02 (1,749) 13,456 12.77 (405)
Money market deposit accounts........ 8,932 10.06 7,167 6.21 (1,765) 7,428 7.05 261
Fixed-rate certificates which
mature:
Within 1 year...................... 13,506 15.21 52,692 45.69 39,186 49,235 46.74 (3,457)
After 1 year, but within 2 years... 16,621 18.72 16,329 14.16 (292) 12,240 11.62 (4,089)
After 2 years, but within 5 years.. 18,834 21.21 10,639 9.23 (8,195) 7,779 7.38 (2,860)
Certificates maturing thereafter... 2,138 2.41 19 .02 (2,119) -- -- (19)
------- ------ -------- ------ ------- -------- ------ -------
Total........................... $88,787 100.00% $115,324 100.00% $26,537 $105,349 100.00% $(9,975)
======= ====== ======== ====== ======= ======== ====== =======
</TABLE>
54
<PAGE>
TIME DEPOSITS BY RATES. The following table sets forth the time deposits in
the Bank categorized by rates at the dates indicated.
<TABLE>
<CAPTION>
At March 31, At December 31,
---------------------
1995 1996 1996
------- ------------ ---------------
(Dollars in Thousands)
<S> <C> <C> <C>
3.20 - 4.19%... $ 5,798 $ 1,786 $ 1,079
4.20 - 5.19%... 16,001 13,854 24,586
5.20 - 6.19%... 18,689 50,332 32,929
6.20 - 7.19%... 6,674 10,300 9,752
7.20 - 8.19%... 3,349 2,814 453
8.20 - 11.19%.. 588 593 455
------- ------- -------
Total.......... $51,099 $79,679 $69,254
======= ======= =======
</TABLE>
The following table sets forth the amount and maturities of time deposits at
December 31, 1996.
<TABLE>
<CAPTION>
Amount Due
-------------------------------------------
Percent
After After After of Total
Less Than 1 to 2 2 to 3 3 to 4 After Certificate
One Year Years Years Years 4 Years Total Accounts
--------- ------- ------ ------ ------- ------- ------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
3.20 - 4.19%... $ 1,079 $ -- $ -- $ -- $ -- $ 1,079 1.55%
4.20 - 5.19%... 24,176 409 1 -- -- 24,586 35.50
5.20 - 6.19%... 14,897 11,029 4,796 793 1,414 32,929 47.55
6.20 - 7.19%... 9,075 677 -- -- -- 9,752 14.08
7.20 - 8.19%... -- 110 230 3 110 453 0.66
8.20 - 11.19%.. 8 15 432 -- -- 455 0.66
------- ------- ------ ------ ------- ------- ------
Total.......... $49,235 $12,240 $5,459 $796 $1,524 $69,254 100.00%
======= ======= ====== ====== ======= ======= ======
</TABLE>
55
<PAGE>
DEPOSIT ACTIVITY. The following table sets forth the deposit activities of
the Bank for the periods indicated.
<TABLE>
<CAPTION>
Nine Months Ended
Year Ended March 31, December 31,
--------------------- -------------------
1995 1996 1995 1996
---------- --------- -------- ---------
(In Thousands)
<S> <C> <C> <C> <C>
Beginning balance........... $91,858 $ 88,787 $ 88,787 $115,324
------- -------- -------- --------
Net increase (decrease)
before interest credited.. (6,557) 21,769 27,175 (13,699)
Interest credited........... 3,486 4,768 3,343 3,724
------- -------- -------- --------
Net increase (decrease)
in savings deposits....... (3,071) 26,537 30,518 (9,975)
------- -------- -------- --------
Ending balance.............. $88,787 $115,324 $119,305 $105,349
======= ======== ======== ========
</TABLE>
BORROWINGS. The Bank utilizes advances from the FHLB-Seattle to
supplement its supply of lendable funds and to meet deposit withdrawal
requirements. The FHLB-Seattle functions as a central reserve bank providing
credit for savings associations and certain other member financial institutions.
As a member of the FHLB-Seattle, the Bank is required to own capital stock in
the FHLB-Seattle and is authorized to apply for advances on the security of such
stock and certain of its mortgage loans and other assets (principally securities
that are obligations of, or guaranteed by, the U.S. Government) provided certain
creditworthiness standards have been met. Advances are made pursuant to several
different credit programs. Each credit program has its own interest rate and
range of maturities. Depending on the program, limitations on the amount of
advances are based on the financial condition of the member institution and the
adequacy of collateral pledged to secure the credit. The Bank is currently
authorized to borrow from the FHLB up to an amount equal to 20% of total assets.
The Bank intends to increase the amount of its FHLB advances in order to fund
certain investments as part of its asset/liability management. See "FIRSTBANK
NORTHWEST"
The following tables sets forth certain information regarding borrowings by
the Bank at the dates and for the periods indicated:
<TABLE>
<CAPTION>
At or For the Nine
At or For the Months Ended
Year Ended March 31, December 31,
--------------------- ---------------
1995 1996 1995 1996
------- ------- ------ ------
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Maximum amount of FHLB advances outstanding
at any month end during the period......... $4,900 $9,688 9,688 $15,060
Approximate average FHLB advances
outstanding during the period.............. 1,150 4,862 5,696 8,272
Balance of FHLB advances outstanding
at end of period........................... 4,000 2,304 2,467 15,060
Weighted average rate paid on
FHLB advances at end of period............. 6.74% 6.03% 6.04% 6.06%
Approximate weighted average rate paid on
FHLB advances during the period............ 6.68% 6.19% 6.25% 5.94%
</TABLE>
56
<PAGE>
COMPETITION
The Bank operates in a competitive market for the attraction of savings
deposits (its primary source of lendable funds) and in the origination of loans.
Its most direct competition for savings deposits has historically come from
commercial banks, credit unions and other thrifts operating in its market area.
The Bank's competitors include large regional and superregional banks. These
institutions are significantly larger than the Bank and therefore have greater
financial and marketing resources than the Bank. Particularly in times of high
interest rates, the Bank has faced additional significant competition for
investors' funds from short-term money market securities and other corporate and
government securities. The Bank's competition for loans comes from commercial
banks and other thrifts operating in its market as well as from mortgage bankers
and brokers, consumer finance companies, and, with respect to agricultural
loans, government sponsored lending programs. Such competition for deposits and
the origination of loans may limit the Bank's growth and profitability in the
future.
SUBSIDIARY ACTIVITIES
The Bank has one subsidiary, Tri-Star Financial Corporation, which was
created in 1985 and whose activities consist primarily of selling life insurance
and tax deferred annuities on an agency basis. At December 31, 1996, the Bank's
equity investment in its subsidiary was $20,000.
Federal savings associations generally may invest up to 3% of their assets
in service corporations, provided that any amount in excess of 2% is used
primarily for community, inner-city and community development projects. The
Bank's investment in its subsidiary did not exceed these limits at December 31,
1996.
PERSONNEL
As of December 31, 1996, the Bank had 75 full-time and eight part-time
employees. The employees are not represented by a collective bargaining unit
and the Bank believes its relationship with its employees to be good.
LEGAL PROCEEDINGS
Periodically, there have been various claims and lawsuits involving the
Bank, such as claims to enforce liens, condemnation proceedings on properties in
which the Bank holds security interests, claims involving the making and
servicing of real property loans and other issues incident to the Bank's
business. In the opinion of management, the Bank is not a party to any pending
legal proceedings that it believes would have a material adverse effect on the
financial condition or operations of the Bank.
PROPERTIES
The Bank operates five full-service facilities in Lewiston, Lewiston
Orchards, Moscow, Grangeville and Coeur d'Alene, Idaho, all of which it owns.
The Bank also operates one loan production office in Lewiston and one in Coeur
d'Alene, Idaho, which is located in the same facility as its full-service
office. A portion of the Coeur d'Alene facility is leased to an unaffiliated
brokerage firm for a period of ten years expiring in 2006. At December 31,
1996, the net book value of the properties (including land and buildings) and
the Bank's fixtures, furniture and equipment was $4.8 million.
57
<PAGE>
<TABLE>
<CAPTION>
Net Book Value Deposits
Location Year Acquired at December 31, 1996 at December 31, 1996
- ------------------------------ ------------- -------------------- --------------------
(in thousands)
<S> <C> <C> <C>
Administrative Office
- ------------------------------
920 Main Street 1978 $ 213,000 N/A
Lewiston, Idaho 83501
Full-Service Office
- ------------------------------
921 F Street 1960 123,000 $40,119
Lewiston, Idaho 83501
444 Thain Road 1974 63,000 16,161
Lewiston, Idaho 83501
201 S. Jackson Street 1989 437,000 28,329
Moscow, Idaho 83843
108 S. Mill Street 1977 47,000 10,607
Grangeville, Idaho 83530
1233 Northwood Center Court 1995 1,738,000 10,132
Coeur d'Alene, Idaho 83814
Residential Loan Centers
- ------------------------------
1233 Northwood Center Court 1995 -- N/A
Coeur d' Alene, Idaho 83814
108 10th Street 1978 -- N/A
Lewiston, Idaho
Other
- ------------------------------
unimproved lot 1993 336,000 N/A
Coeur d' Alene, Idaho
</TABLE>
58
<PAGE>
MANAGEMENT OF THE HOLDING COMPANY
The Board of Directors of the Holding Company consists of seven persons
divided into three classes, each of which contains approximately one third of
the Board. The Directors shall be elected by the stockholders of the Holding
Company for staggered three-year terms, or until their successors are elected
and qualified. One class of Directors, consisting of Messrs. William J. Larson
and Mr. Larry K. Moxley, has a term of office expiring at the first annual
meeting of stockholders, a second class, consisting of Messrs. James N. Marker
and Robert S. Coleman, Sr., has a term of office expiring at the second annual
meeting of stockholders, and a third class, consisting of Messrs. Clyde E.
Conklin, W. Dean Jurgens and Steve R. Cox, has a term of office expiring at the
third annual meeting of stockholders. The executive officers of the Holding
Company are elected annually and hold office until their respective successors
have been elected and qualified or until death, resignation or removal by the
Board of Directors.
The following individuals hold the offices set forth opposite their names
below.
Name Position held with Holding Company
---- ----------------------------------
Clyde E. Conklin President and Chief Executive Officer
Larry K. Moxley Chief Financial Officer, First Vice President and
Corporate Secretary
Cynthia M. Moore Controller and Assistant Corporate Secretary
Since the formation of the Holding Company, none of the executive officers,
directors or other personnel has received remuneration from the Holding Company.
Information concerning the principal occupations, employment and compensation of
the directors and executive officers of the Holding Company during the past five
years is set forth under "MANAGEMENT OF THE BANK -- Biographical Information."
MANAGEMENT OF THE BANK
DIRECTORS AND EXECUTIVE OFFICERS
The Board of Directors of the Bank is presently composed of seven members
who are elected for terms of three years, approximately one third of whom are
elected annually in accordance with the Bylaws of the Bank. The Board of
Directors of the Bank following the Stock Conversion will be composed of nine
members and will include all of the current Directors of the Bank plus Messrs.
Conklin and Moxley. The executive officers of the Bank are elected annually by
the Board of Directors and serve at the Board's discretion. The following table
sets forth information with respect to the Directors and executive officers of
the Bank.
DIRECTORS
<TABLE>
<CAPTION>
Current
Director Term
Name Age (1) Position with Bank Since Expires
- ---- ------- ------------------ --------- -------
<S> <C> <C> <C> <C>
William J. Larson 66 Chairman 1973 1998
James N. Marker 60 First Vice Chairman 1974 1999
Steve R. Cox 50 Second Vice Chairman 1986 2000
Robert S. Coleman, Sr. 69 Director 1978 1999
Dr. L. Glen Carlson 73 Director 1977 1998
F. Ron McMurray 56 Director 1986 1999
W. Dean Jurgens 64 Director 1969 2000
</TABLE>
59
<PAGE>
EXECUTIVE OFFICERS
<TABLE>
<S> <C> <C>
Name Age(1) Position with Bank
- ---- ------ ------------------
Clyde E. Conklin 45 Chief Executive Officer
Larry K. Moxley 46 Chief Financial Officer and Secretary/Treasurer
Terence A. Otte 40 Vice President, Agricultural and
Consumer Lending
Donn L. Durgan 42 Vice President, Residential Lending
Douglas R. Ax 41 Vice President, Commercial Lending
</TABLE>
- ---------------
(1) As of December 31, 1996.
BIOGRAPHICAL INFORMATION
Set forth below is certain information regarding the Directors and
executive officers of the Bank. Unless otherwise stated, each Director and
executive officer has held his or her current occupation for the last five
years.
William J. Larson is a partner in the Quality Inn and Convention Center in
Clarkston, Washington and other various real estate development projects. Prior
to 1993, he was a partner in Houser & Son, Inc., a livestock and farming
operation.
James N. Marker is general manager and part owner of Idaho Truck Sales Co.,
Inc., a heavy duty truck dealership.
Steve R. Cox is the president and shareholder of Randall, Blake & Cox,
P.A., a law firm in Lewiston, Idaho and is a non-practicing certified public
accountant.
Robert S. Coleman, Sr., a retired businessman, is the former President and
co-owner of Coleman Oil, Co., a petroleum distributor.
Dr. L. Glen Carlson, a native of the area, is a retired dentist. He
developed the Brydon Canyon Center, a complex of medical and dental offices. Dr.
Carlson is trustee of family owned farm land at Nez Perce, Idaho.
F. Ron McMurray has been the manager of Inland 465, a warehouse
distribution center, since 1994. From 1990 to 1994, Mr. McMurray was the manager
of the Port of Lewiston, a municipal corporation. Prior to that time, Mr.
McMurray was the owner and operator of Fairley's Flowers, a flower and gift
store.
W. Dean Jurgens is the President and part owner of Jurgens & Co., P.A.,
certified public accountants.
Clyde E. Conklin, who joined the Bank in 1987, has served as the Chief
Executive Officer of the Bank since February 1996. From September 1994 to
February 1996, Mr. Conklin served as Senior Vice President - Lending. In 1993,
Mr. Conklin became Vice President - Lending. Prior to that time, Mr. Conklin
served as Agricultural Lending Manager.
Larry K. Moxley, who joined the Bank in 1973, currently serves as Chief
Financial Officer of the Bank, which position he has held since February 1996.
Mr. Moxley served as Senior Vice President - Finance from 1993 to February 1996
and as Vice President - Finance from 1984 to 1993.
60
<PAGE>
Terence A. Otte joined the Bank in June, 1989 as an Agricultural Loan
Officer. From 1991 to 1994, he served as manager of the Bank's Moscow, Idaho
branch. In 1994 he became Vice President-Lending and Agricultural Lending
Manager and in 1996 became Vice President, Agricultural and Consumer Lending and
Compliance Officer.
Donn L. Durgan, who joined the Bank in February 1996, currently serves as
Vice President, Residential Lending. Prior to that time, Mr. Durgan was
employed by First Security Bank for 11 years in various positions in commercial
and residential real estate lending.
Douglas R. Ax, who joined the Bank in January 1997, currently serves as
Vice President, Commercial Lending. Prior to that time, Mr. Ax was employed by,
West One Bank (which became U.S. Bank) for over nine years in various positions
in commercial lending, most recently as a Vice President and Commercial Loan
Officer.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
The business of the Bank is conducted through meetings and activities of
the Board of Directors and its committees. During the fiscal year ended March
31, 1996, the Board of Directors held 20 meetings. No director attended fewer
than 75% of the total meetings of the Board of Directors and of committees on
which such director served.
The Audit Committee, consisting of the entire Board of Directors, meets
with the Bank's outside auditor to discuss the results of the annual audit. The
Audit Committee met one time during the fiscal year ended March 31, 1996.
The Personnel Committee, consisting of Directors Larson and Marker and
Messrs. Conklin and Moxley, is responsible for determining compensation for all
employees. The Compensation Committee met one time during the fiscal year ended
March 31, 1996.
DIRECTORS' COMPENSATION
Directors currently receive an annual retainer of $10,600. The Chairman of
the Board receives an additional $6,000 annually. In December 1996, when the
current compensation for directors was established, the Board determined to pay
Mr. Larson and Mr. Jurgens, who each previously served as Chairman of the Board,
$15,000 and $50,000, respectively. These amounts represent the difference
between the $6,000 annual fee currently paid to the Chairman and the $1,000
annual fee previously paid, multiplied by the number of years each person served
as Chairman of the Board. In addition, Mr. Cox was awarded an additional
$10,000 in recognition of the additional time devoted and responsibility assumed
during 1996. It is currently anticipated that, after completion of the
Conversion, directors' fees will continue to be paid by the Bank and no separate
fees will be paid for service on the Board of Directors of the Holding Company.
Employee directors of the Bank will receive an annual retainer of $8,480.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE. The following information is furnished for the
Chief Executive Officer of the Bank for the year ended March 31, 1996. No other
executive officers of the Bank received salary and bonus in excess of $100,000
during the year ended March 31, 1996.
<TABLE>
<CAPTION>
Annual Compensation(1)
- ------------------------
Name and Other Annual All Other
Position Year Salary($) Bonus($) Compensation($)(2) Compensation($)(3)
- ------------------ ---- ------- -------- -------------------- ------------------
<S> <C> <C> <C> <C> <C>
Clyde E. Conklin 1996 57,208 19,252 -- 2,755
Chief Executive
Officer
</TABLE>
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- -------------------------------
(1) Compensation information for fiscal years ended March 31, 1995 and 1994 has
been omitted as the Bank was not a public company nor a subsidiary thereof
at such time.
(2) The aggregate amount of perquisites and other personal benefits was less
than 10% of the total annual salary and bonus reported.
(3) Includes employer contribution to 401(k) plan.
EMPLOYMENT AGREEMENTS. In connection with the Conversion, the Holding
Company and the Bank (collectively, the "Employers") will enter into three-year
employment agreements with Mr. Conklin and Mr. Moxley. Under the agreements the
initial salary level for Mr. Conklin will be $88,000 and for Mr. Moxley will be
$85,000, which amounts will be paid by the Bank and may be increased at the
discretion of the Board of Directors or an authorized committee of the Board.
On each anniversary of the commencement date of the agreements, the term of the
agreements may be extended for an additional year. The agreements are
terminable by the Employers at any time, or by Mr. Conklin or Mr. Moxley if
either executive is assigned duties inconsistent with his initial position,
duties, responsibilities and status, or upon the occurrence of certain events
specified by federal regulations. In the event that an executive's employment
is terminated without cause or upon the executive's voluntary termination
following the occurrence of an event described in the preceding sentence, the
Bank would be required to honor the terms of the agreement through the
expiration of the current term, including payment of current cash compensation
and continuation of employee benefits for a period of six months.
The employment agreements provide for severance payments and other benefits
in the event of involuntary termination of employment in connection with any
change in control of the Employers. Severance payments also will be provided on
a similar basis in connection with a voluntary termination of employment where,
subsequent to a change in control, the executive is assigned duties inconsistent
with his position, duties, responsibilities and status immediately prior to such
change in control. The term "change in control" is defined in the agreement as
having occurred when, among other things, (a) a person other than the Holding
Company purchases shares of Common Stock pursuant to a tender or exchange offer
for such shares, (b) any person (as such term is used in Sections 13(d) and
14(d)(2) of the Securities Exchange Act of 1934, as amended ("Exchange Act")) is
or becomes the beneficial owner, directly or indirectly, of securities of the
Holding Company representing 25% or more of the combined voting power of the
Holding Company's then outstanding securities, (c) the membership of the Board
of Directors changes as the result of a contested election, or (d) shareholders
of the Holding Company approve a merger, consolidation, sale or disposition of
all or substantially all of the Holding Company's assets, or a plan of partial
or complete liquidation.
The severance payment from the Employers will equal three times the
executive's average annual compensation during the five-year period preceding
the change in control. Such amount will be paid in a lump sum within ten
business days following the termination of employment. Assuming that a change
in control had occurred at December 31, 1996, Mr. Conklin and Mr. Moxley would
be entitled to severance payments of approximately $216,000 and $234,000,
respectively. Section 280G of the Internal Revenue Code of 1986, as amended
("Code"), states that severance payments which equal or exceed three times the
base compensation of the individual for the most recently completed five taxable
years are deemed to be "excess parachute payments" if they are contingent upon a
change in control. Individuals receiving excess parachute payments are subject
to a 20% excise tax on the amount of such excess payments, and the Employers
would not be entitled to deduct the amount of such excess payments.
The agreement restricts the executive's right to compete against the
Employers for a period of one year from the date of termination of the agreement
if he voluntarily terminates employment, except in the event of a change in
control.
The Board of Directors of the Holding Company or the Bank may, from time to
time, also enter into employment or severance agreements with other senior
executive officers.
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SALARY CONTINUATION AGREEMENTS. The Bank has entered into salary
continuation agreements with Messrs. Conklin and Moxley as an incentive to
ensure their continued employment with the Bank and to provide an additional
source of retirement income. Under the agreements, Messrs. Conklin and Moxley
would each receive lifetime benefits of $4,583 per month upon retirement at or
after attaining age 60. The monthly benefit would be reduced proportionately in
accordance with a specified vesting schedule in the event of the executive's
termination of employment prior to age 60. The agreements also provide for
payment of a reduced benefit in the event of an executive's disability and a
lump sum death benefit in the event of the executive's death while employed by
the Bank. In the event of a change in control of the Bank, the agreements
provide that the executive would be entitled to a lump sum payment based on the
executive's vested benefit when the change in control occurred. The Bank has
purchased life insurance on Messrs. Conklin and Moxley to informally fund the
Bank's obligations under the salary continuation agreements funded by a single
premium annuity in 1995. The vesting of the benefits under the salary
continuation agreements will be accelerated upon a change in control of the
Bank.
BENEFITS
GENERAL. The Bank currently pays the premiums for medical, dental, life and
disability insurance benefits for full-time employees, subject to certain
deductibles.
401(K) PLAN. The Bank maintains a 401(k) Plan (the "401(k) Plan") for the
benefit of eligible employees of the Bank. The 401(k) Plan is intended to be a
tax-qualified plan under Sections 401(a) and 401(k) of the Code. Employees of
the Bank who have completed 1,000 hours of service during 12 consecutive months
and who have attained age 21 are eligible to participate in the 401(k) Plan.
Participants may contribute a portion of their annual compensation to the 401(k)
Plan through a salary reduction election in an amount not in excess of
applicable Code limits. The limit for 1997 is $9,500. The Bank matches 50% of
participant contributions up to a maximum of 6% of a participant's salary. In
addition to employer matching contributions, the Bank may contribute a
discretionary amount to the 401(k) Plan in any plan year which is allocated to
individual participants in the proportion that their annual compensation bears
to the total compensation of all participants during the plan year. To be
eligible to receive a discretionary employer contribution, the participant must
complete 1,000 hours of service during the plan year and remain employed by the
Bank on the last day of the plan year. Participants are at all times 100%
vested in salary reduction contributions. With respect to employer matching and
discretionary employer contributions, participants are 40% vested in such
contributions at the completion of their fourth year of service with full
vesting occurring after five years of service. For the fiscal year ended March
31, 1996, the Bank incurred total contribution-related expenses of $103,000 in
connection with the 401(k) Plan.
In general, the investment of 401(k) Plan assets is directed by plan
participants. In connection with the Conversion, participants will have the
opportunity to direct the investment of up to 100% of their vested account
balance to purchase shares of the Common Stock. A participant in the 401(k)
Plan who elects to purchase Common Stock in the Conversion through the 401(k)
Plan will receive the same subscription priority and be subject to the same
individual purchase limitations as if the participant had elected to make such
purchase using other funds. See "THE CONVERSION -- Limitations on Purchases of
Shares."
EMPLOYEE STOCK OWNERSHIP PLAN. The Board of Directors has authorized the
adoption by the Bank of an ESOP for employees of the Bank to become effective
upon the completion of the Conversion. The ESOP is intended to satisfy the
requirements for an employee stock ownership plan under the Code and the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"). Full-
time employees of the Holding Company and the Bank who have been credited with
at least 1,000 hours of service during a 12-month period and who have attained
age 19 will be eligible to participate in the ESOP.
In order to fund the purchase of up to 8% of the Common Stock to be issued
in the Conversion, it is anticipated that the ESOP will borrow funds from the
Holding Company. Such loan will equal 100% of the aggregate purchase price of
the Common Stock. If, for any reason, the ESOP is unable to acquire 8% of the
Common Stock issued in the Conversion, it is anticipated that the ESOP will
acquire shares not obtained through
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the Offering in open market purchases. The loan to the ESOP will be repaid
principally from the Bank's contributions to the ESOP and dividends payable on
Common Stock held by the ESOP over the anticipated seven-year term of the loan.
The interest rate for the ESOP loan is expected to be the prime rate as
published in The Wall Street Journal on the closing date of the Conversion. See
"PRO FORMA DATA." In any plan year, the Bank may make additional discretionary
contributions to the ESOP for the benefit of plan participants in either cash or
shares of Common Stock, which may be acquired through the purchase of
outstanding shares in the market or from individual stockholders or which
constitute authorized but unissued shares or shares held in treasury by the
Holding Company. The timing, amount, and manner of such discretionary
contributions will be affected by several factors, including applicable
regulatory policies, the requirements of applicable laws and regulations, and
market conditions.
Shares purchased by the ESOP with the proceeds of the loan will be held in a
suspense account and released on a pro rata basis as the loan is repaid.
Discretionary contributions to the ESOP and shares released from the suspense
account will be allocated among participants on the basis of each participant's
proportional share of total compensation. Forfeitures will be reallocated among
the remaining plan participants.
Participants will vest in their accrued benefits under the ESOP upon the
completion of five years of service. Benefits may be payable upon a
participant's retirement, early retirement, death, disability, or termination of
employment. The Bank's contributions to the ESOP are not fixed, so benefits
payable under the ESOP cannot be estimated.
It is anticipated that Messrs. ____________ will be appointed by the Board
of Directors of the Bank to serve as trustees of the ESOP. Under the ESOP, the
trustees must vote all allocated shares held in the ESOP in accordance with the
instructions of plan participants and allocated shares for which no instructions
are received must be voted in the same ratio on any matter as those shares for
which instructions are given.
Pursuant to SOP 93-6, the Bank will record compensation expense in an amount
equal to the fair value of shares committed to be released to employees from the
ESOP and will exclude unallocated shares from earnings per share computations.
The effect of SOP 93-6 on net income and earnings per share in future periods
cannot be predicted due to the uncertainty of the fair value of the shares at
the time they will be committed to be released.
If the ESOP purchases newly issued shares from the Holding Company, total
stockholders' equity would neither increase nor decrease. However, on a per
share basis, stockholders' equity and per share net earnings would decrease
because of the increase in the number of outstanding shares.
The ESOP will be subject to the requirements of ERISA and the regulations of
the IRS and the Department of Labor issued thereunder. The Bank intends to
request a determination letter from the IRS regarding the tax-qualified status
of the ESOP. Although no assurance can be given that a favorable determination
letter will be issued, the Bank expects that a favorable determination letter
will be received by the ESOP.
STOCK OPTION PLAN. The Board of Directors of the Holding Company intends to
adopt the Stock Option Plan and to submit the Stock Option Plan to the
stockholders for approval at a meeting held no earlier than six months following
consummation of the Stock Conversion. Under current OTS regulations, the
approval of a majority vote of the Holding Company's outstanding shares is
required prior to the implementation of the Stock Option Plan within one year of
the consummation of the Stock Conversion. The Stock Option Plan will comply
with all applicable regulatory requirements. However, the Stock Option Plan
will not be approved or endorsed by the OTS.
The Stock Option Plan will be designed to attract and retain qualified
management personnel and nonemployee directors, to provide such officers, key
employees and nonemployee directors with a proprietary interest in the Holding
Company as a incentive to contribute to the success of the Holding Company and
the Bank, and to reward officers and key employees for outstanding performance.
The Stock Option Plan will provide for the grant of incentive stock options
("ISOs") intended to comply with the requirements of Section 422 of the Code and
for
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nonqualified stock options ("NQOs"). Upon receipt of stockholder approval of
the Stock Option Plan, stock options may be granted to key employees of the
Holding Company and its subsidiaries, including the Bank. Unless sooner
terminated, the Stock Option Plan will continue in effect for a period of ten
years from the date the Stock Option Plan is approved by stockholders.
A number of authorized shares of Common Stock equal to 10% of the number of
shares of Common Stock issued in connection with the Stock Conversion will be
reserved for future issuance under the Stock Option Plan (172,500 shares based
on the issuance of 1,725,000 shares at the maximum of the Estimated Valuation
Range). Shares acquired upon exercise of options will be authorized but
unissued shares or treasury shares. In the event of a stock split, reverse
stock split, stock dividend, or similar event, the number of shares of Common
Stock under the Stock Option Plan, the number of shares to which any award
relates and the exercise price per share under any option may be adjusted by the
Committee to reflect the increase or decrease in the total number of shares of
Common Stock outstanding.
The Stock Option Plan will be administered and interpreted by a committee of
the Board of Directors ("Committee"). Subject to applicable OTS regulations,
the Committee will determine which nonemployee directors, officers and key
employees will be granted options, whether, in the case of officers and
employees, such options will be ISOs or NQOs, the number of shares subject to
each option, and the exercisability of such options. All options granted to
nonemployee directors will be NQOs. The per share exercise price of all options
will equal at least 100% of the fair market value of a share of Common Stock on
the date the option is granted.
Under current OTS regulations, if the Stock Option Plan is implemented
within one year of the consummation of the Stock Conversion, (i) no officer or
employee could receive an award of options covering in excess of 25%, (ii) no
nonemployee director could receive in excess of 5% and (iii) nonemployee
directors, as a group, could not receive in excess of 30%, of the number of
shares reserved for issuance under the Stock Option Plan.
It is anticipated that all options granted under the Stock Option Plan will
be granted subject to a vesting schedule whereby the options become exercisable
over a specified period following the date of grant. Under OTS regulations, if
the Stock Option Plan is implemented within the first year following
consummation of the Stock Conversion, the minimum vesting period will be five
years. All unvested options will be immediately exercisable in the event of the
recipient's death or disability. Unvested options will also be exercisable
following a change in control (as defined in the Stock Option Plan) of the
Holding Company or the Bank to the extent authorized or not prohibited by
applicable law or regulations. OTS regulations currently provide that, if the
Stock Option Plan is implemented prior to the first anniversary of the Stock
Conversion, vesting may not be accelerated upon a change in control of the
Holding Company or the Bank.
Each stock option that is awarded to an officer or key employee will remain
exercisable at any time on or after the date it vests through the earlier to
occur of the tenth anniversary of the date of grant or three months after the
date on which the optionee terminates employment (one year in the event of the
optionee's termination by reason of death or disability), unless such period is
extended by the Committee. Each stock option that is awarded to a nonemployee
director will remain exercisable through the earlier to occur of the tenth
anniversary of the date of grant or one year (two years in the event of a
nonemployee director's death or disability) following the termination of a
nonemployee director's service on the Board. All stock options are
nontransferable except by will or the laws of descent or distribution.
Under current provisions of the Code, the federal tax treatment of ISOs and
NQOs is different. With respect to ISOs, an optionee who satisfies certain
holding period requirements will not recognize income at the time the option is
granted or at the time the option is exercised. If the holding period
requirements are satisfied, the optionee will generally recognize capital gain
or loss upon a subsequent disposition of the shares of Common Stock received
upon the exercise of a stock option. If the holding period requirements are not
satisfied, the difference between the fair market value of the Common Stock on
the date of grant and the option exercise price, if any, will be taxable
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to the optionee at ordinary income tax rates. A federal income tax deduction
generally will not be available to the Holding Company as a result of the grant
or exercise of an ISO, unless the optionee fails to satisfy the holding period
requirements. With respect to NQOs, the grant of an NQO generally is not a
taxable event for the optionee and no tax deduction will be available to the
Holding Company. However, upon the exercise of an NQO, the difference between
the fair market value of the Common Stock on the date of exercise and the option
exercise price generally will be treated as compensation to the optionee upon
exercise, and the Holding Company will be entitled to a compensation expense
deduction in the amount of income realized by the optionee.
Although no specific award determinations have been made at this time, the
Holding Company and the Bank anticipate that if stockholder approval is obtained
it would provide awards to its directors, officers and employees to the extent
permitted by applicable regulations. The size of individual awards will be
determined prior to submitting the Stock Option Plan for stockholder approval,
and disclosure of anticipated awards will be included in the proxy materials for
such meeting.
MANAGEMENT RECOGNITION PLAN. Following the Stock Conversion, the Board of
Directors of the Holding Company intends to adopt an MRP for officers,
employees, and nonemployee directors of the Holding Company and the Bank,
subject to shareholder approval. The MRP will enable the Holding Company and
the Bank to provide participants with a proprietary interest in the Holding
Company as an incentive to contribute to the success of the Holding Company and
the Bank. The MRP will comply with all applicable regulatory requirements.
However, the MRP will not be approved or endorsed by the OTS.
Under current OTS regulations, the approval of a majority vote of the
Holding Company's outstanding shares is required prior to the implementation of
the MRP within one year of the consummation of the Stock Conversion.
The MRP expects to acquire a number of shares of Common Stock equal to 4% of
the Common Stock issued in connection with the Stock Conversion (69,000 shares
based on the issuance of 1,725,000 shares in the Stock Conversion at the maximum
of the Estimated Valuation Range). Such shares will be acquired on the open
market, if available, with funds contributed by the Holding Company or the Bank
to a trust which the Holding Company may establish in conjunction with the MRP
("MRP Trust") or from authorized but unissued shares or treasury shares of the
Holding Company.
A committee of the Board of Directors of the Holding Company will administer
the MRP, the members of which will also serve as trustees of the MRP Trust, if
formed. The trustees will be responsible for the investment of all funds
contributed by the Holding Company or the Bank to the MRP Trust. The Board of
Directors of the Holding Company may terminate the MRP at any time and, upon
termination, all unallocated shares of Common Stock will revert to the Holding
Company.
Shares of Common Stock granted pursuant to the MRP will be in the form of
restricted stock payable ratably over a specified vesting period following the
date of grant. During the period of restriction, all shares will be held in
escrow by the Holding Company or by the MRP Trust. Under OTS regulations, if
the Stock Option plan is implemented within the first year following
consummation of the Stock Conversion, the minimum vesting period will be five
years. All unvested MRP awards will vest in the event of the recipient's death
or disability. Unvested MRP awards will also vest following a change in control
(as defined in the MRP) of the Holding Company or the Bank to the extent
authorized or not prohibited by applicable law or regulations. OTS regulations
currently provide that, if the MRP is implemented prior to the first anniversary
of the Stock Conversion, vesting may not be accelerated upon a change in control
of the Holding Company or the Bank.
A recipient of an MRP award in the form of restricted stock generally will
not recognize income upon an award of shares of Common Stock, and the Holding
Company will not be entitled to a federal income tax deduction, until the
termination of the restrictions. Upon such termination, the recipient will
recognize ordinary income in an amount equal to the fair market value of the
Common Stock at the time and the Holding Company will be entitled to a deduction
in the same amount after satisfying federal income tax withholding requirements.
However, the
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recipient may elect to recognize ordinary income in the year the restricted
stock is granted in an amount equal to the fair market value of the shares at
that time, determined without regard to the restrictions. In that event, the
Holding Company will be entitled to a deduction in such year and in the same
amount. Any gain or loss recognized by the recipient upon subsequent
disposition of the stock will be either a capital gain or capital loss.
Although no specific award determinations have been made at this time, the
Holding Company and the Bank anticipate that if stockholder approval is obtained
it would provide awards to its directors, officers and employees to the extent
permitted by applicable regulations. Under current OTS regulations, if the MRP
is implemented within one year of the consummation of the Stock Conversion, (i)
no officer or employee could receive an award of options covering in excess of
25%, (ii) no nonemployee director could receive in excess of 5% and (iii)
nonemployee directors, as a group, could not receive in excess of 30%, of the
number of shares reserved for issuance under the MRP. The size of individual
awards will be determined prior to submitting the MRP for stockholder approval,
and disclosure of anticipated awards will be included in the proxy materials for
such meeting.
TRANSACTIONS WITH THE BANK
Federal regulations require that all loans or extensions of credit to
executive officers and directors must be made on substantially the same terms,
including interest rates and collateral, as those prevailing at the time for
comparable transactions with other persons and must not involve more than the
normal risk of repayment or present other unfavorable features. The Bank is
therefore prohibited from making any new loans or extensions of credit to the
Bank's executive officers and directors at different rates or terms than those
offered to the general public and has adopted a policy to this effect. In
addition, loans made to a director or executive officer in an amount that, when
aggregated with the amount of all other loans to such person and his or her
related interests, are in excess of the greater of $25,000, or 5% of the Bank's
capital and surplus (up to a maximum of $500,000) must be approved in advance by
a majority of the disinterested members of the Board of Directors. See
"REGULATION -- Federal Regulation of Savings Associations -- Transactions with
Affiliates." The aggregate amount of loans by the Bank to its executive
officers and directors was $436,000 at December 31, 1996, or approximately 1.7%
of pro forma stockholders' equity (based on the issuance of the maximum of the
Estimated Valuation Range).
REGULATION
GENERAL
The Bank is subject to extensive regulation, examination and supervision by
the OTS as its chartering agency, and the FDIC, as the insurer of its deposits.
The activities of federal savings institutions are governed by the Home Owners'
Loan Act, as amended (the "HOLA") and, in certain respects, the Federal Deposit
Insurance Act ("FDIA") and the regulations issued by the OTS and the FDIC to
implement these statutes. These laws and regulations delineate the nature and
extent of the activities in which federal savings associations may engage.
Lending activities and other investments must comply with various statutory and
regulatory capital requirements. In addition, the Bank's relationship with its
depositors and borrowers is also regulated to a great extent, especially in such
matters as the ownership of deposit accounts and the form and content of the
Bank's mortgage documents. The Bank must file reports with the OTS and the FDIC
concerning its activities and financial condition in addition to obtaining
regulatory approvals prior to entering into certain transactions such as mergers
with, or acquisitions of, other financial institutions. There are periodic
examinations by the OTS and the FDIC to review the Bank's compliance with
various regulatory requirements. The regulatory structure also gives the
regulatory authorities extensive discretion in connection with their supervisory
and enforcement activities and examination policies, including policies with
respect to the classification of assets and the establishment of adequate loan
loss reserves for regulatory purposes. Any change in such policies, whether by
the OTS, the FDIC or Congress, could have a material adverse impact on the Bank
and its operations.
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FEDERAL REGULATION OF SAVINGS ASSOCIATIONS
OFFICE OF THRIFT SUPERVISION. The OTS is an office in the Department of the
Treasury subject to the general oversight of the Secretary of the Treasury. The
OTS generally possesses the supervisory and regulatory duties and
responsibilities formerly vested in the Federal Home Loan Bank Board. Among
other functions, the OTS issues and enforces regulations affecting federally
insured savings associations and regularly examines these institutions.
FEDERAL HOME LOAN BANK SYSTEM. The FHLB System, consisting of 12 FHLBs, is
under the jurisdiction of the Federal Housing Finance Board ("FHFB"). The
designated duties of the FHFB are to supervise the FHLBs, to ensure that the
FHLBs carry out their housing finance mission, to ensure that the FHLBs remain
adequately capitalized and able to raise funds in the capital markets, and to
ensure that the FHLBs operate in a safe and sound manner. The Bank, as a member
of the FHLB-Seattle, is required to acquire and hold shares of capital stock in
the FHLB-Seattle in an amount equal to the greater of (i) 1.0% of the aggregate
outstanding principal amount of residential mortgage loans, home purchase
contracts and similar obligations at the beginning of each year, or (ii) 1/20 of
its advances (i.e., borrowings) from the FHLB-Seattle. The Bank is in
compliance with this requirement with an investment in FHLB-Seattle stock of
$929,000 at December 31, 1996. Among other benefits, the FHLB-Seattle provides
a central credit facility primarily for member institutions. It is funded
primarily from proceeds derived from the sale of consolidated obligations of the
FHLB System. It makes advances to members in accordance with policies and
procedures established by the FHFB and the Board of Directors of the FHLB-
Seattle.
FEDERAL DEPOSIT INSURANCE CORPORATION. The FDIC is an independent federal
agency that insures the deposits, up to prescribed statutory limits, of
depository institutions. The FDIC currently maintains two separate insurance
funds: the BIF and the SAIF. As insurer of the Bank's deposits, the FDIC has
examination, supervisory and enforcement authority over the Bank.
The Bank's accounts are insured by the SAIF to the maximum extent permitted
by law. The Bank pays deposit insurance premiums based on a risk-based
assessment system established by the FDIC. Under applicable regulations,
institutions are assigned to one of three capital groups that are based solely
on the level of an institution's capital -- "well capitalized," "adequately
capitalized," and "undercapitalized" -- which are defined in the same manner as
the regulations establishing the prompt corrective action system, as discussed
below. These three groups are then divided into three subgroups which reflect
varying levels of supervisory concern, from those which are considered to be
healthy to those which are considered to be of substantial supervisory concern.
The matrix so created results in nine assessment risk classifications, with
rates that until September 30, 1996 ranged from 0.23% for well capitalized,
financially sound institutions with only a few minor weaknesses to 0.31% for
undercapitalized institutions that pose a substantial risk of loss to the SAIF
unless effective corrective action is taken.
Pursuant to the DIF Act, which was enacted on September 30, 1996, the FDIC
imposed a special assessment on each depository institution with SAIF-assessable
deposits which resulted in the SAIF achieving its designated reserve ratio. In
connection therewith, the FDIC reduced the assessment schedule for SAIF members,
effective January 1, 1997, to a range of 0% to 0.27%, with most institutions,
including the Bank, paying 0%. This assessment schedule is the same as that for
the BIF, which reached its designated reserve ratio in 1995. In addition, since
January 1, 1997, SAIF members are charged an assessment of .065% of SAIF-
assessable deposits for the purpose of paying interest on the obligations issued
by the Financing Corporation ("FICO") in the 1980s to help fund the thrift
industry cleanup. BIF-assessable deposits will be charged an assessment to help
pay interest on the FICO bonds at a rate of approximately .013% until the
earlier of December 31, 1999 or the date upon which the last savings association
ceases to exist, after which time the assessment will be the same for all
insured deposits.
The DIF Act provides for the merger of the BIF and the SAIF into the Deposit
Insurance Fund on January 1, 1999, but only if no insured depository institution
is a savings association on that date. The DIF Act contemplates the development
of a common charter for all federally chartered depository institutions and the
abolition of separate
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charters for national banks and federal savings associations. It is not known
what form the common charter may take and what effect, if any, the adoption of a
new charter would have on the operation of the Bank.
The FDIC may terminate the deposit insurance of any insured depository
institution if it determines after a hearing that the institution has engaged or
is engaging in unsafe or unsound practices, is in an unsafe or unsound condition
to continue operations, or has violated any applicable law, regulation, order or
any condition imposed by an agreement with the FDIC. It also may suspend
deposit insurance temporarily during the hearing process for the permanent
termination of insurance, if the institution has no tangible capital. If
insurance of accounts is terminated, the accounts at the institution at the time
of termination, less subsequent withdrawals, shall continue to be insured for a
period of six months to two years, as determined by the FDIC. Management is
aware of no existing circumstances that could result in termination of the
deposit insurance of the Bank.
LIQUIDITY REQUIREMENTS. Under OTS regulations, each savings institution is
required to maintain an average daily balance of liquid assets (cash, certain
time deposits and savings accounts, bankers' acceptances, and specified U.S.
Government, state or federal agency obligations and certain other investments)
equal to a monthly average of not less than a specified percentage (currently
5.0%) of its net withdrawable accounts plus short-term borrowings. OTS
regulations also require each savings institution to maintain an average daily
balance of short-term liquid assets at a specified percentage (currently 1.0%)
of the total of its net withdrawable accounts plus short-term borrowings.
Monetary penalties may be imposed for failure to meet liquidity requirements.
See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS -- Liquidity and Capital Resources."
PROMPT CORRECTIVE ACTION. Under the FDIA, each federal banking agency is
required to implement a system of prompt corrective action for institutions that
it regulates. The federal banking agencies have promulgated substantially
similar regulations to implement this system of prompt corrective action. Under
the regulations, an institution shall be deemed to be (i) "well capitalized" if
it has a total risk-based capital ratio of 10.0% or more, has a Tier I risk-
based capital ratio of 6.0% or more, has a leverage ratio of 5.0% or more and is
not subject to specified requirements to meet and maintain a specific capital
level for any capital measure; (ii) "adequately capitalized" if it has a total
risk-based capital ratio of 8.0% or more, has a Tier I risk-based capital ratio
of 4.0% or more, has a leverage ratio of 4.0% or more (3.0% under certain
circumstances) and does not meet the definition of "well capitalized;" (iii)
"undercapitalized" if it has a total risk-based capital ratio that is less than
8.0%, has a Tier I risk-based capital ratio that is less than 4.0% or has a
leverage ratio that is less than 4.0% (3.0% under certain circumstances); (iv)
"significantly undercapitalized" if it has a total risk-based capital ratio that
is less than 6.0%, has a Tier I risk-based capital ratio that is less than 3.0%
or has a leverage ratio that is less than 3.0%; and (v) "critically
undercapitalized" if it has a ratio of tangible equity to total assets that is
equal to or less than 2.0%.
A federal banking agency may, after notice and an opportunity for a hearing,
reclassify a well capitalized institution as adequately capitalized and may
require an adequately capitalized institution or an undercapitalized institution
to comply with supervisory actions as if it were in the next lower category if
the institution is in an unsafe or unsound condition or has received in its most
recent examination, and has not corrected, a less than satisfactory rating for
asset quality, management, earnings or liquidity. (The OTS may not, however,
reclassify a significantly undercapitalized institution as critically
undercapitalized.)
An institution generally must file a written capital restoration plan that
meets specified requirements, as well as a performance guaranty by each company
that controls the institution, with the appropriate federal banking agency
within 45 days of the date that the institution receives notice or is deemed to
have notice that it is undercapitalized, significantly undercapitalized or
critically undercapitalized. Immediately upon becoming undercapitalized, an
institution shall become subject to various mandatory and discretionary
restrictions on its operations.
At December 31, 1996, the Bank was categorized as "well capitalized" under
the prompt corrective action regulations of the OTS.
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STANDARDS FOR SAFETY AND SOUNDNESS. The federal banking regulatory agencies
have prescribed, by regulation, standards for all insured depository
institutions relating to: (i) internal controls, information systems and
internal audit systems; (ii) loan documentation; (iii) credit underwriting; (iv)
interest rate risk exposure; (v) asset growth; (vi) asset quality; (vii)
earnings and (viii) compensation, fees and benefits ("Guidelines"). The
Guidelines set forth the safety and soundness standards that the federal banking
agencies use to identify and address problems at insured depository institutions
before capital becomes impaired. If the OTS determines that the Bank fails to
meet any standard prescribed by the Guidelines, the agency may require the Bank
to submit to the agency an acceptable plan to achieve compliance with the
standard. OTS regulations establish deadlines for the submission and review of
such safety and soundness compliance plans.
QUALIFIED THRIFT LENDER TEST. All savings associations are required to meet
a qualified thrift lender ("QTL") test to avoid certain restrictions on their
operations. A savings institution that fails to become or remain a QTL shall
either convert to a national bank charter or be subject to the following
restrictions on its operations: (i) the association may not make any new
investment or engage in activities that would not be permissible for national
banks; (ii) the association may not establish any new branch office where a
national bank located in the savings institution's home state would not be able
to establish a branch office; (iii) the association shall be ineligible to
obtain new advances from any FHLB; and (iv) the payment of dividends by the
association shall be subject to the rules regarding the statutory and regulatory
dividend restrictions applicable to national banks. Also, beginning three years
after the date on which the savings institution ceases to be a QTL, the savings
institution would be prohibited from retaining any investment or engaging in any
activity not permissible for a national bank and would be required to repay any
outstanding advances to any FHLB. In addition, within one year of the date on
which a savings association controlled by a company ceases to be a QTL, the
company must register as a bank holding company and become subject to the rules
applicable to such companies. A savings institution may requalify as a QTL if
it thereafter complies with the QTL test.
Currently, the QTL test requires that either an institution qualify as a
domestic building and loan association under the Internal Revenue Code or that
65% of an institution's "portfolio assets" (as defined) consist of certain
housing and consumer-related assets on a monthly average basis in nine out of
every 12 months. Assets that qualify without limit for inclusion as part of the
65% requirement are loans made to purchase, refinance, construct, improve or
repair domestic residential housing and manufactured housing; home equity loans;
mortgage-backed securities (where the mortgages are secured by domestic
residential housing or manufactured housing); FHLB stock; direct or indirect
obligations of the FDIC; and loans for educational purposes, loans to small
businesses and loans made through credit cards. In addition, the following
assets, among others, may be included in meeting the test subject to an overall
limit of 20% of the savings institution's portfolio assets: 50% of residential
mortgage loans originated and sold within 90 days of origination; 100% of
consumer loans; and stock issued by Freddie Mac or Fannie Mae. Portfolio assets
consist of total assets minus the sum of (i) goodwill and other intangible
assets, (ii) property used by the savings institution to conduct its business,
and (iii) liquid assets up to 20% of the institution's total assets. At
December 31, 1996, the qualified thrift investments of the Bank were
approximately 82.3% of its portfolio assets.
CAPITAL REQUIREMENTS. Under OTS regulations a savings association must
satisfy three minimum capital requirements: core capital, tangible capital and
risk-based capital. Savings associations must meet all of the standards in
order to comply with the capital requirements.
OTS capital regulations establish a 3% core capital or leverage ratio
(defined as the ratio of core capital to adjusted total assets). Core capital
is defined to include common stockholders' equity, noncumulative perpetual
preferred stock and any related surplus, and minority interests in equity
accounts of consolidated subsidiaries, less (i) any intangible assets, except
for certain qualifying intangible assets; (ii) certain mortgage servicing
rights; and (iii) equity and debt investments in subsidiaries that are not
"includable subsidiaries," which is defined as subsidiaries engaged solely in
activities not impermissible for a national bank, engaged in activities
impermissible for a national bank but only as an agent for its customers, or
engaged solely in mortgage-banking activities. In calculating adjusted total
assets, adjustments are made to total assets to give effect to the exclusion of
certain assets from capital and to account appropriately for the investments in
and assets of both includable and nonincludable subsidiaries. Institutions
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that fail to meet the core capital requirement would be required to file with
the OTS a capital plan that details the steps they will take to reach
compliance. In addition, the OTS's prompt corrective action regulation provides
that a savings institution that has a leverage ratio of less than 4% (3% for
institutions receiving the highest CAMEL examination rating) will be deemed to
be "undercapitalized" and may be subject to certain restrictions. See "--
Federal Regulation of Savings Associations -- Prompt Corrective Action."
Savings associations also must maintain "tangible capital" not less than
1.5% of the Bank's adjusted total assets. "Tangible capital" is defined,
generally, as core capital minus any "intangible assets" other than purchased
mortgage servicing rights.
Each savings institution must maintain total risk-based capital equal to at
least 8% of risk-weighted assets. Total risk-based capital consists of the sum
of core and supplementary capital, provided that supplementary capital cannot
exceed core capital, as previously defined. Supplementary capital includes (i)
permanent capital instruments such as cumulative perpetual preferred stock,
perpetual subordinated debt and mandatory convertible subordinated debt, (ii)
maturing capital instruments such as subordinated debt, intermediate-term
preferred stock and mandatory convertible subordinated debt, subject to an
amortization schedule, and (iii) general valuation loan and lease loss
allowances up to 1.25% of risk-weighted assets.
The risk-based capital regulation assigns each balance sheet asset held by a
savings institution to one of four risk categories based on the amount of credit
risk associated with that particular class of assets. Assets not included for
purposes of calculating capital are not included in calculating risk-weighted
assets. The categories range from 0% for cash and securities that are backed by
the full faith and credit of the U.S. Government to 100% for repossessed assets
or assets more than 90 days past due. Qualifying residential mortgage loans
(including multi-family mortgage loans) are assigned a 50% risk weight.
Consumer, commercial, home equity and residential construction loans are
assigned a 100% risk weight, as are nonqualifying residential mortgage loans and
that portion of land loans and nonresidential construction loans that do not
exceed an 80% loan-to-value ratio. The book value of assets in each category is
multiplied by the weighing factor (from 0% to 100%) assigned to that category.
These products are then totalled to arrive at total risk-weighted assets. Off-
balance sheet items are included in risk-weighted assets by converting them to
an approximate balance sheet "credit equivalent amount" based on a conversion
schedule. These credit equivalent amounts are then assigned to risk categories
in the same manner as balance sheet assets and included risk-weighted assets.
The OTS has incorporated an interest rate risk component into its regulatory
capital rule. Under the rule, savings associations with "above normal" interest
rate risk exposure would be subject to a deduction from total capital for
purposes of calculating their risk-based capital requirements. A savings
association's interest rate risk is measured by the decline in the net portfolio
value of its assets (i.e., the difference between incoming and outgoing
----
discounted cash flows from assets, liabilities and off-balance sheet contracts)
that would result from a hypothetical 200 basis point increase or decrease in
market interest rates divided by the estimated economic value of the
association's assets, as calculated in accordance with guidelines set forth by
the OTS. A savings association whose measured interest rate risk exposure
exceeds 2% must deduct an interest rate risk component in calculating its total
capital under the risk-based capital rule. The interest rate risk component is
an amount equal to one-half of the difference between the institution's measured
interest rate risk and 2%, multiplied by the estimated economic value of the
association's assets. That dollar amount is deducted from an association's
total capital in calculating compliance with its risk-based capital requirement.
Under the rule, there is a two quarter lag between the reporting date of an
institution's financial data and the effective date for the new capital
requirement based on that data. A savings association with assets of less than
$300 million and risk-based capital ratios in excess of 12% is not subject to
the interest rate risk component, unless the OTS determines otherwise. The rule
also provides that the Director of the OTS may waive or defer an association's
interest rate risk component on a case-by-case basis. Under certain
circumstances, a savings association may request an adjustment to its interest
rate risk component if it believes that the OTS-calculated interest rate risk
component overstates its interest rate risk exposure. In addition, certain
"well-capitalized" institutions may obtain authorization to use their own
interest rate risk model to calculate their interest
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rate risk component in lieu of the OTS-calculated amount. The OTS has postponed
the date that the component will first be deducted from an institution's total
capital.
See "HISTORICAL AND PRO FORMA CAPITAL COMPLIANCE" for a table that sets
forth in terms of dollars and percentages the OTS tangible, core and risk-based
capital requirements, the Bank's historical amounts and percentages at December
31, 1996 and pro forma amounts and percentages based upon the assumptions stated
therein.
LIMITATIONS ON CAPITAL DISTRIBUTIONS. OTS regulations impose uniform
limitations on the ability of all savings associations to engage in various
distributions of capital such as dividends, stock repurchases and cash-out
mergers. In addition, OTS regulations require the Bank to give the OTS 30 days'
advance notice of any proposed declaration of dividends, and the OTS has the
authority under its supervisory powers to prohibit the payment of dividends.
The regulation utilizes a three-tiered approach which permits various levels of
distributions based primarily upon a savings association's capital level.
A Tier 1 savings association has capital in excess of its fully phased-in
capital requirement (both before and after the proposed capital distribution).
Tier 1 savings association may make (without application but upon prior notice
to, and no objection made by, the OTS) capital distributions during a calendar
year up to 100% of its net income to date during the calendar year plus one-half
its surplus capital ratio (i.e., the amount of capital in excess of its fully
----
phased-in requirement) at the beginning of the calendar year or the amount
authorized for a Tier 2 association. Capital distributions in excess of such
amount require advance notice to the OTS. A Tier 2 savings association has
capital equal to or in excess of its minimum capital requirement but below its
fully phased-in capital requirement (both before and after the proposed capital
distribution). Such an association may make (without application) capital
distributions up to an amount equal to 75% of its net income during the previous
four quarters depending on how close the association is to meeting its fully
phased-in capital requirement. Capital distributions exceeding this amount
require prior OTS approval. Tier 3 associations are savings associations with
capital below the minimum capital requirement (either before or after the
proposed capital distribution). Tier 3 associations may not make any capital
distributions without prior approval from the OTS.
The Bank currently meets the criteria to be designated a Tier 1 association
and, consequently, could at its option (after prior notice to, and no objection
made by, the OTS) distribute up to 100% of its net income during the calendar
year plus 50% of its surplus capital ratio at the beginning of the calendar year
less any distributions previously paid during the year.
LOANS TO ONE BORROWER. Under the HOLA, savings institutions are generally
subject to the national bank limit on loans to one borrower. Generally, this
limit is 15% of the Bank's unimpaired capital and surplus, plus an additional
10% of unimpaired capital and surplus, if such loan is secured by readily-
marketable collateral, which is defined to include certain financial instruments
and bullion. The OTS by regulation has amended the loans to one borrower rule
to permit savings associations meeting certain requirements, including capital
requirements, to extend loans to one borrower in additional amounts under
circumstances limited essentially to loans to develop or complete residential
housing units. At December 31, 1996, the Bank's limit on loans to one borrower
was $1,609,000. At December 31, 1996, the Bank's largest aggregate amount of
loans to one borrower was $1.8 million. See "BUSINESS OF THE BANK -- Lending
Activities -- Commercial Real Estate Lending."
ACTIVITIES OF ASSOCIATIONS AND THEIR SUBSIDIARIES. A savings association
may establish operating subsidiaries to engage in any activity that the savings
association may conduct directly and service corporation subsidiaries to engage
in certain preapproved activities or, with approval of the OTS, other activities
reasonably related to the activities of financial institutions. When a savings
association establishes or acquires a subsidiary or elects to conduct any new
activity through a subsidiary that the association controls, the savings
association must notify the FDIC and the OTS 30 days in advance and provide the
information each agency may, by regulation, require. Savings associations also
must conduct the activities of subsidiaries in accordance with existing
regulations and orders.
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The OTS may determine that the continuation by a savings association of its
ownership control of, or its relationship to, the subsidiary constitutes a
serious risk to the safety, soundness or stability of the association or is
inconsistent with sound banking practices or with the purposes of the FDIA.
Based upon that determination, the FDIC or the OTS has the authority to order
the savings association to divest itself of control of the subsidiary. The FDIC
also may determine by regulation or order that any specific activity poses a
serious threat to the SAIF. If so, it may require that no SAIF member engage in
that activity directly.
TRANSACTIONS WITH AFFILIATES. Savings associations must comply with
Sections 23A and 23B of the Federal Reserve Act ("Sections 23A and 23B")
relative to transactions with affiliates in the same manner and to the same
extent as if the savings association were a Federal Reserve member bank. A
savings and loan holding company, its subsidiaries and any other company under
common control are considered affiliates of the subsidiary savings association
under the HOLA. Generally, Sections 23A and 23B: (i) limit the extent to which
the insured association or its subsidiaries may engage in certain covered
transactions with an affiliate to an amount equal to 10% of such institution's
capital and surplus and place an aggregate limit on all such transactions with
affiliates to an amount equal to 20% of such capital and surplus, and (ii)
require that all such transactions be on terms substantially the same, or at
least as favorable to the institution or subsidiary, as those provided to a non-
affiliate. The term "covered transaction" includes the making of loans, the
purchase of assets, the issuance of a guarantee and similar types of
transactions. Any loan or extension of credit by the Bank to an affiliate must
be secured by collateral in accordance with Section 23A.
Three additional rules apply to savings associations: (i) a savings
association may not make any loan or other extension of credit to an affiliate
unless that affiliate is engaged only in activities permissible for bank holding
companies; (ii) a savings association may not purchase or invest in securities
issued by an affiliate (other than securities of a subsidiary); and (iii) the
OTS may, for reasons of safety and soundness, impose more stringent restrictions
on savings associations but may not exempt transactions from or otherwise
abridge Section 23A or 23B. Exemptions from Section 23A or 23B may be granted
only by the Federal Reserve, as is currently the case with respect to all FDIC-
insured banks.
The Bank's authority to extend credit to executive officers, directors and
10% shareholders, as well as entities controlled by such persons, is currently
governed by Sections 22(g) and 22(h) of the Federal Reserve Act, and Regulation
O thereunder. Among other things, these regulations require that such loans be
made on terms and conditions substantially the same as those offered to
unaffiliated individuals and not involve more than the normal risk of repayment.
Regulation O also places individual and aggregate limits on the amount of loans
the Bank may make to such persons based, in part, on the Bank's capital
position, and requires certain board approval procedures to be followed. The
OTS regulations, with certain minor variances, apply Regulation O to savings
institutions.
COMMUNITY REINVESTMENT ACT. Banks are also subject to the provisions of the
Community Reinvestment Act of 1977, which requires the appropriate federal bank
regulatory agency, in connection with its regular examination of a bank, to
assess the bank's record in meeting the credit needs of the community serviced
by the bank, including low and moderate income neighborhoods. The regulatory
agency's assessment of the bank's record is made available to the public.
Further, such assessment is required of any bank which has applied, among other
things, to establish a new branch office that will accept deposits, relocate an
existing office or merge or consolidate with, or acquire the assets or assume
the liabilities of, a federally regulated financial institution.
REGULATION OF WASHINGTON SAVINGS BANKS
GENERAL. As a Washington-chartered, federally insured savings bank, the
Bank will be subject to extensive regulation. Lending activities and other
investments must comply with various statutory and regulatory requirements,
including prescribed minimum capital standards. The Bank will be regularly
examined by the FDIC and the Department.
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STATE REGULATION AND SUPERVISION. As a Washington-chartered savings bank,
the Bank will be subject to applicable provisions of Washington law and the
regulations of the Department adopted thereunder. Washington law and
regulations govern the ability to take deposits and pay interest thereon, to
make loans on or invest in residential and other real estate, to make consumer
loans, to invest in securities, to offer various banking services to its
customers, and to establish branch offices. Under state law, savings banks in
Washington also generally have all of the powers that federal mutual savings
banks have under federal laws and regulations. The Bank will be subject to
periodic examination and reporting requirements by and of the Department.
DEPOSIT INSURANCE. The deposits of the Bank will continue to be insured up
to applicable limits by the SAIF. See "-- Federal Regulation of Savings
Associations -- Deposit Insurance."
PROMPT CORRECTIVE ACTION. The Bank will be subject the prompt corrective
action regulations of the FDIC, which are substantially similar to those of the
OTS. See "-- Federal Regulation of Savings Associations -- Prompt Corrective
Action."
STANDARDS FOR SAFETY AND SOUNDNESS. The Bank will be subject to the FDIC's
standards for safety and soundness, which are substantially similar to those of
the OTS. See "-- Federal Regulations of Savings Associations -- Standards for
Safety and Soundness."
CAPITAL REQUIREMENTS. The FDIC's minimum capital standards applicable to
FDIC-regulated depository institutions require the most highly-rated
institutions to meet a "Tier 1" leverage capital ratio of at least 3% of total
assets. Tier 1 (or "core capital") consists of common stockholders' equity,
noncumulative perpetual preferred stock and minority interests in consolidated
subsidiaries minus all intangible assets other than limited amounts of purchased
mortgage servicing rights and certain other accounting adjustments. All other
banks must have a Tier 1 leverage ratio of at least 100-200 basis points above
the 3% minimum. The FDIC capital regulations establish a minimum leverage ratio
of not less than 4% for banks that are not highly rated or are anticipating or
experiencing significant growth.
Any insured bank with a Tier 1 capital to total assets ratio of less than
2% is deemed to be operating in an unsafe and unsound condition unless the
insured bank enters into a written agreement, to which the FDIC is a party, to
correct its capital deficiency. Insured banks operating with Tier 1 capital
levels below 2% (and which have not entered into a written agreement) are
subject to an insurance removal action and to the appointment of a receiver.
Insured banks operating with lower than the prescribed minimum capital levels,
generally will not receive approval of applications submitted to the FDIC. Also,
inadequately capitalized state nonmember banks will be subject to such
administrative action as the FDIC deems necessary.
FDIC regulations also require that banks meet a risk-based capital standard.
The risk-based capital standard requires the maintenance of total capital (which
is defined as Tier 1 capital and Tier 2 or supplementary capital) to risk-
weighted assets of 8% and Tier 1 capital to risk-weighted assets of 4%. In
determining the amount of risk-weighted assets, all assets, plus certain off
balance sheet items, are multiplied by a risk-weight of 0% to 100%, based on the
risks the FDIC believes are inherent in the type of asset or item. The
components of Tier 1 capital are equivalent to those discussed above under the
3% leverage requirement. The components of supplementary capital currently
include cumulative perpetual preferred stock, adjustable-rate perpetual
preferred stock, mandatory convertible securities, term subordinated debt,
intermediate-term preferred stock and allowance for loan and lease losses.
Allowance for loan and lease losses includable in supplementary capital is
limited to a maximum of 1.25% of risk-weighted assets. Overall, the amount of
capital counted toward supplementary capital cannot exceed 100% of Tier 1
capital.
Net unrealized holding gains or losses on available for sale debt and equity
securities are not included when calculating core and risk-based capital ratios.
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FDIC capital requirements are designated as the minimum acceptable standards
for banks whose overall financial condition is fundamentally sound, which are
well-managed and have no material or significant financial weaknesses. The FDIC
capital regulations state that, where the FDIC determines that the financial
history or condition, including off-balance sheet risk, managerial resources
and/or the future earnings prospects of a bank are not adequate and/or a bank
has a significant volume of assets classified substandard, doubtful or loss or
otherwise criticized, the FDIC may determine that the minimum adequate amount of
capital for that bank is greater than the minimum standards established in the
regulation.
ACTIVITIES AND INVESTMENTS OF INSURED STATE-CHARTERED BANKS. Federal law
generally limits the activities and equity investments of FDIC-insured, state-
chartered banks to those that are permissible for national banks. Under
regulations dealing with equity investments, an insured state bank generally may
not directly or indirectly acquire or retain any equity investment of a type, or
in an amount, that is not permissible for a national bank. An insured state
bank is not prohibited from, among other things, (i) acquiring or retaining a
majority interest in a subsidiary, the activities of which are limited to those
permissible to a subsidiary of a national bank, (ii) investing as a limited
partner in a partnership the sole purpose of which is direct or indirect
investment in the acquisition, rehabilitation or new construction of a qualified
housing project, provided that such limited partnership investments may not
exceed 2% of the bank's total assets, (iii) acquiring up to 10% of the voting
stock of a company that solely provides or reinsures directors', trustees' and
officers' liability insurance coverage or bankers' blanket bond group insurance
coverage for insured depository institutions, and (iv) acquiring or retaining
the voting shares of a depository institution if certain requirements are met.
FDIC law provide that an insured state-chartered bank may not, directly, or
indirectly through a subsidiary, engage as "principal" in any activity that is
not permissible for a national bank unless the FDIC has determined that such
activities would pose no risk to the insurance fund of which it is a member and
the bank is in compliance with applicable regulatory capital requirements. Any
insured state-chartered bank directly or indirectly engaged in any activity that
is not permitted for a national bank must cease the impermissible activity.
DIVIDENDS. The amount of dividends payable by the Bank to the Holding
Company depend upon the Bank's earnings and capital position, and is limited by
federal and state laws, regulations and policies. According to Washington law,
the Bank may not declare or pay a cash dividend on its capital stock if it would
cause its net worth to be reduced below (i) the amount required for liquidation
accounts or (ii) the net worth requirements, if any, imposed by the Department.
Dividends on the Bank's capital stock may not be paid in an aggregate amount
greater than the aggregate retained earnings of the Bank, without the approval
of the Department. Federal law further provides that no insured depository
institution may make any capital distribution (which would include a cash
dividend) if, after making the distribution, the institution would be
"undercapitalized," as defined in the prompt corrective action regulations.
Moreover, the federal bank regulatory agencies also have the general authority
to limit the dividends paid by insured banks if such payments should be deemed
to constitute an unsafe and unsound practice.
SAVINGS AND LOAN HOLDING COMPANY REGULATION
HOLDING COMPANY ACQUISITIONS. The HOLA and OTS regulations issued
thereunder generally prohibit a savings and loan holding company, without prior
OTS approval, from acquiring more than 5% of the voting stock of any other
savings association or savings and loan holding company or controlling the
assets thereof. They also prohibit, among other things, any director or officer
of a savings and loan holding company, or any individual who owns or controls
more than 25% of the voting shares of such holding company, from acquiring
control of any savings association not a subsidiary of such savings and loan
holding company, unless the acquisition is approved by the OTS.
HOLDING COMPANY ACTIVITIES. As a unitary savings and loan holding company,
the Holding Company generally is not subject to activity restrictions under the
HOLA. If the Holding Company acquires control of another savings association as
a separate subsidiary other than in a supervisory acquisition, it would become a
multiple savings and loan holding company. The HOLA provides that, among other
things, no multiple savings and loan
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holding company or subsidiary thereof which is not an insured association shall
commence or continue for more than two years after becoming a multiple savings
and loan association holding company or subsidiary thereof, any business
activity other than: (i) furnishing or performing management services for a
subsidiary insured institution, (ii) conducting an insurance agency or escrow
business, (iii) holding, managing, or liquidating assets owned by or acquired
from a subsidiary insured institution, (iv) holding or managing properties used
or occupied by a subsidiary insured institution, (v) acting as trustee under
deeds of trust, (vi) those activities previously directly authorized by
regulation as of March 5, 1987 to be engaged in by multiple holding companies or
(vii) those activities authorized by the Federal Reserve Board as permissible
for bank holding companies, unless the OTS by regulation, prohibits or limits
such activities for savings and loan holding companies. Those activities
described in (vii) above also must be approved by the OTS prior to being engaged
in by a multiple savings and loan holding company.
QUALIFIED THRIFT LENDER TEST. The HOLA requires any savings and loan
holding company that controls a savings association that fails the QTL test, as
explained under "-- Federal Regulation of Savings Associations --Qualified
Thrift Lender Test," must, within one year after the date on which the
association ceases to be a QTL, register as and be deemed a bank holding company
subject to all applicable laws and regulations.
BANK HOLDING COMPANY REGULATION
GENERAL. Upon consummation of the Charter Conversion, the Holding Company,
as the sole shareholder of the Bank, will become a bank holding company and will
register as such with the Federal Reserve. Bank holding companies are subject
to comprehensive regulation by the Federal Reserve under the BHCA and the
regulations of the Federal Reserve. As a bank holding company, the Holding
Company will be required to file with the Federal Reserve annual reports and
such additional information as the Federal Reserve may require and will be
subject to regular examinations by the Federal Reserve. The Federal Reserve
also has extensive enforcement authority over bank holding companies, including,
among other things, the ability to assess civil money penalties, to issue cease
and desist or removal orders and to require that a holding company divest
subsidiaries (including its bank subsidiaries). In general, enforcement actions
may be initiated for violations of law and regulations and unsafe or unsound
practices.
Under the BHCA, a bank holding company must obtain Federal Reserve approval
before: (1) acquiring, directly or indirectly, ownership or control of any
voting shares of another bank or bank holding company if, after such
acquisition, it would own or control more than 5% of such shares (unless it
already owns or controls the majority of such shares); (2) acquiring all or
substantially all of the assets of another bank or bank holding company; or (3)
merging or consolidating with another bank holding company.
The BHCA also prohibits a bank holding company, with certain exceptions,
from acquiring direct or indirect ownership or control of more than 5% of the
voting shares of any company which is not a bank or bank holding company, or
from engaging directly or indirectly in activities other than those of banking,
managing or controlling banks, or providing services for its subsidiaries. The
principal exceptions to these prohibitions involve certain non-bank activities
which, by statute or by Federal Reserve regulation or order, have been
identified as activities closely related to the business of banking or managing
or controlling banks. The list of activities permitted by the Federal Reserve
includes, among other things, operating a savings institution, mortgage company,
finance company, credit card company or factoring company; performing certain
data processing operations; providing certain investment and financial advice;
underwriting and acting as an insurance agent for certain types of credit-
related insurance; leasing property on a full-payout, non-operating basis;
selling money orders, travelers' checks and United States Savings Bonds; real
estate and personal property appraising; providing tax planning and preparation
services; and, subject to certain limitations, providing securities brokerage
services for customers. The Holding Company has no present plans to engage in
any of these activities.
INTERSTATE BANKING AND BRANCHING. On September 29, 1994, the Riegle-Neal
Interstate Banking and Branching Act of 1994 (the "Riegle-Neal Act") was enacted
to ease restrictions on interstate banking. The Riegle-Neal Act allows the
Federal Reserve to approve an application of an adequately capitalized and
adequately managed
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bank holding company to acquire control of, or acquire all or substantially all
of the assets of, a bank located in a state other than such holding company's
home state, without regard to whether the transaction is prohibited by the laws
of any state. The Federal Reserve may not approve the acquisition of a bank
that has not been in existence for the minimum time period (not exceeding five
years) specified by the statutory law of the host state. The Riegle-Neal Act
also prohibits the Federal Reserve from approving an application if the
applicant (and its depository institution affiliates) controls or would control
more than 10% of the insured deposits in the United States or 30% or more of the
deposits in the target bank's home state or in any state in which the target
bank maintains a branch. The Riegle-Neal Act does not affect the authority of
states to limit the percentage of total insured deposits in the state which may
be held or controlled by a bank holding company to the extent such limitation
does not discriminate against out-of-state banks or bank holding companies.
Individual states may also waive the 30% state-wide concentration limit
contained in the Riegle-Neal Act.
Additionally, beginning on June 1, 1997, the federal banking agencies will
be authorized to approve interstate merger transactions without regard to
whether such transaction is prohibited by the law of any state, unless the home
state of one of the banks opts out of the Riegle-Neal Act by adopting a law
after the date of enactment of the Riegle-Neal Act and prior to June 1, 1997
which applies equally to all out-of-state banks and expressly prohibits merger
transactions involving out-of-state banks. Interstate acquisitions of branches
will be permitted only if the law of the state in which the branch is located
permits such acquisitions. Interstate mergers and branch acquisitions will also
be subject to the nationwide and statewide insured deposit concentration amounts
described above.
The Riegle-Neal Act authorizes the applicable federal banking agency to
approve interstate branching de novo by national and state banks, but only in
states which specifically allow for such branching. The Riegle-Neal Act also
requires the appropriate federal banking agencies to prescribe regulations by
June 1, 1997 which prohibit any out-of-state bank from using the interstate
branching authority primarily for the purpose of deposit production. These
regulations must include guidelines to ensure that interstate branches operated
by an out-of-state bank in a host state are reasonably helping to meet the
credit needs of the communities which they serve.
DIVIDENDS. The Federal Reserve has issued a policy statement on the payment
of cash dividends by bank holding companies, which expresses the Federal
Reserve's view that a bank holding company should pay cash dividends only to the
extent that the company's net income for the past year is sufficient to cover
both the cash dividends and a rate of earnings retention that is consistent with
the company's capital needs, asset quality and overall financial condition. The
Federal Reserve also indicated that it would be inappropriate for a company
experiencing serious financial problems to borrow funds to pay dividends.
Bank holding companies are required to give the Federal Reserve prior
written notice of any purchase or redemption of its outstanding equity
securities if the gross consideration for the purchase or redemption, when
combined with the net consideration paid for all such purchases or redemptions
during the preceding 12 months, is equal to 10% or more of their consolidated
net worth. The Federal Reserve may disapprove such a purchase or redemption of
it determines that the proposal would constitute an unsafe or unsound practice
or would violate any law, regulation, Federal Reserve order, or any condition
imposed by, or written agreement with, the Federal Reserve. This notification
requirement does not apply to any company that meets the well-capitalized
standard for commercial banks, has a safety and soundness examination rating of
at least a "2" and is not subject to any unresolved supervisory issues.
CAPITAL REQUIREMENTS. The Federal Reserve has established capital
requirements for bank holding companies that generally parallel the capital
requirements for national banks. The Federal Reserve regulations provide that
capital standards will generally be applied on a bank only (rather than a
consolidated) basis on the case of a bank holding company with less than $150
million in total consolidated assets. Assuming sales of Common Stock at the
minimum of the Estimated Valuation Range, the Holding Company's total
consolidated assets will not exceed $150 million. See "HISTORICAL AND PRO FORMA
CAPITAL COMPLIANCE" for a numerical presentation of the Holding Company's pro
forma capital based on the assumptions stated therein.
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TAXATION
FEDERAL TAXATION
GENERAL. The Holding Company and the Bank will report their income on a
calendar year basis using the accrual method of accounting and will be subject
to federal income taxation in the same manner as other corporations with some
exceptions. The following discussion of tax matters is intended only as a
summary and does not purport to be a comprehensive description of the tax rules
applicable to the Bank or the Holding Company.
BAD DEBT RESERVE. Historically, savings institutions such as the Bank which
met certain definitional tests primarily related to their assets and the nature
of their business ("qualifying thrift") were permitted to establish a reserve
for bad debts and to make annual additions thereto, which may have been deducted
in arriving at their taxable income. The Bank's deductions with respect to
"qualifying real property loans," which are generally loans secured by certain
interest in real property, were computed using an amount based on the Bank's
actual loss experience, or a percentage equal to 8% of the Bank's taxable
income, computed with certain modifications and reduced by the amount of any
permitted additions to the non-qualifying reserve. Due to the Bank's loss
experience, the Bank generally recognized a bad debt deduction equal to 8% of
taxable income.
In August 1996, provisions repealing the current thrift bad debt rules were
enacted by Congress as part of "The Small Business Job Protection Act of 1996."
The new rules eliminate the 8% of taxable income method for deducting additions
to the tax bad debt reserves for all thrifts for tax years beginning after
December 31, 1995. These rules also require that all institutions recapture all
or a portion of their bad debt reserves added since the base year (last taxable
year beginning before January 1, 1988). The Bank has previously recorded a
deferred tax liability equal to the bad debt recapture and as such, the new
rules will have no effect on the net income or federal income tax expense. For
taxable years beginning after December 31, 1995, the Bank's bad debt deduction
will be determined under the experience method using a formula based on actual
bad debt experience over a period of years or, if the Bank is a "large" bank
(i.e., assets in excess of $500 million) on the basis of net charge-offs during
the taxable year. The new rules allow an institution to suspend bad debt
reserve recapture for the 1996 and 1997 tax years if the institution's lending
activity for those years is equal to or greater than the institution's average
residential lending activity for the six taxable years preceding 1996. For this
purpose, only home purchase or home improvement loans are included and the
institution can elect to have the tax years with the highest and lowest lending
activity removed from the average calculation. If an institution is permitted
to postpone the reserve recapture, it must begin its six year recapture no later
than the 1998 tax year. The unrecaptured base year reserves will not be subject
to recapture as long as the institution qualifies as a bank as defined by the
statue. In addition, the balance of the pre-1988 bad debt reserves continue to
be subject to provision of present law referred to below that require recapture
in the case of certain excess distributions to shareholders.
DISTRIBUTIONS. To the extent that the Bank makes "nondividend
distributions" to shareholders, such distributions will be considered to result
in distributions from the balance of its bad debt reserve as of December 31,
1987 (or a lesser amount if the Bank's loan portfolio decreased since December
31, 1987) and then from the supplemental reserve for losses on loans ("Excess
Distributions"), and an amount based on the Excess Distributions will be
included in the Bank's taxable income. Nondividend distributions include
distributions in excess of the Bank's current and accumulated earnings and
profits, distributions in redemption of stock and distributions in partial or
complete liquidation. However, dividends paid out of the Bank's current or
accumulated earnings and profits, as calculated for federal income tax purposes,
will not be considered to result in a distribution from the Bank's bad debt
reserves.
The amount of additional taxable income created from and Excess Distribution
is an amount that, when reduced by the tax attributable to the income, is equal
to the amount of the distribution. Thus, approximately one and one-half times
the Excess Distribution would be includable in gross income for federal income
tax purposes, assuming a 34% federal corporate income tax rate.See "REGULATION"
and "DIVIDEND POLICY" for limits on
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the payment of dividends by the Bank. The Bank does not intend to pay dividends
that would result in a recapture of any portion of its tax bad debt reserve.
CORPORATE ALTERNATIVE MINIMUM TAX. The Code imposes a tax on alternative
minimum taxable income ("AMTI") at a rate of 20%. AMTI is increased by an
amount equal to 75% of the amount by which the Bank's adjusted current earnings
exceeds its AMTI (determined without regard to this preference and prior to
reduction for net operating losses). For taxable years beginning after December
31, 1986, and before January 1, 1996, an environmental tax of .12% of the excess
of AMTI (with certain modification) over $2.0 million is imposed on
corporations, including the Bank, whether or not an Alternative Minimum Tax
("AMT") is paid. Under President Clinton's 1998 budget proposal, the corporate
environmental income tax would be reinstated for taxable years beginning after
December 31, 1996 and before January 1, 2008.
DIVIDENDS-RECEIVED DEDUCTION AND OTHER MATTERS. The Holding Company may
exclude from its income 100% of dividends received from the Bank as a member of
the same affiliated group of corporations. The corporate dividends-received
deduction is generally 70% in the case of dividends received from unaffiliated
corporations with which the Holding Company and the Bank will not file a
consolidated tax return, except that if the Holding Company or the Bank owns
more than 20% of the stock of a corporation distributing a dividend, then 80% of
any dividends received may be deducted.
There have not been any IRS audits of the Bank's federal income tax returns
during the past five years.
STATE TAXATION
IDAHO. The Holding Company and the Bank are subject to the general
corporate tax provisions of the State of Idaho. Idaho's state corporate income
taxes are generally determined under federal tax law with some modifications.
Idaho taxable income is taxed at a rate of 8%. These taxes are reduced by
certain credits, primarily the Idaho investment tax credit in the case of the
Bank.
WASHINGTON. To the extent that the Holding Company and the Bank conducts
business in the State of Washington, any related gross income is generally
subject to a business and occupation tax (gross receipts tax). Washington
allows a deduction from gross income for interest received on certain loans
secured by first trust deeds. The business and occupation tax rate for
financial business is 1.6%.
DELAWARE. As a Delaware holding company not earning income in Delaware, the
Holding Company is exempted from Delaware corporate income tax, but is required
to file an annual report with and pay an annual franchise tax to the State of
Delaware.
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THE CONVERSION
THE OTS HAS GIVEN APPROVAL TO THE PLAN SUBJECT TO THE PLAN'S APPROVAL BY
THE MEMBERS OF THE BANK ENTITLED TO VOTE ON THE MATTER AND SUBJECT TO THE
SATISFACTION OF CERTAIN OTHER CONDITIONS IMPOSED BY THE OTS IN ITS APPROVAL.
OTS APPROVAL, HOWEVER, DOES NOT CONSTITUTE A RECOMMENDATION OR ENDORSEMENT OF
THE PLAN.
GENERAL
On January 8, 1997, the Board of Directors of the Bank unanimously adopted
the Plan of Conversion, which was amended on March 12, 1997, pursuant to which
the Bank will convert from a federally chartered mutual savings bank to a
federally chartered stock savings bank and subsequently relocate its main office
to Clarkston, Washington and convert to a Washington-chartered savings bank.
All of the capital stock of the Bank will be held by the Holding Company, a
newly formed Delaware corporation. THE FOLLOWING DISCUSSION OF THE PLAN OF
CONVERSION IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE PLAN OF CONVERSION,
WHICH AND IS AVAILABLE FROM THE BANK UPON REQUEST. The OTS has approved the
Plan of Conversion subject to the Plan's approval by the members of the Bank
entitled to vote on the matter at a Special Meeting called for that purpose to
be held on ___________, 1997, and subject to the satisfaction of certain other
conditions imposed by the OTS in its approval.
The Stock Conversion will be accomplished through adoption of a Federal
Stock Charter and Bylaws to authorize the issuance of capital stock by the Bank.
As part of the Stock Conversion, the Bank will transfer all of its newly issued
common stock (1,000 shares) to the Holding Company in exchange for 50% of the
net proceeds from the sale of Common Stock by the Holding Company. As soon as
practicable following the Stock Conversion, the Bank will relocate its main
office to Clarkston, Washington and consummate the Charter Conversion whereby it
will convert to a Washington-chartered savings bank. The main office relocation
will be accomplished by opening a full-service office in Clarkston, Washington
and designating that office as the Bank's main office. The Bank's
administrative offices will remain in their present location. In connection
with the Charter Conversion, the Holding Company anticipates becoming a bank
holding company under the BHCA.
The Plan of Conversion provides generally that: (i) the Bank will convert
from a federally chartered mutual savings bank to a federally chartered stock
savings bank; (ii) the Common Stock will be offered by the Holding Company in
the Subscription Offering to persons having Subscription Rights and in the
Direct Community Offering to certain members of the general public, with
preference given to natural persons and trusts of natural persons residing in
the Local Community; (iii) if necessary, shares of Common Stock not subscribed
for in the Subscription and Direct Community Offering will be offered to certain
members of the general public in a Syndicated Community Offering through a
syndicate of registered broker-dealers pursuant to selected dealers agreements;
(iv) the Holding Company will purchase all of the capital stock of the Bank to
be issued in connection with the Stock Conversion; and (v) the Bank will
relocate its main office to Clarkston, Washington and convert to a Washington-
chartered savings bank and the Holding Company will become a bank holding
company. The Stock Conversion will be effected only upon completion of the sale
of at least $12,750,000 of Common Stock to be issued pursuant to the Plan of
Conversion.
Consummation of the Stock Conversion is subject to the approval of the Plan
of Conversion by the Bank's members and the approval by the OTS of the Plan of
Conversion and the Holding Company's acquisition of the Bank. Consummation of
the Charter Conversion is subject to the approval by the OTS and the Department
of the Charter Conversion and approval by the Federal Reserve of the Holding
Company's continued ownership of the Bank. The Holding Company has received
approval from the OTS to become the holding company of the Bank, subject to the
satisfaction of certain conditions, and to acquire all of the common stock of
the Bank to be issued in the Stock Conversion in exchange for at least 50% of
the net proceeds from the sale of Common Stock in the Offerings. The Stock
Conversion will be effected only upon completion of the sale of the shares of
Common Stock to be issued by the Holding Company pursuant to the Plan of
Conversion. The Bank has applied to the OTS and the Department for approval of
the conversion of the Bank to a Washington-chartered savings bank, and the
Holding Company has applied to the Federal Reserve to become a bank holding
company and for approval of the Holding
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Company's continued ownership of 100% of the Bank following the Charter
Conversion. Such approvals have not been received to date. While the Holding
Company and the Bank expect receipt of all such approvals in a timely manner,
delays in receiving any such approvals may result in a delay in the consummation
of the Charter Conversion. If there is a significant delay in obtaining the
approval of the Federal Reserve for the Holding Company to become a bank holding
company, the Holding Company may elect to be regulated by the OTS as a savings
and loan holding company and the Bank may complete the Charter Conversion.
As part of the Conversion, the Holding Company is making a Subscription
Offering of its Common Stock to holders of Subscription Rights in the following
order of priority: (i) Eligible Account Holders (depositors with $50.00 or more
on deposit as of December 31, 1995); (ii) the Bank's ESOP; (iii) Supplemental
Eligible Account Holders (depositors with $50.00 or more on deposit as of March
31, 1997); and (iv) Other Members (depositors of the Bank as of ____________,
1997 and borrowers of the Bank with loans outstanding as of April 25, 1990 which
continue to be outstanding as of ___________, 1997).
Shares of Common Stock not sold in the Subscription and Direct Community
Offering may be offered in the Syndicated Community Offering. Regulations
require that the Direct Community and Syndicated Community Offerings be
completed within 45 days after completion of the Subscription Offering unless
extended by the Bank or the Holding Company with the approval of the regulatory
authorities. If the Syndicated Community Offering is determined not to be
feasible, the Board of Directors of the Bank will consult with the regulatory
authorities to determine an appropriate alternative method for selling the
unsubscribed shares of Common Stock. The Plan of Conversion provides that the
Conversion must be completed within 24 months after the date of the approval of
the Plan of Conversion by the members of the Bank.
No sales of Common Stock may be completed, either in the Subscription,
Direct Community or Syndicated Community Offerings, unless the Plan of
Conversion is approved by the members of the Bank.
The completion of the Offerings, however, is subject to market conditions
and other factors beyond the Bank's control. 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 Offerings or other sale of the
Common Stock. If delays are experienced, significant changes may occur in the
estimated pro forma market value of the Holding Company and the Bank as
converted, together with corresponding changes in the net proceeds realized by
the Holding Company from the sale of the Common Stock. In the event the
Conversion is terminated, the Bank would be required to charge all Conversion
expenses against current income.
Orders for shares of Common Stock will not be filled until at least
1,275,000 shares of Common Stock have been subscribed for or sold and the OTS
approves the final valuation and the Conversion closes. If the Stock Conversion
is not completed within 45 days after the last day of the fully extended
Subscription Offering and the OTS consents to an extension of time to complete
the Stock Conversion, subscribers will be given the right to increase, decrease
or rescind their subscriptions. Unless an affirmative indication is received
from subscribers that they wish to continue to subscribe for shares, the funds
will be returned promptly, together with accrued interest at the Bank's passbook
rate from the date payment is received until the funds are returned to the
subscriber. If such period is not extended, or, in any event, if the Stock
Conversion is not completed, all withdrawal authorizations will be terminated
and all funds held will be promptly returned together with accrued interest at
the Bank's passbook rate from the date payment is received until the Conversion
is terminated.
PURPOSES OF CONVERSION
Management of the Bank believes that the Stock Conversion offers a number
of advantages which will be important to the future growth and performance of
the Bank in that it is intended: (i) to improve the overall competitive position
of the Bank in its market area and to support possible future expansion and
diversification of operations (currently there are no specific plans,
arrangements or understandings, written or oral, regarding any such activities
other than the establishment of a Clarkston, Washington office); (ii) to afford
members of the Bank and
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others the opportunity to become stockholders of the Holding Company and thereby
participate more directly in, and contribute to, any future growth of the
Holding Company and the Bank; and (iii) to provide future access to capital
markets.
The Bank's Board of Directors has formed the Holding Company to serve upon
consummation of the Conversion as a holding company with the Bank as its
subsidiary. The Bank, as a federal mutual savings bank, does not have
stockholders and has no authority to issue capital stock. By converting to the
stock form of organization, the Holding Company and the Bank will be structured
in the form used by holding companies of commercial banks and by a large number
of savings institutions.
Management believes that conversion to a Washington-chartered savings bank
is in the best interests of the Bank, its members and the communities it serves.
As a result of recent legislation that provides that the SAIF will be merged
with the BIF on January 1, 1999, but only if there are no thrift institutions in
existence, the U.S. Congress is expected to consider further legislation that
may eliminate the thrift industry as a separate industry. The Treasury
Department is studying the development of a common charter for banks and thrifts
and is required to submit a report of its findings to Congress by March 31,
1997. The Bank cannot predict what the attributes of such common charter would
be or whether any legislation will result from this study. If developed, the
common charter may not offer all the advantages that a federal savings
association now enjoys (e.g., unrestricted nationwide branching). As a
----
Washington-chartered savings bank with offices in Washington and Idaho, the Bank
will have the flexibility to expand in Washington and Idaho, should it decide to
do so, through branch acquisitions, opening new branches, or by acquiring other
institutions. Furthermore, the Washington savings bank charter will provide the
Bank with the authority to pursue its community banking strategy. Because of
the uncertainties with regard to the future of the thrift industry, the Bank has
determined to undertake the Charter Conversion as soon as possible following the
Stock Conversion.
EFFECTS OF CONVERSION TO STOCK FORM ON DEPOSITORS AND BORROWERS OF THE BANK
VOTING RIGHTS. Savings members and borrowers will have no voting rights in
the Bank or the Holding Company and therefore will not be able to elect
directors of the Bank or the Holding Company or to control their affairs.
Currently, these rights are accorded to savings members of the Bank. Subsequent
to the Stock Conversion, voting rights will be vested exclusively in the Holding
Company with respect to the Bank and the holders of the Common Stock as to
matters pertaining to the Holding Company. Each holder of Common Stock shall be
entitled to vote on any matter to be considered by the stockholders of the
Holding Company. A stockholder will be entitled to one vote for each share of
Common Stock owned.
SAVINGS ACCOUNTS AND LOANS. The Bank's savings accounts, account balances
and existing FDIC insurance coverage of savings accounts will not be affected by
the Conversion. Furthermore, the Conversion will not affect the loan accounts,
loan balances or obligations of borrowers under their individual contractual
arrangements with the Bank.
TAX EFFECTS. The Bank has received an opinion from Breyer & Aguggia,
Washington, D.C., that the Conversion will constitute a nontaxable
reorganization under Section 368(a)(1)(F) of the Code. Among other things, the
opinion states that: (i) no gain or loss will be recognized to the Bank in its
mutual or stock form by reason of its Conversion; (ii) no gain or loss will be
recognized to its account holders upon the issuance to them of accounts in the
Bank immediately after the Conversion, in the same dollar amounts and on the
same terms and conditions as their accounts at the Bank in its mutual form plus
interest in the liquidation account; (iii) the tax basis of account holders'
accounts in the Bank immediately after the Conversion will be the same as the
tax basis of their accounts immediately prior to Conversion; (iv) the tax basis
of each account holder's interest in the liquidation account will be zero; (v)
the tax basis of the Common Stock purchased in the Conversion will be the amount
paid and the holding period for such stock will commence at the date of
purchase; and (vi) no gain or loss will be recognized to account holders upon
the receipt or exercise of Subscription Rights in the Conversion, except to the
extent Subscription Rights are deemed to have value as discussed below. Unlike
a private letter ruling issued by the IRS, an opinion
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of counsel is not binding on the IRS and the IRS could disagree with the
conclusions reached therein. In the event of such disagreement, no assurance
can be given that the conclusions reached in an opinion of counsel would be
sustained by a court if contested by the IRS.
Based upon past rulings issued by the IRS, the opinion provides that the
receipt of Subscription Rights by Eligible Account Holders, Supplemental
Eligible Account Holders and Other Members under the Plan will be taxable to the
extent, if any, that the Subscription Rights are deemed to have a fair market
value. RP Financial, a financial consulting firm retained by the Bank, whose
findings are not binding on the IRS, has indicated that the Subscription Rights
do not have any value, based on the fact that such rights are acquired by the
recipients without cost, are nontransferable and of short duration and afford
the recipients the right only to purchase shares of the Common Stock at a price
equal to its estimated fair market value, which will be the same price paid by
purchasers in the Direct Community Offering for unsubscribed shares of Common
Stock. If the Subscription Rights are deemed to have a fair market value, the
receipt of such rights may only be taxable to those Eligible Account Holders,
Supplemental Eligible Account Holders and Other Members who exercise their
Subscription Rights. The Bank could also recognize a gain on the distribution
of such Subscription Rights. Eligible Account Holders, Supplemental Eligible
Account Holders and Other Members are encouraged to consult with their own tax
advisors as to the tax consequences in the event the Subscription Rights are
deemed to have a fair market value.
The Bank has also received an opinion from BDO Seidman, LLP, Spokane,
Washington, that, assuming the Conversion does not result in any federal income
tax liability to the Bank, its account holders, or the Holding Company,
implementation of the Plan of Conversion will not result in any Idaho income tax
liability to such entities or persons.
The opinions of Breyer & Aguggia and BDO Seidman, LLP and the letter from
RP Financial are filed as exhibits to the Registration Statement. See
"ADDITIONAL INFORMATION."
PROSPECTIVE INVESTORS ARE URGED TO CONSULT WITH THEIR OWN TAX ADVISORS
REGARDING THE TAX CONSEQUENCES OF THE CONVERSION PARTICULAR TO THEM.
LIQUIDATION ACCOUNT. In the unlikely event of a complete liquidation of
the Bank in its present mutual form, each depositor in the Bank would receive a
pro rata share of any assets of the Bank remaining after payment of claims of
all creditors (including the claims of all depositors up to the withdrawal value
of their accounts). Each depositor's pro rata share of such remaining assets
would be in the same proportion as the value of his or her deposit account to
the total value of all deposit accounts in the Bank at the time of liquidation.
After the Conversion, holders of withdrawable deposit(s) in the Bank,
including certificates of deposit ("Savings Account(s)"), shall not be entitled
to share in any residual assets in the event of liquidation of the Bank.
However, pursuant to OTS regulations, the Bank shall, at the time of the
Conversion, establish a liquidation account in an amount equal to its total
equity as of the date of the latest statement of financial condition contained
herein.
The liquidation account shall be maintained by the Bank subsequent to the
Conversion for the benefit of Eligible Account Holders and Supplemental Eligible
Account Holders who retain their Savings Accounts in the Bank. Each Eligible
Account Holder and Supplemental Eligible Account Holder shall, with respect to
each Savings Account held, have a related inchoate interest in a portion of the
liquidation account balance ("subaccount").
The initial subaccount balance for a Savings Account held by an Eligible
Account Holder or a Supplemental Eligible Account Holder shall be determined by
multiplying the opening balance in the liquidation account by a fraction of
which the numerator is the amount of such holder's "qualifying deposit" in the
Savings Account and the denominator is the total amount of the "qualifying
deposits" of all such holders. Such initial subaccount balance shall not be
increased, and it shall be subject to downward adjustment as provided below.
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If the deposit balance in any Savings Account of an Eligible Account Holder
or Supplemental Eligible Account Holder at the close of business on any annual
closing day of the Bank subsequent to December 31, 1995 is less than the lesser
of (i) the deposit balance in such Savings Account at the close of business on
any other annual closing date subsequent to December 31, 1995 or March 31, 1997
or (ii) the amount of the "qualifying deposit" in such Savings Account on
December 31, 1995 or March 31, 1997, then the subaccount balance for such
Savings Account shall be adjusted by reducing such subaccount balance in an
amount proportionate to the reduction in such deposit balance. In the event of
a downward adjustment, such subaccount balance shall not be subsequently
increased, notwithstanding any increase in the deposit balance of the related
Savings Account. If any such Savings Account is closed, the related subaccount
balance shall be reduced to zero.
In the event of a complete liquidation of the Bank (and only in such event)
each Eligible Account Holder and Supplemental Eligible Account Holder shall be
entitled to receive a liquidation distribution from the liquidation account in
the amount of the then current adjusted subaccount balance(s) for Savings
Account(s) then held by such holder before any liquidation distribution may be
made to stockholders. No merger, consolidation, bulk purchase of assets with
assumptions of Savings Accounts and other liabilities or similar transactions
with another federally insured institution in which the Bank is not the
surviving institution shall be considered to be a complete liquidation. In any
such transaction the liquidation account shall be assumed by the surviving
institution.
THE SUBSCRIPTION, DIRECT COMMUNITY AND SYNDICATED COMMUNITY OFFERINGS
THE SUBSCRIPTION AND DIRECT COMMUNITY OFFERING WILL EXPIRE AT ____ __.M.,
PACIFIC TIME, ON THE EXPIRATION DATE, UNLESS EXTENDED OR CONTINUED BY THE
HOLDING COMPANY AND THE BANK, WITH THE APPROVAL OF THE OTS, IF NECESSARY.
SUBSCRIPTION OFFERING. In accordance with the Plan, nontransferable
Subscription Rights to purchase the Common Stock have been issued to all persons
and entities entitled to purchase the Common Stock in the Subscription Offering.
The amount of the Common Stock which these parties may purchase will be subject
to the availability of the Common Stock for purchase under the categories set
forth in the Plan. Subscription priorities have been established for the
allocation of stock to the extent that the Common Stock is available. These
priorities are as follows:
Category 1: ELIGIBLE ACCOUNT HOLDERS. Each depositor with $50.00 or more
on deposit at the Bank as of December 31, 1995 will receive nontransferable
Subscription Rights to subscribe for up to the greater of $125,000 of Common
Stock, one-tenth of one percent of the total offering of Common Stock 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 qualifying deposit of the
Eligible Account Holder and the denominator is the total amount of qualifying
deposits of all Eligible Account Holders. If the exercise of Subscription
Rights in this category results in an oversubscription, shares of Common Stock
will be allocated among subscribing Eligible Account Holders so as to permit
each Eligible Account Holder, to the extent possible, to purchase a number of
shares sufficient to make such person's total allocation equal to 100 shares or
the number of shares actually subscribed for, whichever is less. Any shares
remaining after that allocation will be allocated among the subscribing Eligible
Account Holders whose subscriptions remain unsatisfied in the proportion that
the amount of the qualifying deposit of each Eligible Account Holder whose
subscription remains unsatisfied bears to the total amount of the qualifying
deposits of all Eligible Account Holders whose subscriptions remain unsatisfied.
Subscription Rights received by officers and directors in this category based on
their increased deposits in the Bank in the one year period preceding December
31, 1995 are subordinated to the Subscription Rights of other Eligible Account
Holders.
Category 2: ESOP. The Plan of Conversion provides that the ESOP shall
receive nontransferable Subscription Rights to purchase up to 8% of the shares
of Common Stock issued in the Conversion. The ESOP intends to purchase 8% of
the shares of Common Stock issued in the Conversion. In the event the number of
shares offered in the Conversion is increased above the maximum of the Estimated
Valuation Range, the ESOP shall have
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a priority right to purchase any such shares exceeding the maximum of the
Estimated Valuation Range up to an aggregate of 8% of the Common Stock.
Category 3: SUPPLEMENTAL ELIGIBLE ACCOUNT HOLDERS. Each depositor with
$50.00 or more on deposit as of March 31, 1997 will receive nontransferable
Subscription Rights to subscribe for up to the greater of $125, 000 of Common
Stock, one-tenth of one percent of the total offering of Common Stock 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 qualifying deposits of the
Supplemental Eligible Account Holder and the denominator is the total amount of
qualifying deposits of all Supplemental Eligible Account Holders. If the
exercise of Subscription Rights in this category results in an oversubscription,
shares of Common Stock will be allocated among subscribing Supplemental Eligible
Account Holders so as to permit each Supplemental Eligible Account Holder, to
the extent possible, to purchase a number of shares sufficient to make such
person's total allocation equal to 100 shares or the number of shares actually
subscribed for, whichever is less. Any shares remaining after that allocation
will be allocated among the subscribing Supplemental Eligible Account Holders
whose subscriptions remain unsatisfied in the proportion that the amount of the
qualifying deposit of each Supplemental Eligible Account Holder whose
subscription remains unsatisfied bears to the total amount of the qualifying
deposits of all Supplemental Eligible Account Holders whose subscriptions remain
unsatisfied.
Category 4: OTHER MEMBERS. Each depositor of the Bank as of the Voting
Record Date and each borrower with a loan outstanding on April 25, 1990 which
continues to be outstanding as of the Voting Record Date will receive
nontransferable Subscription Rights to purchase up to $125,000 of Common Stock
to the extent shares are available following subscriptions by Eligible Account
Holders, the Bank's ESOP and Supplemental Eligible Account Holders. In the
event of an oversubscription in this category, the available shares will be
allocated among subscribing Other Members so as to permit each Other Member, to
the extent possible, to purchase a number of shares sufficient to make such
person's total allocation equal to 100 shares or the number of shares actually
subscribed for, whichever is less. Thereafter, unallocated shares will be
allocated among subscribing Other Members proportionately, based on the number
of votes on the Voting Record Date of a subscribing Other Member as compared to
the total votes on the Voting Record Date of all subscribing Other Members whose
subscriptions remain unsatisfied.
SUBSCRIPTION RIGHTS ARE NONTRANSFERABLE. PERSONS SELLING OR OTHERWISE
TRANSFERRING THEIR RIGHTS TO SUBSCRIBE FOR COMMON STOCK IN THE SUBSCRIPTION
OFFERING OR SUBSCRIBING FOR COMMON STOCK ON BEHALF OF ANOTHER PERSON WILL BE
SUBJECT TO FORFEITURE OF SUCH RIGHTS AND POSSIBLE FURTHER SANCTIONS AND
PENALTIES IMPOSED BY THE OTS OR ANOTHER AGENCY OF THE U.S. GOVERNMENT. Each
person exercising Subscription Rights will be required to certify that he or she
is purchasing such shares solely for his or her own account and that he or she
has no agreement or understanding with any other person for the sale or transfer
of such shares. ONCE TENDERED, SUBSCRIPTION ORDERS CANNOT BE REVOKED OR
MODIFIED WITHOUT THE CONSENT OF THE BANK AND THE HOLDING COMPANY.
The Subscription Offering and all Subscription Rights under the Plan will
expire at ______ p.m., Pacific Time, on the Expiration Date, whether or not the
Bank has been able to locate each person entitled to such Subscription Rights.
The Subscription Offering may be extended by the Holding Company and the Bank up
to ______ __, 1997 without the OTS's approval. OTS regulations require that the
Holding Company complete the sale of Common Stock within 45 days after the close
of the Subscription Offering. If the sale of Common Stock is not completed
within such period, all funds received will be promptly returned with interest
at the Bank's passbook rate and all withdrawal authorizations will be canceled.
If regulatory approval of an extension of the time period has been granted, all
subscribers will be notified of such extension and of the duration of any
extension that has been granted, and will be given the right to increase,
decrease or rescind their orders. If an affirmative response to any
resolicitation is not received by the Holding Company from a subscriber, the
subscriber's order will be rescinded and all funds received will be promptly
returned with interest (or withdrawal authorizations will be canceled). No
single extension can exceed 90 days.
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DIRECT COMMUNITY OFFERING. Concurrently with the Subscription Offering,
the Holding Company is offering shares of Common Stock to certain members of the
general public in a Direct Community Offering, with preference given to natural
persons ("Preferred Subscribers") and trusts of natural persons residing in the
Local Community. Purchasers in the Direct Community Offering are eligible to
purchase up to $125,000 of Common Stock. In the event an insufficient number of
shares are available to fill orders in the Direct Community Offering, the
available shares will be allocated first to each Preferred Subscriber whose
order is accepted by the Bank, in an amount equal to the lesser of 100 shares or
the number of shares subscribed for by each such Preferred Subscriber, if
possible. Thereafter, unallocated shares will be allocated among the Preferred
Subscribers whose orders remains unsatisfied on a 100 shares per order basis
until all such orders have been filled or the remaining shares have been
allocated. If there are any shares remaining, shares will be allocated to other
persons of the general public who purchase in the Direct Community Offering
applying the same allocation described above for Preferred Subscribers. The
Direct Community Offering will terminate at ___ _.m., Pacific Time, on the
Expiration Date unless extended by the Holding Company and the Bank, with
approval of the OTS, if necessary. Any extensions beyond 45 days after the
close of the Subscription Offering would require a resolicitation of orders,
wherein subscribers would be given the opportunity to continue their orders, in
which case they will need to affirmatively reconfirm their subscriptions prior
to the expiration of the resolicitation offering or their subscription funds
will be promptly refunded with interest at the Bank's passbook rate, or be
permitted to modify or cancel their orders. THE RIGHT OF ANY PERSON TO PURCHASE
SHARES IN THE DIRECT COMMUNITY OFFERING IS SUBJECT TO THE ABSOLUTE RIGHT OF THE
HOLDING COMPANY AND THE BANK TO ACCEPT OR REJECT SUCH PURCHASES IN WHOLE OR IN
PART. IF AN ORDER IS REJECTED IN PART, THE PURCHASER DOES NOT HAVE THE RIGHT TO
CANCEL THE REMAINDER OF THE ORDER. THE HOLDING COMPANY PRESENTLY INTENDS TO
TERMINATE THE DIRECT COMMUNITY OFFERING AS SOON AS IT HAS RECEIVED ORDERS FOR
ALL SHARES AVAILABLE FOR PURCHASE IN THE CONVERSION.
If all of the Common Stock offered in the Subscription Offering is
subscribed for, no Common Stock will be available for purchase in the Direct
Community Offering.
SYNDICATED COMMUNITY OFFERING. The Plan provides that, if necessary, all
shares of Common Stock not purchased in the Subscription and Direct Community
Offering, if any, may be offered for sale to certain members of the general
public in a Syndicated Community Offering through a syndicate of registered
broker-dealers to be formed and managed by Sandler O'Neill acting as agent of
the Holding Company. THE HOLDING COMPANY AND THE BANK HAVE THE RIGHT TO REJECT
ORDERS, IN WHOLE OR PART, IN THEIR SOLE DISCRETION IN THE SYNDICATED COMMUNITY
OFFERING. Neither Sandler O'Neill nor any registered broker-dealer shall have
any obligation to take or purchase any shares of the Common Stock in the
Syndicated Community Offering; however, Sandler O'Neill has agreed to use its
best efforts in the sale of shares in the Syndicated Community Offering.
Stock sold in the Syndicated Community Offering will be sold at the $10.00
Purchase Price, the same price as all other shares in the Offering. See "--
Stock Pricing and Number of Shares to be Issued." No person will be permitted
to subscribe in the Syndicated Community Offering for more than $125,000 of
Common Stock. See "--Marketing and Underwriting Arrangements" for a description
of the commission to be paid to the selected dealers and to Sandler O'Neill.
Sandler O'Neill may enter into agreements with selected dealers to assist
in the sale of shares in the Syndicated Community Offering. During the
Syndicated Community Offering, selected dealers may only solicit indications of
interest from their customers to place orders with the Holding Company as of a
certain date ("Order Date") for the purchase of shares of Conversion Stock.
When and if Sandler O'Neill and the Holding Company believe that enough
indications of interest and orders have been received in the Subscription
Offering, the Direct Community Offering and the Syndicated Community Offering to
consummate the Conversion, Sandler O'Neill will request, as of the Order Date,
selected dealers to submit orders to purchase shares for which they have
received indications of interest from their customers. Selected dealers will
send confirmations to such customers on the next business day after the Order
Date. Selected dealers may debit the accounts of their customers on a date
which will be three business days from the Order Date ("Settlement Date").
Customers who authorize selected dealers to debit their brokerage accounts are
required to have the funds for payment in their account on but not before the
Settlement
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Date. On the Settlement Date, selected dealers will remit funds to the account
that the Holding Company established for each selected dealer. Each customer's
funds so forwarded to the Holding Company, along with all other accounts held in
the same title, will be insured by the FDIC up to the applicable $100,000 legal
limit. After payment has been received by the Holding Company from selected
dealers, funds will earn interest at the Bank's passbook rate until the
completion of the Offerings. At the completion of the Conversion, the funds
received in the Offerings will be used to purchase the shares of Common Stock
ordered. The shares issued in the Conversion cannot and will not be insured by
the FDIC or any other government agency. In the event the Conversion is not
consummated as described above, funds with interest will be returned promptly to
the selected dealers, who, in turn, will promptly credit their customers'
brokerage accounts.
The Syndicated Community Offering may terminate no more than 45 days
following the expiration of the Subscription Offering, unless extended by the
Holding Company with the approval of the OTS.
In the event the Bank is unable to find purchasers from the general public
for all unsubscribed shares, other purchase arrangements will be made by the
Board of Directors of the Bank, if feasible. Such other arrangements will be
subject to the approval of the OTS. The OTS may grant one or more extensions of
the offering period, provided that (i) no single extension exceeds 90 days, (ii)
subscribers are given the right to increase, decrease or rescind their
subscriptions during the extension period, and (iii) the extensions do not go
more than two years beyond the date on which the members approved the Plan. If
the Conversion is not completed within 45 days after the close of the
Subscription Offering, either all funds received will be returned with interest
(and withdrawal authorizations canceled) or, if the OTS has granted an extension
of time, all subscribers will be given the right to increase, decrease or
rescind their subscriptions at any time prior to 20 days before the end of the
extension period. If an extension of time is obtained, all subscribers will be
notified of such extension and of their rights to modify their orders. If an
affirmative response to any resolicitation is not received by the Holding
Company from a subscriber, the subscriber's order will be rescinded and all
funds received will be promptly returned with interest (or withdrawal
authorizations will be canceled).
PERSONS IN NON-QUALIFIED STATES. The Holding Company and the Bank will
make reasonable efforts to comply with the securities laws of all states in the
United States in which persons entitled to subscribe for stock pursuant to the
Plan reside. However, the Holding Company and the Bank are not required to
offer stock in the Subscription Offering to any person who resides in a foreign
country or resides in a state of the United States with respect to which: (i) a
small number of persons otherwise eligible to subscribe for shares of Common
Stock reside in such state; (ii) the granting of Subscription Rights or offer or
sale of shares of Common Stock to such persons would require the Holding Company
to register, under the securities laws of such state, as a broker or dealer or
to register or otherwise qualify the Common Stock for sale in such state; or
(iii) such registration or qualification would be impractical for reasons of
cost or otherwise. Where the number of persons eligible to subscribe for shares
in one state is small, the Holding Company and the Bank will base their decision
as to whether or not to offer the Common stock in such state on a number of
factors, including the size of accounts held by account holders in the state and
the cost of registering or qualifying the shares.
LIMITATIONS ON PURCHASES OF SHARES
The Plan of Conversion provides for certain limitations to be placed upon
the purchase of Common Stock by eligible subscribers and others in the
Conversion. Each subscriber must subscribe for a minimum of 25 shares. With
the exception of the ESOP, which is expected to purchase 8% of the shares of
Common Stock issued in the Conversion, no person or entity may purchase more
than $125,000 of Common Stock in the Conversion; and no person or entity,
together with associates of and persons acting in concert with such person or
entity, may purchase in the aggregate more than $250,000 of Common Stock in the
Conversion. Officers, directors and their associates may not purchase, in the
aggregate, more than 33% of the shares of Common Stock offered in the
Conversion. For purposes of the Plan, the directors are not deemed to be acting
in concert solely by reason of their Board membership. Pro rata reductions
within each Subscription Rights category will be made in allocating shares to
the extent that the maximum purchase limitations are exceeded.
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The Bank's and the Holding Company's Boards of Directors may, in their sole
discretion, increase the maximum purchase limitation set forth above up to 9.99%
of the shares of Common Stock sold in the Conversion, provided that orders for
shares which exceed 5% of the shares of Common Stock sold in the Conversion may
not exceed, in the aggregate, 10% of the shares sold in the Conversion. The
Bank and the Holding Company do not intend to increase the maximum purchase
limitation unless market conditions are such that an increase in the maximum
purchase limitation is necessary to sell a number of shares in excess of the
minimum of the Estimated Valuation Range. If the Boards of Directors decide to
increase the purchase limitation, all persons who subscribed for the maximum
number of shares will be given the opportunity to increase their subscriptions
accordingly, subject to the rights and preferences of any person who has
priority Subscription Rights.
The term "acting in concert" is defined in the Plan to mean (i) knowing
participation in a joint activity or interdependent conscious parallel action
towards a common goal whether or not pursuant to an express agreement; or (ii) a
combination or pooling of voting or other interests in the securities of an
issuer for a common purpose pursuant to any contract, understanding,
relationship, agreement or other arrangement, whether written or otherwise. In
general, a person who acts in concert with another other party shall also be
deemed to be acting in concert with any person who is also acting in concert
with that other party. THE HOLDING COMPANY AND THE BANK MAY PRESUME THAT
CERTAIN PERSONS ARE ACTING IN CONCERT BASED UPON, AMONG OTHER THINGS, JOINT
ACCOUNT RELATIONSHIPS AND THE FACT THAT SUCH PERSONS HAVE FILED JOINT SCHEDULES
13D WITH THE SEC WITH RESPECT TO OTHER COMPANIES.
The term "associate" of a person is defined in the Plan to mean (i) any
corporation or organization (other than the Bank or a majority-owned subsidiary
of the Bank) of which such person is an officer or partner or is, directly or
indirectly, the beneficial owner of 10% or more of any class of equity
securities; (ii) any trust or other estate in which such person has a
substantial beneficial interest or as to which such person serves as trustee or
in a similar fiduciary capacity (excluding tax-qualified employee plans); and
(iii) any relative or spouse of such person, or any relative of such spouse, who
either has the same home as such person or who is a director or officer of the
Bank or any of its parents or subsidiaries. For example, a corporation of which
a person serves as an officer would be an associate of such person, and,
therefore, all shares purchased by such corporation would be included with the
number of shares which such person could purchase individually under the above
limitations.
The term "officer" is defined in the Plan to mean an executive officer of
the Bank, including its Chairman of the Board, President, Executive Vice
Presidents, Senior Vice Presidents, Vice Presidents in charge of principal
business functions, Secretary and Treasurer.
Common Stock purchased pursuant to the Conversion will be freely
transferable, except for shares purchased by directors and officers of the Bank
and the Holding Company and by National Association of Securities Dealers, Inc.
("NASD") members. See "-- Restrictions on Transferability by Directors and
Officers and NASD Members."
MARKETING AND UNDERWRITING ARRANGEMENTS
The Bank and the Holding Company have engaged Sandler O'Neill as a
consultant and financial advisor in connection with the offering of the Common
Stock, and Sandler O'Neill has agreed to use its best efforts to solicit
subscriptions and purchase orders for shares of Common Stock in the Offerings.
Sandler O'Neill is not obligated to take or purchase any shares of Common Stock
in the Offerings. Based upon negotiations between the Bank and the Holding
Company concerning fee structure, Sandler O'Neill will receive a fee equal to
1.5% of the aggregate Purchase Price of the shares sold in the Subscription and
Direct Community Offering, excluding shares purchased by directors, officers,
employees, and any immediate family member thereof, and any employee benefit
plan of the Holding Company or the Bank, including the ESOP, subject to a
maximum fee equal to 1.5% of the aggregate gross proceeds at the midpoint of the
Estimated Valuation Range. In the event that a selected dealers agreement is
entered into in connection with a Syndicated Community Offering, the Bank will
pay a fee (to be negotiated at such time under such agreement) to such selected
dealers, any sponsoring dealers fees, and a management fee to Sandler O'Neill of
2.0% for shares sold by NASD member firms pursuant to a selected dealers
agreement; provided, however, that any fees payable to Sandler O'Neill for
Common Stock sold by them pursuant to such a selected
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dealers agreement shall not exceed 2.0% of the Purchase Price and provided,
further, however, that the aggregate fees payable to Sandler O'Neill and the
selected dealers will not exceed 7.0% of the aggregate purchase price of the
Common Stock sold by selected dealers. Fees to Sandler O'Neill and to any other
broker-dealer may be deemed to be underwriting fees, and Sandler O'Neill and
such broker-dealers may be deemed to be underwriters. Sandler O'Neill will also
be reimbursed for its reasonable out-of-pocket expenses, including legal fees,
in an amount not to exceed $50,000. Notwithstanding the foregoing, in the event
the Offerings are not consummated or Sandler O'Neill ceases, under certain
circumstances after the subscription solicitation activities are commenced, to
provide assistance to the Holding Company, Sandler O'Neill will be entitled to a
fee for its management advisory services in an amount to be agreed upon by the
Bank and Sandler O'Neill, and based upon the amount of services performed by
Sandler O'Neill and will also be reimbursed for its reasonable out-of-pocket
expenses as described above. The Holding Company and the Bank have agreed to
indemnify Sandler O'Neill for reasonable costs and expenses in connection with
certain claims or liabilities, including certain liabilities under the
Securities Act. Sandler O'Neill has received advances towards its fees
totalling $50,000. Total marketing fees to Sandler O'Neill are expected to be
approximately $153,000 and $215,000 at the minimum and the maximum of the
Estimated Valuation Range, respectively. See "PRO FORMA DATA" for the
assumptions used to arrive at these estimates.
Sandler O'Neill will perform conversion and records management services for
the Bank in the Conversion and will receive a fee for these services of $10,000,
plus reimbursement of reasonable out-of-pocket expenses which shall not exceed
$5,000.
DESCRIPTION OF SALES ACTIVITIES
The Common Stock will be offered in the Subscription and Direct Community
Offering principally by the distribution of this Prospectus and through
activities conducted at the Bank's Conversion Center at its main office
facility. The Conversion Center is expected to operate during normal business
hours throughout the Subscription and Direct Community Offering. It is expected
that at any particular time, one or more Sandler O'Neill employees will be
working at the Conversion Center. Such employees of Sandler O'Neill will be
responsible for mailing materials relating to the Subscription and Direct
Community Offering, responding to questions regarding the Conversion and the
Subscription and Direct Community Offering and processing stock orders.
Sales of Common Stock will be made by registered representatives affiliated
with Sandler O'Neill or by the selected dealers managed by Sandler O'Neill. The
management and employees of the Bank may participate in the Offerings in
clerical capacities, providing administrative support in effecting sales
transactions or, when permitted by state securities laws, answering questions of
a mechanical nature relating to the proper execution of the Order Form.
Management of the Bank may answer questions regarding the business of the Bank
when permitted by state securities laws. Other questions of prospective
purchasers, including questions as to the advisability or nature of the
investment, will be directed to registered representatives. The management and
employees of the Holding Company and the Bank have been instructed not to
solicit offers to purchase Common Stock or provide advice regarding the purchase
of Common Stock.
No officer, director or employee of the Bank or the Holding Company will be
compensated, directly or indirectly, for any activities in connection with the
offer or sale of securities issued in the Conversion.
None of the Bank's personnel participating in the Subscription and Direct
Community Offering is registered or licensed as a broker or dealer or an agent
of a broker or dealer. The Bank's personnel will assist in the above-described
sales activities pursuant to an exemption from registration as a broker or
dealer provided by Rule 3a4-1 ("Rule 3a4-1") promulgated under the Exchange Act.
Rule 3a4-1 generally provides that an "associated person of an issuer" of
securities shall not be deemed a broker solely by reason of participation in the
sale of securities of such issuer if the associated person meets certain
conditions. Such conditions include, but are not limited to, that the
associated person participating in the sale of an issuer's securities not be
compensated in connection therewith at the time of participation, that such
person not be associated with a broker or dealer and that such person observe
certain limitations on his or her participation in the sale of securities. For
purposes of this exemption, "associated person
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of an issuer" is defined to include any person who is a director, officer or
employee of the issuer or a company that controls, is controlled by or is under
common control with the issuer.
PROCEDURE FOR PURCHASING SHARES IN THE SUBSCRIPTION AND DIRECT COMMUNITY
OFFERING
To ensure that each purchaser receives a Prospectus at least 48 hours prior
to the Expiration Date in accordance with Rule 15c2-8 under the Exchange Act, no
Prospectus will be mailed any later than five days prior to such date or hand
delivered any later than two days prior to such date. Execution of the Order
Form will confirm receipt or delivery in accordance with Rule 15c2-8. Order
Forms will only be distributed with a Prospectus. The Bank will accept for
processing only orders submitted on Order Forms.
To purchase shares in the Subscription and Direct Community Offering, an
executed Order Form and certification form with the required full payment for
each share subscribed for, or with appropriate authorization for withdrawal of
full payment from the subscriber's deposit account with the Bank (which may be
given by completing the appropriate blanks in the Order Form), must be received
by the Bank by _____ p.m., Pacific Time, on the Expiration Date. Order Forms
which are not received by such time or are executed defectively or are received
without full payment (or without appropriate withdrawal instructions) are not
required to be accepted. In addition, the Bank is not obligated to accept
orders submitted on photocopied or telecopied Order Forms. The Holding Company
and the Bank have the right to waive or permit the correction of incomplete or
improperly executed Order Forms, but do not represent that they will do so.
Pursuant to the Plan of Conversion, the interpretation by the Holding Company
and the Bank of the terms and conditions of the Plan of Conversion and of the
Order Form will be final. Once received, an executed Order Form may not be
modified, amended or rescinded without the consent of the Bank unless the
Conversion has not been completed within 45 days after the end of the
Subscription Offering, unless such period has been extended.
In order to ensure that Eligible Account Holders, Supplemental Eligible
Account Holders and Other Members are properly identified as to their stock
purchase priorities, depositors as of the Eligibility Record Date (December 31,
1995) and/or the Supplemental Eligibility Record Date (March 31, 1997) and/or
the Voting Record Date (_______ __, 1997) must list all accounts on the Order
Form giving all names in each account and the account number.
Full payment for subscriptions may be made (i) in cash if delivered in
person at the Bank, (ii) by check, bank draft, or money order, or (iii) by
authorization of withdrawal from deposit accounts maintained with the Bank.
Appropriate means by which such withdrawals may be authorized are provided on
the Order Form. No wire transfers will be accepted. Interest will be paid on
payments made by cash, check, bank draft or money order at the Bank's passbook
rate 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 (unless the certificate matures after the date of
receipt of the Order Form but prior to closing, in which case funds will earn
interest at the passbook rate from the date of maturity until consummation 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.
At the completion of the Conversion, the funds received in the Offerings will be
used to purchase the shares of Common Stock ordered. THE SHARES ISSUED IN THE
CONVERSION CANNOT AND WILL NOT BE INSURED BY THE FDIC OR ANY OTHER GOVERNMENT
AGENCY. In the event that the Conversion is not consummated for any reason, all
funds submitted will be promptly refunded with interest as described above.
If a subscriber authorizes the Bank to withdraw the amount of the aggregate
Purchase Price from his or her deposit account, the Bank will do so as of the
effective date of Conversion, though the account must contain the full amount
necessary for payment at the time the subscription order is received. The Bank
will waive any applicable penalties for early withdrawal from certificate
accounts. If the remaining balance in a certificate account is reduced below
the applicable minimum balance requirement at the time that the funds actually
are transferred under the
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authorization the certificate will be canceled at the time of the withdrawal,
without penalty, and the remaining balance will earn interest at the Bank's
passbook rate.
If the ESOP subscribes for shares during the Subscription Offering, the
ESOP will not be required to pay for the shares subscribed for at the time it
subscribes, but rather may pay for such shares of Common Stock subscribed for at
the Purchase Price upon consummation of the Conversion, provided that there is
in force from the time of its subscription until such time, a loan commitment
from an unrelated financial institution or the Holding Company to lend to the
ESOP, at such time, the aggregate Purchase Price of the shares for which it
subscribed.
Individual Retirement Accounts ("IRAs") maintained in the Bank do not
permit investment in the Common Stock. A depositor interested in using his or
her IRA funds to purchase Common Stock must do so through a self-directed IRA.
Since the Bank does not offer such accounts, it will allow such a depositor to
make a trustee-to-trustee transfer of the IRA funds to a trustee offering a
self-directed IRA program with the agreement that such funds will be used to
purchase the Holding Company's Common Stock in the Offerings. There will be no
early withdrawal or IRS interest penalties for such transfers. The new trustee
would hold the Common Stock in a self-directed account in the same manner as the
Bank now holds the depositor's IRA funds. An annual administrative fee may be
payable to the new trustee. Depositors interested in using funds in a Bank IRA
to purchase Common Stock should contact the Conversion Center at the Bank so
that the necessary forms may be forwarded for execution and returned prior to
the Expiration Date. In addition, the provisions of ERISA and IRS regulations
require that officers, directors and 10% shareholders who use self-directed IRA
funds to purchase shares of Common Stock in the Subscription Offering make such
purchases for the exclusive benefit of IRAs.
Certificates representing shares of Common Stock purchased, and any refund
due, will be mailed to purchasers at such address as may be specified in
properly completed Order Forms or to the last address of such persons appearing
on the records of the Bank 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. Until certificates for
the Common Stock are available and delivered to purchasers, purchasers may not
be able to sell the shares of Common Stock which they purchased, even though
trading of the Common Stock may have commenced.
STOCK PRICING AND NUMBER OF SHARES TO BE ISSUED
Federal regulations require that the aggregate purchase price of the
securities sold in connection with the Conversion be based upon an estimated pro
forma value of the Holding Company and the Bank as converted (i.e., taking into
----
account the expected receipt of proceeds from the sale of securities in the
Conversion), as determined by an independent appraisal. The Bank and the
Holding Company have retained RP Financial to prepare an appraisal of the pro
forma market value of the Holding Company and the Bank as converted, as well as
a business plan. RP Financial will receive a fee expected to total
approximately $25,000 for its appraisal services and preparation of a business
plan, plus reasonable out-of-pocket expenses incurred in connection with the
appraisal. The Bank has agreed to indemnify RP Financial under certain
circumstances against liabilities and expenses (including legal fees) arising
out of, related to, or based upon the Conversion.
RP Financial has prepared an appraisal of the estimated pro forma market
value of the Holding Company and the Bank as converted taking into account the
formation of the Holding Company as the holding company for the Bank. For its
analysis, RP Financial undertook substantial investigations to learn about the
Bank's business and operations. Management supplied financial information,
including annual financial statements, information on the composition of assets
and liabilities, and other financial schedules. In addition to this
information, RP Financial reviewed the Bank's Form AC Application for Approval
of Conversion and the Holding Company's Form SB-2 Registration Statement.
Furthermore, RP Financial visited the Bank's facilities and had discussions with
the Bank's management and its special conversion legal counsel, Breyer &
Aguggia. No detailed individual analysis of the separate components of the
Holding Company's or the Bank's assets and liabilities was performed in
connection with the evaluation.
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In estimating the pro forma market value of the Holding Company and the
Bank as converted, as required by applicable regulatory guidelines, RP
Financial's analysis utilized three selected valuation procedures, the
Price/Book ("P/B") method, the Price/Earnings ("P/E") method, and Price/Assets
("P/A") method, all of which are described in its report. RP Financial placed
the greatest emphasis on the P/E and P/B methods in estimating pro forma market
value. In applying these procedures, RP Financial reviewed, among other
factors, the economic make-up of the Bank's primary market area, the Bank's
financial performance and condition in relation to publicly-traded institutions
that RP Financial deemed comparable to the Bank, the specific terms of the
offering of the Holding Company's Common Stock, the pro forma impact of the
additional capital raised in the Conversion, conditions of securities markets in
general, and the market for thrift institution common stock in particular. RP
Financial's analysis provides an approximation of the pro forma market value of
the Holding Company and the Bank as converted based on the valuation methods
applied and the assumptions outlined in its report. Included in its report were
certain assumptions as to the pro forma earnings of the Holding Company after
the Conversion that were utilized in determining the appraised value. These
assumptions included expenses as described under "PRO FORMA DATA," an assumed
after-tax rate of return on the net Conversion proceeds of 3.96%, purchases by
the ESOP of 8% of the stock sold in the Conversion and purchases in the open
market by the MRP of a number of shares equal to 4% of the stock sold in the
Conversion at the Purchase Price. See "PRO FORMA DATA" for additional
information concerning these assumptions. The use of different assumptions may
yield somewhat different results.
On the basis of the foregoing, RP Financial has advised the Holding Company
and the Bank that, in its opinion, as of February 28, 1997, the aggregate
estimated pro forma market value of the Holding Company and the Bank as
converted and, therefore, the Common Stock was within the valuation range of
$12,750,000 to $17,250,000 with a midpoint of $15,000,000. After reviewing the
methodology and the assumptions used by RP Financial in the preparation of the
appraisal, the Board of Directors established the Estimated Valuation Range,
which is equal to the valuation range of $12,750,000 to $17,250,000 with a
midpoint of $15,000,000. In determining the reasonableness and adequacy of the
appraisal, consistent with OTS regulations and policies, the Board of Directors
reviewed the methodology and reasonableness of the assumptions utilized by RP
Financial in the preparation of the appraisal. Assuming that the shares are
sold at $10.00 per share in the Conversion, the estimated number of shares would
be between 1,275,000 and 1,725,000 with a midpoint of 1,500,000. The Purchase
Price of $10.00 was determined by discussion among the Boards of Directors of
the Bank and the Holding Company and Sandler O'Neill, taking into account, among
other factors (i) the requirement under OTS regulations that the Common Stock be
offered in a manner that will achieve the widest distribution of the stock and
(ii) desired liquidity in the Common Stock subsequent to the Conversion. Since
the outcome of the Offerings relate in large measure to market conditions at the
time of sale, it is not possible to determine the exact number of shares that
will be issued by the Holding Company at this time. The Estimated Valuation
Range may be amended, with the approval of the OTS, if necessitated by
developments following the date of such appraisal in, among other things, market
conditions, the financial condition or operating results of the Bank, regulatory
guidelines or national or local economic conditions.
RP Financial's appraisal report is filed as an exhibit to the Registration
Statement. See "ADDITIONAL INFORMATION."
If, upon completion of the Subscription Offering, at least the minimum
number of shares are subscribed for, RP Financial, 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 Holding Company and the Bank as
converted, as of the close of the Subscription Offering.
No sale of the shares will take place unless prior thereto RP Financial
confirms to the OTS that, to the best of RP Financial's knowledge and judgment,
nothing of a material nature has occurred that would cause it to conclude that
the actual total purchase price on an aggregate basis was incompatible with its
estimate of the total pro forma market value of the Holding Company and the Bank
as converted at the time of the sale. If, however, the facts do not justify
such a statement, the Offerings or other sale may be canceled, a new Estimated
Valuation Range and price per share set and new Subscription, Direct Community
and Syndicated Community Offerings held. Under such circumstances, subscribers
would have the right to modify or rescind their subscriptions and to have their
subscription
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funds returned promptly with interest and holds on funds authorized for
withdrawal from deposit accounts would be released or reduced.
Depending upon market and financial conditions, the number of shares issued
may be more or less than the range in number of shares shown above. In the
event the total amount of shares issued is less than 1,275,000 or more than
1,983,750 (15% above the maximum of the Estimated Valuation Range), for
aggregate gross proceeds of less than $12,750,000 or more than $19,837,500,
subscription funds will be returned promptly with interest to each subscriber
unless he indicates otherwise. In the event a new valuation range is
established by RP Financial, such new range will be subject to approval by the
OTS.
If purchasers cannot be found for an insignificant residue of unsubscribed
shares from the general public, other purchase arrangements will be made by the
Boards of Directors of the Bank and the Holding Company, if possible. Such
other purchase arrangements will be subject to the approval of the OTS and may
provide for purchases for investment purposes by directors, officers, their
associates and other persons in excess of the limitations provided in the Plan
of Conversion and in excess of the proposed director purchases set forth herein,
although no such purchases are currently intended. If such other purchase
arrangements cannot be made, the Plan will terminate.
In formulating its appraisal, RP Financial relied upon the truthfulness,
accuracy and completeness of all documents the Bank furnished it. RP Financial
also considered financial and other information from regulatory agencies, other
financial institutions, and other public sources, as appropriate. While RP
Financial believes this information to be reliable, RP Financial does not
guarantee the accuracy or completeness of such information and did not
independently verify the financial statements and other data provided by the
Bank and the Holding Company or independently value the assets or liabilities of
the Holding Company and the Bank. THE APPRAISAL BY RP FINANCIAL 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. MOREOVER, BECAUSE THE APPRAISAL IS NECESSARILY BASED ON MANY
FACTORS WHICH CHANGE FROM TIME TO TIME, THERE IS NO ASSURANCE THAT PERSONS WHO
PURCHASE SUCH SHARES IN THE CONVERSION WILL LATER BE ABLE TO SELL SHARES
THEREAFTER AT PRICES AT OR ABOVE THE PURCHASE PRICE.
RESTRICTIONS ON REPURCHASE OF STOCK
Upon consummation of the Conversion, the Board of Directors of the Holding
Company will have the authority to adopt stock repurchase plans, subject to
statutory and regulatory requirements, including the OTS regulations applicable
for three years from the date of consummation of the Conversion. Pursuant to
OTS regulations, OTS-regulated savings associations (and their holding
companies) may not for a period of three years from the date of an institution's
mutual-to-stock conversion repurchase any of its common stock from any person,
except in the event of: (i) an offer made to all of its stockholders to
repurchase the common stock on a pro rata basis, approved by the OTS; or (ii)
the repurchase of qualifying shares of a director; or (iii) a purchase in the
open market by a tax-qualified or non-tax-qualified employee stock benefit plan
in an amount reasonable and appropriate to fund the plan. Furthermore,
repurchases are prohibited if the effect thereof would cause the association's
regulatory capital to be reduced below (a) the amount required for the
liquidation account or (b) the regulatory capital requirements imposed by the
OTS. Repurchases are generally prohibited during the first year following
conversion. However, recent OTS policy has relaxed this restriction,
particularly during the second six months after conversion. While an applicant
needs to demonstrate the existence of "exceptional circumstances" during the
first six months after conversion, the OTS has indicated that it would analyze
repurchases during months six through 12 after conversion on a case-by-case
basis. Upon ten days' written notice to the OTS, and if the OTS does not
object, an institution may make open market repurchases of its outstanding
common stock during years two and three following the conversion, provided that
(x) no more than 5% of the outstanding common stock is to be purchased during
any 12-month period, (y) the repurchases do not cause the association to become
undercapitalized as defined under the OTS prompt corrective action regulations
and (z) the repurchase would not adversely affect the financial condition of the
association. No assurances, however, can be given that the OTS will approve a
repurchase program under current policy or that such policy will not change or
become more restrictive.
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SHARES TO BE PURCHASED BY MANAGEMENT PURSUANT TO SUBSCRIPTION RIGHTS
The following table sets forth certain information as to the approximate
purchases of Common Stock by each director and executive officer of the Bank,
including their associates, as defined by applicable regulations. No individual
has entered into a binding agreement with respect to such intended purchases.
Directors and officers of the Bank and their associates may not purchase in
excess of 33% of the shares sold in the Conversion and, therefore, actual
purchases could be more or less than indicated below. For purposes of the
following table, it has been assumed that sufficient shares will be available to
satisfy subscriptions in all categories. Directors, officers and employees will
pay the same price for the shares for which they subscribe as the price that
will be paid by all other subscribers.
<TABLE>
<CAPTION>
Percent of Percent of
Shares at Shares at
Minimum of Maximum of
Name and Anticipated Number of Anticipated Dollar Estimated Estimated
Position Shares Purchased(1) Amount Purchased Valuation Range Valuation Range
- -------------------------- ------------------------ ------------------ ---------------- ----------------
<S> <C> <C> <C> <C>
William J. Larson 15,000 $ 150,000 1.18% 0.87%
Chairman
James N. Marker 2,500 25,000 0.20 0.14
First Vice Chairman
Steve R. Cox 10,000 100,000 0.78 0.58
Second Vice Chairman
Robert S. Coleman, Sr. 10,000 100,000 0.78 0.58
Director
Dr. L. Glen Carlson 15,000 150,000 1.18 0.87
Director
F. Ron McMurray 2,500 25,000 0.20 0.14
Director
W. Dean Jurgens 12,000 120,000 0.94 0.70
Director
Clyde E. Conklin 25,000 250,000 1.96 1.45
Chief Executive Officer
Larry K. Moxley 25,000 250,000 1.96 1.45
Chief Financial Officer
Terence A. Otte 5,000 50,000 0.39 0.29
Vice President
Donn L. Durgan 8,000 80,000 0.63 0.46
Vice President
Douglas R. Ax 25,000 250,000 1.96 1.45
------- ---------- ----- ----
Vice President
Total 155,000 $1,550,000 12.16% 8.99%
======= ========== ===== ====
</TABLE>
- ----------------
(1) Excludes any shares awarded pursuant to the ESOP and MRP and options to
acquire shares pursuant to the Stock Option Plan. For a description of the
number of shares to be purchased by the ESOP and issued or reserved under
the MRP and Stock Option Plan, see "MANAGEMENT OF THE BANK -- Benefits --
Employee Stock Ownership Plan," "-- Benefits -- Stock Option Plan" and "--
Benefits -- Management Recognition Plan."
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RESTRICTIONS ON TRANSFERABILITY BY DIRECTORS AND OFFICERS AND NASD MEMBERS
Shares of Common Stock purchased in the Offerings by directors and officers
of the Holding Company may not be sold for a period of one year following
consummation of the Conversion, except in the event of the death of the
stockholder or in any exchange of the Common Stock in connection with a merger
or acquisition of the Holding Company. Shares of Common Stock received by
directors or officers through the ESOP or the MRP or upon exercise of options
issued pursuant to the Stock Option Plan or purchased subsequent to the
Conversion are not subject to this restriction. Accordingly, shares of Common
Stock issued by the Holding Company to directors and officers shall bear a
legend giving appropriate notice of the 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 restriction on transfers.
Any shares issued to directors and officers as a stock dividend, stock split or
otherwise with respect to restricted Common Stock shall be subject to the same
restrictions.
Purchases of outstanding shares of Common Stock of the Holding Company by
directors, executive officers (or any person who was an executive officer or
director of the Bank after adoption of the Plan of Conversion) and their
associates during the three-year period following Conversion may be made only
through a broker or dealer registered with the SEC, except with the prior
written approval of the OTS. This restriction does not apply, however, to
negotiated transactions involving more than 1% of the Holding Company's
outstanding Common Stock or to the purchase of stock pursuant to the Stock
Option Plan.
The Holding Company has filed with the SEC a registration statement under
the Securities Act for the registration of the Common Stock to be issued
pursuant to the Conversion. The registration under the Securities Act of shares
of the Common Stock to be issued in the Conversion does not cover the resale of
such shares. Shares of Common Stock purchased by persons who are not affiliates
of the Holding Company may be resold without registration. Shares purchased by
an affiliate of the Holding Company will be subject to the resale restrictions
of Rule 144 under the Securities Act. If the Holding Company meets the current
public information requirements of Rule 144 under the Securities Act, each
affiliate of the Holding Company who complies with the other conditions of Rule
144 (including those that require the affiliate's sale to be aggregated with
those of certain other persons) would be able to sell in the public market,
without registration, a number of shares not to exceed, in any three-month
period, the greater of (i) 1% of the outstanding shares of the Holding Company
or (ii) the average weekly volume of trading in such shares during the preceding
four calendar weeks. Provision may be made in the future by the Holding Company
to permit affiliates to have their shares registered for sale under the
Securities Act under certain circumstances.
In addition, under guidelines of the NASD, members of the NASD and their
associates are subject to certain restrictions on the transfer of securities
purchased in accordance with Subscription Rights and to certain reporting
requirements upon purchase of such securities.
RESTRICTIONS ON ACQUISITION OF THE HOLDING COMPANY
The following discussion is a summary of certain provisions of federal law
and regulations and Delaware corporate law, as well as the Certificate of
Incorporation and Bylaws of the Holding Company, relating to stock ownership and
transfers, the Board of Directors and business combinations, all of which may be
deemed to have "anti-takeover" effects. The description of these provisions is
necessarily general and reference should be made to the actual law and
regulations and to the Certificate of Incorporation and Bylaws of the Holding
Company. See "ADDITIONAL INFORMATION" as to how to obtain a copy of these
documents.
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CONVERSION REGULATIONS
OTS regulations prohibit any person from making an offer, announcing an
intent to make an offer or participating in any other arrangement to purchase
stock or acquiring stock or subscription rights in a converting institution (or
its holding company) from another person prior to completion of its conversion.
Further, without the prior written approval of the OTS, no person may make such
an offer or announcement of an offer to purchase shares or actually acquire
shares in the converting institution (or its holding company) for a period of
three years from the date of the completion of the conversion if, upon the
completion of such offer, announcement or acquisition, that person would become
the beneficial owner of more than 10% of the outstanding stock of the
institution (or its holding company). The OTS has defined "person" to include
any individual, group acting in concert, corporation, partnership, association,
joint stock company, trust, unincorporated organization or similar company, a
syndicate or any other group formed for the purpose of acquiring, holding or
disposing of securities of an insured institution. However, offers made
exclusively to an association (or its holding company) or an underwriter or
member of a selling group acting on the converting institution's (or its holding
company's) behalf for resale to the general public are excepted. The regulation
also provides civil penalties for willful violation or assistance in any such
violation of the regulation by any person connected with the management of the
converting institution (or its holding company) or who controls more than 10% of
the outstanding shares or voting rights of a converting or converted institution
(or its holding company).
CHANGE OF CONTROL REGULATIONS
OTS REGULATIONS. Under the Change in Bank Control Act, no person may
acquire control of an insured federal savings association or its parent holding
company unless the OTS has been given 60 days' prior written notice and has not
issued a notice disapproving the proposed acquisition. In addition, OTS
regulations provide that no company may acquire control of a savings association
without the prior approval of the OTS. Any company that acquires such control
becomes a "savings and loan holding company" subject to registration,
examination and regulation by the OTS.
Control, as defined under federal law, 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 the savings
association's directors, or a determination by the OTS that the acquiror has the
power to direct, or directly or indirectly to exercise a controlling influence
over, the management or policies of the institution. Acquisition of more than
10% of any class of a savings association's voting stock, if the acquiror also
is subject to any one of eight "control factors," constitutes a rebuttable
determination of control under the 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 that acquire
beneficial ownership exceeding 10% or more of any class of a savings
association's stock must file with the OTS a certification form 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. There are also rebuttable presumptions in
the regulations concerning whether a group "acting in concert" exists, including
presumed action in concert among members of an "immediate family."
The OTS may prohibit an acquisition of control if it finds, among other
things, that (i) the acquisition would result in a monopoly or substantially
lessen competition, (ii) the financial condition of the acquiring person might
jeopardize the financial stability of the institution, or (iii) the competence,
experience or integrity of the acquiring person indicates that it would not be
in the interest of the depositors or the public to permit the acquisition of
control by such person.
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FEDERAL RESERVE REGULATIONS. The Change in Bank Control Act and the BHCA,
together with the Federal Reserve regulations under those acts, require that the
consent of the Federal Reserve be obtained prior to any person or company
acquiring "control" of a bank holding company. Control is conclusively presumed
to exist if an individual or company acquires more than 25% of any class of
voting stock of the bank holding company. Control is rebuttably presumed to
exist if the person acquires more than 10% of any class of voting stock of a
bank holding company if either (i) the Holding Company has registered securities
under Section 12 of the Exchange Act or (ii) no other person will own a greater
percentage of that class of voting securities immediately after the transaction.
The regulations provide a procedure to rebut the rebuttable control presumption.
Since the Holding Company's Common Stock will be registered under Section 12 of
the Exchange Act, any acquisition of 10% or more of the Holding Company's Common
Stock will give rise to a rebuttable presumption that the acquiror of such stock
controls the Holding Company, requiring the acquiror, prior to acquiring such
stock, to rebut the presumption of control to the satisfaction of the Federal
Reserve or obtain Federal Reserve approval for the acquisition of control.
Restrictions applicable to the operations of bank holding companies may deter
companies from seeking to obtain control of the Holding Company. See
"REGULATION -- Bank Holding Company Regulation."
ANTI-TAKEOVER PROVISIONS IN THE HOLDING COMPANY'S CERTIFICATE OF INCORPORATION
AND BYLAWS AND DELAWARE LAW
A number of provisions of the Holding Company's Certificate of
Incorporation and Bylaws deal with matters of corporate governance and certain
rights of stockholders. The following discussion is a general summary of
certain provisions of the Holding Company's Certificate of Incorporation and
Bylaws and regulatory provisions relating to stock ownership and transfers, the
Board of Directors and business combinations, which might be deemed to have a
potential "anti-takeover" effect. These provisions may have the effect of
discouraging a future takeover attempt which is not approved by the Board of
Directors but which individual Holding Company stockholders may deem to be in
their best interests or in which stockholders may receive a substantial premium
for their shares over then current market prices. As a result, stockholders who
might desire to participate in such a transaction may not have an opportunity to
do so. Such provisions will also render the removal of the incumbent Board of
Directors or management of the Holding Company more difficult. The following
description of certain of the provisions of the Certificate of Incorporation and
Bylaws of the Holding Company is necessarily general and reference should be
made in each case to such Certificate of Incorporation and Bylaws, which are
incorporated herein by reference. See "ADDITIONAL INFORMATION" as to how to
obtain a copy of these documents.
LIMITATION ON VOTING RIGHTS. The Certificate of Incorporation of the
Holding Company provides that in no event shall any record owner of any
outstanding Common Stock which is beneficially owned, directly or indirectly, by
a person who beneficially owns in excess of 10% of the then outstanding shares
of common stock (the "Limit") be entitled or permitted to any vote in respect of
the shares held in excess of the Limit, unless permitted by a resolution adopted
by a majority of the board of directors. Beneficial ownership is determined
pursuant to Rule 13d-3 of the General Rules and Regulations of the Exchange Act
and includes shares beneficially owned by such person or any of such person's
affiliates (as defined in the Certificate of Incorporation), shares which such
person or such person's affiliates have the right to acquire upon the exercise
of conversion rights or options and shares as to which such person and such
person's affiliates have or share investment or voting power, but shall not
include shares beneficially owned by the ESOP or directors, officers and
employees of the Bank or Holding Company or shares that are subject to a
revocable proxy and that are not otherwise beneficially, or deemed by the
Holding Company to be beneficially, owned by such person and his or her
affiliates.
BOARD OF DIRECTORS. The Board of Directors of the Holding Company is
divided into three classes, each of which shall contain approximately one-third
of the whole number of the members of the Board. The members of each class
shall be elected for a term of three years, with the terms of office of all
members of one class expiring each year so that approximately one-third of the
total number of directors are elected each year. The Holding Company's
Certificate of Incorporation provides that the size of the Board shall be as set
forth in the Bylaws. The Bylaws currently set the number of directors at seven.
The Certificate of Incorporation provides that any vacancy occurring in the
Board, including a vacancy created by an increase in the number of directors,
shall be filled by a
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vote of two-thirds of the directors then in office and any director so chosen
shall hold office for a term expiring at the annual meeting of stockholders at
which the term of the class to which the director has been chosen expires. The
classified Board is intended to provide for continuity of the Board of Directors
and to make it more difficult and time consuming for a stockholder group to
fully use its voting power to gain control of the Board of Directors without the
consent of the incumbent Board of Directors of the Holding Company. The
Certificate of Incorporation of the Holding Company provides that a director may
be removed from the Board of Directors prior to the expiration of his or her
term only for cause and only upon the vote of 80% of the outstanding shares of
voting stock. In the absence of this provision, the vote of the holders of a
majority of the shares could remove the entire Board, but only with cause, and
replace it with persons of such holders' choice.
CUMULATIVE VOTING, SPECIAL MEETINGS AND ACTION BY WRITTEN CONSENT. The
Certificate of Incorporation does not provide for cumulative voting for any
purpose. Moreover, the Certificate of Incorporation provides that special
meetings of stockholders of the Holding Company may be called only by the Board
of Directors of the Holding Company and that stockholders may take action only
at a meeting and not by written consent.
AUTHORIZED SHARES. The Certificate of Incorporation authorizes the
issuance of 5,000,000 shares of Common Stock and 500,000 shares of preferred
stock. The shares of Common Stock and preferred stock were authorized in an
amount greater than that to be issued in the Conversion to provide the Holding
Company's Board of Directors with as much flexibility as possible to effect,
among other transactions, financings, acquisitions, stock dividends, stock
splits, restricted stock grants and the exercise of stock options. However,
these additional authorized shares may also be used by the Board of Directors,
consistent with fiduciary duties, to deter future attempts to gain control of
the Holding Company. The Board of Directors also has sole authority to
determine the terms of any one or more series of preferred stock, including
voting rights, conversion rates, and liquidation preferences. As a result of
the ability to fix voting rights for a series of preferred stock, the Board has
the power, to the extent consistent with its fiduciary duty, to issue a series
of preferred stock to persons friendly to management in order to attempt to
block a tender offer, merger or other transaction by which a third party seeks
control of the Holding Company, and thereby assist members of management to
retain their positions. The Holding Company's Board currently has no plans for
the issuance of additional shares, other than the issuance of shares of Common
Stock upon exercise of stock options and in connection with the MRP.
STOCKHOLDER VOTE REQUIRED TO APPROVE BUSINESS COMBINATIONS WITH PRINCIPAL
STOCKHOLDERS. The Certificate of Incorporation requires the approval of the
holders of at least 80% of the Holding Company's outstanding shares of voting
stock to approve certain "Business Combinations" (as defined therein) involving
a "Related Person" (as defined therein) except in cases where the proposed
transaction has been approved in advance by a majority of those members of the
Holding Company's Board of Directors who are unaffiliated with the Related
Person and were directors prior to the time when the Related Person became a
Related Person. The term "Related Person" is defined to include any individual,
corporation, partnership or other entity (other than the Holding Company or its
subsidiary) which owns beneficially or controls, directly or indirectly, 10% or
more of the outstanding shares of voting stock of the Holding Company or an
affiliate of such person or entity. This provision of the Certificate of
Incorporation applies to any "Business Combination," which is defined to
include: (i) any merger or consolidation of the Holding Company with or into
any Related Person; (ii) any sale, lease, exchange, mortgage, transfer, or other
disposition of 25% or more of the assets of the Holding Company or combined
assets of the Holding Company and its subsidiaries to a Related Person; (iii)
any merger or consolidation of a Related Person with or into the Holding Company
or a subsidiary of the Holding Company; (iv) any sale, lease, exchange,
transfer, or other disposition of 25% or more of the assets of a Related Person
to the Holding Company or a subsidiary of the Holding Company; (v) the issuance
of any securities of the Holding Company or a subsidiary of the Holding Company
to a Related Person; (vi) the acquisition by the Holding Company or a subsidiary
of the Holding Company of any securities of a Related Person; (vii) any
reclassification of common stock of the Holding Company or any recapitalization
involving the common stock of the Holding Company; or (viii) any agreement or
other arrangement providing for any of the foregoing.
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Under Delaware law, absent this provision, business combinations, including
mergers, consolidations and sales of substantially all of the assets of a
corporation must, subject to certain exceptions, be approved by the vote of the
holders of a majority of the outstanding shares of common stock of the Holding
Company and any other affected class of stock. One exception under Delaware law
to the majority approval requirement applies to stockholders owning 15% or more
of the common stock of a corporation for a period of less than three years.
Such 15% stockholder, in order to obtain approval of a business combination,
must obtain the approval of two-thirds of the outstanding stock, excluding the
stock owned by such 15% stockholder, or satisfy other requirements under
Delaware law relating to board of director approval of his or her acquisition of
the shares of the Holding Company. The increased stockholder vote required to
approve a business combination may have the effect of foreclosing mergers and
other business combinations which a majority of stockholders deem desirable and
place the power to prevent such a merger or combination in the hands of a
minority of stockholders.
AMENDMENT OF CERTIFICATE OF INCORPORATION AND BYLAWS. Amendments to the
Holding Company's Certificate of Incorporation must be approved by a majority
vote of its Board of Directors and also by a majority of the outstanding shares
of its voting stock, provided, however, that an affirmative vote of at least 80%
of the outstanding voting stock entitled to vote (after giving effect to the
provision limiting voting rights) is required to amend or repeal certain
provisions of the Certificate of Incorporation, including the provision limiting
voting rights, the provisions relating to approval of certain business
combinations, calling special meetings, the number and classification of
directors, director and officer indemnification by the Holding Company and
amendment of the Holding Company's Bylaws and Certificate of Incorporation. The
Holding Company's Bylaws may be amended by its Board of Directors, or by a vote
of 80% of the total votes eligible to be voted at a duly constituted meeting of
stockholders.
STOCKHOLDER NOMINATIONS AND PROPOSALS. The Certificate of Incorporation of
the Holding Company requires a stockholder who intends to nominate a candidate
for election to the Board of Directors, or to raise new business at a
stockholder meeting to give not less than 30 nor more than 60 days' advance
notice to the Secretary of the Holding Company. The notice provision requires a
stockholder who desires to raise new business to provide certain information to
the Holding Company concerning the nature of the new business, the stockholder
and the stockholder's interest in the business matter. Similarly, a stockholder
wishing to nominate any person for election as a director must provide the
Holding Company with certain information concerning the nominee and the
proposing stockholder.
PURPOSE AND TAKEOVER DEFENSIVE EFFECTS OF THE HOLDING COMPANY'S CERTIFICATE
OF INCORPORATION AND BYLAWS. The Board of Directors of the Bank believes that
the provisions described above are prudent and will reduce the Holding Company's
vulnerability to takeover attempts and certain other transactions that have not
been negotiated with and approved by its Board of Directors. These provisions
will also assist the Bank in the orderly deployment of the Conversion proceeds
into productive assets during the initial period after the Conversion. The
Board of Directors believes these provisions are in the best interest of the
Bank and 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 interest 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 a price
reflective of the true value of the Holding Company and that is in the best
interest of all stockholders.
Attempts to acquire control of financial institutions and their holding
companies have recently become increasingly common. Takeover attempts that have
not been negotiated with and approved by the Board of Directors present to
stockholders the risk of a takeover on terms that may be less favorable than
might otherwise be available. A transaction that 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 of the Holding
Company for its stockholders,
99
<PAGE>
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 the current
market prices, such offers are sometimes made for less than all of the
outstanding shares of a target company. As a result, stockholders may be
presented with the alternative of partially liquidating their investment at a
time that may be disadvantageous, or retaining their investment in an enterprise
that 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 benefits of certain protective
provisions of the Exchange Act, if the number of beneficial owners became less
than 300, thereby allowing for Exchange Act deregistration.
Despite the belief of the Bank and the Holding Company as to the benefits
to stockholders of these provisions of the Holding Company's Certificate of
Incorporation and Bylaws, these provisions may also have the effect of
discouraging a future takeover attempt that 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 of Directors of the Bank and the Holding Company, however, have concluded
that the potential benefits outweigh the possible disadvantages.
Pursuant to applicable law, at any annual or special meeting of its
stockholders after the Conversion, the Holding Company may adopt additional
charter provisions regarding the acquisition of its equity securities that would
be permitted for a Delaware business corporation. The Holding Company and the
Bank do not presently intend to propose the adoption of further restrictions on
the acquisition of the Holding Company's equity securities.
The cumulative effect of the restriction on acquisition of the Holding
Company contained in the Certificate of Incorporation and Bylaws of the Holding
Company and in Federal and Delaware law may be to discourage potential takeover
attempts and perpetuate incumbent management, even though certain stockholders
of the Holding Company may deem a potential acquisition to be in their best
interests, or deem existing management not to be acting in their best interests.
DESCRIPTION OF CAPITAL STOCK
OF THE HOLDING COMPANY
GENERAL
The Holding Company is authorized to issue 5,000,000 shares of Common Stock
having a par value of $.01 per share and 500,000 shares of preferred stock
having a par value of $.01 per share. The Holding Company currently expects to
issue up to 1,725,000 shares of Common Stock and no shares of preferred stock in
the Conversion. Each share of the Holding Company's Common Stock will have the
same relative rights as, and will be identical in all respects with, each other
share of Common Stock. Upon payment of the Purchase Price for the Common Stock,
in accordance with the Plan of Conversion, all such stock will be duly
authorized, fully paid and nonassessable.
THE COMMON STOCK OF THE HOLDING COMPANY WILL REPRESENT NONWITHDRAWABLE
CAPITAL, WILL NOT BE AN ACCOUNT OF ANY TYPE, AND WILL NOT BE INSURED BY THE FDIC
OR ANY OTHER GOVERNMENT AGENCY.
100
<PAGE>
COMMON STOCK
DIVIDENDS. The Holding Company can pay dividends out of statutory surplus
or from certain net profits if, as and when declared by its Board of Directors.
The payment of dividends by the Holding Company is subject to limitations which
are imposed by law and applicable regulation. See "DIVIDEND POLICY" and
"REGULATION." The holders of Common Stock of the Holding Company will be
entitled to receive and share equally in such dividends as may be declared by
the Board of Directors of the Holding Company out of funds legally available
therefor. If the Holding Company issues preferred stock, the holders thereof
may have a priority over the holders of the Common Stock with respect to
dividends.
STOCK REPURCHASES. The Plan and OTS regulations place certain limitations
on the repurchase of the Holding Company's capital stock. See "THE CONVERSION -
- - Restrictions on Repurchase of Stock" and "USE OF PROCEEDS."
VOTING RIGHTS. Upon Conversion, the holders of Common Stock of the Holding
Company will possess exclusive voting rights in the Holding Company. They will
elect the Holding Company's Board of Directors and act on such other matters as
are required to be presented to them under Delaware law or as are otherwise
presented to them by the Board of Directors. Except as discussed in
"RESTRICTIONS ON ACQUISITION OF THE HOLDING COMPANY," each holder of Common
Stock will be entitled to one vote per share and will not have any right to
cumulate votes in the election of directors. If the Holding Company issues
preferred stock, holders of the Holding Company preferred stock may also possess
voting rights. Certain matters require a vote of 80% of the outstanding shares
entitled to vote thereon. See "RESTRICTIONS ON ACQUISITION OF THE HOLDING
COMPANY."
As a federal mutual savings bank, corporate powers and control of the Bank
are vested in its Board of Directors, who elect the officers of the Bank and who
fill any vacancies on the Board of Directors as it exists upon Conversion.
Subsequent to Conversion, voting rights will be vested exclusively in the owners
of the shares of capital stock of the Bank, all of which will be owned by the
Holding Company, and voted at the direction of the Holding Company's Board of
Directors. Consequently, the holders of the Common Stock will not have direct
control of the Bank.
LIQUIDATION. In the event of any liquidation, dissolution or winding up of
the Bank, the Holding Company, as holder of the Bank's capital stock would be
entitled to receive, after payment or provision for payment of all debts and
liabilities of the Bank (including all deposit accounts and accrued interest
thereon) and after distribution of the balance in the special liquidation
account to Eligible Account Holders and Supplemental Eligible Account Holders
(see "THE CONVERSION"), all assets of the Bank available for distribution. In
the event of liquidation, dissolution or winding up of the Holding Company, the
holders of its common stock would be entitled to receive, after payment or
provision for payment of all its debts and liabilities, all of the assets of the
Holding Company available for distribution. If Holding Company preferred stock
is issued, the holders thereof may have a priority over the holders of the
Common Stock in the event of liquidation or dissolution.
PREEMPTIVE RIGHTS. Holders of the Common Stock of the Holding Company will
not be entitled to preemptive rights with respect to any shares that may be
issued. The Common Stock is not subject to redemption.
PREFERRED STOCK
None of the shares of the authorized Holding Company preferred stock will
be issued in the Conversion and there are no plans to issue the preferred stock.
Such stock may be issued with such designations, powers, preferences and rights
as the Board of Directors may from time to time determine. The Board of
Directors can, without stockholder approval, issue preferred stock with voting,
dividend, liquidation and conversion rights that could dilute the voting
strength of the holders of the Common Stock and may assist management in
impeding an unfriendly takeover or attempted change in control.
101
<PAGE>
RESTRICTIONS ON ACQUISITION
Acquisitions of the Holding Company are restricted by provisions in its
Certificate of Incorporation and Bylaws and by the rules and regulations of
various regulatory agencies. See "REGULATION" and "RESTRICTIONS ON ACQUISITION
OF THE HOLDING COMPANY."
REGISTRATION REQUIREMENTS
The Holding Company will register the Common Stock with the SEC pursuant to
Section 12(g) of the Exchange Act upon the completion of the Conversion and will
not deregister its Common Stock for a period of at least three years following
the completion of the Conversion. Upon such registration, the proxy and tender
offer rules, insider trading reporting and restrictions, annual and periodic
reporting and other requirements of the Exchange Act will be applicable.
LEGAL AND TAX OPINIONS
The legality of the Common Stock has been passed upon for the Holding
Company by Breyer & Aguggia, Washington, D.C. The federal tax consequences of
the Offerings have been opined upon by Breyer & Aguggia and the Idaho tax
consequences of the Offerings have been opined upon by BDO Seidman, LLP,
Spokane, Washington. Breyer & Aguggia and BDO Seidman, LLP have consented to
the references herein to their opinions. Certain legal matters will be passed
upon for Sandler O'Neill by Thacher Proffitt & Wood, Washington, D.C.
EXPERTS
The consolidated financial statements of the Bank as of March 31, 1996 and
for each of the two years in the period ended March 31, 1996 included in this
Prospectus have been audited by BDO Seidman, LLP, independent auditors, as
stated in its report appearing herein, and have been so included in reliance
upon the report of such firm given upon its authority as experts in accounting
and auditing.
RP Financial has consented to the publication herein of the summary of its
report to the Bank setting forth its opinion as to the estimated pro forma
market value of the Holding Company and the Bank as converted and its letter
with respect to subscription rights and to the use of its name and statements
with respect to it appearing herein.
ADDITIONAL INFORMATION
The Holding Company has filed with the SEC a Registration Statement on Form
SB-2 (File No. 333-____) under the Securities Act with respect to the Common
Stock offered in the Conversion. This Prospectus does not contain all the
information set forth in the Registration Statement, certain parts of which are
omitted in accordance with the rules and regulations of the SEC. Such
information may be inspected at the public reference facilities maintained by
the SEC at 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549 and at its
regional offices at 500 West Madison Street, Suite 1400, Chicago, Illinois
60661; and 7 World Trade Center, Suite 1300, New York, New York 10048. Copies
may be obtained at prescribed rates from the Public Reference Section of the SEC
at 450 Fifth Street, N.W., Washington, D.C. 20549. In addition, the
Registration Statement is publicly available through the SEC's World Wide Web
site on the Internet (http://www.sec.gov).
The Bank has filed with the OTS an Application for Approval of Conversion,
which includes proxy materials for the Bank's Special Meeting and certain other
information. This Prospectus omits certain information contained in such
Application. The Application, including the proxy materials, exhibits and
certain other information
102
<PAGE>
that are a part thereof, may be inspected, without charge, at the offices of the
OTS, 1700 G Street, N.W., Washington, D.C. 20552 and at the office of the
Regional Director of the OTS at the West Regional Office of the OTS, 1
Montgomery Street, Suite 400, San Francisco, California 94104.
103
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
FIRSTBANK NORTHWEST
<TABLE>
<CAPTION>
Pages
<S> <C>
Independent Auditors' Report................................ F-1
Consolidated Statements of Financial Condition as of
March 31, 1996 and December 31, 1996....................... F-2
Consolidated Statements of Income for the Years Ended
March 31, 1995 and 1996 and the Nine Months Ended
December 31, 1995 and 1996................................. F-4
Consolidated Statements of Changes in Equity for the Years
Ended March 31, 1995 and 1996 and the Nine Months Ended
December 31, 1995 and 1996................................. F-6
Consolidated Statements of Cash Flows for the Years
Ended March 31, 1995 and 1996 and the Nine Months Ended
December 31, 1995 and 1996................................. F-7
Summary of Significant Accounting Policies.................. F-10
Notes to Consolidated Financial Statements.................. F-16
</TABLE>
* * *
All schedules are omitted as the required information either is not
applicable or is included in the Consolidated Financial Statements or related
Notes.
Separate financial statements on the Holding Company have not been included
since it will not engage in material transactions, if any, until after the
Conversion. The Holding Company, which has been inactive to date, has no
significant assets, liabilities, revenues, expenses or contingent liabilities.
104
<PAGE>
Report of Independent Certified Public Accountants
Board of Directors
First Federal Bank of Idaho, a Federal Savings Bank, and Subsidiary
We have audited the accompanying consolidated statement of financial condition
of First Federal Bank of Idaho, a Federal Savings Bank, and Subsidiary (the
Bank) as of March 31, 1996, and the related consolidated statements of income,
changes in equity and cash flows for the years ended March 31, 1995 and 1996.
These consolidated financial statements are the responsibility of the Bank's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of First
Federal Bank of Idaho, a Federal Savings Bank, and Subsidiary at March 31, 1996
and the consolidated results of their operations and their cash flows for the
years ended March 31, 1995 and 1996 in conformity with generally accepted
accounting principles.
January 31, 1997, except for Note 15
which is as of March 12, 1997
F-1
<PAGE>
<TABLE>
<CAPTION>
March 31, December 31,
1996 1996
- ---------------------------------------------------------------------------
(Unaudited)
<S> <C> <C>
Assets
Cash and Cash Equivalents (Note 14):
Non-interest bearing cash deposits $ 3,549,349 $ 4,948,433
Interest bearing deposits 9,366,053 249,979
Federal funds sold 665,463 566,203
- ---------------------------------------------------------------------------
Total cash and cash equivalents 13,580,865 5,764,615
Investment securities: (Notes 1 and 14)
Held-to-maturity 10,544,953 5,189,358
Available-for-sale 1,328,295 -
Mortgage-backed securities held-to-maturity
(Notes 2 and 14) 2,487,998 2,342,753
Loans receivable, net (Notes 3, 8, 9, and 14) 93,817,254 111,085,210
Accrued interest receivable (Note 4) 1,075,384 1,185,885
Real estate owned 76,163 195,792
Stock in FHLB, at cost (Notes 12 and 14) 875,600 928,975
Premises and equipment, net (Note 5) 4,679,644 4,772,423
Income taxes receivable (Note 7) 10,667 -
Cash surrender value of life insurance polices 1,283,628 1,333,905
Mortgage servicing assets 10,598 213,438
Other assets 61,242 181,734
- ---------------------------------------------------------------------------
$129,832,291 $133,194,088
===========================================================================
</TABLE>
F-2
<PAGE>
First Federal Bank of Idaho,
a Federal Savings Bank
and Subsidiary
Consolidated Statements of Financial Condition
================================================================================
<TABLE>
<CAPTION>
March 31, December 31,
1996 1996
- ----------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C>
Liabilities and Equity
Liabilities:
Deposits (Notes 6, 13, and 14) $115,324,069 $105,348,812
Accrued interest on deposits 31,386 6,629
Advances from borrowers for taxes and insurance 1,076,174 981,485
Income taxes payable (Note 7) - 154,376
Advances from FHLB (Notes 12 and 14) 2,304,028 15,059,583
Deferred federal and state income taxes (Note 7) 70,000 144,726
Accrued expenses and other liabilities 670,429 680,661
- -------------------------------------------------------------------------------
Total liabilities 119,476,086 122,376,272
- -------------------------------------------------------------------------------
Commitments and Contingencies (Notes 3, 10, 11, 13 and 15)
Equity:
Retained earnings, substantially restricted (Note 8) 10,395,106 10,817,816
Unrealized loss on investment securities
available-for-sale, net of tax (Note 1) (38,901) -
- -------------------------------------------------------------------------------
Total equity 10,356,205 10,817,816
- -------------------------------------------------------------------------------
$129,832,291 $133,194,088
===============================================================================
</TABLE>
See accompanying summary of significant accounting policies and notes to
consolidated financial statements.
F-3
<PAGE>
First Federal Bank of Idaho,
a Federal Savings Bank
and Subsidiary
Consolidated Statements of Income
================================================================================
<TABLE>
<CAPTION>
Year Ended Nine Months Ended
March 31, December 31,
---------------------- ---------------------
1995 1996 1995 1996
- ---------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C> <C> <C>
Interest Income:
Loans receivable $6,825,840 $8,407,900 $6,324,493 $6,878,474
Mortgage-backed securities 135,654 156,879 117,219 101,322
Investment securities 501,505 456,907 340,724 506,202
Other interest earning assets 195,209 530,207 242,260 154,418
- ---------------------------------------------------------------------------------
Total interest income 7,658,208 9,551,893 7,024,696 7,640,416
- ---------------------------------------------------------------------------------
Interest Expense:
Deposits (Note 6) 3,494,263 4,792,837 3,349,758 3,698,993
Advances from FHLB 101,552 365,093 321,994 315,383
- ---------------------------------------------------------------------------------
Total interest expense 3,595,815 5,157,930 3,671,752 4,014,376
- ---------------------------------------------------------------------------------
Net Interest Income 4,062,393 4,393,963 3,352,944 3,626,040
Provision for loan losses (Note 3) 27,453 150,000 78,312 193,619
- ---------------------------------------------------------------------------------
Net interest income after
provision for loan losses 4,034,940 4,243,963 3,274,632 3,432,421
- ---------------------------------------------------------------------------------
Non-interest Income:
Gain on sales of loans 1,044,831 1,370,352 1,036,973 1,094,716
Service fees and charges 782,490 812,751 596,804 673,953
Commissions 63,951 28,838 27,147 46,607
- ---------------------------------------------------------------------------------
Total non-interest income 1,891,272 2,211,941 1,660,924 1,815,276
- ---------------------------------------------------------------------------------
</TABLE>
F-4
<PAGE>
First Federal Bank of Idaho,
a Federal Savings Bank
and Subsidiary
Consolidated Statements of Income
================================================================================
<TABLE>
<CAPTION>
Year Ended Nine Months Ended
March 31, December 31,
--------------------- ----------------------
1995 1996 1995 1996
- -----------------------------------------------------------------------------
(Unaudited)
<S> <C> <C> <C> <C>
Non-interest Expense:
Compensation and related
benefits (Notes 10 and 11) 2,862,441 3,280,163 2,285,225 2,462,006
Occupancy 661,654 671,258 490,060 504,181
Deposit insurance premiums 206,400 234,728 154,800 696,925
Advertising 103,326 122,162 73,442 123,352
Data processing 83,603 88,432 66,768 93,940
Supplies and postage 207,040 270,525 192,578 196,630
Other 596,359 825,851 445,527 597,278
- -----------------------------------------------------------------------------
Total non-interest expense 4,720,823 5,493,119 3,708,400 4,674,312
- -----------------------------------------------------------------------------
Income before income
tax expense 1,205,389 962,785 1,227,156 573,385
Income tax expense (Note 7) 452,226 375,000 427,826 150,675
- -----------------------------------------------------------------------------
Net Income $ 753,163 $ 587,785 $ 799,330 $ 422,710
=============================================================================
</TABLE>
See accompanying summary of significant accounting policies and notes to
consolidated financial statements.
F-5
<PAGE>
First Federal Bank of Idaho,
a Federal Savings Bank
and Subsidiary
Consolidated Statements of Changes in Equity
================================================================================
<TABLE>
<CAPTION>
Unrealized Loss
on Investment
Retained Securities
Earnings, Available-
Substantially for-Sale, Total
Restricted net of tax Equity
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance, April 1, 1994 $ 9,054,158 $(257,579) $ 8,796,579
Net income 753,163 - 753,163
Change in unrealized loss on investment
securities available-for-sale, net of tax - (45,520) (45,520)
- -------------------------------------------------------------------------------------------------
Balance, March 31, 1995 9,807,321 (303,099) 9,504,222
Net income 587,785 - 587,785
Change in unrealized loss on investment
securities available-for-sale, net of tax - 64,198 64,198
Write-down of investment securities available-
for-sale due to permanent impairment - 200,000 200,000
- -------------------------------------------------------------------------------------------------
Balance, March 31, 1996 10,395,106 (38,901) 10,356,205
Net income (unaudited) 422,710 - 422,710
Loss on sale of investment securities
available-for-sale (unaudited) - 38,901 38,901
- -------------------------------------------------------------------------------------------------
Balance, December 31, 1996 (unaudited) $10,817,816 $ - $10,817,816
=================================================================================================
</TABLE>
See accompanying summary of significant accounting policies and notes to
consolidated financial statements.
F-6
<PAGE>
First Federal Bank of Idaho,
a Federal Savings Bank
and Subsidiary
Consolidated Statements of Cash Flows
================================================================================
Increase (Decrease) in Cash and Cash Equivalents
<TABLE>
<CAPTION>
Year Ended Nine Months Ended
March 31, December 31,
---------------------- ----------------------
1995 1996 1995 1996
- ----------------------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C> <C> <C>
Cash Flows from Operating
Activities:
Net income $ 753,163 $ 587,785 $ 799,330 $ 422,710
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation and amortization 338,311 299,870 216,154 267,783
Provision for loan losses 27,453 150,000 78,312 193,619
Write-down on impaired
investment securities
available-for-sale - 200,000 - -
Loss on sale of investment
securities available-for-sale - - - 89,789
Loss on sale of real estate owned - - - 1,815
Provision for deferred income
taxes 39,000 (126,000) (11,422) 49,726
Changes in assets and liabilities:
Accrued interest receivable (235,412) (123,522) (300,573) (110,501)
Other assets (54,454) 93,411 83,880 (323,332)
Advances from borrowers for
taxes and insurance 270,935 (103,589) (386,164) (94,689)
Income taxes receivable (payable) (26,700) 62,333 15,396 165,043
Accrued expenses and other liabilities (22,769) 273,197 110,743 (14,525)
- ---------------------------------------------------------------------------------------------
Net cash provided by operating
activities 1,089,527 1,313,485 605,656 647,438
- ---------------------------------------------------------------------------------------------
</TABLE>
F-7
<PAGE>
First Federal Bank of Idaho,
a Federal Savings Bank
and Subsidiary
Consolidated Statements of Cash Flows
================================================================================
<TABLE>
<CAPTION>
Year Ended Nine Months Ended
March 31, December 31,
--------------------------- --------------------------
1995 1996 1995 1996
- ---------------------------------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C> <C> <C>
Cash Flows from Investing Activities:
Purchase of mortgage-backed
securities held-to-maturity $ - $ - $ - $ (109,082)
Proceeds from maturities of
mortgage-backed securities
held-to-maturity 589,070 340,320 250,621 245,367
Purchases of investment securities
held-to-maturity (8,578,024) (8,387,090) (1,405,247) (8,349,154)
Proceeds from maturities of investment
securities held-to-maturity 5,934,539 4,586,825 3,666,190 13,700,736
Proceeds from sale of investment
securities available-for-sale - - - 1,302,406
Net increase in loans receivable (6,588,263) (11,265,949) (10,993,015) (17,657,367)
FHLB stock dividends (48,500) (57,800) (41,900) (53,375)
Purchases of premises and equipment (668,435) (1,919,161) (1,883,380) (347,588)
Purchase of other invested assets (1,240,670) - - -
Net increase in cash surrender
value of life insurance policies - (42,958) (51,727) (50,277)
Proceeds from sale of real estate owned - - - 74,348
- ---------------------------------------------------------------------------------------------------------
Net cash used in investing activities (10,600,283) (16,745,813) (10,458,458) (11,243,986)
- ---------------------------------------------------------------------------------------------------------
Cash Flows from Financing
Activities:
Net increase (decrease) in deposits (3,070,811) 26,537,060 30,455,892 (9,975,257)
Advances from FHLB 4,000,000 22,500,000 22,500,000 39,150,000
Payments on advances from FHLB - (24,195,972) (24,033,472) (26,394,445)
- ---------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 929,189 24,841,088 28,922,420 2,780,298
- ---------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in
Cash and Cash Equivalents (8,581,567) 9,408,760 19,069,618 (7,816,250)
Cash and Cash Equivalents,
beginning of period 12,753,672 4,172,105 4,172,105 13,580,865
- ---------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents,
end of period $ 4,172,105 $13,580,865 $23,241,723 $ 5,764,615
=========================================================================================================
</TABLE>
See accompanying summary of significant accounting policies and notes to
consolidated financial statements.
F-8
<PAGE>
First Federal Bank of Idaho,
a Federal Savings Bank
and Subsidiary
Consolidated Statements of Cash Flows
================================================================================
<TABLE>
<CAPTION>
Year Ended Nine Months Ended
March 31, December 31,
----------------------- ----------------------
1995 1996 1995 1996
---------- ---------- ---------- ----------
(Unaudited)
<S> <C> <C> <C> <C>
Supplemental Disclosures of
Cash Flow Information:
Cash paid during the period for:
Interest $3,601,416 $5,145,455 $3,681,008 $4,039,133
Income taxes 516,137 457,490 442,316 -
Noncash investing and financing
activities:
Unrealized gain (loss) on investment
securities available-for-sale, net of tax (45,520) 64,198 97,356 (36,669)
Retirement of premises and equipment 63,423 - - -
Loans receivable charged to the
allowance for loan losses 3,154 3,342 1,997 14,962
Transfer from loans converted to
real estate acquired through
foreclosure - 76,163 98,799 119,629
</TABLE>
See accompanying summary of significant accounting policies and notes to
consolidated financial statements.
F-9
<PAGE>
First Federal Bank of Idaho,
a Federal Savings Bank
and Subsidiary
Summary of Significant Accounting Policies
================================================================================
<TABLE>
<S> <C>
Nature of Business First Federal Bank of Idaho, a
and Concentration Federal Savings Bank, and
of Credit Risk Subsidiary's (collectively referred
to as the "Bank") principal business
consists of attracting deposits from
the general public through a variety
of deposit products and investing
these, together with funds from
on-going operations, in the
origination of residential mortgage
loans and, to a lesser extent,
construction, agricultural,
commercial, consumer and other loans.
The Bank primarily grants residential
loans to customers in Central and
North Idaho and Southeast Washington.
Principles of The consolidated financial statements
Consolidation include the accounts of First Federal
Bank of Idaho, a Federal Savings Bank
and its wholly-owned subsidiary,
Tri-Star Financial Corporation. All
significant intercompany transactions
and balances are eliminated in
consolidation.
Use of Estimates The preparation of financial
statements in conformity with
generally accepted accounting
principles requires management to
make estimates and assumptions that
affect the reported assets and
liabilities and disclosures on
contingent assets and liabilities at
the date of the financial statements
and the reported amounts of revenues
and expenses during the reporting
period. Actual results could differ
from those estimates.
Material estimates that are
susceptible to significant change in
the near-term relate to the
determination of the allowance for
loan losses. Management believes
that the allowance for loan losses is
adequate. While management uses
current information to recognize
losses on loans, future additions to
the allowances may be necessary based
on changes in economic conditions.
In addition, various regulatory
agencies, as an integral part of
their examination process,
periodically review the Bank's
allowances for loan losses. Such
agencies may require the Bank to
recognize additions to the allowance
based on their judgments about
information available to them at the
time of the examination.
</TABLE>
F-10
<PAGE>
First Federal Bank of Idaho,
a Federal Savings Bank
and Subsidiary
Summary of Significant Accounting Policies
================================================================================
<TABLE>
<S> <C>
Statement of For purposes of the statement of cash
Cash Flows flows, the Bank considers all cash on
hand and in banks, federal funds sold
and highly liquid marketable debt
instruments with original maturities
when purchased of three months or
less to be cash and cash equivalents.
Premises and Premises and equipment, which consist
Equipment of buildings, building improvements,
furniture, fixtures and office
equipment are stated at cost less
accumulated depreciation.
Depreciation is computed using the
straight-line method over the
estimated useful lives of the assets.
The estimated useful lives used to
compute depreciation range from
thirty to forty years for buildings,
thirty years for building
improvements, and five to ten years
for furniture, fixtures and equipment.
Income Taxes The Bank accounts for income taxes
according to the provisions of
Statement of Financial Accounting
Standards (SFAS) No. 109, "Accounting
for Income Taxes," which requires the
use of the liability method of
accounting for deferred income taxes.
Under SFAS No. 109, deferred income
taxes are provided for temporary
differences between the financial
reporting and tax basis of assets and
liabilities using the enacted tax
rate expected to apply to the taxable
income of the period in which the
deferred tax liability or asset is
expected to be settled or realized.
Tax credits are accounted for as a
reduction of income taxes in the year
in which the credit originates.
Investment and In May 1993, the Financial Accounting
Mortgage-Backed Standards Board issued SFAS
Securities No. 115, "Accounting for Certain
Investments in Debt and Equity
Securities." The Bank adopted the
provisions of SFAS 115 during the
year ended March 31, 1995. There was
no material impact on either income
or equity of the Bank from the
adoption of this standard. SFAS 115
addresses the accounting and
reporting for investments in equity
securities that have readily
determinable fair values and for all
investments in debt securities.
Investments in securities are to be
classified as either
held-to-maturity, available-for-sale
or trading.
Held-to-Maturity - Investments in
debt securities classified as
held-to-maturity are stated at cost,
adjusted for amortization of premiums
and accretion of discounts using the
effective interest method. The Bank
has the ability and the intention to
hold investment and mortgage backed
securities for the foreseeable future
and, accordingly, they are not
adjusted for temporary declines in
their market value.
</TABLE>
F-11
<PAGE>
First Federal Bank of Idaho,
a Federal Savings Bank
and Subsidiary
Summary of Significant Accounting Policies
================================================================================
<TABLE>
<S> <C>
Available-for-Sale - Investments in
debt and equity securities classified
as available-for-sale are carried at
the lower of their cost or estimated
market value in the aggregate.
Unrealized gains and losses are
recognized (net of tax effect)
through a valuation allowance that is
shown as a reduction in the carrying
value of the related securities and
as a corresponding reduction of
equity.
Trading - Investments in debt and
equity securities classified as
trading are stated at their market
value. Unrealized holding gains and
losses for trading securities are
included in the statement of income.
Gains and losses on the sale of
securities are determined using the
specific identification method.
Loans Receivable Loans receivable are stated at unpaid
principal balances, less the
allowance for loan losses, and less
the net deferred loan origination
fees and discounts. Deferred loan
origination fees and discounts are
amortized over the expected remaining
life using a method that approximates
the level-yield method.
The allowance for loan losses is
established based on management's
evaluation of probable losses in its
loan portfolio. An allowance for
loss on specific impaired loans for
which collectibility may not be
reasonably assured is established
based upon, among other factors, the
estimated fair market values of the
underlying collateral and estimated
holding and selling costs.
Effective April 1, 1995, the Bank
adopted SFAS No. 114, "Accounting by
Creditors for Impairment of a Loan,"
and SFAS No. 118, "Accounting by
Creditors for Impairment of a Loan -
Income Recognition and Disclosures,"
which amends SFAS No. 114. These
statements define the recognition
criteria for loan impairment and the
measurement methods for certain
impaired loans and loans for which
terms have been modified in
troubled-debt restructurings (a
restructured loan). Specifically, a
loan is considered impaired when it
is probable a creditor will be unable
to collect all amounts due - both
principal and interest - according to
the contractual terms of the loan
agreement. When measuring
impairment, the expected future cash
flows of an impaired loan are
required to be discounted at the
loan's effective interest rate.
Alternatively, impairment can be
measured by reference to an
observable market price, if
</TABLE>
F-12
<PAGE>
First Federal Bank of Idaho,
a Federal Savings Bank
and Subsidiary
Summary of Significant Accounting Policies
================================================================================
<TABLE>
<S> <C>
one exists, or the fair value of the
collateral for a collateral-dependent
loan. Regardless of the historical
measurement method used, SFAS No. 114
requires a creditor to measure
impairment based on the fair value of
the collateral when the creditor
determines foreclosure is probable.
Additionally, impairment of a
restructured loan is measured by
discounting the total expected future
cash flows at the loan's effective
rate of interest as stated in the
original loan agreement.
The Bank applies the recognition
criteria of SFAS No. 114 to impaired
multi-family residential, commercial
real estate, agriculture and
restructured loans. Smaller balance,
homogeneous loans, including
one-to-four family residential loans
and consumer loans, are collectively
evaluated for impairment. SFAS No.
118 amends SFAS No. 114 to allow a
creditor to use existing methods for
recognizing interest income on
impaired loans. The Bank has elected
to continue to use its existing
nonaccrual methods for recognizing
interest on impaired loans. The
adoption of SFAS No. 114 and SFAS No.
118 resulted in no prospective
adjustment to the allowance for loan
losses and did not affect the Bank's
policies regarding charge-offs or
recoveries.
Interest accruals on loans which are
more than ninety days delinquent are
suspended. Suspended interest
ultimately collected is credited to
interest income in the period of
recovery. Uncollectible accrued
interest is included in the Bank's
allowance for loan losses.
Any unamortized discounts, premiums
or fees on loans repaid or sold are
recognized as income in the year of
repayment or sale.
Real Estate Real estate acquired in settlement of
Owned loans, whether through actual
foreclosure or in-substance
foreclosure, is initially recorded at
the lower of fair value, less selling
costs, or the balance of the loan on
the property at date of foreclosure.
Costs relating to development and
improvement of property are
capitalized to the extent that
carrying value does not exceed
estimated fair market value, less
estimated cost to sell, whereas those
relating to holding the property are
charged to expense.
</TABLE>
F-13
<PAGE>
First Federal Bank of Idaho,
a Federal Savings Bank
and Subsidiary
Summary of Significant Accounting Policies
================================================================================
<TABLE>
<S> <C>
Valuations are periodically performed
by the Bank, and losses are
recognized by a charge to income if
the carrying value of a property
exceeds its estimated fair value.
Stock in Federal Federal law requires a member
Home Loan Bank institution of the Federal Home Loan
Bank (FHLB) System to hold common
stock of its district FHLB according
to predetermined formulas. No ready
market exists for such stock and it
has no quoted market value.
Reclassifications Certain reclassifications of prior
years information have been made to
conform to the current year
presentation.
Accounting for In March 1995, the Financial
the Impairment of Accounting Standards Board issued
and Disposal of SFAS No. 121, "Accounting
Long-Lived Assets for the Impairment of Long-Lived
Assets and for Long-Lived Assets to
be Disposed of," which establishes
new guidelines regarding when
impairment losses on long-lived
assets, which include premises and
equipment, certain identifiable
intangible assets and goodwill,
should be recognized and how
impairment losses should be measured.
This statement became effective for
the Bank for the fiscal year
beginning April 1, 1996. The
adoption of this statement did not
have a material effect on the Bank's
December 31, 1996 unaudited financial
statements.
Accounting for Effective April 1, 1996, the Bank
Mortgage Servicing adopted the provisions of SFAS No.
Rights 122 "Accounting for Mortgage
Servicing Rights." SFAS No. 122
amends SFAS No. 65, "Accounting for
Certain Mortgage Banking Activities."
SFAS No. 122 requires a mortgage
banking enterprise to recognize as a
separate asset, the rights to service
mortgage loans regardless of whether
the servicing rights are acquired
through either purchase or
origination. Prior to SFAS No. 122,
SFAS No. 65 prohibited the
capitalization of mortgage servicing
rights except where the rights to
service the loans were acquired from
another organization. Additionally,
the new standard requires impairment
analysis of mortgage servicing rights
regardless of whether purchased or
originated.
The Bank's mortgage servicing rights
represent the unamortized cost of
originated contractual rights to
service mortgages for others in
exchange for a servicing fee.
Mortgage servicing rights are
amortized over the period of
</TABLE>
F-14
<PAGE>
First Federal Bank of Idaho,
a Federal Savings Bank
and Subsidiary
Summary of Significant Accounting Policies
================================================================================
<TABLE>
<S> <C>
estimated net servicing income and
are periodically adjusted for actual
and anticipated prepayments of the
underlying mortgage loans. The
effect of adopting SFAS No. 122 was
to increase income before income
taxes for the nine months ended
December 31, 1996, by approximately
$204,000.
Accounting for In October 1995, the Financial
Stock-Based Accounting Standards Board issued
Compensation SFAS No. 123, "Accounting for
Stock-Based Compensation," which
encourages companies to adopt a new
method of accounting to measure the
compensation cost of stock-based
employee compensation plans based on
the fair value of the stock at the
date it is granted. This statement
became effective for the Bank for the
fiscal year beginning April 1, 1996.
Currently, the Bank does not have any
stock-based compensation plans.
However, in the future, such plans
may be offered and the provisions of
SFAS No. 123 would apply.
Accounting for In June 1996, the Financial
Transfers and Accounting Standards Board issued
Servicing of SFAS No. 125, "Accounting for
Financial Assets Transfer and Servicing of Financial
and Extinguishment Assets and Extinguishment of
of Liabilities Liabilities," which establishes new
standards that focus on control
whereas, after a transfer of
financial assets, an entity
recognizes the financial servicing
assets it controls and the
liabilities it has incurred,
derecognizes financial assets when
control has been surrendered, and
derecognizes liabilities when
extinguished. This statement applies
prospectively in fiscal years
beginning after December 31, 1996.
The Bank does not expect adoption to
have a material effect on its
financial statements.
</TABLE>
F-15
<PAGE>
First Federal Bank of Idaho,
a Federal Savings Bank
and Subsidiary
Notes to Consolidated Financial Statements
================================================================================
<TABLE>
<S> <C>
1. Investment Investment securities, net of unamortized premiums or unaccreted
Securities discounts consist of the following held-to-maturity and available-for-sale:
HELD-TO-MATURITY
--------------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Estimated
December 31, 1996: Cost Gains Losses Market Value
(Unaudited)
---------------------------------------------------------------------------
FHLB bonds $ 3,989,124 $ 16,476 $ (20,500) $ 3,985,100
Student Loan
Marketing Assoc. bill 950,234 1,900 (549) 951,585
FNMA notes 250,000 - (5,450) 244,550
--------------------------------------------------------------------------
Total $ 5,189,358 $ 18,376 $ (26,499) $ 5,181,235
===========================================================================
Gross Gross
Amortized Unrealized Unrealized Estimated
March 31, 1996: Cost Gains Losses Market Value
--------------------------------------------------------------------------
Farm Credit Bank
and FHLB bonds $ 8,297,090 $ - $ (46,245) $ 8,250,845
Student Loan Marketing
Association bill 700,000 - (235) 699,765
FHLB and FNMA notes 1,547,863 - (19,048) 1,528,815
--------------------------------------------------------------------------
Total $ 10,544,953 $ - $ (65,528) $ 10,479,425
===========================================================================
AVAILABLE-FOR-SALE
------------------
Gross Gross
Amortized Unrealized Unrealized Estimated
March 31, 1996: Cost Gains Losses Market Value
--------------------------------------------------------------------------
Colonial Government
Investment Fund
(126,444 shares) $ 1,392,196 $ - $ (63,901) $ 1,328,295
--------------------------------------------------------------------------
Less unrealized loss on
investment securities
available-for-sale (63,901) - 63,901 -
--------------------------------------------------------------------------
$ 1,328,295 $ - $ - $ 1,328,295
===========================================================================
</TABLE>
F-16
<PAGE>
First Federal Bank of Idaho,
a Federal Savings Bank
and Subsidiary
Notes to Consolidated Financial Statements
================================================================================
<TABLE>
<S> <C>
The amortized cost and estimated market value of investment
securities at December 31, 1996, by contractual maturity, are
shown below. Expected maturities will differ from contractual
maturities because borrowers may have the right to call or
prepay obligations with or without call or prepayment
penalties.
Estimated
Amortized Market
Cost Value
--------------------------------------------------------------
(Unaudited)
Due in one year or less $ 500,234 $ 499,850
Due after one through five years 4,689,124 4,681,385
--------------------------------------------------------------
$5,189,358 $5,181,235
==============================================================
2. Mortgage The amortized cost and estimated market values of
Backed mortgage-backed and related securities are summarized as
Securities follows:
Gross Gross
Amortized Unrealized Unrealized Estimated
December 31, 1996: Cost Gains Losses Market Value
(Unaudited)
--------------------------------------------------------------------
FNMA Certificates $1,332,334 $15,066 $(74,952) $1,272,448
Collateralized Mortgage
Obligations 442,246 298 (1,297) 441,247
SBA Certificates 21,551 60 (2,592) 19,019
GNMA Certificates 145,039 2,50 (1,363) 146,185
FHLMC Certificates 401,583 3,592 (13,213) 391,962
--------------------------------------------------------------------
Total $2,342,753 $21,525 $ (93,417) $2,270,861
====================================================================
</TABLE>
F-17
<PAGE>
First Federal Bank of Idaho,
a Federal Savings Bank
and Subsidiary
Notes to Consolidated Financial Statements
================================================================================
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Estimated
March 31, 1996: Cost Gains Losses Market Value
(Unaudited)
--------------------------------------------------------------------
<S> <C> <C> <C> <C>
FNMA Certificates $1,472,887 $17,263 $(72,190) $1,417,960
Collateralized
Mortgage
Obligations 488,082 1,504 (1,112) 488,474
SBA Certificates 37,010 - (3,145) 33,865
GNMA Certificates 39,215 762 (907) 39,070
FHLMC Certificates 450,804 4,456 (12,596) 442,664
--------------------------------------------------------------------
Total $2,487,998 $23,985 $(89,950) $2,422,033
====================================================================
The amortized cost and estimated market value of mortgage
backed securities at December 31, 1996, by contractual
maturity, are shown below. Expected maturities will differ from
contractual maturities because borrowers may have the right to
call or prepay obligations with or without call or prepayment
penalties.
Estimated
Amortized Market
Cost Value
----------------------------------------------------------------
(Unaudited)
Due in one year or less $ 7,266 $ 7,236
Due after one through five years 14,285 11,783
Due after five years through ten years - -
Due after ten years 2,321,202 2,251,842
----------------------------------------------------------------
$2,342,753 $2,270,861
================================================================
</TABLE>
F-18
<PAGE>
First Federal Bank of Idaho,
a Federal Savings Bank
and Subsidiary
Notes to Consolidated Financial Statements
================================================================================
<TABLE>
<S> <C>
3. Loans Loans receivable consist of the following:
Receivable
March 31, December 31,
1996 1996
(Unaudited)
----------------------------------------------------------
Real estate loans:
Conventional mortgages:
Adjustable rate loans $36,166,820 $ 41,761,360
Fixed rate loans 25,381,370 29,733,379
FHA and VA insured 1,270,317 1,161,821
Construction 13,831,983 14,944,762
Agricultural 11,945,067 11,875,609
Commercial 4,036,102 6,007,391
Other loans:
Commercial (non-real estate) 589,157 1,024,314
Loans to depositors, secured
by savings 411,750 310,482
Other consumer 7,022,726 11,777,686
----------------------------------------------------------
Total loans receivable 100,655,292 118,596,804
Less:
Loans in process 5,726,171 6,223,956
Unearned loan fees and
discounts 410,524 407,638
Allowance for loan losses 701,343 880,000
----------------------------------------------------------
Loans receivable, net $93,817,254 $111,085,210
==========================================================
</TABLE>
F-19
<PAGE>
First Federal Bank of Idaho,
a Federal Savings Bank
and Subsidiary
Notes to Consolidated Financial Statements
================================================================================
<TABLE>
<S> <C>
The following summarizes the changes in the allowance for loan
losses:
March 31, December 31,
1996 1996
(Unaudited)
--------------------------------------------------------------
Allowance for Loan Losses,
beginning of period $554,685 $701,343
Provision for loan losses 150,000 193,619
Net charge-offs (3,342) (14,962)
--------------------------------------------------------------
Allowance for Loan Losses,
end of period $701,343 $880,000
==============================================================
Outstanding commitments of the Bank to originate loans as of
December 31, 1996 were as follows:
Fixed Variable
Rate Rate Total
---------------------------------------------------------------
(Unaudited)
First mortgage loans $14,065,713 $2,260,425 $16,326,138
Other loans 38,250 - 38,250
---------------------------------------------------------------
Outstanding Loan
Commitments $14,103,963 $2,260,425 $16,364,388
===============================================================
Fees received in connection with these outstanding loan
commitments are deferred and will be recognized in income over
the life of the related loan after funding of the loan.
</TABLE>
F-20
<PAGE>
First Federal Bank of Idaho,
a Federal Savings Bank
and Subsidiary
Notes to Consolidated Financial Statements
================================================================================
<TABLE>
<S> <C>
The Bank remains contingently liable for approximately
$1,811,000 (unaudited) of loans sold with recourse as of
December 31, 1996. Loans serviced for others (including
contract collections) are not included in the consolidated
statements of financial condition. The unpaid principal
balances of these loans are as follows :
March 31, December 31,
1996 1996
(Unaudited)
--------------------------------------------------------------
Loan portfolios serviced for:
FNMA $ 73,181,444 $ 65,599,875
FHLMC 45,481,134 62,346,466
Others 3,590,255 3,511,976
--------------------------------------------------------------
$ 122,252,833 $ 131,458,317
==============================================================
The principal amount of loans subject to delinquent principal
or interest, defined as payment being in arrears over three
months, totalled approximately $692,000 and $1,338,000
(unaudited) at March 31, 1996 and December 31, 1996.
4. Accrued Accrued interest receivable consists of the following:
Interest
Receivable March 31, December 31,
1996 1996
(Unaudited)
--------------------------------------------------------------
Investment securities $ 16,226 $ 13,645
Mortgage-backed securities 76,811 97,619
Interest bearing deposits 21,250 -
Loans receivable 961,097 1,074,621
--------------------------------------------------------------
Accrued Interest Receivable $1,075,384 $1,185,885
==============================================================
</TABLE>
F-21
<PAGE>
First Federal Bank of Idaho,
a Federal Savings Bank
and Subsidiary
Notes to Consolidated Financial Statements
================================================================================
<TABLE>
<S> <C>
5. Premises Premises and equipment consists of the following:
and
Equipment March 31, December 31,
1996 1996
(Unaudited)
--------------------------------------------------------------
Land, buildings and building
improvements $ 4,747,777 $ 4,752,283
Branch premises under development - 248,271
Furniture, fixtures and equipment 1,972,543 2,067,354
--------------------------------------------------------------
6,720,320 7,067,908
Accumulated depreciation (2,040,676) (2,295,485)
--------------------------------------------------------------
Premises and equipment, net $ 4,679,644 $ 4,772,423
==============================================================
6. Deposits Deposits and the related weighted average interest rates
consist of the following:
March 31, December 31,
1996 1996
(Unaudited)
--------------------------------------------------------------
Deposit accounts:
NOW accounts (1.48% and 1.23%) $14,616,706 $15,211,424
Passbook accounts
(3.29% and 3.00%) 13,860,858 13,455,667
Money market accounts
(3.03% and 3.03%) 7,167,327 7,427,621
--------------------------------------------------------------
35,644,891 36,094,712
--------------------------------------------------------------
</TABLE>
F-22
<PAGE>
First Federal Bank of Idaho,
a Federal Savings Bank
and Subsidiary
Notes to Consolidated Financial Statements
================================================================================
<TABLE>
<S> <C>
March 31, December 31,
1996 1996
(Unaudited)
--------------------------------------------------------------
Certificates of deposit:
3.20% to 4.19% 1,786,227 1,078,532
4.20% to 5.19% 13,854,350 24,585,767
5.20% to 6.19% 50,331,588 32,929,053
6.20% to 7.19% 10,299,587 9,751,964
7.20% to 8.19% 2,814,237 453,574
8.20% to 11.19% 593,189 455,210
--------------------------------------------------------------
79,679,178 69,254,100
--------------------------------------------------------------
Deposits $115,324,069 $105,348,812
==============================================================
The scheduled maturities of certificates of deposit at December
31, 1996, are as follows:
Amount
--------------------------------------------------------------
(Unaudited)
1997 $ 49,235,000
1998 12,240,000
1999 5,459,000
2000 796,000
2001 1,305,000
Thereafter 219,100
--------------------------------------------------------------
Total $ 69,254,100
==============================================================
</TABLE>
F-23
<PAGE>
First Federal Bank of Idaho,
a Federal Savings Bank
and Subsidiary
Notes to Consolidated Financial Statements
================================================================================
<TABLE>
<S> <C>
Interest expense on deposits consists of:
Year ended Nine months ended
March 31, December 31,
---------------------- ---------------------
1995 1996 1995 1996
(Unaudited)
------------------------------------------------------------------------
NOW and money market $ 486,419 $ 422,008 $ 319,254 $ 303,924
Passbook savings 549,675 454,056 345,773 311,573
Certificates of deposit 2,458,169 3,916,773 2,684,731 3,083,496
------------------------------------------------------------------------
Interest Expense $3,494,263 $4,792,837 $3,349,758 $3,698,993
========================================================================
Certificates of deposit of $100,000 or more totalled
approximately $12,987,000 and $9,386,000 (unaudited) at March
31, 1996 and December 31, 1996, respectively. Deposit balances
in excess of $100,000 are not insured by the FDIC.
7. Income Taxes The components of income tax expense are summarized as follows:
Year ended Nine months ended
March 31, December 31,
---------------------- ---------------------
1995 1996 1995 1996
(Unaudited)
------------------------------------------------------------------------
Current:
Federal $ 329,423 $ 402,000 $ 349,785 $ 98,378
State 83,803 99,000 89,463 2,571
------------------------------------------------------------------------
413,226 501,000 439,248 100,949
------------------------------------------------------------------------
Deferred:
Federal 35,000 (109,000) (9,907) 43,161
State 4,000 (17,000) (1,515) 6,565
------------------------------------------------------------------------
39,000 (126,000) (11,422) 49,726
------------------------------------------------------------------------
Income Tax Expense $ 452,226 $ 375,000 $ 427,826 $ 150,675
========================================================================
</TABLE>
F-24
<PAGE>
First Federal Bank of Idaho,
a Federal Savings Bank
and Subsidiary
Notes to Consolidated Financial Statements
================================================================================
<TABLE>
<S> <C>
Deferred tax liabilities and assets consist of the following:
March 31, December 31,
1996 1996
(Unaudited)
---------------------------------------------------------------
Deferred Tax Liabilities:
Stock in FHLB $(259,000) $(279,000)
Loan loss reserves - (83,000)
Depreciation (46,000) (75,000)
Other (88,000) (2,726)
---------------------------------------------------------------
Total Deferred Tax Liabilities (393,000) (439,726)
---------------------------------------------------------------
Deferred Tax Assets:
Unearned loan fees 161,000 160,000
Allowance for loan losses 59,000 135,000
Unrealized loss on equity security 103,000 -
---------------------------------------------------------------
Total Deferred Tax Assets 323,000 295,000
---------------------------------------------------------------
Net Deferred
Income Tax Liability $(70,000) $(144,726)
===============================================================
A reconciliation of the statutory federal income tax rate to
the effective income tax rate follows:
<CAPTION>
Year ended Nine months ended
March 31, December 31,
----------------------------------- ----------------------------------
1995 1996 1995 1996
(Unaudited)
- ------------------------------------------------------------------------------------------------------------
Income tax expense
<S> <C> <C> <C> <C> <C> <C> <C> <C>
at statutory rates $409,832 34.0% $327,347 34.0% $417,233 34.0% $194,951 34.0%
Increase (decrease)
resulting from:
State income taxes,
net of federal benefit 55,310 4.6 65,340 6.8 59,046 4.8 1,697 0.3
Permanent and other differences (12,916) (1.1) 925 (1.9) (48,453) (3.9) (45,973) (8.0)
- ------------------------------------------------------------------------------------------------------------
$452,226 37.5% $375,000 38.9% $427,826 34.9% $150,675 26.3%
============================================================================================================
</TABLE>
F-25
<PAGE>
First Federal Bank of Idaho,
a Federal Savings Bank
and Subsidiary
Notes to Consolidated Financial Statements
================================================================================
<TABLE>
<S> <C>
8. Equity The Financial Institutions Reform, Recovery and Enforcement Act of 1989
(FIRREA) requires savings institutions to meet three minimum-capital
requirements: a tangible capital requirement equal to not less than 1.5 percent
of tangible assets (as determined in the regulations), a core capital
requirement, comprised of tangible capital adjusted for supervisory goodwill
and other deferred factors equal to not less than 3 percent of tangible assets;
and a risk-based capital requirement equal to at least 8 percent of all risk-
weighted assets.
At December 31, 1996, the Bank met the regulatory tangible capital, core
capital and risk-based capital requirements as defined by FIRREA. At
December 31, 1996, the Bank's regulatory tangible capital and core capital
were both $10,818,000 or 8.1 percent of tangible assets; and risk-based capital was
$11,698,000 or 13.3 percent of total risk-weighted assets, as defined by
FIRREA.
The following is a reconciliation of equity as reported in accordance with
generally accepted accounting principles (GAAP capital) to federal regulatory
capital:
March 31, 1996 December 31, 1996
------------------------------------ -------------------------------------
(Unaudited)
Risk Risk
Tangible Core Based Tangible Core Based
Capital Capital Capital Capital Capital Capital
- -----------------------------------------------------------------------------------------------------------------
(In thousands)
GAAP capital $10,356 $10,356 $10,356 $10,818 $10,818 $10,818
Additional capital items:
Allowances for loan and
lease losses - - 701 - - 880
- -----------------------------------------------------------------------------------------------------------------
Regulatory capital 10,356 10,356 11,057 10,818 10,818 11,698
Minimum capital requirement 1,947 3,895 6,254 1,998 3,996 7,052
- -----------------------------------------------------------------------------------------------------------------
Regulatory capital - excess $8,409 $6,461 $4,803 $8,820 $6,822 $4,646
=================================================================================================================
</TABLE>
F-26
<PAGE>
First Federal Bank of Idaho,
a Federal Savings Bank
and Subsidiary
Notes to Consolidated Financial Statements
================================================================================
<TABLE>
<S> <C>
9. Related Party Prior to FIRREA, the Bank's policy allowed all full-time permanent employees
Transactions with one complete year of service, key officers and directors to receive a first
mortgage loan on their primary residence at rates which may be below market.
At such time that they cease to be employed by the Bank and are not eligible
for retirement (age 55 or older), the loan terms will change to the market
interest rate on the date the loan closed.
Subsequent to FIRREA, preferential terms on key officer and director loans
were discontinued. The following schedule summarizes the activity in loans to
directors, key officers and employees:
March 31, December 31,
1996 1996
(Unaudited)
------------------------------------------------------------------------------
Balance, beginning of period $ 1,464,192 $ 1,376,661
Additions 545,900 -
Repayments and sales proceeds (633,431) (151,632)
-----------------------------------------------------------------------------
Balance, end of period $ 1,376,661 $ 1,225,029
=============================================================================
10. Profit Sharing The Bank established, during 1995, a profit sharing plan pursuant to Section
Plan 401(k) of the Internal Revenue Code, whereby participants may contribute a
percentage of compensation, but not in excess of the maximum allowed under
the Code. The plan provides for a matching contribution by the Bank which
amounted to $135,238 (unaudited) and $33,447 for the nine months ended
December 31, 1996 and year ended March 31, 1996. In addition, the Bank may
make additional contributions at the discretion of the Board of Directors.
These additional contributions amounted to $61,770 and $69,737 (unaudited)
for the year ended March 31, 1996 and the nine months ended December 31, 1996.
11. Retirement Plan The Bank had a noncontributory pension trust ("the Plan") which was suspended
effective January 1, 1995. As a result of the Plan suspension, a net loss of
$96,000, resulting from the recognition of previously deferred gains and
losses for prior service, was recorded as pension expense for the year ended
March 31, 1995.
</TABLE>
F-27
<PAGE>
First Federal Bank of Idaho,
a Federal Savings Bank
and Subsidiary
Notes to Consolidated Financial Statements
================================================================================
<TABLE>
<S> <C>
On March 31, 1996, the Bank terminated the Plan. The termination of the
Plan required an additional contribution of approximately $130,000 (unaudited)
to fund the necessary lump sum distributions as specified in the Plan documents.
The Bank satisfied this obligation in September 1996.
12. Advances Advances from FHLB had weighted average interest rates at March 31, 1996 and
from FHLB December 31, 1996 of 6.10% and 6.07% (unaudited), respectively.
Maturity dates of advances were as follows:
March 31, December 31,
1996 1996
(Unaudited)
-----------------------------------------------------------------------
Advances from FHLB due:
Less than 1 year $ 750,000 $ 10,740,972
1 to 2 years 328,472 390,972
2 to 3 years 578,472 1,000,000
3 to 4 years - 534,583
4 to 5 years 647,084 2,393,056
-----------------------------------------------------------------------
$2,304,028 $ 15,059,583
=======================================================================
Pursuant to collateral requirements of the FHLB, advances are secured by
stock in the FHLB and qualifying first mortgage loans.
13. Commitments The deposits of the Bank are insured by the Savings Association Insurance
and Fund (SAIF), one of two funds administered by the FDIC. The Bank previously
Contingencies paid annual premiums of approximately $.23 per $100 of deposits. On
September 30, 1996, the Deposit Insurance Funds Act of 1996 was signed, which
authorized the FDIC to impose a special assessment on certain deposits held by
thrift institutions. This special assessment, which was based on $.657 per $100
of outstanding deposits at March 31, 1995, was intended to recapitalize the SAIF.
Accordingly, the Bank recorded a one time pre-tax charge of approximately $584,000
(unaudited) at September 30, 1996, which was paid prior to December 31, 1996. The
Bank's annual SAIF premium rates were reduced to $.0648 per $100 of deposits
beginning January 1, 1997.
</TABLE>
F-28
<PAGE>
First Federal Bank of Idaho,
a Federal Savings Bank
and Subsidiary
Notes to Consolidated Financial Statements
================================================================================
<TABLE>
<S> <C>
14. Fair Values of SFAS No. 107, "Disclosures about Fair Value of Financial Instruments,"
Financial requires disclosure of fair value information about financial instruments,
Instruments whether or not recognized on the balance sheet, for which it is practicable to
estimate that value. SFAS No. 107 excludes certain financial instruments and
all nonfinancial instruments from its disclosure requirements. Accordingly, the
aggregate fair value estimates presented do not reflect the underlying fair value
of the Company. Although management is not aware of any factors that
would materially affect the estimated fair value amounts presented, such
amounts have not been comprehensively revalued for purposes of these
financial statements since that date and, therefore, estimates of fair value
subsequent to that date may differ significantly from the amounts presented
below.
December 31, 1996
-------------------------------
Carrying Estimated
Amount Fair Value
(Unaudited)
------------------------------------------------------------------------------
Financial assets
Cash and cash equivalents $ 5,764,615 $ 5,764,615
Investment securities held-to-maturity 5,189,358 5,181,235
Mortgage-backed securities
held-to-maturity 2,342,753 2,270,861
Loans receivable 111,085,210 110,303,430
Stock in FHLB 928,975 928,975
Cash surrender value of
life insurance policies 1,333,905 1,333,905
Financial liabilities
Deposits 105,348,812 106,011,951
Advances from FHLB 15,059,583 15,059,583
The following methods and assumptions were used to estimate the fair value
of financial instruments:
</TABLE>
F-29
<PAGE>
First Federal Bank of Idaho,
a Federal Savings Bank
and Subsidiary
Notes to Consolidated Financial Statements
================================================================================
<TABLE>
<S> <C>
Cash and cash equivalents - The carrying amount of these items is a
reasonable estimate of their fair value.
Investment securities and mortgage-backed securities held-to-maturity -
The fair value of investment securities is based on quoted market prices or
dealer estimates. Estimated fair value for mortgage-backed securities issued
by quasi-governmental agencies is based on quoted market prices. The fair
value of all other mortgage-backed securities is based on dealer estimates.
Loans receivable - For certain homogeneous categories of loans, such as fixed
and variable residential mortgages, fair value is estimated using quoted market
prices for securities backed by similar loans, adjusted for differences in loan
characteristics. The fair value of other loan types is estimated by discounting
the future cash flows and estimated prepayments using the current rates at
which similar loans would be made to borrowers with similar credit ratings and
for the same remaining term. Some loan types were valued at carrying value
because of their floating rate or expected maturity characteristics.
Cash surrender value of life insurance policies - The carrying amount of these
policies approximate their fair value.
Stock in FHLB - The fair value is based upon the redemption value of the stock
which equates to its carrying value.
Deposits - The fair value of demand deposits, savings accounts, and money
market accounts is the amount payable on demand at the reporting date. The
fair value of fixed-maturity certificates of deposit is estimated by discounting
the estimated future cash flows using the rates currently offered for deposits
with similar remaining maturities.
Advances from FHLB - The fair value of FHLB advances and other
borrowings is estimated by discounting the estimated future cash flows using
rates currently available to the Bank for debt with similar remaining maturities.
</TABLE>
F-30
<PAGE>
First Federal Bank of Idaho,
a Federal Savings Bank
and Subsidiary
Notes to Consolidated Financial Statements
================================================================================
<TABLE>
<S> <C>
15. Subsequent On January 8, 1997, the Board of Directors of the Bank
Event - adopted the Plan of Conversion (the Plan) which was
Adoption of subsequently amended on March 12, 1997,
Plan of pursuant to which the Bank will convert from a
Conversion federally chartered mutual savings bank to a federally
chartered stock savings bank, all of the outstanding
common stock of which will be acquired by FirstBank
Corp. (the Company), a holding company formed expressly
for such purpose, in exchange for a portion of the net
conversion proceeds (Conversion). All of the common
stock of the Company to be issued in the Conversion is
being offered initially to certain eligible account
holders, members and to the Bank's tax-qualified
employee benefit plans. Pursuant to the Plan, as soon as
practicable after the Conversion, the Bank will relocate
its main office to the state of Washington and convert
to a Washington-chartered savings bank.
The Bank plans to establish an Employee Stock Ownership
Plan (ESOP) for the benefit of eligible employees, to
become effective upon consummation of the Conversion.
The ESOP intends to purchase up to 8% of the Company's
common stock issued in the Conversion utilizing the
proceeds of a loan from the Company. The loan will be
repaid over a period of 10 years and the collateral for
the loan will be the common stock purchased by the ESOP.
At the time of the Conversion, the Bank will establish a
liquidation account in an amount equal to its equity as
reflected in the latest balance sheet used in the final
conversion prospectus. The liquidation account will be
maintained for the benefit of eligible account holders
and supplemental eligible account holders who continue
to maintain their accounts at the Bank after the
Conversion. The liquidation account will be reduced
annually to the extent that eligible account holders and
supplemental eligible account holders have reduced their
qualifying deposits as of each anniversary date.
Subsequent increases will not restore an eligible
account holder's or supplemental eligible account
holder's interest in the liquidation account. In the
event of a complete liquidation of the Bank, each
eligible account holder 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 costs associated with Conversion will be deferred
and will be deducted from the proceeds of the sale and
issuance of the Company's stock. In the event the
Conversion is not consummated, costs incurred will be
charged to
</TABLE>
F-31
<PAGE>
First Federal Bank of Idaho,
a Federal Savings Bank
and Subsidiary
Notes to Consolidated Financial Statements
================================================================================
<TABLE>
<S> <C>
expenses. At December 31, 1996, deferred Conversion
costs were $12,425 (unaudited).
After the Conversion, the Bank may not declare or pay
dividends on its stock if such declaration and payment
would violate statutory or regulatory requirements.
</TABLE>
F-32
<PAGE>
No dealer, salesman or any other person has been authorized to give any
information or to make any representation other than as contained in this
Prospectus in connection with the offering made hereby, and, if given or made,
such other information or representation must not be relied upon as having been
authorized by FirstBank Corp. or FirstBank Northwest. This Prospectus does not
constitute an offer to sell or a solicitation of an offer to buy any of the
securities offered hereby to any person or in any jurisdiction in which such
offer or solicitation is not authorized or in which the person making such offer
or solicitation is not qualified to do so, or to any person to whom it is
unlawful to make such offer or solicitation in such jurisdiction. Neither the
delivery of this Prospectus nor any sale hereunder shall under any circumstances
create any implication that there has been no change in the affairs of FirstBank
Corp. or FirstBank Northwest since any of the dates as of which information is
furnished herein or since the date hereof.
Table of Contents Page
----------------- ----
Prospectus Summary.......................................................
Selected Consolidated Financial Information..............................
Recent Developments......................................................
Risk Factors.............................................................
FirstBank Corp...........................................................
FirstBank Northwest......................................................
Use of Proceeds..........................................................
Dividend Policy..........................................................
Market for Common Stock..................................................
Capitalization...........................................................
Historical and Pro Forma Capital Compliance..............................
Pro Forma Data...........................................................
FirstBank Northwest and Subsidiary.......................................
Consolidated Statements of Income........................................
Management's Discussion and Analysis of Financial........................
Condition and Results of Operations......................................
Business of the Holding Company..........................................
Business of the Bank.....................................................
Management of the Holding Company........................................
Management of the Bank...................................................
Regulation...............................................................
Taxation.................................................................
The Conversion...........................................................
Restrictions on Acquisition of the Holding Company.......................
Description of Capital Stock of the Holding Company......................
Registration Requirements................................................
Legal and Tax Opinions...................................................
Experts..................................................................
Additional Information...................................................
Index to Consolidated Financial Statements...............................
UNTIL THE LATER OF ___________, 1997, OR 25 DAYS AFTER COMMENCEMENT OF THE
SYNDICATED COMMUNITY OFFERING OF COMMON STOCK, IF ANY, 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.
[Logo]
(Proposed Holding Company for FirstBank Northwest)
1,725,000 Shares of
Common Stock
----------------
PROSPECTUS
----------------
SANDLER O'NEILL & PARTNERS, L.P.
___________, 1997
<PAGE>
PART II: INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Officers and Directors
Article XVII of the Certificate of Incorporation of FirstBank Corp.
requires indemnification of directors, officers and employees to the
fullest extent permitted by Delaware law.
Section 145 of the Delaware General Corporation Law sets forth
circumstances under which directors, officers, employees and agents may
be insured or indemnified against liability which they may incur in
their capacities:
145 INDEMNIFICATION OF OFFICERS, DIRECTORS, EMPLOYEES AND AGENTS;
INSURANCE.--(a) A corporation may indemnify any person who was or is a party or
is threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the corporation) by reason of the
fact that he is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent, shall not, of
itself, create a presumption that the person did not act in good faith and in a
manner which he reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, had reasonable cause to believe that his conduct was unlawful.
(b) A corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the corporation to procure a judgment in its favor by
reason of the fact that he is or was a director, officer, employee or agent of
the corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection with the defense or
settlement of such action or suit if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation and except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable to the corporation unless and only to the extent that the Court of
Chancery or the court in which such action or suit was brought shall determine
upon application that, despite the adjudication of liability but in view of all
the circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the Court of Chancery or such other court
shall deem proper.
(c) To the extent that a director, officer, employee or agent of a
corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in subsections (a) and (b) of this
section, or in defense of any claim, issue or matter therein, he shall be
indemnified against expenses (including attorneys' fees) actually and reasonably
incurred by him in connection therewith.
(d) Any indemnification under subsections (a) and (b) of this section
(unless ordered by a court) shall be made by the corporation only as authorized
in the specific case upon a determination that indemnification of the director,
officer, employee or agent is proper in the circumstances because he has met the
applicable standard of conduct set forth in subsections (a) and (b) of this
section. Such determination shall be made (1) by the board of directors by a
majority vote of a quorum consisting of directors who were not parties to such
action, suit or proceeding, or (2) if such a quorum is not obtainable, or, even
if obtainable a quorum of disinterested directors so directs, by independent
legal counsel in a written opinion, or (3) by the stockholders.
II-1
<PAGE>
(e) Expenses (including attorneys' fees) incurred by an officer or director
in defending any civil, criminal, administrative or investigative action, suit
or proceeding may be paid by the corporation in advance of the final disposition
of such action, suit or proceeding upon receipt of an undertaking by or on
behalf of such director or officer to repay such amount if it shall ultimately
be determined that he is not entitled to be indemnified by the corporation as
authorized in this section. Such expenses (including attorneys' fees) incurred
by other employees and agents may be so paid upon such terms and conditions, if
any, as the board of directors deems appropriate.
(f) The indemnification and advancement of expenses provided by, or granted
pursuant to, the other subsections of this section shall not be deemed exclusive
of any other rights to which those seeking indemnification or advancement of
expenses may be entitled under any bylaw, agreement, vote of stockholders or
disinterested directors or otherwise, both as to action in his official capacity
and as to action in another capacity while holding such office.
(g) A corporation shall have power to purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against any liability asserted against him or
incurred by him any such capacity, or arising out of his status as such, whether
or not the corporation would have the power to indemnify him against such
liability under this section.
(h) For purposes of this section, references to "the corporation" shall
include, in addition to the resulting corporation, any constituent corporation
(including any constituent of a constituent) absorbed in a consolidation or
merger which, if its separate existence had continued, would have had power and
authority to indemnify its directors, officers, and employees or agents, so that
any person who is or was a director, officer, employee or agents, so that any
person who is or was a director, officer, employee or agent of such constituent
corporation, or is or was serving at the request of such constituent corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, shall stand in the same position under
this section with respect to the resulting or surviving corporation as he would
have with respect to such constituent corporation if its separate existence had
continued.
(i) For purposes of this section, references to "other enterprises" shall
include employee benefit plans; references to "fines" shall include any excise
taxes assessed on a person with respect to any employee benefit plan; and
references to "serving at the request of the corporation" shall include any
service as a director, officer, employee or agent of the corporation which
imposes duties on, or involves services by, such director, officer, employee, or
agent with respect to an employee benefit plan, its participants or
beneficiaries; and a person who acted in good faith and in a manner he
reasonably believed to be in the interest of the participants and beneficiaries
of an employee benefit plan shall be deemed to have acted in a manner "not
opposed to the best interests of the corporation" as referred to in this
section.
(j) The indemnification and advancement of expenses provided by, or granted
pursuant to, this section shall, unless otherwise provided when authorized or
ratified, continue as to a person who has ceased to be a director, officer,
employee or agent and shall inure to the benefit of the heirs, executors and
administrators of such a person.
II-2
<PAGE>
Item 25. Other Expenses of Issuance and Distribution(1)
<TABLE>
<CAPTION>
<S> <C>
Legal fees and expenses........................ $150,000
Securities marketing legal fees................ 50,000
EDGAR, copying, printing, postage and mailing.. 120,000
Appraisal and business plan preparation........ 25,000
Accounting fees................................ 60,000
Securities marketing fees and expenses (2)..... 184,000
Data processing fees and expenses............. 15,000
SEC registration fee........................... 6,000
Blue Sky filing fees and expenses.............. 7,500
OTS filing fees................................ 8,400
Other expenses................................. 30,000
--------
Total...................................... $655,000
========
</TABLE>
- -------------------------
(1) Assumes all of the Common Stock will be sold in the Subscription and
Direct Community Offerings.
(2) Based on the sale of Common Stock at the midpoint of the Estimated
Valuation Range.
Item 26. Recent Sales of Unregistered Securities.
Not Applicable
Item 27. Exhibits.
The exhibits filed as part of this Registration Statement are as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
1.1 - Form of proposed Agency Agreement among FirstBank Corp., FirstBank Northwest and Sandler
O'Neill & Partners, L.P. (a)
1.2 - Engagement Letter between First Federal Bank of Idaho, F.S.B. and Sandler O'Neill &
Partners, L.P.
2 - Plan of Conversion of First Federal Bank of Idaho, F.S.B.
3.1 - Certificate of Incorporation of FirstBank Corp.
3.2 - Bylaws of FirstBank Corp.
4 - Form of Certificate for Common Stock
5 - Opinion of Breyer & Aguggia regarding legality of securities registered
8.1 - Form of Federal Tax Opinion of Breyer & Aguggia
8.2 - Form of State Tax Opinion of BDO Seidman, LLP (a)
8.3 - Opinion of RP Financial, LC. as to the value of subscription rights
10.1 - Proposed Form of Employment Agreement with Certain Executive Officers
</TABLE>
II-3
<PAGE>
<TABLE>
<S> <C> <C>
10.2 - Proposed Form of Employee Stock Ownership Plan
10.3 - First Federal Bank of Idaho, F.S.B. 401(k) Plan (a)
10.4 - Salary Continuation Agreement between First Federal Bank of Idaho F.S.B. and Clyde E. Conklin
10.5 - Salary Continuation Agreement between First Federal Bank of Idaho, F.S.B. and Larry K. Moxley
21 - Subsidiaries of FirstBank Corp.
23.1 - Consent of BDO Seidman, LLP
23.2 - Consent of Breyer & Aguggia (contained in opinion included as Exhibit 5)
23.3 - Consent of Breyer & Aguggia as to its Federal Tax Opinion
23.4 - Consent of RP Financial, LC.
24 - Power of Attorney (contained in signature page)
27 - Financial Data Schedule
99.1 - Order Form
99.2 - Solicitation and Marketing Materials
99.3 - Appraisal Agreement with RP Financial, LC.
99.4 - Appraisal Report of RP Financial, LC. (a)
99.5 - Proxy Statement for Special Meeting of Members of FirstBank Northwest
</TABLE>
_____________________
(a) To be filed by amendment.
Item 28. 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, as amended ("Securities Act");
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent post-
effective amendment thereof) which, individually or in the aggregate, represent
a fundamental change in the information set forth in the registration statement.
Notwithstanding the foregoing, any increase or decrease in volume of securities
offered (if the total dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or high and of the
estimated maximum offering range may be reflected in the form of prospectus
filed with the Commission pursuant to Rule 424(b) if, in
II-4
<PAGE>
the aggregate, the changes in volume and price represent no more than 20 percent
change in the maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement.
(2) That, for the purpose of determining any liability under the Securities
Act, 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 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.
(4) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934, as amended ("Exchange Act") (and, where
applicable, each filing of any employee benefit plan's annual report pursuant to
Section 15(d) of the Exchange Act) that is incorporated by reference in the
registration statement 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.
Insofar as indemnification for liabilities arising under the Securities Act
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 Securities
Act, and is therefore, unenforceable. In the event that a claim for
indemnification against 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 questions whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in Lewiston, Idaho on the
14th day of March, 1997.
FIRSTBANK CORP.
By: /s/Clyde E. Conklin
-----------------------------------------
Clyde E. Conklin
President and Chief Executive Officer
POWER OF ATTORNEY
We, the undersigned directors and officers of FirstBank Corp., do hereby
severally constitute and appoint Clyde E. Conklin and Larry K. Moxley, our true
and lawful attorneys and agents, to do any and all things and acts in our names
in the capacities indicated below and to execute all instruments for us and in
our names in the capacities indicated below which said Clyde E. Conklin and
Larry K. Moxley may deem necessary or advisable to enable FirstBank Corp. to
comply with the Securities Act of 1933, as amended, and any rules, regulations
and requirements of the Securities and Exchange Commission, in connection with
the Registration Statement on Form SB-2 relating to the offering of FirstBank
Corp.'s Common Stock, including specifically but not limited to, power and
authority to sign for us or any of us in our names in the capacities indicated
below the Registration Statement and any and all amendments (including post-
effective amendments) thereto; and we hereby ratify and confirm all that Clyde
E. Conklin and Larry K. Moxley shall do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed below by the following persons in
the capacities and on the dates indicated.
Signatures Title Date
- ---------- ----- ----
/s/ Clyde E. Conklin Chief Executive Officer and Director March 14, 1997
- ------------------------
Clyde E. Conklin (Principal Executive Officer)
/s/ Larry K. Moxley Chief Financial Officer and Director March 14, 1997
- ------------------------
Larry K. Moxley (Principal Financial Officer)
/s/ Cynthia M. Moore Controller March 14, 1997
- ------------------------
Cynthia M. Moore (Principal Accounting Officer)
/s/ William J. Larson Director March 14, 1997
- ------------------------
William J. Larson
<PAGE>
/s/ Steve R. Cox Director March 14, 1997
- --------------------------
Steve R. Cox
/s/ Robert S. Coleman, Sr. Director March 14, 1997
- --------------------------
Robert S. Coleman, Sr.
/s/ James N. Marker Director March 14, 1997
- --------------------------
James N. Marker
/s/ W. Dean Jurgens Director March 14, 1997
- --------------------------
W. Dean Jurgens
<PAGE>
INDEX TO EXHIBITS
1.1 -- Form of proposed Agency Agreement among FirstBank Corp., FirstBank
Northwest and Sandler O'Neill & Partners, L.P. (a)
1.2 -- Engagement Letter between First Federal Bank of Idaho, F.S.B. and
Sandler O'Neill & Partners, L.P.
2 -- Plan of Conversion of First Federal Bank of Idaho, F.S.B.
3.1 -- Certificate of Incorporation of FirstBank Corp.
3.2 -- Bylaws of FirstBank Corp.
4 -- Form of Certificate for Common Stock
5 -- Opinion of Breyer & Aguggia regarding legality of securities
registered
8.1 -- Form of Federal Tax Opinion of Breyer & Aguggia
8.2 -- Form of State Tax Opinion of BDO Seidman, LLP (a)
8.3 -- Opinion of RP Financial, LC. as to the value of subscription rights
10.1 -- Proposed Form of Employment Agreement with Certain Executive Officers
10.2 -- Proposed Form of Employee Stock Ownership Plan
10.3 -- First Federal Bank of Idaho, F.S.B. 401(k) Plan (a)
10.4 -- Salary Continuation Agreement between First Federal Bank of Idaho
F.S.B. and Clyde E. Conklin
10.5 -- Salary Continuation Agreement between First Federal Bank of Idaho,
F.S.B. and Larry K. Moxley
21 -- Subsidiaries of FirstBank Corp.
23.1 -- Consent of BDO Seidman, LLP
23.2 -- Consent of Breyer & Aguggia (contained in opinion included as Exhibit
5)
23.3 -- Consent of Breyer & Aguggia as to its Federal Tax Opinion
23.4 -- Consent of RP Financial, LC.
24 -- Power of Attorney (contained in signature page)
27 -- Financial Data Schedule
99.1 -- Order Form
99.2 -- Solicitation and Marketing Materials
99.3 -- Appraisal Agreement with RP Financial, LC.
<PAGE>
99.4 -- Appraisal Report of RP Financial, LC. (a)
99.5 -- Proxy Statement for Special Meeting of Members of FirstBank Northwest
_______________________
(a) To be filed by amendment.
<PAGE>
EXHIBIT 1.2
ENGAGEMENT LETTER BETWEEN FIRST FEDERAL BANK OF IDAHO, F.S.B.
AND SANDLER O'NEILL & PARTNERS, L.P.
<PAGE>
[LETTER HEAD OF SANDLER O'NEILL]
January 14, 1997
Board of Directors
First Federal Bank of Idaho FSB
920 Main Street
Lewiston, ID 83501
Attention: Mr. William J. Larson
Chairman of the Board
---------------------
Gentlemen:
Sandler O'Neill & Partners, L.P. ("Sandler O'Neill") is pleased to act as
an independent financial and marketing advisor to First Federal Bank of Idaho
FSB (the "Bank") in connection with the Bank's proposed conversion from mutual
to stock form (the "Conversion"), including the offer and sale of certain shares
of the common stock of the proposed holding company for the Bank (the "Holding
Company") to the Bank's eligible account holders in a Subscription Offering, to
members of the Bank's community in a Direct Community Offering and, under
certain circumstances, to the general public in a Syndicated Community Offering
(collectively, the "Offerings"). For purposes of this letter, the term "Actual
Purchase Price" shall mean the price at which the shares of the Holding
Company's common stock are sold in the Conversion. This letter is to confirm
the terms and conditions of our engagement.
SERVICES
- --------
Sandler O'Neill will act as a consultant and advisor to the Bank and the
Holding Company and will work with the Bank's management, counsel, accountants
and other advisors in connection with the Conversion and the Offerings. We
anticipate that our services will include the following, each as may be
necessary and as the Bank may reasonably request:
1. Consulting as to the securities marketing implications of any aspect
of the Plan of Conversion or related corporate documents;
2. Reviewing with the Board of Directors the independent appraiser's
appraisal of the common stock, particularly with regard to aspects of
the appraisal involving the methodology employed;
Sandler O'Neill & Partners, L.P. is a limited partnership, the sole
general partner of which is Sandler O'Neill & Partners Corp., a New
York Corporation
<PAGE>
Board of Directors
First Federal Bank of Idaho FSB
January 14, 1997 Sandler O'Neill
Page 2
3. Reviewing all offering documents, including the Subscription and
Community Offering Prospectus, stock order forms and related offering
materials (it being understood that preparation and filing of such
documents will be the responsibility of the Bank and the Holding
Company and their counsel);
4. Assisting in the design and implementation of a marketing strategy for
the Offerings;
5. Assisting in obtaining all requisite regulatory approvals;
6. Assisting Bank management in scheduling and preparing for meetings
with potential investors and broker-dealers; and
7. Providing such other general advice and assistance as may be requested
to promote the successful completion of the Conversion.
SYNDICATED COMMUNITY OFFERING
- -----------------------------
If any shares of the Holding Company's common stock remain available after
the expiration of the Subscription Offering and the Direct Community Offering,
at the request of the Bank and subject to the continued satisfaction of the
conditions set forth in the second paragraph under the caption "Definitive
Agreement" below, Sandler O'Neill will seek to form a syndicate of registered
dealers to assist in the sale of such common stock in a Syndicated Community
Offering on a best efforts basis, subject to the terms and conditions set forth
in a selected dealers agreement. Sandler O'Neill will endeavor to limit the
aggregate fees to be paid by the Bank under any such selected dealers agreement
to an amount competitive with gross underwriting discounts charged at such time
for underwritings of comparable amounts of stock sold at a comparable price per
share in a similar market environment, but in no event shall such fees exceed 7%
of the Actual Purchase Price of the shares sold under such agreements. Sandler
O'Neill will endeavor to distribute the common stock among dealers in a fashion
which best meets the distribution objectives of the Bank nd the requirements of
the Plan of Conversion, which may result in limiting the allocation of stock to
certain selected dealers. It is understood that in no event shall Sandler
O'Neill be obligated to act as a selected dealer or to take or purchase any
shares of the Holding Company's common stock.
FEES
- ----
If the Conversion is consummated, the Bank agrees to pay Sandler O'Neill
for its services hereunder the fees set forth below:
<PAGE>
Board of Directors
First Federal Bank of Idaho FSB
January 14, 1997 Sandler O'Neill
Page 3
1. A fee of one and one-half percent (1.5%) of the aggregate Actual
Purchase Price of the shares of common stock sold in the Subscription
Offering and in the Direct Community Offering, excluding in each case
shares purchased by (i) any employee benefit plan of the Holding
Company or the Bank established for the benefit of their respective
directors, officers and employees, and (ii) any director, officer or
employee of the Holding Company or the Bank or members of their
immediate families, subject to a maximum fee equal to one and one-half
percent (1.5%) of the aggregate gross proceeds at the midpoint of the
estimated price range as set forth on the cover page of the final
prospectus; and
2. With respect to any shares of the Holding Company's common stock sold
by an NASD member firm (other than Sandler O'Neill) under any selected
dealer's agreement in the Syndicated Community Offering, (a) the sales
commission payable to the selected dealer under such agreement, (b)
any sponsoring dealer's fees, and (c) a management fee to Sandler
O'Neill of two percent (2%). Any fees payable to Sandler O'Neill for
common stock sold by Sandler O'Neill under any such agreement shall be
limited to an aggregate of two percent (2%) of the Actual Purchase
Price of such shares.
If (i) Sandler O'Neill's engagement hereunder is terminated for any of the
reasons provided for under the second paragraph of the section of this letter
captioned "Definitive Agreement" or (ii) the Conversion is terminated by the
Bank, no fees shall be payable by the Bank to Sandler O'Neill hereunder;
however, the Bank shall reimburse Sandler O'Neill for its reasonable out-of-
pocket expenses incurred in connection with its engagement hereunder, subject to
the terms and maximum limitation set forth under the caption "Costs and
Expenses" below.
All fees payable to Sandler O'Neill hereunder shall be payable in cash at
the time of the closing of the Conversion. In recognition of the long lead
times involved in the conversion process, the Bank agrees to make advance
payments to Sandler O'Neill in the aggregate amount of $50,000, $25,000 of which
shall be payable upon execution of this letter and the remaining $25,000 of
which shall be payable upon commencement of the Subscription Offering, which
shall be credited against any fees or reimbursement of expenses payable
hereunder.
COSTS AND EXPENSES
- ------------------
In addition to any fees that may be payable to Sandler O'Neill hereunder
and the expenses to be borne by the Bank pursuant to the following paragraph,
the Bank agrees to reimburse Sandler O'Neill, upon request made from time to
time, for its reasonable out-of-pocket expenses incurred in
<PAGE>
Board of Directors
First Federal Bank of Idaho FSB
January 14, 1997 Sandler O'Neill
Page 4
connection with this engagement hereunder, regardless of whether the Conversion
is consummated, including, without limitation, legal fees, advertising,
promotional, syndication, and travel expenses; provided, however, that Sandler
-------- -------
O'Neill shall document such expenses to the reasonable satisfaction of the Bank,
and provided further that in no event shall the Bank be required to reimburse
-------- -------
Sandler O'Neill for more than an aggregate of $50,000 in out-of-pocket expenses
under this letter. The provisions of this paragraph are not intended to apply
to or in any way impair the indemnification provisions of this letter.
As is customary, the Bank will bear all other expenses incurred in
connection with the Conversion and the Offerings, including, without limitation,
(i) the cost of obtaining all securities and bank regulatory approvals,
including any required NASD filing fees; (ii) the cost of printing and
distributing the offering materials (which at the option of the Bank may be
printed from camera-ready text); (iii) the costs of blue sky qualification
(including fees and expenses of blue sky counsel) of the shares in the various
states; (iv) listing fees; and (v) all fees and disbursements of the Bank's and
the Holding Company's counsel, accountants and other advisors. In the event
Sandler O'Neill incurs any such fees and expenses on behalf of the Bank or the
Holding Company, the Bank will reimburse Sandler O'Neill for such fees and
expenses whether or not the Conversion is consummated; provided, however, that
-------- -------
Sandler O'Neill shall not incur any expenses in excess of $1,000 on behalf of
the Bank or the Holding Company pursuant to this paragraph without the prior
approval of the Bank.
POST-CONVERSION GENERAL ADVISORY SERVICES
- -----------------------------------------
If the Conversion is consummated, Sandler O'Neill agrees to act as an
independent financial advisor to the Holding Company and its subsidiaries in
connection with the Holding Company's general strategic planning ("General
Advisory Services"). In connection with such General Advisory Services, we
would expect to work with the Holding Company's management, its counsel,
accountants and other advisors to assess the Holding Company's strategic
alternatives and help implement a tactical plan to enhance the value of the
Holding Company. We anticipate that our activities would include, as
appropriate, those activities outlined in Exhibit A hereto. Sandler O'Neill
shall provide such services at the Holding Company's request for a period of one
year following the completion of the Conversion; provided, however, that the
-------- -------
Holding Company shall reimburse Sandler O'Neill for its reasonable out-of-pocket
expenses incurred in connection with providing such services. Thereafter, if
both parties wish to continue the relationship, the parties will enter into a
separate advisory services agreement on terms and conditions to be negotiated at
such time.
<PAGE>
Board of Directors
First Federal Bank of Idaho FSB
January 14, 1997 Sandler O'Neill
Page 5
DUE DILIGENCE REVIEW
- --------------------
Sandler O'Neill's obligation to perform the services contemplated by this
letter shall be subject to the satisfactory completion of such investigation and
inquiries relating to the Holding Company and the Bank, and their respective
directors, officers, agents and employees, as Sandler O'Neill and its counsel in
their sole discretion may deem appropriate under the circumstances. In this
regard, the Bank agrees that, at its expense, it will make available to Sandler
O'Neill all information which Sandler O'Neill requests,and will allow Sandler
O'Neill the opportunity to discuss with the Bank's and the Holding Company's
management the financial condition, business and operations of the Bank and the
Holding Company. The Bank and the Holding Company acknowledge that Sandler
O'Neill will rely upon the accuracy and completeness of all information received
from the Bank and the Holding Company and their respective directors, trustees,
officers, employees, agents, independent accountants and counsel.
Sandler O'Neill agrees that its obligation to perform the services
contemplated by this letter will not be conditioned upon inclusion in any
prospectus of audited financial statements as of December 31, 1996 and the nine
months then ended.
BLUE SKY MATTERS
- ----------------
The Bank agrees that if Sandler O'Neill's counsel does not serve as counsel
with respect to blue sky matters in connection with the Offerings, the Bank will
cause the counsel performing such services to prepare a Blue Sky Memorandum
related to the Offerings including Sandler O'Neill's participation therein and
shall furnish Sandler O'Neill a copy thereof address to Sandler O'Neill or upon
which such counsel shall state Sandler O'Neill may rely.
CONFIDENTIALITY
- ---------------
Other than disclosure to other firms made part of any syndicate of selected
dealers or as required by law or regulation, Sandler O'Neill agrees that it will
not disclose any Confidential Information relating to the Bank obtained in
connection with its engagement hereunder (whether or not the Conversion is
consummated). As used in this paragraph, the term "Confidential Information"
shall not include information which (i) is or becomes generally available to the
public other than as a result of a disclosure by Sandler O'Neill, (ii) was
available to Sandler O'Neill on a non-confidential basis prior to its disclosure
to Sandler O'Neill by the Bank, or (iii) becomes available to Sandler O'Neill on
a non-confidential basis from a person other than the Bank who is not otherwise
known
<PAGE>
Board of Directors
First Federal Bank of Idaho FSB
January 14, 1997 Sandler O'Neill
Page 6
to Sandler O'Neill to be bound not to disclose such information pursuant to a
contractual, legal or fiduciary obligation.
In the event Sandler O'Neill is requested or becomes legally compelled (by
oral questions, interrogatories, request for information or documents, subpoena,
civil investigative demand or similar process) to disclose any Confidential
Information, it will provide the Bank with prompt written notice so that the
Bank may seek a protective order or other appropriate remedy and/or waive
compliance with the provisions of this letter. In the event that such
protective order or other remedy is obtained, or that the Bank waives compliance
with the provisions of this letter, Sandler O'Neill will furnish only that
portion of the Confidential Information which is legally required.
INDEMNIFICATION
- ---------------
Since Sandler O'Neill will be acting on behalf of the Bank and the Holding
Company in connection with the Conversion, the Bank and the Holding Company
agree to indemnify and hold Sandler O'Neill and its affiliates and their
respective partners, directors, officers, employees, agents and controlling
persons within the meaning of Section 15 of the Securities Act of 1933 or
Section 20 of the Securities and Exchange Act (Sandler O'Neill and each such
person being an "Indemnified Party") harmless from and against any and all
losses, claims, damages and liabilities, joint or several, to which such
Indemnified Party may become subject under applicable federal or state law, or
otherwise, related to or arising out of the Conversion or the engagement of
Sandler O'Neill pursuant to, or the performance by Sandler O'Neill of the
services contemplated by, this letter, and will reimburse any Indemnified Party
for all expenses (including reasonable legal fees and expenses) as they are
incurred, including expenses incurred in connection with the investigation of,
preparation for or defense of any pending or threatened claim or any action or
proceeding arising therefrom, whether or not such Indemnified Party is a party;
provided, however, that the Bank and the Holding Company will not be liable in
- -------- -------
any such case to the extent that any such loss, claim, damage, liability or
expense (i) arises out of or is based upon any untrue statement of a material
fact or the omission of a material fact required to be stated therein or
necessary to make not misleading any statements contained in any prospectus, or
any amendment or supplement thereto, made in reliance on and in conformity with
written information furnished to the Bank by Sandler O'Neill expressly for use
therein (the "Agent Information"), or (ii) is primarily attributable to the
gross negligence, willful misconduct or bad faith of Sandler O'Neill. If the
foregoing indemnification is unavailable for any reason, the Bank and the
Holding Company agree to contribute to such losses, claims, damages, liabilities
and expenses in the proportion that its financial interest in the Conversion
bears to that of Sandler O'Neill.
<PAGE>
Board of Directors
First Federal Bank of Idaho FSB
January 14, 1997 Sandler O'Neill
Page 7
DEFINITIVE AGREEMENT
- --------------------
Sandler O'Neill and the Bank agree that (a) except as set forth in clause
(b) the foregoing represents the general intention of the Bank and Sandler
O'Neill with respect to the services to be provided by Sandler O'Neill in
connection with the Offerings, which will serve as a basis for Sandler O'Neill
commencing activities, and (b) the only legal and binding obligations of the
Bank, the Holding Company and Sandler O'Neill with respect to the subject matter
hereof shall be (1) the Bank's obligation to reimburse costs and expenses
pursuant to the section captioned "Costs and Expense," (2) those set forth under
the captions "Confidentiality" and "Indemnification," and (3) as set forth in a
duly negotiated and executed definitive Agency Agreement to be entered into
prior to the commencement of the Subscription Offering relating to the services
of Sandler O'Neill in connection with the Offerings. Such Agency Agreement
shall be in form and content satisfactory to Sandler O'Neill, the Bank and the
Holding Company and their respective counsel and shall contain standard
indemnification provisions consistent herewith.
Sandler O'Neill's execution of such Agency Agreement shall also be subject
to (i) Sandler O'Neill's satisfaction with its investigation of the Bank's
business, financial condition and results of operations, (ii) preparation of
offering materials that are satisfactory to Sandler O'Neill and its counsel,
(iii) compliance with all relevant legal and regulatory requirements to the
reasonable satisfaction of Sandler' O'Neill, (iv) agreement that the price
established by the independent appraiser is reasonable, and (v) market
conditions at the time of the proposed offering. Sandler O'Neill may terminate
this agreement if such Agency Agreement is not entered into prior to December
31, 1997.
ELIMINATION OF HOLDING COMPANY
- ------------------------------
If the Board of Directors of the Bank, for any reason, elects not to
proceed with the formation of the Holding Company but determines to proceed with
the Conversion and substitute the common stock of the Bank for the common stock
of the Holding Company, all of the provisions of this letter relating to the
common stock of the Holding Company will be deemed to pertain to the common
stock of the Bank on the same terms and conditions that such provisions pertain
to the common stock of the Holding Company and all of the references in this
letter to the Holding Company shall be deemed to refer to the Bank or shall have
no effect, as the context of the reference requires.
MISCELLANEOUS
- -------------
This Agreement constitutes the entire agreement between the parties with
respect to the subject matter hereof and can be altered only by written consent
signed by the parties. This
<PAGE>
Board of Directors
First Federal Bank of Idaho FSB
January 14, 1997 Sandler O'Neill
Page 8
Agreement shall be construed and enforced in accordance with the laws of the
State of New York, without regard to the conflicts of laws principles thereof.
Please confirm that the foregoing correctly sets forth our agreement by
signing and returning to Sandler O'Neill the duplicate copy of this letter
enclosed herewith.
Very truly yours,
Sandler O'Neill & Partners, L.P.
By: Sandler O'Neill & Partners Corp.,
the sole general partner.
By: /s/ Catherine A. Lawton
--------------------------------------
Catherine A. Lawton
Vice President
Accepted and agreed to as of
the date first above written:
First Federal Bank of Idaho FSB
By: /s/ William J. Larson
--------------------------
William J. Larson
Chairman of the Board
<PAGE>
Sandler O'Neill
EXHIBIT A
GENERAL ADVISORY SERVICES
-------------------------
1. A review and analysis of the Holding Company's current business and
financial characteristics, including its operating strategies, balance
sheet composition, historical operating performance, branch structure and
market share, and the Holding Company's competitive position relative to
selected peer groups;
2. Creation of a base case financial model to serve as a benchmark for
analyzing alternative strategies and market environments;
3. An analysis of the impact on the franchise value of altering the Holding
Company's dividend policy, implementing a stock repurchase program, or
changing the asset mix or other operating activities;
4. An analysis of the Holding Company's acquisition resources, objectives and
capacity to compete for acquisition opportunities;
5. A summary of recent merger and acquisition trends in the financial services
industry, including tactics employed by others and typical terms and values
involved;
6. A review of other strategic alternatives which could provide long-term
benefits and enhanced value to the Holding Company;
7. A review of the Holding Company's advance defensive preparation plans,
including a comprehensive financial valuation and an analysis of stock
ownership and trading activity;
8. A review with the Board of Directors of the Holding Company of Sandler
O'Neill's findings, with periodic updates as may be requested;
9. Ongoing general advice and counsel to management and the Board of Directors
of the Holding Company with respect to strategic and tactical issues; and
10. Rendering such financial advisory and investment banking services as may
from time to time be agreed upon by Sandler O'Neill and the Holding
Company.
<PAGE>
EXHIBIT 2
PLAN OF CONVERSION OF FIRST FEDERAL BANK OF IDAHO, F.S.B.
<PAGE>
FIRST FEDERAL BANK OF IDAHO, F.S.B.
LEWISTON, IDAHO
AMENDED
PLAN OF CONVERSION
FROM FEDERAL MUTUAL SAVINGS BANK
TO STATE CHARTERED SAVINGS BANK
AND FORMATION OF A HOLDING COMPANY
<PAGE>
FIRST FEDERAL BANK OF IDAHO, F.S.B.
LEWISTON, IDAHO
AMENDED
PLAN OF CONVERSION
FROM FEDERAL MUTUAL SAVINGS BANK
TO STATE CHARTERED SAVINGS BANK
AND FORMATION OF A HOLDING COMPANY
INTRODUCTION
------------
I. General
-------
It is the desire of the Board of Directors to attract new capital to First
Federal Bank of Idaho, F.S.B. ("Savings Bank") to increase its net worth, to
support future savings growth, to increase the amount of funds available for
other lending and investment, to provide greater resources for the expansion of
customer services and to facilitate future expansion by the Savings Bank. In
addition, the Board of Directors intends to implement stock option plans and
other stock benefit plans as part of the Conversion in order to attract and
retain qualified directors and officers. It is the further desire of the Board
of Directors to reorganize the Savings Bank as a Washington chartered savings
bank in order to preserve its operating flexibility and its ability to provide a
wide range of banking products and services to its community. It is the further
desire of the Board of Directors to reorganize the Savings Bank as the wholly
owned subsidiary of a holding company to enhance flexibility of operations,
diversification of business opportunities and financial capability for business
and regulatory purposes and to enable the Savings Bank to compete more
effectively with other financial service organizations. Accordingly, on March
12, 1997, the Board of Directors of the Savings Bank, after careful study and
consideration, adopted by unanimous vote this amended Plan of Conversion
("Plan") that they adopted on January 8, 1997, which provides for (i) the
conversion of the Savings Bank from a federally chartered mutual savings bank to
a federally chartered stock savings bank ("Converted Savings Bank"), (ii) the
concurrent formation of a holding company for the Converted Savings Bank
("Holding Company"), and (iii) the subsequent relocation of the Converted
Savings Bank's main office from Lewiston, Idaho to Clarkston, Washington and
conversion of the Converted Savings Bank from a federally chartered stock
savings bank to a Washington chartered savings bank ("Converted Bank"). The
conversion of the Savings Bank to the Converted Savings Bank, the acquisition of
control of the Converted Savings Bank by the Holding Company and the issuance of
stock by the Holding Company as provided herein, are collectively referred to
herein as the "Stock Conversion." The relocation of the Converted Savings Bank's
main office and the conversion of the Converted Savings Bank to the Converted
Bank are referred to herein as the "Charter Conversion." The Stock Conversion
and the Charter Conversion are referred to herein collectively as the
"Conversion."
All capitalized terms contained in the Plan shall have the meanings
ascribed to them in Section II hereof.
Pursuant to the Plan, shares of Conversion Stock in the Holding Company
will be offered as part of the Stock Conversion in a Subscription Offering
pursuant to nontransferable Subscription Rights at a predetermined and uniform
price first to the Savings Bank's Eligible Account Holders, second to the Tax-
Qualified Employee Stock Benefit Plans, third to Supplemental Eligible Account
Holders, and fourth to Other Members of the Savings Bank. Shares not subscribed
for in the Subscription Offering will be offered as part of the Stock Conversion
to the general public in a Direct Community Offering. Shares remaining will
then be offered to the general public in an underwritten public offering or
otherwise. The aggregate Purchase Price of the Conversion Stock will be based
upon an independent appraisal of the Savings Bank and will reflect the estimated
pro forma market value of the Converted Bank, as a subsidiary of the Holding
Company.
1
<PAGE>
As soon as practicable following consummation of the Stock Conversion, the
Holding Company, as the sole stockholder of the Converted Savings Bank, shall
approve the Charter Conversion, and the Converted Savings Bank shall take such
actions as may be necessary to consummate the Charter Conversion.
The Stock Conversion is subject to regulations of the Director of the OTS
of the United States Department of the Treasury pursuant to Section 5(i) of the
Home Owners' Loan Act; Part 563b of the Rules and Regulations Applicable to All
Savings Associations.
Consummation of the Conversion is subject to the approval of this Plan and
the Conversion by the OTS and by the affirmative vote of Members of the Savings
Bank holding not less than a majority of the total votes eligible to be cast at
a special meeting of the Members to be called to consider the Conversion.
Consummation of the Charter Conversion requires approval of the Washington
Department of Financial Institution, Division of Banks. Continued ownership of
the Converted Bank by the Holding Company requires approval of the Federal
Reserve Board.
No change will be made in the Board of Directors or management of the
Savings Bank as a result of the Stock Conversion. In connection with the
Charter Conversion, the Chief Executive Officer and the Chief Financial Officer
will become directors of the Converted Bank.
II. Definitions
-----------
As used in this Plan, the terms set forth below have the following
meanings:
A. Acting in Concert: (1) Knowing participation in a joint activity or
-----------------
interdependent conscious parallel action towards a common goal whether or not
pursuant to an express agreement; or (2) a combination or pooling of voting or
other interests in the securities of an issuer for a common purpose pursuant to
any contract, understanding, relationship, agreement or other arrangement,
whether written or otherwise. A Person (as defined by 12 C.F.R.
(S)563b.2(a)(26)) who acts in concert with another Person ("other party") shall
also be deemed to be acting in concert with any Person who is also acting in
concert with that other party, except that any Tax-Qualified Employee Stock
Benefit Plan will not be deemed to be acting in concert with its trustee or a
Person who serves in a similar capacity solely for the purpose of determining
whether stock held by the trustee and stock held by the Tax-Qualified Employee
Benefit Plan will be aggregated.
B. Associate: When used to indicate a relationship with any Person,
---------
means (l) any corporation or organization (other than the Savings Bank or a
majority-owned subsidiary of the Savings Bank, or the Holding Company) of which
such Person is an officer or partner or is, directly or indirectly, the
beneficial owner of ten percent or more of any class of equity securities, (2)
any trust or other estate in which such Person has a substantial beneficial
interest or as to which such Person serves as trustee or in a similar fiduciary
capacity, except that it does not include a Tax-Qualified Employee Stock Benefit
Plan and (3) 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 Savings Bank, any of its subsidiaries, or the Holding Company.
C. Capital Stock: Any and all authorized stock in the Savings Bank, as
-------------
converted.
D. Charter Conversion: The conversion of the Converted Savings Bank from
------------------
a federally chartered capital stock savings bank to a Washington chartered
savings bank.
E. Common Stock: Any and all authorized common stock in the Holding
------------
Company subsequent to the Conversion.
F. Conversion: Except as provided in Paragraph III.F herein, the term
----------
"Conversion" means the Stock Conversion and the Charter Conversion.
2
<PAGE>
G. Conversion Stock: Holding Company stock to be issued and sold by the
----------------
Holding Company pursuant to the Plan.
H. Converted Savings Bank: First Federal Bank of Idaho, F.S.B., in its
----------------------
form as a federally chartered capital stock savings bank resulting from the
conversion of the Savings Bank to the stock form of organization in connection
with the Stock Conversion.
I. Converted Bank: The Washington chartered savings bank resulting from
--------------
the Charter Conversion.
J. Direct Community Offering: The offering for sale of Conversion Stock
-------------------------
to the public.
K. Director: The Director of the Washington Department of Financial
--------
Institutions, Division of Banks.
L Director Conversion Application: The application submitted to the
-------------------------------
Director for the approval of the Charter Conversion.
M. Eligibility Record Date: December 31, 1995.
-----------------------
N. Eligible Account Holder: Holder of a Qualifying Deposit in the
-----------------------
Savings Bank on the Eligibility Record Date.
O. FDIC: Federal Deposit Insurance Corporation.
----
P. Federal Reserve Board: The Board of Governors of the Federal Reserve
---------------------
System.
Q. Form AC Application: The application submitted to the OTS for
-------------------
approval of the Stock Conversion.
R. H-(e)1 Application: The application submitted to the OTS on OTS Form
------------------
H-(e)1 or Form H-(e)1-S, if applicable, for approval of the Holding Company's
acquisition of all of the Capital Stock.
S. Holding Company: A corporation to be formed by the Savings Bank under
---------------
state law for the purpose of becoming a holding company through the issuance and
sale of its stock under the Plan, and concurrent acquisition of 100% of the
common stock of the Converted Savings Bank to be issued pursuant to the Plan.
T. Holding Company Stock: Any and all authorized stock of the Holding
---------------------
Company.
U. Local Community: Each county in which the Savings Bank has a home or
---------------
branch office.
V. Market Maker: A dealer (i.e., any Person who engages directly or
------------
indirectly as agent, broker, or principal in the business of offering, buying,
selling, or otherwise dealing or trading in securities issued by another Person)
who, with respect to a particular security, (l) regularly publishes bona fide,
competitive bid and offer quotations in a recognized inter-dealer quotation
system or furnishes bona fide competitive bid and offer quotations on request
and (2) is ready, willing and able to effect transactions in reasonable
quantities at his quoted prices with other brokers or dealers.
W. Members: All Persons or entities who qualify as members of the
-------
Savings Bank pursuant to its Charter and Bylaws prior to the Conversion.
X. Officer: An executive officer of the Savings Bank, which includes the
-------
Chairman of the Board, Chief Executive Officer, President, Executive Vice
President, Senior Vice Presidents, Vice Presidents in charge of principal
business functions, the Secretary and the Treasurer as well as any other person
performing similar functions.
3
<PAGE>
Y. Order Forms: Forms to be used for the purchase of Conversion Stock
-----------
sent to Eligible Account Holders and other parties eligible to purchase
Conversion Stock in the Subscription Offering pursuant to the Plan.
Z. Other Member: Holder of a Savings Account (other than Eligible
------------
Account Holders and Supplemental Eligible Account Holders) and borrowers from
the Savings Bank as of the Record Date.
AA. OTS: Office of Thrift Supervision of the United States Department of
---
the Treasury.
BB. OTS Charter Conversion Application: The application submitted to the
----------------------------------
OTS for approval of the Charter Conversion.
CC. Person: An individual, corporation, partnership, association, joint
------
stock company, trust, unincorporated organization or a government or any
political subdivision thereof.
DD. Plan: This Plan of Conversion, which provides for the conversion of
----
the Savings Bank from a federally chartered mutual savings bank to a federally
chartered capital stock savings bank (i.e., the Converted Savings Bank), the
concurrent formation of a holding company for the Converted Savings Bank, and
the subsequent conversion of the Converted Savings Bank from a federally
chartered capital stock savings bank to a Washington chartered savings bank
(i.e., the Converted Bank).
EE. Qualifying Deposit: The deposit balance in any Savings Account as
------------------
of the Eligibility Record Date or the Supplemental Eligibility Record Date, as
applicable; provided, however, that no Savings Account with a deposit balance of
less than $50 shall constitute a Qualifying Deposit.
FF. Record Date: Date which determines which Members are entitled to
-----------
vote at the Special Meeting.
GG. Registration Statement: The registration statement on Form SB-2 or
----------------------
other applicable forms filed by the Holding Company with the SEC for the purpose
of registering the Conversion Stock under the Securities Act of 1933, as
amended.
HH. Savings Account(s): Withdrawable deposit(s) in the Savings Bank,
------------------
Converted Savings Bank or Converted Bank, as applicable, including certificates
of deposit.
II. Savings Bank: First Federal Bank of Idaho, F.S.B., in its present
------------
form as a federally chartered mutual savings bank.
JJ. SEC: Securities and Exchange Commission.
---
KK. Special Meeting: The special meeting of Members called for the
---------------
purpose of considering the Plan for approval.
LL. Stock Conversion: The conversion of the Savings Bank from a federally
----------------
chartered mutual savings bank to a federally chartered capital stock savings
bank through amendment of the Savings Bank's federal Charter and Bylaws, the
issuance and sale to the Holding Company of all the Capital Stock issued by the
Converted Savings Bank in connection therewith, and the issuance by the Holding
Company of the Conversion Stock, all in accordance with the Plan.
MM. Subscription Offering: The offering of Conversion Stock to Eligible
---------------------
Account Holders, Tax-Qualified Employee Stock Benefit Plans, Supplemental
Eligible Account Holders and Other Members under the Plan.
4
<PAGE>
NN. Subscription Rights: Nontransferable, nonnegotiable, personal rights
-------------------
of Eligible Account Holders, Tax-Qualified Employee Stock Benefit Plans,
Supplemental Eligible Account Holders and Other Members to purchase Conversion
Stock.
OO. Supplemental Eligibility Record Date: The last day of the calendar
------------------------------------
quarter preceding the approval of the Plan by the OTS.
PP. Supplemental Eligible Account Holder: Holder of a Qualifying Deposit
------------------------------------
in the Savings Bank (other than an Officer or director or their Associates) on
the Supplemental Eligibility Record Date.
QQ. Tax Qualified Employee Stock Benefit Plan: Any defined benefit plan or
-----------------------------------------
defined contribution plan of the Savings Bank or Holding Company, such as an
employee stock ownership plan, bonus plan, profit-sharing plan or other plan,
which, with its related trust meets the requirements to be "qualified" under
section 401 of the Internal Revenue Code. A "non-tax-qualified employee stock
benefit plan" is any defined benefit plan or defined contribution plan that is
not so qualified.
RR. Voting Record Date: The date fixed by the Board of Directors of the
------------------
Savings Bank for determining eligibility to vote at the Special Meeting.
SS. Y-3 Application: The application submitted to the Federal Reserve
---------------
Board on Federal Reserve Board Form FR Y-3 for approval for the Holding Company
to maintain control of the Converted Bank.
III. Steps Prior to Submission of the Plan to the Members for Approval
-----------------------------------------------------------------
Prior to submission of the Plan to the Members for approval, the Savings
Bank must receive approval from the OTS of the Form AC Application. Prior to
such regulatory approval:
A. The Board of Directors shall adopt the Plan by a vote of not less than
two-thirds of its entire membership.
B. The Savings Bank shall notify the Members of the adoption of the Plan
by publishing a statement in a newspaper having a general circulation in each
community in which the Savings Bank maintains an office.
C. A press release relating to the proposed Conversion may be submitted
to the local media.
D. Copies of the Plan as adopted by the Board of Directors shall be made
available for inspection at each office of the Savings Bank.
E. The Savings Bank shall cause the Holding Company to be incorporated
under state law and the Board of Directors of the Holding Company shall concur
in the Plan by at least a two-thirds vote.
F. As soon as practicable following the adoption of this Plan, the
Savings Bank shall file the Form AC Application, and the Holding Company shall
file the Registration Statement and the H-(e)1 Application. Upon receipt of
notification from the OTS that the Form AC Application is properly executed and
not materially incomplete, the Savings Bank shall publish notice of the filing
of the Form AC Application in a newspaper having a general circulation in each
community in which the Savings Bank maintains an office and/or by mailing a
letter to each of its Members, and shall publish such other notices of the
Conversion as may be required in connection with the H-(e)1 Application and by
the regulations and policies of the OTS.
G. Also, as soon as practicable following the adoption of this Plan, the
Savings Bank shall file the Director Conversion Application and the OTS Charter
Conversion Application and the Holding Company shall file a draft Y-3
Application. Upon receipt of review of the draft Y-3 Application, the Holding
Company shall file the
5
<PAGE>
final Y-3 Application. The Savings Bank and the Holding Company shall publish
such notices as may be required in connection with the Y-3 Application, the
Director Conversion Application and the OTS Charter Conversion Application.
H. The Board of Directors of the Savings Bank may, at any time, elect not
to proceed with the Charter Conversion, in which event the Director Conversion
Application, the OTS Charter Conversion Application and the Y-3 Application
shall be withdrawn. In the event the Charter Conversion is not pursued, any
references in this Plan to the Conversion shall be deemed to constitute
references to the Stock Conversion and references to the Converted Bank shall be
deemed to constitute references to the Converted Savings Bank.
I. The Savings Bank shall obtain an opinion of its tax advisors or a
favorable ruling from the United States Internal Revenue Service which shall
state that the Stock Conversion will not result in any gain or loss for federal
income tax purposes to the Savings Bank or its Eligible Account Holders,
Supplemental Eligible Account Holders and Other Members. Receipt of a favorable
opinion or ruling is a condition precedent to completion of the Conversion.
IV. Meeting of Members
------------------
Subsequent to the approval of the Plan by the OTS, the Special Meeting
shall be scheduled in accordance with the Savings Bank's Bylaws. Promptly after
receipt of approval and at least 20 days but not more than 45 days prior to the
Special Meeting, the Savings Bank shall distribute proxy solicitation materials
to all Members and beneficial owners of accounts held in fiduciary capacities
where the beneficial owners possess voting rights, as of the Record Date. The
proxy solicitation materials shall include a copy of the proxy statement to be
used in connection with such solicitation (the "Proxy Statement") and other
documents authorized for use by the regulatory authorities and may also include
a copy of the Plan and/or a prospectus ("Prospectus") as provided in Paragraph V
below. The Savings Bank shall also advise each Eligible Account Holder and
Supplemental Eligible Account Holder not entitled to vote at the Special Meeting
of the proposed Conversion and the scheduled Special Meeting, and provide a
postage prepaid card on which to indicate whether he wishes to receive the
Prospectus, if the Subscription Offering is not held concurrently with the proxy
solicitation.
Pursuant to OTS regulations, an affirmative vote of not less than a
majority of the total outstanding votes of the Members is required for approval
of the Plan. Voting may be in person or by proxy. The OTS shall be notified
promptly of the actions of the Members.
By voting in favor of the adoption of the Plan and the Conversion, the
Members will be voting in favor of (i) the Stock Conversion and the adoption by
the Savings Bank of the Federal Stock Charter and Bylaws and (ii) the subsequent
Charter Conversion and the adoption by the Converted Savings Bank of the
Converted Bank articles of incorporation and bylaws.
V. Summary Proxy Statement
-----------------------
The Proxy Statement furnished to Members may be in summary form, provided
that a statement is made in bold-face type that a more detailed description of
the proposed transaction may be obtained by returning an enclosed postage
prepaid card or other written communication requesting supplemental information.
Without prior approval of the OTS, the Special Meeting shall not be held less
than 20 days after the last day on which the supple mental information statement
is mailed to requesting Members. The supplemental information statement may be
combined with the Prospectus if the Subscription Offering is commenced
concurrently with or during the proxy solicitation of Members for the Special
Meeting.
6
<PAGE>
VI. Offering Documents
------------------
The Holding Company may commence the Subscription Offering and, provided
that the Subscription Offering has commenced, may commence the Direct Community
Offering concurrently with or during the proxy solicitation of Members. The
Holding Company may close the Subscription Offering before the Special Meeting,
provided that the offer and sale of the Conversion Stock shall be conditioned
upon approval of the Plan by the Members at the Special Meeting. The Savings
Bank's proxy solicitation materials may require Eligible Account Holders,
Supplemental Eligible Account Holders (if applicable) and Other Members to
return to the Savings Bank by a reasonable certain date a postage prepaid card
or other written communication requesting receipt of a Prospectus with respect
to the Subscription Offering, provided that if the Prospectus is not mailed
concurrently with the proxy solicitation materials, the Subscription Offering
shall not be closed until the expiration of 30 days after the mailing of the
proxy solicitation materials. If the Subscription Offering is not commenced
within 45 days after the Special Meeting, the Savings Bank may transmit, not
more than 30 days prior to the commencement of the Subscription Offering, to
each Eligible Account Holder, Supplemental Eligible Account Holder and other
eligible subscribers who had been furnished with proxy solicitation materials a
notice which shall state that the Savings Bank is not required to furnish a
Prospectus to them unless they return by a reasonable date certain a postage
prepaid card or other written communication requesting the receipt of the
Prospectus.
Prior to commencement of the Subscription Offering and the Direct
Community Offering, the Holding Company shall file the Registration Statement.
The Holding Company shall not distribute the final Prospectus until the
Registration Statement containing same has been declared effective by the SEC
and the Prospectus has been declared effective by the OTS.
VII. Combined Subscription and Community Offering
--------------------------------------------
Instead of a separate Subscription Offering, all Subscription Rights may
be exercised by delivery of properly completed and executed Order Forms to the
Savings Bank or selling group utilized in connection with the Direct Community
Offering. If a separate Subscription Offering is not held, orders for Conversion
Stock in the Direct Community Offering shall first be filled pursuant to the
priorities and limitations stated in Paragraph IX.C., below.
VIII. Consummation of the Conversion
------------------------------
A. Consummation of the Stock Conversion
------------------------------------
After receipt of all orders for Conversion Stock, and concurrently with
the execution thereof, the amendment of the Savings Bank's federal mutual
Charter and Bylaws to authorize the issuance of shares of Capital Stock and to
conform to the requirements of a federal capital stock savings bank will be
declared effective by the OTS, the amended Charter and Bylaws approved by the
Members will become effective, and the Savings Bank will thereby be and become
the Converted Savings Bank. At such time, the Conversion Stock will be issued
and sold by the Holding Company, the Capital Stock to be issued in the
Conversion will be issued and sold to the Holding Company, and the Converted
Savings Bank will become a wholly owned subsidiary of the Holding Company. The
Converted Savings Bank will issue to the Holding Company 1,000 shares of its
common stock, representing all of the shares of Capital Stock to be issued by
the Converted Savings Bank in the Conversion, and the Holding Company will make
payment to the Converted Savings Bank of that portion of the aggregate net
proceeds realized by the Holding Company from the sale of the Conversion Stock
under the Plan as may be authorized or required by the OTS.
B. Consummation of the Charter Conversion
--------------------------------------
The Charter Conversion shall be deemed to occur and shall be effective
upon completion of all actions necessary or appropriate under applicable
statutes and regulations and the policies of the Director and the OTS to
complete the conversion of the Converted Savings Bank to a Washington chartered
savings bank, including without limitation the approval of the Charter
Conversion by the Holding Company as the sole stockholder of the Converted
7
<PAGE>
Savings Bank, and the Converted Savings Bank will thereby be and become the
Converted Bank. The Charter Conversion shall be consummated as soon as
practicable following the consummation of the Stock Conversion.
IX. Stock Offering
--------------
A. Number of Shares
----------------
The number of shares of Conversion Stock to be offered pursuant to the
Plan shall be determined initially by the Board of Directors of the Savings Bank
and the Board of Directors of the Holding Company in conjunction with the
determination of the Purchase Price (as that term is defined in Paragraph IX.B.
below). The number of shares to be offered may be subsequently adjusted by the
Board of Directors prior to completion of the offering.
B. Independent Evaluation and Purchase Price of Shares
---------------------------------------------------
All shares of Conversion Stock sold in the Conversion, including shares
sold in any Direct Community Offering, shall be sold at a uniform price per
share, referred to herein as the "Purchase Price." The Purchase Price shall be
determined by the Board of Directors of the Savings Bank and the Board of
Directors of the Holding Company immediately prior to the simultaneous
completion of all such sales contemplated by this Plan on the basis of the
estimated pro forma market value of the Converted Bank at such time. The
estimated pro forma market value of the Converted Bank shall be determined for
such purpose by an independent appraiser on the basis of such appropriate
factors not inconsistent with the regulations of the OTS. Immediately prior to
the Subscription Offering, a subscription price range shall be established which
shall vary from 15% above to 15% below the average of the minimum and maximum of
the estimated price range. The maximum subscription price (i.e., the per share
amount to be remitted when subscribing for shares of Conversion Stock) shall
then be determined within the subscription price range by the Board of Directors
of the Savings Bank. The subscription price range and the number of shares to be
offered may be revised after the completion of the Subscription Offering with
OTS approval without a resolicitation of proxies or Order Forms or both.
C. Method of Offering Shares
-------------------------
Subscription Rights shall be issued at no cost to Eligible Account
Holders, Tax-Qualified Employee Stock Benefit Plans, Supplemental Eligible
Account Holders and Other Members pursuant to priorities established by this
Plan and the regulations of the OTS. In order to effect the Conversion, all
shares of Conversion Stock proposed to be issued in connection with the
Conversion must be sold and, to the extent that shares are available, no
subscriber shall be allowed to purchase less than 25 shares; provided, however,
that if the purchase price is greater than $20 per share, the minimum number of
shares which must be subscribed for shall be adjusted so that the aggregate
actual purchase price required to be paid for such minimum number of shares does
not exceed $500. The priorities established for the purchase of shares are as
follows:
1. Category 1: Eligible Account Holders
-------------------------------------
a. Each Eligible Account Holder shall receive, without
payment, Subscription Rights entitling such Eligible Account Holder
to purchase that number of shares of Conversion Stock which is equal
to the greater of the maximum purchase limitation established for
the Direct Community Offering, one-tenth of one percent of the total
offering or 15 times the product (round ed down to the next whole
number) obtained by multiplying the total number of shares of
Conversion Stock to be issued by a fraction of which the numerator
is the amount of the Qualifying Deposit of the Eligible Account
Holder and the denominator is the total amount of Qualifying
Deposits of all Eligible Account Holders. If the allocation made in
this paragraph results in an oversubscription, shares of Conversion
Stock shall be allocated among subscribing Eligible Account Holders
so as to permit each such account holder, to the extent possible, to
purchase a number of shares of Conversion Stock sufficient to make
his total allocation equal to 100 shares
8
<PAGE>
of Conversion Stock or the total amount of his subscription,
whichever is less. Any shares of Conversion Stock remaining after
that allocation shall be allocated among the subscribing Eligible
Account Holders whose subscriptions remain unsatisfied in the
proportion that the amount of the Qualifying Deposit of each
Eligible Account Holder whose subscription remains unsatisfied bears
to the total amount of the Qualifying Deposits of all Eligible
Account Holders whose subscriptions remain unsatisfied. If the
amount so allocated exceeds the amount subscribed for by any one or
more Eligible Account Holders, the excess shall be reallocated (one
or more times as necessary) among those Eligible Account Holders
whose subscriptions remain unsatisfied on the same principle until
all available shares have been allocated or all subscriptions
satisfied.
b. Subscription Rights received by Officers and directors of
the Savings Bank and their Associates, as Eligible Account Holders,
based on their increased deposits in the Savings Bank in the one-
year period preceding the Eligibility Record Date shall be
subordinated to all other subscriptions involving the exercise of
Subscription Rights pursuant to this Category.
2. Category 2: Tax-Qualified Employee Stock Benefit Plans
------------------------------------------------------
a. Tax-Qualified Employee Stock Benefit Plans of the Savings
Bank shall receive, without payment, non-transferable Subscription
Rights to purchase in the aggregate up to 8% of the Conversion
Stock, including shares of Conversion Stock to be issued in the
Conversion as result of an increase in the estimated price range
after commencement of the Subscription Offering and prior to the
completion of the Conversion. The Subscription Rights granted to
Tax-Qualified Stock Benefit Plans of the Savings Bank shall be
subject to the availability of shares of Conversion Stock after
taking into account the shares of Conversion Stock purchased by
Eligible Account Holders; provided, however, that in the event the
number of shares offered in the Conversion is increased to an amount
greater than the maximum of the estimated price range as set forth
in the Prospectus ("Maximum Shares"), the Tax-Qualified Employee
Stock Benefit Plans shall have a priority right to purchase any such
shares exceeding the Maximum Shares up to an aggregate of 8% of the
Conversion Stock. Tax-Qualified Employee Stock Benefit Plans may use
funds contributed or borrowed by the Holding Company or the Savings
Bank and/or borrowed from an independent financial institution to
exercise such Subscription Rights, and the Holding Company and the
Savings Bank may make scheduled discretionary contributions thereto,
provided that such contributions do not cause the Holding Company or
the Savings Bank to fail to meet any applicable capital
requirements.
3. Category 3: Supplemental Eligible Account Holders
--------------------------------------------------
a. In the event that the Eligibility Record Date is more than
15 months prior to the date of the latest amendment to the Form AC
Application filed prior to OTS approval, then, and only in that
event, each Supplemental Eligible Account Holder shall receive,
without payment, Subscription Rights entitling such Supplemental
Eligible Account Holder to purchase that number of shares of
Conversion Stock which is equal to the greater of the maximum
purchase limitation established for the Direct Community Offering,
one-tenth of one percent of the total offering or 15 times the
product (rounded down to the next whole number) obtained by
multiplying the total number of shares of Conversion Stock to be
issued by a fraction of which the numerator is the amount of the
Qualifying Deposit of the Supplemental Eligible Account Holder and
the denominator is the total amount of the Qualifying Deposits of
all Supplemental Eligible Account Holders.
b. Subscription Rights received pursuant to this category
shall be subordinated to Subscription Rights granted to Eligible
Account Holders and Tax-Qualified Employee Stock Benefit Plans.
9
<PAGE>
c. Any Subscription Rights to purchase shares of Conversion
Stock received by an Eligible Account Holder in accordance with
Category Number 1 shall reduce to the extent thereof the
Subscription Rights to be distributed pursuant to this Category.
d. In the event of an oversubscription for shares of
Conversion Stock pursuant to this Category, shares of Conversion
Stock shall be allocated among the subscribing Supplemental Eligible
Account Holders so as to permit each such account holder, to the
extent possible, to purchase a number of shares of Conversion Stock
sufficient to make his total allocation equal to 100 shares of
Conversion Stock or the total amount of his subscription, whichever
is less. Any shares of Conversion Stock remaining after that
allocation shall be allocated among the subscribing Supplemental
Eligible Account Holders whose subscriptions remain unsatisfied in
the proportion that the amount of the Qualifying Deposit of each
Supplemental Eligible Account Holder whose subscription remains
unsatisfied bears to the total amount of the Qualifying Deposits of
all Supplemental Eligible Account Holders whose subscriptions remain
unsatisfied. If the amount so allocated exceeds the amount
subscribed for by any one or more Supplemental Eligible Account
Holders, the excess shall be reallocated (one or more times as
necessary) among those Supplemental Eligible Account Holders whose
subscriptions remain unsatisfied on the same principle until all
available shares have been allocated or all subscriptions satisfied.
4. Category 4: Other Members
--------------------------
a. Other Members shall receive Subscription Rights to purchase
shares of Conversion Stock, after satisfying the subscriptions of
Eligible Account Holders, Tax-Qualified Employee Stock Benefit Plans
and Supplemental Eligible Account Holders pursuant to Category Nos.
l, 2 and 3 above, subject to the following conditions:
(1) Each such Other Member shall be entitled to subscribe
for the greater of the maximum purchase limitation established
for the Direct Community Offering or one-tenth of one percent of
the total offering.
(2) In the event of an oversubscription for shares of
Conversion Stock pursuant to Category No. 4, the shares of
Conversion Stock available shall be allocated among the
subscribing Other Members so as to permit each remaining
subscribing Other Member, to the extent possible, to purchase a
number of shares sufficient to make his total allocation equal to
100 shares of Conversion Stock or the total amount of his
subscription, whichever is less. Any shares remaining after that
allocation will be allocated among the subscribing Other Members
whose subscriptions remain unsatisfied in the proportion that the
number of votes of a subscribing Other Member on the Voting
Record Date bears to the total votes on the Voting Record Date of
all subscribing Other Members. If the amount so allocated
exceeds the amount subscribed for by any one or more remaining
Other Members, the excess shall be reallocated (one or more times
as necessary) among those remaining Other Members whose
subscriptions remain unsatisfied on the same principle until all
available shares have been allocated or all subscriptions
satisfied.
D. Direct Community Offering and Syndicated Community Offering
-----------------------------------------------------------
1. Any shares of Conversion Stock not purchased through the
exercise of Subscription Rights set forth in Category Nos. 1 through 4
above may be sold by the Holding Company to Persons under such terms and
conditions as may be established by the Savings Bank's Board of Directors
with the concurrence of the OTS. The Direct Community Offering may commence
concurrently with or as soon as possible after the completion of the
Subscription Offering and must be completed within 45 days after completion
of the
10
<PAGE>
Subscription Offering, unless extended with the approval of the OTS. No
Person may purchase in the Direct Community Offering shares of Conversion
Stock with an aggregate purchase price that exceeds $125,000. The right to
purchase shares of Conversion Stock under this Category is subject to the
right of the Savings Bank or the Holding Company to accept or reject such
subscriptions in whole or in part. In the event of an oversubscription for
shares in this Category, the shares available shall be allocated among
prospective purchasers in an amount equal to the lesser of 100 shares or
the number of shares subscribed for by each such prospective purchaser, if
possible. Thereafter, unallocated shares shall be allocated among the
prospective purchasers whose orders remain unsatisfied after the procedure
described in the immediately preceding sentence until such orders have been
filled or the remaining shares have been allocated. The offering price for
which such shares are sold to the general public in the Direct Community
Offering shall be the Purchase Price.
2. Orders received in the Direct Community Offering first shall be
filled up to a maximum of 2% of the Conversion Stock and thereafter
remaining shares shall be allocated on an equal number of shares basis per
order until all orders have been filled.
3. The Conversion Stock offered in the Direct Community Offering
shall be offered and sold in a manner that will achieve the widest
distribution thereof. Preference shall be given in the Direct Community
Offering to natural Persons and trusts of natural Persons residing in the
Local Community.
4. Subject to such terms, conditions and procedures as may be
determined by the Savings Bank and the Holding Company, all shares of
Conversion Stock not subscribed for in the Subscription Offering or ordered
in the Direct Community Offering may be sold by a syndicate of broker-
dealers to the general public in a Syndicated Community Offering. Each
order for Conversion Stock in the Syndicated Community Offering shall be
subject to the absolute right of the Savings Bank and the Holding Company
to accept or reject any such order in whole or in part either at the time
of receipt of an order or as soon as practicable after completion of the
Syndicated Community Offering. No Person may purchase in the Syndicated
Community Offering shares of Conversion Stock with an aggregate purchase
price that exceeds $125,000. The Savings Bank and the Holding Company may
commence the Syndicated Community Offering concurrently with, at any time
during, or as soon as practicable after the end of the Subscription
Offering and/or Direct Community Offering, provided that the Syndicated
Community Offering must be completed within 45 days after the completion of
the Subscription Offering, unless extended by the Savings Bank and the
Holding Company with the approval of the OTS.
5. If for any reason a Syndicated Community Offering of shares of
Conversion Stock not sold in the Subscription Offering and the Direct
Community Offering cannot be effected, or in the event that any
insignificant residue of shares of Conversion Stock is not sold in the
Subscription Offering, Direct Community Offering or Syndicated Community
Offering, the Savings Bank and the Holding Company shall use their best
efforts to obtain other purchasers for such shares in such manner and upon
such conditions as may be satisfactory to the OTS.
6. In the event a Direct Community Offering or Syndicated Community
Offering appears not feasible, the Savings Bank will immediately consult
with the OTS to determine the most viable alternative available to effect
the completion of the Conversion. Should no viable alternative exist, the
Savings Bank may terminate the Conversion with the concurrence of the OTS.
E. Limitations Upon Purchases
--------------------------
The following additional limitations and exceptions shall be imposed upon
purchases of shares of Conversion Stock:
11
<PAGE>
1. Purchases of shares of Conversion Stock in the Conversion,
including purchases in the Direct Community Offering and the Syndicated
Community Offering, by any Person shall not exceed an aggregate purchase
price of $125,000, except that Tax-Qualified Employee Stock Benefit Plans
may purchase up to 8% of the total Conversion Stock issued in the
Conversion and shares to be held by the Tax-Qualified Employee Stock
Benefit Plans and attributable to a Person shall not be aggregated with
other shares purchased directly by or otherwise attributable to such
Person.
2. Officers and directors and Associates thereof may not purchase in
the aggregate more than 33% of the shares issued in the Conversion.
3. The Savings Bank's and Holding Company's Boards of Directors will
not be deemed to be Associates or a group of Persons Acting in Concert with
other directors or trustees solely as a result of membership on the Board
of Directors.
4. Purchases of shares of Conversion Stock by a Person, together with
Associates of or Persons Acting in Concert with such Person, shall not
exceed an aggregate purchase price of $250,000, except that Tax-Qualified
Employee Stock Benefit Plans may purchase up to 8% of the total Conversion
Stock issued and shares held or to be held by the Tax-Qualified Employee
Stock Benefit Plans and attributable to a Person shall not be aggregated
with other shares purchased directly by or otherwise attributable to such
Person.
5. The Savings Bank's Board of Directors, with the approval of the
OTS and without further approval of Members, may, as a result of market
conditions and other factors, increase or decrease the purchase limitation
in paragraphs 1 and 4 above or the number of shares of Conversion Stock to
be sold in the Conversion. If the Savings Bank or the Holding Company, as
the case may be, increases the maximum purchase limitations or the number
of shares of Conversion Stock to be sold in the Conversion, the Savings
Bank or the Holding Company, as the case may be, is only required to
resolicit Persons who subscribed for the maximum purchase amount and may,
in the sole discretion of the Savings Bank or the Holding Company, as the
case may be, resolicit certain other large subscribers. If the Savings
Bank or the Holding Company, as the case may be, decreases the maximum
purchase limitations or the number of shares of Conversion Stock to be sold
in the Conversion, the orders of any Person who subscribed for the maximum
purchase amount shall be decreased by the minimum amount necessary so that
such Person shall be in compliance with the then maximum number of shares
permitted to be subscribed for by such Person.
Each Person purchasing Conversion Stock in the Conversion shall be deemed
to confirm that such purchase does not conflict with the purchase limitations
under the Plan or otherwise imposed by law, rule or regulation. In the event
that such purchase limitations are violated by any Person (including any
Associate or group of Persons affiliated or otherwise Acting in Concert with
such Person), the Holding Company shall have the right to purchase from such
Person at the actual Purchase Price per share all shares acquired by such Person
in excess of such purchase limitations or, if such excess shares have been sold
by such Person, to receive from such Person the difference between the actual
Purchase Price per share paid for such excess shares and the price at which such
excess shares were sold by such Persons. This right of the Holding Company to
purchase such excess shares shall be assignable by the Holding Company.
F. Restrictions On and Other Characteristics of the Conversion Stock
-----------------------------------------------------------------
1. Transferability. Conversion Stock purchased by Officers and
---------------
directors of the Savings Bank and officers and directors of the Holding
Company shall not be sold or otherwise disposed of for value for a period
of one year from the date of Conversion, except for any disposition (i)
following the death of the original purchaser or (ii) resulting from an
exchange of securities in a merger or acquisition approved by the
regulatory authorities having jurisdiction.
12
<PAGE>
The Conversion Stock issued by the Holding Company to such Officers
and directors shall bear a legend giving appropriate notice of the one-year
holding period restriction. Said legend shall state as follows:
"The shares evidenced by this certificate are restricted as
to transfer for a period of one year from the date of this
certificate pursuant to Part 563b of the Rules and
Regulations of the Office of Thrift Supervision. These
shares may not be transferred prior thereto without a legal
opinion of counsel that said transfer is permissible under
the provisions of applicable laws and regulations."
In addition, the Holding Company shall give appropriate instructions
to the transfer agent of the Holding Company's Stock with respect to the
foregoing restrictions. Any shares of Holding Company Stock subsequently
issued as a stock dividend, stock split or otherwise, with respect to any
such restricted stock, shall be subject to the same holding period
restrictions for such Persons as may be then applicable to such restricted
stock.
2. Subsequent Purchases by Officers and Directors. Without prior
----------------------------------------------
approval of the OTS, if applicable, Officers and directors of the Savings
Bank and officers and directors of the Holding Company, and their
Associates, shall be prohibited for a period of three years following
completion of the Conversion from purchasing outstanding shares of Holding
Company Stock, except from a broker or dealer registered with the SEC.
Notwithstanding this restriction, purchases involving more than 1% of the
total outstanding shares of Holding Company Stock and purchases made and
shares held by a Tax-Qualified or non-Tax-Qualified Employee Stock Benefit
Plan which may be attributable to such directors and officers may be made
in negotiated transactions without OTS permission or the use of a broker or
dealer.
3. Repurchase and Dividend Rights. Pursuant to present regulations,
------------------------------
the Holding Company may not, for a period of three years from the date of
Conversion, repurchase Holding Company Stock from any Person, with the
exception of (i) a repurchase on a pro rata basis pursuant to an offer
approved by the OTS and made to all stockholders, (ii) the repurchase of
qualifying shares of a director or (iii) a purchase in the open market by a
Tax-Qualified Employee Stock Benefit Plan or a non-Tax-Qualified Employee
Stock Benefit Plan of the Converted Bank or the Holding Company in an
amount reasonable and appropriate to fund the plan. Repurchases during the
first year following the consummation of the Conversion are generally
prohibited unless "exceptional circumstances" are deemed to exist by the
OTS. However, upon 10 days' written notification to the District Director
and to the Chief Counsel, Corporate and Securities Division of the OTS, if
the District Director does not object, the Holding Company may make open
market repurchases of outstanding Holding Company Stock during the second
and third years following the consummation of the Conversion, provided that
(i) no more than 5% of the outstanding Holding Company Stock is to be
purchased during any twelve-month period, (ii) the Converted Savings Bank's
ratio of regulatory capital to total liabilities would not be reduced below
6%, and (iii) the repurchases would not adversely affect the financial
condition of the Converted Savings Bank. These restrictions and
limitations upon repurchases shall not apply following consummation of the
Charter Conversion as set forth in Paragraph VIII.B. herein unless the OTS
approval of the Charter Conversion otherwise requires.
Present regulations also provide that the Converted Savings Bank may
not declare or pay a cash dividend on or repurchase any of its Capital
Stock if the result thereof would be to reduce the regulatory capital of
the Converted Savings Bank below the amount required for the Liquidation
Account. Further, any dividend declared or paid on, or repurchase of, the
Capital Stock shall be in compliance with the rules and regulations of the
OTS, or other applicable regulations. The above limitations shall not
preclude payment of dividends on, or repurchases of, Capital Stock in the
event applicable federal regulatory limitations are liberalized subsequent
to the Conversion. Further, such restrictions and limitations upon
repurchases of Capital Stock and upon the declaration and payment of cash
dividends thereon shall not
13
<PAGE>
apply following consummation of the Charter Conversion as set forth in
Paragraph VIII.B. herein unless the OTS approval of the Charter Conversion
otherwise requires.
4. Voting Rights. After the Stock Conversion, holders of Savings
-------------
Accounts in and obligors on loans of the Savings Bank will not have voting
rights in the Converted Savings Bank. After the Charter Conversion,
holders of Savings Accounts in and obligors on loans of the Converted Bank
will not have voting rights in the Converted Bank. Exclusive voting rights
with respect to the Holding Company shall be vested in the holders of
Conversion Stock; holders of Savings Accounts in and obligors on loans of
the Converted Savings Bank and the Converted Bank will not have any voting
rights in the Holding Company except and to the extent that such Persons
become stockholders of the Holding Company, and the Holding Company will
have exclusive voting rights with respect to the Converted Savings Bank's
and Converted Bank's Capital Stock.
G. Mailing of Offering Materials and Collation of Subscriptions
------------------------------------------------------------
The sale of all shares of Conversion Stock offered pursuant to the Plan
must be completed within 24 months after approval of the Plan at the Special
Meeting. After approval of the Plan by the OTS and the declaration of the
effectiveness of the Prospectus, the Holding Company shall distribute
Prospectuses and Order Forms for the purchase of shares of Conversion Stock in
accordance with the terms of the Plan.
The recipient of an Order Form shall be provided not less than 20 days nor
more than 45 days from the date of mailing, unless extended, properly to
complete, execute and return the Order Form to the Holding Company or the
Savings Bank. Self-addressed, postage prepaid, return envelopes shall accompany
all Order Forms when they are mailed. Failure of any eligible subscriber to
return a properly completed and executed Order Form within the prescribed time
limits shall be deemed a waiver and a release by such eligible subscriber of any
rights to purchase shares of Conversion Stock under the Plan.
The sale of all shares of Conversion Stock proposed to be issued in
connection with the Conversion must be completed within 45 days after the last
day of the Subscription Offering, unless extended by the Holding Company with
the approval of the OTS.
H. Method of Payment
-----------------
Payment for all shares of Conversion Stock may be made in cash, by check or
by money order, or if a subscriber has a Savings Account in the Savings Bank
such subscriber may authorize the Savings Bank to charge the subscriber's
Savings Account. The Holding Company shall pay interest at not less than the
passbook rate on all amounts paid in cash or by check or money order to purchase
shares of Conversion Stock in the Subscription Offering from the date payment is
received until the Conversion is completed or terminated. The Savings Bank is
not permitted knowingly to loan funds or otherwise extend any credit to any
Person for the purpose of purchasing Conversion Stock.
If a subscriber authorizes the Savings Bank to charge the subscriber's
Savings Account, the funds shall remain in the subscriber's Savings Account and
shall continue to earn interest, but may not be used by such subscriber until
the Conversion is completed or terminated, whichever is earlier. The withdrawal
shall be given effect only concurrently with the sale of all shares of
Conversion Stock proposed to be sold in the Conversion and only to the extent
necessary to satisfy the subscription at a price equal to the Purchase Price.
The Savings Bank shall allow subscribers to purchase shares of Conversion Stock
by withdrawing funds from certificate accounts held with the Savings Bank
without the assessment of early withdrawal penalties, subject to the approval,
if necessary, of the applicable regulatory authorities. In the case of early
withdrawal of only a portion of such account, the certificate evidencing such
account shall be canceled if the remaining balance of the account is less than
the applicable minimum balance requirement. In that event, the remaining
balance shall earn interest at the passbook rate. This
14
<PAGE>
waiver of the early withdrawal penalty is applicable only to withdrawals made in
connection with the purchase of Conversion Stock under the Plan.
Tax-Qualified Employee Stock Benefit Plans may subscribe for shares by
submitting an Order Form, along with evidence of a loan commitment from a
financial institution for the purchase of shares, during the Subscription
Offering and by making payment for the shares on the date of the closing of the
Conversion.
I. Undelivered, Defective or Late Order Forms; Insufficient Payment
----------------------------------------------------------------
If an Order Form (i) is not delivered and is returned to the Holding
Company or the Savings Bank by the United States Postal Service (or the Holding
Company or the Savings Bank is unable to locate the addressee); (ii) is not
returned to the Holding Company or the Savings Bank, or is returned to the
Holding Company or the Savings Bank after expiration of the date specified
thereon; (iii) is defectively completed or executed; or (iv) is not accompanied
by the total required payment for the shares of Conversion Stock subscribed for
(including cases in which the subscribers' Savings Accounts are insufficient to
cover the authorized withdrawal for the required payment), the Subscription
Rights of the Person to whom such rights have been granted shall not be honored
and shall be treated as though such Person failed to return the completed Order
Form within the time period specified therein. Alternatively, the Holding
Company or the Savings Bank may, but shall not be required to, waive any
irregularity relating to any Order Form or require the submission of a corrected
Order Form or the remittance of full payment for the shares of Conversion Stock
subscribed for by such date as the Holding Company or the Savings Bank may
specify. Subscription orders, once tendered, shall not be revocable. The
Holding Company's and the Savings Bank's interpretation of the terms and
conditions of the Plan and of the Order Forms shall be final.
J. Members in Non-Qualified States or in Foreign Countries
-------------------------------------------------------
The Holding Company shall make reasonable efforts to comply with the
securities laws of all states of the United States in which Persons entitled to
subscribe for shares of Conversion Stock pursuant to the Plan reside. However,
no such Person shall be offered or receive any such shares under the Plan who
resides in a foreign country or who resides in a state of the United States with
respect to which any of the following apply: (a) a small number of Persons
otherwise eligible to subscribe for shares of Conversion Stock reside in such
state; (b) the granting of Subscription Rights or offer or sale of shares of
Conversion Stock to such Persons would require the Holding Company to register,
under the securities laws of such state, as a broker or dealer or to register or
otherwise qualify its securities for sale in such state; or (c) such
registration or qualification would be impractical for reasons of cost or
otherwise.
X. Federal Stock Charter and Bylaws and Bank Articles of Incorporation and
-----------------------------------------------------------------------
Bylaws
- ------
As part of the Stock Conversion, an amended federal stock Charter and
Bylaws will be adopted to authorize the Converted Savings Bank to operate as a
federal capital stock savings bank. By approving the Plan, the Members of the
Savings Bank will thereby approve the amended federal stock Charter and Bylaws.
Prior to completion of the Conversion, the proposed federal stock Charter and
Bylaws may be amended in accordance with the provisions and limitations for
amending the Plan under Paragraph XVII below. The effective date of the
adoption of the federal stock Charter and Bylaws shall be the date of the
issuance of the Conversion Stock, which shall be the date of consummation of the
Stock Conversion.
As part of the Charter Conversion, articles of incorporation and bylaws for
the bank will be adopted to allow the Converted Bank to operate as a Washington
chartered savings bank. By approving the Plan, the Members of the Savings Bank
will thereby approve such articles of incorporation and bylaws. Prior to
completion of the Charter Conversion, the articles of incorporation and bylaws
may be amended in accordance with the provisions and limitations for amending
the Plan under Paragraph XVII below. The effective date of the articles of
incorporation and bylaws of the Converted Bank shall be the date of the
consummation of the Charter Conversion.
15
<PAGE>
XI. Post Conversion Filing and Market Making
----------------------------------------
In connection with the Conversion, the Holding Company shall register the
Conversion Stock with the SEC pursuant to the Securities Exchange Act of 1934,
as amended, and shall undertake not to deregister such Conversion Stock for a
period of three years thereafter.
The Holding Company shall use its best efforts to encourage and assist
various Market Makers to establish and maintain a market for the shares of its
stock. The Holding Company shall also use its best efforts to list its stock
through the Nasdaq Stock Market or on a national or regional securities
exchange.
XII. Status of Savings Accounts and Loans Subsequent to Conversion
-------------------------------------------------------------
All Savings Accounts shall retain the same status after Conversion as
these accounts had prior to Conversion. Each Savings Account holder shall
retain, without payment, a withdrawable Savings Account or accounts after the
Conversion, equal in amount to the withdrawable value of such holder's Savings
Account or accounts prior to Conversion. All Savings Accounts will continue to
be insured by the Savings Association Insurance Fund of the FDIC up to the
applicable limits of insurance coverage. All loans shall retain the same status
after the Conversion as they had prior to the Conversion. See Paragraph IX.F.4.
with respect to the termination of voting rights of Members.
XIII. Liquidation Account
-------------------
After the Conversion, holders of Savings Accounts shall not be entitled
to share in any residual assets in the event of liquidation of the Savings Bank.
However, the Savings Bank shall, at the time of the Conversion, establish a
liquidation account in an amount equal to its total net worth as of the date of
the latest statement of financial condition contained in the final Prospectus.
The function of the liquidation account shall be to establish a priority on
liquidation and, except as provided in Paragraph IX.F.3 above, the existence of
the liquidation account shall not operate to restrict the use or application of
any of the net worth accounts of the Savings Bank.
The liquidation account shall be maintained by the Converted Savings Bank
subsequent to the Conversion for the benefit of Eligible Account Holders and
Supplemental Eligible Account Holders who retain their Savings Accounts in the
Converted Savings Bank. Each Eligible Account Holder and Supplemental Eligible
Account Holder shall, with respect to each Savings Account held, have a related
inchoate interest in a portion of the liquidation account balance
("subaccount").
The initial subaccount balance for a Savings Account held by an Eligible
Account Holder and/or a Supplemental Eligible Account Holder shall be determined
by multiplying the opening balance in the liquidation account by a fraction of
which the numerator is the amount of such holder's Qualifying Deposit in the
Savings Account and the denominator is the total amount of the Qualifying
Deposits of all Eligible Account Holders and Supplemental Eligible Account
Holders. Such initial subaccount balance shall not be increased, and it shall
be subject to downward adjustment as provided below.
If the deposit balance in any Savings Account of an Eligible Account
Holder or Supplemental Eligible Account Holder at the close of business on any
annual closing date subsequent to the Eligibility Record Date is less than the
lesser of (i) the deposit balance in such Savings Account at the close of
business on any other annual closing date subsequent to the Eligibility Record
Date or the Supplemental Eligibility Record Date or (ii) the amount of the
Qualifying Deposit in such Savings Account on the Eligibility Record Date or the
Supplemental Eligibility Record Date, then the subaccount balance for such
Savings Account shall be adjusted by reducing such subaccount balance in an
amount proportionate to the reduction in such deposit balance. In the event of a
downward adjustment, such subaccount balance shall not be subsequently
increased, notwithstanding any increase in the deposit balance of the related
Savings Account. If any such Savings Account is closed, the related subaccount
balance shall be reduced to zero.
16
<PAGE>
In the event of a complete liquidation of the Converted Savings Bank each
Eligible Account Holder and Supplemental Eligible Account Holder shall be
entitled to receive a liquidation distribution from the liquidation account in
the amount of the then current adjusted subaccount balance(s) for Savings
Account(s) then held by such holder before any liquidation distribution may be
made to stockholders. No merger, consolidation, bulk purchase of assets with
assumptions of Savings Accounts and other liabilities or similar transactions
with another federally-insured institution in which the Savings Bank is not the
surviving institution shall be considered to be a complete liquidation. In any
such transaction, the liquidation account shall be assumed by the surviving
institution.
The Charter Conversion shall not be deemed to be a complete liquidation
of the Converted Savings Bank for purposes of the distribution of the
Liquidation Account. Upon consummation of the Charter Conversion, the
Liquidation Account, and all rights and obligations of the Converted Savings
Bank in connection therewith, shall be assumed by the Converted Bank.
XIV. Regulatory Restrictions on Acquisition of Holding Company
---------------------------------------------------------
A. Present OTS regulations provide that for a period of three years
following completion of the Conversion, no Person (i.e, individual, a group
Acting in Concert, a corporation, a partnership, an association, a joint stock
company, a trust, or any unincorporated organization or similar company, a
syndicate or any other group formed for the purpose of acquiring, holding or
disposing of securities of an insured institution or its holding company) shall
directly, or indirectly, offer to purchase or actually acquire the beneficial
ownership of more than 10% of any class of equity security of the Holding
Company without the prior approval of the OTS. However, approval is not
required for purchases directly from the Holding Company or the underwriters or
selling group acting on its behalf with a view towards public resale, or for
purchases not exceeding 1% per annum of the shares outstanding. Civil penalties
may be imposed by the OTS for willful violation or assistance of any violation.
Where any Person, directly or indirectly, acquires beneficial ownership of more
than 10% of any class of equity security of the Holding Company within such
three-year period, without the prior approval of the OTS, stock of the Holding
Company beneficially owned by such Person in excess of 10% shall not be counted
as shares entitled to vote and shall not be voted by any Person or counted as
voting shares in connection with any matter submitted to the stockholders for a
vote. The provisions of this regulation shall not apply to the acquisition of
securities by Tax-Qualified Employee Stock Benefit Plans provided that such
plans do not have beneficial ownership of more than 25% of any class of equity
security of the Holding Company.
Upon consummation of the Charter Conversion, no Person (i.e., an
individual, a group Acting in Concert, a corporation, a partnership, an
association, a joint stock company, a trust or any unincorporated organization
or similar company, a syndicate or any other group formed for the purpose of
acquiring, holding or disposing of securities of an insured institution or its
holding company) shall directly, or indirectly, offer to purchase or actually
acquire the beneficial ownership of more than 10% of any class of Holding
Company Stock without the prior approval of the Federal Reserve Board.
B. The Holding Company may provide in its articles of incorporation a
provision that, for a specified period of up to five years following the date of
the completion of the Conversion, no Person shall directly or indirectly offer
to acquire or actually acquire the beneficial ownership of more than 10% of any
class of equity security of the Holding Company. Such provisions would not
apply to acquisition of securities by Tax-Qualified Employee Stock Benefit Plans
provided that such plans do not have beneficial ownership of more than 25% of
any class of equity security of the Holding Company. The Holding Company may
provide in its articles of incorporation for such other provisions affecting the
acquisition of its stock as shall be determined by its Board of Directors.
XV. Directors and Officers of the Converted Savings Bank
----------------------------------------------------
The Conversion is not intended to result in any change in the directors
or Officers. Each Person serving as a director of the Savings Bank at the time
of Conversion shall continue to serve as a member of the Converted Savings
Bank's Board of Directors, subject to the Converted Savings Bank's charter and
bylaws. The Persons serving
17
<PAGE>
as Officers immediately prior to the Conversion will continue to serve at the
discretion of the Board of Directors in their respective capacities as Officers
of the Converted Savings Bank. In connection with the Conversion, the Savings
Bank and the Holding Company may enter into employment agreements on such terms
and with such officers as shall be determined by the Boards of Directors of the
Savings Bank and the Holding Company.
XVI. Executive Compensation
----------------------
The Savings Bank and the Holding Company may adopt, subject to any
required approvals, executive compensation or other benefit programs, including
but not limited to compensation plans involving stock options, stock
appreciation rights, restricted stock grants, employee recognition programs and
the like.
XVII. Amendment or Termination of Plan
--------------------------------
If necessary or desirable, the Plan may be amended by a two-thirds vote
of the Savings Bank's Board of Directors, at any time prior to submission of the
Plan and proxy materials to the Members. At any time after submission of the
Plan and proxy materials to the Members, the Plan may be amended by a two-thirds
vote of the Board of Directors only with the concurrence of the OTS. The Plan
may be terminated by a two-thirds vote of the Board of Directors at any time
prior to the Special Meeting, and at any time following such Special Meeting
with the concurrence of the OTS. In its discretion, the Board of Directors may
modify or terminate the Plan upon the order of the regulatory authorities
without a resolicitation of proxies or another meeting of the Members.
In the event that mandatory new regulations pertaining to conversions are
adopted by the OTS, the Federal Reserve Board or the Director prior to the
completion of the Conversion, the Plan shall be amended to conform to the new
mandatory regulations without a resolicitation of proxies or another meeting of
Members. In the event that new conversion regulations adopted by the OTS prior
to completion of the Conversion contain optional provisions, the Plan may be
amended to utilize such optional provisions at the discretion of the Board of
Directors without a resolicitation of proxies or another meeting of Members.
By adoption of the Plan, the Members authorize the Board of Directors to
amend and/or terminate the Plan under the circumstances set forth above.
XVIII. Expenses of the Conversion
--------------------------
The Holding Company and the Savings Bank shall use their best efforts to
assure that expenses incurred in connection with the Conversion shall be
reasonable.
XIX. Contributions to Tax-Qualified Plans
------------------------------------
The Holding Company and/or the Savings Bank may make discretionary
contributions to the Tax-Qualified Employee Stock Benefit Plans, provided such
contributions do not cause the Savings Bank to fail to meet its regulatory
capital requirements.
18
<PAGE>
EXHIBIT 3.1
CERTIFICATE OF INCORPORATION OF FIRSTBANK CORP.
<PAGE>
CERTIFICATE OF INCORPORATION
OF
FIRSTBANK CORP.
ARTICLE I
NAME
The name of the corporation is FirstBank Corp. (herein the "Corporation").
ARTICLE II
REGISTERED OFFICE
The address of the Corporation's registered office in the State of Delaware
is 1209 Orange Street, Corporation Trust Center, in the City of Wilmington,
County of New Castle. The name of the Corporation's registered agent at such
address is The Corporation Trust Company.
ARTICLE III
POWERS
The purpose for which the Corporation is organized is to engage in any
lawful act or activity for which corporations may be organized under the General
Corporation Law of the State of Delaware. The Corporation shall have all the
powers of a corporation organized under the General Corporation Law of the State
of Delaware.
ARTICLE IV
TERM
The Corporation is to have perpetual existence.
ARTICLE V
INCORPORATORS
The name and mailing address of the incorporator are:
Name Mailing Address
---- ---------------
Clyde E. Conklin 920 Main Street
Lewiston, Idaho 83501
ARTICLE VI
INITIAL DIRECTORS
The number of directors constituting the initial board of directors of the
Corporation is seven, and the names and addresses of the persons who are to
serve as the initial directors until their successors are elected and qualified,
together with the classes of directorships to which such persons have been
assigned, are:
<PAGE>
<TABLE>
<CAPTION>
Name Address Class
- ---- ------- -----
<S> <C> <C>
William J. Larson 920 Main Street I
Lewiston, Idaho 83501
Larry K. Moxley 920 Main Street I
Lewiston, Idaho 83501
James N. Marker 920 Main Street II
Lewiston, Idaho 83501
Robert S. Coleman, Sr. 920 Main Street II
Lewiston, Idaho 83501
Clyde E. Conklin 920 Main Street III
Lewiston, Idaho 83501
W. Dean Jurgens 920 Main Street III
Lewiston, Idaho 83501
Steve R. Cox 920 Main Street III
Lewiston, Idaho 83501
</TABLE>
ARTICLE VII
CAPITAL STOCK
A. The total number of shares of all classes of stock which the
Corporation shall have authority to issue is 5,500,000 consisting of:
1. 500,000 shares of Preferred Stock, par value one cent ($.01) per
share (the "Preferred Stock"); and
2. 5,000,000 shares of Common Stock, par value one cent ($.01) per
share (the "Common Stock").
B. The board of directors is authorized, subject to any limitations
prescribed by law, to provide for the issuance of the shares of Preferred Stock
in series, and by filing a certificate pursuant to the applicable law of the
State of Delaware (such certificate being hereinafter referred to as a
"Preferred Stock Designation"), to establish from time to time the number of
shares to be included in each such series, and to fix the designation, powers,
preferences, and rights of the shares of each such series and any
qualifications, limitations or restrictions thereof. The number of authorized
shares of Preferred Stock may be increased or decreased (but not below the
number of shares thereof then outstanding) by the affirmative vote of the
holders of a majority of the Common Stock, without a vote of the holders of the
Preferred Stock, or of any series thereof, unless a vote of any such holders is
required pursuant to the terms of any Preferred Stock Designation.
C. 1. Notwithstanding any other provision of this Certificate, 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, unless a majority of the Whole Board (as
hereinafter defined) shall have by
2
<PAGE>
resolution granted in advance such entitlement or permission. The number of
votes which may be cast by any record owner by virtue of the provisions hereof
in respect of common stock beneficially owned by such person owning shares in
excess of the Limit shall be 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 which are both beneficially owned by such person
and owned of record by such record owner and the denominator of which is the
total number of shares of common stock beneficially owned by such person owning
shares in excess of the Limit.
2. The following definitions shall apply to this Section C of this
Article VII.
(a) "Affiliate" shall have the meaning ascribed to it in Rule
12b-2 of the General Rules and Regulations under the Securities Exchange Act of
1934, as in effect on the date of filing of this Certificate.
(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 provision thereto,
pursuant to said Rule 13d-3 as in effect on the date of filing of this
Certificate; provided, however, that a person shall, in any event, also be
-----------------
deemed the "beneficial owner" of any common stock:
(i) which such person or any of its affiliates
beneficially owns, directly or indirectly; or
(ii) which such person or any of its affiliates has (A)
the right to acquire (whether such right is exercisable immediately or only
after the passage of time), pursuant to any agreement, arrangement or
understanding (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 subparagraphs A(1)(a) through (h) of Article XIV or upon the exercise of
conversion rights, exchange rights, warrants, or options or otherwise, or (B)
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
(iii) 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 (i) 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 of officers acting in their
capacities as such, be deemed, for any purposes hereof, to beneficially own any
common stock beneficially owned by any other such director or officer (or any
Affiliate thereof), and (ii) neither any employee stock ownership or similar
plan of this Corporation or any subsidiary of this Corporation, nor any trustee
with respect thereto or any Affiliate of such trustee (solely by reason of such
capacity of such trustee), shall be deemed, for any purposes hereof, to
beneficially own any common stock held under any such plan. For purposes 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.
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(d) "Whole Board" shall mean the total number of directors which
the Corporation would have if there were no vacancies on the board of directors.
3. The board of directors shall have the power to construe and apply
the provisions of this Section and to make all determinations necessary or
desirable to implement such provisions, including but not limited to matters
with respect to (i) the number of shares of common stock beneficially owned by
any person, (ii) whether a person is an affiliate of another, (iii) whether a
person has an agreement, arrangement, or understanding with another as to the
matters referred to in the definition of beneficial ownership, (iv) the
application of any other definition or operative provision of this Section to
the given facts, or (v) any other matter relating to the applicability or effect
of this Section.
4. The board of directors shall have the right to demand that any
person who is reasonably believed to beneficially own common stock in excess of
the Limit (or holds of record common stock beneficially owned by any person in
excess of the Limit) supply the Corporation with complete information as to (i)
the record owner(s) of all shares beneficially owned by such person who is
reasonably believed to own shares in excess of the Limit, and (ii) any other
factual matter relating to the applicability or effect of this section as may
reasonably be required of such person.
5. Except as otherwise provided by law or expressly provided in this
Section C, the presence, in person or by proxy, of the holders of record of
shares of capital stock of the Corporation entitling the holders thereof to cast
a majority of the votes (after giving effect, if required, to the provisions of
this Section C) entitled to be cast by the holders of shares of capital stock of
the Corporation entitled to vote shall constitute a quorum at all meetings of
the stockholders, and every reference in this Certificate to a majority or other
proportion of capital stock (or the holders thereof) for purposes of determining
any quorum requirement or any requirement for stockholder consent or approval
shall be deemed to refer to such majority or other proportion of the votes (or
the holders thereof) then entitled to be cast in respect of such capital stock.
6. Any constructions, applications, or determinations made by the
board of directors pursuant to this Section in good faith and on the basis of
such information and assistance as was then reasonably available for such
purpose shall be conclusive and binding upon the Corporation and its
stockholders.
7. In the event any provision (or portion thereof) of this Section C
shall be found to be invalid, prohibited or unenforceable for any reason, the
remaining provisions (or portions thereof) of this Section shall remain in full
force and effect, and shall be construed as if such invalid, prohibited or
unenforceable provision had been stricken herefrom or otherwise rendered
inapplicable, it being the intent of this Corporation and its stockholders that
each such remaining provision (or portion thereof) of this Section C remain, to
the fullest extent permitted by law, applicable and enforceable as to all
stockholders, including stockholders owning an amount of stock over the Limit,
notwithstanding any such finding.
ARTICLE VIII
PREEMPTIVE RIGHTS
No holder of any of the shares of any class or series of stock or of
options, warrants or other rights to purchase shares of any class or series of
stock or of other securities of the Corporation shall have any preemptive right
to purchase or subscribe for any unissued stock of any class or series, or any
unissued bonds, certificates of indebtedness, debentures or other securities
convertible into or exchangeable for stock of any class or series or carrying
any right to purchase stock of any class or series; but any such unissued stock,
bonds, certificates of indebtedness, debentures or other securities convertible
into or exchangeable for stock or carrying any right to purchase stock may be
issued pursuant to resolution of the board of directors of the Corporation to
such persons, firms, corporations or associations, whether or not holders
thereof, and upon such terms as may be deemed advisable by the board of
directors in the exercise of its sole discretion.
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ARTICLE IX
REPURCHASE OF SHARES
The Corporation may from time to time, pursuant to authorization by the
board of directors of the Corporation and without action by the stockholders,
purchase or otherwise acquire shares of any class, bonds, debentures, notes,
scrip, warrants, obligations, evidences of indebtedness, or other securities of
the Corporation in such manner, upon such terms, and in such amounts as the
board of directors shall determine; subject, however, to such limitations or
restrictions, if any, as are contained in the express terms of any class of
shares of the Corporation outstanding at the time of the purchase or acquisition
in question or as are imposed by law.
ARTICLE X
MEETINGS OF STOCKHOLDERS; CUMULATIVE VOTING
A. Notwithstanding any other provision of this Certificate or the Bylaws
of the Corporation, no action required to be taken or which may be taken at any
annual or special meeting of stockholders of the Corporation may be taken
without a meeting, and the power of stockholders to consent in writing, without
a meeting, to the taking of any action is specifically denied.
B. Special meetings of the stockholders of the Corporation for any
purpose or purposes may be called at any time by the board of directors of the
Corporation, or by a committee of the board of directors which has been duly
designated by the board of directors and whose powers and authorities, as
provided in a resolution of the board of directors or in the Bylaws of the
Corporation, include the power and authority to call such meetings, but such
special meetings may not be called by any other person or persons.
C. There shall be no cumulative voting by stockholders of any class or
series in the election of directors of the Corporation.
D. Meetings of stockholders may be held at such place as the Bylaws may
provide.
ARTICLE XI
NOTICE FOR NOMINATIONS AND PROPOSALS
A. Nominations for the election of directors and proposals for any new
business to be taken up at any annual or special meeting of stockholders may be
made by the board of directors of the Corporation or by any stockholder of the
Corporation entitled to vote generally in the election of directors. In order
for a stockholder of the Corporation to make any such nominations and/or
proposals, he or she shall give notice thereof in writing, delivered or mailed
by first class United States mail, postage prepaid, to the Secretary of the
Corporation not less than thirty days nor more than sixty days prior to any such
meeting; provided, however, that if less than thirty-one days' notice of the
meeting is given to stockholders, such written notice shall be delivered or
mailed, as prescribed, to the Secretary of the Corporation not later than the
close of the tenth day following the day on which notice of the meeting was
mailed to stockholders. Each such notice given by a stockholder with respect to
nominations for election of directors shall set forth (i) the name, age,
business address and, if known, residence address of each nominee proposed in
such notice, (ii) the principal occupation or employment of each such nominees,
(iii) the number of shares of stock of the Corporation which are beneficially
owned by each such nominee, (iv) such other information as would be required to
be included in a proxy statement soliciting proxies for the election of the
proposed nominee pursuant to Regulation 14A of the Securities Exchange Act of
1934, as amended, including, without limitation, such person's written consent
to being named in the proxy statement as a nominee and to serving as a director,
if elected, and (v) as to the stockholder giving such notice (a) his name and
address as they appear on the Corporation's books and (b) the class and number
of shares of the Corporation which are beneficially owned by
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such stockholder. In addition, the stockholder making such nomination shall
promptly provide any other information reasonably requested by the Corporation.
B. Each such notice given by a stockholder to the Secretary with respect
to business proposals to bring before a meeting shall set forth in writing as to
each matter: (i) a brief description of the business desired to be brought
before the meeting and the reasons for conducting such business at the meeting,
(ii) the name and address, as they appear on the Corporation's books, of the
stockholder proposing such business; (iii) the class and number of shares of the
Corporation which are beneficially owned by the stockholder; and (iv) any
material interest of the stockholder in such business. Notwithstanding anything
in this Certificate to the contrary, no business shall be conducted at the
meeting except in accordance with the procedures set forth in this Article.
C. The Chairman of the annual or special meeting of stockholders may, if
the facts warrant, determine and declare to the meeting that a nomination or
proposal was not made in accordance with the foregoing procedure, and, if the
Chairman should so determine, the Chairman shall so declare to the meeting and
the defective nomination or proposal shall be disregarded and laid over for
action at the next succeeding adjourned, special or annual meeting of the
stockholders taking place thirty days or more thereafter. This provision shall
not require the holding of any adjourned or special meeting of stockholders for
the purpose of considering such defective nomination or proposal.
ARTICLE XII
DIRECTORS
A. Number; Vacancies. The number of directors of the Corporation shall
-----------------
be such number, not less than 5 nor more than 15 (exclusive of directors, if
any, to be elected by holders of preferred stock of the Corporation, voting
separately as a class), as shall be provided from time to time in or in
accordance with the Bylaws; provided, however, that no decrease in the number of
directors shall have the effect of shortening the term of any incumbent
director, and provided further, that no action shall be taken to decrease or
increase the number of directors from time to time unless at least two-thirds of
the directors then in office shall concur in said action. Vacancies in the
board of directors of the Corporation, however caused, and newly created
directorships may be filled only by a vote of two-thirds of the directors then
in office, whether or not a quorum, and any director so chosen shall hold office
for a term expiring at the annual meeting of stockholders at which the term of
the class to which the director has been chosen expires and when the director's
successor is elected and qualified.
B. Classified Board. The board of directors of the Corporation shall be
----------------
divided into three classes of directors which shall be designated Class I, Class
II and Class III. The members of each class shall be elected for a term of
three years and until their successors are elected and qualified. Such classes
shall be as nearly equal in number as the then total number of directors
constituting the entire board of directors shall permit, with the terms of
office of all members of one class expiring each year. At the first annual
meeting of stockholders, directors in Class I shall be elected to hold office
for a term expiring at the third succeeding annual meeting thereafter. At the
second annual meeting of stockholders, directors of Class II shall be elected to
hold office for a term expiring at the third succeeding meeting thereafter. At
the third annual meeting of stockholders, directors of Class III shall be
elected to hold office for a term expiring at the third succeeding meeting
thereafter. Thereafter, at each succeeding annual meeting, directors of each
class shall be elected for three year terms. Notwithstanding the foregoing, the
director whose term shall expire at any annual meeting shall continue to serve
until such time as his successor shall have been duly elected and shall have
qualified unless his position on the board of directors shall have been
abolished by action taken to reduce the size of the board of directors prior to
said meeting.
Should the number of directors of the Corporation be reduced, the
directorship(s) eliminated shall be allocated among classes as appropriate so
that the number of directors in each class is as nearly as equal as possible.
The board of directors shall designate, by the name of the incumbent(s), the
position(s) to be abolished. Notwithstanding the foregoing, no decrease in the
number of directors shall have the effect of shortening the term of any
incumbent director. Should the number of directors of the Corporation be
increased, the additional
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directorships shall be allocated among classes as appropriate so that the number
of directors in each class is as nearly as equal as possible.
Whenever the holders of any one or more series of preferred stock of the
Corporation shall have the right, voting separately as a class, to elect one or
more directors of the Corporation, the board of directors shall consist of said
directors so elected in addition to the number of directors fixed as provided
above in this Article XII. Notwithstanding the foregoing, and except as
otherwise may be required by law, whenever the holders of any one or more series
of preferred stock of the Corporation shall have the right, voting separately as
a class, to elect one or more directors of the Corporation, the terms of the
director or directors elected by such holders shall expire at the next
succeeding annual meeting of stockholders.
ARTICLE XIII
REMOVAL OF DIRECTORS
Notwithstanding any other provision of this Certificate or the Bylaws of the
Corporation, any director or the entire board of directors of the Corporation
may be removed, at any time, but only for cause and only by the affirmative vote
of the holders of at least 80% of the outstanding shares of capital stock of the
Corporation entitled to vote generally in the election of directors (considered
for this purpose as one class) cast at a meeting of the stockholders called for
that purpose. Notwithstanding the foregoing, whenever the holders of any one or
more series of preferred stock of the Corporation shall have the right, voting
separately as a class, to elect one or more directors of the Corporation, the
preceding provisions of this Article XIII shall not apply with respect to the
director or directors elected by such holders of preferred stock.
ARTICLE XIV
APPROVAL OF CERTAIN BUSINESS COMBINATIONS
The stockholder vote required to approve Business Combinations (as
hereinafter defined) shall be as set forth in this section.
A. 1. Except as otherwise expressly provided in this Article XIV, the
affirmative vote of the holders of (i) at least 80% of the outstanding shares
entitled to vote thereon (and, if any class or series of shares is entitled to
vote thereon separately, the affirmative vote of the holders of at least 80% of
the outstanding shares of each such class or series), and (ii) at least a
majority of the outstanding shares entitled to vote thereon, not including
shares deemed beneficially owned by a Related Person (as hereinafter defined),
shall be required in order to authorize any of the following:
(a) any merger or consolidation of the Corporation with or into
a Related Person (as hereinafter defined);
(b) any sale, lease, exchange, transfer or other disposition,
including without limitation, a mortgage, or any other security device, of all
or any Substantial Part (as hereinafter defined) of the assets of the
Corporation (including without limitation any voting securities of a subsidiary)
or of a subsidiary, to a Related Person;
(c) any merger or consolidation of a Related Person with or into
the Corporation or a subsidiary of the Corporation;
(d) any sale, lease, exchange, transfer or other disposition of
all or any Substantial Part of the assets of a Related Person to the Corporation
or a subsidiary of the Corporation;
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(e) the issuance of any securities of the Corporation or a
subsidiary of the Corporation to a Related Person;
(f) the acquisition by the Corporation or a subsidiary of the
Corporation of any securities of a Related Person;
(g) any reclassification of the common stock of the Corporation,
or any recapitalization involving the common stock of the Corporation; and
(h) any agreement, contract or other arrangement providing for
any of the transactions described in this Article.
2. Such affirmative vote shall be required notwithstanding any other
provision of this Certificate, any provision of law, or any agreement with any
regulatory agency or national securities exchange which might otherwise permit a
lesser vote or no vote.
3. The term "Business Combination" as used in this Article XIV shall
mean any transaction which is referred to in any one or more of subparagraphs
A(1)(a) through (h) above.
B. The provisions of paragraph A shall not be applicable to any
particular Business Combination, and such Business Combination shall require
only such affirmative vote as is required by any other provision of this
Certificate, any provision of law, or any agreement with any regulatory agency
or national securities exchange, if the Business Combination shall have been
approved by a two-thirds vote of the Continuing Directors (as hereinafter
defined); provided, however, that such approval shall only be effective if
obtained at a meeting at which a Continuing Director Quorum (as hereinafter
defined) is present.
C. For the purposes of this Article XIV the following definitions apply:
1. The term "Related Person" shall mean and include (a) any
individual, corporation, partnership or other person or entity which together
with its "affiliates" (as that term is defined in Rule 12b-2 of the General
Rules and Regulations under the Securities Exchange Act of 1934, as amended),
"beneficially owns" (as that term is defined in Rule 13d-3 of the General Rules
and Regulations under the Securities Exchange Act of 1934, as amended) in the
aggregate 10% or more of the outstanding shares of the common stock of the
Corporation; and (b) any "affiliate" (as that term is defined in Rule 12b-2
under the Securities Exchange Act of 1934, as amended) of any such individual,
corporation, partnership or other person or entity. Without limitation, any
shares of the common stock of the Corporation which any Related Person has the
right to acquire pursuant to any agreement, or upon exercise or conversion
rights, warrants or options, or otherwise, shall be deemed "beneficially owned"
by such Related Person.
2. The term "Substantial Part" shall mean more than 25% of the total
assets of the Corporation, as of the end of its most recent fiscal year ending
prior to the time the determination is made.
3. The term "Continuing Director" shall mean any member of the board
of directors of the Corporation who is unaffiliated with the Related Person and
was a member of the board prior to the time that the Related Person became a
Related Person, and any successor of a Continuing Director who is unaffiliated
with the Related Person and is recommended to succeed a Continuing Director by a
majority of Continuing Directors then on the board.
4. The term "Continuing Director Quorum" shall mean two-thirds of
the Continuing Directors capable of exercising the powers conferred on them.
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ARTICLE XV
EVALUATION OF BUSINESS COMBINATIONS
In connection with the exercise of its judgment in determining what is in
the best interests of the Corporation and of the stockholders, when evaluating a
Business Combination (as defined in Article XIV) or a tender or exchange offer,
the board of directors of the Corporation shall, in addition to considering the
adequacy of the amount to be paid in connection with any such transaction,
consider all of the following factors and any other factors which it deems
relevant; (i) the social and economic effects of the transaction on the
Corporation and its subsidiaries, employees, depositors, loan and other
customers, creditors and other elements of the communities in which the
Corporation and its subsidiaries operate or are located; (ii) the business and
financial condition and earnings prospects of the acquiring person or entity,
including, but not limited to, debt service and other existing financial
obligations, financial obligations to be incurred in connection with the
acquisition and other likely financial obligations of the acquiring person or
entity and the possible effect of such conditions upon the Corporation and its
subsidiaries and the other elements of the communities in which the Corporation
and its subsidiaries operate or are located; and (iii) the competence,
experience, and integrity of the acquiring person or entity and its or their
management.
ARTICLE XVI
INDEMNIFICATION
A. Persons. The Corporation shall indemnify, to the extent provided in
-------
paragraphs B, D or F:
1. any person who is or was a director or officer of the
Corporation; and
2. any person who serves or served at the Corporation's request as a
director, officer, employee, agent, partner or trustee of another corporation,
partnership, joint venture, trust or other enterprise.
B. Extent -- Derivative Suits. In case of a threatened, pending or
--------------------------
completed action or suit by or in the right of the Corporation against a person
named in paragraph A by reason of his holding a position named in paragraph A,
the Corporation shall indemnify such person if such person satisfies the
standard in paragraph C, for expenses (including attorneys' fees but excluding
amounts paid in settlement) actually and reasonably incurred by such person in
connection with the defense or settlement of the action or suit.
C. Standard -- Derivative Suits. In case of a threatened, pending or
----------------------------
completed action or suit by or in the right of the Corporation, a person named
in paragraph A shall be indemnified only if:
1. such person is successful on the merits or otherwise; or
2. such person acted in good faith in the transaction which is the
subject of the suit or action, and in a manner such person reasonably believed
to be in, or not opposed to, the best interest of the Corporation, including,
but not limited to, the taking of any and all actions in connection with the
Corporation's response to any tender offer or any offer or proposal of another
party to engage in a Business Combination (as defined in Article XIV) not
approved by the board of directors. However, such person shall not be
indemnified in respect of any claim, issue or matter as to which such person has
been adjudged liable to the Corporation unless (and only to the extent that) the
court in which the suit was brought shall determine, upon application, that
despite the adjudication but in view of all the circumstances, such person is
fairly and reasonably entitled to indemnity for such expenses as the court shall
deem proper.
D. Extent -- Nonderivative Suits. In case of a threatened, pending or
-----------------------------
completed suit, action or proceeding (whether civil, criminal, administrative or
investigative), other than a suit by or in the right of the Corporation,
together hereafter referred to as a nonderivative suit, against a person named
in paragraph A by reason of his holding a position named in paragraph A, the
Corporation shall indemnify such person if such person satisfies
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the standard in paragraph E, for amounts actually and reasonably incurred by
such person in connection with the defense or settlement of the nonderivative
suit, including, but not limited to (i) expenses (including attorneys' fees),
(ii) amounts paid in settlement, (iii) judgments, and (iv) fines.
E. Standard -- Nonderivative Suits. In case of a nonderivative suit, a
-------------------------------
person named in paragraph A shall be indemnified only if:
1. such person is successful on the merits or otherwise; or
2. such person acted in good faith in the transaction which is the
subject of the nonderivative suit and in a manner such person reasonably
believed to be in, or not opposed to, the best interests of the Corporation,
including, but not limited to, the taking of any and all actions in connection
with the Corporation's response to any tender offer or any offer or proposal of
another party to engage in a Business Combination (as defined in Article XIV of
this Certificate) not approved by the board of directors and, with respect to
any criminal action or proceeding, such person had no reasonable cause to
believe his conduct was unlawful. The termination of a nonderivative suit by
judgment, order, settlement, conviction, or upon a plea of nolo contendere or
---------------
its equivalent shall not, in itself, create a presumption that the person failed
to satisfy the standard of this paragraph E.2.
F. Determination That Standard Has Been Met. A determination that the
----------------------------------------
standard of paragraph C or E has been satisfied may be made by a court or,
except as stated in paragraph C.2 (second sentence), the determination may be
made by:
1. a majority vote of the directors of the Corporation who are not
parties to the action, suit or proceeding, even though less than a quorum; or
2. independent legal counsel (appointed by a majority of the
disinterested directors of the Corporation, whether or not a quorum) in a
written opinion; or
3. the stockholders of the Corporation.
G. Proration. Anyone making a determination under paragraph F may
---------
determine that a person has met the standard as to some matters but not as to
others, and may reasonably prorate amounts to be indemnified.
H. Advance Payment. The Corporation may pay in advance any expenses
---------------
(including attorneys' fees) which may become subject to indemnification under
paragraphs A through G if (i) the board of directors authorizes the specific
payment and (ii) the person receiving the payment undertakes in writing to repay
the same if it is ultimately determined that such person is not entitled to
indemnification by the Corporation under paragraphs A through G.
I. Nonexclusive. The indemnification and advance of expenses provided by
------------
paragraphs A through H shall not be exclusive of any other rights to which a
person may be entitled by law, bylaw, agreement, vote of stockholders or
disinterested directors, or otherwise.
J. Continuation. The indemnification provided by this Article XVI shall
------------
be deemed to be a contract between the Corporation and the persons entitled to
indemnification thereunder, and any repeal or modification of this Article XVI
shall not affect any rights or obligations then existing with respect to any
state of facts then or theretofore existing or any action, suit or proceeding
theretofore or thereafter brought based in whole or in part upon any such state
of facts. The indemnification and advance payment provided by paragraphs A
through H shall continue as to a person who has ceased to hold a position named
in paragraph A and shall inure to such person's heirs, executors and
administrators.
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K. Insurance. The Corporation may purchase and maintain insurance on
---------
behalf of any director, officer, employee or agent of the Corporation or
subsidiary or affiliate or another corporation, partnership, joint venture,
trust or other enterprise, against any liability incurred by such person in any
such position, or arising out of such person's status as such, whether or not
the Corporation would have power to indemnify such person against such liability
under paragraphs A through H.
L. Savings Clause. If this Article XVI or any portion hereof shall be
--------------
invalidated on any ground by any court of competent jurisdiction, then the
Corporation shall nevertheless indemnify each director, officer, employee, and
agent of the Corporation as to costs, charges, and expenses (including
attorneys' fees), judgments, fines, and amounts paid in settlement with respect
to any action, suit, or proceeding, whether civil, criminal, administrative, or
investigative, including an action by or in the right of the Corporation to the
full extent permitted by any applicable portion of this Article XVI that shall
not have been invalidated and to the full extent permitted by applicable law.
ARTICLE XVII
ELIMINATION OF DIRECTORS' LIABILITY
A director of the Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except: (i) for any breach of the director's duty of
loyalty to the Corporation or its stockholders, (ii) for acts or omissions not
made in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the General Corporation Law of the
State of Delaware, or (iv) for any transaction from which a director derived an
improper personal benefit. If the General Corporation Law of the State of
Delaware is amended after the date of filing of this Certificate 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 General Corporation Law of the State of Delaware, 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.
ARTICLE XVIII
AMENDMENT OF BYLAWS
In furtherance and not in limitation of the powers conferred by statute, the
board of directors of the Corporation is expressly authorized to make, repeal,
alter, amend and rescind the Bylaws of the Corporation by a two-thirds vote of
the board. Notwithstanding any other provision of this Certificate or the
Bylaws of the Corporation (and notwithstanding the fact that some lesser
percentage may be specified by law), the Bylaws shall not be adopted, repealed,
altered, amended or rescinded by the stockholders of the Corporation except by
the vote of the holders of not less than 80% of the outstanding shares of
capital stock of the Corporation entitled to vote generally in the election of
directors (considered for this purpose as one class) cast at a meeting of the
stockholders called for that purpose (provided that notice of such proposed
adoption, repeal, alteration, amendment or rescission is included in the notice
of such meeting), or, as set forth above, by the board of directors.
ARTICLE XIX
AMENDMENT OF CERTIFICATE OF INCORPORATION
The Corporation reserves the right to repeal, alter, amend or rescind any
provision contained in this Certificate in the manner now or hereafter
prescribed by law, and all rights conferred on stockholders herein are
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granted subject to this reservation. Notwithstanding the foregoing, the
provisions set forth in Articles X, XI, XII, XIII, XIV, XV, XVI, XVII, XVIII and
this Article XIX may not be repealed, altered, amended or rescinded in any
respect unless the same is approved by the affirmative vote of the holders of
not less than 80% of the outstanding shares of capital stock of the Corporation
entitled to vote generally in the election of directors (considered for this
purpose as a single class) cast at a meeting of the stockholders called for that
purpose (provided that notice of such proposed adoption, repeal, alteration,
amendment or rescission is included in the notice of such meeting).
* * *
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THE UNDERSIGNED, being the incorporator hereinbefore named, for the purpose
of forming a corporation pursuant to the General Corporation Law of the State of
Delaware, do make this Certificate, hereby declaring and certifying that this is
my act and deed and the facts herein stated are true, and accordingly have
hereunto set my hand this 7th day of March 1997.
/s/ Clyde E. Conklin
-------------------------
Clyde E. Conklin
Incorporator
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EXHIBIT 3.2
BYLAWS OF FIRSTBANK CORP.
<PAGE>
BYLAWS
OF
FIRSTBANK CORP.
ARTICLE I
STOCKHOLDERS
SECTION 1. Place of Meetings. All annual and special meetings of
-----------------
stockholders shall be held at such place as the board of directors may determine
and as designated in the notice of such meeting.
SECTION 2. Annual Meeting. A meeting of the stockholders of the
--------------
Corporation for the election of directors and for the transaction of any other
business of the Corporation shall be held annually at such date and time as the
board of directors may determine.
SECTION 3. Special Meetings. Special meetings of the stockholders for any
----------------
purpose or purposes may be called at any time by the majority of the board of
directors or by a committee of the board of directors in accordance with the
provisions of the Corporation's Certificate of Incorporation.
SECTION 4. Conduct of Meetings. Annual and special meetings shall be
-------------------
conducted in accordance with the rules and procedures established by the board
of directors. The board of directors shall designate, when present, either the
chairman of the board or president to preside at such meetings.
SECTION 5. Notice of Meetings. Written notice stating the place, date and
------------------
time of the meeting and, in the case of a special meeting, the purpose or
purposes for which the meeting is called shall be given not less than ten nor
more than sixty days before the meeting to each stockholder of record entitled
to vote at such meeting. If mailed, such notice shall be deemed to be delivered
when deposited in the United States mail, postage prepaid, addressed to the
stockholder at the address of the stockholder as it appears on the records of
the Corporation. If a stockholder be present at a meeting, or in writing waives
notice thereof before or after the meeting, notice of the meeting to such
stockholder shall be unnecessary. When any stockholders' meeting, either annual
or special, is adjourned for more than thirty days, 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
thirty days or less or of the business to be transacted at such adjourned
meeting, other than an announcement at the meeting at which such adjournment is
taken.
SECTION 6. Voting Lists. A complete list of stockholders entitled to vote
------------
at any meeting of stockholders, arranged in alphabetical order for each class of
stock and showing the address of each such stockholder and the number of shares
registered in his or her name, shall be open to the examination of any such
stockholder, for any purpose germane to the meeting, during ordinary business
hours for a period of at least ten days prior to the meeting, either at a place
within the city where the meeting is to be held, which place shall be specified
in the notice of the meeting, or if not so specified, at the place where the
meeting is to be held. The list shall also be produced and kept at the time and
place of the meeting during the whole time thereof, and may be inspected by any
stockholder who is present.
SECTION 7. Quorum. A majority of the outstanding shares of the
------
Corporation entitled to vote, represented in person or by proxy, shall
constitute a quorum at a meeting of stockholders. If less than a majority of
the outstanding shares are represented at a meeting, a majority of the shares so
represented may adjourn the meeting from time to time without further notice.
At such adjourned meeting at which a quorum shall be present or represented, any
business may be transacted which might have been transacted at the meeting as
originally notified. The stockholders present at a duly organized meeting may
continue to transact business until adjournment, notwithstanding the withdrawal
of enough stockholders to leave less than a quorum.
<PAGE>
SECTION 8. Proxies. At all meetings of stockholders, a stockholder may
-------
vote by proxy executed in writing by the stockholder or by his or her duly
authorized attorney in fact. Proxies solicited on behalf of the management
shall be voted as directed by the stockholder or, in the absence of such
direction, as determined by a majority of the board of directors. No proxy
shall be valid after eleven months from the date of its execution unless
otherwise provided in the proxy.
SECTION 9. Voting. Unless otherwise provided in the Corporation's
------
Certificate of Incorporation, each stockholder shall be entitled to one vote for
each share of stock having voting power held by such stockholder. Directors
shall be elected by a plurality of the votes of the shares present in person or
represented by proxy and entitled to vote at the meeting on the election of
directors. In all matters other than the election of directors, the affirmative
vote of the majority of shares present in person or represented by proxy at the
meeting and entitled to vote and voting thereon shall be the act of the
stockholders, unless the question is one upon which, by express provision of the
applicable statute, the Corporation's Certificate of Incorporation or these
Bylaws, a different vote is required in which case such express provision shall
govern and control the decision of the question.
SECTION 10. Voting of Shares in the Name of Two or More Persons. When
---------------------------------------------------
ownership of stock stands in the name of two or more persons, in the absence of
written directions to the Corporation to the contrary, at any meeting of the
stockholders of the Corporation any one or more of such stockholders may cast,
in person or by proxy, all votes to which such ownership is entitled. In the
event an attempt is made to cast conflicting votes, in person or by proxy, by
the several persons in whose name shares of stock stand, the vote or votes to
which these persons are entitled shall be cast as directed by a majority of
those holding such stock and present in person or by proxy at such meeting, but
no votes shall be cast for such stock if a majority cannot agree.
SECTION 11. Voting of Shares by Certain Holders. Shares standing in the
-----------------------------------
name of another corporation may be voted by any officer, agent or proxy as the
bylaws of such corporation may prescribe, or, in the absence of such provision,
as the board of directors of such corporation may determine. Shares held by an
administrator, executor, guardian or conservator may be voted by him, either in
person or by proxy, without a transfer of such shares into his name. Shares
standing in the name of a trustee may be voted by him, either in person or by
proxy, but no trustee shall be entitled to vote shares held by him without a
transfer of such shares into his name. Shares standing in the name of a
receiver may be voted by such receiver, and shares held by or under the control
of a receiver may be voted by such receiver without the transfer thereof into
his name if authority to do so is contained in an appropriate order of the court
or other public authority by which such receiver was appointed.
A stockholder whose shares are pledged shall be entitled to vote such
shares until the shares have been transferred into the name of the pledgee and
thereafter the pledgee shall be entitled to vote the shares so transferred.
Neither treasury shares of its own stock held by the Corporation, 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
Corporation, 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. Inspectors of Election. In advance of any meeting of
----------------------
stockholders, the board of directors may appoint any persons, other than
nominees for office, as inspectors of election to act at such meeting or any
adjournment thereof. The number of inspectors shall be either one or three. If
the board of directors so appoints either one or three inspectors, that
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 make such
appointment at the meeting. 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.
The inspectors shall: ascertain the number of shares outstanding and the
voting power of each; determine the shares represented at the meeting and the
validity of proxies and ballots; count all votes and ballots; determine and
retain for a reasonable period a record of the disposition of any challenges
made to any determination by the
2
<PAGE>
inspectors; and certify their determination of the number of shares represented
at the meeting, and their count of all votes and ballots.
SECTION 13. Director Nominations. No nominations for directors except
--------------------
those made by the board of directors or an authorized committee thereof shall be
voted upon at the annual meeting unless other nominations by stockholders are
made in writing and delivered to the secretary of the Corporation in accordance
with the provisions of the Corporation's Certificate of Incorporation.
SECTION 14. New Business. Any new business to be taken up at the annual
------------
meeting shall be stated in writing and filed with the secretary of the
Corporation in accordance with the provisions of the Corporation's Certificate
of Incorporation. This provision shall not prevent the consideration and
approval or disapproval at the annual meeting of reports of officers, directors
and committees, but in connection with such reports no new business shall be
acted upon at such annual meeting unless stated and filed as provided in the
Corporation's Certificate of Incorporation.
ARTICLE II
BOARD OF DIRECTORS
SECTION 1. General Powers. The business and affairs of the Corporation
--------------
shall be under the direction of its board of directors. The board of directors
shall annually elect a chairman of the board from among its members who shall,
when present, preside at its meetings.
SECTION 2. Number, Term and Election. 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 or qualified. One class
shall be elected by ballot annually. The board of directors shall be classified
in accordance with the provisions of the Corporation's Certificate of
Incorporation.
SECTION 3. Qualification. Each director shall at all times be the
-------------
beneficial owner of not less than 100 shares of capital stock of the
Corporation.
SECTION 4. Regular Meetings. A regular meeting of the board of directors
----------------
shall be held without other notice than this Bylaw immediately after, and at the
same place as, the annual meeting of stockholders. The board of directors may
provide, by resolution, the time and place for the holding of additional regular
meetings without other notice than such resolution.
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 or the
president, or by one-third of the directors. The persons authorized to call
special meetings of the board of directors may fix any place in the State of
Idaho as the place for holding any special meeting of the board of directors
called by such persons. Written notice of any special meeting shall be given to
each director at least two days previous thereto delivered personally or by
telecopier or telegram or at least five days previous thereto 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 United States mail so
addressed, with postage thereon prepaid if mailed or when delivered by
telecopier. Any director may waive notice of any meeting by a writing filed
with the secretary. The attendance of a director at a meeting shall constitute
a waiver of notice of such meeting, except where a director attends a meeting
for the express purpose of objecting to the transaction of any business because
the meeting is not lawfully called or convened. Neither the business to be
transacted at, nor the purpose of, any meeting of the board of directors need be
specified in the notice or waiver of notice of such meeting.
SECTION 6. Participation in Meetings By Conference Telephone. Members of
-------------------------------------------------
the board of directors, or any committee thereof, may participate in a meeting
of such board or committee by means of conference
3
<PAGE>
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other. Such participation shall
constitute presence in person at 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 without notice other than announcement at the meeting.
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 these Bylaws, the
Certificate of Incorporation, or the General Corporation Law of the State of
Delaware.
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 administrative office of the
Corporation addressed to the chairman of the board or the president. Unless
otherwise specified herein, such resignation shall take effect upon receipt
thereof by the chairman of the board or the president.
SECTION 11. Vacancies. Any vacancy occurring in the board of directors
---------
shall be filled in accordance with the provisions of the Corporation's
Certificate of Incorporation. The term of such director shall be in accordance
with the provisions of the Corporation's Certificate of Incorporation.
SECTION 12. Removal of Directors. Any director or the entire board of
--------------------
directors may be removed only in accordance with the provisions of the
Corporation's Certificate of Incorporation.
SECTION 13. Compensation. Directors, as such, may receive a stated fee 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. Nothing herein shall be construed to preclude any
director from serving the Corporation in any other capacity and receiving
remuneration therefor.
SECTION 14. Presumption of Assent. A director of the Corporation who is
---------------------
present at a meeting of the board of directors at which action on any corporate
matter is taken shall be presumed to have assented to the action taken unless
his dissent or abstention shall be entered in the minutes of the meeting or
unless he shall file his written dissent to such action with the person acting
as the secretary of the meeting before the adjournment thereof or shall forward
such dissent by registered mail to the secretary of the Corporation immediately
after the adjournment of the meeting. Such right to dissent shall not apply to
a director who votes in favor of such action.
SECTION 15. Advisory Directors. The board of directors may by resolution
------------------
appoint advisory directors or directors emeriti to the board, and shall have
such authority and receive such compensation and reimbursement as the board of
directors shall provide. Advisory directors or directors emeriti shall not have
the authority to participate by vote in the transaction of business.
4
<PAGE>
ARTICLE III
COMMITTEES OF THE BOARD OF DIRECTORS
SECTION 1. Appointment. The board of directors may, by resolution adopted
-----------
by a majority of the full board, designate one or more committees, each
consisting of two or more directors, to serve at the pleasure of the board of
directors. The board of directors may designate one or more directors as
alternate members of any committee, who may replace any absent member at any
meeting of any such committee.
SECTION 2. Authority. Any such committee shall have all the authority of
---------
the board of directors, except to the extent, if any, that such authority shall
be limited by the resolution appointing the committee; and except also that no
committee shall have the authority of the board of directors with reference to:
the declaration of dividends; the amendment of the charter or bylaws of the
Corporation, 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 Corporation otherwise than
in the usual and regular course of its business; a voluntary dissolution of the
Corporation; a revocation of any of the foregoing; the approval of a transaction
in which any member of the committee, directly or indirectly, has any material
beneficial interest; the filling of vacancies on the board of directors or in
any committee; or the appointment of other committees of the board of directors
or members thereof.
SECTION 3. Tenure. Subject to the provisions of Section 8 of this Article
------
III, each member of a 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 committee.
SECTION 4. Meetings. Unless the board of directors shall otherwise
--------
provide, regular meetings of any committee appointed pursuant to this Article
III shall be at such times and places as are determined by the board of
directors, or by any such committee. Special meetings of any such committee may
be held at the principal executive office of the Corporation, or at any place
which has been designated from time to time by resolution of such committee or
by written consent of all members thereof, and 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 shall been given in the manner provided for the giving
of notice to members of the board of directors of the time and place of special
meetings of the board of directors.
SECTION 5. Quorum. A majority of the members of any committee shall
------
constitute a quorum for the transaction of business at any meeting thereof.
SECTION 6. Action Without a Meeting. Any action required or permitted to
------------------------
be taken by any 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 any such committee.
SECTION 7. Resignations and Removal. Any member of any 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 any committee may resign from any
such committee at any time by giving written notice to the president or
secretary of the Corporation. 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 8. Procedure. Unless the board of directors otherwise provides,
---------
each 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.
5
<PAGE>
ARTICLE IV
OFFICERS
SECTION 1. Positions. The officers of the Corporation shall be a
---------
president, one or more vice presidents, a secretary and a treasurer or chief
financial officer, 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 Corporation. The offices of the secretary and
treasurer or chief financial officer may be held by the same person and a vice
president may also be either the secretary or the treasurer or chief financial
officer. 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 Corporation 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 Corporation
---------------------------
shall be elected annually by the board of directors 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 his successor
shall have been duly elected and qualified or until his death or until he shall
resign or shall have been removed in the manner hereinafter provided. Election
or appointment of an officer, employee or agent shall not of itself create
contract rights. The board of directors may authorize the Corporation to enter
into an employment contract with any officer in accordance with state law; 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 IV.
SECTION 3. Removal. Any officer may be removed by vote of two-thirds of
-------
the board of directors whenever, in its judgment, the best interests of the
Corporation will be served thereby, but such removal, other than for cause,
shall be without prejudice to the contract rights, if any, of the person so
removed.
SECTION 4. Vacancies. A vacancy in any office because of death,
---------
resignation, removal, disqualification or otherwise, may be filled by the board
of directors for the unexpired portion of the term.
SECTION 5. Remuneration. The remuneration of the officers shall be fixed
------------
from time to time by the board of directors and no officer shall be prevented
from receiving such salary by reason of the fact that he is also a director of
the Corporation.
ARTICLE V
CONTRACTS, LOANS, CHECKS AND DEPOSITS
SECTION 1. Contracts. To the extent permitted by applicable law, and
---------
except as otherwise prescribed by the Corporation's Certificate of Incorporation
or these Bylaws with respect to certificates for shares, the board of directors
may authorize any officer, employee, or agent of the Corporation to enter into
any contract or execute and deliver any instrument in the name of and on behalf
of the Corporation. Such authority may be general or confined to specific
instances.
SECTION 2. Loans. No loans shall be contracted on behalf of the
-----
Corporation 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 Corporation shall be signed by one or more officers,
6
<PAGE>
employees or agents of the Corporation in such manner as shall from time to time
be determined by resolution of the board of directors.
SECTION 4. Deposits. All funds of the Corporation not otherwise employed
--------
shall be deposited from time to time to the credit of the Corporation in any of
its duly authorized depositories as the board of directors may select.
ARTICLE VI
CERTIFICATES FOR SHARES AND THEIR TRANSFER, ETC.
SECTION 1. Certificates for Shares. The shares of the Corporation shall
-----------------------
be represented by certificates signed by the chairman of the board of directors
or by the president or a vice president and by the treasurer or by the secretary
of the Corporation, and may be sealed with the seal of the Corporation or a
facsimile thereof. Any or all of the signatures upon a certificate may be
facsimiles if the certificate is countersigned by a transfer agent, or
registered by a registrar, other than the Corporation itself or an employee of
the Corporation. If any officer who has signed or whose facsimile signature has
been placed upon such certificate shall have ceased to be such officer before
the certificate is issued, it may be issued by the Corporation with the same
effect as if he were such officer at the date of its issue.
SECTION 2. Form of Share Certificates. Stock certificates of the
--------------------------
Corporation shall be in such form as approved by the board of directors.
SECTION 3. Payment for Shares. No certificate shall be issued for any
------------------
shares until such share is fully paid.
SECTION 4. Form of Payment for Shares. The consideration for the issuance
--------------------------
of shares shall be paid in accordance with the provisions of the Corporation's
Certificate of Incorporation.
SECTION 5. Transfer of Shares. Transfer of shares of capital stock of the
------------------
Corporation shall be made only on its stock transfer books. Authority for such
transfer shall be given only by the holder of record thereof or by his legal
representative, who shall furnish proper evidence of such authority, or by his
attorney thereunto authorized by power of attorney duly executed and filed with
the Corporation. 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 Corporation shall be deemed by the Corporation
to be the owner thereof for all purposes.
SECTION 6. Stock Ledger. The stock ledger of the Corporation shall be the
------------
only evidence as to who are the stockholders entitled to examine the stock
ledger, the list required by Section 6 of Article I or the books of the
Corporation, or to vote in person or by proxy at any meeting of stockholders.
SECTION 7. Determination of Stockholders of Record.
---------------------------------------
(a) Meetings of Stockholders. In order that the Corporation may determine
------------------------
the stockholders entitled to notice of or to vote at any meeting of stockholders
or any adjournment thereof, the board of directors may fix a record date, which
record date shall not precede the date upon which the resolution fixing the
record date is adopted by the board of directors, and which record date shall
not be more than sixty nor less than ten days before the date of such meeting.
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 proceeding the day on which the meeting is held. 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 unless the board of
directors fixes a new record date for the adjourned meeting.
7
<PAGE>
(b) Dividends. In order that the Corporation may determine the
---------
stockholders entitled to receive payment of any dividend or other distribution
or allotment of any rights or the stockholders entitled 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 upon which the resolution fixing the
record date is adopted, and which record date shall be not more than sixty days
prior to such action. If no record date is fixed, the record date for
determining stockholders for any such purpose shall be at the close of business
on the day on which the board of directors adopts the resolution relating
thereto.
SECTION 8. Lost Certificates. The board of directors may direct a new
-----------------
certificate to be issued in place of any certificate theretofore issued by the
Corporation alleged to have been lost, stolen, or destroyed, upon the making of
an affidavit of that fact by the person claiming the certificate of stock to be
lost, stolen, or destroyed. When authorizing such issue of a new certificate,
the board of directors may, in its discretion and as a condition precedent to
the issuance thereof, require the owner of such lost, stolen, or destroyed
certificate, or his legal representative, to give the Corporation a bond in such
sum as it may direct as indemnity against any claim that may be made against the
Corporation with respect to the certificate alleged to have been lost, stolen,
or destroyed.
SECTION 9. Beneficial Owners. The Corporation shall be entitled to
-----------------
recognize the exclusive right of a person registered on its books as the owner
of shares to receive dividends, and to vote as such owner, and shall not be
bound to recognize any equitable or other claim to or interest in such shares on
the part of any other person, whether or not the Corporation shall have express
or other notice thereof, except as otherwise provided by law.
ARTICLE VIII
FISCAL YEAR; ANNUAL AUDIT
The fiscal year of the Corporation shall end on the 31st day of March of
each year. The Corporation 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.
ARTICLE IX
DIVIDENDS
Subject to the provisions of the Certificate of Incorporation and
applicable law, the board of directors may, at any regular or special meeting,
declare dividends on the Corporation's outstanding capital stock. Dividends may
be paid in cash, in property or in the Corporation's own stock.
ARTICLE X
CORPORATE SEAL
The corporate seal of the Corporation shall be in such form as the board of
directors shall prescribe.
ARTICLE XI
AMENDMENTS
In accordance with the Corporation's Certificate of Incorporation, these
Bylaws may be repealed, altered, amended or rescinded by the stockholders of the
Corporation only by vote of not less than 80% of the outstanding shares of
capital stock of the Corporation entitled to vote generally in the election of
directors (considered for this purpose as one class) cast at a meeting of the
stockholders called for that purpose (provided that notice of such proposed
repeal, alteration, amendment or rescission is included in the notice of such
meeting). In addition, the board of directors may repeal, alter, amend or
rescind these Bylaws by vote of two-thirds of the board of directors at a legal
meeting held in accordance with the provisions of these Bylaws.
8
<PAGE>
EXHIBIT 4
FORM OF CERTIFICATE FOR COMMON STOCK
<PAGE>
FIRSTBANK CORP.
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
COMMON STOCK CUSIP
See Reverse For
Certain Definitions
THIS CERTIFIES THAT
is the owner of
FULLY PAID AND NONASSESSABLE SHARES OF COMMON STOCK, $.01 PAR VALUE PER SHARE,
OF
FirstBank Corp., a stock corporation incorporated under the laws of the State of
Delaware. 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. THE SHARES REPRESENTED BY THIS CERTIFICATE ARE
NOT A DEPOSIT OR ACCOUNT AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION OR ANY OTHER GOVERNMENT AGENCY. The Certificate and shares
represented hereby are issued and shall be held subject to all provisions of the
Certificate of Incorporation and Bylaws of the Corporation and any amendments
thereto (copies of which are on file with the Transfer Agent), to all of which
provisions the holder by acceptance hereof, assents.
IN WITNESS WHEREOF, FirstBank Corp. 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.
CORPORATE SECRETARY PRESIDENT
TRANSFER AGENT
[SEAL]
<PAGE>
FirstBank Corp.
The shares represented by this Certificate are issued subject to all the
provisions of the Certificate of Incorporation and Bylaws of FirstBank Corp.
("Corporation") as from time to time amended (copies of which are on file with
the Transfer Agent and at the principal executive offices of the Corporation).
The shares represented by this Certificate are subject to a limitation
contained in the Certificate of Incorporation to the effect that in no event
shall any record owner of any outstanding common stock which is beneficially
owned, directly or indirectly, by a person who beneficially owns in excess of
10% of the outstanding shares of common stock (the "Limit") be entitled or
permitted to vote in respect of the shares held in excess of the Limit, unless a
majority of the whole Board of Directors, as defined, shall have by resolution
granted in advance such entitlement or permission.
The Board of Directors of the Corporation is authorized by resolution(s),
from time to time adopted, to provide for the issuance of preferred stock in
series and to fix and state the powers, designations, preferences and relative,
participating, optional or other special rights of the shares of each such
series and the qualifications, limitations and restrictions thereof. The
Corporation will furnish to any shareholder upon request and without charge a
full description of each class of stock and any series thereof.
The shares represented by this Certificate may not be cumulatively voted on
any matter. The affirmative vote of the holders of at least 80% of the voting
stock of the Corporation, voting together as a single class, shall be required
to approve certain business combinations and other transactions, pursuant to the
Certificate of Incorporation, or to amend certain provisions of the Certificate
of Incorporation.
The following abbreviations, when used in the inscription on the face of
this Certificate, shall be construed as through they were written out in full
according to applicable laws or regulations.
TEN COM -as tenants in common
TEN ENT -as tenants by the entireties
JT TEN -as joint tenants with right of survivorship and
not as tenants in common
UNIF GIFT MIN ACT-_______Custodian _______ under Uniform Gifts
(Cust) (Minor)
to Minors Act _________
(State)
Additional abbreviations may also be used though not in the above list
For value received, ___________________________________________ hereby
sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- --------------------------------------
________________________________________________________________________________
________________________________________________________________________________
PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING POSTAL ZIP CODE, OF
ASSIGNEE
________________________________________________________________________________
__________________________________________________________________ shares of the
Common Stock evidenced by this Certificate, and do hereby irrevocably constitute
and appoint________________________________________________________ Attorney, to
transfer the said shares on the books of the within named Corporation, with full
power of substitution.
Dated _________________
____________________________________
Signature
____________________________________
Signature
NOTICE: The signature to this assignment
must correspond with the name as written
upon the face of the Certificate in every
particular, without alteration or
enlargement or any change whatever.
<PAGE>
EXHIBIT 5
OPINION OF BREYER & AGUGGIA REGARDING LEGALITY OF SECURITIES REGISTERED
<PAGE>
March 14, 1997
Board of Directors
FirstBank Corp.
920 Main Street
Lewiston, Idaho 83501
RE: FirstBank Corp.
Registration Statement on Form SB-2
Gentlemen:
You have requested our opinion as special counsel for FirstBank Corp., a
Delaware corporation, in connection with the above-referenced registration
statement filed with the Securities and Exchange Commission under the Securities
Act of 1933, as amended.
In rendering this opinion, we understand that the common stock of FirstBank
Corp. will be offered and sold in the manner described in the Prospectus, which
is part of the Registration Statement. We have examined such records and
documents and made such examination as we have deemed relevant in connection
with this opinion.
Based upon the foregoing, it is our opinion that the shares of common stock
of FirstBank Corp. will upon issuance be legally issued, fully paid and
nonassessable.
This opinion is furnished for use as an exhibit to the Registration
Statement. We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to us under the heading "Legal and
Tax Opinions."
Very truly yours,
/s/Breyer & Aguggia
BREYER & AGUGGIA
Washington, D.C.
<PAGE>
EXHIBIT 8.1
FORM OF FEDERAL TAX OPINION OF BREYER & AGUGGIA
<PAGE>
FORM OF FEDERAL TAX OPINION
__________, 1997
Boards of Directors
FirstBank Corp.
FirstBank Northwest
920 Main Street
Lewiston, Idaho 83501
Re: Certain Federal Income Tax Consequences Relating to Proposed Holding
Company Conversion of FirstBank Northwest and Subsequent Conversion to
a Washington-chartered Savings Bank
----------------------------------------------------------------------
Gentlemen:
In accordance with your request, set forth herein is the opinion of this
firm relating to certain federal income tax consequences of (i) the proposed
conversion of FirstBank Northwest (the "Savings Bank") from a federally-
chartered mutual savings bank to a federally-chartered stock savings bank (the
"Converted Savings Bank") (the "Stock Conversion"); (ii) the concurrent
acquisition of 100% of the outstanding capital stock of the Converted Savings
Bank by a parent holding company formed at the direction of the Board of
Directors of the Savings Bank and to be known as FirstBank Corp. (the "Holding
Company"); and, thereafter, (iii) the conversion of the Converted Savings Bank
to a Washington-chartered savings bank to be known as FirstBank Northwest (the
"Converted Bank") (the "Bank Conversion"). The Stock Conversion and the Bank
Conversion are referred to herein collectively as the "Conversion."
For purposes of this opinion, we have examined such documents and questions
of law as we have considered necessary or appropriate, including but not limited
to the Plan of Conversion as adopted by the Savings Bank's Board of Directors as
adopted on January 8, 1997 and amended on March 12, 1997 (the "Plan"); the
federal mutual charter and bylaws of the Savings Bank; the certificate of
incorporation and bylaws of the Holding Company; the Affidavit of
Representations dated _____________ provided to us by the Savings Bank (the
"Affidavit"), and the Prospectus (the "Prospectus") included in the Registration
Statement on Form SB-2 filed with the Securities and Exchange Commission ("SEC")
on _____________ (the "Registration Statement"). In such examination, we have
assumed, and have not independently verified, the
<PAGE>
Boards of Directors
FirstBank Corp.
FirstBank Northwest
__________, 1997
Page 2
genuineness of all signatures on original documents where due execution and
delivery are requirements to the effectiveness thereof. Terms used but not
defined herein, whether capitalized or not, shall have the same meaning as
defined in the Plan.
BACKGROUND
----------
Based solely upon our review of such documents, and upon such information
as the Savings Bank has provided to us (which we have not attempted to verify in
any respect), and in reliance upon such documents and information, we set forth
herein a general summary of the relevant facts and proposed transactions,
qualified in its entirety by reference to the documents cited above.
The Savings Bank is a federally-chartered mutual savings bank which is in
the process of converting to a federally-chartered stock savings bank and,
thereafter, to a Washington-chartered savings bank. The Savings Bank was
initially organized in 1920. The Savings Bank is also a member of the Federal
Home Loan Bank System and its deposits are federally insured under the Savings
Association Insurance Fund ("SAIF") of the Federal Deposit Insurance
Corporation. The Savings Bank operates out of its administrative office in
Lewiston, Idaho, and five branch offices in Lewiston and neighboring
communities.
The Savings Bank is primarily engaged in the business of attracting
deposits from the general public and originating permanent loans secured by
first mortgages on one- to four-family residential properties and, to lesser
extent, construction loans, agricultural real estate loans, commercial real
estate loans and consumer and other loans. At December 31, 1996, the Savings
Bank had total assets of $133.2 million, deposits of $105.3 million, and total
equity of $10.8 million.
As a federally-chartered mutual savings bank, the Savings Bank has no
authorized capital stock. Instead, the Savings Bank, in mutual form, has a
unique equity structure. A savings depositor of the Savings Bank is entitled to
payment of interest on his account balance as declared and paid by the Savings
Bank, but has no right to a distribution of any earnings of the Savings Bank
except for interest paid on his deposit. Rather, such earnings become retained
earnings of the Savings Bank.
However, a savings depositor does have a right to share pro rata, with
--- ----
respect to the withdrawal value of his respective savings account, in any
liquidation proceeds distributed if the Savings Bank is ever liquidated.
Savings depositors and certain borrowers are members of the Savings Bank and
thereby have voting rights in the Savings Bank. Each savings depositor is
entitled to cast votes based on the balances of their withdrawable deposit
account of the Savings Bank, and each borrower member (hereinafter "borrower")
is entitled to one vote in addition to
<PAGE>
Boards of Directors
FirstBank Corp.
FirstBank Northwest
__________, 1997
Page 3
the votes (if any) to which such person is entitled in such borrower's capacity
as a savings depositor of the Savings Bank. All of the interests held by a
savings depositor in the Savings Bank cease when such depositor closes his
accounts with the Savings Bank.
The Holding Company was incorporated in March 1997 under the laws of the
State of Delaware as a general business corporation in order to act as a savings
institution holding company and a bank holding company. The Holding Company has
an authorized capital structure of 5,000,000 shares of common stock and 500,000
shares of preferred stock.
PROPOSED TRANSACTION
--------------------
The Board of Directors of the Savings Bank has decided that in order to
increase the Savings Bank's net worth, support future growth, increase the
amount of funds available for lending and investment, provide greater resources
for the expansion of customer services, and facilitate future expansion through
a greater emphasis on agricultural and commercial real estate lending, it would
be advantageous for the Savings Bank to convert from a federally-chartered
mutual savings bank to a federally-chartered stock savings bank and, thereafter,
to convert to a Washington-chartered savings bank. Further, the Board of
Directors of the Savings Bank has determined that in order to expand the
financial services currently offered through the Savings Bank and enhance
flexibility of operations for diversification of business opportunities, it
would be advantageous to have the stock of the Converted Savings Bank (and,
after the Bank Conversion, the stock of the Converted Bank) held by a parent
holding company.
The Savings Bank presently intends to consummate the Bank Conversion upon
receipt of all necessary regulatory approvals. However, a period of time may
elapse between the consummation of the Stock Conversion and the consummation of
the Bank Conversion.
Accordingly, pursuant to the Plan, the Savings Bank will undergo the Stock
Conversion whereby it will be converted from a federally-chartered mutual
savings bank to a federally-chartered stock savings bank. As part of the Stock
Conversion, the Savings Bank will amend its existing mutual savings bank charter
and bylaws to read in the form of a Federal Stock Charter and Bylaws. The
Converted Savings Bank will then issue to the Holding Company shares of the
Converted Savings Bank's common stock, representing all of the shares of capital
stock to be issued by the Converted Savings Bank in the Conversion, in exchange
for payment by the Holding Company of 50% of the net proceeds realized by the
Holding Company from such sale of its Common Stock, less amounts necessary to
fund the Employee Stock Ownership Plan of the Savings Bank, or such other
percentage as the Office of Thrift Supervision ("OTS") may authorize or require.
<PAGE>
Boards of Directors
FirstBank Corp.
FirstBank Northwest
__________, 1997
Page 4
Also pursuant to the Plan, the Holding Company will offer its shares of
Common Stock for sale in a Subscription Offering and Direct Community Offering.
The aggregate purchase price at which all shares of Common Stock will be offered
and sold pursuant to the Plan and the total number of shares of Common Stock to
be offered in the Conversion will be determined by the Boards of Directors of
the Savings Bank and the Holding Company on the basis of the estimated pro forma
--- -----
market value of the Converted Bank as a subsidiary of the Holding Company. The
estimated pro forma market value will be determined by an independent appraiser.
--- -----
Pursuant to the Plan, all such shares will be issued and sold at a uniform price
per share. The Stock Conversion, including the sale of newly issued shares of
the stock of the Converted Savings Bank to the Holding Company, will be deemed
effective concurrently with the closing of the sale of the Common Stock. The
Bank Conversion will be consummated immediately following the consummation of
the Stock Conversion.
Under the Plan and in accordance with regulations of the OTS, the shares of
Common Stock will first be offered through the Subscription Offering pursuant to
non-transferable subscription rights on the basis of preference categories in
the following order of priority:
(1) Eligible Account Holders;
(2) Tax-Qualified Employee Stock Benefit Plans of the Savings Bank;
(3) Supplemental Eligible Account Holders; and
(4) Other Members.
Any shares of Common Stock not subscribed for in the Subscription Offering
will be offered in the Direct Community Offering in the following order of
priority:
(a) Natural persons residing in each county in which the Savings Bank has
a home or branch office; and
(b) The general public.
Any shares of Common Stock not subscribed for in the Community Offering
will be offered to certain members of the general public on a best efforts basis
by a selling group of broker dealers in a Syndicated Community Offering.
The Plan also provides for the establishment of a Liquidation Account by
the Converted Savings Bank for the benefit of all Eligible Account Holders and
any Supplemental Eligible Account Holders in an amount equal to the net worth of
the Savings Bank as of the date of the
<PAGE>
Boards of Directors
FirstBank Corp.
FirstBank Northwest
__________, 1997
Page 5
latest statement of financial condition contained in the final prospectus issued
in connection with the Conversion. The establishment of the Liquidation Account
will not operate to restrict the use or application of any of the net worth
accounts of the Converted Savings Bank. The account holders will have an
inchoate interest in a proportionate amount of the Liquidation Account with
respect to each savings account held and will be paid by the Converted Savings
Bank in event of liquidation prior to any liquidation distribution being made
with respect to capital stock. Under the Plan, the Bank Conversion shall not be
deemed to be a liquidation of the Converted Savings Bank for purposes of
distribution of the Liquidation Account. Upon consummation of the Bank
Conversion, the Liquidation Account, together with the related rights and
obligations of the Converted Savings Bank, shall be assumed by the Converted
Bank.
Following the Stock Conversion, voting rights in the Converted Savings Bank
shall be vested in the sole holder of stock in the Converted Savings Bank, which
will be the Holding Company. Following the Bank Conversion, voting rights in
the Converted Bank will similarly be vested in the Holding Company. Voting
rights in the Holding Company, both after the Stock Conversion and after the
Bank Conversion, will be vested in the holders of the Common Stock.
The Stock Conversion will not interrupt the business of the Savings Bank.
The Converted Savings Bank will continue to engage in the same business as the
Savings Bank immediately prior to the Stock Conversion, and the Converted
Savings Bank will continue to have its savings accounts insured by the SAIF.
Each depositor will retain a withdrawable savings account or accounts equal in
dollar amount to, and on the same terms and conditions as, the withdrawable
account or accounts at the time of Stock Conversion except to the extent funds
on deposit are used to pay for Common Stock purchased in the Stock Conversion.
All loans of the Savings Bank will remain unchanged and retain their same
characteristics in the Converted Savings Bank.
Similarly, the Bank Conversion is not expected to interrupt the business of
the Converted Savings Bank. Management of the Savings Bank expects that, after
the Conversion, the Converted Bank will initially continue to conduct business
in substantially the same manner as the Savings Bank prior to the Conversion.
Over time, the Converted Bank will continue the Savings Bank's diversification
of its loan portfolio into commercial loans. Further, the Bank Conversion is
expected to allow the Savings Bank to enhance its ability to structure its
banking services to respond to prevailing market conditions. The Converted Bank
will also continue to have its savings accounts insured by the SAIF. Each
depositor will retain a withdrawable savings account or accounts equal in dollar
amount to, and on the same terms and conditions as, the withdrawable account or
accounts at the time of Bank Conversion. All loans of the Converted Savings
Bank will remain unchanged and retain their same characteristics in the
Converted Bank.
The Plan must be approved by the OTS and by an affirmative vote of at least
a majority of the total votes eligible to be cast at a meeting of the Savings
Bank's members called to vote
<PAGE>
Boards of Directors
FirstBank Corp.
FirstBank Northwest
__________, 1997
Page 6
on the Plan. The Bank Conversion is also subject to approval of the OTS and the
Washington Department of Financial Institutions, Division of Banking.
Immediately prior to the Conversion, the Savings Bank will have a positive
net worth determined in accordance with generally accepted accounting
principles.
OPINION
-------
Based on the foregoing and in reliance thereon, and subject to the
conditions stated herein, it is our opinion that the following federal income
tax consequences will result from the proposed transaction.
1. The Stock Conversion will constitute a reorganization within the
meaning of Section 368(a)(1)(F) of the Internal Revenue Code of 1986,
as amended (the "Code"), and no gain or loss will be recognized to
either the Savings Bank or the Converted Savings Bank as a result of
the Stock Conversion (see Rev. Rul. 80-105, 1980-1 C.B. 78).
---
2. The assets of the Savings Bank will have the same basis in the hands
of the Converted Savings Bank as in the hands of the Savings Bank
immediately prior to the Stock Conversion (Section 362(b) of the
Code).
3. The holding period of the assets of the Savings Bank to be received by
the Converted Savings Bank will include the period during which the
assets were held by the Savings Bank prior to the Stock Conversion
(Section 1223(2) of the Code).
4. No gain or loss will be recognized by the Converted Savings Bank on
the receipt of money from the Holding Company in exchange for shares
of common stock of the Converted Savings Bank (Section 1032(a) of the
Code). The Holding Company will be transferring solely cash to the
Converted Savings Bank in exchange for all the outstanding capital
stock of the Converted Savings Bank and, therefore, will not recognize
any gain or loss upon such transfer. (Section 351(a) of the Code; see
---
Rev. Rul. 69-357, 1969-1 C.B. 101).
5. No gain or loss will be recognized by the Holding Company upon receipt
of money from stockholders in exchange for shares of Common Stock
(Section 1032(a) of the Code).
6. No gain or loss will be recognized by the Eligible Account Holders and
Supplemental Eligible Account Holders of the Savings Bank upon the
issuance of
<PAGE>
Boards of Directors
FirstBank Corp.
FirstBank Northwest
__________, 1997
Page 7
them of deposit accounts in the Converted Savings Bank in the same
dollar amount and on the same terms and conditions in exchange for
their deposit accounts in the Savings Bank held immediately prior to
the Stock Conversion (Section 1001(a) of the Code; Treas. Reg.
(S)1.1001-1(a)).
7. The tax basis of the Eligible Account Holders' and Supplemental
Eligible Account Holders' savings accounts in the Converted Savings
Bank received as part of the Stock Conversion will equal the tax basis
of such account holders' corresponding deposit accounts in the Savings
Bank surrendered in exchange therefor (Section 1012 of the Code).
8. Gain or loss, if any, will be realized by the deposit account holders
of the Savings Bank upon the constructive receipt of their interest in
the liquidation account of the Converted Savings Bank and on the
nontransferable subscription rights to purchase stock of the Holding
Company in exchange for their proprietary rights in the Savings Bank.
Any such gain will be recognized by the Savings Bank deposit account
holders, but only in an amount non in excess of the fair market value
of the liquidation account and subscription rights received. (Section
1001 of the Code; Paulsen v. Commissioner, 469 U.S. 131 (1985); Rev.
-----------------------
Rul. 69-646, 1969-2 C.B. 54.)
9. The basis of each account holder's interest in the Liquidation Account
received in the Stock Conversion and to be established by the
Converted Savings Bank pursuant to the Stock Conversion will be equal
to the value, if any, of that interest.
10. No gain or loss will be recognized upon the exercise of a subscription
right in the Stock Conversion. (Rev. Rul. 56-572, 1956-2 C.B. 182).
11. The basis of the Common Stock acquired in the Stock Conversion will be
equal to the purchase price of such stock, increased, in the case of
such stock acquired pursuant to the exercise of subscription rights,
by the fair market value, if any, of the subscription rights exercised
(Section 1012 of the Code).
12. The holding period of the Common Stock acquired in the Stock
Conversion pursuant to the exercise of subscription rights will
commence on the date on which the subscription rights are exercised
(Section 1223(6) of the Code). The holding period of the Common Stock
acquired in the Community Offering will commence on the date following
the date on which such stock is purchased (Rev. Rul. 70-598, 1970-2
C.B. 168; Rev. Rul. 66-97, 1966-1 C.B. 190).
<PAGE>
Boards of Directors
FirstBank Corp.
FirstBank Northwest
__________, 1997
Page 8
13. The Bank Conversion will constitute a reorganization within the
meaning of Section 368(a)(1)(F) of the Code (see Rev. Rul. 80-105,
---
1980-1 C.B. 78).
14. The assets of the Converted Savings Bank will have the same basis in
the hands of the Converted Bank as in the hands of the Converted
Savings Bank immediately prior to the Bank Conversion (Section 362(b)
of the Code).
15. The holding period of the assets of the Converted Savings Bank to be
received by the Converted Bank will include the period during which
the assets were held by the Converted Savings Bank prior to the Bank
Conversion (Section 1223(2) of the Code).
SCOPE OF OPINION
----------------
Our opinion is limited to the federal income tax matters described above
and does not address any other federal income tax considerations or any federal,
state, local, foreign or other tax considerations. If any of the information
upon which we have relied is incorrect, or if changes in the relevant facts
occur after the date hereof, our opinion could be affected thereby. Moreover,
our opinion is based on the case law, Code, Treasury Regulations thereunder and
Internal Revenue Service rulings as they now exist. These authorities are all
subject to change, and such change may be made with retroactive effect. We can
give no assurance that, after such change, our opinion would not be different.
We undertake no responsibility to update or supplement our opinion. This
opinion is not binding on the Internal Revenue Service and there can be no
assurance, and none is hereby given, that the Internal Revenue Service will not
take a position contrary to one or more of the positions reflected in the
foregoing opinion, or that our opinion will be upheld by the courts if
challenged by the Internal Revenue Service.
CONSENTS
--------
We hereby consent to the filing of this opinion with the OTS as an exhibit
to the Application H-(e)1-S filed by the Holding Company with the OTS in
connection with the Conversion and the reference to our firm in the Application
H-(e)1-S under Item 110.55 therein.
<PAGE>
Boards of Directors
FirstBank Corp.
FirstBank Northwest
__________, 1997
Page 9
We also hereby consent to the filing of this opinion with the SEC and the
OTS as exhibits to the Registration Statement and the Bank's Application for
Conversion on Form AC ("Form AC"), respectively, and the reference on our firm
in the Prospectus, which is a part of both the Registration Statement and the
Form AC, under the headings "THE CONVERSION -- Effect of Conversion to Stock
Form on Depositors and Borrowers of the Bank -- Tax Effects" and "LEGAL AND TAX
OPINIONS."
Very truly yours,
BREYER & AGUGGIA
<PAGE>
EXHIBIT 8.3
OPINION OF RP FINANCIAL, LC. AS TO THE VALUE OF SUBSCRIPTION RIGHTS
<PAGE>
EXHIBIT 8.3
RP Financial, LC.
- -------------------------------------------
Financial Services Industry Consultants
March 13, 1997
Board of Directors
First Federal Bank of Idaho,
a federal savings bank
920 Main Street
Lewiston, Idaho 83501
RE: Plan of Conversion: Subscription Rights
First Federal Bank of Idaho, a federal savings bank
Gentlemen:
All capitalized terms not otherwise defined in this letter have the
meanings given such terms in the Plan of Conversion adopted by the Board of
Directors of First Federal Bank of Idaho, a federal savings bank ("First
Federal" or the "Bank") whereby the Bank will convert from a federally chartered
mutual savings bank to a federally chartered capital stock savings bank and
issue all of the Bank's outstanding capital stock to FirstBank Corp. (the
"Holding Company"). Simultaneously, the Holding Company will issue shares of
common stock.
We understand that in accordance with the Plan of Conversion, Subscription
Rights to purchase shares of Common Stock in the Holding Company are to be
issued to: (1) Eligible Account Holders; (2) the ESOP; (3) Supplemental Eligible
Account Holders; (4) depositors as of the Voting Recording Date; and (5) Other
Members. Based solely upon our observation that the Subscription Rights will be
available to such parties without cost, will be legally non-transferable and of
short duration, and will afford such parties the right only to purchase shares
of Common Stock at the same price as will be paid by members of the general
public in the Community Offering, but without undertaking any independent
investigation of state or federal law or the position of the Internal Revenue
Service with respect to this issue, we are of the belief that, pursuant to our
valuation of the Subscription Rights:
(1) the Subscription Rights will have no ascertainable market value; and,
(2) the price at which the Subscription Rights are exercisable will not be
more or less than the pro forma market value of the shares upon
issuance.
Changes in the local and national economy, the legislative and regulatory
environment, the stock market, interest rates, and other external forces (such
as natural disasters or significant world events) may occur from time to time,
often with great unpredictability and may materially impact the value of thrift
stocks as a whole or the Holding Company's value alone. Accordingly, no
assurance can be given that persons who subscribe to shares of common stock in
the conversion will thereafter be able to buy or sell such shares at the same
price paid in the Subscription Offering.
Sincerely,
/s/ Gregory E. Dunn
-------------------
Gregory E. Dunn
Senior Vice President
________________________________________________________________________________
Washington Headquarters
Rosslyn Center
1700 North Moore Street, Suite 2210 Telephone: (703) 528-1700
Arlington, VA 22209 Fax No.: (703) 528-1788
<PAGE>
EXHIBIT 10.1
PROPOSED FORM OF EMPLOYMENT AGREEMENT WITH CERTAIN EXECUTIVE OFFICERS
<PAGE>
FORM OF EMPLOYMENT AGREEMENT FOR CERTAIN EXECUTIVE OFFICERS
THIS AGREEMENT is made effective as of ________________, 1997, by and
between FIRSTBANK NORTHWEST (the "Bank"), FIRSTBANK CORP. (the "Company"), a
Delaware corporation; and ________________ (the "Executive").
WHEREAS, the Bank wishes to assure itself of the services of Executive for
the period provided in this Agreement; and
WHEREAS, the Executive is willing to serve in the employ of the Bank on a
full-time basis for said period.
NOW, THEREFORE, in consideration of the mutual covenants herein contained,
and upon the other terms and conditions hereinafter provided, the parties hereby
agree as follows:
1. POSITION AND RESPONSIBILITIES.
During the period of his employment hereunder, Executive agrees to serve as
_________________________________________________. During said period,
Executive also agrees to serve, if elected, as an officer and director of the
Company or any subsidiary or affiliate of the Company or the Bank.
2. TERMS AND DUTIES.
(a) The term of this Agreement shall be deemed to have commenced as of the
date first above written and shall continue for a period of thirty-six (36) full
calendar months thereafter. Commencing on the first anniversary date, and
continuing at each anniversary date thereafter, the Board of Directors of the
Bank (the "Board") may extend the Agreement for an additional year. Prior to
the extension of the Agreement as provided herein, the Board of Directors of the
Bank will conduct a formal performance evaluation of the Executive for purposes
of determining whether to extend the Agreement, and the results thereof shall be
included in the minutes of the Board's meeting.
(b) During the period of his employment hereunder, except for periods of
absence occasioned by illness, reasonable vacation periods, and reasonable
leaves of absence, Executive shall devote substantially all his business time,
attention, skill, and efforts to the faithful performance of his duties
hereunder including activities and services related to the organization,
operation and management of the Bank; provided, however, that, with the approval
of the Board, as evidenced by a resolution of such Board, from time to time,
Executive may serve, or continue to serve, on the boards of directors of, and
hold any other offices or positions in, companies or organizations, which, in
such Board's judgment, will not present any conflict of interest with the Bank,
or materially affect the performance of Executive's duties pursuant to this
Agreement.
3. COMPENSATION AND REIMBURSEMENT.
(a) The compensation specified under this Agreement shall constitute the
salary and benefits paid for the duties described in Sections 1 and 2. The Bank
shall pay Executive as compensation a salary of $____________ per year ("Base
Salary"). Such Base Salary shall be payable in accordance with the customary
payroll practices of the Bank. During the period of this Agreement, Executive's
Base Salary shall be reviewed at least annually; the first such review will be
made no later than one year from the date of this Agreement. Such review shall
be conducted by a Committee designated by the Board, and the Board may increase
Executive's Base Salary. In addition to the Base Salary provided in this
Section 3(a), the Bank shall provide Executive at no cost to Executive with all
such other benefits as are provided uniformly to permanent full-time employees
of the Bank.
(b) The Bank will provide Executive with employee benefit plans,
arrangements and perquisites substantially equivalent to those in which
Executive was participating or otherwise deriving benefit from immediately prior
to the beginning of the term of this Agreement, and the Bank will not, without
Executive's prior written
<PAGE>
consent, make any changes in such plans, arrangements or perquisites which would
adversely affect Executive's rights or benefits thereunder. Without limiting the
generality of the foregoing provisions of this Subsection (b), Executive will be
entitled to participate in or receive benefits under any employee benefit plans
including, but not limited to, retirement plans, supplemental retirement plans,
pension plans, profit-sharing plans, health-and-accident plan, medical coverage
or any other employee benefit plan or arrangement made available by the Bank in
the future to its senior executives and key management employees, subject to,
and on a basis consistent with, the terms, conditions and overall administration
of such plans and arrangements. Executive will be entitled to incentive
compensation and bonuses as provided in any plan, or pursuant to any arrangement
of the Bank, in which Executive is eligible to participate. Nothing paid to the
Executive under any such plan or arrangement will be deemed to be in lieu of
other compensation to which the Executive is entitled under this Agreement,
except as provided under Section 5(e).
(c) In addition to the Base Salary provided for by paragraph (a) of this
Section 3, the Bank shall pay or reimburse Executive for all reasonable travel
and other obligations under this Agreement and may provide such additional
compensation in such form and such amounts as the Board may from time to time
determine.
4. PAYMENTS TO EXECUTIVE UPON AN EVENT OF TERMINATION.
(a) Upon the occurrence of an Event of Termination (as herein defined)
during the Executive's term of employment under this Agreement, the provisions
of this Section shall apply. As used in this Agreement, an "Event of
Termination" shall mean and include any one or more of the following: (i) the
termination by the Bank of Executive's full-time employment hereunder for any
reason other than a Change in Control, as defined in Section 5(a) hereof;
disability, as defined in Section 6(a) hereof; death; retirement, as defined in
Section 7 hereof; or Termination for Cause, as defined in Section 8 hereof; (ii)
Executive's resignation from the Bank's employ, upon (A) unless consented to by
the Executive, a material change in Executive's function, duties, or
responsibilities, which change would cause Executive's position to become one of
lesser responsibility, importance, or scope from the position and attributes
thereof described in Sections 1 and 2, above (any such material change shall be
deemed a continuing breach of this Agreement), (B) a relocation of Executive's
principal place of employment by more than 35 miles from its location at the
effective date of this Agreement, or a material reduction in the benefits and
perquisites to Executive from those being provided as of the effective date of
this Agreement, (C) the liquidation or dissolution of the Bank, or (D) any
breach of this Agreement by the Bank. Upon the occurrence of any event
described in clauses (A), (B), (C) or (D), above, Executive shall have the right
to elect to terminate his employment under this Agreement by resignation upon
not less than sixty (60) days prior written notice given within a reasonable
period of time not to exceed, except in case of a continuing breach, four (4)
calendar months after the event giving rise to said right to elect.
(b) Upon the occurrence of an Event of Termination, the Bank shall pay
Executive, or, in the event of his subsequent death, his beneficiary or
beneficiaries, or his estate, as the case may be, as severance pay or liquidated
damages, or both, a sum equal to the payments due to the Executive for the
remaining term of the Agreement, including Base Salary, bonuses, and any other
cash or deferred compensation paid or to be paid (including the value of
employer contributions that would have been made on the Executive's behalf over
the remaining term of the agreement to any tax-qualified retirement plan
sponsored by the Bank as of the Date of Termination), to the Executive for the
term of the Agreement provided, however, that if the Bank is not in compliance
with its minimum capital requirements or if such payments would cause the Bank's
capital to be reduced below its minimum capital requirements, such payments
shall be deferred until such time as the Bank is in capital compliance. All
payments made pursuant to this Section 4(b) shall be paid in substantially equal
monthly installments over the remaining term of this Agreement following the
Executive's termination; provided, however, that if the remaining term of the
Agreement is less than one (1) year (determined as of the Executive's Date of
Termination), such payments and benefits shall be paid to the Executive in a
lump sum within thirty (30) days of the Date of Termination.
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(c) Upon the occurrence of an Event of Termination, the Bank will cause to
be continued life, medical, dental and disability coverage substantially
identical to the coverage maintained by the Bank for Executive prior to his
termination. Such coverage shall cease upon the expiration of the remaining
term of this Agreement.
5. CHANGE IN CONTROL.
(a) No benefit shall be paid under this Section 5 unless there shall have
occurred a Change in Control of the Company or the Bank. For purposes of this
Agreement, a "Change in Control" of the Company or the Bank shall be deemed to
occur if and when (a) an offeror other than the Company purchases shares of the
common stock of the Company or the Bank pursuant to a tender or exchange offer
for such shares, (b) any person (as such term is used in Sections 13(d) and
14(d)(2) of the Securities Exchange Act of 1934) is or becomes the beneficial
owner, directly or indirectly, of securities of the Company or the Bank
representing 25% or more of the combined voting power of the Company's or the
Bank's then outstanding securities, (c) the membership of the board of directors
of the Company or the Bank changes as the result of a contested election, such
that individuals who were directors at the beginning of any twenty-four (24)
month period (whether commencing before or after the date of adoption of this
Agreement) do not constitute a majority of the Board at the end of such period,
or (d) shareholders of the Company or the Bank approve a merger, consolidation,
sale or disposition of all or substantially all of the Company's or the Bank's
assets, or a plan of partial or complete liquidation.
(b) If any of the events described in Section 5(a) hereof constituting a
Change in Control have occurred or the Board of the Bank or the Company has
reasonably determined that a Change in Control has occurred, Executive shall be
entitled to the benefits provided in paragraphs (c), (d) and (e) of this Section
5 upon his subsequent involuntary termination following the effective date of a
Change in Control (or voluntary termination following the effective date of a
Change in Control following any demotion, loss of title, office or significant
authority, reduction in his annual compensation or benefits (other than a
reduction affecting the Bank's personnel generally), or relocation of his
principal place of employment by more than thirty-five (35) miles from its
location immediately prior to the Change in Control), unless such termination is
because of his death, retirement as provided in Section 7, termination for
Cause, or termination for Disability.
(c) Upon the occurrence of a Change in Control followed by the Executive's
termination of employment, the Bank shall pay Executive, or in the event of his
subsequent death, his beneficiary or beneficiaries, or his estate, as the case
may be, as severance pay or liquidated damages, or both, a sum equal to 2.99
times the Executive's "base amount," within the meaning of (S)280G(b)(3) of the
Internal Revenue Code of 1986 ("Code"), as amended. Such payment shall be made
in a lump sum paid within ten (10) days of the Executive's Date of Termination.
(d) Upon the occurrence of a Change in Control followed by the Executive's
termination of employment, the Bank will cause to be continued life, medical,
dental and disability coverage substantially identical to the coverage
maintained by the Bank for Executive prior to his severance. In addition,
Executive shall be entitled to receive the value of employer contributions that
would have been made on the Executive's behalf over the remaining term of the
agreement to any tax-qualified retirement plan sponsored by the Bank as of the
Date of Termination. Such coverage and payments shall cease upon the expiration
of thirty-six (36) months.
(e) Upon the occurrence of a Change in Control, the Executive shall be
entitled to receive benefits due him under, or contributed by the Company or the
Bank on his behalf, pursuant to any retirement, incentive, profit sharing,
bonus, performance, disability or other employee benefit plan maintained by the
Bank or the Company on the Executive's behalf to the extent that such benefits
are not otherwise paid to the Executive upon a Change in Control.
(f) Notwithstanding the preceding paragraphs of this Section 5, in the
event that the aggregate payments or benefits to be made or afforded to
Executive under this Section would be deemed to include an "excess parachute
payment" under (S)280G of the Code, then, at the election of Executive, (i) such
payments or benefits shall
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be payable or provided to Executive over the minimum period necessary to reduce
the present value of such payments or benefits to an amount which is one dollar
($1.00) less than three (3) times Executive's "base amount" under (S)280G(b)(3)
of the Code or (ii) Executive shall receive the amount payable under Section
5(c) as the sole benefit payable under this Section 5.
6. TERMINATION FOR DISABILITY.
(a) If the Executive shall become disabled as defined in the Bank's then
current disability plan (or, if no such plan is then in effect, if the Executive
is permanently and totally disabled within the meaning of Section 22(e)(3) of
the Code as determined by a physician designated by the Board), the Bank may
terminate Executive's employment for "Disability."
(b) Upon the Executive's termination of employment for Disability, the
Bank will pay Executive, as disability pay, a bi-weekly payment equal to three-
quarters (3/4) of Executive's bi-weekly rate of Base Salary on the effective
date of such termination. These disability payments shall commence on the
effective date of Executive's termination and will end on the earlier of (i) the
date Executive returns to the full-time employment of the Bank in the same
capacity as he was employed prior to his termination for Disability and pursuant
to an employment agreement between Executive and the Bank; (ii) Executive's
full-time employment by another employer; (iii) Executive attaining the age of
sixty-five (65); or (iv) Executive's death; or (v) the expiration of the term of
this Agreement. The disability pay shall be reduced by the amount, if any, paid
to the Executive under any plan of the Bank providing disability benefits to the
Executive.
(c) The Bank will cause to be continued life, medical, dental and
disability coverage substantially identical to the coverage maintained by the
Bank for Executive prior to his termination for Disability. This coverage and
payments shall cease upon the earlier of (i) the date Executive returns to the
full-time employment of the Bank, in the same capacity as he was employed prior
to his termination for Disability and pursuant to an employment agreement
between Executive and the Bank; (ii) Executive's full-time employment by another
employer; (iii) Executive's attaining the age of sixty-five (65); (iv) the
Executive's death; or (v) the expiration of the term of this Agreement.
(d) Notwithstanding the foregoing, there will be no reduction in the
compensation otherwise payable to Executive during any period during which
Executive is incapable of performing his duties hereunder by reason of temporary
disability.
7. TERMINATION UPON RETIREMENT; DEATH OF EXECUTIVE.
Termination by the Bank of Executive based on "Retirement" shall mean
retirement at or after attaining age sixty-five (65) or in accordance with any
retirement arrangement established with Executive's consent with respect to him.
Upon termination of Executive upon Retirement, Executive shall be entitled to
all benefits under any retirement plan of the Bank or the Company and other
plans to which Executive is a party. Upon the death of the Executive during the
term of this Agreement, the Bank shall pay to Executive's estate the
compensation due to the Executive through the last day of the calendar month in
which his death occurred.
8. TERMINATION FOR CAUSE.
For purposes of this Agreement, "Termination for Cause" shall include
termination because of the Executive's personal dishonesty, incompetence,
willful misconduct, breach of fiduciary duty involving personal profit,
intentional failure to perform stated duties, willful violation of any law,
rule, or regulation (other than traffic violations or similar offenses) or final
cease-and-desist order, or material breach of any provision of this Agreement.
For purposes of this Section, no act, or the failure to act, on Executive's part
shall be "willful" unless done, or omitted to be done, not in good faith and
without reasonable belief that the action or omission was in the best interest
of the Bank or its affiliates. Notwithstanding the foregoing, Executive shall
not be deemed to have been terminated
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for Cause unless and until there shall have been delivered to him a copy of a
resolution duly adopted by the affirmative vote of not less than three-fourths
(3/4) of the members of the Board at a meeting of the Board called and held for
that purpose (after reasonable notice to Executive and an opportunity for him,
together with counsel, to be heard before the Board), finding that in the good
faith opinion of the Board, Executive was guilty of conduct justifying
termination for Cause and specifying the reasons thereof. The Executive shall
not have the right to receive compensation or other benefits for any period
after termination for Cause. Any stock options granted to Executive under any
stock option plan or any unvested awards granted under any other stock benefit
plan of the Bank, the Company, or any subsidiary or affiliate thereof, shall
become null and void effective upon Executive's receipt of Notice of Termination
for Cause pursuant to Section 10 hereof, and shall not be exercisable by
Executive at any time subsequent to such Termination for Cause.
9. REQUIRED PROVISIONS.
(a) The Bank may terminate Executive's employment at any time, but any
termination by the Bank, other than Termination for Cause, shall not prejudice
Executive's right to compensation or other benefits under this Agreement.
Executive shall not have the right to receive compensation or other benefits for
any period after Termination for Cause as defined in Section 8 herein.
(b) If Executive is suspended and/or temporarily prohibited from
participating in the conduct of the Bank's affairs by a notice served under
Section 8(e)(3) or (g)(1) of the Federal Deposit Insurance Act ("FDIA") (12
U.S.C. 1818(e)(3) and (g)(1)), the Bank's obligations under the Agreement shall
be suspended as of the date of service, unless stayed by appropriate
proceedings. If the charges in the notice are dismissed, the Bank may, in its
discretion, (i) pay Executive all or part of the compensation withheld while its
contract obligations were suspended and (ii) reinstate (in whole or in part) any
of its obligations that were suspended.
(c) If Executive is removed and/or permanently prohibited from
participating in the conduct of the Bank's affairs by an order issued under
Section 8(e)(4) or (g)(1) of the FDIA (12 U.S.C. 1818(e)(4) or (g)(1)), all
obligations of the Bank under the Agreement shall terminate as of the effective
date of the order, but vested rights of the contracting parties shall not be
affected.
(d) If the Bank is in default (as defined in Section 3(x)(1) of the FDIA),
all obligations under this Agreement shall terminate as of the date of default,
but this paragraph shall not affect any vested rights of the parties.
(e) All obligations under this Agreement shall be terminated (except to
the extent determined that continuation of the Agreement is necessary for the
continued operation of the Bank): (i) by the Director of the Office of Thrift
Supervision (the "Director") or his 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 Bank under the authority
contained in Section 13(c) of the FDIA or (ii) by the Director, or his designee
at the time the Director or such designee approves a supervisory merger to
resolve problems related to operation of the Bank or when the Bank is determined
by the Director to be in an unsafe or unsound condition. Any rights of the
parties that have already vested, however, shall not be affected by such action.
(f) Any payments made to Executive pursuant to this Agreement, or
otherwise, are subject to and conditioned upon compliance with 12 U.S.C.
(S)1828(k) and any regulations promulgated thereunder.
10. NOTICE.
(a) Any purported termination by the Bank or by Executive shall be
communicated by Notice of Termination to the other party hereto. For purposes
of this Agreement, a "Notice of Termination" shall mean a written notice which
shall indicate the specific termination provision in this Agreement relied upon
and shall set forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination of Executive's employment under the provision so
indicated.
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(b) "Date of Termination" shall mean (A) if Executive's employment is
terminated for Disability, thirty (30) days after a Notice of Termination is
given (provided that he shall not have returned to the performance of his duties
on a full-time basis during such thirty (30) day period), and (B) if his
employment is terminated for any other reason, the date specified in the Notice
of Termination (which, in the case of a Termination for Cause, shall not be less
than thirty (30) days from the date such Notice of Termination is given).
(c) If, within thirty (30) days after any Notice of Termination is given,
the party receiving such Notice of Termination notifies the other party that a
dispute exists concerning the termination, except upon the occurrence of a
Change in Control and voluntary termination by the Executive in which case the
Date of Termination shall be the date specified in the Notice, the Date of
Termination shall be the date on which the dispute is finally determined, either
by mutual written agreement of the parties, by a binding arbitration award, or
by a final judgment, order or decree of a court of competent jurisdiction (the
time for appeal there from having expired and no appeal having been perfected)
and provided further that the Date of Termination shall be extended by a notice
of dispute only if such notice is given in good faith and the party giving such
notice pursues the resolution of such dispute with reasonable diligence.
Notwithstanding the pendency of any such dispute, the Bank will continue to pay
Executive his full compensation in effect when the notice giving rise to the
dispute was given (including, but not limited to, Base Salary) and continue him
as a participant in all compensation, benefit and insurance plans in which he
was participating when the notice of dispute was given, until the dispute is
finally resolved in accordance with this Agreement. Amounts paid under this
Section are in addition to all other amounts due under this Agreement and shall
not be offset against or reduce any other amounts due under this Agreement.
11. NON-COMPETITION.
(a) Upon any termination of Executive's employment hereunder pursuant to
an Event of Termination as provided in Section 4 hereof, Executive agrees not to
compete with the Bank and/or the Company for a period of one (1) year following
such termination in any city, town or county in which the Bank and/or the
Company has an office or has filed an application for regulatory approval to
establish an office, determined as of the effective date of such termination.
Executive agrees that during such period and within said cities, towns and
counties, Executive shall not work for or advise, consult or otherwise serve
with, directly or indirectly, any entity whose business materially competes with
the depository, lending or other business activities of the Bank and/or the
Company. The parties hereto, recognizing that irreparable injury will result to
the Bank and/or the Company, its business and property in the event of
Executive's breach of this Subsection 11(a) agree that in the event of any such
breach by Executive, the Bank and/or the Company will be entitled, in addition
to any other remedies and damages available, to an injunction to restrain the
violation hereof by Executive, Executive's partners, agents, servants,
employers, employees and all persons acting for or with Executive. Executive
represents and admits that in the event of the termination of his employment
pursuant to Section 8 hereof, Executive's experience and capabilities are such
that Executive can obtain employment in a business engaged in other lines and/or
of a different nature than the Bank and/or the Company, and that the enforcement
of a remedy by way of injunction will not prevent Executive from earning a
livelihood. Nothing herein will be construed as prohibiting the Bank and/or the
Company from pursuing any other remedies available to the Bank and/or the
Company for such breach or threatened breach, including the recovery of damages
from Executive.
(b) Executive recognizes and acknowledges that the knowledge of the
business activities and plans for business activities of the Bank and affiliates
thereof, as it may exist from time to time, is a valuable, special and unique
asset of the business of the Bank. Executive will not, during or after the term
of his employment, disclose any knowledge of the past, present, planned or
considered business activities of the Bank or affiliates thereof to any person,
firm, corporation, or other entity for any reason or purpose whatsoever.
Notwithstanding the foregoing, Executive may disclose any knowledge of banking,
financial and/or economic principles, concepts or ideas which are not solely and
exclusively derived from the business plans and activities of the Bank. In the
event of a breach or threatened breach by the Executive of the provisions of
this Section, the Bank will be entitled to an injunction restraining Executive
from disclosing, in whole or in part, the knowledge of the past, present,
planned or considered business activities of the Bank or affiliates thereof, or
from rendering any services to any person, firm, corporation,
6
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other entity to whom such knowledge, in whole or in part, has been disclosed or
is threatened to be disclosed. Nothing herein will be construed as prohibiting
the Bank from pursuing any other remedies available to the Bank for such breach
or threatened breach, including the recovery of damages from Executive.
12. SOURCE OF PAYMENTS.
All payments provided in this Agreement shall be timely paid in cash or
check from the general funds of the Bank. The Company, however, guarantees all
payments and the provision of all amounts and benefits due hereunder to
Executive and, if such payments are not timely paid or provided by the Bank,
such amounts and benefits shall be paid or provided by the Company.
13. EFFECT ON PRIOR AGREEMENTS AND EXISTING BENEFITS PLANS.
This Agreement contains the entire understanding between the parties hereto
and supersedes any prior employment agreement between the Bank or any
predecessor of the Bank and Executive, except that this Agreement shall not
affect or operate to reduce any benefit or compensation inuring to the Executive
of a kind elsewhere provided. No provision of this Agreement shall be
interpreted to mean that Executive is subject to receiving fewer benefits than
those available to him without reference to this Agreement.
14. NO ATTACHMENT.
(a) Except as required by law, no right to receive payments under this
Agreement shall be subject to anticipation, commutation, alienation, sale,
assignment, encumbrance, charge, pledge, or hypothecation, or to execution,
attachment, levy, or similar process or assignment by operation of law, and any
attempt, voluntary or involuntary, to affect any such action shall be null,
void, and of no effect.
(b) This Agreement shall be binding upon, and inure to the benefit of,
Executive, the Bank, the Company and their respective successors and assigns.
15. MODIFICATION AND WAIVER.
(a) This Agreement may not be modified or amended except by an instrument
in writing signed by the parties hereto.
(b) No term or condition of this Agreement shall be deemed to have been
waived, nor shall there by any estoppel against the enforcement of any provision
of this Agreement, except by written instrument of the party charged with such
waiver or estoppel. No such written waiver shall be deemed a continuing waiver
unless specifically stated therein, and each such waiver shall operate only as
to the specific term or condition waived and shall not constitute a waiver of
such term or condition for the future as to any act other than that specifically
waived.
16. SEVERABILITY.
If, for any reason, any provision of this Agreement, or any part of any
provision, is held invalid, such invalidity shall not affect any other provision
of this Agreement or any part of such provision not held so invalid, and each
such other provision and part thereof shall to the full extent consistent with
law continue in full force and effect.
17. HEADINGS FOR REFERENCE ONLY.
The headings of sections and paragraphs herein are included solely for
convenience of reference and shall not control the meaning or interpretation of
any of the provisions of this Agreement.
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18. GOVERNING LAW.
This Agreement shall be governed by the laws of the State of Idaho, unless
otherwise specified herein; provided, however, that in the event of a conflict
between the terms of this Agreement and any applicable federal or state law or
regulation, the provisions of such law or regulation shall prevail.
19. ARBITRATION.
Any dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by arbitration, conducted before a panel
of three arbitrators sitting in a location selected by the employee within one
hundred (100) miles from the location of the Bank, in accordance with the rules
of the American Arbitration Association then in effect. Judgment may be entered
on the arbitrator's award in any court having jurisdiction; provided, however,
that Executive shall be entitled to seek specific performance of his right to be
paid until the Date of Termination during the pendency of any dispute or
controversy arising under or in connection with this Agreement.
20. PAYMENT OF LEGAL FEES.
All reasonable legal fees paid or incurred by Executive pursuant to any
dispute or question of interpretation relating to this Agreement shall be paid
or reimbursed by the Bank, if successful pursuant to a legal judgment,
arbitration or settlement.
21. INDEMNIFICATION.
The Bank shall provide Executive (including his heirs, executors and
administrators) with coverage under a standard directors' and officers'
liability insurance policy at its expense, or in lieu thereof, shall indemnify
Executive (and his heirs, executors and administrators) to the fullest extent
permitted under law against all expenses and liabilities reasonably incurred by
him in connection with or arising out of any action, suit or proceeding in which
he may be involved by reason of his having been a director or officer of the
Bank (whether or not he continues to be a directors or officer at the time of
incurring such expenses or liabilities), such expenses and liabilities to
include, but not be limited to, judgment, court costs and attorneys' fees and
the cost of reasonable settlements.
22. SUCCESSOR TO THE BANK OR THE COMPANY.
The Bank and the Company shall require any successor or assignee, whether
direct or indirect, by purchase, merger, consolidation or otherwise, to all or
substantially all the business or assets of the Bank or the Company, expressly
and unconditionally to assume and agree to perform the Bank's or the Company's
obligations under this Agreement, in the same manner and to the same extent that
the Bank or the Company would be required to perform if no such succession or
assignment had taken place.
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IN WITNESS WHEREOF, the Bank and the Company hereto have caused this
Agreement to be executed and their seal to be affixed hereunto by a duly
authorized officer or director, and Executive has signed this Agreement, all on
the ____ day of _____________, 1997.
ATTEST: FIRSTBANK NORTHWEST
_______________________________ BY:_______________________________________
[SEAL]
ATTEST: FIRSTBANK CORP.
_______________________________ BY:_______________________________________
[SEAL]
WITNESS:
_______________________________ _____________________________________
Executive
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EXHIBIT 10.2
PROPOSED FORM OF EMPLOYEE STOCK OWNERSHIP PLAN
<PAGE>
FIRSTBANK NORTHWEST
EMPLOYEE STOCK OWNERSHIP PLAN
(EFFECTIVE _______________)
<PAGE>
Table of Contents
<TABLE>
<S> <C> <C>
I. Purpose of the Plan................................................. 1
II. Definitions
2.1 "Adjusted Balance"............................................ 2
2.2 "Annual Additions"............................................ 2
2.3 "Beneficiary"................................................. 2
2.4 "Board"....................................................... 2
2.5 "Break in Service"............................................ 2
2.6 "Code"........................................................ 3
2.7 "Committee"................................................... 3
2.8 "Company"..................................................... 3
2.9 "Company Contribution Account"................................ 4
2.10 "Company Stock"............................................... 4
2.11 "Company Stock Account"....................................... 4
2.12 "Compensation"................................................ 4
2.13 "Debt"........................................................ 5
2.14 "Early Retirement Date"....................................... 5
2.15 "Employee".................................................... 5
2.16 "Employment Year"............................................. 5
2.17 "ERISA"....................................................... 5
2.18 "Highly Compensated Participant".............................. 5
2.19 "Hour of Service"............................................. 6
2.20 "Limitation Year"............................................. 7
2.21 "Loan"........................................................ 7
2.22 "Maximum Permissible Amount".................................. 7
2.23 "Normal Retirement Date"...................................... 7
2.24 "Other Investments Account"................................... 7
2.25 "Participant"................................................. 7
2.26 "Plan"........................................................ 7
2.27 "Plan Year"................................................... 7
2.28 "Qualified Election Period"................................... 7
2.29 "Qualified Participant"....................................... 8
2.30 "Related Employer"............................................ 8
</TABLE>
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<TABLE>
<S> <C> <C>
2.31 "Related Plan"................................................ 8
2.32 "Service"..................................................... 8
2.33 "Spouse"...................................................... 8
2.34 "Suspense Account"............................................ 8
2.35 "Trust" or "Trust Fund"....................................... 8
2.36 "Trust Agreement"............................................. 9
2.37 "Trustee"..................................................... 9
2.38 "Valuation Date".............................................. 9
III. Participation
3.1 Eligibility Requirement....................................... 10
3.2 Reemployment of Participant................................... 10
IV. Contributions
4.1 Company Contributions......................................... 11
4.2 Exclusive Benefit of Employees................................ 12
4.3 Treatment of Veterans......................................... 12
V. Investment of Trust Assets
5.1 Investments................................................... 13
5.2 Valuation of Company Stock.................................... 13
5.3 Suspense Account.............................................. 13
5.4 Sales and Resales of Company Stock............................ 13
VI. Exempt Loans
6.1 Loans......................................................... 14
6.2 Loan Payments................................................. 15
6.3 Right of First Refusal........................................ 17
6.4 Put Option.................................................... 17
6.5 Continuation of Rights or Put Option.......................... 18
VII. Allocations to Participants' Accounts
7.1 Separate Accounts............................................. 19
7.2 Company Stock................................................. 19
7.3 Other Investments............................................. 19
</TABLE>
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<TABLE>
<S> <C> <C>
7.4 Allocations of Company Contributions and Forfeitures............. 19
7.5 Maximum Allocation............................................... 20
7.6 Vesting.......................................................... 22
7.7 Net Income (or Loss) of the Trust................................ 22
7.8 Accounting for Allocations....................................... 23
7.9 Special Allocation Provisions.................................... 23
7.10 Special Limitations on Allocations............................... 24
VIII. Retirement Payments, Disability Payments and Other Benefits
8.1 Payments on Retirement........................................... 24
8.2 Payments on Death................................................ 25
8.3 Payments on Disability........................................... 26
8.4 Payments on Termination for Other Reasons........................ 26
8.5 Property Distributed............................................. 27
8.6 Methods of Payment............................................... 28
8.7 Administrative Powers Relating to Payments....................... 33
8.8 Dividends........................................................ 33
8.9 Diversification of Investments................................... 34
IX. Voting of Company Stock
9.1 Company Common Stock - Voting and Consent........................ 36
X. Plan Administration
10.1 Company Responsibility.......................................... 37
10.2 Powers and Duties of Committee.................................. 37
10.3 Organization and Operation of Committee......................... 37
10.4 Records and Reports of Committee................................ 38
10.5 Claims Procedure................................................ 38
10.6 Compensation and Expenses of Committee.......................... 39
10.7 Indemnity of Committee Members.................................. 39
XI. Trust and Trustee
11.1 Trust Agreement................................................. 40
11.2 Exclusive Benefit of Employees.................................. 40
11.3 Trustee......................................................... 40
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
XII. Amendment and Termination
12.1 Amendment of Plan........................................................ 41
12.2 Voluntary Termination of or Permanent Discontinuance of Contributions
to the Plan............................................................ 41
12.3 Limitation on Amendment or Termination................................... 41
12.4 Involuntary Termination of Plan.......................................... 41
12.5 Payments on Termination of or Permanent Discontinuance of Contributions
to the Plan............................................................ 42
XIII. Miscellaneous
13.1 Duty To Furnish Information and Documents................................ 43
13.2 Committee's Annual Statements and Available Information.................. 43
13.3 No Enlargement of Employment Rights...................................... 43
13.4 Applicable Law........................................................... 43
13.5 No Guarantee............................................................. 43
13.6 Unclaimed Funds.......................................................... 44
13.7 Merger or Consolidation of Plan.......................................... 44
13.8 Interest Nontransferable................................................. 44
13.9 Prudent Man Rule......................................................... 44
13.10 Limitations on Liability................................................. 45
13.11 Federal and State Security Law Compliance................................ 45
13.12 Headings................................................................. 45
13.13 Gender and Number........................................................ 45
13.14 ERISA and Approval Under Internal Revenue Code........................... 45
13.15 Extension of Plan to Related Employers................................... 46
13.16 Administrative Changes Without Amendment................................. 46
XIV. Top-Heavy Provisions
14.1 Top-Heavy Status......................................................... 47
14.2 Definitions.............................................................. 47
14.3 Determination of Top-Heavy Status........................................ 47
14.4 Vesting.................................................................. 48
14.5 Minimum Contribution..................................................... 49
14.6 Compensation............................................................. 49
14.7 Collective Bargaining Agreements......................................... 49
</TABLE>
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ARTICLE I
PURPOSE OF THE PLAN
The purpose of this Plan is to enable participating Employees of FirstBank
Northwest and Related Employers to share in the growth and prosperity of the
Company, to provide Employees with an opportunity to accumulate capital for
their future economic security, to furnish additional security to Employees who
become permanently disabled, and to enable Employees to acquire stock ownership
interests in the Company. Consequently, Company contributions to the Plan will
be invested primarily in Company Stock. The Plan, effective as of
_______________, shall constitute an employee stock ownership plan under Section
4975(e)(7) of the Code and Section 407(d)(6) of ERISA and a stock bonus plan
under Section 401(a) of the Code.
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ARTICLE II
DEFINITIONS
Whenever used herein the following words and phrases shall have the
meanings stated below unless a different meaning is plainly required by the
context:
2.1 "Adjusted Balance" means the balance in a Participant's account or
accounts, as adjusted in accordance with Sections 7.8 and 7.9 of the Plan as of
the applicable Valuation Date.
2.2 "Annual Additions" means the total of: (a) Company contributions
allocated to a Participant's Accounts under this Plan and any Related Plan
during any Limitation Year; (b) the amount of employee contributions made by the
Participant under any Related Plan; and (c) forfeitures allocated to a
Participant's Accounts under the Plan and any Related Plan.
2.3 "Beneficiary" means the person, persons, or entity designated or
determined pursuant to the provisions of Section 8.2 of the Plan.
2.4 "Board" means the Board of Directors of the Company.
2.5 "Break in Service" means the termination of employment of an Employee
followed by the expiration of an Employment Year in which the Employee
accumulated fewer than 501 Hours of Service. For purposes of this Section:
(a) A Break in Service shall not be deemed to have occurred if (i)
the employment of a terminated Employee is resumed prior to the expiration of an
Employment Year in which he accumulates fewer than 501 Hours of Service; (ii)
the Employee is absent with the prior consent of the Company for a period not
exceeding 12 months (which consent shall be granted under uniform rules applied
to all Employees on a nondiscriminatory basis) and he returns to active
employment with the Company upon the expiration of the period of authorized
absence; or (iii) he leaves the Company to serve in the armed forces of the
United States for a period during which his reemployment rights are guaranteed
by law and he returns or offers to return to work for the Company prior to the
expiration of his reemployment rights.
(b) An Employee who is absent from work with the Company because of
(i) the Employee's pregnancy, (ii) the birth of the Employee's child, (iii) the
placement of a child with the Employee in connection with the Employee's
adoption of the child, or (iv) caring for such child immediately following such
birth or placement
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shall receive credit, solely for purposes of determining whether a Break in
Service has occurred under this Section, for the Hours of Service described in
subsection (c) of this Section; provided that the total number of hours credited
as Hours of Service under this subsection shall not exceed 501 Hours of Service.
(c) In the event of an Employee's absence from work for any of the
reasons set forth in subsection (b) of this Section, the Hours of Service that
the Employee will be credited with under subsection (b) are (i) the Hours of
Service that otherwise would normally have been credited to the Employee but for
such absence, or (ii) eight Hours of Service per day of such absence if the
Committee is unable to determine the Hours of Service described in clause (i).
(d) An Employee who is absent from work for any of the reasons set
forth in subsection (b) of this Section shall be credited with Hours of Service
under subsection (b), (i) only in the Employment Year in which the absence
begins, if the Employee would be prevented from incurring a Break in Service in
that Year solely because the period of absence is treated as credited Hours of
Service, as provided in subsections (b) and (c), or (ii) in any other case, in
the immediately following Employment Year.
(e) No credit for Hours of Service will be given pursuant to
subsections (b), (c) and (d) of this Section unless the Employee furnished to
the Committee such timely information that the Committee may reasonably require
to establish (i) that the absence from work is for one of the reasons specified
in subsection (b) and (ii) the number of days for which there was such an
absence. No credit for Hours of Service will be given pursuant to subsections
(b), (c), and (d) for any purpose of the Plan other than the determination of
whether an Employee has incurred a Break in Service pursuant to this Section.
2.6 "Code" means the Internal Revenue Code of 1986 as amended. Reference
to a section of the Code shall include that section and any comparable section
or sections of any future legislation that amends, supplements or supersedes
said sections.
2.7 "Committee" means the Plan Administrative Committee described in
Section 10.1 of the Plan.
2.8 "Company" means, as appropriate, FirstBank Northwest, as a federally
chartered stock savings bank and upon conversion to a Washington-chartered
savings bank, and any successor corporation resulting from a merger or
consolidation with the Company or transfer of substantially all of the assets of
the Company, if such successor or transferee shall adopt and continue the Plan
by appropriate corporate action, pursuant to Section 12.4 of the Plan.
2.9 "Company Contribution Account" means the Company Stock and other
assets held by the Trustee for the Plan derived from Company contributions to
the Trust.
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2.10 "Company Stock" means any qualifying employer security within the
meaning of Section 4975(e)(8) of the Code and 407(d)(1) of ERISA and Regulations
thereunder.
2.11 "Company Stock Account" means an account of a Participant which is
credited with his allocable share of Company Stock purchased and paid for by the
Trust or contributed to the Trust.
2.12 "Compensation" means a Participant's total earnings from the Company
paid during a Plan year for service rendered including bonuses, overtime,
commissions, contributions or benefits under this Plan or any other pension,
profit sharing, insurance, hospitalization or other plan or policy maintained by
the Company for the benefit of such Participant, and all other extraordinary and
unusual payments. For purposes of Sections 2.18 and 2.22, Compensation means
wages, salaries, fees for professional services, and other amounts received for
personal services actually rendered in the course of employment with the Company
(including, but not limited to, commissions paid salesmen, compensation for
services on the basis of percentage of profits, tips, and bonuses); shall
include all compensation actually paid or made available to a Participant for an
entire Limitation Year; and shall not include any other items or amounts paid to
or for the benefit of a Participant. The limit of Compensation for any
participant for a Plan Year or Limitation Year shall be the dollar limitation in
effect under Section 401(a)(17) of the Code and the Regulations thereunder for
such Year. In addition to other applicable limitations set forth in the Plan,
and notwithstanding any other provision of the plan to the contrary, for plan
years beginning on or after January 1, 1994, the annual compensation of each
employee taken into account under the plan shall not exceed the OBRA '93 annual
compensation limit. The OBRA '93 annual compensation limit is $150,000, as
adjusted by the Commissioner for increased in the cost of living in accordance
with Section 401(a)(17)(B) of the Code. The cost-of-living adjustment in effect
for a calendar year applies to any period, not exceeding 12 months, over which
compensation is determined (determination period) beginning in such calendar
year. If a determination period consists of fewer than 12 months, the OBRA '93
annual compensation limit will be multiplied by a fraction, the numerator of
which is the number of months in the determination period, and the denominator
of which is the number of months in the determination period, and the
denominator of which is 12. For plan years beginning on or after January 1,
1994, any reference in this Plan to the limitation under section 401(a)(17) of
the Code shall mean the OBRA '93 annual compensation limit set forth in this
provision. If Compensation for any prior determination period is taken into
account in determining an employee's benefits accruing in the current plan year,
the Compensation for that prior determination period is subject to the OBRA '93
annual compensation limit in effect for that prior determination period. For
this purpose, for determination periods beginning before the first date of the
first plan year beginning on or after January 1, 1994, the OBRA '93 annual
compensation limit is $150,000.
2.13 "Debt" means any borrowing obligation incurred by the Trustee that is
not a Loan.
2.14 "Early Retirement Date" means the date a Participant attains age 55.
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2.15 "Employee" means an individual employed by the Company; provided,
however, that "Employee" does not include an hourly employee or any individual
covered by a collective bargaining agreement between employee representatives
and the Company if retirement benefits were the subject of good faith bargaining
between such employee representatives and the Company. A person who is not
employed by the Company but who performs services for the Company pursuant to an
agreement between the Company and a leasing organization shall be considered a
"leased employee" after such person performs such services for a 12-month period
and the services are of a type historically performed by employees. A person
who is considered a leased employee of the Company shall not be considered an
Employee for purposes of the Plan. If a leased employee subsequently becomes an
Employee, and thereafter participates in the Plan, he shall be given credit for
Hours of Service and Years of Service for his period of employment as a leased
employee, except to the extent that Section 414(n)(5) of the Code was satisfied
with respect to such Employee while he was a leased employee.
2.16 "Employment Year" means a 12 consecutive month period commencing with
an Employee's initial date of hire (or last date of rehire if he has incurred a
Break in Service) or with any anniversary thereof. For purposes hereof, an
Employee's date of hire shall be the first day on which he completes an Hour of
Service and his date of rehire shall be the first day on which he completes an
Hour of Service following a Break in Service.
2.17 "ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
2.18 "Highly Compensated Participant" means, for Plan Years beginning
prior to January 1, 1997, a Participant who, during the current Plan Year or the
preceding Plan Year, (a) was at any time a five percent (5%) owner of the
Company, (b) received Compensation from the Company in excess of $75,000 (or
such greater amount provided by the Secretary of the Treasury pursuant to
Section 414(q) of the Code), (c) received Compensation from the Company in
excess of $50,000 (or such greater amount provided by the Secretary of the
Treasury pursuant to Section 414(q) of the Code) and was in the top-paid group
of Employees for such Year, or (d) was at any time an officer of the Company and
received Compensation from the Company greater than 150% of the amount in effect
under Section 415(c)(1)(A) of the Code for such Plan Year. For Plan Years
beginning after December 31, 1996, "Highly Compensated Participant" means a
Participant who, during the current Plan Year or the preceding Plan Year, (a)
was at any time a five percent (5%) owner of the Company, or, (b) for the
preceding year, received Compensation from the Company in excess of $80,000 (or
such greater amount provided by the Secretary of the Treasury pursuant to
Section 414(q) of the Code) and, if elected by the Company, was in the top-paid
group of Participants for such preceding year. The provisions of Section 414(q)
of the Code and the regulations thereunder shall apply in determining whether a
Participant is a Highly Compensated Participant.
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2.19 "Hour of Service" means (i) each hour for which an Employee is paid
or entitled to payment for the performance of duties for the Company or a
Related Employer; and (ii) each hour for which an Employee is directly or
indirectly paid by the Company or a Related Employer during which no duties are
performed by reason of vacation, holiday, illness, incapacity (including
disability), layoff, jury duty, military duty or leave of absence (but not in
excess of 501 hours in any continuous period during which no duties are
performed). Each Hour of Service for which back pay, irrespective of mitigation
of damages, is either awarded or agreed to by the Company or a Related Employer
shall be included under either (i) or (ii) as may be appropriate. Hours of
Service shall be credited:
(a) in the case of Hours referred to in clause (i) of the first
sentence of this section, for the computation period in which the duties are
performed;
(b) in the case of Hours referred to in clause (ii) of the first
sentence of this section, for the computation period or periods in which the
period during which no duties are performed occurs; and
(c) in the case of Hours for which back pay is awarded or agreed to
by the Company or a Related Employer, for the computation period or periods to
which the award or agreement pertains rather than the computation period in
which the award, agreement or payment is made.
In determining Hours of Service an Employee who is employed by the Company
or a Related Employer on other than an hourly rated basis shall be credited with
ten Hours of Service per day for each day the Employee would, if hourly rated,
be credited with service pursuant to clause (i) of the first sentence of this
Section 2.19. If an Employee is paid for reasons other than the performance of
duties pursuant to clause (ii) of the first sentence of this Section 2.19: (i)
in the case of a payment made or due which is calculated on the basis of units
of time, an Employee shall be credited with the number of regularly scheduled
working hours included in the units of time on the basis of which the payment is
calculated; and (ii) an Employee without a regular work schedule shall be
credited with eight Hours of Service per day (to a maximum of 40 Hours of
Service per week) for each day that the Employee is so paid. Hours of Service
shall be calculated in accordance with Department of Labor Regulations Section
2530.200b-2 or any future legislation or Regulation that amends, supplements or
supersedes said section.
Solely for purposes of determining an Employee's
(i) eligibility to participate in the Plan under Section 3.1, and
(ii) vesting under Section 7.6,
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Hours of Service shall include Hours during an approved leave of
absence granted by an Employer to an Employee on or after August 5,
1993 pursuant to the Family and Medical Leave Act, if the Employee
returns to work for an Employer at the end of such leave of absence.
Such Hours of Service shall be calculated pursuant to the second
sentence of this paragraph.
2.20 "Limitation Year" means the Plan Year.
2.21 "Loan" means any loan as described in Section 4975(d)(1) of the Code
to the Trustee made or guaranteed by a disqualified person (within the meaning
of 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 a disqualified person
(within the meaning of Section 4975(e)(2) of the Code) as collateral for a loan.
2.22 "Maximum Permissible Amount" means the lesser of: (a) $30,000 (or, if
greater, one-quarter of the dollar limitation in effect pursuant to Section
415(b)(1)(A) of the Code); or (b) 25% of a Participant's Compensation.
2.23 "Normal Retirement Date" means the date a Participant attains age 65.
2.24 "Other Investments Account" means an account of a Participant which
is credited with his share of the net income (or loss) or the Trust and Company
contributions and forfeitures in other than Company Stock, and which is debited
with payments made to pay for Company Stock
2.25 "Participant" means an Employee who becomes a Participant under the
provisions of Section 3.1 of the Plan.
2.26 "Plan" means this FirstBank Northwest Employee Stock Ownership Plan.
It is hereby intended that this Plan shall constitute a stock bonus plan.
2.27 "Plan Year" means the period beginning January 1 and ending December
31 of each year.
2.28 "Qualified Election Period" means the six Plan Year period beginning
with the first Plan Year in which a Participant first becomes a Qualified
Participant.
2.29 "Qualified Participant" means any Participant who has attained age 55
and has been a Participant in the Plan for at least ten years.
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2.30 "Related Employer" means (i) any corporation that is a member of a
controlled group of corporations (as defined in Section 414(b) of the Code) that
includes the Company; (ii) any trade or business (whether incorporated or
unincorporated) that is under common control (as defined in Section 414(c) of
the Code) with the Company; and (iii) any member of an affiliated service group
(as defined in Section 414(m) of the Code) that includes the Company. For
purposes of Section 7.5, paragraphs (i) and (ii) shall be as amended by Section
415(h) of the Code.
2.31 "Related Plan" means any other defined contribution plan (as defined
in Section 415 of the Code) maintained by the Company or by any Related
Employer.
2.32 "Service" means a period of time, measured in whole Employment Years,
commencing with the Employment Year in which an Employee is initially employed
and ending with the Employment Year in which a Break in Service occurs;
provided, however, that Service shall not include any Employment Year in which
the Employee accrues less than 1,000 Hours of Service; provided, further that,
for purposes of Sections 7.6 and 14.4, Service shall be determined without
regard to a Participant's Hours of Service during an Employment Year. Service
shall include an approved leave of absence granted to an Employee on or after
August 3, 1993 pursuant to the Family and Medical Leave Act, if the Employee
returns to work for an Employer at the end of such leave of absence. Without
regard to the preceding provisions of this Section 2.28, a Participant's years
of Service after a period of five consecutive one-year Breaks in Service shall
be disregarded for purposes of determining his nonforfeitable interest in his
Accounts as of the Valuation Date coincident with or next preceding the date he
incurs such five consecutive one-year Breaks in Service.
2.33 "Spouse" means the person who is legally married to a Participant
immediately prior to the Participant's death.
2.34 "Suspense Account" means an account to which securities purchased
with any Loans are allocated pending their release and allocation to other
accounts as the Loan is repaid.
2.35 "Trust" or "Trust Fund" means all money, securities and other
property held under the Trust Agreement for the purposes of the Plan.
2.36 "Trust Agreement" means the agreement between the Company and the
Trustee (or any successor Trustee) governing the administration of the Trust, as
it may be amended.
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2.37 "Trustee" means the corporation or individuals appointed by the Board
of Directors of the Company to administer the Trust and which executes the Trust
Agreement.
2.38 "Valuation Date" means the last day of each Plan Year and such other
date, if any, as shall be selected by the Company.
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ARTICLE III
PARTICIPATION
3.1 Eligibility Requirement. Any Employee who was in the employ of the
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Company on the effective date shall participate in the Plan as of the effective
date if he has completed an Employment Year as of such date and has attained the
age of 21. Each other Employee shall be eligible to participate upon: (i) the
completion of one Employment Year during which the Employee has completed 1,000
Hours of Service and (ii) attainment of the age of 21. An Employee who is
eligible to participate shall commence participation in the Plan on the January
1, April 1, July 1 or October 1 next following the date on which the Employee is
first eligible to participate in the Plan.
3.2 Reemployment of Participant. For purposes of Section 3.1 of the Plan
----------------------------
pertaining to eligibility and Section 7.7 of the Plan pertaining to vesting, if
a Participant shall incur a Break in Service and shall thereafter be reemployed
by the Company: (i) Years of Service completed before such Break shall not be
required to be taken into account until the Participant has completed a Year of
Service after his return to employment with the Company at which time such Years
of Service shall be restored and the Participant shall participate in the Plan
retroactively from the date of his return to employment with the Company; and
(ii) if no part of the Participant's Company stock and Other Investments
Accounts was nonforfeitable when he incurred such Break, Years of Service with
the Company completed prior to such Break shall not be required to be taken into
account in any event if the number of consecutive one-year Breaks in Service
equals or exceeds the greater of (a) five or (b) the aggregate number of years
of Service prior to such Break.
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ARTICLE IV
CONTRIBUTIONS
4.1 Company Contributions.
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(a) For each Plan Year, Company contributions under the Plan may be
paid to the Trust in such amounts (or under such formula) and at such times as
may be determined by the Company's Board of Directors. Company contributions
under the Plan for a Plan Year may be paid during the Plan Year and shall in any
event be paid not later than the due date for filing the Company's federal
income tax return for that year, including any extensions of such due date.
Company contributions for any Plan Year shall not be paid to the Trust in
amounts that would exceed the limitations of Section 404 of the Code. In no
event shall Company contributions in any Limitation year exceed an amount which
would cause: (a) Annual Additions to the accounts of any Participant to exceed
the Maximum Permissible Amount for that Limitation Year (except as provided in
Section 7.5); or (b) the sum of the defined benefit plan fraction (as defined in
Section 7.5) and the defined contribution plan fraction (as defined in Section
7.5) to exceed one for that Limitation Year.
(b) Company contributions may be paid to the Trust in cash or in
shares of Company Stock, as determined by the Company's Board of Directors;
provided that Company contributions shall be paid in cash in such amounts, and
at such times (subject to the limitations described in Section 7.5) as needed to
provide the Trust with funds sufficient to pay in full when due any principal
and interest payments required by a Loan incurred by the Trustee pursuant to
Article VI to finance the acquisition of Company Stock.
(c) All Company contributions for a Plan Year shall be allocated to
the Company Contribution Account when paid. The Company Contribution Account
shall be subdivided into a Company Stock Contribution Account and a Company
Other Investments Contribution Account. As of the last day of each Plan Year
amounts in the Company Contribution Account, including amounts contributed after
such last day under paragraph (a) above shall be allocated to Participants'
accounts as provided in Article VIII.
(d) No participants shall be required or permitted to make
contributions to the Plan or Trust.
(e) All Company contribution made under the Plan are conditioned upon
the qualification of the Plan under Section 401(a) of the Code and upon the
deductibility of the contribution under Section 404 of the Code.
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4.2 Exclusive Benefit of Employees. All contributions made pursuant to
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the Plan shall be held by the Trustee in accordance with the terms of the Trust
Agreement for the exclusive benefit of those Employees who are Participants
under the Plan, including former Employees, and their Beneficiaries, and shall
be applied to provide benefits under the Plan and to pay expenses of
administration of the Plan and the Trust, to the extent that such expenses are
not otherwise paid. At no time prior to the satisfaction of all liabilities
with respect to such Employees and their Beneficiaries shall any part of the
Trust Fund (other than such part as may be required to pay administration
expenses and taxes) be used for, or diverted to, purposes other than for the
exclusive benefit of such Employees and their Beneficiaries. However, without
regard to the provisions of this Section 4.2:
(a) If a contribution under the Plan is conditioned on initial
qualification of the Plan under Section 401(a) of the Code, and the Plan
receives an adverse determination with respect to its initial qualification, the
Trustee shall, upon written request of the Company, return to the Company the
amount of such contribution (increased by earnings attributable thereto and
reduced by losses attributable thereto) within one calendar year after the date
that qualification of the Plan is denied, provided that the application for the
determination is made by the time prescribed by law for filing the Company's
return for the taxable year in which the Plan is adopted, or such later date as
the Secretary of the Treasury may prescribe;
(b) If a contribution is conditioned upon the deductibility of the
contribution under Section 404 of the Code, then, to the extent the deduction is
disallowed, the Trustee shall upon written request of the Company return the
contribution (to the extent disallowed) to the Company within one year after the
date the deduction is disallowed;
(c) If a contribution or any portion thereof is made by the Company
by a mistake of fact, the Trustee shall, upon written request of the Company,
return the contribution or such portion to the Company within one year after the
date of payment of the Trustee; and
(d) Earnings attributable to amount to be returned to the Company
pursuant to subsection (b) or (c) above shall not be returned, and losses
attributable to amounts to be returned pursuant to subsection (b) or (c) shall
reduce the amount to be so returned.
4.3 Treatment of Veterans. Notwithstanding any provision of this Plan to
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to the contrary, contributions, benefits and service credit with respect to
qualified military service will be provided in accordance with Section 414(u)(4)
of the Code.
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ARTICLE V
INVESTMENT OF TRUST ASSETS
5.1 Investments. The Trust Fund will be invested primarily in Company
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Stock. The Committee may direct the Trustee to incur Debt from time to time to
finance the acquisition of Company Stock by the Trust or otherwise. The Trust
Fund may be used to acquire shares of Company Stock from Company shareholders
(including former Participants) or from the Company. The Trustee may also
invest the Trust Fund in savings accounts, certificates of deposit, high-grade
short-term securities, equity stock, bonds, or other investments desirable for
the Trust, or the Trust Fund may be held in cash. All investments will be made
by the Trustee only upon the direction of the Committee. The Committee may
direct that the entire Trust Fund assets be invested and held in Company Stock.
5.2 Valuation of Company Stock. All purchases of Company Stock will be
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made at a price, or at prices, that do not exceed the fair market value of such
Company Stock. If Company Stock is traded on a national securities exchange,
fair market value shall be the average of the closing prices thereof on such
exchange for the ten trading days immediately preceding the purchase. If
Company Stock is not traded on such an exchange but is publicly traded, fair
market value shall be the average of the bid and asked price thereof for such
ten trading days. If Company Stock is not publicly traded, the determination of
the fair market value of Company Stock for all purposes of the Plan shall in all
cases be made by an independent appraiser appointed pursuant to this section
shall meet requirements similar to the requirements of Regulations promulgated
under Section 170(a)(1) of the Code.
5.3 Suspense Account. Company Stock purchased with the proceeds of a
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Loan shall be held in the Suspense Account pending release and reallocation to
other Accounts as the Loan is paid. Company Stock purchased with amounts
allocated to Participants' Other Investment Accounts or Company Other
Investments Accounts shall immediately upon purchase be credited pro rata to the
corresponding Participants' Company Stock or Company Stock Contribution Accounts
as the case may be. Company Stock contributed to the Plan pursuant to Article IV
shall be allocated to the Company Stock Accounts of Participants pursuant to
Section 7.4.
5.4 Sales and Resales of Company Stock. The Committee may direct the
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Trustee to sell or resell shares of Company Stock to any person, including the
Company, provided that any such sales to any disqualified person, including the
Company, will be made at no less than the fair market value as determined under
Section 5.2 and no commission is charged. Any such sale shall be made in
conformance with Section 408(e) of ERISA. All sales of Company Stock (except
Company Stock held in a Suspense Account or Company Stock Contribution Account)
by the Trustee will be charged pro rata to the Company Stock Accounts of the
Participants.
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ARTICLE VI
EXEMPT LOANS
6.1 Loans.
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(a) The Committee may direct the Trustee to obtain Loans. Any such
Loan will meet all requirements necessary to constitute an "exempt loan" within
the meaning of Section 4975(d)(3) of the Code and Regulations (S)54.4975-
7(b)(1)(iii) and shall be used primarily for the benefit of the Participants and
Beneficiaries. The proceeds of any such Loan shall be used, within a reasonable
time after the Loan is obtained, only to purchase Company Stock, repay the Loan,
or repay any prior Loan. Any such Loan shall provide for no more than a
reasonable rate of interest (as determined under Regulations (S)54.4975-7(b)(7))
and must be without recourse against the Plan. The number of years to maturity
under the Loan must be definitely ascertainable at all times. The only assets
of the Plan that may be given as collateral on a Loan are shares of Company
Stock acquired with the proceeds of the Loan and shares of Company Stock that
were used as collateral on a prior Loan repaid with the proceeds of the current
Loan. Such Company Stock so pledged shall be placed in a Suspense Account. No
person entitled to payment under a Loan shall have recourse against Trust Assets
other than such collateral, contributions (other than contributions of Company
Stock) that are available under the Plan to meet obligations under the Loan and
earnings attributable to such collateral and the investment of such
contributions. All Company contributions paid during the Plan Year in which a
Loan is made (whether before or after the date the proceeds of the Loan are
received), all Company contributions paid thereafter until the Loan has been
repaid in full, and all earnings from investment of such Company contributions,
without regard to whether any such Company contributions and earnings have been
allocated to Participants' Other Investment Accounts, shall be available to meet
obligations under the Loans as such obligations accrue, or prior to the time
such obligations accrue, unless otherwise provided by the Company at the time
any such contribution is made.
(b) Any pledge of Company Stock must provide for the release of
shares so pledged upon the payment of any portion of the Loan. The number of
shares to be released will be determined, at the discretion of the Committee,
under clause (1) or (2) of this section 6.1(b).
(1) If the Loan provides annual payments of principal and
interest at a cumulative rate that is not less rapid at any
time than level annual payments of principal and interest
over ten years, then for each Plan Year during the duration
of the Loan, the number of shares of Company Stock released
from such pledge shall equal the number of encumbered
securities held immediately before release for the current
Plan Year multiplied by a fraction. The numerator of the
fraction is the
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principal paid in such Plan Year. The denominator of the
fraction is the sum of the numerator plus the principal to
be paid for all future years. Such years will be determined
without taking into account any possible extension or
renewal periods. To the extent that the net proceeds
received by the Plan in respect of any Loan exceed the
stated principal amount of the Loan, that portion of any
interest payment that would be deemed to be a repayment of
principal under standard loan amortization tables shall be
treated as principal paid or principal to be paid, as the
case may be, for purposes of the above calculation.
(2) If the Loan does not satisfy the conditions stated in
subparagraph (1), then for each Plan Year during the
duration of the Loan, the number of shares of Company Stock
released from such pledge shall equal the number of
encumbered securities held immediately before release for
the current Plan year multiplied by a fraction. The
numerator of the fraction is the sum of the 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 of renewal periods.
(c) If the collateral includes more than one class of Company Stock,
the number of shares of each class to be released for a Plan Year must be
determined by applying the same fraction to each class. If interest on any Loan
is variable, the interest to be paid in future years under the Loan shall be
computed by using the interest rate application as of the end of the Plan Year.
Should a Loan initially satisfying the conditions stated in subparagraph (b)(1)
at some subsequent date cease to satisfy the conditions of such subparagraph, by
reason of a renewal, extension, or refinancing of the Loan, then subparagraph
(b)(2) shall be applied in determining the shares released upon payment of any
principal or interest after such date.
6.2 Loan Payments.
--------------
(a) Payments of principal and interest on any Loan during a Plan Year
shall be made by the Trustee (as directed by the Committee) only from (1)
Company Contributions to the Trust made to meet the Plan's obligation under a
Loan (other than contributions of Company Stock) and from any earnings
attributable to Company Stock and investments of such contributions (both
received during or prior to the Plan Year); (2) the proceeds of a subsequent
Loan made to repay a prior Loan; and (3) the proceeds of the sale of any Company
Stock held as
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collateral for a Loan. Such contribution and earnings must be accounted for
separately by the Plan until the Loan is repaid.
(b) Company Stock released by reason of the payment of principal or
interest on a Loan from amounts allocated to Participants' Other Investments
Accounts or Company Other Investments Accounts shall immediately upon payment be
allocated as set forth in Sections 7.2 and 7.4 to the corresponding Company
Stock or Company Stock Contribution Accounts.
(c) The Company shall contribute to the Trust sufficient amounts to
enable the Trust to pay principal and interest on any such Loan as they are due,
provided however that no such contributions shall exceed the limitations in
Section 7.5. In the event that such contributions by reason of the limitations
in Section 7.5 are insufficient to enable the Trust to pay principal and
interest on such Loan as it is due, then upon the Trustee's request the Company
shall:
(1) Make a loan to the Trust as described in Regulations
(S)54.4975(b)(4)(iii), in sufficient amounts to meet such principal and interest
payment. Such new Loan shall also meet all requirements of an "exempt loan"
within the meaning of Regulations (S)54.4975-7(b)(1)(iii) and shall be
subordinated to the prior Loan. Company Stock released from the pledge of the
prior Loan shall be pledged as collateral to secure the new Loan. Such Company
Stock will be released from this new pledge and allocated to the accounts of the
Participants in accordance with applicable provisions of the Plan;
(2) Purchase any Company Stock 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.
(d) The Company 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.
(e) Except as provided in sections 6.3 and 6.4 below, 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 a loan, no shares of Company
Stock acquired with
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<PAGE>
the proceeds of a Loan obtained by the Trust to purchase Company Stock may be
subject to a put, call or other option, or buy-sell or similar arrangement while
such shares are held by and when distributed from the Plan.
6.3 Right of First Refusal. Shares of Company Stock purchased with the
-----------------------
proceeds of a Loan and distributed by the Trustee may be subject to a "right of
first refusal." Such a "right" shall provide that prior to any subsequent
transfer, the shares must first be offered in writing to the Company at a price
equal to the greater of (1) the then fair market value of such shares of Company
Stock as determined in accordance with Section 5.2, or (2) the purchase price
offered by a buyer, other than the Company or Trustee, making a good faith (as
determined by the Committee) offer to purchase such shares of Company Stock.
The Trust or the Company, as the case may be, may accept the offer as to part or
all of the Company Stock at any time during a period not exceeding 14 days after
receipt of such offer by the Trust, on terms and conditions no less favorable to
the shareholder than those offered by the independent third party buyer. Any
installment purchase shall be made pursuant to a note secured by the shares
purchased and shall bear a reasonable rate of interest as determined by the
Committee. If the offer is not accepted by the Trust, or the Company, or both,
then the proposed transfer may be completed within a reasonable prior following
the end of the 14 day period, but only upon terms and conditions of the third
party buyer's prior offer. Shares of Company Stock which are publicly traded
within the meaning of Code Section 409(h)(1)(B) at the time such right may
otherwise be exercised shall not be subject to this "right of first refusal."
6.4 Put Option.
-----------
(a) Shares of Company Stock acquired by the Trust shall be subject to
a "put" option at the time of distribution, provided that at such time the
shares are not readily tradable on an established market within the meaning of
Section 409(h)(1)(B) of the Code. The "put" option shall be exercisable by the
Participant or his Beneficiary, by the donees of either, or by a person
(including an estate or its distributee) to whom the Company Stock passes by
reason of the Participant's or Beneficiary's death. The "put" option shall
provide that for a period of at least 60 days following the date of distribution
of the Company Stock, the holder of the option shall have the right to cause the
Company, by notifying the Committee in writing, to purchase such shares at their
fair market value (as determined pursuant to Section 5.2). If the "put" option
is not exercised within such 60-day period, the option shall be exercisable for
an additional period of 60 days in the following Plan Year. The Committee may
give the Trustee the option to assume the rights and obligations of the Company
at the time the "put" option is exercised, insofar as the repurchase of Company
Stock is concerned.
(b) If the entire Adjusted Balance of a Participant's Accounts is
distributed to the Participant within one taxable year, payment of the price of
the Company Stock purchased pursuant to an exercised "put" option shall be made
in five substantially equal annual payments and the first installment shall be
paid not later than 30 days
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after the Participant exercises the "put" option. The Plan will provide
adequate security and pay a reasonable rate of interest on amounts not paid
after 30 days. If the entire Adjusted Balance of a Participant's Accounts is
not distributed to him within one taxable year, payment of the price of the
Company Stock purchased pursuant to an exercised "put" option shall be made in a
single lump sum not later than 30 days after the Participant exercises the "put"
option.
6.5 Continuation of Rights or Put Option. The rights set forth in
-------------------------------------
Section 6.2(d) and the "put" option provided for by Section 6.4 are
nonterminable and shall continue to apply to shares of Company Stock purchased
by the Trustee with the proceeds of a Loan as described herein or to shares of
Company Stock distribute hereunder notwithstanding the repayment of the Loan or
any amendment to, or termination of, this Plan which causes the Plan to cease to
be an employee stock ownership plan within the meaning of Section 4975(e)(7) of
the Code.
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ARTICLE VII
ALLOCATIONS TO PARTICIPANTS' ACCOUNTS
7.1 Separate Accounts. Separate Company Stock Accounts and Other
------------------
Investments Accounts will be established to reflect Participants' interests
under the Plan. Records shall be kept by the Committee from which can be
determined the portion of each Other Investments Account which at any time is
available to meet obligations under a Loan in accordance with Section 6.1 and
the portion which is not so available.
7.2 Company Stock. The Company Stock Account maintained for each
--------------
Participant will be credited with his allocable share determined under Section
7.4 of Company Stock (including fractional shares) purchased and paid for by the
Trust or contributed in kind to the Trust, with the forfeitures of Company
Stock, and with any stock dividends on Company Stock allocated to his Company
Stock Account to the extent such dividends are not distributed pursuant to
Section 8.8. Company Stock acquired by the Trust with the proceeds of a Loan
obtained pursuant to Article VI shall be allocated to the Company Stock Accounts
of Participants according to the method set forth in Section 7.4, as the Company
Stock is released from Suspense Accounts as provided for in Section 6.1.
7.3 Other Investments. The Other Investments Account maintained for each
------------------
Participant will be credited (or debited) with its allocable shares as
determined under Section 7.8 of the net income (or loss) of the Trust, with any
cash dividends on Company Stock allocated to his Company Stock Accounts to the
extent such dividends are not distributed to the Participant or applied to the
repayment of principal or interest of a Loan pursuant to Section 8.8, with
Company Contributions which have not been used to make principal and interest
payments on a Loan or other Debt or to purchase Company Stock and with
forfeitures in other than Company Stock. Each Other Investments Account will be
debited for its share of any payments for the acquisition of Company Stock for
the benefit of the Participants' Company Stock Accounts and for any repayment of
principal or interest on any Loan or other Debt chargeable to Participants'
Company Stock Accounts; provided that only the portion of each Other Investments
Account which is available to meet obligations under Loans shall be used to pay
principal or interest on a Loan.
7.4 Allocations of Company Contributions and Forfeitures. The Company
-----------------------------------------------------
Stock and other investments held in the Company Contribution Accounts under the
Plan, and forfeitures incurred under the Plan for each Plan Year, shall be
allocated as of the last day of such Plan Year (even though receipt of the
Company Contributions by the Trustee may take place after the close of such
Year) among the Company Stock and Other Investments Accounts of all Participants
who, during the course of such Plan Year; (i) completed at least 1,000 Hours of
Service and were employed by the Company on the last day of such Plan Year; (ii)
retired on or after their Normal Retirement Dates; (iii) died; or (iv) became
disabled as defined in Section 8.3. Such allocation shall be in the ratio that
each
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Participant's Compensation (as defined in Section 2.12 of the Plan) during the
Plan Year bears to the total Compensation during such Plan Year of all
Participants entitled to share in such allocation. Notwithstanding the
preceding provisions of this Section, in no event shall an allocation be made to
the Account of any Participant, for any Limitation Year, which would cause: (a)
Annual Additions to the accounts of such Participant to exceed the Maximum
Permissible Amount for that Year (except as permitted in Section 7.5); or (b)
the sum of the defined benefit plan fraction (as defined in Section 7.5) and the
defined contribution plan fraction (as defined in Section 7.5) to exceed one for
such Participant for that Year.
7.5 Maximum Allocation.
-------------------
(a) Except as provided in paragraphs (b) and (c) below, the
allocations to the accounts of any Participant in any Limitation Year shall be
limited so that the Participant's Annual Additions for such Year do not exceed
the Maximum Permissible Amount.
(b) If no more than one-third of the Company Contribution for a
Limitation Year that are deductible as principal or interest payments on a Loan,
pursuant to the provisions of Section 404(a)(9) of the Code, are allocated to
Highly Compensated Participants, then the limitations imposed by subsection (a)
or (b), whichever is applicable, shall not apply to:
(i) Forfeitures of Company Stock if the Company Stock was
acquired with the proceeds of a Loan, or
(ii) Company Contributions that are deductible as interest
payments on a Loan under Section 404(a)(9)(B) of the Code
and charged against a Participant's Account.
(c) If the foregoing limitation on allocations would be exceeded in
any Limitation Year for any Participant as a result of the allocation of
forfeitures under the Plan, reasonable error in estimating a Participant's
Compensation, or under such other limited facts and circumstances that the
Commissioner of the Internal Revenue Service, pursuant to Regulations (S)1.415-
6(b)(6), finds justify the availability of this Section 7.5, the amount in
excess of the limits of this Section 7.5 shall be placed, unallocated to any
Participant, in a Limitation Account. If a Limitation Account is in existence
at any time during a particular Limitation Year, other than the Limitation Year
described in the preceding sentence, all amounts in the Limitation Account must
be allocated to Participants' Accounts (subject to the limits of this Section
7.5) before any Company Contributions which would constitute Annual Additions
may be made to the Plan for that Limitation Year. The excess amount allocated
pursuant to this Section 7.5(d) shall be used to reduce Company Contributions
for the next Limitation Year (and succeeding Limitation Years,
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<PAGE>
as necessary) for all of the Participants in the Plan. The Limitation Account
will not share in the valuation of Participants' Accounts and the allocation of
earnings set forth in Section 7.8 of the Plan, and the change in fair market
value and allocation of earnings attributable to the Limitation Account shall be
allocated to the remaining accounts hereunder as set forth in Section 7.5.
(d) Upon termination of the Plan, any amounts in a Limitation Account
at the time of such termination shall revert to the Company.
(e) In the event that any Participant under this Plan is also a
Participant in a defined benefit plan (as defined in Section 415(k) of the Code)
maintained by the Company or a Related Employer, the sum of the defined benefit
plan fraction and the defined contribution plan fraction for any Limitation Year
with respect to such Participant shall not exceed one. The "defined benefit
plan fraction" for any Limitation Year for a Participant means a fraction, the
numerator of which is the projected annual benefit of the Participant under all
defined benefit plans maintained by the Company or a Related Employer determined
as of the close of the Limitation Year and the denominator of which is the
lesser of (a) the product of 1.25 and the dollar limitation in effect under
Section 415(b)(1)(A) of the Code for such Year, or (b) the product of 1.4 and
the amount taken into account under Section 415(b)(1)(B) of the Code for the
Participant for such Year. The "defined contribution plan fraction" for any
Limitation Year for any Participant is a fraction, the numerator of which is the
sum of the annual additions to the Participant's accounts under the Plan and to
the accounts under all Related Plans as of the close of the Year, and the
denominator of which is the sum of the lesser of the following amounts
determined for such Year and for each prior Year of Service with the Company or
an Affiliate: (A) the product of 1.25 of the dollar limitation in effect under
Section 415(c)(1)(A) of the Code for such Year (determined without regard to
Section 415(c)(6) of the Code), and (B) the product of 1.4 and the amount which
may be taken into account under Section 415(c)(1)(B) of the Code with respect to
such Participant for such Year.
(f) If a Participant shall be entitled to receive an allocation under
this Plan and any Related Plan and, in the absence of the limitations contained
in this and Section 7.6, the Company would have contributed or allocated to the
Account of any Participant an amount for a Limitation Year that would have
caused the Annual Additions to the Account of a Participant to exceed the
Maximum Permissible Amount for such Year, then the contributions or allocations
under such Related Plan shall be reduced prior to any reduction in contributions
or allocations made with respect to the Participant under this Plan to the
extent necessary so that the allocations of such Annual Additions does not
exceed the Maximum Permissible Amount.
(g) Any reduction in the contributions and allocations under this
Plan made with respect to a Participant's Accounts required pursuant to this
Section 7.5 and Section 415 of the Code shall be effected, to the
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minimum extent necessary, by reducing the Company Contributions that would have
been made by the Company for the applicable Plan Year with respect to such
Participant.
(h) The provisions of this Section shall be interpreted by the
Committee, in the administration of the Plan, to reduce contributions and
allocations (as required by this Section) only to the minimum extent necessary
to reflect the requirements of Section 415 of the Code, as amended and in force
from time to time, and Regulations promulgated pursuant to that Section, which
are incorporated by reference herein.
7.6 Vesting.
--------
(a) Each Participant shall have a vested interest in the Adjusted
Balance of his Company Stock and Other Investments Accounts in accordance with
the following formula:
<TABLE>
<CAPTION>
Years of Vested Forfeitable
Service Percentage Percentage
-------- ----------- ------------
<S> <C> <C>
1 0% 100%
2 0% 100%
3 0% 100%
4 40% 60%
5 or more 100% 0%
</TABLE>
(b) On reaching his Normal Retirement Date, a Participant shall be
one hundred percent (100%) vested in the Adjusted Balance of his Company Stock
and Other Investments Accounts.
(c) In the event a Participant dies or becomes disabled within the
meaning of Section 8.3 while an Employee, he shall be one hundred percent (100%)
vested in the Adjusted Balance of his Company Stock and Other Investments
Accounts as of the date of his death or disability.
(d) In the event the Plan is terminated or upon the complete
discontinuance of Company Contributions to the Plan, each Participant shall
become one hundred percent (100%) vested in the Adjusted Balance of his Company
Stock and Other Investments Accounts if such event occurs (1) in the case of a
Participant who does not have a vested interest in his Accounts, while the
Participant is an Employee, and (2) in the case of a Participant who has a
vested interest in his Accounts, prior to the time the Participant incurs a one-
year Break in Service.
7.7 Net Income (or Loss) of the Trust. Any dividends received in respect
----------------------------------
of Company Stock allocated to Company Stock Accounts of Participants or Company
Stock Contribution Account shall be credited upon receipt (to the extent not
distributed or applied to the repayment of principal or interest on a Loan
pursuant to Section 8.8)
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to the applicable Company Stock Account or Company Stock Contribution Account in
the case of stock dividends, or to the corresponding Other Investments or
Company Other Investments Contributions Account in the case of cash dividends.
The net income (or loss) of the Trust for each Plan Year will be determined as
of each Valuation Date. Each Participant's share of the net income (or loss)
will be allocated to his Other Investments Account in the ratio which the
balance of such Account on the preceding Anniversary Date (reduced by the amount
of any distribution from such Account) bears to the sum of such balances for
all Participants as of that date. The net income (or loss) of the Trust
includes the increase (or decrease) in the fair market value of the Trust Fund
(other than Company Stock, except as provided below), interest income, dividends
and other income (or loss) attributable to the Trust Fund (other than allocated
Company Stock) since the preceding Valuation Date but net income (or loss) shall
not include Company contributions or forfeitures. Any dividends on unallocated
Company Stock and any proceeds of sales of unallocated Company Stock, to the
extent such proceeds are not used to pay principal or interest on a Loan, shall
be considered net income for the Trust for the Plan Year and allocated to the
Company Other Investments Contribution Account. Net income (or loss)
attributable to any Limitation Account established under Section 7.4 shall be
allocated to the Other Investments Accounts of Participants in the manner set
forth in the third sentence of this Section, and the Limitation Account shall
not share in the allocation of Net Income (or loss) of the Trust under this
Section.
7.8 Accounting for Allocations. The Committee shall adopt accounting
---------------------------
procedures for the purposes of making the allocations, valuations and
adjustments to Participants' Accounts provided for in this Article. Except as
provided in Regulations (S) 54.4975-11(d), Company Stock acquired by the Plan
shall be accounted for as provided under Regulations (S) 1.402(a)-1(b)(2)(ii),
allocations of Company Stock shall be made separately for each class of stock,
and the Committee shall maintain adequate records of the cost basis of all
shares of Company Stock allocated to each Participant's Company Stock Account.
From time to time, the Committee may modify the accounting procedures for the
purpose of achieving equitable and nondiscriminatory allocations among the
Accounts of Participants in accordance with the general concepts of the Plan and
the provisions of this Section. Annual valuations of Trust Assets shall be made
at fair market value, as described in Section 5.2 above.
7.9 Special Allocation Provisions. Whenever an account balance is
------------------------------
distributable in installments, the undistributed balance of such account shall
participate in the valuation provided in Section 7.7 until fully distributed.
In lieu of such participation, however, upon the written request of the former
Participant or Beneficiary entitled to receive such installments, received by
the Committee prior to the payment of the first installment, the Adjusted
Balances of his accounts shall be deposited in the name of the Trustee in a
savings account or certificate of deposit in a national or state bank or in a
federal savings and loan association and earn and be credited with such earnings
(at not less than the current rate of earnings paid thereon by the depository).
Any amounts deposited pursuant to this Section 7.9 and any earnings thereon
shall be disregarded in computing the fair market value of trust assets to
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be allocated under Section 7.7 of the Plan and the earnings shall be payable to
such former Participant or Beneficiary with payment of the aforementioned
installments. Any expenses incurred by the Trustee and the Committee as the
result of any deposit made pursuant to this Section shall be payable from the
accounts of the former Participant or Beneficiary from whom such deposit was
made.
7.10 Special Limitations on Allocations.
-----------------------------------
(a) Notwithstanding the foregoing provisions of this Article, if more
than one-third of Company Contributions for a Plan Year which are
deductible under Section 404(a)(9) of the Code would be allocated, in the
aggregate, to the Accounts of Highly Compensated Participants then such
allocations to the Accounts Highly Compensated Participants shall be
reduced, pro rata, in an amount sufficient to reduce the amounts allocated
to the Accounts of such Participants to an amount not in excess of one-
third of such deductible contributions with respect to such Plan Year. Any
contributions which are prevented from being allocated due to the
restriction contained in this Section 7.10 shall be allocated pursuant to
Section 7.4 as though those Highly Compensated Participants did not
participate in the Plan.
(b) Notwithstanding the foregoing provisions of this Article, in the
event that the Trustee acquires shares of Company Stock transaction to
which Section 1042 of the Code applies, then, in accordance with the
Regulations, such Shares shall not be allocated, directly or indirectly, to
any Participant described in Section 409(n)(1) of the Code for the duration
of the "nonallocation period" (as defined in Section 409(n)(3)(C) of the
Code). Where any shares of Company Stock are prevented from being
allocated due to the prohibition contained in the allocation of
contributions otherwise provided under Section 7.4 shall be adjusted to
reflect such result.
ARTICLE VIII
RETIREMENT PAYMENTS, DISABILITY PAYMENTS AND OTHER BENEFITS
8.1 Payments on Retirement. A Participant who attains his Normal
-----------------------
Retirement Date and continues to be an Employee shall continue to share in the
allocation of Company Contributions and of forfeitures under the Plan. Upon the
retirement of a Participant at or after his Normal Retirement Date the Committee
shall notify the Trustee in writing of the Participant's retirement and shall
direct the Trustee to make payment of the Adjusted Balance of the Participant's
Accounts as of the Valuation Date coinciding with or immediately preceding the
distribution commencement date pursuant to Section 8.6, in a method provided in
the Plan.
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8.2 Payments on Death.
------------------
(a) Upon the death of a Participant, the Committee shall promptly
notify the Trustee in writing of the Participant's death and the name of his
Beneficiary and shall direct the Trustee to make payments of the Adjusted
Balance of the Participant's accounts as of the Valuation Date coinciding with
or immediately preceding the date of distribution to his Beneficiary pursuant to
Section 8.6, in a method provided in the Plan.
(b) Each unmarried Participant or each married Participant whose
surviving Spouse has consented to any alternate Beneficiary or an alternate
method of payment as provided in subsection (c), shall have the right to
designate, by giving a written designation to the Committee, (i) a person or
entity as Beneficiary to receive the death benefit provided under this Section
8.2 and (ii) the method of payment of such death benefit to his Beneficiary
pursuant to Section 8.6. Successive designations may be made, and the last
designation received by the Committee prior to the death of the Participant
shall be effective and shall revoke all prior designations. If a designated
Beneficiary shall die before the Participant, his interest shall terminate, and,
unless otherwise provided in the Participant's designation, if the designation
included more than one Beneficiary, such interest shall be paid in equal shares
to those Beneficiaries, if any, who survive the Participant. A Participant to
whom this subsection applies shall have the right to designate different
Beneficiaries to receive the Adjusted Balance in the Participant's various
accounts under the Plan.
(c) The Beneficiary of each Participant who is married shall be the
surviving Spouse of such Participant and the death benefits of any Participant
who is married shall be paid in full to his surviving Spouse in a single lump
sum. Notwithstanding the preceding sentence, the death benefits provided
pursuant to subsection (a) shall be distributed to any other Beneficiary
designated by a married Participant as provided in subsection (b), if the
Participant's surviving Spouse consented to such designation, prior to the date
of the Participant's death, in writing. Such a consent must acknowledge the
effect of the election and designation and the identity of any nonsurviving
Spouse Beneficiary, including any class of Beneficiaries or contingent
Beneficiaries, and must be witnessed by a representative of the Plan or a notary
public. Consent of a Participant's surviving Spouse shall not be required if
the Participant established to the satisfaction of the Committee that consent
may not be obtained because there is no surviving Spouse or the surviving Spouse
cannot be located, or because of such other circumstances as the Secretary of
the Treasury may prescribe by Regulations. The Participant may not subsequently
change the method of distribution elected by the Participant or the designation
of his Beneficiary unless his surviving Spouse consents to the new elections or
designation in accordance with the requirements set forth in the preceding
sentence, or unless the surviving Spouse's consent permits the Participant to
change the election of method of payment or the designation of his Beneficiary
without the Spouse's further consent. A surviving Spouse's consent shall be
irrevocable. Any
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<PAGE>
consent by a surviving Spouse, or establishment that the consent of the
surviving Spouse may not be obtained, shall be effective only with respect to
that surviving Spouse.
(d) The Committee may determine the identity of the distributees and
in so doing may act and rely upon any information it may deem reliable upon
reasonable inquiry, and upon any affidavit, certificate, or other paper believed
by it to be genuine, and upon any affidavit, certificate, or other paper
believed by it to be genuine, and upon any evidence believed by it sufficient.
8.3 Payments on Disability. Upon the termination of a Participant's
-----------------------
employment with the Company by reason of a disability, the Committee shall
notify the Trustee in writing of said disability termination, and shall direct
the Trustee to make payment of the Adjusted Balance of the Participant's
accounts as of the Valuation Date coinciding with or immediately preceding the
distribution commencement date under Section 8.6 in a method provided in the
Plan. For purposes of this section "disability" means a physical or mental
condition which is expected to render the Participant permanently unable to
perform his usual duties or any comparable duties for the Company. The
determination of the existence of such disability shall be made by the Committee
and shall be final and binding upon the Participant and all other parties. The
Committee may require the submission of such medical evidence as it may deem
necessary in order to arrive at its determination. The Committee's
determination of the existence of a disability will be made with reference to
the nature of the injury without regard to the period the Participant is absent
from work.
8.4 Payments on Termination for Other Reasons. Upon the termination of a
------------------------------------------
Participant's employment with the Company for any reason (whether before, on, or
after his Early Retirement Date) other than retirement on or after his Normal
Retirement Date, or permanent disability, the Committee shall notify the Trustee
to make payment of the vested portion of the Adjusted Balance of his Accounts,
if any, as of the Valuation Date coinciding with or next preceding the
distribution commencement date determined under Section 8.6, in a method
provided in the Plan. The vested portion of a Participant's Accounts shall be
determined in accordance with Section 7.7 of the Plan. The nonvested portion of
the Adjusted Balance of his Accounts shall be retained in his Accounts until a
period has elapsed sufficient to determine whether he will be reemployed or will
incur five consecutive one-year Breaks in Service. If he is reemployed before
he incurs five consecutive one-year Breaks in Service, his Accounts will
continue to vest; if he incurs five consecutive one-year Breaks in Service, the
amount in such Accounts shall be deemed a forfeiture as of the last day of the
Plan Year in which the Participant incurs the last of the five consecutive one-
year Breaks in Service. The amount of any such forfeiture shall be first
deducted from the Participant's Other Investments Account. If forfeitures of
the Participants' Other Investments Account are not sufficient to reduce the
fair market value of the vested portion of the Adjusted Balances of his Accounts
to the percentage of the total value of his Accounts determined under this
Section, the remainder of the forfeitures shall be deducted from the
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Participant's Company Stock Account. If a Participant's Company Stock Account
includes more than one class of Company Stock, the forfeiture will consist of
the same proportion of each class of stock. All forfeitures will be applied in
the same manner described in Section 7.4 as of the end of the Plan Year in which
the last of five consecutive one-year Breaks in Service resulting in forfeiture
occurs. If a Participant incurs a Break in Service, is rehired before incurring
five consecutive one-year Breaks in Service and subsequently incurs another
Break in Service under circumstances in which he is not fully vested in his
Accounts, the portion of his Accounts distributable upon the date of his later
one-year Break in Service shall be calculated as follows:
(i) the amount distributed to the Participant from his Accounts
upon his earlier Break in Service shall be added to the
Adjusted Balance of his Accounts;
(ii) the amount determined under paragraph (i) shall be
multiplied by the vested percentage as of the date of his
later termination of employment determined under Section
7.7; and
(iii) the amount distributed to the Participant upon his earlier
Break in Service shall be deducted from the product
calculated under paragraph (ii) to determine the amount
distributable upon his later Break in Service.
8.5 Property Distributed. Distribution of the vested portion of the
---------------------
Adjusted Balance of a Participant's Accounts under the Plan will be made in
whole shares of Company Stock. To the extent a distribution is to be made in
Company Stock, any cash or other property in the Participant's Other Investments
Accounts will be used to acquire Company Stock for distribution. The right of a
Participant to receive a distribution in whole shares of Company Stock pursuant
to this Section 8.5 shall not apply to the extent the Participant is a Qualified
Participant who makes a valid and timely election for a distribution pursuant to
Section 8.9 below. Notwithstanding the foregoing, if applicable corporate
charter or bylaw provisions restrict ownership of substantially all outstanding
shares of Company Stock to Employees or to a plan or trust described in Section
401(a) of the Code, then any distribution shall be in cash. Notwithstanding
anything herein to the contrary, if any shares of Company Stock in a
Participant's Accounts are issued by a bank described in Section 409(h)(3) of
the Code, distribution shall be made, at the Participant's election, in cash or
Shares.
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<PAGE>
8.6 Methods of Payments.
--------------------
(a) Whenever the Committee shall direct the Trustee to make payment
to a Participant or his Beneficiary upon termination of the Participant's
employment (whether by reason of retirement, death, disability or for other
reasons), the Committee shall direct the Trustee to pay the vested portion of
the Adjusted Balance of his Accounts, if any, to or for the benefit of the
Participant or his Beneficiary, in either of the following ways as the
Participant (or, if a deceased former Participant shall have failed to select a
method of payment, as his Benefit) shall determine;
(i) In a lump sum; provided that distribution of Company Stock
shall be valued at its fair market value on the date of such
distribution as determined pursuant to Section 5.2; or
(ii) Subject to Section 8.2, in installments payable in
substantially equal amounts, continuing over a period that
complies with subsection (d) below, but in no event over a
period exceeding ten years in the case of a Participant
whose termination occurs prior to age 65.
If the selection of a method of payment is not made within 90 days prior to
the distribution date determined under subsection (b), payment shall be made in
a lump sum.
(b) Payment under this Section shall be made or commence as follows:
(i) In the case of a Participant whose employment terminated due
to death, disability, retirement or termination of
employment, not more than 60 days after the end of the Plan
Year in which the employment of the Participant terminates,
unless the Participant, or his Beneficiary in the event of
his death, agrees to a later date. Notwithstanding the
preceding sentence, however, if the Participant's Account
balances at the time for any distribution exceed $3,500,
then neither such distribution nor any subsequent
distribution shall be made to the Participant at any time
before his 65th birthday without his written consent.
(ii) If a Participant terminates service and the value of his
Account balances does not exceed (or at the time of any
prior distribution has not exceeded) $3,500, the Participant
shall receive a distribution of the entire value of his
Account balances
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as soon as administratively feasible. For purposes of this
Section 8.6(b)(ii), if the value of the Participant's
Account balances is zero, the Participant shall be deemed to
have received a distribution of such Account balances.
(c) Notwithstanding the provisions of paragraph (b) of this Section,
unless a Participant, or his Beneficiary in the event of his death, otherwise
elects, the payment of benefits under the Plan will begin not later than 60 days
after the last day of the Plan Year in which last of the following events occur:
(i) the date on which the Participant attains the age of
65;
(ii) the tenth anniversary of the date on which the
Participant commenced participation in the Plan; or
(iii) the date on which the Participant's employment with
the Company terminates.
(d) Notwithstanding the provisions of subsection (b) and (c) other
than those that require the consent of a Participant to a distribution of the
Adjusted Balance of his Accounts in excess of $3,500:
(i) A Participant may always elect to have the payment of
benefits begin not later than one year after the close
of the Plan Year (x) in which the Participant
separates from service by reason of the attainment of
his Normal Retirement Date, disability, or death or
(y) which is the fifth Plan Year following the Plan
Year in which the Participant otherwise separates from
service.
(ii) Unless the Participant otherwise elects, the
distribution of the Adjusted Balance of his Accounts
will be in substantially equal annual or more frequent
payments over a period not longer than the greater of
(1) five years, or (2) in the case of a Participant
the Adjusted Balance of whose Accounts exceeds
$710,000, five years plus one additional year (but not
more than five additional years) for each $140,000 or
fraction thereof by which such Adjusted Balance
exceeds $710,000. The dollar amounts contained in
this paragraph (ii) shall be adjusted by the Secretary
of the Treasury pursuant to Section 409(o)(2) of the
Code.
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<PAGE>
(e) Notwithstanding anything to the contrary contained elsewhere in
the Plan:
(i) A Participant's benefits under the Plan will:
(1) be distributed to him not later than the Required
Distribution Date (as defined in subsection (iii)), or
(2) be distributed commencing not later than the
Required Distribution Date in accordance with
regulations prescribed by the Secretary of the
Treasury over a period not extending beyond the life
expectancy of the Participant or the life expectancy
of the Participant and his Beneficiary.
(ii) (1) If the Participant dies after distribution has
commenced pursuant to subsection (i)(2) but before his
entire interest in the Plan has been distributed to
him, then the remaining portion of that interest will
be distributed at least as rapidly as under the method
of distribution being used under subsection (i)(2) at
the date of his death.
(2) If the Participant dies before distribution has
commenced pursuant to subsection (i)(2), then, except
as provided in subsections (ii)(3) and (ii)(4), his
entire interest in the Plan will be distributed within
five years after his death.
(3) Notwithstanding the provisions of subsection
(ii)(2), if the Participant dies before distribution
has commenced pursuant to subsection (i)(2) and if any
portion of his interest in the Plan is payable (A) to
or for the benefit of a Beneficiary, (B) in accordance
with Regulations prescribed by the Secretary of the
Treasury over a period not extending beyond the life
expectancy of the Beneficiary, and (C) beginning not
later than one year after the date as the Secretary of
the Treasury may prescribe by Regulations, then the
portion referred to in this subsection (ii)(3) shall
be treated as distributed on the date on which such
distribution begins.
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<PAGE>
(4) Notwithstanding the provisions of subsections
(ii)(2) and (ii)(3), if the Beneficiary referred to in
subsection (ii)(3) is the spouse of the Participant,
then
(A) the date on which the distributions are
required to begin under subsection
(ii)(3)(C) of this Section shall not be
earlier than the date on which the
Participant would have attained age 70 1/2,
and
(B) if the spouse dies before the distributions
to that spouse begin, then this subsection
(ii)(4) shall be applied as if the surviving
spouse were the Participant.
(iii) For purposes of paragraph (h), the Required
Distribution Date means October 1 of the calendar year
following the calendar year in which the Participant
attains age 70 1/2.
(iv) For purposes of subsection (e), the life
expectancy of a Participant and his spouse may be
redetermined, but not more frequently than annually.
(v) A Participant may not elect a form of
distribution pursuant to subsection (i) providing
payments to a Beneficiary who is other than his spouse
unless the actuarial value of the payments expected to
be paid to the Participant is more than 50% of the
actuarial value of the total payments expected to be
paid under such form of distribution.
(vi) No Participant shall receive a distribution
under circumstances that would impose an additional
tax on such distribution pursuant to Section 72(t) of
the Code unless and until that individual is notified
in writing by the Committee of the tax and the
individual, by writing delivered to the Committee,
acknowledges receipt of the notification and requests
the distribution.
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<PAGE>
(f) (i) This subsection 8.6(f) applies to distributions
made on or after January 1, 1993. Notwithstanding any
provision of the Plan to the contrary that would
otherwise limit a Distributee's election under this
subsection, 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.
(ii) Definitions.
(A) "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 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).
(B) "Eligible Retirement Plan" is an individual retirement
account described in Section 408(b) of the Code, an
individual retirement annuity 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.
(C) "Distributee" includes an Employee or former Employee.
In addition, the Employee's or former Employee's
Surviving Spouse and the Employee's or former
Employee's spouse or former spouse who is the
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<PAGE>
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.
(D) "Direct Rollover" is a payment by the Plan to the
Eligible Retirement Plan specified by the Distributee.
8.7 Administrative Powers Relating to Payments. If a Participant or
-------------------------------------------
Beneficiary is under a legal disability or, by reason of illness or mental or
physical disability, is in the opinion of the Committee unable properly to
attend to his personal financial matters, the Trustee may make such payments in
such of the following ways as the Committee shall direct:
(i) directly to such Participant or Beneficiary;
(ii) to the legal representative of such Participant or Beneficiary;
or
(iii) to some relative by blood or marriage, or friend, for the
benefit of such Participant or Beneficiary.
Any payment made pursuant to this section shall be in complete discharge of
the obligation therefor under the Plan.
8.8 Dividends. Any cash dividends received by the Trustee on Company
----------
Stock allocated to the Accounts of Participants (or former Participants or
Beneficiaries) may be applied to the repayment of principal or interest on a
Loan, retained in the Participants' applicable accounts or paid to such
Participants, former Participants or Beneficiaries (in a nondiscriminatory
manner) at the sole discretion of the Committee; provided that any current
payment in cash must be paid to Participants, Former Participant or
Beneficiaries within 90 days after the close of the Plan Year in which the
dividend is received by the Trustee. Any such payment of cash dividends on
shares of Company Stock shall be accounted for as if the Participant or former
Participant receiving such dividends was the direct owner of such shares of
Company Stock and such payment shall not be treated as a distribution under the
Plan. In the event that cash dividends paid with respect to shares allocated to
the Accounts of a Participant are applied to the repayment of principal or
interest on a Loan, shares of Company Stock released thereby from the Suspense
Account shall be allocated to the Accounts of each Participant in proportion to
the value of the dividends otherwise allocable to such Participant's Accounts.
Any cash dividends paid with respect to unallocated Company Stock shall be
applied to the repayment of principal or interest on a Loan.
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<PAGE>
8.9 Diversification of Investments.
-------------------------------
(a) Notwithstanding any other provisions of the Plan or the Trust,
each Qualified Participant in the Plan may elect within 90 days after the close
of each Plan Year in the Qualified Election Period, by written instrument
delivered to the Committee, to direct the investment of not more than 25% (in
whole multiples of 1%) of the Participant's Adjusted Balance of his Accounts in
the Plan (to the extent that such portion exceeds the amount to which a prior
election under this Section applies). In the case of an election year in which
the Participant can make his last election, the preceding sentence shall be
applied by substituting "50%" for "25%." The Committee shall direct the Trustee
to invest the Accounts of Qualified Participants pursuant to their valid and
timely elections within 90 days after the last day of the period during which
the election can be made. Notwithstanding the foregoing, a Qualified
Participant shall not be entitled to make the election hereunder for a Plan Year
within the Qualified Election Period if the fair market value of his Accounts as
of the last day of such Plan Year is less than $500.
(b) A Qualified Participant's election pursuant to this Section 8.9
shall direct the investment of the amount subject to the election among one or
more of the three investment options provided by the Trustee from time to time.
The Trustee will provide a written description of each such investment option to
the Qualified Participant within a reasonable time prior to the Qualified
Election Period. Such an investment election shall comply with such rules and
regulations as the Committee may prescribe.
(c) Distributions.
--------------
(1) At the election of a Qualified Participant, the Plan shall
distribute the portion of the Participant's Accounts that is
covered by the election described in this Section 8.9 within
90 days after the last day of the period during which the
election can be made. Such a distribution shall be subject
to right of first refusal and "put" option provisions of
Sections 6.3 and 6.4 of the Plan. The provisions of this
paragraph (1) shall apply notwithstanding any other
provisions of the Plan other than those that require the
consent of the Participant to a distribution of the Adjusted
Balance of his Accounts in excess of $3,500.
(2) In lieu of a distribution pursuant to paragraph (1), a
Qualified Participant who has the right to receive a cash
distribution pursuant to paragraph (1) may direct the Plan
to transfer the portion of the Adjusted Balance of his
Accounts that is covered by the election to another
qualified plan of the Company that accepts
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<PAGE>
such transfers, provided that the transferee plan permits
participant-directed investments and does not invest in
Company Stock to a substantial degree. Such a transfer
shall be made no later than 90 days after the last day of
the period during which the election can be made.
(d) The portion of the Adjusted Balance of a Participant's Accounts
attributable to Company Stock acquired by the Plan after December 31, 1986,
shall be determined by multiplying the number of shares of Stock held in the
Accounts by a fraction, the numerator of which is the number of shares acquired
by the Plan after December 31, 1986 and allocated to Participant's Accounts (not
to exceed the number of shares held by the Plan on the date the Participant
becomes a Qualified Participant) and the denominator of which is the total
number of shares held by the Plan at the date the Participant becomes a
Qualified Participant.
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<PAGE>
ARTICLE IX
VOTING OF COMPANY STOCK
9.1 Company Common Stock - Voting and Consents.
-------------------------------------------
(a) Each Participant is entitled to direct the Trustee as to the
manner in which any Company Common Stock allocated to his Company Contribution
Account is to be voted. The Company shall furnish the Trustee with notices and
information statements when voting rights are to be exercised. The Trustee will
notify Participants of each occasion for the exercise of voting rights and will
forward copies of any proxy material within a reasonable time after it is
secured from the Company. A Participant shall elect to exercise such right by
filing written voting instructions with the Trustee at such time and in such
form as the Trustee may reasonably specify. Instructions received from
Participants by the Trustee shall be held in the strictest confidence and shall
not be divulged or released to any person including officers, director or
employees of the Company. To the extent not inconsistent with its fiduciary
obligations under ERISA, the Trustee shall vote shares of Company Stock for
which it does not receive timely instructions from Participants, or that have
not been allocated to Participants' Accounts, pro rata in accordance with the
timely instructions it has received from Participants.
(b) Participants will be allowed to direct the voting of fractional
shares or fractional rights to shares. This requirement will be satisfied if
the Trustee, or such other person or persons as the Trustee may designate, votes
the combined fractional shares or rights to shares to the extent possible to
reflect the instructions of the Participants holding fractional shares or rights
to shares.
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<PAGE>
ARTICLE X
PLAN ADMINISTRATION
10.1 Company Responsibility. The Company shall be responsible for and
-----------------------
shall control and manage the operation and administration of the Plan. It shall
be the "Plan Administrator" and "Named Fiduciary" for purposes of ERISA and
shall be subject to service of process on behalf of the Plan. The Board may, in
its discretion, appoint a Committee of one or more persons, to be known as the
"Plan Administrative Committee" to act as the agent of the Company in performing
these duties. In the event that the Board chooses not to appoint such a
Committee, all references in the Plan to the "Committee" (except for such
references in this Section 10.1) shall mean the Board. The members of the
Committee shall serve at the pleasure of the Board; they may be officers,
directors, or Employees of the Company or any other individuals. Any member may
resign by delivering his written resignation to the Board and to the Committee.
Vacancies in the Committee arising by resignation, death, removal or otherwise,
shall be filled by the Board. The Company shall advise the Trustee in writing
of the names of the member of the Committee and of changes in membership from
time to time.
10.2 Powers and Duties of Committee. The Committee shall administer the
-------------------------------
Plan in accordance with its terms and shall have all powers necessary to carry
out the provisions of the Plan. The Committee shall direct the Trustee
concerning all payments which shall be made out of the Trust pursuant to the
Plan. The Committee shall interpret the Plan and shall determine all questions
arising in the administration, interpretation, and application of the Plan,
including but not limited to questions of eligibility and the status and rights
of Participants, Beneficiaries and other persons. Any such determination by the
Committee shall presumptively be conclusive and binding on all persons. The
regularly kept records of the Company shall be conclusive and binding upon all
persons with respect to an Employee's Hours of Service, date and length of
employment, time and amount of Compensation and the manner of payment thereof,
type and length of any absence from work and all other matters contained therein
relating to Employees. All rules and determinations of the Committee shall be
uniformly and consistently applied to all persons in similar circumstances.
10.3 Organization and Operations of Committee.
-----------------------------------------
(a) The Committee shall act by a majority vote of its members at the
time in office, and such action may be taken either by a vote at a meeting or in
writing without a meeting. The signatures of a majority of the members will be
sufficient to authorize Committee action. A Committee member shall not
participant in discussions of or vote upon matters pertaining to his own
participation in the Plan.
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<PAGE>
(b) The Committee may authorize any of its members or any other person
to execute any document or documents on behalf of the Committee, in which event
the Committee shall notify the Trustee in writing of such action and the name or
names of such member or person. The Trustee thereafter shall accept and rely
upon any document executed by such members or persons as representing action by
the Committee, until the Committee shall file with the Trustee a written
revocation of such designation.
(c) The Committee may adopt such bylaws and regulations as it deems
desirable for the conduct of its affairs and with the consent of the President
of the Company, may appoint such accountants, counsel, specialists, and other
persons as it deems necessary or desirable in connection with the administration
of this Plan. The Committee shall be entitled to rely conclusively upon, and
shall be fully protected in any action taken by it in good faith in relying
upon, any opinions or reports which shall be furnished to it by any such
accountant, counsel, specialist or other person.
10.4 Records and Reports of Committee. The Committee shall keep a record
---------------------------------
of all its proceedings and acts and shall keep all such books of account,
records, and other data as may be necessary for proper administration of the
Plan. The Committee shall notify the Trustee and the Company of any action
taken by the Committee and, when required, shall notify any other interested
person or persons.
10.5 Claims Procedure. Claims for benefits under the Plan shall be made in
-----------------
writing to the Committee. In the event a claim for benefits is wholly or
partially denied by the Committee, the Committee shall, within a reasonable
period of time, but no later than 90 days after the receipt of the claim, notify
the claimant in writing of the denial of the claim. If the claimant shall not
be notified in writing of the denial of the claim within 90 days after it is
received by the Committee, the claim shall be deemed denied. A notice of denial
shall be written in a manner calculated to be understood by the claimant, and
shall contain (i) the specific reason or reasons for denial of the claim, (ii) a
specific reference to the pertinent Plan provisions upon which the denial is
based, (iii) a description of any additional material or information necessary
for the claimant to perfect the claim, together with an explanation of why such
material or information is necessary, and (iv) an explanation of the Plan's
review procedure. Within 60 days of the receipt by the claimant of the written
notice of denial of the claim, or within 60 days after the claim is deemed
denied as set forth above, if applicable, the claimant may file a written
request with the Committee that it conduct a full and fair review of the denial
of the claimant's claim for benefits, including the conducting of a hearing, if
deemed necessary by the Committee. In connection with the claimant's appeal of
the denial of his benefit, the claimant may review pertinent documents and may
submit issues and comments in writing. The Committee shall render a decision on
the claim appeal promptly, but not later than 60 days after the receipt of the
claimant's request for review, unless special circumstances (such as the need to
hold a hearing, if necessary) require an extension of time for processing, in
which case the 60 day period may be extended to 120 days. The Committee shall
notify the
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<PAGE>
claimant in writing of any such extension. The decision upon review shall (i)
include specific reasons for the decision, (ii) be written in a manner
calculated to be understood by the claimant and (iii) contain specific
references to the pertinent Plan provisions upon which the decision is based.
10.6 Compensation and Expenses of Committee. The members of the Committee
---------------------------------------
shall serve without compensation for services as such, but all reasonable
expenses incurred by the Committee incident to the administration of the Plan
(including reasonable expenses of litigation involving the Plan and reasonable
fees and expenses of its attorneys and agents) shall be borne by, and paid out
of the plan assets, except to the extent the Board elects to have such expenses
paid directly by the Company.
10.7 Indemnity of Committee Members. The Company shall indemnify and
-------------------------------
defend each member of the Committee and each of its other employees against any
and all claims, loss, damages, expenses (including reasonable attorneys fees),
and liability arising in connection with the administration of the Plan, except
when the same is judicially determined to be due to the gross negligence or
willful misconduct of such member or other employee.
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<PAGE>
ARTICLE XI
TRUST AND TRUSTEE
11.1 Trust Agreement. A Trust has been created and will be maintained for
----------------
the purposes of the Plan. All contributions under the Plan will be paid into
the Trust. The Trust Fund will be held, invested and disposed of by the Trustee
from time to time acting in accordance with the Trust Agreement. All benefits
payable under the Plan will be paid from the Trust Fund.
11.2 Exclusive Benefit of Employees. All contributions made pursuant to
-------------------------------
the Plan shall be held by the Trustee in accordance with the terms of the Trust
Agreement and Section 4.2 of the Plan for the exclusive benefit of those
Employees who are Participants under the Plan, including former Employees and
their Beneficiaries, and shall be applied to provide benefits under the Plan and
to pay expenses of administration of the Plan and the Trust, to the extent that
such expenses are not otherwise paid by the Company.
11.3 Trustee. The Company shall appoint a bank or trust company or
--------
an individual or individuals to act as Trustee or Trustees under the Trust
Agreement. The Trustee shall serve at the pleasure of the Company and its
powers and responsibilities shall be set forth in a Trust Agreement entered into
between the Company and the Trustee. No person who receives full-time pay from
the Company shall receive compensation paid by the Trust Fund except for
reimbursement of expenses properly incurred.
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<PAGE>
ARTICLE XII
AMENDMENT AND TERMINATION
12.1 Amendment of Plan. The Company shall have the right to amend the Plan
------------------
at any time and from time to time by resolution of its Board of Directors, and
all Employees and persons claiming any interest hereunder shall be bound
thereby; provided, however, that no amendment shall have the effect of: (i)
directly or indirectly divesting the interest of any Participant in any amount
that he would have received had he terminated his employment with the Company
immediately prior to the effective date of such amendment, of the interest of
any Beneficiary as such interest existed immediately prior to the effective date
of such amendment; (ii) directly or indirectly affective the vesting schedule
set forth in Section 7.7 used to determine the vested interest of a Participant
on the effective date of the amendment unless the conditions of Section 203(c)
of ERISA are satisfied; (iii) vesting in the Company any right, title or
interest in or to any Plan assets, (iv) causing or effecting discrimination in
favor of officers, shareholders, or highly compensated Employees; or (v) causing
any part of the Plan assets to be used for any purpose other than for the
exclusive benefit of the Participants and their Beneficiaries.
12.2 Voluntary Termination of or Permanent Discontinuance of Contributions
---------------------------------------------------------------------
to the Plan. The Company expects the Plan to be permanent, but since future
- ------------
conditions affecting the Company cannot be anticipated, the Company shall have
the right to terminate the Plan in whole or in part, or to permanently
discontinue contributions to the Plan, at any time by resolution of its Board
and by giving written notice of such termination or permanent discontinuance,
which shall not be earlier than the first day of the Plan Year which includes
the date of the resolution.
12.3 Limitation on Amendment or Termination. Notwithstanding the
---------------------------------------
provisions of Sections 12.1 and 12.2, the Company shall not terminate the Plan
or discontinue contributions thereto while any Debt or Loan shall remain
outstanding and unpaid in whole or in part, without the prior written consent to
any such termination or amendment by all holders and guarantors, if any, of the
Plan's obligations under such Debt or Loan.
12.4 Involuntary Termination of Plan. The Plan shall automatically
--------------------------------
terminate if the Company is legally adjudicated a bankrupt, makes a general
assignment for the benefit of creditors, or is dissolved. In the event of the
merger or consolidation of the Company with or into any other corporation, or in
the event substantially all of the assets of the Company shall be transferred to
another corporation, the successor corporation resulting from the consolidation
or merger, or transfer of such assets, as the case may be, shall have the right
to adopt and continue the Plan and succeed to the position of the Company
hereunder. If, however, the Plan is not so adopted within 90 days after the
effective date of such consolidation, merger or sale, the Plan shall
automatically be deemed terminated
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<PAGE>
as of the effective date of such transaction. Nothing in this Plan shall
prevent the dissolution, liquidation, consolidation or merger of the Company, or
the sale or transfer of all or substantially all of its assets.
12.5 Payments on Termination of or Permanent Discontinuance of Contribution
----------------------------------------------------------------------
to the Plan. If the Plan is terminated as herein provided, or if it should be
- ------------
partially terminated, or upon the complete discontinuance of Company
contributions to the Plan, the following procedure shall be followed, except
that in the event of a partial termination, it shall be followed only in cases
of those Participants and Beneficiaries directly affected:
(i) The Committee may continue to function, but if it fails to do so,
its records, books of account and other necessary data shall be turned over to
the Trustee and the Trustee shall act on its own motion as hereinafter provided.
(ii) Notwithstanding any other provisions of the Plan, all interests
of Participants shall become fully vested and nonforfeitable, provided that, the
Accounts of a former Participant who terminated employment prior to the date of
Plan termination, who had no vested interest at the date of his termination of
employment, and who has incurred a Break in Service of more than one year but
less than five years at the date of Plan termination, shall not be vested.
(iii) The value of the Trust and the shares of all Participants and
Beneficiaries shall be determined as of the date of termination or
discontinuance.
(iv) Distribution to Participants and Beneficiaries shall be made at
such time after termination of or discontinuance of contributions to the Plan
and by such of the methods provided in Sections 8.5 and 8.6, as the Committee
(or the Trustee if no Committee is then acting) in its discretion shall
determine (except that distribution shall be made not later than the time
specified in Section 8.6(c)).
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ARTICLE XIII
MISCELLANEOUS
13.1 Duty To Furnish Information and Documents. Participants and their
------------------------------------------
Beneficiaries must furnish to the Committee and the Trustee such evidence, data
or information as the Committee considers necessary or desirable for the purpose
of administering the Plan, and the provisions of the Plan for each person are
upon the condition that he will furnish promptly full, true, and complete
evidence, data, and information requested by the Committee. All parties to, or
claiming any interest under, the Plan hereby agrees to perform any and all acts,
and to execute any and all document and papers, necessary or desirable for
carrying out the Plan and the Trust.
13.2 Committee's Annual Statements and Available Information. The Company
--------------------------------------------------------
shall advise Employees of the eligibility requirements and benefits under the
Plan. As soon as practicable after making the annual valuations and allocations
provided for in the Plan, and at such other times as the Committee may
determine, the Committee shall provide each Participant, and each former
Participant and Beneficiary with respect to whom an account is maintained, with
a statement reflecting the current status of his accounts, including the
Adjusted Balance thereof. No Participant, except a member of the Committee,
shall have the right to inspect the records reflecting the account of any other
Participant. The Committee shall make available for inspection at reasonable
times by Participants and Beneficiaries copies of the Plan, any amendments
thereto, Plan summary, and all reports of Plan and Trust operations required by
law.
13.3 No Enlargement of Employment Rights. Nothing contained in the Plan
------------------------------------
shall be construed as a contract of employment between the Company and any
person, nor shall the Plan be deemed to give any person the right to be retained
in the employ of the Company or limit the right of the Company to employ or
discharge any person with or without cause, or to discipline any Employee.
13.4 Applicable Law. All questions pertaining to the validity,
---------------
construction and administration of the Plan shall be determined in conformity
with the laws of Idaho to the extent that such laws are not preempted by ERISA
and valid regulations published thereunder.
13.5 No Guarantee. Neither the Trustee, the Committee, nor the Company in
-------------
any way guarantees the Trust Fund from loss or depreciation nor the payment of
any money or other assets which may be or become due to any person from the
Trust Fund. No Participant or other person shall have any recourse against the
Trustee, the Company or the Committee if the Trust Fund is insufficient to
provide Plan benefits in full. Nothing herein contained shall be deemed to give
any Participant, former Participant, or Beneficiary an interest in any specific
part
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<PAGE>
of the Trust Fund or any other interest except the right to receive benefits out
of the Trust Fund in accordance with the provisions of the Plan and Trust.
13.6 Unclaimed Funds. Each Participant shall keep the Committee informed
----------------
of his current address and the current address of his Beneficiary or
Beneficiaries. Neither the Company, the Committee nor the Trustee shall be
obligated to search for the whereabouts of any person. If the location of a
Participant is not made known to the Committee within three years after the date
on which distribution of the Participant's Accounts may first be made,
distribution may be made as though the Participant had died at the end of the
three-year period. If, within one additional year after such three-year period
has elapsed, or, within three years after the actual death of a Participant, the
Committee is unable to locate any individual who would receive a distribution
under the Plan upon the death of the Participant pursuant to Section 8.2 of the
Plan, the Adjusted Balance in the Participant's Accounts shall be deemed a
forfeiture and shall be used to reduce Company contributions to the Plan for the
Plan Year next following the year in which the forfeiture occurs; provided,
however, that in the event that the Participant or a Beneficiary makes a claim
for any amount which has been so forfeited, the benefits which have been
forfeited shall be reinstated.
13.7 Merger or Consolidation of Plan. Any merger or consolidation of the
--------------------------------
Plan with another plan, or transfer of Plan assets or liabilities to any other
plan, shall be effected in accordance with such regulation, if any, as may be
issued pursuant to Section 208 of ERISA, in such a manner that each Participant
in the Plan would receive, if the merged, consolidated or transferee plan were
terminated immediately following such event, a benefit which is equal to or
greater than the benefit he would have been entitled to receive if the Plan had
terminated immediately before such event.
13.8 Interest Nontransferable. Except as provided in this Section, no
-------------------------
interest of any person or entity in, or right to receive distributions from, the
Trust Fund shall be subject in any manner to sale, transfer, assignment, pledge,
attachment, garnishment, or other alienation or encumbrance of any kind; nor may
such interest or right to receive distributions be taken, either voluntarily or
involuntarily, for the satisfaction of the debts of, or other obligations or
claims against, such person or entity, including claims in bankruptcy
proceedings. The Account of any Participant, however, shall be subject to and
payable in accordance with the applicable requirements of any qualified domestic
relations order, as that term is defined in Section 414(p) of the Code, and the
Committee shall direct the Trustees to provide for payment from a Participant's
Accounts in accordance with such order and with the provisions of Section 414(p)
of the Code and any regulations promulgated thereunder.
13.9 Prudent Man Rule. Notwithstanding any other provisions of this Plan,
-----------------
and the Trust Agreement, the Trustee, the Committee and the Company shall
exercise their powers and discharge their duties under this Plan and the Trust
Agreement for the exclusive purpose of providing benefits to Employees and their
Beneficiaries, and
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<PAGE>
shall act with the care, skill, prudence and diligence under the circumstances
that a prudent man acting in a like capacity and familiar with such matters
would use in the conduct of an enterprise of a like character and with like
aims.
13.10 Limitations on Liability. Notwithstanding any of the preceding
-------------------------
provisions of the Plan, none of the Trustee, the Company, the Committee and each
individual acting as an employee or agent of any of them shall be liable to any
Participant, former Participant or Beneficiary for any claim, loss, liability or
expense incurred in connection with the Plan, except when the same shall have
been judicially determined to be due to the gross negligence or willful
misconduct of such person.
13.11 Federal and State Security Law Compliance.
------------------------------------------
(a) Each Participant or Beneficiary shall, prior to the transfer of
Company Stock to such Participant and Beneficiary, execute and deliver an
agreement, in form and substance acceptable to the Committee, certifying such
person's intent to hold such Stock and containing such other representations and
agreements relating to the Stock as the Committee may reasonably request.
(b) The Committee will take all necessary steps to comply with any
applicable registration or other requirements of federal or state securities
laws from which no exemption is available.
(c) Stock certificates distributed to Participants may bear such
legends concerning restrictions imposed by federal or state securities law, and
concerning other restrictions and rights under the Plan, as the Committee in its
discretion may determine.
13.12 Headings. The headings in this Plan are inserted for convenience of
---------
reference only and are not to be considered in construction of the provisions
hereof.
13.13 Gender and Number. Except when otherwise required by the context,
------------------
any masculine terminology in this document shall include the feminine, and any
singular terminology shall include the plural.
13.14 ERISA and Approval Under Internal Revenue Code. This Plan is
-----------------------------------------------
intended to constitute an employee stock ownership plan and meet the
requirements of Sections 401(a), 409, 501(a) and 4975(d)(3) and (e)(7) of the
Code, and Sections 407(d)(6) and 408(b)(3) of ERISA, to the extent applicable,
as now in effect or hereafter amended. Any modification or amendment of the
Plan may be made retroactively, as necessary or appropriate, to establish and
maintain such qualification and to meet any requirements of the Code or ERISA.
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<PAGE>
13.15 Extension of Plan to Related Employers.
---------------------------------------
(a) With the approval of the Company, any Related Employer may adopt
the Plan and qualify its Employees to become Participants thereunder by taking
proper corporate action to adopt the Plan and making such contributions to the
Trust Fund as the board of directors of the Related Employer may require.
(b) The Plan will terminate with respect to any Related Employer that
has adopted the Plan pursuant to this Section if the Related Employer ceases to
be a Related Employer, revokes its adoption of the Plan by appropriate corporate
action, permanently discontinues its contributions for its Employees, is
judicially declared bankrupt, makes a general assignment for the benefit of
creditors, or is dissolved. If the Plan is terminated or contributions are
discontinued with respect to any Related Employer, the provisions of Section
12.5 shall apply to the interest in the Plan of the Employees of such Related
Employer, and their Beneficiaries.
(c) The terms "Company" and "Employee" in the Plan shall include any
Related Employer that has adopted the Plan pursuant to this Section 13.15 and
such Related Employer's Employees; provided, however, that the term "Company"
shall not include any such Related Employer where used in Articles X or XI of
the Plan. The Company shall act as the agent for each Related Employer that
adopts the Plan for all purposes of administration thereof.
13.16 Administrative Changes Without Plan Amendment.
----------------------------------------------
The Committee reserves authority to make administrative changes to this
Plan document that do not alter the minimum qualification requirements without
formal amendment to the Plan. The Committee will effect such changes by
substituting pages in the Plan document with corrected pages. Administrative
changes include, but are not limited to, corrections of typographical errors and
similar errors, conforming provisions for administrative procedures to actual
practice and changes in practice, and deleting or correcting language that fails
to accurately reflect the intended provision of the Plan.
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<PAGE>
ARTICLE XIV
TOP-HEAVY PROVISIONS
14.1 Top-Heavy Status. Except as provided in Sections 14.4(b) and (c), the
-----------------
provisions of this Article shall not apply to the Plan with respect to any Plan
Year for which the Plan is not Top-Heavy. If the Plan is or becomes Top-Heavy
in any Plan Year, the provisions of this Article XIV will supersede any
conflicting provisions elsewhere in the Plan.
14.2 Definitions. For purposes of this Article XIV, the following words
------------
and phrases shall have the meanings states below unless a different meaning is
plainly required by the context:
(a) "Determination Date" means, with respect to any Plan Year: (i) the
last day of the preceding Plan Year, or (ii) in the case of the first Plan Year
of the Plan, the last day of such Plan Year.
(b) "Key Employee" means in Employee meeting the definition of "key
employee" contained in Section 416(i)(1) of the Code and the Regulations
interpreting that section. For purposes of determining whether an Employee is a
Key Employee, the definition of Compensation set forth in Section 14.6 shall
apply.
(c) "Non-Key Employee" means any Employee who is not a Key Employee.
(d) "Valuation Date" means with respect to a particular Determination
Date, the most recent Valuation Date (as defined in Section 2.34 occurring
within a 12-month period ending on the applicable Determination Date.
14.3 Determination of Top-Heavy Status.
----------------------------------
(a) The Plan will be "Top-Heavy" with respect to any Plan Year if, as
of the Determination Date applicable to such Year, the ratio of the Adjusted
Balances in the accounts of Key Employees (determined as of the Valuation Date
applicable to such Determination Date) to the Adjusted Balances in the accounts
of all Employees (determined as of such Valuation Date) exceeds 60%. For
purposes of computing such ratio and for all other purposes of applying and
interpreting this paragraph (a): (i) the amount of the accounts of any Employee
shall be increased by the aggregate distributions made with respect to such
Employee under the Plan during the five-year period ending on any Determination
Date; (ii) benefits provided under all plans which are aggregated pursuant to
(b) of this Section must be considered; and (iii) the provisions of Section 416
of the Code and all Regulations interpreting that section shall be applied. If
any Employee has not performed services for the company or any
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<PAGE>
Related Employer at any time during the five-year period ending on any
Determination Date, the balances of the accounts of such Employee shall not be
taken into consideration for purposes of determining whether the Plan is Top-
Heavy with respect to the Plan Year to which such Determination Date applies.
(b) For purposes of determining whether the Plan is Top-Heavy, all
qualified retirement plans maintained by the Company and each Related Employer
shall be aggregated to the extent that such aggregation is required under the
applicable provisions of Section 416 of the Code and the Regulations
interpreting that Section. All other qualified Related employer shall be
aggregated only to the extent permitted by Section 416 of the Code and such
Regulations and elected by the Company.
(c) For purposes of determining whether the Plan is Top-Heavy, the
Adjusted Balance of a Participant's accounts shall not include (i) the amount of
a rollover contribution (or similar transfer) accepted after December 31, 1983,
initiated by the Participant and derived from a plan not maintained by the
Company or any Related Employer, or (ii) a distribution made with respect to any
Employee which is a tax-free rollover contribution (or similar transfer) that is
either not initiated by the Employee or that is made to a plan maintained by the
Company or any Related Employer.
(d) Solely for purposes of determining whether the Plan is Top-Heavy,
the accrued benefit of any Non-key Employee shall be determined (i) under the
method, if any, that uniformly applies for accrual purposes under all plans of
the Company or any Related Employer, or (ii) if there is no such method, as if
such benefit accrued not more rapidly than the slowest accrual rate permitted
under the fractional accrual rule of Section 411(b)(1)(C) of the Code.
14.4 Vesting.
--------
(a) If the Plan becomes Top-Heavy, the vested interest of a
Participant in the portion of his Company Stock and Other Investments Accounts
referred to in subsection (b) shall be determined in accordance with the
following formula in lieu of the formula set forth in Section 7.6:
<TABLE>
<CAPTION>
Vested Forfeitable
Years of Service Percentage Percentage
---------------- ----------- ----------
<S> <C> <C>
Less than 3 0% 100%
3 or more 100% 0%
</TABLE>
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<PAGE>
For purposes of the above schedule, years of Service shall include all years
of Service required to be counted under Section 411(a) of the Code,
disregarding all years of Service permitted to be disregarded under Section
411(a)(4) of the Code.
(b) The vesting schedule set forth in subsection (a) shall apply to all
amounts allocated to a Participant's Company Stock and Other Investments
Accounts while the Plan is Top-Heavy and during the period of time before the
Plan becomes Top Heavy. This vesting schedule shall not apply to the Company
Stock and Other Investments Accounts of any Employee who does not have an Hour
of Service after the Plan becomes Top-Heavy.
(c) If the Plan becomes Top-Heavy and subsequently ceases to be Top-Heavy,
the vesting schedule set forth in subsection (a) shall automatically cease to
apply, and the vesting schedule set forth in Section 7.6 above shall
automatically apply, with respect to all amounts allocated to a Participant's
Company Stock and Other Investments Accounts for all Plan Years after the Plan
Year with respect to which the Plan was las Top-Heavy. For purposes of this
subsection (c), this change in vesting schedules shall only be valid to the
extent that the conditions of Section 12.1 of the Plan and Section 411(a)(10) of
the Code are satisfied.
14.5 Minimum Contribution. For each Plan Year that the Plan is Top-Heavy,
---------------------
the Company will contribute and allocate to the Company Stock and Other
Investments Accounts of each Participant who is a Non-key Employee and is
employed by the Company on the last day of such Plan Year an amount consisting
of contributions and forfeitures equal to the lesser of (i) 3% of such
Participant's Compensation (as defined in Section 14.6) for such Plan Year and
(ii) the largest percentage of Company contributions and forfeitures, as a
percentage of the Key Employee's compensation (as described in Section 14.6),
allocated to the Company Stock and Other Investments Accounts of any Key
Employee for such Year. The minimum contribution allocable pursuant to this
Section 14.5 will be determined without regard to any contributions by the
Company for any Employee under the Federal Social Security Act. A Non-key
Employee will not be excluded from an allocation pursuant to this Section merely
because his compensation is less than a stated amount. A Non-Key Employee who
has become a Participant but who fails to complete at least 1,000 Hours of
Service in a Plan Year in which the Plan is top Heavy shall not be excluded from
an allocation pursuant to this Section.
14.6 Compensation. For any Plan Year in which the Plan is Top-Heavy,
-------------
annual Compensation for the purposes of this Article shall have the meaning set
forth in Section 414(q)(7) of the Code.
14.7 Collective Bargaining Agreements. The requirements of Sections 14.4
---------------------------------
and 14.5 shall not apply with respect to any employees included in a unit of
employees covered by a collective bargaining agreement between
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<PAGE>
employer representatives and the Company or a Related Employer if retirements
benefits were the subject of good faith bargaining between such employer
representatives and the Company or Related Employer.
IN WITNESS WHEREOF, the Company has caused this Plan to be executed by a
duly authorized officer this _______ day of ____________, 1997.
Attest: FIRSTBANK NORTHWEST
_________________________ By: ____________________________________
Secretary President
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<PAGE>
EXHIBIT 10.4
SALARY CONTINUATION AGREEMENT BETWEEN FIRST FEDERAL BANK OF IDAHO F.S.B. AND
CLYDE E. CONKLIN
<PAGE>
FIRST FEDERAL BANK OF IDAHO, FSB
SALARY CONTINUATION AGREEMENT
THIS AGREEMENT is made this 2nd day of March, 1995, by and between FIRST
FEDERAL BANK OF IDAHO, FSB, (the "Company"), and CLYDE E. CONKLIN, (the
"Executive").
INTRODUCTION
To encourage the Executive to remain an employee of the Company, the
Company is willing to provide salary continuation benefits to the Executive.
The Company will pay the benefits from its general assets.
AGREEMENT
The Executive and the Company agree as follows:
ARTICLE 1
DEFINITIONS
1.1 DEFINITIONS. Whenever used in this Agreement, the following words and
phrases shall have the meanings specified:
1.1.1 "CHANGE IN CONTROL" means the conversion of Company to a public
stock company, followed by the acquisition by a single person or entity of
more than fifty percent (50%) of the outstanding stock of the Company.
1.1.2 "CODE" means the Internal Revenue Code of 1986, as amended.
References to a Code section shall be deemed to be to that section as it
now exists and to any successor provision.
-1-
<PAGE>
1.1.3 "DISABILITY" means, if the Executive is covered by a Company-
sponsored disability insurance policy, total disability as defined in such
policy without regard to any waiting period. If the Executive is not
covered by such policy, Disability means the Executive suffering a
sickness, accident or injury which, in the judgement of a physician
satisfactory to the Company, prevents the Executive from performing
substantially all of the Executive's normal duties for the Company. As a
condition to any benefits, the Company may require the Executive to submit
such physical or mental evaluation and tests as the Company's Board of
Directors deems appropriate.
1.1.4 "NORMAL RETIREMENT DATE" means the Executive attaining age
sixty (60) years.
1.1.5 "PLAN MONTH" means the period from the effective date to the
close of business on the day preceding that date in the following month
with subsequent Plan Months being measured in like manner.
1.1.6 "PLAN YEAR" means a twelve- (12-) month period beginning on the
effective date of this agreement specified in Section 8.2 or the
anniversary of that effective date, as the case may be, and ending at the
close of business on the next anniversary of such effective date.
1.1.7 "TERMINATION OF EMPLOYMENT" means the Executive's ceasing to be
employed by the Company for any reason whatsoever, voluntary or
involuntary, other than by reason of an approved leave of absence.
-2-
<PAGE>
1.1.8 "PLAN YEARS OF SERVICE" means the total number of Plan Years
after the effective date of this agreement during which the Executive is
employed on a full-time basis by the Company, inclusive of any approved
leaves of absence.
1.1.9 "VESTING PERCENTAGE" means, at any time, the percentage under
Column B of Schedule A, attached hereto, shown opposite the number of full
Plan Years of Service then completed by Executive.
ARTICLE 2
LIFETIME BENEFITS
2.1 NORMAL RETIREMENT BENEFIT. If the Executive terminates employment on
or after the Normal Retirement Date for reasons other than death, the Company
shall pay to the Executive a Monthly Normal Retirement Benefit computed and
payable as follows:
2.1.1 MONTHLY RETIREMENT BENEFIT. The benefit shall be a Monthly
Retirement Benefit equal to one-twelfth (1/12th) of the Annual Benefit
computed from column "G" of Schedule A attached hereto, multiplied by
Executive's then applicable Vesting Percentage determined from Column B of
said Schedule A. If Executive's termination occurs less than one (1) Plan
Month after the end of a Plan Year, the Annual Benefit shown opposite the
number of full Plan Years of Service completed by the Executive prior to
his termination shall the Annual Benefit used to compute the Executive's
Monthly Retirement Benefit. If the Executive's termination occurs more than
one (1) Plan Month after the end of a Plan Year, the Annual Benefit shown
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<PAGE>
opposite the number of full Plan Years of Service completed by the
Executive prior to his termination plus an additional amount computed by
multiplying the difference between that Annual Benefit and the Annual
Benefit which would have accrued if the Executive would have completed the
next full Plan Year of service times a fraction, the denominator of which
is twelve (12) and the numerator of which is the number of full Plan Months
of Service completed by the Executive after the end of the last full Plan
Year of Service, shall be the Annual Benefit used to compute the
Executive's Monthly Retirement Benefit.
2.1.2 PAYMENT OF BENEFIT. The Company shall begin payment of the
Monthly Retirement Benefit to the Executive on the first (1st) day of the
month following the month in which employment terminates. The Company
shall continue to pay the Monthly Retirement Benefit during the Executive's
lifetime or until a total of Two Hundred Forty (240) payments have been
made, which ever is longer.
2.2 EARLY RETIREMENT BENEFIT. If the Executive has a least one full Plan
Year of Service and terminates employment for reasons other than death before
the Normal Retirement Date, the Company shall pay to the Executive a Monthly
Early Retirement Benefit computed and payable as follows:
2.2.1 MONTHLY EARLY RETIREMENT BENEFIT. The benefit shall be a
Monthly Early Retirement Benefit equal to one-twelfth (1/12th) of the
Annual Benefit computed from column "G" of Schedule A attached hereto,
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<PAGE>
multiplied by Executive's then applicable Vesting Percentage determined
from Column B of said Schedule A. If the Executive's termination occurs
less than one (1) Plan Month after the end of a Plan Year, the Annual
Benefits shown opposite the number of full Plan Years of Service completed
by the Executive prior to his termination shall be the Annual Benefit used
to compute the Executive's Monthly Early Retirement Benefit. If the
Executive's termination occurs more than one (1) Plan Month after the end
of a Plan Year, the Annual Benefit shown opposite the number of full Plan
Years of Service completed by the Executive prior to his termination plus
an additional amount computed by multiplying the difference between that
Annual Benefit and the Annual Benefit which would have accrued if the
Executive would have completed the next full Plan Year of service, times a
fraction, the denominator of which is twelve (12) and the numerator of
which is the number of full Plan Months of Service completed by the
Executive after the end of the last Full Plan Year of Service, shall be the
Annual Benefits used to compute Executive's Monthly Early Retirement
Benefit.
2.2.2 PAYMENT OF BENEFIT. The Company shall begin payment of the
Monthly Early Retirement Benefit to the Executive on the first (1st) day of
the month following the month in which Executive attains his Normal
Retirement Date. The Company shall continue to pay the Monthly Early
Retirement Benefit during the Executive's lifetime or until a total of Two
Hundred Forty (240) payments have been made, which ever is longer.
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<PAGE>
2.2.3 IMMEDIATE PAYMENT OF BENEFIT. If the Executive is entitled to
receive an Early Retirement Benefit but elects prior to the receipt of any
Monthly Early Retirement Benefits to have his Early Retirement Benefit
begin on the first day of the month following the month in which his
employment terminates, the Monthly Early Retirement Benefit will be
computed using the Immediate Annual Benefit under column "E" of Schedule A,
rather then the Annual Benefit under column "G" of Schedule A and the first
Monthly Early Retirement Benefit shall be paid on the first day of the
month after the month in which Executive employment terminates. As a
condition to the Executive's right to receive his Early retirement Benefits
prior to his Normal Retirement Date, the Company shall require that
Executive enter into an written agreement that the Executive will not
compete with Company until after he reaches his Normal Retirement Date.
2.3 DISABILITY BENEFIT. If the Executive terminates employment for
Disability before the Normal Retirement Date, the Company shall pay to the
Executive a Monthly Disability Benefit computed and payable as follows:
2.3.1 MONTHLY DISABILITY BENEFIT. The benefits shall be a Monthly
Disability Benefit equal to one-twelfth (1/12th) of the Immediate Annual
Benefit computed from column "E" of Schedule A attached hereto, multiplied
by Executive's then applicable Vesting Percentage determined from Column B
of said Schedule A. If Executive's termination occurs less than one (1)
Plan Month after the end of a Plan Year, the Immediate Annual Benefit
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<PAGE>
shown opposite the number of full Plan Years of Service completed by the
Executive prior to his termination shall be the Immediate Annual Benefit
used to compute the Executive's Monthly Early Retirement Benefit. If the
Executive's termination occurs more than one (1) Plan Month after the end
of a Plan Year, the Immediate Annual Benefit shown opposite the number of
full Plan Years of Service competed by the Executive prior to his
termination plus an additional amount computed by multiplying the
difference between that Immediate Annual Benefit and the Immediate Annual
Benefit which would have accrued if the Executive would have completed the
next full Plan Year of service, times a fraction, the denominator of which
is twelve (12) and the numerator of which is the number of full Plan Months
of Service, shall be the Annual Benefit used to compute Executive's Monthly
Disability Benefit.
2.3.2 PAYMENT OF BENEFIT. The Company shall begin payment of the
Monthly Disability Benefit to the Executive on the first (1st) day of the
month following the month in which employment terminates. The Company
shall continue to pay the Monthly Disability Benefit until the earlier of
(a) the Executive's recovery from the Disability, or (b) until a total of
Two Hundred Forty (240) payments have been made.
2.4 CHANGE OF CONTROL BENEFIT. Upon a Change of Control and the
termination of the Executive's employment within one (1) year thereafter, the
Company
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<PAGE>
shall pay to the Executive the Change of Control Benefit in lieu of all other
benefits payable under this agreement, which Change of Control Benefit is
computed and payable as follows:
2.4.1 CHANGE OF CONTROL BENEFIT. The benefit shall be a lump-sum
amount computed upon the Immediate Lump-Sum Benefit from column "D" of
Schedule A attached hereto, multiplied by Executive's then applicable
Vesting Percentage determined from Column B of said Schedule A. If
Executive's termination occurs less than one (1) Plan Month after the end
of a Plan Year, the Immediate Lump-Sum Benefit shown opposite the number of
full Plan Years of Service completed by the Executive prior to his
termination shall the Lump-Sum Benefit used to compute the Change of
Control Benefit. If the Executive's termination occurs more than one (1)
Plan Month after the end of a Plan Year, the Immediate Lump-Sum Benefit
shown opposite the number of full Plan Years of Service completed by the
Executive prior to his termination plus an additional amount computed by
multiplying the difference between that Immediate Lump-Sum Benefit and the
Immediate Lump-Sum Benefit which would have accrued if the Executive would
have completed the next full Plan Year of service, times a fraction, the
denominator of which is twelve (12) and the numerator of which is the
number of full Plan Months of Service completed by the Executive after the
end of the last full Plan Year of Service, shall be the Lump-Sum Benefit
used to compute the Change of Control Benefit.
-8-
<PAGE>
2.4.2 PAYMENT OF BENEFIT. The Company shall pay the Change of
Control Benefit to the Executive in a lump sum within sixty (60) days after
the Executive's Termination of Employment.
2.5 COMPUTATION OF BENEFIT BEFORE END OF FIRST PLAN YEAR. In the event an
Executive is disabled or terminated because of Change of Control prior to the
completion of one Plan Year of Service, the benefit to which Executive will be
entitled shall be computed by multiplying the Immediate Annual Benefit which
would have accrued if the Executive would have completed the first full Plan
Year of Service times, a fraction, the denominator of which is twelve (12) and
the numerator of which is the number of full plan months of service completed by
the Executive prior to his termination for Disability or Change of Control. For
such purposes, the Vesting Percentage shall be determined as if Executive had
completed one (1) full Plan Year of Service. If Executive's employment is
terminated for any other reasons than Disability, Change of Control or
Executive's death before the Executive has competed one (1) full Plan Year of
Service, he shall not be entitled to any benefit whatsoever.
ARTICLE 3
DEATH BENEFITS
3.1 DEATH DURING ACTIVE SERVICE. If the Executive dies while in the
active service of the Company, the Company shall pay to the Executive's
beneficiary the benefit described in this Section 3.1
3.1.1 MONTHLY DEATH BENEFIT. The benefit shall be a Monthly Death
benefit equal to one-twelfth (1/12th) of the last amount shown in
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<PAGE>
Column "G" of Schedule A attached hereto, multiplied by Executive's then
applicable Vesting Percentage determined from Column B of said Schedule A.
3.1.2 PAYMENT OF BENEFIT. The Company shall begin payment of the
Monthly Death benefit to the Executive's beneficiary on the first (1st) day
of the month following the month in which death occurs. The Company shall
continue to pay the Monthly Death Benefit until a total of Two Hundred
Forty (240) payments have been made.
3.2 DEATH DURING BENEFIT PERIOD. If the Executive dies after benefit
payments have commenced under this Agreement but before receiving all such
payments, the Company shall pay the remaining benefits to the Executive's
beneficiary at the same time and in the same amounts until a total of two
hundred forty (240) Monthly Benefit payments have been made by the Company.
ARTICLE 4
LUMP-SUM PAYMENT
If the Company and Executive mutually agree, the benefit payable by reason
of Executive's Normal Retirement, Early Retirement, Disability, or Death may be
paid in lump sum using the appropriate lump-sum schedule multiplied by
Executive's then applicable Vesting Percentage under Column B of Schedule A.
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<PAGE>
ARTICLE 5
BENEFICIARIES
5.1 BENEFICIARY DESIGNATIONS. The Executive shall designate a beneficiary
by filing a written designation with the Company. The Executive may revoke or
modify the designation at any time by filing a new designation. However,
designation will only be effective if signed by the Executive and accepted by
the Company during the Executive's lifetime. The Executive's beneficiary
designation shall be automatically revoked if the beneficiary predeceases the
Executive, or if the Executive names a spouse as beneficiary and the marriage is
subsequently dissolved. If the Executive dies without a valid beneficiary
designation, all payments shall be to the Executive's surviving spouse, if any,
and if none, to the Executive's surviving children and the descendants of any
deceased child by right of representation, and if no children or descendants
survive, to the Executive's estate.
5.2 FACILITY OF PAYMENT. If a benefit is payable to a minor, to a person
declared incompetent, or to a person incapable of handling the disposition of
his or her property, the Company may pay such benefit to the guardian, legal
representative or person having the care or custody of such minor, incompetent
person or incapable person. The Company may require proof of incompetency,
minority or guardianship as it may deem appropriate prior to the distribution of
the benefit. Such distribution shall completely discharge the Company from all
liability with respect to such benefit.
-11-
<PAGE>
ARTICLE 6
GENERAL LIMITATIONS
Notwithstanding any provision of this Agreement to the contrary, the
Company shall not pay any benefit under this Agreement:
6.1 EXCESS PARACHUTE PAYMENT. To the extent the benefit would be an
excess parachute payment under Section 280G of the Code.
6.2 TERMINATION FOR CAUSE. If the Company terminates the executive's
employment for:
6.2.1 Gross negligence or gross neglect of duties;
6.2.2 Commission of felony or of gross misdemeanor involving moral
turpitude;
6.2.3 Fraud, disloyalty, dishonesty or willful violation of any law
or significant Company policy committed in connection with the Executive's
employment and resulting in an adverse effect on the Company; or
6.2.4 While in the Company's employment, accepting additional
employment with a competing institution.
6.3 SUICIDE. No benefits shall be payable if the Executive commits
suicide within two (2) years after the date of this Agreement, or if the
Executive has made any material misstatement of fact on any application for life
insurance purchased by the Company.
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<PAGE>
ARTICLE 7
CLAIMS AND REVIEW PROCEDURES
7.1 CLAIMS PROCEDURE. The Company shall notify the Executive's
beneficiary, in writing, within ninety (90) days of his or her written
application for benefits, of his or her eligibility or non-eligibility for
benefits under the Agreement. If the Company determines that the beneficiary is
not eligible for benefits or full benefits, the notice shall set forth (1) the
specific reasons for such denial; (2) a specific reference to the provisions of
the Agreement on which the denial is based; (3) a description of any additional
information or material necessary for the claimant to perfect his or her claim,
and a description of why it is needed; and (4) an explanation of the Agreement's
claims review procedure and other appropriate information as to the steps to be
taken if the beneficiary wishes to have the claim reviewed. If the Company
determines that there are special circumstances requiring additional time to
make a decision, the Company shall notify the beneficiary of the special
circumstances and the date by which a decision is expected to be made, and may
extend the time for up to an additional ninety- (90-) day period.
7.2 REVIEW PROCEDURE. If the beneficiary is determined by the Company not
the be eligible for benefits, or if the beneficiary believes that he or she is
entitled to greater or different benefits, the beneficiary shall have the
opportunity to have such claim reviewed by the Company by filing a petition for
review with the Company within sixty (60) days after receipt of the notice
issued by the Company. Said petition shall state the specific reasons which the
beneficiary believes entitle him or her to benefits or to greater or different
benefits. Within sixty (6) days after receipt by the Company of the petition,
the
-13-
<PAGE>
Company shall afford the beneficiary (and counsel, if any) an opportunity to
present his or her position to the Company, orally or in writing, and the
beneficiary (or counsel) shall have the right to review the pertinent documents.
The Company shall notify the beneficiary of its decision in writing within the
sixty- (60-) day period, stating specifically and the basis of its decision,
written in a manner calculated to be understood by the beneficiary and the
specific provisions of the Agreement on which the decision is based. If,
because of the need for a hearing, the sixty- (60-) day period is not
sufficient, the decision may be deferred for up to another sixty- (60-) day
period at the election of the Company, but notice of this deferral shall be
given to the beneficiary.
ARTICLE 8
AMENDMENTS AND TERMINATION
The Company may amend or terminate this Agreement at any time if, pursuant
to legislature, judicial or regulatory action, continuation of the Agreement
would (i) cause benefits to be taxable to the Executive prior to actual receipt,
or (ii) result in significant financial penalties or other significantly
detrimental ramifications to the Company (other than the financial impact of
paying the benefits). In the event of any such amendment or Termination, the
Executive shall be one hundred percent (100%) vested in the portion of the
Normal Retirement Benefit accrued to the Executive's benefit under Section 2.1
as of the date of the amendment or termination.
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<PAGE>
ARTICLE 9
MISCELLANEOUS
9.1 BINDING EFFECT. This Agreement shall bind the Executive and the
Company, and their beneficiaries, survivors, executors, administrators and
transferees.
9.2 EFFECTIVE DATE. This agreement shall be effective and the First Plan
Year shall commence on March 1, 1995.
9.3 NO GUARANTY OF EMPLOYMENT. This Agreement is not an employment policy
or contract. It does not give the Executive the right to remain an employee of
the Company, nor does it interfere with the Company's right to discharge the
Executive. It also does not require the Executive to remain an employee nor
interfere with the Executive's right to terminate employment at any time.
9.4 NON-TRANSFERABILITY. Benefits under this Agreement cannot be sold,
transferred, assigned, pledged, attached or encumbered in any manner.
9.5 TAX WITHHOLDING. The Company shall withhold any taxes that are
required to be withheld from the benefits provided under this Agreement.
9.6 APPLICABLE LAW. The Agreement and all rights hereunder shall be
governed by the laws of the State of Idaho, except to the extent pre-empted by
the laws of the United States of America.
9.7 UNFUNDED ARRANGEMENT. The Executive and beneficiary are general
unsecured creditors of the Company for the payment of benefits under this
Agreement. The benefits represent the mere promise by the Company to pay such
benefits. The rights to benefits are not subject in any manner to anticipation,
alienation, sale, transfer, assignment,
-15-
<PAGE>
pledge, encumbrance, attachment or garnishment by creditors. Any insurance on
the Executive's life is a general asset of the Company to which the Executive
and beneficiary have no preferred or secured claim.
IN WITNESS WHEREOF, the Executive and a duly authorized Company
officer have signed this Agreement.
EXECUTIVE COMPANY:
FIRST FEDERAL BANK OF IDAHO, FSB
/s/Clyde E. Conklin By:/s/William S. McVicars
- ---------------------------- -----------------------------------
Title: President
--------------------------------
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<PAGE>
SCHEDULE A
----------
MANAGEMENT SUPPLEMENTAL RETIREMENT
----------------------------------
SALARY CONTINUATION PLAN
------------------------
PARTICIPANT: C. Conklin
BEGINNING AGE: 43
RETIREMENT AGE: 60
LENGTH OF BENEFIT: Life with 20 Yr. Minimum
BENEFIT AMOUNT: $55,000
PRE-RETIREMENT BENEFIT ACCRUAL/VESTING SCHEDULE
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
A B C D E F G
================================================================================
END OF CURRENT IMMEDIATE IMMEDIATE LUMP SUM ANNUAL
PLAN VESTING YEAR LUMP SUM ANNUAL BENEFIT BENEFIT
YEAR PERCENTAGE ACCRUAL BENEFIT BENEFIT AGE 60 AGE 60
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1 100 14,496 14,496 1,510 56,211 5,854
- --------------------------------------------------------------------------------
2 100 15,778 30,274 3,153 107,857 11,232
- --------------------------------------------------------------------------------
3 100 17,172 47,447 4,941 155,308 16,174
- --------------------------------------------------------------------------------
4 100 18,690 66,137 6,887 198,906 20,714
- --------------------------------------------------------------------------------
5 100 20,342 86,479 9,006 238,963 24,885
- --------------------------------------------------------------------------------
6 100 22,140 108,620 11,312 275,767 28,718
- --------------------------------------------------------------------------------
7 100 24,097 132,717 13,821 309,582 32,240
- --------------------------------------------------------------------------------
8 100 26,227 158,945 16,552 340,651 35,475
- --------------------------------------------------------------------------------
9 100 28,546 187,490 19,525 369,197 38,448
- --------------------------------------------------------------------------------
10 100 31,069 218,559 22,760 395,424 41,179
- --------------------------------------------------------------------------------
11 100 33,815 252,374 26,282 419,522 43,688
- --------------------------------------------------------------------------------
12 100 36,804 289,178 30,115 441,662 45,994
- --------------------------------------------------------------------------------
13 100 40,057 329,235 34,286 462,004 48,113
- --------------------------------------------------------------------------------
14 100 43,598 372,833 38,826 480,695 50,059
- --------------------------------------------------------------------------------
15 100 47,452 420,285 43,768 497,867 51,847
- --------------------------------------------------------------------------------
16 100 51,646 471,931 49,146 513,645 53,490
- --------------------------------------------------------------------------------
17 100 56,211 528,141 55,000 528,141 55,000
- --------------------------------------------------------------------------------
</TABLE>
<PAGE>
EXHIBIT 10.5
SALARY CONTINUATION AGREEMENT BETWEEN FIRST FEDERAL BANK OF IDAHO, F.S.B. AND
LARRY K. MOXLEY
<PAGE>
FIRST FEDERAL BANK OF IDAHO, FSB
SALARY CONTINUATION AGREEMENT
THIS AGREEMENT is made this 1st day of March, 1995, by and between
FIRST FEDERAL BANK OF IDAHO, FSB, (the "Company"), and Larry K. Moxley, (the
"Executive").
INTRODUCTION
To encourage the Executive to remain an employee of the Company, the
Company is willing to provide salary continuation benefits to the Executive.
The Company will pay the benefits from its general assets.
AGREEMENT
The Executive and the Company agree as follows:
ARTICLE 1
DEFINITIONS
1.1 DEFINITIONS. Whenever used in this Agreement, the following
words and phrases shall have the meanings specified:
1.1.1 "CHANGE IN CONTROL" means the conversion of Company to a
public stock company, followed by the acquisition by a single person or
entity of more than fifty percent (50%) of the outstanding stock of the
Company.
1.1.2 "CODE" means the Internal Revenue Code of 1986, as
amended. References to a Code section shall be deemed to be to that section
as it now exists and to any successor provision.
-1-
<PAGE>
1.1.3 "DISABILITY" means, if the Executive is covered by a
Company-sponsored disability insurance policy, total disability as defined
in such policy without regard to any waiting period. If the Executive is
not covered by such policy, Disability means the Executive suffering a
sickness, accident or injury which, in the judgement of a physician
satisfactory to the Company, prevents the Executive from performing
substantially all of the Executive's normal duties for the Company. As a
condition to any benefits, the Company may require the Executive to submit
such physical or mental evaluation and tests as the Company's Board of
Directors deems appropriate.
1.1.4 "NORMAL RETIREMENT DATE" means the Executive attaining age
sixty (60) years.
1.1.5 "PLAN MONTH" means the period from the effective date to
the close of business on the day preceding that date in the following month
with subsequent Plan Months being measured in like manner.
1.1.6 "PLAN YEAR" means a twelve- (12-) month period beginning
on the effective date of this agreement specified in Section 8.2 or the
anniversary of that effective date, as the case may be, and ending at the
close of business on the next anniversary of such effective date.
1.1.7 "TERMINATION OF EMPLOYMENT" means the Executive's ceasing
to be employed by the Company for any reason whatsoever, voluntary or
involuntary, other than by reason of an approved leave of absence.
-2-
<PAGE>
1.1.8 "PLAN YEARS OF SERVICE" means the total number of Plan
Years after the effective date of this agreement during which the Executive
is employed on a full-time basis by the Company, inclusive of any approved
leaves of absence.
1.1.9 "VESTING PERCENTAGE" means, at any time, the percentage
under Column B of Schedule A, attached hereto, shown opposite the number of
full Plan Years of Service then completed by Executive.
ARTICLE 2
LIFETIME BENEFITS
2.1 NORMAL RETIREMENT BENEFIT. If the Executive terminates
employment on or after the Normal Retirement Date for reasons other than death,
the Company shall pay to the Executive a Monthly Normal Retirement Benefit
computed and payable as follows:
2.1.1 MONTHLY RETIREMENT BENEFIT. The benefit shall be a
Monthly Retirement Benefit equal to one-twelfth (1/12th) of the Annual
Benefit computed from column "G" of Schedule A attached hereto, multiplied
by Executive's then applicable Vesting Percentage determined from Column B
of said Schedule A. If Executive's termination occurs less than one (1)
Plan Month after the end of a Plan Year, the Annual Benefit shown opposite
the number of full Plan Years of Service completed by the Executive prior
to his termination shall the Annual Benefit used to compute the Executive's
Monthly Retirement Benefit. If the Executive's termination occurs more than
one (1) Plan Month after the end of a Plan Year, the Annual Benefit shown
-3-
<PAGE>
opposite the number of full Plan Years of Service completed by the
Executive prior to his termination plus an additional amount computed by
multiplying the difference between that Annual Benefit and the Annual
Benefit which would have accrued if the Executive would have completed the
next full Plan Year of service times a fraction, the denominator of which
is twelve (12) and the numerator of which is the number of full Plan Months
of Service completed by the Executive after the end of the last full Plan
Year of Service, shall be the Annual Benefit used to compute the
Executive's Monthly Retirement Benefit.
2.1.2 PAYMENT OF BENEFIT. The Company shall begin payment of
the Monthly Retirement Benefit to the Executive on the first (1st) day of
the month following the month in which employment terminates. The Company
shall continue to pay the Monthly Retirement Benefit during the Executive's
lifetime or until a total of Two Hundred Forty (240) payments have been
made, which ever is longer.
2.2 EARLY RETIREMENT BENEFIT. If the Executive has a least one full
Plan Year of Service and terminates employment for reasons other than death
before the Normal Retirement Date, the Company shall pay to the Executive a
Monthly Early Retirement Benefit computed and payable as follows:
2.2.1 MONTHLY EARLY RETIREMENT BENEFIT. The benefit shall be a
Monthly Early Retirement Benefit equal to one-twelfth (1/12th) of the
Annual Benefit computed from column "G" of Schedule A attached hereto,
-4-
<PAGE>
multiplied by Executive's then applicable Vesting Percentage determined
from Column B of said Schedule A. If the Executive's termination occurs
less than one (1) Plan Month after the end of a Plan Year, the Annual
Benefits shown opposite the number of full Plan Years of Service completed
by the Executive prior to his termination shall be the Annual Benefit used
to compute the Executive's Monthly Early Retirement Benefit. If the
Executive's termination occurs more than one (1) Plan Month after the end
of a Plan Year, the Annual Benefit shown opposite the number of full Plan
Years of Service completed by the Executive prior to his termination plus
an additional amount computed by multiplying the difference between that
Annual Benefit and the Annual Benefit which would have accrued if the
Executive would have completed the next full Plan Year of service, times a
fraction, the denominator of which is twelve (12) and the numerator of
which is the number of full Plan Months of Service completed by the
Executive after the end of the last Full Plan Year of Service, shall be the
Annual Benefits used to compute Executive's Monthly Early Retirement
Benefit.
2.2.2 PAYMENT OF BENEFIT. The Company shall begin payment of
the Monthly Early Retirement Benefit to the Executive on the first (1st)
day of the month following the month in which Executive attains his Normal
Retirement Date. The Company shall continue to pay the Monthly Early
Retirement Benefit during the Executive's lifetime or until a total of Two
Hundred Forty (240) payments have been made, which ever is longer.
-5-
<PAGE>
2.2.3 IMMEDIATE PAYMENT OF BENEFIT. If the Executive is
entitled to receive an Early Retirement Benefit but elects prior to the
receipt of any Monthly Early Retirement Benefits to have his Early
Retirement Benefit begin on the first day of the month following the month
in which his employment terminates, the Monthly Early Retirement Benefit
will be computed using the Immediate Annual Benefit under column "E" of
Schedule A, rather then the Annual Benefit under column "G" of Schedule A
and the first Monthly Early Retirement Benefit shall be paid on the first
day of the month after the month in which Executive employment terminates.
As a condition to the Executive's right to receive his Early retirement
Benefits prior to his Normal Retirement Date, the Company shall require
that Executive enter into an written agreement that the Executive will not
compete with Company until after he reaches his Normal Retirement Date.
2.3 DISABILITY BENEFIT. If the Executive terminates employment for
Disability before the Normal Retirement Date, the Company shall pay to the
Executive a Monthly Disability Benefit computed and payable as follows:
2.3.1 MONTHLY DISABILITY BENEFIT. The benefits shall be a
Monthly Disability Benefit equal to one-twelfth (1/12th) of the Immediate
Annual Benefit computed from column "E" of Schedule A attached hereto,
multiplied by Executive's then applicable Vesting Percentage determined
from Column B of said Schedule A. If Executive's termination occurs less
than one (1) Plan Month after the end of a Plan Year, the Immediate Annual
Benefit
-6-
<PAGE>
shown opposite the number of full Plan Years of Service completed by the
Executive prior to his termination shall be the Immediate Annual Benefit
used to compute the Executive's Monthly Early Retirement Benefit. If the
Executive's termination occurs more than one (1) Plan Month after the end
of a Plan Year, the Immediate Annual Benefit shown opposite the number of
full Plan Years of Service competed by the Executive prior to his
termination plus an additional amount computed by multiplying the
difference between that Immediate Annual Benefit and the Immediate Annual
Benefit which would have accrued if the Executive would have completed the
next full Plan Year of service, times a fraction, the denominator of which
is twelve (12) and the numerator of which is the number of full Plan Months
of Service, shall be the Annual Benefit used to compute Executive's Monthly
Disability Benefit.
2.3.2 PAYMENT OF BENEFIT. The Company shall begin payment of
the Monthly Disability Benefit to the Executive on the first (1st) day of
the month following the month in which employment terminates. The Company
shall continue to pay the Monthly Disability Benefit until the earlier of
(a) the Executive's recovery from the Disability, or (b) until a total of
Two Hundred Forty (240) payments have been made.
2.4 CHANGE OF CONTROL BENEFIT. Upon a Change of Control and the
termination of the Executive's employment within one (1) year thereafter, the
Company
-7-
<PAGE>
shall pay to the Executive the Change of Control Benefit in lieu of all other
benefits payable under this agreement, which Change of Control Benefit is
computed and payable as follows:
2.4.1 CHANGE OF CONTROL BENEFIT. The benefit shall be a lump-
sum amount computed upon the Immediate Lump-Sum Benefit from column "D" of
Schedule A attached hereto, multiplied by Executive's then applicable
Vesting Percentage determined from Column B of said Schedule A. If
Executive's termination occurs less than one (1) Plan Month after the end
of a Plan Year, the Immediate Lump-Sum Benefit shown opposite the number of
full Plan Years of Service completed by the Executive prior to his
termination shall the Lump-Sum Benefit used to compute the Change of
Control Benefit. If the Executive's termination occurs more than one (1)
Plan Month after the end of a Plan Year, the Immediate Lump-Sum Benefit
shown opposite the number of full Plan Years of Service completed by the
Executive prior to his termination plus an additional amount computed by
multiplying the difference between that Immediate Lump-Sum Benefit and the
Immediate Lump-Sum Benefit which would have accrued if the Executive would
have completed the next full Plan Year of service, times a fraction, the
denominator of which is twelve (12) and the numerator of which is the
number of full Plan Months of Service completed by the Executive after the
end of the last full Plan Year of Service, shall be the Lump-Sum Benefit
used to compute the Change of Control Benefit.
-8-
<PAGE>
2.4.2 PAYMENT OF BENEFIT. The Company shall pay the Change of
Control Benefit to the Executive in a lump sum within sixty (60) days after
the Executive's Termination of Employment.
2.5 COMPUTATION OF BENEFIT BEFORE END OF FIRST PLAN YEAR. In the
event an Executive is disabled or terminated because of Change of Control prior
to the completion of one Plan Year of Service, the benefit to which Executive
will be entitled shall be computed by multiplying the Immediate Annual Benefit
which would have accrued if the Executive would have completed the first full
Plan Year of Service times, a fraction, the denominator of which is twelve (12)
and the numerator of which is the number of full plan months of service
completed by the Executive prior to his termination for Disability or Change of
Control. For such purposes, the Vesting Percentage shall be determined as if
Executive had completed one (1) full Plan Year of Service. If Executive's
employment is terminated for any other reasons than Disability, Change of
Control or Executive's death before the Executive has competed one (1) full Plan
Year of Service, he shall not be entitled to any benefit whatsoever.
ARTICLE 3
DEATH BENEFITS
3.1 DEATH DURING ACTIVE SERVICE. If the Executive dies while in the
active service of the Company, the Company shall pay to the Executive's
beneficiary the benefit described in this Section 3.1
3.1.1 MONTHLY DEATH BENEFIT. The benefit shall be a Monthly
Death benefit equal to one-twelfth (1/12th) of the last amount shown in
-9-
<PAGE>
Column "G" of Schedule A attached hereto, multiplied by Executive's then
applicable Vesting Percentage determined from Column B of said Schedule A.
3.1.2 PAYMENT OF BENEFIT. The Company shall begin payment of
the Monthly Death benefit to the Executive's beneficiary on the first (1st)
day of the month following the month in which death occurs. The Company
shall continue to pay the Monthly Death Benefit until a total of Two
Hundred Forty (240) payments have been made.
3.2 DEATH DURING BENEFIT PERIOD. If the Executive dies after benefit
payments have commenced under this Agreement but before receiving all such
payments, the Company shall pay the remaining benefits to the Executive's
beneficiary at the same time and in the same amounts until a total of two
hundred forty (240) Monthly Benefit payments have been made by the Company.
ARTICLE 4
LUMP-SUM PAYMENT
If the Company and Executive mutually agree, the benefit payable by
reason of Executive's Normal Retirement, Early Retirement, Disability, or Death
may be paid in lump sum using the appropriate lump-sum schedule multiplied by
Executive's then applicable Vesting Percentage under Column B of Schedule A.
-10-
<PAGE>
ARTICLE 5
BENEFICIARIES
5.1 BENEFICIARY DESIGNATIONS. The Executive shall designate a
beneficiary by filing a written designation with the Company. The Executive may
revoke or modify the designation at any time by filing a new designation.
However, designation will only be effective if signed by the Executive and
accepted by the Company during the Executive's lifetime. The Executive's
beneficiary designation shall be automatically revoked if the beneficiary
predeceases the Executive, or if the Executive names a spouse as beneficiary and
the marriage is subsequently dissolved. If the Executive dies without a valid
beneficiary designation, all payments shall be to the Executive's surviving
spouse, if any, and if none, to the Executive's surviving children and the
descendants of any deceased child by right of representation, and if no children
or descendants survive, to the Executive's estate.
5.2 FACILITY OF PAYMENT. If a benefit is payable to a minor, to a
person declared incompetent, or to a person incapable of handling the
disposition of his or her property, the Company may pay such benefit to the
guardian, legal representative or person having the care or custody of such
minor, incompetent person or incapable person. The Company may require proof of
incompetency, minority or guardianship as it may deem appropriate prior to the
distribution of the benefit. Such distribution shall completely discharge the
Company from all liability with respect to such benefit.
-11-
<PAGE>
ARTICLE 6
GENERAL LIMITATIONS
Notwithstanding any provision of this Agreement to the contrary, the
Company shall not pay any benefit under this Agreement:
6.1 EXCESS PARACHUTE PAYMENT. To the extent the benefit would be an
excess parachute payment under Section 280G of the Code.
6.2 TERMINATION FOR CAUSE. If the Company terminates the executive's
employment for:
6.2.1 Gross negligence or gross neglect of duties;
6.2.2 Commission of felony or of gross misdemeanor involving
moral turpitude;
6.2.3 Fraud, disloyalty, dishonesty or willful violation of any
law or significant Company policy committed in connection with the
Executive's employment and resulting in an adverse effect on the Company;
or
6.2.4 While in the Company's employment, accepting additional
employment with a competing institution.
6.3 SUICIDE. No benefits shall be payable if the Executive commits
suicide within two (2) years after the date of this Agreement, or if the
Executive has made any material misstatement of fact on any application for life
insurance purchased by the Company.
-12-
<PAGE>
ARTICLE 7
CLAIMS AND REVIEW PROCEDURES
7.1 CLAIMS PROCEDURE. The Company shall notify the Executive's
beneficiary, in writing, within ninety (90) days of his or her written
application for benefits, of his or her eligibility or non-eligibility for
benefits under the Agreement. If the Company determines that the beneficiary is
not eligible for benefits or full benefits, the notice shall set forth (1) the
specific reasons for such denial; (2) a specific reference to the provisions of
the Agreement on which the denial is based; (3) a description of any additional
information or material necessary for the claimant to perfect his or her claim,
and a description of why it is needed; and (4) an explanation of the Agreement's
claims review procedure and other appropriate information as to the steps to be
taken if the beneficiary wishes to have the claim reviewed. If the Company
determines that there are special circumstances requiring additional time to
make a decision, the Company shall notify the beneficiary of the special
circumstances and the date by which a decision is expected to be made, and may
extend the time for up to an additional ninety- (90-) day period.
7.2 REVIEW PROCEDURE. If the beneficiary is determined by the
Company not the be eligible for benefits, or if the beneficiary believes that he
or she is entitled to greater or different benefits, the beneficiary shall have
the opportunity to have such claim reviewed by the Company by filing a petition
for review with the Company within sixty (60) days after receipt of the notice
issued by the Company. Said petition shall state the specific reasons which the
beneficiary believes entitle him or her to benefits or to greater or different
benefits. Within sixty (6) days after receipt by the Company of the petition,
the
-13-
<PAGE>
Company shall afford the beneficiary (and counsel, if any) an opportunity to
present his or her position to the Company, orally or in writing, and the
beneficiary (or counsel) shall have the right to review the pertinent documents.
The Company shall notify the beneficiary of its decision in writing within the
sixty- (60-) day period, stating specifically and the basis of its decision,
written in a manner calculated to be understood by the beneficiary and the
specific provisions of the Agreement on which the decision is based. If,
because of the need for a hearing, the sixty- (60-) day period is not
sufficient, the decision may be deferred for up to another sixty- (60-) day
period at the election of the Company, but notice of this deferral shall be
given to the beneficiary.
ARTICLE 8
AMENDMENTS AND TERMINATION
The Company may amend or terminate this Agreement at any time if,
pursuant to legislature, judicial or regulatory action, continuation of the
Agreement would (i) cause benefits to be taxable to the Executive prior to
actual receipt, or (ii) result in significant financial penalties or other
significantly detrimental ramifications to the Company (other than the financial
impact of paying the benefits). In the event of any such amendment or
Termination, the Executive shall be one hundred percent (100%) vested in the
portion of the Normal Retirement Benefit accrued to the Executive's benefit
under Section 2.1 as of the date of the amendment or termination.
-14-
<PAGE>
ARTICLE 9
MISCELLANEOUS
9.1 BINDING EFFECT. This Agreement shall bind the Executive and the
Company, and their beneficiaries, survivors, executors, administrators and
transferees.
9.2 EFFECTIVE DATE. This agreement shall be effective and the First
Plan Year shall commence on March 1, 1995.
9.3 NO GUARANTY OF EMPLOYMENT. This Agreement is not an employment
policy or contract. It does not give the Executive the right to remain an
employee of the Company, nor does it interfere with the Company's right to
discharge the Executive. It also does not require the Executive to remain an
employee nor interfere with the Executive's right to terminate employment at any
time.
9.4 NON-TRANSFERABILITY. Benefits under this Agreement cannot be
sold, transferred, assigned, pledged, attached or encumbered in any manner.
9.5 TAX WITHHOLDING. The Company shall withhold any taxes that are
required to be withheld from the benefits provided under this Agreement.
9.6 APPLICABLE LAW. The Agreement and all rights hereunder shall be
governed by the laws of the State of Idaho, except to the extent pre-empted by
the laws of the United States of America.
9.7 UNFUNDED ARRANGEMENT. The Executive and beneficiary are general
unsecured creditors of the Company for the payment of benefits under this
Agreement. The benefits represent the mere promise by the Company to pay such
benefits. The rights to benefits are not subject in any manner to anticipation,
alienation, sale, transfer, assignment,
-15-
<PAGE>
pledge, encumbrance, attachment or garnishment by creditors. Any insurance on
the Executive's life is a general asset of the Company to which the Executive
and beneficiary have no preferred or secured claim.
IN WITNESS WHEREOF, the Executive and a duly authorized Company
officer have signed this Agreement.
EXECUTIVE COMPANY:
FIRST FEDERAL BANK OF IDAHO, FSB
/s/ Larry K. Moxley By:/s/ William S. McVicars
- -------------------- ---------------------------------
Title:President
------------------------------
-16-
<PAGE>
SCHEDULE A
----------
MANAGEMENT SUPPLEMENTAL RETIREMENT
----------------------------------
SALARY CONTINUATION PLAN
------------------------
PARTICIPANT: L. Moxley
BEGINNING AGE: 44
RETIREMENT AGE: 60
LENGTH OF BENEFIT: Life with 20 Yr. Minimum
BENEFIT AMOUNT: $52,500/yr.
PRE-RETIREMENT BENEFIT ACCRUAL/VESTING SCHEDULE
-----------------------------------------------
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
A B C D E F G
================================================================================
End of Current Immediate Immediate Lump Sum Annual
Plan Vesting Year Lump Sum Annual Benefit Benefit
Year Percentage Accrual Benefit Benefit Age 60 Age 60
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1 100 15,486 15,486 1,613 55,170 5,745
- --------------------------------------------------------------------------------
2 100 16,854 32,340 3,368 105,860 11,024
- --------------------------------------------------------------------------------
3 100 18,344 50,684 5,278 152,433 15,874
- --------------------------------------------------------------------------------
4 100 19,966 70,650 7,357 195,223 20,330
- --------------------------------------------------------------------------------
5 100 21,730 92,381 9,620 234,539 24,425
- --------------------------------------------------------------------------------
6 100 23,651 116,032 12,083 270,661 28,186
- --------------------------------------------------------------------------------
7 100 25,742 141,774 14,764 303,850 31,643
- --------------------------------------------------------------------------------
8 100 28,017 169,791 17,682 334,344 34,818
- --------------------------------------------------------------------------------
9 100 30,494 200,285 20,857 362,361 37,736
- --------------------------------------------------------------------------------
10 100 33,189 233,474 24,314 388,103 40,417
- --------------------------------------------------------------------------------
11 100 36,123 269,596 28,075 411,754 42,880
- --------------------------------------------------------------------------------
12 100 39,316 308,912 32,170 433,485 45,143
- --------------------------------------------------------------------------------
13 100 42,791 351,702 36,626 453,451 47,222
- --------------------------------------------------------------------------------
14 100 46,573 398,275 41,476 471,795 49,132
- --------------------------------------------------------------------------------
15 100 50,690 448,965 46,755 488,649 50,887
- --------------------------------------------------------------------------------
16 100 55,170 504,135 52,500 504,135 52,500
- --------------------------------------------------------------------------------
</TABLE>
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF FIRSTBANK CORP.
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
Parent
- ------
FirstBank Corp.
Percentage Jurisdiction or
Subsidiaries (a) of Ownership State of Incorporation
- ---------------- ------------ ----------------------
FirstBank Northwest(1) 100% United States
Tri-star Financial Corporation (2) 100% Idaho
________
(1) Upon consummation of the Conversion, FirstBank Northwest will become a
wholly-owned subsidiary of the Registrant.
(2) This corporation is a wholly owned subsidiary of FirstBank Northwest
<PAGE>
EXHIBIT 23.1
CONSENT OF BDO SEIDMAN, LLP
<PAGE>
EXHIBIT 23.1
[Letterhead of BDO Seidman, LLP]
CONSENT OF INDEPENDENT ACCOUNTANTS
----------------------------------
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form SB-2 of our report dated January 31, 1997,
relating to the financial statements of First Federal Bank of Idaho, a Federal
Savings Bank, and Subsidiary, which appears in such Prospectus. We also consent
to the reference to us under the headings "Experts," "Legal and Tax Opinions"
and "Tax Effects" in such Prospectus.
/s/ BDO Seidman, LLP
- --------------------
BDO Seidman, LLP
Spokane, Washington
March 14, 1997
<PAGE>
EXHIBIT 23.3
CONSENT OF BREYER & AGUGGIA AS TO ITS FEDERAL TAX OPINION
<PAGE>
March 14, 1997
Board of Directors
FirstBank Corp.
920 Main Street
Lewiston, Idaho 83501
RE: FirstBank Corp.
Registration Statement on Form SB-2
To the Board of Directors:
We hereby consent to the filing of the form of our federal tax opinion as
an exhibit to the Registration Statement and to the reference to us in the
Prospectus included therein under the headings "THE CONVERSION -- Effects of
Conversion to Stock Form on Depositors and Borrowers of the Bank" and "LEGAL AND
TAX OPINIONS."
Sincerely,
/s/Breyer & Aguggia
BREYER & AGUGGIA
Washington, D.C.
<PAGE>
EXHIBIT 23.4
CONSENT OF RP FINANCIAL, LC.
<PAGE>
EXHIBIT 23.4
RP Financial, LC.
- ---------------------------------------
Financial Services Industry Consultants
March 13, 1997
Board of Directors
First Federal Bank of Idaho,
a federal savings bank
920 Main Street
Lewiston, Idaho 83501
Gentlemen:
We hereby consent to the use of our firm's name in the Application for
Conversion of First Federal Bank of Idaho, a federal savings bank, Lewiston,
Idaho, and any amendments thereto, in the Form SB-2 Registration Statement for
FirstBank Corp., and any amendments thereto, and in the Form AC for First
Federal Bank of Idaho, a federal savings bank, and any amendments thereto. We
also hereby consent to the inclusion of, summary of and references to our
Appraisal Report and our statement concerning subscription rights in such
filings including the Prospectus of FirstBank Corp.
Very truly yours,
RP FINANCIAL, LC.
/s/ Gregory E. Dunn
-------------------
Gregory E. Dunn
Senior Vice President
________________________________________________________________________________
Washington Headquarters
Rosslyn Center
1700 North Moore Street, Suite 2210 Telephone: (703) 528-1700
Arlington, VA 22209 Fax No.: (703) 528-1788
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF FIRST FEDERAL BANK OF IDAHO, F.S.B. FOR THE
YEAR ENDED MARCH 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 3,549
<INT-BEARING-DEPOSITS> 9,366
<FED-FUNDS-SOLD> 666
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 1,328
<INVESTMENTS-CARRYING> 13,033
<INVESTMENTS-MARKET> 12,901
<LOANS> 93,817
<ALLOWANCE> 701
<TOTAL-ASSETS> 129,832
<DEPOSITS> 115,324
<SHORT-TERM> 750
<LIABILITIES-OTHER> 1,848
<LONG-TERM> 1,554
0
0
<COMMON> 0
<OTHER-SE> 10,356
<TOTAL-LIABILITIES-AND-EQUITY> 129,832
<INTEREST-LOAN> 8,408
<INTEREST-INVEST> 614
<INTEREST-OTHER> 530
<INTEREST-TOTAL> 9,552
<INTEREST-DEPOSIT> 4,793
<INTEREST-EXPENSE> 5,158
<INTEREST-INCOME-NET> 4,394
<LOAN-LOSSES> 150
<SECURITIES-GAINS> 2,212
<EXPENSE-OTHER> 5,493
<INCOME-PRETAX> 963
<INCOME-PRE-EXTRAORDINARY> 588
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 588
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<YIELD-ACTUAL> 3.89
<LOANS-NON> 593
<LOANS-PAST> 99
<LOANS-TROUBLED> 1,760
<LOANS-PROBLEM> 1,563
<ALLOWANCE-OPEN> 555
<CHARGE-OFFS> 4
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 701
<ALLOWANCE-DOMESTIC> 701
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED
FINANCIAL STATEMENTS OF FIRST FEDERAL BANK OF IDAHO, F.S.B. FOR THE NINE MONTHS
ENDED DECEMBER 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> DEC-31-1996
<CASH> 4,949
<INT-BEARING-DEPOSITS> 250
<FED-FUNDS-SOLD> 566
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 0
<INVESTMENTS-CARRYING> 7,532
<INVESTMENTS-MARKET> 7,452
<LOANS> 111,085
<ALLOWANCE> 880
<TOTAL-ASSETS> 133,194
<DEPOSITS> 105,349
<SHORT-TERM> 10,741
<LIABILITIES-OTHER> 1,967
<LONG-TERM> 4,319
0
0
<COMMON> 0
<OTHER-SE> 10,818
<TOTAL-LIABILITIES-AND-EQUITY> 133,194
<INTEREST-LOAN> 6,878
<INTEREST-INVEST> 508
<INTEREST-OTHER> 154
<INTEREST-TOTAL> 7,640
<INTEREST-DEPOSIT> 3,699
<INTEREST-EXPENSE> 4,014
<INTEREST-INCOME-NET> 3,626
<LOAN-LOSSES> 194
<SECURITIES-GAINS> 1,815
<EXPENSE-OTHER> 4,674
<INCOME-PRETAX> 573
<INCOME-PRE-EXTRAORDINARY> 423
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 423
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<YIELD-ACTUAL> 3.93
<LOANS-NON> 1,006
<LOANS-PAST> 0
<LOANS-TROUBLED> 1,746
<LOANS-PROBLEM> 2,440
<ALLOWANCE-OPEN> 701
<CHARGE-OFFS> 15
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 880
<ALLOWANCE-DOMESTIC> 880
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
<PAGE>
EXHIBIT 99.1
ORDER FORM
<PAGE>
Exhibit 99.1
[LOGO] FirstBank Corp.
--------------------------------
--------------------------------
Stock Order Form
-------------------------------------
FirstBank Northwest EXPIRATION DATE
Conversion Center for Stock Order
XX Street Forms:
Lewiston, ID 11111 Day, Month x,
(XXX) XXX-XXXX 1997
12:00 Noon,
Pacific Time
- --------------------------------------------------------------------------------
IMPORTANT--PLEASE NOTE: A properly completed original stock order form
must be used to subscribe for common stock. Copies of this form are not
required to be accepted. Please read the Stock Ownership Guide and Stock Order
Form Instructions as you complete this Form.
- --------------------------------------------------------------------------------
(1) NUMBER OF SHARES SUBSCRIPTION PRICE (2) TOTAL PAYMENT DUE
[_] X $10.00 = [_]
The minimum purchase is 25 shares. The maximum purchase limitations are (i) in
the Subscription Offering-for any eligible subscriber 125,000 (12,500 shares);
and (ii) in the Direct Community Offering-for any person, together with
Associates or persons acting in concert, $XXX,XXX (XX,XXX shares). In
addition, no person, together with Associates and persons acting in concert
with such person, may purchase in the aggregate more than $250,000 of the
shares offered (25,000 shares).
- --------------------------------------------------------------------------------
[_](3) EMPLOYEE/OFFICER/DIRECTOR INFORMATION
Check here if you are a director, officer or employee of FirstBank Northwest
or a member of such person's immediate family.
- --------------------------------------------------------------------------------
[_](4) METHOD OF PAYMENT/CHECK Check Amount
Enclosed is a check, bank draft or money [_]
order made payable to FirstBank Northwest
in the amount of:
- --------------------------------------------------------------------------------
[_](5) METHOD OF PAYMENT/WITHDRAWAL
The undersigned authorizes withdrawal from the following account(s) at
FirstBank Northwest. There is no penalty for early withdrawal used for
this payment.
-----------------------------------------------------------------------
Account Number(s) Withdrawal Amount(s)
-----------------------------------------------------------------------
-----------------------------------------------------------------------
-----------------------------------------------------------------------
-----------------------------------------------------------------------
Total Withdrawal Amount -------------------------------------
- --------------------------------------------------------------------------------
[_](6) PURCHASER INFORMATION
a. [_] Check here if you are an Eligible Account Holder with a deposit
account(s) totalling $50.00 or more on December 31, 1995. List
account(s) below.
b. [_] Check here if you are a Supplemental Eligible Account Holder with a
deposit account(s) totalling $50.00 or more on March 31, 1997. List
account(s) below.
c. [_] Check here if you were a depositor as of _______________, 1997 or a
borrower with a loan outstanding as of April 25, 1990 which continued
to be outstanding as of __________, 1997. LIST ACCOUNTS(S) OR LOANS(S)
BELOW.
-----------------------------------------------------------------------
Account Title (Names on Accounts) Account Number(s)
-----------------------------------------------------------------------
-----------------------------------------------------------------------
-----------------------------------------------------------------------
PLEASE NOTE: FAILURE TO LIST ALL YOUR ACCOUNTS MAY RESULT IN THE LOSS
OF PART OR ALL OF YOUR SUBSCRIPTION RIGHTS. IF ADDITIONAL SPACE IS
NEEDED, PLEASE UTILIZE THE BACK OF THIS STOCK ORDER FORM.
- --------------------------------------------------------------------------------
(7) STOCK REGISTRATION/FORM OF STOCK OWNERSHIP
[_] Individual [_] Joint Tenants
[_] Fiduciary (i.e. trust, estate, etc.) [_] Corporation or Partnership
[_] Tenants in Common
[_] Uniform Gifts to Minors Act
[_] IRA or Qualified Plan-Beneficial Owners
(8) NAME(S) IN WHICH STOCK IS TO BE REGISTERED (PLEASE PRINT CLEARLY)
[___________________________________________________________________]
SS#
[___________________]
Name(s) continued Social Security # or
Tax ID
[___________________________________________________] [___________________]
Street Address City State Zip Code
[_________________________________] [_______________] [____] [___________]
(9) TELEPHONE INFORMATION Daytime Evening County of Residence
[( ) ] [( ) ] [___________________]
- --------------------------------------------------------------------------------
[_](10) NASD AFFILIATION [_](11) ASSOCIATE-ACTING
Check here if you are a member of the National IN CONCERT
Association of Securities Dealers, Inc. Check here, and complete
("NASD"), a person associated with an NASD the reverse side of this
member, a member of the immediate family of any Form, if you or any
such person to whose support such person associates (as defined
contributes, directly or indirectly, or the on the reverse side of
holder of an account in which an NASD member or this Form) or persons
person associated with an NASD member has a acting in concert with
beneficial interest. To comply with conditions you have submitted other
under which an exemption from the NASD's orders for shares in the
Interpretation With Respect to Free-Riding and Subscription and/or
Withholding is available, you agree, if you have Community Offerings.
checked the NASD Affiliation box, (i) not to
sell, transfer or hypothecate the stock for a
period of 90 days following issuance, and (ii)
to report this subscription in writing to the
applicable NASD member within one day of payment
therefor.
- --------------------------------------------------------------------------------
(12) ACKNOWLEDGMENT
To be effective, this Stock Order Form and accompanying Certification Form must
be properly completed and actually received by FirstBank Northwest no later
than 12:00 Noon, Pacific Time, on DAY, MONTH DATE, 1997, unless extended;
otherwise this Stock Order Form and all subscription rights will be void. The
undersigned agrees that after receipt by FirstBank Northwest, this Stock Order
Form may not be modified, withdrawn or canceled without the Bank's consent and
if authorization to withdraw from deposit accounts at the Bank has been given
as payment for shares; the amount authorized for withdrawal shall not otherwise
be available for withdrawal by the undersigned. Under penalty of perjury, I
hereby certify that the Social Security or Tax ID Number and the information
provided on this Stock Order Form is true, correct and complete, that I am not
subject to back-up withholding, and that I am purchasing solely for my own
account and that there is no agreement or understanding regarding the sale or
transfer of such shares, or my right to subscribe for shares herewith. It is
understood that this Stock Order From will be accepted in accordance with, and
subject to, the terms and conditions of the Plan of Conversion of the Bank
described in the accompanying Prospectus. The undersigned hereby acknowledges
receipt of the Prospectus at least 48 hours prior to delivery of this Stock
Order Form to the Bank.
Federal regulations prohibit any person from transferring, or entering into any
agreement, directly or indirectly, to transfer the legal or beneficial
ownership of subscription rights or the underlying securities to the account of
another. FirstBank Northwest and FirstBank Corp. will pursue any and all legal
and equitable remedies in the event they become aware of the transfer of
subscription rights and will not honor orders known by them to involve such
transfer.
SIGNATURE DATE SIGNATURE DATE
[_______________________] [______________________________________________]
A SIGNED CERTIFICATION FORM MUST ACCOMPANY ALL STOCK ORDER FORMS
(SEE REVERSE SIDE)
<PAGE>
ITEM (6)A, B, C--(CONTINUED)
Account Title (Names on Account Account Title (Names on Account
Accounts) Number(s) Accounts) Number(s)
- -------------------------------------- --------------------------------------
- -------------------------------------- --------------------------------------
- -------------------------------------- --------------------------------------
- -------------------------------------- --------------------------------------
ITEM (11)--(CONTINUED)
List below all other orders "Associate" is defined as: (i) any
submitted by you or your corporation or organization (other than the
Associates (as defined) or by Bank or a majority-owned subsidiary of the
persons acting in concert with Bank) of which such person is a director,
you. officer or partner or is, directly or
indirectly, the beneficial owner of 10% or
Name(s) listed on Number of more of any class of equity securities; (ii)
other Stock Order Shares any trust or other estate in which such person
Forms Ordered has a substantial beneficial interest or as to
- -------------------------------- which such person serves as a director or in a
- -------------------------------- similar fiduciary capacity; provided, however,
- -------------------------------- such term shall not include FirstBank Corp.'s
- -------------------------------- or FirstBank Northwest's employee benefit
- -------------------------------- plans in which such person has a substantial
beneficial interest or serves as a director or
in a similar fiduciary capacity; and (iii) any
relative or spouse of such person, or any
relative of such spouse, who either has the
same home as such person or who is a Director
or officer of the Bank or the Holding Company
or any subsidiaries thereof. Directors of the
Bank or the Holding Company are not treated as
Associates solely because of their Board
memberships.
YOU MUST SIGN THE FOLLOWING CERTIFICATION IN ORDER TO PURCHASE STOCK
CERTIFICATION FORM
I/WE ACKNOWLEDGE THAT THIS SECURITY IS NOT A DEPOSIT OR ACCOUNT AND IS NOT
FEDERALLY INSURED, AND IS NOT GUARANTEED BY FIRSTBANK NORTHWEST OR BY
THE FEDERAL DEPOSIT INSURANCE CORPORATION, ANY GOVERNMENT AGENCY
If anyone asserts that this security is federally insured or guaranteed, or
is as safe as an insured deposit, I should call ________________, located at
_______________ at (xxx) xxx-xxxx.
I further certify that, before purchasing the common stock, par value $.01 per
share, of FirstBank Corp. (the "Company"), the proposed holding company for
FirstBank Northwest I received a Prospectus of the Company dated _____________
__, 1997 relating to such offer of Common Stock.
The Prospectus that I/we received contains disclosure concerning the nature
of the security being offered and describes the risks involved in the
investment, including but not limited to:
1. (page )
2. (page )
3. (page )
4. (page )
5. (page )
6. (page )
7. (page )
8. (page )
9. (page )
10. (page )
Signature Date Signature Date
[_______________________________] [_______________________________]
Name (Please Print) Name (Please Print)
[_______________________________] [_______________________________]
<PAGE>
[LOGO] FirstBank Corp.
- --------------------------------------------------------------------------------
Stock Ownership Guide
INDIVIDUAL
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", "single person", etc.
- --------------------------------------------------------------------------------
JOINT TENANTS
Joint tenants with right of survivorship may be specified to identify two or
more owners. When stock is held by joint tenants with right of survivorship,
ownership is intended to pass automatically to the surviving joint tenant(s)
upon the death of any joint tenant. All parties must agree to the transfer or
sale of shares held by joint tenants.
- --------------------------------------------------------------------------------
TENANTS IN COMMON
Tenants in common may also be specified to identify two or more owners. When
stock is 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 tenant in common.
- --------------------------------------------------------------------------------
UNIFORM TRANSFER TO MINORS ACT ("UTMA")
Stock may be held in the name of a custodian for a minor under the Uniform
Transfer to Minors Act of each state. There my be only one custodian and one
minor designated on a stock certificate. The standard abbreviation for
Custodian is "CUST", while the Uniform Transfer to Minors Act is "UTMA".
Standard U.S. Postal Service state abbreviations should be used to describe the
appropriate state. For example, stock held by John Doe as custodian for Susan
Doe under the Idaho Uniform Transfer to Minors Act will be abbreviated John Doe,
CUST Susan Doe UTMA, ID (use minor's social security number).
- --------------------------------------------------------------------------------
FIDUCIARIES
Information provided with respect to stock to be held in a fiduciary capacity
must contain the following:
. The name(s) of the fiduciary. If an individual, list the first name,
middle initial and last name. If a corporation, list the full corporate
title (name). If an individual and a corporation, list the corporation's
title before the individual.
. The fiduciary capacity, such as administrator, executor, personal
representative, conservator, trustee, committee, etc.
. A description of the document governing the fiduciary relationship, such as
a trust agreement or court order. Documentation establishing a fiduciary
relationship may be required to register your stock in a fiduciary capacity.
. The date of the document governing the relationship, except that the date of
a trust created by a will need not be included in the description.
. The name of the maker, donor or testator and the name of the beneficiary.
An example of fiduciary ownership of stock in the case of a trust is: John Doe,
Trustee Under Agreement Dated 10-1-87 for Susan Doe.
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
Stock Order Form Instructions
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 in the
Subscription and Direct Community Offering is 25 shares. In the Subscription
Offering, the maximum purchase by each Eligible Account Holder. Supplemental
Eligible Account Holder and Other Member is $125,000 (12,500 shares), and the
maximum purchase in the Direct Community Offering by any person, together with
associates or persons acting in concert, is $XXX,XXX(XX,XXX shares). However,
no person, together with associates and persons acting in concert with such
person, may purchase in the aggregate more than $250,000 (25,000 shares).
Eligible Account Holders desiring to purchase shares in the Direct Community
Offering must do so by obtaining from the Conversion Center an additional Stock
Order Form and submitting a completed additional Stock Order Form which
indicates the number of shares to be purchased in the Direct Community Offering.
FirstBank Northwest and FirstBank Corp. have reserved the right to reject the
subscription of any order received in the Direct Community Offering, in whole or
in part.
- --------------------------------------------------------------------------------
ITEM 3-
Please check this box to indicate whether you are a employee, officer or trustee
of FirstBank Northwest or a member of such person's immediate family. [_]
- --------------------------------------------------------------------------------
ITEM 4-
Payment for shares may be made in cash (only if delivered by you in person to a
branch office of FirstBank Northwest) or by check, bank draft or money order
payable to FirstBank Northwest. Your funds will earn interest at the Bank's
passbook rate of interest until the Conversion is completed. DO NOT MAIL CASH
TO PURCHASE STOCK! Please check this box if your method of payment is by check,
bank draft or money order. [_]
- --------------------------------------------------------------------------------
ITEM 5-
If you pay for your stock by a withdrawal from a deposit account at FirstBank
Northwest, insert the account number(s) and the amount of your withdrawal
authorization for each account. The total amount withdrawn should equal the
amount of your stock purchase. There will be no penalty assessed for early
withdrawals from certificate accounts used for stock purchases. This form of
payment may not be used if your account is an Individual Retirement Account or
Qualified Plan.
- --------------------------------------------------------------------------------
ITEM 6-
a. Please check this box if you are an Eligible Account Holders with a deposit
account(s) totaling $50.00 or more on December 31, 1995. [_]
b. Please check this box if you are a Supplemental Eligible Account Holder
with a deposit account(s) totalling $50.00 or more on March 31, 1997.
c. Check here if you were a depositor as of __________________, 1997 or a
borrower with a loan outstanding as of April 25, 1990 which continued to
be outstanding as of ______, 1997.
Please list all names on the account(s) and all account number(s) of accounts
you had at these dates in order to insure proper identification of your
purchase rights. Please note: Failure to list all your accounts may result
in the loss of part or all of your subscription rights.
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
ITEMS 7, 8 AND 9-
The stock transfer industry has developed a uniform system of shareholder
registration that will be used in the issuance of your FirstBank Corp. Common
Stock. Please complete items 7, 8 and 9 as fully and accurately as possible,
and be certain to supply your social security or Tax I.D. number(s) and your
daytime and evening telephone number(s). We will need to call you if we cannot
execute your order as given. If you have any questions regarding the
registration of your stock, please consult your legal advisor. Stock ownership
must be registered in one of the ways described above under "Stock Ownership
Guide".
- --------------------------------------------------------------------------------
ITEM 10-
Please check this box if you are a member of the NASD or if this item otherwise
applies to you.
- --------------------------------------------------------------------------------
ITEM 11-
Please check this box if you or any associate (as defined on the reverse side
of the Stock Order Form) or person acting in concert with you has submitted
another order for shares and complete the reverse side of the Stock Order Form.
- --------------------------------------------------------------------------------
ITEM 12-
Please sign and date the Stock Order Form and Certification Form where
indicated. Before you sign, review the Stock Order Form, including the
acknowledgement, and the Certification Form. Normally, one signature is
required. An additional signature is required only when payment is to be made
by withdrawal from a deposit account that requires multiple signatures to
withdraw funds.
- --------------------------------------------------------------------------------
You may mail your completed Stock Order Form and Certification form in the
envelope that has been provided, or you may deliver your Stock Order Form and
Certification Form to any branch of FirstBank Northwest. Your Stock Order
Form and Certification Form, properly completed, and payment in full (or
withdrawal authorization) at the subscription price must be received by
FirstBank Northwest no later than 12:00 noon, Pacific time, on __________,
______ 1997 or it will become void. If you have any remaining questions, or if
you would like assistance in completing your Stock Order Form and Certification
Form, you may call our Conversion Center Monday through Friday from 10:00 a.m.
to 4:00 p.m.
- --------------------------------------------------------------------------------
<PAGE>
EXHIBIT 99.2
SOLICITATION AND MARKETING MATERIALS
<PAGE>
Exhibit 99.2
[DRAFT 3/7/97]
FirstBank Northwest
PROPOSED LETTERS/QUESTION & ANSWER BROCHURES
INDEX
-----
1. Dear Member Letter including IRA or Qualified Plan
2. Dear Member Letter for Non Eligible States
3. Dear Friend Letter - Eligible Account Holders who are no longer Members
4. Dear Potential Investor Letter *
5. Dear Customer Letter - Used as a Cover Letter for States Requiring
"Agent" Mailing *
6. Proxy Request
7. Proxy Question and Answer Brochure
8. Stock Question and Answer Brochure*
9. Request Card
10. Invitation Letter - Informational Meetings
11. Dear Subscriber/Acknowledgment Letter - Initial Response to Stock Order
Received
12. Dear Charter Shareholder - Confirmation Letter
13. Welcome Shareholder Letter - For Initial Certificate Mailing
14. Dear Interested Investor Letter - Subscription Rejection
15. Letter for Sandler O'Neill Mailing to Clients *
* Accompanied by a Prospectus
Note: Items 1 through 9 are produced by the Financial Printer and Items
10 through 15 are produced by the Conversion Center.
<PAGE>
[FirstBank Northwest]
Dear Member:
The Board of Directors of FirstBank Northwest (formerly known as First Federal
Bank of Idaho, a federal savings bank) has voted unanimously in favor of a plan
to convert from a mutual savings bank to a stock savings bank. As part of this
plan, we have formed a holding company, FirstBank Corp., which will become the
parent company of FirstBank Northwest. We are converting so that FirstBank
Northwest will be structured in the form of ownership used by a growing number
of savings institutions and to allow our Bank to become stronger.
To accomplish this conversion your participation is extremely important. On
behalf of the Board, I ask that you help us meet our goal by reading the
enclosed Proxy Statement and Question and Answer Brochure and then casting your
vote in favor of the Plan of Conversion and mailing your signed proxy card
immediately in the _______ postage-paid envelope provided. Should you choose to
attend the Special Meeting of Members and wish to vote in person, you may do so
by revoking any previously executed proxy. If you have an IRA or other
Qualified Plan account for which the Bank acts as trustee and we do not receive
a proxy from you, the Bank intends, as trustee for such account, to vote in
favor of the Plan of Conversion on your behalf.
If the Plan of Conversion is approved let me assure you that:
. Deposit accounts will continue to be federally insured to the same
extent they are today.
. Existing deposit accounts and loans will not undergo any change as a
result of the conversion.
. Voting for approval will not obligate you to buy any shares of Common
Stock.
As a qualifying account holder, you may also take advantage of your
nontransferable rights to subscribe for shares of FirstBank Corp.'s Common Stock
without commission or fee on a priority basis, before the stock is offered to
the general public. If you are interested in subscribing for shares of common
stock, please complete the enclosed request card and return it to us in the
______ postage-paid envelope provided by _______, 1997, and we will mail you a
Prospectus, a stock order form and a certification form.
If you wish to use funds in your IRA or Qualified Plan at FirstBank Northwest to
subscribe for Common Stock, please be aware that federal law requires that such
funds first be transferred to a self-directed retirement account with a trustee
other than FirstBank Northwest. The transfer of such funds to a new trustee
takes time, so please make arrangements as soon as possible.
If you have any questions after reading the enclosed material, please call our
Conversion Center at (XXX) XXX-XXXX. The Conversion Center is open Monday
through Friday from 10:00 a.m. to 4:00 p.m. Please note that the Conversion
Center will be closed from 12:00 noon Friday, May 23rd, through 12:00 noon
Tuesday, May 27th, in observance of the Memorial Day holiday.
Sincerely,
SIGNATURE
TITLE
The shares of Common Stock offered in the conversion are not savings accounts or
deposits and are not insured or guaranteed by the Federal Deposit Insurance
Corporation or any other government agency.
This is not an offer to sell or a solicitation of an offer to buy Common Stock.
The offer is made only by the Prospectus.
#1
<PAGE>
[FirstBank Northwest]
Dear Member:
The Board of Directors of FirstBank Northwest (formerly known as First Federal
Bank of Idaho, a federal savings bank) has voted unanimously in favor of a plan
to convert from a mutual savings bank to a stock savings bank. As part of this
plan, we have formed a holding company, FirstBank Corp., which will become the
parent company of FirstBank Northwest. We are converting so that FirstBank
Northwest will be structured in the form of ownership used by a growing number
of savings institutions and to allow our Bank to become stronger.
To accomplish this conversion your participation is extremely important. On
behalf of the Board, I ask that you help us meet our goal by reading the
enclosed Proxy Statement and Question and Answer Brochure and then casting your
vote in favor of the Plan of Conversion and mailing your signed proxy card
immediately in the postage-paid envelope provided. Should you choose to attend
the Special Meeting of Members and wish to vote in person, you may do so by
revoking any previously executed proxy.
If the Plan of Conversion is approved let me assure you that:
. Deposit accounts will continue to be federally insured to the same
extent they are today.
. Existing deposit accounts and loans will not undergo any change as a
result of the conversion.
We regret that we are unable to offer you common stock in the Subscription and
Direct Community Offerings, because the laws of your state or jurisdiction
require us to register either (1) the to-be-issued Common Stock of FirstBank
Corp., or (2) an agent of the Bank to solicit the sale of such stock, and the
number of eligible subscribers in your state or jurisdiction does not justify
the expense of such registration.
If you have any questions after reading the enclosed material, please call our
Conversion Center at (XXX) XXX-XXXX. The Conversion Center is open Monday
through Friday from 10:00 a.m. to 4:00 p.m. Please note that the Conversion
Center will be closed from 12:00 noon Friday, May 23rd through 12:00 noon
Tuesday, May 27th, in observance of the Memorial Day holiday.
Sincerely,
SIGNATURE
TITLE
The shares of Common Stock offered in the conversion are not savings accounts or
deposits and are not insured or guaranteed by the Federal Deposit Insurance
Corporation or any other government agency.
This is not an offer to sell or a solicitation of an offer to buy Common Stock.
The offer is made only by the Prospectus.
#2
<PAGE>
[FirstBank Northwest]
Dear Friend:
FirstBank Northwest (formerly known as First Federal Bank of Idaho, a federal
savings bank) is in the process of converting from a mutual savings bank to a
stock savings bank. As part of this plan, we have formed a holding company,
FirstBank Corp., which will become the parent company of FirstBank Northwest.
We are converting so that FirstBank Northwest will be structured in the form of
ownership used by a growing number of savings institutions and to allow our Bank
to become stronger. The conversion will in no way affect the insurance of
deposit accounts or the services offered by the Bank.
As a former account holder, you may take advantage of your nontransferable
rights to subscribe for shares of FirstBank Corp.'s Common Stock without
commission or fee on a priority basis, before the stock is offered to the
general public. If you are interested in subscribing for shares of Common
Stock, please complete the enclosed request card and return it to us in the
postage-paid envelope provided by ________, 1997, and we will mail you a
Prospectus, a stock order form and a certification form.
To ensure that each purchaser receives a Prospectus at least 48 hours prior to
the Expiration Date of __________, 1997 in accordance with Rule 15c2-8 of the
Securities Exchange Act of 1934, as amended, 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.
If you have any questions after reading the enclosed material, please call our
Conversion Center at (XXX) XXX-XXXX. The Conversion Center is open Monday
through Friday from 10:00 a.m. to 4:00 p.m. Please note that the Conversion
Center will be closed from 12:00 noon Friday, May 23rd through 12:00 noon
Tuesday, May 27th, in observance of the Memorial Day holiday.
Sincerely,
SIGNATURE
TITLE
The shares of Common Stock offered in the conversion are not savings accounts or
deposits and are not insured or guaranteed by the Federal Deposit Insurance
Corporation or any other government agency.
This is not an offer to sell or a solicitation of an offer to buy Common Stock.
The offer is made only by the Prospectus.
#3
<PAGE>
[FirstBank Northwest]
Dear Potential Investor:
We are pleased to provide you with the enclosed material regarding the
conversion of FirstBank Northwest (formerly known as First Federal Bank of
Idaho, a federal savings bank) from a mutual savings bank to a stock savings
bank.
This information packet includes the following:
PROSPECTUS: This document provides detailed information about FirstBank
Northwest's operations and the proposed stock offering by FirstBank Corp.,
a holding company formed by the Bank to become its parent company upon
completion of the conversion. Please read it carefully prior to making an
investment decision.
STOCK QUESTION AND ANSWER BROCHURE: This answers commonly asked questions
about the stock offering.
STOCK ORDER AND CERTIFICATION FORMS: Use these forms to subscribe for stock
and return them together with your payment in the postage-paid envelope
provided. The deadline to subscribe for stock is 12:00 noon, Pacific Time
on _________, 1997.
We are pleased to offer you this opportunity to become one of our charter
stockholders. If you have any questions regarding the conversion or the
Prospectus, please call our Conversion Center at (XXX) XXX-XXXX. The Conversion
Center is open Monday through Friday from 10:00 a.m. to 4:00 p.m.
Sincerely,
SIGNATURE
TITLE
The shares of Common Stock offered in the conversion are not savings accounts or
deposits and are not insured or guaranteed by the Federal Deposit Insurance
Corporation or any other government agency.
#4
<PAGE>
[SANDLER O'NEILL & PARTNERS, L.P. LETTERHEAD]
Dear Customer of FirstBank Northwest:
At the request of FirstBank Northwest (formerly known as First Federal Bank of
Idaho, a federal savings bank) and FirstBank Corp., a holding company formed by
the Bank to become its parent company, we have enclosed material regarding the
offering of Common Stock in connection with the conversion of the Bank from a
mutual savings bank to a stock savings bank. This material includes a
Prospectus, stock order and certification forms which offer you the opportunity
to subscribe for shares of Common Stock of FirstBank Corp.
We recommend that you study this material carefully. If you decide to subscribe
for shares, you must return the properly completed stock order form and signed
certification form along with full payment for the shares (or appropriate
instructions authorizing withdrawal from a deposit account at FirstBank
Northwest) no later than 12:00 noon, Pacific Time on __________, 1997 in the
accompanying postage-paid envelope. If you have any questions after reading the
enclosed material, please call the Conversion Center at (XXX) XXX-XXXX and ask
for a Sandler O'Neill representative. The Conversion Center is open Monday
through Friday from 10:00 a.m. to 4:00 p.m.
We have been asked to forward these documents to you in view of certain
requirements of the securities laws of your jurisdiction. We should not be
understood as recommending or soliciting in any way any action by you with
regard to the enclosed material.
Sincerely,
SANDLER O'NEILL & PARTNERS, L.P.
The shares of Common Stock offered in the conversion are not savings accounts or
deposits and are not insured or guaranteed by the Federal Deposit Insurance
Corporation or any other government agency.
Enclosure
#5
<PAGE>
LOGO: [FirstBank Northwest]
P R O X Y R E Q U E S T
WE NEED YOUR VOTE!
DEAR CUSTOMER:
YOUR VOTE ON OUR PLAN OF CONVERSION HAS NOT YET BEEN RECEIVED. YOUR VOTE IS
VERY IMPORTANT TO US. PLEASE VOTE AND MAIL THE ENCLOSED PROXY TODAY.
- --------------
REMEMBER: VOTING FOR THE PLAN OF CONVERSION DOES NOT OBLIGATE YOU TO BUY STOCK.
YOUR BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE PLAN OF
CONVERSION AND URGES YOU TO VOTE IN FAVOR OF IT. YOUR FIRSTBANK
NORTHWEST DEPOSIT ACCOUNTS OR LOANS WILL NOT BE AFFECTED IN ANY WAY.
DEPOSIT ACCOUNTS WILL CONTINUE TO BE FEDERALLY INSURED.
A POSTAGE-PAID ENVELOPE IS ENCLOSED WITH THE PROXY FORM. IF YOU HAVE ANY
QUESTIONS, PLEASE CALL OUR CONVERSION CENTER AT (XXX) XXX-XXXX.
IF YOU HAVE MORE THAN ONE ACCOUNT YOU MAY RECEIVE MORE THAN ONE PROXY.
PLEASE VOTE TODAY BY RETURNING ALL PROXY FORMS RECEIVED.
---
SINCERELY,
FirstBank Northwest
#6
<PAGE>
7-1
PROXY QUESTIONS AND ANSWERS
Mutual to Stock Conversion
FirstBank Northwest (formerly known as First Federal Bank of Idaho, a federal
savings bank) has received approval from the Office of Thrift Supervision to
convert from a mutual savings bank to a stock savings bank subject to the
approval of members of the Bank. FirstBank Northwest is converting so that it
will be structured in the form of ownership used by a growing number of savings
institutions and to allow our Bank to become stronger. It is necessary for
FirstBank Northwest to receive a majority of the outstanding votes in favor of
conversion, so YOUR VOTE IS VERY IMPORTANT. Please return your proxy in the
enclosed _______ postage-paid envelope. YOUR BOARD OF DIRECTORS URGES YOU TO
VOTE "FOR" THE CONVERSION AND RETURN YOUR PROXY TODAY.
Q. What is meant by conversion?
A. FirstBank Northwest presently operates as a mutual savings bank. It has
no stockholders. Under the proposed conversion, the Bank's capital stock will
be purchased by a newly formed holding company, FirstBank Corp., which will
offer Common Stock to FirstBank Northwest's Eligible Account Holders, Employee
Stock Ownership Plan, Supplemental Eligible Account Holders and Other Members
in a Subscription Offering, and then to certain member's of the general public
in a Direct Community Offering. The Board of Directors of FirstBank Northwest
has unanimously adopted the Plan of Conversion.
Q. Who is eligible to vote on the conversion?
A. Depositors and certain borrowers as of ___________, 1997 (the "Voting
Record Date") who continue to be members of the Bank as of the Special Meeeting
of Members to be held on __________, 1997.
<PAGE>
7-2
Q. Am I required to vote?
A. No. Members are not required to vote. However, because the conversion
will produce a fundamental change in FirstBank Northewst's corporate structure,
the Board of Directors encourages all members to vote.
Q. Why did I receive several proxies?
A. If you have more than one account you may have received more than one
proxy depending upon the ownership structure of your accounts. Please vote and
sign all proxy cards that you received.
Q. How do I vote?
A. You may vote by mailing your signed proxy card in the _______ postage-paid
envelope provided. Should you choose to attend the Special Meeting of Members
and decide to change your vote, you may do so by revoking any previously
executed proxy.
Q. Will the conversion affect any of my deposit accounts or loans?
A. No. The conversion will have no effect on the balance or terms of any
deposit account or loan. Your deposits will continue to be federally insured
to the fullest extent permissible.
Q. Does my vote for conversion mean that I must buy Common Stock in FirstBank
Corp.?
A. No. Voting for the conversion does not obligate you to buy shares of
Common Stock of FirstBank Corp.
Q. Will any account I hold with FirstBank Northwest be converted into stock?
A. No. All accounts remain as they were prior to the conversion. As an
eligible account holder or other member, you receive priority over the general
public in exercising your right to subscribe for shares of Common Stock.
<PAGE>
7-3
Q. I have a joint savings account. Must both parties sign the proxy card?
A. Only one signature is required, but both parties should sign if possible.
Q. Who must sign trust or custodian accounts?
A. The trustee or custodian must sign such accounts, not the beneficiary.
Q. I am the executor (administrator) for a deceased depositor. Can I sign
the proxy card?
A. Yes. Please indicate on the card the capacity in which you are signing
the card.
Q. How can I receive additional information about the conversion?
A. The Bank's Proxy Statement describes the conversion in detail. Please
read the Proxy Statement carefully before voting. Additional information is
available in the Prospectus which you may obtain by returning a completed
request card, or you may call our Conversion Center at (XXX) XXX-XXXX, Monday
through Friday, between 10:00 A.M. and 4:00 P.M. Please note, the Conversion
Center will be closed for the Memorial Day holiday, from 12:00 noon Friday, May
23rd through 12:00 noon Tuesday, May 27th. To ensure that each purchaser
receives a Prospectus at least 48 hours prior to the Expiration Date of
____________, 1997 in accordance with Rule 15c2-8 of the Securities Exchange
Act of 1934, as amended, 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.
The shares of Common Stock offered in the conversion are not savings accounts
or deposits and are not insured or guaranteed by the Federal Deposit Insurance
Corporation or any other government agency.
This is not an offer to sell or a solicitation of an offer
to buy Common Stock. The offer is made only by the Prospectus.
<PAGE>
8-1
STOCK OFFERING QUESTIONS & ANSWERS
Facts About The Conversion
The Board of Directors of FirstBank Northwest (formerly known as First Federal
Bank of Idaho, a federal savings bank) has unanimously adopted a Plan of
Conversion whereby the Bank will convert from a mutual savings bank to a stock
savings bank and at the same time become a wholly-owned subsidiary of FirstBank
Corp., a Delaware corporation formed by FirstBank Northwest to own all the
outstanding stock of the Bank. The Common Stock of FirstBank Corp. will be
offered to FirstBank Northwest's Eligible Account Holders, Employee Stock
Ownership Plan, Supplemental Eligible Account Holders and Other Members in a
Subscription Offering, and then to certain members of the general public in a
Direct Community Offering. Stock that is not sold in the Subscription and
Direct Community Offerings will be offered to the general public in a
Syndicated Community Offering.
Investment in Common Stock involves certain risks. For a discussion of these
risks and other factors, investors are urged to read the accompanying
Prospectus.
Q. Why is FirstBank Northwest converting to stock form?
A. We are converting so that FirstBank Northwest will be structured in the form
of ownership used by a growing number of savings institutions and to allow our
Bank to become stronger. The stock form of organization will increase the
Bank's capital and provide it with increased operating flexibility.
Q. Will the conversion affect any of my deposit accounts or loans?
A. No. The conversion will not have any effect on the balance or terms of any
deposit account or loan, and your deposits will continue to be federally
insured to the fullest extent permissible.
<PAGE>
8-2
Q. Will I receive a discount on the price of the stock?
A. No. Conversion regulations require that the offering price of the stock be
the same for everyone: customers, directors, officers and employees of
FirstBank Northwest, and the general public.
Q. How many shares of stock are being offered, and at what price?
A. FirstBank Corp. is offering 1,725,000 shares of Common Stock at a maximum
subscription price of $10 per share through the Prospectus. Under certain
circumstances, FirstBank Corp. may issue up to 1,983,750 shares.
Q. What are the priorities of purchasing the Common Stock?
A. The Common Stock of FirstBank Corp. will be offered in the following order
to: FirstBank Northwest's Eligible Account Holders (depositors with accounts
totaling $50 or more as of December 31, 1995), the Bank's Employee Plans,
Supplemental Eligible Account Holders (depositors with accounts totaling $50 or
more as of March 31, 1997), Other Members (depositors as of _______ __, 1997
and borrowers with loans outstanding as of April 25, 1990 which continue to be
outstanding as of _________ __, 1997) in a Subscription Offering; and then to
certain members of the general public in a Direct Community Offering. Common
Stock that is not sold in the Subscription and Direct Community Offerings will
be offered to the general public in a Syndicated Community Offering.
<PAGE>
8-3
Q. How much stock can I purchase?
A. The minimum purchase is 25 shares; the maximum purchase by any person in the
Subscription Offering is $125,000 (12,500 shares); the maximum purchase by any
person including purchases by associates of such person or entity in the
Community Offering and Syndicated Community Offering is $XXX,XXX (XX,XXX
shares); and the maximum purchase by any person including purchases by
associates of such person or entity in the Subscription and Direct Community
Offerings is $250,000 (25,000 shares).
Q. How do I order stock?
A. You may subscribe for shares of Common Stock by completing and returning the
stock order form and certification form, together with your payment, in the
postage-paid envelope that has been provided.
Q. How can I pay for my shares of stock?
A. You can pay for FirstBank Corp. Common Stock by check, cash, money order or
withdrawal from your deposit account at FirstBank Northwest; provided, that
payment or withdrawal instructions, together with a completed stock order form
and certification form, are received by FirstBank Northwest no later than 12:00
noon, Pacific Time on [DAY], [MONTH DATE], 1997. If you choose to pay by cash,
you must deliver the stock order form and payment in person to a FirstBank
Northwest branch and it will be converted to a bank check or a money order.
PLEASE DO NOT SEND CASH IN THE MAIL.
<PAGE>
8-4
Q. Can I subscribe for shares using funds in my FirstBank Northwest
IRA/Qualified Plan?
A. Federal regulations do not permit the purchase of common stock with your
existing FirstBank Northwest IRA or Qualified Plan. To use such funds to
subscribe for stock, you need to establish a "self-directed" trust account with
an outside trustee. Please call our Conversion Center if you require
additional information. TRANSFER OF SUCH FUNDS TAKES TIME, SO, PLEASE MAKE
ARRANGEMENTS AS SOON AS POSSIBLE.
Q. Can I subscribe for shares and add someone else to my stock registration?
A. Federal regulations prohibit the transfer of subscription rights. Replacing
the name of an Eligible Account Holder with the names of non-account holders
will result in your order becoming null and void. Adding the names of account
holders in a lower purchase priority to your stock registration will result in
the lowering of you purchase priority to that of the person added.
Q. Will payments for stock earn interest until the conversion closes?
A. Yes. Any payments made by cash, check or money order will earn interest at
the Bank's passbook rate from the date of receipt to the completion or
termination of the conversion. Withdrawals from a deposit account or a
certificate of deposit may be made without penalty. Depositors who elect to pay
for their common stock by withdrawal will receive interest at the contract rate
on the account until the completion or termination of the conversion.
Q. Will dividends be paid on the stock?
A. No dividends are expected to be paid initially. Following the conversion,
however, the Board of Directors of FirstBank Corp. may consider a policy of
paying cash dividends on the stock.
<PAGE>
8-5
Q. Will my stock be covered by deposit insurance?
A. No. Common Stock cannot be insured by the FDIC, the Bank Insurance Fund, the
Savings Association Insurance Fund or any other government agency.
Q. Where will the stock be traded?
A. Upon completion of the conversion, FirstBank Corp. expects the stock to be
traded over-the-counter and to be quoted on the Nasdaq National Market under
the symbol "FBNW".
Q. Can I change my mind after I place an order to subscribe for stock?
A. No. After receipt, your order may not be modified or withdrawn.
Q. What if I have additional questions or require more information?
A. If you have any questions regarding the conversion or need additional
information, please call our Conversion Center at (XXX) XXX-XXXX, Monday
through Friday, between 10:00 A.M. and 4:00 P.M.
The shares of Common Stock offered in the conversion are not savings accounts
or deposits and are not insured or guaranteed by the Federal Deposit Insurance
Corporation or any other government agency.
This is not an offer to sell or a solicitation of an offer to buy Common Stock.
The offer is made only by the Prospectus.
<PAGE>
- --------------------------------------------------------------------------------
FirstBank Northwest REQUEST FOR INFORMATION
------------------- ABOUT THE CONVERSION
Please send :
Mark Appropriate Box(es) [ ] Telephone Information
[ ] The Prospectus and Stock Order and Certification Forms
Day: ( )
------------------
Evening: ( )
------------------
[ ] The Plan of Conversion (including the Federal Stock Charter and Bylaws of
the Bank and the Certificate of Incorporation and Bylaws of FirstBank Corp.)
I understand this request for information does not obligate us to purchase any
shares of FirstBank Corp. Common Stock.
PLEASE RETURN THIS CARD IN THE ENCLOSED ___________ POSTAGE-PAID ENVELOPE.
- --------------------------------------------------------------------------------
#9
<PAGE>
[FirstBank Northwest]
____________________, 1997
Mr. John Smith
00-00 00 Drive
City, State 00000
Dear Mr. Smith:
We are pleased to announce that the Board of Directors of FirstBank Northwest
(formerly known as First Federal Bank of Idaho, a federal savings bank) has
adopted a plan to convert from a mutual savings bank to a stock savings bank.
As part of this plan, we have formed a holding company, FirstBank Corp., which
will become the parent company of FirstBank Northwest upon completion of the
conversion. We are converting so that the Bank will be structured in the form
of ownership used by a growing number of savings institutions and to allow our
Bank to become stronger.
You are cordially invited to join members of our senior management team at an
informational meeting to be held on ____________ at 7:30 P.M. to learn more
about the conversion and the stock offering.
A member of our staff will be calling to confirm your interest in attending the
meeting.
If you would like additional information regarding the meeting or our
conversion, please call our Conversion Center number at (XXX) XXX-XXXX. The
Conversion Center is open Monday through Friday from 10:00 a.m. to 4:00 p.m.
Sincerely,
SIGNATURE
TITLE
The shares of Common Stock offered in the conversion are not savings accounts or
deposits and are not insured or guaranteed by the Federal Deposit Insurance
Corporation or any other government agency.
This is not an offer to sell or a solicitation of an offer to buy Common Stock.
The offer is made only by the Prospectus.
(Printed by Conversion Center)
#10
<PAGE>
[FirstBank Corp.]
____________________, 1997
Dear Subscriber:
We hereby acknowledge receipt of your order for shares of Common Stock in
FirstBank Corp.
At this time, we cannot confirm the number of shares of FirstBank Corp. Common
Stock that will be issued to you. Such allocation will be made in accordance
with the Plan of Conversion following completion of the stock offering.
If you have any questions, please call our Conversion Center at (XXX) XXX-XXXX.
Sincerely,
FirstBank Corp.
CONVERSION CENTER
The shares of Common Stock offered in the conversion are not savings accounts or
deposits and are not insured or guaranteed by the Federal Deposit Insurance
Corporation or any other government agency.
(Printed by Conversion Center)
#11
<PAGE>
[FirstBank Corp.]
____________________, 1997
[NAME]
[ADDRESS]
Dear Charter Shareholder:
Our Subscription and Direct Community Offerings have been completed and we are
pleased to confirm your subscription for _________ shares of FirstBank Corp.
Common Stock at a price of $10.00 per share.
Trading in our stock has commenced on the Nasdaq National Market under the
symbol "FBNW". Your stock certificate will be mailed to you as soon as
possible. In addition, if your subscription was paid for by check, interest
will be mailed to you shortly.
On behalf of the directors and employees, we thank you for your interest in
FirstBank Corp., and welcome you as a charter shareholder.
Sincerely,
FirstBank Corp.
The shares of Common Stock offered in the conversion are not savings accounts or
deposits and are not insured or guaranteed by the Federal Deposit Insurance
Corporation or any other government agency.
(Printed by Conversion Center)
#12
<PAGE>
[FirstBank Corp.]
____________________, 1997
Welcome Shareholder:
We are pleased to enclose the stock certificate that represents your share of
ownership in FirstBank Corp., the holding company of FirstBank Northwest.
Please examine your stock certificate to be certain that it is properly
registered. If you have any questions about your certificate, you should
contact the Transfer Agent immediately at the following address:
TRANSFER AGENT
Address
Telephone Number
Please also remember that your certificate is a negotiable security which should
be stored in a secure place, such as a safe deposit box or on deposit with your
stockbroker.
On behalf of the Board of Directors of FirstBank Corp. and the employees of
FirstBank Northwest, I would like to thank you for supporting our offering.
Sincerely,
SIGNATURE
TITLE
The shares of Common Stock offered in the conversion are not savings accounts or
deposits and are not insured or guaranteed by the Federal Deposit Insurance
Corporation or any other government agency.
(Printed by Conversion Center)
#13
<PAGE>
[FirstBank Corp.]
____________________, 1997
Dear Interested Investor:
We regret to inform you that FirstBank Northwest and FirstBank Corp., the
holding company for FirstBank Northwest, have decided not to accept your order
for shares of FirstBank Corp. Common Stock in our Direct Community Offering.
This action is in accordance with our Plan of Conversion which gives the Bank
and the Holding Company, the absolute right to reject the subscription of any
Community Member, in whole or in part, in the Direct Community Offering.
Enclosed, therefore, is a check representing your subscription and interest
earned thereon.
Sincerely,
FirstBank Corp.
(Printed by Conversion Center)
#14
<PAGE>
[SANDLER O'NEILL & PARTNERS, L.P. LETTERHEAD]
____________________, 1997
To Our Friends:
We are enclosing the offering material for FirstBank Northwest (formerly known
as First Federal Bank of Idaho, a federal savings bank), which is now in the
process of converting to stock form and forming a holding company called
FirstBank Corp.
Sandler O'Neill & Partners, L.P. is managing the Bank's Subscription and Direct
Community Offerings, which will conclude at 12:00 noon, Pacific Time on
_____________ ____, 1997. Sandler O'Neill is also providing conversion agent
and proxy solicitation services. In the event that all the stock is not
subscribed for in the Subscription and Direct Community Offerings, Sandler
O'Neill will form and manage a syndicate of broker/dealers to sell the remaining
stock.
Members of the general public, other than residents of ______, are eligible to
participate. If you have any questions about this transaction, please do not
hesitate to call or write.
Sincerely,
SANDLER O'NEILL & PARTNERS, L.P.
The shares of Common Stock offered in the conversion are not savings accounts or
deposits and are not insured or guaranteed by the Federal Deposit Insurance
Corporation or any other government agency.
(Printed by Sandler O'Neill)
#15
<PAGE>
EXHIBIT 99.3
APPRAISAL AGREEMENT WITH RP FINANCIAL, LC.
<PAGE>
RP FINANCIAL, LC.
- --------------------------------------
Financial Services Industry Consultants
January 2, 1997
Mr. Clyde E. Conklin
First Federal Bank of Idaho, F.S.B.
920 Main Street
Lewiston, Idaho 83501-1972
Dear Mr. Conklin:
This letter sets forth the agreement between First Federal Bank of Idaho,
F.S.B., Lewiston, Idaho ("First Federal" or the "Bank"), and RP Financial, LC.
("RP Financial") for certain conversion appraisal services pertaining to the
Bank's mutual-to-stock conversion and simultaneous holding company formation.
The specific appraisal services to be rendered by RP Financial are described
below. These appraisal services will be rendered by a team of one to two senior
consultants on staff and will be directed by the undersigned.
Description of Conversion Appraisal Services
- --------------------------------------------
Prior to preparing the valuation report, RP Financial will conduct a
financial due diligence, including on-site interviews of senior management and
reviews of financial and other documents and records, to gain insight into the
Bank's operations, financial condition, profitability, market area, risks and
various internal and external factors which impact the pro forma value of the
Bank. RP Financial will prepare a written detailed valuation report of First
Federal which will be fully consistent with applicable regulatory guidelines and
standard pro forma valuation practices. The appraisal report will include an
in-depth analysis of the Bank's financial condition and operating results, as
well as an assessment of the Bank's interest rate risk, credit risk and
liquidity risk. The appraisal report will describe the Bank's business
strategies, market area, prospects for the future and the intended use of
proceeds both in the short term and over the longer term. A peer group analysis
relative to publicly-traded savings institutions will be conducted for the
purpose of determining appropriate valuation adjustments relative to the group.
We will review pertinent sections of the prospectus to obtain necessary data and
information for the appraisal, including the impact of key deal elements on the
appraised value, such as dividend policy, use of proceeds and reinvestment rate,
tax rate, conversion expenses and characteristics of stock plans. The appraisal
report will establish a midpoint pro forma value as well as the range of value.
The appraisal report may be periodically updated throughout the conversion
process and there will be at least one updated valuation prepared at the time of
the closing of the stock offering.
RP Financial agrees to deliver the valuation appraisal and subsequent
updates, in writing, to First Federal at the above address in conjunction with
the filing of the regulatory application. Subsequent updates will be filed
promptly as certain events occur which would warrant the preparation and filing
of such valuation updates. Further, RP Financial agrees to perform such other
services as are necessary or required in connection with the regulatory review
of the appraisal and respond to the regulatory comments, if any, regarding the
valuation appraisal and subsequent updates.
________________________________________________________________________________
WASHINGTON HEADQUARTERS
Rosslyn Center
1700 North Moore Street, Suite 2210 Telephone: (703) 528-1700
Arlington, VA 22209 Fax No: (703) 528-1788
<PAGE>
RP Financial, LC.
Mr. Clyde E. Conklin
January 2, 1997
Page 2
Fee Structure and Payment Schedule
- ----------------------------------
First Federal agrees to pay RP Financial a fixed fee of $17,500 for these
services, plus reimbursable expenses. Payment of these fees shall be made
according to the following schedule:
. $5,000 upon execution of the letter of agreement engaging RP
Financial's appraisal services;
. $10,000 upon delivery of the completed original appraisal report; and
. $2,500 upon completion of the conversion to cover all subsequent
valuation updates that may be required.
The Bank will reimburse RP Financial for out-of-pocket expenses incurred
in preparation of the valuation. Such out-of-pocket expenses will likely
include travel, printing, telephone, facsimile, shipping, computer and data
services. RP Financial will agree to limit reimbursable expenses to a
reasonable cap, subject to written authorization from the Bank to exceed such
level.
In the event First Federal shall, for any reason, discontinue the proposed
conversion prior to delivery of the completed documents set forth above and
payment of the respective progress payment fees, First Federal agrees to
compensate RP Financial according to RP Financial's standard billing rates for
consulting services based on accumulated and verifiable time expenses, not to
exceed the respective fee caps noted above, after giving full credit to the
initial retainer fee. RP Financial's standard billing rates range from $75 per
hour for research associates to $250 per hour for managing consultants.
If during the course of the proposed transaction, unforeseen events occur
so as to materially change the nature or the work content of the services
described in this contract, the terms of said contract shall be subject to
renegotiation by First Federal and RP Financial. Such unforeseen events shall
include, but not be limited to, major changes in the conversion regulations,
appraisal guidelines or processing procedures as they relate to conversion
appraisals, major changes in management or procedures, operating policies or
philosophies, and excessive delays or suspension of processing of conversion
applications by the regulators such that completion of the conversion
transaction requires the preparation by RP Financial of a new appraisal or
financial projections.
Representations and Warranties
- ------------------------------
First Federal and RP Financial agree to the following:
1. The Bank agrees to make available or to supply to RP Financial such
information with respect to its business and financial condition as RP
Financial may reasonably request in order to provide the aforesaid valuation.
Such information heretofore or hereafter supplied or made available to RP
Financial shall include: annual financial statements, periodic regulatory
filings and material agreements, debt instruments, off balance sheet assets or
liabilities, commitments and contingencies, unrealized gains or losses and
corporate books and records. All information provided by the Bank to RP
Financial shall remain strictly confidential (unless such information is
otherwise made available to the public), and if conversion is not consummated or
the services of RP Financial are terminated hereunder, RP Financial shall upon
request promptly return to the Bank the original and any copies of such
information.
2. The Bank hereby represents and warrants to RP Financial that any
information provided to RP Financial does not and will not, to the best of the
Bank's knowledge, at the times it is provided to RP Financial,
<PAGE>
RP Financial, LC.
Mr. Clyde E. Conklin
January 2, 1997
Page 3
contain any untrue statement of a material fact or fail to state a material fact
necessary to make the statements therein not false or misleading in light of the
circumstances under which they were made.
3. (a) The Bank agrees that it will indemnify and hold harmless RP
Financial, any affiliates of RP Financial, the respective directors, officers,
agents and employees of RP Financial or their successors and assigns who act for
or on behalf of RP Financial in connection with the services called for under
this agreement (hereinafter referred to as "RP Financial"), from and against any
and all losses, claims, damages and liabilities (including, but not limited to,
all losses and expenses in connection with claims under the federal securities
laws) attributable to (i) any untrue statement or alleged untrue statement of a
material fact contained in the financial statements or other information
furnished or otherwise provided by the Bank to RP Financial, either orally or in
writing; (ii) the omission or alleged omission of a material fact from the
financial statements or other information furnished or otherwise made available
by the Bank to RP Financial; or (iii) any action or omission to act by the Bank,
or the Bank's respective officers, directors, employees or agents which action
or omission is willful or negligent. The Bank will be under no obligation to
indemnify RP Financial hereunder if a court determines that RP Financial was
negligent or acted in bad faith with respect to any actions or omissions of RP
Financial related to a matter for which indemnification is sought hereunder.
Any time devoted by employees of RP Financial to situations for which
indemnification is provided hereunder, shall be an indemnifiable cost payable by
the Bank at the normal hourly professional rate chargeable by such employee.
(b) RP Financial shall give written notice to the Bank of such claim
or facts within thirty days of the assertion of any claim or discovery of
material facts upon which the RP Financial intends to base a claim for
indemnification hereunder. In the event the Bank elects, within seven days of
the receipt of the original notice thereof, to contest such claim by written
notice to RP Financial, RP Financial will be entitled to be paid any amounts
payable by the Bank hereunder, together with interest on such costs from the
date incurred at the annual rate of prime plus two percent within five days
after the final determination of such contest either by written acknowledgement
of the Bank or a final judgment of a court of competent jurisdiction. If the
Bank does not so elect, RP Financial shall be paid promptly and in any event
within thirty days after receipt by the Bank of the notice of the claim.
(c) The Bank shall pay for or reimburse the reasonable expenses,
including attorneys' fees, incurred by RP Financial in advance of the final
disposition of any proceeding within thirty days of the receipt of such request
if RP Financial furnishes the Bank: (1) a written statement of RP Financial's
good faith belief that it is entitled to indemnification hereunder; and (2) a
written undertaking to repay the advance if it ultimately is determined in a
final adjudication of such proceeding that it or he is not entitled to such
indemnification.
(d) In the event the Bank does not pay any indemnified loss or make
advance reimbursements of expenses in accordance with the terms of this
agreement, RP Financial shall have all remedies available at law or in equity to
enforce such obligation.
It is understood that, in connection with RP Financial's above-mentioned
engagement, RP Financial may also be engaged to act for the Bank in one or more
additional capacities, and that the terms of the original engagement may be
embodied in one or more separate agreements. The provisions of Paragraph 3
herein shall apply to the original engagement, any such additional engagement,
any modification of the original engagement or such additional engagement and
shall remain in full force and effect following the completion or termination of
RP Financial's engagement(s). This agreement constitutes the entire
understanding of the Bank and RP Financial concerning the subject matter
addressed herein, and such contract shall be governed and construed in
accordance with the laws of the Commonwealth of Virginia. This agreement may
not be modified, supplemented or amended except by written agreement executed by
both parties.
<PAGE>
RP Financial, LC.
Mr. Clyde E. Conklin
January 2, 1997
Page 4
First Federal and RP Financial are not affiliated, and neither First
Federal nor RP Financial has an economic interest in, or is held in common with,
the other and has not derived a significant portion of its gross revenues,
receipts or net income for any period from transactions with the other.
* * * * * * * * * * *
Please acknowledge your agreement to the foregoing by signing as indicated
below and returning to RP Financial a signed copy of this letter, together with
the initial retainer fee of $5,000.
Sincerely,
/s/ Ronald S. Riggins
--------------------------
Ronald S. Riggins
President and Managing Director
Agreed To and Accepted By: Clyde E. Conklin /s/ Clyde E. Conklin
-------------------------
Upon Authorization by the Board of Directors For: First Federal Bank of Idaho,
F.S.B.
Lewiston, Idaho
Date Executed: 1-24-97
-----------------
<PAGE>
EXHIBIT 99.5
PROXY STATEMENT FOR SPECIAL MEETING OF MEMBERS OF FIRSTBANK NORTHWEST
<PAGE>
EXHIBIT 99.5
FIRSTBANK NORTHWEST
920 MAIN STREET
LEWISTON, IDAHO 83501
(208) 746-9610
NOTICE OF SPECIAL MEETING OF MEMBERS
TO BE HELD ON ________, 1997
Notice is hereby given that a special meeting ("Special Meeting") of
members of FirstBank Northwest (formerly known as First Federal Bank of Idaho, a
Federal Savings Bank)("Bank") will be held at the Bank's main office at 920 Main
Street, Lewiston, Idaho, on _______, _________, 1997, at __:00 __.m., Pacific
Time, for the following purposes:
(1) To approve a Plan of Conversion adopted by the Board of Directors on
January 8, 1997, as amended on March 12, 1997, providing for (i) the conversion
of the Bank from a federally chartered mutual savings bank to a federally
chartered capital stock savings bank to be held as a wholly-owned subsidiary of
a new holding company, FirstBank Corp., including the adoption of a Federal
Stock Charter and Bylaws for the Bank, pursuant to the laws of the United States
and the rules and regulations of the Office of Thrift Supervision, and (ii) the
subsequent relocation of the Bank's main office to Clarkston, Washington and
conversion of the Bank to a Washington-chartered savings bank; and
(2) To consider and vote upon any other matters that may lawfully come
before the Special Meeting.
Note: As of the date of mailing of this Notice, the Board of Directors is
not aware of any other matters that may come before the Special Meeting.
The members entitled to vote at the Special Meeting shall be those members
of the Bank at the close of business on _____ __, 1997 and who continue as
members until the Special Meeting, and should the Special Meeting be, from time
to time, adjourned to a later time, until the final adjournment thereof. All
holders of the Bank's savings or other authorized accounts and all borrowers of
the Bank with loans outstanding as of April 25, 1990 which continue to be
outstanding are members of the Bank under its current charter. THE FOLLOWING
PROXY STATEMENT IS A SUMMARY OF INFORMATION ABOUT THE BANK AND THE CONVERSION.
A MORE DETAILED DESCRIPTION OF THE BANK AND THE CONVERSION IS INCLUDED IN THE
PROSPECTUS.
BY ORDER OF THE BOARD OF DIRECTORS
LARRY K. MOXLEY
SECRETARY
Lewiston, Idaho
_____ __, 1997
<PAGE>
PLEASE SIGN AND RETURN PROMPTLY EACH PROXY CARD YOU RECEIVE IN THE ENCLOSED
POSTAGE-PAID ENVELOPE. THIS WILL ASSURE NECESSARY REPRESENTATION AT THE SPECIAL
MEETING, BUT WILL NOT PREVENT YOU FROM VOTING IN PERSON IF YOU SO DESIRE. THE
PROXY IS SOLICITED ONLY FOR THIS SPECIAL MEETING (AND ANY ADJOURNMENTS THEREOF)
AND WILL NOT BE USED FOR ANY OTHER MEETING. YOU MAY REVOKE YOUR WRITTEN PROXY
BY WRITTEN INSTRUMENT DELIVERED TO LARRY K. MOXLEY, SECRETARY, FIRSTBANK
NORTHWEST, AT THE ABOVE ADDRESS AT ANY TIME PRIOR TO OR AT THE SPECIAL MEETING.
<PAGE>
FIRSTBANK NORTHWEST
920 MAIN STREET
LEWISTON, IDAHO 83501
(208) 746-9610
PROXY STATEMENT
_____ __, 1997
YOUR PROXY, IN THE FORM ENCLOSED, IS SOLICITED BY THE BOARD OF DIRECTORS OF
FIRSTBANK NORTHWEST FOR USE AT A SPECIAL MEETING OF MEMBERS TO BE HELD ON _____
, ___ __, 1997, AND ANY ADJOURNMENT OF THAT MEETING, FOR THE PURPOSES SET FORTH
IN THE FOREGOING NOTICE OF SPECIAL MEETING. YOUR BOARD OF DIRECTORS AND
MANAGEMENT URGE YOU TO VOTE FOR THE PLAN OF CONVERSION.
PURPOSE OF MEETING -- SUMMARY
A special meeting of members ("Special Meeting") of FirstBank Northwest
("Bank") will be held at the Bank's main office at 920 Main Street, Lewiston,
Idaho, on ______, ____ __ 1997, at __:00 _.m., Pacific Time, for the purpose of
considering and voting upon a Plan of Conversion adopted by the Board of
Directors of the Bank on January 8, 1997 and amended on March 12, 1997 ("Plan of
Conversion"), which, if approved by a majority of the total votes of the members
eligible to be cast, will permit the Bank to convert from a federally chartered
mutual savings bank to a federally chartered capital stock savings bank and to
subsequently relocate its main office to Clarkston, Washington and convert to a
Washington-chartered savings bank. Pursuant to the Plan of Conversion, all of
the capital stock of the Bank will be held by FirstBank Corp. ("Holding
Company"), a newly organized Delaware corporation formed by the Bank. The
conversion of the Bank and the acquisition of control of the Bank by the Holding
Company are collectively referred to herein as the "Stock Conversion." The
relocation of the Bank's main office to Clarkston, Washington and the conversion
of the Bank from a federally chartered stock savings bank to a Washington-
chartered savings bank is referred to herein as the "Charter Conversion." The
Stock Conversion and the Charter Conversion are referred to collectively herein
as the "Conversion."
Members entitled to vote on the Plan of Conversion are members of the Bank
as of ___ __, 1997, and who continue as members until the Special Meeting, and
should the Special Meeting be, from time to time, adjourned to a later time,
until the final adjournment thereof. The Conversion requires the approval of
not less than a majority of the total votes eligible to be cast at the Special
Meeting.
The Plan of Conversion provides in part that, after receiving final
authorization from the Office of Thrift Supervision ("OTS"), the Bank will offer
for sale shares of common stock of the Holding Company ("Common Stock"), through
the issuance of nontransferable subscription rights ("Subscription Rights"),
first to depositors of the Bank with $50.00 or more on deposit as of December
31, 1995 ("Eligible Account Holders"), then to the Bank's employee stock
ownership plan ("ESOP"), then to depositors of the Bank with $50.00 or more on
deposit as of March 31, 1997 ("Supplemental Eligible Account Holders"),
1
<PAGE>
then to members of the Bank entitled to vote at the Special Meeting ("Other
Members"), in a subscription offering ("Subscription Offering"), and then to
certain members of the general public in a direct community offering ("Direct
Community Offering"). The Subscription and Direct Community Offerings are
referred to herein as the "Subscription and Direct Community Offering." It is
anticipated that shares of Common Stock not subscribed for or purchased in the
Subscription and Direct Community Offering will be offered to eligible members
of the general public in a Syndicated Community Offering ("Syndicated Community
Offering") managed by Sandler O'Neill & Partners, L.P. ("Sandler O'Neill") (the
Subscription and Direct Community Offering and the Syndicated Community Offering
are referred to collectively as the "Offerings").
Adoption of a Federal Stock Charter ("Federal Stock Charter") and Bylaws
("Bylaws") of the Bank is an integral part of the Plan of Conversion. Copies of
the Plan of Conversion and the proposed Federal Stock Charter and Bylaws for the
Bank are available from the Bank upon request. They provide, among other
things, for the termination of voting rights of members and their rights to
receive any surplus remaining after liquidation of the Bank. These rights,
except for the rights of Eligible Account Holders and Supplemental Eligible
Account Holders in the liquidation account, will vest exclusively in the holders
of the stock in the Holding Company and the Bank. For further information, see
"THE CONVERSION --Effects of Conversion to Stock Form on Depositors and
Borrowers of the Bank."
FIRSTBANK NORTHWEST
The Bank, founded in 1920, is a federally chartered mutual savings bank
located in Lewiston, Idaho. The Bank, which was formed as an Idaho mutual
savings and loan association, converted to a federal mutual savings and loan
association in 1935 and adopted the federal mutual savings bank charter in 1990.
In April 1997, in anticipation of the Charter Conversion, the Bank changed its
name from "First Federal Bank of Idaho, a federal savings bank" to "FirstBank
Northwest." In connection with the Stock Conversion, the Bank will convert to a
federally chartered capital stock savings bank and will become a subsidiary of
the Holding Company. The Bank is currently regulated by the OTS, its primary
regulator, and the FDIC, the insurer of its deposits. The Bank's deposits are
insured by the FDIC's Savings Association Insurance Fund ("SAIF") and have been
federally insured since 1933. The Bank has been a member of the Federal Home
Loan Bank ("FHLB") System since 1933. At December 31, 1996, the Bank had total
assets of $133.2 million, total deposits of $105.3 million and total equity of
$10.8 million on a consolidated basis. In connection with the Charter
Conversion, the Bank will relocate its main office to Clarkston, Washington and
convert to a Washington-chartered savings bank.
The Bank is a community-oriented financial institution that engages
primarily in the business of attracting deposits from the general public and
using those funds to originate residential mortgage loans within the Bank's
market area. At December 31, 1996, one- to four-family residential mortgage
loans totalled $72.7 million, or 61.3% of total loans receivable. The Bank also
is active in originating construction and agricultural real estate loans. At
December 31, 1996, construction loans totalled $14.9 million, or 12.6% of total
loans receivable, and agricultural real estate loans totalled $11.9 million, or
10.0% of total loans receivable. To a lesser extent, the Bank also originates
commercial real estate and consumer and other non-real estate loans, although it
intends to increase its originations of these types of loans, subject
2
<PAGE>
to market conditions and other factors. The Bank has adopted a mortgage banking
strategy pursuant to which it generally sells a majority of the fixed-rate
residential mortgage loans that it originates while retaining the servicing
rights on most of the conventional loans it sells. At December 31, 1996, the
Bank serviced $131.5 million of loans for others. The administrative office of
the Bank is located at 920 Main Street, Lewiston, Idaho, 83501, and its
telephone number is (208) 746-9610. The Bank operates five full-service offices
in Lewiston, Lewiston Orchards, Moscow, Grangeville and Coeur d'Alene, Idaho and
two loan production offices in Lewiston and Coeur d'Alene, Idaho.
As part of its asset/liability management, subsequent to December 31, 1996,
the Bank intends to retain for its portfolio $5.0 million of 30-year, fixed-rate
conventional mortgage loans and to purchase $5.0 million of short-term mortgage-
backed securities. These investments will be funded with additional FHLB
advances, which may be retired with the proceeds of the Offerings. See "USE OF
PROCEEDS."
As soon as practicable following the Stock Conversion, the Bank will
relocate its main office to Clarkston, Washington, which is adjacent to
Lewiston, Idaho across the Snake River, and convert to a Washington-chartered
savings bank. The main office relocation will be accomplished by opening a
full-service office in Clarkston, Washington and designating that office as the
Bank's main office. The Bank's administrative offices will remain in their
present location. The Bank is in the process of evaluating locations for its
Clarkston, Washington office and expects that the Charter Conversion will not be
completed until several months after the consummation of the Stock Conversion.
The Board of Directors believes that conversion to a Washington-chartered
savings bank is in the best interests of the Bank, its members and the
communities it serves. As a Washington-chartered savings bank with offices in
Washington and Idaho, the Bank will have the flexibility to expand in Washington
and Idaho, should it decide to do so, through branch acquisitions, opening new
branches, or acquiring other institutions. While the current federal thrift
charter permits nationwide branching, the possible elimination of the federal
thrift charter in favor of a common charter for federal thrifts and banks may
limit the Bank's branching authority in the future. Furthermore, the Washington
savings bank charter will provide the Bank with the authority to pursue its
community banking strategy.
The Bank, as a Washington-chartered savings bank, will succeed to all of
the assets and liabilities of the Bank as a federally chartered savings bank.
In anticipation of the Charter Conversion, the Bank has adopted a community
banking strategy pursuant to which it intends to expand the products and
services it offers in order to improve market share and increase the average
yield of its interest-earning assets. Specifically, the Bank intends to expand
its agricultural real estate and commercial real estate lending activities. The
Bank also intends to expand its non-mortgage lending activities by increasing
its emphasis on originating agricultural operating loans and commercial business
loans. Management anticipates that the Bank will incur initial start-up and
ongoing expenses in connection with the opening of its Clarkston, Washington
office and as various programs and services, such as its commercial real estate
and business lending operations, are introduced or expanded. These expenses
could reduce earnings for a period of time while income from new programs and
services increases to a degree sufficient to cover the additional expenses.
3
<PAGE>
Following the Charter Conversion, the deposits of the Bank will continue to
be insured by the SAIF of the FDIC. In addition, following the Charter
Conversion, the Bank will not be regulated and supervised by the OTS, but rather
by the Washington Department of Financial Institutions, Division of Banks
("Department") and the FDIC. The Bank intends to remain a member of the FHLB-
Seattle.
VOTING RIGHTS AND VOTE REQUIRED FOR APPROVAL
The Board of Directors of the Bank has fixed the close of business on ____
__, 1997 as the record date ("Voting Record Date") for the determination of
members entitled to notice of and to vote at the Special Meeting. All holders
of the Bank's savings or other authorized accounts and all borrowers of the Bank
with loans outstanding as of April 25, 1990 which continue to be outstanding are
members of the Bank under its current charter. All members of record as of the
close of business on the Voting Record Date who continue to be members on the
date of the Special Meeting or any adjournment thereof will be entitled to vote
at the Special Meeting or such adjournment.
Each eligible depositor member will be entitled at the Special Meeting to
cast one vote for each $100, or fraction thereof, of the aggregate withdrawal
value of all of his savings accounts in the Bank as of the Voting Record Date.
Each borrower member will be entitled to one vote in addition to any other vote
the borrower may otherwise have. No member is entitled to cast more than 1,000
votes. Any number of members present and voting, represented in person or by
proxy, at the Special Meeting will constitute a quorum.
Approval of the Plan of Conversion will require the affirmative vote of a
majority of the total outstanding votes of the Bank's members eligible to be
cast at the Special Meeting. As of the Voting Record Date for the Special
Meeting, the Bank's depositor members were eligible to cast a total of ___ votes
and the Bank's borrower members were eligible to cast a total of ___ votes for a
total of ____ votes eligible to be cast at the Special Meeting, of which
____________ votes constitutes a majority.
PROXIES
Members may vote at the Special Meeting or any adjournment thereof in
person or by proxy. Enclosed is a proxy which may be used by any eligible
member to vote on the Plan of Conversion. All properly executed proxies
received by management 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, all proxies will be voted on such matters in accordance with the best
judgment of the proxy holders named therein. If the enclosed proxy is returned,
it may be revoked at any time before it is voted by written notice to the
Secretary of the Bank, by submitting a later dated proxy, or by attending and
voting in person at the Special Meeting. The proxies being solicited are only
for use at the Special Meeting and at any and all adjournments thereof and will
not be used for any other meeting. Management is not aware of any other
business to be presented at the Special Meeting.
4
<PAGE>
The Bank, as trustee for individual retirement accounts at the Bank, will
vote in favor of the Plan of Conversion, unless the beneficial owner executes
and returns the enclosed proxy for the Special Meeting or attends the Special
Meeting and votes in person.
To the extent necessary to permit approval of the Plan of Conversion,
proxies may be solicited by representatives of Sandler O'Neill and by officers,
directors or regular employees of the Bank, in person, by telephone or through
other forms of communication and, if necessary, the Special Meeting may be
adjourned to an alternative date. Such persons will be reimbursed by the Bank
for their reasonable out-of-pocket expenses incurred in connection with such
solicitation.
RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS OF THE BANK UNANIMOUSLY RECOMMENDS THAT YOU VOTE
"FOR" THE PLAN OF CONVERSION. VOTING IN FAVOR OF THE PLAN OF CONVERSION WILL
NOT OBLIGATE ANY VOTER TO PURCHASE ANY STOCK.
THE CONVERSION
THE OTS HAS GIVEN APPROVAL TO THE PLAN SUBJECT TO THE PLAN'S APPROVAL BY
THE MEMBERS OF THE BANK ENTITLED TO VOTE ON THE MATTER AND SUBJECT TO THE
SATISFACTION OF CERTAIN OTHER CONDITIONS IMPOSED BY THE OTS IN ITS APPROVAL.
OTS APPROVAL, HOWEVER, DOES NOT CONSTITUTE A RECOMMENDATION OR ENDORSEMENT OF
THE PLAN BY THE OTS.
GENERAL
On January 8, 1997, the Board of Directors of the Bank unanimously adopted
the Plan of Conversion, which was amended on March 12, 1997, pursuant to which
the Bank will convert from a federally chartered mutual savings bank to a
federally chartered stock savings bank and subsequently relocate its main office
to Clarkston, Washington and convert to a Washington-chartered savings bank.
All of the capital stock of the Bank will be held by the Holding Company, a
newly formed Delaware corporation. THE FOLLOWING DISCUSSION OF THE PLAN OF
CONVERSION IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE PLAN OF CONVERSION,
WHICH AND IS AVAILABLE FROM THE BANK UPON REQUEST. The OTS has approved the
Plan of Conversion subject to the Plan's approval by the members of the Bank
entitled to vote on the matter at a Special Meeting called for that purpose to
be held on ___________, 1997, and subject to the satisfaction of certain other
conditions imposed by the OTS in its approval.
The Stock Conversion will be accomplished through adoption of a Federal
Stock Charter and Bylaws to authorize the issuance of capital stock by the Bank.
As part of the Stock Conversion, the Bank will transfer all of its newly issued
common stock (1,000 shares) to the Holding Company in exchange for 50% of the
net proceeds from the sale of Common Stock by the Holding Company. As soon as
practicable following the Stock Conversion, the Bank will relocate its main
office to Clarkston, Washington and consummate the Charter Conversion whereby it
will convert to a Washington-chartered savings bank. The main office relocation
will be accomplished by opening a full-service office in Clarkston, Washington
and
5
<PAGE>
designating that office as the Bank's main office. The Bank's administrative
offices will remain in their present location. In connection with the Charter
Conversion, the Holding Company anticipates becoming a bank holding company
under the BHCA.
The Plan of Conversion provides generally that: (i) the Bank will convert
from a federally chartered mutual savings bank to a federally chartered stock
savings bank; (ii) the Common Stock will be offered by the Holding Company in
the Subscription Offering to persons having Subscription Rights and in the
Direct Community Offering to certain members of the general public, with
preference given to natural persons and trusts of natural persons residing in
the Local Community; (iii) if necessary, shares of Common Stock not subscribed
for in the Subscription and Direct Community Offering will be offered to certain
members of the general public in a Syndicated Community Offering through a
syndicate of registered broker-dealers pursuant to selected dealers agreements;
(iv) the Holding Company will purchase all of the capital stock of the Bank to
be issued in connection with the Stock Conversion; and (v) the Bank will
relocate its main office to Clarkston, Washington and convert to a Washington-
chartered savings bank and the Holding Company will become a bank holding
company. The Stock Conversion will be effected only upon completion of the sale
of at least $12,750,000 of Common Stock to be issued pursuant to the Plan of
Conversion.
Consummation of the Stock Conversion is subject to the approval of the Plan
of Conversion by the Bank's members and the approval by the OTS of the Plan of
Conversion and the Holding Company's acquisition of the Bank. Consummation of
the Charter Conversion is subject to the approval by the OTS and the Department
of the Charter Conversion and approval by the Federal Reserve of the Holding
Company's continued ownership of the Bank. The Holding Company has received
approval from the OTS to become the holding company of the Bank, subject to the
satisfaction of certain conditions, and to acquire all of the common stock of
the Bank to be issued in the Stock Conversion in exchange for at least 50% of
the net proceeds from the sale of Common Stock in the Offerings. The Stock
Conversion will be effected only upon completion of the sale of the shares of
Common Stock to be issued by the Holding Company pursuant to the Plan of
Conversion. The Bank has applied to the OTS and the Department for approval of
the conversion of the Bank to a Washington-chartered savings bank, and the
Holding Company has applied to the Federal Reserve to become a bank holding
company and for approval of the Holding Company's continued ownership of 100% of
the Bank following the Charter Conversion. Such approvals have not been
received to date. While the Holding Company and the Bank expect receipt of all
such approvals in a timely manner, delays in receiving any such approvals may
result in a delay in the consummation of the Charter Conversion. If there is a
significant delay in obtaining the approval of the Federal Reserve for the
Holding Company to become a bank holding company, the Holding Company may elect
to be regulated by the OTS as a savings and loan holding company and the Bank
may complete the Charter Conversion.
As part of the Conversion, the Holding Company is making a Subscription
Offering of its Common Stock to holders of Subscription Rights in the following
order of priority: (i) Eligible Account Holders (depositors with $50.00 or more
on deposit as of December 31, 1995); (ii) the Bank's ESOP; (iii) Supplemental
Eligible Account Holders (depositors with $50.00 or more on deposit as of March
31, 1997); and (iv) Other Members (depositors of the Bank as the Voting Record
Date and borrowers of the
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Bank with loans outstanding as of April 25, 1990 which continue to be
outstanding as of the Voting Record Date.
Shares of Common Stock not sold in the Subscription and Direct Community
Offering may be offered in the Syndicated Community Offering. Regulations
require that the Direct Community and Syndicated Community Offerings be
completed within 45 days after completion of the Subscription Offering unless
extended by the Bank or the Holding Company with the approval of the regulatory
authorities. If the Syndicated Community Offering is determined not to be
feasible, the Board of Directors of the Bank will consult with the regulatory
authorities to determine an appropriate alternative method for selling the
unsubscribed shares of Common Stock. The Plan of Conversion provides that the
Conversion must be completed within 24 months after the date of the approval of
the Plan of Conversion by the members of the Bank.
No sales of Common Stock may be completed, either in the Subscription,
Direct Community or Syndicated Community Offerings, unless the Plan of
Conversion is approved by the members of the Bank.
The completion of the Offerings, however, is subject to market conditions
and other factors beyond the Bank's control. 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 Offerings or other sale of the
Common Stock. If delays are experienced, significant changes may occur in the
estimated pro forma market value of the Holding Company and the Bank as
converted, together with corresponding changes in the net proceeds realized by
the Holding Company from the sale of the Common Stock. In the event the
Conversion is terminated, the Bank would be required to charge all Conversion
expenses against current income.
Orders for shares of Common Stock will not be filled until at least
1,275,000 shares of Common Stock have been subscribed for or sold and the OTS
approves the final valuation and the Conversion closes. If the Stock Conversion
is not completed within 45 days after the last day of the fully extended
Subscription Offering and the OTS consents to an extension of time to complete
the Stock Conversion, subscribers will be given the right to increase, decrease
or rescind their subscriptions. Unless an affirmative indication is received
from subscribers that they wish to continue to subscribe for shares, the funds
will be returned promptly, together with accrued interest at the Bank's passbook
rate from the date payment is received until the funds are returned to the
subscriber. If such period is not extended, or, in any event, if the Stock
Conversion is not completed, all withdrawal authorizations will be terminated
and all funds held will be promptly returned together with accrued interest at
the Bank's passbook rate from the date payment is received until the Conversion
is terminated.
PURPOSES OF CONVERSION
Management of the Bank believes that the Stock Conversion offers a number
of advantages which will be important to the future growth and performance of
the Bank in that it is intended: (i) to improve the overall competitive position
of the Bank in its market area and to support possible future expansion and
diversification of operations (currently there are no specific plans,
arrangements or understandings, written
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or oral, regarding any such activities other than the establishment of a
Clarkston, Washington office); (ii) to afford members of the Bank and others
the opportunity to become stockholders of the Holding Company and thereby
participate more directly in, and contribute to, any future growth of the
Holding Company and the Bank; and (iii) to provide future access to capital
markets.
The Bank's Board of Directors has formed the Holding Company to serve upon
consummation of the Conversion as a holding company with the Bank as its
subsidiary. The Bank, as a federal mutual savings bank, does not have
stockholders and has no authority to issue capital stock. By converting to the
stock form of organization, the Holding Company and the Bank will be structured
in the form used by holding companies of commercial banks and by a large number
of savings institutions.
Management believes that conversion to a Washington-chartered savings bank
is in the best interests of the Bank, its members and the communities it serves.
As a result of recent legislation that provides that the SAIF will be merged
with the BIF on January 1, 1999, but only if there are no thrift institutions in
existence, the U.S. Congress is expected to consider further legislation that
may eliminate the thrift industry as a separate industry. The Treasury
Department is studying the development of a common charter for banks and thrifts
and is required to submit a report of its findings to Congress by March 31,
1997. The Bank cannot predict what the attributes of such common charter would
be or whether any legislation will result from this study. If developed, the
common charter may not offer all the advantages that a federal savings
association now enjoys (e.g., unrestricted nationwide branching). As a
----
Washington-chartered savings bank with offices in Washington and Idaho, the Bank
will have the flexibility to expand in Washington and Idaho, should it decide to
do so, through branch acquisitions, opening new branches, or by acquiring other
institutions. Furthermore, the Washington savings bank charter will provide the
Bank with the authority to pursue its community banking strategy. Because of
the uncertainties with regard to the future of the thrift industry, the Bank has
determined to undertake the Charter Conversion as soon as possible following the
Stock Conversion.
EFFECTS OF CONVERSION TO STOCK FORM ON DEPOSITORS AND BORROWERS OF THE BANK
VOTING RIGHTS. Savings members and borrowers will have no voting rights in
the Bank or the Holding Company and therefore will not be able to elect
directors of the Bank or the Holding Company or to control their affairs.
Currently, these rights are accorded to savings members of the Bank. Subsequent
to the Stock Conversion, voting rights will be vested exclusively in the Holding
Company with respect to the Bank and the holders of the Common Stock as to
matters pertaining to the Holding Company. Each holder of Common Stock shall be
entitled to vote on any matter to be considered by the stockholders of the
Holding Company. A stockholder will be entitled to one vote for each share of
Common Stock owned.
SAVINGS ACCOUNTS AND LOANS. The Bank's savings accounts, account balances
and existing FDIC insurance coverage of savings accounts will not be affected by
the Conversion. Furthermore, the Conversion will not affect the loan accounts,
loan balances or obligations of borrowers under their individual contractual
arrangements with the Bank.
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TAX EFFECTS. The Bank has received an opinion from Breyer & Aguggia,
Washington, D.C., that the Conversion will constitute a nontaxable
reorganization under Section 368(a)(1)(F) of the Code. Among other things, the
opinion states that: (i) no gain or loss will be recognized to the Bank in its
mutual or stock form by reason of its Conversion; (ii) no gain or loss will be
recognized to its account holders upon the issuance to them of accounts in the
Bank immediately after the Conversion, in the same dollar amounts and on the
same terms and conditions as their accounts at the Bank in its mutual form plus
interest in the liquidation account; (iii) the tax basis of account holders'
accounts in the Bank immediately after the Conversion will be the same as the
tax basis of their accounts immediately prior to Conversion; (iv) the tax basis
of each account holder's interest in the liquidation account will be zero; (v)
the tax basis of the Common Stock purchased in the Conversion will be the amount
paid and the holding period for such stock will commence at the date of
purchase; and (vi) no gain or loss will be recognized to account holders upon
the receipt or exercise of Subscription Rights in the Conversion, except to the
extent Subscription Rights are deemed to have value as discussed below. Unlike
a private letter ruling issued by the IRS, an opinion of counsel is not binding
on the IRS and the IRS could disagree with the conclusions reached therein. In
the event of such disagreement, no assurance can be given that the conclusions
reached in an opinion of counsel would be sustained by a court if contested by
the IRS.
Based upon past rulings issued by the IRS, the opinion provides that the
receipt of Subscription Rights by Eligible Account Holders, Supplemental
Eligible Account Holders and Other Members under the Plan will be taxable to the
extent, if any, that the Subscription Rights are deemed to have a fair market
value. RP Financial, a financial consulting firm retained by the Bank, whose
findings are not binding on the IRS, has indicated that the Subscription Rights
do not have any value, based on the fact that such rights are acquired by the
recipients without cost, are nontransferable and of short duration and afford
the recipients the right only to purchase shares of the Common Stock at a price
equal to its estimated fair market value, which will be the same price paid by
purchasers in the Direct Community Offering for unsubscribed shares of Common
Stock. If the Subscription Rights are deemed to have a fair market value, the
receipt of such rights may only be taxable to those Eligible Account Holders,
Supplemental Eligible Account Holders and Other Members who exercise their
Subscription Rights. The Bank could also recognize a gain on the distribution
of such Subscription Rights. Eligible Account Holders, Supplemental Eligible
Account Holders and Other Members are encouraged to consult with their own tax
advisors as to the tax consequences in the event the Subscription Rights are
deemed to have a fair market value.
The Bank has also received an opinion from BDO Seidman, LLP, Spokane,
Washington, that, assuming the Conversion does not result in any federal income
tax liability to the Bank, its account holders, or the Holding Company,
implementation of the Plan of Conversion will not result in any Idaho income tax
liability to such entities or persons.
The opinions of Breyer & Aguggia and BDO Seidman, LLP and the letter from
RP Financial are filed as exhibits to the Registration Statement. See
"ADDITIONAL INFORMATION."
PROSPECTIVE INVESTORS ARE URGED TO CONSULT WITH THEIR OWN TAX ADVISORS
REGARDING THE TAX CONSEQUENCES OF THE CONVERSION PARTICULAR TO THEM.
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LIQUIDATION ACCOUNT. In the unlikely event of a complete liquidation of
the Bank in its present mutual form, each depositor in the Bank would receive a
pro rata share of any assets of the Bank remaining after payment of claims of
all creditors (including the claims of all depositors up to the withdrawal value
of their accounts). Each depositor's pro rata share of such remaining assets
would be in the same proportion as the value of his or her deposit account to
the total value of all deposit accounts in the Bank at the time of liquidation.
After the Conversion, holders of withdrawable deposit(s) in the Bank,
including certificates of deposit ("Savings Account(s)"), shall not be entitled
to share in any residual assets in the event of liquidation of the Bank.
However, pursuant to OTS regulations, the Bank shall, at the time of the
Conversion, establish a liquidation account in an amount equal to its total
equity as of the date of the latest statement of financial condition contained
in the Prospectus.
The liquidation account shall be maintained by the Bank subsequent to the
Conversion for the benefit of Eligible Account Holders and Supplemental Eligible
Account Holders who retain their Savings Accounts in the Bank. Each Eligible
Account Holder and Supplemental Eligible Account Holder shall, with respect to
each Savings Account held, have a related inchoate interest in a portion of the
liquidation account balance ("subaccount").
The initial subaccount balance for a Savings Account held by an Eligible
Account Holder or a Supplemental Eligible Account Holder shall be determined by
multiplying the opening balance in the liquidation account by a fraction of
which the numerator is the amount of such holder's "qualifying deposit" in the
Savings Account and the denominator is the total amount of the "qualifying
deposits" of all such holders. Such initial subaccount balance shall not be
increased, and it shall be subject to downward adjustment as provided below.
If the deposit balance in any Savings Account of an Eligible Account Holder
or Supplemental Eligible Account Holder at the close of business on any annual
closing day of the Bank subsequent to December 31, 1995 is less than the lesser
of (i) the deposit balance in such Savings Account at the close of business on
any other annual closing date subsequent to December 31, 1995 or March 31, 1997
or (ii) the amount of the "qualifying deposit" in such Savings Account on
December 31, 1995 or March 31, 1997, then the subaccount balance for such
Savings Account shall be adjusted by reducing such subaccount balance in an
amount proportionate to the reduction in such deposit balance. In the event of
a downward adjustment, such subaccount balance shall not be subsequently
increased, notwithstanding any increase in the deposit balance of the related
Savings Account. If any such Savings Account is closed, the related subaccount
balance shall be reduced to zero.
In the event of a complete liquidation of the Bank (and only in such event)
each Eligible Account Holder and Supplemental Eligible Account Holder shall be
entitled to receive a liquidation distribution from the liquidation account in
the amount of the then current adjusted subaccount balance(s) for Savings
Account(s) then held by such holder before any liquidation distribution may be
made to stockholders. No merger, consolidation, bulk purchase of assets with
assumptions of Savings Accounts and other liabilities or similar transactions
with another federally insured institution in which the Bank is not the
surviving
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institution shall be considered to be a complete liquidation. In any such
transaction the liquidation account shall be assumed by the surviving
institution.
THE SUBSCRIPTION, DIRECT COMMUNITY AND SYNDICATED COMMUNITY OFFERINGS
THE SUBSCRIPTION AND DIRECT COMMUNITY OFFERING WILL EXPIRE AT ____ __.M.,
PACIFIC TIME, ON THE EXPIRATION DATE, UNLESS EXTENDED OR CONTINUED BY THE
HOLDING COMPANY AND THE BANK, WITH THE APPROVAL OF THE OTS, IF NECESSARY.
SUBSCRIPTION OFFERING. In accordance with the Plan, nontransferable
Subscription Rights to purchase the Common Stock have been issued to all persons
and entities entitled to purchase the Common Stock in the Subscription Offering.
The amount of the Common Stock which these parties may purchase will be subject
to the availability of the Common Stock for purchase under the categories set
forth in the Plan. Subscription priorities have been established for the
allocation of stock to the extent that the Common Stock is available. These
priorities are as follows:
Category 1: ELIGIBLE ACCOUNT HOLDERS. Each depositor with $50.00 or more
on deposit at the Bank as of December 31, 1995 will receive nontransferable
Subscription Rights to subscribe for up to the greater of $125,000 of Common
Stock, one-tenth of one percent of the total offering of Common Stock 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 qualifying deposit of the
Eligible Account Holder and the denominator is the total amount of qualifying
deposits of all Eligible Account Holders. If the exercise of Subscription
Rights in this category results in an oversubscription, shares of Common Stock
will be allocated among subscribing Eligible Account Holders so as to permit
each Eligible Account Holder, to the extent possible, to purchase a number of
shares sufficient to make such person's total allocation equal to 100 shares or
the number of shares actually subscribed for, whichever is less. Any shares
remaining after that allocation will be allocated among the subscribing Eligible
Account Holders whose subscriptions remain unsatisfied in the proportion that
the amount of the qualifying deposit of each Eligible Account Holder whose
subscription remains unsatisfied bears to the total amount of the qualifying
deposits of all Eligible Account Holders whose subscriptions remain unsatisfied.
Subscription Rights received by officers and directors in this category based on
their increased deposits in the Bank in the one year period preceding December
31, 1995 are subordinated to the Subscription Rights of other Eligible Account
Holders.
Category 2: ESOP. The Plan of Conversion provides that the ESOP shall
receive nontransferable Subscription Rights to purchase up to 8% of the shares
of Common Stock issued in the Conversion. The ESOP intends to purchase 8% of
the shares of Common Stock issued in the Conversion. In the event the number of
shares offered in the Conversion is increased above the maximum of the Estimated
Valuation Range, the ESOP shall have a priority right to purchase any such
shares exceeding the maximum of the Estimated Valuation Range up to an aggregate
of 8% of the Common Stock.
Category 3: SUPPLEMENTAL ELIGIBLE ACCOUNT HOLDERS. Each depositor with
$50.00 or more on deposit as of March 31, 1997 will receive nontransferable
Subscription Rights to subscribe for up to the
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greater of $125,000 of Common Stock, one-tenth of one percent of the total
offering of Common Stock 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 qualifying deposits
of the Supplemental Eligible Account Holder and the denominator is the total
amount of qualifying deposits of all Supplemental Eligible Account Holders. If
the exercise of Subscription Rights in this category results in an
oversubscription, shares of Common Stock will be allocated among subscribing
Supplemental Eligible Account Holders so as to permit each Supplemental Eligible
Account Holder, to the extent possible, to purchase a number of shares
sufficient to make such person's total allocation equal to 100 shares or the
number of shares actually subscribed for, whichever is less. Any shares
remaining after that allocation will be allocated among the subscribing
Supplemental Eligible Account Holders whose subscriptions remain unsatisfied in
the proportion that the amount of the qualifying deposit of each Supplemental
Eligible Account Holder whose subscription remains unsatisfied bears to the
total amount of the qualifying deposits of all Supplemental Eligible Account
Holders whose subscriptions remain unsatisfied.
Category 4: OTHER MEMBERS. Each depositor of the Bank as of the Voting
Record Date and each borrower with a loan outstanding on April 25, 1990 which
continues to be outstanding as of the Voting Record Date will receive
nontransferable Subscription Rights to purchase up to $125,000 of Common Stock
to the extent shares are available following subscriptions by Eligible Account
Holders, the Bank's ESOP and Supplemental Eligible Account Holders. In the
event of an oversubscription in this category, the available shares will be
allocated among subscribing Other Members so as to permit each Other Member, to
the extent possible, to purchase a number of shares sufficient to make such
person's total allocation equal to 100 shares or the number of shares actually
subscribed for, whichever is less. Thereafter, unallocated shares will be
allocated among subscribing Other Members proportionately, based on the number
of votes on the Voting Record Date of a subscribing Other Member as compared to
the total votes on the Voting Record Date of all subscribing Other Members whose
subscriptions remain unsatisfied.
SUBSCRIPTION RIGHTS ARE NONTRANSFERABLE. PERSONS SELLING OR OTHERWISE
TRANSFERRING THEIR RIGHTS TO SUBSCRIBE FOR COMMON STOCK IN THE SUBSCRIPTION
OFFERING OR SUBSCRIBING FOR COMMON STOCK ON BEHALF OF ANOTHER PERSON WILL BE
SUBJECT TO FORFEITURE OF SUCH RIGHTS AND POSSIBLE FURTHER SANCTIONS AND
PENALTIES IMPOSED BY THE OTS OR ANOTHER AGENCY OF THE U.S. GOVERNMENT. Each
person exercising Subscription Rights will be required to certify that he or she
is purchasing such shares solely for his or her own account and that he or she
has no agreement or understanding with any other person for the sale or transfer
of such shares. ONCE TENDERED, SUBSCRIPTION ORDERS CANNOT BE REVOKED OR
MODIFIED WITHOUT THE CONSENT OF THE BANK AND THE HOLDING COMPANY.
The Subscription Offering and all Subscription Rights under the Plan will
expire at ______ p.m., Pacific Time, on the Expiration Date, whether or not the
Bank has been able to locate each person entitled to such Subscription Rights.
The Subscription Offering may be extended by the Holding Company and the Bank up
to ______ __, 1997 without the OTS's approval. OTS regulations require that the
Holding Company complete the sale of Common Stock within 45 days after the close
of the Subscription Offering. If the sale of Common Stock is not completed
within such period, all funds received will be promptly returned with interest
at the Bank's passbook rate and all withdrawal authorizations will be canceled.
If regulatory approval of an extension of the time period has been granted, all
subscribers will be notified of
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such extension and of the duration of any extension that has been granted, and
will be given the right to increase, decrease or rescind their orders. If an
affirmative response to any resolicitation is not received by the Holding
Company from a subscriber, the subscriber's order will be rescinded and all
funds received will be promptly returned with interest (or withdrawal
authorizations will be canceled). No single extension can exceed 90 days.
DIRECT COMMUNITY OFFERING. Concurrently with the Subscription Offering,
the Holding Company is offering shares of Common Stock to certain members of the
general public in a Direct Community Offering, with preference given to natural
persons ("Preferred Subscribers") and trusts of natural persons residing in the
Local Community. Purchasers in the Direct Community Offering are eligible to
purchase up to $125,000 of Common Stock. In the event an insufficient number of
shares are available to fill orders in the Direct Community Offering, the
available shares will be allocated first to each Preferred Subscriber whose
order is accepted by the Bank, in an amount equal to the lesser of 100 shares or
the number of shares subscribed for by each such Preferred Subscriber, if
possible. Thereafter, unallocated shares will be allocated among the Preferred
Subscribers whose orders remains unsatisfied on a 100 shares per order basis
until all such orders have been filled or the remaining shares have been
allocated. If there are any shares remaining, shares will be allocated to other
persons of the general public who purchase in the Direct Community Offering
applying the same allocation described above for Preferred Subscribers. The
Direct Community Offering will terminate at ___ _.m., Pacific Time, on the
Expiration Date unless extended by the Holding Company and the Bank, with
approval of the OTS, if necessary. Any extensions beyond 45 days after the
close of the Subscription Offering would require a resolicitation of orders,
wherein subscribers would be given the opportunity to continue their orders, in
which case they will need to affirmatively reconfirm their subscriptions prior
to the expiration of the resolicitation offering or their subscription funds
will be promptly refunded with interest at the Bank's passbook rate, or be
permitted to modify or cancel their orders. THE RIGHT OF ANY PERSON TO PURCHASE
SHARES IN THE DIRECT COMMUNITY OFFERING IS SUBJECT TO THE ABSOLUTE RIGHT OF THE
HOLDING COMPANY AND THE BANK TO ACCEPT OR REJECT SUCH PURCHASES IN WHOLE OR IN
PART. IF AN ORDER IS REJECTED IN PART, THE PURCHASER DOES NOT HAVE THE RIGHT TO
CANCEL THE REMAINDER OF THE ORDER. THE HOLDING COMPANY PRESENTLY INTENDS TO
TERMINATE THE DIRECT COMMUNITY OFFERING AS SOON AS IT HAS RECEIVED ORDERS FOR
ALL SHARES AVAILABLE FOR PURCHASE IN THE CONVERSION.
If all of the Common Stock offered in the Subscription Offering is
subscribed for, no Common Stock will be available for purchase in the Direct
Community Offering.
SYNDICATED COMMUNITY OFFERING. The Plan provides that, if necessary, all
shares of Common Stock not purchased in the Subscription and Direct Community
Offering, if any, may be offered for sale to certain members of the general
public in a Syndicated Community Offering through a syndicate of registered
broker-dealers to be formed and managed by Sandler O'Neill acting as agent of
the Holding Company. THE HOLDING COMPANY AND THE BANK HAVE THE RIGHT TO REJECT
ORDERS, IN WHOLE OR PART, IN THEIR SOLE DISCRETION IN THE SYNDICATED COMMUNITY
OFFERING. Neither Sandler O'Neill nor any registered broker-dealer shall have
any obligation to take or purchase any shares of the Common Stock in the
Syndicated Community Offering; however, Sandler O'Neill has agreed to use its
best efforts in the sale of shares in the Syndicated Community Offering.
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Stock sold in the Syndicated Community Offering will be sold at the $10.00
Purchase Price, the same price as all other shares in the Offering. See "--
Stock Pricing and Number of Shares to be Issued." No person will be permitted
to subscribe in the Syndicated Community Offering for more $125,000 of Common
Stock. See "-- Marketing and Underwriting Arrangements" for a description of
the commission to be paid to the selected dealers and to Sandler O'Neill.
Sandler O'Neill may enter into agreements with selected dealers to assist
in the sale of shares in the Syndicated Community Offering. During the
Syndicated Community Offering, selected dealers may only solicit indications of
interest from their customers to place orders with the Holding Company as of a
certain date ("Order Date") for the purchase of shares of Conversion Stock.
When and if Sandler O'Neill and the Holding Company believe that enough
indications of interest and orders have been received in the Subscription
Offering, the Direct Community Offering and the Syndicated Community Offering to
consummate the Conversion, Sandler O'Neill will request, as of the Order Date,
selected dealers to submit orders to purchase shares for which they have
received indications of interest from their customers. Selected dealers will
send confirmations to such customers on the next business day after the Order
Date. Selected dealers may debit the accounts of their customers on a date
which will be three business days from the Order Date ("Settlement Date").
Customers who authorize selected dealers to debit their brokerage accounts are
required to have the funds for payment in their account on but not before the
Settlement Date. On the Settlement Date, selected dealers will remit funds to
the account that the Holding Company established for each selected dealer. Each
customer's funds so forwarded to the Holding Company, along with all other
accounts held in the same title, will be insured by the FDIC up to the
applicable $100,000 legal limit. After payment has been received by the Holding
Company from selected dealers, funds will earn interest at the Bank's passbook
rate until the completion of the Offerings. At the completion of the
Conversion, the funds received in the Offerings will be used to purchase the
shares of Common Stock ordered. The shares issued in the Conversion cannot and
will not be insured by the FDIC or any other government agency. In the event
the Conversion is not consummated as described above, funds with interest will
be returned promptly to the selected dealers, who, in turn, will promptly credit
their customers' brokerage accounts.
The Syndicated Community Offering may terminate no more than 45 days
following the expiration of the Subscription Offering, unless extended by the
Holding Company with the approval of the OTS.
In the event the Bank is unable to find purchasers from the general public
for all unsubscribed shares, other purchase arrangements will be made by the
Board of Directors of the Bank, if feasible. Such other arrangements will be
subject to the approval of the OTS. The OTS may grant one or more extensions of
the offering period, provided that (i) no single extension exceeds 90 days, (ii)
subscribers are given the right to increase, decrease or rescind their
subscriptions during the extension period, and (iii) the extensions do not go
more than two years beyond the date on which the members approved the Plan. If
the Conversion is not completed within 45 days after the close of the
Subscription Offering, either all funds received will be returned with interest
(and withdrawal authorizations canceled) or, if the OTS has granted an extension
of time, all subscribers will be given the right to increase, decrease or
rescind their subscriptions at any time prior to 20 days before the end of the
extension period. If an extension of time is obtained, all subscribers will be
notified of such extension and of their rights to modify their orders. If
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<PAGE>
an affirmative response to any resolicitation is not received by the Holding
Company from a subscriber, the subscriber's order will be rescinded and all
funds received will be promptly returned with interest (or withdrawal
authorizations will be canceled).
PERSONS IN NON-QUALIFIED STATES. The Holding Company and the Bank will
make reasonable efforts to comply with the securities laws of all states in the
United States in which persons entitled to subscribe for stock pursuant to the
Plan reside. However, the Holding Company and the Bank are not required to
offer stock in the Subscription Offering to any person who resides in a foreign
country or resides in a state of the United States with respect to which: (i) a
small number of persons otherwise eligible to subscribe for shares of Common
Stock reside in such state; (ii) the granting of Subscription Rights or offer or
sale of shares of Common Stock to such persons would require the Holding Company
to register, under the securities laws of such state, as a broker or dealer or
to register or otherwise qualify the Common Stock for sale in such state; or
(iii) such registration or qualification would be impractical for reasons of
cost or otherwise. Where the number of persons eligible to subscribe for shares
in one state is small, the Holding Company and the Bank will base their decision
as to whether or not to offer the Common stock in such state on a number of
factors, including the size of accounts held by account holders in the state and
the cost of registering or qualifying the shares.
LIMITATIONS ON PURCHASES OF SHARES
The Plan of Conversion provides for certain limitations to be placed upon
the purchase of Common Stock by eligible subscribers and others in the
Conversion. Each subscriber must subscribe for a minimum of 25 shares. With
the exception of the ESOP, which is expected to purchase 8% of the shares of
Common Stock issued in the Conversion, no person or entity may purchase more
than $125,000 of Common Stock in the Conversion; and no person or entity,
together with associates of and persons acting in concert with such person or
entity, may purchase in the aggregate more than $250,0000 of Common Stock in the
Conversion. Officers, directors and their associates may not purchase, in the
aggregate, more than 33% of the shares of Common Stock offered in the
Conversion. For purposes of the Plan, the directors are not deemed to be acting
in concert solely by reason of their Board membership. Pro rata reductions
within each Subscription Rights category will be made in allocating shares to
the extent that the maximum purchase limitations are exceeded.
The Bank's and the Holding Company's Boards of Directors may, in their sole
discretion, increase the maximum purchase limitation set forth above up to 9.99%
of the shares of Common Stock sold in the Conversion, provided that orders for
shares which exceed 5% of the shares of Common Stock sold in the Conversion may
not exceed, in the aggregate, 10% of the shares sold in the Conversion. The
Bank and the Holding Company do not intend to increase the maximum purchase
limitation unless market conditions are such that an increase in the maximum
purchase limitation is necessary to sell a number of shares in excess of the
minimum of the Estimated Valuation Range. If the Boards of Directors decide to
increase the purchase limitation, all persons who subscribed for the maximum
number of shares will be given the opportunity to increase their subscriptions
accordingly, subject to the rights and preferences of any person who has
priority Subscription Rights.
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The term "acting in concert" is defined in the Plan to mean (i) knowing
participation in a joint activity or interdependent conscious parallel action
towards a common goal whether or not pursuant to an express agreement; or (ii) a
combination or pooling of voting or other interests in the securities of an
issuer for a common purpose pursuant to any contract, understanding,
relationship, agreement or other arrangement, whether written or otherwise. In
general, a person who acts in concert with another other party shall also be
deemed to be acting in concert with any person who is also acting in concert
with that other party. THE HOLDING COMPANY AND THE BANK MAY PRESUME THAT
CERTAIN PERSONS ARE ACTING IN CONCERT BASED UPON, AMONG OTHER THINGS, JOINT
ACCOUNT RELATIONSHIPS AND THE FACT THAT SUCH PERSONS HAVE FILED JOINT SCHEDULES
13D WITH THE SEC WITH RESPECT TO OTHER COMPANIES.
The term "associate" of a person is defined in the Plan to mean (i) any
corporation or organization (other than the Bank or a majority-owned subsidiary
of the Bank) of which such person is an officer or partner or is, directly or
indirectly, the beneficial owner of 10% or more of any class of equity
securities; (ii) any trust or other estate in which such person has a
substantial beneficial interest or as to which such person serves as trustee or
in a similar fiduciary capacity (excluding tax-qualified employee plans); and
(iii) any relative or spouse of such person, or any relative of such spouse, who
either has the same home as such person or who is a director or officer of the
Bank or any of its parents or subsidiaries. For example, a corporation of which
a person serves as an officer would be an associate of such person, and,
therefore, all shares purchased by such corporation would be included with the
number of shares which such person could purchase individually under the above
limitations.
The term "officer" is defined in the Plan to mean an executive officer of
the Bank, including its Chairman of the Board, President, Executive Vice
Presidents, Senior Vice Presidents, Vice Presidents in charge of principal
business functions, Secretary and Treasurer.
Common Stock purchased pursuant to the Conversion will be freely
transferable, except for shares purchased by directors and officers of the Bank
and the Holding Company and by National Association of Securities Dealers, Inc.
("NASD") members. See "-- Restrictions on Transferability by Directors and
Officers and NASD Members."
MARKETING AND UNDERWRITING ARRANGEMENTS
The Bank and the Holding Company have engaged Sandler O'Neill as a
consultant and financial advisor in connection with the offering of the Common
Stock, and Sandler O'Neill has agreed to use its best efforts to solicit
subscriptions and purchase orders for shares of Common Stock in the Offerings.
Sandler O'Neill is not obligated to take or purchase any shares of Common Stock
in the Offerings. Based upon negotiations between the Bank and the Holding
Company concerning fee structure, Sandler O'Neill will receive a fee equal to
1.5% of the aggregate Purchase Price of the shares sold in the Subscription and
Direct Community Offering, excluding shares purchased by directors, officers,
employees, and any immediate family member thereof, and any employee benefit
plan of the Holding Company or the Bank, including the ESOP, subject to a
maximum fee equal to 1.5% of the aggregate gross proceeds at the midpoint of the
Estimated Valuation Range. In the event that a selected dealers agreement is
entered into in connection with a Syndicated Community Offering, the Bank will
pay a fee (to be negotiated at such time
16
<PAGE>
under such agreement) to such selected dealers, any sponsoring dealers fees, and
a management fee to Sandler O'Neill of 2.0% for shares sold by NASD member firms
pursuant to a selected dealers agreement; provided, however, that any fees
payable to Sandler O'Neill for Common Stock sold by them pursuant to such a
selected dealers agreement shall not exceed 2.0% of the Purchase Price and
provided, further, however, that the aggregate fees payable to Sandler O'Neill
and the selected dealers will not exceed 7.0% of the aggregate purchase price of
the Common Stock sold by selected dealers. Fees to Sandler O'Neill and to any
other broker-dealer may be deemed to be underwriting fees, and Sandler O'Neill
and such broker-dealers may be deemed to be underwriters. Sandler O'Neill will
also be reimbursed for its reasonable out-of-pocket expenses, including legal
fees, in an amount not to exceed $50,000. Notwithstanding the foregoing, in the
event the Offerings are not consummated or Sandler O'Neill ceases, under certain
circumstances after the subscription solicitation activities are commenced, to
provide assistance to the Holding Company, Sandler O'Neill will be entitled to a
fee for its management advisory services in an amount to be agreed upon by the
Bank and Sandler O'Neill, and based upon the amount of services performed by
Sandler O'Neill and will also be reimbursed for its reasonable out-of-pocket
expenses as described above. The Holding Company and the Bank have agreed to
indemnify Sandler O'Neill for reasonable costs and expenses in connection with
certain claims or liabilities, including certain liabilities under the
Securities Act. Sandler O'Neill has received advances towards its fees
totalling $50,000. Total marketing fees to Sandler O'Neill are expected to be
approximately $153,000 and $215,000 at the minimum and the maximum of the
Estimated Valuation Range, respectively. See "PRO FORMA DATA" for the
assumptions used to arrive at these estimates.
Sandler O'Neill will perform conversion and records management services for
the Bank in the Conversion and will receive a fee for these services of $10,000,
plus reimbursement of reasonable out-of-pocket expenses which shall not exceed
$5,000.
DESCRIPTION OF SALES ACTIVITIES
The Common Stock will be offered in the Subscription and Direct Community
Offering principally by the distribution of the Prospectus and through
activities conducted at the Bank's Conversion Center at its main office
facility. The Conversion Center is expected to operate during normal business
hours throughout the Subscription and Direct Community Offering. It is expected
that at any particular time, one or more Sandler O'Neill employees will be
working at the Conversion Center. Such employees of Sandler O'Neill will be
responsible for mailing materials relating to the Subscription and Direct
Community Offering, responding to questions regarding the Conversion and the
Subscription and Direct Community Offering and processing stock orders.
Sales of Common Stock will be made by registered representatives affiliated
with Sandler O'Neill or by the selected dealers managed by Sandler O'Neill. The
management and employees of the Bank may participate in the Offerings in
clerical capacities, providing administrative support in effecting sales
transactions or, when permitted by state securities laws, answering questions of
a mechanical nature relating to the proper execution of the Order Form.
Management of the Bank may answer questions regarding the business of the Bank
when permitted by state securities laws. Other questions of prospective
purchasers, including questions as to the advisability or nature of the
investment, will be directed to registered
17
<PAGE>
representatives. The management and employees of the Holding Company and the
Bank have been instructed not to solicit offers to purchase Common Stock or
provide advice regarding the purchase of Common Stock.
No officer, director or employee of the Bank or the Holding Company will be
compensated, directly or indirectly, for any activities in connection with the
offer or sale of securities issued in the Conversion.
None of the Bank's personnel participating in the Subscription and Direct
Community Offering is registered or licensed as a broker or dealer or an agent
of a broker or dealer. The Bank's personnel will assist in the above-described
sales activities pursuant to an exemption from registration as a broker or
dealer provided by Rule 3a4-1 ("Rule 3a4-1") promulgated under the Exchange Act.
Rule 3a4-1 generally provides that an "associated person of an issuer" of
securities shall not be deemed a broker solely by reason of participation in the
sale of securities of such issuer if the associated person meets certain
conditions. Such conditions include, but are not limited to, that the
associated person participating in the sale of an issuer's securities not be
compensated in connection therewith at the time of participation, that such
person not be associated with a broker or dealer and that such person observe
certain limitations on his or her participation in the sale of securities. For
purposes of this exemption, "associated person of an issuer" is defined to
include any person who is a director, officer or employee of the issuer or a
company that controls, is controlled by or is under common control with the
issuer.
PROCEDURE FOR PURCHASING SHARES IN THE SUBSCRIPTION AND DIRECT COMMUNITY
OFFERING
To ensure that each purchaser receives a Prospectus at least 48 hours prior
to the Expiration Date in accordance with Rule 15c2-8 under the Exchange Act, no
Prospectus will be mailed any later than five days prior to such date or hand
delivered any later than two days prior to such date. Execution of the Order
Form will confirm receipt or delivery in accordance with Rule 15c2-8. Order
Forms will only be distributed with a Prospectus. The Bank will accept for
processing only orders submitted on Order Forms.
To purchase shares in the Subscription and Direct Community Offering, an
executed Order Form and certification form with the required full payment for
each share subscribed for, or with appropriate authorization for withdrawal of
full payment from the subscriber's deposit account with the Bank (which may be
given by completing the appropriate blanks in the Order Form), must be received
by the Bank by _____ p.m., Pacific Time, on the Expiration Date. Order Forms
which are not received by such time or are executed defectively or are received
without full payment (or without appropriate withdrawal instructions) are not
required to be accepted. In addition, the Bank is not obligated to accept
orders submitted on photocopied or telecopied Order Forms. The Holding Company
and the Bank have the right to waive or permit the correction of incomplete or
improperly executed Order Forms, but do not represent that they will do so.
Pursuant to the Plan of Conversion, the interpretation by the Holding Company
and the Bank of the terms and conditions of the Plan of Conversion and of the
Order Form will be final. Once received, an executed Order Form may not be
modified, amended or rescinded without the consent of the Bank unless the
Conversion has not been completed within 45 days after the end of the
Subscription Offering, unless such period has been extended.
18
<PAGE>
In order to ensure that Eligible Account Holders, Supplemental Eligible
Account Holders and Other Members are properly identified as to their stock
purchase priorities, depositors as of the Eligibility Record Date (December 31,
1995) and/or the Supplemental Eligibility Record Date (March 31, 1997) and/or
the Voting Record Date must list all accounts on the Order Form giving all names
in each account and the account number.
Full payment for subscriptions may be made (i) in cash if delivered in
person at the Bank, (ii) by check, bank draft, or money order, or (iii) by
authorization of withdrawal from deposit accounts maintained with the Bank.
Appropriate means by which such withdrawals may be authorized are provided on
the Order Form. No wire transfers will be accepted. Interest will be paid on
payments made by cash, check, bank draft or money order at the Bank's passbook
rate 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 (unless the certificate matures after the date of
receipt of the Order Form but prior to closing, in which case funds will earn
interest at the passbook rate from the date of maturity until consummation 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.
At the completion of the Conversion, the funds received in the Offerings will be
used to purchase the shares of Common Stock ordered. THE SHARES ISSUED IN THE
CONVERSION CANNOT AND WILL NOT BE INSURED BY THE FDIC OR ANY OTHER GOVERNMENT
AGENCY. In the event that the Conversion is not consummated for any reason, all
funds submitted will be promptly refunded with interest as described above.
If a subscriber authorizes the Bank to withdraw the amount of the aggregate
Purchase Price from his or her deposit account, the Bank will do so as of the
effective date of Conversion, though the account must contain the full amount
necessary for payment at the time the subscription order is received. The Bank
will waive any applicable penalties for early withdrawal from certificate
accounts. If the remaining balance in a certificate account is reduced below
the applicable minimum balance requirement at the time that the funds actually
are transferred under the authorization the certificate will be canceled at the
time of the withdrawal, without penalty, and the remaining balance will earn
interest at the Bank's passbook rate.
If the ESOP subscribes for shares during the Subscription Offering, the
ESOP will not be required to pay for the shares subscribed for at the time it
subscribes, but rather may pay for such shares of Common Stock subscribed for at
the Purchase Price upon consummation of the Conversion, provided that there is
in force from the time of its subscription until such time, a loan commitment
from an unrelated financial institution or the Holding Company to lend to the
ESOP, at such time, the aggregate Purchase Price of the shares for which it
subscribed.
Individual Retirement Accounts ("IRAs") maintained in the Bank do not
permit investment in the Common Stock. A depositor interested in using his or
her IRA funds to purchase Common Stock must do so through a self-directed IRA.
Since the Bank does not offer such accounts, it will allow such a depositor to
make a trustee-to-trustee transfer of the IRA funds to a trustee offering a
self-directed IRA program with the agreement that such funds will be used to
purchase the Holding Company's Common Stock in the Offerings. There will be no
early withdrawal or IRS interest penalties for such transfers. The new trustee
19
<PAGE>
would hold the Common Stock in a self-directed account in the same manner as the
Bank now holds the depositor's IRA funds. An annual administrative fee may be
payable to the new trustee. Depositors interested in using funds in a Bank IRA
to purchase Common Stock should contact the Conversion Center at the Bank so
that the necessary forms may be forwarded for execution and returned prior to
the Expiration Date. In addition, the provisions of ERISA and IRS regulations
require that officers, directors and 10% shareholders who use self-directed IRA
funds to purchase shares of Common Stock in the Subscription Offering make such
purchases for the exclusive benefit of IRAs.
Certificates representing shares of Common Stock purchased, and any refund
due, will be mailed to purchasers at such address as may be specified in
properly completed Order Forms or to the last address of such persons appearing
on the records of the Bank 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. Until certificates for
the Common Stock are available and delivered to purchasers, purchasers may not
be able to sell the shares of Common Stock which they purchased, even though
trading of the Common Stock may have commenced.
STOCK PRICING AND NUMBER OF SHARES TO BE ISSUED
Federal regulations require that the aggregate purchase price of the
securities sold in connection with the Conversion be based upon an estimated pro
forma value of the Holding Company and the Bank as converted (i.e., taking into
----
account the expected receipt of proceeds from the sale of securities in the
Conversion), as determined by an independent appraisal. The Bank and the
Holding Company have retained RP Financial to prepare an appraisal of the pro
forma market value of the Holding Company and the Bank as converted, as well as
a business plan. RP Financial will receive a fee expected to total
approximately $25,000 for its appraisal services and preparation of a business
plan, plus reasonable out-of-pocket expenses incurred in connection with the
appraisal. The Bank has agreed to indemnify RP Financial under certain
circumstances against liabilities and expenses (including legal fees) arising
out of, related to, or based upon the Conversion.
RP Financial has prepared an appraisal of the estimated pro forma market
value of the Holding Company and the Bank as converted taking into account the
formation of the Holding Company as the holding company for the Bank. For its
analysis, RP Financial undertook substantial investigations to learn about the
Bank's business and operations. Management supplied financial information,
including annual financial statements, information on the composition of assets
and liabilities, and other financial schedules. In addition to this
information, RP Financial reviewed the Bank's Form AC Application for Approval
of Conversion and the Holding Company's Form SB-2 Registration Statement.
Furthermore, RP Financial visited the Bank's facilities and had discussions with
the Bank's management and its special conversion legal counsel, Breyer &
Aguggia. No detailed individual analysis of the separate components of the
Holding Company's or the Bank's assets and liabilities was performed in
connection with the evaluation.
In estimating the pro forma market value of the Holding Company and the
Bank as converted, as required by applicable regulatory guidelines, RP
Financial's analysis utilized three selected valuation procedures, the
Price/Book ("P/B") method, the Price/Earnings ("P/E") method, and Price/Assets
("P/A")
20
<PAGE>
method, all of which are described in its report. RP Financial placed the
greatest emphasis on the P/E and P/B methods in estimating pro forma market
value. In applying these procedures, RP Financial reviewed, among other
factors, the economic make-up of the Bank's primary market area, the Bank's
financial performance and condition in relation to publicly-traded institutions
that RP Financial deemed comparable to the Bank, the specific terms of the
offering of the Holding Company's Common Stock, the pro forma impact of the
additional capital raised in the Conversion, conditions of securities markets in
general, and the market for thrift institution common stock in particular. RP
Financial's analysis provides an approximation of the pro forma market value of
the Holding Company and the Bank as converted based on the valuation methods
applied and the assumptions outlined in its report. Included in its report were
certain assumptions as to the pro forma earnings of the Holding Company after
the Conversion that were utilized in determining the appraised value. These
assumptions included expenses as described under "PRO FORMA DATA," an assumed
after-tax rate of return on the net Conversion proceeds of 3.96%, purchases by
the ESOP of 8% of the stock sold in the Conversion and purchases in the open
market by the MRP of a number of shares equal to 4% of the stock sold in the
Conversion at the Purchase Price. See "PRO FORMA DATA" for additional
information concerning these assumptions. The use of different assumptions may
yield somewhat different results.
On the basis of the foregoing, RP Financial has advised the Holding Company
and the Bank that, in its opinion, as of February 28, 1997, the aggregate
estimated pro forma market value of the Holding Company and the Bank as
converted and, therefore, the Common Stock was within the valuation range of
$12,750,000 to $17,250,000 with a midpoint of $15,000,000. After reviewing the
methodology and the assumptions used by RP Financial in the preparation of the
appraisal, the Board of Directors established the Estimated Valuation Range,
which is equal to the valuation range of $12,750,000 to $17,250,000 with a
midpoint of $15,000,000. In determining the reasonableness and adequacy of the
appraisal, consistent with OTS regulations and policies, the Board of Directors
reviewed the methodology and reasonableness of the assumptions utilized by RP
Financial in the preparation of the appraisal. Assuming that the shares are
sold at $10.00 per share in the Conversion, the estimated number of shares would
be between 1,275,000 and 1,725,000 with a midpoint of 1,500,000. The Purchase
Price of $10.00 was determined by discussion among the Boards of Directors of
the Bank and the Holding Company and Sandler O'Neill, taking into account, among
other factors (i) the requirement under OTS regulations that the Common Stock be
offered in a manner that will achieve the widest distribution of the stock and
(ii) desired liquidity in the Common Stock subsequent to the Conversion. Since
the outcome of the Offerings relate in large measure to market conditions at the
time of sale, it is not possible to determine the exact number of shares that
will be issued by the Holding Company at this time. The Estimated Valuation
Range may be amended, with the approval of the OTS, if necessitated by
developments following the date of such appraisal in, among other things, market
conditions, the financial condition or operating results of the Bank, regulatory
guidelines or national or local economic conditions.
RP Financial's appraisal report is filed as an exhibit to the Registration
Statement. See "ADDITIONAL INFORMATION."
If, upon completion of the Subscription Offering, at least the minimum
number of shares are subscribed for, RP Financial, after taking into account
factors similar to those involved in its prior appraisal,
21
<PAGE>
will determine its estimate of the pro forma market value of the Holding Company
and the Bank as converted, as of the close of the Subscription Offering.
No sale of the shares will take place unless prior thereto RP Financial
confirms to the OTS that, to the best of RP Financial's knowledge and judgment,
nothing of a material nature has occurred that would cause it to conclude that
the actual total purchase price on an aggregate basis was incompatible with its
estimate of the total pro forma market value of the Holding Company and the Bank
as converted at the time of the sale. If, however, the facts do not justify
such a statement, the Offerings or other sale may be canceled, a new Estimated
Valuation Range and price per share set and new Subscription, Direct Community
and Syndicated Community Offerings held. Under such circumstances, subscribers
would have the right to modify or rescind their subscriptions and to have their
subscription funds returned promptly with interest and holds on funds authorized
for withdrawal from deposit accounts would be released or reduced.
Depending upon market and financial conditions, the number of shares issued
may be more or less than the range in number of shares shown above. In the
event the total amount of shares issued is less than 1,275,000 or more than
1,983,750 (15% above the maximum of the Estimated Valuation Range), for
aggregate gross proceeds of less than $12,750,000 or more than $19,837,500,
subscription funds will be returned promptly with interest to each subscriber
unless he indicates otherwise. In the event a new valuation range is
established by RP Financial, such new range will be subject to approval by the
OTS.
If purchasers cannot be found for an insignificant residue of unsubscribed
shares from the general public, other purchase arrangements will be made by the
Boards of Directors of the Bank and the Holding Company, if possible. Such
other purchase arrangements will be subject to the approval of the OTS and may
provide for purchases for investment purposes by directors, officers, their
associates and other persons in excess of the limitations provided in the Plan
of Conversion and in excess of the proposed director purchases set forth herein,
although no such purchases are currently intended. If such other purchase
arrangements cannot be made, the Plan will terminate.
In formulating its appraisal, RP Financial relied upon the truthfulness,
accuracy and completeness of all documents the Bank furnished it. RP Financial
also considered financial and other information from regulatory agencies, other
financial institutions, and other public sources, as appropriate. While RP
Financial believes this information to be reliable, RP Financial does not
guarantee the accuracy or completeness of such information and did not
independently verify the financial statements and other data provided by the
Bank and the Holding Company or independently value the assets or liabilities of
the Holding Company and the Bank. THE APPRAISAL BY RP FINANCIAL 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. MOREOVER, BECAUSE THE APPRAISAL IS NECESSARILY BASED ON MANY
FACTORS WHICH CHANGE FROM TIME TO TIME, THERE IS NO ASSURANCE THAT PERSONS WHO
PURCHASE SUCH SHARES IN THE CONVERSION WILL LATER BE ABLE TO SELL SHARES
THEREAFTER AT PRICES AT OR ABOVE THE PURCHASE PRICE.
22
<PAGE>
RESTRICTIONS ON REPURCHASE OF STOCK
Upon consummation of the Conversion, the Board of Directors of the Holding
Company will have the authority to adopt stock repurchase plans, subject to
statutory and regulatory requirements, including the OTS regulations applicable
for three years from the date of consummation of the Conversion. Pursuant to
OTS regulations, OTS-regulated savings associations (and their holding
companies) may not for a period of three years from the date of an institution's
mutual-to-stock conversion repurchase any of its common stock from any person,
except in the event of: (i) an offer made to all of its stockholders to
repurchase the common stock on a pro rata basis, approved by the OTS; or (ii)
the repurchase of qualifying shares of a director; or (iii) a purchase in the
open market by a tax-qualified or non-tax-qualified employee stock benefit plan
in an amount reasonable and appropriate to fund the plan. Furthermore,
repurchases are prohibited if the effect thereof would cause the association's
regulatory capital to be reduced below (a) the amount required for the
liquidation account or (b) the regulatory capital requirements imposed by the
OTS. Repurchases are generally prohibited during the first year following
conversion. However, recent OTS policy has relaxed this restriction,
particularly during the second six months after conversion. While an applicant
needs to demonstrate the existence of "exceptional circumstances" during the
first six months after conversion, the OTS has indicated that it would analyze
repurchases during months six through 12 after conversion on a case-by-case
basis. Upon ten days' written notice to the OTS, and if the OTS does not
object, an institution may make open market repurchases of its outstanding
common stock during years two and three following the conversion, provided that
(x) no more than 5% of the outstanding common stock is to be purchased during
any 12-month period, (y) the repurchases do not cause the association to become
undercapitalized as defined under the OTS prompt corrective action regulations
and (z) the repurchase would not adversely affect the financial condition of the
association. No assurances, however, can be given that the OTS will approve a
repurchase program under current policy or that such policy will not change or
become more restrictive.
SHARES TO BE PURCHASED BY MANAGEMENT PURSUANT TO SUBSCRIPTION RIGHTS
The following table sets forth certain information as to the approximate
purchases of Common Stock by each director and executive officer of the Bank,
including their associates, as defined by applicable regulations. No individual
has entered into a binding agreement with respect to such intended purchases.
Directors and officers of the Bank and their associates may not purchase in
excess of 33% of the shares sold in the Conversion and, therefore, actual
purchases could be more or less than indicated below. For purposes of the
following table, it has been assumed that sufficient shares will be available to
satisfy subscriptions in all categories. Directors, officers and employees will
pay the same price for the shares for which they subscribe as the price that
will be paid by all other subscribers.
23
<PAGE>
<TABLE>
<CAPTION>
Percent of Percent of
Shares at Shares at
Minimum of Maximum of
Name and Anticipated Number of Anticipated Dollar Estimated Estimated
Position Shares Purchased(1) Amount Purchased Valuation Range Valuation Range
- -------------------------- ------------------------ ------------------ ---------------- ----------------
<S> <C> <C> <C> <C>
William J. Larson 15,000 $ 150,000 1.18% 0.87%
Chairman
James N. Marker 2,500 25,000 0.20 0.14
First Vice Chairman
Steve R. Cox 10,000 100,000 0.78 0.58
Second Vice Chairman
Robert S. Coleman, Sr. 10,000 100,000 0.78 0.58
Director
Dr. L. Glen Carlson 15,000 150,000 1.18 0.87
Director
F. Ron McMurray 2,500 25,000 0.20 0.14
Director
W. Dean Jurgens 12,000 120,000 0.94 0.70
Director
Clyde E. Conklin 25,000 250,000 1.96 1.45
Chief Executive Officer
Larry K. Moxley 25,000 250,000 1.96 1.45
Chief Financial Officer
Terence A. Otte 5,000 50,000 0.39 0.29
Vice President
Donn L. Durgan 8,000 80,000 0.63 0.46
Vice President
Douglas R. Ax 25,000 250,000 1.96 1.45
------- ---------- ----- ----
Vice President
Total 155,000 $1,550,000 12.16% 8.99%
======= ========== ===== ====
- -------------
</TABLE>
(1) Excludes any shares awarded pursuant to the ESOP and MRP and options to
acquire shares pursuant to the Stock Option Plan. For a description of the
number of shares to be purchased by the ESOP and issued or reserved under
the MRP and Stock Option Plan, see "MANAGEMENT OF THE BANK --Benefits --
Employee Stock Ownership Plan," "-- Benefits -- Stock Option Plan" and "--
Benefits --Management Recognition Plan."
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<PAGE>
RESTRICTIONS ON TRANSFERABILITY BY DIRECTORS AND OFFICERS AND NASD MEMBERS
Shares of Common Stock purchased in the Offerings by directors and officers
of the Holding Company may not be sold for a period of one year following
consummation of the Conversion, except in the event of the death of the
stockholder or in any exchange of the Common Stock in connection with a merger
or acquisition of the Holding Company. Shares of Common Stock received by
directors or officers through the ESOP or the MRP or upon exercise of options
issued pursuant to the Stock Option Plan or purchased subsequent to the
Conversion are not subject to this restriction. Accordingly, shares of Common
Stock issued by the Holding Company to directors and officers shall bear a
legend giving appropriate notice of the 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 restriction on transfers.
Any shares issued to directors and officers as a stock dividend, stock split or
otherwise with respect to restricted Common Stock shall be subject to the same
restrictions.
Purchases of outstanding shares of Common Stock of the Holding Company by
directors, executive officers (or any person who was an executive officer or
director of the Bank after adoption of the Plan of Conversion) and their
associates during the three-year period following Conversion may be made only
through a broker or dealer registered with the SEC, except with the prior
written approval of the OTS. This restriction does not apply, however, to
negotiated transactions involving more than 1% of the Holding Company's
outstanding Common Stock or to the purchase of stock pursuant to the Stock
Option Plan.
The Holding Company has filed with the SEC a registration statement under
the Securities Act of 1933, as amended ("Securities Act") for the registration
of the Common Stock to be issued pursuant to the Conversion. The registration
under the Securities Act of shares of the Common Stock to be issued in the
Conversion does not cover the resale of such shares. Shares of Common Stock
purchased by persons who are not affiliates of the Holding Company may be resold
without registration. Shares purchased by an affiliate of the Holding Company
will be subject to the resale restrictions of Rule 144 under the Securities Act.
If the Holding Company meets the current public information requirements of Rule
144 under the Securities Act, each affiliate of the Holding Company who complies
with the other conditions of Rule 144 (including those that require the
affiliate's sale to be aggregated with those of certain other persons) would be
able to sell in the public market, without registration, a number of shares not
to exceed, in any three-month period, the greater of (i) 1% of the outstanding
shares of the Holding Company or (ii) the average weekly volume of trading in
such shares during the preceding four calendar weeks. Provision may be made in
the future by the Holding Company to permit affiliates to have their shares
registered for sale under the Securities Act under certain circumstances.
In addition, under guidelines of the NASD, members of the NASD and their
associates are subject to certain restrictions on the transfer of securities
purchased in accordance with Subscription Rights and to certain reporting
requirements upon purchase of such securities.
25
<PAGE>
USE OF PROCEEDS
The net proceeds from the sale of the Common Stock offered hereby are
estimated to range from $12.1 million to $16.6 million, or up to $19.1 million
if the Estimated Valuation Range is increased by 15%. See "PRO FORMA DATA" for
the assumptions used to arrive at such amounts. The Holding Company has
received the approval of the OTS to purchase all of the capital stock of the
Bank to be issued in the Conversion in exchange for 50% of the net proceeds of
the Offerings. This will result in the Holding Company retaining approximately
$6.1 million to $8.3 million of net proceeds, or up to $9.6 million if the
Estimated Valuation Range is increased by 15%, and the Bank receiving an equal
amount.
Receipt of 50% of the net proceeds of the sale of the Common Stock will
increase the Bank's capital and will support the expansion of the Bank's
existing business activities. The Bank will use the funds contributed to it for
general corporate purposes, including increased local lending, the establishment
of its Clarkston, Washington office, the expansion of its community banking
activities and possible future acquisitions of branches or banks. The Bank may
also use a portion of the funds contributed to it to retire outstanding FHLB
advances, depending on market conditions, the cost of other sources of funds and
other factors. Pending deployment of funds, the Bank plans initially to invest
the net proceeds in short-term U.S. Government and agency securities. Shares of
Common Stock may be purchased with funds on deposit at the Bank, which will
reduce deposits by the amount of such purchases. As a result, the net amount of
funds available to the Bank for investment following receipt of the Conversion
proceeds will be reduced by the amount of deposit withdrawals used to fund stock
purchases.
In connection with the Conversion and the establishment of the ESOP, the
Holding Company intends to loan the ESOP the amount necessary to purchase 8% of
the shares of Common Stock sold in the Conversion. The Holding Company's loan
to fund the ESOP may range from $1,020,000 to $1,380,000 based on the sale to
the ESOP of 102,000 shares (at the minimum of the Estimated Valuation Range) and
138,000 shares (at the maximum of the Estimated Valuation Range), respectively,
at $10.00 per share. If 15% above the maximum of the Estimated Valuation Range,
or 1,983,750 shares, are sold in the Conversion, the Holding Company's loan to
the ESOP would be approximately $1,587,000. It is anticipated that the ESOP
loan will have a seven-year term with interest payable at the prime rate as
published in The Wall Street Journal on the closing date of the Conversion. The
loan will be repaid principally from the Bank's contributions to the ESOP and
from any dividends paid on shares of Common Stock held by the ESOP.
The remaining proceeds retained by the Holding Company initially will be
invested in short-term U.S. Government and agency securities. Such proceeds
will be available for additional contributions to the Bank in the form of debt
or equity, to support future diversification or acquisition activities, as a
source of dividends to the stockholders of the Holding Company and for future
repurchases of Common Stock to the extent permitted under Delaware law and
federal regulations. Currently, there are no specific plans, arrangements,
agreements or understandings, written or oral, regarding any diversification
activities.
26
<PAGE>
Following consummation of the Conversion, the Board of Directors will have
the authority to adopt plans for repurchases of Common Stock or other returns of
capital to stockholders, subject to statutory and regulatory requirements.
Since the Holding Company has not yet issued stock, there currently is
insufficient information upon which an intention to repurchase stock could be
based. The facts and circumstances upon which the Board of Directors may
determine to repurchase stock in the future may include but are not limited to:
(i) market and economic factors, such as the price at which the stock is trading
in the market, the volume of trading, the attractiveness of other investment
alternatives in terms of the rate of return and risk involved in the investment,
the ability to increase the book value and/or earnings per share of the
remaining outstanding shares, and the ability to improve the Holding Company's
return on equity; (ii) the avoidance of dilution to stockholders by not having
to issue additional shares to cover the exercise of stock options or to fund
employee stock benefit plans; and (iii) any other circumstances in which
repurchases would be in the best interests of the Holding Company and its
stockholders. Any stock repurchases or return of capital will be subject to a
determination by the Board of Directors that both the Holding Company and the
Bank will be capitalized in excess of all applicable regulatory requirements
after any such repurchases or return of capital and that capital will be
adequate, taking into account, among other things, the level of nonperforming
and classified assets, the Holding Company's and the Bank's current and
projected results of operations and asset/liability structure, the economic
environment and tax and other regulatory considerations. See "THE CONVERSION --
Restrictions on Repurchase of Stock."
MANAGEMENT OF THE HOLDING COMPANY
The Board of Directors of the Holding Company consists of seven persons
divided into three classes, each of which contains approximately one third of
the Board. The Directors shall be elected by the stockholders of the Holding
Company for staggered three-year terms, or until their successors are elected
and qualified. One class of Directors, consisting of Messrs. William J. Larson
and Larry K. Moxley, has a term of office expiring at the first annual meeting
of stockholders, a second class, consisting of Messrs. James N. Marker and
Robert S. Coleman, Sr., has a term of office expiring at the second annual
meeting of stockholders, and a third class, consisting of Messrs. W. Dean
Jurgens, Steve R. Cox and Clyde E. Conklin, has a term of office expiring at the
third annual meeting of stockholders. The executive officers of the Holding
Company are elected annually and hold office until their respective successors
have been elected and qualified or until death, resignation or removal by the
Board of Directors.
The following individuals hold the offices set forth opposite their names
below.
Name Position held with Holding Company
---- ----------------------------------
Clyde E. Conklin President and Chief Executive Officer
Larry K. Moxley Chief Financial Officer, First Vice President
and Corporate Secretary
Cynthia M. Moore Controller and Assistant Corporate Secretary
Since the formation of the Holding Company, none of the executive officers,
directors or other personnel has received remuneration from the Holding Company.
Information concerning the principal occupations, employment and compensation of
the directors and executive officers of the Holding Company
27
<PAGE>
during the past five years is set forth under "MANAGEMENT OF THE BANK --
Biographical Information."
MANAGEMENT OF THE BANK
DIRECTORS AND EXECUTIVE OFFICERS
The Board of Directors of the Bank is presently composed of seven members who
are elected for terms of three years, approximately one third of whom are
elected annually in accordance with the Bylaws of the Bank. The Board of
Directors of the Bank following the Stock Conversion will be composed of nine
members and will include all of the current Directors of the Bank plus Messrs.
Conklin and Moxley. The executive officers of the Bank are elected annually by
the Board of Directors and serve at the Board's discretion. The following table
sets forth information with respect to the Directors and executive officers of
the Bank.
DIRECTORS
<TABLE>
<CAPTION>
Current
Director Term
---------- -------
Name Age (1) Position with Bank Since Expires
- ---- ------- ------------------ ---------- -------
<S> <C> <C> <C> <C>
William J. Larson 66 Chairman 1973 1998
James N. Marker 60 First Vice Chairman 1974 1999
Steve R. Cox 50 Second Vice Chairman 1986 2000
Robert S. Coleman, Sr. 69 Director 1978 1999
Dr. L. Glen Carlson 73 Director 1977 1998
F. Ron McMurray 56 Director 1986 1999
W. Dean Jurgens 64 Director 1969 2000
EXECUTIVE OFFICERS
Name Age (1) Position with Bank
- ---- ------ ------------------
Clyde E. Conklin 45 Chief Executive Officer
Larry K. Moxley 46 Chief Financial Officer and Secretary/Treasurer
Terence A. Otte 40 Vice President, Agricultural and
Consumer Lending
Donn L. Durgan 42 Vice President, Residential Lending
Douglas R. Ax 41 Vice President, Commercial Lending
</TABLE>
- ---------------------
(1) As of December 31, 1995.
28
<PAGE>
BIOGRAPHICAL INFORMATION
Set forth below is certain information regarding the Directors and
executive officers of the Bank. Unless otherwise stated, each Director and
executive officer has held his or her current occupation for the last five
years.
William J. Larson is a partner in the Quality Inn and Convention Center in
Clarkston, Washington and other various real estate development projects. Prior
to 1993, he was a partner in Houser & Son, Inc., a livestock and farming
operation.
James N. Marker is general manager and part owner of Idaho Truck Sales Co.,
Inc., a heavy duty truck dealership.
Steve R. Cox is the president and shareholder of Randall, Blake & Cox,
P.A., a law firm in Lewiston, Idaho, and is a non-practicing certified public
accountant.
Robert S. Coleman, Sr., a retired businessman, is the former President and
co-owner of Coleman Oil, Co., a petroleum distributor.
Dr. L. Glen Carlson, a native of the area, is a retired dentist. He
developed the Brydon Canyon Center, a complex of medical and dental offices.
Dr. Carlson is trustee of family owned farm land at Nez Perce, Idaho.
F. Ron McMurray has been the manager of Inland 465, a warehouse
distribution center, since 1994. From 1990 to 1994, Mr. McMurray was the manager
of the Port of Lewiston, a municipal corporation. Prior to that time, Mr.
McMurray was the owner and operator of Fairley's Flowers, a flower and gift
store.
W. Dean Jurgens is the President and part owner of Jurgens & Co., P.A.,
certified public accountants.
Clyde E. Conklin, who joined the Bank in 1987, has served as the Chief
Executive Officer of the Bank since February 1996. From September 1994 to
February 1996, Mr. Conklin served as Senior Vice President - Lending. In 1993,
Mr. Conklin became Vice President - Lending. Prior to that time, Mr. Conklin
served as Agricultural Lending Manager.
Larry K. Moxley, who joined the Bank in 1973, currently serves as Chief
Financial Officer of the Bank, which position he has held since February 1996.
Mr. Moxley served as Senior Vice President -Finance from 1993 to February 1996
and as Vice President - Finance from 1984 to 1993.
Terence A. Otte joined the Bank in June 1989 as an Agricultural Loan
Officer. From 1991 to 1994, he served as manager of the Bank's Moscow, Idaho
branch. In 1994 he became Vice President-
29
<PAGE>
Lending and Agricultural Lending Manager and in 1996 became Vice President,
Agricultural and Consumer Lending and Compliance Officer.
Donn L. Durgan, who joined the Bank in February 1996, currently serves as
Vice President, Residential Lending. Prior to that time, Mr. Durgan was
employed by First Security Bank for 11 years in various positions in commercial
and residential real estate lending.
Douglas R. Ax, who joined the Bank in January 1997, currently serves as
Vice President, Commercial Lending. Prior to that time, Mr. Ax was employed by,
West One Bank (which became U.S. Bank) for over nine years in various positions
in commercial lending, most recently as a Vice President and Commercial Loan
Officer.
30
<PAGE>
SELECTED CONSOLIDATED FINANCIAL INFORMATION
The following tables set forth certain information concerning the consolidated
financial position and results of operations of the Bank and its subsidiaries at
the dates and for the periods indicated. This information is qualified in its
entirety by reference to the detailed information contained in the Consolidated
Financial Statements and Notes thereto presented in the Prospectus.
<TABLE>
<CAPTION>
At March 31,
----------------------------------------------- At
1992 1993 1994 1995 1996 December 31, 1996
------- ------- --------- -------- -------- ------------------
(In Thousands) (unaudited)
<S> <C> <C> <C> <C> <C> <C>
FINANCIAL CONDITION DATA:
Total assets.............................. $95,951 $96,816 $102,223 $104,121 $129,832 $ 133,046
Loans receivable, net..................... 60,711 77,574 76,217 82,777 93,817 111,085
Cash and cash equivalents................. 9,042 3,988 12,754 4,172 13,581 5,765
Investment securities available for sale.. 1,353 1,414 1,335 1,289 1,328 --
Investment securities held to maturity.... 3,236 2,692 4,110 6,732 10,545 5,189
Mortgage-backed securities
held to maturity........................ 6,776 5,013 3,446 2,840 2,488 2,343
Deposits.................................. 86,941 83,182 91,858 88,787 115,324 105,349
Borrowings................................ 544 4,044 -- 4,000 2,304 15,060
Total equity.............................. 6,634 7,807 8,797 9,504 10,356 10,818
</TABLE>
<TABLE>
<CAPTION>
Nine Months
Year Ended March 31, Ended December 31,
----------------------------------------------- ------------------
1992 1993 1994 1995 1996 1995 1996
------- ------- -------- -------- -------- ------ ------
(In Thousands) (unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
SELECTED OPERATING DATA:
Interest income........................... $ 7,726 $ 7,335 $ 7,418 $ 7,658 $ 9,552 $7,025 $7,640
Interest expense.......................... 5,104 3,928 3,625 3,596 5,158 3,672 4,014
------- ------- -------- -------- -------- ------ ------
Net interest income....................... 2,622 3,407 3,793 4,062 4,394 3,353 3,626
Provision for loan losses................. 82 267 79 27 150 78 194
------- ------- -------- -------- -------- ------ ------
Net interest income
after provision for loan losses......... 2,540 3,140 3,714 4,035 4,244 3,275 3,432
Non-interest income....................... 1,085 2,307 3,054 1,891 2,212 1,661 1,815
Non-interest expense...................... 2,672 3,558 4,624 4,721 5,493 3,709 4,674
------- ------- -------- -------- -------- ------ ------
Income before income taxes................ 953 1,889 2,144 1,205 963 1,227 573
Income taxes.............................. 361 797 963 452 375 428 150
------- ------- -------- -------- -------- ------ ------
Income before cumulative effect
of accounting change.................... 592 1,092 1,181 753 588 799 423
Cumulative effect of
accounting change(1).................... -- -- (116) -- -- -- --
------- ------- -------- -------- -------- ------ ------
Net income................................ $ 592 $ 1,092 $ 1,065 $ 753 $ 588 $ 799 $ 423
======= ======= ======== ======== ======== ====== ======
</TABLE>
- -------------
(1) Reflects adoption of Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes."
31
<PAGE>
<TABLE>
<CAPTION>
At March 31,
-------------------------------------------------- At
1992 1993 1994 1995 1996 December 31, 1996
------- ------- -------------- ------- ------- --------------------
<S> <C> <C> <C> <C> <C> <C> <C>
OTHER DATA:
Number of
Real estate loans outstanding............. 1,423 1,581 1,440 1,425 1,456 1,470
Deposit accounts.......................... 15,379 15,205 15,730 16,303 18,206 18,099
Full-service offices...................... 4 4 5 5 5 5
At or For the
At or For the Nine Months
Year Ended March 31, Ended December 31,
------------------------------------------------- -------------------
1992 1993 1994 1995 1996 1995 1996
------ ------ ------ ------ ------ ------ ------
KEY OPERATING RATIOS:
Performance Ratios(1)
Return on average assets (2)............... 0.64% 1.15% 1.05% 0.74% 0.50% 0.71% 0.33%
Return on average equity (3)............... 9.40 15.28 12.48 8.19 5.81 8.03 3.94
Average total equity to
average assets (4)....................... 6.85 7.51 8.43 9.03 8.55 8.85 8.32
Total equity to total assets
at end of period......................... 6.91 8.06 8.61 9.13 7.98 7.78 8.12
Interest rate spread (5)................... 2.72 3.64 3.61 3.87 3.61 3.88 3.68
Net interest margin (6).................... 2.97 3.80 3.88 4.15 3.89 4.17 3.93
Average interest-earning assets
to average interest-bearing liabilities.. 104.30 103.54 107.27 107.44 106.09 106.46 105.67
Non-interest expense as a
percent of average total assets.......... 2.91 3.74 4.57 4.64 4.64 4.40 4.82
Efficiency ratio (7)....................... 72.08 62.27 67.53 79.30 83.15 73.97 85.90
Equity Ratios:
Core capital............................... 6.91 8.06 8.61 9.13 7.98 7.78 8.12
Tangible capital........................... 6.91 8.06 8.61 9.13 7.98 7.78 8.12
Risk-based capital......................... 11.64 14.02 15.42 15.66 14.14 14.04 13.27
Asset Quality Ratios:
Nonaccrual and 90 days or more
past due loans as a percent of
loans receivable, net.................... 3.02 0.99 0.28 0.64 0.74 0.68 0.91
Nonperforming assets as a
percent of total assets.................. 4.41 0.95 0.21 0.51 0.59 0.55 0.90
Allowance for loan losses as a
percent of total loans receivable........ 0.48 0.56 0.66 0.62 0.70 0.63 0.74
Allowance for loan losses as a
percent of nonperforming loans........... 7.08 49.84 252.38 104.32 91.28 85.62 73.21
Net charge-offs to average
outstanding loans........................ 0.02 0.15 0.01 0.00 0.00 0.00 0.01
</TABLE>
- ------------------
(1) Ratios for the nine-month periods are annualized.
(2) Net earnings divided by average total assets.
32
<PAGE>
(3) Net earnings divided by average equity.
(4) Average total equity divided by average total assets.
(5) Difference between weighted average yield on interest-earning assets and
weighted average rate on interest-bearing liabilities.
(6) Net interest income as a percentage of average interest-earning assets.
(7) Represents the ratio of non-interest expenses divided by the sum of net
interest income and non-interest income.
PRO FORMA DATA
Under the Plan of Conversion, the Common Stock must be sold at an aggregate
price equal to the estimated pro forma market value of the Holding Company and
the Bank as converted, based upon an independent valuation. The Estimated
Valuation Range as of February 28, 1997 is from a minimum of $12,750,000 to a
maximum of $17,250,000 with a midpoint of $15,000,000 or, at a price per share
of $10.00, a minimum number of shares of 1,275,000, a maximum number of shares
of 1,725,000 and a midpoint number of shares of 1,500,000. The actual net
proceeds from the sale of the Common Stock cannot be determined until the
Conversion is completed. However, net proceeds set forth on the following table
are based upon the following assumptions: (i) Sandler O'Neill will receive a fee
equal to 1.5% of the aggregate Purchase Price of shares sold in the Subscription
and Direct Community Offering, excluding shares purchased by directors,
officers, employees and any immediate family member thereof, and the ESOP,
subject to a maximum fee equal to 1.5% of the aggregate gross proceeds at the
midpoint of the Estimated Valuation Range; (ii) all of the Common Stock will be
sold in the Subscription and Direct Community Offerings; and (iii) Conversion
expenses, excluding the fees paid to Sandler O'Neill, will total approximately
$472,000. Actual expenses may vary from those estimated.
The pro forma consolidated net income of the Bank for the year ended March
31, 1996 and the nine months ended December 31, 1996 has been calculated as if
the Conversion had been consummated at the beginning of each such period and the
estimated net proceeds received by the Holding Company and the Bank had been
invested at 5.68% at the beginning of each period, which represents the one year
U.S. Treasury Bill yield as of December 31, 1996. While OTS regulations provide
for the use of a yield representing the arthimetic average of the weighted
average yield earned by the Bank on its interest-earning assets and the rates
paid on its deposits, the Holding Company believes that the U.S. Treasury Bill
represents a more realistic yield on the Bank's investments. As discussed under
"USE OF PROCEEDS," the Holding Company expects to retain 50% of the net proceeds
of the Offerings from which it will fund the ESOP loan. A pro forma after-tax
return of 3.52% is used for both the Holding Company and the Bank for the year
ended March 31, 1996 and the nine months ended December 31, 1996, after giving
effect to an incremental combined federal and state tax rate of 38%. Historical
and pro forma per share amounts have been calculated by dividing historical and
pro forma amounts by the number of shares of Common Stock indicated in the
footnotes to the table. Per share amounts have been computed as if the Common
Stock had been outstanding at the beginning of the period or at the dates
indicated, but without any adjustment of per share historical or pro forma
stockholders' equity to reflect the earnings on the estimated net proceeds.
33
<PAGE>
The following tables summarize the historical net income and retained
earnings of the Bank and the pro forma consolidated net income and stockholders'
equity of the Holding Company for the periods and at the dates indicated, based
on the minimum, midpoint and maximum of the Estimated Valuation Range and based
on a 15% increase in the maximum of the Estimated Valuation Range. No effect
has been given to: (i) the shares to be reserved for issuance under the Holding
Company's Stock Option Plan, which is expected to be voted upon by stockholders
at a meeting to be held no earlier than six months following consummation of the
Conversion; (ii) withdrawals from deposit accounts for the purpose of purchasing
Common Stock in the Conversion; (iii) the issuance of shares from authorized but
unissued shares to the MRP, which is expected to be voted upon by stockholders
at a meeting to be held no earlier than six months following consummation of the
Conversion; or (iv) the establishment of a liquidation account for the benefit
of Eligible Account Holders and Supplemental Eligible Account Holders. See "THE
CONVERSION --Stock Pricing and Number of Shares Issued." Shares of Common Stock
may be purchased with funds on deposit at the Bank, which will reduce deposits
by the amounts of such purchases. Accordingly, the net amount of funds
available for investment will be reduced by the amount of deposit withdrawals
used to fund stock purchases.
THE FOLLOWING PRO FORMA INFORMATION MAY NOT BE REPRESENTATIVE OF THE
FINANCIAL EFFECTS OF THE CONVERSION AT THE DATE ON WHICH THE CONVERSION ACTUALLY
OCCURS AND SHOULD NOT BE TAKEN AS INDICATIVE OF FUTURE RESULTS OF OPERATIONS.
STOCKHOLDERS' EQUITY REPRESENTS THE DIFFERENCE BETWEEN THE STATED AMOUNTS OF
CONSOLIDATED ASSETS AND LIABILITIES OF THE HOLDING COMPANY COMPUTED IN
ACCORDANCE WITH GAAP. STOCKHOLDERS' EQUITY HAS NOT BEEN INCREASED OR DECREASED
TO REFLECT THE DIFFERENCE BETWEEN THE CARRYING VALUE OF LOANS AND OTHER ASSETS
AND MARKET VALUE. STOCKHOLDERS' EQUITY IS NOT INTENDED TO REPRESENT FAIR MARKET
VALUE NOR DOES IT REPRESENT AMOUNTS THAT WOULD BE AVAILABLE FOR DISTRIBUTION TO
STOCKHOLDERS IN THE EVENT OF LIQUIDATION.
34
<PAGE>
<TABLE>
<CAPTION>
At or For the Year Ended March 31, 1996
----------------------------------------------------------
Minimum of Midpoint of Maximum of 15% Above
Estimated Estimated Estimated Maximum of
Valuation Valuation Valuation Estimated
Range Range Range Valuation Range(1)
----------- ------------ ----------- ------------------
<S> <C> <C> <C> <C>
1,275,000 1,500,000 1,725,000 1,983,750
Shares Shares Shares Shares
at $10.00 at $10.00 at $10.00 at $10.00
Per Share Per Share Per Share Per Share
---------- ----------- ---------- -----------------
(Dollars In Thousands, Except Per Share Amounts)
Gross proceeds....................................... $ 12,750 $ 15,000 $ 17,250 $ 19,838
Less: estimated expenses............................. 625 656 687 697
---------- ---------- ---------- ----------
Estimated net proceeds............................... 12,125 14,344 16,563 19,141
Less: Common Stock acquired by ESOP.................. (1,020) (1,200) (1,380) (1,587)
Less: Common Stock to be acquired by MRP............. (510) (600) (690) (794)
---------- ---------- ---------- ----------
Net investable proceeds............................ $ 10,595 $ 12,544 $ 14,493 $ 16,760
========== ========== ========== ==========
Consolidated net income:
Historical........................................... $ 588 $ 588 $ 588 $ 588
Pro forma income on net proceeds(2).................. 373 442 510 590
Pro forma ESOP adjustments(3)........................ (90) (106) (122) (141)
Pro forma MRP adjustments(4)......................... (63) (74) (86) (98)
---------- ---------- ---------- ----------
Pro forma net income................................ $ 808 $ 850 $ 890 $ 939
========== ========== ========== ==========
Consolidated net income per share (5)(6):
Historical........................................... $ 0.50 $ 0.42 $ 0.36 $ 0.32
Pro forma income on net proceeds..................... 0.31 0.32 0.32 0.32
Pro forma ESOP adjustments(3)........................ (0.08) (0.08) (0.08) (0.08)
Pro forma MRP adjustments(4)......................... (0.05) (0.05) (0.05) (0.05)
---------- ---------- ---------- ----------
Pro forma net income per share...................... $ 0.68 $ 0.61 $ 0.55 $ 0.51
========== ========== ========== ==========
Consolidated stockholders' equity (book value):
Historical........................................... $ 10,356 $ 10,356 $ 10,356 $ 10,356
Estimated net proceeds............................... 12,125 14,344 16,563 19,141
Less: Common Stock acquired by ESOP.................. (1,020) (1,200) (1,380) (1,587)
Less: Common Stock to be acquired by MRP(4).......... (510) (600) (690) (794)
---------- ---------- ---------- ----------
Pro forma stockholders' equity(7)................... $ 20,951 $ 22,900 $ 24,849 $ 27,116
========== ========== ========== ==========
Consolidated stockholders' equity per share(6)(8):
Historical(6)........................................ $ 8.12 $ 6.90 $ 6.00 $ 5.22
Estimated net proceeds............................... 9.51 9.57 9.61 9.65
Less: Common Stock acquired by ESOP.................. (0.80) (0.80) (0.80) (0.80)
Less: Common Stock to be acquired by MRP(4).......... (0.40) (0.40) (0.40) (0.40)
---------- ---------- ---------- ----------
Pro forma stockholders' equity per share(9)......... $ 16.43 $ 15.27 $ 14.41 $ 13.67
========== ========== ========== ==========
Purchase Price as a multiple of pro forma
net income per share................................. 14.71x 16.39x 18.18x 19.61x
Purchase Price as a percentage of pro forma
stockholders' equity per share....................... 60.86% 65.48% 69.40% 73.15%
</TABLE>
(footnotes on page 37)
35
<PAGE>
<TABLE>
<CAPTION>
At or For the Nine Months Ended December 31, 1996
---------------------------------------------------------
Minimum of Midpoint of Maximum of 15% Above
Estimated Estimated Estimated Maximum of
Valuation Valuation Valuation Estimated
Range Range Range Valuation Range(1)
----------- ------------ ----------- ------------------
<S> <C> <C> <C> <C>
1,275,000 1,500,000 1,725,000 1,983,750
Shares Shares Shares Shares
at $10.00 at $10.00 at $10.00 at $10.00
Per Share Per Share Per Share Per Share
---------- ----------- ---------- -----------------
(Dollars In Thousands, Except Per Share Amounts)
Gross proceeds....................................... $ 12,750 $ 15,000 $ 17,250 $ 19,838
Less: estimated expenses............................. 625 656 687 697
---------- ---------- ---------- ----------
Estimated net proceeds............................... 12,125 14,344 16,563 19,141
Less: Common Stock acquired by ESOP.................. (1,020) (1,200) (1,380) (1,587)
Less: Common Stock to be acquired by MRP............. (510) (600) (690) (794)
---------- ---------- ---------- ----------
Net investable proceeds............................ $ 10,595 $ 12,544 $ 14,493 $ 16,760
========== ========== ========== ==========
Consolidated net income:
Historical........................................... $ 423 $ 423 $ 423 $ 423
Pro forma income on net proceeds(2).................. 280 331 383 443
Pro forma ESOP adjustments(3)........................ (68) (80) (92) (105)
Pro forma MRP adjustments(4)......................... (47) (56) (64) (74)
---------- ---------- ---------- ----------
Pro forma net income................................ $ 588 $ 618 $ 650 $ 687
========== ========== ========== ==========
Consolidated net income per share (5)(6):
Historical........................................... $ 0.36 $ 0.30 $ 0.26 $ 0.23
Pro forma income on net proceeds..................... 0.23 0.24 0.24 0.24
Pro forma ESOP adjustments(3)........................ (0.06) (0.06) (0.06) (0.06)
Pro forma MRP adjustments(4)......................... (0.04) (0.04) (0.04) (0.04)
---------- ---------- ---------- ----------
Pro forma net income per share...................... $ 0.49 $ 0.44 $ 0.40 $ 0.37
========== ========== ========== ==========
Consolidated stockholders' equity (book value):
Historical........................................... $ 10,818 $ 10,818 $ 10,818 $ 10,818
Estimated net proceeds............................... 12,125 14,344 16,563 19,141
Less: Common Stock acquired by ESOP.................. (1,020) (1,200) (1,380) (1,587)
Less: Common Stock to be acquired by MRP(4).......... (510) (600) (690) (794)
---------- ---------- ---------- ----------
Pro forma stockholders' equity(7)................... $ 21,413 $ 23,362 $ 25,311 $ 27,578
========== ========== ========== ==========
Consolidated stockholders' equity per share(6)(8):
Historical(6)........................................ $ 8.48 $ 7.21 $ 6.27 $ 5.45
Estimated net proceeds............................... 9.51 9.56 9.60 9.65
Less: Common Stock acquired by ESOP.................. (0.80) (0.80) (0.80) (0.80)
Less: Common Stock to be acquired by MRP(4).......... (0.40) (0.40) (0.40) (0.40)
---------- ---------- ---------- ----------
Pro forma stockholders' equity per share(9)......... $ 16.79 $ 15.57 $ 14.65 $ 13.90
========== ========== ========== ==========
Purchase Price as a multiple of pro forma
net income per share(10)............................. 16.39x 18.18x 20.00x 21.74x
Purchase Price as a percentage of pro forma
stockholders' equity per share....................... 59.56% 64.23% 68.26% 71.94%
</TABLE>
(footnotes on following page)
36
<PAGE>
___________________
(1) Gives effect to the sale of an additional 258,750 shares in the Conversion,
which may be issued to cover an increase in the pro forma market value of
the Holding Company and the Bank as converted, without the resolicitation of
subscribers or any right of cancellation. The issuance of such additional
shares will be conditioned on a determination of the independent appraiser
that such issuance is compatible with its determination of the estimated pro
forma market value of the Holding Company and the Bank as converted. See
"THE CONVERSION -- Stock Pricing and Number of Shares to be Issued."
(2) No effect has been given to withdrawals from savings accounts for the
purpose of purchasing Common Stock in the Conversion.
(3) It is assumed that 8% of the shares of Common Stock offered in the
Conversion will be purchased by the ESOP. The funds used to acquire such
shares will be borrowed by the ESOP (at an interest rate equal to the prime
rate as published in The Wall Street Journal on the closing date of the
Conversion, which rate is currently _____%) from the net proceeds from the
Offerings retained by the Holding Company. The amount of this borrowing has
been reflected as a reduction from gross proceeds to determine estimated net
investable proceeds. The Bank intends to make contributions to the ESOP in
amounts at least equal to the principal and interest requirement of the
debt. As the debt is paid down, stockholders' equity will be increased.
The Bank's payment of the ESOP debt is based upon equal installments of
principal over a seven-year period, assuming a combined federal and state
tax rate of 38%. Shares purchased by the ESOP with the proceeds of the loan
will be held in a suspense account and released on a pro rata basis as the
loan is repaid. Interest income earned by the Holding Company on the ESOP
debt offsets the interest paid by the Bank on the ESOP loan. No
reinvestment is assumed on proceeds contributed to fund the ESOP. The ESOP
expense reflects adoption of Statement of Position ("SOP") 93-6, "Employers'
Accounting for Employee Stock Ownership Plans," which will require
recognition of expense based upon shares committed to be released and the
exclusion of unallocated shares from earnings per share computations. The
valuation of shares committed to be released would be based upon the average
market value of the shares during the year, which, for purposes of this
calculation, was assumed to be equal to the $10.00 per share Purchase Price.
(4) Gives effect to the MRP expected to be adopted by the Holding Company
following the Conversion. If the MRP is approved by stockholders, the MRP
intends to acquire an amount of Common Stock equal to 4% of the shares of
Common Stock issued in the Conversion either through open market purchases
or from authorized but unissued shares of Common Stock. In calculating the
pro forma effect of the MRP, it is assumed that the required stockholder
approval has been received, that the shares were acquired by the MRP at the
beginning of the period presented in open market purchases at the Purchase
Price and that 20% of the amount contributed was an amortized expense during
such period. The issuance of authorized but unissued shares of the Common
Stock instead of open market purchases would dilute the voting and ownership
interests of existing stockholders by approximately 3.85% and pro forma net
income per share would be $0.65, $0.58, $0.53 and $0.47 at the minimum,
midpoint, maximum and 15% above the maximum of the Estimated Valuation
Range, respectively, for the year ended March 31, 1996, and $16.14, $14.97,
$14.11 and $12.87 at the minimum, midpoint, maximum and 15% above the
maximum of the Estimated Valuation Range, respectively, for the nine
37
<PAGE>
months ended December 31, 1996, and pro forma stockholders' equity per share
would be $15.80, $14.67, $13.85 and $12.66 at the minimum, midpoint, maximum
and 15% above the maximum of the Estimated Valuation Range, respectively, at
March 31, 1996 and $16.14, $14.97, $14.11 and $12.87 at the minimum,
midpoint, maximum and 15% above the maximum of the Estimated Valuation
Range, respectively, for the nine months ended December 31, 1996. Shares
issued under the MRP vest over a five-year period at 20% per year and, for
purposes of this table, compensation expense is recognized on a straight-
line basis over each vesting period. In the event the fair market value per
share is greater than $10.00 per share on the date of stockholder approval
of the MRP, total MRP expense would increase. No effect has been given to
the shares reserved for issuance under the proposed Stock Option Plan. If
stockholders approve the Stock Option Plan following the Conversion, the
Holding Company will have reserved for issuance under the Stock Option Plan
authorized but unissued shares of Common Stock representing an amount of
shares equal to 10% of the shares sold in the Conversion. If all of the
options were to be exercised utilizing these authorized but unissued shares
rather than treasury shares which could be acquired, the voting and
ownership interests of existing stockholders would be diluted by
approximately 9.1%.
(5) Per share amounts are based upon shares outstanding of 1,187,571, 1,397,143,
1,606,714 and 1,847,721 at the minimum, midpoint, maximum and 15% above the
maximum of the Estimated Valuation Range, respectively, for the year ended
March 31, 1996 and 1,192,429, 1,402,857, 1,613,286 and 1,855,279 at the
minimum, midpoint, maximum and 15% above the maximum of the Estimated
Valuation Range, respectively, for the nine months ended December 31, 1996,
which includes the shares of Common Stock sold in the Conversion less the
number of shares assumed to be held by the ESOP not committed to be released
within the first year following the Conversion.
(6) Historical per share amounts have been computed as if the shares of Common
Stock expected to be issued in the Conversion had been outstanding at the
beginning of the period or on the date shown, but without any adjustment of
historical net income or historical retained earnings to reflect the
investment of the estimated net proceeds of the sale of shares in the
Conversion, the additional ESOP expense or the proposed MRP expense, as
described above.
(7) "Book value" represents the difference between the stated amounts of the
Bank's assets and liabilities. The amounts shown do not reflect the
liquidation account which will be established for the benefit of Eligible
Account Holders and Supplemental Eligible Account Holders in the Conversion,
or the federal income tax consequences of the restoration to income of the
Bank's special bad debt reserves for income tax purposes which would be
required in the unlikely event of liquidation. See "THE CONVERSION --
Effects of Conversion to Stock Form on Depositors and Borrowers of the
Bank." The amounts shown for book value do not represent fair market values
or amounts distributable to stockholders in the unlikely event of
liquidation.
(8) Per share amounts are based upon shares outstanding of 1,257,000, 1,500,000,
1,725,000 and 1,983,750 at the minimum, midpoint, maximum and 15% above the
maximum of the Estimated Valuation Range, respectively.
(9) Does not represent possible future price appreciation or depreciation of the
Common Stock.
(10) Annualized.
38
<PAGE>
CAPITALIZATION
The following table presents the historical capitalization of the Bank at
December 31, 1996, and the pro forma consolidated capitalization of the Holding
Company after giving effect to the assumptions set forth under "PRO FORMA DATA,"
based on the sale of the number of shares of Common Stock set forth below in the
Conversion at the minimum, midpoint and maximum of the Estimated Valuation
Range, and based on the sale of 1,983,750 shares (representing the shares that
would be issued in the Conversion after giving effect to an additional 15%
increase in the maximum valuation in the Estimated Valuation Range, subject to
receipt of an updated appraisal confirming such valuation and OTS approval). A
CHANGE IN THE NUMBER OF SHARES TO BE ISSUED IN THE CONVERSION MAY MATERIALLY
AFFECT PRO FORMA CONSOLIDATED CAPITALIZATION.
<TABLE>
<CAPTION>
Holding Company
Pro Forma Consolidated Capitalization
Based Upon the Sale of
------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1,275,000 1,500,000 1,725,000 1,983,750
Shares at Shares at Shares at Shares at
Bank $10.00 $10.00 $10.00 $10.00
Historical Per Share(1) Per Share(1) Per Share(1) Per Share(2)
---------- ---------- ---------- ---------- ----------
(In Thousands)
Deposits(3)............................ $105,349 $ 105,349 $ 105,349 $ 105,349 $ 105,349
Advances from FHLB..................... 15,060 15,060 15,060 15,060 15,060
---------- ---------- ---------- ---------- ----------
Total deposits and advances from FHLB.. $120,409 $ 120,409 $ 120,409 $ 120,409 $ 120,409
========== ========== ========== ========== ==========
Stockholders' equity:
Preferred stock:
500,000 shares, $.01
par value per share,
authorized; none issued
or outstanding.................... $ -- $ -- $ -- $ -- $ --
Common Stock:
5,000,000 shares, $.01 par
value per share, authorized;
specified number of shares
assumed to be issued and
outstanding(4).................... -- 13 15 17 20
Additional paid-in capital.......... -- 12,112 14,329 16,546 19,121
Retained earnings(5)................ 10,818 10,818 10,818 10,818 10,818
Less:
Common Stock acquired
by ESOP(6)...................... -- (1,020) (1,200) (1,380) (1,587)
Common Stock to be acquired
by MRP(7)....................... -- (510) (600) (690) (794)
---------- ---------- ---------- ---------- ----------
Total stockholders' equity............. $ 10,818 $ 21,413 $ 23,362 $ 25,311 $ 27,578
========== ========== ========== ========== ==========
</TABLE>
39
<PAGE>
- ---------------
(1) Does not reflect the possible increase in the Estimated Valuation Range to
reflect material changes in the financial condition or performance of the
Bank or changes in market conditions or general financial and economic
conditions, or the issuance of additional shares under the Stock Option
Plan.
(2) This column represents the pro forma capitalization of the Holding Company
in the event the aggregate number of shares of Common Stock issued in the
Conversion is 15% above the maximum of the Estimated Valuation Range. See
"PRO FORMA DATA" and Footnote 1 thereto.
(3) Withdrawals from deposit accounts for the purchase of Common Stock are not
reflected. Such withdrawals will reduce pro forma deposits by the amounts
thereof.
(4) The Bank's authorized capital will consist solely of 1,000 shares of common
stock, par value $1.00 per share, 1,000 shares of which will be issued to
the Holding Company, and 9,000 shares of preferred stock, no par value per
share, none of which will be issued in connection with the Conversion.
(5) Retained earnings are substantially restricted by applicable regulatory
capital requirements. Additionally, the Bank will be prohibited from
paying any dividend that would reduce its regulatory capital below the
amount in the liquidation account, which will be established for the
benefit of the Bank's Eligible Account Holders and Supplemental Eligible
Account Holders at the time of the Conversion and adjusted downward
thereafter as such account holders reduce their balances or cease to be
depositors. See "THE CONVERSION -- Effects of Conversion to Stock Form on
Depositors and Borrowers of the Bank -- Liquidation Account."
(6) Assumes that 8% of the Common Stock sold in the Conversion will be acquired
by the ESOP in the Conversion with funds borrowed from the Holding Company.
In accordance with generally accepted accounting principles ("GAAP"), the
amount of Common Stock to be purchased by the ESOP represents unearned
compensation and is, accordingly, reflected as a reduction of capital. As
shares are released to ESOP participants' accounts, a corresponding
reduction in the charge against capital will occur. Since the funds are
borrowed from the Holding Company, the borrowing will be eliminated in
consolidation and no liability will be reflected in the consolidated
financial statements of the Holding Company.
(7) Assumes the purchase in the open market at the Purchase Price, pursuant to
the proposed MRP, of a number of shares equal to 4% of the shares of Common
Stock issued in the Conversion at the minimum, midpoint, maximum and 15%
above the maximum of the Estimated Valuation Range. The issuance of an
additional 4% of the shares of Common Stock for the MRP from authorized but
unissued shares of Holding Company Common Stock would dilute the voting and
ownership interest of stockholders by 3.85%. The shares are reflected as a
reduction of stockholders' equity. See "PRO FORMA DATA." The MRP is
subject to stockholder approval, which is expected to be sought at a
meeting to be held no earlier than six months following consummation of the
Conversion.
MARKET FOR COMMON STOCK
The Holding Company has never issued capital stock and, consequently, there
is no existing market for the Common Stock. Although the Holding Company has
received conditional approval to list the
40
<PAGE>
Common Stock on the Nasdaq National Market under the symbol "FBNW," there can be
no assurance that the Holding Company will meet Nasdaq National Market listing
requirements, which include a minimum market capitalization, at least two market
makers and a minimum number of record holders. Although under no obligation to
do so, Sandler O'Neill has indicated its intention to make a market for the
Holding Company's Common Stock following consummation of the Conversion and will
assist the Holding Company in seeking to encourage at least one additional
market maker to establish and maintain a market in the Common Stock. Making a
market involves maintaining bid and ask quotations and being able, as principal,
to effect transactions in reasonable quantities at those quoted prices, subject
to various securities laws and other regulatory requirements. While the Holding
Company has attempted to obtain commitments from broker-dealers to act as market
makers, and anticipates that prior to the completion of the Conversion it will
be able to obtain the commitment from at least one additional broker-dealer to
act as market maker for the Common Stock, there can be no assurance that there
will be two or more market makers for the Common Stock. Additionally, the
development of a liquid public market depends on the existence of willing buyers
and sellers, the presence of which is not within the control of the Holding
Company, the Bank or any market maker. There can be no assurance that an active
and liquid trading market for the Common Stock will develop or that, if
developed, it will continue. The number of active buyers and sellers of the
Common Stock at any particular time may be limited. Under such circumstances,
investors in the Common Stock could have difficulty disposing of their shares on
short notice and should not view the Common Stock as a short-term investment.
Furthermore, there can be no assurance that purchasers will be able to sell
their shares at or above the Purchase Price or that quotations will be available
on the Nasdaq National Market as contemplated.
RESTRICTIONS ON ACQUISITION OF THE HOLDING COMPANY
The following discussion is a summary of certain provisions of federal law
and regulations and Delaware corporate law, as well as the Certificate of
Incorporation and Bylaws of the Holding Company, relating to stock ownership and
transfers, the Board of Directors and business combinations, all of which may be
deemed to have "anti-takeover" effects. The description of these provisions is
necessarily general and reference should be made to the actual law and
regulations and to the Certificate of Incorporation and Bylaws of the Holding
Company. See "ADDITIONAL INFORMATION" as to how to obtain a copy of these
documents.
CONVERSION REGULATIONS
OTS regulations prohibit any person from making an offer, announcing an
intent to make an offer or participating in any other arrangement to purchase
stock or acquiring stock or subscription rights in a converting institution (or
its holding company) from another person prior to completion of its conversion.
Further, without the prior written approval of the OTS, no person may make such
an offer or announcement of an offer to purchase shares or actually acquire
shares in the converting institution (or its holding company) for a period of
three years from the date of the completion of the conversion if, upon the
completion of such offer, announcement or acquisition, that person would become
the beneficial owner of more than 10% of the outstanding stock of the
institution (or its holding company). The OTS has defined
41
<PAGE>
"person" to include any individual, group acting in concert, corporation,
partnership, association, joint stock company, trust, unincorporated
organization or similar company, a syndicate or any other group formed for the
purpose of acquiring, holding or disposing of securities of an insured
institution. However, offers made exclusively to an association (or its holding
company) or an underwriter or member of a selling group acting on the converting
institution's (or its holding company's) behalf for resale to the general public
are excepted. The regulation also provides civil penalties for willful
violation or assistance in any such violation of the regulation by any person
connected with the management of the converting institution (or its holding
company) or who controls more than 10% of the outstanding shares or voting
rights of a converting or converted institution (or its holding company).
CHANGE OF CONTROL REGULATIONS
OTS REGULATIONS. Under the Change in Bank Control Act, no person may
acquire control of an insured federal savings association or its parent holding
company unless the OTS has been given 60 days' prior written notice and has not
issued a notice disapproving the proposed acquisition. In addition, OTS
regulations provide that no company may acquire control of a savings association
without the prior approval of the OTS. Any company that acquires such control
becomes a "savings and loan holding company" subject to registration,
examination and regulation by the OTS.
Control, as defined under federal law, 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 the savings
association's directors, or a determination by the OTS that the acquiror has the
power to direct, or directly or indirectly to exercise a controlling influence
over, the management or policies of the institution. Acquisition of more than
10% of any class of a savings association's voting stock, if the acquiror also
is subject to any one of eight "control factors," constitutes a rebuttable
determination of control under the 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 that acquire
beneficial ownership exceeding 10% or more of any class of a savings
association's stock must file with the OTS a certification form 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. There are also rebuttable presumptions in
the regulations concerning whether a group "acting in concert" exists, including
presumed action in concert among members of an "immediate family."
The OTS may prohibit an acquisition of control if it finds, among other
things, that (i) the acquisition would result in a monopoly or substantially
lessen competition, (ii) the financial condition of the acquiring person might
jeopardize the financial stability of the institution, or (iii) the competence,
experience or integrity of the acquiring person indicates that it would not be
in the interest of the depositors or the public to permit the acquisition of
control by such person.
42
<PAGE>
FEDERAL RESERVE REGULATIONS. The Change in Bank Control Act and the BHCA,
together with the Federal Reserve regulations under those acts, require that the
consent of the Federal Reserve be obtained prior to any person or company
acquiring "control" of a bank holding company. Control is conclusively presumed
to exist if an individual or company acquires more than 25% of any class of
voting stock of the bank holding company. Control is rebuttably presumed to
exist if the person acquires more than 10% of any class of voting stock of a
bank holding company if either (i) the Holding Company has registered securities
under Section 12 of the Exchange Act or (ii) no other person will own a greater
percentage of that class of voting securities immediately after the transaction.
The regulations provide a procedure to rebut the rebuttable control presumption.
Since the Holding Company's Common Stock will be registered under Section 12 of
the Exchange Act, any acquisition of 10% or more of the Holding Company's Common
Stock will give rise to a rebuttable presumption that the acquiror of such stock
controls the Holding Company, requiring the acquiror, prior to acquiring such
stock, to rebut the presumption of control to the satisfaction of the Federal
Reserve or obtain Federal Reserve approval for the acquisition of control.
Restrictions applicable to the operations of bank holding companies may deter
companies from seeking to obtain control of the Holding Company.
ANTI-TAKEOVER PROVISIONS IN THE HOLDING COMPANY'S CERTIFICATE OF INCORPORATION
AND BYLAWS AND DELAWARE LAW
A number of provisions of the Holding Company's Certificate of
Incorporation and Bylaws deal with matters of corporate governance and certain
rights of stockholders. The following discussion is a general summary of
certain provisions of the Holding Company's Certificate of Incorporation and
Bylaws and regulatory provisions relating to stock ownership and transfers, the
Board of Directors and business combinations, which might be deemed to have a
potential "anti-takeover" effect. These provisions may have the effect of
discouraging a future takeover attempt which is not approved by the Board of
Directors but which individual Holding Company stockholders may deem to be in
their best interests or in which stockholders may receive a substantial premium
for their shares over then current market prices. As a result, stockholders who
might desire to participate in such a transaction may not have an opportunity to
do so. Such provisions will also render the removal of the incumbent Board of
Directors or management of the Holding Company more difficult. The following
description of certain of the provisions of the Certificate of Incorporation and
Bylaws of the Holding Company is necessarily general and reference should be
made in each case to such Certificate of Incorporation and Bylaws, which are
incorporated herein by reference. See "ADDITIONAL INFORMATION" as to how to
obtain a copy of these documents.
LIMITATION ON VOTING RIGHTS. The Certificate of Incorporation of the
Holding Company provides that in no event shall any record owner of any
outstanding Common Stock which is beneficially owned, directly or indirectly, by
a person who beneficially owns in excess of 10% of the then outstanding shares
of common stock (the "Limit") be entitled or permitted to any vote in respect of
the shares held in excess of the Limit, unless permitted by a resolution adopted
by a majority of the board of directors. Beneficial ownership is determined
pursuant to Rule 13d-3 of the General Rules and Regulations of the Exchange Act
and includes shares beneficially owned by such person or any of such person's
affiliates (as defined in the Certificate of Incorporation), shares which such
person or such person's affiliates have the right to acquire upon the exercise
of conversion rights or options and shares as to which such person and such
person's
43
<PAGE>
affiliates have or share investment or voting power, but shall not include
shares beneficially owned by the ESOP or directors, officers and employees of
the Bank or Holding Company or shares that are subject to a revocable proxy and
that are not otherwise beneficially, or deemed by the Holding Company to be
beneficially, owned by such person and his or her affiliates.
BOARD OF DIRECTORS. The Board of Directors of the Holding Company is
divided into three classes, each of which shall contain approximately one-third
of the whole number of the members of the Board. The members of each class
shall be elected for a term of three years, with the terms of office of all
members of one class expiring each year so that approximately one-third of the
total number of directors are elected each year. The Holding Company's
Certificate of Incorporation provides that the size of the Board shall be as set
forth in the Bylaws. The Bylaws currently set the number of directors at seven.
The Certificate of Incorporation provides that any vacancy occurring in the
Board, including a vacancy created by an increase in the number of directors,
shall be filled by a vote of two-thirds of the directors then in office and any
director so chosen shall hold office for a term expiring at the annual meeting
of stockholders at which the term of the class to which the director has been
chosen expires. The classified Board is intended to provide for continuity of
the Board of Directors and to make it more difficult and time consuming for a
stockholder group to fully use its voting power to gain control of the Board of
Directors without the consent of the incumbent Board of Directors of the Holding
Company. The Certificate of Incorporation of the Holding Company provides that
a director may be removed from the Board of Directors prior to the expiration of
his or her term only for cause and only upon the vote of 80% of the outstanding
shares of voting stock. In the absence of this provision, the vote of the
holders of a majority of the shares could remove the entire Board, but only with
cause, and replace it with persons of such holders' choice.
CUMULATIVE VOTING, SPECIAL MEETINGS AND ACTION BY WRITTEN CONSENT. The
Certificate of Incorporation does not provide for cumulative voting for any
purpose. Moreover, the Certificate of Incorporation provides that special
meetings of stockholders of the Holding Company may be called only by the Board
of Directors of the Holding Company and that stockholders may take action only
at a meeting and not by written consent.
AUTHORIZED SHARES. The Certificate of Incorporation authorizes the
issuance of 5,000,000 shares of Common Stock and 500,000 shares of preferred
stock. The shares of Common Stock and preferred stock were authorized in an
amount greater than that to be issued in the Conversion to provide the Holding
Company's Board of Directors with as much flexibility as possible to effect,
among other transactions, financings, acquisitions, stock dividends, stock
splits, restricted stock grants and the exercise of stock options. However,
these additional authorized shares may also be used by the Board of Directors,
consistent with fiduciary duties, to deter future attempts to gain control of
the Holding Company. The Board of Directors also has sole authority to
determine the terms of any one or more series of preferred stock, including
voting rights, conversion rates, and liquidation preferences. As a result of
the ability to fix voting rights for a series of preferred stock, the Board has
the power, to the extent consistent with its fiduciary duty, to issue a series
of preferred stock to persons friendly to management in order to attempt to
block a tender offer, merger or other transaction by which a third party seeks
control of the Holding Company, and thereby assist members of management to
retain their positions. The Holding Company's Board currently
44
<PAGE>
has no plans for the issuance of additional shares, other than the issuance of
shares of Common Stock upon exercise of stock options and in connection with the
MRP.
STOCKHOLDER VOTE REQUIRED TO APPROVE BUSINESS COMBINATIONS WITH PRINCIPAL
STOCKHOLDERS. The Certificate of Incorporation requires the approval of the
holders of at least 80% of the Holding Company's outstanding shares of voting
stock to approve certain "Business Combinations" (as defined therein) involving
a "Related Person" (as defined therein) except in cases where the proposed
transaction has been approved in advance by a majority of those members of the
Holding Company's Board of Directors who are unaffiliated with the Related
Person and were directors prior to the time when the Related Person became a
Related Person. The term "Related Person" is defined to include any individual,
corporation, partnership or other entity (other than the Holding Company or its
subsidiary) which owns beneficially or controls, directly or indirectly, 10% or
more of the outstanding shares of voting stock of the Holding Company or an
affiliate of such person or entity. This provision of the Certificate of
Incorporation applies to any "Business Combination," which is defined to
include: (i) any merger or consolidation of the Holding Company with or into
any Related Person; (ii) any sale, lease, exchange, mortgage, transfer, or other
disposition of 25% or more of the assets of the Holding Company or combined
assets of the Holding Company and its subsidiaries to a Related Person; (iii)
any merger or consolidation of a Related Person with or into the Holding Company
or a subsidiary of the Holding Company; (iv) any sale, lease, exchange,
transfer, or other disposition of 25% or more of the assets of a Related Person
to the Holding Company or a subsidiary of the Holding Company; (v) the issuance
of any securities of the Holding Company or a subsidiary of the Holding Company
to a Related Person; (vi) the acquisition by the Holding Company or a subsidiary
of the Holding Company of any securities of a Related Person; (vii) any
reclassification of common stock of the Holding Company or any recapitalization
involving the common stock of the Holding Company; or (viii) any agreement or
other arrangement providing for any of the foregoing.
Under Delaware law, absent this provision, business combinations, including
mergers, consolidations and sales of substantially all of the assets of a
corporation must, subject to certain exceptions, be approved by the vote of the
holders of a majority of the outstanding shares of common stock of the Holding
Company and any other affected class of stock. One exception under Delaware law
to the majority approval requirement applies to stockholders owning 15% or more
of the common stock of a corporation for a period of less than three years.
Such 15% stockholder, in order to obtain approval of a business combination,
must obtain the approval of two-thirds of the outstanding stock, excluding the
stock owned by such 15% stockholder, or satisfy other requirements under
Delaware law relating to board of director approval of his or her acquisition of
the shares of the Holding Company. The increased stockholder vote required to
approve a business combination may have the effect of foreclosing mergers and
other business combinations which a majority of stockholders deem desirable and
place the power to prevent such a merger or combination in the hands of a
minority of stockholders.
AMENDMENT OF CERTIFICATE OF INCORPORATION AND BYLAWS. Amendments to the
Holding Company's Certificate of Incorporation must be approved by a majority
vote of its Board of Directors and also by a majority of the outstanding shares
of its voting stock, provided, however, that an affirmative vote of at least 80%
of the outstanding voting stock entitled to vote (after giving effect to the
provision limiting voting rights) is required to amend or repeal certain
provisions of the Certificate of Incorporation, including
45
<PAGE>
the provision limiting voting rights, the provisions relating to approval of
certain business combinations, calling special meetings, the number and
classification of directors, director and officer indemnification by the Holding
Company and amendment of the Holding Company's Bylaws and Certificate of
Incorporation. The Holding Company's Bylaws may be amended by its Board of
Directors, or by a vote of 80% of the total votes eligible to be voted at a duly
constituted meeting of stockholders.
STOCKHOLDER NOMINATIONS AND PROPOSALS. The Certificate of Incorporation of
the Holding Company requires a stockholder who intends to nominate a candidate
for election to the Board of Directors, or to raise new business at a
stockholder meeting to give not less than 30 nor more than 60 days' advance
notice to the Secretary of the Holding Company. The notice provision requires a
stockholder who desires to raise new business to provide certain information to
the Holding Company concerning the nature of the new business, the stockholder
and the stockholder's interest in the business matter. Similarly, a stockholder
wishing to nominate any person for election as a director must provide the
Holding Company with certain information concerning the nominee and the
proposing stockholder.
PURPOSE AND TAKEOVER DEFENSIVE EFFECTS OF THE HOLDING COMPANY'S CERTIFICATE
OF INCORPORATION AND BYLAWS. The Board of Directors of the Bank believes that
the provisions described above are prudent and will reduce the Holding Company's
vulnerability to takeover attempts and certain other transactions that have not
been negotiated with and approved by its Board of Directors. These provisions
will also assist the Bank in the orderly deployment of the Conversion proceeds
into productive assets during the initial period after the Conversion. The
Board of Directors believes these provisions are in the best interest of the
Bank and 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 interest 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 a price
reflective of the true value of the Holding Company and that is in the best
interest of all stockholders.
Attempts to acquire control of financial institutions and their holding
companies have recently become increasingly common. Takeover attempts that have
not been negotiated with and approved by the Board of Directors present to
stockholders the risk of a takeover on terms that may be less favorable than
might otherwise be available. A transaction that 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 of the Holding
Company for 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 the current
market prices, such offers are sometimes made for less than all of
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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
that 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 benefits of certain protective
provisions of the Exchange Act, if the number of beneficial owners became less
than 300, thereby allowing for Exchange Act deregistration.
Despite the belief of the Bank and the Holding Company as to the benefits
to stockholders of these provisions of the Holding Company's Certificate of
Incorporation and Bylaws, these provisions may also have the effect of
discouraging a future takeover attempt that 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 of Directors of the Bank and the Holding Company, however, have concluded
that the potential benefits outweigh the possible disadvantages.
Pursuant to applicable law, at any annual or special meeting of its
stockholders after the Conversion, the Holding Company may adopt additional
charter provisions regarding the acquisition of its equity securities that would
be permitted for a Delaware business corporation. The Holding Company and the
Bank do not presently intend to propose the adoption of further restrictions on
the acquisition of the Holding Company's equity securities.
The cumulative effect of the restriction on acquisition of the Holding
Company contained in the Certificate of Incorporation and Bylaws of the Holding
Company and in Federal and Delaware law may be to discourage potential takeover
attempts and perpetuate incumbent management, even though certain stockholders
of the Holding Company may deem a potential acquisition to be in their best
interests, or deem existing management not to be acting in their best interests.
DESCRIPTION OF CAPITAL STOCK OF THE HOLDING COMPANY
GENERAL
The Holding Company is authorized to issue 5,000,000 shares of Common Stock
having a par value of $.01 per share and 500,000 shares of preferred stock
having a par value of $.01 per share. The Holding Company currently expects to
issue up to 1,725,000 shares of Common Stock and no shares of preferred stock in
the Conversion. Each share of the Holding Company's Common Stock will have the
same relative rights as, and will be identical in all respects with, each other
share of Common Stock. Upon payment of the Purchase Price for the Common Stock,
in accordance with the Plan of Conversion, all such stock will be duly
authorized, fully paid and nonassessable.
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THE COMMON STOCK OF THE HOLDING COMPANY WILL REPRESENT NONWITHDRAWABLE
CAPITAL, WILL NOT BE AN ACCOUNT OF ANY TYPE, AND WILL NOT BE INSURED BY THE FDIC
OR ANY OTHER GOVERNMENT AGENCY.
COMMON STOCK
DIVIDENDS. The Holding Company can pay dividends out of statutory surplus
or from certain net profits if, as and when declared by its Board of Directors.
The payment of dividends by the Holding Company is subject to limitations which
are imposed by law and applicable regulation. See "DIVIDEND POLICY" and
"REGULATION." The holders of Common Stock of the Holding Company will be
entitled to receive and share equally in such dividends as may be declared by
the Board of Directors of the Holding Company out of funds legally available
therefor. If the Holding Company issues preferred stock, the holders thereof
may have a priority over the holders of the Common Stock with respect to
dividends.
STOCK REPURCHASES. The Plan and OTS regulations place certain limitations
on the repurchase of the Holding Company's capital stock. See "THE CONVERSION --
Restrictions on Repurchase of Stock" and "USE OF PROCEEDS."
VOTING RIGHTS. Upon Conversion, the holders of Common Stock of the Holding
Company will possess exclusive voting rights in the Holding Company. They will
elect the Holding Company's Board of Directors and act on such other matters as
are required to be presented to them under Delaware law or as are otherwise
presented to them by the Board of Directors. Except as discussed in
"RESTRICTIONS ON ACQUISITION OF THE HOLDING COMPANY," each holder of Common
Stock will be entitled to one vote per share and will not have any right to
cumulate votes in the election of directors. If the Holding Company issues
preferred stock, holders of the Holding Company preferred stock may also possess
voting rights. Certain matters require a vote of 80% of the outstanding shares
entitled to vote thereon. See "RESTRICTIONS ON ACQUISITION OF THE HOLDING
COMPANY."
As a federal mutual savings bank, corporate powers and control of the Bank
are vested in its Board of Directors, who elect the officers of the Bank and who
fill any vacancies on the Board of Directors as it exists upon Conversion.
Subsequent to Conversion, voting rights will be vested exclusively in the owners
of the shares of capital stock of the Bank, all of which will be owned by the
Holding Company, and voted at the direction of the Holding Company's Board of
Directors. Consequently, the holders of the Common Stock will not have direct
control of the Bank.
LIQUIDATION. In the event of any liquidation, dissolution or winding up of
the Bank, the Holding Company, as holder of the Bank's capital stock would be
entitled to receive, after payment or provision for payment of all debts and
liabilities of the Bank (including all deposit accounts and accrued interest
thereon) and after distribution of the balance in the special liquidation
account to Eligible Account Holders and Supplemental Eligible Account Holders
(see "THE CONVERSION"), all assets of the Bank available for distribution. In
the event of liquidation, dissolution or winding up of the Holding Company, the
holders of its common stock would be entitled to receive, after payment or
provision for payment of all its debts and liabilities, all of the assets of the
Holding Company available for distribution. If Holding Company
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preferred stock is issued, the holders thereof may have a priority over the
holders of the Common Stock in the event of liquidation or dissolution.
PREEMPTIVE RIGHTS. Holders of the Common Stock of the Holding Company will
not be entitled to preemptive rights with respect to any shares that may be
issued. The Common Stock is not subject to redemption.
PREFERRED STOCK
None of the shares of the authorized Holding Company preferred stock will
be issued in the Conversion and there are no plans to issue the preferred stock.
Such stock may be issued with such designations, powers, preferences and rights
as the Board of Directors may from time to time determine. The Board of
Directors can, without stockholder approval, issue preferred stock with voting,
dividend, liquidation and conversion rights that could dilute the voting
strength of the holders of the Common Stock and may assist management in
impeding an unfriendly takeover or attempted change in control.
RESTRICTIONS ON ACQUISITION
Acquisitions of the Holding Company are restricted by provisions in its
Certificate of Incorporation and Bylaws and by the rules and regulations of
various regulatory agencies. See "RESTRICTIONS ON ACQUISITION OF THE HOLDING
COMPANY."
REVIEW OF OTS ACTION
Any person aggrieved by a final action of the OTS which approves, with or
without conditions, or disapproves a plan of conversion pursuant to this part
may obtain review of such action by filing in the court of appeals of the United
States 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, a written petition praying that the final action of the OTS be
modified, terminated or set aside. Such petition must be filed within 30 days
after the publication of notice of such final action in the Federal Register, or
----------------
30 days after the mailing by the applicant of the notice to members as provided
for in 12 C.F.R. (S)563b.6(c), whichever is later. The further procedure for
review is as follows: A copy of the petition is forthwith transmitted to the
OTS by the clerk of the court and thereupon the OTS files in the court the
record in the proceeding, as provided in Section 2112 of Title 28 of the United
States Code. Upon the filing of the petition, the court has jurisdiction, which
upon the filing of the record is exclusive, to affirm, modify, terminate, or set
aside in whole or in part, the final action of the OTS. Review of such
proceedings is as provided in Chapter 7 of Title 5 of the United States Code.
The judgment and decree of the court is final, except that they are subject to
review by the United States Supreme Court upon certiorari as provided in Section
1254 of Title 28 of the United States Code.
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REGISTRATION REQUIREMENTS
The Holding Company will register the Common Stock with the SEC pursuant to
Section 12(g) of the Exchange Act upon the completion of the Conversion and will
not deregister its Common Stock for a period of at least three years following
the completion of the Conversion. Upon such registration, the proxy and tender
offer rules, insider trading reporting and restrictions, annual and periodic
reporting and other requirements of the Exchange Act will be applicable.
LEGAL AND TAX OPINIONS
The legality of the Common Stock has been passed upon for the Holding
Company by Breyer & Aguggia, Washington, D.C. The federal tax consequences of
the Offerings have been opined upon by Breyer & Aguggia and the Idaho tax
consequences of the Offerings have been opined upon by BDO Seidman, LLP,
Spokane, Washington. Breyer & Aguggia and BDO Seidman, LLP have consented to
the references in the Prospectus to their opinions. Certain legal matters will
be passed upon for Sandler O'Neill by Thacher Proffitt & Wood, Washington, D.C.
EXPERTS
The consolidated financial statements of the Bank as of March 31, 1996 and
for each of the two years in the period ended March 31, 1996 included in the
Prospectus have been audited by BDO Seidman, LLP, independent auditors, as
stated in its report appearing therein, and have been so included in reliance
upon the report of such firm given upon its authority as experts in accounting
and auditing.
RP Financial has consented to the publication in the Prospectus of the
summary of its report to the Bank setting forth its opinion as to the estimated
pro forma market value of the Holding Company and the Bank as converted and its
letter with respect to subscription rights and to the use of its name and
statements with respect to it appearing in the Prospectus.
ADDITIONAL INFORMATION
The Holding Company has filed with the SEC a Registration Statement on Form
SB-2 (File No. 333-____) under the Securities Act with respect to the Common
Stock offered in the Conversion. The Prospectus does not contain all the
information set forth in the Registration Statement, certain parts of which are
omitted in accordance with the rules and regulations of the SEC. Such
information may be inspected at the public reference facilities maintained by
the SEC at 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549 and at its
regional offices at 500 West Madison Street, Suite 1400, Chicago, Illinois
60661; and 7 World Trade Center, Suite 1300, New York, New York 10048. Copies
may be obtained at prescribed rates from the Public Reference Section of the SEC
at 450 Fifth Street, N.W., Washington, D.C. 20549. In addition, the
Registration Statement is publicly available through the SEC's World Wide Web
site on the Internet (http://www.sec.gov).
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The Bank has filed with the OTS an Application for Approval of Conversion,
which includes proxy materials for the Bank's Special Meeting and certain other
information. The Prospectus omits certain information contained in such
Application. The Application, including the proxy materials, exhibits and
certain other information that are a part thereof, may be inspected, without
charge, at the offices of the OTS, 1700 G Street, N.W., Washington, D.C. 20552
and at the office of the Regional Director of the OTS at the West Regional
Office of the OTS, 1 Montgomery Street, Suite 400, San Francisco, California
94104.
Copies of the Holding Company's Certificate of Incorporation and Bylaws may
be obtained by written request to the Bank.
BY ORDER OF THE BOARD OF DIRECTORS
LARRY K. MOXLEY
SECRETARY
Lewiston, Idaho
______, 1997
YOUR BOARD OF DIRECTORS URGES YOU TO CONSIDER CAREFULLY THE INFORMATION
CONTAINED IN THIS PROXY STATEMENT AND, WHETHER OR NOT YOU PLAN TO BE PRESENT IN
PERSON AT THE SPECIAL MEETING, TO FILL IN, DATE, SIGN AND RETURN THE ENCLOSED
PROXY CARD(S) AS SOON AS POSSIBLE TO ASSURE THAT YOUR VOTES WILL BE COUNTED.
THIS WILL NOT PREVENT YOU FROM VOTING IN PERSON IF YOU ATTEND THE SPECIAL
MEETING. YOU MAY REVOKE YOUR PROXY BY WRITTEN INSTRUMENT DELIVERED TO THE
SECRETARY OF THE BANK AT ANY TIME PRIOR TO OR AT THE SPECIAL MEETING OR BY
ATTENDING THE SPECIAL MEETING AND VOTING IN PERSON.
________________________
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 IN THOSE
JURISDICTIONS IN WHICH IT IS LAWFUL TO MAKE SUCH OFFER.
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REVOCABLE PROXY
SOLICITED ON BEHALF OF
THE BOARD OF DIRECTORS
OF
FIRSTBANK NORTHWEST
FOR THE SPECIAL MEETING OF MEMBERS
The undersigned member of FirstBank Northwest ("Bank") hereby appoints the
Board of Directors, with full powers of substitution, as attorneys-in-fact and
agents for and in the name of the undersigned, to vote such shares as the
undersigned may be entitled to cast at the Special Meeting of Members
("Meeting") of the Bank to be held at the Bank's main office at 920 Main Street,
Lewiston, Idaho, on the date and time indicated on the Notice of Special
Meeting, and at any adjournment thereof. They are authorized to cast all votes
to which the undersigned is entitled, as follows:
FOR AGAINST
(1) To approve a Plan of Conversion adopted
by the Board of Directors [ ] [ ]
on January 8, 1997, as amended on
March 12, 1997, providing for (i) the
conversion of the Bank from a federally
chartered mutual savings bank to a
federally chartered capital stock savings
bank to be held as a wholly-owned
subsidiary of a new holding company,
FirstBank Corp., including the adoption
of a Federal Stock Charter and Bylaws for
the Bank, pursuant to the laws of
the United States and the rules and
regulations of the Office of Thrift
Supervision, and (ii) the subsequent
relocation of the Bank's main office to
Clarkston, Washington and conversion of
the Bank to a Washington-chartered
savings bank.
(2) In their discretion, upon such other
matters as may properly come before the
Special Meeting.
NOTE: The Board of Directors is not aware of any other matter that may come
before the Meeting.
<PAGE>
THIS PROXY WILL BE VOTED FOR THE PROPOSITION
STATED IF NO CHOICE IS MADE HEREIN
Should the undersigned be present and elect to vote at said Meeting or at
any adjournment thereof and, after notification to the Secretary of the Bank at
said Meeting of the member's decision to terminate this Proxy, then the power of
said attorney-in-fact or agents shall be deemed terminated and of no further
force and effect.
The undersigned acknowledges receipt of a Notice of Special Meeting of
Members of the Bank called on the date and time indicated on the Notice of
Special Meeting, and a Proxy Statement relating to said Meeting from the Bank,
prior to the execution of this Proxy.
______________________
Date
______________________
Signature
_________________________
Signature
Please sign your name exactly as it appears on this proxy card.
Note: Only one signature is required in the case of a joint account, but all
account holders should sign if possible. When signing as an attorney,
administrator, agent, corporation, officer, executor, trustee, guardian or
similar position, please give your full title.
