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As filed with the Securities and Exchange Commission on June 27, 1997
Registration No. 333-_____
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
SHS BANCORP, INC.
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(Exact name of registrant as specified in charter)
Pennsylvania 6035 applied for
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(State or other jurisdiction of (Primary SICC No.) (I.R.S. Employer
incorporation or organization) Identification No.)
112 Federal Street
Pittsburgh, Pennsylvania 15212
(412) 231-0809
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(Address and telephone number of principal executive offices)
John F. Breyer, Jr., Esquire
Aaron M. Kaslow, Esquire
BREYER & AGUGGIA
Suite 470 East
1300 I Street, N.W.
Washington, D.C. 20005
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(Name and address of agent for service)
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this registration statement becomes effective.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [x]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, please check the
following box and list the Securities Act registration statement number of the
earlier effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act of 1933, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
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Calculation of Registration Fee
===============================================================================================================================
Title of Each Class of Securities Proposed Maximum Proposed Offering Proposed Maximum Amount of
Being Registered Amount Being Price(1) Aggregate Offering Registration Fee
Registered(1) Price(1)
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<S> <C> <C> <C> <C>
Common Stock, $0.01 Par Value 819,950 $10.00 $8,199,500 $2,485
Participation interests 25,000 -- -- (2)
===============================================================================================================================
</TABLE>
(1) Estimated solely for purposes of calculating the registration fee. As
described in the Prospectus, the actual number of shares to be issued and sold
are subject to adjustment based upon the estimated pro forma market value of the
registrant and market and financial conditions.
(2) The securities of SHS Bancorp, Inc. to be purchased by the Spring Hill
Savings Bank 401(k) Profit Sharing Plan are included in the amount shown for
Common Stock. Accordingly, pursuant to Rule 457(h) of the Securities Act of
1933, as amended, no separate fee is required for the participation interests.
Pursuant to such rule, the amount being registered has been calculated on the
basis of the number of shares of Common Stock that may be purchased with the
current assets of such Plan.
The registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the registrant shall
file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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PROSPECTUS SUPPLEMENT
SHS BANCORP, INC.
SPRING HILL SAVINGS BANK, F.S.B.
401(K) PROFIT SHARING PLAN
This Prospectus Supplement relates to the offer and sale to participants
("Participants") in the Spring Hill Savings Bank, F.S.B. 401(k) Profit Sharing
Plan ("Plan" or "401(k) Plan") of participation interests and shares of SHS
Bancorp, Inc. common stock, par value $.01 per share ("Common Stock"), as set
forth herein.
In connection with the proposed conversion of Spring Hill Savings Bank,
F.S.B. ("Savings Bank" or "Employer") from a federally chartered mutual savings
bank to a federally chartered stock savings bank, a holding company, SHS
Bancorp, Inc. ("Holding Company"), has been formed. The simultaneous conversion
of the Savings Bank to stock form, the issuance of the Savings Bank's common
stock to the Holding Company and the offer and sale of the Holding Company's
Common Stock to the public are herein referred to as the "Conversion."
Applicable provisions of the 401(k) Plan permit the investment of the Plan
assets in Common Stock of the Holding Company at the direction of a Plan
Participant. This Prospectus Supplement relates to the election of a Participant
to direct the purchase of Common Stock in connection with the Conversion.
The Prospectus dated ______, 1997 of the Holding Company ("Prospectus")
which is attached to this Prospectus Supplement includes detailed information
with respect to the Conversion, the Common Stock and the financial condition,
results of operation and business of the Savings Bank and the Holding Company.
This Prospectus Supplement, which provides detailed information with respect to
the Plan, should be read only in conjunction with the Prospectus. Terms not
otherwise defined in this Prospectus Supplement are defined in the Plan or the
Prospectus.
A Participant's eligibility to purchase Common Stock in the Conversion
through the Plan is subject to the Participant's general eligibility to purchase
shares of Common Stock in the Conversion and the maximum and minimum limitations
set forth in the Plan of Conversion. See "THE CONVERSION" and "-- Limitations on
Purchases of Shares" in the Prospectus.
For a discussion of certain factors that should be considered by each
Participant, see "RISK FACTORS" in the Prospectus.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION ("SEC"), THE OFFICE OF THRIFT SUPERVISION ("OTS"), THE
FEDERAL DEPOSIT INSURANCE CORPORATION ("FDIC") OR ANY OTHER FEDERAL AGENCY OR
ANY STATE SECURITIES COMMISSION, NOR HAS THE SEC, THE OTS, THE FDIC OR ANY OTHER
AGENCY OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus Supplement is ______, 1997.
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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 in connection with the offering made hereby, and, if given or made,
such information and representations must not be relied upon as having been
authorized by the Holding Company, the Savings Bank or the Plan. This Prospectus
Supplement does not constitute an offer to sell or solicitation of an offer to
buy any securities in any jurisdiction to any person to whom it is unlawful to
make such offer or solicitation in such jurisdiction. Neither the delivery of
this Prospectus Supplement and the Prospectus nor any sale made hereunder shall
under any circumstances create any implication that there has been no change in
the affairs of the Savings Bank or the Plan since the date hereof, or that the
information herein contained or incorporated by reference is correct as of any
time subsequent to the date hereof. This Prospectus Supplement should be read
only in conjunction with the Prospectus that is attached herein and should be
retained for future reference.
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TABLE OF CONTENTS
<TABLE>
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PAGE
<S> <C>
The Offering
Securities Offered................................................................
Election to Purchase Common Stock in the Conversion...............................
Value of Participation Interests..................................................
Method of Directing Transfer......................................................
Time for Directing Transfer.......................................................
Irrevocability of Transfer Direction..............................................
Direction to Purchase Common Stock After the Conversion...........................
Purchase Price of Common Stock....................................................
Nature of a Participant's Interest in the Holding Company Common Stock............
Voting and Tender Rights of Common Stock..........................................
Description of the Plan................................................................
Introduction......................................................................
Eligibility and Participation.....................................................
Contributions Under the Plan......................................................
Limitations on Contributions......................................................
Investment of Contributions.......................................................
The Employer Stock Fund...........................................................
Benefits Under the Plan...........................................................
Withdrawals and Distributions from the Plan.......................................
Administration of the Plan........................................................
Reports to Plan Participants......................................................
Plan Administrator................................................................
Amendment and Termination.........................................................
Merger, Consolidation or Transfer.................................................
Federal Income Tax Consequences...................................................
Restrictions on Resale............................................................
Legal Opinions.........................................................................
Investment Form........................................................................
</TABLE>
i
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THE OFFERING
Securities Offered
The securities offered hereby are participation interests in the Plan and
up to ______ shares, at the actual purchase price of $10.00 per share, of Common
Stock which may be acquired by the Plan for the accounts of employees
participating in the Plan. The Holding Company is the issuer of the Common
Stock. Only employees and former employees of the Savings Bank and their
beneficiaries may participate in the Plan. Information with regard to the Plan
is contained in this Prospectus Supplement and information with regard to the
Conversion and the financial condition, results of operation and business of the
Savings Bank and the Holding Company is contained in the attached Prospectus.
The address of the principal executive office of the Savings Bank is 112 Federal
Street, Pittsburgh, Pennsylvania 15212. The Savings Bank's telephone number is
(412) 231-0809.
Election to Purchase Common Stock in the Conversion
In connection with the Savings Bank's Conversion, each Participant in the
401(k) Plan may direct the trustees of the Plan (collectively, the "Trustee") to
transfer up to ___% of a Participant's beneficial interest in the assets of the
Plan to a newly created Employer Stock Fund and to use such funds to purchase
Common Stock issued in connection with the Conversion. Amounts transferred may
include salary deferral, Employer matching and profit sharing contributions. The
Employer Stock Fund will consist of investments in the Common Stock made on or
after the effective date of the Conversion. Funds not transferred to the
Employer Stock Fund will be invested at the Participant's discretion in the
other investment options available under the Plan. See "DESCRIPTION OF THE
PLAN--Investment of Contributions" below. A Participant's ability to transfer
funds to the Employer Stock Fund in the Conversion is subject to the
Participant's general eligibility to purchase shares of Common Stock in the
Conversion. For general information as to the ability of the Participants to
purchase shares in the Conversion, see "THE CONVERSION -- The Subscription,
Direct Community and Syndicated Community Offerings" in the attached Prospectus.
Value of Participation Interests
The assets of the Plan are valued on an ongoing basis and each Participant
is informed of the value of his or her beneficial interest in the Plan on a
monthly basis. This value represents the market value of past contributions to
the Plan by the Savings Bank and by the Participants and earnings thereon, less
previous withdrawals, and transfers from the Savings Fund.
Method of Directing Transfer
The last page of this Prospectus Supplement is an investment form to direct
a transfer to the Employer Stock Fund ("Investment Form"). If a Participant
wishes to transfer funds to the Employer Stock Fund to purchase Common Stock
issued in connection with the Conversion, the
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Participant should indicate that decision in Part 2 of the Investment Form. If a
Participant does not wish to make such an election, he or she does not need to
take any action.
Time for Directing Transfer
The deadline for submitting a direction to transfer amounts to the Employer
Stock Fund in order to purchase Common Stock issued in connection with the
Conversion is _______, 1997. The Investment Form should be returned to
___________ at the Savings Bank no later than the close of business on such
date.
Irrevocability of Transfer Direction
A Participant's direction to transfer amounts credited to such
Participant's account in the Plan to the Employer Stock Fund in order to
purchase shares of Common Stock in connection with the Conversion shall be
irrevocable. Participants, however, will be able to direct the sale of Common
Stock, as explained below.
Direction to Purchase Common Stock After the Conversion
After the Conversion, a Participant will be able to direct that a certain
percentage of such Participant's interests in the trust assets ("Trust") be
transferred to the Employer Stock Fund and invested in Common Stock, or to the
other investment funds available under the Plan. Alternatively, a Participant
may direct that a certain percentage of such Participant's interest in the
Employer Stock Fund be transferred from the Employer Stock Fund to other
investment funds available under the Plan. Participants will be permitted to
direct that future contributions made to the Plan by or on their behalf be
invested in Common Stock. Following the initial election, the allocation of a
Participant's interest in the Employer Stock Fund may be changed by the
Participant on a monthly basis. Special restrictions may apply to transfers
directed by those Participants who are executive officers, directors and
principal stockholders of the Holding Company who are subject to the provisions
of Section 16(b) of the Securities and Exchange Act of 1934, as amended
("Exchange Act").
Purchase Price of Common Stock
The funds transferred to the Employer Stock Fund for the purchase of Common
Stock in connection with the Conversion will be used by the Trustees to purchase
shares of Common Stock. The price paid for such shares of Common Stock will be
the same price as is paid by all other persons who purchase shares of Common
Stock in the Conversion.
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 Trustees of the Plan in the Employer Stock Fund. Any
earnings, losses or expenses with respect to the Holding Company Stock,
including dividends and appreciation or depreciation
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in value, will be credited or debited to the account and will not be credited to
or borne by any other accounts.
Voting and Tender Rights of Common Stock
The Trustees generally will exercise voting and tender rights attributable
to all Common Stock held by the Trust as directed by Participants with an
interest in the Employer Stock Fund. With respect to each matter as to which
holders of Common Stock have the right to vote, each Participant will be
allocated a number of voting instruction rights reflecting such Participant's
proportionate interest in the Employer Stock Fund. The percentage of shares of
Common Stock held in the Employer Stock Fund that are voted in the affirmative
or negative on each matter shall be the same percentage of the total number of
voting instruction rights that are exercised in either the affirmative or
negative, respectively.
DESCRIPTION OF THE PLAN
Introduction
The Savings Bank adopted the Plan effective July 1, 1997 as an amendment
and restatement of the Savings Bank's prior retirement plan. The Plan is a cash
or deferred arrangement established in accordance with the requirement under
Section 401(a) and Section 401(k) of the Internal Revenue Code of 1986, as
amended ("Code").
The Savings Bank intends that the Plan, in operation, will comply with the
requirements under Section 401(a) and Section 401(k) of the Code. The Savings
Bank will adopt any amendments to the Plan that may be necessary to ensure the
qualified status of the Plan under the Code and applicable Treasury Regulations.
The Savings Bank will apply a determination from the Internal Revenue Service
("IRS") that the Plan, as amended and restated, is qualified under Section
401(a) of the Code and that it satisfies the requirements for a qualified cash
or deferred arrangement under Section 401(k) of the Code.
Employee Retirement Income Security Act. The Plan is an "individual account
plan" other than a "money purchase pension plan" within the meaning of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"). As such,
the Plan is subject to all of the provisions of Title I (Protection of Employee
Benefit Rights) and Title II (Amendments to the Internal Revenue Code Relating
to Retirement Plans) of ERISA, except the funding requirements contained in Part
3 of Title I of ERISA, which by their terms do not apply to an individual
account plan (other than a money purchase pension plan). The Plan is not subject
to Title IV (Plan Termination Insurance) of ERISA. Neither the funding
requirements contained in Title IV of ERISA nor the plan termination insurance
provisions contained in Title IV will be extended to Participants or
beneficiaries under the Plan.
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APPLICABLE FEDERAL LAW REQUIRES THE PLAN TO IMPOSE SUBSTANTIAL RESTRICTIONS
ON THE RIGHT OF A PLAN PARTICIPANT TO WITHDRAW AMOUNTS HELD FOR HIS OR HER
BENEFIT UNDER THE PLAN PRIOR TO THE PARTICIPANT'S TERMINATION OF EMPLOYMENT WITH
THE SAVINGS BANK. A SUBSTANTIAL FEDERAL TAX PENALTY MAY ALSO BE IMPOSED ON
WITHDRAWALS MADE PRIOR TO THE PARTICIPANT'S ATTAINMENT OF AGE 59 1/2, UNLESS A
PARTICIPANT RETIRES AS PERMITTED UNDER THIS PLAN REGARDLESS OF WHETHER SUCH A
WITHDRAWAL OCCURS DURING HIS OR HER EMPLOYMENT WITH THE SAVINGS BANK OR AFTER
TERMINATION OF EMPLOYMENT.
Reference to Full Text of Plan. The following statements are summaries of
the material provisions of the Plan. They are not complete and are qualified in
their entirety by the full text of the Plan, which is filed as an exhibit to the
registration statement filed with the SEC. Copies of the Plan are available to
all employees by filing a request with the Plan Administrator. Each employee is
urged to read carefully the full text of the Plan.
Eligibility and Participation
Any employee of the Savings Bank is eligible to participate and will become
a Participant in the Plan following completion of six months of service with the
Savings Bank within a consecutive 12 month period of employment and the
attainment of age 18. The Plan fiscal year is the calendar year ("Plan Year").
Directors who are not employees of the Savings Bank are not eligible to
participate in the Plan.
During 1996, approximately _____ employees participated in the Plan.
Contributions Under the Plan
Participant Contributions. Each Participant in the Plan is permitted to
elect to reduce such Participant's Compensation (as defined below) pursuant to a
salary reduction agreement and have that amount contributed to the Plan on such
Participant's behalf. Such amounts are credited to the Participant's deferral
contributions account. For purposes of the Plan, "Compensation" means a
Participant's total amount of earnings reportable W-2 wages for federal income
tax withholding purposes plus a Participant's elective deferrals pursuant to a
salary reduction agreement under the Plan or any elective deferrals to a Section
125 plan. Due to recent statutory changes, the annual Compensation of each
Participant taken into account under the Plan is limited to $160,000 (as
adjusted under applicable Code provisions). A Participant may elect to modify
the amount contributed to the Plan under the participant's salary reduction
agreement during the Plan Year. Deferral contributions are generally transferred
by the Savings Bank to the Trustee of the Plan on a periodic basis.
Employer Contributions. The Savings Bank currently matches employee
deferral contributions on a discretionary basis in an amount determined annually
by the Board of
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Directors. In addition, the Savings Bank may make additional discretionary
contributions in proportion to each Participant's Compensation.
Limitations on Contributions
Limitations on Annual Additions and Benefits. Pursuant to the requirements
of the Code, the Plan provides that the amount of contributions allocated to
each Participant's Account during any Plan Year may not exceed the lesser of 25%
of the Participant's "Section 415 Compensation" for the Plan Year or $30,000 (as
adjusted under applicable Code provisions). A Participant's "Section 415
Compensation" is a Participant's Compensation, excluding any amount contributed
to the Plan under a salary reduction agreement or any employer contribution to
the Plan or to any other plan or deferred compensation or any distributions from
a plan of deferred compensation. In addition, annual additions are limited to
the extent necessary to prevent the limitations for the combined plans of the
Savings Bank from being exceeded. To the extent that these limitations would be
exceeded by reason of excess annual additions to the Plan with respect to a
Participant, the excess must be reallocated to the remaining Participants who
are eligible for an allocation of Employer contributions for the Plan Year.
Limitation on 401(k) Plan Contributions. The annual amount of deferred
compensation of a Participant (when aggregated with any elective deferrals of
the Participant under any other employer plan, a simplified employee pension
plan or a tax-deferred annuity) may not exceed $9,500 (as adjusted under
applicable Code provisions). Contributions in excess of this limitation ("excess
deferrals") will be included in the Participant's gross federal income tax
purposes in the year they are made. In addition, any such excess deferral will
again be subject to federal income tax when distributed by the Plan to the
Participant, unless the excess deferral (together with any income allocable
thereto) is distributed to the Participant not later than the first April 15th
following the close of the taxable year in which the excess deferral is made.
Any income on the excess deferral that is distributed not later than such date
shall be treated, for federal income tax purposes, as earned and received by the
Participant in the taxable year in which the excess deferral is made.
Limitation on Plan Contributions for Highly Compensated Employees.
Sections 401(k) and 401(m) of the Code limit the amount of deferred compensation
contributed to the Plan in any Plan Year on behalf of Highly Compensated
Employees (defined below) in relation to the amount of deferred compensation
contributed by or on behalf of all other employees eligible to participate in
the Plan. Specifically, the actual deferral percentage for a Plan Year (i.e.,
----
the average of the ratios, calculated separately for each eligible employee in
each group, by dividing the amount of salary reduction contributions credited to
the salary reduction contribution account of such eligible employee by such
employee's compensation for the Plan Year) of the Highly Compensated Employees
may not exceed the greater of (a) 125% of the actual deferred percentage of all
other eligible employees, or (b) the lesser of (i) 200% of the actual deferred
percentage of all other eligible employees, or (ii) the actual deferral
percentage of all other eligible employees plus two percentage points. In
addition, the actual contribution percentage for a Plan Year (i.e., the average
----
of the ratios calculated separately for each eligible employee in each
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group, by dividing the amount of employer contributions credited to the Matching
contributions account of such eligible employee by each eligible employee's
compensation for the Plan Year) of the Highly Compensated Employees may not
exceed the greater of (a) 125% of the actual contribution percentage of all
other eligible employees, or (b) the lesser of (i) 200% of the actual
contributions percentage of all other eligible employees, or (ii) the actual
contribution percentage of all other eligible employees plus two percentage
points.
In general, a Highly Compensated Employee includes any employee who, during
the Plan Year or the preceding Plan Year, (1) was at any time a 5% owner (i.e.,
----
owns directly or indirectly more than 5% of the stock of the Employer, or stock
possessing more than 5% of the total combines voting power of all stock of the
Employer) or, (2) during the preceding Plan Year, received Section 415
Compensation in excess of $80,000 (as adjusted periodically under applicable
Code provisions) and, if elected by the Savings Bank, was in the top paid group
of employees for such Plan Year.
In order to prevent disqualification of the Plan, any amounts contributed
by Highly Compensated Employees that exceed the average deferral limitation in
any Plan Year ("excess contributions"), together with any income allocable
thereto, must be distributed to such Highly Compensated Employees before the
close of the following Plan Year. However, the Savings Bank will be subject to a
10% excise tax on any excess contributions unless such excess contributions,
together with any income allocable thereto, either are recharacterized or are
distributed before the close of the first 2 1/2 months following the Plan Year
to which such excess contributions relate. In addition, in order to avoid
disqualification of the Plan, any contributions by Highly Compensated Employees
that exceed the average contribution limitation in any Plan Year ("excess
aggregate contributions") together with any income allocable thereto, must be
distributed to such Highly Compensated Employees before the close of the
following Plan Year. However, the 10% excise tax will be imposed on the Savings
Bank with respect to any excess aggregate contributions, unless such amounts,
plus any income allocable thereto, are distributed within 2 1/2 months following
the close of the Plan Year in which they arose.
Top-Heavy Plan Requirements. If, for any Plan Year, the Plan is a Top-Heavy
Plan (as defined below), then (i) the Savings Bank may be required to make
certain minimum contributions to the Plan on behalf of non-key employees (as
defined below), and (ii) certain additional restrictions would apply with
respect to the combination of annual additions to the Plan and projected annual
benefits under any defined plan maintained by the Savings Bank.
In general, the Plan will be regarded as a "Top-Heavy Plan" for any Plan
Year, if as of the last day of the preceding Plan Year, the aggregate balance of
the accounts of all Participants who are key Employees exceeds 60% of the
aggregate balance of the Accounts of the Participants. "Key Employees" generally
include any employee, who at any time during the Plan Year or any other the four
preceding Plan Years, if (1) an officer of the Savings Bank having annual
compensation in excess of $60,000 who is in administrative or policy-making
capacity, (2) one of the ten employees having annual compensation in excess of
$30,000 and owing, directly or indirectly, the largest interest in the employer,
(3) a 5% owner of the employer (i.e.,
----
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owns directly or indirectly more than 5% of the stock of the employer, or stock
possessing more than 5% of the total combined voting power of all stock of the
employer), or (4) a 1% of owner of the employer having compensation in excess of
$150,000.
Investment of Contributions
All amounts credited to Participant's Accounts under the Plan are held in
the Trust which is administered by the Trustee. The Trustees are appointed by
the Savings Bank's Board of Directors. The Plan provides that a Participant may
direct the Trustee to invest all or a portion of his or her Accounts in various
managed investment portfolios, as described below. A Participant may
periodically elect to change his or her investment directions with respect to
both past contributions and for more additions to the Participant's accounts
invested in these investment alternatives.
Under the Plan, prior to the effective date of the Conversion, the Accounts
of Participant held in the Trust will be invested by the Trustees at the
direction of the Participant in the following managed portfolios:
Investment Fund A -
Investment Fund B -
Investment Fund C -
Investment Fund D -
Investment Fund E -
Effective upon the Conversion, a Participant may invest all or a portion of
his or her Accounts in the portfolios described above and in Fund F, described
below:
Investment Fund F - The Employer Stock Fund which invests in common stock of
the Holding Company.
A Participant may elect, to have both past and future contributions and
additions to the Participant's Account invested either in the Employer Stock
Fund or in any of the other managed portfolios listed above. Any amounts
credited to a Participant's Accounts for which investment directions are not
given will be invested in Investment Fund __.
The net gain (or loss) in the Accounts from investments (including interest
payments, dividends, realized and unrealized gains and losses on securities, and
expenses paid from the Trust) are determined on a _________ basis. For purposes
of such allocation, all assets of the Trust are valued at their fair market
value.
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The Employer Stock Fund
The Employer Stock Fund will consist of investments in Common Stock made on
and after the effective date of the Conversion. In connection with the
Conversion, pursuant to the attached Investment Form, Participants will be able
to change their investments at a time other than the normal election intervals.
Any cash dividends paid on Common Stock held in the Employer Stock Fund will be
credited to a cash dividend subaccount for each Participant investing in the
Employer Stock Fund. The Trustees will, to the extent practicable, use all
amounts held by it in the Employer Stock Fund (except the amounts credited to
cash dividend subaccounts) to purchase shares of Common Stock. It is expected
that all purchases will be made at prevailing market prices. Under certain
circumstances, the Trustees may be required to limit the daily volume of shares
purchased. Pending investment in Common Stock, assets held in the Employer Stock
Fund will be placed in bank deposits and other short-term investments.
When Common Stock is purchased or sold, the cost or net proceeds are
charged or credited to the Accounts of Participants affected by the purchase or
sale. A Participant's Account will be adjusted to reflect changes in the value
of shares of Common Stock resulting from stock dividends, stock splits and
similar changes.
To the extent dividends are not paid on Common Stock held in the Employer
Stock Fund, the return on any investment in the Employer Stock Fund will consist
only of the market value appreciation of the Common Stock subsequent to its
purchase. Following the Conversion, the Board of the Holding Company may
consider a policy of paying dividends on the Common Stock, however, no decision
has been made by the Board of the Holding Company regarding the amount or timing
of dividends, if any.
As of the date of this Prospectus Supplement, none of the shares of Common
Stock have been issued or are outstanding and there is no established market for
the Common Stock. Accordingly, there is no record of the historical performance
of the Employer Stock Fund.
Investments in the Employer Stock Fund may involve certain risk factors
associated with investments in Common Stock of the Holding Company. For a
discussion of these risk factors, see "RISK FACTORS" on pages 1 through __ in
the Prospectus.
Benefits Under the Plan
Vesting. A Participant, has at all times a fully vested, nonforfeitable
interest in all of his or her deferred contributions and the earnings thereon
under the Plan. A Participant is 100% vested in his or her matching
contributions account and employer discretionary contributions after the
completion of six years of service under the Plan's vesting schedule (20% per
year beginning with the completion of two years of service).
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Withdrawals and Distributions from the Plan
APPLICABLE FEDERAL LAW REQUIRES THE PLAN TO IMPOSE SUBSTANTIAL RESTRICTIONS
ON THE RIGHT OF A PLAN PARTICIPANT TO WITHDRAW AMOUNTS HELD FOR HIS OR HER
BENEFIT UNDER THE PLAN PRIOR TO THE PARTICIPANT'S ATTAINMENT OF AGE 59 1/2
UNLESS A PARTICIPANT RETIRES AS PERMITTED UNDER THE PLAN REGARDLESS OF WHETHER
SUCH A WITHDRAWAL OCCURS DURING HIS OR HER EMPLOYMENT WITH THE SAVINGS BANK.
Distribution Upon Retirement, Disability or Termination of Employment.
Payment of benefits to a Participant who retires, incurs a disability, or
otherwise terminates employment generally shall be made in a lump sum cash
payment. At the request of the Participant, the distribution may include an in-
kind distribution of Common Stock of the Holding Company credited to the
Participant's Account. A Participant whose total vested account balance equals
or exceeds $3,500 at the time of termination, may elect, in lieu of a lump sum
payments, to be paid in annual installments over a period not exceeding the life
expectancy of the Participant or the joint life expectancies of the Participant
and his or her designated beneficiary. Benefits payments ordinarily shall be
made not later than 60 days following the end of the Plan Year in which occurs
later of the Participant's: (i) termination of employment; (ii) attainment of
age 65; or (iii) tenth anniversary of commencement of participation in the Plan;
but in no event later than April 1 following the calendar year in which the
Participant attains age 70 1/2 (if the Participant is retired). However, if the
vested portion of the Participant's Account balances exceeds $3,500, no
distribution shall be made from the Plan prior to the Participant's attaining
age 65 unless the Participant consents to an earlier distribution. Special rules
may apply to the distribution of Common Stock of the Holding Company to those
Participants who are executive officers, directors and principal shareholders of
the Holding Company who are subject to the provisions of Section 16(b) of the
Exchange Act.
Distribution upon Death. A Participant who dies prior to the benefit
commencement date for retirement, disability or termination of employment, and
who has a surviving spouse, shall have his or her benefits paid to the surviving
spouse in a lump sum, or if the payment of his or her benefits had commenced
before his or her death, in accordance with the distribution method in effect at
his or her death. With respect to an unmarried Participant, and in the case of a
married Participant with spousal consent to the designation of another
beneficiary, payment of benefits to the beneficiary, payments of benefits to the
beneficiary of a deceased Participant shall be made in the form of a lump sum
payment in cash or in Common Stock, or if the payment of his or her benefit had
commenced before his or her death, in accordance with the distribution method if
effect at death.
Nonalienation of Benefits. Except with respect to federal income tax
withholding and as provided with respect to a qualified domestic relations order
(as defined in the Code), benefits payable under the Plan shall not be subject
in any manner to anticipation, alienation, sale, transfer, assignment, pledge,
encumbrance, charge, garnishment, execution, or levy of any kind,
S-9
<PAGE>
either voluntary or involuntary, and any attempt to anticipate, alienate, sell,
transfer, assign, pledge, encumber, charge or otherwise dispose of any rights to
benefits payable under the Plan shall be void.
Administration of the Plan
Trustees. The Trustees with respect to the Plan are ____________________.
Pursuant to the terms of the Plan, the Trustees receive and hold
contributions to the Plan in trust and have exclusive authority and discretion
to manage and control the assets of the Plan pursuant to the terms of the Plan
and to manage, invest and reinvest the Trust and income therefrom. The Trustees
have the authority to invest and reinvest the Trust and may sell or otherwise
dispose of Trust investments at any time and may hold trust funds uninvested.
The Trustees have authority to invest the assets of the Trust in "any type of
property, investment or security" as defined under ERISA.
Except as otherwise provided under the Plan, the Trustees have full power
to vote any corporate securities in the Trust in person or by proxy.
Participants will direct the Trustees as to voting and tendering of all Common
Stock held in the Employer Stock Fund.
The Trustees are not compensated for their services. The expenses incurred
in the administration of the Trust are paid out of the Trust except to the
extent such expenses are paid by the Association.
The Trustees must render at least annual reports to the Association and to
the Participants in such form and containing such information that the Trustees
deems necessary.
Reports to Plan Participants
The administrator will furnish to each Participant a statement at least
____________ showing (i) the balance in the Participant's Account as of the end
of that period, (ii) the amount of contributions allocated to such Participant's
Account for that period, and (iii) the adjustments to such Participant's Account
to reflect earnings or losses (if any).
Plan Administrator
The Savings Bank currently serves as the Plan Administrator. The Plan
Administrator is responsible for the administration of the Plan, interpretation
of the provisions of the Plan, prescribing procedures for filing applications
for benefits, preparation and distribution of information explaining the Plan,
maintenance of plan records, books of account and all other data necessary for
the proper administration of the Plan, and preparation and filing of all returns
and reports relating to the Plan which are required to be filed with the U.S.
Department of Labor and the IRS, and for all disclosures required to be made to
Participants, beneficiaries and others under Sections 104 and 105 of ERISA.
S-10
<PAGE>
Amendment and Termination
The Savings Bank may terminate the Plan at any time. If the Plan is
terminated in whole or in part, then regardless of other provisions in the Plan,
each employee who ceases to be a Participant shall have a fully vested interest
in his or her Account. The Savings Bank reserves the right to make, from time to
time, any amendment or amendments to the Plan which do not cause any part of the
Trust to be used for, or diverted to, any purpose other than the exclusive
benefit of the Participants or their beneficiaries.
Merger, Consolidation or Transfer
In the event of the merger or consolidation of the Plan with another plan,
or the transfer of the Trust to another plan, the Plan requires that each
Participant (if either the Plan or the other plan then terminated) receive a
benefit immediately after the merger, consolidation or transfer which is equal
to or greater than the benefit he or she would have been entitled to receive
immediately before the merger, consolidation or transfer (if the Plan had then
terminated).
Federal Income Tax Consequences
The following is only a brief summary of certain federal income tax aspects
of the Plan which are of general application under the Code and is not intended
to be a complete or definitive description of the federal income tax
consequences of participating in or receiving distributions from the Plan. The
summary is necessarily general in nature and does not purport to be complete.
Moreover, statutory provisions are subject to change, as are their
interpretations, and their application may vary in individual circumstances.
Finally, the consequences under applicable state and local income tax laws may
not be the same as under the federal income tax laws.
PARTICIPANTS ARE URGED TO CONSULT THEIR TAX ADVISORS WITH RESPECT TO ANY
DISTRIBUTION FROM THE PLAN AND TRANSACTIONS INVOLVING THE PLAN.
The Plan has received a determination from the IRS that it is qualified
under Section 401(a) and 401(k) of the Code, and that the related Trust is
exempt from tax under Section 501(a) of the Code. A plan that is "qualified"
under these sections of the Code is afforded special tax treatment which include
the following: (1) the sponsoring employer is allowed an immediate tax deduction
for the amount contributed to the Plan of each year; (2) Participants pay no
current income tax on amounts contributed by the employer on their behalf; and
(3) earnings of the Plan are tax-exempt thereby permitting the tax-free
accumulation of income and gains on investments. The Plan will be administered
to comply in operation with the requirements of the Code as of the applicable
effective date of any change in the law. The Savings Bank expects to timely
adopt any amendments to the Plan that may be necessary to maintain the qualified
status of the Plan under the Code. Following such an amendment, the Plan will be
submitted to the IRS for a determination that the Plan, as amended, continues to
qualify under Sections 401(a) and
S-11
<PAGE>
501(a) of the Code and that it continues to satisfy the requirements for a
qualified cash or deferred arrangement under Section 401(k) of the Code.
Assuming that the Plan is administered in accordance with the requirements
of the Code, participation in the Plan under existing federal income tax laws
will have the following effects:
(a) Amounts contributed to a Participant's 401(k) account and the
investment earnings are actually distributed or withdrawn from the Plan.
Special tax treatment may apply to the taxable portion of any distribution that
includes Common Stock or qualified as a "Lump Sum Distribution" (as described
below).
(b) Income earned on assets held by the Trust will not be taxable to the
Trust.
Lump Sum Distribution. A distribution from the Plan to a Participant or the
beneficiary of a Participant will qualify as a "Lump Sum Distribution" if it is
made: (i) within a single taxable year of the Participant or beneficiary; (ii)
on account of the Participant's death or separation from service, or after the
Participant attains age 59 1/2; and (iii) consists of the balance to the credits
of the Participant under the Plan and all other profit sharing plans, if any,
maintained by the Savings Bank. The portion of any Lump Sum Distribution that is
required to be included in the Participant's or beneficiary's taxable income for
federal income tax purposes ("total taxable amount") consists of the entire
amount of such Lump Sum Distribution less the amount of after-tax contributions,
if any, made by the Participant to any other profit sharing plans maintained by
the Savings Bank which is included in such distribution.
Averaging Rules. The portion of the total taxable amount of a Lump Sum
Distribution ("ordinary income portion") will be taxable generally as ordinary
income for federal income tax purposes. However, for distributions occurring
prior to January 1, 2000, a Participant who has completed at least five years of
participation in the Plan before the taxable year in which the distribution is
made, or a beneficiary who receives a Lump Sum Distribution on account of the
Participant's death (regardless of the period of the Participant's participation
in the Plan or any other profit sharing plan maintained by the Employer), may
elect to have the ordinary income portion of such Lump Sum Distribution taxed
according to a special averaging rule ("five-year averaging"). The election of
the special averaging rules may apply only to one Lump Sum Distribution received
by the Participant or beneficiary, provided such amount is received on or after
the Participant turns 59 1/2 and the recipient elects to have any other Lump Sum
Distribution from a qualified plan received in the same taxable year taxed under
the special averaging rule. The special five-year averaging rule has been
repealed for distributions occurring after December 31, 1999. Under a special
grandfather rule, individuals who turned 50 by 1986 may elect to have their Lump
Sum Distribution taxed under either the five-year averaging rule (if available)
or the prior law ten-year averaging rule. Such individuals also may elect to
have that portion of the Lump Sum Distribution attributable to the Participant's
pre-1974 participation in the Plan taxed at a flat 20% rate as gain from the
sale of a capital asset.
S-12
<PAGE>
Common Stock Included in Lump Sum Distribution. If a Lump Sum Distribution
includes Common Stock, the distribution generally will be taxed in the manner
described above, except that the total taxable amount will be reduced by the
amount of any net unrealized appreciation with respect to such Common Stock,
i.e., the excess of the value of such Common Stock at the time of the
- ----
distribution over its cost to the Plan. The tax basis of such Common Stock to
the Participant or beneficiary for purposes of computing gain or loss on its
subsequent sale will be the value of the Common Stock at the time of
distribution less the amount of net unrealized appreciation. Any gain on a
subsequent sale or other taxable disposition of such Common Stock, to the extent
of the amount of net unrealized appreciation at the time of distribution, will
be considered long-term capital gain regardless of the holding period of such
Common Stock. Any gain on a subsequent sale or other taxable disposition of the
Common Stock in excess of the amount of net unrealized appreciation at the time
of distribution will be considered either short-term capital gain or long-term
capital gain depending upon the length of the holding period of the Common
Stock. The recipient of a distribution may elect to include the amount of any
net unrealized appreciation in the total taxable amount of such distribution to
the extent allowed by the regulations by the IRS.
Distributions: Rollovers and Direct Transfers to Another Qualified Plan or
to an IRA. Pursuant to a change in the law, effective January 1, 1993, virtually
all distributions from the Plan may be rolled over to another qualified Plan or
to an individual retirement account ("IRA") without regard to whether the
distribution is a Lump Sum Distribution or Partial Distribution. Effective
January 1, 1993, Participants have the right to elect to have the Trustee
transfer all or any portion of an "eligible rollover distribution" directly to
another plan qualified under Section 401(a) of the Code or to an IRA. If the
Participant does not elect to have an "eligible rollover distribution"
transferred directly to another qualified plan of to an IRA, the distribution
will be subject to a mandatory federal withholding tax equal to 20% of the
taxable distribution. An "eligible rollover distribution" means any amount
distributed from the Plan except: (1) a distribution that is (a) one of a series
of substantially equal periodic payments made (not less frequently than
annually) over the Participant's life of the joint life of the Participant and
the Participant's designated beneficiary, or (b) for a specified period of ten
years or more; (2) any amount that is required to be distributed under the
minimum distribution rules; and (3) any other distributions excepted under
applicable federal law. The tax law change described above did not modify the
special tax treatment of Lump Sum Distributions, that are not rolled over or
transferred, i.e., forward averaging, capital gains tax treatment and the
----
nonrecognition of net unrealized appreciation, discussed earlier.
Additional Tax on Early Distributions. A Participant who receives a
distribution from the Plan prior to attaining age 59 1/2 will be subject to an
additional income tax equal to 10% of the taxable amount of the distribution.
The 10% additional income tax will not apply, however, to the extent the
distribution is rolled over into an IRA or another qualified plan or the
distribution is (i) made to a beneficiary (or to the estate of a Participant) on
or after the death of the Participant, (ii) attributable to the Participant's
being disabled within the meaning of Section 72(m)(7) of the Code, (iii) part of
a series of substantially equal periodic payments (not less frequently than
annually) made for the life (or life expectancy) of the Participant or the joint
lives
S-13
<PAGE>
(or joint life expectancies) of the Participant and his or her beneficiary, (iv)
made to the Participant after separation from service on account of early
retirement under the Plan after attainment of age 55, (v) made to pay medical
expenses to the extent deductible for federal income tax purposes, (vi) pursuant
to a qualified domestic relations order, or (vii) made to effect the
distribution of excess contributions or excess deferrals.
THE FOREGOING IS ONLY A BRIEF SUMMARY OF CERTAIN FEDERAL INCOME TAX ASPECTS
OF THE PLAN WHICH ARE OF GENERAL APPLICATION UNDER THE CODE AND IS NOT INTENDED
TO BE A COMPLETE OR DEFINITIVE DESCRIPTION OF THE FEDERAL INCOME TAX
CONSEQUENCES OF PARTICIPATING IN OR RECEIVING DISTRIBUTIONS FROM THE PLAN.
ACCORDINGLY, EACH PARTICIPANT IS URGED TO CONSULT A TAX ADVISOR CONCERNING THE
FEDERAL, STATE AND LOCAL TAX CONSEQUENCES OF PARTICIPATING IN AND RECEIVING
DISTRIBUTIONS FROM THE PLAN.
Restrictions on Resale
Any person receiving shares of the Common Stock under the Plan who is an
"affiliate" of the Savings Bank or the Holding Company as the term "affiliate"
is used in Rules 144 and 405 under the Securities Act of 1933, as amended
("Securities Act") (e.g., directors, officers and substantial shareholders of
the Savings Bank) may reoffer or resell such shares only pursuant to a
registration statement filed under the Securities Act (the Holding Company and
the Savings Bank having no obligation to file such registration statement) or,
assuming the availability thereof, pursuant to Rule 144 or some other exemption
from the registration requirements of the Securities Act. Any person who may be
an "affiliate" of the Savings Bank or the Holding Company may wish to consult
with counsel before transferring any Common Stock owned by him or her. In
addition, Participants are advised to consult with counsel as to the
applicability of the reporting and short-swing profit liability rules of Section
16 of the Exchange Act which may affect the purchase and sale of the Common
Stock where acquired or sold under the Plan or otherwise.
LEGAL OPINIONS
The validity of the issuance of the Common Stock will be passed upon by
Breyer & Aguggia, Washington, D.C., which firm is acting as special counsel for
the Holding Company in connection with the Savings Bank's Conversion from a
federally chartered mutual savings bank to a federally chartered stock savings
bank and the concurrent formation of the Holding Company.
S-14
<PAGE>
Investment Form
(Employer Stock Fund)
SPRING HILL SAVINGS BANK, F.S.B.
401(K) PROFIT SHARING PLAN
Name of Participant:______________________________________
Social Security Number:___________________________________
1. Instructions. In connection with the proposed conversion of Spring
Hill Savings Bank, F.S.B. ("Savings Bank") to a stock savings bank and the
simultaneous formation of a holding company ("Conversion"), participants in the
Spring Hill Savings Bank, F.S.B. 401(k) Profit Sharing Plan ("Plan") may elect
to direct the investment of up to ___% of their ___________, 1997 account
balances into the Employer Stock Fund ("Employer Stock Fund"). Amounts
transferred at the direction of Participants into the Employer Stock Fund will
be used to purchase shares of the common stock of SHS Bancorp, Inc. ("Common
Stock"), the proposed holding company for the Savings Bank. A Participant's
eligibility to purchase shares of Common Stock is subject to the Participant's
general eligibility to purchase shares of Common Stock in the Conversion and the
maximum and minimum limitations set forth in the Plan Conversion. See the
Prospectus for additional information.
You may use this form to direct a transfer of funds credited to your
account to the Employer Stock Fund, to purchase Common Stock in the Conversion.
To direct such a transfer to the Employer Stock Fund, you should complete this
form and return it to ___________ at the Savings Bank, no later than the close
of business on ________, 1997. The Savings Bank will keep a copy of this form
and return a copy to you. (If you need assistance in completing this form,
please contact ___________.
2. Transfer Direction. I hereby direct the Plan Administrator to transfer
$__________ (in increments of $10) from my Plan account to the Employer Stock
Fund to be applied to the purchase of Common Stock in the Conversion. Please
transfer this amount from the following investments in the amounts
indicated:______________________________________________________________________
________________________________________________________________________________
3. Effectiveness of Direction. I understand that this Investment Form
shall be subject to all of the terms and conditions of the Plan and the terms
and conditions of the Conversion. I acknowledge that I have received a copy of
the Prospectus and the Prospectus Supplement.
- -------------------------------- ---------------------------------
Signature Date
* * * * *
4. Acknowledgement of Receipt. This Investment Form was received by the
Plan Administrator and will become effective on the date noted below.
- -------------------------------- ---------------------------------
Plan Administrator Date
S-15
<PAGE>
PROSPECTUS SHS BANCORP, INC.
(Proposed Holding Company for Spring Hill Savings Bank, F.S.B.)
713,000 Shares (Anticipated Maximum) of Common Stock
$10.00 per share
SHS Bancorp, Inc. (the "Holding Company"), a Pennsylvania corporation, is
offering between 527,000 and 713,000 shares of its common stock, $0.01 par value
per share (the "Common Stock"), in connection with the conversion of Spring Hill
Savings Bank, F.S.B. (the "Savings Bank") from a federally chartered mutual
savings bank to a federally chartered capital stock savings bank and the
simultaneous issuance of the Savings Bank's capital stock to the Holding
Company. In certain circumstances, the Holding Company may increase the amount
of Common Stock offered hereby to 819,950 shares. See Footnote 3 to the table
below. (cover continued on following page)
FOR INFORMATION ON HOW TO SUBSCRIBE FOR SHARES OF COMMON STOCK, CALL THE
STOCK INFORMATION CENTER AT (___) __________.
FOR A DISCUSSION OF CERTAIN RISKS THAT SHOULD BE CONSIDERED BY EACH
PROSPECTIVE INVESTOR, SEE "RISK FACTORS" BEGINNING ON PAGE 1.
THE SECURITIES OFFERED HEREBY ARE NOT DEPOSITS OR ACCOUNTS AND WILL NOT BE
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION ("FDIC"), THE BANK
INSURANCE FUND ("BIF"), THE SAVINGS ASSOCIATION INSURANCE FUND ("SAIF") OR ANY
OTHER GOVERNMENT AGENCY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION ("SEC"), THE OTS, THE FDIC OR ANY OTHER FEDERAL AGENCY OR
ANY STATE SECURITIES COMMISSION, NOR HAS THE SEC, THE OTS, THE FDIC OR ANY OTHER
AGENCY OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
RYAN, BECK & CO.
The date of this Prospectus is _______________, 1997.
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
Estimated Underwriting
Purchase Commissions and Estimated Net
Price(1) Other Fees and Expenses(2) Proceeds
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Minimum Per Share....................... $10.00 $.78 $9.22
- --------------------------------------------------------------------------------------------------------------
Midpoint Per Share...................... $10.00 $.73 $9.27
- --------------------------------------------------------------------------------------------------------------
Maximum Per Share....................... $10.00 $.65 $9.35
- --------------------------------------------------------------------------------------------------------------
Maximum Per Share, as adjusted(3)....... $10.00 $.56 $9.44
- --------------------------------------------------------------------------------------------------------------
Minimum Total........................... $5,270,000 $445,000 $4,825,000
- --------------------------------------------------------------------------------------------------------------
Midpoint Total.......................... $6,200,000 $450,000 $5,750,000
- --------------------------------------------------------------------------------------------------------------
Maximum Total........................... $7,130,000 $463,000 $6,667,000
- --------------------------------------------------------------------------------------------------------------
Maximum Total, as....................... $8,199,500 $463,000 $7,736,500
- --------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Determined in accordance with an independent appraisal prepared by Feldman
Financial Advisors, Inc. ("Feldman Financial") as of June 23, 1997, which
states that the estimated aggregate pro forma market value of the Holding
Company and the Savings Bank, as converted, ranged from $5,270,000 to
$7,130,000, with a midpoint of $6,200,000 ("Estimated Valuation Range").
See "THE CONVERSION -- Stock Pricing and Number of Shares to be Issued."
(2) Consists of estimated costs to the Holding Company and the Savings Bank
arising from the Conversion, including fees to be paid to Ryan, Beck & Co.,
Inc. ("Ryan, Beck") in connection with the Offerings. Such fees may be
deemed to be underwriting fees and Ryan, Beck may be deemed to be an
underwriter. The Holding Company and the Savings Bank have agreed to
indemnify Ryan, Beck against certain liabilities, including liabilities
that may arise under the Securities Act of 1933, as amended ("Securities
Act"). See "USE OF PROCEEDS" and "THE CONVERSION -- Marketing and
Underwriting Arrangements."
(3) Gives effect to the sale of up to an additional 15% of the shares offered,
without the resolicitation of subscribers or any right of cancellation, due
to an increase in the pro forma market value of the Holding Company and the
Savings Bank, as converted. The ESOP shall have a first priority right to
subscribe for such additional shares up to an aggregate of 8% of the Common
Stock issued in the Conversion. See "THE CONVERSION -- Stock Pricing and
Number of Shares to be Issued."
Pursuant to the Plan of Conversion, nontransferable rights to subscribe for
the Common Stock ("Subscription Rights") have been granted, in order of
priority, to (i) depositors with $50.00 or more on deposit at the Savings Bank
as of December 31, 1995 ("Eligible Account Holders"), (ii) the Savings Bank's
employee stock ownership plan ("ESOP"), a tax-qualified employee benefit plan,
(iii) depositors with $50.00 or more on deposit at the Savings Bank as of June
30, 1997 ("Supplemental Eligible Account Holders"), and (iv) depositors of the
Savings Bank as of ____________ ("Voting Record Date") and borrowers of the
Savings Bank with mortgage loans outstanding as of the Voting Record Date
("Other Members"), subject to the priorities and purchase limitations set forth
in the Plan of Conversion ("Subscription Offering"). Subscription Rights are
nontransferable. Persons selling or otherwise transferring their rights to
subscribe for Common Stock in the Subscription Offering or subscribing for
Common Stock on behalf of another person will be subject to forfeiture of such
rights and possible further sanctions and penalties imposed by the Office of
Thrift Supervision ("OTS") or another agency of the U.S. Government. See "THE
CONVERSION -- The Subscription, Direct Community and Syndicated Community
Offerings" and "-- Limitations on Purchases of Shares."
Concurrently, but subject to the prior rights of holders of Subscription
Rights, the Holding Company is offering the Common Stock to certain members of
the general public through a direct community offering ("Direct Community
Offering") with preference being given to natural persons and trusts of natural
persons who are residents of Allegheny, Beaver, Butler, Washington, Westmoreland
and Armstrong Counties of Pennsylvania ("Local Community"), subject to the right
of the Holding Company to accept or reject orders in the Direct Community
Offering in whole or in part. The Subscription Offering and the Direct Community
Offering are referred to herein as the "Subscription and Direct Community
Offering." It is anticipated that shares of Common Stock not subscribed for or
purchased in the Subscription and Direct Community Offering, if any, will be
offered to eligible members of the general public in a best efforts syndicated
offering ("Syndicated Community Offering") (the Subscription Offering, Direct
Community Offering and Syndicated Community Offering are referred to
collectively as the "Offerings").
<PAGE>
With the exception of the ESOP, which is expected to purchase 8% of the
shares of Common Stock issued in the Conversion, no person or entity may
purchase more than $50,000 of Common Stock (or 5,000 shares based on the
Purchase Price); and no person or entity, together with associates of and
persons acting in concert with such person or entity, may purchase in the
aggregate more than $85,000 of Common Stock (or 8,500 shares based on the
Purchase Price) in the Conversion. Under certain circumstances, the maximum
purchase limitation may be increased or decreased at the sole discretion of the
Savings Bank and the Holding Company subject to any required regulatory
approval. See "THE CONVERSION -- The Subscription, Direct Community and
Syndicated Community Offerings," "-- Limitations on Purchases of Shares" and
"--Procedure for Purchasing Shares in the Subscription and Direct Community
Offering" for other purchase and sale limitations. The minimum order is 25
shares.
The Subscription Offering will expire at 12:00 Noon, Eastern Time, on
___________, 1997 ("Expiration Date"), unless extended by the Savings Bank and
the Holding Company for up to __ days to ___________, 1997. Such extension may
be granted without additional notice to subscribers. The Direct Community
Offering will also terminate at 12:00 Noon, Eastern Time, on the Expiration Date
unless extended by the Holding Company and the Savings Bank, with approval of
the OTS, if necessary. The Holding Company must receive a properly completed and
signed stock order form and certification ("Order Form") along with full payment
(or appropriate instructions authorizing a withdrawal of the full payment from a
deposit account at the Savings Bank) of $10.00 per share for all shares
subscribed for or ordered. Funds so received will be placed in a segregated
account created for this purpose at the Savings Bank, and interest will be paid
at the Savings Bank's passbook rate from the date payment is received until the
Conversion is consummated or terminated; these funds will be otherwise
unavailable to the depositor until such time. Payments authorized by withdrawals
from deposit accounts will continue to earn interest at the contractual rate
until the Conversion is consummated or terminated, although such funds will be
unavailable for withdrawal until the Conversion is consummated or terminated.
ONCE TENDERED, SUBSCRIPTION ORDERS CANNOT BE REVOKED OR MODIFIED WITHOUT THE
CONSENT OF THE SAVINGS BANK AND THE HOLDING COMPANY. The Holding Company is not
obligated to accept orders submitted on photocopied or telecopied Order Forms.
If the Conversion is not consummated within 45 days after the last day of the
Subscription Offering (which date will be no later than ________ __, 1997) and
the OTS consents to an extension of time to complete the Conversion, subscribers
will be given the right to increase, decrease or rescind their orders. Such
extensions may not go beyond _________ __, 1999.
The Savings Bank and the Holding Company have engaged Ryan, Beck, a
registered broker-dealer, to consult with and advise them in the sale of the
Common Stock in the Offerings. In addition, in the event the Common Stock is not
fully subscribed for in the Subscription and Direct Community Offering, Ryan,
Beck will manage the Syndicated Community Offering. Neither Ryan, Beck nor any
other registered broker-dealer is obligated to take or purchase any shares of
Common Stock in the Offerings. The Holding Company and the Savings Bank reserve
the right, in their absolute discretion, to accept or reject, in whole or in
part, any or all orders in the Direct Community or Syndicated Community
Offerings either at the time of receipt of an order or as soon as practicable
following the termination of the Offerings. See "THE CONVERSION --Marketing and
Underwriting Arrangements."
Prior to the Offerings, the Holding Company has not issued any capital
stock and accordingly there has been no market for the shares offered hereby.
There can be no assurance that an active and liquid trading market for the
Common Stock will develop or, if developed, will be maintained. The Holding
Company has received conditional approval to have its Common Stock listed on the
Nasdaq SmallCap Market under the symbol "____." Ryan, Beck has advised the
Holding Company that it intends to act as a market maker for the Common Stock
following consummation of the Conversion. See "RISK FACTORS -- Absence of Active
Market for the Common Stock" and "MARKET FOR COMMON STOCK."
<PAGE>
[map to be filed by amendment]
THE CONVERSION IS CONTINGENT UPON APPROVAL OF THE SAVINGS BANK'S PLAN OF
CONVERSION BY ITS ELIGIBLE VOTING MEMBERS, THE SALE OF AT LEAST 527,000 SHARES
OF COMMON STOCK PURSUANT TO THE PLAN OF CONVERSION, AND RECEIPT OF ALL
REGULATORY APPROVALS.
<PAGE>
- --------------------------------------------------------------------------------
THE SECURITIES OFFERED HEREBY ARE NOT DEPOSITS OR ACCOUNTS AND WILL NOT BE
INSURED OR GUARANTEED BY THE FDIC, THE BIF, THE SAIF OR ANY OTHER GOVERNMENT
AGENCY.
- --------------------------------------------------------------------------------
PROSPECTUS SUMMARY
The information set forth below should be read in conjunction with and is
qualified in its entirety by the more detailed information and Consolidated
Financial Statements (including the Notes thereto) presented elsewhere in this
Prospectus. The purchase of Common Stock is subject to certain risks. See
"RISK FACTORS."
SHS Bancorp, Inc.
The Holding Company is a Pennsylvania corporation organized in June 1997 at
the direction of the Savings Bank for the purpose of serving as the holding
company of the Savings Bank upon consummation of the Conversion. The Holding
Company has not engaged in any significant business to date. The Holding
Company has received the approval of the OTS to become a savings and loan
holding company and to acquire 100% of the capital stock of the Savings Bank.
Immediately following the Conversion, the only significant assets of the Holding
Company will be the capital stock of the Savings Bank, that portion of the net
investable proceeds of the Offerings permitted by the OTS to be retained by the
Holding Company, and a note receivable from the ESOP evidencing a loan from the
Holding Company to fund the Savings Bank's ESOP. Funds retained by the Holding
Company will be used for general business activities, including a loan by the
Holding Company directly to the ESOP to enable the ESOP to purchase 8% of the
Common Stock issued in the Conversion. See "USE OF PROCEEDS." Management
believes that the holding company structure and retention of proceeds may
facilitate the expansion and diversification of its operations, should it decide
to do so. The holding company structure will also enable the Holding Company to
repurchase its stock without adverse tax consequences, subject to applicable
regulatory restrictions and waiting periods. There are no present plans,
arrangements, agreements, or understandings, written or oral, regarding any such
activities or repurchases. The main office of the Holding Company is located at
112 Federal Street, Pittsburgh, Pennsylvania 15212, and its telephone number is
(412) 231-0809.
Spring Hill Savings Bank, F.S.B.
The Savings Bank, founded in 1893, is a federally chartered mutual savings
bank located in Pittsburgh, Pennsylvania. The Savings Bank, which was formed as
a Pennsylvania mutual savings and loan association, converted to a federal
mutual savings bank in 1991. In connection with the Conversion, the Savings
Bank will convert to a federally chartered capital stock savings bank and will
become a subsidiary of the Holding Company. The Savings Bank is currently
regulated by the OTS, its primary regulator, and by the FDIC, the insurer of its
deposits. The Savings Bank's deposits are insured by the FDIC's Savings
Association Insurance Fund ("SAIF") to the maximum extent permitted by law. The
Savings Bank has been a member of the Federal Home Loan Bank ("FHLB") System
since 1933. At March 31, 1997, the Savings Bank, which operates three full-
service offices in the city of Pittsburgh, Pennsylvania, had total assets of
$82.8 million, total deposits of $64.8 million and total retained earnings of
$4.4 million on a consolidated basis. The main office of the Savings Bank is
located at 112 Federal Street, Pittsburgh, Pennsylvania 15212, and its telephone
number is (412) 231-0809.
Beginning in late 1988 and continuing through 1990, the Savings Bank
experienced a sharp increase in the level of non-performing loans and real
estate owned ("REO"). REO increased from $314,000 at December 31, 1988 to $2.7
million in December 1990. This accumulated REO and other distressed borrowers
required greater staff attention, and resulted in increased costs and
contributed to net losses in 1989 through 1992. The Savings Bank's capital
levels were significantly affected from the establishment of reserves, expenses
connected with the acquisition, holding and disposal of REO, and lost earnings
from under-performing and non-performing assets, including certain high-risk
investments. Numerous factors, including loan activities in the mid 1980s, loan
concentrations and
(i)
<PAGE>
deficiencies in documentation and underwriting influenced the level and severity
of the non-performing loans and REO.
In the mid-1980s, the Savings Bank was actively engaged in originating and
selling mortgage loans. In 1987, as a result of accumulating a large portfolio
of fixed-rate mortgage loans whose interest rates were less than current market
rates, the Savings Bank established as a subsidiary, Spring Hill Funding
Corporation ("SHFC"), to issue a collateralized mortgage obligation ("CMO").
The Savings Bank's results of operations have been adversely affected by the
issuance of the CMO by SHFC. The CMO was comprised of three classes with a
total par value of $32.1 million and an original issue discount of $4.2 million
and was secured by a pool of mortgage-backed securities. As a result of the
lower interest rate environment in recent years and the resulting faster
prepayment speeds on the collateral, the paydown on the CMO was accelerated.
This resulted in SFHC recognizing the original issue discount and deferred debt
issuance costs faster than originally anticipated, causing significant charges
to the Savings Bank's operations. See "BUSINESS OF THE SAVINGS BANK -- Deposit
Activities and Other Sources of Funds -- Borrowings."
A portion of the proceeds from the CMO issued by SHFC was invested in
various CMO residuals of other issuers. As a result of lower market interest
rates in the years following the purchase of these CMO residuals and their
corresponding reduction in market value, the Savings Bank took charges against
earnings to write down the carrying value of these investments, which adversely
affected income primarily in 1992 and 1993. The last of these CMO residual
investments were redeemed during the quarter ended March 31, 1997. See Note 3
of the Notes to Consolidated Financial Statements.
As a result of the Savings Bank's poor asset quality, marginal capital
level and continued operating losses, the Savings Bank entered into a
Supervisory Agreement with the OTS on March 7, 1991. This Supervisory Agreement
required the Savings Bank, among other things, to establish additional loan loss
reserves, develop a strategic plan and procedures to resolve problem assets,
discontinue investing in certain mortgage derivative products, limit the growth
of the Savings Bank, develop a capital plan to improve the Savings Bank's
capital position, develop an operating plan to increase net interest margin,
develop a compliance review program and correct certain compliance exceptions.
As a result of remedial actions taken by the Savings Bank and the improvement in
its financial condition, the OTS released the Savings Bank from the Supervisory
Agreement on May 26, 1995 at which time the Savings Bank was no longer subject
to growth restrictions.
The Savings Bank responded to the foregoing events by taking the following
actions to return the Savings Bank to profitability and to achieve the capital
levels required by applicable federal regulations:
. The Board of Directors elevated Thomas F. Angotti, who joined the Savings
Bank in 1987, to President in 1989 and hired Vincent C. Ashoff as Vice
President/Finance and Treasurer in 1990. More recently, the Board of
Directors added Paul F. Hoyson as Senior Vice President/Retail Banking.
. The Savings Bank ceased its loan sale activities and from 1989 to 1992
substantially restricted certain lending activities (generally higher risk
loans such as loans for real estate acquisition and development,
speculative construction loans and loans to borrowers with large loan
concentrations) so that it could focus on problem asset management and
disposition of REO. The Savings Bank initiated a formal asset quality
program and a more thorough risk analysis of its lending activities. As of
March 31, 1997, REO and other repossessed assets totalled $52,000, which is
down from $2.7 million in 1990. In connection therewith, the Savings Bank
focused its lending activities on residential real estate loans (including
investor owned one-to four-family properties) and improved its underwriting
procedures.
. The Savings Bank has managed its asset size in order to maintain
compliance with regulatory capital requirements. As a result of the losses
incurred in the early 1990s, the Savings Bank adopted a down-sizing
strategy to improve its regulatory capital ratios. From $148.2 million in
assets at December 31, 1988, the Savings Bank contracted to $81.7 million
in assets at December 31, 1995. Since that time the size of the
(ii)
<PAGE>
Savings Bank has remained essentially unchanged. As a result, at
March 31, 1997, the Savings Bank had tangible, core and risk-based capital
ratios of 5.4%, 5.4% and 12.5%, respectively. The reduction in size was
accomplished through asset repayments, prepayments and sales, which funded
the run-off of wholesale and brokered deposits and the repayment of
borrowings.
. The Savings Bank has sought to aggressively control operating expenses.
Since 1992, the Savings Bank has sought to maintain non-interest expenses
near 2% of average total assets.
. The Savings Bank has sought to unwind SHFC. In the quarter ended
March 31, 1997, the Savings Bank repurchased the outstanding $4.8 million
par value of the class C CMO bonds. The repurchase was funded through FHLB
advances. The Savings Bank anticipates that replacing the class C CMO bonds
with lower cost FHLB advances will improve the Savings Bank's interest rate
spread. As of March 31, 1997, $2.6 million par value of the CMO remained
outstanding and there was $107,000 in original issuance discount and
$26,000 in deferred debt issuance costs remaining to be charged to
operations.
Although the Savings Bank has improved its asset quality and financial
performance, its regulatory capital, while above the minimum requirements,
remains low relative to the Savings Bank's peers. Without increased capital,
the Savings Bank's ability to grow is limited. In recent years the Savings Bank
has considered a variety of means of increasing capital, including growth
through retained earnings, a merger/conversion, a merger with another mutual
savings association and a mutual-to-stock conversion. Having evaluated its
strategic options, the Savings Bank has determined to pursue the Conversion in
order to raise additional capital.
The Savings Bank operates as a community-oriented financial institution
that engages primarily in the business of attracting deposits from the general
public and using those funds to originate residential mortgage loans within the
Savings Bank's primary market area including in recent years an increased
emphasis on loans secured by investor-owned one- to four-family properties. At
March 31, 1997, one- to four-family residential mortgage loans totalled
$42.7 million, or 76.2% of total loans receivable. To a lesser extent, the
Savings Bank also originates multi-family, construction, commercial real estate
and consumer loans. See "BUSINESS OF THE SAVINGS BANK -- Lending Activities." In
1996, as part of its strategy to provide a fuller range of services to its
retail customers, the Savings Bank expanded its offering of consumer loans by
introducing home equity lines of credit and consumer installment loans.
The Conversion
The Savings Bank is in the process of converting from a federally chartered
mutual savings bank to a federally chartered capital stock savings bank and, in
connection with the Conversion, has formed the Holding Company. As part of the
Conversion, the Savings Bank will issue all of its capital stock to the Holding
Company in exchange for the greater of 50% of the net proceeds of the Offerings
or the amount of net proceeds sufficient to increase the Savings Bank's tangible
capital to 10% of total assets. Simultaneously, the Holding Company will sell
its Common Stock in the Offerings. After consummation of the Conversion,
depositors and borrowers of the Savings Bank will have no voting rights in the
Holding Company unless they become stockholders.
Consummation of the Conversion is subject to the approval of the Plan of
Conversion by the Savings Bank's members and approval by the OTS of the Plan of
Conversion and the Holding Company's acquisition of the Savings Bank.
The Plan of Conversion requires that the aggregate purchase price of the
Common Stock to be issued in the Conversion be based upon an independent
appraisal of the estimated pro forma market value of the Holding Company and the
Savings Bank as converted. Feldman Financial has advised the Savings Bank that
in its opinion, at June 23, 1997, the aggregate estimated pro forma market value
of the Holding Company and the Savings Bank as converted ranged from $5,270,000
to $7,130,000. The appraisal of the pro forma market value of the Holding
Company and the Savings Bank as converted is based on a number of factors and
should not be considered a
(iii)
<PAGE>
recommendation to buy shares of the Common Stock or any assurance that after the
Conversion shares of Common Stock will be able to be resold at or above the
Purchase Price. The appraisal will be updated or confirmed prior to
consummation of the Conversion.
The Board of Directors and management believe that the Conversion is in the
best interests of the Savings Bank's members and its communities. The
Conversion is intended: (i) to improve the competitive position of the Savings
Bank in its primary market area and support possible future expansion and
diversification of operations (currently, there are no specific plans,
arrangements or understandings, written or oral, regarding any such activities);
(ii) to afford members of the Savings Bank and others the opportunity to become
stockholders of the Holding Company and thereby participate more directly in,
and contribute to, any future growth of the Holding Company and the Savings
Bank; and (iii) to provide future access to capital markets. See "THE
CONVERSION."
The Subscription, Direct Community and Syndicated Community Offerings
The Holding Company is offering up to 713,000 shares of Common Stock at
$10.00 per share to holders of Subscription Rights in the following order of
priority: (i) Eligible Account Holders; (ii) the Savings Bank's ESOP;
(iii) Supplemental Eligible Account Holders; and (iv) Other Members. In the
event the number of shares offered in the Conversion is increased above the
maximum of the Estimated Valuation Range, the Savings Bank's ESOP shall have a
priority right to purchase any such shares exceeding the maximum of the
Estimated Valuation Range up to an aggregate of 8% of the Common Stock issued in
the Offerings. Concurrently, but subject to the prior rights of holders of
Subscription Rights, the Holding Company is offering the Common Stock in the
Direct Community Offering to certain members of the general public with
preference being given to natural persons and trusts of natural persons who are
permanent residents of the Local Community. Once tendered, subscription orders
cannot be revoked or modified without the consent of the Savings Bank and the
Holding Company. The Savings Bank has engaged Ryan, Beck to consult with and
advise the Holding Company and the Savings Bank in the Offerings, and Ryan, Beck
has agreed to use its best efforts to assist the Holding Company with the
solicitation of subscriptions and purchase orders for shares of Common Stock in
the Offerings. Ryan, Beck is not obligated to take or purchase any shares of
Common Stock in the Offerings. If all shares of Common Stock to be issued in the
Conversion are not sold through the Subscription and Direct Community Offering,
then the Holding Company expects to offer the remaining shares in a Syndicated
Community Offering managed by Ryan, Beck, which would occur as soon as
practicable following the close of the Subscription and Direct Community
Offering. All shares of Common Stock will be sold at the same price per share in
the Syndicated Community Offering as in the Subscription and Direct Community
Offering. See "USE OF PROCEEDS," "PRO FORMA DATA" and "THE CONVERSION -- Stock
Pricing and Number of Shares to be Issued." The Subscription Offering will
expire at 12:00 Noon, Eastern Time, on the Expiration Date, unless extended by
the Savings Bank and the Holding Company for up to __ days. The Direct Community
Offering will also terminate on the Expiration Date unless extended by the
Holding Company and the Savings Bank to no later than 45 days after the
expiration of the Subscription Offering, unless further extended with the
consent of the OTS. The Syndicated Community Offering, if one is held, will
terminate no later than 45 days after the expiration of the Subscription
Offering, unless extended with the consent of the OTS.
Prospectus Delivery and Procedure for Purchasing Shares
To ensure that each purchaser receives a prospectus at least 48 hours prior
to the Expiration Date in accordance with Rule 15c2-8 of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), no prospectus will be mailed any
later than five days prior to the Expiration Date or hand delivered any later
than two days prior to such date. Execution of the Order Form will confirm
receipt of the Prospectus in accordance with Rule 15c2-8. Order Forms will only
be distributed with a prospectus. The Savings Bank is not obligated to accept
for processing orders not submitted on original Order Forms. Payment by check,
money order, bank draft, cash or debit authorization to an existing account at
the Savings Bank must accompany the order and certification forms. No wire
transfers will be accepted. The Savings Bank is prohibited from lending funds
to any person or entity for the purpose of purchasing shares of Common Stock in
the Conversion. See "THE CONVERSION -- Procedure for Purchasing Shares in
Subscription and Direct Community Offering."
(iv)
<PAGE>
In order to ensure that Eligible Account Holders, Supplemental Eligible
Account Holders and Other Members are properly identified as to their stock
purchase priorities, depositors as of December 31, 1995 (the "Eligibility Record
Date"), June 30, 1997 (the "Supplemental Eligibility Record Date") or _____ __,
1997 ("Voting Record Date") and borrowers with mortgage loans outstanding as of
the Voting Record Date must list all deposit and/or loan accounts on the Order
Form, giving all names on each account and the account numbers. Failure to list
all account numbers may result in the inability of the Holding Company or the
Savings Bank to fill all or part of a subscription order. In addition,
registration of shares in a name or title different from the names or titles
listed on the account may adversely affect such subscriber's purchase priority.
See "THE CONVERSION -- Procedure for Purchasing Shares in Subscription and
Direct Community Offering."
Restrictions on Transfer of Subscription Rights
No person may transfer or enter into any agreement or understanding to
transfer the legal or beneficial ownership of the Subscription Rights issued
under the Plan or the shares of Common Stock to be issued upon their exercise.
Each person exercising Subscription Rights will be required to certify that a
purchase of Common Stock is solely for the purchaser's own account and that
there is no agreement or understanding regarding the sale or transfer of such
shares. The Holding Company and the Savings Bank will pursue any and all legal
and equitable remedies in the event they become aware of the transfer of
Subscription Rights and will not honor orders known by them to involve the
transfer of such rights.
Purchase Limitations
With the exception of the ESOP, which is expected to subscribe for 8% of
the shares of Common Stock issued in the Conversion, no person or entity may
purchase more than $50,000 of Common Stock (or 5,000 shares based on the
Purchase Price); and no person or entity, together with associates of and
persons acting in concert with such person or entity, may purchase in the
aggregate more than $85,000 of Common Stock (or 8,500 shares based on the
Purchase Price) in the Conversion. This maximum purchase limitation may be
increased or decreased as consistent with OTS regulations in the sole discretion
of the Holding Company and the Savings Bank subject to any required regulatory
approval. The minimum purchase is 25 shares. In addition, stock orders
received either through the Direct Community Offering or the Syndicated
Community Offering, if held, may be accepted or rejected, in whole or in part,
at the discretion of the Holding Company and the Savings Bank. See "THE
CONVERSION -- Limitations on Purchases of Shares." If an order is rejected in
part, the purchaser does not have the right to cancel the remainder of the
order. In the event of an oversubscription, shares will be allocated in
accordance with the Plan of Conversion. See "THE CONVERSION -- The
Subscription, Direct Community and Syndicated Community Offerings."
Stock Pricing and Number of Shares to be Issued in the Conversion
The Purchase Price in the Offerings is a uniform price for all subscribers,
including members of the Holding Company's and the Savings Bank's Boards of
Directors, their management and tax-qualified employee plans, and was set by the
Board of Directors. The number of shares to be offered at the Purchase Price is
based upon an independent appraisal of the aggregate pro forma market value of
the Holding Company and the Savings Bank as converted. The aggregate pro forma
market value was estimated by Feldman Financial to range from $5,270,000 to
$7,130,000 as of June 23, 1997. See "THE CONVERSION -- Stock Pricing and Number
of Shares to be Issued." The appraisal of the pro forma value of the Holding
Company and the Savings Bank as converted will be updated or confirmed at the
completion of the Offerings. The maximum of the Estimated Valuation Range may
be increased by up to 15% to $8,199,500 and the number of shares of Common Stock
to be issued in the Conversion may be increased to 819,950 shares due to
material changes in the financial condition or performance of the Savings Bank
or changes in market conditions or general financial and economic conditions.
No resolicitation of subscribers will be made and subscribers will not be
permitted to modify or cancel their subscriptions unless the gross proceeds from
the sale of the Common Stock are less than the minimum or more than 15% above
the maximum of the current Estimated Valuation Range. The appraisal is not
intended to be and should not be construed as a recommendation of any kind as to
the advisability of purchasing Common Stock in the Offerings nor can
(v)
<PAGE>
assurance be given that purchasers of the Common Stock in the Offerings will be
able to sell such shares after consummation of the Conversion at a price that is
equal to or above the Purchase Price. Furthermore, the pro forma stockholders'
equity is not intended to represent the fair market value of the Common Stock
and may be greater than amounts that would be available for distribution to
stockholders in the event of liquidation.
Use of Proceeds
The net proceeds from the sale of the Common Stock are estimated to range
from $4.8 million to $6.7 million, or up to $7.7 million if the Estimated
Valuation Range is increased by 15%, depending upon the number of shares sold
and the expenses of the Conversion. The Holding Company has received the
approval of the OTS to purchase all of the capital stock of the Savings Bank to
be issued in the Conversion in exchange for the lesser of 85% of the net
proceeds of the Offerings or that amount of net proceeds sufficient to increase
the Savings Bank's tangible capital to 10% of total assets. Net proceeds to be
used to purchase the capital stock of the Savings Bank are estimated to be
between $4.1 million and $4.2 million. The remainder of the net proceeds will
be retained by the Holding Company.
Receipt of up to 85% of the net proceeds of the sale of the Common Stock
will increase the Savings Bank's capital and will support the expansion of the
Savings Bank's existing business activities. The Savings Bank will use the
funds contributed to it for general corporate purposes, including increased
local lending and purchases of investments, and possible future acquisitions of
branches. The Savings Bank may also use a portion of the funds contributed to
it to retire outstanding borrowings. Pending deployment of funds, the Savings
Bank plans initially to invest the net proceeds in short- to intermediate-term
U.S. Government and agency securities and mortgage-backed securities. Shares of
Common Stock may be purchased with funds on deposit at the Savings Bank, which
will reduce deposits by the amounts of such purchases. As a result, the net
amount of funds available to the Savings Bank for investment following receipt
of the Conversion proceeds will be reduced by the amount of deposit withdrawals
used to fund stock purchases.
A portion of the net proceeds retained by the Holding Company will be used
for a loan by the Holding Company to the Savings Bank's ESOP to enable it to
purchase 8% of the shares of Common Stock issued in the Conversion. Such loan
would fund the entire purchase price of the ESOP shares ($570,400 at the maximum
of the Estimated Valuation Range) and would be repaid principally from the
Savings Bank's contributions to the ESOP and from dividends payable on the
Common Stock held by the ESOP. The remaining proceeds retained by the Holding
Company initially will be invested in short- to intermediate-term U.S.
Government and agency securities and mortgage-backed securities. Such proceeds
will be available for additional contributions to the Savings Bank in the form
of debt or equity, to support future growth and diversification activities, as a
source of dividends to the stockholders of the Holding Company and for future
repurchases of Common Stock (including possible repurchases to fund the MRP or
to provide shares to be issued upon exercise of stock options) to the extent
permitted under Pennsylvania law and OTS regulations. Currently, as discussed
below under "USE OF PROCEEDS," there are no specific plans, arrangements,
agreements or understandings, written or oral, regarding any of such activities.
Market for Common Stock
The Holding Company has never issued capital stock to the public and,
consequently, there is no existing market for the Common Stock. The Holding
Company has received conditional approval to have the Common Stock listed on the
Nasdaq SmallCap Market under the symbol "____." Although under no obligation to
do so, Ryan, Beck has indicated its intention to act as a market maker for the
Common Stock following consummation of the Conversion. No assurance can be
given that an active and liquid trading market for the Common Stock will
develop. Further, no assurance can be given that purchasers will be able to
sell their shares at or above the Purchase Price after the Conversion. See
"RISK FACTORS -- Absence of Active Market for the Common Stock" and "MARKET FOR
COMMON STOCK."
(vi)
<PAGE>
Dividends
The Board of Directors of the Holding Company has not formulated a dividend
policy, but intends to develop a policy of paying cash dividends in the future.
Declarations and payments of dividends by the Board of Directors will depend
upon a number of factors, including the amount of the net proceeds retained by
the Holding Company, capital requirements, regulatory limitations, the Savings
Bank's and the Holding Company's financial condition and results of operations,
tax considerations and general economic conditions. No assurances can be given
that any dividends will be declared or, if declared, what the amount of
dividends will be or whether such dividends, once declared, will continue. The
Holding Company may pay stock dividends in lieu of or in addition to cash
dividends. See "DIVIDEND POLICY."
Risk Factors
See "RISK FACTORS" beginning on page 1 for a discussion of certain risks
related to the Offerings that should be considered by all prospective investors.
(vii)
<PAGE>
SELECTED CONSOLIDATED FINANCIAL INFORMATION
The following tables set forth certain information concerning the
consolidated financial position and results of operations of the Savings Bank
and its subsidiary at the dates and for the periods indicated. This information
is qualified in its entirety by reference to the detailed information contained
in the Consolidated Financial Statements and Notes thereto presented elsewhere
in this Prospectus.
<TABLE>
<CAPTION>
At At December 31,
March 31, -------------------------------------------------
1997 1996 1995 1994 1993 1992
---- ---- ---- ---- ---- ----
(In Thousands)
<S> <C> <C> <C> <C> <C> <C>
FINANCIAL CONDITION DATA:
Total assets.................................. $82,809 $81,688 $81,656 $83,920 $92,476 $108,076
Loans receivable, net......................... 55,268 54,789 52,526 54,888 49,963 55,229
Cash and cash equivalents..................... 3,030 2,101 1,703 3,137 6,637 5,051
Mortgage-backed securities.................... 19,679 19,557 21,291 22,381 28,682 34,595
Investment securities......................... 1,993 2,744 3,286 4,025 4,592 9,012
Deposits...................................... 64,776 64,294 65,160 60,836 68,709 77,713
Collateralized mortgage obligation............ 2,454 6,937 8,251 9,546 14,107 18,407
Borrowed funds................................ 9,254 3,772 1,778 7,313 2,500 4,500
Total retained earnings....................... 4,449 4,840 4,441 4,212 4,226 4,225
<CAPTION>
Three
Months Ended
March 31, Year Ended December 31,
--------------- -------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
---- ---- ---- ---- ---- ---- ----
(In Thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
SELECTED OPERATING DATA:
Interest income............................... $1,596 $1,617 $6,314 $6,503 $6,386 $6,777 $7,763
Interest expense.............................. 1,018 1,088 4,155 4,460 4,663 5,424 7,040
------ ------ ------ ------ ------ ------ ------
Net interest income........................... 578 529 2,159 2,043 1,723 1,353 723
Provision for loan losses..................... 28 30 239 64 61 -- 253
------ ------ ------ ------ ------ ------ ------
Net interest income
after provision for loan losses............. 550 499 1,920 1,979 1,662 1,353 470
Non-interest income........................... 148 29 1,024 124 202 598 941
Non-interest expense.......................... 414 425 2,320 1,760 1,718 2,052 2,435
------ ------ ------ ------ ------ ------ ------
Income (loss) before income taxes,
extraordinary items and cumulative
effect of accounting change................. 284 103 624 343 146 (101) (1,024)
Income taxes (benefit)........................ 109 43 231 112 46 (39) (328)
------ ------ ------ ------ ------ ------ ------
Income (loss) before extraordinary items and
cumulative effect of accounting change...... 175 60 393 231 100 (62) (696)
Extraordinary items, net of tax(1)............ (562) -- -- -- -- (86) (49)
Cumulative effect of accounting change(2)..... -- -- -- -- -- 148 --
------ ------ ------ ------ ------ ------ ------
Net income (loss)............................. ($387) $ 60 $ 393 $ 231 $ 100 $ 0 ($745)
====== ====== ====== ====== ====== ====== ======
</TABLE>
- -----------------
(1) Reflects loss recorded upon the extinguishment of the Savings Bank's class C
CMO bonds in the three months ended March 31, 1997 and early extinguishment of
FHLB advances in the years ended December 31, 1993 and 1992.
(2) Reflects adoption of Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes."
(viii)
<PAGE>
<TABLE>
<CAPTION>
At At December 31,
March 31, ----------------------------------------------------
1997 1996 1995 1994 1993 1992
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
OTHER DATA:
Number of:
Real estate loans outstanding.................. 976 965 916 929 872 925
Deposit accounts............................... 8,802 8,762 8,849 8,586 9,327 10,404
Full-service offices........................... 3 3 3 3 3 3
<CAPTION>
At or For
the Three Months At or For the
Ended March 31, Year Ended December 31,
----------------- --------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
KEY FINANCIAL RATIOS:
Performance Ratios (1):
Return (loss) on average assets (2)............. (1.88)% 0.29% 0.49% 0.28% 0.12% 0.00% (0.64)%
Return (loss) on average retained earnings (3).. (32.31) 5.36 8.54 5.31 2.40 0.00 (15.38)
Average retained earnings to average assets (4). 5.82 5.41 5.68 5.18 4.88 4.30 4.18
Retained earnings to total assets at end of
period........................................ 5.37 5.49 5.93 5.44 5.02 4.57 3.91
Interest rate spread (5)........................ 2.64 2.40 2.49 2.32 1.89 1.33 0.55
Net interest margin (6)......................... 2.87 2.63 2.73 2.51 2.07 1.42 0.66
Average interest-earning assets
to average interest-bearing liabilities....... 104.60 104.22 104.69 103.51 103.16 101.63 101.68
Non-interest expense as a
percent of average total assets............... 2.01 2.06 2.86 2.10 2.01 2.06 2.11
Capital Ratios:
Core capital.................................... 5.38 5.50 5.93 5.44 5.13 4.53 3.88
Tangible capital................................ 5.38 5.50 5.93 5.44 5.13 4.53 3.88
Risk-based capital.............................. 12.46 12.56 13.39 12.37 11.24 10.20 9.03
Asset Quality Ratios:
Nonaccrual and 90 days or more past due
loans as a percent of loans receivable, net... 2.03 1.84 2.03 1.43 0.37 4.46 3.54
Nonperforming assets as a
percent of total assets....................... 1.42 1.35 1.41 2.10 1.55 2.99 3.12
Allowance for loan losses as a
percent of total loans receivable............. 0.75 0.57 0.75 0.52 0.48 0.69 0.66
Allowance for loan losses as a
percent of nonperforming loans................ 37.40 31.12 37.39 36.70 132.67 15.63 18.87
Net charge-offs to average
loans outstanding............................. 0.04 0.02 0.19 0.10 0.26 0.04 0.30
</TABLE>
- ---------------
(1) Ratios for the three-month periods are annualized.
(2) Net income (loss) divided by average total assets.
(3) Net income (loss) divided by average retained earnings.
(4) Average total retained earnings divided by average total assets.
(5) Difference between weighted average yield on interest-earning assets and
weighted average rate on interest-bearing liabilities.
(6) Net interest income as a percentage of average interest-earning assets.
(ix)
<PAGE>
RISK FACTORS
Before investing in shares of the Common Stock offered hereby, prospective
investors should carefully consider the matters presented below, in addition to
matters discussed elsewhere in this Prospectus.
Interest Rate Risk Exposure
The financial condition and operations of the Savings Bank, and of savings
institutions in general, are influenced significantly by general economic
conditions, by the related monetary and fiscal policies of the federal
government and by the regulations of the OTS and the FDIC. The Savings Bank's
profitability, like that of most financial institutions, is dependent to a large
extent on its net interest income, which is the difference between its interest
income on interest-earning assets, such as loans and investments, and its
interest expense on interest-bearing liabilities, such as deposits and
borrowings. The interest earned by the Savings Bank on such loans and paid by
the Savings Bank on such accounts and borrowings are significantly impacted by
market interest rates. Accordingly, the Savings Bank's results of operations
are significantly influenced by movements in market interest rates and the
Savings Bank's ability to manage its assets and liabilities in response to such
movements.
To manage the impact of changes in interest rates, the Savings Bank has
sought to improve the match between asset and liability maturities or repricing
periods and rates by (i) shortening the life of its fixed-rate loan portfolio by
offering fixed-rate loans with terms to maturity of no more than 20 years on
owner-occupied residential properties and 15 years on investment properties,
(ii) offering adjustable-rate loans on investment properties, (iii) emphasizing
adjustable-rate investment and shorter term mortgage-backed securities, and
(iv) extending the life of its liabilities by emphasizing longer term
certificates of deposit during periods of low market interest rates and
utilizing longer term borrowings. Unlike many savings institutions, the Savings
Bank does not offer adjustable-rate mortgage ("ARM") loans for the purchase of
owner-occupied, residential real estate. However, the Savings Bank does offer
ARM loans for the purchase of non-owner-occupied, one- to four-family real
estate, multi-family real estate and commercial real estate. At March 31, 1997,
out of total interest-earning assets of $79.9 million, the Savings Bank had
$16.7 million of ARM loans and adjustable-rate mortgage-backed securities and
floating-rate investments. As a result of its asset and liability structure, the
Savings Bank's results of operations would be adversely affected by a material
or prolonged increase in market interest rates. For further information
regarding the Savings Bank's asset and liability management, see "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS --
Asset and Liability Management."
Changes in the level of interest rates affect the market value of the
Savings Bank's investment securities and other interest-earning assets. Changes
in interest rates also can affect the average life of loans. Decreases in
interest rates may result in increased prepayments of loans, as borrowers
refinance to reduce borrowing costs. Under these circumstances, the Savings
Bank is subject to reinvestment risk to the extent that it is not able to
reinvest such prepayments at rates that are comparable to the rates on the
maturing loans or securities. Moreover, volatility in interest rates also can
result in disintermediation, or the flow of funds away from savings institutions
into direct investments, such as U.S. Government and corporate securities and
other investment vehicles which, because of the absence of federal insurance
premiums and reserve requirements, generally pay higher rates of return than
savings institutions.
Risks of Dependence on Local Economy
The Savings Bank has been and intends to continue to operate as a
community-oriented financial institution, with a focus on servicing customers in
its primary market area. At March 31, 1997, most of the Savings Bank's loan
portfolio consisted of loans made to borrowers and collateralized by properties
located in its primary market area. As a result of this concentration, a
downturn in the economy of the Savings Bank's primary market area could increase
the risk of loss associated with the Savings Bank's loan portfolio.
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Competition Within Market Area
The Savings Bank faces competition both in originating loans and attracting
deposits. Its most direct competition for savings deposits has historically
come from commercial banks, credit unions and other thrifts operating in its
primary market area. The Savings Bank's competitors include large regional and
superregional banks. These institutions are significantly larger than the
Savings Bank and therefore have greater financial and marketing resources than
the Savings Bank. In recent years, the Savings Bank has experienced an
increased level of competition for deposits from securities firms, insurance
companies and other investment vehicles, such as money market and mutual funds.
This competition could adversely affect the Savings Bank's future growth
prospects. The Savings Bank's competition for loans comes from commercial banks
and other thrifts operating in its market as well as from mortgage bankers and
brokers and consumer finance companies. The market for attracting savings
deposits and originating loans is very competitive, which may limit the ability
of the Savings Bank to originate loans and attract savings deposits that provide
a desirable interest rate margin. See "BUSINESS OF THE SAVINGS BANK -- Market
Area" and "-- Competition."
Certain Lending Risks
At March 31, 1997, the Savings Bank's loan portfolio included an aggregate
of $16.1 million of loans secured by non-owner-occupied one- to four-family real
estate, multi-family real estate or commercial real estate. These loans are
generally viewed as exposing the lender to greater credit risk than residential
loans secured by owner-occupied residences and, with respect to multi-family and
commercial real estate loans, typically involve higher loan principal amounts.
Repayment of loans secured by investment property is dependent, in large part,
on sufficient income from the property to cover operating expenses and debt
service. In addition, repayment of such loans may be subject to a greater
extent to adverse conditions in the real estate market or the economy. Economic
events and government regulations, which are outside the control of the borrower
or lender, could impact the value of the security for such loans or the future
cash flow of the affected properties. Furthermore, with respect to such loans
that have adjustable interest rates, it is possible that during periods of
rising interest rates the risk of default on such loans may increase as a result
of repricing and the increased payments required by the borrower. See "BUSINESS
OF THE SAVINGS BANK -- Lending Activities."
At March 31, 1997, the Savings Bank's loan portfolio also included $2.3
million of mobile home loans. Mobile home loans generally entail greater risk
than do residential mortgage loans, as they are secured by rapidly depreciating
assets. Accordingly, any repossessed collateral for a defaulted mobile home
loan may not provide an adequate source of repayment of the outstanding loan
balance. Furthermore, the application of various federal and state laws,
including bankruptcy and insolvency laws, may limit the amount which can be
recovered on such loans.
Anti-takeover Considerations
Provisions in the Holding Company's Governing Instruments and Pennsylvania
and Federal Law. Certain provisions included in the Holding Company's Articles
of Incorporation and in the Pennsylvania Business Corporation Law ("PBCL") might
discourage potential proxy contests and other potential takeover attempts,
particularly those that have not been negotiated with the Board of Directors.
As a result, these provisions might preclude takeover attempts that certain
stockholders may deem to be in their best interest and might tend to perpetuate
existing management. These provisions include, among other things, a provision
limiting voting rights of beneficial owners of more than 10% of the Common
Stock, supermajority voting requirements for certain business combinations,
staggered terms for directors, non-cumulative voting for directors, the removal
of directors without cause only upon the vote of holders of 75% of the
outstanding voting shares, limitations on the calling of special meetings, and
specific notice requirements for stockholder nominations and proposals. Certain
provisions of the Articles of Incorporation of the Holding Company cannot be
amended by stockholders unless a 75% stockholder vote is obtained. The
existence of these anti-takeover provisions could result in the Holding Company
being less attractive to a potential acquiror and in stockholders receiving less
for their shares than otherwise might be available in the event of a takeover
attempt. Furthermore, federal regulations prohibit for three years after
consummation of
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<PAGE>
the Conversion the ownership of more than 10% of the Savings Bank or the Holding
Company without prior OTS approval. Federal law also requires regulatory
approval prior to the acquisition of "control" (as defined in federal
regulations) of an insured institution. For a more detailed discussion of these
provisions, see "RESTRICTIONS ON ACQUISITION OF THE HOLDING COMPANY."
Voting Control by Insiders. Directors and executive officers of the
Savings Bank and the Holding Company expect to purchase 37,200 shares of Common
Stock, or 7.1% and 5.2% of the shares issued in the Offerings at the minimum and
the maximum of the Estimated Valuation Range, respectively. Directors and
officers are also expected to control indirectly the voting of approximately 8%
of the shares of Common Stock issued in the Conversion through the ESOP. Under
the terms of the ESOP, the unallocated shares will be voted by the ESOP trustees
in the same proportion as the votes cast by participants with respect to the
allocated shares.
At a meeting of stockholders to be held no earlier than six months
following the consummation of the Conversion, the Holding Company expects to
seek approval of the Holding Company's MRP, which is a non-tax-qualified
restricted stock plan for the benefit of key employees and directors of the
Holding Company and the Savings Bank. Assuming the receipt of stockholder
approval, the Holding Company expects to acquire common stock of the Holding
Company on behalf of the MRP in an amount equal to 4% of the Common Stock issued
in the Conversion, or 21,080 and 28,520 shares at the minimum and the maximum of
the Estimated Valuation Range, respectively. These shares will be acquired
either through open market purchases or from authorized but unissued shares of
Common Stock. Under the terms of the MRP, the MRP committee or the MRP trustees
will have the power to vote unallocated and unvested shares.
Assuming (i) the receipt of stockholder approval for the MRP, (ii) the open
market purchase of shares on behalf of the MRP, and (iii) the purchase by the
ESOP of 8% of the Common Stock sold in the Offerings, directors, officers and
employees of the Holding Company and the Savings Bank would have voting control
of 19.1% and 17.2% of the Common Stock, based on the issuance of Common Stock at
the minimum and maximum of the Estimated Valuation Range, respectively.
Management's potential voting control alone, as well as together with additional
stockholder support, might preclude or make more difficult takeover attempts
that certain stockholders deem to be in their best interest and might tend to
perpetuate existing management.
Severance Payments Upon Change in Control. The proposed employment
agreements with the Chief Executive Officer and Chief Financial Officer and
proposed severance agreements with other senior officers provide for cash
severance payments in the event of involuntary termination of employment in
connection with a change in control of the Holding Company or the Savings Bank.
Severance payments also will be provided in connection with a voluntary
termination of employment following a change in control in certain
circumstances. Such agreements also provide for the continuation of certain
employee benefits following the change in control. Assuming a change in control
occurred as of March 31, 1997, the aggregate amounts payable under these
agreements would have been approximately $______. In connection with the
Conversion, the Board of Directors of the Savings Bank intends to adopt an
Employee Severance Compensation Plan ("Severance Plan") to provide benefits to
eligible employees in the event of a change in control of the Holding Company or
the Savings Bank. Officers who enter into separate employment or severance
agreements with the Holding Company and the Savings Bank will not be eligible to
participate in the Severance Plan. Assuming that a change in control had
occurred at March 31, 1997 and the termination of all eligible employees, the
maximum aggregate payment due under the Severance Plan would be approximately
$__ million. These provisions may have the effect of increasing the cost of
acquiring the Holding Company, thereby discouraging future attempts to take over
the Holding Company or the Savings Bank.
See "MANAGEMENT OF THE SAVINGS BANK -- Benefits," "RESTRICTIONS ON
ACQUISITION OF THE HOLDING COMPANY" and "DESCRIPTION OF CAPITAL STOCK OF THE
HOLDING COMPANY."
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<PAGE>
Absence of Active Market for the Common Stock
The Holding Company has never issued capital stock and, consequently, there
is no existing market for the Common Stock. Although the Holding Company has
received conditional approval to list the Common Stock on the Nasdaq SmallCap
Market under the symbol "_______," there can be no assurance that the Holding
Company will meet Nasdaq SmallCap Market listing requirements, which currently
include a minimum number of publicly held shares, a minimum market
capitalization, at least two market makers and a minimum number of holders of
record. Furthermore, because The Nasdaq Stock Market has filed proposed rule
changes with the SEC that strengthen the listing requirements for the Nasdaq
SmallCap Market, there can be no assurance that if the Holding Company initially
meets the Nasdaq SmallCap Market listing requirements that it will be able to
maintain its listing. In the event that the Holding Company is unable to obtain
or maintain the listing of the Common Stock on the Nasdaq SmallCap Market, it is
anticipated that the Common Stock will be quoted on the OTC Bulletin Board.
Although under no obligation to do so, Ryan, Beck has indicated its intention to
act as a market maker. While Ryan, Beck will assist the Holding Company in
encouraging another market maker to establish and maintain a market in the
Common Stock, there can be no assurance that another market maker will make a
market in the Common Stock. Making a market in securities involves maintaining
bid and ask quotations and being able, as principal, to effect transactions in
reasonable quantities at those quoted prices, subject to various securities laws
and other regulatory requirements. The development of a public trading market
depends upon the existence of willing buyers and sellers, the presence of which
is not within the control of the Holding Company, the Savings Bank or any market
maker. Accordingly, there can be no assurance that an active and liquid trading
market for the Common Stock will develop, or once developed, will continue.
Furthermore, there can be no assurance that purchasers will be able to sell
their shares at or above the Purchase Price. See "MARKET FOR COMMON STOCK."
Possible Dilutive Effect of Benefit Programs
At a meeting to be held no earlier than six months following consummation
of the Conversion, the Holding Company intends to seek stockholder approval of
the MRP. If approved, the MRP intends to acquire an amount of Common Stock
equal to 4% of the shares issued in the Conversion. Such shares of Common Stock
may be acquired by the Holding Company in the open market or from authorized but
unissued shares of Common Stock. In the event that the MRP acquires authorized
but unissued shares of Common Stock from the Holding Company, the voting
interests of existing stockholders will be diluted and net income per share and
stockholders' equity per share will be decreased. See "PRO FORMA DATA" and
"MANAGEMENT OF THE SAVINGS BANK -- Benefits -- Management Recognition Plan."
At a meeting to be held no earlier than six months following consummation
of the Conversion, the Holding Company intends to seek stockholder approval of
the Stock Option Plan. If approved, the Stock Option Plan will provide for
options for up to a number of shares of Common Stock equal to 10% of the shares
issued in the Conversion. Such shares may be authorized but unissued shares of
Common Stock and, upon exercise of the options, will result in the dilution of
the voting interests of existing stockholders and may decrease net income per
share and stockholders' equity per share. See "MANAGEMENT OF THE SAVINGS
BANK -- Benefits -- Stock Option Plan."
If the ESOP is not able to purchase 8% of the shares of Common Stock issued
in the Offerings, the ESOP may purchase newly issued shares from the Holding
Company. In such event, the voting interests of existing stockholders will be
diluted and net income per share and stockholders' equity per share will be
decreased. See "MANAGEMENT OF THE SAVINGS BANK -- Benefits -- Employee Stock
Ownership Plan."
Possible Adverse Income Tax Consequences of the Distribution of Subscription
Rights
If the Subscription Rights granted to Eligible Account Holders,
Supplemental Eligible Account Holders and Other Members of the Savings Bank are
deemed to have an ascertainable value, receipt of such rights may be a taxable
event (either as capital gain or ordinary income) to those Eligible Account
Holders, Supplemental Eligible Account Holders or Other Members who receive
and/or exercise the Subscription Rights in an amount equal to such
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<PAGE>
value. Additionally, the Savings Bank could be required to recognize a gain for
tax purposes on such distribution. Whether Subscription Rights are considered
to have ascertainable value is an inherently factual determination. The Savings
Bank has been advised by Feldman Financial that such rights have no value;
however, Feldman Financial's conclusion is not binding on the Internal Revenue
Service ("IRS"). See "THE CONVERSION -- Effects of Conversion to Stock Form on
Depositors and Borrowers of the Savings Bank -- Tax Effects."
Possible Increase in Estimated Price Range and Number of Shares Issued
The number of shares to be sold in the Conversion may be increased as a
result of an increase in the Estimated Price Range of up to 15% to reflect
changes in market and financial conditions following the commencement of the
Subscription and Direct Community Offering. In the event that the Estimated
Price Range is so increased, it is expected that the Holding Company will issue
up to 819,950 shares of Common Stock at the Purchase Price for an aggregate
price of up to $8,199,500. An increase in the number of shares will decrease
pro forma net earnings per share and stockholders' equity per share and will
increase the Holding Company's pro forma consolidated stockholders' equity and
net earnings. Such an increase will also increase the Purchase Price as a
percentage of pro forma stockholders' equity per share and net earnings per
share.
Potential Operational Restrictions Associated with Regulatory Oversight
The Savings Bank is, and the Holding Company upon consummation of the
Conversion will be, subject to extensive government regulation and oversight.
Such regulation and supervision govern the activities in which an institution
can engage and is designed primarily to protect the federal deposit insurance
fund and depositors. Regulatory authorities have extensive discretion in
connection with their supervisory and enforcement activities, including the
imposition of restrictions on the operation of an institution, the
classification of assets by the institution and the determination of the
adequacy of an institution's allowance for loan losses. See "REGULATION."
SHS BANCORP, INC.
The Holding Company is a Pennsylvania corporation organized in June 1997 at
the direction of the Savings Bank for the purpose of serving as the holding
company of the Savings Bank upon consummation of the Conversion. The Holding
Company has not engaged in any significant business to date. The Holding
Company has received the approval of the OTS to become a savings and loan
holding company and to acquire 100% of the capital stock of the Savings Bank.
Immediately following the Conversion, the only significant assets of the Holding
Company will be the capital stock of the Savings Bank, that portion of the net
proceeds of the Offerings permitted by the OTS to be retained by the Holding
Company and a note receivable from the ESOP evidencing a loan from the Holding
Company to fund the Savings Bank's ESOP. See "BUSINESS OF THE HOLDING COMPANY."
The holding company structure will allow the Holding Company to expand the
financial services currently offered through the Savings Bank should it choose
to do so. Management believes that the holding company structure and retention
of a portion of the proceeds of the Offerings will facilitate the expansion and
diversification of its operations. The holding company structure also will
enable the Holding Company to repurchase its stock without adverse tax
consequences. There are no present plans, arrangements, agreements, or
understandings, written or oral, regarding any such activities or repurchases.
See "REGULATION -- Savings and Loan Holding Company Regulation."
SPRING HILL SAVINGS BANK, F.S.B.
The Savings Bank, founded in 1893, is a federally chartered mutual savings
bank located in Pittsburgh, Pennsylvania. The Savings Bank, which was formed
as a Pennsylvania mutual savings and loan association, converted to a federal
mutual savings bank in 1991. In connection with the Conversion, the Savings
Bank will
5
<PAGE>
convert to a federally chartered capital stock savings bank and will become a
subsidiary of the Holding Company. The Savings Bank is currently regulated by
the OTS, its primary regulator, and by the FDIC, the insurer of its deposits.
The Savings Bank's deposits are insured by the SAIF to the maximum permitted by
law. The Savings Bank has been a member of the FHLB System since 1933. At
March 31, 1997, the Savings Bank had total assets of $82.8 million, total
deposits of $64.8 million and total retained earnings of $4.4 million on a
consolidated basis.
The Savings Bank operates as a community-oriented financial institution
that engages primarily in the business of attracting deposits from the general
public and using those funds to originate residential mortgage loans within the
Savings Bank's primary market area. At March 31, 1997, one- to four-family
residential mortgage loans totalled $42.7 million, or 76.2% of total loans
receivable. The Savings Bank also originates multi-family, construction,
commercial real estate and consumer loans. See "BUSINESS OF THE SAVINGS BANK --
Lending Activities." In 1996, as part of its strategy to provide a fuller range
of services to its retail customers, the Savings Bank expanded its offering of
consumer loans, introducing home equity lines of credit and consumer installment
loans.
USE OF PROCEEDS
The net proceeds from the sale of the Common Stock offered hereby are
estimated to range from $4.8 million to $6.7 million, or up to $7.7 million if
the Estimated Valuation Range is increased by 15%. See "PRO FORMA DATA" for the
assumptions used to arrive at such amounts. The Holding Company has received
the approval of the OTS to purchase all of the capital stock of the Savings Bank
to be issued in the Conversion in exchange for the lesser of 85% of the net
proceeds of the Offerings or that amount of net proceeds sufficient to increase
the Savings Bank's tangible capital to 10% of total assets.
The following table presents the estimated net proceeds of the Offering
based on the number of shares set forth below together with the amount to be
retained by the Holding Company and the amount to be contributed to the Savings
Bank.
<TABLE>
<CAPTION>
527,000 620,000 713,000 819,950
Shares at Shares at Shares at Shares at
$10.00 $10.00 $10.00 $10.00
Per Share Per Share Per Share Per Share
--------- --------- --------- ---------
(In Thousands)
<S> <C> <C> <C> <C>
Gross proceeds......... $5,270 $6,200 $7,130 $8,200
Less expenses.......... 445 450 463 463
------ ------ ------ ------
Net proceeds........... $4,825 $5,750 $6,667 $7,737
====== ====== ====== ======
Amount retained by
Holding Company....... $724 $1,501 $2,418 $3,488
Amount contributed to
Savings Bank.......... $4,101 $4,249 $4,249 $4,249
</TABLE>
Receipt of up to 85% of the net proceeds of the sale of the Common Stock
will increase the Savings Bank's capital and will support the expansion of the
Savings Bank's existing business activities. The Savings Bank will use the
funds contributed to it for general corporate purposes, including increased
local lending and purchases of investments, and possible future acquisitions of
branches. The Savings Bank may also use a portion of the funds contributed to
it to retire outstanding borrowings. Pending deployment of funds, the Savings
Bank plans initially to invest the net proceeds in short- to intermediate-term
U.S. Government and agency securities and mortgage-backed
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<PAGE>
securities. Shares of Common Stock may be purchased with funds on deposit at
the Savings Bank, which will reduce deposits by the amount of such purchases.
As a result, the net amount of funds available to the Savings Bank for
investment following receipt of the Conversion proceeds will be reduced by the
amount of deposit withdrawals used to fund stock purchases.
In connection with the Conversion and the establishment of the ESOP, the
Holding Company intends to loan the ESOP the amount necessary to purchase 8% of
the shares of Common Stock sold in the Conversion. The Holding Company's loan
to fund the ESOP may range from $421,600 to $570,400 based on the sale to the
ESOP of 42,160 shares (at the minimum of the Estimated Valuation Range) and
57,040 shares (at the maximum of the Estimated Valuation Range), respectively,
at $10.00 per share. If 15% above the maximum of the Estimated Valuation Range,
or 819,950 shares, are sold in the Conversion, the Holding Company's loan to the
ESOP would be approximately $655,960. It is anticipated that the ESOP loan will
have a ten-year term with interest payable at the prime rate as published in The
Wall Street Journal on the closing date of the Conversion. The loan will be
repaid principally from the Savings Bank's contributions to the ESOP and from
any dividends paid on shares of Common Stock held by the ESOP.
The remaining proceeds retained by the Holding Company initially will be
invested in short- to intermediate-term U.S. Government and agency securities
and mortgage-backed securities. Such proceeds will be available for additional
contributions to the Savings Bank in the form of debt or equity, to support
future diversification or acquisition activities, as a source of dividends to
the stockholders of the Holding Company and for future repurchases of Common
Stock to the extent permitted under Pennsylvania law and federal regulations.
Currently, there are no specific plans, arrangements, agreements or
understandings, written or oral, regarding any diversification activities.
Following consummation of the Conversion, the Board of Directors will have
the authority to adopt plans for repurchases of Common Stock or other returns of
capital to stockholders, subject to statutory and regulatory requirements.
Since the Holding Company has not yet issued stock, there currently is
insufficient information upon which an intention to repurchase stock could be
based. The facts and circumstances upon which the Board of Directors may
determine to repurchase stock in the future may include but are not limited to:
(i) market and economic factors, such as the price at which the stock is trading
in the market, the volume of trading, the attractiveness of other investment
alternatives in terms of the rate of return and risk involved in the investment,
the ability to increase the book value and/or earnings per share of the
remaining outstanding shares, and the ability to improve the Holding Company's
return on equity; (ii) the avoidance of dilution to stockholders by not having
to issue additional shares to cover the exercise of stock options or to fund
employee stock benefit plans; and (iii) any other circumstances in which
repurchases would be in the best interests of the Holding Company and its
stockholders. Any stock repurchases or return of capital will be subject to a
determination by the Board of Directors that both the Holding Company and the
Savings Bank will be capitalized in excess of all applicable regulatory
requirements after any such repurchases or return of capital and that capital
will be adequate, taking into account, among other things, the level of
nonperforming and classified assets, the Holding Company's and the Savings
Bank's current and projected results of operations and asset/liability
structure, the economic environment and tax and other regulatory considerations.
See "THE CONVERSION -- Restrictions on Repurchase of Stock."
DIVIDEND POLICY
General
The Board of Directors of the Holding Company has not formulated a dividend
policy, but intends to develop a policy of paying cash dividends in the future.
The payment of dividends on the Common Stock will be subject to the requirements
of applicable law and the determination by the Board of Directors of the Holding
Company that the net income, capital and financial condition of the Holding
Company, industry trends and general economic conditions justify the payment of
dividends. The rate of such dividends and the initial or continued
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<PAGE>
payment thereon will depend upon various factors at the intended time of
declaration and payment, including the Savings Bank's profitability and
liquidity, alternative investment opportunities, and regulatory restrictions on
dividend payments and on capital levels applicable to the Savings Bank.
Accordingly, there can be no present assurance that any dividends will be paid.
Periodically, the Board of Directors, if market, economic and regulatory
conditions permit, may combine or substitute periodic special dividends with or
for regular dividends. In addition, since the Holding Company initially will
have no significant source of income other than dividends from the Savings Bank
and earnings from investment of the net proceeds of the Conversion retained by
the Holding Company, the payment of dividends by the Holding Company will depend
in part upon the amount of the net proceeds from the Conversion retained by the
Holding Company and the Holding Company's earnings thereon and the receipt of
dividends from the Savings Bank, which are subject to various tax and regulatory
restrictions on the payment of dividends. Dividend payments by the Holding
Company are subject to applicable provisions of Pennsylvania corporate law.
Under Pennsylvania law, dividends may be paid unless, after giving effect
thereto, the Holding Company would be unable to pay its debts as they become due
in the usual course of its business, or the Holding Company's total assets would
be less than its total liabilities plus the amount which would be needed, under
certain circumstances, to satisfy any preferential rights of shareholders. For
additional information, see "REGULATION."
Current Regulatory Restrictions
Dividends from the Holding Company may depend, in part, upon receipt of
dividends from the Savings Bank because the Holding Company initially will have
no source of income other than dividends from the Savings Bank and earnings from
the investment of the net proceeds from the Offerings retained by the Holding
Company. OTS regulations require savings associations to give the OTS 30 days'
advance notice of any proposed declaration of dividends, and the OTS has the
authority under its supervisory powers to prohibit the payment of dividends.
The OTS imposes certain limitations on the payment of dividends which utilizes a
three-tiered approach that permits various levels of distributions based
primarily upon a savings association's capital level. In addition, the Savings
Bank may not declare or pay a cash dividend on its capital stock if the effect
thereof would be to reduce the regulatory capital of the Savings Bank below the
amount required for the liquidation account to be established pursuant to the
Savings Bank's Plan of Conversion. The Savings Bank currently meets the
criteria to be designated a Tier 1 association, as hereinafter defined, and
consequently could at its option (after prior notice to and no objection made by
the OTS) distribute up to 100% of its net income during the calendar year plus
50% of its surplus capital ratio at the beginning of the calendar year less any
distributions previously paid during the year. See "REGULATION -- Federal
Regulation of Savings Associations -- Limitations on Capital Distributions,"
"THE CONVERSION -- Effects of Conversion to Stock Form on Depositors and
Borrowers of the Savings Bank -- Liquidation Account" and Note 20 of the Notes
to the Consolidated Financial Statements included elsewhere herein.
Additionally, in connection with the Conversion, the Holding Company and
the Savings Bank have committed to the OTS that during the one-year period
following consummation of the Conversion, the Holding Company will not take any
action, including any preliminary action, to declare an extraordinary dividend
to stockholders that would be treated by recipients as a tax-free return of
capital for federal income tax purposes.
MARKET FOR COMMON STOCK
The Holding Company has never issued capital stock and, consequently, there
is no existing market for the Common Stock. Although the Holding Company has
received conditional approval to list the Common Stock on the Nasdaq SmallCap
Market under the symbol "____," there can be no assurance that the Holding
Company will meet Nasdaq SmallCap Market listing requirements, which currently
include a minimum number of publicly held shares, a minimum market
capitalization, at least two market makers and a minimum number of record
holders. Furthermore, because The Nasdaq Stock Market has filed proposed rule
changes with the SEC that strengthen the listing requirements for the Nasdaq
SmallCap Market, there can be no assurance that if the Holding Company initially
meets the Nasdaq SmallCap Market listing requirements that it will be able to
maintain its listing. In the event that the Holding Company is unable to obtain
or maintain the listing of the Common Stock on the Nasdaq
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<PAGE>
SmallCap Market, it is anticipated that the Common Stock will be quoted on the
OTC Bulletin Board. Although under no obligation to do so, Ryan, Beck has
indicated its intention to make a market for the Holding Company's Common Stock
following consummation of the Conversion and will assist the Holding Company in
seeking to encourage at least one additional market maker to establish and
maintain a market in the Common Stock. Making a market involves maintaining bid
and ask quotations and being able, as principal, to effect transactions in
reasonable quantities at those quoted prices, subject to various securities laws
and other regulatory requirements. While the Holding Company anticipates that
prior to the completion of the Conversion it will be able to obtain the
commitment from at least one additional broker-dealer to act as market maker for
the Common Stock, there can be no assurance that there will be two or more
market makers for the Common Stock. Additionally, the development of a liquid
public market depends on the existence of willing buyers and sellers, the
presence of which is not within the control of the Holding Company, the Savings
Bank or any market maker. There can be no assurance that an active and liquid
trading market for the Common Stock will develop or that, if developed, it will
continue. The number of active buyers and sellers of the Common Stock at any
particular time may be limited. Under such circumstances, investors in the
Common Stock could have difficulty disposing of their shares on short notice and
should not view the Common Stock as a short-term investment. Furthermore, there
can be no assurance that purchasers will be able to sell their shares at or
above the Purchase Price or that quotations will be available on the Nasdaq
SmallCap Market as contemplated.
9
<PAGE>
CAPITALIZATION
The following table presents the historical capitalization of the Savings
Bank 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 Common Stock set forth
below in the Conversion at the minimum, midpoint and maximum of the Estimated
Valuation Range, and based on the sale of 819,950 shares (representing the
shares that would be issued in the Conversion after giving effect to an
additional 15% increase in the maximum valuation in the Estimated Valuation
Range, subject to receipt of an updated appraisal confirming such valuation and
OTS approval). A change in the number of shares to be issued in the Conversion
may materially affect pro forma consolidated capitalization.
<TABLE>
<CAPTION>
Holding Company
Pro Forma Consolidated Capitalization
Based Upon the Sale of
------------------------------------------------------------
527,000 620,000 713,000 819,950
Capitalization Shares at Shares at Shares at Shares at
as of $10.00 $10.00 $10.00 $10.00
March 31, 1997 Per Share(1) Per Share(1) Per Share(1) Per Share(2)
-------------- ------------ ------------ ------------ ------------
(In Thousands)
<S> <C> <C> <C> <C> <C>
Deposits(3)........................ $64,776 $64,776 $64,776 $64,776 $64,776
Borrowed funds (including CMO)..... 11,708 11,708 11,708 11,708 11,708
------ ------ ------ ------ ------
Total deposits and
borrowings........................ $76,484 $76,484 $76,484 $76,484 $76,484
====== ====== ====== ====== ======
Stockholders' equity:
Preferred stock:
5,000,000 shares, $.01
par value per share,
authorized; none issued
or outstanding................ -- -- -- -- --
Common Stock:
10,000,000 shares, $.01 par
value per share, authorized;
specified number of shares
assumed to be issued and
outstanding(4)................ $ -- $ 5 $ 6 $ 7 $ 8
Additional paid-in capital...... -- 4,820 5,744 6,660 7,728
Retained earnings(5)............ 4,449 4,449 4,449 4,449 4,449
Less:
Common Stock acquired
by ESOP(6).................. -- (422) (496) (570) (656)
Common Stock to be acquired
by MRP(7)................... -- (211) (248) (285) (328)
------ ------ ------ ------ ------
Total stockholders' equity......... $ 4,449 $ 8,641 $ 9,455 $10,261 $11,201
====== ====== ====== ====== ======
</TABLE>
(footnotes on following page)
10
<PAGE>
_______________
(1) Does not reflect the possible increase in the Estimated Valuation Range to
reflect material changes in the financial condition or performance of the
Savings Bank or changes in market conditions or general financial and
economic conditions, or the issuance of additional shares under the Stock
Option Plan.
(2) This column represents the pro forma capitalization of the Holding Company
in the event the aggregate number of shares of Common Stock issued in the
Conversion is 15% above the maximum of the Estimated Valuation Range. See
"PRO FORMA DATA" and Footnote 1 thereto.
(3) Withdrawals from deposit accounts for the purchase of Common Stock are not
reflected. Such withdrawals will reduce pro forma deposits by the amounts
thereof.
(4) The Savings Bank's authorized capital will consist solely of 1,000 shares of
common stock, par value $1.00 per share, 1,000 shares of which will be
issued to the Holding Company, and 9,000 shares of preferred stock, no par
value per share, none of which will be issued in connection with the
Conversion.
(5) Retained earnings are substantially restricted by applicable regulatory
capital requirements. Additionally, the Savings Bank will be prohibited
from paying any dividend that would reduce its regulatory capital below the
amount in the liquidation account, which will be established for the benefit
of the Savings Bank's Eligible Account Holders and Supplemental Eligible
Account Holders at the time of the Conversion and adjusted downward
thereafter as such account holders reduce their balances or cease to be
depositors. See "THE CONVERSION -- Effects of Conversion to Stock Form on
Depositors and Borrowers of the Savings Bank --Liquidation Account."
(6) Assumes that 8% of the Common Stock sold in the Conversion will be acquired
by the ESOP in the Conversion with funds borrowed from the Holding Company.
In accordance with generally accepted accounting principles ("GAAP"), the
amount of Common Stock to be purchased by the ESOP represents unearned
compensation and is, accordingly, reflected as a reduction of capital. As
shares are committed to be 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 Savings Bank -- Benefits -- Employee Stock Ownership Plan."
(7) Assumes the purchase in the open market at the Purchase Price, pursuant to
the proposed MRP, of a number of shares equal to 4% of the shares of Common
Stock issued in the Conversion at the minimum, midpoint, maximum and 15%
above the maximum of the Estimated Valuation Range. The issuance of an
additional 4% of the shares of Common Stock for the MRP from authorized but
unissued shares of Holding Company Common Stock would dilute the voting and
ownership interest of stockholders by 3.85%. The shares are reflected as a
reduction of stockholders' equity. See "RISK FACTORS -- Possible Dilutive
Effect of Benefit Programs," "PRO FORMA DATA" and "MANAGEMENT OF THE SAVINGS
BANK -- Benefits -- Management Recognition Plan." The MRP is subject to
stockholder approval, which is expected to be sought at a meeting to be held
no earlier than six months following consummation of the Conversion.
11
<PAGE>
HISTORICAL AND PRO FORMA CAPITAL COMPLIANCE
The following table presents the Savings Bank's historical and pro forma
capital position relative to the OTS capital requirements at March 31, 1997.
The amount of capital infused into the Savings Bank for purposes of the
following table is the lesser of 85% of the net proceeds of the Offerings or
that amount of net proceeds sufficient to increase the Savings Bank's tangible
capital to 10% of total assets. For purposes of the table below, the amount
expected to be borrowed by the ESOP and the cost of the shares expected to be
acquired by the MRP are deducted from pro forma regulatory capital. For a
discussion of the assumptions underlying the pro forma capital calculations
presented below, see "USE OF PROCEEDS," "CAPITALIZATION" and "PRO FORMA DATA."
The definitions of the terms used in the table are those provided in the capital
regulations issued by the OTS. For a discussion of the capital standards
applicable to the Savings Bank, see "REGULATION -- Federal Regulation of Savings
Associations -- Capital Requirements."
<TABLE>
<CAPTION>
PRO FORMA AT MARCH 31, 1997
-------------------------------------------------------------------------------------------------------
15% above
Minimum of Midpoint of Maximum of Maximum of
Estimated Estimated Estimated Estimated
Valuation Range Valuation Range Valuation Range Valuation Range
------------------- -------------------- ------------------- -------------------
819,950 Shares
527,000 Shares 620,000 Shares 713,000 Shares at $10.00
March 31, 1997 at $10.00 Per Share at $10.00 Per Share at $10.00 Per Share Per Share
------------------ ------------------- -------------------- ------------------- -------------------
Percent of Percent of Percent of Percent of Percent of
Total Total Total Total Total
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>
Tangible capital........... $4,459 5.38% $8,560 9.85% $8,708 10.00% $8,708 10.00% $8,708 10.00%
Tangible capital
requirement............... 1,242 1.50 1,304 1.50 1,306 1.50 1,306 1.50 1,306 1.50
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
Excess..................... $3,217 3.88% $7,256 8.35% $7,402 8.50% $7,402 8.50% $7,402 8.50%
====== ===== ====== ===== ====== ===== ====== ===== ====== =====
Core capital............... $4,459 5.38% $8,560 9.85% $8,708 10.00% $8,708 10.00% $8,708 10.00%
Core capital requirement(2) 2,485 3.00 2,608 3.00 2,612 3.00 2,612 3.00 2,612 3.00
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
Excess..................... $1,974 2.38% $5,952 6.85% $6,096 7.00% $6,096 7.00% $6,096 7.00%
====== ===== ====== ===== ====== ===== ====== ===== ====== =====
Risk-based capital(3)...... $4,879 12.46% $8,980 21.79% $9,128 22.11% $9,128 22.11% $9,128 22.11%
Risk-based
capital requirement....... 3,132 8.00 3,296 8.00 3,302 8.00 3,302 8.00 3,302 8.00
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
Excess..................... $1,747 4.46% $5,684 13.79% $5,826 14.11% $5,826 14.11% $5,826 14.11%
====== ===== ====== ===== ====== ===== ====== ===== ====== =====
</TABLE>
___________________
(1) Tangible capital levels are shown as a percentage of tangible assets. Core
capital levels are shown as percentage of total adjusted assets. Risk based
capital levels are shown as a percentage of risk-weighted assets.
(2) The current OTS core capital requirement for savings associations is 3% of
total adjusted assets. The OTS has proposed core capital requirements which
would require a core capital ratio of 3% of total adjusted assets for
thrifts that receive the highest supervisory rating for safety and soundness
and a core capital ratio of 4% to 5% for all other thrifts.
(3) Assumes net proceeds are invested in assets that carry a 50% risk-weighting.
12
<PAGE>
PRO FORMA DATA
Under the Plan of Conversion, the Common Stock must be sold at an aggregate
price equal to the estimated pro forma market value of the Holding Company and
the Savings Bank as converted, based upon an independent valuation. The
Estimated Valuation Range as of June 23, 1997 is from a minimum of $5,270,000 to
a maximum of $7,130,000 with a midpoint of $6,200,000 or, at a price per share
of $10.00, a minimum number of shares of 527,000, a maximum number of shares of
713,000 and a midpoint number of shares of 620,000. The actual net proceeds
from the sale of the Common Stock cannot be determined until the Conversion is
completed. However, net proceeds set forth on the following table are based upon
the following assumptions: (i) Ryan, Beck will receive a fee equal to $25,000
plus 1.5% of the aggregate Purchase Price of shares sold in the Subscription and
Direct Community Offering, excluding shares purchased by directors, officers,
employees and any immediate family member thereof, and the ESOP, subject to a
minimum fee of $100,000 and a maximum fee equal to $25,000 plus 1.5% of the
aggregate gross proceeds at the midpoint of the Estimated Valuation Range; (ii)
all of the Common Stock will be sold in the Subscription and Direct Community
Offerings; and (iii) Conversion expenses, excluding the fees paid to Ryan, Beck,
will total approximately $345,000. Actual expenses may vary from those
estimated.
The following tables summarize the historical net income and retained
earnings of the Savings Bank and the pro forma consolidated net income and
stockholders' equity of the Holding Company for the periods and at the dates
indicated, based on the minimum, midpoint and maximum of the Estimated Valuation
Range and based on a 15% increase in the maximum of the Estimated Valuation
Range. The pro forma consolidated net income of the Savings Bank for the three
months ended March 31, 1997 and the year ended December 31, 1996 has been
calculated as if the Conversion had been consummated at the beginning of each
such period and the estimated net proceeds received by the Holding Company and
the Savings Bank had been invested at 6.02% at the beginning of each period,
which represents the one year U.S. Treasury Bill yield as of March 31, 1997.
While OTS regulations provide for the use of a yield representing the arithmetic
average of the weighted average yield earned by the Savings Bank on its
interest-earning assets and the rates paid on its deposits, the Holding Company
believes that the U.S. Treasury Bill represents a more realistic yield on the
Savings Bank's investments. As discussed under "USE OF PROCEEDS," the Holding
Company expects to retain up to 50% of the net proceeds of the Offerings from
which it will fund the ESOP loan. A pro forma after-tax return of 3.71% is used
for both the Holding Company and the Savings Bank for the three months ended
March 31, 1997 and the year ended December 31, 1996, after giving effect to an
incremental combined federal and state tax rate of 38.4%. Historical and pro
forma per share amounts have been calculated by dividing historical and pro
forma amounts by the number of shares of Common Stock indicated in the footnotes
to the table. Per share amounts have been computed as if the Common Stock had
been outstanding at the beginning of the period or at the dates indicated, but
without any adjustment of per share historical or pro forma stockholders' equity
to reflect the earnings on the estimated net proceeds. No effect has been given
to: (i) the shares to be reserved for issuance under the Holding Company's Stock
Option Plan, which is expected to be voted upon by stockholders at a meeting to
be held no earlier than six months following consummation of the Conversion;
(ii) withdrawals from deposit accounts for the purpose of purchasing Common
Stock in the Conversion; (iii) the issuance of shares from authorized but
unissued shares to the MRP, which is expected to be voted upon by stockholders
at a meeting to be held no earlier than six months following consummation of the
Conversion; or (iv) the establishment of a liquidation account for the benefit
of Eligible Account Holders and Supplemental Eligible Account Holders. See
"MANAGEMENT OF THE SAVINGS BANK -- Benefits -- Stock Option Plan" and "THE
CONVERSION -- Stock Pricing and Number of Shares Issued." Shares of Common
Stock may be purchased with funds on deposit at the Savings Bank, which will
reduce deposits by the amounts of such purchases. Accordingly, the net amount
of funds available for investment will be reduced by the amount of deposit
withdrawals used to fund stock purchases.
The following pro forma information may not be representative of the
financial effects of the Conversion at the date on which the Conversion actually
occurs and should not be taken as indicative of future results of operations.
Stockholders' equity represents the difference between the stated amounts of
consolidated assets and liabilities of the Holding Company computed in
accordance with GAAP. Stockholders' equity has not been increased or decreased
to reflect the difference between the carrying value of loans and
13
<PAGE>
other assets and market value. Stockholders' equity is not intended to
represent fair market value nor does it represent amounts that would be
available for distribution to stockholders in the event of liquidation.
<TABLE>
<CAPTION>
At or For the Three Months Ended March 31, 1997
------------------------------------------------
Midpoint 15% Above
Minimum of of Maximum of Maximum of
Estimated Estimated Estimated Estimated
Valuation Valuation Valuation Valuation
Range Range Range Range
---------- ---------- ---------- ------------
527,000 620,000 713,000 819,950(1)
Shares Shares Shares Shares
at $10.00 at $10.00 at $10.00 at $10.00
Per Share Per Share Per Share Per Share
--------- --------- --------- ---------
(In Thousands, Except Per Share Amounts)
<S> <C> <C> <C> <C>
Gross proceeds............. $ 5,270 $ 6,200 $ 7,130 $ 8,200
Less: estimated expenses... 445 450 463 463
-------- -------- -------- --------
Estimated net proceeds..... 4,825 5,750 6,667 7,737
- --------------------------- -------- -------- -------- --------
Less: Common Stock
acquired by ESOP.......... (422) (496) (570) (656)
Less: Common Stock to be
acquired by MRP........... (211) (248) (285) (328)
-------- -------- -------- --------
Net investable proceeds.. $ 4,192 $ 5,006 $ 5,812 $ 6,753
======== ======== ======== ========
Consolidated net income:
- ---------------------------
Historical................. $ (387) $ (387) $ (387) $ (387)
Pro forma income on net
proceeds(2)............... 39 46 54 63
Pro forma ESOP
adjustments(3)............ (6) (8) (9) (10)
Pro forma MRP
adjustments(4)............ (6) (8) (9) (10)
-------- -------- -------- --------
Pro forma net income
(loss)................... $ (360) $ (357) $ (351) $ (344)
======== ======== ======== ========
Consolidated net income
per share(5)(6):
Historical................. $ (0.80) $ (0.68) $ (0.59) $ (0.51)
Pro forma income on net
proceeds.................. 0.08 0.08 0.08 0.08
Pro forma ESOP
adjustments(3)............ (0.01) (0.01) (0.01) (0.01)
Pro forma MRP
adjustments(4)............ (0.01) (0.01) (0.01) (0.01)
-------- -------- -------- --------
Pro forma net income
(loss) per share......... $ (0.74) $ (0.62) $ (0.53) $ (0.45)
======== ======== ======== ========
Consolidated stockholders'
equity (book value):
- ---------------------------
Historical................. $ 4,449 $ 4,449 $ 4,449 $ 4,449
Estimated net proceeds..... 4,825 5,750 6,667 7,737
Less: Common Stock
acquired by ESOP.......... (422) (496) (570) (656)
Less: Common Stock to be
acquired by MRP(4)........ (211) (248) (285) (328)
-------- -------- -------- --------
Pro forma stockholders'
equity(7)................ $ 8,641 $ 9,455 $ 10,261 $ 11,202
======== ======== ======== ========
Consolidated stockholders'
equity per share(6)(8):
Historical(6).............. $ 844 $ 7.18 $ 6.24 $ 5.43
Estimated net proceeds..... 916 9.27 9.35 9.43
Less: Common Stock
acquired by ESOP.......... (0.80) (0.80) (0.80) (0.80)
Less: Common Stock to be
acquired by MRP(4)........ (0.40) (0.40) (0.40) (0.40)
-------- -------- -------- --------
Pro forma stockholders'
equity per share(9)...... $ 16.40 $ 15.25 $ 14.39 $ 13.66
======== ======== ======== ========
Purchase Price as a
multiple of pro forma
net income per share(10).. NM NM NM NM
Purchase Price as a
percentage of pro forma
stockholders' equity per
share..................... 60.98% 65.57% 69.49% 73.21%
</TABLE>
(footnotes on page 16)
14
<PAGE>
<TABLE>
<CAPTION>
At or For the Year Ended December 31, 1996
------------------------------------------------
Midpoint 15% Above
Minimum of of Maximum of Maximum of
Estimated Estimated Estimated Estimated
Valuation Valuation Valuation Valuation
Range Range Range Range
---------- ---------- ---------- ------------
527,000 620,000 713,000 819,950(1)
Shares Shares Shares Shares
at $10.00 at $10.00 at $10.00 at $10.00
Per Share Per Share Per Share Per Share
--------- --------- --------- ---------
(In Thousands, Except Per Share Amounts)
<S> <C> <C> <C> <C>
Gross proceeds............. $ 5,270 $ 6,200 $ 7,130 $ 8,200
Less: estimated expenses... 445 450 463 463
-------- -------- -------- --------
Estimated net proceeds..... 4,825 5,750 6,667 7,737
Less: Common Stock
acquired by ESOP.......... (422) (496) (570) (656)
Less: Common Stock to be
acquired by MRP........... (211) (248) (285) (328)
-------- -------- -------- --------
Net investable proceeds.. $ 4,192 $ 5,006 $ 5,812 $ 6,753
======== ======== ======== ========
Consolidated net income:
Historical................. $ 393 $ 393 $ 393 $ 393
Pro forma income on net
proceeds(2)............... 156 186 216 251
Pro forma ESOP
adjustments(3)............ (26) (31) (35) (40)
Pro forma MRP
adjustments(4)............ (26) (31) (35) (40)
-------- -------- -------- --------
Pro forma net income...... $ 497 $ 517 $ 539 $ 564
======== ======== ======== ========
Consolidated net income
per share (5)(6):
Historical................. $ 0.80 $ 0.68 $ 0.59 $ 0.52
Pro forma income on net
proceeds.................. 0.32 0.32 0.33 0.33
Pro forma ESOP
adjustments(3)............ (0.05) (0.05) (0.05) (0.05)
Pro forma MRP
adjustments(4)............ (0.05) (0.05) (0.05) (0.05)
-------- -------- -------- --------
Pro forma net income per
share.................... $ 1.02 $ 0.90 $ 0.82 $ 0.75
======== ======== ======== ========
Consolidated stockholders'
equity (book value):
Historical................. $ 4,840 $ 4,840 $ 4,840 $ 4,840
Estimated net proceeds..... 4,825 5,750 6,667 7,737
Less: Common Stock
acquired by ESOP.......... (422) (496) (570) (656)
Less: Common Stock to be
acquired by MRP(4)........ (211) (248) (285) (328)
-------- -------- -------- --------
Pro forma stockholders'
equity(7)................ $ 9,032 $ 9,846 $ 10,652 $ 11,593
======== ======== ======== ========
Consolidated stockholders'
equity per share(6)(8):
Historical(6).............. $ 9.18 $ 7.81 $ 6.79 $ 5.90
Estimated net proceeds..... 9.16 9.27 9.35 9.44
Less: Common Stock
acquired by ESOP.......... (0.80) (0.80) (0.80) (0.80)
Less: Common Stock to be
acquired by MRP(4)........ (0.40) (0.40) (0.40) (0.40)
-------- -------- -------- --------
Pro forma stockholders'
equity per share(9)...... $ 17.14 $ 15.88 $ 14.94 $ 14.14
======== ======== ======== ========
Purchase Price as a
multiple of pro forma
net income per share...... 9.80x 11.11x 12.20x 13.33x
Purchase Price as a
percentage of pro forma
stockholders' equity per
share..................... 58.34% 62.97% 66.93% 70.72%
</TABLE>
(footnotes on following page)
15
<PAGE>
___________________
(1) Gives effect to the sale of an additional 106,950 shares in the Conversion,
which may be issued to cover an increase in the pro forma market value of
the Holding Company and the Savings Bank as converted, without the
resolicitation of subscribers or any right of cancellation. The issuance of
such additional shares will be conditioned on a determination of the
independent appraiser that such issuance is compatible with its
determination of the estimated pro forma market value of the Holding Company
and the Savings Bank as converted. See "THE CONVERSION -- Stock Pricing and
Number of Shares to be Issued."
(2) No effect has been given to withdrawals from savings accounts for the
purpose of purchasing Common Stock in the Conversion.
(3) It is assumed that 8% of the shares of Common Stock offered in the
Conversion will be purchased by the ESOP. The funds used to acquire such
shares will be borrowed by the ESOP (at an interest rate equal to the prime
rate as published in The Wall Street Journal on the closing date of the
Conversion, which rate is currently _____%) from the net proceeds from the
Offerings retained by the Holding Company. The amount of this borrowing has
been reflected as a reduction from gross proceeds to determine estimated net
investable proceeds. The Savings Bank intends to make contributions to the
ESOP in amounts at least equal to the principal and interest requirement of
the debt. As the debt is paid down, stockholders' equity will be increased.
The Savings Bank's payment of the ESOP debt is based upon equal installments
of principal over a ten-year period, assuming a combined federal and state
tax rate of 38.4%. Shares purchased by the ESOP with the proceeds of the
loan will be held in a suspense account and released on a pro rata basis as
the loan is repaid. Interest income earned by the Holding Company on the
ESOP debt offsets the interest paid by the Savings Bank on the ESOP loan.
No reinvestment is assumed on proceeds contributed to fund the ESOP. The
ESOP expense reflects adoption of Statement of Position ("SOP") 93-6,
"Employers' Accounting for Employee Stock Ownership Plans," which will
require recognition of expense based upon shares committed to be released
and the exclusion of unallocated shares from earnings per share
computations. The valuation of shares committed to be released would be
based upon the average market value of the shares during the year, which,
for purposes of this calculation, was assumed to be equal to the $10.00 per
share Purchase Price. See "MANAGEMENT OF THE SAVINGS BANK -- Benefits --
Employee Stock Ownership Plan."
(4) Gives effect to the MRP expected to be adopted by the Holding Company
following the Conversion. If the MRP is approved by stockholders, the MRP
intends to acquire an amount of Common Stock equal to 4% of the shares of
Common Stock issued in the Conversion either through open market purchases
or from authorized but unissued shares of Common Stock. In calculating the
pro forma effect of the MRP, it is assumed that the required stockholder
approval has been received, that the shares were acquired by the MRP at the
beginning of the period presented in open market purchases at the Purchase
Price and that 20% of the amount contributed was an amortized expense during
such period. The issuance of authorized but unissued shares of the Common
Stock instead of open market purchases would dilute the voting and ownership
interests of existing stockholders by approximately 3.85% and pro forma net
income (loss) per share would be $(0.71), $(0.60), $(0.51) and $(0.43) at
the minimum, midpoint, maximum and 15% above the maximum of the Estimated
Valuation Range, respectively, for the three months ended March 31, 1997,
and $0.98, $0.87, $0.79 and $0.72 at the minimum, midpoint, maximum and 15%
above the maximum of the Estimated Valuation Range, respectively, for the
year ended December 31, 1996, and pro forma stockholders' equity per share
would be $15.77, $14.66, $13.84 and $13.14 at the minimum, midpoint, maximum
and 15% above the maximum of the Estimated Valuation Range, respectively, at
March 31, 1997 and $16.48, $15.27, $14.37 and $13.60 at the minimum,
midpoint, maximum and 15% above the maximum of the Estimated Valuation
Range, respectively, at December 31, 1996. Shares issued under the MRP vest
over a five-year period at 20% per year and, for purposes of this table,
compensation expense is recognized on a straight-line basis over each
vesting period. In the event the fair market value per share is greater
than $10.00 per share on the date of stockholder approval of the MRP, total
MRP expense would increase. No effect has been given to the shares reserved
for issuance under the proposed Stock Option Plan. If stockholders approve
the Stock Option Plan following the Conversion, the Holding Company will
have reserved for issuance under the Stock Option Plan authorized but
unissued shares of Common Stock representing an amount of shares equal to
10% of the shares sold in the Conversion. If all of the options were to be
exercised utilizing these authorized but unissued shares rather than
treasury shares which
16
<PAGE>
could be acquired, the voting and ownership interests of existing
stockholders would be diluted by approximately 9.09%. See "MANAGEMENT OF
THE SAVINGS BANK -- Benefits -- Stock Option Plan" and "-- Management
Recognition Plan" and "RISK FACTORS -- Possible Dilutive Effect of Benefit
Programs."
(5) Per share amounts are based upon shares outstanding of 485,894, 571,640,
657,386 and 755,994 at the minimum, midpoint, maximum and 15% above the
maximum of the Estimated Valuation Range, respectively, for the three months
ended March 31, 1997 and 489,056, 575,360, 661,664, and 760,914 at the
minimum, midpoint, maximum and 15% above the maximum of the Estimated
Valuation Range, respectively, for the year ended December 31, 1996, which
includes the shares of Common Stock sold in the Conversion less the number
of shares assumed to be held by the ESOP not committed to be released within
the first year following the Conversion.
(6) Historical per share amounts have been computed as if the shares of Common
Stock expected to be issued in the Conversion had been outstanding at the
beginning of the period or on the date shown, but without any adjustment of
historical net income or historical retained earnings to reflect the
investment of the estimated net proceeds of the sale of shares in the
Conversion, the additional ESOP expense or the proposed MRP expense, as
described above.
(7) "Book value" represents the difference between the stated amounts of the
Savings Bank's assets and liabilities. The amounts shown do not reflect the
liquidation account which will be established for the benefit of Eligible
Account Holders and Supplemental Eligible Account Holders in the Conversion,
or the federal income tax consequences of the restoration to income of the
Savings Bank's special bad debt reserves for income tax purposes which would
be required in the unlikely event of liquidation. See "THE CONVERSION --
Effects of Conversion to Stock Form on Depositors and Borrowers of the
Savings Bank" and "TAXATION." The amounts shown for book value do not
represent fair market values or amounts distributable to stockholders in the
unlikely event of liquidation.
(8) Per share amounts are based upon shares outstanding of 527,000, 620,000,
713,000 and 819,950 at the minimum, midpoint, maximum and 15% above the
maximum of the Estimated Valuation Range, respectively.
(9) Does not represent possible future price appreciation or depreciation of the
Common Stock.
(10) Annualized.
17
<PAGE>
SPRING HILL SAVINGS BANK, FSB
CONSOLIDATED STATEMENTS OF OPERATIONS
The following Consolidated Statements of Income of Spring Hill Savings Bank,
FSB and Subsidiary for the fiscal years ended December 31, 1996 and 1995 have
been audited by S.R. Snodgrass A.C., Wexford, Pennsylvania, independent
auditors, whose report thereon appears elsewhere in this Prospectus. These
statements should be read in conjunction with the Consolidated Financial
Statements and related Notes included elsewhere herein. The Consolidated
Statements of Income for the three months ended March 31, 1997 and 1996 are
unaudited but, in the opinion of management, reflect all adjustments consisting
only of normal recurring adjustments necessary for a fair presentation of the
results of such periods. The results for the three month period ended March 31,
1997 are not necessarily indicative of the results of the Savings Bank that may
be expected for the entire fiscal year.
<TABLE>
<CAPTION>
Three Months Ended
March 31, Year Ended December 31,
------------------------- -----------------------
1997 1996 1996 1995
---------- ---------- ---------- ----------
(unaudited)
<S> <C> <C> <C> <C>
Interest Income:
Loans receivable......... $1,169,828 $1,133,569 $4,526,633 $4,580,733
Interest-bearing
deposits with other
banks................... 39,406 31,836 102,592 103,487
Investment securities.... 30,768 56,044 162,043 189,362
Mortgage-backed
securities.............. 347,164 386,499 1,485,049 1,590,183
Dividends on Federal Home
Loan Bank stock......... 9,359 9,191 37,491 39,238
---------- ---------- ---------- ----------
Total interest and
dividend income....... 1,596,525 1,617,139 6,313,808 6,503,003
---------- ---------- ---------- ----------
Interest Expense:
Deposits................. 758,374 804,368 3,040,296 3,075,480
Advances by borrowers
for taxes
and insurance........... 3,164 3,764 13,080 15,514
Collaterized mortgage
obligation.............. 172,361 246,624 930,669 1,060,807
Borrowed funds........... 84,380 33,166 171,169 307,740
---------- ---------- ---------- ----------
Total interest expense.. 1,018,279 1,087,922 4,155,214 4,459,541
---------- ---------- ---------- ----------
Net interest income.... 578,246 529,217 2,158,594 2,043,462
Provision for loan losses.. 27,943 29,528 239,370 64,000
---------- ---------- ---------- ----------
Net interest income
after provision for
loan losses............ 550,303 499,689 1,919,224 1,979,462
---------- ---------- ---------- ----------
Non-interest Income:
Service fees............. 17,213 15,364 65,025 74,493
Net securities gains
(losses)................ 116,541 -- 902,488 (7,971)
Other income............. 14,609 13,045 56,706 56,677
---------- ---------- ---------- ----------
Total non-interest
income................ 148,363 28,409 1,024,219 123,199
---------- ---------- ---------- ----------
Non-interest Expense:
Compensation and
employee benefits....... 187,687 201,354 869,422 744,922
Occupancy and equipment.. 54,232 47,174 207,790 157,147
Federal insurance
premiums................ 10,143 42,806 577,941 173,172
Data processing.......... 27,832 24,180 89,092 91,713
Real estate operations,
net..................... 9,212 (12,443) 93,286 87,373
Other operating expenses. 125,320 122,035 481,921 505,570
---------- ---------- ---------- ----------
Total non-interest
expense............... 414,426 425,106 2,319,452 1,759,897
---------- ---------- ---------- ----------
Income before income
taxes and
extraordinary item...... 284,240 102,992 623,991 342,764
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended
March 31, Year Ended December 31,
------------------------- -----------------------
1997 1996 1996 1995
---------- ---------- ---------- ----------
(unaudited)
<S> <C> <C> <C> <C>
Income tax expense......... 109,104 42,843 231,247 111,703
---------- ---------- ---------- ----------
Income before
extraordinary item........ 175,136 60,149 392,744 231,061
Extraordinary item:
Loss on extinguishment of
debt, net of related income
taxes of $400,537.......... 562,525 -- -- --
---------- ---------- ---------- ----------
Net income (loss).......... $ (387,389) $ 60,149 $ 392,744 $ 231,061
========== ========== ========== ==========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
19
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
General
Management's discussion and analysis of financial condition and results of
operations is intended to assist in understanding the financial condition and
results of operations of the Savings Bank. The information contained in this
section should be read in conjunction with the Consolidated Financial Statements
and accompanying Notes thereto and the other sections contained in this
Prospectus.
The profitability of the Savings Bank's operations depends primarily on its
net interest income, which is the difference between the income the Savings Bank
receives on its loan and investment portfolio and its cost of funds, which
consists of interest paid on deposits and borrowings. Net interest income is a
function of the Savings Bank's interest rate spread, which is the difference
between the yield earned on interest-earning assets and the rate paid on
interest-bearing liabilities, as well as a function of the average balance of
interest-earning assets as compared to the average balance of interest-bearing
liabilities. The Savings Bank's net income is also affected by its level of
non-interest income and non-interest expenses. Non-interest income is comprised
of service fees, gain (loss) on the sale of securities and miscellaneous fees
and income. Non-interest expenses include compensation and employee benefits,
occupancy and equipment expenses, deposit insurance premiums, data processing
expenses, expenses associated with real estate operations, and other
miscellaneous operating costs.
Operating Strategy
The Savings Bank has been, and intends to continue to be, a community
oriented financial institution. The Savings Bank's goals include (i) serving
the borrowing and savings needs of the Savings Bank's communities, (ii)
maintaining strong asset quality, (iii) controlling the exposure of earnings to
fluctuations in interest rates, and (iv) maintaining a stable stream of earnings
to produce a competitive return on equity.
In the late 1980s, the Savings Bank suffered asset quality problems that
contributed to losses through 1992. In response, the Savings Bank temporarily
reduced its lending activities and devoted significant resources to resolving
its asset quality problems and reducing REO. Since 1993, the Savings Bank has
returned to, and maintained a competitive posture in, its residential and
consumer lending activities. These efforts, coupled with expense control,
allowed the Savings Bank to return to improved financial health. This is
reflected in the increase since 1992 in income before income taxes,
extraordinary items and cumulative effect of accounting changes. Despite these
improvements, the Savings Bank's operating performance has lagged behind
institutions of similar operations and size. This has partly been the result of
a CMO issued in 1987, which has had a material negative impact on operating
earnings. In March 1997, the Savings Bank extinguished a significant portion of
the remaining CMO through the repurchase of $4.8 million par value of the
remaining $7.4 million of bonds. With the recent extinguishment of much of this
debt, the Savings Bank anticipates that its earnings performance will improve.
See "BUSINESS OF THE SAVINGS BANK -- Deposit Activities and Other Sources of
Funds -- Borrowings."
Comparison of Financial Condition at March 31, 1997 and December 31, 1996
Total assets increased $1.1 million, or 1.4%, from $81.7 million at
December 31, 1996 to $82.8 million at March 31, 1997. Loans receivable
increased $479,000 from $54.8 million at December 31, 1996 to $55.3 million at
March 31, 1997 while investment securities held to maturity decreased $744,000.
A portion of these funds were invested in higher yielding loans. Cash and due
from banks and interest-bearing deposits with other banks increased by a total
of $928,000 as the Savings Bank kept available funds in short-term liquid
investments pending investment in loans.
Total liabilities increased $1.5 million, or 2.0%, from $76.8 million at
December 31, 1996 to $78.4 million at March 31, 1997. Deposits increased
$482,000 from $64.3 million to $64.8 million primarily as a result of interest
credited. The Savings Bank's CMO obligation decreased from $6.9 million at
December 31, 1996 to $2.5 million
20
<PAGE>
at March 31, 1997 primarily as a result of the repurchase of the class C CMO
bond. The repurchase was funded with advances from the FHLB. Primarily as a
result of the CMO repurchase, borrowed funds increased from $3.8 million at
December 31, 1996 to $9.3 million at March 31, 1997.
Total retained earnings decreased from $4.8 million at December 31, 1996 to
$4.4 million at March 31, 1997 as a result of the net loss incurred in the three
months ended March 31, 1997 primarily as a result of the CMO repurchase.
Comparison of Operating Results for the Three Months Ended March 31, 1997 and
1996
Net Income. The Savings Bank incurred a net loss for the three months
ended March 31, 1997 of $387,000, compared to net income of $60,000 for the same
period in 1996. The loss incurred in 1997 was the result of the Savings Bank
repurchasing from a third party the class C bond of the CMO issued by its
subsidiary. As a result of the transaction, the Savings Bank recorded an
extraordinary loss on the extinguishment of the class C bond amounting to
$562,000 (net of related income tax benefit of $401,000). Income for the three
months ended March 31, 1997 also reflected a gain of $121,000 from the
redemption of a CMO residual held by the Savings Bank. Without the repurchase
of the class C bond and the gain on the sale of the CMO residual, the Savings
Bank would have had net income of $91,000 for the three months ended March 31,
1997.
Net Interest Income. Net interest income increased by $49,000, or 9.3%,
from $529,000 for the three months ended March 31, 1996 to $578,000 for the same
period in 1997. This improvement resulted from an increase of 24 basis points
in the Savings Bank's interest rate spread from 2.40% in 1996 to 2.64% in 1997.
The Savings Bank's interest rate spread improved as the average rate paid on its
interest-bearing liabilities decreased more than the yield on its interest-
earning assets.
Interest Income. Total interest income decreased by $21,000, or 1.3%,
between the three months ended March 31, 1996 and the three months ended March
31, 1997. This slight decrease was the result of a $74,000 decrease in average
interest-earning assets coupled with a 10 basis point decline in the average
yield on interest-earning assets. In an effort to improve earnings, management
has been restructuring the Savings Bank's assets by reinvesting maturing
investments and principal repayments on mortgage-backed securities in higher
yielding assets such as loans. Interest income on loans increased $36,000
between the periods as the average balance of loans increased from $51.8 million
for the three months ended March 31, 1996 to $54.9 million for the three months
ended March 31, 1997. Most of the growth in the loan portfolio was in one- to
four-family residential mortgage loans. The average yield on loans receivable
declined 22 basis points from 8.75% for the three months ended March 31, 1996 to
8.53% for the three months ended March 31, 1997 as a result of decreases in
market interest rates. Interest income on investment and mortgage-backed
securities decreased a total of $64,000 between the periods primarily as the
result of smaller average balances.
Interest Expense. Total interest expense declined by $70,000, or 6.4%,
from $1.1 million for the three months ended March 31, 1996 to $1.0 million for
the three months ended March 31, 1997. This decline was the result of a
decrease of $358,000 in the average balance of interest-bearing liabilities and
a 34 basis point decrease in the average rate paid on interest-bearing
liabilities. In an effort to improve the Savings Bank's interest rate spread,
the Savings Bank extinguished the class C bond of the CMO on March 7, 1997
through the purchase of the bond from a third party for $4.9 million. To fund
this purchase, the Savings Bank borrowed $5.0 million from the FHLB at an
average rate of 6.53%, which was significantly lower than the cost of the
Savings Bank's CMO obligation. As a result of the repurchase of the class C
bond and the reduction in rates paid on FHLB advances, the total cost of the CMO
and borrowed funds decreased $24,000 between the periods. Total interest paid
on deposits decreased $46,000 between the periods primarily as a result of a
smaller average balance of time certificates of deposits in 1997 and a decrease
in the average rate paid on these deposits.
Provision for Loan Losses. Provisions for loan losses are charged to
operations to bring the total allowance for loan losses to a level considered by
management to be adequate to provide for estimated losses based on management's
evaluation of individual loans, economic factors, past loan loss experience,
changes in the composition
21
<PAGE>
and volume of the portfolio, and other relevant factors. The Savings Bank's
provision for loan losses remained relatively constant for the three month
periods ended March 31, 1997 and 1996.
The Savings Bank's allowance for loan losses was $420,000, or 0.8% of total
loans receivable, at March 31, 1997, compared to $295,000, or 0.6% of total
loans receivable, at March 31, 1996. Net loan charge-offs during the three
months ended March 31, 1997 were $23,000 compared to $10,000 during the same
period in 1996. Although management uses the best information available, future
adjustments to the allowance may be necessary due to changes in economic,
operating, regulatory and other conditions that may be beyond the Savings Bank's
control. While the Savings Bank maintains its allowance for loan losses at a
level which it considers to be adequate to provide for estimated future losses,
there can be no assurance that further additions will not be made to the
allowance for loan losses and that actual losses will not exceed the estimated
amounts.
Non-interest Income. Noninterest income increased by $120,000 almost
entirely as a result of gains associated with the redemption of a CMO residual
investment owned by the Savings Bank. During the time these securities were
held, the Savings Bank was required to estimate future cash flows for the
purpose of assessing the appropriate carrying value. Based on these estimates,
the Savings Bank incurred charges from time to time to write down these
securities to the present value of estimated future cash flows. In March 1997,
the Savings Bank collected cash payments from the sale of collateral held in
trust in which the Savings Bank had a residual interest. These proceeds
totalled $121,000, which was recorded as a gain on the sale of securities. See
Note 3 of the Notes to the Consolidated Financial Statements.
Non-interest Expense. Total noninterest expense declined by $11,000 to
$414,000 in 1997 compared to $425,000 in 1996. The decrease was primarily the
result of decreases in salaries and employee benefits of $14,000 and in federal
insurance premiums of $33,000, offset by an increase in real estate operations
of $22,000.
Salaries and employee benefits decreased by $14,000, or 6.8%. This decline
reflected an increase in deferred loan origination costs of $8,000, resulting
from higher levels of loan originations, and reduction in pension expense of
$6,000. Normal salary increases were offset by a temporary reduction of full
time equivalent employees.
Federal insurance premiums declined by $33,000 as a result of the decrease
in the Savings Bank's assessment rate. Following the recapitalization of the
SAIF in the fourth quarter of 1996, the FDIC reduced deposit insurance premiums.
As a result, the Savings Bank's deposit insurance assessment rate decreased from
0.23% of deposits to 0.0648% of deposits beginning January 1, 1997.
Expenses for real estate operations (i.e., costs associated with
maintaining and selling real estate owned) increased $22,000 between the
periods. The Savings Bank recognized gains on the sale of real estate owned
amounting to $22,000 for the three months ended March 31, 1996, whereas there
were no such gains during the same period in 1997.
Income Taxes. Federal income tax expense increased $66,000 to $109,000 in
1997, as a result of higher levels of pre-tax income.
Extraordinary Charge. Net income during the three months ended March 31,
1997 was adversely affected by a $963,000 charge ($562,000 net of related income
tax benefit) taken in connection with the extinguishment of the class C CMO
bond. Of this charge, $727,000 was for accelerated recognition of the remaining
unamortized original issue discount, $107,000 was for the accelerated
recognition of deferred debt issuance costs and $129,000 was the premium paid to
repurchase the bond. See Note 20 of the Notes to the Consolidated Financial
Statements for further discussion.
Comparison of Operating Results for the Years Ended December 31, 1996 and 1995
Net Income. The Savings Bank recorded net income for the year ended
December 31, 1996 of $393,000 compared to net income of $231,000 for 1995. The
increase in net income was the result of higher levels of net
22
<PAGE>
interest income of $116,000 and net gains recognized on the sale or redemption
of securities of $902,000, partly offset by an increased provision for loan
losses of $175,000, increased salaries and benefits of $125,000, the one-time
special assessment to recapitalize the SAIF of $414,000, and increased income
tax expense of $120,000.
Net Interest Income. Net interest income increased by $116,000, or 5.7%,
from $2.0 million for the year ended December 31, 1995 to $2.2 million for 1996.
This increase resulted from an increase in the Savings Bank's interest rate
spread of 17 basis points from 2.32% in 1995 to 2.49% in 1996, and an increase
in the ratio of average interest-earning assets to average interest-bearing
liabilities.
Interest Income. Total interest income decreased by $189,000, or 2.9%,
from $6.5 million in 1995 to $6.3 million in 1996. The decrease was the result
of a decline of $2.3 million in average interest-earning assets. Interest
income on loans decreased $54,000 from 1995 to 1996 as a result of a slightly
smaller average balance of loans in 1996. Interest income on investment and
mortgage-backed securities decreased a total $132,000 from 1995 to 1996
primarily as a result of smaller average balances.
Interest Expense. Total interest expense decreased by $305,000, or 6.8%
from $4.5 million for 1995 to $4.2 million for 1996. This decrease was the
result of a combined reduction of $3.2 million in the average balance of the CMO
and borrowed funds and a 17 basis point decline in the average rate paid on
interest-bearing liabilities. As a result of excess liquidity, the Savings Bank
reduced its average borrowed funds in 1996 by $1.8 million using funds available
from maturing investments and mortgage-backed securities repayments. The
reduction of $1.4 million in the average CMO obligation of the Savings Bank was
a function of cash receipts on the underlying mortgage-backed securities during
the period. Interest paid on deposits decreased by a total of $38,000 from 1995
to 1996 as a decrease in the average rate paid offset a small increase in the
average balance of deposits. The decline in the Savings Bank's cost of funds
was the result of changes in market interest rates. The majority of the change
related to time certificates of deposit and borrowed funds. During 1996, the
Savings Bank had a significant volume of three and five year time certificates
of deposits mature and reprice at the current market rates which were below
those paid on the maturing deposits. Borrowed funds are comprised of short and
long term borrowings with the FHLB. Throughout 1995 and 1996 higher rate FHLB
borrowing were repaid at maturity so that the weighted average rate declined 53
basis points between the periods.
Provision for Loan Losses. The Savings Bank's provision for loan losses
increased by $175,000 from $64,000 in 1995 to $239,000 in 1996. The increase
reflected management's decision to increase the allowance for loan losses due to
increased charge-offs in 1996 and management's reassessment of the loan
portfolio. Total loans at December 31, 1996 totaled $55.6 million compared to
$52.9 million at December 31, 1995. The allowance for loan losses was 0.75% of
total loans at December 31, 1996 and 0.52% of total loans at December 31, 1995.
Non-interest Income. Noninterest income increased by $901,000 as a result
of gains associated on the sale and redemption of CMO residuals owned by the
Savings Bank. During the time these securities were held, the Savings Bank was
required to estimate future cash flows for the purpose of assessing the
appropriate carrying value. Based on these estimates, over time the Savings
Bank incurred charges to write down the securities to the present value of
estimated future cash flows. During 1996, the Savings Bank sold two of these
residual investments and two additional ones were redeemed, resulting in total
gains of $902,000. See Note 3 of the Notes to the Consolidated Financial
Statements.
Non-interest Expense. Total noninterest expense increased $560,000 in
1996 compared to 1995. This increase was comprised of increases in salaries and
benefits amounting to $125,000, occupancy expense of $51,000 and federal deposit
insurance of $405,000.
The increase in salaries and benefits was primarily the result of larger
bonus payments, a profit sharing contribution and, to a lesser extent, normal
salary adjustments.
23
<PAGE>
Occupancy and equipment expense increased by $51,000 as a result of
increased depreciation associated with the renovation of the Spring Hill office,
leasehold improvements at the North Shore office and equipment upgrades.
Federal insurance premiums increased by $405,000 due to the SAIF special
assessment of $414,000 which was recognized by the Savings Bank in the third
quarter of 1996. Pursuant to legislation passed on September 30, 1996, the FDIC
imposed a special assessment on SAIF members to capitalize the SAIF to the
designated reserve level of 1.25% as of October 1, 1996.
Income Taxes. Federal income tax expense increased $120,000 to $231,000 in
1996, from $112,000 in 1995. The increase in tax expense is principally the
result of higher levels of pre-tax income in 1996.
Average Balances, Interest and Average Yields/Cost
The following table sets forth certain information for the periods
indicated regarding average balances of assets and liabilities as well as the
total dollar amounts of interest income from average interest-earning assets and
interest expense on average interest-bearing liabilities and average yields and
costs. Such yields and costs for the periods indicated are derived by dividing
income or expense by the average monthly balance of assets or liabilities,
respectively, for the periods presented.
24
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended March 31,
---------------------------------------------------------------
1997 1996
------------------------------ ----------------------------
Interest Average Interest Average
Average and Yield/ Average and Yield/
Balance Dividends Cost(1) Balance Dividends Cost(1)
------- --------- ------- ------- --------- -------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable(2)................ $54,859 $1,170 8.53% $51,828 $1,134 8.75%
Investment securities.............. 1,860 31 6.67 3,460 56 6.47
Mortgage-backed securities......... 20,132 347 6.89 22,223 386 6.95
Other interest-earning assets...... 3,618 48 5.31 3,032 41 5.41
------- --------- ------- ------- --------- ------
Total interest-earning
assets.......................... 80,469 1,596 7.93 80,543 1,617 8.03
--------- ---------
Non-interest-earning
assets............................. 1,917 2,128
------- -------
Total assets..................... $82,386 $82,671
======= =======
Interest-earning liabilities:
NOW and money market accounts...... $10,133 69 2.72 $ 9,246 61 2.64
Savings accounts................... 12,751 98 3.07 13,435 105 3.13
Time certificates of deposit....... 42,947 595 5.54 44,676 642 5.75
Collateralized mortgage obligation. 5,875 172 11.71 8,151 247 12.12
Borrowed funds..................... 5,221 84 6.44 1,777 33 7.43
------- --------- ------- ------- --------- ------
Total interest-bearing
liabilities..................... 76,927 1,018 5.29 77,285 1,088 5.63
------- --------- -------
Non-interest-bearing
liabilities........................ 668 912
------- -------
Total liabilities................ 77,595 78,197
------- -------
Total equity........................ 4,791 4,474
------- -------
Total liabilities and
total equity.................... $82,386 $82,671
======= =======
Net interest income................. $578 $529
========= =========
Interest rate spread................ 2.64% 2.40%
Net interest margin................. 2.87% 2.63%
Ratio of average interest-earning
assets to average interest-
bearing liabilities................ 104.60% 104.22%
<CAPTION>
Year Ended December 31,
---------------------------------------------------------------
1996 1995
------------------------------ ----------------------------
Interest Average Interest Average
Average and Yield/ Average and Yield/
Balance Dividends Cost Balance Dividends Cost
------- --------- ------- ------- --------- -------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable(2)................ $53,215 $4,527 8.51% $53,925 $4,581 8.50%
Investment securities.............. 2,628 162 6.16 3,220 189 5.87
Mortgage-backed securities......... 20,883 1,485 7.11 21,950 1,590 7.24
Other interest-earning assets...... 2,340 140 5.98 2,286 143 6.26
------- --------- ------ ------- --------- ------
Total interest-earning
assets.......................... 79,066 6,314 7.99 81,381 6,503 7.99
--------- ---------
Non-interest-earning
assets............................. 1,907 2,492
------- -------
Total assets..................... $80,973 $83,873
======= =======
Interest-earning liabilities:
NOW and money market accounts...... $ 9,480 258 2.72 $ 9,145 241 2.64
Savings accounts................... 13,334 416 3.12 14,139 439 3.10
Time certificates of deposit....... 42,515 2,379 5.60 41,985 2,411 5.74
Collateralized mortgage obligation. 7,565 931 12.31 8,968 1,061 11.83
Borrowed funds..................... 2,629 171 6.50 4,382 308 7.03
------- --------- ------ ------- --------- ------
Total interest-bearing
liabilities..................... 75,523 4,155 5.50 78,619 4,460 5.67
------- --------- ------ ------- --------- ------
Non-interest-bearing
liabilities........................ 849 906
------- -------
Total liabilities................ 76,372 79,525
------- -------
Total equity........................ 4,601 4,348
------- -------
Total liabilities and
total equity.................... $80,973 $83,873
======= =======
Net interest income................. $2,159 $2,043
========= =========
Interest rate spread................ 2.49% 2.32%
Net interest margin................. 2.73% 2.51%
Ratio of average interest-earning
assets to average interest-
bearing liabilities................ 104.69% 103.51%
</TABLE>
- -------------------------
(1) Yields and ratios for the three-month periods are annualized.
(2) Average balances include non-accrual loans.
25
<PAGE>
Yields Earned and Rates Paid
The following table sets forth (on a consolidated basis) for the periods
and at the date indicated the weighted average yields earned on the Savings
Bank's assets and the weighted average interest rates paid on the Savings Bank's
liabilities, together with the net yield on interest-earning assets. Amounts
for the three month periods are annualized.
<TABLE>
<CAPTION>
Three Months Ended Year Ended
March 31, December 31,
At March 31, ---------------- ------------
1997 1997 1996 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Weighted average yield
earned on:
Loans receivable........ 8.55% 8.53% 8.75% 8.51% 8.50%
Investment securities... 6.69 6.67 6.47 6.16 5.87
Mortgage-backed
securities............. 7.15 6.89 6.95 7.11 7.24
Other interest-earning
assets................. 5.63 5.31 5.41 5.98 6.26
Total interest-earning
assets................. 8.05 7.93 8.03 7.99 7.99
Weighted average rate paid
on:
NOW and money market
accounts............... 2.94 2.72 2.64 2.72 2.64
Savings accounts........ 3.14 3.07 3.13 3.12 3.10
Time certificates of
deposit................ 5.63 5.54 5.75 5.60 5.74
Collateralized mortgage
obligation............. 11.60 11.71 12.12 12.31 11.83
Borrowed funds.......... 6.47 6.44 7.43 6.50 7.03
Total interest-bearing
liabilities............ 5.20 5.29 5.63 5.50 5.67
Interest rate spread
(spread between
weighted average yield
earned on all
interest-earning assets
and weighted
average rate paid on
all interest-
bearing liabilities).... 2.85 2.64 2.40 2.49 2.32
Net interest margin (net
interest income
as a percentage of
average
interest-earning assets) -- 2.87 2.63 2.73 2.51
</TABLE>
26
<PAGE>
Rate/Volume Analysis
The following table sets forth the effects of changing rates and volumes on
the interest income and interest expense of the Savings Bank. Information is
provided with respect to: (i) effects attributable to changes in rate (changes
in rate multiplied by prior volume); (ii) effects attributable to changes in
volume (changes in volume multiplied by prior rate); and (iii) effects
attributable to changes in rate/volume (changes in rate multiplied by changes in
volume).
<TABLE>
<CAPTION>
Three Months Ended March 31, Year Ended December 31,
1997 Compared to March 31, 1996 1996 Compared to December 31, 1995
Increase (Decrease) Increase (Decrease)
Due to Due to
------------------------------------- --------------------------------------
Rate/ Rate/
Volume Rate Volume Net Volume Rate Volume Net
-------- --------- --------- ----- -------- -------- --------- -------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable............... $ 66 $(29) $(1) $ 36 $ (60) $ 5 $ 1 $ (54)
Investment securities.......... (26) 2 (1) (25) (35) 9 (1) (27)
Mortgage-backed securities..... (36) (3) -- (39) (77) (29) 1 (105)
Other interest-earning assets.. 8 (1) -- 7 3 (6) -- (3)
---- ---- --- ---- ----- ---- --- -----
Total interest-earning assets... 12 (31) (2) (21) (169) (21) 1 (189)
---- ---- --- ---- ----- ---- --- -----
Interest Expense:
NOW and money
market accounts............... 6 2 -- 8 9 7 1 17
Savings accounts............... (5) (2) -- (7) (25) 3 (1) (23)
Certificates of deposit........ (25) (23) 1 (47) 30 (59) (3) (32)
Collateralized mortgage
obligation.................... (69) (8) 2 (75) (166) 43 (7) (130)
Borrowed funds................. 64 (4) (9) 51 (123) (23) 9 (137)
---- ---- --- ---- ----- ---- --- -----
Total interest-bearing
liabilities.................... (29) (35) (6) (70) (275) (29) (1) (305)
---- ---- --- ---- ----- ---- --- -----
Net change in net interest
income........................ $ 41 $ 4 $ 4 $ 49 $ 106 $ 8 $ 2 $ 116
==== ==== === ==== ===== ==== === =====
</TABLE>
Asset and Liability Management
The Savings Bank's principal financial objective is to achieve long-term
profitability while reducing its exposure to fluctuating interest rates. The
Savings Bank has sought to reduce exposure of its earnings to changes in market
interest rates by attempting to manage the mismatch between asset and liability
maturities and interest rates. The principal objective of the Savings Bank's
interest rate risk management is to evaluate the interest rate risk included in
certain balance sheet accounts, determine the level of risk appropriate given
the Savings Bank's business strategy, operating environment, capital and
liquidity requirements and performance objectives and manage the risk consistent
with Board of Directors' approved guidelines. Through such management, the
Savings Bank seeks to limit the vulnerability of its operations to changes in
interest rates. The Savings Bank's management meets at least quarterly to review
the Savings Bank's asset/liability policies and interest rate risk position.
In recent years, the Savings Bank has primarily utilized the following
strategies to manage interest rate risk: (i) shortening the life of its fixed-
rate loan portfolio by offering fixed-rate loans with terms to maturity of no
more
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<PAGE>
than 20 years on owner-occupied residential properties and 15 years on
investment properties, (ii) offering adjustable-rate loans on investment
properties, (iii) emphasizing adjustable-rate investment and shorter term
mortgage-backed securities, and (iv) extending the life of its liabilities by
emphasizing longer term certificates of deposit during periods of low market
interest rates and utilizing longer term borrowings.
Using data from the Savings Bank's quarterly reports to the OTS, the
Savings Bank receives a report which measures interest rate risk by modeling the
change in Net Portfolio Value ("NPV") over a variety of interest rate scenarios.
This procedure for measuring interest rate risk was developed by the OTS to
replace the "gap" analysis (the difference between interest-earning assets and
interest-bearing liabilities that mature or reprice within a specific time
period). NPV is the difference in the present value of expected cash flows from
assets, liabilities and off-balance sheet contracts. The calculation is intended
to illustrate the change in NPV that will occur in the event of an immediate
change in interest rates of at least 200 basis points with no effect given to
any steps that management might take to counter the effect of that interest rate
movement. Under OTS regulations, an institution with a greater than "normal"
level of interest rate risk is subject to a deduction from total capital for
purposes of calculating its risk-based capital. However, the OTS has postponed
the implementation of the capital adjustment portion of this regulation. An
institution with a "normal" level of interest rate risk is defined as one whose
"measured interest rate risk" is less than 2.0%. Institutions with assets of
less than $300 million and a risk-based capital ratio of more than 12.0% are
exempt. Assuming this proposed rule was in effect at March 31, 1997 and that it
applied to the Savings Bank, the Savings Bank's level of interest rate risk
would have caused it to be treated as an institution with greater than "normal"
interest rate risk.
The following table is provided by the OTS and illustrates the change in
NPV at March 31, 1997, based on OTS assumptions, that would occur in the event
of an immediate change in interest rates, with no effect given to any steps that
management might take to counter the effect of that interest rate movement.
<TABLE>
<CAPTION>
Net Portfolio as % of
Net Portfolio Value Portfolio Value of Assets
-------------------------- --------------------------------
Basis Point ("bp")
Change in Rates $ Amount $ Change(1) % Change NPV Ratio(2) Change(bp)(3)
- ------------------------- -------- ----------- --------- ------------ -----------
<S> <C> <C> <C> <C> <C>
(Dollars in Thousands)
400 $2,524 $(4,267) (63)% 3.28% (477) bp
300 3,645 (3,146) (46) 4.62 (342)
200 4,798 (1,993) (29) 5.94 (211)
100 5,884 (907) (13) 7.12 (93)
0 6,791 -- -- 8.05 --
(100) 7,279 488 7 8.49 44
(200) 7,094 303 4 8.21 16
(300) 6,733 (58) (1) 7.74 (31)
(400) 6,601 (190) (3) 7.52 (53)
</TABLE>
- --------------------
(1) Represents the increase (decrease) of the estimated NPV at the indicated
change in interest rates compared to the NPV assuming no change in interest
rates.
(2) Calculated as the estimated NPV divided by the portfolio value of total
assets ("PV").
(3) Calculated as the increase (decrease) of the NPV ratio assuming the
indicated change in interest rates over the estimated NPV ratio assuming no
change in interest rates.
The following table is provided by the OTS and is based on the calculations
in the above table. At March 31, 1997, the change in NPV as a percentage of
portfolio value of total assets is negative 2.36%, which is greater than
negative 2.0%, indicating that the Savings Bank has a greater than "normal"
level of interest rate risk.
28
<PAGE>
<TABLE>
<CAPTION>
At At At
March 31, December 31, March 31,
1997 1996 1996
---------- ------------- ----------
<S> <C> <C> <C>
RISK MEASURES: 200 BP RATE SHOCK:
Pre-Shock NPV Ratio: NPV as % of PV of Assets................ 8.05% 7.51% 6.64%
Exposure Measure: Post-Shock NPV Ratio....................... 5.94% 6.14% 5.22%
Sensitivity Measure: Change in NPV Ratio..................... (211) bp (137) bp (142) bp
Change in NPV as a % of PV of Assets.......................... (2.36)% (1.61)% (1.60)%
</TABLE>
As with any method of measuring interest rate risk, certain shortcomings
are inherent in the method of analysis presented in the foregoing tables. For
example, although certain assets and liabilities may have similar maturities or
periods to repricing, they may react in different degrees to changes in market
interest rates. Also, the interest rates on certain types of assets and
liabilities may fluctuate in advance of changes in market interest rates, while
interest rates on other types may lag behind changes in market rates.
Additionally, certain assets, such as ARM loans, have features which restrict
changes in interest rates on a short-term basis and over the life of the asset.
Further, in the event of a change in interest rates, expected rates of
prepayments on loans and early withdrawals from certificates could likely
deviate significantly from those assumed in calculating the table.
Liquidity and Capital Resources
The Savings Bank's primary sources of funds are customer deposits, proceeds
from principal and interest payments on loans, proceeds from maturities, sales
and repayments of investment and mortgage-backed securities and FHLB advances.
While maturities and scheduled amortization of loans are a predictable source of
funds, deposit flows and mortgage prepayments are greatly influenced by general
interest rates, economic conditions and competition.
The Savings Bank must maintain an adequate level of liquidity to ensure the
availability of sufficient funds to support loan growth and deposit withdrawals,
to satisfy financial commitments and to take advantage of investment
opportunities. The Savings Bank generally maintains sufficient cash and short-
term investments to meet short-term liquidity needs. At March 31, 1997, cash and
deposits with other banks totalled $3.0 million, or 3.7% of total assets, and
investment and mortgage-backed securities that matured in one year or less
totalled $719,000, or 0.9% of total assets. Investment and mortgage-backed
securities available for sale totalled $3.1 million at March 31, 1997. In
addition, the Savings Bank maintains a credit facility with the FHLB-Pittsburgh,
which provides for immediately available advances. Advances under this credit
facility totalled $9.3 million at March 31, 1997.
The OTS requires a savings institution to maintain an average daily balance
of liquid assets (cash and eligible investments) equal to at least 5.0% of the
average daily balance of its net withdrawable deposits and short-term
borrowings. In addition, short-term liquid assets currently must constitute 1.0%
of the sum of net withdrawable deposit accounts plus short-term borrowings. The
Savings Bank's actual long- and short-term liquidity ratios at March 31, 1997
were 10.9% and 6.2%, respectively.
The primary investing activity of the Savings Bank is the origination of
mortgage loans. During the three months ended March 31, 1997 and the years ended
December 31, 1996 and 1995, the Savings Bank originated loans in the amounts of
$2.9 million, $11.7 million, and $6.6 million, respectively. At March 31, 1997,
the Savings Bank had loan commitments totalling $1.1 million and undisbursed
loans in process totalling $390,000. The Savings Bank anticipates that it will
have sufficient funds available to meet its current loan origination
commitments. Time certificates of deposit that are scheduled to mature in less
than one year from March 31, 1997 totalled $26.2 million. Management of the
Savings Bank believes that it can adjust the offering rates of deposits to
retain deposits in changing interest rate environments.
29
<PAGE>
The Savings Bank is required to maintain specific amounts of capital
pursuant to OTS requirements. As of March 31, 1997, the Savings Bank was in
compliance with all regulatory capital requirements which were effective as of
such date with tangible, core and risk-based capital ratios of 5.4%, 5.4% and
12.5%, respectively. For a detailed discussion of regulatory capital
requirements, see "REGULATION -- Federal Regulation of Savings Associations --
Capital Requirements." See also "HISTORICAL AND PRO FORMA CAPITAL COMPLIANCE."
Impact of New Accounting Standards
Accounting for Stock-Based Compensation. In October 1995, the FASB issued
SFAS No. 123, "Accounting for Stock-Based Compensation," establishing financial
accounting and reporting standards for stock-based employee compensation plans.
This statement encourages all entities to adopt a new method of accounting to
measure compensation cost of all employee stock compensation plans based on the
estimated fair value of the award at the date it is granted. The accounting
requirements of this statement are effective for transactions entered into in
fiscal years that begin after December 15, 1995; however, companies are required
to disclose information for awards granted in their first fiscal year beginning
after December 15, 1994. Management of the Savings Bank has not completed an
analysis of the potential effects of this statement on its financial condition
or results of operations.
Accounting for Transfers and Servicing of Financial Assets and
Extinguishment of Liabilities. In June 1996, the FASB issued SFAS No. 125,
"Accounting for Transfers and Servicing of Financial Assets and Extinguishment
of Liabilities," which provides accounting and reporting standards for transfers
and servicing of financial assets and extinguishment of liabilities. This
statement applies prospectively in fiscal years beginning after December 31,
1996, and establishes new standards that focus on control whereas, after a
transfer of financial assets, an entity recognizes the financial and servicing
assets it controls and the liabilities it has incurred, derecognizes financial
assets when control has been surrendered, and derecognizes liabilities when
extinguished. The Savings Bank does not expect adoption of SFAS No. 125 to have
a material impact on the Savings Bank's results of operations or financial
position.
Deferral of the Effective Date of Certain Provisions of SFAS No. 125. In
December 1996, the FASB issued SFAS No. 127, "Deferral of the Effective Date of
Certain Provisions of FASB Statement No. 125." SFAS No. 127 defers for one year
the effective date of portions of SFAS No. 125 that address secured borrowings
and collateral for all transactions. Additionally, SFAS No. 127 defers for one
year the effective date of transfers of financial assets that are part of
repurchase agreements, securities lending and similar transactions. The Savings
Bank does not expect adoption of SFAS No. 127 to have a material impact on the
Savings Bank's results of operations or financial position.
Earnings Per Share. SFAS No. 128, "Earnings Per Share," standardizes the
international calculation for earnings per share and requires companies with
complex capital structures that have publicly held common stock or potential
common stock to present both basic and diluted earnings per share on the face of
the income statement. SFAS No. 128 becomes effective for periods ending after
December 31, 1997. The Savings Bank does not expect adoption of SFAS No. 128 to
have a material impact on the Savings Bank's results of operations or financial
position.
Effect of Inflation and Changing Prices
The consolidated financial statements and related financial data presented
herein have been prepared in accordance with GAAP, which require the measurement
of financial position and operating results in terms of historical dollars
without considering the change in the relative purchasing power of money over
time due to inflation. The primary impact of inflation is reflected in the
increased cost of the Savings Bank's operations. Unlike most industrial
companies, virtually all the assets and liabilities of a financial institution
are monetary in nature. As a result, interest rates generally have a more
significant impact on a financial institution's performance than do general
levels of inflation. Interest rates do not necessarily move in the same
direction or to the same extent as the prices of goods and services.
30
<PAGE>
BUSINESS OF THE HOLDING COMPANY
General
The Holding Company was organized as a Pennsylvania business corporation at
the direction of the Savings Bank in June 1997 for the purpose of becoming a
holding company for the Savings Bank upon completion of the Conversion. Upon
completion of the Conversion, the Savings Bank will be a wholly-owned subsidiary
of the Holding Company.
Business
Prior to the Conversion, the Holding Company has not and will not engage in
any significant operations. Upon completion of the Conversion, the Holding
Company's sole business activity will be the ownership of the stock of the
Savings Bank and investment of the net proceeds of the Offerings retained by it.
In the future, the Holding Company may acquire or organize other operating
subsidiaries, although there are no current plans, arrangements, agreements or
understandings, written or oral, to do so.
Initially, the Holding Company will neither own nor lease any property but
will instead use the premises, equipment and furniture of the Savings Bank with
the payment of appropriate rental fees, as required by applicable law.
Since the Holding Company will only hold the capital stock of the Savings
Bank, the competitive conditions applicable to the Holding Company will be the
same as those currently confronting the Savings Bank. See "BUSINESS OF The
Savings Bank -- Competition."
BUSINESS OF THE SAVINGS BANK
General
The Savings Bank is a community oriented financial institution that engages
primarily in the business of attracting deposits from the general public in the
areas surrounding its branch offices and using those funds, together with funds
generated from operations and borrowings, to originate one- to four-family
residential mortgage loans within the Savings Bank's primary market area,
including in recent years an increased emphasis on loans secured by investor
owned one- to four-family properties. To a lesser extent, the Savings Bank also
originates multi-family, construction, commercial real estate and consumer
loans. The Savings Bank generally retains for its portfolio all of the loans
that it originates. To complement its loan portfolio and to assist in
asset/liability management, the Savings Bank maintains a portfolio of investment
and mortgage-backed securities.
Market Area
The Savings Bank is headquartered in Pittsburgh, Pennsylvania and operates
three full-service offices in the city of Pittsburgh. Most of the Savings Bank's
depositors reside in the communities surrounding the Savings Bank's offices and
most of the Savings Bank's loans are made to borrowers residing in Allegheny
County.
Several large industrial firms are headquartered in the Pittsburgh area
including USX Corp., Westinghouse Electric Corp. and Aluminum Company of
America. The largest employers in the Pittsburgh area also include USAirways,
the University of Pittsburgh and the Mellon Bank Corporation. In addition, seven
colleges and universities are also located in the Pittsburgh area. The economy
in the Pittsburgh area experienced a significant restructuring during the early
1980s from a heavy manufacturing and industrial base (notably steel) to a more
diversified, service-oriented economy. During this period, many of the area's
industrial plants reduced their
31
<PAGE>
operations and staff or were closed. Although the economy in the Pittsburgh
area has improved in recent periods, there can be no assurance that the economy
will continue to improve.
The Savings Bank faces competition from many financial institutions for
deposits and loan originations. See "-- Competition" and "RISK FACTORS --
Competition Within Market Area."
Lending Activities
General. At March 31, 1997, the Savings Bank's total loans receivable
amounted to $56.0 million, or 67.6% of total assets. The principal lending
activity of the Savings Bank is the origination of conventional mortgage loans
for the purpose of purchasing or refinancing one- to four-family residential
property. At March 31, 1997, $42.6 million, or 76.2%, of the Savings Bank's
total loan portfolio consisted of loans secured by one- to four-family
residential real estate. To a lesser extent, the Savings Bank also originates
multi-family real estate, construction, commercial real estate and consumer
loans. Historically, the Savings Bank's lending activities have been
concentrated in its primary market of Allegheny County, Pennsylvania.
Loan Portfolio Analysis. The following table sets forth the composition of
the Savings Bank's loan portfolio by type of loan at the dates indicated. The
Savings Bank had no concentration of loans exceeding 10% of total gross loans
other than as disclosed below.
<TABLE>
<CAPTION>
At December 31,
At March 31, ------------------------------------
1997 1996 1995
------------------- ---------------- ----------------
Amount Percent Amount Percent Amount Percent
------ ------- ------ ------- ------ -------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Mortgage loans:
One- to four-family (1)...... $42,654 76.16% $41,767 75.10% $39,475 74.63%
Multi-family................. 5,792 10.34 5,677 10.21 5,380 10.17
Construction................. 1,687 3.01 1,727 3.10 1,384 2.62
Commercial real estate....... 2,925 5.22 3,296 5.93 3,191 6.03
------- ------ ------- ------ ------- ------
Total mortgage loans....... 53,058 94.73 52,467 94.34 49,430 93.45
Consumer loans:
Mobile home.................. 2,297 4.10 2,454 4.41 3,161 5.98
Other........................ 568 1.02 611 1.10 167 0.31
------- ------ ------- ------ ------- ------
Total consumer loans....... 2,865 5.12 3,065 5.51 3,328 6.29
Commercial loans.............. 86 0.15 86 0.15 136 0.26
------- ------ ------- ------ ------- ------
Total loans................ 56,009 100.00% 55,618 100.00% 52,894 100.00%
------- ====== ------- ====== ------- ======
Less:
Undisbursed portion of loans.. 390 509 322
Deferred premiums............. (12) (11) (13)
Deferred loan origination
costs, net................... (57) (84) (217)
Allowance for loan losses..... 420 415 276
------- ------- -------
Loans receivable, net...... $55,268 $54,789 $52,526
======= ======= =======
</TABLE>
- ------------------
(1) Includes $1.2 million, $1.2 million and $1.0 million at March 31, 1997 and
December 31, 1996 and 1995, respectively, of home equity loans where the
combined loan-to-value ratio of loans secured by the borrowers residence is
less than 80%.
32
<PAGE>
One- to Four-Family Residential Real Estate Lending. The principal lending
activity of the Savings Bank is the origination of mortgage loans to enable
borrowers to purchase existing one- to four-family residential real estate. At
March 31, 1997, $42.6 million, or 76.2%, of the Savings Bank's total loan
portfolio consisted of loans secured by one- to four-family residential real
estate. Substantially all of the Savings Bank's residential mortgage loans are
secured by property located in the Savings Bank's primary market area. The
Savings Bank generally retains for its portfolio all of the loans that it
originates. As a result, the Savings Bank believes it is better able to vary
the terms of its loan products to meet the needs of its customers.
The Savings Bank's primary product is owner-occupied, fixed-rate mortgage
loans. The Savings Bank's fixed-rate loans generally have maturities ranging
from ten to 20 years. In late 1994, the Savings Bank began originating ten- and
15-year balloon loans with a 30-year amortization schedule. These loans
currently account for a majority of the Savings Bank's originations of one- to
four-family loans. Generally, the Savings Bank originates all fixed-rate loans
under terms, conditions and documentation that would permit them to be sold in
the secondary market to United States government sponsored agencies, although
the Savings Bank has not sold any loans in recent years.
From 1992 through 1995, the Savings Bank originated residential mortgage
loans that repriced once during the loan term at the end of the third year. The
interest rate adjustment on these loans is based on the index value of the
Federal National Mortgage Association ("FNMA") net yield on 30-year fixed-rate
mortgage loans plus a margin. The amount of any interest rate increase is
limited to 2.00%. At March 31, 1997, the Savings Bank had $1.5 million of these
loans that will reprice within 13 months. The balance of these loans have
already repriced. The Savings Bank discontinued this product in 1995. The
Savings Bank does not currently offer ARM loans secured by owner-occupied real
estate. From 1983 to 1989, the Savings Bank originated such loans based on the
One Year U.S. Treasury Note Constant Maturity Rate and a portion of these loans
remain in the portfolio.
The Savings Bank also offers mortgage loans for non-owner-occupied one- to
four-family residences both on a fixed- and adjustable-rate basis. At March 31,
1997, $8.5 million, or 19.9%, of the Savings Bank's one- to four-family mortgage
loans were secured by non-owner-occupied property. The Savings Bank offers
fixed-rate loans for terms not to exceed 15 years with a matching amortization
and adjustable-rate loans for terms not to exceed 20 years with a matching
amortization. These adjustable-rate loans have interest rates that adjust
annually based on the prime rate as published in The Wall Street Journal. The
periodic interest rate cap (the maximum amount by which the interest rate may be
increased or decreased in a given period) on such loans is generally 2% per
adjustment period and the lifetime interest rate cap is generally 5% over the
initial interest rate of the loan. The terms and conditions of the non-owner-
occupied one- to four-family loans offered by the Savings Bank may vary from
time to time. At March 31, 1997, the Savings Bank's portfolio of non-owner-
occupied one- to four-family loans was composed of 79.9% with a fixed interest
rate and 20.1% with an adjustable interest rate. Loans secured by non-owner-
occupied residences generally involve greater risks than loans secured by owner-
occupied residences. Payments on loans secured by such properties are often
dependent on successful operation or management of the properties. Repayment of
such loans may be subject to a greater extent to adverse conditions in the real
estate market or the economy. While several borrowers have more than one loan
outstanding with the Savings Bank that are secured by non-owner-occupied
residences, the maximum amount that the Savings Bank currently will lend to one
borrower is $500,000.
At March 31, 1997, the Savings Bank's one- to four-family mortgage loans
included $4.9 million of ARM loans. The retention of ARM loans in the Savings
Bank's loan portfolio helps reduce the Savings Bank's exposure to changes in
interest rates. There are, however, unquantifiable credit risks resulting from
the potential of increased costs due to increased rates to be paid by the
customer. It is possible that during periods of rising interest rates the risk
of default on ARM loans may increase as a result of repricing and the increased
payments required by the borrower. Another consideration is that although ARM
loans allow the Savings Bank to increase the sensitivity of its asset base to
changes in interest rates, the extent of this interest sensitivity is limited by
the periodic and lifetime
33
<PAGE>
interest rate adjustment limits. Because of these considerations, the Savings
Bank has no assurance that yields on ARM loans will be sufficient to offset
increases in the Savings Bank's cost of funds.
While one- to four-family residential real estate loans are normally
originated with ten to 20 year terms, such loans typically remain outstanding
for shorter periods. This is because borrowers often prepay their loans in full
upon sale of the property pledged as security or upon refinancing the original
loan. In addition, substantially all mortgage loans in the Savings Bank's loan
portfolio contain due-on-sale clauses providing that the Savings Bank may
declare the unpaid amount due and payable upon the sale of the property securing
the loan. Typically, the Savings Bank enforces these due-on-sale clauses to the
extent permitted by law and as business judgment dictates. Thus, average loan
maturity is a function of, among other factors, the level of purchase and sale
activity in the real estate market, prevailing interest rates and the interest
rates payable on outstanding loans.
The Savings Bank generally obtains title insurance insuring the status of
its lien on all loans where real estate is the primary source of security. The
Savings Bank also requires that fire and casualty insurance (and, if
appropriate, flood insurance) be maintained in an amount at least equal to the
outstanding loan balance.
The Savings Bank's residential mortgage loans typically do not exceed 80% of
the appraised value of the property securing the loan. Pursuant to the Savings
Bank's underwriting guidelines, the Savings Bank can lend up to 95% of the
appraised value of the property securing a one- to four-family residential loan;
however, the Savings Bank almost always requires mortgage insurance when the
loan-to-value ratio is greater than 80%.
Multi-Family Real Estate Lending. The Savings Bank is actively involved in
originating loans secured by multi-family real estate. At March 31, 1997, $5.8
million, or 10.3%, of the Savings Bank's total loan portfolio consisted of loans
secured by multi-family real estate. All of these loans are secured by property
located in the Savings Bank's market area. Such properties generally consist of
5 to 30 dwelling units. Generally, the maximum amount that the Savings Bank
will lend to one borrower is $500,000. At March 31, 1997, the Savings Bank had
35 multi-family real estate loans, the largest of which was $559,000 and which
was performing in accordance with its original terms.
The Savings Bank originates multi-family residential real estate loans with
fixed and adjustable interest rates. Fixed-rate loans have a term of 15 years
while adjustable-rate loans have a maximum term of 20 years with matching
amortizations. Adjustable-rate loans adjust annually based on the prime rate.
Loan-to-value ratios on the Savings Bank's multi-family residential real estate
loans are generally limited to 70% on purchase transactions and 65% on
refinancings. The Savings Bank requires appraisals of all properties securing
multi-family residential real estate loans. Appraisals are performed by
independent appraisers designated by the Savings Bank and are reviewed by
management. The Savings Bank considers the quality and location of the real
estate, the credit of the borrower, the cash flow of the project and the quality
of management involved with the property. It is the Savings Bank's general
policy to obtain personal guarantees from the principals of its corporate
borrowers.
Multi-family residential real estate lending affords the Savings Bank an
opportunity to receive interest at rates higher than those generally available
from one- to four-family mortgage loans. However, loans secured by such
properties usually are greater in amount, more difficult to evaluate and monitor
and, therefore, involve a greater degree of risk than one- to four-family
residential mortgage loans. Because payments on loans secured by multi-family
residential properties are often dependent on the successful operation and
management of the properties, repayment of such loans may be affected by supply
and demand conditions in the market for apartments, as well as adverse
conditions in the real estate market or the economy.
Construction Lending. The Savings Bank originates residential construction
loans primarily to local contractors with whom it has an established
relationship. To a significantly lesser extent, the Savings Bank originates
construction loans to individuals who have a contract for the construction of
their personal residence. At March 31, 1997, construction loans totalled $1.7
million, or 3.0% of total loans. All of the Savings Bank's construction loans
are secured by property located in the Savings Bank's primary market area.
34
<PAGE>
Construction loans made by the Savings Bank to professional home builders
are primarily those for which purchasers for the finished homes are identified
either during or following the construction period (i.e., speculative loans).
The Savings Bank generally limits the number of unsold homes under construction
by its borrowers, with the amount dependent on the reputation of the borrower,
the current exposure of the borrower, the location of the property and prior
sales of homes in the development. Construction loans to professional home
builders are typically made for a term of 18 months with an interest rate that
adjusts monthly based on the prime rate. Loan-to-value ratios are generally
limited to 80%. Prior to making a commitment to fund a construction loan, the
Savings Bank requires an appraisal of the property by an independent fee
appraiser. The Savings Bank also reviews and inspects each project at the
commencement of construction and throughout the term of the construction loan.
Loan proceeds are disbursed after inspections of the project by the appraiser
based on a percentage of completion. The Savings Bank requires monthly interest
payments during the construction term.
The Savings Bank's construction loans to individuals are typically made in
connection with the granting of a permanent loan on the property. Such loans
provide for interest only payments during the construction period (typically
nine months) after which they convert to a fully amortizing fixed-rate loan.
Construction lending affords the Savings Bank the opportunity to achieve
higher interest rates and fees with shorter terms to maturity than does its one-
to four-family permanent mortgage lending. Construction lending, however, is
generally considered to involve a higher degree of risk than one-to four-family
permanent mortgage lending because of the inherent difficulty in estimating both
a property's value at completion of the project and the estimated cost of the
project. The nature of these loans is such that they are generally more
difficult to evaluate and monitor. If the estimate of construction cost proves
to be inaccurate, the Savings Bank may be required to advance funds beyond the
amount originally committed to permit completion of the project. If the
estimate of value upon completion proves to be inaccurate, the Savings Bank may
be confronted with a project whose value is insufficient to assure full
repayment. Projects may also be jeopardized by disagreements between borrowers
and builders and by the failure of builders to pay subcontractors. Loans to
builders to construct homes for which no purchaser has been identified carry
more risk because the payoff for the loan is dependent on the builder's ability
to sell the property prior to the time that the construction loan is due. The
Savings Bank has sought to address these risks by limiting the extent of its
construction lending as a proportion of the total loan portfolio, by limiting
its construction lending to residential properties and by limiting the amount
outstanding to any one builder to $500,000. In addition, the Savings Bank has
adopted underwriting guidelines that impose stringent loan-to-value, debt
service and other requirements for loans which are believed to involve higher
elements of credit risk, by limiting the geographic area in which the Savings
Bank will do business to its existing market, and by generally working with
builders with whom it has established relationships. It is also the Savings
Bank's general policy to obtain personal guarantees from the principals of its
corporate borrowers on its construction loans.
Commercial Real Estate Lending. The Savings Bank invests a portion of its
loan portfolio in commercial real estate loans. At March 31, 1997, the Savings
Bank's commercial real estate loan portfolio totalled $2.9 million, or 5.2% of
total loans. The Savings Bank does not solicit commercial real estate loans and
generally offers such loans to accommodate its current and past customers. The
Savings Bank's commercial real estate loans include loans secured by office
buildings, warehouses, undeveloped land and mixed-use buildings comprised of
offices and apartments. All of the Savings Bank's commercial real estate loans
are secured by property in the Savings Bank's primary market area. At March
31, 1997, the Savings Bank had 24 commercial real estate loans, the largest of
which was $633,000 and which was performing in accordance with its original
terms.
The Savings Bank originates commercial real estate loans with fixed and
adjustable interest rates. Fixed-rate loans have a term of 15 years while
adjustable-rate loans have a maximum term of 20 years with matching
amortizations. Adjustable rate loans adjust annually based on the prime rate.
Loan-to-value ratios on the Savings Bank's commercial real estate loans are
generally limited to 70% on purchase transactions and 65% on refinancings. The
Savings Bank requires appraisals of all properties securing commercial real
estate loans. Appraisals are performed by independent appraisers designated by
the Savings Bank and are reviewed by management. The Savings Bank considers the
quality and location of the real estate, the credit of the borrower, the cash
flow of the project and
35
<PAGE>
the quality of management involved with the property. It is the Savings Bank's
general policy to obtain personal guarantees from the principals of its
corporate borrowers.
Commercial real estate lending affords the Savings Bank an opportunity to
receive interest at rates higher than those generally available from one- to
four-family residential mortgage loans. However, loans secured by such
properties usually are greater in amount, more difficult to evaluate and monitor
and, therefore, involve a greater degree of risk than one- to four-family
residential mortgage loans. Because payments on loans secured by commercial
properties are often dependent on the successful operation and management of the
properties, repayment of such loans may be affected by adverse conditions in the
real estate market or the economy.
Consumer Lending. The Savings Bank currently offers a variety of consumer
loans, including secured, partially secured and unsecured personal loans,
vehicle loans and loans secured by savings deposits. At March 31, 1997, the
Savings Bank's consumer loans totaled $2.9 million, or 5.1% of the Savings
Bank's total loan portfolio. In 1996, as a part of its strategy to provide a
fuller range of services to its retail customers, the Savings Bank expanded its
offering of consumer loans. Consumer loans are generally made to existing
customers as the Savings Bank advertises these loans only on a limited basis.
The largest component of the Savings Bank's consumer loan portfolio consists
of mobile home loans. At March 31, 1997, mobile home loans totaled $2.3
million, or 80.2% of the Savings Bank's consumer loan portfolio. From 1987
through 1992, the Savings Bank originated mobile home loans through a broker
located in Ohio. Since 1992, the Savings Bank has not originated any mobile
home loans other than loans to facilitate the sale of repossessed mobile homes.
At March 31, 1997, the Savings Bank's mobile home loan portfolio consisted of
179 loans with an average loan balance of approximately $12,800. Mobile homes
securing this portfolio are located primarily in Kentucky, South Carolina, West
Virginia, Indiana, Illinois, and Georgia. Mobile home loans involve a greater
degree of risk than one-to four-family mortgage loans, but are typically made at
a higher interest rate and for a shorter maturity. The Savings Bank's mobile
home loans have fixed interest rates and terms of 12 to 15 years. Of the 414
mobile home loans originated by the Savings Bank, the Savings Bank has
repossessed 65 mobile homes of which five were held by the Savings Bank at March
31, 1997, with a carrying value of $39,000. At March 31, 1997, the Savings Bank
had seven mobile home loans totalling $82,000 that were 30 to 59 days
delinquent, three mobile home loans totalling $41,000 that were 60 to 89 days
delinquent and two mobile home loans totalling $21,000 that were 90 days or more
delinquent. The Savings Bank may resume originating mobile home loans in the
future, although it has no current plans to do so.
The underwriting standards employed by the Savings Bank for consumer loans
include a determination of the applicant's payment history on other debts and an
assessment of the ability to meet existing obligations and payments on the
proposed loan. Although creditworthiness of the applicant is a primary
consideration, the underwriting process also includes a comparison of the value
of the security, if any, in relation to the proposed loan amount.
Consumer loans may entail greater risk than do residential mortgage loans,
particularly in the case of consumer loans which are unsecured, or are secured
by rapidly depreciable assets, such as automobiles or mobile homes. In such
cases, any repossessed collateral for a defaulted consumer loan may not provide
an adequate source of repayment of the outstanding loan balance as a result of
the greater likelihood of damage, loss or depreciation. In addition, consumer
loan collections are dependent on the borrower's continuing financial stability
and thus are more likely to be affected by adverse personal circumstances.
Furthermore, the application of various federal and state laws, including
bankruptcy and insolvency laws, may limit the amount which can be recovered on
such loans.
Commercial Loans. In recent years, the Savings Bank has purchased office
equipment leases through two leasing companies. At March 31, 1997, commercial
leases amounted to $86,000, or 0.1%, of the Savings Bank's total loan portfolio.
Leases generally have shorter terms than mortgage loans, but generally involve
more credit
36
<PAGE>
risk since payment may be dependent on successful operation of the lessee's
business. As of March 31, 1997, as a result of the bankruptcy filing of the
originator of the remaining lease balances, the Savings Bank's commercial leases
were classified as non-performing. Subsequent to March 31, 1997, the Savings
Bank received a pay-off of $47,000 in settlement of the lease obligation and
charged-off the remaining $39,000. The Savings Bank may review the purchase of
additional leases in the future, although it currently has no plans to do so.
37
<PAGE>
Maturity of Loan Portfolio. The following table sets forth certain
information at March 31, 1997 regarding the maturity of the Savings Bank's loan
portfolio. All loans are included in the period in which the final contractual
payment is due. Demand loans, loans having no stated schedule of repayments and
no stated maturity, and overdrafts are reported as due within one year. The
table does not include any estimate of prepayments which significantly shorten
the average life of all loans and may cause the Savings Bank's actual repayment
experience to differ from that shown below.
<TABLE>
<CAPTION>
After After After After 10
One Year 3 Years 5 Years Years
Within Through Through Through Through Beyond
One Year 3 Years 5 Years 10 Years 15 Years 15 Years Total
-------- ------- ------- -------- -------- -------- -------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Mortgage loans:
One- to four-family.............. $ 20 $123 $ 600 $ 6,863 $16,744 $18,304 $42,654
Multi-family..................... -- -- 63 1,801 3,285 643 5,792
Construction..................... 1,115 572 -- -- -- -- 1,687
Commercial real estate........... -- 27 640 362 1,698 198 2,925
Consumer loans:
Mobile home...................... 10 48 110 1,989 140 -- 2,297
Other............................ 346 70 110 36 6 -- 568
Commercial loans.................. 32 54 -- -- -- -- 86
------ ---- ------ ------- ------- ------- -------
Total loans.................... $1,523 $894 $1,523 $11,051 $21,873 $19,145 $56,009
====== ==== ====== ======= ======= ======= =======
</TABLE>
The following table sets forth the dollar amount of all loans due after
March 31, 1998, that have fixed interest rates and have floating or adjustable
interest rates.
<TABLE>
<CAPTION>
Fixed Floating or
Rates Adjustable Rates
------- ----------------
(In Thousands)
<S> <C> <C>
Mortgage loans:
One- to four-family............ $37,774 $ 4,861
Multi-family................... 3,379 2,412
Construction................... -- 572
Commercial real estate......... 697 2,228
Consumer loans:
Mobile home.................... 2,287 --
Other.......................... 222 --
Commercial loans................ 54 --
------- -------
Total loans................... $44,413 $10,073
======= =======
</TABLE>
38
<PAGE>
Scheduled contractual principal repayments of loans do not reflect the
actual life of such assets. The average life of a loan is substantially less
than its contractual terms because of prepayments. In addition, due-on-sale
clauses on loans generally give the Savings Bank the right to declare loans
immediately due and payable in the event, among other things, that the borrower
sells the real property subject to the mortgage and the loan is not repaid. The
average life of mortgage loans tends to increase, however, when current mortgage
loan market rates are substantially higher than rates on existing mortgage loans
and, conversely, decrease when rates on existing mortgage loans are
substantially higher than current mortgage loan market rates.
Loan Solicitation and Processing. Loan applicants come primarily through
referrals by business and industry contacts, local advertising and current and
past customers. The Savings Bank also has relationships with local mortgage
brokers who underwrite mortgage loans in accordance with the Savings Bank's loan
underwriting procedures. During 1996, these mortgage brokers accounted for
approximately one-third of the Savings Bank's loan originations.
Upon receipt of a loan application from a prospective borrower, a credit
report and other data are obtained to verify specific information relating to
the loan applicant's employment, income and credit standing. An appraisal of
the real estate offered as collateral generally is undertaken by an independent
fee appraiser.
Loan applications originated by the Savings Bank are processed at the
Savings Bank's main office. A loan application is initially processed by a loan
processor or loan officer and, once completed, is submitted to the Savings
Bank's Loan Committee. The Loan Committee may approve consumer loans up to
$50,000, loans up to $300,000 that are to be secured by one- to four-family
residential real estate, and loans up to $250,000 that are to be secured by
other real estate. Loans greater than these amounts are submitted for approval
to the Savings Bank's Board of Directors with a report and recommendation from
the Loan Committee.
Loan Originations, Sales and Purchases. During the first quarter of 1997,
the Savings Bank originated $2.9 million of loans, compared with $1.4 million
during the first quarter of 1996. Originations were greater in 1997 over 1996
as the low interest rate environment in early 1996 led the Savings Bank to
reduce loan originations rather than add low yielding loans to its portfolio.
During 1996, the Savings Bank originated $11.7 million of loans compared to $6.6
million in 1995. The increase in originations in 1996 over 1995 was due to
increased referrals from local business and industry contacts coupled with more
competitive interest rates.
In recent years, the Savings Bank has not been an active purchaser of whole
loans or participation interests in loans nor has the Savings Bank been a seller
of loans. During 1996, the Savings Bank purchased participation interests in
loans aggregating $27,000. These participation interests were made in
conjunction with other area financial institutions to foster community
development. During 1995, the Savings Bank purchased whole loans totalling
$345,000 and a participation interest in the amount of $50,000 for a private,
non-profit housing program. These loans are primarily secured by one- to four-
family real estate in the Savings Bank's primary market area. During 1994, the
Savings Bank purchased $1.5 million of whole loans secured by one- to four-
family residential real estate in the Savings Bank's primary market area.
39
<PAGE>
The following table shows total loans originated, purchased, sold and
repaid during the periods indicated.
<TABLE>
<CAPTION>
Three Months
Ended
March 31, Year Ended December 31,
------------------------- -------------------------
1997 1996 1996 1995
---- ---- ---- ----
(In Thousands)
<S> <C> <C> <C> <C>
Gross loans at beginning of period............. $55,618 $52,894 $52,894 $55,784
Loans originated:
Mortgage loans:
One- to four-family........................... 2,214 284 8,118 4,277
Multi-family.................................. 273 -- 1,089 777
Construction.................................. 291 303 1,129 1,293
Commercial real estate........................ -- 639 639 106
Consumer loans:
Mobile home................................... 23 -- -- 25
Other......................................... 136 136 760 166
------- ------- ------- -------
Total loans originated..................... 2,937 1,362 11,735 6,644
------- ------- ------- -------
Loans purchased:
Mortgage loans:
One- to four-family........................... 9 -- 27 395
------- ------- ------- -------
Total loans purchased...................... 9 -- 27 395
------- ------- ------- -------
Loan principal repayments...................... 2,555 2,238 9,038 9,929
Net loan activity.............................. 391 (876) 2,724 (2,890)
------- ------- ------- -------
Gross loans at end of period................... $56,009 $52,018 $55,618 $52,894
======= ======= ======= =======
</TABLE>
Loan Commitments. The Savings Bank issues commitments to originate loans
conditioned upon the occurrence of certain events. Such commitments are made on
specified terms and conditions and, in most cases, are honored for up to 60 days
from the date of loan approval. Commitments in excess of 60 days are charged an
additional fee. The Savings Bank had outstanding loan commitments of
approximately $1.1 million at March 31, 1997.
Loan Origination and Other Fees. The Savings Bank, in most instances,
receives loan origination fees. Loan fees are a fixed dollar amount or a
percentage of the principal amount of the mortgage loan that is charged to the
borrower for funding the loan. Current accounting standards require fees
received (net of certain loan origination costs) for originating loans to be
deferred and amortized into interest income over the contractual life of the
loan. Net deferred fees or costs associated with loans that are prepaid are
recognized as income or expense at the time of prepayment. The Savings Bank had
$57,000 of net deferred loan origination costs at March 31, 1997. In addition to
loan origination fees, the Savings Bank receives income from fees in connection
with loan modifications, late payments and for various services related to its
loans.
Loan Servicing. The Savings Bank has sold most of its servicing rights
with respect to loans held by others, with the last sale occurring in 1994. At
March 31, 1997, the Savings Bank was servicing $472,000 of loans for others.
Loan servicing includes processing payments, accounting for loan funds and
collecting and paying real
40
<PAGE>
estate taxes, hazard insurance and other loan-related items, such as private
mortgage insurance. When the Savings Bank receives the gross mortgage payment
from individual borrowers, it remits to the investor in the mortgage a
predetermined net amount based on the yield on that mortgage. The difference
between the coupon on the underlying mortgage and the predetermined net amount
paid to the investor is the gross loan servicing fee.
Delinquencies and Classified Assets
Delinquent Loans. When a borrower fails to make a required payment when
due, the Savings Bank institutes collection procedures. Contact is generally
made 16 days after a payment is due. In most cases, deficiencies are cured
promptly. If a delinquency continues, the loan and payment history is reviewed
and efforts are made to collect the loan. While the Savings Bank prefers to work
with borrowers to resolve delinquencies, the Savings Bank will institute
foreclosure or other proceedings, as necessary, to minimize any loss. The
Savings Bank generally initiates proceedings when a loan becomes 90 days
delinquent.
Loans are generally placed on nonaccrual status when they become 90 days
delinquent or when, in the judgment of management, the probability of collection
of interest is deemed to be insufficient to warrant further accrual. When a loan
is placed on nonaccrual status, previously accrued but unpaid interest is
deducted from interest income. Loans may be reinstated to accrual status when
they become less than 90 days delinquent and, in the opinion of management,
collection of the remaining balance can be reasonably expected.
41
<PAGE>
The following table sets forth information with respect to the Savings
Bank's nonperforming assets and restructured loans within the meaning of SFAS
No. 15 at the dates indicated.
<TABLE>
<CAPTION>
At March 31, At December 31,
--------------------
1997 1996 1995
---- ---- ----
(Dollars in Thousands)
<S> <C> <C> <C>
Loans accounted for on a nonaccrual
basis:
Mortgage loans:
One- to four-family...................... $ 462 $ 432 $156
Multi-family............................. 134 149 20
Commercial real estate................... 403 407 425
Consumer loans:
Mobile home.............................. 21 33 15
Other.................................... 2 3 8
Commercial................................ 86 86 26
------ ------ ------
Total................................... 1,108 1,110 650
------ ------ ------
Accruing loans which are contractually
past due 90 days or more:
Mortgage loans:
One- to four-family...................... 15 -- 80
Consumer loans:
Mobile home.............................. -- -- 22
------ ------ ------
Total................................... 15 -- 102
------ ------ ------
Total of nonaccrual and 90 days past
due loans................................. 1,123 1,110 752
Real estate owned........................... 13 13 940
Other repossessed assets.................... 39 31 24
------ ------ ------
Total nonperforming assets............... $1,175 $1,154 $1,716
====== ====== ======
Restructured loans.......................... $ 16 -- --
Total loans delinquent 90 days
or more as a percent of net loans......... 2.03% 2.03% 1.43%
Total loans delinquent 90 days
or more as a percent of total assets...... 1.36% 1.36% 0.92%
Total nonperforming assets as a percent of
total assets.............................. 1.42% 1.41% 2.10%
</TABLE>
Interest income that would have been recorded for the three months ended
March 31, 1997 and the year ended December 31, 1996 had nonaccruing loans been
current in accordance with their original terms amounted to approximately
$29,000 and $120,000, respectively. The amount of interest included in interest
income on such loans for the three months ended March 31, 1997 and the year
ended December 31, 1996 amounted to approximately $14,000 and $69,000,
respectively.
42
<PAGE>
Real Estate Owned and Other Repossessed Assets. Real estate acquired by
the Savings Bank as a result of foreclosure or by deed-in-lieu of foreclosure is
classified as real estate owned ("REO") until it is sold. When property is
acquired it is recorded at the lower of its cost, which is the unpaid principal
balance of the related loan plus foreclosure costs, or fair market value.
Subsequent to foreclosure, REO is carried at the lower of the foreclosed amount
or fair value, less estimated selling costs. At March 31, 1997, the Savings Bank
had $52,000 of REO and other repossessed assets, net of specific reserves, which
consisted of one building and five mobile homes.
Asset Classification. The OTS has adopted various regulations regarding
problem assets of savings institutions. The regulations require that each
insured institution review and classify its assets on a regular basis. In
addition, in connection with examinations of insured institutions, OTS examiners
have authority to identify problem assets and, if appropriate, require them to
be classified. There are three classifications for problem assets: substandard,
doubtful and loss. Substandard assets have one or more defined weaknesses and
are characterized by the distinct possibility that the insured institution will
sustain some loss if the deficiencies are not corrected. Doubtful assets have
the weaknesses of substandard assets with the additional characteristic that the
weaknesses make collection or liquidation in full on the basis of currently
existing facts, conditions and values questionable, and there is a high
possibility of loss. An asset classified as loss is considered uncollectible and
of such little value that continuance as an asset of the institution is not
warranted. If an asset or portion thereof is classified as loss, the insured
institution establishes specific allowances for loan losses for the full amount
of the portion of the asset classified as loss. All or a portion of general loan
loss allowances established to cover possible losses related to assets
classified substandard or doubtful may be included in determining an
institution's regulatory capital, while specific valuation allowances for loan
losses generally do not qualify as regulatory capital. Assets that do not
currently expose the insured institution to sufficient risk to warrant
classification in one of the aforementioned categories but possess weaknesses
are classified as special mention and monitored by the Savings Bank.
The aggregate amounts of the Savings Bank's classified assets at the dates
indicated were as follows:
<TABLE>
<CAPTION>
At December 31,
At March 31, ---------------------
1997 1996 1995
---- ---- ----
(In Thousands)
<S> <C> <C> <C>
Loss.......................... $ -- $ -- $ --
Doubtful...................... -- -- --
Substandard assets............ 1,455 1,352 2,167
Special mention............... -- -- --
</TABLE>
At March 31, 1997, classified assets consisted of $366,000 of ten one- to
four-family mortgage loans, $52,000 of REO and other repossessed assets, two
loans to one borrower totalling $283,000 that are secured by a small office
building and the borrower's personal residence, two loans to related borrowers
totalling $403,000 that are secured by a small office building, one of the
borrower's personal residence and a parcel of vacant land, five loans to related
borrowers totalling $265,000 that are secured by non-owner-occupied, one- to
four-family residential real estate, and $86,000 of lease pools.
Allowance for Loan Losses. The allowance for loan losses represents the
amount which management estimates is adequate to provide for potential losses in
its loan portfolio. The allowance method is used in providing for loan losses.
Accordingly, all loan losses are charged to the allowance and all recoveries are
credited to it. The allowance for loan losses is established through a provision
for loan losses charged to operations. The provision for loan losses is based on
management's periodic evaluation of individual loans, economic factors, past
loan loss experience, changes in the composition and volume of the portfolio,
and other relevant factors. The estimates used
43
<PAGE>
in determining the adequacy of the allowance for loan losses, including the
amounts and timing of future cash flows expected on impaired loans, are
particularly susceptible to changes in the near term.
At March 31, 1997, the Savings Bank had an allowance for loan losses of
$420,000. Although management believes that it uses the best information
available to establish the allowance for loan losses, future adjustments to the
allowance for loan losses may be necessary and results of operations could be
significantly and adversely affected if circumstances differ substantially from
the assumptions used in establishing the allowance.
While the Savings Bank believes it has established its existing allowance
for loan losses in accordance with GAAP, there can be no assurance that
regulators, in reviewing the Savings Bank's loan portfolio, will not request the
Savings Bank to increase significantly its allowance for loan losses. In
addition, because future events affecting borrowers and collateral cannot be
predicted with certainty, there can be no assurance that the existing allowance
for loan losses is adequate or that substantial increases will not be necessary
should the quality of any loans deteriorate as a result of the factors discussed
above. Any material increase in the allowance for loan losses may adversely
affect the Savings Bank's financial condition and results of operations.
44
<PAGE>
The following table sets forth an analysis of the Savings Bank's allowance
for loan losses at and for the periods indicated.
<TABLE>
<CAPTION>
Three Months
Ended Year Ended
March 31, December 31,
----------------------- -----------------------
1997 1996 1996 1995
---- ---- ---- ----
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Allowance at beginning of period..... $415 $276 $276 $268
Provision for loan losses............ 28 29 239 64
Recoveries:
Mortgage loans:
One- to four-family............... 1 -- 4 1
Consumer loans:
Other............................. 3 -- 5 8
Commercial loans................... 1 -- 2 1
----- ----- ----- -----
Total recoveries................. 5 -- 11 10
----- ----- ----- -----
Charge-offs:
Mortgage loans:
One- to four-family............... (22) (6) (24) (40)
Consumer loans:
Mobile home....................... (3) -- (69) --
Other............................. (3) (4) (12) (11)
Commercial loans................... -- -- (6) (15)
----- ----- ----- -----
Total charge-offs................ (28) (10) (111) (66)
----- ----- ----- -----
Net charge-offs..................... (23) (10) (100) (56)
----- ----- ----- -----
Balance at end of period............ $420 $295 $415 $276
==== ==== ==== ====
Allowance for loan losses
as a percent of total
loans receivable.................... 0.75% 0.57% 0.75% 0.52%
Net charge-offs to
average loans outstanding........... 0.04% 0.02% 0.19% 0.10%
</TABLE>
- -----------
(1) See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS -- Comparison of Operating Results for the Three months Ended
March 31, 1997 and 1996 -- Provisions for Loan Losses" and "-- Comparison of
Operating Results for the Years Ended December 31, 1996 and 1995 --
Provisions for Loan Losses" for a discussion of the factors responsible for
changes in the Savings Bank's provision for loan losses between the periods.
45
<PAGE>
The following table sets forth the breakdown of the allowance for loan
losses by loan category for the periods indicated. Management believes that the
allowance can be allocated by category only on an approximate basis. The
allocation of the allowance to each category is not necessarily indicative of
future losses and does not restrict the use of the allowance to absorb losses in
any other category.
<TABLE>
<CAPTION>
At December 31,
At March 31, ------------------------------------------------
1997 1996 1995
-------------------- -------------------- ----------------------
% of % of % of
Loans in Loans in Loans in
Category Category Category
to Total to Total to Total
Amount Loans Amount Loans Amount Loans
------ -------- ------ --------- ------ --------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Mortgage loans:
One- to four-family............. $112 76.16% $115 75.10% $80 74.63%
Multi-family.................... 85 10.34 84 10.21 61 10.17
Construction.................... 17 3.01 17 3.10 1 2.62
Commercial real estate.......... 58 5.22 62 5.93 62 6.03
Consumer loans:
Mobile home..................... 103 4.10 105 4.41 67 5.98
Other........................... 11 1.02 15 1.10 1 0.31
Commercial loans................. 34 0.15 17 0.15 4 0.26
---- ------ ---- ------ ----- ------
Total allowance for
loan losses................. $420 100.00% $415 100.00% $276 100.00%
==== ====== ==== ====== ==== ======
</TABLE>
Investment Activities
- ---------------------
The Savings Bank is permitted under federal law to invest in various types
of assets, including U.S. Government obligations, securities of various federal
agencies and of state and municipal governments, deposits at the FHLB-
Pittsburgh, certificates of deposit of federally insured institutions, certain
bankers' acceptances and federal funds. Subject to various restrictions, the
Savings Bank may also invest a portion of its assets in commercial paper and
corporate debt securities. Savings institutions like the Savings Bank are also
required to maintain an investment in FHLB stock. The Savings Bank is required
under federal regulations to maintain a minimum amount of liquid assets. See
"REGULATION" and "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS -- Liquidity and Capital Resources." The Savings
Bank's policies generally limit investments to U.S. Government and agency
securities, municipal bonds, banker's acceptances, corporate bonds, commercial
paper, mutual funds, federal funds and certificates of deposit. Investment in
mortgage-backed and mortgage related securities is also authorized, and includes
securities issued and guaranteed by Federal Home Loan Mortgage Corporation
("FHLMC"), FNMA, Government National Mortgage Association ("GNMA") and
privately-issued collateralized mortgage-backed securities that have the highest
rating by two national rating services. A high credit rating indicates only
that the rating agency believes there is a low risk of default. However, all of
the Savings Bank's investment securities, including those that have high credit
ratings, are subject to market risk insofar as increases in market rates of
interest may cause a decrease in their market value. The Savings Bank's
policies prescribe risk limits and certain other restrictions and provide that
investment purchases be reviewed at monthly Board of Directors meetings. From
time to time, investment levels may be increased or decreased depending upon the
yields on investment alternatives and upon management's judgment as to the
attractiveness of the yields then available in relation to other opportunities
and its expectation of the level of yield that will be available in the future,
46
<PAGE>
as well as management's projections as to the short-term demand for funds to be
used in the Savings Bank's loan origination and other activities.
SFAS No. 115, "Accounting for Certain Investments in Debt and Equity
Securities," requires that investments be categorized as "held to maturity,"
"trading securities" or "available for sale," based on management's intent as to
the ultimate disposition of each security. SFAS No. 115 allows debt securities
to be classified as "held to maturity" and reported in financial statements at
amortized cost only if the reporting entity has the positive intent and ability
to hold those securities to maturity. Securities that might be sold in response
to changes in market interest rates, changes in the security's prepayment risk,
increases in loan demand, or other similar factors cannot be classified as "held
to maturity." Debt and equity securities held for current resale are classified
as "trading securities." Such securities are reported at fair value, and
unrealized gains and losses on such securities would be included in earnings.
The Savings Bank does not currently use or maintain a trading account. Debt and
equity securities not classified as either "held to maturity" or "trading
securities" are classified as "available for sale." Such securities are
reported at fair value, and unrealized gains and losses on such securities are
excluded from earnings and reported as a net amount in a separate component of
equity. Of the $21.7 million of investment and mortgage-backed securities at
March 31, 1997, $3.1 million, or 14.5%, were classified as available for sale.
Mortgage-Backed Securities. The Savings Bank purchases mortgage-backed
securities in order to: (i) generate positive interest rate spreads on large
principal balances with minimal administrative expense; (ii) lower the credit
risk of the Savings Bank as a result of the guarantees provided by FHLMC, FMNA,
and GNMA; (iii) increase the Savings Bank's liquidity; and (iv) control interest
rate risk. The Savings Bank invests in both adjustable- and fixed-rate
mortgage-backed securities with maturities up to 15 years. The Savings Bank has
invested primarily in federal agency securities, principally FNMA, FHLMC and
GNMA. The Savings Bank also invests in CMOs. At March 31, 1997, mortgage-
backed securities totaled $19.7 million, or 23.8% of total assets of which $6.2
million consisted of CMOs. At March 31, 1997, 26.1% of the mortgage-backed
securities were adjustable-rate and 73.9% were fixed-rate.
Mortgage-backed securities (which also are known as mortgage participation
certificates or pass-through certificates) typically represent a participation
interest in a pool of single-family or multi-family mortgages. The principal
and interest payments on these mortgages are passed from the mortgage
originators, through intermediaries (generally U.S. Government agencies and
government sponsored enterprises) that pool and resell the participation
interests in the form of securities, to investors such as the Savings Bank.
Such U.S. Government agencies and government sponsored enterprises, which
guarantee the payment of principal and interest to investors, primarily include
the FHLMC, FNMA and the GNMA. 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 fall within a specific range
and have varying maturities. Mortgage-backed securities generally yield less
than the loans that underlie such securities because of the cost of payment
guarantees and credit enhancements. In addition, mortgage-backed securities are
usually more liquid than individual mortgage loans and may be used to
collateralize certain liabilities and obligations of the Savings Bank. These
types of securities also permit the Savings Bank to optimize its regulatory
capital because they have low risk weighting.
CMOs are generally classified as derivative financial instruments because
they are created by redirecting the cash flows from the pool of mortgages or
mortgage-backed securities underlying these securities to create two or more
classes (or tranches) with different maturity or risk characteristics designed
to meet a variety of investor needs and preferences. Management believes these
securities may represent attractive alternatives relative to other investments
due to the wide variety of maturity, repayment and interest rate options
available. Consistent with the guidelines of the OTS, the current investment
policy of the Savings Bank prohibits the purchase of high risk CMOs. CMOs may
be sponsored by private issuers, such as mortgage bankers or money center banks,
or by U.S. Government agencies and government sponsored entities. The privately
issued CMOs held by the Savings Bank carry the highest credit rating offered by
either Moody's or Standard and Poor's. The Savings Bank generally purchases
CMOs in order to shorten the average life of its investment portfolio and to
assist in asset/liability management. The Savings Bank evaluates its mortgage-
related securities portfolio quarterly for compliance with
47
<PAGE>
applicable regulatory requirements, including testing for identification of high
risk investments pursuant to Federal Financial Institutions Examination Council
standards.
Derivatives also include "off balance sheet" financial products whose value
is dependent on the value of an underlying financial asset, such as a stock,
bond, foreign currency, or a reference rate or index. Such derivatives include
"forwards," "futures," "options" or "swaps." The Savings Bank has not invested
in these "off balance sheet" derivative instruments, although the Savings Bank's
investment policies authorize such investments.
Of the Savings Bank's $19.7 million mortgage-backed securities portfolio at
March 31, 1997, $6.1 million with a weighted average yield of 6.80% had
contractual maturities within ten years and $13.5 million with a weighted
average yield of 7.31% had contractual maturities over ten years. However, the
actual maturity of a mortgage-backed security may be less than its stated
maturity due to prepayments of the underlying mortgages. Prepayments that are
faster than anticipated may shorten the life of the security and may result in a
loss of any premiums paid and thereby reduce the net yield on such securities.
Although prepayments of 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 generally is
the most significant determinant of the rate of prepayments. During periods of
declining mortgage interest rates, if the coupon rate of the underlying
mortgages exceeds the prevailing market interest rates offered for mortgage
loans, refinancing generally increases and accelerates the prepayment of the
underlying mortgages and the related security. Under such circumstances, the
Savings Bank may be subject to reinvestment risk because, to the extent that the
Savings Bank's mortgage-backed securities amortize or prepay faster than
anticipated, the Savings Bank may not be able to reinvest the proceeds of such
repayments and prepayments at a comparable rate. In contrast to mortgage-backed
securities in which cash flow is received (and hence, prepayment risk is shared)
pro rata by all securities holders, the cash flow from the mortgages or
mortgage-backed securities underlying CMOs are segmented and paid in accordance
with a predetermined priority to investors holding various tranches of such
securities or obligations. A particular tranche of CMOs may therefore carry
prepayment risk that differs from that of both the underlying collateral and
other tranches.
48
<PAGE>
The following table sets forth the composition of the Savings Bank's
investment and mortgage-backed securities portfolios at the dates indicated.
<TABLE>
<CAPTION>
At December 31,
At March 31, ---------------------------------------------------
1997 1996 1995
----------------------- ----------------------- -----------------------
Carrying Percent of Carrying Percent of Carrying Percent of
Value Portfolio Value Portfolio Value Portfolio
-------- ---------- -------- ---------- -------- ----------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Investment Securities
Available for sale:
U.S. Government obligations......... $ 497 24.94% $ 498 18.15% $ - -%
U.S. Government agency obligations.. 322 16.15 328 11.95 398 12.11
CMO residuals....................... - - - - 249 7.58
------- ------ ------- ------ ------- ------
Total available for sale........... 819 41.09 826 30.10 647 19.69
------- ------ ------- ------ ------- ------
Held to maturity:
U.S. Government agency obligations.. 689 34.57 446 16.25 1,513 46.04
Corporate securities................ 485 24.34 1,472 53.65 1,126 34.27
------- ------ ------- ------ ------- ------
Total held to maturity............ 1,174 58.91 1,918 69.90 2,639 80.31
------- ------ ------- ------ ------- ------
Total investment securities....... $ 1,993 100.00% $ 2,744 100.00% $ 3,286 100.00%
======= ====== ======= ====== ======= ======
Mortgage-backed securities
Available for sale:
GNMA................................ $ 441 2.24% $ 472 2.41% $ - - %
FHLMC............................... 716 3.64 782 4.00 1,006 4.72
FNMA................................ 644 3.27 664 3.40 784 3.68
CMOs................................ 516 2.62 512 2.62 508 2.39
------- ------ ------- ------ ------- ------
Total available for sale.......... 2,317 11.77 2,430 12.43 2,298 10.79
------- ------ ------- ------ ------- ------
Held to maturity:
GNMA................................ 1,544 7.85 1,025 5.24 288 1.35
FHLMC............................... 1,375 6.99 1,448 7.40 1,971 9.26
FNMA................................ 8,757 44.50 9,335 47.73 11,296 53.06
CMOs................................ 5,686 28.89 5,319 27.20 5,438 25.54
------- ------ ------- ------ ------- ------
Total held to maturity............ 17,362 88.23 17,127 87.57 18,993 89.21
------- ------ ------- ------ ------- ------
Total mortgage-backed securities.. $19,679 100.00% $19,557 100.00% $21,291 100.00%
======= ====== ======= ====== ======= ======
</TABLE>
49
<PAGE>
The following table sets forth the maturities and weighted average yields
of the debt securities in the Savings Bank's investment and mortgage-backed
securities portfolio at March 31, 1997.
<TABLE>
<CAPTION>
Over Over
Less Than One to Five to Over Ten
One Year Five Years Ten Years Years
--------------- --------------- --------------- ----------------
Amount Yield Amount Yield Amount Yield Amount Yield
------ ------ ------ ------ ------ ------ ------ ------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Investment Securities
Available for sale:
U.S. Government obligations......... $ -- --% $ 497 6.75% $ -- --% $ -- --%
U.S. Government agency obligations.. -- -- -- -- -- -- 322 6.60
---- ------ ------ -------
Total available for sale.......... -- -- 497 6.75 -- -- 322 6.60
---- ------ ------ -------
Held to maturity:
U.S. Government agency obligations.. -- -- -- -- 250 7.20 439 7.66
Corporate securities................ 485 5.55 -- -- -- -- -- --
---- ------ ------ -------
Total held to maturity............ 485 5.55 -- -- 250 7.20 439 7.66
---- ------ ------ -------
Total investment securities....... $485 5.55 $ 497 6.75 $ 250 7.20 $ 761 7.21
==== ====== ====== =======
Mortgage-backed securities
Available for sale:
GNMA................................ $ -- --% $ -- --% $ -- --% $ 441 6.88%
FHLMC............................... -- -- 298 5.35 -- -- 418 6.73
FNMA................................ -- -- -- -- -- -- 644 6.04
CMOs................................ -- -- -- -- -- -- 516 6.76
---- ------ ------ -------
Total available for sale.......... -- -- 298 5.35 -- -- 2,019 6.55
---- ------ ------ -------
Held to maturity:
GNMA................................ 2 13.25 -- -- -- -- 1,542 6.95
FHLMC............................... -- -- 659 6.64 144 7.44 572 8.00
FNMA................................ -- -- -- -- 2,329 7.64 6,428 7.94
CMOs................................ 231 5.75 2,240 6.30 246 6.09 2,969 6.52
---- ------ ------ -------
Total held to maturity............ 233 5.81 2,899 6.37 2,719 7.49 11,511 7.45
---- ------ ------ -------
Total mortgage-backed securities.. $233 5.81 $3,197 6.28 $2,719 7.49 $13,530 7.31
==== ====== ====== =======
</TABLE>
Deposit Activities and Other Sources of Funds
General. Deposits and loan repayments are the major sources of the Savings
Bank's funds for lending and other investment purposes. Scheduled loan
repayments are a relatively stable source of funds, while deposit inflows and
outflows and loan prepayments are influenced significantly by general interest
rates and money market conditions. Borrowings through the FHLB-Pittsburgh are
used to compensate for reductions in the availability of funds from other
sources and at times for asset and liability management. Currently, the Savings
Bank has no other borrowing arrangements.
Deposit Accounts. Savings deposits are the primary source of funds for the
Savings Bank's lending and investment activities and for its general business
purposes. Substantially all of the Savings Bank's depositors are residents of
Pennsylvania. Deposits are attracted from within the Savings Bank's primary
market area through the offering of a broad selection of deposit instruments,
including NOW checking accounts, money market deposit
50
<PAGE>
accounts, regular savings accounts, certificates of deposit and retirement
savings plans. Deposit account terms vary, according to the minimum balance
required, the time periods the funds must remain on deposit and the interest
rate, among other factors. In determining the terms of its deposit accounts,
the Savings Bank considers current market interest rates, profitability to the
Savings Bank, matching deposit and loan products and its customer preferences
and concerns. The Savings Bank reviews its deposit mix and pricing weekly.
Currently, the Savings Bank does not accept brokered deposits, nor has it
aggressively sought jumbo certificates of deposit, although the Savings Bank has
in the past accepted brokered certificates of deposit. At March 31, 1997,
certificates of deposit that are scheduled to mature in less than one year
totalled $26.2 million. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS -- Liquidity and Capital Resources."
The Savings Bank currently offers certificates of deposit for terms not
exceeding 60 months and will consider requests for longer terms. As a result,
the Savings Bank believes that it is better able to match the repricing of its
liabilities to the repricing of its loan portfolio. See "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS --
Asset and Liability Management."
In the unlikely event the Savings Bank is liquidated after the Conversion,
depositors will be entitled to full payment of their deposit accounts prior to
any payment being made to the Holding Company, as the sole stockholder of the
Savings Bank.
51
<PAGE>
The following table sets forth information concerning the Savings Bank's
deposits at March 31, 1997.
<TABLE>
<CAPTION>
Weighted Percentage
Average Minimum of Total
Interest Rate Term Category Amount Balance Deposits
- ------------- ---- ------------------------ ------ ------- ----------
(In Thousands)
<C> <C> <S> <C> <C> <C>
0.00% -- Non-interest-bearing checking $0 $ 405 0.62%
1.46 -- NOW accounts 200 2,631 4.06
3.10 -- Passbook and club accounts 25 11,881 18.34
3.72 -- Premium savings 200 792 1.22
3.81 -- Money market deposit accounts 2,500 5,885 9.09
<CAPTION>
Certificates of Deposit
-----------------------
<C> <C> <S> <C> <C> <C>
5.06 3 mos Fixed term, fixed rate 1,000 547 0.84
5.19 6 mos Fixed term, fixed rate 1,000 6,399 9.88
5.10 9 mos Fixed term, fixed rate 1,000 10 0.02
5.38 12 mos Fixed term, fixed rate 500 14,742 22.76
5.84 24 mos Fixed term, fixed rate 500 2,527 3.90
5.73 30 mos Fixed term, fixed rate 500 2,821 4.36
5.93 36 mos Fixed term, fixed rate 500 7,439 11.48
5.98 60 mos Fixed term, fixed rate 500 6,229 9.62
6.35 over 60 mos Fixed term, fixed rate 500 2,468 3.81
------- ------
$64,776 100.00%
======= ======
</TABLE>
The following table indicates the amount of the Savings Bank's jumbo
certificates of deposit by time remaining until maturity as of March 31, 1997.
Jumbo certificates of deposit are certificates in amounts of $95,000 or more.
<TABLE>
<CAPTION>
Maturity Period Amount
--------------- --------------
(In Thousands)
<S> <C>
Three months or less............ $1,100
Over three through six months... 599
Over six through 12 months...... 706
Over 12 months.................. 3,985
------
Total jumbo certificates
of deposit.................. $6,390
======
</TABLE>
52
<PAGE>
Deposit Flow. The following table sets forth the balances (inclusive of
interest credited) and changes in dollar amounts of deposits in the various
types of accounts offered by the Savings Bank between the dates indicated.
<TABLE>
<CAPTION>
At March 31, At December 31,
----------------------------- ------------------------------------------------
1997 1996 1995
----------------------------- ----------------------------- -----------------
Percent Percent Percent
of Increase of Increase of
Amount Total (Decrease) Amount Total (Decrease) Amount Total
------- -------- ---------- ------- -------- ---------- ------- --------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Non-interest-bearing checking........ $ 405 0.63% $ 93 $ 312 0.49% $ 79 $ 233 0.36%
Interest-bearing demand.............. 8,516 13.15 (123) 8,639 13.44 890 7,749 11.89
Savings accounts..................... 12,673 19.56 (161) 12,834 19.96 (564) 13,398 20.56
Fixed-rate certificates which
mature:
Within 1 year...................... 26,177 40.41 (1,138) 27,315 42.48 (5,424) 32,739 50.24
After 1 year, but within 2 years... 6,828 10.54 1,488 5,340 8.31 (303) 5,643 8.66
After 2 years, but within 5 years.. 10,165 15.69 313 9,852 15.32 4,478 5,374 8.25
Certificates maturing thereafter... 12 0.02 10 2 0.00 (22) 24 0.04
------- ------ ------- ------- ------ ------ ------- ------
Total........................... $64,776 100.00% $ 482 $64,294 100.00% ($866) $65,160 100.00%
======= ====== ======= ======= ====== ====== ======= ======
</TABLE>
53
<PAGE>
Time Deposits by Rates. The following table sets forth the time deposits in
the Savings Bank categorized by rates at the dates indicated.
<TABLE>
<CAPTION>
At March 31, At December 31,
------------ ---------------------
1997 1996 1995
---- ---- ----
(Dollars in Thousands)
<S> <C> <C> <C>
2.00 - 3.99%........ $ 25 $ 25 $ 586
4.00 - 5.99%........ 32,387 32,154 25,026
6.00 - 7.99%........ 10,702 10,264 18,009
8.00 - 8.99%........ 68 66 159
------- ------- -------
Total.............. $43,182 $42,509 $43,780
======= ======= =======
</TABLE>
The following table sets forth the amount and maturities of time deposits at
March 31, 1997.
<TABLE>
<CAPTION>
Amount Due
----------------------------------------------------
Percent
of Total
Less Than 1-2 2-3 3-4 After Certificate
One Year Years Years Years 4 Years Total Accounts
-------- ----- ----- ----- ------- ----- --------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
2.00 - 3.99%........ $ 1 $ 24 $ -- $ -- $ -- $ 25 0.06%
4.00 - 5.99%........ 23,855 5,214 1,293 1,025 1,000 32,387 75.00
6.00 - 7.99%........ 2,281 1,585 3,231 261 3,344 10,702 24.78
8.00 - 8.99%........ 40 5 -- 23 -- 68 0.16
------- ------ ------ ------ ------ ------- ------
Total.............. $26,177 $6,828 $4,524 $1,309 $4,344 $43,182 100.00%
======= ====== ====== ====== ====== ======= ======
</TABLE>
54
<PAGE>
Deposit Activity. The following table sets forth the deposit activities
of the Savings Bank for the periods indicated.
<TABLE>
<CAPTION>
Three Months Ended Year Ended
March 31, December 31,
------------------- -----------------
1997 1996 1996 1995
---- ---- ---- ----
(In Thousands)
<S> <C> <C> <C> <C>
Beginning balance........... $64,294 $65,160 $65,160 $60,836
Net increase (decrease)
before interest credited.. (272) 920 (3,913) 1,259
Interest credited........... 754 800 3,047 3,065
------- ------- ------- -------
Net increase (decrease)
in savings deposits....... 482 1,720 (866) 4,324
------- ------- ------- -------
Ending balance.............. $64,776 $66,880 $64,294 $65,160
======= ======= ======= =======
</TABLE>
Borrowings. The Savings Bank utilizes advances from the FHLB-Pittsburgh
to supplement its supply of funds, to meet deposit withdrawal requirements and
for asset and liability management. The FHLB-Pittsburgh functions as a central
reserve bank providing credit for savings associations and certain other member
financial institutions. As a member of the FHLB-Pittsburgh, the Savings Bank is
required to own capital stock in the FHLB-Pittsburgh and is authorized to apply
for advances on the security of such stock and certain of its mortgage loans and
other assets (principally securities that are obligations of, or guaranteed by,
the U.S. Government) provided certain creditworthiness standards have been met.
Advances are made pursuant to several different credit programs. Each credit
program has its own interest rate and range of maturities. Depending on the
program, limitations on the amount of advances are based on the financial
condition of the member institution and the adequacy of collateral pledged to
secure the credit. The Savings Bank is currently authorized to borrow from the
FHLB up to an amount equal to approximately 50% of total assets.
In 1987, the Savings Bank incorporated Spring Hill Funding Corporation
("SHFC") for the purpose of issuing a CMO to various investors. In 1987, SHFC
issued a CMO with a total par value of $32.1 million comprised of three classes
of bonds with different stated maturity dates ranging from July 1, 2002 to
December 1, 2017. The net proceeds of the CMO offering amounted to $27.8
million, reflecting issuance costs and the original issue discount. The
collateral and source of cash flows for the principal and interest payments on
the CMO consisted of certain mortgage-backed securities transferred from the
Savings Bank to SHFC. As a result of the lower interest rate environment
prevailing since the issuance of the CMO bonds, the mortgage-backed securities
that were used to collateralize the CMO paid off faster than originally
projected, and the CMO balance was likewise reduced in advance of the original
schedule of stated maturities. In 1993, the class A bonds of the CMO were paid
off. In March 1997, the class C bonds of the CMO with a par value of $4.8
million were repurchased and extinguished. At March 31, 1997, class B bonds
with a principal balance of $2.6 million remained outstanding. See Note 11 of
the Notes to Consolidated Financial Statements for additional information
concerning the CMO.
55
<PAGE>
The following tables sets forth certain information regarding borrowings
by the Savings Bank at the dates and for the periods indicated:
<TABLE>
<CAPTION>
At
At December 31,
March 31, -------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
(Dollars in Thousands)
Weighted average rate paid on:
FHLB advances................ 6.47% 6.63% 7.04%
Collateralized mortgage
obligation.................. 11.60 12.30 11.83
Balance outstanding:
FHLB advances................ $9,254 $3,772 $1,778
Collateralized mortgage
obligation.................. 2,454 6,937 8,251
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended Year Ended
March 31, December 31,
---------------- -----------------
1997 1996 1996 1995
---- ---- ---- ----
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Maximum amount of borrowings
outstanding at any month end
during the period:
FHLB advances................... $9,254 $1,778 $6,378 $5,800
FHLB agreements to repurchase
securities previously sold. -- -- -- 1,325
Collateralized mortgage
obligation..................... 6,836 8,156 8,156 9,460
Average amount of borrowings
outstanding during the period:
FHLB advances................... 5,221 1,777 2,629 3,975
FHLB agreements to repurchase
securities previously sold. -- -- -- 407
Collateralized mortgage
obligation..................... 5,875 8,151 7,565 8,968
Approximate weighted average
interest rate during the period:
FHLB advances................... 6.44% 7.43% 6.50% 7.04%
FHLB agreements to repurchase
securities previously sold. -- -- -- 6.89
Collateralized mortgage
obligation..................... 11.71 12.12 12.31 11.83
</TABLE>
Competition
The Savings Bank operates in a competitive market for the attraction of
savings deposits (its primary source of lendable funds) and in the origination
of loans. Its most direct competition for savings deposits has historically
come from commercial banks, credit unions and other thrifts operating in its
primary market area. The Savings Bank's competitors include large regional and
superregional banks. These institutions are significantly larger than the
Savings Bank and therefore have greater financial and marketing resources than
the Savings Bank. Particularly in times of high interest rates, the Savings
Bank has faced additional significant competition for investors' funds from
short-term money market securities and other corporate and government
securities. In recent years, the Savings Bank
56
<PAGE>
has experienced an increased level of competition for deposits from securities
firms, insurance companies and other investment vehicles, such as mutual funds.
The Savings Bank's competition for loans comes from commercial banks and other
thrifts operating in its market as well as from mortgage bankers and brokers and
consumer finance companies. Such competition for deposits and the origination
of loans may limit the Savings Bank's growth and profitability in the future.
Subsidiary Activities
The Savings Bank has one operating subsidiary, Spring Hill Funding
Corporation, which was created in 1987 for the purpose of issuing a CMO. See
"-- Deposit Activities and Other Sources of Funds -- Borrowings." At March 31,
1997, the Savings Bank's equity investment in its subsidiary was $1.2 million.
Federal savings associations generally may invest up to 3% of their
assets in service corporations, provided that any amount in excess of 2% is used
primarily for community, inner-city and community development projects. The
Savings Bank did not have any service corporations at March 31, 1997.
Personnel
As of March 31, 1997, the Savings Bank had 23 full-time and four part-
time employees. The employees are not represented by a collective bargaining
unit and the Savings Bank believes its relationship with its employees to be
good.
Legal Proceedings
Periodically, there have been various claims and lawsuits involving the
Savings Bank, such as claims to enforce liens, condemnation proceedings on
properties in which the Savings Bank holds security interests, claims involving
the making and servicing of real property loans and other issues incident to the
Savings Bank's business. In the opinion of management, the Savings Bank is not
a party to any pending legal proceedings that it believes would have a material
adverse effect on the financial condition or operations of the Savings Bank.
Properties
The Savings Bank operates three full-service facilities in Pittsburgh,
Pennsylvania. The Savings Bank owns its Spring Hill and Beechview offices and
leases its North Shore office. The lease expires in December 1999. The Savings
Bank is currently evaluating the prospect of relocating its North Shore office
in late 1997 to a facility of comparable size and cost. At March 31, 1997, the
net book value of the properties (including land and buildings) and the Savings
Bank's fixtures, furniture and equipment was $776,000.
57
<PAGE>
The following sets forth certain information regarding the offices of the
Savings Bank.
<TABLE>
<CAPTION>
Square Deposits
Location Year Acquired Footage at March 31, 1997
- -------- ------------- --------- -----------------
(In Thousands)
<S> <C> <C> <C>
North Shore Office 1987 4,909 $14,672
112 Federal Street
Pittsburgh, PA 15212
Spring Hill Office 1960 6,776 31,171
Itin and Rhine Streets
Pittsburgh, PA 15212
Beechview Office 1977 1,770 18,933
1609 Broadway Avenue
Pittsburgh, PA 15216
</TABLE>
58
<PAGE>
MANAGEMENT OF THE HOLDING COMPANY
The Board of Directors of the Holding Company consists of five persons
divided into three classes, each of which contains approximately one third of
the Board. The Directors shall be elected by the stockholders of the Holding
Company for staggered three-year terms, or until their successors are elected
and qualified. One class of Directors, consisting of Mr. Guy Dille, has a term
of office expiring at the first annual meeting of stockholders, a second class,
consisting of Messrs. George C. Dorsch and Edward W. Preskar, has a term of
office expiring at the second annual meeting of stockholders, and a third class,
consisting of Messrs. Thomas F. Angotti and James G. Caliendo, has a term of
office expiring at the third annual meeting of stockholders. The executive
officers of the Holding Company are elected annually and hold office until their
respective successors have been elected and qualified or until death,
resignation or removal by the Board of Directors.
The following individuals hold the offices set forth opposite their names
below.
<TABLE>
<CAPTION>
Name Position held with Holding Company
---- ----------------------------------
<S> <C>
Thomas F. Angotti President and Chief Executive Officer
Vincent C. Ashoff Executive Vice President and Chief Financial Officer
Joanne C. Wienand Corporate Secretary
</TABLE>
Since the formation of the Holding Company, none of the executive
officers, directors or other personnel has received remuneration from the
Holding Company. Information concerning the principal occupations, employment
and compensation of the directors and executive officers of the Holding Company
during the past five years is set forth under "MANAGEMENT OF THE SAVINGS BANK --
Biographical Information."
MANAGEMENT OF THE SAVINGS BANK
Directors and Executive Officers
The Board of Directors of the Savings Bank is presently composed of five
members who are elected for terms of three years, approximately one third of
whom are elected annually in accordance with the Bylaws of the Savings Bank.
The executive officers of the Savings Bank are elected annually by the Board of
Directors and serve at the Board's discretion. The following table sets forth
information with respect to the Directors and executive officers of the Savings
Bank.
Directors
<TABLE>
<CAPTION>
Current
Position with Director Term
Name Age (1) Savings Bank Since Expires
- ---- ------- ------------------- -------- -------
<S> <C> <C> <C> <C>
Guy Dille 67 Director, Corporate Secretary 1988 1998
George C. Dorsch 63 Director 1980 1999
Edward W. Preskar 68 Chairman of the Board 1976 1999
Thomas F. Angotti 49 President, Chief Executive 1989 2000
Officer and Director
James G. Caliendo 44 Director 1993 2000
</TABLE>
59
<PAGE>
Executive Officers Who Are Not Directors
<TABLE>
<CAPTION>
Name Age(1) Position with Savings Bank
- ---- --------------------------
<S> <C> <C>
Vincent C. Ashoff 37 Senior Vice President/Operations, Chief
Financial Officer and Treasurer
Paul F. Hoyson 48 Senior Vice President/Retail Banking
</TABLE>
- ----------------
(1) As of March 31, 1997.
Biographical Information
Set forth below is certain information regarding the Directors and
executive officers of the Savings Bank. Unless otherwise stated, each Director
and executive officer has held his current occupation for the last five years.
Guy Dille is a retired business man. Prior to his retirement, Mr. Dille
had been associated for 34 years with Williams & Company, Inc., a distributor of
ferrous and nonferrous metals, and welding, commercial refrigeration and air
conditioning equipment and supplies, where from 1986 through 1992 he served as
Vice-President, Finance, Treasurer and Chief Financial Officer. Mr. Dille
currently serves as the Savings Bank's Corporate Secretary.
George C. Dorsch retired in 1991 as a construction engineer for the
Department of Transportation of the Commonwealth of Pennsylvania. From 1991 to
1995, Mr. Dorsch worked as a Quality Assurance Engineer for Mcguire Engineering
on various bridge and highway projects.
Edward W. Preskar spent 30 years as a registered architect in private
practice. Mr. Preskar was then employed by the School District of Pittsburgh as
Director of Facilities from 1983 to 1995.
Thomas F. Angotti joined the Savings Bank in 1987 as Operations Manager
after 12 years with the OTS, formerly known as the Federal Home Loan Bank Board
and the Examination Division of the Federal Home Loan Bank. In 1989 he became
the President of the Savings Bank and joined the Board of Directors. In April
1997, Mr. Angotti added the title of Chief Executive Officer.
James G. Caliendo is a partner at the management consulting and skill
development firm of Solutions 21. Previously, Mr. Caliendo was the Firm
Administrator for Meyer, Unkovic & Scott and held the position of Senior Vice
President-Chief Administrative Officer at Landmark Savings Association of
Pittsburgh. At Landmark Savings Association, he spent 20 years concentrating
mainly in Retail Banking, Marketing and Operations.
Vincent C. Ashoff has been affiliated with the Savings Bank since
1990. Since 1995, he has served as Senior Vice President/Operations, Chief
Financial Officer and Treasurer. Prior to that time, he served in varied
capacities including Vice President/Finance and Treasurer. Prior to joining the
Savings Bank, he served as a consultant to the thrift industry for seven years.
Paul F. Hoyson has been the Senior Vice President in charge of retail
banking operations for the Savings Bank since August 1995. From August 1993 to
August 1995, Mr. Hoyson performed independent financial consulting services.
Prior to that time, Mr Hoyson spent 20 years in the banking and financial
services industry, including various management positions with Allegheny Valley
Bank, Landmark Savings Association, and Gateway Lessor, Inc.
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Meetings and Committees of the Board of Directors
The business of the Savings Bank is conducted through meetings and
activities of the Board of Directors and its committees. During the fiscal year
ended December 31, 1996, the Board of Directors held 24 meetings. No director
attended fewer than 75% of the total meetings of the Board of Directors and of
committees on which such director served.
The Audit Committee, consisting of Directors Dille and Dorsch and the
Vice President-Lending and Controller, meets with the Savings Bank's outside
auditor to discuss the results of the annual audit. The Audit Committee met six
times during the fiscal year ended December 31, 1996.
In April 1997, the Board of Directors designated the entire Board to
act as the Compensation/Personnel Committee. The Compensation/Personnel
Committee is responsible for determining compensation for all employees and
handling other personnel related matters.
The Board of Directors also maintains a standing Corporate Strategy
Committee.
Directors' Compensation
Directors currently receive a monthly retainer of $750. It is currently
anticipated that, after completion of the Conversion, directors' fees will
continue to be paid by the Savings Bank and no separate fees will be paid for
service on the Board of Directors of the Holding Company.
Executive Compensation
Summary Compensation Table. The following information is furnished for
the Chief Executive Officer of the Savings Bank for the year ended December 31,
1996. No executive officers of the Savings Bank received salary and bonus in
excess of $100,000 during the year ended December 31, 1996.
<TABLE>
<CAPTION>
Annual Compensation(1)
------------------------------------------------------
Name and Other Annual All Other
Position Year Salary($) Bonus($) Compensation($)(2) Compensation($)(3)
- -------- ---- --------- -------- ------------------ ------------------
<S> <C> <C> <C> <C> <C>
Thomas F. Angotti 1996 $72,500 $15,365 -- $2,548
</TABLE>
- --------------------
(1) Compensation information for fiscal years ended December 31, 1995 and
1994 has been omitted as the Savings Bank was not a public company nor a
subsidiary thereof at such time.
(2) The aggregate amount of perquisites and other personal benefits was less
than 10% of the total annual salary and bonus reported.
(3) Includes employer contribution to 401(k) plan.
Employment Agreements. In connection with the Conversion, the Holding
Company and the Savings Bank (collectively, the "Employers") will enter into
three-year employment agreements with Mr. Angotti and Mr. Ashoff. Under the
agreements the initial salary level for Mr. Angotti will be $______ and for Mr.
Ashoff will be $______, which amounts will be paid by the Savings Bank and may
be increased at the discretion of the Board of Directors or an authorized
committee of the Board. On each anniversary of the commencement date of the
agreements, the term of the agreements may be extended for an additional year.
The agreements are terminable by the Employers at any time, or by Mr. Angotti or
Mr. Ashoff if either executive is assigned duties inconsistent with his initial
position, duties, responsibilities and status, or upon the occurrence of certain
events specified by federal regulations. In the event that an executive's
employment is terminated without cause or upon the executive's voluntary
termination following the occurrence of an event described in the preceding
sentence, the Savings Bank would be
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required to honor the terms of the agreement through the expiration of the
current term, including payment of current cash compensation and continuation of
employee benefits for a period of six months.
The employment agreements provide for severance payments and other
benefits in the event of involuntary termination of employment in connection
with any change in control of the Employers. Severance payments also will be
provided on a similar basis in connection with a voluntary termination of
employment where, subsequent to a change in control, the executive is assigned
duties inconsistent with his position, duties, responsibilities and status
immediately prior to such change in control. The term "change in control" is
defined in the agreement as having occurred when, among other things, (a) a
person other than the Holding Company purchases shares of Common Stock pursuant
to a tender or exchange offer for such shares, (b) any person (as such term is
used in Sections 13(d) and 14(d)(2) of the Securities Exchange Act of 1934, as
amended ("Exchange Act")) is or becomes the beneficial owner, directly or
indirectly, of securities of the Holding Company representing 25% or more of the
combined voting power of the Holding Company's then outstanding securities, (c)
the membership of the Board of Directors changes as the result of a contested
election, or (d) shareholders of the Holding Company approve a merger,
consolidation, sale or disposition of all or substantially all of the Holding
Company's assets, or a plan of partial or complete liquidation.
The severance payment from the Employers will equal three times the
executive's average annual compensation during the five-year period preceding
the change in control. Such amount will be paid in a lump sum within ten
business days following the termination of employment. Assuming that a change
in control had occurred at December 31, 1996, Mr. Angotti and Mr. Ashoff would
be entitled to severance payments of approximately $_______ and $_______,
respectively. Section 280G of the Internal Revenue Code of 1986, as amended
("Code"), states that severance payments which equal or exceed three times the
base compensation of the individual for the most recently completed five taxable
years are deemed to be "excess parachute payments" if they are contingent upon a
change in control. Individuals receiving excess parachute payments are subject
to a 20% excise tax on the amount of such excess payments, and the Employers
would not be entitled to deduct the amount of such excess payments.
The agreement restricts the executive's right to compete against the
Employers for a period of one year from the date of termination of the agreement
if he voluntarily terminates employment, except in the event of a change in
control.
The Board of Directors of the Holding Company or the Savings Bank may,
from time to time, also enter into employment or severance agreements with other
senior executive officers.
Severance Agreements. In connection with the Conversion, the Holding
Company and the Savings Bank will enter into severance agreements with ___
senior officers of the Savings Bank who will not receive employment agreements.
On each anniversary of the commencement date of the severance agreements, the
term of each agreement may be extended for an additional year at the discretion
of the Board. It is anticipated that the severance agreements will have an
initial term of __________.
The severance agreements will provide for severance payments and
continuation of employee benefits in the event of involuntary termination of
employment in connection with any change in control of the Employers in the same
manner as provided for in the employment agreements. Severance payments and
benefits also will be provided on a similar basis in connection with a voluntary
termination of employment where, subsequent to a change in control, an officer
is assigned duties inconsistent with his position, duties, responsibilities and
status immediately prior to such change in control. The term "change in
control" is defined in the agreement as having occurred when, among other
things, (a) a person other than the Holding Company purchases shares of Common
Stock pursuant to a tender or exchange offer for such shares, (b) any person (as
such term is used in Sections 13(d) and 14(d)(2) of the Exchange Act) is or
becomes the beneficial owner, directly or indirectly, of securities of the
Holding Company representing 25% or more of the combined voting power of the
Holding Company's then outstanding securities, (c) the membership of the Board
of Directors changes as the result of a contested election, or (d) shareholders
of the
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<PAGE>
Holding Company approve a merger, consolidation, sale or disposition of all or
substantially all of the Holding Company's assets, or a plan of partial or
complete liquidation.
Assuming that the severance agreements had been entered into and that a
change in control had occurred at March 31, 1997, and excluding any other
benefits due under the severance agreements, the aggregate value of the benefits
payable under the severance agreements would have been approximately
$___________.
Benefits
General. The Savings Bank currently pays the premiums for medical,
dental, life and disability insurance benefits for full-time employees, subject
to certain deductibles.
Employee Severance Compensation Plan. In connection with the Conversion,
the Board of Directors of the Savings Bank intends to adopt the Severance Plan
to provide benefits to eligible employees in the event of a change in control of
the Holding Company or the Savings Bank. In general, all employees (except for
officers who enter into separate employment or severance agreements with the
Holding Company and the Savings Bank) will be eligible to participate in the
Severance Plan. Under the Severance Plan, in the event of a change in control
of the Holding Company or the Savings Bank, eligible employees, who are
terminated or who terminate employment (but only upon the occurrence of events
specified in the Severance Plan) within 12 months of the effective date of a
change in control will be entitled to a payment based on years of service with
the Savings Bank. However, the maximum payment for any eligible employee would
be equal to __ weeks of their current compensation. The Severance Plan also
provides that employees who have not met the _________ year service requirement
for participation would receive a payment equal to ___ weeks' compensation.
Assuming that a change in control had occurred at March 31, 1997 and the
termination of all eligible employees, the maximum aggregate payment due under
the Severance Plan would be approximately $___ million.
401(k) Plan. The Savings Bank maintains a 401(k) Plan (the "401(k)
Plan") for the benefit of eligible employees of the Savings Bank. The 401(k)
Plan is intended to be a tax-qualified plan under Sections 401(a) and 401(k) of
the Code. Employees of the Savings Bank who have completed six months of service
and who have attained age 18 are eligible to participate in the 401(k) Plan.
Participants may contribute a portion of their annual compensation to the 401(k)
Plan through a salary reduction election in an amount not in excess of 15% of
compensation and applicable Code limits. The limit for 1997 is $9,500.
The Savings Bank currently matches 50% of participant contributions up to
6% of salary and may make additional discretionary profit sharing contributions.
The amount of matching contributions are subject to review and approval by the
Board of Directors on an annual basis. Participants are at all times 100% vested
in salary reduction contributions, but matching contributions vest at the rate
of 20% per year beginning with the participant's second year of service, with
full vesting after six years of service.
For the fiscal year ended December 31, 1996, the Savings Bank incurred
total contribution-based expenses of $61,000, $48,000 as profit sharing
contributions and $13,000 as matching contributions.
In general, the investment of 401(k) Plan assets is directed by plan
participants. In connection with the Conversion, participants will have the
opportunity to direct the investment of up to 100% of their vested account
balance to purchase shares of the Common Stock. A participant in the 401(k)
Plan who elects to purchase Common Stock in the Conversion through the 401(k)
Plan will receive the same subscription priority and be subject to the same
individual purchase limitations as if the participant had elected to make such
purchase using other funds. See "THE CONVERSION -- Limitations on Purchases of
Shares."
Employee Stock Ownership Plan. The Board of Directors has authorized the
adoption by the Savings Bank of an ESOP for employees of the Savings Bank to
become effective upon the completion of the Conversion. The ESOP is intended to
satisfy the requirements for an employee stock ownership plan under the Code and
the
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<PAGE>
Employee Retirement Income Security Act of 1974, as amended ("ERISA"). Full-
time employees of the Holding Company and the Savings Bank who have been
credited with at least 1,000 hours of service during a 12-month period and who
have attained age 19 will be eligible to participate in the ESOP.
In order to fund the purchase of up to 8% of the Common Stock to be
issued in the Conversion, it is anticipated that the ESOP will borrow funds from
the Holding Company. Such loan will equal 100% of the aggregate purchase price
of the Common Stock. If, for any reason, the ESOP is unable to acquire 8% of the
Common Stock issued in the Conversion, it is anticipated that the ESOP will
acquire shares not obtained through the Offering in open market purchases. The
loan to the ESOP will be repaid principally from the Savings Bank's
contributions to the ESOP and dividends payable on Common Stock held by the ESOP
over the anticipated seven-year term of the loan. The interest rate for the ESOP
loan is expected to be the prime rate as published in The Wall Street Journal on
the closing date of the Conversion. See "PRO FORMA DATA." In any plan year, the
Savings Bank may make additional discretionary contributions to the ESOP for the
benefit of plan participants in either cash or shares of Common Stock, which may
be acquired through the purchase of outstanding shares in the market or from
individual stockholders or which constitute authorized but unissued shares or
shares held in treasury by the Holding Company. The timing, amount, and manner
of such discretionary contributions will be affected by several factors,
including applicable regulatory policies, the requirements of applicable laws
and regulations, and market conditions.
Shares purchased by the ESOP with the proceeds of the loan will be held
in a suspense account and released on a pro rata basis as the loan is repaid.
Discretionary contributions to the ESOP and shares released from the suspense
account will be allocated among participants on the basis of each participant's
proportional share of total compensation. Forfeitures will be reallocated among
the remaining plan participants.
Participants will vest in their accrued benefits under the ESOP upon the
completion of five years of service. Benefits may be payable upon a
participant's retirement, early retirement, death, disability, or termination of
employment. The Savings Bank's contributions to the ESOP are not fixed, so
benefits payable under the ESOP cannot be estimated.
It is anticipated that the members of the Compensation/Personnel
Committee will be appointed by the Board of Directors of the Savings Bank to
serve as trustees of the ESOP. Under the ESOP, the trustees must vote all
allocated shares held in the ESOP in accordance with the instructions of plan
participants and allocated shares for which no instructions are received must be
voted in the same ratio on any matter as those shares for which instructions are
given.
Pursuant to SOP 93-6, the Savings Bank will record compensation expense
in an amount equal to the fair value of shares committed to be released to
employees from the ESOP and will exclude unallocated shares from earnings per
share computations. The effect of SOP 93-6 on net income and earnings per share
in future periods cannot be predicted due to the uncertainty of the fair value
of the shares at the time they will be committed to be released.
If the ESOP purchases newly issued shares from the Holding Company, total
stockholders' equity would neither increase nor decrease. However, on a per
share basis, stockholders' equity and per share net earnings would decrease
because of the increase in the number of outstanding shares.
The ESOP will be subject to the requirements of ERISA and the regulations
of the IRS and the Department of Labor issued thereunder. The Savings Bank
intends to request a determination letter from the IRS regarding the tax-
qualified status of the ESOP. Although no assurance can be given that a
favorable determination letter will be issued, the Savings Bank expects that a
favorable determination letter will be received by the ESOP.
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Stock Option Plan. The Board of Directors of the Holding Company intends
to adopt the Stock Option Plan and to submit the Stock Option Plan to the
stockholders for approval at a meeting held no earlier than six months following
consummation of the Conversion. Under current OTS regulations, the approval of a
majority vote of the Holding Company's outstanding shares is required prior to
the implementation of the Stock Option Plan within one year of the consummation
of the Conversion. The Stock Option Plan will comply with all applicable
regulatory requirements. However, the Stock Option Plan will not be approved or
endorsed by the OTS.
The Stock Option Plan will be designed to attract and retain qualified
management personnel and nonemployee directors, to provide such officers, key
employees and nonemployee directors with a proprietary interest in the Holding
Company as a incentive to contribute to the success of the Holding Company and
the Savings Bank, and to reward officers and key employees for outstanding
performance. Stock options are valuable only to the extent that they are
exercisable and to the extent that the market price for the underlying share of
Common Stock exceeds the exercise price. An option effectively eliminates the
market risk of holding the underlying security since the option holder pays no
consideration for the option until it is exercised. Therefore, the option
holder may, within the limits of the term of the option, wait to exercise the
option until the market price exceeds the exercise price. The Stock Option Plan
will provide for the grant of incentive stock options ("ISOs") intended to
comply with the requirements of Section 422 of the Code and for nonqualified
stock options ("NQOs"). Upon receipt of stockholder approval of the Stock
Option Plan, stock options may be granted to key employees of the Holding
Company and its subsidiaries, including the Savings Bank. Unless sooner
terminated, the Stock Option Plan will continue in effect for a period of ten
years from the date the Stock Option Plan is approved by stockholders.
A number of authorized shares of Common Stock equal to 10% of the number
of shares of Common Stock issued in connection with the Conversion will be
reserved for future issuance under the Stock Option Plan (71,300 shares based on
the issuance of 713,000 shares at the maximum of the Estimated Valuation Range).
Shares acquired upon exercise of options will be authorized but unissued shares
or treasury shares. In the event of a stock split, reverse stock split, stock
dividend, or similar event, the number of shares of Common Stock under the Stock
Option Plan, the number of shares to which any award relates and the exercise
price per share under any option may be adjusted by the Committee to reflect the
increase or decrease in the total number of shares of Common Stock outstanding.
The Stock Option Plan will be administered and interpreted by a committee
of the Board of Directors ("Committee"). Subject to applicable OTS regulations,
the Committee will determine which nonemployee directors, officers and key
employees will be granted options, whether, in the case of officers and
employees, such options will be ISOs or NQOs, the number of shares subject to
each option, and the exercisability of such options. All options granted to
nonemployee directors will be NQOs. The per share exercise price of all options
will equal at least 100% of the fair market value of a share of Common Stock on
the date the option is granted.
Under current OTS regulations, if the Stock Option Plan is implemented
within one year of the consummation of the Conversion, (i) no officer or
employee could receive an award of options covering in excess of 25%, (ii) no
nonemployee director could receive in excess of 5% and (iii) nonemployee
directors, as a group, could not receive in excess of 30%, of the number of
shares reserved for issuance under the Stock Option Plan.
It is anticipated that all options granted under the Stock Option Plan
will be granted subject to a vesting schedule whereby the options become
exercisable over a specified period following the date of grant. Under OTS
regulations, if the Stock Option Plan is implemented within the first year
following consummation of the Conversion, the minimum vesting period will be
five years. All unvested options will be immediately exercisable in the event of
the recipient's death or disability. Unvested options will also be exercisable
following a change in control (as defined in the Stock Option Plan) of the
Holding Company or the Savings Bank to the extent authorized or not prohibited
by applicable law or regulations. OTS regulations currently provide that, if the
Stock Option Plan is implemented prior to the first anniversary of the
Conversion, vesting may not be accelerated upon a change in control of the
Holding Company or the Savings Bank.
Each stock option that is awarded to an officer or key employee will
remain exercisable at any time on or after the date it vests through the earlier
to occur of the tenth anniversary of the date of grant or three months after
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the date on which the optionee terminates employment (one year in the event of
the optionee's termination by reason of death or disability), unless such period
is extended by the Committee. Each stock option that is awarded to a
nonemployee director will remain exercisable through the earlier to occur of the
tenth anniversary of the date of grant or one year (two years in the event of a
nonemployee director's death or disability) following the termination of a
nonemployee director's service on the Board. All stock options are
nontransferable except by will or the laws of descent or distribution.
Under current provisions of the Code, the federal tax treatment of ISOs
and NQOs is different. With respect to ISOs, an optionee who satisfies certain
holding period requirements will not recognize income at the time the option is
granted or at the time the option is exercised. If the holding period
requirements are satisfied, the optionee will generally recognize capital gain
or loss upon a subsequent disposition of the shares of Common Stock received
upon the exercise of a stock option. If the holding period requirements are not
satisfied, the difference between the fair market value of the Common Stock on
the date of grant and the option exercise price, if any, will be taxable to the
optionee at ordinary income tax rates. A federal income tax deduction generally
will not be available to the Holding Company as a result of the grant or
exercise of an ISO, unless the optionee fails to satisfy the holding period
requirements. With respect to NQOs, the grant of an NQO generally is not a
taxable event for the optionee and no tax deduction will be available to the
Holding Company. However, upon the exercise of an NQO, the difference between
the fair market value of the Common Stock on the date of exercise and the option
exercise price generally will be treated as compensation to the optionee upon
exercise, and the Holding Company will be entitled to a compensation expense
deduction in the amount of income realized by the optionee.
Although no specific award determinations have been made at this time,
the Holding Company and the Savings Bank anticipate that if stockholder approval
is obtained it would provide awards to its directors, officers and employees to
the extent permitted by applicable regulations. The size of individual awards
will be determined prior to submitting the Stock Option Plan for stockholder
approval, and disclosure of anticipated awards will be included in the proxy
materials for such meeting.
Management Recognition Plan. Following the Conversion, the Board of
Directors of the Holding Company intends to adopt an MRP for officers,
employees, and nonemployee directors of the Holding Company and the Savings
Bank, subject to shareholder approval. The MRP will enable the Holding Company
and the Savings Bank to provide participants with a proprietary interest in the
Holding Company as an incentive to contribute to the success of the Holding
Company and the Savings Bank. The MRP will comply with all applicable
regulatory requirements. However, the MRP will not be approved or endorsed by
the OTS.
Under current OTS regulations, the approval of a majority vote of the
Holding Company's outstanding shares is required prior to the implementation of
the MRP within one year of the consummation of the Conversion.
The MRP expects to acquire a number of shares of Common Stock equal to 4%
of the Common Stock issued in connection with the Conversion (28,520 shares
based on the issuance of 713,000 shares in the Conversion at the maximum of the
Estimated Valuation Range); provided, however, that if the Savings Bank's
tangible capital ratio under OTS guidelines is less than 10% at the time the MRP
is implemented, the MRP will acquire a number of shares equal to 3% of the
Common Stock issued in connection with the Conversion. Such shares will be
acquired on the open market, if available, with funds contributed by the Holding
Company or the Savings Bank to a trust which the Holding Company may establish
in conjunction with the MRP ("MRP Trust") or from authorized but unissued shares
or treasury shares of the Holding Company.
A committee of the Board of Directors of the Holding Company will
administer the MRP, the members of which will also serve as trustees of the MRP
Trust, if formed. The trustees will be responsible for the investment of all
funds contributed by the Holding Company or the Savings Bank to the MRP Trust.
The Board of Directors of the Holding Company may terminate the MRP at any time
and, upon termination, all unallocated shares of Common Stock will revert to the
Holding Company.
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Shares of Common Stock granted pursuant to the MRP will be in the form of
restricted stock payable ratably over a specified vesting period following the
date of grant. Allocations under the MRP will be at no cost to recipients.
During the period of restriction, all shares will be held in escrow by the
Holding Company or by the MRP Trust. Under OTS regulations, if the MRP is
implemented within the first year following consummation of the Conversion, the
minimum vesting period will be five years. All unvested MRP awards will vest in
the event of the recipient's death or disability. Unvested MRP awards will also
vest following a change in control (as defined in the MRP) of the Holding
Company or the Savings Bank to the extent authorized or not prohibited by
applicable law or regulations. OTS regulations currently provide that, if the
MRP is implemented prior to the first anniversary of the Conversion, vesting may
not be accelerated upon a change in control of the Holding Company or the
Savings Bank.
A recipient of an MRP award in the form of restricted stock generally
will not recognize income upon an award of shares of Common Stock, and the
Holding Company will not be entitled to a federal income tax deduction, until
the termination of the restrictions. Upon such termination, the recipient will
recognize ordinary income in an amount equal to the fair market value of the
Common Stock at the time and the Holding Company will be entitled to a deduction
in the same amount after satisfying federal income tax withholding requirements.
However, the recipient may elect to recognize ordinary income in the year the
restricted stock is granted in an amount equal to the fair market value of the
shares at that time, determined without regard to the restrictions. In that
event, the Holding Company will be entitled to a deduction in such year and in
the same amount. Any gain or loss recognized by the recipient upon subsequent
disposition of the stock will be either a capital gain or capital loss.
Although no specific award determinations have been made at this time,
the Holding Company and the Savings Bank anticipate that if stockholder approval
is obtained it would provide awards to its directors, officers and employees to
the extent permitted by applicable regulations. Under current OTS regulations,
if the MRP is implemented within one year of the consummation of the Stock
Conversion, (i) no officer or employee could receive an award of options
covering in excess of 25%, (ii) no nonemployee director could receive in excess
of 5% and (iii) nonemployee directors, as a group, could not receive in excess
of 30%, of the number of shares reserved for issuance under the MRP. The size of
individual awards will be determined prior to submitting the MRP for stockholder
approval, and disclosure of anticipated awards will be included in the proxy
materials for such meeting.
Transactions with the Savings Bank
Federal regulations require that all loans or extensions of credit to
executive officers and directors must be made on substantially the same terms,
including interest rates and collateral, as those prevailing at the time for
comparable transactions with other persons, except for loans made pursuant to
programs generally available to all employees, and must not involve more than
the normal risk of repayment or present other unfavorable features. The Savings
Bank is therefore prohibited from making any new loans or extensions of credit
to the Savings Bank's executive officers and directors at different rates or
terms than those offered to the general public, except for loans made pursuant
to programs generally available to all employees, and has adopted a policy to
this effect. In addition, loans made to a director or executive officer in an
amount that, when aggregated with the amount of all other loans to such person
and his or her related interests, are in excess of the greater of $25,000, or 5%
of the Savings Bank's capital and surplus (up to a maximum of $500,000) must be
approved in advance by a majority of the disinterested members of the Board of
Directors. See "REGULATION -- Federal Regulation of Savings Associations --
Transactions with Affiliates." The aggregate amount of loans by the Savings
Bank to its executive officers and directors was $9,000 at December 31, 1996.
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REGULATION
General
The Savings Bank is subject to extensive regulation, examination and
supervision by the OTS as its chartering agency, and the FDIC, as the insurer of
its deposits. The activities of federal savings institutions are governed by
the Home Owners' Loan Act, as amended (the "HOLA") and, in certain respects, the
Federal Deposit Insurance Act ("FDIA") and the regulations issued by the OTS and
the FDIC to implement these statutes. These laws and regulations delineate the
nature and extent of the activities in which federal savings associations may
engage. Lending activities and other investments must comply with various
statutory and regulatory capital requirements. In addition, the Savings Bank's
relationship with its depositors and borrowers is also regulated to a great
extent, especially in such matters as the ownership of deposit accounts and the
form and content of the Savings Bank's mortgage documents. The Savings Bank
must file reports with the OTS and the FDIC concerning its activities and
financial condition in addition to obtaining regulatory approvals prior to
entering into certain transactions such as mergers with, or acquisitions of,
other financial institutions. There are periodic examinations by the OTS and
the FDIC to review the Savings Bank's compliance with various regulatory
requirements. The regulatory structure also gives the regulatory authorities
extensive discretion in connection with their supervisory and enforcement
activities and examination policies, including policies with respect to the
classification of assets and the establishment of adequate loan loss reserves
for regulatory purposes. Any change in such policies, whether by the OTS, the
FDIC or Congress, could have a material adverse impact on the Savings Bank and
its operations.
Federal Regulation of Savings Banks
Office of Thrift Supervision. The OTS is an office in the Department of
the Treasury subject to the general oversight of the Secretary of the Treasury.
The OTS generally possesses the supervisory and regulatory duties and
responsibilities formerly vested in the Federal Home Loan Bank Board. Among
other functions, the OTS issues and enforces regulations affecting federally
insured savings associations and regularly examines these institutions.
Federal Home Loan Bank System. The FHLB System, consisting of 12 FHLBs,
is under the jurisdiction of the Federal Housing Finance Board ("FHFB"). The
designated duties of the FHFB are to supervise the FHLBs, to ensure that the
FHLBs carry out their housing finance mission, to ensure that the FHLBs remain
adequately capitalized and able to raise funds in the capital markets, and to
ensure that the FHLBs operate in a safe and sound manner. The Savings Bank, as a
member of the FHLB-Pittsburgh, is required to acquire and hold shares of capital
stock in the FHLB-Pittsburgh in an amount equal to the greater of (i) 1.0% of
the aggregate outstanding principal amount of residential mortgage loans, home
purchase contracts and similar obligations at the beginning of each year, or
(ii) 1/20 of its advances (i.e., borrowings) from the FHLB-Pittsburgh. The
Savings Bank is in compliance with this requirement with an investment in FHLB-
Pittsburgh stock of $607,000 at March 31, 1997. Among other benefits, the FHLB-
Pittsburgh provides a central credit facility primarily for member institutions.
It is funded primarily from proceeds derived from the sale of consolidated
obligations of the FHLB System. It makes advances to members in accordance with
policies and procedures established by the FHFB and the Board of Directors of
the FHLB-Pittsburgh.
Federal Deposit Insurance Corporation. The FDIC is an independent
federal agency that insures the deposits, up to prescribed statutory limits, of
depository institutions. The FDIC currently maintains two separate insurance
funds: the BIF and the SAIF. As insurer of the Savings Bank's deposits, the FDIC
has examination, supervisory and enforcement authority over the Savings Bank.
The Savings Bank's accounts are insured by the SAIF to the maximum extent
permitted by law. The Savings Bank pays deposit insurance premiums based on a
risk-based assessment system established by the FDIC. Under applicable
regulations, institutions are assigned to one of three capital groups that are
based solely on the level of an institution's capital -- "well capitalized,"
"adequately capitalized," and "undercapitalized" -- which are defined
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in the same manner as the regulations establishing the prompt corrective action
system, as discussed below. These three groups are then divided into three
subgroups which reflect varying levels of supervisory concern, from those which
are considered to be healthy to those which are considered to be of substantial
supervisory concern. The matrix so created results in nine assessment risk
classifications, with rates that until September 30, 1996 ranged from 0.23% for
well capitalized, financially sound institutions with only a few minor
weaknesses to 0.31% for undercapitalized institutions that pose a substantial
risk of loss to the SAIF unless effective corrective action is taken.
Pursuant to the DIF Act, which was enacted on September 30, 1996, the
FDIC imposed a special assessment on each depository institution with SAIF-
assessable deposits which resulted in the SAIF achieving its designated reserve
ratio. In connection therewith, the FDIC reduced the assessment schedule for
SAIF members, effective January 1, 1997, to a range of 0% to 0.27%, with most
institutions, including the Savings Bank, paying 0%. This assessment schedule is
the same as that for the BIF, which reached its designated reserve ratio in
1995. In addition, since January 1, 1997, SAIF members are charged an assessment
of .065% of SAIF-assessable deposits for the purpose of paying interest on the
obligations issued by the Financing Corporation ("FICO") in the 1980s to help
fund the thrift industry cleanup. BIF-assessable deposits will be charged an
assessment to help pay interest on the FICO bonds at a rate of approximately
.013% until the earlier of December 31, 1999 or the date upon which the last
savings association ceases to exist, after which time the assessment will be the
same for all insured deposits.
The DIF Act provides for the merger of the BIF and the SAIF into the
Deposit Insurance Fund on January 1, 1999, but only if no insured depository
institution is a savings association on that date. The DIF Act contemplates the
development of a common charter for all federally chartered depository
institutions and the abolition of separate charters for national banks and
federal savings associations. It is not known what form the common charter may
take and what effect, if any, the adoption of a new charter would have on the
operation of the Savings Bank.
The FDIC may terminate the deposit insurance of any insured depository
institution if it determines after a hearing that the institution has engaged or
is engaging in unsafe or unsound practices, is in an unsafe or unsound condition
to continue operations, or has violated any applicable law, regulation, order or
any condition imposed by an agreement with the FDIC. It also may suspend
deposit insurance temporarily during the hearing process for the permanent
termination of insurance, if the institution has no tangible capital. If
insurance of accounts is terminated, the accounts at the institution at the time
of termination, less subsequent withdrawals, shall continue to be insured for a
period of six months to two years, as determined by the FDIC. Management is
aware of no existing circumstances that could result in termination of the
deposit insurance of the Savings Bank.
Liquidity Requirements. Under OTS regulations, each savings institution
is required to maintain an average daily balance of liquid assets (cash, certain
time deposits and savings accounts, bankers' acceptances, and specified U.S.
Government, state or federal agency obligations and certain other investments)
equal to a monthly average of not less than a specified percentage (currently
5.0%) of its net withdrawable accounts plus short-term borrowings. OTS
regulations also require each savings institution to maintain an average daily
balance of short-term liquid assets at a specified percentage (currently 1.0%)
of the total of its net withdrawable accounts plus short-term borrowings.
Monetary penalties may be imposed for failure to meet liquidity requirements.
See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS -- Liquidity and Capital Resources."
Prompt Corrective Action. Under the FDIA, each federal banking agency is
required to implement a system of prompt corrective action for institutions that
it regulates. The federal banking agencies have promulgated substantially
similar regulations to implement this system of prompt corrective action. Under
the regulations, an institution shall be deemed to be (i) "well capitalized" if
it has a total risk-based capital ratio of 10.0% or more, has a Tier I risk-
based capital ratio of 6.0% or more, has a leverage ratio of 5.0% or more and is
not subject to specified requirements to meet and maintain a specific capital
level for any capital measure; (ii) "adequately capitalized" if it has a total
risk-based capital ratio of 8.0% or more, has a Tier I risk-based capital ratio
of 4.0% or more, has a leverage ratio of 4.0% or more (3.0% under certain
circumstances) and does not meet the definition of "well capitalized;" (iii)
"undercapitalized" if it has a total risk-based capital ratio that is less than
8.0%, has a Tier I
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risk-based capital ratio that is less than 4.0% or has a leverage ratio that is
less than 4.0% (3.0% under certain circumstances); (iv) "significantly
undercapitalized" if it has a total risk-based capital ratio that is less than
6.0%, has a Tier I risk-based capital ratio that is less than 3.0% or has a
leverage ratio that is less than 3.0%; and (v) "critically undercapitalized" if
it has a ratio of tangible equity to total assets that is equal to or less than
2.0%.
A federal banking agency may, after notice and an opportunity for a
hearing, reclassify a well capitalized institution as adequately capitalized and
may require an adequately capitalized institution or an undercapitalized
institution to comply with supervisory actions as if it were in the next lower
category if the institution is in an unsafe or unsound condition or has received
in its most recent examination, and has not corrected, a less than satisfactory
rating for asset quality, management, earnings or liquidity. (The OTS may not,
however, reclassify a significantly undercapitalized institution as critically
undercapitalized.)
An institution generally must file a written capital restoration plan
that meets specified requirements, as well as a performance guaranty by each
company that controls the institution, with the appropriate federal banking
agency within 45 days of the date that the institution receives notice or is
deemed to have notice that it is undercapitalized, significantly
undercapitalized or critically undercapitalized. Immediately upon becoming
undercapitalized, an institution shall become subject to various mandatory and
discretionary restrictions on its operations.
At March 31, 1997, the Savings Bank was categorized as "well capitalized"
under the prompt corrective action regulations of the OTS.
Standards for Safety and Soundness. The federal banking regulatory
agencies have prescribed, by regulation, standards for all insured depository
institutions relating to: (i) internal controls, information systems and
internal audit systems; (ii) loan documentation; (iii) credit underwriting; (iv)
interest rate risk exposure; (v) asset growth; (vi) asset quality; (vii)
earnings; and (viii) compensation, fees and benefits ("Guidelines"). The
Guidelines set forth the safety and soundness standards that the federal banking
agencies use to identify and address problems at insured depository institutions
before capital becomes impaired. If the OTS determines that the Savings Bank
fails to meet any standard prescribed by the Guidelines, the agency may require
the Savings Bank to submit to the agency an acceptable plan to achieve
compliance with the standard. OTS regulations establish deadlines for the
submission and review of such safety and soundness compliance plans.
Qualified Thrift Lender Test. All savings associations are required to
meet a qualified thrift lender ("QTL") test to avoid certain restrictions on
their operations. A savings institution that fails to become or remain a QTL
shall either convert to a national bank charter or be subject to the following
restrictions on its operations: (i) the association may not make any new
investment or engage in activities that would not be permissible for national
banks; (ii) the association may not establish any new branch office where a
national bank located in the savings institution's home state would not be able
to establish a branch office; (iii) the association shall be ineligible to
obtain new advances from any FHLB; and (iv) the payment of dividends by the
association shall be subject to the rules regarding the statutory and regulatory
dividend restrictions applicable to national banks. Also, beginning three years
after the date on which the savings institution ceases to be a QTL, the savings
institution would be prohibited from retaining any investment or engaging in any
activity not permissible for a national bank and would be required to repay any
outstanding advances to any FHLB. In addition, within one year of the date on
which a savings association controlled by a company ceases to be a QTL, the
company must register as a bank holding company and become subject to the rules
applicable to such companies. A savings institution may requalify as a QTL if it
thereafter complies with the QTL test.
Currently, the QTL test requires that either an institution qualify as a
domestic building and loan association under the Internal Revenue Code or that
65% of an institution's "portfolio assets" (as defined) consist of certain
housing and consumer-related assets on a monthly average basis in nine out of
every 12 months. Assets that qualify without limit for inclusion as part of the
65% requirement are loans made to purchase, refinance, construct, improve or
repair domestic residential housing and manufactured housing; home equity loans;
mortgage-backed securities (where the mortgages are secured by domestic
residential housing or manufactured housing); FHLB stock; direct or
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indirect obligations of the FDIC; and loans for educational purposes, loans to
small businesses and loans made through credit cards. In addition, the
following assets, among others, may be included in meeting the test subject to
an overall limit of 20% of the savings institution's portfolio assets: 50% of
residential mortgage loans originated and sold within 90 days of origination;
100% of consumer loans; and stock issued by Freddie Mac or Fannie Mae.
Portfolio assets consist of total assets minus the sum of (i) goodwill and other
intangible assets, (ii) property used by the savings institution to conduct its
business, and (iii) liquid assets up to 20% of the institution's total assets.
At March 31, 1997, the qualified thrift investments of the Savings Bank were
approximately 94.3% of its portfolio assets.
Capital Requirements. Under OTS regulations a savings association must
satisfy three minimum capital requirements: core capital, tangible capital and
risk-based capital. Savings associations must meet all of the standards in
order to comply with the capital requirements.
OTS capital regulations establish a 3% core capital or leverage ratio
(defined as the ratio of core capital to adjusted total assets). Core capital
is defined to include common stockholders' equity, noncumulative perpetual
preferred stock and any related surplus, and minority interests in equity
accounts of consolidated subsidiaries, less (i) any intangible assets, except
for certain qualifying intangible assets; (ii) certain mortgage servicing
rights; and (iii) equity and debt investments in subsidiaries that are not
"includable subsidiaries," which is defined as subsidiaries engaged solely in
activities not impermissible for a national bank, engaged in activities
impermissible for a national bank but only as an agent for its customers, or
engaged solely in mortgage-banking activities. In calculating adjusted total
assets, adjustments are made to total assets to give effect to the exclusion of
certain assets from capital and to account appropriately for the investments in
and assets of both includable and nonincludable subsidiaries. Institutions that
fail to meet the core capital requirement would be required to file with the OTS
a capital plan that details the steps they will take to reach compliance. In
addition, the OTS's prompt corrective action regulation provides that a savings
institution that has a leverage ratio of less than 4% (3% for institutions
receiving the highest CAMEL examination rating) will be deemed to be
"undercapitalized" and may be subject to certain restrictions. See "--Federal
Regulation of Savings Associations -- Prompt Corrective Action."
Savings associations also must maintain "tangible capital" not less than
1.5% of the Savings Bank's adjusted total assets. "Tangible capital" is defined,
generally, as core capital minus any "intangible assets" other than purchased
mortgage servicing rights.
Each savings institution must maintain total risk-based capital equal to
at least 8% of risk-weighted assets. Total risk-based capital consists of the
sum of core and supplementary capital, provided that supplementary capital
cannot exceed core capital, as previously defined. Supplementary capital
includes (i) permanent capital instruments such as cumulative perpetual
preferred stock, perpetual subordinated debt and mandatory convertible
subordinated debt, (ii) maturing capital instruments such as subordinated debt,
intermediate-term preferred stock and mandatory convertible subordinated debt,
subject to an amortization schedule, and (iii) general valuation loan and lease
loss allowances up to 1.25% of risk-weighted assets.
The risk-based capital regulation assigns each balance sheet asset held
by a savings institution to one of four risk categories based on the amount of
credit risk associated with that particular class of assets. Assets not included
for purposes of calculating capital are not included in calculating risk-
weighted assets. The categories range from 0% for cash and securities that are
backed by the full faith and credit of the U.S. Government to 100% for
repossessed assets or assets more than 90 days past due. Qualifying residential
mortgage loans (including multi-family mortgage loans) are assigned a 50% risk
weight. Consumer, commercial, home equity and residential construction loans are
assigned a 100% risk weight, as are nonqualifying residential mortgage loans and
that portion of land loans and nonresidential construction loans that do not
exceed an 80% loan-to-value ratio. The book value of assets in each category is
multiplied by the weighing factor (from 0% to 100%) assigned to that category.
These products are then totalled to arrive at total risk-weighted assets. Off-
balance sheet items are included in risk-weighted assets by converting them to
an approximate balance sheet "credit equivalent amount" based on a
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conversion schedule. These credit equivalent amounts are then assigned to risk
categories in the same manner as balance sheet assets and included risk-weighted
assets.
The OTS has incorporated an interest rate risk component into its
regulatory capital rule. Under the rule, savings associations with "above
normal" interest rate risk exposure would be subject to a deduction from total
capital for purposes of calculating their risk-based capital requirements. A
savings association's interest rate risk is measured by the decline in the net
portfolio value of its assets (i.e., the difference between incoming and
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outgoing discounted cash flows from assets, liabilities and off-balance sheet
contracts) that would result from a hypothetical 200 basis point increase or
decrease in market interest rates divided by the estimated economic value of the
association's assets, as calculated in accordance with guidelines set forth by
the OTS. A savings association whose measured interest rate risk exposure
exceeds 2% must deduct an interest rate risk component in calculating its total
capital under the risk-based capital rule. The interest rate risk component is
an amount equal to one-half of the difference between the institution's measured
interest rate risk and 2%, multiplied by the estimated economic value of the
association's assets. That dollar amount is deducted from an association's total
capital in calculating compliance with its risk-based capital requirement. Under
the rule, there is a two quarter lag between the reporting date of an
institution's financial data and the effective date for the new capital
requirement based on that data. A savings association with assets of less than
$300 million and risk-based capital ratios in excess of 12% is not subject to
the interest rate risk component, unless the OTS determines otherwise. The rule
also provides that the Director of the OTS may waive or defer an association's
interest rate risk component on a case-by-case basis. Under certain
circumstances, a savings association may request an adjustment to its interest
rate risk component if it believes that the OTS-calculated interest rate risk
component overstates its interest rate risk exposure. In addition, certain
"well-capitalized" institutions may obtain authorization to use their own
interest rate risk model to calculate their interest rate risk component in lieu
of the OTS-calculated amount. The OTS has postponed the date that the component
will first be deducted from an institution's total capital.
See "HISTORICAL AND PRO FORMA CAPITAL COMPLIANCE" for a table that sets
forth in terms of dollars and percentages the OTS tangible, core and risk-based
capital requirements, the Savings Bank's historical amounts and percentages at
March 31, 1997 and pro forma amounts and percentages based upon the assumptions
stated therein.
Limitations on Capital Distributions. OTS regulations impose uniform
limitations on the ability of all savings associations to engage in various
distributions of capital such as dividends, stock repurchases and cash-out
mergers. In addition, OTS regulations require the Savings Bank to give the OTS
30 days' advance notice of any proposed declaration of dividends, and the OTS
has the authority under its supervisory powers to prohibit the payment of
dividends. The regulation utilizes a three-tiered approach which permits
various levels of distributions based primarily upon a savings association's
capital level.
A Tier 1 savings association has capital in excess of its fully phased-in
capital requirement (both before and after the proposed capital distribution).
Tier 1 savings association may make (without application but upon prior notice
to, and no objection made by, the OTS) capital distributions during a calendar
year up to 100% of its net income to date during the calendar year plus one-half
its surplus capital ratio (i.e., the amount of capital in excess of its fully
----
phased-in requirement) at the beginning of the calendar year or the amount
authorized for a Tier 2 association. Capital distributions in excess of such
amount require advance notice to the OTS. A Tier 2 savings association has
capital equal to or in excess of its minimum capital requirement but below its
fully phased-in capital requirement (both before and after the proposed capital
distribution). Such an association may make (without application) capital
distributions up to an amount equal to 75% of its net income during the previous
four quarters depending on how close the association is to meeting its fully
phased-in capital requirement. Capital distributions exceeding this amount
require prior OTS approval. Tier 3 associations are savings associations with
capital below the minimum capital requirement (either before or after the
proposed capital distribution). Tier 3 associations may not make any capital
distributions without prior approval from the OTS.
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The Savings Bank currently meets the criteria to be designated a Tier 1
association and, consequently, could at its option (after prior notice to, and
no objection made by, the OTS) distribute up to 100% of its net income during
the calendar year plus 50% of its surplus capital ratio at the beginning of the
calendar year less any distributions previously paid during the year.
Loans to One Borrower. Under the HOLA, savings institutions are
generally subject to the national bank limit on loans to one borrower.
Generally, this limit is 15% of the Savings Bank's unimpaired capital and
surplus, plus an additional 10% of unimpaired capital and surplus, if such loan
is secured by readily-marketable collateral, which is defined to include certain
financial instruments and bullion. The OTS by regulation has amended the loans
to one borrower rule to permit savings associations meeting certain
requirements, including capital requirements, to extend loans to one borrower in
additional amounts under circumstances limited essentially to loans to develop
or complete residential housing units. At March 31, 1997, the Savings Bank's
regulatory limit on loans to one borrower was $667,000. At March 31, 1997, the
Savings Bank's largest aggregate amount of loans to one borrower was $804,000.
Activities of Associations and Their Subsidiaries. A savings association
may establish operating subsidiaries to engage in any activity that the savings
association may conduct directly and service corporation subsidiaries to engage
in certain preapproved activities or, with approval of the OTS, other activities
reasonably related to the activities of financial institutions. When a savings
association establishes or acquires a subsidiary or elects to conduct any new
activity through a subsidiary that the association controls, the savings
association must notify the FDIC and the OTS 30 days in advance and provide the
information each agency may, by regulation, require. Savings associations also
must conduct the activities of subsidiaries in accordance with existing
regulations and orders.
The OTS may determine that the continuation by a savings association of
its ownership control of, or its relationship to, the subsidiary constitutes a
serious risk to the safety, soundness or stability of the association or is
inconsistent with sound banking practices or with the purposes of the FDIA.
Based upon that determination, the FDIC or the OTS has the authority to order
the savings association to divest itself of control of the subsidiary. The FDIC
also may determine by regulation or order that any specific activity poses a
serious threat to the SAIF. If so, it may require that no SAIF member engage in
that activity directly.
Transactions with Affiliates. Savings associations must comply with
Sections 23A and 23B of the Federal Reserve Act ("Sections 23A and 23B")
relative to transactions with affiliates in the same manner and to the same
extent as if the savings association were a Federal Reserve member bank. A
savings and loan holding company, its subsidiaries and any other company under
common control are considered affiliates of the subsidiary savings association
under the HOLA. Generally, Sections 23A and 23B: (i) limit the extent to which
the insured association or its subsidiaries may engage in certain covered
transactions with an affiliate to an amount equal to 10% of such institution's
capital and surplus and place an aggregate limit on all such transactions with
affiliates to an amount equal to 20% of such capital and surplus, and (ii)
require that all such transactions be on terms substantially the same, or at
least as favorable to the institution or subsidiary, as those provided to a non-
affiliate. The term "covered transaction" includes the making of loans, the
purchase of assets, the issuance of a guarantee and similar types of
transactions. Any loan or extension of credit by the Savings Bank to an
affiliate must be secured by collateral in accordance with Section 23A.
Three additional rules apply to savings associations: (i) a savings
association may not make any loan or other extension of credit to an affiliate
unless that affiliate is engaged only in activities permissible for bank holding
companies; (ii) a savings association may not purchase or invest in securities
issued by an affiliate (other than securities of a subsidiary); and (iii) the
OTS may, for reasons of safety and soundness, impose more stringent restrictions
on savings associations but may not exempt transactions from or otherwise
abridge Section 23A or 23B. Exemptions from Section 23A or 23B may be granted
only by the Federal Reserve, as is currently the case with respect to all FDIC-
insured banks.
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The Savings Bank's authority to extend credit to executive officers,
directors and 10% shareholders, as well as entities controlled by such persons,
is currently governed by Sections 22(g) and 22(h) of the Federal Reserve Act,
and Regulation O thereunder. Among other things, these regulations require that
such loans be made on terms and conditions substantially the same as those
offered to unaffiliated individuals and not involve more than the normal risk of
repayment. Regulation O also places individual and aggregate limits on the
amount of loans the Savings Bank may make to such persons based, in part, on the
Savings Bank's capital position, and requires certain board approval procedures
to be followed. The OTS regulations, with certain minor variances, apply
Regulation O to savings institutions.
Community Reinvestment Act. Banks are also subject to the provisions of
the Community Reinvestment Act of 1977, which requires the appropriate federal
bank regulatory agency, in connection with its regular examination of a bank, to
assess the bank's record in meeting the credit needs of the community serviced
by the bank, including low and moderate income neighborhoods. The regulatory
agency's assessment of the bank's record is made available to the public.
Further, such assessment is required of any bank which has applied, among other
things, to establish a new branch office that will accept deposits, relocate an
existing office or merge or consolidate with, or acquire the assets or assume
the liabilities of, a federally regulated financial institution.
Savings and Loan Holding Company Regulation
Holding Company Acquisitions. The HOLA and OTS regulations issued
thereunder generally prohibit a savings and loan holding company, without prior
OTS approval, from acquiring more than 5% of the voting stock of any other
savings association or savings and loan holding company or controlling the
assets thereof. They also prohibit, among other things, any director or officer
of a savings and loan holding company, or any individual who owns or controls
more than 25% of the voting shares of such holding company, from acquiring
control of any savings association not a subsidiary of such savings and loan
holding company, unless the acquisition is approved by the OTS.
Holding Company Activities. As a unitary savings and loan holding
company, the Holding Company generally is not subject to activity restrictions
under the HOLA. If the Holding Company acquires control of another savings
association as a separate subsidiary other than in a supervisory acquisition, it
would become a multiple savings and loan holding company. The HOLA provides
that, among other things, no multiple savings and loan holding company or
subsidiary thereof which is not an insured association shall commence or
continue for more than two years after becoming a multiple savings and loan
association holding company or subsidiary thereof, any business activity other
than: (i) furnishing or performing management services for a subsidiary insured
institution, (ii) conducting an insurance agency or escrow business, (iii)
holding, managing, or liquidating assets owned by or acquired from a subsidiary
insured institution, (iv) holding or managing properties used or occupied by a
subsidiary insured institution, (v) acting as trustee under deeds of trust, (vi)
those activities previously directly authorized by regulation as of March 5,
1987 to be engaged in by multiple holding companies or (vii) those activities
authorized by the Federal Reserve Board as permissible for bank holding
companies, unless the OTS by regulation, prohibits or limits such activities for
savings and loan holding companies. Those activities described in (vii) above
also must be approved by the OTS prior to being engaged in by a multiple savings
and loan holding company.
Qualified Thrift Lender Test. The HOLA requires any savings and loan
holding company that controls a savings association that fails the QTL test, as
explained under "-- Federal Regulation of Savings Associations --Qualified
Thrift Lender Test," must, within one year after the date on which the
association ceases to be a QTL, register as and be deemed a bank holding company
subject to all applicable laws and regulations.
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TAXATION
Federal Taxation
General. The Holding Company and the Savings Bank will report their
income on a fiscal year basis using the accrual method of accounting and will be
subject to federal income taxation in the same manner as other corporations with
some exceptions, including particularly the Savings Bank's reserve for bad debts
discussed below. The following discussion of tax matters is intended only as a
summary and does not purport to be a comprehensive description of the tax rules
applicable to the Savings Bank or the Holding Company.
Bad Debt Reserve. Historically, savings institutions such as the Savings
Bank which met certain definitional tests primarily related to their assets and
the nature of their business ("qualifying thrift") were permitted to establish a
reserve for bad debts and to make annual additions thereto, which may have been
deducted in arriving at their taxable income. The Savings Bank's deductions with
respect to "Qualifying real property loans, " which are generally loans secured
by certain interest in real property, were computed using an amount based on the
Savings Bank's actual loss experience, or a percentage equal to 8% of the
Savings Bank's taxable income, computed with certain modifications and reduced
by the amount of any permitted additions to the non-qualifying reserve. Due to
the Savings Bank's loss experience in recent years, the Savings Bank generally
recognized a bad debt deduction based on actual loss experience.
In August 1996, the provisions repealing the current thrift bad debt rules
were passed by Congress as part of "The Small Business Job Protection Act of
1996." The new rules eliminate the 8% of taxable income method for deducting
additions to the tax bad debt reserves for all thrifts for tax years beginning
after December 31, 1995. These rules also require that all institutions
recapture all or a portion of their bad debt reserves added since the base year
(last taxable year beginning before January 1, 1988). Because the Savings Bank
has no post-1987 bad debt reserves, the recapture rules will have no effect on
the net income or federal income tax expense. For taxable years beginning after
December 31, 1995, the Savings Bank's bad debt deduction will be determined
under the experience method using a formula based on actual bad debt experience
over a period of years. The unrecaptured base year reserves will not be subject
to recapture as long as the institution continues to carry on the business of
banking. In addition, the balance of the pre-1988 bad debt reserves continue to
subject to provision of present law referred to below that require recapture in
the case of certain excess distributions to shareholders.
Distributions. To the extent that the Savings Bank makes "nondividend
distributions" to the Holding Company, such distributions from the balance of
its bad debt reserve as of December 31, 1987 (or a letter amount if the Savings
Bank's loan portfolio decreased since December 31, 1987) and then from the
supplemental reserve for losses on loans ("Excess Distributions"), and an amount
based on the Excess Distributions will be included in the Savings Bank's taxable
income. Nondividend distributions include distributions in excess of the Savings
Bank's current and accumulated earnings and profits, distributions in redemption
of stock and distributions in partial or complete liquidation. However,
dividends paid out of the Savings Bank's current or accumulated earnings and
profits, as calculated for federal income tax purposes, will not be considered
to result in a distribution from the Savings Bank's bad debt reserve. The amount
of additional taxable income created from an Excess Distribution is an amount
that, when reduced by the tax attributable to the income, is equal to the amount
of the distribution. Thus, if, after the Conversion, the Savings Bank makes a
"nondividend distribution," then approximately one and one-half times the Excess
Distribution would be includable in gross income for federal income tax
purposes, assuming a 34% corporate income tax rate (exclusive of state and local
taxes). See "REGULATION" AND "DIVIDEND POLICY" for limits on the payment of
dividends by the Savings Bank. The Savings Bank does not intend to pay dividends
that would result in a recapture of any portion of its tax bad debt reserve.
Corporate Alternative Minimum Tax. The Code imposes a tax on alternative
minimum taxable income ("AMTI") at a rate of 20%. The excess of the tax bad debt
reserve deduction using the percentage of taxable income method over the
deduction that would have been allowable under the experience method is treated
as a preference
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item for purposes of computing the AMTI. In addition, only 90% of AMTI can be
offset by net operating loss carryovers. AMTI is increased by an amount equal
to 75% of the amount by which the Savings Bank's adjusted current earnings
exceeds its AMTI (determined without regard to this preference and prior to
reduction for net operating losses). For taxable years beginning after December
31, 1986, and before January 1, 1996, an environmental tax of .12% of the excess
of AMTI (with certain modification) over $2.0 million is imposed on
corporations, including the Savings Bank, whether or not an Alternative Minimum
Tax ("AMT") is paid.
Dividends-Received Deduction. The Holding Company may exclude from its
income 100% of dividends received from the Savings Bank as a member of the same
affiliated group of corporations. The corporate dividends-received deduction is
generally 70% in the case of dividends received from unaffiliated corporations
with which the Holding Company and the Savings Bank will not file a consolidated
tax return, except that if the Holding Company or the Savings Bank owns more
than 20% of the stock of a corporation distributing a dividend, then 80% of any
dividends received may be deducted.
Audits. The Savings Bank's federal income tax returns have not been
audited within the past five years.
State Taxation
The Savings Bank is subject to the Mutual Thrift Institutions Tax of the
Commonwealth of Pennsylvania based on the Savings Bank's financial net income
determined in accordance with generally accepted accounting principles with
certain adjustments. The tax rate under the Mutual Thrift Institutions Tax is
11.5%. Interest on Commonwealth of Pennsylvania and Federal obligations is
excluded from net income. An allocable portion of net interest expense incurred
to carry the obligations is disallowed as a deduction. Three year carryforwards
of losses are allowed.
The Company is subject to the Corporate Net Income Tax and the Capital
Stock Tax of the Commonwealth of Pennsylvania.
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THE CONVERSION
The OTS has given approval to the Plan subject to the Plan's approval by
the members of the Savings Bank entitled to vote on the matter and subject to
the satisfaction of certain other conditions imposed by the OTS in its approval.
OTS approval, however, does not constitute a recommendation or endorsement of
the Plan.
General
On April 16, 1997, the Board of Directors of the Savings Bank unanimously
adopted the Plan of Conversion, pursuant to which the Savings Bank will convert
from a federally chartered mutual savings bank to a federally chartered stock
savings bank. All of the capital stock of the Savings Bank will be held by the
Holding Company, a newly formed Pennsylvania corporation. The following
discussion of the Plan of Conversion is qualified in its entirety by reference
to the Plan of Conversion, which is attached as Exhibit A to the Savings Bank's
Proxy Statement and is available from the Savings Bank upon request. The OTS
has approved the Plan of Conversion subject to the Plan's approval by the
members of the Savings Bank entitled to vote on the matter at a Special Meeting
called for that purpose to be held on ___________, 1997, and subject to the
satisfaction of certain other conditions imposed by the OTS in its approval.
The Conversion will be accomplished through adoption of a Federal Stock
Charter and Bylaws to authorize the issuance of capital stock by the Savings
Bank. As part of the Conversion, the Savings Bank will transfer all of its
newly issued common stock (1,000 shares) to the Holding Company in exchange for
up to 85% of the net proceeds from the sale of Common Stock by the Holding
Company.
The Plan of Conversion provides generally that: (i) the Savings Bank will
convert from a federally chartered mutual savings bank to a federally chartered
stock savings bank; (ii) the Common Stock will be offered by the Holding Company
in the Subscription Offering to persons having Subscription Rights and in the
Direct Community Offering to certain members of the general public, with
preference given to natural persons and trusts of natural persons residing in
the Local Community; (iii) if necessary, shares of Common Stock not subscribed
for in the Subscription and Direct Community Offering will be offered to certain
members of the general public in a Syndicated Community Offering through a
syndicate of registered broker-dealers pursuant to selected dealers agreements;
and (iv) the Holding Company will purchase all of the capital stock of the
Savings Bank to be issued in connection with the Conversion. The Conversion
will be effected only upon completion of the sale of at least $5,270,000 of
Common Stock to be issued pursuant to the Plan of Conversion.
Consummation of the Conversion is subject to the approval of the Plan of
Conversion by the Savings Bank's members and the approval by the OTS of the Plan
of Conversion and the Holding Company's acquisition of the Savings Bank. The
Holding Company has received approval from the OTS to become the holding company
of the Savings Bank, subject to the satisfaction of certain conditions, and to
acquire all of the common stock of the Savings Bank to be issued in the
Conversion in exchange for up to 85% of the net proceeds from the sale of Common
Stock in the Offerings. The Conversion will be effected only upon completion of
the sale of the shares of Common Stock to be issued by the Holding Company
pursuant to the Plan of Conversion.
As part of the Conversion, the Holding Company is making a Subscription
Offering of its Common Stock to holders of Subscription Rights in the following
order of priority: (i) Eligible Account Holders (depositors with $50.00 or more
on deposit as of December 31, 1995); (ii) the Savings Bank's ESOP; (iii)
Supplemental Eligible Account Holders (depositors with $50.00 or more on deposit
as of June 30, 1997); and (iv) Other Members (depositors of the Savings Bank as
of _____ __, 1997 and borrowers of the Savings Bank with mortgage loans
outstanding as of __________, 1997).
Shares of Common Stock not sold in the Subscription and Direct Community
Offering may be offered in the Syndicated Community Offering. Regulations
require that the Direct Community and Syndicated Community
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Offerings be completed within 45 days after completion of the Subscription
Offering unless extended by the Savings Bank or the Holding Company with the
approval of the regulatory authorities. If the Syndicated Community Offering is
determined not to be feasible, the Board of Directors of the Savings Bank will
consult with the regulatory authorities to determine an appropriate alternative
method for selling the unsubscribed shares of Common Stock. The Plan of
Conversion provides that the Conversion must be completed within 24 months after
the date of the approval of the Plan of Conversion by the members of the Savings
Bank.
No sales of Common Stock may be completed, either in the Subscription,
Direct Community or Syndicated Community Offerings, unless the Plan of
Conversion is approved by the members of the Savings Bank.
The completion of the Offerings, however, is subject to market conditions
and other factors beyond the Savings Bank's control. No assurance can be given
as to the length of time after approval of the Plan of Conversion at the Special
Meeting that will be required to complete the Offerings or other sale of the
Common Stock. If delays are experienced, significant changes may occur in the
estimated pro forma market value of the Holding Company and the Savings Bank as
converted, together with corresponding changes in the net proceeds realized by
the Holding Company from the sale of the Common Stock. In the event the
Conversion is terminated, the Savings Bank would be required to charge all
Conversion expenses against current income.
Orders for shares of Common Stock will not be filled until at least 527,000
shares of Common Stock have been subscribed for or sold and the OTS approves the
final valuation and the Conversion closes. If the Conversion is not completed
within 45 days after the last day of the fully extended Subscription Offering
and the OTS consents to an extension of time to complete the Conversion,
subscribers will be given the right to increase, decrease or rescind their
subscriptions. Unless an affirmative indication is received from subscribers
that they wish to continue to subscribe for shares, the funds will be returned
promptly, together with accrued interest at the Savings Bank's passbook rate
from the date payment is received until the funds are returned to the
subscriber. If such period is not extended, or, in any event, if the Conversion
is not completed, all withdrawal authorizations will be terminated and all funds
held will be promptly returned together with accrued interest at the Savings
Bank's passbook rate from the date payment is received until the Conversion is
terminated.
Purposes of Conversion
Management of the Savings Bank believes that the Conversion offers a number
of advantages which will be important to the future growth and performance of
the Savings Bank in that it is intended: (i) to improve the overall competitive
position of the Savings Bank in its market area and to support possible future
expansion and diversification of operations (currently there are no specific
plans, arrangements or understandings, written or oral, regarding any such
activities); (ii) to afford members of the Savings Bank and others the
opportunity to become stockholders of the Holding Company and thereby
participate more directly in, and contribute to, any future growth of the
Holding Company and the Savings Bank; and (iii) to provide future access to
capital markets.
The Savings Bank's Board of Directors has formed the Holding Company to
serve upon consummation of the Conversion as a holding company with the Savings
Bank as its subsidiary. The Savings Bank, as a federal mutual savings bank,
does not have stockholders and has no authority to issue capital stock. By
converting to the stock form of organization, the Holding Company and the
Savings Bank will be structured in the form used by holding companies of
commercial banks and by a large number of savings institutions.
Effects of Conversion to Stock Form on Depositors and Borrowers of the Savings
Bank
Voting Rights. Savings members and borrowers will have no voting rights in
the Savings Bank or the Holding Company and therefore will not be able to elect
directors of the Savings Bank or the Holding Company or to control their
affairs. Currently, these rights are accorded to savings members of the Savings
Bank. Subsequent to the Conversion, voting rights will be vested exclusively in
the Holding Company with respect to the Savings Bank and the holders of the
Common Stock as to matters pertaining to the Holding Company. Each holder of
Common
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Stock shall be entitled to vote on any matter to be considered by the
stockholders of the Holding Company. A stockholder will be entitled to one vote
for each share of Common Stock owned.
Savings Accounts and Loans. The Savings Bank's savings accounts, account
balances and existing FDIC insurance coverage of savings accounts will not be
affected by the Conversion. Furthermore, the Conversion will not affect the
loan accounts, loan balances or obligations of borrowers under their individual
contractual arrangements with the Savings Bank.
Tax Effects. The Savings Bank has received an opinion from Breyer &
Aguggia, Washington, D.C., that the Conversion will constitute a nontaxable
reorganization under Section 368(a)(1)(F) of the Code. Among other things, the
opinion states that: (i) no gain or loss will be recognized to the Savings Bank
in its mutual or stock form by reason of its Conversion; (ii) no gain or loss
will be recognized to its account holders upon the issuance to them of accounts
in the Savings Bank immediately after the Conversion, in the same dollar amounts
and on the same terms and conditions as their accounts at the Savings Bank in
its mutual form plus interest in the liquidation account; (iii) the tax basis of
account holders' accounts in the Savings Bank immediately after the Conversion
will be the same as the tax basis of their accounts immediately prior to
Conversion; (iv) the tax basis of each account holder's interest in the
liquidation account will be zero; (v) the tax basis of the Common Stock
purchased in the Conversion will be the amount paid and the holding period for
such stock will commence at the date of purchase; and (vi) no gain or loss will
be recognized to account holders upon the receipt or exercise of Subscription
Rights in the Conversion, except to the extent Subscription Rights are deemed to
have value as discussed below. Unlike a private letter ruling issued by the
IRS, an opinion of counsel is not binding on the IRS and the IRS could disagree
with the conclusions reached therein. In the event of such disagreement, no
assurance can be given that the conclusions reached in an opinion of counsel
would be sustained by a court if contested by the IRS.
Based upon past rulings issued by the IRS, the opinion provides that the
receipt of Subscription Rights by Eligible Account Holders, Supplemental
Eligible Account Holders and Other Members under the Plan will be taxable to the
extent, if any, that the Subscription Rights are deemed to have a fair market
value. Feldman Financial, a financial consulting firm retained by the Savings
Bank, whose findings are not binding on the IRS, has indicated that the
Subscription Rights do not have any value, based on the fact that such rights
are acquired by the recipients without cost, are nontransferable and of short
duration and afford the recipients the right only to purchase shares of the
Common Stock at a price equal to its estimated fair market value, which will be
the same price paid by purchasers in the Direct Community Offering for
unsubscribed shares of Common Stock. If the Subscription Rights are deemed to
have a fair market value, the receipt of such rights may only be taxable to
those Eligible Account Holders, Supplemental Eligible Account Holders and Other
Members who exercise their Subscription Rights. The Savings Bank could also
recognize a gain on the distribution of such Subscription Rights. Eligible
Account Holders, Supplemental Eligible Account Holders and Other Members are
encouraged to consult with their own tax advisors as to the tax consequences in
the event the Subscription Rights are deemed to have a fair market value.
The Savings Bank has also received an opinion from S.R. Snodgrass A.C.,
Wexford, Pennsylvania, that, assuming the Conversion does not result in any
federal income tax liability to the Savings Bank, its account holders, or the
Holding Company, implementation of the Plan of Conversion will not result in any
Pennsylvania income tax liability to such entities or persons.
The opinions of Breyer & Aguggia and S.R. Snodgrass A.C. and the letter
from Feldman Financial are filed as exhibits to the Registration Statement. See
"ADDITIONAL INFORMATION."
PROSPECTIVE INVESTORS ARE URGED TO CONSULT WITH THEIR OWN TAX ADVISORS
REGARDING THE TAX CONSEQUENCES OF THE CONVERSION PARTICULAR TO THEM.
Liquidation Account. In the unlikely event of a complete liquidation of
the Savings Bank in its present mutual form, each depositor in the Savings Bank
would receive a pro rata share of any assets of the Savings Bank remaining after
payment of claims of all creditors (including the claims of all depositors up to
the withdrawal value
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of their accounts). Each depositor's pro rata share of such remaining assets
would be in the same proportion as the value of his or her deposit account to
the total value of all deposit accounts in the Savings Bank at the time of
liquidation.
After the Conversion, holders of withdrawable deposit(s) in the Savings
Bank, including certificates of deposit ("Savings Account(s)"), shall not be
entitled to share in any residual assets in the event of liquidation of the
Savings Bank. However, pursuant to OTS regulations, the Savings Bank shall, at
the time of the Conversion, establish a liquidation account in an amount equal
to its total equity as of the date of the latest statement of financial
condition contained herein.
The liquidation account shall be maintained by the Savings Bank subsequent
to the Conversion for the benefit of Eligible Account Holders and Supplemental
Eligible Account Holders who retain their Savings Accounts in the Savings Bank.
Each Eligible Account Holder and Supplemental Eligible Account Holder shall,
with respect to each Savings Account held, have a related inchoate interest in a
portion of the liquidation account balance ("subaccount").
The initial subaccount balance for a Savings Account held by an Eligible
Account Holder or a Supplemental Eligible Account Holder shall be determined by
multiplying the opening balance in the liquidation account by a fraction of
which the numerator is the amount of such holder's "qualifying deposit" in the
Savings Account and the denominator is the total amount of the "qualifying
deposits" of all such holders. Such initial subaccount balance shall not be
increased, and it shall be subject to downward adjustment as provided below.
If the deposit balance in any Savings Account of an Eligible Account Holder
or Supplemental Eligible Account Holder at the close of business on any annual
closing day of the Savings Bank subsequent to December 31, 1995 is less than the
lesser of (i) the deposit balance in such Savings Account at the close of
business on any other annual closing date subsequent to December 31, 1995 or
June 30, 1997 or (ii) the amount of the "qualifying deposit" in such Savings
Account on December 31, 1995 or June 30, 1997, then the subaccount balance for
such Savings Account shall be adjusted by reducing such subaccount balance in an
amount proportionate to the reduction in such deposit balance. In the event of
a downward adjustment, such subaccount balance shall not be subsequently
increased, notwithstanding any increase in the deposit balance of the related
Savings Account. If any such Savings Account is closed, the related subaccount
balance shall be reduced to zero.
In the event of a complete liquidation of the Savings Bank (and only in
such event) each Eligible Account Holder and Supplemental Eligible Account
Holder shall be entitled to receive a liquidation distribution from the
liquidation account in the amount of the then current adjusted subaccount
balance(s) for Savings Account(s) then held by such holder before any
liquidation distribution may be made to stockholders. No merger, consolidation,
bulk purchase of assets with assumptions of Savings Accounts and other
liabilities or similar transactions with another federally insured institution
in which the Savings Bank is not the surviving institution shall be considered
to be a complete liquidation. In any such transaction the liquidation account
shall be assumed by the surviving institution.
The Subscription, Direct Community and Syndicated Community Offerings
The Subscription and Direct Community Offering will expire at 12:00 Noon,
Eastern Time, on the Expiration Date, unless extended or continued by the
Holding Company and the Savings Bank, with the approval of the OTS, if
necessary.
Subscription Offering. In accordance with the Plan, nontransferable
Subscription Rights to purchase the Common Stock have been issued to all persons
and entities entitled to purchase the Common Stock in the Subscription Offering.
The amount of the Common Stock which these parties may purchase will be subject
to the availability of the Common Stock for purchase under the categories set
forth in the Plan. Subscription priorities have been established for the
allocation of stock to the extent that the Common Stock is available. These
priorities are as follows:
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Category 1: Eligible Account Holders. Each depositor with $50.00 or more
on deposit at the Savings Bank as of December 31, 1995 will receive
nontransferable Subscription Rights to subscribe for up to the greater of
$50,000 of Common Stock, one-tenth of one percent of the total offering of
Common Stock or 15 times the product (rounded down to the next whole number)
obtained by multiplying the total number of shares of Common Stock to be issued
by a fraction of which the numerator is the amount of qualifying deposit of the
Eligible Account Holder and the denominator is the total amount of qualifying
deposits of all Eligible Account Holders. If the exercise of Subscription
Rights in this category results in an oversubscription, shares of Common Stock
will be allocated among subscribing Eligible Account Holders so as to permit
each Eligible Account Holder, to the extent possible, to purchase a number of
shares sufficient to make such person's total allocation equal to 100 shares or
the number of shares actually subscribed for, whichever is less. Any shares
remaining after that allocation will be allocated among the subscribing Eligible
Account Holders whose subscriptions remain unsatisfied in the proportion that
the amount of the qualifying deposit of each Eligible Account Holder whose
subscription remains unsatisfied bears to the total amount of the qualifying
deposits of all Eligible Account Holders. Subscription Rights received by
officers and directors in this category based on their increased deposits in the
Savings Bank in the one year period preceding December 31, 1995 are subordinated
to the Subscription Rights of other Eligible Account Holders.
Category 2: ESOP. The Plan of Conversion provides that the ESOP shall
receive nontransferable Subscription Rights to purchase up to 8% of the shares
of Common Stock issued in the Conversion. The ESOP intends to purchase 8% of
the shares of Common Stock issued in the Conversion. In the event the number of
shares offered in the Conversion is increased above the maximum of the Estimated
Valuation Range, the ESOP shall have a priority right to purchase any such
shares exceeding the maximum of the Estimated Valuation Range up to an aggregate
of 8% of the Common Stock.
Category 3: Supplemental Eligible Account Holders. Each depositor with
$50.00 or more on deposit as of June 30, 1997 will receive nontransferable
Subscription Rights to subscribe for up to the greater of $50,000 of Common
Stock, one-tenth of one percent of the total offering of Common Stock or 15
times the product (rounded down to the next whole number) obtained by
multiplying the total number of shares of Common Stock to be issued by a
fraction of which the numerator is the amount of qualifying deposits of the
Supplemental Eligible Account Holder and the denominator is the total amount of
qualifying deposits of all Supplemental Eligible Account Holders. If the
exercise of Subscription Rights in this category results in an oversubscription,
shares of Common Stock will be allocated among subscribing Supplemental Eligible
Account Holders so as to permit each Supplemental Eligible Account Holder, to
the extent possible, to purchase a number of shares sufficient to make such
person's total allocation equal to 100 shares or the number of shares actually
subscribed for, whichever is less. Any shares remaining after that allocation
will be allocated among the subscribing Supplemental Eligible Account Holders
whose subscriptions remain unsatisfied in the proportion that the amount of the
qualifying deposit of each Supplemental Eligible Account Holder whose
subscription remains unsatisfied bears to the total amount of the qualifying
deposits of all Supplemental Eligible Account Holders.
Category 4: Other Members. Each depositor of the Savings Bank as of the
Voting Record Date and each borrower with a mortgage loan outstanding as of the
Voting Record Date will receive nontransferable Subscription Rights to purchase
up to $50,000 of Common Stock to the extent shares are available following
subscriptions by Eligible Account Holders, the Savings Bank's ESOP and
Supplemental Eligible Account Holders. In the event of an oversubscription in
this category, the available shares will be allocated among subscribing Other
Members proportionately, based on the amounts of their respective subscriptions.
Subscription Rights are nontransferable. Persons selling or otherwise
transferring their rights to subscribe for Common Stock in the Subscription
Offering or subscribing for Common Stock on behalf of another person will be
subject to forfeiture of such rights and possible further sanctions and
penalties imposed by the OTS or another agency of the U.S. Government. Each
person exercising Subscription Rights will be required to certify that he or she
is purchasing such shares solely for his or her own account and that he or she
has no agreement or understanding with any other person for the sale or transfer
of such shares. ONCE TENDERED,
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SUBSCRIPTION ORDERS CANNOT BE REVOKED OR MODIFIED WITHOUT THE CONSENT OF THE
SAVINGS BANK AND THE HOLDING COMPANY.
The Subscription Offering and all Subscription Rights under the Plan will
expire at 12:00 Noon, Eastern Time, on the Expiration Date, whether or not the
Savings Bank has been able to locate each person entitled to such Subscription
Rights. The Subscription Offering may be extended by the Holding Company and
the Savings Bank up to ______ __, 1997 without the OTS's approval. OTS
regulations require that the Holding Company complete the sale of Common Stock
within 45 days after the close of the Subscription Offering. If the sale of
Common Stock is not completed within such period, all funds received will be
promptly returned with interest at the Savings Bank's passbook rate and all
withdrawal authorizations will be canceled. If regulatory approval of an
extension of the time period has been granted, all subscribers will be notified
of such extension and of the duration of any extension that has been granted,
and will be given the right to increase, decrease or rescind their orders. If an
affirmative response to any resolicitation is not received by the Holding
Company from a subscriber, the subscriber's order will be rescinded and all
funds received will be promptly returned with interest (or withdrawal
authorizations will be canceled). No single extension can exceed 90 days.
Direct Community Offering. Concurrently with the Subscription Offering,
the Holding Company is offering shares of Common Stock to certain members of the
general public in a Direct Community Offering, with preference given to natural
persons and trusts of natural persons residing in the Local Community.
Purchasers in the Direct Community Offering are eligible to purchase up to
$50,000 of Common Stock. In the event an insufficient number of shares are
available to fill orders in the Direct Community Offering, the available shares
will be allocated among prospective purchases proportionally, based on the
amounts of their respective orders. The Direct Community Offering will
terminate at 12:00 Noon, Eastern Time, on the Expiration Date unless extended by
the Holding Company and the Savings Bank, with approval of the OTS, if
necessary. Any extensions beyond 45 days after the close of the Subscription
Offering would require a resolicitation of orders, wherein subscribers would be
given the opportunity to continue their orders, in which case they will need to
affirmatively reconfirm their subscriptions prior to the expiration of the
resolicitation offering or their subscription funds will be promptly refunded
with interest at the Savings Bank's passbook rate, or be permitted to modify or
cancel their orders. The right of any person to purchase shares in the Direct
Community Offering is subject to the absolute right of the Holding Company and
the Savings Bank to accept or reject such purchases in whole or in part. If an
order is rejected in part, the purchaser does not have the right to cancel the
remainder of the order. The Holding Company presently intends to terminate the
Direct Community Offering as soon as it has received orders for all shares
available for purchase in the Conversion.
If all of the Common Stock offered in the Subscription Offering is
subscribed for, no Common Stock will be available for purchase in the Direct
Community Offering.
Syndicated Community Offering. The Plan provides that, if necessary, all
shares of Common Stock not purchased in the Subscription and Direct Community
Offering, if any, may be offered for sale to certain members of the general
public in a Syndicated Community Offering through a syndicate of registered
broker-dealers to be formed and managed by Ryan, Beck acting as agent of the
Holding Company. Ryan, Beck may be included as a member of the selling group.
The Holding Company and the Savings Bank have the right to reject orders, in
whole or part, in their sole discretion in the Syndicated Community Offering.
Neither Ryan, Beck nor any registered broker-dealer shall have any obligation to
take or purchase any shares of the Common Stock in the Syndicated Community
Offering; however, Ryan, Beck has agreed to use its best efforts in the sale of
shares in the Syndicated Community Offering.
Stock sold in the Syndicated Community Offering will be sold at the $10.00
Purchase Price, the same price as all other shares in the Offering. See "--
Stock Pricing and Number of Shares to be Issued." No person will be permitted
to subscribe in the Syndicated Community Offering for more than $50,000 of
Common Stock. See "--Marketing and Underwriting Arrangements" for a description
of the commission to be paid to the selected dealers and to Ryan, Beck.
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Payments made in the form of a check, money order or in cash will earn
interest at the Savings Bank's passbook rate from the date such payment is
actually received by the Savings Bank until completion or termination of the
Conversion.
Ryan, Beck may enter into agreements with selected dealers to assist in the
sale of shares in the Syndicated Community Offering. If a syndicate of broker-
dealers is formed to assist in the Syndicated Community Offering, a purchaser
may pay for his shares with funds held by or deposited with a selected dealer.
If an order form is executed and forwarded to the selected dealer or if the
selected dealer is authorized to execute the order form on behalf of a
purchaser, the selected dealer is required to forward the order form and funds
to the Savings Bank for deposit in a segregated account on or before noon of the
business day following receipt of the order form or execution of the order form
by the selected dealer. Alternatively, selected dealers may solicit indications
of interest from their customers to place orders for shares. Such selected
dealers shall subsequently contact their customers who indicated an interest and
seek their confirmation as to their intent to purchase. Those indicating an
intent to purchase shall execute order forms and forward them to their selected
dealer or authorize the selected dealer to execute such forms. The selected
dealer will acknowledge receipt of the order to its customer in writing on the
following business day and will debit such customer's account on the third
business day after the customer has confirmed his intent to purchase (the "debit
date") and on or before noon of the next business day following the debit date
will send order forms and funds to the Savings Bank for deposit in a segregated
account. If such alternative procedure is employed, purchasers' funds are not
required to be in their accounts with selected dealers until the debit date.
Certificates representing shares of Common Stock purchased, together with
any refund due, will be mailed to purchasers at the address specified in the
order form, as soon as practicable following consummation of the sale of the
Common Stock. Any certificates returned as undeliverable will be disposed of in
accordance with applicable law.
The Syndicated Community Offering may terminate no more than 45 days
following the expiration of the Subscription Offering, unless extended by the
Holding Company with the approval of the OTS.
In the event the Savings Bank is unable to find purchasers from the general
public for all unsubscribed shares, other purchase arrangements will be made by
the Board of Directors of the Savings Bank, if feasible. Such other
arrangements will be subject to the approval of the OTS. The OTS may grant one
or more extensions of the offering period, provided that (i) no single extension
exceeds 90 days, (ii) subscribers are given the right to increase, decrease or
rescind their subscriptions during the extension period, and (iii) the
extensions do not go more than two years beyond the date on which the members
approved the Plan. If the Conversion is not completed within 45 days after the
close of the Subscription Offering, either all funds received will be returned
with interest (and withdrawal authorizations canceled) or, if the OTS has
granted an extension of time, all subscribers will be given the right to
increase, decrease or rescind their subscriptions at any time prior to 20 days
before the end of the extension period. If an extension of time is obtained,
all subscribers will be notified of such extension and of their rights to modify
their orders. If an affirmative response to any resolicitation is not received
by the Holding Company from a subscriber, the subscriber's order will be
rescinded and all funds received will be promptly returned with interest (or
withdrawal authorizations will be canceled).
Persons in Non-Qualified States. The Holding Company and the Savings Bank
will make reasonable efforts to comply with the securities laws of all states in
the United States in which persons entitled to subscribe for stock pursuant to
the Plan reside. However, the Holding Company and the Savings Bank are not
required to offer stock in the Subscription Offering to any person who resides
in a foreign country or resides in a state of the United States with respect to
which: (i) a small number of persons otherwise eligible to subscribe for shares
of Common Stock reside in such state; (ii) the granting of Subscription Rights
or offer or sale of shares of Common Stock to such persons would require the
Holding Company to register, under the securities laws of such state, as a
broker or dealer or to register or otherwise qualify the Common Stock for sale
in such state; or (iii) such registration or qualification would be impractical
for reasons of cost or otherwise. Where the number of persons eligible to
subscribe for shares in one state is small, the Holding Company and the Savings
Bank will base their decision as to whether or not to
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offer the Common stock in such state on a number of factors, including the size
of accounts held by account holders in the state and the cost of registering or
qualifying the shares.
Limitations on Purchases of Shares
The Plan of Conversion provides for certain limitations to be placed upon
the purchase of Common Stock by eligible subscribers and others in the
Conversion. Each subscriber must subscribe for a minimum of 25 shares. With
the exception of the ESOP, which is expected to purchase 8% of the shares of
Common Stock issued in the Conversion, no person or entity may purchase more
than $50,000 of Common Stock in the Conversion; and no person or entity,
together with associates of and persons acting in concert with such person or
entity, may purchase in the aggregate more than $85,000 of Common Stock in the
Conversion. Officers, directors and their associates may not purchase, in the
aggregate, more than 34% of the shares of Common Stock offered in the
Conversion. For purposes of the Plan, the directors are not deemed to be acting
in concert solely by reason of their Board membership. Pro rata reductions
within each Subscription Rights category will be made in allocating shares to
the extent that the maximum purchase limitations are exceeded.
The Savings Bank's and the Holding Company's Boards of Directors may, in
their sole discretion, increase the maximum purchase limitation set forth above
up to 9.99% of the shares of Common Stock sold in the Conversion, provided that
orders for shares which exceed 5% of the shares of Common Stock sold in the
Conversion may not exceed, in the aggregate, 10% of the shares sold in the
Conversion. The Savings Bank and the Holding Company do not intend to increase
the maximum purchase limitation unless market conditions are such that an
increase in the maximum purchase limitation is necessary to sell a number of
shares in excess of the minimum of the Estimated Valuation Range. If the Boards
of Directors decide to increase the purchase limitation, all persons who
subscribed for the maximum number of shares will be given the opportunity to
increase their subscriptions accordingly, subject to the rights and preferences
of any person who has priority Subscription Rights.
The term "acting in concert" is defined in the Plan to mean: (i) knowing
participation in a joint activity or interdependent conscious parallel action
towards a common goal whether or not pursuant to an express agreement; or (ii) a
combination or pooling of voting or other interests in the securities of an
issuer for a common purpose pursuant to any contract, understanding,
relationship, agreement or other arrangement, whether written or otherwise. In
general, a person who acts in concert with another other party shall also be
deemed to be acting in concert with any person who is also acting in concert
with that other party. The Holding Company and the Savings Bank may presume
that certain persons are acting in concert based upon, among other things, joint
account relationships and the fact that such persons have filed joint Schedules
13D with the SEC with respect to other companies.
The term "associate" of a person is defined in the Plan to mean: (i) any
corporation or organization (other than the Savings Bank or a majority-owned
subsidiary of the Savings Bank) of which such person is an officer or partner or
is, directly or indirectly, the beneficial owner of 10% or more of any class of
equity securities; (ii) any trust or other estate in which such person has a
substantial beneficial interest or as to which such person serves as trustee or
in a similar fiduciary capacity (excluding tax-qualified employee plans); and
(iii) any relative or spouse of such person, or any relative of such spouse, who
either has the same home as such person or who is a director or officer of the
Savings Bank or any of its parents or subsidiaries. For example, a corporation
of which a person serves as an officer would be an associate of such person,
and, therefore, all shares purchased by such corporation would be included with
the number of shares which such person could purchase individually under the
above limitations.
The term "officer" is defined in the Plan to mean an executive officer of
the Savings Bank, including its Chairman of the Board, President, Executive Vice
Presidents, Senior Vice Presidents, Vice Presidents in charge of principal
business functions, Secretary and Treasurer.
Common Stock purchased pursuant to the Conversion will be freely
transferable, except for shares purchased by directors and officers of the
Savings Bank and the Holding Company and by National Association of Securities
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Dealers, Inc. ("NASD") members. See "-- Restrictions on Transferability by
Directors and Officers and NASD Members."
Marketing and Underwriting Arrangements
The Savings Bank and the Holding Company have engaged Ryan, Beck as a
consultant and financial advisor in connection with the offering of the Common
Stock, and Ryan, Beck has agreed to use its best efforts to solicit
subscriptions and purchase orders for shares of Common Stock in the Offerings.
Ryan, Beck is not obligated to take or purchase any shares of Common Stock in
the Offerings. Based upon negotiations with the Savings Bank and the Holding
Company concerning fee structure, Ryan, Beck will receive an advisory and
management fee of $25,000 in consideration for providing certain advisory and
administrative services in connection with the Conversion and a marketing fee
equal to 1.5% of the aggregate Purchase Price of Common Stock sold in the
Subscription Offering and a marketing fee of 1.5% of the aggregate Purchase
Price of Common Stock sold in the Community Offering. No fees will be paid to
Ryan, Beck on purchases in the Subscription Offering or in the Direct Community
Offering by any director, officer or employee of the Holding Company or the
Savings Bank or members of their immediate families or by the ESOP. In the
event that a selected dealers agreement is entered into in connection with a
Syndicated Community Offering, the Savings Bank will pay a fee to such selected
dealers of 5.5% for shares sold by an NASD member firm pursuant to a selected
dealers agreement. The minimum fee payable to Ryan, Beck is $100,000 and the
maximum marketing fee payable for shares sold in the Subscription and Direct
Community Offering is 1.5% of aggregate Purchase Price at the midpoint of the
Estimated Valuation Range. Fees to Ryan, Beck and to any other broker dealer
may be deemed to be underwriting fees and Ryan, Beck and such broker dealers may
be deemed to be underwriters. Ryan, Beck will also be reimbursed for its
reasonable out-of-pocket expenses in an amount not to exceed $7,500 without the
prior approval of the Holding Company and the Savings Bank, and for legal fees
of its counsel up to $30,000. The Holding Company and the Savings Bank have
agreed to indemnify Ryan, Beck for reasonable costs and expenses in connection
with certain claims or liabilities, including certain liabilities under the
Securities Act. Ryan, Beck has received advances towards its fees totalling
$25,000. Total marketing fees to Ryan, Beck are expected to be approximately
$100,000 and $118,000 at the minimum and the maximum of the Estimated Valuation
Range, respectively. See "PRO FORMA DATA" for the assumptions used to arrive at
these estimates.
Description of Sales Activities
The Common Stock will be offered in the Subscription and Direct Community
Offering principally by the distribution of this Prospectus and through
activities conducted at the Savings Bank's Stock Information Center at its main
office facility. The Stock Information Center is expected to operate during
normal business hours throughout the Subscription and Direct Community Offering.
It is expected that at any particular time, one or more Ryan, Beck employees
will be working at the Stock Information Center. Such employees of Ryan, Beck
will be responsible for mailing materials relating to the Subscription and
Direct Community Offering, responding to questions regarding the Conversion and
the Subscription and Direct Community Offering and processing stock orders.
Sales of Common Stock will be made by registered representatives affiliated
with Ryan, Beck or by the selected dealers managed by Ryan, Beck. The
management and employees of the Savings Bank may participate in the Offerings in
clerical capacities, providing administrative support in effecting sales
transactions or, when permitted by state securities laws, answering questions of
a mechanical nature relating to the proper execution of the Order Form.
Management of the Savings Bank may answer questions regarding the business of
the Savings Bank when permitted by state securities laws. Other questions of
prospective purchasers, including questions as to the advisability or nature of
the investment, will be directed to registered representatives. The management
and employees of the Holding Company and the Savings Bank have been instructed
not to solicit offers to purchase Common Stock or provide advice regarding the
purchase of Common Stock.
No officer, director or employee of the Savings Bank or the Holding Company
will be compensated, directly or indirectly, for any activities in connection
with the offer or sale of securities issued in the Conversion.
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None of the Savings Bank's personnel participating in the Subscription and
Direct Community Offering is registered or licensed as a broker or dealer or an
agent of a broker or dealer. The Savings Bank's personnel will assist in the
above-described sales activities pursuant to an exemption from registration as a
broker or dealer provided by Rule 3a4-1 ("Rule 3a4-1") promulgated under the
Exchange Act. Rule 3a4-1 generally provides that an "associated person of an
issuer" of securities shall not be deemed a broker solely by reason of
participation in the sale of securities of such issuer if the associated person
meets certain conditions. Such conditions include, but are not limited to, that
the associated person participating in the sale of an issuer's securities not be
compensated in connection therewith at the time of participation, that such
person not be associated with a broker or dealer and that such person observe
certain limitations on his or her participation in the sale of securities. For
purposes of this exemption, "associated person of an issuer" is defined to
include any person who is a director, officer or employee of the issuer or a
company that controls, is controlled by or is under common control with the
issuer.
Procedure for Purchasing Shares in the Subscription and Direct Community
Offering
To ensure that each purchaser receives a Prospectus at least 48 hours prior
to the Expiration Date in accordance with Rule 15c2-8 under the Exchange Act, no
Prospectus will be mailed any later than five days prior to such date or hand
delivered any later than two days prior to such date. Execution of the Order
Form will confirm receipt or delivery in accordance with Rule 15c2-8. Order
Forms will only be distributed with a Prospectus. The Savings Bank will accept
for processing only orders submitted on Order Forms.
To purchase shares in the Subscription and Direct Community Offering, an
executed Order Form and certification form with the required full payment for
each share subscribed for, or with appropriate authorization for withdrawal of
full payment from the subscriber's deposit account with the Savings Bank (which
may be given by completing the appropriate blanks in the Order Form), must be
received by the Savings Bank by 12:00 Noon, Eastern Time, on the Expiration
Date. Order Forms which are not received by such time or are executed
defectively or are received without full payment (or without appropriate
withdrawal instructions) are not required to be accepted. In addition, the
Savings Bank is not obligated to accept orders submitted on photocopied or
telecopied Order Forms. The Holding Company and the Savings Bank have the right
to waive or permit the correction of incomplete or improperly executed Order
Forms, but do not represent that they will do so. Pursuant to the Plan of
Conversion, the interpretation by the Holding Company and the Savings Bank of
the terms and conditions of the Plan of Conversion and of the Order Form will be
final. Once received, an executed Order Form may not be modified, amended or
rescinded without the consent of the Savings Bank unless the Conversion has not
been completed within 45 days after the end of the Subscription Offering, unless
such period has been extended.
In order to ensure that Eligible Account Holders, Supplemental Eligible
Account Holders and Other Members are properly identified as to their stock
purchase priorities, depositors as of the Eligibility Record Date (December 31,
1995) and/or the Supplemental Eligibility Record Date (June 30, 1997) and/or the
Voting Record Date (_____ __, 1997) must list all accounts on the Order Form
giving all names in each account and the account number. Failure to list an
account could result in fewer shares being allocated in the event of an
oversubscription than if all accounts had been disclosed.
Full payment for subscriptions may be made (i) in cash if delivered in
person at the Savings Bank, (ii) by check, bank draft, or money order, or (iii)
by authorization of withdrawal from deposit accounts maintained with the Savings
Bank. Appropriate means by which such withdrawals may be authorized are
provided on the Order Form. No wire transfers will be accepted. Interest will
be paid on payments made by cash, check, bank draft or money order at the
Savings Bank's passbook rate from the date payment is received until the
completion or termination of the Conversion. If payment is made by
authorization of withdrawal from deposit accounts, the funds authorized to be
withdrawn from a deposit account will continue to accrue interest at the
contractual rates until completion or termination of the Conversion (unless the
certificate matures after the date of receipt of the Order Form but prior to
closing, in which case funds will earn interest at the passbook rate from the
date of maturity until consummation of the Conversion), but a hold will be
placed on such funds, thereby making them unavailable to the depositor until
completion or termination of the Conversion. At the completion or termination
of the Conversion, the funds received
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in the Offerings will be used to purchase the shares of Common Stock ordered.
The shares issued in the Conversion cannot and will not be insured by the FDIC
or any other government agency. In the event that the Conversion is not
consummated for any reason, all funds submitted will be promptly refunded with
interest as described above.
If a subscriber authorizes the Savings Bank to withdraw the amount of the
aggregate Purchase Price from his or her deposit account, the Savings Bank will
do so as of the effective date of Conversion, though the account must contain
the full amount necessary for payment at the time the subscription order is
received. The Savings Bank will waive any applicable penalties for early
withdrawal from certificate accounts. If the remaining balance in a certificate
account is reduced below the applicable minimum balance requirement at the time
that the funds actually are transferred under the authorization the certificate
will be canceled at the time of the withdrawal, without penalty, and the
remaining balance will earn interest at the Savings Bank's passbook rate.
If the ESOP subscribes for shares during the Subscription Offering, the
ESOP will not be required to pay for the shares subscribed for at the time it
subscribes, but rather may pay for such shares of Common Stock subscribed for at
the Purchase Price upon consummation of the Conversion, provided that there is
in force from the time of its subscription until such time, a loan commitment
from an unrelated financial institution or the Holding Company to lend to the
ESOP, at such time, the aggregate Purchase Price of the shares for which it
subscribed.
Individual Retirement Accounts ("IRAs") maintained in the Savings Bank do
not permit investment in the Common Stock. A depositor interested in using his
or her IRA funds to purchase Common Stock must do so through a self-directed
IRA. Since the Savings Bank does not offer such accounts, it will allow such a
depositor to make a trustee-to-trustee transfer of the IRA funds to a trustee
offering a self-directed IRA program with the agreement that such funds will be
used to purchase the Holding Company's Common Stock in the Offerings. There
will be no early withdrawal or IRS interest penalties for such transfers. The
new trustee would hold the Common Stock in a self-directed account in the same
manner as the Savings Bank now holds the depositor's IRA funds. An annual
administrative fee may be payable to the new trustee. Depositors interested in
using funds in a Bank IRA to purchase Common Stock should contact the Stock
Information Center at the Savings Bank as soon as practicable so that the
necessary forms may be forwarded for execution and returned prior to the
Expiration Date. In addition, the provisions of ERISA and IRS regulations
require that officers, directors and 10% stockholders who use self-directed IRA
funds to purchase shares of Common Stock in the Subscription and Community
Offering make such purchases for the exclusive benefit of IRAs.
Certificates representing shares of Common Stock purchased, and any refund
due, will be mailed to purchasers at such address as may be specified in
properly completed Order Forms or to the last address of such persons appearing
on the records of the Savings Bank as soon as practicable following consummation
of the sale of all shares of Common Stock. Any certificates returned as
undeliverable will be disposed of in accordance with applicable law. Until
certificates for the Common Stock are available and delivered to purchasers,
purchasers may not be able to sell the shares of Common Stock which they
purchased, even though trading of the Common Stock may have commenced.
Stock Pricing and Number of Shares to be Issued
Federal regulations require that the aggregate purchase price of the
securities sold in connection with the Conversion be based upon an estimated pro
forma value of the Holding Company and the Savings Bank as converted (i.e.,
----
taking into account the expected receipt of proceeds from the sale of securities
in the Conversion), as determined by an independent appraisal. The Savings Bank
and the Holding Company have retained Feldman Financial to prepare an appraisal
of the pro forma market value of the Holding Company and the Savings Bank as
converted, as well as a business plan. Feldman Financial will receive a fee
expected to total approximately $12,500 for its appraisal services and
preparation of a business plan, plus reimbursement for reasonable out-of-pocket
expenses incurred in connection with the appraisal. The Savings Bank has agreed
to indemnify Feldman Financial
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under certain circumstances against liabilities and expenses (including legal
fees) arising out of, related to, or based upon the Conversion.
Feldman Financial has prepared an appraisal of the estimated pro forma
market value of the Holding Company and the Savings Bank as converted taking
into account the formation of the Holding Company as the holding company for the
Savings Bank. For its analysis, Feldman Financial undertook substantial
investigations to learn about the Savings Bank's business and operations.
Management supplied financial information, including annual financial
statements, information on the composition of assets and liabilities, and other
financial schedules. In addition to this information, Feldman Financial
reviewed the Savings Bank's Form AC Application for Approval of Conversion and
the Holding Company's Form SB-2 Registration Statement. Furthermore, Feldman
Financial visited the Savings Bank's facilities and had discussions with the
Savings Bank's management and its special conversion legal counsel, Breyer &
Aguggia. No detailed individual analysis of the separate components of the
Holding Company's or the Savings Bank's assets and liabilities was performed in
connection with the evaluation.
In estimating the pro forma market value of the Holding Company and the
Savings Bank as converted, as required by applicable regulatory guidelines,
Feldman Financial's analysis utilized three selected valuation procedures, the
Price/Book ("P/B") method, the Price/Earnings ("P/E") method, and Price/Assets
("P/A") method, all of which are described in its report. Feldman Financial
placed the greatest emphasis on the P/E and P/B methods in estimating pro forma
market value. In applying these procedures, Feldman Financial reviewed, among
other factors, the economic make-up of the Savings Bank's primary market area,
the Savings Bank's financial performance and condition in relation to publicly-
traded institutions that Feldman Financial deemed comparable to the Savings
Bank, the specific terms of the offering of the Holding Company's Common Stock,
the pro forma impact of the additional capital raised in the Conversion,
conditions of securities markets in general, and the market for thrift
institution common stocks in particular. Feldman Financial's analysis provides
an approximation of the pro forma market value of the Holding Company and the
Savings Bank as converted based on the valuation methods applied and the
assumptions outlined in its report. Included in its report were certain
assumptions as to the pro forma earnings of the Holding Company after the
Conversion that were utilized in determining the appraised value. These
assumptions included expenses as described under "PRO FORMA DATA," an assumed
after-tax rate of return on the net Conversion proceeds of 3.71%, purchases by
the ESOP of 8% of the stock sold in the Conversion and purchases in the open
market by the MRP of a number of shares equal to 4% of the stock sold in the
Conversion at the Purchase Price. See "PRO FORMA DATA" for additional
information concerning these assumptions. The use of different assumptions may
yield somewhat different results.
On the basis of the foregoing, Feldman Financial has advised the Holding
Company and the Savings Bank that, in its opinion, as of June 23, 1997, the
aggregate estimated pro forma market value of the Holding Company and the
Savings Bank as converted and, therefore, the Common Stock was within the
valuation range of $5,270,000 to $7,130,000 with a midpoint of $6,200,000.
After reviewing the methodology and the assumptions used by Feldman Financial in
the preparation of the appraisal, the Board of Directors established the
Estimated Valuation Range, which is equal to the valuation range of $5,270,000
to $7,130,000 with a midpoint of $6,200,000. In determining the reasonableness
and adequacy of the appraisal, consistent with OTS regulations and policies, the
Board of Directors reviewed the methodology and reasonableness of the
assumptions utilized by Feldman Financial in the preparation of the appraisal.
Assuming that the shares are sold at $10.00 per share in the Conversion, the
estimated number of shares would be between 527,000 and 713,000 with a midpoint
of 620,000. The Purchase Price of $10.00 was determined by discussion among the
Boards of Directors of the Savings Bank and the Holding Company and Ryan, Beck,
taking into account, among other factors (i) the requirement under OTS
regulations that the Common Stock be offered in a manner that will achieve the
widest distribution of the stock and (ii) desired liquidity in the Common Stock
subsequent to the Conversion. Since the outcome of the Offerings relate in
large measure to market conditions at the time of sale, it is not possible to
determine the exact number of shares that will be issued by the Holding Company
at this time. The Estimated Valuation Range may be amended, with the approval
of the OTS, if necessitated by developments following the date of such appraisal
in, among other things, market conditions, the financial condition or operating
results of the Savings Bank, regulatory guidelines or national or local economic
conditions.
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Feldman Financial's appraisal report is filed as an exhibit to the
Registration Statement. See "ADDITIONAL INFORMATION."
If, upon completion of the Subscription Offering, at least the minimum
number of shares are subscribed for, Feldman Financial, after taking into
account factors similar to those involved in its prior appraisal, will determine
its estimate of the pro forma market value of the Holding Company and the
Savings Bank as converted, as of the close of the Subscription Offering.
No sale of the shares will take place unless prior thereto Feldman
Financial confirms to the OTS that, to the best of Feldman Financial's knowledge
and judgment, nothing of a material nature has occurred that would cause it to
conclude that the actual total purchase price on an aggregate basis was
incompatible with its estimate of the total pro forma market value of the
Holding Company and the Savings Bank as converted at the time of the sale. If,
however, the facts do not justify such a statement, the Offerings or other sale
may be canceled, a new Estimated Valuation Range and price per share set and new
Subscription, Direct Community and Syndicated Community Offerings held. Under
such circumstances, subscribers would have the right to modify or rescind their
subscriptions and to have their subscription funds returned promptly with
interest and holds on funds authorized for withdrawal from deposit accounts
would be released or reduced.
Depending upon market and financial conditions, the number of shares issued
may be more or less than the range in number of shares shown above. In the
event the total amount of shares issued is less than 527,000 or more than
819,950 (15% above the maximum of the Estimated Valuation Range), for aggregate
gross proceeds of less than $5,270,000 or more than $8,199,500, subscription
funds will be returned promptly with interest to each subscriber unless he
indicates otherwise. In the event a new valuation range is established by
Feldman Financial, such new range will be subject to approval by the OTS.
If purchasers cannot be found for an insignificant residue of unsubscribed
shares from the general public, other purchase arrangements will be made by the
Boards of Directors of the Savings Bank and the Holding Company, if possible.
Such other purchase arrangements will be subject to the approval of the OTS and
may provide for purchases for investment purposes by directors, officers, their
associates and other persons in excess of the limitations provided in the Plan
of Conversion and in excess of the proposed director purchases set forth herein,
although no such purchases are currently intended. If such other purchase
arrangements cannot be made, the Plan will terminate.
In formulating its appraisal, Feldman Financial relied upon the
truthfulness, accuracy and completeness of all documents the Savings Bank
furnished it. Feldman Financial also considered financial and other information
from regulatory agencies, other financial institutions, and other public
sources, as appropriate. While Feldman Financial believes this information to
be reliable, Feldman Financial does not guarantee the accuracy or completeness
of such information and did not independently verify the financial statements
and other data provided by the Savings Bank and the Holding Company or
independently value the assets or liabilities of the Holding Company and the
Savings Bank. The appraisal by Feldman Financial is not intended to be, and
must not be interpreted as, a recommendation of any kind as to the advisability
of voting to approve the Conversion or of purchasing shares of Common Stock.
Moreover, because the appraisal is necessarily based on many factors which
change from time to time, there is no assurance that persons who purchase such
shares in the Conversion will later be able to sell shares thereafter at prices
at or above the Purchase Price.
Restrictions on Repurchase of Stock
Upon consummation of the Conversion, the Board of Directors of the Holding
Company will have the authority to adopt stock repurchase plans, subject to
statutory and regulatory requirements, including the OTS regulations applicable
for three years from the date of consummation of the Conversion. Pursuant to
OTS regulations, OTS-regulated savings associations (and their holding
companies) may not for a period of three years from the date of an institution's
mutual-to-stock conversion repurchase any of its common stock from any person,
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except in the event of: (i) an offer made to all of its stockholders to
repurchase the common stock on a pro rata basis, approved by the OTS; or (ii)
the repurchase of qualifying shares of a director; or (iii) a purchase in the
open market by a tax-qualified or non-tax-qualified employee stock benefit plan
in an amount reasonable and appropriate to fund the plan. Furthermore,
repurchases are prohibited if the effect thereof would cause the association's
regulatory capital to be reduced below (a) the amount required for the
liquidation account or (b) the regulatory capital requirements imposed by the
OTS. Repurchases are generally prohibited during the first year following
conversion although the OTS may consider repurchases in the second six months
after conversion on a case-by-case basis. Upon ten days' written notice to the
OTS, and if the OTS does not object, an institution may make open market
repurchases of its outstanding common stock during years two and three following
the conversion, provided that (x) no more than 5% of the outstanding common
stock is to be purchased during any 12-month period, (y) the repurchases do not
cause the association to become undercapitalized as defined under the OTS prompt
corrective action regulations and (z) the repurchase would not adversely affect
the financial condition of the association.
Shares to be Purchased by Management Pursuant to Subscription Rights
The following table sets forth certain information as to the approximate
purchases of Common Stock by each director and executive officer of the Savings
Bank, including their associates, as defined by applicable regulations. No
individual has entered into a binding agreement with respect to such intended
purchases. Directors and officers of the Savings Bank and their associates may
not purchase in excess of 34% of the shares sold in the Conversion and,
therefore, actual purchases could be more or less than indicated below. For
purposes of the following table, it has been assumed that sufficient shares will
be available to satisfy subscriptions in all categories. Directors, officers
and employees will pay the same price for the shares for which they subscribe as
the price that will be paid by all other subscribers.
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<TABLE>
<CAPTION>
Percent of Percent of
Shares at Shares at
Minimum of Maximum of
Name and Anticipated Number of Anticipated Dollar Estimated Estimated
Position Shares Purchased(1) Amount Purchased Valuation Range Valuation Range
- ------------------------------ ------------------------ ------------------ ---------------- ----------------
<S> <C> <C> <C> <C>
Thomas F. Angotti 8,500 $ 85,000 1.61% 1.19%
President, Chief Executive
Officer and Director
Guy Dille 5,000 50,000 0.95 0.70
Director
George C. Dorsch 5,000 50,000 0.95 0.70
Director
Edward W. Preskar 5,000 50,000 0.95 0.70
Director
James G. Caliendo 200 2,000 0.04 0.04
Director
Vincent C. Ashoff 8,500 85,000 1.61 1.19
Chief Financial Officer
Paul F. Hoyson
Senior Vice President 5,000 50,000 0.95 0.70
------ -------- ---- ----
Total 37,200 $372,000 7.06% 5.22%
====== ======== ==== ====
</TABLE>
- ---------------
(1) Excludes any shares awarded pursuant to the ESOP and MRP and options to
acquire shares pursuant to the Stock Option Plan. For a description of the
number of shares to be purchased by the ESOP and issued or reserved under
the MRP and Stock Option Plan, see "MANAGEMENT OF THE SAVINGS BANK --
Benefits -- Employee Stock Ownership Plan," "-- Benefits -- Stock Option
Plan" and "-- Benefits -- Management Recognition Plan."
Restrictions on Transferability by Directors and Officers and NASD Members
Shares of Common Stock purchased in the Offerings by directors and officers
of the Holding Company may not be sold for a period of one year following
consummation of the Conversion, except in the event of the death of the
stockholder or in any exchange of the Common Stock in connection with a merger
or acquisition of the Holding Company. Shares of Common Stock received by
directors or officers through the ESOP or the MRP or upon exercise of options
issued pursuant to the Stock Option Plan or purchased subsequent to the
Conversion are not subject to this restriction. Accordingly, shares of Common
Stock issued by the Holding Company to directors and officers shall bear a
legend giving appropriate notice of the restriction, and, in addition, the
Holding Company will give appropriate instructions to the transfer agent for the
Holding Company's Common Stock with respect to the restriction on transfers.
Any shares issued to directors and officers as a stock dividend, stock split or
otherwise with respect to restricted Common Stock shall be subject to the same
restrictions.
Purchases of outstanding shares of Common Stock of the Holding Company by
directors, executive officers (or any person who was an executive officer or
director of the Savings Bank after adoption of the Plan of
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Conversion) and their associates during the three-year period following
Conversion may be made only through a broker or dealer registered with the SEC,
except with the prior written approval of the OTS. This restriction does not
apply, however, to negotiated transactions involving more than 1% of the Holding
Company's outstanding Common Stock or to the purchase of stock pursuant to the
Stock Option Plan.
The Holding Company has filed with the SEC a registration statement under
the Securities Act for the registration of the Common Stock to be issued
pursuant to the Conversion. The registration under the Securities Act of shares
of the Common Stock to be issued in the Conversion does not cover the resale of
such shares. Shares of Common Stock purchased by persons who are not affiliates
of the Holding Company may be resold without registration. Shares purchased by
an affiliate of the Holding Company will be subject to the resale restrictions
of Rule 144 under the Securities Act. If the Holding Company meets the current
public information requirements of Rule 144 under the Securities Act, each
affiliate of the Holding Company who complies with the other conditions of Rule
144 (including those that require the affiliate's sale to be aggregated with
those of certain other persons) would be able to sell in the public market,
without registration, a number of shares not to exceed, in any three-month
period, the greater of (i) 1% of the outstanding shares of the Holding Company
or (ii) the average weekly volume of trading in such shares during the preceding
four calendar weeks. Provision may be made in the future by the Holding Company
to permit affiliates to have their shares registered for sale under the
Securities Act under certain circumstances.
In addition, under guidelines of the NASD, members of the NASD and their
associates are subject to certain restrictions on the transfer of securities
purchased in accordance with Subscription Rights and to certain reporting
requirements upon purchase of such securities.
RESTRICTIONS ON ACQUISITION OF THE HOLDING COMPANY
The following discussion is a summary of certain provisions of federal law
and regulations and Pennsylvania corporate law, as well as the Articles of
Incorporation and Bylaws of the Holding Company, relating to stock ownership and
transfers, the Board of Directors and business combinations, all of which may be
deemed to have "anti-takeover" effects. The description of these provisions is
necessarily general and reference should be made to the actual law and
regulations and to the Articles of Incorporation and Bylaws of the Holding
Company. See "ADDITIONAL INFORMATION" as to how to obtain a copy of these
documents.
Conversion Regulations
OTS regulations prohibit any person from making an offer, announcing an
intent to make an offer or participating in any other arrangement to purchase
stock or acquiring stock or subscription rights in a converting institution (or
its holding company) from another person prior to completion of its conversion.
Further, without the prior written approval of the OTS, no person may make such
an offer or announcement of an offer to purchase shares or actually acquire
shares in the converting institution (or its holding company) for a period of
three years from the date of the completion of the conversion if, upon the
completion of such offer, announcement or acquisition, that person would become
the beneficial owner of more than 10% of the outstanding stock of the
institution (or its holding company). The OTS has defined "person" to include
any individual, group acting in concert, corporation, partnership, association,
joint stock company, trust, unincorporated organization or similar company, a
syndicate or any other group formed for the purpose of acquiring, holding or
disposing of securities of an insured institution. However, offers made
exclusively to an association (or its holding company) or an underwriter or
member of a selling group acting on the converting institution's (or its holding
company's) behalf for resale to the general public are excepted. The regulation
also provides civil penalties for willful violation or assistance in any such
violation of the regulation by any person connected with the management of the
converting institution (or its holding company) or who controls more than 10% of
the outstanding shares or voting rights of a converting or converted institution
(or its holding company).
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Change of Control Regulations
OTS Regulations. Under the Change in Bank Control Act, no person may
acquire control of an insured federal savings association or its parent holding
company unless the OTS has been given 60 days' prior written notice and has not
issued a notice disapproving the proposed acquisition. In addition, OTS
regulations provide that no company may acquire control of a savings association
without the prior approval of the OTS. Any company that acquires such control
becomes a "savings and loan holding company" subject to registration,
examination and regulation by the OTS.
Control, as defined under federal law, means ownership, control of or
holding irrevocable proxies representing more than 25% of any class of voting
stock, control in any manner of the election of a majority of the savings
association's directors, or a determination by the OTS that the acquiror has the
power to direct, or directly or indirectly to exercise a controlling influence
over, the management or policies of the institution. Acquisition of more than
10% of any class of a savings association's voting stock, if the acquiror also
is subject to any one of eight "control factors," constitutes a rebuttable
determination of control under the regulations. Such control factors include
the acquiror being one of the two largest stockholders. The determination of
control may be rebutted by submission to the OTS, prior to the acquisition of
stock or the occurrence of any other circumstances giving rise to such
determination, of a statement setting forth facts and circumstances which would
support a finding that no control relationship will exist and containing certain
undertakings. The regulations provide that persons or companies that acquire
beneficial ownership exceeding 10% or more of any class of a savings
association's stock must file with the OTS a certification form that the holder
is not in control of such institution, is not subject to a rebuttable
determination of control and will take no action which would result in a
determination or rebuttable determination of control without prior notice to or
approval of the OTS, as applicable. There are also rebuttable presumptions in
the regulations concerning whether a group "acting in concert" exists, including
presumed action in concert among members of an "immediate family."
The OTS may prohibit an acquisition of control if it finds, among other
things, that (i) the acquisition would result in a monopoly or substantially
lessen competition, (ii) the financial condition of the acquiring person might
jeopardize the financial stability of the institution, or (iii) the competence,
experience or integrity of the acquiring person indicates that it would not be
in the interest of the depositors or the public to permit the acquisition of
control by such person.
Pennsylvania Corporate Law
In addition to provisions which may be contained in the Holding Company's
Articles of Incorporation, the PBCL includes certain provisions applicable to
Pennsylvania corporations, such as the Holding Company, which may be deemed to
have an anti-takeover affect. Such provisions include (i) rights of
stockholders to receive the fair value of their shares of stock following a
control transaction from a controlling person or group and (ii) requirements
relating to certain business combinations.
The PBCL allows holders of voting shares of a business corporation that
become the subject of a control transaction to object to such transaction and
demand they be paid the fair value of their shares unless: (1) the articles or
bylaws (in specified circumstances) of such corporation explicitly provided
otherwise; or (2) the articles of such corporation are amended prior to the
control transaction to provide that such anti-takeover provisions are not
applicable, which amendment would require the affirmative vote of the holders of
at least 80% of the outstanding stock (or, if the board of directors has
approved the amendment, by the holders of at least 50% of the outstanding
stock). "Fair value" for purposes of these provisions means an amount not less
than the highest price per share paid by the controlling person or group at any
time during the 90-day period ending on and including the date of the control
transaction plus any incremental value that may not be reflected in such price.
A "control transaction" for purposes of these provisions means the acquisition
by a person or group of persons acting in concert of at least 20% of the
outstanding voting stock of the corporation.
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Under the PBCL, a Pennsylvania corporation may not engage in a "Business
Combination" with an "Interested Shareholder" except for the following types of
Business Combinations: (i) a Business Combination approved by the corporation's
Board of Directors prior to the date on which the Interested Shareholder became
an Interested Shareholder ("Share Acquisition Date"), (ii) a Business
Combination approved by the affirmative vote of the holders of at least a
majority of the outstanding voting stock, not including any shares owned by the
Interested Shareholder or affiliate or associate thereof, at a meeting called
for such purpose no earlier than three months after the Interested Shareholder
became an Interested Shareholder, and provided that at the time of such meeting
the Interested Shareholder is the Beneficial Owner of at least 80% of the
outstanding voting stock, and provided that the Business Combination satisfies
the requirements of clauses (a) through (e) of clause (iv) below; (iii) a
Business Combination approved by the holders of at least a majority of the
outstanding voting stock, not including any voting shares owned by the
Interested Shareholder, at a meeting called for such purpose no earlier than
five years after the Share Acquisition Date; or (iv) a Business Combination
approved at a stockholders meeting called for such purpose no earlier than five
years after the Share Acquisition Date that meets all of the following
conditions: (a) the consideration received per share by holders of the
outstanding common stock is at least equal to the higher of (I) the highest
price per share paid by the Interested Shareholder after he became a 5%
stockholder within five years prior to the earlier of the date of the public
announcement of the Business Combination ("Announcement Date") or the Share
Acquisition Date, plus interest less dividends paid during such period up to the
amount of such interest, or (II) the market value per common share on the
Announcement Date or the Interested Shareholder's Share Acquisition Date,
whichever is higher, plus interest and less dividends up to the amount of such
interest; (b) similar conditions to those set forth in clause (iv)(a) above in
the case of classes of stock other than common stock; (c) the consideration to
be received in the Business Combination by the holders of any class of the
Corporation's stock must be in cash or the same form as the consideration used
by the Interested Shareholder to acquire the largest number of shares of such
class previously acquired by it; (d) the holders of all outstanding shares not
beneficially owned by the Interested Shareholder are entitled to receive in the
Business Combination consideration meeting the requirements of clauses (iv)(a),
(b) and (c) above; and (e) after the Share Acquisition Date and prior to the
consummation of the Business Combination, the Interested Shareholder has not
acquired any additional voting shares except as part of the transaction in which
the Interested Shareholder became an Interested Shareholder, stock dividends or
stock splits which apply equally to all stockholders or certain other specified
conditions.
The PBCL defines a "Business Combination" generally to include, with
respect to a corporation, certain sales, purchases, exchanges, leases,
mortgages, pledges, transfers or dispositions of assets, mergers or
consolidations, certain issuances or reclassification of securities,
liquidations or dissolutions or certain loans, guarantees or financial
assistance, pursuant to an agreement or understanding between such corporation
or any subsidiaries, on the one hand, and an Interested Shareholder or an
"Affiliate" or "Associate" thereof, on the other hand. An "Interested
Shareholder" is defined generally to include any individual, partnership,
association or corporation which is the beneficial owner (as defined) of at
least 20% of the outstanding voting stock of the corporation or which is an
affiliate or associate of such corporation and at any time within the five year
period prior to the date in question was the beneficial owner of at least 20% of
the outstanding voting stock.
Furthermore, under the PBCL, unless explicitly provided for otherwise in a
corporation's bylaws or articles of incorporation, shares acquired by a person
in excess of 20% of a class of securities of a qualified Pennsylvania
corporation ("control shares") cannot be voted until approval is received from a
majority of the disinterested stockholders. In addition, the PBCL provides that
the voting rights may lapse in certain instances, and the corporation is also
given the option to redeem such control shares in certain instances.
The PBCL also provides certain protection to qualified Pennsylvania
corporations from being exposed to and paying "greenmail" (generally defined as
offering to purchase at least 20% of the voting shares of a corporation or
threatening to wage or waging a proxy contest and thereafter disposing of such
securities at a profit prior to consummating the proposed transactions).
Generally, the PBCL provides that a qualified corporation can recover any
"profit" realized by such controlling person or group due to the disposition of
the securities of the corporation within a certain time after obtaining the
control shares.
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Furthermore, the PBCL requires acquiring persons to pay a minimum severance
salary to any eligible employee, as defined, whose employment is terminated,
other than for willful misconduct, due to a business combination or control-
share acquisition.
Anti-takeover Provisions in the Holding Company's Articles of Incorporation and
Bylaws and Pennsylvania Law
A number of provisions of the Holding Company's Articles of Incorporation
and Bylaws deal with matters of corporate governance and certain rights of
stockholders. The following discussion is a general summary of certain
provisions of the Holding Company's Articles of Incorporation and Bylaws and
regulatory provisions relating to stock ownership and transfers, the Board of
Directors and business combinations, which might be deemed to have a potential
"anti-takeover" effect. These provisions may have the effect of discouraging a
future takeover attempt which is not approved by the Board of Directors but
which individual Holding Company stockholders may deem to be in their best
interests or in which stockholders may receive a substantial premium for their
shares over then current market prices. As a result, stockholders who might
desire to participate in such a transaction may not have an opportunity to do
so. Such provisions will also render the removal of the incumbent Board of
Directors or management of the Holding Company more difficult. The following
description of certain of the provisions of the Articles of Incorporation and
Bylaws of the Holding Company is necessarily general and reference should be
made in each case to such Articles of Incorporation and Bylaws, which are
incorporated herein by reference. See "ADDITIONAL INFORMATION" as to how to
obtain a copy of these documents.
Limitation on Voting Rights. The Articles of Incorporation of the Holding
Company provide that in no event shall any record owner of any outstanding
Common Stock which is beneficially owned, directly or indirectly, by a person
who beneficially owns in excess of 10% of the then outstanding shares of common
stock (the "Limit") be entitled or permitted to any vote in respect of the
shares held in excess of the Limit, unless permitted by a resolution adopted by
a majority of the board of directors. Beneficial ownership is determined
pursuant to Rule 13d-3 of the General Rules and Regulations of the Exchange Act
and includes shares beneficially owned by such person or any of such person's
affiliates (as defined in the Articles of Incorporation), shares which such
person or such person's affiliates have the right to acquire upon the exercise
of conversion rights or options and shares as to which such person and such
person's affiliates have or share investment or voting power, but shall not
include shares beneficially owned by the ESOP or directors, officers and
employees of the Savings Bank or Holding Company or shares that are subject to a
revocable proxy and that are not otherwise beneficially, or deemed by the
Holding Company to be beneficially, owned by such person and his or her
affiliates.
Board of Directors. The Board of Directors of the Holding Company is
divided into three classes, each of which shall contain approximately one-third
of the whole number of the members of the Board. The members of each class
shall be elected for a term of three years, with the terms of office of all
members of one class expiring each year so that approximately one-third of the
total number of directors are elected each year. The Holding Company's Articles
of Incorporation provide that the size of the Board shall be as set forth in the
Bylaws. The Bylaws set the initial number of directors at five. The Articles
of Incorporation provide that any vacancy occurring in the Board, including a
vacancy created by an increase in the number of directors, shall be filled by a
vote of a majority of the directors then in office and any director so chosen
shall hold office for a term expiring at the annual meeting of stockholders at
which the term of the class to which the director has been chosen expires. The
classified Board is intended to provide for continuity of the Board of Directors
and to make it more difficult and time consuming for a stockholder group to
fully use its voting power to gain control of the Board of Directors without the
consent of the incumbent Board of Directors of the Holding Company. The
Articles of Incorporation of the Holding Company provide that a director may be
removed from the Board of Directors prior to the expiration of his or her term
only for cause and only upon the vote of 75% of the outstanding shares of voting
stock. In the absence of this provision, the vote of the holders of a majority
of the shares could remove the entire Board, but only with cause, and replace it
with persons of such holders' choice.
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Cumulative Voting, Special Meetings and Action by Written Consent. The
Articles of Incorporation do not provide for cumulative voting for any purpose.
Moreover, the Articles of Incorporation provide that special meetings of
stockholders of the Holding Company may be called only by the Board of
Directors, Chairman or President of the Holding Company and that stockholders
may take action by written consent only if signed by all of the stockholders
entitled to vote at a meeting called for such purpose.
Authorized Shares. The Articles of Incorporation authorize the issuance of
10,000,000 shares of Common Stock and 5,000,000 shares of preferred stock. The
shares of Common Stock and preferred stock were authorized in an amount greater
than that to be issued in the Conversion to provide the Holding Company's Board
of Directors with as much flexibility as possible to effect, among other
transactions, financings, acquisitions, stock dividends, stock splits,
restricted stock grants and the exercise of stock options. However, these
additional authorized shares may also be used by the Board of Directors,
consistent with fiduciary duties, to deter future attempts to gain control of
the Holding Company. The Board of Directors also has sole authority to
determine the terms of any one or more series of preferred stock, including
voting rights, conversion rates, and liquidation preferences. As a result of
the ability to fix voting rights for a series of preferred stock, the Board has
the power, to the extent consistent with its fiduciary duty, to issue a series
of preferred stock to persons friendly to management in order to attempt to
block a tender offer, merger or other transaction by which a third party seeks
control of the Holding Company, and thereby assist members of management to
retain their positions. The Holding Company's Board currently has no plans for
the issuance of additional shares, other than the issuance of shares of Common
Stock upon exercise of stock options and in connection with the MRP.
Stockholder Vote Required to Approve Business Combinations with Principal
Stockholders. The Articles of Incorporation requires the approval of the
holders of at least 80% of the Holding Company's outstanding shares of voting
stock to approve certain "Business Combinations" (as defined therein) involving
a "Related Person" (as defined therein) except in cases where the proposed
transaction has been approved in advance by a majority of those members of the
Holding Company's Board of Directors who are unaffiliated with the Related
Person and were directors prior to the time when the Related Person became a
Related Person. The term "Related Person" is defined to include any individual,
corporation, partnership or other entity (other than the Holding Company or its
subsidiary) which owns beneficially or controls, directly or indirectly, 10% or
more of the outstanding shares of voting stock of the Holding Company or an
affiliate of such person or entity. This provision of the Articles of
Incorporation applies to any "Business Combination," which is defined to
include: (i) any merger or consolidation of the Holding Company with or into
any Related Person; (ii) any sale, lease, exchange, mortgage, transfer, or other
disposition of 25% or more of the assets of the Holding Company or combined
assets of the Holding Company and its subsidiaries to a Related Person; (iii)
any merger or consolidation of a Related Person with or into the Holding Company
or a subsidiary of the Holding Company; (iv) any sale, lease, exchange,
transfer, or other disposition of 25% or more of the assets of a Related Person
to the Holding Company or a subsidiary of the Holding Company; (v) the issuance
of any securities of the Holding Company or a subsidiary of the Holding Company
to a Related Person; (vi) the acquisition by the Holding Company or a subsidiary
of the Holding Company of any securities of a Related Person; (vii) any
reclassification of common stock of the Holding Company or any recapitalization
involving the common stock of the Holding Company; or (viii) any agreement or
other arrangement providing for any of the foregoing.
Amendment of Certificate of Incorporation and Bylaws. Amendments to the
Holding Company's Articles of Incorporation must be approved by a majority vote
of its Board of Directors and also by a majority of the outstanding shares of
its voting stock, provided, however, that an affirmative vote of at least 75% of
the outstanding voting stock entitled to vote (after giving effect to the
provision limiting voting rights) is required to amend or repeal certain
provisions of the Articles of Incorporation, including the provision limiting
voting rights, the provisions relating to approval of certain business
combinations, calling special meetings, the number and classification of
directors, director and officer indemnification by the Holding Company and
amendment of the Holding Company's Bylaws and Articles of Incorporation. The
Holding Company's Bylaws may be amended by its Board of Directors or by the
stockholders, provided, however, that an affirmative vote of at least 75% of the
total votes eligible to be voted at a duly constituted meeting of stockholders
is necessary to amend certain provisions relating to the conduct of stockholders
meetings, directors and amendment of the Bylaws.
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Stockholder Nominations and Proposals. The Articles of Incorporation of
the Holding Company require a stockholder who intends to nominate a candidate
for election to the Board of Directors, or to raise new business at a
stockholder meeting to give not less than 30 nor more than 60 days' advance
notice to the Secretary of the Holding Company. The notice provision requires a
stockholder who desires to raise new business to provide certain information to
the Holding Company concerning the nature of the new business, the stockholder
and the stockholder's interest in the business matter. Similarly, a stockholder
wishing to nominate any person for election as a director must provide the
Holding Company with certain information concerning the nominee and the
proposing stockholder.
Purpose and Takeover Defensive Effects of the Holding Company's Articles of
Incorporation and Bylaws. The Board of Directors of the Savings Bank believes
that the provisions described above are prudent and will reduce the Holding
Company's vulnerability to takeover attempts and certain other transactions that
have not been negotiated with and approved by its Board of Directors. These
provisions will also assist the Savings Bank in the orderly deployment of the
Conversion proceeds into productive assets during the initial period after the
Conversion. The Board of Directors believes these provisions are in the best
interest of the Savings Bank and Holding Company and its stockholders. In the
judgment of the Board of Directors, the Holding Company's Board will be in the
best position to determine the true value of the Holding Company and to
negotiate more effectively for what may be in the best interests of its
stockholders. Accordingly, the Board of Directors believes that it is in the
best interest of the Holding Company and its stockholders to encourage potential
acquirors to negotiate directly with the Board of Directors of the Holding
Company and that these provisions will encourage such negotiations and
discourage hostile takeover attempts. It is also the view of the Board of
Directors that these provisions should not discourage persons from proposing a
merger or other transaction at a price reflective of the true value of the
Holding Company and that is in the best interest of all stockholders.
Attempts to acquire control of financial institutions and their holding
companies have recently become increasingly common. Takeover attempts that have
not been negotiated with and approved by the Board of Directors present to
stockholders the risk of a takeover on terms that may be less favorable than
might otherwise be available. A transaction that is negotiated and approved by
the Board of Directors, on the other hand, can be carefully planned and
undertaken at an opportune time in order to obtain maximum value of the Holding
Company for its stockholders, with due consideration given to matters such as
the management and business of the acquiring corporation and maximum strategic
development of the Holding Company's assets.
An unsolicited takeover proposal can seriously disrupt the business and
management of a corporation and cause it great expense. Although a tender offer
or other takeover attempt may be made at a price substantially above the current
market prices, such offers are sometimes made for less than all of the
outstanding shares of a target company. As a result, stockholders may be
presented with the alternative of partially liquidating their investment at a
time that may be disadvantageous, or retaining their investment in an enterprise
that is under different management and whose objectives may not be similar to
those of the remaining stockholders. The concentration of control, which could
result from a tender offer or other takeover attempt, could also deprive the
Holding Company's remaining stockholders of benefits of certain protective
provisions of the Exchange Act, if the number of beneficial owners became less
than 300, thereby allowing for Exchange Act deregistration.
Despite the belief of the Savings Bank and the Holding Company as to the
benefits to stockholders of these provisions of the Holding Company's Articles
of Incorporation and Bylaws, these provisions may also have the effect of
discouraging a future takeover attempt that would not be approved by the Holding
Company's Board, but pursuant to which stockholders may receive a substantial
premium for their shares over then current market prices. As a result,
stockholders who might desire to participate in such a transaction may not have
any opportunity to do so. Such provisions will also render the removal of the
Holding Company's Board of Directors and of management more difficult. The
Board of Directors of the Savings Bank and the Holding Company, however, have
concluded that the potential benefits outweigh the possible disadvantages.
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Pursuant to applicable law, at any annual or special meeting of its
stockholders after the Conversion, the Holding Company may adopt additional
charter provisions regarding the acquisition of its equity securities that would
be permitted for a Pennsylvania business corporation. The Holding Company and
the Savings Bank do not presently intend to propose the adoption of further
restrictions on the acquisition of the Holding Company's equity securities.
The cumulative effect of the restriction on acquisition of the Holding
Company contained in the Articles of Incorporation and Bylaws of the Holding
Company and in Federal and Pennsylvania law may be to discourage potential
takeover attempts and perpetuate incumbent management, even though certain
stockholders of the Holding Company may deem a potential acquisition to be in
their best interests, or deem existing management not to be acting in their best
interests.
DESCRIPTION OF CAPITAL STOCK
OF THE HOLDING COMPANY
General
The Holding Company is authorized to issue 10,000,000 shares of Common
Stock having a par value of $.01 per share and 5,000,000 shares of preferred
stock having a par value of $.01 per share. The Holding Company currently
expects to issue up to 713,000 shares of Common Stock and no shares of preferred
stock in the Conversion. Each share of the Holding Company's Common Stock will
have the same relative rights as, and will be identical in all respects with,
each other share of Common Stock. Upon payment of the Purchase Price for the
Common Stock, in accordance with the Plan of Conversion, all such stock will be
duly authorized, fully paid and nonassessable.
The Common Stock of the Holding Company will represent nonwithdrawable
capital, will not be an account of any type, and will not be insured by the FDIC
or any other government agency.
Common Stock
Dividends. The Holding Company can pay dividends as and when declared by
its Board of Directors. The payment of dividends by the Holding Company is
subject to limitations which are imposed by law and applicable regulation. See
"DIVIDEND POLICY" and "REGULATION." The holders of Common Stock of the Holding
Company will be entitled to receive and share equally in such dividends as may
be declared by the Board of Directors of the Holding Company out of funds
legally available therefor. If the Holding Company issues preferred stock, the
holders thereof may have a priority over the holders of the Common Stock with
respect to dividends.
Stock Repurchases. The Plan and OTS regulations place certain limitations
on the repurchase of the Holding Company's capital stock. See "THE CONVERSION -
- - Restrictions on Repurchase of Stock" and "USE OF PROCEEDS."
Voting Rights. Upon Conversion, the holders of Common Stock of the Holding
Company will possess exclusive voting rights in the Holding Company. They will
elect the Holding Company's Board of Directors and act on such other matters as
are required to be presented to them under Pennsylvania law or as are otherwise
presented to them by the Board of Directors. Except as discussed in
"RESTRICTIONS ON ACQUISITION OF THE HOLDING COMPANY," each holder of Common
Stock will be entitled to one vote per share and will not have any right to
cumulate votes in the election of directors. If the Holding Company issues
preferred stock, holders of the Holding Company preferred stock may also possess
voting rights. Certain matters require a super-majority vote of the outstanding
shares entitled to vote thereon. See "RESTRICTIONS ON ACQUISITION OF THE
HOLDING COMPANY."
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As a federal mutual savings bank, corporate powers and control of the
Savings Bank are vested in its Board of Directors, who elect the officers of the
Savings Bank and who fill any vacancies on the Board of Directors as it exists
upon Conversion. Subsequent to Conversion, voting rights will be vested
exclusively in the owners of the shares of capital stock of the Savings Bank,
all of which will be owned by the Holding Company, and voted at the direction of
the Holding Company's Board of Directors. Consequently, the holders of the
Common Stock will not have direct control of the Savings Bank.
Liquidation. In the event of any liquidation, dissolution or winding up of
the Savings Bank, the Holding Company, as holder of the Savings Bank's capital
stock would be entitled to receive, after payment or provision for payment of
all debts and liabilities of the Savings Bank (including all deposit accounts
and accrued interest thereon) and after distribution of the balance in the
special liquidation account to Eligible Account Holders and Supplemental
Eligible Account Holders (see "THE CONVERSION"), all assets of the Savings Bank
available for distribution. In the event of liquidation, dissolution or winding
up of the Holding Company, the holders of its common stock would be entitled to
receive, after payment or provision for payment of all its debts and
liabilities, all of the assets of the Holding Company available for
distribution. If Holding Company preferred stock is issued, the holders thereof
may have a priority over the holders of the Common Stock in the event of
liquidation or dissolution.
Preemptive Rights. Holders of the Common Stock of the Holding Company will
not be entitled to preemptive rights with respect to any shares that may be
issued. The Common Stock is not subject to redemption.
Preferred Stock
None of the shares of the authorized Holding Company preferred stock will
be issued in the Conversion and there are no plans to issue the preferred stock.
Such stock may be issued with such designations, powers, preferences and rights
as the Board of Directors may from time to time determine. The Board of
Directors can, without stockholder approval, issue preferred stock with voting,
dividend, liquidation and conversion rights that could dilute the voting
strength of the holders of the Common Stock and may assist management in
impeding an unfriendly takeover or attempted change in control.
Restrictions on Acquisition
Acquisitions of the Holding Company are restricted by provisions in its
Articles of Incorporation and Bylaws and by the rules and regulations of various
regulatory agencies. See "REGULATION" and "RESTRICTIONS ON ACQUISITION OF THE
HOLDING COMPANY."
REGISTRATION REQUIREMENTS
The Holding Company will register the Common Stock with the SEC pursuant to
Section 12(g) of the Exchange Act upon the completion of the Conversion and will
not deregister its Common Stock for a period of at least three years following
the completion of the Conversion. Upon such registration, the proxy and tender
offer rules, insider trading reporting and restrictions, annual and periodic
reporting and other requirements of the Exchange Act will be applicable.
LEGAL AND TAX OPINIONS
The legality of the Common Stock has been passed upon for the Holding
Company by Breyer & Aguggia, Washington, D.C. The federal tax consequences of
the Offerings have been opined upon by Breyer & Aguggia and the Pennsylvania tax
consequences of the Offerings have been opined upon by S.R. Snodgrass A.C.,
Wexford, Pennsylvania. Breyer & Aguggia and S.R. Snodgrass A.C. have consented
to the references herein to their opinions.
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Certain legal matters will be passed upon for Ryan, Beck by Elias, Matz, Tiernan
& Herrick L.L.P., Washington, D.C.
EXPERTS
The consolidated financial statements of the Savings Bank as of December
31, 1996 and for each of the two years in the period ended December 31, 1996
included in this Prospectus have been audited by S.R. Snodgrass, A.C.,
independent auditors, as stated in its report appearing herein, and have been so
included in reliance upon the report of such firm given upon its authority as
experts in accounting and auditing.
Feldman Financial has consented to the publication herein of the summary of
its report to the Savings Bank setting forth its opinion as to the estimated pro
forma market value of the Holding Company and the Savings Bank as converted and
its letter with respect to subscription rights and to the use of its name and
statements with respect to it appearing herein.
ADDITIONAL INFORMATION
The Holding Company has filed with the SEC a Registration Statement on Form
SB-2 (File No. 333-_____) under the Securities Act with respect to the Common
Stock offered in the Conversion. This Prospectus does not contain all the
information set forth in the Registration Statement, certain parts of which are
omitted in accordance with the rules and regulations of the SEC. Such
information may be inspected at the public reference facilities maintained by
the SEC at 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549 and at its
regional offices at 500 West Madison Street, Suite 1400, Chicago, Illinois
60661; and 7 World Trade Center, Suite 1300, New York, New York 10048. Copies
may be obtained at prescribed rates from the Public Reference Section of the SEC
at 450 Fifth Street, N.W., Washington, D.C. 20549. In addition, the
Registration Statement is publicly available through the SEC's World Wide Web
site on the Internet (http://www.sec.gov).
The Savings Bank has filed with the OTS an Application for Approval of
Conversion, which includes proxy materials for the Savings Bank's Special
Meeting and certain other information. This Prospectus omits certain
information contained in such Application. The Application, including the proxy
materials, exhibits and certain other information that are a part thereof, may
be inspected, without charge, at the offices of the OTS, 1700 G Street, N.W.,
Washington, D.C. 20552 and at the office of the Regional Director of the OTS at
the Northeast Regional Office of the OTS, 10 Exchange Plaza, 18th Floor, Jersey
City, New Jersey 07302.
100
<PAGE>
Index To Consolidated Financial Statements
Spring Hill Savings Bank, FSB
<TABLE>
<CAPTION>
Pages
<S> <C>
Independent Auditors' Report..................................... F-1
Consolidated Statement of Financial Condition as of
March 31, 1997 (unaudited) and December 31, 1996 and 1995....... F-2
Consolidated Statement of Operations for Three Months
Ended March 31, 1997 and 1996 (unaudited) and the Years Ended
December 31, 1996 and 1995...................................... 18
Consolidated Statement of Retained Earnings for
the Three Months Ended March 31, 1997 (unaudited)
and the Years Ended December 31, 1996 and 1995.................. F-3
Consolidated Statement of Cash Flows for the Three
Months Ended March 31, 1997 and 1996 (unaudited) and the Years
Ended December 31, 1996 and 1995................................ F-4
Notes to Consolidated Financial Statements....................... F-6
</TABLE>
* * *
All schedules are omitted as the required information either is not
applicable or is included in the Consolidated Financial Statements or related
Notes.
Separate financial statements on the Holding Company have not been included
since it will not engage in material transactions, if any, until after the
Conversion. The Holding Company, which has been inactive to date, has no
significant assets, liabilities, revenues, expenses or contingent liabilities.
101
<PAGE>
REPORT OF INDEPENDENT AUDITORS
------------------------------
Board of Directors
Spring Hill Savings Bank, FSB
We have audited the accompanying consolidated statement of financial condition
of Spring Hill Savings Bank, FSB and subsidiary as of December 31, 1996 and
1995, and the related consolidated statements of operations, retained earnings,
and cash flows for the years then ended. These financial statements are the
responsibility of the Bank's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Spring Hill Savings
Bank, FSB and subsidiary as of December 31, 1996 and 1995, and the results of
their operations and their cash flows for the years then ended in conformity
with generally accepted accounting principles.
As discussed in the notes to the consolidated financial statements, effective
January 1, 1995, the Bank changed its method of accounting for the impairment of
loans and the related allowance for loan losses.
/s/ S. R. Snodgrass, A.C.
Wexford, PA
March 21, 1997, except for the
second paragraph of Note 20,
as to which date is April 16, 1997
F-1
<PAGE>
SPRING HILL SAVINGS BANK, FSB
CONSOLIDATED STATEMENT OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996 1995
------------------ ------------------- ------------------
(Unaudited)
<S> <C> <C> <C>
ASSETS
Cash and due from banks $ 652,410 $ 584,634 $ 419,061
Interest-bearing deposits with other banks 2,377,517 1,516,281 1,284,179
Investment securities available for sale 818,743 826,407 646,903
Investment securities held to maturity (market
value of $1,171,808, $1,918,242 and $2,651,993) 1,173,968 1,917,929 2,639,418
Mortgage-backed securities available for sale 2,316,544 2,430,439 2,298,085
Mortgage-backed securities held to maturity (market
value of $17,350,302, $17,249,409 and
$19,368,898) 17,362,329 17,126,963 18,992,674
Loans receivable (net of allowance for loan losses of
$419,581, $415,426 and $276,212) 55,267,734 54,789,033 52,525,935
Accrued interest receivable 488,422 498,502 536,297
Real estate owned 12,500 12,500 940,232
Premises and equipment 775,988 787,378 286,854
Federal Home Loan Bank stock 607,022 594,722 591,300
Other assets 956,178 603,153 495,063
--------------- ---------------- ---------------
TOTAL ASSETS $ 82,809,355 $ 81,687,941 $ 81,656,001
=============== ================ ===============
LIABILITIES
Deposits $ 64,776,108 $ 64,294,119 $ 65,160,207
Advances by borrowers for taxes and insurance 1,175,654 1,062,206 1,152,544
Collateralized mortgage obligation 2,453,663 6,937,405 8,250,537
Borrowed funds 9,253,951 3,772,036 1,778,000
Accrued interest payable 155,187 161,240 169,104
Other liabilities 545,361 620,918 704,981
--------------- ---------------- ---------------
TOTAL LIABILITIES 78,359,924 76,847,924 77,215,373
--------------- ---------------- ---------------
RETAINED EARNINGS
Retained earnings-substantially restricted 4,502,097 4,889,486 4,496,742
Net unrealized loss on securities (9,558) (6,361) (4,622)
Pension adjustment (43,108) (43,108) (51,492)
--------------- ---------------- ---------------
TOTAL RETAINED EARNINGS 4,449,431 4,840,017 4,440,628
--------------- ---------------- ---------------
TOTAL LIABILITIES AND RETAINED
EARNINGS $ 82,809,355 $ 81,687,941 $ 81,656,001
=============== ================ ===============
</TABLE>
See accompanying notes to the consolidated financial statements.
F-2
<PAGE>
SPRING HILL SAVINGS BANK, FSB
CONSOLIDATED STATEMENT OF RETAINED EARNINGS
<TABLE>
<CAPTION>
Net Unrealized
Retained Gain (Loss) Pension
Earnings on Securities Adjustment Total
------------------ ------------------ ------------------- ------------------
<S> <C> <C> <C> <C>
Balance, December 31, 1994 $ 4,265,681 (82,350) (31,992) 4,151,339
Net income 231,061 231,061
Net unrealized gain on securities 77,728 77,728
Unfunded pension loss (19,500) (19,500)
--------------- --------------- ---------------- ---------------
Balance, December 31, 1995 4,496,742 (4,622) (51,492) 4,440,628
Net income 392,744 392,744
Net unrealized loss on securities (1,739) (1,739)
Unfunded pension gain 8,384 8,384
--------------- --------------- ---------------- ---------------
Balance, December 31, 1996 4,889,486 (6,361) (43,108) 4,840,017
Net loss (unaudited) (387,389) (387,389)
Net unrealized loss on securities (3,197) (3,197)
--------------- --------------- ---------------- ---------------
Balance, March 31, 1997
(unaudited) $ 4,502,097 $ (9,558) $ (43,108) $ 4,449,431
=============== =============== ================ ===============
</TABLE>
See accompanying notes to the consolidated financial statements.
F-3
<PAGE>
SPRING HILL SAVINGS BANK, FSB
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months Ended March 31, Year Ended December 31,
1997 1996 1996 1995
--------------- -------------- --------------- --------------
(Unaudited)
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ (387,389) $ 60,149 $ 392,744 $ 231,061
Adjustments to reconcile net income to
net cash provided by operating
activities:
Provision for losses on loans and
real estate owned 27,943 42,109 260,612 90,031
Depreciation and amortization 75,020 94,110 385,884 375,878
Net securities (gains) losses (116,541) - (902,488) 7,971
Loss on extinguishment of debt 963,062 - - -
Net (gains) losses on sale of real
estate owned - (31,772) 12,981 33,171
Deferred income taxes (406,156) (24,923) (124,280) (97,290)
Decrease in accrued interest
receivable 10,080 2,621 37,795 30,025
Increase (decrease) in accrued
interest payable (6,053) 3,279 (7,864) (29,005)
Other, net (127,393) (218,068) (88,276) 257,889
--------------- -------------- --------------- --------------
Net cash provided by (used for)
operating activities 32,573 (72,495) (32,892) 899,731
--------------- -------------- --------------- --------------
INVESTING ACTIVITIES
Investment securities available for sale:
Purchases (497,500) - (500,547) -
Proceeds from sales 617,079 - 1,122,351 976,094
Maturities and repayments 6,654 24,851 98,104 57,644
Investment securities held to maturity:
Purchases (499,531) (2,967,105) (4,954,808) (2,250,000)
Maturities and repayments 1,243,492 2,144,269 5,676,297 1,126,409
Mortgage-backed securities available for sale:
Purchases - - (510,170) (1,148,881)
Maturities and repayments 103,793 28,091 368,845 724,327
Mortgage-backed securities held to maturity:
Purchases (1,386,878) (2,199,502) (2,890,899) (1,215,382)
Maturities and repayments 1,147,150 1,186,630 4,734,188 2,734,189
Net (increase) decrease in loans
receivable (506,644) 1,971,832 (1,629,778) 2,007,992
Purchase of Federal Home Loan
Bank stock (12,300) (3,422) (3,422) (31,000)
Purchase of premises and
equipment, net (4,518) (26,137) (563,157) (130,253)
Proceeds from sales of real estate
owned - 24,424 40,819 183,359
Other, net - - (20,000) 28,742
--------------- -------------- --------------- --------------
Net cash provided by
investing activities 210,797 183,931 967,823 3,063,240
--------------- -------------- --------------- --------------
</TABLE>
See accompanying notes to the consolidated financial statements.
F-4
<PAGE>
SPRING HILL SAVINGS BANK, FSB
CONSOLIDATED STATEMENT OF CASH FLOWS (Continued)
<TABLE>
<CAPTION>
Three Months Ended March 31, Year Ended December 31,
1997 1996 1996 1995
---------------- --------------- ---------------- ---------------
(Unaudited)
<S> <C> <C> <C> <C>
FINANCING ACTIVITIES
Net increase (decrease) in deposits $ 481,989 $ 1,392,557 $ (866,088) $ 4,324,360
Increase (decrease) in advances by
borrowers for taxes and insurance 113,448 65,559 (90,338) (111,686)
Collateralized mortgage obligation
payments (462,710) (347,480) (1,574,866) (1,554,601)
Extinguishment of debt (4,929,000) - - -
Decrease in short-term borrowings - - - (4,813,000)
Proceeds from borrowed funds 5,500,000 - 3,000,000 -
Repayment of borrowed funds (18,085) - (1,005,964) (722,000)
---------------- --------------- ---------------- ---------------
Net cash provided by (used for)
financing activities 685,642 1,110,636 (537,256) (2,876,927)
---------------- --------------- ---------------- ---------------
Increase in cash and cash
equivalents 929,012 1,222,072 397,675 1,086,044
CASH AND CASH EQUIVALENTS
AT BEGINNING OF PERIOD 2,100,915 1,703,240 1,703,240 617,196
---------------- --------------- ---------------- ---------------
CASH AND CASH EQUIVALENTS
AT END OF PERIOD 3,029,927 $ 2,925,312 $ 2,100,915 $ 1,703,240
================ =============== ================ ===============
SUPPLEMENTAL CASH FLOW DISCLOSURE
Cash paid during the year for:
Interest on deposits and
borrowings $ 1,024,332 $ 1,084,643 $ 4,163,078 $ 4,488,546
Income taxes 135,000 203,250 461,000 76,000
Non-cash items:
Loans transferred to real estate
owned - 9,380 112,541 181,121
Loans to facilitate the sale of
real estate owned - 794,559 985,231 34,412
Transfer of investment and
mortgage-backed securities from
held to maturity to available
for sale - - - 751,963
</TABLE>
See accompanying notes to the consolidated financial statements.
F-5
<PAGE>
SPRING HILL SAVINGS BANK, FSB
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
(ALL DATA RELATED TO MARCH 31, 1997 AND THE THREE MONTHS ENDED
MARCH 31, 1997 AND 1996 ARE UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Spring Hill Savings Bank, FSB (the "Bank") is a federally chartered mutual
savings bank located in Pittsburgh, Pennsylvania. The Bank's principal
sources of revenue emanate from its investment, mortgage-backed securities,
and mortgage loan portfolios. The Bank is supervised by the Office of Thrift
Supervision. Spring Hill Funding Corporation ("SHFC") is a wholly-owned
limited purpose finance subsidiary formed to issue bonds collateralized by
Federal National Mortgage Association mortgage-backed securities (the
"FNMAs").
Basis of Presentation
---------------------
The accounting policies followed by the Bank and its wholly-owned subsidiary
and the methods of applying these principles conform with generally accepted
accounting principles and with general practice within the banking industry.
In preparing the consolidated financial statements, management is required
to make estimates and assumptions that affect the reported amounts of assets
and liabilities as of the date of the statement of financial condition and
revenues and expenses for the period. Actual results could differ
significantly from those estimates.
A summary of significant accounting and reporting policies applied in the
presentation of the accompanying consolidated financial statements follows:
Principles of Consolidation
---------------------------
The consolidated financial statements include the accounts of Spring Hill
Savings Bank, FSB and its wholly-owned limited purpose finance subsidiary,
Spring Hill Funding Corporation. All significant intercompany accounts and
transactions have been eliminated.
Investment Securities Including Mortgage-Backed Securities
----------------------------------------------------------
Debt securities, including mortgage-backed securities and collateralized
mortgage obligations, acquired with the intent and ability to hold to
maturity are stated at cost and adjusted for amortization of premium and
accretion of discount, which are computed using a level yield method and are
recognized as adjustments of interest income. Certain other debt securities
have been classified as available for sale to serve principally as a source
of liquidity. Unrealized holding gains and losses for available for sale
securities are reported as a separate component of retained earnings, net of
tax, until realized. Realized securities gains and losses are computed using
the specific identification method. Interest and dividends on investment
securities are recognized as income when earned.
CMO residuals were carried at estimated market value. Total cash flows
expected to be received over the estimated life of the investment is
allocated between principal and interest. At the date of purchase, an
effective yield was calculated based on the purchase price and anticipated
future cash flows. In the initial accounting period, interest income was
accrued on the investment balance using that rate. Cash received on the
investment is first applied to accrued interest with any excess reducing the
recorded investment balance. At each reporting date, the effective yield is
recalculated based on the amortized cost of the investment and the then
current estimate of future cash flows. This procedure continues until all
cash flows from the investment have been received. The amortized balance of
the investment at the end of each period will equal the present value of the
estimated future cash flows discounted at the newly calculated effective
yield.
F-6
<PAGE>
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Investment Securities Including Mortgage-Backed Securities (Continued)
----------------------------------------------------------------------
Common stock of the Federal Home Loan Bank (the "FHLB") represents ownership
in an institution which is wholly-owned by other financial institutions.
This equity security is accounted for at cost and reported separately on the
accompanying statement of financial condition.
Loans Receivable
----------------
Loans receivable are stated at their unpaid principal amounts net of any
unearned income. Interest on loans is credited to income as earned. Interest
accrued on loans more than 90 days delinquent is generally offset by a
reserve for uncollected interest and is not recognized as income.
Loan Origination Fees
---------------------
Loan origination and commitment fees and certain direct loan origination
costs are being deferred and the net amount amortized as an adjustment of
the related loan's yield. The Bank is amortizing these amounts over the
contractual life of the related loans.
Allowance for Loan Losses
-------------------------
Effective January 1, 1995, the Bank adopted Statement of Financial
Accounting Standards No. 114, "Accounting by Creditors for Impairment of a
Loan," as amended by Statement No. 118. Under this Standard, the Bank
estimates credit losses on impaired loans based on the present value of
expected cash flows or fair value of the underlying collateral if the loan
repayment is expected to come from the sale or operation of such collateral.
Prior to 1995, the credit losses related to these loans were estimated based
on undiscounted cash flows or the fair value of the underlying collateral.
Statement 118 amends Statement 114 to permit a creditor to use existing
methods for recognizing interest income on impaired loans eliminating the
income recognition provisions of Statement 114. The adoption of these
statements did not have a material effect on the Bank's financial position
or results of operation.
Impaired loans are commercial and commercial real estate loans for which it
is probable that the Bank will not be able to collect all amounts due
according to the contractual terms of the loan agreement. The Bank
individually evaluates such loans for impairment and does not aggregate
loans by major risk classifications. The definition of "impaired loans" is
not the same as the definition of "nonaccrual loans," although the two
categories overlap. The Bank may choose to place a loan on nonaccrual status
due to payment delinquency or uncertain collectibility, while not
classifying the loan as impaired if the loan is not a commercial or
commercial real estate loan. Factors considered by management in determining
impairment include payment status and collateral value. The amount of
impairment for these types of impaired loans is determined by the difference
between the present value of the expected cash flows related to the loan,
using the original interest rate, and its recorded value, or, as a practical
expedient in the case of collateralized loans, the difference between the
fair value of the collateral and the recorded amount of the loans. When
foreclosure is probable, impairment is measured based on the fair value of
the collateral.
Mortgage loans on one-to-four family properties and all consumer loans are
large groups of smaller balance homogeneous loans and are measured for
impairment collectively. Loans that experience insignificant payment delays,
which are defined as 90 days or less, generally are not classified as
impaired. Management determines the significance of payment delays on a
case-by-case basis, taking into consideration all of the circumstances
surrounding the loan and the borrower, including the length of the delay,
the borrower's prior payment record, and the amount of shortfall in relation
to the principal and interest owed.
F-7
<PAGE>
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
------------------------------------------------------
Allowance for Loan Losses (Continued)
-------------------------------------
The allowance for loan losses represents the amount which management
estimates is adequate to provide for potential losses in its loan portfolio.
The allowance method is used in providing for loan losses. Accordingly, all
loan losses are charged to the allowance and all recoveries are credited to
it. The allowance for loan losses is established through a provision for
loan losses charged to operations. The provision for loan losses is based on
management's periodic evaluation of individual loans, economic factors, past
loan loss experience, changes in the composition and volume of the
portfolio, and other relevant factors. The estimates used in determining the
adequacy of the allowance for loan losses, including the amounts and timing
of future cash flows expected on impaired loans, are particularly
susceptible to changes in the near term.
Premises and Equipment
----------------------
Premises and equipment are stated at cost less accumulated depreciation.
Depreciation is calculated using the straight-line method over the useful
lives of the related assets. Expenditures for maintenance and repairs are
charged to operations as incurred. Costs of major additions and improvements
are capitalized.
Debt Discount and Issue Costs
-----------------------------
Discounts and issue costs related to the issuance of collateralized mortgage
obligations are amortized to interest expense on the interest method.
Real Estate Owned
-----------------
Real estate owned, acquired in settlement of foreclosed loans, is carried at
the lower of cost or fair value minus estimated cost to sell. Valuation
allowances for estimated losses are provided when the carrying value exceeds
the fair value. Direct costs incurred on such properties are recorded as
expenses of current operations.
Federal Income Taxes
--------------------
Deferred tax assets or liabilities are computed based on the difference
between the financial statement and income tax basis of assets and
liabilities using the enacted marginal tax rates. Deferred income tax
expenses or benefits are based on the changes in the deferred tax asset or
liability from period to period.
Cash and Cash Equivalents
-------------------------
The Bank has defined cash and cash equivalents as those cash and due from
banks, overnight deposits with the FHLB, and federal funds sold.
Reclassification of Comparative Amounts
---------------------------------------
Certain comparative account balances for 1995 have been reclassified to
conform to the 1996 classifications. Such reclassifications did not effect
net income.
F-8
<PAGE>
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Recent Accounting Pronouncements
In June 1996, the Financial Accounting Standards Board ("the FASB")
issued Statement of Financial Accounting Standards No. 125, "Accounting
for Transfers and Servicing of Financial Assets and Extinguishment of
Liabilities," which provides accounting and reporting standards for
transfers and servicing of financial assets and extinguishment of
liabilities. This statement applies prospectively in fiscal years
beginning after December 31, 1996, and establishes new standards that
focus on control whereas, after a transfer of financial assets, an
entity recognizes the financial and servicing assets it controls and the
liabilities it has incurred, derecognizes financial assets when control
has been surrendered, and derecognizes liabilities when extinguished.
The Bank does not expect adoption of Statement 125 to have a material
impact on the Bank's results of operations or financial position.
In December 1996, the FASB issued Statement of Financial Accounting
Standards No. 127, "Deferral of the Effective Date of Certain Provisions
of FASB Statement No. 125." Statement 127 defers for one year the
effective date of portions of Statement 125 that address secured
borrowings and collateral for all transactions. Additionally, Statement
127 defers for one year the effective date of transfers of financial
assets that are part of repurchase agreements, securities lending and
similar transactions. The Bank does not expect adoption of Statement 127
to have a material impact on the Bank's results of operations or
financial position.
2. INTEREST-BEARING DEPOSITS WITH OTHER BANKS
Interest-bearing deposits with other banks is comprised of the
following:
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996 1995
----------------- ------------------ -----------------
<S> <C> <C> <C>
Overnight deposits $ 2,352,517 $ 1,491,281 $ 1,259,179
Federal funds sold 25,000 25,000 25,000
----------------- ------------------ -----------------
Total $ 2,377,517 $ 1,516,281 $ 1,284,179
================= ================== =================
</TABLE>
3. INVESTMENT SECURITIES
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
------------------ ----------------- ------------------ ----------------
<S> <C> <C> <C> <C>
March 31, 1997
Available for Sale
U. S. Treasury securities $ 497,541 $ - $ (666) $ 496,875
Securities of U.S. Government
agencies 320,267 1,601 - 321,868
------------------ ----------------- ------------------ ----------------
Total $ 817,808 $ 1,601 $ (666) $ 818,743
================== ================= ================== ================
Held to Maturity
Securities of U.S. Government
agencies $ 689,029 $ 500 $ (2,660) $ 686,869
Corporate securities 484,939 - - 484,939
------------------ ----------------- ------------------ ----------------
Total $ 1,173,968 $ 500 $ (2,660) $ 1,171,808
================== ================= ================== ================
</TABLE>
F-9
<PAGE>
3. INVESTMENT SECURITIES (Continued)
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
----------------- ---------------- ----------------- ----------------
<S> <C> <C> <C> <C>
1996
Available for Sale
U. S. Treasury securities $ 500,538 $ - $ (2,728) $ 497,810
Securities of U.S. Government
agencies 326,962 1,635 - 328,597
----------------- ---------------- ----------------- ----------------
Total $ 827,500 $ 1,635 $ (2,728) $ 826,407
================= ================ ================= ================
Held to Maturity
Securities of U.S. Government
agencies $ 446,288 $ 313 $ - $ 446,601
Corporate securities 1,471,641 - - 1,471,641
----------------- ---------------- ----------------- ----------------
Total $ 1,917,929 $ 313 $ - $ 1,918,242
================= ================ ================= ================
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
----------------- ---------------- ----------------- ----------------
<S> <C> <C> <C> <C>
1995
Available for Sale
Securities of U.S. Government
agencies $ 396,451 $ 1,982 $ - $ 398,433
Collateralized mortgage
obligation residuals 248,470 - - 248,470
----------------- ---------------- ----------------- ----------------
Total $ 644,921 $ 1,982 $ - $ 646,903
================= ================ ================= ================
Held to Maturity
Securities of U.S. Government
agencies $ 1,513,244 $ 12,575 $ - $ 1,525,819
Corporate securities 1,126,174 - - 1,126,174
----------------- ---------------- ----------------- ----------------
Total $ 2,639,418 $ 12,575 $ - $ 2,651,993
================= ================ ================= ================
</TABLE>
F-10
<PAGE>
3. INVESTMENT SECURITIES (Continued)
The amortized cost and estimated market value of investment securities
by contractual maturity are shown below.
<TABLE>
<CAPTION>
March 31, 1997
Available for Sale Held to Maturity
----------------------------------------------------------------------------
Estimated Estimated
Amortized Market Amortized Market
Cost Value Cost Value
----------------- ---------------- ----------------- --------------
<S> <C> <C> <C> <C>
Due within one year $ - $ - $ 484,939 $ 484,939
Due after one year through
five years 497,541 496,875 - -
Due after five years through
ten years - - 250,000 247,343
Due after ten years 320,267 321,868 439,029 439,526
----------------- ---------------- ----------------- --------------
Total $ 817,808 $ 818,743 $ 1,173,968 $ 1,171,808
================= ================ ================= ===============
<CAPTION>
December 31, 1996
Available for Sale Held to Maturity
-------------------------------------------------------------------------------
Estimated Estimatedd
Amortized Market Amortized Market
Cost Value Cost Value
----------------- ---------------- ----------------- --------------
<S> <C> <C> <C> <C>
Due within one year $ - $ - $ 1,477,013 $ 1,477,013
Due after one year through
five years 500,538 497,810 250,000 250,313
Due after ten years 326,962 328,597 190,916 190,916
----------------- ---------------- ----------------- ---------------
Total $ 827,500 $ 826,407 $ 1,917,929 $ 1,918,242
================= ================ ================= ===============
</TABLE>
Securities of U.S. Government agencies with an amortized cost of
$250,000 and estimated market value of $250,313 and $259,295 at December
31, 1996 and 1995, respectively, were pledged to secure public funds.
Proceeds from sales of investment securities available for sale and
gross gains and losses realized on those sales were as follows:
<TABLE>
<CAPTION>
Three Months Ended March 31, Year Ended December 31,
1997 1996 1996 1995
----------------- ---------------- ----------------- ----------------
<S> <C> <C> <C> <C>
Proceeds from sales $ 617,079 $ - $ 1,122,351 $ 976,094
Gross gains 121,063 - 902,488 -
Gross losses 4,522 - - 7,971
</TABLE>
During 1996, four collateralized mortgage obligation ("CMO") residuals
were either sold or redeemed at a price which significantly exceeded the
Bank's recorded investment in the securities. Throughout the holding
period, as the amortized cost of these securities exceeded the fair
market value, permanent impairment losses were recognized. The estimated
market value of the CMO residuals had been based upon the present value
of estimated future cash flows of the underlying mortgage collateral,
discounted at a risk-free interest rate.
F-11
<PAGE>
3. INVESTMENT SECURITIES (Continued)
During 1996, two CMO residuals were sold at a gain of $38,358. The
remaining gain of $864,130 was the Bank's portion, based on its
ownership interest, of the proceeds from the early redemption of two CMO
residuals. In 1996, favorable market conditions had a positive impact on
the valuation of the underlying mortgage collateral and those owning the
right to call the CMO issues exercised their option. The underlying
collateral was sold at a premium resulting in a significant gain to the
Bank.
A gain of $121,063 was realized in the first quarter of 1997 from the
early redemption of the last remaining CMO residual owned by the Bank as
an investment. This gain resulted from the exercise of the early call
provisions of the Trust Indenture and the collateral value exceeding the
debt obligations secured by the collateral. The Bank received its
proportionate interest in the premium realized from the sale of the
collateral that had been held by the Trustee to secure the CMO bonds. At
December 31, 1996, this security had no carrying value as a result of
previous impairment charges and principal repayments. There was no
indicated market value for this security due to uncertainty in both
timing and amount of proceeds from the exercise of the early redemption.
In December, 1995, in accordance with the Financial Accounting Standards
Board Special Report, "A Guide to Implementation of Statement 115 on
Accounting for Certain Investments in Debt and Equity Securities," the
Bank reclassified certain investment and mortgage-backed securities from
the held to maturity classification to the available for sale
classification with an amortized cost of $751,963 and an estimated
market value of $756,435.
4. MORTGAGE-BACKED SECURITIES
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
----------------- ---------------- ----------------- ----------------
<S> <C> <C> <C> <C>
March 31, 1997
Available for Sale
GNMA $ 438,766 $ 2,132 $ - $ 440,898
FHLMC 727,486 - (11,439) 716,047
FNMA 661,845 - (18,108) 643,737
Collateralized mortgage
obligations 505,745 10,117 - 515,862
----------------- ---------------- ----------------- ----------------
Total $ 2,333,842 $ 12,249 $ (29,547) $ 2,316,544
================= ================ ================= ================
Held to Maturity
GNMA $ 1,543,762 $ 8,073 $ (12,292) $ 1,539,543
FHLMC 1,375,331 15,114 (14,854) 1,375,591
FNMA 8,757,067 45,001 (49,907) 8,752,161
Collateralized mortgage
obligations 5,686,169 21,574 (24,736) 5,683,007
----------------- ---------------- ----------------- ----------------
Total $ 17,362,329 $ 89,762 $ (101,789) $ 17,350,302
================= ================ ================= ================
</TABLE>
F-12
<PAGE>
4. MORTGAGE-BACKED SECURITIES (Continued)
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
----------------- ---------------- ----------------- ----------------
<S> <C> <C> <C> <C>
1996
Available for Sale
GNMA $ 471,867 $ 108 $ - $ 471,975
FHLMC 787,724 238 (5,977) 781,985
FNMA 675,365 - (11,622) 663,743
Collateralized mortgage
obligations 505,279 7,457 - 512,736
----------------- ---------------- ----------------- ----------------
Total $ 2,440,235 $ 7,803 $ (17,599) $ 2,430,439
================= ================ ================= ================
Held to Maturity
GNMA $ 1,024,906 $ 3,230 $ (7,178) $ 1,020,958
FHLMC 1,447,707 21,194 (10,866) 1,458,035
FNMA 9,334,750 129,981 (872) 9,463,859
Collateralized mortgage
obligations 5,319,600 13,306 (26,349) 5,306,557
----------------- ---------------- ----------------- ----------------
Total $ 17,126,963 $ 167,711 $ (45,265) $ 17,249,409
================= ================ ================= ================
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
----------------- ---------------- ----------------- ----------------
<S> <C> <C> <C> <C>
1995
Available for Sale
FHLMC $ 1,017,191 $ - $ (11,621) $ 1,005,570
FNMA 787,297 1,434 (4,181) 784,550
Collateralized mortgage
obligations 503,493 4,472 - 507,965
----------------- ---------------- ----------------- ----------------
Total $ 2,307,981 $ 5,906 $ (15,802) $ 2,298,085
================= ================ ================= ================
Held to Maturity
GNMA $ 288,221 $ 1,820 $ (5,031) $ 285,010
FHLMC 1,971,029 33,222 (8,464) 1,995,787
FNMA 11,295,467 351,646 - 11,647,113
Collateralized mortgage
obligations 5,437,957 28,226 (25,195) 5,440,988
----------------- ---------------- ----------------- ----------------
Total 18,992,674 414,914 (38,690) 19,368,898
================= ================ ================= ================
</TABLE>
The amortized cost and estimated market value of mortgage-backed
securities by contractual maturity are shown below. Mortgage-backed
securities provide for periodic payments of principal and interest. Due
to expected repayment terms being significantly less than the underlying
mortgage loan pool contractual maturities, the estimated lives of these
securities could be significantly shorter.
F-13
<PAGE>
4. MORTGAGE-BACKED SECURITIES (Continued)
<TABLE>
<CAPTION>
March 31, 1997
Available for Sale Held to Maturity
------------------------------------- -------------------------------------
Estimated Estimated
Amortized Market Amortized Market
Cost Value Cost Value
----------------- ---------------- ----------------- ----------------
<S> <C> <C> <C> <C>
Due within one year $ - $ - $ 233,348 $ 233,372
Due after one year through
five years 306,212 297,731 2,898,862 2,879,856
Due after five years through
ten years - - 2,718,643 2,691,378
Due after ten years 2,027,630 2,018,813 11,511,476 11,545,696
----------------- ---------------- ----------------- ----------------
Total $ 2,333,842 $ 2,316,544 $ 17,362,329 $ 17,350,302
================= ================ ================= ================
<CAPTION>
December 31, 1996
Available for Sale Held to Maturity
------------------------------------- -------------------------------------
Estimated Estimatedd
Amortized Market Amortized Market
Cost Value Cost Value
----------------- ---------------- ----------------- ----------------
<S> <C> <C> <C> <C>
Due within one year $ - $ - $ 80,360 $ 80,635
Due after one year through
five years 315,851 309,874 3,299,516 3,285,033
Due after five years through
ten years - - 2,961,314 2,975,455
Due after ten years 2,124,384 2,120,565 10,785,773 10,908,286
----------------- ---------------- ----------------- ----------------
Total $ 2,440,235 $ 2,430,439 $ 17,126,963 $ 17,249,409
================= ================ ================= ================
</TABLE>
FNMA mortgage-backed securities with an amortized cost of $7,242,912,
$7,766,886 and $9,362,853 and an estimated market value of $7,214,208,
$7,857,979 and $9,656,852 at March 31, 1997 and December 31, 1996 and
1995, respectively, are pledged as collateral for the collateralized
mortgage obligation bonds issued by SHFC.
F-14
<PAGE>
5. LOANS RECEIVABLE
Loans receivable consist of the following:
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996 1995
-------------- ------------- ------------
<S> <C> <C> <C>
Mortgage loans:
1 - 4 family units $ 42,653,965 $ 41,767,116 $ 39,475,086
Multi-family units 5,791,690 5,676,859 5,379,957
Construction loans 1,686,820 1,726,819 1,383,921
Commercial real estate 2,924,901 3,295,934 3,191,426
------------- ------------- ------------
53,057,376 52,466,728 49,430,390
------------- ------------- ------------
Consumer loans:
Mobile home 2,296,916 2,454,431 3,160,706
Other 568,175 610,847 166,801
------------- ------------- ------------
2,865,091 3,065,278 3,327,507
------------- ------------- ------------
Commercial loans 86,070 86,070 135,743
------------- ------------- ------------
Less:
Undisbursed portion of loans 389,974 509,053 321,667
Deferred premiums (11,732) (11,032) (13,319)
Deferred loan origination costs, net (57,020) (84,404) (216,855)
Allowance for loan losses 419,581 415,426 276,212
-------------- -------------- -------------
740,803 829,043 367,705
-------------- -------------- -------------
Total $ 55,267,734 $ 54,789,033 $ 52,525,935
============== ============== =============
</TABLE>
The Bank's primary business activity is with customers located within its
local trade area. Commercial, residential, and personal loans are granted.
The repayment of these loans is dependent upon the local economic conditions
in its immediate trade area. The mobile home loan portfolio at December 31,
1996 and 1995, consists primarily of loans granted to individuals outside of
the Bank's immediate trade area.
Activity in the allowance for loan losses is as follows:
<TABLE>
<CAPTION>
Three Months Ended March 31, Year Ended December 31,
1997 1996 1996 1995
----------------- ---------------- ----------------- ----------------
<S> <C> <C> <C> <C>
Balance, at beginning of
period $ 415,426 $ 276,212 $ 276,212 $ 267,726
Loans charged off (28,238) (10,382) (111,458) (65,783)
Recoveries 4,450 78 11,302 10,269
----------------- ---------------- ----------------- ----------------
Net loans charged off (23,788) (10,304) (100,156) (55,514)
Provision for loan losses 27,943 29,528 239,370 64,000
----------------- ---------------- ----------------- ----------------
Balance, at end of period $ 419,581 $ 295,436 $ 415,426 $ 276,212
================= ================ ================= ================
</TABLE>
F-15
<PAGE>
5. LOANS RECEIVABLE (Continued)
The recorded investment in loans which are considered to be impaired in
accordance with Statement 114 was $619,316 at March 31, 1997 and $648,569
and $424,768 at December 31, 1996 and 1995, respectively. All impaired loans
were on a nonaccrual basis. At March 31, 1997 and December 31, 1996, $63,408
and $64,870 of the allowance for loan losses has been allocated for impaired
loans. At December 31, 1995, no allowance for loan losses has been allocated
due to the loans being collateral dependent and the fair value of the
collateral exceeding the recorded investment in the related loans.
The average recorded investment in impaired loans at March 31, 1997 and
December 31, 1996 and 1995 was $621,873, $659,317 and $177,995,
respectively. For the three month period ended March 31, 1997 and the years
ended December 31, 1996 and 1995, interest income totaling $9,564, $53,042
and $9,835 was recognized using the cash basis method of income recognition.
The Bank also had nonaccrual loans of $489,028, $462,057 and $198,650 at
March 31, 1997, December 31, 1996 and 1995, respectively, which in
management's opinion did not meet the definition of impaired in accordance
with Statement 114. Interest income on loans would have been increased by
$8,151, $25,203 and $10,134, respectively, if these loans had performed in
accordance with their original terms.
6. ACCRUED INTEREST RECEIVABLE
Accrued interest receivable consists of the following:
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996 1995
------------ ------------ -------------
<S> <C> <C> <C>
Investment securities $ 28,800 $ 26,357 $ 43,570
Mortgage-backed securities 129,405 130,171 141,881
Loans receivable 330,217 341,974 350,846
------------ ------------ ------------
Total $ 488,422 $ 498,502 $ 536,297
============ ============ ============
</TABLE>
7. REAL ESTATE OWNED
Real estate owned consists of the following:
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996 1995
------------ ------------ -------------
<S> <C> <C> <C>
Real estate acquired through foreclosure $ 12,500 $ 12,500 $ 955,263
Less allowance for estimated losses - - 15,031
------------ ------------ ------------
Total $ 12,500 $ 12,500 $ 940,232
============ ============ ============
</TABLE>
F-16
<PAGE>
7. REAL ESTATE OWNED (Continued)
Activity in the allowance for estimated losses on real estate owned is as
follows:
<TABLE>
<CAPTION>
Three Months Ended March 31, Year Ended December 31,
1997 1996 1996 1995
------------- ------------ ------------- -------------
<S> <C> <C> <C> <C>
Balance, at beginning of
period $ - $ 15,031 $ 15,031 $ 6,009
Add provision charged to
operations - 12,581 21,242 26,031
Less charge-offs - 15,031 36,273 17,009
------------- ------------ ------------- -------------
Balance, at end of period $ - $ 12,581 $ - $ 15,031
============= ============ ============= =============
</TABLE>
8. PREMISES AND EQUIPMENT
Premises and equipment consists of the following:
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996 1995
------------ ------------ -------------
<S> <C> <C> <C>
Land and improvements $ 106,313 $ 106,313 $ 69,763
Buildings and improvements 733,322 724,822 289,195
Furniture and equipment 739,698 738,678 835,034
Leasehold improvements 58,747 58,747 63,427
------------ ------------- ------------
1,638,080 1,628,560 1,257,419
Less accumulated depreciation 862,092 841,182 970,565
------------ ------------- ------------
Total $ 775,988 $ 787,378 $ 286,854
============ ============= ============
</TABLE>
Depreciation expense for the three months ended March 31, 1997 and 1996, and
the years ended December 31, 1996 and 1995 was $20,908, $12,324, $62,633,
and $23,578, respectively.
9. FEDERAL HOME LOAN BANK STOCK
The Bank is a member of the Federal Home Loan Bank System. As a member, the
Bank maintains an investment in the capital stock of the Federal Home Loan
Bank of Pittsburgh, at cost, in an amount not less than the greater of 1% of
its outstanding home loans or 5% of its outstanding notes payable to the
Federal Home Loan Bank of Pittsburgh as calculated at December 31 of each
year.
F-17
<PAGE>
10. DEPOSITS
Comparative details of deposits are as follows:
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996 1995
---------------------------- ------------------------- -----------------------
Amount % Amount % Amount %
------------ ---------- ------------ --------- ------------ --------
<S> <C> <C> <C> <C> <C> <C>
Non-interest-bearing $ 404,824 0.6% $ 311,628 0.5% $ 232,859 0.3%
Interest-bearing
Savings 12,672,501 19.6 12,834,398 20.0 13,397,909 20.6
NOW checking 2,631,481 4.1 2,731,846 4.2 2,816,257 4.3
Money market 5,884,995 9.1 5,906,940 9.2 4,933,307 7.6
------------ ---------- ------------ --------- ------------ --------
21,593,801 33.4 21,784,812 33.9 21,380,332 32.8
------------ ---------- ------------ --------- ------------ --------
Time certificates of deposit
2.00 - 3.99% 24,856 - 24,648 - 586,165 0.9
4.00 - 5.99% 32,386,977 50.0 32,154,297 50.0 25,026,190 38.5
6.00 - 7.99% 10,702,700 16.5 10,263,820 16.0 18,009,062 27.6
8.00 - 9.99% 67,774 0.1 66,542 0.1 158,458 0.2
------------ ---------- ------------ --------- ------------ --------
43,182,307 66.6 42,509,307 66.1 43,779,875 67.2
------------ ---------- ------------ --------- ------------ --------
Total $ 64,776,108 100.0% $ 64,294,119 100.0% $ 65,160,207 100.0%
============ ========== ============ ========= ============ =========
</TABLE>
The aggregate amount of certificates of deposit with a minimum
denomination of $100,000 was $3,826,538, $3,515,097, and $3,231,467 at
March 31, 1997 and December 31, 1996 and 1995, respectively.
The scheduled maturities of time certificates of deposit are as follows:
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
----------- -----------
<S> <C> <C>
With one year $26,177,446 $27,315,014
Beyond one year but within two years 6,827,779 5,340,199
Beyond two years but within three years 4,524,874 5,043,149
Beyond three years but within four years 1,308,629 809,352
Beyond four years 4,343,579 4,001,593
----------- -----------
Total $43,182,307 $42,509,307
=========== ===========
</TABLE>
F-18
<PAGE>
10. DEPOSITS (Continued)
Interest expense by deposit category is as follows:
<TABLE>
<CAPTION>
Three Months Ended March 31, Year Ended December 31,
1997 1996 1996 1995
------------- -------------- ------------- --------------
<S> <C> <C> <C> <C>
Savings $ 97,983 $ 104,751 $ 416,202 $ 438,979
NOW and money market 66,053 56,885 245,025 225,307
Time certificates of deposit 594,338 642,732 2,379,069 2,411,194
------------- -------------- ------------- --------------
Total $ 758,374 $ 804,368 $ 3,040,296 $ 3,075,480
============= ============== ============= ==============
</TABLE>
11. COLLATERALIZED MORTGAGE OBLIGATION
The bonds are collateralized by a pledge of the FNMAs and are identified
as follows:
<TABLE>
<CAPTION> March 31, 1997
--------------------------------------
Original
Par Par Carrying
Class Value Value Value
------------ --------------- --------------- ---------------
<S> <C> <C> <C>
A $ 14,420,000 $ - $ -
B 12,847,000 2,560,918 2,453,663
C 4,800,000 - -
--------------- --------------- --------------
$ 32,067,000 $ 2,560,918 $ 2,453,663
=============== =============== ==============
</TABLE>
<TABLE>
<CAPTION>
December 31,
1996 1995
------------------------------------ ------------------------------------
Original
Par Par Carrying Par Carrying
Class Value Value Value Value Value
------------ ---------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
A $ 14,420,000 $ - $ - $ - $ -
B 12,847,000 3,023,659 2,881,510 4,598,524 4,291,295
C 4,800,000 4,800,000 4,055,895 4,800,000 3,959,242
---------------- --------------- --------------- --------------- ---------------
$ 32,067,000 $ 7,823,659 $ 6,937,405 $ 9,398,524 $ 8,250,537
================ =============== =============== =============== ===============
</TABLE>
Following are the stated interest rates and maturities of the bonds:
<TABLE>
<CAPTION>
Interest Stated
Class Rate Maturity
--------------- ------------ ------------
<S> <C> <C>
A 7.80% July 1, 2002
B 7.90 July 1, 2015
C 7.95 December 1, 2017
</TABLE>
F-19
<PAGE>
11. COLLATERALIZED MORTGAGE OBLIGATION (Continued)
The FNMAs will remain pledged until the collateralized mortgage obligation
bonds are fully satisfied. The amount of monthly payments on the bonds is
based upon the timing of cash receipts from the FNMAs. Interest is paid
monthly. All principal payments on the bonds will be allocated among the
bonds in the order of their respective stated maturities.
Effective March 7, 1997, the Bank purchased the Class C bonds at a loss
of $963,062, as discussed in Note 20.
12. BORROWED FUNDS
Borrowed funds consist of credit arrangements with the Federal Home Loan
Bank of Pittsburgh. FHLB borrowings are subject to annual renewal, incur no
service charges, and are secured by a blanket security agreement on certain
investment and mortgage-backed securities, outstanding residential
mortgages and the Bank's investment in FHLB stock. As of December 31, 1996,
the Bank's maximum borrowing capacity with the FHLB was $47.5 million.
FHLB "Flexline" advances are short-term borrowings that mature within one
year, bear a variable rate of interest that adjusts daily and are not
subject to prepayment penalties. Included in the $47.5 million maximum
borrowing capacity with the FHLB is a $4.7 million credit line available
under the Flexline. As of March 31, 1997 and December 31, 1996 and 1995,
there were no outstanding Flexline borrowings.
The following tables present the scheduled repayments of the outstanding
advances:
<TABLE>
<CAPTION>
Weighted
Interest March 31,
Maturity Rate 1997
-------- -------- ---------
<S> <C> <C>
1998 7.05% $ 1,000,000
2000 5.89 778,000
2001 6.06 500,000
2002 6.31 2,000,000
2006 6.28 1,475,951
2007 6.66 3,500,000
------------
Total $ 9,253,951
============
<CAPTION>
Weighted Weighted
Interest December 31, Interest December 31,
Maturity Rate 1996 Rate 1995
-------- -------- ------------ --------- -------------
<S> <C> <C> <C> <C>
1996 - % $ - 7.69% $ 1,000,000
1998 7.05 1,000,000 7.53 500,000
2000 5.89 778,000 6.10 278,000
2001 6.06 500,000 - -
2006 6.29 1,494,036 - -
----------- --------------
Total $ 3,772,036 $ 1,778,000
=========== ==============
</TABLE>
F-20
<PAGE>
13. SAVINGS ASSOCIATION INSURANCE FUNDS RECAPITALIZATION
On September 30, 1996, the President signed into law legislation which
included, among other things, recapitalization of the Savings Association
Insurance Fund ("SAIF") of the Federal Deposit Insurance Corporation
("FDIC") by a one time charge to SAIF-insured institutions of 65.7 basis
points per one hundred dollars of insurable deposits. The gross effect to
the Bank amounted to $414,305, which is reflected in the financial results
of the Bank for the year ended December 31, 1996.
14. INCOME TAXES
The components of income tax expense are summarized as follows:
<TABLE>
<CAPTION>
Three Months Ended March 31, Year Ended December 31,
1997 1996 1996 1995
------------- ------------ ------------- ------------
<S> <C> <C> <C> <C>
Current payable
Federal $ 92,372 $ 57,404 $ 296,656 $ 189,943
State 22,351 10,362 58,871 19,050
------------- ------------ ------------- ------------
114,723 67,766 355,527 208,993
Deferred taxes (5,619) (24,923) (124,280) (97,290)
------------- ------------ ------------- ------------
Total $ 109,104 $ 42,843 $ 231,247 $ 111,703
============= ============ ============= ============
</TABLE>
Income taxes (benefit) applicable to net securities gains (losses) were
$44,798 for the three months ended March 31, 1997, and $346,916 and
$(3,064) for the years ended December 31, 1996 and 1995, respectively.
On August 20, 1996, The Small Business Job Protections Act (the "Act") was
signed into law. The Act eliminated the percentage of taxable income bad
debt deduction for thrift institutions for tax years beginning after
December 31, 1995. The Act provides that bad debt reserves accumulated
prior to 1988 be exempt from recapture. Bad debt reserves accumulated after
1987 are subject to recapture. The Bank has not accumulated any additional
bad debt reserves since 1987; therefore, the impact of this legislation
will not have a material effect on the Bank's financial statements.
The following temporary differences gave rise to the net deferred tax
assets (liabilities):
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996 1995
------------ ------------- ------------
<S> <C> <C> <C>
Deferred Tax Assets:
Net unrealized loss on securities $ 6,805 $ 4,529 $ 3,292
Pension adjustment 30,695 30,695 36,664
Allowance for loan losses 154,967 148,528 103,289
Investment in SHFC 152,989 152,989 152,989
Deferred loan origination costs, net 26,842 35,500 42,972
Loss on extinguishment of debt 400,537 - -
Other 30,071 34,515 22,315
------------ ------------- ------------
Total gross deferred tax assets 802,906 406,756 361,521
------------ ------------- ------------
Deferred Tax Liabilities:
Discount on mortgage-backed securities 208,339 210,926 285,706
SHFC debt issuance costs 45,495 47,082 57,137
Other 20,984 29,092 24,539
------------ ------------- ------------
Total gross deferred tax liabilities 274,818 287,100 367,382
------------ ------------- ------------
Net deferred tax assets (liabilities) $ 528,088 $ 119,656 $ (5,861)
============ ============= ============
</TABLE>
F-21
<PAGE>
14. INCOME TAXES (Continued)
No valuation allowance was established at March 31, 1997 or December 31,
1996 and 1995, in view of the Bank's ability to carryback taxes paid in
previous years and to a lesser extent future anticipated taxable income.
The reconciliation of the federal statutory rate and the Bank's
effective income tax rate is as follows:
<TABLE>
<CAPTION>
Three Months Ended March 31,
1997 1996
----------------------------------------------------------------------------
% of % of
Pre-tax Pre-tax
Amount Income Amount Income
--------------- ------------- -------- ----------
<S> <C> <C> <C> <C>
Provision at statutory rate $ 96,642 34.0% $ 35,017 34.0%
State tax expense, net of
federal tax benefit 11,387 4.0 5,161 5.0
Other, net 1,075 0.4 2,665 2.6
--------------- ------------- -------- ----------
Actual tax expense
and effective rate $ 109,104 38.4% $ 42,843 41.6%
=============== ============= ======== ==========
<CAPTION>
Year Ended December 31,
1996 1995
----------------------------------------------------------------------------
% of % of
Pre-tax Pre-tax
Amount Income Amount Income
--------------- ------------- -------- ----------
<S> <C> <C> <C> <C>
Provision at statutory rate $ 212,157 34.0% $ 116,540 34.0%
State tax expense, net of
federal tax benefit 26,572 4.3 12,573 3.7
Other, net (7,482) (1.2) (17,410) (5.1)
--------------- ------------- --------- ----------
Actual tax expense
and effective rate $ 231,247 37.1% $ 111,703 32.6%
=============== ============= ========= ==========
</TABLE>
15. EMPLOYEE BENEFITS
The Bank sponsors a trusteed, defined benefit pension plan covering
substantially all employees and officers. The plan calls for benefits to
be paid to eligible employees at retirement based primarily upon years
of service with the Bank and compensation rates near retirement. The
plan was amended in 1992 to suspend funding of future benefits.
Accordingly, accrued benefits earned to that point were frozen. The
Bank's funding policy is to make annual contributions as needed based
upon the funding formula developed by the plan's actuary. Net periodic
pension cost is comprised of the following:
<TABLE>
<CAPTION>
Year Ended December 31,
1996 1995
------------ -----------
<S> <C> <C>
Service cost of the current period $ - $ -
Interest cost on projected benefit obligation 9,159 6,627
Actual return on plan assets (6,660) (6,501)
Net amortization and deferral 7,720 5,331
------------ -----------
Net periodic pension cost $ 10,219 $ 5,457
============ ===========
</TABLE>
F-22
<PAGE>
15. EMPLOYEE BENEFITS (Continued)
The actuarial present value of accumulated benefit obligations at
December 31, 1996 and 1995, was $133,376 and $130,850, the entire
amounts being vested for both years. The following table sets forth the
funded status and amounts recognized in the statement of financial
condition:
<TABLE>
<CAPTION>
December 31,
1996 1995
------------- ------------
<S> <C> <C>
Plan assets at fair value $ 100,406 $ 89,579
Projected benefit obligation 133,376 130,850
------------- ------------
Funded status (32,970) (41,271)
Unrecognized net loss 73,803 88,156
Additional minimum liability (73,803) (88,156)
------------- ------------
Net pension liability $ (32,970) $ (41,271)
============= ============
</TABLE>
In preparing the above information for the years ended December 31, 1996
and 1995, a 7% discount rate and 7% expected long-term rate of return on
plan assets was assumed. Plan assets are invested primarily in
certificates of deposit of the Bank.
The Bank also sponsors a contributory defined contribution 401(k) plan
in which substantially all employees participate. The Bank recorded
expense of $60,820 and $5,826 in 1996 and 1995, respectively.
16. COMMITMENTS AND CONTINGENT LIABILITIES
Commitments
-----------
In the normal course of business, the Bank makes various commitments
which are not reflected in the accompanying financial statements. These
instruments involve, to varying degrees, elements of credit and interest
rate risk in excess of the amount recognized in the statement of
financial condition. The Bank's exposure to credit loss in the event of
nonperformance by the other parties to the financial instruments is
represented by the contractual amounts as disclosed. The Bank minimizes
its exposure to credit loss under these commitments by subjecting them
to credit approval and review procedures, and collateral requirements,
as deemed necessary.
The off-balance sheet commitments were comprised of the following:
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996 1995
------------ ------------- ------------
<S> <C> <C> <C>
Commitments to extend credit:
Fixed Rate $ 867,550 $ 346,500 $ 731,000
Variable Rate 244,000 520,500 -
Standby letters of credit 13,676 13,000 35,000
------------ ------------- ------------
Total $ 1,125,226 $ 880,000 $ 766,000
============ ============= ============
</TABLE>
Contingent Liabilities
----------------------
In the normal course of business, the Bank is involved in various legal
proceedings primarily involving the collection of outstanding loans.
None of these proceedings are expected to have a material effect on the
consolidated financial position or operations of the Bank.
F-23
<PAGE>
17. CAPITAL REQUIREMENTS
The Bank is subject to various regulatory capital requirements
administered by the federal banking agencies. The Office of Thrift
Supervision sets forth capital standards applicable to all thrifts.
Failure to meet minimum capital requirements can initiate certain
mandatory and possibly additional discretionary actions by the
regulators that, if undertaken, could have a direct material effect on
the Bank's financial statements. Capital adequacy guidelines involve
quantitative measures of the Bank's assets, liabilities and certain
off-balance sheet items as calculated under regulatory accounting
practices. The Bank's capital amounts and classification are also
subject to qualitative judgments by the regulators about components,
risk weightings and other factors.
Quantitative measures established by the regulation to ensure capital
adequacy require the Bank to maintain minimum amounts and ratios of
Total and Tier I capital (as defined in the regulations) to
risk-weighted assets, and of tangible and core capital (as defined in
the regulations) to adjusted assets (as defined). Management believes as
of December 31, 1996 that the Bank meets all capital adequacy
requirements to which they are subject.
As of December 31, 1996, the most recent notification from the Bank's
primary regulator categorized the Bank as "well capitalized" under the
regulatory framework for prompt corrective action. To be categorized as
"well capitalized" the Bank must maintain minimum tangible, core, and
risk-based ratios. There have been no conditions or events since that
notification that management believes have changed the Bank's category.
Actual capital levels of the Bank and minimum required levels are as
follows:
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996 1995
---------------------------- ----------------------------------------------
Amount Ratio Amount Ratio Amount Ratio
------------- ------------- --------- --------- -------------- --------
<S> <C> <C> <C> <C> <C> <C>
Total Capital to Risk-Weighted Assets
-------------------------------------
Actual $ 4,878,570 12.46% $ 5,261,804 13.39% $ 4,721,462 12.37%
For Capital Adequacy Purposes 3,132,320 8.00 3,144,880 8.00 3,054,348 8.00
To be "Well Capitalized" 3,915,400 10.00 3,931,100 10.00 3,817,935 10.00
Tier I Capital to Risk-Weighted Assets
--------------------------------------
Actual $ 4,458,989 11.39% $ 4,846,378 12.33% $ 4,445,250 11.64%
For Capital Adequacy Purposes 1,566,160 4.00 1,572,440 4.00 1,527,174 4.00
To be "Well Capitalized" 2,349,240 6.00 2,358,660 6.00 2,290,761 6.00
Core Capital to Adjusted Assets
-------------------------------
Actual $ 4,458,989 5.38% $ 4,846,378 5.93% $ 4,445,250 5.44%
For Capital Adequacy Purposes 2,484,772 3.00 2,450,965 3.00 2,449,917 3.00
To be "Well Capitalized" 4,141,286 5.00 4,084,942 5.00 4,083,196 5.00
Tangible Capital to Adjusted Assets
-----------------------------------
Actual $ 4,458,989 5.38% $ 4,846,378 5.93% $ 4,445,250 5.44%
For Capital Adequacy Purposes 1,242,386 1.50 1,225,482 1.50 1,224,959 1.50
To be "Well Capitalized" N/A N/A N/A N/A N/A N/A
</TABLE>
F-24
<PAGE>
17. CAPITAL REQUIREMENTS (Continued)
Prior to the enactment of The Small Business Job Protection Act
discussed in Note 14, the Bank accumulated approximately $4,475,000 of
retained earnings at December 31, 1996, which amount represents
allocations of income to bad debt deductions for tax purposes only.
Since this amount represents the accumulated bad debt reserves prior to
1988, no provision for federal income tax has been made for such amount.
If any portion of this amount is used other than to absorb loan losses
(which is not anticipated), the amount will be subject to federal income
tax at the current corporate rate.
18. FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair values of the Bank's financial instruments at
December 31, are as follows:
<TABLE>
<CAPTION>
1996 1995
---------------------------------- -----------------------------------
Carrying Fair Carrying Fair
Value Value Value Value
--------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Financial assets:
Cash and due from banks,
interest-bearing deposits
in other banks $ 2,100,915 $ 2,100,915 $ 1,703,240 $ 1,703,240
Investment securities
available for sale 826,407 826,407 646,903 646,903
Investment securities
held to maturity 1,917,929 1,923,721 2,639,418 2,651,993
Mortgage-backed securities
available for sale 2,430,439 2,430,439 2,298,085 2,298,085
Mortgage-backed securities
held to maturity 17,126,963 17,249,409 18,992,674 19,368,898
FHLB stock 594,722 594,722 591,300 591,300
Loans receivable 54,789,033 55,769,000 52,525,935 54,063,000
Accrued interest receivable 498,502 498,502 536,297 536,297
--------------- ------------- ------------- -------------
Total $ 80,284,910 $ 81,393,115 $ 79,933,852 $ 81,859,716
=============== ============= ============= =============
Financial liabilities:
Deposits $ 64,294,119 $ 64,262,119 $ 65,160,207 $ 65,500,332
Advances by borrowers
for taxes and insurance 1,062,206 1,062,206 1,152,544 1,152,544
CMOs 6,937,405 7,925,000 8,250,537 9,725,000
Borrowed funds 3,772,036 3,734,000 1,778,000 1,808,000
Accrued interest payable 161,240 161,240 169,104 169,104
--------------- ------------- ------------- -------------
Total $ 76,227,006 $ 77,144,565 $ 76,510,392 $ 78,354,980
=============== ============= ============= =============
</TABLE>
Financial instruments are defined as cash, evidence of an ownership interest in
an entity, or a contract which creates an obligation or right to receive or
deliver cash or another financial instrument from/to a second entity on
potentially favorable or unfavorable terms.
Fair value is defined as the amount at which a financial instrument could be
exchanged in a current transaction between willing parties other than in a
forced or liquidation sale. If a quoted market price is available for a
financial instrument, the estimated fair value would be calculated based upon
the market price per trading unit of the instrument.
F-25
<PAGE>
19. FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)
If no readily available market exists, the fair value estimates for
financial instruments are based upon management's judgment regarding
current economic conditions, interest rate risk, expected cash flows,
future estimated losses, and other factors as determined through various
option pricing formulas or simulation modeling. As many of these
assumptions result from judgments made by management based upon
estimates which are inherently uncertain, the resulting estimated fair
values may not be indicative of the amount realizable in the sale of a
particular financial instrument. In addition, changes in the assumptions
on which the estimated fair values are based may have a significant
impact on the resulting estimated fair values.
As certain assets, such as deferred tax assets and premises and
equipment, are not considered financial instruments, the estimated fair
value of financial instruments would not represent the full value of the
Bank.
The Bank employed simulation modeling in determining the estimated fair
value of financial instruments for which quoted market prices were not
available based upon the following assumptions:
Cash and Due From Banks, Interest-bearing Deposits with Other Banks,
--------------------------------------------------------------------
Accrued Interest Receivable, FHLB Stock, Advances By Borrowers For Taxes
------------------------------------------------------------------------
and Insurance, and Accrued Interest Payable
-------------------------------------------
The fair value is equal to the current carrying value.
Investment Securities and Mortgage-Backed Securities
----------------------------------------------------
The fair value of these securities is equal to the available quoted
market price. If no quoted market price is available, fair value is
estimated using the quoted market price for similar securities.
Loans Receivable, Deposits, Collateralized Mortgage Obligation, and
-------------------------------------------------------------------
Borrowed Funds
--------------
The fair value of loans is estimated by discounting the future cash
flows using a simulation model which estimates future cash flows based
upon current market rates adjusted for prepayment risk and credit
quality. Savings, checking, and money market deposit accounts are valued
at the amount payable on demand as of year end. Fair values for time
deposits, collateralized mortgage obligation, and borrowed funds are
estimated using a discounted cash flow calculation that applies
contractual costs currently being offered in the existing portfolio to
current market rates being offered for deposits and notes of similar
remaining maturities.
Commitments to Extend Credit and Commercial Letters of Credit
-------------------------------------------------------------
These financial instruments are generally not subject to sale, and
estimated fair values are not readily available. The carrying value,
represented by the net deferred fee arising from the unrecognized
commitment or letter of credit, and the fair value, determined by
discounting the remaining contractual fee over the term of the
commitment using fees currently charged to enter into similar agreements
with similar credit risk, are not considered material for disclosure.
The contractual amounts of unfunded commitments and letters of credit
are presented in Note 16.
F-26
<PAGE>
20. SUBSEQUENT EVENTS
Debt Extinguishment
-------------------
On March 7, 1997, the Bank purchased the Class C bond of the
Collateralized Mortgage Obligation issued by SHFC from a third party
investor. The bond was purchased for $4,929,000 and had a carrying value
of $4,073,151. The Bank also accelerated the recognition of deferred
debt issuance costs by $107,213 in connection with this transaction. As
a result, the Bank recorded a loss on the extinguishment of the Class C
bond of $562,525, net of related taxes of $400,537.
Plan of Conversion
------------------
On April 16, 1997, the Board of Directors of the Bank, subject to
regulatory approval and approval by the members of the Bank, adopted a
Plan of Conversion (the "Plan") to convert from a federally chartered
mutual savings bank to a federally chartered stock savings bank and the
concurrent formation of a holding company for the Bank. The Plan
provides that the holding company will offer nontransferable
subscription rights to purchase common stock of the holding company. The
rights will be offered first to eligible account holders, the Bank's
tax-qualified employee stock benefits plans, supplemental eligible
account holders, and directors, officers, and employees. Any shares
remaining may then be offered to the general public.
Conversion costs will be deferred and deducted from the proceeds of the
stock offering. If the offering is unsuccessful for any reason, the
deferred costs will be charged to operations. At December 31, 1996, no
costs have yet been deferred.
At the date of conversion, the Bank will establish a liquidation account
in an amount equal to its retained earnings reflected in the statement
of financial condition appearing in the final prospectus. The
liquidation account will be maintained for the benefit of eligible
account holders and supplemental eligible account holders who continue
to maintain their accounts at the Bank after the conversion. The
liquidation will be reduced annually to the extent these account holders
have reduced their qualifying deposits. In the event of a complete
liquidation, each eligible savings account holder will be entitled to
receive a distribution from the liquidation account in an amount
proportionate to the current adjusted qualifying balances for accounts
then held.
The Bank may not declare or pay a cash dividend on, or repurchase any of
its common shares if the effect thereof would cause the Bank's
shareholders' equity to be reduced below either the amount required for
the liquidation account or the regulatory capital requirements for
insured institutions.
F-27
<PAGE>
21. SPRING HILL FUNDING CORPORATION
Condensed financial statements for Spring Hill Funding Corporation are
presented below:
STATEMENT OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996 1995
-------------- -------------- -------------
<S> <C> <C> <C>
ASSETS
Cash $ 229,995 $ 176,918 $ 1,000
Investments 484,939 477,120 629,159
Mortgage-backed securities 6,785,024 7,259,729 8,675,903
Other assets 455,656 468,555 466,511
-------------- -------------- --------------
Total assets $ 7,955,614 $ 8,382,322 $ 9,772,573
============== ============== ==============
LIABILITIES
Collateralized mortgage obligation $ 6,535,570 $ 6,937,405 $ 8,250,537
Accrued interest payable 96,143 102,620 123,378
Other liabilities 103,517 102,266 98,800
-------------- ------------- -------------
Total liabilities 6,735,230 7,142,291 8,472,715
-------------- ------------- -------------
STOCKHOLDER'S EQUITY
Capital stock 1,000 1,000 1,000
Additional paid-in capital 1,500,037 1,500,037 1,500,037
Retained deficit (280,653) (261,006) (201,179)
-------------- ------------- -------------
Total stockholder's equity 1,220,384 1,240,031 1,299,858
-------------- ------------- -------------
Total liabilities and stockholder's equity $ 7,955,614 $ 8,382,322 $ 9,772,573
============== ============= =============
</TABLE>
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended March 31, Year Ended December 31,
1997 1996 1996 1995
-------------- ------------ ------------- --------------
<S> <C> <C> <C> <C>
Interest income $ 200,966 $ 224,709 $ 872,176 $ 1,025,875
Interest expense 206,557 246,624 930,669 1,060,807
-------------- ------------ ------------- --------------
Net interest loss (5,591) (21,915) (58,493) (34,932)
Other expenses 14,056 10,931 43,774 43,774
-------------- ------------ ------------- --------------
Loss before income taxes (19,647) (32,846) (102,267) (78,706)
Income tax benefit - - (42,441) (32,734)
-------------- ------------ ------------- --------------
Net loss $ (19,647) $ (32,846) $ (59,826) $ (45,972)
============== ============ ============= ==============
</TABLE>
F-28
<PAGE>
No dealer, salesman or any other person has been authorized to give any
information or to make any representation other than as contained in this
Prospectus in connection with the offering made hereby, and, if given or made,
such other information or representation must not be relied upon as having been
authorized by SHS Bancorp, Inc. or Spring Hill Savings Bank, F.S.B. This
Prospectus does not constitute an offer to sell or a solicitation of an offer to
buy any of the securities offered hereby to any person or in any jurisdiction in
which such offer or solicitation is not authorized or in which the person making
such offer or solicitation is not qualified to do so, or to any person to whom
it is unlawful to make such offer or solicitation in such jurisdiction. Neither
the delivery of this Prospectus nor any sale hereunder shall under any
circumstances create any implication that there has been no change in the
affairs of SHS Bancorp, Inc. or Spring Hill Savings Bank since any of the dates
as of which information is furnished herein or since the date hereof.
<TABLE>
<CAPTION>
Table of Contents Page
----------------- ----
<S> <C>
Prospectus Summary...................................
Selected Consolidated Financial Information..........
Risk Factors.........................................
SHS Bancorp, Inc.....................................
Spring Hill Savings Bank, F.S.B .....................
Use of Proceeds......................................
Dividend Policy......................................
Market for Common Stock..............................
Capitalization.......................................
Historical and Pro Forma Capital Compliance..........
Pro Forma Data.......................................
Spring Hill Savings Bank and Subsidiary
Consolidated Statements of Income...................
Management's Discussion and Analysis of Financial
Condition and Results of Operations..................
Business of the Holding Company......................
Business of the Savings Bank.........................
Management of the Holding Company....................
Management of the Savings Bank.......................
Regulation...........................................
Taxation.............................................
The Conversion.......................................
Restrictions on Acquisition of the Holding Company...
Description of Capital Stock of the Holding Company..
Registration Requirements............................
Legal and Tax Opinions...............................
Experts..............................................
Additional Information...............................
Index to Consolidated Financial Statements...........
</TABLE>
Until the later of ___________, 1997, or 25 days after commencement of the
Syndicated Community Offering of Common Stock, if any, all dealers effecting
transactions in the registered securities, whether or not participating in this
distribution, may be required to deliver a prospectus. This is in addition to
the obligation of dealers to deliver a prospectus when acting as underwriters
and with respect to their unsold allotments or subscriptions.
SHS BANCORP, INC.
[Logo]
(Proposed Holding Company for Spring Hill Savings Bank, F.S.B.)
713,000 Shares of
Common Stock
----------------
Prospectus
----------------
Ryan, Beck & Co.
___________, 1997
<PAGE>
PART II: INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Officers and Directors
Article 9 of the Articles of Incorporation requires indemnification of
directors, officers and employees as follows:
Article 9. Indemnification, etc. of Officers, Directors, Employees and
Agents.
A. Personal Liability of Directors. A director of the Corporation shall
not be personally liable for monetary damages for any action taken, or any
failure to take any action, as a director except to the extent that by law a
director's liability for monetary damages may not be limited.
B. Indemnification. The Corporation shall indemnify any person who was or
is a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, including actions by or in the right of
the Corporation, whether civil, criminal, administrative or investigative, by
reason of the fact that such person is or was a director, officer, employee or
agent of the Corporation, or is or was serving at the request of the Corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by such person in connection with such action, suit or proceeding to
the full extent permissible under Pennsylvania law.
C. Advancement of Expenses. Reasonable expenses incurred by an officer,
director, employee or agent of the Corporation in defending a civil or criminal
action, suit or proceeding described in Section B of this Article 9 may be paid
by the Corporation in advance of the final disposition of such action, suit or
proceeding upon receipt of an undertaking by or on behalf of such person to
repay such amount if it shall ultimately be determined that the person is not
entitled to be indemnified by the Corporation.
D. Other Rights. The indemnification and advancement of expenses provided
by or pursuant to this Article 9 shall not be deemed exclusive of any other
rights to which those seeking indemnification or advancement of expenses may be
entitled under any insurance or other agreement, vote of stockholders or
directors or otherwise, both as to actions in their official capacity and as to
actions in another capacity while holding an office, and shall continue as to a
person who has ceased to be a director, officer, employee or agent and shall
inure to the benefit of the heirs, executors and administrators of such person.
E. Insurance. The Corporation shall have the power to purchase and
maintain insurance on behalf of any person who is or was a director, officer,
employee or agent of the Corporation or is or was serving at the request of the
Corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against any liability
asserted against him and incurred by him in any such capacity, or arising out of
his status as such, whether or not the Corporation would have the power to
indemnify him against such liability under the provisions of this Article 9.
F. Security, Fund; Indemnity Agreements. By action of the Board of
Directors (notwithstanding their interest in the transaction), the Corporation
may create and fund a trust fund or fund of any nature, and may enter into
agreements with its officers, directors, employees and agents for the purpose of
securing or insuring in any manner its obligation to indemnify or advance
expenses provided for in this Article 9.
G. Modification. The duties of the Corporation to indemnify and to
advance expenses to any person as provided in this Article 9 shall be in the
nature of a contract between the Corporation and each such person, and no
amendment or repeal of any provision of this Article 9, and no amendment or
termination of any trust or other fund created pursuant to Section F of this
Article 9, shall alter to the detriment of such person the right of such
II-1
<PAGE>
person to the advance of expenses or indemnification related to a claim based on
an act or failure to act which took place prior to such amendment, repeal or
termination.
H. Proceedings Initiated by Indemnified Persons. Notwithstanding any
other provision of this Article 9, the Corporation shall not indemnify a
director, officer, employee or agent for any liability incurred in an action,
suit or proceeding initiated (which shall not be deemed to include counter-
claims or affirmative defenses) or participated in as an intervenor or amicus
curiae by the person seeking indemnification unless such initiation of or
participation in the action, suit or proceeding is authorized, either before or
after its commencement, by the affirmative vote of a majority of the directors
in office.
Spring Hill Savings Bank, F.S.B.
Section 545.121 of the Regulations for Federal Savings Associations provides
that any person against whom any action is brought or threatened by reason of
the fact that such person is or was a director or officer of the Savings Bank
shall be indemnified by such Savings Bank for reasonable costs and expenses,
including reasonable attorney's fees, actually paid or incurred by such person
in connection with proceedings related to the defense or settlement of such
action; any amount of which such person becomes liable by reason of any judgment
in such action; and reasonable costs and expenses, including reasonable
attorney's fees, actually paid or incurred in any action to enforce his rights
under this section, which results in a final judgment on the merits in favor of
the director or officer, the Savings Bank may make the indemnification provided
in the preceding sentence if a majority of the directors of the Savings Bank
determine that such director or officer was acting in good faith within what he
was reasonably entitled to believe under the circumstances was the best
interests of the Savings Bank or its stockholders or members. In which event,
regulations require a 60 day notice to the OTS. Additionally, Section
545.121(d) authorizes the obtaining of insurance to protect against such losses.
Item 25. Other Expenses of Issuance and Distribution(1)
<TABLE>
<CAPTION>
<S> <C>
Legal fees and expenses........................ $100,000
Securities marketing legal fees................ 30,000
EDGAR, copying, printing, postage and mailing.. 100,000
Appraisal and business plan preparation........ 12,500
Accounting fees................................ 45,000
Securities marketing fees and expenses (2)..... 105,000
Data processing fees and expenses.............. 10,000
SEC registration fee........................... 2,485
Blue Sky filing fees and expenses.............. 20,000
OTS filing fees................................ 8,400
Other expenses................................. 16,615
--------
Total...................................... $450,000
========
- -------------------------
</TABLE>
(1) Assumes all of the Common Stock will be sold in the Subscription and
Direct Community Offerings.
(2) Based on the sale of Common Stock at the midpoint of the Estimated
Valuation Range.
Item 26. Recent Sales of Unregistered Securities.
Not Applicable
Item 27. Exhibits.
The exhibits filed as part of this Registration Statement are as
follows:
II-2
<PAGE>
<TABLE>
<S> <C>
1.1 -- Form of proposed Agency Agreement among SHS Bancorp, Inc.,
Spring Hill Savings Bank, F.S.B. and Ryan Beck (a)
1.2 -- Engagement Letter between Spring Hill Savings Bank, F.S.B. and
Ryan Beck
2 -- Plan of Conversion of Spring Hill Savings Bank, F.S.B. (attached
as an exhibit to the Proxy Statement included as Exhibit 99.5)
3.1 -- Articles of Incorporation of SHS Bancorp, Inc.
3.2 -- Bylaws of SHS Bancorp, Inc.
4 -- Form of Certificate for Common Stock
5 -- Opinion of Breyer & Aguggia regarding legality of securities
registered
8.1 -- Form of Federal Tax Opinion of Breyer & Aguggia
8.2 -- Form of State Tax Opinion of S.R. Snodgrass, A.C.
8.3 -- Opinion of Feldman Financial as to the value of subscription
rights
10.1 -- Proposed Form of Employment Agreement for Senior Officers
10.2 -- Proposed Form of Severance Agreement for Key Officers
10.3 -- Proposed Form of Employee Severance Compensation Plan
10.4 -- Proposed Form of Employee Stock Ownership Plan
10.5 -- Spring Hill Savings Bank, F.S.B. 401(k) Profit Sharing Plan (a)
21 -- Subsidiaries of SHS Bancorp, Inc.
23.1 -- Consent of S.R. Snodgrass, A.C.
23.2 -- Consent of Breyer & Aguggia (contained in opinion included as
Exhibit 5 )
23.3 -- Consent of Breyer & Aguggia as to its Federal Tax Opinion
23.4 -- Consent of Feldman Financial Advisors, Inc.
24 -- Power of Attorney (contained in signature page)
27 -- Financial Data Schedule
99.1 -- Order Form
99.2 -- Solicitation and Marketing Materials
99.3 -- Appraisal Agreement with Feldman Financial Advisors, Inc.
99.4 -- Appraisal Report of Feldman Financial Advisors, Inc. (a)
99.5 -- Proxy Statement for Special Meeting of Members of Spring Hill
Savings Bank, F.S.B.
</TABLE>
II-3
<PAGE>
- ---------------------
(a) To be filed by amendment.
Item 28. Undertakings
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933, as amended ("Securities Act");
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent post-
effective amendment thereof) which, individually or in the aggregate, represent
a fundamental change in the information set forth in the registration statement.
Notwithstanding the foregoing, any increase or decrease in volume of securities
offered (if the total dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or high and of the
estimated maximum offering range may be reflected in the form of prospectus
filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than 20 percent change in the
maximum aggregate offering price set forth in the "Calculation of Registration
Fee" table in the effective registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement.
(2) That, for the purpose of determining any liability under the Securities
Act, each such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
(4) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934, as amended ("Exchange Act") (and, where
applicable, each filing of any employee benefit plan's annual report pursuant to
Section 15(d) of the Exchange Act) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities
Act, and is therefore, unenforceable. In the event that a claim for
indemnification against liabilities (other than the payment by the Registrant of
expenses incurred or paid by a director, officer or controlling person of the
Registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with the
securities being registered, the Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the questions whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in Pittsburgh,
Pennsylvania on the 27th day of June, 1997.
SHS BANCORP, INC.
By: /s/ Thomas F. Angotti
-----------------------
Thomas F. Angotti
President and Chief Executive Officer
POWER OF ATTORNEY
We, the undersigned directors and officers of SHS Bancorp, Inc., do hereby
severally constitute and appoint Thomas F. Angotti and Vincent C. Ashoff, our
true and lawful attorneys and agents, to do any and all things and acts in our
names in the capacities indicated below and to execute all instruments for us
and in our names in the capacities indicated below which said Thomas F. Angotti
and Vincent C. Ashoff may deem necessary or advisable to enable SHS Bancorp,
Inc. to comply with the Securities Act of 1933, as amended, and any rules,
regulations and requirements of the Securities and Exchange Commission, in
connection with the Registration Statement on Form SB-2 relating to the offering
of SHS Bancorp, Inc.'s Common Stock, including specifically but not limited to,
power and authority to sign for us or any of us in our names in the capacities
indicated below the Registration Statement and any and all amendments (including
post-effective amendments) thereto; and we hereby ratify and confirm all that
Thomas F. Angotti and Vincent C. Ashoff shall do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed below by the following persons in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signatures Title Date
- ---------- ----- ----
<S> <C> <C>
/s/ Thomas F. Angotti Chief Executive Officer and Director June 27, 1997
- ---------------------------------- (Principal Executive Officer)
Thomas F. Angotti
/s/ Vincent C. Ashoff Chief Financial Officer June 27, 1997
- ---------------------------------- (Principal Financial
Vincent C. Ashoff and Accounting Officer)
/s/ Guy Dille Director June 27, 1997
- ----------------------------------
Guy Dille
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
/s/ George C. Dorsch Director June 27, 1997
- ----------------------------------
George C. Dorsch
/s/ Edward W. Preskar Director June 27, 1997
- ----------------------------------
Edward W. Preskar
/s/ James G. Caliendo Director June 27, 1997
- ----------------------------------
James G. Caliendo
</TABLE>
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<S> <C>
1.1 - Form of proposed Agency Agreement among SHS Bancorp, Inc., Spring
Hill Savings Bank, F.S.B. and Ryan Beck (a)
1.2 - Engagement Letter between Spring Hill Savings Bank, F.S.B. and
Ryan Beck
2 - Plan of Conversion of Spring Hill Savings Bank, F.S.B. (attached
as and exhibit to the Proxy Statement included as Exhibit 99.5)
3.1 - Articles of Incorporation of SHS Bancorp, Inc.
3.2 - Bylaws of SHS Bancorp, Inc.
4 - Form of Certificate for Common Stock
5 - Opinion of Breyer & Aguggia regarding legality of securities
registered
8.1 - Form of Federal Tax Opinion of Breyer & Aguggia
8.2 - Form of State Tax Opinion of S.R. Snodgrass, A.C. (a)
8.3 - Opinion of Feldman Financial as to the value of subscription
rights
10.1 - Proposed Form of Employment Agreement with Senior Officers
10.2 - Proposed Form of Severance Agreement for Key Officers
10.3 - Proposed Form of Employee Severance Compensation Plan
10.4 - Proposed Form of Employee Stock Ownership Plan
10.5 - Spring Hill Savings Bank, F.S.B. 401(k) Profit Sharing Plan (a)
21 - Subsidiaries of SHS Bancorp, Inc.
23.1 - Consent of S.R. Snodgrass, A.C.
23.2 - Consent of Breyer & Aguggia (contained in opinion included as
Exhibit 5)
23.3 - Consent of Breyer & Aguggia as to its Federal Tax Opinion
23.4 - Consent of Feldman Financial Advisors, Inc.
24 - Power of Attorney (contained in signature page)
27 - Financial Data Schedule
99.1 - Order Form
99.2 - Solicitation and Marketing Materials
99.3 - Appraisal Agreement with Feldman Financial Advisors, Inc.
99.4 - Appraisal Report of Feldman Financial Advisors, Inc. (a)
99.5 - Proxy Statement for Special Meeting of Members of Spring Hill
Savings Bank, F.S.B.
- -----------------
</TABLE>
(a) To be filed by amendment.
<PAGE>
Exhibit 1.2
[LETTERHEAD OF RYAN, BECK & CO. APPEARS HERE]
CONFIDENTIAL
February 20, 1997
Mr. Thomas F. Angottti
President and Chief Executive Officer
Spring Hill Savings Bank,F.S.B.
112 Federal Street
Pittsburgh, PA 15212
Re: Stock Conversion - Subscription Enhancement and Administrative Services
-----------------------------------------------------------------------
Dear Mr. Angotti:
Ryan, Beck & Co. ("Ryan, Beck") is pleased to submit this engagement letter
setting forth the terms of the proposed engagement between Ryan, Beck and Spring
Hill Savings Bank, F.S.B., (the "Institution") in connection with the proposed
conversion of the Institution from the mutual to the capital stock form of
organization.
1. BACKGROUND ON RYAN, BECK
------------------------
Ryan, Beck, Inc., is one of the nation's leading investment bankers for
financial institutions. Ryan, Beck was organized in 1946 and has historically
maintained one of the strongest regulatory net capital ratios in the securities
industry. The firm has been publicly held since 1986 and is a registered
broker-dealer with the Securities and Exchange Commission, a member of the
National Association of Securities Dealers, Inc. and a member of the Securities
Investor Protection Corporation. Ryan, Beck's corporate finance department is
one of the largest such groups devoted solely to financial institution matters
in the country. Moreover, Ryan, Beck is one of the largest market makers in bank
and thrift stocks.
2. PLAN OF CONVERSION
------------------
The Institution proposes to convert from the mutual to the stock form of
organization (the "Conversion") pursuant to applicable regulations and form a
holding company (the "Company"). Accordingly, the Institution's Board of
Directors will adopt a plan of conversion (the "Plan") and, if necessary,
convene a meeting of the Institution's members as soon as practicable to obtain
member approval of the Plan in accordance with applicable federal or state
regulations. The Institution's Plan contemplates a Subscription and Community
Offering (the "Offerings").
<PAGE>
Spring Hill Savings Bank, FSB
February 20, 1997
Page 2
In connection with the Institution's Conversion, Ryan, Beck proposes to act as
selling agent, financial advisor, and conversion manager to the Institution with
respect to the Conversion and the offering of the shares of common stock of the
Company (the "Common Stock") in the Offerings. Specific terms of the services
contemplated hereunder shall be set forth in a definitive agency agreement (the
"Definitive Agreement") between Ryan, Beck and the Institution to be executed on
the date the offering document is declared effective by the appropriate
regulatory authorities. The purchase price of the Common Stock offered in the
Offerings will be that price which is established by an independent appraisal in
accordance with applicable regulations and mutually acceptable to the parties
hereto.
3. SERVICES TO BE PROVIDED BY RYAN, BECK
-------------------------------------
a. Advisory Services - Thorough planning is essential to a successful
-----------------
conversion. Ryan, Beck serves as lead coordinator of the marketing and
logistic efforts necessary to prepare for an offering. Our actions are
intended to clearly define responsibilities and timetables, while avoiding
costly surprises. We assume responsibility for the initial preparation of
marketing materials--saving you time and legal expense. Moreover, as your
investment banker, Ryan, Beck will evaluate the financial, marketing and
regulatory issues involved in the Offerings. Our specific responsibilities
include:
- Participate in drafting the Prospectus and assist in obtaining all
requisite regulatory approvals;
- Review and opine to the Board of Directors on the adequacy of the
appraisal process;
- Develop a marketing plan for the Offerings including direct mail,
advertising, community meetings and telephone solicitation;
- Provide specifications and assistance in selecting a conversion agent,
printer and other professionals;
- Calculate the number of new phone lines required;
- Provide a list of equipment and supplies needed for the Conversion
Center;
- Draft marketing materials including letters, brochures, slide show script
advertisements; and
- Assist in arranging market-makers for post-conversion trading.
b. Administrative Services and Conversion Center Management - Ryan, Beck
--------------------------------------------------------
manages your "best efforts" community offering. A successful conversion
requires an enormous amount of attention to detail. Working knowledge and
familiarity with the law and "lore" of the Office of Thrift Supervision,
Securities and Exchange Commission and NASD is essential. Ryan, Beck's
experience in managing many thrift conversions will minimize the burden on
your management and disruption to normal banking business. At the same
time, our legal, accounting and regulatory background ensures that details
are attended to in a professional fashion. A conversion requires accurate
and timely record keeping and reporting. Furthermore, customer inquiries
must be handled professionally and accurately. The Conversion Center
centralizes all data and work effort relating to the conversion.
<PAGE>
Spring Hill Savings Bank, FSB
February 20, 1997
Page 3
Ryan, Beck will assist the Institution in the establishment and supervision
of the Conversion Center. We will train Conversion Center staff to help
record stock orders, answer customer inquiries and handle special situations
as they arise. Conversion Center activities include the following:
- Provide experienced on-site registered representatives to minimize
disruption of day-to-day business;
- Identify and organize space for the on-site Conversion Center, the focal
point of conversion activity;
- Administer the Conversion Center;
- Prepare procedures for processing proxies, stock orders and cash, and for
handling requests for information;
- Provide scripts, training and guidance for the telephone team in
soliciting proxies and in the stock sales telemarketing effort;
- Educate the Institution's directors, officers and employees about the
conversion, their roles and relevant securities laws;
- Train branch managers and customer-contact employees on the proper
response to stock purchase inquiries;
- Train and supervise Conversion Center staff assisting with proxy and
order processing;
- Prepare daily sales reports for management and ensure funds received
balance to such reports;
- Coordinate functions with the conversion agent, printer, transfer agent,
stock certificate printer and other professionals;
- If necessary, organize and implement a proxy solicitation campaign;
- Design and implement procedures for handling IRA and Keogh orders; and
- Post-offering subscriber assistance and management of the pro-
ration process.
c. Securities Marketing Services - Ryan, Beck uses various sales techniques
-----------------------------
including direct mail, advertising, community investor meetings, telephone
solicitation, and if necessary, selling group formation. The sales approach
is tailored to fit your specific situation. Our techniques are designed to
attract a stockholder base comprised largely of community oriented
individuals loyal to the Institution.
Our specific actions include:
- Assign licensed registered representatives from our staff to work at the
Conversion Center to solicit orders on behalf of the Institution from
eligible prospects who have been targeted as likely and desirable
stockholders;
- Assist management in developing a list of potential investors who are
viewed as priority prospects;
- Respond to inquiries concerning the conversion and investment
opportunity;
- Organize, coordinate and participate in community informational meetings.
These meetings are intended to both relieve customer anxiety and attract
potential investors. The meetings generate widespread publicity for the
conversion while providing local exposure of the Institution and
promoting favorable stockholder relations;
<PAGE>
Spring Hill Savings Bank, FSB
February 20, 1997
Page 4
- Supervise and conduct a telemarketing campaign to identify prospects
from among the Institution's customer base;
- Continually advise management on market conditions and the community's
responsiveness to the offering; and
- If appropriate, assemble a selling group of selected local broker-
dealers to assist in selling stock during the offering. In so doing,
prepare broker "fact sheets" and arrange "road shows" for the purpose of
stimulating local interest in the stock and informing the brokerage
community of the particulars of the offering.
4. COMPENSATION
------------
a. For its services hereunder, the Institution will pay to Ryan, Beck the
following compensation in connection with the Conversion:
(1) An advisory and management fee of $25,000 in connection with the
advisory and administrative services set forth in section 3(a) and (b)
hereof ("Management Fee");
(2) A fee of one and one-half percent (1.50%) of the dollar amount of the
Common Stock sold in the Subscription Offering ("Marketing Fee"). No fee
shall be payable pursuant to this subsection in connection with the sale
of stock to officers, directors, employees (and immediate family
thereof) and employee benefit plans of the Institution; and
(3) A fee of one and one-half percent (1.50%) of the dollar amount of the
Common Stock sold in the Community Offering ("Community Marketing Fee").
No fee shall be payable pursuant to this subsection in connection with
the sale of stock to officers, directors, employees (and immediate
family thereof) and employee benefit plans of the Institution;
(4) For stock sold by a selling group of NASD member firms (including Ryan,
Beck) under a selected dealers' agreements (the "Selling Group"), a fee
equal to five and one-half percent (5.5%) in the aggregate. This fee
would be in lieu of the marketing fees Ryan, Beck would otherwise be
entitled to were the stock sold through the offerings. Ryan, Beck will
not commence sales of the stock through members of the Selling Group
without prior approval of the Institution.
In any event, upon completion of the Community Offering, the minimum fee
payable to Ryan, Beck pursuant to subparagraphs 1,2,3 and 4 above shall
aggregate $100,000 and the maximum fee payable to Ryan, Beck pursuant to
subparagraphs 2 and 3 above shall equal one and one-half percent (1.50%)
of the aggregate gross proceeds of the midpoint of the estimated price
range as set forth on the cover page of the final Prospectus.
Such fees (less the amount of any advance payments) are to be paid to Ryan,
Beck at the closing of the Conversion. The Institution will pay Ryan, Beck
$25,000 upon execution of this letter which will be
<PAGE>
Spring Hill Savings Bank, FSB
February 20, 1997
Page 5
offset against compensation due hereunder. If, pursuant to a resolicitation
undertaken by the Institution, Ryan, Beck is required to provide significant
additional services, the parties shall mutually agree to the dollar amount
of the additional compensation due (if any).
b. If (i) the Plan is abandoned or terminated by the Institution; (ii) the
Offerings are not consummated by March 31, 1998; (iii) Ryan, Beck terminates
this relationship because there has been a material adverse change in the
financial condition or operations of the Institution since March 31, 1997;
or (iv) immediately prior to commencement of the Offerings, Ryan, Beck
terminates this relationship for failure to satisfactorily disclose all
relevant information in the disclosure documents or the existence of market
conditions which might render the sale of the shares by the Institution
hereby contemplated inadvisable, Ryan, Beck shall not be entitled to the
fees set forth above under subparagraph (a), but in addition to
reimbursement of its reasonable out-of-pocket expenses as set forth in
paragraph 7 below, shall be entitled to receive for its advisory and
administrative services a fee of $25,000; provided however if (i) the
Institution abandons or terminates the offering of the Common Stock prior to
filing the regulatory application for conversion, Ryan, Beck shall not be
entitled to receive for its advisory and administrative services a fee of
$25,000.
5. MARKET MAKING
-------------
Ryan, Beck agrees to use its best efforts to maintain a market and to solicit
other broker-dealers to make a market in the Common Stock after the Conversion.
6. DOCUMENTS
---------
The Institution and its counsel will complete, file with the appropriate
regulatory authorities and, as appropriate, amend from time to time, the
information to be contained in the Institution's Application for Conversion and
any related exhibits thereto. In this regard, the Institution and its counsel
will prepare an Offering Circular and any other necessary disclosure documents
relating to the offering of the Common Stock in conformance with applicable
rules and regulations. As the Institution's financial advisor, Ryan, Beck will
in conjunction with counsel, conduct an examination of the relevant documents
and records of the Institution and will make such other reasonable investigation
as deemed necessary and appropriate under the circumstances. The Institution
agrees to make all such documents, records and other information deemed
necessary by Ryan, Beck, or its counsel, available to them upon reasonable
request. Ryan, Beck's counsel will prepare, subject to the approval of the
Institution's counsel, the Definitive Agreement. Ryan, Beck's counsel shall be
selected by Ryan, Beck, subject to the approval of the Institution which will
not unreasonably be withheld.
7. EXPENSES AND REIMBURSEMENT
--------------------------
The Institution will bear all of its expenses in connection with the Conversion
and the offering of its Common Stock including, but not limited to, the
Institution's attorney fees, NASD filing fees, "blue sky" legal fees, expenses
for appraisal, auditing and accounting services, advertising expenses, printing
expenses, temporary
<PAGE>
Spring Hill Savings Bank, FSB
February 20, 1997
Page 6
personnel expenses and the preparation of stock certificates. In the event Ryan,
Beck incurs such expenses on behalf of the Institution, the Institution shall
pay or reimburse Ryan, Beck for such reasonable fees and expenses regardless of
whether the Conversion is successfully completed. Ryan, Beck will not incur any
single expense of more than $1,000, pursuant to this paragraph without the prior
approval of the Institution.
The Institution also agrees to reimburse Ryan, Beck for reasonable out-of-pocket
expenses, including legal fees and expenses, incurred by Ryan, Beck in
connection with the services contemplated hereunder. In no event shall the
Institution be required to reimburse Ryan, Beck for more than $30,000 in legal
fees, and $7,500 in other out-of-pocket expenses. The parties acknowledge,
however, that such caps may be exceeded in the event of any material delay in
the Offerings which would require an update of the financial information
contained in the Offering Circular for a period later than March 31, 1997. We
will provide you with a detailed accounting of all reimbursable expenses to be
paid at closing.
8. BLUE SKY
--------
To the extent required by applicable state law, Ryan, Beck and the Institution
will need to obtain or confirm exemptions, qualifications or registration of the
Common Stock under applicable state securities laws and NASD policies. The cost
of such legal work and related filing fees will be paid by the Institution to
the law firm furnishing such legal work. The Institution will cause the counsel
performing such services to prepare a Blue Sky memorandum related to the
Offerings including Ryan, Beck's participation therein and shall furnish Ryan,
Beck a copy thereof addressed to Ryan, Beck or upon which such counsel shall
state Ryan, Beck may rely.
9. AVAILABILITY OF "STARS" PROGRAM
-------------------------------
As an additional service to the Institution, Ryan, Beck will make available for
a period of one year following the completion of the Conversion, advisory
services through the Ryan, Beck Strategic Advisory Services ("STARS") program.
If the Institution elects to avail itself of the STARS program, Ryan, Beck will
meet with the Institution at its request. Ryan, Beck also will provide opinions
and recommendations, upon request, for the areas covered below:
Valuation Analysis
Merger and Acquisition Analysis
Merger and Acquisition Trends
Planning, Forecasting & Competitive Strategy
Capital, Asset & Liability Structure & Management
Stock Repurchase Programs
Dividend Policy
Dividend Reinvestment Programs
Market Development and Sponsorship of Bank Securities
Financial Disclosure
<PAGE>
Spring Hill Savings Bank, FSB
February 20, 1997
Page 7
Financial Relations
Financial Reports
Branch Sales and Purchases
Stock Benefit Plan Analysis and Advisory
Stockholder & Investor Relations Presentations & Programs
Fairness Opinions
Scanning of Potential Acquisition Candidates
Based on Published Statement Information
(This screening does not extend to any in-depth merger and acquisition
analyses or studies which are available under Ryan, Beck's normal fee
schedule, and does not include retention of Ryan, Beck by the
Institution for any specific merger/acquisition situation).
If the Institution elects to utilize the STARS program Ryan, Beck will waive the
regular retainer fee for this program for the first year. The Institution will
pay Ryan, Beck for its services on an hourly basis at Ryan, Beck's normal
billing rate. Ryan, Beck will bill the Company for such fees on a monthly
basis. The Institution also will reimburse Ryan, Beck's reasonable out-of-
pocket expenses incurred in conjunction with the performance of these services.
Such out-of-pocket expenses shall include travel, legal and other miscellaneous
expenses.
If negotiations for a transaction conducted during the term of the STARS
Advisory Agreement described above result in the execution of a definitive
agreement and/or consummation of a transaction for which Ryan, Beck customarily
would be entitled to a fee for its advisory or other investment banking
services, Ryan, Beck shall receive a contingent advisory fee ("Advisory Fee") in
accordance with the terms of a separate engagement letter with respect to such
transaction. All hourly fees paid pursuant to the STARS Advisory Agreement will
be credited against any such Advisory Fee.
10. INDEMNIFICATION
---------------
The Definitive Agreement will provide for indemnification of the type usually
found in underwriting agreements as to certain liabilities, including
liabilities under the Securities Act of 1933. The Institution also agrees to
defend, indemnify and hold harmless Ryan, Beck and its officers, directors,
employees and agents against all claims, losses, actions, judgments, damages or
expenses, including but not limited to attorneys' fees, arising solely out of
the engagement described herein, except that such indemnification shall not
apply to Ryan, Beck's own bad faith, willful misconduct or gross negligence.
11. ARBITRATION
-----------
Any claims, controversies, demands, disputes or differences between or among the
parties hereto or any persons bound hereby arising out of, or by virtue of, or
in connection with, or otherwise relating to this Agreement shall be submitted
to and settled by arbitration conducted in Baltimore, MD before one or three
arbitrators, each of whom shall be knowledgeable in the field of securities law
and investment banking. Such arbitration shall
<PAGE>
Spring Hill Savings Bank, FSB
February 20, 1997
Page 8
otherwise be conducted in accordance with the rules then obtaining of the
American Arbitration Association. The parties hereto agree to share equally the
responsibility for all fees of the arbitrators, abide by any decision rendered
as final and binding, and waive the right to appeal the decision or otherwise
submit the dispute to a court of law for a jury or non-jury trial. The parties
hereto specifically agree that neither party may appeal or subject the award or
decision of any such arbitrator to appeal or review in any court of law or in
equity or by any other tribunal, arbitration system or otherwise. Judgment upon
any award granted by such an arbitrator may be enforced in any court having
jurisdiction thereof.
12. NASD MATTERS
------------
Ryan, Beck has an obligation to file certain documents and to make certain
representations to the National Association of Security Dealers ("NASD") in
connection with the Conversion. The Institution agrees to cooperate with Ryan,
Beck and provide such information as may be necessary for Ryan, Beck to comply
with all NASD requirements applicable to it in connection with its participation
as contemplated herein in the Conversion. Ryan, Beck is and will remain through
completion of the Conversion a member in a good standing of the NASD and will
comply with all applicable NASD requirements.
13. OBLIGATIONS
-----------
(a) Except as set forth below, this engagement letter is merely a statement of
intent. While Ryan, Beck and the Institution agree in principle to the
contents hereof and propose to proceed promptly and in good faith to work
out the arrangements with respect to the Conversion, any legal obligations
between Ryan, Beck and the Institution shall be only: (i) those set forth
herein in paragraphs 2, 3 and 4 regarding services and payments; (ii) those
set forth in paragraph 7 regarding reimbursement for certain expenses; (iii)
those set forth in paragraph 10 regarding indemnification; and (iv) as set
forth in a duly negotiated and executed Definitive Agreement.
(b) The obligation of Ryan, Beck to enter into the Definitive Agreement shall be
subject to there being, in Ryan, Beck's opinion, which shall have been
formed in good faith after reasonable determination and consideration of all
relevant factors: (i) no material adverse change in the condition or
operation of the Institution; (ii) satisfactory disclosure of all relevant
information in the disclosure documents and a determination that the sale of
stock is reasonable given such disclosures; (iii) no market conditions which
might render the sale of the shares by the Institution hereby contemplated
inadvisable; and (iv) agreement that the price established by the
independent appraiser is reasonable in the then prevailing market
conditions.
<PAGE>
Spring Hill Savings Bank, FSB
February 20, 1997
Page 9
Please acknowledge your agreement to the foregoing by signing in the place
provided below and returning one copy of this letter to our office together with
the retainer payment in the amount of $25,000. We look forward to working with
you.
RYAN, BECK
BY: /s/ Guy E. Malaby
--------------------------------------------------------
Guy E. Malaby, First Vice President
ACCEPTED AND AGREED TO THIS 21 DAY OF FEBRUARY, 1997
----
SPRING HILL SAVINGS BANK, FSB
BY: /s/ Thomas F. Angotti
--------------------------------------------------------
Thomas E. Angotti President and Chief Executive Officer
<PAGE>
Exhibit 3.1
ARTICLES OF INCORPORATION
OF
SHS BANCORP, INC.
Article 1. Name. The name of the corporation is SHS Bancorp, Inc.
(hereinafter referred to as the "Corporation").
Article 2. Registered Office. The address of the initial registered
office of the Corporation in the Commonwealth of Pennsylvania is 112 Federal
Street, Pittsburgh, Pennsylvania 15212.
Article 3. Nature of Business. The purpose of the Corporation is to
engage in any lawful act or activity for which a corporation may be organized
under the Business Corporation Law of 1988, as amended, of the Commonwealth of
Pennsylvania (the "BCL"). The Corporation is incorporated under the provisions
of the BCL.
Article 4. Duration. The term of the existence of the Corporation shall
be perpetual.
Article 5. Capital Stock.
A. Authorized Amount. The total number of shares of capital stock which
the Corporation has authority to issue is 15,000,000, of which 5,000,000 shall
be preferred stock, par value $.01 per share (hereinafter the "Preferred
Stock"), and 10,000,000 shall be common stock, par value $.01 per share
(hereinafter the "Common Stock"). Except to the extent require by governing
law, rule or regulation, the shares of capital stock may be issued from time to
time by the Board of Directors without further approval of stockholders. The
Corporation shall have the authority to purchase its capital stock out of funds
lawfully available therefor.
B. Common Stock. Except as provided in this Article 5 (or in any
resolution or resolutions adopted by the Board of Directors pursuant hereto),
the exclusive voting power shall be vested in the Common Stock, with each holder
thereof being entitled to one vote for each share of such Common Stock standing
in the holder's name on the books of the Corporation. Subject to any rights and
preferences of any class of stock having preference over the Common Stock,
holders of Common Stock shall be entitled to such dividends as may be declared
by the Board of Directors out of funds lawfully available therefor. Upon any
liquidation, dissolution or winding up of the affairs of the Corporation,
whether voluntary or involuntary, holders of Common Stock shall be entitled to
receive pro rata the remaining assets of the Corporation after the holders of
any class of stock having preference over the Common Stock have been paid in
full any sums to which they may be entitled.
C. Authority of Board to Fix Terms of Preferred Stock. The Board of
Directors shall have the full authority permitted by law to divide the
authorized and unissued shares of Preferred Stock into series and to fix by
resolution full, limited, multiple or fractional, or no voting rights, and such
designations, preferences, qualifications, privileges, limitations,
restrictions, options, conversion rights, and other special or relative rights
of the Preferred Stock or any series thereof that may be desired.
-1-
<PAGE>
D. Limitations on Voting the Corporation's Common Stock. 1.
Notwithstanding any other provision of these Articles of Incorporation, in no
event shall any record owner of any outstanding Common Stock which is
beneficially owned, directly or indirectly, by a person who, as of any record
date for the determination of stockholders entitled to vote on any matter,
beneficially owns in excess of 10% of the then-outstanding shares of Common
Stock (the "Limit"), be entitled, or permitted to any vote in respect of the
shares held in excess of the Limit, unless a majority of the Whole Board (as
hereinafter defined) shall have by resolution granted in advance such
entitlement or permission. The number of votes which may be cast by any record
owner by virtue of the provisions hereof in respect of Common Stock beneficially
owned by such person owning shares in excess of the Limit shall be a number
equal to the total number of votes which a single record owner of all Common
Stock owned by such person would be entitled to cast, multiplied by a fraction,
the numerator of which is the number of shares of such class or series which are
both beneficially owned by such person and owned of record by such record owner
and the denominator of which is the total number of shares of Common Stock
beneficially owned by such person owning shares in excess of the Limit.
2. The following definitions shall apply to this Section D of this
Article 5.
(a) "Affiliate" shall have the meaning ascribed to it in Rule 12b-2
of the General Rules and Regulations under the Securities Exchange Act of 1934,
as in effect on the date of filing of these Articles of Incorporation.
(b) "Beneficial ownership" shall be determined pursuant to Rule 13d-3
of the General Rules and Regulations under the Securities Exchange Act of 1934
(or any successor rule or statutory provision), or, if said Rule 13d-3 shall be
rescinded and there shall be no successor rule or provision thereto, pursuant to
said Rule 13d-3 as in effect on the date of filing of these Articles of
Incorporation; provided, however, that a person shall, in any event, also be
-----------------
deemed the "beneficial owner" of any Common Stock:
(i) which such person or any of its affiliates beneficially
owns, directly or indirectly; or
(ii) which such person or any of its affiliates has (A) the
right to acquire (whether such right is exercisable immediately or only after
the passage of time), pursuant to any agreement, arrangement or understanding
(but shall not be deemed to be the beneficial owner of any voting shares solely
by reason of an agreement, contract, or other arrangement with the Corporation
to effect any transaction which is described in any one or more of subparagraphs
A(1)(a) through (h) of Article 12 or upon the exercise of conversion rights,
exchange rights, warrants, or options or otherwise, or (B) sole or shared voting
or investment power with respect thereto pursuant to any agreement, arrangement,
understanding, relationship or otherwise (but shall not be deemed to be the
beneficial owner of any voting shares solely by reason of a revocable proxy
granted for a particular meeting of stockholders, pursuant to a public
solicitation of proxies for such meeting, with respect to shares of which
neither such person nor any such affiliate is otherwise deemed the beneficial
owner); or
(iii) which are beneficially owned, directly or indirectly, by
any other person with which such first mentioned person or any of its affiliates
acts as a partnership,
-2-
<PAGE>
limited partnership, syndicate or other group pursuant to any agreement,
arrangement or understanding for the purpose of acquiring, holding, voting or
disposing of any shares of capital stock of the Corporation; and provided
--------
further, however, that (i) no director or officer of the Corporation (or any
- ----------------
Affiliate of any such director or officer) shall, solely by reason of any or all
of such directors of officers acting in their capacities as such, be deemed, for
any purposes hereof, to beneficially own any Common Stock beneficially owned by
any other such director or officer (or any Affiliate thereof), and (ii) neither
any employee stock ownership or similar plan of the Corporation or any
subsidiary of the Corporation, nor any trustee with respect thereto or any
Affiliate of such trustee (solely by reason of such capacity of such trustee),
shall be deemed, for any purposes hereof, to beneficially own any Common Stock
held under any such plan. For purposes of computing the percentage beneficial
ownership of Common Stock of a person, the outstanding Common Stock shall
include shares deemed owned by such person through application of this
subsection but shall not include any other Common Stock which may be issuable by
the Corporation pursuant to any agreement, or upon exercise of conversion
rights, warrants or options, or otherwise. For all other purposes, the
outstanding Common Stock shall include only Common Stock then outstanding and
shall not include any Common Stock which may be issuable by the Corporation
pursuant to any agreement, or upon the exercise of conversion rights, warrants
or options, or otherwise.
(c) A "person" shall mean any individual, firm, corporation, or other
entity.
(d) "Whole Board" shall mean the total number of directors which the
Corporation would have if there were no vacancies on the Board of Directors.
3. The Board of Directors shall have the power to construe and apply the
provisions of this Section and to make all determinations necessary or desirable
to implement such provisions, including but not limited to matters with respect
to (i) the number of shares of Common stock beneficially owned by any person,
(ii) whether a person is an affiliate of another, (iii) whether a person has an
agreement, arrangement, or understanding with another as to the matters referred
to in the definition of beneficial ownership, (iv) the application of any other
definition or operative provision of this Section to the given facts, or (v) any
other matter relating to the applicability or effect of this Section.
4. The Board of Directors shall have the right to demand that any person
who is reasonably believed to beneficially own Common Stock in excess of the
Limit (or holds of record Common Stock beneficially owned by any person in
excess of the Limit) supply the Corporation with complete information as to (i)
the record owner(s) of all shares beneficially owned by such person who is
reasonably believed to own shares in excess of the Limit, and (ii) any other
factual matter relating to the applicability or effect of this Section as may
reasonably be required of such person.
5. Except as otherwise provided by law or expressly provided in this
Section D, the presence, in person or by proxy, of the holders of record of
shares of capital stock of the Corporation entitling the holders thereof to cast
a majority of the votes (after giving effect, if required, to the provisions of
this Section D) entitled to be cast by the holders of shares of capital stock of
the Corporation entitled to vote shall constitute a quorum at all meetings of
the stockholders, and every reference in these Articles of Incorporation to a
majority or other
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<PAGE>
proportion of capital stock (or the holders thereof) for purposes of determining
any quorum requirement or any requirement for stockholder consent or approval
shall be deemed to refer to such majority or other proportion of the votes (or
the holders thereof) then entitled to be cast in respect of such capital stock.
6. Any constructions, applications, or determinations made by the Board
of Directors pursuant to this Section in good faith and on the basis of such
information and assistance as was then reasonably available for such purpose
shall be conclusive and binding upon the Corporation and its stockholders.
7. In the event any provision (or portion thereof) of this Section D
shall be found to be invalid, prohibited or unenforceable for any reason, the
remaining provisions (or portions thereof) of this Section shall remain in full
force and effect, and shall be construed as if such invalid, prohibited or
unenforceable provision had been stricken here from or otherwise rendered
inapplicable, it being the intent of the Corporation and its stockholders that
each such remaining provision (or portion thereof) of this Section D remain, to
the fullest extent permitted by law, applicable and enforceable as to all
stockholders, including stockholders owning an amount of Common Stock over the
Limit, notwithstanding any such finding.
Article 6. Incorporator. The name and mailing address of the sole
incorporator is as follows:
Name Address
---- -------
Thomas F. Angotti 112 Federal Street
Pittsburgh, Pennsylvania 15212
Article 7. Directors. The business and affairs of the Corporation shall
be managed by or under the direction of the Board of Directors.
A. Number. Except as otherwise increased from time to time by the exercise
of the rights of the holders of any class or series of stock having a preference
over the Common Stock as to dividends or upon liquidation to elect additional
directors, the number of directors of the Corporation shall be determined as
stated in the Corporation's Bylaws, as may be amended from time to time.
B. Initial Directors. The number of directors constituting the initial
Board of Directors of the Corporation is five, and the names and addresses of
the persons who are to serve as the initial directors until their successors are
elected and qualified, together with the classes of directorships to which such
persons have been assigned, are:
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<TABLE>
<CAPTION>
Name Address Class
---- ------- -----
<S> <C> <C>
Guy Dille 112 Federal Street, Pittsburgh, PA 15212 I
George C. Dorsch 112 Federal Street, Pittsburgh, PA 15212 II
Edward W. Preskar 112 Federal Street, Pittsburgh, PA 15212 II
Thomas F. Angotti 112 Federal Street, Pittsburgh, PA 15212 III
James G. Caliendo 112 Federal Street, Pittsburgh, PA 15212 III
</TABLE>
C. Classification and Term. The Board of Directors, other than those who
may be elected by the holders of any class or series of stock having preference
over the Common Stock as to dividends or upon liquidation, shall be divided into
three classes as nearly equal in number as possible, with the term of office of
the directors of the first class to expire at the first annual meeting of
stockholders, the term of office of the directors of the second class to expire
at the second annual meeting of stockholders, and the term of office of the
directors of the third class to expire at the third annual meeting of
stockholders with each director to hold office until his or her successor shall
have been duly elected and qualified. At each annual meeting of stockholders
following such election, the directors elected to succeed those in the class
whose terms are expiring shall be elected for a term of office to expire at the
third succeeding annual meeting of stockholders and when their respective
successors are elected and qualified. Notwithstanding the foregoing, and except
as otherwise required by law, whenever the holders of any one or more series of
Preferred Stock shall have the right, voting separately as a class, to elect one
or more directors of the Corporation, the term of the director or directors
elected by such holders shall expire at the next succeeding annual meeting of
stockholders and vacancies created with respect to any directorship of the
directors so elected may be filled in the manner specified by the terms of such
Preferred Stock.
D. No Cumulative Voting. Stockholders of the Corporation shall not be
permitted to cumulate their votes for the election of directors.
z E. Vacancies. Except as otherwise fixed pursuant to the provisions of
Article 5 hereof relating to the rights of the holders of any class or series of
stock having preference over the Common Stock as to dividends or upon
liquidation to elect directors, any vacancy occurring in the Board of Directors,
including any vacancy created by reason of an increase in the number of
directors, shall be filled by a majority vote of the directors then in office,
whether or not a quorum is present, or by a sole remaining director, and any
director so chosen shall serve until the term of the class to which he was
appointed shall expire and until his successor is elected and qualified. When
the number of directors is changed, the Board of Directors shall determine the
class or classes to which the increased or decreased number of directors shall
be appointed, provided that no decrease in the number of directors shall shorten
the term of any incumbent director.
F. Removal. Subject to the rights of any class or series of stock having
preference over the Common Stock as to dividends or upon liquidation to elect
directors, any director (including persons elected by directors to fill
vacancies in the Board of Directors) may be removed from
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office only for cause by an affirmative vote of not less than 75% of the total
votes eligible to be cast by stockholders at a duly constituted meeting of
stockholders called expressly for such purpose. Cause for removal shall exist
only if the director whose removal is proposed has been either declared of
unsound mind by an order of a court of competent jurisdiction, convicted of a
felony or of an offense punishable by imprisonment for a term of more than one
year by a court of competent jurisdiction, or deemed liable by a court of
competent jurisdiction for gross negligence or misconduct in the performance of
such director's duties to the Corporation. At least 30 days prior to such
meeting of stockholders, written notice shall be sent to the director whose
removal will be considered at the meeting. Directors may also be removed from
office in the manner provided in Sections 1726(b) and 1726(c) of the BCL, or any
successors to such sections.
G. Discharge of Duties. In discharging the duties of their respective
positions, the Board of Directors, committees of the Board of Directors and
individual directors shall, in considering the best interests of the
Corporation, consider the effects of any action upon the employees of the
Corporation and its subsidiaries, the depositors and borrowers of any insured
institution subsidiary, the communities in which offices or other establishments
of the Corporation or any subsidiary are located and all other pertinent
factors.
Article 8. Preemptive Rights. No holder of the capital stock of the
Corporation shall be entitled as such, as a matter of right, to subscribe for or
purchase any part of any new or additional issue of stock of any class
whatsoever of the Corporation, or of securities convertible into stock of any
class whatsoever, whether now or hereafter authorized, or whether issued for
cash or other consideration or by way of a dividend.
Article 9. Indemnification, etc. of Officers, Directors, Employees and
Agents.
A. Personal Liability of Directors. A director of the Corporation shall
not be personally liable for monetary damages for any action taken, or any
failure to take any action, as a director except to the extent that by law a
director's liability for monetary damages may not be limited.
B. Indemnification. The Corporation shall indemnify any person who was or
is a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, including actions by or in the right of
the Corporation, whether civil, criminal, administrative or investigative, by
reason of the fact that such person is or was a director, officer, employee or
agent of the Corporation, or is or was serving at the request of the Corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by such person in connection with such action, suit or proceeding to
the full extent permissible under Pennsylvania law.
C. Advancement of Expenses. Reasonable expenses incurred by an officer,
director, employee or agent of the Corporation in defending a civil or criminal
action, suit or proceeding
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<PAGE>
described in Section B of this Article 9 may be paid by the Corporation in
advance of the final disposition of such action, suit or proceeding upon receipt
of an undertaking by or on behalf of such person to repay such amount if it
shall ultimately be determined that the person is not entitled to be indemnified
by the Corporation.
D. Other Rights. The indemnification and advancement of expenses provided
by or pursuant to this Article 9 shall not be deemed exclusive of any other
rights to which those seeking indemnification or advancement of expenses may be
entitled under any insurance or other agreement, vote of stockholders or
directors or otherwise, both as to actions in their official capacity and as to
actions in another capacity while holding an office, and shall continue as to a
person who has ceased to be a director, officer, employee or agent and shall
inure to the benefit of the heirs, executors and administrators of such person.
E. Insurance. The Corporation shall have the power to purchase and
maintain insurance on behalf of any person who is or was a director, officer,
employee or agent of the Corporation or is or was serving at the request of the
Corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against any liability
asserted against him and incurred by him in any such capacity, or arising out of
his status as such, whether or not the Corporation would have the power to
indemnify him against such liability under the provisions of this Article 9.
F. Security, Fund; Indemnity Agreements. By action of the Board of
Directors (notwithstanding their interest in the transaction), the Corporation
may create and fund a trust fund or fund of any nature, and may enter into
agreements with its officers, directors, employees and agents for the purpose of
securing or insuring in any manner its obligation to indemnify or advance
expenses provided for in this Article 9.
G. Modification. The duties of the Corporation to indemnify and to advance
expenses to any person as provided in this Article 9 shall be in the nature of a
contract between the Corporation and each such person, and no amendment or
repeal of any provision of this Article 9, and no amendment or termination of
any trust or other fund created pursuant to Section F of this Article 9, shall
alter to the detriment of such person the right of such person to the advance of
expenses or indemnification related to a claim based on an act or failure to act
which took place prior to such amendment, repeal or termination.
H. Proceedings Initiated by Indemnified Persons. Notwithstanding any other
provision of this Article 9, the Corporation shall not indemnify a director,
officer, employee or agent for any liability incurred in an action, suit or
proceeding initiated (which shall not be deemed to include counter-claims or
affirmative defenses) or participated in as an intervenor or amicus curiae by
the person seeking indemnification unless such initiation of or participation in
the action, suit or proceeding is authorized, either before or after its
commencement, by the affirmative vote of a majority of the directors in office.
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<PAGE>
Article 10. Meetings of Stockholder and Stockholder Proposals
A. Special Meetings of Stockholders. Except as otherwise required by law
and subject to the rights of the holders of any class or series of Preferred
Stock, special meetings of the stockholders of the Corporation may be called
only by (i) the Board of Directors pursuant to a resolution approved by the
affirmative vote of a majority of the directors then in office, (ii) the
Chairman of the Board or (iii) the President.
B. Action Without a Meeting. Any action permitted to be taken by the
stockholders at a meeting may be taken without a meeting if consent in writing
setting forth the action so taken shall be signed by all of the stockholders who
would be entitled to vote at a meeting for such purpose and filed with the
Secretary of the Corporation as part of the corporate records.
Article 11. Notice for Stockholder Nominations and Proposals
A. Notice Requirements. Nominations for the election of directors and
proposals for any new business to be taken up at any annual meeting of
stockholders may be made by the board of directors of the Corporation or by any
stockholder of the Corporation entitled to vote generally in the election of
directors. In order for a stockholder of the Corporation to make any such
nominations and/or proposals, he or she shall give notice thereof in writing,
delivered or mailed by first class United States mail, postage prepaid, to the
Secretary of the Corporation not less than thirty days nor more than sixty days
prior to any such meeting; provided, however, that if less than thirty-one days'
notice of the meeting is given to stockholders, such written notice shall be
delivered or mailed, as prescribed, to the Secretary of the Corporation not
later than the close of the tenth day following the day on which notice of the
meeting was mailed to stockholders.
B. Contents of Notice of Nominations. Each notice given by a stockholder
with respect to nominations for election of directors shall set forth (i) the
name, age, business address and, if known, residence address of each nominee
proposed in such notice, (ii) the principal occupation or employment of each
such nominees, (iii) the number of shares of stock of the Corporation which are
beneficially owned by each such nominee, (iv) such other information as would be
required to be included in a proxy statement soliciting proxies for the election
of the proposed nominee pursuant to Regulation 14A of the Securities Exchange
Act of 1934, as amended, including, without limitation, such person's written
consent to being named in the proxy statement as a nominee and to serving as a
director, if elected, and (v) as to the stockholder giving such notice (a) his
name and address as they appear on the Corporation's books and (b) the class and
number of shares of the Corporation which are beneficially owned by such
stockholder. In addition, the stockholder making such nomination shall promptly
provide any other information reasonably requested by the Corporation.
C. Contents of Notice of Business Proposals. Each notice given by a
stockholder with respect to business proposals to bring before an annual meeting
of stockholders shall set forth in writing as to each matter: (i) a brief
description of the business desired to be brought before
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<PAGE>
the meeting and the reasons for conducting such business at the meeting, (ii)
the name and address, as they appear on the Corporation's books, of the
stockholder proposing such business, (iii) the class and number of shares of the
Corporation which are beneficially owned by the stockholder, and (iv) any
material interest of the stockholder in such business. Notwithstanding anything
in these Articles to the contrary, no business shall be conducted at the meeting
except in accordance with the procedures set forth in this Article.
D. Determination of Compliance. The Chairman of the meeting of
stockholders may, if the facts warrant, determine and declare to the meeting
that a nomination or proposal was not made in accordance with the foregoing
procedure, and, if the Chairman should so determine, the Chairman shall so
declare to the meeting and the defective nomination or proposal shall be
disregarded and laid over for action at the next succeeding adjourned, special
or annual meeting of the stockholders taking place thirty days or more
thereafter. This provision shall not require the holding of any adjourned or
special meeting of stockholders for the purpose of considering such defective
nomination or proposal.
Article 12. Approval of Certain Business Combinations
The stockholder vote required to approve Business Combinations (as
hereinafter defined) shall be as set forth in this section.
A. Approval Required. 1. Except as otherwise expressly provided in this
Article 12, the affirmative vote of the holders of (i) at least 80% of the
outstanding shares entitled to vote thereon (and, if any class or series of
shares is entitled to vote thereon separately, the affirmative vote of the
holders of at least 80% of the outstanding shares of each such class or series),
and (ii) at least a majority of the outstanding shares entitled to vote thereon,
not including shares deemed beneficially owned by a Related Person (as
hereinafter defined), shall be required in order to authorize any of the
following:
(a) any merger or consolidation of the Corporation with or into a
Related Person (as hereinafter defined);
(b) any sale, lease, exchange, transfer or other disposition,
including without limitation, a mortgage, or any other security device, of all
or any Substantial Part (as hereinafter defined) of the assets of the
Corporation (including without limitation any voting securities of a subsidiary)
or of a subsidiary, to a Related Person;
(c) any merger or consolidation of a Related Person with or into the
Corporation or a subsidiary of the Corporation;
(d) any sale, lease, exchange, transfer or other disposition of all
or any Substantial Part of the assets of a Related Person to the Corporation or
a subsidiary of the Corporation;
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<PAGE>
(e) the issuance of any securities of the Corporation or a
subsidiary of the Corporation to a Related Person;
(f) the acquisition by the Corporation or a subsidiary of the
Corporation of any securities of a Related Person;
(g) any reclassification of the Common Stock of the Corporation, or
any recapitalization involving the Common Stock of the Corporation; and
(h) any agreement, contract or other arrangement providing for any
of the transactions described in this Article.
2. Such affirmative vote shall be required notwithstanding any other
provision of these Articles, any provision of law, or any agreement with any
regulatory agency or national securities exchange which might otherwise permit a
lesser vote or no vote.
3. The term "Business Combination" as used in this Article 12 shall mean
any transaction which is referred to in any one or more of subparagraphs A(1)(a)
through (h) above.
B. Exception for Prior Approval by Continuing Directors. The provisions of
paragraph A shall not be applicable to any particular Business Combination, and
such Business Combination shall require only such affirmative vote as is
required by any other provision of this Certificate, any provision of law, or
any agreement with any regulatory agency or national securities exchange, if the
Business Combination shall have been approved by a two-thirds vote of the
Continuing Directors (as hereinafter defined); provided, however, that such
approval shall only be effective if obtained at a meeting at which a Continuing
Director Quorum (as hereinafter defined) is present.
C. Definitions. For the purposes of this Article 12 the following
definitions apply:
1. The term "Related Person" shall mean and include (a) any individual,
corporation, partnership or other person or entity which together with its
"affiliates" (as that term is defined in Rule 12b-2 of the General Rules and
Regulations under the Securities Exchange Act of 1934, as amended),
"beneficially owns" (as that term is defined in Rule 13d-3 of the General Rules
and Regulations under the Securities Exchange Act of 1934, as amended) in the
aggregate 10% or more of the outstanding shares of the common stock of the
Corporation; and (b) any "affiliate" (as that term is defined in Rule 12b-2
under the Securities Exchange Act of 1934, as amended) of any such individual,
corporation, partnership or other person or entity. Without limitation, any
shares of the Common Stock of the Corporation which any Related Person has the
right to acquire pursuant to any agreement, or upon exercise or conversion
rights, warrants or options, or otherwise, shall be deemed "beneficially owned"
by such Related Person.
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2. The term "Substantial Part" shall mean more than 25% of the total
assets of the Corporation, as of the end of its most recent fiscal year ending
prior to the time the determination is made.
3. The term "Continuing Director" shall mean any member of the Board of
Directors of the Corporation who is unaffiliated with the Related Person and was
a member of the Board prior to the time that the Related Person became a Related
Person, and any successor of a Continuing Director who is unaffiliated with the
Related Person and is recommended to succeed a Continuing Director by a majority
of Continuing Directors then on the Board.
4. The term "Continuing Director Quorum" shall mean two-thirds of the
Continuing Directors capable of exercising the powers conferred on them.
Article 13. Amendment of Articles and Bylaws.
A. Articles. The Corporation reserves the right to amend, alter, change or
repeal any provision contained in these Articles of Incorporation, in the manner
now or hereafter prescribed by law, and all rights conferred upon stockholders
herein are granted subject to this reservation. No amendment, addition,
alteration, change or repeal of these Articles of Incorporation shall be made
unless it is first approved by the Board of Directors of the Corporation
pursuant to a resolution adopted by the affirmative vote of a majority of the
directors then in office, and thereafter is approved by the holders of a
majority (except as provided below) of the shares of the Corporation entitled to
vote generally in an election of directors, voting together as a single class,
as well as such additional vote of the Preferred Stock as may be required by the
provisions of any series thereof. Notwithstanding anything contained in these
Articles of Incorporation to the contrary, the affirmative vote of the holders
of at least 75% of the shares of the Corporation entitled to vote generally in
an election of directors, voting together as a single class, as well as such
additional vote of the Preferred Stock as may be required by the provisions of
any series thereof, shall be required to amend, adopt, alter, change or repeal
any provision inconsistent with Section D of Article 5 and Articles 7, 8, 9, 10,
11, 12 and 13 hereof.
B. Bylaws. The Board of Directors, to the extent permitted by law, or
stockholders may adopt, alter, amend or repeal the Bylaws of the Corporation.
Such action by the Board of Directors shall require the affirmative vote of a
majority of the directors then in office at any regular or special meeting of
the Board of Directors. Such action by the stockholders shall require the
affirmative vote of the holders of a majority of the shares of the Corporation
entitled to vote generally in an election of directors, voting together as a
single class, as well as such additional vote of the Preferred Stock as may be
required by the provisions of any series thereof, provided that the affirmative
vote of the holders of at least 75% of the shares of the Corporation entitled to
vote generally in an election of directors, voting together as a single class,
as well as such additional vote of the Preferred Stock as may be required by the
provisions of any series thereof, shall be required to amend, adopt, alter,
change or repeal any provision inconsistent with Sections 2.3, 4.1, 4.2, 4.3 and
4.4 of the Bylaws and Articles VIII and XII of the Bylaws.
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I, THE UNDERSIGNED, being the sole incorporator hereinbefore named, for the
purpose of forming a corporation pursuant to the Business Corporation Law of
1988, as amended, of the Commonwealth of Pennsylvania through these Articles of
Incorporation, do make, file and record the Articles of Incorporation and do
hereby certify that the facts herein stated are true, and accordingly hereunto
set my hand this 17th day of June 1997.
By: /s/ Thomas F. Angotti
--------------------------------
Thomas F. Angotti
Incorporator
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Exhibit 3.2
BYLAWS
OF
SHS BANCORP, INC.
ARTICLE I. OFFICES
1.1 Registered Office and Registered Agent. The registered office of SHS
--------------------------------------
Bancorp, Inc. ("Corporation") shall be located in the Commonwealth of
Pennsylvania at such place as may be fixed from time to time by the Board of
Directors upon filing of such notices as may be required by law, and the
registered agent shall have a business office identified with such registered
office.
1.2 Other Offices. The Corporation may have other offices within or
-------------
outside the Commonwealth of Pennsylvania at such place or places as the Board of
Directors may from time to time determine.
ARTICLE II. STOCKHOLDERS' MEETINGS
2.1 Meeting Place. All meetings of stockholders shall be held at the
-------------
principal place of business of the Corporation, or at such other place within or
without the Commonwealth of Pennsylvania as shall be determined from time to
time by the Board of Directors, and the place at which any such meeting shall be
held shall be stated in the notice of the meeting.
2.2. Annual Meeting Time. The annual meeting of the stockholders for the
-------------------
election of directors and for the transaction of such other business as may
properly come before the meeting shall be held each year on the fourth Thursday
of April at the hour of 10:00 a.m., if not a legal holiday, and if a legal
holiday, then on the day following, at the same hour, or at such other date and
time as may be determined by the Board of Directors and stated in the notice of
such meeting.
2.3 Organization and Conduct. Each meeting of the stockholders shall be
------------------------
presided over the by the President, or if the President is not present, by any
Executive or Senior Vice President or such other person as the directors may
determine. The Secretary, or in his or her absence a temporary Secretary, shall
act as secretary of each meeting of the stockholders. In the absence of the
Secretary and any temporary Secretary, the chairman of the meeting may appoint
any person present to act as secretary of the meeting. The chairman of any
meeting of the stockholders, unless prescribed by law or regulation or unless
the Board of Directors has otherwise determined, shall determine the order of
the business and the procedure at the meeting, including such regulation of the
manner of voting and the conduct of discussions as shall be deemed appropriate
by him or her in his or her sole discretion.
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2.4 Notice.
------
(a) Notice of the time and place of the annual meeting of
stockholders shall be given by delivering personally or by mailing a written or
printed notice of the same, at least 10 days and not more than 60 days prior to
the meeting, to each stockholder of record entitled to vote at such meeting.
When any stockholders' meeting, either annual or special, is adjourned for 30
days or more, or if a new record date is fixed for an adjourned meeting of
stockholders, notice of the adjourned meeting shall be given as in the case of
an original meeting. It shall not be necessary to give any notice of the time
and place of any meeting adjourned for less than 30 days or of the business to
be transacted thereat (unless a new record date is fixed therefor), other than
an announcement at the meeting at which such adjournment is taken.
(b) At least 10 days and not more than 60 days prior to the
meeting, a written or printed notice of each special meeting of stockholders,
stating the place, day and hour of such meeting, and the purpose or purposes for
which the meeting is called, shall be either delivered personally or mailed to
each stockholder of record entitled to vote at such meeting.
2.5 Voting Record. At least five days before each meeting of
-------------
stockholders, a complete record of the stockholders entitled to vote at such
meeting, or any adjournment thereof, shall be made, arranged in alphabetical
order, with the address of and number of shares held by each, which record shall
be kept on file at the registered office of the Corporation and shall be subject
to inspection by any stockholder at any time during usual business hours. The
record shall be kept open at the time and place of such meeting for the
inspection by any stockholder.
2.6 Quorum. Except as otherwise required by law:
------
(a) A quorum at any annual or special meeting of stockholders shall
consist of stockholders representing, either in person or by proxy, a majority
of the outstanding capital stock of the Corporation entitled to vote at such
meeting.
(b) The votes of a majority in interest of those present at any
properly called meeting or adjourned meeting of stockholders, at which a quorum
as defined above is present, shall be sufficient to transact business.
2.7 Voting of Shares.
----------------
(a) Except as otherwise provided in these Bylaws or to the extent
that voting rights of the shares of any class or classes are limited or denied
by the Articles of Incorporation, each stockholder, on each matter submitted to
a vote at a meeting of stockholders, shall have one vote for each share of stock
registered in his name on the books of the Corporation.
(b) Directors are to be elected by a plurality of votes cast by the
shares entitled to vote in the election at a meeting at which a quorum is
present. Stockholders shall not be permitted to cumulate their votes for the
election of directors. If, at any meeting of the
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stockholders, due to a vacancy or vacancies or otherwise, directors of more than
one class of the Board of Directors are to be elected, each class of directors
to be elected at the meeting shall be elected in a separate election by a
plurality vote.
2.8 Fixing Record Date. The Board of Directors may fix a time, not more
------------------
than ninety (90) days, prior to the date of any meeting of or action by the
stockholders or the date fixed for payment of any dividend or distribution or
the date for the allotment of rights or the date when any change or conversion
or exchange of shares will be made or go into effect, as a record date for the
determination of the stockholders entitled to notice of and to vote at any such
meeting or to express consent or dissent to action in writing without a meeting
or entitled to receive payment of any such dividend or distribution or to
receive any such allotment of rights or to exercise the rights in respect to any
such change, conversion or exchange of shares. In such case, only such
stockholders as shall be stockholders of record on the date so fixed shall be
entitled to notice of and to vote at such meeting or to express consent or
dissent to action in writing without a meeting or to receive payment of such
dividend or to receive such allotment or to exercise such rights, as the case
may be, notwithstanding any transfer of any shares on the books of the
Corporation after any record date so fixed.
2.9 Proxies. A stockholder may vote either in person or by proxy
-------
executed in writing by the stockholder, or his duly authorized attorney-in-fact.
No proxy shall be valid after 11 months from the date of its execution, unless
otherwise provided in the proxy.
2.10 Voting of Shares in the Name of Two or More Persons. Where shares
---------------------------------------------------
are held jointly or as tenants in common by two or more persons as fiduciaries
or otherwise, if only one or more of such persons is present in person or by
proxy, all of the shares standing in the names of such persons shall be deemed
to be represented for the purpose of determining a quorum and the Corporation
shall accept as the vote of all such shares the votes cast by him or her or a
majority of them and if in any case such persons are equally divided upon the
manner of voting the shares held by them, the vote of such shares shall be
divided equally among such persons, without prejudice to the rights of such
joint owners or the beneficial owners thereof among themselves, except that, if
there shall have been filed with the Secretary of the Corporation a copy,
certified by an attorney-at-law to be correct, of the relevant portions of the
agreements under which such shares are held or the instrument by which the trust
or estate was created or the decree of court appointing them, or of a decree of
court directing the voting of such shares, the persons specified as having such
voting power in the latest such document so filed, and only such persons, shall
be entitled to vote such shares but only in accordance therewith.
2.11 Voting of Shares by Certain Holders. Shares standing in the name of
-----------------------------------
another corporation may be voted by an officer, agent or proxy as the bylaws of
such corporation may prescribe, or, in the absence of such provision, as the
Board of Directors of such corporation may determine. Shares held by an
administrator, executor, guardian or conservator may be voted by him, either in
person or by proxy, without a transfer of such shares into his name. Shares
standing in the name of a trustee may be voted by him, either in person or by
proxy. Shares standing in the name of a receiver may be voted by such receiver,
and shares held by or under
-3-
<PAGE>
the control of a received may be voted by such receiver without the transfer
thereof into his name if authority to do so is contained in an appropriate order
of the court or other public authority by which such receiver was appointed. A
stockholder whose shares are pledge shall be entitled to vote such shares until
the shares have been transferred into the name of the pledgee or nominee, and
thereafter the pledgee or nominee shall be entitled to vote the shares so
transferred.
2.12 Inspectors. For each meeting of stockholders, the Board of Directors
----------
may appoint one or more inspectors of election. If for any meeting the
inspector(s) appointed by the Board of Directors shall be unable to act or the
Board of Directors shall fail to appoint any inspector, one or more inspectors
may be appointed at the meeting by the chairman thereof. Such inspectors shall
conduct the voting in each election of directors and, as directed by the Board
of Directors or the chairman of the meeting, the voting on each matter voted on
at such meeting, and after the voting shall make a certificate of the vote
taken. Inspectors need not be stockholders.
ARTICLE III. CAPITAL STOCK
3.1 Certificates. Certificates of stock shall be issued in numerical
------------
order, and each stockholder shall be entitled to a certificate signed by the
President or a Vice President, and the Secretary or the Treasurer, and may be
sealed with the seal of the Corporation or a facsimile thereof. The signatures
of such officers may be facsimiles if the certificate is manually signed on
behalf of a transfer agent, or registered by a registrar, other than the
Corporation itself or an employee of the Corporation. If an officer who has
signed or whose facsimile signature has been placed upon such certificate ceases
to be an officer before the certificate is issued, it may be issued by the
Corporation with the same effect as if the person were an officer on the date of
issue. Each certificate of stock shall state:
(a) that the Corporation is incorporated under the laws of the
Commonwealth of Pennsylvania;
(b) the name of the person to whom issued;
(c) the number and class of shares and the designation of the
series, if any, which such certificates represents; and
(d) the par value of each share represented by such certificate, or
a statement that such shares are without par value.
3.2 Transfers.
---------
(a) Transfers of stock shall be made only upon the stock transfer
books of the Corporation, kept at the registered office of the Corporation or at
its principal place of business, or at the office of its transfer agent or
registrar, and before a new certificate is issued the old
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<PAGE>
certificate shall be surrendered for cancellation. The Board of Directors may,
by resolution, open a share register in any state of the United States, and may
employ an agent or agents to keep such register, and to record transfers of
shares therein.
(b) Shares of stock shall be transferred by delivery of the
certificates therefor, accompanied either by an assignment in writing on the
back of the certificate or an assignment separate from the certificate, or by a
written power of attorney to sell, assign and transfer the same, signed by the
holder of said certificate. No shares of stock shall be transferred on the books
of the Corporation until the outstanding certificates therefor have been
surrendered to the Corporation.
3.3 Registered Owner. Registered stockholders shall be treated by the
----------------
Corporation as the holders in fact of the stock standing in their respective
names and the Corporation shall not be bound to recognize any equitable or other
claim to or interest in any share on the part of any other person, whether or
not it shall have express or other notice thereof, except as expressly provided
below or by the laws of the Commonwealth of Pennsylvania. The Board of Directors
may adopt by resolution a procedure whereby a stockholder of the Corporation may
certify in writing to the Corporation that all or a portion of the shares
registered in the name of such stockholder are held for the account of a
specified person or persons. The resolution shall set forth:
(a) The classification of shareholder who may certify;
(b) The purpose or purposes for which the certification may be
made;
(c) The form of certification and information to be contained
therein;
(d) If the certification is with respect to a record date or
closing of the stock transfer books, the date within which the certification
must be received by the Corporation; and
(e) Such other provisions with respect to the procedure as are
deemed necessary or desirable.
Upon receipt by the Corporation of a certification complying with the above
requirements, the persons specified in the certification shall be deemed, for
the purpose or purposes set forth in the certification, to be the holders of
record of the number of shares specified in place of the stockholder making the
certification.
3.4 Mutilated, Lost or Destroyed Certificates. In case of any mutilation,
-----------------------------------------
loss or destruction of any certificate of stock, another may be issued in its
place upon receipt of proof of such mutilation, loss or destruction. The Board
of Directors may impose conditions on such issuance and may require the giving
of a satisfactory bond or indemnity to the Corporation in such sum as they might
determine, or establish such other procedures as they deem necessary.
-5-
<PAGE>
3.5 Fractional Shares or Scrip. The Corporation may (a) issue fractions
--------------------------
of a share which shall entitle the holder to exercise voting rights, to receive
dividends thereon, and to participate in any of the assets of the Corporation in
the event of liquidation; (b) arrange for the disposition of fractional interest
by those entitled thereto; (c) pay in cash the fair value of fractions of a
share as of the time when those entitled to receive such shares are determined;
or (d) issue scrip in registered or bearer form which shall entitle the holder
to receive a certificate for a full share upon the surrender of such scrip
aggregating a full share.
3.6 Shares of Another Corporation. Shares owned by the Corporation in
-----------------------------
another corporation, domestic or foreign, may be voted by such officer, agent or
proxy as the Board of Directors may determine or, in the absence of such
determination, by the President of the Corporation.
ARTICLE IV. BOARD OF DIRECTORS
4.1 Number and Powers. The management of all the affairs, property and
-----------------
interest of the Corporation shall be vested in a Board of Directors. The Board
of Directors shall be divided into three classes as nearly equal in number as
possible. The initial Board of Directors shall consist of 5 persons. The
classification and term of the directors shall be as set forth in the
Corporation's Articles of Incorporation, which provisions are incorporated
herein with the same effect as if they were set forth herein. Directors' need
not be stockholders or residents of the Commonwealth of Pennsylvania. In
addition to the powers and authorities expressly conferred upon it by these
Bylaws and the Articles of Incorporation, the Board of Directors may exercise
all such powers of the Corporation and do all such lawful acts and things as are
not by statute or by the Articles of Incorporation or by these Bylaws directed
or required to be exercised or done by the stockholders.
4.2 Change of Number. The number of directors may at any time be
----------------
increased or decreased by a vote of a majority of the Board of Directors,
provided that no decrease shall have the effect of shortening the term of any
incumbent director except as provided in Sections 4.3 and 4.4 hereunder.
Notwithstanding anything to the contrary contained within these Bylaws, the
number of directors may not be less than 5 nor more than 15.
4.3 Vacancies. All vacancies in the Board of Directors shall be filled
---------
in the manner provided in the Corporation's Articles of Incorporation, which
provisions are incorporated herein with the same effect as if they were set
forth herein.
4.4 Removal of Directors. Directors may be removed in the manner provided
--------------------
in the Corporation's Articles of Incorporation, which provisions are
incorporated herein with the same effect as if they were set forth herein.
4.5 Regular Meeting. Regular meetings of the Board of Directors or any
---------------
committee may be held without notice at the principal place of business of the
Corporation or at such other
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<PAGE>
place or places, either within or without the Commonwealth of Pennsylvania, as
the Board of Directors or such committee, as the case may be, may from time to
time designate. The annual meeting of the Board of Directors shall be held
without notice immediately after the adjournment of the annual meeting of
stockholders.
4.6 Special Meetings.
----------------
(a) Special meetings of the Board of Directors may be called at any
time by the President or by a majority of the authorized number of directors, to
be held at the principal place of business of the Corporation or at such other
place or places as the Board of Directors or the person or persons calling such
meeting may from time to time designate. Notice of all special meetings of the
Board of Directors shall be given to each director by five days' service of the
same by telegram, by letter, or personally. Such notice need not specify the
business to be transacted at, nor the purpose of, the meeting.
(b) Special meetings of any committee may be called at any time by
such person or persons and with such notice as shall be specified for such
committee by the Board of Directors, or in the absence of such specification, in
the manner and with the notice required for special meetings of the Board of
Directors.
4.7 Quorum. A majority of the Board of Directors shall be necessary at
------
all meetings to constitute a quorum for the transaction of business.
4.8 Waiver of Notice. Attendance of a director at a meeting shall
----------------
constitute a waiver of notice of such meeting, except where a director attends
for the express purpose of objecting to the transaction of any business because
the meeting is not lawfully called or convened. A waiver of notice signed by the
director or directors, whether before or after the time stated for the meeting
shall be equivalent to the giving of notice.
4.9 Registering Dissent. A director who is present at a meeting of the
-------------------
Board of Directors at which action on a corporate matter is taken shall be
presumed to have assented to such action unless his dissent is entered in the
minutes of the meeting, or unless he files his written dissent to such action
with the person acting as the secretary of the meeting before the adjournment
thereof, or unless he delivers his dissent in writing to the Secretary of the
Corporation immediately after the adjournment of the meeting. Such right to
dissent shall not apply to a director who voted in favor of such action.
4.10 Executive, Audit and Other Committees. Standing or special committees
-------------------------------------
may be appointed from its own number by the Board of Directors from time to
time, and the Board of Directors may from time to time invest such committees
with such powers as it may see fit, subject to such conditions as may be
prescribed by the Board. An Executive Committee may be appointed by resolution
passed by a majority of the full Board of Directors. It shall have and exercise
all of the authority of the Board of Directors, except in reference to amending
the Articles of Incorporation, adopting a plan of merger or consolidation,
recommending the sale,
-7-
<PAGE>
lease or exchange or other dispositions of all or substantially all the property
and assets of the Corporation otherwise than in the usual and regular course of
business, recommending a voluntary dissolution or a revocation thereof, or
amending these Bylaws. An Audit Committee shall be appointed by resolution
passed by a majority of the full Board of Directors, and at least a majority of
the members of the Audit Committee shall be directors who are not also officers
of the Corporation. The Audit Committee shall recommend independent auditors to
the Board of Directors annually and shall review the Corporation's budget, the
scope and results of the audit performed by the Corporation's independent
auditors and the Corporation's system of internal control and audit with
management and such independent auditors, and such other duties as may be
assigned to it by the Board of Directors. All committees appointed by the Board
of Directors shall keep regular minutes of the transactions of their meetings
and shall cause them to be recorded in books kept for that purpose in the office
of the Corporation. The designation of any such committee, and the delegation of
authority thereto, shall not relieve the Board of Directors, or any member
thereof, of any responsibility imposed by law.
4.11 Remuneration. Directors may be compensated for their services to the
------------
Board of Directors and each committee thereof in any manner deemed appropriate
by the Board of Directors, by resolution of the Board of Directors, and expenses
of attendance, if any, may be allowed for attendance at each regular or special
meeting of the Board of Directors or committee thereof; provided, that nothing
herein contained shall be construed to preclude any director from serving the
Corporation in any other capacity and receiving compensation therefor.
4.12 Action by Directors Without a Meeting. Any action which may be taken
-------------------------------------
at a meeting of the directors, or of a committee thereof, may be taken without a
meeting if a consent in writing, setting forth the action so taken or to be
taken, shall be signed by all of the directors, or all of the members of the
committee, as the case may be. Such consent shall have the same effect as a
unanimous vote.
4.13 Action of Directors by Communications Equipment. Any action which may
-----------------------------------------------
be taken at a meeting of directors, or of a committee thereof, may be taken by
means of a conference telephone or similar communications equipment by means of
which all persons participating in the meeting can here each other at the same
time.
4.14 Chairman of the Board of Directors. The Board of Directors may elect
----------------------------------
from among its members a Chairman of the Board and a Vice-Chairman of the Board
of Directors. The Chairman of the Board of Directors (or, in his or her absence,
the Vice-Chairman of the Board, if one has been elected) shall preside at all
meetings of the Board of Directors. The Chairman of the Board (and the Vice-
Chairman of the Board, if one has been elected) shall perform such other duties
as may be assigned from time to time by the Board of Directors.
-8-
<PAGE>
ARTICLE V. OFFICERS
5.1 Designations. The officers of the Corporation shall be the Chairman
------------
of the Board, a President, a Secretary and a Chief Financial Officer and/or
Treasurer, as well as such Vice Presidents (including Executive and Senior Vice
Presidents), Assistant Secretaries and Assistant Treasurers as the Board may
designate, who shall be elected for one year by the directors at their first
meeting after the annual meeting of stockholders, and who shall hold office
until their successors are elected and qualify. Any two or more offices may be
held by the same person, except that the offices of President and Secretary may
not be held by the same person.
5.2 Powers and Duties. The officers of the Corporation shall have such
-----------------
authority and perform such duties as the Board of Directors may from time to
time authorize or determine. In the absence of action by the Board of
Directors, the officers shall have such powers and duties as generally pertain
to their respective offices.
5.3 Delegation. In the case of absence or inability to act of any officer
----------
of the Corporation and of any person herein authorized to act in his place, the
Board of Directors may from time to time delegate the powers or duties of such
officer to any other officer or any director or other person whom it may select.
5.4 Vacancies. Vacancies in any office arising from any cause may be
---------
filled by the Board of Directors at any regular or special meeting of the Board.
5.5 Other Officers. Directors may appoint such other officers and agents
--------------
as it shall deem necessary or expedient, who shall hold their offices for such
terms and shall exercise such powers and perform such duties as shall be
determined from time to time by the Board of Directors.
5.6 Term - Removal. The officers of the Corporation shall hold office
--------------
until their successors are chosen and qualify. Any officer or agent elected or
appointed by the Board of Directors may be removed at any time, with or without
cause, by the affirmative vote of a majority of the whole Board of Directors,
but such removal shall be without prejudice to the contract rights, if any, of
the person so removed.
5.7 Boards. The Board of Directors may, by resolution, require any and
------
all of the officers to give bonds to the Corporation, which sufficient surety or
sureties, conditioned for the faithful performance of the duties of their
respective offices, and to comply with such other conditions as may from time to
time be required by the Board of Directors.
-9-
<PAGE>
ARTICLE VI. FISCAL YEAR ANNUAL AUDIT
The fiscal year of the Corporation shall end on the 31st day of December of
each year. The Corporation shall be subject to an annual audit as of the end of
its fiscal year by independent public accountants appointed by and responsible
to the Board of Directors.
ARTICLE VII. DIVIDENDS AND FINANCE
7.1 Dividends. Dividends may be declared by the Board of Directors and
---------
paid by the Corporation, subject to the conditions and limitations imposed by
the laws of the Commonwealth of Pennsylvania.
7.2 Reserves. Before making any distribution of earned surplus, there may
--------
be set aside out of the earned surplus of the Corporation such sum or sums as
the directors from time to time in their absolute discretion deem expedient as a
reserve fund to meet contingencies, or for equalizing dividends, or for
maintaining any property of the Corporation, or for any other purpose. Any
earned surplus of any year not distributed as dividends shall be deemed to have
thus been set apart until otherwise disposed of by the Board of Directors.
7.3 Depositories. The monies of the Corporation shall be deposited in the
------------
name of the Corporation in such bank or banks or trust company or trust
companies as the Board of Directors shall designate and shall be drawn out only
by check or other order for payment of money signed by such persons and in such
manner as may be determined by resolution of the Board of Directors.
ARTICLE VIII. PERSONAL LIABILITY OF DIRECTORS
A director of the Corporation shall not be personally liable for monetary
damages for any action taken, or any failure to take any action, as a director
to the extent set forth in the Corporation's Articles of Incorporation, which
provisions are incorporated herein with the same effect as if they were set
forth herein.
ARTICLE IX. NOTICES
Except as may otherwise be required by law, any notice to any stockholder
or director may be delivered personally or by mail. If mailed, the notice shall
be deemed to have been delivered when deposited in the United States mail,
addressed to the addressee at his last known address in the records of the
Corporation, with postage thereon prepaid.
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<PAGE>
ARTICLE X. SEAL
The corporate seal of the Corporation shall be in such form and bear such
inscription as may be adopted by resolution of the Board of Directors, or by
usage of the officers on behalf of the Corporation.
ARTICLE XI. BOOKS AND RECORDS
The Corporation shall keep correct and complete books and records of
account and shall keep minutes and proceedings of meetings of its stockholders
and Board of Directors; and it shall keep at its registered office or principal
place of business, or at the office of its transfer agent or registrar, a record
of its stockholders, giving the names and addresses of all stockholders and the
number and class of the shares held by each. Any books, records and minutes may
be in written form or any other form capable of being converted into written
form within a reasonable time.
ARTICLE XII. AMENDMENTS
These Bylaws may be altered, amended or repealed only as set forth in the
Corporation's Articles of Incorporation, which provisions are incorporated
herein with the same effect as if they were set forth herein.
-11-
<PAGE>
Exhibit 4
SHS BANCORP, INC.
INCORPORATED UNDER THE LAWS OF THE COMMONWEALTH OF PENNSYLVANIA
COMMON STOCK CUSIP
See Reverse For
Certain Definitions
THIS CERTIFIES THAT
is the owner of
FULLY PAID AND NONASSESSABLE SHARES OF COMMON STOCK, $.01 PAR VALUE PER SHARE,
OF
SHS Bancorp, Inc., a stock corporation incorporated under the laws of the
Commonwealth of Pennsylvania. The shares represented by this Certificate are
transferable only on the stock transfer books of the Corporation by the holder
of record hereof or by his duly authorized attorney or legal representative upon
the surrender of this Certificate properly endorsed. The shares represented by
this certificate are not a deposit or account and are not insured by the Federal
Deposit Insurance Corporation or any other government agency. The Certificate
and shares represented hereby are issued and shall be held subject to all
provisions of the Articles of Incorporation and Bylaws of the Corporation and
any amendments thereto (copies of which are on file with the Transfer Agent), to
all of which provisions the holder by acceptance hereof, assents.
IN WITNESS WHEREOF, SHS Bancorp, Inc. has caused this Certificate to be
executed by the facsimile signatures of its duly authorized officers and has
caused a facsimile of its corporate seal to be hereunto affixed.
CORPORATE SECRETARY PRESIDENT
TRANSFER AGENT
[SEAL]
<PAGE>
SHS Bancorp, Inc.
The shares represented by this Certificate are issued subject to all the
provisions of the Articles of Incorporation and Bylaws of SHS Bancorp, Inc.
("Corporation") as from time to time amended (copies of which are on file with
the Transfer Agent and at the principal executive offices of the Corporation).
The shares represented by this Certificate are subject to a limitation
contained in the Articles of Incorporation to the effect that in no event shall
any record owner of any outstanding common stock which is beneficially owned,
directly or indirectly, by a person who beneficially owns in excess of 10% of
the outstanding shares of common stock (the "Limit") be entitled or permitted to
vote in respect of the shares held in excess of the Limit, unless a majority of
the whole Board of Directors, as defined, shall have by resolution granted in
advance such entitlement or permission.
The Board of Directors of the Corporation is authorized by resolution(s),
from time to time adopted, to provide for the issuance of preferred stock in
series and to fix and state the powers, designations, preferences and relative,
participating, optional or other special rights of the shares of each such
series and the qualifications, limitations and restrictions thereof. The
Corporation will furnish to any shareholder upon request and without charge a
full description of each class of stock and any series thereof.
The shares represented by this Certificate may not be cumulatively voted on
any matter. The affirmative vote of the holders of at least 75% of the voting
stock of the Corporation, voting together as a single class, shall be required
to approve certain business combinations and other transactions, pursuant to the
Articles of Incorporation, or to amend certain provisions of the Articles of
Incorporation.
The following abbreviations, when used in the inscription on the face of this
Certificate, shall be construed as through they were written out in full
according to applicable laws or regulations.
TEN COM -as tenants in common
TEN ENT -as tenants by the entireties
JT TEN -as joint tenants with right of survivorship and
not as tenants in common
UNIF GIFT MIN ACT -_______Custodian_______ under Uniform Gifts
(Cust) (Minor)
to Minors Act _________
(State)
Additional abbreviations may also be used though not in the above list
For value received, ___________________________________________ hereby sell,
assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- --------------------------------------
________________________________________________________________________________
________________________________________________________________________________
Please print or typewrite name and address, including postal zip code, of
assignee
________________________________________________________________________________
________________________________________________________________________________
_________________________________________________________________________ shares
of the Common Stock evidenced by this Certificate, and do hereby irrevocably
constitute and appoint _______________________________________________ Attorney,
to transfer the said shares on the books of the within named Corporation, with
full power of substitution.
Dated __________________
_____________________________________
Signature
_____________________________________
Signature
NOTICE: The signature to this assignment must
correspond with the name as written upon the
face of the Certificate in every particular,
without alteration or enlargement or any change
whatever.
<PAGE>
Exhibit 5
[LETTERHEAD OF BREYER & AGUGGIA APPEARS HERE]
June 27, 1997
Board of Directors
SHS Bancorp, Inc.
112 Federal Street
Pittsburgh, Pennsylvania 15212
RE: SHS Bancorp, Inc.
Registration Statement on Form SB-2
Gentlemen:
You have requested our opinion as special counsel for SHS Bancorp, Inc., a
Pennsylvania corporation, in connection with the above-referenced registration
statement filed with the Securities and Exchange Commission under the Securities
Act of 1933, as amended.
In rendering this opinion, we understand that the common stock of SHS
Bancorp, Inc. will be offered and sold in the manner described in the
Prospectus, which is part of the Registration Statement. We have examined such
records and documents and made such examination as we have deemed relevant in
connection with this opinion.
Based upon the foregoing, it is our opinion that the shares of common stock
of SHS Bancorp, Inc. will upon issuance be legally issued, fully paid and
nonassessable.
This opinion is furnished for use as an exhibit to the Registration
Statement. We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to us under the heading "Legal and
Tax Opinions."
Very truly yours,
/s/ Breyer & Aguggia
BREYER & AGUGGIA
Washington, D.C.
<PAGE>
Exhibit 8.1
_________ ___, 1997
Boards of Directors
Spring Hill Savings Bank, F.S.B.
SHS Bancorp, Inc.
112 Federal Street
Pittsburgh, Pennsylvania 15212
Re: Certain Federal Income Tax Consequences Relating to Proposed
Holding Company Conversion of Spring Hill Savings Bank, F.S.B.
--------------------------------------------------------------
Gentlemen:
In accordance with your request, set forth herein is the opinion of this
firm relating to certain federal income tax consequences of (i) the proposed
conversion of Spring Hill Savings Bank, F.S.B. (the "Savings Bank") from a
federally-chartered mutual savings bank to a federally-chartered stock savings
bank (the "Converted Savings Bank") (the "Conversion") and (ii) the concurrent
acquisition of 100% of the outstanding capital stock of the Converted Savings
Bank by a parent holding company formed at the direction of the Board of
Directors of the Savings Bank and to be known as SHS Bancorp, Inc. (the "Holding
Company").
For purposes of this opinion, we have examined such documents and questions
of law as we have considered necessary or appropriate, including but not limited
to, the Plan of Conversion as adopted by the Savings Bank's Board of Directors
on April 16, 1997 (the "Plan"); the federal mutual charter and bylaws of the
Savings Bank; the articles of incorporation and bylaws of Holding Company; the
Affidavit of Representations dated ________ __, 1997 provided to us by the
Savings Bank and the Holding Company (the "Affidavit"), and the Prospectus (the
"Prospectus") included in the Registration Statement on Form SB-2 filed with the
Securities and Exchange Commission ("SEC") on _______ __, 1997 (the
"Registration Statement"). In such examination, we have assumed, and have not
independently verified, the genuineness of all signatures on original documents
where due execution and delivery are requirements to the effectiveness thereof.
Terms used but not defined herein, whether capitalized or not, shall have the
same meaning as defined in the Plan.
<PAGE>
Board of Directors
Spring Hill Savings Bank, F.S.B.
SHS Bancorp, Inc.
__________ ___, 1997
Page 2
BACKGROUND
----------
Based solely upon our review of such documents, and upon such information
as the Savings Bank has provided to us (which we have not attempted to verify in
any respect), and in reliance upon such documents and information, we set forth
herein a general summary of the relevant facts and proposed transactions,
qualified in its entirety by reference to the documents cited above.
The Savings Bank is a federally-chartered mutual savings bank which is in
the process of converting to a federally-chartered stock savings bank. The
Savings Bank was initially organized in 1893. The Savings Bank is also a member
of the Federal Home Loan Bank System and its deposits are federally insured
under the Savings Association Insurance Fund ("SAIF") of the Federal Deposit
Insurance Corporation. The Savings Bank conducts its operations from its three
full service offices in Pittsburgh, Pennsylvania.
The Savings Bank is primarily engaged in the business of attracting
deposits from the general public and originating permanent loans secured by
first mortgages on one- to four-family residential properties. At March 31,
1997, the Savings Bank had total assets of $82.8 million, total deposits of
$64.8 million and retained earnings of $4.4 million.
As a federally-chartered mutual savings bank, the Savings Bank has no
authorized capital stock. Instead, the Savings Bank, in mutual form, has a
unique equity structure. A savings depositor of the Savings Bank is entitled to
payment of interest on his account balance as declared and paid by the Savings
Bank, but has no right to a distribution of any earnings of the Savings Bank
except for interest paid on his deposit. Rather, such earnings become retained
earnings of the Savings Bank.
However, a savings depositor does have a right to share pro rata, with
--- ----
respect to the withdrawal value of his respective savings account, in any
liquidation proceeds distributed if the Savings Bank is ever liquidated.
Savings depositors and certain borrowers are members of the Savings Bank and
thereby have voting rights in the Savings Bank. Each savings depositor is
entitled to cast votes in proportion to the size of their account balances or
fraction thereof held in a withdrawable deposit account of the Savings Bank, and
each borrower member (hereinafter "borrower") is entitled to one vote in
addition to the votes (if any) to which such person is entitled in such
borrower's capacity as a savings depositor of the Savings Bank. All of the
interests held by a savings depositor in the Savings Bank cease when such
depositor closes his accounts with the Savings Bank.
<PAGE>
Board of Directors
Spring Hill Savings Bank, F.S.B.
SHS Bancorp, Inc.
__________ ___, 1997
Page 3
The Holding Company was incorporated in June 1997 under the laws of the
Commonwealth of Pennsylvania as a general business corporation in order to act
as a savings institution holding company. The Holding Company has an authorized
capital structure of 10,000,000 shares of common stock and 5,000,000 shares of
preferred stock.
PROPOSED TRANSACTION
--------------------
Management of the Savings Bank believes that the Conversion offers a number
of advantages which will be important to the future growth and performance of
the Converted Savings Bank in that it is intended to (i) provide substantially
increased capital for investment in its business to expand the operations of the
Converted Savings Bank; (ii) provide future access to capital markets; (iii)
enhance the ability to diversify its operations into new business activities;
and (iv) afford depositors and others the opportunity to become stockholders of
the Converted Savings Bank and thereby participate more directly in any future
growth of the Converted Savings Bank.
Accordingly, pursuant to the Plan, the Savings Bank will undergo the
Conversion whereby it will be converted from a federally-chartered mutual
savings bank to a federally-chartered stock savings bank. As part of the
Conversion, the Savings Bank will amend its existing mutual savings bank charter
and bylaws to read in the form of a Federal Stock Charter and Bylaws. The
Converted Savings Bank will then issue to the Holding Company shares of the
Converted Savings Bank's common stock, representing all of the shares of capital
stock to be issued by the Converted Savings Bank in the Conversion, in exchange
for payment by the Holding Company of up to 50% of the net proceeds realized by
the Holding Company from such sale of its Common Stock, less amounts necessary
to fund the Employee Stock Ownership Plan of the Savings Bank, or such other
percentage as the Office of Thrift Supervision ("OTS") may authorize or require.
Also pursuant to the Plan, the Holding Company will offer its shares of
Common Stock for sale in a Subscription Offering and, if necessary, a Direct
Community Offering. The aggregate purchase price at which all shares of Common
Stock will be offered and sold pursuant to the Plan and the total number of
shares of Common Stock to be offered in the Conversion will be determined by the
Boards of Directors of the Savings Bank and the Holding Company on the basis of
the estimated pro forma market value of the Converted Savings Bank as a
--- -----
subsidiary of the Holding Company. The estimated pro forma market value will be
--- -----
determined by an independent appraiser. Pursuant to the Plan, all such shares
will be issued and sold at a uniform price per share. The Conversion, including
the sale of newly issued shares of the stock of the Converted Savings Bank to
the Holding Company, will be deemed effective concurrently with the closing of
the sale of the Common Stock.
<PAGE>
Board of Directors
Spring Hill Savings Bank, F.S.B.
SHS Bancorp, Inc.
__________ ___, 1997
Page 4
Under the Plan and in accordance with regulations of the OTS, the shares of
Common Stock will first be offered through the Subscription Offering pursuant to
nontransferable subscription rights on the basis of preference categories in the
following order of priority:
(1) Eligible Account Holders;
(2) Tax-Qualified Employee Stock Benefit Plans of the Savings Bank;
(3) Supplemental Eligible Account Holders; and
(4) Other Members.
Any shares of Common Stock not subscribed for in the Subscription Offering
may be offered in the Direct Community Offering in the following order of
priority:
(a) Natural persons and trust of natural persons who are permanent
residents of Allegheny, Beaver, Butler, Washington, Westmoreland and
Armstrong Counties of Pennsylvania; and
(b) The general public.
Any shares of Common Stock not subscribed for in the Direct Community
Offering may be offered to certain members of the general public on a best
efforts basis by a selling group of broker-dealers in a Syndicated Community
Offering.
The Plan also provides for the establishment of a Liquidation Account by
the Converted Savings Bank for the benefit of all Eligible Account Holders and
any Supplemental Eligible Account Holders in an amount equal to the net worth of
the Savings Bank as of the date of the latest statement of financial condition
contained in the final prospectus issued in connection with the Conversion. The
establishment of the Liquidation Account will not operate to restrict the use or
application of any of the net worth accounts of the Converted Savings Bank. The
account holders will have an inchoate interest in a proportionate amount of the
Liquidation Account with respect to each savings account held and will be paid
by the Converted Savings Bank in event of liquidation prior to any liquidation
distribution being made with respect to capital stock.
Following the Conversion, voting rights in the Converted Savings Bank shall
be vested in the sole holder of stock in the Converted Savings Bank, which will
be the Holding Company. Voting rights in the Holding Company after the
Conversion will be vested in the holders of the Common Stock.
<PAGE>
Board of Directors
Spring Hill Savings Bank, F.S.B.
SHS Bancorp, Inc.
__________ ___, 1997
Page 5
The Conversion will not interrupt the business of the Savings Bank. The
Converted Savings Bank will continue to engage in the same business as the
Savings Bank immediately prior to the Conversion, and the Converted Savings Bank
will continue to have its savings accounts insured by the SAIF. Each depositor
will retain a withdrawable savings account or accounts equal in dollar amount
to, and on the same terms and conditions as, the withdrawable account or
accounts at the time of Conversion except to the extent funds on deposit are
used to pay for Common Stock purchased in the Conversion. All loans of the
Savings Bank will remain unchanged and retain their same characteristics in the
Converted Savings Bank.
The Plan must be approved by the OTS and by an affirmative vote of at least
a majority of the total votes eligible to be cast at a meeting of the Savings
Bank's members called to vote on the Plan.
Immediately prior to the Conversion, the Savings Bank will have a positive
net worth determined in accordance with generally accepted accounting
principles.
OPINION
-------
Based on the foregoing and in reliance thereon, and subject to the
conditions stated herein, it is our opinion that the following federal income
tax consequences will result from the proposed transaction.
1. The Conversion will constitute a reorganization within the meaning of
Section 368(a)(1)(F) of the Internal Revenue Code of 1986, as amended
(the "Code"), and no gain or loss will be recognized to either the
Savings Bank or the Converted Savings Bank as a result of the
Conversion (see Rev. Rul. 80-105, 1980-1 C.B. 78).
---
2. The assets of the Savings Bank will have the same basis in the hands
of the Converted Savings Bank as in the hands of the Savings Bank
immediately prior to the Conversion (Section 362(b) of the Code).
3. The holding period of the assets of the Savings Bank to be received
by the Converted Savings Bank will include the period during which
the assets were held by the Savings Bank prior to the Conversion
(Section 1223(2) of the Code).
4. No gain or loss will be recognized by the Converted Savings Bank on
the receipt of money from the Holding Company in exchange for shares
of common stock of the Converted Savings Bank (Section 1032(a) of the
Code). The Holding
<PAGE>
Board of Directors
Spring Hill Savings Bank, F.S.B.
SHS Bancorp, Inc.
__________ ___, 1997
Page 6
Company will be transferring solely cash to the Converted Savings
Bank in exchange for all the outstanding capital stock of the
Converted Savings Bank and therefore will not recognize any gain or
loss upon such transfer. (Section 351(a) of the Code; see Rev. Rul.
---
69-357, 1969-1 C.B. 101).
5. No gain or loss will be recognized by the Holding Company upon
receipt of money from stockholders in exchange for shares of Common
Stock (Section 1032(a) of the Code).
6. No gain or loss will be recognized by the Eligible Account Holders
and Supplemental Eligible Account Holders of the Savings Bank upon
the issuance to them of deposit accounts in the Converted Savings
Bank in the same dollar amount and on the same terms and conditions
in exchange for their deposit accounts in the Savings Bank held
immediately prior to the Conversion (Section 1001(a) of the Code;
Treas. Reg. (S)1.1001-1(a)).
7. The tax basis of the Eligible Account Holders' and Supplemental
Eligible Account Holders' savings accounts in the Converted Savings
Bank received as part of the Conversion will equal the tax basis of
such account holders' corresponding deposit accounts in the Savings
Bank surrendered in exchange therefor (Section 1012 of the Code).
8. Gain or loss, if any, will be realized by the deposit account holders
of the Savings Bank upon the constructive receipt of their interest
in the liquidation account of the Converted Savings Bank and on the
nontransferable subscription rights to purchase stock of the Holding
Company in exchange for their proprietary rights in the Savings Bank.
Any such gain will be recognized by the Savings Bank deposit account
holders, but only in an amount not in excess of the fair market value
of the liquidation account and subscription rights received.
(Section 1001 of the Code; Paulsen v. Commissioner, 469 U.S. 131
-----------------------
(1985); Rev. Rul. 69-646, 1969-2 C.B. 54.)
9. The basis of each account holder's interest in the Liquidation
Account received in the Conversion and to be established by the
Converted Savings Bank pursuant to the Conversion will be equal to
the value, if any, of that interest.
10. No gain or loss will be recognized upon the exercise of a
subscription right in the Conversion. (Rev. Rul. 56-572, 1956-2 C.B.
182).
<PAGE>
Board of Directors
Spring Hill Savings Bank, F.S.B.
SHS Bancorp, Inc.
__________ ___, 1997
Page 7
11. The basis of the Common Stock acquired in the Conversion will be
equal to the purchase price of such stock, increased, in the case of
such stock acquired pursuant to the exercise of subscription rights,
by the fair market value, if any, of the subscription rights
exercised (Section 1012 of the Code).
12. The holding period of the Common Stock acquired in the Conversion
pursuant to the exercise of subscription rights will commence on the
date on which the subscription rights are exercised (Section 1223(6)
of the Code). The holding period of the Common Stock acquired in the
Direct Community Offering or Syndicated Community Offering will
commence on the date following the date on which such stock is
purchased (Rev. Rul. 70-598, 1970-2 C.B. 168; Rev. Rul. 66-97, 1966-1
C.B. 190).
SCOPE OF OPINION
----------------
Our opinion is limited to the federal income tax matters described above
and does not address any other federal income tax considerations or any federal,
state, local, foreign or other tax considerations. If any of the information
upon which we have relied is incorrect, or if changes in the relevant facts
occur after the date hereof, our opinion could be affected thereby. Moreover,
our opinion is based on the case law, Code, Treasury Regulations thereunder and
Internal Revenue Service rulings as they now exist. These authorities are all
subject to change, and such change may be made with retroactive effect. We can
give no assurance that, after such change, our opinion would not be different.
We undertake no responsibility to update or supplement our opinion. This
opinion is not binding on the Internal Revenue Service and there can be no
assurance, and none is hereby given, that the Internal Revenue Service will not
take a position contrary to one or more of the positions reflected in the
foregoing opinion, or that our opinion will be upheld by the courts if
challenged by the Internal Revenue Service.
Regarding the valuation of subscription rights, we understand that the
Savings Bank has received the opinion of Feldman Financial Advisors, Inc. dated
June __, 1997 to the effect that the subscription rights have no ascertainable
market value. We express no opinion regarding the valuation of the subscription
rights.
CONSENTS
--------
We hereby consent to the filing of this opinion with the OTS as an exhibit
to the Application H-(e)1-S filed by the Holding Company with the OTS in
connection with the Conversion and the reference to our firm in the Application
H-(e)1-S under Item 110.55 therein.
<PAGE>
Board of Directors
Spring Hill Savings Bank, F.S.B.
SHS Bancorp, Inc.
__________ ___, 1997
Page 8
We also hereby consent to the filing of this opinion with the SEC and the
OTS as exhibits to the Registration Statement and the Savings Bank's Application
for Conversion on Form AC ("Form AC"), respectively, and the reference on our
firm in the Prospectus, which is a part of both the Registration Statement and
the Form AC, under the headings "THE CONVERSION --Effect of Conversion to Stock
Form on Depositors and Borrowers of the Savings Bank -- Tax Effects" and "LEGAL
AND TAX OPINIONS."
Very truly yours,
BREYER & AGUGGIA
<PAGE>
Exhibit 8.3
[FELDMAN FINANCIAL LETTERHEAD APPEARS HERE]
June 27, 1997
Board of Directors
Spring Hill Savings Bank, F.S.B.
112 Federal Street
Pittsburgh, Pennsylvania 15212
Gentlemen:
It is the opinion of Feldman Financial Advisors, Inc., that the subscription
rights to be received by the eligible account holders and other eligible
subscribers of Spring Hill Savings Bank, F.S.B. (the "Bank"), pursuant to the
Plan of Conversion adopted by the Board of Directors of the Bank, do not have
any economic value at the time of distribution or at the time the rights are
exercised in the subscription offering.
Such opinion is based on the fact that the subscription rights are acquired by
the recipients without payment therefor, are nontransferable and of short
duration, and afford the recipients the right only to purchase common stock of
SHS Bancorp, Inc., the holding company formed to acquire all of the capital
stock of the Bank, at a price equal to its estimated pro forma market value,
which will be the same price at which unsubscribed shares will be sold in the
community offering.
Sincerely,
/s/Feldman Financial Advisors, Inc.
- -----------------------------------
Feldman Financial Advisors, Inc.
<PAGE>
Exhibit 10.1
FORM OF EMPLOYMENT AGREEMENT FOR SENIOR OFFICERS
THIS AGREEMENT is made effective as of ________________, 1997, by and
between SPRING HILL SAVINGS BANK, FSB (the "BANK"), SHS BANCORP, INC. (the
"COMPANY"), a Pennsylvania corporation; and _______________________
("EXECUTIVE").
WHEREAS, EXECUTIVE serves in a position of substantial responsibility;
WHEREAS, the BANK wishes to assure itself of the services of EXECUTIVE for
the period provided in this Agreement; and
WHEREAS, EXECUTIVE is willing to serve in the employ of the BANK on a full-
time basis for said period.
NOW, THEREFORE, in consideration of the mutual covenants herein contained,
and upon the other terms and conditions hereinafter provided, the parties hereby
agree as follows:
1. POSITION AND RESPONSIBILITIES.
During the period of his employment hereunder, EXECUTIVE agrees to serve as
_____________________________________ of the BANK. During said period,
EXECUTIVE also agrees to serve, if elected, as an officer and director of the
COMPANY or any subsidiary or affiliate of the COMPANY or the BANK. Executive
shall render administrative and management duties to the BANK such as are
customarily performed by persons situated in a similar executive capacity.
2. TERMS AND DUTIES.
(a) The term of this Agreement shall be deemed to have commenced as of the
date first above written and shall continue for a period of thirty-six (36) full
calendar months thereafter. Commencing on the first anniversary date, and
continuing at each anniversary date thereafter, the Board of Directors of the
BANK (the "Board") may extend the Agreement for an additional year. Prior to
the extension of the Agreement as provided herein, the Board of Directors of the
BANK will conduct a formal performance evaluation of EXECUTIVE for purposes of
determining whether to extend the Agreement, and the results thereof shall be
included in the minutes of the Board's meeting.
(b) During the period of his employment hereunder, except for periods of
absence occasioned by illness, reasonable vacation periods, and reasonable
leaves of absence, EXECUTIVE shall devote substantially all his business time,
attention, skill, and efforts to the faithful performance of his duties
hereunder including activities and services related to the organization,
operation and management of the BANK; provided, however, that, with the approval
of the Board, as evidenced by a resolution of such Board, from time to time,
EXECUTIVE may serve, or continue to serve, on the boards of directors of, and
hold any other offices or positions in, companies or organizations, which, in
such Board's judgment, will not
<PAGE>
present any conflict of interest with the BANK, or materially affect the
performance of EXECUTIVE's duties pursuant to this Agreement.
3. COMPENSATION AND REIMBURSEMENT.
(a) The compensation specified under this Agreement shall constitute the
salary and benefits paid for the duties described in Sections 1 and 2. The BANK
shall pay EXECUTIVE as compensation a salary of $__________________ per year
("Base Salary"). Such Base Salary shall be payable in accordance with the
customary payroll practices of the BANK. During the period of this Agreement,
EXECUTIVE's Base Salary shall be reviewed at least annually; the first such
review will be made no later than one year from the date of this Agreement.
Such review shall be conducted by a Committee designated by the Board, and the
Board may increase EXECUTIVE's Base Salary. In addition to the Base Salary
provided in this Section 3(a), the BANK shall provide EXECUTIVE at no cost to
EXECUTIVE with all such other benefits as are provided uniformly to permanent
full-time employees of the BANK.
(b) The BANK will provide EXECUTIVE with employee benefit plans,
arrangements and perquisites substantially equivalent to those in which
EXECUTIVE was participating or otherwise deriving benefit from immediately prior
to the beginning of the term of this Agreement, and the BANK will not, without
EXECUTIVE's prior written consent, make any changes in such plans, arrangements
or perquisites which would adversely affect EXECUTIVE's rights or benefits
thereunder. Without limiting the generality of the foregoing provisions of this
Subsection (b), EXECUTIVE will be entitled to participate in or receive benefits
under any employee benefit plans including, but not limited to, retirement
plans, supplemental retirement plans, pension plans, profit-sharing plans,
health-and-accident plan, medical coverage or any other employee benefit plan or
arrangement made available by the BANK in the future to its senior executives
and key management employees, subject to, and on a basis consistent with, the
terms, conditions and overall administration of such plans and arrangements.
EXECUTIVE will be entitled to incentive compensation and bonuses as provided in
any plan, or pursuant to any arrangement of the BANK, in which EXECUTIVE is
eligible to participate. Nothing paid to EXECUTIVE under any such plan or
arrangement will be deemed to be in lieu of other compensation to which
EXECUTIVE is entitled under this Agreement, except as provided under Section
5(e).
(c) In addition to the Base Salary provided for by paragraph (a) of this
Section 3, the BANK shall pay or reimburse EXECUTIVE for all reasonable travel
and other obligations under this Agreement and may provide such additional
compensation in such form and such amounts as the Board may from time to time
determine.
4. PAYMENTS TO EXECUTIVE UPON AN EVENT OF TERMINATION.
(a) Upon the occurrence of an Event of Termination (as herein defined)
during EXECUTIVE's term of employment under this Agreement, the provisions of
this Section shall apply. As used in this Agreement, an "Event of Termination"
shall mean and include any one or more of the following: (i) the termination by
the BANK of EXECUTIVE's full-time
2
<PAGE>
employment hereunder for any reason other than a Change in Control, as defined
in Section 5(a) hereof; disability, as defined in Section 6(a) hereof; death;
retirement, as defined in Section 7 hereof; or Termination for Cause, as defined
in Section 8 hereof; (ii) EXECUTIVE's resignation from the BANK's employ, upon
(A) unless consented to by EXECUTIVE, a material change in EXECUTIVE's function,
duties, or responsibilities, which change would cause EXECUTIVE's position to
become one of lesser responsibility, importance, or scope from the position and
attributes thereof described in Sections 1 and 2, above (any such material
change shall be deemed a continuing breach of this Agreement), (B) a relocation
of EXECUTIVE's principal place of employment by more than 35 miles from its
location at the effective date of this Agreement, or a material reduction in the
benefits and perquisites to EXECUTIVE from those being provided as of the
effective date of this Agreement, (C) the liquidation or dissolution of the
BANK, or (D) any breach of this Agreement by the BANK. Upon the occurrence of
any event described in clauses (A), (B), (C) or (D), above, EXECUTIVE shall have
the right to elect to terminate his employment under this Agreement by
resignation upon not less than sixty (60) days prior written notice given within
a reasonable period of time not to exceed, except in case of a continuing
breach, four (4) calendar months after the event giving rise to said right to
elect.
(b) Upon the occurrence of an Event of Termination, the BANK shall pay
EXECUTIVE, or, in the event of his subsequent death, his beneficiary or
beneficiaries, or his estate, as the case may be, as severance pay or liquidated
damages, or both, a sum equal to the payments due to EXECUTIVE for the remaining
term of the Agreement, including Base Salary, bonuses, and any other cash or
deferred compensation paid or to be paid (including the value of employer
contributions that would have been made on EXECUTIVE's behalf over the remaining
term of the agreement to any tax-qualified retirement plan sponsored by the BANK
as of the Date of Termination), to EXECUTIVE for the term of the Agreement
provided, however, that if the BANK is not in compliance with its minimum
capital requirements or if such payments would cause the BANK's capital to be
reduced below its minimum capital requirements, such payments shall be deferred
until such time as the BANK is in capital compliance. All payments made
pursuant to this Section 4(b) shall be paid in substantially equal monthly
installments over the remaining term of this Agreement following EXECUTIVE's
termination; provided, however, that if the remaining term of the Agreement is
less than one (1) year (determined as of EXECUTIVE's Date of Termination), such
payments and benefits shall be paid to EXECUTIVE in a lump sum within thirty
(30) days of the Date of Termination.
(c) Upon the occurrence of an Event of Termination, the BANK will cause to
be continued life, medical, dental and disability coverage substantially
identical to the coverage maintained by the BANK for EXECUTIVE prior to his
termination. Such coverage shall cease upon the expiration of the remaining
term of this Agreement.
5. CHANGE IN CONTROL.
(a) No benefit shall be paid under this Section 5 unless there shall have
occurred a Change in Control of the COMPANY or the BANK. For purposes of this
Agreement, a "Change in Control" of the COMPANY or the BANK shall be deemed to
occur if and when (a) an offeror
3
<PAGE>
other than the Corporation purchases shares of the stock of the Corporation or
the Bank pursuant to a tender or exchange offer for such shares, (b) any person
(as such term is used in Sections 13(d) and 14(d)(2) of the Exchange Act) is or
becomes the beneficial owner, directly or indirectly, of securities of the
Corporation or the Bank representing twenty-five percent (25%) or more of the
combined voting power of the Corporation's or the Bank's then outstanding
securities, (c) the membership of the board of directors of the Corporation or
the Bank changes as the result of a contested election, such that individuals
who were directors at the beginning of any twenty-four (24) month period
(whether commencing before or after the date of adoption of this Agreement) do
not constitute a majority of the Board at the end of such period, or (d)
shareholders of the Corporation or the Bank approve a merger, consolidation,
sale or disposition of all or substantially all of the Corporation's or the
Bank's assets, or a plan of partial or complete liquidation.
(b) If any of the events described in Section 5(a) hereof constituting a
Change in Control have occurred or the Board of the BANK or the COMPANY has
reasonably determined that a Change in Control has occurred, EXECUTIVE shall be
entitled to the benefits provided in paragraphs (c), (d) and (e) of this Section
5 upon his subsequent involuntary termination following the effective date of a
Change in Control (or voluntary termination within twelve (12) months of the
effective date of a Change in Control following any demotion, loss of title,
office or significant authority, reduction in his annual compensation or
benefits (other than a reduction affecting the BANK's personnel generally), or
relocation of his principal place of employment by more than thirty-five (35)
miles from its location immediately prior to the Change in Control), unless such
termination is because of his death, retirement as provided in Section 7,
termination for Cause, or termination for Disability.
(c) Upon the occurrence of a Change in Control followed by EXECUTIVE's
termination of employment, the BANK shall pay EXECUTIVE, or in the event of his
subsequent death, his beneficiary or beneficiaries, or his estate, as the case
may be, as severance pay or liquidated damages, or both, a sum equal to 2.99
times EXECUTIVE's "base amount," within the meaning of (S)280G(b)(3) of the
Internal Revenue Code of 1986 ("Code"), as amended. Such payment shall be made
in a lump sum paid within ten (10) days of EXECUTIVE's Date of Termination.
(d) Upon the occurrence of a Change in Control followed by EXECUTIVE's
termination of employment, the BANK will cause to be continued life, medical,
dental and disability coverage substantially identical to the coverage
maintained by the BANK for EXECUTIVE prior to his severance. In addition,
EXECUTIVE shall be entitled to receive the value of employer contributions that
would have been made on EXECUTIVE's behalf over the remaining term of the
agreement to any tax-qualified retirement plan sponsored by the BANK as of the
Date of Termination. Such coverage and payments shall cease upon the expiration
of thirty-six (36) months.
(e) Upon the occurrence of a Change in Control, EXECUTIVE shall be entitled
to receive benefits due him under, or contributed by the COMPANY or the BANK on
his behalf,
4
<PAGE>
pursuant to any retirement, incentive, profit sharing, bonus, performance,
disability or other employee benefit plan maintained by the BANK or the COMPANY
on EXECUTIVE's behalf to the extent that such benefits are not otherwise paid to
EXECUTIVE upon a Change in Control.
(f) Notwithstanding the preceding paragraphs of this Section 5, in the
event that the aggregate payments or benefits to be made or afforded to
EXECUTIVE under this Section, together with any other payments or benefits
received or to be received by EXECUTIVE in connection with a Change in Control,
would be deemed to include an "excess parachute payment" under (S)280G of the
Code, then, at the election of EXECUTIVE, (i) such payments or benefits shall be
payable or provided to EXECUTIVE over the minimum period necessary to reduce the
present value of such payments or benefits to an amount which is one dollar
($1.00) less than three (3) times EXECUTIVE's "base amount" under (S)280G(b)(3)
of the Code or (ii) the payments or benefits to be provided under this Section 5
shall be reduced to the extent necessary to avoid treatment as an excess
parachute payment with the allocation of the reduction among such payments and
benefits to be determined by EXECUTIVE.
6. TERMINATION FOR DISABILITY.
(a) If EXECUTIVE shall become disabled as defined in the BANK's then
current disability plan (or, if no such plan is then in effect, if EXECUTIVE is
permanently and totally disabled within the meaning of Section 22(e)(3) of the
Code as determined by a physician designated by the Board), the BANK may
terminate EXECUTIVE's employment for "Disability."
(b) Upon EXECUTIVE's termination of employment for Disability, the BANK
will pay EXECUTIVE, as disability pay, a bi-weekly payment equal to three-
quarters (3/4) of EXECUTIVE's bi-weekly rate of Base Salary on the effective
date of such termination. These disability payments shall commence on the
effective date of EXECUTIVE's termination and will end on the earlier of (i) the
date EXECUTIVE returns to the full-time employment of the BANK in the same
capacity as he was employed prior to his termination for Disability and pursuant
to an employment agreement between EXECUTIVE and the BANK; (ii) EXECUTIVE's
full-time employment by another employer; (iii) EXECUTIVE attaining the age of
sixty-five (65); or (iv) EXECUTIVE's death; or (v) the expiration of the term of
this Agreement. The disability pay shall be reduced by the amount, if any, paid
to EXECUTIVE under any plan of the BANK providing disability benefits to
EXECUTIVE.
(c) The BANK will cause to be continued life, medical, dental and
disability coverage substantially identical to the coverage maintained by the
BANK for EXECUTIVE prior to his termination for Disability. This coverage and
payments shall cease upon the earlier of (i) the date EXECUTIVE returns to the
full-time employment of the BANK, in the same capacity as he was employed prior
to his termination for Disability and pursuant to an employment agreement
between EXECUTIVE and the BANK; (ii) EXECUTIVE's full-time employment by another
employer; (iii) EXECUTIVE's attaining the age of sixty-five (65); (iv)
EXECUTIVE's death; or (v) the expiration of the term of this Agreement.
5
<PAGE>
(d) Notwithstanding the foregoing, there will be no reduction in the
compensation otherwise payable to EXECUTIVE during any period during which
EXECUTIVE is incapable of performing his duties hereunder by reason of temporary
disability.
7. TERMINATION UPON RETIREMENT; DEATH OF EXECUTIVE; RESIGNATION
Termination by the BANK of EXECUTIVE based on "Retirement" shall mean
retirement at or after attaining age sixty-five (65) or in accordance with any
retirement arrangement established with EXECUTIVE's consent with respect to him.
Upon termination of EXECUTIVE upon Retirement, EXECUTIVE shall be entitled to
all benefits under any retirement plan of the BANK or the COMPANY and other
plans to which EXECUTIVE is a party. Upon the death of EXECUTIVE during the
term of this Agreement, the BANK shall pay to EXECUTIVE's estate the
compensation due to EXECUTIVE through the last day of the calendar month in
which his death occurred. Upon the voluntary resignation of EXECUTIVE during
the term of this Agreement, the BANK shall pay to EXECUTIVE the compensation due
to EXECUTIVE through his Date of Termination.
8. TERMINATION FOR CAUSE.
For purposes of this Agreement, "Termination for Cause" shall include
termination because of EXECUTIVE's personal dishonesty, incompetence, willful
misconduct, breach of fiduciary duty involving personal profit, intentional
failure to perform stated duties, willful violation of any law, rule, or
regulation (other than traffic violations or similar offenses) or final cease-
and-desist order, or material breach of any provision of this Agreement. For
purposes of this Section, no act, or the failure to act, on EXECUTIVE's part
shall be "willful" unless done, or omitted to be done, not in good faith and
without reasonable belief that the action or omission was in the best interest
of the BANK or its affiliates. Notwithstanding the foregoing, EXECUTIVE shall
not be deemed to have been terminated for Cause unless and until there shall
have been delivered to him a copy of a resolution duly adopted by the
affirmative vote of not less than three-fourths (3/4) of the members of the
Board at a meeting of the Board called and held for that purpose (after
reasonable notice to EXECUTIVE and an opportunity for him, together with
counsel, to be heard before the Board), finding that in the good faith opinion
of the Board, EXECUTIVE was guilty of conduct justifying termination for Cause
and specifying the reasons thereof. EXECUTIVE shall not have the right to
receive compensation or other benefits for any period after termination for
Cause. Any stock options granted to EXECUTIVE under any stock option plan or
any unvested awards granted under any other stock benefit plan of the BANK, the
COMPANY, or any subsidiary or affiliate thereof, shall become null and void
effective upon EXECUTIVE's receipt of Notice of Termination for Cause pursuant
to Section 10 hereof, and shall not be exercisable by EXECUTIVE at any time
subsequent to such Termination for Cause.
9. REQUIRED PROVISIONS.
(a) The BANK may terminate EXECUTIVE's employment at any time, but any
termination by the BANK, other than Termination for Cause, shall not prejudice
EXECUTIVE's
6
<PAGE>
right to compensation or other benefits under this Agreement. EXECUTIVE shall
not have the right to receive compensation or other benefits for any period
after Termination for Cause as defined in Section 8 herein.
(b) If EXECUTIVE is suspended and/or temporarily prohibited from
participating in the conduct of the BANK's affairs by a notice served under
Section 8(e)(3) or (g)(1) of the Federal Deposit Insurance Act ("FDIA") (12
U.S.C. 1818(e)(3) and (g)(1)), the BANK's obligations under the Agreement shall
be suspended as of the date of service, unless stayed by appropriate
proceedings. If the charges in the notice are dismissed, the BANK may, in its
discretion, (i) pay EXECUTIVE all or part of the compensation withheld while its
contract obligations were suspended and (ii) reinstate (in whole or in part) any
of its obligations that were suspended.
(c) If EXECUTIVE is removed and/or permanently prohibited from
participating in the conduct of the BANK's affairs by an order issued under
Section 8(e)(4) or (g)(1) of the FDIA (12 U.S.C. 1818(e)(4) or (g)(1)), all
obligations of the BANK under the Agreement shall terminate as of the effective
date of the order, but vested rights of the contracting parties shall not be
affected.
(d) If the BANK is in default (as defined in Section 3(x)(1) of the FDIA),
all obligations under this Agreement shall terminate as of the date of default,
but this paragraph shall not affect any vested rights of the parties.
(e) All obligations under this Agreement shall be terminated (except to the
extent determined that continuation of the Agreement is necessary for the
continued operation of the BANK): (i) by the Director of the Office of Thrift
Supervision (the "Director") or his designee at the time the Federal Deposit
Insurance Corporation enters into an agreement to provide assistance to or on
behalf of the BANK under the authority contained in Section 13(c) of the FDIA or
(ii) by the Director, or his designee at the time the Director or such designee
approves a supervisory merger to resolve problems related to operation of the
BANK or when the BANK is determined by the Director to be in an unsafe or
unsound condition. Any rights of the parties that have already vested, however,
shall not be affected by such action.
(f) Any payments made to EXECUTIVE pursuant to this Agreement, or
otherwise, are subject to and conditioned upon compliance with 12 U.S.C.
(S)1828(k) and any regulations promulgated thereunder.
10. NOTICE.
(a) Any purported termination by the BANK or by EXECUTIVE shall be
communicated by Notice of Termination to the other party hereto. For purposes
of this Agreement, a "Notice of Termination" shall mean a written notice which
shall indicate the specific termination provision in this Agreement relied upon
and shall set forth in reasonable
7
<PAGE>
detail the facts and circumstances claimed to provide a basis for termination of
EXECUTIVE's employment under the provision so indicated.
(b) "Date of Termination" shall mean (A) if EXECUTIVE's employment is
terminated for Disability, thirty (30) days after a Notice of Termination is
given (provided that he shall not have returned to the performance of his duties
on a full-time basis during such thirty (30) day period), and (B) if his
employment is terminated for any other reason, other than Termination for
Cause, the date specified in the Notice of Termination . In the event of
EXECUTIVE's Termination for Cause, the Date of Termination shall be the same as
the date of the Notice of Termination.
(c) If, within thirty (30) days after any Notice of Termination is given,
the party receiving such Notice of Termination notifies the other party that a
dispute exists concerning the termination, except upon the occurrence of a
Change in Control and voluntary termination by EXECUTIVE in which case the Date
of Termination shall be the date specified in the Notice, the Date of
Termination shall be the date on which the dispute is finally determined, either
by mutual written agreement of the parties, by a binding arbitration award, or
by a final judgment, order or decree of a court of competent jurisdiction (the
time for appeal there from having expired and no appeal having been perfected)
and provided further that the Date of Termination shall be extended by a notice
of dispute only if such notice is given in good faith and the party giving such
notice pursues the resolution of such dispute with reasonable diligence.
Notwithstanding the pendency of any such dispute, the BANK will continue to pay
EXECUTIVE his full compensation in effect when the notice giving rise to the
dispute was given (including, but not limited to, Base Salary) and continue him
as a participant in all compensation, benefit and insurance plans in which he
was participating when the notice of dispute was given, until the dispute is
finally resolved in accordance with this Agreement. Amounts paid under this
Section are in addition to all other amounts due under this Agreement and shall
not be offset against or reduce any other amounts due under this Agreement.
11. NON-COMPETITION.
(a) Upon any termination of EXECUTIVE's employment hereunder pursuant to an
Event of Termination as provided in Section 4 hereof, EXECUTIVE agrees not to
compete with the BANK and/or the COMPANY for a period of one (1) year following
such termination in any city, town or county in which the BANK and/or the
COMPANY has an office or has filed an application for regulatory approval to
establish an office, determined as of the effective date of such termination.
EXECUTIVE agrees that during such period and within said cities, towns and
counties, EXECUTIVE shall not work for or advise, consult or otherwise serve
with, directly or indirectly, any entity whose business materially competes with
the depository, lending or other business activities of the BANK and/or the
COMPANY. The parties hereto, recognizing that irreparable injury will result to
the BANK and/or the COMPANY, its business and property in the event of
EXECUTIVE's breach of this Subsection 11(a) agree that in the event of any such
breach by EXECUTIVE, the BANK and/or the COMPANY will be entitled, in addition
to any other remedies and damages available, to an injunction to restrain the
violation hereof by
8
<PAGE>
EXECUTIVE, EXECUTIVE's partners, agents, servants, employers, employees and all
persons acting for or with EXECUTIVE. EXECUTIVE represents and admits that in
the event of the termination of his employment pursuant to Section 8 hereof,
EXECUTIVE's experience and capabilities are such that EXECUTIVE can obtain
employment in a business engaged in other lines and/or of a different nature
than the BANK and/or the COMPANY, and that the enforcement of a remedy by way of
injunction will not prevent EXECUTIVE from earning a livelihood. Nothing herein
will be construed as prohibiting the BANK and/or the COMPANY from pursuing any
other remedies available to the BANK and/or the COMPANY for such breach or
threatened breach, including the recovery of damages from EXECUTIVE.
(b) EXECUTIVE recognizes and acknowledges that the knowledge of the
business activities and plans for business activities of the BANK and affiliates
thereof, as it may exist from time to time, is a valuable, special and unique
asset of the business of the BANK. EXECUTIVE will not, during or after the term
of his employment, disclose any knowledge of the past, present, planned or
considered business activities of the BANK or affiliates thereof to any person,
firm, corporation, or other entity for any reason or purpose whatsoever.
Notwithstanding the foregoing, EXECUTIVE may disclose any knowledge of banking,
financial and/or economic principles, concepts or ideas which are not solely and
exclusively derived from the business plans and activities of the BANK. In the
event of a breach or threatened breach by EXECUTIVE of the provisions of this
Section, the BANK will be entitled to an injunction restraining EXECUTIVE from
disclosing, in whole or in part, the knowledge of the past, present, planned or
considered business activities of the BANK or affiliates thereof, or from
rendering any services to any person, firm, corporation, other entity to whom
such knowledge, in whole or in part, has been disclosed or is threatened to be
disclosed. Nothing herein will be construed as prohibiting the BANK from
pursuing any other remedies available to the BANK for such breach or threatened
breach, including the recovery of damages from EXECUTIVE.
12. SOURCE OF PAYMENTS.
All payments provided in this Agreement shall be timely paid in cash or
check from the general funds of the BANK. The COMPANY, however, guarantees all
payments and the provision of all amounts and benefits due hereunder to
EXECUTIVE and, if such payments are not timely paid or provided by the BANK,
such amounts and benefits shall be paid or provided by the COMPANY.
13. EFFECT ON PRIOR AGREEMENTS AND EXISTING BENEFITS PLANS.
This Agreement contains the entire understanding between the parties hereto
and supersedes any prior employment agreement between the BANK or any
predecessor of the BANK and EXECUTIVE, except that this Agreement shall not
affect or operate to reduce any benefit or compensation inuring to EXECUTIVE of
a kind elsewhere provided. No provision of this Agreement shall be interpreted
to mean that EXECUTIVE is subject to receiving fewer benefits than those
available to him without reference to this Agreement.
9
<PAGE>
14. NO ATTACHMENT.
(a) Except as required by law, no right to receive payments under this
Agreement shall be subject to anticipation, commutation, alienation, sale,
assignment, encumbrance, charge, pledge, or hypothecation, or to execution,
attachment, levy, or similar process or assignment by operation of law, and any
attempt, voluntary or involuntary, to affect any such action shall be null,
void, and of no effect.
(b) This Agreement shall be binding upon, and inure to the benefit of,
EXECUTIVE, the BANK, the COMPANY and their respective successors and assigns.
15. MODIFICATION AND WAIVER.
(a) This Agreement may not be modified or amended except by an instrument
in writing signed by the parties hereto.
(b) No term or condition of this Agreement shall be deemed to have been
waived, nor shall there by any estoppel against the enforcement of any provision
of this Agreement, except by written instrument of the party charged with such
waiver or estoppel. No such written waiver shall be deemed a continuing waiver
unless specifically stated therein, and each such waiver shall operate only as
to the specific term or condition waived and shall not constitute a waiver of
such term or condition for the future as to any act other than that specifically
waived.
16. SEVERABILITY.
If, for any reason, any provision of this Agreement, or any part of any
provision, is held invalid, such invalidity shall not affect any other provision
of this Agreement or any part of such provision not held so invalid, and each
such other provision and part thereof shall to the full extent consistent with
law continue in full force and effect.
17. HEADINGS FOR REFERENCE ONLY.
The headings of sections and paragraphs herein are included solely for
convenience of reference and shall not control the meaning or interpretation of
any of the provisions of this Agreement.
18. GOVERNING LAW.
This Agreement shall be governed by the laws of the Commonwealth of
Pennsylvania, unless otherwise specified herein; provided, however, that in the
event of a conflict between the terms of this Agreement and any applicable
federal or state law or regulation, the provisions of such law or regulation
shall prevail.
10
<PAGE>
19. ARBITRATION.
Any dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by arbitration, conducted before a panel
of three arbitrators sitting in a location selected by the employee within one
hundred (100) miles from the location of the BANK, in accordance with the rules
of the American Arbitration Association then in effect. Judgment may be entered
on the arbitrator's award in any court having jurisdiction; provided, however,
that EXECUTIVE shall be entitled to seek specific performance of his right to be
paid until the Date of Termination during the pendency of any dispute or
controversy arising under or in connection with this Agreement.
20. PAYMENT OF LEGAL FEES.
All reasonable legal fees paid or incurred by EXECUTIVE pursuant to any
dispute or question of interpretation relating to this Agreement shall be paid
or reimbursed by the BANK, if successful pursuant to a legal judgment,
arbitration or settlement.
21. INDEMNIFICATION.
The BANK shall provide EXECUTIVE (including his heirs, executors and
administrators) with coverage under a standard directors' and officers'
liability insurance policy at its expense, or in lieu thereof, shall indemnify
EXECUTIVE (and his heirs, executors and administrators) to the fullest extent
permitted under law against all expenses and liabilities reasonably incurred by
him in connection with or arising out of any action, suit or proceeding in which
he may be involved by reason of his having been a director or officer of the
BANK (whether or not he continues to be a directors or officer at the time of
incurring such expenses or liabilities), such expenses and liabilities to
include, but not be limited to, judgment, court costs and attorneys' fees and
the cost of reasonable settlements.
22. SUCCESSOR TO THE BANK OR THE COMPANY.
The BANK and the COMPANY shall require any successor or assignee, whether
direct or indirect, by purchase, merger, consolidation or otherwise, to all or
substantially all the business or assets of the BANK or the COMPANY, expressly
and unconditionally to assume and agree to perform the BANK's or the COMPANY's
obligations under this Agreement, in the same manner and to the same extent that
the BANK or the COMPANY would be required to perform if no such succession or
assignment had taken place.
11
<PAGE>
IN WITNESS WHEREOF, the BANK and the COMPANY have caused this Agreement to
be executed and their seal to be affixed hereunto by a duly authorized officer,
and EXECUTIVE has signed this Agreement, all on the ____ day of _____________,
1997.
ATTEST: SPRING HILL SAVINGS
BANK, FSB
_______________________________ BY:_________________________________
[SEAL]
ATTEST: SHS BANCORP, INC.
_______________________________ BY:________________________________
[SEAL]
WITNESS:
_______________________________ ___________________________________
EXECUTIVE
12
<PAGE>
Exhibit 10.2
FORM OF SEVERANCE AGREEMENT FOR KEY OFFICERS
This AGREEMENT is made effective as of ___________________, 1997 by and
between SPRING HILL SAVINGS BANK, FSB (the "BANK"); SHS BANCORP, INC.
("COMPANY"); and ________________ ("EXECUTIVE").
WHEREAS, the BANK recognizes the substantial contribution EXECUTIVE has
made to the BANK and wishes to protect his position therewith for the period
provided in this Agreement in the event of a Change in Control (as defined
herein); and
WHEREAS, EXECUTIVE serves in the position of ________________________,
positions of substantial responsibility;
NOW, THEREFORE, in consideration of the foregoing and upon the other terms
and conditions hereinafter provided, the parties hereto agree as follows:
1. Term Of Agreement
The term of this Agreement shall be deemed to have commenced as of the date
first above written and shall continue for a period of _________________ (__)
full calendar months thereafter. Commencing on the first anniversary date of
this Agreement and continuing at each anniversary date thereafter, the Board of
Directors of the BANK ("Board") may extend the Agreement for an additional year.
The Board will conduct a performance evaluation of EXECUTIVE for purposes of
determining whether to extend the Agreement, and the results thereof shall be
included in the minutes of the Board's meeting.
2. Payments To EXECUTIVE Upon Change In Control.
(a) Upon the occurrence of a Change in Control (as herein defined) followed
within twelve (12) months of the effective date of the Change in Control by the
voluntary or involuntary termination of EXECUTIVE's employment, other than for
Cause, as defined in Section 2(c) hereof, the provisions of Section 3 shall
apply. For purposes of this Agreement, "voluntary termination" shall be limited
to the circumstances in which EXECUTIVE elects to voluntarily terminate his
employment within twelve (12) months of the effective date of a Change in
Control following any demotion, loss of title, office or significant authority,
reduction in his annual compensation or benefits (other than a reduction
affecting the Bank's personnel generally), or relocation of his principal place
of employment by more than 35 miles from its location immediately prior to the
Change in Control.
(b) A "Change in Control" of the COMPANY or the BANK shall be deemed to
occur if and when (a) an offeror other than the Corporation purchases shares of
the stock of the Corporation or the Bank pursuant to a tender or exchange offer
for such shares, (b) any person (as such term is used in Sections 13(d) and
14(d)(2) of the Exchange Act) is or becomes the beneficial owner, directly or
indirectly, of securities of the Corporation or the Bank representing twenty-
five percent (25%) or more of the combined voting power of the Corporation's or
the Bank's then outstanding securities, (c) the membership of the board of
directors of the
<PAGE>
Corporation or the Bank changes as the result of a contested election, such that
individuals who were directors at the beginning of any twenty-four (24) month
period (whether commencing before or after the date of adoption of this
Agreement) do not constitute a majority of the Board at the end of such period,
or (d) shareholders of the Corporation or the Bank approve a merger,
consolidation, sale or disposition of all or substantially all of the
Corporation's or the Bank's assets, or a plan of partial or complete
liquidation.
(c) EXECUTIVE shall not have the right to receive termination benefits
pursuant to Section 3 hereof upon Termination for Cause. The term "Termination
for Cause" shall mean termination because of EXECUTIVE's intentional failure to
perform stated duties, personal dishonesty, incompetence, willful misconduct,
any breach of fiduciary duty involving personal profit, willful violation of any
law, rule, regulation (other than traffic violations or similar offenses) or
final cease and desist order, or any material breach of any material provision
of this Agreement. In determining incompetence, the acts or omissions shall be
measured against standards generally prevailing in the savings institution
industry. Notwithstanding the foregoing, EXECUTIVE shall not be deemed to have
been terminated for Cause unless and until there shall have been delivered to
him a copy of a resolution duly adopted by the affirmative vote of not less than
three-fourths of the members of the Board at a meeting of the Board called and
held for that purpose (after reasonable notice to EXECUTIVE and an opportunity
for him, together with counsel, to be heard before the Board), finding that in
the good faith opinion of the Board, EXECUTIVE was guilty of conduct justifying
Termination for Cause and specifying the particulars thereof in detail.
EXECUTIVE shall not have the right to receive compensation or other benefits for
any period after Termination for Cause.
3. Termination
(a) Upon the occurrence of a Change in Control, followed within twelve (12)
months of the effective date of a Change in Control by the voluntary or
involuntary termination of EXECUTIVE's employment other than Termination for
Cause, the BANK shall be obligated to pay EXECUTIVE, or in the event of his
subsequent death, his beneficiary or beneficiaries, or his estate, as the case
may be, as severance pay, a sum equal to _______________________ times
EXECUTIVE's "annual compensation" as defined herein. For purposes of this
Agreement, "annual compensation" shall mean and include all wages, salary,
bonus, and other compensation, if any, paid (including accrued amounts) by the
Company or the Bank as consideration for the Participant's service during the
twelve (12) month period ending on the last day of the month preceding the
effective date of a Change in Control, which is or would be includable in the
gross income of the Participant receiving the same for federal income tax
purposes. Such amount shall be paid to EXECUTIVE in a lump sum no later than
thirty (30) days after the date of his termination.
(b) Upon the occurrence of a Change in Control of the BANK followed within
twelve (12) months of the effective date of a Change in Control by EXECUTIVE's
voluntary or involuntary termination of employment, other than Termination for
Cause, the BANK shall cause to be continued life, medical, dental and disability
coverage substantially identical to the coverage
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maintained by the BANK for EXECUTIVE prior to his severance. Such coverage and
payments shall cease upon expiration of _______________________ (___) months
from the date of EXECUTIVE's termination.
(c) Notwithstanding the preceding paragraphs of this Section 3, in the
event that the aggregate payments or benefits to be made or afforded to
EXECUTIVE under this Section, together with any other payments or benefits
received or to be received by EXECUTIVE in connection with a Change in Control,
would be deemed to include an "excess parachute payment" under (S)280G of the
Code, then, at the election of EXECUTIVE, (i) such payments or benefits shall be
payable or provided to EXECUTIVE over the minimum period necessary to reduce the
present value of such payments or benefits to an amount which is one dollar
($1.00) less than three (3) times EXECUTIVE's "base amount" under (S)280G(b)(3)
of the Code or (ii) the payments or benefits to be provided under this Section 3
shall be reduced to the extent necessary to avoid treatment as an excess
parachute payment with the allocation of the reduction among such payments and
benefits to be determined by EXECUTIVE.
(d) Any payments made to EXECUTIVE pursuant to this Agreement, or
otherwise, are subject to and conditioned upon compliance with 12 U.S.C.
(S)1828(k) and any regulations promulgated thereunder.
4. Effect On Prior Agreements And Existing Benefit Plans
This Agreement contains the entire understanding between the parties hereto
and supersedes any prior agreement between the BANK and EXECUTIVE, except that
this Agreement shall not affect or operate to reduce any benefit or compensation
inuring to EXECUTIVE of a kind elsewhere provided. No provision of this
Agreement shall be interpreted to mean that EXECUTIVE is subject to receiving
fewer benefits than those available to him without reference to this Agreement.
5. No Attachment
(a) Except as required by law, no right to receive payments under this
Agreement shall be subject to anticipation, commutation, alienation, sale,
assignment, encumbrance, charge, pledge, or hypothecation, or to execution,
attachment, levy, or similar process or assignment by operation of law, and any
attempt, voluntary or involuntary, to affect any such action shall be null,
void, and of no effect.
(b) This Agreement shall be binding upon, and inure to the benefit of,
EXECUTIVE, the COMPANY, the BANK and their respective successors and assigns.
6. Modification And Waiver
(a) This Agreement may not be modified or amended except by an instrument
in writing signed by the parties hereto.
3
<PAGE>
(b) No term or condition of this Agreement shall be deemed to have been
waived, nor shall there by an estoppel against the enforcement of any provision
of this Agreement, except by written instrument of the party charged with such
waiver or estoppel. No such written waiver shall be deemed a continuing waiver
unless specifically stated therein, and each such waiver shall operate only as
to the specific term or condition waived and shall not constitute a waiver of
such term or condition for the future or as to any act other than that
specifically waived.
7. Required Provisions
(a) The BANK may terminate EXECUTIVE's employment at any time, but any
termination by the BANK, other than Termination for Cause, shall not prejudice
EXECUTIVE's right to compensation or other benefits under this Agreement.
EXECUTIVE shall not have the right to receive compensation or other benefits for
any period after Termination for Cause as defined in Section 2(c) herein.
(b) If EXECUTIVE is suspended and/or temporarily prohibited from
participating in the conduct of the BANK's affairs by a notice served under
Section 8(e)(3) or (g)(1) of the Federal Deposit Insurance Act ("FDIA") (12
U.S.C. 1818(e)(3) and (g)(1)), the BANK's obligations under the Agreement shall
be suspended as of the date of service, unless stayed by appropriate
proceedings. If the charges in the notice are dismissed, the BANK may, in its
discretion, (i) pay EXECUTIVE all or part of the compensation withheld while its
contract obligations were suspended and (ii) reinstate (in whole or in part) any
of its obligations that were suspended.
(c) If EXECUTIVE is removed and/or permanently prohibited from
participating in the conduct of the BANK's affairs by an order issued under
Section 8(e)(4) or (g)(1) of the FDIA (12 U.S.C. 1818(e)(4) or (g)(1)), all
obligations of the BANK under the Agreement shall terminate as of the effective
date of the order, but vested rights of the contracting parties shall not be
affected.
(d) If the BANK is in default (as defined in Section 3(x)(1) of the FDIA),
all obligations under this Agreement shall terminate as of the date of default,
but this paragraph shall not affect any vested rights of the parties.
(e) All obligations under this Agreement may be terminated: (i) by the
Director of the Office of Thrift Supervision (the "Director") or his or her
designee at the time the Federal Deposit Insurance Corporation enters into an
agreement to provide assistance to or on behalf of the BANK under the authority
contained in Section 13(c) of the FDIA 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. Any rights
of the parties that have already vested, however, shall not be affected by such
action.
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8. Severability
If, for any reason, any provision of this Agreement, or any part of any
provision, is held invalid, such invalidity shall not affect any other provision
of this Agreement or any part of such provision not held so invalid, and each
such other provision and part thereof shall to the full extent consistent with
law continue in full force and effect.
9. Headings For Reference Only
The headings of sections and paragraphs herein are included solely for
convenience of reference and shall not control the meaning or interpretation of
any of the provisions of this Agreement.
10. Governing Law
The validity, interpretation, performance, and enforcement of this
Agreement shall be governed by the laws of the Commonwealth of Pennsylvania,
unless preempted by Federal law as now or hereafter in effect. In the event
that any provision of this Agreement conflicts with 12 C.F.R. Section 563.39(b),
the latter provision shall prevail.
Any dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by arbitration, conducted before a panel
of three arbitrators sitting in a location selected by the employee within fifty
(50) miles from the location of the BANK, in accordance with the rules of the
American Arbitration Association then in effect.
11. Source of Payments
All payments provided in this Agreement shall be timely paid in cash or
check from the general funds of the BANK. The COMPANY, however, guarantees all
payments and the provision of all amounts and benefits due hereunder to
EXECUTIVE and, if such payments are not timely paid or provided by the BANK,
such amounts and benefits shall be paid or provided by the COMPANY.
12. Payment Of Legal Fees
All reasonable legal fees paid or incurred by EXECUTIVE pursuant to any
dispute or question of interpretation relating to this Agreement shall be paid
or reimbursed by the BANK if EXECUTIVE is successful on the merits pursuant to a
legal judgment, arbitration or settlement.
13. Successor To The BANK or the COMPANY
The BANK and the COMPANY shall require any successor or assignee, whether
direct or indirect, by purchase, merger, consolidation or otherwise, to all or
substantially all the business or assets of the BANK or the COMPANY, expressly
and unconditionally to assume and agree to perform the BANK's or the COMPANY's
obligations under this Agreement, in the same manner and to the same extent that
the BANK or the COMPANY would be required to perform if no such succession or
assignment had taken place.
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<PAGE>
14. Signatures
IN WITNESS WHEREOF, the BANK and the COMPANY have caused this Agreement to
be executed and their seal to be affixed hereunto by a duly authorized officer,
and EXECUTIVE has signed this Agreement, all on the ____ day of _____________,
1997.
ATTEST: SPRING HILL SAVINGS BANK, FSB
_______________________________ BY:_________________________________
[SEAL]
ATTEST: SHS BANCORP, INC.
_______________________________ BY:________________________________
[SEAL]
WITNESS:
_______________________________ ___________________________________
EXECUTIVE
6
<PAGE>
Exhibit 10.3
FORM OF THE
SPRING HILL SAVINGS BANK, FSB
EMPLOYEE SEVERANCE COMPENSATION PLAN
PLAN PURPOSE
The purpose of this Spring Hill Savings Bank, FSB Employee Severance
Compensation Plan is to assure the services of Employees of the Savings Bank in
the event of a Change in Control. The benefits contemplated by the Plan
recognize the value to the Savings Bank of the services and contributions of the
Employees of the Savings Bank and the effect upon the Savings Bank resulting
from the uncertainties of continued employment, reduced employee benefits,
management changes and relocations that may arise in the event of a Change in
Control. The Board of Directors believes that the Plan will also aid the
Savings Bank in attracting and retaining the highly qualified individuals who
are essential to its success and that the Plan's assurance of fair treatment of
the Savings Bank's Employees will reduce the distractions and other adverse
effects on Employees' performance in the event of a Change in Control.
ARTICLE I
ESTABLISHMENT OF PLAN
1.1 Establishment of Plan
---------------------
As of the Effective Date of the Plan as defined herein, the Savings Bank
hereby establishes an employee severance compensation plan to be known as the
"Spring Hill Savings Bank, FSB Employee Severance Compensation Plan." The
purposes of the Plan are as set forth above.
1.2 Application of Plan
-------------------
The benefits provided by this Plan shall be available to all Employees of
the Savings Bank, who, at or after the Effective Date, meet the eligibility
requirements of Article III, except for those officers of the Savings Bank who
have entered into, or who enter into in the future, and continue to be subject
to, an employment or change in control agreement with the Employer.
1.3 Contractual Right to Benefits
-----------------------------
This plan establishes and vests in each Participant a contractual right to
the benefits to which each Participant is entitled hereunder in the event of a
Change in Control, enforceable by the Participant against the Employer, the
Savings Bank, or both. The Plan does not provide, and should not be construed
as providing, benefits of any kind to any Employee, except in the event of a
Change in Control and, in the event of a Change in Control, only upon the
involuntary or voluntary termination of an Employee in the manner contemplated
herein.
<PAGE>
ARTICLE II
DEFINITIONS AND CONSTRUCTION
2.1 Definitions
-----------
Whenever used in the Plan, the following terms shall have the meanings set
forth below.
"Annual Compensation" of a Participant means and includes all wages,
salary, bonus, and cash compensation, if any, paid (including accrued amounts)
by an Employer as consideration for the Participant's service during the twelve
(12) month period ending on the last day of the month preceding the date of a
Participant's termination pursuant to Section 4.2, which is or would be
includable in the gross income of the Participant receiving the same for federal
income tax purposes.
"Board" means the Board of Directors of the Savings Bank.
"Change in Control" shall mean an event deemed to occur if and when (a)
there occurs a change in control of the Savings Bank or the Company within the
meaning of the Home Owners Loan Act of 1933 and 12 C.F.R. Part 574, (b) any
person (as such term is used in Sections 13(d) and 14(d)(2) of the Exchange Act)
is or becomes the beneficial owner, directly or indirectly, of securities of the
Company or the Savings Bank representing twenty-five percent (25%) or more of
the combined voting power of the Company's or the Savings Bank's then
outstanding securities, (c) the membership of the board of directors of the
Company or the Savings Bank changes as the result of a contested election, such
that individuals who were directors at the beginning of any twenty-four (24)
month period (whether commencing before or after the date of adoption of this
Plan) do not constitute a majority of the Board at the end of such period, or
(d) shareholders of the Company or the Savings Bank approve a merger,
consolidation, sale or disposition of all or substantially all of the Company's
or the Savings Bank's assets, or a plan of partial or complete liquidation. If
any of the events enumerated in clauses (a) - (d) occur, the Board shall
determine the effective date of the change in control resulting therefrom, for
purposes of the Plan.
"Company" means SHS Bancorp, Inc., a Pennsylvania corporation, the holding
company of the Savings Bank.
"Disability" means the permanent and total inability by reason of mental or
physical infirmity, or both, of an employee to perform the work customarily
assigned to him. Additionally, a medical doctor selected or approved by the
Board of Directors must advise the Board that it is either not possible to
determine if or when such Disability will terminate or that it appears probable
that such Disability will be permanent during the remainder of
said employees lifetime.
"Effective Date" means the date the Plan is approved by the Board of
Directors of the Savings Bank, or such other date as the Board shall designate
in its resolution approving the Plan.
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"Employee" means any employee of the Savings Bank or another Employer who
has completed at least one year of service with the Savings Bank; provided,
however, that any Employee who is covered or hereinafter becomes covered by an
employment agreement or change in control agreement with an Employer shall not
be considered to be an Employee for purposes of this Plan.
"Employer" means (i) the Savings Bank or (ii) a subsidiary of the Savings
Bank or a parent company of the Savings Bank which has adopted the plan pursuant
to Article VI hereof.
"Expiration Date" means a date ten (10) years from the Effective Date
unless earlier terminated pursuant to Section 8.2 or extended pursuant to
Section 8.1.
"Just Cause" shall means termination because of Participant's personal
dishonesty, incompetence, willful misconduct, any breach of fiduciary duty
involving personal profit, intentional failure to perform stated duties, willful
violation of any law, rule or regulation (other than traffic violations or other
similar offenses) or any final cease-and desist order.
"Payment" means the payment of severance compensation as provided in
Article IV hereof.
"Participant" means an Employee who meets the eligibility requirements of
Article III.
"Plan" means this Spring Hill Savings Bank, FSB Employee Severance
Compensation Plan.
"Savings Bank" means Spring Hill Savings Bank, FSB or any successor as
provided for in Article VII hereof.
2.2 Applicable Law
--------------
The laws of the Commonwealth of Pennsylvania shall be controlling law in
all matters relating to the Plan to the extent not preempted by Federal law.
2.3 Severability
------------
If a provision of this Plan shall be held illegal or invalid, the
illegality or invalidity shall not affect the remaining parts of the Plan and
the Plan shall be construed and enforced as if the illegal or invalid provision
had not been included.
3
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ARTICLE III
ELIGIBILITY
3.1 Participation
-------------
The term "Participant" shall include all Employees of an Employer who have
completed at least one (1) year of service with the Employer at the time of any
termination pursuant to Section 4.2 herein. Notwithstanding the foregoing,
persons who have entered into and continue to be covered by an individual
employment contract or change in control agreement with an Employer shall not be
entitled to participate in this Plan.
3.2 Duration of Participation
-------------------------
A Participant shall cease to be a Participant in the Plan when the
Participant ceases to be an Employee of an Employer, unless such Participant is
entitled to a Payment as provided in the Plan. A Participant entitled to
receipt of a Payment shall remain a Participant in this Plan until the full
amount of such Payment has been paid to the Participant.
ARTICLE IV
PAYMENTS
4.1 Right to Payment
----------------
A Participant shall be entitled to receive from his or her Employer a
Payment in the amount provided in Section 4.3 if a Change in Control occurs and
if, within one (1) year thereafter, the Participant's employment by an Employer
shall terminate for any reason specified in Section 4.2. A Participant shall
not be entitled to a Payment if termination occurs by reason of death, voluntary
retirement, voluntary termination other than for the reasons specified in
Section 4.2, Disability or for Just Cause.
4.2 Reasons for Termination
-----------------------
Following a Change in Control, a Participant shall be entitled to a Payment
in accordance with Section 4.3 if employment by an Employer is terminated,
voluntary or involuntary, for any one or more of the following reasons:
(a) The Employer reduces the Participant's base salary or rate of
compensation as in effect immediately prior to the Change in Control, or as the
same may have been increased thereafter.
(b) The Employer materially changes Participant's function, duties or
responsibilities which would cause the Participant's position to be one of
lesser responsibility, importance or scope with the Employer than immediately
prior to the Change in Control.
4
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(c) The Employer requires the Participant to change the location of
the Participant's job or office, so that such Participant will be based at a
location more than thirty-five (35) miles from the location of the Participant's
job or office immediately prior to the Change in Control provided that such new
location is not closer to Participant's home.
(d) The Employer materially reduces the benefits and perquisites
available to the Participant immediately prior to the Change in Control;
provided, however, that a material reduction in benefits and perquisites
generally provided to all Employees of the Savings Bank on a nondiscriminatory
basis shall not trigger a Payment pursuant to this Plan.
(e) A successor to the Employer fails or refuses to assume the
Employer's obligations under this Plan, as required by Article VII.
(f) The Employer, or any successor to the Employer, breaches any
other provisions of this Plan.
(g) The Employer terminates the employment of a Participant at or
after a Change in Control other than for Just Cause.
4.3 Amount of Payment
-----------------
(a) Each Participant (other than a Participant entitled to a benefit
under any other provision of the Plan) with at least three (3) years of service
with the Employer entitled to a Payment under this Plan shall receive from the
Employer a lump sum cash payment equal to one twenty-sixth (1/26) of Annual
Compensation for each year of service up to a maximum of 100% of Annual
Compensation.
(b) Each Participant (other than a Participant entitled to a benefit
under any other provision of this Plan) with less than three (3) years of
service shall receive from the Employer a lump sum cash payment equal to one
twenty-sixth (1/26) of Annual Compensation.
(c) The Participant shall not be required to mitigate damages on the
amount of the Payment by seeking other employment or otherwise, nor shall the
amount of such Payment be reduced by any compensation earned by the Participant
as a result of employment after termination of employment hereunder.
4.4 Time of Payment
---------------
The Payment to which a Participant is entitled shall be paid to the
Participant by the Employer or the successor to the Employer, in cash and in
full, not later than thirty (30) business days after the termination of the
Participant's employment. If any Participant should die after termination of
the employment but before all amounts have been paid, such unpaid amounts shall
5
<PAGE>
be paid to the Participant's named beneficiary, if living, otherwise to the
personal representative of behalf of or for the benefit of the Participant's
estate.
4.5 Suspension of Payment
---------------------
Notwithstanding the foregoing, no payments or portions thereof shall be
made under this Plan, if such payment or portion would result in the Savings
Bank failing to meet its minimum regulatory capital requirements as required by
12 C.F.R. (S)567.2. Any payments or portions thereof not paid shall be
suspended until such time as their payment would not result in a failure to meet
the Savings Bank's minimum regulatory capital requirements. Any portion of
benefit payments which have not been suspended will be paid on an equitable
basis, pro rata based upon amounts due each Participant, among all eligible
Participants.
ARTICLE V
OTHER RIGHTS AND BENEFITS NOT AFFECTED
5.1 Other Benefits
--------------
Neither the provisions of this Plan nor the Payment provided for hereunder
shall reduce any amounts otherwise payable, or in any way diminish the
Participant's rights as an Employee of an Employer, whether existing now or
hereafter, under any benefit, incentive, retirement, stock option, stock bonus,
stock ownership or any employment agreement or other plan or arrangement.
5.2 Employment Status
-----------------
This Plan does not constitute a contract of employment or impose on the
Participant's Employer any obligation to retain the Participant, to maintain the
status of the Participant's employment, or to change the Employer's policies
regarding termination of employment.
ARTICLE VI
PARTICIPATING EMPLOYERS
6.1 Upon approval by the Board of Directors of the Savings Bank, this
Plan may be adopted by any subsidiary of the Savings Bank or by the Company.
Upon such adoption, the subsidiary or the Company shall become an Employer
hereunder and the provisions of the Plan shall be fully applicable to the
Employees of that subsidiary or the Company. The term "subsidiary" means any
corporation in which the Savings Bank, directly or indirectly, holds a majority
of the voting power of its outstanding shares of capital stock.
ARTICLE VII
SUCCESSOR TO THE SAVINGS BANK
7.1 The Savings Bank shall require any successor or assignee, whether
direct or indirect, by purchase, merger, consolidation or otherwise, to all or
substantially all the business
6
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or assets of the Savings Bank, expressly and unconditionally to assume and agree
to perform the Savings Bank's obligations under this plan, in the same manner
and to the same extent that the Savings Bank would be required to perform if no
such succession or assignment had taken place.
ARTICLE VIII
DURATION, AMENDMENT AND TERMINATION
8.1 Duration
--------
If a Change in Control has not occurred, this Plan shall expire as of the
Expiration Date, unless sooner terminated as provided in Section 8.2, or unless
extended for an additional period or periods by resolution adopted by the Board
of Directors of the Savings Bank.
Notwithstanding the foregoing, if a Change in Control occurs this Plan
shall continue in full force and effect, and shall not terminate or expire until
such date as all Participants who become entitled to Payments hereunder shall
have received such Payments in full.
8.2 Amendment and Termination
-------------------------
The Plan may be terminated or amended in any respect by resolution adopted
by a majority of the Board of Directors of the Savings Bank, unless a Change in
Control has previously occurred. If a Change in Control occurs, the Plan no
longer shall be subject to amendment, change, substitution, deletion, revocation
or termination in any respect whatsoever.
8.3 Form of Amendment
-----------------
The form of any proper amendment or termination of the Plan shall be a
written instrument signed by a duly authorized officer or officers of the
Savings Bank, certifying that the amendment or termination has been approved by
the Board of Directors. A proper termination of the Plan automatically shall
effect a termination of all Participants' rights and benefits hereunder.
8.4 No Attachment
-------------
(a) Except as required by law, no right to receive payments under this Plan
shall be subject to anticipation, commutation, alienation, sale, assignment,
encumbrance, charge, pledge, or hypothecation, or to execution, attachment,
levy, or similar process or assignment by operation of law, and any attempt,
voluntary or involuntary, to affect such action shall be null, void, and of no
effect.
(b) This Plan shall be binding upon, and inure to the benefit of, each
Employee, the Employer and their respective successors and assigns.
7
<PAGE>
ARTICLE IX
LEGAL FEES AND EXPENSES
9.1 All reasonable legal fees and other expenses paid or incurred by a
party hereto pursuant to any dispute or question of interpretation relating to
this Plan shall be paid or reimbursed by the prevailing party in any legal
judgment, arbitration or settlement.
ARTICLE X
REQUIRED PROVISIONS
10.1 The Savings Bank may terminate the Employee's employment at any time,
but any termination by the Savings Bank, other than Termination for Cause, shall
not prejudice Employee's right to compensation or other benefits under this
Agreement if the Employee is otherwise entitled to a benefit. Employee shall
not have the right to receive compensation or other benefits for any period
after termination for Just Cause as defined in Section 2.1 hereinabove.
10.2 If the Employee is suspended and/or temporarily prohibited from
participating in the conduct of the Savings Bank's affairs by a notice served
under Section 8(e)(3) or 8(g)(1) of the Federal Deposit Insurance Act, 12 U.S.C.
(S)1818(e)(3) or (g)(1), the Savings Bank's obligations under this Plan to such
Employee shall be suspended as of the date of service, unless stated by
appropriate proceedings. If the charges in the notice are dismissed, the
Savings Bank may in its discretion (i) pay the Employee all or part of the
compensation withheld while their contract obligations were suspended and (ii)
reinstate (in whole or in part) any of the obligation which were suspended.
10.3 If the Employee is removed and/or permanently prohibited from
participating in the conduct of the Savings Bank's affairs by an order issued
under Section 8(e)(4) or 8(g)(1) of the Federal Deposit Insurance Act, 12 U.S.C.
(S)1818(e)(4) or (g)(1), all obligations of the Savings Bank under this Plan to
the Employee shall terminate as of the effective date of the order, but vested
rights of the contracting parties shall not be affected.
10.4 If the Savings Bank is in default as defined in Section 3(x)(1) of
the Federal Deposit Insurance Act, 12 U.S.C. (S)1818(x)(1), all obligations of
the Savings Bank under this Plan shall terminate as of the date of default, but
this paragraph shall not affect any vested rights of the contracting parties.
10.5 All obligations of the Savings Bank under this contract shall be
terminated, except to the extent determined that continuation of the contract is
necessary for the continued operation of the institution, (i) by the Director of
the OTS (or his designee) or (ii) the Federal Deposit Insurance Corporation
("FDIC") at the time FDIC enters into an agreement to provide assistance to or
on behalf of the Savings Bank under the authority contained in Section 13(c) of
the Federal Deposits Insurance Act, 12 U.S.C. (S)1823(c); or (ii) by the
Director of the OTS (or his designee) at the time the Director (or his designee)
approves a supervisory merger to resolve problems
8
<PAGE>
related to the operations of the Savings Bank or when the Savings Bank is
determined by the Director to be in an unsafe or unsound condition. Any rights
of the parties that have already vested, however, shall not be affected by such
action.
10.6 Any payments made to an Employee pursuant to this Plan or otherwise
shall be conditioned upon compliance under 12 U.S.C. (S)1828(k) and any
regulations promulgated thereunder.
Having been adopted by its Board of Directors on ___________, 1997, this
Plan is executed by duly authorized officer of the Savings Bank this ______ day
of __________________, 1997.
Attest
______________________________ _________________________________
Secretary
9
<PAGE>
Exhibit 10.4
SPRING HILL SAVINGS BANK, FSB
EMPLOYEE STOCK OWNERSHIP PLAN
Effective as of July 1, 1997
<PAGE>
SPRING HILL SAVINGS BANK, FSB
EMPLOYEE STOCK OWNERSHIP PLAN
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
PREAMBLE............................................................... 1
ARTICLE I
DEFINITION OF TERMS AND CONSTRUCTION
1.1 Definitions........................................................ 2
1.2 Plurals and Gender................................................. 7
1.3 Incorporation of Trust Agreement................................... 7
1.4 Headings........................................................... 7
1.5 Severability....................................................... 8
1.6 References to Governmental Regulations............................. 8
ARTICLE II
PARTICIPATION
2.1 Commencement of Participation...................................... 9
2.2 Termination of Participation....................................... 9
2.3 Resumption of Participation........................................ 9
2.4 Determination of Eligibility...................................... 10
ARTICLE III
CREDITED SERVICE
3.1 Service Counted for Eligibility Purposes.......................... 11
3.2 Service Counted for Vesting Purposes.............................. 11
3.3 Credit for Pre-Break Service...................................... 11
3.4 Service Credit During Authorized Leaves........................... 11
3.5 Service Credit During Maternity or Paternity Leave................ 12
3.6 Ineligible Employees.............................................. 12
ARTICLE IV
CONTRIBUTIONS
4.1 Employee Stock Ownership Contributions............................ 13
4.2 Time and Manner of Employee Stock Ownership Contributions......... 13
</TABLE>
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<TABLE>
<CAPTION>
<S> <C>
4.3 Records of Contributions.......................................... 14
4.4 Erroneous Contributions........................................... 14
ARTICLE V
ACCOUNTS, ALLOCATIONS AND INVESTMENTS
5.1 Establishment of Separate Participant Accounts.................... 15
5.2 Establishment of Suspense Account................................. 15
5.3 Allocation of Earnings, Losses and Expenses....................... 16
5.4 Allocation of Forfeitures......................................... 16
5.5 Allocation of Annual Employee Stock Ownership Contributions....... 16
5.6 Limitation on Annual Additions.................................... 17
5.7 Erroneous Allocations............................................. 20
5.8 Value of Participant's Interest in Fund........................... 21
5.9 Investment of Account Balances.................................... 21
ARTICLE VI
RETIREMENT, DEATH AND DESIGNATION OF BENEFICIARY
6.1 Normal Retirement................................................. 22
6.2 Early Retirement.................................................. 22
6.3 Disability Retirement............................................. 22
6.4 Death Benefits.................................................... 22
6.5 Designation of Death Beneficiary and Manner of Payment............ 23
ARTICLE VII
VESTING AND FORFEITURES
7.1 Vesting on Death, Disability, Retirement, Change in Control....... 24
7.2 Vesting on Termination of Participation........................... 24
7.3 Disposition of Forfeitures........................................ 25
ARTICLE VIII
EMPLOYEE STOCK OWNERSHIP RULES
8.1 Right to Demand Employer Securities............................... 26
8.2 Voting Rights..................................................... 26
8.3 Nondiscrimination in Employee Stock Ownership Contributions....... 26
8.4 Dividends......................................................... 27
8.5 Exempt Loans...................................................... 27
8.6 Exempt Loan Payments.............................................. 28
8.7 Put Option........................................................ 29
8.8 Diversification Requirements...................................... 30
</TABLE>
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<TABLE>
<CAPTION>
<S> <C>
8.9 Independent Appraiser............................................. 30
8.10 Limitation on Allocation.......................................... 30
ARTICLE IX
PAYMENTS AND DISTRIBUTIONS
9.1 Payments on Termination of Service -- In General.................. 32
9.2 Commencement of Payments.......................................... 32
9.3 Mandatory Commencement of Benefits................................ 32
9.4 Required Beginning Date........................................... 35
9.5 Form of Payment................................................... 35
9.6 Payments Upon Termination of Plan................................. 35
9.7 Distribution Pursuant to Qualified Domestic Relations Orders...... 36
9.8 Cash-Out Distributions............................................ 36
9.9 ESOP Distribution Rule............................................ 37
9.10 Withholding...................................................... 37
9.11 Waiver of 30-day Notice.......................................... 38
ARTICLE X
PROVISIONS RELATING TO TOP-HEAVY PLANS
10.1 Top-Heavy Rules to Control....................................... 39
10.2 Top-Heavy Plan Definitions....................................... 39
10.3 Calculation of Accrued Benefits.................................. 41
10.4 Determination of Top-Heavy Status................................ 42
10.5 Determination of Super Top-Heavy Status.......................... 43
10.6 Minimum Contribution............................................. 43
10.7 Maximum Benefit Limitation....................................... 44
10.8 Vesting.......................................................... 44
ARTICLE XI
ADMINISTRATION
11.1 Appointment of Administrator..................................... 45
11.2 Resignation or Removal of Administrator.......................... 45
11.3 Appointment of Successors: Terms of Office, Etc.................. 45
11.4 Powers and Duties of Administrator............................... 45
11.5 Action by Administrator.......................................... 46
11.6 Participation by Administrators.................................. 47
11.7 Agents........................................................... 47
11.8 Allocation of Duties............................................. 47
11.9 Delegation of Duties............................................. 47
11.10 Administrator's Action Conclusive............................... 47
11.11 Compensation and Expenses of Administrator...................... 47
</TABLE>
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<TABLE>
<CAPTION>
<S> <C>
11.12 Records and Reports............................................. 48
11.13 Reports of Fund Open to Participants............................ 48
11.14 Named Fiduciary................................................. 48
11.15 Information from Employer....................................... 48
11.16 Reservation of Rights by Employer............................... 48
11.17 Liability and Indemnification................................... 49
11.18 Service as Trustee and Administrator............................ 49
ARTICLE XII
CLAIMS PROCEDURE
12.1 Notice of Denial................................................. 50
12.2 Right to Reconsideration......................................... 50
12.3 Review of Documents.............................................. 50
12.4 Decision by Administrator........................................ 50
12.5 Notice by Administrator.......................................... 50
ARTICLE XIII
AMENDMENTS, TERMINATION AND MERGER
13.1 Amendments....................................................... 51
13.2 Consolidation, Merger or Other Transactions of Employer.......... 51
13.3 Consolidation or Merger of Trust................................. 52
13.4 Bankruptcy or Insolvency of Employer............................. 52
13.5 Voluntary Termination............................................ 53
13.6 Partial Termination of Plan or Permanent Discontinuance of
Contributions.................................................... 53
ARTICLE XIV
MISCELLANEOUS
14.1 No Diversion of Funds............................................ 54
14.2 Liability Limited................................................ 54
14.3 Incapacity....................................................... 54
14.4 Spendthrift Clause............................................... 54
14.5 Benefits Limited to Fund......................................... 55
14.6 Cooperation of Parties........................................... 55
14.7 Payments Due Missing Persons..................................... 55
14.8 Governing Law.................................................... 55
14.9 Nonguarantee of Employment....................................... 55
14.10 Counsel.......................................................... 56
</TABLE>
iv
<PAGE>
Spring Hill Savings Bank, FSB
EMPLOYEE STOCK OWNERSHIP PLAN
PREAMBLE
Effective as of July 1, 1997, Spring Hill Savings Bank, FSB (the
"Sponsor"), a federally chartered stock savings bank (the "Sponsor"), has
adopted the Spring Hill Savings Bank, FSB Employee Stock Ownership Plan in order
to enable Participants to share in the growth and prosperity of the Sponsor, and
to provide Participants with an opportunity to accumulate capital for their
future economic security by accumulating funds to provide retirement, death and
disability benefits. The Plan is a stock bonus plan designed to meet the
requirements of an employee stock ownership plan as described at Section
4975(e)(7) of the Code and Section 407(d)(6) of ERISA. The primary purpose of
the employee stock ownership plan is to invest in employer securities. The
Sponsor intends that the Plan will qualify under Sections 401(a) and 501(a) of
the Code and will comply with the provisions of ERISA.
The terms of this Plan shall apply only with respect to Employees of the
Employer on and after July 1, 1997.
<PAGE>
ARTICLE I
DEFINITION OF TERMS AND CONSTRUCTION
1.1 Definitions.
Unless a different meaning is plainly implied by the context, the following
terms as used in this Plan shall have the following meanings:
(a) "Act" shall mean the Employee Retirement Income Security Act of 1974,
as amended from time to time, or any successor statute.
(b) "Administrator" shall mean the administrative committee provided for in
Article XI.
(c) "Annual Additions" shall mean, with respect to each Participant, the
sum of those amounts allocated to the Participant's accounts under this Plan and
under any other qualified defined contribution plan to which the Employer
contributes for any Limitation Year, consisting of the following:
(1) Employer contributions;
(2) Forfeitures; and
(3) Voluntary contributions (if any).
(d) "Authorized Leave of Absence" shall mean an absence from Service with
respect to which the Employee may or may not be entitled to Compensation and
which meets any one of the following requirements:
(1) Service in any of the armed forces of the United States for up
to 36 months, provided that the Employee resumes Service within
90 days after discharge, or such longer period of time during
which such Employee's employment rights are protected by law; or
(2) Any other absence or leave expressly approved and granted by the
Employer which does not exceed 24 months, provided that the
Employee resumes Service at or before the end of such approved
leave period. In approving such leaves of absence, the Employer
shall treat all Employees on a uniform and nondiscriminatory
basis.
(e) "Beneficiary" shall mean such persons as may be designated by the
Participant to receive benefits after the death of the Participant, or such
persons designated by the Administrator to receive benefits after the death of
the Participant, all as provided in Section 6.5.
2
<PAGE>
(f) "Board of Directors" shall mean the Board of Directors of the Sponsor.
(g) "Break" shall mean a Plan Year during which an Employee fails to
complete more than 500 Hours of Service.
(h) "Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time, or any successor statute.
(i) "Compensation" shall mean the amount of remuneration paid to an
Employee by the Employer, after the date on which the Employee becomes a
Participant, for services rendered to the Employer during a Plan Year, including
base salary, bonuses, overtime and commissions, and any amount of compensation
contributed pursuant to a salary reduction election under Code Section 401(k)
and any amount of compensation contributed to a cafeteria plan described at
Section 125 of the Code, but excluding amounts paid by the Employer or accrued
with respect to this Plan or any other qualified or non-qualified unfunded plan
of deferred compensation or other employee welfare plan to which the Employer
contributes, payments for group insurance, medical benefits, reimbursement for
expenses, and other forms of extraordinary pay, and excluding amounts accrued
for a prior year.
Notwithstanding the foregoing, for purposes of complying with Code Section
415, a Participant's contributions to a 401(k) Plan and cafeteria plan shall not
be included in the Participant's compensation. Notwithstanding anything herein
to the contrary, the annual Compensation of each Participant taken into account
under the Plan for any Plan Year shall not exceed $150,000, as adjusted from
time to time in accordance with Section 417 of the Code.
(j) "Date of Hire" shall mean the date on which a person shall perform his
first Hour of Service. Notwithstanding the foregoing, in the event a person
incurs one or more consecutive Breaks after his initial Date of Hire which
results in the forfeiture of his pre-Break Service pursuant to Section 3.3, his
"Date of Hire" shall thereafter be the date on which he completes his first Hour
of Service after such Break or Breaks.
(k) "Disability" shall mean a physical or mental impairment which prohibits
a Participant from engaging in any occupation for wages or profit and which has
caused the Social Security Administration to classify the individual as
"disabled" for purposes of Social Security.
(l) "Disability Retirement Date" shall mean the first day of the month
after which a Participant incurs a Disability.
(m) "Early Retirement Date" shall mean the first day of the month
coincident with or next following the date on which a Participant attains age 55
and completes ten (10) Years of Service.
(n) "Effective Date" shall mean July 1, 1997.
3
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(o) "Eligibility Period" shall mean the period of 12 consecutive months
commencing on an Employee's Date of Hire. Succeeding eligibility computation
periods after the initial eligibility computation period shall be based on Plan
Years which include the first anniversary of an Employee's Date of Hire.
(p) "Employee" shall mean any person employed by the Employer, including
officers but excluding directors in their capacity as such; provided, however,
that the term "Employee" shall not include leased employees, employees regularly
employed outside the employer's own offices in connection with the operation and
maintenance of buildings or other properties acquired through foreclosure or
deed, and any employee included in a unit of employees covered by a collective-
bargaining agreement with the Employer that does not expressly provide for
participation of such employees in this Plan, where there has been good-faith
bargaining between the Employer and employees' representatives on the subject of
retirement benefits.
(q) "Employer" shall mean Spring Hill Savings Bank, FSB, a federally
chartered stock savings bank, or any successors to the aforesaid by merger,
consolidation or otherwise, which may agree to continue this Plan, or any
affiliated or subsidiary corporation or business organization of any Employer
which, with the consent of the Sponsor, shall agree to become a party to this
Plan.
(r) "Employer Securities" shall mean the common stock issued by SHS
Bancorp, Inc., a Pennsylvania corporation, or any employer security within the
meaning of Section 4975(c)(8) of the Code and Section 407(d)(1) of ERISA.
(s) "Entry Date" shall mean January 1 and July 1 of each Plan Year.
(t) "Exempt Loan" shall mean a loan described at Section 4975(d)(1) of the
Code to the Trustee to purchase Employer Securities for the Plan, made or
guaranteed by a disqualified person, as defined at Section 4975(e)(2) of the
Code, including, but not limited to, a direct loan of cash, a purchase money
transaction, an assumption of an obligation of the Trustee, an unsecured
guarantee or the use of assets of such disqualified person as collateral for
such a loan.
(u) "Former Participant" shall mean any previous Participant whose
participation has terminated but who has a vested interest in the Plan which has
not been distributed in full.
(v) "Fund" shall mean the Fund maintained by the Trustee pursuant to the
Trust Agreement in order to provide for the payment of the benefits specified in
the Plan.
(w) "Hour of Service" shall mean each hour for which an Employee is
directly or indirectly paid or entitled to payment by an Employer for the
performance of duties or for reasons other than the performance of duties (such
as vacation time, holidays, sickness, disability, paid lay-offs, jury duty and
similar periods of paid nonworking time). To the extent not otherwise included,
Hours of Service shall also include each hour for which back pay, irrespective
of mitigation of damages, is either awarded or agreed to by the Employer. Hours
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of working time shall be credited on the basis of actual hours worked, even
though compensated at a premium rate for overtime or other reasons. In
computing and crediting Hours of Service for an Employee under this Plan, the
rules set forth in Sections 2530.200b-2(b) and (c) of the Department of Labor
Regulations shall apply, said Sections being herein incorporated by reference.
Hours of Service shall be credited to the Plan Year or other relevant period
during which the services were performed or the nonworking time occurred,
regardless of the time when Compensation therefor may be paid. Any Employee for
whom no hourly employment records are kept by the Employer shall be credited
with 45 Hours of Service for each calendar week in which he would have been
credited with a least one Hour or Service under the foregoing provisions, if
hourly records were available. Solely for purposes of determining whether a
Break for participation and vesting purposes has occurred in an Eligibility
Period or Plan Year, an individual who is absent from work for maternity or
paternity reasons shall receive credit for the Hours of Service which would
otherwise have been credited to such individual but for such absence, or in any
case in which such hours cannot be determined, eight Hours of Service per day of
such absence. For purposes of this Section 1.1(w), an absence from work for
maternity or paternity reasons means an absence (1) by reason of the pregnancy
of the individual, (2) by reason of a birth of a child of the individual, (3) by
reason of the placement of a child with the individual in connection with the
adoption of such child by such individual, or (4) for purposes of caring for
such child for a period beginning immediately following such birth or placement.
The Hours of Service credited under this provision shall be credited (1) in the
computation period in which the absence begins if the crediting is necessary to
prevent a Break in that period, or (2) in all other cases, in the following
computation period.
(x) "Investment Adjustments" shall mean the increases and/or decreases in
the value of a Participant's accounts attributable to earnings, gains, losses
and expenses of the Fund, as set forth in Section 5.3.
(y) "Limitation Year" shall mean the Plan Year.
(z) "Normal Retirement Date" shall mean the first day of the month
coincident with or during which a Participant attains age 65.
(aa) "Participant" shall mean an Employee who has met all of the
eligibility requirements of the Plan and who is currently included in the Plan
as provided in Article II hereof.
(bb) "Plan" shall mean the Spring Hill Savings Bank, FSB Employee Stock
Ownership Plan, as described herein or as hereafter amended from time to time.
(cc) "Plan Year" shall mean any 12 consecutive month period commencing on
July 1 and ending on June 30.
(dd) "Qualified Domestic Relations Order" shall mean any judgment, decree
or order (including approval of a property settlement agreement) that relates to
the provision of child support, alimony, marital property rights to a spouse,
former spouse, child or other dependent of
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the Participant (all such persons hereinafter termed "alternate payee") and is
made pursuant to a State domestic relations law (including community property
law) and, further, that creates or recognizes the existence of an alternate
payee's right to, or assigns to an alternate payee the right to receive all or a
portion of the benefits payable with respect to a Participant and that clearly
specifies the following:
(1) the name and last known mailing address (if available) of the
Participant and the name and mailing address of each alternate payee
to which the order relates;
(2) the amount or percentage of the Participant's benefits to be paid to
an alternate payee or the manner in which the amount is to be
determined; and
(3) the number of payments or period for which payments are required.
A domestic relations order is not a Qualified Domestic Relations Order if
it:
(1) requires the Plan to provide any type or form of benefit or any option
not otherwise provided under the Plan; or,
(2) requires the Plan to provide increased benefits; or
(3) requires payment of benefits to an alternate payee that is required to
be paid to another alternate payee under a previously existing
Qualified Domestic Relations Order.
(ee) "Retirement" shall mean termination of employment which qualifies as
early, normal or Disability retirement as described in Article VI.
(ff) "Service" shall mean employment with the Employer.
(gg) "Sponsor" shall mean Spring Hill Savings Bank, FSB, a federally
chartered stock savings bank.
(hh) "Trust Agreement" shall mean the agreement, the Sponsor and the
Trustee (or any successor Trustee governing the administration of the Trust as
it may be amended from time to time.
(ii) "Trustee" shall mean the Trustee or Trustees by whom the assets of the
Plan are held, as provided in the Trust Agreement, or his or their successors.
(jj) "Valuation Date" shall mean the last day of each Plan Year. The
Trustee may make additional valuations, at the instruction of the Administrator,
but in no event may the
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Administrator request additional valuations by the Trustee more frequently than
quarterly. Whenever such date falls on a Saturday, Sunday or holiday, the
preceding business day shall be the Valuation Date.
(kk) "Year of Service" shall mean any Plan Year during which an Employee
has completed at least 1,000 Hours of Service. Except as otherwise specified in
Article III, in the determination of Years of Service for eligibility and
vesting purposes under this Plan, the term "Year of Service" shall also mean any
Plan Year during which an Employee has completed at least 1,000 Hours of Service
with an entity that is:
(1) a member of a controlled group including the Employer, while it is a
member of such controlled group (within the meaning of Section 414(b)
of the Code);
(2) in a group of trades or businesses under common control with the
Employer, while it is under common control (within the meaning of
Section 414(c) of the Code);
(3) a member of an affiliated service group including the Employer, while
it is a member of such affiliated service group (within the meaning of
Section 414(m) of the Code); or
(4) a leasing organization, under the circumstances described in Section
414(n) of the Code.
1.2 Plurals and Gender.
Where appearing in the Plan and the Trust Agreement, the masculine gender
shall include the feminine and neuter genders, and the singular shall include
the plural, and vice versa, unless the context clearly indicates a different
meaning.
1.3 Incorporation of Trust Agreement.
The Trust Agreement, as the same may be amended from time to time, is
intended to be and hereby is incorporated by reference into this Plan and for
all purposes shall be deemed a part of the Plan.
1.4 Headings.
The headings and sub-headings in this Plan are inserted for the convenience
of reference only and are to be ignored in any construction of the provisions
hereof.
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1.5 Severability.
In case any provision of this Plan shall be held illegal or void, such
illegality or invalidity shall not affect the remaining provisions of this Plan,
but shall be fully severable, and the Plan shall be construed and enforced as if
said illegal or invalid provisions had never been inserted herein.
1.6 References to Governmental Regulations.
References in this Plan to regulations issued by the Internal Revenue
Service, the Department of Labor, or other governmental agencies shall include
all regulations, rulings, procedures, releases and other position statements
issued by any such agency.
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ARTICLE II
PARTICIPATION
2.1 Commencement of Participation.
(a) An Employee of the Sponsor on the Effective Date of the Plan shall be
a Participant as of the Effective Date. Thereafter, any Employee who completes
at least 1,000 Hours of Service during his Eligibility Period or during any Plan
Year beginning after his Date of Hire shall initially become a Participant on
the Entry Date coincident with or next following the later of the following
dates, provided he is employed by the Employer on that Entry Date:
(1) The date which is 12 months after his Date of Hire; and
(2) The date on which he attains age 21.
(b) Any Employee who had satisfied the requirements set forth in
Section 2.1(a) during the 12-month period prior to the Effective Date shall
become a Participant on the Effective Date, provided he is still employed by the
Employer on the Effective Date.
2.2 Termination of Participation.
After commencement or resumption of his participation, an Employee shall
remain a Participant during each consecutive Plan Year thereafter until the
earliest of the following dates:
(a) His actual Retirement date;
(b) His date of death; or
(c) The last day of a Plan Year during which he incurs a Break.
2.3 Resumption of Participation
(a) Any Participant whose employment terminates and who resumes Service
before he incurs a Break shall resume participation immediately on the date he
is reemployed.
(b) Except as otherwise provided in Section 2.3(c), any Participant who
incurs one or more Breaks and resumes Service shall resume participation
retroactively as of the first day of the first Plan Year in which he completes a
Year of Service after such Break(s).
(c) Any Participant who incurs one or more Breaks and resumes Service, but
whose pre-Break Service is not reinstated to his credit pursuant to Section 3.3,
shall be treated as a new Employee and shall again be required to satisfy the
eligibility requirements contained in Section 2.1 before resuming participation
on the appropriate Entry Date, as specified in Section 2.1.
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2.4 Determination of Eligibility.
The Administrator shall determine the eligibility of Employees in
accordance with the provisions of this Article. For each Plan Year, the Employer
shall furnish the Administrator a list of all Employees, indicating the original
date of their reemployment with the Employer and any Breaks they may have
incurred.
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ARTICLE III
CREDITED SERVICE
3.1 Service Counted for Eligibility Purposes.
Except as provided in Section 3.3, all Years of Service completed by an
Employee shall be counted in determining his eligibility to become a Participant
on and after the Effective Date, whether such Service was completed before or
after the Effective Date.
3.2 Service Counted for Vesting Purposes.
All Years of Service completed by an Employee (including Years of Service
completed prior to the Effective Date) shall be counted in determining his
vested interest in this Plan, except the following:
(a) Service which is disregarded under the provisions of Section 3.3; and
(b) Service prior to the Effective Date of this Plan if such Service would
have been disregarded under the "break in service" rules (within the meaning of
Section 1.411(a)-5(b)(6) of the Treasury Regulations).
3.3 Credit for Pre-Break Service.
Upon his resumption of participation following one or a series of
consecutive Breaks, an Employee's pre-Break Service shall be reinstated to his
credit for all purposes of this Plan only if either:
(a) He was vested in any portion of his accrued benefit at the time the
Break(s) began; or
(b) The number of his consecutive Breaks does not equal or exceed the
greater of five or the number of his Years of Service credited to him before the
Breaks began.
Except as provided in the foregoing, none of an Employee's Service prior to
one or a series of consecutive Breaks shall be counted for any purpose in
connection with his participation in this Plan thereafter.
3.4 Service Credit During Authorized Leaves.
An Employee shall receive no Service credit under Section 3.1 or 3.2 during
any Authorized Leave of Absence. However, solely for the purpose of determining
whether he has incurred a Break during any Plan Year in which he is absent from
Service for one or more Authorized Leaves of Absence, he shall be credited with
45 Hours of Service for each week
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<PAGE>
during any such leave period. Notwithstanding the foregoing, if an Employee
fails to return to Service on or before the end of a leave period, he shall be
deemed to have terminated Service as of the first day of such leave period and
his credit for Hours of Service, determined under this Section 3.4, shall be
revoked. Notwithstanding anything contained herein to the contrary, an Employee
who is absent by reason of military service as set forth in Section 1.1(d)(1)
shall be given Service credit under this Plan for such military leave period to
the extent, and for all purposes, required by law.
3.5 Service Credit During Maternity or Paternity Leave.
For purposes of determining whether a Break has occurred for participation
and vesting purposes, an individual who is on maternity or paternity leave as
described in Section 1.1(w), shall be deemed to have completed Hours of Service
during such period of absence, all in accordance with Section 1.1(w).
Notwithstanding the foregoing, no credit shall be given for such Hours of
Service unless the individual furnishes to the Administrator such timely
information as the Administrator may reasonably require to determine:
(a) that the absence from Service was attributable to one of the maternity
or paternity reasons enumerated in Section 1.1(w); and
(b) the number of days for which such absence lasted.
In no event, however, shall any credit be given for such leave other than
for determining whether a Break has occurred.
3.6 Ineligible Employees.
Notwithstanding any provisions of this Plan to the contrary, any person who
is employed by the Employer, but who is ineligible to participate in this Plan,
either because of his failure:
(a) To meet the eligibility requirements contained in Article II; or
(b) To be an Employee, as defined in Section 1.1(p), shall, nevertheless,
earn Years of Service for eligibility and vesting purposes pursuant to the rules
contained in this Article III. However, such a person shall not be entitled to
receive any contributions hereunder unless and until he becomes a Participant in
this Plan, and then, only during his period of participation.
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ARTICLE IV
CONTRIBUTIONS
4.1 Employee Stock Ownership Contributions.
(a) Subject to all of the provisions of this Article IV, for each Plan Year
commencing on or after the Effective Date, the Employer shall make an Employee
Stock Ownership contribution to the Fund, in such amount as may be determined by
the Board of Directors in its discretion. Such contribution shall be in the form
of cash or Employer Securities. In determining the value of Employer Securities
transferred to the Fund as an Employee Stock Ownership contribution, the
Administrator may determine the average of closing prices of such securities for
a period of up to 90 consecutive days immediately preceding the date on which
the securities are contributed to the Fund. In the event that the Employer
Securities are not readily tradable on an established securities market, the
value of the Employer Securities transferred to the Fund shall be determined by
an independent appraiser in accordance with Section 8.9.
(b) In no event shall such contribution by the Employer exceed for any Plan
Year the maximum amount that may be deducted by the Employer under Section 404
of the Code, nor shall such contribution cause the Employer to violate its
regulatory capital requirements. Each Employee Stock Ownership contribution by
the Employer shall be deemed to be made on the express condition that the Plan,
as then in effect, shall be qualified under Sections 401 and 501 of the Code and
that the amount of such contribution shall be deductible from the Employer's
income under Section 404 of the Code.
4.2 Time and Manner of Employee Stock Ownership Contributions.
(a) The Employee Stock Ownership contribution (if any) for each Plan Year
shall be paid to the Trustee in one lump sum or installments at any time on or
before the expiration of the time prescribed by law (including any extensions)
for filing of the Employer's federal income tax return for its fiscal year
ending concurrent with or during such Plan Year. Any portion of the Employee
Stock Ownership contribution for each Plan Year that may be made prior to the
last day of the Plan Year shall be maintained by the Trustee in the Employee
Stock Ownership suspense account described in Section 5.2 until the last day of
such Plan Year.
(b) If an Employee Stock Ownership contribution for a Plan Year is paid
after the close of the Employer's fiscal year which ends concurrent with or
during such Plan Year but on or prior to the due date (including any extensions)
for filing of the Employer's federal income tax return for such fiscal year, it
shall be considered, for allocation purposes, as an Employee Stock Ownership
contribution to the Fund for the Plan Year for which it was computed and
accrued, unless such contribution is accompanied by a statement to the Trustee,
signed by a representative of the Employer, which specifies that the Employee
Stock Ownership contribution is made with respect to the Plan Year in which it
is received by the Trustee. Any Employee Stock Ownership contribution paid by
the Employer during any Plan Year but after the due date (including any
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<PAGE>
extensions) for filing of its federal income tax return for the fiscal year of
the Employer ending on or before the last day of the preceding Plan Year shall
be treated, for allocation purposes, as an Employee Stock Ownership contribution
to the Fund for the Plan Year in which the contribution is paid to the Trustee.
(c) Notwithstanding anything contained herein to the contrary, no Employee
Stock Ownership contribution shall be made for any year during which a
"limitations account" created pursuant to Section 5.6(c)(2) is in existence
until the balance of such limitations account has been reallocated in accordance
with Section 5.6(c)(2).
4.3 Records of Contributions.
The Employer shall deliver at least annually to the Trustee, with respect
to the contributions contemplated in Section 4.1, a certificate of the
Administrator, in such form as the Trustee shall approve, setting forth:
(a) The aggregate amount of contributions, if any, to the Fund for such
Plan Year;
(b) The names, Internal Revenue Service identifying numbers and current
residential addresses of all Participants in the Plan;
(c) The amount and category of contributions to be allocated to each such
Participant; and
(d) Any other information reasonably required for the proper operation of
the Plan.
4.4 Erroneous Contributions.
(a) Notwithstanding anything herein to the contrary, upon the Employer's
request, a contribution which was made by a mistake of fact, or conditioned upon
the initial qualification of the Plan, under Code Section 401, or upon the
deductibility of the contribution under Section 404 of the Code, shall be
returned to the Employer by the Trustee within one year after the payment of the
contribution, the denial of the qualification or the disallowance of the
deduction (to the extent disallowed), whichever is applicable; provided,
however, that in the case of denial of the initial qualification of the Plan, a
contribution shall not be returned unless an Application for Determination has
been timely filed with the Internal Revenue Service. Any portion of a
contribution returned pursuant to this Section 4.4 shall be adjusted to reflect
its proportionate share of the losses of the fund, but shall not be adjusted to
reflect any earnings or gains. Notwithstanding any provisions of this Plan to
the contrary, the right or claim of any Participant or Beneficiary to any asset
of the Fund or any benefit under this Plan shall be subject to and limited by
this Section 4.4.
(b) In no event shall voluntary Employee contributions be accepted. Any
such voluntary Employee contributions (and any earnings attributable thereto)
mistakenly received by the Trustee shall promptly be returned to the
Participant.
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ARTICLE V
ACCOUNTS, ALLOCATIONS AND INVESTMENTS
5.1 Establishment of Separate Participant Accounts.
The Administrator shall establish and maintain separate individual accounts
for Participants in the Plan and for each Former Participant in accordance with
the provisions of this Article V. Such separate accounts shall be for accounting
purposes only and shall not require a segregation of the Fund, and no
Participant, Former Participant or Beneficiary shall acquire any right to or
interest in any specific assets of the Fund as a result of the allocations
provided for under this Plan, except where segregation is expressly provided for
in this Plan.
(a) Employee Stock Ownership Accounts.
The Administrator shall establish a separate Employee Stock Ownership
Account in the Fund for each Participant. The account shall be credited as of
the last day of each Plan Year with the amounts allocated to the Participant
under Sections 5.4 and 5.5. The Administrator may establish subaccounts
hereunder, including an Employer Stock Account reflecting a Participant's
interest in Employer Securities held by the Trust and an Other Investments
Account reflecting the Participant's interest in his Employee Stock Ownership
Account other than Employer Securities.
(b) Distribution Accounts.
In any case where distribution of a terminated Participant's vested
interest in the Plan is to be deferred, the Administrator shall establish a
separate, nonforfeitable account in the Fund to which the balance in his
Employee Stock Ownership Account in the Plan shall be transferred after such
Participant incurs a Break. Unless the Former Participant's distribution
accounts are segregated for investment purposes pursuant to section 9.4, they
shall share in Investment Adjustments.
(c) Other Accounts.
The Administrator shall establish such other separate accounts for each
Participant as may be necessary or desirable for the convenient administration
of the Fund.
5.2 Establishment of Suspense Accounts.
The Administrator shall establish separate accounts to be known as
"suspense accounts." There shall be credited to such appropriate suspense
accounts any Employee Stock Ownership contributions that may be made prior to
the last day of the Plan Year, as provided in Section 4.2. The suspense accounts
shall share proportionately as to time and amount in any Investment Adjustments.
As of the last day of each Plan Year, the balance of the Employee Stock
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Ownership suspense account shall be added to the Employee Stock Ownership
contribution and allocated to the Employee Stock Ownership Accounts of
Participants as provided in Section 5.5, except as provided herein. In the event
that the Plan takes an Exempt Loan, the Employer Securities purchased thereby
shall be allocated to a separate Exempt Loan Suspense Account, from which
allocations shall be made in accordance with Section 8.5.
5.3 Allocation of Earnings, Losses and Expenses.
As of each Valuation Date, any increase or decrease in the net worth of the
aggregate Employee Stock Ownership Accounts held in the Fund attributable to
earnings, losses, expenses and unrealized appreciation or depreciation in each
such aggregate Account, as determined by the Trustee pursuant to the Trust
Agreement, shall be credited to or deducted from the appropriate suspense
accounts and all Participants' Employee Stock Ownership Accounts (except
segregated distribution accounts described in Section 5.1(b) and the
"limitations account" described in Section 5.6(c)(4)) in the proportion that the
value of each such Account (determined immediately prior to such allocation and
before crediting any Employee Stock Ownership contributions and forfeitures for
the current Plan Year but after adjustment for any transfer to or from such
Accounts and for the time such funds were in such Accounts) bears to the value
of all Employee Stock Ownership Accounts.
5.4 Allocation of Forfeitures.
As of the last day of each Plan Year, all forfeitures attributable to the
Employee Stock Ownership Accounts which are then available for reallocation
shall be, as appropriate, added to the Employee Stock Ownership contribution (if
any) for such year and allocated among the Participants' Employee Stock
Ownership Accounts, as appropriate, in the manner provided in Sections 5.5
and 5.6.
5.5 Allocation of Annual Employee Stock Ownership Contributions.
As of the last day of each Plan Year for which the Employer shall make an
Employee Stock Ownership contribution, the Administrator shall allocate the
Employee Stock Ownership contribution (including reallocable forfeitures) for
such Plan Year to the Employee Stock Ownership account of each Participant who
completed at least 1,000 Hours of Service during that Plan Year, provided that
he is still employed by the Employer on the last day of the Plan Year. Such
allocation shall be made in the same proportion that each such Participant's
Compensation for such Plan Year bears to the total Compensation of all such
Participants for such Plan Year, subject to Section 5.6, provided, however,
that, for purposes of this Section 5.5, Compensation shall not be considered for
any part of a Plan Year prior to the date the Participant commenced
participation in the Plan. Notwithstanding the foregoing, if a Participant
attains his Normal Retirement Date and terminates Service prior to the last day
of the Plan Year but after completing 1,000 Hours of Service, he shall be
entitled to an allocation based on his Compensation earned prior to his
termination and during the Plan Year. Furthermore, if a Participant completes
1,000 Hours of Service and is on a Leave of Absence on the last day of
the Plan Year because of
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pregnancy or other medical reason, such a Participant shall be entitled to an
allocation based on his Compensation earned during such Plan Year.
5.6 Limitation on Annual Additions.
(a) Notwithstanding any provisions of this Plan to the contrary, the total
Annual Additions credited to a Participant's accounts under this Plan (and under
any other defined contribution plan to which the Employer contributes) for any
Limitation Year shall not exceed the lesser of:
(1) 25% of the Participant's compensation for such Limitation Year; or
(2) $30,000 (or, if greater, one-fourth of the defined benefit dollar
limitation set forth in Section 415(b)(1)(A) of the Code). Whenever
otherwise allowed by law, the maximum amount of $30,000 shall be
automatically adjusted annually for cost-of-living increases in
accordance with Section 415(d) of the Code and the highest such
increase effective at any time during the Limitation Year shall be
effective for the entire Limitation Year, without any amendment to
this Plan.
(b) Solely for the purpose of this Section 5.6, the term "compensation" is
defined as wages, salaries, and fees for professional services and other amounts
received (without regard to whether or not an amount is paid in cash) for
personal services actually rendered in the course of employment with the
Employer maintaining the Plan to the extent that the amounts are includable in
gross income (including, but not limited to, commissions paid to salesmen,
compensation for services on the basis of a percentage of profits, commissions
on insurance premiums, tips, bonuses, fringe benefits, and reimbursements or
other expense allowances under a nonaccountable plan (as described in Treas.
Regs. Section 1.62-2(c)), and excluding the following:
(1) Employer contributions to a plan of deferred compensation which are
not includable in the Employee's gross income for the taxable year in
which contributed, or Employer contributions under a simplified
employee pension plan to the extent such contributions are deductible
by the Employee, or any distributions from a plan of deferred
compensation;
(2) Amounts realized from the exercise of a non-qualified stock option,
or when restricted stock (or property) held by the employee either
becomes freely transferable or is no longer subject to a substantial
risk of forfeiture;
(3) Amounts realized from the sale, exchange or other disposition of
stock acquired under a qualified stock option; and
(4) Other amounts which received special tax benefits, or contributions
made by the employer (whether or not under a salary reduction
agreement)
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towards the purchase of an annuity contract described in
section 403(b) of the Code (whether or not the contributions are
actually excludable from the gross income of the Employee).
(c) In the event that the limitations on Annual Additions described in this
Section 5.6(a) above are exceeded with respect to any Participant in any
Limitation Year, then the contributions allocable to the Participant for such
year shall be reduced to the minimum extent required by such limitations in the
following order of priority:
(1) If any further reductions in Annual Additions are necessary, then the
Employee Stock Ownership contributions and forfeitures allocated
during such Limitation Year to the Participant's Employee Stock
Ownership Account shall be reduced. The amount of any such reductions
in the Employee Stock Ownership contributions and forfeitures shall
be reallocated to all other Participants in the same manner as set
forth under Sections 5.4 and 5.5.
(2) Any amounts which cannot be reallocated to other Participants in a
current Limitation Year in accordance with Section 5.6(c)(1) above
because of the limitations contained in Sections 5.6(a) and (d) shall
be credited to an account designated as the "limitations account" and
carried forward to the next and subsequent Limitation Years until it
can be reallocated to all Participants as set forth in Sections 5.4,
and 5.5, as appropriate. No Investment Adjustments shall be allocated
to this limitations account. In the next and subsequent Limitation
Years, all amounts in the limitations account must be allocated in
the manner described in Sections 5.4 and 5.5, as appropriate, before
any Employee Stock Ownership contributions may be made to this Plan
for that Limitation Year.
(3) The Administrator shall determine to what extent the Annual Additions
to any Participant's Employee Stock Ownership Account must be reduced
in each Limitation Year. The Administrator shall reduce the Annual
Additions to all other tax-qualified retirement plans maintained by
the Employer in accordance with the terms contained therein for
required reductions or reallocations mandated by Section 415 of the
Code before reducing any Annual Additions in this Plan.
(4) In the event this Plan is voluntarily terminated by the Employer
under Section 13.5, any amounts credited to the limitations account
described in Section 5.6(c)(2) above which have not be reallocated as
set forth herein shall be distributed to the Participants who are
still employed by the Employer on the date of termination, in the
proportion that each Participant's Compensation bears to the
Compensation of all Participants.
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(d) The Annual Additions credited to a Participant's accounts for each
Limitation Year are further limited so that in the case of an Employee who is a
Participant in both this Plan and any qualified defined benefit plan
(hereinafter referred to as a "pension plan") of the Employer, the sum of (1)
and (2) below will not exceed 1.0:
(1) (A) The projected annual normal retirement benefit of a Participant
under the pension plan, divided by
(B) The lesser of:
(i) The product of 1.25 multiplied by the dollar limitation
in effect under Section 415(b)(1)(A) of the Code for
such Limitation Year; or
(ii) The product of 1.4 multiplied by the amount of
compensation which may be taken into account under
Section 415(b)(1)(B) of the Code for the Participant
for such Limitation Year; plus
(2) (A) The sum of Annual Additions credited to the Participant under
this Plan for all Limitation Years, divided by:
(B) The sum of the lesser of the following amounts determined for
such Limitation Year and for each prior year of service with the
Employer:
(i) The product of 1.25 multiplied by the dollar limitation
in effect under Section 415(b)(1)(A) of the Code for
such Limitation Year, or
(ii) The product of 1.4 multiplied by the amount of
compensation which may be taken into account under
Section 415(b)(1)(B) of the Code for the Participant
for such Limitation Year. The Administrator may, in
calculating the defined contribution plan fraction
described in Section 5.6(d)(2), elect to use the
transitional rule pursuant to Section 415(e)(6) of the
Code, if applicable. If the sum of the fractions
produced above will exceed 1.0, even after the use of
the
19
<PAGE>
"fresh start" rule contained in Section 235 of the Tax
Equity and Fiscal Responsibility Act of 1982 ("TEFRA"),
if applicable, then the same provisions as stated in
Section 5.6(c) above shall apply. If, even after the
reductions provided for in Section 5.6(c), the sum of
the fractions still exceed 1.0, then the benefits of
the Participant provided under the pension plan shall
be reduced to the extent necessary, in accordance with
Treasury Regulations issued under the Code. Solely for
the purposes of this Section 5.6(d), the term "years of
service" shall mean all years of service defined by
Treasury Regulations issued under Section 415 of the
Code.
(e) In the event that the Employer is a member of (1) a controlled group of
corporations or a group of trades or businesses under common control (as
described in Section 414(b) or (c) of the Code, as modified by Section 415(h)
thereof), or (2) an affiliated service group (as described in Section 414(m) of
the Code), the Annual Additions credited to any Participant's accounts in any
such Limitation Year shall be further limited by reason of the existence of all
other qualified retirement plans maintained by such affiliated corporations,
other entities under common control or other members of the affiliated service
group, to the extent such reduction is required by Section 415 of the Code and
the regulations promulgated thereunder. The Administrator shall determine if any
such reduction in the Annual Additions to a Participant's accounts is required
for this reason, and if so, the same provisions as stated in 5.6(c) and (d)
above shall apply.
(f) Annual Additions shall not include any Employer contributions which are
used by the Trust to pay interest on an Exempt Loan nor any forfeitures of
Employer Securities purchased with the proceeds of an Exempt Loan, provided that
not more than one-third of the Employer contributions are allocated to
Participants who are among the group of employees deemed "highly compensated
employees" within the meaning of Code Section 414(q).
5.7 Erroneous Allocations.
No Participant shall be entitled to any Annual Additions or other
allocations to his accounts in excess of those permitted under Sections 5.3,
5.4, 5.5, and 5.6. If it is determined at anytime that the Administrator and/or
Trustees have erred in accepting and allocating any contributions or forfeitures
under this Plan, or in allocating Investment Adjustments, or in excluding or
including any person as a Participant, then the Administrator, in a uniform and
nondiscriminatory manner, shall determine the manner in which such error shall
be corrected and shall promptly advise the Trustee in writing of such error and
of the method for correcting such
20
<PAGE>
error. The accounts of any or all Participants may be revised, if necessary, in
order to correct such error.
5.8 Value of Participant's Interest in Fund
At any time, the value of a Participant's interest in the Fund shall
consist of the aggregate value of his Employee Stock Ownership Account and his
distribution account, if any, determined as of the next-preceding Valuation
Date. The Administrator shall maintain adequate records of the cost basis of
Employer Securities allocated to each Participant's Employer Stock Ownership
Account.
5.9 Investment of Account Balances.
The Employee Stock Ownership Accounts shall be invested primarily in
Employer Securities. All sales of Employer Securities by the Trustee
attributable to the Employee Stock Ownership Accounts of all Participants shall
be charged pro rata to the Employee Stock Ownership Accounts of all
Participants.
21
<PAGE>
ARTICLE VI
RETIREMENT, DEATH AND DESIGNATION OF BENEFICIARY
6.1 Normal Retirement.
A Participant who reaches his Normal Retirement Date and who shall retire
at that time shall thereupon be entitled to retirement benefits based on the
value of his interest in the Fund, payable pursuant to the provisions of Section
9.1. A Participant who remains in Service after his Normal Retirement Date shall
not be entitled to any retirement benefits until his actual termination of
Service thereafter (except as provided in Section 9.3(g)) and he shall meanwhile
continue to participate in this Plan.
6.2 Early Retirement.
A Participant who reaches his Early Retirement Date may retire at such time
(or, at his election, as of the first day of any month thereafter prior to his
Normal Retirement Date) and shall thereupon be entitled to retirement benefits
based on the value of his interest in the Fund, payable pursuant to the
provisions of Section 9.1.
6.3 Disability Retirement.
In the event a Participant incurs a Disability, he may retire on his
Disability Retirement Date and shall thereupon be entitled to retirement
benefits based on the value of his interest in the Fund, payable pursuant to the
provisions of Section 9.1.
6.4 Death Benefits.
(a) Upon the death of a Participant before his Retirement or other
termination of Service, the value of his interest in the Fund shall be payable
pursuant to the provisions of Section 9.1. The Administrator shall direct the
Trustee to distribute his interest in the Fund to any surviving Beneficiary
designated by the Participant or, if none, to such persons designated by the
Administrator pursuant to Section 6.5.
(b) Upon the death of a Former Participant, the Administrator shall direct
the Trustee to distribute any undistributed balance of his interest in the Fund
to any surviving Beneficiary designated by him or, if none, to such persons
designated by the Administrator pursuant to Section 6.5.
(c) The Administrator may require such proper proof of death and such
evidence of the right of any person to receive the interest in the Fund of a
deceased Participant or Former Participant as the Administrator may deem
desirable. The Administrator's determination of death and of the right of any
person to receive payment shall be conclusive.
22
<PAGE>
6.5 Designation of Death Beneficiary and Manner of Payment.
(a) Each Participant shall have the right to designate a Beneficiary or
Beneficiaries to receive the sum or sums to which he may be entitled upon his
death. The Participant may also designate the manner in which any death benefits
under this Plan shall be payable to his Beneficiary, provided that such
designation is in accordance with Section 9.4. Such designation of Beneficiary
and manner of payment shall be in writing and delivered to the Administrator,
and shall be effective when received by the Administrator. The Participant shall
have the right to change such designation by notice in writing to the
Administrator. Such change of Beneficiary or the manner of payment shall become
effective upon its receipt by the Administrator. Any such change shall be deemed
to revoke all prior designations.
(b) If a Participant shall fail to designate validly a Beneficiary or if no
designated Beneficiary survives the Participant, his interest in the Fund shall
be paid to the person or persons in the first of the following classes of
successive preference Beneficiaries surviving at the death of the Participant:
the Participant's (1) widow or widower, (2) children, (3) parents, and (4)
estate. The Administrator shall decide what Beneficiaries, if any, shall have
been validly designated, and its decision shall be binding and conclusive on all
persons.
(c) Notwithstanding the foregoing, if a Participant has been married
throughout the 12 month period preceding the date of his death, the sum or sums
to which he may be entitled under this Plan upon his death shall be paid to his
spouse, unless the Participant's spouse shall have consented to the election of
another Beneficiary. Such a spousal consent shall be in writing and shall be
witnessed either by a representative of the Plan or a notary public. If it is
established to the satisfaction of the Administrator that such spousal consent
cannot be obtained because there is no spouse, because the spouse cannot be
located, or other reasons prescribed by governmental regulations, the consent of
the spouse may be waived, and the Participant may designate a Beneficiary or
Beneficiaries other than his spouse.
23
<PAGE>
ARTICLE VII
VESTING AND FORFEITURES
7.1 Vesting on Death, Disability, Retirement and Change in Control.
Unless his participation in this Plan shall have terminated prior thereto,
upon a Participant's death, Disability, Early Retirement, or upon his attainment
of Normal Retirement Date (whether or not he actually retires at that time)
while he is still employed by the Employer, the Participant's entire interest in
the Fund shall be fully vested and nonforfeitable. In addition, a Participant's
interest shall be fully vested and unforfeitable upon a Change in Control. For
purposes of this Plan, a "Change in Control" shall mean an event deemed to occur
if and when (1) an offeror other than the _____________________ purchases shares
of the stock of __________________ or the Sponsor pursuant to a tender or
exchange offer for such shares, (2) any person (as such term is used in Sections
13(d) and 14(d)(2) of the Exchange Act) is or becomes the beneficial owner,
directly or indirectly, of securities of _________________ or the Sponsor
representing 25% or more of the combined voting power of ____________________ or
the Sponsor's then outstanding securities, (3) the membership of the board of
directors of _____________________ or the Sponsor changes as the result of a
contested election, such that individuals who were directors at the beginning of
any 24 month period (whether commencing before or after the date of adoption of
this Plan) do not constitute a majority of the Board at the end of such period,
or (4) shareholders of ______________________ or the Sponsor approve a merger,
consolidation, sale or disposition of all or substantially all of _____________
or the Sponsor's assets, or a plan of partial or complete liquidation. If any of
the events enumerated in clauses (1) - (4) occur, the Board of Directors shall
determine the effective date of the change in control resulting therefrom.
7.2 Vesting on Termination of Participation.
Upon termination of his participation in this Plan for any reason other
than death, Disability, or Normal Retirement, a Participant shall be vested in a
percentage of his Employee Stock Ownership Account, such vested percentages to
be determined under the following table, based on the Years of Service
(including Years of Service prior to the Effective Date) credited to him for
vesting purposes at the time of his termination of participation:
<TABLE>
<CAPTION>
Years of Service Completed Percentage Vested
Less than 4 0%
<S> <C>
2 20%
3 40%
4 60%
5 80%
6 or more 100%
</TABLE>
24
<PAGE>
Any portion of the Participant's Employee Stock Ownership Account which is
not vested at the time he incurs a Break shall thereupon be forfeited and
disposed of pursuant to Section 7.3. Distribution of the vested portion of a
terminated Participant's interest in the Plan may be authorized by the
Administrator in any manner permitted under Section 9.1.
7.3 Disposition of Forfeitures.
(a) In the event a Participant incurs a Break and subsequently resumes
both his Service and his participation in the Plan prior to incurring at least
five Breaks, the forfeitable portion of his Employee Stock Ownership Account
shall be reinstated to the credit of the Participant as of the date he resumes
participation.
(b) In the event a Participant terminates Service and subsequently
incurs a Break and receives a distribution, or in the event a Participant does
not terminate Service, but incurs at least five Breaks, or in the event that a
Participant terminates Service and incurs at least five Breaks but has not
received a distribution, then the forfeitable portion of his Employer Account,
including Investment Adjustments, shall be reallocated to other Participants,
pursuant to Section 5.4 as of the date the Participant incurs such Break or
Breaks, as the case may be.
(c) In the event a former Participant who had received a distribution
from the Plan is rehired, he shall repay the amount of his distribution before
the earlier of five years after the date of his rehire by the Employer, or the
close of the first period of five consecutive Breaks commencing after the
withdrawal in order for any forfeited amounts to be restored to him.
25
<PAGE>
ARTICLE VIII
EMPLOYEE STOCK OWNERSHIP PROVISIONS
8.1 Right to Demand Employer Securities.
A Participant entitled to a distribution from his Employee Stock Ownership
Account shall be entitled to demand that his interest in the Account be
distributed to him in the form of Employer Securities, all subject to Section
9.9. In the event that the Employer Securities are not readily tradable on an
established market, the Participant shall be entitled to require that the
Employer repurchase the Employer Securities under a fair valuation formula, as
provided by governmental regulations. The Participant or Beneficiary shall be
entitled to exercise the put option described in the preceding sentence for a
period of not more than 60 days following the date of distribution of Employer
Securities to him. If the put option is not exercised within such 60-day period,
the Participant or Beneficiary may exercise the put option during an additional
period of not more than 60 days after the beginning of the first day of the
first Plan Year following the Plan Year in which the first put option period
occurred, all as provided in regulations promulgated by the Secretary of the
Treasury.
8.2 Voting Rights.
Each Participant with an Employee Stock Ownership Account shall be entitled
to direct the Trustee as to the manner in which the Employer Securities in such
Account are to be voted. Employer Securities held in the Employee Stock
Ownership Suspense Account or the Exempt Loan Suspense Account shall be voted by
the Trustee on each issue with respect to which shareholders are entitled to
vote in the manner directed by the majority of the Participants who directed the
Trustee as to the manner of voting their shares in the Employee Stock Ownership
Accounts with respect to such issue. Prior to the initial allocation of shares,
the Trustee shall be entitled to vote the shares in the Suspense Account without
prior direction from the Participants or the Administrator. In the event that a
Participant fails to give timely voting instructions to the Trustee with respect
to the voting of his allocated Employer Securities, the Trustee shall be
entitled to vote such shares in its discretion.
8.3 Nondiscrimination in Employee Stock Ownership Contributions.
In the event that the amount of the Employee Stock Ownership contributions
that would be required in any Plan Year to make the scheduled payments on an
Exempt Loan would exceed the amount that would otherwise be deductible by the
Employer for such Plan Year under Code Section 404, then no more than one-third
of the Employee Stock Ownership contributions for the Plan Year, which is also
the Employer's taxable year, shall be allocated to the group of Employees who
during the Plan Year or the preceding Plan Year:
(a) During the Plan Year or the preceding Plan Year was at any time a 5%
owner of the Employer; or
26
<PAGE>
(b) During the preceding Plan Year, received compensation from the Employer
in excess of $80,000, as adjusted under Code Section 414(q) and, if elected by
the Employer, was in the top paid group of Employees for such Plan Year.
8.4 Dividends.
Any cash dividends or other cash contributions received by the Trustee of
Employer Securities allocated to the Employee Stock Account of Participants
shall be credited to the applicable Participants' Ownership Accounts unless the
Sponsor, in its sole discretion, elects to pay the cash dividends directly to
the applicable Participants or directs the Trustee to pay the cash dividends to
the Participants (or, if applicable, their Beneficiaries) within 90 calendar
days of the close of the Plan Year in which the cash dividend were paid to the
Fund. Notwithstanding anything contained in this Section to the contrary, the
Sponsor may direct cash dividends, including dividends on non-allocated shares,
be applied to repay an Exempt Loan, but only to the extent shares of Employer
Securities with an aggregate fair market value equal to the amount of dividends
so applied are allocated to the Employee Stock Ownership Account of the
applicable Participants and to the extent the cash dividends are deductible
under Section 404(k) of the Code. To the extent cash dividends on allocated
shares are applied to repay an Exempt Loan, shares released from encumbrance the
value equal to the amount of the dividends which, but for the repayment of the
Exempt Loan, would have been allocated to Participants' Employee Stock Ownership
Accounts shall be allocated to the Employee Stock Ownership Accounts of the
affected Participants, and the remaining shares to be allocated shall be
allocated among the Participants in accordance with Section 5.5. Dividends on
Employer Securities obtained pursuant to an Exempt Loan and not yet allocated
may be used to make payments on an Exempt Loan, as described in Section 8.5.
8.5 Exempt Loans.
(a) The Sponsor may direct the Trustee to obtain Exempt Loans. The Exempt
Loan may take the form of (i) a loan from a bank or other commercial lender to
purchase Employer Securities (ii) a loan from the Employer or affiliated
corporation, to the Plan; or (iii) an installment sale of Employer Securities to
the Plan. The proceeds of any such Exempt Loan shall be used, within a
reasonable time after the Exempt Loan is obtained, only to purchase Employer
Securities, repay the Exempt Loan, or repay any prior Exempt Loan. Any such
Exempt Loan shall provide for no more than a reasonable rate of interest and
shall be without recourse against the Plan. The number of years to maturity
under the Exempt Loan must be definitely ascertainable at all times. The only
assets of the Plan that may be given as collateral for an Exempt Loan are
Employer Securities acquired with the proceeds of the Exempt Loan and Employer
Securities that were used as collateral for a prior Exempt Loan repaid with the
proceeds of the current Exempt Loan. Such Employer Securities so pledged shall
be placed in an Exempt Loan Suspense Account. No person or institution entitled
to payment under an Exempt Loan shall have recourse against Trust assets other
than the aforesaid collateral, Employer Stock Ownership contributions (other
than contributions of Employer Securities) that are available under the Plan to
meet obligations under the Exempt Loan and earnings attributable to such
27
<PAGE>
collateral and the investment of such contributions. All Employee Stock
Ownership contributions paid during the Plan Year in which an Exempt Loan is
made (whether before or after the date the proceeds of the Exempt Loan are
received), all Employee Stock Ownership contributions paid thereafter until the
Exempt Loan has been repaid in full, and all earnings from investment of such
Employee Stock Ownership contributions, without regard to whether any such
Employee Stock Ownership contributions and earnings have been allocated to
Participants' Employee Stock Ownership Accounts, shall be available to meet
obligations under the Exempt Loan as such obligations accrue, or prior to the
time such obligations accrue, unless otherwise provided by the Employer at the
time any such contribution is made. Any pledge of Employer Securities shall
provide for the release of shares so pledged upon the payment of any portion of
the Exempt Loan.
(b) For each Plan Year during the duration of the Exempt Loan, the number
of shares of Employer Securities released from such pledge shall equal the
number of encumbered shares held immediately before release for the current Plan
Year multiplied by a fraction. The numerator of the fraction is the sum of
principal and interest paid in such Plan Year. The denominator of the fraction
is the sum of the numerator plus the principal and interest to be paid for all
future years. Such years will be determined without taking into account any
possible extension or renewal periods. If interest on any Exempt Loan is
variable, the interest to be paid in future years under the Exempt Loan shall be
computed by using the interest rate applicable as of the end of the Plan Year.
(c) Notwithstanding the foregoing, the Trustee may obtain an Exempt Loan
pursuant to the terms of which the number of Employer Securities to be released
from encumbrance shall be determined solely with reference to principal
payments. In the event that such an Exempt Loan is obtained, annual payments of
principal and interest shall be at a cumulative rate that is not less rapid at
any time than level payments of such amounts for not more than 10 years. The
amount of interest in any such annual loan repayment shall be disregarded only
to the extent that it would be determined to be interest under standard loan
amortization tables. The requirement set forth in the preceding sentence shall
not be applicable from the time that, by reason of a renewal, extension, or
refinancing, the sum of the expired duration of the Exempt Loan, the renewal
period, the extension period, and the duration of a new Exempt Loan exceeds 10
years.
8.6 Exempt Loan Payments.
(a) Payments of principal and interest on any Exempt Loan during a Plan
Year shall be made by the Trustee (as directed by the Administrator) only from
(1) Employee Stock Ownership contributions to the Trust made to meet the Plan's
obligation under an Exempt Loan (other than contributions of Employer
Securities) and from any earnings attributable to Employer Securities held as
collateral for an Exempt Loan and investments of such contributions (both
received during or prior to the Plan Year); (2) the proceeds of a subsequent
Exempt Loan made to repay a prior Exempt Loan; and (3) the proceeds of the sale
of any Employer Securities held as collateral for an Exempt Loan. Such
contribution and earnings shall be accounted for separately by the Plan until
the Exempt Loan is repaid.
28
<PAGE>
(b) Employer Securities released by reason of the payment of principal or
interest on an Exempt Loan from amounts allocated to Participants' Employee
Stock Ownership Accounts shall be allocated as set forth in Section 5.5.
(c) The Employer shall contribute to the Trust sufficient amounts to enable
the Trust to pay principal and interest on any such Exempt Loans as they are
due, provided however that no such contribution shall exceed the limitations in
Section 5.6. In the event that such contributions by reason of the limitations
in Section 5.6 are insufficient to enable the Trust to pay principal and
interest on such Exempt Loan as it is due, then upon the Trustee's request the
Employer or an affiliated corporation shall:
(1) Make an Exempt Loan to the Trust in sufficient amounts to meet such
principal and interest payments. Such new Exempt Loan shall be
subordinated to the prior Exempt Loan. Securities released from the
pledge of the prior Exempt Loan shall be pledged as collateral to
secure the new Exempt Loan. Such Employer Securities will be released
from this new pledge and allocated to the Employee Stock Ownership
Accounts of the Participants in accordance with applicable provisions
of the Plan;
(2) Purchase any Employer Securities pledged as collateral in an amount
necessary to provide the Trustee with sufficient funds to meet the
principal and interest repayments. Any such sale by the Plan shall
meet the requirements of Section 408(e) of ERISA; or
(3) Any combination of the foregoing. However, the Employer shall not,
pursuant to the provisions of this subsection, do, fail to do or cause
to be done any act or thing which would result in a disqualification
of the Plan as an Employee Stock Ownership Plan under the Code.
(d) Except as provided in Section 8.1 above and notwithstanding any
amendment to or termination of the Plan which causes it to cease to qualify as
an Employee Stock Ownership plan within the meaning of Section 4975(e)(7) of the
Code, or any repayment of an Exempt Loan, no shares of Employer Securities
acquired with the proceeds of an Exempt Loan obtained by the Trust to purchase
Employer Securities may be subject to a put, call or other option, or buy-sell
or similar arrangement while such shares are held by the Plan or when such
Shares are distributed from the Plan.
8.7 Put Option.
If a Participant exercises a put option (as set forth in Section 8.1) with
respect to Employer Securities that were distributed as part of a total
distribution pursuant to which a Participant's Employee Stock Ownership Account
is distributed to him in a single taxable year, the Employer or the Plan may
elect to pay the purchase price of the Employer Securities over a period not to
exceed five years. Such payments shall be made in substantially equal
29
<PAGE>
installments not less frequently than annually over a period beginning not later
than 30 days after the exercise of the put option. Reasonable interest shall be
paid to the Participant with respect to the unpaid balance of the purchase price
and adequate security shall be provided with respect thereto. In the event that
a Participant exercises a put option with respect to Employer Securities that
are distributed as part of an installment distribution, the amount to be paid
for such securities shall be paid not later than 30 days after the exercise of
the put option.
8.8 Diversification Requirements
Each Participant who has completed at least 10 years of participation in
the Plan and has attained age 55 may elect within 90 days after the close of
each Plan Year during his "qualified election period" to direct the Plan as to
the investment of at least 25% of his Employee Stock Ownership Account (to the
extent such percentage exceeds the amount to which a prior election under this
Section 8.8 had been made). For purposes of this Section 8.8, the term
"qualified election period" shall mean the five-Plan Year period beginning with
the Plan Year after the Plan Year in which the Participant attains age 55 (or,
if later, beginning with the Plan Year after the first Plan Year in which the
Employee first completes at least 10 years of participation in the Plan). In
the case of the Employee who has attained age 60 and completed 10 years of
participation in the prior Plan Year and in the case of the election year in
which any other Participant who has met the minimum age and service requirements
for diversification can make his last election hereunder, he shall be entitled
to direct the Plan as to the investment of at least 50% of his Employee Stock
Ownership Account (to the extent such percentage exceeds the amount to which a
prior election under this Section 8.8 had been made). The Plan shall make
available at least three investment options (not inconsistent with regulations
prescribed by the Department of Treasury) to each Participant making an election
hereunder. The Plan shall be deemed to have met the requirements of this
Section if the portion of the Participant's Employee Stock Ownership Account
covered by the election hereunder is distributed to the Participant or his
designated Beneficiary within 90 days after the period during which the election
may be made. In the absence of such a distribution, the Trustee shall implement
the Participant's election within 90 days following the expiration of the
qualified election period.
8.9 Independent Appraiser.
An independent appraiser meeting the requirements of Code 170(a)(1) shall
value the Employer Securities in those Plan Years when such securities are not
readily tradable on an established securities market.
8.10 Limitation on Allocations.
In the event that the Trustee acquires shares of Employer Securities in a
transaction to which section 1042 of the Code applies, such Shares shall not be
allocated, directly or indirectly, to any Participant described in Section
409(n)(1) of the Code for the duration of the "nonallocation period" (as defined
in Section 409(n)(3)(C) of the Code). Where any shares of Employer Securities
are prevented from being allocated due to he prohibition contained in this
30
<PAGE>
section the allocation of contributions otherwise provided under Section 5.5
shall be adjusted to reflect such result.
31
<PAGE>
ARTICLE IX
PAYMENTS AND DISTRIBUTIONS
9.1 Payments on Termination of Service -- In General.
All benefits provided under this Plan shall be funded by the value of a
Participant's vested interest in the Fund. As soon as practicable after a
Participant's Retirement, death or termination of Service, the Administrator
shall ascertain the value of his vested interest in the Fund, as provided in
Article V, and the Administrator shall hold or dispose of the same in accordance
with the following provisions of this Article IX.
9.2 Commencement of Payments.
(a) Distributions upon Retirement or Death. Upon a Participant's
Retirement or Death, payment of benefits under this Plan shall, unless the
Participant otherwise elects (in accordance with Section 9.3), commence no later
than six months after the close of the Plan Year in which occurs the date of the
Participant's Retirement or death.
(b) Distribution following Termination of Service. Unless a Participant
elects otherwise, if a Participant terminates Service prior to Retirement or
death, he shall be accorded an opportunity to commence receipt of distributions
from his Accounts within six months after the Valuation Date next following the
date of his termination of service. A Participant who terminates Service with a
deferred vested benefit shall be entitled to receive from the Administrator a
statement of his benefits. In the event that a Participant elects not to
commence receipt of distributions from his Accounts in accordance with this
Section 9.2(b), after the Participant incurs a Break, the Administrator shall
transfer his deferred vested interest to a distribution account. If a
Participant's vested Employer Account does not exceed (or at the time of any
prior distribution did not exceed) $3,500, the Plan Administrator may distribute
the vested portion of his Employer Account as soon as administratively feasible
without the consent of the Participant or his spouse.
(c) Distribution of Accounts Greater Than $3,500. If the value of a
Participant's vested Account balance exceeds (or at the time of any prior
distribution exceeded) $3,500, and the Account balance is immediately
distributable, the Participant must consent to any distribution of such Account
balance. The Plan Administrator shall notify the Participant of the right to
defer any distribution until the Participant's Account balance is no longer
immediately distributable. The consent of the Participant shall not be required
to the extent that a distribution is required to satisfy Code Section 401(a)(9)
or Code Section 415.
9.3 Mandatory Commencement of Benefits.
(a) Unless a Participant elects otherwise, in writing, distribution of
benefits will begin no later than the 60th day after the latest of the close of
the Plan Year in which (i) the Participant
32
<PAGE>
attains age 65, (ii) occurs the tenth anniversary of the year in which the
Participant commenced participation in the Plan Year, or (iii) the Participant
terminates Service with the Employer.
(b) In the event that the Plan shall be subsequently amended to provide for
a form of distribution other than a lump sum, as of the first distribution
calendar year, distributions, if not made in a lump sum, may be made only over
one of the following periods (or a combination thereof):
(i) the life of the Participant,
(ii) the life of the Participant and the designated beneficiary,
(iii) period certain not extending beyond the life expectancy of the
Participant, or
(iv) a period certain not extending beyond the joint and last survivor
expectancy of the Participant and a designated beneficiary.
(c) In the event that the Plan shall be subsequently amended to provide for
a form of distribution other than a lump sum, if the participant's interest is
to be distributed in other than a lump sum, the following minimum distribution
rules shall apply on or after the required beginning date:
(i) If a Participant's benefit is to be distributed over (1) a period
not extending beyond the life expectancy of the Participant or the
joint life and last survivor expectancy of the Participant and the
Participant's designated beneficiary or (2) a period not extending
beyond the life expectancy of the designated beneficiary, the amount
required to be distributed for each calendar year, beginning with
distributions for the first distribution calendar year, must at
least equal the quotient obtained by dividing the Participant's
benefit by the applicable life expectancy.
(ii) The amount to be distributed each year, beginning with distributions
for the first distribution calendar year shall not be less than the
quotient obtained by dividing the Participant's benefit by the
lesser of (1) the applicable life expectancy or (2) if the
Participant's spouse is not the designated beneficiary, the
applicable divisor determined from the table set forth in Q&A-4 of
section 1.401(a)(9)-2 of the Proposed Regulations. Distributions
after the death of the participant shall be distributed using the
applicable life expectancy in sub-section (iii) above as the
relevant divisor without regard to Proposed Regulations 1.401(a)(9)-
2.
(iii) The minimum distribution required for the Participant's first
distribution calendar year must be made on or before the
Participant's required
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beginning date. The minimum distribution for other calendar years,
including the minimum distribution for the distribution calendar
year in which the employee's required beginning date occurs, must be
made on or before December 31 of the distribution calendar year.
(d) If a Participant dies after a distribution has commenced in accordance
with Section 8.3(b) but before his entire interest has been distributed to him,
the remaining portion of such interest shall be distributed to his Beneficiary
at least as rapidly as under the method of distribution in effect as of the date
of his death.
(e) If a Participant shall die before the distribution of his interest in
the Plan has begun, the entire interest of the Participant shall be distributed
by December 31 of the calendar year containing the fifth anniversary of the
death of the Participant, except in the following events:
(i) If any portion of the Participant's interest is payable to (or for
the benefit of) a designated beneficiary over a period not extending
beyond the life expectancy of such beneficiary and such
distributions begin not later than December 31 of the calendar year
immediately following the calendar year in which the Participant
died.
(ii) If any portion of the Participant's interest is payable to (or for
the benefit of) the Participant's spouse over a period not extending
beyond the life expectancy of such spouse and such distributions
begin no later than December 31 of the calendar year in which the
Participant would have attained age 70-1/2.
If the Participant has not made a distribution election by the time
of his death, the Participant's designated beneficiary shall elect
the method of distribution no later than the earlier of (1) December
31 of the calendar year in which distributions would be required to
begin under this Article or (2) December 31 of the calendar year
which contains the fifth anniversary of the date of death of the
Participant. If the Participant has no designated beneficiary, or if
the designated beneficiary does not elect a method of distribution,
distribution of the Participant's entire interest shall be completed
by December 31 of the calendar year containing the fifth anniversary
of the Participant's death.
(f) For purposes of this Article, the life expectancy of a Participant and
his spouse may be redetermined but not more frequently than annually. The life
expectancy (or joint and last survivor expectancy) shall be calculated using the
attained age of the Participant (or designated beneficiary) as of the
Participant's (or designated beneficiary's) birthday in the applicable calendar
year reduced by one for each calendar year which has elapsed since the date life
expectancy was first calculated. If life expectancy is being recalculated, the
applicable life expectancy shall be the life expectancy as so recalculated. The
applicable calendar year shall be
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the first distribution calendar year, and if life expectancy is being
recalculated, such succeeding calendar year. Unless otherwise elected by the
Participant (or his spouse, if applicable) by the time distributions are
required to begin, life expectancies shall be recalculated annually. Any such
election not to recalculate shall be irrevocable and shall apply to all
subsequent years. The life expectancy of a nonspouse beneficiary may not be
recalculated.
(g) For purposes of Section 9.3(b) and 9.3(e), any amount paid to a child
shall be treated as if it had been paid to a surviving spouse if such amount
will become payable to the surviving spouse upon such child reaching majority
(or other designated event permitted under regulations).
(h) For distributions beginning before the Participant's death, the first
distribution calendar year is the calendar year immediately preceding the
calendar year which contains the Participant's required beginning date. For
distributions beginning after the Participant's death, the first distribution
calendar year is the calendar year in which distributions are required to begin
pursuant to this Article.
9.4 Required Beginning Dates.
The required beginning date of a Participant is the first day of April of
the calendar year following the later of (1) calendar year in which the
participant attains age 70-1/2 or (2) the calendar year in which the Participant
terminated his employment, unless he is a 5% owner (as defined in Section 416)
with respect to the Plan Year ending in the calendar year in which he attains
age 70-1/2, in which case clause (2) shall not apply.
9.5 Form of Payment.
Each Participant's vested interest shall be distributed in a lump sum
payment. Notwithstanding the preceding sentence, but subject to Section 9.3, the
Administrator may not distribute a lump sum when the present value of a
Participant's total Account balances is in excess of $3,500 without the
Participant's consent. This form of payment shall be the normal form of
distribution provided, however, that in the event that the Administrator must
commence distributions with respect to an Employee who has attained age 70-1/2
and is still employed by the Employer, if the Employee does not elect a lump sum
distribution, payments shall be made in installments in such amounts as shall
satisfy the minimum distribution rules of Section 9.3.
9.6 Payments Upon Termination of Plan.
Upon termination of this Plan pursuant to Sections 13.2, 13.4, 13.5 or
13.6, the Administrator shall continue to perform its duties and the Trustee
shall make all payments upon the following terms, conditions and provisions: All
interests of Participants shall immediately become fully vested; the value of
the interests of all Participants shall be determined within 60 days after such
termination, and the Administrator shall have the same powers to direct the
Trustee in making payments as contained in Sections 9.1 and 13.5.
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9.7 Distributions Pursuant to Qualified Domestic Relations Orders.
Upon receipt of a domestic relations order, the Administrator shall notify
promptly the Participant and any alternate payee of receipt of the order and the
Plan's procedure for determining whether the order is a Qualified Domestic
Relations Order. While the issue of whether a domestic relations order is a
Qualified Domestic Relations Order is being determined, if the benefits would
otherwise be paid, the Administrator shall segregate in a separate account in
the Plan the amounts that would be payable to the alternate payee during such
period if the order were a Qualified Domestic Relations Order. If within 18
months the order is determined to be a Qualified Domestic Relations Order, the
amounts so segregated, along with the interest or investment earnings
attributable thereto shall be paid to the alternate payee. Alternatively, if
within 18 months, it is determined that the order is not a Qualified Domestic
Relations Order or if the issue is still unresolved, the amounts segregated
under this Section 9.6, with the earnings attributable thereto, shall be paid to
the Participant or Beneficiary who would have been entitled to such amounts if
there had been no order. The determination as to whether the order is qualified
shall be applied prospectively. Thus, if the Administrator determines that the
order is a Qualified Domestic Relations Order after the 18-month period, the
Plan shall not be liable for payments to the alternative payee for the period
before the order is determined to be a Qualified Domestic Relations Order.
9.8 Cash-Out Distributions
If a Participant receives a distribution of the entire present value of his
vested Account balances under this Plan because of the termination of his
participation in the Plan, the Plan shall disregard a Participant's Service with
respect to which such cash-out distribution shall have been made, in computing
his accrued benefit under the Plan in the event that a Former Participant shall
again become an Employee and become eligible to participate in the Plan. Such a
distribution shall be deemed to be made on termination of participation in the
Plan if it is made not later than the close of the second Plan Year following
the Plan Year in which such termination occurs. The forfeitable portion of a
Participant's accrued benefit shall be restored upon repayment to the Plan by
such former Participant of the full amount of the cash-out distribution,
provided that the former Participant again becomes an Employee. Such repayment
must be made by the Employee not later than the end of the five-year period
beginning with the date of the distribution. Forfeitures required to be
restored by virtue of such repayment shall be restored from the following
sources in the following order of preference: (i) current forfeitures; (ii)
additional employee stock ownership contributions, as appropriate and as subject
to Section 5.6; and (iii) investment earnings of the Fund. In the event that a
Participant's interest in the Plan is totally forfeitable, a Participant shall
be deemed to have received a distribution of zero upon his termination of
Service. In the event of a return to Service within five years of the date of
his deemed distribution, the Participant shall be deemed to have repaid his
distribution in accordance with the rules of this Section 9.8.
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9.9 ESOP Distribution Rules.
Notwithstanding any provision of this Article IX to the contrary, the
distribution of a Participant's Employee Stock Ownership Account (unless the
Participant elects otherwise in writing), shall commence as soon as
administratively feasible as of the first Valuation Date coincident with or next
following his death, disability or termination of Service, but not later than
one year after the close of the Plan Year in which the Participant separates
from Service by reason of the attainment of his Normal Retirement Date,
disability, death or separation from Service. In addition, all distributions
hereunder shall, to the extent that the Participant's Account is invested in
Employer Securities, be made in the form of Employer Securities. Fractional
shares, however, may be distributed in the form of cash.
9.10 Withholding.
(a) Notwithstanding any provision of the Plan to the contrary that would
otherwise limit a distributee's election under this Article IX, a distributee
may elect, at the time and in the manner prescribed by the Plan Administrator,
to have any portion of an "eligible rollover distribution" paid directly to an
"eligible retirement plan" specified by the distributee in a "direct rollover."
(b) For purposes of this Section 9.10, an "eligible rollover distribution"
is any distribution of all or any portion of the balance to the credit of the
distributee, except that an "eligible rollover distribution" does not include:
any distribution that is one of a series of substantially equal periodic
payments (not less frequently than annually) made for the life (or life
expectancy) of the distributee or the joint lives (or joint life expectancies)
of the distributee and the distributee's designated beneficiary, or for a
specified period of 10 years or more; any distribution to the extent such
distribution is required under section 401(a)(9) of the Code; and the portion of
any distribution that is not includable in gross income (determined without
regard to the exclusion for net unrealized appreciation with respect to Employer
Securities).
(c) For purposes of this Section 9.10, an "eligible retirement plan" is an
individual retirement account described in section 408(a) of the Code, an
individual retirement annuity described in section 408(b) of the Code, an
annuity plan described in section 403(a) of the Code, or a qualified trust
described in section 401(a) of the Code, that accepts the distributee's eligible
rollover distribution. However, in the case of an "eligible rollover
distribution" to the surviving spouse, an "eligible retirement plan" is an
individual retirement account or individual retirement annuity.
(d) For purposes of this Section 9.10, a distributee includes a Participant
or former Participant. In addition, the Participant's or former Participant's
surviving spouse and the Participant's or former Participant's spouse or former
spouse who is the alternate payee under a qualified domestic relations order, as
defined in section 414(p) of the Code, are "distributees" with regard to the
interest of the spouse or former spouse.
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(e) For purposes of this Section 9.10, a "direct rollover" is a payment by
the Plan to the "eligible retirement plan" specified by the distributee.
9.11 Waiver of 30-day Notice.
If a distribution is one to which sections 401(a)(11) and 417 of the Code
do not apply, such distribution may commence less than 30 days after the notice
required under Section 1.411(a)-11(c) of the Income Tax Regulations is given,
provided that: (1) the Plan Administrator clearly informs the Participant that
the Participant has a right to a period of at least 30 days after receiving the
notice to consider the decision of whether or not to elect a distribution (and,
if applicable, a particular distribution option), and (2) the Participant, after
receiving the notice, affirmatively elects a distribution.
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ARTICLE X
PROVISIONS RELATING TO TOP-HEAVY PLANS
10.1 Top-Heavy Rules to Control.
Anything contained in this Plan to the contrary notwithstanding, if for any
Plan Year the Plan is a top-heavy plan, as determined pursuant to Section 416 of
the Code, then the Plan must meet the requirements of this Article X for such
Plan Year.
10.2 Top-Heavy Plan Definitions.
Unless a different meaning is plainly implied by the context, the following
terms as used in this Article X shall have the following meanings:
(a) "Accrued Benefit" shall mean the account balances or accrued benefits
of an Employee, calculated pursuant to Section 10.3.
(b) "Determination Date" shall mean, with respect to any particular Plan
Year of this Plan, the last day of the preceding Plan Year (or, in the case of
the first Plan Year of the Plan, the last day of the first Plan Year). In
addition, the term "Determination Date" shall mean, with respect to any
particular plan year of any plan (other than this Plan) in a Required
Aggregation Group or a Permissive Aggregation Group, the last day of the plan
year of such plan which falls within the same calendar year as the Determination
Date for this Plan.
(c) "Employer" shall mean the Employer (as defined in Section 1.1(q)) and
any entity which is (1) a member of a controlled group including such Employer,
while it is a member of such controlled group (within the meaning of Section
414(b) of the Code), (2) in a group of trades or businesses under common control
with such Employer, while it is under common control (within the meaning of
Section 414(c) of the Code), and (3) a member of an affiliated service group
including such Employer, while it is a member of such affiliated service group
(within the meaning of Section 414(m) of the Code).
(d) "Key Employee" shall mean any Employee or former Employee (or any
Beneficiary of such Employee or former Employee, as the case may be) who, at any
time during the Plan Year or during the four immediately preceding Plan Years is
one of the following:
(1) An officer of the Employer who has compensation greater than 50% of
the amount in effect under Code 415(b)(1)(A) for the Plan Year;
provided, however, that no more than 50 Employees (or, if lesser, the
greater of three or 10% of the Employees) shall be deemed officers;
(2) One of the 10 Employees having annual compensation (as defined in
Section 415 of the Code) in excess of the limitation in effect under
Section
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415(c)(1)(A) of the Code, and owning (or considered as owning, within
the meaning of Section 318 of the Code) the largest interests in the
Employer;
(3) Any Employee owning (or considered as owning, within the meaning of
Section 318 of the Code) more than 5% of the outstanding stock of the
Employer or stock possessing more than 5% of the total combined voting
power of all stock of the Employer; or
(4) Any Employee having annual compensation (as defined in Section 415 of
the Code) of more than $150,000 and who would be described in Section
10.2(d)(3) if "1%" were substituted for "5%" wherever the latter
percentage appears.
For purposes of applying Section 318 of the Code to the provisions of
this Section 10.2(d), Section 318(a)(2)(C) of the Code shall be
applied by substituting "5%" for "50%" wherever the latter percentage
appears. In addition, for purposes of this Section 10.2(d), the
provisions of Section 414(b), (c) and (m) shall not apply in
determining ownership interests in the Employer. However, for purposes
of determining whether an individual has compensation in excess of
$150,000, or whether an individual is a Key Employee under Section
10.2(d)(1) and (2), compensation from each entity required to be
aggregated under Sections 414(b), (c) and (m) of the Code shall be
taken into account. Notwithstanding anything contained herein to the
contrary, all determinations as to whether a person is or is not a Key
Employee shall be resolved by reference to Section 416 of the Code and
any rules and regulations promulgated thereunder.
(e) "Non-Key Employee" shall mean any Employee or former Employee (or any
Beneficiary of such Employee or former Employee, as the case may be) who is not
considered to be a Key Employee with respect to this Plan.
(f) "Permissive Aggregation Group" shall mean all plans in the Required
Aggregation Group and any other plans maintained by the Employer which satisfy
Sections 401(a)(4) and 410 of the Code when considered together with the
Required Aggregation Group.
(g) "Required Aggregation Group" shall mean each plan (including any
terminated plan) of the Employer in which a Key Employee is (or in the case of a
terminated plan, had been) a Participant in the Plan Year containing the
Determination Date or any of the four preceding Plan Years, and each other plan
of the Employer which enables any plan of the Employer in which a Key Employee
is a Participant to meet the requirement of Sections 401(a)(4) and 410 of the
Code.
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10.3 Calculation of Accrued Benefits.
(a) An Employee's Accrued Benefit shall be equal to:
(1) With respect to this Plan or any other defined contribution plan
(other than a defined contribution pension plan) in a Required
Aggregation Group or a Permissive Aggregation Group, the Employee's
account balances under the respective plan, determined as of the most
recent plan valuation date within a 12-month period ending on the
Determination Date, including contributions actually made after the
valuation date but before the Determination Date (and, in the first
plan year of a plan, also including any contributions made after the
Determination Date which are allocated as of a date in the first plan
year).
(2) With respect to any defined contribution pension plan in a Required
Aggregation Group or a Permissive Aggregation Group, the Employee's
account balances under the plan, determined as of the most recent plan
valuation date within a 12-month period ending on the Determination
Date, including contributions which have not actually been made, but
which are due to be made as of the Determination Date.
(3) With respect to any defined benefit plan in a Required Aggregation
Group or a Permissive Aggregation Group, the present value of the
Employee's accrued benefits under the plan, determined as of the most
recent plan valuation date within a 12-month period ending on the
Determination Date, pursuant to the actuarial assumptions used by such
plan, and calculated as if the Employee terminated Service under such
plan as of the valuation date (except that, in the first plan year of
a plan, a current Participant's estimated Accrued Benefit Plan as of
the Determination Date shall be taken into account).
(4) If any individual has not performed services for the Employer
maintaining the Plan at any time during the five-year period ending on
the Determination Date, any Accrued Benefit for such individual shall
not be taken into account.
(b) The Accrued Benefit of any Employee shall be further adjusted as
follows:
(1) The Accrued Benefit shall be calculated to include all amounts
attributable to both Employer and Employee contributions, but shall
exclude amounts attributable to voluntary deductible Employee
contributions, if any.
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(2) The Accrued Benefit shall be increased by the aggregate distributions
made with respect to an Employee under the plan or plans, as the case
may be, during the five-year period ending on the Determination Date.
(3) Rollover and direct plan-to-plan transfers shall be taken into account
as follows:
(A) If the transfer is initiated by the Employee and made from a plan
maintained by one employer to a plan maintained by another
unrelated employer, the transferring plan shall continue to count
the amount transferred; the receiving plan shall not count the
amount transferred.
(B) If the transfer is not initiated by the Employee or is made
between plans maintained by related employers, the transferring
plan shall no longer count the amount transferred; the receiving
plan shall count the amount transferred.
(c) If any individual has not performed services for the Employer at any
time during the five-year period ending on the Determination Date, any accrued
benefit for such individual (and the account of such individual) shall not be
taken into account.
10.4 Determination of Top-Heavy Status.
This Plan shall be considered to be a top-heavy plan for any Plan Year if,
as of the Determination Date, the value of the Accrued Benefits of Key Employees
exceeds 60% of the value of the Accrued Benefits of all eligible Employees under
the Plan. Notwithstanding the foregoing, if the Employer maintains any other
qualified plan, the determination of whether this Plan is top-heavy shall be
made after aggregating all other plans of the Employer in the Required
Aggregation Group and, if desired by the Employer as a means of avoiding top-
heavy status, after aggregating any other plan of the Employer in the Permissive
Aggregation Group. If the required Aggregation Group is top-heavy, then each
plan contained in such group shall be deemed to be top-heavy, notwithstanding
that any particular plan in such group would not otherwise be deemed to be top-
heavy. Conversely, if the Permissive Aggregation Group is not top-heavy, then
no plan contained in such group shall be deemed to be top-heavy, notwithstanding
that any particular plan in such group would otherwise be deemed to be top-
heavy. In no event shall a plan included in a top-heavy Permissive Aggregation
Group be deemed a top-heavy plan unless such plan is also included in a top-
heavy Required Aggregation Group.
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10.5 Determination of Super Top-Heavy Status.
The Plan shall be considered to be a super top-heavy plan if, as of the
Determination Date, the Plan would meet the test specified in Section 10.4 above
for classification as a top-heavy plan, except that "90%" shall be substituted
for "60%" whenever the latter percentage appears.
10.6 Minimum Contribution.
(a) For any year in which the Plan is top-heavy, each Non-Key Employee who
has met the age and service requirements, if any, contained in the Plan, shall
be entitled to a minimum contribution (which may include forfeitures otherwise
allocable) equal to a percentage of such Non-Key Employee's compensation (as
defined in Section 415 of the Code) as follows:
(1) If the Non-Key Employee is not covered by a defined benefit plan
maintained by the Employer, then the minimum contribution under this
Plan shall be 3% of such Non-Key Employee's compensation.
(2) If the Non-Key Employee is covered by a defined benefit plan
maintained by the Employer, then the minimum contribution under this
Plan shall be 5% of such Non-Key Employee's compensation.
(b) Notwithstanding the foregoing, the minimum contribution otherwise
allocable to a Non-Key Employee under this Plan shall be reduced in the
following circumstances:
(1) The percentage minimum contribution required under this Plan shall in
no event exceed the percentage contribution made for the Key Employee
for whom such percentage is the highest for the Plan Year after taking
into account contributions under other defined contribution plans in
this Plan's Required Aggregation Group; provided, however, that this
Section 10.7(b)(1) shall not apply if this Plan is included in a
Required Aggregation Group and this Plan enables a defined benefit
plan in such Required Aggregation Group to meet the requirements of
Section 401(a)(4) or 410 of the Code.
(2) No minimum contribution shall be required (or the minimum contribution
shall be reduced, as the case may be) for a Non-Key Employee under
this Plan for any Plan Year if the Employer maintains another
qualified plan under which a minimum benefit or contribution is being
accrued or made on account of such Plan Year, in whole or in part, on
behalf of the Non-Key Employee, in accordance with Section 416(c) of
the Code.
(c) For purposes of this Section 10.6, there shall be disregarded (1) any
Employer contributions attributable to a salary reduction or similar
arrangement, or (2) any Employer
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contributions to or any benefits under Chapter 21 of the Code (relating to the
Federal Insurance Contributions Act), Title II of the Social Security Act, or
any other federal or state law.
(d) For purposes of this Section 10.6, minimum contributions shall be
required to be made on behalf of only those Non-Key Employees, as described in
Section 10.7(a), who have not terminated Service as of the last day of the Plan
Year. If a Non-Key Employee is otherwise entitled to receive a minimum
contribution pursuant to this Section 10.6(d), the fact that such Non-Key
Employee failed to complete 1,000 Hours of Service or failed to make any
mandatory or elective contributions under this Plan, if any are so required,
shall not preclude him from receiving such minimum contribution.
10.7 Maximum Benefit Limitation.
For any Plan Year in which the Plan is a top-heavy plan, Section
5.6(d)(1)(B)(i) and Section 5.6(d)(2)(B)(i)shall be read by substituting "1.0"
for "1.25" wherever the latter figure appears; provided, however, that such
substitution shall not have the effect of reducing any benefit accrued under a
defined benefit plan prior to the first day of the plan year in which this
Section 10.8 becomes applicable.
10.8 Vesting.
(a) For any Plan Year in which the Plan is a top-heavy plan, a
Participant's Employer account shall continue to vest according to the schedule
set forth in Section 7.2.
(b) For purposes of Section 10.8(a), the term "year of service" shall have
the same meaning as set forth in Section 1.1(kk), as modified by Section 3.2
(c) If for any Plan Year the Plan becomes top-heavy and the vesting
schedule set forth in Section 10.8(a) becomes effective, then, even if the Plan
ceases to be top-heavy in any subsequent Plan Year, the vesting schedule set
forth in Section 10.8(a) shall remain applicable with respect to any Participant
who has completed 3 Years of Service.
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ARTICLE XI
ADMINISTRATION
11.1 Appointment of Administrator.
This Plan shall be administered by a committee consisting of up to five
persons, whether or not Employees or Participants, who shall be appointed from
time to time by the Board of Directors to serve at its pleasure. The Sponsor may
require that each person appointed as an Administrator shall signify his
acceptance by filing an acceptance with the Sponsor. The term "Administrator" as
used in this Plan shall refer to the members of the committee, either
individually or collectively, as appropriate. In the event that the Sponsor
shall elect not to appoint any individuals to constitute a committee to
administer the Plan, the Sponsor shall serve as the Administrator hereunder.
11.2 Resignation or Removal of Administrator.
An Administrator shall have the right to resign at any time by giving
notice in writing, mailed or delivered to the Employer and to the Trustee. Any
Administrator who was an employee of the Employer at the time of his appointment
shall be deemed to have resigned as an Administrator upon his termination of
Service. The Board of Directors may, in its discretion, remove any Administrator
with or without cause, by giving notice in writing, mailed or delivered to the
Administrator and to the Trustee.
11.3 Appointment of Successors: Terms of Office, Etc.
Upon the death, resignation or removal of an Administrator, the Employer
may appoint, by Board of Directors' resolution, a successor or successors.
Notice of termination of an Administrator and notice of appointment of a
successor shall be made by the Employer in writing, with copies mailed or
delivered to the Trustee, and the successor shall have all the rights and
privileges and all of the duties and obligations of the predecessor.
11.4 Powers and Duties of Administrator.
The Administrator shall have the following duties and responsibilities in
connection with the administration of this Plan:
(a) To promulgate and enforce such rules, regulations and procedures as
shall be proper for the efficient administration of the Plan, such rules,
regulations and procedures to apply uniformly to all Employees, Participants and
Beneficiaries;
(b) To determine all questions arising in the administration,
interpretation and application of the Plan, including questions of eligibility
and of the status and rights of Participants, Beneficiaries and any other
persons hereunder;
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(c) To decide any dispute arising hereunder strictly in accordance with the
terms of the Plan; provided, however, that no Administrator shall participate in
any matter involving any questions relating solely to his own participation or
benefits under this Plan;
(d) To advise the Employer and the Trustee regarding the known future needs
for funds to be available for distribution in order that the Trustee may
establish investments accordingly;
(e) To correct defects, supply omissions and reconcile inconsistencies to
the extent necessary to effectuate the Plan;
(f) To advise the Employer of the maximum deductible contribution to the
Plan for each fiscal year;
(g) To direct the Trustee concerning all payments which shall be made out
of the Fund pursuant to the provisions of this Plan;
(h) To advise the Trustee on all terminations of Service by Participants,
unless the Employer has so notified the Trustee;
(i) To confer with the Trustee on the settling of any claims against the
Fund;
(j) To make recommendations to the Board of Directors with respect to
proposed amendments to the Plan and the Trust Agreement;
(k) To file all reports with government agencies, Employees and other
parties as may be required by law, whether such reports are initially the
obligation of the Employer, the Plan or the Trustee; and
(l) To have all such other powers as may be necessary to discharge its
duties hereunder.
Reasonable discretion is granted to the Administrator to affect the
benefits, rights and privileges of Participants, Beneficiaries or other persons
affected by this Plan. The Administrator shall exercise reasonable discretion
under the terms of this Plan and shall administer the Plan strictly in
accordance with its terms, such administration to be exercised uniformly so that
all persons similarly situated shall be similarly treated.
11.5 Action by Administrator.
The Administrator may elect a Chairman and Secretary from among its members
and may adopt rules for the conduct of its business. A majority of the members
then serving shall constitute a quorum for the transaction of business. All
resolutions or other action taken by the Administrator shall be by vote of a
majority of those present at such meeting and entitled to vote. Resolutions may
be adopted or other action taken without a meeting upon written consent signed
by at least a majority of the members. All documents, instruments, orders,
requests, directions,
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instructions and other papers shall be executed on behalf of the Administrator
by either the Chairman or the Secretary of the Administrator, if any, or by any
member or agent of the Administrator duly authorized to act on the
Administrator's behalf.
11.6 Participation by Administrators.
No Administrator shall be precluded from becoming a Participant in the Plan
if he would be otherwise eligible, but he shall not be entitled to vote or act
upon matters or to sign any documents relating specifically to his own
participation under the Plan, except when such matters or documents relate to
benefits generally. If this disqualification results in the lack of a quorum,
then the Board of Directors shall appoint a sufficient number of temporary
Administrators who shall serve for the sole purpose of determining such a
question.
11.7 Agents.
The Administrator may employ agents and provide for such clerical, legal,
actuarial, accounting, medical, advisory or other services as it deems necessary
to perform its duties under this Plan. The cost of such services and all other
expenses incurred by the Administrator in connection with the administration of
the Plan shall be paid from the Fund, unless paid by the Employer.
11.8 Allocation of Duties.
The duties, powers and responsibilities reserved to the Administrator may
be allocated among its members so long as such allocation is pursuant to written
procedures adopted by the Administrator, in which case, except as may be
required by the Act, no Administrator shall have any liability, with respect to
any duties, powers or responsibilities not allocated to him, for the acts of
omissions of any other Administrator.
11.9 Delegation of Duties.
The Administrator may delegate any of its duties to other employees of the
Employer, to the Trustee with its consent, or to any other person or firm,
provided that the Administrator shall prudently choose such agents and rely in
good faith on their actions.
11.10 Administrator's Action Conclusive.
Any action on matters within the authority of the Administrator shall be
final and conclusive except as provided in Article XII.
11.11 Compensation and Expenses of Administrator.
No Administrator who is receiving compensation from the Employer as a full-
time employee, as a director or agent, shall be entitled to receive any
compensation or fee for his
47
<PAGE>
services hereunder. Any other Administrator shall be entitled to receive such
reasonable compensation for his services as an Administrator hereunder as may be
mutually agreed upon between the Employer and such Administrator. Any such
compensation shall be paid from the Fund, unless paid by the Employer. Each
Administrator shall be entitled to reimbursement by the Employer for any
reasonable and necessary expenditures incurred in the discharge of his duties.
11.12 Records and Reports.
The Administrator shall maintain adequate records of its actions and
proceedings in administering this Plan and shall file all reports and take all
other actions as it deems appropriate in order to comply with the Act, the Code
and governmental regulations issued thereunder.
11.13 Reports of Fund Open to Participants.
The Administrator shall keep on file, in such form as it shall deem
convenient and proper, all annual reports of the Fund received by the
Administrator from the Trustee, and a statement of each Participant's interest
in the Fund as from time to time determined. The annual reports of the Fund and
the statement of his own interest in the Fund, as well as a complete copy of the
Plan and the Trust Agreement and copies of annual reports to the Internal
Revenue Service, shall be made available by the Administrator to the Employer
for examination by each Participant during reasonable hours at the office of the
Employer, provided, however, that the statement of a Participant's interest
shall not be made available for examination by any other Participant.
11.14 Named Fiduciary.
The Administrator is the named fiduciary for purposes of the Act and shall
be the designated agent for receipt of service of process on behalf of the Plan.
It shall use ordinary care and diligence in the performance of its duties under
this Plan. Nothing in this Plan shall preclude the Employer from indemnifying
the Administrator for all actions under this Plan, or from purchasing liability
insurance to protect it with respect to its duties under this Plan.
11.15 Information from Employer.
The Employer shall promptly furnish all necessary information to the
Administrator to permit it to perform its duties under this Plan. The
Administrator shall be entitled to rely upon the accuracy and completeness of
all information furnished to it by the Employer, unless it knows or should have
known that such information is erroneous.
11.16 Reservation of Rights by Employer.
Where rights are reserved in this Plan to the Employer, such rights shall
be exercised only by action of the Board of Directors, except where the Board of
Directors, by written resolution, delegates any such rights to one or more
officers of the Employer or to the Administrator.
48
<PAGE>
Subject to the rights reserved to the Board of Directors acting on behalf of the
Employer as set forth in this Plan, no member of the Board of Directors shall
have any duties or responsibilities under this Plan, except to the extent he
shall be acting in the capacity of an Administrator or Trustee.
11.17 Liability and Indemnification.
(a) The Administrator shall perform all duties required of it under this
Plan in a prudent manner. To the extent not prohibited by the Act, the
Administrator shall not be responsible in any way for any action or omission of
the Employer, the Trustee or any other fiduciaries in the performance of their
duties and obligations set forth in this Plan and in the Trust Agreement. To the
extent not prohibited by the Act, the Administrator shall also not be
responsible for any act or omission of any of its agents, or with respect to
reliance upon advice of its counsel (whether or not such counsel is also counsel
to the Employer or the Trustee), provided that such agents or counsel were
prudently chosen by the Administrator and that the Administrator relied in good
faith upon the action of such agent or the advice of such counsel.
(b) The Administrator shall not be relieved from responsibility or
liability for any responsibility, obligation or duty imposed upon it under this
Plan or under the Act. Except for its own gross negligence, willful misconduct
or willful breach of the terms of this Plan, the Administrator shall be
indemnified and held harmless by the Employer against liability or losses
occurring by reason of any act or omission of the Administrator to the extent
that such indemnification does not violate the Act or any other federal or state
laws.
11.18 Service as Trustee and Administrator.
Nothing in this Plan shall prevent one or more Trustees from serving as
Administrator under this Plan.
49
<PAGE>
ARTICLE XII
CLAIMS PROCEDURE
12.1 Notice of Denial.
If a Participant or his Beneficiary is denied any benefits under this Plan,
either in whole or in part, the Administrator shall advise the claimant in
writing of the amount of his benefit, if any, and the specific reasons for the
denial. The Administrator shall also furnish the claimant at that time with a
written notice containing:
(a) A specific reference to pertinent Plan provisions;
(b) A description of any additional material or information necessary for
the claimant to perfect his claim, if possible, and an explanation of why such
material or information is needed; and
(c) An explanation of the Plan's claim review procedure.
12.2 Right to Reconsideration.
Within 60 days of receipt of the information described in 12.1 above, the
claimant shall, if he desires further review, file a written request for
reconsideration with the Administrator.
12.3 Review of Documents.
So long as the claimant's request for review is pending (including the 60-
day period described in Section 12.2 above), the claimant or his duly authorized
representative may review pertinent Plan documents and the Trust Agreement (and
any pertinent related documents) and may submit issues and comments in writing
to the Administrator.
12.4 Decision by Administrator.
A final and binding decision shall be made by the Administrator within 60
days of the filing by the claimant of his request for reconsideration; provided,
however, that if the Administrator feels that a hearing with the claimant or his
representative present is necessary or desirable, this period shall be extended
an additional 60 days.
12.5 Notice by Administrator.
The Administrator's decision shall be conveyed to the claimant in writing
and shall include specific reasons for the decision, written in a manner
calculated to be understood by the claimant, with specific references to the
pertinent Plan provisions on which the decision is based.
50
<PAGE>
ARTICLE XIII
AMENDMENTS, TERMINATION AND MERGER
13.1 Amendments.
The Employer reserves the right at any time and from time to time, and
retroactively if deemed necessary or appropriate by it, to the extent
permissible under law, to conform with governmental regulations or other
policies, to amend in whole or in part any or all of the provisions of this
Plan, provided that:
(a) No amendment shall make it possible for any part of the Fund to be used
for, or diverted to, purposes other than for the exclusive benefit of
Participants or their Beneficiaries under the Trust Agreement, except to the
extent provided in Section 4.4;
(b) No amendment may, directly or indirectly, reduce the vested portion of
any Participant's interest as of the effective date of the amendment or change
the vesting schedule with respect to the future accrual of Employer
contributions for any Participants unless each Participant with three or more
Years of Service with the Employer is permitted to elect to have the vesting
schedule in effect before the amendment used to determine his vested benefit;
(c) No amendment may eliminate an optional form of benefit;
(d) No amendment may increase the duties of the Trustee without its
consent; and
(e) No amendment that shall change any of the following types of provisions
shall be made more than once every six months, other than to comport with
changes in the Code, the Act or the regulations thereunder: (i) any provision
stating the amount and price of Employer Securities to be awarded to designated
officers and directors or categories of officers and directors; (ii) any
provisions specifying the timing of awards or allocations to officers and
directors; (iii) any provision setting forth a formula that determines the
amount, price and timing of allocations or awards, using objective criteria such
as earnings of the issuer, value of the Employer Securities, Years of Service,
job classification and Compensation levels.
Amendments may be made in the form of Board of Directors' resolutions or
separate written document. Copies of all amendments shall be delivered to the
Trustee.
13.2 Consolidation, Merger or Other Transactions of Employer.
Nothing in this Plan shall prevent the consolidation, merger,
reorganization or liquidation of the Employer, or prevent the sale by Employer
of any or all of its property. Any successor corporation or other entity formed
and resulting from any such transaction shall have the right to become a party
to this Plan by adopting the same by resolution and by appointing a new Trustee
as though the Trustee had resigned in accordance with the Trust Agreement, and
by
51
<PAGE>
executing a proper supplemental agreement with the Trustee. If, within 180 days
from the effective date of such transaction, such new entity does not become a
party to this Plan as above provided, this Plan shall automatically be
terminated and the Trustee shall make payments to the persons entitled thereto
in accordance with Section 9.5.
13.3 Consolidation or Merger of Trust.
In the event of any merger or consolidation of the Fund with, or transfer
in whole or in part of the assets and liabilities of the Fund to, another trust
fund held under any other plan of deferred compensation maintained or to be
established for the benefit of all or some of the Participants of this Plan, the
assets of the Fund applicable to such Participants shall be transferred to the
other trust fund only if:
(a) Each Participant would receive a benefit under such successor trust
fund immediately after the merger, consolidation or transfer which is equal to
or greater than the benefit he would have been entitled to receive immediately
before the merger, consolidation or transfer (determined as if this Plan and
such transferee trust fund had then terminated);
(b) Resolutions of the Board of Directors under this Plan, or of any new or
successor employer of the affected Participants, shall authorize such transfer
of assets, and, in the case of the new or successor employer of the affected
Participants, its resolutions shall include an assumption of liabilities with
respect to such Participants' inclusion in the new employer's plan; and
(c) Such other plan and trust are qualified under Sections 401(a) and
501(a) of the Code.
13.4 Bankruptcy or Insolvency of Employer.
In the event of (a) the Employer's legal dissolution or liquidation by any
procedure other than a consolidation or merger, (b) the Employer's receivership,
insolvency, or cessation of its business as a going concern, or (c) the
commencement of any proceeding by or against the Employer under the federal
bankruptcy laws, and similar federal or state statute, or any federal or state
statute or rule providing for the relief of debtors, compensation of creditors,
arrangement, receivership, liquidation or any similar event which is not
dismissed within 30 days, this Plan shall terminate automatically on such date
(provided, however, that if a proceeding is brought against the Employer for
reorganization under Chapter 11 of the United States Bankruptcy Code or any
similar federal or state statute, then this Plan shall terminate automatically
if and when said proceeding results in a liquidation of the Employer, or the
approval of any Plan providing therefor, or the proceeding is converted to a
case under Chapter 7 of the Bankruptcy Code or any similar conversion to a
liquidation proceeding under federal or state law including, but not limited to,
a receivership proceeding). In the event of any such termination as provided in
the foregoing sentence, the Trustee shall make payments to the persons entitled
thereto in accordance with Section 9.5 hereof.
52
<PAGE>
13.5 Voluntary Termination.
The Board of Directors reserves the right to terminate this Plan at any time by
giving to the Trustee and the Administrator notice in writing of such desire to
terminate. The Plan shall terminate upon the date of receipt of such notice,
the interests of all Participants shall become fully vested, and the Trustee
shall make payments to each Participant or Beneficiary in accordance with
Section 9.5. Alternatively, the Employer, in its discretion, may determine to
continue the Trust Agreement and to continue the maintenance of the Fund, in
which event distributions shall be made upon the contingencies and in all the
circumstances which would have been entitled such distributions on a fully
vested basis, had there been no termination of the Plan.
13.6 Partial Termination of Plan or Permanent Discontinuance of
Contributions.
In the event that a partial termination of the Plan shall be deemed to have
occurred, or if the Employer shall discontinue completely its contributions
hereunder, the right of each affected Participant to his interest in the Fund
shall be fully vested. The Employer, in its discretion, shall decide whether to
direct the Trustee to make immediate distribution of such portion of the Fund
assets to the persons entitled thereto or to make distribution in the
circumstances and contingencies which would have controlled such distributions
if there had been no partial termination or discontinuance of contributions.
53
<PAGE>
ARTICLE XIV
MISCELLANEOUS
14.1 No Diversion of Funds.
It is the intention of the Employer that it shall be impossible for any
part of the corpus or income of the Fund to be used for, or diverted to,
purposes other than for the exclusive benefit of the Participants or their
Beneficiaries, except to extent that a return of the Employer's contribution is
permitted under Section 4.4.
14.2 Liability Limited.
Neither the Employer nor the Administrator, nor any agents, employees,
officers, directors or shareholders of any of them, nor the Trustee, nor any
other person shall have any liability or responsibility with respect to this
Plan, except as expressly provided herein.
14.3 Incapacity.
If the Administrator shall receive evidence satisfactory to it that a
Participant or Beneficiary entitled to receive any benefit under the Plan is, at
the time when such benefit becomes payable, a minor, or is physically or
mentally incompetent to receive such benefit and to give a valid release
therefor, and that another person or an institution is then maintaining or has
custody of such Participant or Beneficiary, and that no guardian, committee or
other representative of the estate of such Participant or Beneficiary shall have
been duly appointed, the Administrator may direct the Trustee to make payment of
such benefit otherwise payable to such Participant or Beneficiary, to such other
person or institution, including a custodian under a Uniform Gifts to Minor Act,
or corresponding legislation (who shall be an adult, a guardian of the minor or
a trust company), and the release of such other person or institution shall be a
valid and complete discharge for the payment of such benefit.
14.4 Spendthrift Clause.
Except as permitted by the Act or the Code, no benefits or other amounts
payable under the Plan shall be subject in any manner to anticipation, sale,
transfer, assignment, pledge, encumbrance, charge or alienation. If the
Administrator determines that any person entitled to any payments under the Plan
has become insolvent or bankrupt or has attempted to anticipate, sell, transfer,
assign, pledge, encumber, charge or otherwise in any manner alienate any benefit
or other amount payable to him under the Plan or that there is any danger of any
levy or attachment or other court process or encumbrance on the part of any
creditor of such person entitled to payments under the Plan against any benefit
or other accounts payable to such person, the Administrator may, at any time, in
its discretion, direct the Trustee to withhold any or all payments to such
person under the Plan and apply the same for the benefit of such person, in such
manner and in such proportion as the Administrator may deem proper.
54
<PAGE>
14.5 Benefits Limited to Fund.
All contributions by the Employer to the Fund shall be voluntary, and the
Employer shall be under no legal liability to make any such contributions. The
benefits of this Plan shall be only as can be provided by the assets of the
Fund, and no liability for the payment of benefits under the Plan or for any
loss of assets due to any action or inaction of the Trustee shall be imposed
upon the Employer.
14.6 Cooperation of Parties.
All parties to this Plan and any party claiming interest hereunder agree to
perform any and all acts and execute any and all documents and papers which are
necessary and desirable for carrying out this Plan or any of its provisions.
14.7 Payments Due Missing Persons.
The Administrator shall direct the Trustee to make a reasonable effort to
locate all persons entitled to benefits under the Plan; however, notwithstanding
any provision in the Plan to the contrary, if, after a period of five years from
the date such benefit shall be due, any such persons entitled to benefits have
not been located, their rights under the Plan shall stand suspended. Before
this provision becomes operative, the Trustee shall send a certified letter to
all such persons at their last known address advising them that their interest
in benefits under the Plan shall be suspended. Any such suspended amounts shall
be held by the Trustee for a period of three additional years (or a total of
eight years from the time the benefits first became payable), and thereafter
such amounts shall be reallocated among current Participants in the same manner
that a current contribution would be allocated. However, if a person
subsequently makes a valid claim with respect to such reallocated amounts and
any earnings thereon, the Plan earnings or the Employer's contribution to be
allocated for the year in which the claim shall be paid shall be reduced by the
amount of such payment. Any such suspended amounts shall be handled in a manner
not inconsistent with regulations issued by the Internal Revenue Service and
Department of Labor.
14.8 Governing Law.
This Plan has been executed in the Commonwealth of Pennsylvania and all
questions pertaining to its validity, construction and administration shall be
determined in accordance with the laws of that State, except to the extent
superseded by the Act.
14.9 Nonguarantee of Employment.
Nothing contained in this Plan shall be construed as a contract of
employment between the Employer and any Employee, or as a right of any Employee
to be continued in the employment of the Employer, or as a limitation of the
right of the Employer to discharge any of its Employees, with or without cause.
55
<PAGE>
14.10 Counsel.
The Trustee and the Administrator may consult with legal counsel, who may
be counsel for the Employer and for the Administrator or the Trustee (as the
case may be), with respect to the meaning or construction of this Plan and the
Trust Agreement, their respective obligations or duties hereunder or with
respect to any action or proceeding or any question of law, and they shall be
fully protected with respect to any action taken or omitted by them in good
faith pursuant to the advice of legal counsel.
IN WITNESS WHEREOF, the Sponsor has caused this Plan to be executed by its
duly authorized officer and its corporate seal to be affixed on this ____ day of
________, 1997.
Attest: SPRING HILL SAVINGS BANK, FSB
By:
- ---------------------------------- ---------------------------------
Secretary Thomas F. Angotti
President and CEO
56
<PAGE>
Exhibit 21
Subsidiaries of the Registrant
<TABLE>
<CAPTION>
Parent
- ------
SHS Bancorp, Inc.
Percentage Jurisdiction or
Subsidiaries (a) of Ownership State of Incorporation
- ---------------- ------------ ----------------------
<S> <C> <C>
Spring Hill Savings Bank, F.S.B.(1) 100% United States
Spring Hill Funding Corporation (2) 100% Pennsylvania
</TABLE>
- ------------------
(1) Upon consummation of the Conversion, Spring Hill Savings Bank, F.S.B. will
become a wholly-owned subsidiary of the Registrant.
(2) This corporation is a wholly owned subsidiary of Spring Hill Savings Bank,
F.S.B.
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
-------------------------------
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form SB-2 of our report dated March 21, except for the
second paragraph of Note 20, as to which date is April 16, 1997, relating to the
consolidated financial statements of Spring Hill Savings Bank, FSB and
Subsidiary, which appears in such Prospectus. We also consent to the reference
to us under the headings "Experts," "Legal and Tax Opinions" and "Tax Effects"
in such Prospectus.
/s/ S.R. Snodgrass, A.C.
Wexford, Pennsylvania
June 25, 1997
<PAGE>
Exhibit 23.3
[LETTERHEAD OF BREYER & AGUGGIA ATTORNEYS AT LAW APPEARS HERE]
June 27, 1997
Board of Directors
SHS Bancorp, Inc.
112 Federal Street
Pittsburgh, Pennsylvania 15212
RE: SHS Bancorp, Inc.
Registration Statement on Form SB-2
To the Board of Directors:
We hereby consent to the filing of the form of our federal tax opinion as an
exhibit to the Registration Statement and to the reference to us in the
Prospectus included therein under the headings "THE CONVERSION -- Effects of
Conversion to Stock Form on Depositors and Borrowers of the Savings Bank" and
"LEGAL AND TAX OPINIONS."
Sincerely,
/s/ Breyer & Aguggia
BREYER & AGUGGIA
Washington, D.C.
<PAGE>
Exhibit 23.4
[FELDMAN FINANCIAL LETTERHEAD APPEARS HERE]
June 27, 1997
Board of Directors
Spring Hill Savings Bank, F.S.B.
112 Federal Street
Pittsburgh, Pennsylvania 15212
Gentlemen:
We hereby consent to the use of our name and summary of our valuation opinion,
as referenced in the Application for Approval of Conversion ("Form AC") filed
with the Office of Thrift Supervision by Spring Hill Savings Bank, F.S.B. (the
"Bank"), regarding the estimated pro forma market value of the Bank in
connection with its conversion from mutual to stock form and simultaneous sale
of shares of common stock by SHS Bancorp, Inc. (the "Holding Company"). We also
consent to reference in the Form AC the summary of our opinion as to the value
of subscription rights granted by the Bank. We further consent to the use of
our name and summary opinions as noted above in the Registration Statement and
Prospectus filed by the Holding Company with the Securities and Exchange
Commission.
Sincerely,
/s/Feldman Financial Advisors, Inc.
FELDMAN FINANCIAL ADVISORS, INC.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
This schedule contains financial information extracted from the consolidated
financial statements of Spring Hill Savings Bank, F.S.B. for the year
ended December 31, 1996 and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 584,634
<INT-BEARING-DEPOSITS> 1,491,281
<FED-FUNDS-SOLD> 25,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 3,256,846
<INVESTMENTS-CARRYING> 19,044,892
<INVESTMENTS-MARKET> 19,167,651
<LOANS> 54,789,033
<ALLOWANCE> 415,426
<TOTAL-ASSETS> 81,687,941
<DEPOSITS> 64,294,119
<SHORT-TERM> 0
<LIABILITIES-OTHER> 620,918
<LONG-TERM> 10,709,441
0
0
<COMMON> 0
<OTHER-SE> 4,840,017
<TOTAL-LIABILITIES-AND-EQUITY> 81,687,941
<INTEREST-LOAN> 4,526,633
<INTEREST-INVEST> 1,647,092
<INTEREST-OTHER> 140,083
<INTEREST-TOTAL> 6,313,808
<INTEREST-DEPOSIT> 3,040,296
<INTEREST-EXPENSE> 4,155,214
<INTEREST-INCOME-NET> 2,158,594
<LOAN-LOSSES> 239,370
<SECURITIES-GAINS> 902,488
<EXPENSE-OTHER> 2,319,452
<INCOME-PRETAX> 623,991
<INCOME-PRE-EXTRAORDINARY> 392,744
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 392,744
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<YIELD-ACTUAL> 2.73
<LOANS-NON> 1,110,626
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 574,000
<ALLOWANCE-OPEN> 276,212
<CHARGE-OFFS> 111,458
<RECOVERIES> 11,302
<ALLOWANCE-CLOSE> 415,426
<ALLOWANCE-DOMESTIC> 415,426
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
This schedule contains financial information extracted from the consolidated
financial statements of Spring Hill Savings Bank, F.S.B. for the three months
ended March 31, 1997 and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 652,410
<INT-BEARING-DEPOSITS> 2,352,517
<FED-FUNDS-SOLD> 25,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 3,125,287
<INVESTMENTS-CARRYING> 18,536,297
<INVESTMENTS-MARKET> 18,522,110
<LOANS> 55,267,734
<ALLOWANCE> 419,581
<TOTAL-ASSETS> 82,809,355
<DEPOSITS> 64,776,108
<SHORT-TERM> 0
<LIABILITIES-OTHER> 545,361
<LONG-TERM> 11,707,614
0
0
<COMMON> 0
<OTHER-SE> 4,449,431
<TOTAL-LIABILITIES-AND-EQUITY> 82,809,355
<INTEREST-LOAN> 1,169,828
<INTEREST-INVEST> 377,932
<INTEREST-OTHER> 48,765
<INTEREST-TOTAL> 1,596,525
<INTEREST-DEPOSIT> 758,374
<INTEREST-EXPENSE> 1,018,279
<INTEREST-INCOME-NET> 578,246
<LOAN-LOSSES> 27,943
<SECURITIES-GAINS> 116,541
<EXPENSE-OTHER> 414,426
<INCOME-PRETAX> 284,240
<INCOME-PRE-EXTRAORDINARY> 75,136
<EXTRAORDINARY> (562,525)
<CHANGES> 0
<NET-INCOME> (387,389)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<YIELD-ACTUAL> 2.87
<LOANS-NON> 1,108,000
<LOANS-PAST> 15,000
<LOANS-TROUBLED> 16,000
<LOANS-PROBLEM> 673,000
<ALLOWANCE-OPEN> 415,426
<CHARGE-OFFS> 28,238
<RECOVERIES> 4,450
<ALLOWANCE-CLOSE> 419,581
<ALLOWANCE-DOMESTIC> 419,581
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
<PAGE>
Exhibit 99.1
[HOLDING COMPANY]
[LOGO]
STOCK ORDER FORM
Please read and complete this Stock Order Form. Instructions are included on
the reverse side of this form.
- -------------------------------------------------------------------------------
DEADLINE AND DELIVERY __:__ __.m., Eastern Time, on _____, 1997
Please mail the Stock Order Form in the enclosed envelope to the address listed
below or hand-deliver to any Spring Hill office. [Holding Company] is not
required to accept copies of Stock Order Forms.
- -------------------------------------------------------------------------------
NUMBER OF SHARES
- -------------------------------------------------------------------------------
(1) Number of Shares Price per Share Total Amount Due
__________ x $10.00 = $_________
(Minimum __)
- -------------------------------------------------------------------------------
OFFICE USE ONLY
- -------------------------------------------------------------------------------
________________ ______________ ____________
Date Rec'd Batch # Order #
- -------------------------------------------------------------------------------
METHOD OF PAYMENT
- -------------------------------------------------------------------------------
(2) ___ Enclosed is a check or money order payable to [Holding Company] for
$__________.
(3) ___ I authorize Spring Hill Savings Bank ("Spring Hill") to make the
withdrawal(s) from the account(s) listed below, and understand that the amounts
will not be available for withdrawal once this Stock Order Form is submitted:
Account Number(s) Amount(s)
- ----------------- ---------
____________________ __________________
____________________ __________________
____________________ __________________
____________________ __________________
Total Withdrawal $
==================
There is no early withdrawal penalty for the purchase of stock.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
PURCHASER INFORMATION
(4) Check one of the following boxes.
(a) __ Check here if you are a director, officer or employee of Spring Hill,
or a member of their immediate family.
(b) __ Check here if you were a depositor of Spring Hill on December 31,
1995. List account(s) you had at this date below.
(c) __ Check here if you were a depositor on June 30, 1997. List
account(s) below.
(d) __ Check here if you were not a depositor at December 31, 1995 or
June 30, 1997, but you were a depositor on ______, 1997. List
account(s) below.
(e) __ Check here if you have never been a Spring Hill depositor.
-----
List account(s) below.
Account Title (Name(s) on Account) Account Number
___________________________________ ___________
___________________________________ ___________
___________________________________ ___________
If additional space is needed, please use the back of this Stock Order Form.
- -------------------------------------------------------------------------------
STOCK REGISTRATION (Please Print Clearly)
- -------------------------------------------------------------------------------
(5)
______________________________________________________
(First Name) (M.I.) (Last Name)
______________________________________________________
(First Name) (M.I.) (Last Name)
______________________________________________________
(Street Address)
______________________________________________________
(City) (State) (County) (Zip)
(6)
______________________________________________________
Social Security #/Tax ID# (certificate will show this number)
______________________________________________________
Social Security #/Tax ID#
(7)
______________________________________________________
(Daytime Phone Number)
______________________________________________________
(Evening Phone Number)
(8) Form of Stock Ownership (check one)
__ Individual
__ Individual Retirement Account (IRA)
__ Joint Tenants
__ Tenants in Common
__ Corporation
__ Uniform Transfer to Minors
__ Fiduciary (Under Agreement Dated _____, 199__)
- -------------------------------------------------------------------------------
NASD AFFILIATION (If Applicable)
- -------------------------------------------------------------------------------
__ Check here and initial below if you are a member of the NASD ("National
Association of Securities Dealers") or a person associated with an NASD member
or a member of the immediate family of any such person to whose support such
person contributes, directly or indirectly, or if you have an account in which
an NASD member, or person associated with an NASD member, has a beneficial
interest. I agree (i) not to sell, transfer, or hypothecate the stock for a
period of 90 days following issuance; and (ii) to report this subscription in
writing to the applicable NASD member I am associated with within one day of
payment for the stock. (Please initial) _________
- -------------------------------------------------------------------------------
ACKNOWLEDGMENT AND SIGNATURE (VERY IMPORTANT)
- -------------------------------------------------------------------------------
I(we) acknowledge receipt of the Prospectus dated _____, 1997, and I(we) have
read the terms and conditions described therein (including the section entitled
"Risk Factors"). I(we) understand that, after receipt by [Holding Company],
this order may not be modified or withdrawn without the consent of [Holding
-------
Company]. I(we) hereby certify that the shares which are being subscribed for
are for my(our) account only, and that I(we) have no present agreement or
understanding regarding any subsequent sale or transfer of such shares and I(we)
confirm that my(our) order does not conflict with the purchase limit provisions
in the Plan of Conversion. I(we) acknowledge that the common stock being
ordered is not a deposit or savings account, is not federally-insured, and is
not guaranteed by [Holding Company] or the federal government. If anyone
asserts that the common stock being ordered is federally-insured or guaranteed,
or is as safe as an insured deposit, I(we) should call the Regional Director,
Office of Thrift Supervision, Northeast Regional Office, at (201) 413-1000.
Under penalties of perjury, I(we) certify that (1) the Social Security #(s) or
Tax ID#(s) given above is(are) correct; and (2) I(we) am(are) not subject to
backup withholding tax (You must cross out #2 above if you have been notified by
the Internal Revenue Service that you are subject to backup withholding because
of underreporting interest or dividends on your tax return).
Please sign and date this form. Only one signature is required, unless
authorizing a withdrawal from a Spring Hill Savings Bank deposit account
requiring more than one signature to withdraw funds. If signing as a custodian,
corporate officer, etc., please include your full title.
________________________________________________
Signature Title (if applicable) Date
________________________________________________
Signature(if required) Date
THIS ORDER NOT VALID UNLESS SIGNED
- ----------------------------------
Stock Information Center: Spring Hill Savings Bank
112 Federal Street
Pittsburgh, PA 15212
QUESTIONS? Please call (800) ___-____ or (412) ___-____
9:00 am to 4:00 pm, Monday-Friday
- -------------------------------------------------------------------------------
THE SHARES OF COMMON STOCK OFFERED IN THE CONVERSION ARE NOT ACCOUNTS OR
DEPOSITS AND ARE NOT FEDERALLY INSURED OR GUARANTEED. THE COMMON STOCK HAS NOT
BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION, THE
FEDERAL DEPOSIT INSURANCE CORPORATION, THE OFFICE OF THRIFT SUPERVISION OR ANY
OTHER GOVERNMENT AGENCY.
<PAGE>
[HOLDING COMPANY]
STOCK ORDER FORM INSTRUCTIONS
1 - Fill in the number of shares you wish to purchase and the amount due. The
maximum order that an individual (or individuals exercising subscription rights
through a single Spring Hill account) may place in the Subscription Offering is
$50,000. The maximum that an individual may order in the Community Offering is
$50,000. The overall limit in the Subscription Offering and Community Offering,
combined, for any individual, together with associates or group acting in
- --------
concert is the greater of $85,000 or 1% of the stock sold. See the Prospectus
section entitled "The Conversion", pp ___, for a more detailed description of
purchase priorities in the Subscription Offering and Community Offering.
[Holding Company] reserves the right to accept or reject any order received in
the Community Offering.
2 - Check the appropriate box(es). Payment for shares may be made by check or
money order payable to [Holding Company]. Funds received in this form of
payment will be cashed immediately and deposited into a separate account
established for the purposes of this Offering. You will earn interest at Spring
Hill's passbook rate from the time funds are received until the Offering is
terminated or consummated.
3 - You may pay for your shares by withdrawal from your Spring Hill deposit
account(s). Indicate the account number(s) and the amount(s) to be withdrawn.
These funds will be unavailable to you from the time this Stock Order Form is
received until the Offering is consummated. The funds will continue to earn
interest at the account's contractual rate until the Offering is completed.
Please contact the Stock Information Center early in the Offering period, if you
are intending to make such a withdrawal from a Spring Hill IRA account.
4 - Check one of the boxes. This information is very important because
eligibility dates are utilized to prioritize your order in the event an
oversubscription occurs. List the deposit account name(s) and number(s) that
you held at the applicable date. Please see the section of the Prospectus
entitled "The Conversion and Reorganization - The Offerings" for a more detailed
explanation of how shares will be allocated in the event the Offering is
oversubscribed. Failure to complete this section could result in a loss of all
--------------------------------------------------------------
or part of your share allocation.
- --------------------------------
- -------------------------------------------------------------------------------
(Continued from previous page)
Account Title (Name(s) on Account) Account Number
---------------------------------- --------------
__________________________________ _______________
__________________________________ _______________
__________________________________ _______________
- -------------------------------------------------------------------------------
5 - Please CLEARLY PRINT the name(s) and address in which you want the stock
certificate registered and mailed. If you are purchasing in the Subscription
Offering as a Spring Hill (i) depositor as of December 31, 1995; (ii) depositor
as of June 30, 1997; or (iii) depositor or mortgage borrower as of ______, 1997,
you must register the stock in the name of one of the account holders listed on
- -------------------------------------------------------------------------------
your account as of the applicable date. However, adding the name(s) of other
- --------------------------------------
persons who are not account holders, or were account holders at a later date
than you, will result in a loss of your purchase priority. See the Prospectus
section entitled "The Conversion", pp ____, for a complete description of
purchase priorities and procedures for allocation of available shares in the
event the Offering is oversubscribed. NOTE: ONE STOCK CERTIFICATE WILL BE
GENERATED PER ORDER FORM. IF VARIOUS REGISTRATIONS AND SHARE AMOUNTS ARE
DESIRED ON VARIOUS CERTIFICATES, A SEPARATE STOCK ORDER FORM MUST BE COMPLETED
FOR EACH CERTIFICATE DESIRED.
6 - Enter the Social Security Number or Tax ID Number of each of the registered
owners.
7 - Be sure to include at least one phone number, in the event you must be
contacted regarding this Stock Order Form.
8 - Please check the one type of ownership applicable to your registration. An
explanation of each follows:
GUIDELINES FOR REGISTERING STOCK
For reasons of clarity and standardization, the stock transfer industry has
developed uniform stockholder registrations which we will utilize in the
issuance of your [Holding Company] Stock Certificate(s). If you have any
questions, please consult your legal advisor.
Stock ownership must be registered in one of the following manners:
- ----------------------------------------------------
INDIVIDUAL: Avoid the use of two initials. Include the first given name,
middle initial and last name of the stockholder. Omit words of
limitation that do not affect ownership rights such as "special
account," "single man," "personal property," etc. If the stock
is held individually upon the individual's death, the stock will
be owned by the individual's estate and distributed as indicated
by the individual's will or otherwise in accordance with law.
- ---------------------------------------------------
JOINT: Joint ownership of stock by two or more persons shall be
inscribed on the certificate with one of the following types of
joint ownership. Names should be joined by "and"; do not connect
with "or." Omit titles such as "Mrs.," "Dr.," etc.
JOINT TENANTS--Joint Tenancy with Right of Survivorship and not
as Tenants in Common may be specified to identify two or more
owners where ownership is intended to pass automatically to the
surviving tenant(s).
TENANTS IN COMMON--Tenants in Common may be specified to identify
two or more owners. When stock is held as tenancy in common,
upon the death of one co-tenant, ownership of the stock will be
held by the surviving co-tenant(s) and by the heirs of the
deceased co-tenant. All parties must agree to the transfer or
sale of shares held in this form of ownership.
- ---------------------------------------------------
UNIFORM Stock may be held in the name of a custodian for a minor under
TRANSFER TO the Uniform Transfers to Minors laws of the individual states.
MINORS: There may be only one custodian and one minor designated on a
stock certificate. The standard abbreviation of custodian is
"CUST,", while the description "Uniform Transfers to Minors
Act" is abbreviated "UNIF TRAN MIN ACT." Standard U.S. Postal
Service state abbreviations should be used to describe the
appropriate state. For example, stock held by John P. Jones
under the Uniform Transfers to Minors Act will be abbreviated:
JOHN P. JONES CUST SUSAN A. JONES
UNIF TRAN MIN ACT PA
- ---------------------------------------------------
FIDUCIARIES: Stock held in a fiduciary capacity must contain the following:
1. The name(s) of the fiduciary:
.If an individual, list the first given name, middle
initial, and last name.
.If a corporation, list the corporate title
.If an individual and a corporation, list the
corporation's title before the individual.
2. The fiduciary capacity:
.Administrator
.Conservator
.Committee
.Executor
.Trustee
.Personal Representative
.Custodian
3. The type of document governing the fiduciary relationship.
Generally, such relationships are either under a form of
living trust agreement or pursuant to a court order.
Without a document establishing a fiduciary relationship,
your stock may not be registered in a fiduciary capacity.
4. The date of the document governing the relationship. The
date of the document need not be used in the description of
a trust created by a will.
5. Either of the following:
The name of the maker, donor or testator
or
The name of the beneficiary
Example of Fiduciary Ownership:
JOHN D. SMITH, TRUSTEE FOR
TOM A. SMITH
UNDER AGREEMENT DATED 6/9/74
<PAGE>
Exhibit 99.2
SPRING HILL SAVINGS BANK, F.S.B.
Marketing Materials
<PAGE>
SPRING HILL SAVINGS BANK
TABLE OF CONTENTS
-----------------
CORRESPONDENCE
- --------------
Letter to Members Eligible to Vote
Letters to Depositors Not Entitled to Vote (Closed - Accounts)
Letter to Potential Investors
"Blue Sky" Depositor Letter
Ryan, Beck "Broker-Dealer" Letter
Stockgram
Proxygram
Stock Order Acknowledgment Card
Stock Certificate Mailing Letter
ADVERTISEMENTS
- --------------
Tombstone Advertisement
Lobby Poster
PRESS RELEASES
- --------------
Press Release for Approval of Sale
Press Release - Offering Completed
MARKETING FOLDER
- ----------------
BROCHURES
- ---------
Q&A About the Conversion
FORMS
- -----
Stock Order Form
<PAGE>
LETTER TO MEMBERS ELIGIBLE TO VOTE
[Spring Hill Letterhead]
_________, 1997
Dear Customer:
I am pleased to inform you that the Board of Directors has unanimously approved
a Plan of Conversion whereby Spring Hill Savings Bank, F.S.B. ("Spring Hill" or
the "Savings Bank") will convert from a federally-chartered mutual savings bank
to a federally-chartered stock savings bank. As part of the conversion process,
the Savings Bank will become a wholly-owned subsidiary of [Holding Company]
which is a recently organized Pennsylvania corporation.
Enclosed are a Prospectus, Stock Order Form, and Question and Answer Brochure.
You may purchase common stock in the Conversion without paying a commission or
fee. Your completed Stock Order Form, along with full payment or authorization
to withdraw funds from your Spring Hill deposit account(s), must be received at
any of our offices by __:__ _.m., Eastern Time on _____, 1997.
Please remember:
. YOUR DEPOSIT ACCOUNTS AT THE SAVINGS BANK WILL CONTINUE TO BE INSURED TO THE
MAXIMUM EXTENT ALLOWED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION.
. THERE WILL BE NO CHANGE IN THE TERMS OF YOUR ACCOUNTS OR LOANS.
. DEPOSITORS WILL ENJOY THE SAME SERVICES IN OUR OFFICES WITH THE SAME STAFF.
. YOUR VOTE IN FAVOR OF CONVERSION DOES NOT OBLIGATE YOU TO BUY STOCK.
. YOU HAVE A RIGHT TO BUY STOCK BEFORE STOCK IS OFFERED TO THE GENERAL PUBLIC
SUBJECT TO THE PURCHASE PRIORITY ALLOCATIONS SET FORTH IN THE PLAN OF
CONVERSION.
Interest at the Savings Bank's stated rate on passbook accounts will be paid on
all subscription funds received until completion or termination of the
Conversion. Authorized withdrawals from existing accounts will continue to earn
interest at the contractual rate until the completion of the Conversion. You may
purchase the common stock by a withdrawal from your savings or certificate
account without the penalty for early withdrawals. Please call the Stock
Information Center early in the Conversion period if you wish to purchase common
stock using IRA funds because IRA-related procedures require additional
processing time.
<PAGE>
LETTER TO MEMBERS ELIGIBLE TO VOTE
Page 2
The Office of Thrift Supervision has approved the Plan of Conversion subject to
a favorable vote of our members. Also enclosed you will find a Proxy Statement,
Proxy Card(s) and a reply envelope. Management urges that you vote "FOR" the
Plan of Conversion after reviewing the Proxy Statement. Please sign the enclosed
Proxy Card(s) and return them to any Spring Hill office or mail them in the
enclosed reply envelope by __:__ __.m., Eastern Time on _____, 1997.
If you have any questions, please call the Stock Information Center at
(800) ___-____ or (412) ___-____, from 9:00 a.m. - 4:00 p.m., Monday through
Friday.
We hope that you will take advantage of this opportunity to join us as a charter
stockholder of [Holding Company].
Sincerely,
Thomas F. Angotti
President and Chief Executive Officer
This letter is neither an offer to sell nor a solicitation of an offer to buy
common stock. The offer is made only by the Prospectus. The shares of common
stock offered in the Conversion are not accounts or deposits and are not
federally insured or guaranteed. The common stock has not been approved or
disapproved by the Securities and Exchange Commission, the Federal Deposit
Insurance Corporation, the Office of Thrift Supervision or any other government
agency.
Stock Information Center
Spring Hill Savings Bank, F.S.B.
112 Federal Street
Pittsburgh, PA 15212
(800) ___-____
(412) ___-____
<PAGE>
LETTER TO DEPOSITORS - CLOSED ACCOUNTS [Spring Hill Letterhead]
________, 1997
Dear Sir/Madam:
I am pleased to inform you that the Board of Directors has unanimously approved
a Plan of Conversion whereby Spring Hill Savings Bank, F.S.B. ("Spring Hill" or
the "Savings Bank") will convert from a federally-chartered mutual savings bank
to a federally-chartered stock savings bank. As part of the conversion process,
the Savings Bank will become a wholly-owned subsidiary of [Holding Company]
which is a recently organized Pennsylvania corporation.
Enclosed are a Prospectus, Stock Order Form, and Question and Answer Brochure.
You may purchase [Holding Company] common stock in the Conversion before it is
offered to the general public and without paying a commission or fee subject to
the purchase priority allocations set forth in the Plan of Conversion. Your
completed Stock Order Form, along with full payment, must be received at any of
our offices by __:__ _.m., Eastern Time on ________, 1997.
Interest at the Savings Bank's stated rate on passbook accounts will be paid on
all subscription funds received until completion or termination of the
Conversion.
If you have any questions, please call the Stock Information Center at
(800) ___-____ or (412) ___-____, from 9:00 a.m. - 4:00 p.m., Monday through
Friday.
We hope that you will take advantage of this opportunity to join us as a charter
stockholder of [Holding Company], Inc.
Sincerely,
Thomas F. Angotti
President and Chief Executive Officer
This letter is neither an offer to sell nor a solicitation of an offer to buy
common stock. The offer is made only by the Prospectus. The shares of common
stock offered in the Conversion are not accounts or deposits and are not
federally insured or guaranteed. The common stock has not been approved or
disapproved by the Securities and Exchange Commission, the Federal Deposit
Insurance Corporation, the Office of Thrift Supervision or any other government
agency.
Stock Information Center
Spring Hill Savings Bank, F.S.B.
112 Federal Street
Pittsburgh, PA 15212
(800) ___-____
(412) ___-____
<PAGE>
LETTER TO POTENTIAL INVESTORS
[Spring Hill Letterhead]
________, 1997
Dear Potential Investor:
I am pleased to inform you that the Board of Directors has unanimously approved
a Plan of Conversion whereby Spring Hill Savings Bank, F.S.B. ("Spring Hill" or
the "Savings Bank") will convert from a federally-chartered mutual savings bank
to a federally-chartered stock savings bank. As part of the conversion process,
the Savings Bank will become a wholly-owned subsidiary of [Holding Company],
which is a recently organized Pennsylvania corporation.
In connection with the Conversion, [Holding Company] is offering up to ______
shares of common stock (subject to a possible increase to _______ shares of
common stock) at $10.00 per share through a Subscription and Community Offering.
The stock is being offered to qualifying depositors and other members of the
Savings Bank along with the employee stock ownership plan of the Savings Bank in
a Subscription Offering and then to certain members of the general public in a
Community Offering.
Enclosed are a Prospectus, Stock Order Form, reply envelope, and Informational
Brochure. If you are interested in purchasing shares of common stock, you may do
so during the Subscription and Community Offering without paying a commission or
fee. Your completed Stock Order Form, along with full payment, must be received
at any of our offices by __:__ _.m., Eastern Time, on _______, 1997.
Interest at the Savings Bank's stated rate paid on passbook accounts will be
paid on all subscription funds received until completion or termination of the
Conversion.
If you have any questions, please call the Stock Information Center at
(800) ___-____ or (412) ___-____, from 9:00 a.m. - 4:00 p.m., Monday through
Friday.
We hope that you will take advantage of this opportunity to join us as a charter
stockholder of [Holding Company].
Sincerely,
Thomas F. Angotti
President and Chief Executive Officer
<PAGE>
LETTER TO POTENTIAL INVESTORS
Page 2
This letter is neither an offer to sell nor a solicitation of an offer to buy
common stock. The offer is made only by the Prospectus. The shares of common
stock offered in the Conversion are not accounts or deposits and are not
federally insured or guaranteed. The common stock has not been approved or
disapproved by the Securities and Exchange Commission, the Federal Deposit
Insurance Corporation, the Office of Thrift Supervision or any other government
agency.
Stock Information Center
Spring Hill Savings Bank, F.S.B.
112 Federal Street
Pittsburgh, PA 15212
(800) ___-____
(412) ___-____
<PAGE>
"BLUE SKY" MEMBER LETTER
[Spring Hill Letterhead]
_______, 1997
Dear Member:
I am pleased to inform you that the Board of Directors has unanimously approved
a Plan of Conversion whereby Spring Hill Savings Bank ("Spring Hill" or the
"Savings Bank") will convert from a federally-chartered mutual savings bank to a
federally-chartered stock savings bank. As part of the conversion process, the
Savings Bank will become a wholly-owned subsidiary of [Holding Company], which
is a recently organized Pennsylvania corporation.
The Office of Thrift Supervision has approved the Plan of Conversion subject to
a favorable vote of our members. Please read the enclosed Proxy Statement, vote
and sign the enclosed Proxy Card(s) and mail them to us in the enclosed reply
envelope. The Board of Directors urges you to vote "FOR" the Plan of
Conversion. We must receive the card(s) by __:__ _.m., Eastern Time, on _____,
1997.
Although you may vote on the Savings Bank's Plan of Conversion, [Holding
Company] is unfortunately unable to offer or sell its common stock to you
because the small number of members in your state makes registration or
qualification under your state securities laws impractical. Accordingly, this
letter, the enclosed Proxy Statement, or the enclosed Prospectus should not be
---
considered an offer to sell nor a solicitation of an offer to buy the common
stock. The Prospectus is referred to in the Proxy Statement for a more detailed
explanation of the conversion process and is enclosed with this letter solely to
provide such explanation and not as an offer to sell nor a solicitation of an
offer to buy the common stock described in the Prospectus.
If you have any questions about your voting rights or the Conversion, please
call our Stock Information Center at (800) ___-_____ or (412) ___-____, from
9:00 a.m. to 4:00 p.m., Monday through Friday.
Sincerely,
Thomas F. Angotti
President and Chief Executive Officer
<PAGE>
"BLUE SKY" MEMBER LETTER
Page 2
This letter is neither an offer to sell nor a solicitation of an offer to buy
common stock. The offer is made only by the Prospectus, however, neither an
offer to sell nor a solicitation of an offer to buy is being made with the
enclosed Prospectus. The shares of common stock offered in the Conversion are
not accounts or deposits and are not federally insured or guaranteed. The common
stock has not been approved or disapproved by the Securities and Exchange
Commission, the Federal Deposit Insurance Corporation, the Office of Thrift
Supervision or any other government agency.
Stock Information Center
Spring Hill Savings Bank, F.S.B.
112 Federal Street
Pittsburgh, PA 15212
(800) ___-____
(412) ___-____
<PAGE>
RYAN, BECK "BROKER-DEALER" LETTER
[Ryan, Beck Letterhead]
_______, 1997
Dear Potential Investor:
At the request of [Holding Company], we are enclosing materials regarding the
conversion of Spring Hill Savings Bank from a federally-chartered mutual savings
bank to a federally-chartered stock savings bank. The materials include the
Prospectus and an Informational Brochure describing the Conversion and [Holding
Company]'s common stock offering.
We have been asked to forward these materials to you in view of certain
regulatory requirements and securities laws.
Sincerely,
Ryan, Beck & Co.
This letter is neither an offer to sell nor a solicitation of an offer to buy
common stock. The offer is made only by the Prospectus. The shares of common
stock offered in the Conversion are not accounts or deposits and are not
federally insured or guaranteed. The common stock has not been approved or
disapproved by the Securities and Exchange Commission, the Federal Deposit
Insurance Corporation, the Office of Thrift Supervision or any other government
agency.
<PAGE>
STOCKGRAM
[Optional]
[Holding Company] [LOGO]
DEAR POTENTIAL INVESTOR:
TIME IS RUNNING OUT FOR YOU TO PURCHASE STOCK IN [HOLDING COMPANY]'S INITIAL
STOCK OFFERING.
THIS IS A REMINDER THAT YOUR OPPORTUNITY TO PURCHASE STOCK IN OUR SUBSCRIPTION
AND COMMUNITY OFFERING EXPIRES AT __:__ _.M., EASTERN TIME, ______, 1997.
YOU SHOULD HAVE RECENTLY RECEIVED A PROSPECTUS AND STOCK ORDER FORM. IF NOT,
PLEASE CALL OUR STOCK INFORMATION CENTER IMMEDIATELY.
A STOCK ORDER FORM AND POSTAGE-PAID REPLY ENVELOPE ARE ENCLOSED. YOUR STOCK
ORDER FORM AND PAYMENT MUST BE RECEIVED AT ANY OF OUR OFFICES BY __:__ __.M.,
EASTERN TIME, ON _________, 1997.
IF YOU HAVE ALREADY PLACED AN ORDER FOR [HOLDING COMPANY] STOCK, PLEASE
DISREGARD THIS NOTICE.
ANY QUESTIONS YOU MAY HAVE CAN BE ANSWERED BY CALLING THE STOCK INFORMATION
CENTER AT (800) ___-____ OR (412) ___-____, FROM 9:00 A.M. TO 4:00 P.M., MONDAY
THROUGH FRIDAY.
SINCERELY,
THOMAS F. ANGOTTI
PRESIDENT AND CHIEF EXECUTIVE OFFICER
THIS LETTER IS NEITHER AN OFFER TO SELL NOR A SOLICITATION OF AN OFFER TO BUY
COMMON STOCK. THE OFFER IS MADE ONLY BY THE PROSPECTUS. THE SHARES OF COMMON
STOCK OFFERED IN THE CONVERSION ARE NOT ACCOUNTS OR DEPOSITS AND ARE NOT
FEDERALLY INSURED OR GUARANTEED. THE COMMON STOCK HAS NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION, THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE OFFICE OF THRIFT SUPERVISION OR ANY OTHER GOVERNMENT
AGENCY.
<PAGE>
LOGO
PROXYGRAM
DEAR CUSTOMER:
TIME IS RUNNING OUT TO VOTE ON THE PLAN OF CONVERSION! YOUR VOTE IS IMPORTANT
TO US. A FAILURE TO VOTE WILL HAVE THE SAME EFFECT AS A VOTE AGAINST THE PLAN.
THE BOARD OF DIRECTORS URGES YOU TO VOTE FOR THE PLAN OF CONVERSION.
---
YOU SHOULD HAVE RECENTLY RECEIVED PROXY CARD(S) AND A PROXY STATEMENT DESCRIBING
SPRING HILL SAVINGS BANK'S PLAN OF CONVERSION.
PLEASE VOTE AND SIGN THE ENCLOSED PROXY CARD(S) AND RETURN THEM PROMPTLY IN THE
ENCLOSED POSTAGE-PAID REPLY ENVELOPE OR DELIVER THEM TO ANY OF SPRING HILL'S
OFFICES PRIOR TO __:__ __.M. ON _____, 1997.
VOTING ON THE PLAN DOES NOT OBLIGATE YOU TO PURCHASE STOCK IN THE [HOLDING
COMPANY] STOCK OFFERING.
IF YOU RECENTLY MAILED THE PROXY CARD(S), PLEASE ACCEPT OUR THANKS AND DISREGARD
THIS REQUEST.
IF YOU HAVE ANY QUESTIONS, OR WOULD LIKE TO RECEIVE ANOTHER COPY OF THE PROXY
STATEMENT, PLEASE CALL THE STOCK INFORMATION CENTER AT (800) ___-____ OR (412)
___-____, FROM 9:00 A.M. THROUGH 4:00 P.M., MONDAY THROUGH FRIDAY.
SINCERELY,
THOMAS F. ANGOTTI
PRESIDENT AND CHIEF EXECUTIVE OFFICER
THIS LETTER IS NEITHER AN OFFER TO SELL NOR A SOLICITATION OF AN OFFER TO BUY
COMMON STOCK. THE OFFER IS MADE ONLY BY THE PROSPECTUS. THE SHARES OF COMMON
STOCK OFFERED IN THE CONVERSION ARE NOT ACCOUNTS OR DEPOSITS AND ARE NOT
FEDERALLY INSURED OR GUARANTEED. THE COMMON STOCK HAS NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION, THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE OFFICE OF THRIFT SUPERVISION OR ANY OTHER GOVERNMENT
AGENCY.
<PAGE>
STOCK ORDER ACKNOWLEDGMENT CARD
Name
Address
Dear Subscriber:
We have received your subscription for ____ shares of [Holding Company] common
stock. [Holding Company] is the holding company for Spring Hill Savings Bank.
The Common Stock will be registered in the name(s) shown above. Please verify
the accuracy of your name and address. If this information is listed
incorrectly, or if you have any questions, please call our Stock Information
Center at (800) ___-____ or (412) ___-____, from 9:00 a.m. to 4:00 p.m., Monday
through Friday.
Please note that this acknowledgment does not represent the total number of
shares that you may receive. The actual purchase will be determined by the
total number of orders received. The allocation process is described in more
detail in the Prospectus.
Thank you for your interest and we will keep you informed regarding the progress
of the Conversion.
Sincerely,
Thomas F. Angotti
President and Chief Executive Officer
THIS LETTER IS NEITHER AN OFFER TO SELL NOR A SOLICITATION OF AN OFFER TO BUY
COMMON STOCK. THE OFFER IS MADE ONLY BY THE PROSPECTUS. THE SHARES OF COMMON
STOCK OFFERED IN THE CONVERSION ARE NOT ACCOUNTS OR DEPOSITS AND ARE NOT
FEDERALLY INSURED OR GUARANTEED. THE COMMON STOCK HAS NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION, THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE OFFICE OF THRIFT SUPERVISION OR ANY OTHER GOVERNMENT
AGENCY.
<PAGE>
STOCK CERTIFICATE MAILING LETTER
[Spring Hill Letterhead]
__________, 1997
Dear Stockholder:
On behalf of the Board of Directors of [Holding Company], I would like to
welcome you as a charter stockholder. Our customers' response to the stock
offering was very gratifying, and we appreciate your support and participation.
__________ shares were sold at a price of $10.00 per share.
Your stock certificate is enclosed. If you have any questions concerning
certificate registration or transfer, please contact our stock transfer agent:
[NAME, ADDRESS AND PHONE NUMBER TO BE PROVIDED]
If the original stock certificate must be forwarded for reissue, it is
recommended that you send it by registered mail. If your address has changed,
please notify the Transfer Agent immediately.
If you paid for your shares by check, you will soon receive a check representing
interest at the rate of ____%. If you paid for your shares by authorizing a
withdrawal from a Spring Hill savings or certificate account, that withdrawal
has been made.
Sincerely,
Thomas F. Angotti
President and Chief Executive Officer
<PAGE>
TOMBSTONE ADVERTISEMENT
[LOGO]
[Holding Company]
Holding Company for Spring Hill Savings Bank
UP TO ________ SHARES
Common Stock*
$10.00 Per Share
(Subscription Price)
Shares may be purchased during the Subscription and Community Offering, without
payment of commission or fees.
This Offering expires at __:__ __.m., Eastern Time, on _______, 1997.
To receive a copy of the Prospectus, please call the Stock Information Center at
(800) ___-____ or (412) ___-____, from 9:00 a.m. to 4:00 p.m., Monday through
Friday.
* The total offering is subject to a possible increase to _______ shares of
common stock.
This notice is neither an offer to sell nor a solicitation of an offer to buy
common stock. The offer is made only by the Prospectus. The shares of common
stock offered in the Conversion are not accounts or deposits and are not
federally insured or guaranteed. The common stock has not been approved or
disapproved by the Securities and Exchange Commission, the Federal Deposit
Insurance Corporation, the Office of Thrift Supervision or any other government
agency.
<PAGE>
LOBBY POSTER
[Holding Company]
(Holding Company for Spring Hill Savings Bank)
If you have any questions about the Conversion of Spring Hill Savings Bank from
mutual to stock form, please call the Stock Information Center at (800) ___-____
or (412) ___-____, from 9:00 a.m. to 4:00 p.m., Monday through Friday.
This notice is neither an offer to sell nor a solicitation of an offer to buy
common stock. The offer is made only by the Prospectus. The shares of common
stock offered in the Conversion are not accounts or deposits and are not
federally insured or guaranteed. The common stock has not been approved or
disapproved by the Securities and Exchange Commission, the Federal Deposit
Insurance Corporation, the Office of Thrift Supervision or any other government
agency.
<PAGE>
PRESS RELEASE FOR APPROVAL OF SALE
CONTACT: Thomas F. Angotti
President and Chief Executive Officer
TELEPHONE: (412) 231-0809
DATE: ______, 1997
FOR IMMEDIATE RELEASE
- --------------------------------------------------------------------------------
Pittsburgh, PA. Spring Hill Savings Bank ("Spring Hill") has received approval
from regulatory authorities to convert from a mutual to a stock savings bank.
As part of the Conversion, [Holding Company], the recently organized holding
company for Spring Hill, is offering up to ______ shares of common stock (or up
to ______ shares to reflect changes in market or financial conditions following
commencement of the Offerings) at a subscription price of $10.00 per share.
Common Stock will be offered through a Subscription and Community Offering to
qualifying depositors and other members of Spring Hill along with the employee
stock ownership plan of Spring Hill and the officers, directors and employees of
the Savings Bank and members of the general public.
The Subscription and Community Offering, which is being managed by Ryan, Beck &
Co., Inc. is expected to conclude at __:__ __.m., Eastern Time, on ______,
1997.
Information including details of the offering and Spring Hill's operations are
described in the Prospectus, which is available upon request by calling Spring
Hill's Stock Information Center at (800) ___-____ or (412) ___-____, from 9:00
a.m. - 4:00 p.m., Monday through Friday.
This release is neither an offer to sell nor a solicitation of an offer to buy
common stock. The offer is made only by the Prospectus. The shares of common
stock offered in the Conversion are not accounts or deposits and are not
federally insured or guaranteed. The common stock has not been approved or
disapproved by the Securities and Exchange Commission, the Federal Deposit
Insurance Corporation, the Office of Thrift Supervision or any other government
agency.
<PAGE>
PRESS RELEASE
CONTACT: Thomas F. Angotti
President and Chief Executive Officer
TELEPHONE: (412) 231-0809
DATE: _____, 1997
FOR IMMEDIATE RELEASE
- --------------------------------------------------------------------------------
Pittsburgh, PA. Thomas F. Angotti, President of Spring Hill Savings Bank
- ---------------
("Spring Hill"), announced today the completion of Spring Hill's conversion from
a mutual institution to a capital stock institution and the sale of all of its
outstanding capital stock to [Holding Company] ("______"), its holding company.
A total of _____ shares of common stock of [Holding Company] were sold at $10.00
per share in a Subscription and Community Offering to customers of Spring Hill
along with the employee stock ownership plan of Spring Hill and to members of
the general public. The stock will be traded on the Nasdaq Small-Cap Market
under the symbol "____".
Mr. Angotti expressed his appreciation to the more than ___ individuals who have
become stockholders of [Holding Company]. Mr. Angotti was delighted by the
support and confidence shown by the Savings Bank's customers and local
communities. As a result of the Conversion, the Savings Bank increased its
capital base and is better positioned to serve the needs of its customers and
community.
Ryan, Beck & Co. Inc., served as investment banker and managed the Subscription
and Community Offering.
<PAGE>
INSIDE FOLDER COPY
Optional
Information about Spring Hill Savings Bank and [Holding Company].
- -----------------------------------------------------------------
Spring Hill Savings Bank ("Spring Hill" or the "Savings Bank") is a community-
oriented savings institution. Originally founded in 1893 as a Pennsylvania
mutual savings and loan association, Spring Hill converted to a federal mutual
savings bank in 1991.
Spring Hill is already a well-capitalized institution. But, in order to better
position itself for the future, the Savings Bank is now converting from the
mutual form of ownership to the stock form of organization. In conjunction with
this stock conversion, Spring Hill has formed a holding company named [Holding
Company], which is offering shares of common stock to certain of the Savings
Bank's customers and the public. The Savings Bank is converting to stock form
to increase its capital and structure itself in a form used by commercial banks,
and a growing number of thrift institutions. The stock conversion and holding
company formation will enhance the Savings Bank's ability to access capital
markets and diversify and expand into other markets and financial services.
Spring Hill is pleased to give its customers, employees and community members an
opportunity to become charter stockholders of [Holding Company]. Because an
investment should be given careful consideration, we urge you to read the
information in our Prospectus. If you have any questions about the Conversion,
please feel free to contact the Stock Information Center at (800) ___-_____ or
(412) ___-____.
Thomas F. Angotti
President and Chief Executive Officer
This notice is neither an offer to sell nor a solicitation of an offer to buy
common stock. The offer is made only by the Prospectus. The shares of common
stock offered in the Conversion are not accounts or deposits and are not
federally insured or guaranteed. The common stock has not been approved or
disapproved by the Securities and Exchange Commission, the Federal Deposit
Insurance Corporation, the Office of Thrift Supervision or any other government
agency.
<PAGE>
SPRING HILL SAVINGS BANK [LOGO]
QUESTIONS & ANSWERS
ABOUT THE CONVERSION AND STOCK OFFERING
Spring Hill Savings Bank ("Spring Hill" or the "Savings Bank") is converting to
the stock form of ownership pursuant to a Plan of Conversion (the "Plan"). You
have the opportunity to become a charter stockholder in [Holding Company name],
the Savings Bank's recently organized holding company ("_________" or the
"Holding Company"). This pamphlet answers frequently asked questions about the
stock conversion and about your opportunity to invest in [Holding Company].
Investment in the common stock involves certain risks. For a discussion of
these risks and other factors, investors are urged to read the accompanying
Prospectus.
GENERAL
-------
Q. What is meant by Conversion?
A. Conversion is a change in the legal form of the Savings Bank's organization.
Spring Hill is presently a federally chartered mutual (no stockholders)
------
savings bank. After the Conversion, Spring Hill will be a federally-
chartered capital stock savings bank and a wholly-owned subsidiary of
-------------
[Holding Co.]. Pursuant to the Plan of Conversion, the Holding Company will
acquire all of the Spring Hill common stock to be issued in the Bank's stock
conversion, and the holding company will become a "public" company by
selling shares of [Holding Co.] common stock. The stockholders of [Holding
Co.] will have voting rights with respect to certain key business matters.
The holding company structure will provide advantages which may facilitate
the future growth and financial performance of the Savings Bank.
Q. Why is Spring Hill converting to the stock form of ownership?
A. Although the Savings Bank exceeds all regulatory capital requirements, the
Savings Bank's business strategy includes raising additional capital. The
conversion of Spring Hill and the related sale of the Holding Company's
common stock will:
. Allow customers and community members to become stockholders, sharing in
our organization's future;
. Provide additional funds for lending and investment activities;
. Facilitate future access to the capital markets;
. Enhance the operating flexibility of our organization; and
. Enable Spring Hill to compete effectively with other financial
institutions.
1
<PAGE>
Q. What steps are involved in completing the Conversion?
A. . A Plan of Conversion was adopted by the Board of Directors;
. The Office of Thrift Supervision approved the Plan of Conversion,
subject to approval of the Savings Bank's members (depositors and
certain borrowers);
. The Board of Directors is soliciting proxies from the Savings Bank's
members, requesting that they vote "FOR" the Plan of Conversion;
. [Holding Co.] is conducting a Subscription Offering and a Community
Offering of common stock (together, the "Offering");
. At the conclusion of the Conversion, [Holding Co.] will own all of the
stock of Spring Hill, and stockholders will own [Holding Co.]'s common
stock; and
. When the Plan is approved and the Offering is completed, certificates
for the common stock will be issued to [Holding Co.]'s stockholders.
Q. What effect will the Conversion have on the Savings Bank's operations?
A. After the Conversion, Spring Hill will continue to offer customers a full
range of financial services. The Savings Bank's principal business of
accepting deposits and making mortgage and other loans will continue without
interruption.
Q. Will there be any changes in management or personnel of the Savings Bank as
a result of the Conversion?
A. No. Directors, officers and employees will continue in their same positions
at the Savings Bank. Our day-to-day activities will not change.
Q. Will the Conversion have any effect on my deposit accounts or loans with
Spring Hill?
A. No. The Conversion will not affect the balance, interest rate or withdrawal
rights of your savings or certificate accounts. Insurance of deposit
accounts by the FDIC will continue without change. The rights and
obligations of borrowers under their loan agreements will not be affected.
Q. How will the proceeds raised from the sale of common stock be used?
A. The net proceeds from the sale of common stock will increase Spring Hill's
capital base and will support the Savings Bank's business activities,
including the origination of one-to-four family residential loans and other
loans.
2
<PAGE>
Q. What are the purchase priorities for the Subscription Offering and Community
Offering?
A. Non-transferable subscription rights to subscribe for the common stock in a
----------------
Subscription Offering have been granted, in descending order of purchase
priority to (i) depositors with aggregate deposits of $50.00 or more as of
December 31, 1995; (ii) the Bank's tax-qualified Employee Stock Ownership
Plan; (iii) depositors with aggregate deposits of $50.00 or more as of June
30, 1997; and (iv) depositors of the Savings Bank as of ____, 1997, and
mortgage borrowers of the Savings Bank with mortgage loans outstanding as of
this date.
Subject to the prior rights of holders of subscription rights, common stock
is being offered in a concurrent Community Offering to certain members of
the general public, with preference given to natural persons residing in
Allegheny, Armstrong, Beaver, Butler, Washington and Westmoreland Counties,
Pennsylvania.
Because Qualifying Deposits are utilized in allocating shares to Eligible
Account Holders and Supplemental Eligible Account Holders, each such
subscriber should be sure to list on the Stock Order Form all the deposit
accounts in which he or she had an ownership interest at the applicable
date, December 31, 1995 or June 30, 1997.
Q. Are the depositors and mortgage borrowers who are eligible to buy common
stock obligated to do so?
A. No. They will become stockholders only if they decide to purchase shares of
----
stock of [Holding Co.]
Q. As a depositor or mortgage borrower eligible to buy common stock in the
Subscription Offering, may I sell or assign my subscription rights?
A. No. Such transfer is prohibited by law. Subject to the availability of
stock and certain other restrictions, persons who do not have subscription
rights may purchase common stock in the Community Offering, which is being
conducted concurrently with the Subscription Offering.
Q. How was the offering range and the price per share determined?
A. The offering range is based on an independent appraisal of the pro forma
market value of the common stock performed by an appraisal firm experienced
in valuations of thrift institutions. The appraisal, dated ________, 1997,
indicated that the aggregate pro forma market value of the common stock
ranged between $___ million and $____ million (with a mid-point of $___
million). The offering range is between ________ and __________ shares.
The Board of Directors determined to offer the shares at $10.00 per share.
3
<PAGE>
Q. Will the common stock I purchase be insured by the Federal Deposit Insurance
Corporation?
A. No. Common stock cannot be insured by the Federal Deposit Insurance
Corporation ("FDIC"). Your deposit accounts at Spring Hill, however, will
continue to be insured by the FDIC.
Q. Will dividends be paid?
A. The Board of Directors has not formulated a cash dividend policy, but
intends to develop a policy of paying cash dividends in the future. Future
payment of dividends is subject to the discretion of the Board of Directors,
who will consider the Bank's and Holding Co.'s earnings, regulatory
requirements, business needs and other relevant factors. The Holding
Company may pay stock dividends in lieu of or in addition to cash dividends,
although there can be no assurance that any dividends will be paid.
Q. How will the common stock be traded?
A. The common stock has received conditional approval for quotation on the
Nasdaq Small-Cap Market under the symbol "____". However, there can be no
assurance that an active and liquid market will develop. Although under no
obligation to do so, Ryan Beck & Co., Inc. has informed Spring Hill that it
intends, upon the completion of the Conversion, to make a market in [Holding
Co.]'s common stock by maintaining bid and asked quotations.
VOTING
------
YOUR VOTE IS IMPORTANT!
Details about the stock conversion of Spring Hill Savings Bank and the formation
of the Holding Company are provided in the Proxy Statement.
Q. Did Spring Hill's Board of Directors approve the Plan of Conversion?
A. Yes. The Plan of Conversion was unanimously approved by the Board of
Directors of the Savings Bank.
Q. What vote is necessary to approve the Plan of Conversion?
A. The Conversion cannot be consummated without the approval of the Savings
Bank's members. The Plan of Conversion must be approved by a majority of the
total votes eligible to be cast. Not voting is the same as voting against
-------
the Plan. Therefore, your vote is very important!
4
<PAGE>
Q. Am I required to vote or buy stock?
A. No. Members are not required to vote, and voting does not obligate a member
to buy stock. Because your vote is important, however, management urges
that you take advantage of this opportunity to vote "FOR" the Plan. Your
proxy card is enclosed in the window of your envelope. Please vote, sign
and return the card(s) in the enclosed proxy return envelope. The card(s)
must be received by _______, 1997.
Q. Why did I get several proxy cards?
A. If you have more than one deposit account or loan, you could receive more
than one proxy card, depending on the ownership structure of your accounts.
Please vote, sign and return all cards that you receive. Only one signature
--- ---
is needed on proxy cards with more than one name listed.
PURCHASING COMMON STOCK
-----------------------
Q. How many shares are being offered?
A. [Holding Co.] is offering between ________ and _________ shares of common
stock.
Q. What is the price per share?
A. The subscription price is $10.00 per share.
Q. How do I order common stock during the Subscription Offering and Community
Offering?
A. Complete and return the enclosed Stock Order Form, together with payment or
authorization for account withdrawal, as described above. You may use the
enclosed order return envelope. Orders must be received by Spring Hill by
___:00 p.m., Eastern Time on _______, 1997.
Q. How do I pay for common stock?
A. Payment may be made by check, bank draft or money order or by authorization
for withdrawal (without early withdrawal penalty) from passbook, statement
--------------------------------
savings or certificate of deposit accounts maintained at Spring Hill. Funds
authorized for withdrawal will remain in the account and will continue to
earn interest at the contractual rate, but will be unavailable to the
depositor during the Offering. Subscriptions made by check, bank draft or
money order will earn interest at Spring Hill's passbook savings account
rate until the Conversion is completed.
5
<PAGE>
Q. How much common stock may I order?
A. The purchase limits in the Subscription Offering and in the Community
Offering are described in detail in the section of the Prospectus entitled
"The Conversion - Limitations on Common Stock Purchases". The maximum
number of shares which any individual may purchase is 5,000 shares or
$50,000 and no person, together with associates and persons acting in
concert, may purchase in the aggregate is the greater of $85,000 or 1% of
the stock sold in the Conversion. The minimum purchase is 25 shares or
$250.
Q. As a depositor or mortgage borrower, will I pay a lower price for the common
stock than someone who is not a customer of the Savings Bank?
A. No. The price per share is the same for all subscribers in the Offering.
----
Q. Do I pay a commission?
A. No. No commission or fee will be charged for the purchase of shares during
the Offering.
Q. Are officers and directors of the Savings Bank planning to purchase common
stock?
A. Yes. Spring Hill's executive officers presently expect to purchase an
aggregate of approximately $___million of common stock.
A. What happens to my order if orders are received for more common stock than
is available?
A. This is referred to as an oversubscription and shares will be allocated on a
priority basis as described in the Prospectus. The priority order is also
provided previously herein. Any funds submitted by you to purchase stock
will be refunded you with interest should your order not be filled, or not
filled in full.
Q. I have an IRA account at Spring Hill. Can I use this money to purchase the
common stock without incurring any tax consequences?
A. You will need to transfer your IRA relationship to a broker-dealer, who will
establish a self-directed IRA account for you. Spring Hill will not charge
a penalty for early withdrawal, and there will be no IRS penalty incurred as
a result of purchasing the common stock by this means. Please call the
Stock Information Center at least two weeks prior to the close of the
Offering for a complete description of and assistance with IRA procedures.
Q. May shares be registered in someone else's name?
A. No. Common stock initially must be registered in the name(s) of the
purchaser(s) as described on the Stock Order Form. You may later re-
register the stock in other names.
6
<PAGE>
Q. In the future, how may I purchase additional shares or sell shares?
A. You may purchase or sell shares through your stockbroker or discount
brokerage firm. The firm will charge a commission for trades.
Q. When will I receive my common stock certificate(s)?
A. Common stock certificates will be mailed by our transfer agent promptly
after the Conversion is completed. Please be aware that you may not be able
to sell shares purchased in the Offering until you receive your stock
certificate.
This brochure is neither an offer to sell nor a solicitation of an offer to buy
common stock. The offer is made only by the Prospectus. The shares of common
stock offered in the Conversion are not accounts or deposits and are not
federally insured or guaranteed. The common stock has not been approved or
disapproved by the Securities and Exchange Commission, the Federal Deposit
Insurance Corporation, the Office of Thrift Supervision or any other government
agency.
QUESTIONS?
Stock Information Center
Spring Hill Savings Bank
112 Federal Street
Pittsburgh, PA 15212
(800) ___ - ____
(412) ___ - ____
7
<PAGE>
Exhibit 99.3
[FELDMAN FINANCIAL LETTERHEAD APPEARS HERE]
May 28, 1997
Board of Directors
Spring Hill Savings Bank, F.S.B.
112 Federal Street
Pittsburgh, Pennsylvania 15212
Gentlemen:
This letter sets forth the agreement between Spring Hill Savings Bank, FSB (the
"Bank") and Feldman Financial Advisors, Inc. ("FFA"), whereby the Bank has
engaged FFA to determine the estimated pro forma market value of the shares of
common stock that are to be issued and sold by the Bank (or, if applicable, its
holding company) in connection with the conversion of the Bank to the stock form
of organization.
FFA agrees to deliver the completed valuation, in writing, to the Bank at the
address above on or before a mutually agreed upon date. Further, FFA agrees to
perform such other services as are necessary or required of the appraiser in
connection with comments from the Bank's regulatory authorities and the re-
evaluations of the estimated pro forma market value of the Bank as may from time
to time be necessary both after approval by the Bank's regulatory authorities
and prior to the time the conversion is completed. FFA also agrees to assist
the Bank in the preparation of its regulatory business plan to be submitted in
conjunction with its Application for Conversion.
The Bank agrees to pay FFA a consulting fee of $12,500: $10,000 for FFA's
appraisal services and $2,500 for services in conjunction with the preparation
of the Bank's regulatory business plan. In addition, the Bank agrees to
reimburse FFA for certain expenses necessary and incident to the completion of
the services described above. These expenses shall not exceed $2,500 without
the prior consent of the Bank and those for travel, messenger services,
printing, purchased data, stock price data and report reproduction shall be paid
to FFA as incurred and billed. Payment of the consulting fee shall be made
according to the following schedule:
. $2,500 upon execution of this Agreement;
. $5,000 upon delivery of the completed appraisal report to the Bank;
. $2,500 upon delivery of the Bank's completed regulatory business plan;
and,
. $2,500 upon completion of the conversion.
If, during the course of the Bank's conversion, unforeseen events occur so as to
materially change the nature of the work content of the appraisal services
described above such that FFA must supply services beyond that contemplated at
the time this agreement was executed, the terms of this agreement shall be
subject to renegotiation by the Bank and FFA. Such unforeseen events shall
include, but not be limited to, major changes in the conversion regulations,
appraisal guidelines or processing procedures as they relate to conversion
appraisals, major changes in the Bank's management or operating policies, and
excessive delays or suspension of processing of
<PAGE>
Board of Directors
Spring Hill Savings Bank, FSB
May 28, 1997
Page 2
the conversion. In the event the Bank shall for any reason discontinue the
conversion prior to delivery of the completed appraisal and payment of the
progress payment fee totaling $5,000, the Bank agrees to compensate FFA
according to FFA's standard billing rates for consulting services based on
accumulated and verifiable time expended, provided that the total of such
charges shall not exceed $7,500 plus reimbursable expenses not to exceed the
dollar limit set forth in the third paragraph of this letter.
In order to induce FFA to render the aforesaid services, the Bank agrees to the
following:
1. The Bank agrees to supply FFA such information with respect to the
Bank's business and financial condition as FFA may reasonably request in
order for FFA to perform the aforesaid services. Such information shall
include, without limitation: annual financial statements, periodic
regulatory filings and material agreements, corporate books and records,
and such other documents as are material for the performance by FFA of
the aforesaid services. To the extent such information is of a
confidential nature, FFA agrees to maintain such confidentiality unless
disclosure is required by law.
2. The Bank hereby represents and warrants to FFA (i) that any information
provided to FFA by or on behalf of the Bank, will not, at any relevant
time, contain any untrue statement of a material fact or fail to state a
material fact necessary to make the information or statements therein
not misleading, (ii) that the Bank will not use the product of FFA
services in any manner, including in a proxy or offering circular, in
connection with any untrue statement of a material fact or in connection
with the failure to state a material fact necessary to make other
statements therein not misleading, and (iii) that all documents
incorporating or relying upon FFA services or the product of FFA
services will otherwise comply in all material respects with all
applicable federal and state laws and regulations. Any valuations or
opinions issued by FFA may be included in its entirety in any
communication by the Bank in any application, proxy statement or
prospectus; however, such valuations or opinions may not be excerpted or
otherwise publicly referred to without FFA's prior written consent nor
shall FFA be publicly referred to without FFA's prior written consent;
however, in each case, such consent shall not be unreasonably withheld.
3. FFA's appraisal will be based upon the Bank's representation that the
information contained in the Application for Conversion and additional
information furnished to us by the Bank and its independent auditors is
truthful, accurate, and complete in all material respects. FFA will not
independently verify the financial statements and other information
provided
<PAGE>
Board of Directors
Spring Hill Savings Bank, FSB
May 28, 1997
Page 3
by the Bank and its independent auditors, nor will FFA independently
value the assets or liabilities of the Bank. The valuation will consider
the Bank only as a going concern and will not be considered as an
indication of the liquidation value of the Bank.
4. FFA's valuation is not intended, and must not be represented to be, a
recommendation of any kind as to the advisability of purchasing shares
of common stock in the conversion. 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, FFA will give no
assurance that persons who purchase shares of common stock in the
conversion will thereafter be able to sell such shares at prices related
to FFA's valuation.
5. The Bank agrees that it will indemnify and hold harmless FFA and its
affiliates, officers, directors, employees and representatives
(collectively, "FFA indemnified persons") from and against any and all
liabilities arising from or based upon this agreement or the services
provided by FFA hereunder, except to the extent that such liabilities
are adjudicated by a final judgment (after all appeals or the expiration
of time to appeal) to result from the negligence or willful misconduct
of a FFA indemnified person. The Bank agrees that it will promptly
reimburse, as incurred, all reasonable and documented legal fees and
expenses, and other related reasonable and documented out-of-pocket
disbursements, paid by any FFA indemnified person in defending,
preparing to defend or investigating any actual or threatened action or
proceeding (including any inquiry or investigation) against such FFA
indemnified person, or appearing or preparing for appearance as a
witness in any relevant proceeding (including any pretrial proceeding
such as a deposition); provided, however, that any such reimbursement by
the Bank shall be repaid by FFA if a final judgment (after all appeals
or the expiration of time to appeal) is entered against such person
based upon such person's negligence or willful misconduct; and provided
further, that the Bank shall not be required to make reimbursement or
payment for any settlement effected without its prior written consent.
Each FFA indemnified person shall give prompt written notice to the Bank
of the commencement of any action or proceeding and the Bank shall have
the right to participate, at its expense, in contesting, defending or
litigating the same. A FFA indemnified person shall have the right to
employ its own counsel in connection with all matters referred to in
this Paragraph, and such counsel shall have the right to take charge of
such matter for such person; provided, however, that the Bank shall not
be liable under this Paragraph for the reasonable and documented fees
and expenses of more than one counsel for all
<PAGE>
Board of Directors
Spring Hill Savings Bank, FSB
May 28, 1997
Page 4
FFA indemnified persons unless an unwaived conflict of interest exists
between or among FFA indemnified persons. A waiver of a conflict of
interest shall not be unreasonably withheld.
6. The Bank and FFA are not affiliated, and neither the Bank nor FFA has an
economic interest in, or is held in common with, the other and has not
derived a significant portion of its gross revenues, receipts or net
income for any period from transactions with the other. It is
understood that FFA is not a seller of securities within the scope of
any federal or state securities law and any report prepared by FFA shall
not be used as an offer or solicitation with respect to the purchase or
sale of any security, it being understood that the foregoing shall not
be construed to prohibit the filing of any such report as part of the
Application for Conversion or SEC and blue sky filings or customary
references thereto in applications, filings, proxy statements and
prospectuses.
* * * * *
Please acknowledge your agreement to the foregoing by signing as indicated below
and returning a signed original of this letter to FFA.
Yours very truly,
FELDMAN FINANCIAL ADVISORS, INC.
By: /s/ Trent R. Feldman
----------------------------------------
Trent R. Feldman
President
AGREED AND ACCEPTED:
SPRING HILL SAVINGS BANK, FSB
By: /s/ Thomas F. Angotti
----------------------------------------
Thomas F. Angotti
Title: President and Chief Executive Officer
--------------------------------------
Date: June 9, 1997
---------------------------------------
<PAGE>
Exhibit 99.5
SPRING HILL SAVINGS BANK, F.S.B.
112 Federal Street
Pittsburgh, Pennsylvania 15212
(412) 231-0809
NOTICE OF SPECIAL MEETING OF MEMBERS
To be Held on _________, 1997
Notice is hereby given that a special meeting ("Special Meeting") of
members of Spring Hill Savings Bank, F.S.B. ("Savings Bank") will be held at the
Savings Bank's main office at 112 Federal Street, Pittsburgh, Pennsylvania, on
_____day, ___________, 1997, at __:00 p.m., Eastern Time. Business to be taken
up at the Special Meeting shall be:
(1) To approve a Plan of Conversion adopted by the Board of Directors on
April 16, 1997 to convert the Savings Bank from a federally chartered mutual
savings bank to a federally chartered capital stock savings bank, to be held as
a wholly-owned subsidiary of a new holding company, SHS Bancorp, Inc., including
the adoption of a Federal Stock Charter and Bylaws for the Savings Bank,
pursuant to the laws of the United States and the rules and regulations of the
Office of Thrift Supervision; and
(2) To consider and vote upon any other matters that may lawfully come
before the Special Meeting.
Note: As of the date of mailing of this Notice, the Board of Directors is
not aware of any other matters that may come before the Special Meeting.
The members entitled to vote at the Special Meeting shall be those members
of the Savings Bank at the close of business on ___________, 1997 and who
continue as members until the Special Meeting, and should the Special Meeting
be, from time to time, adjourned to a later time, until the final adjournment
thereof.
BY ORDER OF THE BOARD OF DIRECTORS
GUY DILLE
SECRETARY
Pittsburgh, Pennsylvania
_______________, 1997
Please sign and return promptly each proxy card you receive in the enclosed
postage-paid envelope. This will assure necessary representation at the Special
Meeting, but will not prevent you from voting in person if you so desire. The
proxy is solicited only for this Special Meeting (and any adjournments thereof)
and will not be used for any other meeting. You may revoke your written proxy
by written instrument delivered to Guy Dille, Secretary, Spring Hill Savings
Bank, F.S.B., at the above address at any time prior to or at the special
Meeting.
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SPRING HILL SAVINGS BANK, F.S.B.
112 Federal Street
Pittsburgh, Pennsylvania 15212
(412) 231-0809
PROXY STATEMENT
___________, 1997
YOUR PROXY, IN THE FORM ENCLOSED, IS SOLICITED BY THE BOARD OF DIRECTORS OF
SPRING HILL SAVINGS BANK, F.S.B. FOR USE AT A SPECIAL MEETING OF MEMBERS TO BE
HELD ON _____DAY, __________, 1997, AND ANY ADJOURNMENT OF THAT MEETING, FOR THE
PURPOSES SET FORTH IN THE FOREGOING NOTICE OF SPECIAL MEETING. YOUR BOARD OF
DIRECTORS AND MANAGEMENT URGE YOU TO VOTE FOR THE PLAN OF CONVERSION.
PURPOSE OF MEETING -- SUMMARY
A special meeting of members ("Special Meeting") of Spring Hill Savings
Bank, FSB ("Savings Bank") will be held at the Savings Bank's main office at 112
Federal Street, Pittsburgh, Pennsylvania, on _______, ___________, 1997, at
__:00 p.m., Eastern Time, for the purpose of considering and voting upon a Plan
of Conversion from Federal Mutual Savings Bank to Federal Stock Savings Bank and
Formation of a Holding Company ("Plan" or "Plan of Conversion"), which, if
approved by a majority of the total votes of the members eligible to be cast,
will permit the Savings Bank to convert from a federally chartered mutual
savings bank to a federally chartered capital stock savings bank, to be held as
a subsidiary of SHS Bancorp, Inc. ("Holding Company"), a newly organized
Pennsylvania Corporation formed by the Savings Bank. The conversion of the
Savings Bank and the acquisition of control of the Savings Bank by the Holding
Company are collectively referred to herein as the "Conversion."
Members entitled to vote on the Plan of Conversion are members of the
Savings Bank as of ___________, 1997 ("Voting Record Date") who continue as
members until the Special Meeting, and should the Special Meeting be, from time
to time, adjourned to a later time, until the final adjournment thereof. The
Conversion requires the approval of not less than a majority of the total votes
eligible to be cast at the Special Meeting.
The Plan of Conversion provides in part that, after receiving final
authorization from the Office of Thrift Supervision ("OTS"), the Savings Bank
will offer for sale shares of common stock of the Holding Company ("Common
Stock"), through the issuance of nontransferable subscription rights
("Subscription Rights"), first to depositors of the Savings Bank with $50.00 or
more on deposit as of December 31, 1995 ("Eligible Account Holders"), then to
the Savings Bank's employee stock ownership plan ("ESOP"), then to depositors of
the Savings Bank with $50.00 or more on deposit as of June 30, 1997
("Supplemental Eligible Account Holders"), then to depositors of the Savings
Bank as of the Voting Record Date and borrowers with mortgage loans outstanding
as of the Voting Record Date ("Other Members"), in a subscription offering
("Subscription Offering"), and then, if necessary, to certain members of the
general public in a direct community offering ("Direct Community Offering").
The Subscription and Direct Community Offerings are referred to herein as the
"Subscription and Direct Community Offering." It is anticipated that shares of
Common Stock not subscribed for in the Subscription and Direct Community
Offering will be offered to the general public with the assistance of Ryan, Beck
& Co., Inc. ("Ryan, Beck") and, if necessary, a syndicate of registered broker-
dealers to be managed by Ryan, Beck pursuant to selected dealers' agreements in
a syndicated offering ("Syndicated Offering"). The Subscription, Direct
Community and Syndicated Offerings are referred to herein as the "Offerings."
Adoption of a Federal Stock Charter ("Federal Stock Charter") and Bylaws
("Bylaws") of the Savings Bank is an integral part of the Plan of Conversion.
Copies of the Plan of Conversion and the proposed Federal Stock Charter and
Bylaws for the Savings Bank are attached to this Proxy Statement as exhibits.
They provide, among
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other things, for the termination of voting rights of members and of their
rights to receive any surplus remaining after liquidation of the Savings Bank.
These rights, except for the rights of Eligible Account Holders and Supplemental
Eligible Account Holders in the liquidation account, will vest exclusively in
the holders of the stock in the Holding Company and the Savings Bank. For
further information, see "THE CONVERSION -- Effects of Conversion to Stock Form
on Depositors and Borrowers of the Savings Bank."
SPRING HILL SAVINGS BANK, F.S.B.
The Savings Bank, founded in 1893, is a federally chartered mutual savings
bank located in Pittsburgh, Pennsylvania. The Savings Bank, which was formed as
a Pennsylvania mutual savings and loan association, converted to a federal
mutual savings bank in 1991. In connection with the Conversion, the Savings
Bank will convert to a federally chartered capital stock savings bank and will
become a subsidiary of the Holding Company. The Savings Bank is currently
regulated by the OTS, its primary regulator, and by the FDIC, the insurer of its
deposits. The Savings Bank's deposits are insured by the FDIC's Savings
Association Insurance Fund to the maximum extent permitted by law. The Savings
Bank has been a member of the Federal Home Loan Bank System since 1933. At
March 31, 1997, the Savings Bank, which operates three full-service offices in
the city of Pittsburgh, had total assets of $82.8 million, total deposits of
$64.8 million and total retained earnings of $4.4 million on a consolidated
basis. The main office of the Savings Bank is located at 112 Federal Street,
Pittsburgh, Pennsylvania 15212, and its telephone number is (412) 231-0809.
The Savings Bank operates as a community-oriented financial institution
that engages primarily in the business of attracting deposits from the general
public and using those funds to originate residential mortgage loans within the
Savings Bank's primary market area. At March 31, 1997, one- to four-family
residential mortgage loans totalled $42.7 million, or 76.2% of total loans
receivable. The Savings Bank also originates multi-family, construction,
commercial real estate and consumer loans. In 1996, as part of its strategy to
provide a fuller range of services to its retail customers, the Savings Bank
expanded its offering of consumer loans, introducing home equity lines of credit
and consumer installment loans.
VOTING RIGHTS AND VOTE REQUIRED FOR APPROVAL
The Board of Directors of the Savings Bank 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. All holders of the
Savings Bank's savings or other authorized accounts and all borrowers with
mortgage loans outstanding are members of the Savings Bank under its current
charter. All members of record as of the close of business on the Voting Record
Date who continue to be members on the date of the Special Meeting or any
adjournment thereof will be entitled to vote at the Special Meeting or such
adjournment.
Each eligible depositor member will be entitled at the Special Meeting to
cast one vote for each $100, or fraction thereof, of the aggregate withdrawal
value of all of the depositor's savings accounts in the Savings Bank as of the
Voting Record Date. Each borrower member will be entitled to cast one vote for
the period of time such borrowings remain in existence. No member is entitled
to cast more than 1,000 votes. Any number of members present and voting,
represented in person or by proxy, at the Special Meeting will constitute a
quorum.
Approval of the Plan of Conversion will require the affirmative vote of a
majority of the total outstanding votes of the Savings Bank's members eligible
to be cast at the Special Meeting. As of the Voting Record Date for the Special
Meeting, there were approximately ____________ votes eligible to be cast, of
which _______ votes may be cast by depositor members and _________votes may be
cast by borrower members.
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PROXIES
Members may vote at the Special Meeting or any adjournment thereof in
person or by proxy. Enclosed is a proxy which may be used by any eligible
member to vote on the Plan of Conversion. All properly executed proxies
received by management will be voted in accordance with the instructions
indicated thereon by the members giving such proxies. If no instructions are
given, such proxies will be voted in favor of the Plan of Conversion. If any
other matters are properly presented at the Special Meeting and may properly be
voted on, all proxies will be voted on such matters in accordance with the best
judgment of the proxy holders named therein. If the enclosed proxy is returned,
it may be revoked at any time before it is voted by written notice to the
Secretary of the Savings Bank, by submitting a later dated proxy, or by
attending and voting in person at the Special Meeting. The proxies being
solicited are only for use at the Special Meeting and at any and all
adjournments thereof and will not be used for any other meeting. Management is
not aware of any other business to be presented at the Special Meeting.
The Savings Bank, as trustee for individual retirement accounts at the
Savings Bank, will vote in favor of the Plan of Conversion, unless the
beneficial owner executes and returns the enclosed proxy for the Special Meeting
or attends the Special Meeting and votes in person.
To the extent necessary to permit approval of the Plan of Conversion,
proxies may be solicited by representatives of Ryan, Beck and by officers,
directors or regular employees of the Savings Bank, in person, by telephone or
through other forms of communication and, if necessary, the Special Meeting may
be adjourned to an alternative date. Such persons will be reimbursed by the
Savings Bank for their reasonable out-of-pocket expenses incurred in connection
with such solicitation.
RECOMMENDATION OF THE BOARD OF DIRECTORS
The Board of Directors of the Savings Bank unanimously recommends that you
vote "FOR" the Plan of Conversion. Voting in favor of the Plan of Conversion
will not obligate any voter to purchase any stock.
THE CONVERSION
The OTS has given approval to the Plan subject to the Plan's approval by
the members of the Savings Bank entitled to vote on the matter and subject to
the satisfaction of certain other conditions imposed by the OTS in its approval.
OTS approval, however, does not constitute a recommendation or endorsement of
the Plan.
General
On April 16, 1997, the Board of Directors of the Savings Bank unanimously
adopted the Plan of Conversion, pursuant to which the Savings Bank will convert
from a federally chartered mutual savings bank to a federally chartered stock
savings bank. All of the capital stock of the Savings Bank will be held by the
Holding Company, a newly formed Pennsylvania corporation. The following
discussion of the Plan of Conversion is qualified in its entirety by reference
to the Plan of Conversion, which is attached hereto as Exhibit A. The OTS has
approved the Plan of Conversion subject to the Plan's approval by the members of
the Savings Bank entitled to vote on the matter at the Special Meeting, and
subject to the satisfaction of certain other conditions imposed by the OTS in
its approval.
The Conversion will be accomplished through adoption of a Federal Stock
Charter and Bylaws to authorize the issuance of capital stock by the Savings
Bank. Under the Plan, 527,000 to 713,000 shares of Common Stock are being
offered for sale by the Holding Company at the purchase price of $10.00 per
share. As part of the Conversion, the Savings Bank will transfer all of its
newly issued common stock (1,000 shares) to the Holding
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Company in exchange for at least 50% of the net proceeds from the sale of Common
Stock by the Holding Company.
The Plan of Conversion provides generally that: (i) the Savings Bank will
convert from a federally chartered mutual savings bank to a federally chartered
stock savings bank; (ii) the Common Stock will be offered by the Holding Company
in the Subscription Offering to persons having Subscription Rights and in the
Direct Community Offering to certain members of the general public, with
preference given to natural persons and trusts of natural persons residing in
Allegheny, Washington, Westmoreland and Armstrong Counties of Pennsylvania;
(iii) if necessary, shares of Common Stock not subscribed for in the
Subscription and Direct Community Offering will be offered to certain members of
the general public in a Syndicated Community Offering through a syndicate of
registered broker-dealers pursuant to selected dealers agreements; and (iv) the
Holding Company will purchase all of the capital stock of the Savings Bank to be
issued in connection with the Conversion. The Conversion will be effected only
upon completion of the sale of at least $5,270,000 of Common Stock to be issued
pursuant to the Plan of Conversion.
Consummation of the Conversion is subject to the approval of the Plan of
Conversion by the Savings Bank's members and the approval by the OTS of the Plan
of Conversion and the Holding Company's acquisition of the Savings Bank. The
Holding Company has received approval from the OTS to become the holding company
of the Savings Bank, subject to the satisfaction of certain conditions, and to
acquire all of the common stock of the Savings Bank to be issued in the
Conversion in exchange for at least 50% of the net proceeds from the sale of
Common Stock in the Offerings. The Conversion will be effected only upon
completion of the sale of the shares of Common Stock to be issued by the Holding
Company pursuant to the Plan of Conversion.
As part of the Conversion, the Holding Company is making a Subscription
Offering of its Common Stock to holders of Subscription Rights in the following
order of priority: (i) Eligible Account Holders (depositors with $50.00 or more
on deposit as of December 31, 1995); (ii) the Savings Bank's ESOP; (iii)
Supplemental Eligible Account Holders (depositors with $50.00 or more on deposit
as of June 30, 1997); and (iv) Other Members (depositors of the Savings Bank as
of the Voting Record Date and borrowers of the Savings Bank with mortgage loans
outstanding as of the Voting Record Date).
Shares of Common Stock not sold in the Subscription and Direct Community
Offering may be offered in the Syndicated Community Offering. Regulations
require that the Direct Community and Syndicated Community Offerings be
completed within 45 days after completion of the Subscription Offering unless
extended by the Savings Bank or the Holding Company with the approval of the
regulatory authorities. If the Syndicated Community Offering is determined not
to be feasible, the Board of Directors of the Savings Bank will consult with the
regulatory authorities to determine an appropriate alternative method for
selling the unsubscribed shares of Common Stock. The Plan of Conversion
provides that the Conversion must be completed within 24 months after the date
of the approval of the Plan of Conversion by the members of the Savings Bank.
No sales of Common Stock may be completed, either in the Subscription,
Direct Community or Syndicated Community Offerings, unless the Plan of
Conversion is approved by the members of the Savings Bank.
The completion of the Offerings, however, is subject to market conditions
and other factors beyond the Savings Bank's control. No assurance can be given
as to the length of time after approval of the Plan of Conversion at the Special
Meeting that will be required to complete the Offerings or other sale of the
Common Stock. If delays are experienced, significant changes may occur in the
estimated pro forma market value of the Holding Company and the Savings Bank as
converted, together with corresponding changes in the net proceeds realized by
the Holding Company from the sale of the Common Stock. In the event the
Conversion is terminated, the Savings Bank would be required to charge all
Conversion expenses against current income.
Orders for shares of Common Stock will not be filled until at least 527,000
shares of Common Stock have been subscribed for or sold and the OTS approves the
final valuation and the Conversion closes. If the Conversion
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is not completed within 45 days after the last day of the fully extended
Subscription Offering and the OTS consents to an extension of time to complete
the Conversion, subscribers will be given the right to increase, decrease or
rescind their subscriptions. Unless an affirmative indication is received from
subscribers that they wish to continue to subscribe for shares, the funds will
be returned promptly, together with accrued interest at the Savings Bank's
passbook rate from the date payment is received until the funds are returned to
the subscriber. If such period is not extended, or, in any event, if the
Conversion is not completed, all withdrawal authorizations will be terminated
and all funds held will be promptly returned together with accrued interest at
the Savings Bank's passbook rate from the date payment is received until the
Conversion is terminated.
Purposes of Conversion
Management of the Savings Bank believes that the Conversion offers a number
of advantages which will be important to the future growth and performance of
the Savings Bank in that it is intended: (i) to improve the overall competitive
position of the Savings Bank in its market area and to support possible future
expansion and diversification of operations (currently there are no specific
plans, arrangements or understandings, written or oral, regarding any such
activities); (ii) to afford members of the Savings Bank and others the
opportunity to become stockholders of the Holding Company and thereby
participate more directly in, and contribute to, any future growth of the
Holding Company and the Savings Bank; and (iii) to provide future access to
capital markets.
The Savings Bank's Board of Directors has formed the Holding Company to
serve upon consummation of the Conversion as a holding company with the Savings
Bank as its subsidiary. The Savings Bank, as a federal mutual savings bank,
does not have stockholders and has no authority to issue capital stock. By
converting to the stock form of organization, the Holding Company and the
Savings Bank will be structured in the form used by holding companies of
commercial banks and by a large number of savings institutions.
Effects of Conversion to Stock Form on Depositors and Borrowers of the Savings
Bank
Voting Rights. Savings members and borrowers will have no voting rights in
the converted Savings Bank or the Holding Company and therefore will not be able
to elect directors of the Savings Bank or the Holding Company or to control
their affairs. Currently, these rights are accorded to savings members of the
Savings Bank. Subsequent to the Conversion, voting rights will be vested
exclusively in the Holding Company with respect to the Savings Bank and the
holders of the Common Stock as to matters pertaining to the Holding Company.
Each holder of Common Stock shall be entitled to vote on any matter to be
considered by the stockholders of the Holding Company. A stockholder will be
entitled to one vote for each share of Common Stock owned.
Savings Accounts and Loans. The Savings Bank's savings accounts, account
balances and existing FDIC insurance coverage of savings accounts will not be
affected by the Conversion. Furthermore, the Conversion will not affect the
loan accounts, loan balances or obligations of borrowers under their individual
contractual arrangements with the Savings Bank.
Tax Effects. The Savings Bank has received an opinion from Breyer &
Aguggia, Washington, D.C., that the Conversion will constitute a nontaxable
reorganization under Section 368(a)(1)(F) of the Code. Among other things, the
opinion states that: (i) no gain or loss will be recognized to the Savings Bank
in its mutual or stock form by reason of its Conversion; (ii) no gain or loss
will be recognized to its account holders upon the issuance to them of accounts
in the Savings Bank immediately after the Conversion, in the same dollar amounts
and on the same terms and conditions as their accounts at the Savings Bank in
its mutual form plus interest in the liquidation account; (iii) the tax basis of
account holders' accounts in the Savings Bank immediately after the Conversion
will be the same as the tax basis of their accounts immediately prior to
Conversion; (iv) the tax basis of each account holder's interest in the
liquidation account will be zero; (v) the tax basis of the Common Stock
purchased in the Conversion will be the amount paid and the holding period for
such stock will commence at the date of purchase; and (vi) no gain or loss will
be recognized to account holders upon the receipt or exercise of Subscription
Rights in the Conversion, except to the extent Subscription Rights are deemed to
have value as discussed below. Unlike a private letter ruling
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issued by the IRS, an opinion of counsel is not binding on the IRS and the IRS
could disagree with the conclusions reached therein. In the event of such
disagreement, no assurance can be given that the conclusions reached in an
opinion of counsel would be sustained by a court if contested by the IRS.
Based upon past rulings issued by the IRS, the opinion provides that the
receipt of Subscription Rights by Eligible Account Holders, Supplemental
Eligible Account Holders and Other Members under the Plan will be taxable to the
extent, if any, that the Subscription Rights are deemed to have a fair market
value. Feldman Financial Advisors, Inc. ("Feldman Financial"), a financial
consulting firm retained by the Savings Bank, whose findings are not binding on
the IRS, has indicated that the Subscription Rights do not have any value, based
on the fact that such rights are obtained by the recipients without cost, are
nontransferable and of short duration and afford the recipients the right only
to purchase shares of the Common Stock at a price equal to its estimated fair
market value, which will be the same price paid by purchasers in the Direct
Community Offering for unsubscribed shares of Common Stock. If the Subscription
Rights are deemed to have a fair market value, the receipt of such rights may
only be taxable to those Eligible Account Holders, Supplemental Eligible Account
Holders and Other Members who exercise their Subscription Rights. The Savings
Bank could also recognize a gain on the distribution of such Subscription
Rights. Eligible Account Holders, Supplemental Eligible Account Holders and
Other Members are encouraged to consult with their own tax advisors as to the
tax consequences in the event the Subscription Rights are deemed to have a fair
market value.
The Savings Bank has also received an opinion from S.R. Snodgrass A.C.,
Wexford, Pennsylvania, that, assuming the Conversion does not result in any
federal income tax liability to the Savings Bank, its account holders, or the
Holding Company, implementation of the Plan of Conversion will not result in any
Pennsylvania income tax liability to such entities or persons.
The opinions of Breyer & Aguggia and S.R. Snodgrass A.C., and the letter
from Feldman Financial are filed as exhibits to the Registration Statement. See
"ADDITIONAL INFORMATION."
PROSPECTIVE INVESTORS ARE URGED TO CONSULT WITH THEIR OWN TAX ADVISORS
REGARDING THE TAX CONSEQUENCES OF THE CONVERSION PARTICULAR TO THEM.
Liquidation Account. In the unlikely event of a complete liquidation of
the Savings Bank in its present mutual form, each depositor in the Savings Bank
would receive a pro rata share of any assets of the Savings Bank remaining after
payment of claims of all creditors (including the claims of all depositors up to
the withdrawal value of their accounts). Each depositor's pro rata share of
such remaining assets would be in the same proportion as the value of his
deposit account to the total value of all deposit accounts in the Savings Bank
at the time of liquidation.
After the Conversion, holders of withdrawable deposit(s) in the Savings
Bank, including certificates of deposit ("Savings Account(s)"), shall not be
entitled to share in any residual assets in the event of liquidation of the
Savings Bank. However, pursuant to OTS regulations, the Savings Bank shall, at
the time of the Conversion, establish a liquidation account in an amount equal
to its total equity as of the date of the latest statement of financial
condition contained herein.
The liquidation account shall be maintained by the Savings Bank subsequent
to the Conversion for the benefit of Eligible Account Holders and Supplemental
Eligible Account Holders who retain their Savings Accounts in the Savings Bank.
Each Eligible Account Holder and Supplemental Eligible Account Holder shall,
with respect to each Savings Account held, have a related inchoate interest in a
portion of the liquidation account balance ("subaccount").
The initial subaccount balance for a Savings Account held by an Eligible
Account Holder or a Supplemental Eligible Account Holder shall be determined by
multiplying the opening balance in the liquidation account by a fraction of
which the numerator is the amount of such holder's "qualifying deposit" in the
Savings Account and the
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denominator is the total amount of the "qualifying deposits" of all such
holders. Such initial subaccount balance shall not be increased, and it shall
be subject to downward adjustment as provided below.
If the deposit balance in any Savings Account of an Eligible Account Holder
or Supplemental Eligible Account Holder at the close of business on any annual
closing day of the Savings Bank subsequent to December 31, 1995 is less than the
lesser of (i) the deposit balance in such Savings Account at the close of
business on any other annual closing date subsequent to December 31, 1995 or
June 30, 1997 or (ii) the amount of the "qualifying deposit" in such Savings
Account on December 31, 1995 or June 30, 1997, then the subaccount balance for
such Savings Account shall be adjusted by reducing such subaccount balance in an
amount proportionate to the reduction in such deposit balance. In the event of
a downward adjustment, such subaccount balance shall not be subsequently
increased, notwithstanding any increase in the deposit balance of the related
Savings Account. If any such Savings Account is closed, the related subaccount
balance shall be reduced to zero.
In the event of a complete liquidation of the Savings Bank (and only in
such event) each Eligible Account Holder and Supplemental Eligible Account
Holder shall be entitled to receive a liquidation distribution from the
liquidation account in the amount of the then current adjusted subaccount
balance(s) for Savings Account(s) then held by such holder before any
liquidation distribution may be made to stockholders. No merger, consolidation,
bulk purchase of assets with assumptions of Savings Accounts and other
liabilities or similar transactions with another federally insured institution
in which the Savings Bank is not the surviving institution shall be considered
to be a complete liquidation. In any such transaction the liquidation account
shall be assumed by the surviving institution.
REVIEW OF OTS ACTION
Any person aggrieved by a final action of the OTS which approves, with or
without conditions, or disapproves a plan of conversion pursuant to this part
may obtain review of such action by filing in the court of appeals of the United
States for the circuit in which the principal office or residence of such person
is located, or in the United States Court of Appeals for the District of
Columbia, a written petition praying that the final action of the OTS be
modified, terminated or set aside. Such petition must be filed within 30 days
after the publication of notice of such final action in the Federal Register, or
----------------
30 days after the mailing by the applicant of this notice to members as provided
for in 12 C.F.R. (S)563b.6(c), whichever is later. The further procedure for
review is as follows: A copy of the petition is forthwith transmitted to the
OTS by the clerk of the court and thereupon the OTS files in the court the
record in the proceeding, as provided in Section 2112 of Title 28 of the United
States Code. Upon the filing of the petition, the court has jurisdiction, which
upon the filing of the record is exclusive, to affirm, modify, terminate, or set
aside in whole or in part, the final action of the OTS. Review of such
proceedings is as provided in Chapter 7 of Title 5 of the United States Code.
The judgment and decree of the court is final, except that they are subject to
review by the United States Supreme Court upon certiorari as provided in Section
1254 of Title 28 of the United States Code.
ADDITIONAL INFORMATION
The Holding Company has filed with the Securities and Exchange Commission
("SEC") a Registration Statement on Form SB-2 (File No. 333-______) under the
Securities Act of 1933, as amended, with respect to the Common Stock offered in
the Conversion. The accompanying Prospectus does not contain all the
information set forth in the Registration Statement, certain parts of which are
omitted in accordance with the rules and regulations of the SEC. Such
information may be inspected at the public reference facilities maintained by
the SEC at 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549; 500 West
Madison Street, Suite 1400, Room 1100, Chicago, Illinois 60661; and 75 Park
Place, New York, New York 10007. Copies may be obtained at prescribed rates
from the Public Reference Section of the SEC at 450 Fifth Street, N.W.,
Washington, D.C. 20549. In addition, the Registration Statement is publicly
available through the SEC's World Wide Web site on the Internet
(http://www.sec.gov).
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The Savings Bank has filed with the OTS an Application for Approval of
Conversion, which includes proxy materials for the Savings Bank's Special
Meeting and certain other information. The accompanying Prospectus omits
certain information contained in such Application. The Application, including
the proxy materials, exhibits and certain other information that are a part
thereof, may be inspected, without charge, at the offices of the OTS, 1700 G
Street, N.W., Washington, D.C. 20552 and at the office of the Regional Director
of the OTS at the Northeast Regional Office of the OTS, 10 Exchange Plaza, 18th
Floor, Jersey City, New Jersey 07302.
Copies of the Holding Company's Certificate of Incorporation and Bylaws may
be obtained by written request to the Savings Bank.
All persons eligible to vote at the Special Meeting should review both this
Proxy Statement and the accompanying Prospectus carefully. However, no person
is obligated to purchase any Common Stock. For additional information, you may
call the Stock Information Center at (___) ___-____.
BY ORDER OF THE BOARD OF DIRECTORS
GUY DILLE
SECRETARY
Pittsburgh, Pennsylvania
_____________, 1997
Your Board of Directors urges you to consider carefully the information
contained in this proxy statement and, whether or not you plan to be present in
person at the Special Meeting, to fill in, date, sign and return the enclosed
proxy card(s) as soon as possible to assure that your votes will be counted.
This will not prevent you from voting in person if you attend the Special
Meeting. You may revoke your proxy by written instrument delivered to the
Secretary of the Savings Bank at any time prior to or at the Special Meeting or
by attending the Special Meeting and voting in person.
________________________
THIS PROXY STATEMENT IS NOT AN OFFER TO SELL OR THE SOLICITATION OF AN
OFFER TO BUY STOCK. THE OFFER WILL BE MADE ONLY BY THE PROSPECTUS IN THOSE
JURISDICTIONS IN WHICH IT IS LAWFUL TO MAKE SUCH OFFER.
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Exhibit A
SPRING HILL SAVINGS BANK, FSB
PITTSBURGH, PENNSYLVANIA
PLAN OF CONVERSION
FROM FEDERAL MUTUAL SAVINGS BANK
TO FEDERAL STOCK SAVINGS BANK
AND FORMATION OF A HOLDING COMPANY
INTRODUCTION
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I. General
-------
It is the desire of the Board of Directors to attract new capital to the
Savings Bank to increase its net worth, to support future savings growth, to
increase the amount of funds available for other lending and investment, to
provide greater resources for the expansion of customer services and to
facilitate future expansion by the Savings Bank. In addition, the Board of
Directors intends to implement stock option plans and other stock benefit plans
as part of the Conversion in order to attract and retain qualified directors and
officers. It is the further desire of the Board of Directors to reorganize the
Savings Bank as the wholly owned subsidiary of a holding company to enhance
flexibility of operations, diversification of business opportunities and
financial capability for business and regulatory purposes and to enable the
Savings Bank to compete more effectively with other financial service
organizations. Accordingly, on April 16, 1997, the Board of Directors of Spring
Hill Savings Bank, FSB ("Savings Bank"), after careful study and consideration,
adopted by unanimous vote this Plan of Conversion ("Plan"), which provides for
the conversion of the Savings Bank from a federally chartered mutual savings
bank to a federally chartered stock savings bank and the concurrent formation of
a holding company for the Savings Bank ("Holding Company").
All capitalized terms contained in the Plan shall have the meanings ascribed
to them in Section II hereof.
Pursuant to the Plan, shares of Conversion Stock will be offered as part of
the Conversion in a Subscription Offering pursuant to nontransferable
Subscription Rights at a predetermined and uniform price first to the Savings
Bank's Eligible Account Holders, second to the Tax-Qualified Employee Stock
Benefit Plans, third to Supplemental Eligible Account Holders, and fourth to
Other Members of the Savings Bank. Concurrently with the Subscription Offering,
shares not subscribed for in the Subscription Offering will be offered as part
of the Conversion to the general public in a Direct Community Offering. Shares
remaining may then be offered to the general public in a Syndicated Community
Offering, an underwritten public offering or otherwise. The aggregate Purchase
Price of the Conversion Stock will be based upon an independent appraisal of the
Savings Bank and will reflect the estimated pro forma market value of the
Savings Bank as a subsidiary of the Holding Company.
The Conversion is subject to regulations of the Director of the OTS (Part
563b of the Rules and Regulations Applicable to All Savings Associations) as
promulgated pursuant to Section 5(i) of the Home Owners' Loan Act.
Consummation of the Conversion is subject to the approval of this Plan and
the Conversion by the OTS and by the affirmative vote of Members of the Savings
Bank holding not less than a majority of the total votes eligible to be cast at
a special meeting of the Members to be called to consider the Conversion.
No change will be made in the Board of Directors or management of the
Savings Bank as a result of the Conversion.
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<PAGE>
II. Definitions
-----------
As used in this Plan, the terms set forth below have the following
meanings:
A. Acting in Concert: (i) Knowing participation in a joint activity or
-----------------
interdependent conscious parallel action towards a common goal whether or not
pursuant to an express agreement; or (ii) a combination or pooling of voting or
other interests in the securities of an issuer for a common purpose pursuant to
any contract, understanding, relationship, agreement or other arrangement,
whether written or otherwise. A Person (as defined herein) who acts in concert
with another Person ("other party") shall also be deemed to be acting in concert
with any Person who is also acting in concert with that other party, except that
any Tax-Qualified Employee Stock Benefit Plan will not be deemed to be acting in
concert with its trustee or a Person who serves in a similar capacity solely for
the purpose of determining whether stock held by the trustee and stock held by
the Tax-Qualified Employee Benefit Plan will be aggregated.
B. Associate: When used to indicate a relationship with any Person, means
---------
(i) any corporation or organization (other than the Savings Bank or a majority-
owned subsidiary of the Savings Bank, or the Holding Company) of which such
Person is an officer or partner or is, directly or indirectly, the beneficial
owner of ten percent or more of any class of equity securities, (ii) any trust
or other estate in which such Person has a substantial beneficial interest or as
to which such Person serves as trustee or in a similar fiduciary capacity,
except that it does not include a Tax-Qualified Employee Stock Benefit Plan and
(iii) any relative or spouse of such Person, or any relative of such spouse, who
has the same home as such Person or who is a director or officer of the Savings
Bank, any of its subsidiaries, or the Holding Company.
C. Capital Stock: Any and all authorized capital stock in the Savings
-------------
Bank, as converted.
D. Common Stock: Any and all authorized common stock in the Holding
------------
Company subsequent to the Conversion.
E. Conversion: (i) Amendment of the Savings Bank's Charter and Bylaws to
----------
authorize issuance of shares of Capital Stock by the Savings Bank and to conform
to the requirements of a Federal stock savings bank under the laws of the United
States and regulations of the OTS; (ii) issuance and sale of Conversion Stock by
the Holding Company in the Subscription Offering and Direct Community Offering;
and (iii) purchase by the Holding Company of the Capital Stock of the Savings
Bank to be issued in the Conversion immediately following or concurrently with
the close of the sale of all Conversion Stock.
F. Conversion Stock: Holding Company common stock to be issued and sold by
----------------
the Holding Company pursuant to the Plan.
G. Direct Community Offering: The offering for sale of Conversion Stock to
-------------------------
the public.
H. Eligibility Record Date: December 31, 1995.
-----------------------
I. Eligible Account Holder: Holder of a Qualifying Deposit in the Savings
-----------------------
Bank on the Eligibility Record Date.
J. FDIC: Federal Deposit Insurance Corporation.
----
K. Form AC Application: The application submitted to the OTS for approval
-------------------
of the Conversion.
L. H-(e)1 Application: The application submitted to the OTS on OTS Form H-
------------------
(e)1 or Form H-(e)1-S, if applicable, for approval of the Holding Company's
acquisition of all of the Capital Stock of the Savings Bank.
A-2
<PAGE>
M. Holding Company: A corporation to be formed by the Savings Bank under
---------------
state law for the purpose of becoming a holding company through the issuance and
sale of its stock under the Plan, and concurrent acquisition of 100% of the
Capital Stock of the Savings Bank to be issued pursuant to the Plan.
N. Holding Company Stock: Any and all authorized capital stock of the
---------------------
Holding Company.
O. Local Community: Alleghany County, Pennsylvania, and its contiguous
---------------
counties.
P. Market Maker: A dealer (i.e., any Person who engages directly or
------------
indirectly as agent, broker, or principal in the business of offering, buying,
selling, or otherwise dealing or trading in securities issued by another Person)
who, with respect to a particular security, (i) regularly publishes bona fide,
competitive bid and offer quotations in a recognized inter-dealer quotation
system or furnishes bona fide competitive bid and offer quotations on request
and (ii) is ready, willing and able to effect transactions in reasonable
quantities at his quoted prices with other brokers or dealers.
Q. Members: All Persons or entities who qualify as members of the Savings
-------
Bank pursuant to its Charter and Bylaws prior to the Conversion.
R. Officer: An executive officer of the Savings Bank, which includes the
-------
Chairman of the Board, President, Executive Vice President, Senior Vice
Presidents, Vice Presidents in charge of principal business functions, the
Secretary and the Treasurer as well as any other person performing similar
functions.
S. Order Forms: Forms to be used for the purchase of Conversion Stock sent
-----------
to Eligible Account Holders and other parties eligible to purchase Conversion
Stock in the Subscription Offering pursuant to the Plan.
T. Other Member: Holder of a Savings Account (other than Eligible Account
------------
Holders and Supplemental Eligible Account Holders) as of the Record Date and
borrowers from the Savings Bank as provided in the Savings Bank's Federal Mutual
Charter who continue to be borrowers from the Savings Bank as of the Record
Date.
U. OTS: Office of Thrift Supervision of the United States Department of the
---
Treasury .
V. Person: An individual, corporation, partnership, association, joint
------
stock company, trusts of natural Persons, unincorporated organization or a
government or any political subdivision thereof.
W. Plan: This Plan of Conversion, which provides for the conversion of the
----
Savings Bank from a federally chartered mutual savings bank to a federally
chartered capital stock savings bank as a wholly owned subsidiary of the Holding
Company, as originally adopted by the Board of Directors or as amended in
accordance with the terms thereof.
X. Qualifying Deposit: The deposit balance in any Savings Account as of
------------------
the Eligibility Record Date or the Supplemental Eligibility Record Date, as
applicable; provided, however, that no Savings Account with a deposit balance of
less than $50 shall constitute a Qualifying Deposit.
Y. Record Date: Date which determines which Members are entitled to vote
-----------
at the Special Meeting.
Z. Registration Statement: The registration statement on Form S-1 or other
----------------------
applicable forms filed by the Holding Company with the SEC for the purpose of
registering the Conversion Stock under the Securities Act of 1933, as amended.
AA. Savings Account(s): Withdrawable deposit(s) in the Savings Bank,
------------------
including certificates of deposit.
A-3
<PAGE>
BB. Savings Bank: Spring Hill Savings Bank, FSB, in its present form as a
------------
federally chartered mutual savings bank.
CC. SEC: Securities and Exchange Commission.
---
DD. Special Meeting: The special meeting of Members called for the purpose
---------------
of considering the Plan for approval.
EE. Subscription Offering: The offering of Conversion Stock to Eligible
---------------------
Account Holders, Tax-Qualified Employee Stock Benefit Plans, Supplemental
Eligible Account Holders and Other Members under the Plan.
FF. Subscription Rights: Non-transferable, non-negotiable, personal rights
-------------------
of Eligible Account Holders, Tax-Qualified Employee Stock Benefit Plans,
Supplemental Eligible Account Holders and Other Members to purchase Conversion
Stock.
GG. Supplemental Eligibility Record Date: The last day of the calendar
------------------------------------
quarter preceding the approval of the Plan by the OTS.
HH. Supplemental Eligible Account Holder: Holder of a Qualifying Deposit
------------------------------------
in the Savings Bank (other than an Officer or director or their Associates) on
the Supplemental Eligibility Record Date.
II. Syndicated Community Offering: The offering for sale by a syndicate of
-----------------------------
broker-dealers to the general public of shares of Conversion Stock not purchased
in the Subscription Offering and the Direct Community Offering.
JJ. Tax Qualified Employee Stock Benefit Plan: Any defined benefit plan or
-----------------------------------------
defined contribution plan of the Savings Bank or Holding Company, such as an
employee stock ownership plan, bonus plan, profit-sharing plan or other plan,
which, with its related trust meets the requirements to be "qualified" under
section 401 of the Internal Revenue Code. A "non-tax-qualified employee stock
benefit plan" is any defined benefit plan or defined contribution plan that is
not so qualified.
III. Steps Prior to Submission of the Plan to the Members for Approval
-----------------------------------------------------------------
Prior to submission of the Plan to the Members for approval, the Savings
Bank must receive approval from the OTS of the Form AC Application. Prior to
such regulatory approval:
A. The Board of Directors shall adopt the Plan by a vote of not less than
two-thirds of its entire membership.
B. The Savings Bank shall notify the Members of the adoption of the Plan
by publishing legal notice in a newspaper having a general circulation in each
community in which the Savings Bank maintains an office.
C. A press release relating to the proposed Conversion may be submitted
to the local media.
D. Copies of the Plan as adopted by the Board of Directors shall be made
available for inspection at each office of the Savings Bank.
E. The Savings Bank shall cause the Holding Company to be incorporated
under state law and the Board of Directors of the Holding Company shall concur
in the Plan by at least a two-thirds vote.
F. As soon as practicable following the adoption of this Plan, the
Savings Bank shall file the Form AC Application, and the Holding Company shall
file the Registration Statement and the H-(e)1 Application. Upon
A-4
<PAGE>
filing the Form AC Application, the Savings Bank shall publish legal notice of
the filing of the Form AC Application in a newspaper having a general
circulation in each community in which the Savings Bank maintains an office
and/or by mailing a letter to each of its Members, and shall publish such other
notices of the Conversion as may be required in connection with the H-(e)1
Application and by the regulations and policies of the OTS.
G. The Savings Bank shall obtain an opinion of its tax advisors or a
favorable ruling from the United States Internal Revenue Service which shall
state that the Conversion will not result in any gain or loss for Federal income
tax purposes to the Savings Bank or its Eligible Account Holders, Supplemental
Eligible Account Holders and Other Members. Receipt of a favorable opinion or
ruling is a condition precedent to completion of the Conversion.
IV. Meeting of Members
------------------
Subsequent to the approval of the Plan by the OTS, the Special Meeting
shall be scheduled in accordance with the Savings Bank's Bylaws. Promptly after
receipt of approval and at least 20 days but not more than 45 days prior to the
Special Meeting, the Savings Bank shall distribute proxy solicitation materials
to all Members and beneficial owners of accounts held in fiduciary capacities
where the beneficial owners possess voting rights, as of the Record Date. The
proxy solicitation materials shall include a copy of the proxy statement to be
used in connection with such solicitation ("Proxy Statement") and other
documents authorized for use by the regulatory authorities and may also include
a copy of the Plan and/or a prospectus ("Prospectus") as provided in Paragraph V
below. The Savings Bank shall also advise each Eligible Account Holder and
Supplemental Eligible Account Holder not entitled to vote at the Special Meeting
of the proposed Conversion and the scheduled Special Meeting, and provide a
postage prepaid card on which to indicate whether he wishes to receive the
Prospectus, if the Subscription Offering is not held concurrently with the proxy
solicitation.
Pursuant to OTS regulations, an affirmative vote of not less than a
majority of the total outstanding votes of the Members is required for approval
of the Plan. Voting may be in person or by proxy. The OTS shall be notified
promptly of the actions of the Members.
V. Summary Proxy Statement
-----------------------
The Proxy Statement furnished to Members may be in summary form, provided
that a statement is made in bold-face type that a more detailed description of
the proposed transaction may be obtained by returning an enclosed postage
prepaid card or other written communication requesting supplemental information.
Without prior approval of the OTS, the Special Meeting shall not be held less
than 20 days after the last day on which the supplemental information statement
is mailed to requesting Members. The supplemental information statement may be
combined with the Prospectus if the Subscription Offering is commenced
concurrently with or during the proxy solicitation of Members for the Special
Meeting.
VI. Offering Documents
------------------
The Holding Company may commence the Subscription Offering and, provided
that the Subscription Offering has commenced, may commence the Direct Community
Offering concurrently with or during the proxy solicitation of Members. The
Holding Company may close the Subscription Offering before the Special Meeting,
provided that the offer and sale of the Conversion Stock shall be conditioned
upon approval of the Plan by the Members at the Special Meeting. The Savings
Bank's proxy solicitation materials may require Eligible Account Holders,
Supplemental Eligible Account Holders (if applicable) and Other Members to
return to the Savings Bank by a reasonable certain date a postage prepaid card
or other written communication requesting receipt of a Prospectus with respect
to the Subscription Offering, provided that if the Prospectus is not mailed
concurrently with the proxy solicitation materials, the Subscription Offering
shall not be closed until the expiration of 30 days after the mailing of the
proxy solicitation materials. If the Subscription Offering is not commenced
within 45 days after the Special Meeting, the Savings Bank may transmit, not
more than 30 days prior to the commencement of the Subscription
A-5
<PAGE>
Offering, to each Eligible Account Holder, Supplemental Eligible Account Holder
and other eligible subscribers who had been furnished with proxy solicitation
materials a notice which shall state that the Savings Bank is not required to
furnish a Prospectus to them unless they return by a reasonable date certain a
postage prepaid card or other written communication requesting the receipt of
the Prospectus.
Prior to commencement of the Subscription Offering, the Direct Community
Offering and the Syndicated Community Offering, the Holding Company shall file
the Registration Statement. The Holding Company shall not distribute the final
Prospectus until the Registration Statement containing same has been declared
effective by the SEC and the Prospectus has been declared effective by the OTS.
VII. Combined Subscription and Direct Community Offering
---------------------------------------------------
Instead of a separate Subscription Offering, all Subscription Rights may
be exercised by delivery of properly completed and executed Order Forms to the
Savings Bank or selling group utilized in connection with the Direct Community
Offering and the Syndicated Community Offering. If a separate Subscription
Offering is not held, orders for Conversion Stock in the Direct Community
Offering shall first be filled pursuant to the priorities and limitations stated
in Paragraph IX.C., below.
VIII. Consummation of the Conversion
------------------------------
After receipt of all orders for Conversion Stock, and concurrently with
the execution thereof, the amendment of the Savings Bank's Federal mutual
Charter and Bylaws to authorize the issuance of shares of Capital Stock and to
conform to the requirements of a Federal capital stock savings bank will be
declared effective by the OTS, the amended Charter and Bylaws approved by the
Members will become effective. At such time, the Conversion Stock will be issued
and sold by the Holding Company, the Capital Stock to be issued in the
Conversion will be issued and sold to the Holding Company, and the Savings Bank
will become a wholly owned subsidiary of the Holding Company. The Savings Bank
will issue to the Holding Company 1,000 shares of its common stock, representing
all of the shares of Capital Stock to be issued by the Savings Bank, and the
Holding Company will make payment to the Savings Bank of that portion of the
aggregate net proceeds realized by the Holding Company from the sale of the
Conversion Stock under the Plan as may be authorized or required by the OTS.
IX. Stock Offering
--------------
A. Number of Shares
----------------
The number of shares of Conversion Stock to be offered pursuant to the
Plan shall be determined initially by the Board of Directors of the Savings Bank
and the Board of Directors of the Holding Company in conjunction with the
determination of the Purchase Price (as that term is defined in Paragraph IX.B.
below). The number of shares to be offered may be subsequently adjusted by the
Board of Directors prior to completion of the offering.
B. Independent Evaluation and Purchase Price of Shares
---------------------------------------------------
All shares of Conversion Stock sold in the Conversion, including shares
sold in any Direct Community Offering, shall be sold at a uniform price per
share, referred to herein as the "Purchase Price." The Purchase Price shall be
determined by the Board of Directors of the Savings Bank and the Board of
Directors of the Holding Company immediately prior to the simultaneous
completion of all such sales contemplated by this Plan on the basis of the
estimated pro forma market value of the Savings Bank, as converted, at such
time. The estimated pro forma market value of the Savings Bank shall be
determined for such purpose by an independent appraiser on the basis of such
appropriate factors not inconsistent with the regulations of the OTS.
Immediately prior to the Subscription Offering, a subscription price range shall
be established which shall vary from 15% above to 15% below the average of the
minimum and maximum of the estimated price range. The maximum subscription
price (i.e., the per share amount to be remitted when subscribing for shares of
Conversion Stock) shall then be determined within the
A-6
<PAGE>
subscription price range by the Board of Directors of the Savings Bank. The
subscription price range and the number of shares to be offered may be revised
after the completion of the Subscription Offering with OTS approval without a
resolicitation of proxies or Order Forms or both.
C. Method of Offering Shares
-------------------------
Subscription Rights shall be issued at no cost to Eligible Account Holders,
Tax-Qualified Employee Stock Benefit Plans, Supplemental Eligible Account
Holders and Other Members pursuant to priorities established by this Plan and
the regulations of the OTS. In order to effect the Conversion, all shares of
Conversion Stock proposed to be issued in connection with the Conversion must be
sold and, to the extent that shares are available, no subscriber shall be
allowed to purchase less than 25 shares; provided, however, that if the purchase
price is greater than $20 per share, the minimum number of shares which must be
subscribed for shall be adjusted so that the aggregate actual purchase price
required to be paid for such minimum number of shares does not exceed $500. The
priorities established for the purchase of shares are as follows:
1. Category 1: Eligible Account Holders
-------------------------------------
a. Each Eligible Account Holder shall receive, without payment,
Subscription Rights entitling such Eligible Account Holder to purchase
that number of shares of Conversion Stock which is equal to the
greater of the maximum purchase limitation established for the Direct
Community Offering, one-tenth of one percent of the total offering or
15 times the product (rounded down to the next whole number) obtained
by multiplying the total number of shares of Conversion Stock to be
issued by a fraction of which the numerator is the amount of the
Qualifying Deposit of the Eligible Account Holder and the denominator
is the total amount of Qualifying Deposits of all Eligible Account
Holders. If the allocation made in this paragraph results in an
oversubscription, shares of Conversion Stock shall be allocated among
subscribing Eligible Account Holders so as to permit each such account
holder, to the extent possible, to purchase a number of shares of
Conversion Stock sufficient to make his total allocation equal to 100
shares of Conversion Stock or the total amount of his subscription,
whichever is less. Any shares of Conversion Stock not so allocated
shall be allocated among the subscribing Eligible Account Holders on
an equitable basis, related to the amounts of their respective
Qualifying Deposits as compared to the total Qualifying Deposits of
all Eligible Account Holders.
b. Subscription Rights received by Officers and directors of the
Savings Bank and their Associates, as Eligible Account Holders, based
on their increased deposits in the Savings Bank in the one-year period
preceding the Eligibility Record Date shall be subordinated to all
other subscriptions involving the exercise of Subscription Rights
pursuant to this Category.
2. Category 2: Tax-Qualified Employee Stock Benefit Plans
------------------------------------------------------
a. Tax-Qualified Employee Stock Benefit Plans of the Savings Bank
shall receive, without payment, non-transferable Subscription Rights
to purchase in the aggregate up to 8% of the Conversion Stock,
including shares of Conversion Stock to be issued in the Conversion as
result of an increase in the estimated price range after commencement
of the Subscription Offering and prior to the completion of the
Conversion. The Subscription Rights granted to Tax-Qualified Stock
Benefit Plans of the Savings Bank shall be subject to the availability
of shares of Conversion Stock after taking into account the shares of
Conversion Stock purchased by Eligible Account Holders; provided,
however, that in the event the number of shares offered in the
Conversion is increased to an amount greater than the maximum of the
estimated price range as set forth in the Prospectus ("Maximum
Shares"), the Tax-Qualified Employee Stock Benefit Plans shall have a
priority right to purchase any such shares exceeding the Maximum
Shares up to an aggregate of 8% of the Conversion Stock. Tax-
Qualified Employee Stock Benefit Plans may use funds contributed or
A-7
<PAGE>
borrowed by the Holding Company or the Savings Bank and/or borrowed
from an independent financial institution to exercise such
Subscription Rights, and the Holding Company and the Savings Bank may
make scheduled discretionary contributions thereto, provided that such
contributions do not cause the Holding Company or the Savings Bank to
fail to meet any applicable capital requirements.
3. Category 3: Supplemental Eligible Account Holders
--------------------------------------------------
a. In the event that the Eligibility Record Date is more than 15
months prior to the date of the latest amendment to the Form AC
Application filed prior to OTS approval, then, and only in that event,
each Supplemental Eligible Account Holder shall receive, without
payment, Subscription Rights entitling such Supplemental Eligible
Account Holder to purchase that number of shares of Conversion Stock
which is equal to the greater of the maximum purchase limitation
established for the Direct Community Offering, one-tenth of one
percent of the total offering or 15 times the product (rounded down to
the next whole number) obtained by multiplying the total number of
shares of Conversion Stock to be issued by a fraction of which the
numerator is the amount of the Qualifying Deposit of the Supplemental
Eligible Account Holder and the denominator is the total amount of the
Qualifying Deposits of all Supplemental Eligible Account Holders.
b. Subscription Rights received pursuant to this category shall
be subordinated to Subscription Rights granted to Eligible Account
Holders and Tax-Qualified Employee Stock Benefit Plans.
c. Any Subscription Rights to purchase shares of Conversion Stock
received by an Eligible Account Holder in accordance with Category
Number 1 shall reduce to the extent thereof the Subscription Rights to
be distributed pursuant to this Category.
d. In the event of an oversubscription for shares of Conversion
Stock pursuant to this Category, shares of Conversion Stock shall be
allocated among the subscribing Supplemental Eligible Account Holders
as follows:
(1) Shares of Conversion Stock shall be allocated so as to
permit each such Supplemental Eligible Account Holder, to the
extent possible, to purchase a number of shares of Conversion
Stock sufficient to make his total allocation (including the
number of shares of Conversion Stock, if any, allocated in
accordance with Category Number 1) equal to 100 shares of
Conversion Stock or the total amount of his subscription,
whichever is less.
(2) Any shares of Conversion Stock not allocated in
accordance with subparagraph (1) above shall be allocated among
the subscribing Supplemental Eligible Account Holders on an
equitable basis, related to the amounts of their respective
Qualifying Deposits as compared to the total Qualifying Deposits
of all Supplemental Eligible Account Holders.
4. Category 4: Other Members
--------------------------
a. Other Members shall receive Subscription Rights to purchase
shares of Conversion Stock, after satisfying the subscriptions of
Eligible Account Holders, Tax-Qualified Employee Stock Benefit Plans
and Supplemental Eligible Account Holders pursuant to Category Nos. l,
2 and 3 above, subject to the following conditions:
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<PAGE>
(1) Each such Other Member shall be entitled to subscribe
for the greater of the maximum purchase limitation established for
the Direct Community Offering or one-tenth of one percent of the
total offering.
(2) In the event of an oversubscription for shares of
Conversion Stock pursuant to Category No. 4, the shares of
Conversion Stock available shall be allocated among the
subscribing Other Members pro rata on the basis of the amounts of
their respective subscriptions.
D. Direct Community Offering and Syndicated Community Offering
-----------------------------------------------------------
1. Any shares of Conversion Stock not purchased through the exercise
of Subscription Rights set forth in Category Nos. 1 through 4 above may be
sold by the Holding Company to Persons under such terms and conditions as
may be established by the Savings Bank's Board of Directors with the
concurrence of the OTS. The Direct Community Offering may commence
concurrently with or as soon as possible after the completion of the
Subscription Offering and must be completed within 45 days after completion
of the Subscription Offering, unless extended with the approval of the OTS.
No Person may purchase in the Direct Community Offering shares of
Conversion Stock with an aggregate purchase price that exceeds $50,000.
The right to purchase shares of Conversion Stock under this Category is
subject to the right of the Savings Bank or the Holding Company to accept
or reject such subscriptions in whole or in part. In the event of an
oversubscription for shares in this Category, the shares available shall be
allocated among prospective purchasers pro rata on the basis of the amounts
of their respective orders. The offering price for which such shares are
sold to the general public in the Direct Community Offering shall be the
Purchase Price.
2. Orders received in the Direct Community Offering first shall be
filled up to a maximum of 2% of the Conversion Stock and thereafter
remaining shares shall be allocated on an equal number of shares basis per
order until all orders have been filled.
3. The Conversion Stock offered in the Direct Community Offering
shall be offered and sold in a manner that will achieve the widest
distribution thereof. Preference shall be given in the Direct Community
Offering to natural Persons and trusts of natural Persons residing in the
Local Community.
4. Subject to such terms, conditions and procedures as may be
determined by the Savings Bank and the Holding Company, all shares of
Conversion Stock not subscribed for in the Subscription Offering or ordered
in the Direct Community Offering may be sold by a syndicate of broker-
dealers to the general public in a Syndicated Community Offering. Each
order for Conversion Stock in the Syndicated Community Offering shall be
subject to the absolute right of the Savings Bank and the Holding Company
to accept or reject any such order in whole or in part either at the time
of receipt of an order or as soon as practicable after completion of the
Syndicated Community Offering. No Person may purchase in the Syndicated
Community Offering shares of Conversion Stock with an aggregate purchase
price that exceeds $50,000. The Savings Bank and the Holding Company may
commence the Syndicated Community Offering concurrently with, at any time
during, or as soon as practicable after the end of the Subscription
Offering and/or Direct Community Offering, provided that the Syndicated
Community Offering must be completed within 45 days after the completion of
the Subscription Offering, unless extended by the Savings Bank and the
Holding Company with the approval of the OTS.
5. If for any reason a Syndicated Community Offering of shares of
Conversion Stock not sold in the Subscription Offering and the Direct
Community Offering cannot be effected, or in the event that any
insignificant residue of shares of Conversion Stock is not sold in the
Subscription Offering, Direct Community Offering or Syndicated Community
Offering, the Savings Bank and the Holding Company shall
A-9
<PAGE>
use their best efforts to obtain other purchasers for such shares in such
manner and upon such conditions as may be satisfactory to the OTS.
6. In the event a Direct Community Offering or Syndicated Community
Offering appears not feasible, the Savings Bank will immediately consult
with the OTS to determine the most viable alternative available to effect
the completion of the Conversion. Should no viable alternative exist, the
Savings Bank may terminate the Conversion with the concurrence of the OTS.
E. Limitations Upon Purchases
--------------------------
The following additional limitations and exceptions shall be imposed upon
purchases of shares of Conversion Stock:
1. Purchases of shares of Conversion Stock in the Conversion,
including purchases in the Direct Community Offering and the Syndicated
Community Offering, by any Person shall not exceed an aggregate purchase
price of $50,000, except that Tax-Qualified Employee Stock Benefit Plans
may purchase up to 8% of the total Conversion Stock issued in the
Conversion and shares to be held by the Tax-Qualified Employee Stock
Benefit Plans and attributable to a Person shall not be aggregated with
other shares purchased directly by or otherwise attributable to such
Person.
2. Officers and directors and Associates thereof may not purchase in
the aggregate more than 34% of the shares issued in the Conversion.
3. The Savings Bank's and Holding Company's Boards of Directors will
not be deemed to be Associates or a group of Persons Acting in Concert with
other directors or trustees solely as a result of membership on the Board
of Directors.
4. Purchases of shares of Conversion Stock by a Person, together with
Associates of or Persons Acting in Concert with such Person, shall not
exceed an aggregate purchase price of the greater of 1% of the total
Conversion Stock issued in the Conversion or $85,000, except that Tax-
Qualified Employee Stock Benefit Plans may purchase up to 8% of the total
Conversion Stock issued and shares held or to be held by the Tax-Qualified
Employee Stock Benefit Plans and attributable to a Person shall not be
aggregated with other shares purchased directly by or otherwise
attributable to such Person.
5. The Savings Bank's Board of Directors, with the approval of the
OTS and without further approval of Members, may, as a result of market
conditions and other factors, increase or decrease the purchase limitation
in paragraphs 1 and 4 above or the number of shares of Conversion Stock to
be sold in the Conversion. If the Savings Bank or the Holding Company, as
the case may be, increases the maximum purchase limitations or the number
of shares of Conversion Stock to be sold in the Conversion, the Savings
Bank or the Holding Company, as the case may be, is only required to
resolicit Persons who subscribed for the maximum purchase amount and may,
in the sole discretion of the Savings Bank or the Holding Company, as the
case may be, resolicit certain other large subscribers. If the Savings
Bank or the Holding Company, as the case may be, decreases the maximum
purchase limitations or the number of shares of Conversion Stock to be sold
in the Conversion, the orders of any Person who subscribed for the maximum
purchase amount shall be decreased by the minimum amount necessary so that
such Person shall be in compliance with the then maximum number of shares
permitted to be subscribed for by such Person.
Each Person purchasing Conversion Stock in the Conversion shall be deemed
to confirm that such purchase does not conflict with the purchase limitations
under the Plan or otherwise imposed by law, rule or regulation. In the event
that such purchase limitations are violated by any Person (including any
Associate or group of Persons affiliated or otherwise Acting in Concert with
such Person), the Holding Company shall have the right to purchase from such
Person at the actual Purchase Price per share all shares acquired by such Person
in excess of such purchase
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<PAGE>
limitations or, if such excess shares have been sold by such Person, to receive
from such Person the difference between the actual Purchase Price per share paid
for such excess shares and the price at which such excess shares were sold by
such Persons. This right of the Holding Company to purchase such excess shares
shall be assignable by the Holding Company.
F. Restrictions On and Other Characteristics of the Conversion Stock
-----------------------------------------------------------------
1. Transferability. Conversion Stock purchased by Officers and
---------------
directors of the Savings Bank and officers and directors of the Holding
Company shall not be sold or otherwise disposed of for value for a period
of one year from the date of Conversion, except for any disposition (i)
following the death of the original purchaser or (ii) resulting from an
exchange of securities in a merger or acquisition approved by the
regulatory authorities having jurisdiction.
The Conversion Stock issued by the Holding Company to such Officers
and directors shall bear a legend giving appropriate notice of the one-year
holding period restriction. Said legend shall state as follows:
"The shares evidenced by this certificate are restricted as to
transfer for a period of one year from the date of this certificate
pursuant to Part 563b of the Rules and Regulations of the Office of
Thrift Supervision. These shares may not be transferred prior thereto
without a legal opinion of counsel that said transfer is permissible
under the provisions of applicable laws and regulations."
In addition, the Holding Company shall give appropriate instructions
to the transfer agent of the Holding Company Stock with respect to the
foregoing restrictions. Any shares of Holding Company Stock subsequently
issued as a stock dividend, stock split or otherwise, with respect to any
such restricted stock, shall be subject to the same holding period
restrictions for such Persons as may be then applicable to such restricted
stock.
2. Subsequent Purchases by Officers and Directors. Without prior
----------------------------------------------
approval of the OTS, if applicable, Officers and directors of the Savings
Bank and officers and directors of the Holding Company, and their
Associates, shall be prohibited for a period of three years following
completion of the Conversion from purchasing outstanding shares of Holding
Company Stock, except from a broker or dealer registered with the SEC.
Notwithstanding this restriction, purchases involving more than 1% of the
total outstanding shares of Holding Company Stock and purchases made and
shares held by a Tax-Qualified or non-Tax-Qualified Employee Stock Benefit
Plan which may be attributable to such directors and officers may be made
in negotiated transactions without OTS permission or the use of a broker or
dealer.
3. Repurchase and Dividend Rights. Pursuant to OTS regulations, for
------------------------------
a period of three years from the date of Conversion, repurchases of Holding
Company Stock by the Holding Company from any Person are subject to certain
restrictions, with the exception of (i) a repurchase on a pro rata basis
pursuant to an offer approved by the OTS and made to all stockholders, (ii)
the repurchase of qualifying shares of a director or (iii) a purchase in
the open market by a Tax-Qualified Employee Stock Benefit Plan or a non-
Tax-Qualified Employee Stock Benefit Plan of the Savings Bank or the
Holding Company in an amount reasonable and appropriate to fund the plan.
Repurchases during the first year following the consummation of the
Conversion are generally prohibited unless "exceptional circumstances" are
deemed to exist by the OTS. However, upon 10 days' written notification to
the District Director and to the Chief Counsel, Corporate and Securities
Division of the OTS, if the District Director does not object, the Holding
Company may make open market repurchases of outstanding Holding Company
Stock during the second and third years following the consummation of the
Conversion, provided that (i) no more than 5% of the outstanding Holding
Company Stock is to be purchased during any twelve-month period, (ii) the
Savings Bank's ratio
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of regulatory capital to total liabilities would not be reduced below 6%,
and (iii) the repurchases would not adversely affect the financial
condition of the Savings Bank.
OTS regulations also provide that the Savings Bank may not declare or
pay a cash dividend on or repurchase any of its Capital Stock if the result
thereof would be to reduce the regulatory capital of the Savings Bank below
the amount required for the liquidation account described in Paragraph
XIII. Further, any dividend declared or paid on, or repurchase of, the
Capital Stock shall be in compliance with the rules and regulations of the
OTS, or other applicable regulations. The above limitations shall not
preclude payment of dividends on, or repurchases of, Capital Stock in the
event applicable Federal regulatory limitations are liberalized subsequent
to the Conversion.
4. Voting Rights. After the Conversion, holders of Savings Accounts
-------------
in and obligors on loans of the Savings Bank will not have voting rights in
the Savings Bank. Exclusive voting rights with respect to the Holding
Company shall be vested in the holders of Holding Company Stock; holders of
Savings Accounts in and obligors on loans of the Savings Bank will not have
any voting rights in the Holding Company except and to the extent that such
Persons become stockholders of the Holding Company, and the Holding Company
will have exclusive voting rights with respect to the Savings Bank's
Capital Stock.
G. Mailing of Offering Materials and Collation of Subscriptions
------------------------------------------------------------
The sale of all shares of Conversion Stock offered pursuant to the Plan
must be completed within 24 months after approval of the Plan at the Special
Meeting. After approval of the Plan by the OTS and the declaration of the
effectiveness of the Prospectus, the Holding Company shall distribute
Prospectuses and Order Forms for the purchase of shares of Conversion Stock in
accordance with the terms of the Plan.
The recipient of an Order Form shall be provided not less than 20 days nor
more than 45 days from the date of mailing, unless extended, properly to
complete, execute and return the Order Form to the Holding Company or the
Savings Bank. Self-addressed, postage prepaid, return envelopes shall accompany
all Order Forms when they are mailed. Failure of any eligible subscriber to
return a properly completed and executed Order Form within the prescribed time
limits shall be deemed a waiver and a release by such eligible subscriber of any
rights to purchase shares of Conversion Stock under the Plan.
The sale of all shares of Conversion Stock proposed to be issued in
connection with the Conversion must be completed within 45 days after the last
day of the Subscription Offering, unless extended by the Holding Company with
the approval of the OTS.
H. Method of Payment
-----------------
Payment for all shares of Conversion Stock may be made in cash, by check or
by money order, or if a subscriber has a Savings Account in the Savings Bank
such subscriber may authorize the Savings Bank to charge the subscriber's
Savings Account. The Holding Company shall pay interest at not less than the
passbook rate on all amounts paid in cash or by check or money order to purchase
shares of Conversion Stock in the Subscription Offering from the date payment is
received until the Conversion is completed or terminated. The Savings Bank is
not permitted knowingly to loan funds or otherwise extend any credit to any
Person for the purpose of purchasing Conversion Stock.
If a subscriber authorizes the Savings Bank to charge the subscriber's
Savings Account, the funds shall remain in the subscriber's Savings Account and
shall continue to earn interest, but may not be used by such subscriber until
the Conversion is completed or terminated, whichever is earlier. The withdrawal
shall be given effect only concurrently with the sale of all shares of
Conversion Stock proposed to be sold in the Conversion and only to the extent
necessary to satisfy the subscription at a price equal to the Purchase Price.
The Savings Bank shall
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<PAGE>
allow subscribers to purchase shares of Conversion Stock by withdrawing funds
from certificate accounts held with the Savings Bank without the assessment of
early withdrawal penalties, subject to the approval, if necessary, of the
applicable regulatory authorities. In the case of early withdrawal of only a
portion of such account, the certificate evidencing such account shall be
canceled if the remaining balance of the account is less than the applicable
minimum balance requirement. In that event, the remaining balance shall earn
interest at the passbook rate. This waiver of the early withdrawal penalty is
applicable only to withdrawals made in connection with the purchase of
Conversion Stock under the Plan.
Tax-Qualified Employee Stock Benefit Plans may subscribe for shares by
submitting an Order Form, along with evidence of a loan commitment from a
financial institution for the purchase of shares, if applicable, during the
Subscription Offering and by making payment for the shares on the date of the
closing of the Conversion.
I. Undelivered, Defective or Late Order Forms; Insufficient Payment
----------------------------------------------------------------
If an Order Form (i) is not delivered and is returned to the Holding
Company or the Savings Bank by the United States Postal Service (or the Holding
Company or Savings Bank is unable to locate the addressee); (ii) is not returned
to the Holding Company or Savings Bank, or is returned to the Holding Company or
Savings Bank after expiration of the date specified thereon; (iii) is
defectively completed or executed; or (iv) is not accompanied by the total
required payment for the shares of Conversion Stock subscribed for (including
cases in which the subscribers' Savings Accounts are insufficient to cover the
authorized withdrawal for the required payment), the Subscription Rights of the
Person to whom such rights have been granted shall not be honored and shall be
treated as though such Person failed to return the completed Order Form within
the time period specified therein. Alternatively, the Holding Company or
Savings Bank may, but shall not be required to, waive any irregularity relating
to any Order Form or require the submission of a corrected Order Form or the
remittance of full payment for the shares of Conversion Stock subscribed for by
such date as the Holding Company or Savings Bank may specify. Subscription
orders, once tendered, shall not be revocable. The Holding Company's and
Savings Bank's interpretation of the terms and conditions of the Plan and of the
Order Forms shall be final.
J. Members in Non-Qualified States or in Foreign Countries
-------------------------------------------------------
The Holding Company shall make reasonable efforts to comply with the
securities laws of all states of the United States in which Persons entitled to
subscribe for shares of Conversion Stock pursuant to the Plan reside. However,
no such Person shall be offered or receive any such shares under the Plan who
resides in a foreign country or who resides in a state of the United States with
respect to which any of the following apply: (a) a small number of Persons
otherwise eligible to subscribe for shares of Conversion Stock reside in such
state; (b) the granting of Subscription Rights or offer or sale of shares of
Conversion Stock to such Persons would require the Holding Company to register,
under the securities laws of such state, as a broker or dealer or to register or
otherwise qualify its securities for sale in such state; or (c) such
registration or qualification would be impractical for reasons of cost or
otherwise.
X. Federal Stock Charter and Bylaws
--------------------------------
As part of the Conversion, an amended Federal Stock Charter and Bylaws will
be adopted to authorize the Savings Bank to operate as a federal capital stock
savings bank. By approving the Plan, the Members of the Savings Bank will
thereby approve the amended Federal Stock Charter and Bylaws. Prior to
completion of the Conversion, the proposed Federal Stock Charter and Bylaws may
be amended in accordance with the provisions and limitations for amending the
Plan under Paragraph XVII below. The effective date of the adoption of the
Federal Stock Charter and Bylaws shall be the date of the issuance of the
Conversion Stock, which shall be the date of consummation of the Conversion.
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<PAGE>
XI. Post Conversion Filing and Market Making
----------------------------------------
In connection with the Conversion, the Holding Company shall register the
Conversion Stock with the SEC pursuant to the Securities Exchange Act of 1934,
as amended, and shall undertake not to deregister such Conversion Stock for a
period of three years thereafter.
The Holding Company shall use its best efforts to encourage and assist
various Market Makers to establish and maintain a market for the shares of its
stock. The Holding Company shall also use its best efforts to list its stock
through The Nasdaq Stock Market or on a national or regional securities
exchange.
XII. Status of Savings Accounts and Loans Subsequent to Conversion
-------------------------------------------------------------
All Savings Accounts shall retain the same status after Conversion as these
accounts had prior to Conversion. Each Savings Account holder shall retain,
without payment, a withdrawable Savings Account or accounts after the
Conversion, equal in amount to the withdrawable value of such holder's Savings
Account or accounts prior to Conversion. All Savings Accounts will continue to
be insured by the Savings Association Insurance Fund of the FDIC up to the
applicable limits of insurance coverage. All loans shall retain the same status
after the Conversion as they had prior to the Conversion. See Paragraph IX.F.4.
with respect to the termination of voting rights of Members.
XIII. Liquidation Account
-------------------
After the Conversion, holders of Savings Accounts shall not be entitled to
share in any residual assets in the event of liquidation of the Savings Bank.
However, the Savings Bank shall, at the time of the Conversion, establish a
liquidation account in an amount equal to its total net worth as of the date of
the latest statement of financial condition contained in the final Prospectus.
The function of the liquidation account shall be to establish a priority on
liquidation and, except as provided in Paragraph IX.F.3 above, the existence of
the liquidation account shall not operate to restrict the use or application of
any of the net worth accounts of the Savings Bank.
The liquidation account shall be maintained by the Savings Bank subsequent
to the Conversion for the benefit of Eligible Account Holders and Supplemental
Eligible Account Holders who retain their Savings Accounts in the Savings Bank.
Each Eligible Account Holder and Supplemental Eligible Account Holder shall,
with respect to each Savings Account held, have a related inchoate interest in a
portion of the liquidation account balance ("subaccount").
The initial subaccount balance for a Savings Account held by an Eligible
Account Holder and/or a Supplemental Eligible Account Holder shall be determined
by multiplying the opening balance in the liquidation account by a fraction of
which the numerator is the amount of such holder's Qualifying Deposit in the
Savings Account and the denominator is the total amount of the Qualifying
Deposits of all Eligible Account Holders and Supplemental Eligible Account
Holders. Such initial subaccount balance shall not be increased, and it shall
be subject to downward adjustment as provided below.
If the deposit balance in any Savings Account of an Eligible Account Holder
or Supplemental Eligible Account Holder at the close of business on any annual
closing date subsequent to the Eligibility Record Date is less than the lesser
of (i) the deposit balance in such Savings Account at the close of business on
any other annual closing date subsequent to the Eligibility Record Date or the
Supplemental Eligibility Record Date or (ii) the amount of the Qualifying
Deposit in such Savings Account on the Eligibility Record Date or the
Supplemental Eligibility Record Date, then the subaccount balance for such
Savings Account shall be adjusted by reducing such subaccount balance in an
amount proportionate to the reduction in such deposit balance. In the event of
a downward adjustment, such subaccount balance shall not be subsequently
increased, notwithstanding any increase in the deposit balance of the related
Savings Account. If any such Savings Account is closed, the related subaccount
balance shall be reduced to zero.
A-14
<PAGE>
In the event of a complete liquidation of the Savings Bank, each Eligible
Account Holder and Supplemental Eligible Account Holder shall be entitled to
receive a liquidation distribution from the liquidation account in the amount of
the then current adjusted subaccount balance(s) for Savings Account(s) then held
by such holder before any liquidation distribution may be made to stockholders.
No merger, consolidation, bulk purchase of assets with assumptions of Savings
Accounts and other liabilities or similar transactions with another Federally-
insured institution in which the Savings Bank is not the surviving institution
shall be considered to be a complete liquidation. In any such transaction, the
liquidation account shall be assumed by the surviving institution.
XIV. Regulatory Restrictions on Acquisition of Holding Company
---------------------------------------------------------
A. OTS regulations provide that for a period of three years following
completion of the Conversion, no Person (i.e, individual, a group Acting in
Concert, a corporation, a partnership, an association, a joint stock company, a
trust, or any unincorporated organization or similar company, a syndicate or any
other group formed for the purpose of acquiring, holding or disposing of
securities of an insured institution or its holding company) shall directly, or
indirectly, offer to purchase or actually acquire the beneficial ownership of
more than 10% of any class of equity security of the Holding Company without the
prior approval of the OTS. However, approval is not required for purchases
directly from the Holding Company or the underwriters or selling group acting on
its behalf with a view towards public resale, or for purchases not exceeding 1%
per annum of the shares outstanding. Civil penalties may be imposed by the OTS
for willful violation or assistance of any violation. Where any Person,
directly or indirectly, acquires beneficial ownership of more than 10% of any
class of equity security of the Holding Company within such three-year period,
without the prior approval of the OTS, stock of the Holding Company beneficially
owned by such Person in excess of 10% shall not be counted as shares entitled to
vote and shall not be voted by any Person or counted as voting shares in
connection with any matter submitted to the stockholders for a vote. The
provisions of this regulation shall not apply to the acquisition of securities
by Tax-Qualified Employee Stock Benefit Plans provided that such plans do not
have beneficial ownership of more than 25% of any class of equity security of
the Holding Company.
B. The Holding Company may provide in its articles of incorporation a
provision that, for a specified period of up to five years following the date of
the completion of the Conversion, no Person shall directly or indirectly offer
to acquire or actually acquire the beneficial ownership of more than 10% of any
class of equity security of the Holding Company. Such provisions would not
apply to acquisition of securities by Tax-Qualified Employee Stock Benefit Plans
provided that such plans do not have beneficial ownership of more than 25% of
any class of equity security of the Holding Company. The Holding Company may
provide in its articles of incorporation for such other provisions affecting the
acquisition of its stock as shall be determined by its Board of Directors.
XV. Directors and Officers of the Converted Savings Bank
----------------------------------------------------
The Conversion is not intended to result in any change in the directors or
Officers. Each Person serving as a director of the Savings Bank at the time of
Conversion shall continue to serve as a member of the Savings Bank's Board of
Directors, subject to the Converted Savings Bank's charter and bylaws. The
Persons serving as Officers immediately prior to the Conversion will continue to
serve at the discretion of the Board of Directors in their respective capacities
as Officers of the Savings Bank. In connection with the Conversion, the Savings
Bank and the Holding Company may enter into employment agreements on such terms
and with such officers as shall be determined by the Boards of Directors of the
Savings Bank and the Holding Company.
XVI. Executive Compensation
----------------------
The Savings Bank and the Holding Company may adopt, subject to any required
approvals, executive compensation or other benefit programs, including but not
limited to compensation plans involving stock options, stock appreciation
rights, restricted stock grants, employee recognition programs and the like.
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<PAGE>
XVII. Amendment or Termination of Plan
--------------------------------
If necessary or desirable, the Plan may be amended by a two-thirds vote of
the Savings Bank's Board of Directors, at any time prior to submission of the
Plan and proxy materials to the Members. At any time after submission of the
Plan and proxy materials to the Members, the Plan may be amended by a two-thirds
vote of the Board of Directors only with the concurrence of the OTS. The Plan
may be terminated by a two-thirds vote of the Board of Directors at any time
prior to the Special Meeting, and at any time following such Special Meeting
with the concurrence of the OTS. In its discretion, the Board of Directors may
modify or terminate the Plan upon the order of the regulatory authorities
without a resolicitation of proxies or another meeting of the Members.
In the event that mandatory new regulations pertaining to conversions are
adopted by the OTS prior to the completion of the Conversion, the Plan shall be
amended to conform to the new mandatory regulations without a resolicitation of
proxies or another meeting of Members. In the event that new conversion
regulations adopted by the OTS prior to completion of the Conversion contain
optional provisions, the Plan may be amended to utilize such optional provisions
at the discretion of the Board of Directors without a resolicitation of proxies
or another meeting of Members.
By adoption of the Plan, the Members authorize the Board of Directors to
amend and/or terminate the Plan under the circumstances set forth above.
XVIII.Expenses of the Conversion
--------------------------
The Holding Company and the Savings Bank shall use their best efforts to
assure that expenses incurred in connection with the Conversion shall be
reasonable.
XIX. Contributions to Tax-Qualified Plans
------------------------------------
The Holding Company and/or the Savings Bank may make discretionary
contributions to the Tax-Qualified Employee Stock Benefit Plans, provided such
contributions do not cause the Savings Bank to fail to meet its regulatory
capital requirements.
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<PAGE>
Exhibit B
FEDERAL STOCK CHARTER
SPRING HILL SAVINGS BANK, F.S.B.
Section 1. Corporate title. The full corporate title of the bank is
Spring Hill Savings Bank, F.S.B. ("Savings Bank").
Section 2. Office. The home office shall be located in the City of
Pittsburgh, in the Commonwealth of Pennsylvania.
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 association
chartered under section 5 of the Home Owners' Loan Act and to exercise all of
the express, implied, and incidental powers conferred thereby and by all acts
amendatory thereof and supplemental thereto, subject to the Constitution and
laws of the United States as they are now in effect, or as they may hereafter be
amended, and subject to all lawful and applicable rules, regulations, and orders
of the Office of Thrift Supervision ("Office").
Section 5. Capital stock. The total number of shares of all classes of
the capital stock that the Savings Bank has the authority to issue is 10,000 of
which 1,000 shares shall be common stock of par value of $1.00 per share and of
which 9,000 shares shall be serial preferred stock having no par value. 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 to the Savings Bank), labor or
services actually performed for the Savings Bank, or any combination of the
foregoing. In the absence of actual fraud in the transaction, the value of such
property, labor, or services, as determined by the board of directors of the
Savings Bank, shall be conclusive. Upon payment of such consideration, such
shares shall be deemed to be fully paid and nonassessable. In the case of a
stock dividend, that part of the 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 issued in connection with the conversion of the Savings
Bank from the mutual to the stock form of capitalization, no shares of common
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 their issuance or the
plan under which they would be issued has been approved by a majority of the
total votes eligible to be cast at a legal meeting.
Nothing contained in this section 5 (or in any supplementary sections
hereto) shall entitle the holders of any class of a series of capital stock to
vote as a separate class or series or to more than one vote per share, except as
to the cumulation of votes for the election of directors: Provided, that this
restriction on voting separately by class or series shall not apply:
B-1
<PAGE>
(i) To any provision which would authorize the holders of preferred
stock, voting as a class or series, to elect some members of the board of
directors, less than a majority thereof, in the event of default in the
payment of dividends on any class or series of preferred stock;
(ii) To any provision which would require the holders of preferred
stock, voting as a class or series, to approve the merger or consolidation
of the 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 Savings Bank 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 the common stock shall
exclusively possess all voting power. Each holder of shares of common stock
shall be entitled to one vote for each share held by each holder, except as to
the cumulation of votes for the election of directors.
Whenever there shall have been paid, or declared and set aside for payment,
to the holders of the outstanding shares of any class of stock having preference
over the common stock as to the payment of dividends, the full amount of
dividends and of sinking fund, 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 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 provision for distributions to holders of
any class or series of stock having preference over the common stock in the
liquidation, dissolution, or winding up of the 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:
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<PAGE>
(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 Savings
Bank and, if so, the conversion price(s) or the rate(s) of exchange, and the
adjustments thereof, if any, at which such conversion or exchange may be made,
and any other terms and conditions of such conversion or exchange;
(h) The price or other consideration for which the shares of such series
shall be issued; and
(i) Whether the shares of such series which are redeemed or converted
shall have the status of authorized but unissued shares of serial preferred
stock and whether such shares may be reissued as shares of the same or any other
series of serial preferred stock.
Each share of each series of serial preferred stock shall have the same
relative rights as and be identical in all respects with all the other shares of
the same series.
The board of directors shall have authority to divide, by the adoption of
supplementary charter sections, any authorized class of preferred stock into
series, and, within the limitations set forth in this section and the remainder
of this charter, fix and determine the relative rights and preferences of the
shares of any series so established.
Prior to the issuance of any preferred shares of a series established by a
supplementary charter section adopted by the board of directors, the 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 Subchapter D), the Savings Bank shall establish and
maintain a liquidation account for the benefit of its savings account holders as
of December 31, 1995 and June 30, 1997. 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 Savings Bank's eligible
savers' inchoate interest in the liquidation account, to the extent it is still
in existence: Provided, that an eligible savers' inchoate interest in the
liquidation account shall not entitle such eligible saver to any voting rights
at meetings of the Savings Bank's stockholders.
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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.
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 proposed by the board of directors of the Savings Bank,
approved by the shareholders by a majority of the votes eligible to be cast at a
legal meeting, unless a higher vote is otherwise required, and approved or
preapproved by the Office.
Attest: By:
-------------------------------- --------------------------------
Secretary Chief Executive Officer
Spring Hill Savings Bank, F.S.B. Spring Hill Savings Bank, F.S.B.
Attest: By:
-------------------------------- --------------------------------
Secretary Director
Office of Thrift Supervision Office of Thrift Supervision
Effective Date:
------------------------
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Exhibit C
BYLAWS
SPRING HILL SAVINGS BANK, F.S.B.
ARTICLE I - Home Office
The home office of Spring Hill Savings Bank, F.S.B. ("Savings Bank"), shall
be located at 112 Federal Street, in the City of Pittsburgh, the County of
Allegheny, in the Commonwealth of Pennsylvania.
ARTICLE II - Shareholders
Section 1. Place of Meetings. All annual and special meetings of
shareholders shall be held at the home office of the Savings Bank or at such
other convenient place as the Board of Directors may determine.
Section 2. Annual Meeting. A meeting of the shareholders of the Savings
Bank for the election of directors and for the transaction of any other business
of the Savings Bank shall be held annually within 150 days after the end of the
Savings Bank's fiscal year on the third Wednesday of April, if not a legal
holiday, and if a legal holiday, then on the next day following which is not a
legal holiday, at 10:00 a.m., Pacific Time, or at such other date and time
within such 150-day period as the Board of Directors may determine.
Section 3. Special Meetings. Special meetings of the shareholders for any
purpose or purposes, unless otherwise prescribed by the regulations of the
Office of Thrift Supervision ("Office"), may be called at any time by the
Chairman of the Board, the President, or a majority of the Board of Directors,
and shall be called by the Chairman of the Board, the President, or the
Secretary upon the written request of the holders of not less than one-tenth of
all of the outstanding capital stock of the Savings Bank entitled to vote at the
meeting. Such written request shall state the purpose or purposes of the meeting
and shall be delivered to the home office of the Savings Bank addressed to the
Chairman of the Board, the President, or the Secretary.
Section 4. Conduct of Meetings. Annual and special meetings shall be
conducted in accordance with the most current edition of Robert's Rules of Order
unless otherwise prescribed by regulations of the Office or these bylaws or the
Board of Directors adopts another written procedure for the conduct of meetings.
The Board of Directors shall designate, when present, either the Chairman of the
Board or President to preside at such meetings.
Section 5. Notice of Meetings. Written notice stating the place, day, and
hour of the meeting and the purpose(s) for which the meeting is called shall be
delivered not fewer than 20 nor more than 50 days before the date of the
meeting, either personally or by mail, by or at the direction of the Chairman of
the Board, the President, or the Secretary, or the directors calling the
meeting, to each shareholder of record entitled to vote at such meeting. If
mailed, such notice shall be deemed to be delivered when deposited in the mail,
addressed to the shareholder at the address as it appears on the stock transfer
books or records of the Savings Bank as of the record date prescribed in Section
6 of this Article II with postage prepaid. When any shareholders' meeting,
either annual or special, is adjourned for 30 days or more, notice of the
adjourned meeting shall be given as in the case of an original meeting. It shall
not be necessary to give any notice of the time and place of any meeting
adjourned for less than 30 days or of the business to be transacted at the
meeting, other than an announcement at the meeting at which such adjournment is
taken.
Section 6. Fixing of Record Date. For the purpose of determining
shareholders entitled to notice of or to vote at any meeting of shareholders or
any adjournment, or shareholders entitled to receive payment of any dividend, or
in order to make a determination of shareholders for any other proper purpose,
the Board of Directors shall fix in advance a date as the record date for any
such determination of shareholders. Such date in any case shall
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be not more than 60 days and, in case of a meeting of shareholders, not fewer
than 10 days prior to the date on which the particular action requiring such
determination of shareholders is to be taken. When a determination of
shareholders entitled to vote at any meeting of shareholders has been made as
provided in this section, such determination shall apply to any adjournment.
Section 7. Voting Lists. At least 20 days before each meeting of the
shareholders, the officer or agent having charge of the stock transfer books for
shares of the Savings Bank shall make a complete list of the shareholders of
record entitled to vote at such meeting, or any adjournment thereof, arranged in
alphabetical order, with the address and the number of shares held by each.
This list of shareholders shall be kept on file at the home office of the
Savings Bank and shall be subject to inspection by any shareholder of record or
the shareholder's agent at any time during usual business hours for a period of
20 days prior to such meeting. Such list shall also be produced and kept open
at the time and place of the meeting and shall be subject to inspection by any
shareholder of record or any shareholder's agent during the entire time of the
meeting. The original stock transfer book shall constitute prima facie evidence
of the shareholders entitled to examine such list or transfer books or to vote
at any meeting of shareholders.
In lieu of making the shareholder list available for inspection by
shareholders as provided in the preceding paragraph, the Board of Directors may
elect to follow the procedures prescribed in Section 552.6(d) of the Office's
regulations as now or hereafter in effect.
Section 8. Quorum. A majority of the outstanding shares of the Savings
Bank entitled to vote, represented in person or by proxy, shall constitute a
quorum at a meeting of shareholders. If less than a majority of the outstanding
shares is represented at a meeting, a majority of the shares so represented may
adjourn the meeting from time to time without further notice. At such adjourned
meeting at which a quorum shall be present or represented, any business may be
transacted which might have been transacted at the meeting as originally
notified. The shareholders present at a duly organized meeting may continue to
transact business until adjournment, notwithstanding the withdrawal of enough
shareholders to constitute less than a quorum. If a quorum is present, the
affirmative vote of the majority of the share represented at the meeting and
entitled to vote on the subject matter shall be the act of the shareholders,
unless the vote of a greater number of shareholders voting together or voting by
classes is required by law or the Savings Bank's charter. Directors, however,
are elected by a plurality of the votes cast at an election of directors.
Section 9. Proxies. At all meetings of shareholders, a shareholder may
vote by proxy executed in writing by the shareholder or by his or her duly
authorized attorney in fact. Proxies may be given telephonically or
electronically as long as the holder uses a procedure for verifying the identity
of the shareholder. Proxies solicited on behalf of the management shall be
voted as directed by the shareholder or, in the absence of such direction, as
determined by a majority of the Board of Directors. No proxy shall be valid
more than eleven months from the date of its execution except for a proxy
coupled with an interest.
Section 10. Voting of Shares in the Name of Two or More Persons. When
ownership stands in the name of two or more persons, in the absence of written
directions to the Savings Bank to the contrary, at any meeting of the
shareholders of the Savings Bank any one or more of such shareholders may cast,
in person or by proxy, all votes to which such ownership is entitled. In the
event an attempt is made to cast conflicting votes, in person or by proxy, by
the several persons in whose names shares of stock stand, the vote or votes to
which those persons are entitled shall be cast as directed by a majority of
those holding such shares and present in person or by proxy at such meeting, but
no votes shall be cast for such stock if a majority cannot agree.
Section 11. Voting of Shares by Certain Holders. Shares standing in the
name of another corporation may be voted by any officer, agent, or proxy as the
bylaws of such corporation may prescribe, or, in the absence of such provision,
as the Board of Directors of such corporation may determine. Shares held by an
administrator, executor, guardian, or conservator may be voted by him, either in
person or by proxy, without a transfer of such shares into his or her name.
Shares standing in the name of a trustee may be voted by him or her, either in
person or by proxy, but no trustee shall be entitled to vote shares held by him
or her without a transfer of such shares into
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his or her name. Shares held in trust in an IRA or Keogh Account, however, may
be voted by the Savings Bank if no other instructions are received. Shares
standing in the name of a receiver may be voted by such receiver, and shares
held by or under the control of a receiver may be voted by such receiver without
the transfer into his or her name if authority to do so is contained in an
appropriate order of the court or other public authority by which such receiver
was appointed.
A shareholder whose shares are pledged shall be entitled to vote such
shares until the shares have been transferred into the name of the pledgee, and
thereafter the pledgee shall be entitled to vote the shares so transferred.
Neither treasury shares of its own stock held by the Savings Bank nor
shares held by another corporation, if a majority of the shares entitled to vote
for the election of directors of such other corporation are held by the Savings
Bank, shall be voted at any meeting or counted in determining the total number
of outstanding shares at any given time for purposes of any meeting.
Section 12. Cumulative Voting. Unless otherwise provided in the Savings
Bank's charter, every shareholder entitled to vote at an election for directors
shall have the right to vote, in person or by proxy, the number of shares owned
by the shareholder for as many persons as there are directors to be elected and
for whose election the shareholder has a right to vote, or to cumulate the votes
by giving one candidate as many votes as the number of such directors to be
elected multiplied by the number of shares shall equal or by distributing such
votes on the same principle among any number of candidates.
Section 13. Inspectors of Election. In advance of any meeting of
shareholders, the Board of Directors may appoint any persons other than nominees
for office as inspectors of election to act at such meeting or any adjournment.
The number of inspectors shall be either one or three. Any such appointment
shall not be altered at the meeting. If inspectors of election are not so
appointed, the Chairman of the Board or the President may, or on the request of
not fewer than 10 percent of the votes represented at the meeting shall, make
such appointment at the meeting. If appointed at the meeting, the majority of
the votes present shall determine whether one or three inspectors are to be
appointed. In case any person appointed as inspector fails to appear or fails
or refuses to act, the vacancy may be filled by appointment by the Board of
Directors in advance of the meeting or at the meeting by the Chairman of the
Board or the President.
Unless otherwise prescribed by regulations of the Office, the duties of
such inspectors shall include: determining the number of shares and the voting
power of each share, the shares represented at the meeting, the existence of a
quorum, and the authenticity, validity and effect of proxies; receiving votes,
ballots, or consents; hearing and determining all challenges and questions in
any way arising in connection with the rights to vote; counting and tabulating
all votes or consents; determining the result; and such acts as may be proper to
conduct the election or vote with fairness to all shareholders.
Section 14. Nominating Committee. The Board of Directors shall act as a
nominating committee for selecting the management nominees for election as
directors. Except in the case of a nominee substituted as a result of the death
or other incapacity of a management nominee, the nominating committee shall
deliver written nominations to the secretary at least 20 days prior to the date
of the annual meeting. Upon delivery, such nominations shall be posted in a
conspicuous place in each office of the Savings Bank. No nominations for
directors except those made by the nominating committee shall be voted upon at
the annual meeting unless other nominations by shareholders are made in writing
and delivered to the Secretary of the Savings Bank at least five days prior to
the date of the annual meeting. Upon delivery, such nominations shall be posted
in a conspicuous place in each office of the Savings Bank. Ballots bearing the
names of all persons nominated by the nominating committee and by shareholders
shall be provided for use at the annual meeting. However, if the nominating
committee shall fail or refuse to act at least 20 days prior to the annual
meeting, nominations for directors may be made at the annual meeting by any
shareholder entitled to vote and shall be voted upon.
Section 15. New Business. Any new business to be taken up at the annual
meeting shall be stated in writing and filed with the Secretary of the Savings
Bank at least five days before the date of the annual meeting,
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and all business so stated, proposed, and filed shall be considered at the
annual meeting; but no other proposal shall be acted upon at the annual meeting.
Any shareholder may make any other proposal at the annual meeting and the same
may be discussed and considered, but unless stated in writing and filed with the
Secretary at least five days before the meeting, such proposal shall be laid
over for action at an adjourned, special, or annual meeting of the shareholders
taking place 30 days or more thereafter. This provision shall not prevent the
consideration and approval or disapproval at the annual meeting of reports of
officers, directors, and committees; but in connection with such reports, no new
business shall be acted upon at such annual meeting unless stated and filed as
herein provided.
Section 16. Informal Action by Shareholders. Any action required to be
taken at a meeting of the shareholders, or any other action which may be taken
at a meeting of shareholders, may be taken without a meeting if consent in
writing, setting forth the action so taken, shall be given by all of the
shareholders entitled to vote with respect to the subject matter.
ARTICLE III - Board of Directors
Section 1. General Powers. The business and affairs of the Savings Bank
shall be under the direction of its Board of Directors. The Board of Directors
shall annually elect a Chairman of the Board and a President from among its
members and shall designate, when present, either the Chairman of the Board or
the President to preside at its meetings.
Section 2. Number and Term. The Board of Directors shall consist of
nine members and shall be divided into three classes as nearly equal in number
as possible. The members of each class shall be elected for a term of three
years and until their successors are elected and qualified. One class shall be
elected by ballot annually.
Section 3. Regular Meetings. A regular meeting of the Board of
Directors shall be held without other notice than this bylaw following the
annual meeting of shareholders. The Board of Directors may provide, by
resolution, the time and place for the holding of additional regular meetings
without other notice than such resolution. Directors may participate in a
meeting by means of a conference telephone or similar communications device
through which all persons participating can hear each other at the same time.
Participation by such means shall constitute presence in person for all
purposes.
Section 4. Qualification. Each director shall at all times be the
beneficial owner of not less than 100 shares of capital stock of the Savings
Bank unless the Savings Bank is a wholly owned subsidiary of a holding company.
Section 5. Special Meetings. Special meetings of the Board of Directors
may be called by or at the request of the Chairman of the Board, the President,
or one-third of the directors. The persons authorized to call special meetings
of the Board of Directors may fix any place, within the Savings Bank's normal
lending territory, as the place for holding any special meeting of the Board of
Directors called by such persons.
Members of the Board of Directors may participate in special meetings by
means of conference telephone or similar communications equipment by which all
persons participating in the meeting can hear each other. Such participation
shall constitute presence in person for all purposes.
Section 6. Notice. Written notice of any special meeting shall be given
to each director at least 24 hours prior thereto when delivered personally or by
telegram or at least five days prior thereto when delivered by mail at the
address at which the director is most likely to be reached. Such notice shall
be deemed to be delivered when deposited in the mail so addressed, with postage
prepaid if mailed, when delivered to the telegraph company if sent by telegram,
or when the Savings Bank receives notice of delivery if electronically
transmitted. Any director may waive notice of any meeting by a writing filed
with the Secretary. The attendance of a director at a meeting shall constitute
a waiver of notice of such meeting, except where a director attends a meeting
for the express purpose of objecting to the transaction of any business because
the meeting is not lawfully called or convened. Neither the
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business to be transacted at, nor the purpose of, any meeting of the Board of
Directors need be specified in the notice of waiver of notice of such meeting.
Section 7. Quorum. A majority of the number of directors fixed by
Section 2 of this Article III shall constitute a quorum for the transaction of
business at any meeting of the Board of Directors; but if less than such
majority is present at a meeting, a majority of the directors present may
adjourn the meeting from time to time. Notice of any adjourned meeting shall be
given in the same manner as prescribed by Section 6 of this Article III.
Section 8. Manner of Acting. The act of the majority of the directors
present at a meeting at which a quorum is present shall be the act of the Board
of Directors, unless a greater number is prescribed by regulation of the Office
or by these bylaws.
Section 9. Action Without a Meeting. Any action required or permitted
to be taken by the Board of Directors at a meeting may be taken without a
meeting if a consent in writing, setting forth the action so taken, shall be
signed by all of the directors.
Section 10. Resignation. Any director may resign at any time by sending
a written notice of such resignation to the home office of the Savings Bank
addressed to the Chairman of the Board or the President. Unless otherwise
specified, such resignation shall take effect upon receipt by the Chairman of
the Board or the President. More than three consecutive absences from regular
meetings of the Board of Directors, unless excused by resolution of the Board of
Directors, shall automatically constitute a resignation, effective when such
resignation is accepted by the Board of Directors.
Section 11. Vacancies. Any vacancy occurring on the Board of Directors
may be filled by the affirmative vote of a majority of the remaining directors
although less than a quorum of the Board of Directors. A director elected to
fill a vacancy shall be elected to serve only until the next election of
directors by the shareholders. Any directorship to be filled by reason of an
increase in the number of directors may be filled by election by the Board of
Directors for a term of office continuing only until the next election of
directors by the shareholders.
Section 12. Compensation. Directors, as such, may receive a stated
salary for their services. By resolution of the Board of Directors, a
reasonable fixed sum, and reasonable expenses of attendance, if any, may be
allowed for actual attendance at each regular or special meeting of the Board of
Directors. Members of either standing or special committees may be allowed such
compensation for attendance at committee meetings as the Board of Directors may
determine.
Section 13. Presumption of Assent. A director of the Savings Bank who
is present at a meeting of the Board of Directors at which action on any Savings
Bank matter is taken shall be presumed to have assented to the action taken
unless his or her dissent or abstention shall be entered in the minutes of the
meeting or unless he or she shall file a written dissent to such action with the
person acting as the secretary of the meeting before the adjournment thereof or
shall forward such dissent by registered mail to the Secretary of the Savings
Bank within five days after the date a copy of the minutes of the meeting is
received. Such right to dissent shall not apply to a director who voted in
favor of such action.
Section 14. Removal of Directors. At a meeting of shareholders called
expressly for that purpose, any director may be removed for cause by a vote of
the holders of a majority of the shares then entitled to vote at an election of
directors. If less than the entire board is to be removed, no one of the
directors may be removed if the votes cast against the removal would be
sufficient to elect a director if then cumulatively voted at an election of the
class of directors of which such director is a part. Whenever the holders of
the shares of any class are entitled to elect one or more directors by the
provisions of the charter or supplemental sections thereto, the provisions of
this section shall apply, in respect to the removal of a director or directors
so elected, to the vote of the holders of the outstanding shares of that class
and not to the vote of the outstanding shares as a whole.
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ARTICLE IV - Executive And Other Committees
Section 1. Appointment. The Board of Directors, by resolution adopted
by a majority of the full board, may designate the chief executive officer and
two or more of the other directors to constitute an executive committee. The
designation of any committee pursuant to this Article IV and the delegation of
authority shall not operate to relieve the Board of Directors, or any director,
of any responsibility imposed by law or regulation.
Section 2. Authority. The executive committee, when the Board of
Directors is not in session, shall have and may exercise all of the authority of
the Board of Directors except to the extent, if any, that such authority shall
be limited by the resolution appointing the executive committee; and except also
that the executive committee shall not have the authority of the Board of
Directors with reference to: the declaration of dividends; the amendment of the
charter or bylaws of the Savings Bank, or recommending to the shareholders a
plan of merger, consolidation, or conversion; the sale, lease, or other
disposition of all or substantially all of the property and assets of the
Savings Bank otherwise than in the usual and regular course of its business; a
voluntary dissolution of the Savings Bank; a revocation of any of the foregoing;
or the approval of a transaction in which any member of the executive committee,
directly or indirectly, has any material beneficial interest.
Section 3. Tenure. Subject to the provisions of Section 8 of this
Article IV, each member of the executive committee shall hold office until the
next regular annual meeting of the Board of Directors following his or her
designation and until a successor is designated as a member of the executive
committee.
Section 4. Meetings. Regular meetings of the executive committee may be
held without notice at such times and places as the executive committee may fix
from time to time by resolution. Special meetings of the executive committee
may be called by any member thereof upon not less than one day's notice stating
the place, date, and hour of the meeting, which notice may be written or oral.
Any member of the executive committee may waive notice of any meeting and no
notice of any meeting need be given to any member thereof who attends in person.
The notice of a meeting of the executive committee need not state the business
proposed to be transacted at the meeting.
Section 5. Quorum. A majority of the members of the executive committee
shall constitute a quorum for the transaction of business at any meeting
thereof, and action of the executive committee must be authorized by the
affirmative vote of a majority of the members present at a meeting at which a
quorum is present.
Section 6. Action Without a Meeting. Any action required or permitted
to be taken by the executive committee at a meeting may be taken without a
meeting if a consent in writing, setting forth the action so taken, shall be
signed by all of the members of the executive committee.
Section 7. Vacancies. Any vacancy in the executive committee may be
filled by a resolution adopted by a majority of the full Board of Directors.
Section 8. Resignations and Removal. Any member of the executive
committee may be removed at any time with or without cause by resolution adopted
by a majority of the full Board of Directors. Any member of the executive
committee may resign from the executive committee at any time by giving written
notice to the President or Secretary of the Savings Bank. Unless otherwise
specified, such resignation shall take effect upon its receipt; the acceptance
of such resignation shall not be necessary to make it effective.
Section 9. Procedure. The executive committee shall elect a presiding
officer from its members and may fix its own rules of procedure which shall not
be inconsistent with these bylaws. It shall keep regular minutes of its
proceedings and report the same to the Board of Directors for its information at
the meeting held next after the proceedings shall have occurred.
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Section 10. Other Committees. The Board of Directors may by resolution
establish an audit, loan, or other committee composed of directors as they may
determine to be necessary or appropriate for the conduct of the business of the
Savings Bank and may prescribe the duties, constitution, and procedures thereof.
ARTICLE V - Officers
Section 1. Positions. The officers of the Savings Bank shall be a
President, one or more Vice Presidents, a Secretary, and a Treasurer or
Comptroller, each of whom shall be elected by the Board of Directors. The Board
of Directors may also designate the Chairman of the Board as an officer. The
offices of the Secretary and Treasurer or Comptroller may be held by the same
person and a Vice President may also be either the Secretary or the Treasurer or
Comptroller. The Board of Directors may designate one or more vice presidents
as Executive Vice President or Senior Vice President. The Board of Directors
may also elect or authorize the appointment of such other officers as the
business of the Savings Bank may require. The officers shall have such
authority and perform such duties as the Board of Directors may from time to
time authorize or determine. In the absence of action by the Board of
Directors, the officers shall have such powers and duties as generally pertain
to their respective offices.
Section 2. Election and Term of Office. The officers of the Savings
Bank shall be elected annually at the first meeting of the Board of Directors
held after each annual meeting of the stockholders. If the election of officers
is not held at such meeting, such election shall be held as soon thereafter as
possible. Each officer shall hold office until a successor has been duly
elected and qualified or until the officer's death, resignation, or removal in
the manner hereinafter provided. Election or appointment of an officer,
employee, or agent shall not of itself create contractual rights. The Board of
Directors may authorize the Savings Bank to enter into an employment contract
with any officer in accordance with regulations of the Office; but no such
contract shall impair the right of the Board of Directors to remove any officer
at any time in accordance with Section 3 of this Article V.
Section 3. Removal. Any officer may be removed by the Board of
Directors whenever in its judgment the best interests of the Savings Bank will
be served thereby, but such removal, other than for cause, shall be without
prejudice to any contractual rights, if any, of the person so removed.
Section 4. Vacancies. A vacancy in any office because of death,
resignation, removal, disqualification, or otherwise may be filled by the Board
of Directors for the unexpired portion of the term.
Section 5. Remuneration. The remuneration of the officers shall be
fixed from time to time by the Board of Directors.
ARTICLE VI - Contracts, Loans, Checks, and Deposits
Section 1. Contracts. To the extent permitted by regulations of the
Board, and except as otherwise prescribed by these bylaws with respect to
certificates for shares, the Board of Directors may authorize any officer,
employee, or agent of the Savings Bank to enter into any contract or execute and
deliver any instrument in the name of and on behalf of the Savings Bank. Such
authority may be general or confined to specific instances.
Section 2. Loans. No loans shall be contracted on behalf of the Savings
Bank and no evidence of indebtedness shall be issued in its name unless
authorized by the Board of Directors. Such authority may be general or confined
to specific instances.
Section 3. Checks, Drafts, etc. All checks, drafts, or other orders for
the payment of money, notes, or other evidences of indebtedness issued in the
name of the Savings Bank shall be signed by one or more officers, employees, or
agents of the Savings Bank in such manner as shall from time to time be
determined by the Board of Directors.
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Section 4. Deposits. All funds of the Savings Bank not otherwise
employed shall be deposited from time to time to the credit of the Savings Bank
in any duly authorized depositories as the Board of Directors may select.
ARTICLE VII - Certificates for Shares and Their Transfer
Section 1. Certificates for Shares. Certificates representing shares of
capital stock of the Savings Bank shall be in such form as shall be determined
by the Board of Directors and approved by the Office. Such certificates shall
be signed by the Chief Executive Officer or by any other officer of the Savings
Bank authorized by the Board of Directors, attested by the Secretary or an
Assistant Secretary, and sealed with the corporate seal or a facsimile thereof.
The signatures of such officers upon a certificate may be facsimiles if the
certificate is manually signed on behalf of a transfer agent or a registrar
other than the Savings Bank itself or one of its employees. Each certificate
for shares of capital stock shall be consecutively numbered or otherwise
identified. The name and address of the person to whom the shares are issued,
with the number of shares and date of issue, shall be entered on the stock
transfer books of the Savings Bank. All certificates surrendered to the Savings
Bank for transfer shall be canceled and no new certificate shall be issued until
the former certificate for a like number of shares has been surrendered and
canceled, except that in the case of a lost or destroyed certificate, a new
certificate may be issued upon such terms and indemnity to the Savings Bank as
the Board of Directors may prescribe.
Section 2. Transfer of Shares. Transfer of shares of capital stock of
the Savings Bank shall be made only on its stock transfer books. Authority for
such transfer shall be given only by the holder of record or by his or her legal
representative, who shall furnish proper evidence of such authority, or by his
or her attorney authorized by a duly executed power of attorney and filed with
the Savings Bank. Such transfer shall be made only on surrender for
cancellation of the certificate for such shares. The person in whose name
shares of capital stock stand on the books of the Savings Bank shall be deemed
by the Savings Bank to be the owner for all purposes.
ARTICLE VIII - Fiscal Year; Annual Audit
The fiscal year of the Savings Bank shall end on the 31st day of December
of each year. The appointment of accountants shall be subject to annual
ratification by the shareholders.
ARTICLE IX - Dividends
Subject to the terms of the Savings Bank's charter and the regulations
and orders of the Office, the Board of Directors may, from time to time,
declare, and the Savings Bank may pay, dividends on its outstanding shares of
capital stock.
ARTICLE X - Corporate Seal
The Board of Directors shall provide a Savings Bank seal which shall be
two concentric circles between which shall be the name of the Savings Bank. The
year of incorporation or an emblem may appear in the center.
ARTICLE XI - Amendments
These bylaws may be amended in a manner consistent with regulations of
the Office and shall be effective after: (i) approval of the amendment by a
majority vote of the authorized Board of Directors, or by a majority vote of the
votes cast by the shareholders of the Savings Bank at any legal meeting, and
(ii) receipt of any applicable regulatory approval. When the Savings Bank fails
to meet its quorum requirements, solely due to vacancies on the Board, then the
affirmative vote of a majority of the sitting Board will be required to amend
the bylaws.
C-8
