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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 7, 1997
REGISTRATION NO. 333-30469
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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PRE-EFFECTIVE AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
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EQUALITY BANCORP, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 6035
(STATE OR OTHER (PRIMARY STANDARD 43-1785126
JURISDICTION OF INDUSTRIAL CLASSIFICATION (I.R.S. EMPLOYER
INCORPORATION OR CODE NUMBER) IDENTIFICATION NO.)
ORGANIZATION)
EQUALITY BANCORP, INC.
9920 WATSON ROAD
ST. LOUIS, MISSOURI 63126
(314) 965-7090
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
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RICHARD C. FELLHAUER
PRESIDENT AND CHIEF EXECUTIVE OFFICER
EQUALITY BANCORP, INC.
9920 WATSON ROAD
ST. LOUIS, MISSOURI 63126
(314) 965-7090
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
PLEASE ADDRESS A COPY OF ALL COMMUNICATIONS TO:
CHRISTOPHER J. ZINSKI, ESQ. PAUL M. AGUGGIA, ESQ.
SCHIFF HARDIN & WAITE BREYER & AGUGGIA
7200 SEARS TOWER 1300 "I" STREET, N.W., SUITE 470 EAST
CHICAGO, ILLINOIS 60606 WASHINGTON, D.C. 20005
(312) 258-5548 (202) 737-7900
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: As soon as practicable after the effective date of this Registration
Statement.
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. [_]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) 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 this form is a post-effective amendment filed pursuant to Rule 462(c)
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 delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
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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.
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EQUALITY BANCORP, INC.
CROSS REFERENCE SHEET PURSUANT TO ITEM 501 OF REGULATION S-K
<TABLE>
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CAPTION OF LOCATION IN SUBSCRIPTION
FORM S-1 ITEM NUMBER AND DESCRIPTION AND COMMUNITY OFFERING PROSPECTUS
------------------------------------ -----------------------------------
<S> <C>
1.Forepart of the Registration Statement and Forepart of the Registration Statement;
Outside Front Cover Page of Prospectus.. Outside Front Cover Page of Prospectus
2.Inside Front and Outside Back Cover Pages Inside Front Cover Page of Prospectus;
of Prospectus........................... Outside Back Cover Page of Prospectus
3.Summary Information, Risk Factors and Summary; Risk Factors
Ratio of Earnings to Fixed Charges......
4. Use of Proceeds.......................... Use of Proceeds
5. Determination of Offering Price.......... The Conversion and Reorganization--Stock
Pricing, Exchange Ratio and Number of
Shares to be Issued
6. Dilution................................. Not Applicable
7. Selling Security Holders................. Not Applicable
8. Plan of Distribution..................... Market for Common Stock; The Conversion and
Reorganization--The Offering; The
Conversion and Reorganization--Marketing
Arrangements; The Conversion and
Reorganization--Syndicated Community
Offering; The Conversion and
Reorganization--Alternative Offerings of
Common Stock
9. Description of Securities to be The Conversion and Reorganization--
Registered............................... Restrictions on Transfer of Subscription
Rights and Shares; Comparison of
Stockholders' Rights; Restrictions on
Acquisition of the Holding Company;
Description of Capital Stock
10. Interests of Named Experts and Counsel... Not Applicable
11. Information with Respect to the Equality Bancorp, Inc.; Equality Savings
Registrant............................... and Loan Association, F.A.; Business of
the Association; Market for Common Stock;
Dividend Policy; Regulation and
Supervision--Federal Savings Association
Regulation--Limitation on Capital
Distributions; Index to Consolidated
Financial Statements; Summary--Selected
Consolidated Financial Information of the
Association; Management's Discussion and
Analysis of Financial Condition and
Results of Operations; Management of the
Holding Company and Association
12.Disclosure of Commission Position on Not Applicable
Indemnification for Securities Act
Liabilities.............................
</TABLE>
<PAGE>
SUPPLEMENT TO PROSPECTUS
EQUALITY BANCORP, INC.
EQUALITY SAVINGS AND SECURITY PLAN
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This Prospectus Supplement relates to the offer and sale to participants
(the "Participants") in the Equality Savings and Security Plan (the "Plan") of
participation interests in the Plan and up to shares of Equality
Bancorp, Inc. (the "Holding Company") common stock, par value $.01 per share
(the "Holding Company Stock"), as set forth herein.
The Holding Company's principal executive offices are located at 9920 Watson
Road, St. Louis, Missouri 63126. Its telephone number is (314) 965-7090.
In connection with the proposed Conversion and Reorganization (as described
in the Prospectus dated , 1997 (the "Prospectus")), Equality
Savings and Loan Association, F.A. (the "Association") will become a wholly-
owned subsidiary of the Holding Company and the shares of the Association
common stock, par value $1.00 per share (the "Association Shares") currently
held under the Plan will be exchanged for shares of Holding Company Stock. In
addition, the Plan has been amended to provide that each Participant in the
Plan may direct the trustee of the Plan (the "Trustee") to purchase Holding
Company Stock with certain amounts in the Plan attributable to such
Participant. This Prospectus Supplement relates to the election of a
Participant to direct the purchase of Holding Company Stock in the Conversion
and Reorganization.
The Prospectus attached to this Prospectus Supplement includes detailed
information with respect to the Conversion and Reorganization, the Holding
Company, the Association, the Holding Company Stock and the financial
condition, results of operations and business of the Holding Company and the
Association. This Prospectus Supplement, which provides detailed information
with respect to the Plan, should be read only in conjunction with the
Prospectus.
A Participant's eligibility to purchase Holding Company Stock in the
Conversion and Reorganization through the Plan is subject to the Participant's
general eligibility to purchase shares of Holding Company Stock in the
Conversion and Reorganization and the maximum and minimum purchase limitations
set forth in the Plan of Conversion and Reorganization. See "The Conversion
and Reorganization--Limitations on Conversion Stock Purchases" in the
Prospectus. For a discussion of certain factors that should be considered by
each Participant, see "Risk Factors" in the Prospectus.
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THESE SHARES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION (THE "COMMISSION"), THE OFFICE OF THRIFT SUPERVISION
("OTS"), ANY STATE SECURITIES COMMISSION ("STATE COMMISSION") OR THE
FEDERAL DEPOSIT INSURANCE CORPORATION ("FDIC"), NOR HAS THE COMMISSION,
OTS, STATE COMMISSION OR FDIC PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
THE SHARES OF COMMON STOCK OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS OR
DEPOSITS AND ARE NOT INSURED BY THE FDIC OR ANY OTHER GOVERNMENT AGENCY.
THE DATE OF THIS PROSPECTUS SUPPLEMENT IS , 1997.
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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, AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
HOLDING COMPANY, THE ASSOCIATION 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 HOLDING COMPANY, THE ASSOCIATION, OR THE PLAN SINCE THE
DATE HEREOF OR THAT THE INFORMATION HEREIN CONTAINED OR INCORPORATED BY
REFERENCE IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF. THIS
PROSPECTUS SUPPLEMENT SHOULD BE READ ONLY IN CONJUNCTION WITH THE PROSPECTUS
THAT IS ATTACHED HERETO AND SHOULD BE RETAINED FOR FUTURE REFERENCE.
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TABLE OF CONTENTS
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PAGE
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THE OFFERING.............................................................. 3
Securities Offered...................................................... 3
Election to Purchase Holding Company Stock in the Conversion and
Reorganization......................................................... 3
Value of Participation Interests........................................ 3
Method of Election...................................................... 3
Time for Election....................................................... 3
Irrevocability of Election.............................................. 3
Direction to Purchase Holding Company Stock After the Conversion and
Reorganization......................................................... 3
Purchase Price of Holding Company Stock................................. 4
Nature of a Participant's Interest in the Holding Company Stock......... 4
Voting of Holding Company Stock......................................... 4
DESCRIPTION OF THE PLAN................................................... 4
Introduction............................................................ 4
Eligibility............................................................. 5
Contributions Under the Plan............................................ 5
Limitations on Contributions............................................ 6
Investment of Contributions............................................. 7
Benefits Under the Plan................................................. 9
Withdrawals and Distributions from the Plan............................. 9
Plan Loans.............................................................. 10
Administration of the Plan.............................................. 11
Reports to Plan Participants............................................ 11
Amendment and Termination............................................... 11
Merger, Consolidation or Transfer....................................... 11
Claims Procedures....................................................... 12
Federal Tax Aspects of the Plan......................................... 12
Restrictions on Resale of Holding Company Stock......................... 13
LEGAL OPINIONS............................................................ 14
</TABLE>
<PAGE>
THE OFFERING
SECURITIES OFFERED
The securities offered hereby are participation interests in the Plan and up
to shares of Holding Company Stock which may be acquired by the Plan
for the Accounts of those employees participating in the Plan who elect to
have all or a portion of their Plan Account balances attributable to their own
contributions used to purchase Holding Company Stock. Shares sold pursuant to
the Plan will be included in the maximum individual purchase limitations set
forth in the Plan of Conversion and Reorganization. See "The Conversion and
Reorganization--Limitations on Conversion Stock Purchases." Accordingly, the
actual number of shares purchased by the Plan may be less than shares
of Holding Company Stock. Information with regard to the Plan is contained in
this Prospectus Supplement and information with regard to the Conversion and
Reorganization and the financial condition, results of operations and business
of the Holding Company and the Association is contained in the attached
Prospectus.
ELECTION TO PURCHASE HOLDING COMPANY STOCK IN THE CONVERSION AND
REORGANIZATION
As part of the Conversion and Reorganization, each Participant has an
election to allocate up to 100% of the funds which represent his or her
beneficial interest in the assets of the Plan held in his or her Salary
Deferral Contributions Account, Voluntary Contributions Account and Rollover
Contributions Account to the purchase of Holding Company Stock. The Trustee of
the Plan will follow the Participants' directions and exercise subscription
rights to purchase Holding Company Stock in the Conversion and Reorganization.
Funds not allocated to the purchase of Holding Company Stock will be invested
in other Trust investments, including those authorized by Participants.
VALUE OF PARTICIPATION INTERESTS
The assets of the Plan are valued on an ongoing basis and each Participant
is informed by the Plan Administrator of the value of his or her beneficial
interest in the Plan on an annual basis. The value represents the market value
of contributions to the Plan by the Association and by the Participants and
earnings thereon, less distributions.
METHOD OF ELECTION
Enclosed with this Prospectus Supplement is an investment form (the
"Investment Form"). If a Participant wishes to allocate a part of his or her
beneficial interest in the assets of the Plan to the purchase of Holding
Company Stock in the Conversion and Reorganization, he or she should indicate
that decision on the Investment Form and return it to the Trustee. If a
Participant does not wish to make such an election, he or she does not need to
take any action.
TIME FOR ELECTION
The deadline for the election for purchase of Holding Company Stock in the
Conversion and Reorganization is , 1997. The Election Form should
be returned to the Trustee by 12:00 noon, local time, on such date.
IRREVOCABILITY OF ELECTION
The election of a Participant to direct the Trustee to exercise subscription
rights in the Conversion and Reorganization becomes irrevocable at 12:00 noon,
local time, , 1997. Prior to such time, a Participant may revoke or
amend any previously filed Investment Form by filing a new Investment Form
with the Association's personnel department.
DIRECTION TO PURCHASE HOLDING COMPANY STOCK AFTER THE CONVERSION AND
REORGANIZATION
After the Conversion and Reorganization, a Participant will be able to
direct that up to 100% of such Participant's interest in the Plan held in his
or her Salary Deferral Contributions Account, Voluntary
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Contributions Account and Rollover Contributions Account be transferred to the
Holding Company Stock fund and invested in Holding Company Stock.
Alternatively, a Participant may direct that a certain percentage of such
Participant's interest in the Holding Company Stock fund be transferred from
the Holding Company Stock fund to the other investment funds available under
the Plan. A Participant will be permitted to direct that future Salary
Deferral Contributions, Voluntary Contributions and Rollover Contributions
made to the Plan by or on such Participant's behalf be invested in Holding
Company Stock. Following the initial election, the allocation of a
Participant's interest in the Holding Company Stock fund may be changed by the
Participant. Special restrictions apply to transfers directed by those
Participants who are executive officers, directors and principal stockholders
of the Holding Company or the Association who are subject to the provisions of
Section 16(b) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act").
PURCHASE PRICE OF HOLDING COMPANY STOCK
The funds allocated for the purchase of Holding Company Stock in the
Conversion and Reorganization will be used by the Trustee to purchase Holding
Company Stock. The price paid for such shares of Holding Company Stock will be
the same price as is paid by all other persons who purchase Holding Company
Stock in the Conversion and Reorganization. The price paid by the Trustee for
shares of Holding Company Stock will not exceed "adequate consideration" as
defined in Section 3(18) of the Employee Retirement Income Security Act of
1974, as amended ("ERISA"), and no fees or commissions will be paid by the
Plan with respect to the purchase of Holding Company Stock in the Conversion
and Reorganization. See "The Conversion and Reorganization--Stock Pricing,
Exchange Ratio and Number of Shares to be Issued" in the Prospectus for a
discussion of how the stock price will be determined in the Conversion and
Reorganization.
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 Plan as a segregated, earmarked investment for the
Account. 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 OF HOLDING COMPANY STOCK
Each Participant will have the opportunity to direct the Trustee as to the
manner in which the Holding Company Stock held in his or her Accounts will be
voted. In the event the Participant does not so direct the Trustee, the
Trustee will vote the Holding Company Stock held in the Participant's Accounts
proportionately in the same manner as it votes shares for which it has
received voting instructions.
DESCRIPTION OF THE PLAN
INTRODUCTION
The Plan, which currently is maintained by First Missouri Financial, M.H.C.
(the "Mutual Holding Company"), was originally adopted effective as of April
1, 1986 and subsequently has been amended and restated, effective January 1,
1990. In connection with the Conversion and Reorganization, the Plan will be
amended to designate the Holding Company as successor sponsor of the Plan. The
Plan is a profit sharing plan with a cash or deferred arrangement established
in accordance with the requirements of Sections 401(a) and 401(k) of the
Internal Revenue Code (the "Code"). The Plan has a calendar year fiscal year
(the "Plan Year").
The Plan has received from the Internal Revenue Service a determination that
the Plan, as amended, is qualified under Section 401(a) of the Code and
satisfies the requirements under Section 401(k) of the Code. It is intended
that the Plan will comply in operation with each of the requirements of the
Code which are applicable to a plan qualified under Section 401(a) of the Code
and the requirements which are applicable to a qualified cash or deferred
arrangement under Section 401(k) of the Code.
4
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The Plan is an "individual account plan" other than a "money purchase
pension plan" within the meaning of ERISA. As such, the Plan is subject to all
the reporting, disclosure, participation, vesting and fiduciary responsibility
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 plan). The Plan is also subject to the provisions of Title III
regarding jurisdiction, administration and enforcement. The Plan is not
subject to Title IV (Plan Termination Insurance) of ERISA.
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 (and trust). Copies of the Plan (and trust) are available to all
employees upon request. Each employee is urged to read carefully the full text
of the Plan (and trust).
ELIGIBILITY
Each employee of the Association or its subsidiaries Equality Mortgage
Corporation and Equality Commodity Corporation is eligible to become a
Participant in the Plan as of the January 1st or July 1st (the "Entry Date")
following or coinciding with the date on which he or she completes one year of
service. (An employee earns a year of service if he or she completes 1,000 or
more hours of service during the twelve month period beginning with his or her
date of employment, or if later, the Plan Year or anniversary thereof that
begins during the first year of employment.) Notwithstanding the foregoing, an
employee is not eligible to participate in the Plan if he or she is covered by
a collective bargaining agreement under which retirement benefits were the
subject of good faith bargaining.
An employee who has met the eligibility requirements must complete and file
with the Plan administrator (the "Plan Administrator") a prescribed written
application form and contribute to the Plan.
As of June 1, 1997, there were 84 employees eligible to participate in the
Plan, and 71 employees had elected to participate in the Plan.
CONTRIBUTIONS UNDER THE PLAN
Salary Deferral Contributions. Each Participant in the Plan may elect to
reduce his or her Compensation (as defined below) from 1 to 15% on a before-
tax basis and have that amount contributed to the Plan on his or her behalf
("Salary Deferral Contributions"). For purposes of the Plan, "Compensation"
means the total compensation actually paid by the Association or a subsidiary
that is reported on Form W-2, including the amounts of Salary Deferral
Contributions and certain other pre-tax contributions made by the Participant.
The annual Compensation of each Participant taken into account under the Plan
is limited to Compensation earned while a Participant, to a maximum of
$160,000 in 1997 (this dollar limitation is adjusted periodically for
increases in the cost of living pursuant to the Code). A Participant may
change or terminate his or her Salary Deferral Contributions at any time,
provided that a change in the rate of contribution may be made once in any six
month period and no change or termination may be made within 60 days of the
end of the Plan Year. If a Participant terminates his or her Salary Deferral
Contributions, he or she may not recommence such Salary Deferral Contributions
until the following Plan Year. Salary Deferral Contributions are credited to
the Participant's Salary Deferral Contributions Account.
Voluntary Contributions. Each Participant in the Plan may also elect to
contribute to the Plan an additional amount of his or her Compensation
(minimum of 1%) on an after-tax basis ("Voluntary Contributions"). A
Participant may change or terminate his or her Voluntary Contributions at any
time, provided that a change in the rate of contribution may be made once in
any six month period and if a Participant terminates his or her Voluntary
Contributions, he or she may not recommence such Voluntary Contributions until
six months from the date of such termination.
5
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Rollover Amounts from Other Plans. A Participant may, subject to the
approval of the Plan Administrator and consistent with the requirements of
Section 402(c) or Section 408(d)(3) of the Code, transfer to the Plan
distributions received by the Participant from another qualified plan. Such
amounts are credited to the Participant's "Rollover Account."
Matching Contributions. The Mutual Holding Company will make a Matching
Contribution to the Plan for each Plan Year on behalf of each Participant who
is making Salary Deferral Contributions or Voluntary Contributions on the last
day of such Plan Year. The Matching Contribution will be an amount equal to
50% of the first 2% of the aggregate of the Participant's (i) Salary Deferral
Contributions made during the Plan Year; and (ii) Voluntary Contributions made
and not withdrawn during the Plan Year. Matching Contributions are credited to
each Participant's Matching Contributions Account.
Discretionary Contributions. The Mutual Holding Company may make
Discretionary Contributions to the Plan for each Plan Year. Each Participant
who is employed on the last day of the Plan Year is eligible to share in the
allocation of the Discretionary Contributions, if any, for the Plan Year.
Discretionary Contributions are allocated to each eligible Participant's
Account based on the ratio of each such Participant's number of units to the
aggregate number of units of all such Participants. A Participant will be
credited with one unit for each $500 of annual Compensation (with fractional
units rounded to one full unit) and four units for each full year of service.
A Participants earns a year of service for this purpose for each Plan Year in
which he or she is employed on the last day of such Plan Year. Discretionary
Contributions are credited to each Participant's Discretionary Contributions
Account.
LIMITATIONS ON CONTRIBUTIONS
Limitation on Annual Additions. Pursuant to the requirements of the Code,
the Plan provides that the annual additions to each Participant's Accounts
during any Plan Year may not exceed the lesser of 25% of the Participant's
taxable compensation for the Plan Year or $30,000 (adjusted for increases in
the cost of living as permitted by the Code).
Limitation on Salary Deferral Contributions. The total amount of Salary
Deferral Contributions of a Participant (when aggregated with any elective
deferrals of the Participant under another qualified cash or deferred
arrangement, a simplified employee pension plan, a salary reduction
arrangement, a deferred compensation plan under Code Section 457 or a Section
501(c)(8) trust) may not exceed $9,500 for the calendar year which began
January 1, 1997. This limitation is adjusted periodically for increases in the
cost of living pursuant to the Code. Salary Deferral Contributions in excess
of this limitation ("excess deferrals") will be included in the Participant's
gross income for federal income tax purposes in the year they are made. In
addition, any excess deferral will again be subject to federal income tax when
distributed by the Plan to the Participant, unless the excess deferral (and
any income allocable to the excess deferral) is distributed to the Participant
not later than the April 15 following the close of the calendar year in which
the excess deferral is made. Any income on the excess deferral that is
distributed not later than such April 15 will 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. A Participant must notify the Plan
Administrator in writing not later than April 1 of the following Plan Year
that he has excess elective deferrals for the previous Plan Year which must be
distributed.
Limitation on Contributions for Highly Compensated Employees. The Code
limits the amount of Salary Deferral Contributions, Voluntary Contributions
and Matching Contributions that may be made to the Plan in any Plan Year on
behalf of Highly Compensated Employees (defined below) in relation to the
amount of Salary Deferral Contributions, Voluntary Contributions and Matching
Contributions made by all other employees eligible to participate in the Plan.
In the case of Salary Deferral Contributions, the actual deferral percentage
(i.e., the average of the ratios, calculated separately for each eligible
employee in each group, of the amount of Salary Deferral Contributions of such
eligible employee to such eligible employee's compensation for the Plan Year)
of Highly Compensated Employees may not exceed either (i) 125% of the actual
deferral percentage of all
6
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other eligible employees, or (ii) 200% of the actual deferral percentage of
all other eligible employees and does not exceed the actual deferral
percentage of all other eligible employees by more than two percentage points.
In general, a Highly Compensated Employee includes any employee who (1) during
the Plan Year or the preceding Plan Year was at any time a 5% owner (i.e.,
owns directly or indirectly more than 5% of the stock of the Holding Company
or the Association, or stock possessing more than 5% of the total combined
voting power of all stock of the Holding Company or the Association) or (2)
during the preceding Plan Year received compensation from the Holding Company,
Association or a subsidiary in excess of $80,000 (as adjusted for cost-of-
living increases pursuant to the Code).
In order to avoid tax disqualification of the Plan, any Salary Deferral
Contributions of Highly Compensated Employees that exceed the foregoing
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. Alternatively, the Mutual Holding
Company may in its sole discretion, elect to make additional contributions to
the Plan on behalf of Participants who are not Highly Compensated Employees in
order to satisfy the limitation on the actual deferral percentage.
Any Voluntary Contributions and Matching Contributions made under the Plan
are subject to similar limits, and if such limitations are exceeded for a Plan
Year the excess (including earnings allocable thereto) shall be returned to
Highly Compensated Employees or forfeited in accordance with procedures
described above in order to satisfy such limits.
Top-Heavy Plan Requirements. If for any Plan Year the Plan is a Top-Heavy
Plan (as defined below), then (i) the Mutual Holding Company may be required
to make certain minimum contributions to the Plan on behalf of non-Key
Employees (as defined below), and (ii) certain additional restrictions would
apply with respect to the combination of annual additions to the Plan and
projected annual benefits under any defined benefit plan maintained by the
Mutual Holding Company, Association, Holding Company or any subsidiary.
In general, the Plan will be a "Top-Heavy Plan" for any Plan Year if, as of
the last day of the preceding Plan Year, the aggregate balance of the Accounts
of Participants who are Key Employees exceeds 60% of the aggregate balance of
the Accounts of all Participants. Key Employees generally include any employee
who, at any time during the Plan Year or any of the four preceding Plan Years,
is (1) an officer of the Mutual Holding Company, Holding Company, Association
or any subsidiary having annual compensation in excess of $60,000 (as adjusted
for cost-of-living increases pursuant to the Code), (2) one of the ten
employees having annual compensation in excess of $30,000 (as adjusted for
cost-of-living increases pursuant to the Code) and owning, directly or
indirectly, the largest interests in the Holding Company or Association, (3) a
5% owner of the Holding Company or Association (i.e., owns directly or
indirectly more than 5% of the stock of the Holding Company or Association, or
stock possessing more than 5% of the total combined voting power of all stock
of the Holding Company or Association), or (4) a 1% owner of the Holding
Company or Association having annual compensation in excess of $150,000.
INVESTMENT OF CONTRIBUTIONS
All amounts credited to Participants' Accounts under the Plan are held in
the trust maintained under the Plan (the "Trust") which is administered by the
Trustee appointed by the Mutual Holding Company's Board of Directors.
A Participant may elect to direct the investment of all or any portion of
his or her Accounts under the Plan. Accordingly, a Participant, in his or her
sole and absolute discretion, may give directions to the Trustee in such form
as the Trustee may require concerning the investment of the Participant's
Accounts, which directions must generally be followed by the Trustee. A
Participant may direct the Trustee to invest his or her Accounts in specific
assets as permitted by the Plan Administrator, in multiples of 25%. The Plan
permits investments in Holding Company Stock.
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The net gain (or loss) of the Plan from investments, other than Holding
Company Stock, (including interest payments, realized and unrealized gains and
losses on securities, and expenses paid from the Plan) will be determined as
of each Valuation Date and will be allocated among the Accounts of
Participants according to the balance of each such Account, excluding the
amount of any Account invested in Holding Company Stock. For purposes of such
allocations, all assets of the Plan are valued at their fair market value.
Participants in the Plan may elect to have all or a portion of their Salary
Deferral Contributions Accounts, Voluntary Contributions Accounts and Rollover
Contributions Accounts invested in Holding Company Stock. Transfers to or out
of the Holding Company Stock fund may occur as of any January 1, April 1, July
1 or October 1 upon 20 days advance written notice to the Plan Administer. If
an Account is invested in Holding Company Stock, the shares will be held in
the Plan as a separate investment for the Account. Any earnings, losses or
expenses with respect to the Holding Company Stock held in the Account,
including without limitation dividends and appreciation or depreciation of the
value of the shares, will be credited or debited to the Account and will not
be credited to or borne by any other Account of any other Participant. Any
cash dividends and other cash distributions paid on any Holding Company Stock
will be reinvested by the Trustee as directed by each Participant under the
Plan. A Participant may direct the Trustee to sell all or any of the shares of
Holding Company Stock held in his or her Plan Accounts in accordance with Plan
procedures. Any sales of Holding Company Stock by the Trustee must be made in
compliance with all federal and state securities laws. Under current federal
securities laws, it may be necessary for any such sales to be made in
compliance with Rule 144 under the Securities Act of 1933, which places
certain conditions on any such sale, including a limit on how many shares may
be sold by the Trustee during any three month period. If Holding Company Stock
is sold, the proceeds will be credited to the Account from which the shares
were sold and thereafter invested by the Trustee as part of the remainder of
the general fund under the Plan. Accounts which are invested in Holding
Company Stock will continue to be invested in such shares until the
Participant directs the Trustee to sell the shares.
Investment Funds. The following table sets forth certain information about
the relative historical performance of each of the currently available
investment funds (other than the Holding Company Stock fund) in which amounts
credited to Participants' Accounts may be invested. Participants are advised
that past performance is not necessarily indicative of the future performance
of these funds.
TOTAL RETURN PERFORMANCE BASED ON NET ASSET VALUE
(NET OF ALL FEES AND EXPENSES) WITH ALL DISTRIBUTIONS
<TABLE>
<CAPTION>
NAME OF FUND 1996 1995 1994
------------ ------ ------ ------
<S> <C> <C> <C>
Guaranteed Interest Fund................................. 5.45% 7.90% 7.35%
Common Stock Index Fund.................................. 22.90% 36.86% 1.15%
Money Market Fund........................................ 5.51% 5.96% 4.21%
Publicly Traded Bond Fund................................ 2.92% 18.90% (4.13%)
Balanced Fund............................................ 15.79% 29.02% (3.85%)
Association Shares Fund.................................. 9.85% 6.00% 6.00%
</TABLE>
A Participant may upon request obtain additional information about each
investment fund (e.g., each fund's operating expenses, the prospectus and
financial statements of each fund and a list of assets comprising each fund)
by contacting: Linda L. Pipitone, 4131 South Grand Boulevard, St. Louis,
Missouri 63118-3436, telephone (314) 352-3333.
Equity securities in these investment funds, except for the Holding Company
Stock fund, will be voted by the Trustee. If a Participant has invested in the
Holding Company Stock fund, he is entitled to exercise any voting or tender
rights attributable to such participation. In this regard, prior to any
shareholders meeting at which the Holding Company Stock is entitled to be
voted, or if there is a tender offer made for the Holding Company Stock, each
Participant will receive information from the Trustee with instructions how to
exercise his or her voting or tender rights. If a Participant does not
exercise his or her voting rights, the Trustee will vote the shares
8
<PAGE>
representing his or her portion of this fund proportionately in the same
manner as it votes Holding Company Stock for which it has received voting
instructions. If a Participant does not exercise his or her tender rights, the
shares representing his or her portion of this Fund will not be tendered. If a
Participant exercises his or her tender rights, the funds obtained when the
shares of Holding Company Stock are sold will be invested in the investment
funds, other than the Holding Company Stock fund, in the same proportions as
are set forth in his or her election then in effect, or based on a new
investment election made by the Participant. All information relating to the
exercise of any voting or tender rights is confidential and shall not be
divulged or released to any officers or employees of the Mutual Holding
Company. The responsibility for monitoring compliance with the procedures for
ensuring such confidentiality has been delegated to: Linda L. Pipitone, 4131
South Grand Boulevard, St. Louis, Missouri 63118-3436, telephone (314) 352-
3333.
BENEFITS UNDER THE PLAN
Vesting. A Participant has at all times a fully vested, nonforfeitable
interest in his or her Salary Deferral Contributions Account, Voluntary
Contributions Account and Rollover Contributions Account. A Participant who
terminates employment on or after age 65, or due to death or disability, will
become fully vested in his or her Matching Contributions Account and
Discretionary Contributions Account. Any other Participant will become fully
vested and have a nonforfeitable interest in his or her Matching Contributions
Account and Discretionary Contributions Account according to the following
vesting schedule:
<TABLE>
<CAPTION>
YEARS OF SERVICE VESTED%
---------------- -------
<S> <C>
less than 3............................... 0%
3......................................... 20%
4......................................... 40%
5......................................... 60%
6......................................... 80%
7 or more................................. 100%
</TABLE>
(A Participant earns a Year of Service for each Plan Year in which he or she
is employed with the Holding Company, Association or a subsidiary on the last
day of the Plan Year, or in the event he or she is not so employed, for each
Plan Year in which he or she earns at least 1,000 hours of service.) Any
forfeitures resulting from a Participant's termination of employment prior to
full vesting in his or her Matching Contributions Account and Discretionary
Contributions Accounts will be reallocated among remaining Participants who
are employed on the last day of the Plan Year.
WITHDRAWALS AND DISTRIBUTIONS FROM THE PLAN
Hardship Withdrawals. A Participant may request a hardship withdrawal from
the vested portion of his or her Accounts (excluding amounts attributable to
any earnings accruing after December 31, 1988 on Salary Deferral
Contributions). A hardship withdrawal will be approved only if necessary to
pay for an immediate financial need, which may include payment of medical
expenses, the purchase of a principal residence, payment of certain fees and
expenses for post secondary education, or to prevent eviction from or
foreclosure on the Participant's principal residence. The Participant must
first obtain all other available amounts from other resources, including
liquidation of other assets, cessation of contributions under the Plan or
distributions or loans from other plans of the Mutual Holding Company, Holding
Company or the Association.
Withdrawal of Voluntary Contributions. A Participant may withdraw all or a
portion of his or her Voluntary Contributions Account upon 30 days advance
written notice to the Plan Administrator, with the consent of his or her
spouse, if any. If the withdrawal is not due to a financial hardship (as
described above), further withdrawals are not permitted for 12 months.
9
<PAGE>
Distribution To Participant Upon Termination of Employment. A Participant
who terminates employment for any reason will be paid the vested portion of
his or her Accounts in one or more of the following forms, as chosen by the
Participant:
1. a lump sum
2. a direct rollover to another qualified retirement plan or to an IRA
3. an annuity in one of the following forms:
. straight life
. 5, 10 or 15 years certain
. 100%, 66 2/3% or 50% joint and survivor annuity
. cash refund
If a married Participant elects an annuity, distribution will automatically
be in the form of a 50% joint and survivor annuity with the spouse as
beneficiary, unless the Participant waives such form and his or her spouse
consents. Such waiver and consent generally must be made within the 90 day
period prior to the date benefits commence.
If the vested portion of the Participant's Accounts exceeds $3,500, no
distribution generally will be made from the Plan to the Participant prior to
the Participant's attaining age 65 unless the Participant consents to an
earlier distribution. Notwithstanding the foregoing, if the vested portion of
the Participant's Accounts does not exceed $3,500, it will be distributed to
him or her in either an immediate lump sum payment or direct rollover, as
elected by the Participant.
Distribution To Beneficiary Upon Death. The Accounts of a Participant who
dies will be paid to the Participant's designated beneficiary. If the
Participant is married at his or her death, his or her surviving spouse will
be the beneficiary unless the spouse has consented to the designation of
another beneficiary. Distribution will be made in one of the forms as
described in the preceding paragraph, as elected by the Participant (or if not
elected by the Participant, then by the beneficiary). Notwithstanding the
foregoing, if the value of the Participant's Accounts does not exceed $3,500,
it will be distributed to his or her beneficiary in either an immediate lump
sum payment or direct rollover, as elected by the beneficiary.
Payment in Cash or Holding Company Stock. The amount which a Participant or
beneficiary is entitled to receive at any time from an Account which is
invested in Holding Company Stock will be paid by distributing cash, or if
elected by the Participant, shares of Holding Company Stock, to the
Participant or beneficiary. The amount payable to a Participant or beneficiary
which is not invested in Holding Company Stock will be paid in cash.
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 are not
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 will be void.
PLAN LOANS
A Participant may obtain a loan from the vested portion of his Accounts in
accordance with procedures established by the Plan Administrator. The minimum
amount of such loan is $1,000 and the maximum of such loan is the lesser of
(i) $50,000, reduced by the amount of all loans made to the Participant during
the 12-month period before the loan is made, or (ii) 50% of the vested amount
of the Participant's Accounts. Only one loan may be outstanding at any time.
Repayment of the loan and interest will be made through irrevocable payroll
deductions according to an amortization schedule established by the Plan
Administrator. Repayments of loan principal and interest will be allocated to
the Participant's Accounts from which withdrawn and invested in
10
<PAGE>
accordance with his or her investment election then in effect. Should a
default and an acceleration of an unpaid balance and interest of the loan
occur, the Plan Administrator has the right to use any remedies available to
any creditor at law. If the Participant has a loan outstanding, and an event
occurs pursuant to which the Participant or his or her beneficiary will
receive a distribution from the Participant's Accounts, the amount needed to
liquidate the loan plus interest will be paid to the Trustee prior to any such
distribution.
ADMINISTRATION OF THE PLAN
The Plan Administrator. Richard C. Fellhauer is the Plan Administrator. The
business address of the Plan Administrator is 4131 South Grand Boulevard, St.
Louis, Missouri 63118-3436 (telephone (314) 352-3333). The Plan Administrator
is responsible for administration of the Plan. The Plan Administrator has
appointed individuals to assist in the administration of the Plan and in
carrying out his responsibilities for interpretation of the provisions of the
Plan, prescribing procedures for filing applications for benefits, preparation
and distribution of information explaining the Plan, furnishing the
Association with reports with respect to the administration of the Plan, and
receiving, reviewing and keeping on file reports of the financial condition of
the Trust. If so designated by the Mutual Holding Company, the Plan
Administrator shall also be responsible for maintenance of Plan records,
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 and beneficiaries
under Sections 104 and 105 of ERISA.
Trustee. The Trustee is appointed by the board of directors of the Mutual
Holding Company. The individuals currently serving as the Trustee of the Plan
are Michael A. Deelo, Berenice Mahacek and Richard C. Fellhauer. The business
address of the Trustee is 4131 South Grand Boulevard, St. Louis, Missouri
63118-3436 (telephone (314) 352-3333). The Trustee receives and holds the
contributions to the Plan in trust and distributes them to Participants and
beneficiaries in accordance with the provisions of the Plan and the directions
of the Plan Administrator. The Trustee is responsible for investment of the
assets of the Trust, other than assets invested as directed by the
Participants.
REPORTS TO PLAN PARTICIPANTS
Not less than once each year, each Participant will receive a statement
showing (i) balances in the Participant's Accounts as of the end of that
period, (ii) the amount of contributions allocated to his or her Accounts for
that period, and (iii) the adjustments to his or her Accounts to reflect his
or her share of Plan earnings, including any dividends on Holding Company
Stock held in his or her Accounts.
AMENDMENT AND TERMINATION
It is the intention of the Mutual Holding Company to continue the Plan
indefinitely. Nevertheless, the Mutual Holding Company 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 Participant affected by such termination
will have a fully vested interest in all of his or her Accounts, including his
or her Matching Contributions Account and Discretionary Contributions Account.
The Mutual Holding Company 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 Participants or their beneficiaries; provided, however, that the Mutual
Holding Company may make any amendment it determines necessary or desirable,
with or without retroactive effect, to comply with ERISA and/or the Code.
MERGER, CONSOLIDATION OR TRANSFER
In the event of the merger or consolidation of the Plan with another plan,
or the transfer of the Trust assets to another plan, the Plan requires that
each Participant would (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 would have been entitled to
receive immediately before the merger, consolidation or transfer (if the Plan
had then terminated).
11
<PAGE>
CLAIMS PROCEDURES
Claims for benefits under the Plan may be filed on forms provided by the
Plan Administrator. If a claim for benefits is wholly or partially denied, the
Participant will receive written notice explaining the reason for the denial
and the Plan provision on which it was based. The Participant will also be
notified of any additional material or information he or she could submit to
perfect the claim and the reasons such information is necessary. In order to
appeal a denial of a claim, the Participant or his or her representative may
request review of the claim by submitting written application not later than
60 days after receiving written notification of the claim denial. The
Participant or his or her representative may also review pertinent documents
and submit issues and comments in writing. These requests should be sent to
the Plan Administrator. They will be reviewed within 60 days after the Plan
Administrator's receipt of the Participant's request and a decision will be
communicated to Participant in writing not later than 120 days after receipt
of the Participant's request.
FEDERAL TAX ASPECTS OF THE PLAN
As noted above, the Plan has received from the IRS a determination that the
Plan is qualified under Section 401(a) of the Code. Assuming that the Plan is
administered in accordance with the requirements of the Code and that the Plan
remains qualified under Section 401(a) of the Code, participation in the Plan
should have the following implications under existing federal income tax laws:
(a) Amounts contributed to a Participant's Accounts (other than the
Participant's Voluntary Contributions Account), and the investment earnings
thereon, are not includable in the Participant's federal taxable income
until such contributions or earnings are actually distributed or withdrawn
from the Plan. (However, the amount of a Participant's Voluntary
Contributions will be included in his or her federal taxable income in the
year such amounts are earned by the Participant, and the amount of a
Participant's Salary Deferral Contributions will be included in his or her
income in the year such amounts are earned by the Participant for purposes
of Social Security taxes.)
(b) Income earned on assets of the Trust maintained under the Plan will
not be taxable to the Trust.
Distributions and Withdrawals. Distributions and withdrawals generally
become taxable in the year they are received by the Participant, except for
amounts attributable to after-tax contributions such as Voluntary
Contributions. A Participant may, however, elect to defer federal income
taxation of all or a portion of a distribution or withdrawal that qualifies as
an "eligible rollover distribution" by rolling over the distribution or
withdrawal to a qualified retirement plan of another employer or to an IRA. In
such event, the amount rolled over and earnings thereon are not subject to
federal income tax until subsequently distributed to the Participant or his or
her beneficiary. Any amount of an eligible rollover distribution that is not
rolled over will be subject to a mandatory 20% withholding requirement (see
"Income Tax Withholding" below).
Distribution in the Form of an Annuity. A distribution in the form of an
annuity from the Plan is taxed under the general annuity rules of Section 72
of the Code. These rules apply to all "amounts received as an annuity", and
specific rules apply to distributions from qualified plans. The Code provides
that amounts actually distributed to any Participant or beneficiary under the
Plan excluding any non-deductible after tax employee contributions and life
insurance benefits, are generally taxable in the year distributed. Generally,
the taxable portion of each payment is ordinary income.
Distribution of Holding Company Stock. If a lump sum distribution (i.e., a
payment within one year of the entire vested balance of all Accounts) includes
shares of Holding Company Stock, the excess, if any, of the fair market value
of such Holding Company Stock over the cost of the Holding Company Stock to
the Trustee is not subject to federal income tax at the time of distribution
but generally will be subject to federal income tax when such Holding Company
Stock is subsequently sold. To the extent provided by the Code, a Participant
may elect not to defer the tax on net unrealized appreciation in Holding
Company Stock until the year of disposition of such Holding Company Stock,
thus subjecting the entire distribution to federal income tax at the time of
distribution.
12
<PAGE>
Additional Tax on Early Distributions. An additional 10% excise tax will be
imposed on any taxable distribution or withdrawal received by a Participant
before he reaches age 59 1/2 unless such distribution or withdrawal is (i)
rolled over to another qualified plan or an IRA; (ii) made to a beneficiary
after the Participant's death; (iii) made on Account of the Participant's
retirement due to disability (as defined by the Plan Administrator); (iv) made
after the Participant's separation from service after attainment of age 55;
(v) made to the Participant for payment of medical expenses that could be
deducted on his or her tax return; (vi) made to an alternate payee pursuant to
a qualified domestic relations order; or (vii) paid to the Participant over
his or her life or life expectancy or the joint lives or life expectancies of
the Participant and his or her beneficiary.
15% Tax on Excess Distributions. The Code also imposes a 15% excise tax on
the portion of a lump sum distribution that exceeds a dollar limitation in a
calendar year. Distributions from all tax-qualified plans and IRAs received in
the same calendar year will be aggregated in calculating this tax. The 15%
excise tax applies irrespective of the Participant's age at the time of
distribution, but does not apply to an excess distribution that is (i) rolled
over into another qualified retirement plan or an IRA; (ii) made to an
alternate payee under a qualified domestic relations orders; or (iii) made on
Account of the Participant's death (although an additional estate tax
attributable to the excess distribution is due in the event of death).
Notwithstanding the above, the 15% excise tax has been suspended for
distributions made during 1997, 1998 and 1999.
Forward Averaging Rules. Amounts that are included in taxable income may
qualify for five-year forward averaging tax treatment if a Participant
receives the amount in a lump sum distribution after he or she reaches age 59
1/2 and if he or she actively participated in the Plan for at least five years
prior to the year in which the lump sum is distributed. Under a transitional
rule, if the Participant reached age 50 before January 1, 1986, he or she may
make one election, without regard to the age 59 1/2 requirement, to use either
five-year forward averaging (using current tax rates) or 10-year forward
averaging (using the 1986 tax rates) with respect to the lump sum
distribution, if otherwise eligible.
Income Tax Withholding. Most Plan distributions and withdrawals are subject
to mandatory federal income tax withholding. The Trustee is required to
withhold 20% of any "eligible rollover distribution", unless the Participant
elects to have the Trustee make a direct rollover of such distribution into
another employer's qualified retirement plan that accepts rollovers or to an
IRA. An "eligible rollover distribution" generally includes any distribution
and withdrawal other than (i) one paid over the Participant's life or life
expectancy, or the joint lives or life expectancies of the Participant and his
or her beneficiary (i.e., an annuity); or (ii) one paid over a specified
period of 10 years or more. In addition, a distribution is not an "eligible
rollover distribution", and thus may not be rolled over, if it is (i) a
distribution of after-tax contributions; (ii) a required distribution pursuant
to Code Section 401(a)(9); or (iii) a distribution made to a non-spousal
beneficiary. If a Participant requests a distribution or withdrawal of his or
her Holding Company Stock in the form of stock rather than cash, the Holding
Company Stock will not be liquidated to pay the withholding tax; however, the
applicable taxes will be withheld from any cash portion of the distribution or
withdrawal.
A distribution or withdrawal that is not an "eligible rollover distribution"
is subject to voluntary federal income tax withholding, which means that a
Participant can request that no withholding tax be deducted from his or her
distribution.
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 may wish 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 OF HOLDING COMPANY STOCK
There are generally no restrictions on the resale of Holding Company Stock
purchased for or contributed to the Plan unless such shares have been
distributed to an employee who is deemed to be an "affiliate" of the
13
<PAGE>
Holding Company at the time such employee resells such shares. Any person
receiving shares of Holding Company Stock under the Plan who is an "affiliate"
of the Holding Company as the term "affiliate" is used in Rules 144 and 405
under the Securities Act of 1933 (e.g., directors, officers and substantial
shareholders of the Holding Company) may reoffer or resell such shares only
pursuant to a registration statement filed under the Securities Act of 1933
(the Holding Company having no obligation to file such a registration
statement) or, assuming the availability thereof, pursuant to Rule 144 or some
other exemption from the registration requirements of the Securities Act of
1933. Any person who may be an "affiliate" of the Holding Company may wish to
consult with counsel before transferring any Holding Company Stock owned by
him or her. In addition, Participants are advised to consult with counsel as
to the applicability of Section 16 of the Exchange Act which may restrict the
sale of Holding Company Stock where acquired under the Plan, or other sales of
Holding Company Stock.
LEGAL OPINIONS
The legality of the Holding Company Stock will be passed upon by Schiff
Hardin & Waite which firm acted as special counsel for the Holding Company in
connection with the Conversion and Reorganization.
14
<PAGE>
INVESTMENT FORM
(HOLDING COMPANY STOCK FUND)
EQUALITY SAVINGS AND SECURITY PLAN
Name of Participant: ___________________________________
Social Security Number: ________________________________
1. Instructions. In connection with the proposed Conversion and
Reorganization, the Plan has been amended to permit Participants to direct all
or a portion of their Salary Deferral Contributions Accounts, Voluntary
Contributions Accounts and Rollover Contributions Accounts under the Plan into
a Holding Company Stock Fund. Amounts transferred at the direction of
Participants into the Holding Company Stock Fund will be used to purchase
shares of common stock of Equality Bancorp, Inc. (the "Common Stock").
You may use this form to direct a transfer of up to 100% of the funds
credited to your Salary Deferral Contributions Account, Voluntary
Contributions Account and Rollover Contributions Account to the Holding
Company Stock Fund, to be used to purchase Common Stock in the Conversion and
Reorganization. To direct such a transfer to the Holding Company Stock Fund,
you should complete and file this form with the Personnel Department no later
than 12:00 noon, Central Daylight Time, on , 1997.
2. Transfer Direction. Check only one of the following:
----- ALLOCATION CHANGE ONLY:
Please change the allocation percentages on file as follows:
(This change will affect all deposits made on or after
, 1997.)
----- ALLOCATION CHANGE AND FUNDS TRANSFER:
Please change the allocation percentages on file and transfer all
funds to equal the following:
Note: Allocations of an Account to a particular Investment Fund must be in 25%
increments. If neither alternative is checked, "Allocation change only"
will be effective. All prior allocation percentages are hereby canceled.
This designation shall remain in effect until changed in writing.
PERCENTAGE OF TOTAL ACCOUNT ASSETS
SALARY DEFERRAL CONTRIBUTIONS ACCOUNT
% Holding Company Stock Fund
% Guaranteed Interest Fund
% Common Stock Index Fund
% Money Market Fund
% Publicly Traded Bond Fund
% Balanced Fund
VOLUNTARY CONTRIBUTIONS ACCOUNT
% Holding Company Stock Fund
% Guaranteed Interest Fund
% Common Stock Index Fund
% Money Market Fund
% Publicly Traded Bond Fund
% Balanced Fund
<PAGE>
ROLLOVER CONTRIBUTIONS ACCOUNT
% Holding Company Stock Fund
% Guaranteed Interest Fund
% Common Stock Index Fund
% Money Market Fund
% Publicly Traded Bond Fund
% Balanced Fund
MATCHING CONTRIBUTIONS ACCOUNT
% Guaranteed Interest Fund
% Common Stock Index Fund
% Money Market Fund
% Publicly Traded Bond Fund
% Balanced Fund
DISCRETIONARY CONTRIBUTIONS ACCOUNT
% Guaranteed Interest Fund
% Common Stock Index Fund
% Money Market Fund
% Publicly Traded Bond Fund
% Balanced Fund
3. Effectiveness of Direction. I understand that this Investment Form shall
be subject to all of the terms and conditions of the Plan. I acknowledge that
I have received a copy of the Prospectus and the Prospectus Supplement.
- ------------------------------------- -------------------------
Signature of Participant Date
4. Acknowledgment of Receipt. This Investment Form was received by the Plan
Administrator and will become effective on the date noted below.
- ------------------------------------- -------------------------
Plan Administrator Date
<PAGE>
PROSPECTUS
EQUALITY BANCORP, INC.
(Proposed Holding Company for Equality Savings and Loan Association, F.A.)
UP TO 1,729,323 SHARES OF COMMON STOCK
Equality Bancorp, Inc. (the "Holding Company"), a Delaware corporation
formed at the direction of Equality Savings and Loan Association, F.A. (the
"Association"), is offering up to 1,729,323 shares of its common stock, par
value $0.01 per share (the "Common Stock"), in connection with its Plan of
Conversion and Reorganization (the "Plan") as adopted by the Boards of
Directors of the Association and First Missouri Financial, M.H.C. (the "Mutual
Holding Company"), a federally chartered mutual holding company that
(continued on following page)
FOR INFORMATION ON HOW TO SUBSCRIBE, CALL THE STOCK INFORMATION CENTER AT
(314) 352-3199.
SEE "RISK FACTORS" BEGINNING ON PAGE 16 FOR A DISCUSSION OF CERTAIN RISKS TO
BE CONSIDERED BY PROSPECTIVE INVESTORS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION ("SEC"), THE OFFICE OF THRIFT SUPERVISION ("OTS"), OR
ANY OTHER FEDERAL AGENCY OR STATE SECURITIES COMMISSION, NOR HAS THE
SEC, THE OTS OR OTHER AGENCY OR COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
THE SHARES OF COMMON STOCK OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS OR
DEPOSITS AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION
("FDIC") OR ANY OTHER GOVERNMENT AGENCY.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ESTIMATED UNDERWRITING ESTIMATED
SUBSCRIPTION COMMISSIONS AND NET PROCEEDS
PRICE OTHER EXPENSES (1) TO ISSUER (2)
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share.............. $10.00 $0.52(3) $9.48
- -------------------------------------------------------------------------------
Minimum Total.......... $6,800,000(4) $415,000 $6,385,000
- -------------------------------------------------------------------------------
Midpoint Total......... $8,000,000(4) $415,000 $7,585,000
- -------------------------------------------------------------------------------
Maximum Total.......... $9,200,000(4) $415,000 $8,785,000
- -------------------------------------------------------------------------------
Maximum Total, as ad-
justed................. $10,580,000(4)(5) $415,000 $10,165,000
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(1) Consists of the estimated costs to be incurred in connection with the
Conversion and Reorganization, including $120,000 in fees for financial
advisory, consulting and marketing services and expense reimbursements
(including legal fees) to be paid to Trident Securities, Inc. ("Trident")
in connection with the Offering. See "The Conversion and Reorganization--
Marketing Arrangements." The actual fees and expenses may vary from the
estimates. Such fees paid to Trident may be deemed to be underwriting
fees.
(2) Actual net proceeds may vary substantially from estimated amounts
depending on the number of shares sold in the Offering. See "Pro Forma
Data."
(3) Assumes the sale of the midpoint number of shares. If the minimum, maximum
or 15% above the maximum number of shares are sold, estimated expenses per
share would be $0.61, $0.45 or $0.39, respectively, resulting in estimated
net proceeds per share of $9.39, $9.55 or $9.61, respectively.
(4) Based upon the minimum, midpoint, maximum and 15% above the maximum of the
Offering Price Range (as such term is defined herein), respectively. Such
amount does not include the offering of Exchange Shares (as such term is
defined herein).
(5) Reflects a 15% increase in the Offering Price Range, which may occur
without a resolicitation of subscribers or any right of cancellation, to
reflect changes in market and financial conditions prior to the completion
of the Conversion and Reorganization or to fill the order of the ESOP. See
"Management of the Holding Company and Association--Employee Benefit
Plans--Employee Stock Ownership Plan."
TRIDENT SECURITIES, INC.
THE DATE OF THIS PROSPECTUS IS , 1997
<PAGE>
(continued from previous page)
presently holds a majority ownership interest in the Association. As more
fully described herein, pursuant to the Plan, the Association would become a
wholly-owned subsidiary of the Holding Company and existing stockholders of
the Association, other than the Mutual Holding Company (the "Public
Stockholders") and other than any Public Stockholders who exercise dissenters'
rights, would exchange the shares of Association common stock, par value $1.00
per share (the "Association Shares"), at the Exchange Ratio (as defined below)
for shares of Common Stock (the "Exchange"). In addition, pursuant to the
Plan, the Holding Company would offer additional shares of Common Stock in a
Subscription Offering (as such term is defined below) and a Community Offering
(as such term is defined below). The Subscription Offering and the Community
Offering (as well as any syndicated community offering that might be conducted
pursuant to the Plan) shall be hereinafter collectively referred to as the
"Offering." Upon consummation of the Plan, the Association would change its
name to "Equality Savings Bank." The Exchange and the Offering, collectively
with the other transactions described herein, shall be referred to hereinafter
as the "Conversion and Reorganization." References herein to the Association
shall mean the Association together with its subsidiaries unless specified
otherwise or unless the context indicates otherwise.
The Exchange. As a result of the Conversion and Reorganization and pursuant
to the Plan, the 445,000 Association Shares (53.2% of the total outstanding
Association Shares) held by the Mutual Holding Company will be canceled. Each
Association Share held by the Public Stockholders, in the aggregate 391,400
Association Shares or 46.8% of the total outstanding Association Shares (the
"Public Association Shares"), at , 1997, other than Association Shares
for which dissenters' rights are properly exercised, will be converted into
shares of Common Stock (the "Exchange Shares") pursuant to a ratio (the
"Exchange Ratio") that will result in the Public Stockholders owning in the
aggregate approximately the same percentage of the Holding Company as they
owned of the Association, before giving effect to (i) the payment of cash in
lieu of fractional Exchange Shares, (ii) any shares of Common Stock purchased
by such stockholders in the Offering described herein or by the Association's
Employee Stock Ownership Plan ("ESOP") thereafter or (iii) any exercise of
dissenters' rights. As discussed under "Independent Valuation" below and
herein, the final Exchange Ratio will be determined based on the Public
Stockholders' ownership interest and not on the market value of the Public
Association Shares.
The Offering. In addition to the Exchange, nontransferable subscription
rights to subscribe for up to 920,000 shares (which may be increased to
1,058,000 shares under certain circumstances described below) of Common Stock
(the "Conversion Stock") have been granted to (i) certain depositors of the
Association on March 31, 1996, (ii) employee stock benefit plans of the
Association or the Holding Company that meet the requirements to be
"qualified" under Section 401 of the Internal Revenue Code ("Code"), which
would include the ESOP ("Employee Stock Benefit Plans"), (iii) certain
depositors of the Association on , 1997, (iv) certain other
depositors and borrowers of the Association on , 1997, the voting
record date, (v) directors, officers and employees of the Association or any
subsidiary thereof, of the Mutual Holding Company or of the Holding Company,
and (vi) the Public Stockholders, subject to the limitations described herein
(the "Subscription Offering"). Commencing concurrently with, or after
completion of, the Subscription Offering, and subject to the prior rights of
holders of subscription rights, the right of the Holding Company, the Mutual
Holding Company and the Association (the "Primary Parties") to reject such
orders in whole or in part and the other limitations described herein, the
Holding Company is offering the shares of Conversion Stock not subscribed for
in the Subscription Offering, if any, for sale in a community offering (the
"Community Offering") to certain members of the general public to whom a copy
of this Prospectus is delivered by or on behalf of the Holding Company, with
preference given to natural persons residing in the Missouri counties of St.
Louis City, St. Louis, Jefferson, St. Charles and Franklin ("Local
Community").
The Plan also provides that shares of Conversion Stock may be made available
in the Community Offering through a direct community marketing program that
would provide for the utilization of a broker, dealer, consultant, or
investment banking firm experienced and expert in the sale of financial
institution securities. See "The Conversion and Reorganization--Syndicated
Community Offering."
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<PAGE>
The Primary Parties have engaged Trident to consult with and advise them in
the Conversion and Reorganization, and Trident has agreed to use its best
efforts to solicit subscriptions and purchase orders for shares of Conversion
Stock in the Offering. Trident is not obligated to take or purchase any shares
of Conversion Stock in the Offering. See "The Conversion and Reorganization--
Marketing Arrangements."
THE SUBSCRIPTION OFFERING WILL TERMINATE AT 12:00 NOON, CENTRAL TIME, ON
, 1997 (THE "EXPIRATION DATE"), UNLESS EXTENDED BY THE HOLDING COMPANY,
WITH APPROVAL OF THE OTS, IF NECESSARY. THE COMMUNITY OFFERING IS EXPECTED TO
TERMINATE AT THE SAME TIME AS THE SUBSCRIPTION OFFERING, ASSUMING THE PRIMARY
PARTIES DO NOT ELECT TO COMMENCE THE COMMUNITY OFFERING AFTER COMPLETION OF
THE SUBSCRIPTION OFFERING. IN ANY EVENT, THE COMMUNITY OFFERING MUST BE
COMPLETED WITHIN 45 DAYS AFTER THE CLOSE OF THE SUBSCRIPTION OFFERING, OR
, 1997, UNLESS EXTENDED BY THE HOLDING COMPANY WITH THE APPROVAL OF THE OTS,
IF NECESSARY. Orders submitted are irrevocable until the completion of the
Conversion and Reorganization; provided that, if the Conversion and
Reorganization is not completed within the 45-day period referred to above,
unless such period has been extended with the consent of the OTS, if
necessary, all subscribers will have their funds returned promptly with
interest, and all withdrawal authorizations will be canceled. See "The
Conversion and Reorganization--The Offering--Subscription Offering."
Subscription Rights may be exercised only by the person to whom they are
issued and only for his or her own account. Subscription Rights are
nontransferable; persons found to be transferring Subscription Rights may be
subject to forfeiture of such rights and possible further sanctions by the OTS
or other government agencies. Each person subscribing for shares of Conversion
Stock is required to represent that he or she is purchasing shares 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.
Independent Valuation. Pursuant to regulations of the OTS, the Offering is
required to be based on an independent valuation of the pro forma market value
of the Conversion Stock and Exchange Shares. RP Financial, LC. ("RP
Financial") has prepared an independent appraisal, which states that the
estimated pro forma market value of the Conversion Stock and Exchange Shares
was $15,037,594 as of June 20, 1997 (the "Appraisal"). The Appraisal was
multiplied by the Mutual Holding Company's percentage interest in the
Association (i.e., 53.2%) to determine a midpoint of the offering range
($8,000,000), and the minimum and maximum range were set at 15% below and
above the midpoint, respectively, resulting in a range of $6,800,000 to
$9,200,000 (the "Offering Price Range").
The Boards of Directors of the Primary Parties determined that the
Conversion Stock would be sold at $10.00 per share (the "Purchase Price"),
resulting in a range of 680,000 to 920,000 shares of Conversion Stock being
offered. Upon consummation of the Conversion and Reorganization, the
Conversion Stock and the Exchange Shares will represent approximately 53.2%
and 46.8%, respectively, of the Holding Company's total outstanding shares.
Based upon the Offering Price Range, the Exchange Ratio is expected to range
from 1.5283 to 2.0678, resulting in a range of 598,195 Exchange Shares to
809,323 Exchange Shares to be issued in the Conversion and Reorganization. The
1,729,323 shares of Common Stock offered hereby include up to 920,000 shares
of Conversion Stock (subject to adjustment up to 1,058,000 shares as described
herein) and up to 809,323 Exchange Shares (subject to adjustment up to 930,721
shares as described herein). The Offering Price Range may be increased or
decreased to reflect changes in market and economic conditions prior to
completion of the Conversion and Reorganization, and under certain
circumstances specified herein subscribers will be resolicited and given the
right to modify or cancel their orders. See "The Conversion and
Reorganization--Stock Pricing, Exchange Ratio and Number of Shares to be
Issued."
Required Approvals. Various approvals of the OTS are required in order to
consummate the Conversion and Reorganization. The OTS has approved the Plan,
subject to approval by the Mutual Holding Company's members and the
Association's stockholders. In addition, consummation of the Conversion and
Reorganization is subject to OTS approval of the Holding Company's application
to acquire all of the to-be-outstanding Association common stock and the
applications with respect to the merger of the Mutual Holding Company
(following its conversion to a federal interim stock savings association) into
the Association and the merger of
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Interim II Savings and Loan Association, F.A. ("Interim") with and into the
Association, with the Association being the surviving entity in both mergers.
Applications for these approvals have been filed and are currently pending.
See "The Conversion and Reorganization--Required Approvals."
The consummation of the Conversion and Reorganization is also subject to the
approval of the members of the Mutual Holding Company and the stockholders of
the Association in the manner set forth herein.
The Holding Company has never issued capital stock and, consequently, there
is no market for the Common Stock. The National Association of Securities
Dealers, Inc. (the "NASD") has conditionally approved the Holding Company's
application to have the Common Stock listed on the Nasdaq National Market
System ("NMS") under the proposed symbol "ESBX," subject to the Holding
Company's continued compliance with all Nasdaq criteria for initial listing at
the time of listing of the Common Stock. If the Holding Company fails to
qualify the Common Stock for listing on the Nasdaq NMS, the Holding Company
intends to list the Common Stock on the Nasdaq SmallCap Market or the American
Stock Exchange under the same proposed symbol, subject to the applicable
listing criteria. Prior to the Conversion and Reorganization, there has not
been an active and liquid market for the Public Association Shares, and there
can be no assurance that an active and liquid trading market for the Common
Stock will develop. See "Risk Factors--Absence of Market for Common Stock" and
"Market for Common Stock." Trident intends to act as a market maker for the
Common Stock.
ADDITIONAL INFORMATION
The Association is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports, proxy statements and other information
with the OTS. Such reports, proxy statements and other information can be
inspected at the principal office of the OTS at 1700 G Street, N.W.,
Washington, D.C. 20552.
The Holding Company has filed with the SEC a Registration Statement on Form
S-1 (the "Registration Statement") under the Securities Act of 1933, as
amended (the "Securities Act"), with respect to the Conversion Stock and
Exchange Shares offered hereby. This Prospectus does not contain all of the
information set forth in the Registration Statement and the exhibits thereto.
For further information regarding the Holding Company and the Common Stock
offered hereby, reference is hereby made to such Registration Statement and
such exhibits, which can be inspected without charge at the office of the SEC
at 450 Fifth Street, N.W., Washington, D.C. 20549, and copies of which can be
obtained from the SEC at prescribed rates. Such materials may also be
available at the SEC's web site at "http://www.sec.gov."
The Mutual Holding Company has filed an Application for Conversion with the
OTS with respect to the Conversion and Reorganization. This Prospectus omits
certain information contained in that application. The application may be
examined at the principal office of the OTS, 1700 G Street, N.W., Washington,
D.C. 20552, and at the Midwest Regional Office of the OTS located at 122 West
John Carpenter Freeway, Suite 600, Irving, Texas 75039.
iv
<PAGE>
EQUALITY SAVINGS AND LOAN ASSOCIATION, F.A.
[INSERT MAP]
The Conversion and Reorganization is contingent upon (i) the approval of the
Plan of Merger providing for the merger of the Mutual Holding Company with and
into the Association by the holders of at least two-thirds of the outstanding
Association Shares, (ii) the approval of the Plan of Merger providing for the
merger of Interim with and into the Association by the holders of at least
two-thirds of the outstanding Association Shares, (iii) the approval of the
Plan, including the Plans of Merger discussed above, by at least a majority of
the votes cast by the Public Stockholders at the Stockholders' Meeting (as
such term is defined herein), (iv) the approval of the Plan by at least a
majority of the total outstanding votes of the voting members of the Mutual
Holding Company at the Members' Meeting (as such term is defined herein), (v)
the sale of at least 680,000 shares of Conversion Stock in the Offering
pursuant to the Plan and (vi) receipt of all required regulatory approvals.
v
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SUMMARY
The following summary is qualified in its entirety by the more detailed
information and consolidated financial information appearing elsewhere in this
Prospectus.
EQUALITY BANCORP, INC.
The Holding Company was incorporated as a Delaware corporation on May 14,
1997 at the direction of the Board of Directors of the Association to hold all
of the capital stock of the Association and to facilitate the Conversion and
Reorganization. The Holding Company has not engaged in any business to date and
is not expected to engage in any business until the consummation of the
Conversion and Reorganization. The Holding Company's office is located at 9920
Watson Road, St. Louis, Missouri 63126, and its telephone number is (314) 965-
7090. See "Equality Bancorp, Inc."
EQUALITY SAVINGS AND LOAN ASSOCIATION, F.A.
The Association is a federally-chartered-stock-savings association regulated
by the OTS, and its deposits are insured by the FDIC through the SAIF. The
deposits of the Association will continue to be insured by the FDIC after the
Conversion and Reorganization. The Association was originally chartered in
1884. At March 31, 1997, the Association had total assets of $200.8 million,
deposit accounts of $123.0 million and total stockholders' equity of $12.6
million. The Association conducts its business through three full-service
branch offices and five limited-service loan production offices. The
Association's main office is located at 4131 South Grand Boulevard, St. Louis,
Missouri 63118-3464, and its telephone number is (314) 352-3333.
On October 22, 1993, Equality Savings and Loan Association (the predecessor
of the Association) (i) reorganized into a mutual holding company and changed
its name to "First Missouri Financial, M.H.C." and (ii) transferred
substantially all of its assets and all of its liabilities to the Association,
which sold a minority interest in its common stock to depositors of Equality
Savings and Loan Association and various stock compensation plans (the "Mutual
Holding Company Reorganization"). A total of 380,000 shares of newly issued
common stock were sold at $10.00 per share. An additional 11,400 authorized but
unissued shares were later sold to the Association's 1993 Management
Recognition Plan (the "1993 MRP") at $10.00 per share. The Association realized
net proceeds of approximately $3.2 million from the sale of its common stock.
On June 13, 1995, the Association converted from a Missouri-chartered-stock-
savings-and-loan association to a federally-chartered-stock-savings-and-loan
association.
The Association's business is similar in many respects to other savings
associations in that it gathers deposits from its local community and uses
these funds, along with FHLB advances, to invest primarily in residential one-
to four-family mortgage loans, U.S. government and agency securities and
mortgage-backed securities and, to a lesser extent, multifamily and commercial
real estate, consumer and commercial business loans. Notwithstanding these
traditional thrift attributes, the Association's operations are distinct in
that it conducts its residential mortgage lending business primarily through a
wholly-owned mortgage-banking subsidiary--Equality Mortgage Corporation
("EMC"). See "Equality Savings and Loan Association, F.A." and "Business of the
Association."
FIRST MISSOURI FINANCIAL, M.H.C.
The Mutual Holding Company is a federally chartered mutual holding company
that was chartered in 1993 in connection with the Mutual Holding Company
Reorganization. The Mutual Holding Company's primary asset is 445,000
Association Shares, which represents 53.2% of the total issued and outstanding
Association Shares. The Mutual Holding Company's only other assets consist of a
deposit account in the amount of $50,000 as of March 31, 1997 (which will
become an asset of the Association upon consummation of the Conversion and
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<PAGE>
Reorganization). Prior to the Conversion and Reorganization, each depositor in
the Association has both a deposit account in the institution and a pro rata
ownership interest in the net worth of the Mutual Holding Company based upon
the value in his or her account, which interest may only be realized in the
event of a liquidation of the Mutual Holding Company. As part of the Conversion
and Reorganization, the Mutual Holding Company will convert from mutual form to
a federal interim stock savings association and simultaneously merge with and
into the Association, with the Association being the surviving entity. See
"First Missouri Financial, M.H.C."
THE CONVERSION AND REORGANIZATION
Purposes of the Conversion and Reorganization. The Boards of Directors of the
Mutual Holding Company and the Association believe that a conversion of the
Mutual Holding Company to stock form and the reorganization of the Association
pursuant to the Plan is in the best interests of the Mutual Holding Company and
the Association, as well as the best interests of the members of the Mutual
Holding Company and the Public Stockholders. The Conversion and Reorganization
will result in the Association being wholly owned by a stock holding company,
which is a more common structure and form of ownership than a mutual holding
company. In addition, the Conversion and Reorganization will result in the
raising of additional equity capital for the Association and the Holding
Company and is expected to result in a more active and liquid market for the
Common Stock than currently exists for the Association Shares, although there
can be no assurances that this will be the case.
If the Association had undertaken a standard conversion involving the
formation of a stock holding company in 1993, applicable OTS regulations would
have required a greater amount of Association Shares to be sold than resulted
in the amount of net proceeds raised in connection with the formation of the
Mutual Holding Company. In addition, if a standard conversion had been
conducted in 1993, management of the Association believed that it would have
been difficult to profitably invest the larger amount of capital that would
have been raised, when compared to the amount of net proceeds raised in
connection with the formation of the Mutual Holding Company. A standard
conversion in 1993 also would have immediately eliminated all aspects of the
mutual form of organization.
Subsequent to the formation of the Mutual Holding Company, there have been
certain changes in the regulations and policies of the OTS relating to mutual
holding companies. In recent years, the U.S. Congress has proposed major
overhauls to the structure of the thrift industry that include eliminating the
federal savings association charter, which is the charter under which the
Association currently operates. These proposals also have created uncertainty
concerning the future of the mutual form of ownership. In addition, since the
Mutual Holding Company Reorganization in 1993, the Boards of Directors of the
Mutual Holding Company and the Association have realized a need to create
additional liquidity for the Association Shares and believe the Holding Company
and the Association can effectively deploy the additional equity capital raised
in the Conversion and Reorganization. In light of the foregoing, the Boards of
Directors of the Mutual Holding Company and the Association believe that it is
in the best interests of such companies and their respective members and
stockholders to undertake the Conversion and Reorganization. See "The
Conversion and Reorganization--Purposes of the Conversion and Reorganization."
Description of the Conversion and Reorganization. On May 16, 1997, the Boards
of Directors of the Association and the Mutual Holding Company adopted the
Plan, which was amended on June 20, 1997 and on August 8, 1997. At the
direction of the Association, the Holding Company was incorporated under
Delaware law on May 14, 1997 and is currently a first-tier wholly owned
subsidiary of the Association. Pursuant to the Plan, (i) the Mutual Holding
Company will convert from mutual form to a federal interim stock savings
association and simultaneously merge with and into the Association, pursuant to
which the Mutual Holding Company will cease to exist and the Association Shares
held by the Mutual Holding Company will be canceled, and (ii) Interim will then
merge with and into the Association. As a result of the merger of Interim with
and into the Association, the Association will become a wholly-owned subsidiary
of the Holding Company and the Public
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Association Shares will be converted into the Exchange Shares pursuant to the
Exchange Ratio, which will result in the holders of such shares owning in the
aggregate approximately the same percentage of the Common Stock to be
outstanding upon the completion of the Conversion and Reorganization (i.e., the
Conversion Stock and the Exchange Shares) as the percentage of Association
Shares owned by them in the aggregate immediately prior to consummation of the
Conversion and Reorganization, before giving effect to (a) the payment of cash
in lieu of issuing fractional Exchange Shares, (b) any shares of Conversion
Stock purchased by the Public Stockholders in the Offering or the ESOP
thereafter, and (c) any exercise of dissenters' rights. Upon consummation of
the Conversion and Reorganization, the Association will change its name to
"Equality Savings Bank."
The Plan of Merger providing for the merger of the Mutual Holding Company
with and into the Association and the Plan of Merger providing for the merger
of Interim with and into the Association each must be approved by the holders
of at least two-thirds of the outstanding Association Shares at a special
meeting of the stockholders of the Association to be held for such purpose on
, 1997 (the "Stockholders' Meeting"). The Plan of Merger between Interim
and the Association also must be approved by the Holding Company, as the sole
stockholder of Interim.
In addition, the Primary Parties have conditioned the consummation of the
Conversion and Reorganization upon the approval of the Plan, including the
Plans of Merger, by at least a majority of the votes cast, in person or by
proxy, by the Public Stockholders at the Stockholders' Meeting. The Plan is
subject to the approval of the OTS, and it also must be approved by at least a
majority of the total outstanding votes of the voting members of the Mutual
Holding Company at a special meeting of the members of the Mutual Holding
Company to be held for such purpose on , 1997 (the "Members' Meeting"),
which votes may be cast in person or by proxy. See "The Conversion and
Reorganization--Description of the Conversion and Reorganization."
THE OFFERING
As part of the Conversion and Reorganization, the Holding Company is offering
up to 920,000 shares of Common Stock (i.e., Conversion Stock) at a Purchase
Price of $10.00 per share in the Subscription Offering. The Conversion and
Reorganization will not be consummated unless at least 680,000 shares of
Conversion Stock are sold in the Offering pursuant to the Plan. As described in
more detail below, nontransferable rights to subscribe for the Conversion Stock
in the Subscription Offering have been granted to certain persons according to
certain preference categories and, subject to the prior rights of holders of
Subscription Rights, the Holding Company is also offering shares of Conversion
Stock in the Community Offering to members of the general public (with
preference given to natural persons residing in the Local Community). In the
event of an oversubscription in the Subscription and Community Offering, up to
138,000 additional shares may be issued to reflect changes in market and
financial conditions and to cover additional subscriptions. The Primary Parties
may reject, in whole or in part, orders received in the Community Offering in
their sole discretion.
The Primary Parties have retained Trident as consultant and advisor in
connection with the Offering and to assist in soliciting subscriptions in the
Offering.
The Plan also provides that shares of Conversion Stock may be made available
in the Community Offering through a direct community marketing program that may
provide for the utilization of a broker, dealer, consultant, or investment
banking firm experienced and expert in the sale of financial institution
securities. See "The Conversion and Reorganization--The Offering."
NONTRANSFERABILITY OF SUBSCRIPTION RIGHTS
Subscription Rights may be exercised only by the person to whom they are
issued and only for his or her own account. Subscription Rights are
nontransferable; persons found to be transferring Subscription Rights may be
subject to forfeiture of such rights and possible further sanctions by the OTS
or other government agencies. Each person subscribing for shares of Conversion
Stock is required to represent that he or she is purchasing
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<PAGE>
shares 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.
PROSPECTUS DELIVERY
To ensure that each subscriber receives a Prospectus at least 48 hours prior
to the Expiration Date in accordance with Rule 15c2-8 of the Exchange Act, no
Prospectus will be mailed any later than five days prior to the Expiration Date
or hand delivered any later than two days prior to such date. Execution of the
order form will confirm receipt or delivery of a Prospectus in accordance with
Rule 15c2-8. Order forms will only be distributed with a Prospectus.
PURCHASE LIMITATIONS
With the exception of Employee Stock Benefit Plans (which would include the
ESOP), which may purchase up to an aggregate of 7% of the number of shares of
Conversion Stock to be issued in the Offering, no person or entity, together
with associates of, or persons acting in concert with, such person or entity,
may purchase shares of Conversion Stock in an amount that, when combined with
Exchange Shares received by such person, exceeds 62,500 shares of Common Stock.
Each person subscribing for Conversion Stock in the Offering must subscribe for
at least 25 shares. See "The Conversion and Reorganization--Limitations on
Conversion Stock Purchases" for other purchase and sale limitations. Because
the purchase limitations contained in the Plan include Exchange Shares to be
issued to Public Stockholders for their Public Association Shares, certain
holders of Public Association Shares may be limited in their ability to
purchase Conversion Stock in the Offering.
STOCK PRICING, EXCHANGE RATIO AND NUMBER OF SHARES TO BE ISSUED IN THE
CONVERSION AND REORGANIZATION
The Plan requires that the purchase price of the Conversion Stock must be
based on the appraised pro forma market value of the Conversion Stock, as
determined on the basis of an independent valuation. The Primary Parties have
retained RP Financial to make such valuation. The Appraisal has been prepared
by RP Financial in reliance upon the information contained in this Prospectus,
including the Consolidated Financial Statements of the Association. RP
Financial also considered the following factors, among others: the present and
projected operating results and financial condition of the Primary Parties and
the economic and demographic conditions in the Association's existing market
area; certain historical, financial and other information relating to the
Association; a comparative evaluation of the operating and financial statistics
of the Association with those of other similarly situated publicly-traded
companies located in Missouri and Illinois and other regions of the United
States; the aggregate size of the offering of the Conversion Stock; the impact
of the Conversion and Reorganization on the Association's net worth and
earnings potential; the proposed dividend policy of the Holding Company and the
Association; and the trading market for the Association Shares and securities
of comparable companies and general conditions in the market for such
securities.
On the basis of the foregoing, RP Financial has advised the Primary Parties
in its opinion the estimated pro forma market value of the Conversion Stock and
the Exchange Shares was $15,037,594 as of June 20, 1997. Because the holders of
the Public Association Shares will continue to hold the same aggregate
percentage ownership interest in the Holding Company as they currently hold in
the Association (before giving effect to the payment of cash in lieu of issuing
fractional Exchange Shares, any exercise of dissenters' rights and any shares
of Conversion Stock purchased by the Association's stockholders in the Offering
or by the ESOP thereafter), the Appraisal was multiplied by the Mutual Holding
Company's percentage interest in the Association (i.e., 53.2%) to determine the
midpoint of the valuation ($8,000,000), and the minimum and maximum of the
valuation were set at 15% below and above the midpoint, respectively, resulting
in a range of $6,800,000 to $9,200,000. The Boards of Directors of the Primary
Parties determined that the Conversion Stock would be sold at $10.00 per share,
resulting in a range of 680,000 to 920,000 shares of Conversion Stock being
offered. Upon consummation of the Conversion and Reorganization, the Conversion
Stock and the Exchange Shares will represent
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approximately 53.2% and 46.8%, respectively, of the Holding Company's total
outstanding shares. The Boards of Directors of the Primary Parties reviewed RP
Financial's appraisal report, including the methodology and the assumptions
used by RP Financial, and determined that the Offering Price Range was
reasonable and adequate. The Boards of Directors of the Primary Parties also
established the formula for determining the Exchange Ratio. Based upon such
formula and the Offering Price Range, the Exchange Ratio ranged from a minimum
of 1.5283 to a maximum of 2.0678 Exchange Shares for each Public Association
Share, with a midpoint of 1.7981. Based upon these Exchange Ratios, the Holding
Company expects to issue between 598,195 and 809,323 Exchange Shares to the
holders of Public Association Shares outstanding immediately prior to the
consummation of the Conversion and Reorganization. See "The Conversion and
Reorganization--Stock Pricing, Exchange Ratio and Number of Shares to be
Issued."
MARKETING, APPRAISAL AND RELATED FEES
Based upon negotiations between the Primary Parties and Trident, Trident will
receive a fixed fee of $90,000 for its services in connection with the
Conversion and Reorganization. In the event that a selected dealers agreement
is entered into in connection with a syndicated community offering, the
Association will pay a fee to Trident and to selected broker-dealers for shares
sold by such NASD member firms pursuant to a selected dealers agreement in an
amount to be agreed upon jointly by Trident, the Holding Company and the
Association to reflect market requirements at the time of the syndicated
community offering. Fees paid to Trident and to any other broker-dealer may be
deemed to be underwriting fees, and Trident and such broker-dealers may be
deemed to be underwriters. Trident also will be reimbursed for its reasonable
out-of-pocket expenses (including legal fees and expenses) not to exceed
$30,000. The Primary Parties have agreed to indemnify Trident in connection
with certain claims or liabilities, including certain liabilities under the
Securities Act.
For its services in making its appraisal and any expenses incurred in
connection therewith, RP Financial will receive a maximum fee of $22,500 plus
out of pocket expenses, and a fee of no greater than $5,000 plus out of pocket
expenses for the preparation of a business plan and other services performed in
connection with the Holding Company's application to the OTS. The Primary
Parties have agreed to indemnify RP Financial and its employees and affiliates
against certain losses (including any losses in connection with claims under
the federal securities laws) arising out of its services as appraiser, except
where RP Financial's liability results from its negligence or bad faith.
DIFFERENCES IN STOCKHOLDER RIGHTS
The Holding Company is a Delaware corporation subject to the provisions of
the Delaware General Corporation Law (the "DGCL"), and the Association is a
federally chartered savings association subject to federal laws and
regulations. Upon consummation of the Conversion and Reorganization, the Public
Stockholders of the Association will become stockholders of the Holding Company
and their rights will be governed by the Holding Company's Certificate of
Incorporation and Bylaws and the DGCL. The rights of stockholders of the
Association are materially different in certain respects from the rights of
stockholders of the Holding Company. See "Comparison of Stockholders' Rights"
and "Description of Capital Stock."
BENEFITS OF THE CONVERSION AND REORGANIZATION TO MANAGEMENT AND RELATED PERSONS
General. The Board of Directors of the Holding Company has approved three
benefit plans pursuant to which officers, directors and employees of the
Holding Company and the Association may be entitled to receive, following the
Conversion and Reorganization, shares of Common Stock or options to acquire
shares of Common Stock. In addition, the Board of Directors of the Holding
Company has approved employment agreements for its executive officers. Those
benefit plans and employment agreements are summarized below and elsewhere
herein. See "Management of the Holding Company and Association--Employee
Benefit Plans"; "--Employment Agreements."
5
<PAGE>
Employee Stock Ownership Plan. In connection with the Mutual Holding Company
Reorganization, the Association adopted the ESOP for the exclusive benefit of
participating employees. Employees who have attained the age of 21 years and
have completed one year of service with the Association are eligible to
participate under the ESOP. The Association has received a Determination Letter
from the IRS confirming the tax-qualified status of the ESOP under Section
401(a) of the Code. The ESOP has been funded by contributions made by the
Association in cash and, upon consummation of the Conversion and
Reorganization, will continue to be funded by contributions made by the
Association solely in cash. The ESOP intends to purchase in the Offering,
utilizing funds borrowed from the Holding Company, up to an aggregate of 7% of
the number of shares of Conversion Stock to be issued in the Offering. The
Holding Company will make a loan to the ESOP, out of the net proceeds of the
Offering retained by it, in the amount of $696,000. See "Use of Proceeds."
1997 Stock Option Plan. The Board of Directors of the Holding Company intends
to adopt the 1997 Stock Option and Incentive Plan (the "1997 Stock Option
Plan") and to submit it to stockholders for approval following consummation of
the Conversion and Reorganization. The 1997 Stock Option Plan is intended to
promote stock ownership by directors and selected officers and employees of the
Holding Company and the Association to increase their proprietary interest in
the Holding Company and to encourage them to remain in the service of the
Holding Company or the Association.
6
<PAGE>
Notwithstanding when the 1997 Stock Option Plan is submitted to and approved
by the stockholders, upon receipt of stockholder approval to establish the 1997
Stock Option Plan, the Board of Directors intends to reserve an amount of stock
equal to 10% of the Conversion Stock sold in the Offering for issuance under
the 1997 Stock Option Plan (or between 68,000 shares and 92,000 shares,
assuming the sale of between 680,000 shares and 920,000 shares of Conversion
Stock in the Offering). It is anticipated that the following awards of stock
options will be made pursuant to the 1997 Stock Option Plan to directors and
officers of the Holding Company and the Association as of the date of the
approval of the 1997 Stock Option Plan by the stockholders of the Holding
Company (assuming the sale of 920,000 shares of Conversion Stock in the
Offering at the maximum of the Offering Price Range, and the reservation of
92,000 shares of Common Stock for issuance under the 1997 Stock Option Plan):
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED ANNUAL
RATES OF STOCK
PRICE APPRECIATION FOR
OPTION TERM(1)
NUMBER OF % OF -----------------------
RECIPIENT OPTIONS GRANTED TOTAL OPTIONS 0% 5% 10%
- --------- --------------- ------------- --- -------- ----------
<S> <C> <C> <C> <C> <C>
Nonemployee Directors:
Daniel C. Aubuchon...... 4,600 5.0% $ 0 $ 29,000 $ 73,000
Stacey W. Braswell...... 4,600 5.0% $ 0 $ 29,000 $ 73,000
LeRoy C. Crook.......... 4,600 5.0% $ 0 $ 29,000 $ 73,000
Kenneth J. Hrdlicka..... 4,600 5.0% $ 0 $ 29,000 $ 73,000
Berenice J. Mahacek..... 4,600 5.0% $ 0 $ 29,000 $ 73,000
Charles J. Wolter....... 4,600 5.0% $ 0 $ 29,000 $ 73,000
Officers:
Richard C. Fellhauer.... 23,000 25.0% $ 0 $145,000 $ 367,000
Michael A. Deelo........ 16,100 17.5% $ 0 $101,000 $ 257,000
Leonard O. Wolter....... 4,600 5.0% $ 0 $ 29,000 $ 73,000
Michael J. Walsh........ 4,600 5.0% $ 0 $ 29,000 $ 73,000
Seymour Bailis.......... 4,600 5.0% $ 0 $ 29,000 $ 73,000
John L. Tacke........... 4,600 5.0% $ 0 $ 29,000 $ 73,000
All Directors and
Officers as a Group (12
Persons)............... 85,100 92.5% $ 0 $536,000 $1,354,000
</TABLE>
- --------
(1) Assumes the options are granted at the Purchase Price ($10.00 per share),
the options have a 10-year term, the market price of the Common Stock
underlying the option appreciates annually in value from the date of grant
to the end of the option term at a compounded rate of either 5% or 10% as
indicated in the columns. There can be no assurance that the Common Stock
will appreciate annually at a compounded rate of 5% or 10%. The Holding
Company is unaware of any formula which provides an accurate determination
of the value of a stock option as of the date of grant.
1997 Management Recognition Plan. The Board of Directors of the Holding
Company intends to adopt the 1997 Management Development and Recognition Plan
(the "1997 MRP") and to submit it to stockholders for approval following
consummation of the Conversion and Reorganization. The 1997 MRP is intended as
a method of providing directors, officers and certain employees of the Holding
Company or the Association with a proprietary interest in the Holding Company
and to encourage such persons to remain with the Holding Company or the
Association.
Notwithstanding when the 1997 MRP is submitted to and approved by the
stockholders, when the Holding Company receives stockholder approval to
establish the 1997 MRP, the Holding Company will contribute funds to the 1997
MRP to enable it to acquire shares of Common Stock in an amount equal to 3% of
the number of shares of Conversion Stock sold in the Offering, or up to 27,600
shares of Common Stock assuming the sale of
7
<PAGE>
920,000 shares at $10.00 per share (the maximum of the Offering Price Range).
It is anticipated that the following awards will be made pursuant to the 1997
MRP to directors and executive officers of the Association and the Holding
Company as of the date of approval of the 1997 MRP by the stockholders of the
Holding Company (assuming the sale of 920,000 shares of Common Stock in the
Offering, at the maximum of the Offering Price Range, and the purchase of
27,600 shares of Common Stock by the 1997 MRP):
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE
AT ASSUMED ANNUAL RATES OF
STOCK PRICE APPRECIATION
FOR TEN YEARS FROM GRANT
NUMBER % OF DATE(1)
OF SHARES TOTAL MRP --------------------------
RECIPIENT AWARDED SHARES 0% 5% 10%
- --------- --------- --------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Nonemployee Directors:
Daniel C. Aubuchon............. 690 2.50% $ 6,900 $ 11,000 $ 18,000
Stacey W. Braswell............. 690 2.50% $ 6,900 $ 11,000 $ 18,000
LeRoy C. Crook................. 690 2.50% $ 6,900 $ 11,000 $ 18,000
Kenneth J. Hrdlicka............ 690 2.50% $ 6,900 $ 11,000 $ 18,000
Berenice J. Mahacek............ 690 2.50% $ 6,900 $ 11,000 $ 18,000
Charles J. Wolter.............. 690 2.50% $ 6,900 $ 11,000 $ 18,000
Officers:
Richard C. Fellhauer........... 6,900 25.00% $ 69,000 $112,000 $179,000
Michael A. Deelo............... 4,830 17.50% $ 48,300 $ 79,000 $125,000
Leonard O. Wolter.............. 2,070 7.50% $ 20,700 $ 34,000 $ 54,000
Michael J. Walsh............... 1,035 3.75% $ 10,350 $ 17,000 $ 27,000
Seymour Bailis................. 690 2.50% $ 6,900 $ 11,000 $ 18,000
John L. Tacke.................. 690 2.50% $ 6,900 $ 11,000 $ 18,000
James W. Caulfield............. 345 1.25% $ 3,450 $ 6,000 $ 9,000
All Directors and Officers as a
Group (13 Persons)............ 20,700 75.00% $207,000 $336,000 $538,000
</TABLE>
- --------
(1) Assumes the 1997 MRP awards are granted at the Purchase Price ($10.00 per
share) and the market price of the Common Stock underlying the 1997 MRP
award appreciates annually in value from the date of grant until 10 years
thereafter at a compounded rate of either 5% or 10% as indicated in the
columns. MRP awards do not have a term like stock options; however, in
order to compare the value of the 1997 MRP awards to the value of the stock
options granted to these named individuals a comparable 10-year time period
has been used. There can be no assurance that the Common Stock will
appreciate annually at a compounded rate of either 5% or 10%.
Employment Agreements. The Holding Company intends to enter into new
employment agreements with Richard C. Fellhauer, President and Chief Executive
Officer of the Holding Company and the Association, Michael A. Deelo, Executive
Vice President and Chief Financial Officer of the Association, and Leonard O.
Wolter, Vice President of the Association, each of which would be effective as
of the consummation of the Conversion and Reorganization. Each employment
agreement provides that the individual will be employed for a three-year term.
Such term may be extended for additional one-year periods by action of the
Board of Directors of the Holding Company taken on each successive anniversary
of the effective date of the employment agreement. Each of Messrs. Fellhauer,
Deelo and Wolter may terminate their employment agreements at any time upon 90
days' prior written notice to the Board of Directors of the Holding Company and
the Association.
Each employment agreement provides for continuing benefits in the event the
executive is terminated by the Holding Company, other than for "just cause," or
in the event the executive voluntarily terminates the employment agreement for
"good reason." In such instances, the executive generally will continue to
receive all benefits due to him under the employment agreement through the
remaining term of the agreement, which, assuming each of the executives were
terminated at the beginning of the term of the agreement and at their present
salaries, would amount to no more than $371,640, $201,960 and $114,660 for each
of Messrs. Fellhauer,
8
<PAGE>
Deelo and Wolter, respectively. If the executive is terminated within one year
after a "change of control" of the Holding Company, other than for just cause
or if the executive terminates his employment for "good reason," then the
Holding Company will pay to the executive a lump sum equal to 2.99 times the
"Base Amount," as that term is defined in Section 280G(b)(3) of the Code, and
will continue to provide coverage for the executive and his dependents,
beneficiaries and estate under all executive benefit plans of the Holding
Company and the Association for the remainder of the term of the employment
agreement, which, at their present salaries, would amount to no more than
$396,175, $227,240 and $140,530 for each of Messrs. Fellhauer, Deelo and
Wolter, respectively.
USE OF PROCEEDS
The net proceeds from the sale of the Conversion Stock are expected to range
from $6.4 million, at the minimum of the Offering Price Range, to $8.8 million,
at the maximum of the Offering Price Range. At the midpoint of the Offering
Price Range, the estimated net proceeds from the sale of the Conversion Stock
would be $7.6 million. Pursuant to the business plan adopted by the Holding
Company and the Association on June 20, 1997 in contemplation of the Conversion
and Reorganization, the Holding Company plans to contribute to the Association
50% of the net proceeds from the sale of the Conversion Stock and retain the
remainder of the net proceeds. Assuming that the Conversion and Reorganization
is consummated at the midpoint of the Offering Price Range, the Association
will receive approximately $3.8 million and the Holding Company will retain
approximately $3.8 million, out of which the Holding Company will make a loan
to the Association's ESOP in the amount of $696,000 and fund the 1997 MRP at a
later date in the amount of $240,000, provided the 1997 MRP is approved by the
Holding Company's stockholders. The Holding Company intends to invest the net
proceeds of the Offering that it retains initially in short-term and
intermediate-term deposits and U.S. government and federal agency securities.
Thereafter, funds retained by the Holding Company will be deployed in
accordance with the Holding Company's and the Association's business plan as
determined by the Board of Directors of the Holding Company, as specific
business opportunities or requirements arise and for general corporate
purposes. The Association will invest the proceeds of the Offering that are
made available to it by the Holding Company initially in cash and short-term
investment securities (i.e., remaining maturities ranging up to 12 months)
pending their application pursuant to its business plan. The business plan of
the Holding Company and Association contemplates continuation of the
Association's current lending and investment strategies that emphasize one- to
four-family mortgage loans and U.S. government and agency securities and
mortgage-backed securities. See "Use of Proceeds."
DIVIDENDS
Upon consummation of the Conversion and Reorganization, the Board of
Directors of the Holding Company will have the authority to declare and pay
dividends on the Common Stock. The Board of Directors of the Holding Company
intends to pay cash dividends on the Common Stock at an initial quarterly rate
equal to $0.17 per share (the amount of the existing quarterly dividend on the
Association Shares) divided by the Exchange Ratio, commencing with the first
full quarter following consummation of the Conversion and Reorganization, which
will have the effect of initially maintaining the aggregate amount of quarterly
cash dividends received by the Public Stockholders. Based on the current
Offering Price Range, the Exchange Ratio is expected to be 1.5283, 1.7981,
2.0678 and 2.3779 at the minimum, midpoint, maximum and 15% above maximum of
the Offering Price Range, respectively, resulting in an initial quarterly
dividend rate of $0.11, $0.09, $0.08 and $0.07 per share, respectively.
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
Association's and the Holding Company's financial condition and results of
operations, tax considerations and general economic conditions. In order to pay
such cash dividends, however, the Holding Company must have available cash
either from the net proceeds raised in the Offering and retained by the Holding
Company, dividends received from the Association or earnings on Holding Company
assets. In addition, from time to time in an effort to reduce capital to a
desirable level or further reward stockholders for their
9
<PAGE>
investment, or both, the Board of Directors may determine to pay special cash
dividends. The Holding Company will not, however, declare or pay a capital
distribution in the form of a "return of capital" to its stockholders or take
any steps in furtherance of any such capital distribution during the period
ending one year after the consummation of the Conversion and Reorganization.
Special cash dividends, if paid, may be paid in addition to, or in lieu of, any
regular cash dividends. No assurances can be given that any dividends, regular
or special, will be declared or, if declared, what the amount of dividends will
be or whether such dividends, once declared, will continue. Moreover, no
representation is being made regarding any "return of capital" following one
year after the consummation of the Conversion and Reorganization. See "Dividend
Policy."
DISSENTERS' RIGHTS OF APPRAISAL
Holders of Association Shares are entitled to appraisal rights under Section
552.14 of the OTS' regulations as a result of the merger of the Mutual Holding
Company (following its conversion to a federal interim stock savings
association) with and into the Association and the merger of Interim with and
into the Association. Any such stockholder who wishes to exercise such
appraisal rights should review carefully the discussion of such rights in the
Association's proxy statement, including Appendix D thereto, because failure to
timely and properly comply with the procedures specified will result in the
loss of appraisal rights under Section 552.14. Pursuant to the Plan,
consummation of the Conversion and Reorganization is conditioned upon holders
of less than 10% of the outstanding Association Shares exercising appraisal
rights. See "The Conversion and Reorganization--Dissenters' Rights of
Appraisal."
MARKET FOR COMMON STOCK
The Holding Company has never issued capital stock (other than 100 shares
issued to the Association, which will be canceled upon consummation of the
Conversion and Reorganization), and to date an active and liquid trading market
has not developed for the 391,400 Public Association Shares outstanding prior
to the Offering. Consequently, there is no established market for the Common
Stock to be issued in the Exchange and the Offering. The Holding Company has
received conditional approval to have the Common Stock listed on the Nasdaq NMS
under the symbol "ESBX." If the Holding Company should prove unable, for any
reason, to list the Common Stock on the Nasdaq NMS or to continue to be
eligible for such listing, then the Holding Company intends to list the Common
Stock on the Nasdaq SmallCap Market or the American Stock Exchange, under the
same symbol, subject to the applicable listing criteria for that market. See
"Risk Factors--Absence of Market for Common Stock" and "Market for Common
Stock."
RISK FACTORS
See "Risk Factors" for a discussion of certain risks related to the Exchange
and the Offering.
10
<PAGE>
SELECTED CONSOLIDATED FINANCIAL INFORMATION OF THE ASSOCIATION
The following table sets forth, on an historical basis, certain selected
consolidated financial data for the Association and its subsidiaries. This
summary has been derived from, and should be read in conjunction with, the
audited consolidated financial statements of the Association and the related
notes thereto and Management's Discussion and Analysis of Financial Condition
and Results of Operations included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AT AND FOR THE FISCAL YEAR ENDED MARCH 31,
---------------------------------------------------
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
FINANCIAL CONDITION DATA:
Total assets............. $200,764 $195,768 $163,659 $147,143 $141,077
Cash, interest-bearing
deposits, and investment
securities(1)........... 79,828 59,864 56,106 59,304 56,519
Mortgage-backed
securities.............. 14,954 28,096 15,260 16,987 93
Loans receivable, net.... 95,928 96,998 83,235 61,683 75,643
Savings deposits......... 122,983 124,515 121,560 132,844 131,216
Borrowed money........... 64,249 57,305 29,256 1,105 --
Stockholders' equity..... 12,634 12,789 11,873 12,050 8,067
OPERATING DATA:
Total interest income.... $ 13,610 $ 12,275 $ 9,697 $ 9,420 $ 10,357
Total interest expense... 9,112 8,540 6,132 6,028 6,686
-------- -------- -------- -------- --------
Net interest income
before provision for
losses on loans......... 4,498 3,735 3,565 3,392 3,671
Provision for losses on
loans................... 50 31 9 12 14
-------- -------- -------- -------- --------
Net interest income after
provision for losses on
loans................... 4,448 3,704 3,556 3,380 3,657
Gain on sales of mortgage
loans................... 1,121 1,248 775 2,432 2,025
Other noninterest
income.................. 1,448 1,460 1,500 1,386 1,283
Total noninterest
expense................. 6,209 5,341 5,321 6,073 5,664
-------- -------- -------- -------- --------
Income before income tax
expense and cumulative
effect of change in
accounting principle.... 808 1,071 510 1,125 1,301
Income tax expense....... 303 418 188 400 453
-------- -------- -------- -------- --------
Income before cumulative
effect of change in
accounting principle.... 505 653 322 725 848
Cumulative effect of
change in accounting
principle............... -- -- -- 188 --
-------- -------- -------- -------- --------
Net income............... $ 505 $ 653 $ 322 $ 913 $ 848
======== ======== ======== ======== ========
Earnings per share....... $ 0.61 $ 0.80 $ 0.39 $ 0.22(3) N/A
======== ======== ======== ======== ========
PERFORMANCE RATIOS:
Return on average assets
(net income divided by
average assets)......... 0.25% 0.35% 0.20% 0.59%(2) 0.58%
Return on average equity
(net income divided by
average equity)......... 3.98% 5.18% 2.79% 8.92%(2) 10.92%
Dividend payout ratio
(dividends declared
divided by net income).. 46.16% 34.16% 68.33% 32.32%(3) N/A
Average equity to average
assets.................. 6.30% 6.68% 7.24% 6.62% 5.33%
Equity to assets (end of
year)................... 6.29% 6.53% 7.25% 8.19% 5.72%
Interest rate spread
(difference between
average yield on
interest-earning assets
and average cost of
interest-bearing
liabilities)............ 2.12% 1.90% 2.21% 2.23% 2.46%
Net interest margin (net
interest income as a
percentage of average
interest-earning
assets)................. 2.31% 2.09% 2.39% 2.38% 2.69%
Noninterest expense to
total assets............ 3.09% 2.73% 3.25% 4.13% 4.01%
Noninterest expense to
average assets.......... 3.08% 2.83% 3.34% 3.93% 3.89%
Average interest-earning
assets to average
interest-bearing
liabilities............. 104.19% 104.13% 104.37% 103.48% 104.73%
ASSET QUALITY RATIOS:
Allowance for loan losses
to total loans at end of
period.................. 0.29% 0.24% 0.26% 0.39% 0.30%
Net charge-offs to
average outstanding
loans during the
period.................. * 0.02% 0.04% * *
Nonperforming assets to
total assets............ 0.35% 0.39% 0.44% 0.29% 0.40%
OTHER DATA:
Number of real estate
loans outstanding....... 1,828 1,989 1,750 1,633 1,778
Number of deposit
accounts................ 14,944 15,442 15,647 16,256 16,634
Full service offices..... 3 3 3 3 3
Loan origination
offices................. 5 3 3 2 2
</TABLE>
- --------
(1) Includes interest-bearing deposits in other depository institutions.
(2) Includes cumulative effect of change in accounting principle totaling
$188,408, or .12% and 1.84% of average assets and average equity,
respectively.
(3) Included earnings per share data is only applicable to the period
subsequent to the initial public offering of common stock on October 22,
1993.
* Insignificant
11
<PAGE>
RECENT DEVELOPMENTS
The selected consolidated financial and other data of the Association set
forth below at and for the three months ended June 30, 1997 has been derived
from unaudited consolidated financial statements of the Association.
<TABLE>
<CAPTION>
AT AT
JUNE 30, 1997(1) MARCH 31, 1997
---------------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
FINANCIAL CONDITION DATA:
Total assets.................................. $201,831 $200,764
Cash, interest-bearing deposits, and
investment securities(2)..................... 73,603 79,828
Mortgage-backed securities.................... 11,028 14,954
Loans receivable, net......................... 106,457 95,928
Savings deposits.............................. 122,026 122,983
Borrowed money................................ 65,162 64,249
Stockholders' equity.......................... 13,306 12,634
<CAPTION>
AT AND FOR THE THREE MONTHS
ENDED JUNE 30,
-------------------------------
1997(1) 1996(1)
---------------- --------------
(DOLLARS IN THOUSANDS, EXCEPT
PER SHARE DATA)
<S> <C> <C>
OPERATING DATA:
Total interest income......................... $ 3,407 $ 3,265
Total interest expense........................ 2,304 2,229
-------- --------
Net interest income before provision for
losses on loans.............................. 1,103 1,036
Provision for losses on loans................. -- --
-------- --------
Net interest income after provision for losses
on loans..................................... 1,103 1,036
Gain on sales of mortgage loans............... 191 210
Other noninterest income...................... 364 513
Total noninterest expense..................... 1,350 1,326
-------- --------
Income before income tax expense.............. 308 433
Income tax expense............................ 120 169
-------- --------
Net income.................................... $ 188 $ 264
======== ========
Earnings per share............................ $ .23 $ .32
======== ========
PERFORMANCE RATIOS:
Return on average assets (net income divided
by average assets)........................... .37% .54%
Return on average equity (net income divided
by average equity)........................... 5.84% 8.29%
Dividend payout ratio (dividends declared
divided by net income)....................... 34.11% 21.28%
Average equity to average assets.............. 6.35% 6.47%
Equity to assets (end of year)................ 6.59% 6.24%
Interest rate spread (difference between
average yield on interest-earning assets and
average cost of interest-bearing
liabilities)................................. 2.06% 1.98%
Net interest margin (net interest income as a
percentage of average interest-earning
assets)...................................... 2.25% 2.18%
Noninterest expense to total assets........... 2.68% 2.65%
Noninterest expense to average assets......... 2.66% 2.69%
Average interest-earning assets to average
interest-bearing liabilities................. 104.03% 104.22%
ASSET QUALITY RATIOS:
Allowance for loan losses to total loans at
end of period................................ .27% .23%
Net charge-offs to average outstanding loans
during the period............................ * *
Nonperforming assets to total assets.......... .29% .31%
OTHER DATA:
Number of real estate loans outstanding....... 1,753 1,847
Number of deposit accounts.................... 15,038 15,298
Full service offices.......................... 3 3
Loan origination offices...................... 5 3
</TABLE>
- --------
(1) The data presented at and for the three months ended June 30, 1997 and 1996
were derived from unaudited consolidated financial statements and reflect,
in the opinion of management, all adjustments (consisting only of normal
recurring adjustments) which are necessary to present fairly the results
for such interim periods. Interim results at and for the three months ended
June 30, 1997 are not necessarily indicative of the results that may be
expected for the fiscal year ending March 31, 1998.
(2) Includes interest-bearing deposits in other depository institutions.
* Insignificant.
12
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RECENT DEVELOPMENTS
FINANCIAL CONDITION
The total assets of the Association increased approximately $1.0 million, or
0.5%, to $201.8 million at June 30, 1997 from $200.8 million at March 31,
1997. This increase in asset size primarily relates to the origination of
mortgage loans which were funded through cash reserves and the proceeds from
sales of investment securities and mortgage-backed securities.
Cash, primarily interest-bearing demand accounts, increased to $25.9 million
at June 30, 1997 from $1.0 million at March 31, 1997 and investment securities
available for sale decreased to $40.2 million at June 30, 1997 from $70.1
million at March 31, 1997 as a result of management's decision to move from
securities with longer term maturities into securities with shorter term
maturities in an effort to reduce the Association's exposure to interest rate
risk. While the proceeds from sales of investment securities have been
temporarily invested in interest-bearing deposits, management expects to
reinvest these balances during the next quarter.
Mortgage-backed securities available for sale decreased by approximately
$3.9 million, or 26.3%, to $11.0 million at June 30, 1997 from $15.0 million
at March 31, 1997. This decrease resulted from sales generated to fund
mortgage loan originations.
Loans held for investment totaled $93.8 million at June 30, 1997, an
increase of approximately $2.3 million, or 2.5%, from the March 31, 1997
balance of $91.5 million. This increase is primarily the result of continued
portfolio mortgage lending on one-to four-family residences offset by
principal repayments.
Loans held for sale increased by approximately $8.3 million, or 188.0%, to
$12.7 million at June 30, 1997 from $4.4 million at March 31, 1997. This
increase is the result of increased one-to four-family mortgage loan
originations due to improved residential lending interest rates.
Office properties and equipment increased $730,000, or 23.9%, to $3.6
million at June 30, 1997 from $2.9 million at March 31, 1997. The increase
resulted from the purchase of two properties designed to become branch
facilities, one to replace a currently leased, limited-use facility in the
fourth quarter of 1997 and the other to expand the Association's branch
network during the spring of 1998.
Savings deposits totaled $122.0 million at June 30, 1997, a decrease of
approximately $957,000 from the March 31, 1997 balance of $123.0 million.
Interest credited during the three months ended June 30, 1997 was
approximately $1.1 million.
FHLB advances remained constant at $63.0 million at June 30, 1997 as
compared to March 31, 1997. During the three months ended June 30, 1997, the
Association opened a $5.0 million line of credit which remained unused.
Other borrowed money increased by $913,000. These short-term borrowings
relate to EMC, the proceeds of which were invested solely in residential
mortgage loans.
RESULTS OF OPERATIONS
The operating results of the Association depend primarily on its net
interest income, which is the difference between interest income on interest-
earning assets, primarily loans, investment securities, and mortgage-backed
securities, and interest expense on interest-bearing liabilities, primarily
deposits and borrowed money. The Association's net income also is affected by
the establishment of provisions for losses on loans and the level of its other
income, loan servicing fees, deposit service charges, the results of real
estate activities, gain on sales of mortgage loans, as well as its other
expenses and income tax provisions.
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THREE MONTHS ENDED JUNE 30, 1997 COMPARED TO JUNE 30, 1996
Net Income. Net income decreased $76,000, or 28.9%, from $264,000 for the
three months ended June 30, 1996 to $188,000 for the three months ended June
30, 1997. The decrease was primarily the result of the sale of the residential
investment property by Equality Commodity Corporation, a wholly-owned
subsidiary of the Association ("ECC"), in June, 1996 at a gain of $106,000
with no comparable item in 1997 in addition to reduced rental income in
investment property of $51,000 offset by a $67,000, or 6.5%, increase in net
interest income.
Interest Income. Interest income increased from $3.3 million for the three
months ended June 30, 1996 to $3.4 million for the three months ended June 30,
1997. The increase of $142,000, or 4.3%, resulted primarily from an increase
in the interest on loans receivable and interest on investment securities
offset by decreases in interest on interest bearing deposits and mortgage-
backed securities. Interest on loans receivable increased by $118,000, or
6.4%, to $2.0 million for the three months ended June 30, 1997 as compared to
$1.8 million for the three months ended June 30, 1996. This increase was
primarily due to an increase in the average balance of loans outstanding from
$98.1 million for the three months ended June 30, 1996 to $98.4 million for
the three months ended June 30, 1997 accompanied by an increase in the yield
on loans from 7.48% for the three months ended June 30, 1996 to 7.94% for the
three months ended June 30, 1997. The higher average balance of loans
outstanding for the three months ended June 30, 1997 reflects an increase in
residential mortgage loan and commercial loan portfolio lending. Interest on
investment securities increased $338,000, or 43.2%, from $783,000 for the
three months ended June 30, 1996 to $1.1 million for the three months ended
June 30, 1997 due to an increase in the average balance of investment
securities from $52.1 million for the three months ended June 30, 1996 to
$64.6 million for the three months ended June 30, 1997. During the same period
the yield on investment securities increased from 6.01% for the three months
ended June 30, 1996 to 6.94% for the three months ended June 30, 1997.
Interest income on mortgage-backed securities decreased $212,000, or 49.4%,
from $429,000 for the three months ended June 30, 1996 to $217,000 for the
three months ended June 30, 1997 due to a decrease in the average balances
from $27.5 million for the three months ended June 30, 1996 to $12.4 million
for the three months ended June 30, 1997, offset by an increase in the yield
on mortgage-backed securities from 6.25% for the three months ended June 30,
1996 to 7.03% for the three months ended June 30, 1997. Interest on interest
bearing deposits decreased $107,000, or 66.0%, from $162,000 for the three
months ended June 30, 1996 to $55,000 for the three months ended June 30,
1997. This decrease is the result of reduced average balances of interest-
bearing deposits from $8.6 million for the three months ended June 30, 1996 to
$3.2 million for the three months ended June 30, 1997.
Interest Expense. Interest expense increased from $2.2 million for the three
months ended June 30, 1996 to $2.3 million for the three months ended June 30,
1997. The increase of $74,000, or 3.3%, resulted primarily from increased
average FHLB advances offset by decreased average deposit balances and
decreased average cost of deposits. The weighted average cost of deposits
decreased 2 basis points from 4.62% for the three months ended June 30, 1996
to 4.60% for the three months ended June 30, 1997, due to the effects of
increased low cost checking account balances and reduced certificate balances.
Average deposit balances decreased $2.3 million, or 1.9%, from $124.2 million
at June 30, 1996 to $121.9 million at June 30, 1997.
Average FHLB advances increased $8.4 million, or 14.9%, to $64.7 million,
for the three months ended June 30, 1997 compared to $56.3 million for the
three months ended June 30, 1996. The weighted average cost of advances
decreased 5 basis points from 5.56% for the three months ended June 30, 1996
to 5.51% for the three months ended June 30, 1997.
Provision for Losses on Loans. There was no provision for losses on loans
for the three month periods ended June 30, 1997 or June 30, 1996. The
provision for losses on loans is based on management's evaluation of the
credit risk inherent in the loan portfolio and the amount required to be
maintained in the allowance for loan losses. The Association's allowance for
loan losses totaled $283,000 at June 30, 1997 and March 31, 1997,
respectively. Management believes the allowance for loan losses is adequate.
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Noninterest Income. Noninterest income decreased $169,000, or 23.3%, from
$724,000 for the three months ended June 30, 1996 to $555,000 for the three
months ended June 30, 1997. The decrease is due primarily to the results of the
sale of a 26 unit residential property by ECC during the three months ended
June 30, 1996 at a gain of $106,000. There was no comparable gain for the three
months ended June 30, 1997. Additionally, rental income decreased from $57,000
for the three months ended June 30, 1996 to $6,000 for the three months ended
June 30, 1997 as a result of the disposition of this rental property. Also
contributing to the decrease in noninterest income was a decrease in gain on
sale of mortgage loans of $20,000, or 9.3%, from $210,000 for the three months
ended June 30, 1996 to $191,000 for the three months ended June 30, 1997 and
increased loss in earnings of joint venture of $19,000 from earnings of $3,000
for the three months ended June 30, 1996 to losses of $16,000 for the three
months ended June 30, 1997 offset by increased loan servicing fees and late
charges of $23,000, or 10.7%, which improved from $214,000 for the three months
ended June 30, 1996 to $237,000 for the three months ended June 30, 1997 due to
an increase in the servicing portfolio of EMC. For the three months ended June
30, 1996, the Association, through EMC, sold $19.7 million of mortgage loans as
compared to $11.5 million in the comparable period in 1997. The decreased sales
volume of $8.2 million resulted in the decreased gain on sale of mortgage
loans. Loans serviced by EMC increased $16.8 million, or 5.5%, from $304.7
million at June 30, 1996 to $321.5 million at June 30, 1997.
Noninterest Expense. Noninterest expense increased $24,000, or 1.8%, for the
three months ended June 30, 1997 compared to the three months ended June 30,
1996, due primarily to an increase of $39,000, or 5.2%, in salaries and
employee benefits from $747,000 for the three months ended June 30, 1996 to
$786,000 for the three months ended June 30, 1997, the result of general wage
increases, as well as general increases in data processing, advertising and
other general operating expenses offset by reduced federal deposit insurance
premiums of $52,000, or 72.5%, from $72,000 for the three months ended June 30,
1996 to $20,000 for the three months ended June 30, 1997, the result of
legislation passed by Congress to capitalize the Savings Association Insurance
Fund where following a one-time assessment in September, 1996 ongoing insurance
would be significantly reduced from approximately 23 basis points to
approximately 6 basis points.
Income Taxes. Income tax expense decreased from $169,000 for the three months
ended June 30, 1996 to $120,000 for the three months ended June 30, 1997. The
decrease of $49,000, or 28.8%, was the result of a decrease in income before
income tax expense of $125,000. The effective tax rate was approximately 39.0%
for the three month periods ended June 30, 1997 and 1996.
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RISK FACTORS
PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE RISK FACTORS PRESENTED
BELOW, IN ADDITION TO OTHER CONSIDERATIONS DISCUSSED ELSEWHERE IN THIS
PROSPECTUS.
EFFECT OF INTEREST RATES
The financial condition and results of operations of the Association, and of
savings institutions in general, are significantly influenced by general
economic conditions, by the related monetary and fiscal policies of the
federal government, and by the regulations of the OTS, the FDIC and the Board
of Governors of the Federal Reserve System (the "Federal Reserve Board").
Deposit flows and the cost of funds are influenced by interest rates of
competing investments and general market rates of interest. Lending activities
are affected by the demand for mortgage financing and for consumer and other
types of loans, which in turn is affected by the interest rates at which such
financing may be offered and by other factors affecting the supply of housing
and the availability of funds.
The Association's profitability is substantially dependent on its net
interest income, which is the difference between the interest income received
from its interest-earning assets and the interest expense incurred in
connection with its interest-bearing liabilities. The mismatch between
maturities and interest rate sensitivities of balance sheet items (i.e.
interest-earning assets and interest-bearing liabilities) results in interest
rate risk. The extent of interest rate risk to which the Association is
subject is monitored by management by modeling the change in its market value
of equity ("MVE") over a variety of interest rate scenarios. MVE 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 MVE
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. At March 31, 1997,
there would have been an estimated $3.4 million, or 21.8%, decrease in the
Association's MVE, assuming a 200 basis point increase in interest rates. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Asset and Liability Management" for a discussion of the MVE method
of analyzing interest rate risk.
At March 31, 1997, the Association had approximately $55.0 million of
adjustable rate mortgage loans ("ARMs") in its loan portfolio. The
Association's ARMs contain annual and lifetime interest rate adjustment limits
which, in a rising interest rate environment, may prevent such loans from
repricing to market interest rates. See "Business of the Association--Lending
and Mortgage-Banking Activities--Residential One- to Four- Family Loans."
While management anticipates that the Association's ARMs will better offset
the adverse effects of an increase in interest rates as compared to fixed-rate
mortgages, the increase in mortgage payments required of ARM borrowers in a
rising interest rate environment could potentially cause an increase in
delinquencies and defaults.
Changes in interest rates can affect the amount of loans originated by an
institution, as well as the value of its loans and other interest-earning
assets and the resultant ability to realize gains on the sale of such assets.
At March 31, 1997, the Association had net unrealized losses of $252,000 in
its mortgage-backed securities portfolio and net unrealized losses of $707,000
in its investment securities portfolio due primarily to changes in interest
rates since such securities were purchased by the Association.
Changes in interest rates also can result in the flow of funds away from
savings associations into investments in U.S. government and corporate
securities, and other investment vehicles which, because of the absence of
federal insurance premiums and reserve requirements among other reasons,
generally can pay higher rates of return than savings associations.
RELIANCE ON MORTGAGE-BANKING OPERATIONS
Mortgage-banking activities significantly influence the Association's
results of operations. The Association's mortgage-banking operations conducted
through EMC involve the origination, purchase and sale
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of mortgage loans for the purpose of generating income from the sale of
mortgage loans and from servicing fees and late charges. The profitability of
EMC's mortgage-banking operations depends in a large part on managing the
volume of loan originations, purchases and sales and the expenses associated
with such activity 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 or purchased by EMC and demanded by investors to whom the loans are
sold. Generally, EMC's loan origination, purchase 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, purchases and sales and the profitability of this
activity can vary significantly from period to period, which can have
significant effects on the Association's results of operations from period to
period. In addition, EMC's (and therefore the Association's) results of
operations are affected by the amount of noninterest 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, EMC's (and therefore the Association'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.
As part of its mortgage-banking activities, EMC originates loans, and to a
lesser extent in recent years purchases loans, for subsequent sale into the
secondary market. Between the time that origination commitments are issued and
the time the loans are sold, EMC is exposed to movements in the price (due to
changes in interest rates) of such loans (or of securities into which such
loans are sometimes converted). EMC attempts to manage this risk by utilizing
the sale of forward commitments through which EMC agrees to sell loans at a
specified price on a future specified date. The amount of such forward
commitments and the date on which they settle is based upon management's
estimate as to estimated closing volumes and the length of the origination
commitment. Differences between the volume or timing of actual loan
originations and in management's estimates or in actual sales of the loans can
expose EMC to significant interest rate risk. This activity is managed on a
continuous basis. There can be no assurance that EMC will be successful in its
efforts to reduce the risk of interest rate fluctuation between the time of
origination of a mortgage loan and the time of the ultimate sale of the loan.
To the extent EMC does not adequately manage this interest rate risk, it may
incur significant mark-to-market losses or losses relating to the sale of such
loans, adversely affecting its and the Association's financial condition and
results of operations.
FEDERAL LEGISLATIVE PROPOSALS WOULD ELIMINATE THE FEDERAL SAVINGS ASSOCIATION
AND UNITARY SAVINGS AND LOAN HOLDING COMPANY CHARTERS
The U.S. Congress is considering legislative proposals, including a proposal
announced by the Clinton Administration on May 21, 1997, that would modernize
the financial services industry. Many of these proposals, including the
Administration's, would eliminate the federal savings association charter by
requiring that all federal thrifts convert to national banks or other banking
charters. Likewise, the unitary savings and loan holding company would be
eliminated and all thrift holding companies would become bank holding
companies regulated by the Federal Reserve Board. The Association is a federal
savings association and the Holding Company, upon completion of the Conversion
and Reorganization, will be a unitary savings and loan holding company. If
federal legislation is enacted that eliminates the federal savings association
and unitary savings and loan holding company charters, the Association and the
Holding Company would be required to change their charters. No assurance can
be given whether federal legislation will be enacted that affects the federal
savings association or unitary savings and loan holding company charters, or
if such legislation is enacted, what form this legislation might take.
Accordingly, management of the Association and the Holding Company cannot
predict what effect, if any, such legislation would have on the activities and
operations of the Association and the Holding Company. See "Reorganization and
Supervision--Recent Legislative and Regulatory Development--Modernization of
Financial Services Industry."
ADEQUACY OF THE ASSOCIATION'S ALLOWANCE FOR LOAN LOSSES
At March 31, 1997, the Association's ratio of its allowance for loan losses
to total loans outstanding was .29%, and the ratio of the allowance for loan
losses to total nonperforming loans was 44.0%; however, the majority of
nonperforming loans are FHA and VA loans which have guaranteed return of
principal. Excluding
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these amounts, the Association's ratio of its allowance for loan losses to
total nonperforming loans was 393.1%. The Association determines the desired
level of allowance for loan losses based on an evaluation of the loan
portfolio including consideration of the collateral underlying problem loans,
prior loss experience, economic conditions, volume, growth and composition of
the loan portfolio, and other relevant factors. This evaluation is inherently
subjective as it requires material estimates including the amounts and timing
of future cash flows expected to be received on impaired loans that may be
susceptible to significant change. No assurance can be given that the
Association will not experience significant provisions for loan losses or
charges against its allowance for loan losses in the future related to a
deterioration in the quality of its loan portfolio. Furthermore, because
future events affecting borrowers and collateral cannot be predicted with any
certainty, there can be no assurance that existing reserves will be adequate
or that substantial increases will not be required should the quality of the
loans deteriorate. The allowance for loan losses at March 31, 1997 is
maintained at a level believed adequate by management to absorb losses in the
loan portfolio. Any material increase in loan provisions or material loss for
which adequate reserves have not been established may materially adversely
affect the Association's financial condition or results of operations,
including reducing or eliminating the Association's profitability.
ABSENCE OF MARKET FOR COMMON STOCK
The Holding Company has never issued capital stock (other than 100 shares
issued to the Association, which will be canceled upon consummation of the
Conversion and Reorganization), and to date an active and liquid trading
market has not developed for the 391,400 Public Association Shares outstanding
prior to the Offering. Consequently, there is no established market for the
Common Stock to be issued in the Exchange and the Offering. The Holding
Company has received conditional approval to have the Common Stock listed on
the Nasdaq NMS under the symbol "ESBX." In order for the Common Stock to be
listed on the Nasdaq NMS, however, there must be, among other things, two
market makers for the Common Stock. Trident intends to act as a market maker
for the Common Stock and will assist the Holding Company in retaining at least
one other market maker. The Holding Company will use its best efforts to
encourage and assist market making to establish and maintain a market for the
Common Stock. There can be no assurance, however, that any additional market
makers for the Common Stock will be obtained or that the Common Stock will be
listed on the Nasdaq NMS or, if listed, will continue to be eligible for such
listing. See "Market for Common Stock."
Making a market involves maintaining bid and asked 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. In addition, 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 Association or any market
maker. The smaller the number of holders of the stock, the less likely a
liquid market will develop. Accordingly, there can be no assurance that an
active and liquid trading market for the Common Stock will develop or, if
developed, be maintained, that resales of the Common Stock can be made at or
above the Purchase Price, or that quotations will be available on the Nasdaq
NMS as contemplated. In the absence of a liquid public market for the Common
Stock, 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.
COMPETITION
The Association faces intense and increasing competition both in making
loans and in attracting deposits. The Association's market area has a large
number of financial institutions, many of which have greater financial
resources, name recognition and market presence than the Association, and all
of which are competitors of the Association to varying degrees. Particularly
intense competition exists for deposits and the origination of all of the loan
products emphasized in the Association's business plan. The Association's
competition for loans comes principally from commercial banks, other savings
and loan associations, savings banks, mortgage-banking companies, finance
companies and credit unions. The Association's most direct competition for
deposits historically has come from other savings and loan associations,
savings banks, commercial banks and credit unions. In addition, the
Association faces increasing competition for deposits from non-bank
institutions such as
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brokerage firms, insurance companies, money market mutual funds, other mutual
funds (such as corporate and government securities funds) and annuities.
Trends toward the consolidation of the banking industry and the lifting of
interstate banking and branching restrictions may make it more difficult for
smaller institutions, such as the Association, to compete effectively with
large national and regional banking institutions.
DEPENDENCE ON KEY PERSONNEL
The Association depends to a considerable degree on a limited number of key
management personnel, and the loss of such personnel could adversely affect
the Association. In order to minimize the likelihood of such an occurrence,
the Association and the Holding Company intend to enter into new employment
agreements with Richard C. Fellhauer, President and Chief Executive Officer of
the Holding Company and the Association, Michael A. Deelo, Executive Vice
President and Chief Financial Officer of the Association, and Leonard O.
Wolter, Vice President of the Association. The Association maintains "key man"
life insurance with respect to Messrs. Fellhauer, Deelo and Wolter. See
"Management of the Holding Company and Association--Employment Agreements."
EFFECT OF ANTI-TAKEOVER PROVISIONS IN DISCOURAGING TAKEOVER OFFERS AND CHANGES
IN MANAGEMENT
The Holding Company's certificate of incorporation and bylaws provide, among
other things, that (1) no person may acquire or hold the beneficial ownership
of more than 10% of the voting shares of the Holding Company, and if any
person acquires or holds the beneficial ownership of more than 10% of the
voting shares of the Holding Company, each share in excess of such 10% limit
shall have its voting power reduced to 1/100 of one vote; (2) the Holding
Company's Board of Directors will be divided into three classes with one class
to be elected each year; (3) special meetings of the Holding Company's
stockholders may be called only by the chairman of the Board of Directors, the
president or a majority of the Holding Company's Board of Directors; (4) the
Board of Directors may issue additional shares of authorized Common Stock and
fix the terms and designations of and issue shares of authorized preferred
stock without any further action by the stockholders; (5) certain Business
Transactions (as defined in the certificate of incorporation) must be approved
in advance by a majority of the Board of Directors, approved in advance by the
holders of 80% of the outstanding shares of voting stock other than shares
owned by persons who are Interested Parties (as defined in the certificate of
incorporation) with respect to the Business Transaction or approved after-the-
fact by two-thirds of directors who are not themselves Interested Directors
(as defined in the certificate of incorporation) with respect to the Business
Transaction; and (6) stockholders who propose to nominate a candidate for
election to the Board of Directors of the Holding Company or to present new
business at a stockholders' meeting must give advance notice of, and furnish
information relating to, the proposed nominee and business to the Holding
Company. The management of the Holding Company does not have the ability to
waive any of these provisions. A vote of 80% of the total votes eligible to be
cast, voting together as a single class, is required to amend, repeal or adopt
any provisions inconsistent with certain provisions of the certificate of
incorporation and the bylaws, including most of the provisions enumerated
above. See "Comparison of Stockholders' Rights" and "Restrictions on
Acquisition of the Holding Company--Restrictions in the Holding Company's
Certificate of Incorporation and Bylaws; Employment Agreements."
Such provisions are intended to encourage a potential acquiror of the
Holding Company to negotiate with the Board of Directors, which is in the best
position to act on behalf of all of the stockholders, before seeking to obtain
control of the Holding Company. Such provisions may, however, have the effect
of discouraging takeover offers that certain stockholders might deem to be in
their best interests, including takeover proposals in which stockholders might
receive a premium for their shares over the then-current market price. Such
provisions will also make it more difficult for individual stockholders or a
group of stockholders to replace existing management, whether or not such
stockholders believe that a change in management is in the best interests of
the Holding Company.
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EFFECT OF VOTING CONTROL BY DIRECTORS AND EXECUTIVE OFFICERS ON CORPORATE
GOVERNANCE
Directors and executive officers of the Holding Company expect to purchase
approximately 7.6% of the shares of Conversion Stock issued in the Offering
based upon the midpoint of the Offering Price Range. See "Proposed
Subscriptions by Directors and Executive Officers." Directors, executive
officers and employees are also expected to eventually control the voting of
3% of the shares of Conversion Stock issued in the Offering through the 1997
MRP. In addition, 7% of the shares of Conversion Stock issued in the Offering
are expected to be acquired by the ESOP. Employees will vote the shares
allocated to them under the ESOP, and unallocated shares will be voted by the
ESOP trustee in the same proportion as the allocated shares. Accordingly,
directors and executive officers as a group, together with the ESOP and the
MRP, and taking into account the Exchange Shares to be beneficially owned by
such persons, may have effective control over as much as 17.9%, at the
midpoint of the Offering Price Range, of the Common Stock to be issued and
outstanding at the completion of the Conversion and Reorganization.
In addition, following the Conversion and Reorganization, executive officers
and directors are expected to be granted options under the 1997 Stock Option
Plan to purchase an amount of Common Stock equal to 10% of the shares of
Conversion Stock issued in the Offering. If all of the options were issued to
directors and executive officers, exercised and satisfied with newly issued
shares, and if the Holding Company did not issue any other shares of Common
Stock, the shares held by directors and executive officers, including the
shares noted above, would give such persons effective control over as much as
23.2%, at the midpoint of the Offering Price Range, of the Common Stock issued
and outstanding. Because the Holding Company's Certificate of Incorporation
will require the affirmative vote of 80% of the outstanding shares entitled to
vote in order to approve certain mergers, consolidations or other business
combinations without the prior approval of two-thirds of the Holding Company's
directors, the officers and directors and their associates, as a group, could
effectively block such transactions. See "Comparison of Stockholders' Rights--
Voting Restrictions on Certain Business Combinations; Fair Price Provision."
POSSIBLE DILUTIVE EFFECT OF ISSUANCE OF ADDITIONAL SHARES
Various possible and planned issuances of Common Stock could dilute the
interests of prospective stockholders of the Holding Company following
consummation of the Conversion and Reorganization, as noted below.
The number of shares to be sold in the Conversion and Reorganization may be
increased as a result of an increase in the Offering Price Range of up to 15%
to reflect changes in market and financial conditions following the
commencement of the Offering. In the event that the Offering Price Range is so
increased, it is expected that the Holding Company will issue up to 1,058,000
shares of Conversion Stock at the Purchase Price for an aggregate price of up
to $10,580,000. An increase in the number of shares will decrease net earnings
per share and stockholders' equity per share on a pro forma basis and will
increase the Holding Company's consolidated stockholders' equity and net
earnings. See "Capitalization" and "Pro Forma Data."
The ESOP intends to purchase an amount of the Conversion Stock that, when
combined with the Exchange Shares to be received by the ESOP, aggregates 7% of
the total shares of Common Stock to be outstanding upon consummation of the
Conversion and Reorganization. In the event that there are insufficient shares
available to fill the ESOP's order due to an oversubscription by Eligible
Account Holders and the total number of shares of Conversion Stock issued in
the Conversion and Reorganization is increased by up to 15%, the additional
shares will first be allocated to fill the ESOP's subscription and thereafter
in accordance with the terms of the Plan. See "Management of the Holding
Company and Association--Employee Benefit Plans--Employee Stock Ownership
Plan" and "The Conversion and Reorganization--The Offering--Subscription
Offering Category 2: Employee Stock Benefit Plans."
If the 1997 MRP is approved by stockholders at an annual or special meeting
of the Holding Company's stockholders held at least six months following the
consummation of the Conversion and Reorganization, the 1997 MRP intends to
acquire an amount of Common Stock that, when combined with the Association
Shares
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purchased by the 1993 MRP following the Mutual Holding Company Reorganization
(as adjusted to give effect to the Exchange Ratio), would aggregate 3% of the
total shares of Common Stock to be outstanding upon consummation of the
Conversion and Reorganization. Such shares of Common Stock may be acquired in
the open market with funds provided by the Holding Company, if permissible, or
from authorized but unissued shares of Common Stock. In the event that
additional shares of Common Stock are issued to the 1997 MRP, stockholders
would experience dilution of their ownership interests (by 1.57% at the
maximum of the Offering Price Range) and per share stockholders' equity and
per share net earnings would decrease as a result of an increase in the number
of outstanding shares of Common Stock. See "Pro Forma Data" and "Management of
the Holding Company and Association--Employee Benefit Plans--1997 Management
Recognition Plan."
If the Holding Company's 1997 Stock Option Plan is approved by stockholders
at an annual or special meeting of stockholders held at least six months
following the consummation of the Conversion and Reorganization, the Holding
Company will reserve for future issuance pursuant to such plan a number of
authorized shares of Common Stock equal to an aggregate of 10% of the
Conversion Stock issued in the Offering (92,000 shares, based on the maximum
of the Offering Price Range). See "Pro Forma Data" and "Management of the
Holding Company and Association--Employee Benefit Plans--1997 Stock Option
Plan."
The Association also has adopted and maintains the 1993 Stock Option and
Incentive Plan, which reserved for issuance 38,000 Association Shares. As of
March 31, 1997, no shares had been issued as a result of the exercise of
options granted under such option plan. Upon consummation of the Conversion
and Reorganization, the obligations and rights of this plan will be assumed by
the Holding Company, and Common Stock will be issued in lieu of Association
Shares pursuant to the terms of such plan. See "Management of the Holding
Company and Association--Employee Benefit Plans--1993 Stock Option and
Incentive Plan."
INCREASE IN COMMERCIAL BUSINESS LENDING
During the fiscal year ended March 31, 1997, the Association began to
originate commercial business loans on a limited basis. Such loans generally
have shorter terms and higher interest rates than traditional mortgage loans.
Such lending, however, generally involves more credit risk than traditional
single-family residential lending because of the type and nature of the
collateral. As of March 31, 1997, commercial business loans amounted to
approximately $1.3 million, or 1.3% of the Association's loan portfolio. To
date, the Association has not experienced any significant credit problems with
respect to its commercial business loan portfolio and, as of March 31, 1997,
none of the Association's commercial business loans were nonperforming. See
"Business of the Association--Lending and Mortgage-Banking Activities--
Commercial Business Loans."
POSSIBLE ADVERSE INCOME TAX CONSEQUENCES
The Association has received an opinion of KPMG Peat Marwick LLP that states
that, for federal and state income tax purposes, consummation of the
Conversion and Reorganization will not be taxable to the Association, the
Holding Company or depositors of the Association. The opinion also states,
however, that if the Subscription Rights granted to Eligible Account Holders,
Supplemental Eligible Account Holders, Other Members, directors, officers and
employees and Public Stockholders are deemed to have an ascertainable fair
market value, income or gain may be recognized by the recipients of the
Subscription Rights (in certain cases, whether or not the rights are
exercised) in an amount equal to such value. Additionally, the Association
could recognize a gain for tax purposes on such distribution. This opinion is
not binding on the Internal Revenue Service ("IRS"). No assurance can be given
that the IRS will not take a contrary position. See "The Conversion and
Reorganization--Tax Aspects."
21
<PAGE>
EQUALITY BANCORP, INC.
The Holding Company was incorporated as a Delaware corporation on May 14,
1997 at the direction of the Board of Directors of the Association to hold all
of the capital stock of the Association and to facilitate the Conversion and
Reorganization. The Holding Company has not engaged in any business to date
and is not expected to engage in any business until the consummation of the
Conversion and Reorganization. The Holding Company's offices are located at
9920 Watson Road, St. Louis, Missouri 63126, and its telephone number is (314)
965-7090.
The Holding Company will have no material assets or liabilities prior to the
consummation of the Conversion and Reorganization. Immediately following the
consummation of the Conversion and Reorganization, the Holding Company will
have, as its only material assets, the stock of the Association and that
portion of the net proceeds of the Offering that it retains. See "Use of
Proceeds" for a discussion of how the Holding Company intends to invest the
net proceeds of the Offering retained by it. Immediately following the
Conversion and Reorganization, the Holding Company will have no material
liabilities. Following the Conversion and Reorganization, the Holding Company
will be engaged in the business of managing its investments and directing,
planning and coordinating the business activities of the Association. In the
future, the Holding Company may acquire or organize other operating
subsidiaries, although there are no current plans or agreements to do so.
The Association expects the Holding Company's application to become a
savings and loan holding company under the Home Owners' Loan Act ("HOLA") and
to acquire the Association to be approved by the OTS prior to the Expiration
Date. Upon completion of the Conversion and Reorganization, the Holding
Company will be subject to regulation by OTS. See "Regulation and
Supervision--Holding Company Regulation."
EQUALITY SAVINGS AND LOAN ASSOCIATION, F.A.
The Association is a federally-chartered-stock-based-savings association
regulated by the OTS, and its deposits are insured by the FDIC through the
SAIF. The deposits of the Association will continue to be insured by the FDIC
after the Conversion and Reorganization. The Association was originally
chartered in 1884. At March 31, 1997, the Association had total assets of
$200.8 million, deposit accounts of $123.0 million and total stockholders'
equity of $12.6 million. The Association conducts its business through three
full-service branch offices and five limited-service-loan-production offices.
The Association's main office is located at 4131 South Grand Boulevard, St.
Louis, Missouri 63118-3464, and its telephone number is (314) 352-3333.
On October 22, 1993, Equality Savings and Loan Association (the predecessor
of the Association) (i) reorganized into a mutual holding company and changed
its name to "First Missouri Financial, M.H.C." and (ii) transferred
substantially all of its assets and all of its liabilities to the Association,
which sold a minority interest in its common stock to depositors of Equality
Savings and Loan Association and various stock compensation plans. A total of
380,000 shares of newly issued common stock were sold at $10.00 per share. An
additional 11,400 authorized but unissued shares were later sold to the 1993
MRP at $10.00 per share. The Association gained net proceeds of approximately
$3.2 million from the sale of its common stock. On June 13, 1995, the
Association converted from a Missouri-chartered-stock-savings-and-loan
association to a federally-chartered-stock-savings-and-loan association.
THE ASSOCIATION'S BUSINESS OPERATIONS
The Association's business is similar in many respects to other savings
associations in that it gathers deposits from its local community and uses
these funds, along with FHLB advances, to invest primarily in residential one-
to four-family mortgage loans, U.S. government and agency securities and
mortgage-backed securities and, to a lesser extent, multifamily and commercial
real estate, consumer and commercial business loans. Notwithstanding these
traditional thrift attributes, the Association's operations are distinct in
that it
22
<PAGE>
conducts its residential mortgage lending business primarily through a wholly-
owned mortgage-banking subsidiary--EMC.
. Mortgage-Banking Operations. EMC acts as a conduit for the origination,
purchase and sale of residential mortgage loans for the benefit of the
Association. It funds its mortgage-banking activities through lines of
credit from the Association and an unrelated commercial bank. EMC
provides several benefits to the Association, including, among other
things, originating a variety of mortgage loan products for the
Association's portfolio and generating noninterest income for the
Association through its activities in the secondary mortgage market. EMC
contributed approximately 17% to the Association's total interest income
and other income for the year ended March 31, 1997. For additional
information concerning the Association's mortgage-banking operations,
see "Business of The Association--Lending and Mortgage-Banking
Operations."
. Capital Position. At March 31, 1997, the Association's capital exceeded
the OTS's tangible, core and risk-based capital requirements of 1.5%,
3.0% and 8.0% of adjusted total assets, respectively. At this date, the
Association's tangible and core capital totaled $12.3 million, or 6.11%
of adjusted total assets, and its risk-based capital totaled $12.6
million, or 17.86% of risk-weighted assets. For additional information
concerning the Association's compliance with regulatory capital
requirements, see Note 2 to Notes to Consolidated Financial Statements.
. Asset Quality. At March 31, 1997, the Association's nonperforming assets
totaled $709,000 (representing .67% of gross loans and .35% of total
assets), the majority of which were FHA/VA loans secured by residential
one- to four-family dwellings and the related principal and interest of
which were either insured by the FHA or guaranteed by the VA. For
additional information concerning the Association's nonperforming
assets, see "Business of the Association--Lending and Mortgage-Banking
Activities--Nonperforming Assets and Their Classification."
. Loan Servicing Portfolio. At March 31, 1997, EMC serviced $323.0 million
in residential mortgage loans (of which $90.6 million was for the
Association). EMC earned $888,000 in servicing fee income for fiscal
year 1997. Loan servicing fees on loans serviced for institutions other
than the Association totaled $674,000, $603,000 and $622,000 for fiscal
years 1997, 1996 and 1995, respectively. Because EMC sells conventional
mortgage loans (non-FHA and VA) servicing retained, the Association's
loan servicing portfolio (and the associated earnings stream) continues
to grow.
. FHLB Borrowings. The amount of the Association's savings deposits has
declined by approximately $8 million since 1993, while its loan demand
through EMC has steadily increased. To fund this loan growth and to take
advantage of interest rate spreads, the Association began borrowing
funds from the FHLB of Des Moines in 1994. Since then, the Association's
FHLB borrowings have increased to $63 million at March 31, 1997.
Management of the Association attributes the decline in traditional
savings accounts to intense competition for investment funds by other
financial institutions in the Association's local market and other
financial service providers such as mutual funds and insurance
companies. For additional information concerning the Association's
borrowings and deposit activity, see "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Financial
Condition."
. Internal Expansion. In May 1997, the Association purchased a building in
Arnold, Missouri (which is in Jefferson County and adjacent to St. Louis
County) that the Association is remodeling as a full-service branch
office. The Association expects this office to be completed by the
summer of 1998. In addition, the Association is relocating a store-front
branch office several blocks and concurrently converting it into a
branch office with a drive-up facility; the relocation is expected to be
completed in September 1997. In early 1997, in connection with its
hiring of a new commercial lending officer, the Association began
originating a limited number of commercial business loans. Management
expects this type of lending to increase gradually over the next several
years. For additional information concerning the Association's
commercial business lending, see "Business of the Association--Lending
and Mortgage-Banking Activities--Commercial Business Loans."
23
<PAGE>
BUSINESS STRATEGIES
The Association's business strategy includes (i) maintaining a strong
capital level, (ii) maintaining a high level of asset quality, (iii) limiting
the Association's exposure to fluctuations in interest rates, (iv) emphasizing
local originations of one- to four-family fixed-rate mortgage loans and ARMs
and (v) continuing to emphasize high quality customer service with a
competitive service fee structure. Management of the Association believes that
the proceeds raised in the Conversion and Reorganization, and the additional
operating flexibility gained by converting to the full-stock-form-of-
ownership, will assist the Association in accomplishing this strategy, while
continuing to grow its business.
The capital raised in the Conversion and Reorganization will allow the
Association to continue its internal expansion through growth in core
operations. The Association intends to continue its community-oriented focus
by originating loans in the St. Louis metropolitan area. Management believes
there is an opportunity for the Association, as a independent-community-
oriented financial institution to compete for customers of national and super-
regional banking organizations that have offices in the Association's market.
Many of these larger banks recently have combined with other large financial
institutions, and management of the Association believes that customer
dissatisfaction with services provided by these combined organizations will
give the Association the opportunity to expand its depositor and borrower base
by offering superior personal service as an independent community banking
organization. To this end and in order to expand its market share, the
Association is in the process of relocating a store-front branch office and
concurrently converting it into a branch office with a drive-up facility and
also is constructing an additional full-service branch facility. The
additional capital raised in the Conversion and Reorganization will allow the
Association to continue to grow the operations of EMC, which focus on one- to
four-family lending, but also will make funds available, as needs arise, to
finance non-mortgage types of lending, which would be intended to improve the
yield and interest rate sensitivity of the Association's assets.
Prospects for external growth also will be enhanced by the capital raised in
the Conversion and Reorganization because the Association will have additional
capital available to support acquisitions of other financial institutions and
branch expansion. The Association, however, has no plans at this time for such
acquisitions or expansion, except as discussed in this Prospectus. For
additional information concerning how the Association intends to use the
proceeds raised in the Conversion and Reorganization, see "Use of Proceeds."
REGULATION
The OTS is charged with overseeing and regulating the Association's
activities and monitoring its financial condition. This regulatory framework
sets parameters for the Association's activities and operations and grants the
OTS extensive discretion with regard to its supervisory and enforcement powers
and examination policies. The Association files periodic reports with the OTS
concerning its activities and financial condition, must obtain OTS approval
prior to entering into certain transactions or initiating new activities, and
is subject to periodic examination by the OTS to evaluate the Association's
compliance with various regulatory requirements.
FIRST MISSOURI FINANCIAL, M.H.C.
The Mutual Holding Company is a federally chartered mutual holding company
that was chartered in 1993 in connection with the Mutual Holding Company
Reorganization. The Mutual Holding Company's primary asset is 445,000
Association Shares, which represents 53.2% of the total issued and outstanding
Association Shares. The Mutual Holding Company's only other assets consist of
a deposit account in the amount of $50,000 as of March 31, 1997 (which will
become an asset of the Association upon consummation of the Conversion and
Reorganization). Prior to the Conversion and Reorganization, each depositor in
the Association has both a deposit account in the institution and a pro rata
ownership interest in the net worth of the Mutual Holding Company based upon
the value in his or her account, which interest may only be realized in the
event of a liquidation of the Mutual Holding Company. As part of the
Conversion and Reorganization, the Mutual Holding Company will convert from
mutual form to a federal interim stock savings association and simultaneously
merge with and into the Association, with the Association being the surviving
entity.
24
<PAGE>
USE OF PROCEEDS
The net proceeds from the sale of the Conversion Stock are expected to range
from $6.4 million, at the minimum of the Offering Price Range, to $8.8
million, at the maximum of the Offering Price Range. At the midpoint of the
Offering Price Range, the estimated net proceeds from the sale of the
Conversion Stock would be $7.6 million.
Pursuant to the business plan adopted by the Holding Company and the
Association on June 20, 1997 in contemplation of the Conversion and
Reorganization, the Holding Company plans to contribute to the Association 50%
of the net proceeds from the sale of the Conversion Stock and retain the
remainder of the net proceeds. Assuming that the Conversion and Reorganization
is consummated at the midpoint of the Offering Price Range, the Association
will receive approximately $3.8 million and the Holding Company will retain
approximately $3.8 million, out of which the Holding Company will make a loan
to the Association's ESOP in the amount of $696,000 and fund the 1997 MRP at a
later date in the amount of $240,000, provided the 1997 MRP is approved by the
Holding Company's stockholders. The ESOP will repay such loan from the Holding
Company with contributions made to the ESOP by the Association and any
dividends on the Common Stock held by the ESOP. The loan will require annual
interest and principal payments over a 10-year period and will bear interest
at a fixed rate established at the prime rate, as reported by The Wall Street
Journal, Midwest Edition, in effect at the time of completion of the
Conversion and Reorganization.
The Holding Company intends to invest the net proceeds of the Offering that
it retains initially in short-term and intermediate-term deposits and U.S.
government and federal agency securities. Thereafter, funds retained by the
Holding Company will be deployed in accordance with the Holding Company's and
the Association's business plan as determined by the Board of Directors of the
Holding Company, as specific business opportunities or requirements arise and
for general corporate purposes. The net proceeds retained by the Holding
Company may be used to support the future expansion of operations, such as the
establishment of new branch offices, the acquisition of branches from other
financial institutions or the acquisition of other financial institutions and
for other business or investment purposes, including the possible infusion of
additional equity into the Association, the possible payment of dividends and
the possible repurchase of shares of the Holding Company's Common Stock as
permitted by the OTS. See "Dividend Policy" and "The Conversion and
Reorganization--Certain Restrictions on Purchase or Transfer of Shares after
the Conversion and Reorganization." The Holding Company, upon consummation of
the Conversion, initially will be a unitary savings and loan holding company
which, under existing laws, would generally not be restricted as to
investments or as to the types of business activities in which it may engage,
provided that the Association continues to be a qualified thrift lender under
applicable OTS regulations.
It is expected that the Holding Company's return on equity will initially be
lower than historical levels as the Holding Company and the Association deploy
the proceeds from the Offering. While the Board of Directors and management
recognize this challenge will exist for the foreseeable future, the Holding
Company intends to manage capital through controlled growth, the payment of
regular cash dividends and possibly the payment of periodic special dividends.
In addition, the Holding Company may repurchase the Common Stock as market and
regulatory limits permit.
The Association will invest the proceeds of the Offering that are made
available to it by the Holding Company initially in cash and short-term
investment securities (i.e., remaining maturities ranging up to 12 months)
pending their application pursuant to its business plan. The business plan of
the Holding Company and Association contemplates continuation of the
Association's current lending and investment strategies that emphasize one- to
four-family mortgage loans and U.S. government and agency securities and
mortgage-backed securities. See "Business of the Association--Lending and
Mortgage-Banking Activities," and "--Investment Activities." The Association
may also use a portion of the net proceeds to pay dividends to the Holding
Company, subject to applicable legal requirements. See "Regulation and
Supervision--Federal Savings Association Regulation--Limitation on Capital
Distributions."
25
<PAGE>
The Holding Company and the Association also may use the net proceeds of the
Offering to expand their operations through acquisitions of other financial
institutions or other financial services companies or portions thereof,
subject to applicable regulatory restrictions. However, neither the
Association nor the Holding Company has any pending plans or agreements
regarding acquisitions of any specific financial institutions or other
financial services companies or portions thereof.
There can be no assurance that the Holding Company and the Association will
be able to effectively implement their business plan, as currently in effect,
and the business plan is subject to change.
DIVIDEND POLICY
Upon consummation of the Conversion and Reorganization, the Board of
Directors of the Holding Company will have the authority to declare and pay
dividends on the Common Stock. The Board of Directors of the Holding Company
intends to pay cash dividends on the Common Stock at an initial quarterly rate
equal to $0.17 per share (the amount of the existing quarterly dividend on the
Association Shares) divided by the Exchange Ratio, commencing with the first
full quarter following consummation of the Conversion and Reorganization,
which will have the effect of initially maintaining the aggregate amount of
quarterly cash dividends received by the Public Stockholders. Based on the
current Offering Price Range, the Exchange Ratio is expected to be 1.5283,
1.7981, 2.0678 and 2.3779 at the minimum, midpoint, maximum and 15% above
maximum of the Offering Price Range, respectively, resulting in an initial
quarterly dividend rate of $0.11, $0.09, $0.08 and $0.07 per share,
respectively.
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
Association's and the Holding Company's financial condition and results of
operations, tax considerations and general economic conditions. In order to
pay such cash dividends, however, the Holding Company must have available cash
either from the net proceeds raised in the Offering and retained by the
Holding Company, dividends received from the Association or earnings on
Holding Company assets. In addition, from time to time in an effort to reduce
capital to a desirable level or further reward stockholders for their
investment, or both, the Board of Directors may determine to pay special cash
dividends. The Holding Company will not, however, declare or pay a capital
distribution in the form of a "return of capital" to its stockholders or take
any steps in furtherance of any such capital distribution during the period
ending one year after the consummation of the Conversion and Reorganization.
Special cash dividends, if paid, may be paid in addition to, or in lieu of,
any regular cash dividends. No assurances can be given that any dividends,
regular or special, will be declared or, if declared, what the amount of
dividends will be or whether such dividends, once declared, will continue.
Moreover, no representation is being made regarding any "return of capital"
following one year after the consummation of the Conversion and
Reorganization.
It is anticipated that a source of income to the Holding Company in the
future could consist of dividends on the Association's stock held by the
Holding Company. Consequently, future declarations of cash dividends by the
Holding Company could depend upon dividend payments by the Association to the
Holding Company or stock repurchases by the Association, which payments or
repurchases will be subject to various restrictions. The Association is
subject to federal regulatory restrictions on the declaration and payment of
dividends. For information concerning federal regulations that apply to the
Association regarding a savings institution's ability to make capital
distributions including payment of dividends to its holding company, see
"Regulation and Supervision--Federal Savings Association Regulation--
Limitation on Capital Distributions."
Unlike the Association, the Holding Company is not subject to federal
regulatory restrictions on the declaration or payment of dividends to its
stockholders, although the source of such dividends could depend upon dividend
payments from the Association in addition to that portion of the net proceeds
of the Offering retained by the Holding Company and earnings thereon. The
Holding Company is subject, however, to the requirements of Delaware law,
which generally limit dividends to an amount equal to the excess of its net
assets (the amount by which total assets exceed total liabilities) over its
stated capital or, if there is no such excess, to its net profits for the
current and/or immediately preceding fiscal year.
26
<PAGE>
Depositors of the Association who are also stockholders of the Holding
Company after consummation of the Conversion and Reorganization may elect to
have cash dividends deposited directly into an existing account with the
Association by completing section 10 of the order form for the Conversion
Stock. By entering an account number in section 10 of the order form,
stockholders will have all future dividends directly deposited into interest-
bearing insured accounts at the Association.
MARKET FOR COMMON STOCK
The Holding Company has never issued capital stock (other than 100 shares
issued to the Association, which will be canceled upon consummation of the
Conversion and Reorganization), and to date an active and liquid trading
market has not developed for the 391,400 Public Association Shares outstanding
prior to the Offering. Consequently, there is no established market for the
Common Stock to be issued in the Exchange and the Offering.
The Holding Company has received conditional approval to have the Common
Stock listed on the Nasdaq NMS under the symbol "ESBX." In order for the
Common Stock to be listed on the Nasdaq NMS, however, there must be, among
other things, two market makers for the Common Stock. Trident intends to act
as a market maker for the Common Stock and will assist the Holding Company in
retaining at least one other market maker. The Holding Company will use its
best efforts to encourage and assist market makers in establishing and
maintaining a market for the Common Stock. There can be no assurance, however,
that any additional market makers for the Common Stock will be obtained or
that the Common Stock will be listed on the Nasdaq NMS or, if listed, will
continue to be eligible for such listing. If the Holding Company should prove
unable, for any reason, to list the Common Stock on the Nasdaq NMS or to
continue to be eligible for such listing, then the Holding Company intends to
list the Common Stock on the Nasdaq SmallCap Market or the American Stock
Exchange, under the same symbol, subject to the applicable listing criteria
for that market.
At March 31, 1997, there were 836,400 Association Shares outstanding,
including 391,400 Public Association Shares, which were held by approximately
620 stockholders of record. There is no established market for the Association
Shares nor any uniformly quoted prices. The last sale price of the Association
Shares of which the Association is aware was $15.00 per share on April 7,
1997.
27
<PAGE>
CAPITALIZATION
The following table presents the historical capitalization of the
Association at March 31, 1997, 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 Conversion
Stock at the minimum, midpoint, maximum and maximum, as adjusted, of the
Offering Price Range. The shares that would be issued at the maximum, as
adjusted, of the Offering Price Range would be subject to receipt of OTS
approval of an updated appraisal confirming such valuation. A CHANGE IN THE
NUMBER OF SHARES TO BE ISSUED IN THE CONVERSION AND REORGANIZATION WOULD
MATERIALLY AFFECT PRO FORMA CONSOLIDATED CAPITALIZATION.
<TABLE>
<CAPTION>
HOLDING COMPANY PRO FORMA CONSOLIDATED CAPITALIZATION AS
OF MARCH 31, 1997 BASED UPON THE SALE FOR $10.00 PER
SHARE OF
---------------------------------------------------------------------
ASSOCIATION 680,000 800,000 920,000 1,058,000
HISTORICAL SHARES SHARES SHARES SHARES
CAPITALIZATION AT (MINIMUM (MIDPOINT (MAXIMUM (15% ABOVE
MARCH 31, 1997 OF RANGE)(1) OF RANGE)(1) OF RANGE)(1) MAXIMUM)(1)(2)
----------------- -------------- -------------- -------------- ---------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Deposits(3)............... $122,983 $ 122,983 $ 122,983 $ 122,983 $ 122,983
FHLB advances and note
payable to Association... 64,113 64,113 64,113 64,113 64,113
Debt in connection with
the acquisition of
Association Shares by the
ESOP..................... 136 -- -- -- --
-------- -------------- -------------- -------------- --------------
Total deposits and
borrowed funds........... $187,232 $ 187,096 $ 187,096 $ 187,096 $ 187,096
======== ============== ============== ============== ==============
Stockholders' equity:
Preferred Stock......... -- -- -- -- --
Common Stock(4)......... 836 13 15 17 20
Additional paid-in
capital................ 2,769 9,977 11,175 12,373 13,750
Retained earnings(5).... 9,675 9,725 9,725 9,725 9,725
Unrealized gain (loss)
on available for sale
securities............. (510) (510) (510) (510) (510)
Less: existing stock plans
Association Shares
acquired by ESOP....... (136) -- -- -- --
Common Stock acquired by
ESOP(6)................ -- (612) (696) (780) (877)
Common Stock to be
acquired by 1997
MRP(7)................. -- (204) (240) (276) (317)
-------- -------------- -------------- -------------- --------------
Total stockholders'
equity................... $ 12,634 $ 18,389 $ 19,469 $ 20,549 $ 21,791
======== ============== ============== ============== ==============
</TABLE>
- --------
(1) Does not reflect the possible increase in the Offering Price Range to
reflect material changes in the financial condition or results of
operations of the Association or changes in market conditions or general
financial, economic and regulatory conditions, or the issuance of
additional shares under the 1997 Stock Option Plan.
(2) This column represents the pro forma capitalization of the Holding Company
if the aggregate number of shares of Conversion Stock issued in the
Offering is 15% above the maximum of the Offering Price Range. See "Pro
Forma Data" and Footnote 1 thereto.
(3) Withdrawals from deposit accounts for the purchase of Conversion Stock are
not reflected. Such withdrawals will reduce pro forma deposits by the
amounts thereof.
(4) The Association's authorized capital will consist solely of 4,000,000
shares of common stock, par value $1.00 per share, 1,000 shares of which
will be issued to the Holding Company, and 1,000,000 shares of preferred
stock, par value $1.00 per share, none of which will be issued in
connection with the Conversion and Reorganization.
28
<PAGE>
(5) Retained earnings are substantially restricted by applicable regulatory
capital requirements. Additionally, the Association 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 Eligible Account Holders and Supplemental Eligible Account
Holders at the consummation of the Conversion and Reorganization and
adjusted downward thereafter as such account holders reduce their balances
or cease to be depositors. See "The Conversion and Reorganization--
Liquidation Rights." Historical retained earnings does not include $50,000
of assets currently held at the Mutual Holding Company level, and which
will be consolidated with the Association's book value.
(6) Assumes that 7% of the shares of Conversion Stock sold in the Offering
will be acquired by the ESOP with funds borrowed from the Holding Company.
Under generally accepted accounting principles ("GAAP"), the amount of
Conversion 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
Holding Company and Association--Employee Benefit Plans--Employee Stock
Ownership Plan."
(7) Assumes the purchase in the open market at the Purchase Price, pursuant to
the proposed 1997 MRP, of a number of shares equal to 3% of the shares of
Conversion Stock issued in the Offering at the minimum, midpoint, maximum
and 15% above the maximum of the Offering Price Range. The issuance of
such additional Conversion Stock of the MRP from authorized but unissued
shares of Common Stock would dilute the ownership interest of stockholders
by 1.57%. The shares are reflected as a reduction of stockholders' equity.
See "Risk Factors--Possible Dilutive Effect of Issuance of Additional
Shares," "Pro Forma Data" and "Management of the Holding Company and
Association--Employee Benefit Plans--1997 Management Recognition Plan."
The 1997 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 and Reorganization.
29
<PAGE>
REGULATORY CAPITAL
The following table presents the Association's historical and pro forma
capital position relative to its capital requirements at March 31, 1997. The
amount of capital infused into the Association for purposes of the following
table is 50% of the net proceeds from the sale of the Conversion Stock. 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 1997 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 OTS capital regulations as
discussed under "Regulation and Supervision--Federal Savings Association
Regulation--OTS Capital Requirements."
<TABLE>
<CAPTION>
PRO FORMA AT MARCH 31, 1997
----------------------------------------------------------------------------------
ACTUAL REGULATORY 1,058,000 SHARES
CAPITAL AT 680,000 SHARES 800,000 SHARES 920,000 SHARES (15% ABOVE
MARCH 31, 1997 (MINIMUM OF RANGE) (MIDPOINT OF RANGE) (MAXIMUM OF RANGE) MAXIMUM OF RANGE)
----------------- -------------------- ---------------------- -------------------- -----------------
% OF % OF % OF % OF % OF
AMOUNT ASSETS(1) AMOUNT ASSETS(1) AMOUNT ASSETS(1) AMOUNT ASSETS(1) AMOUNT ASSETS(1)
------- --------- --------- ---------- ---------- ----------- --------- ---------- ------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
GAAP capital(2)........ $12,634 6.29% $ 15,197 7.46% $ 15,677 7.67% $ 16,357 7.80% $16,709 8.13%
Tangible capital(2).... $12,299 6.11% $ 14,862 7.28% $ 15,342 7.49% $ 15,822 7.71% $16,374 7.95%
Tangible capital
requirement........... 3,017 1.50% 3,063 1.50% 3,071 1.50% 3,080 1.50% 3,084 1.50%
------- ------ --------- -------- ---------- --------- --------- -------- ------- ------
Excess................. $ 9,282 4.61% $ 11,799 5.78% $ 12,271 5.99% $ 12,742 6.21% $13,290 6.45%
======= ====== ========= ======== ========== ========= ========= ======== ======= ======
Core capital(2)........ $12,299 6.11% $ 14,862 7.28% $ 15,342 7.49% $ 15,822 7.71% $16,374 7.95%
Core capital
requirement(3)........ 6,035 3.00% 6,126 3.00% 6,143 3.00% 6,160 3.00% 6,179 3.00%
------- ------ --------- -------- ---------- --------- --------- -------- ------- ------
Excess................. $ 6,264 3.11% $ 8,736 4.28% $ 9,199 4.49% $ 9,662 4.71% $10,195 4.95%
======= ====== ========= ======== ========== ========= ========= ======== ======= ======
Total capital(4)....... $12,582 17.86% $ 15,145 21.32% $ 15,625 21.96% $ 16,105 22.59% $16,657 23.33%
Risk-based capital
requirement........... 5,635 8.00% 5,684 8.00% 5,693 8.00% 5,702 8.00% 5,712 8.00%
------- ------ --------- -------- ---------- --------- --------- -------- ------- ------
Excess................. $ 6,947 9.86% $ 9,461 13.32% $ 9,932 13.96% $ 10,403 14.59% $10,945 15.33%
======= ====== ========= ======== ========== ========= ========= ======== ======= ======
</TABLE>
- ------
(1) Based upon total adjusted assets of $201.2 million at March 31, 1997 and
$204.2 million, $204.8 million, $205.3 million and $206.0 million at the
minimum, midpoint, maximum and maximum, as adjusted, of the Offering Price
Range, respectively, for purposes of the tangible and core capital
requirements, and upon risk-weighted assets of $70.4 million at March 31,
1997 and $71.1 million, $71.2 million, $71.3 million and $71.4 million at
the minimum, midpoint, maximum and maximum, as adjusted, of the Offering
Price Range, respectively, for purposes of the risk-based capital
requirement.
(2) An unrealized loss on securities available-for-sale, net of taxes of
$510,000 and an investment in non-includable subsidiaries of $845,000
account for the difference between GAAP capital and both tangible capital
and core capital.
(3) The current OTS core-capital requirement for savings associations is 3% of
total adjusted assets. The OTS has proposed core capital requirements which
would require a core capital ratio of 3% of total adjusted assets for
thrifts that receive the highest supervisory rating for safety and
soundness and a core capital ratio of 4% to 5% for all other thrifts.
(4) Percentage represents total core and supplementary capital divided by total
risk-weighted assets. Assumes net proceeds are invested in assets that
carry a 20% risk-weighting.
30
<PAGE>
PRO FORMA DATA
Under the Plan, the shares of Conversion Stock must be sold at a price equal
to the estimated pro forma market value of the Conversion Stock, based upon an
independent valuation. The Offering Price Range as of June 20, 1997 is from a
minimum of $6,800,000 to a maximum of $9,200,000 with a midpoint of $8,000,000
or, at a price per share of $10.00, a minimum number of shares of 680,000, a
maximum number of shares of 920,000 and a midpoint number of shares of
800,000. The actual net proceeds from the sale of the Conversion Stock cannot
be determined until the Conversion and Reorganization is completed. Net
proceeds set forth on the following table are based upon the assumption that
Conversion and Reorganization expenses will total approximately $415,000 at
each of the minimum, midpoint, maximum and 15% above the maximum of the
Offering Price Range. Actual expenses may vary from this estimate.
The pro forma consolidated net income of the Association for the year ended
March 31, 1997 has been calculated as if the Conversion and Reorganization had
been consummated at the beginning of the period and the estimated net proceeds
received by the Holding Company and the Association had been invested at 5.81%
at the beginning of the period, which represents the arithmetic average of the
Association's yield on interest-earning assets and interest-bearing deposits
for the year ended March 31, 1997. As discussed under "Use of Proceeds," the
Holding Company expects to retain 50% of the net proceeds from the sale of the
Conversion Stock from which it will fund the ESOP loan. A pro forma after-tax
return of 3.63% is used for both the Holding Company and the Association for
the period, after giving effect to an incremental combined federal and state
income tax rate of 37.5% for the year ended March 31, 1997. 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 March 31,
1997, but without any adjustment of per share historical or pro forma
stockholders' equity to reflect the earnings on the estimated net proceeds.
The following table summarizes the historical net income and retained
earnings of the Association and the pro forma consolidated net income and
stockholders' equity of the Holding Company for the periods and at the date
indicated, based on the minimum, midpoint and maximum of the Offering Price
Range and based on a 15% increase in the maximum of the Offering Price Range.
No effect has been given to: (i) the shares to be reserved for issuance under
the 1997 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 and Reorganization; (ii) withdrawals from deposit accounts for
the purpose of purchasing Conversion Stock in the Offering; (iii) the issuance
of shares from authorized but unissued shares to the 1997 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 and Reorganization;
(iv) the payment of cash in satisfaction of dissenters' rights or (v) the
establishment of a liquidation account for the benefit of Eligible Account
Holders and Supplemental Eligible Account Holders. See "Management of the
Holding Company and Association--Employee Benefit Plans--1997 Stock Option
Plan" and "The Conversion and Reorganization--Stock Pricing, Exchange Ratio
and Number of Shares Issued." Shares of Conversion Stock may be purchased with
funds on deposit at the Association, 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
such purchases.
The following pro forma information may not be representative of the
financial effects of the Conversion and Reorganization at the date on which
the Conversion and Reorganization 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 according to 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.
31
<PAGE>
<TABLE>
<CAPTION>
HOLDING COMPANY PRO FORMA
AT OR FOR THE FISCAL YEAR ENDED MARCH 31,
1997, BASED UPON THE SALE FOR $10.00 PER
SHARE OF
-----------------------------------------------
680,000 800,000 920,000 1,058,000
SHARES SHARES SHARES SHARES
(MINIMUM (MIDPOINT (MAXIMUM (15% ABOVE
OF RANGE) OF RANGE) OF RANGE) MAXIMUM)(1)
---------- ---------- ---------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Gross proceeds................ $ 6,800 $ 8,000 $ 9,200 $ 10,580
Less: estimated offering
expenses..................... (415) (415) (415) (415)
---------- ---------- ---------- ----------
Estimated net proceeds...... $ 6,385 $ 7,585 $ 8,785 $ 10,165
Less: Common Stock acquired by
ESOP......................... (476) (560) (644) (741)
Less: Common Stock to be
acquired by 1997 MRP......... (204) (240) (276) (317)
Add: Assets consolidated from
the Mutual Holding Company... 50 50 50 50
---------- ---------- ---------- ----------
Estimated net proceeds, as
adjusted................... $ 5,755 $ 6,835 $ 7,915 $ 9,157
========== ========== ========== ==========
Consolidated net income:
Historical.................. $ 505 $ 505 $ 505 $ 505
Pro forma income on net
proceeds(2)................ 209 248 287 333
Pro forma ESOP
adjustments(3)............. (30) (35) (40) (46)
Pro forma 1997 MRP
adjustments(4)............. (26) (30) (35) (40)
---------- ---------- ---------- ----------
Pro forma net income........ $ 658 $ 688 $ 717 $ 752
========== ========== ========== ==========
Per share net income (reflects
SOP 93-6)(5)(6):
Historical.................. $ 0.41 $ 0.35 $ 0.30 $ 0.26
Pro forma income on net
proceeds................... 0.16 0.16 0.17 0.17
Pro forma ESOP
adjustments(3)............. (0.02) (0.02) (0.02) (0.02)
Pro forma 1997 MRP
adjustments(4)............. (0.02) (0.02) (0.02) (0.02)
---------- ---------- ---------- ----------
Pro forma net income per
share...................... $ 0.53 $ 0.47 $ 0.43 $ 0.39
========== ========== ========== ==========
Offering price as a multiple
of pro forma net earnings per
share........................ 18.87x 21.28x 23.26x 25.64x
Number of shares used in
earnings per share
calculations................. 1,237,497 1,455,879 1,674,261 1,925,400
Stockholders' equity (book
value):
Historical(10).............. $ 12,684 $ 12,684 $ 12,684 $ 12,684
Estimated net proceeds...... 6,385 7,585 8,785 10,165
Less: Common Stock acquired
by ESOP.................... (476) (560) (644) (741)
Less: Common Stock acquired
by 1997 MRP(4)............. (204) (240) (276) (317)
---------- ---------- ---------- ----------
Pro forma stockholders'
equity(7).................. $ 18,389 $ 19,469 $ 20,549 $ 21,791
========== ========== ========== ==========
Stockholders' equity per share
(does not reflect
SOP 93-6)(6)(8):
Historical(6)(10)........... $ 9.92 $ 8.43 $ 7.33 $ 6.38
Estimated net proceeds...... 5.00 5.05 5.08 5.11
Less: Common Stock acquired
by ESOP.................... (0.37) (0.37) (0.37) (0.37)
Less: Common Stock acquired
by 1997 MRP(4)............. (0.16) (0.16) (0.16) (0.16)
---------- ---------- ---------- ----------
Pro forma stockholders'
equity per share(9)........ $ 14.39 $ 12.95 $ 11.88 $ 10.96
========== ========== ========== ==========
Pro forma tangible
stockholders' equity per
share...................... $ 14.39 $ 12.95 $ 11.88 $ 10.96
========== ========== ========== ==========
Offering price as a percentage
of pro forma stockholders'
equity per share............. 69.49% 77.22% 84.18% 91.24%
Offering price as a percent of
pro forma tangible equity.... 69.49% 77.22% 84.18% 91.24%
Number of shares used in book
value per share
calculations................. 1,278,195 1,503,759 1,729,323 1,988,721
</TABLE>
32
<PAGE>
- --------
(1) Gives effect to the sale of an additional 138,000 shares of Conversion
Stock in the Conversion and Reorganization, which may be issued to cover
an increase in the pro forma market value of the Conversion Stock and
Exchange Shares without the resolicitation of subscribers or any right of
cancellation. The issuance of such additional shares will be conditioned
on a determination by RP Financial that such issuance is compatible with
its determination of the estimated pro forma market value of the
Conversion Stock and Exchange Shares. See "The Conversion and
Reorganization--Stock Pricing, Exchange Ratio and Number of Shares to be
Issued."
(2) No effect has been given to withdrawals from savings accounts for the
purpose of purchasing shares of Conversion Stock. Since funds on deposit
at the Association may be withdrawn to purchase shares of Conversion
Stock (which will reduce deposits by the amount of such purchases), the
net amount of funds available to the Association for investment following
receipt of the net proceeds of the Offering will be reduced by the amount
of such withdrawals.
(3) It is assumed that 7% of the shares of Conversion Stock issued in the
Conversion and Reorganization 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 and Reorganization, which rate is
currently %) from the net proceeds from the Offering retained by the
Holding Company. The amount of this borrowing has been reflected as a
reduction from gross proceeds to determine estimated net investible
proceeds. The Association intends to make contributions to the ESOP at
least equal to the principal and interest requirement of the debt. As the
debt is repaid, stockholders' equity will be increased. The Association's
payment of the ESOP debt is based upon equal installments of principal
over a 10-year period, assuming a combined federal and state income tax
rate of 37.5%. Interest income earned by the Holding Company on the ESOP
debt offsets the interest paid by the Association 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,
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 Holding
Company and Association--Employee Benefit Plans--Employee Stock Ownership
Plan."
(4) In calculating the pro forma effect of the 1997 MRP, it is assumed that
the required stockholder approval has been received, that the shares were
acquired by the 1997 MRP at the beginning of the period presented in open
market purchases at the Purchase Price, that 20% of the amount
contributed was an amortized expense during such period, and that the
combined federal and state income tax rate is 37.5%. The issuance of
authorized but unissued shares of the Common Stock instead of open market
purchases would dilute the voting interests of existing stockholders by
approximately 1.57% and pro forma net income per share would be $.52,
$.46, $.42 and $.38 at the minimum, midpoint, maximum and 15% above the
maximum of the Offering Price Range for the year ended March 31, 1997,
respectively, and pro forma stockholders' equity per share would be
$14.32, $12.90, $11.85 and $10.94 at the minimum, midpoint, maximum and
15% above the maximum of the Offering Price Range at March 31, 1997,
respectively. Shares issued under the 1997 MRP vest 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 shares are awarded
under the 1997 MRP, total 1997 MRP expense would increase. The total
estimated 1997 MRP expense was multiplied by 20% (the total percent of
shares for which expense is recognized in the first year) resulting in
pre-tax 1997 MRP expense of $40,800, $48,000, $55,200 and $63,480 at the
minimum, midpoint, maximum and 15% above the maximum of the Offering
Price Range for the fiscal year ended March 31, 1997, respectively. No
effect has been given to the shares reserved for issuance under the
proposed 1997 Stock Option Plan. If stockholders approve the 1997 Stock
Option Plan following the Conversion and Reorganization, the Holding
Company will have reserved for issuance under the 1997 Stock Option Plan
authorized but unissued shares of Common Stock representing an amount of
shares equal to 10% of the shares of Conversion Stock sold in the
Offering. 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
33
<PAGE>
approximately 5.05%. Assuming stockholder approval of the 1997 Stock
Option Plan and that all options were exercised at the end of the year
ended March 31, 1997 at an exercise price of $10.00 per share, pro forma
net earnings per share would be $.50, $.45, $.41 and $.37, respectively,
for the year ended March 31, 1997, and pro forma stockholders' equity per
share would be $14.17, $12.80, $11.79 and $10.91, respectively, for the
year ended March 31, 1997 at the minimum, midpoint, maximum and 15% above
the maximum of the Offering Price Range. See "Management of the Holding
Company and Association--Employee Benefit Plans--1997 Stock Option Plan"
and "--Employee Benefit Plans--1997 Management Recognition Plan" and "Risk
Factors--Possible Dilutive Effect of Issuance of Additional Shares."
(5) Per share amounts are based upon shares outstanding of 1,237,497,
1,455,879, 1,674,261 and 1,925,400 at the minimum, midpoint, maximum and
15% above the maximum of the Offering Price Range for the fiscal year
ended March 31, 1997, respectively, which includes the shares of
Conversion Stock sold in the Offering, less the number of shares assumed
to be held by the ESOP not committed to be released within the first year
following the Conversion and Reorganization.
(6) Historical per share amounts have been computed as if the Conversion
Stock expected to be issued in the Conversion and Reorganization 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 and Reorganization, the additional ESOP
expense or the proposed 1997 MRP expense, as described above.
(7) "Book value" represents the difference between the stated amounts of the
Association'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 and Reorganization, or the federal income tax consequences of
the restoration to income of the Association's special bad debt reserves
for income tax purposes which would be required in the unlikely event of
liquidation. 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 1,278,195,
1,503,759, 1,729,323, 1,988,721 at the minimum, midpoint, maximum and 15%
above the maximum of the Offering Price Range, respectively.
(9) Does not represent possible future price appreciation or depreciation of
the Common Stock.
(10) Historical book value includes $50,000 of assets currently held at the
Mutual Holding Company level, and which will be consolidated with the
Association's book value.
34
<PAGE>
PROPOSED SUBSCRIPTIONS BY DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth, for each of the Holding Company's directors
and executive officers and for all of the directors and executive officers as
a group, (1) the number of Exchange Shares to be beneficially held upon
consummation of the Conversion and Reorganization, based upon their beneficial
ownership of Association Shares as of May 31, 1997 (see "Beneficial Ownership
of Capital Stock"), (2) the proposed purchases of Conversion Stock, assuming
sufficient shares are available to satisfy their subscriptions, and (3) the
total amount of Common Stock to be held upon consummation of the Conversion
and Reorganization, in each case assuming that 800,000 shares of Conversion
Stock are sold, which is the midpoint of the Offering Price Range.
<TABLE>
<CAPTION>
PROPOSED PURCHASES TOTAL COMMON STOCK
OF CONVERSION TO BE BENEFICIALLY
STOCK HELD(2)
BENEFICIAL ------------------ ------------------
OWNERSHIP OF NUMBER
EXCHANGE NUMBER OF PERCENTAGE
NAME SHARES(1) AMOUNT OF SHARES SHARES OF TOTAL
- ---- ------------ -------- --------- ------- ----------
<S> <C> <C> <C> <C> <C>
LeRoy C. Crook.............. 89 $ 15,000 1,500 1,589 *
Kenneth J. Hrdlicka......... 3,527 $ 50,000 5,000 8,527 *
Michael J. Walsh............ 14,965 $ 35,000 3,500 18,465 1.23%
Richard C. Fellhauer........ 42,703 $100,000 10,000 52,703 3.50%
Daniel C. Aubuchon.......... 4,736 $ 50,000 5,000 9,736 *
Stacey W. Braswell.......... 5,545 $100,000 10,000 15,545 1.03%
Berenice J. Mahacek......... 14,503 $100,000 10,000 24,503 1.63%
Charles J. Wolter........... 4,563 $ 25,000 2,500 7,063 *
Michael A. Deelo............ 27,368 $100,000 10,000 37,368 2.48%
Leonard O. Wolter........... 10,209 $ 35,000 3,500 13,709 *
All directors and executive
officers of the Holding
Company as a group (ten
persons)................... 128,208 $610,000 61,000 189,208 12.58%
</TABLE>
- --------
(1) Excludes shares which may be received upon the exercise of outstanding
stock options. Based upon the Exchange Ratio of 1.7981 Exchange Shares for
each Public Association Share at the midpoint of the Offering Price Range.
(2) Excludes stock options and awards to be granted under the Company's 1997
Stock Option Plan and 1997 MRP if such plans are approved by stockholders
following the Conversion and Reorganization. See "Management of the
Company--Employee Benefit Plans."
* Less than 1%.
35
<PAGE>
EQUALITY SAVINGS AND LOAN ASSOCIATION, F.A.
CONSOLIDATED STATEMENTS OF INCOME
The Consolidated Statements of Income of the Association for each of the
three years ended March 31, 1997 have been audited by KPMG Peat Marwick LLP,
independent auditors, whose report thereon appears elsewhere in this
Prospectus. KPMG Peat Marwick LLP did not audit the financial statements of
Equality Mortgage Corporation (a consolidated subsidiary), which statements
reflect total assets constituting 3% and 7% in 1997 and 1996, respectively,
and total interest income and other income constituting 17%, 19%, and 17% in
1997, 1996, and 1995, respectively, of the related consolidated totals. Those
statements were audited by other auditors whose report has been furnished to
KPMG Peat Marwick LLP, and whose opinion, insofar as it relates to the amounts
included for Equality Mortgage Corporation, is based solely on the report of
the other auditors. The Consolidated Statements of Income should be read in
conjunction with the Association's Consolidated Financial Statements and
related Notes thereto included elsewhere herein.
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED MARCH
31,
------------------------------------
1997 1996 1995
----------- ----------- ----------
<S> <C> <C> <C>
Interest income:
Loans receivable....................... $ 7,448,854 $ 7,046,845 $5,868,970
Investment securities and interest-
bearing deposits...................... 4,399,442 3,723,795 2,950,035
Mortgage-backed securities............. 1,530,005 1,333,153 777,025
Other.................................. 231,968 171,569 101,041
----------- ----------- ----------
Total interest income.................... 13,610,269 12,275,362 9,697,071
Interest expense:
Savings deposits....................... 5,682,184 5,728,828 5,323,168
Advances from Federal Home Loan Bank... 3,377,929 2,742,672 740,721
Other borrowed money................... 51,976 69,226 67,951
----------- ----------- ----------
Total interest expense................... 9,112,089 8,540,726 6,131,840
Net interest income...................... 4,498,180 3,734,636 3,565,231
Provision for losses on loans............ 50,000 31,225 9,000
----------- ----------- ----------
Net interest income after provision for
losses on loans......................... 4,448,180 3,703,441 3,556,231
Noninterest income:
Gain on sales of mortgage loans........ 1,120,907 1,248,346 775,330
Loan servicing fees and late charges... 747,289 673,142 682,296
Gain (loss) on sale of investment and
mortgage-backed securities available
for sale, net......................... 7,284 (8,280) (34,202)
Equity in earnings (loss) of joint
ventures.............................. (2,433) (29,634) 188,022
Rental income.......................... 172,581 309,173 355,419
Other.................................. 523,451 516,356 307,734
----------- ----------- ----------
Total noninterest income................. 2,569,079 2,709,103 2,274,599
Noninterest expense:
Salaries and employee benefits......... 2,917,772 2,905,168 2,845,846
Occupancy.............................. 481,620 486,751 457,556
Data processing........................ 192,333 191,739 172,922
Advertising............................ 90,363 76,071 47,027
Federal insurance premiums............. 216,451 277,417 298,494
Savings Association Insurance Fund
special assessment.................... 788,770 -- --
Other.................................. 1,521,719 1,404,130 1,499,063
----------- ----------- ----------
Total noninterest expense................ 6,209,028 5,341,276 5,320,908
Income before income tax expense......... 808,231 1,071,238 509,922
Income tax expense....................... 303,459 417,782 188,247
----------- ----------- ----------
Net income............................... $ 504,772 $ 653,456 $ 321,675
=========== =========== ==========
Earnings per share....................... $ 0.61 $ 0.80 $ 0.39
=========== =========== ==========
</TABLE>
See Notes to Consolidated Financial Statements.
36
<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 Association's financial
condition, changes in financial condition and results of operations. The
information contained in this section should be read in conjunction with the
Consolidated Financial Statements, the accompanying Notes to Consolidated
Financial Statements and the other sections contained in this Prospectus.
The Association attracts deposits from the general public and uses these
deposits, together with other funding sources, to originate or invest in
residential and other mortgage loans and, to a lesser extent, nonmortgage
loans, investments, and other assets. Because the Association is primarily
dependent on net interest margin (interest income from loans and investments
minus interest expense on deposit accounts and borrowed money) for earnings,
the focus of the Association's planning has been to devise and employ
strategies that provide a stable, positive spread between the yield on
interest-earning assets and the cost of interest-bearing liabilities in order
to maximize the dollar amount of net interest income.
A substantial portion of the Association's operations and income is derived
from the operations of EMC. EMC acts as a conduit for the origination,
purchase and sale of residential mortgage loans for the benefit of the
Association. It funds its mortgage-banking activities through lines of credit
from the Association and an unrelated commercial bank. EMC provides several
benefits to the Association, including, among other things, originating a
variety of mortgage loan products for the Association's portfolio and
generating noninterest income for the Association through its activities in
the secondary mortgage market. EMC mortgage-banking activities produce
primarily two types of income-gain on sale of mortgage loans and loan
servicing fees and late charges. Gain on sale of mortgage loans and loan
servicing fees and late charges accounted for 47.1% and 40.8%, respectively of
EMC's total income for the year ended March 31, 1997. EMC contributed
approximately 17% to the Association's total interest and other income for the
year ended March 31, 1997.
The expenses of EMC increased $146,000, or 6.7%, from $2.2 million in 1996
to $2.3 million in 1997. The largest portion of EMC's operating expenses
relate to salaries and commission paid to employees. Salaries and commissions
increased $39,000, or 3.2%, from $1,223,000 in 1996 to $1,262,000 in 1997.
This increase resulted from normal salary increases to individuals involved in
the mortgage operations. Another component of EMC's expense is the
amortization of mortgage servicing rights, which increased from $44,000 in
1996 to $185,000 in 1997, as a result of the adoption of Statement of
Financial Accounting Standards No. 122, Accounting or Mortgage Servicing
Rights ("SFAS 122") on April 1, 1995. SFAS 122 provides for the capitalization
for originated mortgage servicing rights. Originated mortgage servicing rights
capitalized during 1996 and 1997 totaled $317,000 and $483,000, respectively.
The remaining portion of EMC's operating expenses relate to items necessary
for the day to day conduct of the mortgage loan production and sales. As a
result of the decrease in total income and increase in total expenses, the net
income of EMC decreased $149,000, or 84.2%, from $177,000 in 1996 to $28,000
in 1997.
37
<PAGE>
AVERAGE BALANCE SHEET
The following table sets forth, for the periods indicated, information
regarding average balances of interest-earning assets and interest-bearing
liabilities as well as the total dollar amounts of interest income from
average interest-earning assets and interest expense on average interest-
bearing liabilities, resultant yields, interest rate spread, net interest
margin, and ratio of average interest-earning assets to average interest-
bearing liabilities. Average balances for a period have been calculated using
the average of month-end balances during such period. Management of the
Association does not believe that the use of month-end balances results in
averages that are materially different from those calculated using daily
average balances.
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED MARCH 31,
--------------------------------------------------------------------------------------
1997 1996 1995
---------------------------- ---------------------------- ----------------------------
INTEREST INTEREST INTEREST
AVERAGE AND YIELD/ AVERAGE AND YIELD/ AVERAGE AND YIELD/
BALANCE(1) DIVIDENDS COST BALANCE(1) DIVIDENDS COST BALANCE(1) DIVIDENDS COST
---------- --------- ------- ---------- --------- ------- ---------- --------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Mortgage loans(2)(3).. $ 96,113 $ 7,265 7.56% $ 90,257 $ 6,879 7.62% $ 74,339 $5,724 7.70%
Consumer loans(2)..... 2,091 182 8.70% 1,926 168 8.72% 1,830 145 7.92%
Commercial loans(2)... 107 2 11.21% -- -- -- % -- -- -- %
-------- ------- -------- ------- -------- ------
Total loans receivable.. 98,311 7,449 7.58% 92,183 7,047 7.65% 76,169 5,869 7.71%
Investment
securities........... 63,710 3,931 6.17% 45,945 2,827 6.15% 38,187 2,064 5.41%
Interest-bearing
deposits............. 7,738 468 6.05% 13,290 897 6.75% 17,285 886 5.13%
Mortgage-backed
securities........... 21,778 1,530 7.03% 24,642 1,333 5.41% 16,105 777 4.83%
FHLB stock............ 3,300 232 7.03% 2,438 171 7.01% 1,256 101 8.04%
-------- ------- -------- ------- -------- ------
Total interest-earning
assets................. $194,837 $13,610 6.99% $178,498 $12,275 6.88% $149,002 $9,697 6.51%
------- ------- ------
Interest-bearing
liabilities:
Regular savings....... $ 21,846 $ 546 2.50% $ 22,398 $ 562 2.51% $ 25,851 $ 695 2.69%
NOW accounts.......... 11,325 169 1.49% 10,884 186 1.71% 10,835 200 1.85%
Money market
accounts............. 5,402 151 2.80% 6,298 176 2.80% 9,490 265 2.79%
Certificates of
deposit.............. 84,102 4,816 5.73% 83,463 4,805 5.76% 79,854 4,163 5.21%
-------- ------- -------- ------- -------- ------
Total savings deposits.. 122,675 5,682 4.63% 123,043 5,729 4.66% 126,030 5,323 4.22%
FHLB advances......... 61,917 3,378 5.46% 46,000 2,742 5.96% 14,417 741 5.14%
Other interest-bearing
liabilities.......... 2,409 52 2.16% 2,374 69 2.91% 2,320 68 2.93%
-------- ------- -------- ------- -------- ------
Total interest-bearing
liabilities............ $187,001 $ 9,112 4.87% $171,417 $ 8,540 4.98% $142,767 $6,132 4.30%
------- ------- ------
Net interest income..... $ 4,498 $ 3,735 $3,565
======= ======= ======
Interest rate spread.... 2.12% 1.90% 2.21%
Net interest margin(4).. 2.31% 2.09% 2.39%
Ratio of average
interest-earning assets
to average interest-
bearing liabilities.... 104.19% 104.13% 104.37%
</TABLE>
- -------
(1) Average balances are computed on a monthly basis (month-end balances).
(2) Does not include interest on loans 90 days or more past due.
(3) Includes loans held for sale.
(4) Net interest income divided by average interest-earning assets.
Note: At March 31, 1997, the weighted average yields on certain interest-
earning assets and the weighted average cost on certain interest-bearing
liabilities were as follows: loans receivable, 7.65%; mortgage-backed
securities, 6.95%; investment securities, 6.91%; total interest-earning
assets, 7.30%; savings deposits, 4.63%; borrowed money, 5.30%; total
interest-bearing liabilities, 4.86%; and interest rate spread, 2.44%.
38
<PAGE>
RATE/VOLUME ANALYSIS
The following table sets forth the effects of changing rates and volumes on
the Association's net interest income. Information is provided with respect to
(i) effects on interest income attributable to changes in rate (changes in
rate multiplied by prior volume); (ii) effects on interest income attributable
to changes in volume (changes in volume multiplied by prior rate); and (iii)
changes in rate/volume.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED MARCH FISCAL YEAR ENDED MARCH
FISCAL YEAR ENDED MARCH 31, 31,
31, 1996 COMPARED TO 1995 1995 COMPARED TO 1994
1997 COMPARED TO 1996 INCREASE (DECREASE) DUE INCREASE (DECREASE) DUE
INCREASE (DECREASE) DUE TO TO TO
---------------------------- ---------------------------- ----------------------------
RATE/ RATE/ RATE/
RATE VOLUME VOLUME NET RATE VOLUME VOLUME NET RATE VOLUME VOLUME NET
----- ------ ------ ------ ---- ------ ------ ------ ----- ------ ------ -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Mortgage loans(1)...... $ (54) $ 446 $ (6) $ 386 $(59) $1,226 $ (12) $1,155 $(464) $ 757 $ (63) $ 230
Consumer loans(1)...... -- 14 -- 14 15 8 -- 23 (5) (3) -- (8)
Commercial loans(1).... -- -- 2 2 -- -- -- -- -- -- -- --
----- ------ ---- ------ ---- ------ ----- ------ ----- ----- ----- -----
Total loans receivable.. (54) 460 (4) 402 (44) 1,234 (12) 1,178 (469) 754 (63) 222
Investment securities.. 9 1,093 2 1,104 283 420 60 763 215 (58) (7) 150
Interest-bearing
deposits.............. (93) (375) 39 (429) 280 (205) (64) 11 74 (418) (25) (369)
Mortgage-backed
securities............ 399 (155) (47) 197 94 412 50 556 (74) 406 (59) 273
FHLB stock............. -- 60 1 61 (13) 95 (12) 70 -- 2 (1) 1
----- ------ ---- ------ ---- ------ ----- ------ ----- ----- ----- -----
Total net change in
income on interest-
earning assets......... 261 1,083 (9) 1,335 600 1,956 22 2,578 (254) 686 (155) 277
Interest-bearing
liabilities:
Regular savings........ (2) (14) -- (16) (47) (93) 7 (133) (63) (37) 3 (97)
NOW accounts........... (24) 8 (1) (17) (15) 1 -- (14) 12 (19) (1) (8)
Money market accounts.. -- (25) -- (25) 1 (89) (1) (89) (25) (71) 6 (90)
Certificates of
deposit............... (25) 37 (1) (11) 439 188 15 642 (195) (274) 13 (456)
----- ------ ---- ------ ---- ------ ----- ------ ----- ----- ----- -----
Total savings deposits.. (51) 6 (2) (47) 378 7 21 406 (271) (401) 21 (651)
FHLB advances.......... (230) 949 (83) 636 118 1,623 260 2,001 2 559 174 735
Other interest-bearing
liabilities........... (18) 1 -- (17) (1) 2 -- 1 8 10 2 20
----- ------ ---- ------ ---- ------ ----- ------ ----- ----- ----- -----
Total net change in
expense on interest-
bearing liabilities.... (299) 956 (85) 572 495 1,632 281 2,408 (261) 168 197 104
----- ------ ---- ------ ---- ------ ----- ------ ----- ----- ----- -----
Net change in interest
income................. $ 560 $ 127 $ 76 $ 763 $105 $ 324 $(259) $ 170 $ 7 $ 518 $(352) $ 173
===== ====== ==== ====== ==== ====== ===== ====== ===== ===== ===== =====
</TABLE>
- -------
(1) Does not include interest on loans 90 days or more past due.
39
<PAGE>
ASSET AND LIABILITY MANAGEMENT
The Association has employed various strategies intended to manage the
effect of interest rate risk on its future operations. Progress has been made
toward restructuring the composition of the loan portfolio, and liquidity has
been accumulated into investments in U.S. government and agency notes and
bonds.
Adjustable-rate mortgages, shorter-term consumer loans and commercial
business loans are among the tools currently utilized by the Association to
restructure the loan portfolio. The proper pricing of deposit accounts is also
significant. During periods of low or declining rates, the long-term deposits
extend attractive rates while in periods of high rates, the short-term deposit
accounts are competitively priced. This position allows the Association to
benefit from the ability to reprice as necessary based on market conditions.
Through EMC, the Association has focused on the origination of adjustable-
rate mortgages that reprice based on fluctuations in interest rates. Fixed-
rate mortgage loan originations are generally sold in the secondary market. In
addition, EMC's loan servicing operations have been a significant source of
noninterest income to the Association.
The principal objective of the Association's interest rate risk management
function is to evaluate the interest rate risk included in certain balance
sheet accounts, determine the level of risk appropriate given the
Association's business strategy, operating environment, capital and liquidity
requirements and performance objectives, and manage the risk consistent with
the Board of Directors' approved guidelines. Through such management, the
Association seeks to monitor the vulnerability of its operations to changes in
interest rates. The extent of the movement of interest rates is an uncertainty
that could have a negative effect on the earnings of the Association. See
"Risk Factors--Effect of Interest Rates."
The Association's interest rate sensitivity is monitored by management,
through the use of a model produced by the FHLB of Des Moines, on a quarterly
basis based upon custom data submitted by the Association and on the
Association's quarterly Thrift Financial Reports. The model generates
estimates of an immediate change in net interest income ("NII") and MVE that
would occur in the event of an immediate change in interest rates, without
giving effect to any steps that management of the Association might take to
counteract that change. MVE is the difference between incoming and outgoing
discounted cash flows from assets, liabilities and off-balance sheet
contracts. The MVE ratio, under any interest rate scenario, is defined as the
MVE in that scenario divided by the market value of assets in the same
scenario.
40
<PAGE>
The following table presents the Association's MVE at March 31, 1997, as
calculated by the FHLB of Des Moines based on information provided to the FHLB
of Des Moines by the Association. At March 31, 1997, the changes in MVE in the
various interest rate scenarios noted below were within the limits approved by
the Association's Board of Directors.
<TABLE>
<CAPTION>
AT MARCH 31, 1997
- ----------------------------------------------------------------------
MARKET VALUE OF EQUITY MVE AS % OF PV OF ASSETS
- ------------------------------------------ ---------------------------
CHANGE IN RATE $ AMOUNT $ CHANGE % CHANGE MVE RATIO BP CHANGE
- -------------- -------- -------- -------- ------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
+ 400bp 8,956 (6,631) (42.5) 5.20 - 284
+ 300 10,444 (5,144) (33.0) 5.94 - 210
+ 200 12,182 (3,405) (21.8) 6.67 - 137
+ 100 13,967 (1,620) (10.4) 7.36 - 68
0 15,587 -- -- 8.04 --
- 100 16,931 1,344 8.6 8.39 + 35
- 200 17,864 2,277 14.6 8.73 + 69
- 300 18,791 3,203 20.6 8.93 + 89
- 400 19,717 4,130 26.5 9.13 + 109
</TABLE>
<TABLE>
<CAPTION>
AT MARCH 31, 1997
-----------------
<S> <C>
RISK MEASURES: 200 BP RATE SHOCK:
Pre-Shock MVE Ratio: MVE as % of PV of Assets......... 8.04
Exposure Measure: Post-Shock MVE Ratio................ 6.67
Sensitivity Measure: Change in MVE Ratio.............. - 137bp
CALCULATION OF CAPITAL COMPONENT:
Change in MVE as % of PV of Assets.................... - 176bp
</TABLE>
An asset or liability is interest rate sensitive within a specific time
period if it will mature or reprice within that time period. If the
Association's assets mature or reprice more quickly than its liabilities, the
Association's MVE would increase during periods of rising interest rates but
decrease during periods of falling interest rates. If the Association's assets
mature or reprice more slowly than its liabilities, the Association's MVE
would decrease during periods of rising interest rates but increase during
periods of falling interest rates.
Certain shortcomings are inherent in the methodology used in the above
interest rate risk measurements. Modeling changes in MVE requires the making
of certain assumptions that may or may not reflect the manner in which actual
yields and costs respond to changes in market interest rates. In this regard,
the MVE model presented assumes that the composition of the Association's
interest sensitive assets and liabilities existing at the beginning of a
period remains constant over the period being measured and also assumes that a
particular change in interest rates is reflected uniformly across the yield
curve regardless of the duration to maturity or repricing of specific assets
and liabilities. Accordingly, although the MVE measurements provide an
indication of the Association's interest rate risk exposure at a particular
point in time, such measurements are not intended to and do not provide a
precise forecast of the effect of changes in market interest rates on the
Association's net interest income and will differ from actual results.
LIQUIDITY AND CAPITAL RESOURCES
The Association's primary sources of funds are deposits, borrowings,
amortization and prepayment of loan principal (including mortgage-backed
securities) and, to a lesser extent, maturities of investment securities,
short-term investments, and operations. While scheduled loan repayments and
maturing investments are relatively predictable, deposit flows and early loan
repayments are more influenced by interest rates, general economic conditions,
and competition. The Association attempts to price its deposits to meet its
asset/liability objectives discussed above, consistent with local market
conditions. Excess balances are temporarily invested in overnight funds. In
addition, the Association is eligible to borrow funds from the FHLB of Des
Moines.
41
<PAGE>
Under OTS regulations, a member thrift institution is required to maintain
an average daily balance of liquid assets (cash, certain time deposits and
savings accounts, bankers' acceptances, 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 of its net withdrawable
accounts plus short-term borrowings. This liquidity requirement, which is
currently 5.0%, may be changed from time to time by the OTS to any amount
within the range of 4.0% to 10.0%, depending upon economic conditions and the
savings flow of member associations. Existing OTS regulations also require
each member 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 savings accounts and borrowings payable in one year or less.
Monetary penalties may be imposed for failure to meet liquidity requirements.
The short-term and total liquidity ratios of the Association at March 31, 1997
were 3.1% and 16.9%, respectively. For information regarding proposed changes
to the OTS liquidity requirements, see "Regulation and Supervision--Federal
Savings Association Regulation--Liquidity."
The primary investing activity of the Association is lending. During the
fiscal year ended March 31, 1997, the Association originated $73.3 million of
loans, of which $71.0 million were residential mortgage loans, purchased $5.9
million of loans, and sold $61.5 million of loans in the secondary market. In
addition, $16.4 million of loans were converted into mortgage-backed
securities and sold.
Liquidity management is both a short- and long-term responsibility of the
Association's management. The Association adjusts its investments in liquid
assets based upon management's assessment of (i) expected loan demand, (ii)
projected loan sales, (iii) expected deposit flows, (iv) yields available on
interest-bearing deposits, and (v) liquidity of its asset/liability management
program. Excess liquidity is invested generally in interest-bearing overnight
deposits and other short-term government and agency obligations. If the
Association requires funds beyond its ability to generate them internally, it
has additional borrowing capacity with the FHLB of Des Moines and collateral
eligible for repurchase agreements.
The Association anticipates that it will have sufficient funds available to
meet current loan commitments. At March 31, 1997, the Association had
outstanding commitments to originate loans of $953,000.
Certificates of deposit scheduled to mature in one year or less at March 31,
1997 totaled $36.3 million. Based upon management's experience and familiarity
with the customers involved and the Association's pricing policy relative to
that of its competitors, management believes the Association will retain a
significant portion of these deposits.
EFFECT OF INFLATION AND CHANGING PRICES
The Consolidated Financial Statements and Notes thereto included in this
Prospectus 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 changes in the relative purchasing power of
money over time due to inflation. The impact of inflation is reflected in the
increased cost of the Association's operations. Unlike industrial companies,
nearly all of the assets and liabilities of the Association are monetary in
nature. As a result, interest rates have a greater impact on the Association's
performance than do the effects of general levels of inflation. Interest rates
do not necessarily move in the same direction or to the same extent as the
prices of goods and services.
FINANCIAL CONDITION
The total assets of the Association increased approximately $5.0 million, or
2.6%, to $200.8 million at March 31, 1997 from $195.8 million at March 31,
1996. This increase in asset size primarily relates to the purchase of
investment securities and the origination of mortgage loans, which were funded
through cash reserves, sales of mortgage-backed securities, and advances from
the FHLB of Des Moines.
Investment securities available for sale increased by approximately $31.2
million, or 80.3%, to $70.1 million at March 31, 1997 from $38.9 million at
March 31, 1996. This increase resulted from the application of proceeds
42
<PAGE>
generated by the sale of mortgage-backed securities, which were sold to fund
the investment in higher-yielding agency securities, and from advances from
the FHLB of Des Moines.
Loans held for investment totaled $91.9 million at March 31, 1997, an
increase of approximately $8.0 million, or 9.5%, from the March 31, 1996
balance of $83.9 million. This increase is primarily the result of continued
portfolio mortgage lending on one-to four-family residences, offset by
principal repayments. In addition, in early 1997, the Association began
originating a limited number of commercial business loans based on community
needs. At March 31, 1997 the Association had approximately $1.3 million of
such loans which are primarily secured by automobile floor planning
collateral.
Investment in real estate decreased $1.0 million, or 54.2%, from $1.9
million at March 31, 1996 to $870,000 at March 31, 1997 as a result of the
sale of a multifamily investment property by ECC at a $106,000 gain.
Savings deposits totaled $123.0 million at March 31, 1997, a decrease of
approximately $1.5 million, or 1.2%, from the March 31, 1996 balance of $124.5
million. Interest credited during March 31, 1997 was approximately $4.3
million.
FHLB advances increased $7.0 million, or 12.5%, to $63.0 million at March
31, 1997 from $56.0 million at March 31, 1996. Proceeds from these advances
were used to fund the increase in investment securities available for sale and
to fund mortgage loans.
Other borrowed money decreased by $57,000, or 4.3%, to $1.2 million at March
31, 1997 from $1.3 million at March 31, 1996. The note payable to bank relates
to EMC, the proceeds of which were invested solely in residential mortgage
loans. The ESOP debt is included on the balance sheet of the Association as
the debt is guaranteed by the Association.
RESULTS OF OPERATIONS
The operating results of the Association depend primarily on its net
interest income, which is the difference between interest income on interest-
earning assets, primarily loans, investment securities, and mortgage-backed
securities, and interest expense on interest-bearing liabilities, primarily
deposits and borrowed money. The Association's net income also is affected by
the establishment of provisions for losses on loans and the level of its other
income, loan servicing fees, deposit service charges, the results of real
estate activities, gain on sales of mortgage loans, as well as its other
expenses and income tax provisions.
FISCAL YEAR ENDED MARCH 31, 1997 COMPARED TO MARCH 31, 1996
Net Income. Net income decreased $148,000, or 22.8%, from $653,000 in 1996
to $505,000 in 1997. The decrease was primarily a result of legislation passed
by Congress to recapitalize the Savings Association Insurance Fund ("SAIF"),
in which the Association was assessed a one-time-deposit-insurance premium
(like all other SAIF-insured institutions) of $789,000 on November 27, 1996,
offset by an increase of $764,000, or 20.4%, in net interest income and a
reduction of $114,000, or 27.4%, in income tax expense. Without giving effect
to the special assessment, net income for the fiscal year ended March 31, 1997
would have been $986,000, an increase of $333,000, or 50.9%, when compared to
the fiscal year ended March 31, 1996.
Interest Income. Interest income increased $1.3 million, or 10.9%, from
$12.3 million in 1996 to $13.6 million in 1997. Interest on loans receivable
increased by $402,000, or 5.7%, to $7.4 million in 1997 as compared to $7.0
million in 1996. This increase was primarily due to an increase in the average
balance of loans outstanding from $92.2 million in 1996 to $98.3 million in
1997, offset by a decrease in the yield on loans from 7.65% in 1996 to 7.58%
in 1997. The higher average balance of loans outstanding in 1997 reflects an
increase in mortgage loan portfolio lending. Interest on investment securities
increased $1.1 million, or 38.9%, from $2.8 million in 1996 to $3.9 million in
1997 due to an increase in the average balance of investment securities from
$45.9 million in 1996 to $63.7 million in 1997. During the same period, the
yield on investment securities increased from 6.15% in 1996 to 6.17% in 1997.
Interest income on mortgage-backed securities increased $197,000, or 14.8%,
from $1.3 million in 1996 to $1.5 million in 1997 due to an increase in the
yield on
43
<PAGE>
mortgage-backed securities from 5.41% in 1996 to 7.03% in 1997, offset by a
decrease in the average balances from $24.6 million in 1996 to $21.8 million
in 1997.
Interest Expense. Interest expense increased from $8.5 million in 1996 to
$9.1 million in 1997. The increase of $572,000, or 6.7%, resulted primarily
from increased average FHLB advances. The weighted average cost of deposits
decreased from 4.66% in 1996 to 4.63% in 1997, while average deposit balances
decreased $368,000, or 0.3%, from $123.0 million in 1996 to $122.7 million in
1997. Average advances from the FHLB increased $15.9 million, or 34.6%, to
$61.9 million in 1997 compared to $46.0 million in 1996. The weighted average
cost of advances decreased 50 basis points from 5.96% in 1996 to 5.46% in 1997
due to effective borrowing programs offered by the FHLB.
Provision for Losses on Loans. Provision for losses on loans increased
$19,000, or 60.1%, from $31,000 in 1996 to $50,000 in 1997. The provision for
losses on loans is based on management's evaluation of the credit risk
inherent in the loan portfolio and the amount required to be maintained in the
allowance for loan losses. The provision in 1997 was made in response to the
Association's entry into the commercial business lending area. The
Association's allowance for loan losses totaled $283,000 at March 31, 1997 and
$233,000 at March 31, 1996. Management believes the allowance for loan losses
is adequate.
Noninterest Income. Noninterest income decreased $139,000, or 5.2%, from
$2.7 million in 1996 to $2.6 million in 1997. The decrease is due primarily to
gain on sales of mortgage loans that decreased from $1.2 million in 1996 to
$1.1 million in 1997, and a reduction in rental income of $137,000 due to the
sale of a 26 unit residential rental property in June 1996, offset by
increased loan servicing fees and late charges which increased $74,000, or
11.0%, from $673,000 in 1996 to $747,000 in 1997. The decrease of $127,000, or
10.2%, on gain on sales of mortgage loans was due to unfavorable market
conditions during the first and second quarters of 1996. The Association,
through EMC, sold $77.8 million of mortgage loans in 1997 as compared to $77.9
million in 1996. In addition to the minor decrease in sales volume of
$100,000, gain on sale of mortgage loans decreased compared to 1996 due to the
condition of the secondary mortgage market. Loan servicing fees and late
charges increased due primarily to an increase in the servicing portfolio of
EMC. Loans serviced by EMC increased $29.0 million, or 9.9%, from $294.0
million at March 31, 1996 to $323.0 million at March 31, 1997.
Noninterest Expense. Noninterest expense increased $868,000, or 16.3%, from
$5.3 million in 1996 to $6.2 million in 1997, due primarily to legislation
passed by Congress to recapitalize the SAIF in which the Association was
assessed a one-time insurance premium of $789,000, as well as an increase of
$136,000, or 283.3%, in amortization of originated mortgage servicing rights
("OMSR") from $50,000 in 1996 to $185,000 in 1997. As a result of the one-time
assessment, the Association's premium for insurance of accounts decreased from
23 basis points per $100 to approximately 6.5 basis points. The increase in
amortization of OMSR is the result of increased mortgage loan refinancing
activity and increased average balances subject to OMSR.
Income Taxes. Income tax expense decreased from $418,000 in 1996 to $303,000
in 1997. The decrease of $115,000, or 27.4%, was the result of the decrease in
income before income tax expense of $263,000. The effective tax rate was
approximately 37.5% and 39.0% in 1997 and 1996, respectively.
FISCAL YEAR ENDED MARCH 31, 1996 COMPARED TO MARCH 31, 1995
Net Income. The Association reported net income of $653,000 in 1996 as
compared to $322,000 in 1995. The increase in net income of $331,000, or
103.1%, is mainly attributed to increased gain on sales of mortgage loans of
$473,000 and increased net interest income of $170,000 offset by increased
income tax expense of $230,000. During the period, the Association experienced
improved loan demand and fluctuating market interest rates that resulted in
increased mortgage lending activity. For 1996, the Association sold $66.6
million of mortgage loans as compared to $26.7 million in 1995. The increased
volume of $39.9 million resulted in a higher level of gain on sales of
mortgage loans.
Interest Income. Interest income increased from $9.7 million in 1995 to
$12.3 million in 1996. The increase of $2.6 million, or 26.6%, resulted
primarily from an increase in the interest on loans receivable, an
44
<PAGE>
increase in interest on investment securities, and an increase in interest on
mortgage-backed securities. Interest on loans receivable increased by $1.2
million, or 20.1%, to $7.0 million in 1996. This increase resulted from an
increase in the average balance of loans outstanding from $76.2 million in
1995 to $92.2 million in 1996, offset by a decrease in the average yield on
loans from 7.71% in 1995 to 7.65% in 1996. The higher balance of loans
outstanding during 1996 reflects an increase in adjustable rate portfolio
mortgage lending. While the Association continued to originate a variety of
mortgage loans, fixed-rate originations were generally sold in the secondary
market and adjustable rate loans were retained for the Association's
portfolio. Interest on investment securities and interest-bearing deposits
increased $774,000, or 26.2%, to $3.7 million in 1996 from $3.0 million in
1995 as a result of the reinvestment of proceeds from sales and maturities
into higher yielding U.S. government and agency obligations. The increase is
mainly attributed to an increase in the average balance of investment
securities from $38.2 million in 1995 to $45.9 million in 1996 and an increase
in the average rate from 5.41% in 1995 to 6.15% in 1996. Interest on mortgage-
backed securities increased $556,000, or 71.6%, to $1.3 million in 1996 from
$777,000 in 1995. The increase is mainly attributed to an increase in the
average balance of mortgage-backed securities of $8.5 million from $16.1
million in 1995 to $24.6 million in 1996, and an increase in the average rate
from 4.83% for 1995 to 5.41% for 1996.
Interest Expense. Interest expense increased from $6.1 million in 1995 to
$8.5 million in 1996. The increase of $2.4 million, or 39.3%, resulted
primarily from the increased cost of savings deposits and FHLB advances and
increased FHLB advances partially offset by decreased average savings
deposits. The weighted average cost of deposits increased 44 basis points from
4.22% in 1995 to 4.66% in 1996, due to the effects of increased market
interest rates. Average deposit balances decreased $3.0 million, or 2.4%, from
$126.0 million at March 31, 1995 to $123.0 million at March 31, 1996.
FHLB advances average balances increased $31.6 million, or 219.1%, from
$14.4 million in 1995 to $46.0 million in 1996. FHLB advances were acquired to
fund increases in loans held for sale, investment securities and mortgage-
backed securities. In addition, the cost of FHLB advances increased 82 basis
points from 5.14% in 1995 to 5.96% in 1996 due to a general increase in
interest rates.
Provision for Losses on Loans. The Association has historically experienced
insignificant loan losses. The provision for losses on loans is determined by
management as the amount to be added to the allowance for loan losses, after
net credit losses and other adjustments have been deducted, to bring the
allowance to a level which is considered adequate to absorb losses inherent in
the loan portfolio. The provision for losses on loans increased $22,000, or
246.9%, from $9,000 in 1995 to $31,000 in 1996.
Noninterest Income. Gain on sales of mortgage loans increased from $775,000
in 1995 to $1.2 million in 1996. The increase of $473,000, or 61.0%, was due
primarily to increased loan demand and generally favorable interest rates. The
Association capitalized $297,000 of mortgage servicing rights as a result of
adopting Statement of Financial Accounting Standards No. 122. In 1996, the
Association sold $77.9 million of mortgage loans as compared to $26.7 million
in 1995. The increased sales volume of $51.2 million resulted in the increased
gain on sales of mortgage loans.
Equity in earnings (loss) of joint ventures decreased from income of
$188,000 in 1995 to a loss of $30,000 in 1996. The decrease of $218,000 was
primarily the result of the sale of Manchester 97 Joint Venture in June 1994
and the operations of WC Joint Venture. Prior to June 1994, the Association,
through ECC, owned a 50% interest in both Manchester 97 Joint Venture and WC
Joint Venture, which own and operate commercial property in St. Louis County.
During June 1994, ECC sold its ownership in Manchester 97 Joint Venture at a
profit of $215,000. Joint ventures are accounted for using the equity method.
Other noninterest income increased from $308,000 in 1995 to $516,000 in
1996. The increase of $208,000, or 67.8%, resulted primarily from increased
income associated with the operations of ECC and ECC's recognition of gain on
sale of residential investment property. During 1996, ECC's commissions on
insurance and specialty products increased $61,000 while ECC's net gain on
sale of the investment property before income taxes was $116,000. There was no
comparable item in 1995.
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Noninterest Expense. Salaries and employee benefits expense increased from
$2.8 million in 1995 to $2.9 million in 1996. The increase of $59,000, or
2.1%, was primarily the result of increased loan commissions, and increased
bonus and profit sharing contributions, offset by a decrease in the number of
mortgage personnel. Commissioned loan officers are paid on the basis of loans
closed. The Association closed and sold $77.9 million of mortgage loans in
1996 as compared to $26.7 million in 1995. The increased volume of $51.2
million resulted in increased commission expense of $93,000, bonus and profit-
sharing expense was increased by $21,000 while compensation expenses and
related fringes decreased approximately $61,000.
Other noninterest expense decreased from $1.5 million in 1995 to $1.4
million in 1996. The decrease of $95,000, or 6.3%, resulted from decreased
expense related to the operations of the Association. During 1996, the
Association experienced reductions in legal expenses of $37,000, office
expenses of $39,000, and supervisory expenses of $17,000.
Income Taxes. The provision for federal income taxes increased from $188,000
in 1995 to $418,000 in 1996. The increase of $230,000, or 121.9% was the
result of increased pretax income of $561,000 for 1996 as compared to 1995.
The effective tax rate was 39.0% and 36.9% for 1996 and 1995, respectively.
IMPACT OF NEW ACCOUNTING PRONOUNCEMENTS
Accounting for Stock-Based Compensation. In October 1995, the Financial
Accounting Standards Board ("FASB") issued Statement of Financial Accounting
Standards No. 123, Accounting for Stock-Based Compensation ("SFAS 123"). SFAS
123 establishes financial accounting and reporting standards for stock-based
employee compensations plans and also applies to transactions in which an
entity issues its equity instruments to acquire goods or services from
nonemployees. SFAS 123 defines a fair value-based method of accounting for an
employee stock option or similar equity instruments and encourages all
entities to adopt that method of accounting. SFAS 123 also allows an entity to
continue to measure compensation cost for those plans using the intrinsic
value based method of accounting prescribed by Accounting Principles Board
Opinion No. 25, Accounting for Stock Issued to Employees ("APB 25"). SFAS 123
was effective for transactions entered into in fiscal years beginning after
December 15, 1995. Pro forma disclosures required for entities that elect to
continue to measure compensation cost using APB 25 must include the effect of
all awards granted in fiscal years beginning after December 15, 1994. Equality
continues to measure compensation cost using APB 25. No stock options were
granted during the year ended March 31, 1997. SFAS 123 is not expected to have
a material impact on the Association's consolidated financial statements.
Earnings Per Share. In February 1997, the FASB issued Statement of Financial
Accounting Standards No. 128, Earnings per Share ("SFAS 128"). SFAS 128
establishes standards for computing and presenting earnings per share and
applies to entities with publicly held common stock or potential common stock.
SFAS 128 simplifies the current standards for computing earnings per share and
makes them comparable to international earnings per share standards. Under
SFAS 128 the presentation of primary earnings per share is replaced with a
presentation of basic earnings per share. SFAS 128 also requires dual
presentation of basic and diluted earnings per share on the face of the income
statement for all entities with complex capital structures and requires the
reconciliation of the numerator and denominator of the basic earnings per
share computation to the numerator and denominator of the diluted earnings per
share computation. SFAS 128 is effective for financial statements issued for
periods ending after December 31, 1997, including interim periods; early
application is not permitted. SFAS 128 will require the restatement of all
prior-period earnings per share data presented. The adoption of SFAS 128 is
not expected to have a material impact on the Association's consolidated
financial statements.
Disclosure of Information about Capital Structure. Also in February 1997,
the FASB issued Statement of Financial Accounting Standards No. 129,
Disclosure of Information about Capital Structure ("SFAS 129"). SFAS 129
applies to all entities and establishes standards for disclosing information
about an entity's capital structure. SFAS 129 is effective for financial
statements for periods ending after December 15, 1997. The adoption of SFAS
129 is not expected to have a material impact on the Association's
consolidated financial statements.
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Comprehensive Income. In June 1997, the FASB issued Statement of Financial
Accounting Standards No. 130, Reporting Comprehensive Income ("SFAS 130").
SFAS 130 establishes standards for reporting and display of comprehensive
income and its components in a full set of general purpose financial
statements. It does not, however, specify when to recognize or how to measure
items that make up comprehensive income. SFAS 130 was issued to address
concerns over the practice of reporting elements of comprehensive income
directly in equity.
SFAS 130 requires all items that are required to be recognized under
accounting standards as components of comprehensive income be reported in a
financial statement that is displayed in equal prominence with the other
financial statements. It does not require a specific format for that financial
statement but requires that an enterprise display an amount representing total
comprehensive income for the period in that financial statement. Enterprises
are required to classify items of "other comprehensive income" by their nature
in the financial statement and display the balance of other comprehensive
income separately in the equity section of a statement of financial position.
It does not require per share amounts of comprehensive income to be disclosed.
SFAS 130 is applicable to all entities that provide a full set of financial
statements consisting of a statement of financial position, results of
operations and cash flows.
SFAS 130 is effective for both interim and annual periods beginning after
December 15, 1997. Earlier application is permitted. Comparative financial
statements provided for earlier periods are required to be reclassified to
reflect the provisions of this statement. Publicly traded enterprises that
issue condensed financial statements for interim periods are required to
report a total for comprehensive income in those financial statements. The
adoption of SFAS 130 is not expected to have a material impact on the
Association's consolidated financial statements.
BUSINESS OF THE ASSOCIATION
GENERAL
Originally chartered in 1884, the Association serves the City of St. Louis
and St. Louis and St. Charles Counties through three full-service branch
offices and five limited-service-loan-production offices. The Association's
business is similar in many respects to other savings associations in that it
gathers deposits from its local community and uses these funds, along with
FHLB advances, to invest primarily in residential one- to four-family mortgage
loans, U.S. government and agency securities and mortgage-backed securities
and, to a lesser extent, multifamily and commercial real estate, consumer and
commercial business loans. Notwithstanding these traditional thrift
attributes, the Association's operations are distinct in that it conducts its
residential mortgage lending business primarily through a wholly-owned
mortgage-banking subsidiary--EMC.
Operating through the Association's eight full and limited service offices,
EMC acts as a conduit for the origination, purchase and sale of residential
mortgage loans for the benefit of the Association. It funds its mortgage-
banking activities through lines of credit from the Association and an
unrelated commercial bank. EMC provides several benefits to the Association,
including, among other things, originating a variety of mortgage loan products
for the Association's portfolio and generating noninterest income for the
Association through its activities in the secondary mortgage market. The
Association's President and Chief Executive Officer, Richard C. Fellhauer,
also is President of EMC. Leonard Wolter, Vice President of EMC, is EMC's
Chief Operating Officer. Mr. Wolter, in consultation with Mr. Fellhauer and
Michael A. Deelo, the Association's Chief Financial Officer, manages the day
to day operations of EMC. These individuals have 50 years combined experience
in the mortgage-banking business. The following description includes detailed
information regarding the business of the Association and EMC.
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<PAGE>
LENDING AND MORTGAGE-BANKING ACTIVITIES
The Association concentrates its business in residential mortgage finance,
which involves the origination, purchase and sale of residential real estate
loans secured by one- to four-family, owner-occupied residential properties.
In the past, and to a much lesser degree, the Association has originated
conventional loans secured by multifamily residential dwellings and commercial
real estate projects. The Association also originates short-term consumer
loans, primarily loans secured by savings deposits, home equity and second
mortgage loans, direct automobile loans and student loans, and, since early
1997, commercial business loans.
Loan Originations. During the first several years of its existence, EMC
originated primarily government mortgage loans (FHA and VA loans) on behalf of
the Association, while the Association originated conventional loans. But in
1989, the Association shifted its mortgage loan origination function to EMC;
however, the Association will still on occasion originate a mortgage loan
directly and it continues to originate a limited amount of consumer and other
non-mortgage loans.
Today, EMC, using its 40 employees (including 8 commissioned loan
originators), underwrites residential mortgage loans averaging in size between
$10,000 and $500,000, which are secured by properties located primarily in the
St. Louis metropolitan area. In addition, through the Association's Affordable
Housing Program, EMC provides mortgage financing to low- and moderate-income
families, which provides the Association with an effective way to attract
customers in its local market area. During 1997, EMC originated mortgage loans
totaling $66.2 million, all of which were one- to four-family loans.
Loan Sales. Central to EMC's loan origination activity is the sale of fixed-
rate mortgage loans to the secondary mortgage market. All loans originated by
EMC satisfy the guidelines of the Federal Housing Administration ("FHA"), the
Veterans Administration ("VA"), the Federal National Mortgage Association
("FNMA"), the Government National Mortgage Association ("GNMA"), the Federal
Home Loan Mortgage Corporation ("FHLMC") or various private investors so that
the loans can be sold in the secondary mortgage market. The Association has
been approved under the FHA Direct Endorsement Program and, consequently, the
Association's FHA approved direct endorsement underwriters are authorized to
approve or reject FHA insured loans up to maximum amounts established by the
FHA. The Association also has been approved as a VA "automatic approved
lender," which enables designated qualified Association personnel to approve
or reject loans on behalf of the Association.
In most cases, EMC sells in the secondary mortgage market fixed-rate loans
it originates, while its ARM originations are sold to the Association and
retained by the Association in its portfolio. The current strategy of selling
fixed-rate loans and retaining ARMs assists the Association in management of
the interest-rate sensitivity of its assets. Moreover, the loans retained by
the Association contribute to the Association's net interest rate margin.
EMC's loan-origination-and-sale activities create interest rate risk for the
Association in that if interest rates decline after the loan commitment date
below the interest rate on the loan, and the Association has not hedged its
interest rate risk using a forward commitment, the Association may incur a
loss when the loan is sold. The Association manages this risk by using a
computerized tracking system that allows EMC's management to closely monitor
the interest rates for all loans being processed by EMC, reviewing the future
prospects for movements in interest rates, and entering into forward
commitment contracts with FNMA, GNMA and FHLMC for the sale of fixed-rate
loans that limit the potential loss on loan sales, but which also limit the
potential gain. EMC's success in managing the interest-rate risk associated
with the origination-and-sale and purchase-and-resale of fixed-rate mortgage
loans depends primarily on the abilities of its managers. For a discussion of
the risks associated with the mortgage-banking business, see "Risk Factors--
Reliance on Mortgage-Banking Operations."
Loan Purchases and Resales. In addition to originating residential mortgage
loans for sale in the secondary market, EMC also purchases loans from other
financial institutions for packaging (or securitization) and resale in the
secondary mortgage market as either whole loans or as loan pools to FNMA,
GNMA, FHLMC
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<PAGE>
or other investors. Other financial institutions may sell loans to EMC because
they lack the capability or expertise to package and sell their own loans in
the secondary market. EMC performs strict underwriting on each loan purchased
based on guidelines of the federal secondary mortgage market agencies and
private investors and standards otherwise applicable to loans originated by
the Association. Immediately following the purchase of a loan or loan package,
EMC simultaneously sells the mortgage or group of mortgages for future
delivery. Accordingly, the Association does not assume so-called pipeline risk
because the loans are not held in inventory. Pipeline risk is the hazard that
market interest rates will increase before the loan is sold, thereby reducing
the price at which the loan may be sold. During fiscal 1997, EMC purchased
mortgage loans totaling $5.9 million.
EMC's Contributions to the Business of the Association. EMC contributes
significantly to the Association's operations by providing an additional
income stream and by providing a conduit to offer lending services to the
local community. EMC's mortgage-banking activities produce primarily two types
of income--gain on sale of mortgage loans and loan servicing fees and late
charges. Each of these two types of income accounted for 47.1% and 40.8%,
respectively, of EMC's total income for the fiscal year ended March 31, 1997.
EMC contributed approximately 17% to the Association's total interest income
and other income for the year ended March 31, 1997.
Loan sales are intended to generate one-time gains, while loan originations
(whether the loans are sold or retained by the Association in portfolio)
produce loan origination fees that generally approximate 1% of the loan
amount. FHA and VA loans are generally sold with servicing released, for which
the Association generally receives an additional servicing fee of
approximately 1.5% of the aggregate loan amount, and, because EMC sells
conventional mortgage loans (non-FHA and VA) servicing retained, the
Association's loan servicing portfolio (and the associated earnings stream)
continues to grow.
At March 31, 1997, EMC serviced $323.0 million in residential mortgage loans
(of which $90.6 million was for the Association) and has the capacity to
expand its servicing portfolio significantly through additional loan
originations. EMC earned $888,000 in servicing fee income for fiscal year
1997. Loan servicing fees on loans serviced for institutions other than the
Association totaled $674,000, $603,000 and $622,000 for fiscal years 1997,
1996 and 1995, respectively. The proportionate contribution made by gains on
loan sales, loan origination fees and loan servicing fees to the Association's
net income varies each year depending on interest rates, which, in turn,
affects EMC's business focus from year to year.
EMC's residential mortgage loan origination volume has increased steadily
since 1994, and during this same period, ARMs have been in demand, which has
resulted in an increase in the Association's loan portfolio. As a result, EMC
has focused its efforts toward increasing its loan servicing portfolio and
increasing the associated income stream through increased servicing retention.
EMC's focus on servicing retention and fluctuating interest rates have
contributed to instability in recent years in EMC's gains on loan sales. For
information concerning the risks associated with a mortgage-banking operation,
see "Risk Factors--Reliance on Mortgage-Banking Operations." EMC has not, nor
does it anticipate, selling a bulk portion of its loan servicing portfolio to
augment earnings.
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<PAGE>
Composition of the Loan Portfolio. The following table sets forth the
composition of the Association's loan portfolio by type of loan as of the
dates indicated:
<TABLE>
<CAPTION>
AT MARCH 31,
-------------------------------------------------------------------------------
1997 1996 1995 1994 1993
--------------- --------------- --------------- --------------- ---------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Loans secured by real
estate:
Residential:
One- to four-family:
Conventional(1) $69,810 72.5% $64,873 66.6% $61,455 73.5% $43,608 70.1% $47,470 62.4%
FHA/VA............. 14,233 14.8% 13,656 14.0% 13,616 16.3% 9,396 15.1% 9,367 12.3%
Loans held for
sale.............. 4,398 4.6% 13,507 13.9% 2,971 3.5% 5,109 8.2% 14,564 19.2%
Multifamily.......... 1,637 1.7% 783 .8% 828 1.0% 941 1.5% 1,437 1.9%
Commercial............. 2,662 2.8% 2,622 2.7% 2,975 3.5% 1,298 2.1% 1,309 1.7%
------- ------ ------- ------ ------- ------ ------- ------ ------- ------
Total loans secured
by real estate...... 92,740 96.4% 95,441 98.0% 81,845 97.8% 60,352 97.0% 74,147 97.5%
------- ------ ------- ------ ------- ------ ------- ------ ------- ------
Consumer loans:
Loans secured by
savings deposits...... 366 .4% 453 .5% 448 .5% 603 1.0% 651 .8%
Property improvement... 1,596 1.7% 1,300 1.3% 1,053 1.3% 908 1.5% 972 1.3%
Automobiles............ 122 .1% 97 .1% 126 .2% 144 .2% 159 .2%
Other consumer loans... 162 .1% 96 .1% 175 .2% 181 .3% 133 .2%
------- ------ ------- ------ ------- ------ ------- ------ ------- ------
Total consumer
loans............... 2,246 2.3% 1,946 2.0% 1,802 2.2% 1,836 3.0% 1,915 2.5%
Commercial business
loans.................. 1,280 1.3% -- -- % -- -- % -- -- % -- -- %
------- ------ ------- ------ ------- ------ ------- ------ ------- ------
Total loans............. 96,266 100.0% 97,387 100.0% 83,647 100.0% 62,188 100.0% 76,062 100.0%
====== ====== ====== ====== ======
Less:
Deferred loan fees..... 46 59 71 98 148
Unearned discounts..... 4 12 24 15 41
Allowance for loan
losses................ 283 233 217 242 230
Valuation reserve on
loans held for sale... 5 85 100 150 --
------- ------- ------- ------- -------
Total loans receivable,
net.................... $95,928 $96,998 $83,235 $61,683 $75,643
======= ======= ======= ======= =======
</TABLE>
- --------
(1) Includes construction loans converted to permanent loans.
Residential One- to Four-Family Loans. The primary lending activity of the
Association has been the making of mortgage loans to enable borrowers to
purchase existing homes or to construct new single-family homes. The mortgage
loans are primarily originated by EMC and are sold to the Association at par.
Management believes that this policy of focusing on single-family residential
mortgage loans has been successful in contributing to interest income while
keeping delinquencies and losses to a minimum. At March 31, 1997,
approximately $88.4 million, or 91.9% of the total loan portfolio, consisted
of loans secured by one- to four-family residential real estate. In recent
years, the Association's one- to four-family mortgage lending has been
concentrated in St. Louis City and St. Louis County.
50
<PAGE>
EMC presently originates both fixed-rate mortgage loans and ARMs secured by
one- to four-family properties with loan terms of 10 to 30 years. The ARMs
have interest rates that adjust at regular intervals ranging between one- to
five-years generally based upon changes in the One-, Three- and Five-Year
Treasury Index. At March 31, 1997, the Association's ARM portfolio totaled
approximately $55.0 million. The majority of these loans provide that the
amount of any increase or decrease in the interest rate is limited to one or
two percentage points (upward or downward) per adjustment period and are
generally limited to an increase or decrease of five to eight percentage
points over the life of the loan. Borrower demand for ARMs versus fixed-rate
mortgage loans is a function of the level of interest rates, the expectation
of changes in the level of interest rates, and the difference between the
interest rates and loan fees offered for fixed-rate mortgage loans and the
first year "teaser rates" and loan fees for ARMs. The relative amount of
fixed-rate mortgage loans and ARMs that can be originated at any time is
largely determined by the demand for each in a competitive mortgage finance
environment. During 1997, total one- to four-family mortgage loan originations
were $70.0 million of which $21.6 million, or 30.9%, were subject to periodic
interest rate adjustments and $48.4 million, or 69.1%, were long-term, fixed-
rate mortgage loans.
ARMs generally involve credit risks different from those inherent in fixed-
rate mortgage loans, primarily because if interest rates rise, the underlying
payments of the borrower rise, thereby increasing the potential for default.
The Association underwrites ARMs based on the borrower's ability to repay the
loan assuming the fully indexed accrual rate on the ARM remains constant
during the loan term. As a result, the potential for a substantial increase in
delinquencies and defaults is lessened.
The retention of ARMs as opposed to fixed-rate mortgage loans in the
Association's loan portfolio helps reduce the Association's exposure to
interest rate risk. In an environment of rapidly increasing interest rates,
however, it is possible for the interest rate increase to exceed the maximum
aggregate adjustment on ARMs, which would negatively affect the spread between
the Association's interest income and its cost of funds. In addition, because
the interest earned on ARMs, which are refinanced on a one- to three-year
cycle, varies with prevailing interest rates, such loans do not offer the
Association as predictable a cash flow as do longer-term, fixed-rate loans.
EMC originates long-term, fixed-rate loans under guidelines established by
FNMA and FHLMC, which facilitates the sale of such loans to FNMA or FHLMC in
the secondary market. Long-term, fixed-rate mortgage loans are originated with
terms of between 10 and 30 years, amortized on a monthly basis with principal
and interest due each month. At March 31, 1997, the Association had
approximately $40.4 million of long-term, fixed-rate mortgage loans in its
portfolio. A determination is made at the time of origination whether the loan
is held for sale. Currently, EMC is originating fixed-rate loans primarily for
sale in the secondary market. At March 31, 1997, the Association had
approximately $4.4 million of loans held for sale of which $4.0 million were
fixed-rate loans.
The Association's lending policies generally limit the maximum loan-to-value
ratio on fixed-rate and adjustable-rate residential mortgage loans to 80% of
the lesser of the appraised value or purchase price of the underlying
residential property unless private mortgage insurance to cover the excess
over 80% is obtained, in which case the mortgage is limited to 95% of the
lesser of appraised value or purchase price. The loan-to-value ratio,
maturity, and other provisions of the loans made by the Association are
generally reflected in the policy of making less than the maximum loan
permissible under federal regulations, in accordance with established lending
practices, market conditions, and underwriting standards maintained by the
Association. The Association requires title, fire, and extended insurance
coverage on all mortgage loans originated. All of the Association's real
estate loans contain due-on-sale clauses, and the Association obtains
appraisals on all its real estate loans from outside appraisers.
The Association also originates construction loans on residential properties
against commitments for permanent financing at the completion of construction.
Construction loans are generally for a term of six to 11 months, and bear an
interest rate tied to the Association's cost of funds which varies on the term
and amount of the loan. At March 31, 1997, the Association had no construction
loans outstanding.
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<PAGE>
Construction lending is generally considered to involve a higher degree of
credit risk than residential mortgage lending. The Association's risk of loss
on a construction loan is dependent largely upon the accuracy of the initial
estimate of the property's value at completion of construction and the
estimated cost (including interest) of construction. If the estimate of
construction cost proves to be inaccurate, the Association may be required to
advance funds beyond the amount originally committed to permit completion of
the dwelling. If the estimate of value proves to be inaccurate, the
Association may be confronted with, at or before the maturity of the loan,
loan security with a value which is insufficient to assure full repayment. In
addition, construction lending entails the risk that the project may not be
completed due to cost overruns or changes in market conditions.
Multifamily and Commercial Real Estate Loans. In addition to originating
one- to four-family residential real estate loans, the Association originates
loans secured by multifamily dwelling units (more than four units). At March
31, 1997, the Association had $1.6 million, or 1.7% of the total loan
portfolio, secured by multifamily dwelling units, located primarily in the
Association's primary market area. At March 31, 1997, the Association's
largest multifamily residential loan was a $941,000 loan secured by a 26-unit
apartment complex. Multifamily real estate loans are generally originated at
75% of the appraised value of the property or selling price, whichever is
less, and are generally originated for 10- to 30-year terms with the principal
amortized over 30 years. Loans secured by multifamily residential real estate
are generally larger and involve a greater degree of risk than one- to four-
family residential mortgage loans, similar to the risks associated with
commercial real estate lending. At March 31, 1997, the Association had no
multifamily loans accounted for on a nonaccrual basis.
The Association's permanent commercial real estate loans are secured by
improved properties such as office buildings, restaurants, and various retail
operations located in the Association's primary market area. At March 31,
1997, commercial real estate loans totaled approximately $2.7 million, or 2.8%
of the Association's total loan portfolio. The Association originates
permanent loans on commercial real estate at up to 80% of the appraised value.
Currently, it is the Association's policy to originate commercial real
estate loans only to selected borrowers known to the Association and on
properties in its primary market area. These loans generally have prepayment
schedules based upon a 10- to 25-year constant payment amortization, but may
have a 10-year final maturity (balloon payment) and are currently originated
with an interest rate that floats over the prime rate. At March 31, 1997, the
Association had no commercial real estate loans accounted for on a nonaccrual
basis.
The largest commercial real estate loan in the portfolio at March 31, 1997
totaled $1.5 million, which was secured by a real estate mortgage on a
shopping center located in the St. Louis metropolitan area. This loan is a
seasoned loan having been originated in 1994. The Association's legal lending
limit is approximately $1.9 million. Of primary concern in commercial real
estate lending is the borrower's creditworthiness, and the feasibility and
cash flow potential of the project. Loans secured by income properties are
generally larger and involve greater risks than residential mortgage loans
because payments on loans secured by income properties are often dependent on
the successful operation or management of the properties. As a result,
repayment of such loans may be subject to a greater extent than residential
real estate loans to adverse conditions in the real estate market or the
economy. Although many thrift institutions have had material adverse loss
experience in commercial real estate lending, the Association has sustained
few losses, and those losses were not significant relative to the size of the
entire commercial real estate loan portfolio or the mortgage loan portfolio at
the time. The Association does not presently intend to emphasize or expand
this type of lending in the future.
Consumer Loans. The Association originates a wide variety of consumer loans,
which are made primarily on a secured basis to existing customers. Such loans
include loans secured by savings deposits, home equity and second mortgage
loans, direct automobile loans, and student loans. These loans are made at
both fixed- and variable-rates of interest, which adjust annually, and vary in
terms depending on the type of loan. In addition,
52
<PAGE>
the Association offers unsecured consumer loans. Consumer loans totaled
approximately $2.2 million at March 31, 1997, or 2.3% of the Association's
total loan portfolio.
The Association applies strict underwriting standards for consumer loans.
These procedures include an assessment of the applicant's payment history on
other debts and ability to meet existing obligations and payments on the
proposed loans. Although the applicant's creditworthiness is a primary
consideration, the underwriting process also includes a comparison of the
value of the security, if any, to the proposed loan amount. The Association
underwrites and originates all of its consumer loans internally, which
management believes limits exposure to credit risks relating to loans
underwritten or purchased from brokers or other outside sources. The
Association views consumer lending as a component of its business operations
because consumer loans generally have shorter terms and higher yields, thus
reducing exposure to changes in interest rates. In addition, the Association
believes that offering consumer loans helps to expand and create stronger ties
to its customer base. The Association does not presently intend to emphasize
or expand this type of lending in the future.
The Association's consumer loan portfolio had no loans 90 days or more
delinquent at March 31, 1997. Consumer loans may entail greater risk than do
residential mortgage loans, particularly in the case of consumer loans which
are unsecured or secured by assets that depreciate rapidly, such as
automobiles. In the latter case, repossessed collateral for a defaulted
consumer loan may not provide an adequate source of repayment for the
outstanding loan and the remaining deficiency often does not warrant further
substantial collection efforts against the borrower. 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. 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.
Such loans may also give rise to claims and defenses by the borrower against
the Association as the holder of the loan, and a borrower may be able to
assert claims and defenses that it has against the seller of the underlying
collateral.
Commercial Business Loans. In early 1997, in connection with its hiring of a
new commercial lending officer, the Association began originating a limited
number of commercial business loans based on community needs. Management of
the Association expects this type of lending to gradually increase over the
next several years. Such loans include, but are not limited to, automobile
dealer floor planning, commercial use vehicles and general working capital
loans. These loans are made at both fixed and variable rates of interest and
vary in terms depending on the type of loan and collateral.
At March 31, 1997, approximately $1.3 million, or 1.3% of the Association's
loan portfolio, consisted of commercial business loans, which are primarily
secured by automobile floor planning collateral. At March 31, 1997, the
largest commercial loan in the portfolio, which was secured by floor planned
vehicles, had a principal balance of approximately $256,000. Unlike
residential mortgage loans, which generally are made on the basis of the
borrower's ability to make repayment based on the borrower's salary and other
income and which are secured by real property the value of which tends to be
more easily ascertainable, commercial business loans typically are made on the
basis of the borrower's ability to make repayment from the cash flow of the
borrower's business. As a result, the availability of funds for the repayment
of commercial business loans may be substantially dependent on the success of
the business itself (which, in turn, is likely to be dependent, in part, upon
the general economic environment). The Association's commercial business loans
are usually secured by business assets, which may depreciate over time, may be
difficult to appraise and may fluctuate in value based on the success of the
business.
The Association's underwriting standards for commercial business loans
include credit file documentation and analysis of the borrower's character,
capacity to repay the loan, the adequacy of the borrower's capital and
collateral as well as an evaluation of conditions affecting the borrower.
Analysis of the borrower's past, present and future cash flows is also an
important aspect of the Association's current credit analysis. Nonetheless,
such loans, are believed to carry higher credit risk than residential mortgage
loans. The Association generally requires personal guarantees from corporate
borrowers.
53
<PAGE>
Loan Maturity and Repricing. The following table sets forth certain
information at March 31, 1997 regarding the dollar amount of loans maturing in
the Association's portfolio based on their contractual terms to maturity, but
does not include scheduled payments or potential prepayments. Overdrafts are
reported as due in one year or less. Loan balances do not include undisbursed
loan proceeds, unearned discounts, unearned income, and allowance for loan
losses.
<TABLE>
<CAPTION>
DUE DURING THE YEAR DUE AFTER 3 DUE AFTER 5 DUE AFTER 10
ENDED THROUGH 5 THROUGH 10 THROUGH 15 DUE AFTER 15
MARCH 31, YEARS AFTER YEARS AFTER YEARS AFTER YEARS AFTER
-------------------- MARCH 31, MARCH 31, MARCH 31, MARCH 31,
1998 1999 2000 1997 1997 1997 1997 TOTAL
------- ----------------------- ----------- ------------ ------------ -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Loans secured by real
estate:
Residential(1)(2)...... $ 4,472 $ 158 $ 250 $1,368 $ 9,615 $10,525 $63,690 $90,078
Commercial............. 1 -- 160 73 2,088 287 53 2,662
Loans secured by savings
deposits............... 324 39 3 -- -- -- -- 366
Property improvement.... 8 67 133 636 539 213 -- 1,596
Automobiles............. 5 38 34 45 -- -- -- 122
Other consumer loans.... 98 64 -- -- -- -- -- 162
Commercial business
loans.................. 1,118 20 81 61 -- -- -- 1,280
------- ----- ----- ------ ------- ------- ------- -------
Total loans............ $ 6,026 $ 386 $ 661 $2,183 $12,242 $11,025 $63,743 $96,266
======= ===== ===== ====== ======= ======= ======= =======
</TABLE>
- --------
(1) Includes $4.4 million of loans held for sale, reported as due in one year
or less.
(2) Includes multifamily loans totaling $1.6 million.
The following table sets forth the dollar amount of all loans due after March
31, 1998 which have fixed interest rates and adjustable interest rates.
<TABLE>
<CAPTION>
FIXED ADJUSTABLE
RATES RATES
----------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Loans secured by real estate:
Residential...................................... $ 32,173 $ 53,433
Commercial....................................... 2,494 167
Loans secured by savings deposits.................. 42 --
Property improvement............................... 1,588 --
Automobiles........................................ 117 --
Other consumer loans............................... 64 --
Commercial business loans.......................... 162 --
----------- -----------
Total loans...................................... $ 36,640 $ 53,600
=========== ===========
</TABLE>
The following table sets forth total loans originated, purchased, sold, and
repaid during the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
-------------------------
1997 1996 1995
------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Total loans at beginning of period................. $97,387 $83,647 $62,188
Loans originated:
Residential one- to four-family.................. 70,019 75,779 56,606
Multifamily...................................... 950 -- --
Commercial business loans........................ 1,462 -- --
Consumer (property improvement and automobiles).. 774 666 475
Other loans...................................... 107 105 180
------- ------- -------
Total loans originated......................... 73,312 76,550 57,261
------- ------- -------
Loans purchased--residential one- to four-family... 5,892 17,396 934
Loans sold:
Whole loans:
Servicing retained............................. (45,669) (49,667) (12,266)
Servicing released............................. (15,617) (25,079) (13,302)
Participation loans (servicing retained)......... (185) -- --
------- ------- -------
Total loans sold............................... (61,471) (74,746) (25,568)
------- ------- -------
Loan principal repayments.......................... (2,486) (2,282) (10,067)
Loans converted to mortgage-backed securities and
sold.............................................. (16,368) (3,178) (1,101)
------- ------- -------
Total loans at end of period....................... $96,266 $97,387 $83,647
======= ======= =======
</TABLE>
54
<PAGE>
Loan Soliciting and Processing. Loan originations are derived primarily
through EMC loan officers' solicitation and personal visits to the local real
estate offices in the metropolitan St. Louis area as well as current and walk-
in customers. These loan officers have developed a clientele over the years
that send potential customers to EMC for loans. By use of the EMC loan
officers and client contacts, the Association has been able to cover a broad
market area and offer mortgage services to an extended number of potential
customers.
The Executive Loan Committee, composed of Messrs. Fellhauer, Wolter, Deelo,
and Fuchs, and one Association staff member are authorized to approve
residential mortgage loans up to $200,000. Residential mortgage loans in
excess of $200,000 require full Board of Directors approval. All residential
mortgage loans are subsequently approved by the full Board of Directors.
Loans-to-One Borrower Limitations. The Association's loans and extensions of
credit to a person outstanding at one time and not fully secured may not
exceed 15% of the unimpaired capital and surplus of the Association. This
limitation calls for a loan-to-one borrower limitation for the Association of
$1.9 million at March 31, 1997. Loans and extensions of credit fully secured
by readily marketable collateral may comprise an additional 10% of unimpaired
capital and surplus. At March 31, 1997, the largest aggregate amount of loans
by the Association to any borrower was approximately $1.5 million, which was
secured by a real estate mortgage on a shopping center located in the St.
Louis metropolitan area.
Loan Commitments. The Association issues commitments for fixed- and
adjustable-rate single-family residential mortgage loans conditioned upon the
occurrence of certain events. Such commitments are made in writing on
specified terms and conditions and are honored for up to 30 days from
approval, depending on the type of transaction. The Association had
outstanding loan commitments of approximately $953,000 at March 31, 1997.
Loan Origination and Other Fees. The Association, in most instances,
receives loan origination fees and discount "points." Loan fees and points are
a percentage of the principal amount of the mortgage loan that are charged to
the borrower for funding the loan. The Association usually charges origination
fees of 1% on all real estate loans. Current accounting standards require fees
received for originating loans to be deferred and amortized into interest
income over the contractual life of the loan. Deferred fees associated with
loans that are sold are included in the gain/loss computation at the time of
sale. The Association had approximately $46,000 of net deferred loan fees at
March 31, 1997.
The Association offsets all loan origination fees and certain related direct
loan origination costs against all fees and costs associated with loan
origination. The resulting net amount is deferred and amortized over the
contractual life of the related loans as an adjustment to the yield on such
loans, unless prepayments of a large group of similar loans are probable and
the timing and amount of prepayments can be reasonably estimated. The
Association offsets commitment fees against related direct costs and the
resulting net amount is recognized over the contractual life of the related
loans as an adjustment of yield if the commitment is exercised. If the
commitment expires unexercised, the fees collected are recognized as
noninterest income upon expiration of the commitment.
Delinquencies. The Association's collection procedures provide that when a
loan is 30 days overdue and again after an additional 15 days, the borrower
will be contacted by mail and payment requested. After a delinquency of 15
days, a late charge is assessed. If the delinquency continues, subsequent
efforts will be made to contact the delinquent borrower. In certain instances,
the Association may modify the loan or grant a limited moratorium on loan
payments to enable reorganization of the borrower's financial affairs. If the
loan continues in a delinquent status for 90 days or more, the Association
generally will initiate foreclosure proceedings.
55
<PAGE>
Nonperforming Assets and Their Classification. The following table sets
forth information with respect to the Association's nonperforming assets for
the periods indicated. During the periods shown, the Association had no
restructured loans within the meaning of Statement of Financial Accounting
Standards No. 15, Accounting by Debtors and Creditors for Troubled Debt
Restructurings:
<TABLE>
<CAPTION>
AT MARCH 31,
-------------------------
1997 1996 1995
------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Loans accounted for on a nonaccrual basis(1):
Residential one- to four-family(2).............. $ 643 $ 669 $ 653
Consumer........................................ -- -- 9
------- ------- -------
Total......................................... 643 669 662
Real estate owned................................. 66 97 52
------- ------- -------
Total nonperforming assets...................... $ 709 $ 766 $ 714
======= ======= =======
Nonperforming loans to gross loans................ .67% .69% .79%
Total nonperforming assets to total assets........ .35% .39% .44%
</TABLE>
- --------
(1) All loans contractually past due 90 days or more are accounted for on a
nonaccrual basis by the Association.
(2) Includes $571,000, $326,000 and $528,000 of FHA/VA loans, the principal
and interest payments of which are either insured by the FHA or guaranteed
by the VA, at March 31, 1997, 1996 and 1995, respectively.
The Association had $643,000 in loans 90 days or more delinquent at March
31, 1997 which consisted of 25 one- to four-family residential mortgage loans,
each with an outstanding principal balance of less than $70,000.
For fiscal 1997 and 1996, gross interest income which would have been
recorded had the nonaccruing loans been current in accordance with their
original terms amounted to $55,000 and $57,000, respectively, of which $30,000
and $44,000, respectively, was included in interest income.
Asset Classification. The OTS asset classification system conforms with
commercial banking practices and puts the establishment of loan loss
allowances on a basis consistent with the requirements of GAAP. 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 must have one or more defined weaknesses and are
characterized by the distinct possibility that the insured institution will
sustain some loss if the deficiencies are not corrected. "Doubtful" assets
have the weaknesses of substandard assets with the additional characteristic
that the weaknesses make collection or liquidation in full on the basis of
currently existing facts, conditions and values questionable, and there is a
high possibility of loss. An asset classified "loss" is considered
uncollectible and of such little value that continuance as an asset of the
institution is not warranted. The regulations have also created a "special
mention" category, described as assets which do not currently expose an
insured institution to a sufficient degree of risk to warrant classification
but do possess credit deficiencies or potential weaknesses deserving
management's close attention. Assets classified as substandard or doubtful
require the institution to establish general allowances for loan losses. If an
asset or portion thereof is classified loss, the insured institution must
either establish specific allowances for loan losses in the amount of 100% of
the portion of the asset classified loss or charge-off such amount. A portion
of general 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.
56
<PAGE>
The Association's classified assets, general and specific loss allowances,
and charge-offs were as follows for the periods indicated:
<TABLE>
<CAPTION>
AT OR FOR THE YEAR
ENDED MARCH 31,
-----------------------
1997 1996 1995
------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Substandard assets.................................. $ 138 $ 441 $ 714
General loss allowances............................. 283 233 217
Specific loss allowances............................ -- -- --
Charge-offs......................................... -- 15 34
</TABLE>
Real Estate Owned. Real estate acquired by the Association as a result of
foreclosure or by deed-in-lieu of foreclosure is classified as real estate
owned until sold. When property is acquired it is recorded at the lower of
cost (principal balance of the former mortgage loan plus the costs of
obtaining title and possession) or estimated fair value. The Association had
$66,000 in real estate owned at March 31, 1997, which consisted of three
single-family residences, all located in St. Louis, Missouri.
Allowance for Loan Losses. The Association's management evaluates the need
to establish reserves against losses on loans and other assets based on
estimated losses on specific loans and on any real estate held for investment
or acquired through foreclosure when it is determined that a decline in value
has occurred. Such evaluation includes a review of all loans for which full
collectibility may not be reasonably assured and considers, among other
matters, the estimated market value of the underlying collateral of problem
loans, prior loss experience, economic conditions, and overall portfolio
quality. These provisions for losses are charged against earnings in the year
they are established. The Association established provisions for losses on
loans for fiscal 1997, 1996, and 1995 of approximately $50,000, $31,000 and
$9,000, respectively. At March 31, 1997, the Association had an allowance for
loan losses of $283,000, which represented .29% of total loans. Based on past
experience and future expectations, management believes that loan loss
reserves are adequate.
The following table sets forth an analysis of the Association's allowance
for loan losses for the periods indicated.
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ----- -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Allowance at beginning of period........... $233 $217 $242 $ 230 $ 218
Provision for losses on loans.............. 50 31 9 12 14
Charge-offs--residential one- to four-
family.................................... -- (15) (34) -- (2)
---- ---- ---- ----- -----
Balance at end of period................... $283 $233 $217 $ 242 $ 230
==== ==== ==== ===== =====
Ratio of allowance to total loans
outstanding at the end of the period...... .29% .24% .26% .39% .30%
Ratio of net charge-offs to average loans
outstanding during the period............. * .02% .04% * *
Allowance for loan losses to total
nonperforming assets...................... 39.9% 30.4% 30.4% 56.02% 41.07%
Allowance for loan losses to total
nonperforming loans....................... 44.0% 34.8% 32.8% 68.36% 44.23%
</TABLE>
- --------
*Insignificant
57
<PAGE>
The following table sets forth the breakdown of the allowance for loan
losses by loan category for the periods indicated.
<TABLE>
<CAPTION>
AT MARCH 31,
-------------------------------------------------------------------------------
1997 1996 1995
------------------------- ------------------------- -------------------------
AMOUNT OF LOAN AMOUNT OF LOAN AMOUNT OF LOAN
ALLOWANCE AMOUNTS % OF ALLOWANCE AMOUNTS % OF ALLOWANCE AMOUNTS % OF
FOR BY TOTAL FOR BY TOTAL FOR BY TOTAL
LOAN LOSS CATEGORY LOANS LOAN LOSS CATEGORY LOANS LOAN LOSS CATEGORY LOANS
--------- -------- ------ --------- -------- ------ --------- -------- ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Loans secured by
real estate:
Residential one-
to four-
family(1)...... $174 $88,441 91.9% $174 $92,036 94.5% $202 $78,042 93.3%
Multifamily and
Commercial..... 49 4,299 4.5% 41 3,405 2.7% 11 3,803 3.5%
Property
improvement..... 20 1,596 1.7% 16 1,300 1.3% -- 1,053 1.3%
Automobiles...... 2 122 .1% 2 97 .1% 4 126 .2%
Other............ -- 528 .5% -- 549 1.4% -- 623 1.7%
Commercial
business loans.. 38 1,280 1.3% -- -- -- % -- -- -- %
---- ------- ------ ---- ------- ------ ---- ------- ------
Total............ $283 $96,266 100.0% $233 $97,387 100.0% $217 $83,647 100.0%
==== ======= ====== ==== ======= ====== ==== ======= ======
<CAPTION>
AT MARCH 31,
----------------------------------------------------
1994 1993
------------------------- -------------------------
AMOUNT OF LOAN AMOUNT OF LOAN
ALLOWANCE AMOUNTS % OF ALLOWANCE AMOUNTS % OF
FOR BY TOTAL FOR BY TOTAL
LOAN LOSS CATEGORY LOANS LOAN LOSS CATEGORY LOANS
--------- -------- ------ --------- -------- ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Loans secured by
real estate:
Residential one-
to four-
family(1)...... $216 $58,113 93.4% $164 $71,401 93.9%
Multifamily and
Commercial..... 24 2,239 3.6% 52 2,746 3.6%
Property
improvement..... 1 908 1.5% 11 972 1.3%
Automobiles...... 1 144 .2% 3 159 .2%
Other............ -- 784 1.3% -- 784 1.0%
Commercial
business loans.. -- -- -- -- -- --
---- ------- ------ ---- ------- ------
Total............ $242 $62,188 100.0% $230 $76,062 100.0%
==== ======= ====== ==== ======= ======
</TABLE>
- --------
(1) Includes loans held for sale.
INVESTMENT ACTIVITIES
The Association classifies its investment securities and mortgage-backed
securities for financial accounting purposes into one of three categories:
Held to Maturity: includes investments in debt securities, which the
Association has the positive intent and ability to hold until maturity.
Trading: includes investments in debt and equity securities purchased and
held principally for the purpose of selling them in the near term.
Available for Sale: includes investments in debt and equity securities
not classified as held to maturity or trading (i.e., investments that the
Association has no present plans to sell in the near term but may be sold
in the future under different circumstances).
Investment and mortgage-backed securities classified as held to maturity are
measured at amortized cost, in which the amortization of premiums and
accretion of discounts, which are recognized as adjustments to interest
income, are recorded using methods approximating the interest method.
Unrealized holding gains and losses for trading securities (for which no
securities were so designated at March 31, 1997 or 1996) are included in
58
<PAGE>
earnings, while such gains and losses for available for sale securities are
excluded from earnings and reported as a net amount as a separate component of
stockholders' equity, net of income taxes, until realized. Unrealized holding
gains and losses for held to maturity securities are excluded from earnings
and stockholders' equity. Gains or losses for available for sale securities
are realized and included in other noninterest income upon sale, based on the
amortized cost of the individual security sold. All previous market value
adjustments included in the separate component of stockholders' equity are
reversed upon sale. Mortgage-backed securities represent a significant portion
of the debt security portfolio. Amortization of premiums and accretion of
discounts on mortgage-backed securities are analyzed in relation to the
corresponding prepayment rates, both historical and estimated, using a method
that approximates the interest method.
It has been the Association's practice to maintain assets in investment
securities at levels higher than required by federal regulations. The
Association's investment securities portfolio at March 31, 1997 consisted of
$4.8 million in U.S. government and agency obligations classified as held to
maturity, with an estimated market value of $4.7 million, and $70.1 million in
U.S. government and agency obligations classified as available for sale.
The overall objective of the Association's investment portfolio is to
provide a sufficient and consistent spread over the Association's marginal
cost of funds by investing funds that are not currently required for lending
purposes and to provide a liquidity reserve in excess of regulatory
requirements. The Association has traditionally maintained an investment
portfolio in the range of 15% to 20% of total assets. The Association's long-
term liquidity ratio at March 31, 1997 was 16.9%. The portfolio is also
intended to assist in managing the Association's asset and liability interest
rate sensitivity.
The Association's chief financial officer is responsible for daily
management of the Association's investment activities and is authorized to
perform any Board of Directors approved transaction necessary to achieve the
objectives established by the Board of Directors and that falls within
parameters established by the Board of Directors.
The following table sets forth the Association's investment securities at
the dates indicated:
<TABLE>
<CAPTION>
AT MARCH 31,
--------------------------------------------------------------------------------
1997 1996 1995
-------------------------- -------------------------- --------------------------
CARRYING % OF MARKET CARRYING % OF MARKET CARRYING % OF MARKET
VALUE PORTFOLIO VALUE VALUE PORTFOLIO VALUE VALUE PORTFOLIO VALUE
-------- --------- ------- -------- --------- ------- -------- --------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. government and
agency obligations:
Available for sale..... $70,123 93.5% $70,123 $38,898 86.9% $38,898 $31,953 77.9% $31,953
Held to maturity....... 4,849 6.5% 4,725 5,845 3.1% 5,589 9,047 22.1% 8,607
------- ------ ------- ------- ------ ------- ------- ------ -------
Total.................. $74,972 100.0% $74,848 $44,743 100.0% $44,487 $41,000 100.0% $40,560
======= ====== ======= ======= ====== ======= ======= ====== =======
</TABLE>
The following table sets forth the maturities and weighted average yields of
the Association's investment securities at March 31, 1997.
<TABLE>
<CAPTION>
AT MARCH 31, 1997
---------------------------------------------------------------------------------------------------------------
LESS THAN ONE YEAR ONE TO FIVE YEARS FIVE TO TEN YEARS OVER TEN YEARS TOTAL
-------------------- ----------------- ----------------- ----------------- -----------------------------------
AVERAGE
WEIGHTED WEIGHTED WEIGHTED WEIGHTED REMAINING WEIGHTED
CARRYING AVERAGE CARRYING AVERAGE CARRYING AVERAGE CARRYING AVERAGE YEARS TO CARRYING MARKET AVERAGE
VALUE YIELD VALUE YIELD VALUE YIELD VALUE YIELD MATURITY VALUE VALUE YIELD
--------- --------- -------- -------- -------- -------- -------- -------- --------- -------- ------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. government
and agency
obligations:
Available for
sale........... $ 297 6.45% $13,804 6.98% $50,428 7.12% $5,594 7.53% 7.5 $70,123 $70,123 7.12%
Held to
maturity....... 2,249 4.49% 2,000 3.40% 600 3.50% -- -- % 1.6 4,849 4,725 3.91%
--------- -------- ------- ----- ------- ----- ------ ----- --- ------- ------- -----
Total........... $ 2,546 4.72% $15,804 6.53% $51,028 7.08% $5,594 7.53% 7.1 $74,972 $74,848 6.91%
========= ======== ======= ===== ======= ===== ====== ===== === ======= ======= =====
</TABLE>
MORTGAGE-BACKED SECURITIES
In order to supplement residential loan demand in its primary market area
and maintain geographic diversity in its loan portfolio, the Association has a
substantial portfolio of mortgage-backed securities that are classified as
available for sale and, accordingly, are carried at fair market value. All of
the Association's mortgage-backed securities are federal agency securities.
59
<PAGE>
Mortgage-backed securities represent a participation interest in a pool of
single-family or multi-family mortgages, the principal and interest payments
of which are passed from the mortgage originators through intermediaries that
pool and repackage the participation interest in the form of securities to
investors such as the Association. Such intermediaries may include quasi-
governmental agencies such as FHLMC, FNMA and GNMA that guarantee or insure
the payment of principal and interest to investors. Mortgage-backed securities
generally increase the quality of the Association's assets by virtue of the
guarantees that back them, are more liquid than individual mortgage loans and
may be used to collateralize borrowings or other obligations of the
Association.
Mortgage-backed securities typically are issued with stated principal
amounts and the securities are backed by pools of mortgages that have loans
with interest rates that are within an identified range and have similar
maturities. The underlying pool of mortgages can be composed of either fixed
rate mortgages, ARMs or balloon loans. Mortgage-backed securities generally
are referred to as mortgage participation certificates or pass-through
certificates. As a result, the interest rate risk characteristics of the
underlying pool of mortgages, i.e., fixed rate or adjustable rate, as well as
prepayment risk, are passed on to the certificate holder. The life of a
mortgage-backed pass-through security is equal to the life of the underlying
mortgages.
The actual maturity of a mortgage-backed security varies, depending on when
the mortgagors prepay or repay the underlying mortgages. Prepayments of the
underlying mortgages may shorten the life of the investment, thereby adversely
affecting its yield to maturity and the related market value of the mortgage-
backed security. The yield is based upon the interest income and the
amortization of the premium or accretion of the discount related to the
mortgage-backed security. Premiums and discounts on mortgage-backed securities
are amortized or accredited over the estimated term of the securities using a
level yield method. The prepayment assumptions used to determine the
amortization period for premiums and discounts can significantly affect the
yield of the mortgage-backed security and these assumptions are reviewed
periodically to reflect the actual prepayment. The actual prepayments of the
underlying mortgages depend on many factors, including the type of mortgages,
the coupon rate, the age of mortgages, the geographical location of the
underlying real estate collateralizing the mortgages and general levels of
market interest rates. The difference between the interest rates on the
underlying mortgages and the prevailing mortgage interest rates is an
important determinant in the rate of prepayments. If the coupon rate of the
underlying mortgages significantly exceeds the prevailing market interest
rates offered for mortgage loans, refinancing generally increases and
accelerates the prepayment of the underlying mortgages. Prepayment experience
is more difficult to estimate for adjustable rate mortgage-backed securities.
Certain of the Association's mortgage-backed securities yield above-market
rates of interest and are subject to substantial risk of prepayment. In a
declining interest rate environment, the Association may experience
significant prepayments of both fixed and adjustable rate mortgage-backed and
related securities. In such instances, the Association may be unable to
reinvest the cash flow from these securities into comparable yielding
investments, and would expect this reinvestment risk to continue so long as
interest rates remained relatively low.
The majority of the Association's mortgage-backed securities are fixed-rate
balloon securities due within 15 years. Depending on the Association's
asset/liability mix and future market conditions, however, the Association may
determine to purchase adjustable-rate mortgage-backed securities in the
future. The Association's holdings of mortgage-backed securities have
decreased in the past year as a result of an improved level of loan
origination in the Association's principal lending area. Because federal
agency mortgage-backed securities generally carry a yield of approximately 50
to 100 basis points below that of the corresponding type of residential loan
(due to the implied federal agency guarantee fee and the retention of a
servicing spread by the loan servicer) in the event that the proportion of the
Association's assets consisting of mortgage-backed securities increases, the
Association's asset yields could be somewhat adversely affected. Due to the
existence of the federal agency guarantee on the Association's mortgage-backed
securities and the availability of adjustable-rate mortgage-backed securities,
however, the Association's interest rate risk and credit risk would not
necessarily be increased by a future increase in mortgage-backed securities
volume. The Association will evaluate mortgage-backed securities purchases in
the future based on its asset/liability objectives, market conditions, and its
alternate investment opportunities.
60
<PAGE>
The following table sets forth certain information regarding carrying and
market values and percentage of total carrying values of the Association's
mortgage-backed securities portfolio.
<TABLE>
<CAPTION>
AT MARCH 31,
-----------------------------------------------------------------------
1997 1996 1995
----------------------- ----------------------- -----------------------
CARRYING % OF MARKET CARRYING % OF MARKET CARRYING % OF MARKET
VALUE TOTAL VALUE VALUE TOTAL VALUE VALUE TOTAL VALUE
-------- ------ ------- -------- ------ ------- -------- ------ -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FNMA.................... $ 7,025 47.0% $ 7,025 $16,126 57.4% $16,126 $ 2,370 15.5% $ 2,299
FHLMC................... 4,555 30.5% 4,555 10,089 35.9% 10,089 12,890 84.5% 12,536
GNMA.................... 3,374 22.5% 3,374 1,881 6.7% 1,881 -- -- % --
------- ------ ------- ------- ------ ------- ------- ------ -------
Total mortgage-backed
securities............. $14,954 100.0% $14,954 $28,096 100.0% $28,096 $15,260 100.0% $14,835
======= ====== ======= ======= ====== ======= ======= ====== =======
</TABLE>
- -------
(1) In 1995, the Association's mortgage-backed securities were classified as
held to maturity and, accordingly, were carried at historical cost.
The following table sets forth the activity in the Association's mortgage-
backed securities during the periods indicated:
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED MARCH 31,
--------------------------------------
1997 1996 1995
------------ ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Mortgage-backed securities:
At beginning of period............... $ 28,096 $ 15,260 $ 16,987
Purchases.......................... 14,211 24,235 1,172
Sales.............................. (22,254) (6,898) --
Repayments......................... (4,585) (4,022) (2,651)
Premium/discount amortization,
net............................... (295) (446) (248)
SFAS 115 fair market value
adjustment........................ (219) (33) --
------------ ----------- -----------
End of period........................ $ 14,954 $ 28,096 $ 15,260
============ =========== ===========
</TABLE>
The composition and maturities of the Association's mortgage-backed
securities portfolio are indicated in the following table.
<TABLE>
<CAPTION>
AT MARCH 31, 1997
-----------------------------------------------------------------------------
LESS THAN 1 YEAR 1 TO 5 YEARS 5 TO 10 YEARS GREATER THAN 10 YEARS
----------------- ----------------- ----------------- -----------------------
WEIGHTED WEIGHTED WEIGHTED WEIGHTED
CARRYING AVERAGE CARRYING AVERAGE CARRYING AVERAGE CARRYING AVERAGE
VALUE YIELD VALUE YIELD VALUE YIELD VALUE YIELD
-------- -------- -------- -------- -------- -------- ----------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
FNMA............. $ 54 8.88% $2,723 6.64% $ -- -- % $ 4,248 6.75%
FHLMC............ 701 7.92% 1,133 7.69% 2,307 6.66% 414 7.25%
GNMA............. -- -- % 229 9.00% -- -- % 3,145 6.06%
---- ----- ------ ----- ------ ----- ----------- ----------
Total mortgage-
backed
securities..... $755 7.99% $4,085 7.07% $2,307 6.66% $ 7,807 6.50%
==== ===== ====== ===== ====== ===== =========== ==========
</TABLE>
<TABLE>
<CAPTION>
AT MARCH 31, 1997
-------------------------------------
TOTAL
-------------------------------------
AVERAGE
REMAINING ESTIMATED WEIGHTED
YEARS TO CARRYING MARKET AVERAGE
MATURITY VALUE VALUE YIELD
--------- -------- --------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
FNMA............. 11.4 $ 7,025 $ 7,025 6.72%
FHLMC............ 5.9 4,555 4,555 7.16%
GNMA............. 13.9 3,374 3,374 6.26%
---- ------- ------- -----
Total mortgage-
backed
securities..... 10.3 $14,954 $14,954 6.75%
==== ======= ======= =====
</TABLE>
At March 31, 1997, the Association did not hold any security of an issuer
(other than U. S. government and agency securities and mutual funds which
invest exclusively in such securities) which had an aggregate book value or
aggregate market value in excess of 10% of the Association's stockholders'
equity at the dates indicated.
61
<PAGE>
DEPOSIT ACTIVITIES AND OTHER SOURCES OF FUNDS
General. Deposits are the primary source of the Association's funds for
lending and other investment purposes. In addition to deposits, the
Association derives funds from loan principal repayments. Loan repayments are
a relatively stable source of funds while deposit inflows and outflows may be
significantly influenced by the general level of interest rates and money
market conditions. The Association also has access to advances from the FHLB
of Des Moines. These advances can be used on a short-term basis to compensate
for reductions in the availability of funds from other sources or they may be
used on a longer term basis for general business purposes.
Deposit Accounts. Local deposits are and traditionally have been the primary
source of the Association's funds for use in lending and other general
business purposes. Deposits are attracted from within the Association's
primary market area (metropolitan St. Louis) through an offering of a variety
of financial accounts including savings, checking, money market, certificates
of deposit, retirement plan accounts, and commercial checking. The account
terms vary by type of account according to minimum balance requirements,
interest rate, and the length of time the account must remain open without
incurring a penalty for withdrawal of the funds as well as other factors. The
Association relies on the location of its offices, customer satisfaction, and
other references as its primary sources of deposit solicitation. To a lesser
degree, local media advertising is used in the seeking of deposit funds.
In determining the individual characteristics of its deposit accounts, the
Association considers the products and rates offered by the competition, the
attractiveness of the product to its customer base, the profitability of the
product to the Association, and the effect the account will have on the asset
liability mix of the institution. Attractive, convenient locations and quality
service are the Association's benchmark of success. The Association does not
use brokered deposits.
The following table sets forth information concerning the Association's
savings deposits at the dates indicated.
<TABLE>
<CAPTION>
AT MARCH 31,
--------------------------------------------------------------------------------
1997 1996 1995
-------------------------- -------------------------- --------------------------
WEIGHTED WEIGHTED WEIGHTED
PERCENT AVERAGE PERCENT AVERAGE PERCENT AVERAGE
OF TOTAL NOMINAL OF TOTAL NOMINAL OF TOTAL NOMINAL
BALANCE DEPOSITS RATE BALANCE DEPOSITS RATE BALANCE DEPOSITS RATE
-------- -------- -------- -------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NOW accounts............ $ 7,170 5.83% 2.24% $ 6,990 5.61% 2.27% $ 7,522 6.19% 2.24%
Regular savings......... 21,577 17.55% 2.51% 21,831 17.54% 2.51% 23,878 19.64% 2.51%
Money market demand..... 6,135 4.99% 3.22% 6,552 5.26% 2.93% 7,778 6.40% 2.80%
Noninterest checking.... 4,993 4.06% 0.00% 3,824 3.07% 0.00% 2,637 2.18% 0.00%
Certificates of Deposit:
28-91 days--Fixed-term,
fixed rate............ 34 0.03% 2.88% 50 0.04% 2.81% 88 0.07% 2.89%
6 months--Fixed-term,
fixed rate............ 2,439 1.98% 4.01% 2,667 2.14% 4.00% 4,008 3.30% 4.01%
9 months--Fixed-term,
fixed rate............ 7,932 6.45% 5.27% 6,906 5.55% 5.43% 2,533 2.08% 5.27%
12 months--Fixed-term,
fixed rate............ 8,350 6.79% 5.06% 9,248 7.43% 5.32% 10,545 8.67% 5.06%
24 months--Fixed-term,
fixed rate............ 6,760 5.50% 5.55% 6,328 5.08% 5.49% 5,063 4.17% 5.55%
36 months--Fixed-term,
fixed rate............ 3,010 2.45% 5.35% 4,218 3.39% 4.71% 5,371 4.42% 5.35%
48 months--Fixed-term,
fixed rate............ 11,568 9.41% 6.39% 10,225 8.21% 6.44% 5,051 4.16% 6.39%
60 months--Fixed-term,
fixed rate............ 18,300 14.88% 5.67% 20,062 16.11% 5.80% 22,759 18.72% 5.67%
24 months--Fixed-term,
variable-rate......... 631 0.51% 5.50% 904 0.73% 5.50% 835 0.69% 5.50%
5-20 years--Fixed-term,
fixed rate (Guaranteed
Account).............. 115 0.09% 8.93% 107 0.09% 8.91% 101 0.08% 8.93%
1-60 months--Negotiated
rate.................. 2,718 2.21% 6.20% 3,428 2.75% 5.96% 2,935 2.41% 6.20%
Retirement Account
(IRAs):
12 months--Fixed-term,
fixed-rate............ 962 0.78% 5.00% 1,037 0.83% 5.00% 1,181 0.97% 5.00%
24 months--Fixed-term,
fixed-rate............ 942 0.77% 5.53% 809 0.65% 5.53% 734 0.60% 5.53%
36 months--Fixed-term,
fixed-rate............ 755 0.61% 5.44% 940 0.75% 4.89% 949 0.78% 5.44%
48 months--Fixed-term,
fixed-rate............ 10,260 8.34% 6.59% 8,563 6.88% 6.74% 4,677 3.85% 6.59%
60 months--Fixed-term,
fixed-rate............ 7,710 6.27% 5.87% 9,293 7.46% 6.08% 12,329 10.14% 5.87%
120 months--Fixed-term,
fixed-rate............ 370 0.30% 10.00% 346 0.28% 10.00% 326 0.27% 10.00%
24 months--Fixed-term,
variable-rate......... 252 0.20% 5.50% 187 0.15% 5.50% 260 0.21% 5.50%
-------- ------ -------- ------ -------- ------
$122,983 100.0% $124,517 100.0% $121,560 100.0%
======== ====== ======== ====== ======== ======
</TABLE>
62
<PAGE>
The following table indicates the amount of the Association's jumbo
certificates of deposit by time remaining until maturity as of March 31, 1997.
Jumbo certificates of deposit require minimum deposits of $100,000 and have
negotiable rates.
<TABLE>
<CAPTION>
MATURITY PERIOD CERTIFICATES OF DEPOSIT
--------------- -----------------------
(DOLLARS IN THOUSANDS)
<S> <C>
Three months or less.............................. $ 200
Three through six months.......................... 340
Six through twelve months......................... 1,313
Over twelve months................................ 865
------
Total........................................... $2,718
======
</TABLE>
DEPOSIT FLOW
The following table sets forth the balances of savings deposit in the
various types of savings accounts offered by the Association at the dates
indicated.
<TABLE>
<CAPTION>
AT MARCH 31,
--------------------------------------------------------------------------------------
1997 1996 1995
---------------------------- ---------------------------- ----------------------------
PERCENT INCREASE PERCENT INCREASE PERCENT INCREASE
AMOUNT OF TOTAL (DECREASE) AMOUNT OF TOTAL (DECREASE) AMOUNT OF TOTAL (DECREASE)
-------- -------- ---------- -------- -------- ---------- -------- -------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Non-interest-bearing
deposits............... $ 4,993 4.06% $ 1,170 $ 3,823 3.07% $1,186 $ 2,637 2.18% $ (605)
NOW checking............ 7,170 5.83% 180 6,990 5.61% (532) 7,522 6.19% (416)
Regular savings
accounts............... 21,577 17.55% (254) 21,831 17.54% (2,047) 23,878 19.64% (3,930)
Money market deposits... 6,135 4.99% (417) 6,552 5.26% (1,226) 7,778 6.40% (4,149)
Fixed-rate
certificates........... 82,225 66.86% (2,002) 84,227 67.64% 5,577 78,650 64.69% (2,494)
Variable-rate
certificates........... 883 .71% (209) 1,092 .88% (3) 1,095 .90% 310
-------- ------ ------- -------- ------- ------ -------- ------- --------
Total.................. $122,983 100.0% $(1,532) $124,515 100.00% $2,955 $121,560 100.00% $(11,284)
======== ====== ======= ======== ======= ====== ======== ======= ========
</TABLE>
CERTIFICATES OF DEPOSIT BY RATES
The following table sets forth the certificates of deposits classified by
rates as of the dates indicated.
<TABLE>
<CAPTION>
AT MARCH 31,
-----------------------
1997 1996 1995
------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Less than 3.00%.............. $ 8 $ 19 $ 20
3.00% to 3.99%............... 251 1,344 7,550
4.00% to 4.99%............... 3,925 6,553 16,456
5.00% to 5.99%............... 49,200 43,120 23,705
6.00% to 6.99%............... 17,083 19,200 13,661
7.00% to 7.99%............... 12,155 14,630 14,947
8.00% and greater............ 486 453 3,406
------- ------- -------
Total...................... $83,108 $85,319 $79,745
======= ======= =======
</TABLE>
Certificate of deposit accounts at March 31, 1997, 1996 and 1995 are
scheduled to mature as indicated in the following table.
<TABLE>
<CAPTION>
1997 1996 1995
------------------------ ------------------------ ------------------------
AMOUNT PERCENT OF TOTAL AMOUNT PERCENT OF TOTAL AMOUNT PERCENT OF TOTAL
------- ---------------- ------- ---------------- ------- ----------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Within one year......... $36,335 43.7% $32,402 38.0% $29,401 36.9%
Second year............. 22,832 27.5% 16,287 19.1% 12,015 15.1%
Third year.............. 16,693 20.1% 18,727 21.9% 12,472 15.6%
Fourth year............. 4,949 6.0% 15,464 18.1% 18,444 23.1%
Thereafter.............. 2,299 2.7% 2,439 2.9% 7,413 9.3%
------- ------ ------- ------ ------- ------
Total................. $83,108 100.0% $85,319 100.0% $79,745 100.0%
======= ====== ======= ====== ======= ======
</TABLE>
63
<PAGE>
The following table sets forth the savings activities of the Association for
the periods indicated.
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED MARCH 31,
-------------------------------------
1997 1996 1995
----------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Beginning balance................... $ 124,515 $ 121,560 $ 132,844
Net decrease before interest
credited........................... (5,811) (1,331) (15,209)
Interest credited................... 4,279 4,286 3,925
----------- ----------- -----------
Ending balance...................... $ 122,983 $ 124,515 $ 121,560
=========== =========== ===========
</TABLE>
BORROWINGS
While deposits are the primary source of funds for the Association, advances
from the FHLB of Des Moines are necessary periodically to supplement the funds
required for operations. At March 31, 1997, the Association had $63.0 million
in FHLB of Des Moines advances outstanding. During fiscal year 1997, the
Association utilized FHLB advances to offset deposit outflows to provide for
increased originations of portfolio loans and increased investment in
securities.
EMC maintains a custodial borrowing relationship at an unaffiliated bank
secured by investment securities with an amortized cost and a market value of
approximately $4.0 million at March 31, 1997. At March 31, 1997, there was
$1.1 million outstanding on this note payable.
Concurrent with the Mutual Holding Company Reorganization, the Association
established the ESOP. The ESOP initially borrowed $266,000 to finance the
acquisition of stock to be held in trust for future allocations to eligible
participants. At March 31, 1997, there was $136,000 outstanding on this note
payable. The debt of the ESOP is guaranteed by the Association and is
reflected as a liability in the consolidated balance sheet at March 31, 1997.
The following table sets forth certain information regarding borrowings by
the Association at the end of and during the periods indicated.
<TABLE>
<CAPTION>
AT
AND FOR THE YEAR ENDED MARCH 31,
--------------------------------
1997 1996 1995
---------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Weighted average rate paid on:
FHLB of Des Moines borrowings.............. 5.34% 5.52% 6.28%
Note payable to bank....................... 2.25% 2.25% 2.25%
ESOP debt.................................. 9.50% 9.25% 10.00%
Maximum amount of borrowings outstanding at
any month-end:
FHLB of Des Moines borrowings.............. $67,000 $62,000 $28,000
Note payable to bank....................... 4,000 3,000 3,000
ESOP debt.................................. 158 193 220
Approximate average borrowings outstanding
with respect to:
FHLB of Des Moines borrowings.............. $61,917 $46,000 $14,417
Note payable to bank....................... 2,259 2,194 2,109
ESOP debt.................................. 150 180 211
Approximate weighted average rate paid on:
FHLB of Des Moines borrowings.............. 5.46% 5.96% 5.14%
Note payable to bank....................... 2.25% 2.25% 2.25%
ESOP debt.................................. 9.25% 9.73% 8.96%
</TABLE>
64
<PAGE>
COMPETITION
The Association has been, and intends to continue to be, a community-
oriented financial institution offering a wide variety of financial services
to meet the needs of the communities it serves. The Association is
headquartered in St. Louis, Missouri. It currently operates out of eight full
and limited service offices in the St. Louis area.
The Association faces intense competition both in making loans and in
attracting deposits. The St. Louis area has a large number of financial
institutions, many of which have greater financial resources, name recognition
and market presence than the Association, and all of which are competitors of
the Association to varying degrees. Particularly intense competition exists
for deposits and in all of the lending activities engaged in by the
Association.
The Association's competition for loans comes principally from national,
regional and local mortgage-banking companies, commercial banks, other savings
and loan associations, savings banks, insurance companies, finance companies
and credit unions. Thus, no assurances can be made that the Association will
be able to maintain its current level of such loans. The Association competes
for loans principally through EMC. Competition is based on a combination of
interest rates and loan fees charged in addition to the availability of
special issues such as the Affordable Housing Program. The efficiency and
quality of the service provided also plays a significant role in the
Association's competitive position.
The Association's most direct competition for deposits historically has come
from other savings and loan associations, commercial banks, savings banks and
credit unions. In addition, the Association faces increasing competition for
deposits from non-bank institutions such as brokerage firms and insurance
companies in such areas as money market funds, other mutual funds (such as
corporate and government securities funds) and annuities. The Association
competes for deposits by offering customers a variety of savings accounts,
checking accounts, certificates of deposit, and a responsive, customer-
oriented staff, as well as convenient access to the Association by 24-Hour
Teller Machines or personal appointment.
Trends toward the consolidation of the banking industry and the lifting of
interstate banking and branching restrictions may make it more difficult for
smaller institutions, such as the Association, to compete effectively with
large, national and regional banking institutions.
Smaller institutions such as the Association will be forced to either
compete with larger institutions on pricing of products and services, or to
identify and operate in a "niche" that will allow for operating margins to be
maintained at profitable levels. As a locally-based financial institution, the
Association's strategy has been to position itself as a community-oriented
financial institution that provides high quality products and services to meet
the retail banking needs of its local customer base. This strategy is designed
to identify a niche in the Association's market where it can effectively
compete against much larger institutions.
SUBSIDIARY ACTIVITIES AND JOINT VENTURES
The Association has two wholly owned subsidiaries, EMC and ECC. ECC operates
a full-service insurance agency under the name Equality Insurance Agency
("EIA") and owns several income-producing properties and participates in a
real estate joint venture. EIA provides a full array of insurance products,
including property and casualty, automobile, health and life insurance, and,
to a much lesser degree, commercial fire and casualty insurance. EIA also
offers annuities and operates Flood Information Specialists, which issues
flood plain certificates. These certificates are required by all mortgage loan
lenders and is a requirement for selling a loan in the secondary market.
In 1986, ECC purchased a 14-unit complex located in south St. Louis near
Hampton Village. The property produces a stable income stream. At March 31,
1997, the property had a net book value of $233,000.
65
<PAGE>
ECC has a 50% interest in a real estate joint venture, WC Joint Venture. WC
Joint Venture owns two properties in St. Louis County, Missouri. Tenants at
the properties include DDA, Suburban Journal, IBT, Inc. and Airport Bowl.
ECC owns 100% of the outstanding capital stock of Dutch Town Development
Co., a Missouri corporation ("Dutch Town"). Dutch Town has been inactive for
the past four years and holds no material assets.
The Association is required to deduct from capital a certain percentage of
its investment in ECC because ECC is considered a "nonincludable" subsidiary
as a result of its real estate investment activities. The Association intends
to continue to divest itself of various properties in an orderly and prudent
manner, taking advantage of more favorable economic conditions.
PROPERTIES
The Association conducts its business through three full-service offices.
The Association's main office is located at 4131 South Grand Boulevard, St.
Louis, Missouri. The Association owns its main office and South County Branch
in fee and they are unencumbered.
<TABLE>
<CAPTION>
OWNED NET LEASE
YEAR OR TOTAL BOOK EXPIRATION SQUARE
LOCATION OPENED LEASED INVESTMENT VALUE DATE FOOTAGE
-------- ------ ------ ---------- ------ ---------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
MAIN OFFICE:
4131 South Grand Boulevard 1944 Owned $2,274 $1,269 -- 21,740
St. Louis, Missouri 63118
BRANCHES:
Yorkshire Branch 1957 Leased 60 -- 1997 2,928
1281 South Laclede Station
Road
Webster Groves, Missouri
63119
South County Branch 1987 Owned 1,528 1,264 -- 4,545
5400 South Lindbergh
Boulevard
St. Louis, Missouri 63123
LOAN OFFICES:
Florissant Loan Office 1992 Leased 20 10 1998 1,306
2620 North Lindbergh
Florissant, Missouri 63033
West County Loan Office 1993 Leased 3 2 1999 1,200
14334 South Outer Forty
Chesterfield, Missouri
63017
O'Fallon Loan Office 1994 Leased -- -- 1997 300
2017 Highway K
O'Fallon, Missouri 63366
Crestwood Loan Office 1996 Leased -- -- 1997 500
9920 Watson Road, Suite 207
Crestwood, Missouri 63126
Chesterfield Loan Office 1996 Leased -- -- 1997 500
361 Chesterfield Center
Chesterfield, Missouri
63017
</TABLE>
In May 1997, the Association purchased a building in Arnold, Missouri (which
is in Jefferson County and adjacent to St. Louis County) that the Association
is remodeling as a full-service branch office. The Association expects this
office to be completed by the summer of 1998. In addition, the Association is
relocating a store-front branch office several blocks and concurrently
converting it into a branch office with a drive-up facility; the
66
<PAGE>
relocation is expected to be completed in September 1997. With the exception
of the foregoing, the Association believes that its current facilities are
adequate to meet the present and foreseeable needs of the Association and the
Holding Company.
The net book value of the Association's investment in office properties and
equipment totaled $2.9 million at March 31, 1997.
The Association uses an outside data processing firm to process customer
records and monetary transactions, post deposit and general ledger entries,
and record activity in installment lending. EMC uses a second outside data
processing firm to process loan servicing and loan originations.
PERSONNEL
As of March 31, 1997, the Association, including subsidiaries, had 76 full-
time employees and 24 part-time employees. The employees are not represented
by a union or collective bargaining unit. The Association believes its
relationship with its employees are good.
LEGAL PROCEEDINGS
The Association is, from time to time, a party to legal proceedings arising
in the ordinary course of its business, including legal proceedings to enforce
its rights against borrowers. The Association is not currently a party to any
legal proceedings which could reasonably be expected to have a material
adverse effect on the financial condition or operations of the Association.
REGULATION AND SUPERVISION
GENERAL
The Association is chartered under federal law by the OTS. It is a member of
the FHLB System, and its deposit accounts are insured up to legal limits by
the FDIC under the SAIF. The OTS is charged with overseeing and regulating the
Association's activities and monitoring its financial condition. This
regulatory framework sets parameters for the Association's activities and
operations and grants the OTS extensive discretion with regard to its
supervisory and enforcement powers and examination policies. The Association
files periodic reports with the OTS concerning its activities and financial
condition, must obtain OTS approval prior to entering into certain
transactions or initiating new activities, and is subject to periodic
examination by the OTS to evaluate the Association's compliance with various
regulatory requirements.
The Holding Company will be a savings and loan holding company and, like the
Association, will be subject to regulation by the OTS. As part of this
regulation, the Holding Company will be required to file certain reports with,
and will be subject to periodic examination by, the OTS.
RECENT LEGISLATIVE AND REGULATORY DEVELOPMENTS
Since late in 1996, several new laws and regulations were adopted that
affect savings associations like the Association.
Deposit Insurance Reform Legislation. The SAIF and the Bank Insurance Fund
(the "BIF") were required by law to achieve and maintain a ratio of insurance
reserves to total insured deposits equal to 1.25%. The BIF reached this
required reserve ratio during 1995, while some predictions indicated the SAIF
would not reach this target until the year 2002. The SAIF had not grown as
quickly as the BIF for many reasons, but in large part because almost half of
SAIF premiums had to be used to retire bonds issued by the Financing
Corporation ("FICO Bonds") in the late 1980's to recapitalize the Federal
Savings and Loan Insurance Corporation.
67
<PAGE>
Until 1995, the SAIF and BIF deposit insurance premium rate schedules had
been identical. But in mid-1995, the FDIC issued final rules modifying its
assessment rate schedules for SAIF and BIF member institutions. Under the
revised schedule, SAIF members continued to pay assessments ranging from $0.23
to $0.31 per $100 of deposits, while BIF members paid assessments ranging from
zero to $0.27 per $100 of deposits. But the majority of BIF members paid only
the $2,000 minimum annual premium. Thrift industry representatives argued that
this significant premium differential caused savings associations to operate
at a competitive disadvantage to their BIF-insured bank counterparts.
On September 30, 1996, President Clinton signed the Deposit Insurance Funds
Act of 1996 ("DIFA") that was part of the omnibus spending bill enacted by
Congress at the end of its 1996 session. DIFA mandated that the FDIC impose a
special assessment on the SAIF-assessable deposits of each insured depository
institution at a rate applicable to all such institutions that the FDIC
determined would cause the SAIF to achieve its designated reserve ratio of
1.25% as of October 1, 1996. The assessment was based on the amount of SAIF-
insured deposits owned by each institution as of March 31, 1995, the record
date established in the original drafts of the legislation. DIFA allowed the
FDIC to exempt any insured institution that it determined to be weak from
paying the special assessment if the FDIC determined that the exemption would
reduce the risk to the SAIF.
DIFA provides that the FDIC may not set semiannual assessments with respect
to SAIF or BIF in excess of the amount needed to maintain the 1.25% designated
reserve ratio or, if the reserve ratio is less than the designated reserve
ratio, to increase the reserve ratio to the designated reserve ratio.
On October 10, 1996, the FDIC adopted a final rule governing the payment of
the SAIF special assessment. The FDIC imposed a special assessment in the
amount of 65.7 basis points, which is less than the 85-95 basis points
estimated during the early stages of the law's enactment in 1995. The SAIF
special assessment was due by November 27, 1996. The Association's portion of
this special assessment amounted to $789,000 on a pre-tax basis. The
Association accrued this amount during its fiscal second quarter ended
September 30, 1996. Payment was made in November 1996. DIFA also confirmed
that the special assessment is tax deductible.
In response to the recapitalization of the SAIF, the FDIC announced on
December 11, 1996 that deposit insurance rates for most savings associations
insured under the SAIF would be lowered to zero effective January 1, 1997.
BIF-insured institutions would also no longer have to pay the $2,000 minimum
for deposit insurance, thereby equalizing deposit premiums for savings
associations and banks.
Merger of SAIF and BIF. DIFA mandates the merger of the SAIF and BIF,
effective January 1, 1999, but only if no insured depository institution is a
savings association on that date. The combined deposit insurance fund will be
called the "Deposit Insurance Fund," or "DIF."
FICO Bond Payments. Before DIFA, federal regulators and thrift industry
trade groups were predicting that a default would occur on the FICO Bonds as
early as 1998, as SAIF-assessable deposits continued to decline. DIFA amends
The Federal Home Loan Bank Act to impose the FICO assessment against both SAIF
and BIF deposits beginning after December 31, 1996. But the assessment imposed
on insured depository institutions with respect to any BIF-assessable deposit
will be assessed at a rate equal to one-fifth of the rate (approximately 1.3
basis points) of the assessments imposed on insured depository institutions
with respect to any SAIF-assessable deposit (approximately 6.7 basis points).
The FICO assessment for 1996 was paid entirely by SAIF-insured institutions.
BIF-insured banks will pay the same FICO assessment as SAIF-insured
institutions beginning as of the earlier of December 31, 1999 or the date as
of which the last savings association ceases to exist.
Deposit Shifting. DIFA provides that until the earlier of December 31, 1999
or the date as of which the last savings association ceases to exist, the
Office of the Comptroller of the Currency (the "OCC"), the FDIC, the Federal
Reserve Board, and the OTS will take appropriate actions, including
enforcement actions and denial of applications, to prevent insured depository
institutions from facilitating or encouraging the shifting of deposits from
SAIF-assessable deposits to BIF-assessable deposits for the purpose of evading
the assessments imposed on insured depository institutions with respect to
SAIF-assessable deposits.
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Bad Debt Recapture. The Small Business Job Protection Act of 1996, signed by
President Clinton on August 20, 1996, removed a significant tax obstacle for
savings associations that desire to become commercial banks. It also
eliminated a potential impediment to business combinations between banks and
thrifts and the creation of a new depository institution charter.
Before this new law, savings associations that converted to commercial banks
had to change their method of accounting for bad debt reserves, which forced a
recapture of the savings association's untaxed bad debt reserves into taxable
income. Under prior law, savings associations were allowed to use the reserve
method for establishing bad debt reserves. This meant in recent years they
could deduct up to 8% of their taxable income each year as a charge for bad
debts, regardless of their actual loan loss experience. Since the 1950's, this
deduction has steadily declined from its initial rate of 100%. These annual
deductions resulted in significant tax savings for savings associations and an
accumulation by savings associations of untaxed income.
Under the new law, a savings association's base-year reserves established
before 1988 will not be taxed should it convert to a commercial bank. But
reserves created after 1987 would be recaptured into taxable income ratably
over six years (beginning with the first tax year after December 31, 1995)
whether or not a savings association converts to a commercial bank. Recapture
of post-1987 reserves may be deferred until after January 1, 1998 if the
savings association maintains a high level of residential loan originations.
In the future, all savings associations must account for bad debts under tax
rules applicable to commercial banks.
Relaxation of the Qualified Thrift Lender Test. In September 1996, the
Economic Growth and Regulatory Paperwork Reduction Act of 1996 became law (the
"Economic Growth Act of 1996"). In the past, savings associations were
required to satisfy a qualified thrift lender test ("QTL" test) by maintaining
65% of their portfolio assets (defined as all assets minus intangible assets,
property used by the association in conducting its business and liquid assets
equal to 20% of total assets) in certain "qualified thrift investments"
(primarily residential mortgages and related investments, including certain
mortgage- backed securities) on a monthly basis in nine out of every twelve
months.
The Economic Growth Act of 1996 liberalized the QTL test for savings
associations by permitting them to satisfy a similar-but-different 60% asset
test under the Internal Revenue Code. Alternatively, savings associations may
meet the QTL test by satisfying a more liberal 65% asset test that allows an
institution to include small business, credit card and education loans as
qualified investments for purposes of the test. Furthermore, consumer loans
now count as qualified thrift investments up to 20% of portfolio assets. On
April 3, 1997, OTS issued a final rule that implements provisions of the
Economic Growth Act of 1996, including the amended QTL test.
Increased Commercial and Consumer Lending Authority. Before the Economic
Growth Act of 1996, federal savings associations were able to lend up to 10%
of their assets in commercial business loans (i.e., secured or unsecured loans
for commercial, corporate, business, or agricultural purposes) and, subject to
OTS approval for a higher amount, up to 400% of their capital in commercial
real estate loans. In addition, federal savings associations were permitted to
make consumer loans (i.e., loans for personal, family or household purposes)
in an amount not to exceed 35% of their assets.
The Economic Growth Act of 1996 amended the commercial-lending-asset limit
by increasing the ceiling from 10% to 20%, but provides that amounts in excess
of 10% may be used only for small business loans. Moreover, the new law
exempts credit card and educational loans from any percentage of asset
limitations applicable to consumer loans. The final rule issued by the OTS
that became effective on April 3, 1997, defines a "small business loan" as one
which meets the Small Business Administration size eligibility standards or,
alternatively, a loan in the amount of $1 million or less. This definition
also applies for purposes of the new QTL test.
Effective October 30, 1996, the OTS (as part of its regulatory streamlining
project) amended its lending regulations for federal savings associations to
remove the requirement that commercial loans made at the service corporation
level be aggregated with the 10% of assets limit on commercial lending.
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Charter Overhaul. Proposals to eliminate the savings association charter
have been considered by the U.S. Congress several times in recent years. DIFA
mandates that the Secretary of the Treasury conduct a study of all issues
which the Secretary considers to be relevant with respect to the development
of a common charter for all insured depository institutions and the abolition
of separate and distinct charters between banks and savings associations.
The Secretary of the Treasury was required to submit a report to the
Congress on or before March 31, 1997, containing the findings and conclusions
of the Secretary in connection with this study. The report needed to include a
detailed analysis of each issue the Secretary considers relevant to the
subject of the study, recommendations of the Secretary with regard to the
establishment of a common charter for insured depository institutions and such
recommendations for legislative and administrative action as the Secretary
determines to be appropriate to implement the recommendations of the
Secretary. See "--Recent Legislative and Regulatory Developments--
Modernization of Financial Services Industry."
Regulatory Relief for Thrifts and Banks. The Economic Growth Act of 1996
included dozens of changes to financial institution laws granting regulatory
relief to financial institutions (including savings associations) and
simplifying and streamlining the regulatory application process with respect
to certain transactions. Many existing laws were affected by the new
legislation, including the Truth in Lending Act (the "TILA"), the Real Estate
Settlement Procedures Act, the Truth in Savings Act, the Fair Credit Reporting
Act, the Home Mortgage Disclosure Act and Fair Lending, among others. In
particular, the new law expands the definition of a small depository
institution that qualifies for an extended examination cycle (18 rather than
12 months) to include institutions with assets of $250 million (as opposed to
the former $175 million asset threshold).
Environmental Liability Reform. On September 30, 1996, President Clinton
signed into law amendments to the Comprehensive Environmental Response
Compensation and Liability Act ("CERCLA"). These amendments provide relief for
lenders in connection with their liability for environmental contamination in
making and administering loans.
Overhaul of Thrift Conflict of Interest, Corporate Opportunity and Corporate
Governance Rules. For several years the OTS has been engaged in an extensive
review of its regulations to identify regulations that are obsolete and areas
where regulatory streamlining is appropriate. This review has culminated in
several substantial revisions to OTS regulations. In 1996, the OTS issued
final regulations streamlining its regulations in the areas of lending and
investment authority, corporate governance, subsidiaries and equity
investments and conflicts of interest, among others. As a result of this
project, many OTS regulations have been removed to the OTS Thrift Activities
Handbook.
New Thrift Subsidiary and Equity Investment Rules. On December 18, 1996, the
OTS issued a final rule updating and streamlining its regulations governing
subsidiary and equity investments. The regulation recasts operating
subsidiaries and service corporations as "subordinate organizations," revises
the list of permissible activities for service corporations, confirms federal
preemption of state law regarding the activities of operating subsidiaries and
clarifies the application process for establishing subordinate organizations.
The new rule also codifies the authority of a federal savings association to
invest in certain pass-through investments, such as limited partnerships and
mutual funds.
Modernization of Financial Services Industry. On May 21, 1997, the Clinton
Administration announced a plan to modernize the financial services industry.
The proposal, among other things, addresses the ongoing debate concerning
mixing banking and commerce, elimination of the savings association charter
and the merger of the SAIF and BIF. Under the proposal, companies that own
banks (bank holding companies) and meet certain qualifications would--subject
to certain safeguards--be permitted to engage in any financial activity,
including the full range of securities activities, insurance activities,
investment advisory activities and mutual fund sponsorship and merchant
banking. Likewise, financial companies could own banks.
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Regarding financial activities of insured depository institutions and their
subsidiaries, the proposal provides that national banks (and state banks to
the extent permitted by state law) would be authorized, subject to certain
safeguards, to conduct any financial activity through subsidiaries (except
that national bank subsidiaries would not be authorized to engage in real
estate development). National banks would be permitted to engage in the full
scope of activities that have previously been permissible for national banks
or federally chartered savings associations (except engaging in the real
estate development). Moreover, national banks (and state banks to the extent
permitted by state law) would be permitted to act as general agents for the
sale of insurance, but would be prohibited from engaging directly in insurance
underwriting other than what is currently permissible (for instance, credit-
related insurance). Additionally, national banks (and state banks to the
extent permitted by state law) would be permitted to underwrite and deal in
municipal revenue bonds in addition to other securities activities currently
permissible in the bank.
The Clinton Administration's proposal also addressed affiliations between
banking organizations and non-financial companies. The proposal recommended
two alternative approaches--the "basket" approach and the "financial-only"
approach. Under the basket approach, bank holding companies that derive some
significant percentage (as specified by the U.S. Congress) of their gross
revenues in the U.S. from financial activities could derive the remainder of
their revenues from non-financial activities. In addition to the basket
limitation, the proposal suggested prohibiting any affiliation between a bank
holding company and a non-financial firm having assets in excess of a
specified amount (calculated to approximate the 1,000 largest non-financial
companies). Moreover, banks would be prohibited from extending any credit to,
or for the benefit of, any non-financial affiliate.
Under the basket approach, the federal savings association charter would be
eliminated after two years (thereby requiring all federal thrifts to convert
to bank charters), and existing unitary thrift holding companies (which
presently have no activity restrictions) would be given a grandfather
exemption from the "basket" test (terminable upon a change of control). All
remaining state-chartered thrifts would be treated as banks for federal bank
regulatory purposes. The OTS and the OCC would be merged at the end of the
two-year-conversion period and the SAIF and BIF would be merged. The Federal
Reserve Board, however, would continue to approve the formation of, and to
supervise and regulate all bank holding companies.
Under the financial-only approach, bank holding companies would not be
permitted to engage in any non-financial activities. But the existing federal
savings association charter would be preserved, and thrift holding companies
would retain their current authority to engage in any lawful activity.
Furthermore, the OTS and OCC would be kept in tact, but the SAIF and BIF would
be merged.
The Administration's proposal also sets forth capital protections and other
safeguards associated with the new activities contemplated for banks. In order
for a bank holding company or a subsidiary of a bank to engage as a principal
in activities not permissible for a national bank to engage in directly, the
bank would have to remain "well capitalized"--that is, to be in the highest
regulatory capital category, with regulatory capital exceeding normal
requirements--and it would have to deduct from its regulatory capital the
entire amount of its equity investment in a subsidiary engaged in such
activities. The bank also would have to be well-managed.
On June 20, 1997, the House Committee on Banking and Financial Services of
the U.S. House of Representatives passed H.R. 10 (the "Act"), the "Financial
Services Competition Act of 1997," by a vote of 28 to 26. Like the proposal
announced by the Clinton Administration on May 2, 1997, H.R. 10 is a sweeping
proposal for financial modernization of the banking system that would permit
affiliations between commercial banks, securities firms, insurance companies
and, subject to certain limitations, other commercial enterprises. The stated
purposes of the Act are to enhance consumer choice in the financial services
marketplace, level the playing field among providers of financial services,
and increase competition. The Act has been sent to the House Commerce
Committee, which has jurisdiction over insurance and securities and is
expected to vote on the bill in mid-September 1997. If approved, it would then
be sent to the full House for consideration. The Senate also would need to
approve the Act before it would be sent to the President for his signature.
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H.R. 10 removes the restrictions contained in the Glass-Steagall Act of 1933
and the Bank Holding Company Act of 1956, thereby allowing qualified financial
holding companies to control banks, securities firms, insurance companies, and
other financial firms. Conversely, securities firms, insurance companies and
financial firms would be allowed to own or affiliate with a commercial bank.
The Act also provides that subsidiaries of national banks may engage in
financial activities not allowed in the bank itself (except real estate
investment and development, merchant banking and insurance underwriting), but
only if the bank and all of its depository institutions are well capitalized
and well managed and have achieved a "satisfactory" rating under the Community
Reinvestment Act.
Under the new framework, the Federal Reserve would serve as an umbrella
regulator to oversee the new financial holding company structure. Securities
affiliates would be required to comply with all applicable federal securities
laws, including registration and other requirements applicable to broker-
dealers. The Act also would provide that insurance affiliates be subject to
applicable state insurance regulation and supervision.
With respect to the thrift industry, H.R. 10 would eliminate the federal
savings association charter by requiring all federal thrifts to convert to
national banks or state-chartered savings associations within two years after
the date of the Act's adoption. State-chartered savings associations would be
treated as commercial banks for purposes of federal banking law. After
conversion, the new institution would be permitted to retain its existing
investments, affiliations and branches. In addition, the Act would merge the
OTS with the OCC, and merge the SAIF and BIF. Unitary savings and loan holding
companies could maintain their affiliations with nonfinancial enterprises and
engage in all currently permissible activities. There can be no assurance that
legislation will be enacted that modernizes the financial services industry,
or if enacted, what form such legislation might take.
FEDERAL SAVINGS ASSOCIATION REGULATION
Business Activities. The activities of savings associations are governed by
the Home Owners' Loan Act, as amended (the "HOLA"), and, in certain respects,
the Federal Deposit Insurance Act (the "FDI Act"). The HOLA and the FDI Act
were amended by the Financial Institutions Reform, Recovery and Enforcement
Act of 1989 ("FIRREA") and the Federal Deposit Insurance Corporation
Improvement Act of 1991 ("FDICIA"). FIRREA was enacted for the purpose of
resolving problem savings associations, establishing a new thrift insurance
fund, reorganizing the regulatory structure applicable to savings
associations, and imposing bank-like standards on savings associations.
FDICIA, among other things, requires that federal banking regulators intervene
promptly when a depository institution experiences financial difficulties,
mandates the establishment of a risk-based deposit insurance assessment system
and requires imposition of numerous additional safety and soundness
operational standards and restrictions. FIRREA and FDICIA both contain
provisions affecting numerous aspects of the operations and regulations of
federally-insured savings associations and empowers the OTS and the FDIC,
among other agencies, to promulgate regulations implementing its provisions.
Branching. A federally-chartered savings association, like the Association,
can establish branches in any state or states in the United States and its
territories, subject to a few exceptions. The exercise by the OTS of its
authority to permit interstate branching by federal savings associations is
preemptive of any state law purporting to address the subject of branching by
a federal savings association.
Loans to One Borrower. Under HOLA, savings associations are generally
subject to the national bank limits regarding loans to one borrower.
Generally, savings associations may not make a loan or extend credit to a
single or related group of borrowers in excess of 15% of the association's
unimpaired capital and surplus, where the borrowing is not fully secured by
readily-marketable collateral. An additional amount may be lent, equal to 10%
of the association's unimpaired capital and surplus, if such additional
borrowing is secured by readily-marketable collateral at least equal to the
amount of such additional funds. At March 31, 1997, the Association had no
outstanding loans or commitments that exceeded the loans to one borrower limit
at the time made or committed.
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Brokered Deposits. Well-capitalized savings associations that are not
troubled are not subject to brokered deposit limitations. Adequately-
capitalized associations are able to accept, renew or roll over brokered
deposits but only (i) with a waiver from the FDIC and (ii) subject to the
limitation that they do not pay an effective yield on any such deposit that
exceeds by more than (a) 75 basis points the effective yield paid on deposits
of comparable size and maturity in such association's normal market area for
deposits accepted in its normal market area or (b) 120 basis points of the
current yield on similar maturity U.S. Treasury obligations or, in the case of
any deposit at least half of which is uninsured, 130% of such Treasury yield.
Undercapitalized associations are not permitted to accept brokered deposits
and may not solicit deposits by offering an effective yield that exceeds by
more than 75 basis points the prevailing effective yields on insured deposits
of comparable maturity in the association's normal market area or in the
market area in which such deposits are being solicited. The Association is not
presently soliciting brokered deposits.
Enforcement. Under the FDI Act, the OTS has primary enforcement
responsibility over savings associations and has the authority to bring
enforcement action against all "institution-related parties," including
stockholders, and any attorneys, appraisers and accountants who knowingly or
recklessly participate in wrongful action likely to have an adverse effect on
an insured association. Civil penalties cover a wide range of violations and
actions. Criminal penalties for most financial association crimes include
fines and imprisonment. In addition, regulators have substantial discretion to
impose enforcement action on an association that fails to comply with its
regulatory requirements, particularly with respect to amounts of capital.
Possible enforcement action ranges from requiring the preparation of a capital
plan or imposition of a capital directive to receivership, conservatorship or
the termination of deposit insurance. Under the FDI Act, the FDIC has the
authority to recommend to the Director of OTS enforcement action be taken with
respect to a particular savings association. If action is not taken by the
Director, the FDIC has authority to take enforcement action under certain
circumstances.
Assessments. Savings associations are required by OTS regulation to pay
assessments to the OTS to fund the operations of the OTS. The general
assessment paid on a semi-annual basis is computed based upon the savings
association's total assets, including consolidated subsidiaries, as reported
in the association's latest quarterly thrift financial report.
Federal Home Loan Bank System. The Association is a member of the FHLB
System, which consists of 12 regional FHLB's. The FHLB provides a central
credit facility primarily for member associations. The Association, as a
member of the FHLB-Des Moines, is required to acquire and hold shares of
capital stock in that FHLB in an amount at least equal to 1% of the aggregate
principal amount of its unpaid residential mortgage loans and similar
obligations at the beginning of each year, or 1/20 of its advances
(borrowings) from the FHLB-Des Moines, whichever is greater. The Association
is in compliance with this requirement, with an investment in FHLB-Des Moines
stock at March 31, 1997, of $3.4 million. FHLB advances must be secured by
specified types of collateral and may be obtained only for the purpose of
purchasing or funding new residential housing finance assets.
OTS Capital Requirements. The OTS capital regulations require savings
associations to meet three capital standards: a 1.5% tangible capital
standard, a 3% leverage ratio (or core capital ratio) and an 8% risk-based
capital standard.
Tangible capital is defined as common stockholders' equity (including
retained earnings), noncumulative perpetual preferred stock and related
earnings, certain nonwithdrawable accounts and pledged deposits of mutual
savings associations, and minority interests in equity accounts of fully
consolidated subsidiaries, less intangible assets (other than certain mortgage
servicing rights) and certain equity and debt investments in nonqualifying
subsidiaries (as hereinafter defined).
Core capital is defined as common stockholders' equity (including retained
earnings), certain noncumulative perpetual preferred stock and related
surplus, minority interests in equity accounts of consolidated subsidiaries,
certain nonwithdrawable accounts and pledged deposits of mutual savings
associations, certain amounts of goodwill resulting from prior regulatory
accounting practices, less intangible assets (other than certain mortgage
servicing rights) and certain equity and debt investments in nonincludable
subsidiaries.
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The OTS capital regulation requires that in meeting the leverage ratio,
tangible and risk-based capital standards, savings associations must deduct
investments in and loans to subsidiaries engaged in activities not permissible
for a national bank (a "nonincludable subsidiary"). At March 31, 1997, ECC was
considered a nonincludable subsidiary.
In April 1991, the OTS issued a proposal to amend its regulatory capital
regulation to establish a 3% leverage ratio (defined as the ratio of core
capital to adjusted total assets) for associations in the strongest financial
and managerial condition, with a 1 CAMEL Rating (the highest rating of the OTS
for savings associations). For all other associations, the minimum core
capital leverage ratio would be 3% plus at least an additional 100 to 200
basis points. In determining the amount of additional capital under the
proposal, the OTS would assess both the quality of risk management systems and
the level of overall risk in each individual association through the
supervisory process on a case-by-case basis. Associations that failed the new
leverage ratio would be required to file with the OTS a capital plan that
details the steps they would take to reach compliance. If enacted in final
form as proposed, management does not believe that the proposed regulation
would have a material effect on the Association. Since the date of this
proposal, the OTS has amended its regulations to refer to the Uniform
Financial Institutions Rating System ("UFIRS") established by the Federal
Financial Institutions Examination Council (the "FFIEC") in lieu of the
traditional CAMEL rating system. The UFIRS is a supervisory rating system used
by the OTS and other agencies represented on the FFIEC to evaluate the
soundness of depository institutions on a uniform basis. The agencies have
implemented UFIRS through CAMEL ratings, which are a series of five factors
for assessing a depository institution--capital adequacy, asset quality,
management, earnings and liquidity. Accordingly, where OTS regulations before
referred to "CAMEL" ratings, the regulations now refer to UFIRS as it may
exist from time to time, or a comparable rating system that the OTS may adopt
in lieu of UFIRS. References herein to UFIRS also refer to a comparable rating
system that the OTS may adopt in lieu of UFIRS.
Although the OTS has not adopted this regulation in final form, generally a
savings association that has a leverage capital ratio of less than 4% will be
deemed to be "undercapitalized" under the OTS prompt corrective action
regulations and consequently can be subject to various limitations on
activities.
The OTS' risk-based capital standard requires that savings associations
maintain a ratio of total capital (which is defined as core capital and
supplementary capital) to risk-weighted assets of 8%. In calculating total
capital, a savings association must deduct reciprocal holdings of depository
institution capital instruments, all equity investments and that portion of
land loans and nonresidential construction loans in excess of 80% loan-to-
value ratio and its interest rate risk component (as discussed below), in
addition to the assets that must be deducted in calculating core capital. In
determining the amount of risk-weighted assets, all assets, including certain
off-balance sheet assets, are multiplied by a risk-weight of 0% to 100%, as
assigned by the OTS capital regulation based on the risks OTS believes are
inherent in the type of asset.
The components of core capital are equivalent to those discussed above under
the 3% leverage standard. The components of supplementary capital include
cumulative preferred stock, long-term perpetual preferred stock, mutual
capital certificates, certain nonwithdrawable accounts and pledged deposits,
certain net worth certificates, income capital certificates, certain perpetual
subordinated debt, mandatory convertible subordinated debt, certain
intermediate-term preferred stock, certain mandatorily redeemable preferred
stock and allowance for loan and lease losses (up to 1.25% of risk-weighted
assets). Allowance for loan and lease losses includable in supplementary
capital is limited to a maximum of 1.25%. Overall, the amount of capital
counted toward supplementary capital cannot exceed 100% of core capital. At
March 31, 1997, the Association met each of its capital requirements.
FDICIA required that the OTS (and other federal banking agencies) revise
risk-based capital standards, with appropriate transition rules, to ensure
that they take account of interest rate risk, concentration of risk and the
risks of nontraditional activities.
The OTS' interest rate risk component became effective on January 1, 1994.
Under the rule, savings associations with "above normal" interest rate risk
exposure would be subject to a deduction from total capital
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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 (except when the three-month Treasury bond
equivalent yield falls below 4%, then the decrease would be equal to one-half
of that Treasury rate) divided by the estimated economic value of the
association's assets, as calculated in accordance with guidelines set forth by
the OTS. A savings association whose measured interest rate risk exposure
exceeds 2% must deduct an interest rate component in calculating its total
capital under the risk-based capital rule. The interest rate risk component is
an amount equal to one-half of the difference between the association'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. Savings associations with assets of less than $300
million and risk-based capital ratios in excess of 12% are not subject to the
interest rate risk component. The rule also provides that the Director of the
OTS may waive or defer an association's interest rate risk component. The OTS
has postponed the date that the risk component will first be deducted from an
institution's total capital to allow, among other things, the OTS to evaluate
the interest rate risk proposals issued by the other banking agencies.
Liquidity. The Association is required to maintain an average daily balance
of liquid assets (e.g., cash, accrued interest on liquid assets, certain time
deposits, savings accounts, bankers' acceptances, specified U.S. government,
state or federal agency obligations, shares of certain mutual funds and
certain corporate debt securities and commercial paper) equal to not less than
a specified percentage of the average daily balance of its net withdrawal
deposit accounts plus short-term borrowings. This liquidity requirement may be
changed from time to time by the OTS to any amount within the range of 4% to
10% depending upon economic conditions and the savings flows of member
associations; this requirement is currently 5%. OTS regulations also require
each member savings association to maintain an average daily balance of short-
term liquid assets at a specified percentage (currently 1%) of the average
daily balance of its net withdrawable deposit accounts and borrowings. The OTS
may initiate enforcement actions for failure to meet these liquidity
requirements. The Association has never been subject to monetary penalties for
failure to meet its liquidity requirements.
On May 14, 1997, the OTS issued a notice of proposed rulemaking to update,
simplify, and streamline its liquidity regulation. Under the proposal, the
burden of compliance with the liquidity regulation would be decreased by
reducing the liquidity base, streamlining the calculations used to measure
compliance with the liquidity requirement, reducing the liquidity requirement
from 5% of net withdrawable accounts and short-term borrowings to 4%, removing
the 1% percent short-term liquidity requirement and expanding the categories
of liquid assets that may count toward satisfying the savings association's
liquidity requirement. In addition, a general requirement that thrifts
maintain a safe and sound level of liquidity would be added to the regulation.
Insurance of Deposit Accounts. FDICIA required the FDIC to establish a risk-
based assessment system for insured depository associations that takes into
account the risks attributable to different categories and concentrations of
assets and liabilities. Under the rule, the FDIC assigns an association to one
of three capital categories consisting of (i) well capitalized, (ii)
adequately capitalized or (iii) undercapitalized, and one of three supervisory
subcategories. The supervisory subgroup to which an association is assigned is
based on a supervisory evaluation provided to the FDIC by the association's
primary federal regulator and information which the FDIC determines to be
relevant to the association's financial condition and the risk posed to the
deposit insurance funds (which may include, if applicable, information
provided by the association's state supervisor). An association's assessment
rate depends on the capital category and supervisory category to which it is
assigned. There are nine assessment risk classifications (i.e., combinations
of capital groups and supervisory subgroups) to which different assessment
rates are applied. Assessment rates range from zero basis points for an
association in the highest category (i.e., well-capitalized and healthy) to 27
basis points for an association in the lowest category (i.e., undercapitalized
and of substantial supervisory concern).
Limitation on Capital Distributions. The OTS regulations impose limitations
upon all capital distributions by savings associations, such as cash
dividends, payments to repurchase or otherwise acquire its shares, payments
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to shareholders of another association in a cash-out merger and other
distributions charged against capital. The regulations establish three tiers
of associations. An association that exceeds all fully phased-in capital
requirements before and after the proposed capital distribution ("Tier 1
Association") and has not been advised by the OTS that it is in need of more
than normal supervision, could, after prior notice but without the approval of
the OTS, make capital distributions during a calendar year up to the higher of
(a) 100% of its net income to date during the calendar year plus the amount
that would reduce by one-half its "surplus capital ratio" (the excess capital
over its fully phased-in capital requirements) at the beginning of the
calendar year or (b) 75% of its net reserve over the most recent four-quarter
period. Any additional capital distributions would require prior regulatory
approval. In computing the association's permissible percentage of capital
distributions, previous distributions made during the prior four quarter
period must be included. As of March 31, 1997, the Association met the
requirements of a Tier 1 Association. In the event the Association's capital
fell below its fully phased-in requirement or the OTS notified it that it was
in need of more than normal supervision, the Association's ability to make
capital distributions could be restricted. In addition, the OTS could prohibit
a proposed capital distribution by any association, which would otherwise be
permitted by regulation, if the OTS determines that such distribution would
constitute an unsafe or unsound practice. Moreover, under the OTS prompt
corrective action regulations, the Association would be prohibited from making
any capital distribution if, after the distribution, the Association would
have, (i) total risk-based capital ratio of less than 8%, (ii) Tier 1 risk-
based capital ratio of less than 4%, or (iii) a leverage ratio of less than 4%
or has a leverage ratio that is less than 3% if the association is rated
composite 1 under the UFIRS rating system in the most recent examination of
the association and is not experiencing or anticipating significant growth.
Community Reinvestment. The OTS, the FDIC, the Federal Reserve Board and the
OCC have jointly issued a final rule (the "Final Rule") under the Community
Reinvestment Act (the "CRA"). The Final Rule eliminates the existing CRA
regulation's 12 assessment factors and substitutes a performance based
evaluation system. The Final Rule will be phased in over a period of time and
become fully effective by July 1, 1997. Under the Final Rule, an institution's
performance in meeting the credit needs of its entire community, including
low- and moderate-income areas, as required by the CRA, will generally be
evaluated under three tests: the "lending test," the "investment test," and
the "service test."
The lending test analyzes lending performance using five criteria: (i) the
number and amount of loans in the institution's assessment area, (ii) the
geographic distribution of lending, including the proportion of lending in the
assessment area, the dispersion of lending in the assessment area, and the
number and amount of loans in low-, moderate-, middle-, and upper-income areas
in the assessment area, (iii) borrower characteristics, such as the income
level of individual borrowers and the size of businesses or farms, (iv) the
number and amount, as well as the complexity and innovativeness of an
institution's community development lending and (v) the use of innovative or
flexible lending practices in a safe and sound manner to address the credit
needs of low- or moderate-income individuals or areas. The investment test
analyzes investment performance using four criteria: (i) the dollar amount of
qualified investments, (ii) the innovativeness or complexity of qualified
investments, (iii) the responsiveness of qualified investments to credit and
community development needs, and (iv) the degree to which the qualified
investments made by the institution are not routinely provided by private
investors. The service test analyzes service performance using six criteria:
(i) the institution's branch distribution among low-, moderate-, middle-, and
upper-income areas, (ii) its record of opening and closing branches,
particularly in low- and moderate-income areas, (iii) the availability and
effectiveness of alternative systems for delivering retail banking services,
(iv) the range of services provided in low-, moderate-, middle- and upper-
income areas and extent to which those services are tailored to meet the needs
of those areas, (v) the extent to which the institution provides community
development services, and (vi) the innovativeness and responsiveness of
community development services provided.
An independent financial institution with assets of less than $250 million,
or a financial institution with assets of less than $250 million that is a
subsidiary of a holding company with assets of less than $1 billion, will be
evaluated under a streamlined assessment method based primarily on its lending
record. The streamlined test considers an institution's loan-to-deposit ratio
adjusted for seasonal variation and special lending activities, its percentage
of loans and other lending related activities in the assessment area, its
record of lending to borrowers
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of different income levels and businesses and farms of different sizes, the
geographic distribution of its loans, and its record of taking action, if
warranted, in response to written complaints. In lieu of being evaluated under
the three assessment tests or the streamlined test, a financial institution
can adopt a "strategic plan" and elect to be evaluated on the basis of
achieving the goals and benchmarks outlined in the strategic plan.
Transactions with Related Parties. The Association's authority to engage in
transactions with related parties or "affiliates," (i.e., any company that
controls or is under common control with an association) including the Holding
Company and its non-savings-association subsidiaries or to make loans to
certain insiders, is limited by Sections 23A and 23B of the Federal Reserve
Act ("FRA"). Subsidiaries of a savings association are generally exempted from
the definition of "affiliate." Section 23A limits the aggregate amount of
transactions with any individual affiliate to 10% of the capital and surplus
of the savings association and also limits the aggregate amount of
transactions with all affiliates to 20% of the savings association's capital
and surplus. Certain transactions with affiliates are required to be secured
by collateral in an amount and of a type described in the FRA and the purchase
of low quality assets from affiliates is generally prohibited. Section 23B
provides that certain transactions with affiliates, including loans and asset
purchases, must be on terms and under circumstances, including credit
standards, that are substantially the same or at least as favorable to the
association as those prevailing at the time for comparable transactions with
non-affiliated companies. In the absence of comparable transactions, such
transactions may only occur under terms and circumstances, including credit
standards, that in good faith would be offered to or would apply to non-
affiliated companies. Notwithstanding Sections 23A and 23B, FIRREA prohibits
any savings association from lending to any affiliate that is engaged in
activities that are not permissible for bank holding companies under Section
4(c) of the Bank Holding Company Act ("BHC Act"). Further, no savings
association may purchase the securities of any affiliate other than a
subsidiary.
The Association's authority to extend credit to executive officers,
directors and 10% shareholders, as well as such entities such persons control
are currently governed by Section 22(g) and 22(h) of the FRA and Regulation O
promulgated by the Federal Reserve Board. Among other things, these
regulations require such loans to be made on terms substantially similar to
those offered to unaffiliated individuals, place limits on the amount of loans
the Association may make to such persons based, in part, on the Association's
capital position, and require certain approval procedures to be followed. OTS
regulations, with the exception of minor variations, apply Regulation O to
savings associations.
Prompt Corrective Regulatory Action. FDICIA establishes a system of prompt
corrective action to resolve the problems of undercapitalized associations.
Under this system, the OTS is required to take certain supervisory actions
against undercapitalized associations, the severity of which depends upon the
association's degree of undercapitalization. Generally, subject to a narrow
exception, FDICIA requires the OTS to appoint a receiver or conservator for an
association that is critically undercapitalized. FDICIA authorizes the OTS to
specify the ratio of tangible equity to assets at which an association becomes
critically undercapitalized and requires that ratio be no less than 2% of
assets.
Under OTS regulations, a savings association is considered to be
undercapitalized if it has risk-based capital of less than 8% or has a Tier 1
risk-based capital ratio that is less than 4% or has a leverage ratio that is
less than 4% or has a leverage ratio less than 3% if the savings association
is rated composite 1 under the UFIRS rating system in the most recent
examination of the association. A savings association that has risk-based
capital less than 6% or a Tier 1 risk-based capital ratio that is less than 3%
or a leverage ratio that is less than 3% would be considered to be
"significantly undercapitalized." A savings association that has a tangible
equity to total assets ratio equal to or less than 2% would be deemed to be
"critically undercapitalized." Generally, a capital restoration plan must be
filed with the OTS within 45 days of the date an association receives notice
that it is undercapitalized, significantly undercapitalized or critically
undercapitalized. In addition, numerous mandatory supervisory actions become
immediately applicable to the association, including, but not limited to,
restrictions on growth, investment activities, capital distributions, and
affiliate transactions. In addition, the OTS could issue a capital directive
to the savings association that includes additional discretionary restrictions
on the savings association.
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Real Estate Lending Standards. The OTS and the other federal banking
agencies have uniform regulations prescribing real estate lending standards.
The OTS regulation requires each savings association to establish and maintain
written internal real estate lending standards consistent with safe and sound
banking practices and appropriate to the size of the institution and the
nature and scope of its real estate lending activities. The policy must also
be consistent with accompanying OTS guidelines, which include maximum loan-to-
value ratios for the following types of real estate loans: raw land (65%),
land development (75%), nonresidential construction (80%), improved property
(85%) and one- to four-family residential construction (85%). Owner-occupied
one- to four-family mortgage loans and home equity loans do not have maximum
loan-to-value ratio limits, but those with a loan-to-value ratio at
origination of 90% or greater are to be backed by private mortgage insurance
or readily marketable collateral. Institutions are also permitted to make a
limited amount of loans that do not conform to the proposed loan-to-value
limitations so long as such exceptions are appropriately reviewed and
justified. The guidelines also list a number of lending situations in which
exceptions to the loan-to-value standard are justified.
Standards for Safety and Soundness. As required by FDICIA and subsequently
amended by the Riegle Community Development and Regulatory Improvement Act of
1994, the federal banking regulators adopted interagency guidelines
establishing standards for safety and soundness for depository institutions on
matters such as internal controls, loan documentation, credit underwriting,
interest-rate risk exposure, asset growth, compensation and other benefits and
asset quality and earnings (the "Guidelines"). The agencies expect to request
a compliance plan from an institution whose failure to meet one or more of the
standards is of such severity that it could threaten the safe and sound
operation of the institution. FDIC regulations enacted under FDICIA also
require all depository institutions to be examined annually by the banking
regulators (but see, "Regulatory Relief for Thrifts and Banks") and depository
institutions having $500 million or more in total assets to have an annual
independent audit, an audit committee comprised solely of outside directors,
and to hire outside auditors to evaluate the institution's internal control
structure. The FDIC, in adopting the regulations, reiterated its belief that
every depository institution, regardless of size, should have an annual
independent audit and an independent audit committee.
Financial Management Requirements. FDICIA imposes new financial reporting
requirements on all depository institutions with assets of more than $500
million, their management, and their independent auditors. It also establishes
new rules for the composition, duties and authority of such institutions'
audit committees and boards of directors. Among other things, all such
depository institutions will be required to prepare and make available to the
public annual reports on their financial condition and management (including
statements of managements' responsibility for the financial statements,
internal controls and compliance with certain federal banking laws and
regulations relating to safety and soundness, and an assessment by management
of the effectiveness of the institution's internal controls and procedures and
the institution's compliance with such laws and regulations). Each such
institution is also required to have an audit committee composed of
independent directors.
FEDERAL RESERVE SYSTEM
The Federal Reserve Board regulations require savings institutions to
maintain noninterest-earning reserves against their transaction accounts
(primarily NOW and regular checking accounts), non-personal time deposits
(those which are transferable or held by a person other than a natural person)
with an original maturity of less than one and one-half years and certain
money market accounts. The Federal Reserve Board regulations generally require
that reserves of 3% must be maintained against aggregate transaction accounts
of $52 million or less (subject to adjustment by the Federal Reserve Board)
and an initial reserve of $1.6 million plus 10% (subject to adjustment by the
Federal Reserve Board between 8% and 14 %) against that portion of total
transaction accounts in excess of $52 million. The first $4.3 million of
otherwise reservable balances (subject to adjustments by the Federal Reserve
Board) are exempted from the reserve requirements. The Association is in
compliance with the foregoing requirements.
The balances maintained to meet the reserve requirements imposed by the
Federal Reserve Board may be used to satisfy liquidity requirements by the
OTS. Because required reserves must be maintained in the form of
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either vault cash, a non-interest-bearing account at a Federal Reserve Bank or
a pass-through account as defined by the Federal Reserve Board, the effect of
this reserve requirement is to reduce the Association's interest-earning
assets.
FHLB System members are also authorized to borrow from the Federal Reserve
"discount window," but Federal Reserve Board regulations require institutions
to exhaust all FHLB sources before borrowing from a Federal Reserve Bank.
HOLDING COMPANY REGULATION
Upon consummation of the Conversion and Reorganization, the Holding Company
will be considered a non- diversified, savings and loan holding company within
the meaning of the HOLA, will be registered as a savings and loan holding
company with the OTS and will be subject to OTS regulations, examinations,
supervision and reporting requirements. In addition, the OTS will have
enforcement authority over the Holding Company and its non-savings association
subsidiaries. Among other things, this authority permits the OTS to restrict
or prohibit activities that are determined to be a serious risk to the
subsidiary savings association.
The HOLA prohibits a savings and loan holding company, directly or
indirectly, or through one or more subsidiaries, from (i) acquiring control
of, or acquiring by merger or purchase of assets, another savings association
or holding company thereof, without prior written approval of the OTS; (ii)
acquiring or retaining, with certain exceptions, more than 5% of a non-
subsidiary savings association, a non-subsidiary holding company, or a non-
subsidiary company engaged in activities other than those permitted by the
HOLA; or (iii) acquiring or retaining control of an institution that is not
federally insured. In evaluating applications by holding companies to acquire
savings associations, the OTS must consider the financial and managerial
resources and future prospects of the company and institution involved, the
effect of the acquisition on the risk to the insurance funds, the convenience
and needs of the community and competitive factors.
As a unitary savings and loan holding company, the Holding Company generally
will not be restricted under existing laws as to the types of business
activities in which it may engage, provided that its savings association
subsidiary continues to satisfy the QTL test. Upon any acquisition by the
Holding Company of another SAIF-insured institution (other than the Holding
Company), a federal savings association insured by the BIF, or a state-
chartered BIF-insured savings association meeting the QTL test that is deemed
to be a savings institution by OTS, except for a supervisory acquisition, the
Holding Company would become a multiple savings and loan holding company (if
the acquired institution is held as a separate subsidiary) and would be
subject to extensive limitations on the types of business activities in which
it could engage. The HOLA, as amended by the FIRREA, limits the activities of
a multiple savings and loan holding company and its non-insured institution
subsidiaries primarily to activities permissible for bank holding companies
under Section 4(c)(8) of the BHC Act, subject to the prior approval of the
OTS, and activities in which multiple savings and loan holding companies were
authorized by regulation to engage in on March 5, 1987. Such activities
include mortgage-banking, consumer finance, operation of a trust company, and
certain types of securities brokerage. The services and activities in which
multiple holding companies were authorized to engage in on March 5, 1987
generally correspond to the activities which are permitted for service
corporations of federally-chartered savings institutions.
FEDERAL AND STATE TAXATION
FEDERAL TAXATION
For federal income tax purposes, the Association files a federal income tax
return based upon a tax year ended March 31. The Mutual Holding Company does
not currently file a consolidated federal income tax return with the
Association since it owns less than 80% of the Association Shares. After the
Conversion and Reorganization, it is expected that the Holding Company and its
subsidiaries (including the Association) will file a consolidated federal tax
return on a tax year ended March 31. Consolidated returns have the effect of
eliminating intercompany distributions, including dividends, from the
computation of consolidated taxable income for the year in which the
distribution occurs.
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Prior to 1997, if certain conditions were met, savings and loan associations
and savings banks were allowed special bad debt deductions in determining
taxable income based on either specified experience formulas or on a
percentage of taxable income before such deduction. Bad debt deductions in
excess of actual losses were tax-preference items, and were subject to a
minimum tax. The Association used the percentage of taxable income method for
1996 and 1995 in determining the bad debt deduction for tax purposes.
The special bad debt deduction accorded thrift institutions is covered under
Section 593 of the Code. The Small Business Job Protection Act of 1996
included the repeal of certain portions of Section 593 effective for tax years
beginning after December 31, 1995. As a result, the Association is no longer
allowed a percentage method bad debt deduction. The repeal of the thrift
reserve method generally requires thrift institutions to recapture into income
the portion of tax bad debt reserves accumulated since 1987 ("base year
reserve"). The recapture will generally be taken into income ratably over six
tax years. However, if the Association meets a residential loan requirement
for tax years beginning in 1997 and 1998, recapture of the reserve can be
deferred until the tax year beginning in 1999. At March 31, 1997, the
Association had bad debts deducted for tax purposes in excess of the base year
reserve of approximately $241,000. The Association has recognized a deferred
income tax liability for this amount.
Certain events covered by Code Section 593(e), which was not repealed, will
trigger a recapture of the base year reserve. The base year reserve of thrift
institutions would be recaptured if a thrift ceases to qualify as a "bank" for
federal income tax purposes. The base year reserves of thrift institutions
also remain subject to income tax penalty provisions which, in general,
require recapture upon certain stock redemptions of, and excess distributions
to, stockholders. At March 31, 1997, retained earnings included approximately
$2.9 million of base year reserves, for which no deferred federal income tax
liability has been recognized.
Deferred income taxes arise from the recognition of certain items of income
and expense for tax purposes in years different from those in which they are
recognized in the consolidated financial statements.
The Association is subject to the corporate alternative minimum tax which is
imposed to the extent it exceeds the Association's regular income tax for the
year. The alternative minimum tax will be imposed at the rate of 20% of a
specially computed tax base. Included in this base will be a number of
preference items, including the following: (i) 100% of the excess of a thrift
institution's bad debt deduction over the amount that would have been
allowable on the basis of actual experience; and (ii) for years beginning in
1988 and 1989 an amount equal to one-half of the amount by which an
institution's "book income" (as specially defined) exceeds its taxable income
with certain adjustments, including the addition of preference items (for
taxable years commencing after 1989 this adjustment item is replaced with a
new preference item relating to "adjusted current earnings" as specially
computed). In addition, for purposes of the new alternative minimum tax, the
amount of alternative minimum taxable income that may be offset by net
operating losses is limited to 90% of alternative minimum taxable income.
The Association has not been audited by the IRS within the last five years.
For additional information regarding taxation, see Note 13 of Notes to
Consolidated Financial Statements.
MISSOURI TAXATION
The Association is subject to a state financial institutions tax, computed
on the basis of its state taxable income, at a rate of 7%.
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MANAGEMENT OF THE HOLDING COMPANY AND ASSOCIATION
DIRECTORS OF THE HOLDING COMPANY
The Board of Directors of the Holding Company is currently the same as that
of the Association. The names and biographical information of the directors
are set forth below under "--Directors of the Association." The Board of
Directors is divided into three classes, each of which will serve a three-year
term (except with respect to two of the classes for the first two years after
the incorporation of the Holding Company). One class of directors, consisting
of LeRoy C. Crook, Kenneth J. Hrdlicka and Michael J. Walsh, has a term of
office expiring at the first annual meeting of the Holding Company following
the Conversion and Reorganization; a second class, consisting of Richard C.
Fellhauer, Daniel C. Aubuchon and Stacey W. Braswell, has a term of office
expiring at the annual meeting to be held one year thereafter, and a third
class, consisting of Berenice J. Mahacek, Charles J. Wolter and Michael A.
Deelo, has a term of office expiring at the annual meeting to be held two
years thereafter. Mr. Fellhauer is the president and chief executive officer
of the Holding Company.
None of the directors has received remuneration from the Holding Company to
date, and it is expected that no compensation will initially be paid to them
by the Holding Company after the Conversion and Reorganization. Information
concerning the principal occupations and employment of, and compensation
received from the Association by, the directors of the Holding Company is set
forth under "--Directors of the Association;" and "--Directors' Fees."
DIRECTORS OF THE ASSOCIATION
Upon completion of the Conversion and Reorganization, each director of the
Association immediately prior to the Conversion and Reorganization will
continue to serve as a director of the Association after the Conversion and
Reorganization. Each director serves for a term of three years. The terms are
staggered so that approximately one-third of the Board of Directors is elected
each year. Because the Holding Company will own all of the issued and
outstanding capital stock of the Association following the Conversion and
Reorganization, the Holding Company will elect the directors of the
Association following the Conversion and Reorganization.
The following table sets forth certain information with respect to the
persons who currently serve as members of the Board of Directors of the
Association.
<TABLE>
<CAPTION>
AGE AT POSITION HELD DIRECTOR TERM
NAME JUNE 30, 1997 WITH THE ASSOCIATION SINCE EXPIRES
---- ------------- -------------------- -------- -------
<S> <C> <C> <C> <C>
LeRoy C. Crook.......... 88 Director 1965 1998
Kenneth J. Hrdlicka..... 54 Director 1983 1998
Michael J. Walsh........ 53 Director 1986 1998
Richard C. Fellhauer.... 55 Director, Chairman of the Board, 1973 1999
President and Chief Executive Officer
Daniel C. Aubuchon...... 49 Director 1981 1999
Stacey W. Braswell...... 53 Director 1982 1999
Berenice J. Mahacek..... 63 Director 1982 2000
Charles J. Wolter....... 79 Director 1989 2000
Michael A. Deelo........ 41 Director, Executive Vice President 1994 2000
and Chief Financial Officer
</TABLE>
The business experience for the past five years of each of the current
directors is as follows:
LeRoy C. Crook, now retired, was a Vice President of Vess Bottling Company.
Kenneth J. Hrdlicka has been the Director of Business Development of
Anheuser Busch, Inc. for more than the past five years.
Michael J. Walsh has been a Vice President of ECC for more than the past
five years.
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Richard C. Fellhauer has been affiliated with the Association since 1966 and
assumed the position of Chairman of the Board, President and Chief Executive
Officer in 1982.
Daniel C. Aubuchon has been a partner with the law firm of Aubuchon, Raniere
& Lally, P.C. for more than the past five years.
Stacey W. Braswell has been a principal stockholder and Vice President of
Blaine-Braswell and Associates, an insurance agency, for more than the past
five years.
Berenice J. Mahacek has been retired since 1996. Prior to that time she was
a Senior Vice President of the Association.
Charles J. Wolter has been the President of Realty Net--Wolter Real Estate
for more than the past five years. Charles J. Wolter is the father of Leonard
O. Wolter, an executive officer of the Holding Company.
Michael A. Deelo has been an Executive Vice President and Chief Financial
Officer of the Association since 1996. Prior to that time, he served as Vice
President and Chief Financial Officer of the Association.
ASSOCIATE DIRECTORS OF THE ASSOCIATION
The Association also has four non-voting Associate Directors who are
appointed each year by the Board of Directors. The current Associate Directors
are Seymour Bailis, James W. Caulfield, Leonard O. Wolter and John L. Tacke.
While the Associate Directors attend the Board of Directors meetings and
provide periodic advice to the Board, they do not vote on any matters
presented to the Board for a vote.
MEETINGS AND COMMITTEES OF THE BOARDS OF DIRECTORS
The Holding Company has established two standing committees: audit and
compensation. The Board of Directors intends for each committee to meet only a
few times each year.
Directors Aubuchon, Hrdlicka and Mahacek are members of the audit committee.
The audit committee is principally responsible for recommending which firm to
engage as the Holding Company's external auditor and for reviewing the Holding
Company's annual financial statements and matters relating thereto.
Directors Aubuchon, Braswell and Hrdlicka are members of the compensation
committee. The compensation committee is principally responsible for
administering the Holding Company's benefit plans and addressing other
compensation issues at the Holding Company level.
The full Board of Directors of the Holding Company will act on matters
relating to the nomination of directors.
The Board of Directors of the Association conducts its business through
meetings and committees of the Board. During the fiscal year ended March 31,
1997, the Board of Directors of the Association held 13 meetings. No director
of the Association attended fewer than 75% of the total meetings of the Board
and committee on which such Board member served during this period.
The Board of Directors of the Association has an audit committee and a
nominating committee. It does not have a compensation committee.
The audit committee of the Association selects the Association's independent
auditors and meets with them to discuss the results of the annual audit and
any related matters. The audit committee meets quarterly to review internal
accounting controls and to review all reports, findings and all other
information presented to them by senior management. The audit committee met
four times during the fiscal year ended March 31, 1997. The audit committee
currently consists of Directors Aubuchon, Braswell and Hrdlicka.
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The Association's bylaws provide that the Board of Directors of the
Association shall act as a nominating committee for selecting the management
nominees for election as directors. The nominating committee proposes and
considers candidates for election to the Board of Directors. The Board of
Directors of the Association met once in its capacity as the nominating
committee during the fiscal year ended March 31, 1997.
DIRECTORS' FEES
Members of the Board of Directors of the Association received a fee of $600
for each Board meeting attended. No fees are paid for attending committee
meetings of the Board. Associate directors of the Association received $500
for each Board meeting attended.
The Holding Company's Board of Directors intends to meet quarterly.
Directors of the Holding Company will not receive any fees in consideration of
their service.
EXECUTIVE OFFICERS
Upon consummation of the Conversion and Reorganization, the Holding Company
will have three executive officers. Mr. Fellhauer is the President and Chief
Executive Officer of the Holding Company. Mr. Deelo is the Treasurer and Chief
Financial Officer of the Holding Company. For information concerning Messrs.
Fellhauer's and Deelo's business experience, see "--Directors of the
Association." Leonard O. Wolter is Vice President of the Holding Company. Mr.
Wolter is also a Vice President of the Association and Vice President of EMC
and has held such positions for more than the past five years. Leonard O.
Wolter is the son of Charles J. Wolter, a director of the Holding Company.
EXECUTIVE COMPENSATION
The following tables summarize compensation information for the fiscal years
ended March 31, 1997, 1996 and 1995 with respect to the Association's
President and Chief Executive Officer. No other officers of the Association
received compensation in excess of $100,000 during the fiscal year ended March
31, 1997. The Holding Company does not plan to pay compensation to officers of
the Holding Company for their services as such.
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG TERM COMPENSATION
-------------------------------- -----------------------
SECURITIES
NAME AND OTHER ANNUAL RESTRICTED UNDERLYING ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION(1) STOCK AWARDS OPTIONS COMPENSATION(2)
------------------ ---- -------- ------- --------------- ------------ ---------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Richard C. Fellhauer.... 1997 $141,000 -- $6,700 -- -- $3,300
President & Chief 1996 $125,000 $10,000 $6,500 -- 5,000 $4,700
Executive Officer 1995 $121,000 $ 2,500 $6,000 -- -- $8,000
</TABLE>
- --------
(1) Consisting solely of directors' fees.
(2) Represents the dollar value of matching and discretionary profit sharing
contributions pursuant to the Association's tax-qualified thrift plan for
the fiscal year ended March 31, 1994 and ESOP contributions (based on the
value of the Common Stock on the date the Common Stock was allocated) made
by the Association for the fiscal years ended March 31, 1995, 1996 and
1997.
The following table sets forth information regarding the fiscal year-end
values of unexercised options under the 1993 Stock Option and Incentive Plan
held by the named executive officer.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT FISCAL YEAR END AT FISCAL YEAR END(1)
SHARES ACQUIRED VALUE -------------------------------- -------------------------
NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- --------------- -------- -------------- -------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Richard C. Fellhauer.... -- -- 12,600 -- $48,000 --
President & Chief
Executive Officer
</TABLE>
- --------
(1) This amount represents the difference between the market value of one
share of the Association's Common Stock on March 31, 1997 ($15.00) and the
option exercise price times the total number of shares subject to
exercisable or unexercisable options.
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EMPLOYEE BENEFIT PLANS
Insurance. Full-time employees of the Association and its subsidiaries are
provided group plan insurance that covers hospitalization, dental, dependent
coverage, long-term disability and life insurance. This insurance is available
generally and on the same basis to all full-time employees after completion of
90 days of service. The Association pays 100% of employee premiums, while
employees pay 100% of dependent coverage premiums.
Profit Sharing Plan. The Mutual Holding Company currently maintains a
defined contribution profit sharing plan (the "Profit Sharing Plan") for the
benefit of its eligible employees and the eligible employees of its
subsidiaries. The Profit Sharing Plan is a tax qualified retirement plan under
Sections 401(a) and 401(k) of the Code.
All employees who have completed one year of service with the Association
and its subsidiaries are eligible to participate in the Profit Sharing Plan. A
participant may elect to contribute from 1-15% of his or her compensation on a
pre-tax basis to his or her account under the Profit Sharing Plan. Any such
contribution defers the amount of compensation otherwise paid to the
participant and the participant is not taxed on that compensation, or earnings
thereon, until he or she withdraws such amount from the Profit Sharing Plan. A
participant may also elect to make after-tax contributions to his or her
account under the Profit Sharing Plan equal to a specified percentage of his
or her compensation. The earnings on such after-tax contributions are not
subject to tax until the participant withdraws such amount from the Profit
Sharing Plan.
The Mutual Holding Company will make a matching contribution for a plan year
on behalf of each participant who is making contributions to the Profit
Sharing Plan on the last day of the plan year (i.e., December 31) and will be
an amount equal to 50% of the first 2% of the participant's total pre-tax and
after-tax contributions made during the plan year. In addition, the Mutual
Holding Company may, in its sole discretion, make a discretionary employer
contribution. Such contribution will be allocated to the account of each
participant who is employed on the last day of the plan year, on the basis of
the participant's compensation and service.
A participant in the Profit Sharing Plan is 100% vested at all times in his
or her own pre-tax and after-tax contributions and the earnings thereon. A
participant will vest in the matching and employer contributions allocated to
his or her account at a rate equal to 20% after three years of service, and
20% for each additional year of service (up to 100%). A participant becomes
fully vested in all matching and employer contributions allocated to his or
her account, regardless of years of service, upon the participant's death,
disability or retirement on or after normal retirement age.
A participant is entitled to a distribution of the vested portion of his or
her benefits under the Profit Sharing Plan upon termination of employment.
Benefits will be paid in the form elected by the participant, in either a lump
sum, direct rollover or an annuity. If the participant elects an annuity and
he or she is married, the benefit will be paid in the form of a 50% joint and
survivor annuity with the spouse as beneficiary, unless the participant elects
a different form of payment and the spouse consents. If the participant dies
prior to the date his or her benefits are distributed, they will be paid to
his or her designated beneficiary.
A participant may also elect an in-service withdrawal of (i) his or her
after-tax contribution account; or (ii) his or her pre-tax contributions, if
necessary to meet a financial hardship. A participant may also obtain a loan
from the Profit Sharing Plan, which must be repaid by payroll deductions.
The administrator of the Profit Sharing Plan is Richard C. Fellhauer and the
trustees of the Profit Sharing Plan are Michael A. Deelo, Berenice Mahacek and
Richard C. Fellhauer.
1993 Stock Option and Incentive Plan. In connection with the Mutual Holding
Company Reorganization, the Association adopted and maintains the 1993 Stock
Option and Incentive Plan. Pursuant to the 1993 Stock Option and Incentive
Plan, 38,000 Association Shares were reserved for issuance upon the exercise
of stock options granted to full-time employees and non-employee directors of
the Association and its subsidiaries. Of the 38,000 Association Shares
reserved for issuance under the 1993 Stock Option and Incentive Plan, none
have
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been issued upon the exercise of stock options as of March 31, 1997. Upon
consummation of the Conversion and Reorganization, the obligations and rights
of this plan will be assumed by the Holding Company, and Common Stock will be
issued in lieu of Association Shares pursuant to the terms of such plan.
1993 Management Recognition Plan. In connection with the Mutual Holding
Company Reorganization, the Association adopted the 1993 MRP. Under the 1993
MRP 11,400 Association Shares were available for award to certain officers of
the Association, all of which have been awarded and vested as of March 31,
1997.
Employee Stock Ownership Plan. In connection with the Mutual Holding Company
Reorganization, the Association adopted the ESOP for the exclusive benefit of
participating employees. Employees who have attained the age of 21 years and
have completed one year of service with the Association are eligible to
participate under the ESOP. The Association has received a Determination
Letter from the IRS confirming the tax-qualified status of the ESOP under
Section 401(a) of the Code.
The ESOP has been funded by contributions made by the Association in cash
and, upon consummation of the Conversion and Reorganization, will continue to
be funded by contributions made by the Association solely in cash. Following
consummation of the Conversion and Reorganization, benefits under the ESOP
will be paid either in shares of Common Stock or in cash. The ESOP borrowed
funds from an unrelated third party lender to purchase 26,600 Association
Shares in the Conversion and Reorganization. At March 31, 1997, 12,617 of such
Association Shares had been allocated to participant's accounts. At March 31,
1997, the unpaid principal amount of the ESOP debt was $136,000 (the "Existing
ESOP Debt"). Upon consummation of the Conversion and Reorganization, the
Association Shares held by the ESOP will convert into Common Stock based upon
the Exchange Ratio and the Existing ESOP Debt will be retired and replaced by
the New ESOP Debt (as defined below).
The ESOP anticipates borrowing funds from the Holding Company (the "New ESOP
Debt") to repay the Existing ESOP Debt and to acquire up to an aggregate of 7%
of the number of shares of Conversion Stock to be issued in the Offering. The
New ESOP Debt will be secured by the unallocated shares of Common Stock held
by the ESOP and will be repaid by the ESOP with funds from the Association's
contributions to the ESOP. Unallocated ESOP shares are held in a suspense
account for allocation among participants as the loan is repaid. The
Association expects to make contributions to the ESOP at such times and in an
amount that, at a minimum, will enable the ESOP to meet its debt service
obligations on the New ESOP Debt. Any contributions in excess of this amount
may be made at the Association's discretion. While the New ESOP Debt is
outstanding, any cash dividends received with respect to the shares held in
the ESOP will be applied to the principal and interest payments due on such
loan. The New ESOP Debt will require annual interest and principal payments
over a 10- year period and will bear interest at a fixed rate established at
the prime rate, as reported in The Wall Street Journal, Midwest Edition, in
effect at the time of completion of the Conversion and Reorganization.
The Association's contributions to the ESOP to retire the principal and
interest on the New ESOP Debt will be accounted for as compensation and
employee benefits expense. The contributions to repay principal and interest
on the New ESOP Debt are tax deductible to the Association. The ESOP, in turn,
will use the Association's contribution with respect to principal and interest
to repay the New ESOP Debt. Interest paid by the ESOP to the Holding Company
on the New ESOP Debt will be taxable income to the Holding Company; however,
such amount, when netted against the deduction to the Association for its
interest contribution to the ESOP, will negate any income or deduction to the
Holding Company on a consolidated tax basis with respect to the New ESOP Debt.
The Association intends to record compensation and employee benefits expense
related to the ESOP in accordance with SOP 93-6. As a result, to the extent
the value of the Common Stock appreciates over time, compensation and employee
benefits expense related to the ESOP will increase. For additional information
regarding SOP 93-6, see "Pro Forma Data."
As stated above, the ESOP intends to purchase in the Offering up to an
aggregate of 7% of the number of shares of Conversion Stock to be issued in
the Offering. If the final Conversion valuation exceeds $9.2 million (the
maximum of the Offering Price Range), an additional number of shares may be
issued in the Offering to the
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ESOP to enable the ESOP to purchase up to an aggregate of 7% of the number of
shares of Conversion Stock to be issued in the Offering, subject to the
approval of OTS. If the final Conversion valuation does not exceed $9.2
million, the ESOP will be permitted to purchase Conversion Stock in the
Offering only if stock is available after satisfaction of orders by Eligible
Account Holders.
Contributions to the ESOP by the Association and shares released from the
suspense account are allocated among participants based on compensation.
Except for participants who retire, become disabled or die during the plan
year, all other participants are required to have completed at least 1,000
hours of service and be employed on the last day of the plan year in order to
receive an allocation. Participant benefits vary in accordance with the
following schedule: three years of service--20% vested, four years of
service--40% vested, five years of service--60% vested, six years of service--
80% vested, seven years of service or greater--100% vested. All years of
service are counted toward vesting. Vesting is accelerated upon retirement,
death, disability or termination of the ESOP. Forfeitures are reallocated to
other participants to reduce future funding costs. Benefits may be payable
upon retirement, death, disability or separation from service. Contributions
to the ESOP are not fixed, so benefits payable under the ESOP cannot be
estimated.
The Board of Directors has appointed a committee to administer the ESOP.
Messrs. Aubuchon, Braswell and Hrdlicka collectively act as the trustee ("ESOP
Trustee") under the ESOP. Under the ESOP, the ESOP Trustee is required to vote
all allocated shares held in the ESOP in accordance with the instructions of
the participating employees. Shares for which employees do not give
instructions and unallocated shares must be voted by the ESOP Trustee in the
same proportion as determined by the vote of participants with respect to
allocated shares.
The Board of Directors may amend the ESOP in any manner which it deems
desirable, except that the ESOP may not be amended in any way to deprive any
participant or beneficiary of any benefits to which be is entitled with
respect to contributions previously made.
The ESOP may purchase Common Stock in the open market at then prevailing
prices from time to time following the Conversion and Reorganization. The ESOP
is subject to requirements of ERISA and regulations of the IRS and the
Department of Labor promulgated thereunder.
1997 Stock Option Plan. The Board of Directors of the Holding Company
intends to adopt the 1997 Stock Option Plan and to submit it to stockholders
for approval following consummation of the Conversion and Reorganization. The
1997 Stock Option Plan is intended to promote stock ownership by directors and
selected officers and employees of the Holding Company and the Association to
increase their proprietary interest in the Holding Company and to encourage
them to remain in the service of the Holding Company or the Association.
OTS conversion regulations prohibit the Association from seeking
ratification of the 1997 Stock Option Plan by the Holding Company's
stockholders sooner than six months after completion of the Conversion and
Reorganization. Moreover, pursuant to OTS conversion regulations, if the 1997
Stock Option Plan is effective within one year after completion of the
Conversion and Reorganization, options awarded under the plan cannot vest at a
rate greater than 20% per year, vesting of awards cannot be accelerated in the
event of a change of control of the Holding Company and the number of options
that can be allocated to directors and officers is subject to certain limits
set by OTS. The Board of Directors of the Holding Company has not decided when
the 1997 Stock Option Plan will be submitted to stockholders for approval;
however, in no event will the 1997 Stock Option Plan be submitted for
stockholder approval sooner than six months after completion of the Conversion
and Reorganization. The Holding Company and Association intend to comply with
applicable law governing implementation and terms of the 1997 Stock Option
Plan (including OTS regulations and policies) in effect at the time the 1997
Stock Option Plan is submitted to the Holding Company's stockholders for
approval.
Depending upon when the Board of Directors decides it wishes to submit the
1997 Stock Option Plan to stockholders of the Holding Company for approval,
the plan could be submitted either at the Holding Company's first annual
meeting of stockholders (currently expected to be held in August 1998) (the
"First Annual
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<PAGE>
Meeting") or at a special meeting of stockholders which could be held earlier
than the First Annual Meeting (but not sooner than six months after completion
of the Conversion and Reorganization). The 1997 Stock Option Plan may not, and
will not, be established and become effective unless and until approved by the
Holding Company's stockholders.
The 1997 Stock Option Plan is to be administered by the Holding Company's
compensation committee (the "Committee"). None of the members of the Committee
may be an officer or employee of the Holding Company or the Association. The
Committee will have the authority, among other things, to select the employees
and directors to whom options may be granted, to determine the terms of each
option, to interpret the provisions of the 1997 Stock Option Plan and to make
all other determinations that it may deem necessary or advisable for the
administration of the 1997 Stock Option Plan. Each determination or other
action made or taken pursuant to the 1997 Stock Option Plan, including
interpretation of the 1997 Stock Option Plan and the specific terms and
conditions of the options granted thereunder, by the Committee will be final
and conclusive for all purposes and upon all persons.
The 1997 Stock Option Plan provides for the grant of "incentive stock
options" within the meaning of Section 422 of the Code and for options that do
not constitute incentive stock options (referred to herein as "nonstatutory
options"), as determined in each individual case by the Committee. Incentive
stock options granted under the 1997 Stock Option Plan have certain
advantageous tax attributes under federal and state income tax laws. No
taxable income is recognized by the option holder for federal income tax
purposes at the time of the grant or exercise of an incentive stock option,
and no federal income tax deduction is available to the Holding Company or the
Association as a result of such a grant or exercise. Any gain or loss
recognized by an option holder on the later disposition of shares acquired
pursuant to the exercise of an incentive stock option generally will be
treated as long-term capital gain or loss if such disposition does not occur
prior to one year after the date of exercise of the option or two years after
the date the option was granted.
As in the case of incentive stock options, the grant of a nonstatutory stock
option will not result in taxable income to the recipient of the option for
federal income tax purposes nor will the Holding Company or the Association be
entitled to an income tax deduction. Upon exercise of a nonstatutory stock
option, however, the option holder will generally recognize ordinary income
for federal income tax purposes equal to the difference between the exercise
price and the fair market value of the shares acquired on the date of
exercise, and the Holding Company, the Association or any other subsidiary of
the Holding Company which is the employer of the option holder will be
entitled to federal income tax deductions equal to the amount of ordinary
income recognized by the option holder. In general, any further gain or loss
realized by the option holder on the subsequent disposition of such shares
will be long-term or short-term capital gain or loss, depending on the length
of time the shares are held after the option is exercised.
The Committee will initially, and from time to time thereafter, select those
officers and other key employees of the Holding Company, the Association or
any of their subsidiaries to participate in the 1997 Stock Option Plan on the
basis of the special importance of their services in the management,
development and operations of the Holding Company, the Association or their
subsidiaries. Such officers and other key employees may receive either
incentive stock options or nonstatutory options under the 1997 Stock Option
Plan. Unless expressly provided otherwise at the time of the grant, however,
such officers and other key employees will receive incentive stock options.
The exercise price of options granted under the 1997 Stock Option Plan must
at least equal the fair market value of the Common Stock subject to the option
(determined as provided in the 1997 Stock Option Plan) on the date the option
is granted. Assuming the 1997 Stock Option Plan is submitted and the Holding
Company's stockholders approve it at the First Annual Meeting, the exercise
price of options granted at the time of such approval would equal the fair
market value of the Holding Company's stock on the date of the First Annual
Meeting.
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Options granted under the 1997 Stock Option Plan will vest and become
exercisable at a rate of 20% per year, commencing one year after the grant
date, and 20% on each anniversary date thereof for the following four years.
Notwithstanding such a five-year vesting schedule, all awards will be 100%
vested upon the death or disability of the recipient, in which case all of the
recipient's options will expire on the earlier of (i) the first anniversary of
the date of the recipient's death or disability or (ii) the date that any
option of the recipient expires in accordance with its terms. Subject to the
earlier termination of an employee's employment with the Holding Company, the
Association or any of their subsidiaries, each option granted under the 1997
Stock Option Plan will expire on the tenth anniversary of the date on which
such option was granted. If an employee's employment terminates with the
Holding Company, the Association or any of their subsidiaries for any reason
other than death or disability, all the employee's unvested options will be
forfeited; provided, however, that an employee who is also a director will not
forfeit any of his or her unvested options by reason of his or her retirement
as an employee of the Holding Company, the Association or any of their
subsidiaries if such director continues his or her service on the Board of
Directors after retirement as an employee, in which case that director's
options will continue to vest and will remain exercisable in the same manner
and to the same extent as before that director retired as an employee. If a
director's service on the Board of Directors terminates for any reason other
than death, disability or retirement, that director's unvested options will be
forfeited. In the event of a director's death or disability, all of that
director's awards will be 100% vested, in which case all of that director's
options will expire on the earlier of (i) the first anniversary of the date of
the director's death or disability or (ii) the date that any option held by
that director expires in accordance with its terms. In the event of a
director's retirement from the Board of Directors, that director's options
will continue to vest and will remain exercisable in the same manner and to
the same extent as before that director retired as a director. In general, any
shares of Common Stock subject to issuance upon exercise of options but which
are not issued because of a surrender, forfeiture, expiration, termination or
cancellation of any such option will once again be available for issuance
pursuant to subsequently granted options.
An incentive stock option granted under the 1997 Stock Option Plan to an
employee owning more than 10% of the total combined voting power of all
classes of stock of the Holding Company is subject to the further restrictions
that such option must have an exercise price of at least 110% of the fair
market value of the shares issuable on exercise of the option (determined as
of the date the option is granted) and will expire, and all rights to purchase
shares thereunder will cease, no later than the fifth anniversary of the date
on which the incentive stock option was granted. Incentive stock options are
subject to the further restriction that the aggregate fair market value
(determined as of the date of grant) of stock as to which any such incentive
stock option first becomes exercisable in any calendar year is limited to
$100,000. To the extent options covering more than $100,000 worth of stock
first become exercisable in any one calendar year, the excess will be
nonstatutory options.
The full exercise price for all shares purchased on exercise of options
granted under the 1997 Stock Option Plan may be purchased by paying cash, by
paying cash received from a broker-dealer to whom the optionee has submitted
an exercise notice consisting of a fully endorsed option, by delivering shares
of Common Stock having an aggregate fair market value on the date of exercise
equal to the exercise price, by directing the Holding Company to withhold such
number of shares of Common Stock otherwise issuable upon exercise of such
option having an aggregate fair market value on the date of exercise equal to
the exercise price, by using other medium of payment, in the case of an
officer or employee, as the Committee, in its discretion, shall authorize at
the time of grant or by using any combination of the above methods.
The Board of Directors or the Committee has the authority to terminate,
suspend or amend the 1997 Stock Option Plan, in whole or in part, from time to
time, without the approval of the stockholders of the Holding Company to the
extent allowed by law. The 1997 Stock Option Plan provides for appropriate
adjustment in the number and kind of shares subject to the 1997 Stock Option
Plan and in the number, kind and per share exercise price of shares subject to
unexercised options in the event of any change in the outstanding Common Stock
of the Holding Company by reason of a stock split, stock dividend, combination
or reclassification of shares, recapitalization, merger or similar event.
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Notwithstanding when the 1997 Stock Option Plan is submitted to and approved
by the stockholders, upon receipt of stockholder approval to establish the
1997 Stock Option Plan, the Board of Directors intends to reserve an amount of
stock equal to 10% of the Conversion Stock sold in the Offering for issuance
under the 1997 Stock Option Plan (or between 68,000 shares and 92,000 shares,
assuming the sale of between 680,000 shares and 920,000 shares of Conversion
Stock in the Offering). Each nonemployee director of the Holding Company, as
of the time the 1997 Stock Option Plan is approved by stockholders, will
receive (notwithstanding when the 1997 Stock Option Plan is submitted to
stockholders for their ratification), subject to the vesting rules above, a
nondiscretionary grant of a 10-year nonstatutory option to purchase 4,600
shares of Common Stock (based on 920,000 shares of Conversion Stock sold at
the maximum of the Offering Price Range and 92,000 shares of Common Stock
reserved under the 1997 Stock Option Plan). Non-employee directors will also
be eligible to receive discretionary grants of nonstatutory options as
determined by the Committee from time to time. The shares used to fund these
option awards will come from authorized but unissued shares, from treasury
shares or from shares held in a grantor trust. As a result, in the event that
all options under the 1997 Stock Option Plan are awarded and exercised, the
percentage interests of stockholders as of the date the Conversion and
Reorganization is consummated will be diluted by approximately 5.05%. If more
or less than 920,000 shares of Conversion Stock are sold in the Offering, the
number of options granted under the 1997 Stock Option Plan will be adjusted to
maintain the ratio of the awards intended to be made to the number of shares
sold at the maximum of the Offering Price Range.
The total number of shares of Common Stock that may be available for options
under the 1997 Stock Option Plan will be adjusted each January 1, through
January 1, 2007, so that the total number of shares of Common Stock that may
be issued and sold under the 1997 Stock Option Plan as of each January 1 will
be equal to 5.32% of the outstanding shares of Common Stock on such date;
provided, however, that no such adjustment may reduce the total number of
shares of Common Stock that may be issued and sold under the 1997 Stock Option
Plan below 10% of the shares originally reserved. The shares of Common Stock
issued and sold under the 1997 Stock Option Plan may be issued from shares
specifically reserved for such purpose by the Board of Directors, may be
issued from shares repurchased by the Holding Company ("Treasury Shares")
(whether or not such Treasury Shares were repurchased by the Holding Company
specifically for the purpose of being issued under the 1997 Stock Option Plan)
or may be issued from shares held in a grantor trust. In the event of a stock
split, reverse stock split or stock dividend, the number of shares of Common
Stock reserved under the 1997 Stock Option Plan and the number of options
granted pursuant thereto and exercise price of the options will be adjusted to
reflect such increase or decrease in the total number of shares of Common
Stock outstanding.
At any time following approval of the 1997 Stock Option Plan by the
stockholders of the Holding Company, the Association or the Holding Company
may contribute sufficient funds to a grantor trust to purchase, and such trust
may purchase in the open market, a number of shares of Common Stock equal to
10% of the Conversion Stock sold in the Offering. Such shares would be held by
the trust for issuance to stock option holders upon the exercise of stock
options. Whether such shares are purchased, and the timing of such purchases,
will depend on market and other conditions and the alternative uses of capital
available to the Holding Company.
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Notwithstanding when the 1997 Stock Option Plan is submitted to and approved
by stockholders, it is anticipated that the following awards of stock options
will be made pursuant to the 1997 Stock Option Plan to directors and officers
of the Holding Company and the Association as of the date of the approval of
the 1997 Stock Option Plan by the stockholders of the Holding Company
(assuming the sale of 920,000 shares of Conversion Stock in the Offering at
the maximum of the Offering Price Range, and the reservation of 92,000 shares
of Common Stock for issuance under the 1997 Stock Option Plan):
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE AT
ASSUMED ANNUAL RATES OF STOCK
PRICE APPRECIATION FOR OPTION TERM(1)
NUMBER OF % OF --------------------------------------
RECIPIENT OPTIONS GRANTED TOTAL OPTIONS 0% 5% 10%
- --------- --------------- ------------- ---------------------- ---------------
<S> <C> <C> <C> <C> <C>
NONEMPLOYEE DIRECTORS:
Daniel C. Aubuchon...... 4,600 5.0% $ 0 $ 29,000 $ 73,000
Stacey W. Braswell...... 4,600 5.0% $ 0 $ 29,000 $ 73,000
LeRoy C. Crook.......... 4,600 5.0% $ 0 $ 29,000 $ 73,000
Kenneth J. Hrdlicka..... 4,600 5.0% $ 0 $ 29,000 $ 73,000
Berenice J. Mahacek..... 4,600 5.0% $ 0 $ 29,000 $ 73,000
Charles J. Wolter....... 4,600 5.0% $ 0 $ 29,000 $ 73,000
OFFICERS:
Richard C. Fellhauer.... 23,000 25.0% $ 0 $ 145,000 $ 367,000
Michael A. Deelo........ 16,100 17.5% $ 0 $ 101,000 $ 257,000
Leonard O. Wolter....... 4,600 5.0% $ 0 $ 29,000 $ 73,000
Michael J. Walsh........ 4,600 5.0% $ 0 $ 29,000 $ 73,000
Seymour Bailis.......... 4,600 5.0% $ 0 $ 29,000 $ 73,000
John L. Tacke........... 4,600 5.0% $ 0 $ 29,000 $ 73,000
All Directors and
Officers as a Group
(12 Persons)........... 85,100 92.5% $ 0 $ 536,000 $ 1,354,000
</TABLE>
- --------
(1) Assumes the options are granted at the Purchase Price ($10.00 per share),
the options have a 10-year term, the market price of the Common Stock
underlying the option appreciates annually in value from the date of grant
to the end of the option term at a compounded rate of either 5% or 10% as
indicated in the columns. There can be no assurance that the Common Stock
will appreciate annually at a compounded rate of 5% or 10%. The Holding
Company is unaware of any formula which provides an accurate determination
of the value of a stock option as of the date of grant.
Under the Plan and presently effective regulations and policies of the OTS,
the shares of Common Stock for which options may be granted during the first
year following the Conversion and Reorganization may not exceed 10% of the
total number of shares of Conversion Stock sold in the Offering. Furthermore,
during that first year following the Conversion and Reorganization, no
individual may be granted options to purchase more than 25% of the total
shares covered by the 1997 Stock Option Plan, and nonemployee directors may
not be granted options to purchase more than 5% individually, or more than 30%
as a group, of the shares covered by the 1997 Stock Option Plan, unless the
OTS allows greater awards. The 1997 Stock Option Plan may not and will not be
established in the absence of stockholder approval.
1997 Management Recognition Plan. The Board of Directors of the Holding
Company intends to adopt the 1997 MRP and to submit it to stockholders for
approval following consummation of the Conversion and Reorganization. The 1997
MRP is intended as a method of providing directors, officers and certain
employees of the Holding Company or the Association with a proprietary
interest in the Holding Company and to encourage such persons to remain with
the Holding Company or the Association.
OTS conversion regulations prohibit the Association from seeking
ratification of the 1997 MRP by the Holding Company's stockholders sooner than
six months after completion of the Conversion and Reorganization. Moreover,
pursuant to OTS conversion regulations, if the 1997 MRP is effective within
one year after completion of the Conversion and Reorganization, awards under
the plan cannot vest at a rate greater than 20% per year, vesting of awards
cannot be accelerated in the event of a change of control of the Holding
Company and the
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number of MRP awards that can be allocated to directors and officers is
subject to certain limits set by OTS. The Board of Directors of the Holding
Company has not decided when the 1997 MRP will be submitted to stockholders
for approval; however, in no event will the 1997 MRP be submitted for
stockholder approval sooner than six months after the completion of the
Conversion and Reorganization. The Holding Company and the Association intend
to comply with applicable law governing implementation and terms of the 1997
MRP (including OTS regulations and policies) in effect at the time the 1997
MRP is submitted to the Holding Company's stockholders for approval.
Depending upon when the Board of Directors decides to submit the 1997 MRP to
stockholders of the Holding Company for approval, the plan could be submitted
either at the First Annual Meeting or at a special meeting of stockholders
which could be held earlier than the First Annual Meeting (but not sooner than
six months after completion of the Conversion and Reorganization). The 1997
MRP may not, and will not, be established and become effective unless and
until approved by the Holding Company's stockholders.
The 1997 MRP will be administered by the Holding Company's compensation
committee. Officers and employees of the Holding Company, the Association and
any of their subsidiaries as of the date the 1997 MRP is approved by the
stockholders of the Holding Company will be eligible for grants of shares of
Common Stock of the Holding Company held by the 1997 MRP. Nonemployee
directors, officers and employees will become vested in shares of Common Stock
awarded to them under the 1997 MRP at a rate of 20% per year, commencing one
year after the grant date, and 20% on each anniversary date thereof for the
following four years. Notwithstanding such a five-year vesting schedule, all
awards will be 100% vested upon the death or disability of the recipient. If
an employee's employment terminates (or a director's service as a director
terminates) with the Holding Company, the Association or any of their
subsidiaries for any reason other than death or disability, that employee's
(or director's) unvested awards will be forfeited.
MRP award recipients will recognize taxable ordinary income equal to the
aggregate fair market value of the shares of Common Stock awarded at the time
such shares become vested. Income recognized by MRP award recipients will be a
deductible expense to the Holding Company or the Association for tax purposes.
When cash dividends are paid with respect to plan shares allocated to a
recipient, such recipient will be entitled to receive an amount equal to such
cash dividend, but only after the related plan shares are earned by the
recipient. No recipient will have any voting or other rights of a stockholder
with respect to any plan shares awarded to such recipient prior to the time
such shares are actually distributed.
The Plan and applicable regulations and policies of the OTS prohibit the
1997 MRP from subscribing for shares of Conversion Stock in the Offering or
otherwise being funded with shares of stock purchased in the Offering.
Following completion of the Offering and approval of the 1997 MRP, the 1997
MRP may purchase either outstanding shares of Common Stock in the open-market
at the then market price of the Common Stock or authorized but previously
unissued shares of Common Stock from the Holding Company (which the Holding
Company intends to reserve for issuance) at the then market price of the
Common Stock. Whether such shares purchased will be purchased in the open
market or will be newly issued shares, and the timing of such purchase, will
depend on market and other conditions and the alternative uses of capital
available to the Holding Company.
Notwithstanding when the 1997 MRP is submitted to and approved by the
stockholders, when the Holding Company receives stockholder approval to
establish the 1997 MRP, the Holding Company will contribute funds to the 1997
MRP to enable it to acquire shares of Common Stock in an amount equal to 3% of
the number of shares of Conversion Stock sold in the Offering, or up to 27,600
shares of Common Stock assuming the sale of 920,000 shares at $10.00 per share
(the maximum of the Offering Price Range). No contributions by employees or
recipients will be permitted. Each nonemployee director as of the effective
date of the 1997 MRP will be granted 690 shares of Common Stock held by the
1997 MRP (based on 920,000 shares of Conversion Stock sold at the maximum of
the Offering Price Range and 27,600 shares of Common Stock purchased by the
1997 MRP in the open market). Assuming that the 1997 MRP is funded entirely
through purchases of authorized but previously unissued shares of stock from
the Holding Company, the percentage interest of stockholders as of the date of
such purchase will be diluted by approximately 1.57%. If more or less than
920,000 shares of Conversion Stock are sold in the Offering, the number of MRP
awards granted to directors, officers and other employees of
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<PAGE>
the Holding Company and Association will be adjusted to maintain the ratio of
the awards intended to be made to the number of shares sold at the maximum of
the Offering Price Range.
Notwithstanding when the 1997 MRP is submitted to and approved by the
stockholders, it is anticipated that the following awards will be made
pursuant to the 1997 MRP to directors and executive officers of the
Association and the Holding Company as of the date of approval of the 1997 MRP
by the stockholders of the Holding Company (assuming the sale of 920,000
shares of Common Stock in the Offering, at the maximum of the Offering Price
Range, and the purchase of 27,600 shares of Common Stock by the 1997 MRP):
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE
AT ASSUMED ANNUAL RATES
OF STOCK PRICE APPRECIATION
NUMBER % OF FOR TEN YEARS FROM GRANT DATE(1)
OF SHARES TOTAL MRP ---------------------------------
RECIPIENT AWARDED SHARES 0% 5% 10%
- --------- --------- --------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C>
NONEMPLOYEE DIRECTORS:
Daniel C. Aubuchon........ 690 2.50% $ 6,900 $ 11,000 $ 18,000
Stacey W. Braswell........ 690 2.50% $ 6,900 $ 11,000 $ 18,000
LeRoy C. Crook............ 690 2.50% $ 6,900 $ 11,000 $ 18,000
Kenneth J. Hrdlicka....... 690 2.50% $ 6,900 $ 11,000 $ 18,000
Berenice J. Mahacek....... 690 2.50% $ 6,900 $ 11,000 $ 18,000
Charles J. Wolter......... 690 2.50% $ 6,900 $ 11,000 $ 18,000
OFFICERS:
Richard C. Fellhauer...... 6,900 25.00% $ 69,000 $ 112,000 $ 179,000
Michael A. Deelo.......... 4,830 17.50% $ 48,300 $ 79,000 $ 125,000
Leonard O. Wolter......... 2,070 7.50% $ 20,700 $ 34,000 $ 54,000
Michael J. Walsh.......... 1,035 3.75% $ 10,350 $ 17,000 $ 27,000
Seymour Bailis............ 690 2.50% $ 6,900 $ 11,000 $ 18,000
John L. Tacke............. 690 2.50% $ 6,900 $ 11,000 $ 18,000
James W. Caulfield........ 345 1.25% $ 3,450 $ 6,000 $ 9,000
All Directors and Officers
as a Group
(13 Persons)............. 20,700 75.00% $ 207,000 $ 336,000 $ 538,000
</TABLE>
- --------
(1) Assumes the 1997 MRP awards are granted at the Purchase Price ($10.00 per
share) and the market price of the Common Stock underlying the 1997 MRP
award appreciates annually in value from the date of grant until 10 years
thereafter at a compounded rate of either 5% or 10% as indicated in the
columns. MRP awards do not have a term like stock options; however, in
order to compare the value of the 1997 MRP awards to the value of the
stock options granted to these named individuals a comparable 10-year time
period has been used. There can be no assurance that the Common Stock will
appreciate annually at a compounded rate of either 5% or 10%.
Under the Plan and presently effective regulations and policies of the OTS,
during that first year following the Conversion and Reorganization, no
individual may be awarded more than 25% of the total number of shares of
Common Stock held by the 1997 MRP, and nonemployee directors may not be
awarded more than 5% individually, or more than 30% as a group, of the number
of shares of Common Stock held by the 1997 MRP, unless the OTS allows greater
awards. The 1997 MRP may not and will not be established in the absence of
stockholder approval.
EMPLOYMENT AGREEMENTS
The Holding Company intends to enter into new employment agreements with
Richard C. Fellhauer, President and Chief Executive Officer of the Holding
Company and the Association, Michael A. Deelo, Executive Vice President and
Chief Financial Officer of the Association, and Leonard O. Wolter, Vice
President of the Association (each an "executive," or the "executives"), each
of which would be effective as of the consummation of the Conversion and
Reorganization. Each employment agreement provides that the individual will be
employed for a three-year term. Such term may be extended for additional one-
year periods by action of the Board of Directors of the Holding Company taken
on each successive anniversary of the effective date of the
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<PAGE>
employment agreement. Each of Messrs. Fellhauer, Deelo and Wolter may
terminate their employment agreements at any time upon 90 days' prior written
notice to the Board of Directors of the Holding Company and the Association.
Under the employment agreements, the base annual salary for each executive
may be increased from time to time during the term of the employment agreement
in the sole discretion of the Board of Directors of the Holding Company, but
the executive's salary shall not be reduced below the level then in effect. In
addition, the executive will be entitled to participate in incentive
compensation plans or arrangements as may from time to time be established by
the Holding Company or the Association on a basis consistent with the
treatment of other executive officers of the Holding Company or the
Association, but recognizing differences in responsibilities among executive
officers. The executive also shall be entitled to receive any other bonus or
discretionary compensation payments as the Board of Directors of the Holding
Company may determine from time to time. Pursuant to the employment
agreements, each executive also will be provided such other benefits
(including but not limited to medical, health, life and other insurance
coverage) and will be entitled to participate in such retirement plans of the
Holding Company and the Association, as are generally made available to other
executive officers of the Holding Company or the Association. During his
employment, each executive also will be entitled to customary vacations in
accordance with vacation policies and practices of the Holding Company or the
Association prevailing from time to time, and to reimbursement for reasonable
expenses incurred on behalf of the Holding Company or the Association in
accordance with the then prevailing policies and practices of the Holding
Company.
Each employment agreement provides for continuing benefits in the event the
executive is terminated by the Holding Company, other than for "just cause,"
or in the event the executive voluntarily terminates the employment agreement
for "good reason." Under the employment agreement, "just cause" would include
personal dishonesty, incompetence, willful misconduct or breach of a fiduciary
duty involving personal profit in the performance of his duties under the
employment agreement, intentional and continued failure to perform stated
duties, willful violation of any law, rule or regulation (other than traffic
violations or similar offenses), final cease-and-desist order or material
breach of any provision of the employment agreement. Under the employment
agreement, "good reason" would be deemed to exist if the executive terminated
his employment because, without his express written consent, the Holding
Company breached any of the terms of the employment agreement. In such
instances, the executive generally will continue to receive all benefits due
to him under the employment agreement through the remaining term of the
agreement, which, assuming each of the executives were terminated at the
beginning of the term of the agreement and at their present salaries, would
amount to no more than $371,640, $201,960 and $114,660 for each of Messrs.
Fellhauer, Deelo and Wolter, respectively. If the executive is terminated
within one year after a "change of control" of the Holding Company, other than
for just cause or if the executive terminates his employment for "good
reason", then the Holding Company will pay to the executive a lump sum equal
to 2.99 times the "Base Amount," as that term is defined in Section 280G(b)(3)
of the Code, and will continue to provide coverage for the executive and his
dependents, beneficiaries and estate under all executive benefit plans of the
Holding Company and the Association for the remainder of the term of the
employment agreement, which, at their present salaries, would amount to no
more than $396,175, $227,240 and $140,530 for each of Messrs. Fellhauer, Deelo
and Wolter, respectively. If payments and benefits under the employment
agreements would constitute an "Excess Parachute Payment" under Section 280G
of the Code, then such payments and benefits will be reduced to one dollar
less than the maximum amount that the Association may pay under Section 280G
of the Code without losing its ability to deduct such payments for tax
purposes. A "change of control" is defined in each employment agreement to
include, among other events, the acquisition of beneficial ownership of 25% or
more of the voting power of the Holding Company's capital stock.
TRANSACTIONS WITH MANAGEMENT
The Association has followed the policy of offering residential mortgage
loans for the financing of personal residences, share loans and consumer loans
to its officers, directors and employees. The loans are made in the ordinary
course of business and are also made on substantially the same terms and
conditions, including interest rate and collateral, as those of comparable
transactions prevailing at the time with other persons, and do not include
more than the normal risk of collectibility or present other unfavorable
features. As of March 31, 1997, approximately $1.2 million of loans were
outstanding from the Association to executive officers and directors of the
Association and their affiliates.
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<PAGE>
BENEFICIAL OWNERSHIP OF CAPITAL STOCK
The following table sets forth, as of May 31, 1997, certain information as
to those persons known by the Association to be the beneficial owners of more
than 5% of the outstanding Association Shares.
<TABLE>
<CAPTION>
NAME AND ADDRESS OF AMOUNT AND NATURE OF PERCENT OF COMMON
BENEFICIAL OWNER BENEFICIAL OWNERSHIP(1) STOCK OUTSTANDING
------------------- ----------------------- -----------------
<S> <C> <C>
First Missouri Financial, M.H.C. .... 445,000 53.20%
4131 South Grand Boulevard
St. Louis, Missouri 63118-3464
</TABLE>
- --------
(1) Unless otherwise indicated, the nature of beneficial ownership for shares
shown in this column is sole voting and investment power.
The following table sets forth, as of May 31, 1997, the number of
Association Shares beneficially owned by each director, the executive officer
named in the Summary Compensation Table above (who is also a director), each
associate director and all directors and executive officers of the Association
as a group.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF PERCENT OF COMMON
NAME OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP(1) STOCK OUTSTANDING
- ------------------------ ----------------------- -----------------
<S> <C> <C>
Richard C. Fellhauer................. 36,349 4.28%(2)
Berenice J. Mahacek.................. 10,066 1.20%(2)
Daniel C. Aubuchon................... 3,014 *
Stacey W. Braswell................... 3,464 *
Charles J. Wolter.................... 2,918 *
LeRoy C. Crook....................... 430 *
Kenneth J. Hrdlicka.................. 2,342 *
Michael J. Walsh..................... 9,583 1.15%(2)
Michael A. Deelo..................... 22,021 2.61%(2)
Seymour Bailis....................... 10,250 1.22%(2)
James W. Caulfield................... 380 *
Leonard O. Wolter.................... 7,938 *
John L. Tacke........................ -- --
All directors and executive officers
as a group
(13 persons)........................ 108,755 12.57%(3)
</TABLE>
- --------
* Less than 1%
(1) Unless otherwise indicated, the nature of beneficial ownership for shares
shown in this column is sole voting and investment power. The beneficially
owned shares set forth in this column include the following Association
Shares which the beneficial owner has the right to acquire within sixty
(60) days through the exercise of stock options: Fellhauer: 12,600;
Mahacek: 2,000; Aubuchon: 380; Braswell: 380; C. Wolter: 380; Crook: 380;
Hrdlicka: 380; Walsh: 1,260; Deelo: 6,800; Bailis: 950; Caulfield: 380; L.
Wolter: 2,260; J. Tacke: 0; and all directors and officers as a group:
28,150.
(2) Percentage is calculated on a partially diluted basis, assuming only the
exercise of stock options by such individual which are exercisable within
60 days.
(3) Percentage is calculated on a fully diluted basis, assuming the exercise
of all stock options which are exercisable within 60 days.
THE CONVERSION AND REORGANIZATION
THE BOARDS OF DIRECTORS OF THE MUTUAL HOLDING COMPANY, THE ASSOCIATION AND
THE HOLDING COMPANY HAVE APPROVED THE PLAN, AS HAS THE OTS, SUBJECT TO
APPROVAL BY THE MEMBERS OF THE MUTUAL HOLDING COMPANY AND THE STOCKHOLDERS OF
THE ASSOCIATION ENTITLED TO VOTE ON THE MATTER AND THE SATISFACTION OF CERTAIN
OTHER CONDITIONS. SUCH OTS APPROVAL, HOWEVER, DOES NOT CONSTITUTE A
RECOMMENDATION OR ENDORSEMENT OF THE PLAN BY SUCH AGENCY.
94
<PAGE>
GENERAL
The Boards of Directors of the Mutual Holding Company and the Association
unanimously adopted the Plan as of May 16, 1997, which was amended on June 20,
1997 and on August 8, 1997. The Plan has been approved by the OTS, subject to,
among other things, approval of the Plan by the Members of the Mutual Holding
Company and the stockholders of the Association. The Members' Meeting and the
Stockholders' Meeting have been called for this purpose on , 1997.
The following is a brief summary of pertinent aspects of the Plan and the
Conversion and Reorganization. The summary is qualified in its entirety by
reference to the Plan, which is available for inspection at each office of the
Association and at the offices of the OTS. The Plan also is filed as an
exhibit to the Registration Statement of which this Prospectus is a part,
copies of which may be obtained from the SEC. See "Available Information."
PURPOSES OF THE CONVERSION AND REORGANIZATION
The Boards of Directors of the Mutual Holding Company and the Association
believe that a conversion of the Mutual Holding Company to stock form and the
reorganization of the Association pursuant to the Plan is in the best
interests of the Mutual Holding Company and the Association, as well as the
best interests of the members of the Mutual Holding Company and the Public
Stockholders. The Conversion and Reorganization will result in the Association
being wholly owned by a stock holding company, which is a more common
structure and form of ownership than a mutual holding company. In addition,
the Conversion and Reorganization will result in the raising of additional
equity capital for the Association and the Holding Company and is expected to
result in a more active and liquid market for the Common Stock than currently
exists for the Association Shares, although there can be no assurances that
this will be the case. Finally, the Conversion and Reorganization has been
structured to reunite the accumulated earnings and profits tax attribute
retained by the Mutual Holding Company with the retained earnings of the
Association through a tax-free reorganization. This will increase the
Association's ability to pay dividends in the future.
If the Association had undertaken a standard conversion involving the
formation of a stock holding company in 1993, applicable OTS regulations would
have required a greater amount of Association Shares to be sold than resulted
in the amount of net proceeds raised in connection with the formation of the
Mutual Holding Company. In addition, if a standard conversion had been
conducted in 1993, management of the Association believed that it would have
been difficult to profitably invest the larger amount of capital that would
have been raised, when compared to the amount of net proceeds raised in
connection with the formation of the Mutual Holding Company. A standard
conversion in 1993 also would have immediately eliminated all aspects of the
mutual form of organization.
Subsequent to the formation of the Mutual Holding Company, there have been
certain changes in the regulations and policies of the OTS relating to mutual
holding companies. In recent years, the U.S. Congress has proposed major
overhauls to the structure of the thrift industry that include eliminating the
federal savings association charter, which is the charter the Association
currently operates under. These proposals also have created uncertainty
concerning the future of the mutual form of ownership. In addition, since the
Mutual Holding Company Reorganization in 1993, the Boards of Directors of the
Mutual Holding Company and the Association have realized a need to create
additional liquidity for the Association Shares and believe the Holding
Company and the Association can effectively deploy the additional equity
capital raised in the Conversion and Reorganization. In light of the
foregoing, the Boards of Directors of the Mutual Holding Company and the
Association believe that it is in the best interests of such companies and
their respective members and stockholders to undertake the Conversion and
Reorganization.
DESCRIPTION OF THE CONVERSION AND REORGANIZATION
On May 16, 1997, the Boards of Directors of the Association and the Mutual
Holding Company adopted the Plan, which was amended on June 20, 1997 and on
August 8, 1997. At the direction of the Association, the Holding Company was
incorporated under Delaware law on May 14, 1997 and is currently a first-tier
wholly
95
<PAGE>
owned subsidiary of the Association. Pursuant to the Plan, (i) the Mutual
Holding Company will convert from mutual form to a federal interim stock
savings association and simultaneously merge with and into the Association,
pursuant to which the Mutual Holding Company will cease to exist and the
Association Shares held by the Mutual Holding Company will be canceled, and
(ii) Interim will then merge with and into the Association. As a result of the
merger of Interim with and into the Association, the Association will become a
wholly-owned subsidiary of the Holding Company and the Public Association
Shares will be converted into the Exchange Shares pursuant to the Exchange
Ratio, which will result in the holders of such shares owning in the aggregate
approximately the same percentage of the Common Stock to be outstanding upon
the completion of the Conversion and Reorganization (i.e., the Conversion
Stock and the Exchange Shares) as the percentage of Association Shares owned
by them in the aggregate immediately prior to consummation of the Conversion
and Reorganization, before giving effect to (a) the payment of cash in lieu of
issuing fractional Exchange Shares, (b) any shares of Conversion Stock
purchased by the Public Stockholders in the Offering or the ESOP thereafter,
and (c) any exercise of dissenters' rights. Upon consummation of the
Conversion and Reorganization, the Association will change its name to
"Equality Savings Bank."
96
<PAGE>
The following diagram summarizes the current organizational structure of the
parties' ownership interests.
- --------------------------------- ---------------------------------
Public Stockholders First Missouri Financial, M.H.C.
- --------------------------------- ---------------------------------
| |
| 46.8% | 53.2%
| |
| |
---------------------------------------------------
|
| 100%
|
|
--------------------------------------------
Equality Savings and Loan Association, F.A.
--------------------------------------------
|
|
|
|
---------------------------------------------------
| |
| 100% | 100%
| |
- --------------------------------- ---------------------------------
Equality Commodity Corporation Equality Mortgage Corporation
- --------------------------------- ---------------------------------
|
|
|
|
- ---------------------------------
Dutch Town Development Co.
- ---------------------------------
97
<PAGE>
The following diagram reflects the Conversion and Reorganization including (i)
the merger of the Mutual Holding Company(following its conversion into an
interim federal stock savings association) with and into the Association, (ii)
the merger of Interim with and into the Association, pursuant to which the
Public Association Shares will be converted into Exchange Shares, and (iii) the
offering of Conversion Stock.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
--------------- ----------------- -------------------
Existing First Missouri New
Public Financial, ---- Public
Stockholders M.H.C. | MHC converts to Stockholders
| Stock Interim Thrift
--------------- ----------------- | -------------------
| | | |
| 46.8% | 53.2% | |
| | | |
| | | |
------------------------ ----------------------- |
| |
| 100% Stock |
| ---- Interim |
| | Thrift |
------------------------ | |
| ----------------------- |
Equality Savings and | Stock Interim Thrift |
---- Loan Association, F.A | Merges into Equality: |
| | 53.2% ownership cancelled |
| ---- |
| ------------------------ |
| | |
| | |
| | 100% Equality forms |
| | Bancorp |
| ------------------------ |
| |
| Equality Bancorp. Inc. ------------------------------------------------------------
| Offering of
| conversion stock
| ------------------------
| | Bankcorp forms Stock
| | 100% Interim Thrift
| |
| |
| ------------------------
|
| Stock
---- Interim
Thrift
------------------------
</TABLE>
Stock Interim Thrift merges into Equality;
existing public stockholders exchange shares of
Equality for same proportional ownership of
Bancorp: shares of Stock Interim Thrift held
by Bancorp continue as shares of survivor in
the merger; shares of Bancorp held by Equality
cancelled.
98
<PAGE>
-------------------------------------
Existing and New Public Stockholders
-------------------------------------
|
| 100%
|
|
-------------------------------------
Equality Bancorp, Inc.
-------------------------------------
|
| 100%
|
|
-------------------------------------------------------
Equality Savings Bank
(Formerly, Equality Savings and Loan Association, F.A.)
-------------------------------------------------------
|
|
|
---------------------------------------------------
| |
| 100% | 100%
| |
- --------------------------------- ---------------------------------
Equality Commodity Corporation Equality Mortgage Corporation
- --------------------------------- ---------------------------------
|
|100%
|
|
- ---------------------------------
Dutch Town Development Co.
- ---------------------------------
99
<PAGE>
The Plan of Merger providing for the merger of the Mutual Holding Company
with and into the Association, which is attached to the Plan as Annex A, and
the Plan of Merger providing for the merger of Interim with and into the
Association, which is attached to the Plan as Annex B, each must be approved
by the holders of at least two-thirds of the outstanding Association Shares at
the Stockholders' Meeting. The Plan of Merger between Interim and the
Association also must be approved by the Holding Company, as the sole
stockholder of Interim.
In addition, the Primary Parties have conditioned the consummation of the
Conversion and Reorganization upon the approval of the Plan, including the
Plans of Merger, by at least a majority of the votes cast, in person or by
proxy, by the Public Stockholders at the Stockholders' Meeting. The Plan is
subject to the approval of the OTS, and it also must be approved by at least a
majority of the total outstanding votes of the voting members of the Mutual
Holding Company at the Members' Meeting, which votes may be cast in person or
by proxy.
EFFECTS OF THE CONVERSION AND REORGANIZATION
General. Prior to the Conversion and Reorganization, each depositor in the
Association has both a deposit account in the institution and a pro rata
ownership interest in the net worth of the Mutual Holding Company based upon
the balance in his account, which interest may only be realized in the event
of a liquidation of the Mutual Holding Company. This ownership interest,
however, is tied to the depositor's account and has no tangible market value
separate from such deposit account. A depositor who reduces or closes his or
her account receives a portion or all of the balance in the account but
nothing for his ownership interest in the net worth of the Mutual Holding
Company, which is lost to the extent that the balance in the account is
reduced.
Consequently, the depositors of the Association normally have no way to
realize the value of their ownership interest in the Mutual Holding Company,
which has realizable value only in the unlikely event that the Mutual Holding
Company is liquidated. In such event, the depositors of record at that time,
as owners, would share pro rata in any residual surplus and reserves of the
Mutual Holding Company after other claims are paid.
Upon consummation of the Conversion and Reorganization, permanent
nonwithdrawable capital stock will be created to represent the ownership of
the net worth of the Holding Company. The Common Stock of the Holding Company
is separate and apart from deposit accounts and cannot be and is not insured
by the FDIC or any other governmental agency. Certificates are issued to
evidence ownership of the permanent stock. The stock certificates are
transferable, and therefore the stock may be sold or traded if a purchaser is
available with no effect on any account the seller may hold in the
Association.
Continuity. While the Conversion and Reorganization is being accomplished,
the normal business of the Association of accepting deposits and making loans
will continue without interruption. The Association will continue to be
subject to regulation by the OTS and the FDIC. After the Conversion and
Reorganization, the Association will continue to provide services for
depositors and borrowers under current policies by its present management and
staff.
The directors and officers of the Association at the time of the Conversion
and Reorganization will continue to serve as directors and officers of the
Association after the Conversion and Reorganization. The directors and
officers of the Holding Company consist of individuals currently serving as
directors and officers of the Mutual Holding Company and the Association, and
they generally will retain their positions in the Holding Company after the
Conversion and Reorganization.
Effect on Public Association Shares. Under the Plan, upon consummation of
the Conversion and Reorganization, the Public Association Shares shall be
converted into Common Stock based upon the Exchange Ratio without any further
action on the part of the holder thereof. Upon surrender of the Public
Association Shares, Common Stock will be issued in exchange for such shares.
See "--Delivery and Exchange of Certificates."
100
<PAGE>
Upon consummation of the Conversion and Reorganization, the Public
Stockholders of the Association, a federally chartered savings association,
will become stockholders of the Holding Company, a Delaware corporation. For a
description of certain changes in the rights of stockholders as a result of
the Conversion and Reorganization, see "Comparison of Stockholders' Rights"
below.
Effect on Deposit Accounts. Under the Plan, each depositor in the
Association at the time of the Conversion and Reorganization will
automatically continue as a depositor after the Conversion and Reorganization,
and each such deposit account will remain the same with respect to deposit
balance, interest rate and other terms, except to the extent that funds in the
account are withdrawn to purchase Conversion Stock to be issued in the
Offering. Each such account will be insured by the FDIC to the same extent as
before the Conversion and Reorganization. Depositors will continue to hold
their existing certificates, passbooks and other evidences of their accounts.
Effect on Loans. No loan outstanding from the Association will be affected
by the Conversion and Reorganization, and the amount, interest rate, maturity
and security for each loan will remain as they were contractually fixed prior
to the Conversion and Reorganization.
Effect on Voting Rights of Members. At present, all depositors and certain
borrowers of the Association are members of, and have voting rights in, the
Mutual Holding Company as to all matters requiring membership action. Upon
completion of the Conversion and Reorganization, depositors and borrowers will
cease to be members and will no longer be entitled to vote at meetings of the
Mutual Holding Company (which will cease to exist). Upon completion of the
Conversion and Reorganization, all voting rights in the Association will be
vested in the Holding Company as the sole stockholder of the Association.
Exclusive voting rights with respect to the Holding Company will be vested in
the holders of Common Stock. Depositors of and borrowers from the Association
will not have voting rights in the Holding Company after the Conversion and
Reorganization, except to the extent that they become stockholders of the
Holding Company.
Tax Effects. Consummation of the Conversion and Reorganization is
conditioned on prior receipt by the Mutual Holding Company and the Association
of rulings or opinions with regard to federal and Missouri income taxation
indicating that the adoption and implementation of the Plan set forth herein
will not be a taxable event for federal or Missouri income tax purposes to the
Mutual Holding Company, the Association or the Association's Eligible Account
Holders, Supplemental Eligible Account Holders or Other Members, except as
discussed below. See "--Tax Aspects" below.
Effect on Liquidation Rights. If the Mutual Holding Company ever liquidated,
all claims of the Mutual Holding Company's creditors would be paid first.
Thereafter, if there were any assets remaining, members of the Mutual Holding
Company would receive such remaining assets, pro rata, based upon the deposit
balances in their deposit accounts at the Association immediately prior to
liquidation. In the unlikely event that the Association were to liquidate
after the Conversion and Reorganization, all claims of creditors (including
those of depositors, to the extent of their deposit balances) also would be
paid first, followed by distribution of the "liquidation account" to certain
depositors (see "--Liquidation Rights" below), with any assets remaining
thereafter distributed to the Holding Company as the holder of the
Association's capital stock. Pursuant to the rules and regulations of the OTS,
a merger, consolidation, sale of bulk assets or similar combination or
transaction with another insured institution would not be considered a
liquidation for this purpose and, in such a transaction, the liquidation
account would be required to be assumed by the surviving institution.
Effect on Existing Compensation Plans. Upon consummation of the Plan, the
rights and obligations of the Association under Association's 1993 Stock
Option and Incentive Plan will be assumed by the Holding Company, and shares
of Common Stock will be issued (or reserved for issuance) pursuant to such
plan in substitution for Association Shares. See "Management of the Holding
Company and Association--Employee Benefit Plans."
101
<PAGE>
THE OFFERING
As part of the Conversion and Reorganization, the Holding Company is
offering up to 920,000 shares of Common Stock (i.e., Conversion Stock) at a
Purchase Price of $10.00 per share in the Subscription Offering. As described
in more detail below, nontransferable rights to subscribe for the Conversion
Stock in the Subscription Offering have been granted to certain persons
according to certain preference categories and, subject to the prior rights of
holders of Subscription Rights, the Holding Company is also offering shares of
Conversion Stock in the Community Offering to members of the general public.
In the event of an oversubscription in the Subscription and Community
Offering, up to 138,000 additional shares may be issued to reflect changes in
market and financial conditions and to cover additional subscriptions. The
Primary Parties may reject, in whole or in part, orders received in the
Community Offering in their sole discretion.
The Subscription and Community Offering will expire on the Expiration Date,
as described on the cover page of the Prospectus.
Subscription Offering. In accordance with the OTS's regulations,
subscription rights have been granted pursuant to the Subscription Offering
under the Plan to the following persons (collectively, the "Eligible
Subscribers") in the following order of priority: (1) Eligible Account Holders
(depositors with aggregate account balances of $50 or more on deposit at the
Association on March 31, 1996); (2) Employee Stock Benefit Plans (which would
include the ESOP but not include the 1997 MRP); (3) Supplemental Eligible
Account Holders (depositors with aggregate account balances of $50 or more on
deposit at the Association, other than officers or directors of the Mutual
Holding Company or the Association or any of their associates, on ,
1997); (4) Other Members (depositors and certain borrowers on , 1997, the
voting record date, who are not Eligible Account Holders or Supplemental
Eligible Holders); (5) directors, officers and employees of the Mutual Holding
Company and the Association; and (6) the Public Stockholders. Subscription
Rights are nontransferable and have been granted to Eligible Subscribers
without charge. No Eligible Subscriber is required to purchase any shares of
Conversion Stock in the Subscription Offering. All subscriptions received will
be subject to the availability of Conversion Stock after satisfaction of
subscriptions of all Eligible Subscribers having prior rights in the
Subscription Offering and to the maximum purchase limitations and other terms
and conditions set forth in the Plan and described below.
CATEGORY 1: ELIGIBLE ACCOUNT HOLDERS. Subject to the minimum purchase
limitation set forth in the Plan, each Eligible Account Holder will receive,
without payment, nontransferable subscription rights to purchase up to the
greater of (i) the number of shares of Conversion Stock that when combined
with Exchange Shares received aggregate 62,500 shares of Common Stock (or such
maximum purchase limitation as may be established for the Community Offering),
(ii) one-tenth of one percent of the total offering of shares of Conversion
Stock in the Subscription Offering or (iii) 15 times the product (rounded down
to the next whole number) obtained by multiplying the total number of shares
of Conversion Stock to be issued in the Subscription Offering 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.
Subscription rights received by officers and directors of the Mutual Holding
Company or the Association and their associates, as Eligible Account Holders,
based on their increased deposits in the Association in the one year period
preceding March 31, 1996 will be subordinated to all other subscriptions
involving the exercise of subscription rights pursuant to this category.
In the event of an oversubscription for shares of Conversion Stock by
Eligible Account Holders, available shares 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 his or her
total allocation equal to 100 shares or the total amount of his or her
subscription, whichever is less. Thereafter, any shares remaining will be
allocated among Eligible Account Holders in the proportion that the amount of
the qualifying deposit of each such Eligible Account Holder bears to the total
amount of the qualifying deposits of all such Eligible Account Holders. If the
amount of shares so allocated to one or more Eligible Account Holders exceeds
the
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amount subscribed for by such Eligible Account Holder(s), the excess will be
reallocated (one or more times, as necessary) among those Eligible Account
Holders whose subscriptions are still not fully satisfied on the same
principle until all available shares have been allocated or all subscriptions
satisfied. No fractional shares will be issued in connection with the
allocation of shares under this category.
CATEGORY 2: EMPLOYEE STOCK BENEFIT PLANS. Each Employee Stock Benefit Plan
(which would include the ESOP but not include the 1997 MRP) will receive,
without payment, subscription rights to purchase the number of shares of
Conversion Stock requested by such Employee Stock Benefit Plan, subject to (i)
the availability of sufficient shares of Conversion Stock after filling in
full all subscription orders of Eligible Account Holders and (ii) the maximum
purchase limitations described in "--Limitation on Conversion Stock Purchases"
below. The Employee Stock Benefit Plans will not be deemed to be associates of
any director, officer or employee of the Mutual Holding Company, the
Association or the Holding Company for purposes of the purchase limitations.
In the event that, after completion of the Subscription Offering, the number
of shares of Conversion Stock to be issued is increased to an amount greater
than the number of shares representing the maximum of the Offering Price Range
("Maximum Shares"), the Employee Stock Benefit Plans will have a priority
right to purchase any such shares exceeding the Maximum Shares up to the
purchase limitations described in "--Limitation on Conversion Stock Purchases"
below.
CATEGORY 3: SUPPLEMENTAL ELIGIBLE ACCOUNT HOLDERS. Subject to the minimum
purchase limitation set forth in the Plan, each Supplemental Eligible Account
Holder will receive, without payment, nontransferable subscription rights
entitling such Supplemental Eligible Account Holder to purchase up to the
greater of (i) number of shares of Conversion Stock that when combined with
Exchange Shares received aggregate 62,500 shares of Common Stock (or such
maximum purchase limitation as may be established for the Community Offering),
(ii) one-tenth of one percent of the total offering of shares of Conversion
Stock in the Subscription Offering or (iii) 15 times the product (rounded down
to the next whole number) obtained by multiplying the total number of shares
of Conversion Stock to be issued in the Subscription Offering 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. Any
subscription rights to purchase shares of Conversion Stock received by an
Eligible Account Holder in accordance with Category 1 will reduce to the
extent thereof the subscription rights to be distributed pursuant to Category
3.
In the event of an oversubscription for shares of Conversion Stock by
Supplemental Eligible Account Holders, available shares 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 his or her total allocation equal to 100
shares or the total amount of his or her subscription, whichever is less.
Thereafter, any shares remaining will be allocated among Supplemental Eligible
Account Holders in the proportion that the amount of the qualifying deposit of
each such Supplemental Eligible Account Holder bears to the total amount of
the qualifying deposits of all such Supplemental Eligible Account Holders. If
the amount of shares so allocated to one or more Supplemental Eligible Account
Holders exceeds the amount subscribed for by such Supplemental Eligible
Account Holder(s), the excess will be reallocated (one or more times, as
necessary) among those Supplemental Eligible Account Holders whose
subscriptions are still not fully satisfied on the same principle until all
available shares have been allocated or all subscriptions satisfied. No
fractional shares will be issued in connection with the allocation of shares
under this category.
CATEGORY 4: OTHER MEMBERS. Subject to the minimum purchase limitation set
forth in the Plan, each Other Member will receive, without payment,
nontransferable subscription rights entitling such Other Member to purchase up
to the greater of (i) the number of shares of Conversion Stock that when
combined with Exchange Shares received aggregate 62,500 shares of Common Stock
(or such maximum purchase limitation as may be established for the Community
Offering), and (ii) or one-tenth of one percent of the total offering of
Conversion Stock in the Subscription Offering.
In the event of an oversubscription for shares of Conversion Stock by Other
Members, the available shares of Conversion Stock will be allocated among the
subscribing Other Members pro rata (to the extent of their
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orders) in the same proportion as the amount of Conversion Stock subscribed
for by each Other Member bears to the amount of Conversion Stock subscribed
for by all Other Members.
CATEGORY 5: DIRECTORS, OFFICERS AND EMPLOYEES. To the extent that there are
sufficient shares remaining after satisfaction of all subscriptions by
Eligible Account Holders, Employee Stock Benefit Plans, Supplemental Eligible
Account Holders and Other Members, then directors, officers and employees of
the Mutual Holding Company, the Association and the Holding Company will
receive, without payment, nontransferable subscription rights to purchase up
to an aggregate of 21% of the shares of Conversion Stock offered in the
Subscription Offering. The ability of directors, officers and employees to
purchase Conversion Stock under this category is in addition to rights that
are otherwise available to them under the Plan, which generally allows such
persons to purchase in the aggregate up to 31% of the total number of shares
of Conversion Stock sold in the Offering. See "--Limitations on Conversion
Stock Purchases."
In the event of an oversubscription in this category, subscription rights
will be allocated among the individual directors, officers and employees on a
point system basis, whereby such individuals will receive subscription rights
in the proportion that the number of points assigned to each of them bears to
the total points assigned to all directors, officers and employees, provided
that no fractional shares shall be issued. One point will be assigned for each
year of service with the Mutual Holding Company and the Association, one point
for each salary increment of $5,000 per annum and five points for each office
presently held in the Mutual Holding Company and the Association, including
directorships. For information as to the number of shares of Conversion Stock
proposed to be purchased by certain of the directors and officers, see
"Beneficial Ownership of Capital Stock--Proposed Subscriptions by Directors
and Executive Officers."
CATEGORY 6: PUBLIC STOCKHOLDERS. To the extent that there are sufficient
shares remaining after satisfaction of subscriptions by Eligible Account
Holders, Employee Stock Benefit Plans, Supplemental Eligible Account Holders,
Other Members and directors, officers and employees, each Public Stockholder
as of the voting record date for the Stockholders' Meeting will receive,
without payment, nontransferable subscription rights to purchase Conversion
Stock in the Subscription Offering up to the greater of (i) the number of
shares of Conversion Stock that when combined with Exchange Shares received
aggregate 62,500 shares of Common Stock (or such maximum purchase limitations
as may be established for the Community Offering) and (ii) one-tenth of one
percent of the total offering of shares of Conversion Stock in the
Subscription Offering.
In the event of an oversubscription in this category, available shares will
be allocated among subscribing Public Stockholders on a pro rata basis in the
same proportion as each Public Stockholder's subscription bears to the total
subscriptions of all subscribing Public Stockholders, provided that no
fractional shares will be issued.
Expiration Date for the Subscription Offering. The Subscription Offering
will expire at 12:00 Noon, Central Time, on , 1997, unless extended by
the Holding Company with the approval of the OTS, if necessary. Such
extensions may not be extended beyond , 199 . Subscription rights which
have not been exercised prior to the Expiration Date will become void.
The Primary Parties will not execute orders until at least the minimum
number of shares of Conversion Stock (680,000 shares) have been subscribed for
or otherwise sold. If all shares have not been subscribed for or sold within
45 days after the Expiration Date, unless such period is extended with the
consent of the OTS, all funds delivered to the Holding Company pursuant to the
Subscription Offering will be returned promptly to the subscribers with
interest and all withdrawal authorizations will be canceled. If an extension
beyond the 45-day period following the Expiration Date is granted, the Holding
Company will notify subscribers of the extension of time and subscribers will
be resolicited and permitted to modify or cancel their subscriptions.
Community Offering. Subject to the minimum purchase limitation set forth in
the Plan and to the availability of shares of the Conversion Stock after
satisfaction of all subscriptions of Eligible Account Holders, Employee Stock
Benefit Plans, Supplemental Eligible Account Holders, Other Members,
directors, officers and
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employees and Public Stockholders, the remaining shares of the Conversion
Stock will be offered in the Community Offering to natural persons who reside
in Missouri and to whomever else the Prospectus is delivered ("Other
Purchasers"), giving preference to natural persons residing in the Missouri
counties of St. Louis City, St. Louis, Jefferson, St. Charles and Franklin
("Preferred Other Purchasers") in a manner designed to achieve the widest
possible distribution of Conversion Stock. The Community Offering may commence
concurrently with or as soon as practicable after completion of the
Subscription Offering and must be completed within 45 days after completion of
the Subscription Offering, unless extended with the approval of the OTS.
Other purchasers, together with associates of and persons acting in concert
with such persons, may purchase up to the number of shares of Conversion Stock
that when combined with Exchange Shares received aggregate 62,500 shares of
Common Stock. See "--Limitations on Conversion Stock Purchases." THE
OPPORTUNITY TO SUBSCRIBE FOR SHARES OF CONVERSION STOCK IN THE COMMUNITY
OFFERING CATEGORY IS SUBJECT TO THE RIGHT OF THE PRIMARY PARTIES, IN THEIR
SOLE DISCRETION, TO ACCEPT OR REJECT ANY SUCH ORDERS IN WHOLE OR IN PART
EITHER AT THE TIME OF RECEIPT OF AN ORDER OR AS SOON AS PRACTICABLE FOLLOWING
THE EXPIRATION DATE.
If orders are received in the Community Offering for shares in excess of the
available Conversion Stock, accepted subscriptions from Preferred Other
Purchasers will first be filled in full up to a maximum of 2% of the
Conversion Stock and thereafter remaining shares will be allocated on an equal
number of shares basis per order until all orders of Preferred Other
Purchasers have been filled, before any subscriptions in the Community
Offering are filled from subscribers who are not Preferred Other Purchasers.
If Preferred Other Purchasers order more shares of Conversion Stock than are
available for purchase in the Community Offering, available shares of
Conversion Stock will be allocated first to Preferred Other Purchasers pro
rata (to the extent of their orders) in the same proportion as the amount of
the Conversion Stock ordered by each bears to the total amount of the
Conversion Stock ordered by all Preferred Other Purchasers. The Primary
Parties may require a Person to provide evidence, satisfactory to the Primary
Parties, that such Person qualifies as a Preferred Other Purchaser.
Determinations as to whether a Person qualifies as a Preferred Other Purchaser
will be made by the Primary Parties in their sole discretion and will be final
and conclusive.
To the extent that there are shares of Conversion Stock available after
satisfaction of the subscriptions of Preferred Other Purchasers, accepted
subscriptions from subscribers in the Community Offering who are not Preferred
Other Purchasers will first be filled in full up to a maximum of 2% of the
Conversion Stock and thereafter remaining shares will be allocated on an equal
number of shares basis per order until all orders of subscribers who are not
Preferred Other Purchasers have been filled. If Subscribers who are not
Preferred Other Purchasers order more shares of Conversion Stock than are
available for purchase in the Community Offering, available shares of
Conversion Stock will be allocated first to such subscribers pro rata (to the
extent of their orders) in the same proportion as the amount of the Conversion
Stock ordered by each bears to the total amount of the Conversion Stock
ordered by all subscribers in the Community Offering who are not Preferred
Other Purchasers.
SYNDICATED COMMUNITY OFFERING
The Plan also provides that shares of Conversion Stock may be made available
in the Community Offering through a direct community marketing program that
may provide for the utilization of a broker, dealer, consultant, or investment
banking firm, experienced and expert in the sale of financial institution
securities. Should a syndicated community offering be utilized, Trident would,
acting as agent of the Holding Company, organize and form a syndicate of
registered-broker dealers as selected dealers to assist the Holding Company
and the Association in the sale of the Conversion Stock as part of the
Community Offering. Neither Trident nor any registered broker-dealer will have
any obligation to take or purchase shares of Conversion Stock in the
syndicated community offering; however, Trident 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 Purchase Price, and
hence will be sold at the same price as all other shares in the Offering.
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ALTERNATIVE OFFERINGS OF CONVERSION STOCK
If for any reason a Syndicated Community Offering of shares of Conversion
Stock not sold in the Subscription Offering or the Community Offering cannot
be effected, or in the event that an insignificant amount of Conversion Stock
is sold in the Subscription Offering or the Community Offering or in
syndicated community offering, other arrangements will be made for the
disposition of unsubscribed shares by the Holding Company, if possible. Such
other purchase arrangements would be subject to the approval of the OTS, and
with respect to federal securities matters, the SEC, and may provide for
purchases for investment purposes by directors, their associates and other
persons in excess of the limitations provided below and in excess of the
proposed director and officer purchases set forth above. If such other
purchase arrangements cannot be made, the Conversion and Reorganization will
terminate.
STOCK PRICING, EXCHANGE RATIO AND NUMBER OF SHARES TO BE ISSUED
The Plan requires that the purchase price of the Conversion Stock must be
based on the appraised pro forma market value of the Conversion Stock, as
determined on the basis of an independent valuation. The Primary Parties have
retained RP Financial to make such valuation. For its services in making its
appraisal and any expenses incurred in connection therewith, RP Financial will
receive a maximum fee of $22,500 plus out of pocket expenses, and a fee of no
greater than $5,000 plus out of pocket expenses for the preparation of a
business plan and other services performed in connection with the Holding
Company's application to the OTS. The Primary Parties have agreed to indemnify
RP Financial and its employees and affiliates against certain losses
(including any losses in connection with claims under the federal securities
laws) arising out of its services as appraiser, except where RP Financial's
liability results from its negligence or bad faith.
The Appraisal has been prepared by RP Financial in reliance upon the
information contained in this Prospectus, including the Consolidated Financial
Statements of the Association. RP Financial also considered the following
factors, among others: the present and projected operating results and
financial condition of the Primary Parties and the economic and demographic
conditions in the Association's existing market area; certain historical,
financial and other information relating to the Association; a comparative
evaluation of the operating and financial statistics of the Association with
those of other similarly situated publicly-traded companies located in
Missouri and Illinois and other regions of the United States; the aggregate
size of the offering of the Conversion Stock; the impact of the Conversion and
Reorganization on the Association's net worth and earnings potential; the
proposed dividend policy of the Holding Company and the Association; and the
trading market for the Association Shares and securities of comparable
companies and general conditions in the market for such securities.
On the basis of the foregoing, RP Financial has advised the Primary Parties
in its opinion the estimated pro forma market value of the Conversion Stock
and Exchange Shares was $15,037,594 as of June 20, 1997. Because the holders
of the Public Association Shares will continue to hold the same aggregate
percentage ownership interest in the Holding Company as they currently hold in
the Association (before giving effect to the payment of cash in lieu of
issuing fractional Exchange Shares, any exercise of dissenters' rights and any
shares of Conversion Stock purchased by the Association's stockholders in the
Offering or by the ESOP thereafter), the Appraisal was multiplied by the
Mutual Holding Company's percentage interest in the Association (i.e., 53.2%)
to determine the midpoint of the valuation ($8,000,000), and the minimum and
maximum of the valuation were set at 15% below and above the midpoint,
respectively, resulting in a range of $6,800,000 to $9,200,000. The Boards of
Directors of the Primary Parties determined that the Conversion Stock would be
sold at $10.00 per share, resulting in a range of 680,000 to 920,000 shares of
Conversion Stock being offered. Upon consummation of the Conversion and
Reorganization, the Conversion Stock and the Exchange Shares will represent
approximately 53.2% and 46.8%, respectively, of the Holding Company's total
outstanding shares. The Boards of Directors of the Primary Parties reviewed RP
Financial's appraisal report, including the methodology and the assumptions
used by RP Financial, and determined that the Offering Price Range was
reasonable and adequate. The Boards of Directors of the Primary Parties also
established the formula for determining the Exchange Ratio.
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Based upon such formula and the Offering Price Range, the Exchange Ratio
ranged from a minimum of 1.5283 to a maximum of 2.0678 Exchange Shares for
each Public Association Share, with a midpoint of 1.7981. Based upon these
Exchange Ratios, the Holding Company expects to issue between 598,195 and
809,323 Exchange Shares to the holders of Public Association Shares
outstanding immediately prior to the consummation of the Conversion and
Reorganization. The Offering Price Range and the Exchange Ratio may be amended
with the approval of the OTS, if required, or if necessitated by subsequent
developments in the financial condition of any of the Primary Parties or
market conditions generally. In the event the Appraisal is updated to below
$12,781,955 or above $19,887,218, such updated Appraisal will be filed with
the SEC by post-effective amendment.
Based upon current market and financial conditions and recent practices and
policies of the OTS, in the event the Holding Company receives orders for
Conversion Stock in excess of $9,200,000 (the maximum of the Offering Price
Range) and up to $10,580,000 the maximum of the Offering Price Range, as
adjusted by 15%), the Holding Company may be required by the OTS to accept all
such orders. No assurances, however, can be made that the Holding Company will
receive orders for Conversion Stock in excess of the maximum of the Offering
Price Range or that, if such orders are received, that all such orders will be
accepted because the Holding Company's final valuation and number of shares to
be issued are subject to the receipt of an updated appraisal from RP Financial
which reflects such an increase in the valuation and the approval of such
increase by the OTS. There is no obligation or understanding on the part of
management to take and/or pay for any shares of Conversion Stock in order to
complete the Offering.
The following table sets forth, based upon the minimum, midpoint, maximum
and 15% above the maximum of the Offering Price Range, the following: (i) the
total number of shares of Conversion Stock and Exchange Shares to be issued in
the Conversion and Reorganization, (ii) the percentage of the total Common
Stock represented by the Conversion Stock and the Exchange Shares, (iii) the
total shares of Common Stock to be outstanding upon consummation of the
Conversion and Reorganization, and (iv) the Exchange Ratio. The table assumes
that no holder of Public Association Shares exercises dissenters' rights and
that there is no cash paid in lieu of issuing fractional Exchange Shares.
<TABLE>
<CAPTION>
CONVERSION STOCK EXCHANGE SHARES
TO BE ISSUED TO BE ISSUED TOTAL SHARES OF
----------------- --------------- COMMON STOCK TO EXCHANGE
AMOUNT PERCENT AMOUNT PERCENT BE OUTSTANDING RATIO
--------- ------- ------- ------- --------------- --------
<S> <C> <C> <C> <C> <C> <C>
Minimum............. 680,000 53.2% 598,195 46.8% 1,278,195 1.5283
Midpoint............ 800,000 53.2% 703,759 46.8% 1,503,759 1.7981
Maximum............. 920,000 53.2% 809,323 46.8% 1,729,323 2.0678
15% above Maximum... 1,058,000 53.2% 930,721 46.8% 1,988,721 2.3779
</TABLE>
RP Financial's valuation is not intended, and must not be construed, as a
recommendation of any kind as to the advisability of purchasing such shares.
RP Financial did not independently verify the Consolidated Financial
Statements and other information provided by the Association and the Mutual
Holding Company, nor did RP Financial value independently the assets or
liabilities of the Association. The valuation considers the Association and
the Mutual Holding Company as going concerns and should not be considered as
an indication of the liquidation value of the Association and the Mutual
Holding Company. Moreover, because such valuation is necessarily based upon
estimates and projections of a number of matters, all of which are subject to
change from time to time, no assurance can be given that persons purchasing
Conversion Stock or receiving Exchange Shares in the Conversion and
Reorganization will thereafter be able to sell such shares at prices at or
above the Purchase Price or in the range of the foregoing valuation of the pro
forma market value thereof.
No sale of shares of Conversion Stock or issuance of Exchange Shares may be
consummated unless prior to such consummation RP Financial confirms that
nothing of a material nature has occurred which, taking into account all
relevant factors, would cause it to conclude that the Purchase Price is
materially incompatible with the estimate of the pro forma market value of a
share of Common Stock upon consummation of the Conversion and Reorganization.
If such is not the case, a new Offering Price Range may be set, a new Exchange
Ratio may
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be determined based upon the new Offering Price Range, a new Subscription
Offering and Community Offering and/or syndicated community offering may be
held or such other action may be taken as the Primary Parties shall determine
and the OTS may permit or require.
Depending upon market or financial conditions following the commencement of
the Subscription Offering, the total number of shares of Conversion Stock to
be issued in the Offering may be increased or decreased without a
resolicitation of subscribers, provided that the product of the total number
of shares times the Purchase Price is not below the minimum or more than 15%
above the maximum of the Offering Price Range (exclusive of the number of
shares of Conversion Stock which may be issued to the ESOP out of authorized
but unissued shares of Common Stock to the extent such shares are not
purchased in the Offering due to an oversubscription). In the event market or
financial conditions change so as to cause the aggregate Purchase Price of the
shares to be below the minimum of the Offering Price Range or more than 15%
above the maximum of such range (exclusive of additional shares that may be
issued to the ESOP), purchasers will be resolicited (i.e., permitted to
continue their orders, in which case they will need to affirmatively reconfirm
their subscriptions prior to the expiration of the resolicitation offering or
their subscription funds will be promptly refunded with interest at the
Association's passbook rate of interest, or be permitted to modify or rescind
their subscriptions). Any increase or decrease in the number of shares of
Conversion Stock will result in a corresponding change in the number of
Exchange Shares, so that upon consummation of the Conversion and
Reorganization the Conversion Stock and the Exchange Shares will represent
approximately 53.2% and 46.8%, respectively, of the Holding Company's total
outstanding shares of Common Stock (exclusive of the effects of the exercise
of outstanding stock options).
An increase in the number of shares of Conversion Stock, either as a result
of an increase in the appraisal of the estimated pro forma market value or due
to the purchase by the ESOP of authorized but unissued shares (see "--The
Offering--Subscription Offering--Category 2: Employee Stock Benefit Plans"),
would decrease both a subscriber's ownership interest and the Holding
Company's pro forma net earnings and stockholders' equity on a per share basis
while increasing pro forma net earnings and stockholders' equity on an
aggregate basis. A decrease in the number of shares of Conversion Stock would
increase both a subscriber's ownership interest and the Holding Company's pro
forma net earnings and stockholders' equity on a per share basis while
decreasing pro forma net earnings and stockholders' equity on an aggregate
basis. See "Risk Factors--Possible Dilutive Effect of Issuance of Additional
Shares" and "Pro Forma Data."
The appraisal report of RP Financial has been flied as an exhibit to the
Registration Statement and Application for Conversion of which this Prospectus
is a part and is available for inspection in the manner set forth under
"Additional Information."
PERSONS IN NONQUALIFIED STATES OR FOREIGN COUNTRIES
The Holding Company will make reasonable efforts to comply with the
securities laws of all states in the United States in which persons entitled
to subscribe for stock pursuant to the Plan reside. The Holding Company,
however, is 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 all of the following apply: (a) the number of
persons otherwise eligible to subscribe for shares under the Plan who reside
in such jurisdiction is small; (b) the granting of subscription rights or the
offer or sale of shares of Conversion Stock to such persons would require any
of the Primary Parties or their officers or directors, under the laws of such
jurisdiction, to register as a broker, dealer, salesman or selling agent or to
register or otherwise qualify its securities for sale in such jurisdiction or
to qualify as a foreign corporation or file a consent to service of process in
such jurisdiction; and (c) such registration, qualification or filing in the
judgment of the Primary Parties would be impracticable or unduly burdensome
for reasons of costs or otherwise. Where the number of persons eligible to
subscribe for shares in one state is small, the Primary Parties would intend
to base their decision as to whether or not to offer the Conversion Stock in
such state on a number of factors, including but not limited to the size of
accounts held by account holders in the state, the cost of registering or
qualifying the shares or the need to register the Holding Company, its
officers or directors as brokers, dealers or salesmen.
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LIMITATIONS ON CONVERSION STOCK PURCHASES
The Plan includes the following limitations on the number of shares of
Conversion Stock that may be purchased:
(a) Purchases of Conversion Stock in the Subscription Offering, including
purchases in the Community Offering, by any person, and associates thereof,
or a group acting in concert (as such terms are defined in the Plan), shall
be limited to that number of shares of Conversion Stock that when combined
with Exchange Shares received aggregate 62,500 shares of Common Stock,
except that the Employee Stock Benefit Plans may purchase up to an
aggregate of 7% of the number of shares of Conversion Stock to be issued in
the Offering. Shares to be held by the 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.
(b) Directors and officers of the Association and the Mutual Holding
Company and any associates thereof may not purchase in the aggregate more
than 31% of the shares of Conversion Stock.
(c) The Boards of Directors of the Primary Parties will not be deemed to
be associates or a group acting in concert with other directors or trustees
solely as a result of membership on the Board of Directors.
(d) To the extent that shares of Conversion Stock are available, no
subscriber will be allowed to purchase less than 25 shares of Conversion
Stock.
(e) The Boards of Directors of the Primary Parties, with the approval of
the OTS and without further approval of members of the Mutual Holding
Company or the Public Stockholders, may, as a result of market conditions
and other factors, increase or decrease the purchase limitation in
paragraph (a) above or the number of shares of Conversion Stock to be sold
in the Conversion and Reorganization; provided that in no event may such
purchase limitations be less than 1% or greater than 5% of the total number
of shares of Common Stock to be issued in the Conversion and
Reorganization, which purchase limit shall include Exchange Shares
received. If the Primary Parties increase the maximum purchase limitations
or the number of shares of Conversion Stock to be sold in the Conversion
and Reorganization, the Holding Company is only required to resolicit
persons who subscribed for the maximum purchase amount and may, in the sole
discretion of the Holding Company, resolicit certain other large
subscribers. If the Primary Parties decrease the maximum purchase
limitations or the number of shares of Conversion Stock to be sold in the
Conversion and Reorganization, 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.
(f) The purchase limitations in paragraphs (a) and (b) above may be
increased to exceed 5% of the shares of Common Stock, provided that orders
for Common Stock exceeding 5% shall not exceed in the aggregate 10% of the
shares of Common Stock sold in the Conversion and Reorganization, including
Exchange Shares, except that Employee Stock Benefit Plans may purchase up
to an aggregate of 7% of the number of shares of Conversion Stock to be
issued in the Offering.
(g) Each Person purchasing Conversion Stock in the Conversion and
Reorganization 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. If the number of shares of Conversion Stock
otherwise allocable pursuant to the Plan to any person or that person's
associates would be in excess of the maximum number of shares permitted as
set forth above, the number of shares of Conversion Stock allocated to each
such person shall be reduced to the lowest purchase limitation applicable
to that person, and then the number of shares allocated to each group
consisting of a person and that person's associates shall be reduced so
that the aggregate allocation to that person and his or her associates
complies with the above purchase limitations, and such maximum number of
shares shall be reallocated among that person and his or her associates as
they may agree, or in the absence of an agreement, in proportion to the
shares subscribed for by each (after first applying the purchase
limitations applicable to each person, separately).
(h) The Primary Parties shall have the right to take all such actions as
they may, in their sole discretion, deem necessary, appropriate or
advisable in order to monitor and enforce the terms, condition, limitations
and restrictions contained in the Plan and the terms, conditions and
representations contained in
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the order form for the Conversion Stock, including, but not limited to, the
absolute right (subject only to any necessary regulatory approvals or
concurrences) to reject, limit or revoke acceptance of any subscription or
order and to delay, terminate or refuse to consummate any sale of
Conversion Stock that they believe might violate, or is designed to, or is
any part of a plan to, evade or circumvent such terms, conditions,
limitations, restrictions and representations. Any such action shall be
final, conclusive and binding on all persons, and the Primary Parties and
their respective Boards shall be free from any liability to any person on
account of any such action.
(i) Notwithstanding anything to the contrary contained in the Plan
(except as otherwise may be required by the OTS), the Public Stockholders
will not have to sell any Association Shares or to be limited in receiving
Exchange Shares even if their ownership of Association Shares when
converted into Exchange Shares would exceed an applicable purchase
limitation.
For purposes of the purchase limitations set forth in the Plan of
Conversion, Exchange Shares will be valued at the same price that shares of
Conversion Stock are issued in the Offering.
In the event of an increase in the total number of shares of Conversion
Stock offered in the Conversion due to an increase in the Offering Price Range
of up to 15% (the "Adjusted Maximum"), the additional shares will be allocated
in the following order of priority in accordance with the Plan: (i) in the
event that there is an oversubscription by Eligible Account Holders, to fill
Employee Stock Benefit Plan subscriptions; (ii) in the event that there is an
oversubscription by Eligible Account Holders, to fill unfulfilled
subscriptions of Eligible Account Holders, inclusive of the Adjusted Maximum;
(iii) in the event that there is an oversubscription by Supplemental Eligible
Account Holders, to fill unfulfilled subscriptions of Supplemental Eligible
Account Holders, inclusive of the Adjusted Maximum; (iv) in the event that
there is an oversubscription by Other Members, to fill unfulfilled
subscriptions of Other Members, inclusive of the Adjusted Maximum; (v) in the
event there is an oversubscription by directors, officers and employees of the
Mutual Holding Company, the Association and the Holding Company, to fill
unfulfilled subscriptions of directors, officers and employees, inclusive of
the Adjusted Maximum; (vi) in the event that there is an oversubscription by
Public Stockholders, to fill unfulfilled subscriptions of Public Stockholders,
inclusive of the Adjusted Maximum; and (vii) to fill unfulfilled subscriptions
in the Community Offering to the extent possible, inclusive of the Adjusted
Maximum.
MARKETING ARRANGEMENTS
The Primary Parties have engaged Trident as a financial advisor and
marketing agent in connection with the offering of the Conversion Stock, and
Trident has agreed to use its best efforts to solicit subscriptions and
purchase orders for shares of Conversion Stock in the Offering. Trident is a
member of the NASD and a broker-dealer registered with the SEC. Trident will
provide various services including, but not limited to, (1) training and
educating the Association's employees who will be performing certain
ministerial functions in the Offering regarding the mechanics and regulatory
requirements of the stock sales process; (2) providing its employees to staff
the Stock Information Center to assist the Association's customers and
internal stock purchasers and to keep records of orders for shares of
Conversion Stock; (3) targeting the Holding Company's sales efforts, including
preparation of marketing materials; and (4) assisting in the solicitation of
proxies of members of the Mutual Holding Company and stockholders of the
Association for use at the Members' Meeting and the Stockholders' Meeting,
respectively. Based upon negotiations between the Primary Parties and Trident,
Trident will receive a fixed fee of $90,000. In the event that a selected
dealers agreement is entered into in connection with a syndicated community
offering, the Association will pay a fee to Trident and to selected broker-
dealers for shares sold by such NASD member firms pursuant to a selected
dealers agreement in an amount to be agreed upon jointly by Trident, the
Holding Company and the Association to reflect market requirements at the time
of the syndicated community offering. Fees paid to Trident and to any other
broker-dealer may be deemed to be underwriting fees, and Trident and such
broker-dealers may be deemed to be underwriters. Trident also will be
reimbursed for its reasonable out-of-pocket expenses (including legal fees and
expenses) not to exceed $30,000. The Primary Parties have agreed to indemnify
Trident in connection with certain claims or liabilities, including certain
liabilities under the Securities Act.
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Directors and executive officers of the Primary Parties may participate in
the solicitation of offers to purchase Conversion Stock. Other employees of
the Association may participate in the Offering in ministerial capacities or
providing clerical work in effecting a sales transaction. Such other employees
have been instructed not to solicit offers to purchase Conversion Stock or
provide advice regarding the purchase of Conversion Stock. Questions of
prospective purchasers will be directed to executive officers or registered
representatives. The Holding Company will rely on Rule 3a4-1 under the
Exchange Act, and sales of Conversion Stock will be conducted within the
requirements of Rule 3a4-1, so as to permit officers, directors and employees
to participate in the sale of Conversion Stock. No officer, director or
employee of the Primary Parties will be compensated in connection with his
solicitations or other participation in the Offering or the Exchange by the
payment of commissions or other remuneration based either directly or
indirectly on transactions in the Conversion Stock and Exchange Shares,
respectively.
PROCEDURE FOR PURCHASING SHARES IN THE OFFERING
To ensure that each subscriber receives a Prospectus at least 48 hours
before the Expiration Date in accordance with Rule 15c2-8 of the Exchange Act,
no Prospectus will be mailed any later than five days prior to such date or
hand delivered any later than two days prior to such date. Execution of the
order form will confirm receipt or delivery of the Prospectus in accordance
with Rule 15c2-8. Order forms will only be distributed with a Prospectus.
To purchase shares in the Offering, an executed order form with the required
payment for each share subscribed for, or with appropriate authorization for
withdrawal from a deposit account at the Association (which may be given by
completing the appropriate blanks in the order form), must be received by the
Association at any of its offices by 12:00 Noon, Central Time, on the
Expiration Date. In addition, the Primary Parties will require a prospective
purchaser to execute a certification in the form required by applicable OTS
regulations in connection with any sale of Conversion Stock. Order forms which
are not received by such time or are executed defectively or are received
without full payment (or appropriate withdrawal instructions) are not required
to be accepted. In addition, the Association will not accept orders submitted
on photocopied or facsimiled order forms nor order forms unaccompanied by an
executed certification form. The Primary Parties have the right to waive or
permit the correction of incomplete or improperly executed forms, but do not
represent that they will do so. Once received, an executed order form may not
be modified, amended or rescinded without the consent of the Primary Parties,
unless the Offering has not been completed within 45 days after the end of the
Subscription and Community 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 priority, depositors as of the close of business on the Eligibility
Record Date (March 31, 1996) or the Supplemental Eligibility Record Date
( , 1997) and depositors and certain borrowers as of the close of business
on the voting record date for the Members' Meeting ( , 1997) must list on
the order form all accounts in which they have an ownership interest, giving
all names in each account and the account numbers.
Payment for subscriptions may be made (i) in cash if delivered in person at
any office of the Association, (ii) by check or money order or (iii) by
authorization of withdrawal from deposit accounts maintained with the
Association. Interest will be paid on payments made by cash, check or money
order at the Association's passbook rate of interest from the date payment is
received until completion or termination of the Conversion and Reorganization.
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 and Reorganization, but a hold will be placed on such funds,
thereby making them unavailable to the depositor until completion or
termination of the Conversion and Reorganization.
If a subscriber authorizes the Association to withdraw the aggregate amount
of the purchase price from a deposit account, the Association will do so as of
the effective date of the Conversion and Reorganization. The Association will
waive any applicable penalties for early withdrawal from certificate accounts.
If the remaining
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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 passbook rate.
Employee Stock Benefit Plans will not be required to pay for the shares
subscribed for at the time it subscribes, but rather may pay for such shares
of Conversion Stock subscribed for by it at the Purchase Price upon
consummation of the Offering, provided that there is in force from the time of
its subscription until such time, a loan commitment from an unrelated
financial institution or the Holding Company to lend to the Employee Stock
Benefit Plan, at such time, the aggregate Purchase Price of the shares for
which it subscribed.
Owners of self-directed Individual Retirement Accounts ("IRAs") may use the
assets of such IRAs to purchase shares of Conversion Stock in the Offering,
provided that such IRAs are not maintained at the Association. Persons with
self-directed IRAs maintained at the Association must have their accounts
transferred to an unaffiliated institution or broker to purchase shares of
Conversion Stock in the Offering. In addition, ERISA provisions and IRS
regulations require that officers, directors and 10% stockholders who use
self-directed IRA funds to purchase shares of Conversion Stock in the Offering
make such purchases for the exclusive benefit of the IRAs. Any interested
parties wishing to use IRA funds for stock purchases are advised to contact
the Stock Information Center for additional information and allow sufficient
time for the account to be transferred as required.
RESTRICTIONS ON TRANSFER OF SUBSCRIPTION RIGHTS AND SHARES
Pursuant to the rules and regulations of the OTS, no person with
subscription rights may transfer or enter into any agreement or understanding
to transfer the legal or beneficial ownership of the subscription rights
issued under the Plan or the shares of Conversion Stock to be issued upon
their exercise. Such rights may be exercised only by the person to whom they
are granted and only for that person's account. Persons exercising such
subscription rights will be required to certify that they are purchasing
shares solely for their own account and that they have no agreement or
understanding regarding the sale or transfer of such shares. Federal
regulations also prohibit any person from offering or making an announcement
of an offer or intent to make an offer to purchase such subscription rights or
shares of Conversion Stock prior to the completion of the Conversion and
Reorganization.
THE PRIMARY PARTIES 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.
LIQUIDATION RIGHTS
In the unlikely event of a complete liquidation of the Mutual Holding
Company in its present mutual form, each depositor of the Association would
receive his or her pro rata share of any assets of the Mutual Holding Company
remaining after payment of claims of all creditors. 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 was to the total value of all deposit accounts in
the Association at the time of liquidation. After the Conversion and
Reorganization, each depositor, in the event of a complete liquidation of the
Association, would have a claim as a creditor of the same general priority as
the claims of all other general creditors of the Association. However, except
as described below, his or her claim would be solely in the amount of the
balance in his or her deposit account plus accrued interest. He or she would
not have an interest in the value or assets of the Association or the Holding
Company above that amount.
The Plan provides for the establishment, upon the completion of the
Conversion and Reorganization, of a special "liquidation account" for the
benefit of Eligible Account Holders and Supplemental Eligible Account Holders
in an amount equal to the amount of any dividends waived by the Mutual Holding
Company plus the greater of (1) the Association's retained earnings of
$8,067,000 at March 31, 1993, the date of the latest
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statement of financial condition contained in the final offering circular
utilized in the Mutual Holding Company Reorganization, or (2) 53.2% of the
Association's total stockholders' equity as reflected in its latest balance
sheet contained in the final Prospectus utilized in the Offering. As of the
date of this Prospectus, the initial balance of the liquidation account would
be $ . Each Eligible Account Holder and Supplemental Eligible Account
Holder, if he were to continue to maintain his deposit account at the
Association, would be entitled, upon a complete liquidation of the Association
after the Conversion and Reorganization, to an interest in the liquidation
account prior to any payment to the Holding Company as the sole stockholder of
the Association. Each Eligible Account Holder and Supplemental Eligible
Account Holder would have an initial interest in such liquidation account for
each deposit account, including passbook accounts, transaction accounts such
as checking accounts, money market deposit accounts and certificates of
deposit, held in the Association at the close of business on March 31, 1996 or
, 1997, as the case may be. Each Eligible Account Holder and Supplemental
Eligible Account Holder will have a pro rata interest in the total liquidation
account balance based on the proportion that the balance of each such deposit
account on the March 31, 1996 Eligibility Record Date (or the , 1997
Supplemental Eligibility Record Date, as the case may be) bore to the balance
of all deposit accounts in the Association on such date.
If, however, on any March 31 annual closing date of the Association,
commencing March 31, 1998, the amount in any deposit account is less than the
amount in such deposit account on March 31, 1996 or , 1997, as the case
may be, or any other annual closing date, then the interest in the liquidation
account relating to such deposit account would be reduced by the proportion of
any such reduction, and such interest will cease to exist if such deposit
account is closed. In addition, no interest in the liquidation account would
ever be increased despite any subsequent increase in the related deposit
account. Any assets remaining after the above liquidation rights of Eligible
Account Holders and Supplemental Eligible Account Holders are satisfied would
be distributed to the Holding Company as the sole stockholder of the
Association.
TAX ASPECTS
Consummation of the Conversion and Reorganization is expressly conditioned
upon prior receipt of either a ruling or an opinion of counsel or of a
certified public accounting firm with respect to federal tax laws, and either
a ruling or an opinion with respect to Missouri income tax laws, to the effect
that consummation of the transactions contemplated hereby will not result in a
taxable reorganization under the provisions of the applicable codes or
otherwise result in any adverse tax consequences to the Mutual Holding
Company, the Association, the Holding Company or to account holders receiving
subscription rights, except to the extent, if any, that subscription rights
are deemed to have fair market value on the date such rights are issued. This
condition may not be waived by the Primary Parties.
KPMG Peat Marwick LLP has issued an opinion to the Holding Company, the
Association and the Mutual Holding Company to the effect that, for federal
income tax purposes: (1) the converted Mutual Holding Company's merger with
and into the Association, with the Association being the surviving
institution, will qualify as a reorganization within the meaning of Section
368(a)(1)(A) of the Code, (2) no gain or loss will be recognized by the
Association upon the receipt of the assets of the Mutual Holding Company in
such merger, (3) the merger of Interim with and into the Association, with the
Association being the surviving institution, will qualify as a reorganization
within the meaning of Section 368(a)(1)(A) and Section 368(a)(2)(E) of the
Code, (4) no gain or loss will be recognized by Interim upon the transfer of
its assets to the Association, (5) no gain or loss will be recognized by the
Association upon the receipt of the assets of Interim, (6) no gain or loss
will be recognized by the Holding Company upon the receipt of Association
common stock solely in exchange for Common Stock, (7) no gain or loss will be
recognized by the Public Stockholders upon the receipt of Common Stock solely
in exchange for their Public Association Shares, (8) the basis of the Common
Stock to be received by the Public Stockholders will be the same as the basis
of the Public Association Shares surrendered in exchange therefor, before
giving effect to any payment of cash in lieu of fractional shares, (9) the
holding period of the Common Stock to be received by the Public Stockholders
will include the holding period of the Public Association Shares, provided
that the Public Association Shares were held as a capital asset on the date of
the exchange, and (10) no gain or loss will be recognized by Eligible Account
Holders and Supplemental Eligible
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Account Holders upon distribution to them of subscription rights to purchase
shares of Conversion Stock, provided that the amount paid for the Conversion
Stock is equal to the fair market value of the Conversion Stock.
KPMG Peat Marwick LLP has also issued an opinion to the Holding Company and
the Association to the effect that there are no material adverse Missouri
income tax consequences as a result of the Conversion and Reorganization.
Unlike private rulings, an opinion is not binding on the IRS and the IRS
could disagree with conclusions reached therein. In the event of such
disagreement, there can be no assurance that the IRS would not prevail in a
judicial or administrative proceeding.
DELIVERY AND EXCHANGE OF CERTIFICATES
Conversion Stock. Certificates representing Conversion Stock issued in
connection with the Offering will be mailed by the Holding Company's transfer
agent for the Common Stock to the persons entitled thereto at the addresses of
such persons appearing on the stock order form for Conversion Stock as soon as
practicable following consummation of the Conversion and Reorganization. Any
certificates returned as undeliverable will be held by the Holding Company
until claimed by persons legally entitled thereto or otherwise disposed of in
accordance with applicable law. Until certificates for Conversion Stock are
available and delivered to subscribers, subscribers may not be able to sell
such shares.
Exchange Shares. After consummation of the Conversion and Reorganization,
each holder of a certificate or certificates theretofore evidencing issued and
outstanding Association Shares (other than the Mutual Holding Company), upon
surrender of the same to an agent, duly appointed by the Holding Company,
which is anticipated to be the transfer agent for the Common Stock (the
"Exchange Agent"), shall be entitled to receive in exchange therefor a
certificate or certificates representing the number of full shares of Common
Stock for which the Association Shares theretofore represented by the
certificate or certificates so surrendered shall have been converted based on
the Exchange Ratio. The Exchange Agent shall promptly mail to each such holder
of record of an outstanding certificate which immediately prior to the
consummation of the Conversion and Reorganization evidenced Association
Shares, and which is to be exchanged for Common Stock based on the Exchange
Ratio as provided in the Plan, a form of letter of transmittal (which shall
specify that delivery shall be effected, and risk of loss and title to such
certificate shall pass, only upon delivery of such certificate to the Exchange
Agent) advising such holder of the terms of the exchange effected by the
Conversion and Reorganization and of the procedure for surrendering to the
Exchange Agent such certificate in exchange for a certificate or certificates
evidencing Common Stock. The Association's stockholders should not forward
Association Shares certificates to the Association or the Exchange Agent until
they have received the transmittal letter.
No holder of a certificate theretofore representing Association Shares shall
be entitled to receive any dividends in respect of the Common Stock into which
such shares shall have been converted by virtue of the Conversion and
Reorganization until the certificate representing such Association Shares is
surrendered in exchange for certificates representing shares of Common Stock.
In the event that dividends are declared and paid by the Holding Company in
respect of Common Stock after the consummation of the Conversion and
Reorganization but prior to surrender of certificates representing Association
Shares, dividends payable in respect of shares of Common Stock not then issued
shall accrue (without interest). Any such dividends shall be paid (without
interest) upon surrender of the certificates representing such Association
Shares. The Holding Company shall be entitled, after the consummation of the
Conversion and Reorganization, to treat certificates representing Association
Shares as evidencing ownership of the number of full shares of Common Stock
into which the Association Shares represented by such certificates shall have
been converted, notwithstanding the failure on the part of the holder thereof
to surrender such certificates.
The Holding Company shall not be obligated to deliver a certificate or
certificates representing shares of Common Stock to which a holder of
Association Shares would otherwise be entitled as a result of the Conversion
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and Reorganization until such holder surrenders the certificate or
certificates representing the Association Shares for exchange as provided
above, or, in default thereof, an appropriate affidavit of loss and indemnity
agreement and/or a bond as may be required in each case by the Holding
Company. If any certificate evidencing shares of Common Stock is to be issued
in a name other than that in which the certificate evidencing Association
Shares surrendered in exchange therefor is registered, it shall be a condition
of the issuance thereof that the certificate so surrendered shall be properly
endorsed and otherwise in proper form for transfer and that the person
requesting such exchange pay to the Exchange Agent any transfer or other tax
required by reason of the issuance of a certificate for shares of Common Stock
in any name other than that of the registered holder of the certificate
surrendered or otherwise establish to the satisfaction of the Exchange Agent
that such tax has been paid or is not payable.
REQUIRED APPROVALS
Various approvals of the OTS are required in order to consummate the
Conversion and Reorganization. The OTS has approved the Plan, subject to
approval by the Mutual Holding Company's members and the Association's
stockholders. In addition, consummation of the Conversion and Reorganization
is subject to OTS approval of the Holding Company's application to acquire all
of the to-be-outstanding Association common stock and the applications with
respect to the merger of the Mutual Holding Company (following its conversion
to a federal interim stock savings association) into the Association and the
merger of Interim into the Association, with the Association being the
surviving entity in both mergers. Applications for these approvals have been
filed and are currently pending. There can be no assurances that the requisite
OTS approvals will be received in a timely manner, in which event the
consummation of the Conversion and Reorganization may be delayed beyond the
expiration of the Offering.
The Plan of Merger providing for the merger of the Mutual Holding Company
with and into the Association, which is attached to the Plan as Annex A, and
the Plan of Merger providing for the merger of Interim with and into the
Association, which is attached to the Plan as Annex B, each must be approved
by the holders of at least two-thirds of the outstanding Association Shares at
the Stockholders' Meeting. The Plan of Merger between Interim and the
Association also must be approved by the Holding Company, as the sole
stockholder of Interim.
In addition, the Primary Parties have conditioned the consummation of the
Conversion and Reorganization upon the approval of the Plan, including the
Plans of Merger, by at least a majority of the votes cast, in person or by
proxy, by the Public Stockholders at the Stockholders' Meeting. The Plan is
subject to the approval of the OTS, and it also must be approved by at least a
majority of the total outstanding votes of the voting members of the Mutual
Holding Company at the Members' Meeting, which votes may be cast in person or
by proxy.
DISSENTERS' RIGHTS OF APPRAISAL
Holders of Association Common Stock are entitled to appraisal rights under
Section 552.14 of the OTS regulations as a result of the merger of the Mutual
Holding Company (following its conversion to a federal interim stock savings
association) with and into the Association and the merger of Interim with and
into the Association. A holder of Association Shares wishing to exercise his
or her appraisal rights must deliver to the Secretary of the Association,
before the vote on the Plans of Merger at the Stockholders' Meeting, a writing
which identifies such stockholder and which states his or her intention to
demand appraisal of and payment for his or her Association Shares. Such demand
must be in addition to and separate from any proxy or vote against the Plans
of Merger. Any such stockholder who wishes to exercise such appraisal rights
should review carefully the discussion of such rights in the Association's
proxy statement, including Appendix D thereto, because failure to timely and
properly comply with the procedures specified will result in the loss of
appraisal rights under Section 552.14. All written demands for appraisal
should be sent or delivered to the attention of the Secretary of the
Association, Equality Savings and Loan Association, F.A., 4131 South Grand
Boulevard, St. Louis, Missouri 63118-3436 so as to be received prior to the
vote at the Stockholders' Meeting with respect to the Plans of Merger.
Pursuant to the Plan, consummation of the Conversion and Reorganization is
conditioned upon holders of less than 10% of the outstanding Association
Shares exercising appraisal rights.
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CERTAIN RESTRICTIONS ON PURCHASE OR TRANSFER OF SHARES AFTER THE CONVERSION
AND REORGANIZATION
All shares of Conversion Stock purchased in connection with the Conversion
and Reorganization by a director or an executive officer of the Primary
Parties will be subject to a restriction that the shares not be sold for a
period of one year following the Conversion and Reorganization, except in the
event of the death of such director or executive officer or pursuant to a
merger or similar transaction approved by the OTS. Each certificate for
restricted shares will bear a legend giving notice of this restriction on
transfer, and appropriate stop-transfer instructions will be issued to the
Holding Company's transfer agent. Any shares of Common Stock issued within
this one-year period as a stock dividend, stock split or otherwise with
respect to such restricted stock will be subject to the same restrictions. The
directors and executive officers of the Holding Company will also be subject
to the insider trading rules promulgated pursuant to the Exchange Act.
Purchases of Common Stock of the Holding Company by directors, executive
officers and their associates during the three-year period following
completion of the Conversion and Reorganization may be made only through a
broker or dealer registered with the SEC, except with the prior written
approval of the OTS. This restriction does not apply, however, to negotiated
transactions involving more than 1.0% of the Holding Company's outstanding
Common Stock or to the purchase of stock pursuant to any tax-qualified
employee stock benefit plan, such as the ESOP, or by any non-tax-qualified
employee stock benefit plan, such as the 1997 MRP.
Pursuant to OTS regulations, the Holding Company will generally be
prohibited from repurchasing any shares of Common Stock within one year
following consummation of the Conversion and Reorganization. During the second
and third years following consummation of the Conversion and Reorganization,
the Holding Company may not repurchase any shares of its Common Stock other
than pursuant to (i) an offer to all stockholders on a pro rata basis which is
approved by the OTS; (ii) the repurchase of qualifying shares of a director,
if any; (iii) purchases 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; or (iv) purchases that are part of an open-market program
not involving more than 5% of its outstanding capital stock during a 12-month
period, if the repurchases do not cause the Association to become
undercapitalized and the Association provides to the Regional Director of the
OTS no later than 10 days prior to the commencement of a repurchase program
written notice containing a full description of the program to be undertaken
and such program is not disapproved by the Regional Director. However, the
Regional Director has authority to permit repurchases during the first year
following consummation of the Conversion and Reorganization and to permit
repurchases in excess of 5% during the second and third years upon the
establishment of exceptional circumstances (i.e., where such repurchases would
be in the best interests of the institution and its stockholders).
COMPARISON OF STOCKHOLDERS' RIGHTS
GENERAL
As a result of the Conversion and Reorganization, stockholders of the
Association, a federally chartered savings association which is a majority
owned subsidiary of the Mutual Holding Company, will become stockholders of
the Holding Company, a Delaware corporation.
There are certain differences in the rights of stockholders as a result of
the differences between the Association's charter and bylaws and the Holding
Company's certificate of incorporation and bylaws and the differences between
laws with respect to federally chartered savings associations and the DGCL.
The following discussion is not intended to be a complete statement of the
differences affecting the rights of stockholders and is qualified in its
entirety by reference to the certificate of incorporation and bylaws of the
Holding Company and the DGCL.
AUTHORIZED CAPITAL STOCK
The Holding Company's authorized capital stock consists of 4,000,000 shares
of common stock, par value $0.01 per share, and 200,000 shares of preferred
stock, par value $0.01 per share, whereas the Association's authorized capital
stock consists of 4,000,000 shares of common stock, par value $1.00 per share
and 1,000,000
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shares of preferred stock, par value $1.00 per share. The Board of Directors
of the Holding Company has determined to issue no preferred stock and up to
1,729,323 shares of Common Stock in the Conversion and Reorganization.
The Holding Company's certificate of incorporation authorized the additional
shares of Common Stock to provide the Board of Directors with as much
flexibility as possible to effect, among other transactions, financings,
acquisitions, stock dividends, stock splits, shares under the Reinvestment
Plan and employee stock options. These additional authorized shares of Common
Stock, however, may also be used by the Board of Directors, to the extent
consistent with its fiduciary duties to the stockholders of the Holding
Company, to deter future attempts to gain control of the Holding Company. With
regard to the authorized but unissued preferred stock of the Holding Company,
the Board of Directors has sole authority to determine the terms of any one or
more series of such preferred stock, including voting rights, conversion
rates, and liquidation preferences. See "Description of Capital Stock--
Preferred Stock." As a result of the ability to fix voting rights for a series
of preferred stock, the Board of Directors of the Holding Company has the
power, to the extent consistent with its fiduciary duties to the stockholders
of the Holding Company, to issue a series of preferred stock to persons
friendly to management in order to attempt to block a post-tender offer merger
or other transaction by which a third party seeks control, and thereby to
assist management to retain its position. The Holding Company's Board of
Directors currently has no plans for the issuance of any preferred stock or of
any additional shares of Common Stock, other than the issuance of additional
shares of Common Stock pursuant to the terms of the employee benefit plans.
The Holding Company will be subject to an annual franchise tax in the State
of Delaware and in the State of Missouri. As a federally chartered
institution, the Association is not subject to franchise taxes, regardless of
the amount of its authorized capitalization.
ISSUANCE OF CAPITAL STOCK
Pursuant to applicable laws and regulations, the Mutual Holding Company is
required to own not less than a majority of the outstanding Association
Shares. There will be no such restriction applicable to the Holding Company
following consummation of the Conversion and Reorganization.
The certificate of incorporation of the Holding Company does not contain
restrictions on the issuance of shares of capital stock to directors, officers
or controlling persons of the Holding Company, whereas the charter of the
Association restricts such issuance to general public offerings, or if
qualifying shares, to directors, unless the share issuance or the plan under
which they would be issued has been approved by a majority of the total votes
eligible to be cast at a legal meeting.
Thus, stock-related compensation plans such as stock option plans could be
adopted by the Holding Company and the Association without stockholder
approval and shares of Holding Company capital stock and Association capital
stock could be issued directly to directors, officers or controlling persons
without stockholder approval. The bylaws of the NASD, however, generally
require corporations with securities which are quoted on the Nasdaq NMS to
obtain stockholder approval of most stock compensation plans for directors,
officers and key employees of the corporation. Moreover, although generally
not required, stockholder approval of stock-related compensation plans may be
sought in certain instances in order to qualify such plans for favorable
federal income tax treatment under current laws and regulations. The Holding
Company intends to seek stockholder approval of the 1997 Stock Option Plan and
1997 MRP. For additional information regarding these two stock award programs,
see "Management of the Holding Company and Association--Employment Benefit
Plans--1997 Stock Option Plan," and "--1997 Management Recognition Plan."
Neither the charter and bylaws of the Association nor the certificate of
incorporation and bylaws of the Holding Company provide for preemptive rights
to stockholders in connection with the issuance of capital stock.
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VOTING RIGHTS
The Association's charter and the certificate of incorporation and bylaws of
the Holding Company eliminate cumulative voting in elections of directors.
Elimination of cumulative voting will help to ensure continuity and stability
of the Holding Company's Board of Directors and the policies adopted by it by
making it more difficult for the holders of a relatively small amount of the
Common Stock to elect their nominees to the Board of Directors and possibly by
delaying, deterring or discouraging proxy contests.
The Association's charter permits the provision of separate class voting
rights for holders of a class of the Association preferred stock only under
specified circumstances, including (i) mergers, consolidations and sales,
leases or conveyances of property of the Association if the class of the
Association preferred stock is to be exchanged for securities of another
corporation, (ii) amendments of the charter that would adversely change the
specific terms of any class or series of the Association preferred stock and
(iii) the provision of class voting rights to holders of the Association
preferred stock permitting such holders to elect a specified number of
directors of the Board of Directors of the Association (which must be less
than a majority of directors) in the event of default in the payment of
dividends on the Association preferred stock. The certificate of incorporation
of the Holding Company does not contain any specification of or limitation on
the circumstances under which separate class voting rights may be provided to
a particular class or series of Holding Company preferred stock.
For additional information relating to voting rights, see "--Limitations on
Acquisitions of Voting Stock and Voting Rights" below.
PAYMENT OF DIVIDENDS
The ability of the Association to pay dividends on its capital stock is
restricted by OTS regulations. See "Regulation and Supervision--Federal
Savings Association Regulation--Limitation on Capital Distributions." Although
the Holding Company is not subject to these restrictions as a Delaware
corporation, such restrictions will indirectly affect the Holding Company
because dividends from the Association will be a primary source of funds of
the Holding Company for the payment of dividends to stockholders of the
Holding Company.
The DGCL generally provides that, subject to any restrictions in the
corporation's certificate of incorporation, dividends may be declared from the
corporation's surplus, as defined by Delaware law, or, if there is no surplus,
from its net profits for the fiscal year in which the dividend is declared and
the preceding fiscal year. However, if the corporation's capital has been
diminished to an amount less than the aggregate amount of the capital
represented by the issued and outstanding stock of all classes having a
preference upon the distribution of assets, dividends may not be declared and
paid out of such net profits until the deficiency in such capital has been
repaired.
BOARD OF DIRECTORS
The Association's bylaws and the certificate of incorporation of the Holding
Company, respectively, require the Board of Directors of the Association and
the Holding Company to be divided into three classes as nearly equal in number
as possible and that the members of each class shall be elected for a term of
three years and until their successors are elected and qualified, with one
class being elected annually.
Under the Association's bylaws, any vacancies in the Board of Directors of
the Association may be filled by the affirmative vote of a majority of the
remaining directors although less than a quorum of the Board of Directors.
Persons elected by the directors of the Association to fill vacancies may only
serve until the next annual meeting of stockholders. Under the Holding
Company's certificate of incorporation, however, any vacancy occurring in the
Board of Directors of the Holding Company, including any vacancy created by
reason of an increase in the number of directors, may be filled by the
remaining directors, and any director so chosen shall hold office for the
remainder of the term to which the director has been elected and until his or
her successor is elected and qualified.
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Under the Association's bylaws, any director may be removed for cause by the
holders of a majority of the outstanding voting shares, provided that if less
than the entire board is to be removed, none of the directors may be removed
if the votes cast against the removal would be sufficient to elect a director
if then cumulatively voted at an election of the class of directors of which
such director is a member. The certificate of incorporation and the bylaws of
the Holding Company provide that directors may be removed from office only for
cause and only upon the vote of the holders of at least 80% of the outstanding
shares of all classes of capital stock of the Holding Company.
The classification of directors, the removal requirements and the absence of
cumulative voting in the Holding Company's certificate of incorporation and
bylaws have the effect of making it more difficult for stockholders to change
the composition of the Board of Directors in a relatively short period of
time.
LIMITATIONS ON LIABILITY
The Holding Company's certificate of incorporation currently provides that
directors of the Holding Company shall not be personally liable to the Holding
Company or its stockholders for monetary damages for breaches of fiduciary
duty, except for liability (i) for any breach of the director's duty of
loyalty to the corporation or its stockholders, (ii) for acts or omissions not
in good faith or that involve intentional misconduct or a knowing violation of
law, (iii) for the payment of certain unlawful dividends and the making of
certain stock purchases or redemptions, or (iv) for any transaction from which
the director derived an improper personal benefit. This provision would
absolve directors of personal liability for simple negligence in the
performance of their duties. It would not permit a director to be exculpated,
however, for liability for actions involving conflicts of interest or breaches
of the traditional "duty of loyalty" to the Holding Company and its
stockholders, and it would not affect the availability of injunctive or other
equitable relief as a remedy.
The provision in the Holding Company's certificate of incorporation that
limits the personal liability of directors is designed to ensure that the
ability of the Holding Company's directors to exercise their best business
judgment in managing the Holding Company's affairs is not unreasonably impeded
by exposure to the potentially high personal costs or other uncertainties of
litigation. The nature of the tasks and responsibilities undertaken by
directors of publicly-held corporations often require such persons to make
difficult judgments of great importance that can expose such persons to
personal liability, but from which they will acquire no personal benefit. In
recent years, litigation against publicly held corporations and their
directors challenging good faith business judgments and involving no
allegations of personal wrongdoing has become common. Such litigation
regularly involves damage claims in huge amounts that bear no relationship to
the amount of compensation received by the directors, particularly in the case
of directors who are not employees of the corporation. The expense of such
litigation, whether it is well-founded or not, can be enormous. The provision
of the certificate of incorporation relating to director liability is intended
to reduce, in appropriate cases, the risk incident to serving as a director
and to enable the Holding Company to elect and retain the persons most
qualified to serve as directors.
Currently, federal law does not permit federally chartered savings
associations such as the Association to limit the personal liability of
directors in the manner authorized by the DGCL and the laws of many other
states.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Association's charter and bylaws do not contain any provision relating
to indemnification of directors and officers of the Association. Under present
OTS regulations, however, the Association shall indemnify its directors,
officers and employees for any costs incurred in connection with any
litigation involving any such person's activities as a director, officer or
employee if such person obtains a final judgment on the merits in his or her
favor. In addition, indemnification is permitted in the case of a settlement,
a final judgment against such person or final judgment other than on the
merits, if a majority of disinterested directors determine that such person
was acting in good faith within the scope of his or her employment as he or
she could reasonably have perceived it under the circumstances and for a
purpose he or she could reasonably have believed under the circumstances was
in the best interest of the Association or its stockholders. The Association
also is permitted to
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pay ongoing expenses incurred by a director, officer or employee if a majority
of disinterested directors concludes that such person may ultimately be
entitled to indemnification. Before making any indemnification payment, the
Association is required to notify the OTS of its intention and such payment
cannot be made if the OTS objects to it.
The Holding Company's certificate of incorporation and bylaws provide that
the Holding Company shall indemnify and advance expenses to any person who was
or is a party or is threatened to be made a party to any threatened, pending
or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative, by reason of the fact that such person is or
was a director or officer of the Holding Company, or is or was a director or
officer of the Holding Company and is or was serving at the request of the
Holding Company as a director or officer of another enterprise against all
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by such person in connection with
such action, suit or proceeding to the fullest extent authorized by the DGCL.
SPECIAL MEETINGS OF STOCKHOLDERS
The Association's charter and bylaws provide that special meetings of the
stockholders of the Association may be called by the Chairman, President, a
majority of the Board of Directors or the holders of not less than one-tenth
of the outstanding capital stock of the Association entitled to vote at the
meeting; provided that special meetings of stockholders relating to changes in
control of the Association or amendments to its charter may be called only
upon direction of the Board of Directors of the Association.
The certificate of incorporation and bylaws of the Holding Company allow
only the chairman of the Board of Directors, the president or a majority of
the Board of Directors to call a special stockholders' meeting. Stockholders
do not have the right to call such a meeting. This provision may have the
effect of delaying consideration of a stockholder proposal until the next
annual meeting of stockholders.
STOCKHOLDER NOMINATIONS AND PROPOSALS
The Association's bylaws generally provide that stockholders may submit
nominations for election as director at an annual meeting of stockholders and
any new business to be taken up at such a meeting at least five days before
the date of any such meeting.
The Holding Company's certificate of incorporation requires advance
notification to the secretary of the Holding Company of nominations of persons
for election to the Board of Directors by a stockholder. The notice must be
received not later than the date corresponding to 40 days before the first
anniversary date of the immediately preceding annual meeting of stockholders.
The notice by a stockholder must comply with certain information requirements
specified in the certificate of incorporation. Advance written notification is
also required by the Holding Company's bylaws before a stockholder may bring
any item of business before the annual meeting of stockholders. The notice
must be received by the secretary of the Holding Company not later than the
date corresponding to 60 days before the first anniversary date of the
immediately preceding annual meeting of stockholders. The notice by a
stockholder must comply with certain information requirements specified in the
bylaws. The purpose of such advance notice requirements is to insure the
orderly conduct of business at annual meetings of stockholders and to afford
the board of directors a meaningful opportunity to consider the qualifications
of proposed nominees and to inform themselves, and where appropriate, to
inform the stockholders in advance of the meeting of any business proposed to
be conducted at the meeting. Such procedures may, however, have the effect of
precluding the nomination of a director, or a slate of directors, or the
consideration of business at a particular meeting if the proper procedures
have not been followed prior to the meeting.
STOCKHOLDER ACTION WITHOUT A MEETING
The bylaws of the Association provide that any action to be taken or which
may be taken at any annual or special meeting of stockholders may be taken if
a consent in writing, setting forth the actions so taken, is given by the
holders of all outstanding shares entitled to vote.
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The Holding Company's certificate of incorporation and bylaws prohibit
action that is required or permitted to be taken at any annual or special
meeting of stockholders of the Holding Company from being taken by the written
consent of the stockholders without a meeting. This provisions may have the
effect of delaying consideration of a stockholder proposal until the next
annual meeting of stockholders.
STOCKHOLDER'S RIGHT TO EXAMINE BOOKS AND RECORDS
A federal regulation that is applicable to the Association provides that
stockholders may inspect and copy specified books and records of a federally
chartered savings association after proper written notice for a proper
purpose.
The DGCL similarly provides that a stockholder may inspect books and records
upon written demand under oath stating the purpose of the inspection, if such
purpose is reasonably related to such person's interest as a stockholder.
LIMITATIONS ON ACQUISITIONS OF VOTING STOCK AND VOTING RIGHTS
The certificate of incorporation of the Holding Company provides that no
person shall directly or indirectly acquire or hold beneficial ownership of
more than 10% of the voting shares of the Holding Company. This limitation
does not apply to the purchase of shares by underwriters in connection with a
public offering, to any reclassification of securities, recapitalization or
any merger or consolidation that does not have the effect of changing the
beneficial ownership interests of the Holding Company's stockholders, or to
the purchase of shares by employee benefit plans of the Holding Company or any
subsidiary of the Holding Company. The certificate of incorporation further
provides that, where any person directly or indirectly acquires beneficial
ownership of more than 10% of the voting shares of the Holding Company, the
voting power of the securities beneficially owned in excess of 10% shall be
reduced to 1/100 of one vote for each share held in excess of such limit. The
certificates evidencing the shares of Common Stock sold in the Conversion and
Reorganization will bear a legend reflecting such restrictions.
The charter of the Association contains a provision that, for a period of
five years after completion of the MHC Reorganization (which was completed on
October 22, 1993), no person (other than the Mutual Holding Company) shall
directly or indirectly offer to acquire or acquire the beneficial ownership of
more than 10% of any class of an equity security of the Association, with some
exceptions. In the event shares are acquired in violation of this provision,
all shares beneficially owned by any person in excess of 10% shall be
considered "excess shares" and shall not be counted as shares entitled to vote
and shall not be voted by any person or counted as voting shares in connection
with any matters submitted to the stockholders for a vote. Upon consummation
of the Conversion and Reorganization the Association will amend its charter to
delete this provision because as a wholly-owned subsidiary of the Holding
Company this provision would have no practical effect in the Association's
charter.
VOTING RESTRICTIONS ON CERTAIN BUSINESS COMBINATIONS; FAIR PRICE PROVISION
Under the Holding Company's certificate of incorporation, the adoption or
approval of certain business transactions, including mergers, consolidations,
asset and securities sales, plans of liquidation or dissolution and certain
reclassifications involving any "Interested Party" (as defined below) and
certain affiliates of any such Interested Party, requires an affirmative vote
of the holders of at least that number of voting shares that equals the sum of
(i) the number of voting shares beneficially owned by all Interested Parties
with respect to the proposed business transaction plus (ii) 80% of the
remaining number of voting shares that are not beneficially owned by any such
Interested Party. An "Interested Party" is defined in the Holding Company
certificate of incorporation to mean generally the beneficial owner of 10% or
more of the voting stock of the Holding Company.
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The 80% affirmative voting requirement is not applicable to business
transactions (i) approved by a resolution adopted by a majority of the Board
of Directors holding office at the time such resolution is adopted, provided
that such resolution approving the business transaction is adopted prior to
the time all Interested Parties with respect to the business transaction
become Interested Parties, or (ii) approved by a resolution adopted by 66 2/3%
of the directors holding offices at the time such resolution is adopted who
are not themselves Interested Parties or affiliates of an Interested Party.
The 80% affirmative voting requirement also is not applicable to any
business transaction and such business transaction need only be approved by a
simple majority vote of the stockholders (if such a vote is required under
applicable Delaware law) if all of the following conditions have been met: (i)
the per share consideration to be received by holders of Common Stock in such
business transaction is not less than the greater of (A) the highest per share
price paid by the Interested Party in acquiring its holdings of Common Stock
during the immediately preceding five years, (B) the per share book value of
the Common Stock at the end of the fiscal quarter immediately preceding such
business transaction or (C) the highest market price per share of Common Stock
during the two-year period ending immediately prior to the first public
announcement of such business transaction; (ii) the consideration to be
received by holders of Common Stock is in cash or in the same form as the
consideration paid by the Interested Party to acquire the largest number of
shares of Common Stock acquired by the Interested Party from a non-Interested
Party; (iii) as of the record date for the determination of stockholders
entitled to vote on the proposed business transaction, there is at least one
director of the Holding Company who is not an Interested Party or an affiliate
of an Interested Party; and (iv) holders of voting shares as of the record
date for the determination of stockholders entitled to vote on the business
transaction shall have received a proxy or information statement complying
with the rules and regulations under the Exchange Act, which proxy or
information statement includes, among other things, an opinion of an
investment banking firm as to the fairness from a financial point of view of
the consideration to be received by the stockholders in the proposed business
transaction.
Neither the Association's charter and bylaws nor federal laws and
regulations contain a provision that restricts business combinations between
the Association and interested stockholders in the manner described above.
NON-STOCKHOLDER CONSTITUENCIES
The Holding Company's certificate of incorporation provides that in
evaluating certain transactions which could effect a change in control of the
Holding Company, it is proper for the Board of Directors to consider the
effects of such transactions on the employees, suppliers and customers of the
Holding Company and the communities in which the principal offices of the
Holding Company are located. Neither the Association's charter nor bylaws
provide for a similar provision.
AMENDMENT OF GOVERNING INSTRUMENTS
The process the Association must follow for amending its federal stock
charter depends on whether or not the proposed amendment is preapproved under
applicable OTS regulation. Any amendment to the Association's charter, whether
or not preapproved, must first be approved by the Board of Directors of the
Association. If the amendment qualifies as a preapproved charter amendment, it
must be filed with the OTS in the form of a notice 30 days prior to the date
it is submitted to stockholders for approval, which approval must be by the
holders of a majority of the total votes eligible to be cast at a legal
meeting. A preapproved charter amendment is automatically deemed approved by
the OTS 30 days from the date of its submission, provided the Association
follows the requirements of its charter in adopting the amendment and unless
the OTS notifies the Association that the amendment is rejected or does not
qualify for preapproved status. Conversely, an amendment not considered
preapproved, must be submitted to the OTS for approval before it is submitted
to stockholders for approval. Charter amendments that are not normally
considered preapproved include provisions that would render more difficult or
discourage a merger, tender offer, or proxy contest, the assumption of control
by a holder of a block of the Association's stock, the removal of incumbent
management, or involve significant issues of law or policy.
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No amendment of the Holding Company's certificate of incorporation may be
made unless it is first approved by the Board of Directors of the Holding
Company and thereafter is approved by the holders of a majority of the shares
of the Holding Company entitled to vote generally in an election of directors,
voting together as a single class, as well as such additional vote of the
preferred stock as may be required by the provisions of any series thereof;
provided, however, that the classified board, limitation of beneficial
ownership, fair price, special meeting, stockholder consent, advance notice,
bylaw amendment and non-stockholder constituency provisions of the certificate
of incorporation of the Holding Company may be altered, amended or repealed
only if the holders of at least 80% of the outstanding shares of voting stock
entitled to vote in the election of directors vote in favor of such action.
The bylaws of the Association may be amended by a majority vote of the full
Board of Directors of the Association or by a majority vote of the votes cast
by the stockholders of the Association at any legal meeting. Bylaw amendments
that are preapproved under applicable OTS regulations, such as those that adopt
the language of the OTS' model bylaws, and are adopted without change and filed
with the OTS 30 days prior to the date the bylaw amendment is adopted by the
Association, are effective 30 days after submission to the OTS, provided the
association follows the requirements of its charter and bylaws in adopting the
amendment and unless prior to the expiration of the 30 day period the OTS
notifies the Association that the amendment is rejected or that such amendment
does not qualify as preapproved. Conversely, bylaw amendments that are
inconsistent with the OTS' model bylaws or would render more difficult or
discourage a merger, tender offer or proxy contest, the assumption of control
by a holder of a large block of the Association's stock, or the removal of
incumbent management or involve a significant issue of law or policy (including
indemnification, conflicts of interest and limitations on director and officer
liability) must be submitted to the OTS by the Association for approval before
the amendment is adopted by the Association.
Amendments to the bylaws of the Holding Company may be made only upon (i) the
affirmative vote of a majority of the members of the Board of Directors, or
(ii) the affirmative vote of the holders of at least 80% of the outstanding
shares of voting stock entitled to vote in the election of directors.
RESTRICTIONS ON ACQUISITION OF THE HOLDING COMPANY
RESTRICTIONS IN THE HOLDING COMPANY'S CERTIFICATE OF INCORPORATION AND BYLAWS;
EMPLOYMENT AGREEMENTS
The Holding Company has implemented certain measures designed to enhance the
ability of the Board of Directors to protect stockholders against, among other
things, unsolicited attempts to acquire a significant interest in the Holding
Company or to influence the Holding Company's management (whether through open
market purchases, tender offers or otherwise) that do not offer an adequate
price to all stockholders or that the Board of Directors otherwise considers
not in the best interests of the Holding Company and its stockholders.
Certain provisions in the certificate of incorporation and bylaws of the
Holding Company may impact significantly the stockholders' ability to change
the composition of the incumbent Board of Directors or the ability of a
substantial holder of the Common Stock to acquire control of, or to remove, the
incumbent Board of Directors, and might discourage certain types of
transactions that involve an actual or threatened change of control of the
Holding Company.
The provisions of the certificate of incorporation and bylaws are intended to
encourage persons seeking to acquire control of the Holding Company to initiate
such an acquisition through arm's-length negotiations with the Holding
Company's management and Board of Directors. Management of the Holding Company
does not have the power to waive any of these provisions. These provisions
could have the effect of discouraging a third party from making a tender offer
to or otherwise attempting to obtain control of the Holding Company, even
though certain stockholders of the Holding Company might deem such an attempt
to be in the best interests of the Holding Company and its stockholders or in
which stockholders may receive a substantial premium for their shares over then
current market prices. At the same time, these provisions ensure that the Board
of Directors, if
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confronted by an unsolicited proposal from a third party who has recently
acquired a block of Common Stock, will have sufficient time to review the
proposal and alternatives to it and to seek better proposals or negotiate
better terms for the Holding Company's stockholders, employees, suppliers,
customers and others. 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 "Available Information" as to how to obtain a copy of these
documents.
These provisions, which are described under "Comparison of Stockholders'
Rights" above, provide, among other things, that: (1) no person may acquire or
hold the beneficial ownership of more than 10% of the voting shares of the
Holding Company, and if any person acquires or holds the beneficial ownership
of more than 10% of the voting shares of the Holding Company, each share in
excess of such 10% limit shall have its voting power reduced to 1/100 of one
vote; (2) the Holding Company's Board of Directors will be divided into three
classes with one class to be elected each year; (3) special meetings of the
Holding Company's stockholders may be called only by the chairman of the Board
of Directors, the president or a majority of the Holding Company's Board of
Directors; (4) the Board of Directors may issue additional shares of
authorized Common Stock and fix the terms and designations of and issue shares
of authorized preferred stock without any further action by the stockholders;
(5) certain Business Transactions (as defined in the certificate of
incorporation) must be approved in advance by a majority of the Board of
Directors, approved in advance by the holders of 80% of the outstanding shares
of voting stock other than shares owned by persons who are Interested Parties
(as defined in the certificate of incorporation) with respect to the Business
Transaction or approved after-the-fact by two-thirds of directors who are not
themselves Interested Directors (as defined in the certificate of
incorporation) with respect to the Business Transaction; and (6) stockholders
who propose to nominate a candidate for election to the Board of Directors of
the Holding Company or to present new business at a stockholders' meeting must
give advance notice of, and furnish information relating to, the proposed
nominee and business to the Holding Company. The management of the Holding
Company does not have the ability to waive any of these provisions. A vote of
80% of the total votes eligible to be cast, voting together as a single class,
is required to amend, repeal or adopt any provisions inconsistent with certain
provisions of the certificate of incorporation and the bylaws, including most
of the provisions enumerated above.
The provisions described above are intended to reduce the Holding Company's
vulnerability to takeover attempts and certain other transactions which have
not been negotiated with and approved by members of the Board of Directors.
The provisions of the proposed employment agreements with Messrs. Fellhauer,
Deelo and Wolter may also discourage takeover attempts by increasing the costs
to be incurred by the Association and the Holding Company in the event of a
takeover. See "Management of the Holding Company and Association."
The Holding Company's Board of Directors believes that the provisions of the
certificate of incorporation, the bylaws and the proposed employment
agreements are in the best interest of the Holding Company and its
stockholders. An unsolicited, non-negotiated proposal can seriously disrupt
the business and management of a corporation and cause it great expense.
Accordingly, the Board of Directors believes it is in the best interest of the
Holding Company and its stockholders to encourage potential acquirors to
negotiate directly with management and that these provisions will encourage
such negotiations and discourage non-negotiated takeover attempts. It is also
the Board of Directors' view that these provisions should not discourage
persons from proposing a merger or other transaction at a price that reflects
the true value of the Holding Company and that otherwise is in the best
interest of all stockholders.
REGULATORY RESTRICTIONS
The OTS regulations prohibit any person, prior to the completion of the
Conversion and Reorganization, from transferring, or from entering into any
agreement or understanding to transfer, to the account of another, legal or
beneficial ownership of the subscription rights issued under the Plan or of
the Conversion Stock to be issued upon the exercise of such rights. The OTS
regulations also prohibit any person, prior to the completion of the
Conversion and Reorganization, from offering, or making an announcement of an
offer or intent to make an offer, to purchase such subscription rights or
Conversion Stock.
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For three years following the Conversion and Reorganization, OTS regulations
prohibit any person from acquiring or making an offer to acquire more than 10%
of the stock of the Holding Company without the prior written consent of the
OTS except for: (i) offers that, if consummated, would not result in the
acquisition by such person during the preceding twelve-month period of more
than 1% of such stock; (ii) offers for up to 25% of the stock in the aggregate
by the ESOP or other tax-qualified plans of the Association or the Holding
Company; or (iii) offers made exclusively to the Holding Company by
underwriters or members of a selling group acting on the Holding Company's
behalf for resale to the general public. Such acquisition may be disapproved
by the OTS if it is found, among other things, that the proposed acquisition:
(a) would frustrate the purposes of the provisions of the regulations
regarding conversions; (b) would be manipulative or deceptive; (c) would
subvert the fairness of the Conversion; (d) would be likely to result in
injury to the Association; (e) would not be consistent with economical home
financing; (f) would otherwise violate some law or regulation; or (g) would
not contribute to the prudent deployment of the Association's conversion
proceeds. In the event that any person, directly or indirectly, violates this
regulation, the securities beneficially owned by such person in excess of 10%
shall not be counted as shares entitled to vote and shall not be voted by any
person or counted as voting shares in connection with any matters submitted to
a vote of stockholders. The definition of beneficial ownership for these
regulations extends to persons holding revocable or irrevocable proxies for
the Holding Company's stock under circumstances that give rise to a conclusive
or rebuttable determination of control under the OTS regulations, as described
below.
In addition, federal laws and regulations contain a number of provisions
that affect the acquisition of insured institutions such as the Association,
and a savings institution holding company such as the Holding Company. The
Change in Bank Control Act provides that no person, acting directly or
indirectly or through or in concert with one or more persons, may acquire
control of a savings association unless the OTS has been given 60 days' prior
written notice and the OTS does not issue a notice disapproving the proposed
acquisition. Moreover, certain provisions of the HOLA provide that no company
may acquire control of a savings and loan association without the prior
approval of the OTS. Any company that acquires such control becomes a "savings
institution holding company" subject to registration, examination and
regulation by the OTS. Such change in control restrictions on the acquisition
of Holding Company stock are not limited to three years after the Conversion,
but will apply as long as such regulations are in effect.
Pursuant to applicable regulations, control of a savings institution or its
holding company is conclusively deemed to have been acquired by, among other
things, the acquisition of more than 25% of any class of voting stock of a
savings association or the ability to control the election of a majority of
the directors of such an institution. Alternatively, control is presumed to
have been acquired, subject to rebuttal, upon the acquisition of more than 10%
of any class of voting stock, or more than 25% of any class of stock, of a
savings association, where one or more enumerated "control factors" are also
present in the acquisition. The OTS may prohibit an acquisition of control of
the Holding Company 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 Association 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.
The foregoing restrictions do not apply to the acquisition of the Holding
Company's capital stock by one or more tax-qualified employee stock benefit
plans, provided that the plan or plans do not have beneficial ownership in the
aggregate of more than 25% of any class of equity security.
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Holding Company consists of 4,000,000
shares of Common Stock, par value $0.01 per share, and 200,000 shares of
Preferred Stock, par value $0.01 per share. The Holding Company currently
expects to issue 1,729,323 shares of Common Stock in the Offering at the
maximum of the Offering Price Range and no shares of Preferred Stock in the
Offering. 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, all such shares
125
<PAGE>
of Common Stock will be duly authorized, fully paid and nonassessable. Series
of Preferred Stock may be issued by the Board of Directors, from time to time,
on terms set by the board without further authorization from the stockholders.
THE COMMON STOCK OF THE HOLDING COMPANY WILL REPRESENT NONWITHDRAWABLE
CAPITAL, WILL NOT BE AN ACCOUNT OF AN INSURABLE TYPE, AND WILL NOT BE INSURED
BY THE FDIC OR ANY OTHER GOVERNMENTAL AGENCY.
COMMON STOCK
General. The holders of shares of Common Stock are entitled to share pro
rata in distributions to stockholders upon liquidation, dissolution,
distribution of assets, or winding up of the Holding Company, subject to the
prior rights of any holders of Preferred Stock. No holders of shares of Common
Stock have any preemptive right to subscribe for or purchase any additional
issue of capital stock or securities convertible into capital stock of the
Holding Company.
Dividend Rights. Subject to the preferential dividend rights of any
outstanding Preferred Stock, the holders of Common Stock are entitled to such
dividends, ratably in proportion to the number of shares of Common Stock held
by them respectively, as the Board of Directors, in its discretion, may
declare out of funds legally available for the payment of such dividends.
Funds for the payment of dividends and expenses of the Holding Company will be
obtained primarily from dividends received from the Association.
Voting Rights. Except as may otherwise be required by law or the certificate
of incorporation of the Holding Company, each holder of Common Stock is
entitled to one vote for each share held with respect to all matters voted
upon by the stockholders.
Stock Repurchases. For information regarding restrictions on the Holding
Company's ability to repurchase its stock, see "The Conversion and
Reorganization--Certain Restrictions on Purchase or Transfer of Shares after
the Conversion and Reorganization."
PREFERRED STOCK
Under the Holding Company's certificate of incorporation, the Board of
Directors of the Holding Company may, from time to time, authorize the
issuance of up to 200,000 shares of Preferred Stock, in one or more series,
with such provisions as to voting rights, dividend rates and preferences,
redemption, sinking funds, and convertibility, and such preferences,
privileges and powers, and relative, participating, optional or other special
rights, and qualifications, limitations or restrictions of such series of
Preferred Stock, as shall be stated in the resolution of the Board of
Directors providing for the issuance of the Preferred Stock. No Preferred
Stock is currently outstanding nor will any be issued in the Conversion.
REGISTRATION REQUIREMENTS
The Holding Company will register the Common Stock with the SEC pursuant to
Section 12(g) of the Exchange Act prior to completion of the Conversion and
Reorganization and will not deregister its Common Stock for a period of at
least three years following the completion of the Conversion and
Reorganization. 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.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is the Illinois Stock
Transfer Company, Chicago, Illinois.
126
<PAGE>
LEGAL OPINIONS
The legality of the Common Stock will be passed upon for the Holding Company
by Schiff Hardin & Waite, Chicago, Illinois. Breyer & Aguggia, Washington,
D.C., has acted as counsel to Trident.
EXPERTS
The Consolidated Financial Statements of the Association as of March 31,
1997 and 1996 and for each of the years in the three-year period ended March
31, 1997, have been included in this Prospectus and the Registration Statement
in reliance upon the report of KPMG Peat Marwick LLP, independent certified
public accountants, appearing elsewhere herein, and upon the authority of said
firm as experts in accounting and auditing. KPMG Peat Marwick LLP did not
audit the financial statements of Equality Mortgage Corporation (a
consolidated subsidiary), which statements reflect total assets constituting
3% and 7% in 1997 and 1996, respectively, and total interest income and other
income constituting 17%, 19%, and 17% in 1997, 1996, and 1995, respectively,
of the related consolidated totals. Those statements were audited by other
auditors whose report has been furnished to KPMG Peat Marwick LLP, and whose
opinion, insofar as it relates to the amounts included for Equality Mortgage
Corporation, is based solely on the report of the other auditors.
RP Financial has consented to the inclusion herein of the summary of its
appraisal report as to the estimated pro forma market value of the Conversion
Stock and Exchange Shares and to the use of its name and all statements with
respect to it appearing herein.
127
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Independent Auditors' Reports............................................. F-2
Consolidated Balance Sheets as of March 31, 1997 and 1996................. F-4
Consolidated Statements of Income for the years ended March 31, 1997, 1996
and 1995................................................................. 32
Consolidated Statements of Stockholders' Equity for the years ended March
31, 1997, 1996 and 1995.................................................. F-5
Consolidated Statements of Cash Flows for the years ended March 31, 1997,
1996 and 1995............................................................ F-6
Notes to Consolidated Financial Statements................................ F-7
</TABLE>
All schedules are omitted as the required information is either not
applicable or the required information is included in the Consolidated
Financial Statements or related Notes.
The Mutual Holding Company has limited assets other than its Association
Shares (which will be canceled in connection with the Conversion and
Reorganization), has no liabilities, and has engaged in only minimal
activities to date; accordingly, the financial statements of the Mutual
Holding Company have been omitted because of their immateriality.
The Holding Company was incorporated on May 14, 1997, has been initially
capitalized with $1,000 and has engaged in only minimal activities to date;
accordingly, the financial statements of the Holding Company have been omitted
because of their immateriality.
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Equality Savings and Loan Association, F.A.
St. Louis, Missouri:
We have audited the accompanying consolidated balance sheets of Equality
Savings and Loan Association, F.A. and subsidiaries (Equality) as of March 31,
1997 and 1996, and the related consolidated statements of income,
stockholders' equity, and cash flows for each of the years in the three-year
period ended March 31, 1997. These consolidated financial statements are the
responsibility of Equality's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits. We did
not audit the financial statements of Equality Mortgage Corporation (a
consolidated subsidiary), which statements reflect total assets constituting
3% and 7% in 1997 and 1996, respectively, and total interest income and other
income constituting 17%, 19%, and 17% in 1997, 1996, and 1995, respectively,
of the related consolidated totals. Those statements were audited by other
auditors whose report has been furnished to us, and our opinion, insofar as it
relates to the amounts included for Equality Mortgage Corporation, is based
solely on the report of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits, and the report of the
other auditors, provide a reasonable basis for our opinion.
In our opinion, based on our audits and the report of the other auditors,
the consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Equality Savings and Loan
Association, F.A. and subsidiaries as of March 31, 1997 and 1996, and the
results of their operations and their cash flows for each of the years in the
three-year period ended March 31, 1997, in conformity with generally accepted
accounting principles.
KPMG Peat Marwick LLP
St. Louis, Missouri
May 9, 1997
F-2
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
Equality Mortgage Corporation
St. Louis, Missouri
We have audited the balance sheet of Equality Mortgage Corporation as of
March 31, 1997 and 1996 and the related statements of income, retained
earnings and cash flows for the years ended March 31, 1997, 1996 and 1995.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Equality Mortgage
Corporation as of March 31, 1997 and 1996, and the results of its operations
and its cash flows for each of the years ended March 31, 1997, 1996 and 1995
in conformity with generally accepted accounting principles.
Rubin, Brown, Gornstein & Co. LLP
St. Louis, Missouri
April 10, 1997
F-3
<PAGE>
EQUALITY SAVINGS AND LOAN ASSOCIATION, F.A. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
------------ -----------
<S> <C> <C>
ASSETS
Cash, primarily interest-bearing demand accounts.... $ 1,037,199 5,550,292
Interest-bearing deposits........................... 3,819,744 9,570,490
Investment securities:
Available for sale, at market value............... 70,122,807 38,898,346
Held to maturity, at cost......................... 4,848,587 5,845,193
Mortgage-backed securities available for sale, at
market value....................................... 14,954,025 28,096,499
Loans receivable, net............................... 95,927,983 96,998,052
Investment in real estate........................... 869,898 1,898,427
Stock in Federal Home Loan Bank..................... 3,350,000 3,150,000
Mortgage servicing rights........................... 513,275 261,067
Office properties and equipment, net................ 2,933,591 3,134,839
Accrued interest receivable and other assets........ 2,386,533 2,364,485
------------ -----------
Total Assets.................................... $200,763,642 195,767,690
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Savings deposits.................................... $122,982,954 124,515,370
Accrued interest payable on savings deposits........ 134,599 102,142
Borrowed money...................................... 64,248,804 57,305,406
Advance payments by borrowers for taxes and insur-
ance............................................... 86,776 113,684
Income taxes payable................................ 99,863 --
Deferred income taxes............................... 196,427 400,346
Accrued expenses and other liabilities.............. 379,958 541,330
------------ -----------
Total liabilities............................... 188,129,381 182,978,278
------------ -----------
Commitments and contingencies
Stockholders' equity:
Preferred stock, $1 par value per share; 1,000,000
shares authorized; none issued and outstanding... -- --
Common stock, $1 par value per share; 4,000,000
shares authorized; 836,400 shares issued and out-
standing......................................... 836,400 836,400
Additional paid-in capital........................ 2,768,548 2,759,797
Retained earnings--substantially restricted....... 9,674,676 9,402,887
Unrealized loss on investment and mortgage-backed
securities available for sale, net of tax........ (509,523) (47,232)
Unearned ESOP shares.............................. (135,840) (162,440)
------------ -----------
Total stockholders' equity...................... 12,634,261 12,789,412
------------ -----------
Total Liabilities and Stockholders' Equity...... $200,763,642 195,767,690
============ ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
EQUALITY SAVINGS AND LOAN ASSOCIATION, F.A. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED MARCH 31, 1997, 1996, AND 1995
<TABLE>
<CAPTION>
UNREALIZED LOSS
ON INVESTMENT
RETAINED AND MORTGAGE-
COMMON STOCK ADDITIONAL EARNINGS-- BACKED SECURITIES UNEARNED TOTAL
---------------- PAID-IN SUBSTANTIALLY AVAILABLE UNAMORTIZED ESOP STOCKHOLDERS'
SHARES AMOUNT CAPITAL RESTRICTED FOR SALE, NET STOCK AWARDS SHARES EQUITY
------- -------- ---------- ------------- ----------------- ------------ -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, March 31,
1994................... 836,400 $836,400 2,744,600 8,870,785 (105,366) (76,000) (220,000) 12,050,419
Net income.............. -- -- -- 321,675 -- -- -- 321,675
Additional stock
offering expenses...... -- -- (4,100) -- -- -- -- (4,100)
Amortization of stock
awards................. -- -- -- -- -- 47,500 -- 47,500
Amortization of ESOP
awards................. -- -- 8,977 -- -- -- 15,960 24,937
Dividend declared on
non-mutual holding
company owned common
stock at $.60 per
share.................. -- -- -- (219,809) -- -- -- (219,809)
Change in unrealized
loss on investment
securities available
for sale, net.......... -- -- -- -- (347,241) -- -- (347,241)
------- -------- --------- --------- -------- ------- -------- ----------
Balance, March 31,
1995................... 836,400 836,400 2,749,477 8,972,651 (452,607) (28,500) (204,040) 11,873,381
Net income.............. -- -- -- 653,456 -- -- -- 653,456
Amortization of stock
awards................. -- -- -- -- -- 28,500 -- 28,500
Amortization of ESOP
awards................. -- -- 10,320 -- -- -- 41,600 51,920
Dividend declared on
non-mutual holding
company owned common
stock at $.60 per
share.................. -- -- -- (223,220) -- -- -- (223,220)
Change in unrealized
loss on investment and
mortgage-backed
securities available
for sale, net.......... -- -- -- -- 405,375 -- -- 405,375
------- -------- --------- --------- -------- ------- -------- ----------
Balance, March 31,
1996................... 836,400 836,400 2,759,797 9,402,887 (47,232) -- (162,440) 12,789,412
Net income.............. -- -- -- 504,772 -- -- -- 504,772
Amortization of ESOP
awards................. -- -- 8,751 -- -- -- 26,600 35,351
Dividend declared on
non-mutual holding
company owned common
stock at $.62 per
share.................. -- -- -- (232,983) -- -- -- (232,983)
Change in unrealized
loss on investment and
mortgage-backed
securities available
for sale, net.......... -- -- -- -- (462,291) -- -- (462,291)
------- -------- --------- --------- -------- ------- -------- ----------
Balance, March 31,
1997................... 836,400 $836,400 2,768,548 9,674,676 (509,523) -- (135,840) 12,634,261
======= ======== ========= ========= ======== ======= ======== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
EQUALITY SAVINGS AND LOAN ASSOCIATION, F.A. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED MARCH 31, 1997, 1996, AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
----------- ------------ -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income............................ $ 504,772 653,456 321,675
Adjustments to reconcile net income to
net cash provided by (used in)
operating activities:
Depreciation and amortization:
Office properties and equipment...... 280,383 313,436 338,482
Real estate investments.............. 17,140 48,163 87,820
Premiums and discounts, net.......... 216,824 329,123 281,475
Mortgage servicing rights............ 185,281 49,667 1,807
Stock awards......................... -- 28,500 47,500
Increase in accrued interest receiv-
able................................. (221,226) (153,915) (333,011)
Provision for losses on loans......... 50,000 31,225 9,000
Decrease in valuation reserve on loans
held for sale........................ (80,291) (14,906) (50,000)
Loss (gain) on the sale of real estate
acquired through foreclosure......... (7,696) 1,179 19,388
Gain on sale of investment in real es-
tate................................. (105,875) (116,482) --
Loss (gain) on the sale of investment
and mortgage-backed securities avail-
able for sale, net................... (7,284) (8,280) 34,202
Increase in accrued interest payable
on savings deposits.................. 32,457 48,334 1,739
Stock dividend from FHLB.............. -- (50,000) --
Change in income taxes payable........ 228,326 103,943 109,588
Equity in loss (earnings) of joint
ventures............................. 2,433 29,634 (188,022)
Other, net............................ 26,476 (288,948) (33,511)
Origination and purchases of loans
held for sale........................ (68,974,276) (77,563,150) (49,962,543)
Proceeds from sales of loans held for
sale................................. 78,083,656 67,027,634 52,146,852
----------- ------------ -----------
Net cash provided by (used in) operat-
ing activities........................ (7,987,660) (9,531,387) 2,832,441
----------- ------------ -----------
Cash flows from investing activities:
Net change in loans receivable........ 10,080,084 (3,308,774) (23,746,843)
Decrease in interest-bearing
deposits............................. 5,750,746 4,508,510 3,687,732
Principal repayments on investment
securities available for sale........ 476,709 112,466 --
Principal repayments on mortgage-
backed securities available for
sale................................. 4,584,586 4,021,889 2,650,584
Proceeds from maturities of investment
securities available for sale........ 11,935,000 14,600,000 5,000,000
Proceeds from the sale of investment
securities available for sale........ 28,377,443 31,147,503 16,349,851
Proceeds from the sale of mortgage-
backed securities available for
sale................................. 22,254,028 6,897,588 --
Proceeds from maturities of investment
securities held to maturity.......... 1,000,000 1,500,000 --
Purchase of investment securities
available for sale................... (72,469,418) (50,052,295) (20,661,218)
Purchase of mortgage-backed securities
available for sale................... (14,211,212) (24,234,815) (1,171,550)
Purchase of investment securities held
to maturity.......................... -- (244,062) (1,443,477)
Cash distribution from joint venture.. -- -- 214,786
Proceeds from the sale of real estate
acquired through foreclosure......... 178,249 18,427 57,745
Proceeds from the sale of investment
in real estate....................... 1,071,372 298,140 --
Decrease in joint venture borrowings.. 12,513 11,527 367,006
Purchase of stock in FHLB............. (200,000) (1,700,000) (158,500)
Increase in cost of mortgage servicing
rights............................... (437,489) (296,583) --
Purchase of office properties and
equipment, net....................... (79,135) (55,325) (225,558)
----------- ------------ -----------
Net cash used in investing activities.. (1,676,524) (16,775,804) (19,079,442)
----------- ------------ -----------
Cash flows from financing activities:
Net increase (decrease) in savings de-
posits............................... (1,532,416) 2,955,006 (11,283,618)
Proceeds from FHLB advances........... 101,000,000 143,000,000 104,000,000
Repayment of FHLB advances............ (94,000,000) (112,000,000) (79,000,000)
Net change in FHLB line of credit..... -- (3,000,000) 3,000,000
Proceeds from other borrowed money.... -- 91,316 166,245
Repayment of other borrowed money..... (56,602) (41,600) (15,960)
Cash dividends paid................... (232,983) (223,220) (219,809)
Increase (decrease) in advance pay-
ments by borrowers for taxes and in-
surance ............................. (26,908) 49,747 (20,995)
----------- ------------ -----------
Net cash provided by financing activi-
ties.................................. 5,151,091 30,831,249 16,625,863
----------- ------------ -----------
Net increase (decrease) in cash and
cash equivalents...................... (4,513,093) 4,524,058 378,862
Cash and cash equivalents, beginning of
year.................................. 5,550,292 1,026,234 647,372
----------- ------------ -----------
Cash and cash equivalents, end of
year.................................. $ 1,037,199 5,550,292 1,026,234
=========== ============ ===========
Supplemental disclosure of cash flow
information:
Interest paid......................... $ 9,079,632 8,492,392 6,130,101
Income taxes paid..................... 989 225,014 26,285
Noncash transfers of loans to real
estate acquired through foreclosure.. 253,689 72,516 52,382
Transfer of investment securities held
to maturity to investment securities
available for sale................... -- 1,966,984 --
Transfer of mortgage-backed securities
held to maturity to mortgage-backed
securities available for sale........ -- 14,265,565 --
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
EQUALITY SAVINGS AND LOAN ASSOCIATION, F.A. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997 AND 1996
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
On October 22, 1993, Equality Savings and Loan Association, F.A. and
Subsidiaries (Equality) reorganized from a Missouri-chartered mutual savings
and loan association into a mutual holding company. The mutual holding company
is a federal corporation, chartered and regulated by the Office of Thrift
Supervision (OTS), and is named First Missouri Financial, M.H.C. (the MHC). As
part of the reorganization, Equality transferred substantially all of its
assets and all of its liabilities to a new Missouri-chartered savings and loan
association and retained its same name. The reorganization was accounted for
as a change in corporate form with the historic basis of Equality's assets,
liabilities, and retained earnings unchanged as a result.
Concurrent with the reorganization, Equality offered a minority interest in
its common stock to its depositors and to its Employee Stock Ownership Plan
(ESOP). A total of 380,000 shares of newly issued common stock was sold at
$10.00 per share. An additional 11,400 authorized shares of common stock were
sold to Equality's Management Recognition Plan (MRP) at $10.00 per share. The
cost of issuing the 391,400 shares totaled $333,000 and was deducted from the
sale proceeds.
Equality will be a majority-owned subsidiary of the MHC at all times as long
as the MHC remains in existence. The existing rights of Equality's depositors
upon liquidation were transferred to the MHC and records will be maintained to
ensure such rights receive statutory priority in the event of a future mutual-
to-stock conversion, or in the more unlikely event of the MHC's liquidation.
On May 16, 1997, First Missouri Financial, M.H.C. and Equality Savings and
Loan Association, F.A. adopted a Plan of Conversion and Reorganization
pursuant to which First Missouri Financial, M.H.C. will convert from the
mutual to stock form of organization. Shares of common stock of a new holding
company, Equality Bancorp, Inc., will be offered in a subscription offering in
descending order of priority to eligible account holders; employee stock
benefit plans; supplemental eligible account holders; other members;
directors, officers, and employees; and public stockholders. Any shares
remaining unsold in the subscription offering will be sold through a community
offering.
Business
Equality provides a full range of banking services to individual and
corporate customers from its home office and two branch locations in the St.
Louis area. In addition, Equality provides mortgage lending services from five
locations. Equality is subject to competition from other financial
institutions, is subject to the regulations of certain regulatory agencies,
and undergoes periodic examinations by those regulatory authorities.
Basis of Financial Statement Presentation
The consolidated financial statements of Equality have been prepared in
conformity with generally accepted accounting principles and conform to
predominant practices within the savings and loan industry. The preparation of
the consolidated financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions,
including the determination of the allowance for loan losses and the valuation
of real estate acquired through foreclosure or in satisfaction of loans, that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the consolidated financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
F-7
<PAGE>
EQUALITY SAVINGS AND LOAN ASSOCIATION, F.A. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Principles of Consolidation
The consolidated financial statements include the accounts of Equality
Savings and Loan Association, F.A. and its wholly owned subsidiaries, Equality
Commodity Corporation (ECC) and Equality Mortgage Corporation (EMC). All
significant intercompany accounts and transactions have been eliminated in
consolidation.
Restricted Cash
Included in cash is $56,257 and $116,721 at March 31, 1997 and 1996,
respectively, which consists of assistance funds held by EMC on behalf of
mortgagors participating in a subsidy program. The subsidy is passed through
to the investors monthly.
Investment and Mortgage-Backed Securities
At the time of purchase, investment and mortgage-backed securities are
classified in one of two categories: available for sale or held to maturity.
Held to maturity securities are those securities which Equality has the
ability and intent to hold until maturity. All equity securities, and debt
securities not classified as held to maturity, are classified as available for
sale.
Available for sale securities are recorded at fair value. Held to maturity
securities are recorded at cost, adjusted for the amortization of premiums or
discounts. Unrealized gains and losses, net of the related tax effect, on
available for sale securities are excluded from earnings and reported as a
separate component of stockholders' equity until realized. Gains and losses on
the sale of available for sale securities are determined using the specific
identification method.
A decline in the market value of any available for sale or held to maturity
security below cost that is deemed to be other than temporary is charged to
earnings and results in the establishment of a new cost basis for the
security.
On November 15, 1996, the Financial Accounting Standards Board issued a
special report, A Guide to Implementation of Statement 115 on Accounting for
Certain Investments in Debt and Equity Securities, Questions and Answers (the
Special Report). The Special Report allowed a one-time reassessment of the
classification of securities as of a single measurement date without tainting
the classification of the remaining held to maturity debt securities. Such
reassessment and transfers were to be completed no later than December 31,
1995. Effective December 31, 1995, as allowed under the Special Report,
Equality transferred investment and mortgage-backed securities classified as
held to maturity with an amortized cost of $1,966,984 and $14,265,565,
respectively, to available for sale. In conjunction with these transfers, the
market valuation account for available for sale securities was adjusted by
$26,897 to increase the recorded balance of such securities at December 31,
1995 to their market value, the deferred tax liability account was increased
by $10,490 to reflect the tax effect of the increase in the market valuation
account, and the net increase resulting from the market valuation adjustment
at December 31, 1995 of $16,407 was recorded to the unrealized loss on
investment and mortgage-backed securities available for sale component of
stockholders' equity.
Loans Receivable and Related Fees
Loans receivable, other than loans held for sale, are carried at cost
because Equality has both the intent and the ability to hold them for the
foreseeable future. Mortgage loans held for sale are valued at the lower of
cost or market, computed on an aggregate loan basis. Interest is credited to
income as earned; however, interest receivable is accrued only if deemed
collectible. Loans are placed on nonaccrual status when management believes
that the borrower's financial condition, after consideration of economic
conditions and collection efforts, is such that collection of interest is
doubtful. A loan remains on nonaccrual status until the loan is current as to
payment of both principal and interest and/or the borrower demonstrates the
ability to pay and remain current.
F-8
<PAGE>
EQUALITY SAVINGS AND LOAN ASSOCIATION, F.A. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
EMC derives income primarily from the origination and subsequent sale of
mortgage loans and from the servicing of mortgage loans. EMC recognizes the
origination fee charged on nonconventional mortgage loans as income when the
loan is recorded on its books. For conventional loans, management has elected
to recognize the origination fee as income when the loan is sold to investors.
The remaining income for both types of loans is recognized upon receipt of
proceeds from the sale of the mortgage from the investor. Mortgages are sold
at such times as management deems advisable. EMC's activities are performed
primarily in the St. Louis metropolitan area.
Beginning in 1996, in accordance with Statement of Financial Accounting
Standards No. 122, Accounting for Mortgage Servicing Rights, an amendment of
FASB Statement No. 65 (SFAS 122), EMC capitalized the cost of originated
mortgage servicing rights retained as assets. Previously, only the cost of
purchased mortgage servicing rights could be capitalized as assets. The cost
of the mortgage servicing rights is being amortized over periods ranging up to
eight years using the straight-line method. SFAS 122 provides for a valuation
allowance when the carrying value of the mortgage servicing rights exceeds the
fair value.
The allowance for loan losses is increased by provisions charged to expense
and is reduced by loan charge-offs, net of recoveries. Management utilizes a
systematic, documented approach in determining the appropriate level of the
allowance for loan losses. Management's approach, which provides for general
and specific valuation allowances, considers numerous factors including
general economic conditions, loan portfolio composition, prior loss
experience, independent appraisals, and such other factors which, in
management's judgment, deserve current recognition in estimating loan losses.
Management believes the allowance for loan losses is adequate to absorb
losses in the loan portfolio. While management uses available information to
recognize loan losses, future additions to the allowance 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 allowance for loan losses. Such agencies may require Equality to
increase the allowance for loan losses based on their judgment about
information available to them at the time of their examination.
Premiums and Discounts
Premiums and discounts on investment securities, mortgage-backed securities,
and purchased loans and unearned discounts on property improvement loans are
amortized using the interest method over the period to maturity, adjusted for
anticipated prepayments.
Funds Held for Investors
EMC holds funds belonging to investors in separate bank accounts which are
offset by liabilities for escrow and other fiduciary funds. These funds and
the related liabilities are not included in the consolidated balance sheets.
These amounts totaled $2,604,137 and $2,253,139 at March 31, 1997 and 1996,
respectively.
At March 31, 1997 and 1996, escrow funds related to loans serviced by EMC
for Equality totaled $705,097 and $673,541, respectively, and are included in
savings deposits in the consolidated balance sheets.
Investment in Real Estate
Investment in real estate includes real estate held for investment,
investment in real estate joint ventures, and real estate acquired through
foreclosure.
Real estate held for investment is recorded at the lower of cost, net of
accumulated depreciation, or net realizable value. Depreciation is charged to
expense using the straight-line method over an estimated useful life of 30
years.
F-9
<PAGE>
EQUALITY SAVINGS AND LOAN ASSOCIATION, F.A. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Equality accounts for its investment in real estate joint ventures using the
equity method.
Real estate acquired through foreclosure is initially recorded at fair value
less cost to sell. If the fair value less cost to sell of the real estate
declines subsequent to foreclosure, the difference is recorded as a valuation
allowance through a charge to expense. Subsequent increases in fair value less
cost to sell are recorded through a reversal of the valuation allowance.
Expenses incurred in maintaining the properties are charged to expense.
Profit on sales of real estate is recognized when title has passed, minimum
down payment requirements have been met, the terms of any notes received by
Equality are such to satisfy initial and continuing payment requirements, and
Equality is relieved of any requirement for continued involvement in the real
estate.
Stock in Federal Home Loan Bank
Equality, as a member of the Federal Home Loan Bank System administered by
the Federal Housing Finance Board, is required to maintain an investment in
the capital stock of the Federal Home Loan Bank of Des Moines (FHLB) in an
amount equal to the greater of 1% of Equality's total mortgage-related assets
at the beginning of each year, 0.3% of Equality's total assets at the
beginning of each year, or 5% of advances from the FHLB to Equality. The stock
is recorded at cost which represents redemption value.
Office Properties and Equipment
Land is carried at cost. Office buildings and improvements, furniture and
equipment, and automobiles are carried at cost, less accumulated depreciation
and amortization. Depreciation and amortization are charged to expense using
the straight-line method over the estimated useful lives of the related
assets. Useful lives are 10 to 50 years for office buildings and improvements,
7 to 10 years for furniture and equipment, and 5 years for automobiles.
Income Taxes
Equality files a consolidated federal income tax return. Deferred tax assets
and liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing
assets and liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
Reclassifications
Certain reclassifications of 1996 and 1995 information have been made to
conform with the 1997 presentation. Such reclassifications have no effect on
previously reported net income.
Earnings Per Share
Earnings per share are based upon the weighted average number of common
shares and common stock equivalents, if dilutive, outstanding during the
period. The weighted average number of common stock equivalents is calculated
using the treasury stock method. The average number of common shares and
common equivalent shares outstanding for 1997, 1996, and 1995 was 821,190,
817,383, and 815,167, respectively.
Equality only considers ESOP shares that have been committed to be released
outstanding for purposes of computing earnings per share. At March 31, 1997,
1996, and 1995, ESOP shares totaling 14,213, 10,356, and 6,196, respectively,
are considered outstanding for earnings per share calculations.
F-10
<PAGE>
EQUALITY SAVINGS AND LOAN ASSOCIATION, F.A. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(2) CAPITAL REQUIREMENTS
Equality is subject to various regulatory capital requirements administered
by the federal banking agencies. Failure to meet minimum capital requirements
can initiate certain mandatory and possibly additional discretionary actions by
regulators that, if undertaken, could have a direct material effect on
Equality's consolidated financial statements. Under capital adequacy
guidelines, Equality must meet specific capital guidelines that involve
quantitative measures of assets, liabilities, and certain off-balance sheet
items as calculated under regulatory accounting practices. Equality's capital
amounts and classifications are also subject to quantitative judgments by the
regulators about components, risk-weightings and other factors. At March 31,
1997, Equality meets all capital adequacy requirements.
Equality is also subject to the regulatory framework for prompt corrective
action. The most recent notification from the regulatory agencies categorized
Equality as well capitalized. To be categorized as well capitalized, Equality
must maintain minimum total risk-based, Tier I risk-based, and Tier I leverage
ratios as set forth in the following table. There are no conditions or events
since the dates of the aforementioned notifications that management believes
have changed Equality's category.
Equality's actual and required capital amounts and ratios at March 31, 1997
are as follows:
<TABLE>
<CAPTION>
TO BE WELL
CAPITALIZED
MINIMUM FOR FOR PROMPT
CAPITAL ADEQUACY CORRECTIVE ACTION
ACTUAL PURPOSES PROVISIONS
------------------- ----------------- ------------------
RATIO AMOUNT RATIO AMOUNT RATIO AMOUNT
----- ------------ ----- ---------- ----- -----------
<S> <C> <C> <C> <C> <C> <C>
Stockholders' equity,
and ratio to total
assets................. 6.29% $ 12,634,261
Unrealized loss on
investment and
mortgage-backed
securities available
for sale............... 509,523
Investment in and
advances to
nonincludable
subsidiaries........... (845,000)
------------
Tangible capital, and
ratio to adjusted total
assets................. 6.11% $ 12,298,784 1.50% $3,017,402
===== ============ ==== ==========
Tier I (core) capital,
and ratio to adjusted
total assets........... 6.11% $ 12,298,784 3.00% $6,034,805 5.00% $10,058,008
===== ============ ==== ========== ===== ===========
Tier I capital, and
ratio to risk-weighted
assets................. 17.46% 12,298,784 6.00% $ 4,226,580
===== ===========
Allowance for loan
losses (general
valuation allowance)... 283,000
------------
Total risk-based
capital, and ratio to
risk-weighted assets... 17.86% $ 12,581,784 8.00% $5,635,440 10.00% $ 7,044,300
===== ============ ==== ========== ===== ===========
Total assets.......... $200,763,642
============
Adjusted total
assets............... $201,160,165
============
Risk-weighted assets.. $ 70,443,000
============
</TABLE>
(3) SUBSIDIARIES' OPERATIONS
ECC operates under the name of Equality Insurance Agency and Flood
Information Specialists and is a wholly owned subsidiary of Equality. ECC's
services and activities include sales of multiple lines of insurance to the
general public, the issuance of flood plain certificates, and investments in
real estate joint ventures.
F-11
<PAGE>
EQUALITY SAVINGS AND LOAN ASSOCIATION, F.A. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
EMC operates as a mortgage banker and is a wholly owned subsidiary of
Equality. At March 31, 1997, EMC serviced approximately $323.0 million in
loans of which $90.2 million are for Equality. In addition, EMC was carrying a
blanket bond in the amount of $4,560,000 and an errors and omissions policy in
the amount of $1,000,000.
(4) INVESTMENT SECURITIES
The amortized cost and market value of investment securities classified as
available for sale at March 31, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
----------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
U.S. government and agency
obligations:
1997....................... $70,705,833 255,529 838,555 70,122,807
1996....................... $38,942,766 260,901 305,321 38,898,346
</TABLE>
The amortized cost and market value of investment securities classified as
available for sale at March 31, 1997, by contractual maturity, are as follows:
<TABLE>
<CAPTION>
AMORTIZED COST MARKET VALUE
-------------- ------------
<S> <C> <C>
Due in one year or less.......................... $ 294,978 297,094
Due after one year through five years............ 13,844,221 13,804,129
Due after five years through ten years........... 50,924,967 50,427,327
Due after ten years.............................. 5,641,667 5,594,257
----------- ----------
$70,705,833 70,122,807
=========== ==========
</TABLE>
Proceeds from sales of investment securities during 1997, 1996, and 1995
were approximately $28.4 million, $31.1 million, and $16.3 million,
respectively. During 1997, 1996, and 1995, gross gains of $77,173 $125,167,
and $23,594, respectively, and gross losses of $41,296, $66,252, and $57,796,
respectively, were recognized on these sales.
The amortized cost and estimated market value of investment securities
classified as held to maturity at March 31, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
---------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
U.S. government and agency ob-
ligations:
1997......................... $4,848,587 476 124,063 4,725,000
1996......................... $5,845,193 120 256,313 5,589,000
</TABLE>
The amortized cost and estimated market value of investment securities
classified as held to maturity at March 31, 1997, by contractual maturity, are
as follows:
<TABLE>
<CAPTION>
ESTIMATED
AMORTIZED MARKET
COST VALUE
---------- ---------
<S> <C> <C>
Due in one year or less................................. $2,248,587 2,236,000
Due after one year through five years................... 2,000,000 1,936,250
Due after five years through ten years.................. 600,000 552,750
---------- ---------
$4,848,587 4,725,000
========== =========
</TABLE>
F-12
<PAGE>
EQUALITY SAVINGS AND LOAN ASSOCIATION, F.A. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(5) MORTGAGE-BACKED SECURITIES
The amortized cost and market value of mortgage-backed securities classified
as available for sale at March 31, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
----------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
1997
FNMA.......................... $ 7,193,758 17,364 186,609 7,024,513
FHLMC......................... 4,562,858 28,305 35,790 4,555,373
GNMA.......................... 3,449,668 19,702 95,231 3,374,139
----------- ------- ------- ----------
$15,206,284 65,371 317,630 14,954,025
=========== ======= ======= ==========
Weighted average interest rate
at March 31.................. 6.95%
====
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
----------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
1996
FNMA.......................... $16,209,663 19,818 103,023 16,126,458
FHLMC......................... 10,043,002 77,896 31,483 10,089,415
GNMA.......................... 1,876,756 7,579 3,709 1,880,626
----------- ------- ------- ----------
$28,129,421 105,293 138,215 28,096,499
=========== ======= ======= ==========
Weighted average interest rate
at March 31.................. 6.96%
====
</TABLE>
The amortized cost and market value of mortgage-backed securities classified
as available for sale at March 31, 1997, by contractual maturity, are shown
below. Expected maturities will differ from contractual maturities due to
scheduled repayments and because borrowers have the right to prepay
obligations with or without prepayment penalties. The following table does not
take into consideration the effects of scheduled repayments or the effects of
possible prepayments.
<TABLE>
<CAPTION>
AMORTIZED MARKET
COST VALUE
----------- ----------
<S> <C> <C>
Due in one year or less............................... $ 747,622 755,068
Due after one year through five years................. 4,076,527 4,084,204
Due after five years through ten years................ 2,334,004 2,307,471
Due after ten years................................... 8,048,131 7,807,282
----------- ----------
$15,206,284 14,954,025
=========== ==========
</TABLE>
Proceeds from the sale of mortgage-backed securities during 1997 and 1996
were approximately $22.3 million and $6.9 million, respectively. During 1997
and 1996, gross gains of $97,917 and $3,186, respectively, and gross losses of
$126,510 and $70,381, respectively, were recognized on these sales. There were
no sales of mortgage-backed securities during 1995.
F-13
<PAGE>
EQUALITY SAVINGS AND LOAN ASSOCIATION, F.A. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(6) LOANS RECEIVABLE
Loans receivable are summarized as follows:
<TABLE>
<CAPTION>
1997 1996
----------- ----------
<S> <C> <C>
Loans secured by real estate:
Residential:
One- to four-family:
Conventional.................................. $69,810,802 64,873,244
FHA and VA.................................... 14,233,144 13,656,084
Multifamily..................................... 1,637,293 782,952
Commercial........................................ 2,661,620 2,621,296
Loans held for sale............................... 4,397,614 13,506,994
----------- ----------
Total loans secured by real estate.................. 92,740,473 95,440,570
----------- ----------
Commercial business................................. 1,279,641 --
Loans secured by savings deposits................... 366,082 452,764
Property improvement................................ 1,595,572 1,299,752
Automobiles......................................... 122,403 97,410
Other............................................... 162,297 96,350
----------- ----------
Total loans......................................... 96,266,468 97,386,846
Less:
Deferred loan fees, net........................... 46,159 58,691
Unearned discounts................................ 4,523 12,009
Allowance for loan losses......................... 283,000 233,000
Valuation reserve on loans held for sale.......... 4,803 85,094
----------- ----------
$95,927,983 96,998,052
=========== ==========
Weighted average interest rate at March 31........ 7.65% 7.63%
</TABLE>
Adjustable rate mortgages at March 31, 1997 and 1996 totaled approximately
$55,000,000 and $45,000,000, respectively.
At March 31, 1997 and 1996, loans secured by real estate contractually
delinquent 90 days or more totaled $642,856 and $669,395, respectively. Of
these amounts, $571,386 and $326,102, respectively, were insured by the
Federal Housing Administration or guaranteed by the Veterans Administration.
No loans were deemed by management to be impaired at March 31, 1997 or 1996.
EMC had commitments to sell loans of approximately $3,920,000 and $1,628,000
at March 31, 1997 and 1996, respectively.
Loans serviced by EMC at March 31, 1997, 1996, and 1995 are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------------ ----------- -----------
<S> <C> <C> <C>
For Equality............................ $ 90,600,283 83,926,591 80,465,279
For others.............................. 232,430,243 210,037,963 195,745,355
------------ ----------- -----------
$323,030,526 293,964,554 276,210,634
============ =========== ===========
</TABLE>
F-14
<PAGE>
EQUALITY SAVINGS AND LOAN ASSOCIATION, F.A. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Activity in the allowance for loan losses is summarized as follows:
<TABLE>
<CAPTION>
1997 1996 1995
-------- ------- -------
<S> <C> <C> <C>
Balance, beginning of year........................ $233,000 216,775 242,000
Provision charged to expense...................... 50,000 31,225 9,000
Charge-offs....................................... -- (15,000) (34,225)
-------- ------- -------
Balance, end of year.............................. $283,000 233,000 216,775
======== ======= =======
</TABLE>
Statement of Financial Accounting Standards No. 114, Accounting by Creditors
for Impairment of a Loan (SFAS 114), as amended by Statement of Financial
Accounting Standards No. 118, Accounting by Creditors for Impairment of a
Loan--Income Recognition and Disclosures (SFAS 118), require that impairment of
larger-balance, non-homogeneous loans be measured by comparing the net carrying
amount of the loan to the present value of the expected future cash flows
discounted at the loan's effective interest rate, the secondary market value of
the loan, or fair value of the collateral for collateral-dependent loans. SFAS
118 amended SFAS 114 to allow a creditor to use existing methods for
recognizing interest income on an impaired loan.
As SFAS 114 does not apply to residential mortgage and consumer loans which
are collectively evaluated for impairment, the initial and continuing
application of SFAS 114 continues to have no impact on the level of overall
allowance for loan losses or on operating results of Equality. The discussed
provisions do apply, however, to multifamily, commercial, and commercial
business loans, as well as all restructured loans, including modified
residential mortgage loans not otherwise within the scope of SFAS 114. Equality
has no multifamily, commercial, commercial business loans or restructured
residential mortgage loans deemed to be impaired at March 31, 1997 or 1996.
Following is a summary of activity for 1997 of loans made by Equality to
executive officers and directors or to entities in which such individuals had
beneficial interest. Such loans were made in the normal course of business on
substantially the same terms, including interest and collateral requirements,
as those prevailing at the same time for comparable transactions with other
persons and did not involve more than the normal risk of collectibility or
present unfavorable features.
<TABLE>
<S> <C>
Balance at March 31, 1996........................................ $1,164,415
New loans........................................................ 50,000
Payments received................................................ (62,169)
----------
Balance at March 31, 1997........................................ $1,152,246
==========
</TABLE>
(7) INVESTMENT IN REAL ESTATE
Investment in real estate is summarized as follows:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Real estate held for investment........................ $ 291,045 1,273,682
Investment in real estate joint venture:
Equity in operations................................. (150,405) (147,972)
Loan to real estate joint venture.................... 662,912 675,425
Real estate acquired through foreclosure............... 66,346 97,292
--------- ---------
$ 869,898 1,898,427
========= =========
</TABLE>
The investment in real estate joint venture consists of the WC Joint Venture,
a 50%-owned venture formed in 1986 for the purpose of acquiring, developing,
and selling real estate.
F-15
<PAGE>
EQUALITY SAVINGS AND LOAN ASSOCIATION, F.A. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(8) MORTGAGE SERVICING RIGHTS
The cost of mortgage servicing rights capitalized and the resulting increase
in gain on sale of mortgage loans amounted to $483,093 in 1997 and $317,001 in
1996. Equality established an impairment reserve of $66,022 in 1997 and
$20,418 in 1996. The fair value of the capitalized mortgage servicing rights
was approximately $979,000 and $418,000 at March 31, 1997 and 1996,
respectively. The fair value was estimated based on quoted market prices for
mortgage servicing rights of a similar nature. Note rate and loan type are the
predominant characteristics used to evaluate the carrying and fair value of
the capitalized mortgage servicing rights.
(9) OFFICE PROPERTIES AND EQUIPMENT
Office properties and equipment are summarized as follows:
<TABLE>
<CAPTION>
1997 1996
---------- ---------
<S> <C> <C>
Land.................................................... $1,146,688 1,146,688
Office buildings and improvements....................... 2,483,865 2,483,865
Furniture and equipment................................. 2,212,369 2,183,916
Automobiles............................................. 81,758 61,927
---------- ---------
5,924,680 5,876,396
Less accumulated depreciation and amortization.......... 2,991,089 2,741,557
---------- ---------
$2,933,591 3,134,839
========== =========
</TABLE>
Depreciation and amortization expense for 1997, 1996, and 1995 was $280,383,
$313,436 and, $338,482, respectively.
Equality is obligated under certain noncancellable leases on properties. The
future minimum lease payments under these leases total $68,676 during 1998.
(10) ACCRUED INTEREST RECEIVABLE AND OTHER ASSETS
Accrued interest receivable and other assets are summarized as follows:
<TABLE>
<CAPTION>
1997 1996
---------- ---------
<S> <C> <C>
Accrued interest:
Loans receivable...................................... $ 487,720 478,444
Interest-bearing deposits............................. 181,528 231,268
Investment securities................................. 989,575 630,469
Mortgage-backed securities............................ 89,961 187,377
---------- ---------
Total accrued interest.............................. 1,748,784 1,527,558
Accounts receivable..................................... 346,380 372,056
Prepaid expenses........................................ 255,005 256,892
Income tax receivable................................... -- 128,463
Other................................................... 36,364 79,516
---------- ---------
$2,386,533 2,364,485
========== =========
</TABLE>
F-16
<PAGE>
EQUALITY SAVINGS AND LOAN ASSOCIATION, F.A. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(11) SAVINGS DEPOSITS
Savings deposits are summarized as follows:
<TABLE>
<CAPTION>
1997 1996
------------------------------ -------------------------------
WEIGHTED WEIGHTED
AVERAGE PERCENT AVERAGE PERCENT
INTEREST OF TOTAL INTEREST OF TOTAL
AMOUNT RATE SAVINGS AMOUNT RATE SAVINGS
------------ -------- -------- ------------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Demand deposits:
NOW................... $ 12,163,249 1.32% 9.9% $ 10,813,992 1.47% 8.7%
Passbook.............. 21,576,722 2.51 17.5 21,831,026 2.51 17.5
Money market.......... 6,135,128 3.22 5.0 6,551,797 2.93 5.3
------------ ---- ----- ------------- ---- -----
Total demand
deposits........... 39,875,099 2.25 32.4 39,196,815 2.28 31.5
------------ ---- ----- ------------- ---- -----
Certificates of deposit:
Negotiated rate
($100,000 or more)... 2,717,985 6.20 2.2 3,427,991 5.96 2.7
Other................. 80,389,870 5.75 65.4 81,890,564 5.78 65.8
------------ ---- ----- ------------- ---- -----
Total certificates
of deposit......... 83,107,855 5.76 67.6 85,318,555 5.79 68.5
------------ ---- ----- ------------- ---- -----
$122,982,954 4.63% 100.0% $ 124,515,370 4.69% 100.0%
============ ==== ===== ============= ==== =====
</TABLE>
Certificate of deposit accounts by interest rate ranges are as follows:
<TABLE>
<CAPTION>
1997 1996
------------------- -------------------
AVERAGE AVERAGE
AMOUNT RATE AMOUNT RATE
----------- ------- ----------- -------
<S> <C> <C> <C> <C>
Less than 3.00%...................... $ 7,791 2.50% $ 19,075 2.50%
3.00% to 3.99%....................... 250,986 3.85 1,343,986 3.89
4.00% to 4.99%....................... 3,925,295 4.26 6,553,454 4.24
5.00% to 5.99%....................... 49,200,044 5.39 43,119,557 5.44
6.00% to 6.99%....................... 17,083,022 6.20 19,199,628 6.20
7.00% to 7.99%....................... 12,154,898 7.00 14,629,987 7.03
8.00% and greater.................... 485,819 9.75 452,868 9.76
----------- ---- ----------- ----
$83,107,855 5.76% $85,318,555 5.79%
=========== ==== =========== ====
</TABLE>
Certificate of deposit accounts at March 31, 1997 and 1996 are scheduled to
mature as follows:
<TABLE>
<CAPTION>
1997 1996
-------------------- --------------------
PERCENT PERCENT
AMOUNT OF TOTAL AMOUNT OF TOTAL
----------- -------- ----------- --------
<S> <C> <C> <C> <C>
Within one year.................... $36,334,368 43.7% $32,401,947 38.0%
Second year........................ 22,832,417 27.5 16,286,882 19.1
Third year......................... 16,693,320 20.1 18,726,853 21.9
Fourth year........................ 4,948,760 5.9 15,463,905 18.1
Thereafter......................... 2,298,990 2.8 2,438,968 2.9
----------- ----- ----------- -----
$83,107,855 100.0% $85,318,555 100.0%
=========== ===== =========== =====
</TABLE>
F-17
<PAGE>
EQUALITY SAVINGS AND LOAN ASSOCIATION, F.A. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Interest expense on savings deposits by type is summarized as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---------- --------- ---------
<S> <C> <C> <C>
NOW and money market demand................... $ 320,394 362,174 464,452
Passbook...................................... 545,808 562,264 695,313
Certificates of deposit....................... 4,815,982 4,804,390 4,163,403
---------- --------- ---------
$5,682,184 5,728,828 5,323,168
========== ========= =========
</TABLE>
(12) BORROWED MONEY
Borrowed money at March 31, 1997 and 1996 is summarized as follows:
<TABLE>
<CAPTION>
1997 1996
-------------------- --------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
INTEREST INTEREST
AMOUNT RATE AMOUNT RATE
----------- -------- ----------- --------
<S> <C> <C> <C> <C>
Note payable to bank............... $ 1,112,964 2.25% $ 1,142,966 2.25%
Advances from the FHLB:
Due in 1997...................... -- -- 46,000,000 5.47
Due in 1998...................... 7,000,000 5.69 10,000,000 5.76
Due in 2002...................... 56,000,000 5.30 -- --
ESOP debt.......................... 135,840 9.50 162,440 9.25
----------- ---- ----------- ----
$64,248,804 5.30% $57,305,406 5.47%
=========== ==== =========== ====
</TABLE>
The note payable to bank, which is tied to average collected funds of EMC on
deposit at such bank, is due April 28, 1997. Investment securities with an
amortized cost of $3,974,475 and a market value of $3,941,875 secure the note
payable to bank at March 31, 1997.
FHLB advances are secured under a blanket agreement which assigns all FHLB
stock, certain investment securities, and mortgage loans equal to 150% of the
outstanding advances balance. Investment securities with an amortized cost of
$17,645,473 and a market value of $17,432,201 are pledged to secure advances
from the FHLB at March 31, 1997.
The ESOP borrowed $266,000 to finance the acquisition of the stock to be
held in trust for future allocation to eligible participants. The debt of the
ESOP is guaranteed by Equality and is reflected as a liability in the
consolidated balance sheet. The loan is due on September 30, 2003. Principal
payments totaling $26,600, $41,600, and $15,960 and interest payments totaling
$13,553, $18,033, and $18,946 were made during 1997, 1996, and 1995,
respectively.
(13) INCOME TAXES
Prior to 1997, if certain conditions were met, savings and loan associations
and savings banks were allowed special bad debt deductions in determining
taxable income based on either specified experience formulas or on a
percentage of taxable income before such deduction. Bad debt deductions in
excess of actual losses were tax-preference items, and were subject to a
minimum tax. Equality used the percentage of taxable income method for 1996
and 1995 in determining the bad debt deduction for tax purposes.
The special bad debt deduction accorded thrift institutions is covered under
Section 593 of the Internal Revenue Code (IRC). On August 20, 1996, the Small
Business Job Protection Act of 1996 (the Act) was signed
F-18
<PAGE>
EQUALITY SAVINGS AND LOAN ASSOCIATION, F.A. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
into law. This Act included the repeal of certain portions of Section 593
effective for tax years beginning after December 31, 1995. As a result,
Equality is no longer allowed a percentage method bad debt deduction. The
repeal of the thrift reserve method generally requires thrift institutions to
recapture into income the portion of tax bad debt reserves accumulated since
1987 (base year reserve). The recapture will generally be taken into income
ratably over six tax years. However, if Equality meets a residential loan
requirement for tax years beginning in 1997 and 1998, recapture of the reserve
can be deferred until the tax year beginning in 1999. At March 31, 1997,
Equality had bad debts deducted for tax purposes in excess of the base year
reserve of approximately $241,000. Equality has recognized a deferred income
tax liability for this amount.
Certain events covered by IRC Section 593(e), which was not repealed, will
trigger a recapture of the base year reserve. The base year reserve of thrift
institutions would be recaptured if a thrift ceases to qualify as a "bank" for
federal income tax purposes. The base year reserves of thrift institutions
also remain subject to income tax penalty provisions which, in general,
require recapture upon certain stock redemptions of, and excess distributions
to, stockholders. At March 31, 1997, retained earnings included approximately
$2.9 million of base year reserves, for which no deferred federal income tax
liability has been recognized.
The composition of income tax expense for 1997, 1996, and 1995 is as
follows:
<TABLE>
<CAPTION>
1997 1996 1995
-------- ------- -------
<S> <C> <C> <C>
Current:
Federal........................................... $187,974 273,713 171,945
State............................................. 23,752 19,111 10,526
-------- ------- -------
Total current................................... 211,726 292,824 182,471
Deferred............................................ 91,733 124,958 5,776
-------- ------- -------
Total income tax expense........................ $303,459 417,782 188,247
======== ======= =======
</TABLE>
Applicable income taxes for financial reporting purposes differ from the
amount computed by applying the statutory federal income tax rate of 34% for
the reasons noted in the table below:
<TABLE>
<CAPTION>
1997 1996 1995
-------- ------- -------
<S> <C> <C> <C>
Tax at statutory federal income tax rate........ $274,799 364,221 173,373
State income tax, net of federal tax benefit.... 15,676 12,613 6,947
Other, net...................................... 12,984 40,948 7,927
-------- ------- -------
$303,459 417,782 188,247
======== ======= =======
Effective tax rate.............................. 37.54% 39.00% 36.92%
======== ======= =======
</TABLE>
F-19
<PAGE>
EQUALITY SAVINGS AND LOAN ASSOCIATION, F.A. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The components of deferred tax assets and deferred tax liabilities at March
31, 1997 and 1996 were as follows:
<TABLE>
<CAPTION>
1997 1996
-------- -------
<S> <C> <C>
Deferred tax assets:
General loan loss allowance............................. $105,050 86,490
Deferred compensation................................... 9,409 20,656
Deferred loan fees...................................... 13,728 20,592
Excess servicing gains.................................. 20,026 25,440
Available for sale securities market valuation.......... 325,849 30,197
Other................................................... 9,117 44,855
-------- -------
Total deferred tax assets............................. $483,179 228,230
======== =======
Deferred tax liabilities:
Tax depreciation in excess of that recorded for book
purposes............................................... $246,172 281,255
FHLB stock dividends.................................... 154,162 154,162
Allowance for loan losses in excess of base-year
reserve................................................ 81,858 80,872
Mortgage servicing rights............................... 186,616 92,325
Other................................................... 10,798 19,962
-------- -------
Total deferred tax liabilities........................ 679,606 628,576
-------- -------
Net deferred tax liability................................ $196,427 400,346
======== =======
</TABLE>
The ultimate realization of deferred tax assets is dependent upon the
generation of future taxable income during the periods in which those
temporary differences become deductible. Management considers the scheduled
reversal of deferred tax liabilities, projected future taxable income, and tax
planning strategies in making this assessment. Based upon the level of
historical taxable income and projections for future taxable income over the
periods which the deferred tax assets are deductible, management believes it
is more likely than not that Equality will realize the benefits of these
temporary differences at March 31, 1997 and, therefore, has not established a
valuation reserve.
(14)EMPLOYEE STOCK OWNERSHIP PLAN, STOCK OPTION AND INCENTIVE PLAN, MANAGEMENT
RECOGNITION PLAN, AND 401(K) PLAN
In connection with the conversion to the stock form of ownership, Equality's
Board of Directors established an employee stock ownership plan for the
exclusive benefit of participating employees. Employees age 21 or older who
have completed one year of service are eligible to participate. The ESOP is to
be funded by contributions made in cash or common stock.
Upon the issuance of the common stock, the ESOP acquired 26,600 shares (3.2%
of total shares issued) of $1 par value common stock at the subscription price
of $10.00 per share. Equality makes quarterly contributions to the ESOP equal
to the ESOP's debt service less dividends received by the ESOP. All dividends
received by the ESOP are used to pay debt service. The ESOP shares initially
were pledged as collateral for its debt. As the debt is repaid, shares are
released from collateral and allocated to active employees, based upon the
proportion of debt service paid in the year. As shares are released from
collateral, Equality reports compensation expense equal to the current market
price of the shares, and the shares become outstanding for earnings per share
computations. Dividends on ESOP shares are used to pay principal and interest
on the debt. ESOP compensation expense was $28,544, $32,577, and $35,578 for
1997, 1996, and 1995, respectively. There were 14,213 and 10,356 allocated
ESOP shares and 12,387 and 16,244 unreleased ESOP shares at March 31, 1997 and
1996, respectively. The fair value of unreleased ESOP shares was $185,805 and
$219,294 at March 31, 1997 and 1996, respectively.
F-20
<PAGE>
EQUALITY SAVINGS AND LOAN ASSOCIATION, F.A. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Board of Directors adopted a stock option plan under which 38,000 shares
of common stock have been reserved for future issuance. Equality accounts for
stock-based compensation under the stock option plan in accordance with
Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees and, accordingly, recognizes no compensation expense as the exercise
price of Equality's employee stock options equals the market price of the
underlying stock on the date of grant.
Information on Equality's stock options are summarized as follows:
<TABLE>
<CAPTION>
PER SHARE
AVERAGE PRICE OPTION
SHARES PER SHARE PRICE RANGE
------ ------------- ------------
<S> <C> <C> <C>
Outstanding and exercisable at March 31,
1994................................... 24,200 $10.00 $ 10.00
Granted................................. -- -- --
------ ------
Outstanding and exercisable at March 31,
1995................................... 24,200 10.00 10.00
Granted................................. 13,800 13.00 13.00
------ ------
Outstanding and exercisable at March 31,
1996................................... 38,000 11.09 10.00-13.00
Granted................................. -- -- --
------ ------
Outstanding and exercisable at March 31,
1997................................... 38,000 $11.09 $10.00-13.00
====== ======
</TABLE>
Pro forma information regarding net income and earnings per share is required
by Statement of Financial Accounting Standards No. 123, Accounting for Stock-
Based Compensation, and has been determined as if Equality had accounted for
its employee stock options under the fair value method. The fair value of these
options was estimated at the date of grant using the Black-Scholes option
pricing model with the following weighted-average assumptions for 1996; risk-
free interest rate of 8.15%, divided yield of 1.90%, volatility factor of the
expected market price of Equality's common stock of 15.00%, and a weighted-
average expected life of the options of 7.6 years.
The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options which are fully transferable. In addition,
option valuation modes require the input of highly subjective assumptions
including the expected stock price volatility. Because Equality's employee
stock options have characteristics significantly different from those traded
options, and because changes in the subjective input assumptions can materially
affect the fair value estimate, in management's opinion, the existing models do
not necessarily provide a reliable measure of the fair value of its employee
stock options.
The following represents pro forma disclosures:
<TABLE>
<S> <C>
Net income:
As reported....................................................... $653,456
Pro forma......................................................... 618,185
Net income per share:
As reported....................................................... 0.80
Pro forma......................................................... 0.76
</TABLE>
Also in conjunction with the conversion to a stock form of ownership,
Equality established a management recognition plan which acquired 11,400 shares
(2.7% of total shares issued) of $1 par value stock at a subscription price of
$10.00 per share. The MRP provides that such common stock can be issued to
employees in key management positions to encourage such key employees to remain
with Equality. Interest in the MRP for
F-21
<PAGE>
EQUALITY SAVINGS AND LOAN ASSOCIATION, F.A. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
each participant vested in three equal installments beginning December 31,
1993. Accordingly, as of December 31, 1995, all stock had been released to the
appropriate participants. Compensation expense related to vesting in the MRP
totaled approximately $28,500 and $47,500 during 1996 and 1995, respectively.
Equality sponsors a defined contribution plan qualifying under Section
401(k) of the Internal Revenue Code. Participants may designate up to 15% of
their annual compensation as their contribution to the plan, which is
partially matched by Equality. Expense included in the consolidated statements
of income totaled approximately $21,585, $17,259, and $17,274 for 1997, 1996,
and 1995, respectively.
(15) DISCLOSURES ABOUT FINANCIAL INSTRUMENTS
Equality is a party to financial instruments with off-balance-sheet risk in
the normal course of business to meet the financing needs of its customers.
The commitment to extend credit may involve, to varying degrees, elements of
credit in excess of the amount recognized in the consolidated balance sheets.
The contractual amounts of these instruments reflect the extent of involvement
Equality has in this particular class of financial instruments.
Equality's exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for commitments to extend credit is
represented by the contractual amount of these instruments. Equality uses the
same credit policies in making commitments and conditional obligations as they
do for financial instruments recorded in the consolidated balance sheets. At
March 31, 1997, Equality had outstanding commitments to originate fixed rate
mortgage loans of $644,000 (at interest rates ranging from 7.625% to 8.50%)
and variable rate mortgage loans of $309,000 (at an interest rate of 6.50%).
In addition, Equality had commitments to sell mortgage loans totaling $3.9
million at March 31, 1997.
A summary of the carrying amounts and fair values of Equality's financial
instruments at March 31, 1997 and 1996 is as follows:
<TABLE>
<CAPTION>
1997 1996
------------------------ -----------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
ASSETS ------------ ----------- ----------- -----------
<S> <C> <C> <C> <C>
Cash, primarily interest-
bearing demand deposits.. $ 1,037,199 1,037,199 5,550,292 5,550,292
Interest-bearing
deposits................. 3,819,744 3,853,575 9,570,490 9,684,427
Investment securities..... 74,971,394 74,847,807 44,743,539 44,487,346
Mortgage-backed
securities............... 14,954,025 14,954,025 28,096,499 28,096,499
Loans receivable.......... 95,927,983 94,395,483 96,998,052 97,389,327
Stock in Federal Home Loan
Bank..................... 3,350,000 3,350,000 3,150,000 3,150,000
Accrued interest
receivable............... 1,748,784 1,748,784 1,527,558 1,527,558
------------ ----------- ----------- -----------
$195,809,129 194,186,873 189,636,430 189,885,449
------------ ----------- ----------- -----------
LIABILITIES
Savings deposits.......... 122,982,954 122,925,487 124,515,370 126,248,126
Accrued interest payable
on savings deposits...... 134,599 134,599 102,142 102,142
Borrowed money............ 64,248,804 63,984,429 57,305,406 57,203,352
Advance payments by
borrowers for taxes and
insurance................ 86,776 86,776 113,684 113,684
------------ ----------- ----------- -----------
$187,453,133 187,131,291 182,036,602 183,667,304
------------ ----------- ----------- -----------
</TABLE>
F-22
<PAGE>
EQUALITY SAVINGS AND LOAN ASSOCIATION, F.A. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to estimate
such value:
Cash, Primarily Interest-Bearing Demand Deposits
For cash, primarily interest-bearing demand deposits, the carrying amount is
a reasonable estimate of fair value, as such instruments reprice in a short
time period.
Interest-Bearing Deposits
The fair value of interest-bearing deposits is based on the discounted value
of contractual cash flows. The discount rate is estimated using the rates
currently offered for deposits of similar remaining maturity.
Investment and Mortgage-Backed Securities
Fair values are based on quoted market prices or dealer quotes.
Loans Receivable
Fair values are estimated for portfolios of loans receivable with similar
financial characteristics. Loans are segregated by type such as residential,
commercial, and consumer. Each loan receivable category is further segmented
into fixed and adjustable rate interest terms. The fair value of loans
receivable is calculated by discounting scheduled cash flows through the
estimated maturity using estimated market discount rates equal to rates at
which loans, similar in type, would be originated at March 31, 1997. Estimated
maturities are based upon the average remaining contractual lives for each
loan receivable classification.
Stock in Federal Home Loan Bank
Fair value is equal to cost, which represents redemption value.
Accrued Interest Receivable
For accrued interest receivable, the carrying amount is a reasonable
estimate of fair value because of the short maturity for this financial
instrument.
Savings Deposits
The fair value of savings deposits with no stated maturity is equal to the
amount payable on demand. The fair value of time deposits is based on the
discounted value of contractual cash flows. The discount rate is estimated
using the rates currently offered for savings deposits of similar remaining
maturities.
Accrued Interest Payable on Savings Deposits
For accrued interest payable, the carrying amount is a reasonable estimate
of fair value because of the short maturity for this financial instrument.
Borrowed Money
The fair value of borrowed money is based on the discounted value of
contractual cash flows. The discount rate is estimated using rates on borrowed
money with similar remaining maturities.
F-23
<PAGE>
EQUALITY SAVINGS AND LOAN ASSOCIATION, F.A. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Advance Payments by Borrowers for Taxes and Insurance
The carrying amount of advance payments by borrowers for taxes and insurance
approximates fair value because of the short maturity for this financial
instrument.
Commitments to Extend Credit and Standby Letters of Credit
The fair value of commitments to extend credit and standby letters of credit
are estimated using the fees currently charged to enter into similar
agreements, taking into account the remaining terms of the agreements, the
likelihood of the counterparties drawing on such financial instruments, and
the present creditworthiness of such counterparties. Equality believes such
commitments have been made on terms which are competitive in the markets in
which it operates.
The fair value estimates provided are made at a point in time based on
market information and information about the financial instruments. Because no
market exists for a portion of Equality's financial instruments, fair value
estimates are based on judgments regarding future expected loss experience,
current economic conditions, risk characteristics of various financial
instruments, and other factors. These estimates are subjective in nature and
involve uncertainties and matters of significant judgment and, therefore,
cannot be determined with precision. Changes in assumptions could
significantly affect the fair value estimates.
(16) CONTINGENCIES
Equality is involved in various litigation arising in the ordinary course of
business. In the opinion of management, at the present time, disposition of
the suits and claims will not have a material effect on the financial position
of Equality.
(17) SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
Selected quarterly financial data for the year ended March 31, 1997 and 1996
is as follows:
<TABLE>
<CAPTION>
QUARTER ENDED
----------------------------------------------
JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31,
1996 1996 1996 1997
-------- ------------- ------------ ---------
(THOUSANDS OF DOLLARS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Total interest income....... $ 3,265 3,492 3,388 3,465
Total interest expense...... (2,229) (2,352) (2,304) (2,227)
------- ------ ------ ------
Net interest income......... 1,036 1,140 1,084 1,238
Provision for losses on
loans...................... -- -- -- (50)
Noninterest income.......... 723 529 752 565
Noninterest expense......... (1,326) (2,201) (1,344) (1,338)
------- ------ ------ ------
Income before income tax ex-
pense...................... 433 (532) 492 415
Income tax expense (bene-
fit)....................... 169 (207) 192 149
------- ------ ------ ------
Net income (loss)........... $ 264 (325) 300 266
======= ====== ====== ======
Earnings (loss) per share... $ .32 (.39) .37 .31
======= ====== ====== ======
</TABLE>
F-24
<PAGE>
EQUALITY SAVINGS AND LOAN ASSOCIATION, F.A. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
QUARTER ENDED
---------------------------------------------
JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31,
1995 1995 1995 1996
-------- ------------- ------------ ---------
(THOUSANDS OF DOLLARS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Total interest income........ $2,818 3,037 3,103 3,317
Total interest expense....... (1,913) (2,190) (2,156) (2,281)
------ ------ ------ ------
Net interest income.......... 905 847 947 1,036
Provision for losses on
loans....................... (6) -- -- (25)
Noninterest income........... 730 731 621 626
Noninterest expense.......... (1,289) (1,350) (1,300) (1,402)
------ ------ ------ ------
Income before income tax ex-
pense....................... 340 228 268 235
Income tax expense........... 133 89 104 92
------ ------ ------ ------
Net income................... $ 207 139 164 143
====== ====== ====== ======
Earnings per share........... $ .25 .17 .20 .18
====== ====== ====== ======
</TABLE>
(18) EVENT SUBSEQUENT TO DATE OF INDEPENDENT AUDITORS' REPORT--ADOPTION OF
PLAN OF CONVERSION TO STOCK CHARTER (UNAUDITED)
DESCRIPTION OF THE CONVERSION AND REORGANIZATION
On May 16, 1997, as subsequently amended, First Missouri Financial, M.H.C.
(the MHC), which owns approximately 53% of Equality's common stock, and
Equality Savings and Loan Association, F.A., adopted a Plan of Conversion and
Reorganization (the Plan), pursuant to which the MHC will convert from the
mutual to stock form of organization. Shares of common stock of a new holding
company, Equality Bancorp, Inc., will be offered in a subscription offering in
descending order of priority to eligible account holders; employee stock
benefit plans; supplemental eligible account holders; other members;
directors, officers, and employees; and public stockholders. Any shares
remaining unsold in the subscription offering will be sold through a community
offering.
In general, the Plan provides for the conversion of the MHC (a federally
chartered mutual holding company) to stock form (whereby the MHC will be
extinguished) and the creation of Equality Bancorp, Inc. (the Holding
Company), a capital stock corporation organized under Delaware law (the
Conversion). The Holding Company, as a result of the Conversion, will acquire
100% of the outstanding shares of stock of Equality. The MHC currently owns a
majority of the common stock of Equality. The purpose of the Conversion is to
convert the MHC to the capital stock form of organization, which will provide
the Holding Company and Equality with greater flexibility and capital
resources to respond to changing regulatory and market conditions and to
effect corporate transactions, including mergers and acquisitions. The Holding
Company will offer common stock (the Conversion Stock) upon the terms and
conditions set forth in the Plan. Stockholders of Equality, other than the
MHC, will exchange their Equality shares for shares of the Holding Company.
The Conversion will result in the attributes of ownership of the MHC being
transferred from Equality's depositors (and certain borrowers) to persons who
purchase stock in the Conversion stock offering and persons who exchange
common stock of Equality for common stock of the Holding Company. The
Conversion will have no impact on depositors, borrowers, or customers of
Equality. Equality will continue to be a member of the Federal Home Loan Bank
System and all of its insured savings deposits will continue to be insured by
the Federal Deposit Insurance Corporation, through the Savings Association
Insurance Fund, to the extent provided by applicable law.
F-25
<PAGE>
EQUALITY SAVINGS AND LOAN ASSOCIATION, F.A. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
LIQUIDATION RIGHTS
In the unlikely event of a complete liquidation of the MHC in its present
mutual form, each depositor of Equality would receive his or her pro rata
share of any assets of the MHC remaining after payment of claims of all
creditors. 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 was to the
total value of all deposit accounts in Equality at the time of liquidation.
After the Conversion and Reorganization, each depositor, in the event of a
complete liquidation of Equality, would have a claim as a creditor of the same
general priority as the claims of all other general creditors of Equality.
However, except as described below, his or her claim would be solely in the
amount of the balance in his or her deposit account plus accrued interest. He
or she would not have an interest in the value or assets of Equality or the
Holding Company above that amount.
The Plan provides for the establishment, upon the completion of the
Conversion and Reorganization, of a special "liquidation account" for the
benefit of Eligible Account Holders and Supplemental Eligible Account Holders
(as defined in the Plan) in an amount equal to the amount of any dividends
waived by the MHC plus the greater of (i) Equality's retained earnings of
$8,067,000 at March 31, 1993, the date of the latest statement of financial
condition contained in the final offering circular utilized in Equality's 1993
initial public offering, or (ii) 53.2% of Equality's total stockholders'
equity as reflected in its latest balance sheet contained in the final
Prospectus utilized in the Conversion and Reorganization. As of the date of
the Prospectus to be used in the Conversion and Reorganization, the initial
balance of the liquidation account would be approximately $8,877,000. Each
Eligible Account Holder and Supplemental Eligible Account Holder, if he were
to continue to maintain his deposit account at Equality, would be entitled,
upon a complete liquidation of Equality after the Conversion and
Reorganization, to an interest in the liquidation account prior to any payment
to the Holding Company as the sole stockholder of Equality. Each Eligible
Account Holder and Supplemental Eligible Account Holder would have an initial
interest in such liquidation account for each deposit account, including
passbook accounts, transaction accounts such as checking accounts, money
market deposit accounts and certificates of deposit, held in Equality at the
close of business on March 31, 1996 or June 30, 1997, as the case may be. Each
Eligible Account Holder and Supplemental Eligible Account Holder will have a
pro rata interest in the total liquidation account balance based on the
proportion that the balance of each such deposit account on the March 31, 1996
Eligibility Record Date (or the June 30, 1997 Supplemental Eligibility Record
Date, as the case may be) bore to the balance of all deposit accounts in
Equality on such date.
If, however, on any March 31 annual closing date of Equality, commencing
March 31, 1998, the amount in any deposit account is less than the amount in
such deposit account on March 31, 1996 or June 30, 1997, as the case may be,
or any other annual closing date, then the interest in the liquidation account
relating to such deposit account would be reduced by the proportion of any
such reduction, and such interest will cease to exist if such deposit account
is closed. In addition, no interest in the liquidation account would ever be
increased despite any subsequent increase in the related deposit account. Any
assets remaining after the above liquidation rights of eligible account
holders and supplemental eligible account holders are satisfied would be
distributed to the Holding Company as the sole stockholder of Equality.
PAYMENT OF DIVIDENDS
The ability of Equality to pay dividends on its capital stock is restricted
by OTS regulation.
GENERAL
Equality had no conversion costs at March 31, 1997. If the Conversion and
Reorganization is successful, the conversion costs will be offset against the
proceeds received from the sale of stock. If it is unsuccessful, they will be
expensed.
F-26
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFOR-
MATION OR TO MAKE ANY REPRESENTATION OTHER THAN AS CONTAINED IN THIS PROSPEC-
TUS 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 AU-
THORIZED BY THE HOLDING COMPANY, THE MUTUAL HOLDING COMPANY, THE ASSOCIATION
OR TRIDENT SECURITIES, INC. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO
SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY
TO ANY PERSON IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT
AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT
QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER
OR SOLICITATION IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS PROSPECTUS
NOR ANY SALE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION
THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE ASSOCIATION SINCE ANY OF
THE DATES AS OF WHICH INFORMATION IS FURNISHED HEREIN OR SINCE THE DATE HERE-
OF.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Summary.................................................................. 1
Recent Developments...................................................... 12
Management's Discussion and Analysis of Recent Developments.............. 13
Risk Factors............................................................. 16
Equality Bancorp, Inc.................................................... 22
Equality Savings and Loan Association, F.A............................... 22
First Missouri Financial, M.H.C.......................................... 24
Use of Proceeds.......................................................... 25
Dividend Policy.......................................................... 26
Market for Common Stock.................................................. 27
Capitalization........................................................... 28
Regulatory Capital....................................................... 30
Pro Forma Data........................................................... 31
Proposed Subscriptions by Directors and Executive Officers............... 35
Consolidated Statements of Income........................................ 36
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 37
Business of the Association.............................................. 47
Regulation and Supervision............................................... 67
Federal and State Taxation............................................... 79
Management of the Holding Company and Association........................ 81
Beneficial Ownership of Capital Stock.................................... 94
The Conversion and Reorganization........................................ 94
Comparison of Stockholders' Rights....................................... 116
Restrictions on Acquisition of the Holding Company....................... 123
Description of Capital Stock............................................. 125
Registration Requirements................................................ 126
Transfer Agent and Registrar............................................. 126
Legal Opinions........................................................... 127
Experts.................................................................. 127
Index to Consolidated Financial Statements............................... F-1
</TABLE>
UNTIL THE LATER OF , 1997 OR 90 DAYS AFTER COMMENCEMENT OF THE OFFERING
OF COMMON STOCK, ALL DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURI-
TIES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO
DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DE-
LIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UN-
SOLD ALLOTMENTS OR SUBSCRIPTIONS.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
1,729,323 SHARES
EQUALITY BANCORP, INC.
(PROPOSED HOLDING COMPANY FOR
EQUALITY SAVINGS AND LOAN
ASSOCIATION, F.A.)
COMMON STOCK
----------------
PROSPECTUS
----------------
TRIDENT SECURITIES, INC.
, 1997
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
Equality Bancorp, Inc.
Proposed Holding Company for
Equality Association, FSB
St. Louis, Missouri
Proposed Marketing Materials
<PAGE>
Marketing Materials for
Equality Bancorp, Inc.
St. Louis, Missouri
Table of Contents
-----------------
I. Press Release
A. Explanation
B. Schedule
C. Distribution List
D. Press Release Examples
II. Advertisements
A. Explanation
B. Schedule
C. Advertisement Examples
III. Question and Answer Brochure
A. Explanation
B. Quantity and Method of Distribution
C. Example
IV. Officer and Director Support Brochure
A. Explanation
B. Method of Distribution
C. Example
V. IRA Mailing
A. Explanation
B. Quantity and Method of Distribution
C. IRA Mailing Example
VI. Counter Cards and Lobby Posters
A. Explanation
B. Quantity
VII. Invitations
A. Explanation
B. Quantity - Method of Distribution
C. Examples
VIII. Letters
A. Explanation
B. Method of Distribution
C. Examples
<PAGE>
IX. Proxygram
A. Explanation
B. Example
<PAGE>
I. Press Releases
A. Explanation
In an effort to assure that all customers, community members and other
interested investors receive prompt accurate information in a simultaneous
manner, Trident advises the Association to forward press releases to area
newspapers, radio stations, etc. at various points during the Conversion
and Reorganization process.
Only press releases approved by Conversion and Reorganization Counsel and
the OTS, if necessary, will be forwarded for publication in any manner.
B. Schedule
1. OTS Approval of Conversion and Reorganization
2. Close of Stock Offering
<PAGE>
National and Local Distribution List
------------------------------------
The Association should provide a supplemental distribution list that includes
all local newspapers that it considers to be within its market area.
(TO BE PROVIDED)
<PAGE>
Press Release FOR IMMEDIATE RELEASE
---------------------
For More Information Contact:
Richard C. Fellhauer
President and Chief Executive Officer
Equality Savings and Loan Association, F.A.
(314) 352-3333
EQUALITY SAVINGS AND LOAN ASSOCIATION, F.A.
-------------------------------------------
REORGANIZATION FROM MUTUAL HOLDING COMPANY TO STOCK
---------------------------------------------------
HOLDING COMPANY APPROVED
-------------------------
Richard C. Fellhauer, President and Chief Executive Officer of Equality
Savings and Loan Association, F.A. (the "Association"), St. Louis, Missouri-,
announced today that the Association has received approval from the Office of
Thrift Supervision in Washington, D.C. to reorganize from the mutual holding
company form of organization to the stock holding company form of organization.
In connection with the reorganization, the Association has formed a company,
Equality Bancorp, Inc. (the "Company"), to serve as the holding company of the
Association.
Pursuant to a plan of conversion and reorganization, the Company is
offering up to ________ shares, subject to adjustment, of its common stock, at a
price of $10.00 per share. Certain depositors and borrowers as of specified
record dates, the Association's Employee Stock Ownership Plan, directors,
officers and employees and public stockholders of the Association will have an
opportunity to purchase stock through a Subscription Offering that closes on
September ___, 1997. Concurrent with the Subscription Offering, stock will be
offered to persons who reside in Missouri or to whomever else the prospectus is
delivered to in a Community Offering with first preference given to natural
persons who reside in St. Louis City, St. Louis, Jefferson, St. Charles and
Franklin Counties, Missouri. The Subscription and Community Offering (together,
the "Offering") will be managed by Trident Securities, Inc. of Raleigh, North
Carolina. In addition,
<PAGE>
public stockholders of the Association as of the effective date of the
reorganization will receive shares of common stock in the Company in exchange
for the common shares of Equality Savings and Loan Association, F.A. at an
exchange ratio specified in the Prospectus. Prospectuses describing, among other
things, the terms of the Offering will be mailed to certain customers and
stockholders of the Association and certain local community members on or about
August _____, 1997.
As a result of the reorganization, the Association will operate as a
subsidiary of the Company. According to Mr. Fellhauer, "Our day to day
operations will not change as a result of the reorganization and deposits will
continue to be insured by the FDIC up to the applicable legal limits."
Customers or stockholders with questions concerning the reorganization
should call the Stock Information Center at (314) ________________, or visit the
Association's main office in St. Louis, Missouri.
This is neither an offer to sell nor a solicitation of an offer to buy the stock
of Equality Bancorp, Inc. The offer is made only by the Prospectus. The shares
of Common Stock are not deposits or savings accounts and will not be insured by
the Federal Deposit Insurance Corporation or any other government agency.
<PAGE>
Press Release FOR IMMEDIATE RELEASE
---------------------
For More Information Contact:
Richard C. Fellhauer
President and Chief Executive Officer
Equality Savings and Loan Association, F.A.
(314) 352-3333
EQUALITY BANCORP, INC. COMPLETES STOCK OFFERING
-----------------------------------------------
St. Louis, Missouri - (August __, 1997) Richard C. Fellhauer, President and
Chief Executive Officer of Equality Savings and Loan Association, F.A. (the
"Association"), announced today that Equality Bancorp, Inc. (the "Company"), the
holding company for the Association, will complete its stock offering on
September __, 1997 in connection with the Association's Conversion and
Reorganization from the mutual holding company form of organization to the stock
holding company form of organization. __________ shares were sold at $10.00 per
share in connection with the stock offering, and __________ shares will be
issued in exchange for shares of common stock of the Association.
On ________, 1997, the Association's Plan of Conversion and Reorganization
and Agreement and Plan of Reorganization will be approved by the voting members
of First Missouri Financial, M.H.C. and the stockholders of the Association at a
Special Meeting of Members and a Special Meeting of Stockholders, respectively.
Mr. Fellhauer indicated that the officers and board of directors of the
Company and the Association want to express their thanks for the response to the
stock offering and that the Association looks forward to serving the needs of
its customers and stockholders as a community-based stock institution. The
offering was managed by Trident Securities, Inc. The stock will commence trading
on the Nasdaq National Market System under the symbol "ESBX" on ___________,
1997. In connection with the reorganization, the Association also has changed
its name to "Equality Savings Bank".
<PAGE>
II. Advertisements
A. Explanation
The intended use of the attached advertisement "A" is to notify the
Association's customers, stockholders and members of the local community
that the Conversion and Reorganization offering is underway.
The intended use of advertisement "B" is to remind the Association's
customers and stockholders of the closing date of the subscription
offering.
B. Media Schedule
1. Advertisement A - To be run immediately following OTS approval and run
weekly for the first three weeks.
2. Advertisement B - To be run during the last week of the subscription
offering.
Trident may feel it is necessary to run more ads in order to remind
customers, stockholders and community members of the close of the
Subscription/Community Offering.
Alternatively, Trident may, depending upon the response from the customer
and stockholder base, choose to run fewer ads or no ads at all.
<PAGE>
Advertisement (A)
- --------------------------------------------------------------------------------
This announcement is neither an offer to sell nor a solicitation of an
offer to buy these securities. The offer is made only by the Prospectus. These
shares have not been approved or disapproved by the Securities and Exchange
Commission, the Office of Thrift Supervision or the Savings Association
Insurance Fund of the Federal Deposit Insurance Corporation, nor has such
commission, office or corporation passed upon the accuracy or adequacy of the
prospectus. Any representation to the contrary is unlawful.
New Issue _______, 1997
- ---------
________ Shares
These shares are being offered pursuant
to a Plan of Conversion and Reorganization whereby
Equality Savings and Loan Association, F.A.
St. Louis, Missouri will
convert from the mutual holding company form of organization
to a federal stock Association
and become a wholly-owned subsidiary of
Equality Bancorp, Inc.
Common Stock
_______________
Price $10.00 Per Share
_______________
Trident Securities, Inc.
For a copy of the prospectus call (314) ________.
Copies of the Prospectus may be obtained in any State in which this announcement
is circulated from the undersigned or such other brokers and dealers
as may legally offer these securities in such state.
- --------------------------------------------------------------------------------
<PAGE>
Advertisement (B)
- --------------------------------------------------------------------------------
EQUALITY SAVINGS AND LOAN ASSOCIATION, F.A.'S CUSTOMERS,
STOCKHOLDERS
AND MEMBERS OF THE GENERAL PUBLIC
_____________, IS THE DEADLINE TO
ORDER STOCK OF EQUALITY BANCORP, INC.
Customers and stockholders of Equality Bancorp, Inc.
and members of the general public have the opportunity
to invest in Equality Savings and Loan Association, F.A. by subscribing
for common stock in its proposed holding company
EQUALITY BANCORP, INC.
A Prospectus relating to these securities is
available at our office or by calling our
Stock Information Center at (314) _____________.
This announcement is not an offer to sell or a
solicitation of an offer to buy the stock of Equality Bancorp, Inc. The offer is
made only by the Prospectus. The shares of Common Stock are not deposits or
savings accounts and will not be insured
by the Federal Deposit Insurance Corporation
or any other government agency.
Copies of the Prospectus may be obtained in any State in which this announcement
is circulated from the undersigned or such other brokers and dealers
as may legally offer these securities in such state.
- --------------------------------------------------------------------------------
<PAGE>
III. Question and Answer Brochure
A. Explanation
The Question and Answer brochure is an essential marketing piece in any
Conversion and Reorganization. It serves to answer some of the most
commonly asked questions in "plain, everyday language". Although most of
the answers are taken verbatim from the Prospectus, it saves the individual
from searching for the answer to a simple question.
B. Method of Distribution
There are four primary methods of distribution of the Question and Answer
brochure. However, regardless of the method the brochures are always
accompanied by a Prospectus.
1. A Question and Answer brochure is sent out in the initial mailing to
all members and stockholders of the Association.
2. Question and Answer brochures are available at the Association.
3. Question and Answer brochures are distributed in information packets
at community meetings.
4. Question and Answer brochures are sent out in a standard information
packet to all interested investors who phone the Stock Information
Center requesting information.
<PAGE>
THIS INFORMATION DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF
AN OFFER TO BUY EQUALITY BANCORP, INC. COMMON STOCK. OFFERS TO BUY OR TO SELL
MAY BE MADE ONLY BY THE PROSPECTUS. IF YOU ARE CONSIDERING PURCHASING STOCK,
YOU SHOULD READ THE PROSPECTUS PRIOR TO MAKING AN INVESTMENT DECISION. COPIES
OF THE PROSPECTUS MAY BE OBTAINED BY CALLING THE STOCK INFORMATION CENTER AT
(314) .
THE SHARES OF EQUALITY BANCORP, INC. COMMON STOCK BEING OFFERED IN THE OF-
FERINGS AND THE EXCHANGE ARE NOT SAVINGS OR DEPOSIT ACCOUNTS AND ARE NOT IN-
SURED BY THE SAVINGS ASSOCIATION INSURANCE FUND OF THE FEDERAL DEPOSIT INSUR-
ANCE CORPORATION OR ANY OTHER GOVERNMENTAL AGENCY.
EQUALITY SAVINGS
AND LOAN
ASSOCIATION, F.A.
- -------------------------------------------------------------------------------
FIRST MISSOURI
FINANCIAL, M.H.C.
<PAGE>
QUESTIONS AND ANSWERS
REGARDING
THE PLAN OF CONVERSION AND REORGANIZATION
On May 16, 1997 the Boards of Directors of Equality Savings and Loan Associ-
ation, F.A. (the "Association") and First Missouri Financial, M.H.C. (the "Mu-
tual Holding Company") unanimously adopted the Plan of Conversion and Reorga-
nization (the "Plan of Conversion and Reorganization") pursuant to which the
Mutual Holding Company will convert from mutual to stock form and the Associa-
tion will reorganize as a wholly owned subsidiary of a new company--Equality
Bancorp, Inc. (the "Company").
This brochure is provided to answer basic questions regarding the Conversion
and reorganization. Following the conversion and reorganization, the Associa-
tion will continue to provide financial services to its depositors, borrowers
and other customers and will operate with its existing management and employ-
ees. This will not affect the terms, balances, interest rates or existing fed-
eral insurance coverage on the Association's deposits or the terms or condi-
tions of any loans to existing borrowers under their individual contract ar-
rangements with the Association.
For complete information regarding the conversion and reorganization, see
the Prospectus dated , 1997. Copies of the Prospectus may be ob-
tained by calling the Stock Information Center at (314) .
BACKGROUND
On October 22, 1993 the Association reorganized into a relatively new form
of organization, the mutual holding company structure. In connection with this
transaction, the Mutual Holding Company was formed, and the Association became
a public company through an offering of common stock.
The primary business of the Mutual Holding Company has been to hold shares
of the Association's common stock (the "Association Common Stock"). As major-
ity shareholder of the Association, it holds 456,400 shares or 53.2% of the
shares of Association Common Stock outstanding. The remaining shares (the
"Public Association Shares") are traded publicly. They are owned by the Asso-
ciation's management, benefit plans, customers and members of the general pub-
lic (collectively, the "Public Stockholders").
In connection with the conversion and reorganization, the Company intends to
issue up to shares (which may be increased to shares) of
Company common stock (the "Conversion and Reorganization Stock") at a purchase
price of $10.00 per share (the "Purchase Price") in a Subscription and Commu-
nity Offering, and, if necessary, a Syndicated Community Offering (collective-
ly, the "Offerings"). Additional shares of the Company's common stock are des-
ignated for an exchange offering-- in which case the shares of the Association
Common Stock held by the Public Stockholders as of the effective date of the
Conversion and Reorganization (the "Effective Date") will be converted into
shares of Company common stock (the "Exchange Shares") at a stated Exchange
Ratio (the "Exchange"). The Public Stockholders will be mailed instructions
with regard to effecting the Exchange. The Conversion and Reorganization of
the Mutual Holding Company, the Offerings and the Exchange are referred to
collectively herein as the "Conversion and Reorganization". As required by Of-
fice of Thrift Supervision regulations, members of the Mutual Holding Company
and the Association's stockholders are being asked to approve the Plan of Con-
version and Reorganization, as addressed below in the section entitled "Vot-
ing."
1.Q. WHAT WILL BE THE EFFECT OF THE CONVERSION AND REORGANIZATION?
A.--The Company will replace the Mutual Holding Company as the holding com-
pany for the Association.
--The Company will issue shares of common stock.
--The Company's common stock will be publicly held and will be traded on
the NASDAQ National Market System under the symbol "ESBX".
--The Public Stockholders will exchange their Association Common stock
for common stock of the Company.
2.Q. WHAT IS THE REASON FOR THE CONVERSION AND REORGANIZATION?
A. In 1993, the Association reorganized into the mutual holding company
structure for a number of reasons, including the ability to raise capital
on an incremental basis so that new capital could be invested in a con-
trolled manner. If the Association had undertaken a standard Conversion
and Reorganization involving the formation of a stock holding company in
1993, applicable Office of Thrift Supervision regulations would have re-
quired a greater amount of common stock to be sold, resulting in more
proceeds than could have been utilized at the time.
A principal purpose of the Conversion and Reorganization is to structure
the Company in the stock form of organization that is used by most other
holding companies of savings institutions and commercial banks. This
structure, along with the increased capital resulting from the Offerings,
will facilitate possible diversification into other banking-related busi-
nesses and will provide the Company with additional operating flexibili-
ty.
Additionally, the Conversion and Reorganization will result in an in-
crease in the number of outstanding shares of common stock that will in-
crease the likelihood of the development of an active and liquid trading
market.
The Board of Directors believes that the Conversion and Reorganization of
the Mutual Holding Company from the mutual to the stock form of organiza-
tion and the related Offerings and Exchange are consistent with the goal
of enhancing value for shareholders and customers.
<PAGE>
3.Q. WILL THE CONVERSION AND REORGANIZATION HAVE ANY EFFECT ON MY SAVINGS
ACCOUNT OR LOAN ACCOUNT WITH THE ASSOCIATION?
A. No. Customers will be served in the same offices by the same staff.
The Conversion and Reorganization will not affect the amount, inter-
est rate or withdrawal rights of deposit accounts, which will con-
tinue to be insured by the Savings Association Insurance Fund of the
Federal Deposit Insurance Corporation to the maximum legal limit.
Likewise, the loan accounts and rights of borrowers will not be af-
fected.
4.Q. WILL THERE BE CHANGES IN DIRECTORS, OFFICERS OR EMPLOYEES AS A RE-
SULT OF THE CONVERSION AND REORGANIZATION?
A. No. Officers and employees of the Association will continue in their
current capacities. The directors of the Association will serve as
the initial directors of the Company.
5.Q. HOW HAS THE ASSOCIATION PERFORMED RECENTLY?
A. For the months ended , the Association recorded net
income of , or $ per share. Net income represented an
% annualized return on average assets and a % annualized re-
turn on average equity. For the years ended and
, net income was $ and $ , respectively.
6.Q. DOES THE COMPANY ANTICIPATE PAYING CASH DIVIDENDS ON THE COMPANY'S
COMMON STOCK?
A. After the completion of the Conversion and Reorganization, the Board
of Directors of the Company expects to pay cash dividends on its
common stock at an initial quarterly rate of $.17 per share divided
by the Exchange Ratio, commencing with the first full quarter fol-
lowing the consummation of the Conversion and Reorganization. This
would result in an initial quarterly cash dividend rate of between
$ per share and $ per share. There can be no assurance, how-
ever, that dividends will be paid or that, if paid, such dividends
will not be reduced or eliminated in future periods.
7.Q. HOW WILL THE PROCEEDS OF THE OFFERINGS BE USED?
A. Net proceeds from the sale of the Conversion and Reorganization
Stock are estimated to be between $ million and $ million.
The Company plans to contribute to the Association 50% of the net
proceeds from the Offerings and retain the remainder of the net pro-
ceeds. The Company intends to use a portion of the net proceeds re-
tained by it to make a loan directly to an employee stock ownership
plan of the Association (the "ESOP") to enable the ESOP to purchase
7.0% of the common stock, and the remainder of the net proceeds re-
tained by the Company will initially be invested in short-term and
intermediate-term deposits and federal agency securities. Funds re-
tained by the Company may be used to support the future expansion of
operations and for other business or investment purposes. Subject to
applicable limitations, such funds also may be used in the future to
repurchase shares of common stock. Funds contributed to the Associa-
tion from the Company's will be used to support the Association's
lending and investment strategies.
VOTING--YOUR VOTE IS IMPORTANT
The Mutual Holding Company's Members (as defined below) are being asked to
approve the Plan of Conversion and Reorganization, which was adopted by the
Boards of Directors of the Association and the Mutual Holding Company and ap-
proved by the Office of Thrift Supervision. The Association's shareholders are
also being asked to approve the Plan of Conversion and Reorganization. A copy
of the Plan of Conversion and Reorganization may be obtained from any Associa-
tion office or by calling the Stock Information Center.
Voting on the Plan of Conversion and Reorganization does not affect deposit
or loan accounts at the Association, and does not obligate customers or share-
holders to purchase stock in the Offerings.
8.Q. WHICH CUSTOMERS OF THE ASSOCIATION ARE BEING ASKED TO VOTE ON THE
PLAN OF CONVERSION AND REORGANIZATION?
A. Depositors of the Association as of , 1997 and borrow-
ers of the Association as of October 22, 1993 who continue to be
borrowers as of , 1997 (the "Members"). The Members have
been provided with Proxy Cards and Proxy Statements describing the
Plan of Conversion and Reorganization.
Each depositor Member will be entitled to cast one vote for each
$100 or fraction thereof of the withdrawable value of any savings
accounts in the Association as of , 1997. Each borrower
Member will be entitled to cast one vote, in addition to any number
of votes to which such Member is entitled to as holder of a savings
account. The maximum number of votes eligible to be cast by a Member
may not exceed 1,000. The affirmative vote of a majority of the to-
tal outstanding votes of the Members is required for approval of the
Plan.
In accordance with Office of Thrift Supervision regulations, Members
are being solicited to vote. The Board of Directors urges Members to
vote FOR the Plan of Conversion and Reorganization. Not voting will
have the same effect as a vote against the Plan of Conversion and
Reorganization. Without sufficient favorable votes, the Conversion
and Reorganization cannot be completed. In that event, funds submit-
ted by investors in connection with the Offerings would be promptly
returned, with interest and the exchange will not occur.
9.Q. WHICH SHAREHOLDERS OF THE ASSOCIATION MAY VOTE ON THE PLAN OF CON-
VERSION AND REORGANIZATION?
A. Public Stockholders of the Association as of , 1997. These
shareholders have been provided with a Proxy Statement describing
the Plan of Conversion and Reorganization and the transactions con-
templated clearly. They have also received a Proxy Card. The affir-
mative vote of at least
<PAGE>
a majority of the votes cast by Public Stockholders and two thirds
of the outstanding Association Common Stock (including shares held
by the Mutual Holding Company) is required for approval of the Plan
of Conversion and Reorganization. The Board of Directors urges
shareholders to vote FOR the Plan of Conversion and Reorganization.
10.
Q. HOW DO I VOTE BY PROXY?
A. Please read the Proxy Statement that you received. You may vote by
completing, signing and returning the Proxy Card in the Proxy Return
Envelope provided. If you are a Public Stockholder and a Member you
should have received two Proxy Statements and Proxy Cards and you
may vote both capacities. Please respond promptly.
11.
Q. WHY MAY I HAVE RECEIVED SEVERAL PROXY CARDS?
A. If you have more than one deposit or loan account at the Associa-
tion, you could receive more than one informational packet and each
packet should contain a separate Proxy Card, depending on the owner-
ship structure of your accounts.
If you owned shares of the Association Common Stock under more than
one registration, you will receive more than one informational
packet and each packet should contain a separate Proxy Card. PLEASE
VOTE, SIGN AND PROMPTLY RETURN ALL PROXY CARDS.
12.
Q. AM I OBLIGATED TO PURCHASE STOCK IF I VOTE IN FAVOR OF THE PLAN OF
CONVERSION AND REORGANIZATION?
A. No. To purchase stock in the Offerings, you must place an order and
make a payment.
THE OFFERINGS
Investment in common stock involves certain risks. Before making an invest-
ment decision, please carefully read the enclosed Prospectus, including the
section entitled "Risk Factors."
13.
Q. WHO MAY PURCHASE CONVERSION AND REORGANIZATION STOCK IN THE OFFER-
INGS?
A. The Offerings consist of (i) a Subscription Offering to certain past
and current customers of the Association, the ESOP, directors, offi-
cers and employees of the Mutual Holding Company and the Association
and the Public Stockholders and (ii) a possible Community Offering
to certain members of the general public, with preference given to
natural persons residing in St. Louis City, St. Louis, Jefferson,
St. Charles and Franklin Counties, Missouri.
The Conversion and Reorganization Stock is being offered in the
following order of priority: (i) depositors of the Association with
account balances of $50.00 or more as of the close of business on
March 31, 1996 ("Eligible Account Holders"); (ii) the ESOP; (iii)
depositors of the Association with account balances of $50.00 or
more as of the close of business on ("Supplemental Eli-
gible Account Holders"); (iv) depositors of the Association as of
the close of business on , 1997 (other than Eligible Ac-
count Holders and Supplemental Eligible Account Holders) and bor-
rowers of the Association as of the close of business on October
22, 1993 who continue to be borrowers as of the close of business
on , 1997 ("Other Members"); (v) directors, officers and
employees of the Mutual Holding Company and the Association; (vi)
Public Stockholders; (vii) natural persons residing in St. Louis
City, St. Louis, Jefferson, St. Charles and Franklin Counties, Mis-
souri; and (viii) members of the general public residing elsewhere.
14.
Q.WHAT IS THE PRICE PER SHARE?
A. The shares of Conversion and Reorganization Stock are being offered
at a Purchase Price of $10.00 per share. All subscribers will pay
the same price per share. No commission will be charged.
15.
Q. HOW WAS THE OFFERING RANGE AND PURCHASE PRICE OF THE CONVERSION AND
REORGANIZATION STOCK DETERMINED?
A. Federal regulations require that the aggregate purchase price of the
common stock in the Offerings be consistent with an independent ap-
praisal of the pro forma value of the Association and the Company.
The appraisal, dated was conducted by RP Financial, CC, a
firm experienced in valuations of financial institutions. The ap-
praisal indicated an estimated aggregate pro forma market value of
$ million (the "Independent Valuation"). Because the Public
Stockholders will continue to hold the same aggregate percentage
ownership interest in the Company as they held in the Association as
a result of the exchange, the Appraisal was multiplied by the
Company's percentage interest in the Association to determine the
midpoint of the valuation price range (the "Valuation Price Range"),
of $ . The Board of Directors has determined to offer the
common stock at a purchase price of $10.00 per share. Based on this
price and the independent valuation, the Company is offering a range
of between approximately $ million and $ million of common
stock, or between shares and shares of common
stock, subject to a potential 15% increase to shares. An
additional 7% of shares may be sold to the ESOP, under certain cir-
cumstances.
Upon consummation of the Conversion and Reorganization, shares is-
sued in the Offerings will represent approximately 53.2% of shares
outstanding, while shares issued pursuant to the Exchange will rep-
resent approximately 41.8% of outstanding shares. Assuming the sale
of shares, the midpoint of the Valuation Price Range, it
is anticipated that there will be shares of common stock
outstanding upon consummation of the Conversion and Reorganization
including shares to be issued in the Exchange.
<PAGE>
The Independent Valuation will be updated at the conclusion of the
Offerings. In the event that less than shares are sold in
the Offerings, a resolicitation of subscribers may be necessary.
Resolicitation will also be necessary in the event that more than
shares are issued in the Offerings (although an addi-
tional 7% of shares may be sold to the ESOP, without a
resolicitation of subscribers).
16.
Q. WHEN DO THE OFFERINGS TERMINATE?
A. The Offerings will terminate at p.m. Time, on
1997, unless the Offerings are extended.
17.
Q. HOW DO I PURCHASE CONVERSION AND REORGANIZATION STOCK IN THE OFFER-
INGS?
A. Please carefully read and complete the Stock Order Form. The Associ-
ation is not required to accept copies of Stock Order Forms. You may
hand deliver the Stock Order Form to any Association office, or you
may use the enclosed Order Form Reply Envelope. Payment may be made
by check or money order or by authorization of withdrawal from your
Association passbook or certificate of deposit account(s). A hold
will be placed on the designated account(s) for the authorized
amount(s). Withdrawal will be made at the consummation of the Con-
version and Reorganization. Any applicable penalty for early with-
drawal will be waived.
18.
Q. WILL I RECEIVE INTEREST ON FUNDS I SUBMIT?
A. Yes. Funds received will be placed in a segregated account at the
Association, and interest will be paid at the Association's passbook
rate until the Offerings are consummated. With respect to authorized
account withdrawals, interest will continue to accrue at the ac-
count's contractual rate until the Offerings are consummated.
19.
Q. HOW MAY I PURCHASE THE COMMON STOCK THROUGH A ASSOCIATION IRA?
A. If you have an IRA at the Association, you will need to transfer
your existing relationship to an independent trustee authorized to
hold self-directed IRA accounts. Please call the Stock Information
Center for assistance in transferring your account or establishing a
new self-directed IRA for the purchase of stock. Because IRA-related
procedures take time, please contact the Stock Information Center as
early as possible.
20.
Q. WHAT IS THE MINIMUM AND MAXIMUM NUMBER OF SHARES THAT I MAY SUB-
SCRIBE FOR IN THE OFFERINGS?
A. Purchase limitations are described in detail in the Prospectus. The
minimum purchase is 25 shares. The maximum purchase in each of the
Subscription, Community or Syndicated Community Offering is
$625,000. The overall purchase limit in the Offerings for any per-
son, together with associates, or group acting in concert is
$625,000. Please do not order more than this amount in the Offer-
ings. Please note that for holders of Public Association Shares,
these maximum and overall purchase limits are inclusive of the num-
ber of shares of Association Common Stock that will be received in
the Exchange, which may limit the number of shares that such persons
may subscribe for in the Offerings. See the section below, entitled
"The Exchange." These purchase limits may be further increased or
decreased by the Association.
21.
Q. WHAT WILL HAPPEN TO MY ORDER IF ORDERS ARE RECEIVED FOR MORE STOCK
THAN IS AVAILABLE?
A. The allocation method depends on the purchase priority category in
which the oversubscription takes place. Please read the Prospectus,
which includes details about the allocation procedures. Following is
a summary of such procedures.
If there are insufficient shares to fill orders of Eligible Account
Holders (as defined above) in the Subscription Offering, the Company
will initially allocate a maximum of 100 shares to each such sub-
scriber. Shares remaining will be allocated among such subscribers
whose orders remain unfilled. The allocation formula is based on
qualifying deposits (as defined in the Plan of Conversion and Reor-
ganization) as of March 31, 1996. Each subscriber's allocation is
obtained by multiplying the available shares of common stock by a
fraction--the numerator is the subscriber's qualifying deposit and
the denominator is the total qualifying deposits of all subscribers
whose orders remain unfilled.
If an oversubscription occurs in the Supplemental Eligible Account
Holder category of the Subscription Offering, the allocation proce-
dure will be the same as described for Eligible Account Holders,
with allocation based on qualifying deposits as of , 1997.
Because qualifying deposits are utilized in allocating shares, each
Eligible Account Holder and Supplemental Eligible Account Holder
should be sure to list on the Stock Order Form all deposit accounts
in which he or she had an ownership interest at the applicable date
March 31, 1996 or , 1997.
If oversubscription occurs in the Other Member category of the Sub-
scription Offering, available shares will be allocated to subscrib-
ing Other Members, pro rata, based on order size.
If an oversubscription occurs in the Directors, Officers and Employ-
ees category, shares will be allocated among the individual direc-
tors, officers and employees on a point system basis, whereby such
individuals will receive subscription rights in the proportion that
the number of points assigned to each of them bears to the total
points assigned to all directors, officers and employees, provided
that no fractional shares shall be issued.
<PAGE>
If an oversubscription occurs in the Public Stockholder category,
shares will be allocated among subscribing Public Stockholders on a
pro rata basis in the same proportion as each Public Stockholder's
subscription bears to the total subscriptions of all subscribing
Public Stockholders, provided that no fractional shares shall be
issued.
22.
Q. WILL THE COMPANY'S COMMON STOCK BE INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION?
A. No.
23.
Q. ARE DIRECTORS AND OFFICERS PURCHASING COMMON STOCK IN THE OFFERINGS?
A. Yes. In the Offerings, they expect to purchase an aggregate of
shares. After exchange of their shares for Company common
stock, directors and executive officers are expected to own % of
the outstanding common stock of the Company, assuming the sale of
shares in the Offerings.
24.
Q. WHEN WILL I RECEIVE MY STOCK CERTIFICATE FOR SHARES I PURCHASED IN
THE OFFERINGS?
A. Stock certificates will be mailed as soon as practicable after the
Offerings are consummated. Please be aware that you may not be able
to sell the shares you purchased until you have received a stock
certificate.
25.
Q. HOW MAY I PURCHASE OR SELL SHARES IN THE FUTURE?
A. You may purchase or sell shares through a stockbroker or discount
brokerage. The Company expects to list the common stock on the
NASDAQ National Market System under the symbol "ESBX." It is ex-
pected that the Company's common stock will be more liquid than the
Association's stock has been, because there will be a significantly
larger number of shares owned by the public. There can be no assur-
ance, however, than an active and liquid market for the common stock
will exist.
THE EXCHANGE
Upon the Effective Date, trading in the Association Common Stock will cease.
Each Public Stockholder as of the Effective Date will be contacted for the pur-
pose of exchanging Public Association Shares for shares of Company common
stock. Please refer to the Prospectus for a detailed discussion of the Ex-
change.
26.
Q. WHAT IS THE EXCHANGE?
A. Each share of Association Common Stock owned by Public Stockholders
on the Effective Date will automatically be converted into shares of
the Company's common stock pursuant to an exchange ratio ("Exchange
Ratio").
27.
Q. HOW WAS THE EXCHANGE RATIO DETERMINED?
A. The Exchange Ratio was derived to ensure that each Public Stock-
holder will own approximately the same percentage of the Company's
common stock as was owned of the Association's Common Stock. The
Public Stockholders currently own % of the Association Common
Stock. Based on this percentage and on the offering range of between
and shares, the Exchange Ratio is expected to
range from to shares, respectively, of the Company's
common stock for each share of the Association's common stock. If
the offering range is increased 15% to shares, the Ex-
change Ratio would increase to .
Assuming the sale of shares, the midpoint of the offering
range, one share of Association Common Stock would be exchanged for
shares of Company common stock.
28.
Q. HOW WILL THE EXCHANGE BE ACCOMPLISHED?
A. As of the Effective Date, the shares of the Association Common Stock
held by the Mutual Holding Company will be canceled, and the shares
of Association Common Stock owned by Public Stockholders will no
longer trade. As soon as practicable, the Association will send
transmittal forms to Public Stockholders. The transmittal forms are
expected to be mailed promptly following the Effective Date and will
contain instructions with respect to the surrender of certificates
representing the Association Stock to be exchanged for the Company's
common stock. It is expected that certificates for shares of the
Company's common stock will be distributed promptly after receipt of
the properly executed transmittal forms. Cash will be issued in lieu
of fractional shares.
Shareholders should not forward certificate until they receive in-
structions.
MUTUAL TO STOCK CONVERSION AND REORGANIZATION
29.
Q. HOW CAN I GET FURTHER INFORMATION CONCERNING THE CONVERSION AND RE-
ORGANIZATION?
A. You may call the Stock Information Center at (314)
for further information or to request a copy of the Prospectus, a
Stock Order Form or a Proxy Card.
<PAGE>
IV. Officer and Director Support Brochure
A. Explanation
An Officer and Director Brochure merely highlights in brochure form the
purchase commitments shown in the Prospectus.
B. Quantity
An Officer and Director brochure is proposed to be sent out in the initial
mailing to all customers and stockholders of the Association along with the
Prospectus.
<PAGE>
DIRECTOR AND EXECUTIVE OFFICER
PURCHASE COMMITMENT
<TABLE>
<CAPTION>
Proposed Purchases of Total Common Stock
Conversion and to be Held
-------------------- ----------
Reorganization Stock
Number of Exchange Number of Number of Percentage
Name Shares to be Held Amount Shares Shares of Total
- ---- ------ --------- --------- ----------
<S> <C> <C> <C> <C> <C>
</TABLE>
All directors and
executive officers of
the Association as a
group (___ persons)
- ------------------------
<PAGE>
V. IRA Mailing
A. Explanation
A special IRA mailing is proposed to be sent to all IRA customers of the
Association in order to alert the customers and stockholders that funds
held in an IRA can be used to purchase stock. Since this transaction is not
as simple as designating funds from a certificate of deposit like a normal
stock purchase, this letter informs the customer or stockholder that this
process is slightly more detailed and involves a personal visit to the
Association.
B. Quantity
One IRA letter is proposed to be mailed to each IRA customer or stockholder
of the Association. These letters would be mailed following OTS approval
for the Conversion and Reorganization and after each customer or
stockholder has received the initial mailing containing a Proxy Statement
and a Prospectus.
C. Example - See following page.
<PAGE>
[EQUALITY SAVINGS AND LOAN ASSOCIATION, F.A. LETTERHEAD]
, 1997
Dear Individual Retirement Account Participant:
As you know, Equality Savings and Loan Association, F.A. (the "Association")
is in the process of converting from the mutual holding company form of
organization to the stock holding company form of organization and has formed
Equality Bancorp, Inc. (the "Company") to own all of the stock of the
Association. Through the Conversion and Reorganization, certain current and
former customers and stockholders have the opportunity to purchase shares of
common stock of the Company in a Subscription Offering. The Company currently
is offering up to shares, subject to adjustment, of the Company at a
price of $10.00 per share.
As the holder of an individual retirement account ("IRA") at the
Association, you have an opportunity to become a stockholder in the Company
using some or all of the funds being held in your IRA. If you desire to
purchase shares of common stock of the Company through your IRA, the
Association can assist you in self-directing those funds. This process can be
done without an early withdrawal penalty and generally without a negative tax
consequence to your retirement account.
If you are interested in receiving more information on self-directing your
IRA, please contact our Stock Information Center at (314) . Because it
may take several days to process the necessary IRA forms, a response is
requested (but not required) by , 1997 to accommodate your interest.
Sincerely,
Richard C. Fellhauer
President and Chief Executive
Officer
THIS LETTER IS NEITHER AN OFFER TO SELL NOR A SOLICITATION OF AN OFFER TO
BUY EQUALITY BANCORP, INC. COMMON STOCK. THE OFFER IS MADE ONLY BY THE
PROSPECTUS, WHICH WAS RECENTLY MAILED TO YOU. THE SHARES OF EQUALITY BANCORP,
INC. COMMON STOCK ARE NOT DEPOSITS AND WILL NOT BE INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENTAL AGENCY.
IR
<PAGE>
VI. Counter Cards and Lobby Posters
A. Explanation
Counter cards and lobby posters serve two purposes: (1) As a notice to the
Association's customers, stockholders and members of the local community
that the stock sale is underway and (2) to remind the customers and
stockholders of the end of the Subscription Offering. Trident has learned
in the past that many people forget the deadline for subscribing and
therefore we suggest the use of these simple reminders.
B. Quantity
Approximately 2 - 3 Counter cards will be used at teller windows and on
customer service representatives' desk.
Approximately 1 - 2 Lobby posters will be used at the office of the
Association
C. Example
<PAGE>
C. POSTER
OR
COUNTER CARD
Equality Bancorp, Inc.
Proposed Holding Company for
Equality Savings and Loan Association, F.A.
"STOCK OFFERING MATERIALS
AVAILABLE HERE"
Subscription Offering Ends
_______, 1997
<PAGE>
VII. Invitations
A. Explanation
In order to educate the public about the stock offering, Trident suggests
holding several Community Meetings in various locations. In an effort to
target a group of interested investors Trident requests that each Director
of the Association submit a list of friends that he would like to invite to
a Community Meeting.
Prospectuses are given to each prospect at the Community meeting.
B. Quantity and Method of Distribution
Each Director submits a list of their prospects. An invitation is mailed to
each director's prospect.
<PAGE>
The Directors, Officers & Employees
of
Equality Savings and Loan Association, F.A.
cordially invite you
to attend a brief presentation
regarding the stock offering of
Equality Bancorp, Inc.
Please join us at
Place
Address
on
Date
at Time
for hors d'oeuvres
R.S.V.P.
(314) _________________
<PAGE>
VIII. Letters
A. Explanation
Once the application for Conversion and Reorganization has been approved by
the OTS, Trident will send out a series of three letters to the Officer's
and Director's targeted prospects. These letters are used to help
facilitate the marketing effort to this group. All prospects will receive a
Prospectus as soon as they are available.
B. Method of Distribution
Each Director submits his list of prospects. Each prospect is sent the
series of three letters all during the Subscription and Community Offering.
C. Examples
1. Introductory letter
2. A. Thank you letter
or
B. Sorry you were unable to attend letter
3. Final reminder letter
<PAGE>
Example 1
(Introductory Letter)
(Equality Savings and Loan Association, F.A. Letterhead)
_______, 1997
Name
Address
City, State, Zip
Dear Name:
You have probably read recently in the newspaper that Equality Savings and
Loan Association, F.A. (the "Association") will soon be converting from the
mutual holding company form of organization to stock form. This Conversion and
Reorganization is the biggest step in the history of the Association in that it
allows customers, employee benefit plans, community members, employees,
officers, directors and current stockholders the opportunity to subscribe for
stock in our new holding company - Equality Bancorp, Inc. (the "Company").
I have enclosed a Prospectus and a Stock Order Form that will allow you to
subscribe for shares and possibly become a charter stockholder of the Company
should you so desire. In addition, we will be holding several presentations for
friends of the Association in order to review the Conversion and Reorganization
and the merits of becoming a charter stockholder of the Company. You will
receive an invitation shortly.
I hope that if you have any questions you will feel free to call me or the
Association's Stock Information Center at (314) _____________. I look forward
to seeing you at our presentation.
Sincerely,
Director
The shares of Common Stock offered in the Conversion and Reorganization are not
deposits and are not insured by the Federal Deposit Insurance Corporation or any
other governmental agency.
This is not an offer to sell or a solicitation of an offer to buy stock. The
offer will be made only by the Prospectus.
<PAGE>
Example 2A
(Thank You Letter)
(Equality Savings and Loan Association, F.A. Letterhead)
___________, 1997
Name
Address
City, State, Zip
Dear Name:
On behalf of the Board of Directors and management of Equality Savings and
Loan Association, F.A., I would like to thank you for attending our recent
presentation regarding the stock offering by Equality Bancorp, Inc. We are
enthusiastic about the stock offering and look forward to completing the
Subscription and Community Offerings on _______, 1997.
I hope that you will join me in being a charter stockholder, and once again
thank you for your interest.
Sincerely,
Richard C. Fellhauer
President and Chief Executive Officer
The shares of Common Stock offered in the Conversion and Reorganization are not
savings accounts or deposits and are not insured by the Federal Deposit
Insurance Corporation, the Savings Association Insurance Fund or any other
governmental agency.
This is not an offer to sell or a solicitation of an offer to buy stock. The
offer will be made only by the Prospectus.
<PAGE>
Example 2B
(Sorry You Were Unable to Attend)
(Equality Savings and Loan Association, F.A. Letterhead)
_______________, 1997
Name
Address
City, State, Zip
Dear Name:
I am sorry you were unable to attend our recent presentation regarding
Equality Savings and Loan Association, F.A.'s Conversion and Reorganization from
the mutual holding company form of organization to the stock holding company
form of organization. The Board of Directors and management are committed to
building long term stockholder value, and as a group we are investing over
$______ of our own funds in Equality Bancorp, Inc., which includes amounts we
have already invested in Equality Savings. We are enthusiastic about the stock
offering and look forward to completing the Subscription and Community Offerings
on _______, 1997.
We have established a Stock Information Center to answer any questions
regarding the stock offering. Should you require any assistance between now and
_______, I encourage you either to stop by any office of Equality Savings and
Loan Association, F.A. or to call our Stock Information Center at (314)
____________.
I hope you will join me in becoming a charter stockholder of Equality
Bancorp, Inc.
Sincerely,
Richard C. Fellhauer
President and Chief Executive Officer
The shares of Common Stock offered in the Conversion and Reorganization are not
savings accounts or deposits and are not insured by the Federal Deposit
Insurance Corporation, the Savings Association Insurance Fund or any other
governmental agency.
This is not an offer to sell or a solicitation of an offer to buy stock. The
offer will be made only by the Prospectus.
<PAGE>
Example 3
(Final Reminder Letter)
(Equality Savings and Loan Association, F.A. Letterhead)
___________, 1997
Name
Address
City, State, Zip
Dear Name:
Just a quick note to remind you that the deadline is quickly approaching
for purchasing stock in Equality Bancorp, Inc., the proposed holding company for
Equality Savings and Loan Association, F.A. I hope you will join me in becoming
a charter stockholder in St. Louis' newest publicly owned financial institution
holding company.
The deadline for subscribing for shares to become a charter stockholder is
_______, 1997. If you have any questions, I hope you will call our Stock
Information Center at (314) __________________.
Once again, I look forward to having you join me as a stockholder of
Equality Bancorp, Inc.
Sincerely,
Richard C. Fellhauer
President and Chief Executive Officer
The shares of Common Stock offered in the Conversion and Reorganization are not
savings accounts or deposits and are not insured by the Federal Deposit
Insurance Corporation, the Savings Association Insurance Fund or any other
governmental agency.
This is not an offer to sell or a solicitation of an offer to buy stock. The
offer will be made only by the Prospectus.
<PAGE>
LOGO
, 1997
To Members and Certain Former Members of
First Missouri Financial, M.H.C.:
At the request of Equality Bancorp, Inc. and Equality Savings and Loan
Association, F.A., we have enclosed their Prospectus and a Stock Order Form for
your use should you decide to subscribe for shares of common stock of Equality
Bancorp, Inc. being issued in connection with the conversion and reorganization
of First Missouri Financial, M.H.C. from the mutual holding company form of
organization to a stock holding company, which includes the formation of
Equality Bancorp, Inc., the new holding company for Equality Savings.
If you decide to exercise your subscription rights to purchase shares, you
must return the properly completed Stock Order Form together with full payment
for the subscribed shares (or appropriate instruction authorizing withdrawal in
such amount from your authorized deposit account(s) at Equality Savings) so
that it is received no later than 12:00 noon, Central Time, on , 1997.
Equality Bancorp, Inc. has asked us to forward these documents to you in view
of certain requirements of the securities laws in your state. Should you have
any questions you may contact the Stock Information Center at (314) 352-3199.
Very truly yours,
Trident Securities, Inc.
THIS DOCUMENT DOES NOT CONSTITUTE AN OFFER TO SELL, OR THE SOLICITATION OF AN
OFFER TO BUY, SHARES OF EQUALITY BANCORP, INC. COMMON STOCK OFFERED IN THE
CONVERSION AND REORGANIZATION, NOR DOES IT CONSTITUTE THE SOLICITATION OF A
PROXY IN CONNECTION WITH THE CONVERSION AND REORGANIZATION. SUCH OFFERS AND
SOLICITATIONS OF PROXIES ARE MADE ONLY BY MEANS OF THE PROSPECTUS AND PROXY
STATEMENT, RESPECTIVELY. THERE SHALL BE NO SALE OF STOCK IN ANY STATE IN WHICH
ANY OFFER, SOLICITATION OF AN OFFER OR SALE OF STOCK WOULD BE UNLAWFUL.
THE STOCK WILL NOT BE INSURED BY THE FDIC OR ANY GOVERNMENT AGENCY.
BD
<PAGE>
[First Missouri Financial, M.H.C. Letterhead]
, 1997
Dear Member:
We are pleased to inform you that the Board of Directors of First Missouri
Financial, M.H.C. has approved a plan to convert First Missouri from its
present mutual holding company form of organization to a stock holding
company. The new holding company that will formed in the transaction--Equality
Bancorp, Inc. (the "Holding Company")--will, upon completion of the conversion
and reorganization, own all of the capital stock of Equality Savings and Loan
Association, F.A., which also will change its name in the process to Equality
Savings Bank.
The stock of Equality Savings owned by persons other than First Missouri
(which owns 53.2% of Equality Savings' outstanding shares) will be
automatically converted into shares of the Holding Company. In addition,
shares of Holding Company common stock also will be offered and sold to
members of First Missouri and other persons according to certain preference
categories in a subscription and community offering. Your Board of Directors
has unanimously recommended the conversion and reorganization as an important
step in the development of Equality Savings.
Following the conversion and reorganization, your deposits at Equality
Savings will continue to be insured by the FDIC. There will be no change in
the balance, interest rate or maturity of deposits or loans because of the
conversion and reorganization. Customers will enjoy the same services, office
and staff.
Enclosed you will find a Proxy Statement and a Prospectus that contain
important information describing the conversion and reorganization, formation
of the Holding Company and the special meeting of members of First Missouri
Financial, M.H.C. If you and/or members of your family have multiple accounts
with Equality Savings, you may receive more than one mailing. If you receive
more than one proxy card, please sign and return each one.
YOUR VOTE IS VERY IMPORTANT TO US. PLEASE VOTE, SIGN, DATE AND RETURN THE
ENCLOSED PROXY CARD(S) IN THE ENVELOPE PROVIDED AS SOON AS POSSIBLE.
You also may take advantage of your nontransferable preferential right to
purchase the common stock of the Holding Company before it is made available
to persons who do not have such preferential rights. To purchase stock, please
complete the enclosed Stock Order Form and return it to us with your payment
or authorization for withdrawal from your Equality Savings account for the
shares you wish to buy in the postage-paid envelope provided. Your completed
Stock Order Form, together with your payment, must be received by us no later
than 12:00 noon, Central Time, on , 1997.
<PAGE>
Owners of self-directed IRAs may use the assets of such IRAs to purchase
shares of Holding Company common stock. If you are interested in using funds
in an Equality Savings IRA to purchase common stock, please contact the Stock
Information Center at (314) 352-3199 as soon as possible so that the necessary
forms can be completed no later than , 1997.
Please review the enclosed Proxy Statement and Prospectus that provide a
detailed description of the conversion and reorganization, as well as Equality
Savings' business and results of operations. If you have any questions about
the conversion and reorganization, please call our Stock Information Center at
(314) 352-3199.
Thank you for giving these matters your attention and timely consideration.
Sincerely,
Richard C. Fellhauer
President and Chief Executive
Officer
THIS LETTER IS NEITHER AN OFFER TO SELL NOR A SOLICITATION TO BUY THE STOCK OF
EQUALITY BANCORP, INC. THE OFFER IS MADE ONLY BY THE PROSPECTUS. THE COMMON
STOCK IS NOT A DEPOSIT OR AN ACCOUNT AND IS NOT FEDERALLY INSURED OR
GUARANTEED.
THIS STOCK WILL NOT BE INSURED BY THE FDIC OR ANY GOVERNMENT AGENCY.
2
M
<PAGE>
[Equality Savings and Loan Association, F.A. Letterhead]
, 1997
Dear Fellow Stockholder:
We are pleased to inform you that the Board of Directors of First Missouri
Financial, M.H.C., the mutual holding company for Equality Savings, and the
Board of Directors of Equality Savings have approved a plan to convert First
Missouri from its present mutual holding company form of organization to a
stock holding company. The new holding company that will be formed in the
transaction -- Equality Bancorp, Inc. (the "Holding Company") -- will, upon
completion of the conversion and reorganization, own all of the capital stock
of Equality Savings and Loan Association, F.A., which also will change its
name in the process to Equality Savings Bank.
The stock of Equality Savings owned by you and other stockholders, except
for stock owned by First Missouri (which owns 53.2% of Equality Savings'
outstanding shares), will be automatically converted into shares of the
Holding Company in the transaction. In addition, shares of Holding Company
common stock also will be offered and sold to members of First Missouri,
stockholders of Equality Savings (other than First Missouri) and other persons
according to certain preference categories in a subscription and community
offering. Your Board of Directors has unanimously recommended the conversion
and reorganization as an important step in the development of Equality
Savings.
As a stockholder of Equality Savings, you have the right to vote on the
conversion and reorganization. In this regard, enclosed you will find a Proxy
Statement and a Prospectus that contain important information describing the
conversion and reorganization, formation of the Holding Company, the special
meeting of stockholders of Equality Savings and dissenters' rights.
YOUR VOTE IS VERY IMPORTANT TO US. PLEASE VOTE, SIGN, DATE AND RETURN THE
ENCLOSED PROXY CARD IN THE ENVELOPE PROVIDED AS SOON AS POSSIBLE.
Following the conversion and reorganization, deposits at Equality Savings
will continue to be insured by the FDIC. If you also are a customer of
Equality Savings, you should know that there will be no change in the balance,
interest rate or maturity of deposits or loans because of the conversion and
reorganization. Customers will enjoy the same services, office and staff.
You also may take advantage of your nontransferable preferential right to
purchase the common stock of the Holding Company before it is made available
to persons who do not have such preferential rights. To purchase stock, please
complete the enclosed Stock Order Form and return it to us with your payment
or authorization for withdrawal from your Equality Savings account for the
shares you wish to buy in the postage-paid envelope provided. Your completed
Stock Order Form, together with your payment, must be received by us no later
than 12:00 noon, Central Time, on , 1997.
<PAGE>
Owners of self-directed IRAs may use the assets of such IRAs to purchase
shares of Holding Company common stock. If you are interested in using funds
in an Equality Savings IRA to purchase common stock, please contact the Stock
Information Center at (314) 352-3199 as soon as possible so that the necessary
forms can be completed no later than , 1997.
Please review the enclosed Proxy Statement and Prospectus that provide a
detailed description of the conversion and reorganization, as well as Equality
Savings' business and results of operations. If you have any questions about
the conversion and reorganization, please call our Stock Information Center at
(314) 352-3199.
DO NOT SEND YOUR EQUALITY SAVINGS STOCK CERTIFICATES AT THIS TIME. YOU
WILL RECEIVE SEPARATE CORRESPONDENCE REGARDING EXCHANGING YOUR STOCK
CERTIFICATES.
Thank you for giving these matters your attention and timely consideration.
Sincerely,
Richard C. Fellhauer
President and Chief Executive
Officer
THIS LETTER IS NEITHER AN OFFER TO SELL NOR A SOLICITATION TO BUY THE STOCK OF
EQUALITY BANCORP, INC. THE OFFER IS MADE ONLY BY THE PROSPECTUS. THE COMMON
STOCK IS NOT A DEPOSIT OR AN ACCOUNT AND IS NOT FEDERALLY INSURED OR
GUARANTEED.
THIS STOCK WILL NOT BE INSURED BY THE FDIC OR ANY GOVERNMENT AGENCY.
2
S
<PAGE>
[First Missouri Financial, M.H.C. Letterhead]
, 1997
Dear Friend:
The Board of Directors of First Missouri Financial, M.H.C. and Equality
Savings and Loan Association, F.A. have approved a plan to convert First
Missouri from its present mutual holding company form of organization to a
stock holding company, whereby a new holding company--Equality Bancorp, Inc.
(the "Holding Company")--will be formed upon completion of the transaction.
Because you had a qualifying deposit with Equality Savings on March 31, 1996
or , 1997, we have important information for you.
You are entitled, and have a nontransferable preferential right, to purchase
the common stock of the Holding Company before it is made available to persons
who do not have such preferential rights. The Holding Company will, upon
completion of the conversion and reorganization, own all the capital stock of
Equality Savings and Loan Association, F.A., which also will change its name
in the process to Equality Savings Bank.
The stock of Equality Savings owned by persons other than First Missouri
(which owns 53.2% of Equality Savings' outstanding shares) will be
automatically converted into shares of the Holding Company. In addition,
shares of Holding Company common stock also will be offered and sold to
members of First Missouri and other persons according to certain preference
categories in a subscription and community offering. The Board of Directors of
First Missouri has unanimously recommended the conversion and reorganization
as an important step in the development of Equality Savings.
Enclosed you will find a Prospectus that contains important information
describing the conversion and reorganization and formation of the Holding
Company, among other things. To purchase stock, please complete the enclosed
Stock Order Form and return it to us with your payment. Your completed Stock
Order Form, together with your payment, must be received by us no later than
12:00 noon, Central Time, on , 1997. If you have any questions about the
conversion and reorganization or your right to purchase stock, please call our
Stock Information Center at (314) 352-3199.
Thank you for giving these matters your attention and timely consideration.
Sincerely,
Richard C. Fellhauer
President and Chief Executive
Officer
THIS LETTER IS NEITHER AN OFFER TO SELL NOR A SOLICITATION TO BUY THE STOCK OF
EQUALITY BANCORP, INC. THE OFFER IS MADE ONLY BY THE PROSPECTUS. THE COMMON
STOCK IS NOT A DEPOSIT OR AN ACCOUNT AND IS NOT FEDERALLY INSURED OR
GUARANTEED.
THIS STOCK WILL NOT BE INSURED BY THE FDIC OR ANY GOVERNMENT AGENCY.
F
<PAGE>
[First Missouri Financial, M.H.C. Letterhead]
, 1997
Dear Director, Officer or Employee:
As you know, the Board of Directors of First Missouri Financial, M.H.C. and
Equality Savings and Loan Association, F.A. have approved a plan to convert
First Missouri from its present mutual holding company form of organization to
a stock holding company, whereby a new holding company--Equality Bancorp, Inc.
(the "Holding Company")--will be formed upon completion of the transaction.
Because you are a director, officer or employee of Equality Savings, First
Missouri or the Holding Company, we have important information for you.
You are entitled, and have a nontransferable preferential right, to purchase
the common stock of the Holding Company before it is made available to persons
who do not have such preferential rights. The Holding Company will, upon
completion of the conversion and reorganization, own all of the capital stock
of Equality Savings and Loan Association, F.A., which also will change its
name in the process to Equality Savings Bank.
The stock of Equality Savings owned by persons other than First Missouri
(which owns 53.2% of Equality Savings' outstanding shares) will be
automatically converted into shares of the Holding Company. In addition,
shares of Holding Company common stock also will be offered and sold to
members of First Missouri and other persons according to certain preference
categories in a subscription and community offering. The Board of Directors of
First Missouri has unanimously recommended the conversion and reorganization
as an important step in the development of Equality Savings.
Enclosed you will find a Prospectus that contains important information
describing the conversion and reorganization and formation of the Holding
Company, among other things. To purchase stock, please complete the enclosed
Stock Order Form and return it to us with your payment. Your completed Stock
Order Form, together with your payment, must be received by us no later than
12:00 noon, Central Time, on , 1997. If you have any questions about the
conversion and reorganization or your right to purchase stock, please call our
Stock Information Center at (314) 352-3199.
Thank you for giving these matters your attention and timely consideration.
Sincerely,
Richard C. Fellhauer
President and Chief Executive
Officer
THIS LETTER IS NEITHER AN OFFER TO SELL NOR A SOLICITATION TO BUY THE STOCK OF
EQUALITY BANCORP, INC. THE OFFER IS MADE ONLY BY THE PROSPECTUS. THE COMMON
STOCK IS NOT A DEPOSIT OR AN ACCOUNT AND IS NOT FEDERALLY INSURED OR
GUARANTEED.
THIS STOCK WILL NOT BE INSURED BY THE FDIC OR ANY GOVERNMENT AGENCY.
D
<PAGE>
[First Missouri Financial, M.H.C. Letterhead]
, 1997
Dear Prospective Stockholder:
The Board of Directors of First Missouri Financial, M.H.C. and Equality
Savings and Loan Association, F.A. have approved a plan to convert First
Missouri from its present mutual holding company form of organization to a
stock holding company, whereby a new holding company--Equality Bancorp, Inc.
(the "Holding Company")--will be formed upon completion of the transaction.
The enclosed Prospectus is being delivered to you in connection with the offer
and sale of Holding Company common stock in the community offering phase of
the conversion and reorganization. Preference will be given to natural persons
residing in the Missouri counties of St. Louis City, St. Louis, Jefferson, St.
Charles and Franklin. Your right to subscribe for stock of the Holding Company
in the community offering is subject to the right of First Missouri, Equality
or the Holding Company to reject such subscription in whole or in part.
The Prospectus contains important information describing the conversion and
reorganization and formation of the Holding Company, among other things. To
purchase stock, please complete the enclosed Stock Order Form and return it to
us with your payment. Your completed Stock Order Form, together with your
payment, must be received by us no later than 12:00 noon, Central Time, on
, 1997. If you have any questions about the conversion and reorganization
or your right to purchase stock, please call our Stock Information Center at
(314) 352-3199.
Thank you for giving these matters your attention and timely consideration.
Sincerely,
Richard C. Fellhauer
President and Chief Executive
Officer
THIS LETTER IS NEITHER AN OFFER TO SELL NOR A SOLICITATION TO BUY THE STOCK OF
EQUALITY BANCORP, INC. THE OFFER IS MADE ONLY BY THE PROSPECTUS. THE COMMON
STOCK IS NOT A DEPOSIT OR AN ACCOUNT AND IS NOT FEDERALLY INSURED OR
GUARANTEED.
THIS STOCK WILL NOT BE INSURED BY THE FDIC OR ANY GOVERNMENT AGENCY.
C
<PAGE>
[First Missouri Financial, M.H.C. Letterhead]
, 1997
Dear Member:
We are pleased to inform you that the Board of Directors of First Missouri
Financial, M.H.C. has approved a plan to convert First Missouri from its
present mutual holding company form of organization to a stock holding
company. The new holding company that will be formed in the transaction--
Equality Bancorp, Inc. (the "Holding Company")--will, upon completion of the
conversion and reorganization, own all of the capital stock of Equality
Savings and Loan Association, F.A., which also will change its name in the
process to Equality Savings Bank.
The stock of Equality Savings owned by persons other than First Missouri
(which owns 53.2% of Equality Savings' outstanding shares) will be
automatically converted into shares of the Holding Company. In addition,
shares of Holding Company common stock also will be offered and sold to
members of First Missouri and other persons according to certain preference
categories in a subscription and community offering. Your Board of Directors
has unanimously recommended the conversion and reorganization as an important
step in the development of Equality Savings.
Following the conversion and reorganization, your deposits at Equality
Savings will continue to be insured by the FDIC. There will be no change in
the balance, interest rate or maturity of deposits or loans because of the
conversion and reorganization. Customers will enjoy the same services, office
and staff.
The enclosed materials refer to our members' opportunity to subscribe for
shares of Holding Company common stock. Unfortunately, the Holding Company is
unable to either offer or sell its common stock to you because the small
number of potential eligible subscribers in your jurisdiction makes
registration and qualification of the stock under the securities laws of your
jurisdiction impractical for reasons of cost or otherwise. Accordingly,
neither this letter or the enclosed Prospectus should be considered an offer
or a solicitation of an offer to buy the common stock. We very much regret
that you do not have the opportunity to become a stockholder at this time. If,
however, you wish to purchase stock after the conversion and reorganization is
completed, you may contact a representative of our underwriters, Trident
Securities, Inc., or your regular broker.
Enclosed you will find a Proxy Statement that contains important information
describing the conversion and reorganization, formation of the Holding Company
and the special meeting of members of First Missouri Financial, M.H.C. If you
and/or members of your family have multiple accounts with Equality Savings,
you may receive more than one mailing. If you receive more than one proxy
card, please sign and return each one.
<PAGE>
YOUR VOTE IS VERY IMPORTANT TO US. PLEASE VOTE, SIGN, DATE AND RETURN THE
ENCLOSED PROXY CARD(S) IN THE ENVELOPE PROVIDED AS SOON AS POSSIBLE.
If you have any questions about the conversion and reorganization, please
call our Stock Information Center at (314) 352-3199.
Thank you for giving these matters your attention and timely consideration.
Sincerely,
Richard C. Fellhauer
President and Chief Executive
Officer
THIS LETTER IS NEITHER AN OFFER TO SELL NOR A SOLICITATION TO BUY THE STOCK OF
EQUALITY BANCORP, INC. THE OFFER IS MADE ONLY BY THE PROSPECTUS. THE COMMON
STOCK IS NOT A DEPOSIT OR AN ACCOUNT AND IS NOT FEDERALLY INSURED OR
GUARANTEED.
THIS STOCK WILL NOT BE INSURED BY THE FDIC OR ANY GOVERNMENT AGENCY.
BS
2
<PAGE>
IX. Proxygram
A. Explanation
A proxygram is used when the majority of votes needed to adopt the Plan of
Conversion and Reorganization is still outstanding. The proxygram is mailed
to those "target vote" depositors and stockholders who have not previously
returned their signed proxy.
The target vote depositors and stockholders are determined by the
Conversion and Reorganization agent and registrar.
B. Example
<PAGE>
- -------------------------------------------------------------------------------
P R O X Y G R A M
EQUALITY SAVINGS AND LOAN ASSOCIATION, F.A.
FIRST MISSOURI FINANCIAL, M.H.C.
YOUR VOTE ON OUR PLAN OF CONVERSION AGREEMENT AND PLAN OF REORGANIZATION HAS
NOT BEEN RECEIVED.
YOUR VOTE IS VERY IMPORTANT, PARTICULARLY SINCE FAILURE TO VOTE IS EQUIVALENT
TO VOTING AGAINST THE PLAN.
VOTING FOR THE CONVERSION AND REORGANIZATION WILL NOT AFFECT THE INSURANCE OF
YOUR ACCOUNT. IT WILL CONTINUE TO BE INSURED UP TO $100,000 BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION.
YOU MAY PURCHASE STOCK IF YOU WISH, BUT VOTING DOES NOT OBLIGATE YOU TO BUY
STOCK.
PLEASE ACT PROMPTLY! SIGN THE ENCLOSED PROXY CARD AND MAIL, OR DELIVER, THE
PROXY CARD TO EQUALITY SAVINGS AND LOAN ASSOCIATION, F.A. TODAY. PLEASE VOTE
ALL PROXY CARDS RECEIVED.
WE RECOMMEND THAT YOU VOTE "FOR" THE PLAN OF CONVERSION AND REORGANIZATION.
THANK YOU.
THE BOARD OF DIRECTORS AND MANAGEMENT OF
EQUALITY SAVINGS AND LOAN ASSOCIATION, F.A.
AND FIRST MISSOURI FINANCIAL, M.H.C. COMPANY
- -------------------------------------------------------------------------------
IF YOU RECENTLY MAILED THE PROXY,
PLEASE ACCEPT OUR THANKS AND DISREGARD THIS REQUEST.
FOR FURTHER INFORMATION CALL (314) .
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
Set forth below is an estimate of the amount of fees and expenses (other
than underwriting discounts and commissions) to be incurred in connection with
the issuance of the shares:
<TABLE>
<S> <C>
Counsel fees and expenses...................................... $136,000
Accounting fees and expenses................................... 25,000
Appraisal and business plan preparation fees and expenses...... 27,500
Conversion Agent fees and expenses............................. 10,000
Underwriting fees and expenses................................. 97,500
Underwriter's counsel fees and expenses........................ 22,500
Printing, postage and mailing expenses......................... 60,000
OTS filing fee................................................. 13,400
Securities and Exchange Commission registration fee............ 5,000
NASD registration fee.......................................... 1,600
NASDAQ registration fee........................................ 15,000
Fees and expenses for qualifications under state securities
laws.......................................................... 1,500
--------
Total...................................................... $415,000
========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Registrant is empowered by Section 145 of the Delaware General
Corporation Law, subject to the procedures and limitations stated therein, to
indemnify any person against expenses (including attorneys' fees), judgments,
fines and amounts paid in settlement actually and reasonably incurred by him
or her in the defense of any threatened, pending or completed action, suit or
proceeding in which such person is made a party by reason of his or her being
or having been a director, officer, employee or agent of the Registrant, or
serving or having served at the request of the Registrant as a director,
officer, employee or agent of another enterprise. The statute provides that
this indemnification is not exclusive of other rights of indemnification to
which a person may be entitled under any bylaw, agreement, vote of
stockholders or disinterested directors, or otherwise.
The Certificate of Incorporation and Bylaws of the Registrant provide,
subject to certain procedures and limitations stated therein, that the
Registrant shall indemnify any person against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him or her in the defense of any threatened, pending or completed
action, suit or proceeding in which such person is made a party by reason of
his or her being or having been a director or officer of the Registrant, or
being or having been a director or officer of the Registrant and serving or
having served at the request of the Registrant as a director, officer,
employee or agent of another enterprise. The indemnification is not exclusive
of other rights of indemnification to which a person may be entitled under any
statute, bylaw, agreement, vote of stockholders or disinterested directors, or
otherwise.
The Registrant maintains an insurance policy under which its officers and
directors are insured, within the limits and subject to the limitations of the
policy, against certain losses arising from any claim or claims made against
them in their respective capacities of directors or officers. The policy also
provides for reimbursement to the Registrant for any indemnification of
officers and directors.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
The Registrant is a newly formed corporation and, as such, will not
previously have engaged in the issuance or sale of securities other than 100
shares of common stock to Equality Savings and Loan Association, F.A. in
connection with the organization of the Registrant, which shares will be
canceled in the Conversion and Reorganization.
II-1
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) The Exhibits filed herewith are set forth on the Exhibit Index.
(b) The financial statement schedules have been omitted because they are
inapplicable or because the information is provided elsewhere in the
Consolidated Financial Statements and Notes thereto included in the
Prospectus.
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement,
(i) to include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933 (the "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; provided, however, that any increase or decrease in
volume of securities offered (if the total dollar value of securities
offered would not exceed that which was registered) and any deviation from
the low or high end of the estimated maximum offering range may be
reflected in the form of prospectus filed with the Commission pursuant to
Rule 424(b) if, in the aggregate, the changes in volume and price represent
no more than a 20 percent change in the maximum aggregate offering price
set forth in the "Calculation of Registration Fee" table in the effective
Registration Statement; and
(iii) to include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or any
material change to such information in the Registration Statement.
(2) That, for the purpose of determining any liability under the Securities
Act, each such post-effective amendment shall be deemed to be a new
Registration Statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of
the offering.
(4) To provide to the underwriter at the closing specified in the
underwriting agreements, certificates in such denominations and registered in
such names as required by the underwriter to permit prompt delivery to each
purchaser.
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 such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
II-2
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS AMENDMENT TO THE REGISTRATION STATEMENT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF ST.
LOUIS, STATE OF MISSOURI, ON AUGUST 6, 1997.
Equality Bancorp, Inc.
(Registrant)
/s/ Richard C. Fellhauer
By: _________________________________
Richard C. Fellhauer
Chairman of the Board, President,
Chief
Executive Officer and Director
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
TO THE REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES SET FORTH OPPOSITE THEIR NAMES AND ON AUGUST 6, 1997:
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
/s/ Richard C. Fellhauer Chairman of the Board, President, Chief
___________________________________________ Executive Officer and Director (Principal
Richard C. Fellhauer Executive Officer)
/s/ Michael A. Deelo Treasurer, Chief Financial Officer and
___________________________________________ Director (Principal Financial Officer and
Michael A. Deelo Principal Accounting Officer)
LeRoy C. Crook* Director
___________________________________________
LeRoy C. Crook
Kenneth J. Hrdlicka* Director
___________________________________________
Kenneth J. Hrdlicka
Michael J. Walsh* Director
___________________________________________
Michael J. Walsh
Daniel C. Aubuchon* Director
___________________________________________
Daniel C. Aubuchon
Stacey W. Braswell* Director
___________________________________________
Stacey W. Braswell
Berenice J. Mahacek* Director
___________________________________________
Berenice J. Mahacek
Charles J. Wolter* Director
___________________________________________
Charles J. Wolter
</TABLE>
/s/ Richard C. Fellhauer
*By: ___________________________
Richard C. Fellhauer
Attorney-in-Fact
II-3
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
ITEM EXHIBIT
---- -------
<C> <S> <C> <C>
1. Underwriting agreement 1.1 Engagement Letter with Trident
Securities, Inc.*
1.2 Form of Agency Agreement with Trident
Securities, Inc.**
2. Plan of acquisition, 2.1 Amended Plan of Conversion and
reorganization, arrangement, Reorganization of First Missouri
liquidation, or succession Financial, M.H.C. and Equality Savings
and Loan Association, F.A.
3. Articles of Incorporation 3.1 Certificate of Incorporation of
and Bylaws Registrant as filed in Delaware on May
14, 1997*
3.2 Bylaws of Registrant as adopted by the
Board of Directors of Registrant on
June 20, 1997*
4. Instruments defining the 4.1 Specimen Stock Certificate of
rights of holders, incl. Registrant
indentures
4.2 Articles IV, V, VI, VII, XI, XII,
XIII, XIV, XVI and XVII of the
Registrant's Certificate of
Incorporation (see Exhibit 3.1)*
4.3 Articles II, III, IV, VIII and XI of
the Registrant's Bylaws (see Exhibit
3.2)*
5. Opinion re: legality 5.1 Opinion of Schiff Hardin & Waite,
counsel to the Registrant*
8. Opinion re: tax matters 8.1 Form of Opinion of KPMG Peat Marwick
LLP regarding federal income tax
consequences and Missouri income tax
consequences of the Conversion and
Reorganization
10. Material contracts 10.1 Equality Savings and Loan Association
1993 Stock Option and Incentive Plan*
10.2 Credit Agreement between Registrant
and Equality Savings and Loan
Association, F.A. Employee Stock
Ownership Plan*
10.3 Equality Bancorp, Inc. 1997 Stock
Option and Incentive Plan
10.4 Equality Bancorp, Inc. 1997 Management
Development and Recognition Plan
10.5 Form of Employment Agreement to be
entered into between Equality Bancorp,
Inc. and Richard C. Fellhauer
10.6 Form of Employment Agreement to be
entered into between Equality Bancorp,
Inc. and Michael A. Deelo
10.7 Form of Employment Agreement to be
entered into between Equality Bancorp,
Inc. and Leonard O. Wolter
21. Subsidiaries of the 21.1 List of subsidiaries of the
registrant Registrant*
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
ITEM EXHIBIT
---- -------
<C> <S> <C> <C>
23. Consent of experts and 23.1 Consent of KPMG Peat Marwick LLP (and
counsel included in Exhibit 8.1)
23.2 Consent of Schiff Hardin & Waite
(contained in the opinion filed as
Exhibit 5.1)*
23.3 Consent of RP Financial, L.C.*
23.4 Consent of Rubin, Brown, Gornstein &
Co. LLP
24. Power of attorney 24.1 Powers of attorney are included on the
signature page to the Registration
Statement*
27. Financial Data Schedule 27.1 Financial Data Schedule*
99. Additional exhibits 99.1 Engagement Letter with RP Financial,
L.C. as Appraiser*
99.2 Appraisal Report of RP Financial,
L.C.*
99.3 Stock Order Form and Order Form
Instructions for Offering*
99.4 Proxy Statement for Special Meeting of
Members of First Missouri Financial,
M.H.C.
99.5 Form of Proxy for Special Meeting of
Members of First Missouri Financial,
M.H.C.
</TABLE>
- --------
*Previously filed.
**To be filed by amendment.
II-5
<PAGE>
EXHIBIT 2.1
-----------
PLAN OF CONVERSION AND REORGANIZATION
OF
FIRST MISSOURI FINANCIAL, M.H.C.
AND
EQUALITY SAVINGS AND LOAN ASSOCIATION, F.A.
As Adopted on May 16, 1997
As Amended on June 20, 1997
As Amended on August 8, 1997
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
<S> <C>
ARTICLE I
GENERAL.......................................................... 1
ARTICLE II
DEFINITION....................................................... 3
ARTICLE III
GENERAL PROCEDURE FOR CONVERSION AND REORGANIZATION.............. 10
ARTICLE IV
CONVERSION STOCK OFFERING........................................ 13
ARTICLE V
LIQUIDATION ACCOUNT.............................................. 24
ARTICLE VI
DISSENTING STOCKHOLDERS.......................................... 26
ARTICLE VII
EFFECTIVE TIME OF CONVERSION AND REORGANIZATION.................. 26
ARTICLE VIII
EFFECTIVE TIME OF CONVERSION AND REORGANIZATION.................. 26
ARTICLE IX
MISCELLANEOUS.................................................... 28
ARTICLE X
AMENDMENT OR TERMINATION OF PLAN................................. 30
</TABLE>
Annex A Plan of Merger between First Missouri Financial, M.H.C. and Equality
Savings and Loan Association, F.A.
Annex B Plan of Merger between Equality Savings and Loan Association, F.A. and
Interim II Savings and Loan Association, F.A.
<PAGE>
ARTICLE I
GENERAL
For purposes of this Article I, all capitalized terms have the meanings
ascribed to them in Article II.
On October 22, 1993, Equality Savings and Loan Association, a Missouri-
chartered mutual savings and loan association (the "State Mutual Association"),
reorganized into the mutual holding company form of organization. To
accomplish the mutual holding company formation, the State Mutual Association
organized a Missouri-chartered stock savings and loan association under the name
"Equality Savings and Loan Association" (the "State Stock Association") as a
wholly-owned subsidiary. The State Mutual Association then transferred
substantially all of its assets and liabilities to the State Stock Association
in exchange for 456,400 shares of State Stock Association Common Stock, and
reorganized itself into a federally-chartered mutual holding company known as
First Missouri Financial, M.H.C. The State Stock Association simultaneously
sold 380,000 shares of State Stock Association Common Stock to certain eligible
depositors and other members of State Mutual Association and the general public.
On June 13, 1995, the State Stock Association converted to a federally-
chartered stock savings and loan association (the "State-to-Federal Conversion")
and simultaneously changed its name to "Equality Savings and Loan Association,
F.A." (the "Federal Stock Association"). In connection with the State-to-
Federal Conversion, all of the issued and outstanding shares of common stock of
State Stock Association converted into shares of common stock of Federal Stock
Association. As of the date of adoption of this Plan of Conversion, 836,400
shares of Federal Stock Association Common Stock were issued and outstanding,
and the Mutual Holding Company and the Public Stockholders own an aggregate of
53.2 percent and 46.8 percent of the outstanding Federal Stock Association
Common Stock, respectively.
The Boards of Directors of the Mutual Holding Company and the Association
believe that a conversion of the Mutual Holding Company to stock form and the
reorganization of the Association pursuant to this Plan of Conversion is in the
best interests of the Mutual Holding Company and the Association, as well as the
best interests of the respective Members and Public Stockholders. The Boards of
Directors determined that this Plan of Conversion equitably provides for the
interests of Members through the granting of subscription rights and the
establishment of a liquidation account. The Conversion and Reorganization will
result in the Association being wholly owned by a stock holding company, which
is a more common structure and form of ownership than a mutual holding company.
In addition, the Conversion and Reorganization will result in the raising of
additional equity capital for the Association and the Holding Company and is
expected to result in a more active and liquid market for the Holding Company
Common Stock than currently exists for the Association Common Stock, although
there can be no assurances that this will be the case. Finally, the Conversion
and Reorganization has been structured to reunite the accumulated earnings and
profits tax attribute retained by the Mutual Holding Company with the retained
earnings of the Association through a tax-free reorganization. This will
increase the Association's ability to pay dividends in the future.
1
<PAGE>
If the Association had undertaken a standard conversion involving the
formation of a stock holding company in 1993, applicable OTS regulations would
have required a greater amount of Association Common Stock to be sold than
resulted in the amount of net proceeds raised in connection with the formation
of the Mutual Holding Company. In addition, if a standard conversion had been
conducted in 1993, management of the Association believed that it would have
been difficult to profitably invest the larger amount of capital that would have
been raised, when compared to the amount of net proceeds raised in connection
with the formation of the Mutual Holding Company. A standard conversion in 1993
also would have immediately eliminated all aspects of the mutual form of
organization.
Subsequent to the formation of the Mutual Holding Company, there have been
certain changes in the regulations and policies of the OTS relating to mutual
holding companies. In recent years, the U.S. Congress has proposed major
overhauls to the structure of the thrift industry that include eliminating the
federal savings association charter, which is the charter the Association
currently operates under. These proposals also have created uncertainty
concerning the future of the mutual form of ownership. In addition, since the
Association's Mutual Holding Company Reorganization in 1993, the Boards of
Directors of the Mutual Holding Company and the Association have realized a need
to create additional liquidity for the Association's Common Stock and believe
the Holding Company and the Association can effectively deploy the additional
equity capital raised in the Conversion and Reorganization. In light of the
foregoing, the Boards of Directors of the Mutual Holding Company and the
Association believe that it is in the best interests of such companies and their
respective Members and Stockholders to undertake the Conversion and
Reorganization at this time.
In connection with the Conversion and Reorganization, the Association will
form a new first-tier, wholly-owned subsidiaries known as Equality Bancorp,
Inc., which will become the Holding Company upon consummation of the Conversion
and Reorganization. The Holding Company will in turn form Interim (as
hereinafter defined) as a wholly-owned subsidiary. As described in more detail
in Article III, the Mutual Holding Company will convert from the mutual form to
a federal interim stock savings association and simultaneously merge with and
into the Association pursuant to the Plan of Merger included as Annex A hereto,
-------
pursuant to which the Mutual Holding Company will cease to exist and a
liquidation account will be established by the Association for the benefit of
depositor Members as of specified dates. Interim will then merge with and into
the Association pursuant to the Plan of Merger between Equality Savings and Loan
Association, F.A. and Interim II Savings and Loan Association, F.A. included as
Annex B hereto, pursuant to which the Association will become a wholly-owned
- -------
subsidiary of the Holding Company and, in connection therewith, each share of
Association Common Stock held by the Public Stockholders outstanding
immediately prior to the effective time thereof shall be automatically
converted, without further action by the holder thereof, into and become the
right to receive shares of Holding Company Common Stock based on the Exchange
Ratio, plus cash in lieu of any fractional share interest. Simultaneous with the
completion of the Conversion and Reorganization, the Association will amend its
federal stock charter to, among other things, change its name to "Equality
Savings Bank."
In connection with the Conversion and Reorganization, the Holding Company
will offer shares of Conversion Stock in the Offerings as provided herein.
Shares of Conversion Stock will
2
<PAGE>
be offered in a Subscription Offering in descending order of priority to
Eligible Account Holders, Employee Stock Benefit Plans, Supplemental Eligible
Account Holders, Other Members, Directors, Officers and Employees and Public
Stockholders. Any shares of Conversion Stock remaining unsold after the
Subscription Offering will be offered for sale to the public through a Community
Offering, or, if feasible, in a Public Offering, as determined by the Boards of
Directors of the Holding Company and the Association in their sole discretion.
This Plan was adopted by the Boards of Directors of the Mutual Holding
Company and the Association on May 16, 1997 by a vote of not less than two-
thirds of their entire membership.
The Plan of Merger between the Mutual Holding Company and the Association,
which is attached to the Plan as Annex A, and the Plan of Merger between the
-------
Association and Interim, which is attached to the Plan as Annex B, must be
-------
approved by the holders of at least two-thirds of the outstanding Association
Common Stock at the Stockholders' Meeting. The Plan of Merger between the
Association and Interim, which is attached to the Plan as Annex B, also must be
-------
approved by the Holding Company, as the sole stockholder of Interim, by written
consent.
Furthermore, the Primary Parties have conditioned the consummation of the
Conversion and Reorganization on the approval of the Plan of Conversion and the
Plans of Merger by at least a majority of the votes cast, in person or by proxy,
by the Public Stockholders at the Stockholders' Meeting. This Plan is subject
to the approval of the OTS, and it also must be approved by at least a majority
of the total outstanding votes of the Voting Members of the Mutual Holding
Company at the Special Meeting, which votes may be cast in person or by proxy.
After the Conversion and Reorganization, the Association will continue to
be regulated by the OTS, as its chartering authority, and by the FDIC, which
insures the Association's deposits. In addition, the Association will continue
to be a member of the Federal Home Loan Bank System and all insured savings
deposits will continue to be insured by the FDIC and the SAIF up to the maximum
amounts provided by law.
ARTICLE II
DEFINITIONS
In addition to terms defined elsewhere in this Plan, for purposes of this
Plan, the following terms shall have the following meanings:
SECTION 2.1 "ACTING IN CONCERT": The term Acting in Concert means:
----------- --------------------
(a) knowing participation in a joint activity or interdependent conscious
parallel action towards a common goal whether pursuant to an express agreement;
or
(b) a combination or pooling of voting or other interests in the
securities of an issuer for a common purpose pursuant to any contract,
understanding, relationship, agreement or other arrangement, whether written or
otherwise.
3
<PAGE>
For purposes of this Plan, a Person or company that acts in concert with another
Person or company ("other party") shall also be considered to be acting in
concert with any Person or company who is also acting in concert with that other
party, provided that any Employee Plan shall not be considered to be acting in
--------
concert with its trustee or a Person who serves in a similar capacity solely to
determine whether stock held by the trustee and stock held by such Employee Plan
shall be aggregated. Persons who are Acting in Concert may be referred to in
this Plan as a "Group Acting in Concert."
SECTION 2.2 "ACTUAL PURCHASE PRICE": The term Actual Purchase Price
----------- ------------------------
means the per share price at which Conversion Stock is ultimately sold by the
Holding Company in the Offerings in accordance with the terms hereof.
SECTION 2.3 "ASSOCIATE": The term Associate, when used to indicate a
----------- ------------
relationship with any Person, means:
(a) any corporation or organization (other than the Mutual Holding
Company, the Association, the Holding Company or a majority-owned subsidiary of
the Mutual Holding Company, the Association, or the Holding Company) of which
such Person is an officer or partner or is, directly or indirectly, the
beneficial owner of 10 percent or more of any class of equity securities; and
(b) 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 the term "Associate" does not include any
Employee Plan in which a Person has a substantial beneficial interest or serves
as a trustee or in a similar fiduciary capacity; and
(c) 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
Association, any of its subsidiaries, the Mutual Holding Company or the Holding
Company.
SECTION 2.4 "ASSOCIATION": The term Association means Equality Savings
----------- --------------
and Loan Association, F.A. after its conversion to stock form in connection with
the Mutual Holding Company Reorganization.
SECTION 2.5 "ASSOCIATION COMMON STOCK": The term Association Common
----------- ---------------------------
Stock means the common stock of the Association, par value $1.00 per share.
SECTION 2.6 "ASSOCIATION MERGER": The term Association Merger means the
----------- ---------------------
merger of Interim with and into the Association pursuant to the Plan of Merger
included as Annex B hereto.
--------
SECTION 2.7 "COMMUNITY OFFERING": The term Community Offering means the
----------- ---------------------
offering for sale of shares of Conversion Stock to certain members of the
general public with a preference to Preferred Other Purchasers, concurrently
with or after completion of the Subscription Offering, to the extent shares of
Conversion Stock remain available after satisfying all subscriptions received in
the Subscription Offering and accepted by the Association and the Mutual Holding
Company.
4
<PAGE>
SECTION 2.8 "CONVERSION AND REORGANIZATION": The term Conversion and
----------- --------------------------------
Reorganization means (i) the conversion of the Mutual Holding Company from
mutual form to a federal interim stock savings association and the subsequent
Mutual Holding Company Merger, pursuant to which the Mutual Holding Company will
cease to exist, (ii) the Association Merger, pursuant to which the Association
will become a wholly-owned subsidiary of the Holding Company and, in connection
therewith, each share of Association Common Stock held by the Public
Stockholders outstanding immediately prior to the effective time thereof shall
automatically be converted, without further action by the holder thereof, into
and become the right to receive shares of Holding Company Common Stock based on
the Exchange Ratio, plus cash in lieu of any fractional share interest, and
(iii) the issuance of Conversion Stock by the Holding Company in the Offerings
as provided herein, which will increase the number of shares of Holding Company
Common Stock outstanding.
SECTION 2.9 "CONVERSION APPLICATION": The term Conversion Application
----------- -------------------------
means the Application for Approval of Conversion filed by the Mutual Holding
Company with the OTS for approval of the Conversion and Reorganization.
SECTION 2.10 "CONVERSION STOCK": The term Conversion Stock means Holding
------------ -------------------
Company Stock to be issued and sold by the Holding Company in the Offerings
pursuant to the Plan.
SECTION 2.11 "DEPOSIT ACCOUNT(S)": The term Deposit Account means
------------ ---------------------
withdrawable or repurchasable shares, demand deposits, investment certificates
or deposits or other savings accounts, including money market deposit accounts
and negotiable order of withdrawal accounts of the Association, owned by a
Member.
SECTION 2.12 "DIRECTOR": The term Director means a member of the Board
------------ -----------
of Directors of the Association or the Mutual Holding Company, but does not
include an advisory director, honorary director, director emeritus or person
holding a similar position unless such person is otherwise performing functions
similar to those of a member of the Board of Directors of the Association or the
Mutual Holding Company.
SECTION 2.13 "DIRECTOR, OFFICER AND EMPLOYEE": The terms Director,
------------ ---------------------------------
Officer and Employee means the terms as applied respectively to any person who
is a Director, Officer or employee of the Mutual Holding Company, the
Association or any subsidiary thereof, or the Holding Company.
SECTION 2.14 "EFFECTIVE TIME OF THE CONVERSION AND REORGANIZATION": The
------------ ------------------------------------------------------
term Effective Time of the Conversion and Reorganization shall mean the date and
time at which the Conversion is deemed to occur and be effective in accordance
with Article VII hereof.
SECTION 2.15 "ELIGIBLE ACCOUNT HOLDER": The term Eligible Account
------------ --------------------------
Holder means the holder of a Qualifying Deposit in the Association on March 31,
1996.
SECTION 2.16 "ELIGIBILITY RECORD DATE": The term Eligibility Record Date
------------ --------------------------
means March 31, 1996.
5
<PAGE>
SECTION 2.17 "EMPLOYEE PLAN": The term Employee Plan means any employee
------------ ----------------
stock benefit plans, MRPs and Stock Option Plans approved by the Board of
Directors of the Association or the Holding Company.
SECTION 2.18 "EMPLOYEE STOCK BENEFIT PLAN": The term Employee Stock
------------ ------------------------------
Benefit Plan means any defined benefit plan or defined contribution plan of the
Association or the Holding Company other than an MRP, such as an employee stock
ownership plan, employee stock bonus plan, profit-sharing plan or other plan,
which, with its related trust, meets the requirements to be "qualified" under
Section 401 of the Internal Revenue Code.
SECTION 2.19 "ESTIMATED PRICE RANGE": The term Estimated Price Range
------------ ------------------------
means the range of the estimated pro forma market value of the Conversion Stock
as determined by an independent appraiser prior to the Subscription Offering,
pursuant to the OTS's Conversion Regulations, and as may be amended from time to
time thereafter.
SECTION 2.20 "EXCHANGE RATIO": The term Exchange Ratio means the rate at
------------ -----------------
which shares of Holding Company Common Stock will be exchanged for shares of
Association Common Stock held by the Public Stockholders in connection with the
Association Merger. The exact rate shall be determined by the Board of
Directors of the Mutual Holding Company and the Association in order to ensure
that upon consummation of the Conversion and Reorganization the Public
Stockholders will own in the aggregate approximately the same percentage of the
Holding Company Common Stock to be outstanding upon completion of the Conversion
and Reorganization as the percentage of Association Common Stock owned by them
in the aggregate immediately prior to consummation of the Conversion and
Reorganization, before giving effect to (a) cash paid in lieu of any fractional
interests of Holding Company Common Stock and (b) any shares of Conversion Stock
purchased by the Public Stockholders in the Offerings or tax-qualified employee
stock benefit plans thereafter.
SECTION 2.21 "EXCHANGE SHARES": Exchange Shares means the shares of
------------ ------------------
Holding Company Common Stock to be issued to the Public Stockholders in
connection with the Association Merger.
SECTION 2.22 "FEDERAL STOCK ASSOCIATION": The term Federal Stock
------------ ----------------------------
Association means Equality Savings and Loan Association, F.A., organized as a
federal capital stock savings association.
SECTION 2.23 "HOLDING COMPANY": The term Holding Company means Equality
------------ ------------------
Bancorp, Inc., a corporation to be organized under the laws of the State of
Delaware. Such corporation will be initially formed as a first-tier, wholly-
owned subsidiary of the Association. Upon completion of the Conversion and
Reorganization, the Holding Company shall hold all of the outstanding capital
stock of the Association.
SECTION 2.24 "HOLDING COMPANY APPLICATION": The term Holding Company
------------ ------------------------------
Application means the application to the OTS on Application H-(e)1-S for
approval of the Holding Company's acquisition of control of the Association
pursuant to the Conversion and Reorganization.
6
<PAGE>
SECTION 2.25 "HOLDING COMPANY STOCK:" The term Holding Company Stock
------------ ------------------------
means the common stock of the Holding Company, par value $.01 per share, which
is issued in the Conversion and Reorganization as Conversion Stock and Exchange
Shares.
SECTION 2.26 "INTERIM": The term Interim means Interim II Savings and
------------ ----------
Loan Association, F.A., which will be formed as a first tier, wholly-owned
subsidiary of the Holding Company to facilitate the Association Merger.
SECTION 2.27 "MARKET MAKER": The term Market Maker means a dealer (i.e.,
------------ --------------- ----
any person who engages either for all or part of his time, 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, (a) regularly publishes bona fide,
competitive bid and offer quotations in a recognized inter-dealer quotation
system; or (b) furnishes bona fide competitive bid and offer quotations on
request; and (c) is ready, willing and able to effect transactions in reasonable
quantities at his or her quoted prices with other brokers or dealers.
SECTION 2.28 "MAXIMUM PURCHASE PRICE": The term Maximum Purchase Price
---------- -------------------------
means the per share price at which Conversion Stock is offered for sale in the
Subscription Offering and the Community Offering.
SECTION 2.29 "MEMBERS": The term Members means all persons or entities
------------ ----------
who qualify as members of the Mutual Holding Company pursuant to its charter and
bylaws, as in effect prior to the Conversion and Reorganization, and the laws of
the United States.
SECTION 2.30 "MRPS": The term MRPs means any management recognition
------------ -------
plan(s) established by the Holding Company to induce certain Directors, Officers
and Employees of the Holding Company and the Association to serve the Holding
Company and the Association following the Conversion and Reorganization through
awards of Holding Company Stock in accordance with the terms and conditions of
this Plan and the documents establishing the MRPs.
SECTION 2.31 "MUTUAL HOLDING COMPANY": The term Mutual Holding Company
------------ -------------------------
means First Missouri Financial, M.H.C., a federally-chartered mutual holding
company under the Home Owners' Loan Act.
SECTION 2.32 "MUTUAL HOLDING COMPANY MERGER": The term Mutual Holding
------------ --------------------------------
Company Merger means the merger of the Mutual Holding Company (following its
conversion into a federal interim stock savings association -- Interim I Savings
and Loan Association, F.A.) with and into the Association pursuant to the Plan
of Merger included as Annex A hereto.
-------
SECTION 2.33 "MUTUAL HOLDING COMPANY REORGANIZATION": The term Mutual
------------ ----------------------------------------
Holding Company Reorganization means the State Mutual Association's formation of
the Mutual Holding Company in 1993, including State Stock Association's issuance
of State Stock Association Common Stock to the Public Stockholders.
7
<PAGE>
SECTION 2.34 "NET PROCEEDS": The term Net Proceeds means the number of
------------ ---------------
shares of Conversion Stock sold in the Offerings multiplied by the Actual
Purchase Price, less the expenses incurred and payable by the Holding Company to
complete the Conversion and Reorganization.
SECTION 2.35 "OFFERINGS": The term Offerings means the Subscription and
------------ ------------
Community Offerings.
SECTION 2.36 "OFFICER": The term Officer means an executive officer of
------------ ---------
the Mutual Holding Company or the Association which includes the Chairman of the
Board, President, Vice Presidents, Secretary, Treasurer or principal financial
officer, Comptroller or principal accounting officer, and any other person
performing similar functions.
SECTION 2.37 "ORDER FORMS": The term Order Forms means 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 Offerings pursuant to
the Plan.
SECTION 2.38 "OTHER MEMBERS": The term Other Members means Members
------------ ----------------
(other than Eligible Account Holders and Supplemental Eligible Account Holders)
as of the Voting Record Date for the Special Meeting.
SECTION 2.39 "OTS": The term OTS means the Office of Thrift Supervision
------------ -----
or any successor thereto.
SECTION 2.40 "OTS'S CONVERSION REGULATIONS": The term OTS's Conversion
------------ -------------------------------
Regulations means the regulations of the OTS governing conversions of federally-
chartered savings associations from the mutual to the stock form of ownership,
as set forth at 12 C.F.R. (S) 563b et. seq.
--------
SECTION 2.41 "PARTICIPANT": The term Participant means any Eligible
------------ --------------
Account Holders, Employee Stock Benefit Plans, Supplemental Eligible Account
Holder, Other Members, Directors, Officers and Employees and Public
Stockholders as of the Voting Record Date.
SECTION 2.42 "PERSON": The term Person means an individual, a
------------ ---------
corporation, a partnership, an association, a joint stock company, a trust, an
unincorporated organization or a government or any political subdivision
thereof.
SECTION 2.43 "PLAN AND PLAN OF CONVERSION": The terms Plan and Plan of
------------ ------------------------------
Conversion mean this Plan of Conversion and Reorganization as adopted by the
Boards of Directors of the Mutual Holding Company and the Association and any
amendment hereto approved as provided herein. The Board of Directors of the
Holding Company shall adopt this Plan as soon as practicable following its
organization, and the Board of Directors of Interim shall adopt the Plan of
Merger included as Annex B hereto as soon as practicable following its
-------
organization.
SECTION 2.44 "PLAN OF MERGER:" The term Plan of Merger means the Plan of
------------ -----------------
Merger between First Missouri Financial, M.H.C. and Equality Savings and Loan
Association, F.A. as attached to this Plan as Annex A or the Plan of Merger
-------
between Equality Savings and Loan
8
<PAGE>
Association, F.A. and Interim II Savings and Loan Association, F.A. as attached
to this Plan as Annex B, as the case may be. References herein to "Plans of
-------
Merger" refer to Annex A and Annex B.
------- -------
SECTION 2.45 "PREFERRED OTHER PURCHASERS": The term Preferred Other
------------ -----------------------------
Purchasers means natural persons who reside in the Missouri counties of St.
Louis City, St Louis, Jefferson, St. Charles and Franklin.
SECTION 2.46 "PRIMARY PARTIES": The term Primary Parties means the Mutual
------------ ------------------
Holding Company, the Association and the Holding Company.
SECTION 2.47 "PROSPECTUS": The term Prospectus means the document by
------------ -------------
which the shares of Conversion Stock are offered for sale, as authorized for use
in connection with the Conversion and Reorganization by the SEC and the OTS.
SECTION 2.48 "PUBLIC OFFERING": The term Public Offering means the
------------ ------------------
offering for sale of shares of Conversion Stock to members of the general
public, after completion of the Subscription Offering and the Community
Offering, to the extent shares of Conversion Stock remain available after
satisfying all subscriptions received in the Subscription Offering and all
orders received in the Community Offering are accepted by the Association and
the Mutual Holding Company.
SECTION 2.49 "PUBLIC STOCKHOLDERS": The term Public Stockholders means
------------ ----------------------
those Persons who own shares of Association Common Stock, excluding the Mutual
Holding Company.
SECTION 2.50 "QUALIFYING DEPOSIT": The term Qualifying Deposit means the
------------ --------------------
total of the deposit balances of the Deposit Accounts of an Eligible Account
Holder or Supplemental Eligible Account Holder in the Association as of the
close of business on the Eligibility Record Date or, in the case of a
Supplemental Eligible Account Holder, the Supplemental Eligibility Record Date,
provided that Deposit Accounts of an Eligible Account Holder or Supplemental
- --------
Eligible Account Holder with total deposit balances of less than $50 shall not
constitute a Qualifying Deposit.
SECTION 2.51 "REGISTRATION STATEMENT": The term Registration Statement
------------ -------------------------
means the registration statement on Form S-1 filed by the Holding Company with
the SEC.
SECTION 2.52 "SAIF": the term SAIF means the Savings Association
------------ -------
Insurance Fund of the FDIC.
SECTION 2.53 "SEC": The term SEC means the Securities and Exchange
------------ ------
Commission.
SECTION 2.54 "SPECIAL MEETING": The term Special Meeting means the
------------ -----------------
special meeting of members of the Mutual Holding Company called for the purpose
of submitting this Plan to the Members for their approval, including any
adjournments thereof.
SECTION 2.55 "STATE MUTUAL ASSOCIATION": The term State Mutual
------------ ---------------------------
Association means Equality Savings and Loan Association organized as a Missouri-
chartered mutual savings and loan association prior to its conversion to a State
Stock Association in 1993.
9
<PAGE>
SECTION 2.56 "STATE STOCK ASSOCIATION": The term State Stock Association
------------ --------------------------
means Equality Savings and Loan Association organized as a Missouri-chartered
capital stock savings and loan association subsequent to the Mutual Holding
Company Reorganization in 1993.
SECTION 2.57 "STATE STOCK ASSOCIATION COMMON STOCK": The term State
------------ ---------------------------------------
Stock Association Common Stock means the shares of common stock, $1.00 par value
per share, issued by the State Stock Association and outstanding prior to the
State-to-Federal Conversion.
SECTION 2.58 "STATE-TO-FEDERAL CONVERSION": The term State-to-Federal
------------ ------------------------------
Conversion means the conversion of the State Stock Association to a Federal
Stock Association in 1995.
SECTION 2.59 "STOCKHOLDERS' MEETING": The terms Stockholders' Meeting
------------ ------------------------
means the annual or special meeting of stockholders of the Association called
for the purpose of submitting the Plan of Conversion, the Plan of Merger
included as Annex A hereto and the Plan of Merger included as Annex B hereto to
------- -------
the stockholders for their approval, including any adjournments of such meeting.
SECTION 2.60 "STOCK OPTION PLAN": The term Stock Option Plan means any
------------ --------------------
stock option plan adopted by the Holding Company providing for grants of options
to purchase Holding Company Stock to Directors, Officers and Employees in
accordance with the terms and conditions of this Plan and the documents
establishing the Stock Option Plan.
SECTION 2.61 "SUBSCRIBER": The term subscriber means any Person who
------------ -------------
subscribes for shares of Conversion Stock in the Subscription Offering or the
Community Offering.
SECTION 2.62 "SUBSCRIPTION OFFERING": The term Subscription Offering
------------ ------------------------
means the offering of shares of Conversion Stock to the Eligible Account
Holders, Employee Stock Benefit Plans, Supplemental Eligible Account Holders,
Other Members, Directors, Officers and Employees and Public Stockholders.
SECTION 2.63 "SUBSCRIPTION PRICE RANGE": The term "Subscription Price
------------ ---------------------------
Range" is the price range established by the Primary Parties prior to the
commencement of the Subscription Offering, and is based on an independent
appraisal.
SECTION 2.64 "SUBSCRIPTION RIGHTS": The term Subscription Rights means
------------ ----------------------
the non-transferable, non-negotiable, personal rights of the Eligible Account
Holders, Employee Stock Benefit Plans, Supplemental Eligible Account Holders,
Other Members, Directors, Officers, Employees and Public Stockholders to
subscribe for shares of the Conversion Stock in the Subscription Offering in
accordance with this Plan.
SECTION 2.65 "SUPPLEMENTAL ELIGIBILITY RECORD DATE": The term
------------ ---------------------------------------
Supplemental Eligibility Record Date means the last day of the calendar quarter
preceding the approval of the Plan by the OTS.
10
<PAGE>
SECTION 2.66 "SUPPLEMENTAL ELIGIBLE ACCOUNT HOLDER": The term
------------ --------------------------------------
Supplemental Eligible Account Holder means the holder of a Qualifying Deposit in
the Association (other than an Officer or Director or their Associates) on the
Supplemental Eligibility Record Date.
SECTION 2.67 "VOTING RECORD DATE": The term Voting Record Date means the
------------ --------------------
date or dates for determining the eligibility of Members to vote at the Special
Meeting and Stockholders to vote at the Stockholders' Meeting, as applicable.
ARTICLE III
GENERAL PROCEDURE FOR CONVERSION AND REORGANIZATION
(a) After the Association's organization of the Holding Company and the
receipt of all requisite regulatory approvals, the Holding Company will form
Interim as a first-tier, wholly owned subsidiary of the Holding Company, and the
Board of Directors of Interim shall adopt the Plan of Merger included as Annex B
-------
hereto by at least a two-thirds vote. In addition, the Holding Company shall
approve such Plan of Merger in its capacity as the sole stockholder of Interim.
(b) The Conversion Application shall be submitted to the OTS for approval.
The Mutual Holding Company and the Association also will cause notice of the
adoption of the Plan by the Boards of Directors of the Mutual Holding Company
and the Association to be given by publication in a newspaper having general
circulation in each community in which an office of the Association is located;
and will cause copies of the Plan to be made available at each office of the
Mutual Holding Company and the Association for inspection by Members. After
receipt of notice from the OTS to do so, the Mutual Holding Company and the
Association will post the notice of the filing of the Application for Conversion
in each of their offices and will again cause to be published, in accordance
with the requirements of applicable regulations of the OTS, a notice of the
filing with the OTS of an application to convert the Mutual Holding Company from
mutual to stock form.
(c) Promptly following receipt of requisite approval of the OTS, this Plan
will be submitted to the Members for their consideration and approval at the
Special Meeting. The Mutual Holding Company may, at its option, mail to all
Members as of the Voting Record Date, at their last known address appearing on
the records of the Mutual Holding Company and the Association, a proxy statement
in either long or summary form describing the Plan which will be submitted to a
vote of the Members at the Special Meeting. The Holding Company also shall mail
to all such Members (as well as other Participants) either a Prospectus and
Order Form for the purchase of Conversion Stock or a letter informing them of
their right to receive a Prospectus and Order Form and a postage prepaid card to
request such materials, subject to the provisions of Section 4.7 hereof. In
addition, all such Members will receive, or be given the opportunity to request
by returning a postage-prepaid card which will be distributed with the proxy
statement, letter or other written communication, a copy of the certificate of
incorporation and bylaws of the Holding Company.
(d) Subscription Rights to purchase shares of Conversion Stock will be
issued without payment therefor to Eligible Account Holders, Employee Stock
Benefit Plans, Supplemental Eligible Account Holders, Other Members, Directors,
Officers and Employees and Public Stockholders as of the Voting Record Date, as
set forth in Sections 4.2(a)(1), (2), (3), (4), (5) and (6) hereof.
11
<PAGE>
(e) The Association shall file preliminary proxy materials with the OTS in
order to seek the approval of the Plan and the Plans of Merger by the Public
Stockholders. Promptly following clearance of such proxy materials and the
receipt of any other requisite approval of the OTS, the Association will mail
definitive proxy materials to the Public Stockholders as of the Voting Record
Date, at their last known address appearing on the records of the Association,
for their consideration and approval of the Plan and the Plans of Merger at the
Stockholders' Meeting. The Plan and the Plans of Merger must be approved by the
holders of at least two-thirds of the outstanding Association Common Stock as of
the Voting Record Date. In addition, the Primary Parties have conditioned the
consummation of the Conversion and Reorganization on the approval of the Plan
and the Plans of Merger by at least a majority of the votes cast, in person or
by proxy, by the Public Stockholders at the Stockholders' Meeting.
(f) The Holding Company shall submit or cause to be submitted a Holding
Company Application to the OTS for approval of the acquisition of the
Association. Such application also shall include an application to form
Interim. In addition, an application to merge the Mutual Holding Company
(following its conversion into a federal interim stock savings association) and
the Association and an application to merge Interim and the Association shall be
filed with the OTS, either as exhibits to the Holding Company Application or
separately. All notices required to be published in connection with such
applications shall be published at the times required.
(g) The Holding Company shall file a Registration Statement with the SEC
to register the Holding Company Common Stock to be issued in the Conversion and
Reorganization under the Securities Act of 1933, as amended, and shall register
such Holding Company Common Stock under any applicable state securities laws,
unless exempt. Upon registration and after the receipt of all required
regulatory approvals, the Conversion Stock shall be first offered for sale in a
Subscription Offering to Eligible Account Holders, Employee Stock Benefit Plans,
Supplemental Eligible Account Holders, Other Members, Directors, Officers and
Employees and Public Stockholders as of the Voting Record Date. It is
anticipated that any shares of Conversion Stock remaining unsold after the
Subscription Offering will be sold through a Community Offering. The purchase
price per share for the Conversion Stock shall be a uniform price determined in
accordance with Section 4.1 hereof. The Holding Company shall contribute to the
Association an amount of the net proceeds received by the Holding Company from
the sale of Conversion Stock as shall be determined by the Boards of Directors
of the Holding Company and the Association and as shall be approved by the OTS.
(h) The effective date of the Conversion and Reorganization shall be the
date set forth in Article VII hereof. Upon the effective date, the following
transactions shall occur:
(i) The Mutual Holding Company shall convert from a mutual holding
company to a federal interim stock savings association and simultaneously
merge with and into the Association in the Mutual Holding Company Merger,
with the Association being the surviving institution. As a result of the
Mutual Holding Company Merger, (x) the shares of Association Common Stock
held by the Mutual Holding Company (following its conversion to a federal
interim stock savings association) shall be extinguished and (y) Eligible
Account Holders and Supplemental Account Holders will be granted interests
in the liquidation account to be established by the Association pursuant to
Article V hereof.
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(ii) Interim shall merge with and into the Association pursuant to
the Association Merger, with the Association being the surviving
institution. As a result of the Association Merger, (x) the shares of
Holding Company Common Stock held by the Association shall be extinguished;
(y) the shares of Association Common Stock held by the Public Stockholders
shall be converted into the right to receive shares of Holding Company
Common Stock based upon the Exchange Ratio, plus cash in lieu of any
fractional share interest based upon the Actual Purchase Price; and (z) the
shares of common stock of Interim held by the Holding Company shall be
converted into shares of Association Common Stock on a one-for-one basis,
with the result that the Association shall become a wholly-owned subsidiary
of the Holding Company. In addition, as a result of the Association Merger,
options to purchase shares of Association Common Stock which are
outstanding immediately prior to consummation of the Conversion and
Reorganization shall be converted into options to purchase shares of
Holding Company Common Stock, with the number of shares subject to the
option and the exercise price per share in be adjusted based upon the
Exchange Ratio so that the aggregate exercise price remains unchanged, and
with the duration of the option remaining unchanged.
(iii) The Holding Company shall sell the Conversion Stock in the
Offerings, as provided herein.
(i) The Primary Parties may retain and pay for the services of financial
and other advisors and investment bankers to assist in connection with any or
all aspects of the Conversion and Reorganization, including in connection with
the Offerings, the payment of fees to brokers and investment bankers for
assisting Persons in completing and/or submitting Order Forms. All fees,
expenses, retainers and similar items shall be reasonable.
(j) The Mutual Holding Company and the Association shall obtain an opinion
of counsel, an opinion of a certified public accounting firm or a favorable
ruling from the Internal Revenue Service that shall state that the Conversion
and Reorganization will not result in any gain or loss for federal income tax
purposes to the Mutual Holding Company, the Association, Eligible Account
Holders, Supplemental Eligible Account Holders, or Other Members, and a
comparable opinion or ruling from the State of Missouri taxing authorities shall
be obtained with respect to Missouri income tax laws. Receipt of favorable
opinions or rulings are conditions precedent to completion of the Conversion and
Reorganization.
ARTICLE IV
CONVERSION STOCK OFFERING
SECTION 4.1 NUMBER OF SHARES AND PURCHASE PRICE OF SHARES
----------- ---------------------------------------------
(a) All shares of Conversion Stock sold in the Conversion and
Reorganization shall be sold at a uniform price per share, referred to in this
Plan as the "Actual Purchase Price". The Actual Purchase Price and the total
number of shares to be issued in the Conversion and Reorganization shall be
determined by the Boards of Directors of the Primary Parties 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 Conversion Stock and
the Estimated Price Range. The
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<PAGE>
estimated pro forma market value of the Conversion Stock shall be determined for
such purpose by an independent appraiser on the basis of such appropriate
factors as are not inconsistent with the OTS's Conversion Regulations.
(b) Immediately prior to the Subscription Offering, an Estimated Price
Range shall be established which shall vary from 15 percent above the average of
the minimum and maximum of such price range and the minimum of which shall be no
more than 15 percent below such average. The Maximum Purchase Price and the
number of shares offered in the Conversion shall then be determined within the
Subscription Price Range by the Boards of Directors of the Primary Parties. The
Estimated Price Range and Subscription Price Range may be revised after the
completion of the Subscription Offering with the approval of the OTS, without a
resolicitation of proxies or Order Forms or both. If upon completion of the
Conversion and Reorganization, the Actual Purchase Price is less than the
Maximum Purchase Price, the difference in such prices multiplied by the number
of shares sold to a Subscriber shall be refunded to such Subscriber unless the
Subscriber affirmatively elects to have the difference applied to the purchase
of additional shares of Conversion Stock.
(c) Notwithstanding the foregoing, no sale of Conversion Stock may be
consummated unless, prior to such consummation, the independent appraiser
confirms to the Primary Parties and to the OTS that, to the best knowledge of
the independent appraiser, nothing of a material nature has occurred which,
taking into account all relevant factors, would cause the independent appraiser
to conclude that the aggregate value of Conversion Stock at the Actual Purchase
Price is incompatible with its estimate of the pro forma market value of the
Conversion Stock. If such confirmation is not received, the Mutual Holding
Company may cancel the Subscription Offering and Community Offering, hold a new
Subscription Offering and Community Offering or take such other action as the
OTS may permit.
(d) The Conversion Stock to be issued in the Conversion shall be fully
paid and nonassessable, unless subject to any limitations imposed by applicable
state corporate law.
SECTION 4.2 METHOD OF OFFERING SHARES
----------- -------------------------
The Conversion Stock shall be offered and sold in the Subscription Offering
and Community Offering, or in such other manner as the OTS may approve, as
hereinafter provided in this Section 4.2.
(a) SUBSCRIPTION OFFERING
---------------------
Subscription Rights shall be issued at no cost to Eligible Account
Holders, Employee Stock Benefit Plans, Supplemental Eligible Account Holders,
Other Members, Directors, Officers and Employees and Public Stockholders as of
the Voting Record Date pursuant to priorities established by this Plan and the
OTS's Conversion Regulations. The priorities established for the purchase of
shares are as follows:
(1) CATEGORY 1: ELIGIBLE ACCOUNT HOLDERS
------------------------------------
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(A) Each Eligible Account Holder shall receive, without payment,
Subscription Rights entitling such Eligible Account Holder to purchase up to the
greater of (i) the number of shares of Conversion Stock that when combined with
Exchange Shares received aggregate $625,000 of Holding Company Common Stock (or
such maximum purchase limitation as may be established for the Community
Offering), (ii) one-tenth of one percent of the total offering of shares of
Conversion Stock in the Subscription Offering or (iii) 15 times the product
(rounded down to the next whole number) obtained by multiplying the total number
of shares of Conversion Stock to be issued in the Subscription Offering 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, subject to Section 4.7 hereof.
(B) Subscription Rights received by Officers and Directors and their
Associates, as Eligible Account Holders, based on their increased deposits in
the Association 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.
(C) In the event of an oversubscription for shares of Conversion
Stock by Eligible Account Holders pursuant to Section 4.2(a)(1)(A), available
shares shall 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 his or her total allocation equal to 100
shares or the total amount of his or her subscription, whichever is less.
Thereafter, any shares remaining shall be allocated among Eligible Account
Holders in the proportion that the amount of the Qualifying Deposit of each such
Eligible Account Holder bears to the total amount of the Qualifying Deposits of
all such Eligible Account Holders. If the amount of shares so allocated to one
or more Eligible Account Holders exceeds the amount subscribed for by such
Eligible Account Holder(s), the excess shall be reallocated (one or more times,
as necessary) among those Eligible Account Holders whose subscriptions are still
not fully satisfied on the same principle until all available shares have been
allocated or all subscriptions satisfied. No fractional shares shall be issued
in connection with the allocation of shares under this category.
(2) CATEGORY 2: EMPLOYEE STOCK BENEFIT PLANS
----------------------------------------
Each Employee Stock Benefit Plan shall receive, without payment,
Subscription Rights to purchase the number of shares of Conversion Stock
requested by such Employee Stock Benefit Plan, subject to (A) the availability
of sufficient shares of Conversion Stock after filling in full all subscription
orders of Eligible Account Holders and (B) the purchase limitations set forth in
Section 4.3 of this Plan. The Employee Stock Benefit Plans shall not be deemed
to be Associates of any Director, Officer or Employee. In the event that, after
completion of the Subscription Offering, the number of shares of Conversion
Stock to be issued is increased to an amount greater than the number of shares
representing the maximum of the Estimated Price Range included in the Prospectus
distributed in connection with the Subscription Offering (whether or not such
increase requires a resolicitation of Subscribers) ("Maximum Shares"), the
Employee Stock Benefit Plans shall have a priority right to purchase any such
shares exceeding the Maximum Shares up to the purchase limitations set forth in
Section 4.3 of this Plan.
(3) CATEGORY 3: SUPPLEMENTAL ELIGIBLE ACCOUNT HOLDERS
-------------------------------------------------
15
<PAGE>
(A) Supplemental Eligible Account Holders shall receive, without
payment, Subscription Rights entitling such Supplemental Eligible Account Holder
to purchase up to the greater of (i) number of shares of Conversion Stock that
when combined with Exchange Shares received aggregate $625,000 of Holding
Company Common Stock (or such maximum purchase limitation as may be established
for the Community Offering), (ii) one-tenth of one percent of the total offering
of shares of Conversion Stock in the Subscription Offering or (iii) 15 times the
product (rounded down to the next whole number) obtained by multiplying the
total number of shares of Conversion Stock to be issued in the Subscription
Offering 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, subject to Section 4.7 hereof.
(B) Subscription Rights received pursuant to this Category shall be
subordinated to the Subscription Rights received by Eligible Account Holders and
the Employee Stock Benefit Plans.
(C) Any Subscription Rights to purchase shares of Conversion Stock
received by an Eligible Account Holder in accordance with Category 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 by Supplemental Eligible Account Holders pursuant to Section 4.2(a)(3)(A),
available shares shall 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 his or
her total allocation equal to 100 shares or the total amount of his or her
subscription, whichever is less. Thereafter, any shares remaining shall be
allocated among Supplemental Eligible Account Holders in the proportion that the
amount of the Qualifying Deposit of each such Supplemental Eligible Account
Holder bears to the total amount of the Qualifying Deposits of all such
Supplemental Eligible Account Holders. If the amount of shares so allocated to
one or more Supplemental Eligible Account Holders exceeds the amount subscribed
for by such Supplemental Eligible Account Holder(s), the excess shall be
reallocated (one or more times, as necessary) among those Supplemental Eligible
Account Holders whose subscriptions are still not fully satisfied on the same
principle until all available shares have been allocated or all subscriptions
satisfied. No fractional shares shall be issued in connection with the
allocation of shares under this category.
(4) CATEGORY 4: OTHER MEMBERS
-------------------------
Other Members shall receive Subscription Rights to purchase shares of
Conversion Stock, after satisfying the subscriptions of Eligible Account
Holders, Employee Stock Benefit Plans, and Supplemental Eligible Account
Holders, pursuant to Categories one, two or three above, subject to the
following conditions:
(A) Each such Other Member shall be entitled to subscribe for up to
the greater of (i) the number of shares of Conversion Stock that when combined
with Exchange Shares received aggregate $625,000 of Holding Company Common Stock
(or such maximum purchase
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<PAGE>
limitation as may be established for the Community Offering), and (ii) or one-
tenth of one percent of the total offering of Conversion Stock in the
Subscription Offering, subject to Section 4.7 hereof.
(B) In the event of an oversubscription for shares of Conversion
Stock by Other Members, the available shares of Conversion Stock shall be
allocated among the subscribing Other Members pro rata (to the extent of their
orders) in the same proportion as the amount of Conversion Stock subscribed for
by each Other Member bears to the amount of Conversion Stock subscribed for by
all Other Members.
(5) CATEGORY 5: DIRECTORS, OFFICERS AND EMPLOYEES
---------------------------------------------
Directors, Officers and Employees shall receive Subscription Rights to
purchase shares of Conversion Stock, after satisfying the subscriptions of
Eligible Account Holders, Employee Stock Benefit Plans, Supplemental Eligible
Account Holders and Other Members, pursuant to Categories one, two, three and
four above, subject to the following conditions:
(A) Directors, Officers and Employees shall receive, without payment,
Subscription Rights to purchase in this category up to an aggregate of 21
percent of the number of shares of Conversion Stock offered in the Subscription
Offering.
(B) In the event of an oversubscription for shares of Conversion
Stock pursuant to Section 4.2(a)(5)(A), Subscription Rights for the purchase of
such shares shall be allocated among the individual Directors, Officers and
Employees on a point system basis, whereby a point will be assigned for each
year of employment and for each salary increment of $5,000 per annum and five
points for each office held in the Mutual Holding Company and the Association,
including a directorship. If any such Director, Officer or Employee does not
subscribe for his or her full allocation of shares, any shares not subscribed
for may be purchased by other Directors, Officers and Employees in proportion to
their respective subscriptions, provided that no fractional shares shall be
issued.
(6) CATEGORY 6: PUBLIC STOCKHOLDERS
-------------------------------
Public Stockholders as of the Voting Record Date for the Stockholders'
Meeting shall receive Subscription Rights to purchase shares of Conversion
Stock, after satisfying the subscriptions of Eligible Account Holders, Employee
Stock Benefit Plans, Supplemental Eligible Account Holders, Other Members and
Directors, Officers and Employees, pursuant to Categories one, two, three, four
and five above, subject to the following conditions:
(A) Each Public Stockholder as of the Voting Record Date shall
receive, without payment, Subscription Rights to purchase up to the greater of
(i) the number of shares of Conversion Stock that when combined with Exchange
Shares received aggregate $625,000 of Holding Company Common Stock (or such
maximum purchase limitation as may be established for the Community Offering)
and (ii) one-tenth of one percent of the total offering of shares of Conversion
Stock in the Subscription Offering, in each case subject to Section 4.7 hereof.
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<PAGE>
(B) If, pursuant to Section 4.2(a)(6)(A), Public Stockholders as of
the Voting Record Date subscribe for a number of shares of Conversion Stock in
excess of the total number of shares of Conversion Stock remaining, available
shares shall be allocated among subscribing Public Stockholders as of the Voting
Record Date on a pro rata basis in the same proportion as each such Public
Stockholder's subscription bears to the total subscriptions of all such
subscribing Public Stockholders, provided that no fractional shares shall be
issued.
(b) COMMUNITY OFFERING
------------------
(1) Any shares of Conversion Stock not subscribed for by Eligible
Account Holders, the Employee Stock Benefit Plans, Supplemental Eligible Account
Holders, Other Members, Directors, Officers and Employees and Public
Stockholders shall be sold in a Community Offering to natural persons who reside
in Missouri and to whomever else the Prospectus is delivered, giving first
preference to Preferred Other Purchasers, or, if feasible, in a Public Offering
or under such other terms and conditions as may be established by the Boards of
Directors of the Primary Parties and approved by the OTS. The Community
Offering may commence concurrently with or as soon as practicable after the
completion of the Subscription Offering and must be completed within 45 days
after completion of the Subscription Offering, unless extended with the approval
of the OTS. The Conversion Stock shall be offered at the Maximum Purchase Price
and sold in the Community Offering at the Actual Purchase Price, and in a manner
which will achieve the widest possible distribution of the Conversion Stock.
The shares of Conversion Stock may be made available in the Community Offering
through a direct community marketing program which may provide for utilization
of a broker, dealer, consultant, or investment banking firm, experienced and
expert in the sale of financial institution securities. Such entities may be
compensated on a fixed fee basis, on a commission basis, or a combination
thereof.
(2) The right to subscribe for shares of Conversion Stock under this
Category is subject to the right of the Primary Parties to accept or reject such
subscriptions in whole or in part.
(3) If orders are received in the Community Offering for shares in
excess of the available Conversion Stock, accepted subscriptions from Preferred
Other Purchasers shall first be filled in full up to a maximum of 2 percent of
the Conversion Stock and thereafter remaining shares shall be allocated on an
equal number of shares basis per order until all orders of Preferred Other
Purchasers have been filled (subject to the maximum purchase limitation set
forth in Section 4.3(b) of this Plan and the minimum purchase limitation set
forth in Section 4.3(h) of this Plan), before any subscriptions in the Community
Offering are filled from Subscribers who are not Preferred Other Purchasers. If
Preferred Other Purchasers order more shares of Conversion Stock than are
available for purchase in the Community Offering, available shares of Conversion
Stock shall be allocated first to Preferred Other Purchasers pro rata (to the
extent of their orders) in the same proportion as the amount of the Conversion
Stock ordered by each bears to the total amount of the Conversion Stock ordered
by all Preferred Other Purchasers. The Primary Parties may require a Person to
provide evidence, satisfactory to the Primary Parties, that such Person
qualifies as a Preferred Other Purchaser. Determinations as to whether a Person
qualifies as a Preferred Other Purchaser shall be made by the Primary Parties in
their sole discretion and shall be final and conclusive.
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<PAGE>
(4) To the extent that there are shares of Conversion Stock available
after satisfaction of the subscriptions of Preferred Other Purchasers, accepted
subscriptions from Subscribers in the Community Offering who are not Preferred
Other Purchasers shall first be filled in full up to a maximum of 2 percent of
the Conversion Stock and thereafter remaining shares shall be allocated on an
equal number of shares basis per order until all orders of Subscribers who are
not Preferred Other Purchasers have been filled (subject to the maximum purchase
limitation set forth in Section 4.3(b) of this Plan and the minimum purchase
limitation set forth in Section 4.3(h) of this Plan). If Subscribers who are
not Preferred Other Purchasers order more shares of Conversion Stock than are
available for purchase in the Community Offering, available shares of Conversion
Stock shall be allocated first to such Subscribers pro rata (to the extent of
their orders) in the same proportion as the amount of the Conversion Stock
ordered by each bears to the total amount of the Conversion Stock ordered by all
Subscribers in the Community Offering who are not Preferred Other Purchasers.
(5) Instead of a separate Subscription Offering, all Subscription
Rights issued in connection with the Conversion and Reorganization may be
exercised by delivery of properly completed and executed Order Forms to the
Mutual Holding Company, the Holding Company or selling agent utilized in
connection with the Community Offering. If a separate Subscription Offering is
not held, orders for Conversion Stock in the Community Offering shall first be
filled pursuant to the priorities and limitations stated in Section 4.2.
(6) In the event a Community Offering does not appear feasible, the
Primary Parties will immediately consult the OTS to determine the most viable
alternative available to effect the completion of the Conversion and
Reorganization. Should no viable alternative exist, the Primary Parties may
terminate the Conversion and Reorganization with the concurrence of the OTS.
SECTION 4.3 LIMITATIONS UPON PURCHASES
----------- --------------------------
The following additional limitations shall be imposed upon purchases of
shares of Conversion Stock.
(a) Purchases of Conversion Stock in the Subscription Offering, including
purchases in the Community Offering, by any person, and Associates thereof, or a
Group Acting in Concert, shall be limited to that number of shares of Conversion
Stock that when combined with Exchange Shares received aggregate $625,000,
except that the Employee Stock Benefit Plans may purchase an amount of
Conversion Stock that aggregates 7 percent of the shares of Holding Company
Stock. Shares to be held by the 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.
(b) Purchases of Conversion Stock in the Community Offering by any person,
including an Associate thereof, or a Group Acting in Concert shall be limited to
that number of shares of Conversion Stock that when combined with Exchange
Shares received aggregate $625,000.
19
<PAGE>
(c) Directors and Officers and Associates thereof may not purchase in the
aggregate that number of shares of Conversion Stock that when combined with
Exchange Shares aggregate more than 31 percent of the shares of Holding Company
Stock.
(d) The Boards of Directors of the Primary Parties will not be deemed to
be Associates or a Group Acting in Concert with other directors or trustees
solely as a result of membership on the Board of Directors.
(e) No person, Associate thereof, or Group Acting in Concert, may purchase
Conversion Stock in an amount that when combined with Exchange Shares received
exceeds an aggregate purchase price of $625,000, except that the Employee Stock
Benefit Plans may purchase an amount of Conversion Stock that aggregates 7
percent of the shares of Holding Company Stock. Shares held or to be held by the
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.
(f) The Boards of Directors of the Primary Parties, with the approval of
the OTS and without further approval of Members or Public Stockholders, may, as
a result of market conditions and other factors, increase or decrease the
purchase limitation in paragraphs (a), (b) and (e) above or the number of shares
of Conversion Stock to be sold in the Conversion and Reorganization; provided
that in no event may such purchase limitations be less than 1 percent or greater
than 5 percent of the total number of shares of Holding Company Stock to be
issued in the Conversion and Reorganization, which purchase limit shall include
Exchange Shares received. If the Primary Parties increase the maximum purchase
limitations or the number of shares of Conversion Stock to be sold in the
Conversion and Reorganization, the Holding Company is only required to resolicit
persons who subscribed for the maximum purchase amount and may, in the sole
discretion of the Holding Company resolicit certain other large subscribers. If
the Primary Parties decrease the maximum purchase limitations or the number of
shares of Conversion Stock to be sold in the Conversion and Reorganization, 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.
(g) The purchase limitation in paragraphs 5(a), (b) and (c) above may be
increased to exceed 5 percent of the shares of Holding Company Stock, provided
that orders for Holding Company Stock exceeding 5 percent shall not exceed in
the aggregate 10 percent of the shares of Holding Company Stock sold in the
Conversion and Reorganization, except that Employee Stock Benefit Plans may
purchase in the aggregate an amount of Conversion Stock that aggregates 7
percent of the shares of Holding Company Stock.
(h) Each Person purchasing Conversion Stock in the Conversion and
Reorganization shall be deemed to confirm that such purchase does not conflict
with the purchase limitations under this Plan or otherwise imposed by law, rule
or regulation. If the number of shares of Conversion Stock otherwise allocable
pursuant to Section 4.2 of this Plan to any Person or that Person's Associates
would be in excess of the maximum number of shares permitted as set forth above,
the number of shares of Conversion Stock allocated to each such Person shall be
reduced to the lowest purchase limitation applicable to that Person, and then
the number of shares allocated to
20
<PAGE>
each group consisting of a Person and that Person's Associates shall be reduced
so that the aggregate allocation to that Person and his or her Associates
complies with the above purchase limitations, and such maximum number of shares
shall be reallocated among that Person and his or her Associates as they may
agree, or in the absence of an agreement, in proportion to the shares subscribed
for by each (after first applying the purchase limitations applicable to each
Person, separately).
(i) To the extent that shares of Conversion Stock are available, no
Subscriber will be allowed to purchase less than 25 shares of Conversion Stock.
(j) The Primary Parties shall have the right to take all such actions as
they may, in their sole discretion, deem necessary, appropriate or advisable in
order to monitor and enforce the terms, condition, limitations and restrictions
contained in this Section 4.3 and elsewhere in this Plan and the terms,
conditions and representations contained in the Order Form, including, but not
limited to, the absolute right (subject only to any necessary regulatory
approvals or concurrences) to reject, limit or revoke acceptance of any
subscription or order and to delay, terminate or refuse to consummate any sale
of Conversion Stock which they believe might violate, or is designed to, or is
any part of a plan to, evade or circumvent such terms, conditions, limitations,
restrictions and representations. Any such action shall be final, conclusive
and binding on all persons, and the Primary Parties and their respective Boards
shall be free from any liability to any Person on account of any such action.
(k) Notwithstanding anything to the contrary contained in this Plan
(except as otherwise may be required by the OTS), the Public Stockholders will
not have to sell any Association Common Stock or to be limited in receiving
Exchange Shares even if their ownership of Association Common Stock when
converted into Exchange Shares pursuant to the Association Merger would exceed
an applicable purchase limitation.
(l) For purposes of this Plan, Exchange Shares shall be valued at the
Actual Purchase Price.
SECTION 4.4 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, to properly
complete, execute and return the Order Form to the Holding Company or the Mutual
Holding Company. 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.
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<PAGE>
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. In the event the Subscription Offering and Community
Offering are commenced prior to the date of the Special Meeting and the
Stockholders' Meeting, the offer and sale of Conversion Stock pursuant thereto
shall be conditioned upon approval of this Plan by the Members and the
Stockholders.
SECTION 4.5 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 Deposit Account in the Association such
subscriber may authorize the Association to charge the subscriber's Deposit
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 from the date payment is received until the Conversion and
Reorganization is completed or terminated. The Association 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 Association to charge his Deposit Account,
the funds shall remain in the subscriber's Deposit Account and shall continue to
earn interest, but may not be used by such subscriber until the Conversion and
Reorganization 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 Reorganization and
only to the extent necessary to satisfy the subscription at a price equal to the
Actual Purchase Price. The Association shall allow subscribers to purchase
shares of Conversion Stock by withdrawing funds from certificate accounts held
with the Association without the assessment of early withdrawal penalties. In
the case of early withdrawal of only a portion of such account, if the remaining
balance of the account is less than the applicable minimum balance requirement
then the remaining balance shall earn interest at the passbook rate. This
waiver of the early withdrawal penalty is applicable only to withdrawals made in
connection with the purchase of Conversion Stock under the Plan.
Employee Stock Benefit Plans may subscribe for shares by submitting an
Order Form, along with evidence of a loan commitment from a financial
institution or the Holding Company 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 and Reorganization.
SECTION 4.6 UNDELIVERED, DEFECTIVE OR LATE ORDER FORMS: INSUFFICIENT
----------- --------------------------------------------------------
PAYMENT
- -------
If an Order Form (a) is not delivered and is returned to the Holding
Company or the Mutual Holding Company by the United States Postal Service (or
the Holding Company or the Mutual Holding Company is unable to locate the
addressee); (b) is not received back by the Holding Company or the Mutual
Holding Company, or is received by the Holding Company or the Mutual Holding
Company after expiration of the date specified thereon; (c) is defectively
completed or executed; (d) is not accompanied by the total required payment for
the shares of Conversion Stock subscribed for (including cases in which the
Subscribers' Deposit Accounts are insufficient to cover the authorized
withdrawal for the required payment), or (e) is submitted by or on behalf of a
Person
22
<PAGE>
whose representations the Boards of Directors of the Primary Parties believe to
be false or they otherwise believe, either alone or Acting in Concert with
others, is violating, evading or circumventing, or intends to violate, evade or
circumvent, the terms and conditions of this Plan, the Subscription Rights of
the Person to whom such rights have been granted will not be honored and will be
treated as though such person failed to return the completed Order Form within
the period specified therein. Alternatively, the Holding Company or the Mutual
Holding Company 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 Mutual Holding Company may
specify. Subscription orders, once tendered, shall not be revocable. The
Holding Company's and the Mutual Holding Company's interpretation of the terms
and conditions of the Plan and of the Order Forms shall be final.
SECTION 4.7 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. No such
person, however, 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 all 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 any of the Primary Parties or the
Directors and Officers, under the securities laws of such state, to register as
a broker-dealer, salesman or selling agent or to register or otherwise qualify
the Conversion Stock or Exchange Shares or both, for sale in such state, or the
Holding Company or the Mutual Holding Company would be required to qualify as a
foreign corporation or file a consent to service of process in such state; and
(c) such registration, qualification or filing would be impractical or unduly
burdensome for reasons of cost or otherwise.
SECTION 4.8 RESTRICTIONS ON AND OTHER CHARACTERISTICS OF STOCK BEING SOLD
----------- -------------------------------------------------------------
(a) Transferability. Conversion Stock purchased by persons other than
----------------
Officers and Directors shall be transferable without restriction. Conversion
Stock purchased by Officers and Directors shall not be sold or otherwise
disposed of for value for a period of one year from the date of the Conversion
and Reorganization, except for any disposition following the death of the
original purchaser.
The Conversion Stock issued by the Holding Company to 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
Regulations of the Office of Thrift Supervision. These shares may not be
transferred prior thereto without an opinion of counsel that said transfer is
permissible under the provisions of applicable laws and regulations."
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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
Officers and Directors as may then be applicable to such restricted stock.
Without prior approval of the OTS, Officers and Directors, 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 one percent of the total outstanding
shares of Holding Company Stock and purchases made and shares held by an
Employee Stock Benefit Plan (whether or not the plan is tax-qualified) which may
be attributable to Officers or Directors may be made in negotiated transactions
without the OTS's permission or the use of a broker or dealer.
(b) Stock Repurchases and Dividend Rights. Pursuant to the OTS's
--------------------------------------
Conversion Regulations, the Holding Company (a) may not, for a period of one
year after the Conversion and Reorganization, repurchase its stock from any
person, and (b) may repurchase, as part of an open-market stock repurchase
program, in years two and three after the Conversion and Reorganization no more
than 5 percent of outstanding Holding Company Stock during a twelve month
period. Notwithstanding these restrictions, (a) the OTS may permit stock
repurchases in excess of such amounts where exceptional circumstances are
established, (b) the Holding Company may repurchase its shares on a pro rata
basis pursuant to an offer approved by the OTS and made to all stockholders of
the Holding Company, and (c) the Holding Company may repurchase qualifying
shares of a Director.
Present regulations also provide that after the Conversion and
Reorganization the Association may not declare or pay a cash dividend on or
repurchase any Association Common Stock if the result thereof would be to reduce
the capital of the Association below the amount required for the liquidation
account described below. Furthermore, any dividend declared or paid on, or
repurchase of, the Association's Common Stock must be in compliance with the
OTS's regulation governing capital distributions (12 C.F.R. (S) 563.134).
The above limitations shall not preclude payments of dividends or
repurchases of Holding Company Stock in the event applicable federal regulatory
limitations are liberalized subsequent to the Conversion and Reorganization.
(c) Voting Rights. After the Conversion and Reorganization, Members shall
--------------
not have voting rights in the Mutual Holding Company or the Holding Company.
Exclusive voting rights with respect to the Holding Company shall be vested in
the holders of the stock issued by the Holding Company, and the Holding Company
will have exclusive voting rights with respect to the Association's Common
Stock. Except as otherwise limited by the Holding Company's certificate of
incorporation or applicable law, each stockholder of the Holding Company shall
be entitled to vote on any matters coming before the stockholders of the Holding
Company for consideration, and holders of Holding Company Stock shall be
entitled to one vote for each share of stock owned by such stockholders.
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ARTICLE V
LIQUIDATION ACCOUNT
(a) At the time of the Mutual Holding Company Merger, the Association
shall establish a liquidation account in an amount equal to the amount of the
dividends with respect to the Association Common Stock waived by the Mutual
Holding Company plus the greater of (i) $8,067,000, which is equal to 100
percent of the retained earnings of the Association as of March 31, 1993, the
date of the latest statement of financial condition contained in the final
offering circular utilized in the Association's initial public offering in
connection with the Mutual Holding Company Reorganization or (ii) 53.2 percent
of the Association's total stockholders' equity as reflected in its latest
statement of financial condition contained in the final Prospectus utilized in
the Conversion and Reorganization. The function of the liquidation account will
be to preserve the rights of certain holders of Deposit Accounts in the
Association who maintain such accounts in the Association following the
Conversion and Reorganization to a priority to distributions in the unlikely
event of a liquidation of the Association subsequent to the Conversion and
Reorganization.
(b) The liquidation account shall be maintained for the benefit of
Eligible Account Holders and Supplemental Eligible Account Holders who maintain
their Deposit Accounts in the Association after the Conversion and
Reorganization. Each such account holder will, with respect to each Deposit
Account held, have a related inchoate interest in a portion of the liquidation
account balance, which interest will be referred to in this Article V as the
"subaccount balance." All Deposit Accounts having the same social security
number will be aggregated for purposes of determining the initial subaccount
balance with respect to such Deposit Accounts, except as provided in paragraph
(d) of this Article V.
(c) In the event of a complete liquidation of the Association subsequent
to the Conversion and Reorganization (and only in such event), each Eligible
Account Holder and Supplemental Eligible Account Holder shall be entitled to
receive a liquidation distribution from the liquidation account in the amount of
the then current subaccount balances for Deposit Accounts then held (adjusted as
described below) before any liquidation distribution may be made with respect to
the capital stock of the Association. No merger, consolidation, sale of bulk
assets or similar combination transaction with another FDIC-insured institution
in which the Association is not the surviving entity shall be considered a
complete liquidation for this purpose. In any merger or consolidation
transaction the liquidation account shall be assumed by the surviving entity.
(d) The initial subaccount balance for a Deposit Account held by an
Eligible Account Holder and Supplemental Eligible Account Holder shall be
determined by multiplying the opening balance in the liquidation account by a
fraction of which the numerator is the amount of the Qualifying Deposits of such
account holder and the denominator is the total amount of Qualifying Deposits of
all Eligible Account Holders and Supplemental Eligible Account Holders. For
Deposit Accounts in existence at both the Eligibility Record Date and the
Supplemental Eligibility Record Date separate initial subaccount balances shall
be determined on the basis of the Qualifying Deposits in such Deposit Accounts
on each such record date. Initial subaccount balances shall not be increased,
and shall be subject to downward adjustment as provided below.
25
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(e) If the aggregate deposit balance in the Deposit Account(s) of any
Eligible Account Holder or Supplemental Eligible Account Holder at the close of
business on any March 31 annual closing date, commencing March 31, 1998, is less
than the lesser of (a) the aggregate deposit balance in such Deposit Account(s)
at the close of business on any other annual closing date subsequent to such
record dates or (b) the aggregate deposit balance in which Deposit Account(s) as
of the Eligibility Record Date or the Supplemental Eligibility Record Date, the
subaccount balance for such Deposit Account(s) shall be adjusted by reducing
such subaccount balance in an amount proportionate to the reduction in such
deposit balance. In the event of such a downward adjustment, the subaccount
balance shall not be subsequently increased, notwithstanding any subsequent
increase in the deposit balance of the related Deposit Account(s). The
subaccount balance of an Eligible Account Holder or Supplemental Eligible
Account Holder will be reduced to zero if the Account Holder ceases to maintain
a Deposit Account at the Association that has the same social security number as
appeared on his Deposit Account(s) at the Eligibility Record Date or, if
applicable, the Supplemental Eligibility Record Date.
(f) Subsequent to the Conversion and Reorganization, the Association may
not pay cash dividends generally on deposit accounts and/or capital stock of the
Association, or repurchase any of the capital stock of the Association, if such
dividend or repurchase would reduce the Association's regulatory capital below
the aggregate amount of the then current subaccount balances for Deposit
Accounts then held; otherwise, the existence of the liquidation account shall
not operate to restrict the use or application of any of the net worth accounts
of the Association
(g) For purposes of this Article V, a Deposit Account includes a
predecessor or successor account which is held by an Account Holder with the
same social security number.
ARTICLE VI
DISSENTING STOCKHOLDERS
If any Public Stockholders dissent from the Conversion and Reorganization
and exercise and perfect the right to obtain valuation of and payment for their
shares of Association Common Stock ("Dissenting Shares") pursuant to 12 C.F.R.
(S)552.14, then (a) the Dissenting Shares, if any, will be deemed to have been
retired and canceled immediately prior to consummation of the Conversion and
Reorganization, with the effect that such shares will not be exchanged for
Holding Company Common Stock pursuant to Section 3(h)(ii) hereof, and (b) all
payments to be made to the holders of such Dissenting Shares will be made
directly by the Association. Consummation of the Conversion and Reorganization
is conditioned upon the number of Dissenting Shares being less than 10 percent
of the shares of Association Common Stock issued and outstanding immediately
prior to consummation of the Conversion and Reorganization.
ARTICLE VII
EFFECTIVE TIME OF CONVERSION AND REORGANIZATION
The effective date of the Conversion and Reorganization shall be the date
upon which the last of the following actions occurs: (i) the filing of Articles
of Combination with the OTS with respect to the Mutual Holding Company Merger,
(ii) the filing of Articles of Combination with the OTS with respect to the
Association Merger or (iii) the closing of the issuance of the shares of
Conversion
26
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Stock in the Offerings. The filing of Articles of Combination relating to the
Mutual Holding Company Merger and the Association Merger and the closing of the
issuance of shares of Conversion Stock in the Offerings shall not occur until
all requisite regulatory, Member and Public Stockholder approvals have been
obtained, all applicable waiting periods have expired and sufficient
subscriptions and orders for the Conversion Stock have been received. It is
intended that the closing of the Mutual Holding Company Merger, the Association
Merger and the sale of shares of Conversion Stock in the Offerings shall occur
consecutively and substantially simultaneously.
ARTICLE VIII
POST-CONVERSION MATTERS
SECTION 8.1 POST CONVERSION FILING AND MARKET MAKING
----------- ----------------------------------------
(a) In connection with the Conversion, the Holding Company shall register
its Conversion Stock and the Exchange Shares with the SEC pursuant to the
Securities Exchange Act of 1934, as amended, and shall undertake not to
deregister such shares for a period of three years thereafter.
(b) 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 National Association of Securities Dealers Automated Quotation
System or on a national or regional securities exchange.
SECTION 8.2 STATUS OF DEPOSIT ACCOUNTS AND LOANS SUBSEQUENT TO CONVERSION
----------- -------------------------------------------------------------
All Deposit Accounts in the Association shall retain the same status after
the Conversion and Reorganization as these accounts had prior to Conversion and
Reorganization. Each Deposit Account holder shall retain, without payment, a
withdrawable Deposit Account or accounts in the Association after the Conversion
and Reorganization, equal in amount to the withdrawable value of such holder's
Deposit Account or accounts prior to the Conversion and Reorganization. All
Deposit Accounts will continue to be insured by the SAIF of the FDIC up to the
applicable limits of insurance coverage. All loans shall retain the same status
after the Conversion and Reorganization as they had prior to the Conversion and
Reorganization.
SECTION 8.3 DIRECTORS AND OFFICERS OF THE PRIMARY PARTIES
----------- ---------------------------------------------
Each person serving as a Director of the Association and its subsidiaries
at the time of the Conversion and Reorganization shall continue to serve as a
member of the Association's Board of Directors, or the Board of Directors of its
subsidiaries, following the Conversion and Reorganization. The persons serving
as Officers of the Association and its subsidiaries immediately prior to the
Conversion and Reorganization will continue to serve at the discretion of the
Board of Directors in their respective capacities as Officers of the Association
or its subsidiaries following the Conversion and Reorganization. In connection
with the Conversion and Reorganization, the Association or the Holding Company,
or both, may enter into employment and/or severance agreements on such terms and
with such Officers as shall be determined by the Board of Directors of the
Association or the Holding Company or both, as the case may be.
27
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SECTION 8.4 EXECUTIVE COMPENSATION
----------- ----------------------
The Association 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.
ARTICLE IX
MISCELLANEOUS
SECTION 9.1 EXPENSES OF THE CONVERSION
----------- --------------------------
The Primary Parties shall use their best efforts to ensure that expenses
incurred in connection with the Conversion and Reorganization are reasonable.
SECTION 9.2 EMPLOYEE PLAN MATTERS
----------- ---------------------
(a) Subject to any required approval by the OTS, the Association and the
Holding Company may establish one or more MRPs or Stock Option Plans following
consummation of the Conversion and Reorganization in accordance with the
following requirements:
(1) The material terms and provisions of each such MRP and Stock
Option Plan to be established prior to the first anniversary of the Effective
Time of the Conversion and Reorganization shall be fully disclosed in the proxy
solicitation materials distributed to the Members in connection with the
Conversion and Reorganization and in the Prospectus;
(2) The total number of shares of Holding Company Stock for which
options may be granted under all Stock Option Plans established prior to the
first anniversary of the Effective Time of the Conversion and Reorganization may
not exceed 10 percent of the total number of shares of Conversion Stock sold in
the Conversion and Reorganization (which amount shall be in addition to options
authorized under similar plans established by the Association in the Mutual
Holding Company Reorganization);
(3) Except as the OTS otherwise permits or requires, the total number
of shares of Holding Company Stock held by all MRPs established by the Holding
Company prior to the first anniversary of the Effective Time of the Conversion
and Reorganization may not exceed 3 percent of the total number of shares of
Holding Company Stock sold in the Conversion and Reorganization (which amount
shall include amounts acquired under similar plans established by the
Association in the Mutual Holding Company Reorganization);
(4) Except as the OTS otherwise permits or requires, the total number
of shares of Holding Company Stock acquired by the Employee Stock Benefit Plans
and MRPs in the Conversion prior to the first anniversary of the Effective Time
of the Conversion and Reorganization may not exceed 10 percent of the total
number of shares of Holding Company Stock sold in the Conversion and
Reorganization (which amount shall include amounts acquired under similar plans
established by the Association in the Mutual Holding Company Reorganization);
28
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(5) Except as the OTS otherwise allows, no individual shall receive
more than 25 percent of the shares held by any MRP or Stock Option Plan and
Directors of the Holding Company or the Association who are not employees of the
Association shall not receive more than 5 percent individually, or more than 30
percent in the aggregate, of the shares of Holding Company Stock held by any MRP
or Stock Option Plan (which amounts shall be in addition to awards received by
these individuals under similar plans established in the Mutual Holding Company
Reorganization);
(6) All such MRPs and Stock Option Plans shall be approved by the
stockholders of the Holding Company prior to implementation and no earlier than
six months after the Effective Time of the Conversion and Reorganization;
(7) All options granted under any Stock Option Plan shall be granted
at the market price at which the Holding Company Stock is trading at the time of
the grant;
(8) No shares of Conversion Stock shall be used to fund any MRP; and
(9) To the extent required by the regulations and policies of the
OTS, all such MRPs and Stock Option Plans shall be submitted to the OTS for
approval prior to implementation.
(b) The Association may make scheduled discretionary contributions to any
Employee Plan to the extent such contributions do not cause the Association to
fail to meet its regulatory capital requirements.
SECTION 9.3 INTERPRETATION
----------- --------------
All interpretations of this Plan and application of its provisions to
particular circumstances by a majority of the Board of Directors of the Primary
Parties shall be final, subject to the authority of the OTS.
ARTICLE X
AMENDMENT OR TERMINATION OF PLAN
(a) If deemed necessary or desirable by the Boards of Directors of the
Primary Parties, this Plan may be substantively amended, as a result of comments
from regulatory authorities or otherwise, at any time prior to the solicitation
of proxies from Members and the Public Stockholders to vote on the Plan and at
any time thereafter with the concurrence of the OTS. Any amendment to this Plan
made after approval by the Members and the Public Stockholders with the
concurrence of the OTS shall not necessitate further approval by the Members or
the Public Stockholders, unless otherwise required by the OTS or applicable law.
(b) This Plan shall terminate if the sale of all shares of Conversion
Stock is not completed within 24 months from the date of the Special Meeting.
(c) Prior to the earlier of the Special Meeting and the Stockholders'
Meeting, this Plan may be terminated by the Boards of Directors of the Primary
Parties without approval of the OTS;
29
<PAGE>
after the Special Meeting or the Stockholders' Meeting, the Boards of Directors
may terminate this Plan only with the approval of the OTS.
(d) In the event that mandatory new regulations pertaining to conversions
are adopted by the OTS or any successor agency prior to the completion of the
Conversion and Reorganization, the Plan shall be amended to conform to the new
mandatory regulations without a resolicitation of proxies or another meeting of
Members or Public Stockholders unless otherwise required by the OTS or
applicable law. In the event that new conversion regulations adopted by the OTS
and/or any successor agency prior to completion of the Conversion and
Reorganization 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 or a resolicitation of
proxies or another meeting of Public Stockholders unless otherwise required by
the OTS or applicable law.
(e) By adoption of the Plan, the Members and the Public Stockholders
authorize the Board of Directors to amend and/or terminate the Plan under the
circumstances set forth above.
30
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ANNEX A
-------
PLAN OF MERGER
BETWEEN
FIRST MISSOURI FINANCIAL, M.H.C.
AND
EQUALITY SAVINGS AND LOAN ASSOCIATION, F.A.
Plan of Merger, dated as of ____________, 1997, between First Missouri
Financial, M.H.C. (the "Mutual Holding Company"), a federally-chartered mutual
holding company, and Equality Savings and Loan Association, F.A. (the
"Association" or the "Surviving Association"), a federally-chartered savings
association.
WITNESSETH:
WHEREAS, the Mutual Holding Company and the Association have adopted a Plan
of Conversion and Reorganization of First Missouri Financial, M.H.C. and
Equality Savings and Loan Association, F.A. (the "Plan"), pursuant to which (i)
the Mutual Holding Company will convert to a federally-chartered interim stock
savings association and simultaneously merge with and into the Association, (ii)
the Association and a newly-formed interim savings association will merge,
pursuant to which the Association will become a wholly-owned subsidiary of the
Holding Company (the "Association Merger"), and (iii) the Holding Company will
offer shares of its common stock in the manner set forth in the Plan; and
WHEREAS, the Mutual Holding Company, which owns 53.2% of the outstanding
common stock of the Association, par value $1.00 per share ("Association Common
Stock"), will convert to a federally-chartered interim stock savings association
pursuant to the Plan and merge with and into the Association pursuant to this
Plan of Merger (the "Mutual Holding Company Merger"), pursuant to which, among
other things, all interests of members in the Mutual Holding Company and all
shares of Association Common Stock held by the Mutual Holding Company will be
canceled; and
WHEREAS, the Mutual Holding Company and the Association (the "Constituent
Corporations") desire to provide for the terms and conditions of the Mutual
Holding Company Merger.
NOW, THEREFORE, the Mutual Holding Company and the Association hereby agree
as follows:
1. EFFECTIVE DATE. The Mutual Holding Company Merger shall become
effective on the date specified in the endorsement of the Articles of
Combination relating to the Mutual Holding Company Merger by the Secretary of
the Office of Thrift Supervision ("OTS") pursuant to 12 C.F.R. (S)552.13(k), or
any successor thereto (the "Effective Date").
A-1
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2. THE MUTUAL HOLDING COMPANY MERGER AND EFFECT THEREOF. Subject to the
terms and conditions set forth herein and the prior approval of the OTS of the
Conversion and Reorganization as defined in the Plan and the expiration of all
applicable waiting periods, the Mutual Holding Company shall convert from the
mutual form to a federal interim stock savings association and simultaneously
merge with and into the Association, which shall be the Surviving Association.
Upon consummation of the Mutual Holding Company Merger, the Surviving
Association shall be considered the same business and corporate entity as each
of the Constituent Corporations and thereupon and thereafter all the property
rights, powers and franchises of each of the Constituent Corporations shall vest
in the Surviving Association and the Surviving Association shall be subject to
and be deemed to have assumed all of the debts, liabilities, obligations and
duties of each of the Constituent Corporations and shall have succeeded to all
of each of their relationships, fiduciary or otherwise, as fully and to the same
extent as if such property, rights, privileges, powers, franchises, debts,
obligations, duties and relationships had been originally acquired, incurred or
entered into by the Surviving Association. In addition, any reference to either
of the Constituent Corporations in any contract, will or document, whether
executed or taking effect before or after the Effective Date, shall be
considered a reference to the Surviving Association if not inconsistent with the
other provisions of the contract, will or document; and any pending action or
other judicial proceeding to which either of the Constituent Corporations is a
party shall not be deemed to have abated or to have been discontinued by reason
of the Mutual Holding Company Merger, but may be prosecuted to final judgment,
order or decree in the same manner as if the Mutual Holding Company Merger had
not occurred or the Surviving Association may be substituted as a party to such
action or proceeding, and any judgment, order or decree may be rendered for or
against it that might have been rendered for or against either of the
Constituent Corporations if the Mutual Holding Company Merger had not occurred.
3. CANCELLATION OF ASSOCIATION COMMON STOCK HELD BY THE MUTUAL HOLDING
COMPANY AND MEMBER INTERESTS; LIQUIDATION ACCOUNT
(a) On the Effective Date, (i) each share of Association Common Stock
issued and outstanding immediately prior to the Effective Date and held by the
Mutual Holding Company shall, by virtue of the Mutual Holding Company Merger and
without any action on the part the holder thereof, be canceled, (ii) the
interests in the Mutual Holding Company of any person, firm or entity who or
which qualified as a member of the Mutual Holding Company in accordance with its
mutual charter and bylaws and the laws or the United States prior to the Mutual
Holding Company's conversion from mutual to stock form (the "Members") shall, by
virtue or the Mutual Holding Company Merger and without any action on the part
of the holder thereof, be canceled, and (iii) the Association shall establish a
liquidation account on behalf of each depositor member of the Mutual Holding
Company, as defined in the Plan, in accordance with Article V of the Plan.
(b) At or after the Effective Date and prior to the Association Merger
each certificate or certificates theretofore evidencing issued and outstanding
shares of Association Common Stock other than any such certificate or
certificates held by the Mutual Holding Company, which shall be canceled, shall
continue to represent issued and outstanding shares of Association Common Stock.
4. DISSENTING SHARES. The Association shall notify holders of
Association Common Stock of their right to dissent from the Mutual Holding
Company Merger and demand payment of
A-2
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the appraised value of their shares not less than twenty days prior to the
date of the meeting at which this Plan of Merger is to be submitted for
stockholder approval. Any stockholder of the Association who (i) prior to voting
on this Plan of Merger files a written statement identifying himself or herself
and stating his or her intention thereby to demand appraisal of and payment for
his or her shares pursuant to 12 C.F.R. (S) 552.14, and (ii) does not vote in
favor of the Plan of Merger at the Stockholders' Meeting (as defined in the
Plan) shall be entitled to receive from the Surviving Association within ten
days after the Effective Time a written notice of the Effective Time of the
Mutual Holding Company Merger and notification of the sixty day time period
during which the dissenting stockholder may file a petition with the OTS if the
stockholder and the Surviving Association do not agree as to the fair value of
his or her shares, and a written offer to pay for dissenting shares at a
specified price deemed by the Surviving Association to be the fair value
thereof. Such notice and offer shall be accompanied by a balance sheet and
statement of income of the Surviving Association for a fiscal year ending not
more than sixteen months before the date of notice and offer, together with the
latest available interim financial statements.
If within sixty days of the Effective Time the Surviving Association
and any stockholder who has complied with the provisions of 12 C.F.R. (S)
552.14(c)(2) agree as to the fair value of the dissenting stockholders' shares,
payment therefor shall be made within ninety days of the Effective Time. If
within sixty days of the Effective Time the Surviving Association and any
stockholder who has complied with the provisions of 12 C.F.R. (S) 552.14(c)(2)
do not agree as to the fair value of the dissenting stockholders' shares, then
any such stockholder may file a petition with the OTS (with a copy by registered
or certified mail to the Surviving Association) demanding a determination of the
fair market value of the stock of all such stockholders. A stockholder entitled
to file a petition under 12 C.F.R. (S) 552.14(c)(5) who fails to file such
petition within sixty days of the Effective Time shall be deemed to have
accepted the terms offered under the Mutual Holding Company Merger.
Within sixty days of the Effective Time of the Mutual Holding Company
Merger, each stockholder demanding appraisal and payment under 12 C.F.R. (S)
552.14 shall submit to the Surviving Association's transfer agent his or her
certificates of stock for notation thereon that an appraisal and payment have
been demanded with respect to such stock and that appraisal proceedings are
pending. Any stockholder who fails to submit his stock certificates for such
notation shall no longer be entitled to appraisal rights under 12 C.F.R. (S)
552.14 and shall be deemed to have accepted the terms offered pursuant to the
Mutual Holding Company Merger. At any time within sixty days after the
Effective Time, any stockholder shall have the right to withdraw his or her
demand for appraisal and to accept the terms offered upon this Plan of Merger.
The Director of the OTS shall, as he or she may elect, either appoint
one or more independent persons or direct appropriate staff of the OTS to
appraise the shares to determine their fair market value, as of the Effective
Time, exclusive of any element of value arising from the accomplishment or
expectation of the Mutual Holding Company Merger. Appropriate staff of the OTS
shall review and provide an opinion on appraisals prepared by independent
persons as to the suitability of the appraisal methodology and the adequacy of
the analysis and supportive data. The Director after consideration of the
appraisal report and the advice of the appropriate staff shall, if he or she
concurs in the valuation of the shares, direct payment by the Surviving
Association of the appraised fair market value of the shares, upon surrender of
the certificates representing such
A-3
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stock. Payment shall be made, together with interest from the Effective Time, at
a rate deemed equitable by the Director.
The costs and expenses of any proceeding under 12 C.F.R. (S) 552.14
may be apportioned and assessed by the Director as he or she may deem equitable
against all or some of the parties. In making this determination the Director
shall consider whether any party has acted arbitrarily, vexatiously, or not in
good faith in respect to the rights provided under 12 C.F.R. (S) 552.14.
Any stockholder who has demanded appraisal rights shall thereafter
neither be entitled to vote such stock for any purpose nor be entitled to the
payment of dividends or other distributions on the Exchange Shares (as defined
in the Plan) (except dividends or other distribution payable to, or a vote to be
taken by, stockholders of record at a date which is on or prior to, the
Effective Time); provided that, if any stockholder becomes unentitled to
appraisal and payment of appraised value with respect to such stock and accepts
or is deemed to have accepted the terms offered pursuant to the Mutual Holding
Company Merger, such stockholder shall thereupon be entitled to vote and receive
such distributions.
Should any stockholder become entitled to the payment of the appraised
value of his or her shares pursuant to the exercise of his or her appraisal
rights under 12 C.F.R. (S) 552.14, such shares shall be and become converted
into the right to receive cash from the Holding Company in the amount of the
appraised value of such shares.
5. AMENDMENT TO SURVIVING ASSOCIATION'S FEDERAL STOCK CHARTER.
By approving this Plan, the stockholders of the Association hereby approve
the form of amended federal stock charter (attached to this Plan as Exhibit A)
---------
as the charter for the Surviving Association, which reflects, among other
things, amendments to change the name of the Association to "Equality Savings
Bank" and references from "Association" to "Savings Bank," and to delete Section
8 of the Association's charter regarding certain provisions applicable for five
years.
6. DIRECTORS OF THE SURVIVING ASSOCIATION. Upon and after the Effective
Date, until changed in accordance with the Charter and Bylaws of the Surviving
Association and applicable law, the number of directors of the Surviving
Association shall be thirteen. The names of those persons who, upon and after
the Effective Date, shall be directors of the Surviving Association are set
forth below. Each such director shall serve for the term which expires at the
annual meeting of stockholders of the Surviving Association in the year set
forth after his or her respective name, and until a successor is elected and
qualified.
A-4
<PAGE>
<TABLE>
<CAPTION>
Name Residence Address Term Expires
---- ----------------- ------------
<S> <C> <C>
Richard C. Fellhauer 8827 Paragon Circle 1999
St.Louis, MO 63123
Charles J. Wolter 6104 Deerwood 1997
St.Louis, MO 63123
Michael A. Deelo 3702 Sunset Chase Dr. 1997
St.Louis, MO 63127
LeRoy C. Crook 6161 Marwinette 1998
St.Louis, MO 63116
Daniel C. Aubuchon 12135 Bridle Trail 1999
St.Louis, MO 63128
Stacey W. Braswell 17418 Bridle Trails West 1999
Glencoe, MO 63038
Berenice J. Mahacek 7361 Whitehaven Dr. 1997
St.Louis, MO 63123
Kenneth J. Hrdlicka 12018 Southwick 1998
St.Louis, MO 63128
Michael J. Walsh 7316 Shiloh Lane 1998
St.Louis, MO 63123
Associate Directors
-------------------
Seymour Bailis 178 Emerald Green Court 1997
Creve Coeur, MO 63141
James W. Caulfield 867 Portsdown Road 1997
Ballwin, MO 63011
Leonard O. Wolter 9617 Donald's Ct. 1997
St.Louis, MO 63126
John L. Tacke 9 Hickory Hills Dr. 1997
DeSoto, MO 63020
</TABLE>
7. OFFICERS OF THE SURVIVING ASSOCIATION. Upon and after the Effective
Date, until changed in accordance with the Charter and Bylaws of the Surviving
Association and applicable law, the officers of the Association immediately
prior to the Effective Date shall be the officers of the Surviving Association.
8. OFFICES. Upon the Effective Date, all offices of the Association
shall be offices of the Surviving Association. As of the Effective Date the
home office of the Surviving Association shall remain at 4131 South Grand
Boulevard, St. Louis, Missouri 63118, and the location of the other deposit-
taking offices of the Surviving Association shall be as set forth below, except
for the addition of deposit-taking offices authorized or the elimination of
deposit-taking offices closed subsequent to the date hereof and the Effective
Date:
1281 Laclede Station Road
Webster Grove, Missouri 63119
A-5
<PAGE>
5400 South Lindbergh
St. Louis, Missouri 63123
9. CHARTER AND BYLAWS. On and after the Effective Date, the Charter of
the Association as in effect immediately prior to the Effective Date shall be
the Charter of the Surviving Association, as amended in accordance with the
terms of Section 5 hereof.
On and after the Effective Date,the Bylaws of the Association as in
effect immediately prior to the Effective Date shall be the Bylaws of the
Surviving Association until amended in accordance with the terms thereof and
applicable law.
10. STOCKHOLDER AND MEMBER APPROVALS. This Plan of Merger must be
approved at the Stockholders' Meeting (as defined in the Plan) by (i) the
holders of at least two-thirds of the outstanding Association Common Stock and
(ii) at least a majority of the votes cast, in person or by proxy, by the Public
Stockholders (as defined in the Plan).
11. POST-MERGER AGREEMENTS. Each of the Constituent Corporations hereby
appoints the Surviving Association to be its true and lawful attorney for the
purpose of taking, in its name, place and stead, any and all actions that the
Surviving Association deems necessary or advisable to vest in the Surviving
Association title to all property or rights of each of the Constituent
Corporations or otherwise to effect the purposes of this Agreement, and each of
the Constituent Corporations hereby grants to said attorney full power and
authority to take all actions necessary to effect those purposes, including the
power to execute, in its name, place and stead, such further assignments or
assurances in law necessary or advisable to vest in the Surviving Association
title to all property and rights of each of the Constituent Corporations.
12. TERMINATION. Anything herein to the contrary notwithstanding, this
Agreement may be abandoned by either of the Constituent Corporations by
appropriate resolution of its board of directors at any time prior to the Mutual
Holding Company Merger becoming effective, whether before or after any
stockholder action.
13. AMENDMENT. This Plan of Merger may not be amended except by an
instrument in writing signed on behalf of each of the Constituent Corporations;
provided, however, that after this Plan of Merger has been approved by the
stockholders of the Constituent Corporations, no such amendment shall affect the
rights of such stockholders in a manner which is materially adverse to the
interests of such stockholders.
14. CAPTIONS. The captions in this Plan of Merger have been inserted for
convenience only and shall not be considered a part of or affect the
construction or interpretation of any provision of this Plan of Merger.
15. COUNTERPARTS. This Plan of Merger may be executed in any number of
counterparts, each of which when so executed shall constitute an original, but
all of which together shall constitute one and the same instrument.
16. SUCCESSORS. This Agreement shall be binding on the successors of the
Mutual Holding Company and the Association.
A-6
<PAGE>
17. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the United States of America.
A-7
<PAGE>
IN WITNESS WHEREOF, the Mutual Holding Company and the Association have
caused this Plan of Merger to be executed by their duly authorized officers as
of the day and year first above written.
FIRST MISSOURI FINANCIAL, M.H.C.
ATTEST:
____________________ By: _____________________________
Patricia R. Todd Richard C. Fellhauer
Corporate Secretary President and Chief Executive
Officer
EQUALITY SAVINGS AND LOAN
ASSOCIATION, F.A.
ATTEST:
____________________ By: _____________________________
Patricia R. Todd Richard C. Fellhauer
Corporate Secretary President and Chief Executive
Officer
A-8
<PAGE>
ANNEX B
-------
PLAN OF MERGER
BETWEEN
EQUALITY SAVINGS AND LOAN ASSOCIATION, F.A.
AND
INTERIM II SAVINGS AND LOAN ASSOCIATION, F.A.
Plan of Merger, dated as of ________________, 1997, among Equality
Savings and Loan Association, F.A. (the "Association" or the "Surviving
Association"), a federally-chartered savings association, Equality Bancorp,
Inc. (the "Holding Company,"), a Delaware corporation, and Interim II Savings
and Loan Association, F.A. ("Interim"), a federally-chartered interim savings
association.
WITNESSETH:
WHEREAS, the Association has organized the Holding Company as a first-tier,
wholly-owned subsidiary for the purpose of becoming the stock holding company of
the Association upon completion of the Conversion and Reorganization, as
defined in the Plan of Conversion and Reorganization of First Missouri
Financial, M.H.C. (the "Mutual Holding Company") and Equality Savings and Loan
Association, F.A. (the "Plan"); and
WHEREAS, the Mutual Holding Company, a federally-chartered mutual holding
company, which owns 53.2% of the common stock of the Association, par value
$1.00 per share ("Association Common Stock"), will convert to a federally-
chartered interim stock savings association and simultaneously merge with and
into the Association pursuant to the Plan and the Plan of Merger included as
Annex A thereto (the "Mutual Holding Company Merger"), pursuant to which all
- -------
shares of Association Common Stock held by the Mutual Holding Company will be
canceled; and
WHEREAS, the formation of a stock holding company by the Association will
be facilitated by causing the Holding Company to become the sole stockholder of
a newly-informed interim federally-chartered stock savings association and then
merging the interim savings association with and into the Association (the
"Association Merger"), pursuant to which the Association will become a wholly-
owned subsidiary of the Holding Company and, in connection therewith, all
outstanding shares of Association Common Stock held by the Public Stockholders
(as defined in the Plan) will be converted automatically into and become shares
of common stock of the Holding Company, par value $.01 per share ("Holding
Company Common Stock"); and
WHEREAS, Interim is being organized by the officers of the Association as
an interim federally-chartered stock savings association with the Holding
Company as its sole stockholder in order to effect the Association Merger; and
WHEREAS, the Association and Interim (the "Constituent Associations")
desire to provide for the terms and conditions of the Association Merger.
NOW, THEREFORE, the Association and Interim hereby agree as follows:
B-1
<PAGE>
1. EFFECTIVE DATE. The Association Merger shall become effective on the
date specified in the endorsement of the Articles of Combination relating to the
Association Merger by the Secretary of the Office of Thrift Supervision ("OTS")
pursuant to 12 C.F.R. (S) 552.13(k), or any successor thereto (the "Effective
Date").
2. THE ASSOCIATION MERGER AND EFFECT THEREOF. Subject to the terms and
conditions set forth herein and the prior approval of the OTS of the Conversion
and Reorganization, as defined in the Plan, and the expiration of all applicable
waiting periods, Interim shall merge with and into the Association which shall
be the Surviving Association. Upon consummation of the Association Merger, the
Surviving Association shall be considered the same business and corporate entity
as each of the Constituent Associations and thereupon and thereafter all the
property, rights, powers and franchises of each of the Constituent Associations
shall vest in the Surviving Association, and the Surviving Association shall be
subject to and be deemed to have assumed all of the debts, liabilities,
obligations and duties of each of the Constituent Associations and shall have
succeeded to all of each of their relationships, fiduciary or otherwise, as
fully and to the same extent as if such property, rights, privileges, powers,
franchises, debts, obligations, duties and relationships had been originally
acquired, incurred or entered into by the Surviving Association. In addition,
any reference to either of the Constituent Associations in any contract, will or
document, whether executed or taking effect before or after the Effective Date,
shall be considered a reference to the Surviving Association if not inconsistent
with the other provisions of the contract, will or document, and any pending
action or other judicial proceeding to which either of the Constituent
Associations is a party shall not be deemed to have abated or to have been
discontinued by reason of the Association Merger, but may be prosecuted to final
judgment, order or decree in the same manner as if the Association Merger had
not occurred or the Surviving Association may be substituted as a party to such
action or proceeding and any judgment order or decree may be rendered for or
against it that might have been rendered for or against either of the
Constituent Associations if the Association Merger had not occurred.
3. CONVERSION OF STOCK.
(a) On the Effective Date, (i) each share of Association Common Stock
issued and outstanding immediately prior to the Effective Date shall, by virtue
of the Association Merger and without any action on the part of the holder
thereof, be converted into the right to receive Holding Company Common Stock
based on the Exchange Ratio, as defined in the Plan, plus the right to receive
cash in lieu of any fractional share interest, as determined in accordance with
Section 3(c) hereof, (ii) each share of common stock, par value $1.00 per
share, of Interim ("Interim Common Stock") issued and outstanding immediately
prior to the Effective Date shall, by virtue of the Association Merger and
without any action on the part of the holder thereof, be converted into one
share of Association Common Stock, and (iii) each share of Holding Company
Common Stock issued and outstanding immediately prior to the Effective Date
shall, by virtue of the Association Merger and without any action on the part of
the holder thereof, be canceled. By voting in favor of this Plan of Merger,
the Holding Company as the sole stockholder of Interim, shall have agreed (i) to
issue shares of Holding Company Common Stock in accordance with the terms hereof
and (ii) to cancel all previously issued and outstanding shares of Holding
Company Common Stock upon the effectiveness of the Association Merger.
B-2
<PAGE>
(b) On and after the Effective Date, there shall be no registrations
of transfers on the stock transfer books of Interim or the Association of shares
of Interim Common Stock or Association Common Stock, which were outstanding
immediately prior to the Effective Dave.
(c) Notwithstanding any other provision hereof, no fractional shares
of Holding Company Common Stock shall be issued to holders of Association Common
Stock. In lieu thereof, each holder of shares of Association Common Stock
entitled to a fraction of a share of Holding Company Common Stock shall, at the
time of surrender of the certificate or certificates representing such holder's
shares, receive an amount of cash equal to the product arrived at by multiplying
such fraction of a share of Holding Company Common Stock by the Actual Purchase
Price, as defined in the Plan. No such holder shall be entitled to dividends,
voting rights or any other rights in respect of any fractional share.
4. EXCHANGE OF SHARES
(a) At or after the Effective Date, each holder of a certificate or
certificates theretofore evidencing issued and outstanding shares of Association
Common Stock, upon surrender of the same to an agent, duly appointed by the
Holding Company ("Exchange Agent"), shall be entitled to receive in exchange
therefor a certificate or certificates representing the number of full shares of
Holding Company Common Stock for which the shares of Association Common Stock
theretofore represented by the certificate or certificates so surrendered shall
have been converted as provided in Section 3 hereof. The Exchange Agent shall
mail to each holder of record of an outstanding certificate which immediately
prior to the Effective Date evidenced shares of Association Common Stock, and
which is to be exchanged for Holding Company Common Stock as provided in Section
3 hereof, a form of letter of transmittal (which shall specify that delivery
shall be effected, and risk of loss and title to such certificate shall pass,
only upon delivery of such certificate to the Exchange Agent) advising such
holder of the terms of the exchange effected by the Association Merger and of
the procedure for surrendering to the Exchange Agent such certificate in
exchange for a certificate or certificates evidencing Holding Company Common
Stock.
(b) No holder of a certificate theretofore representing shares of
Association Common Stock shall be entitled to receive any dividends in respect
of the Holding Company Common Stock into which such shares shall have been
converted by virtue of the Association Merger until the certificate representing
such shares of Association Common Stock is surrendered in exchange for
certificates representing shares of Holding Company Common Stock. In the event
that dividends are declared and paid by the Holding Company in respect of
Holding Company Common Stock after the Effective Date but prior to surrender of
certificates representing shares of Association Common Stock, dividends payable
in respect of shares of Holding Company Common Stock not then issued shall
accrue (without interest). Any such dividends shall be paid (without interest)
upon surrender of the certificates representing such shares of Association
Common Stock. The Holding Company shall be entitled, after the Effective Date,
to treat certificates representing shares of Association Common Stock as
evidencing ownership of the true number of full shares of Holding Company Common
Stock into which the shares of Association Common Stock represented by such
certificates shall have been converted, notwithstanding the failure on the part
of the holder thereof to surrender such certificates.
B-3
<PAGE>
(c) The Holding Company shall not be obligated to deliver a
certificate or certificates representing shares of Holding Company Common Stock
to which a holder of Association Common Stock would otherwise be entitled as a
result of the Association Merger until such holder surrenders the certificate or
certificates representing the shares of Association Common Stock for exchange as
provided in this Section 4, or, in default thereof, an appropriate affidavit of
loss and indemnity agreement and/or a bond as may be required in each case by
the Holding Company. If any certificate evidencing shares of Holding Company
Common Stock is to be issued in a name other than that in which the certificate
evidencing Association Common Stock surrendered in exchange therefor is
registered, it shall be a condition of the issuance thereof that the certificate
so surrendered shall be properly endorsed and otherwise in proper form for
transfer and that the person requesting such exchange pay to the Exchange Agent
any transfer or other tax required by reason of the issuance of a certificate
for shares of Holding Company Common Stock in any name other than that of the
registered holder of the certificate surrendered or otherwise establish to the
satisfaction of the Exchange Agent that such tax has been paid or is not
payable.
(d) If, between the date hereof and the Effective Date the shares of
Association Common Stock shall be changed into a different number or class of
shares by reason of any reclassification, recapitalization, split-up,
combination, exchange of shares or readjustment, or a stock dividend thereon
shall be declared with a record date within said period, the Exchange Ratio
specified in Section 3(a) hereof shall be adjusted accordingly.
5. DISSENTING SHARES. The Association shall notify holders of
Association Common Stock of their right to dissent from the Association Merger
and demand payment of the appraised value of their shares not less than twenty
days prior to the date of the meeting at which this Plan of Merger is to be
submitted for stockholder approval. Any stockholder of the Association who (i)
prior to voting on the Plan of Merger files a written statement identifying
himself or herself and stating his or her intention thereby to demand appraisal
of and payment for his or her shares pursuant to 12 C.F.R. (S) 552.14, and (ii)
does not vote in favor of the Plan of Merger at the Stockholders' Meeting (as
defined in the Plan) shall be entitled to receive from the Surviving Association
within ten days after the Effective Time a written notice of the Effective Time
of the Association Merger and notification of the sixty day time period during
which the dissenting stockholder may file a petition with the OTS if the
stockholder and the Surviving Association do not agree as to the fair value of
his or her shares, and a written offer to pay for dissenting shares at a
specified price deemed by the Surviving Association to be the fair value
thereof. Such notice and offer shall be accompanied by a balance sheet and
statement of income of the Surviving Association for a fiscal year ending not
more than sixteen months before the date of notice and offer, together with the
latest available interim financial statements.
If within sixty days of the Effective Time the Surviving Association
and any stockholder who has complied with the provisions of 12 C.F.R. (S)
552.14(c)(2) agree as to the fair value of the dissenting stockholders' shares,
payment therefor shall be made within ninety days of the Effective Time. If
within sixty days of the Effective Time the Surviving Association and any
stockholder who has complied with the provisions of 12 C.F.R. (S) 552.14(c)(2)
do not agree as to the fair value of the dissenting stockholders' shares, then
any such stockholder may file a petition with the OTS (with a copy by registered
or certified mail to the Surviving Association) demanding a determination of the
fair market value of the stock of all such stockholders. A stockholder entitled
B-4
<PAGE>
to file a petition under 12 C.F.R. (S) 552.14(c)(5) who fails to file such
petition within sixty days of the Effective Time shall be deemed to have
accepted the terms offered under the Association Merger.
Within sixty days of the Effective Time of the Association Merger,
each stockholder demanding appraisal and payment under 12 C.F.R. (S) 552.14
shall submit to the Surviving Association's transfer agent his or her
certificates of stock for notation thereon that an appraisal and payment have
been demanded with respect to such stock and that appraisal proceedings are
pending. Any stockholder who fails to submit his stock certificates for such
notation shall no longer be entitled to appraisal rights under 12 C.F.R. (S)
552.14 and shall be deemed to have accepted the terms offered pursuant to the
Association Merger. At any time within sixty days after the Effective Time, any
stockholder shall have the right to withdraw his or her demand for appraisal and
to accept the terms offered upon this Plan of Merger.
The Director of the OTS shall, as he or she may elect, either appoint
one or more independent persons or direct appropriate staff of the OTS to
appraise the shares to determine their fair market value, as of the Effective
Time, exclusive of any element of value arising from the accomplishment or
expectation of the Association Merger. Appropriate staff of the OTS shall
review and provide an opinion on appraisals prepared by independent persons as
to the suitability of the appraisal methodology and the adequacy of the analysis
and supportive data. The Director after consideration of the appraisal report
and the advice of the appropriate staff shall, if he or she concurs in the
valuation of the shares, direct payment by the Surviving Association of the
appraised fair market value of the shares, upon surrender of the certificates
representing such stock. Payment shall be made, together with interest from the
Effective Time, at a rate deemed equitable by the Director.
The costs and expenses of any proceeding under 12 C.F.R. (S) 552.14
may be apportioned and assessed by the Director as he or she may deem equitable
against all or some of the parties. In making this determination the Director
shall consider whether any party has acted arbitrarily, vexatiously, or not in
good faith in respect to the rights provided under 12 C.F.R. (S) 552.14.
Any stockholder who has demanded appraisal rights shall thereafter
neither be entitled to vote such stock for any purpose nor be entitled to the
payment of dividends or other distributions on the Exchange Shares (as defined
in the Plan) (except dividends or other distribution payable to, or a vote to be
taken by, stockholders of record at a date which is on or prior to, the
Effective Time); provided that, if any stockholder becomes unentitled to
appraisal and payment of appraised value with respect to such stock and accepts
or is deemed to have accepted the terms offered pursuant to the Association
Merger, such stockholder shall thereupon be entitled to vote and receive such
distributions.
Should any stockholder become entitled to the payment of the appraised
value of his or her shares pursuant to the exercise of his or her appraisal
rights under 12 C.F.R. (S) 552.14, such shares shall be and become converted
into the right to receive cash from the Holding Company in the amount of the
appraised value of such shares.
B-5
<PAGE>
6. AMENDMENT TO SURVIVING ASSOCIATION'S FEDERAL STOCK CHARTER. By
approving this Plan, the stockholders of the Association hereby approve the form
of amended federal stock charter (attached to this Plan as Exhibit A) as the
---------
charter for the Surviving Association, which reflects, among other things,
amendments to change the name of the Association to "Equality Savings Bank" and
references from "Association" to "Savings Bank," and to delete Section 8 of the
Association's charter regarding certain provisions applicable for five years.
7. DIRECTORS OF THE SAVINGS ASSOCIATION. Upon and after the Effective
Date, until changed in accordance with the Charter and Bylaws of the Surviving
Association and applicable law, the number of directors of the Surviving
Association Shall be thirteen. The names of those persons who, upon and after
the Effective Due, shall be directors of the Surviving Association are set forth
below. Each such director shall serve for the term which expires at the annual
meeting of stockholders of the Surviving Association in the year set forth after
his respective name, and until a successor is elected and qualified.
Name Residence Address Term Expires
---- ----------------- ------------
Richard C. Fellhauer 8827 Paragon Circle 1999
St. Louis, MO 63123
Charles J. Wolter 6104 Deerwood 1997
St. Louis, MO 63123
Michael A. Deelo 3702 Sunset Chase Dr. 1997
St. Louis, MO 63127
LeRoy C. Crook 6161 Marwinette 1998
St. Louis, MO 63116
Daniel C. Aubuchon 12135 Bridle Trail 1999
St. Louis, MO 63128
Stacey W. Braswell 17418 Bridle Trails West 1999
Glencoe, MO 63038
Berenice J. Mahacek 7361 Whitehaven Dr. 1997
St. Louis, MO 63123
Kenneth J. Hrdlicka 12018 Southwick 1998
St. Louis, MO 63128
Michael J. Walsh 73216 Shiloh Lane 1998
St. Louis, MO 63123
Associate Directors
-------------------
Seymour Bailis 178 Emerald Green Court 1997
Creve Coeur, MO 63141
James W. Caulfield 867 Portsdown Road 1997
Ballwin, MO 63011
Leonard O. Wolter 9617 Donald's Ct. 1997
St. Louis, MO 63126
John L. Tacke 9 Hickory Hills Dr. 1997
DeSoto, MO 63020
B-6
<PAGE>
RP Financial,LC.
Page 3.13
8. OFFICERS OF THE SURVIVING ASSOCIATION. Upon the Effective Date, all
offices of the Association shall be offices of the Surviving Association. As of
the Effective Date, the home office of the surviving Corporation shall remain at
4131 South Grand Boulevard, St. Louis, Missouri 63118, and the location of the
other deposit-taking offices of the Surviving Association shall be as set forth
below, except for the addition of deposit-taking offices authorized or the
elimination of deposit-taking offices closed subsequent to the date hereof and
the Effective Date:
1281 Laclede Station Road
Webster Grove, Missouri 63119
5400 South Lindbergh
St. Louis, Missouri 63123
9. CHARTER AND BYLAWS. On and after the Effective Date, the Charter of
the Association as in effect immediately prior to the Effective Date shall be
the Charter of the Surviving Association as amended in accordance with the terms
of Section 5 hereof.
On and after the Effective Date, the Bylaws of the Association as in effect
immediately prior to the Effective Date shall be the Bylaws of the Surviving
Association until amended in accordance with the terms thereof and applicable
law.
10. SAVINGS ACCOUNTS. Upon the Effective Date, any savings accounts of
Interim, without reissue shall be and become savings accounts of the Surviving
Association without change in their respective terms, including, without
limitation, maturity, minimum required balances or withdrawal value.
11. STOCK COMPENSATION PLANS. By voting in favor of this Plan of Merger,
the Holding Company shall have approved assumption of all obligations and
liabilities unless the Association's existing 1993 Stock Option and Incentive
Plan (the "Stock Option Plan") and shall have agreed to issue Holding Company
Common Stock in lieu of Association Common Stock pursuant to the terms of the
Stock Option Plan. As of the Effective Date, options outstanding under the
Stock Option Plan shall be assumed by the Holding Company and thereafter shall
be options only for shares of Holding Company Common Stock, with each such
option being for a number of shares of Holding Company Common Stock equal to the
number of shares of Association Common Stock that were available thereunder
immediately prior to the Effective Date times the Exchange Ratio, as defined in
the Plan, and the price of each such option shall be adjusted to reflect the
Exchange Ratio and so that the aggregate purchase price of the option is
unaffected, but with no change in any other term or condition of such option.
The Holding Company shall make appropriate amendments to the Stock Options to
reflect the assumption of the Stock Option Plan by the Holding Company without
adverse effect upon the options outstanding thereunder.
12. STOCKHOLDER APPROVAL. This Plan of Merger must be approved at the
Stockholders' Meeting (as defined in the Plan) by (i) the holders of at least
two-thirds of the outstanding Association Common Stock and (ii) at least a
majority of the votes cast, in person or by proxy, by the Public Stockholders
(as defined in the Plan). This Plan of Merger also must be approved by the
Holding Company, as the sole stockholder of Interim, by written consent.
B-7
<PAGE>
13. REGISTRATION; OTHER APPROVAL. In addition to the approvals set forth
in Sections 1 and 14 hereof and the Plan, the parties' obligations to consummate
the Association Merger shall be subject to the Holding Company Common Stock to
be issued hereunder in exchange for Association Common Stock being registered
under the Securities Act of 1993, as amended, and registered or qualified under
applicable state securities laws, as well as the receipt of all other approvals,
consents or waivers as the parties may deem necessary or advisable.
14. POST-MERGER AGREEMENTS. Each of the Constituent Associations hereby
appoints the Surviving Association to be its true and lawful attorney for the
purpose of taking, in its name, place and stead, any and all actions that the
Surviving Association deems necessary or advisable to vest in the Surviving
Association title to all property or rights of each of the Constituent
Associations or otherwise to effect the purposes of this Agreement, and each of
the Constituent Associations hereby grants to said attorney full power and
authority to take all actions necessary to effect those purposes, including the
power to execute, in its name, place and stead, such further assignments or
assurances in law necessary or advisable to vest in the Surviving Association
title to all property and rights of each of the Constituent Associations.
15. TERMINATION. Anything herein to the contrary notwithstanding, this
Agreement may be abandoned by either of the Constituent Associations by
appropriate resolution of its board of directors at any time prior to the
Association Merger becoming effective, whether before or after any stockholder
action.
16. AMENDMENT. This Plan of Merger may not be amended except by an
instrument in writing signed on behalf of each of the Constituent Associations;
provided, however, that after this Plan of Merger has been approved by the
stockholders of the Constituent Associations, no such amendment shall affect the
rights of such stockholders in a manner which is materially adverse to the
interests of such stockholders.
17. CAPTIONS. The captions in this Plan of Merger have been inserted for
convenience only and shall not be considered a part of or affect the
construction or interpretation of any provision of this Plan of Merger.
18. COUNTERPARTS. This Plan of Merger may be executed in any number of
counterparts, each of which when so executed shall constitute an original, but
all of which together shall constitute one and the same instrument.
19. SUCCESSORS. This Agreement shall be binding on the successors of the
Association and Interim.
20. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the United States of America.
B-8
<PAGE>
IN WITNESS WHEREOF, the Association and Interim have caused this Plan of
Merger to be executed by their duly authorized officers as of the day and year
first above written.
EQUALITY SAVINGS AND LOAN
ASSOCIATION, F.A.
ATTEST:
_____________________________ By: _____________________________________
Patricia R. Todd Richard C. Fellhauer
Corporate Secretary President and Chief Executive Officer
INTERIM II SAVINGS ASSOCIATION, F.A.
(In Organization)
ATTEST:
_____________________________ By: _____________________________________
Patricia R. Todd Richard C. Fellhauer
Corporate Secretary President and Chief Executive Officer
B-9
<PAGE>
EQUALITY SAVINGS BANK EXHIBIT A
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FEDERAL STOCK CHARTER
SECTION 1. CORPORATE TITLE. The full corporate title of the savings bank
is Equality Savings Bank ("Savings Bank").
SECTION 2. OFFICE. The home office shall be located in the City of St.
Louis, the County of St. Louis, and the State of Missouri.
SECTION 3. DURATION. The duration of the Savings Bank is perpetual.
SECTION 4. PURPOSE AND POWERS. The purpose of the Savings Bank is to
pursue any or all of the lawful objectives of a Federal savings bank chartered
under section 5 of the Home Owners' Loan Act and to exercise all of the express,
implied, and incidental powers conferred thereby and by all acts amendatory
thereof and supplemental thereto, subject to the Constitution and laws of the
United States as they are now in effect, or as they may hereafter be amended,
and subject to all lawful and applicable rules, regulations, and orders of the
Office of Thrift Supervision ("Office").
SECTION 5. CAPITAL STOCK. The total number of shares of all classes of
the capital stock that the Savings Bank has the authority to issue is 5,000,000,
of which 4,000,000 shall be common stock of par value of $1.00 per share and of
which 1,000,000 shall be serial preferred stock of par value of $1.00 per share.
The shares may be issued from time to time as authorized by the board of
directors without further approval of shareholders, except as otherwise provided
in this Section 5 or to the extent that such approval is required by governing
law, rule, or regulation. The consideration for the issuance of the shares
shall be paid in full before their issuance and shall not be less than the par
value. Neither promissory notes nor future services shall constitute payment or
part payment for the issuance of shares of the Savings Bank. The consideration
for the shares shall be cash, tangible or intangible property (to the extent
direct investment in such property would be permitted), labor, or services
actually performed for the Savings Bank, or any combination of the foregoing.
In the absence of actual fraud in the transaction, the value of such property,
labor, or services, as determined by the board of directors of the Savings Bank,
shall be conclusive. In the case of a stock dividend, that part of the retained
earnings of the Savings Bank that is transferred to common stock or paid-in
capital accounts upon the issuance of shares as a stock dividend shall be deemed
to be the consideration for their issuance.
Except for shares issuable in the initial organization of the Savings Bank
or in connection with the conversion of the Savings Bank from the mutual to
stock form of capitalization, no shares of capital stock (including shares
issuable upon conversion, exchange, or exercise of other securities) shall be
issued, directly or indirectly, to officers, directors, or controlling persons
of the Savings Bank other than as part of a general public offering or as
qualifying shares to a director, unless the issuance or the plan under which
they would be issued has been approved by a majority of the total votes eligible
to be cast at a legal meeting.
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Nothing contained in this section 5 (or in any supplementary sections
hereto) shall entitle the holders of any class of a series of capital stock to
vote as a separate class or series or to more than one vote per share, except as
to the cumulation of votes for the election of directors unless the charter
otherwise provides that there shall be no such cumulative voting: Provided, That
this restriction on voting separately by class or series shall not apply:
(i) To any provision that would authorize the holders of preferred stock,
voting as a class or series, to elect some members of the board of directors,
less than a majority thereof, in the event of default in the payment of
dividends on any class or series of preferred stock;
(ii) To any provision which would require the holders of preferred stock,
voting as a class or series, to approve the merger or consolidation of the
Savings Bank with another corporation or the sale, lease, or conveyance (other
than by mortgage or pledge) of properties or business in exchange for securities
of a corporation other than the Savings Bank if the preferred stock is exchanged
for securities of such other corporation: Provided, That no provision may
require such approval for transactions undertaken with the assistance or
pursuant to the direction of the Office or the Federal Deposit Insurance
Corporation;
(iii) To any amendment which would adversely change the specific terms of
any class or series of capital stock as set forth in this Section 5 (or in any
supplementary sections hereto), including any amendment which would create or
enlarge any class or series ranking prior thereto in rights and preferences. An
amendment which increases the number of authorized shares of any class or series
of capital stock, or substitutes the surviving association in a merger or
consolidation for the Savings Bank, shall not be considered to be such an
adverse change.
A description of the different classes and series (if any) of the Savings
Bank's capital stock and a statement of the designations, and the relative
rights, preferences, and limitations of the shares of each class of and series
(if any) of capital stock are as follows:
A. COMMON STOCK. Except as provided in this Section 5 (or in any
supplementary sections thereto) the holders of common stock shall exclusively
possess all voting power. Each holder of shares of common stock shall be
entitled to one vote for each share held by such holder, except as to the
cumulation of votes for the election of directors, unless the charter otherwise
provides that there shall be no such cumulative voting.
Whenever there shall have been paid, or declared and set aside for payment,
to the holders of the outstanding shares of any class of stock having preference
over the common stock as to the payment of dividends, the full amount of
dividends and of sinking fund, retirement fund, or other retirement payments, if
any, to which such holders are respectively entitled in preference to the common
stock, then dividends may be paid on the common stock and on any class or series
of stock entitled to participate therewith as to dividends out of any assets
legally available for the payment of dividends.
In the event of any liquidation, dissolution, or winding up of the Savings
Bank, the holders of the common stock (and the holders of any class or series of
stock entitled to participate with the common stock in the distribution of
assets) shall be entitled to receive, in cash or in kind, the assets
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of the Savings Bank available for distribution remaining after: (i) Payment or
provision for payment of the Savings Bank's debts and liabilities; (ii)
distributions or provision for distributions in settlement of its liquidation
account; and (iii) distributions or provisions for distributions to holders of
any class or series of stock having preference over the common stock in the
liquidation, dissolution, or winding up of the Savings Bank. Each share of
common stock shall have the same relative rights as and be identical in all
respects with all the other shares of common stock.
B. PREFERRED STOCK. The Savings Bank may provide in supplementary
sections to its charter for one or more classes of preferred stock, which shall
be separately identified. The shares of any class may be divided into and
issued in series, with each series separately designated so as to distinguish
the shares thereof from the shares of all other series and classes. The terms
of each series shall be set forth in a supplementary section to the charter.
All shares of the same class shall be identical except as to the following
relative rights and preferences, as to which there may be variations between
different series:
(a) The distinctive serial designation and the number of shares
constituting such series;
(b) The dividend rate or the amount of dividends to be paid on the
shares of such series, whether dividends shall be cumulative and, if so, from
which date(s) the payment date(s) for dividends, and the participating or other
special rights, if any, with respect to dividends;
(c) The voting powers, full or limited, if any, of shares of such
series;
(d) Whether the shares of such series shall be redeemable and, if so,
the price(s) at which, and the terms and conditions on which such shares may be
redeemed;
(e) The amount(s) payable upon the shares of such series in the event
of voluntary or involuntary liquidation, dissolution, or winding up of the
Savings Bank;
(f) Whether the shares of such series shall be entitled to the
benefit of a sinking or retirement fund to be applied to the purchase or
redemption of such shares, and if so entitled, the amount of such fund and the
manner of its application, including the price(s) at which such shares may be
redeemed or purchased through the application of such fund;
(g) Whether the shares of such series shall be convertible into, or
exchangeable for, shares of any other class or classes of stock of the
association and, if so, the conversion price(s) or the rate(s) of exchange, and
the adjustments thereof, if any, at which such conversion or exchange may be
made, and any other terms and conditions of such conversion or exchange;
(h) The price or other consideration for which the shares of such
series shall be issued; and
(i) Whether the shares of such series which are redeemed or converted
shall have the status of authorized but unissued shares of serial preferred
stock and whether such shares may be reissued as shares of the same or any other
series of serial preferred stock.
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Each share of each series of serial preferred stock shall have the same
relative rights as and be identical in all respects with all the other shares of
the same series.
The board of directors shall have authority to divide, by the adoption of
supplementary charter sections, any authorized class of preferred stock into
series, and, within the limitations set forth in this section and the remainder
of this charter, fix and determine the relative rights and preferences of the
shares of any series so established.
Prior to the issuance of any preferred shares of a series established by a
supplementary charter section adopted by the board of directors, the Savings
Bank shall file with the Secretary to the Office a dated copy of that
supplementary section of this charter establishing and designating the series
and fixing and determining the relative rights and preferences thereof.
SECTION 6. PREEMPTIVE RIGHTS. Holders of the capital stock of the Savings
Bank shall not be entitled to preemptive rights with respect to any shares of
the Savings Bank which may be issued.
SECTION 7. LIQUIDATION ACCOUNT. Pursuant to the requirements of the
Office's regulations (12 CFR Part 563b), the Savings Bank shall establish and
maintain a liquidation account for the benefit of its savings account holders as
of March 31, 1996 and ____________, 1997 ("eligible savers"). In the event of a
complete liquidation of the Savings Bank, it shall comply with such regulations
with respect to the amount and the priorities on liquidation of each of the
association's eligible savers' inchoate interest in the liquidation account, to
the extent it is still in existence: Provided, That an eligible saver's
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inchoate interest in the liquidation account shall not entitle such eligible
saver to any voting rights at meetings of the Savings Bank's stockholders.
SECTION 8. DIRECTORS. The Savings Bank shall be under the direction of a
board of directors. The authorized number of directors, as stated in the
Savings Bank's bylaws, shall not be fewer than five nor more than fifteen except
when a greater or lesser number is approved by the Director of the Office, or
his or her delegate.
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SECTION 9. AMENDMENT OF CHARTER. Except as provided in Section 5, no
amendment, addition, alteration, change or repeal of this charter shall be made,
unless such is first proposed by the board of directors of the Savings Bank,
approved by the shareholders by a majority of the total votes eligible to be
cast at a legal meeting, unless a higher vote is otherwise required, and
approved or preapproved by the Office.
Attest:_________________________________________________________________
Secretary of the Savings Bank
By: _________________________________________________________________
President or Chief Executive Officer of the Savings Bank
Attest:_________________________________________________________________
Secretary of the Office of Thrift Supervision
By: _________________________________________________________________
Director of the Office of Thrift Supervision
Effective Date: _______________________________
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Atlas Corporate & Notary Supply Co., P.O. Box 1638, Skokie, Illinois 60076
Number Eagle Picture Shares
ORGANIZED UNDER THE LAWS OF THE STATE OF
DELAWARE
EQUALITY BANCORP, INC.
Authorized 4,000,000 Shares of S0.01 Par Value Each
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THIS CERTIFIES THAT___________________________________________ is the owner of
____________________________ Shares of the Capital Stock of the above named
Corporation, fully paid, non-assessable and transferable only on the books of
the Corporation by the holder hereof in person or by duly authorized Attorney
upon surrender of this Certificate properly endorsed.
In Witness Whereof, the said Corporation has caused this Certificate to be
signed by its duly authorized officers and its Corporate Seal to be hereunto
affixed this _____________ day of ________________ 19 _______________
____________________________ ____________________________
SECRETARY PRESIDENT
The Capital Stock of the above named Corporation is not a deposit or account and
is not federally insured by the Federal Deposit Insurance Corporation or any
agency of the United States government.
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Exhibit 8.1
________________, 1997
PRIVATE
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Boards of Directors
First Missouri Financial, M.H.C.
Equality Savings & Loan Association, F.A.
Equality Bancorp, Inc.
4131 South Grand Boulevard
St. Louis, Missouri 63118
Re: Federal and State of Missouri Income Tax Consequences of a
proposed merger of First Missouri Financial, M.H.C. into Equality
Savings & Loan Association, F.A. in a statutory merger to be
effected under the Internal Revenue Code of 1986, as amended
(hereafter the "IRC" or the "Code") (S)368(a)(1)(A), followed by
a merger of Equality Interim II Savings & Loan Association, F.A.
with and into Equality Savings & Loan Association, F.A. to be
effected under IRC(S)368(a)(1)(A) and IRC (S)368(a)(2)(E).
Dear Sirs:
You have requested an opinion on the potential Federal income tax consequences
and State of Missouri income tax and financial institution franchise tax
consequences of the proposed merger of First Missouri Financial, M.H.C. (the
"MHC"), with and into Equality Savings & Loan Association, F.A. (the
"Association") in a statutory merger to be effected under IRC (S)368(a)(1)(A),
followed by a merger of Equality Interim II Savings & Loan Association, F.A.
("Interim II") with and into the Association to be effected under IRC
(S)368(a)(1)(A) and IRC (S)368(a)(2)(E). In conjunction with the merger of
Interim II into the Association, the Association's shareholders will exchange
their common stock in the Association solely for voting stock of Equality
Bancorp, Inc., a Delaware-chartered stock holding company (the "Company").
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Boards of Directors
First Missouri Financial, M.H.C.
Equality Savings & Loan Association, F.A.
Equality Bancorp, Inc.
Page 2
July 31, 1997
Based upon our understanding of the Facts and the description of the Proposed
Transaction (as detailed in Section I and Section II) and your Representations
(as detailed in Section III), we have rendered our Opinion (as detailed in
Section IV) and Analysis (as detailed in Section V) regarding the potential
Federal income tax effect and State of Missouri income tax effect and financial
institutions franchise tax effect of the proposed transactions ("Transactions")
enumerated above (and as detailed in Section II).
Our opinion is restricted solely to the Federal income tax consequences and
State of Missouri income tax and financial institution franchise tax
consequences of the Transactions discussed herein. We express no opinion
regarding matters not expressly addressed herein and no inference should be made
regarding any matter or matters not expressly addressed.
We consent to the inclusion of this opinion as an Exhibit to the Form S-1
Registration Statement of Company to be filed with the Securities and Exchange
Commission under the Securities Act of 1933, as amended (the "Registration
Statement") and any reference to this opinion in such Registration Statement.
In rendering our opinion we are relying upon the relevant provisions of the
Internal Revenue Code of 1986, as amended, the regulations thereunder, and
judicial and administrative interpretations thereof, all as of the date of this
letter, all of which are subject to change or modification by subsequent
legislative, regulatory, judicial, or administrative decisions. Such changes
could be retroactive in effect and, therefore, could affect our opinions. KPMG
undertakes no responsibility to update this opinion in the event of any such
change or modification subsequent to the issuance of this letter.
Our conclusions reflect our professional judgment based upon the facts and
representations delineated herein as well as existing tax authorities that are
subject to change. Any changes in the facts, representations, or in existing
tax authority could, of course, affect our conclusions. Further, our opinion
represents merely our view of the Transactions. No assurance can be given that
either the U.S. Department of the Treasury, the Internal Revenue Service (the
"Service"), or the Missouri Department of Revenue (the "DOR") or any court
will agree with our opinion.
SECTION I
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STATEMENT OF FACTS
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The MHC is a federally-chartered mutual holding company with its sole office
located in St. Louis, Missouri. The MHC is a "corporation" under
(S)143.441.1(1)RSMo; as such, it is subject to an income tax on its Missouri
taxable income. (S)143.431, RSMo.
The Association is a federally-chartered stock savings association headquartered
in St. Louis, Missouri. The Association's deposits are insured by the Federal
Deposit
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Boards of Directors
First Missouri Financial, M.H.C.
Equality Savings & Loan Association, F.A.
Equality Bancorp, Inc.
Page 3
July 31, 1997
Insurance Corporation and the Association is regulated by the Office of Thrift
Supervision ("OTS"). The Association is an "association" under (S)148.610.3,
RSMo; as such, it is subject to an annual franchise tax for the privilege of
exercising its corporate franchise in Missouri. (S)148.620.3, RSMo. Such
franchise tax is in lieu of all other state and local taxes against and upon
associations, their capital, or income, except taxes on all property,
contributions paid pursuant to the unemployment compensation law of Missouri,
social security taxes, sales and use taxes. Id.
The Association is the successor to Equality Savings & Loan Association, a
Missouri-chartered mutual savings and loan association (the "Mutual
Association"). On October 22, 1993, the Mutual Association reorganized into the
mutual holding company form of organization (the "MHC Reorganization"). The
Mutual Association organized a Missouri-chartered stock savings and loan
association (the "State Stock Association") as a wholly-owned subsidiary. The
Mutual Association then transferred substantially all of its assets and
liabilities to the State Stock Association in exchange for 456,400 shares of
State Stock Association common stock, and reorganized itself into a federally-
chartered mutual holding company known as First Missouri Financial, M.H.C. The
State Stock Association simultaneously sold 380,000 shares of State Stock
Association common stock to certain eligible depositors and other members of
Mutual Association and the general public. On June 13, 1995, the State Stock
Association converted to a federally-chartered stock savings and loan
association (the "State-to-Federal Conversion") and simultaneously changed its
name to "Equality Savings & Loan Association, F.A. (the "Federal Stock
Association"). In connection with the State-to-Federal Conversion, all of the
issued and outstanding shares of common stock of State Stock Association
converted into shares of common stock of Federal Stock Association. As of the
date of adoption of the Plan of Conversion (as described in Section II below),
836,400 shares of Federal Stock Association common stock were issued and
outstanding, and the MHC and public stockholders own an aggregate of 53.2% and
46.8% of the outstanding Federal Stock Association common stock, respectively.
The MHC has no material assets other than its stock investment in the
Association
At the time of the MHC Reorganization, the Association requested a ruling from
the Service with respect to the tax consequences of the MHC Reorganization,
which was effectuated as a tax-free exchange under IRC (S) 351. On May 11,
1994, the Association obtained a favorable ruling from the Service.
SECTION II
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Boards of Directors
First Missouri Financial, M.H.C.
Equality Savings & Loan Association, F.A.
Equality Bancorp, Inc.
Page 4
July 31, 1997
PROPOSED TRANSACTION
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On May 16, 1997, the Board of Directors of the MHC and the Association adopted a
Plan of Conversion and Reorganization, which was subsequently amended on June
20, 1997 (as amended, the "Plan of Conversion"), pursuant to which the MHC will
convert from a Missouri-chartered mutual holding company to a Delaware-chartered
stock holding company (i.e., the Company), and the Association will be
reorganized (the "Conversion and Reorganization"). Pursuant to the Plan of
Conversion, execution will be effected as follows:
1. The Association will organize the Company (which will subsequently become
the stock holding company of the Association) as a first tier, wholly-
owned subsidiary of the Association and will transfer only minimum capital
to it. Company will have authorized solely shares of voting common stock.
2. The Company will organize Interim II as a wholly-owned federally-chartered
stock savings bank subsidiary of the Company and Company will transfer
only the minimum capital required to Interim II.
3. The MHC will shall convert from a mutual holding company to a federal
interim stock savings association ("Interim I" Savings and Loan
Association, F.A.) and simultaneously merge with and into the Association
(in a tax-free reorganization under Section 368(a)(1)(A) of the Internal
Revenue Code of 1986, as amended (the "IRC") (the "MHC Merger") pursuant
to the Agreement of Merger between the MHC and the Association, with the
Association being the resulting institution. As a result of the MHC
Merger: (i) the shares of Association common stock held by the MHC
(following its conversion to a federal interim stock association) shall be
extinguished; and (ii) each member of the MHC who is an Eligible Account
Holder (as defined below) or Supplemental Eligible Account Holder (as
defined below) will receive an interest in a liquidation account
established in the Association pursuant to regulations of the OTS (the
"Liquidation Account") in exchange for such member's ownership interest in
the MHC.
4. Interim II will merge in a statutory merger (a tax-free reorganization
pursuant to IRC (S)368(a)(1)(A) and IRC (S)368(a)(2)(E)) with and into the
Association with the Association being the resulting institution (the
"Association Merger"), pursuant to the Agreement of Merger between the
Association and Interim II. As a result of the Association Merger: (i)
shares of Company common stock held by
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Boards of Directors
First Missouri Financial, M.H.C.
Equality Savings & Loan Association, F.A.
Equality Bancorp, Inc.
Page 5
July 31, 1997
the Association shall be extinguished; (ii) the shares of Association
common stock held by persons who own Association common stock (excluding
the MHC) ("Public Shareholders") shall be converted into the right to
receive shares of Company common stock based upon an Exchange Ratio (as
defined below), plus cash in lieu of any fractional share interest based
upon the per share price at which Company common stock is ultimately sold
in the Offerings (as defined below) (the "Actual Purchase Price"); (iii)
the shares of Interim II common stock held by the Company shall be
converted to shares of Association common stock on a one-for-one basis,
with the Association thence becoming a wholly-owned subsidiary of the
Company; (iv) existing options to purchase shares of Association common
stock which are outstanding immediately prior to the consummation of the
Conversion and Reorganization shall be converted into options to purchase
shares of Company common stock, with the number of shares subject to the
option and the exercise price per share being adjusted based on the
Exchange Ratio so that the aggregate purchase price remains unchanged, and
with the duration of the option remaining unchanged. The "Exchange Ratio"
is the rate at which shares of the Company common stock will be exchanged
for shares of Association common stock held by the Public Stockholders in
connection with the Association Merger. The exact rate will be determined
in order to ensure that upon consummation of the Conversion and
Reorganization, the Public Stockholders will own, in the aggregate,
approximately the same percentage of the Company common stock outstanding
upon completion of the Conversion and Reorganization as the percentage of
Association common stock owned by them in the aggregate immediately prior
to the consummation of the Conversion and Reorganization, before giving
effect to (a) cash paid in lieu of fractional interests of Company common
stock, and (b) any shares of Conversion Stock (as defined below) purchase
by the Public Stockholders in the Offerings (as defined below) or tax-
qualified employee stock benefit plans thereafter.
5. Simultaneously with the completion of the Conversion and Reorganization,
the Association will amend it federal stock charter to change its name to
"Equality Savings Bank, FSB".
6. As a result of the Association Merger, the Company will own all of the
outstanding shares of common stock of the Association, and the Company
will offer for sale its shares of common stock (the "Conversion Stock") in
an offering that will occur contemporaneously with the execution of the
Plan of Conversion ( the "Offering", as discussed below).
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Boards of Directors
First Missouri Financial, M.H.C.
Equality Savings & Loan Association, F.A.
Equality Bancorp, Inc.
Page 6
July 31, 1997
It is expected that after the execution of the Plan of Conversion, the common
stock of the Company will trade on the Nasdaq SmallCap Market System.
The affirmative vote of a majority of the total eligible votes of the MHC's
members at a special meeting of members is required to approve the Plan of
Conversion, MHC Merger and Association Merger. The affirmative vote of the
holders of at least two-thirds of the outstanding Association common stock, in
person or by proxy, at a special meeting of stockholders of the Association, is
required to approve the Plan of Conversion, MHC Merger and Association Merger.
Further, the Plan of Conversion, MHC Merger and Association Merger must be
approved by at least a majority of the votes cast, in person or by proxy, by the
Public Stockholders at the special meeting.
Contemporaneously with the execution of the Plan of Conversion, the Company will
offer shares of its common stock in a subscription offering, in descending order
of priority, to Eligible Account Holders, certain employee stock benefit plans,
Supplemental Eligible Account Holders, other members, directors, officers and
employees, and Public Stockholders. Subject to the prior rights of holders of
subscription rights, the Company is offering the shares of common stock, not
subscribed for in the subscription offering, for sale in a community offering to
natural persons who reside in Missouri and to whomever else the prospectus is
delivered, giving first preference to natural persons residing in the Missouri
counties of St. Louis City, St. Louis, Jefferson, St. Charles and Franklin. The
subscription and community offerings are hereinafter referred to collectively as
the "Offering".
As set forth above, the stockholders of the Company will be the former Public
Stockholders of the Association immediately prior to the Association Merger,
plus those persons who purchase shares of Company common stock in the Offering.
Nontransferable rights to subscribe for the Company's common stock will be
granted, in order of priority, to: (i) depositors of the Association who have
account balances of $50.00 or more as of the close of business on March 31, 1996
("Eligible Account Holders"); (ii) any tax-qualified defined benefit plan or
defined contribution plan of the Association or Company (other than any
management recognition plan established by the Company to induce certain
directors, officers and employees of the Association and Company to continue to
serve the Association and Company following the Conversion and Reorganization);
(iii) depositors of the Association (other than an officer or director or their
associates) who have account balances of $50.00 or more as of the close of
business on the last day of the calendar quarter preceding the approval of the
Plan of Conversion by the OTS ("Supplemental Eligible Account Holders); (iv) all
persons or entities who qualify as members of the MHC ("Other Members"); (v)
directors, officers
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Boards of Directors
First Missouri Financial, M.H.C.
Equality Savings & Loan Association, F.A.
Equality Bancorp, Inc.
Page 7
July 31, 1997
and employees of the MHC, the Association or any subsidiary thereof, or the
Company; and (vi) Public Stockholders.
SECTION III
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REPRESENTATIONS
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1. With respect to the MHC Reorganization that occurred on October 23, 1993:
The Association treats the Mutual Association's base year (as defined in
IRC (S)585(b)(2)(B)) immediately before the MHC Reorganization as its own
base year amount for purposes of determining its six-year moving average
amounts (as defined in IRC (S)585(b)(2)(A)) and computing deductible
additions to its reserve, and Association treats the Mutual Association's
outstanding loans and loan loss experience before the MHC Reorganization,
as those of the Association.
2. With respect to merger of the MHC into the Association (i.e., the MHC
Merger):
REPRESENTATION AS REQUIRED BY REV. PROC. 86-42.
The fair market value of the Association stock and other consideration
received by each target shareholder will be approximately equal to the fair
market value of the MHC stock surrendered in exchange.
REPRESENTATION WHICH CAN BE GIVEN.
The fair market value of the interest of each member who is an Eligible
Account Holder or Supplemental Eligible Account Holder in the Liquidation
Account established in the Association will be approximately equal to the
fair market value of the voting and liquidation rights surrendered by such
members in the exchange.
The representation must be modified because the target is a mutual holding
company that has neither shares of stock nor shareholders in the
traditional sense. Further, in accordance with rules and regulations issued
by the OTS, the Liquidation Account is to be established in the Association
for Eligible Account Holders and Supplemental Eligible Account Holders.
REPRESENTATION AS REQUIRED BY REV. PROC. 86-42.
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Boards of Directors
First Missouri Financial, M.H.C.
Equality Savings & Loan Association, F.A.
Equality Bancorp, Inc.
Page 8
July 31, 1997
There is no plan or intention by the shareholders of the MHC who own 1
percent or more of the MHC stock, and to the best of the knowledge of the
management of the MHC, there is no plan or intention on the part of the
remaining shareholders of the MHC to sell, exchange or otherwise dispose of
a number of shares of Association stock received in the transaction that
would reduce the ownership of acquiring stock to a number of shares having
a value as of the date of the transaction, of less than 50% of the value of
all the formerly outstanding stock of target as of the same date. For
purposes of this representation, shares of target stock exchanged for cash
or other property, surrendered by dissenters, or exchanged for cash in lieu
of fractional shares of acquiring stock will be treated as outstanding
target stock on the date of the transaction. Moreover, shares of target
stock and shares of acquiring stock held by target shareholders and
otherwise sold, redeemed, or disposed of prior or subsequent to the
transaction will be considered in making this representation.
REPRESENTATION WHICH CAN BE GIVEN.
There is no plan or intention by the members of the MHC who have
liquidation and voting rights with respect to 1% or more of the MHC stock
and to the best of the knowledge of management of the MHC, there is no plan
or intention on the part of the remaining members of the MHC who are
Eligible Account Holders and Supplemental Eligible Account Holders to sell,
exchange or otherwise dispose of their interest in the Liquidation Account
received in the transaction that would reduce the interest of such former
MHC members in the Association to a value, as of the date of the
transaction, of less than 50% of the value of their membership interests in
the MHC.
As discussed above, because the target is a mutual holding company, its
members who are Eligible Account Holders and Supplemental Eligible Account
Holders will exchange their interest in the MHC for an interest in the
Liquidation Account in the Association, as contemplated by rules and
regulations of the OTS. The MHC members will not have the opportunity to
obtain cash, stock or other property for their membership interests, and
will have no dissenters' rights.
REPRESENTATION AS REQUIRED BY REV. PROC. 86-42.
The Association has no plan or intention to reacquire any of its stock
issued in the transaction.
REPRESENTATION WHICH CAN BE GIVEN.
<PAGE>
Boards of Directors
First Missouri Financial, M.H.C.
Equality Savings & Loan Association, F.A.
Equality Bancorp, Inc.
Page 9
July 31, 1997
The Association has no plan or intention to reacquire any portion of the
Liquidation Account or the subscription rights transferred to the former
MHC members who are Eligible Account Holders and Supplemental Eligible
Account Holders in exchange for their voting and liquidation rights in the
MHC.
The Association has no plan or intention to sell or otherwise dispose of
any of the assets of the MHC acquired in the MHC Merger, except for
dispositions made in the ordinary course of business or transfers described
in IRC (S)368(a)(2)(C).
The liabilities of the MHC assumed by the Association, if any, and the
liabilities to which the transferred assets of the MHC are subject, if any,
were incurred by the MHC in the ordinary course of its business.
Following the MHC Merger, the Association will continue its historic
business, the historic business of the MHC or use a significant portion of
the MHC's historic business assets in the Association's business.
The Association, the MHC, and the shareholders of the Association and
members of the MHC will pay their respective expenses, if any, incurred in
connection with the MHC Merger.
There is no inter-corporate indebtedness existing between the MHC and the
Association that was issued, acquired or will be settled at a discount.
No two parties to the transaction are investment companies as defined in
IRC (S)(S)368(a)(2)(F)(iii) and (iv).
The MHC is not under the jurisdiction of a court in a title 11 or similar
case within the meaning of IRC (S)368(a)(3)(A).
The fair market value of the assets of the MHC transferred to the
Association will equal or exceed the sum of the liabilities assumed by the
Association plus the amount of the liabilities, if any, to which the
transferred assets are subject.
The nontransferable subscription rights distrituted to Eligible Account
Holders and Supplemental Eligible Account Holders have nominal, if any,
fair market value.
To the best of the knowledge and belief of the taxpayer, the statutory
merger of the MHC with and into the Association will qualify as a
reorganization under IRC (S)368(a)(1)(A).
3. With respect to the merger of Interim II into the Association (i.e., the
Association Merger):
<PAGE>
Boards of Directors
First Missouri Financial, M.H.C.
Equality Savings & Loan Association, F.A.
Equality Bancorp, Inc.
Page 10
July 31, 1997
There is no plan or intention by the shareholders of the Association who
own 5 percent or more of the Association stock, and to the best of the
knowledge of the management of the Association, there is no plan or
intention on the part of the remaining shareholders of Association to sell,
exchange or otherwise dispose of a number of shares of Company stock
received in the transaction that would reduce the Association shareholders'
ownership of Company stock to a number of shares having a value as of the
date of the Association Merger, of less than 50% of the value of all the
formerly outstanding stock of target as of the same date, disregarding
shares held by the MHC that were canceled in the MHC Merger. For purposes
of this representation, shares of Association stock exchanged for cash or
other property, surrendered by dissenters, or exchanged for cash in lieu of
fractional shares of acquiring stock will be treated as outstanding target
stock on the date of the transaction. Moreover, shares of Company stock and
shares of Company stock held by Association shareholders and otherwise
sold, redeemed, or disposed of prior or subsequent to the Association
Merger will be considered in making this representation.
Following the Association Merger, the Association will hold at least 90% of
the fair market value of its net assets and at least 70% of the fair market
value of its gross assets and at least 90% of the fair market value of
Interim II's net assets (other than stock of Company distributed to
Association's shareholders in the transaction) and at least 70% of the fair
market value of Interim II's gross assets (other than stock of Company
distributed to Association's shareholders in the Association Merger) held
immediately prior to the Association Merger. For purposes of this
representation, amounts paid by the Association or Interim II to
dissenters, amounts paid by the Association or Interim II to shareholders
who receive cash or other property, amounts used by the Association or
Interim II to pay reorganization expenses, and all redemptions and
distributions (except for regular, normal dividends) made by the
Association will be included as assets of the Association or Interim II,
respectively, immediately prior to the Association Merger.
The Association has no plan or intention to sell or otherwise dispose of
any of the assets of Interim II acquired in the Association Merger, except
for dispositions made in the ordinary course of business or transfers
described in IRC (S)368(a)(2)(C).
Prior to the Association Merger, the Company will be in control of Interim
II within the meaning of IRC (S)368(c).
<PAGE>
Boards of Directors
First Missouri Financial, M.H.C.
Equality Savings & Loan Association, F.A.
Equality Bancorp, Inc.
Page 11
July 31, 1997
The Association has no plan or intention to issue additional shares of its
stock that would result in the Company losing control of the Association
within the meaning of IRC (S)368(c).
The Company has no plan or intention to reacquire any of its stock issued
in the Association Merger.
The Company has no plan or intention to liquidate the Association; to merge
the Association with or into another corporation; to sell or otherwise
dispose of the stock of the Association except for transfers of stock to
corporations controlled by Company; or to cause the Association to sell or
otherwise dispose of any of its assets or any of the assets acquired from
Interim II, except for dispositions made in the ordinary course of business
or transfers of assets to a corporation controlled by the Association.
Interim II will have no liabilities to be assumed by the Association, and
will not transfer to the Association any assets subject to liabilities in
the Association Merger.
Following the Association Merger, the Association will continue its
historic business or use a significant portion of its historic business
assets in a business.
The Company, Interim II, the Association, and the shareholders of the
Association will pay their respective expenses, if any, incurred in
connection with the Association Merger.
There is no inter-corporate indebtedness existing between the Company and
the Association or between Interim II and the Association that was issued,
acquired, or will be settled at a discount.
In the Association Merger, shares of Association stock representing control
of the Association, as defined in IRC (S)368(c), will be exchanged solely
for voting stock of the Company. For purposes of this representation,
shares of Association stock exchanged for cash or other property
originating with the Company will be treated as outstanding Association
stock on the date of the Association Merger.
At the time of the Association Merger, the Association will not have
outstanding any warrants, options, convertible securities, or any other
type of right pursuant to which any person could acquire stock in the
Association that, if exercised or converted, would affect the Company's
acquisition or retention of control of the Association, as defined in IRC
(S)368(c).
<PAGE>
Boards of Directors
First Missouri Financial, M.H.C.
Equality Savings & Loan Association, F.A.
Equality Bancorp, Inc.
Page 12
July 31, 1997
The Company does not own, nor has it owned during the past five years, any
shares of the stock of the Association.
No two parties to the Association Merger are investment companies as
defined in IRC (S)(S)368(a)(2)(F)(iii) and (iv).
On the date of the Association Merger, the fair market value of the assets
of the Association will exceed the sum of its liabilities, plus the amount
of liabilities, if any to which the assets are subject.
The Association is not under the jurisdiction of a court in a title 11 or
similar case within the meaning of IRC (S)368(a)(3)(A).
The fair market value of Company voting common stock to be received by each
Association shareholder will be approximately equal to the fair market
value of Association stock surrendered in the exchange.
To the best of the knowledge and belief of the taxpayer, the statutory
merger of Interim II with and into the Association will qualify as a
reorganization under IRC (S)368(a)(1)(A) and IRC (S)368(a)(2)(E).
SECTION IV
----------
FEDERAL AND STATE OF MISSOURI TAX OPINION
-----------------------------------------
MISSOURI INCOME TAX.
The starting point for computing Missouri taxable income is Federal taxable
income. (S)143.431., RSMo. Federal taxable income is converted into Missouri
taxable income by application of enumerated modifications. (S)143.431.1-3, RSMo.
Missouri law requires that the terms used in Chapter 143 be given the same
meanings as when used in a comparable context in the Internal Revenue Code of
1986, as amended, unless a different meaning is clearly required.
(S)143.091, RSMo. The rules and regulations issued by the DOR must follow as
nearly as practicable Treasury regulations. (S)143.961.2 RSMo. No specific
provision of Chapter 143 addresses or alters the Federal tax treatment of the
Transactions.
Missouri law provides that for Missouri income tax purposes, a corporation's tax
year shall be the same as its Federal tax year. (S)143.271.1, RSMo. A
corporation's method of accounting for Missouri income tax purposes must be the
same as for Federal tax purposes. (S)143.281.1, RSMo. Based on our review of
Missouri income tax law, there are no specific provisions in the
<PAGE>
Boards of Directors
First Missouri Financial, M.H.C.
Equality Savings & Loan Association, F.A.
Equality Bancorp, Inc.
Page 13
July 31, 1997
statutes or regulations which modify the Federal recognition or nonrecognition
rules applicable to reorganizations. Therefor, our opinion below is dependent
upon the Federal income tax consequences of the Transactions which, as indicated
above, should also be the Missouri income tax consequences.
MISSOURI FINANCIAL INSTITUTIONS FRANCHISE TAX.
Savings and loan associations are subject to an annual franchise tax measured by
net income for the preceding year. (S)148.630.1, RSMo. Net income of savings and
loan associations is computed by deducting from gross income all ordinary and
necessary business expenses. 148.630.2, RSMo. "Gross income" of savings and loan
associations is defined as all gains, profits, earnings, and other income, from
whatever source, and includes interest from any governmental obligations.
(S)148.630.1, RSMo. The computation of taxable net income for computation of the
franchise tax does not, by statute or regulation, make reference to Federal
taxable income or the IRC or Treasury regulations; however, the DOR is limited,
insofar as feasible, to issuing rules and regulations which are consistent with
the rules and regulations of the Internal Revenue Code of 1986, as amended.
(S)148.700, RSMo. Further, the DOR has administratively required that the
computation of taxable net income begin with Federal taxable income before any
net operating loss deduction or special deduction (DOR 1997 Form-INT-3, Part 1,
Line 1). Additionally, other sections in the financial institutions franchise
tax law make specific reference to Federal income tax statutes and regulations.
See 12 CSR 10-10.170 (an accrual basis taxpayer which is a member of an
affiliated group filing a consolidated tax return must allocate its consolidated
tax liability among the members of the group for the year using the method
elected to allocated earnings and profits by the group under IRC (S)1552 for the
applicable year, without regard to any additional allocations under Treas. Reg.
(S)1.1502-33(d)). There are no provisions in the Missouri financial institutions
franchise tax laws which govern the Transactions. Thus, our opinion below is
dependent on the Federal income tax consequences of the Transactions which, as
indicated above, should also be the Missouri financial institutions franchise
tax consequences.
OPINION.
Based solely upon the facts and representations listed above, and provided that
such facts as contained in Sections I and II above and representations are
correct and complete, we render the following opinion with respect to the
Federal income tax consequences and State of Missouri income tax and financial
institutions franchise tax consequences of the proposed transactions. Our
opinion is only applicable to the tax effects of those Code sections
specifically discussed below. No
<PAGE>
Boards of Directors
First Missouri Financial, M.H.C.
Equality Savings & Loan Association, F.A.
Equality Bancorp, Inc.
Page 14
July 31, 1997
opinion is expressed nor can any inferences be drawn as to the applicability of
any other Code section.
The following Federal income tax results will occur:
1. The MHC Merger qualifies as a tax-free reorganization within the meaning of
IRC (S)368(a)(1)(A) provided it qualifies as a statutory merger under
applicable state and federal law.
2. The MHC will not recognize any gain or loss on the transfer of its assets
to the Association in exchange for an interest in a liquidation account
established in the Association for the benefit of the MHC's members who
remain depositors of the Association and non-transferable subscription
rights. The MHC will not recognize any gain or loss upon the distribution
of such liquidation account rights or such stock purchase rights to its
members in exchange for their membership interests in the MHC pursuant to
the MHC Merger. IRC (S)361(a) and IRC (S)361(c).
3. The exchange of the members' equity interests in the MHC for interests in a
liquidation account established at the Association in the MHC Merger will
satisfy the continuity of interest requirement of Treas. Reg. (S)1.368-1(b)
of the Income Tax Regulations (Rev. Rul. 69-3, 1969-1 C.B. 103, Rev. Rul.
69-646, 1969-2 C.B. 54, and Rev. Rul. 78-286, 1978-2 C.B. 145).
4. No gain or loss will be recognized by the Association upon the receipt of
the assets of the MHC in the MHC Merger in exchange for the transfer to the
members of the MHC of an interest in the liquidation account in the
Association and non-transferable subscription rights. IRC (S)1032(a).
5. The basis of the assets of MHC (other than stock in Association) to be
received by Association will be the same as the basis of such assets in the
hands of the MHC immediately prior to the transfer. IRC (S)362(b).
6. The holding period of the assets of the MHC (other than stock in
Association) to be received by Association will include the holding period
of those assets in the hands of the MHC immediately prior to the transfer.
IRC (S)1223(2).
7. The MHC members will recognize no gain or loss upon the receipt of an
interest in the liquidation account in Association in exchange for their
membership interest in the MHC. Gain or loss, if any, will be recognized by
such members upon receipt of the subscription rights to purchase Company
stock, but only to the extent of the fair market value of such rights, and
it has been represented that such rights will have nominal, if any, fair
market value. IRC (S)354(a).
8. The Association Merger qualifies as a reorganization within the meaning of
IRC (S)368(a)(1)(A), pursuant to IRC (S)368(a)(2)(E) of the Code. The
Association Merger is not disqualified from qualifying as a reorganization
within the meaning of IRC (S)368(a)(1)(A) because Company common stock will
be conveyed to the
<PAGE>
Boards of Directors
First Missouri Financial, M.H.C.
Equality Savings & Loan Association, F.A.
Equality Bancorp, Inc.
Page 15
July 31, 1997
Association's stockholders in exchange for their Association common stock.
IRC (S)368(a)(2)(E).
9. Interests in the liquidation account established at the Association, and
the shares of Association common stock held by the MHC prior to
consummation of the MHC Merger, will be disregarded for the purpose of
determining that an amount of stock in the Association which constitutes
"control" of such corporation was acquired by the Company in exchange for
shares of common stock of the Company pursuant to the Association Merger.
IRC (S)368(c).
10. The exchange of shares of common stock of the Company for the shares of
common stock of the Association in the Association Merger, following
consummation of the MHC Merger, will satisfy the continuity of interest
requirement of Treas. Reg. (S)1.368-1(b) in the Association Merger.
11. Interim II will not recognize any gain or loss on the transfer of its
assets to Association in exchange for Association stock and the assumption
by Association of the liabilities, if any, of Interim II. IRC (S)361(a) and
IRC (S)357(a).
12. Association will not recognize any gain or loss on the receipt of the
assets of Interim II in exchange for Association stock. IRC (S)1032(a).
13. Association's basis in the assets received from Interim II in the proposed
transaction will, in each case, be the same as the basis of such assets in
the hands of Interim II immediately prior to the transaction. IRC
(S)362(b).
14. Association's holding period for the assets received from Interim II in the
proposed transaction will, in each instance, include the period during
which such assets were held by Interim II. IRC (S)1223(2).
15. The Company will not recognize any gain or loss upon its receipt of
Association stock in exchange for Interim II stock. IRC (S)354(a).
16. Association shareholders will not recognize any gain or loss upon their
exchange of Association stock solely for shares of Company voting common
stock. IRC (S)354(a).
17. Each Association shareholder's aggregate basis in his or her Company Common
Stock received in the exchange will be the same as the aggregate basis of
the Association stock surrendered in exchange therefor. IRC (S)358(a).
<PAGE>
Boards of Directors
First Missouri Financial, M.H.C.
Equality Savings & Loan Association, F.A.
Equality Bancorp, Inc.
Page 16
July 31, 1997
18. Each Association shareholder's holding period in his or her Company Common
Stock received in the exchange will include the period during which the
Association stock surrendered was held, provided that the Association stock
surrendered is a capital asset in the hands of the Association shareholder
on the date of the exchange. IRC (S)1223(1).
Based on the foregoing, it is our view that there should be no material adverse
Federal income tax consequences, or material adverse State of Missouri income
tax or financial institutions franchise tax consequences, to the Association and
its affiliates, or Eligible Account Holders and other recipients of conversion
stock, as a result of the above-referenced transactions. However, as indicated
earlier, our opinion is based upon facts and representations detailed herein as
well as current Federal income tax law, regulations, related cases, rulings,
etc., and State of Missouri income tax and financial institutions franchise tax
laws, related cases, rulings, etc. Any changes in the proposed transactions or
in Federal income tax law and State of Missouri income tax and financial
institutions franchise tax law prior to the consummation of the proposed
Transactions, or which are retroactive in effect, could cause us to modify our
opinion. The opinions contained herein are not binding upon the IRS or any other
tax court or authority, and no assurance can be given that a position contrary
to any of those contained herein will not be asserted by a tax authority.
SECTION V
---------
ANALYSIS
--------
IRC (S)368(a)(1)(A) defines the term "reorganization" to include a "statutory
merger or consolidation" of corporations such as the MHC Merger and the
Association Merger. IRC (S)368(a)(2)(E) provides that a transaction otherwise
qualifying as a merger under IRC (S)368(a)(1)(A), such as the Association
Merger, shall not be disqualified by reason of the fact that common stock of a
corporation (referred to in the Code as the "controlling corporation") (i.e.,
the Company) which before the merger was in control of the merged corporation is
used in the transaction if:
(i) after the transaction, the corporation surviving the merger (the
Association) holds substantially all of its properties and the
properties of
<PAGE>
Boards of Directors
First Missouri Financial, M.H.C.
Equality Savings & Loan Association, F.A.
Equality Bancorp, Inc.
Page 17
July 31, 1997
the merged corporation (Interim II) (other than common stock of the
controlling corporation [the Company] distributed in the
transaction); and
(ii) in the transaction, former stockholders of the surviving corporation
(the Association stockholders) exchanged, for an amount of voting
common stock of the controlling corporation, an amount of common
stock in the surviving corporation which constitutes control of such
corporation.
Treas. Reg. (S)1.368-2(b)(1) provides that, in order to qualify as a
reorganization under IRC (S)368(a)(1)(a), a transaction must be a merger or
consolidation effected pursuant to the corporation laws of the United States or
a state. The Plan of Conversion provides that the MHC Merger and the Association
Merger will be accomplished in accordance with applicable state and federal law.
Treasury Regulations and case law require that, in addition to the existence of
statutory authority for a merger, certain other conditions must be satisfied in
order to qualify a proposed transaction as a reorganization within the meaning
of IRC (S)368(a)(1)(A).
(i) The "business purpose test," which requires a proposed merger to have
a bona fide business purpose, must be satisfied. See Treas. Reg .
(S)1.368-1(c). For the reasons set forth in Article I of the Plan of
Conversion, we believe that the MHC Merger and Association Merger
satisfy the business purpose test.
(ii) The "continuity of business enterprise test" requires an acquiring
corporation either to continue an acquired corporation's historic
business or use a significant portion of its historic assets in a
business. See Treas. Reg. (S)1.368-1(d). Based on the Representations
set forth above, we believe that the business conducted by the
Association prior to the MHC Merger and the Association Merger will
be unaffected by the transactions.
(iii) The "continuity of interest doctrine" requires that the continuing
common stock interest of the former owners of an acquired
corporation, considered in the aggregate, represent a "substantial
part" of the value of their former interest, and provide them with a
"definite and substantial interest" in the affairs of the acquiring
corporation or a corporation in control of the acquiring corporation.
Paulsen v. Commissioner, 469 U.S. 131 (1985); Helvering v. Minnesota
Tea Co., 296 U.S. 378 (1935); John A. Nelson Co. v. Helvering, 296
374 (1935); Southwest Natural Gas
<PAGE>
Boards of Directors
First Missouri Financial, M.H.C.
Equality Savings & Loan Association, F.A.
Equality Bancorp, Inc.
Page 18
July 31, 1997
Co. v. Commissioner, 189 F.2d 332 (5th Cir. 1951), cert. denied, 342
--------------------
U.S. 860 (1951). Based on (a) the Registration Statement, and (b)
Rev. Rul. 69-3 1965-1 C.B. 103 and Rev. Rul 69-646, 1969-2 C.B. 54,
we believe that the MHC Merger satisfies the continuity of interest
doctrine. Based on the Representations set forth above, we believe
that the Association Merger satisfies the continuity of interest
doctrine. In addition, we believe other applicable requirements of
the Treasury Regulations and case law which are preconditions to
qualification of the MHC Merger and Association Merger as a
reorganization, within the meaning of IRC (S)368(a)(1)(A) and IRC
(S)368(a)(2)(E), are satisfied on the basis of the information
contained in the Plan of Conversion and Registration Statement.
Please note that, in December 1994, the Service published Rev. Proc. 94-76 1994-
2 C.B. 825, which states that the Service will not issue private letter rulings
with respect to a transaction in which one corporation owns stock in a second
corporation, the first corporation is not the 80% distributee of the second
corporation and the two corporations are merged. The Service assumed this "no-
rule" position to study whether such downstream mergers circumvent the purpose
behind the repeal of General Utilities & Operating Co. v. Helvering, 296 U.S.
----------------------------------------------
200 (1935). Although the Service has assumed a "no-rule" position to study the
issues associated with such mergers, the Service has not specifically rescinded
its prior position with respect to such mergers, and therefor, at the time that
this transaction is consummated, the law prior to the publication of Rev. Proc.
94-76, as reflected in the Code, Treasury Regulations and case law, will
continue to control the transaction. Under such law, we believe that the MHC
Merger qualifies as a tax-free reorganization within the meaning of IRC
(S)368(a)(1)(A). Moreover, there is no indication that the Service position
will change as the result of this study. If the Service does change its
position with respect to the downstream merger of one corporation into its less
than 80% owned distributee, there is no reason to believe that any such change
will have retroactive effect; provided, however, that if the Service should
conclude that such mergers circumvent the repeal of General Utilities, the
-----------------
issuance of regulations prior to the effective date of the MHC Merger could
significantly modify the opinions expressed herein.
IRC (S)354 provides that no gain or loss shall be recognized by stockholders who
exchange common stock in a corporation, such as the Association, which is a
party to a reorganization, solely for common stock in another corporation which
is a party to the reorganization, such as the Company. IRC (S)365 provides that
the stockholders shall recognize gain to the extent they receive money as part
of a reorganization, such as cash received in lieu of fractional shares. IRC
(S)358 provides that, with certain adjustments
<PAGE>
Boards of Directors
First Missouri Financial, M.H.C.
Equality Savings & Loan Association, F.A.
Equality Bancorp, Inc.
Page 19
July 31, 1997
for money received in a reorganization, such as cash received in lieu of
fractional shares, a stockholder's basis in the common stock he or she receives
in a reorganization shall equal the basis of the common stock which her or she
surrendered in the transaction. IRC (S)1223(1) states that, where a stockholder
receives property in an exchange which has the same basis as the property
surrendered, he or she shall be deemed to have held the property received for
the same period as the property exchanged, provided that the property exchanged
had been held as a capital asset.
IRC (S)361 provides that no gain or loss shall be recognized to a corporation,
such as Interim II, which is a party to a reorganization, on any transfer of
property pursuant to a plan of reorganization such as the Plan of Conversion.
IRC (S)362 provides that if property is acquired by a corporation, such as the
Association, in connection with a reorganization, then the basis of such
property shall be the same as it would be in the hands of the transferor
immediately prior to the transfer. IRC (S)1223(2) states that where a
corporation, such as the Association, will have a carryover basis in property
received from another corporation which is a party to a reorganization, the
holding period of such assets in the hands of the acquiring corporation shall
include the period for which such assets were held by the transferor, provided
that the property transferred had been held as a capital asset. IRC (S)1032
states that no gain or loss shall be recognized to a corporation, such as the
Company, on the receipt of property in exchange for common stock.
* * * * * * * *
We consent to the inclusion of this opinion as an exhibit to the Registration
Statement of the Company and any reference to and summary of this opinion in
such Registration Statement.
Very truly yours,
KPMG Peat Marwick LLP
<PAGE>
EXHIBIT 10.3
------------
EQUALITY BANCORP, INC.
1997 STOCK OPTION AND INCENTIVE PLAN
------------------------------------
<PAGE>
CERTIFICATE
-----------
I, Patricia R. Todd, Secretary of Equality Bancorp, Inc., hereby
certify that the attached document is a correct copy of the EQUALITY BANCORP,
INC. 1997 STOCK OPTION AND INCENTIVE PLAN.
Dated this ____ day of ____________________, 1997.
____________________________________
Secretary as Aforesaid
(Corporate Seal)
<PAGE>
EQUALITY BANCORP, INC.
1997 STOCK OPTION AND INCENTIVE PLAN
------------------------------------
SECTION 1. PURPOSE.
- --------------------
The purpose of the Equality Bancorp, Inc. 1997 Stock Option and Incentive
Plan (the "Plan") is to benefit Equality Bancorp, Inc. (the "Company") and its
Subsidiaries (as defined in Section 2) by recognizing the contributions made to
the Company by officers and other key employees (including Directors of the
Company who are also employees) of the Company and its Subsidiaries, to provide
such persons with additional incentive to devote themselves to the future
success of the Company, and to improve the ability of the Company to attract,
retain and motivate individuals, by providing such persons with a favorable
opportunity to acquire or increase their proprietary interest in the Company
over a period of years through receipt of options to acquire common stock of the
Company. In addition, the Plan is intended as an additional incentive to
members of the Board of Directors of the Company who are not employees of the
Company ("Non-Employee Directors") to serve on the Board of Directors of the
Company (the "Board") and to devote themselves to the future success of the
Company by providing them with a favorable opportunity to acquire or increase
their proprietary interest in the Company through receipt of options to acquire
common stock of the Company.
The Company may grant stock options that constitute "incentive stock
options" ("ISOs") within the meaning of Section 422 of the Internal Revenue Code
of 1986, as amended (the "Code"), or stock options that do not constitute ISOs
("NSOs") (ISOs and NSOs being hereinafter collectively referred to as
"Options").
SECTION 2. ELIGIBILITY.
- ------------------------
Non-Employee Directors shall participate in the Plan only in accordance
with the provisions of Section 5 of the Plan. The Committee (as defined in
Section 3) shall initially, and from time to time thereafter, select those
officers and other key employees (including Directors of the Company who are
also employees) (collectively referred to herein as "Key Employees") of the
Company or any other entity of which the Company is the direct or indirect
beneficial owner of not less than fifty percent (50%) of all issued and
outstanding equity interests ("Subsidiaries"), to participate in the Plan on the
basis of the special importance of their services in the management, development
and operations of the Company or its Subsidiaries (each such Director and Key
Employee receiving Options granted under the Plan is referred to herein as an
"Optionee").
SECTION 3. ADMINISTRATION.
- ---------------------------
3.1. The Committee. The Plan shall be administered by the Compensation
-------------
Committee of the Board (the "Committee"). The Committee shall be comprised of
two (2) or more members of the Board who are "non-employee directors" within the
meaning of Rule 16b-3 promulgated
<PAGE>
under the Securities Exchange Act of 1934, as amended (the "1934 Act"), or any
successor rule or regulation.
3.2. Authority of the Committee. No person, other than members of the
--------------------------
Committee, shall have any authority concerning decisions regarding the Plan.
Subject to the express provisions of this Plan, including but not limited to
Section 5, the Committee shall have sole discretion concerning all matters
relating to the Plan and Options granted hereunder. The Committee, in its sole
discretion, shall determine the Key Employees of the Company and its
Subsidiaries to whom, and the time or times at which Options will be granted,
the number of shares to be subject to each Option, the expiration date of each
Option, the time or times within which the Option may be exercised, the
cancellation of the Option (with the consent of the holder thereof) and the
other terms and conditions of the grant of the Option. The terms and conditions
of the Options need not be the same with respect to each Optionee or with
respect to each Option.
The Committee may, subject to the provisions of the Plan, establish such
rules and regulations as it deems necessary or advisable for the proper
administration of the Plan, and may make determinations and may take such other
action in connection with or in relation to the Plan as it deems necessary or
advisable. Each determination or other action made or taken pursuant to the
Plan, including interpretation of the Plan and the specific terms and conditions
of the Options granted hereunder by the Committee shall be final and conclusive
for all purposes and upon all persons including, but without limitation, the
Company, its Subsidiaries, the Committee, the Board, officers and the affected
employees of the Company and/or its Subsidiaries and their respective successors
in interest.
No member of the Committee shall, in the absence of bad faith, be liable
for any act or omission with respect to service on the Committee. Service on
the Committee shall constitute service as a Director of the Company so that
members of the Committee shall be entitled to indemnification pursuant to the
Company's Certificate of Incorporation and By-Laws.
SECTION 4. SHARES OF COMMON STOCK SUBJECT TO PLAN.
- ---------------------------------------------------
4.1. The total number of shares of common stock, par value $.01 per share,
of the Company (the "Common Stock"), that may be issued and sold under the Plan
initially shall be ____,000. To effectuate the adjustments set forth in
Section 4.2 hereof, the total number of shares of Common Stock that
may be available for Options under the Plan shall be adjusted on January 1 of
each calendar year, within the Applicable Period (as defined below), so that the
total number of shares of Common Stock that may be issued and sold under the
Plan as of January 1 of each calendar year within the Applicable Period shall be
equal to ten percent (10%) of the outstanding shares of Common Stock of the
Company on such date, less the number of shares of Common Stock that may be
issued and sold under the Equality Savings and Loan Association 1993 Stock
Option and Incentive Plan; provided, however, that no such adjustment shall
reduce the total number of shares of Common Stock that may be issued and sold
under the Plan below ___,000. For purposes of the preceding sentence, Applicable
Period shall be the ten-year period commencing on the Effective Date (as defined
in Section 14) ending on the date that is ten years thereafter. The
aforementioned total number of shares of Common Stock shall be adjusted in
accordance with the provisions of Section 4.2 hereof. The number of shares of
Common Stock delivered by any such Optionee or withheld by the Company on behalf
of any such Optionee pursuant to Section 8.2 or 8.3 of the Plan shall once again
be available for issuance pursuant to subsequent Options. Any
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<PAGE>
shares of Common Stock subject to issuance upon exercise of Options but which
are not issued because of a surrender (other than pursuant to Sections 8.2 or
8.3 of the Plan), forfeiture, expiration, termination or cancellation of any
such Option, to the extent consistent with applicable law, rules and
regulations, shall once again be available for issuance pursuant to subsequent
Options.
4.2. The number of shares of Common Stock subject to the Plan and to
Options granted under the Plan shall be adjusted as follows: (a) in the event
that the number of outstanding shares of Common Stock is changed by any stock
dividend, stock split or combination of shares, the number of shares subject to
the Plan and to Options previously granted thereunder shall be proportionately
adjusted; (b) in the event of any merger, consolidation or reorganization of the
Company with any other corporation or corporations, there shall be substituted
on an equitable basis as determined by the Board of Directors, in its sole
discretion, for each share of Common Stock then subject to the Plan and for each
share of Common Stock then subject to an Option granted under the Plan, the
number and kind of shares of stock, other securities, cash or other property to
which the holders of Common Stock of the Company are entitled pursuant to the
transaction; and (c) in the event of any other change in the capitalization of
the Company, the Committee, in its sole discretion, shall provide for an
equitable adjustment in the number of shares of Common Stock then subject to the
Plan and to each share of Common Stock then subject to an Option granted under
the Plan. In the event of any such adjustment, the exercise price per share
shall be proportionately adjusted.
SECTION 5. GRANT OF OPTIONS TO NON-EMPLOYEE DIRECTORS.
- -------------------------------------------------------
5.1. Grants. Each individual who is a Non-Employee Director on the
------
effective date of the Plan shall be granted automatically a NSO to purchase
_____ shares of Common Stock on the effective date of the Plan. Non-Employee
Directors shall also be eligible to receive discretionary grants of NSOs as
determined by the Committee from time to time.
5.2. Exercise Price and Period. The per share Option exercise price of
-------------------------
each such NSO granted to a Non-Employee Director shall be the "Fair Market
Value," on the date on which the Option is granted, of the Common Stock subject
to the Option. "Fair Market Value" shall mean the average of the closing price
for Company Stock as reported on The Nasdaq Stock Market for the 20 business
days ending on the third business day preceding the date with respect to which
such Company Stock is being valued, for which trades in Company Stock were
reported on The Nasdaq Stock Market. If no trades occur on a certain day, the
closing price for the last preceding day on which trading occurred will be used
as the closing price for that day. In the event that Company Stock is not
readily tradable on an established securities market, the fair market value of
Company Stock shall be determined by an independent appraiser meeting
requirements similar to the requirements of the treasury regulations promulgated
under Section 170(a)(1) of the Code.
Each such NSO shall become exercisable with respect to one-fifth of the
total number of shares of Common Stock subject to the Option on the date twelve
months after the date of its grant and with respect to an additional one-fifth
of the total number of shares of Common Stock subject to the Option at the end
of each twelve-month period thereafter during the succeeding four years. Each
NSO shall expire on the date ten years after the date of grant.
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<PAGE>
In addition to the terms and conditions set forth in this Section 5, NSOs
also shall be subject to such terms and conditions applicable to ISOs according
to Sections 6.2, 6.3, 6.4 and 6.6, provided, however, such additional terms and
-------- -------
conditions are not inconsistent with the terms and conditions set forth in
Section 5 of this Plan.
SECTION 6. GRANTS OF OPTIONS TO EMPLOYEES.
- -------------------------------------------
6.1. Grant. Subject to the terms of the Plan, the Committee may from time
-----
to time grant Options, which may be ISOs or NSOs, to Key Employees of the
Company or any of its Subsidiaries. Unless otherwise expressly provided at the
time of the grant, Options granted under the Plan to Key Employees will be ISOs.
6.2. Option Agreement. Each Option shall be evidenced by a written Option
----------------
Agreement specifying the type of Option granted, the Option exercise price, the
terms for payment of the exercise price, the expiration date of the Option, the
number of shares of Common Stock to be subject to each Option and such other
terms and conditions established by the Committee, in its sole discretion, not
inconsistent with the Plan.
6.3. Expiration. Except to the extent otherwise provided in or pursuant
----------
to Section 7, each Option shall expire, and all rights to purchase shares of
Common Stock shall expire, on the tenth anniversary of the date on which the
Option was granted.
6.4. Exercise Period. Except to the extent otherwise provided in or
---------------
pursuant to Section 7 or in the proviso to this sentence, Options shall become
exercisable pursuant to the following schedule: with respect to one-fifth of the
total number of shares of Common Stock subject to Option on the date twelve
months after the date of its grant and with respect to an additional one-fifth
of the total number of shares of Common Stock subject to the Option at the end
of each twelve-month period thereafter during the succeeding four years;
provided, however, that the Committee, in its sole discretion, shall have the
authority to shorten or lengthen the exercise schedule with respect to any or
all Options, or any part thereof, granted to Key Employees under the Plan,
subject to applicable law.
6.5. Required Terms and Conditions of ISOs. Each ISO granted to a Key
--------------------------------------
Employee shall be in such form and subject to such restrictions and other terms
and conditions as the Committee may determine, in its sole discretion, at the
time of grant, subject to the general provisions of the Plan, the applicable
Option Agreement, and the following specific rules:
(a) Except as provided in Section 6.5(d), the per share exercise
price of each ISO shall be the Fair Market Value of the shares of Common
Stock on the date such ISO is granted.
(b) The aggregate Fair Market Value (determined with respect to each
ISO at the time such Option is granted) of the shares of Common Stock with
respect to which ISOs are exercisable for the first time by an individual
during any calendar year (under all incentive stock option plans of the
Company and its parent and subsidiary corporations) shall not exceed
$100,000. If the aggregate Fair Market Value (determined at the time of
grant) of the Common Stock subject to an Option,
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<PAGE>
which first becomes exercisable in any calendar year exceeds the limitation
of this Section 6.5(b), so much of the Option that does not exceed the
applicable dollar limit shall be an ISO and the remainder shall be a NSO;
but in all other respects, the original Option Agreement shall remain in
full force and effect.
(c) As used in this Section 6, the words "parent" and "subsidiary"
shall have the meanings given to them in Section 424(e) and 424(f) of the
Code.
(d) Notwithstanding anything herein to the contrary, if an ISO is
granted to an individual who owns stock possessing more than ten percent
(10%) of the total combined voting power of all classes of stock of the
Company or of its parent or subsidiary corporations, within the meaning of
Section 422(b)(6) of the Code, (i) the purchase price of each share of
Common Stock subject to the ISO shall be not less than one hundred ten
percent (110%) of the Fair Market Value of the Common Stock on the date the
ISO is granted, and (ii) the ISO shall expire and all rights to purchase
shares thereunder shall cease no later than the fifth anniversary of the
date the ISO was granted.
(e) No ISOs may be granted under the Plan after _______, 2007.
6.6. Required Terms and Conditions of NSOs. Each NSO granted to Key
-------------------------------------
Employees or Non-employee Directors shall be in such form and subject to such
restrictions and other terms and conditions as the Committee may determine, in
its sole discretion, at the time of grant, subject to the general provisions of
the Plan, the applicable Option Agreement, and the following specific rule: the
per share exercise price of each NSO shall be the Fair Market Value of the
shares of Common Stock on the date the NSO is granted; provided however, that in
no event may the exercise price be less than the par value of the shares of
Common Stock subject to such NSO.
SECTION 7. EFFECT OF TERMINATION OF EMPLOYMENT.
- ------------------------------------------------
7.1. Termination Generally. Except as provided in Sections 7.2 and 7.3, or
---------------------
by the Committee, in its sole discretion, any Option not yet exercisable shall
terminate on the date of the Optionee's termination of employment with the
Company and its Subsidiaries or termination of service on the Board for any
reason. An Optionee's transfer of employment from the Company to a Subsidiary,
or from a Subsidiary to the Company, or from a Subsidiary to another Subsidiary,
shall not constitute a termination of employment for purposes of the Plan.
Options granted under the Plan shall not be affected by any change of duties in
connection with the employment of the Optionee or by leave of absence authorized
by the Company or a Subsidiary.
7.2. Death and Disability. In the event of an Optionee's death or
--------------------
Disability (as defined below) during employment with the Company or any of its
Subsidiaries or during service on the Board, all Options held by the Optionee
shall become fully exercisable on such date of death or Disability. Each of the
Options held by such an Optionee shall expire on the earlier of: (a) the first
anniversary of the date of the Optionee's death or Disability; or (b) the date
that such Option expires in accordance with its terms. For purposes of this
Section 7.2, "Disability" shall mean the inability of an individual to discharge
current job responsibilities by reason of any medical determinable physical or
mental impairment which is expected to result in death or which has lasted
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<PAGE>
or can be expected to last for a continuous period of not less than twelve (12)
months. The Committee, in its sole discretion, shall determine the date of any
Disability.
7.3. Retirement of Employees.
-----------------------
(a) Non-Employee Directors. In the event the service of a Non-
----------------------
Employee Director on the Board shall be terminated by reason of the
retirement of such Non-Employee Director of the Company in accordance with
the Company's retirement policy for Directors, any Options granted to such
Non-Employee Director shall continue to vest and remain exercisable
pursuant to Section 5, in the same manner and to the same extent as if such
Director had continued his or her service on the Board during such period.
(b) Key Employees Who Are Also Directors. Section 7.3(a) shall be
------------------------------------
applicable to Options held by any Key Employee who is also a Director in
the event the employment of such Key Employee with the Company and/or its
Subsidiaries shall be terminated by reason of Employee Retirement, so long
as the service of such Key Employee on the Board continues after such
Employee Retirement.
SECTION 8. EXERCISE OF OPTIONS.
- --------------------------------
8.1. Notice. A person entitled to exercise an Option may do so by delivery
------
of a written notice to that effect specifying the number of shares of Common
Stock with respect to which the Option is being exercised and any other
information the Committee may prescribe. The notice shall be accompanied by
payment as described in Section 8.2. The notice of exercise shall be accompanied
by the Optionee's copy of the writing or writings evidencing the grant of the
Option. All notices or requests provided for herein shall be delivered to the
Secretary of the Company.
8.2. Exercise Price. Except as otherwise provided in the Plan or in any
--------------
Option Agreement, the Optionee shall pay the purchase price of the shares of
Common Stock upon exercise of any Option: (a) in cash; (b) in cash received from
a broker-dealer to whom the Optionee has submitted an exercise notice consisting
of a fully endorsed Option (however, in the case of an Optionee subject to
Section 16 of the 1934 Act, this payment option shall only be available to the
extent such insider complies with Regulation T issued by the Federal Reserve
Board); (c) by delivering shares of Common Stock having an aggregate Fair Market
Value on the date of exercise equal to the Option exercise price; (d) by
directing the Company to withhold such number of shares of Common Stock
otherwise issuable upon exercise of such Option having an aggregate Fair Market
Value on the date of exercise equal to the Option exercise price; (e) in the
case of a Key Employee or Non-Employee Director, by such other medium of payment
as the Committee, in its discretion, shall authorize at the time of grant; or
(f) by any combination of (a), (b), (c), (d) and (e). In the case of an election
pursuant to (a) or (b) above, cash shall mean cash or a check issued by a
federally insured bank or savings and loan, and made payable to the Company. In
the case of payment pursuant to (b), (c) or (d) above, the Optionee's election
must be made on or prior to the date of exercise and shall be irrevocable. In
lieu of a separate election governing each exercise of an Option, an Optionee
may file a blanket election with the Committee that shall govern all future
exercises of Options until revoked by the Optionee. The Company shall issue, in
the name of the Optionee, stock certificates representing the total number of
shares of Common Stock issuable pursuant to the exercise of any Option as soon
as reasonably practicable after such exercise,
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<PAGE>
provided that any shares of Common Stock purchased by an Optionee through a
broker-dealer pursuant to clause (b) above shall be delivered to such broker-
dealer in accordance with 12 C.F.R. (S) 220.3(e)(4) or other applicable
provision of law.
8.3. Taxes Generally. At the time of the exercise of any Option, as a
---------------
condition of the exercise of such Option, the Company may require the Optionee
to pay the Company an amount equal to the amount of the tax the Company or any
Subsidiary may be required to withhold to obtain a deduction for federal and
state income tax purposes as a result of the exercise of such Option by the
Optionee or to comply with applicable law.
8.4. Payment of Taxes. At any time when an Optionee is required to pay an
----------------
amount required to be withheld under applicable income tax or other laws in
connection with the exercise of an Option, the Optionee may satisfy this
obligation in whole or in part by: (a) directing the Company to withhold such
number of shares of Common Stock otherwise issuable upon exercise of such Option
having an aggregate Fair Market Value on the date of exercise equal to the
amount of tax required to be withheld; or (b) delivering shares of Common Stock
of the Company having an aggregate Fair Market Value equal to the amount
required to be withheld. In the case of payment of taxes pursuant to (a) or (b)
above, the Optionee's election must be made on or prior to the date of exercise
and shall be irrevocable. The Committee may disapprove any election or delivery
or may suspend or terminate the right to make elections or deliveries. In lieu
of a separate election governing each exercise of an Option, an Optionee may
file a blanket election with the Committee which shall govern all future
exercises of Options until revoked by the Optionee.
SECTION 9. TRANSFERABILITY OF OPTIONS.
- ---------------------------------------
No Option granted pursuant to the Plan shall be transferable otherwise than
by will or by the laws of descent and distribution or pursuant to a qualified
domestic relations order as defined by the Code. Notwithstanding the preceding
sentence, an Option Agreement for NSOs may provide that the Optionee, at any
time prior to his death, may assign all or any portion of an Option granted to
him to (i) his spouse or lineal descendant, (ii) the trustee of a trust for the
primary benefit of his spouse or lineal descendant, (iii) a partnership of which
his spouse and lineal descendants are the only partners, or (iv) a tax exempt
organization as described in Code Section 501(c)(3). In such event, the spouse,
lineal descendant, trustee, partnership or tax exempt organization will be
entitled to all of the rights of the Optionee with respect to the assigned
portion of such Option, and such portion of the Option will continue to be
subject to all of the terms, conditions and restrictions applicable to the
Option, as set forth herein and in the related Option Agreement immediately
prior to the effective date of the assignment. Any such assignment will be
permitted only if: (i) the Optionee does not receive any consideration
therefore; and (ii) the assignment is expressly permitted by the applicable
Agreement as approved by the Committee. Any such assignment shall be evidenced
by an appropriate written document executed by the Optionee, and a copy thereof
shall be delivered to the Company on or prior to the effective date of the
assignment.
SECTION 10. RIGHTS AS STOCKHOLDER.
- -----------------------------------
An Optionee or a transferee of an Optionee pursuant to Section 9 shall have
no rights as a stockholder with respect to any Common Stock covered by an Option
or receivable upon the
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<PAGE>
exercise of an Option until the Optionee or transferee shall have become the
holder of record of such Common Stock, and no adjustments shall be made for
dividends in cash or other property or other distributions or rights in respect
to such Common Stock for which the record date is prior to the date on which the
Optionee shall have in fact become the holder of record of the shares of Common
Stock acquired pursuant to the Option.
SECTION 11. POSTPONEMENT OF EXERCISE.
- --------------------------------------
The Committee may postpone any exercise of an Option for such time as the
Committee in its sole discretion may deem necessary in order to permit the
Company (a) to effect, amend or maintain any necessary registration of the Plan
or the shares of Common Stock issuable upon the exercise of an Option under the
Securities Act of 1933, as amended, or the securities laws of any applicable
jurisdiction, (b) to permit any action to be taken in order to (i) list such
shares of Common Stock on a stock exchange if shares of Common Stock are then
listed on such exchange or (ii) comply with restrictions or regulations incident
to the maintenance of a public market for its shares of Common Stock, including
any rules or regulations of any stock exchange on which the shares of Common
Stock are listed, or (c) to determine that such shares of Common Stock and the
Plan are exempt from such registration or that no action of the kind referred to
in (b)(ii) above needs to be taken; and the Company shall not be obligated by
virtue of any terms and conditions of any Option or any provision of the Plan to
recognize the exercise of an Option or to sell or issue shares of Common Stock
in violation of the Securities Act of 1933 or the law of any government having
jurisdiction thereof. Any such postponement shall not extend the term of an
Option and neither the Company nor its directors or officers shall have any
obligation or liability to an Optionee, to the Optionee's successor or to any
other person with respect to any shares of Common Stock as to which the Option
shall lapse because of such postponement.
SECTION 12. TRUST AGREEMENT.
- -----------------------------
The Company may enter into a trust agreement ("Trust Agreement") whereby
the Company shall agree to contribute to a trust ("Trust") for the purpose of
accumulating shares of Common Stock to assist the Company in fulfilling its
obligations to Optionees hereunder. Such Trust Agreement shall be substantially
in the form of the model trust agreement set forth in Internal Revenue Service
Revenue Procedure 92-64, or any subsequent Internal Revenue Service Revenue
Procedure, and shall include provisions required in such model trust agreement
that all assets of the Trust shall be subject to the creditors of the Company in
the event of insolvency.
SECTION 13. TERMINATION OR AMENDMENT OF PLAN.
- ----------------------------------------------
The Board or the Committee may terminate, suspend, or amend the Plan, in
whole or in part, from time to time, without the approval of the stockholders of
the Company to the extent allowed by law.
The Committee may correct any defect or supply an omission or reconcile any
inconsistency in the Plan or in any Option granted hereunder in the manner and
to the extent it shall deem desirable, in its sole discretion, to effectuate the
Plan.
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<PAGE>
No amendment or termination of the Plan shall in any manner affect any
Option theretofore granted without the consent of the Optionee, except that the
Committee may amend the Plan in a manner that does affect Options theretofore
granted upon a finding by the Committee that such amendment is in the best
interest of holders of outstanding Options affected thereby.
This Plan is intended to comply with all applicable requirements of Rule
16b-3 or its successors under the 1934 Act, insofar as participants subject to
Section 16 of the 1934 Act are concerned. To the extent any provision of the
Plan does not so comply, the provision shall, to the extent permitted by law and
deemed advisable by the Committee, be deemed null and void with respect to such
participants.
SECTION 14. EFFECTIVE DATE.
- ----------------------------
The Plan shall be effective upon the date of approval of the Plan by an
affirmative vote of a majority of the shares of the voting stock of the Company
entitled to be voted by the holders of stock represented at a duly held
stockholders' meeting, within 12 months after the date of adoption of the Plan
by the Board.
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<PAGE>
EXHIBIT 10.4
------------
EQUALITY BANCORP, INC.
MANAGEMENT DEVELOPMENT AND RECOGNITION PLAN
-------------------------------------------
<PAGE>
EQUALITY BANCORP, INC.
MANAGEMENT DEVELOPMENT AND RECOGNITION PLAN
-------------------------------------------
ARTICLE I
ESTABLISHMENT OF THE PLAN
-------------------------
1.01. Equality Bancorp, Inc. (the "Company") hereby establishes the
Management Development and Recognition Plan (the "Plan") upon the terms and
conditions hereinafter stated in this Management Development and Recognition
Plan (the "Plan").
ARTICLE II
PURPOSE OF THE PLAN
-------------------
2.01. The purpose of the Plan is to retain personnel of experience and
ability in key positions by providing such key employees with a proprietary
interest in the Company as compensation for their contributions to the Company
and its Subsidiaries and as an incentive to make such contributions in the
future.
ARTICLE III
DEFINITIONS
-----------
The following words and phrases, when used in this Plan with an initial
capital letter, unless the context clearly indicates otherwise, shall have the
meanings set forth below. Whenever appropriate, the masculine pronoun shall
include the feminine pronoun and the singular shall include the plural.
3.01. "Association" means Equality Savings and Loan Association, F.A., a
Federally-chartered savings association, and its successors and assigns. The
Association, with the consent of the Board, has agreed to participate in this
Plan.
3.02. "Beneficiary" means the person or persons designated by a Recipient
to receive any benefits payable under the Plan in the event of such Recipient's
death. Such person or persons shall be designated in writing on forms provided
for this purpose by the Committee and may be changed from time to time by
similar written notice to the Committee. In the absence of a written
designation, the Beneficiary shall be the Recipient's surviving spouse, if any,
or if none, the Recipient's estate.
3.03. "Board" means the Board of Directors of the Company.
3.04. "Committee" means the Compensation Committee of the Board.
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<PAGE>
3.05. "Common Stock" means shares of the common stock, $.01 par value per
share, of the Company.
3.06. "Company" means Equality Bancorp, Inc., a Savings and Loan Holding
Company registered under Section 10(b) of the Home Owners' Loan Act that owns
100% of the Capital Stock of the Association.
3.07. "Director" means a member of the Board of Directors of the Company
or the Association.
3.08. "Disability" means the permanent and total inability by reason of
mental or physical infirmity, or both, of a Recipient to perform the work
customarily assigned to him. A medical doctor selected or approved by the Board
must advise the Committee that it is either not possible to determine when such
Disability will terminate or that it appears probable that such Disability will
be permanent during the remainder of the Recipient's lifetime.
3.09. "Effective Date" means the date stockholders of the Company approve
the Plan.
3.10. "Employee" means any person who is currently employed by the
Company, the Association or a Subsidiary, including officers.
3.11 "Non-Employee Director" means a member of the Board of Directors of
the Company or the Association who is not an Employee.
3.12. "Plan Shares" means shares of Common Stock issued or issuable to a
Recipient pursuant to the Plan.
3.13. "Plan Share Award" means a right granted under this Plan to earn
Plan Shares.
3.14. "Recipient" means an Employee or Non-Employee Director who receives
a Plan Share Award under the Plan.
3.15. "Retirement" means retirement at the normal or early retirement date
as set forth in the Association's Employee Stock Ownership Plan.
3.16. "Subsidiary" means any other entity of which the Company is the
direct or indirect beneficial owner of not less than fifty percent (50%) of all
issued and outstanding equity interests. A Subsidiary may, with the consent of
the Board, agree to participate in this Plan.
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<PAGE>
ARTICLE IV
ADMINISTRATION OF THE PLAN
--------------------------
4.01. Role of the Committee. The Plan shall be administered and
---------------------
interpreted by the Committee, which shall be appointed by the Board. The
Committee shall be comprised of two (2) or more members of the Board who are
"non-employee directors" within the meaning of Rule 16b-3 under the Securities
Exchange Act of 1934. The Committee shall have all of the powers allocated to
it in this and other Sections of the Plan. The Committee shall have the power to
interpret and construe the terms and provisions of the Plan or of any Plan Share
Award granted hereunder, and all such interpretations and constructions by the
Committee shall be final and binding. The Committee, in its sole discretion,
shall determine the Employees and Directors of the Company and its Subsidiaries
to whom, and the time or times at which Plan Share Awards will be granted, the
number of Plan Share Awards, the expiration date of each Plan Share Award, the
cancellation of the Plan Share Award (with the consent of the holder thereof)
and the other terms and conditions of the grant of the Plan Share Award. The
terms and conditions of the Plan Share Awards need not be the same with respect
to each Recipient or with respect to each Plan Share Award.
The Committee shall act by vote or written consent of a majority of
its members. Subject to the express provisions and limitations of the Plan, the
Committee may adopt such rules, regulations and procedures as it deems
appropriate for the conduct of its affairs. The Committee shall report its
actions and decisions with respect to the Plan to the Board at appropriate
times, but in no event less than one time per calendar year.
4.02. Role of the Board. The Board shall appoint or approve members of
-----------------
the Committee and any trustee or the trustees of a Trust established pursuant to
Section 7.07. The Board may, in its discretion, from time to time, remove
members from or add members to the Committee and may remove, replace or add
Trustees. The Board may not revoke any Plan Share Award already made without
the consent of the Recipient.
4.03. Limitation on Liability. No member of the Board or the Committee
-----------------------
shall be liable for any determination made in good faith with respect to the
Plan or any Plan Shares or Plan Share Awards it grants. If a member of the
Board or the Committee is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative, by reason of anything done or not
done by him in such capacity under or with respect to the Plan, the Company and
its Subsidiaries shall indemnify such member against expense (including
attorney's fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by such member in connection with such action, suit or
proceeding if the member acted in good faith and in the manner he reasonably
believed to be in the best interests of the Company and its Subsidiaries and,
with respect to any criminal action or proceeding, had no reasonable cause to
believe his conduct was unlawful.
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<PAGE>
ARTICLE V
ELIGIBILITY AND ALLOCATIONS
---------------------------
5.01. Eligibility. Officers and key management Employees of the Company,
-----------
the Association and its Subsidiaries are eligible to receive Plan Share Awards.
Non-Employee Directors also may receive Plan Share Awards pursuant to Article
VIII hereof and discretionary grants made by the Committee from time to time.
5.02. Allocations. The number of Shares covered by Plan Share Awards may
-----------
not exceed, prior to the first anniversary of the Effective Time of the
Conversion and Reorganization (as defined in the Plan of Conversion and
Reorganization of First Missouri Financial, M.H.C. and Equality Savings and Loan
Association, F.A., as first adopted on May 16, 1997 (the "Plan of Conversion and
Reorganization")), 3% of the total shares of Common Stock issued and sold in the
Conversion and Reorganization (excluding so-called "Exchange Shares" as defined
in the Plan of Conversion and Reorganization). In no event shall any Awards be
made which will violate the Certificate of Incorporation or Bylaws of the
Company, the Federal Stock Charter or Bylaws of the Association or Plan of
Conversion and Reorganization, or any applicable federal or state law or
regulation. In the event Plan Shares are forfeited for any reason, the
Committee may determine which of the Employees will be granted additional Plan
Shares to be awarded from forfeited Plan Shares. In selecting those Employees
to whom Plan Share Awards will be granted and the number of Shares covered by
such Awards, the Committee shall consider the position and responsibilities of
the eligible Employees, the value of their services to the Company and the
Association and its Subsidiaries, and any other factors the Committee may deem
relevant, including the recommendations of the Chairman of the Board.
5.03. Form of Allocation. As promptly as practicable after a
------------------
determination is made pursuant to Section 5.02 that a Plan Share Award is to be
issued, the Committee shall notify the Recipient in writing of the grant of the
Award, the number of Plan Shares covered by the Award and the terms upon which
the Plan Shares subject to the Award may be earned. The date on which the
Committee so notifies the Recipient shall be considered the date of grant of the
Plan Share Award. The Committee shall maintain records as to all grants of Plan
Share Awards under the Plan.
5.04. Allocations Not Required. Notwithstanding anything to the contrary
------------------------
in Sections 5.01 and 5.02, no Employee or Director shall have any right or
entitlement to receive a Plan Share Award hereunder, such Awards being at the
total discretion of the Committee, nor shall the salaried Employees as a group
have such a right.
-5-
<PAGE>
ARTICLE VI
EARNING AND DISTRIBUTION OF PLAN SHARES
---------------------------------------
VOTING RIGHTS
-------------
6.01. Earning Plan Shares: Forfeitures. Unless the Committee shall
--------------------------------
specifically state to the contrary at the time a Plan Share Award is granted,
Plan Shares subject to an Award shall be earned by a Recipient in five equal
annual installments over the first five years after the date of grant, if the
Employee remains employed with the Company or a Subsidiary continuously
throughout such period, provided, however, that the Committee may provide for a
-------- -------
less rapid earnings rate than that set forth herein for all Awards or for any
given Award. If the employment of a Recipient is terminated prior to the fifth
anniversary (or such later date as the Committee shall determine) of the date of
grant of an Award for any reason (except as specifically provided in subsections
(a) and (b) below), the Recipient shall forfeit the right to earn any shares
subject to the Award which have not theretofore been earned. No fractional
shares shall be issued.
(a) Exception for Terminations Due to Death or Disability.
-----------------------------------------------------
Notwithstanding the general rule contained in this Section, Plan Shares
subject to a Plan Share Award held by a Recipient whose employment with the
Company or a Subsidiary terminates due to Death or Disability, or any part
of such Award that has not theretofore been earned, shall be deemed earned
as of the Recipient's last day of employment with the Company or a
Subsidiary.
(b) Revocation for Misconduct. Notwithstanding anything herein to the
-------------------------
contrary, the Board may, by resolution, immediately revoke, rescind and
terminate any Plan Share Award, or portion thereof, previously awarded
under this Plan, to the extent Plan Shares have not been delivered
thereunder to the Recipient, whether or not yet earned, in the case of an
Employee or Director who is discharged from the Company or a Subsidiary for
cause (as hereinafter defined), or who is discovered after termination of
employment to have engaged in conduct that would have justified termination
for cause. "Cause" is defined as personal dishonesty, willful misconduct,
any breach of fiduciary duty involving personal profit, intentional failure
to perform stated duties, or the willful violation of any law, rule or
regulation (other than traffic violations or similar offenses) which
results in a material loss to the Company or its Subsidiaries, or final
cease and desist order.
6.02. Distribution of Plan Shares. Plan Shares shall be distributed to
---------------------------
the Recipient or his Beneficiary, as the case may be, as soon as is practicable
after a Plan Share Award is made. All Plan Shares shall be distributed in the
form of Common Stock. One share of Common Stock shall be given for each Plan
Share earned and payable.
6.04. Voting and Dividend Rights. No Recipient shall have any voting
--------------------------
or dividend rights or other rights of a stockholder with respect to any Plan
Shares covered by a Plan
-6-
<PAGE>
Share Award prior to the time said Plan Shares are actually distributed to him.
When cash dividends are paid with respect to Plan Shares allocated to a
Recipient, such Recipient shall be entitled to receive an amount equal to such
cash dividend, but only after the related Plan Shares are earned by the
Recipient. Stock dividends with respect to shares allocated to a Recipient
shall be distributed when the Plan Shares with respect to which they are
declared are so distributable.
ARTICLE VII
MISCELLANEOUS
-------------
7.01. Amendment and Termination of Plan. The Board may, by resolution,
---------------------------------
at any time, amend or terminate the Plan.
7.02. Nontransferable. Plan Share Awards and rights to Plan Shares
---------------
shall not be transferable by a Recipient and, during the lifetime of the
Recipient, Plan Shares may only be earned by and paid to the Recipient who was
notified in writing of the Award by the Committee pursuant to Section 5.03. No
Recipient or Beneficiary shall have any right in or claim to any assets of the
Plan or Trust, nor shall the Company or any Subsidiary be subject to any claim
for benefits hereunder.
7.03. Employment Rights. Neither the Plan nor any grant of a Plan
-----------------
Share Award or Plan Shares hereunder nor any action taken by the Committee or
the Board in connection with the Plan shall create any right on the part of any
Employee to continue in the employ of the Company, the Association or a
Subsidiary.
7.04. Governing Law. The Plan shall be governed by the laws of the
-------------
State of Missouri.
7.05. Term of Plan. This Plan shall remain in effect until the earlier
------------
of: (1) termination by the Board of Directors; (2) the distribution to
Recipients, Beneficiaries, the Company or the Association of all assets of the
Trust; or (3) 21 years from the Effective Date. Termination of the Plan shall
not, unless expressly specified, affect any Plan Share Awards previously
granted, and such Awards shall remain valid and in effect until they have been
paid, or by their terms expire or are forfeited.
7.06. Expenses. All costs and expenses incurred in the operation and
--------
administration of this Plan shall be borne by the Company and its Subsidiaries.
7.07. Trust Agreement. Notwithstanding any other terms of this Plan,
---------------
the Company may enter into a trust agreement ("Trust Agreement") whereby the
Company shall agree to contribute to a trust ("Trust") for the purpose of
accumulating assets to assist the Company in fulfilling its obligations to
Recipients hereunder. Such Trust Agreement shall be substantially in the form
of the model trust agreement set forth in Internal Revenue
-7-
<PAGE>
Service Revenue Procedure 92-64, or any subsequent Internal Revenue Service
Revenue Procedure, and shall include provisions required in such model trust
agreement that all assets of the Trust shall be subject to the creditors of the
Company in the event of insolvency.
ARTICLE VIII
OUTSIDE DIRECTOR AWARDS
-----------------------
Each Non-Employee Director on the Effective Date shall be granted a Plan
Share Award equal to __________ shares, subject to availability, to vest in five
equal annual installments beginning with the first anniversary of the Effective
Date.
IN WITNESS WHEREOF, the Company has caused this Plan to be executed by its
duly authorized officers and the corporate seal to be affixed and duly attested,
all on this _____ day of ___________, 1997.
EQUALITY BANCORP, INC.
By:___________________________
ATTEST:
----------------------------
Its Secretary
-8-
<PAGE>
EXHIBIT 10.5
SHW Draft
=========
8-4-97
=======
EMPLOYMENT AGREEMENT
--------------------
This Employment Agreement (this "Agreement") is entered into as of
this ____ day of ______________, 1997 between Richard C. Fellhauer ("Executive")
and Equality Bancorp, Inc., a Delaware corporation (the "Company").
WHEREAS, Executive is currently employed by Equality Savings and Loan
Association, F.A. (the "Association"), a federally-chartered capital stock
savings association, as its President and Chief Executive Officer under the
employment agreement entered into between Executive, First Missouri Financial,
M.H.C. ("First Missouri"), the Association's mutual holding company, and the
Association dated as of March 1, 1996, (the "Prior Agreement"); and
WHEREAS, Executive is currently employed by First Missouri as its
President and Chief Executive Officer; and
WHEREAS, First Missouri and the Association adopted a Plan of
Conversion and Reorganization on May 16, 1997, as subsequently amended, whereby,
among other things, First Missouri will be converted to the stock form of
organization, the Association will change its corporate title to "Equality
Savings Bank" (the "Bank"), the Company will acquire 100 percent of the
outstanding shares of stock of the Bank, First Missouri will cease to exist and
the Company will issue shares of its common stock in an exchange offer to the
public stockholders of the Association and in a subscription and community
offering to eligible members of First Missouri and the general public; and
WHEREAS, Executive and the Company desire to enter into this Agreement
pertaining to the terms of the employment of Executive by the Company and the
continued employment of the Executive by the Bank and the security the Company
is providing to Executive with respect to his employment in lieu of the terms
and conditions of the Prior Agreement;
NOW, THEREFORE, the parties hereto agree as follows:
1. EMPLOYMENT OF EXECUTIVE. The Company hereby employs Executive, and
-----------------------
Executive hereby accepts employment with the Company, upon the terms and
conditions hereinafter set forth, for the term set forth in Section 2 of this
Agreement. Executive is employed by the Company to perform the duties of
President and Chief Executive Officer of the Company and the Bank, and the
Company shall cause the Bank to appoint Executive to such positions. The
services to be performed by the Executive shall include those normally performed
by the President and Chief Executive Officer of similar banking organizations
and as directed by the Board of Directors of the Company, which are not
inconsistent with the
<PAGE>
foregoing. It is the Company's present intention that the services to be
performed by Executive shall be substantially similar to the services presently
being performed by Executive. Executive agrees to devote his full business time
to the rendition of such services, subject to absences for customary vacations
and for temporary illnesses. The Company agrees that during the term of this
Agreement (a) it will not reduce the Executive's job titles, status or
responsibilities without the Executive's consent, (b) Executive shall not be
required, without his express written consent, to be based anywhere other than
within the St. Louis metropolitan area, except for reasonable business travel in
connection with the Company's business, (c) Executive shall not be assigned
duties materially inconsistent with his position, duties, responsibilities, and
status as President and Chief Executive Officer of the Company and the Bank, (d)
it will not change in any significant way the nature or scope of Executive's
authority or his overall working environment, (e) it will not terminate any
incentive compensation plan or arrangement, so that when considered in the
aggregate and with any substitute plan or plans, the incentive plan or
arrangement in which Executive is participating fail to provide him with
substantially the same level of benefits, (f) it will not materially reduce the
secretarial or other administrative support of the Executive, (g) it will not
materially reduce the number or seniority of other Company personnel who report
to Executive, or materially reduce the frequency with which, or the nature of
the matters with respect to which, such personnel are to report to Executive,
other than as part of a Company-wide reduction in staff; and (h) it will not
reduce or adversely change the salary, perquisites, benefits, contingent
benefits or vacation time which had theretofore been provided to the Executive.
During the term of this Agreement, Executive also shall serve as an officer of
any subsidiaries of the Company or the Bank without any additional compensation.
Executive also may serve on boards of directors of charitable organizations and
other business corporations and may request personal time off to attend to
civic, charitable and personal investment activities, provided Executive
notifies the Board of Directors of the Company concerning such service and
activities, the Board of Directors does not disapprove them and such service and
activities do not interfere with the discharge of Executive's management
duties.
2. TERM OF EMPLOYMENT. The term of this Agreement and of Executive's
------------------
employment hereunder shall be for an initial period commencing on the date
hereof (the "Commencement Date") and ending on the third anniversary of the date
hereof, unless terminated earlier as provided in Sections 5, 6 and 7 hereof.
Beginning on the date one year after the Commencement Date, and each anniversary
of the Commencement Date thereafter but not including the expiration date of
this Agreement (each such date is hereinafter referred to as an "Anniversary
Date"), the Board of Directors of the Company may extend the term of this
Agreement for a period of one year in addition to the then-remaining term, if
any, by giving the
-2-
<PAGE>
Executive written notice of such extension. Reference herein to the term of
this Agreement shall refer to both the initial term and such extended term.
3. COMPENSATION. The Company agrees to compensate (to the extent the
------------
Bank does not so compensate) the Executive for his services hereunder during the
term of this Agreement by payment of a base salary at the annual rate of
$132,500 in such monthly, semi-monthly or other payments as are from time to
time applicable to other executive officers of the Bank. The Executive's salary
may be increased from time to time during the term of this Agreement in the sole
discretion of the Board of Directors of the Company, but Executive's salary
shall not be reduced below the level then in effect. In addition, Executive
shall be entitled to participate in incentive compensation plans or arrangements
as may from time to time be established by the Company or the Bank on a basis
consistent with the treatment of other executive officers of the Company or the
Bank (but recognizing differences in responsibilities among executive officers).
Executive also shall be entitled to receive any other bonus or discretionary
compensation payments as the Board of Directors of the Company may determine
from time to time.
4. ADDITIONAL BENEFITS - EXPENSES. Executive shall be provided such
------------------------------
other benefits (including but not limited to medical, health, life and other
insurance coverage) and shall be entitled to participate in such retirement
plans of the Company and the Bank, as are generally made available to other
executive officers of the Company or the Bank. During his employment, Executive
also shall be entitled to customary vacations in accordance with vacation
policies and practices of the Company or the Bank prevailing from time to time,
and to reimbursement for reasonable expenses incurred on behalf of the Company
or the Bank in accordance with the then prevailing policies and practices of the
Company. Executive also shall be provided an automobile by the Company for his
business and personal use (but Executive agrees to reimburse the Company for his
personal use of the vehicle at a rate established by the Company). All payments
under this Agreement shall be subject to all federal, state or local
withholdings which may be required.
5. TERMINATION.
-----------
(A) JUST CAUSE. The Board of Directors of the Company may terminate
----------
the employment of Executive with the Company and the Bank at any time for "Just
Cause." "Just Cause" shall mean personal dishonesty, incompetence, willful
misconduct or breach of a fiduciary duty involving personal profit in the
performance of his duties under this Agreement, intentional failure to perform
stated duties (provided that such nonperformance has continued for 10 days after
the Company has given written notice of such nonperformance to the Executive and
its intention to terminate Executive's employment because of such
nonperformance), willful violation of any law, rule or regulation (other than
traffic violations or similar offenses), final cease-and-desist order or
material breach of any provision of this Agreement. If Executive's employment is
terminated for "Just Cause", the Executive shall be entitled to receive his
theretofore unpaid
-3-
<PAGE>
base salary for the period of employment up to the date of termination, but
shall not be entitled to any compensation or employment benefits pursuant to
this Agreement for any period after the date of termination.
(B) TERMINATION OR SUSPENSION OF EMPLOYMENT AS REQUIRED BY LAW.
----------------------------------------------------------
Notwithstanding anything in this Agreement to the contrary, the following
provisions shall limit the obligation of the Company to continue employing
Executive, but only to the extent required by the applicable regulations of the
OTS (12 C.F.R. (S) 563.39), or similar succeeding regulations:
(i) If the 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 (12
U.S.C. (S) 1818(e)(3) and (g)(1)), the Company's obligations under this
Agreement shall be suspended as of the date of service of notice, unless stayed
by appropriate proceedings. If the charges in the notice are dismissed, the
Company may in its discretion (i) pay Executive all or part of the compensation
withheld while its contract obligations hereunder were suspended and (ii)
reinstate (in whole or in part) any of its obligations which were suspended. If
the Company does not pay Executive all of the compensation withheld while its
contract obligations hereunder were suspended or does not reinstate in whole its
obligations which were suspended, Executive may terminate his employment
hereunder pursuant to Section 5(d) and such termination shall be considered as
termination for "Good Reason."
(ii) If the 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 Federal Deposit Insurance Act (12 U.S.C. (S)
1818(e)(4) or (g)(1)) all obligations of the Company under this Agreement shall
terminate as of the effective date of the order.
(iii) If the Bank is in default (as defined in Section 3(x)(1)
of the Federal Deposit Insurance Act), all obligations to Executive hereunder
shall terminate as of the date of default, but such termination shall not affect
any vested rights of Executive, the Company or the Bank.
(iv) All obligations under this Agreement may be terminated,
except to the extent determined that continuation of the contract is necessary
for the continued operation of the Bank: (i) by the Director of the Office of
Thrift Supervision (the "Director") or his or her designee at the time the
Federal Deposit Insurance Company enters into an agreement to provide assistance
to or on behalf of the Bank under the authority contained in Section 13(c) of
the Federal Deposit Insurance Act and (ii) by the Director, or his or her
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.
-4-
<PAGE>
(v) Termination under this Section 5(b) shall not affect other
rights hereunder which are vested at the time of termination.
(C) VOLUNTARY TERMINATION. Executive may terminate his employment
---------------------
hereunder at any time for any reason upon giving the Company written notice, at
least ninety (90) days prior to termination of employment. Upon such
termination, Executive shall be entitled to receive Executive's theretofore
unpaid base salary for the period of employment up to the date of termination,
but shall not be entitled to any compensation or employment benefits pursuant to
this Agreement for any period after the date of termination.
(D) GOOD REASON. Executive may terminate his employment hereunder at
-----------
any time for "Good Reason." "Good Reason" shall be deemed to exist if Executive
terminates his employment because, without his express written consent, the
Company breaches any of the terms of this Agreement. If Executive terminates his
employment for "Good Reason," Executive shall receive (i) his base salary under
Section 3 hereof through the then-remaining term of employment under Section 2
(calculated as if his employment had not been terminated under this Section
5(d)), which amount shall be paid in a lump-sum or in equal monthly installments
at the discretion of Executive, (ii) his theretofore unpaid base salary and pro-
rated incentive compensation for the period of employment up to the date of
termination, (iii) medical and other insurance through the then remaining term
of employment under Section 2 (calculated as if his employment had not been
terminated under this Section 5(d)) consistent with the terms and conditions set
forth in Section 4, (iv) any other benefits to which Executive is entitled by
law or the specific terms of the Company's policies in effect at the time of
termination of employment and (v) an amount equal to the product of the
Company's or the Bank's annual aggregate contribution, for the benefit of
Executive in the year preceding termination, to all qualified retirement plans
in which Executive participated multiplied by three (calculated as if his
employment had not been terminated under this Section 5(d)). The benefit in (v)
under this Section 5(d) shall be in addition to any benefit payable from any
qualified or non-qualified plans or programs maintained by the Company or the
Bank at the time of termination. In no event, however, shall payments made
to Executive under this Section 5(d) exceed three times Executive's average
annual compensation (including base salary, commissions, bonuses, pension and
profit sharing plan awards, retirement, director or committee fees and fringe
benefits) for the most recent five taxable years.
(E) TERMINATION WITHOUT JUST CAUSE. The Company may terminate
------------------------------
Executive's employment without Just Cause, in which case the Executive shall
receive the amounts that would be paid Executive under Section 5(d) if he had
terminated his employment for Good Reason.
(F) CHANGE IN CONTROL. (i) If, at any time after the date hereof, a
-----------------
"Change in Control" (as hereinafter defined) occurs and within twelve (12)
months thereafter Executive's employment is terminated by the Company other than
for Just Cause or Executive terminates his employment for Good Reason, then
Executive shall be entitled to the benefits provided below.
(A) The Company shall promptly pay to Executive an amount
equal to the product of 2.99 times Executive's "base amount" as defined in
Section 280G(b)(3)
-5-
<PAGE>
of the Code (such "base amount" to be derived from Executive's compensation paid
by the Company and the Bank).
(B) For purposes of all employee benefit plans (including,
but not limited to, health and life insurance and incentive, pension and
retirement plans) of the Company and the Bank, Executive (and his dependents and
beneficiaries, as the case may be) shall be given service credit for all
purposes for, and shall be deemed to be an employee of the Company and the Bank
during, the term of this Agreement set forth in Section 2 (calculated as if
employment had not been terminated under this Section 5(f)), notwithstanding the
fact that he is no longer an employee of the Company or the Bank; provided that,
if the terms of any of such employee benefit plans do not permit such credit or
deemed employee treatment, the Company or the Bank will make payments and
distributions to Executive outside of the plans in amounts substantially
equivalent to the payments and distributions Executive would have received
pursuant to the terms of the plans and attributable to such credit or deemed
employee treatment, had such credit or deemed employee treatment been permitted
pursuant to the terms of the plans.
(ii) (A) Anything in this Agreement to the contrary
notwithstanding, it is the intention of the Company and Executive that no
portion of any payment under this Agreement, or payments to or for the benefit
of Executive under any other agreement or plan, be deemed an "Excess Parachute
Payment" as defined in Section 280G of the Code, or its successors. It is agreed
that the present value of and any payment to or for the benefit of Executive in
the nature of compensation, receipt of which is contingent on the occurrence of
a Change in Control, and to which Section 280G of the Code applies (in the
aggregate "Total Payments") shall not exceed an amount equal to one dollar less
than the maximum amount that the Company may pay without loss of deduction under
Section 280G(a) of the Code. Present value for purposes of this Agreement shall
be calculated in accordance with Section 280G(d)(4) of the Code. Within sixty
days (60) following the earlier of (1) the giving of notice of termination of
employment or (2) the giving of notice by the Company to Executive of its belief
that there is a payment or benefit due Executive, the Company, at the Company's
expense, shall obtain the opinion of the Company's public accounting firm (the
"Accounting Firm"), which opinion need not be unqualified, which sets forth: (a)
the amount of the Base Period Income of Executive (as defined in Code Section
280G), (b) the present value of Total Payments and (c) the amount and present
value of any excess parachute payments. In the event that such opinion
determines that there would be an Excess Parachute Payment, the payment
hereunder shall be modified, reduced or eliminated as specified by Executive in
writing delivered to the Company within thirty (30) days of his receipt of such
opinion or, if Executive fails to so notify the Company, then as the Company
shall reasonably determine, so that under the bases of calculation set forth in
such opinion there will be no Excess Parachute Payment. In the event that the
provisions of Sections 280G and 4999 of the Code are repealed without
succession, this Section shall be of no further force or effect.
-6-
<PAGE>
(B) In the event that the Accounting Firm is serving as
accountant or auditor for the individual, entity or group effecting the Change
in Control, Executive shall appoint another nationally recognized public
accounting firm to make the determinations required hereunder (which accounting
firm shall then be referred to as the Accounting Firm under Section
5(f)(ii)(A)). All fees and expenses of the Accounting Firm shall be borne solely
by the Company. Any determination by the Accounting Firm shall be binding upon
the Company and Executive.
(iii) For purposes of Section 5(f) of this Agreement, a "Change
in Control" shall be deemed to have occurred if:
(A) a third person, including a "group" as defined in
Section 13(d)(3) of the Securities Exchange Act of 1934 (as in effect on the
date hereof), becomes the beneficial owner of shares of the Company having 25%
or more of the total number of votes that may be cast for the election of
directors of the Company, including for this purpose any shares beneficially
owned by such third person or group as of the date hereof; or
(B) as the result of, or in connection with, any cash
tender or exchange offer, merger or other business combination, sale of assets
or contested election, or any combination of the foregoing transactions (a
"Transaction"), the persons who were directors of the Company before the
Transaction shall cease to constitute a majority of the Board of Directors of
the Company or any successor to the Company. (In the event of any reorganization
involving the Company in a transaction initiated by the Company in which the
shareholders of the Company immediately prior to such reorganization become the
shareholders of a successor or ultimate parent company of the Company resulting
from such reorganization and the persons who were directors of the Company
immediately prior to such reorganization constitute a majority of the Board of
Directors of such successor or ultimate parent, no "Change in Control" shall be
deemed to have taken place solely by reason of such reorganization,
notwithstanding the fact that the Company may have become the wholly-owned
subsidiary of another company in such reorganization and members of the Board of
Directors of the Company may have become members of the Board of Directors of
such successor company, and thereafter the term "Company" for purposes of this
paragraph shall refer to such successor or ultimate parent company.); or
(C) a third person, including a "group" as defined in
Section 13(d)(3) of the Securities Exchange Act of 1934 (as in effect on the
date hereof), acquires control, as defined in 12 C.F.R. (S) 574.4, or any
successor regulation, of the Company that would require the filing of an
application for acquisition of control or notice of change in control in a
manner set forth in 12 C.F.R. (S) 574.3, or any successor regulation.
6. DEATH OF EXECUTIVE. If Executive shall die during the term of this
------------------
Agreement, his employment with the Company and this Agreement shall terminate
and the Company shall pay to a beneficiary designated in writing by Executive,
or in the absence of such designation,
-7-
<PAGE>
to Executive's estate, the full amount of his theretofore unpaid base salary and
pro-rated incentive compensation for the period of employment up to the date of
termination, and the Company shall have no further obligations hereunder. The
preceding sentence shall not be construed to limit any benefit payable in the
event of the death of Executive under any applicable benefit plans or other
arrangements.
7. DISABILITY OF EXECUTIVE. If Executive becomes Totally and Permanently
-----------------------
Disabled (as defined below) during the term of this Agreement, the Company may
terminate Executive's employment and this Agreement, except Sections 8 and 9
hereof, by giving Executive written notice of such termination not less than 5
days before the effective date thereof. If Executive's employment and this
Agreement are terminated pursuant to this Section 7, the Company shall pay to
Executive his theretofore unpaid base salary and pro-rated incentive
compensation for the period of employment up to the date of termination, and the
Company shall have no further obligations to Executive under this Agreement.
The preceding sentence shall not be construed to limit any benefit payable to
Executive under any applicable benefit plans or other arrangements. The
Executive is Totally and Permanently Disabled for purposes of this Section 7 if
he is disabled or incapacitated to the extent that he is unable to perform the
duties of President and Chief Executive Officer of the Company or the Bank for
more than three (3) consecutive months, and such disability or incapacity is
expected to continue for more than three (3) additional months as certified by a
medical doctor of Executive's own choosing and concurred in by a doctor of the
Company's choosing.
8. COVENANT NOT TO COMPETE. Executive acknowledges that the Company
-----------------------
would be substantially damaged by an association of Executive with a depository
institution that competes for customers with the Company, the Bank and any
subsidiaries of the Company or the Bank. Without the consent of the Company,
Executive shall not at any time during the term of this Agreement or Executive's
employment, and for a period of three years thereafter (regardless of the reason
for termination), (a) solicit any person who was a customer of the Company or
the Bank or any of their subsidiaries during the two year period prior to the
termination of this Agreement or Executive's employment hereunder for Executive
or any other person, to offer the same products or render the same services to
such customer as were provided or proposed to be provided by the Company or the
Bank or any of their subsidiaries to such customer as of the time of termination
of Executive's employment, (b) directly or indirectly, on Executive's behalf or
in the service or on the behalf of others, render or be retained to render
similar services as described in Section 1 hereof, whether as an officer,
partner, trustee, consultant, or employee for any depository institution, which
has a banking office located within 25 miles of any office of the Bank or any
banking office of the Company as of the date of Executive's termination of
employment, provided, however, that Executive shall not be deemed to have
breached this undertaking if his sole relationship with any other such entity
consists of his holding, directly or indirectly, an equity interest in such
entity not greater than three percent (3%) of such entity's outstanding equity
interest, or (c) actively induce or solicit any employees of the Company or the
Bank to leave such employ. For purposes of this Section 8, "person"
-8-
<PAGE>
shall include any individual, corporation, partnership, trust, firm,
proprietorship, venture or other entity of any nature whatsoever.
9. CONFIDENTIAL INFORMATION. Executive acknowledges that he now has, and
------------------------
hereunder will have, access to important and confidential information regarding
the business and services of the Company, the Bank and their subsidiaries, and
that the disclosure to, or the use of such information by, any business in
competition with the Company, the Bank or their subsidiaries shall result in
substantial and undeterminable harm to the Company, the Bank and its
subsidiaries. In order to protect the Company, the Bank and its subsidiaries
against such harm and from unfair competition, Executive agrees with the Company
that while employed by the Company and at any time thereafter, Executive will
not disclose, communicate or divulge to anyone, or use in any manner adverse to
the Company, the Bank or their subsidiaries any information concerning
customers, methods of business, financial information or other confidential
information of the Company, the Bank, or their subsidiaries, except for
information as is in the public domain or ascertainable through common sources
of public information (otherwise than as a result of any breach of this covenant
by Executive).
10. LIMITATION ON TERMINATION OR DISABILITY PAY. Any payments made to
-------------------------------------------
Executive pursuant to this Agreement or otherwise are subject to and conditioned
upon the compliance of such payments with 12 U.S.C. (S) 1828(k) and any
regulations promulgated thereunder.
11. LEGAL FEES AND EXPENSES. The Company shall pay all legal fees and
------------------------
expenses that Executive may incur in connection with his enforcement of the
terms of this Agreement, but only if and after a legal judgment or settlement
has been reached. Executive shall be entitled to receive interest thereon for
the period of any delay in payment from the date such payment was due at the
rate determined by adding two hundred basis points to the six-month Treasury
Bill rate.
12. INQUIRIES REGARDING PROPOSED ACTIVITIES. In the event Executive shall
---------------------------------------
inquire in writing of the Company whether any proposed action on the part of
Executive would be considered by the Company to be prohibited by or in breach of
the terms of this Agreement, the Company shall have 30 days after receipt of
such notice to express in writing to Executive its position with respect thereof
and in the event such writing shall not be given to Executive, such proposed
action, as set forth in the writing of the Company, shall not be deemed to be a
violation of or breach of this Agreement.
13. NO DUTY OF MITIGATION. Executive shall not be required to mitigate
---------------------
the amount of any payment or benefit provided for in this Agreement by seeking
other employment or otherwise, nor shall the amount of any payment or benefit
provided for in this Agreement be reduced by any compensation earned by
Executive as the result of employment by another employer, by retirement
benefits after the date of termination or otherwise.
-9-
<PAGE>
14. SUCCESSORS. This Agreement may not be assigned by the Company except
-----------
in connection with a merger involving the Company or a sale of substantially all
of its assets (subject to the Change in Control provisions of Section 5(f)), and
the obligations of the Company provided for in this Agreement shall be formally
assumed by, and be the binding legal obligations of, any successor to the
Company by purchase, merger, consolidation, or otherwise. This Agreement may not
be assigned by Executive during his life, and upon his death will be binding
upon and inure to the benefit of his heirs, legatees and the legal
representatives of his estate.
15. NOTICE. For the purposes of this Agreement, notices and all other
------
communications provided for in this Agreement shall be in writing and shall be
deemed to have been duly given when personally delivered or sent by certified
mail, return receipt requested, postage prepaid, addressed to the respective
addresses set forth on the first page of this Agreement (provided that all
notices to the Company shall be directed to the attention of the Board of
Directors of the Company with a copy to the Secretary of the Company), or to
such other address as either party may have furnished to the other in writing in
accordance herewith.
16. AMENDMENTS. No amendment or additions to this Agreement shall be
----------
binding unless in writing and signed by all parties, except as herein otherwise
provided.
17. SEVERABILITY. The provisions of this Agreement shall be deemed
-------------
severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability of the other provisions hereof. If,
however, any provision of this Agreement is declared invalid or unenforceable by
a court of competent jurisdiction, then the parties hereto shall in good faith
amend this Agreement to include an alternative provision that accomplishes a
similar result.
18. GOVERNING LAW. This Agreement shall be governed by the laws of the
-------------
United States to the extent applicable and otherwise by the internal laws of the
State of Missouri.
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<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
EQUALITY BANCORP, INC.
By: _____________________________
Its:_______________________________
EXECUTIVE
__________________________________
Richard C. Fellhauer
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<PAGE>
EXHIBIT 10.6
SHW Draft
=========
8-4-97
======
EMPLOYMENT AGREEMENT
--------------------
This Employment Agreement (this "Agreement") is entered into as of
this ____ day of ______________, 1997 between Michael A. Deelo ("Executive") and
Equality Bancorp, Inc., a Delaware corporation (the "Company").
WHEREAS, Executive is currently employed by Equality Savings and Loan
Association, F.A. (the "Association"), a federally-chartered capital stock
savings association, as its Executive Vice President and Chief Financial Officer
under the employment agreement entered into between Executive, First Missouri
Financial, M.H.C. ("First Missouri"), the Association's mutual holding company,
and the Association dated as of March 1, 1996, (the "Prior Agreement"); and
WHEREAS, Executive is currently employed by First Missouri as its Vice
President and Treasurer; and
WHEREAS, First Missouri and the Association adopted a Plan of
Conversion and Reorganization on May 16, 1997, as subsequently amended, whereby,
among other things, First Missouri will be converted to the stock form of
organization, the Association will change its corporate title to "Equality
Savings Bank" (the "Bank"), the Company will acquire 100 percent of the
outstanding shares of stock of the Bank, First Missouri will cease to exist and
the Company will issue shares of its common stock in an exchange offer to the
public stockholders of the Association and in a subscription and community
offering to eligible members of First Missouri and the general public; and
WHEREAS, Executive and the Company desire to enter into this Agreement
pertaining to the terms of the employment of Executive by the Company and the
continued employment of the Executive by the Bank and the security the Company
is providing to Executive with respect to his employment in lieu of the terms
and conditions of the Prior Agreement;
NOW, THEREFORE, the parties hereto agree as follows:
1. EMPLOYMENT OF EXECUTIVE. The Company hereby employs Executive, and
-----------------------
Executive hereby accepts employment with the Company, upon the terms and
conditions hereinafter set forth, for the term set forth in Section 2 of this
Agreement. Executive is employed by the Company to perform the duties of
Treasurer and Chief Financial Officer of the Company and Executive Vice
President and Chief Financial Officer of the Bank, and the Company shall cause
the Bank to appoint Executive to such positions. The services to be performed by
the Executive shall include those normally performed by the Executive Vice
<PAGE>
President, Treasurer and Chief Financial Officer of similar banking
organizations and as directed by the Board of Directors of the Company, which
are not inconsistent with the foregoing. It is the Company's present intention
that the services to be performed by Executive shall be substantially similar to
the services presently being performed by Executive. Executive agrees to devote
his full business time to the rendition of such services, subject to absences
for customary vacations and for temporary illnesses. The Company agrees that
during the term of this Agreement (a) it will not reduce the Executive's job
titles, status or responsibilities without the Executive's consent, (b)
Executive shall not be required, without his express written consent, to be
based anywhere other than within the St. Louis metropolitan area, except for
reasonable business travel in connection with the Company's business, (c)
Executive shall not be assigned duties materially inconsistent with his
position, duties, responsibilities, and status as Treasurer and Chief Financial
Officer of the Company and Executive Vice President and Chief Financial Officer
of the Bank, (d) it will not change in any significant way the nature or scope
of Executive's authority or his overall working environment, (e) it will not
terminate any incentive compensation plan or arrangement, so that when
considered in the aggregate and with any substitute plan or plans, the incentive
plan or arrangement in which Executive is participating fail to provide him with
substantially the same level of benefits, (f) it will not materially reduce the
secretarial or other administrative support of the Executive, (g) it will not
materially reduce the number or seniority of other Company personnel who report
to Executive, or materially reduce the frequency with which, or the nature of
the matters with respect to which, such personnel are to report to Executive,
other than as part of a Company-wide reduction in staff; and (h) it will not
reduce or adversely change the salary, perquisites, benefits, contingent
benefits or vacation time which had theretofore been provided to the Executive.
During the term of this Agreement, Executive also shall serve as an officer of
any subsidiaries of the Company or the Bank without any additional compensation.
Executive also may serve on boards of directors of charitable organizations and
other business corporations and may request personal time off to attend to
civic, charitable and personal investment activities, provided Executive
notifies the Board of Directors of the Company concerning such service and
activities, the Board of Directors does not disapprove them and such service and
activities do not interfere with the discharge of Executive's management duties.
2. TERM OF EMPLOYMENT. The term of this Agreement and of Executive's
------------------
employment hereunder shall be for an initial period commencing on the date
hereof (the "Commencement Date") and ending on the third anniversary of the date
hereof, unless terminated earlier as provided in Sections 5, 6 and 7 hereof.
Beginning on the date one year after the Commencement Date, and each anniversary
of the Commencement Date thereafter but not including the expiration date of
this Agreement (each such date is hereinafter referred to as an "Anniversary
Date"), the Board of Directors of the Company may extend the term of this
-2-
<PAGE>
Agreement for a period of one year in addition to the then-remaining term, if
any, by giving the Executive written notice of such extension. Reference herein
to the term of this Agreement shall refer to both the initial term and such
extended term.
3. COMPENSATION. The Company agrees to compensate (to the extent the
------------
Bank does not so compensate), the Executive for his services hereunder during
the term of this Agreement by payment of a base salary at the annual rate of
$________ in such monthly, semi-monthly or other payments as are from time to
time applicable to other executive officers of the Bank. The Executive's salary
may be increased from time to time during the term of this Agreement in the sole
discretion of the Board of Directors of the Company, but Executive's salary
shall not be reduced below the level then in effect. In addition, Executive
shall be entitled to participate in incentive compensation plans or arrangements
as may from time to time be established by the Company or the Bank on a basis
consistent with the treatment of other executive officers of the Company or the
Bank (but recognizing differences in responsibilities among executive officers).
Executive also shall be entitled to receive any other bonus or discretionary
compensation payments as the Board of Directors of the Company may determine
from time to time.
4. ADDITIONAL BENEFITS - EXPENSES. Executive shall be provided such
------------------------------
other benefits (including but not limited to medical, health, life and other
insurance coverage) and shall be entitled to participate in such retirement
plans of the Company and the Bank, as are generally made available to other
executive officers of the Company or the Bank. During his employment, Executive
also shall be entitled to customary vacations in accordance with vacation
policies and practices of the Company or the Bank prevailing from time to time,
and to reimbursement for reasonable expenses incurred on behalf of the Company
or the Bank in accordance with the then prevailing policies and practices of the
Company. All payments under this Agreement shall be subject to all federal,
state or local withholdings which may be required.
5. TERMINATION.
-----------
(A) JUST CAUSE. The Board of Directors of the Company may terminate
----------
the employment of Executive with the Company and the Bank at any time for "Just
Cause." "Just Cause" shall mean personal dishonesty, incompetence, willful
misconduct or breach of a fiduciary duty involving personal profit in the
performance of his duties under this Agreement, intentional failure to perform
stated duties (provided that such nonperformance has continued for 10 days after
the Company has given written notice of such nonperformance to the Executive and
its intention to terminate Executive's employment because of such
nonperformance), willful violation of any law, rule or regulation (other than
traffic violations or similar offenses), final cease-and-desist order or
material breach of any provision of this Agreement. If Executive's employment is
terminated for "Just Cause", the Executive shall be entitled to receive his
theretofore unpaid base salary for the period of employment up to the date of
termination, but shall not be entitled
-3-
<PAGE>
to any compensation or employment benefits pursuant to this Agreement for any
period after the date of termination.
(B) TERMINATION OR SUSPENSION OF EMPLOYMENT AS REQUIRED BY LAW.
----------------------------------------------------------
Notwithstanding anything in this Agreement to the contrary, the following
provisions shall limit the obligation of the Company to continue employing
Executive, but only to the extent required by the applicable regulations of the
OTS (12 C.F.R. (S) 563.39), or similar succeeding regulations:
(i) If the 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 (12
U.S.C. (S) 1818(e)(3) and (g)(1)), the Company's obligations under this
Agreement shall be suspended as of the date of service of notice, unless stayed
by appropriate proceedings. If the charges in the notice are dismissed, the
Company may in its discretion (i) pay Executive all or part of the compensation
withheld while its contract obligations hereunder were suspended and (ii)
reinstate (in whole or in part) any of its obligations which were suspended. If
the Company does not pay Executive all of the compensation withheld while its
contract obligations hereunder were suspended or does not reinstate in whole its
obligations which were suspended, Executive may terminate his employment
hereunder pursuant to Section 5(d) and such termination shall be considered as
termination for "Good Reason."
(ii) If the 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 Federal Deposit Insurance Act (12 U.S.C. (S)
1818(e)(4) or (g)(1)) all obligations of the Company under this Agreement shall
terminate as of the effective date of the order.
(iii) If the Bank is in default (as defined in Section 3(x)(1)
of the Federal Deposit Insurance Act), all obligations to Executive hereunder
shall terminate as of the date of default, but such termination shall not affect
any vested rights of Executive, the Company or the Bank.
(iv) All obligations under this Agreement may be terminated,
except to the extent determined that continuation of the contract is necessary
for the continued operation of the Bank: (i) by the Director of the Office of
Thrift Supervision (the "Director") or his or her designee at the time the
Federal Deposit Insurance Company enters into an agreement to provide assistance
to or on behalf of the Bank under the authority contained in Section 13(c) of
the Federal Deposit Insurance Act and (ii) by the Director, or his or her
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.
-4-
<PAGE>
(v) Termination under this Section 5(b) shall not affect other
rights hereunder which are vested at the time of termination.
(C) VOLUNTARY TERMINATION. Executive may terminate his employment
---------------------
hereunder at any time for any reason upon giving the Company written notice, at
least ninety (90) days prior to termination of employment. Upon such
termination, Executive shall be entitled to receive Executive's theretofore
unpaid base salary for the period of employment up to the date of termination,
but shall not be entitled to any compensation or employment benefits pursuant to
this Agreement for any period after the date of termination.
(D) GOOD REASON. Executive may terminate his employment hereunder at
-----------
any time for "Good Reason." "Good Reason" shall be deemed to exist if Executive
terminates his employment because, without his express written consent, the
Company breaches any of the terms of this Agreement. If Executive terminates his
employment for "Good Reason," Executive shall receive (i) his base salary under
Section 3 hereof through the then-remaining term of employment under Section 2
(calculated as if his employment had not been terminated under this Section
5(d)), which amount shall be paid in a lump-sum or in equal monthly installments
at the discretion of Executive, (ii) his theretofore unpaid base salary and pro-
rated incentive compensation for the period of employment up to the date of
termination, (iii) medical and other insurance through the then remaining term
of employment under Section 2 (calculated as if his employment had not been
terminated under this Section 5(d)) consistent with the terms and conditions set
forth in Section 4, (iv) any other benefits to which Executive is entitled by
law or the specific terms of the Company's policies in effect at the time of
termination of employment and (v) an amount equal to the product of the
Company's or the Bank's annual aggregate contribution, for the benefit of
Executive in the year preceding termination, to all qualified retirement plans
in which Executive participated multiplied by three (calculated as if his
employment had not been terminated under this Section 5(d)). The benefit in (v)
under this Section 5(d) shall be in addition to any benefit payable from any
qualified or non-qualified plans or programs maintained by the Company or the
Bank at the time of termination. In no event, however, shall payments made to
Executive under this Section 5(d) exceed three times Executive's average annual
compensation (including base salary, commissions, bonuses, pension and profit
sharing awards, retirement, director or committee fees and fringe benefits) for
the most recent five taxable years.
(E) TERMINATION WITHOUT JUST CAUSE. The Company may terminate
------------------------------
Executive's employment without Just Cause, in which case the Executive shall
receive the amounts that would be paid Executive under Section 5(d) if he had
terminated his employment for Good Reason.
(F) CHANGE IN CONTROL. (i) If, at any time after the date hereof, a
-----------------
"Change in Control" (as hereinafter defined) occurs and within twelve (12)
months thereafter Executive's employment is terminated by the Company other than
for Just Cause or Executive terminates his employment for Good Reason, then
Executive shall be entitled to the benefits provided below.
(A) The Company shall promptly pay to Executive an amount
equal to the product of 2.99 times Executive's "base amount" as defined in
Section 280G(b)(3)
-5-
<PAGE>
of the Code (such "base amount" to be derived from Executive's compensation paid
by the Company and the Bank).
(B) For purposes of all employee benefit plans (including,
but not limited to, health and life insurance and incentive, pension and
retirement plans) of the Company and the Bank, Executive (and his dependents and
beneficiaries, as the case may be) shall be given service credit for all
purposes for, and shall be deemed to be an employee of the Company and the Bank
during, the term of this Agreement set forth in Section 2 (calculated as if
employment had not been terminated under this Section 5(f)), notwithstanding the
fact that he is no longer an employee of the Company or the Bank; provided that,
if the terms of any of such employee benefit plans do not permit such credit or
deemed employee treatment, the Company or the Bank will make payments and
distributions to Executive outside of the plans in amounts substantially
equivalent to the payments and distributions Executive would have received
pursuant to the terms of the plans and attributable to such credit or deemed
employee treatment, had such credit or deemed employee treatment been permitted
pursuant to the terms of the plans.
(ii) (A) Anything in this Agreement to the contrary
notwithstanding, it is the intention of the Company and Executive that no
portion of any payment under this Agreement, or payments to or for the benefit
of Executive under any other agreement or plan, be deemed an "Excess Parachute
Payment" as defined in Section 280G of the Code, or its successors. It is agreed
that the present value of and any payment to or for the benefit of Executive in
the nature of compensation, receipt of which is contingent on the occurrence of
a Change in Control, and to which Section 280G of the Code applies (in the
aggregate "Total Payments") shall not exceed an amount equal to one dollar less
than the maximum amount that the Company may pay without loss of deduction under
Section 280G(a) of the Code. Present value for purposes of this Agreement shall
be calculated in accordance with Section 280G(d)(4) of the Code. Within sixty
days (60) following the earlier of (1) the giving of notice of termination of
employment or (2) the giving of notice by the Company to Executive of its belief
that there is a payment or benefit due Executive, the Company, at the Company's
expense, shall obtain the opinion of the Company's public accounting firm (the
"Accounting Firm"), which opinion need not be unqualified, which sets forth: (a)
the amount of the Base Period Income of Executive (as defined in Code Section
280G), (b) the present value of Total Payments and (c) the amount and present
value of any excess parachute payments. In the event that such opinion
determines that there would be an Excess Parachute Payment, the payment
hereunder shall be modified, reduced or eliminated as specified by Executive in
writing delivered to the Company within thirty (30) days of his receipt of such
opinion or, if Executive fails to so notify the Company, then as the Company
shall reasonably determine, so that under the bases of calculation set forth in
such opinion there will be no Excess Parachute Payment. In the event that the
provisions of Sections 280G and 4999 of the Code are repealed without
succession, this Section shall be of no further force or effect.
-6-
<PAGE>
(B) In the event that the Accounting Firm is serving as
accountant or auditor for the individual, entity or group effecting the Change
in Control, Executive shall appoint another nationally recognized public
accounting firm to make the determinations required hereunder (which accounting
firm shall then be referred to as the Accounting Firm under Section
5(f)(ii)(A)). All fees and expenses of the Accounting Firm shall be borne solely
by the Company. Any determination by the Accounting Firm shall be binding upon
the Company and Executive.
(iii) For purposes of Section 5(f) of this Agreement, a "Change
in Control" shall be deemed to have occurred if:
(A) a third person, including a "group" as defined in
Section 13(d)(3) of the Securities Exchange Act of 1934 (as in effect on the
date hereof), becomes the beneficial owner of shares of the Company having 25%
or more of the total number of votes that may be cast for the election of
directors of the Company, including for this purpose any shares beneficially
owned by such third person or group as of the date hereof; or
(B) as the result of, or in connection with, any cash
tender or exchange offer, merger or other business combination, sale of assets
or contested election, or any combination of the foregoing transactions (a
"Transaction"), the persons who were directors of the Company before the
Transaction shall cease to constitute a majority of the Board of Directors of
the Company or any successor to the Company. (In the event of any reorganization
involving the Company in a transaction initiated by the Company in which the
shareholders of the Company immediately prior to such reorganization become the
shareholders of a successor or ultimate parent company of the Company resulting
from such reorganization and the persons who were directors of the Company
immediately prior to such reorganization constitute a majority of the Board of
Directors of such successor or ultimate parent, no "Change in Control" shall be
deemed to have taken place solely by reason of such reorganization,
notwithstanding the fact that the Company may have become the wholly-owned
subsidiary of another company in such reorganization and members of the Board of
Directors of the Company may have become members of the Board of Directors of
such successor company, and thereafter the term "Company" for purposes of this
paragraph shall refer to such successor or ultimate parent company.); or
(C) a third person, including a "group" as defined in
Section 13(d)(3) of the Securities Exchange Act of 1934 (as in effect on the
date hereof), acquires control, as defined in 12 C.F.R. (S) 574.4, or any
successor regulation, of the Company that would require the filing of an
application for acquisition of control or notice of change in control in a
manner set forth in 12 C.F.R. (S) 574.3, or any successor regulation.
6. DEATH OF EXECUTIVE. If Executive shall die during the term of this
------------------
Agreement, his employment with the Company and this Agreement shall terminate
and the Company shall pay to a beneficiary designated in writing by Executive,
or in the absence of such designation,
-7-
<PAGE>
to Executive's estate, the full amount of his theretofore unpaid base salary and
pro-rated incentive compensation for the period of employment up to the date of
termination, and the Company shall have no further obligations hereunder. The
preceding sentence shall not be construed to limit any benefit payable in the
event of the death of Executive under any applicable benefit plans or other
arrangements.
7. DISABILITY OF EXECUTIVE. If Executive becomes Totally and Permanently
-----------------------
Disabled (as defined below) during the term of this Agreement, the Company may
terminate Executive's employment and this Agreement, except Sections 8 and 9
hereof, by giving Executive written notice of such termination not less than 5
days before the effective date thereof. If Executive's employment and this
Agreement are terminated pursuant to this Section 7, the Company shall pay to
Executive his theretofore unpaid base salary and pro-rated incentive
compensation for the period of employment up to the date of termination, and the
Company shall have no further obligations to Executive under this Agreement. The
preceding sentence shall not be construed to limit any benefit payable to
Executive under any applicable benefit plans or other arrangements. The
Executive is Totally and Permanently Disabled for purposes of this Section 7 if
he is disabled or incapacitated to the extent that he is unable to perform the
duties of Treasurer and Chief Financial Officer of the Company or Executive Vice
President and Chief Financial Officer of the Bank for more than three (3)
consecutive months, and such disability or incapacity is expected to continue
for more than three (3) additional months as certified by a medical doctor of
Executive's own choosing and concurred in by a doctor of the Company's choosing.
8. COVENANT NOT TO COMPETE. Executive acknowledges that the Company
-----------------------
would be substantially damaged by an association of Executive with a depository
institution that competes for customers with the Company, the Bank and any
subsidiaries of the Company or the Bank. Without the consent of the Company,
Executive shall not at any time during the term of this Agreement or Executive's
employment, and for a period of three years thereafter (regardless of the reason
for termination), (a) solicit any person who was a customer of the Company or
the Bank or any of their subsidiaries during the two year period prior to the
termination of this Agreement or Executive's employment hereunder for Executive
or any other person, to offer the same products or render the same services to
such customer as were provided or proposed to be provided by the Company or the
Bank or any of their subsidiaries to such customer as of the time of termination
of Executive's employment, (b) directly or indirectly, on Executive's behalf or
in the service or on the behalf of others, render or be retained to render
similar services as described in Section 1 hereof, whether as an officer,
partner, trustee, consultant, or employee for any depository institution, which
has a banking office located within 25 miles of any office of the Bank or any
banking office of the Company as of the date of Executive's termination of
employment, provided, however, that Executive shall not be deemed to have
breached this undertaking if his sole relationship with any other such entity
consists of his holding, directly or indirectly, an equity interest in such
entity not greater than three percent (3%) of such entity's outstanding equity
interest, or (c) actively induce or solicit any employees of the Company or the
Bank to leave such employ. For purposes of this Section 8, "person"
-8-
<PAGE>
shall include any individual, corporation, partnership, trust, firm,
proprietorship, venture or other entity of any nature whatsoever.
9. CONFIDENTIAL INFORMATION. Executive acknowledges that he now has, and
------------------------
hereunder will have, access to important and confidential information regarding
the business and services of the Company, the Bank and their subsidiaries, and
that the disclosure to, or the use of such information by, any business in
competition with the Company, the Bank or their subsidiaries shall result in
substantial and undeterminable harm to the Company, the Bank and its
subsidiaries. In order to protect the Company, the Bank and its subsidiaries
against such harm and from unfair competition, Executive agrees with the Company
that while employed by the Company and at any time thereafter, Executive will
not disclose, communicate or divulge to anyone, or use in any manner adverse to
the Company, the Bank or their subsidiaries any information concerning
customers, methods of business, financial information or other confidential
information of the Company, the Bank, or their subsidiaries, except for
information as is in the public domain or ascertainable through common sources
of public information (otherwise than as a result of any breach of this covenant
by Executive).
10. LIMITATION ON TERMINATION OR DISABILITY PAY. Any payments made to
-------------------------------------------
Executive pursuant to this Agreement or otherwise are subject to and conditioned
upon the compliance of such payments with 12 U.S.C. (S) 1828(k) and any
regulations promulgated thereunder.
11. LEGAL FEES AND EXPENSES. The Company shall pay all legal fees and
------------------------
expenses that Executive may incur in connection with his enforcement of the
terms of this Agreement, but only if and after a legal judgment or settlement
has been reached. Executive shall be entitled to receive interest thereon for
the period of any delay in payment from the date such payment was due at the
rate determined by adding two hundred basis points to the six-month Treasury
Bill rate.
12. INQUIRIES REGARDING PROPOSED ACTIVITIES. In the event Executive shall
---------------------------------------
inquire in writing of the Company whether any proposed action on the part of
Executive would be considered by the Company to be prohibited by or in breach of
the terms of this Agreement, the Company shall have 30 days after receipt of
such notice to express in writing to Executive its position with respect thereof
and in the event such writing shall not be given to Executive, such proposed
action, as set forth in the writing of the Company, shall not be deemed to be a
violation of or breach of this Agreement.
13. NO DUTY OF MITIGATION. Executive shall not be required to mitigate
---------------------
the amount of any payment or benefit provided for in this Agreement by seeking
other employment or otherwise, nor shall the amount of any payment or benefit
provided for in this Agreement be reduced by any compensation earned by
Executive as the result of employment by another employer, by retirement
benefits after the date of termination or otherwise.
-9-
<PAGE>
14. SUCCESSORS. This Agreement may not be assigned by the Company except
-----------
in connection with a merger involving the Company or a sale of substantially all
of its assets (subject to the Change in Control provisions of Section 5(f)), and
the obligations of the Company provided for in this Agreement shall be formally
assumed by, and be the binding legal obligations of, any successor to the
Company by purchase, merger, consolidation, or otherwise. This Agreement may not
be assigned by Executive during his life, and upon his death will be binding
upon and inure to the benefit of his heirs, legatees and the legal
representatives of his estate.
15. NOTICE. For the purposes of this Agreement, notices and all other
------
communications provided for in this Agreement shall be in writing and shall be
deemed to have been duly given when personally delivered or sent by certified
mail, return receipt requested, postage prepaid, addressed to the respective
addresses set forth on the first page of this Agreement (provided that all
notices to the Company shall be directed to the attention of the Board of
Directors of the Company with a copy to the Secretary of the Company), or to
such other address as either party may have furnished to the other in writing in
accordance herewith.
16. AMENDMENTS. No amendment or additions to this Agreement shall be
----------
binding unless in writing and signed by all parties, except as herein otherwise
provided.
17. SEVERABILITY. The provisions of this Agreement shall be deemed
-------------
severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability of the other provisions hereof. If,
however, any provision of this Agreement is declared invalid or unenforceable by
a court of competent jurisdiction, then the parties hereto shall in good faith
amend this Agreement to include an alternative provision that accomplishes a
similar result.
18. GOVERNING LAW. This Agreement shall be governed by the laws of the
-------------
United States to the extent applicable and otherwise by the internal laws of the
State of Missouri.
-10-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
EQUALITY BANCORP, INC.
By: ______________________________
Its:______________________________
EXECUTIVE
__________________________________
Michael A. Deelo
<PAGE>
EXHIBIT 10.7
SHW Draft
=========
8-4-97
======
EMPLOYMENT AGREEMENT
--------------------
This Employment Agreement (this "Agreement") is entered into as of this
____ day of ______________, 1997 between Leonard O. Wolter ("Executive") and
Equality Bancorp, Inc., a Delaware corporation (the "Company").
WHEREAS, Executive is currently employed by Equality Savings and Loan
Association, F.A. (the "Association"), a federally-chartered capital stock
savings association, as its Vice President under the employment agreement
entered into between Executive, First Missouri Financial, M.H.C. ("First
Missouri"), the Association's mutual holding company, and the Association dated
as of March 1, 1996, (the "Prior Agreement"); and
WHEREAS, Executive is currently employed by First Missouri as its Vice
President; and
WHEREAS, First Missouri and the Association adopted a Plan of Conversion
and Reorganization on May 16, 1997, as subsequently amended, whereby, among
other things, First Missouri will be converted to the stock form of
organization, the Association will change its corporate title to "Equality
Savings Bank" (the "Bank"), the Company will acquire 100 percent of the
outstanding shares of stock of the Bank, First Missouri will cease to exist and
the Company will issue shares of its common stock in an exchange offer to the
public stockholders of the Association and in a subscription and community
offering to eligible members of First Missouri and the general public; and
WHEREAS, Executive and the Company desire to enter into this Agreement
pertaining to the terms of the employment of Executive by the Company and the
continued employment of the Executive by the Bank and the security the Company
is providing to Executive with respect to his employment in lieu of the terms
and conditions of the Prior Agreement;
NOW, THEREFORE, the parties hereto agree as follows:
1. EMPLOYMENT OF EXECUTIVE. The Company hereby employs Executive, and
-----------------------
Executive hereby accepts employment with the Company, upon the terms and
conditions hereinafter set forth, for the term set forth in Section 2 of this
Agreement. Executive is employed by the Company to perform the duties of Vice
President of the Company and the Bank, and the Company shall cause the Bank to
appoint Executive to such positions. The services to be performed by the
Executive shall include those normally performed by the Vice President of
similar banking organizations and as directed by the Board of Directors of the
Company, which are not inconsistent with the foregoing. It is the Company's
present intention
<PAGE>
that the services to be performed by Executive shall be substantially similar to
the services presently being performed by Executive. Executive agrees to devote
his full business time to the rendition of such services, subject to absences
for customary vacations and for temporary illnesses. The Company agrees that
during the term of this Agreement (a) it will not reduce the Executive's job
titles, status or responsibilities without the Executive's consent, (b)
Executive shall not be required, without his express written consent, to be
based anywhere other than within the St. Louis metropolitan area, except for
reasonable business travel in connection with the Company's business, (c)
Executive shall not be assigned duties materially inconsistent with his
position, duties, responsibilities, and status as Vice President of the Company
and the Bank, (d) it will not change in any significant way the nature or scope
of Executive's authority or his overall working environment, (e) it will not
terminate any incentive compensation plan or arrangement, so that when
considered in the aggregate and with any substitute plan or plans, the incentive
plan or arrangement in which Executive is participating fail to provide him with
substantially the same level of benefits, (f) it will not materially reduce the
secretarial or other administrative support of the Executive, (g) it will not
materially reduce the number or seniority of other Company personnel who report
to Executive, or materially reduce the frequency with which, or the nature of
the matters with respect to which, such personnel are to report to Executive,
other than as part of a Company-wide reduction in staff; and (h) it will not
reduce or adversely change the salary, perquisites, benefits, contingent
benefits or vacation time which had theretofore been provided to the Executive.
During the term of this Agreement, Executive also shall serve as an officer of
any subsidiaries of the Company or the Bank without any additional compensation.
Executive also may serve on boards of directors of charitable organizations and
other business corporations and may request personal time off to attend to
civic, charitable and personal investment activities, provided Executive
notifies the Board of Directors of the Company concerning such service and
activities, the Board of Directors does not disapprove them and such service and
activities do not interfere with the discharge of Executive's management duties.
2. TERM OF EMPLOYMENT. The term of this Agreement and of Executive's
------------------
employment hereunder shall be for an initial period commencing on the date
hereof (the "Commencement Date") and ending on the third anniversary of the date
hereof, unless terminated earlier as provided in Sections 5, 6 and 7 hereof.
Beginning on the date one year after the Commencement Date, and each anniversary
of the Commencement Date thereafter but not including the expiration date of
this Agreement (each such date is hereinafter referred to as an "Anniversary
Date"), the Board of Directors of the Company may extend the term of this
Agreement for a period of one year in addition to the then-remaining term, if
any, by giving the Executive written notice of such extension. Reference herein
to the term of this Agreement shall refer to both the initial term and such
extended term.
-2-
<PAGE>
3. COMPENSATION. The Company agrees to compensate (to the extent the
------------
Bank does not so compensate) the Executive for his services hereunder during
the term of this Agreement by payment of a base salary at the annual rate of
$________ in such monthly, semi-monthly or other payments as are from time to
time applicable to other executive officers of the Bank. The Executive's salary
may be increased from time to time during the term of this Agreement in the sole
discretion of the Board of Directors of the Company, but Executive's salary
shall not be reduced below the level then in effect. In addition, Executive
shall be entitled to participate in incentive compensation plans or arrangements
as may from time to time be established by the Company or the Bank on a basis
consistent with the treatment of other executive officers of the Company or the
Bank (but recognizing differences in responsibilities among executive officers).
Executive also shall be entitled to receive any other bonus or discretionary
compensation payments as the Board of Directors of the Company may determine
from time to time.
4. ADDITIONAL BENEFITS - EXPENSES. Executive shall be provided such other
------------------------------
benefits (including but not limited to medical, health, life and other insurance
coverage) and shall be entitled to participate in such retirement plans of the
Company and the Bank, as are generally made available to other executive
officers of the Company or the Bank. During his employment, Executive also
shall be entitled to customary vacations in accordance with vacation policies
and practices of the Company or the Bank prevailing from time to time, and to
reimbursement for reasonable expenses incurred on behalf of the Company or the
Bank in accordance with the then prevailing policies and practices of the
Company. All payments under this Agreement shall be subject to all federal,
state or local withholdings which may be required.
5. TERMINATION.
-----------
(A) JUST CAUSE. The Board of Directors of the Company may
----------
terminate the employment of Executive with the Company and the Bank at any time
for "Just Cause." "Just Cause" shall mean personal dishonesty, incompetence,
willful misconduct or breach of a fiduciary duty involving personal profit in
the performance of his duties under this Agreement, intentional failure to
perform stated duties (provided that such nonperformance has continued for 10
days after the Company has given written notice of such nonperformance to the
Executive and its intention to terminate Executive's employment because of such
nonperformance), willful violation of any law, rule or regulation (other than
traffic violations or similar offenses), final cease-and-desist order or
material breach of any provision of this Agreement. If Executive's employment is
terminated for "Just Cause", the Executive shall be entitled to receive his
theretofore unpaid base salary for the period of employment up to the date of
termination, but shall not be entitled to any compensation or employment
benefits pursuant to this Agreement for any period after the date of
termination.
(B) TERMINATION OR SUSPENSION OF EMPLOYMENT AS REQUIRED BY LAW.
----------------------------------------------------------
Notwithstanding anything in this Agreement to the contrary, the following
provisions shall limit
-3-
<PAGE>
the obligation of the Company to continue employing Executive, but only to the
extent required by the applicable regulations of the OTS (12 C.F.R. (S) 563.39),
or similar succeeding regulations:
(i) If the 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 (12
U.S.C. (S) 1818(e)(3) and (g)(1)), the Company's obligations under this
Agreement shall be suspended as of the date of service of notice, unless stayed
by appropriate proceedings. If the charges in the notice are dismissed, the
Company may in its discretion (i) pay Executive all or part of the compensation
withheld while its contract obligations hereunder were suspended and (ii)
reinstate (in whole or in part) any of its obligations which were suspended. If
the Company does not pay Executive all of the compensation withheld while its
contract obligations hereunder were suspended or does not reinstate in whole its
obligations which were suspended, Executive may terminate his employment
hereunder pursuant to Section 5(d) and such termination shall be considered as
termination for "Good Reason."
(ii) If the 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 Federal Deposit Insurance Act (12 U.S.C. (S)
1818(e)(4) or (g)(1)) all obligations of the Company under this Agreement shall
terminate as of the effective date of the order.
(iii) If the Bank is in default (as defined in Section 3(x)(1)
of the Federal Deposit Insurance Act), all obligations to Executive hereunder
shall terminate as of the date of default, but such termination shall not affect
any vested rights of Executive, the Company or the Bank.
(iv) All obligations under this Agreement may be terminated,
except to the extent determined that continuation of the contract is necessary
for the continued operation of the Bank: (i) by the Director of the Office of
Thrift Supervision (the "Director") or his or her designee at the time the
Federal Deposit Insurance Company enters into an agreement to provide assistance
to or on behalf of the Bank under the authority contained in Section 13(c) of
the Federal Deposit Insurance Act and (ii) by the Director, or his or her
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.
(v) Termination under this Section 5(b) shall not affect other
rights hereunder which are vested at the time of termination.
(C) VOLUNTARY TERMINATION. Executive may terminate his employment
---------------------
hereunder at any time for any reason upon giving the Company written notice, at
least ninety (90) days prior to termination of employment. Upon such
termination, Executive shall be
-4-
<PAGE>
entitled to receive Executive's theretofore unpaid base salary for the period of
employment up to the date of termination, but shall not be entitled to any
compensation or employment benefits pursuant to this Agreement for any period
after the date of termination.
(D) GOOD REASON. Executive may terminate his employment hereunder
-----------
at any time for "Good Reason." "Good Reason" shall be deemed to exist if
Executive terminates his employment because, without his express written
consent, the Company breaches any of the terms of this Agreement. If Executive
terminates his employment for "Good Reason," Executive shall receive (i) his
base salary under Section 3 hereof through the then-remaining term of employment
under Section 2 (calculated as if his employment had not been terminated under
this Section 5(d)), which amount shall be paid in a lump-sum or in equal monthly
installments at the discretion of Executive, (ii) his theretofore unpaid base
salary and pro-rated incentive compensation for the period of employment up to
the date of termination, (iii) medical and other insurance through the then
remaining term of employment under Section 2 (calculated as if his employment
had not been terminated under this Section 5(d)) consistent with the terms and
conditions set forth in Section 4, (iv) any other benefits to which Executive is
entitled by law or the specific terms of the Company's policies in effect at the
time of termination of employment and (v) an amount equal to the product of the
Company's or the Bank's annual aggregate contribution, for the benefit of
Executive in the year preceding termination, to all qualified retirement plans
in which Executive participated multiplied by three (calculated as if his
employment had not been terminated under this Section 5(d)). The benefit in (v)
under this Section 5(d) shall be in addition to any benefit payable from any
qualified or non-qualified plans or programs maintained by the Company or the
Bank at the time of termination. In no event, however, shall payments made to
Executive under this Section 5(d) exceed three times Executive's average annual
compensation (including base salary, commissions, bonuses, pension and profit
sharing plan awards, retirement, director or committee fees and fringe benefits)
for the most recent five taxable years.
(E) TERMINATION WITHOUT JUST CAUSE. The Company may terminate
------------------------------
Executive's employment without Just Cause, in which case the Executive shall
receive the amounts that would be paid Executive under Section 5(d) if he had
terminated his employment for Good Reason.
(F) CHANGE IN CONTROL. (i) If, at any time after the date hereof, a
-----------------
"Change in Control" (as hereinafter defined) occurs and within twelve (12)
months thereafter Executive's employment is terminated by the Company other than
for Just Cause or Executive terminates his employment for Good Reason, then
Executive shall be entitled to the benefits provided below.
(A) The Company shall promptly pay to Executive an amount
equal to the product of 2.99 times Executive's "base amount" as defined in
Section 280G(b)(3) of the Code (such "base amount" to be derived from
Executive's compensation paid by the Company and the Bank).
(B) For purposes of all employee benefit plans (including, but
not limited to, health and life insurance and incentive, pension and retirement
plans) of the Company and the Bank, Executive (and his dependents and
beneficiaries, as the case may be) shall be given service credit for all
purposes for, and shall be deemed to be an employee of the
-5-
<PAGE>
Company and the Bank during, the term of this Agreement set forth in Section 2
(calculated as if employment had not been terminated under this Section 5(f)),
notwithstanding the fact that he is no longer an employee of the Company or the
Bank; provided that, if the terms of any of such employee benefit plans do not
permit such credit or deemed employee treatment, the Company or the Bank will
make payments and distributions to Executive outside of the plans in amounts
substantially equivalent to the payments and distributions Executive would have
received pursuant to the terms of the plans and attributable to such credit or
deemed employee treatment, had such credit or deemed employee treatment been
permitted pursuant to the terms of the plans.
(ii) (A) Anything in this Agreement to the contrary
notwithstanding, it is the intention of the Company and Executive that no
portion of any payment under this Agreement, or payments to or for the benefit
of Executive under any other agreement or plan, be deemed an "Excess Parachute
Payment" as defined in Section 280G of the Code, or its successors. It is agreed
that the present value of and any payment to or for the benefit of Executive in
the nature of compensation, receipt of which is contingent on the occurrence of
a Change in Control, and to which Section 280G of the Code applies (in the
aggregate "Total Payments") shall not exceed an amount equal to one dollar less
than the maximum amount that the Company may pay without loss of deduction under
Section 280G(a) of the Code. Present value for purposes of this Agreement shall
be calculated in accordance with Section 280G(d)(4) of the Code. Within sixty
days (60) following the earlier of (1) the giving of notice of termination of
employment or (2) the giving of notice by the Company to Executive of its belief
that there is a payment or benefit due Executive, the Company, at the Company's
expense, shall obtain the opinion of the Company's public accounting firm (the
"Accounting Firm"), which opinion need not be unqualified, which sets forth: (a)
the amount of the Base Period Income of Executive (as defined in Code Section
280G), (b) the present value of Total Payments and (c) the amount and present
value of any excess parachute payments. In the event that such opinion
determines that there would be an Excess Parachute Payment, the payment
hereunder shall be modified, reduced or eliminated as specified by Executive in
writing delivered to the Company within thirty (30) days of his receipt of such
opinion or, if Executive fails to so notify the Company, then as the Company
shall reasonably determine, so that under the bases of calculation set forth in
such opinion there will be no Excess Parachute Payment. In the event that the
provisions of Sections 280G and 4999 of the Code are repealed without
succession, this Section shall be of no further force or effect.
(B) In the event that the Accounting Firm is serving as
accountant or auditor for the individual, entity or group effecting the Change
in Control, Executive shall appoint another nationally recognized public
accounting firm to make the determinations required hereunder (which accounting
firm shall then be referred to as the Accounting Firm under Section
5(f)(ii)(A)). All fees and expenses of the Accounting Firm shall be borne solely
by the Company. Any determination by the Accounting Firm shall be binding upon
the Company and Executive.
-6-
<PAGE>
(iii) For purposes of Section 5(f) of this Agreement, a "Change
in Control" shall be deemed to have occurred if:
(A) a third person, including a "group" as defined in
Section 13(d)(3) of the Securities Exchange Act of 1934 (as in effect on the
date hereof), becomes the beneficial owner of shares of the Company having 25%
or more of the total number of votes that may be cast for the election of
directors of the Company, including for this purpose any shares beneficially
owned by such third person or group as of the date hereof; or
(B) as the result of, or in connection with, any cash
tender or exchange offer, merger or other business combination, sale of assets
or contested election, or any combination of the foregoing transactions (a
"Transaction"), the persons who were directors of the Company before the
Transaction shall cease to constitute a majority of the Board of Directors of
the Company or any successor to the Company. (In the event of any reorganization
involving the Company in a transaction initiated by the Company in which the
shareholders of the Company immediately prior to such reorganization become the
shareholders of a successor or ultimate parent company of the Company resulting
from such reorganization and the persons who were directors of the Company
immediately prior to such reorganization constitute a majority of the Board of
Directors of such successor or ultimate parent, no "Change in Control" shall be
deemed to have taken place solely by reason of such reorganization,
notwithstanding the fact that the Company may have become the wholly-owned
subsidiary of another company in such reorganization and members of the Board of
Directors of the Company may have become members of the Board of Directors of
such successor company, and thereafter the term "Company" for purposes of this
paragraph shall refer to such successor or ultimate parent company.); or
(C) a third person, including a "group" as defined in
Section 13(d)(3) of the Securities Exchange Act of 1934 (as in effect on the
date hereof), acquires control, as defined in 12 C.F.R. (S) 574.4, or any
successor regulation, of the Company that would require the filing of an
application for acquisition of control or notice of change in control in a
manner set forth in 12 C.F.R. (S) 574.3, or any successor regulation.
6. DEATH OF EXECUTIVE. If Executive shall die during the term of this
------------------
Agreement, his employment with the Company and this Agreement shall terminate
and the Company shall pay to a beneficiary designated in writing by Executive,
or in the absence of such designation, to Executive's estate, the full amount of
his theretofore unpaid base salary and pro-rated incentive compensation for the
period of employment up to the date of termination, and the Company shall have
no further obligations hereunder. The preceding sentence shall not be construed
to limit any benefit payable in the event of the death of Executive under any
applicable benefit plans or other arrangements.
7. DISABILITY OF EXECUTIVE. If Executive becomes Totally and Permanently
-----------------------
Disabled (as defined below) during the term of this Agreement, the Company may
terminate
-7-
<PAGE>
Executive's employment and this Agreement, except Sections 8 and 9 hereof, by
giving Executive written notice of such termination not less than 5 days before
the effective date thereof. If Executive's employment and this Agreement are
terminated pursuant to this Section 7, the Company shall pay to Executive his
theretofore unpaid base salary and pro-rated incentive compensation for the
period of employment up to the date of termination, and the Company shall have
no further obligations to Executive under this Agreement. The preceding
sentence shall not be construed to limit any benefit payable to Executive under
any applicable benefit plans or other arrangements. The Executive is Totally
and Permanently Disabled for purposes of this Section 7 if he is disabled or
incapacitated to the extent that he is unable to perform the duties of Vice
President of the Company or the Bank for more than three (3) consecutive months,
and such disability or incapacity is expected to continue for more than three
(3) additional months as certified by a medical doctor of Executive's own
choosing and concurred in by a doctor of the Company's choosing.
8. COVENANT NOT TO COMPETE. Executive acknowledges that the Company would
-----------------------
be substantially damaged by an association of Executive with a depository
institution that competes for customers with the Company, the Bank and any
subsidiaries of the Company or the Bank. Without the consent of the Company,
Executive shall not at any time during the term of this Agreement or Executive's
employment, and for a period of three years thereafter (regardless of the reason
for termination), (a) solicit any person who was a customer of the Company or
the Bank or any of their subsidiaries during the two year period prior to the
termination of this Agreement or Executive's employment hereunder for Executive
or any other person, to offer the same products or render the same services to
such customer as were provided or proposed to be provided by the Company or the
Bank or any of their subsidiaries to such customer as of the time of termination
of Executive's employment, (b) directly or indirectly, on Executive's behalf or
in the service or on the behalf of others, render or be retained to render
similar services as described in Section 1 hereof, whether as an officer,
partner, trustee, consultant, or employee for any depository institution, which
has a banking office located within 25 miles of any office of the Bank or any
banking office of the Company as of the date of Executive's termination of
employment, provided, however, that Executive shall not be deemed to have
breached this undertaking if his sole relationship with any other such entity
consists of his holding, directly or indirectly, an equity interest in such
entity not greater than three percent (3%) of such entity's outstanding equity
interest, or (c) actively induce or solicit any employees of the Company or the
Bank to leave such employ. For purposes of this Section 8, "person" shall
include any individual, corporation, partnership, trust, firm, proprietorship,
venture or other entity of any nature whatsoever.
9. CONFIDENTIAL INFORMATION. Executive acknowledges that he now has, and
------------------------
hereunder will have, access to important and confidential information regarding
the business and services of the Company, the Bank and their subsidiaries, and
that the disclosure to, or the use of such information by, any business in
competition with the Company, the Bank or their subsidiaries shall result in
substantial and undeterminable harm to the Company, the Bank and its
subsidiaries. In order to protect the Company, the Bank and its subsidiaries
against such
-8-
<PAGE>
harm and from unfair competition, Executive agrees with the Company that while
employed by the Company and at any time thereafter, Executive will not disclose,
communicate or divulge to anyone, or use in any manner adverse to the Company,
the Bank or their subsidiaries any information concerning customers, methods of
business, financial information or other confidential information of the
Company, the Bank, or their subsidiaries, except for information as is in the
public domain or ascertainable through common sources of public information
(otherwise than as a result of any breach of this covenant by Executive).
10. LIMITATION ON TERMINATION OR DISABILITY PAY. Any payments made to
-------------------------------------------
Executive pursuant to this Agreement or otherwise are subject to and conditioned
upon the compliance of such payments with 12 U.S.C. (S) 1828(k) and any
regulations promulgated thereunder.
11. LEGAL FEES AND EXPENSES. The Company shall pay all legal fees and
------------------------
expenses that Executive may incur in connection with his enforcement of the
terms of this Agreement, but only if and after a legal judgment or settlement
has been reached. Executive shall be entitled to receive interest thereon for
the period of any delay in payment from the date such payment was due at the
rate determined by adding two hundred basis points to the six-month Treasury
Bill rate.
12. INQUIRIES REGARDING PROPOSED ACTIVITIES. In the event Executive shall
---------------------------------------
inquire in writing of the Company whether any proposed action on the part of
Executive would be considered by the Company to be prohibited by or in breach of
the terms of this Agreement, the Company shall have 30 days after receipt of
such notice to express in writing to Executive its position with respect thereof
and in the event such writing shall not be given to Executive, such proposed
action, as set forth in the writing of the Company, shall not be deemed to be a
violation of or breach of this Agreement.
13. NO DUTY OF MITIGATION. Executive shall not be required to mitigate
---------------------
the amount of any payment or benefit provided for in this Agreement by seeking
other employment or otherwise, nor shall the amount of any payment or benefit
provided for in this Agreement be reduced by any compensation earned by
Executive as the result of employment by another employer, by retirement
benefits after the date of termination or otherwise.
14. SUCCESSORS. This Agreement may not be assigned by the Company except
-----------
in connection with a merger involving the Company or a sale of substantially all
of its assets (subject to the Change in Control provisions of Section 5(f)), and
the obligations of the Company provided for in this Agreement shall be formally
assumed by, and be the binding legal obligations of, any successor to the
Company by purchase, merger, consolidation, or otherwise. This Agreement may not
be assigned by Executive during his life, and upon his death will be binding
upon and inure to the benefit of his heirs, legatees and the legal
representatives of his estate.
-9-
<PAGE>
15. NOTICE. For the purposes of this Agreement, notices and all other
------
communications provided for in this Agreement shall be in writing and shall be
deemed to have been duly given when personally delivered or sent by certified
mail, return receipt requested, postage prepaid, addressed to the respective
addresses set forth on the first page of this Agreement (provided that all
notices to the Company shall be directed to the attention of the Board of
Directors of the Company with a copy to the Secretary of the Company), or to
such other address as either party may have furnished to the other in writing in
accordance herewith.
16. AMENDMENTS. No amendment or additions to this Agreement shall be
----------
binding unless in writing and signed by all parties, except as herein otherwise
provided.
17. SEVERABILITY. The provisions of this Agreement shall be deemed
-------------
severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability of the other provisions hereof. If,
however, any provision of this Agreement is declared invalid or unenforceable by
a court of competent jurisdiction, then the parties hereto shall in good faith
amend this Agreement to include an alternative provision that accomplishes a
similar result.
18. GOVERNING LAW. This Agreement shall be governed by the laws of the
-------------
United States to the extent applicable and otherwise by the internal laws of the
State of Missouri.
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<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year first above written.
EQUALITY BANCORP, INC.
By: ___________________________________
Its:____________________________________
EXECUTIVE
_______________________________________
Leonard O. Wolter
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<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Equality Savings and Loan Association, F.A.:
We consent to the use of our report included herein and to the reference to
our firm under the heading "Experts" in the Prospectus included in the
Registration Statement on Form S-1.
In our opinion, based on our audits and the report of other auditors, the
consolidated financial statements of Equality Savings and Loan Association,
F.A. and subsidiaries present fairly, in all material respects, the financial
position as of March 31, 1997 and 1996, and the results of operations and cash
flows for each of the years in the three-year period ended March 31, 1997, in
conformity with generally accepted accounting principles.
LOGO
KPMG Peat Marwick LLP
St. Louis, Missouri
August 6, 1997
<PAGE>
EXHIBIT 23.4
CONSENT OF INDEPENDENT AUDITORS
We consent to the inclusion of our report dated April 10, 1997, with respect
to the financial statements of Equality Mortgage Corporation, included in the
Prospectus forming a part of Equality Bancorp, Inc.'s Pre-Effective Amendment
No. 1 of its Registration Statement on Form S-1.
LOGO
Rubin, Brown, Gornstein & Co. LLP
August 6, 1997
St. Louis, Missouri
<PAGE>
FIRST MISSOURI FINANCIAL, M.H.C.
4131 SOUTH GRAND BOULEVARD
ST. LOUIS, MISSOURI 63118-3464
(314) 352-3333
NOTICE OF SPECIAL MEETING OF MEMBERS
TO BE HELD ON , 1997
NOTICE IS HEREBY GIVEN that a special meeting (the "Special Meeting") of the
members of First Missouri Financial, M.H.C. (the "Mutual Holding Company")
will be held at the Mutual Holding Company's office located at 4131 South
Grand Boulevard, St. Louis, Missouri, on , 1997, at .m., to consider
and vote upon:
(i) a Plan of Conversion and Reorganization, as amended from time to time
(the "Plan"), and a related Plan of Merger, pursuant to which (i) the
Mutual Holding Company, which owns 53.2% of the outstanding shares of
common stock of Equality Savings and Loan Association, F.A. (the
"Association"), will convert from mutual form to a federal interim
stock savings association and simultaneously merge with and into the
Association, whereby the Mutual Holding Company will cease to exist and
the Association's shares of common stock held by the Mutual Holding
Company will be canceled; (ii) the Association will establish, as a
wholly-owned subsidiary, Equality Bancorp, Inc., a Delaware corporation
(the "Holding Company"), that will become the new holding company for
the Association upon completion of the transactions contemplated by the
Plan, (iii) the Holding Company will establish, as a wholly-owned
subsidiary, a second federal interim stock savings association that
will merge with and into the Association, whereby the Association will
become a wholly-owned subsidiary of the Holding Company and the shares
of common stock held by the stockholders of the Association other than
the Mutual Holding Company will be converted into shares of Holding
Company common stock (the "Common Stock") under the terms of an
exchange ratio determined by the Board of Directors of the Mutual
Holding Company; (iv) the Holding Company will grant nontransferable
rights to subscribe for shares of the Common Stock to certain persons
in a subscription offering according to certain preference categories
and, subject to the prior rights of holders of subscription rights, the
Holding Company also may offer shares of Common Stock in a community
offering to members of the general public (collectively, the
"Conversion and Reorganization"); and (v) the Association's federal
stock charter will be amended to read in the form of a federal stock
savings bank charter, to change the name of the Association to
"Equality Savings Bank," and to eliminate certain provisions applicable
for five years from October 22, 1993, the date of the formation of the
Mutual Holding Company; and
(ii) an adjournment of the Special Meeting if necessary to permit further
solicitation of proxies in the event there are insufficient votes at
the time of the Special Meeting to approve the Plan; and
(iii) such matters as may properly be brought before the Special Meeting or
any adjournment thereof (Note: Management of the Mutual Holding
Company is not aware of any such other matters).
The Board of Directors has fixed the close of business on , 1997, as
the record date for the determination of members entitled to notice of and to
vote at the Special Meeting.
BY ORDER OF THE BOARD OF DIRECTORS
Richard C. Fellhauer
President and Chief Executive
Officer
St. Louis, Missouri
, 1997
IMPORTANT
YOU MAY BE ENTITLED TO VOTE IN MORE THAN ONE CAPACITY. PLEASE SIGN, DATE AND
PROMPTLY RETURN EACH PROXY CARD YOU RECEIVE. THIS WILL ASSURE THAT YOUR VOTE
WILL BE COUNTED IF YOU ARE UNABLE TO ATTEND THE SPECIAL MEETING BUT WILL NOT
PREVENT YOU FROM ATTENDING THE SPECIAL MEETING AND VOTING IN PERSON. YOU MAY
REVOKE YOUR PROXY BY WRITTEN INSTRUMENT DELIVERED TO THE SECRETARY OF THE
MUTUAL HOLDING COMPANY AT ANY TIME PRIOR TO OR AT THE SPECIAL MEETING, BY
SUBMITTING A LATER DATED PROXY OR BY ATTENDING THE SPECIAL MEETING AND VOTING
IN PERSON.
THE MUTUAL HOLDING COMPANY MAY NOT USE ANY PROXIES EXECUTED PRIOR TO THE
DATE OF THE ENCLOSED PROSPECTUS TO VOTE FOR THE PLAN. THEREFORE, THE FAILURE
OF A MEMBER TO RETURN AN EXECUTED PROXY WILL HAVE THE EFFECT OF A VOTE AGAINST
THE PLAN, UNLESS THE MEMBER ATTENDS THE SPECIAL MEETING AND VOTES IN PERSON.
THE BOARD OF DIRECTORS OF THE MUTUAL HOLDING COMPANY RECOMMENDS THAT YOU VOTE
FOR THE PLAN.
<PAGE>
FIRST MISSOURI FINANCIAL, M.H.C.
4131 SOUTH GRAND BOULEVARD
ST. LOUIS, MISSOURI 63118-3464
(314) 352-3333
----------------
PROXY STATEMENT
----------------
SPECIAL MEETING OF MEMBERS
TO BE HELD ON , 1997
PURPOSE OF THE SPECIAL MEETING
This Proxy Statement is being furnished to the members of the Mutual Holding
Company (the "Mutual Holding Company") in connection with management's
solicitation of proxies to be voted at the special meeting (the "Special
Meeting") of members of the Mutual Holding Company to be held at the Mutual
Holding Company's office located at 4131 South Grand Boulevard, St. Louis,
Missouri on , 1997, at .m., and at any adjournment thereof. The Special
Meeting is being held for the purpose of considering and voting on a Plan of
Conversion and Reorganization of First Missouri Financial, M.H.C. and Equality
Savings and Loan Association, F.A., as first adopted on May 16, 1997 and
subsequently amended (the "Plan"), which is attached to this proxy statement
as Appendix A, and a related Plan of Merger Between First Missouri Financial,
M.H.C. and Equality Savings and Loan Association, F.A., which shall be dated
as of the date of completion of the Conversion and Reorganization (as
hereinafter defined), a copy of which is attached to this proxy statement as
Appendix B, pursuant to which:
(i) the Mutual Holding Company, which owns 53.2% of the outstanding
shares of common stock of Equality Savings and Loan Association, F.A. (the
"Association"), will convert from mutual form to a federal interim stock
savings association ("Interim") and simultaneously merge with and into the
Association, whereby the Mutual Holding Company will cease to exist and the
Association's shares of common stock held by the Mutual Holding Company
will be canceled;
(ii) the Association will establish, as a wholly-owned subsidiary,
Equality Bancorp, Inc., a Delaware corporation (the "Holding Company"),
that will become the new holding company for the Association upon
completion of the transactions contemplated by the Plan;
(iii) the Holding Company will establish, as a wholly-owned subsidiary, a
second federal interim stock savings association that will merge with and
into the Association, whereby the Association will become a wholly-owned
subsidiary of the Holding Company and the shares of common stock (the
"Public Association Shares") held by the stockholders (the "Public
Stockholders") of the Association other than the Mutual Holding Company
will be converted into shares of Holding Company common stock (the
"Exchange Shares") under the terms of an exchange ratio determined by the
Board of Directors of the Mutual Holding Company (the "Exchange Ratio")
that will result in the holders of the Public Shares owning in the
aggregate approximately the same percentage of the common stock of the
Holding Company (the "Common Stock") to be outstanding upon the completion
of the transactions contemplated by the Plan as the percentage of shares of
common stock of the Association ("Association Shares") owned by them in the
aggregate immediately prior to the transactions, before giving effect to
(a) the payment of cash in lieu of issuing fractional Exchange Shares, (b)
any shares of Common Stock purchased by the Public Stockholders in the
Offerings (as hereinafter defined) or the Holding Company's Employee Stock
Ownership Plan (the "ESOP") thereafter, and (c) any exercise of dissenters'
rights;
(iv) nontransferable rights to subscribe for shares of the Common Stock
will be granted to certain persons in a subscription offering according to
certain preference categories and, subject to the prior rights of holders
of subscription rights, the Holding Company also may offer shares of Common
Stock in a community offering to members of the general public
(collectively, the shares of Common Stock offered in the subscription and
community offerings (the "Offering") are hereinafter referred to as
"Conversion
<PAGE>
Shares"); (v) the Association's federal stock charter will be amended to
read in the form of a federal stock savings bank charter, to change the
name of the Association to "Equality Savings Bank," and to eliminate
certain provisions applicable for five years from October 22, 1993, the
date of the formation of the Mutual Holding Company (the transactions
contemplated by the Plan are hereinafter referred to as the "Conversion and
Reorganization").
A vote in favor of the Plan and Plan of Merger also will constitute a vote
in favor of the amended federal stock charter of the Association, a copy of
which a Member may request from the Mutual Holding Company (see "HOW TO OBTAIN
ADDITIONAL INFORMATION"), to read in the form of a federal stock savings bank
charter; the amendment to take effect upon consummation of the Conversion and
Reorganization or shortly thereafter. Hereinafter, references to the Plan
shall be deemed to include the Plan of Merger.
RECOMMENDATION OF MANAGEMENT
THE BOARD OF DIRECTORS OF THE MUTUAL HOLDING COMPANY
RECOMMENDS THAT YOU VOTE FOR THE PLAN.
A VOTE IN FAVOR OF THE PROPOSED PLAN WILL NOT OBLIGATE ANYONE TO PURCHASE
COMMON STOCK IN THE CONVERSION AND REORGANIZATION, NOR WILL APPROVAL OF THE
PLAN BY THE MUTUAL HOLDING COMPANY'S MEMBERS AT THE SPECIAL MEETING OBLIGATE
ANY PERSON TO PURCHASE ANY COMMON STOCK.
Certain officers and directors of the Mutual Holding Company and the
Association will receive awards under various employee stock benefit plans
implemented at the time of the Conversion and Reorganization or shortly
thereafter. Accordingly, these officers and directors will benefit personally
from approval of the Plan.
VOTING RIGHTS AND VOTE REQUIRED FOR APPROVAL
The Board of Directors of the Mutual Holding Company has fixed the close of
business on , 1997, as the record date (the "Voting Record Date") for
the determination of members entitled to notice of and to vote at the Special
Meeting. All holders of the Association's savings, demand or other authorized
accounts of the Association are members of the Mutual Holding Company. 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 holder of an account in the Association will be entitled at the Special
Meeting to cast one vote for each $100, or fraction thereof, of the withdrawal
value of all of the depositor's accounts in the Association as of the Voting
Record Date, up to 1,000 votes. (For example, a depositor with $2,031 on
deposit at the Association on or before the Voting Record Date would be
entitled to cast 21 votes.) Borrowers of the Association as of October 22,
1993 who had borrowings outstanding at such date that continue to be
outstanding as of the Voting Record Date are entitled to cast one vote at the
Special Meeting. 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 to be presented at the Special Meeting will require the
affirmative vote of at least a majority of the total outstanding votes of the
Mutual Holding Company's members eligible to be cast at the Special Meeting.
Any questions as to the eligibility of a member to vote or the number of votes
allocated to each member, or any other matter related to voting will be
resolved by the Secretary of the Mutual Holding Company at the time of the
Special Meeting, and the records of the Mutual Holding Company will control
any such resolution. As of the Voting Record Date for the Special Meeting,
there were approximately votes eligible to be cast of which votes
constitute a majority. Adjournment of the Special Meeting at which a quorum is
present to permit the further solicitation of proxies in the event there are
insufficient votes at the time of the Special Meeting to approve the Plan will
require the affirmative vote of at least a majority of the total outstanding
votes of the Mutual Holding Company's members represented, in person or by
proxy, at the Special Meeting.
2
<PAGE>
This proxy statement and related materials are first being mailed to Members
on or about , 1997.
APPROVAL OF THE PLAN WILL REQUIRE THE AFFIRMATIVE VOTE OF AT LEAST A
MAJORITY OF THE TOTAL OUTSTANDING VOTES OF THE MUTUAL HOLDING COMPANY'S
MEMBERS ELIGIBLE TO BE CAST AT THE SPECIAL MEETING.
PROXIES
Members may vote at the Special Meeting or any adjournment thereof in person
or by proxy. Any member giving a proxy will have the right to revoke his proxy
at any time before it is voted by giving written notice to the Secretary of
the Mutual Holding Company, provided that such written notice is received by
the Secretary prior to the Special Meeting or any adjournment thereof, by
submitting a later dated proxy or by attending the Special Meeting and
choosing to vote in person.
Enclosed is a proxy that may be used by any member to vote on the Plan. All
properly executed proxies received by the Board of Directors of the Mutual
Holding Company 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 (and the adjournment of the Special
Meeting, if necessary). If any other matters are properly presented before the
Special Meeting and may properly be voted upon, 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 Mutual Holding
Company, 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 any and all adjournments thereof, and will not be used
for any other meeting. A member may vote at the Special Meeting or any
adjournment thereof only by returning an executed proxy or by voting in
person. General proxies will not be voted on the Plan. Management is not aware
of any other business to be presented at the Special Meeting.
Deposits held in a trust or other fiduciary capacity may be voted by the
trustee or other fiduciary to whom voting rights are delegated under the trust
instrument or other governing document or applicable law. In the case of IRA
trusts established at the Association, the beneficiary may direct the
trustee's vote on the Plan by returning a completed proxy card to the Mutual
Holding Company. IF NO PROXY CARD IS RETURNED, THE TRUSTEE WILL VOTE IN FAVOR
OF APPROVAL OF THE PLAN ON BEHALF OF SUCH BENEFICIARY. The Association's Board
of Directors acts as trustee for IRA trusts established at the Association.
Proxies also may be solicited by officers, directors or other employees of
the Mutual Holding Company and the Association in person, by telephone or
through other forms of communication. Such persons will be reimbursed by the
Mutual Holding Company or the Association for their expenses incurred in
connection with such solicitation. If necessary to permit further solicitation
of proxies, the Special Meeting may be adjourned to a later date.
Questions regarding the voting of proxies or proxy revocation procedures,
may be directed to the Stock Information Center at telephone number (314) 352-
3199.
THE FAILURE OF A MEMBER TO RETURN AN EXECUTED PROXY WILL HAVE THE EFFECT OF
A VOTE AGAINST THE PLAN IF THE MEMBER DOES NOT ATTEND THE SPECIAL MEETING AND
VOTE FOR THE PLAN IN PERSON. THEREFORE, MEMBERS SHOULD MAKE EVERY EFFORT TO
RETURN AN EXECUTED PROXY.
3
<PAGE>
CAPSULE SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements appearing in the Holding Company's
Prospectus, dated , 1997 (the "Prospectus"), being delivered herewith,
the contents of which are hereby incorporated herein by reference.
The Association: The Association is a federally-chartered-stock-
savings association regulated by the Office of
Thrift Supervision (the "OTS"), and its deposits
are insured by the Federal Deposit Insurance
Corporation (the "FDIC") through the Savings
Association Insurance Fund (the "SAIF"). The
deposits of the Association will continue to be
insured by the FDIC after the Conversion and
Reorganization. The Association was originally
chartered in 1884. At March 31, 1997, the
Association had total assets of $201.0 million,
deposit accounts of $123.0 million and total
stockholders' equity of $12.6 million. The
Association conducts its business through three
full-service branch offices and five limited-
service-loan-production offices. The
Association's main office is located at 4131
South Grand Boulevard, St. Louis, Missouri 63118-
3464, and its telephone number is (314) 352-3333.
On October 22, 1993, Equality Savings and Loan
Association (the predecessor of the Association)
(i) reorganized into a mutual holding company and
changed its name to "First Missouri Financial,
M.H.C." and (ii) transferred substantially all of
its assets and all of its liabilities to the
Association, which sold a minority interest in
its common stock to depositors of Equality
Savings and Loan Association and various stock
compensation plans (the "Mutual Holding Company
Reorganization").
The Association's business is similar in many
respects to other savings associations in that it
gathers deposits from its local community and
uses these funds, along with FHLB advances, to
invest primarily in residential one- to four-
family mortgage loans, U.S. government and agency
securities and mortgage-backed securities and, to
a lesser extent, multifamily and commercial real
estate, consumer and commercial business loans.
Notwithstanding these traditional thrift
attributes, the Association's operations are
distinct in that it conducts its residential
mortgage lending business primarily through a
wholly-owned mortgage-banking subsidiary--
Equality Mortgage Corporation ("EMC").
The Holding Company:
The Holding Company was incorporated as a
Delaware corporation on May 14, 1997 at the
direction of the Board of Directors of the
Association to hold all of the capital stock of
the Association and to facilitate the Conversion
and Reorganization. The Holding Company has not
engaged in any business to date and is not
expected to engage in any business until the
consummation of the Conversion and
Reorganization. The Holding Company's offices are
located at 9920 Watson Road, St. Louis, Missouri
63126, and its telephone number is (314) 965-
7090. Following the Conversion and
Reorganization, the Holding Company will be
subject to regulation by the OTS.
The Mutual Holding
Company:
The Mutual Holding Company is a federally-
chartered--mutual-holding company that was
chartered in 1993 in connection with the
4
<PAGE>
Mutual Holding Company Reorganization. The Mutual
Holding Company's primary asset is 445,000
Association Shares, which represents 53.2% of the
total issued and outstanding Association Shares.
The Mutual Holding Company's only other assets
consist of a deposit account in the amount of
$50,000 as of March 31, 1997 (which will become
an asset of the Association upon consummation of
the Conversion and Reorganization).
The Conversion and On May 16, 1997, the Boards of Directors of the
Reorganization: Association and the Mutual Holding Company
adopted the Plan, which was amended on June 20,
1997 and August 8, 1997. The Holding Company is
currently a first-tier wholly owned subsidiary of
the Association. Pursuant to the Plan, (i) the
Mutual Holding Company will convert from mutual
form to a federal interim stock savings
association and simultaneously merge with and
into the Association, pursuant to which the
Mutual Holding Company will cease to exist and
the Association Shares held by the Mutual Holding
Company will be canceled, and (ii) Interim will
then merge with and into the Association. As a
result of the merger of Interim with and into the
Association, the Association will become a
wholly-owned subsidiary of the Holding Company
and the Public Association Shares will be
converted into the Exchange Shares pursuant to
the Exchange Ratio, which will result in the
holders of such shares owning in the aggregate
approximately the same percentage of the Common
Stock to be outstanding upon the completion of
the Conversion and Reorganization (i.e., the
Conversion Stock and the Exchange Shares) as the
percentage of Association Shares owned by them in
the aggregate immediately prior to consummation
of the Conversion and Reorganization, before
giving effect to (a) the payment of cash in lieu
of issuing fractional Exchange Shares, (b) any
shares of Conversion Stock purchased by the
Public Stockholders in the Offering or the ESOP
thereafter, and (c) any exercise of dissenters'
rights. Upon consummation of the Conversion and
Reorganization, the Association will change its
name to "Equality Savings Bank."
The Plan of Merger providing for the merger of
the Mutual Holding Company with and into the
Association, which is attached to this proxy
statement as Appendix B, and the Plan of Merger
providing for the merger of Interim with and into
the Association, each must be approved by the
holders of at least two-thirds of the outstanding
Association Shares at a special meeting of the
stockholders of the Association to be held for
such purpose on , 1997 (the "Stockholders'
Meeting"). The Plan, including the Plans of
Merger, will be submitted to stockholders of the
Association for their approval at the
Stockholders' Meeting. The Plan of Merger between
Interim and the Association also must be approved
by the Holding Company, as the sole stockholder
of Interim. The Plan of Merger between Interim
and the Association will be submitted to the
Holding Company for approval along with the Plan.
In addition, the Mutual Holding Company, the
Association and the Holding Company
(collectively, the "Primary Parties") have
conditioned the consummation of the Conversion
and Reorganization upon the approval of the Plan,
including the Plans of Merger, by at least a
majority of the votes cast, in person or by
proxy, by the Public Stockholders at the
Stockholders' Meeting. The Plan is subject to the
approval of the OTS, and, in summary, it also
must be approved by (i)
5
<PAGE>
at least a majority of the total outstanding
votes of the voting members of the Mutual Holding
Company at the Special Meeting, which votes may
be cast in person or by proxy, (ii) a least a
majority of the votes cast, in person or by
proxy, by the Public Stockholders at the
Stockholders' Meeting, (iii) at least two-thirds
of the outstanding Association Shares at the
Stockholders' Meeting, and (iv) the Holding
Company as the sole stockholder of Interim. See
"SUMMARY OF PROPOSED CONVERSION AND
REORGANIZATION."
Pursuant to the Plan, the Holding Company is
Securities Offered: offering shares of its Common Stock in the
Offering.
Purchase Price: The Holding Company will offer shares of its
Common Stock in the Offering at a purchase price
of $10.00 per share (the "Purchase Price").
The Offering; Purchase
Priorities:
As part of the Conversion and Reorganization, the
Holding Company is offering up to 920,000 shares
of Common Stock (i.e., Conversion Stock) at a
Purchase Price of $10.00 per share in the
Subscription Offering. As described in more
detail below, nontransferable rights to subscribe
for the Conversion Stock in the Subscription
Offering have been granted to certain persons
according to certain preference categories and,
subject to the prior rights of holders of
Subscription Rights, the Holding Company is also
offering shares of Conversion Stock in the
Community Offering to members of the general
public. In the event of an oversubscription in
the Subscription and Community Offering, up to
138,000 additional shares may be issued to
reflect changes in market and financial
conditions and to cover additional subscriptions.
The Primary Parties may reject, in whole or in
part, orders received in the Community Offering
in their sole discretion.
The Primary Parties have retained Trident
Securities, Inc. as consultant and advisor in
connection with the Offering and to assist in
soliciting subscriptions in the Offering.
Non-Transferability of
Subscription Rights:
Prior to completion of the Conversion, holders of
Subscription Rights may not transfer or enter
into any agreement or understanding to transfer
Subscription Rights or the shares of Common Stock
to be issued upon the exercise of Subscription
Rights.
Subscription and Community
Expiration Time:
Subscription Rights will expire at 12:00 noon,
St. Louis, Missouri time, on , 1997 (the
"Subscription Expiration Time"), unless the
Subscription Offering is extended by the
Association and the Holding Company. The
Community Offering, if one is held, is expected
to begin immediately after the Subscription
Expiration Time, but may begin at any time during
the Subscription Offering. The Community Offering
may terminate on or after the Subscription
Expiration Time, but not later than , 1997
(or , 1997 if the Subscription Offering is
fully extended) ("Community Offering Expiration
Time"), unless further extended with the consent
of the OTS.
Appraisal; Number of
Shares Offered:
The Plan requires that the purchase price of the
Conversion Stock must be based on the appraised
pro forma market value of the Conversion Stock,
as determined on the basis of an independent
valuation. The Primary Parties have retained RP
Financial to make such valuation.
6
<PAGE>
The Appraisal has been prepared by RP Financial
in reliance upon the information contained in
this Prospectus, including the Consolidated
Financial Statements of the Association. RP
Financial also considered the following factors,
among others: the present and projected operating
results and financial condition of the Primary
Parties and the economic and demographic
conditions in the Association's existing market
area; certain historical, financial and other
information relating to the Association; a
comparative evaluation of the operating and
financial statistics of the Association with
those of other similarly situated publicly-traded
companies located in Missouri and Illinois and
other regions of the United States; the aggregate
size of the offering of the Conversion Stock; the
impact of the Conversion and Reorganization on
the Association's net worth and earnings
potential; the proposed dividend policy of the
Holding Company and the Association; and the
trading market for the Association Shares and
securities of comparable companies and general
conditions in the market for such securities.
RP Financial has advised the Primary Parties in
its opinion the estimated pro forma market value
of the Association and the Mutual Holding Company
on a combined basis was $15,037,594 as of June
20, 1997. Because the holders of the Public
Association Shares will continue to hold the same
aggregate percentage ownership interest in the
Holding Company as they currently hold in the
Association (before giving effect to the payment
of cash in lieu of issuing fractional Exchange
Shares, any exercise of dissenters' rights and
any shares of Conversion Stock purchased by the
Association's stockholders in the Offering or by
the ESOP thereafter), the Appraisal was
multiplied by the Mutual Holding Company's
percentage interest in the Association (i.e.,
53.2%) to determine the midpoint of the valuation
($8,000,000), and the minimum and maximum of the
valuation were set at 15% below and above the
midpoint, respectively, resulting in a range of
$6,800,000 to $9,200,000. The Boards of Directors
of the Primary Parties determined that the
Conversion Stock would be sold at $10.00 per
share, resulting in a range of 680,000 to 920,000
shares of Conversion Stock being offered.
Upon consummation of the Conversion and
Reorganization, the Conversion Stock and the
Exchange Shares will represent approximately
53.2% and 46.8%, respectively, of the Holding
Company's total outstanding shares. The Boards of
Directors of the Primary Parties reviewed RP
Financial's appraisal report, including the
methodology and the assumptions used by RP
Financial, and determined that the Offering Price
Range was reasonable and adequate. The Boards of
Directors of the Primary Parties also established
the formula for determining the Exchange Ratio.
Based upon such formula and the Offering Price
Range, the Exchange Ratio ranged from a minimum
of 1.5283 to a maximum of 2.0678 Exchange Shares
for each Public Association Share, with a
midpoint of 1.7981. Based upon these Exchange
Ratios, the Holding Company expects to issue
between 598,195 and 809,323 Exchange Shares to
the holders of Public Association Shares
outstanding immediately prior to the consummation
of the Conversion and Reorganization.
7
<PAGE>
Purchase Limitations: With the exception of Employee Stock Benefit
Plans (which would include the ESOP), which may
purchase up to an aggregate of 7% of the number
of shares of Conversion Stock to be issued in the
Offering, no person or entity, together with
associates of, or persons acting in concert with,
such person or entity, may purchase shares of
Conversion Stock in an amount that, when combined
with Exchange Shares received by such person,
exceeds 62,500 shares of Common Stock. Each
person subscribing for Conversion Stock in the
Offering must subscribe for at least 25 shares.
Because the purchase limitations contained in the
Plan include Exchange Shares to be issued to
Public Stockholders for their Public Association
Shares, certain holders of Public Association
Shares may be limited in their ability to
purchase Conversion Stock in the Offering.
Certain Benefits: The Board of Directors of the Holding Company has
approved three benefit plans pursuant to which
officers, directors and employees of the Holding
Company and the Association may be entitled to
receive, following the Conversion and
Reorganization, shares of Common Stock or options
to acquire shares of Common Stock, In addition,
the Board of Directors of the Holding Company has
approved employment agreements for its executive
officers.
In connection with the Mutual Holding Company
Reorganization, the Association adopted the ESOP
for the exclusive benefit of participating
employees. Employees who have attained the age of
21 years and have completed one year of service
with the Association are eligible to participate
under the ESOP. Upon consummation of the
Conversion and Reorganization, the ESOP will be
funded by contributions made by the Association
solely in cash. The ESOP intends to purchase in
the Offering up to an aggregate of 7% of the
number of shares of Conversion Stock to be issued
in the Offering.
The Board of Directors of the Holding Company
intends to adopt the 1997 Stock Option and
Incentive Plan (the "1997 Stock Option Plan") and
to submit it to stockholders for approval
following consummation of the Conversion and
Reorganization. The 1997 Stock Option Plan is
intended to promote stock ownership by directors
and selected officers and employees of the
Holding Company and the Association to increase
their proprietary interest in the Holding Company
and to encourage them to remain in the service of
the Holding Company or the Association.
Notwithstanding when the 1997 Stock Option Plan
is submitted to and approved by the stockholders,
upon receipt of stockholder approval to establish
the 1997 Stock Option Plan, the Board of
Directors intends to reserve an amount of stock
equal to 10% of the Conversion Stock sold in the
Offering for issuance under the 1997 Stock Option
Plan (or between 68,000 shares and 92,000 shares,
assuming the sale of between 680,000 shares and
920,000 shares of Conversion Stock in the
Offering).
The Board of Directors of the Holding Company
intends to adopt the 1997 Management Recognition
Plan and Trust (the "1997 MRP") and to submit it
to stockholders for approval following
consummation of the Conversion and
Reorganization. The 1997 MRP is intended as a
8
<PAGE>
method of providing directors, officers and
certain employees of the Holding Company or the
Association with a proprietary interest in the
Holding Company and to encourage such persons to
remain with the Holding Company or the
Association.
Notwithstanding when the 1997 MRP is submitted to
and approved by the stockholders, when the
Holding Company receives stockholder approval to
establish the 1997 MRP, the Holding Company will
contribute funds to the 1997 MRP to enable it to
acquire shares of Common Stock in an amount equal
to 3% of the number of shares of Conversion Stock
sold in the Offering, or up to 27,600 shares of
Common Stock assuming the sale of 920,000 shares
at $10.00 per share (the maximum of the Offering
Price Range).
The Holding Company intends to enter into new
employment agreements with Richard C. Fellhauer,
President and Chief Executive Officer of the
Holding Company and the Association, Michael A.
Deelo, Executive Vice President and Chief
Financial Officer of the Association, and Leonard
O. Wolter, Vice President of the Association,
each of which would be effective as of the
consummation of the Conversion and
Reorganization. Each employment agreement
provides that the individual will be employed for
a three-year term. Such term may be extended for
additional one-year periods by action of the
Board of Directors of the Holding Company taken
on each successive anniversary of the effective
date of the employment agreement. Each of Messrs.
Fellhauer, Deelo and Wolter may terminate their
employment agreements at any time upon 90 days'
prior written notice to the Board of Directors of
the Holding Company and the Association.
Use of Proceeds: The net proceeds from the sale of the Conversion
Stock are expected to range from $6.4 million, at
the minimum of the Offering Price Range, to $8.8
million, at the maximum of the Offering Price
Range. At the midpoint of the Offering Price
Range, the estimated net proceeds from the sale
of the Conversion Stock would be $7.6 million.
Pursuant to the business plan adopted by the
Holding Company and the Association on June 20,
1997 in contemplation of the Conversion and
Reorganization, the Holding Company plans to
contribute to the Association 50% of the net
proceeds from the sale of the Conversion Stock
and retain the remainder of the net proceeds.
Assuming that the Conversion and Reorganization
is consummated at the midpoint of the Offering
Price Range, the Association will receive
approximately $3.8 million and the Holding
Company will retain approximately $3.8 million,
out of which the Holding Company will make a loan
to the Association's ESOP in the amount of
$696,000 and fund the 1997 MRP at a later date in
the amount of $240,000, provided the 1997 MRP is
approved by the Holding Company's stockholders.
The Holding Company intends to invest the net
proceeds of the Offering that it retains
initially in short-term and intermediate-term
deposits and U.S. government and federal agency
securities. Thereafter, funds retained by the
Holding Company will be deployed in accordance
with the Holding Company's and the Association's
business plan as determined by the Board of
Directors of the Holding Company, as specific
business opportunities or requirements arise and
for general corporate purposes.
9
<PAGE>
The Association will invest the proceeds of the
Offering that are made available to it by the
Holding Company initially in cash and short-term
investment securities (i.e., remaining maturities
ranging up to 12 months) pending their
application pursuant to its business plan. The
business plan of the Holding Company and
Association contemplates continuation of the
Association's current lending and investment
strategies that emphasize one- to four-family
mortgage loans and U.S. government and agency
securities and mortgage-backed securities.
Dividends: Upon consummation of the Conversion and
Reorganization, the Board of Directors of the
Holding Company will have the authority to
declare and pay dividends on the Common Stock.
The Board of Directors of the Holding Company
intends to pay cash dividends on the Common Stock
at an initial quarterly rate equal to $0.17 per
share (the amount of the existing quarterly
dividend on the Association Shares) divided by
the Exchange Ratio, commencing with the first
full quarter following consummation of the
Conversion and Reorganization, which will have
the effect of initially maintaining the aggregate
amount of quarterly cash dividends received by
the Public Stockholders. Based on the current
Offering Price Range, the Exchange Ratio is
expected to be 1.5283, 1.7981, 2.0678 and 2.3779
at the minimum, midpoint, maximum and 15% above
maximum of the Offering Price Range,
respectively, resulting in an initial quarterly
dividend rate of $0.11, $0.09, $0.08 and $0.07
per share, respectively. 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 Association's and the Holding
Company's financial condition and results of
operations, tax considerations and general
economic conditions.
Market for Common Stock The Holding Company has never issued capital
stock (other than 100 shares issued to the
Association, which will be canceled upon
consummation of the Conversion and
Reorganization), and to date an active and liquid
trading market has not developed for the 391,400
Public Association Shares outstanding prior to
the Offering. Consequently, there is no
established market for the Common Stock to be
issued in the Exchange and the Offering. The
Holding Company has received conditional approval
to have the Common Stock listed on the Nasdaq
National Market ("NMS") under the symbol "ESBX."
In order for the Common Stock to be listed on the
Nasdaq NMS, however, there must be, among other
things, two market makers for the Common Stock.
Trident intends to act as a market maker for the
Common Stock and will assist the Holding Company
in retaining at least one other market maker. The
Holding Company will use its best efforts to
encourage and assist market making to establish
and maintain a market for the Common Stock. There
can be no assurance, however, that any additional
market makers for the Common Stock will be
obtained or that the Common Stock will be listed
on the Nasdaq NMS or, if listed, will continue to
be eligible for such listing. If the Holding
Company should prove unable, for any reason, to
list the Common Stock on the Nasdaq NMS or to
continue to be eligible for such listing, then
the Holding Company intends to list the Common
Stock on the Nasdaq SmallCap Market, subject to
the applicable listing criteria for that market.
10
<PAGE>
SUMMARY OF PROPOSED CONVERSION AND REORGANIZATION
The following summary is qualified in its entirety by the more detailed
information and financial statements appearing in the Prospectus, being
delivered herewith, the contents of which are hereby incorporated herein by
reference.
THE CONVERSION
The Boards of Directors of the Mutual Holding Company and the Association
unanimously adopted the Plan as of May 16, 1997, which was amended on June 20,
1997 and August 8, 1997. The Plan has been approved by the OTS, subject to,
among other things, approval of the Plan by the Members of the Mutual Holding
Company at the Special Meeting and the stockholders of the Association at a
special meeting called for this purpose on , 1997. The Holding Company's
application to become the holding company for the converted Association must
be approved by the OTS before the Conversion can be completed.
At the direction of the Association, the Holding Company was incorporated
under Delaware law on May 14, 1997 and is currently a first-tier wholly owned
subsidiary of the Association. Pursuant to the Plan, (i) the Mutual Holding
Company will convert from mutual form to a federal interim stock savings
association and simultaneously merge with and into the Association, pursuant
to which the Mutual Holding Company will cease to exist and the Association
Shares held by the Mutual Holding Company will be canceled, (ii) the
Association will establish, as a wholly-owned subsidiary, the Holding Company,
that will become the new holding company for the Association upon completion
of the transactions contemplated by the Plan, (iii) the Holding Company will
establish, as a wholly-owned subsidiary, a second federal interim stock
savings association that will merge with and into the Association, whereby the
Association will become a wholly-owned subsidiary of the Holding Company and
the Public Association Shares will be converted into the Exchange Shares
pursuant to the Exchange Ratio, which will result in the holders of such
shares owning in the aggregate approximately the same percentage of the Common
Stock to be outstanding upon the completion of the Conversion and
Reorganization as the percentage of Association Shares owned by them in the
aggregate immediately prior to consummation of the Conversion and
Reorganization, before giving effect to (a) the payment of cash in lieu of
issuing fractional Exchange Shares, (b) any shares of Conversion Stock
purchased by the Public Stockholders in the Offering or the ESOP thereafter,
and (c) any exercise of dissenters' rights. Upon consummation of the
Conversion and Reorganization, the Association will change its name to
"Equality Savings Bank."
11
<PAGE>
The following diagram summarizes the current organizational structure of the
parties' ownership interests.
- ---------------------------------- ----------------------------------
Public Stockholders First Missouri Financial, M.H.C.
- ---------------------------------- ----------------------------------
46.8% 53.2%
-------------------------------------------------------------------
100%
-------------------------------------------------------
Equality Savings and Loan Association, F.A.
-------------------------------------------------------
-------------------------------------------------------------------
100% 100%
- ---------------------------------- ----------------------------------
Equality Commodity Corporation Equality Mortgage Corporation
- ---------------------------------- ----------------------------------
100%
- ----------------------------------
Dutch Town Development Co.
- ----------------------------------
12
<PAGE>
The following diagram reflects the Conversion and Reorganization including (i)
the merger of the Mutual Holding Company (following its conversion into an
interim federal stock savings association) with and into the Association, (ii)
the merger of Interim with and into the Association, pursuant to which the
Public Association Shares will be converted into Exchange Shares, and (iii) the
offering of Conversion Stock.
-------------- ---------------- --------------
Existing First Missouri New
Public Financial, Public
Stockholders M.H.C. Stockholders
-------------- ---------------- --------------
MHC converts to Eligible
Stock Interim Thrift Account-
holders and
46.8% 53.2% others
--------------------------
100%
---------
Stock
Interim
------------------------ Thrift
Equality Savings and ---------
Loan Association, F.A.
------------------------ Stock Interim Thrift
Merges into Equality:
Equality forms 100% 53.2% ownership cancelled
Bancorp
------------------------
Equality Bancorp, Inc. Offering of
------------------------ conversion stock
100%
Bancorp forms Stock
Interim Thrift
---------
Stock
Interim
Thrift
---------
Stock Interim Thrift merges into Equality; existing public
stockholders exchange shares of Equality for some proportional
ownership of Bancorp: shares of Stock Interim Thrift held by
Bancorp continue as shares of survivor in the merger; shares of
Bancorp held by Equality cancelled.
13
<PAGE>
The following diagram summarizes the resulting organizational structure of the
parties' ownership interests.
-------------------------------------------------------
Existing and New Public Stockholders
-------------------------------------------------------
100%
-------------------------------------------------------
Equality Bancorp, Inc.
-------------------------------------------------------
100%
-------------------------------------------------------
Equality Savings Bank,
(Formerly, Equality Savings and Loan Association, F.A.)
-------------------------------------------------------
-------------------------------------------------------------------
100% 100%
- ---------------------------------- ----------------------------------
Equality Commodity Corporation Equality Mortgage Corporation
- ---------------------------------- ----------------------------------
100%
- ----------------------------------
Dutch Town Development Co.
- ----------------------------------
14
<PAGE>
The Plan of Merger providing for the merger of the Mutual Holding Company
with and into the Association, which is attached to this proxy statement as
Appendix B, and the Plan of Merger providing for the merger of Interim with
and into the Association each must be approved by the holders of at least two-
thirds of the outstanding Association Shares at the Stockholders' Meeting. The
Plan of Merger between Interim and the Association also must be approved by
the Holding Company, as the sole stockholder of Interim.
In addition, the Primary Parties have conditioned the consummation of the
Conversion and Reorganization upon the approval of the Plan, including the
Plans of Merger, by at least a majority of the votes cast, in person or by
proxy, by the Public Stockholders at the Stockholders' Meeting. The Plan is
subject to the approval of the OTS, and it also must be approved by at least a
majority of the total outstanding votes of the voting members of the Mutual
Holding Company at the Special Meeting, which votes may be cast in person or
by proxy.
PURPOSES OF CONVERSION
The Boards of Directors of the Mutual Holding Company and the Association
believe that a conversion of the Mutual Holding Company to stock form and the
reorganization of the Association pursuant to the Plan is in the best
interests of the Mutual Holding Company and the Association, as well as the
best interests of the members of the Mutual Holding Company and the Public
Stockholders. The Conversion and Reorganization will result in the Association
being wholly owned by a stock holding company, which is a more common
structure and form of ownership than a mutual holding company. In addition,
the Conversion and Reorganization will result in the raising of additional
equity capital for the Association and the Holding Company and is expected to
result in a more active and liquid market for the Common Stock than currently
exists for the Association Shares, although there can be no assurances that
this will be the case. Finally, the Conversion and Reorganization has been
structured to reunite the accumulated earnings and profits tax attribute
retained by the Mutual Holding Company with the retained earnings of the
Association through a tax-free reorganization. This will increase the
Association's ability to pay dividends in the future.
If the Association had undertaken a standard conversion involving the
formation of a stock holding company in 1993, applicable OTS regulations would
have required a greater amount of Association Shares to be sold than resulted
in the amount of net proceeds raised in connection with the formation of the
Mutual Holding Company. In addition, if a standard conversion had been
conducted in 1993, management of the Association believed that it would have
been difficult to profitably invest the larger amount of capital that would
have been raised, when compared to the amount of net proceeds raised in
connection with the formation of the Mutual Holding Company. A standard
conversion in 1993 also would have immediately eliminated all aspects of the
mutual form of organization.
Subsequent to the formation of the Mutual Holding Company, there have been
certain changes in the regulations and policies of the OTS relating to mutual
holding companies. In recent years, the U.S. Congress has proposed major
overhauls to the structure of the thrift industry that include eliminating the
federal savings association charter, which is the charter the Association
currently operates under. These proposals also have created uncertainty
concerning the future of the mutual form of ownership. In addition, since the
Mutual Holding Company Reorganization in 1993, the Boards of Directors of the
Mutual Holding Company and the Association have realized a need to create
additional liquidity for the Association Shares and believe the Holding
Company and the Association can effectively deploy the additional equity
capital raised in the Conversion and Reorganization. In light of the
foregoing, the Boards of Directors of the Mutual Holding Company and the
Association believe that it is in the best interests of such companies and
their respective members and stockholders to undertake the Conversion and
Reorganization.
THE OFFERINGS
The Plan requires that the purchase price of the Conversion Stock must be
based on the appraised pro forma market value of the Conversion Stock, as
determined on the basis of an independent valuation. The Primary Parties have
retained RP Financial to make such valuation. RP Financial has advised the
Primary Parties in its
15
<PAGE>
opinion the estimated pro forma market value of the Association and the Mutual
Holding Company on a combined basis was $15,037,594 as of June 20, 1997.
Because the holders of the Public Association Shares will continue to hold the
same aggregate percentage ownership interest in the Holding Company as they
currently hold in the Association (before giving effect to the payment of cash
in lieu of issuing fractional Exchange Shares, any exercise of dissenters'
rights and any shares of Conversion Stock purchased by the Association's
stockholders in the Offering or by the ESOP thereafter), the Appraisal was
multiplied by the Mutual Holding Company's percentage interest in the
Association (i.e., 53.2%) to determine the midpoint of the valuation
($8,000,000), and the minimum and maximum of the valuation were set at 15%
below and above the midpoint, respectively, resulting in a range of $6,800,000
to $9,200,000. The Boards of Directors of the Primary Parties determined that
the Conversion Stock would be sold at $10.00 per share, resulting in a range
of 680,000 to 920,000 shares of Conversion Stock being offered. Upon
consummation of the Conversion and Reorganization, the Conversion Stock and
the Exchange Shares will represent approximately 53.2% and 46.8%,
respectively, of the Holding Company's total outstanding shares.
The Boards of Directors of the Primary Parties also established the formula
for determining the Exchange Ratio. Based upon such formula and the Offering
Price Range, the Exchange Ratio ranged from a minimum of 1.5283 to a maximum
of 2.0678 Exchange Shares for each Public Association Share, with a midpoint
of 1.7981. Based upon these Exchange Ratios, the Holding Company expects to
issue between 598,195 and 809,323 Exchange Shares to the holders of Public
Association Shares outstanding immediately prior to the consummation of the
Conversion and Reorganization. The Offering Price Range and the Exchange Ratio
may be amended with the approval of the OTS, if required, or if necessitated
by subsequent developments in the financial condition of any of the Primary
Parties or market conditions generally. In the event the Appraisal is updated
to below $12,781,955 or above $19,887,218, such updated Appraisal will be
filed with the SEC by post-effective amendment.
The following table sets forth, based upon the minimum, midpoint, maximum
and 15% above the maximum of the Offering Price Range, the following: (i) the
total number of shares of Conversion Stock and Exchange Shares to be issued in
the Conversion and Reorganization, (ii) the percentage of the total Common
Stock represented by the Conversion Stock and the Exchange Shares, (iii) the
total shares of Common Stock to be outstanding upon consummation of the
Conversion and Reorganization, and (iv) the Exchange Ratio. The table assumes
that no holder of Public Association Shares exercises dissenters' rights and
that there is no cash paid in lieu of issuing fractional Exchange Shares.
<TABLE>
<CAPTION>
CONVERSION STOCK TO EXCHANGE SHARES TO TOTAL SHARES OF
BE ISSUED BE ISSUED COMMON STOCK
-------------------- -------------------- TO BE
AMOUNT PERCENT AMOUNT PERCENT OUTSTANDING EXCHANGE RATIO
----------- -------- ---------- --------- --------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Minimum................. 680,000 53.2% 598,195 46.8% 1,278,195 1.5283
Midpoint................ 800,000 53.2% 703,759 46.8% 1,503,759 1.7981
Maximum................. 920,000 53.2% 809,323 46.8% 1,729,323 2.0678
15% above Maximum....... 1,058,000 53.2% 930,721 46.8% 1,988,721 2.3779
</TABLE>
RP Financial's valuation is not intended, and must not be construed, as a
recommendation of any kind as to the advisability of purchasing such shares.
RP Financial did not independently verify the Consolidated Financial
Statements and other information provided by the Association and the Mutual
Holding Company, nor did RP Financial value independently the assets or
liabilities of the Association. The valuation considers the Association and
the Mutual Holding Company as going concerns and should not be considered as
an indication of the liquidation value of the Association and the Mutual
Holding Company. Moreover, because such valuation is necessarily based upon
estimates and projections of a number of matters, all of which are subject to
change from time to time, no assurance can be given that persons purchasing
Conversion Stock or receiving Exchange Shares in the Conversion and
Reorganization will thereafter be able to sell such shares at prices at or
above the Purchase Price or in the range of the foregoing valuation of the pro
forma market value thereof.
16
<PAGE>
As part of the Conversion and Reorganization, the Holding Company is
offering up to 920,000 shares of Common Stock (i.e., Conversion Stock) at a
Purchase Price of $10.00 per share in the Subscription Offering. As described
in more detail below, nontransferable rights to subscribe for the Conversion
Stock in the Subscription Offering have been granted to certain persons
according to certain preference categories and, subject to the prior rights of
holders of Subscription Rights, the Holding Company is also offering shares of
Conversion Stock in the Community Offering to members of the general public.
In the event of an oversubscription in the Subscription and Community
Offering, up to 138,000 additional shares may be issued to reflect changes in
market and financial conditions and to cover additional subscriptions. The
Primary Parties may reject, in whole or in part, orders received in the
Community Offering in their sole discretion.
Subscription Offering. In accordance with the OTS's regulations,
subscription rights have been granted pursuant to the Subscription Offering
under the Plan to the following persons (collectively, the "Eligible
Subscribers") in the following order of priority: (1) Eligible Account Holders
(depositors with aggregate account balances of $50 or more on deposit at the
Association as of March 31, 1996); (2) Employee Stock Benefit Plans (which
would include the ESOP but not include the 1997 MRP); (3) Supplemental
Eligible Account Holders (depositors with aggregate account balances of $50 or
more on deposit at the Association, other than officers or directors of the
Mutual Holding Company or the Association or any of their associates, as of
, 1997); (4) Other Members (depositors and certain borrowers as of ,
1997, the voting record date, who are not Eligible Account Holders or
Supplemental Eligible Holders); (5) directors, officers and employees of the
Mutual Holding Company and the Association; and (6) the Public Stockholders.
Subscription Rights are nontransferable and have been granted to Eligible
Subscribers without charge. No Eligible Subscriber is required to purchase any
shares of Conversion Stock in the Subscription Offering. All subscriptions
received will be subject to the availability of Conversion Stock after
satisfaction of subscriptions of all Eligible Subscribers having prior rights
in the Subscription Offering and to the maximum purchase limitations and other
terms and conditions set forth in the Plan and described below.
Expiration Date for the Subscription Offering. The Subscription Offering
will expire at 12:00 Noon, Central Time, on , 1997, unless extended by the
Holding Company with the approval of the OTS, if necessary. Such extensions
may not be extended beyond , 199 . Subscription rights which have not been
exercised prior to the Expiration Date will become void.
The Primary Parties will not execute orders until at least the minimum
number of shares of Conversion Stock (680,000 shares) have been subscribed for
or otherwise sold. If all shares have not been subscribed for or sold within
45 days after the Expiration Date, unless such period is extended with the
consent of the OTS, all funds delivered to the Holding Company pursuant to the
Subscription Offering will be returned promptly to the subscribers with
interest and all withdrawal authorizations will be canceled. If an extension
beyond the 45-day period following the Expiration Date is granted, the Holding
Company will notify subscribers of the extension of time and subscribers will
be resolicited and permitted to modify or cancel their subscriptions.
Community Offering. Subject to the minimum purchase limitation set forth in
the Plan and to the availability of shares of the Conversion Stock after
satisfaction of all subscriptions of Eligible Account Holders, Employee Stock
Benefit Plans, Supplemental Eligible Account Holders, Other Members,
directors, officers and employees and Public Stockholders, the remaining
shares of the Conversion Stock will be offered in the Community Offering to
natural persons who reside in Missouri and to whomever else the Prospectus is
delivered ("Other Purchasers"), giving preference to natural persons residing
in the Missouri counties of St. Louis City, St. Louis, Jefferson, St. Charles
and Franklin ("Preferred Other Purchasers") in a manner designed to achieve
the widest possible distribution of Conversion Stock. The Community Offering
may commence concurrently with or as soon as practicable after completion of
the Subscription Offering and must be completed within 45 days after
completion of the Subscription Offering, unless extended with the approval of
the OTS.
Other purchasers, together with associates of and persons acting in concert
with such persons, may purchase up to the number of shares of Conversion Stock
that when combined with Exchange Shares received aggregate 62,500 shares of
Common Stock. THE OPPORTUNITY TO SUBSCRIBE FOR SHARES OF CONVERSION STOCK IN
THE
17
<PAGE>
COMMUNITY OFFERING CATEGORY IS SUBJECT TO THE RIGHT OF THE PRIMARY PARTIES, IN
THEIR SOLE DISCRETION, TO ACCEPT OR REJECT ANY SUCH ORDERS IN WHOLE OR IN PART
EITHER AT THE TIME OF RECEIPT OF AN ORDER OR AS SOON AS PRACTICABLE FOLLOWING
THE EXPIRATION DATE.
THE SUBSCRIPTION OFFERING HAS COMMENCED AS OF THE DATE OF MAILING OF THIS
PROXY STATEMENT. THE PROSPECTUS PROVIDED HEREWITH EXPLAINS THE TERMS OF THE
SUBSCRIPTION AND COMMUNITY OFFERING, INCLUDING HOW TO ORDER AND PAY FOR
SHARES, AND DESCRIBES THE BUSINESS OF THE MUTUAL HOLDING COMPANY, THE
ASSOCIATION AND THE HOLDING COMPANY, AND SHOULD BE READ BY ALL PERSONS WHO
WISH TO CONSIDER SUBSCRIBING FOR COMMON STOCK.
EFFECTS OF THE CONVERSION AND REORGANIZATION
General. Prior to the Conversion and Reorganization, each depositor in the
Association has both a deposit account in the institution and a pro rata
ownership interest in the net worth of the Mutual Holding Company based upon
the balance in his account, which interest may only be realized in the event
of a liquidation of the Mutual Holding Company. This ownership interest,
however, is tied to the depositor's account and has no tangible market value
separate from such deposit account. A depositor who reduces or closes his or
her account receives a portion or all of the balance in the account but
nothing for his ownership interest in the net worth of the Mutual Holding
Company, which is lost to the extent that the balance in the account is
reduced.
Consequently, the depositors of the Association normally have no way to
realize the value of their ownership interest in the Mutual Holding Company,
which has realizable value only in the unlikely event that the Mutual Holding
Company is liquidated. In such event, the depositors of record at that time,
as owners, would share pro rata in any residual surplus and reserves of the
Mutual Holding Company after other claims are paid.
Upon consummation of the Conversion and Reorganization, permanent
nonwithdrawable capital stock will be created to represent the ownership of
the net worth of the Holding Company. The Common Stock of the Holding Company
is separate and apart from deposit accounts and cannot be and is not insured
by the FDIC or any other governmental agency. Certificates are issued to
evidence ownership of the permanent stock. The stock certificates are
transferable, and therefore the stock may be sold or traded if a purchaser is
available with no effect on any account the seller may hold in the
Association.
Continuity. While the Conversion and Reorganization is being accomplished,
the normal business of the Association of accepting deposits and making loans
will continue without interruption. The Association will continue to be
subject to regulation by the OTS and the FDIC. After the Conversion and
Reorganization, the Association will continue to provide services for
depositors and borrowers under current policies by its present management and
staff.
The directors and officers of the Association at the time of the Conversion
and Reorganization will continue to serve as directors and officers of the
Association after the Conversion and Reorganization. The directors and
officers of the Holding Company consist of individuals currently serving as
directors and officers of the Mutual Holding Company and the Association, and
they generally will retain their positions in the Holding Company after the
Conversion and Reorganization.
Effect on Public Association Shares. Under the Plan, upon consummation of
the Conversion and Reorganization, the Public Association Shares shall be
converted into Common Stock based upon the Exchange Ratio without any further
action on the part of the holder thereof. Upon surrender of the Public
Association Shares, Common Stock will be issued in exchange for such shares.
Upon consummation of the Conversion and Reorganization, the Public
Stockholders of the Association, a federally chartered savings association,
will become stockholders of the Holding Company, a Delaware corporation.
18
<PAGE>
Effect on Deposit Accounts. Under the Plan, each depositor in the
Association at the time of the Conversion and Reorganization will
automatically continue as a depositor after the Conversion and Reorganization,
and each such deposit account will remain the same with respect to deposit
balance, interest rate and other terms, except to the extent that funds in the
account are withdrawn to purchase Conversion Stock to be issued in the
Offering. Each such account will be insured by the FDIC to the same extent as
before the Conversion and Reorganization. Depositors will continue to hold
their existing certificates, passbooks and other evidences of their accounts.
Effect on Loans. No loan outstanding from the Association will be affected
by the Conversion and Reorganization, and the amount, interest rate, maturity
and security for each loan will remain as they were contractually fixed prior
to the Conversion and Reorganization.
Effect on Voting Rights of Members. At present, all depositors and certain
borrowers of the Association are members of, and have voting rights in, the
Mutual Holding Company as to all matters requiring membership action. Upon
completion of the Conversion and Reorganization, depositors and borrowers will
cease to be members and will no longer be entitled to vote at meetings of the
Mutual Holding Company (which will cease to exist). Upon completion of the
Conversion and Reorganization, all voting rights in the Association will be
vested in the Holding Company as the sole stockholder of the Association.
Exclusive voting rights with respect to the Holding Company will be vested in
the holders of Common Stock. Depositors of and borrowers from the Association
will not have voting rights in the Holding Company after the Conversion and
Reorganization, except to the extent that they become stockholders of the
Holding Company.
Tax Effects. Consummation of the Conversion and Reorganization is expressly
conditioned upon prior receipt of either a ruling or an opinion of counsel or
of a certified public accounting firm with respect to federal tax laws, and
either a ruling or an opinion with respect to Missouri income tax laws, to the
effect that consummation of the transactions contemplated hereby will not
result in a taxable reorganization under the provisions of the applicable
codes or otherwise result in any adverse tax consequences to the Mutual
Holding Company, the Association, the Holding Company or to account holders
receiving subscription rights, except to the extent, if any, that subscription
rights are deemed to have fair market value on the date such rights are
issued. This condition may not be waived by the Primary Parties.
KPMG Peat Marwick LLP has issued an opinion to the Holding Company, the
Association and the Mutual Holding Company to the effect that, for federal
income tax purposes: (1) the converted Mutual Holding Company's merger with
and into the Association, with the Association being the surviving
institution, will qualify as a reorganization within the meaning of Section
368(a)(1)(A) of the Code, (2) no gain or loss will be recognized by the
Association upon the receipt of the assets of the Mutual Holding Company in
such merger, (3) the merger of Interim with and into the Association, with the
Association being the surviving institution, will qualify as a reorganization
within the meaning of Section 368(a)(1)(A) and Section 368(a)(2)(E) of the
Code, (4) no gain or loss will be recognized by Interim upon the transfer of
its assets to the Association, (5) no gain or loss will be recognized by the
Association upon the receipt of the assets of Interim, (6) no gain or loss
will be recognized by the Holding Company upon the receipt of Association
common stock solely in exchange for Common Stock, (7) no gain or loss will be
recognized by the Public Stockholders upon the receipt of Common Stock solely
in exchange for their Public Association Shares, (8) the basis of the Common
Stock to be received by the Public Stockholders will be the same as the basis
of the Public Association Shares surrendered in exchange therefor, before
giving effect to any payment of cash in lieu of fractional shares, (9) the
holding period of the Common Stock to be received by the Public Stockholders
will include the holding period of the Public Association Shares, provided
that the Public Association Shares were held as a capital asset on the date of
the exchange, and (10) no gain or loss will be recognized by Eligible Account
Holders and Supplemental Eligible Account Holders upon distribution to them of
subscription rights to purchase shares of Conversion Stock, provided that the
amount paid for the Conversion Stock is equal to the fair market value of the
Conversion Stock.
19
<PAGE>
KPMG Peat Marwick LLP has also issued an opinion to the Holding Company and
the Association to the effect that there are no material adverse Missouri
income tax consequences as a result of the Conversion and Reorganization.
Unlike private rulings, an opinion is not binding on the IRS and the IRS
could disagree with conclusions reached therein. In the event of such
disagreement, there can be no assurance that the IRS would not prevail in a
judicial or administrative proceeding.
Effect on Liquidation Rights. In the unlikely event of a complete
liquidation of the Mutual Holding Company in its present mutual form, each
depositor of the Association would receive his or her pro rata share of any
assets of the Mutual Holding Company remaining after payment of claims of all
creditors. 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 was to the
total value of all deposit accounts in the Association at the time of
liquidation. After the Conversion and Reorganization, each depositor, in the
event of a complete liquidation of the Association, would have a claim as a
creditor of the same general priority as the claims of all other general
creditors of the Association. However, except as described below, his or her
claim would be solely in the amount of the balance in his or her deposit
account plus accrued interest. He or she would not have an interest in the
value or assets of the Association or the Holding Company above that amount.
The Plan provides for the establishment, upon the completion of the
Conversion and Reorganization, of a special "liquidation account" for the
benefit of Eligible Account Holders and Supplemental Eligible Account Holders
in an amount equal to the amount of any dividends waived by the Mutual Holding
Company plus the greater of (1) the Association's retained earnings of
$8,067,000 at March 31, 1993, the date of the latest statement of financial
condition contained in the final offering circular utilized in the Mutual
Holding Company Reorganization, or (2) 53.2% of the Association's total
stockholders' equity as reflected in its latest balance sheet contained in the
final Prospectus utilized in the Offering. As of the date of this Prospectus,
the initial balance of the liquidation account would be $ . Each Eligible
Account Holder and Supplemental Eligible Account Holder, if he were to
continue to maintain his deposit account at the Association, would be
entitled, upon a complete liquidation of the Association after the Conversion
and Reorganization, to an interest in the liquidation account prior to any
payment to the Holding Company as the sole stockholder of the Association.
Each Eligible Account Holder and Supplemental Eligible Account Holder would
have an initial interest in such liquidation account for each deposit account,
including passbook accounts, transaction accounts such as checking accounts,
money market deposit accounts and certificates of deposit, held in the
Association at the close of business on March 31, 1996 or , 1997, as the
case may be. Each Eligible Account Holder and Supplemental Eligible Account
Holder will have a pro rata interest in the total liquidation balance of each
such deposit account on the March 31, 1996 Eligibility Record Date (or the
, 1997 Supplemental Eligibility Record Date, as the case may be) bore to
the balance of all deposit accounts in the Association on such date.
If, however, on any March 31 annual closing date of the Association,
commencing March 31, 1998, the amount in any deposit account is less than the
amount in such deposit account on March 31, 1996 or , 1997, as the case
may be, or any other annual closing date, then the interest in the liquidation
account relating to such deposit account would be reduced by the proportion of
any such reduction, and such interest will cease to exist if such deposit
account is closed. In addition, no interest in the liquidation account would
ever be increased despite any subsequent increase in the related deposit
account. Any assets remaining after the above liquidation rights of Eligible
Account Holders and Supplemental Eligible Account Holders are satisfied would
be distributed to the Holding Company as the sole stockholder of the
Association.
Effect on Existing Compensation Plans. Upon consummation of the Plan, the
rights and obligations of the Association under Association's 1993 Stock
Option and Incentive Plan will be assumed by the Holding Company, and shares
of Common Stock will be issued (or reserved for issuance) pursuant to such
plan in substitution for Association Shares.
20
<PAGE>
HOW TO OBTAIN ADDITIONAL INFORMATION
The Prospectus being delivered herewith contains, among other things,
audited consolidated financial statements of the Association for the past
three years; management's discussion and analysis of the Association's
financial condition and operations; a description of the Association's
lending, savings, investment and borrowing activities; compensation and other
benefits provided to directors and officers of the Association and the Holding
Company; and information regarding and additional information about the
Holding Company, the Conversion and Reorganization, the Exchange and the
Offering.
The Association is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports, proxy statements and other information
with the OTS. Such reports, proxy statements and other information can be
inspected at the principal office of the OTS at 1700 G Street, N.W.,
Washington, D.C. 20552.
The Holding Company has filed with the SEC a Registration Statement on Form
S-1 (the "Registration Statement") under the Securities Act of 1933, as
amended (the "Securities Act"), with respect to the Conversion Stock and
Exchange Shares offered hereby. This Prospectus does not contain all of the
information set forth in the Registration Statement and the exhibits thereto.
For further information regarding the Holding Company and the Common Stock
offered hereby, reference is hereby made to such Registration Statement and
such exhibits, which can be inspected without charge at the office of the SEC
at 450 Fifth Street, N.W., Washington, D.C. 20549, and copies of which can be
obtained from the SEC at prescribed rates. Such materials may also be
available at the SEC's web site at "http://www.sec.gov." Copies of the
Registration Statement, including RP Financial's appraisal report, are also
available for inspection at the office of the Association at 4131 South Grand
Boulevard, St. Louis, Missouri 63118-3464. Inquiries concerning such
inspections can be made to the Association at (314) 352-3199.
The Mutual Holding Company has filed an Application for Conversion with the
OTS with respect to the Conversion and Reorganization. This Prospectus omits
certain information contained in that application. The application may be
examined at the principal office of the OTS, 1700 G Street, N.W., Washington,
D.C. 20552, and at the Midwest Regional Office of the OTS located at 122 West
John Carpenter Freeway, Suite 600, Irving, Texas 75039.
A Copy of the Association's proposed stock charter is attached as Exhibit A
to the Plan of Merger between Equality Savings and Loan Association, F.A. and
Interim II Savings and Loan Association, F.A., which is attached to the Plan
as Annex B. Copies of the Holding Company's certificate of incorporation and
bylaws are available for inspection at each of the offices of the Association
and may be obtained by writing to the Association at 4131 South Grand
Boulevard, St. Louis, Missouri 63118-3464, by telephoning the Stock
Information Center at (314) 352-3199 or by returning the enclosed postage
prepaid request card.
YOUR VOTE IS VERY IMPORTANT TO US. Please take a moment now to complete and
return your proxy card in the postage-paid envelope provided. You may still
attend the Special Meeting and vote in person even though you have voted your
proxy. Failure to vote may have the same effect as voting against the
Conversion and Reorganization.
IMPORTANT: YOU MAY BE ENTITLED TO VOTE IN MORE THAN ONE CAPACITY. PLEASE
SIGN, DATE AND PROMPTLY RETURN EACH PROXY CARD YOU RECEIVE.
----------------
THIS PROXY STATEMENT IS NOT AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER
TO BUY STOCK. THE OFFER WILL BE MADE ONLY BY THE PROSPECTUS.
THE SHARES OF COMMON STOCK OFFERED IN THE CONVERSION AND REORGANIZATION ARE
NOT DEPOSITS OR ACCOUNTS AND ARE NOT FEDERALLY INSURED OR GUARANTEED.
21
<PAGE>
LOGO
REVOCABLE PROXY
FIRST MISSOURI FINANCIAL, M.H.C.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF FIRST MISSOURI
FINANCIAL, M.H.C.
The undersigned hereby acknowledges prior receipt of the Notice of Special
Meeting of Members ("Special Meeting") and the Proxy Statement (including a
copy of the Prospectus delivered therewith and incorporated therein by
reference) describing the matters set forth below, and indicating the date,
time and place of the Special Meeting and hereby appoints the Board of
Directors of First Missouri Financial, M.H.C., or any of them, the Proxy of the
undersigned, each with full power of substitution, to cast all votes which the
undersigned is entitled to vote at the Special Meeting and at any adjournment
or adjournments thereof, on the matters referred to below in the manner
specified on the reverse side hereof.
(i) Approval of the Plan of Conversion and Reorganization, as amended from time
to time (the "Plan"), and a related Plan of Merger, providing for the
conversion of the Mutual Holding Company from mutual form to a federal
interim stock savings association ("Interim"), the simultaneous merger of
Interim with and into Equality Savings and Loan Association, F.A. (the
"Association"), the establishment of the Association as a wholly-owned
subsidiary of Equality Bancorp, Inc. (the "Holding Company"), the exchange
of the Association's shares of common stock held by the stockholders of the
Association other than the Mutual Holding Company for shares of Holding
Company common stock (the "Common Stock") under the terms of an exchange
ratio determined by the Board of Directors of the Mutual Holding Company,
the offering of Common Stock by the Holding Company in a subscription and
community offering, amendment of the Association's federal stock charter to
read in the form of a federal stock savings bank charter, to change the
name of the Association to "Equality Savings Bank," and to eliminate
certain provisions applicable for five years from October 22, 1993, the
date of the formation of the Mutual Holding Company, and related
transactions (collectively, the "Conversion and Reorganization");
(ii) Adjournment of the Special Meeting if necessary to permit further
solicitation of proxies in the event there are insufficient votes at the
time of the Special Meeting to approve the Conversion and Reorganization;
and
(iii) In their discretion, upon any other matters as may properly be brought
before the Special Meeting or any adjournment thereof. NOTE: The Board of
Directors is not aware of any other matter that may come before the
Special Meeting.
This Proxy will be voted as directed by the undersigned member. UNLESS
OTHERWISE MARKED, THIS PROXY WILL BE VOTED FOR APPROVAL OF THE CONVERSION AND
REORGANIZATION AND "FOR" ADJOURNMENT OF THE SPECIAL MEETING IF NECESSARY. If
any other business is presented at the Special Meeting, this Proxy shall be
voted in accordance with the recommendations of Management. This Proxy may be
revoked at any time before it is voted either by a written revocation of the
Proxy filed with the Secretary of First Missouri Financial, M.H.C. or by
submitting a later dated Proxy. The presence of a member at the Special Meeting
shall not revoke a Proxy unless a written notice of such revocation is filed
with the Secretary of the Special Meeting prior to the voting of such Proxy.
(IMPORTANT: PLEASE DATE AND SIGN THE PROXY ON THE REVERSE SIDE)
VOTING FOR THE CONVERSION AND SIGNING THIS PROXY CARD DOES NOT OBLIGATE YOU TO
BUY ANY STOCK
(Continued and to be signed on reverse side)
<PAGE>
LOGO
PLEASE MARK YOUR CHOICE LIKE THIS [X] IN BLUE OR BLACK INK.
(i) Approval of the Conversion and Reorganization
[_] FOR [_] AGAINST
(ii) Approval of the Adjournment, if necessary
[_] FOR [_] AGAINST
IMPORTANT: PLEASE SIGN YOUR NAME EXACTLY AS IT APPEARS HEREON. JOINT ACCOUNTS
NEED ONLY ONE SIGNATURE, BUT ALL ACCOUNT HOLDERS SHOULD SIGN IF POSSIBLE. WHEN
SIGNING AS AN ATTORNEY, ADMINISTRATOR, AGENT, CORPORATION, OFFICER, EXECUTOR,
TRUSTEE, GUARDIAN OR SIMILAR POSITION, PLEASE ADD YOUR FULL TITLE TO YOUR
SIGNATURE.
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Name(s)
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Signature(s)
Date: _____________________, 1997
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Address
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City State Zip
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Account Number
