<PAGE>
As filed with the Securities and Exchange Commission on June 23, 1997
Registration No.
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
(INCLUDING EXHIBITS)
------------------------
LANDMARK FINANCIAL CORP.
(Name of Small Business Issuer in Its Charter )
------------------------
<TABLE>
<S> <C> <C>
DELAWARE 6712 (TO BE APPLIED FOR)
(STATE OR JURISDICTION (PRIMARY STANDARD (I.R.S. EMPLOYER
OF INCORPORATION OR INDUSTRIAL CLASSIFICATION CODE IDENTIFICATION NO.)
ORGANIZATION) NUMBER)
</TABLE>
------------------------
26 CHURCH STREET
CANAJOHARIE, NEW YORK 13317
(518) 673-2012
(Address and Telephone Number
of Principal Executive Offices)
------------------------
26 CHURCH STREET
CANAJOHARIE, NEW YORK 13317
(Address of Principle Place of
Business or Intended Principal
Place of Business)
------------------------
GORDON E. COLEMAN
CHIEF EXECUTIVE OFFICER
26 CHURCH STREET
CANAJOHARIE, NEW YORK 13317
(518) 673-2012
(Name, Address and Telephone Number
of Agent for Service)
------------------------
Copies to:
ERIC LUSE, ESQ.
ALAN SCHICK, ESQ.
LUSE LEHMAN GORMAN POMERENK & SCHICK, P.C.
5335 Wisconsin Avenue, N.W.
Suite 400
Washington, D.C. 20015
APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC: As soon as practicable
after this registration statement becomes effective.
If this Form is filed to register additional shares for an offering
pursuant to Rule 462(b) under the Securities Act please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering: / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: / /
If the delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box: / /
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/
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
DOLLAR PROPOSED PROPOSED
TITLE OF EACH CLASS OF AMOUNT TO BE MAXIMUM MAXIMUM
SECURITIES TO BE REGISTERED REGISTERED OFFERING PRICE AGGREGATE AMOUNT OF
PER SHARE OFFERING PRICE (1) REGISTRATION FEE
<S> <C> <C> <C> <C>
Common Stock, $.10 par value per share........... $1,520,000 $10.00 $1,520,000 $475.00
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee.
The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this
registration 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 Securities and Exchange Commission,
acting pursuant to said Section 8(a), may determine
<PAGE>
PROSPECTUS
LANDMARK FINANCIAL CORP.
(Proposed Holding Company for Landmark Community Bank)
Up to 132,000 Shares of Common Stock
(Anticipated Maximum)
Landmark Financial Corp. (the "Company"), a Delaware corporation, is
offering up to 132,000 shares of its common stock, par value $.10 per share
(the "Common Stock"), in connection with the conversion of Landmark Community
Bank (the "Bank"), from a federally chartered mutual savings bank to a
federally chartered stock savings bank, and the issuance of all of the Bank's
outstanding capital stock to the Company pursuant to the Bank's Plan of
Conversion (the "Plan" or "Plan of Conversion"). The simultaneous conversion
of the Bank to stock form, the issuance of the Bank's outstanding common
stock to the Company and the Company's sale of its Common Stock are referred
to herein as the "Stock Conversion." As soon as possible following completion
of the Stock Conversion pursuant to the Plan, the Bank intends to convert
from a federally chartered stock savings bank (the "Converted Bank") to
either a national bank or New York-chartered commercial bank (the "Bank
Conversion"). References to the Bank include the federal stock savings bank,
the national bank or New York-chartered commercial bank, as indicated by the
context. The purpose of the Bank Conversion is to provide the Bank with
additional operating flexibility and to enhance its ability to provide a full
range of banking products and services to its community. It is presently the
(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 FACTORS THAT SHOULD BE CONSIDERED BY EACH
PROSPECTIVE INVESTOR, SEE "RISK FACTORS" BEGINNING ON PAGE __.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, THE OFFICE OF THRIFT SUPERVISION, OR ANY OTHER FEDERAL
AGENCY OR ANY STATE SECURITIES COMMISSION, NOR HAS SUCH COMMISSION,
OFFICE OR 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 SHARES OF COMMON STOCK OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS OR
DEPOSITS AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION ("FDIC"), THE BANK INSURANCE FUND ("BIF"), THE SAVINGS ASSOCIATION
INSURANCE FUND ("SAIF") OR ANY OTHER GOVERNMENT AGENCY.
<TABLE>
<CAPTION>
Estimated Underwriting Fees and
Purchase Price(1) Other Expenses(2) Estimated Net Proceeds(2)
----------------- -------------------------------- -------------------------
<S> <C> <C> <C>
Minimum Per Share.......... $10.00 $1.53 $8.47
Midpoint Per Share......... $10.00 $1.30 $8.70
Maximum Per Share.......... $10.00 $1.14 $8.86
Maximum Per Share, as
adjusted(3)............... $10.00 $0.99 $9.01
Total Minimum.............. $980,000 $150,000 $830,000
Total Midpoint............. $1,150,000 $150,000 $1,000,000
Total Maximum.............. $1,320,000 $150,000 $1,170,000
Total Maximum, as
adjusted(3)............... $1,520,000 $150,000 $1,370,000
</TABLE>
(footnotes on second following page)
COMPANY ADVISOR
TRIDENT FINANCIAL CORPORATION
The date of this Prospectus is August __, 1997.
<PAGE>
(continued from preceding page)
intent of the Bank's Board of Directors to proceed with both the Conversion
and the Bank Conversion. However, there can be no assurance that the Bank
will obtain regulatory approval to consummate the Bank Conversion, that any
such approval might not contain burdensome conditions, that there will be no
significant delay in obtaining such approvals, or that other developments
will not occur that cause the Board of Directors to conclude that the Bank
Conversion is not in the best interests of the Company and its stockholders.
Under these circumstances, the Board of Directors may elect not to proceed
with the Bank Conversion. See "Risk Factors--Potential Delay in Completion
or Denial of Bank Conversion." The Conversion and the Bank Conversion are
herein collectively referred to as the "Conversion." References herein to
the Bank refer to Landmark Community Bank both in its mutual and stock form
as the context may indicate.
Non-transferable rights to subscribe for the Common Stock have been
granted, in order of priority, to (i) the Bank's deposit account holders with
deposits of at least $50 as of December 31, 1995 ("Eligible Account
Holders"), (ii) tax-qualified employee stock benefit plans of the Bank
("Tax-Qualified Employee Plans"), (iii) the Bank's deposit account holders
with deposits of at least $50 as of June 30, 1997 ("Supplemental Eligible
Account Holders") (iv) certain other depositors as of __________, 1997 and
borrowers as of April 1, 1997 ("Other Members"), and (v) officers, directors
and employees of the Bank in a subscription offering (the "Subscription
Offering"). Pursuant to Office of Thrift Supervision ("OTS") regulations,
subscription rights are non-transferable. Persons violating the prohibition
against transfer may lose their right to purchase stock in the Stock
Conversion and be subject to other possible sanctions. Concurrently with or
immediately following the Subscription Offering, and subject to the prior
rights of holders of Subscription Rights, any shares of Common Stock not
subscribed for in the Subscription Offering are being offered in a community
offering to certain members of the general public to whom a prospectus is
delivered (the "Community Offering"). In the event that shares of Common
Stock remain unsold after the Subscription Offering and Community Offering,
the Boards of Directors of the Company and the Bank will seek to make
arrangements for the sale of the remaining shares. Such arrangements will be
subject to the approval of the OTS and to compliance with applicable
securities laws. The Subscription and Community Offerings are referred to
collectively as the "Offerings."
The Bank's Employee Stock Ownership Plan ("ESOP") intends to subscribe
for up to 8% of the total number of shares of Common Stock issued in the
Stock Conversion; however, the Bank reserves the right to have all or part of
the order of the ESOP filled by purchases in the open market, subject to OTS
approval, if required. Shares sold above the maximum of the Estimated
Valuation Range (as hereinafter defined) may be sold to the ESOP to fill its
subscription (prior to filling any other orders). With the exception of the
ESOP, no individual Eligible Account Holder, Supplemental Eligible Account
Holder or Other Member may purchase in the Subscription Offering shares of
Common Stock having an aggregate purchase price which exceeds $50,000; no
person or other entity, together with associates of and persons or entities
acting in concert with such person or entity, may purchase in the Community
Offering shares of Common Stock having an aggregate purchase price which
exceeds $50,000; and no person or other entity, together with associates and
persons acting in concert with such person or entity, may purchase in the
aggregate shares of Common Stock having an aggregate purchase price which
exceeds the lesser of $50,000 or 5.0% of the shares sold in the Stock
Conversion. However, the Bank and the Company in their sole discretion may
increase or decrease the purchase limitations without notice to members or
subscribers, provided that the aggregate purchase limit may not be reduced
below 1.0% of the shares offered. The minimum purchase is 25 shares. See "The
Conversion--Offering of Common Stock--Limitations on Purchase of Shares."
The Company may, in its absolute discretion, accept or reject, in whole
or in part, any or all orders in the Community Offering at the time of
receipt of an order or as soon as practicable following the completion of
such offerings. All orders submitted are irrevocable until completion or
termination of the Stock Conversion. Subscriptions paid by cash, check, bank
draft or money order will be placed in a segregated account at the Bank and
will earn interest at the rate of _____%, the rate currently paid by the Bank
on passbook savings accounts, from the date of receipt until completion or
termination of the Stock Conversion. Payments may be authorized by withdrawal
from deposit accounts at the Bank without penalty and will continue to earn
interest at the contractual rate until the Stock Conversion is completed or
terminated; these funds will be otherwise unavailable to the depositor until
such time. See "The Conversion--Offering of Common Stock-- Subscription
Offering" and "--Community Offering."
<PAGE>
The Company must receive an original stock order form (the "Stock Order
Form") (facsimile copies and photocopies will not be accepted) and a fully
executed separate Certification Form together with full payment (or
appropriate instructions authorizing a withdrawal from a deposit account at
the Bank) of $10.00 per share for all shares for which subscription is made,
at the executive office of the Bank, 26 Church Street, Canajoharie, New York
13317, by Noon, local time, on September __, 1997. Payment for shares of
Common Stock by wire transfer will not be accepted.
The Subscription Offering will terminate at Noon, Local Time, on
__________, 1997 (the "Expiration Date"), unless extended at the discretion
of the Company and the Bank without notice to subscribers, with the approval
of the OTS, if necessary. The Community Offering may commence simultaneously
with or following the completion of the Subscription Offering and may
terminate on the Expiration Date or any date thereafter at the discretion of
the Bank and the Company but not later than 45 days after the Expiration Date
unless extended with the approval of the OTS.
If the Offerings are extended beyond 45 days after the Expiration Date
(i.e., __________, 1997), all subscribers will be notified of such extension,
of their rights to modify or confirm their subscriptions or to rescind their
subscriptions and have their funds returned promptly with interest, and of
the time period within which the subscriber must notify the Bank of his
intention to modify, confirm or rescind his subscription. In the event the
value of an updated independent appraisal of the pro forma market value of
the Company and the Bank, as converted, is less than $980,000 at the minimum,
or more than $1,520,000 at the adjusted maximum, and the Company determines
to sell an amount outside of this range to its subscribers, all subscribers
must be resolicited with an updated prospectus. The failure of a subscriber
to notify the Bank of his intention during a resolicitation will be deemed a
rescission of the subscription and the funds will be returned promptly with
interest. Under applicable OTS regulations, the Stock Conversion must be
completed or terminated no later than 24 months from the approval of the
Stock Conversion by the Bank's members.
There is currently no market for the Common Stock, and it is unlikely
that an active and liquid trading market for the Common Stock will develop.
There can be no assurance that purchasers will be able to sell their shares
at or above the Purchase Price after the Stock Conversion. See "Market for
Common Stock."
_____________________
(footnotes for preceding table)
(1) Determined in accordance with an independent appraisal prepared by
FinPro, Inc. ("FinPro") as of June 19, 1997. The estimated pro
forma market value of the Company and the Bank, as converted, ranges
from $980,000, at the minimum, or more than $1,320,000, at the
maximum, with an adjusted maximum of $1,520,000 ("Estimated
Valuation Range") or between 98,000 and 132,000 shares with an
adjusted maximum of 152,000 shares of Common Stock at the purchase
price of $10.00 per share, which is the amount established by the
Board of Directors to be paid for each share of Common Stock sold in
the Offerings ("Purchase Price"). See "The Conversion--Stock Pricing
and Number of Shares to be Issued." The valuation by FinPro is not
intended and must not be construed as a recommendation of any kind
as to the advisability of voting to approve the Stock Conversion or
of purchasing shares of Common Stock. Moreover, because the
valuation is necessarily based upon estimates of and projections as
to a number of matters (including certain assumptions as to expense
factors affecting the net proceeds from the sale of Common Stock in
the Stock Conversion and as to the net earnings on such net
proceeds), all of which are subject to change from time to time, no
assurance can be given that persons who purchase such shares in the
Stock Conversion will be able to sell such shares thereafter at or
above the Purchase Price.
(2) Consists of the estimated expenses of $150,000, which includes,
among other things, printing, postage, legal, accounting, appraisal
and filing fees. See "Pro Forma Data."
(3) Gives effect to an increase in the number of shares sold which could
occur without a resolicitation of subscribers or any right of
cancellation due to an increase in the Estimated Valuation Range of
up to 15% above the maximum of the Estimated Valuation Range to
reflect changes in market and financial conditions following
commencement of the Offerings or to fill in part or in whole the
order of the ESOP. See "The Conversion--Stock Pricing and Number of
Shares to be Issued."
<PAGE>
[INSERT MAP HERE]
THE STOCK CONVERSION IS CONTINGENT UPON THE APPROVAL OF THE PLAN BY THE
MEMBERS OF THE BANK, THE SALE OF AT LEAST THE MINIMUM NUMBER OF SHARES OF
COMMON STOCK TO BE ISSUED PURSUANT TO THE PLAN AND THE RECEIPT OF ALL
APPLICABLE REGULATORY APPROVALS.
<PAGE>
PROSPECTUS SUMMARY
The following summary does not purport to be complete. It is qualified
in its entirety by the detailed information and Financial Statements and
Notes thereto appearing elsewhere in this Prospectus. The purchase of Common
Stock is subject to certain risks. See "Risk Factors."
Landmark Community Bank
Landmark Community Bank is a federally chartered savings bank
headquartered in Canajoharie, New York. The Bank was originally chartered as
a New York savings and loan association in 1925 under the name Canajoharie
Building Savings and Loan Association. In 1997, the Bank converted to a
federal mutual charter and assumed its current name. Its deposits are
insured up to the maximum allowable amount by the Savings Association
Insurance Fund ("SAIF") of the Federal Deposit Insurance Corporation
("FDIC"). At March 31, 1997, the Bank had total assets of $11.3 million,
deposits of $10.2 million and retained earnings of $956,000.
The Bank has been, and intends to continue to be, a community-oriented
financial institution offering selected financial services to meet the needs
of the communities it serves. The Bank attracts deposits from the general
public and historically has used such deposits, together with other funds, to
originate one- to four-family residential mortgage loans, and in recent
periods commercial real estate loans, commercial business loans and consumer
loans consisting primarily of personal loans secured by automobiles. At
March 31, 1997, the Bank's total loan portfolio was $9.6 million, of which
$7.2 million or 74.9% were one- to four-family residential mortgage loans,
$392,000, or 4.1% were commercial real estate loans, $1.8 million, or 19.0%
were consumer loans and $195,000, or 2.0% were commercial business loans.
During the year ended March 31, 1997, the Bank originated $3.8 million of
fixed-rate and $1.8 million of adjustable rate loans, all of which were
retained in the Bank's portfolio. See "Business -- Lending Activities."
The Bank's executive office is located at 26 Church Street, Canajoharie,
New York 13317-1117. Its telephone number at that address is (518) 673-2012.
Landmark Financial Corp.
Landmark Financial Corp. was organized in June 1997 for the purpose of
serving as the holding company for the Converted Bank upon its conversion
from mutual to stock form, and of the Bank following the Bank Conversion.
Prior to the Conversion, the Company has not engaged and will not engage in
any material operations. Upon consummation of the Stock Conversion, the
Company will have no significant assets other than the outstanding capital
stock of the Converted Bank, up to 20% of the net proceeds from the Stock
Conversion (less the amount to fund the Employee Stock Ownership Plan) and a
note evidencing its loan to the Bank's ESOP. Upon consummation of the Stock
Conversion, the Company's principal business will be directing the business
of the Converted Bank, as the case may be, and investing the net Stock
Conversion proceeds retained by it. In connection with the Bank Conversion,
the Company intends to register with the Board of Governors of the Federal
Reserve System (the "FRB") as a bank holding company under the Bank Holding
Company Act of 1956, as amended (the "BHCA").
The directors and executive officers of the Company and the Bank believe
that it is in the best interests of the Bank, the Company and the Company's
shareholders for the Company and the Savings Bank to remain independent, with
the objective of long-term enhancement of shareholder value. Accordingly, an
investment in the Common Stock of the Company may not be suitable for
investors who are seeking short-term returns through a sale of the
institution.
4
<PAGE>
Bank Conversion
Following completion of the Stock Conversion, the Bank intends to convert
to either a national bank or New York-chartered commercial bank. Upon
consummation of the Bank Conversion, the Bank will succeed to all of the
assets and liabilities of the Converted Bank, and initially will continue to
conduct business in substantially the same manner as the Bank prior to the
Conversion. Over time, however, management anticipates broadening its range
of banking products and services consistent with a national or commercial
bank charter. Diversification of the Bank's loan portfolio may also alter the
risk profile of the Bank following the Bank Conversion.
The deposits of the Bank will continue to be insured by the SAIF of the
FDIC and, as such, the Bank will continue to be subject to regulation and
supervision by the FDIC. Following the Bank Conversion, the Bank will not be
subject to OTS regulation and supervision; rather, the primary regulator of
the Bank will be either the Office of the Comptroller of the Currency ("OCC")
if the Bank converts to a national bank charter, or the New York State
Banking Department (the "Department") if the Bank converts to a New York
commercial charter. The Bank will remain a member of the FHLB of New York.
The Stock Conversion
The Offerings are being made in connection with the Stock Conversion of
the Bank from a federally chartered mutual savings bank to a federally
chartered stock savings bank and the formation of Landmark Financial Corp. as
the holding company of the Bank. The Company will retain up to 20% of the
net proceeds of the issuance of the Common Stock and will use the remaining
net proceeds to purchase all of the stock of Landmark Community issued in the
Stock Conversion. Net Conversion proceeds will increase the capital of the
Bank and, consistent with regulatory restrictions, will support the Bank's
lending and investment activities. The conversion to stock form and the use
of a holding company structure are also expected to enhance the ability of
the Bank to expand through possible mergers and acquisitions and facilitate
future access to the capital markets. The Company will have additional
authorized shares of common stock and serial preferred stock available for
issuance to raise additional equity capital for future acquisitions or for
other business purposes, although the Company has no specific plans for
expansion and no present plans for the issuance of such securities. See "Use
of Proceeds" and "Description of Capital Stock -- Holding Company Capital
Stock."
Following consummation of the Stock Conversion, it is anticipated that
the Converted Bank will convert to either a national bank or New
York-chartered commercial bank. The Bank Conversion will be consummated as
soon as possible thereafter; provided, however, that under the Plan, the
Bank's Board of Directors has the ability to elect, at any time, not to
proceed with the Bank Conversion. Furthermore, there can be no assurance that
the Bank will obtain regulatory approval to consummate the Bank Conversion.
It is presently the intent of the Bank's Board of Directors to proceed with
both the Stock Conversion and the Bank Conversion. See "Risk
Factors--Potential Delay in Completion or Denial of Bank Conversion" and "The
Conversion--General."
The Stock Conversion is subject to certain conditions, including the
prior approval of the Plan by the Bank's members at a special meeting to be
held at _____.m., local time on __________, 1997 (the "Special Meeting").
Approval of the Plan requires the affirmative vote of members of the Bank
holding not less than a majority of the total number of votes eligible to be
cast at the Special Meeting. After the Stock Conversion, depositors of the
Bank will have no voting rights in the Company, unless they become Company
stockholders. Eligible Account Holders and Supplemental Eligible Account
Holders, however, will have certain liquidation rights in the Bank. See "The
Conversion -- Effects of Stock Conversion to Stock Form on Depositors and
Borrowers of the Bank -- Liquidation Rights."
Subscription and Community Offerings. The Company is offering up to
132,000 shares of Common Stock, at a price of $10.00 per share, in the
Subscription and Community Offerings. The shares of Common Stock to be
issued in the Stock Conversion are being offered in the following order of
priority: (1) Eligible Account Holders (deposit account holders of the Bank
with an account balance of $50 or more as of December 31, 1995); (2)
Tax-Qualified Employee Plans; (3) Supplemental Eligible Account Holders
(deposit account holders of the Bank with
5
<PAGE>
an account balance of $50 or more as of June 30, 1997); (4) Other Members
(deposit account holders of the Bank as of __________, other than Eligible
Account Holders or Supplemental Eligible Account Holders); and (5) employees,
officers and directors of the Bank. In addition, the Tax-Qualified Employee
Plans shall have first priority Subscription Rights to the extent that the
total number of shares of Common Stock sold in the Stock Conversion exceeds
the maximum of the Estimated Valuation Range. Concurrently with, during, or
following the Subscription Offering, and subject to the prior rights of
holders of Subscription Rights, any shares of Common Stock not subscribed for
in the Subscription Offering are being offered in the Community Offering to
certain members of the general public to whom a prospectus is delivered. See
"The Conversion." The Company and the Bank reserve the absolute right to
accept or reject any orders in the Community Offering, in whole or in part,
either at the time of receipt of an order or at any time prior to the
consummation of the Stock Conversion.
It is anticipated that shares of Common Stock not otherwise subscribed
for in the Subscription Offering and Community Offering, if any, may be
offered at the discretion of the Company to certain members of the general
public. Any sale of the remaining shares will be subject to the approval of
the OTS and to compliance with applicable securities laws.
The Plan of Conversion places limitations on the number of shares that
may be purchased in the Stock Conversion by various categories of persons.
Except for the Tax-Qualified Employee Plans which intend to subscribe for 8%
of the total number of shares of Common Stock offered in the Stock
Conversion, no Eligible Account Holder, Supplemental Eligible Account Holder
or Other Member may purchase in their capacity as such in the Subscription
Offering shares of Common Stock having an aggregate purchase price which
exceeds $50,000; no person or other entity, together with associates of and
persons or entities acting in concert with such person or entity, may
purchase in the Community Offering shares of Common Stock having an aggregate
purchase price which exceeds $50,000; and no person or other entity, together
with associates of or persons acting in concert with such person or entity,
may purchase in the aggregate shares of Common Stock having an aggregate
purchase price which exceeds the lesser of $50,000 or 5.0% of the shares sold
in the Stock Conversion. The purchase limitations described herein are
subject to increase or decrease within the sole discretion of the Bank and
the Company. In the event the maximum purchase limitation is increased to 5%
of the shares offered, such limitation may be further increased up to 9.9%
provided that the orders exceeding 5% of the total shares offered do not in
the aggregate exceed 10% of the shares offered. Further, to the extent that
shares are available, each subscriber must subscribe for a minimum of 25
shares. See "The Conversion - Offering of Common Stock."
All Subscription Rights for Common Stock are non-transferable and will
expire at noon, Eastern Time on __________, 1997, unless the Subscription
Offering is extended by the Bank and the Company. The accompanying Stock
Order Form and executed certification, together with full payment for all
shares of Common Stock for which subscription is made, or appropriate
instructions authorizing withdrawal of such amount from one or more deposit
accounts at the Bank, must be received by the Company prior to that time or
any extension thereof. Under applicable federal regulations, all shares of
Common Stock must be sold in the Stock Conversion within 45 days after the
completion of the Subscription Offering, unless extended with OTS approval.
If the Conversion is not approved by the members at the Special Meeting,
no shares will be issued, the Stock Conversion will not take place, all
subscription funds received will be returned promptly with interest at the
Bank's current passbook rate, and all withdrawal authorizations will be
terminated. If the aggregate Purchase Price of the Common Stock sold in the
Stock Conversion is below $980,000 or above $1,520,000 (15% above the maximum
of the Estimated Valuation Range), or if the Offerings are extended beyond
__________, 1997, subscribers will be permitted to modify or cancel their
subscriptions and to have their subscription funds returned promptly with
interest. In the event of such an extension, each subscriber will be
notified in writing of the time period within which the subscriber must
notify the Bank of his intention to maintain, modify or rescind his
subscription. In the event the subscriber does not respond in any manner to
the Bank's notice, the funds submitted will be refunded to the subscriber
with interest at _____% per annum, the Bank's current passbook rate, and/or
the subscriber's withdrawal authorizations will be terminated.
6
<PAGE>
Stock Pricing. The Purchase Price of the Common Stock in the Offerings
is a uniform price for all subscribers, including members of the Bank's board
of directors (the "Board of Directors") and management. The aggregate
Purchase Price is based upon an independent appraisal of the aggregate pro
forma market value of the Company and the Bank, as converted. The aggregate
pro forma market value was estimated by FinPro, an experienced conversion
appraisal firm independent of the Company and the Bank, to range from
$980,000 to $1,320,000 at June 19, 1997. Depending upon the final updated
valuation, the number of shares to be issued is subject to a maximum of
152,000 shares (15% above the maximum of the Estimated Valuation Range) and a
minimum of 98,000 shares. The appraisal should not be considered a
recommendation as to the advisability of purchasing shares of the Common
Stock. In preparing the appraisal, FinPro assumed the accuracy and
completeness of the financial and statistical information provided by the
Bank and did not independently value the Bank's assets and liabilities. The
Boards of Directors of the Company and the Bank have reviewed the appraisal
of FinPro and in determining the reasonableness and adequacy of such
appraisal consistent with OTS regulations and policies, have reviewed the
methodology and reasonableness of the assumptions utilized by FinPro in the
preparation of such appraisal. See "The Conversion--Stock Pricing and Number
of Shares to be Issued" for a description of the manner in which such
valuation was made and the limitations on its use. Subject to regulatory
approval, the Estimated Valuation Range may be increased or decreased to
reflect market and financial conditions prior to the completion of the Stock
Conversion and may be increased to permit an increase in the number of shares
of Common Stock sold in the Stock Conversion to cover any oversubscriptions
in the Offerings. The actual number of shares to be issued in the Stock
Conversion will not be determined until completion of the Offerings. 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 below the minimum of the Estimated
Valuation Range or more than 15% above the maximum of the Estimated Valuation
Range. See "The Conversion--Stock Pricing and Number of Shares to be Issued."
The Estimated Valuation Range is necessarily based upon estimates of a
number of matters (including certain assumptions as to expense factors
affecting the net proceeds from the sale of Common Stock in the Stock
Conversion and as to the net earnings on such net proceeds), all of which are
subject to change from time to time. As a result, no assurance can be given
that persons who purchase such shares in the Stock Conversion will be able to
sell such shares thereafter at or above the Purchase Price.
Non-transferability of Subscription Rights. Prior to the completion of
the Stock Conversion, federal regulations prohibit any person from
transferring or entering into any agreement or understanding to transfer the
legal or beneficial ownership of the Subscription Rights issued under the
Plan or the shares of Common Stock to be issued upon their exercise. Persons
violating such prohibition may lose their right to purchase stock in the
Stock Conversion and may be subject to sanctions by the OTS. 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.
See "The Conversion--Restrictions on Transferability."
Use of Proceeds
The net proceeds from the sale of Common Stock in the Stock Conversion
are estimated to be approximately $830,000, $1.0 million, $1.17 million and
$1.37 million, respectively, based on the minimum, midpoint, maximum and 15%
above the maximum, of the Estimated Valuation Range. See "Pro Forma Data."
The Company will purchase all of the common stock of the Bank to be issued in
the Stock Conversion in exchange for 80% of the net proceeds from the
issuance of the Common Stock and will retain up to the remaining 20% of such
net proceeds as its initial capitalization (less funds loaned to the ESOP
sufficient to purchase up to 8% of shares sold in the Stock Conversion).
Subject to regulatory approval, the Company intends to lend a portion of the
net proceeds to the ESOP to facilitate its purchase of up to 8% of the Common
Stock sold in the Stock Conversion. It is anticipated that the funds 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 Stock Conversion, which
rate is currently 8.5%. It is anticipated that the ESOP loan will have a
term of 15 years. Based upon the issuance of shares at the minimum and
maximum of the Estimated Valuation Range, the loan to the ESOP to purchase 8%
of the Common Stock would be $78,400 and $105,600, respectively. The Bank
intends to make contributions to the ESOP in an amount to be determined by
the Board of Directors, but not less than the amount needed to pay any
currently maturing obligations under the loan made to the ESOP, subject
7
<PAGE>
to the Bank's continuing compliance with OTS capital requirements. These
contributions would be allocated among all eligible participants in
proportion to their compensation. See "Management--Benefit Plans--Employee
Stock Ownership Plan." The remaining net proceeds retained by the Company
are anticipated to be initially invested in short- and intermediate-term
securities and will be available as general working capital. Subject to
compliance with federal regulations, such funds may also be used to
repurchase the Common Stock. However, since the Company has not yet issued
stock, there is currently insufficient information upon which an intention to
repurchase stock could be based. For information regarding the possible
purchase of stock to implement a restricted stock plan following the Stock
Conversion, see "Use of Proceeds." The net proceeds to the Bank will become
part of the Converted Bank's general funds and will be used to support its
lending and investment activities, subject to applicable regulatory
restrictions. On an interim basis, such proceeds will be invested primarily
in short- and intermediate-term securities and will be available as general
working capital.
Purchases by Directors and Executive Officers
The directors and executive officers of the Bank have indicated their
intention to purchase in the Stock Conversion an aggregate of $_____ of
Common Stock (or _____ shares, or approximately _____%, _____%, _____%, or
_____%, respectively, of the shares to be issued in the Stock Conversion at
the minimum, the midpoint, the maximum and 15% above the maximum of the
Estimated Valuation Range). There is no formal agreement among the executive
officers and directors and their affiliates regarding their purchases of
Common Stock. In addition, 8% of the shares issued in the Stock Conversion
are expected to be purchased by the Bank's ESOP. See "Management -- Benefit
Plans -- Employee Stock Ownership Plan" and "Participation by Management."
Benefits of Conversion to Directors and Executive Officers
Employee Stock Ownership Plan. The Board of Directors of the Bank has
adopted an ESOP, a tax-qualified employee benefit plan for officers and
employees of the Company and the Bank. The ESOP intends to buy up to 8% of
the Common Stock issued in the Stock Conversion (approximately $78,400 to
$105,600 of the Common Stock based on the issuance of the minimum (98,000
shares) and the maximum (132,000 shares) of the Estimated Valuation Range and
the $10.00 per share Purchase Price). The ESOP will purchase the shares with
funds borrowed from the Company, and it is anticipated that the ESOP will
repay the loans through periodic tax-deductible contributions from the Bank
over a 15-year period. These contributions will increase the compensation
expense of the Bank. The Bank's contributions to the ESOP will be allocated
among participants on the basis of their compensation. See "Management --
Benefit Plans -- Employee Stock Ownership Plan" for a description of this
plan.
Other Stock Benefit Plans. The Board of Directors of the Company intends
to adopt a Stock Option and Incentive Plan ("Stock Option Plan") and a
Recognition and Retention Plan ("RRP") to become effective upon no earlier
than six months following the Stock Conversion. It is anticipated that
certain of the directors and executive officers of the Company and the Bank
will receive awards under these plans. It is currently anticipated that the
Stock Option Plan and the RRP will be funded by shares subsequently
reacquired and held as treasury shares or through the issuance of authorized
but unissued stock of the Company, representing 10% and 4%, respectively, of
the shares sold in the Stock Conversion. To the extent the Stock Option Plan
and RRP are funded from authorized but unissued shares, the funding of such
plans will dilute existing shareholders by an aggregate of approximately
12.95%. See "Management -- Benefit Plans" for a description of these plans.
The Stock Option Plan and the RRP may be submitted for stockholder approval
at an annual or a special meeting of stockholders following the Stock
Conversion, provided such meeting is held at least six months following the
Stock Conversion, or alternatively such approval may not be sought until
after one year following the Stock Conversion. If such plans are adopted
during the first year following the Stock Conversion, they would be subject
to certain allocation and other requirements of the OTS, which would not
apply after one year.
Stock Option Plan. Following consummation of the Stock Conversion, the
Company intends to adopt the Stock Option Plan for the benefit of the
directors, officers and employees of the Company and the Bank, pursuant to
which the Company intends to reserve a number of shares of Common Stock equal
to an aggregate of 10% of the Common Stock issued in the Stock Conversion
(13,200 shares at the maximum of the Estimated Valuation Range)
8
<PAGE>
for issuance pursuant to stock options and stock appreciation rights. Under
regulations that would be applicable to the Converted Bank following the
Conversion, if the Stock Option Plan is submitted to and approved by the
stockholders of the Company within one year after completion of the Stock
Conversion, no more than 30% of the shares available under the Stock Option
Plan could be granted to non-employee directors, no more than 5% of the
shares available could be granted to individual non-employee directors, and
no more than 25% of the shares available could be granted to an individual
officer. Under such circumstances, it is expected that each non-employee
director will receive an option for the same number of shares. In addition,
it is currently expected that stock options will be granted to Mr. Gordon E.
Coleman, the Bank's Chief Executive Officer and to other officers of the
Bank, although no determination has been made at this time as to the amount
of such stock options. The Company currently anticipates that it will not
implement the Stock Option Plan until after one year following the Stock
Conversion, although it reserves the right to do so as early as six months
following the Stock Conversion. See "Management--Benefit Plans--Stock Option
and Incentive Plan."
Recognition and Retention Plan. Following consummation of the Stock
Conversion, the Company intends to adopt the RRP for the benefit of the
directors, officers and employees of the Company and the Bank. The RRP is
expected to purchase a number of shares of Common Stock either from the
Company or in the open market equal to an aggregate of 4% of the Common Stock
issued in the Stock Conversion (5,280 shares at the maximum of the Estimated
Valuation Range). Assuming the Common Stock awarded pursuant to the RRP had
a value of $10.00 per share, the aggregate value of RRP awards would be
$52,800 at the maximum of the Estimated Valuation Range. Under regulations
that would be applicable to the Converted Bank following the Conversion, if
the RRP is submitted to and approved by the stockholders of the Company
within one year after completion of the Stock Conversion, no more than 30% of
the shares available under the RRP could be granted to non-employee
directors, no more than 5% of the shares available could be granted to an
individual non-employee director, and no more than 25% of the shares
available could be granted to an individual officer. Under such
circumstances each non-employee director would receive an award for the same
number of shares. It is currently expected that awards will be granted to
Mr. Coleman and to other officers of the Bank, although no determination has
been made at this time as to the amount of such awards. Awards of Common
Stock under the RRP will be at no cost to the recipient. The Company
currently anticipates that it will not implement the RRP until after one year
following the Stock Conversion, although it reserves the right to do so as
early as six months following the Stock Conversion. See "Management--Benefit
Plans--Recognition and Retention Plan."
Dividends
The Company does not intend to initially pay dividends on the Common
Stock. The payment of dividends will be subject to determination and
declaration by the Board of Directors in its discretion, which will take into
account the Company's consolidated financial condition and results of
operations, tax considerations, industry standards, economic conditions,
regulatory restrictions on dividend payments by the Bank to the Company,
general business practices and other factors. See "Dividends," "Regulation
- -- Regulatory Capital Requirements" and "-- Limitations on Dividends and
Other Capital Distributions."
Market for Common Stock
The Company has never issued capital stock to the public, and due to the
relatively small size of the Offerings, it is unlikely that an active and
liquid trading market will develop or be maintained. The Company has
requested that Trident Securities, Inc. ("Trident") undertake to match offers
to buy and sell the Conversion Stock and to list the Common Stock over the
counter through the National Daily Quotation System "Pink Sheets" published
by the National Quotation Bureau, Inc., and Trident has agreed to do so.
However, purchasers of Common Stock should have a long term investment intent
and recognize that the absence of an active and liquid trading market may
make it difficult to sell the Common Stock, and may have an adverse effect on
the price. See "Market for Common Stock."
9
<PAGE>
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 an
order form will confirm receipt of the Prospectus in accordance with Rule
15c2-8. Order forms will only be distributed with a Prospectus. The Bank is
not obligated to accept for processing orders not submitted on original order
forms. Order forms unaccompanied by an executed certification form will not
be accepted. Payment by check, money order, bank draft, cash or debit
authorization to an existing account at the Bank must accompany the order and
certification forms. No wire transfers will be accepted. The Bank is
prohibited from lending funds to any person or entity for the purpose of
purchasing shares of Common Stock in the Stock Conversion. See "The
Conversion--Method of Payment for Subscriptions."
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, the
Supplemental Eligibility Record Date or the Voting Record Date must list all
deposit accounts on the stock 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 Company or the Bank to fill all or part of a
subscription order. In addition, registration of shares in a name or title
different from the names or titles listed on the account may adversely affect
such subscriber's purchase priority. See "The Conversion--Method of Payment
for Subscriptions."
Risk Factors
See "Risk Factors" for information regarding recent losses, the adequacy
of the Bank's allowance for loan losses, growth of the Bank's consumer and
commercial lending operations, reliance on out of market deposits, increased
credit risks associated with national bank loan products, the potential delay
in completion or denial of the Bank Conversion, the Bank's reduced return on
equity after the Stock Conversion, interest rate risk exposure, potential
discouragement of takeover attempts resulting from takeover defensive
provisions, potential operational restrictions associated with regulatory
oversight, competition, potential increased costs of Conversion resulting
from a delayed offering, the Bank's ESOP compensation expense, absence of
active market for the common stock, absence of refund of offering
subscriptions on amendment to the Plan, and the possible adverse income tax
consequences of the distribution of subscription rights.
10
<PAGE>
SELECTED FINANCIAL INFORMATION AND OTHER DATA
Set forth below are selected financial and other data of the Bank at and
for the years indicated. The selected financial and other data does not
purport to be complete and is qualified in its entirety by reference to the
detailed information and Financial Statements and Notes thereto presented
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AT MARCH 31,
-----------------------------------------------------
1997 1996 1995 1994 1993
- ---------------------------------------------------------------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
(IN THOUSANDS)
SELECTED FINANCIAL CONDITION DATA:
Total assets.................................................... $ 11,326 $ 7,606 $ 7,628 $ 8,212 $ 8,200
Cash and cash equivalents....................................... 709 1,351 881 1,495 1,413
Loans receivable, net........................................... 9,392 5,528 6,267 6,248 6,178
Trading account securities (1).................................. 69 -- -- -- --
Mortgage-backed securities:
Held to maturity.............................................. 257 340 206 255 319
Investment securities:
Held to maturity.............................................. 200 -- -- -- --
Available for sale............................................ 398 241 134 2 79
FHLB stock...................................................... 59 64 64 64 61
Deposits........................................................ 10,237 6,465 6,518 7,228 7,252
Advances by borrowers for taxes and insurance................... 107 95 155 148 127
Retained earnings--substantially restricted..................... 956 411 401 389 379
Retained earnings--unrestricted................................. -- 582 506 435 431
</TABLE>
- ------------------------
(1) Consists solely of Freddie Mac stock which was sold subsequent to March 31,
1997.
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
-----------------------------------------------------
1997 1996 1995 1994 1993
- -------------------------------------------------------------------------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
(IN THOUSANDS)
SELECTED OPERATIONS DATA:
Total interest income..................................................... $ 688 $ 622 $ 565 $ 560 $ 624
Total interest expense.................................................... (326) (270) (225) (267) (352)
--------- --------- --------- --------- ---------
Net interest income.................................................... 362 352 340 293 272
Provision for loan losses................................................. (78) -- -- -- --
--------- --------- --------- --------- ---------
Net interest income after provision for loan losses....................... 284 352 340 293 272
Fees and service charges.................................................. 29 10 14 19 15
Other non-interest income................................................. 67 -- -- -- --
--------- --------- --------- --------- ---------
Total non-interest income................................................. 96 10 14 19 15
Total non-interest expense................................................ (434) (239) (242) (294) (263)
--------- --------- --------- --------- ---------
Income (loss) before taxes................................................ (54) 123 112 18 24
Income tax (provision) benefit............................................ 18 (38) (29) (4) (7)
--------- --------- --------- --------- ---------
Net income (loss)......................................................... $ (36) $ 85 $ 83 $ 14 $ 17
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
----------------------------------------------------------
1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
SELECTED OPERATIONS DATA:
Performance Ratios:
Return on assets (ratio of net income to average total
assets).................................................. (0.41)% 1.08% 1.07% 0.17% 0.20%
Return on retained earnings (ratio of net income to average
equity).................................................. (3.67)% 8.83% 9.55% 1.68% 2.07%
Interest rate spread information:
Average during period.................................... 3.77% 4.13% 4.16% 3.29% 2.94%
End of period............................................ 3.34% 4.25% 4.18% 3.36% 3.04%
Net interest margin (1).................................... 4.23% 4.59% 4.52% 3.65% 3.42%
Ratio of operating expense to average total assets......... 4.89% 3.04% 3.11% 3.53% 3.19%
Ratio of average interest-earning assets to average
interest-bearing liabilities............................. 111.97% 114.46% 112.28% 110.84% 110.65%
Asset Quality Ratios:
Non-performing assets to total assets at end of period..... 0.41% 0.00% 0.00% 0.00% 0.00%
Allowance for loan losses to non-performing loans.......... 235.32% 0.00% 0.00% 0.00% 0.00%
Allowance for loan losses to loans receivable, net......... 1.17% 0.58% 0.51% 0.51% 0.49%
Capital Ratios:
Net worth to total assets at end of period................. 8.43% 13.56% 12.31% 10.03% 9.88%
Average net worth to average assets........................ 11.06% 12.27% 11.17% 9.94% 9.69%
Other Data:
Number of full-service offices............................. 1 1 1 1 1
</TABLE>
- ------------------------
(1) Net interest income divided by average interest earning assets.
12
<PAGE>
RISK FACTORS
The following factors, in addition to those discussed elsewhere in this
Prospectus, should be considered by investors before deciding whether to
purchase the Common Stock offered in the Stock Conversion.
RECENT LOSS
For the year ended March 31, 1997, the Bank incurred a loss of $36,000.
During fiscal 1997, the Bank decided to implement a strategy to increase its
asset size by commencing the origination of commercial real estate and
commercial business loans, and increasing its consumer loan portfolio. The
Bank is funding this loan growth through deposits. Consequently, during
fiscal 1997, as the Bank sought to attract deposits to fund asset growth by
offering above average market rates for certificates of deposits with terms
of two to five years. In light of the Bank's decision to originate more
commercial real estate, commercial business and consumer loans, management
deemed it prudent to establish a $78,000 provision for loan losses. No
provision for loan losses was established in fiscal 1996. Noninterest expense
during fiscal 1997 also increased significantly as the Bank incurred costs
associated with increased loan origination activity (such as increased
appraisal costs), as well as increasing the size of its staff from four to
six persons, which included the retention of an experienced consumer loan
officer. The Bank believes these changes are necessary in order to enhance
the Bank's long-term profitability. Consequently, noninterest expense
increased to $434,000 for the year ended March 31, 1997 from $239,000 for the
year ended March 31, 1996. Finally, the Bank incurred a one time expense of
$43,000 in connection with the Savings Association Insurance Fund ("SAIF")
recapitalization.
Implementation of the Bank's strategy may take a period of time to
complete and may require the expenditure of additional funds to provide the
resources necessary to originate a significant number of commercial real
estate, commercial business and consumer loans. The success of this strategy
will depend in part on the level of interest rates, market conditions and
other factors beyond the Bank's control.
RISKS ASSOCIATED WITH INCREASED CONSUMER AND COMMERCIAL LENDING
Over the past year the Bank has diversified its loan portfolio by
originating a significant amount of loans secured by collateral other than
one-to four-family real estate. In particular, over the past year the Bank
has emphasized the origination of consumer loans. At March 31, 1997, $1.8
million, or 19.0% of the Bank's total loan portfolio consisted of consumer
loans, an increase of $1.6 million from the $248,000, or 4.5% of total loans
which comprised consumer loans at March 31, 1996. At March 31, 1997, consumer
loans secured by automobiles comprised approximately $1.5 million, or 16.3%
of total loans. Management has determined that the Bank should continue to
emphasize the origination of consumer loans. Consequently, the Bank has
established a number of correspondent relationships with automobile
dealerships in the Bank's market area under which the Bank extends credit to
purchasers of new and used automobiles. See, "Business--Lending
Activities--Consumer and Other Lending." Although consumer loans have higher
yields than loans secured by one-to four-family properties, such loans are
more sensitive to economic conditions, are more difficult to monitor and have
greater credit risk than residential loans. Further, such loans may be
unsecured or secured by rapidly depreciating assets. In such cases, any
repossessed collateral for a defaulted consumer loan may not provide adequate
sources of repayment for the outstanding loan balances. Consumer loan
collections are dependent upon the borrower's financial stability and thus
are more likely to be affected by adverse personal circumstances. Finally,
the application of various federal and state laws, including bankruptcy and
insolvency laws may limit the amount that may be recovered on such loans. At
March 31, 1997, the Bank had not experienced any material delinquencies or
losses on its consumer loan portfolio.
In addition, management has determined to also emphasize the origination
of commercial real estate and commercial business loans. At March 31, 1997,
the Bank's total loan portfolio included $392,000 in commercial real estate
loans which comprised 4.1% of the Bank's total loan portfolio, and $195,000
in commercial business loans which comprised 2.0% of total loans. At March
31, 1996 the Bank did not have any commercial real estate or
13
<PAGE>
commercial business loans in its loan portfolio. Commercial real estate loans
and commercial business loans provide the Bank with the ability to obtain
interest income at rates higher than those available from one-to four-family
loans. At March 31, 1997, the Bank had not experienced any material
delinquencies or losses on its commercial real estate or commercial business
loan portfolios.
Loans secured by commercial real estate are more difficult to monitor and
evaluate than loans secured by one-to four-family properties, and therefore
involve a greater degree of risk than one-to four-family loans. Because
payments on loans secured by commercial real estate are often dependent on
the successful operation or management of the property securing the loan, the
repayment of such loans may be subject to adverse conditions in the real
estate market or economy. If the cash flow from the property is reduced, the
borrower's ability to repay the loan may be impaired. Similarly, commercial
business loans involve higher risks of default than loans secured by one-to
four-family properties since their repayment is dependent on the successful
operation of the borrower's business. In addition, commercial business loans
also involve higher risks of default since their repayment is dependent on
the successful operation of the borrower's business.
ADEQUACY OF ALLOWANCE FOR LOAN LOSSES
At March 31, 1997, the Bank's allowance for loan losses was $110,000, or
1.2% of loans receivable, net, as compared to $32,000, or .06% of loans
receivable, net, at March 31, 1996. The increase was due to a number of
factors, including an increase in the size of the Bank's loan portfolio, and
the changing composition of the Bank's loan portfolio, which includes higher
levels of non-mortgage loans such as consumer loans and commercial business
loans, which are generally considered to present increased credit risk to the
Bank when compared with one-to four-family loans, as well as higher levels of
commercial real estate loans which are dependent on the successful operation
of the property securing the loan, and higher levels of loans with adjustable
interest rates, which present an increased risk of default in a rising
interest rate environment. Because future events affecting borrowers and loan
collateral cannot be predicted with any degree of certainty, there can be no
assurance that the Bank's allowance for loan losses will be adequate to
absorb all future loan losses. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations," "Business--Lending
Activities," and "--Asset Quality."
INCREASED RELIANCE ON OUT OF MARKET DEPOSITS
In order to fund loan growth, the Bank has aggressively sought to
increase its level of deposits, primarily through the growth of certificates
of deposit with maturities of two to five years. In fiscal 1997, the Bank
began participating in an on-line service pursuant to which it advertises its
certificates of deposit rates nationwide. During the year ended March 31,
1997, the Bank obtained certificates of deposits totalling $2.6 million
through this service which represented 25.5% of total deposits at March 31,
1997. Virtually all of the certificates of deposits obtained from the on-line
service are from depositors who do not reside in the Bank's market area and
with whom the Bank has no other banking relationship. Certificates of deposit
obtained through the on-line service are a more volatile source of funds than
passbook or transaction accounts, or than certificates of deposit accounts
opened by depositors in the Bank's market area and who may have other
business relationships with the Bank.
RELIANCE ON LOCAL ECONOMY
The Bank originates loans in its market area. Thus, the ability of
borrowers to repay their loans is substantially dependent on the strength of
the local economy. The local economy consists primarily of agricultural
industry, small farms and food processors. There can be no assurance that
future employment practices of major employers or a downturn in the local
economy will not have an adverse effect on the financial condition or results
of operation of the Bank.
14
<PAGE>
INCREASED CREDIT RISKS ASSOCIATED WITH COMMERCIAL LOAN PRODUCTS
Over time, management anticipates broadening its range of banking
products and services consistent with a national bank and commercial bank
charter, and it will continue to diversify its loan portfolio.
Diversification of the Bank's loan portfolio may also alter the risk profile
of the Bank, since certain loans that may be made by national or commercial
banks, such as commercial and consumer loans, generally carry more credit
risk than residential one- to four-family mortgage loans. See
"Business--Lending Activities."
POTENTIAL DELAY IN COMPLETION OR DENIAL OF BANK CONVERSION
The Bank Conversion is subject to the approval of the OCC (in the case of
a national bank) or the Department (in the case of a New York-chartered
commercial bank). The OCC or Department may deny such approval or impose
burdensome conditions on such approval. Under such circumstances, the Bank's
Board of Directors may choose not to proceed with the Bank Conversion. Unless
and until the Bank becomes a national bank or a state-chartered commercial
bank, the Company will operate as a savings and loan holding company and the
Converted Bank as a federal stock savings bank. If the Board of Directors
elects not to proceed with the Bank Conversion or to proceed with the Bank
Conversion notwithstanding the imposition of conditions imposed by federal or
state regulators, and subscribers for Common Stock in the Offerings will not
be resolicited unless required by regulatory authority. See "The
Conversion--General."
REDUCED RETURN ON EQUITY AFTER STOCK CONVERSION
Return on equity (net income for a given period divided by average equity
during that period) is a ratio used by many investors to compare the
performance of a particular financial institution to its peers. The Bank's
return on equity for the year ended March 31, 1997 was, and the Company's
post-Stock Conversion return on equity will be, less than the average return
on equity for publicly traded thrift institutions and their holding
companies. See "Selected Financial Information and Other Data" for numerical
information regarding the Bank's historical return on equity and
"Capitalization" for a discussion of the Company's estimated pro forma
consolidated capitalization as a result of the Conversion. In addition, the
expenses associated with the ESOP and the RRP (see "Pro Forma Data"), along
with other post-Stock Conversion expenses, are expected to contribute
initially to reduced earnings levels. The Bank intends to deploy the net
proceeds of the Offerings to increase earnings per share and book value per
share, with the goal of achieving a return on equity comparable to the
average for publicly traded thrift institutions and their holding companies.
In the short-term, the Bank will have difficulty in improving its interest
rate spread and thus the return on equity to stockholders. Consequently, for
the foreseeable future, investors should not expect a return on equity that
will meet or exceed the average return on equity for publicly traded thrift
institutions, and no assurances can be given that this goal can be attained.
INTEREST RATE RISK EXPOSURE
The Bank's profitability is dependent to a large extent upon its net
interest income, which is the difference between its interest income on
interest-earning assets, such as loans and investments, and its interest
expense on interest-bearing liabilities, such as deposits and borrowings.
Changes in the level of interest rates also affect the amount of loans
originated by the Bank and, thus, the amount of loan and commitment fees, as
well as the market value of the Bank's interest-earning assets. Moreover,
increases in interest rates also can result in disintermediation, which is
the flow of funds away from savings institutions into direct investments,
such as corporate securities and other investment vehicles, which, because of
the absence of federal insurance premiums, may yield higher rates of return
than those paid by savings institutions.
In addition, changes in interest rates also can affect the market value
of the Bank's interest-earning assets, which are comprised of fixed- and
adjustable-rate instruments with various terms to maturity. Generally, the
value of fixed-rate, longer-term instruments fluctuates inversely with
changes in interest rates. See "Business -- Lending
15
<PAGE>
Activities -- One-to Four-Family Mortgage Loans." Increases in interest rates
also can affect the type (fixed-rate or adjustable-rate) and amount of loans
originated by the Bank and the average life of loans and securities, which
can adversely impact the yields earned on the Bank's loan and securities
portfolio. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Asset/Liability Management."
The Bank has sought to increase its deposits by attracting certificates
of deposits with terms ranging from two to five years. Such certificates of
deposit are costlier than passbook and transaction accounts and in a
declining interest rate environment may adversely affect the Bank's net
interest rate spread. The Bank is attempting to increase its interest income
through the origination of consumer, commercial real estate and commercial
business loans, which typically provide higher rates of interest than one-to
four-family loans. If the Bank is unable to originate higher yielding
consumer, commercial real estate or commercial business loans, or if interest
rates decline, the Bank's interest rate spread could deteriorate.
The OTS utilizes a net portfolio value methodology to measure the
interest rate risk exposure of savings associations. Effective March 31,
1995, for purposes of calculating risk-based capital, institutions with more
than normal interest rate risk, as defined by OTS regulations, are required
to make a deduction from capital equal to 50% of their interest rate risk
exposure multiplied by the present value of their assets. Based upon this
methodology, at March 31, 1997, the Bank's interest rate risk exposure to a
200 basis point increase in interest rates was considered "normal" under this
regulation. Furthermore, since the Bank has total assets of less than $300
million and risk-based capital in excess of 12%, the Bank is exempt from this
rule unless otherwise notified by the OTS. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Asset/Liability
Management."
ANTI-TAKEOVER DEFENSES
COMPANY AND BANK GOVERNING INSTRUMENTS. Certain provisions of the
Company's Certificate of Incorporation and Bylaws assist the Company in
maintaining its status as an independent publicly owned corporation. These
provisions provide for, among other things, limiting voting rights of
beneficial owners of more than 10% of the Common Stock, staggered terms for
directors, noncumulative voting for directors, limits on the calling of
special meetings and a fair price/supermajority vote requirement for certain
business combinations and certain notice requirements. The 10% vote
limitation would not affect the ability of an individual who is not the
beneficial owner of more than 10% of the Common Stock to solicit revocable
proxies in a public solicitation for proxies for a particular meeting of
stockholders and to vote such proxies. In addition, provisions in the Bank's
federal stock Charter that have an anti-takeover effect could also be
applicable to changes in control of the Company as the sole shareholder of
the Bank. The Converted Bank's Charter includes a provision applicable for
five years which prohibits acquisitions and offers to acquire, directly or
indirectly, the beneficial ownership of more than 10% of the Bank's
securities. Any person violating this restriction may not vote the Converted
Bank's securities in excess of 10%. Any or all of these provisions may
discourage potential proxy contests and other takeover attempts, particularly
those which have not been negotiated with the Board of Directors. In
addition, the Company's Certificate of Incorporation also authorizes
preferred stock with terms to be established by the Board of Directors which
may rank prior to the Common Stock as to dividend rights, liquidation
preferences, or both, may have full or limited voting rights and may have a
dilutive effect on the ownership interests of holders of the Common Stock.
The Board of Directors of the Company has the ability to waive certain
restrictions on acquisition, provided that the acquisition is approved in
advance by a majority of the disinterested Board of Directors. See
"Restrictions on Acquisitions of Stock and Related Takeover Defensive
Provisions."
REGULATORY AND STATUTORY PROVISIONS. Federal regulations prohibit, for a
period of three years following the completion of the Conversion, any person
from offering to acquire or acquiring the beneficial ownership of more than
10% of the stock of a converted savings institution or its holding company
without prior federal regulatory approval. Federal law also requires federal
regulatory approval prior to the acquisition of "control" (as defined in
federal regulations) of an insured institution, including a holding company
thereof. See "Restrictions on Acquisitions of Stock and Related Takeover
Defensive Provisions."
16
<PAGE>
BENEFIT PLANS; VOTING CONTROL OF DIRECTORS AND OFFICERS AND POSSIBLE
DILUTIVE EFFECTS. The proposed Stock Option Plan and the proposed RRP also
contain provisions that could have the effect of discouraging takeover
attempts of the Company.
If the Company issues additional shares pursuant to the proposed Stock
Option Plan and RRP (as opposed to funding such plans with shares
subsequently reacquired and held as treasury shares) the percentage of
ownership of the Company of those persons purchasing Common Stock in the
Stock Conversion will be diluted. Assuming exercise of all options available
under the Stock Option Plan, the interest of stockholders will be diluted by
approximately 9.1%. The award of all shares available under the RRP will
dilute the interests of stockholders by approximately 3.9%. See "Pro Forma
Data," "Management -- Benefit Plans -- Stock Option and Incentive Plan," and
"-- Recognition and Retention Plan" and "Restrictions on Acquisitions of
Stock and Related Takeover Defensive Provisions." For financial accounting
purposes, certain incentive grants under the proposed RRP will result in the
recording of compensation expense over the period of vesting. See "Pro Forma
Data."
The directors and executive officers of the Bank are anticipated to
purchase an aggregate of approximately $ or approximately % of the
shares offered in the Stock Conversion at the maximum of the Estimate
Valuation Range, or % at % above the maximum of the Estimated Valuation
Range, or % of the shares offered in the Stock Conversion at the minimum
of the Estimated Valuation Range. Directors and executive officers will also
receive awards under the proposed Stock Option Plan and the proposed RRP.
Assuming the purchase of $ of Common Stock in the Stock Conversion by
directors and executive officers in the aggregate ( persons), the full
vesting of the restricted stock to be awarded under the proposed RRP and the
exercise of all options to be awarded under the proposed Stock Option Plan in
connection with the Stock Conversion, approval of the Stock Option Plan and
the RRP by the stockholders, and the acquisition by the Company of shares to
fund such plans in open-market purchases, the shares owned by the directors
and executive officers in the aggregate would amount from approximately %
(at 15% above the maximum of the Estimated Valuation Range) to % (at the
minimum of the Estimated Valuation Range) of the outstanding shares. In
addition, the ESOP is expected to purchase 8% of the shares sold in the Stock
Conversion. This stock ownership, if voted as a block, could defeat takeover
attempts favored by other stockholders. See "Management -- Benefit Plans --
Employee Stock Ownership Plan."
POTENTIAL OPERATIONAL RESTRICTIONS ASSOCIATED WITH REGULATORY OVERSIGHT
The Bank is subject to extensive regulation, supervision and examination
by the OTS as its chartering authority and primary federal regulator, and by
the FDIC, which insures its deposits up to applicable limits. The Bank is a
member of the FHLB and is subject to certain limited regulation by the FRB.
See "Regulation." Such regulation and supervision governs the activities in
which an institution can engage and is intended primarily for the protection
of the insurance fund and depositors. Following the Bank Conversion, the Bank
will be subject to extensive regulation and supervision by the OCC (in the
case of a national bank) or the Department (in the case of a commercial bank)
and the FDIC, and the Company will be subject to extensive regulation and
supervision of the FRB. Regulatory authorities have been granted extensive
discretion in connection with their supervisory and enforcement activities
which are intended to strengthen the financial condition of the banking
industry, including the imposition of restrictions on the operation of an
institution, the classification of assets by the institution and the adequacy
of an institution's allowance for losses on loans. See "Regulation -- Federal
Regulation of Savings Associations" and "-- Regulatory Capital Requirements."
Any change in such regulation and oversight, whether by the OTS, the FDIC,
the OCC, the Department, the FRB or Congress, could have a material impact on
the Company, the Bank and their respective operations.
COMPETITION
The Bank experiences strong competition in its local market area in both
originating loans and attracting deposits. This competition arises, with
respect to originating loans, from mortgage bankers and to a lesser extent
from
17
<PAGE>
commercial banks, savings institutions and credit unions, and with respect to
attracting deposits, from securities firms and mutual funds and from other
financial institutions in its market area. See "Business--Market Area and
Competition" and --Lending Activities."
POTENTIAL INCREASED COSTS OF CONVERSION RESULTING FROM DELAYED OFFERING
The Subscription Offering will expire at Noon, local time on , 1997
unless extended by the Bank and the Company. If the Offerings are extended
beyond , 1997, all subscribers will have the right to modify or rescind
their subscriptions and to have their subscription funds returned with
interest. There can be no assurance that the Offerings will not be extended
as set forth above.
A material delay in the completion of the sale of all unsubscribed shares
in the Community Offering may result in a significant increase in the costs
in completing the Stock Conversion. Significant changes in the Bank's
operations and financial condition, the aggregate market value of the shares
to be issued in the Stock Conversion and general market conditions may occur
during such material delay. In the event the Stock Conversion is not
consummated within 24 months after the date of the Special Meeting, OTS
regulations would require the Bank to charge accrued Stock Conversion costs
to then-current period operations. See "The Conversion -- Risk of Delayed
Offering."
ESOP COMPENSATION EXPENSE
In November 1993, the American Institute of Certified Public Accountants
("AICPA") Accounting Standards Executive Committee issued Statement of
Position 93-6, Employers' Accounting for Employee Stock Ownership Plans ("SOP
93-6"). SOP 93-6 requires an employer to record compensation expense in an
amount equal to the fair value of shares committed to be released to
employees from an employee stock ownership plan. Assuming shares of Common
Stock appreciate in value over time, the adoption of SOP 93-6 will increase
compensation expense relating to the ESOP to be established in connection
with the Stock Conversion as compared with prior guidance which required the
recognition of compensation expense based on the cost of shares acquired by
the ESOP. It is impossible to determine at this time the extent of such
impact on future net income. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations --Recent Accounting
Developments."
ABSENCE OF ACTIVE MARKET FOR THE COMMON STOCK
The Company has never issued capital stock to the public, and due to the
relatively small size of the Offerings, it is unlikely that an active and
liquid trading market will develop or be maintained. The Company has
requested that Trident Securities, Inc. ("Trident") undertake to match offers
to buy and sell the Conversion Stock and to list the Common Stock over the
counter through the National Daily Quotation System "Pink Sheets" published
by the National Quotation Bureau, Inc., and Trident has agreed to do so.
However, purchasers of Common Stock should have a long term investment intent
and recognize that the absence of an active and liquid trading market may
make it difficult to sell the Common Stock, and may have an adverse effect on
the price. See "Market for Common Stock."
ABSENCE OF REFUND OF OFFERING SUBSCRIPTIONS ON AMENDMENT TO PLAN OF CONVERSION
The Plan provides that, if deemed necessary or desirable by the Boards of
Directors of the Bank and the Company, the Plan may be substantively amended
(including an amendment to eliminate the formation of the holding company as
part of the Conversion) by a two-thirds vote of the respective Boards of
Directors of the Bank and the Company, as a result of comments from
regulatory authorities or otherwise, at any time with the concurrence of the
OTS. Moreover, if the Plan is amended, subscriptions which have been received
prior to such amendment will not be refunded unless otherwise required by the
OTS. If the Plan is amended in a manner that is deemed to be material to the
subscribers by the Company, the Bank and the OTS, such subscriptions will be
resolicited. No such
18
<PAGE>
amendments are currently contemplated, although the Bank reserves the right
to increase or decrease purchase limitations. See "The Conversion --
Approval, Interpretation, Amendment and Termination."
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 are deemed to have an
ascertainable value, receipt of such rights may be taxable only to those
Eligible Account Holders, Supplemental Eligible Account Holders or Other
Members who exercise the Subscription Rights (either as capital gain or
ordinary income) in an amount equal to such value. Additionally, the Bank
could recognize a gain for tax purposes on such distribution. Whether
Subscription Rights are considered to have ascertainable value is an
inherently factual determination. The Bank has received an opinion of FinPro
that such rights have no value, which opinion is not binding on the Internal
Revenue Service ("IRS"). See "The Conversion--Effects of Stock Conversion to
Stock Form on Depositors and Borrowers of the Bank--Tax Effects."
LANDMARK COMMUNITY BANK
The Bank is a federally chartered mutual savings bank headquartered in
Canajoharie, New York. Landmark Community was chartered in 1925 as a New York
savings and loan association under the name Canajoharie Building Savings and
Loan Association. In 1997, the Bank converted to a federal mutual savings
bank charter and changed its name to Landmark Community Bank. Its deposits
are insured up to the maximum allowable amount by the SAIF of the FDIC.
Through its office it serves communities located in Canajoharie, New York. At
March 31, 1997, the Bank has total assets of $11.3 million, deposits of $10.2
million and retained earnings of $956,000.
The Bank has been, and intends to continue to be, a community-oriented
financial institution offering selected financial services to meet the needs
of the communities it serves. The Bank attracts deposits from the general
public and historically has used such deposits, together with other funds, to
originate one- to four-family residential mortgage loans, and in recent
periods to originate commercial real estate loans, commercial business loans
and consumer loans consisting primarily of personal loans secured by
automobiles. At March 31, 1997, the Bank's total loan portfolio was $9.6
million, of which $7.2 million, or 74.9% were one- to four-family residential
mortgage loans, $392,000, or 4.1% were commercial real estate loans, $1.8
million, or 19.0% were consumer loans, and $195,000, or 2.0% were commercial
business loans.
During the year ended March 31, 1997, the Bank originated $3.8 million of
fixed-rate and $1.8 million of adjustable rate loans, all of which were
retained in the Bank's portfolio. See "Business -- Lending Activities."
The Bank's executive office is located at 26 Church Street, Canajoharie,
New York 13317-1117. Its telephone number at that address is (518) 673-2012.
LANDMARK FINANCIAL CORP.
Landmark Financial Corp. was organized in June 1997 for the purpose of
serving as a holding company for the Converted Bank upon its conversion from
mutual to stock form, and of the Bank following the Bank Conversion. Prior to
the Conversion, the Company has not engaged and will not engage in any
material operations. Upon consummation of the Stock Conversion, the Company
will have no significant assets other than the outstanding capital stock of
the Converted Bank, up to 20% of the net proceeds from the Stock Conversion
(less the amount to fund the ESOP and a note evidencing its loan to the
Bank's ESOP. Upon consummation of the Stock Conversion, the Company's
principal business will be overseeing and directing the business of the Bank
and investing the net Stock Conversion proceeds retained by it. In connection
with the Bank Conversion, the Company will register with the Board of
Governors of the FRB as a bank holding company under the BHCA.
19
<PAGE>
The Company has received approval from the OTS to acquire control of the
Converted Bank, subject to satisfaction of certain conditions. The Company
intends to apply to the FRB for approval to retain control of the Bank
following the Bank Conversion. See "Risk Factors--Potential Delay in
Completion or Denial of Bank Conversion."
The holding company structure will permit the Company to expand the
financial services currently offered through the Bank, although there are no
definitive plans or arrangements for such expansion at present. The holding
company structure will also provide the Bank with enhanced operational
flexibility and provide the ability to diversify its business opportunities
through acquiring or merging with other financial institutions, thereby
enhancing its financial resources in order to compete more effectively with
other financial service organizations. At the present time, however, the
Company does not have any plans, arrangements, agreements or understandings
with respect to any such acquisitions or mergers. After the Stock Conversion,
the Company will be classified as a unitary savings and loan holding company
and will be subject to regulation by the OTS. After the Bank Conversion, the
Company will be classified as a bank holding company and will be subject to
regulation by the FRB.
The initial activities of the Company are anticipated to be funded by
such retained proceeds and the income thereon and dividends, if any, from the
Bank. See "Dividends," "Use of Proceeds," "Regulation -- Holding Company
Regulation" and "-- Federal and State Taxation." Thereafter, activities of
the Company may also be funded through sales of additional securities,
through borrowings and through income generated by other activities of the
Company. At this time, there are no plans regarding any other activities.
THE DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY AND THE BANK BELIEVE
THAT IT IS IN THE BEST INTERESTS OF THE BANK, THE COMPANY AND THE COMPANY'S
SHAREHOLDERS FOR THE COMPANY AND THE SAVINGS BANK TO REMAIN INDEPENDENT, WITH
THE OBJECTIVE OF LONG-TERM ENHANCEMENT OF SHAREHOLDER VALUE. ACCORDINGLY, AN
INVESTMENT IN THE COMMON STOCK OF THE COMPANY MAY NOT BE SUITABLE FOR
INVESTORS WHO ARE SEEKING SHORT-TERM RETURNS THROUGH A SALE OF THE
INSTITUTION.
The executive office of the Company is located at 26 Church Street,
Canajoharie, New York 13317-1117. Its telephone number at that address is
(518) 673-2012.
20
<PAGE>
CAPITALIZATION
The table below sets forth the capitalization, including deposits and
borrowings, of the Bank as of March 31, 1997 and the pro forma capitalization
of the Company at the minimum, the midpoint, maximum and 15% above the
maximum of the Estimated Valuation Range, after giving effect to the Stock
Conversion and based on other assumptions set forth in the table and under
the caption "Pro Forma Data."
<TABLE>
<CAPTION>
PRO FORMA CAPITALIZATION OF
COMPANY BASED UPON SALE OF
------------------------------------------
<S> <C> <C> <C> <C> <C>
98,000 115,000 132,000 152,000
CAPITALIZATION OF SHARES SHARES SHARES SHARES
BANK AT AT $10.00 AT $10.00 AT $10.00 AT $10.00
MARCH 31, 1997 PER SHARE PER SHARE PER SHARE PER SHARE
---------------------------------- --------- --------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Deposits(1)....................... $10,237 $ 10,237 $ 10,237 $ 10,237 $ 10,237
Stockholders' equity:
Preferred Stock, $.10 per value
per share: authorized--100,000
shares; assumed outstanding--
none............................ $ -- $ -- $ -- $ -- $ --
Common Stock, $.10 par value per
share: authorized--900,000
shares; shares to be
outstanding-- as shown(5)....... -- 10 12 13 15
Paid-in capital................... -- 820 988 1,157 1,355
Less: Common stock acquired by
ESOP(3)................... -- (78) (92) (106) (122)
Common stock to be acquired
by RRP(4)................... -- (39) (46) (53) (61)
Retained earnings, substantially
restricted(2)................... 956 956 956 956 956
Unrealized (losses) on available-
for-sale securities, net of
tax............................. (1) (1) (1) (1) (1)
---------------------------------- --------- --------- --------- ---------
Total stockholders' equity........ $955 $ 1,668 $ 1,817 $ 1,966 $ 2,142
---------------------------------- --------- --------- --------- ---------
---------------------------------- --------- --------- --------- ---------
</TABLE>
- ------------------------
(1) No effect has been given to withdrawals from savings accounts for the
purpose of purchasing Common Stock in the Stock Conversion. Any such
withdrawals will reduce pro forma deposits by the amount of such
withdrawals.
(2) See Notes I and P of the Notes to Financial Statements for information
regarding restrictions on retained earnings, "Dividends" and
"Regulation -- Limitations on Dividends and Other Capital Distributions"
regarding restrictions on future dividend payments and "The Conversion --
Effects of Stock Conversion to Stock Form on Depositors and Borrowers of
the Bank" regarding the liquidation account to be established upon Stock
Conversion. Does not take into account Company dividends, if any, which
may be paid subsequent to the Stock Conversion. See "Dividends."
(3) Assumes that 8% of the shares issued in the Stock Conversion will be
acquired by the ESOP and that the ESOP will be funded by the Company. The
Bank intends to make contributions to the ESOP sufficient to service and
ultimately retire its debt. Since the Company will finance the ESOP debt,
the ESOP debt will be eliminated through consolidation and no liability
will be reflected on the Company's consolidated financial statements.
Accordingly, the amount of stock acquired by the ESOP is shown in this
table as a reduction of total stockholders' equity. See "Management --
Benefit Plans -- Employee Stock Ownership Plan."
(4) While management does not currently intend to do so, following OTS and
stockholder approval, shares utilized to fund the RRP could be obtained
from newly issued shares. In the event RRP shares are obtained from
authorized but unissued shares, the existing ownership of current
stockholders would be diluted by approximately 3.9%. However, there would
be no impact on stockholders' equity.
(5) Does not reflect the shares of Common Stock that may be reserved for
issuance pursuant to the proposed Stock Option Plan and the proposed RRP.
See "Management--Benefit Plans."
21
<PAGE>
PRO FORMA DATA
The following table sets forth the historical net income, total equity
and per share data of the Bank at and for the year ended March 31, 1997, and
after giving effect to the Stock Conversion, the pro forma consolidated net
income, stockholders' equity and per share data of the Company at and for the
same period. The pro forma data is computed on the assumptions that (i) the
specified number of shares of Common Stock were sold at the beginning of the
specified period and yielded net proceeds to the Company as indicated and
(ii) such net proceeds were invested by the Bank and the Company at the
beginning of the period to yield a return of 6.02% for the fiscal year ended
March 31, 1997. The assumed return is based on the yield on one-year U.S.
Government securities at March 31, 1997, which is deemed by management to
more accurately reflect pro forma reinvestment rates than the arithmetic
average of the Bank's weighted average yield on all interest-earning assets
and the weighted average rate paid on deposits. After adjusting for
applicable federal and state taxes totaling 37%, the after-tax yield was
equal to 3.79% for the fiscal year ended March 31, 1997. The table also
assumes that the proposed RRP awards equal to 4% of the shares sold in the
Stock Conversion were purchased by the RRP at $10.00 per share in the open
market and fixed Stock Conversion expenses were $150,000. No effect has been
given to the stock reserved for issuance under the Stock Option Plan. ACTUAL
STOCK CONVERSION EXPENSES MAY BE MORE OR LESS THAN THOSE ESTIMATED BECAUSE
FEES PAID MAY VARY DEPENDING UPON MARKET CONDITIONS AND OTHER FACTORS. THE
PRO FORMA NET EARNINGS AMOUNTS DERIVED FROM THE ASSUMPTIONS SET FORTH HEREIN
SHOULD NOT BE CONSIDERED INDICATIVE OF THE ACTUAL RESULTS OF OPERATIONS OF
THE COMPANY THAT WOULD HAVE BEEN ATTAINED FOR ANY PERIOD IF THE STOCK
CONVERSION HAD BEEN ACTUALLY CONSUMMATED AT THE BEGINNING OF SUCH PERIOD, AND
THE ASSUMPTIONS REGARDING INVESTMENT YIELDS SHOULD NOT BE CONSIDERED
INDICATIVE OF THE ACTUAL YIELDS EXPECTED TO BE ACHIEVED DURING ANY FUTURE
PERIOD.
The total number of shares to be issued in the Stock Conversion may be
increased or decreased to reflect changes in market and financial conditions
prior to the close of the Offerings. However, if the aggregate Purchase Price
of the Common Stock actually sold in the Conversion is below $980,000 or more
than $1,520,000 (15% above the maximum of the Estimated Valuation Range)
subscribers will be offered the opportunity to modify or cancel their
subscriptions. See "The Conversion -- Stock Pricing and Number of Shares to
be Issued."
22
<PAGE>
<TABLE>
<CAPTION>
AT OR FOR THE YEAR ENDED MARCH 31, 1997
------------------------------------------------------
<S> <C> <C> <C> <C>
152,000
SHARES
98,000 115,000 132,000 AT $10.00
SHARES SHARES SHARES PER SHARE
AT $10.00 AT $10.00 AT $10.00 (MAXIMUM,
PER SHARE PER SHARE PER SHARE AS
(MINIMUM) (MIDPOINT) (MAXIMUM) ADJUSTED)(1)
----------- ----------- ----------- ---------------
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Gross proceeds................................................. $ 980 $ 1,150 $ 1,320 $ 1,520
Less estimated expenses........................................ 150 150 150 150
----------- ----------- ----------- -------
Estimated net Stock Conversion proceeds..................... 830 1,000 1,170 1,370
Less Common Stock acquired by ESOP.......................... 78 92 106 122
Less Common Stock to be acquired by RRP..................... 39 46 53 61
----------- ----------- ----------- -------
Estimated proceeds available for investment................ $ 713 $ 862 $ 1,011 $ 1,187
----------- ----------- ----------- -------
----------- ----------- ----------- -------
Consolidated net income:
Historical.................................................. $ (36) $ (36) $ (36) $ (36)
Pro forma adjustments:
Net income from proceeds (2)............................ 27 33 38 45
Less pro forma ESOP adjustment(3)........................... 3 4 4 5
Less pro forma RRP adjustment(4)............................ 5 6 7 8
----------- ----------- ----------- -------
Pro forma net income................................. $ (17) $ (13) $ (9) $ (4)
----------- ----------- ----------- -------
----------- ----------- ----------- -------
Consolidated net income per share: (5)(6)
Historical.................................................. $ (.40) $ (.34) $ (.30) $ (.26)
Pro forma adjustments:
Net income from proceeds (2)............................ .30 .31 .31 .32
Less pro forma ESOP adjustment(3)........................... .03 .04 .03 .04
Less pro forma RRP adjustment(4)............................ .06 .06 .06 .06
----------- ----------- ----------- -------
Pro forma net income per share....................... $ (.19) $ (.13) $ (.08) $ (.04)
----------- ----------- ----------- -------
----------- ----------- ----------- -------
Consolidated stockholders' equity (book value):(7)
Historical.................................................. 955 955 955 955
Estimated net Stock Conversion proceeds..................... 830 1,000 1,170 1,370
Less common stock acquired or to be acquired by:
ESOP.................................................... 78 92 106 122
RRP (4)................................................. 39 46 53 61
----------- ----------- ----------- -------
Pro forma............................................ $ 1,668 $ 1,817 $ 1,966 $ 2,142
----------- ----------- ----------- -------
----------- ----------- ----------- -------
Consolidated stockholders' equity per share: (6)(8)
Historical.................................................. $ 9.74 $ 8.30 $ 7.23 $ 6.28
Estimated net Stock Conversion proceeds..................... 8.47 8.70 8.86 9.01
Less Common Stock acquired or to be acquired by:
ESOP.................................................... .80 .80 .80 .80
RRP (4)................................................. .40 .40 .40 .40
----------- ----------- ----------- -------
Pro forma stockholders' equity(9).................... $ 17.01 $ 15.80 $ 14.89 $ 14.09
----------- ----------- ----------- -------
----------- ----------- ----------- -------
Pro forma price to book value (%).............................. 58.79% 63.29% 67.16% 70.97%
----------- ----------- ----------- -------
Pro forma price to earnings (P/E ratio)........................ (52.63) (76.92) (125.00) (250.00)
----------- ----------- ----------- -------
----------- ----------- ----------- -------
Number of shares used in calculating stockholders'
equity per share............................................... 98 115 132 152
----------- ----------- ----------- -------
----------- ----------- ----------- -------
Number of shares used in calculating earnings per share........ 90 106 121 140
----------- ----------- ----------- -------
----------- ----------- ----------- -------
</TABLE>
23
<PAGE>
- ------------------------
(1) Gives effect to the sale of an additional 20,000 shares in the Stock
Conversion, which may be issued as a result of an increase in the pro forma
market value of the Company and the Bank, as converted, without the
resolicitation of subscribers or any right of cancellation. The issuance of
such additional shares will be conditioned on a determination of the
independent appraiser that such issuance is compatible with its
determination of the estimated pro forma market value of the Company and the
Bank, as converted. See "The Conversion--Stock Pricing and Number of Shares
to be Issued."
(2) No effect has been given to withdrawals from accounts for the purpose of
purchasing Common Stock in the Stock Conversion.
(3) It is assumed that 8% of the shares of Common Stock offered in the Stock
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
Stock Conversion, which rate is currently 8.5%), from the net proceeds from
the Stock Conversion retained by the Company. The amount of this borrowing
has been reflected as a reduction from gross proceeds to determine estimated
net proceeds. The Bank intends to make contributions to the ESOP in amounts
at least equal to the principal and interest requirement of the debt. As the
debt is paid down, stockholders' equity will be increased. The Bank's
payment of the ESOP debt is based upon equal installments of principal over
a 15-year period, assuming a combined federal and state tax rate of 37%.
Interest income earned by the Company on the ESOP debt offsets the interest
paid by the Bank on the ESOP loan. No reinvestment is assumed on proceeds
contributed to fund the ESOP. The ESOP expense reflects adoption of SOP
93-6, which will require recognition of expense based upon shares committed
to be released and the exclusion of unallocated shares from earnings per
share computations. The valuation of shares committed to be released would
be based upon the average market value of the shares during the year, which,
for purposes of this calculation, was assumed to be equal to the $10.00 per
share Purchase Price. See "Management--Benefit Plans--Employee Stock
Ownership Plan."
(4) In calculating the pro forma effect of the RRP, it is assumed that the
required stockholder approval has been received, that the shares were
acquired by the RRP 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 interests of existing stockholders by approximately 3.9%
and pro forma net income per share for the year ended March 31, 1997 would
be $(.19), $(.13), $(.08), and $(.04), the pro forma price to earnings ratio
for the year ended March 31, 1997 would be (52.63)x, (76.92)x, (125.00)x and
(250.00)x, and pro forma stockholders' equity per share at March 31, 1997
would be $17.01, $15.80, $14.89, and $14.09, at the minimum, midpoint,
maximum, and 15% above the maximum of the Estimated Valuation Range,
respectively. Shares issued under the RRP vest 20% per year and, for
purposes of this table, compensation expense is recognized on a
straight-line basis over each vesting period. In the event the fair market
value per share is greater than $10.00 per share on the date of stockholder
approval of the RRP, total RRP 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 Stock
Conversion, the 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 Stock Conversion.
If all of the options were to be exercised utilizing these authorized but
unissued shares rather than treasury shares (which could be acquired), the
voting interests of existing stockholders would be diluted by approximately
9.1%. See "Management-- Benefit Plans--Stock Option and Incentive Plan" and
"--Recognition and Retention Plan."
(5) Per share amounts are based upon outstanding shares of 98,000, 115,000,
132,000, and 152,000 at the minimum, midpoint, maximum, and 15% above the
maximum of the Estimated Valuation Range. Such shares include all shares
sold in the Stock Conversion minus shares purchased by the ESOP that are not
assumed committed to be released.
(6) Historical per share amounts have been computed as if the shares of Common
Stock expected to be issued in the Stock 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 Stock
Conversion, the additional ESOP expense or the proposed RRP expense, as
described above.
(7) "Book value" represents the difference between the stated amounts of the
Bank's assets and liabilities. The amounts shown do not reflect the
liquidation account that will be established for the benefit of Eligible
Account Holders and Supplemental Eligible Account Holders in the Stock
Conversion, or the federal income tax consequences of the restoration to
income of the Bank's special bad debt reserves for income tax purposes,
which would be required in the unlikely event of liquidation. See "The
Conversion--Effects of Stock Conversion to Stock Form on Depositors and
Borrowers of the Bank" and "--Income Tax Consequences." 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 98,000, 115,000,
132,000 and 152,00 at the minimum, midpoint, maximum and 15% above the
maximum of the Estimated Valuation Range, respectively.
(9) Neither represents, nor is intended to represent, possible future price
appreciation or depreciation of the Common Stock.
24
<PAGE>
PRO FORMA REGULATORY CAPITAL
Pro forma data assumes that the Common Stock has been sold as of March 31,
1997, at the minimum, midpoint, maximum and 15% above the maximum of the
Estimated Valuation Range. For additional information regarding the financial
condition of the Bank and the assumptions underlying the pro forma capital
calculations set forth below, see "Use of Proceeds," "Capitalization" and
"Pro Forma Data" and the Financial Statements and related notes appearing
elsewhere herein.
<TABLE>
<CAPTION>
PRO FORMA BASED UPON SALE OF
------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
-----------------------------------------------------------------------------------------------------------------
MAXIMUM, AS ADJUSTED,
MINIMUM OF MIDPOINT OF MAXIMUM OF OF ESTIMATED
ESTIMATED VALUATION ESTIMATED VALUATION ESTIMATED VALUATION VALUATION
RANGE OF RANGE OF RANGE OF RANGE OF
HISTORICAL AT 98,000 SHARES 115,000 SHARES 132,000 SHARES 152,000 SHARES
MARCH 31, 1997 AT $10.00 PER SHARE AT $10.00 PER SHARE AT $10.00 PER SHARE AT $10.00 PER SHARE
----------------- ---------------------- ---------------------- ---------------------- ----------------------
AMOUNT PERCENT(1) AMOUNT(2) PERCENT(1)(2) AMOUNT(2) PERCENT(1)(2) AMOUNT(2) PERCENT(1)(2) AMOUNT(2) PERCENT(1)(2)
------ --------- -------- ------------ -------- ------------ -------- ------------ -------- ------------
(DOLLARS IN THOUSANDS)
THE BANK
- --------
Capital
under
generally
accepted
accounting
principles. $ 956 8.44% $ 956 7.94% $ 956 7.85% $ 956 7.75% $ 956 7.64%
------ ----- ----- ----- ----- ------ ----- ------ ------ ------
------ ----- ----- ----- ----- ------ ----- ------ ------ ------
Tangible
capital(2). $ 955 8.43% $1,668 13.86% $1,817 14.91% $1,966 15.94% $2,142 17.12%
Tangible
capital
requirement(5). 170 1.50 181 1.50 183 1.50 185 1.50 188 1.50
---- ----- ------ ----- ------ ------ ------- ----- ------ ------
Excess...... $ 785 6.93% $1,487 12.36% $1,634 13.41% $1,781 14.44% $1,954 15.62%
----- ----- ------ ------ ------ ------ ------ ------ ------ ------
----- ----- ------ ------ ------ ------ ------ ------ ------ ------
Core
capital(2).. $ 955 8.43% $1,668 13.86% $1,817 14.91% $1,966 15.94% $2,142 17.12%
Core capital
requirement(3)(5) 340 3.00 361 3.00 366 3.00 370 3.00 375 3.00
----- ----- ------ ------ ------ ------ ------ ----- ------ ------
Excess...... $ 615 5.43% $1,307 10.86% 1,451 11.91% $1,596 12.94% $1,767 14.12%
----- ----- ------ ------ ------ ------ ------ ------ ------ ------
----- ----- ------ ------ ------ ------ ------ ------ ------ ------
Risk-based
capital(2)(4). $1,065 16.76% $1,778 27.37% $1,927 29.53% $2,076 31.67% $2,252 34.17%
Risk-based
capital
requirement(5)(6) 508 8.00 520 8.00 522 8.00 524 8.00 527 8.00
------ ------ ------ ----- ------ ------ ------ ------ ------ ------
Excess...... $ 557 8.76% $1,258 19.37% $1,405 21.53% $1,551 23.67% $1,725 26.17%
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
</TABLE>
(footnotes on following page)
25
<PAGE>
- ------------------------
(1) Tangible and core capital levels are shown as a percentage of total adjusted
assets; risk-based capital levels are shown as a percentage of risk-weighted
assets.
(2) The table assumes retention by the Company of 20% of the net Stock
Conversion proceeds (less the amount of the loan made to the ESOP from the
Company's portion of the net Stock Conversion proceeds). For regulatory
capital purposes, the Bank's capital will be reduced by the anticipated
purchases by the ESOP of 8% of the shares of Common Stock sold in the Stock
Conversion and the proposed issuance of 4% of the shares of Common Stock
sold in the Stock Conversion for the RRP. The actual amount of net Stock
Conversion proceeds to be invested into the Bank to maintain the 10%
tangible capital level will depend on a number of factors, including the
amount of deposit withdrawals to fund subscriptions for Common Stock in the
Offerings, the actual level of assets of the Bank at the closing of the
Offerings (which will depend in part on the repayment and prepayment of
loans and the maturity of mortgage-backed and investment securities), the
Bank's asset/liability management in the period up to the closing of the
Offerings, and the overall expenses of the Conversion.
(3) In April 1991, the OTS proposed a core capital requirement for savings
associations comparable to the requirement for national banks that became
effective December 31, 1990. The proposal calls for an OTS core capital
requirement of at least 3% of total adjusted assets for thrifts that receive
the highest supervisory rating for safety and soundness, with a 4% to 5%
core capital requirement for all other thrifts. If adopted as proposed,
management would expect the Bank to be subject to a 4% to 5% core capital
requirement. See "Regulation -- Regulatory Capital Requirements."
(4) Includes $110,000 of general valuation allowances, which qualify as
supplementary capital. See "Regulation -- Regulatory Capital Requirements."
(5) Assumes investment of net proceeds in U.S. Government agency securities
which have a 20% risk weight.
(6) The OTS utilizes a net market value methodology to measure the interest rate
risk exposure of savings associations. Effective March 31, 1996,
institutions with more than normal interest rate risk, as defined by OTS
regulations, are required to make a deduction from capital equal to 50% of
its interest rate risk exposure multiplied by the present value of its
assets. Based upon this methodology, at March 31, 1997, the latest date for
which such information is available, the Bank's interest rate risk exposure
to a 200 basis point increase in interest rates was considered "normal"
under this regulation. However, since the Bank has assets of less than $300
million and a total risk-based capital ratio in excess of 12%, it is exempt
from this requirement unless the OTS determines otherwise. See "Regulation
-- Regulatory Capital Requirements."
USE OF PROCEEDS
The net proceeds from the sale of Common Stock in the Stock Conversion,
based on the minimum, midpoint, maximum and 15% above the maximum of the
Estimated Valuation Range, are estimated at $980,000 million, $1.15 million,
$1.32 million and $1.52 million, respectively. See "Pro Forma Data." The Company
will retain up to 20% of the net Stock Conversion proceeds as its initial
capitalization and will use the balance of the net Stock Conversion proceeds to
purchase all of the common stock of the Bank to be issued upon Stock Conversion.
The Company intends to lend a portion of the net proceeds retained by it to the
ESOP to facilitate its purchase of 8% of the Common Stock in the Stock
Conversion. It is anticipated that the funds 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 Stock Conversion, which rate is currently 8.5%. It is
anticipated that the ESOP loan will have a term of 15 years. Based upon the
issuance of shares at the minimum and maximum of the Estimated Valuation Range,
the loan to the ESOP to purchase 8% of the Common Stock would be $78,400 and
$105,600, respectively. See "Management -- Benefit Plans -- Employee Stock
Ownership Plan."
The remainder of the proceeds will be invested on an interim basis in short-
and intermediate-term securities. These funds would be available for general
corporate purposes which may include expansion of operations through
acquisitions of other financial service organizations and diversification into
other related or unrelated businesses, or for investment purposes. Currently,
there are no specific plans being considered for the expansion of the business
of the Company. In addition, the funds may be used to infuse additional capital
to the Bank when and if appropriate.
The net proceeds retained by the Company may also be used to repurchase the
Company's Common Stock as permitted by federal regulation. Upon completion of
the Stock Conversion, the Board of Directors will have the authority to adopt
stock repurchase plans, subject to statutory and regulatory requirements. Since
the Company has not yet issued stock, there is currently insufficient
information upon which an intention to repurchase stock could be based.
Based upon facts and circumstances which may arise following the Stock
Conversion, the Board of Directors may determine to repurchase stock in the
future. Such facts and circumstances 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
26
<PAGE>
ability to increase the book value or earnings per share of the remaining
outstanding shares, and the effect on the 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 Company and its stockholders.
Any stock repurchases will be subject to the determination of the Board of
Directors that both the Company and the Bank will be capitalized in excess of
all applicable regulatory requirements after any such repurchases and that
capital will be adequate taking into account, among other things, the level of
non-performing assets and other loans of concern, the Company's and the Bank's
current and projected results of operations and asset/liability structure, the
economic environment and tax and other regulatory considerations. Repurchases
during the first year following the Stock Conversion may be subject to
limitations imposed by federal regulations. A stock repurchase program may have
the effect of: (i) reducing the overall market value of the Company, (ii)
increasing the cost of capital and (iii) promoting a temporary demand for Common
Stock.
Should the Company implement a restricted stock plan (i.e., the RRP)
following the Stock Conversion, a portion of the net proceeds may be used to
fund the purchase by the plan of Common Stock in an amount up to 4% of the
shares sold in the Stock Conversion. The actual cost of such purchase will
depend on the number of shares sold in the Stock Conversion and the market price
at the time of purchase. Based upon the minimum and the maximum of the Estimated
Valuation Range and on a $10.00 per share Purchase Price, the cost would be
approximately $39,200 and $52,800, respectively.
The net proceeds from the sale of the Common Stock in the Stock Conversion
will substantially increase the capital of the Bank. The Bank will use the net
proceeds for general corporate business purposes, such as lending and investment
activities in the ordinary course of business. On an interim basis, the proceeds
will be invested by the Bank in short- and intermediate-term securities.
The actual net proceeds may be more or less than the estimated net proceeds
calculated as shown under "Pro Forma Data," above. Additionally, the actual
expenses may be more or less than those estimated. See "The Conversion -- Stock
Pricing and Number of Shares to be Issued."
DIVIDENDS
The Company does not intend to initially pay dividends on its Common Stock.
The payment of dividends will be subject to determination and declaration by the
Board of Directors in its discretion, which will take into account the Company's
consolidated financial condition and results of operations, tax considerations,
industry standards, economic conditions, regulatory restrictions, general
business practices and other factors. Therefore, no assurances can be made as to
the future ability of the Company to pay dividends. Delaware law generally
limits dividends of the Company to an amount equal to the excess of its net
assets (the amount by which total assets exceeds total liabilities) over its
paid-in capital or, if there is no excess, to its net profits for the current
and immediately preceding fiscal year.
It is presently anticipated that the Company will not conduct significant
operations independent of those of the Bank for some time following the Stock
Conversion. As such, the Company does not expect to have any significant
source of income other than earnings on the net Stock Conversion proceeds
retained by the Company and dividends from Landmark Community, if any.
Consequently, the ability of the Company to pay cash dividends to its
stockholders will be dependent upon such retained proceeds and earnings
thereon, and upon the ability of the Bank to pay dividends to the Company.
Management believes that, upon completion of the Stock Conversion, the
Converted Bank will qualify as a Tier 1 institution, and thereby be entitled
to make capital distributions without OTS approval in an amount not exceeding
100% of its net income year-to-date plus 50% of the Converted Bank's capital
surplus, as measured at the beginning of the calendar year. Net proceeds
retained by the Company would be immediately available for the payment of
dividends. See "Regulation -- Regulatory Capital Requirements"
27
<PAGE>
and "--Limitations on Dividends and Other Capital Distributions." Earnings
appropriated to the Bank's "excess" bad debt reserves and deducted for
federal income tax purposes cannot be used by the Bank to pay cash dividends
to the Company without adverse tax consequences. See "Regulation -- Federal
and State Taxation."
MARKET FOR COMMON STOCK
The Company and the Bank have never issued capital stock. Consequently,
there is no established market for the Common Stock at this time. The
development of a liquid public trading market depends upon the existence of
willing buyers and sellers, the presence of which is not within the control of
the Company, the Bank or any market maker. It is unlikely that an active and
liquid trading market for the Common Stock will develop due to the relatively
small size of the Offerings and the small number of stockholders expected
following the Stock Conversion. Moreover, subject to shareholder approval, the
Company intends to adopt the Stock Option Plan and the RRP following the Stock
Conversion. If the Company purchases shares in the open market for the purpose
of funding such plans, such purchases could also initially reduce the overall
number of shares outstanding and initially could further reduce the liquidity of
the Common Stock. 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. Accordingly, purchasers should
consider the illiquid, long-term nature of an investment in the Common Stock.
Furthermore, there can be no assurance that purchasers will be able to sell
their shares at or above the Purchase Price.
PARTICIPATION BY MANAGEMENT
The following table sets forth information regarding intended Common Stock
purchases by each of the directors of the Bank and the Company, by Mr. Coleman,
and by all directors and executive officers as a group. This table excludes
shares to be purchased by the ESOP or proposed Restricted Stock Awards under the
proposed RRP or proposed option grants pursuant to the proposed Stock Option
Plan. See "Management--Benefit Plans." The directors and officers of the Bank
have indicated their intention to purchase in the Stock Conversion an aggregate
of $ of Common Stock, equal to %, %, %, and % of the number
of shares to be issued in the Subscription and Community Offering, at the
minimum, midpoint, maximum and 15% above the maximum of the Estimated Valuation
Range, respectively. For information regarding options and restricted stock
intended to be awarded to management pursuant to the proposed Stock Option Plan
and the proposed RRP, see "Management -- Benefit Plans."
<TABLE>
<CAPTION>
AGGREGATE NUMBER PERCENT
PURCHASE OF AT
NAME TITLE PRICE SHARES MIDPOINT
- ------------- ---------------------------
<S> <C> <C> <C>
</TABLE>
<TABLE>
<S> <C> <C> <C>
All directors and executive officers as a group ( persons)......................... $---------- --------- %
---------- ---------
</TABLE>
- ------------------------
*less than 1%.
28
<PAGE>
LANDMARK COMMUNITY BANK
STATEMENTS OF OPERATIONS
The following Statements of Operations of the Bank for the fiscal years
ended March 31, 1997 and 1996 have been audited by Harvazinski & Montanye,
LLP, independent certified public accountants, whose report thereon appears
elsewhere herein. These Statements should be read in conjunction with the
Financial Statements of the Bank and Notes thereto included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
YEARS ENDED
MARCH 31,
----------------------
<S> <C> <C>
1997 1996
---------- ----------
Interest income:
Loans receivable
First mortgage loans.............................................. $ 545,030 $ 492,992
Other loans....................................................... 39,932 23,115
Investment securities and interest bearing deposits................. 103,398 106,347
---------- ----------
Total interest income............................................. 688,360 622,454
Interest expense:
Interest on deposits.............................................. 326,607 270,115
---------- ----------
Net interest income............................................ 361,753 352,339
Provision for loan losses............................................. 78,000 --
---------- ----------
Net interest income after provision for loan losses............ 283,753 352,339
---------- ----------
Noninterest income:
Loan fees and service charges..................................... 28,779 10,280
Trading account gain.............................................. 67,056 --
---------- ----------
Total noninterest income...................................... 95,835 10,280
---------- ----------
Noninterest expense:
General and administrative expenses
Compensation, payroll taxes and fringe benefits................ 184,154 115,481
Advertising and business promotion............................. 6,030 5,331
Building occupancy and equipment expenses,
including depreciation....................................... 34,086 24,920
Federal insurance premiums..................................... 55,256 15,695
Other operating expenses....................................... 154,534 77,754
---------- ----------
Total noninterest expense...................................... 434,060 239,181
---------- ----------
Income (loss) before income taxes.............................. (54,472) 123,438
Provision for income tax expense (benefit)............................ (18,400) 38,100
---------- ----------
Net income (loss).............................................. $ (36,072) $ 85,338
---------- ----------
---------- ----------
</TABLE>
The accompanying Notes to the Financial Statements are an integral part of
these Statements of Operations.
29
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
This discussion is intended to assist in understanding the financial
condition and results of operations of the Bank. The information contained in
this section should be read in conjunction with the Financial Statements and
accompanying Notes thereto and the other sections contained in this
Prospectus.
The Company has only recently been formed and, accordingly, has no
results of operations. The following discussion relates only to the financial
condition and results of operations of the Bank.
The earnings of the Bank depend primarily on its level of net interest
income, which is the difference between interest earned on interest-earning
assets, consisting primarily of mortgage and consumer loans and other
investments, and the interest paid on interest-bearing liabilities,
consisting of deposits. Net interest income is a function of the Bank's
"interest rate spread," which is the difference between the average yield
earned on interest-earning assets and the average rate paid on
interest-bearing liabilities, as well as a function of the average balance of
interest-earning assets as compared to interest-bearing liabilities. The
interest rate spread is affected by regulatory, economic and competitive
factors that influence interest rates, loan demand and deposit flows. In
order to increase the Bank's long-term interest income and overall
profitability, management has determined to emphasize the origination of
consumer loans, commercial real estate loans and commercial business loans,
in addition to the origination of one-to four-family residential loans. The
Bank has experienced increased costs of funds by actively seeking to increase
the Bank's deposit base through certificates of deposit (as opposed to
passbook or transaction accounts) with maturities of two to five years. The
increased deposits have been utilized to fund the Bank's loan growth.
The Bank, like other financial institutions, is subject to interest-rate
risk to the degree that its interest-earning assets mature or reprice at
different times, or on different bases, than its interest-bearing
liabilities. The Bank's operating results are also affected by the amount of
its noninterest income, including service charges and loan origination and
commitment fees. Noninterest expense consists principally of compensation and
benefits, building occupancy and equipment expense, federal insurance
premiums and other operating expenses. The Bank's operating results are
significantly affected by general economic and competitive conditions, in
particular, the changes in market interest rates, government policies and
actions by regulatory authorities.
FINANCIAL CONDITION
March 31, 1997 Compared to March 31, 1996
ASSETS. Total assets increased approximately $3.7 million, or 48.9%, to
$11.3 million at March 31, 1997 from $7.6 million at March 31, 1996. The
increase in total assets was primarily attributable to an increase in loans
receivable, net, and investment securities partially offset by decreases in
cash and cash equivalents and mortgage-backed securities.
Loans receivable, net increased $3.9 million, or 69.9% to $9.4 million at
March 31, 1997 from $5.5 million at March 31, 1996. Loan originations totaled
$5.7 million while principal repayments totaled $1.6 million. The increase in
loan originations was funded from deposits.
Investment securities increased $357,000, or 148.1%, to $598,000 at March
31, 1997 from $241,000 at March 31, 1996. The increase in investments
resulted from purchases of U.S. Government securities consisting of
short-term treasury bills with maturities of three years or less, which
totaled $398,000 at March 31, 1997. The Bank had no investments in U.S.
Government securities at March 31, 1996.
30
<PAGE>
Mortgage-backed securities decreased $83,000, or 24.4% to $257,000 at
March 31, 1997 from $340,000 at March 31, 1996. The decrease in
mortgage-backed securities resulted solely from principal repayments. Cash
and cash equivalents decreased $649,000, or 46.4% to $709,000 at March 31,
1997 from $1.4 million at March 31, 1996.
LIABILITIES. Total liabilities consisting solely of deposits increased
$3.8 million, or 58.3% to $10.2 million at March 31, 1997 from $6.5 million
at March 31, 1996. The increase in deposits resulted primarily from an
increase in certificates of deposit to $4.6 million at March 31, 1997 from
$2.6 million at March 31, 1996.
RETAINED EARNINGS. Retained earnings totaled $956,000 at March 31, 1997.
Retained earnings totaled $993,000 at March 31, 1996. The decrease in
retained earnings is the result of the Bank incurring a $36,000 loss for the
year ended March 31, 1997.
ANALYSIS OF NET INTEREST INCOME
Net interest income represents the difference between interest earned on
interest-earning assets and interest paid on interest-bearing liabilities.
Net interest income depends on the volumes of interest-earning assets and
interest-bearing liabilities and the interest rates earned or paid on them.
The following table presents for the periods indicated the total dollar
amount of interest income from average interest earning assets and the
resultant yields, as well as the interest expense on average interest bearing
liabilities, expressed both in dollars and rates. No tax equivalent
adjustments were made. All average balances are monthly average balances.
Non-accruing loans have been included in the table as loans carrying a zero
yield.
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
--------------------------------------------------------------------
AT MARCH 31, 1997 1997 1996
----------------------- ---------------------------------- -----------------------------------
AVERAGE INTEREST AVERAGE INTEREST
OUTSTANDING OUTSTANDING EARNED/ OUTSTANDING EARNED/
BALANCE YIELD/RATE BALANCE PAID YIELD/RATE BALANCE PAID Yield/Rate
----------- ---------- ----------- --------- ---------- ----------- --------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-Earning Assets:
Loans receivable (1).......... $ 9,392 8.78% $ 6,960 $ 585 8.41% $ 5,866 $ 516 8.80%
Mortgage-backed securities.... 257 8.97 290 26 8.97 249 22 8.84
Investment securities......... 598 6.87 393 27 6.87 314 19 6.05
FHLB stock.................... 59 6.35 61 4 6.56 64 5 7.81
Interest bearing deposits..... 120 6.50 846 46 5.44 1,178 60 5.09
----------- ----------- ---- ----------- -----
Total interest-earning assets
(1)....................... $ 10,426 8.62 $ 8,550 $ 688 8.05 $ 7,671 $ 622 8.11
----------- ----------- ----- ----------- -----
Interest-Bearing Liabilities:
Interest-bearing checking..... $ 235 1.75% $ 63 $ 1 1.59% $ -- $ -- 0.00%
Passbook accounts............. 3,584 3.00 3,703 108 2.92 4,185 126 3.01
Certificate accounts.......... 6,120 5.70 3,870 217 5.61 2,517 144 5.72
----------- ----------- ----- ----------- -----
Total interest-bearing
liabilities................ $ 9,939 4.62% $ 7,636 326 4.27% $ 6,702 267 4.03%
----------- ----------- ----- ----------- -----
Net interest income........... $ 362 $ 352
----- -----
----- -----
Net interest rate spread...... 4.00% 3.78% 4.08%
---- ---- ----
---- ---- ----
Net earning assets............ $ 487 $ 914 $ 969
----------- ----------- -----------
----------- ----------- -----------
Net yield on average
interest-earning assets..... 4.23% 4.59%
---- ----
---- ----
Average interest-earning
assets to average
interest-bearing
liabilities................. 1.12x 1.14x
---- ----
---- ----
</TABLE>
- ------------------------
(1) Calculated net of deferred loan fees, loan discounts, loans in process and
loss reserves.
31
<PAGE>
RATE/VOLUME ANALYSIS
The following table presents the dollar amount of changes in interest
income and interest expense for major components of interest-earning assets
and interest-bearing liabilities. It distinguishes between the changes
related to outstanding balances and that due to the changes in interest
rates. For each category of interest-earning assets and interest-bearing
liabilities, information is provided on changes attributable to (i) changes
in volume (i.e., changes in volume multiplied by old rate) and (ii) changes
in rate (i.e., changes in rate multiplied by old volume). For purposes of
this table, changes attributable to both rate and volume, which cannot be
segregated, have been allocated proportionately to the change due to volume
and the change due to rate.
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
-------------------------------------
1997 VS. 1996
-------------------------------------
INCREASE/(DECREASE)
DUE TO TOTAL
---------------------- INCREASE
VOLUME RATE (DECREASE)
----------- --------- -------------
(IN THOUSANDS)
<S> <C> <C> <C>
Interest-earning assets:
Loans receivable.................................................................... $ 97 $ (28) $ 69
Mortgage-backed securities.......................................................... 4 -- 4
Investment securities............................................................... 12 (4) 8
Other............................................................................... (18) 3 (15)
--- --- ---
Total interest-earning assets...................................................... $ 95 $ (29) $ 66
--- --- ---
--- --- ---
Interest-bearing liabilities:
Passbook accounts................................................................... $ (21) $ -- $ (21)
Interest-bearing checking........................................................... 1 -- 1
Certificates of deposit............................................................. 64 12 76
--- --- ---
Total interest-bearing liabilities................................................. $ 44 $ 12 $ 56
--- --- ---
--- --- ---
Net change in interest income........................................................ $ 10
---
---
</TABLE>
Comparison of Operating Results for the Years Ended March 31, 1997 and 1996
INTEREST INCOME. Interest income totaled $688,000 for the year ended
March 31, 1997, an increase of approximately $66,000, or 10.6% from $622,000
at March 31, 1996. The increase in interest income was the result of an
increase of $900,000 in the average balance of interest earning assets to
$8.6 million for the year ended March 31, 1997 from $7.7 million for fiscal
1996. The average yield on interest-earning assets decreased to 8.05% from
8.11%.
For the years ended March 31, 1997 and 1996, interest income on loans
receivable increased $69,000, or 13.4% to $585,000 from $516,000. The average
balance of loans receivable increased $1.1 million, or 18.7% in fiscal 1997.
The average yield on loans receivable for the years ended March 31, 1997 and
1996 were 8.41% and 8.80%, respectively. The decrease in the average yield
resulted from the origination of adjustable rate mortgage ("ARM") loans at
below market rates of interest.
Interest income from mortgage-backed securities totaled $26,000 and
$22,000 for the years ended March 31, 1997 and 1996, respectively. The slight
increase in interest income in fiscal 1997 was attributable to a $41,000
increase in the average balance of mortgage-backed securities, as well as an
increase in the average yield on mortgage-backed securities to 8.97% from
8.84%. The increase in the average balance as well as the average yield on
mortgage-backed securities resulted from the Bank's purchase of higher
yielding mortgage-backed securities during the latter part of fiscal 1996.
32
<PAGE>
Interest income from investment securities increased $8,000, or 42.1% for
the year ended March 31, 1997, to $27,000 from $19,000 for the year ended
March 31, 1996. The increase in interest income from investment securities
resulted from an increase in the average balance of investment securities to
$393,000 from $314,000 as well as an increase in the average yield to 6.87%
from 6.05% during the years ended March 31, 1997 and 1996, respectively. The
increase in the average yield on investment securities reflects the Bank's
decision to invest in longer term investment securities which provide a
higher yield than shorter term investment securities.
For the year ended March 31, 1997 interest income from interest bearing
deposits decreased $14,000, or 23.3%, to $46,000 from $60,000 for the year
ended March 31, 1996. The decrease in interest income from interest bearing
deposits was attributable to a $332,000 decrease in the average balance of
interest bearing deposits to $846,000 from $1.2 million, which was partially
offset by an increase in the average yield on interest bearing deposits to
5.44% from 5.09%. Interest bearing deposits were used to fund increased loan
originations during fiscal 1997.
INTEREST EXPENSE. Interest expense increased $59,000, or 22.1% for the
year ended March 31, 1997 to $326,000 from $267,000 for the year ended March
31, 1996. The increase in interest expense was due to an increase in the cost
of deposits to 4.27% from 4.03%, and an increase in the average balance of
deposits to $7.6 million from $6.7 million. During fiscal 1997 the
composition of deposits changed, as certificates of deposit increased as a
percentage of the total deposits and in absolute dollar amount, and the
percentage of deposits represented by lower yielding passbook accounts and
interest-bearing checking accounts decreased.
NET INTEREST INCOME. For the years ended March 31, 1997 and 1996 net
interest income was $362,000 and $352,000, respectively, an increase of
$10,000. The ratio of average interest earning assets to average interest
bearing liabilities fell slightly to 1.12x from 1.14x. The interest rate
spread for the year ended March 31, 1997 decreased to 3.78% for fiscal 1997
from 4.08% for fiscal 1996.
PROVISION FOR LOAN LOSSES. During fiscal 1997 the Bank added $78,000 to
the allowance for loan losses. The Bank did not establish a provision for
loan losses in fiscal 1996. Management regularly reviews its loan portfolio
including changes in the relative composition of the portfolio to determine
whether any loans require classification or the establishment of additional
reserves. The provision for loan losses in fiscal 1997 was deemed prudent in
light of the Bank's decision to emphasize the origination of commercial real
estate, commercial business and consumer loans. At March 31, 1997, the Bank
had three loans with aggregate principal balances of $107,000 which were
delinquent more than 60 days, and total nonperforming assets of $47,000 which
represented .41% of total assets. At March 31, 1997, the Bank's allowance for
loan losses totaled $110,000, which represented 235.32% of nonperforming
loans.
NONINTEREST INCOME. Noninterest income for the years ended March 31,
1997 and 1996 was $96,000 and $10,000, respectively. The increase of
approximately $86,000 is primarily attributable to a $67,000 unrealized gain
on sale of investment securities for which the Bank established a trading
account, as well as a $19,000, or 180.0% increase in loan fees and service
charges to $29,000 from $10,000.
NONINTEREST EXPENSE. Noninterest expense for the years ended March 31,
1997 and 1996 were $434,000 and $239,000, respectively. The increase of
approximately $195,000, or 81.5% is primarily the result of increases in
compensation expense of $69,000, or 59.5%, building occupancy and equipment
expense of $9,000, or 36.8%, federal insurance premiums of $40,000, or
252.1%, and other operating expenses (consisting of postage, professional
fees, audits and examinations, appraisal fees and credit changes, data
processing, office supplies) of $77,000, or 98.7%. The increase in federal
insurance premiums was the result of the special one-time assessment to
recapitalize the Savings Association Insurance Fund ("SAIF"). The principal
increase in compensation expense is due to an increase in employees from four
to six. The increase in building and occupancy expense is due to remodeling
of the Bank's office. The increase in other operating expense is due to
increased consulting fees and increases in data processing costs.
33
<PAGE>
INCOME TAXES. For the years ended March 31, 1997 the Bank realized a tax
benefit of $18,000. For the year ended March 31, 1996 income taxes were
$38,100.
NET INCOME. The Bank had a net loss of $36,000 for the year ended March
31, 1997. The reasons for the Bank's loss in fiscal 1997 are (i) management's
decision to add $78,000 to the Bank's allowance for loan losses, (ii) a one
time non-recurring expense of $43,000 associated with the SAIF
recapitalization and, (iii) costs associated with modernizing the Bank's
facilities and operations, as well as increased compensation expense
associated with an increase in the number of employees from four to six
persons. Finally, the costs associated with the Bank's rapid loan growth
(such as increased appraisal costs) are expected to adversely impact earnings
in the short term. The Bank had net income of $85,000 for the year ended
March 31, 1996.
ASSET/LIABILITY MANAGEMENT
Savings institutions such as the Bank are subject to interest rate risk
to the extent their interest-bearing liabilities (consisting primarily of
deposit accounts, FHLB advances and other borrowings) mature or reprice more
rapidly, or on a different basis, than their interest-earning assets
(consisting predominantly of intermediate and long-term real estate loans and
investments held for investment and liquidity purposes). Having
interest-bearing liabilities that mature or reprice less frequently on
average than assets may be detrimental in times of declining interest rates,
although such an asset/liability structure may result in increasing net
interest earnings during periods of rising interest rates. Conversely, having
interest-earning assets that mature or reprice less frequently on average
than liabilities may be detrimental in times of rising interest rates,
although this asset/liability structure may result in increasing net interest
earnings during periods of falling interest rates.
The Bank has sought to fund its lending activities through deposit
growth. In this regard, the Bank has emphasized increasing its deposits by
increasing the dollar amount of certificates of deposit with maturities
ranging from two-to five-years. Certificates of deposit are a costlier source
of funds than passbook or transactional accounts. The Bank intends that in
addition to originating an increased amount of one-to four-family loans, such
funds be used to originate consumer, commercial real estate and commercial
business loans, which typically provide higher rates of interest than one-to
four-family loans. The Bank also intends to emphasize the origination of ARM
loans and adjustable rate consumer, commercial real estate and commercial
business loans. Consequently, the Bank's interest earning assets are expected
to reprice more frequently than its interest bearing liabilities which may
adversely impact the Bank's net interest income during periods of declining
interest rates.
34
<PAGE>
The following table sets forth the amounts of interest-earning assets and
interest-bearing liabilities outstanding at March 31, 1997, which are
expected to reprice or mature in each of the future time periods shown. The
table does not include any estimates of pre-payments on interest-earning
assets. Pre-payments significantly shorten the average life of the assets and
may cause the Bank's actual repayment experience to differ from that shown
below. Except for transaction accounts, which are classified as repricing in
the "within 1 year" category, the amounts of assets and liabilities shown
which reprice or mature during a particular period were determined in
accordance with the earlier of term to repricing or the contractual terms of
the asset or liability. Historically, the dollar amount of fixed rate loans
which have pre-paid has been immaterial. For information regarding the
contractual maturities of the Bank's loans, investments and deposits, see
"Business--Lending Activities," "--Investment Activities" and "--Sources of
Funds."
<TABLE>
<CAPTION>
AMOUNTS MATURING OR REPRICING AT MARCH 31, 1997
------------------------------------------------------------------------------
WITHIN OVER
1 YEAR 1-3 YEARS 3-5 YEARS 5-10 YEARS 10-20 YEARS 20 YEARS TOTAL
--------- ----------- ----------- ----------- ----------- --------- -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Interest-Earning Assets:
Loans receivable (1).......................... $4,910 $ 311 $ 1,238 $ 879 $ 2,054 $ -- $ 9,392
Mortgage-backed securities.................... -- -- 16 29 94 118 257
Trading account securities (2)................ 69 -- -- -- -- -- 69
Investment securities......................... -- 398 100 -- 100 -- 598
Interest-bearing deposits at FHLB............. 120 -- -- -- -- -- 120
------ ----------- ----------- ----------- ----------- --- -------
Total interest-earning assets (1)............ $5,099 $ 709 $ 1,354 $ 908 $ 2,248 $ 118 $10,436
------ ----------- ----------- ----------- ----------- --- -------
------ ----------- ----------- ----------- ----------- --- -------
Interest-Bearing Liabilities:
Savings deposits.............................. $3,584 $ -- $ -- $ -- $ -- $ -- $ 3,584
Interest-bearing deposits..................... 235 -- -- -- -- -- 235
Certificate accounts.......................... 1,877 3,443 768 32 -- -- 6,120
------ ----------- ----------- ----------- ----------- --- -------
Total interest-bearing liabilities........... $5,696 $ 3,443 $ 768 $ 32 $ -- $ -- $ 9,939
------ ----------- ----------- ----------- ----------- --- -------
------ ----------- ----------- ----------- ----------- --- -------
Interest sensitivity gap....................... $ (597) $ (2,734) $ 586 $ 876 $ 2,248 $ 118 $ 497
-------- ----------- ----------- ----------- ----------- --- -------
--------- ----------- ----------- ----------- ----------- --- -------
Cumulative interest sensitivity gap............ $ (597) $ (3,331) $ (2,745) $ (1,869) $ 379 $ 497 $ 497
------ ----------- ----------- ----------- ----------- --- -------
------ ----------- ----------- ----------- ----------- --- -------
Ratio of interest-earning assets to
interest-bearing liabilities................. 89.52% 20.59% 176.30% 2,837.50% 0.00% 0.00% 105.00%
------ ----------- ----------- ----------- ----------- --- -------
------ ----------- ----------- ----------- ----------- --- -------
Ratio of cumulative gap to total assets........ (5.27)% (24.14)% 5.17% 7.73% 19.85% 1.04% 4.39%
------ ----------- ----------- ----------- ----------- --- --------
------ ----------- ----------- ----------- ----------- --- --------
</TABLE>
- ------------------------
(1) Calculated net of deferred loan fees, loan discounts, loans in process and
loss reserves.
(2) Consists solely of Freddie Mac stock that was sold subsequent to March 31,
1997.
35
<PAGE>
NET PORTFOLIO VALUE. In order to measure its interest rate risk, the
Bank computes the amounts by which the net present value of the Bank's cash
flows from assets, liabilities and off-balance sheet items, if any (the
institution's Net Portfolio Value, or NPV), would change in the event of a
range of assumed changes in market interest rates. These computations
estimate the effect on the Bank's NPV of instantaneous and permanent 1% to 4%
increases and decreases in market interest rates. The Board of Directors has
established maximum increases and decreases in NPV. The table below indicates
the Board limits and the estimates of projected changes in NPV in the event
of 1%, 2%, 3% and 4% instantaneous and permanent increases and decreases in
market interest rates, respectively.
The Net Portfolio Value method of calculating interest rate risk
originated in a rule adopted by the OTS for the purpose of incorporating an
interest rate risk ("IRR") component into its risk-based capital rules. The
IRR component is a dollar amount that will be deducted from total capital for
the purpose of calculating an institution's risk-based capital requirement
and is measured in terms of the sensitivity of its NPV to changes in interest
rates. NPV is the difference between incoming and outgoing discounted cash
flows from assets, liabilities and off-balance sheet contracts. An
institution's IRR is measured as the change to its NPV as a result of a
hypothetical 200 basis point change in market interest rates. A resulting
change in NPV of more than 2% of the estimated market value of its assets
will require the institution to deduct from its capital 50% of that excess
change. The rule provides that the OTS will calculate the IRR component
quarterly for each institution. The Bank, based on asset size and risk- based
capital, has been informed by the OTS that it is exempt from this rule.
Nevertheless, the following table presents the Bank's NPV at March 31, 1997,
as calculated by the OTS, based on information provided to the OTS by the
Bank.
The table below sets forth, as of March 31, 1997, the estimated changes
in the Bank's net portfolio value ("NPV") (i.e., the present value of
expected cash flows from assets, liabilities and off-balance sheet contracts).
<TABLE>
<CAPTION>
NET PORTFOLIO EQUITY
----------------------------------------------------------
CHANGE IN
INTEREST RATES ESTIMATED AMOUNT OF
(BASIS POINTS) NPV CHANGE PERCENT
-------------- ----------- --------- -------
<S> <C> <C> <C>
+400 $ 1,329 $ (99) (7)%
+300 1,392 (35) (2)%
+200 1,438 10 1%
+100 1,457 29 2%
0 1,428
-100 1,340 (88) (6)%
-200 1,212 (216) (15)%
-300 1,148 (280) (20)%
-400 1,103 (325) (23)%
</TABLE>
Although the OTS has informed the Bank that it is not subject to the IRR
component discussed above, the Bank is still subject to interest rate risk
and, as illustrated above, rising interest rates will reduce the Bank's NPV
because over time the Bank's interest bearing liabilities will reprice more
rapidly than its interest earning assets. The OTS has the authority to
require otherwise exempt institutions to comply with the rule concerning
interest rate risk. See "Regulation--Regulatory Capital Requirements."
Certain shortcomings are inherent in the method of analysis presented in
both the computation of NPV and in the analysis presented in the prior table
setting forth the maturing and repricing of interest-earning assets and
interest-bearing liabilities. Although certain assets and liabilities may
have similar maturities or periods within which they will reprice, they may
react differently to changes in market interest rates. The interest rates on
certain types
37
<PAGE>
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, ARM loans have features which restrict changes in
interest rates on a short-term basis and over the life of the asset. The
proportion of adjustable-rate loans could be reduced in future periods if
market interest rates would decrease and remain at lower levels for a
sustained period, due to increased refinance activity and borrowers' desire
to lock in low fixed interest rates. Further, in the event of a change in
interest rates, prepayment and early withdrawal levels would likely deviate
significantly from those assumed in the table. Finally, the ability of many
borrowers to service their adjustable-rate debt may decrease in the event of
a sustained interest rate increase.
The Bank's Board of Directors has formulated an Asset/Liability Policy
designed to promote long-term profitability while managing interest rate
risk. The Asset/Liability Policy is designed to reduce the impact of changes
in interest rates on the Bank's net interest income by achieving a more
favorable match between the maturity or repricing dates of its
interest-earning assets and interest-bearing liabilities. The Bank has sought
to reduce exposure of its earnings to changes in market interest rates by
increasing the interest rate sensitivity of the Bank's assets through the
origination of loans with interest rates subject to periodic adjustment to
market conditions and a shorter duration then one-to four-family loans.
Accordingly, the Bank has emphasized the origination of ARM loans, consumer
loans, commercial real estate and commercial business loans. The Bank has
promoted certificates of deposit with terms of two-to five-years in an effort
to extend the maturity of its liabilities.
LIQUIDITY AND CAPITAL RESOURCES
The Bank's primary sources of funds are deposits, FHLB advances,
repayments on loans, the maturity of investment securities and income from
operations. Although maturity and scheduled amortization of loans are
relatively predictable sources of funds, deposit flows and prepayments on
loans are influenced significantly by general interest rates, economic
conditions and competition.
The primary investing activity of the Bank is the origination of loans
for investment. For the year ended March 31, 1997, the Bank originated loans
for portfolio in the amount of $5.7 million. The Bank is required to maintain
minimum levels of liquid assets under the OTS regulations. Savings
institutions are required to maintain an average daily balance of liquid
assets (including cash, certain time deposits, and specified U.S. Government,
state or federal agency obligations) of not less than 5.0% of its average
daily balance of net withdrawal accounts plus short-term borrowings. It is
the Bank's policy to maintain its liquidity portfolio in excess of regulatory
requirements. The Bank's liquidity ratio was 11.2% at March 31, 1997.
The Bank's most liquid assets are cash and cash equivalents, which
include short-term investments. The levels of these assets are dependent on
the Bank's operating, financing, lending and investing activities during any
given period. At March 31, 1997 and 1996, cash and cash equivalents were
$709,000 and $1.4 million, respectively. The principal component of cash
provided during the years ended March 31, 1997 and 1996 was the proceeds from
loan repayments, deposit activity, and investment maturities. The Bank will
have a higher level of liquidity following consummation of the Stock
Conversion until appropriate investments are identified for the proceeds
raised. See "Use of Proceeds."
Liquidity management for the Bank is both an ongoing and long-term
function of the Bank's asset/ liability management strategy. Excess funds
generally are invested in overnight deposits at the FHLB of New York. Should
the Bank require funds beyond its ability to generate them internally,
additional sources of funds are available through FHLB of New York advances.
The Bank would pledge its FHLB of New York stock or certain other assets as
collateral for such advances. During the twelve months ended March 31, 1997,
the Bank had no FHLB advances.
At March 31, 1997, the Bank had outstanding loan commitments of $335,000,
and undisbursed loans in process of $87,000. The Bank anticipates it will
have sufficient funds available to meet its current loan commitments,
including loan applications received and in process prior to the issuance of
firm commitments. Certificates of deposit
37
<PAGE>
which are scheduled to mature in one year or less at March 31, 1997 totaled
$1.9 million. Management believes that a significant portion of such deposits
will remain with the Bank.
Following consummation of the Stock Conversion, the Company initially
will have no business other than holding the capital stock of the Bank and
the investment of the net proceeds from the Stock Conversion retained by it.
Management believes the net proceeds will provide sufficient funds for the
Company's operations.
Under federal law, the Bank is required to meet certain tangible, core
and risk based capital requirements. For information regarding the Bank's
regulatory capital compliance, see "Pro Forma Regulatory Capital" and
"Regulation--Regulatory Capital Requirements."
RECENT ACCOUNTING DEVELOPMENTS
Statement of Financial Accounting Standards ("SFAS") No. 119, Disclosures
About Derivative Financial Instruments and Fair Value of Financial
Instruments, requires disclosures of information such as credit and market
risks, cash requirements and accounting policies about derivative financial
instruments. SFAS No. 119 is effective for financial statements issued for
fiscal years ending after December 15, 1994, except for entities with less
than $150 million in total assets. For those entities, SFAS No. 119 was
effective for financial statements issued for fiscal years ending after
December 15, 1995. SFAS No. 119 is effective for the Bank for the fiscal year
ending March 31, 1996. The adoption of SFAS No. 119 did not have a material
adverse impact on the Bank's financial position or results of operations.
The Financial Accounting Standards Board ("FASB") has issued SFAS No.
107, Disclosure about Fair Value of Financial Instruments, which generally
requires disclosure of the fair value of financial instruments, both assets
and liabilities recognized and not recognized in the balance sheets. The FASB
has also issued SFAS No. 114, Accounting by Creditors for Impairment of a
Loan, and SFAS No. 118, Accounting by Creditors for Impairment of a
Loan--Income Recognition and Disclosures. SFAS No. 107, SFAS No. 114 and SFAS
No. 118 are effective for fiscal years beginning after December 15, 1994.
SFAS No. 114, as amended by SFAS No. 118, requires that impaired loans be
measured at the present value of expected future cash flows discounted at the
loan's effective interest rate or, as a practical expedient, at the loan's
observable market price or the fair value of the collateral if the loan is
collateral dependent. Homogeneous loans, such as single-family loans and most
categories of consumer loans, are excluded from this requirement. Adoption of
these statements was effective for the fiscal year beginning July 1, 1995.
The adoption of SFAS Nos. 114 and 118 did not have a material adverse impact
on the Bank's financial position or results of operations.
In November 1993, the AICPA issued SOP 93-6, "Employers' Accounting for
Employee Stock Ownership Plans," which is effective for fiscal years
beginning after December 15, 1993 and which applies to shares of capital
stock of sponsoring employers acquired by ESOPs after December 31, 1992 that
have not been committed to be released as of the beginning of the year in
which the ESOP is adopted. SOP 93-6 requires that shares to be released in an
accounting period should be reflected in the consolidated financial
statements as compensation expense equal to the fair value of the shares at
the time of release. Thus, as shares increase or decrease in value, earnings
will be affected relative to the shares to be released in that period.
Additionally, SOP 93-6 requires that outstanding shares for purposes of
computing both primary and fully diluted earnings per share include only
those shares scheduled to be released in that or prior periods. Thus, as
additional shares are released by the ESOP in future periods, earnings per
share may be diluted. Shares of Common Stock to be acquired by the ESOP are
scheduled to be released over a fifteen-year period commencing with the
consummation of the Stock Conversion. However, the effect on net income and
book value per share for 1997 cannot be predicted due to the uncertainty of
the fair value of the shares subsequent to their issuance.
SFAS No. 123, "Accounting for Stock-Based Compensation," became effective
for fiscal years beginning after December 15, 1995. This statement
establishes financial accounting and reporting standards for stock-based
employee
38
<PAGE>
compensation plans, including stock option plans. These plans include all
arrangements by which employees receive shares of stock or other equity
investments of the employer or where an employer issues its equity
instruments to acquire goods and services from nonemployees. This statement
will require pro forma disclosures in fiscal 1998 of net income and earnings
per share as if a new accounting method based on the estimated fair value of
employee stock options had been adopted. The Bank has not yet determined
whether the optional accounting treatment proposed by SFAS No. 123 will be
adopted.
SFAS No. 122, "Accounting for Mortgage Servicing Rights," will be
effective for the Bank for the year beginning April 1, 1997 and generally
requires entities that sell or securitize loans and retain the mortgage
servicing rights to allocate the total cost of the mortgage loans to the
mortgage servicing right and the loan based on their relative fair value.
Costs allocated to mortgage servicing rights should be recognized as a
separate asset and amortized over the period of estimated net servicing
income and evaluated for impairment based on fair value. The adoption of this
statement is not expected to have a material effect on the Bank's financial
statements.
SFAS No. 125, "Accounting for Transfers and Servicing of Financial Assets
and Extinguishments of Liabilities" supersedes SFAS No. 122 and will be
effective for all transfers and servicing of financial assets and
extinguishments of liabilities occurring after December 31, 1996. This
statement provides accounting and reporting standards for transfers and
servicing of financial assets and extinguishments of liabilities based on
consistent application of a financial-components approach that focuses on
control. It distinguished transfers of financial assets that are sales from
transfers that are secured borrowings.
Under the financial-components approach, after a transfer of financial
assets, an entity recognizes all financial assets it no longer controls and
liabilities that have been extinguished. The financial-components approach
focuses on the assets and liabilities that exist after the transfer. Many of
these assets and liabilities are components of financial assets that existed
prior to the transfer. If a transfer does not meet the criteria for a sale,
the transfer is accounted for as a secured borrowing with a pledge of
collateral. The adoption of this statement is not expected to have a material
effect on the Bank's financial statements.
SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and
Long-Lived Assets to be Disposed of," is effective for the fiscal year
beginning July 1, 1996. The statement requires that long-lived assets and
certain identifiable intangibles to be held and used by an entity be reviewed
for impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. An impairment loss is
recognized if the sum of the expected future cash flows is less than the
carrying amount of the asset. Management does not expect the implementation
of SFAS No. 121 to have a material impact on the Bank's financial statements.
In April 1995, the FASB issued SOP 94-6, "Disclosure of Certain
Significant Risks and Uncertainties." This SOP applies to financial
statements prepared in conformity with generally accepted accounting
principles by all nongovernmental entities. The disclosure requirements in
SOP 94-6 focus primarily on risks and uncertainties that could significantly
affect the amounts reported in the financial statements in the near-term
functioning of the reporting entity. The risks and uncertainties discussed in
SOP 94-6 stem from the nature of the entity's operations, from the necessary
use of estimates in the preparation of the entity's financial statements, and
from significant concentrations in certain aspects of the entity's
operations. SOP 94-6 is effective for financial statements issued for fiscal
years ending after June 30, 1995 and is not expected to have any impact on
the Bank's financial statements.
IMPACT OF INFLATION AND CHANGING PRICES
The Financial Statements and Notes thereto presented herein have been
prepared in accordance with generally accepted accounting principles, which
generally requires 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 impact of
inflation is reflected in the increased cost of the Bank's operations. Nearly
all the assets and liabilities of the Bank are financial, unlike most
industrial companies. As a result, the Bank's performance is
39
<PAGE>
directly impacted by changes in interest rates, which are indirectly
influenced by inflationary expectations. The Bank's ability to match the
interest sensitivity of its financial assets to the interest sensitivity of
its financial liabilities in its asset/liability management may tend to
minimize the effect of change in interest rates on the Bank's performance.
Changes in interest rates do not necessarily move to the same extent as
changes in the price of goods and services. In the current interest rate
environment, liquidity and the maturity structure of the Bank's assets and
liabilities are critical to the maintenance of acceptable performance levels.
BUSINESS
GENERAL
The Bank has been, and intends to continue to be, a community-oriented
financial institution offering selected financial services to meet the needs
of the communities it serves. The Bank attracts deposits from the general
public and historically has used such deposits, together with other funds, to
originate one- to four-family residential mortgage loans, and in recent
periods to originate commercial real estate loans and commercial business
loans, and consumer loans consisting primarily of personal loans secured by
automobiles. At March 31, 1997, the Bank's total loan portfolio was $9.6
million, of which $7.2 million, or 74.9% were one- to four-family residential
mortgage loans, $392,000, or 4.1% were commercial real estate loans, $1.8
million, or 19.0% were consumer loans, and $195,000, or 2.0% were commercial
business loans.
During the year ended March 31, 1997, the Bank originated $3.8 million of
fixed-rate and $1.8 million of adjustable rate loans, all of which were retained
in the Bank's portfolio. See "Business -- Lending Activities."
The Bank has in the past year decided to increase its asset size by
beginning the origination of commercial real estate and commercial business
loans, and by increasing the size of its consumer loan portfolio. The Bank has
entered into correspondent relationships with a number of automobile dealerships
in its market area for the origination of indirect automobile loans. In
addition, the Bank has also sought to improve its long term profitability by
upgrading its facilities and operations. In this regard, the Bank has updated
its data processing capabilities, modernized its office location and increased
the size of its staff to six persons at March 31, 1997 from four persons at
March 31, 1996. As part of the increase in staff, the Bank hired an experienced
consumer lending officer.
The Bank currently offers a passbook savings accounts, interest-bearing
checking accounts and certificate accounts. The Bank solicits deposits in its
primary market area and advertises for certificates of deposit through an
on-line program. The Bank does not accept any brokered deposits.
CURRENT BUSINESS STRATEGY
The Bank's business strategy is to operate as a well-capitalized, profitable
and independent community savings institution to increase its asset size and to
provide continuing quality service to its customers.
The Bank intends to implement this strategy by: (i) modernizing its
facilities and operations; (ii) emphasizing commercial and consumer loan
products; (iii) maintaining asset quality; (iv) utilizing investments in
consumer, commercial real estate and commercial business lending to increase net
interest income; (v) maintaining capital in excess of regulatory requirements;
(vi) attempting to increase the Bank's earnings; and (vii) managing interest
rate risk.
As a result of the Bank's continued emphasis on commercial and consumer
lending, the Boards of Directors of the Bank has determined that a conversion of
the Bank to either a national bank or commercial bank should be undertaken
following the completion of the Stock Conversion. It is anticipated that,
subject to market conditions, competition and related factors, among other
things, the Bank will broaden its range of banking products and services as it
implements its strategy of increasing its consumer, commercial real estate and
commercial business lending.
40
<PAGE>
Accordingly, management anticipates that the Bank will incur start-up and
ongoing expenses as these new programs and services are introduced. See "Risk
Factors--Risks Associated with Increased Consumer and Commercial Lending."
The highlights of the Bank's business strategy are as follows:
- MODERNIZING FACILITIES AND OPERATIONS. As a small, community-based
financial institution, the Bank is able to offer personalized banking
services and utilize management staff to respond to customer inquiries.
Because it operates in a small community, the Bank also believes it is
able to closely monitor the needs of its customers. Over the last year
the Bank has sought to implement a customer oriented business philosophy
by modernizing its data processing capabilities and its existing office
location. In addition, the Bank has increased the size of its staff from
four persons to six, as well as the experience of its staff by hiring an
experienced consumer loan officer.
- EMPHASIZING ORIGINATION OF CONSUMER, COMMERCIAL REAL ESTATE AND
COMMERCIAL BUSINESS LOANS. The Bank has recently emphasized the
origination of consumer loans, commercial real estate loans and
commercial business loans. At March 31, 1997, consumer, commercial real
estate and commercial business loans totalled $1.8 million, $392,000 and
$195,000, respectively. At March 31, 1996, consumer loans totalled
$248,000; at that date the Bank did not have any commercial real estate
or commercial business loans. The Bank believes that the opportunity to
increase the origination of such loans in its market area is significant.
It is the Bank's intention to originate commercial real estate loans with
principal balances of $200,000 or less. Consumer, commercial real estate
and commercial business loans provide higher levels of interest income
than one-to four-family residential loans.
- MAINTAINING ASSET QUALITY. The Bank's non-performing assets totalled
$47,000 at March 31, 1997, or .41% of total assets. The Bank's allowance
for loan losses at March 31, 1997 totaled $110,000, or 1.2% of total
loans receivable, net. The Bank attributes its ability to maintain high
asset quality to its underwriting standards as well as the stable economy
in its market area.
- MAINTAINING REGULATORY CAPITAL. At March 31, 1997, the Bank exceeded
all of its regulatory capital requirements with tangible and core capital
of 8.4% of adjusted total assets and risk-based capital of 16.0% of total
risk-based assets. See "Pro Forma Regulatory Capital" for the Bank's
compliance with its regulatory capital requirements. As a result of the
Stock Conversion and based on the assumptions stated herein, at the
midpoint of the Estimated Valuation Range at March 31, 1997, the Bank
would have had pro forma tangible, core and risk-based capital ratios of
14.9%, 14.9% and 29.5%, respectively.
- MANAGING INTEREST RATE RISK. Management of the Bank has attempted to
reduce interest rate risk by: (i) emphasizing the origination of ARM
loans and higher yielding consumer, commercial real estate and
commercial business loans; (ii) originating consumer loans, commercial
real estate and commercial business loans which have shorter terms than
one- to four-family loans; and (iii) increasing the amount of
certificate of deposits with maturities of two-to five-years to
lengthen the maturity of its liabilities. For the fiscal year ended
March 31, 1997, of the $7.2 million in one-to four- family mortgage
loans held by the Bank in portfolio, $4.1 million, or 57.6%, had
adjustable interest rates. See "--Lending Activities--One- to
Four-Family Mortgage Loans." Finally, the Bank does not originate
fixed-rate mortgage loans with maturities greater than 20 years.
- INCREASING EARNINGS. Although no assurance can be made regarding future
profitability, with the exception of fiscal 1997, the Bank has been
profitable in each of the past five fiscal years. The Bank had a net
loss of $36,000 in fiscal 1997 but income of $85,000 in fiscal 1996.
The Bank is
41
<PAGE>
attempting to increase its net earnings by improving its interest rate
spread by increasing the origination of higher-yielding consumer,
commercial real estate and commercial business loans. In addition, the
Bank anticipates utilizing the proceeds of the Conversion to increase
its assets in a controlled manner. See "-- Lending Activities."
MARKET AREA AND COMPETITION
The Bank conducts its operations through its office in Canajoharie, New York
which is located in Montgomery County. Montgomery County's population has
remained relatively stable over the last 10 years. The largest employers in the
Bank's market area are Beechnut Foods, Inc., Richardson Foods and Hasbro Toys.
Consequently, the local economy is not expected to produce a large number of
one- to four-family residential mortgage lending opportunities. Unemployment in
Montgomery County is higher than the average nationally and in New York State.
At February 1997 the unemployment rate in Montgomery County was 9.7%
The Bank faces competition in attracting deposits and originating loans.
Such competition consists of two commercial banks, one savings association and
one credit union. See "Risk Factors--Competition."
LENDING ACTIVITIES
GENERAL. The Bank has emphasized and, subject to market conditions, will
continue to emphasize the origination of one- to four-family residential
mortgage loans. However, to a lesser extent, the Bank intends to continue to
focus additional resources and lending efforts in consumer lending and
commercial business lending. In recent years, subject to market conditions,
the Bank has emphasized the origination of ARM loans and shorter-term
fixed-rate residential mortgage loans. At March 31, 1997, the Bank's
portfolio of one- to four-family residential mortgage loans totaled $7.2
million, or 74.9% of total loans. At March 31, 1997, the commercial real
estate portfolio totaled $392,000, or 4.1% of total loans, all of which were
secured by properties located in the Bank's market area. The Bank's consumer
loans consist primarily of personal loans (primarily secured by automobiles),
passbook loans and property improvement loans. At March 31, 1997 consumer
loans totaled $1.8 million, or 19.0% of total loans. The Bank has recently
commenced the origination of commercial business loans which at March 31,
1997 totaled $195,000, or 2.0% of total loans.
Under OTS regulations, a thrift institution's loans-to-one borrower limit is
generally limited to the greater of 15% of unimpaired capital and surplus or
$500,000. See "Regulation -- Federal Regulation of Savings Associations." At
March 31, 1997, the maximum amount which the Bank could have lent under this
limit to any one borrower and the borrower's related entities was approximately
$500,000. At March 31, 1997, the Bank had no loans or groups of loans to related
borrowers with outstanding balances in excess of this amount. The Bank's largest
lending relationship at March 31, 1997 was approximately $118,000, which was
secured by a personal residence and dairy farm. At March 31, 1997, this loan was
performing in accordance with its terms.
42
<PAGE>
LOAN PORTFOLIO COMPOSITION. The following information concerning the
composition of the Bank's loan portfolio in dollar amounts and in percentages
(before deductions for loans in process, deferred fees and discounts and
allowances for losses) as of the dates indicated.
<TABLE>
<CAPTION>
MARCH 31,
---------------------------------------
1997 1996
---------------------- ----------------------
AMOUNT PERCENT AMOUNT PERCENT
----------- --------------- --------- -----------
<S> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
Real Estate Loans:
One- to four-family.............................................. $ 7,185 74.93% $ 5,312 95.54%
Commercial....................................................... 392 4.09 -- 0.00
----------- --------------- --------- ------
Total real estate loans........................................ 7,577 79.02 5,312 95.54
----------- --------------- --------- ------
Other Loans:
Consumer Loans:
Property improvement............................................ 29 .30 56 1.01
Passbook loans.................................................. 229 2.39 123 2.21
Personal loans (1).............................................. 1,558 16.25 69 1.24
----------- --------------- --------- ------
Total consumer loans........................................... 1,816 18.94 248 4.46
Commercial business loans....................................... 196 2.04 -- 0.00
----------- --------------- --------- ------
Total loans.................................................... $ 9,589 100.00% $ 5,560 100.00%
----------- --------------- --------- ------
----------- --------------- --------- ------
Less:
Loans in process................................................. $ (87) $ --
Allowance for losses............................................. (110) (32)
----------- --------------- --------- ------
Total loans receivable, net...................................... $ 9,392 $ 5,528
----------- --------------- --------- ------
----------- --------------- --------- ------
</TABLE>
- ------------------------
(1) Personal loans are primarily comprised of loans secured by automobiles.
The following table shows the composition of the Bank's loan portfolio by
fixed- and adjustable-rate at the dates indicated.
<TABLE>
<CAPTION>
MARCH 31,
--------------------
1997 1996
-------------------- --------------------
AMOUNT PERCENT AMOUNT PERCENT
--------- --------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Fixed-Rate Loans:
Real estate:
One- to four-family...................................................... $ 3,044 31.74% $ 1,130 20.32%
Commercial............................................................... 392 4.09 -- 0.00
--------- --------- --------- ---------
Total real estate loans................................................. 3,436 35.83 1,130 20.32
Consumer................................................................... 1,816 18.94 248 4.46
--------- --------- --------- ---------
Total fixed-rate loans.................................................. 5,252 54.77 1,378 24.78
--------- --------- --------- ---------
Adjustable-Rate Loans:
Real estate:
--------- --------- --------- ---------
One- to four-family...................................................... 4,141 43.18 4,182 75.22
--------- --------- --------- ---------
Total real estate loans................................................. 4,141 43.18 4,182 75.22
--------- --------- --------- ---------
Consumer................................................................... 196 2.04 -- 0.00
--------- --------- --------- ---------
Total adjustable-rate loans............................................. 4,337 45.23 4,182 75.22
--------- --------- --------- ---------
Total loans............................................................. $ 9,589 100.00% $ 5,560 100.00%
--------- --------- --------- ---------
Less:
Loans in process.......................................................... $ (87) $ --
Allowance for loan losses................................................. (110) (32)
--------- --------- --------- ---------
Total loans receivable, net............................................. $ 9,392 $ 5,528
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
43
<PAGE>
ONE- TO FOUR-FAMILY MORTGAGE LOANS. The Bank's primary lending activity is
the origination for its portfolio of one- to four-family, owner-occupied,
residential mortgage loans secured by property located in the Bank's market
area. Loans are generated through the Bank's marketing efforts, its existing
customers and referrals, real estate brokers, builders and local businesses. The
Bank generally has limited its real estate loan originations to the financing of
properties located within its market area. The average principle balance of the
loans in the Bank's one- to four-family residential mortgage loan portfolio was
approximately $32,500 at March 31, 1997. At March 31, 1997, the Bank had $7.2
million, or 74.9% of its total loan portfolio, invested in mortgage loans
secured by one- to four-family residences.
The Bank originates fixed-rate residential one- to four-family loans with
terms of up to 20 years. As of March 31, 1997, $3.0 million, or 31.7% of the
Bank's loan portfolio, consisted of fixed-rate residential one-to four-family
loans. The Bank's fixed-rate mortgage loans amortize monthly with principal and
interest due each month. Residential real estate loans often remain outstanding
for significantly shorter periods than their contractual terms because borrowers
may refinance or prepay loans at their option. The Bank also originates a
fixed-rate residential balloon loan with either a five or ten year term and
which amortizes over 30 years.
The Bank also offers ARM loans with maturities ranging up to 30 years.
The Bank currently offers ARM loans that adjust every year, with interest
rate adjustment limitations up to two percentage points per year and up to
six percentage points over the life of the loan. In a rising interest rate
environment, such rate limitations may prevent ARM loans from repricing to
market interest rates, which would have an adverse effect on net interest
income. The Bank has used different interest indices for ARM loans in the
past, and currently uses the one year U.S. Treasury Index adjusted to a
constant maturity, with a margin of 350 basis points for agency-conforming
ARM loans. ARM loans secured by residential one- to four-family real estate
totaled $4.1 million, or 43.2% of the Bank's total loan portfolio at March
31, 1997. The origination of fixed-rate mortgage loans versus ARM loans is
monitored on an ongoing basis and is affected significantly by the level of
market interest rates, customer preference, the Bank's interest rate gap
position and loan products offered by the Bank's competitors. Particularly in
a relatively low interest rate environment, borrowers prefer fixed-rate loans
to ARM loans. During fiscal 1997, the Bank originated $1.9 million in
fixed-rate residential mortgage loans and $1.1 million of ARM loans.
The primary purpose of offering ARM loans is to make the Bank's loan
portfolio more interest rate sensitive. However, as the interest income earned
on ARM loans varies with prevailing interest rates, such loans do not offer the
Bank predictable cash flows as would long-term, fixed-rate loans. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Asset/Liability Management." ARM loans carry increased credit risk
associated with potentially higher monthly payments by borrowers as general
market interest rates increase. It is possible, therefore, during periods of
rising interest rates, that the risk of delinquencies and defaults on ARM loans
may increase due to the upward adjustment of interest costs to the borrower,
resulting in increased loan losses.
The Bank's residential first mortgage loans customarily include due-on-sale
clauses, which are provisions giving the Bank the right to declare a loan
immediately due and payable in the event, among other things, that the borrower
sells or otherwise disposes of the underlying real property serving as security
for the loan. Due-on-sale clauses are a means of imposing assumption fees and
increasing the interest rate on the Bank's mortgage portfolio during periods of
rising interest rates.
Regulations limit the amount that a savings association may lend relative to
the appraised value of the real estate securing the loan, as determined by an
appraisal at the time of loan origination. Such regulations permit a maximum
loan-to-value ("LTV") ratio of 95% for residential property (and 100% for loans
guaranteed by the Veterans Administration) and 90% for all other real estate
loans. The Bank's lending policies, however, generally limit the maximum LTV
ratio to 80% of the lesser of the appraised value or the purchase price of the
property securing the loan in the case of loans secured by one- to four-family
owner-occupied properties. On conventional one- to four-family loans, the Bank
will lend up to a 95% LTV ratio; however, loans with LTV ratios in excess of 80%
44
<PAGE>
may require private mortgage insurance and loans with LTV ratios in excess of
90%, with rare exceptions, require private mortgage insurance or additional
readily marketable collateral.
When underwriting residential real estate loans, the Bank reviews each loan
applicant's employment, income and credit history. The Bank's policy is to
obtain credit reports and financial statements on all borrowers and guarantors.
Properties securing real estate loans are appraised by the Bank's directors.
Appraisals are subsequently reviewed by the Bank's Chief Executive Officer.
Management believes that stability of income, past credit history and adequacy
of the proposed security are integral parts in the underwriting process.
Generally, the applicant's total monthly mortgage payment, including all escrow
amounts, is limited to 28% of the applicant's total monthly income. In addition,
total monthly obligations of the applicant, including mortgage payments, should
not generally exceed 36% of total monthly income. Written appraisals are always
required on real estate property offered to secure an applicant's loan. The Bank
requires fire and casualty insurance on all properties securing real estate
loans, as well as title insurance or a certified abstract and written attorney's
title opinion.
COMMERCIAL REAL ESTATE LENDING. The Bank originates loans secured by
commercial real estate. At March 31, 1997, $392,000, or 4.1%, of the Bank's loan
portfolio consisted of seven commercial real estate loans. The Bank's commercial
real estate loans are secured by a campground, restaurant and rental properties.
At March 31, 1997, the Bank's commercial real estate loans were all performing
according to their terms. The Bank will seek to emphasize the origination of
commercial real estate lending in the future.
Commercial real estate loans originated by the Bank may be either fixed- or
adjustable-rate loans with terms to maturity and amortization schedules of up to
20 years. Commercial real estate loans are written in amounts of up to 75% of
the lesser of the appraised value of the property or the sales price.
Appraisals on properties which secure commercial real estate loans are
performed by the Bank's directors or an independent appraiser designated by the
Bank before the loan is made. All appraisals on commercial real estate loans are
reviewed by the Bank's Chief Executive Officer. In underwriting such loans, the
Bank primarily considers the cash flows generated by the real estate to support
the debt service, the financial resources and income level of the borrower and
the Bank's experience with the borrower. In addition, the Bank's underwriting
procedures require verification of the borrower's credit history, an analysis of
the borrower's income, financial statements and banking relationships, a review
of the borrower's property management experience and references, and a review of
the property, including cash flow projections and historical operating results.
The Bank seeks to ensure that the property securing the loans will generate
sufficient cash flow to adequately cover operating expenses and debt service
payments.
Commercial real estate lending affords the Bank an opportunity to receive
interest at rates higher than those generally available from one- to four-family
residential lending. Nevertheless, loans secured by such properties are
generally larger, more difficult to evaluate and monitor and, therefore
generally, involve a greater degree of risk than one-to four-family residential
mortgage loans. Because payments on loans secured by commercial real estate are
often dependent on the successful operation or management of the properties,
repayment of such loans may be subject to adverse conditions in the real estate
market or the economy. If the cash flow from the project is reduced, the
borrower's ability to repay the loan might be impaired. The Bank has attempted
to minimize these risks by lending primarily to the ultimate user of the
property or on existing income-producing properties.
CONSUMER AND OTHER LENDING. The Bank originates a limited variety of
consumer loans, primarily property improvement loans, passbook loans and
personal loans which are secured by automobiles. The Bank currently originates
substantially all of its consumer loans in its primary market area.
The primary component of the Bank's consumer loan portfolio consists of
personal loans secured by automobiles. In the past year the Bank has sought to
increase its consumer loan originations. It has entered into correspondent
relationships with a number of automobile dealerships in its market area whereby
a borrower wishing to acquire an automobile will complete a loan form at the
dealership. The loan document is sent to the Bank which
45
<PAGE>
evaluates the borrower's credit worthiness, including the borrower's credit
history, ability to meet existing obligations and payments on the proposed
loan. The Bank generally will not make an automobile loan with a
loan-to-value ratio in excess of 80% of the invoice price or the automobile's
National Automobile Dealers Association "yellow book" value. The Bank's
personal loans are generally fixed rate loans and have terms that do not
exceed 66 months.
Finally, the Bank has originated a small number of loans for property
improvement. Such loans are generally secured by a second mortgage or UCC-1
filing on improvement and are originated as fixed-rate loans with terms of less
than 66 months.
Consumer loan terms vary according to the type and value of collateral,
length of contract and creditworthiness of the borrower. The underwriting
standards employed by the Bank for originated consumer loans include an
application, a determination of the applicant's payment history on other debts
and an assessment of 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 entail greater credit 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. Further, 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. At March 31, 1997, no consumer loans were
classified as non-performing. See "--Asset Quality--Delinquent Loans and
Non-performing Assets." There can be no assurances, however, that
delinquencies will not occur in the future.
COMMERCIAL BUSINESS. The Bank originates commercial business loans to
borrowers located in its market area which are secured by collateral other than
real estate. Such commercial business loans are generally secured by equipment,
inventory and accounts receivable. At March 31, 1997, the Bank's commercial
business loan portfolio totaled $195,000, or 2.0% of total loans. At that date,
all of the Bank's commercial business loans were performing in accordance with
their terms.
The underwriting standards used by the Bank for commercial business loans
include a determination of the borrower's ability to meet existing obligations
and payments on the proposed loan from normal cash flow generated from the
borrower's business. The financial strength of each borrower is assessed through
a review of tax returns and credit reports.
Commercial business loans generally bear higher interest rates than one-to
four-family residential loans, but they also involve a higher risk of default
since their repayment is dependent on the successful operation of the borrower's
business.
46
<PAGE>
LOAN MATURITY SCHEDULE
The following table illustrates the interest rate sensitivity of the Bank's
loan portfolio at March 31, 1997. Mortgages which have adjustable or
renegotiable interest rates are shown as maturing in the period during which the
contract is due. The schedule does not reflect the effects of possible
prepayments or enforcement of due-on-sale clauses.
<TABLE>
<CAPTION>
COMMERCIAL COMMERCIAL
ONE-TO FOUR-FAMILY REAL ESTATE CONSUMER BUSINESS
---------------------- ------------------------ ---------------------- ------------------------
WEIGHTED WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE AVERAGE
AMOUNT RATE AMOUNT RATE AMOUNT RATE AMOUNT RATE
---------- ---------- ----------- ----------- --------- ----------- --------- ----------
(Dollars in Thousands)
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Due During
Years Ending
March 31,
1997(1)......... $ -- 0.00% $ -- 0.00% $ 419 7.91% $ -- 0.00%
1998............ 50 9.05 -- 0.00 99 9.95 -- 0.00
1999............ 29 11.36 27 9.25 141 10.97 8 9.25
2000 and 2001... 441 9.28 -- 0.00 866 9.43 188 9.20
2002 to 2006.... 819 9.67 -- 0.00 291 8.85 -- 0.00
2007 to 2021.... 5,102 8.48 365 9.33 -- 0.00 -- 0.00
2022 and
following...... 744 8.10 -- 0.00 -- 0.00 -- 0.00
------- ------- --------- ------
Total Amount $ 7,185 8.64 $ 392 9.33 $ 1,816 9.13 $ 196 9.20
Due.......
------- ------- --------- ------
------- ------- --------- ------
<CAPTION>
TOTAL
----------------------
WEIGHTED
AVERAGE
AMOUNT RATE
-------- ---------
<S> <C> <C>
Due During
Years Ending
March 31,..... $ 419 7.91%
1997(1)......... 149 9.86
1998............ 205 10.70
1999............ 1,495 9.36
2000 and 2001... 1,110 9.45
2002 to 2006.... 5,467 8.54
2007 to 2021....
2022 and 744 8.10
following...... --------
Total Amount
Due....... $ 9,589 8.78
--------
--------
- ---------------
(1) Includes demand loans, loans having no stated maturity and overdraft loans.
</TABLE>
The total amount of loans due after March 31, 1998 which have predetermined
interest rates is $4.6 million, while the total amount of loans due after such
dates which have floating or adjustable interest rates is $5.0 million.
47
<PAGE>
Loan Originations
Loan originations are developed from continuing business with depositors and
borrowers, soliciting realtors, builders, walk-in customers and third-party
sources. The Board of Directors of the Bank has authorized certain officers to
originate loans within specified underwriting limits. Specifically, Bank
officers may originate loans secured by single-family, owner occupied residences
up to $140,000. All loans over $50,000 or with a loan to value ratio over 80%
require action by the Bank's Loan Committee. In addition, the full Board of
Directors meets monthly to review all real estate loans made by officers of the
Bank.
While the Bank originates both adjustable-rate and fixed-rate loans, its
ability to originate loans to a certain extent is dependent upon the relative
customer demand for loans in its market, which is affected by the interest rate
environment, among other factors. For fiscal 1997, the Bank originated $3.8
million in fixed-rate loans and $1.8 million in adjustable-rate loans.
The following table shows the loan origination and repayment activities of
the Bank for the periods indicated. The Bank did not purchase or sell any loans
during the periods indicated.
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
--------------------
<S> <C> <C>
1997 1996
--------- ---------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C>
Originations by Type:
Adjustable rate real estate:
-one- to four-family.................................. $ 1,051 $ 135
-multi-family......................................... -- --
-commercial........................................... 586 --
Non-real estate-consumer.................................... -- --
Commercial business......................................... 210 --
--------- ---------
Total adjustable-rate................................... 1,847 135
--------- ---------
Fixed-rate real estate:
- one- to four-family................................. 1,909 126
- multi-family........................................ -- --
- commercial.......................................... -- --
Non-real estate--consumer................................... 1,919 135
Commercial business......................................... -- --
--------- ---------
Total fixed-rate........................................ 3,828 261
--------- ---------
Total loans originated.................................. 5,675 396
--------- ---------
Principal repayments........................................ 1,645 1,135
--------- ---------
Total reductions........................................ 1,645 1,135
--------- ---------
Net increase (decrease)..................................... $ 4,030 $ (739)
--------- ---------
--------- ---------
</TABLE>
Asset Quality
The Bank's collection procedures provide that when a real estate loan is
past due 15 days, a delinquent notice is sent requesting payment. Prior to a
loan becoming 30 days past due, personal contact is attempted by the Bank's
collection officer. If the loan document provides for a right to cure, then the
required notice is mailed by certified mail and regular mail when the loan
becomes 30 days past due. Personal contact is continued on all delinquent real
estate loans until the loan is completely current.
With respect to consumer loans, a delinquent notice is sent requesting
payment 15 days after the due date. If payment is not made by the 30th day after
it is due, the Bank sends a certified letter requesting that the borrower cure
the delinquency. If consumer loans are not resolved by 90 days, the account is
put on non-accrual status and repossession and/or legal action is normally
initiated. Real estate loans of 60 days or more past due and consumer loans of
30 or more past due are reported monthly to the Board of Directors. For both
consumer loans and real estate
48
<PAGE>
loans, the Bank officer has authority to begin foreclosure and/or
repossession procedures at any time he feels it necessary or advisable. At
March 31, 1997, the total loans delinquent 90 days or more to total loans was
$47,000 and the total loans delinquent 60 to 89 days to total loans was
$60,000.
Delinquent Loans and Non-performing Assets. Loans are reviewed on a regular
basis and are placed on non-accrual status when, in the opinion of management,
the collection of additional interest is doubtful. Mortgage and consumer loans
are placed on non-accrual status when principal is 90 days or more past due.
Interest accrued and unpaid at the time a loan is placed on non-accrual status
is charged against interest income. The loan will remain on non-accrual status
until the loan is brought current.
Real estate acquired through foreclosure or by deed-in-lieu of foreclosure
is classified as real estate owned until such time as it is sold. When real
estate owned is acquired, it is recorded at the lower of the unpaid principal
balance of the related loan, or its fair value, less estimated selling expenses.
Any further write-down of real estate owned is charged against earnings. At
March 31, 1997, the Bank had no property classified as real estate owned.
The following table sets forth the Bank's loan delinquencies by type, by
amount and by percentage of type at March 31, 1997.
<TABLE>
<CAPTION>
LOANS DELINQUENT FOR:
----------------------------------------------------------------------------
60-89 DAYS 90 DAYS AND OVER
------------------------------------- -------------------------------------
PERCENT PERCENT
OF LOAN OF LOAN
NUMBER AMOUNT CATEGORY NUMBER AMOUNT CATEGORY
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
Real Estate:
One- to four-family............... 1 $ 60 0.84% 2 $ 47 0.65%
Commercial........................ -- -- -- -- -- --
Consumer............................ -- -- -- -- -- --
Commercial business................. -- -- -- -- -- --
------ ------ ------ ------ ------ ------
Total......................... 1 $ 60 0.84% 2 $ 47 0.65%
------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------
<CAPTION>
TOTAL DELINQUENT LOANS
-------------------------------------
PERCENT
OF LOAN
NUMBER AMOUNT CATEGORY
----------- ----------- -----------
<S> <C> <C> <C>
Real Estate:
One- to four-family............... 3 $ 107 1.49%
Commercial........................ -- -- --
Consumer............................ -- -- --
Commercial business................. -- -- --
------ ------ ------
Total......................... 3 $ 107 1.49%
------ ------ ------
------ ------ ------
</TABLE>
49
<PAGE>
The table below sets forth the amounts and categories of non-performing
assets in the Bank's loan portfolio. Loans are placed on non-accrual status
when the collection of principal and/or interest become doubtful. For all
years presented, the Bank has had no troubled debt restructurings (which
involve forgiving a portion of interest or principal on any loans or making
loans at a rate materially less than that of market rates). Foreclosed assets
include assets acquired in settlement of loans. At March 31, 1997 and 1996,
the Bank did not have any accruing loans that were delinquent more than 90
days, nor did it have any foreclosed assets.
March 31,
--------------------
1997 1996
--------- ---------
(In Thousands)
Non-accruing loans:
One- to four-family................................. $ 47 $ --
Commercial real estate.............................. -- --
Consumer............................................ -- --
Commercial business................................. -- --
------ ------
Total............................................. 47 --
------ ------
Total non-performing assets........................... $ 47 $ --
------ ------
------ ------
Total as a percentage of total assets................. 0.41% 0%
------ ------
------ ------
For the year ended March 31, 1997, gross interest income which would have
been recorded had the non-accruing loans been current in accordance with their
original terms amounted to $3,000. No amounts were included in interest income
on such loans for the year ended March 31, 1997.
Classified Assets. Federal regulations provide for the classification of
loans and other assets, such as debt and equity securities, considered by the
OTS to be of lesser quality, as "substandard," "doubtful" or "loss." An asset is
considered "substandard" if it is inadequately protected by the current net
worth and paying capacity of the obligor or the collateral pledged, if any.
"Substandard" assets include those characterized by the "distinct possibility"
that the insured institution will sustain "some loss" if the deficiencies are
not corrected. Assets classified as "doubtful" have all of the weaknesses
inherent in those classified "substandard" with the added characteristic that
the weaknesses present make "collection or liquidation in full" on the basis of
currently existing facts, conditions and values, "highly questionable and
improbable." Assets classified as "loss" are those considered "uncollectible"
and of such little value that their continuance as assets without the
establishment of a specific loss reserve is not warranted.
When an insured institution classifies problem assets as either substandard
or doubtful, it may establish general allowances for losses in an amount deemed
prudent by management. General allowances represent loss allowances which have
been established to recognize the inherent risk associated with lending
activities, but which, unlike specific allowances, have not been allocated to
particular problem assets. When an insured institution classifies problem assets
as "loss," it is required either to establish a specific allowance for losses
equal to 100% of that portion of the asset so classified or to charge-off such
amount. An institution's determination as to the classification of its assets
and the amount of its valuation allowances is subject to review by the
regulatory authorities, who may order the establishment of additional general or
specific loss allowances.
In connection with the filing of its periodic reports with the OTS and in
accordance with its classification of assets policy, the Bank reviews loans in
its portfolio quarterly to determine whether such assets require classification
in accordance with applicable regulations.
50
<PAGE>
On the basis of management's review of its assets, at March 31, 1997, the
Bank had classified a total of $47,000 of its loans and other assets as follows:
March 31, 1997
(In Thousands)
-----------------
Special Mention.............................. $ --
Substandard.................................. --
Doubtful assets.............................. 47
Loss assets.................................. --
-----
Total..................................... $ 47
-----
-----
General loss allowance....................... $ 110
-----
-----
Specific loss allowance...................... --
-----
-----
Charge-offs.................................. --
-----
-----
Other Loans of Concern. In addition to the non-performing loans set forth
in the tables above, as of March 31, 1997, there were no loans classified by the
Bank with respect to which known information about the possible credit problems
of the borrowers or the cash flows of the security properties have caused
management to have some doubts as to the ability of the borrowers to comply with
present loan repayment terms and which may result in the future inclusion of
such items in the non-performing asset categories.
Allowance for Loan Losses. The allowance for loan losses is established
through a provision for loan losses based on management's evaluation of the risk
inherent in its loan portfolio and changes in the nature and volume of its loan
activity, including those loans which are being specifically monitored by
management. Such evaluation, which includes a review of loans for which full
collectibility may not be reasonably assured, considers among other matters, the
loan classifications discussed above, the estimated fair value of the underlying
collateral, economic conditions, historical loan loss experience, the amount of
loans outstanding and other factors that warrant recognition in providing for an
adequate loan loss allowance.
Real estate properties acquired through foreclosure are recorded at the
lower of cost or fair value minus estimated cost to sell. If fair value at the
date of foreclosure is lower than the balance of the related loan, the
difference will be charged-off to the allowance for loan losses at the time of
transfer. Valuations are periodically updated by management and if the value
declines, a specific provision for losses on such property is established by a
charge to operations. At March 31, 1997, the Bank had no properties that were
acquired through foreclosure.
Although management believes that it uses the best information available to
determine the allowance, unforeseen market conditions could result in
adjustments and net earnings could be significantly affected if circumstances
differ substantially from the assumptions used in making the final
determination. Future additions to the Bank's allowance for loan losses will be
the result of periodic loan, property and collateral reviews and thus cannot be
predicted in advance. In addition, federal regulatory agencies, as an integral
part of the examination process, periodically review the Bank's allowance for
loan losses. Such agencies may require the Bank to increase the allowance based
upon their judgment of the information available to them at the time of their
examination. At March 31, 1997, the Bank had a total allowance for loan losses
of $110,000, representing 234.0% of total non-performing loans and 1.2% of the
Bank's loans receivable, net. See Notes A and C of the Notes to Financial
Statements and "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
51
<PAGE>
The distribution of the Bank's allowance for losses on loans at the dates
indicated is summarized as follows:
<TABLE>
<CAPTION>
March 31,
---------------------------------------------------------------------------------
1997 1996
--------------------------------------- ----------------------------------------
Percent Percent
of Loans of Loans
Loan in Each Loan in Each
Amount of Amounts Category Amount of Amounts Category
Loan Loss by to Total Loan Loss by to Total
Allowance Category Loans Allowance Category Loans
------------- ----------- ----------- ------------- ----------- -----------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
One- to four-family.................... $ 55 $ 7,185 74.93% $ 30 $ 5,312 95.54%
Commercial real estate................. 392 4.09 -- -- --
Construction or development............ 4 -- --
Consumer............................... 49 1,816 18.94 2 248 4.46
Commercial business.................... 2 196 2.04 -- -- --
Unallocated............................ -- -- -- -- -- --
----- ----------- ----------- ------ ----------- -----------
Total............................... $ 110 $ 9,589 100.00% $ 32 $ 5,560 100.00%
----- ----------- ----------- ------ ----------- -----------
----- ----------- ----------- ------ ----------- -----------
</TABLE>
The following table sets forth an analysis of the Bank's allowance for
loan losses.
Years Ended March
31,
--------------------
1997 1996
--------- ---------
(In Thousands)
Balance at beginning of period................ $ 32 $ 32
Charge-offs:
One- to four-family......................... -- --
Commercial real estate...................... -- --
Consumer.................................... -- --
Commercial business......................... -- --
------ ------
Total charge-offs....................... -- --
------ ------
Recoveries:
One- to four-family......................... -- --
Commercial real estate...................... -- --
Consumer.................................... -- --
Commercial business......................... -- --
------ ------
Total recoveries........................ -- --
------ ------
Net charge-offs............................... -- --
Provision for loan losses..................... 78 --
------ ------
Balance at end of period...................... $ 110 $ 32
------ ------
------ ------
Ratio of net charge-offs during the period to
average loans outstanding during the period.. 0.00% 0.00%
------ ------
------ ------
Ratio of net charge-offs during the period
to average non-performing assets............. 0.00% 0.00%
------ ------
------ ------
52
<PAGE>
Investment Activities
General. The Bank must maintain minimum levels of investments that
qualify as liquid assets under OTS regulations. Liquidity may increase or
decrease depending upon the availability of funds and comparative yields on
investments in relation to the return on loans. Historically, the Bank has
generally maintained liquid assets at levels above the minimum requirements
imposed by the OTS regulations and at levels believed adequate to meet the
requirements of normal operations, including repayments of maturing debt and
potential deposit outflows. Cash flow projections are regularly reviewed and
updated to assure that adequate liquidity is maintained. At March 31, 1997,
the Bank's liquidity ratio (liquid assets as a percentage of net withdrawable
savings deposits and current borrowings) was 11.2%. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Liquidity and Capital Resources" and "Regulation --Liquidity."
Federally chartered savings institutions have the authority to invest in
various types of liquid assets, including U.S. Treasury obligations, securities
of various federal agencies, certain certificates of deposit of insured banks
and savings institutions, certain bankers' acceptances, repurchase agreements
and federal funds. Subject to various restrictions, federally chartered savings
institutions may also invest their assets in commercial paper, investment grade
corporate debt securities and mutual funds whose assets conform to the
investments that a federally chartered savings institution is otherwise
authorized to make directly.
Generally, the investment policy of the Bank, as established by the Board of
Directors, is to invest funds among various categories of investments and
maturities based upon the Bank's liquidity needs, asset/ liability management
policies, investment quality, marketability and performance objectives.
Mortgage-backed Securities. The Bank historically purchased mortgage-backed
securities primarily to supplement its lending activities, to generate positive
interest rate spreads on principal balances with minimal administrative expense,
to lower the credit risk of the Bank as a result of the guarantees provided by
Government National Mortgage Administration ("GNMA") and to generally assist in
managing the interest rate risk of the Bank. The Bank has invested primarily in
federal agency securities, principally GNMA obligations. At March 31, 1997, the
Bank's investment in mortgage-backed securities totaled $257,000, or 2.3% of its
total assets. At March 31, 1997, all of the Bank's mortgage-backed securities
were classified as held to maturity. See Note B of the Notes to Financial
Statements.
The GNMA certificates are modified pass-through mortgage-backed securities
that represent undivided interests in underlying pools of fixed-rate, or certain
types of adjustable-rate, single-family residential mortgages issued by these
government-sponsored entities. As a result, the interest rate risk
characteristics of the underlying pool of mortgages, i.e., fixed-rate or
adjustable rate, as well as prepayment risk, are passed on to the certificate
holder. GNMA's guarantee to the holder of timely payments of principal and
interest is backed by the full faith and credit of the United States Government.
All of the Bank's GNMA certificates are fixed-rate securities.
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 Bank. These types of securities also permit
the Bank to optimize its regulatory capital because they have low risk
weighting.
Of the Bank's $257,000 mortgage-backed securities portfolio at March 31,
1997, mortgage-backed securities totaling $212,000 had contractual maturities
over 10 years. The actual maturity of a mortgage-backed security may be less
than its contractual 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
53
<PAGE>
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 Bank may be subject to reinvestment risk because, to the
extent that the Bank's mortgage-backed securities amortize or prepay faster
than anticipated, the Bank may not be able to reinvest the proceeds of such
repayments and prepayments at a comparable rate.
The guaranteed portion of a given pool must be all fixed or all variable
rate. The certificates purchased by the Bank are fixed rate mortgage backed
securities.
The following table sets forth the composition of the Bank's mortgage-backed
securities at the dates indicated.
<TABLE>
<CAPTION>
March 31,
--------------------------------------------
1997 1996
-------------------- ----------------------
Book % of Book % of
Value Total Value Total
--------- --------- ----- ---------
<S> <C> <C> <C> <C>
(Dollars in Thousands)
Mortgage-backed securities held to maturity:
GNMA.................................................... $ 267 103.89% $ 351 103.24%
--------- --------- ----- ---------
Unamortized premium (discounts), net...................... (10) (3.89)% (11) (3.24)%
--------- --------- ----- ---------
Total mortgage-backed securities...................... $ 257 100.00% $ 340 100.00%
--------- --------- ----- ---------
--------- --------- ----- ---------
</TABLE>
- -----------------------
The following table shows mortgage-backed securities repayment
activities of the Bank for the periods indicated. The Bank did not purchase
or sell any mortgage-backed securities during fiscal 1997.
Years Ended March 31,
--------------------
1997 1996
--------- ---------
(In Thousands)
Purchases:
Adjustable-rate (1).................................... $ -- $ --
Fixed-rate (1)......................................... -- 166
--------- ---------
Total purchases...................................... -- 166
--------- ---------
Principal Repayments:
Principal repayments................................... 83 32
Increase in other items, net........................... -- --
--------- ---------
Net increase (decrease)............................ $ 83 $ 32
--------- ---------
--------- ---------
- ------------------------
(1) Consists of pass-through securities.
Other Investments. At March 31, 1997, the Bank's investment securities
other than mortgage-backed securities consisted of federal agency obligations,
U.S. Government securities, equity securities, FHLB stock, and interest-earning
deposits with other financial institutions.
OTS regulations restrict investments in corporate debt and equity
securities by the Bank. These restrictions include prohibitions against
investments in the debt securities of any one issuer in excess of 15% of the
Bank's unimpaired capital and unimpaired surplus as defined by federal
regulations, plus an additional 10% if the investments are fully secured by
readily marketable collateral. At March 31, 1997, the Bank was in compliance
with this regulation. See "Regulation--Federal Regulation of Savings
Associations" for a discussion of additional restrictions on the Bank's
investment activities.
54
<PAGE>
In fiscal 1997, the Bank reclassified Freddie Mac stock with a fair market
value of $69,000 from available for sale to trading account securities. The
equity securities had an unrealized gain of $67,000 which was recognized in net
income for the year ended March 31, 1997. The Freddie Mac stock was sold
subsequently to March 31, 1997. The Bank does not have any other trading account
securities and does not intend to establish a trading securities portfolio. See
Note B to Notes to Financial Statement.
The following table sets forth the composition of the Bank's investment
securities at the dates indicated.
<TABLE>
<CAPTION>
At March 31,
--------------------------------------------------
1997 1996
--------------------------- --------------------
Book % of Book % of
Value Total Value Total
---------- --------------- ---------- ---------
<S> <C> <C> <C> <C>
(Dollars in Thousands)
Investment securities held to maturity: Federal agency
obligations................................................. $ 200 27.55% $ -- --%
Investment securities available for sale:
U.S. government securities................................... 398 54.82 -- --
Federal agency obligations.................................... -- -- 200 65.57
Equity securities............................................. -- -- 41 13.44
---------- --------------- ---------- ---------
Subtotal................................................... 598 82.37 241 79.02
---------- --------------- ---------- ---------
Trading account security (1).................................. 69 9.50 -- --
FHLB stock.................................................... 59 8.13 64 20.98
---------- --------------- ---------- ---------
Total investment securities and FHLB stock................. $ 726 100.00% $ 305 100.00%
---------- --------------- ---------- ---------
---------- --------------- ---------- ---------
Average remaining life of debt securities..................... 4.3 years 1.4 years
Other interest-earning assets:
Interest-bearing deposits with banks......................... $ 120 100.00% $ 1,231 100.00%
Federal funds sold........................................... -- -- -- --
---------- --------------- ---------- ---------
Total....................................................... $ 120 100.00% $ 1,231 100.00%
---------- --------------- ---------- ---------
---------- --------------- ---------- ---------
</TABLE>
- ------------------------
(1) Consists of Freddie Mac stock that was sold subsequent to March 31, 1997.
Investment Portfolio Maturities. The composition and maturities of the
investment securities portfolio and mortgage-backed securities are indicated in
the following table.
<TABLE>
<CAPTION>
At March 31, 1997
---------------------------------------------------------------------------------
---------------------------------------------------------------------------------
Less Than 1 To 5 5 To 10 Over Total
1 Year Years Years 10 Years Investment Securities
------------- ----------- ----------- ----------- ------------------------
Book Book Book Book Book Market
Value Value Value Value Value Value
------------- ----------- ----------- ----------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
(Dollars in Thousands)
U.S. government securities........ $ -- $ 399 $ -- $ -- $ 399 $ 398
Federal agency obligations........ -- 100 -- 100 200 197
Mortgage-backed securities........ -- 16 29 212 257 248
Total investment securities....... $ -- $ 515 $ 29 $ 312 $ 856 $ 843
----- ----- ----- ----- ----- -----
----- ----- ----- ----- ----- -----
Weighted average yield............ 0.00% 6.27% 8.04% 9.13% 7.37% 7.45%
----- ----- ----- ----- ----- -----
----- ----- ----- ----- ----- -----
</TABLE>
Sources of Funds
General. The Bank's primary sources of funds are deposits, receipt of
principal and interest on loans and securities, FHLB advances, and other
funds provided from operations.
55
<PAGE>
FHLB advances are used to support lending activities and to assist in the
Bank's asset/liability management strategy. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations --Asset\Liability
Management." Typically, the Bank does not use other forms of borrowings. At
March 31, 1997, the Bank had no FHLB advances.
Deposits. The Bank offers deposit accounts having a range of interest rates
and terms. The Bank's deposits consist of passbook, checking and certificate
accounts. The certificate accounts currently range in terms from 91 days to 10
years.
The Bank relies primarily on advertising, competitive pricing policies and
customer service to attract and retain these deposits. In fiscal 1997 the Bank
began participating in an on-line service pursuant to which it advertises its
certificate of deposit rates nationwide. For the year ended March 31, 1997, the
Bank obtained certificates of deposit totalling $2.6 million through this
service, which represented 25.5% of the Bank's total deposits at March 31, 1997.
Deposits obtained through the on-line service are a more volatile source of
funds than transaction or savings accounts, or certificate of deposit accounts
obtained from depositors in the Bank's market area. See "Risk Factors--Increased
Reliance on Out of Market Deposits." The flow of deposits is influenced
significantly by general economic conditions, changes in money market and
prevailing interest rates and competition. During fiscal 1997, the Bank
introduced an interest bearing checking account product. At March 31, 1997,
$235,000, or 2.3% of total deposits were in interest bearing checking accounts.
The Bank has become more susceptible to short-term fluctuations in deposit
flows as customers have become more interest-rate conscious. The Bank endeavors
to manage the pricing of its deposits in keeping with its profitability
objectives giving consideration to its asset/liability management.
Notwithstanding the foregoing, a significant percentage of the Bank's deposits
are for terms of less than one year. At March 31, 1997, $1.9 million, or 30.7%
of the Bank's certificates of deposit were in certificates of deposit with terms
of 12 months or less. The Bank believes that upon maturity most of these
deposits will remain at the Bank. The ability of the Bank to attract and
maintain savings accounts and certificates of deposit, and the rates paid on
these deposits, has been and will continue to be significantly affected by
market conditions.
Savings Portfolio
The following table sets forth the dollar amount of savings deposits in the
various types of deposit programs offered by the Bank as of the dates indicated.
<TABLE>
<CAPTION>
At March 31,
------------------------------------------
1997 1996
-------------------- --------------------
Amount Percent Amount Percent
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
(Dollars in Thousands)
Transactions and savings deposits:
- ---------------------------------
Interest-bearing checking accounts 1.75%............ $ 235 2.30% $ -- 0.00%
Passbook accounts 3.00%............................. 3,882 37.92 3,683 56.97
--------- --------- --------- ---------
Total transactions and savings deposits............. 4,117 40.22 3,683 59.15
--------- --------- --------- ---------
Certificates of deposit:
- -----------------------
0.00 -3.99%......................................... 198 1,93 141 2.18
4.00 -5.99%......................................... 2,672 26.10 2,370 36.66
6.00 -7.99%......................................... 3,250 31.75 271 4.19
--------- --------- --------- ---------
Total certificates of deposit....................... 6,120 59.78 2,641 43.03
--------- --------- --------- ---------
Accrued Interest.................................... -- 0.00 -- 0.00
--------- --------- --------- ---------
Total Deposits...................................... $ 10,237 100.00% $ 6,465 102.18%
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
56
<PAGE>
Deposit Activity
The following table sets forth the savings flows at the Bank during the
periods indicated.
Years Ended March 31,
---------------------
1997 1996
---------- ---------
(Dollars in Thousands)
Opening balance................................... $ 6,465 $ 6,518
Deposits.......................................... 7,115 3,345
Withdrawals....................................... (3,628) (3,668)
Interest credited................................. 285 270
--------- ---------
Ending balance.................................... $ 10,237 $ 6,465
--------- ---------
--------- ---------
Net increase (decrease)........................... $ 3,772 $ (53)
--------- ---------
--------- ---------
Percent increase (decrease)....................... 58.34% (0.81)%
--------- ---------
--------- ---------
Time Deposit Maturity Schedule
The following table shows weighted average rate and maturity information for
the Bank's certificates of deposit as of March 31, 1997.
Weighted
Certificate accounts maturing in Total Average Percent of
Quarter Ending: Balance Rate Total
--------------------------------------- --------- ----------- -----------
(In Thousands)
June 30, 1997.......................... $ 370 5.07% 6.05%
September 30, 1997..................... 544 5.11 8.89
December 31, 1997...................... 728 5.45 11.90
March 31, 1998......................... 234 5.56 3.82
June 30, 1998.......................... 233 5.40 3.81
September 30, 1998..................... 1,058 5.97 17.29
December 31, 1998...................... 408 5.68 6.67
March 31, 1999......................... 811 4.70 13.25
June 30, 1999.......................... 1 5.25 0.02
September 30, 1999..................... 135 5.97 2.21
December 31, 1999...................... 192 5.92 3.14
March 31, 2000......................... 605 6.39 9.89
June 30, 2000.......................... 236 7.12 3.86
Thereafter............................. 565 6.69 9.23
--------- ------ -----------
Total................................ $ 6,120 5.70 100.00%
--------- ------ -----------
--------- ------ -----------
The following table indicates the amount of the Bank's certificates of
deposit and other deposits by time remaining until maturity as of March 31,
1997.
<TABLE>
<CAPTION>
Maturity
-------------------------------------------------------------
Over Over
3 Months 3 to 6 6 to 12 Over
or Less Months Months 12 Months Total
----------- ----------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C>
(In Thousands)
Certificates of deposit less than $100,000.............. $ 370 $ 544 $ 757 $ 4,142 $ 5,813
Certificates of deposit of $100,000 or more............. -- -- 205 102 307
----- ----- ----- ----------- ---------
Total certificates of deposit........................... $ 370 $ 544 $ 962 $ 4,244 $ 6,120
----- ----- ----- ----------- ---------
----- ----- ----- ----------- ---------
</TABLE>
- ------------------------
(1) Deposits from governmental and other public entities.
57
<PAGE>
Borrowings. Federal law limits an institution's borrowings from the FHLB to
20 times the amount paid for capital stock in the FHLB, subject to regulatory
collateral requirements. At March 31, 1997, the Bank had an unused line of
credit at the FHLB for up to $765,000. At March 31, 1997, the Bank had no
advances from the FHLB.
Employees
At March 31, 1997, the Bank had 6 full-time and no part-time employees. The
Bank's employees are not represented by any collective bargaining group.
Management considers its employee relations to be good.
Properties
The Bank conducts its business through its office, located in Canajoharie,
New York. The following table sets forth information relating to the Bank's
office as of March 31, 1997. The total net book value of the Bank's premises and
equipment (including land, buildings and leasehold improvements and furniture,
fixtures and equipment) at March 31, 1997 was $155,000.
Total Net Book Value
Approximate of Real Estate
Date Square at
Location Acquired Footage March 31, 1997
- --------------------------------- ----------- ------------- ---------------
Main Office: 1973 3,600 $121,000
26 Church Street
Canajoharie, New York
The Bank believes that its current facilities are adequate to meet the
present and foreseeable needs of the Bank and the Company.
Legal Proceedings
The Bank is involved, from time to time, as plaintiff or defendant in
various legal actions arising in the normal course of their businesses. While
the ultimate outcome of these proceedings cannot be predicted with certainty, it
is the opinion of management, after consultation with counsel representing the
Bank in the proceedings, that the resolution of these proceedings should not
have a material effect on the Company's financial position or results of
operations on a consolidated basis.
Service Corporation Activities
As a federally chartered savings association, the Bank is permitted by OTS
regulations to invest up to 2% of its assets, or approximately $200,000 at March
31, 1997, in the stock of, or loans to, service corporation subsidiaries. The
Bank may invest an additional 1% of its assets in service corporations where
such additional funds are used for inner-city or community development purposes
and up to 50% of its total capital in conforming loans to service corporations
in which it owns more than 10% of the capital stock. In addition to investments
in service corporations, federal associations are permitted to invest an
unlimited amount in operating subsidiaries engaged solely in activities in which
a federal association may engage.
Following the Bank Conversion, the Bank will be able to invest unlimited
amounts in subsidiaries that are engaged in activities in which the parent bank
may engage. In addition, the Bank will be permitted to invest limited amounts in
subsidiaries that provide banking services, such as data processing, to other
financial institutions.
58
<PAGE>
REGULATION
General
The Bank is a federally chartered savings association, the deposits of
which are federally insured and backed by the full faith and credit of the
United States Government. Accordingly, the Bank is subject to broad federal
regulation and oversight extending to all its operations. The Bank is a
member of the FHLB of New York and is subject to certain limited regulation
by the Federal Reserve Board. As the savings and loan holding company of the
Bank, the Company also is subject to federal regulation and oversight. The
purpose of the regulation of the Company and other holding companies is to
protect subsidiary savings and loan associations. The Bank is a member of
the SAIF. The deposits of the Bank are insured by the SAIF of the FDIC. As
a result, the FDIC has certain regulatory and examination authority over the
Bank.
The foregoing regulatory oversight will continue to apply to the Bank
following consummation of the Stock Conversion but prior to completion of the
Bank Conversion.
Upon consummation of the Bank Conversion, the Bank's deposit accounts
will continue to be insured by the SAIF. Following the Bank Conversion the
Bank will be subject to supervision, examination and regulation either by the
OCC if it converts to a national bank, or the Department if it converts to a
commercial bank charter. The Bank will remain subject to the FDIC's
authority to conduct special examinations.
Certain of these regulatory requirements and restrictions are discussed
below or elsewhere in this document.
Federal Regulation of Savings Associations
The OTS has extensive authority over the operations of savings
associations. As part of this authority, the Bank is required to file
periodic reports with the OTS and is subject to periodic examinations by the
OTS and the FDIC. When these examinations are conducted by the OTS and the
FDIC, the examiners may require the Bank to provide for higher general or
specific loan loss reserves. All savings associations are subject to a
semi-annual assessment, based upon the savings and loan association's total
assets.
The OTS also has extensive enforcement authority over all savings
institutions and their holding companies, including the Bank and the Company.
This enforcement authority includes, among other things, the ability to
assess civil money penalties, to issue cease-and-desist or removal orders and
to initiate injunctive actions. In general, these enforcement actions may be
initiated for violations of laws and regulations and unsafe or unsound
practices. Other actions or inactions may provide the basis for enforcement
action, including misleading or untimely reports filed with the OTS. Except
under certain circumstances, public disclosure of final enforcement actions
by the OTS is required.
In addition, the investment, lending and branching authority of the Bank
is prescribed by federal laws and regulations, and the Bank is prohibited
from engaging in any activities not permitted by such laws and regulations.
For example, no savings institution may invest in non-investment grade
corporate debt securities. In addition, the permissible level of investment
by federal associations in loans secured by non-residential real property may
not exceed 400% of total capital, except with approval of the OTS. Federal
savings associations are also generally authorized to branch nationwide. The
Bank is in compliance with the noted restrictions. See "--Regulation of
Company Following the Bank Conversion--Interstate Banking and Branching."
OTS regulations limit a thrift institution's loans to one borrower to the
greater of $500,000 or 15% of unimpaired capital and surplus (except for
loans fully secured by certain readily marketable collateral, in which case
this limit is increased to 25% of unimpaired capital and surplus). At March
31, 1997, the Bank's lending limit under this restriction was approximately
$500,000. The Bank is in compliance with the loans-to-one borrower
limitation. These percentage limitations will continue to apply to the Bank
following completion of the Bank Conversion.
59
<PAGE>
The OTS, as well as the other federal banking agencies, has adopted
guidelines establishing safety and soundness standards on such matters as
loan underwriting and documentation, internal controls and audit systems,
interest rate risk exposure and compensation and other employee benefits.
Any institution which fails to comply with these standards must submit a
capital compliance plan. A failure to submit a plan or to comply with an
approved plan will subject the institution to further enforcement action.
The OTS and the other federal banking agencies have also adopted additional
guidelines on asset quality and earnings standards. The guidelines were
designed to enhance early identification and resolution of problem assets.
Following the completion of the Bank Conversion, the Bank will be subject to
substantially similar guidelines adopted either by the OCC or the FDIC.
Insurance of Accounts and Regulation by the FDIC
The Bank is a member of the SAIF, which is administered by the FDIC.
Deposits are insured up to applicable limits by the FDIC and such insurance
is backed by the full faith and credit of the U.S. Government. As insurer,
the FDIC imposes deposit insurance premiums and is authorized to conduct
examinations of and to require reporting by FDIC-insured institutions. It
also may prohibit any FDIC-insured institution from engaging in any activity
the FDIC determines by regulation or order to pose a serious risk to the
FDIC. The FDIC also has the authority to initiate enforcement actions
against savings and loan associations, after giving the OTS an opportunity to
take such action, and may terminate the deposit insurance if it determines
that the institution has engaged or is engaging in unsafe or unsound
practices, or is in an unsafe or unsound condition.
In September 1996, Congress enacted legislation to recapitalize the SAIF
by a one-time assessment on all SAIF-insured deposits held as of March 31,
1995. The assessment was 65.7 basis points per $100 in deposits, payable on
November 27, 1996 and amounted to $43,000 for the Bank. In addition,
beginning January 1, 1997, interest payments on FICO bonds issued in the late
1980's by the Financing Corporation to recapitalize the now defunct Federal
Savings and Loan Insurance Corporation will be paid jointly by Bank Insurance
Fund ("BIF") insured institutions and SAIF-insured institutions. The FICO
assessment is 1.29 basis points per $100 for BIF deposits and 6.44 basis
points per $100 for SAIF deposits. Beginning January 1, 2000, the FICO
interest payments will be paid pro rata by banks and thrifts based on
deposits (approximately 2.4 basis points per $100 in deposits). In addition,
as of January 1, 1997, SAIF assessment rates dropped significantly and
currently range from zero to 27 basis points based upon an institution's
regulatory risk classification and capital group.
The legislation also provides for the merger of the BIF and SAIF on
January 1, 1999 if there are no more savings associations as of that date.
Several bills have been introduced in the current Congress that would
eliminate the federal thrift charter and OTS. The bills would require that
all federal savings associations convert to national banks or state
depository institutions by no later than January 1, 1998 in one bill and June
30, 1998 in the other and would treat all state savings associations as state
banks for purposes of federal banking laws. Subject to a narrow
grandfathering, all savings and loan holding companies would become subject
to the same regulation as bank holding companies under the pending
legislative proposals. Under such proposals, any lawful activity in which a
savings association would be permitted for up to two years following the
effective date of its conversion to the new charter, with two additional
one-year extension which may be granted at the discretion of the regulator.
Additionally, such proposals would grandfather existing thrift intrastate and
interstate branches which were operated as branches or in the process of
being established on January 1, 1997 or January 7, 1997, respectively. The
legislative proposals would also abolish the OTS and transfer its functions
to the federal bank regulators with respect to the institutions and to the
Federal Reserve Board with respect to the regulation of holding companies.
The Company is unable to predict whether the legislation will be enacted or,
given such uncertainty, determine the extent to which the legislation, if
enacted, would affect its business. The Company is also unable to predict
whether the SAIF and BIF funds will eventually be merged.
Following the Bank Conversion, the Bank will continue to be insured by
the SAIF. To the extent it becomes available, the Bank may consider paying
an exit fee to the SAIF and an entrance fee to the BIF in order to convert
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its insured deposits to the BIF. No prediction can be made at this time as to
whether this option, currently prohibited, may become available.
Regulatory Capital Requirements
Federal Savings Associations. Federally insured savings associations,
such as the Bank, are required to maintain a minimum level of regulatory
capital. The OTS has established capital standards, including a tangible
capital requirement, a leverage ratio (or core capital) requirement and a
risk-based capital requirement applicable to such savings and loan
associations. Generally, these capital requirements must be generally as
stringent as the comparable capital requirements for national banks. The OTS
is also authorized to impose capital requirements in excess of these
standards on individual associations on a case-by-case basis.
The capital regulations require tangible capital of at least 1.5% of
adjusted total assets (as defined by regulation). Tangible capital generally
includes common stockholders' equity and retained income, and certain
noncumulative perpetual preferred stock and related income. In addition, all
intangible assets, other than a limited amount of purchased mortgage
servicing rights, must be deducted from tangible capital for calculating
compliance with the requirement. Further, the valuation allowance applicable
to the write-down of investments and mortgage-backed securities in accordance
with SFAS No. 115 is excluded from the regulatory capital calculation. At
March 31, 1997, the Bank had no intangible assets and an unrealized loss, net
of tax under SFAS No. 115 of $1,400.
For information regarding the Bank's compliance with applicable
regulatory requirements at March 31, 1997 and on a pro forma basis following
completion of the Conversion and Bank Conversion see "Historical and Pro
Forma Regulatory Capital."
National or Commercial Banks. Upon consummation of the Bank Conversion,
the Bank will no longer be subject to OTS capital regulations, but will be
subject to the capital regulations of either the OCC or the FDIC. The OCC
and FDIC capital regulations are identical. The regulations for national and
commercial banks establish two capital standards: a leverage requirement and
a risk-based capital requirement. In addition, the OCC or the FDIC may, on a
case-by-case basis, establish individual minimum capital requirements for a
national bank that vary from the requirements which would otherwise apply. A
bank that fails to satisfy the capital requirements established under the
OCC's or FDIC regulations will be subject to such administrative action or
sanctions as the primary federal regulator deems appropriate.
The leverage ratio adopted by the OCC and FDIC requires a minimum ratio
of "Tier 1 capital" to adjusted total assets of 3% for national banks rated
composite 1 under the CAMEL rating system for banks. National or commercial
banks not rated composite 1 under the CAMEL rating system for banks are
required to maintain a minimum ratio of Tier 1 capital to adjusted total
assets of 4% to 5%, depending upon the level and nature of risks of their
operations. For purposes of the leverage requirement, Tier 1 capital
generally consists of the same components as core capital under the OTS's
capital regulations, except that no intangibles except certain purchased
mortgage servicing rights and purchased credit card relationships may be
included in capital.
The risk-based capital requirements established by the OCC and FDIC
regulations require national banks to maintain "total capital" equal to at
least 8% of total risk-weighted assets. For purposes of the risk-based
capital requirement, "total capital" means Tier 1 capital (as described
above) plus "Tier 2 capital" (as described below), provided that the amount
of Tier 2 capital may not exceed the amount of Tier 1 capital, less certain
assets. The components of Tier 2 capital under the OCC and FDIC regulations
generally correspond to the components of supplementary capital under OTS
regulations. Total risk-weighted assets generally are determined under the
OCC and FDIC regulations in the same manner as under the OTS's regulations.
The OCC and FDIC have revised their risk-based capital requirements to
permit the OCC or FDIC to require higher levels of capital for an institution
in light of its interest rate risk. In addition, the OCC has proposed that a
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bank's interest rate risk exposure would be quantified using either the
measurement system set forth in the proposal or the institution's internal
model for measuring such exposure, if such model is determined to be adequate
by the institution's examiner. Small institutions that are highly capitalized
and have minimal interest rate risk, such as the Bank, would be exempt from
the rule unless otherwise determined by the OCC or FDIC. Management of the
Bank has not determined what effect, if any, the proposed interest rate risk
component would have on the Bank's capital if adopted as proposed.
Bank Holding Companies. The Federal Reserve Board has established capital
requirements for bank holding companies with consolidated assets of $150
million or more that generally parallel the capital requirements for national
banks under the OCC's regulations. Since the Company's consolidated assets
are expected to be less than $150 million, the Federal Reserve Board's
holding company capital requirements are not expected to apply to the Company.
Limitations on Dividends and Other Capital Distributions
Federal Savings Associations. OTS regulations impose various
restrictions or requirements on associations with respect to their ability to
pay dividends or make other distributions of capital. OTS regulations
prohibit an association from declaring or paying any dividends or from
repurchasing any of its stock if, as a result, the regulatory capital of the
association would be reduced below the amount required to be maintained for
the liquidation account established in connection with its mutual-to-stock
conversion. See "The Conversion -- Effects of Stock Conversion to Stock Form
on Depositors and Borrowers of the Bank" and "-- Restrictions on Repurchase
of Stock."
The OTS utilizes a three-tiered approach to permit associations, based on
their capital level and supervisory condition, to make capital distributions
which include dividends, stock redemptions or repurchases, cash-out mergers
and other transactions charged to the capital account. See "-- Regulatory
Capital Requirements."
Generally, Tier 1 associations, which are associations that before and
after the proposed distribution meet their fully phased-in capital
requirements, may make capital distributions during any calendar year equal
to the greater of 100% of net income for the year-to-date plus 50% of the
amount by which the lesser of the association's tangible, core or risk-based
capital exceeds its fully phased-in capital requirement for such capital
component, as measured at the beginning of the calendar year, or the amount
authorized for a Tier 2 association. However, a Tier 1 association deemed to
be in need of more than normal supervision by the OTS may be downgraded to a
Tier 2 or Tier 3 association as a result of such a determination. The Bank
meets the requirements for a Tier 1 association and has not been notified of
a need for more than normal supervision. Tier 2 associations, which are
associations that before and after the proposed distribution meet their
current minimum capital requirements, may make capital distributions of up to
75% of net income over the most recent four quarter period.
Tier 3 associations (which are associations that do not meet current
minimum capital requirements) that propose to make any capital distribution
and Tier 2 associations that propose to make a capital distribution in excess
of the noted safe harbor level must obtain OTS approval prior to making such
distribution. Tier 2 associations proposing to make a capital distribution
within the safe harbor provisions and Tier 1 associations proposing to make
any capital distribution need only submit written notice to the OTS 30 days
prior to such distribution. As a subsidiary of the Company, the Bank will
also be required to give the OTS 30 days' notice prior to declaring any
dividend on its stock. The OTS may object to the distribution during that
30-day period based on safety and soundness concerns. See "-- Regulatory
Capital Requirements."
The OTS has proposed regulations that would revise the current capital
distribution restrictions. The proposal eliminates the current tiered
structure and the safe-harbor percentage limitations. Under the proposal a
savings association may make a capital distribution without notice to the OTS
(unless it is a subsidiary of a holding company) provided that it has a CAMEL
1 or 2 rating, is not in troubled condition and would remain adequately
capitalized (as defined by regulation) following the proposed distribution.
Savings associations that would remain adequately capitalized following the
proposed distribution but do not meet the other noted requirements must
notify the OTS 30
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days prior to declaring a capital distribution. The OTS stated it will
generally regard as permissible that amount of capital distributions that do
not exceed 50% of the institution's excess regulatory capital plus net income
to date during the calendar year. A savings association may not make a
capital distribution without prior approval of the OTS and the FDIC if it is
undercapitalized before, or as a result of, such a distribution. A savings
association will be considered in troubled condition if it has a CAMEL rating
of 4 or 5, is subject to an enforcement action relating to its safety and
soundness or financial viability or has been informed in writing by the OTS
that it is in troubled condition. As under the current rule, the OTS may
object to a capital distribution if it would constitute an unsafe or unsound
practice. No assurance may be given as to whether or in what form the
regulations may be adopted.
National Banks. Following the Bank Conversion, if the Bank converts to a
national bank, its ability to pay dividends would not be subject to the
limitations in the OTS regulations but would instead be governed by the
National Bank Act and OCC regulations. Under such statute and regulations,
all dividends by a national bank must be paid out of current or retained net
profits, after deducting reserves for losses and bad debts. The National Bank
Act further restricts the payment of dividends out of net profits by
prohibiting a national bank from declaring a dividend on its shares of common
stock until the surplus fund equals the amount of capital stock or, if the
surplus fund does not equal the amount of capital stock, until one-tenth of
the Bank's net profits for the preceding half year in the case of quarterly
or semi-annual dividends, or the preceding two half-year periods in the case
of annual dividends, are transferred to the surplus fund. In addition, the
prior approval of the OCC is required for the payment of a dividend if the
total of all dividends declared by a national bank in any calendar year would
exceed the total of its net profits for the year combined with its net
profits for the two preceding years, less any required transfers to surplus
or a fund for the retirement of any preferred stock.
The OCC has the authority to prohibit the payment of dividends by a
national bank when it determines such payment to be an unsafe and unsound
banking practice. In addition, the Bank would be prohibited by federal
statute and the OCC's prompt corrective action regulations from making any
capital distribution if, after giving effect to the distribution, the Bank
would be classified as "undercapitalized" under the OCC's regulations.
Finally, the Bank, like the Converted Bank, would not be able to pay
dividends on its capital stock if its capital would thereby be reduced below
the remaining balance of the liquidation account established in connection
with the Stock Conversion.
New York Commercial Banks. In the event the Bank converts to a
commercial bank, its ability to pay dividends would be subject to the
limitations of the Department. Under New York Banking Law, the directors of
a commercial bank may annually, semi-annually or quarterly, but not more
frequently, declare such dividends as they deem judicious to be paid from net
profits, as adjusted when a commercial bank makes a provision for loan
losses. No dividends may be declared, credited or paid so long as there is
any impairment of capital stock. The approval of the Department is required
if the total of all dividends declared by a commercial bank in any calendar
year exceeds the total of its net profits for that year combined with its
retained net profits of the preceding two years, less any required transfer
to surplus or a fund for the retirement of any preferred stock.
Liquidity
All savings associations, including the Bank, are required to maintain an
average daily balance of liquid assets equal to a certain percentage of the
sum of its average daily balance of net withdrawable deposit accounts and
borrowings payable in one year or less. For a discussion of what the Bank
includes in liquid assets, see "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources." This liquid asset ratio requirement may vary from time to time
(between 4% and 10%) depending upon economic conditions and savings flows of
all savings associations. At the present time, the minimum liquid asset
ratio is 5%.
In addition, short-term liquid assets (e.g., cash, certain time deposits,
certain bankers acceptances and short-term U.S. Treasury obligations)
currently must constitute at least 1% of the Bank's average daily balance of
net withdrawable deposit accounts and current borrowings. Penalties may be
imposed upon associations for violations
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of either liquid assets ratio requirement. At March 31, 1997, the Bank was
in compliance with both requirements, with a liquid assets ratio of 11.2% and
a short-term liquid assets ratio of 6.9%.
National banks and New York-chartered commercial banks are not subject to
any prescribed liquidity requirements.
Accounting
An OTS policy statement applicable to all savings associations clarifies
and re-emphasizes that the investment activities of a savings association
must be in compliance with approved and documented investment policies and
strategies, and must be accounted for in accordance with generally accepted
accounting principles. Under the policy statement, management must support
its classification of and accounting for loans and securities (i.e., whether
held for investment, sale or trading) with appropriate documentation.
The OTS has adopted an amendment to its accounting regulations, which may
be made more stringent than generally accepted accounting principles to
require that transactions be reported in a manner that best reflects their
underlying economic substance and inherent risk and that financial reports
must incorporate any other accounting regulations or orders prescribed by the
OTS. The Bank is in compliance with these amended rules.
The Bank will be subject to similar requirements following completion of
the Bank Conversion.
Qualified Thrift Lender Test
All savings associations, including the Bank, are required to meet a
qualified thrift lender ("QTL") test to avoid certain restrictions on their
operations. This test requires a savings association to have at least 65% of
its portfolio assets (as defined by regulation) in qualified thrift
investments on a monthly average for nine out of every 12 months on a rolling
basis. Such assets primarily consist of residential housing related loans
and investments. At March 31, 1997, the Bank met the test.
Any savings association that fails to meet the QTL test must convert to a
national bank charter, unless it requalifies as a QTL and thereafter remains
a QTL. If an association does not requalify and converts to a national bank
charter, it must remain SAIF-insured until the FDIC permits it to transfer to
the BIF. If such an association has not yet requalified or converted to a
national bank, its new investments and activities are limited to those
permissible for both a savings association and a national bank, and it is
limited to national bank branching rights in its home state. In addition,
the savings association is immediately ineligible to receive any new FHLB
borrowings and is subject to national bank limits for payment of dividends.
If such association has not requalified or converted to a national bank
within three years after the failure, it must divest of all investments and
cease all activities not permissible for a national bank. In addition, it
must repay promptly any outstanding FHLB borrowings, which may result in
prepayment penalties. If any association that fails the QTL test is
controlled by a holding company, then within one year after the failure, the
holding company must register as a bank holding company and become subject to
all restrictions on bank holding companies. See "-- Holding Company
Regulation."
The QTL requirements and the penalties imposed for the failure to comply
will not be applicable to the Bank following the Bank Conversion.
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Transactions with Affiliates
Generally, transactions between a savings association or its subsidiaries
and its affiliates are required to be on terms as favorable to the
association as transactions with non-affiliates. In addition, certain of
these transactions, such as loans to an affiliate, are restricted to a
percentage of the association's capital. Affiliates of the Bank include the
Company and any company which is under common control with the Bank. In
addition, a savings association may not lend to any affiliate engaged in
activities not permissible for a bank holding company or acquire the
securities of most affiliates.
Certain transactions with directors, officers or controlling persons are
also subject to conflict of interest regulations enforced by the OTS. These
conflict of interest regulations and other statutes also impose restrictions
on loans to such persons and their related interests. Among other things,
such loans must be made on terms substantially the same as for loans to
unaffiliated individuals. Following completion of the Bank Conversion, the
Bank will be subject to substantially identical rules on transactions with
affiliates and loans to directors, officers or controlling persons.
Holding Company Regulation
The Company will be a unitary savings and loan holding company subject to
regulatory oversight by the OTS. As such, the Company is required to
register and file reports with the OTS and is subject to regulation and
examination by the OTS. In addition, the OTS has enforcement authority over
the Company and its non-savings association subsidiaries which also permits
the OTS to restrict or prohibit activities that are determined to be a
serious risk to the subsidiary savings association.
As a unitary savings and loan holding company, the Company generally is
not subject to activity restrictions. If the Company acquires control of
another savings association as a separate subsidiary, it would become a
multiple savings holding company, and the activities of the Company and any
of its subsidiaries (other than the Bank or any other SAIF-insured savings
and loan association) would become subject to such restrictions unless such
other associations each qualify as a QTL and were acquired in a supervisory
acquisition.
If the Bank fails the QTL test, the Company must obtain the approval of
the OTS prior to continuing after such failure, directly or through its other
subsidiaries, any business activity other than those approved for multiple
savings and loan holding companies or their subsidiaries. In addition,
within one year of such failure the Company must register as, and will become
subject to, the restrictions applicable to bank holding companies. The
activities authorized for a bank holding company are more limited than are
the activities authorized for a unitary or multiple savings and loan holding
company. See "-- Qualified Thrift Lender Test."
The Company must obtain approval from the OTS before acquiring control of
any other SAIF-insured association. Such acquisitions are generally
prohibited if they result in a multiple savings and loan holding company
controlling savings and loan associations in more than one state. However,
such interstate acquisitions are permitted based on specific state
authorization or in a supervisory acquisition of a failing savings and loan
association.
Regulation of the Company Following the Bank Conversion
General. Upon consummation of the Bank Conversion, the Company, as the
sole shareholder of the Bank, will become a bank holding company and will
register as such with the FRB and deregister with the OTS as a savings and
loan holding company. Bank holding companies are subject to comprehensive
regulation by the FRB under the BHCA, and the regulations of the FRB. As a
bank holding company, the Company will be required to file reports with the
FRB and such additional information as the FRB may require, and will be
subject to regular examinations by the FRB. The FRB also has extensive
enforcement authority over bank holding companies, including, among other
things, the ability to assess civil money penalties, to issue cease and
desist or removal orders and to require that a holding
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company divest subsidiaries (including its bank subsidiaries). In general,
enforcement actions may be initiated for violations of law and regulations
and unsafe or unsound practices.
Under FRB policy, a bank holding company must serve as a source of
strength for its subsidiary banks. Under this policy the FRB may require,
and has required in the past, a holding company to contribute additional
capital to an undercapitalized subsidiary bank.
Under the BHCA, a bank holding company must obtain FRB approval before:
(i) acquiring, directly or indirectly, ownership or control of any voting
shares of another bank or bank holding company if, after such acquisition, it
would own or control more than 5% of such shares (unless it already owns or
controls the majority of such shares); (ii) acquiring all or substantially
all of the assets of another bank or bank holding company; or (iii) merging
or consolidating with another bank holding company.
The BHCA also prohibits a bank holding company, with certain exceptions,
from acquiring direct or indirect ownership or control of more than 5% of the
voting shares of any company which is not a bank or bank holding company, or
from engaging directly or indirectly in activities other than those of
banking, managing or controlling banks, or providing services for its
subsidiaries. The principal exceptions to these prohibitions involve certain
non-bank activities which, by statute or by FRB regulation or order, have
been identified as activities closely related to the business of banking or
managing or controlling banks. The list of activities permitted by the FRB
includes, among other things, operating a savings institution, mortgage
company, finance company, credit card company or factoring company;
performing certain data processing operations; providing certain investment
and financial advice; underwriting and acting as an insurance agent for
certain types of credit-related insurance; leasing property on a full-payout,
non-operating basis; selling money orders, travelers' checks and United
States Savings Bonds; real estate and personal property appraising; providing
tax planning and preparation services; and, subject to certain limitations,
providing securities brokerage services for customers. The Company has no
present plans to engage in any of these activities.
Interstate Banking and Branching. On September 29, 1994, the Riegle-Neal
Interstate Banking and Branching Act of 1994 (the "Act") was enacted to ease
restrictions on interstate banking. The Act allows the FRB to approve an
application of an adequately capitalized and adequately managed bank holding
company to acquire control of, or acquire all or substantially all of the
assets of, a bank located in a state other than such holding company's home
state, without regard to whether the transaction is prohibited by the laws of
any state. The FRB may not approve the acquisition of the bank that has not
been in existence for the minimum time period (not exceeding five years)
specified by the statutory law of the host state. The Act also prohibits the
FRB from approving an application if the applicant (and its depository
institution affiliates) controls or would control more than 10% of the
insured deposits in the United States or 30% or more of the deposits in the
target bank's home state or in any state in which the target bank maintains a
branch. The Act does not affect the authority of states to limit the
percentage of total insured deposits in the state which may be held or
controlled by a bank or bank holding company to the extent such limitation
does not discriminate against out-of-state banks or bank holding companies.
Individual states may also waive the 30% state-wide concentration limit
contained in the Act.
Additionally, beginning on June 1, 1997, the federal banking agencies are
authorized to approve interstate merger transactions without regard to
whether such transaction is prohibited by the law of any state, unless the
home state of one of the banks opts out of the Act by adopting a law after
the date of enactment of the Act and prior to June 1, 1997 which applies
equally to all out-of-state banks and expressly prohibits merger transactions
involving out-of-state banks. Interstate acquisitions of branches will be
permitted only if the law of the state in which the branch is located permits
such acquisitions. Interstate mergers and branch acquisitions will also be
subject to the nationwide and statewide insured deposit concentration amounts
described above.
The Act authorizes the OCC and FDIC to approve interstate branching de
novo by national and state banks, respectively, only in states which
specifically allow for such branching. The Act also requires the appropriate
federal
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banking agencies to prescribe regulations by June 1, 1997 which prohibit any
out-of-state bank from using the interstate branching authority primarily for
the purpose of deposit production. These regulations must include guidelines
to ensure that interstate branches operated by an out-of-state bank in a host
state are reasonably helping to meet the credit needs of the communities
which they serve. The OCC, FDIC and FRB proposed such regulations on March
17, 1997. Management of the Bank cannot predict when, or in what form final
regulations will be adopted.
Dividends. The FRB has issued a policy statement on the payment of cash
dividends by bank holding companies, which expresses the FRB's view that a
bank holding company should pay cash dividends only to the extent that the
holding company's net income for the past year is sufficient to cover both
the cash dividends and a rate of earning retention that is consistent with
the holding company's capital needs, asset quality and overall financial
condition. The FRB also indicated that it would be inappropriate for a
company experiencing serious financial problems to borrow funds to pay
dividends. Furthermore, under the prompt corrective action regulations
adopted by the FRB, the FRB may prohibit a bank holding company from paying
any dividends if the holding company's bank subsidiary is classified as
"undercapitalized." See "--Regulatory Capital Requirements."
Bank holding companies are required to give the FRB prior written notice
of any purchase or redemption of its outstanding equity securities if the
gross consideration for the purchase or redemption, when combined with the
net consideration paid for all such purchases or redemptions during the
preceding 12 months, is equal to 10% or more of their consolidated net worth.
The FRB may disapprove such a purchase or redemption if it determines that
the proposal would constitute an unsafe or unsound practice or would violate
any law, regulation, FRB order, or any condition imposed by, or written
agreement with, the FRB. This notification requirement does not apply to any
company that meets the well-capitalized standard for commercial banks, has a
safety and soundness examination rating of at least a "2" and is not subject
to any unresolved supervisory issues.
Capital Requirements. The FRB has established capital requirements for
bank holding companies that generally parallel the capital requirements for
national banks. For bank holding companies with consolidated assets of less
than $150 million, such as the Company, compliance is measured on a bank-only
basis. See "--Regulatory Capital Requirements--National Banks."
Federal Securities Law
The stock of the Holding Company will be registered with the Securities
and Exchange Commission ("SEC") under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"). The Company will be subject to the
information, proxy solicitation, insider trading restrictions and other
requirements of the SEC under the Exchange Act.
Company stock held by persons who are affiliates (generally officers,
directors and principal stockholders) of the Company may not be resold
without registration or unless sold in accordance with certain resale
restrictions. If the Company meets specified current public information
requirements, each affiliate of the Company is able to sell in the public
market, without registration, a limited number of shares in any three-month
period.
Federal Reserve System
The Federal Reserve Board requires all depository institutions to
maintain noninterest-bearing reserves at specified levels against their
transaction accounts (primarily checking, NOW and Super NOW checking
accounts). At March 31, 1997, the Bank was in compliance with these reserve
requirements. The balances maintained to meet the reserve requirements
imposed by the Federal Reserve Board may be used to satisfy liquidity
requirements that may be imposed by the OTS. See "-- Liquidity."
Savings associations are authorized to borrow from the Federal Reserve
Bank "discount window," but Federal Reserve Board regulations require
associations to exhaust other reasonable alternative sources of funds,
including FHLB borrowings, before borrowing from the Federal Reserve Bank.
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Federal Home Loan Bank System
The Bank is a member of the FHLB of New York, which is one of 12
regional FHLBs, that administers the home financing credit function of
savings associations. Each FHLB serves as a reserve or central bank for its
members within its assigned region. It is funded primarily from proceeds
derived from the sale of consolidated obligations of the FHLB System. It
makes loans to members (i.e., advances) in accordance with policies and
procedures established by the board of directors of the FHLB. These policies
and procedures are subject to the regulation and oversight of the Federal
Housing Finance Board. All advances from the FHLB are required to be fully
secured by sufficient collateral as determined by the FHLB. In addition, all
long-term advances are required to provide funds for residential home
financing.
As a member, the Bank is required to purchase and maintain stock in the
FHLB of New York. At March 31, 1997, the Bank had $59,000 of FHLB stock.
Subsequent to March 31, 1997, the Bank purchased an additional $22,000 in
FHLB stock. In past years, the Bank has received dividends on its FHLB
stock. The dividend yield from FHLB stock was 6.4% for fiscal 1997. No
assurance can be given that such dividends will continue in the future at
such levels. The Bank currently intends to remain a member of the FHLB of New
York following completion of the Bank Conversion.
Under federal law, the FHLBs are required to provide funds for the
resolution of troubled savings associations and to contribute to low and
moderately priced housing programs through direct loans or interest subsidies
on advances targeted for community investment and low- and moderate-income
housing projects. These contributions have affected adversely the level of
FHLB dividends paid and could continue to do so in the future. These
contributions could also have an adverse effect on the value of FHLB stock in
the future. A reduction in value of the Bank's FHLB stock may result in a
corresponding reduction in the Bank's capital.
Federal and State Taxation
Federal Taxation. Savings associations such as the Bank that meet
certain definitional tests relating to the composition of assets and other
conditions prescribed by the Code are permitted to establish reserves for bad
debts and to make annual additions thereto which may, within specified
formula limits, be taken as a deduction in computing taxable income for
federal income tax purposes. The amount of the bad debt reserve deduction
for "non-qualifying loans" is computed under the experience method. For tax
years beginning before December 31, 1995, the amount of the bad debt reserve
deduction for "qualifying real property loans" (generally loans secured by
improved real estate) may be computed under either the experience method or
the percentage of taxable income method (based on an annual election). If a
savings association elected the latter method, it could claim, each year, a
deduction based on a percentage of taxable income, without regard to actual
bad debt experience.
Under the experience method, the bad debt reserve deduction is an amount
determined under a formula based generally upon the bad debts actually
sustained by the savings and loan association over a period of years.
Pursuant to certain legislation which was recently enacted and which is
effective for tax years beginning after 1995, a small thrift institution (one
with an adjusted basis of assets of less than $500 million), such as the
Bank, no longer is permitted to make additions to its tax bad debt reserve
under the percentage of taxable income method. Such institutions are
permitted to use the experience method in lieu of deducting bad debts only as
they occur. Such legislation requires the Bank to realize increased tax
liability over a period of at least six years, beginning in 1996.
Specifically, the legislation requires a small thrift institution to
recapture (i.e., take into income) over a multi-year period the balance of
its bad debt reserves in excess of the lesser of (i) the balance of such
reserves as of the end of its last taxable year ending before 1988 or (ii) an
amount that would have been the balance of such reserves had the institution
always computed its additions to its reserves using the experience method.
The recapture requirement is suspended for each of two successive taxable
years beginning January 1, 1996 in which the Bank originates an amount of
certain kinds of residential loans which in the aggregate are equal to or
greater than the average of the principal
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amounts of such loans made by the Bank during its six taxable years preceding
1996. It is anticipated that any recapture of the Bank's bad debt reserves
accumulated after 1987 would not have a material adverse effect on the Bank's
financial condition and results of operations. As of March 31, 1997, the
Bank's accumulated bad debt reserves after 1987 amounted to $39,000.
If an association ceases to qualify as a "bank" (as defined in Code
Section 581) or converts to a credit union, the pre-1988 reserves and the
supplemental reserve are restored to income ratably over a six-year period,
beginning in the tax year the association no longer qualifies as a bank. The
balance of the pre-1988 reserves are also subject to recapture in the case of
certain excess distributions to (including distributions on liquidation and
dissolution), or redemptions of, shareholders.
In addition to the regular federal income tax, corporations, including
savings and loan associations such as the Bank, generally are subject to a
minimum tax. An alternative minimum tax is imposed at a minimum tax rate of
20% on alternative minimum taxable income, which is the sum of a
corporation's regular taxable income (with certain adjustments) and tax
preference items, less any available exemption. The alternative minimum tax
is imposed to the extent it exceeds the corporation's regular income tax and
net operating losses can offset no more than 90% of alternative minimum
taxable income. For taxable years beginning after 1986 and before 1996,
corporations, including savings and loan associations such as the Bank, are
also subject to an environmental tax equal to 0.12% of the excess of
alternative minimum taxable income for the taxable year (determined without
regard to net operating losses and the deduction for the environmental tax)
over $2 million.
The Bank files its federal income tax returns on a calendar year basis
using the cash method of accounting. The Company intends to file
consolidated federal income tax returns with the Bank. Savings and loan
associations, such as the Bank, that file federal income tax returns as part
of a consolidated group are required by applicable Treasury regulations to
reduce their taxable income for purposes of computing the percentage bad debt
deduction for losses attributable to activities of the non-savings and loan
association members of the consolidated group that are functionally related
to the activities of the savings association member.
The Bank has not been audited by the IRS with respect to federal income
tax returns during the past five years. In the opinion of management, any
examination of still open returns would not result in a deficiency which
could have a material adverse effect on the financial condition of the Bank.
State Taxation. The Bank is subject to the New York State Franchise Tax
on Banking Corporations in an annual amount equal to the greater of (i) 9% of
the Bank's "entire net income" allocable to New York State during the taxable
year, or (ii) the applicable alternative minimum tax. The alternative
minimum tax is generally the greatest of (a) .01% of the value of the taxable
assets allocable to New York State with certain modifications, (b) 3% of the
Bank's "alternative entire net income" allocable to New York State or (c)
$250. Entire net income is similar to federal taxable income, subject to
certain modifications (including that net operating losses cannot be carried
back or carried forward) and alternative entire net income is equal to entire
net income without certain adjustments.
Delaware Taxation. As a Delaware holding company, the Company is
exempted from Delaware corporate income tax but is required to file an annual
report with and pay an annual fee to the State of Delaware. The Company is
also subject to an annual franchise tax imposed by the State of Delaware.
MANAGEMENT
Directors and Executive Officers of the Company
The Board of Directors of the Company currently consists of seven
members, each of whom is also a director of the Bank. See "--Directors of
Bank." Each Director of the Company has served as such since the Company's
incorporation in June 1997. Directors of the Company will serve three-year
staggered terms so that approximately
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one-third of the directors will be elected at each annual meeting of
stockholders. The terms of the current directors of the Company are the same
as their terms as directors of the Bank. The Company does not intend
initially to pay directors fees for their service on the Board of Directors
of the Company. See "--Directors of the Bank."
The executive officer of the Company is elected annually and holds
office until his respective successor has been elected and qualified or until
death, resignation or removal by the Board of Directors. The executive
officer of the Company is set forth below.
<TABLE>
<CAPTION>
<S> <C> <C>
Name Age Title
---------------------- --- --------------------------------------------
Gordon E. Coleman 42 President and Chief Executive
Officer
</TABLE>
It is not anticipated that the executive officer of the Company will
receive any remuneration in his capacity as a Company executive officer.
For information regarding compensation of directors and executive officers of
the Bank, see "-- Meetings of the Board of Directors and Committees of the
Bank," "--Compensation of the Board of Directors of the Bank" and
"--Executive Compensation."
Committees of the Company
The Company formed standing Audit, Nominating and Compensation
Committees in connection with its organization in June 1997. The Company was
not incorporated in fiscal 1996 and therefore the committees did not meet
during that fiscal year.
The Audit Committee will review audit reports and related matters to
ensure effective compliance with regulations and internal policies and
procedures. This committee also will act on the recommendation by management
of an accounting firm to perform the Company's annual audit and acts as a
liaison between the auditors and the Board. The current members of this
committee are Directors Mr. Walton, Ms. Symolon and Mr. Coleman.
The Nominating Committee will meet annually in order to nominate
candidates for membership on the Board of Directors. This committee is
comprised of the Board members who are not up for election.
The Personnel Committee will establish the Company's compensation
policies and review compensation matters. This Committee is currently
composed of Mr. Ferraro, Mr. LaCoppola and Mr. Rockefeller.
Indemnification
The Certificate of Incorporation of the Company provides that a director
or officer of the Company shall be indemnified by the Company to the fullest
extent authorized by the Delaware General Corporation Law ("DGCL") against
all expenses, liability and loss reasonably incurred or suffered by such
person in connection with his activities as a director or officer or as a
director or officer of another company, if the director or officer held such
position at the request of the Company. Delaware law requires that such
director, officer, employee or agent, in order to be indemnified, must have
acted in good faith and in a manner reasonably believed to be not opposed to
the best interests of the Company and, with respect to any criminal action or
proceeding, either had reasonable cause to believe such conduct was lawful or
did not have reasonable cause to believe his conduct was unlawful.
The Certificate of Incorporation and Delaware law also provide that
the indemnification provisions of such Certificate of Incorporation and the
statute are not exclusive of any other right which a person seeking
indemnification
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may have or later acquire under any statute, provision of the
Certificate of Incorporation, Bylaws of the Company, agreement, vote of
stockholders or disinterested directors or otherwise.
These provisions may have the effect of deterring shareholder derivative
actions, since the Company may ultimately be responsible for expenses for
both parties to the action. A similar effect would not be expected for
third-party claims.
In addition, the Certificate of Incorporation and Delaware law also
provide that the Company may maintain insurance, at its expense, to protect
itself and any director, officer, employee or agent of the Company or another
corporation, partnership, joint venture, trust or other enterprise against
any expense, liability or loss, whether or not the Company has the power to
indemnify such person against such expense, liability or loss under the DGCL.
The Company intends to obtain such insurance.
Directors of the Bank
Prior to the Stock Conversion, the direction and control of the Bank, as
a mutual savings institution, has been vested in its Board of Directors.
Upon conversion of the Bank to stock form, each of the directors of the Bank
will continue to serve as a director of the converted Bank. The Board of
Directors of the Bank currently consists of seven directors. The directors
are divided into three classes. Approximately one-third of the directors
will be elected at each annual meeting of stockholders. Because the Company
will own all of the issued and outstanding shares of capital stock of the
Converted Bank after the Stock Conversion, directors of the Company will
elect the directors of the Bank.
The following table sets forth certain information regarding the
directors of the Bank and the Company:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Director Term
Name Position(s) Held with the Bank Age(1) Since Expires
- ---------------------- -------------------------------- ----- -------- -------
John R. Francisco Chairman of the Board 46 1981 1998
Gordon E. Coleman President and Chief Executive Officer 42 1997 1998
F. Richard Ferraro Director 72 1972 1999
Frederick P. LaCoppola Director and Treasurer 54 1986 2000
Carl J. Rockefeller Director 45 1994 2000
Patricia A. Symolon Director 62 1994 1999
Myron H. Walton Director and Corporate Secretary 72 1972 2000
</TABLE>
- --------------------------
(1) At March 31, 1997.
The business experience of each director is set forth below. All
directors have held their present position for at least the past five years,
except as otherwise indicated.
John R. Francisco is Chairman of the Board of the Bank and, until June
1997, he was the Bank's President. Mr. Francisco is a practicing attorney in
the town of St. Johnsville, New York.
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Gordon E. Coleman is the President and Chief Executive
Officer of the Bank. Prior to joining the Bank in 1996, Mr. Coleman was the
Agricultural loan officer for Central National Bank from 1993 until 1996.
Prior to that time Mr. Coleman was an Assistant Vice President of Citizens
National Bank of Malone.
F. Richard Ferraro is a Leasing Manager for R. Brown & Sons, Inc. an
automobile dealership.
Carl J. Rockefeller serves as the business manager of the Fort Plain
Central School in Ft. Plain, New York. Mr. Rockefeller is also bookkeeper
for the town of Minden.
Patricia A. Symolon is retired. Until her retirement in 1996, she was
the former Chief Executive Officer of Canajoharie Buildings Savings and Loan
Association.
Myron H. Walton has been Corporate Secretary since March 1997.
Previously, Mr. Walton was a self-employed businessman.
Frederick P. LaCoppola is the Bank's Treasurer. Mr. LaCoppola is a
District Agent for Presidential Insurance Corp.
There are no executive officers of the Bank that are not also directors
of the Bank.
Meetings of the Board of Directors and Committees of the Bank
The Board of Directors met 24 times during the year ended March 31,
1997. During fiscal 1997, no director of the Bank attended fewer than 75% of
the aggregate of the total number of Board meetings and the total number of
meetings held by the committees of the Board of Directors on which he served.
The Bank's Compensation Committee, composed of the entire Board of
Directors, meets annually to review the compensation for employees of the
Bank. This committee met once during the year ended March 31, 1997.
The Audit Committee reviews (i) the independent auditors' reports and
results of their examination, (ii) the internal audit function, which is
under the control of and reports directly to the Audit Committee, and (iii)
the examination reports of the OTS and the FDIC and other regulatory reports.
The Audit Committee met once during the year ended March 31, 1997.
Compensation of the Board of Directors of the Bank
During fiscal 1997, directors, other than the Chairman of the Board,
received fees of $300 for their attendance at each regular meeting of the
Board of Directors and $100 for each special meeting. The Chairman of the
Board received $600 for his attendance at each regular meeting of
stockholders. The Bank paid total director fees of $29,000 during fiscal
1997.
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EXECUTIVE COMPENSATION
The following table sets forth information concerning the compensation
paid or granted to the Bank's President and Chief Executive Officer. No other
executive officer of the Bank had aggregate compensation (salary plus bonus)
in excess of $100,000 in fiscal 1997.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
- -----------------------------------------------------------------------------------------------------
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION(1) AWARDS
- -------------------------------------------------------------------------------------------------
OTHER RESTRICTED
ANNUAL STOCK OPTIONS/ ALL OTHER
NAME AND PRINCIPAL FISCAL COMPENSATION AWARD SARS COMPENSATION
POSITION YEAR(1) SALARY($) BONUS($) ($) ($) (#) ($)
- ----------------------------- ------- --------- -------- ------------ ---------- -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Gordon E. Coleman, President and
Chief Executive Officer...... 1997 45,000 3,600 $ -- -- -- --
</TABLE>
- ------------------------
(1) In accordance with the rules on executive officer and director compensation
disclosure adopted by the SEC, Summary Compensation information is excluded
for the fiscal years ended March 31, 1996 and 1995, as the Bank was not a
public company during such periods.
Benefit Plans
General. The Bank currently provides health care benefits, including
medical and prescription plan benefits, subject to certain deductibles and
copayments by employees, and group life insurance to its full time employees.
Stock Option and Incentive Plan. Following consummation of the Stock
Conversion, the Board of Directors of the Company intends to adopt a Stock
Option Plan, which will be designed to attract and retain qualified personnel
in key positions, provide directors, officers and key employees with a
proprietary interest in the Company as an incentive to contribute to the
success of the Company and reward key employees for outstanding performance and
the attainment of targeted goals. The Stock Option Plan will provide for the
grant of incentive stock options intended to comply with the requirements of
Section 422 of the Code ("incentive stock options"), non-incentive stock
options, stock appreciation rights, and limited stock appreciation rights
(collectively "Awards"). Awards may be granted to key employees of the Company
and any subsidiaries. The Stock Option Plan will be administered and interpreted
by the Company's Compensation Committee (the "Committee") the members of which
will be either the full Board or at least two "non-employee directors" as
defined in Rule 16b-3 of the Exchange Act. Directors who are not employees
("Outside Directors") will only be entitled to receive non-incentive stock
options pursuant to a formula governing the amount and timing of such options.
Unless sooner terminated, the Stock Option Plan shall continue in effect for a
period of 10 years from the date the Stock Option Plan is adopted by the Board
of Directors.
Under the proposed Stock Option Plan, the Committee will determine which
officers and key employees will be granted Awards, whether options will be
incentive or non-incentive options, the number of shares subject to each Award,
the exercise price of each option, whether options may be exercised by
delivering other shares of Common Stock and when such options become
exercisable. The per share exercise price of an incentive or non-incentive
stock option must at least equal the fair market value of a share of Common
Stock on the date the option is granted.
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Stock options will become exercisable in the manner specified by the
Committee, provided that all options will become fully exercisable in the event
of a change in control of the Company if the plan is implemented following the
one-year anniversary of the Stock Conversion. If the plan is implemented within
the first year following the Stock Conversion, OTS regulations that would be
applicable to the Bank following the Conversion, would require the stock options
to vest at a rate not in excess of 20% per year and prohibit accelerated vesting
except in the case of disability or death. Each stock option or portion thereof
will be exercisable at any time on or after it vests and will be exercisable
until 10 years after its date of grant or for periods of up to one year
following the death, disability or other termination of the optionee's
employment. However, failure to exercise incentive stock options within three
months after the date on which the optionee's employment terminates may result
in adverse tax consequences to the optionee. Incentive stock options are
non-transferable except by will or the laws of descent and distribution.
Non-incentive stock options may be transferable in the sole discretion of the
Committee.
The proposed Stock Option Plan provides for the grant of Stock Appreciation
Rights ("SARs") at any time, whether or not the participant then holds stock
options, granting the right to receive the excess of the market value of the
shares represented by the SARs on the date exercised over the exercise price.
SARs generally will be subject to the same terms and conditions and exercisable
to the same extent as stock options. There is no present intention to grant any
SARs.
At the time an Award is granted pursuant to the Plan, the recipient will
not be required to make any payment in consideration for such grant. With
respect to incentive or non-incentive stock options, the optionee will be
required to pay the applicable exercise price at the time of exercise in order
to receive the underlying shares of Common Stock. If a stock appreciation right
is exercised, the holder of the right is entitled to receive an amount equal to
the excess of the fair market value of the underlying shares of Common Stock
over the applicable exercise price, without having to pay the exercise price.
A number of shares of Common Stock equal to an aggregate of 10% of the
Common Stock sold in the Conversion will be reserved for issuance pursuant to
the Stock Option Plan (11,500 shares, based on the sale of 115,000 shares). Such
shares may be authorized but previously unissued shares, treasury shares, or
shares purchased by the Company on the open market or from private sources. In
the event of a stock split, reverse stock split or stock dividend, the number of
shares of Common Stock under the Stock Option Plan, the number of shares to
which any Award relates and the exercise price per share under any option or
stock appreciation right shall be adjusted to reflect such increase or decrease
in the total number of shares of Common Stock outstanding.
Under current provisions of the Code, the federal income tax treatment of
incentive stock options and non-incentive stock options is different. As regards
incentive stock options, an optionee who meets certain holding period
requirements will not recognize income at the time the option is granted or at
the time the option is exercised, and a federal income tax deduction generally
will not be available to the Company at any time as a result of such grant or
exercise. With respect to non-incentive stock options, the difference between
the fair market value on the date of exercise and the option exercise price
generally will be treated as compensation income upon exercise, and the Company
will be entitled to a deduction in the amount of income so recognized by the
optionee. Upon the exercise of a stock appreciation right, the holder will
realize income for federal income tax purposes equal to the amount received by
him, whether in cash, shares of stock or both, and the Company will be entitled
to a deduction for federal income tax purposes in the same amount.
Under regulations of the OTS that would apply to the Bank following the
Conversion, if the Stock Option Plan is submitted to and approved by
stockholders of the Company within one year after completion of the Conversion,
no more than 30% of the shares available under the Stock Option Plan could be
granted to non-employee directors, no more than 5% of the shares available could
be granted to an individual non-employee director, and no more than 25% of the
shares available could be granted to an individual officer. It is currently
expected that stock options will be granted to Mr. Coleman and other officers
and directors of the Bank, although no determination has
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<PAGE>
been made at this time as to the amount of such stock option awards. The Company
does not expect to grant any stock appreciation rights or performance share
awards in the first year following completion of the Stock Conversion.
The Company currently intends to submit the Stock Option Plan to
stockholders for approval following the one-year anniversary of the Stock
Conversion. However, the Company reserves the right to submit such plan to
stockholders prior to such time, provided that such meeting is at least six
months following the Stock Conversion. In such event, the proposed Stock Option
Plan would need to include a mandatory five-year vesting schedule and a
prohibition on accelerated vesting in the event of a change in control, which
provisions are required by current OTS regulations for plans implemented within
one year following the Stock Conversion.
RECOGNITION AND RETENTION PLAN. Following consummation of the Stock
Conversion, the Board of Directors of the Company intends to adopt an RRP for
directors, officers and key employees. The objective of the RRP will be to
enable the Company to provide directors, officers and key employees with a
proprietary interest in the Company as an incentive to contribute to its
success.
The RRP will be administered and interpreted by the Company's Compensation
Committee (the "Committee"), the members of which will be the full Board or at
least two "non-employee directors" as defined in Rule 16b-3 of the Exchange Act.
The Committee will have the responsibility to invest all funds contributed to
the RRP. The Company will contribute sufficient funds so that the RRP can
purchase, following the receipt of stockholder approval, a number of shares
equal to an aggregate of 4% of the Common Stock sold in the Stock Conversion
(4,600 shares, based on the sale of 115,000 shares). Assuming the Common Stock
awarded pursuant to the RRP had a value of $10.00 per share, and the Company
issued 115,000 shares, the aggregate value of RRP awards would be $46,000.
Shares of Common Stock granted pursuant to the RRP generally will be in the form
of restricted stock and, if the RRP is implemented within the first year
following the Stock Conversion, will vest at the rate of 20% per year over the
five years following the date of grant, to the extent required by applicable
law. For accounting purposes, compensation expense in the amount of the fair
market value of the Common Stock at the date of the grant to the recipient will
be recognized pro rata over the period during which the shares are payable. A
recipient will be entitled to all voting and other stockholder rights, except
that the shares, while restricted, may not be sold, pledged or otherwise
disposed of. If a recipient terminates employment for reasons other than death
or disability, the recipient will forfeit all rights to the allocated shares
under restriction. If the recipient's termination is caused by death or
disability, all restrictions will expire and all allocated shares will become
unrestricted. All restrictions also will expire and all allocated shares will
become unrestricted in the event of a change in control of the Company, as
defined in the RRP. However, if the plan is implemented within the first year
following the Stock Conversion, current OTS regulations would prohibit
accelerated vesting except in the event of disability or death. The Board of
Directors of the Company can terminate the RRP at any time, and if it does so,
any shares not allocated will revert to the Company. Recipients of grants under
the RRP will not be required to make any payment at the time of grant or when
the underlying shares of Common Stock become vested.
Under regulations of the OTS that would apply to the Bank following the
Conversion, if the RRP is submitted to and approved by the stockholders of the
Company within one year after completion of the Stock Conversion, no more than
30% of the shares available under the RRP could be granted to non-employee
directors, no more than 5% of the shares available could be granted to an
individual outside director, and no more than 25% of the shares available could
be granted to an individual officer. It is currently expected that awards will
be granted to Mr. Coleman and other officers and directors of the Bank, although
no determination has been made at this time as to the amount of such awards.
The Company currently intends to submit the RRP to stockholders for
approval following the one-year anniversary of the Stock Conversion. However,
the Company reserves the right to submit such plan to stockholders prior to
such time, provided that such meeting is held at least six months following the
Stock Conversion. In such event, the RRP would need to include a prohibition on
accelerated vesting in the event of a change in control, which
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<PAGE>
provision is required by current OTS regulations applicable to plans implemented
within one year following the Stock Conversion.
It is currently anticipated that the RRP will be funded by shares
subsequently reacquired and held as treasury shares or through the issuance of
authorized but unissued shares. To the extent the RRP is funded from authorized
but unissued shares, the funding of the RRP will have the effect of diluting
existing stockholders. See "Prospectus Summary --Benefits of Conversion to
Directors and Executive Officers" and "Capitalization."
EMPLOYEE STOCK OWNERSHIP PLAN. The Boards of Directors of the Bank and the
Company have approved the adoption of an ESOP for the benefit of employees of
Landmark Community. The ESOP is designed to meet the requirements of an employee
stock ownership plan as described at Section 4975(e)(7) of the Code and Section
407(d)(6) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), and, as such, the ESOP is empowered to borrow in order to finance
purchases of the Common Stock.
It is anticipated that the ESOP will be capitalized with a loan from the
Company. The proceeds from this loan are expected to be used by the ESOP to
purchase up to 8.0% of the Common Stock issued in the Stock Conversion. After
the Stock Conversion, as a qualified employee pension plan under Section 401(a)
of the Code, the ESOP will be in the form of a stock bonus plan and will provide
for contributions, predominantly in the form of either Common Stock or cash,
which will be used within a reasonable period after the date of contributions
primarily to purchase Common Stock. The Bank will receive a tax deduction equal
to the amount it contributes to the ESOP, subject to the limitations set forth
in the Code. The maximum tax-deductible contribution by the Bank in any year is
an amount equal to the maximum amount that may be deducted by the Bank under
Section 404 of the Code, subject to reduction based on contributions to other
Tax-Qualified Employee Plans. Additionally, the Bank will not make contributions
if such contributions would cause the Bank to violate its regulatory capital
requirements. The assets of the ESOP will be invested primarily in Common Stock.
From time to time, the ESOP may purchase additional shares of Common Stock
for the benefit of plan participants through purchases of outstanding shares in
the market, upon the original issuance of additional shares by the Company or
upon the sale of shares held in treasury by the Company. Such purchases, which
are not currently contemplated, would be subject to then-applicable laws,
regulations and market conditions.
Generally accepted accounting principles require that any borrowing by the
ESOP be reflected as a liability in the Company's consolidated financial
statements, whether or not such borrowing is guaranteed by, or constitutes a
legally binding contribution commitment of the Company or the Bank. In addition,
shares purchased with borrowed funds will, to the extent of the borrowings, be
excluded from stockholders' equity, representing unearned compensation to
employees for future services not yet performed. Consequently, if the ESOP
purchases already-issued shares in the open market, the Company's consolidated
liabilities will increase to the extent of the ESOP's borrowings, and total and
per share stockholders' equity will be reduced to reflect such borrowings. If
the ESOP purchases newly issued shares from the Company, total stockholders'
equity would neither increase nor decrease, but per share stockholders' equity
and per share net income would decrease because of the increase in the number of
outstanding shares. In either case, as the borrowings used to fund ESOP
purchases are repaid, total stockholders' equity will correspondingly increase.
All employees of the Bank will be eligible to participate in the ESOP after
they attain age 18 and complete one year of service during which they work at
least 1,000 hours. Employees will be credited for years of service to the Bank
prior to the adoption of the ESOP for participation and vesting purposes. The
Bank's contribution to the ESOP will be allocated among participants on the
basis of compensation. Each participant's account will be credited with cash and
shares of Common Stock based upon compensation earned during the year with
respect to which the contribution is made. After completing five years of
service, a participant will be 100% vested in his ESOP account. ESOP
participants will be entitled to receive distributions from their ESOP accounts
only upon termination of service.
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Distribution will be made in cash and in whole shares of Common Stock.
Fractional shares will be paid in cash. Participants will not incur a tax
liability until a distribution is made.
Participating employees will be entitled to instruct the trustee of the
ESOP as to how to vote the shares held in their account. The trustee, who has
dispositive power over the shares in the Plan, will not be affiliated with the
Company or the Bank. The ESOP may be amended by the Board of Directors of the
Company, except that no amendment may be made which would reduce the interest of
any participant in the ESOP trust fund or divert any of the assets of the ESOP
trust fund to purposes other than the benefit of participants or their
beneficiaries.
INDEBTEDNESS OF MANAGEMENT
The Bank has followed a policy of granting consumer loans and loans secured
by one- to four-family real estate to officers, directors and employees. Loans
to directors and executive officers are made in the ordinary course of business
and on the same terms and conditions as those of comparable transactions with
the general public prevailing at the time, in accordance with the Bank's
underwriting guidelines, and do not involve more than the normal risk of
collectibility or present other unfavorable features.
All loans by the Bank to its directors and executive officers are subject
to OTS regulations restricting loan and other transactions with affiliated
persons of the Bank. OTS regulations permit executive officers and directors to
obtain loans on the same terms that are available to other employees. There
were no loans outstanding to any director, executive officer or their affiliates
at preferential rates or terms which in the aggregate exceeded $60,000 during
the three years ended March 31, 1997. All loans to directors and officers were
performing in accordance with their terms at March 31, 1997.
THE CONVERSION
The Board of Directors of the Bank and the OTS have approved the Plan of
Conversion, subject to approval by the members of the Bank and the satisfaction
of certain other conditions. OTS approval does not constitute a recommendation
or endorsement by the OTS of the Plan of Conversion. Certain terms used in the
following summary are defined in the Plan of Conversion, a copy of which may be
obtained by contacting the Bank.
GENERAL
On April 1, 1997, the Board of Directors adopted the Plan, subject to
approval by the OTS and the members of the Bank. The Plan was subsequently
amended in November 1996. Pursuant to the Plan, the Bank proposes to convert
from a federal mutual savings association to a federal stock savings bank and
subsequently to either a national bank or New York State chartered commercial
bank. The OTS has approved the Plan, subject to its approval by the affirmative
vote of the members of the Bank holding not less than a majority of the total
number of votes eligible to be cast at a Special Meeting called for that purpose
to be held on , 1997.
The Stock Conversion will be accomplished through amendment of the Bank's
federal mutual charter to authorize the issuance of capital stock, at which time
the Bank will become a wholly owned subsidiary of the Company. Following the
consummation of the Stock Conversion, the Board of Directors of the Bank intends
to effectuate the Bank Conversion.
The Company has received approval from the OTS to become the holding
company of the Converted Bank subject to the satisfaction of certain conditions
and to acquire all of the common stock of the Converted Bank to be issued in the
Stock Conversion in exchange for a minimum of 80% of the net proceeds from the
sale of Common Stock in the Stock Conversion. The Stock Conversion will be
effected only upon completion of the sale of the shares of Common Stock to be
issued by the Company pursuant to the Plan of Conversion. The Company intends to
apply to the FRB for approval of the Company's continued ownership of 100% of
the stock of the Bank following the Bank
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Conversion. The Bank intends to apply to either the OCC or the Department to
convert its charter to either a national bank or New York State commercial
charter. There can be no assurance that such approvals will be received. If
such approvals are not received, the Bank Conversion will not occur. See "Risk
Factors--Potential Delay in Completion or Denial of Bank Conversion."
The Plan of Conversion provides that the Board of Directors of the Bank
may, at any time, elect not to proceed with the Bank Conversion. It is the
present intent of the Bank's Board of Directors to proceed with both the Stock
Conversion and the Bank Conversion.
Subscription Rights are being given to Eligible Account Holders, the
Tax-Qualified Employee Plans of the Bank and the Company, Supplemental Eligible
Account Holders, Other Members, and officers, directors and employees of the
Bank. Concurrently with, during, or following the Subscription Offering, and
subject to the prior rights of holders of Subscription Rights, members of the
general public to whom a prospectus is delivered are being afforded the
opportunity to subscribe for Common Stock in the Community Offering. See "--
Offering of Common Stock." Depending upon market conditions, any shares not
initially subscribed for in the Subscription Offering may be offered for sale by
the Company in any other manner permitted by the OTS." Subscriptions for shares
will be subject to the maximum and minimum purchase limitations set forth in the
Plan of Conversion.
BUSINESS PURPOSES
The Bank has several business purposes for the Stock Conversion. The sale
of Common Stock will have the immediate result of providing the Bank with
additional equity capital. This increased capital will support expansion of its
financial services, subject to applicable regulatory restrictions. The sale of
the Common Stock is the most effective means of increasing the Bank's permanent
capital and does not involve the high interest cost and repayment obligation of
subordinated debt. In addition, investment of the net Stock Conversion proceeds
is expected to provide additional operating income to further increase the
Bank's capital on a continuing basis.
The Bank's Board of Directors will undertake the Bank Conversion to allow
the Bank to broaden its range or banking practices and services consistent with
a commercial bank charter. Management believes such expansion can be more
effectively developed if the Bank operated under regulatory requirements
applicable to a national or commercial bank rather than a federally chartered
savings association. Moreover, management believes the additional operating
flexibility associated with the national or commercial bank charter will enable
the Bank to compete more effectively with other financial institutions. See
"Regulation."
The Board of Directors of the Bank believes that a holding company
structure could facilitate the acquisition of other financial institutions as
well as other companies. If a multiple holding company structure is utilized in
a future acquisition, the acquired savings institution or bank would be able to
operate on a more autonomous basis as a wholly owned subsidiary of the Company
rather than as a division of the Bank. For example, the acquired savings
institution could retain its own directors, officers and corporate name as well
and have representation on the Board of Directors of the Company. As of the
date hereof, there are no plans or understandings by the Bank or the Company
regarding the acquisition of any other institutions.
The preferred stock and additional common stock of the Company being
authorized in the Stock Conversion will be available for future acquisitions
(although the Company has no current negotiations, understandings or plans with
respect to any acquisition) and for issuance and sale to raise additional equity
capital, subject to market conditions and generally without stockholder
approval.
The Stock Conversion will structure the Bank in the stock form used in the
United States by all commercial banks, most major business corporations and an
increasing number of savings institutions. The Stock Conversion will permit the
Bank's members to become stockholders of the Company, thereby allowing them to
own stock in the parent corporation of the Bank in which they maintain deposit
accounts or with which they have a borrowing relationship.
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Such ownership may encourage customers who become stockholders to promote the
Bank to others, thereby further contributing to the Bank's growth. The more
flexible operating structure provided by the Company and the stock form of
ownership is expected to assist the Bank in competing aggressively with other
financial institutions in its principal market area.
The Bank is also expected to benefit from its management and employees
owning stock, because stock ownership is viewed as an effective performance
incentive and a means of attracting, retaining and compensating personnel.
Effects of Stock Conversion to Stock Form on Depositors and Borrowers of the
Bank
VOTING RIGHTS. Upon Conversion, neither deposit account holders nor
borrowers will have voting rights in the Bank, or the Company and will therefore
not be able to elect directors of either entity or to control their affairs.
These rights are currently accorded to deposit account holders with regard to
the Bank. Subsequent to the Stock Conversion, voting rights will be vested
exclusively in the Company as the sole stockholder of the Bank. Voting rights as
to the Company will be held exclusively by its stockholders. Each purchaser of
Company Common Stock shall be entitled to vote on any matters to be considered
by the Company stockholders. A stockholder will be entitled to one vote for each
share of Common Stock owned, subject to certain limitations applicable to
holders of 10% or more of the shares of the Common Stock. See "Restrictions on
Acquisitions of Stock and Related Takeover Defensive Provisions." The Company
intends to supply each stockholder with annual reports and proxy statements.
DEPOSIT ACCOUNTS AND LOANS. The terms of the Bank's deposit accounts, the
balances of the individual accounts and the existing FDIC insurance coverage
will not be affected by the Conversion. Furthermore, the Conversion will not
affect the loan accounts, the balances of these accounts, or the obligations of
the borrowers under their individual contractual arrangements with the Bank.
TAX EFFECTS. The Bank has received an opinion from Luse Lehman Gorman
Pomerenk & Schick, P.C. with regard to federal income taxation, and an opinion
of Harvazinski & Montanye, LLP with regard to New York taxation, to the effect
that the adoption and implementation of the Plan of Conversion set forth herein
will not be taxable for federal or New York tax purposes to the Bank or the
Company. See "-- Income Tax Consequences."
LIQUIDATION RIGHTS. The Bank has no plan to liquidate either before or
after the Conversion. However, if there should ever be a complete liquidation,
either before or after Conversion, deposit account holders would receive the
protection of insurance by the FDIC up to applicable limits. Subject thereto,
liquidation rights before and after the Stock Conversion would be as follows:
LIQUIDATION RIGHTS IN PRESENT MUTUAL BANK. In addition to the protection
of FDIC insurance up to applicable limits, in the event of a complete
liquidation each holder of a deposit account in the Bank in its present mutual
form would receive his pro rata share of any assets of the Bank remaining after
payment of claims of all creditors (including the claims of all depositors in
the amount of the withdrawal value of their accounts). Such holder's pro rata
share of such remaining assets, if any, would be in the same proportion of such
assets as the balance in his deposit account was to the aggregate balance in
all deposit accounts in the Bank at the time of liquidation.
LIQUIDATION RIGHTS IN PROPOSED CONVERTED BANK. After the Stock Conversion
each deposit account holder, in the event of a complete liquidation, would have
a claim of the same general priority as the claims of all other general
creditors of the Bank in addition to the protection of FDIC insurance up to
applicable limits. Therefore, except as described below, the deposit account
holder's claim would be solely in the amount of the balance in his deposit
account plus accrued interest and the holder would have no interest in the value
of the Bank above that amount.
The Plan of Conversion provides that there shall be established, upon the
completion of the Conversion, a special "liquidation account" for the benefit of
Eligible Account Holders and Supplemental Eligible Account Holders
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(i.e., depositors with an account balance of $50 or more at December 31, 1995
and June 30, 1997, respectively) in an amount equal to the net worth of the
Bank as of the date of its latest statement of financial condition contained in
the final Prospectus relating to the sales of shares of Company Common Stock in
the Stock Conversion. Each Eligible Account Holder and Supplemental Eligible
Account Holder would have an initial interest in such liquidation account for
each qualifying deposit account held in the Bank on the qualifying date. An
Eligible Account Holder's or Supplemental Eligible Account Holder's interest as
to each deposit account would be in the same proportion of the total
liquidation account as the balance in his account on December 31, 1995 and
June 30, 1997, respectively, was to the aggregate balance in all qualifying
deposit accounts of Eligible Account Holders and Supplemental Eligible Account
Holders on such date. For accounts in existence on both dates, separate
subaccounts shall be determined on the basis of the qualifying deposits in such
accounts on the record dates. However, if an Eligible Account Holder or
Supplemental Eligible Account Holder should reduce the amount in the qualifying
deposit account on any annual closing date of the Bank to a level less than the
lowest amount in such account on December 31, 1995 or June 30, 1997,
respectively, and on any subsequent closing date, then the account holder's
interest in this special liquidation account would be reduced by an amount
proportionate to any such reduction, and the account holder's interest would
cease to exist if such qualifying deposit account were closed.
In addition, the interest in the special liquidation account would never be
increased despite any increase in the balance of the account holders' related
accounts after the Stock Conversion, and would only decrease.
Any assets remaining after the above liquidation rights of Eligible Account
Holders and Supplemental Eligible Account Holders were satisfied would be
distributed to the Company as the sole stockholder of the Bank.
No merger, consolidation, purchase of bulk assets with assumption of
deposit accounts and other liabilities, or similar transaction, whether the
Bank, as converted, or another SAIF-insured institution if the surviving
institution, is deemed to be a complete liquidation for purposes of distribution
of the liquidation account and, in any such transaction, the liquidation account
would be assumed to the full extent authorized by regulations of the OTS as then
in effect. The OTS has stated that the consummation of a transaction of the type
described in the preceding sentence in which the surviving entity is not an
SAIF-insured institution would be reviewed on a case-by-case basis to determine
whether the transaction should constitute a "complete liquidation" requiring
distribution of any then remaining balance in the liquidation account. While the
Bank believes that such a transaction should not constitute a complete
liquidation, there can be no assurance that the OTS will not adopt a contrary
position and, in such event, that the Bank's position will be determined to be
correct.
The Bank Conversion shall not be deemed to be a complete liquidation of the
Converted Bank for purposes of the distribution of the liquidation account. Upon
consummation of the Bank Conversion, the liquidation account, and all rights and
obligations of the Converted Bank in connection therewith, shall be assumed by
the Bank.
COMMON STOCK. For information as to the characteristics of the Common
Stock to be issued under the Plan of Conversion, see "Dividends" and
"Description of Capital Stock." Common Stock issued under the Plan of Conversion
cannot, and will not, be insured by the FDIC or any other government agency.
The Bank will continue, immediately after completion of the Stock
Conversion, to provide its services to depositors and borrowers pursuant to its
existing policies and will maintain the existing management and employees of the
Bank. Other than for payment of expenses incident to the Stock Conversion, no
assets of the Bank will be distributed in the Stock Conversion. The Bank will
continue to be a member of the FHLB System, and its deposit accounts will
continue to be insured by the FDIC. The affairs of the Bank will continue to be
directed by the existing Board of Directors and management.
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OFFERING OF COMMON STOCK
Pursuant to the Plan of Conversion, up to 132,000 shares of Company Common
Stock will be offered for sale, subject to certain restrictions described below
through a Subscription and Community Offering.
SUBSCRIPTION OFFERING. The Subscription Offering will expire at Noon, local
time, on , 1997 (the "Subscription Expiration Date") unless extended by
the Bank and the Company. Regulations of the OTS require that all shares to be
offered in the Stock Conversion be sold within a period ending not more than 45
days after the Subscription Expiration Date (or such longer period as may be
approved by the OTS) or, despite approval of the Plan of Conversion by members,
the Stock Conversion will not be effected and the Bank will remain in mutual
form. This period expires on , 1997, unless extended with the approval of
the OTS. If the Stock Conversion is not completed by , 1997, all
subscribers will have the right to modify or rescind their subscriptions and to
have their subscription funds returned promptly with interest. In the event of
such an extension, all subscribers will be notified in writing of the time
period within which subscribers must notify the Bank of their intention to
maintain, modify or rescind their subscriptions. If the subscriber rescinds or
does not respond in any manner to the Bank's notice, the funds submitted will be
refunded to the subscriber with interest at %, the Bank's current passbook
rate per annum, and/or the subscriber's withdrawal authorizations will be
terminated. In the event that the Stock Conversion is not effected, all funds
submitted and not previously refunded pursuant to the Subscription and Community
Offering will be promptly refunded to subscribers with interest at %, the
Bank's current passbook rate per annum, and all withdrawal authorizations will
be terminated.
SUBSCRIPTION RIGHTS. In accordance with OTS regulations,
non-transferable Subscription Rights have been granted under the Plan of
Conversion to the following persons in the following order of priority: (1)
Eligible Account Holders (deposit account holders of the Bank maintaining an
account balance of $50 or more as of December 31, 1995), (2) Tax-Qualified
Employee Plans, (3) Supplemental Eligible Account Holders (deposit account
holders of the Bank maintaining an account balance of $50 or more as of June
30, 1997); (4) Other Members of the Bank (deposit account holders of the Bank
as of , 1997 other than Eligible Account Holders and Supplemental
Eligible Account Holders and borrowers as of April 1, 1997), and (5)
officers, directors and employees of the Bank. All subscriptions received
will be subject to the availability of Common Stock after satisfaction of all
subscriptions of all persons having prior rights in the Subscription
Offering, and to the maximum and minimum purchase limitations set forth in
the Plan of Conversion. Subscription Rights are non-transferable. Persons
found to be selling or otherwise transferring their right to purchase stock
in the Subscription Offering or purchasing Common Stock on behalf of another
person will be subject to forfeiture of such rights and possible further
sanctions and penalties imposed by the OTS, an agency of the U.S. Government.
The preference categories are more fully described below.
Category No. 1 is reserved for the Bank's Eligible Account Holders.
Subscription Rights to purchase shares under this category will be allocated
among Eligible Account Holders to permit each such depositor to purchase shares
in an amount equal to the greater of (i) $50,000 of the Common Stock sold in the
Stock Conversion; (ii) one-tenth of one percent (.10%) of the total shares of
Common Stock offered in the Conversion; or (iii) or 15 times the product
(rounded down to the next whole number) obtained by multiplying the total number
of shares of Common Stock to be issued by a fraction of which the numerator is
the amount of the qualifying deposit of the Eligible Account Holder and the
denominator is the total amount of the qualifying deposit of the Eligible
Account Holders in the converting Bank in each case on December 31, 1995 (the
"Eligibility Record Date"); if sufficient shares are not available, shares shall
be allocated first to permit each subscribing Eligible Account Holder to
purchase to the extent possible 100 shares, and thereafter among each
subscribing Eligible Account Holder pro rata in the same proportion that his
qualifying deposit bears to the total qualifying deposits of all subscribing
Eligible Account Holders whose subscriptions remain unsatisfied.
Category No. 2 provides for the issuance of Subscription Rights to
Tax-Qualified Employee Plans to purchase up to 10% of the total shares issued in
the Subscription Offering, provided that singly or in the aggregate such plans
(other than that portion of such plans which is self-directed) shall not
purchase more than 10% of the shares of the
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Company Conversion Stock. Subscription Rights received pursuant to this
Category shall be subordinated to all rights received by Eligible Account
Holders to purchase shares pursuant to Category No. 1; provided, however, that
notwithstanding any other provision in the Plan of Conversion to the contrary,
the Tax-Qualified Employee Plans shall have a first priority Subscription Right
to the extent that the total number of shares of Company Conversion Stock sold
in the Subscription and Community Offering exceeds the maximum of the Estimated
Valuation Range. However, such plans shall not, in the aggregate, purchase more
than 10% of the Company Common Stock issued. It is currently intended that the
ESOP will purchase 8% of the shares of Common Stock issued in the Stock
Conversion.
Category No. 3 provides that each Supplemental Eligible Account Holder shall
receive non-transferable Subscription Rights to subscribe for shares of Company
Conversion Stock in an amount equal to the greater of (i) 50,000 of the Common
Stock sold in the Stock Conversion; (ii) one-tenth of one percent (.10%) of the
total offering of shares; or (iii) 15 times the product (rounded down to the
next whole number) obtained by multiplying the total number of shares of common
stock to be issued by a fraction of which the numerator is the amount of the
qualifying deposit of the Supplemental Eligible Account Holder and the
denominator is the total amount of qualifying deposits of all Supplemental
Eligible Account Holders in the converting association in each case on June 30,
1997 (the "Supplemental Eligibility Record Date"). Subscription Rights received
pursuant to this category shall be subordinated to all Subscription Rights
received by Eligible Account Holders and Tax-Qualified Employee Plans. Any
non-transferable Subscription Rights to purchase shares received by an Eligible
Account Holder in accordance with Category No. 1 shall reduce to the extent
thereof the Subscription Rights to be distributed to such person pursuant to
this Category. In the event of an oversubscription for shares under the
provisions of this subparagraph, the shares available shall be allocated first
to permit each subscribing Supplemental Eligible Account Holder, to the extent
possible, to purchase a number of shares sufficient to make his total allocation
(including the number of shares, if any, allocated in accordance with Category
No. 1 equal to 100 shares, and thereafter among each subscribing Supplemental
Eligible Account Holder pro rata in the same proportion that his qualifying
deposit bears to the total qualifying deposits of all subscribing Supplemental
Eligible Account Holders whose subscriptions remain unsatisfied.
Category No. 4 provides, to the extent that shares are then available after
satisfying the subscriptions of Eligible Account Holders, Tax-Qualified Employee
Plans and Supplemental Eligible Account Holders, for the issuance of
Subscription Rights to each such Other Member to purchase shares in an amount
equal to the greater of (i) $50,000 of the Common Stock sold in the Stock
Conversion; or (ii) or one-tenth of one percent (.10%) of the total offering of
shares offered in the Conversion based on the Estimated Valuation Range subject
to the overall purchase limitation and to the extent Common Stock is available.
In the event of an oversubscription for shares, the shares available shall be
allocated among the subscribing Other Members pro rata in the same proportion
that his number of votes on the Voting Record Date bears to the total number of
votes on the Voting Record Date of all subscribing Other Members on such date.
Such number of votes shall be determined based on the Bank's mutual charter and
bylaws in effect on the date of approval by members of the Plan of Conversion.
Category No. 5 provides for the issuance of Subscription Rights to officers,
directors and employees of the Bank, to purchase up to a maximum of $50,000 of
the Common Stock sold in the Stock Conversion to the extent that shares are
available after satisfying the subscriptions of eligible subscribers in
preference Categories 1, 2, 3 and 4. In the event of an oversubscription, the
available shares will be allocated pro rata among all subscribers in this
Category.
The Bank and the Company will make reasonable efforts to comply with the
securities laws of all states in the United States in which persons entitled to
subscribe for shares pursuant to the Plan of Conversion reside. However, no
shares will be offered or sold under the Plan of Conversion to any such person
who (1) resides in a foreign country or (2) resides in a state of the United
States in which a small number of persons otherwise eligible to subscribe for
shares under the Plan of Conversion reside or as to which the Bank and the
Company determine that compliance with the securities laws of such state would
be impracticable for reasons of cost or otherwise, including, but not limited
to, a requirement that the Bank or the Company or any of their officers,
directors or employees
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register, under the securities laws of such state, as a broker, dealer,
salesman or agent. No payments will be made in lieu of the granting of
Subscription Rights to any such person.
COMMUNITY OFFERING. To the extent that shares are available for purchase,
the Company and the Bank have determined to offer shares pursuant to the Plan of
Conversion to certain members of the general public to whom the Company delivers
a copy of this Prospectus and a stock order form in the Community Offering, with
preference given to natural persons residing in the Bank's community (the "Local
Community"). Such persons, together with associates of and persons acting in
concert with such persons, may purchase up to $50,000 of the Common Stock sold
in the Stock Conversion. The Community Offering, if any, may terminate at any
time without notice, but may not terminate later than , 1997, unless
extended with the approval of the OTS. The opportunity to subscribe for shares
of Common Stock in the Community Offering category is subject to the right of
the Company and the Bank, in their sole discretion, to accept or reject any such
orders in whole or in part either at the time of receipt of an order or as soon
as practicable thereafter.
In the event of an oversubscription for shares in the Community Offering,
shares may be allocated (to the extent shares remain available) first to cover
any reservation of shares for a public offering or institutional orders, next to
cover orders of natural persons residing in the county in which the Bank
maintains its offices, then to cover the orders of any other person subscribing
for shares in the Community Offering so that each such person may receive 500
shares, and thereafter, on a pro rata basis to such persons based on the amount
of their respective subscriptions. If for any reason shares remain unsold after
the Subscription Offering and the Community Offering, the Boards of Directors of
the Company and the Bank will seek to make other arrangements for the sale of
the remaining shares. Such other arrangements will be subject to the approval of
the OTS and to compliance with applicable securities laws.
Any Common Stock remaining unsold after the Subscription or Community
Offering shall be sold in any manner permitted by the OTS and applicable
securities laws.
LIMITATIONS ON PURCHASE OF SHARES. The Plan also provides for certain
additional limitations to be placed upon the purchase of shares in the Stock
Conversion. Specifically, no person (other than a Tax-Qualified Employee Plan)
by himself or with an associate, and no group of persons acting in concert, may
subscribe for or purchase more than the lesser of $50,000 or 5% of the Common
Stock sold in the Stock Conversion. Officers and directors and their associates
may not purchase, in the aggregate, more than 35% of the shares to be sold in
the Stock Conversion. For purposes of the Plan of Conversion, the members of the
Board of Directors are not deemed to be acting in concert solely by reason of
their Board membership. For purposes of this limitation, an associate of a
person does not include a Tax-Qualified Employee Plan or Non-Tax-Qualified
Employee Plan. Also, for purposes of this limitation, an associate of an officer
or director does not include a Tax-Qualified Employee Plan or a recognition and
retention plan, such as the RRP. Moreover, any shares attributable to the
officers and directors and their associates, but held by a Tax-Qualified
Employee Plan (other than that portion of a plan which is self-directed) shall
not be included in calculating the number of shares which may be purchased under
the limitations in this paragraph. Shares purchased by employees who are not
officers or directors of the Bank, or their associates, are not subject to this
limitation. The term "associate" is used above to indicate any of the following
relationships with a person: (i) any corporation or organization (other than the
Company or the Bank or a majority-owned subsidiary of the Company or the Bank)
of which such person is an officer or partner or is, directly or indirectly, the
beneficial owner of 10% or more of any class of equity security; (ii) any trust
or other estate in which such person has a substantial beneficial interest or as
to which such person serves as trustee or in a similar fiduciary capacity; and
(iii) any relative or spouse of such person or any relative of such spouse who
has the same home as such person or who is a director or officer of the Company
or the Bank or any subsidiary of the Company or the Bank.
The Boards of Directors of the Company and the Bank may, in their sole
discretion, decrease the maximum purchase limitation referred to above or
increase the maximum purchase limitation up to 9.99% of the shares being
offered in the Stock Conversion, provided that orders for shares exceeding 5.0%
of the shares being offered in the Stock Conversion shall not exceed, in the
aggregate, 10% of the shares being offered in the Stock Conversion.
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Requests to purchase additional shares of Company Common Stock under this
provision will be allocated by the Boards of Directors on a pro rata basis
giving priority in accordance with the priority rights set forth above.
Depending upon market and financial conditions, and subject to certain
regulatory limitations, the Boards of Directors of the Company and the Bank,
with the approval of the OTS and without further approval of the members, may
increase or decrease any of the above purchase limitations at any time. To
the extent that shares are available, each subscriber must subscribe for a
minimum of 25 shares. In computing the number of shares to be allocated, all
numbers will be rounded down to the next whole number.
Common Stock purchased in the Stock Conversion will be freely transferable
except for shares purchased by executive officers and directors of the Bank or
the Company and except as described below. See "-- Restrictions on
Transferability." In addition, under National Association of Securities Dealers,
Inc. ("NASD") guidelines, members of the NASD and their associates are subject
to certain restrictions on transfer of securities purchased in accordance with
Subscription Rights and to certain reporting requirements upon purchase of such
securities.
MARKETING ARRANGEMENTS
The Company and the Bank have engaged Trident Financial Corporation ("TFC")
to act as a consultant and financial advisor in connection with the Offerings.
TFC will train officers and employees of the Bank with respect to the record
keeping and solicitation of offers to purchase Common Stock and to generally
advise the directors and officers of the Company and Bank in connection with the
Offerings. In connection with its services, TFC will receive $20,000, of which
$5,000 was paid at the time TFC was engaged, and $15,000 will be paid upon the
completion of the Conversion. In the event the Conversion is terminated or is
delayed for more than six months from May 28, 1997, TFC may receive a portion or
all of its fee based upon the efforts expended by TFC up to the time the
Conversion is terminated or delayed. As part of its engagement the Bank has
agreed to reimburse TFC for out-of-pocket expenses not to exceed $5,000. The
Company and the Bank have agreed to indemnify TFC for costs and expenses in
connection with certain claims, loss or liabilities arising under federal or
state securities laws.
Directors and executive officers of the Company and the Bank, may to a
limited extent and subject to applicable state law, participate in the
solicitation of offers to purchase Common Stock. Other employees of the Bank may
participate in the Subscription and Community Offering in administrative
capacities, providing clerical work in effecting a sales transaction or
answering questions of a potential purchaser provided that the content of the
employee's responses is limited to information contained in this Prospectus or
other offering document. Such other employees have been instructed not to
solicit offers to purchase Common Stock or provide advice regarding the purchase
of Common Stock. Sales of Common Stock by directors, executive officers and
registered representatives will be made from the Stock Information Center. The
Company will rely on Rule 3a4-1 under the Exchange Act, and sales of Common
Stock will be conducted within the requirements of Rule 3a4-1, so as to permit
officers, directors and employees to participate in the sale of Common Stock
except in some states where only registered broker-dealers may sell. No officer,
director or employee of the Company or the Bank will be compensated in
connection with his participation by the payment of commissions or other
remuneration based either directly or indirectly on the transactions in the
Common Stock.
STOCK PRICING AND NUMBER OF SHARES TO BE ISSUED
Federal regulations require that the aggregate Purchase Price of the
securities of a thrift institution sold in connection with its conversion must
be based on an appraised aggregate market value of the institution as converted
(i.e., taking into account the expected receipt of proceeds from the sale of the
securities in the conversion), as determined by an independent valuation.
FinPro, which is experienced in the valuation and appraisal of business
entities, including thrift institutions involved in the conversion process,
was retained by the Bank to prepare an appraisal of the estimated pro forma
market value of the Company and the Bank, as converted.
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FinPro will receive a fee of $20,000 for its appraisal and assistance in
preparation of the Bank's business plan plus reasonable out-of-pocket expenses.
The Company has agreed to indemnify FinPro, under certain circumstances against
liabilities and expenses (including legal fees) arising out of, related to, or
based upon the Stock Conversion.
FinPro has prepared an appraisal of the estimated pro forma market value of
the Company and the Bank, as converted, taking into account market conditions
for initial public offerings of thrift stocks and the formation of Company as
the holding company for the Bank. FinPro's appraisal concluded that at June 19,
1997, an appropriate range for the estimated pro forma market value of the
Company and the Bank, as converted, ranged from a minimum of $980,000 to a
maximum of $1,320,000, with a midpoint of $1,150,000 and an adjusted maximum of
$1,520,000. Assuming that the shares are sold at $10.00 per share in the Stock
Conversion, the estimated number of shares to be issued in the Stock Conversion
is expected to be between 98,000 and 132,000 with an adjusted maximum of
152,000. The appraisal involved a comparative evaluation of the operating and
financial statistics of the Bank with those of other thrift institutions. The
appraisal also took into account such other factors as the market for thrift
institution stocks generally, prevailing economic conditions, both nationally
and in New York, which affect the operations of thrift institutions, the
competitive environment within which the Bank operates, the effect of the Bank
becoming a subsidiary of the Company, and the effect of the Bank becoming a
national bank. No detailed individual analysis of the separate components of the
Company's and the Bank's assets and liabilities was performed in connection with
the evaluation. The Plan of Conversion requires that all of the shares
subscribed for in the Subscription and Community Offering be sold at the same
price per share. The Board of Directors of the Company and the Bank have
reviewed the appraisal of FinPro and in determining the reasonableness and
adequacy of such appraisal consistent with OTS regulations and policies, have
reviewed the methodology and reasonableness of the assumptions utilized by
FinPro in the preparation of such appraisal.
No sale of the shares will take place unless, prior thereto, FinPro confirms
to the Bank, the Company and the OTS that, to the best of FinPro's knowledge and
judgment, nothing of a material nature has occurred which would cause FinPro to
conclude that the actual aggregate Purchase Price was incompatible with its
estimate of the total pro forma market value of the Common Stock at the time of
the sale. If, however, the facts do not justify such a statement, a new
Estimated Valuation Range and price per share may be set. Under such
circumstances, the Company will be required to resolicit, and 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; provided that
if the pro forma market value of the Bank upon the Stock Conversion has not
decreased below $980,000 or increased to an amount which does not exceed
$1,520,000 (15% above the maximum of the Estimated Valuation Range), the Company
and the Bank do not intend to resolicit subscriptions unless it is determined
after consultation with the OTS that a resolicitation is required.
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. A decrease
in the number of shares to be issued in the Stock Conversion would increase a
purchaser's ownership interest and both pro forma net income and net worth on a
per share basis while decreasing these amounts on an aggregate basis. In the
event of a resolicitation, subscribers will be afforded the opportunity to
increase, decrease or maintain their previously submitted order. In the event a
new valuation range is established by FinPro, such new range will be subject to
approval by the OTS and the Company will be required to resolicit. The Company
will also be required to resolicit if the aggregate Purchase Price of Common
Stock sold in the Stock Conversion is less than the minimum of the Estimated
Valuation Range or above 15% above the maximum of the Estimated Valuation Range.
If purchasers cannot be found for an insignificant residue of unsubscribed
shares from the general public, other purchase arrangements will be made by the
Boards of Directors of the Bank and the Company, if possible. Such other
purchase arrangements will be subject to the approval of the OTS and may provide
for purchases by directors, officers, their associates and other persons in
excess of the limitations discussed herein. If such other purchase arrangements
cannot be made, the Subscription and Community Offering will terminate.
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In preparing its valuation of the pro forma market value of the Company and
the Bank, as converted, FinPro relied upon and assumed the accuracy and
completeness of all financial and statistical information provided by the Bank
and the Company. FinPro also considered information based upon other publicly
available sources which it believes are reliable. However, FinPro does not
guarantee the accuracy and completeness of such information and did not
independently verify the financial statements and other data provided by the
Bank and the Company or independently value the assets or liabilities of the
Bank and the Company. The valuation by FinPro is not intended and must not be
construed as a recommendation of any kind as to the advisability of voting to
approve the Stock Conversion or of purchasing shares of Common Stock. Moreover,
because the valuation is necessarily based upon estimates of and projections as
to a number of matters (including certain assumptions as to expense factors
affecting the net proceeds from the sale of Common Stock in the Stock Conversion
and as to the net earnings on such net proceeds), all of which are subject to
change from time to time, no assurance can be given that persons who purchase
such shares in the Stock Conversion will be able to sell such shares thereafter
at or above the Purchase Price.
METHOD OF PAYMENT FOR SUBSCRIPTIONS
Subscribers must, before the Subscription Expiration Date, or such date to
which the Subscription Expiration Date may be extended, return an original stock
order form and certification to the Bank, properly completed, together with
cash, checks or money orders in an amount equal to the Purchase Price ($10.00
per share) multiplied by the number of shares for which subscription is made.
Subscriptions which are returned by mail must be received by the Bank by the
Expiration Date. Payment for stock purchases can also be accomplished through
authorization on the order form of withdrawals from accounts with the Bank.
Until completion or termination of the Stock Conversion, subscribers who elect
to make payment through authorization of withdrawal from accounts with the Bank
will not be permitted to reduce the deposit balance in any such accounts below
the amount required to purchase the shares for which they subscribed. In such
cases interest will continue to be credited on deposits authorized for
withdrawal until the completion of the Stock Conversion. Interest at the Bank's
current passbook rate per annum will be paid on amounts submitted in cash,
check, bank draft or money order. Authorized withdrawals from certificate
accounts for the purchase of Common Stock will be permitted without the
imposition of early withdrawal penalties or loss of interest. However,
withdrawals from certificate accounts that reduce the balance of said accounts
below the required minimum for specific interest rate qualification will cause
the cancellation of the certificate accounts, and the remaining balance will
earn interest at the Bank's current passbook rate per annum.
The beneficiaries of Individual Retirement Accounts ("IRAs") are deemed to
have the same subscription rights as other depositors. However, the IRA accounts
maintained at the Bank do not permit investment in Common Stock. A depositor
interested in using his IRA funds to purchase Common Stock must do so through a
self-directed IRA account. Since the Bank does not offer such accounts, it will
allow such a depositor to make a trustee to trustee transfer or other form of
transfer of the IRA on deposit at the Bank. There will be no early withdrawal or
IRS penalties for such transfers. The new trustee would hold the Common Stock in
a self-directed account in the same manner as the Bank now holds the depositor's
IRA funds. An annual administrative fee might be payable to the new trustee. The
Bank assumes no responsibility as to the selection of, or services performed by,
a new trustee.
Depositors interested in transferring IRA funds on deposit at the Bank to
purchase Common Stock should contact the Stock Information Center at (518)
- as soon as possible so that the necessary forms may be completed
prior to the Expiration Date of the Subscription Offering. This process cannot
be done through the mail and sufficient time should be allowed for the
completion of the transfer.
Stock subscriptions received by the Bank may not be modified, withdrawn or
canceled by the subscriber without the consent of the Bank and, if accepted by
the Bank, are final. Subscriptions which are not received by the Subscription
Expiration Date or are not in compliance with the Plan of Conversion or the
stock order form instructions may be deemed void by the Bank. The Bank and the
Company have the right to extend the Subscription
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Expiration Date, unless objected to by the OTS, or to waive or permit correction
of incomplete or improperly executed stock order forms, but does not represent
that they will do so.
If Tax-Qualified Employee Plans subscribe for shares during the Subscription
Offering, such plans will not be required to pay for the shares subscribed for
at the time they subscribe, but may pay for such shares of Common Stock
subscribed for by such plans at the actual Purchase Price upon consummation of
the Stock Conversion, provided that, in the case of the ESOP, there is a loan
commitment to lend to the ESOP the aggregate Purchase Price of the shares for
which it subscribes.
To ensure that each purchaser receives a Prospectus at least 48 hours prior
to the Subscription Expiration Date in accordance with Rule 15c2-8 under the
Exchange Act, no Prospectus will be mailed any later than five days prior to
such date or hand delivered any later than two days prior to such date.
Execution of the order form will confirm receipt or delivery in accordance with
Rule 15c2-8. Order forms will only be distributed with a Prospectus. The Bank
will accept for processing only orders submitted on original order forms.
Payment by check, money order, bank draft or debit authorization to an existing
account at the Bank must accompany the order form.
RISK OF DELAYED OFFERING
In the event that all shares of the Common Stock are not sold in the
Subscription Offering and Community Offering, the Bank and the Company may
extend the Community Offering for a period of up to 45 days from the date of the
termination of the Subscription Offering. Further extensions are subject to OTS
approval and may be granted for successive periods, but not beyond 24 months
from the date of the Special Meeting.
A material delay in the completion of the sale of all unsubscribed shares in
the Community Offering may result in a significant increase in the costs in
completing the Stock Conversion. Significant changes in the Bank's operations
and financial condition, the aggregate market value of the shares to be issued
in the Stock Conversion and general market conditions may occur during such
material delay. In the event the Stock Conversion is not consummated within 24
months after the date of the Special Meeting, the Bank would charge accrued
Conversion costs to then current period operations. See "Risk Factors--Potential
Increased Costs of Conversion Resulting from Delayed Offering."
APPROVAL, INTERPRETATION, AMENDMENT AND TERMINATION
All interpretations of the Plan of Conversion, as well as the completeness
and validity of order forms, will be made by the Bank and the Company and will
be final, subject to the authority of the OTS and the requirements of applicable
law. The Plan of Conversion provides that, if deemed necessary or desirable by
the Boards of Directors of the Bank and the Company, the Plan of Conversion may
be substantively amended (including an amendment to eliminate the formation of
the Company as part of the Stock Conversion) by the Boards of Directors of the
Bank and the Company, as a result of comments from regulatory authorities or
otherwise, at any time but only with the concurrence of the OTS. Moreover, if
the Plan of Conversion is amended, subscriptions which have been received prior
to such amendment will not be refunded if such amendment is not material to the
transaction or otherwise required by the OTS.
In the event that a decision is made to eliminate the Company as part of the
Stock Conversion, the Company will withdraw its registration statement from the
SEC and the Bank will take all steps necessary to complete the Stock Conversion
without the Company, including filing any necessary documents with the OTS. In
such event, and provided there is no regulatory action, directive or other
consideration upon which basis the Bank determines not to complete the Stock
Conversion, if permitted by the OTS the Bank will issue and sell the common
stock of the Bank and subscribers will be notified of the elimination of the
Company and resolicited (i.e., permitted to affirm their orders, in which case
they will need affirmatively to reconfirm their subscriptions prior to the
expiration of the resolicitation offering or their funds will be promptly
refunded with interest at the Bank's current passbook rate per
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annum; or be permitted to modify or rescind their subscriptions) and notified
of the time period within which they must affirmatively notify the Bank of
their intention to affirm, modify or rescind their subscription. In the event
that a holding company form of organization is not used, all other pertinent
terms of the Plan of Conversion as described in "-- Offering of Common Stock"
will apply to the conversion of the Bank from the mutual to stock form of
organization and the sale of the Bank's common stock, as well as the subsequent
charter conversion of the Converted Bank.
The Plan of Conversion will terminate if the sale of all shares is not
completed within 24 months after the date of the Special Meeting. The Plan of
Conversion may be terminated by the Board of Directors of the Bank with the
concurrence of the OTS at any time. A specific resolution approved by a
two-thirds vote of the Board of Directors would be required to terminate the
Plan of Conversion prior to the end of such 24-month period. See "Risk Factors
- -- Absence of Refund of Subscriptions on Amendment to Plan of Conversion."
RESTRICTIONS ON REPURCHASE OF STOCK
For a period of three years following Conversion, the Company may not
repurchase any shares of its capital stock, except in the case of an offer to
repurchase on a pro rata basis made to all holders of capital stock of the
Company. Any such offer shall be subject to the prior approval of the OTS.
Furthermore, the Company may not repurchase any of its stock (i) if the result
thereof would be to reduce the regulatory capital of the Bank below the amount
required for the liquidation account to be established pursuant to OTS
regulations and (ii) except in compliance with the requirements of the OTS'
capital distribution rule.
The above limitations are subject to the OTS conversion rules which
generally provide that the Company may repurchase its capital stock provided (i)
no repurchases occur within one year following the Stock Conversion (except with
OTS approval), (ii) repurchases during the second and third year after
conversion are part of an open market stock repurchase program that does not
allow for a repurchase of more than 5% of the Company's outstanding capital
stock during a 12-month period, (iii) the repurchases do not cause the Bank to
become undercapitalized, and (iv) the Company provides notice or an application
to the OTS at least ten days prior to the commencement of a repurchase program
and the OTS does not object. In addition, the above limitations do not preclude
repurchases of capital stock by the Company as otherwise permitted by the OTS or
in the event applicable federal regulatory limitations are subsequently
liberalized.
RESTRICTIONS ON TRANSFERABILITY
The Subscription Rights described in this Prospectus are non-transferable
and shall be awarded to eligible persons without payment. Prior to the
completion of the Stock Conversion, federal regulations prohibit any person from
transferring or entering into any agreement or understanding to transfer the
legal or beneficial ownership of the Subscription Rights issued under the Plan
of Conversion or the shares of Common Stock to be issued upon their exercise.
Persons violating such prohibition may lose their right to purchase stock in the
Stock Conversion and may be subject to sanctions by the OTS. 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
Bank and the Company will pursue any and all legal and equitable remedies in
the event they become aware of the transfer of Subscription Rights and will not
honor orders known by them to involve the transfer of such rights.
Shares purchased by directors, executive officers or their associates in the
Stock Conversion shall be subject to the restrictions that said shares shall not
be sold during the period of one year following the date of purchase, except in
the event of the death of the stockholder or resulting from an exchange of
securities in a merger or acquisition approved by applicable regulatory
authorities, in which event such restriction shall be released. Accordingly,
stock certificates issued by the Company to directors, executive officers and
associates shall bear a legend giving appropriate notice of such restriction
and, in addition, the Bank and the Company will give appropriate instructions to
the transfer
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agent for the Common Stock with respect to the applicable restriction upon
transfer of any restricted shares. Any shares issued at a later date as a
stock dividend, stock split or otherwise, to holders of restricted stock, shall
be subject to the same restrictions that may apply to such restricted stock.
The Common Stock (like the stock of most companies) is subject to the
requirements of the Securities Act. Accordingly, Company stock may be offered
and sold only in compliance with such registration requirements or pursuant to
an applicable exemption from registration.
OTS regulations provide that for a period of three years following the
Conversion, without prior approval of the OTS, neither directors and officers of
the Company, the Bank nor their associates may purchase shares of the Company,
except from a broker registered with the SEC. This restriction does not,
however, apply to negotiated transactions involving more than one percent of the
Company's outstanding Common Stock or the purchase of stock made by or held by
any one or more employee stock benefit plans which may be attributable to
individual directors or officers.
Company stock received in the Stock Conversion by persons who are not
"affiliates" of the Company may be resold without registration. Shares received
by affiliates of the Company (primarily the directors, officers and principal
stockholders of the Company) will be subject to the resale restrictions of Rule
144 under the Securities Act, which are discussed below. Rule 144 generally
requires that there be publicly available certain information concerning the
Company, and that sales thereunder be made in routine brokerage transactions or
through a market maker. If the conditions of Rule 144 are satisfied, each
affiliate (or group of persons acting in concert with one or more affiliates) is
entitled to sell in the public market, without registration, in any three-month
period, a number of shares which does not exceed the greater of (i) 1% of the
number of outstanding shares of Company stock, or (ii) if the stock is admitted
to trading on a national securities exchange or reported through the automated
quotation system of a registered securities association the average weekly
reported volume of trading during the four weeks preceding the sale.
INCOME TAX CONSEQUENCES
Consummation of the Stock Conversion is expressly conditioned upon prior
receipt by the Bank of either a ruling from the IRS or an opinion of Luse Lehman
Gorman Pomerenk & Schick, P.C. with respect to federal taxation, and a ruling of
the New York taxation authorities or an opinion of Harvazinski & Montanye, LLP
with respect to New York taxation, to the effect that consummation of the Stock
Conversion will not be taxable to the Converted Bank or the Company.
An opinion has been received from Luse Lehman Gorman Pomerenk & Schick, P.C.
with respect to the proposed Stock Conversion of the Bank, to the effect that
(i) the Stock Conversion will qualify as a reorganization under Section
368(a)(1)(F) of the Code, and no gain or loss will be recognized to the Bank in
either its mutual form or its stock form by reason of the proposed Stock
Conversion, (ii) no gain or loss will be recognized to the Bank upon the receipt
of money from the Company for stock of the Bank; and no gain or loss will be
recognized to the Company upon the receipt of money for Common Stock of the
Company; (iii) the assets of the Bank in either its mutual or its stock form
will have the same basis before and after the Stock Conversion; (iv) the holding
period of the assets of the Bank will include the period during which the
assets were held by the Bank in its mutual form prior to conversion; (v) no gain
or loss will be recognized by the depositors of the Bank upon the issuance to
them of withdrawable deposit accounts in the Bank after the Stock Conversion in
the same dollar amount as their deposit accounts in the Bank plus an interest
in the Liquidation Account of the Bank, as described above, in exchange for
their deposit account in the Bank; (vi) the basis of the account holder's
deposit accounts in the Bank after the Stock Conversion will be the same as the
basis of his deposit accounts in the Bank prior to the Stock Conversion;
(vii) the basis of each account holder's interest in the Liquidation Account
will be zero; (viii) the basis of the Common Stock to its shareholders will be
the Purchase Price thereof plus, in the case of stock acquired by account
holders, the basis, if any, in the Subscription Rights; (ix) a shareholder's
holding period for Common Stock acquired through the exercise of Subscription
Rights shall begin on the date on which the Subscription Rights are exercised
and the holding period for Common Stock purchased in the Community Offering or
otherwise will commence on the date following the date on which such
stock is purchased; (x) for purposes of Section 381 of the Code, the Bank will
be treated as if there had been no
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reorganization, accordingly, the taxable year of the Bank will not end on the
effective date of the Stock Conversion and the tax attributes of the Bank will
be taken into account by the Bank in stock form as if there had been no
reorganization; (xi) the part of the taxable year of the Bank before the
reorganization and the part of the taxable year of the Bank after the
reorganization will constitute a single taxable year of the Bank; (xii) the
Bank, immediately after Stock Conversion, will succeed to and take into account
the earnings and profits of the Bank in mutual form; and (xiii) the attributes
of the Bank in mutual form enumerated in Section 381(c) of the Code will be
taken into account by the Bank in stock form.
The opinion from Luse Lehman Gorman Pomerenk & Schick, P.C. is based, among
other things, on certain assumptions, including the assumptions that the
exercise price of the Subscription Rights to purchase Company Common Stock will
be approximately equal to the fair market value of that stock at the time of the
completion of the proposed Stock Conversion. The Company and the Bank have
received a letter issued by FinPro stating that pursuant to FinPro's valuation,
FinPro is of the belief that Subscription Rights issued in connection with the
Stock Conversion will have no value. The letter of FinPro and the federal and
state tax opinions, respectively, referred to herein are filed as exhibits to
the Registration Statement. See "Additional Information."
The Bank has also received an opinion of Luse Lehman Gorman Pomerenk &
Schick, P.C. to the effect that, based in part on the FinPro Letter: (i) no
taxable income will be realized by depositors as a result of the receipt or
exercise of non-transferable Subscription Rights to purchase shares of Company
Common Stock at fair market value; and (ii) no taxable income will be realized
by the Bank or Company on the issuance of Subscription Rights to eligible
subscribers to purchase shares of Company Common Stock at fair market value.
If it is subsequently established that the Subscription Rights received by
such persons have an ascertainable fair market value, then, in such event, the
Subscription Rights will be taxable to the recipient in the amount of their fair
market value. In this regard, the Subscription Rights may be taxed partially or
entirely at ordinary income tax rates.
With respect to New York taxation, the Bank has received an opinion from
Harvazinski & Montanye, LLP to the effect that, assuming the Stock Conversion
does not result in any federal taxable income, gain or loss to the Bank in its
mutual or stock form, the Company, the account holders, borrowers, officers,
directors and employees and Tax-Qualified Employee Plans of the Bank, the Stock
Conversion should not result in any New York income tax liability to such
entities or persons.
Unlike a private letter ruling, the opinions of Luse Lehman Gorman Pomerenk
& Schick, P.C. and Harvazinski & Montanye, LLP, as well as the FinPro Letter,
have no binding effect or official status, and no assurance can be given that
the conclusions reached in any of those opinions would be sustained by a court
if contested by the IRS or the New York tax authorities.
RESTRICTIONS ON ACQUISITIONS OF STOCK AND
RELATED TAKEOVER DEFENSIVE PROVISIONS
Although the Boards of Directors of the Bank and the Company are not aware
of any effort that might be made to obtain control of the Company after
Conversion, the Boards of Directors, as discussed below, believe that it is
appropriate to include certain provisions as part of the Company's certificate
of incorporation (the "Certificate of Incorporation") to protect the interests
of the Company and its stockholders from takeovers which the Board of Directors
of the Company might conclude are not in the best interests of the Bank, the
Company or the Company's stockholders.
The following discussion is a general summary of the material provisions of
the Company's Certificate of Incorporation and Bylaws and certain other
regulatory provisions which may be deemed to have an "anti-takeover" effect. The
following description of certain of these provisions is necessarily general and,
with respect to provisions
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contained in the Company's Certificate of Incorporation and Bylaws and the
Bank's proposed stock Charter and Bylaws, reference should be made in each
case to the document in question, each of which is part of the Bank's
application to the OTS and the Company's Registration Statement filed with the
SEC. See "Additional Information." The following discussion does not reflect
the powers and provisions of the Bank's charter following the Bank Conversion.
PROVISIONS OF THE COMPANY'S CERTIFICATE OF INCORPORATION AND BYLAWS
DIRECTORS. Certain provisions of the Company's Certificate of Incorporation
and Bylaws will impede changes in majority control of the Board of Directors.
The Company's Certificate of Incorporation provides that the Board of Directors
of the Company will be divided into three classes, with directors in each class
elected for three-year staggered terms except for the initial directors. Thus,
it would take two annual elections to replace a majority of the Company's Board.
The Company's Certificate of Incorporation provides that the size of the Board
of Directors may be increased or decreased only by a majority vote of the
Board. The Certificate of Incorporation also provides that any vacancy
occurring in the Board of Directors, including a vacancy created by an increase
in the number of directors, shall be filled for the remainder of the unexpired
term by a majority vote of the directors then in office. Finally, the
Certificate of Incorporation and Bylaws impose certain notice and information
requirements in connection with the nomination by stockholders of candidates
for election to the Board of Directors or the proposal by stockholders of
business to be acted upon at an annual meeting of stockholders.
The Certificate of Incorporation provides that a director may only be
removed for cause by the affirmative vote of 80% of the shares eligible to vote.
Removal for "cause" is limited to the grounds for termination in the federal
regulations that applies to employment contracts of federally insured savings
institutions.
RESTRICTIONS ON CALL OF SPECIAL MEETINGS. The Certificate of Incorporation
provides that a special meeting of stockholders may be called by the Chairman of
the Board of the Company or pursuant to a resolution adopted by a majority of
the Board of Directors. Stockholders are not authorized to call a special
meeting.
ABSENCE OF CUMULATIVE VOTING. The Certificate of Incorporation provides
that there shall be no cumulative voting rights in the election of directors.
AUTHORIZATION OF PREFERRED STOCK. The Certificate of Incorporation
authorizes 100,000 shares of serial preferred stock, without par value. The
Company is authorized to issue preferred stock from time to time in one or more
series subject to applicable provisions of law; and the Board of Directors is
authorized to fix the designations, and relative preferences, limitations,
voting rights, if any, including without limitation, conversion rights of such
shares (which could be multiple or as a separate class). In the event of a
proposed merger, tender offer or other attempt to gain control of the Company
that the Board of Directors does not approve, it might be possible for the
Board of Directors to authorize the issuance of a series of preferred stock
with rights and preferences that would impede the completion of such a
transaction. An effect of the possible issuance of preferred stock, therefore,
may be to deter a future takeover attempt. The Board of Directors has no
present plans or understandings for the issuance of any preferred stock but it
may issue any preferred stock on terms which the Board deems to be in the best
interests of the Company and its stockholders.
LIMITATION ON VOTING RIGHTS. The Certificate of Incorporation provides that
(i) no person shall directly or indirectly offer to acquire or acquire the
beneficial ownership of more than 10% of any class of equity security of the
Company (provided that such limitation shall not apply to the acquisition of
equity securities by any one or more tax-qualified employee stock benefit plans
maintained by the Company); and that (ii) shares beneficially owned in violation
of the stock ownership restriction described above shall not be entitled to vote
and shall not be voted by any person or counted as voting stock in connection
with any matter submitted to a vote of stockholders. For these purposes, a
person (including management) who has obtained the right to vote shares of the
Common Stock pursuant
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to revocable proxies shall not be deemed to be the "beneficial owner" of those
shares if that person is not otherwise deemed to be a beneficial owner of those
shares.
The Certificate of Incorporation further provides that the Board of
Directors of the Company, when determining to take or refrain from taking
corporate action on any matter, including making or declining to make any
recommendation to the Company's stockholders, may, in connection with the
exercise of its judgment in determining what is in the best interest of the
Company, the Bank, and the stockholders of the Company, give due consideration
to all relevant factors, including, without limitation, the social and economic
effects of acceptance of such offer on the Company's customers and the Bank's
present and future account holders, borrowers and employees; the effect on the
communities in which the Company and the Bank operate or are located; and the
effect on the ability of the Company to fulfill the objectives of a financial
institution holding company and of the Bank or future subsidiaries to fulfill
the objectives of a financial institution under applicable statutes and
regulations. The Certificate of Incorporation of the Company also authorizes the
Board of Directors to take certain actions to encourage a person to negotiate
for a change of control of the Company or to oppose such a transaction deemed
undesirable by the Board of Directors including the adoption of so-called
shareholder rights plans. By having these standards and provisions in the
Certificate of Incorporation of the Company, the Board of Directors may be in a
stronger position to oppose such a transaction if the Board concludes that the
transaction would not be in the best interest of the Company, even if the price
offered is significantly greater than the then market price of any equity
security of the Company.
PROCEDURES FOR CERTAIN BUSINESS COMBINATIONS. The Certificate of
Incorporation requires that certain business combinations between the Company
(or any majority-owned subsidiary thereof) and a 10% or greater stockholder
either (i) be approved by at least 80% of the total number of outstanding voting
shares of the Company or (ii) be approved by a majority of certain directors
unaffiliated with such 10% or greater stockholder or (iii) involve consideration
per share generally equal to the higher of (A) the highest amount paid by such
10% stockholder or its affiliates in acquiring any shares of the Common Stock or
(B) the "Fair Market Value" (generally, the highest closing bid paid on the
Common Stock during the 30 days preceding the date of the announcement of the
proposed business combination or on the date the 10% or greater stockholder
became such, whichever is higher).
AMENDMENT TO CERTIFICATE OF INCORPORATION AND BYLAWS. Amendments to the
Certificate of Incorporation must be approved by the Company's Board of
Directors and also by a majority of the outstanding shares of the Company's
voting stock; provided, however, that approval by at least 80% of the
outstanding voting stock is generally required for certain provisions (i.e.,
provisions relating to number, classification, election and removal of
directors, amendment of bylaws, call of special stockholder meetings, criteria
for evaluating certain offers, offers to acquire and acquisitions of control,
director liability, certain business combinations, power of indemnification, and
amendments to provisions relating to the foregoing in the Certificate of
Incorporation).
The bylaws may be amended by the affirmative vote of the total number of
directors of the Company or the affirmative vote of at least 80% of the total
votes eligible to be voted at a duly constituted meeting of stockholders.
Purpose and Takeover Defensive Effects of the Company's Certificate of
Incorporation and Bylaws. The Board of Directors of the Bank believes that the
provisions described above are prudent and will reduce the Company's
vulnerability to takeover attempts and certain other transactions which have not
been negotiated with and approved by its Board of Directors. These provisions
will also assist the Bank in the orderly deployment of the Stock Conversion
proceeds into productive assets during the initial period after the Stock
Conversion. The Board of Directors believes these provisions are in the best
interest of the Bank and of the Company and its stockholders. In the judgment of
the Board of Directors, the Company's Board will be in the best position to
determine the true value of the Company and to negotiate more effectively for
what may be in the best interests of its stockholders. Accordingly, the Board of
Directors believes that it is in the best interests of the Company and its
stockholders to encourage potential acquirors to negotiate directly with the
Board of Directors of the Company and that these provisions will encourage such
negotiations and discourage hostile takeover attempts. It is also the view of
the Board
92
<PAGE>
of Directors that these provisions should not discourage persons from proposing
a merger or other transaction at prices reflective of the true value of the
Company and which is in the best interests of all stockholders.
Attempts to take over financial institutions and their holding companies
have become increasingly common. Takeover attempts which have not been
negotiated with and approved by the Board of Directors present to stockholders
the risk of a takeover on terms which may be less favorable than might otherwise
be available. A transaction which is negotiated and approved by the Board of
Directors, on the other hand, can be carefully planned and undertaken at an
opportune time in order to obtain maximum value for the Company and its
stockholders, with due consideration given to matters such as the management and
business of the acquiring corporation and maximum strategic development of the
Company's assets.
An unsolicited takeover proposal can seriously disrupt the business and
management of a corporation and cause it great expense. Although a tender offer
or other takeover attempt may be made at a price substantially above
then-current market 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
which is under different management and whose objectives may not be similar to
those of the remaining stockholders.
Potential Anti-Takeover Effects. Despite the belief of the Bank and the
Company as to the benefits to stockholders of these provisions of the Company's
Certificate of Incorporation and Bylaws, these provisions may also have the
effect of discouraging a future takeover attempt which would not be approved by
the 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 Company's Board of Directors and of management more difficult. The Boards
of Directors of the Bank and the Company, however, have concluded that the
potential benefits outweigh the possible disadvantages.
Pursuant to applicable law, at any annual or special meeting of its
stockholders after the Stock Conversion, the Company may adopt additional
provisions to its Certificate of Incorporation regarding the acquisition of its
equity securities that would be permitted to a Delaware corporation. The Company
and the Bank do not presently intend to propose the adoption of further
restrictions on the acquisition of the Company's equity securities.
OTS Regulations. OTS regulations prohibit any person, prior to the
completion of a conversion, from transferring, or entering into any agreement or
understanding to transfer, the legal or beneficial ownership of the subscription
rights issued under a plan of conversion or the stock to be issued upon their
exercise. These regulations also prohibit any person prior to the completion of
a conversion from offering, or making an announcement of an offer or intent to
make an offer, to purchase such subscription rights or stock. For three years
following conversion, this regulation prohibits any person, without the prior
approval of the OTS, from acquiring or making an offer (if opposed by the
institution) to acquire more than 10% of the stock of any converted savings
institution if such person is, or after consummation of such acquisition would
be, the beneficial owner of more than 10% of such stock. In the event that any
person, directly or indirectly, violates this regulation, the securities
beneficially owned by such person in excess of 10% 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 a vote of stockholders.
Federal law provides that no company "directly or indirectly or acting in
concert with one or more persons, or through one or more subsidiaries, or
through one or more transactions," may acquire "control" of a savings
association at any time without the prior approval of the OTS. "Acting in
concert" is defined very broadly. In addition, federal regulations require that,
prior to obtaining control of a savings association, a person, other than a
company, must give 60 days' prior notice to the OTS and have received no OTS
objection to such acquisition of control. Any company that acquires such control
becomes a "savings and loan holding company" subject to registration,
examination and regulation as a savings and loan holding company. Under federal
law (as well as the
93
<PAGE>
regulations referred to below) the term "savings association" includes state
and federally chartered SAIF-insured institutions and federally chartered
savings banks whose accounts are insured by the FDIC's BIF and holding
companies thereof. Following completion of the Bank Conversion, the control
restrictions of the OTS will no longer be applicable.
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 which acquire beneficial ownership
exceeding 10% or more of any class of a savings association's stock must file
with the OTS a certification that the holder is not in control of such
institution, is not subject to a rebuttable determination of control and will
take no action which would result in a determination or rebuttable determination
of control without prior notice to or approval of the OTS, as applicable.
FRB REGULATIONS. The Change in Bank Control Act and the BHCA, together with
the FRB regulations under those acts, require that the consent of the FRB be
obtained prior to any person or company acquiring "control" of a bank holding
company. Control is conclusively presumed to exist if an individual or company
acquires more than 25% of any class of voting stock of the bank holding company.
Control is rebuttably presumed to exist if the person acquires more than 10% of
any class of voting stock of a bank holding company if either (i) the Company
has registered securities under Section 12 of the Exchange Act or (ii) no other
person will own a greater percentage of that class of voting securities
immediately after the transaction. The regulations provide a procedure to rebut
the rebuttable control presumption. Since the Company's Common Stock will be
registered under Section 12 of the Exchange Act, any acquisition of 10% or more
of the Company's Common Stock will give rise to a rebuttable presumption that
the acquiror of such stock controls the Company, requiring the acquiror, prior
to acquiring such stock, to rebut the presumption of control to the
satisfaction of the FRB or obtain FRB approval for the acquisition of control.
Restrictions applicable to the operations of bank holding companies may deter
companies from seeking to obtain control of the Company. See "Regulation."
DESCRIPTION OF CAPITAL STOCK
COMPANY CAPITAL STOCK
The 500,000 shares of capital stock authorized by the Company's Certificate
of Incorporation are divided into two classes, consisting of 400,000 shares of
Common Stock ($.10 par value) and 100,000 shares of serial preferred stock ($.10
par value). The Company currently expects to issue between 98,000 and 132,000
shares, with an adjusted maximum of 152,000 shares, of Common Stock in the Stock
Conversion. The aggregate stated value of the issued shares will constitute the
capital account of the Company on a consolidated basis. The balance of the
Purchase Price of Common Stock, less expenses of Stock Conversion, will be
reflected as paid-in capital on a consolidated basis. See "Capitalization." 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, validly
issued and nonassessable.
Each share of the Common Stock will have the same relative rights and will
be identical in all respects with each other share of the Common Stock. The
Common Stock of the Company will represent non-withdrawable capital, will not be
of an insurable type and will not be insured by the FDIC.
94
<PAGE>
Under Delaware law, the holders of the Common Stock will possess exclusive
voting power in the Company. Each stockholder will be entitled to one vote for
each share held on all matters voted upon by stockholders, subject to the
limitation discussed under "Restrictions on Acquisitions of Stock and Related
Takeover Defensive Provisions --Provisions of the Company's Certificate of
Incorporation and Bylaws -- Limitation on Voting Rights." If the Company issues
preferred stock subsequent to the Stock Conversion, holders of the preferred
stock may also possess voting powers.
LIQUIDATION OR DISSOLUTION. In the unlikely event of the liquidation or
dissolution of the Company, the holders of the Common Stock will be entitled to
receive--after payment or provision for payment of all debts and liabilities of
the Company (including all deposits in the Bank and accrued interest thereon)
and after distribution of the liquidation account established upon Stock
Conversion for the benefit of Eligible Account Holders and Supplemental Eligible
Account Holders who continue their deposit accounts at the Bank--all assets of
the Company available for distribution, in cash or in kind. See "The Conversion
- -- Effects of Stock Conversion to Stock Form on Depositors and Borrowers of the
Bank." If preferred stock is issued subsequent to the Stock Conversion, the
holders thereof may have a priority over the holders of Common Stock in the
event of liquidation or dissolution.
NO PREEMPTIVE RIGHTS. Holders of the Common Stock will not be entitled to
preemptive rights with respect to any shares which may be issued. The Common
Stock will not be subject to call for redemption, and, upon receipt by the
Company of the full purchase price therefor, each share of the Common Stock will
be fully paid and nonassessable.
PREFERRED STOCK. After Stock Conversion, the Board of Directors of the
Company will be authorized to issue preferred stock in series and to fix and
state the voting powers, designations, preferences and relative, participating,
optional or other special rights of the shares of each such series and the
qualifications, limitations and restrictions thereof. Preferred stock may rank
prior to the Common Stock as to dividend rights, liquidation preferences, or
both, and may have full or limited voting rights. The holders of preferred stock
will be entitled to vote as a separate class or series under certain
circumstances, regardless of any other voting rights which such holders may
have.
Except as discussed herein, the Company has no present plans for the
issuance of the additional authorized shares of Common Stock or for the issuance
of any shares of preferred stock. In the future, the authorized but unissued
and unreserved shares of Common Stock will be available for general corporate
purposes including but not limited to possible issuance as stock dividends or
stock splits, in future mergers or acquisitions, under a cash dividend
reinvestment and stock purchase plan, in a future underwritten or other public
offering or under an employee stock ownership plan, stock option or restricted
stock plan. The authorized but unissued shares of preferred stock will similarly
be available for issuance in future mergers or acquisitions, in a future
underwritten public offering or private placement or for other general corporate
purposes. Except as described above or as otherwise required to approve the
transaction in which the additional authorized shares of Common Stock or
authorized shares of preferred stock would be issued, no stockholder approval
will be required for the issuance of these shares. Accordingly, the Board of
Directors of the Company, without stockholder approval, can issue preferred
stock with voting and conversion rights which could adversely affect the voting
power of the holders of Common Stock.
RESTRICTIONS ON ACQUISITIONS. See "Restrictions on Acquisitions of Stock
and Related Takeover Defensive Provisions" for a description of certain
provisions of the Company's certificate of incorporation and bylaws which may
affect the ability of the Company's stockholders to participate in certain
transactions relating to acquisitions of control of the Company.
DIVIDENDS. Upon consummation of the formation of the Company, the Company's
only asset will be the Bank's Common Stock. Although it is anticipated that the
Company will retain up to 20% of the net proceeds in the Stock Conversion,
dividends from the Bank will be an important source of income for the Company.
Should the Bank elect to retain its income, the ability of the Company to pay
dividends to its own shareholders may be adversely affected. Furthermore, if at
any time in the future the Company owns less than 80% of the outstanding stock
of the
95
<PAGE>
Bank, certain tax benefits under the Code as to inter-company distributions
will not be fully available to the Company and it will be required to pay
federal income tax on a portion of the dividends received from the Bank,
thereby reducing the amount of income available for distribution to the
shareholders of the Company. For further information concerning the ability of
the Bank to pay dividends to the Company before and after the Bank Conversion,
see "Dividends."
LEGAL AND TAX MATTERS
The legality of the Common Stock and the federal income tax consequences of
the Conversion will be passed upon for the Bank and the Company by the firm of
Luse Lehman Gorman Pomerenk & Schick, P.C., Washington, D.C. The New York state
income tax consequences of the Conversion will be passed upon for the Bank and
the Company by Harvazinski & Montanye, LLP, Albany, New York. Luse Lehman Gorman
Pomerenk & Schick, P.C. and Harvazinski & Montanye, LLP have consented to the
references herein to their opinions.
EXPERTS
The Financial Statements of the Bank as of March 31, 1997 and 1996, and for
the fiscal years ended March 31, 1997 and 1996 have been included in this
Prospectus in reliance on the report of Harvazinski & Montanye, LLP, certified
public accountants, appearing elsewhere herein, and upon the authority of that
firm as experts in accounting and auditing.
FinPro has consented to the publication herein of the summary of its report
to the Bank and the Company setting forth its opinion as to the estimated pro
forma market value of the Common Stock upon Conversion and its valuation with
respect to Subscription Rights.
ADDITIONAL INFORMATION
The Company has filed with the SEC a registration statement under the
Securities Act, with respect to the Common Stock offered hereby. As permitted by
the rules and regulations of the SEC, this Prospectus does not contain all the
information set forth in the registration statement. Such information can be
examined without charge at the public reference facilities of the SEC located at
450 Fifth Street, NW, Washington, D.C. 20549, and copies of such material can be
obtained from the SEC at prescribed rates. The SEC maintains a web site that
contains reports, proxy and information statements and other information
regarding issuers that file electronically with the SEC. The address of this web
site is http:// www.sec.gov. The statements contained herein as to the contents
of any contract or other document filed as an exhibit to the registration
statement are, of necessity, brief descriptions thereof and are not necessarily
complete but do contain all material information regarding such documents; each
such statement is qualified by reference to such contract or document.
The Bank has filed an Application for Conversion with the OTS with respect
to the Stock Conversion. Pursuant to the rules and regulations of the OTS, this
Prospectus omits certain information contained in that Application. The
Application may be examined at the principal offices of the OTS, 1700 G Street,
N.W., Washington, D.C. 20552 and at the Northeast Regional Office of the OTS
located at 10 Exchange Place, Jersey City, New Jersey.
In connection with the Stock Conversion, the Company will register the
Common Stock with the SEC under Section 12(g) of the Exchange Act; and, upon
such registration, the Company and the holders of its Common Stock will become
subject to the proxy solicitation rules, reporting requirements and restrictions
on stock purchases and sales by directors, officers and greater than 10%
stockholders, the annual and periodic reporting and certain other requirements
of the Exchange Act. Under the Plan of Conversion, the Company has undertaken
that it will not terminate such registration for a period of at least three
years following the Stock Conversion.
A copy of the Certificate of Incorporation and Bylaws of the Company are
available without charge from the Bank.
96
<PAGE>
LANDMARK COMMUNITY BANK
CANAJOHARIE, NEW YORK
INDEX TO FINANCIAL STATEMENTS
PAGE
-----
Report of Independent Certified Public Accountants....................... F2
Statements of Financial Condition at March 31, 1997 and 1996............. F3
Statements of Operations for
the years ended March 31, 1997 and 1996................................ 29
Statements of Net Worth for the
years ended March 31, 1997 and 1996.................................... F4
Statements of Cash Flows for the
years ended March 31, 1997 and 1996.................................... F5
Notes to Financial Statements............................................ F6
######
All financial statements of Landmark Financial Corp. have been omitted
because Landmark Financial Corp. has not yet issued any stock, has no
assets and liabilities and has not conducted any business other than of an
organizational nature.
All schedules are omitted as the required information is not applicable or
because the required information is included in the financial statements or
related notes.
F1
<PAGE>
HARVAZINSKI & MONTANYE, LLP
Certified Public Accountants
Albany, New York
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Landmark Community Bank
We have audited the accompanying statements of financial condition of
Landmark Community Bank as of March 31, 1997 and 1996, and the related
statements of operations, changes in net worth, and cash flows for the years
then ended. These financial statements are the responsibility of the
Association's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Landmark Community Bank as
of March 31, 1997 and 1996, and the results of its operations and its cash flows
for the years then ended in conformity with generally accepted accounting
principles.
/s/ Harvazinski & Montanye, LLP
---------------------------
Albany, New York
May 8, 1997
Page F2
<PAGE>
LANDMARK COMMUNITY BANK
STATEMENTS OF FINANCIAL CONDITION
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARCH 31,
---------------------------
<S> <C> <C>
1997 1996
------------- ------------
ASSETS
Cash (including interest bearing deposits
$120,000, 1997; $1,230,000, 1996).............................. $ 709,458 $ 1,350,573
Trading account securities....................................... 69,324 --
Mortgage-backed securities, held-to-maturity..................... 257,096 340,087
Investment securities
Securities held-to-maturity.................................... 200,000 --
Securities available-for-sale.................................. 397,793 241,398
Loans receivable, net............................................ 9,392,212 5,527,632
Investments required by law -stock in Federal Home Loan
Bank of New York, at cost...................................... 58,500 64,200
Accrued interest receivable...................................... 38,630 19,287
Premises and equipment, net of accumulated depreciation.......... 155,379 53,542
Deferred tax asset............................................... 7,100 --
Other assets..................................................... 40,309 9,708
------------- ------------
$ 11,325,801 $ 7,606,427
------------- ------------
------------- ------------
LIABILITIES AND RETAINED EARNINGS
LIABILITIES
Accounts payable............................................... $ 7,920 $ 2,339
Deposits....................................................... 10,237,301 6,465,073
Advance payments by borrowers for property taxes and
insurance................................................... 107,277 95,397
Deferred tax liability......................................... -- 11,800
Other liabilities.............................................. 18,397 554
------------- ------------
Total liabilities............................................ 10,370,895 6,575,163
------------- ------------
COMMITMENTS
NET WORTH
Retained earnings, substantially restricted.................... 956,285 992,357
Net unrealized gain (loss) on securities available for sale.... (1,379) 38,907
------------- ------------
954,906 1,031,264
------------- ------------
$ 11,325,801 $ 7,606,427
------------- ------------
------------- ------------
</TABLE>
- ------------------------------------------------------------------------------
The accompanying Notes to Financial Statements are an integral part of these
statements.
F3
<PAGE>
LANDMARK COMMUNITY BANK
STATEMENTS OF CHANGES IN NET WORTH
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31, 1997
------------------------------------------
<S> <C> <C> <C> <C>
CHANGE IN UNREALIZED
GAIN (LOSS) ON
SECURITIES
BALANCE AVAILABLE FOR SALE, NET
BEGINNING OF ALLOCATION OF OF
YEAR NET INCOME (LOSS) DEFERRED INCOME TAXES END OF YEAR
---------------- ----------------- ----------------------- -----------
Substantially restricted
Retained earnings.................. $ 992,357 $ (36,072) $ -- $ 956,285
Unrealized gain (loss) on
securities available for sale...... 38,907 -- (40,286) (1,379)
---------------- -------- -------- -----------
Net Worth........................ $ 1,031,264 $ (36,072) $ (40,286) $ 954,906
---------------- -------- -------- -----------
---------------- -------- -------- -----------
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31, 1996
------------------------------------------
<S> <C> <C> <C> <C>
CHANGE IN UNREALIZED
GAIN (LOSS) ON
SECURITIES
BALANCE AVAILABLE FOR SALE, NET
BEGINNING OF ALLOCATION OF OF
YEAR NET INCOME (LOSS) DEFERRED INCOME TAXES END OF YEAR
---------------- ----------------- ----------------------- ------------
Substantially restricted
Retained earnings................. $ 907,019 $ 85,338 $ -- $ 992,357
Unrealized gain on securities
available for sale................ 31,856 -- 7,051 38,907
-------- ------- ------ ------------
Net Worth....................... $ 938,875 $ 85,338 $ 7,051 $ 1,031,264
-------- ------- ------ ------------
-------- ------- ------ ------------
</TABLE>
- -------------------------------------------------------------------------------
The accompanying Notes to Financial Statements are an integral part of these
statements.
F4
<PAGE>
LANDMARK COMMUNITY BANK
STATEMENTS OF CASH FLOWS
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEARS ENDED
MARCH 31,
-------------------------
<S> <C> <C>
1997 1996
----------- ------------
CASH FLOWS PROVIDED (USED) BY OPERATING ACTIVITIES
Net income (loss).................................................... $ (36,072) $ 85,338
Adjustments to reconcile net income to net cash provided by (used in)
operating activities
Depreciation....................................................... 11,570 6,767
Amortization (accretion), net...................................... 2,755 (88)
Provision for loan losses.......................................... 78,000 --
Deferred income taxes.............................................. (18,900) 3,450
Decrease (increase) in
Accrued interest receivable....................................... (19,343) (586)
Trading account securities........................................ (69,324) --
Other assets...................................................... (30,601) (2,298)
Increase (decrease) in
Accounts payable.................................................. 5,581 1,334
Other liabilities................................................. 17,843 (6,760)
----------- ------------
(58,491) 87,157
----------- ------------
CASH FLOWS PROVIDED (USED) BY INVESTING ACTIVITIES
Net increase in loans receivable..................................... (3,942,580) --
Net decrease in loans receivable..................................... -- 628,120
Proceeds from sale of investments required by law.................... 5,700 --
Purchases of available-for-sale securities........................... (399,063) (100,000)
Proceeds from principal repayments of mortgage-backed securities .... 82,618 --
Purchase of premises and equipment................................... (113,407) (11,127)
(4,366,732) 516,993
CASH FLOWS PROVIDED (USED) BY FINANCING ACTIVITIES
Net increase (decrease) in deposits.................................. 3,772,228 (74,776)
Increase (decrease) in advances from borrowing taxes and insurance... 11,880 (59,451)
----------- ------------
3,784,108 (134,227)
----------- ------------
Net increase (decrease) in cash................................... (641,115) 469,923
CASH, beginning of year................................................ 1,350,573 880,650
----------- ------------
CASH, end of year...................................................... $ 709,458 $ 1,350,573
----------- ------------
----------- ------------
SUPPLEMENTAL DISCLOSURES:
Cash paid for:
Income taxes....................................................... $ 17,140 $ 24,248
----------- ------------
----------- ------------
Interest........................................................... $ 326,607 $ 270,115
----------- ------------
----------- ------------
Increase (decrease) on unrealized gain
on securities available-for-sale................................... $ (40,286) $ 7,051
----------- ------------
----------- ------------
</TABLE>
- -------------------------------------------------------------------------------
The accompanying Notes to Financial Statements are an integral part of these
statements.
F5
<PAGE>
LANDMARK COMMUNITY BANK
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1997 AND 1996
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
1. ORGANIZATION
Landmark Community Bank (Association) was chartered as a New York State
savings and loan association during 1925. Prior to April 1, 1997, the
Association was known as Canajoharie Building, Savings and Loan Association.
Effective April 1, 1997, the Association became a federal chartered mutual
savings institution. The Association provides its services to the greater
Canajoharie, New York area. During 1978, the Association became a member of the
Federal Savings and Loan Insurance Corporation and, as such, became subject to
the rules and regulations of the Office of Thrift Supervision (OTS), formerly
the Federal Home Loan Bank. The Association's primary source of revenue is
single-family residential loans.
A summary of the significant accounting policies consistently applied in the
preparation of the accompanying financial statements follows.
2. BASIS OF ACCOUNTING
The Association maintains its financial reporting records on the accrual
method. The Association maintains its records on a modified cash basis for
income tax purposes.
3. CASH AND TIME DEPOSITS
Cash is defined to include all checking and demand deposits, as well as
certificates of deposit with an original maturity when purchased of three months
or less. Time deposits include certificates of deposit with an original maturity
in excess of three months.
The Association maintains cash and time deposits at one financial
institution in Canajoharie, New York, totaling $775,860 at March 31, 1997. These
balances are insured by the Federal Deposit Insurance Corporation up to
$100,000.
4. INVESTMENT SECURITIES
Trading Securities: Securities that are held for short-term resale are
classified as trading account securities and recorded at their fair values.
Realized and unrealized gains and losses on trading account securities are
included in non-interest income.
Securities Held-to-Maturity: Government and Federal agency securities
that management has the positive intent and ability to hold to maturity are
reported at cost, adjusted for amortization of premiums and accretion of
discounts that are recognized in interest income using methods approximating
the interest method over the period to maturity. Mortgage-backed securities
represent participating interests in pools of long-term first mortgage loans
originated and serviced by issuers of the securities. Mortgage-backed
securities are carried at unpaid principal balances, adjusted for unamortized
premiums and unearned discounts. Premiums and discounts are amortized using
methods approximating the interest method over the remaining period to
contractual maturity, adjusted for anticipated prepayments.
Securities Available-for-Sale: Available-for-sale securities consist of
investment securities not classified as trading securities nor as
held-to-maturity securities. Unrealized holding gains and losses, net of tax, on
available-for-sale securities are reported as a net amount in a separate
F6
<PAGE>
LANDMARK COMMUNITY BANK
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1997 AND 1996
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
4. Investment Securities - continued
component of net worth until realized. Gains and losses on the sale of
available-for-sale securities are determined using the specific-identification
method. The amortization of premiums and the accretion of discounts are
recognized in interest income using methods approximating the interest method
over the period of maturity.
Declines in the fair value of individual held-to-maturity and
available-for-sale securities below their cost that are other than temporary
result in write-downs of the individual securities to their fair value. The
related write-downs are included in earnings as realized losses. The Association
recognized no write downs in 1997 or 1996.
5. LOANS RECEIVABLE
Loans are stated at unpaid principal balances, less the allowance for loan
losses.
Interest income generally is not recognized on specific impaired loans
unless the likelihood of further loss is remote. Interest payments received on
such loans are applied as a reduction of the loan principal balance. Interest
income on other impaired loans is recognized only to the extent of interest
payments received.
The allowance for loan losses is maintained at a level which, in
management's judgment, is adequate to absorb credit losses inherent in the loan
portfolio. The amount of the allowance is based on management's evaluation of
the collectibility of the loan portfolio, including the nature of the portfolio,
credit concentrations, trends in historical loss experience, specific impaired
loans, economic conditions and other risks inherent in the portfolio. Allowances
for impaired loans are generally determined based on collateral values or the
present value of estimated cash flows. The allowance is increased by a provision
for loan losses, which is charged to expense, and reduced by charge-offs, net of
recoveries.
6. PREMISES AND EQUIPMENT
Premises and equipment are reported at cost. Expenditures for acquisitions,
renewals, and betterments are capitalized, whereas maintenance and repair costs
are expensed as incurred. When equipment is retired or otherwise disposed of,
the appropriate accounts are relieved of costs and accumulated depreciation and
any resultant gain or loss is credited or charged to income.
Depreciation is provided for in amounts sufficient to relate the cost of
depreciable assets to operations over their estimated useful lives on a
straight-line basis. The estimated lives used in determining depreciation vary
from five (5) to thirty-one and one-half (31.5) years.
7. INCOME TAXES
Income taxes are provided for the tax effects of the transactions
reported in the financial statements and consist of taxes currently due plus
deferred taxes related primarily to differences between the basis of
investments, allowance for loan losses, and the use of the modified cash
basis for income tax reporting purposes. The deferred tax assets and
liabilities represent the future tax return consequences of those
differences, which will either be taxable or deductible when the
F7
<PAGE>
LANDMARK COMMUNITY BANK
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1997 AND 1996
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
7. Income Taxes - continued
assets and liabilities are recovered or settled. Deferred tax assets and
liabilities are reflected at income tax rates applicable to the period in
which the deferred tax assets or liabilities are expected to be realized or
settled. As changes in tax laws or rates are enacted, deferred tax assets and
liabilities are adjusted through the provision for income taxes.
8. USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Material estimates that are particularly susceptible to significant change
relate to the determination of the estimated losses on loans and foreclosed real
estate, if any. Management obtains from certain members of the Association's
Board of Directors appraisals for significant properties.
While management uses available information to recognize losses on loans and
foreclosed real estate, further reductions in the carrying amounts of loans and
foreclosed assets may be necessary based on changes in local economic
conditions. In addition, regulatory agencies, as an integral part of their
examination process, periodically review the estimated losses on loans and
foreclosed real estate. Such agencies may require the Association to recognize
additional losses based on their judgments about information available to them
at the time of their examination. Because of these factors, it is reasonably
possible that the estimated losses on loans and foreclosed real estate may
change materially in the near term. However, the amount of the change that is
reasonably possible cannot be estimated.
9. FAIR VALUE OF FINANCIAL INSTRUMENTS
Effective April 1, 1995 the Association implemented Statement of Financial
Accounting Standards No. 107, Disclosures about Fair Value of Financial
Instruments, which requires disclosure of fair market value information about
financial instruments, whether or not recognized in the statement of financial
condition. In cases where quoted market prices are not available, fair values
are based on estimates using present value or other valuation techniques. Those
techniques are significantly affected by the assumptions used, including the
discount rate and estimates of future cash flows. In that regard, the derived
fair value estimates cannot be substantiated by comparison to independent
markets and, in many cases, could not be realized in immediate settlement of the
instruments. Statement No. 107 excludes certain financial instruments and all
nonfinancial instruments from its disclosure requirements. Accordingly, the
aggregate fair value amounts presented do not represent the underlying value of
the Association.
F8
<PAGE>
LANDMARK COMMUNITY BANK
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1997 AND 1996
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
The following methods and assumptions were used by the Association in
estimating its fair value disclosures for financial instruments:
Cash and cash equivalents: The carrying amounts reported in the statement of
financial condition for cash and cash equivalents approximate those assets' fair
values.
Time deposits: Fair values for time deposits are estimated using a
discounted cash flow analysis that applies interest rates currently being
offered on certificates to a schedule of aggregated contractual maturities on
such time deposits.
Investment securities including trading account securities: Fair values for
investment securities are based on quoted market prices, where available. If
quoted market prices are not available, fair values are based on quoted market
prices of comparable instruments.
Loans: For variable-rate loans that reprice frequently and with no
significant change in credit risk, fair values are based on carrying amounts.
The fair values for other loans (for example, fixed rate real estate) are
estimated using discounted cash flow analysis, based on interest rates currently
being offered for loans with similar terms to borrowers of similar credit
quality. Loan fair value estimates include judgments regarding future expected
loss experience and risk characteristics. Fair values for impaired loans are
estimated using discounted cash flow analysis or underlying collateral values,
where applicable. The carrying amount of accrued interest receivable
approximates its fair value.
Deposits: The fair values disclosed for demand deposits (for example,
interest-bearing passbook accounts) are, by definition, equal to the amount
payable on demand at the reporting date (that is, their carrying amounts). The
fair values for certificates of deposit are estimated using a discounted cash
flow calculation that applies interest rates currently being offered on
certificates to a schedule of aggregated contractual maturities on such time
deposits.
Advance payments by borrowers for taxes and insurance (escrows): The
carrying amount of escrow accounts approximate fair value.
Accrued interest: The carrying amounts of accrued interest approximate the
fair values.
Loan commitments: Fees charged for commitments to extend credit are not
significant and are offset by associated credit risk with respect to certain
amounts expected to be funded. Accordingly, the fair value of the financial
instruments is immaterial.
10. RECLASSIFICATION
Certain 1996 accounts have been reclassified to conform with the 1997
presentation.
NOTE B--INVESTMENT AND MORTGAGED-BACKED SECURITIES
Investment and mortgage-backed securities have been classified according to
management's intent. The amortized cost of securities and their approximate fair
values are as follows:
F9
<PAGE>
LANDMARK COMMUNITY BANK
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1997 AND 1996
NOTE B - INVESTMENT AND MORTGAGED-BACKED SECURITIES - Continued
SECURITIES HELD-TO-MATURITY
<TABLE>
<CAPTION>
MARCH 31, 1997 MARCH 31, 1996
-------------------------------------------------- --------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
GROSS GROSS GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE COST GAINS LOSSES VALUE
---------- ------------- ----------- ---------- ---------- ------------- ----------- ----------
U.S. government and federal
agencies................. $ 200,000 $ -- $ (3,243) $ 196,757 $ -- $ -- $ -- $ --
Mortgage-backed
securities............... 257,096 -- (9,309) 247,787 340,087 -- (7,501) 332,586
---------- --- ----------- ---------- ---------- --- ----------- ----------
$ 457,096 $ -- $ (12,552) $ 444,544 $ 340,087 $ -- $ (7,501) $ 332,586
---------- --- ----------- ---------- ---------- --- ----------- ----------
---------- --- ----------- ---------- ---------- --- ----------- ----------
</TABLE>
SECURITIES AVAILABLE-FOR-SALE
<TABLE>
<CAPTION>
MARCH 31, 1997 MARCH 31, 1996
-------------------------------------------------- ------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
GROSS GROSS GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE COST GAINS LOSSES VALUE
---------- ------------- ----------- ---------- ---------- ----------- ----------- ----------
U.S. government and federal
agencies................. $ 399,172 $ -- $ (1,379) $ 397,793 $ 200,000 $ -- $ (111) $ 199,889
Equity securities.......... -- -- -- -- 2,491 39,018 -- 41,509
---------- --- ----------- ---------- ---------- ----------- ----- ----------
$ 399,172 $ -- $ (1,379) $ 397,793 $ 202,491 $ 39,018 $ (111) $ 241,398
---------- --- ----------- ---------- ---------- ----------- ----- ----------
---------- --- ----------- ---------- ---------- ----------- ----- ----------
</TABLE>
F10
<PAGE>
LANDMARK COMMUNITY BANK
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1997 AND 1996
NOTE B - INVESTMENT AND MORTGAGED-BACKED SECURITIES - Continued
The following is a summary of maturities of securities held-to-maturity and
available-for-sale as of March 31, 1997:
<TABLE>
<CAPTION>
SECURITIES HELD-TO-MATURITY SECURITIES AVAILABLE-FOR-SALE
---------------------------- ------------------------------
<S> <C> <C> <C> <C>
AMOUNTS MATURING IN: AMORTIZED AMORTIZED
COST FAIR VALUE COST FAIR VALUE
---------- ---------- ---------- ----------
One year or less............................................ $ -- $ -- $ -- $ --
After one year through five years........................... 16,219 14,791 399,172 397,793
After five years through ten years.......................... 129,002 126,309 -- --
After ten years............................................. 311,875 303,444 -- --
---------- ---------- ---------- ---------
$ 457,096 $ 444,544 $ 399,172 $ 397,793
---------- ---------- ---------- ---------
---------- ---------- ---------- ---------
</TABLE>
The amortized cost and fair value of mortgage-backed securities are
presented in the held-to-maturity category by contractual maturity in the
preceding table. Expected maturities will differ from contractual maturities
because borrowers may have the right to call or prepay obligations without call
or prepayment penalties.
In 1997, debt securities with an amortized cost of $200,000 were transferred
from available-for-sale to held-to-maturity and equities with a fair market
value of $69,324 were transferred from available-for-sale to trading account
securities. The equity securities had an unrealized gain of $67,056 which was
recognized in net income during 1997. There were no securities transferred
between classifications during 1996.
NOTE C--LOANS RECEIVABLE, NET
THE ASSOCIATION'S LOANS RECEIVABLE ARE SUMMARIZED AS FOLLOWS:
<TABLE>
<CAPTION>
MARCH 31,
--------------------------
<S> <C> <C>
1997 1996
------------ ------------
Conventional first mortgages on real estate....................... $ 7,185,096 $ 5,311,735
Property improvement loans........................................ 29,871 55,803
Loans to depositors, secured by savings........................... 228,942 122,563
Consumer loans.................................................... 1,558,002 69,531
Commercial........................................................ 587,418 --
------------ ------------
9,589,329 5,559,632
------------ ------------
Allowance for loan losses......................................... (110,000) (32,000)
Loans in process.................................................. (87,117) --
------------ ------------
$ 9,392,212 $ 5,527,632
------------ ------------
------------ ------------
</TABLE>
F11
<PAGE>
LANDMARK COMMUNITY BANK
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1997 AND 1996
NOTE C - LOANS RECEIVABLE, NET - Continued
An analysis of the allowance for loan losses is as follows:
<TABLE>
<CAPTION>
MARCH 31,
---------------------
<S> <C> <C>
1997 1996
---------- ---------
Balance, beginning of year............................................. $ 32,000 $ 32,000
Loans charged off...................................................... -- --
Recoveries............................................................. -- --
Provision for losses................................................... 78,000 --
---------- ---------
Balance, end of year................................................... $ 110,000 $ 32,000
---------- ---------
---------- ---------
</TABLE>
The Association has no commitments to loan additional funds to the borrowers
whose loans have been modified.
In the ordinary course of business, the Association has and expects to
continue to have transactions, including borrowings, with its employees,
officers, directors, and their affiliates. In the opinion of management, such
transactions were on substantially the same terms, including interest rates and
collateral, as those prevailing at the time of comparable transactions with
other persons and did not involve more than a normal risk of collectibility or
present any other unfavorable features to the Association. Loans to such
borrowers are summarized as follows:
<TABLE>
<S> <C>
Balance, March 31, 1996........................................... $ 40,996
Additions......................................................... 223,407
Payments.......................................................... (72,490)
---------
Balance, March 31, 1997........................................... $ 191,913
---------
---------
</TABLE>
NOTE D--STOCK IN FEDERAL HOME LOAN BANK OF NEW YORK
The Association has its savings shares insured by the Federal Savings and
Loan Insurance Corporation. The Federal Home Loan Bank requires all
participating savings and loan associations to purchase Federal Home Loan Bank
stock in an amount equal to one percent (1%) of outstanding first mortgage
loans. Management anticipates purchasing additional shares during the year
ending March 31, 1998.
NOTE E--ACCRUED INTEREST RECEIVABLE
ACCRUED INTEREST RECEIVABLE IS SUMMARIZED AS FOLLOWS:
<TABLE>
<CAPTION>
MARCH 31,
--------------------
<S> <C> <C>
1997 1996
--------- ---------
Loans................................................................... $ 30,783 $ 17,520
Mortgage-backed securities.............................................. 826 1,287
Investments and other................................................... 7,021 480
--------- ---------
$ 38,630 $ 19,287
--------- ---------
--------- ---------
</TABLE>
F12
<PAGE>
LANDMARK COMMUNITY BANK
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1997 AND 1996
NOTE F--PREMISES AND EQUIPMENT
A SUMMARY OF THE ASSOCIATION'S PREMISES AND EQUIPMENT IS AS FOLLOWS:
<TABLE>
<CAPTION>
MARCH 31,
---------------------
<S> <C> <C>
1997 1996
---------- ---------
Building............................................................... $ 58,602 $ 58,602
Improvements........................................................... 83,823 11,127
Equipment.............................................................. 103,018 63,679
---------- ---------
245,443 133,408
Less accumulated depreciation.......................................... 90,064 79,866
---------- ---------
$ 155,379 $ 53,542
---------- ---------
---------- ---------
</TABLE>
Depreciation expense for 1997 and 1996 was $11,570 and $6,767, respectively.
NOTE G--DEPOSITS
Deposit account balances at March 31, 1997 and 1996, are summarized as
follows:
<TABLE>
<CAPTION>
MARCH 31,
-------------------------------------------------
<S> <C> <C> <C> <C>
1997 1996
------------------------ -----------------------
<CAPTION>
AMOUNT % AMOUNT %
------------- --------- ------------ ---------
<S> <C> <C> <C> <C>
Balance by interest rate:
Interest-bearing checking accounts............................... $ 235,154 2.30% $ -- 0%
Passbook accounts................................................ 3,881,806 37.92% 3,683,226 56.98%
Certificates of deposit.......................................... 6,120,341 59.78% 2,781,847 43.02%
------------- --------- ------------ ---------
$ 10,237,301 100.00% $ 6,465,073 100.00%
------------- --------- ------------ ---------
------------- --------- ------------ ---------
</TABLE>
The aggregate amount of short-term jumbo certificates of deposit with a
minimum denomination of $100,000 was approximately $307,000 and $341,000 at
March 31, 1997 and 1996, respectively.
At March 31, 1997 scheduled maturities of certificates of deposit are as
follows:
<TABLE>
<S> <C>
March 31, 1998 $ 796,057
1999 3,166,528
2000 1,304,369
2001 34,081
2002 and thereafter 819,306
-----------
$6,120,341
-----------
-----------
</TABLE>
F13
<PAGE>
LANDMARK COMMUNITY BANK
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1997 AND 1996
NOTE H--INCOME TAXES
The Association files federal and state income tax returns on a calendar
year basis. If certain conditions are met in determining taxable income, the
Association is allowed a special bad debt deduction based on a percentage of
taxable income (presently eight (8) percent) or on specified experience
formulas. The Association used the percentage of taxable income method in 1996
and anticipates using the same method in 1997.
Income tax expense (benefit) is summarized as follows:
<TABLE>
<S> <C> <C>
Federal.....................................................
Current.................................................. $ (9,700) $ 17,800
Deferred................................................. (5,000) 9,200
---------- ---------
(14,700) 27,000
---------- ---------
State.......................................................
Current.................................................. $ (1,600) $ 8,500
Deferred................................................. (2,100) 2,600
---------- ---------
(3,700) 11,100
---------- ---------
$ (18,400) $ 38,100
---------- ---------
---------- ---------
</TABLE>
Taxes paid during the years ended March 31, 1997 and 1996, were $17,140 and
$24,248, respectively.
The provision for income taxes (benefit) differs from that computed by
applying federal statutory rates to income (loss) before income tax expense, as
indicated in the following analysis:
<TABLE>
<CAPTION>
YEAR ENDED
MARCH 31,
---------------------
<S> <C> <C>
1997 1996
---------- ---------
Expected tax provision (benefit) at 34%................................ $ (18,500) $ 42,000
State franchise tax.................................................... 1,000 8,500
Federal surtax exemption............................................... -- (10,600)
Other, net............................................................. (900) (1,800)
---------- ---------
$ (18,400) $ 38,100
---------- ---------
---------- ---------
</TABLE>
Deferred tax liabilities have been provided for taxable temporary
differences related to unrealized gains on trading account securities and
accrued interest receivable. Deferred tax assets have been provided for
deductible temporary differences related to the allowance for loan losses,
accounts payable, other liabilities and a net operating loss carryforward. The
net deferred tax assets (liabilities) in the accompanying statements of
financial condition include the following components:
F14
<PAGE>
LANDMARK COMMUNITY BANK
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1997 AND 1996
NOTE H- INCOME TAXES - Continued
<TABLE>
<CAPTION>
MARCH 31,
----------------------
<S> <C> <C>
1997 1996
---------- ----------
Deferred tax liabilities.............................................. $ (31,300) $ (11,800)
Deferred tax assets................................................... 38,400 --
---------- ----------
Net deferred tax assets (liabilities)................................. $ 7,100 $ (11,800)
---------- ----------
---------- ----------
</TABLE>
Included in retained earnings at March 31, 1997 and 1996 is approximately
$141,000 in bad debt reserves for which no deferred federal income tax liability
has been recorded. These amounts represent allocations of income to bad debt
deductions for tax purposes only. Reduction of these reserves for purposes other
than tax bad-debt losses or adjustment arising from carryback of net operating
losses would create income for tax purposes, which would be subject to the
then-current corporate income tax rate. The unrecorded deferred liability on
these amounts was approximately $48,000 at March 31, 1997 and 1996,
respectively.
The Association has a net operating loss carryforward totaling approximately
$22,000, expiring during the year 2011.
NOTE I- RETAINED EARNINGS
The regulations of the Banking Law of the State of New York require that the
Association maintain certain general reserves. Such requirements have been met
by appropriations of retained income aggregating $269,878 at March 31, 1997 and
1996. These appropriations also satisfy federal insurance reserve requirements.
These reserves are not valuation allowances and have not been created by charges
against earnings. They represent a restriction on the retained earnings of the
Association. Effective April 1, 1997, the Association became a federally
chartered mutual savings institution.
NOTE J--REGULATORY MATTERS
The Association is subject to various regulatory capital requirements
administered by its primary federal regulator, the Office of Thrift Supervision
(OTS). Failure to meet the minimum regulatory capital requirements can initiate
certain mandatory, and possible additional discretionary actions by regulators,
that if undertaken, could have a direct material affect on the Association and
the consolidated financial statements. Under the regulatory capital adequacy
guidelines and the regulatory framework for prompt corrective action, the
Association must meet specific capital guidelines involving quantitative
measures of the Association's assets, liabilities, and certain off-balance-sheet
items as calculated under regulatory accounting practices. The Association's
capital amounts and classification under the prompt corrective action guidelines
are also subject to qualitative judgments by the regulators and components, risk
weightings, and other factors.
F15
<PAGE>
LANDMARK COMMUNITY BANK
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1997 AND 1996
NOTE J - REGULATORY MATTERS - Continued
Quantitative measures established by regulation to ensure capital adequacy
require the Association to maintain minimum amounts and ratios of: total
risk-based capital and Tier I capital to risk-weighted assets (as defined in the
regulations), Tier I capital to adjusted total assets (as defined), and tangible
capital to adjusted total assets (as defined). Management believes, as of March
31, 1997, that the Association meets all capital adequacy requirements to which
they are subject.
As of March 31, 1997, the most recent notification form the OTS, the
Association was categorized as well capitalized under the regulatory framework
for prompt corrective action. To remain categorized as well capitalized, the
Association will have to maintain minimum total risk-based, Tier I risk-based,
and Tier I leverage ratios as disclosed in the table below. There are no
conditions or events since the most recent notification that management believes
have changed the Association's prompt corrective action category.
<TABLE>
<CAPTION>
TO BE WELL CAPITALIZED
FOR CAPITAL UNDER PROMPT CORRECTIVE
ACTUAL ADEQUACY PURPOSES ACTION PROVISIONS
-------------------- ------------------------ ----------------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
---------- ------- ------------- ------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
As of March 31, 1997:
greater than greater than greater than greater than
Total Risk-Based Capital or equal to or equal to or equal to or equal to
(to Risk-Weighted Assets)......... $956,285 16.0% $ 478,300 8.0% $ 597,800 10.0%
greater than greater than greater than greater than
Tier I Capital or equal to or equal to or equal to or equal to
(to Risk-Weighted Assets)......... $956,285 16.0% $ 239,200 4.0% $ 358,700 6.0%
greater than greater than greater than greater than
Tier I Capital or equal to or equal to or equal to or equal to
(to Adjusted Total Assets)........ $956,285 8.4% $ 453,000 4.0% $ 566,300 5.0%
greater than greater than greater than greater than
Tangible Capital or equal to or equal to or equal to or equal to
(to Adjusted Total Assets)........ $956,285 8.4% $ 169,900 1.5% $ 169,900 1.5%
</TABLE>
<TABLE>
<CAPTION>
TO BE WELL CAPITALIZED
FOR CAPITAL UNDER PROMPT CORRECTIVE
ACTUAL ADEQUACY PURPOSES ACTION PROVISIONS
-------------------- ------------------------ -------------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
---------- ------- ------------- ------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C>
As of March 31, 1996:
greater than greater than greater than greater than
Total Risk-Based Capital or equal to or equal to or equal to or equal to
(to Risk-Weighted Assets)......... $992,357 35.7% $ 222,300 8.0% $ 227,800 10.0%
greater than greater than greater than greater than
Tier I Capital or equal to or equal to or equal to or equal to
(to Risk-Weighted Assets)......... $992,357 35.7% $ 111,100 4.0% $ 166,700 6.0%
greater than greater than greater than greater than
Tier I Capital or equal to or equal to or equal to or equal to
(to Adjusted Total Assets)........ $992,357 13.0% $ 304,300 4.0% $ 380,300 5.0%
greater than greater than greater than greater than
Tangible Capital or equal to or equal to or equal to or equal to
(to Adjusted Total Assets)........ $992,357 13.0% $ 114,100 1.5% $ 114,100 1.5%
</TABLE>
F16
<PAGE>
LANDMARK COMMUNITY BANK
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1997 AND 1996
NOTE K--FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
The Association is a party to financial instruments with off-balance-sheet
risk in the normal course of business to meet the financing needs of its
customers. These financial instruments include commitments to extend credit.
These instruments involve, to varying degrees, elements of credit and interest
rate risk in excess of the amounts recognized in the statements of financial
condition.
The Association's exposure to credit loss in the event of nonperformance by
the other party to the financial instruments for commitments to extend credit is
represented by the contractual notional amount of those instruments (see Note
L). The Association uses the same credit policies in making commitments and
conditional obligations as it does for on-balance-sheet instruments.
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee. Since some of the commitments may expire without being
drawn upon, the total commitment amounts do not necessarily represent future
cash requirements. The Association evaluates each customer's creditworthiness on
a case-by-case basis. The amount and type of collateral obtained, if deemed
necessary by the Association upon extension of credit, varies and is based on
management's credit evaluation of the counterparty.
The Association has not incurred any losses on its commitments in the years
ended March 31, 1997 and 1996.
NOTE L--COMMITMENTS AND CONTINGENCIES
In the ordinary course of business, the Association has various outstanding
commitments and contingent liabilities that are not reflected in the
accompanying financial statements. In addition, the Association is a defendant
in certain claims and legal actions arising in the ordinary course of business.
In the opinion of management, after consultation with legal counsel, the
ultimate disposition of these matters is not expected to have a material adverse
effect on the financial position of the Association.
THE ASSOCIATION HAD OUTSTANDING COMMITMENTS TO ORIGINATE LOANS AS FOLLOWS:
<TABLE>
<CAPTION>
MARCH 31, 1997
-------------------------------------
<S> <C> <C> <C>
FIXED-RATE VARIABLE-RATE TOTAL
----------- ------------ ----------
First-mortgage............................................................. $ 244,700 $ 90,400 $ 335,100
----------- ------------ ----------
----------- ------------ ----------
</TABLE>
As of March 31, 1996 the Association had no outstanding commitments to
originate any loans.
At March 31, 1997, the Association had an unused line of credit with the
Federal Home Loan Bank as follows:
<TABLE>
<S> <C>
Companion (DRA) Commitment........................................ $ 382,350
Overnight line of credit.......................................... 382,350
---------
$ 764,700
---------
---------
</TABLE>
F17
<PAGE>
LANDMARK COMMUNITY BANK
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1997 AND 1996
NOTE L- COMMITMENTS AND CONTINGENCIES - Continued
The Association's line of credit expires on August 14, 1997.
NOTE M--FAIR VALUES OF FINANCIAL INSTRUMENTS
The estimated fair values of the Association financial instruments are as
follows:
<TABLE>
<CAPTION>
MARCH 31,
------------------------------------------------------
<S> <C> <C> <C> <C>
1997 1996
-------------------------- --------------------------
<CAPTION>
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Financial assets:
Cash........................................................ $ 709,458 $ 709,458 $1,350,573 $1,350,573
Trading account securities.................................. 69,324 69,324 -- --
Mortgage-backed securities.................................. 257,096 247,787 340,087 332,586
Investment securities....................................... 597,793 594,550 241,398 241,398
Loans receivable, net....................................... 9,392,212 9,394,000 5,527,632 5,743,000
Accrued interest receivable................................. 38,630 38,630 19,287 19,287
Financial liabilities:
Deposits.................................................... 10,237,301 10,188,000 6,465,073 6,483,000
Advance payments by borrowers for taxes and insurance....... 107,277 107,277 95,397 95,397
</TABLE>
The carrying amounts in the preceding table are included in the statement of
financial condition under the applicable captions. The contract or notional
amounts of the Association's financial instruments with off-balance-sheet risk
are disclosed in Note K and L. No derivatives were held by the Association for
trading purposes. It is not practicable to estimate the fair value of Federal
Home Loan Bank (FHLB) stock because it is not marketable. The carrying amount of
that investment is reported in the statements of financial condition.
NOTE N--CONCENTRATION OF CREDIT
The majority of the Association's loans have been granted to customers in
the Association's market area, which is primarily Canajoharie, New York.
Canajoharie is a largely rural area and relies heavily on the agricultural
industry and a certain manufacturer. The concentrations of credit by type of
loan are set forth in the note on loans receivable (see Note C). The
Association, as a matter of policy, does not extend credit to any borrowers in
excess of its legal lending limit.
F18
<PAGE>
LANDMARK COMMUNITY BANK
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1997 AND 1996
NOTE O--SPECIAL INSURANCE ASSESSMENT RELATING TO THE CAPITALIZATION
OF THE SAVINGS ASSOCIATION INSURANCE FUND (SAIF)
During September 1996, Congress enacted legislation to recapitalize the SAIF
by a one-time assessment on all SAIF-insured deposits held as of March 1995.
This assessment of approximately $43,000 was paid during the year ended March
31, 1997 and included in non-interest expense.
NOTE P--PLAN OF CONVERSION
On April 1, 1997, the Association's Board of Directors approved a plan
(Plan) to convert from a federal mutual savings institution to a federal
stock savings institution and then convert to a national or New York
chartered commercial bank, subject to approval by the Association's members.
The Plan, which includes formation of a Holding Company to own all of the
outstanding stock of the Association, is subject to approval by the OTS and
includes the filing of a registration statement with the Securities and
Exchange Commission. As of March 31, 1997, the Association had incurred
$9,397 in costs related to this conversion. If the conversion is ultimately
successful, actual conversion costs will be accounted for as a reduction in
gross proceeds. If the conversion is unsuccessful, the conversion costs will
be expensed.
The Plan calls for the common stock of the Holding Company to be offered to
various parties in a subscription offering at a price based on an independent
appraisal of the Association. It is anticipated that any shares not purchased in
the subscription offering may be offered to the general public in a direct
community offering.
The Association may not declare or pay a cash dividend if the effect thereof
would cause its net worth to be reduced below either the amount required for the
liquidation account discussed below or the regulatory capital requirements
imposed by the OTS.
At the time of the conversion, the Association will establish a liquidation
account in an amount equal to its retained earnings as reflected in the latest
statement of financial condition used in the final conversion prospectus. The
liquidation account will be maintained for the benefit of eligible account
holders and supplemental eligible account holders who continue to maintain their
deposit accounts in the Association after conversion. In the event of a complete
liquidation of the converted Association, and only in such an event, eligible
depositors who continue to maintain accounts shall be entitled to receive a
liquidation distribution from the liquidation account in the amount of the
then-current adjusted sub-account balances for Deposit Accounts then held before
any liquidation distribution may be made to stockholders.
The converted Association and the Holding Company may in their discretion
make scheduled contributions to any Tax-Qualified Employee Plans, provided that
any such contributions which are for the acquisition of Holding Company
Conversion Stock, or the repayment of debt incurred for such an acquisition, do
not cause the converted Association to fail to meet its regulatory capital
requirements.
In order to provide an incentive for Directors, Officers and employees of
the Holding Company and its subsidiaries (including the Association), the Board
of Directors of the Holding Company intends to adopt, subject to shareholder
approval, a stock option and incentive plan and a recognition and retention plan
as permitted by applicable regulations following the conversion.
F19
<PAGE>
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- -------------------------------------------------------------------------------
NO 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 THE
COMPANY OR THE BANK. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR
A SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY TO ANY
PERSON IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT
AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT
QUALI-FIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH
OFFER OR SOLICITATION IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE ANY
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY OR
THE BANK SINCE ANY OF THE DATES AS OF WHICH INFORMATION IS FURNISHED HEREIN
OR SINCE THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
PAGE
---------
Prospectus Summary.............................. 4
Selected Financial Information and Other Data... 11
Risk Factors.................................... 13
Landmark Community Bank......................... 19
Landmark Financial Corp......................... 19
Capitalization.................................. 21
Pro Forma Data.................................. 22
Pro Forma Regulatory Capital.................... 25
Use of Proceeds................................. 26
Dividends....................................... 27
Market for Common Stock......................... 28
Participation by Management..................... 28
Landmark Community Bank Statements of Operations 29
Management's Discussion and Analysis of
Financial Condition and Results of Operations. 30
Business........................................ 40
Regulation...................................... 59
Management...................................... 69
The Conversion.................................. 77
Restrictions on Acquisitions of Stock and
Related Takeover Defensive Provisions......... 90
Description of Capital Stock.................... 95
Legal and Tax Matters........................... 96
Experts......................................... 96
Additional Information.......................... 96
Index to Financial Statements................... F-1
------------------------
UNTIL THE LATER OF , 1997, OR 25 DAYS AFTER COMMENCEMENT OF
THE SYNDICATED COMMUNITY OFFERING, 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.
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- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
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132,000 SHARES
LANDMARK FINANCIAL
CORP.
(HOLDING COMPANY FOR LANDMARK COMMUNITY BANK)
COMMON STOCK
---------------------
PROSPECTUS
---------------------
Company Advisor
TRIDENT FINANCIAL CORP.
, 1997
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II: INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers of Landmark Community Bank
Generally, federal regulations define areas for indemnity coverage for
federal savings associations, as follows:
(a) Any person against whom any action is brought by reason of the
fact that such person is or was a director or officer of the savings
association shall be indemnified by the savings association for:
(i) Reasonable costs and expenses, including reasonable
attorneys' fees, actually paid or incurred by such person in connection with
proceedings related to the defense or settlement of such action;
(ii) Any amount for which such person becomes liable by reason
of any judgment in such action;
(iii) Reasonable costs and expenses, including reasonable
attorneys' fees, actually paid or incurred in any action to enforce his rights
under this section, if the person attains a final judgment in favor of such
person in such enforcement action.
(b) Indemnification provided for in subparagraph (a) shall be made
to such officer or director only if the requirements of this subsection are
met:
(i) The savings association shall make the indemnification
provided by subparagraph (a) in connection with any such action which results
in a final judgment on the merits in favor of such officer or director.
(ii) The savings association shall make the indemnification
provided by subparagraph (a) in case of settlement of such action, final
judgment against such director or officer or final judgment in favor of such
director or officer other than on the merits except in relation to matters as
to which he shall be adjudged to be liable for negligence or misconduct in the
performance of duty, only if a majority of the directors of the savings
association determines that such a director or officer was acting in good faith
within what he was reasonably entitled to believe under the circumstances was
the scope of his employment or authority and for a purpose which he was
reasonably entitled to believe under the circumstances was in the best interest
of the savings association or its members.
(c) As used in this paragraph:
(i) "Action" means any action, suit or other judicial or
administrative proceeding, or threatened proceeding, whether civil, criminal,
or otherwise, including any appeal or other proceeding for review;
(ii) "Court" includes, without limitation, any court to which
or in which any appeal or any proceeding for review is brought;
(iii) "Final Judgment" means a judgment, decree, or order which
is appealable and as to which the period for appeal has expired and no appeal
has been taken;
(iv) "Settlement" includes the entry of a judgment by consent
or by confession or upon a plea of guilty or of nolo contendere.
The Bank maintains directors and officers liability policy with
Reliance National. Such policy provides for an aggregate liability coverage
of $1.0 million.
<PAGE>
Indemnification of Directors and Officers of Landmark Financial Corp.
Article TENTH of the Certificate of Incorporation of Landmark Financial
Corp. (the "Corporation") sets forth circumstances under which directors,
officers, employees and agents of the Corporation may be insured or
indemnified against liability which they may incur in their capacities as
such.
TENTH:
A. Each person who was or is made a party or is threatened to be made a
party to or is otherwise involved in any action, suit or proceeding, whether
civil, criminal, administrative or investigative (hereinafter a
"proceeding"), by reason of the fact that he or she is or was a Director or
an Officer of the Corporation or is or was serving at the request of the
Corporation as a Director, Officer, employee or agent of another corporation
or of a partnership, joint venture, trust or other enterprise, including
service with respect to an employee benefit plan (hereinafter an
"indemnitee"), whether the basis of such proceeding is alleged action in an
official capacity as a Director, Officer, employee or agent or in any other
capacity while serving as a Director, Officer, employee or agent, shall be
indemnified and held harmless by the Corporation to the fullest extent
authorized by the Delaware General Corporation Law, as the same exists or may
hereafter be amended (but, in the case of any such amendment, only to the
extent that such amendment permits the Corporation to provide broader
indemnification rights than such law permitted the Corporation to provide
prior to such amendment), against all expense, liability and loss (including
attorneys' fees, judgments, fines, ERISA excise taxes or penalties and
amounts paid in settlement) reasonably incurred or suffered by such
indemnitee in connection therewith; provided, however, that, except as
provided in Section C hereof with respect to proceedings to enforce rights to
indemnification, the Corporation shall indemnify any such indemnitee in
connection with a proceeding (or part thereof) initiated by such indemnitee
only if such proceeding (or part thereof) was authorized by the Board of
Directors of the Corporation.
B. The right to indemnification conferred in Section A of this Article
TENTH shall include the right to be paid by the Corporation the expenses
incurred in defending any such proceeding in advance of its final disposition
(hereinafter and "advancement of expenses"); provided, however, that, if the
Delaware General Corporation Law requires, an advancement of expenses
incurred by an indemnitee in his or her capacity as a Director or Officer
(and not in any other capacity in which service was or is rendered by such
indemnitee, including, without limitation, services to an employee benefit
plan) shall be made only upon delivery to the Corporation of an undertaking
(hereinafter an "undertaking"), by or on behalf of such indemnitee, to repay
all amounts so advanced if it shall ultimately be determined by final
judicial decision from which there is no further right to appeal (hereinafter
a "final adjudication") that such indemnitee is not entitled to be
indemnified for such expenses under this Section or otherwise. The rights to
indemnification and to the advancement of expenses conferred in Sections A
and B of this Article TENTH shall be contract rights and such rights shall
continue as to an indemnitee who has ceased to be a Director, Officer,
employee or agent and shall inure to the benefit of the indemnitee's heirs,
executors and administrators.
C. If a claim under Section A or B of this Article TENTH is not paid in
full by the Corporation within sixty days after a written claim has been
received by the Corporation, except in the case of a claim for an advancement
of expenses, in which case the applicable period shall be twenty days, the
indemnitee may at any time thereafter bring suit against the Corporation to
recover the unpaid amount of the claim. If successful in whole or in part in
any such suit, or in a suit brought by the Corporation to recover an
advancement of expenses pursuant to the terms of an undertaking, the
indemnitee shall be entitled to be paid also the expenses of prosecuting or
defending such suit. In (i) any suit brought by the indemnitee to enforce a
right to indemnification hereunder (but not in a suit brought by the
indemnitee to enforce a right to an advancement of expenses) it shall be a
defense that, and (ii) in any suit by the Corporation to recover an
advancement of expenses pursuant to the terms of an undertaking the
Corporation shall be entitled to recover such expenses upon a final
adjudication that, the indemnitee has not met any applicable standard for
indemnification set forth in the Delaware General Corporation Law. Neither
the failure of the Corporation (including its Board of Directors, independent
legal counsel, or its stockholders) to have made a determination prior to the
commencement of such suit that indemnification of the indemnitee is proper in
the circumstances because the indemnitee has met the applicable standard of
conduct set forth in the Delaware General Corporation Law, nor an actual
determination by the Corporation (including its Board of Directors,
independent legal counsel, or its stockholders) that the indemnitee has not
met such applicable standard of conduct, shall create a presumption that the
indemnitee has not met the applicable standard of conduct or, in the case of
such a suit brought by the indemnitee, be a defense to such suit. In any
suit brought by the indemnitee to enforce a right to indemnification or to an
<PAGE>
advancement of expenses hereunder, or by the Corporation to recover an
advancement of expenses pursuant to the terms of an undertaking, the burden
of proving that the indemnitee is not entitled to be indemnified, or to such
advancement of expenses, under this Article TENTH or otherwise, shall be on
the Corporation.
D. The rights to indemnification and to the advancement of expenses
conferred in this Article TENTH shall not be exclusive of any other right
which any person may have or hereafter acquire under any statute, the
Corporation's Certificate of Incorporation, Bylaws, agreement, vote of
stockholders or Disinterested Directors or otherwise.
E. The Corporation may maintain insurance, at its expense, to protect
itself and any Director, Officer, employee or agent of the Corporation or
another corporation, partnership, joint venture, trust or other enterprise
against any expense, liability or loss, whether or not the Corporation would
have the power to indemnify such person against such expense, liability or
loss under the Delaware General Corporation Law.
F. The Corporation may, to the extent authorized from time to time by
the Board of Directors, grant rights to indemnification and to the
advancement of expenses to any employee or agent of the Corporation to the
fullest extent of the provisions of this Article TENTH with respect to the
indemnification and advancement of expenses of Directors and Officers of the
Corporation.
Item 25. Other Expenses of Issuance and Distribution
Amount
------
* Legal Fees and Expenses............................ $ 60,000
* Printing, Postage and Mailing...................... 40,000
* Appraisal and Business Plan Fees and Expenses...... 20,000
* Accounting Fees and Expenses
(including counsel fees)......................... 5,000
Conversion Agent and Proxy Solicitation Fees....... 6,000
* Filing Fees (NASD, OTS and SEC).................... 10,000
* Other Expenses..................................... 10,000
------------
* Total.............................................. $ 151,000
------------
------------
- -----------------
* Estimated
Item 26. Recent Sales of Registered Securities.
Not Applicable.
Item 27. Exhibits:
The exhibits filed as part of this registration statement are as follows:
2 Plan of Conversion
3.1 Certificate of Incorporation of Landmark Financial Corp.
3.2 Bylaws of Landmark Financial Corp.
3.3 Charter of Landmark Community Bank
3.4 Bylaws of Landmark Community Bank
4 Form of Common Stock Certificate of Landmark Financial Corp.
<PAGE>
5 Opinion of Luse Lehman Gorman Pomerenk & Schick, P.C. regarding legality
of securities being registered
8.1 Federal Tax Opinion of Luse Lehman Gorman Pomerenk & Schick, P.C.
8.2 State Tax Opinion of Harvazinski & Montanye, LLP
8.3 Opinion of FinPro, Inc. with respect to Subscription Rights
10 Employee Stock Ownership Plan
23.1 Consent of Harvazinski & Montanye, LLP
23.2 Consent of FinPro, Inc.
24 Power of Attorney (set forth on signature page)
27 Financial Data Schedule
99.1 Appraisal Agreement between Landmark Community Bank and FinPro, Inc.
99.2 Appraisal Report of FinPro, Inc*
99.3 Proxy Statement
99.4 Marketing Materials*
99.5 Order and Acknowledgment Form
99.6 Financial Advisor Agreement between Landmark Community Bank and Trident
Financial Corporation
- ------------------------------
* To be filed supplementally or by amendment.
Item 28. Undertakings
The undersigned Registrant hereby undertakes:
(1) File, during any period in which it offers or sells securities,
a post-effective amendment to this registration statement to:
(i) Include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) 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
duration 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) Include any additional or changed material information on the
plan of distribution.
(2) For determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the initial
bona fide offering.
<PAGE>
(3) File a post-effective amendment to remove from registration any
of the securities that remain unsold at the end of the offering.
The small business issuer will provide to the underwriter at the
closing specified in the Underwriting Agreement certificates in such
documentation and registered in such names as required by the underwriter to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the small business issuer pursuant to the foregoing
provisions, or otherwise, the small business issuer has been advised that in
the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act, and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the small business issuer of expenses
incurred or paid by a director, officer or controlling person of the small
business issuer 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 small business issuer 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 Act and will be governed by the final adjudication of such issue.
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements of filing on Form SB-2 and authorized this
registration statement to be signed on its behalf by the undersigned, in the
Town of Canajoharie, State of New York, on June 19, 1997.
Landmark Financial Corp.
(Registrant)
By: /s/ Gordon E. Coleman
-------------------------------
Gordon E. Coleman
Chief Executive Officer
(Duly Authorized Representative)
POWER OF ATTORNEY
We, the undersigned directors and officers of Landmark Financial Corp.
(the "Company") hereby severally constitute and appoint Gordon E. Coleman as
our true and lawful attorney and agent, to do any and all things in our names
in the capacities indicated below which said Gordon E. Coleman may deem
necessary or advisable to enable the Company to comply with the Securities
Act of 1933, 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 the Company's Common Stock, including
specifically, but not limited to, power and authority to sign for 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 approve, ratify and confirm all that said Gordon E. Coleman shall do
or cause to be done by virtue thereof.
In accordance with the requirements of the Securities Act of 1933, this
registration statement was signed by the following persons in the capacities
and as of the dates stated.
Signatures Title Date
---------- ----- ----
/s/ Gordon E. Coleman Chief Executive Officer and June 19, 1997
- ---------------------
Gordon E. Coleman Director
(Principal Executive Officer)
/s/ Michael L. Countryman Acting Chief Financial Officer June 19, 1997
- -------------------------
Michael L. Countryman (Principal Financial and
Accounting Officer)
/s/ John R. Francisco Chairman of the Board June 19, 1997
- ---------------------
John R. Francisco
/s/ Carl J. Rockefeller Vice Chairman of the Board June 19, 1997
- -----------------------
Carl J. Rockefeller
/s/ Frederick LaCoppola Treasurer June 19, 1997
- -----------------------
Frederick LaCoppola
/s/ Myron Walton Secretary June 19, 1997
- ----------------
Myron Walton
/s/ F. Richard Ferraro Director June 19, 1997
- ----------------------
F. Richard Ferraro
/s/ Patricia A. Symolon Director June 19, 1997
- -----------------------
Patricia A. Symolon
<PAGE>
As filed with the Securities and Exchange Commission on June 23, 1997
Registration No. ________
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------------
EXHIBITS
TO
REGISTRATION STATEMENT
ON
FORM SB-2
-------------------------------
Landmark Financial Corp.
Canajoharie, New York
<PAGE>
EXHIBIT INDEX
2 Plan of Conversion
3.1 Certificate of Incorporation of Landmark Financial Corp.
3.2 Bylaws of Landmark Financial Corp.
3.3 Charter of Landmark Community Bank
3.4 Bylaws of Landmark Community Bank
4 Form of Common Stock Certificate of Landmark Financial Corp.
5 Opinion of Luse Lehman Gorman Pomerenk & Schick, P.C. regarding
legality of securities being registered
8.1 Federal Tax Opinion of Luse Lehman Gorman Pomerenk & Schick, P.C.
8.2 State Tax Opinion of Harvazinski & Montanye, LLP
8.3 Opinion of FinPro, Inc. with respect to Subscription Rights
10 Employee Stock Ownership Plan
23.1 Consent of Harvazinski & Montanye, LLP
23.2 Consent of FinPro, Inc.
24 Power of Attorney (set forth on signature page)
27 Financial Data Schedule
99.1 Appraisal Agreement between Landmark Community Bank and FinPro, Inc.
99.2 Appraisal Report of FinPro, Inc.*
99.3 Proxy Statement
99.4 Marketing Materials*
99.5 Order and Acknowledgment Form
99.6 Financial Advisor Agreement between Landmark Community Bank and
Trident Financial Corporation
- -------------------------------
* To be filed supplementally or by amendment.
<PAGE>
EXHIBIT 2
<PAGE>
LANDMARK COMMUNITY BANK
Canajoharie, New York
PLAN OF CONVERSION
From Mutual to Stock Form of Organization
I. GENERAL
The Board of Directors of Landmark Community Bank (the "Bank") has adopted
this Plan of Conversion whereby the Bank will convert from a federal mutual
savings institution to a federal stock savings institution pursuant to the Rules
and Regulations of the OTS (the "Stock Conversion"). The Plan includes, as part
of the conversion, the concurrent formation of a holding company. The new
holding company will be chartered as a Delaware corporation under the name
"Landmark Financial Corp." The Plan provides that non-transferable subscription
rights to purchase Holding Company Conversion Stock will be offered first to
Eligible Account Holders of record as of the Eligibility Record Date, then to
the Bank's Tax-Qualified Employee Plans, then to Supplemental Eligible Account
Holders of record as of the Supplemental Eligibility Record Date, then to Other
Members, and then to directors, officers and employees. Concurrently with, at
any time during, or promptly after the Subscription Offering, and on a lowest
priority basis, an opportunity to subscribe may also be offered to the general
public in a Direct Community Offering. The price of the Holding Company
Conversion Stock will be based upon an independent appraisal of the Bank and
will reflect its estimated pro forma market value, as converted. It is the
desire of the Board of Directors of the Bank to attract new capital to the Bank
in order to increase its capital, support future savings growth and increase the
amount of funds available for residential and other mortgage lending. The
Converted Bank is also expected to benefit from its management and other
personnel having a stock ownership in its business, since stock ownership is
viewed as an effective performance incentive and a means of attracting,
retaining and compensating management and other personnel. No change will be
made in the Board of Directors or management as a result of the Conversion.
Following the completion of the Stock Conversion, it is expected that the
Converted Bank will convert to a national or New York chartered commercial bank
(the "Bank Conversion"), although there can be no assurance that the Board of
Directors will determine to proceed with the Bank Conversion. The decision to
proceed with the Bank Conversion will depend in part on the status of any
regulations and legislation affecting banks and savings institutions at the time
of the completion of the Stock Conversion.
II. DEFINITIONS
Acting in Concert: The term "acting in concert" shall have the same
meaning given it in Section 574.2(c) of the Rules and Regulations of the OTS.
A-1
<PAGE>
Actual Subscription Price: The price per share, determined as provided in
Section VI of the Plan, at which Holding Company Conversion Stock will be sold
in the Subscription Offering.
Affiliate: An "affiliate" of, or a Person "affiliated" with, a Specified
Person, is a Person that directly, or indirectly through one or more
intermediaries, controls, or is controlled by or is under common control with,
the Person specified.
Associate: The term "associate," when used to indicate a relationship with
any Person, means (i) any corporation or organization (other than the Holding
Company, the Bank or a majority-owned subsidiary of 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, and (iii) any relative or spouse of such Person, or any relative of
such spouse, who has the same home as such Person or who is a director or
officer of the Holding Company or the Bank or any subsidiary of the Holding
Company; provided, however, that any Tax-Qualified or Non-Tax-Qualified Employee
Plan shall not be deemed to be an associate of any director or officer of the
Holding Company or the Bank, to the extent provided in Section VI hereof.
Bank: Landmark Community Bank, or such other name as the institution may
adopt.
Bank Conversion: The conversion of the Converted Bank from a federally
chartered stock savings institution to a commercial bank.
BIF: Bank Insurance Fund.
Capital Stock: Any and all authorized shares of stock of the Converted
Bank after the Stock Conversion.
Commercial Bank: The commercial bank resulting from the Bank Conversion.
Commercial Bank Regulator: The state or federal agency that charters the
Commercial Bank.
Conversion: The Conversion of the Bank from the mutual to stock form of
organization pursuant to this Plan.
Converted Bank: The federally chartered stock savings institution
resulting from the Conversion of the Bank in accordance with the Plan.
Deposit Account: Any withdrawable account or deposit in excess of $50 in
the Bank.
Direct Community Offering: The offering to the general public of any
unsubscribed shares which may be effected as provided in Section VI hereof.
A-2
<PAGE>
Eligibility Record Date: The close of business on December 31, 1995.
Eligible Account Holder: Any Person holding a Qualifying Deposit in the
Bank on the Eligibility Record Date.
Exchange Act: The Securities Exchange Act of 1934, as amended.
FDIC: Federal Deposit Insurance Corporation.
FRB: The Board of Governors of the Federal Reserve System.
Holding Company: Landmark Financial Corp., a Delaware corporation, which
upon completion of the Stock Conversion will own all of the outstanding common
stock of the Converted Bank, and which upon completion of the Bank Conversion
will own all of the outstanding common stock of the Commercial Bank.
Holding Company Conversion Stock: Shares of common stock, par value $.01
per share, to be issued and sold by the Holding Company as a part of the
Conversion; provided, however, that for purposes of calculating Subscription
Rights and maximum purchase limitations under the Plan, references to the number
of shares of Holding Company Conversion Stock shall refer to the number of
shares offered in the Subscription Offering.
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 (ii) furnishes bona fide competitive bid and offer quotations on
request; and (iii) is ready, willing, and able to effect transactions in
reasonable quantities at his quoted prices with other brokers or dealers.
Maximum Subscription Price: The price per share of Holding Company
Conversion Stock to be paid initially by subscribers in the Subscription
Offering.
Member: Any Person or entity that qualifies as a member of the Bank
pursuant to its charter and bylaws.
Non-Tax-Qualified Employee Plan: Any defined benefit plan or defined
contribution plan of the Bank or the Holding Company, such as an employee stock
ownership plan, stock bonus plan, profit-sharing plan or other plan, which with
its related trust does not meet the requirements to be "qualified" under Section
401 of the Internal Revenue Code.
OTS: Office of Thrift Supervision, Department of the Treasury.
OTS Conversion Application: The application submitted to the OTS on Form
AC.
A-3
<PAGE>
Officer: An executive officer of the Holding Company or the Bank,
including the Chairman of the Board, President, Executive Vice Presidents,
Senior Vice Presidents in charge of principal business functions, Secretary and
Treasurer.
Order Forms: Forms to be used in the Subscription Offering and in the
Direct Community Offering to exercise Subscription Rights.
Other Members: Members of the Bank, other than Eligible Account Holders,
Tax-Qualified Employee Plans or Supplemental Eligible Account Holders, as of the
Voting Record Date.
Person: An individual, a corporation, a partnership, an association, a
joint-stock company, a trust, any unincorporated organization, or a government
or political subdivision thereof.
Plan: This Plan of Conversion of the Bank, including any amendment
approved as provided in this Plan, which provides for the conversion of the Bank
from a federally chartered mutual savings institution to a federally chartered
stock savings institution, and the subsequent conversion of the Converted Bank
from a federally chartered stock savings institution to a Commercial Bank.
Qualifying Deposit: The aggregate balance of each Deposit Account of an
Eligible Account Holder as of the Eligibility Record Date or of a Supplemental
Eligible Account Holder as of the Supplemental Eligibility Record Date.
SAIF: Savings Association Insurance Fund.
SEC: Securities and Exchange Commission.
Special Meeting: The Special Meeting of Members called for the purpose of
considering and voting upon the Plan of Conversion.
Stock Conversion: The conversion of the Bank to the Converted Bank,
including the change of the Bank's charter and bylaws to federal stock charter
and bylaws; sale by the Holding Company of Holding Company Conversion Stock; and
issuance and sale by the Converted Bank of Converted Bank Common Stock to the
Holding Company, all as provided for in the Plan.
Subscription Offering: The offering of shares of Holding Company
Conversion Stock for subscription and purchase pursuant to Section VI of the
Plan.
Subscription Rights: Non-transferable, non-negotiable, personal rights of
the Bank's Eligible Account Holders, Tax-Qualified Employee Plans, Supplemental
Eligible Account Holders, Other Members, and directors, Officers and employees,
or trusts of any such persons including individual retirement accounts and Keogh
accounts, to subscribe for shares of Holding Company Conversion Stock in the
Subscription Offering.
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Supplemental Eligibility Record Date: The last day of the calendar quarter
preceding approval of the Plan by the OTS.
Supplemental Eligible Account Holder: Any person holding a Qualifying
Deposit in the Bank (other than an officer or director and their associates) on
the Supplemental Eligibility Record Date.
Tax-Qualified Employee Plans: Any defined benefit plan or defined
contribution plan of the Bank or the Holding Company, such as an employee stock
ownership plan, stock bonus plan, profit-sharing plan or other plan, which with
its related trust meets the requirements to be "qualified" under Section 401 of
the Internal Revenue Code.
Voting Record Date: The date set by the Board of Directors in accordance
with federal regulations for determining Members eligible to vote at the Special
Meeting.
III. STEPS PRIOR TO SUBMISSION OF PLAN OF CONVERSION TO THE MEMBERS
FOR APPROVAL
Prior to submission of the Plan of Conversion to its Members for approval,
the Bank must receive from the OTS approval of the Application for Approval of
Conversion on Form AC to convert to the federal stock form of organization. The
following steps must be taken prior to such regulatory approval:
A. The Board of Directors shall adopt the Plan by not less than a
two-thirds vote.
B. The Bank shall notify its Members of the adoption of the Plan by
publishing a statement in a newspaper having a general circulation in each
community in which the Bank maintains an office.
C. Copies of the Plan adopted by the Board of Directors shall be made
available for inspection at each office of the Bank.
D. The Bank will promptly cause an Application for Approval of
Conversion on Form AC, and a holding application on Form H-(e)1-(s) (or
other applicable form) to be prepared and filed with the OTS, and a
Registration Statement on Form SB-2 (or other applicable form) to be
prepared and filed with the SEC. Contemporaneously with, or following the
completion of, the Conversion, if the Converted Bank determines to proceed
with the Bank Conversion, a Holding Company Application on Form FRY-3 will
be prepared and filed with the FRB, a bank conversion application will be
prepared and filed with the Commercial Bank Regulator, and a bank
conversion application will be filed with the OTS.
E. Upon filing of the Form AC, the Bank shall notify its Members that
it has filed the Form AC by posting notice in each of its offices and by
publishing notice in a
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newspaper having general circulation in each community in which the Bank
maintains an office.
F. The Board of Directors of the Bank, may, at any time, and
notwithstanding any language in this Plan to the contrary, elect not to
proceed with the Bank Conversion, in which event any applications filed
pursuant to the Bank Conversion may be withdrawn or abandoned. In the
event the Bank Conversion is not pursued, any references to the Bank
Conversion in this Plan shall be disregarded.
IV. CONVERSION PROCEDURE
Upon receipt of all regulatory approvals required for consummation of the
Stock Conversion, the Bank shall convene the Special Meeting scheduled in
accordance with the Bank's Bylaws to vote on the Plan. Promptly after receipt
of OTS approval of the OTS Conversion Application and at least 20 days but not
more than 45 days prior to the Special Meeting, the Bank will distribute proxy
solicitation materials to all voting Members as of the Voting Record Date
established for voting at the Special Meeting. Proxy materials will also be
sent to each beneficial holder of an Individual Retirement Account where the
name of the beneficial holder is disclosed on the Bank's records. The proxy
solicitation materials will include a copy of the Proxy Statement and other
documents authorized for use by the regulatory authorities and may also include
a Prospectus as provided in Section VI below. The Bank will 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 paid card on which to indicate whether he or she
wishes to receive the Prospectus, if the Subscription Offering is not held
concurrently with the proxy solicitation of Members for the Special Meeting.
Pursuant to applicable regulations, an affirmative vote of at least a
majority of the total outstanding votes of the Members will be required for
approval of the Plan. Voting may be in person or by proxy. By voting in favor
of the adoption of the Plan and the Conversion, the Members will be voting in
favor of the Stock Conversion and the adoption by the Bank of the Federal Stock
Charter and Bylaws in the forms attached as Exhibits A and B to this Plan.
Failure to pursue or receive regulatory approval for the Bank Conversion shall
have no effect on the vote with respect to the Stock Conversion.
Following approval of the application by the OTS, the Plan will be
submitted to a vote of the Members at the Special Meeting. If the Plan is
approved by Members holding a majority of the total number of votes entitled to
be cast at the Special Meeting, the Bank will take all other necessary steps
pursuant to applicable laws and regulations to convert to a federal stock
savings institution as part of a concurrent holding company formation pursuant
to the terms of the Plan.
The Holding Company Conversion Stock will be offered for sale in the
Subscription Offering at the Maximum Subscription Price to Eligible Account
Holders, Tax-Qualified Employee Plans, Supplemental Eligible Account Holders,
Other Members and directors, Officers and employees of the Bank, prior to or
within 45 days after the date of the Special Meeting. The Bank may, either
concurrently with, at any time during, or promptly after the Subscription
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Offering, also offer the Holding Company Conversion Stock to and accept
subscriptions from other Persons in a Direct Community Offering; provided that
the Bank's Eligible Account Holders, Tax-Qualified Employee Plans, Supplemental
Eligible Account Holders, Other Members and directors, Officers and employees
shall have the priority rights to subscribe for Holding Company Conversion Stock
set forth in Section VI of this Plan. However, the Holding Company and the Bank
may delay commencing the Subscription Offering beyond such 45 day period in the
event there exist unforeseen material adverse market or financial conditions.
If the Subscription Offering commences prior to the Special Meeting,
subscriptions will be accepted subject to the approval of the Plan at the
Special Meeting.
The period for the Subscription Offering will be not less than 20 days nor
more than 45 days and the period for the Direct Community Offering will be not
more than 45 days, unless extended by the Bank. Completion of the sale of all
shares of Holding Company Conversion Stock not sold in the Subscription Offering
and Direct Community Offering is required within 45 days after termination of
the Subscription Offering, subject to extension of such 45 day period by the
Holding Company and the Bank with the approval of the OTS. The Holding Company
and the Bank may jointly seek one or more extensions of such 45 day period if
necessary to complete the sale of all shares of Holding Company Conversion
Stock. In connection with such extensions, subscribers and other purchasers
will be permitted to increase, decrease or rescind their subscriptions or
purchase orders to the extent required by the OTS in approving the extensions.
Completion of the sale of all shares of Holding Company Conversion Stock is
required within 24 months after the date of the Special Meeting.
V. CONSUMMATION OF CONVERSION
A. Consummation of the Stock Conversion.
The date of consummation of the Stock Conversion will be the effective date
of the amendment of the Bank's federal mutual charter to read in the form of a
federal stock charter, which shall be the date of the sale of the Holding
Company Conversion Stock. After receipt of all orders for Holding Company
Conversion Stock, and concurrently with the execution thereof, the amendment of
the 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 institution will be declared effective by the OTS, the amended bylaws
approved by the Members will become effective, and the Bank will thereby be and
become the Converted Bank. At such time, the Holding Company Conversion Stock
will be issued and sold by the Holding Company, the Capital Stock to be issued
in the Conversion will be issued and sold to the Holding Company, and the
Converted Bank will become a wholly owned subsidiary of the Holding Company.
The Converted Bank will issue to the Holding Company 100% of its common stock,
representing all of the shares of Capital Stock to be issued by the Converted
Bank in the Stock Conversion, and the Holding Company will make payment to the
Converted Bank of that portion of the aggregate net proceeds realized by the
Holding Company from the sale of the Holding Company Conversion Stock under the
Plan as is necessary to increase the Converted Bank's tangible capital to at
least 10% of its adjusted total assets, or such other portion of the aggregate
net proceeds as may be authorized or required by the OTS.
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B. Consummation of the Bank Conversion.
The Bank Conversion shall be deemed to occur and shall be effective upon
completion of all actions necessary or appropriate under applicable federal
statutes and regulations and the policies of the FRB, the Commercial Bank
Regulator and the OTS to complete the conversion of the Converted Bank to a
commercial bank, including without limitation, the approval of the Bank
Conversion by the Holding Company, as the sole shareholder of the Converted
Bank, whereupon the Converted Bank will thereby be and become the Commercial
Bank. It is expected that the Bank Conversion will be consummated as soon as
reasonably practicable following the consummation of the Stock Conversion as
described in Section VI herein, however, there can be no assurance that the Bank
Conversion will occur.
VI. STOCK OFFERING
A. Total Number of Shares and Purchase Price of Conversion Stock
The total number of shares of Holding Company Conversion Stock to be issued
and sold in the Conversion will be determined jointly by the Boards of Directors
of the Holding Company and the Bank prior to the commencement of the
Subscription Offering, subject to adjustment if necessitated by market or
financial conditions prior to consummation of the Conversion. The total number
of shares of Holding Company Conversion Stock shall also be subject to increase
in connection with any oversubscriptions in the Subscription Offering or Direct
Community Offering.
The aggregate price for which all shares of Holding Company Conversion
Stock will be sold will be based on an independent appraisal of the estimated
total pro forma market value of the Holding Company and the Converted Bank.
Such appraisal shall be performed in accordance with OTS guidelines and will be
updated as appropriate under or required by applicable regulations.
The appraisal will be made by an independent investment banking or
financial consulting firm experienced in the area of thrift institution
appraisals. The appraisal will include, among other things, an analysis of the
historical and pro forma operating results and net worth of the Converted Bank
and a comparison of the Holding Company, the Converted Bank and the Conversion
Stock with comparable thrift institutions and holding companies and their
respective outstanding capital stocks.
Based upon the independent appraisal, the Boards of Directors of the
Holding Company and the Bank will jointly fix the Maximum Subscription Price.
If, upon completion of the Subscription Offering and Direct Community
Offering, all of the Holding Company Conversion Stock is subscribed for or only
a limited number of shares remain unsubscribed for the Actual Subscription Price
for each share of Holding Company Conversion Stock will be determined by
dividing the estimated appraised aggregate pro forma market value of the Holding
Company and the Converted Bank, based on the independent appraisal as updated
upon completion of the Subscription Offering or other sale of all of the
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Holding Company Conversion Stock, by the total number of shares of Holding
Company Conversion Stock to be issued and sold by the Holding Company upon
Conversion. Such appraisal will then be expressed in terms of a specific
aggregate dollar amount rather than as a range.
B. Subscription Rights
Non-transferable Subscription Rights to purchase shares will be issued
without payment therefor to Eligible Account Holders, Tax-Qualified Employee
Plans, Supplemental Eligible Account Holders, Other Members and directors,
Officers and employees of the Bank as set forth below.
1. Preference Category No. 1: Eligible Account Holders
Each Eligible Account Holder shall receive non-transferable
Subscription Rights to subscribe for shares of Holding Company Conversion
Stock in an amount equal to the greater of (i) $50,000; (ii) one-tenth of
one percent (.10%) of the total offering of shares; or (iii) 15 times the
product (rounded down to the next whole number) obtained by multiplying the
total number of shares of common stock to be issued by a fraction of which
the numerator is the amount of the qualifying deposit of the Eligible
Account Holder and the denominator is the total amount of qualifying
deposits of all Eligible Account Holders in the converting Bank in each
case on the Eligibility Record Date. If sufficient shares are not
available, shares shall be allocated first to permit each subscribing
Eligible Account Holder to purchase to the extent possible 100 shares, and
thereafter among each subscribing Eligible Account Holder pro rata in the
same proportion that his Qualifying Deposit bears to the total Qualifying
Deposits of all subscribing Eligible Account Holders whose subscriptions
remain unsatisfied.
Non-transferable Subscription Rights to purchase Holding Company
Conversion Stock received by directors and Officers of the Bank and their
Associates, based on their increased deposits in the Bank in the one year
period preceding the Eligibility Record Date, shall be subordinated to all
other subscriptions involving the exercise of non-transferable Subscription
Rights of Eligible Account Holders.
2. Preference Category No. 2: Tax-Qualified Employee Plans
Each Tax-Qualified Employee Plan shall be entitled to receive
non-transferable Subscription Rights to purchase up to 10% of the shares of
Holding Company Conversion Stock, provided that singly or in the aggregate
such plans (other than that portion of such plans which is self-directed)
shall not purchase more than 10% of the shares of the Holding Company
Conversion Stock. Subscription Rights received pursuant to this Category
shall be subordinated to all rights received by Eligible Account Holders to
purchase shares pursuant to Category No. 1; provided, however, that
notwithstanding any other provision of this Plan to the contrary, the
Tax-Qualified Employee Plans shall have a first priority Subscription Right
to the extent that the total number of shares of Holding Company
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Conversion Stock sold in the Conversion exceeds the maximum of the appraisal
range as set forth in the subscription prospectus.
3. Preference Category No. 3: Supplemental Eligible Account Holders
Each Supplemental Eligible Account Holder shall receive
non-transferable Subscription Rights to subscribe for shares of Holding
Company Conversion Stock in an amount equal to the greater of (i) $50,000;
(ii) one-tenth of one percent (.10%) of the total offering of shares; or
(iii) 15 times the product (rounded down to the next whole number) obtained
by multiplying the total number of shares of common stock to be issued by a
fraction of which the numerator is the amount of the qualifying deposit of
the Supplemental Eligible Account Holder and the denominator is the total
amount of qualifying deposits of all Supplemental Eligible Account Holders
in the converting Bank in each case on the Supplemental Eligibility Record
Date.
Subscription Rights received pursuant to this category shall be
subordinated to all Subscription Rights received by Eligible Account
Holders and Tax-Qualified Employee Plans pursuant to Category Nos. 1 and 2
above.
Any non-transferable Subscription Rights to purchase shares received
by an Eligible Account Holder in accordance with Category No. 1 shall
reduce to the extent thereof the Subscription Rights to be distributed to
such person pursuant to this Category.
In the event of an oversubscription for shares under the provisions of
this subparagraph, the shares available shall be allocated first to permit
each subscribing Supplemental Eligible Account Holder, to the extent
possible, to purchase a number of shares sufficient to make his total
allocation (including the number of shares, if any, allocated in accordance
with Category No. 1) equal to 100 shares, and thereafter among each
subscribing Supplemental Eligible Account Holder pro rata in the same
proportion that his Qualifying Deposit bears to the total Qualifying
Deposits of all subscribing Supplemental Eligible Account Holders whose
subscriptions remain unsatisfied.
4. Preference Category No. 4: Other Members
Each Other Member shall receive non-transferable Subscription Rights
to subscribe for shares of Holding Company Conversion Stock remaining after
satisfying the subscriptions provided for under Category Nos. 1 through 3
above, subject to the following conditions:
a. Each Other Member shall be entitled to subscribe for an
amount of shares equal to the greater of (i) $50,000; or (ii)
one-tenth of one percent (.10%) of the total offering of shares of
common stock in the Conversion, to the extent that Holding Company
Conversion Stock is available.
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b. In the event of an oversubscription for shares under the
provisions of this subparagraph, the shares available shall be
allocated among the subscribing Other Members pro rata in the same
proportion that his number of votes on the Voting Record Date bears to
the total number of votes on the Voting Record Date of all subscribing
Other Members on such date. Such number of votes shall be determined
based on the Bank's mutual charter and bylaws in effect on the date of
approval by members of this Plan of Conversion.
5. Preference Category No. 5: Directors, Officers and Employees
Each director, Officer and employee of the Bank as of the date of the
commencement of the Subscription Offering shall be entitled to receive
non-transferable Subscription Rights to purchase shares of the Holding
Company Conversion Stock to the extent that shares are available after
satisfying subscriptions under Category Nos. 1 through 4 above. The shares
which may be purchased under this Category are subject to the following
conditions:
a. The total number of shares which may be purchased under this
Category may not exceed 25% of the number of shares of Holding Company
Conversion Stock.
b. The maximum amount of shares which may be purchased under
this Category by any Person is $50,000 of Holding Company Conversion
Stock. In the event of an oversubscription for shares under the
provisions of this subparagraph, the shares available shall be
allocated pro rata among all subscribers in this Category.
C. Direct Community Offering
1. Any shares of Holding Company Conversion Stock not subscribed
for in the Subscription Offering may be offered for sale in a Direct
Community Offering. This will involve an offering of all unsubscribed
shares directly to the general public with a preference to those natural
persons residing in the county in which the Bank maintains its offices.
The Direct Community Offering, if any, shall be for a period of not more
than 45 days unless extended by the Holding Company and the Bank, and
shall commence concurrently with, during or promptly after the
Subscription Offering. The purchase price per share to the general
public in a Direct Community Offering shall be the same as the Actual
Subscription Price. The Holding Company and the Bank may use an
investment banking firm or firms on a best efforts basis to sell the
unsubscribed shares in the Subscription and Direct Community Offering.
The Holding Company and the Bank may pay a commission or other fee to
such investment banking firm or firms as to the shares sold by such firm
or firms in the Subscription and Direct Community Offering and may also
reimburse such firm or firms for expenses incurred in connection with the
sale. The Direct Community Offering may include a syndicated community
offering managed by such investment banking firm or firms. The Holding
Company Conversion Stock will be
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offered and sold in the Direct Community Offering, in accordance with
OTS regulations, so as to achieve the widest distribution of the Holding
Company Conversion Stock. No person, by himself or herself, or with an
Associate or group of Persons acting in concert, may subscribe for or
purchase more than $50,000 of Holding Company Conversion Stock offered
in the Direct Community Offering. Further, the Bank may limit total
subscriptions under this Section VI.C.1 so as to assure that the number
of shares available for the Public Offering may be up to a specified
percentage of the number of shares of Holding Company Conversion Stock.
Finally, the Bank may reserve shares offered in the Community Offering
for sales to institutional investors.
In the event of an oversubscription for shares in the Community
Offering, shares may be allocated (to the extent shares remain available)
first to cover any reservation of shares for a public offering or
institutional orders, next to cover orders of natural persons residing in
the counties in which the Bank maintains its offices, then to cover the
orders of any other person subscribing for shares in the Community Offering
so that each such person may receive 500 shares, and thereafter, on a pro
rata basis to such persons based on the amount of their respective
subscriptions.
The Bank and the Holding Company, in their sole discretion, may reject
subscriptions, in whole or in part, received from any Person under this
Section VI.C.
2. If for any reason shares remain unsold after the Subscription
Offering and the Direct Community Offering, the Boards of Directors of the
Holding Company and the Bank will seek to make other arrangements for the
sale of the remaining shares. Such other arrangements will be subject to
the approval of the OTS and to compliance with applicable securities laws.
D. Additional Limitations Upon Purchases of Shares of Holding Company
Conversion Stock
The following additional limitations shall be imposed on all purchases of
Holding Company Conversion Stock in the Conversion:
1. No Person, by himself or herself, or with an Associate or group of
Persons acting in concert, may subscribe for or purchase in the Conversion
a number of shares of Holding Company Conversion Stock which exceeds the
lesser of $50,000 or five percent (5.0%) of the Holding Company Conversion
Stock offered in the Conversion. For purposes of this paragraph, an
Associate of a Person does not include a Tax-Qualified or Non-Tax Qualified
Employee Plan in which the person has a substantial beneficial interest or
serves as a trustee or in a similar fiduciary capacity. Moreover, for
purposes of this paragraph, shares held by one or more Tax-Qualified or
Non-Tax Qualified Employee Plans attributed to a Person shall not be
aggregated with shares purchased directly by or otherwise attributable to
that Person.
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2. Directors and Officers and their Associates may not purchase in
all categories in the Conversion an aggregate of more than 35% of the
Holding Company Conversion Stock. For purposes of this paragraph, an
Associate of a Person does not include any Tax-Qualified Employee Plan.
Moreover, any shares attributable to the Officers and directors and their
Associates, but held by one or more Tax-Qualified Employee Plans shall not
be included in calculating the number of shares which may be purchased
under the limitation in this paragraph.
3. The minimum number of shares of Holding Company Conversion Stock
that may be purchased by any Person in the Conversion is 25 shares,
provided sufficient shares are available.
4. The Boards of Directors of the Holding Company and the Bank may,
in their sole discretion, increase the maximum purchase limitation referred
to in subparagraph 1. herein up to 9.99%, provided that orders for shares
exceeding 5% of the shares being offered in the Subscription Offering shall
not exceed, in the aggregate, 10% of the shares being offered in the
Subscription Offering. Requests to purchase additional shares of Holding
Company Conversion Stock under this provision will be allocated by the
Boards of Directors on a pro rata basis giving priority in accordance with
the priority rights set forth in this Section VI.
5. The Boards of Directors of the Holding Company and the Bank may,
in their sole discretion, decrease the maximum purchase limitation referred to
in subparagraph 1. herein down to 1.0%.
Depending upon market and financial conditions, the Boards of Directors of
the Holding Company and the Bank, with the approval of the OTS and without
further approval of the Members, may increase or decrease any of the above
purchase limitations.
For purposes of this Section VI, the directors of the Holding Company and
the Bank shall not be deemed to be Associates or a group acting in concert
solely as a result of their serving in such capacities.
Each Person purchasing Holding Company Conversion Stock in the Conversion
shall be deemed to confirm that such purchase does not conflict with the above
purchase limitations.
E. Restrictions and Other Characteristics of Holding Company Conversion
Stock Being Sold
1. Transferability. Holding Company Conversion Stock purchased by
Persons other than directors and Officers of the Holding Company or the
Bank will be transferable without restriction. Shares purchased by
directors or Officers 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 of such shares (i) following the death of the original
purchaser, or (ii) resulting from an exchange of securities in a merger
or acquisition approved by the
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applicable regulatory authorities. Any transfers that could result in a
change of control of the Bank or the Holding Company or result in the
ownership by any Person or group acting in concert of more than 10% of
any class of the Bank's or the Holding Company's equity securities are
subject to the prior approval of the OTS.
The certificates representing shares of Holding Company Conversion
Stock issued to directors and Officers shall bear a legend giving
appropriate notice of the one year holding period restriction. Appropriate
instructions shall be given to the transfer agent for such stock with
respect to the applicable restrictions relating to the transfer of
restricted stock. Any shares of common stock of the Holding Company
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 Holding Company or Bank directors and Officers as
may be then applicable to such restricted stock.
No director or Officer of the Holding Company or of the Bank, or
Associate of such a director or Officer, shall purchase any outstanding
shares of capital stock of the Holding Company for a period of three years
following the Conversion without the prior written approval of the OTS,
except through a broker or dealer registered with the SEC or in a
"negotiated transaction" involving more than one percent of the
then-outstanding shares of common stock of the Holding Company. As used
herein, the term "negotiated transaction" means a transaction in which the
securities are offered and the terms and arrangements relating to any sale
are arrived at through direct communications between the seller or any
Person acting on its behalf and the purchaser or his investment
representative. The term "investment representative" shall mean a
professional investment advisor acting as agent for the purchaser and
independent of the seller and not acting on behalf of the seller in
connection with the transaction.
2. Repurchase and Dividend Rights. For a period of three years
following Conversion, the Converted Bank shall not repurchase any shares of
its capital stock, except in the case of an offer to repurchase on a pro
rata basis made to all holders of capital stock of the Converted Bank. Any
such offer shall be subject to the prior non-objection of the OTS. A
repurchase of qualifying shares of a director shall not be deemed to be a
repurchase for purposes of this Section VI.E.2.
Present regulations also provide that the Converted Bank may not
declare or pay a cash dividend on or repurchase any of its stock (i) if the
result thereof would be to reduce the regulatory capital of the Converted
Bank below the amount required for the liquidation account to be established
pursuant to Section XIII hereof, and (ii) except in compliance with
requirements of Section 563.134 of the Rules and Regulations of the OTS.
The above limitations are subject to Section 563b.3(g)(3) of the Rules
and Regulations of the OTS, which generally provides that the Converted
Bank may repurchase its capital stock provided (i) no repurchases occur
within one year following conversion, (ii) repurchases during the second
and third year after conversion are part of an open market stock repurchase
program that does not allow for a repurchase of more than 5% of
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the Bank's outstanding capital stock during a twelve-month period without
OTS approval, (iii) the repurchases do not cause the Bank to become
undercapitalized, and (iv) the Bank provides notice to the OTS at least
10 days prior to the commencement of a repurchase program and the OTS does
not object. In addition, the above limitations shall not preclude payments
of dividends or repurchases of capital stock by the Converted Bank in the
event applicable federal regulatory limitations are liberalized subsequent
to OTS approval of the Plan or as otherwise permitted by the OTS or other
appropriate regulatory authority. Such restrictions and limitations shall
not apply following consummation of the Bank Conversion, unless the OTS
approval of the Bank Conversion otherwise requires.
3. Voting Rights. After Conversion, holders of deposit accounts will
not have voting rights in the Bank or the Holding Company. Exclusive
voting rights as to the Bank will be vested in the Holding Company, as the
sole stockholder of the Bank. Voting rights as to the Holding Company will
be held exclusively by its stockholders.
F. Exercise of Subscription Rights; Order Forms
1. If the Subscription Offering occurs concurrently with the
solicitation of proxies for the Special Meeting, the subscription
prospectus and Order Form may be sent to each Eligible Account Holder,
Tax-Qualified Employee Plan, Supplemental Eligible Account Holder, Other
Member, and director, Officer and employee at their last known address as
shown on the records of the Bank. However, the Bank may, and if the
Subscription Offering commences after the Special Meeting the Bank shall,
furnish a subscription prospectus and Order Form only to Eligible Account
Holders, Tax-Qualified Employee Plans, Supplemental Eligible Account
Holders, Other Members, and directors, Officers and employees who have
returned to the Bank by a specified date prior to the commencement of the
Subscription Offering a post card or other written communication requesting
a subscription prospectus and Order Form. In such event, the Bank shall
provide a postage-paid post card for this purpose and make appropriate
disclosure in its proxy statement for the solicitation of proxies to be
voted at the Special Meeting and/or letter sent in lieu of the proxy
statement to those Eligible Account Holders, Tax-Qualified Employee Plans
or Supplemental Eligible Account Holders who are not Members on the Voting
Record Date.
2. Each Order Form will be preceded or accompanied by a subscription
prospectus describing the Holding Company and the Converted Bank and the
shares of Holding Company Conversion Stock being offered for subscription
and containing all other information required by the OTS or the SEC or
necessary to enable Persons to make informed investment decisions regarding
the purchase of Holding Company Conversion Stock.
3. The Order Forms (or accompanying instructions) used for the
Subscription Offering will contain, among other things, the following:
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(i) A clear and intelligible explanation of the Subscription
Rights granted under the Plan to Eligible Account Holders,
Tax-Qualified Employee Plans, Supplemental Eligible Account Holders,
Other Members, and directors, Officers and employees;
(ii) A specified expiration date by which Order Forms must be
returned to and actually received by the Bank or its representative
for purposes of exercising Subscription Rights, which date will be not
less than 20 days after the Order Forms are mailed by the Bank;
(iii) The Maximum Subscription Price to be paid for each share
subscribed for when the Order Form is returned;
(iv) A statement that 25 shares is the minimum number of
shares of Holding Company Conversion Stock that may be subscribed for
under the Plan;
(v) A specifically designated blank space for indicating the
number of shares being subscribed for;
(vi) A set of detailed instructions as to how to complete the
Order Form including a statement as to the available alternative
methods of payment for the shares being subscribed for;
(vii) Specifically designated blank spaces for dating and
signing the Order Form;
(viii) An acknowledgment that the subscriber has received the
subscription prospectus;
(ix) A statement of the consequences of failing to properly
complete and return the Order Form, including a statement that the
Subscription Rights will expire on the expiration date specified on
the Order Form unless such expiration date is extended by the Holding
Company and the Bank, and that the Subscription Rights may be
exercised only by delivering the Order Form, properly completed and
executed, to the Bank or its representative by the expiration date,
together with required payment of the Maximum Subscription Price for
all shares of Holding Company Conversion Stock subscribed for;
(x) A statement that the Subscription Rights are
non-transferable and that all shares of Holding Company Conversion
Stock subscribed for upon exercise of Subscription Rights must be
purchased on behalf of the Person exercising the Subscription Rights
for his own account; and
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(xi) A statement that, after receipt by the Bank or its
representative, a Subscription may not be modified, withdrawn or
canceled without the consent of the Bank.
G. Method of Payment
Payment for all shares of Holding Company Conversion Stock subscribed for,
computed on the basis of the Maximum Subscription Price, must accompany all
completed Order Forms. Payment may be made in cash (if presented in Person), by
check, or, if the subscriber has a Deposit Account in the Bank (including a
certificate of deposit), the subscriber may authorize the Bank to charge the
subscriber's account.
If a subscriber authorizes the Bank to charge his or her account, the funds
will continue to earn interest, but may not be used by the subscriber until all
Holding Company Conversion Stock has been sold or the Plan of Conversion is
terminated, whichever is earlier. The Bank will allow subscribers to purchase
shares by withdrawing funds from certificate accounts without the assessment of
early withdrawal penalties with the exception of prepaid interest in the form of
promotional gifts. 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 which event the remaining balance will 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 Holding Company
Conversion Stock under the Plan of Conversion. Interest will also be paid, at
not less than the then-current passbook rate, on all orders paid in cash, by
check or money order, from the date payment is received until consummation of
the Conversion. Payments made in cash, by check or money order will be placed
by the Bank in an escrow or other account established specifically for this
purpose.
In the event of an unfilled amount of any subscription order, the Converted
Bank will make an appropriate refund or cancel an appropriate portion of the
related withdrawal authorization, after consummation of the Conversion,
including any difference between the Maximum Subscription Price and the Actual
Subscription Price (unless subscribers are afforded the right to apply such
difference to the purchase of additional whole shares). If for any reason the
Conversion is not consummated, purchasers will have refunded to them all
payments made and all withdrawal authorizations will be canceled in the case of
subscription payments authorized from accounts at the Bank.
If any Tax-Qualified Employee Plans or Non-Tax-Qualified Employee Plans
subscribe for shares during the Subscription Offering, such plans will not be
required to pay for the shares subscribed for at the time they subscribe, but
may pay for such shares of Holding Company Conversion Stock subscribed for
upon consummation of the Conversion. In the event that, after the completion
of the Subscription Offering, the amount of shares to be issued is increased
above the maximum of the appraisal range included in the Prospectus, the Tax
Qualified and Non-Tax Qualified Employee Plans shall be entitled to increase
their subscriptions by a percentage equal to the percentage increase in the
amount of shares to be issued above the maximum of the appraisal
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<PAGE>
range provided that such subscriptions shall continue to be subject to
applicable purchase limits and stock allocation procedures.
H. Undelivered, Defective or Late Order Forms; Insufficient Payment
The Boards of Directors of the Holding Company and the Bank shall have the
absolute right, in their sole discretion, to reject any Order Form, including
but not limited to, any Order Forms which (i) are not delivered or are returned
by the United States Postal Service (or the addressee cannot be located); (ii)
are not received back by the Bank or its representative, or are received after
the termination date specified thereon; (iii) are defectively completed or
executed; (iv) are not accompanied by the total required payment for the shares
of Holding Company Conversion Stock subscribed for (including cases in which the
subscribers' Deposit Accounts or certificate accounts are insufficient to cover
the authorized withdrawal for the required payment); or (v) are submitted by or
on behalf of a Person whose representations the Boards of Directors of the
Holding Company and the Bank believe to be false or who they otherwise believe,
either alone or acting in concert with others, is violating, evading or
circumventing, or intends to violate, evade or circumvent, the terms and
conditions of this Plan. In such event, the Subscription Rights of the Person
to whom such rights have been granted will not be honored and will be treated as
though such Person failed to return the completed Order Form within the time
period specified therein. The Bank may, but will not be required to, waive any
irregularity relating to any Order Form or require submission of corrected Order
Forms or the remittance of full payment for subscribed shares by such date as
the Bank may specify. The interpretation of the Holding Company and the Bank of
the terms and conditions of this Plan and of the proper completion of the Order
Form will be final, subject to the authority of the OTS.
I. Member in Non-Qualified States or in Foreign Countries
The Holding Company and the Bank will make reasonable efforts to comply
with the securities laws of all states in the United States in which Persons
entitled to subscribe for Holding Company Conversion Stock pursuant to the Plan
reside. However, no shares will be offered or sold under the Plan of Conversion
to any such Person who (1) resides in a foreign country or (2) resides in a
state of the United States in which a small number of Persons otherwise eligible
to subscribe for shares under the Plan of Conversion reside or as to which the
Holding Company and the Bank determine that compliance with the securities laws
of such state would be impracticable for reasons of cost or otherwise,
including, but not limited to, a requirement that the Holding Company or the
Bank or any of their officers, directors or employees register, under the
securities laws of such state, as a broker, dealer, salesman or agent. No
payments will be made in lieu of the granting of Subscription Rights to any such
Person.
VII. FEDERAL STOCK CHARTER AND BYLAWS
A. As part of the Conversion, the Bank will take all appropriate steps to
amend its charter to read in the form of federal stock savings institution
charter as prescribed by the OTS. A copy of the proposed stock charter is
available upon request. By their approval of the Plan, the Members of the Bank
will thereby approve and adopt such charter.
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B. The Bank will also take appropriate steps to amend its bylaws to read
in the form prescribed by the OTS for a federal stock savings institution. A
copy of the proposed federal stock bylaws is available upon request.
C. The effective date of the adoption of the Bank's federal stock charter
and bylaws shall be the date of the issuance and sale of the Holding Company
Conversion Stock as specified by the OTS.
VIII. HOLDING COMPANY CERTIFICATE OF INCORPORATION
A copy of the proposed certificate of incorporation of the Holding Company
will be made available from the Bank upon request.
IX. DIRECTORS OF THE CONVERTED BANK
Each Person serving as a member of the Board of Directors of the Bank at
the time of the Stock Conversion will thereupon become a director of the
Converted Bank. If the Bank Conversion is consummated, each person serving as a
member of the Board of Directors of the Converted Bank at the time of the Bank
Conversion will become a director of the Converted Bank following the Bank
Conversion.
X. STOCK OPTION AND INCENTIVE PLAN AND RECOGNITION AND
RETENTION PLAN
In order to provide an incentive for directors, Officers and employees of
the Holding Company and its subsidiaries (including the Bank), the Board of
Directors of the Holding Company intends to adopt, subject to shareholder
approval, a stock option and incentive plan and a recognition and retention plan
as permitted by applicable regulation following the Conversion.
XI. CONTRIBUTIONS TO TAX-QUALIFIED EMPLOYEE PLANS
The Converted Bank and the Holding Company may in their discretion make
scheduled contributions to any Tax-Qualified Employee Plans, provided that any
such contributions which are for the acquisition of Holding Company Conversion
Stock, or the repayment of debt incurred for such an acquisition, do not cause
the Converted Bank to fail to meet its regulatory capital requirements.
XII. SECURITIES REGISTRATION AND MARKET MAKING
Promptly following the Stock Conversion, the Holding Company will register
its common stock with the SEC pursuant to the Exchange Act. In connection with
the registration, the Holding Company will undertake not to deregister such
common stock, without the approval of the OTS, for a period of three years
thereafter.
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<PAGE>
The Holding Company shall use its best efforts to encourage and assist two
or more market makers to establish and maintain a market for its common stock
promptly following Conversion.
XIII. STATUS OF SAVINGS ACCOUNTS AND LOANS SUBSEQUENT TO
CONVERSION
Each Deposit Account holder shall retain, without payment, a withdrawable
Deposit Account or Accounts in the Converted Bank, equal in amount to the
withdrawable value of such account holder's Deposit Account or Accounts prior to
the Stock Conversion. All Deposit Accounts will continue to be insured by the
FDIC up to the applicable limits of insurance coverage, and shall be subject to
the same terms and conditions (except as to voting and liquidation rights) as
such Deposit Account in the Bank at the time of the Conversion. All loans shall
retain the same status after Conversion as these loans had prior to Conversion.
XIV. LIQUIDATION ACCOUNT
For purposes of granting to Eligible Account Holders and Supplemental
Eligible Account Holders who continue to maintain Deposit Accounts at the
Converted Bank a priority in the event of a complete liquidation of the
Converted Bank, the Converted Bank will, at the time of Conversion, establish a
liquidation account in an amount equal to the net worth of the Bank as shown on
its latest statement of financial condition contained in the final offering
circular used in connection with the Conversion. The creation and maintenance
of the liquidation account will not operate to restrict the use or application
of any of the regulatory capital accounts of the Converted Bank; provided,
however, that such regulatory capital accounts will not be voluntarily reduced
below the required dollar amount of the liquidation account. Each Eligible
Account Holder and Supplemental Eligible Account Holder shall, with respect to
the Deposit Account held, have a related inchoate interest in a portion of the
liquidation account balance ("subaccount balance").
The initial subaccount balance of a Deposit Account held by an Eligible
Account Holder or Supplemental Eligible Account Holder shall be determined by
multiplying the opening balance in the liquidation account by a fraction of
which the numerator is the amount of the Qualifying Deposit in the Deposit
Account on the Eligibility Record Date or the Supplemental Eligibility Record
Date and the denominator is the total amount of the Qualifying Deposits of all
Eligible Account Holders and Supplemental Eligible Account Holders on such
record dates in the Bank. 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 Deposit Account of an Eligible Account
Holder or Supplemental Eligible Account Holder at the close of business on
any annual closing date subsequent to the record date is less than the lesser
of (i) the deposit balance in such Deposit 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 Deposit Account on the Eligibility Record Date or
Supplemental Eligibility Record Date, the subaccount balance shall be reduced
in an amount proportionate to the reduction in such deposit balance. In the
event of a downward adjustment, the subaccount balance shall not be
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<PAGE>
subsequently increased, notwithstanding any increase in the deposit balance
of the related Deposit Account. If all funds in such Deposit Account are
withdrawn, the related subaccount balance shall be reduced to zero.
In the event of a complete liquidation of the Converted 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
balances for Deposit Accounts then held before any liquidation distribution may
be made to stockholders. No merger, consolidation, bulk purchase of assets with
assumptions of Deposit Accounts and other liabilities, or similar transactions
with another institution the accounts of which are insured by the FDIC, shall be
considered to be a complete liquidation. In such transactions, the liquidation
account shall be assumed by the surviving institution.
The Bank Conversion shall not be deemed to be a complete liquidation of the
Converted Bank for purposes of the distribution of the liquidation account.
Upon consummation of the Bank Conversion, the liquidation account, and all
rights and obligations of the Converted Bank in connection therewith, shall be
assumed by the Commercial Bank.
The liquidation account shall be maintained by the Commercial Bank, under
the same rules and conditions applicable to the Converted Bank, subsequent to
the Bank Conversion for the benefit of Eligible Account Holders and Supplemental
Eligible Account Holders who retain their Deposit Account in the Commercial
Bank.
XV. RESTRICTIONS ON ACQUISITION OF CONVERTED BANK, THE COMMERCIAL BANK, OR THE
HOLDING COMPANY
Regulations of the OTS limit acquisitions, and offers to acquire, direct or
indirect beneficial ownership of more than 10% of any class of an equity
security of the Converted Bank or the Holding Company. In addition, consistent
with the regulations of the OTS, the charter of the Converted Bank shall provide
that for a period of five years following completion of the Conversion: (i) no
Person (i.e., no individual, group acting in concert, corporation, partnership,
association, joint stock company, trust, or unincorporated organization or
similar company, syndicate, or any other group formed for the purpose of
acquiring, holding or disposing of securities of an insured institution) shall
directly or indirectly offer to acquire or acquire beneficial ownership of more
than 10% of any class of the Bank's equity securities. Shares beneficially
owned in violation of this charter provision 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 shareholders for a vote.
This limitation shall not apply to any offer to acquire or acquisition of
beneficial ownership of more than 10% of the common stock of the Bank by a
corporation whose ownership is or will be substantially the same as the
ownership of the Bank, provided that the offer or acquisition is made more than
one year following the date of completion of the Conversion; (ii) shareholders
shall not be permitted to cumulate their votes for elections of directors; and
(iii) special meetings of the shareholders relating to changes in control or
amendment of the charter may only be called by the Board of Directors.
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<PAGE>
Upon consummation of the Bank Conversion, no person (i.e., an individual, a
group acting in concert, a corporation, a partnership, an association, a joint
stock company, a trust or any unincorporated organization or similar company, a
syndicate or any other group formed for the purpose of acquiring, holding or
disposing of securities of an insured institution or its holding company) shall
be permitted to directly, or indirectly, offer to purchase or actually acquire
the beneficial ownership of more than 10% of any class of the Holding Company's
stock without the prior approval of the FRB.
The Holding Company may provide in its certificate of incorporation a
provision that, for a specified period of up to five years following the date
of the completion of the Stock Conversion, no person shall directly or
indirectly offer to acquire or actually acquire the beneficial ownership of
more than 10% of any class of Holding Company stock except with respect to
purchases by one or more Tax-Qualified Employee Stock Benefit Plans of the
Holding Company or Converted Bank. The Holding Company may provide in its
certificate of incorporation for such other provisions affecting the
acquisition of Holding Company stock as shall be determined by its Boards of
Directors.
XVI. AMENDMENT OR TERMINATION OF PLAN
If necessary or desirable, the Plan may be amended at any time prior to
submission of the Plan and proxy materials to the Members by a two-thirds vote
of the respective Boards of Directors of the Holding Company and the Bank.
After submission of the Plan and proxy materials to the Members, the Plan may be
amended by a two-thirds vote of the respective Boards of Directors of the
Holding Company and the Bank only with the concurrence of the OTS. Any
amendments to the Plan made after approval by the Members with the concurrence
of the OTS shall not necessitate further approval by the Members unless
otherwise required.
The Plan may be terminated by a two-thirds vote of the Bank's Board of
Directors at any time prior to the Special Meeting of Members, and at any time
following such Special Meeting with the concurrence of the OTS. In its
discretion, the Board of Directors of the Bank may modify or terminate the Plan
upon the order or with the approval of the OTS and without further approval by
Members. The Plan shall terminate if the sale of all shares of Conversion Stock
is not completed within 24 months of the date of the Special Meeting. A
specific resolution approved by a majority of the Board of Directors of the Bank
is required in order for the Bank to terminate the Plan prior to the end of such
24 month period.
XVII. EXPENSES OF THE CONVERSION
The Holding Company and the Bank shall use their best efforts to assure
that expenses incurred by them in connection with the Conversion shall be
reasonable.
XVIII. TAX RULING
Consummation of the Conversion is expressly conditioned upon prior
receipt of either a ruling of the United States Internal Revenue Service or
an opinion of tax counsel with respect to
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<PAGE>
federal taxation, and either a ruling of the New York taxation authorities or
an opinion of tax counsel or other tax advisor with respect to New York
taxation, to the effect that consummation of the transactions contemplated
herein will not be taxable to the Holding Company or the Bank.
XIX. EXTENSION OF CREDIT FOR PURCHASE OF COMMON STOCK
The Bank may not knowingly loan funds or otherwise extend credit to any
Person to purchase in the Conversion shares of Holding Company Conversion Stock.
Dated: April 1, 1997
F:\CLIENTS\1019\CANAJOHA.P02
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EXHIBIT 3.1
<PAGE>
CERTIFICATE OF INCORPORATION
OF
LANDMARK FINANCIAL CORP.
FIRST: The name of the Corporation is Landmark Financial Corp.
(hereinafter sometimes referred to as the "Corporation").
SECOND: The address of the registered office of the Corporation in the
State of Delaware is Corporation Trust Center, 1209 Orange Street, in the City
of Wilmington, County of New Castle. The name of the registered agent at that
address is The Corporation Trust Company.
THIRD: The purpose of the Corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General Corporation
Law of the State of Delaware.
FOURTH: A. The total number of shares of all classes of stock which the
Corporation shall have authority to issue is five hundred thousand (500,000)
consisting of:
1. One hundred thousand (100,000) shares of Preferred Stock, par
value ten cents ($0.10) per share (the "Preferred Stock"); and
2. Four hundred thousand (400,000) shares of Common Stock, par value
ten cents ($0.10) per share (the "Common Stock").
B. The Board of Directors is authorized, subject to any limitations
prescribed by law, to provide for the issuance of the shares of Preferred Stock
in series, and by filing a certificate pursuant to the applicable law of the
State of Delaware (such certificate being hereinafter referred to as a
"Preferred Stock Designation"), to establish from time to time the number of
shares to be included in each such series, and to fix the designation, powers,
preferences, and rights of the shares of each such series and any
qualifications, limitations or restrictions thereof. The number of authorized
shares of Preferred Stock may be increased or decreased (but not below the
number of shares thereof then outstanding) by the affirmative vote of the
holders of a majority of the Common Stock, without a vote of the holders of the
Preferred Stock, or of any series thereof, unless a vote of any such holders is
required pursuant to the terms of any Preferred Stock Designation.
C. 1. Notwithstanding any other provision of this Certificate 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,
except that such restriction and all restrictions set forth in this
subsection "C" shall not apply to any tax qualified employee benefit plan
established by the Corporation, which shall be able to vote in respect to
shares held in excess of the Limit. The number of votes which may be cast
by any record owner by virtue of the provisions hereof in respect of Common
Stock beneficially owned by such person beneficially 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 (subject to the provisions of this Article FOURTH),
multiplied by a fraction, the numerator of which is the number of shares of
such class or series which are both beneficially owned by such person and
owned of record by such record owner and the denominator of which is the
total number of shares of Common Stock beneficially owned by such person
owning shares in excess of the Limit.
2. The following definitions shall apply to this Section C of this
Article FOURTH:
<PAGE>
(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 amended, as in effect on the date of filing
of this Certificate 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, as amended, (or any successor rule or statutory
provision), or, if said Rule 13d-3 shall be rescinded and there shall
be no successor rule or provision thereto, pursuant to said Rule 13d-3
as in effect on the date of filing of this Certificate of
Incorporation; provided, however, that a person shall, in any event,
also be deemed the "beneficial owner" of any Common Stock:
(1) which such person or any of its affiliates beneficially
owns, directly or indirectly; or
(2) which such person or any of its affiliates has (i) the
right to acquire (whether such right is exercisable immediately
or only after the passage of time), pursuant to any agreement,
arrangement or understanding (but shall not be deemed to be the
beneficial owner of any voting shares solely by reason of an
agreement, contract, or other arrangement with this Corporation
to effect any transaction which is described in any one or more
of clauses 1 through 5 of Section A of Article EIGHTH), or upon
the exercise of conversion rights, exchange rights, warrants, or
options or otherwise, or (ii) sole or shared voting or investment
power with respect thereto pursuant to any agreement,
arrangement, understanding, relationship or otherwise (but shall
not be deemed to be the beneficial owner of any voting shares
solely by reason of a revocable proxy granted for a particular
meeting of stockholders, pursuant to a public solicitation of
proxies for such meeting, with respect to shares of which neither
such person nor any such Affiliate is otherwise deemed the
beneficial owner); or
(3) which is beneficially owned, directly or indirectly, by
any other person with which such first mentioned person or any of
its Affiliates acts as a partnership, limited partnership,
syndicate or other group pursuant to any agreement, arrangement
or understanding for the purpose of acquiring, holding, voting or
disposing of any shares of capital stock of this Corporation;
and provided further, however, that (1) no Director or Officer of this
Corporation (or any Affiliate of any such Director or Officer) shall,
solely by reason of any or all of such Directors or Officers acting in
their capacities as such, be deemed, for any purposes hereof, to
beneficially own any Common Stock beneficially owned by any other such
Director or Officer (or any Affiliate thereof), and (2) neither any
employee stock ownership or similar plan of this Corporation or any
subsidiary of this Corporation, nor any trustee with respect thereto
or any Affiliate of such trustee (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 only of computing the percentage beneficial ownership of
Common Stock of a person, the outstanding Common Stock shall include
shares deemed owned by such person through application of this
subsection but shall not include any other Common Stock which may be
issuable by this Corporation pursuant to any agreement, or upon
exercise of conversion rights, warrants or options, or otherwise. For
all other purposes, the outstanding Common Stock shall include only
Common Stock then outstanding and shall not include any Common Stock
which may be issuable by this Corporation pursuant to any agreement,
or upon the exercise of conversion rights, warrants or options, or
otherwise.
(c) The "Limit" shall mean 10% of the then-outstanding shares of
Common Stock.
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<PAGE>
(d) A "person" shall include an individual, firm, a group acting
in concert, a corporation, a partnership, an association, a joint
venture, a pool, a joint stock company, a trust, an unincorporated
organization or similar company, a syndicate or any other group formed
for the purpose of acquiring, holding or disposing of securities or
any other entity.
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 the 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 requested of such person.
5. Except as otherwise provided by law or expressly provided in this
Section C, the presence, in person or by proxy, of the holders of record of
shares of capital stock of the Corporation entitling the holders thereof to
cast a majority of the votes (after giving effect, if required, to the
provisions of this Section C) entitled to be cast by the holders of shares
of capital stock of the Corporation entitled to vote shall constitute a
quorum at all meetings of the stockholders, and every reference in this
Certificate of Incorporation to a majority or other proportion of capital
stock (or the holders thereof) for purposes of determining any quorum
requirement or any requirement for stockholder consent or approval shall be
deemed to refer to such majority or other proportion of the votes (or the
holders thereof) then entitled to be cast in respect of such capital stock,
after giving effect to this Section C.
6. Any constructions, applications, or determinations made by the
Board of Directors pursuant to this section in good faith and on the basis
of such information and assistance as was then reasonably available for
such purpose shall be conclusive and binding upon the Corporation and its
stockholders.
7. In the event any provision (or portion thereof) of this Section C
shall be found to be invalid, prohibited or unenforceable for any reason,
the remaining provisions (or portions thereof) of this Section shall remain
in full force and effect, and shall be construed as if such invalid,
prohibited or unenforceable provision had been stricken herefrom or
otherwise rendered inapplicable, it being the intent of this Corporation
and its stockholders that each such remaining provision (or portion
thereof) of this Section C remain, to the fullest extent permitted by law,
shall remain applicable and enforceable as to all stockholders, including
stockholders owning an amount of stock over the Limit, notwithstanding any
such finding.
FIFTH: The following provisions are inserted for the management of the
business and the conduct of the affairs of the Corporation, and for further
definition, limitation and regulation of the powers of the Corporation and of
its Directors and stockholders:
A. The business and affairs of the Corporation shall be managed by or
under the direction of the Board of Directors. In addition to the powers and
authority expressly conferred upon them by statute or by this Certificate of
Incorporation or the Bylaws of the Corporation, the Directors are hereby
empowered to exercise all such powers and do all such acts and things as may be
exercised or done by the Corporation.
B. The Directors of the Corporation need not be elected by written ballot
unless the Bylaws so provide.
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<PAGE>
C. Any action required or permitted to be taken by the stockholders of
the Corporation must be effected at a duly called annual or special meeting of
stockholders of the Corporation and may not be effected by any consent in
writing by such stockholders.
D. Special meetings of stockholders of the Corporation may be called only
by the Board of Directors pursuant to a resolution adopted by a majority of the
Whole Board or as otherwise provided in the Bylaws. The term "Whole Board"
shall mean the total number of authorized directorships (whether or not there
exist any vacancies in previously authorized directorships at the time any such
resolution is presented to the Board for adoption).
SIXTH: A. The number of Directors shall be fixed from time to time
exclusively by the Board of Directors pursuant to a resolution adopted by a
majority of the Whole Board. The Directors shall be divided into three classes,
with the term of office of the first class to expire at the first annual meeting
of stockholders, the term of office of the second class to expire at the annual
meeting of stockholders one year thereafter and the term of office of the third
class to expire at the annual meeting of stockholders two years thereafter with
each Director to hold office until his or her successor shall have been duly
elected and qualified. At each annual meeting of stockholders following such
initial classification and election, Directors elected to succeed those
Directors whose terms expire shall be elected for a term of office to expire at
the third succeeding annual meeting of stockholders after their election with
each Director to hold office until his or her successor shall have been duly
elected and qualified.
B. Subject to the rights of holders of any series of Preferred Stock
outstanding, newly created directorships resulting from any increase in the
authorized number of Directors or any vacancies in the Board of Directors
resulting from death, resignation, retirement, disqualification, removal from
office or other cause may be filled only by a majority vote of the Directors
then in office, though less than a quorum, and Directors so chosen shall hold
office for a term expiring at the annual meeting of stockholders at which the
term of office of the class to which they have been chosen expires. No decrease
in the number of Directors constituting the Board of Directors shall shorten the
term of any incumbent Director.
C. Advance notice of stockholder nominations for the election of
Directors and of business to be brought by stockholders before any meeting of
the stockholders of the Corporation shall be given in the manner provided in the
Bylaws of the Corporation.
D. Subject to the rights of holders of any series of Preferred Stock then
outstanding, any Directors, or the entire Board of Directors, may be removed
from office at any time, but only for cause and only by the affirmative vote of
the holders of at least 80 percent of the voting power of all of the
then-outstanding shares of capital stock of the Corporation entitled to vote
generally in the election of Directors (after giving effect to the provisions of
Article FOURTH of this Certificate of Incorporation ("Article FOURTH")), voting
together as a single class.
SEVENTH: The Board of Directors is expressly empowered to adopt, amend or
repeal the Bylaws of the Corporation. Any adoption, amendment or repeal of the
Bylaws of the Corporation by the Board of Directors shall require the approval
of a majority of the Whole Board. The stockholders shall also have power to
adopt, amend or repeal the Bylaws of the Corporation; provided, however, that,
in addition to any vote of the holders of any class or series of stock of this
Corporation required by law or by this Certificate of Incorporation, the
affirmative vote of the holders of at least 80 percent of the voting power of
all of the then-outstanding shares of the capital stock of the Corporation
entitled to vote generally in the election of Directors (after giving effect to
the provisions of Article FOURTH), voting together as a single class, shall be
required to adopt, amend or repeal any provisions of the Bylaws of the
Corporation.
EIGHTH: A. In addition to any affirmative vote required by law or this
Certificate of Incorporation, and except as otherwise expressly provided in this
Article EIGHTH:
1. any merger or consolidation of the Corporation or any Subsidiary
(as hereinafter defined) with (i) any Interested Stockholder (as
hereinafter defined) or (ii) any other corporation (whether or not itself
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an Interested Stockholder) which is, or after such merger or consolidation
would be, an Affiliate (as hereinafter defined) of an Interested
Stockholder; or
2. any sale, lease, exchange, mortgage, pledge, transfer or other
disposition (in one transaction or a series of transactions) to or with any
Interested Stockholder, or any Affiliate of any Interested Stockholder, of
any assets of the Corporation or any Subsidiary having an aggregate Fair
Market Value (as hereinafter defined) equaling or exceeding 25% or more of
the combined assets of the Corporation and its Subsidiaries; or
3. the issuance or transfer by the Corporation or any Subsidiary (in
one transaction or a series of transactions) of any securities of the
Corporation or any Subsidiary to any Interested Stockholder or any
Affiliate of any Interested Stockholder in exchange for cash, securities or
other property (or a combination thereof) having an aggregate Fair Market
Value (as hereinafter defined) equaling or exceeding 25% of the combined
Fair Market Value of the outstanding common stock of the Corporation and
its Subsidiaries, except for any issuance or transfer pursuant to an
employee benefit plan of the Corporation or any Subsidiary thereof
(established with the approval of a majority of the Disinterested
Directors); or
4. the adoption of any plan or proposal for the liquidation or
dissolution of the Corporation proposed by or on behalf of an Interested
Stockholder or any Affiliate of any Interested Stockholder; or
5. any reclassification of securities (including any reverse stock
split), or recapitalization of the Corporation, or any merger or
consolidation of the Corporation with any of its Subsidiaries or any other
transaction (whether or not with or into or otherwise involving an
Interested Stockholder) which has the effect, directly or indirectly, of
increasing the proportionate share of the outstanding shares of any class
of equity or convertible securities of the Corporation or any Subsidiary
which is directly or indirectly owned by any Interested Stockholder or any
Affiliate of any Interested Stockholder;
shall require the affirmative vote of the holders of at least 80% of the voting
power of the then-outstanding shares of stock of the Corporation entitled to
vote in the election of Directors (the "Voting Stock") (after giving effect to
the provisions of Article FOURTH), voting together as a single class. Such
affirmative vote shall be required notwithstanding the fact that no vote may be
required, or that a lesser percentage may be specified, by law or by any other
provisions of this Certificate of Incorporation or any Preferred Stock
Designation or in any agreement with any national securities exchange or
otherwise.
The term "Business Combination" as used in this Article EIGHTH shall mean
any transaction which is referred to in any one or more of paragraphs 1 through
5 of Section A of this Article EIGHTH.
B. The provisions of Section A of this Article EIGHTH shall not be
applicable to any particular Business Combination, and such Business Combination
shall require only the affirmative vote of the majority of the outstanding
shares of capital stock entitled to vote after giving effect to the provisions
of Article FOURTH, or such vote (if any), as is required by law or by this
Certificate of Incorporation, if, in the case of any Business Combination that
does not involve any cash or other consideration being received by the
stockholders of the Corporation solely in their capacity as stockholders of the
Corporation, the condition specified in the following paragraph 1 is met or, in
the case of any other Business Combination, all of the conditions specified in
either of the following paragraphs 1 or 2 are met:
1. The Business Combination shall have been approved by a majority
of the Disinterested Directors (as hereinafter defined).
2. All of the following conditions shall have been met:
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(a) The aggregate amount of the cash and the Fair Market Value
as of the date of the consummation of the Business Combination of
consideration other than cash to be received per share by the holders
of Common Stock in such Business Combination shall at least be equal
to the higher of the following
(1) (if applicable) the Highest Per Share Price (as
hereinafter defined), including any brokerage commissions,
transfer taxes and soliciting dealers' fees, paid by the
Interested Stockholder or any of its Affiliates for any shares of
Common Stock acquired by it (i) within the two-year period
immediately prior to the first public announcement of the
proposal of the Business Combination (the "Announcement Date"),
or (ii) in the transaction in which it became an Interested
Stockholder, whichever is higher.
(2) the Fair Market Value per share of Common Stock on the
Announcement Date or on the date on which the Interested
Stockholder became an Interested Stockholder (such latter date is
referred to in this Article EIGHTH as the "Determination Date"),
whichever is higher.
(b) The aggregate amount of the cash and the Fair Market Value
as of the date of the consummation of the Business Combination of
consideration other than cash to be received per share by holders of
shares of any class of outstanding Voting Stock other than Common
Stock shall be at least equal to the highest of the following (it
being intended that the requirements of this subparagraph (b) shall be
required to be met with respect to every such class of outstanding
Voting Stock, whether or not the Interested Stockholder has previously
acquired any shares of a particular class of Voting Stock):
(1) (if applicable) the Highest Per Share Price (as
hereinafter defined), including any brokerage commissions,
transfer taxes and soliciting dealers' fees, paid by the
Interested Stockholder for any shares of such class of Voting
Stock acquired by it (i) within the two-year period immediately
prior to the Announcement Date, or (ii) in the transaction in
which it became an Interested Stockholder, whichever is higher;
(2) (if applicable) the highest preferential amount per
share to which the holders of shares of such class of Voting
Stock are entitled in the event of any voluntary or involuntary
liquidation, dissolution or winding up of the Corporation; and
(3) the Fair Market Value per share of such class of Voting
Stock on the Announcement Date or on the Determination Date,
whichever is higher.
(c) The consideration to be received by holders of a particular
class of outstanding Voting Stock (including Common Stock) shall be in
cash or in the same form as the Interested Stockholder has previously
paid for shares of such class of Voting Stock. If the Interested
Stockholder has paid for shares of any class of Voting Stock with
varying forms of consideration, the form of consideration to be
received per share by holders of shares of such class of Voting Stock
shall be either cash or the form used to acquire the largest number of
shares of such class of Voting Stock previously acquired by the
Interested Stockholder. The price determined in accordance with
subparagraph B.2 of this Article EIGHTH shall be subject to
appropriate adjustment in the event of any stock dividend, stock
split, combination of shares or similar event.
(d) After such Interested Stockholder has become an Interested
Stockholder and prior to the consummation of such Business
Combination: (1) except as approved by a majority of the
Disinterested Directors (as hereinafter defined), there shall have
been no failure to declare and pay at the regular date therefor any
full quarterly dividends (whether or not cumulative) on any
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outstanding stock having preference over the Common Stock as to
dividends or liquidation; (2) there shall have been (i) no reduction
in the annual rate of dividends paid on the Common Stock (except as
necessary to reflect any subdivision of the Common Stock), except as
approved by a majority of the Disinterested Directors, and (ii) an
increase in such annual rate of dividends as necessary to reflect any
reclassification (including any reverse stock split),
recapitalization, reorganization or any similar transaction which has
the effect of reducing the number of outstanding shares of the Common
Stock, unless the failure to so increase such annual rate is approved
by a majority of the Disinterested Directors, and (3) neither such
Interested Stockholder or any of its Affiliates shall have become the
beneficial owner of any additional shares of Voting Stock except as
part of the transaction which results in such Interested Stockholder
becoming an Interested Stockholder.
(e) After such Interested Stockholder has become an Interested
Stockholder, such Interested Stockholder shall not have received the
benefit, directly or indirectly (except proportionately as a
stockholder), of any loans, advances, guarantees, pledges or other
financial assistance or any tax credits or other tax advantages
provided, directly or indirectly, by the Corporation, whether in
anticipation of or in connection with such Business Combination or
otherwise.
(f) A proxy or information statement describing the proposed
Business Combination and complying with the requirements of the
Securities Exchange Act of 1934, as amended, and the rules and
regulations thereunder (or any subsequent provisions replacing such
Act, and the rules or regulations thereunder) shall be mailed to
stockholders of the Corporation at least 30 days prior to the
consummation of such Business Combination (whether or not such proxy
or information statement is required to be mailed pursuant to such Act
or subsequent provisions).
C. For the purposes of this Article EIGHTH:
1. A "Person" shall include an individual, a group acting in
concert, a corporation, a partnership, an association, a joint venture, a
pool, a joint stock company, a trust, an unincorporated organization or
similar company, a syndicate or any other group formed for the purpose of
acquiring, holding or disposing of securities or any other entity.
2. "Interested Stockholder" shall mean any person (other than the
Corporation or any Holding Company or Subsidiary thereof) who or which:
(a) is the beneficial owner, directly or indirectly, of more
than 5% of the outstanding Voting Stock; or
(b) is an Affiliate of the Corporation and at any time within
the two-year period immediately prior to the date in question was the
beneficial owner, directly or indirectly, of 5% or more of the voting
power of the then outstanding Voting Stock; or
(c) is an assignee of or has otherwise succeeded to any shares
of Voting Stock which were at any time within the two-year period
immediately prior to the date in question beneficially owned by any
Interested Stockholder, if such assignment or succession shall have
occurred in the course of a transaction or series of transactions not
involving a public offering within the meaning of the Securities Act
of 1933, as amended.
3. For purposes of this Article EIGHTH, "beneficial ownership" shall
be determined in the manner provided in Section C of Article FOURTH hereof.
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4. "Affiliate" and "Associate" shall have the respective meanings
ascribed to such terms in Rule 12b-2 of the General Rules and Regulations
under the Securities Exchange Act of 1934, as amended, as in effect on the
date of filing of this Certificate of Incorporation.
5. "Subsidiary" means any corporation of which a majority of any
class of equity security is owned, directly or indirectly, by the
Corporation; provided, however, that for the purposes of the definition of
Interested Stockholder set forth in Paragraph 2 of this Section C, the term
"Subsidiary" shall mean only a corporation of which a majority of each
class of equity security is owned, directly or indirectly, by the
Corporation.
6. "Disinterested Director" means any member of the Board of
Directors who is unaffiliated with the Interested Stockholder and was a
member of the Board of Directors prior to the time that the Interested
Stockholder became an Interested Stockholder, and any Director who is
thereafter chosen to fill any vacancy of the Board of Directors or who is
elected and who, in either event, is unaffiliated with the Interested
Stockholder and in connection with his or her initial assumption of office
is recommended for appointment or election by a majority of Disinterested
Directors then on the Board of Directors.
7. "Fair Market Value" means:
(a) in the case of stock, the highest closing sales price of the
stock during the 30-day period immediately preceding the date in
question of a share of such stock on the National Association of
Securities Dealers Automated Quotation System or any system then in
use, or, if such stock is admitted to trading on a principal United
States securities exchange registered under the Securities Exchange
Act of 1934, as amended, Fair Market Value shall be the highest sale
price reported during the 30-day period preceding the date in
question, or, if no such quotations are available, the Fair Market
Value on the date in question of a share of such stock as determined
by the Board of Directors in good faith, in each case with respect to
any class of stock, appropriately adjusted for any dividend or
distribution in shares of such stock or any stock split or
reclassification of outstanding shares of such stock into a greater
number of shares of such stock or any combination or reclassification
of outstanding shares of such stock into a smaller number of shares of
such stock, and
(b) in the case of property other than cash or stock, the Fair
Market Value of such property on the date in question as determined by
the Board of Directors in good faith.
8. Reference to "Highest Per Share Price" shall in each case with
respect to any class of stock reflect an appropriate adjustment for any
dividend or distribution in shares of such stock or any stock split or
reclassification of outstanding shares of such stock into a greater number
of shares of such stock or any combination or reclassification of
outstanding shares of such stock into a smaller number of shares of such
stock.
9. In the event of any Business Combination in which the Corporation
survives, the phrase "consideration other than cash to be received" as used
in Subparagraphs (a) and (b) of Paragraph 2 of Section B of this Article
EIGHTH shall include the shares of Common Stock and/or the shares of any
other class of outstanding Voting Stock retained by the holders of such
shares.
D. A majority of the Directors of the Corporation shall have the power
and duty to determine for the purposes of this Article EIGHTH, on the basis of
information known to them after reasonable inquiry: (a) whether a person is an
Interested Stockholder; (b) the number of shares of Voting Stock beneficially
owned by any person; (c) whether a person is an Affiliate or Associate of
another; and (d) whether the assets which are the subject of any Business
Combination have, or the consideration to be received for the issuance or
transfer of securities by the Corporation or any Subsidiary in any Business
Combination has, an aggregate Fair Market Value equaling or
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exceeding 25% of the combined Fair Market Value of the common stock of the
Corporation and its Subsidiaries. A majority of the Disinterested Directors
shall have the further power to interpret all of the terms and provisions of
this Article EIGHTH.
E. Nothing contained in the Article EIGHTH shall be construed to relieve
any Interested Stockholder from any fiduciary obligation imposed by law.
F. Notwithstanding any other provisions of this Certificate of
Incorporation or any provision of law which might otherwise permit a lesser vote
or no vote, but in addition to any affirmative vote of the holders of any
particular class or series of the Voting Stock required by law, this Certificate
of Incorporation or any Preferred Stock Designation, the affirmative vote of the
holders of at least 80 percent of the voting power of all of the
then-outstanding shares of the Voting Stock, voting together as a single class,
shall be required to alter, amend or repeal this Article EIGHTH.
NINTH: The Board of Directors of the Corporation, when evaluating any
offer of another Person (as defined in Article EIGHTH hereof) to (A) make a
tender or exchange offer for any equity security of the Corporation, (B) merge
or consolidate the Corporation with another corporation or entity or (C)
purchase or otherwise acquire all or substantially all of the properties and
assets of the Corporation, may, in connection with the exercise of its judgment
in determining what is in the best interest of the Corporation and its
stockholders, give due consideration to all relevant factors, including, without
limitation, those factors that Directors of any subsidiary of the Corporation
may consider in evaluating any action that may result in a change or potential
change in the control of the subsidiary, and the social and economic effect of
acceptance of such offer: on the Corporation's present and future customers and
employees and those of its Subsidiaries (as defined in Article EIGHTH hereof);
on the communities in which the Corporation and its Subsidiaries operate or are
located; on the ability of the Corporation to fulfill its corporate objective as
a savings and loan holding company under applicable laws and regulations; and on
the ability of its subsidiary savings and loan association to fulfill the
objectives of a stock form savings and loan association under applicable
statutes and regulations.
TENTH: A. Each person who was or is made a party or is threatened to
be made a party to or is otherwise involved in any action, suit or proceeding,
whether civil, criminal, administrative or investigative (hereinafter a
"proceeding"), by reason of the fact that he or she is or was a Director or an
Officer of the Corporation or is or was serving at the request of the
Corporation as a Director, Officer, employee or agent of another corporation or
of a partnership, joint venture, trust or other enterprise, including service
with respect to an employee benefit plan (hereinafter an "indemnitee"), whether
the basis of such proceeding is alleged action in an official capacity as a
Director, Officer, employee or agent or in any other capacity while serving as a
Director, Officer, employee or agent, shall be indemnified and held harmless by
the Corporation to the fullest extent authorized by the Delaware General
Corporation Law, as the same exists or may hereafter be amended (but, in the
case of any such amendment, only to the extent that such amendment permits the
Corporation to provide broader indemnification rights than such law permitted
the Corporation to provide prior to such amendment), against all expense,
liability and loss (including attorneys' fees, judgments, fines, ERISA excise
taxes or penalties and amounts paid in settlement) reasonably incurred or
suffered by such indemnitee in connection therewith; provided, however, that,
except as provided in Section C hereof with respect to proceedings to enforce
rights to indemnification, the Corporation shall indemnify any such indemnitee
in connection with a proceeding (or part thereof) initiated by such indemnitee
only if such proceeding (or part thereof) was authorized by the Board of
Directors of the Corporation.
B. The right to indemnification conferred in Section A of this Article
TENTH shall include the right to be paid by the Corporation the expenses
incurred in defending any such proceeding in advance of its final disposition
(hereinafter and "advancement of expenses"); provided, however, that, if the
Delaware General Corporation Law requires, an advancement of expenses incurred
by an indemnitee in his or her capacity as a Director or Officer (and not in any
other capacity in which service was or is rendered by such indemnitee,
including, without limitation, services to an employee benefit plan) shall be
made only upon delivery to the Corporation of an undertaking (hereinafter an
"undertaking"), by or on behalf of such indemnitee, to repay all amounts so
advanced if it shall
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ultimately be determined by final judicial decision from which there is no
further right to appeal (hereinafter a "final adjudication") that such
indemnitee is not entitled to be indemnified for such expenses under this
Section or otherwise. The rights to indemnification and to the advancement
of expenses conferred in Sections A and B of this Article TENTH shall be
contract rights and such rights shall continue as to an indemnitee who has
ceased to be a Director, Officer, employee or agent and shall inure to the
benefit of the indemnitee's heirs, executors and administrators.
C. If a claim under Section A or B of this Article TENTH is not paid in
full by the Corporation within sixty days after a written claim has been
received by the Corporation, except in the case of a claim for an advancement of
expenses, in which case the applicable period shall be twenty days, the
indemnitee may at any time thereafter bring suit against the Corporation to
recover the unpaid amount of the claim. If successful in whole or in part in
any such suit, or in a suit brought by the Corporation to recover an advancement
of expenses pursuant to the terms of an undertaking, the indemnitee shall be
entitled to be paid also the expenses of prosecuting or defending such suit. In
(i) any suit brought by the indemnitee to enforce a right to indemnification
hereunder (but not in a suit brought by the indemnitee to enforce a right to an
advancement of expenses) it shall be a defense that, and (ii) in any suit by the
Corporation to recover an advancement of expenses pursuant to the terms of an
undertaking the Corporation shall be entitled to recover such expenses upon a
final adjudication that, the indemnitee has not met any applicable standard for
indemnification set forth in the Delaware General Corporation Law. Neither the
failure of the Corporation (including its Board of Directors, independent legal
counsel, or its stockholders) to have made a determination prior to the
commencement of such suit that indemnification of the indemnitee is proper in
the circumstances because the indemnitee has met the applicable standard of
conduct set forth in the Delaware General Corporation Law, nor an actual
determination by the Corporation (including its Board of Directors, independent
legal counsel, or its stockholders) that the indemnitee has not met such
applicable standard of conduct, shall create a presumption that the indemnitee
has not met the applicable standard of conduct or, in the case of such a suit
brought by the indemnitee, be a defense to such suit. In any suit brought by
the indemnitee to enforce a right to indemnification or to an advancement of
expenses hereunder, or by the Corporation to recover an advancement of expenses
pursuant to the terms of an undertaking, the burden of proving that the
indemnitee is not entitled to be indemnified, or to such advancement of
expenses, under this Article TENTH or otherwise, shall be on the Corporation.
D. The rights to indemnification and to the advancement of expenses
conferred in this Article TENTH shall not be exclusive of any other right which
any person may have or hereafter acquire under any statute, the Corporation's
Certificate of Incorporation, Bylaws, agreement, vote of stockholders or
Disinterested Directors or otherwise.
E. The Corporation may maintain insurance, at its expense, to protect
itself and any Director, Officer, employee or agent of the Corporation or
another corporation, partnership, joint venture, trust or other enterprise
against any expense, liability or loss, whether or not the Corporation would
have the power to indemnify such person against such expense, liability or loss
under the Delaware General Corporation Law.
F. The Corporation may, to the extent authorized from time to time by the
Board of Directors, grant rights to indemnification and to the advancement of
expenses to any employee or agent of the Corporation to the fullest extent of
the provisions of this Article TENTH with respect to the indemnification and
advancement of expenses of Directors and Officers of the Corporation.
ELEVENTH: A Director of this Corporation shall not be personally liable to
the Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a Director, except for liability (i) for any breach of the Director's
duty of loyalty to the Corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the Delaware General Corporation
Law, or (iv) for any transaction from which the Director derived an improper
personal benefit. If the Delaware General Corporation Law is amended to
authorize corporate action further eliminating or limiting the personal
liability of Directors, then the liability of a Director of the Corporation
shall be eliminated or limited to the fullest extent permitted by the Delaware
General Corporation Law, as so amended.
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Any repeal or modification of the foregoing paragraph by the stockholders
of the Corporation shall not adversely affect any right or protection of a
Director of the Corporation existing at the time of such repeal or modification.
TWELFTH: The Corporation reserves the right to amend or repeal any
provision contained in this Certificate of Incorporation in the manner
prescribed by the laws of the State of Delaware and all rights conferred upon
stockholders are granted subject to this reservation; provided, however, that,
notwithstanding any other provision of this Certificate of Incorporation or any
provision of law which might otherwise permit a lesser vote or no vote, but in
addition to any vote of the holders of any class or series of the stock of this
Corporation required by law or by this Certificate of Incorporation, the
affirmative vote of the holders of at least 80 percent of the voting power of
all of the then-outstanding shares of the capital stock of the Corporation
entitled to vote generally in the election of Directors (after giving effect to
the provisions of Article FOURTH), voting together as a single class, shall be
required to amend or repeal this Article TWELFTH, Section C of Article FOURTH,
Sections C or D of Article FIFTH, Article SIXTH, Article SEVENTH, or Article
EIGHTH.
THIRTEENTH: The name and mailing address of the sole incorporator are as
follows:
Name Mailing Address
---- ---------------
Edward A. Quint 5335 Wisconsin Avenue, N.W.
Suite 400
Washington, D.C. 20015
I, THE UNDERSIGNED, being the incorporator, for the purpose of forming a
corporation under the laws of the State of Delaware, do make, file and record
this Certificate of Incorporation, do certify that the facts herein stated are
true, and accordingly, have hereto set my hand this 5th day of June, 1997.
\s\ Edward A. Quint
-----------------------------
Edward A. Quint
Incorporator
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EXHIBIT 3.2
<PAGE>
LANDMARK FINANCIAL CORP.
BYLAWS
ARTICLE I - STOCKHOLDERS
Section 1. Annual Meeting. An annual meeting of the stockholders, for the
election of Directors to succeed those whose terms expire and for the
transaction of such other business as may properly come before the meeting,
shall be held at such place, on such date, and at such time as the Board of
Directors shall each year fix, which date shall be within thirteen (13) months
subsequent to the later of the date of incorporation or the last annual meeting
of stockholders.
Section 2. Special Meetings. Subject to the rights of the holders of any
class or series of preferred stock of the Corporation, special meetings of
stockholders of the Corporation may be called only by the Board of Directors
pursuant to a resolution adopted by a majority of the total number of Directors
which the Corporation would have if there were no vacancies on the Board of
Directors (hereinafter the "Whole Board").
Section 3. Notice of Meetings. Written notice of the place, date, and
time of all meetings of the stockholders shall be given, not less than ten (10)
nor more than sixty (60) days before the date on which the meeting is to be
held, to each stockholder entitled to vote at such meeting, except as otherwise
provided herein or required by law (meaning, here and hereinafter, as required
from time to time by the Delaware General Corporation Law or the Certificate of
Incorporation of the Corporation).
When a meeting is adjourned to another place, date or time, written notice
need not be given of the adjourned meeting if the place, date and time thereof
are announced at the meeting at which the adjournment is taken; provided,
however, that if the date of any adjourned meeting is more than thirty (30) days
after the date for which the meeting was originally noticed, or if a new record
date is fixed for the adjourned meeting, written notice of the place, date, and
time of the adjourned meeting shall be given in conformity herewith. At any
adjourned meeting, any business may be transacted which might have been
transacted at the original meeting.
Section 4. Quorum. At any meeting of the stockholders, the holders of a
majority of all of the shares of the stock entitled to vote at the meeting,
present in person or by proxy (after giving effect to the provisions of Article
FOURTH of the Corporation's Certificate of Incorporation), shall constitute a
quorum for all purposes, unless or except to the extent that the presence of a
larger number may be required by law. Where a separate vote by a class or
classes is required, a majority of the represented by prosy (after giving effect
to the provisions of Article FOURTH of the Corporation's Certificate of
Incorporation) shall constitute a quorum entitled to take action with respect to
that vote on that matter.
If a quorum shall fail to attend any meeting, the chairman of the meeting
or the holders of a majority of the shares of stock entitled to vote who are
present, in person or by proxy, may adjourn the meeting to another place, date,
or time.
If a notice of any adjourned special meeting of stockholders is sent to all
stockholders entitled to vote thereat, stating that it will be held with those
present in person or by prosy constituting a quorum, then except as otherwise
required by law, those present in person or by proxy at such adjourned meeting
shall constitute a quorum, and all matters shall be determined by a majority of
the votes cast at such meeting.
Section 5. Organization. Such person as the Board of Directors may have
designated or, in the absence of such a person, the Chairman of the Board of the
Corporation or, in his or her absence, such person as may be chosen by the
holders of a majority of the shares entitled to vote who are present, in person
or by proxy, shall call to order any meeting of the stockholders and act as
chairman of the meeting. In the absence of the Secretary of the Corporation,
the secretary of the meeting shall be such person as the chairman appoints.
<PAGE>
Section 6. Conduct of Business.
(a) The chairman of any meeting of stockholders shall determine the
order of business and the procedures at the meeting, including such regulation
of the manner of voting and the conduct of discussion as seem to him or her in
order. The date and time of the opening and closing of the polls for each
matter upon which the stockholders will vote at the meeting shall be announced
at the meeting.
(b) At any annual meeting of the stockholders, only such business
shall be conducted as shall have been brought before the meeting (i) by or at
the direction of the Board of Directors or (ii) by any stockholder of the
Corporation who is entitled to vote with respect thereto and who complies with
the notice procedures set forth in this Section 6(b). For business to be
properly brought before an annual meeting by a stockholder, the business must
relate to a proper subject matter for stockholder action and the stockholder
must have given timely notice thereof in writing to the Secretary of the
Corporation. To be timely, a stockholder's notice must be delivered or mailed
to and received at the principal executive offices of the Corporation not less
than one hundred and twenty (120) calendar days in advance of the date of the
Corporation's proxy statement which was released to stockholders in connection
with the previous year's annual meeting of stockholders; provided that with
respect to the 1998 annual meeting of stockholders only, such stockholder's
notice must be delivered or mailed to and received at the principal executive
offices of the Corporation not less than one hundred and twenty (120) calendar
days in advance of the date of the annual meeting. A stockholder's notice to
the Secretary shall set forth as to each matter such stockholder proposes to
bring before the annual meeting (i) a brief description of the business desired
to be brought before the annual meeting and the reasons for conducting such
business at the annual meeting, (ii) the name and address, as they appear on the
Corporation's books, of the stockholder proposing such business, (iii) the class
and number of shares of the Corporation's capital stock that are beneficially
owned by such stockholder and (iv) any material interest of such stockholder in
such business. Notwithstanding anything in these Bylaws to the contrary, no
business shall be brought before or conducted at an annual meeting except in
accordance with the provisions of this Section 6(b). The Officer of the
Corporation or other person presiding over the annual meeting shall, if the
facts so warrant, determine and declare to the meeting that business was not
properly brought before the meeting in accordance with the provisions of this
Section 6(b) and, if he should so determine, he shall so declare to the meeting
and any such business so determined to be not properly brought before the
meeting shall not be transacted.
At any special meeting of the stockholders only such business shall be
conducted as shall have been brought before the meeting by or at the direction
of the Board of Directors.
(c) Only persons who are nominated in accordance with the procedures
set forth in these Bylaws shall be eligible for election as Directors.
Nominations of persons for election to the Board of Directors of the Corporation
may be made at a meeting of stockholders at which directors are to be elected
only (i) by or at the direction of the Board of Directors or (ii) by any
stockholder of the Corporation entitled to vote for the election of Directors at
the meeting who complies with the notice procedures set forth in this Section
6(c). Such nominations, other than those made, by or at the direction of the
Board of Directors, shall be made by timely notice in writing to the Secretary
of the Corporation. To be timely, a stockholder's notice shall be delivered or
mailed to and received at the principal executive offices of the Corporation not
less than one hundred and twenty (120) calendar days in advance of the date of
the Corporation's proxy statement which was released to stockholders in
connection with the previous year's annual meeting of stockholders; provided
that with respect to the 1997 annual meeting of stockholders only, such
stockholder's notice must be delivered or mailed to and received at the
principal executive offices of the Corporation not less than one hundred and
twenty (120) calendar days in advance of the date of the annual meeting. Such
stockholder's notice shall set forth (i) as to each person whom such stockholder
proposes to nominate for election or re-election as a Director, all information
relating to such person that is required to be disclosed in solicitations of
proxies for election of directors, or is otherwise required, in each case
pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended
(including such person's written consent to being named in the proxy statement
as a nominee and to serving as a director if elected); and (ii) as to the
stockholder giving the notice (x) the name and address, as they appear on the
Corporation's books, of such stockholder and (y) the class and number of shares
of the Corporation's capital stock that are beneficially owned by such
stockholder. At the request of the Board of Directors
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any person nominated by the Board of Directors for election as a Director
shall furnish to the Secretary of the Corporation that information required
to be set forth in a stockholder's notice of nomination which pertains to the
nominee. No person shall be eligible for election as a Director of the
Corporation unless nominated in accordance with the provisions of this
Section 6(c). The Officer of the Corporation or other person presiding at
the meeting shall, if the facts so warrant, determine that a nomination was
not made in accordance with such provisions and, if he or she shall so
determine, he or she shall so declare to the meeting and the defective
nomination shall be disregarded.
Section 7. Proxies and Voting. At any meeting of the stockholders, every
stockholder entitled to vote may vote in person or by proxy authorized by an
instrument in writing filed in accordance with the procedure established for the
meeting. Any facsimile telecommunication or other reliable reproduction of the
writing or transmission created pursuant to this paragraph may be substituted or
used in lieu of the original writing or transmission for any and all purposes
for which the original writing or transmission could be used, provided that such
copy, facsimile telecommunication or other reproduction shall be a complete
reproduction of the entire original writing or transmission.
All voting, including on the election of Directors but excepting where
otherwise required by law or by the governing documents of the Corporation, may
be made by a voice vote; provided, however, that upon demand therefor by a
stockholder entitled to vote or his or her proxy, a stock vote shall be taken.
Every stock vote shall be taken by ballot, each of which shall state the name of
the stockholder or proxy voting and such other information as may be required
under the procedures established for the meeting. The Corporation shall, in
advance of any meeting of stockholders, appoint one or more inspectors to act at
the meeting and make a written report thereof. The Corporation may designate
one or more persons as alternate inspectors to replace any inspector who fails
to act. If no inspector or alternate is able to act at a meeting of
stockholders, the person presiding at the meeting shall appoint one or more
inspectors to act at the meeting. Each inspector, before entering upon the
discharge of his duties, shall take and sign an oath faithfully to execute the
duties of inspector with strict impartiality and according to the best of his
ability.
All elections shall be determined by a plurality of the votes cast, and
except as otherwise required by law, all other matters shall be determined by a
majority of the votes cast.
Section 8. Stock List. A complete list of stockholders entitled to vote
at any meeting of stockholders, arranged in alphabetical order for each class of
stock and showing the address of each such stockholder and the number of shares
registered in his or her name, shall be open to the examination of any such
stockholder, for any purpose germane to the meeting, during ordinary business
hours for a period of at least ten (10) days prior to the meeting, either at a
place within the city where the meeting is to be held, which place shall be
specified in the notice of the meeting, or if not so specified, at the place
where the meeting is to be held.
The stock list shall also be kept at the place of the meeting during the
whole time thereof and shall be open to the examination of any such stockholder
who is present. This list shall presumptively determine the identity of the
stockholders entitled to vote at the meeting and the number of shares held by
each of them.
Section 9. Consent of Stockholders in Lieu of Meeting. Subject to the
rights of the holders of any class of series of preferred stock of the
Corporation, any action required or permitted to be taken by the stockholders of
the Corporation must be effected at an annual or special meeting of stockholders
of the Corporation and may not be effected by any consent in writing by such
stockholders.
ARTICLE II - BOARD OF DIRECTORS
Section 1. General Powers, Number and Term of Office. The business and
affairs of the Corporation shall be under the direction of its Board of
Directors. The number of Directors who shall constitute the Whole Board shall
be such number as the Board of Directors shall from time to time have designated
except in the absence of such
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designation shall be six. The Board of Directors shall annually elect a
Chairman of the Board from among its members who shall, when present, preside
at its meetings.
The Directors, other than those who may be elected by the holders of any
class or series of Preferred Stock, shall be divided, with respect to the time
for which they severally hold office, into three classes, with the term of
office of the first class to expire at the first annual meeting of stockholders,
the term of office of the second class to expire at the annual meeting of
stockholders one year thereafter and the term of office of the third class to
expire at the annual meeting of stockholders two years thereafter, with each
Director to hold office until his or her successor shall have been duly elected
and qualified. At each annual meeting of stockholders, Directors elected to
succeed those Directors whose terms then expire shall be elected for a term of
office to expire at the third succeeding annual meeting of stockholders after
their election, with each Director to hold office until his or her successor
shall have been duly elected and qualified.
No person shall be eligible for nomination to the Board of Directors or be
qualified to be elected to or serve as a member of the Board of Directors unless
such person owns at least 100 shares of capital stock of the Corporation and has
been domiciled in the market area of Landmark Savings Bank (as defined by the
Community Reinvestment Act statement and policy of Landmark Savings Bank), for
at least twenty-four (24) months prior to such person's name being submitted for
nomination to the Board of Directors.
Section 2. Vacancies and Newly Created Directorships. Subject to the
rights of the holders of any class or series of Preferred Stock, and unless the
Board of Directors otherwise determines, newly created directorships resulting
from any increase in the authorized number of directors or any vacancies in the
Board of Directors resulting from death, resignation, retirement,
disqualification, removal from office or other cause may be filled only by a
majority vote of the Directors then in office, though less than a quorum, and
Directors so chosen shall hold office for a term expiring at the annual meeting
of stockholders at which the term of office of the class to which they have been
elected expires and until such Director's successor shall have been duly elected
and qualified. No decrease in the number of authorized directors constituting
the Board shall shorten the term of any incumbent Director.
Section 3. Regular Meetings. Regular meetings of the Board of Directors
shall be held at such place or places, on such date or dates, and at such time
or times as shall have been established by the Board of Directors and publicized
among all Directors. A notice of each regular meeting shall not be required.
Section 4. Special Meetings. Special meetings of the Board of Directors
may be called by one-third (1/3) of the Directors then in office (rounded up to
the nearest whole number), by the Chairman of the Board or the President and
shall be held at such place, on such date, and at such time as they, or he or
she, shall fix. Notice of the place, date, and time of each such special
meeting shall be given each Director by whom it is not waived by mailing written
notice not less than five (5) days before the meeting or by telegraphing or
telexing or by facsimile transmission of the same not less than twenty-four (24)
hours before the meeting. Unless otherwise indicated in the notice thereof, any
and all business may be transacted at a special meeting.
Section 5. Quorum. At any meeting of the Board of Directors, a majority
of the Whole Board shall constitute a quorum for all purposes. If a quorum
shall fail to attend any meeting, a majority of those present may adjourn the
meeting to another place, date, or time, without further notice or waiver
thereof.
Section 6. Participation in Meetings By Conference Telephone. Members of
the Board of Directors, or of any committee thereof, may participate in a
meeting of such Board or committee by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other and such participation shall constitute presence in
person at such meeting.
Section 7. Conduct of Business. At any meeting of the Board of Directors,
business shall be transacted in such order and manner as the Board may from time
to time determine, and all matters shall be determined by the vote of a majority
of the Directors present, except as otherwise provided herein or required by
law. Action may be
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taken by the Board of Directors without a meeting if all
members thereof consent thereto in writing, and the writing or writings are
filed with the minutes of proceedings of the Board of Directors.
Section 8. Powers. The Board of Directors may, except as otherwise
required by law, exercise all such powers and do all such acts and things as may
be exercised or done by the Corporation, including, without limiting the
generality of the foregoing, the unqualified power:
(1) To declare dividends from time to time in accordance with law;
(2) To purchase or otherwise acquire any property, rights or
privileges on such terms as it shall determine;
(3) To authorize the creation, making and issuance, in such form as
it may determine, of written obligations of every kind, negotiable or
non-negotiable, secured or unsecured, and to do all things necessary in
connection therewith;
(4) To remove any Officer of the Corporation with or without cause,
and from time to time to devolve the powers and duties of any Officer upon any
other person for the time being;
(5) To confer upon any Officer of the Corporation the power to
appoint, remove and suspend subordinate Officers, employees and agents;
(6) To adopt from time to time such stock, option, stock purchase,
bonus or other compensation plans for Directors, Officers, employees and agents
of the Corporation and its subsidiaries as it may determine;
(7) To adopt from time to time such insurance, retirement, and other
benefit plans for Directors, Officers, employees and agents of the Corporation
and its subsidiaries as it may determine; and,
(8) To adopt from time to time regulations, not inconsistent with
these Bylaws, for the management of the Corporation's business and affairs.
Section 9. Compensation of Directors. Directors, as such, may receive,
pursuant to resolution of the Board of Directors, fixed fees and other
compensation for their services as Directors, including, without limitation,
their services as members of committees of the Board of Directors.
Section 10. Age Limitation. The compulsory retirement age for directors
serving on the Board of Directors on March 1, 1996 (collectively, the "Current
Directors" and individually a "Current Director") shall be 79 years of age. No
Current Director having attained the age of 79 shall be eligible for election,
reelection, appointment or reappointment to the Board of Directors, and no
Current Director shall serve beyond the annual meeting of stockholders of the
Corporation following the attainment of such age. The compulsory retirement age
for all directors other than the Current Directors shall be 70 years of age. No
such director having attained the age of 70 shall be eligible for election,
reelection, appointment or reappointment to the Board of Directors, and no such
director shall serve beyond the annual meeting of stockholders of the
Corporation following the attainment of such age.
ARTICLE III - COMMITTEES
Section 1. Committees of the Board of Directors. The Board of Directors,
by a vote of a majority of the Board of Directors, may from time to time
designate committees of the Board, with such lawfully delegable powers and
duties as it thereby confers, to serve at the pleasure of the Board and shall,
for these committees and any others provided for herein, elect a Director or
Directors to serve as the member or members, designating, if it desires, other
Directors as alternate members who may replace any absent or disqualified member
at any meeting of the committee. Any committee so designated may exercise the
power and authority of the Board of Directors to declare a dividend,
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to authorize the issuance of stock or to adopt a certificate of ownership and
merger pursuant to Section 253 of the Delaware General Corporation Law if the
resolution which designates the committee or a supplemental resolution of the
Board of Directors shall so provide. In the absence or disqualification of
any member of any committee and any alternate member in his or her place, the
member or members of the committee present at the meeting and not
disqualified from voting, whether or not he or she or they constitute a
quorum, may by unanimous vote appoint another member of the Board of
Directors to act at the meeting in the place of the absent or disqualified
member.
Section 2. Conduct of Business. Each committee may determine the
procedural rules for meeting and conducting its business and shall act in
accordance therewith, except as otherwise provided herein or required by law.
Adequate provision shall be made for notice to members of all meetings;
one-third (1/3) of the members shall constitute a quorum unless the committee
shall consist of one (1) or two (2) members, in which event one (1) member shall
constitute a quorum; and all matters shall be determined by a majority vote of
the members present. Action may be taken by any committee without a meeting if
all members thereof consent thereto in writing, and the writing or writings are
filed with the minutes of the proceedings of such committee.
Section 3. Nominating Committee. The Board of Directors may appoint a
Nominating Committee of the Board, consisting of not less than three (3)
members. The Nominating Committee shall have authority (a) to review any
nominations for election to the Board of Directors made by a stockholder of the
Corporation pursuant to Section 6(c)(ii) of Article I of these By-laws in order
to determine compliance with such By-law and (b) to recommend to the Whole Board
nominees for election to the Board of Directors to replace those Directors whose
terms expire at the annual meeting of stockholders next ensuing.
ARTICLE IV - OFFICERS
Section 1. Generally.
(a) The Board of Directors as soon as may be practicable after the
annual meeting of stockholders shall choose a Chairman of the Board, a Chief
Executive Officer and President, one or more Vice Presidents, a Secretary and a
Treasurer and from time to time may choose such other officers as it may deem
proper. The Chairman of the Board shall be chosen from among the Directors.
Any number of offices may be held by the same person.
(b) The term of office of all Officers shall be until the next annual
election of Officers and until their respective successors are chosen but any
Officer may be removed from office at any time by the affirmative vote of a
majority of the authorized number of Directors then constituting the Board of
Directors.
(c) All Officers chosen by the Board of Directors shall have such
powers and duties as generally pertain to their respective Offices, subject to
the specific provisions of this ARTICLE IV. Such officers shall also have such
powers and duties as from time to time may be conferred by the Board of
Directors or by any committee thereof.
Section 2. Chairman of the Board of Directors. The Chairman of the Board
shall, subject to the provisions of these Bylaws and to the direction of the
Board of Directors, serve in general executive capacity and unless the Board has
designated another person, when present, shall preside at all meetings of the
stockholders of the Corporation. The Chairman of the Board shall perform all
duties and have all powers which are commonly incident to the office of Chairman
of the Board or which are delegated to him or her by the Board of Directors. He
or she shall have power to sign all stock certificates, contracts and other
instruments of the Corporation which are authorized.
Section 3. President and Chief Executive Officer. The President and Chief
Executive Officer (the "President") shall have general responsibility for the
management and control of the business and affairs of the Corporation and shall
perform all duties and have all powers which are commonly incident to the
offices of President and Chief Executive Officer or which are delegated to him
or her by the Board of Directors. Subject to the direction
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of the Board of Directors, the President shall have power to sign all stock
certificates, contracts and other instruments of the Corporation which are
authorized and shall have general supervision of all of the other Officers
(other than the Chairman of the Board), employees and agents of the
Corporation.
Section 4. Vice President. The Vice President or Vice Presidents shall
perform the duties of the President in his or her absence or during his or her
disability to act. In addition, the Vice Presidents shall perform the duties
and exercise the powers usually incident to their respective offices and/or such
other duties and powers as may be properly assigned to them by the Board of
Directors, the Chairman of the Board or the President. A vice President or Vice
Presidents may be designated as Executive Vice President or Senior Vice
President.
Section 5. Secretary. The Secretary or Assistant Secretary shall issue
notices of meetings, shall keep their minutes, shall have charge of the seal and
the corporate books, shall perform such other duties and exercise such other
powers as are usually incident to such office and/or such other duties and
powers as are properly assigned thereto by the Board of Directors, the Chairman
of the Board or the President. Subject to the direction of the Board of
Directors, the Secretary shall have the power to sign all stock certificates.
Section 6. Treasurer. The Treasurer shall be the Comptroller of the
Corporation and shall have the responsibility for maintaining the financial
records of the Corporation. He or she shall make such disbursements of the
funds of the Corporation as are authorized and shall render from time to time an
account of all such transactions and of the financial condition of the
Corporation. The Treasurer shall also perform such other duties as the Board of
Directors may from time to time prescribe. Subject to the direction of the
Board of Directors, the Treasurer shall have the power to sign all stock
certificates.
Section 7. Assistant Secretaries and Other Officers. The Board of
Directors may appoint one or more Assistant Secretaries and such other Officers
who shall have such powers and shall perform such duties as are provided in
these Bylaws or as may be assigned to them by the Board of Directors, the
Chairman of the Board or the President.
Section 8. Action with Respect to Securities of Other Corporations.
Unless otherwise directed by the Board of Directors, the President or any
Officer of the Corporation authorized by the President shall have power to vote
and otherwise act on behalf of the Corporation, in person or by proxy, at any
meeting of stockholders of or with respect to any action of stockholders of any
other corporation in which this Corporation may hold securities and otherwise to
exercise any and all rights and powers which this Corporation may possess by
reason of its ownership of securities in such other corporation.
ARTICLE V - STOCK
Section 1. Certificates of Stock. Each stockholder shall be entitled to a
certificate signed by, or in the name of the Corporation by, the Chairman of the
Board or the President, and by the Secretary or an Assistant Secretary, or any
Treasurer or Assistant Treasurer, certifying the number of shares owned by him
or her. Any or all of the signatures on the certificate may be by facsimile.
Section 2. Transfers of Stock. Transfers of stock shall be made only upon
the transfer books of the Corporation kept at an office of the Corporation or by
transfer agents designated to transfer shares of the stock of the Corporation.
Except where a certificate is issued in accordance with Section 4 of Article V
of these Bylaws, an outstanding certificate for the number of shares involved
shall be surrendered for cancellation before a new certificate is issued
therefor.
Section 3. Record Date. In order that the Corporation may determine the
stockholders entitled to notice of or to vote at any meeting of stockholders, or
to receive payment of any dividend or other distribution or allotment of any
rights or to exercise any rights in respect of any change, conversion or
exchange of stock or for the purpose of any other lawful action, the Board of
Directors may fix a record date, which record date shall not precede the date
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on which the resolution fixing the record date is adopted and which record
date shall not be more than sixty (60) nor less than ten (10) days before the
date of any meeting of stockholders, nor more than sixty (60) days prior to
the time for such other action as hereinbefore described; provided, however,
that if no record date is fixed by the Board of Directors, the record date
for determining stockholders entitled to notice of or to vote at a meeting of
stockholders shall be at the close of business on the day nest preceding the
day on which notice is given or, if notice is waived, at the close of
business on the next day preceding the day on which the meeting is held, and,
for determining stockholders entitled to receive payment of any dividend or
other distribution or allotment or rights or to exercise any rights of
change, conversion or exchange of stock or for any other purpose, the record
date shall be at the close of business on the day on which the Board of
Directors adopts a resolution relating thereto.
A determination of stockholders of record entitled to notice of or to vote
at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board of Directors may fix a new record date for the
adjourned meeting.
Section 4. Lost, Stolen or Destroyed Certificates. In the event of the
loss, theft or destruction of any certificate of stock, another may be issued in
its place pursuant to such regulations as the Board of Directors may establish
concerning proof of such loss, theft or destruction and concerning the giving of
a satisfactory bond or bonds of indemnity.
Section 5. Regulations. The issue, transfer, conversion and registration
of certificates of stock shall be governed by such other regulations as the
Board of Directors may establish.
ARTICLE VI - NOTICES
Section 1. Notices. Except as otherwise specifically provided herein or
required by law, all notices required to be given to any stockholder, Director,
Officer, employee or agent shall be in writing and may in every instance be
effectively given by hand delivery to the recipient thereof, by depositing such
notice in the mails, postage paid, or by sending such notice by prepaid telegram
or mailgram or other courier. Any such notice shall be addressed to such
stockholder, Director, Officer, employee or agent at his or her last known
address as the same appears on the books of the Corporation. The time when such
notice is received, if hand delivered, or dispatched, if delivered through the
mails or by telegram or mailgram or other courier, shall be the time of the
giving of the notice.
Section 2. Waivers. A written waiver of any notice, signed by a
stockholder, Director, Officer, employee or agent, whether before or after the
time of the event for which notice is to be given, shall be deemed equivalent to
the notice required to be given to such stockholder, Director, Officer, employee
or agent. Neither the business nor the purpose of any meeting need be specified
in such a waiver.
ARTICLE VII - MISCELLANEOUS
Section 1. Facsimile Signatures. In addition to the provisions for use of
facsimile signatures elsewhere specifically authorized in these Bylaws,
facsimile signatures of any officer or officers of the Corporation may be used
whenever and as authorized by the Board of Directors or a committee thereof.
Section 2. Corporate Seal. The Board of Directors may provide a suitable
seal, containing the name of the Corporation, which seal shall be in the charge
of the Secretary. If and when so directed by the Board of Directors or a
committee thereof, duplicates of the seal may be kept and used by the Treasurer
or by an Assistant Secretary or an assistant to the Treasurer.
Section 3. Reliance Upon Books, Reports and Records. Each Director, each
member of any committee designated by the Board of Directors, and each Officer
of the Corporation shall, in the performance of his or her duties, be fully
protected in relying in good faith upon the books of account or other records of
the Corporation and upon such information, opinions, reports or statements
presented to the Corporation by any of its Officers or
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employees, or committees of the Board of Directors so designated, or by any
other person as to matters which such Director or committee member reasonably
believes are within such other person's professional or expert competence and
who has been selected with reasonable care by or on behalf of the Corporation.
Section 4. Fiscal Year. The fiscal year of the Corporation shall end on
December 31 of every year.
Section 5. Time Periods. In applying any provision of these Bylaws which
requires that an act be done or not be done a specified number of days prior to
an event or that an act be done during a period of a specified number of days
prior to an event, calendar days shall be used, the day of the doing of the act
shall be excluded, and the day of the event shall be included.
ARTICLE VIII - AMENDMENTS
The Board of Directors may amend, alter or repeal these Bylaws at any
meeting of the Board, provided notice of the proposed change was given not less
than two days prior to the meeting. The stockholders shall also have power to
amend, alter or repeal these Bylaws at any meeting of stockholders provided
notice of the proposed change was given in the notice of the meeting; provided,
however, that, notwithstanding any other provisions of the Bylaws or any
provision of law which might otherwise permit a lesser vote or no vote, but in
addition to any affirmative vote of the holders of any particular class or
series of the voting stock required by law, the Certificate of Incorporation,
any Preferred Stock Designation or these Bylaws, the affirmative votes of the
holders of at least 80% of the voting power of all the then-outstanding shares
of the Voting Stock, voting together as a single class, shall be required to
alter, amend or repeal any provisions of these Bylaws.
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EXHIBIT 3.3
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FEDERAL STOCK CHARTER
LANDMARK COMMUNITY BANK
Section 1. Corporate Title. The full corporate title of the stock savings
bank is Landmark Community Bank (the "Savings Bank").
Section 2. Office. The home office shall be located in the City of
Canajoharie, State of New York.
Section 3. Duration. The duration of the Savings Bank is perpetual.
Section 4. Purpose and Powers. The purpose of the Savings Bank is to
pursue any or all of the lawful objectives of a Federal savings bank chartered
under Section 5 of the Home Owners' Loan Act and to exercise all of the express,
implied, and incidental powers conferred thereby and by all acts amendatory
thereof and supplemental thereto, subject to the Constitution and laws of the
United States as they are now in effect, or as they may hereafter be amended,
and subject to all lawful and applicable rules, regulations, and orders of the
Office of Thrift Supervision (the "Office").
Section 5. Capital Stock. The total number of shares of all classes of
the capital stock which the Savings Bank has authority to issue is 30,000,000 of
which 20,000,000 shares shall be common stock, par value of $1.00 per share, and
of which 10,000,000 shares shall be serial preferred stock, par value of $1.00
per share. The shares may be issued from time to time as authorized by the
board of directors without the approval of its stockholders except as otherwise
provided in this Section 5 or to the extent that such approval is required by
governing law, rule, or regulation. The consideration for the issuance of the
shares shall be paid in full before their issuance and shall not be less than
the par value. Neither promissory notes nor future services shall constitute
payment or part payment for the issuance of shares of the Savings Bank. The
consideration for the shares shall be cash, tangible or intangible property (to
the extent direct investment in such property would be permitted to the Savings
Bank), labor, or services actually performed for the Savings Bank, or any
combinations of the foregoing. In the absence of actual fraud in the
transaction, the value of such property, labor, or services, as determined by
the board of directors of the Savings Bank, shall be conclusive. Upon payment
of such consideration, such shares shall be deemed to be fully paid and
nonassessable. In the case of a stock dividend, that part of the surplus of the
Savings Bank which is transferred to stated capital upon the issuance of shares
as a share dividend shall be deemed to be the consideration for their issuance.
Except for shares issued in the initial organization of the association or
in connection with the conversion of the association from the mutual to the
stock form of capitalization, no shares of capital stock (including shares
issuable upon conversion, exchange, or exercise of other securities) shall be
issued, directly or indirectly, to officers, directors, or controlling persons
of the association other than as part of a general public offering or as
qualifying shares to a director, unless their issuance or the plan under which
they would be issued has been approved by a majority of the total votes eligible
to be cast at a legal meeting.
Nothing contained in this Section 5 (or in any supplementary sections
hereto) shall entitle the holders of any class or 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:
(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;
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(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 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 of capital
stock are as follows:
A. Common Stock. Except as provided in this Section 5 (or in any
supplementary sections thereto) the holders of common stock shall exclusively
possess all voting power. Each holder of shares of common stock shall be
entitled to one vote for each share held by such holder, except as to the
cumulation of votes for the election of directors.
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 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 rights as and be identical in all respects with
all the other shares of common stock.
B. Preferred Stock. The Savings Bank may provide in supplementary
sections to its charter for one or more classes of preferred stock, which shall
be separately identified. The shares of any class may be divided into and
issued in series, with each series separately designated so as to distinguish
the shares thereof from the shares of all other series and classes. The terms
of each series shall be set forth in a supplementary section to the charter.
All shares of the same class shall be identical, except as to the following
relative rights and preferences, as to which there may be variations between
different series:
(a) The distinctive serial designation and the number of shares
constituting such series;
(b) The dividend rate or the amount of dividends to be paid on the shares
of such series, whether dividends shall be cumulative and, if so, from
which date(s), the payment date(s) for dividends, and the
participating or other special rights, if any, with respect to
dividends;
(c) The voting powers, full or limited, if any, of shares of such series;
(d) Whether the shares of such series shall be redeemable and, if so, the
price(s) at which, and the terms and conditions of 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
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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 C.F.R. 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 ("eligible savers"). In the
event of a complete liquidation of the savings bank, it shall comply with such
regulations with respect to the amount and the priorities on liquidation of each
of the savings bank's eligible saver's inchoate interest in the liquidation
account, to the extent it is still in existence; Provided, That an eligible
saver's inchoate interest in the liquidation account shall not entitle such
eligible saver to any voting rights at meetings of the savings bank's
shareholders.
Section 8. Certain Provisions Applicable for Five Years. Notwithstanding
anything contained in the savings bank's charter or bylaws to the contrary, for
a period of five years from the date of completion of the conversion of the
savings bank from mutual to stock form, the following provisions shall apply:
A. Beneficial Ownership Limitation. No person shall directly or
indirectly offer to acquire or acquire the beneficial ownership of more than 10%
of any class of an equity security of the savings bank. This limitation shall
not apply to a transaction in which the savings bank forms a holding company
without change in the respective beneficial ownership interests of its
shareholders other than pursuant to the exercise of any dissenter and appraisal
rights, the purchase of shares by underwriters in connection with a public
offering, or the purchase of shares by a tax-qualified employee stock benefit
plan which is exempt from the approval requirements under Section
574.3(c)(1)(vi) of the Office's regulations.
In the event shares are acquired in violation of this Section 8, all shares
beneficially owned by any person in excess of 10% shall be considered "excess
shares" and shall not be counted as shares entitled to vote and shall not be
voted by any person or counted as voting shares in connection with any matters
submitted to the shareholders for a vote.
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For purposes of this Section 8, the following definitions apply:
(1) The term "person" includes an individual, a group acting in concert, a
corporation, a partnership, an association, a joint stock company, a trust, an
unincorporated organization or similar company, a syndicate or any other group
formed for the purpose of acquiring, holding or disposing of the equity
securities of the savings bank.
(2) The term "offer" includes every offer to buy or otherwise acquire,
solicitation of an offer to sell, tender offer for, or request or invitation for
tenders of, a security or interest in a security for value.
(3) The term "acquire" includes every type of acquisition, whether
effected by purchase, exchange, operation of law or otherwise.
(4) The term "acting in concert" means (a) knowing participation in a
joint activity or conscious parallel action towards a common goal whether or not
pursuant to an express agreement, or (b) a combination or pooling of voting or
other interests in the securities of an issuer for a common purpose pursuant to
any contract, understanding, relationship, agreement or other arrangements,
whether written or otherwise.
B. Cumulative Voting Limitation. Shareholders shall not be permitted to
cumulate their votes for election of directors.
C. Call for Special Meetings. Special meetings of shareholders relating
to changes in control of the savings bank or amendments to its charter shall be
called only upon direction of the Board of Directors.
Section 9. 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 10. Amendment of Charter. Except as provided in Section 5, no
amendment, addition, alteration, change, or repeal of this charter shall be
made, unless such is proposed by the board of directors of the Savings Bank,
approved by the stockholders by a majority of the total votes eligible to be
cast at a legal meeting, unless a higher vote is otherwise required, and
approved or preapproved by the Office.
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Dated: This ______ day of _________________, 1997.
Attest:
--------------------------------------------
Myron Walton, Secretary
Landmark Community Bank
By:
--------------------------------------------
Gordon Coleman, Executive Vice President and
Chief Executive Officer
Landmark Community Bank
Declared effective this _____ day of ________________, 1997.
OFFICE OF THRIFT SUPERVISION
Attest:
---------------------------------------------
Secretary of the Office of Thrift Supervision
By:
---------------------------------------------
Director of the Office of Thrift Supervision
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EXHIBIT 3.4
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BYLAWS
LANDMARK COMMUNITY BANK
ARTICLE I--HOME OFFICE
The home office of the association shall be at 26 Church Street,
Canajoharie in the County of Montgomery, in the State of New York.
ARTICLE II--SHAREHOLDERS
Section 1. Place of Meetings. All annual and special meetings of
shareholders shall be held at the home office of the association or at such
other convenient place as the board of directors may determine.
Section 2. Annual Meeting. A meeting of the shareholders of the
association for the election of directors and for the transaction of any
other business of the association shall be held annually within 150 days
after the end of the association's fiscal year on the ________________ of
_______ if not a legal holiday, and if a legal holiday, then on the next day
following which is not a legal holiday, at ____ _.m., or at such other date
and time within such 150-day period as the board of directors may determine.
Section 3. Special Meetings. Special meetings of the shareholders
for any purpose or purposes, unless otherwise prescribed by the regulations
of the Office of Thrift Supervision ("Office"), may be called at any time by
the chairman of the board, the president, or a majority of the board of
directors, and shall be called by the chairman of the board, the president,
or the secretary upon the written request of the holders of not less than
one-tenth of all of the outstanding capital stock of the association 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
association 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 association 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 be not more
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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 association 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 association 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
association 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 shares 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 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 association to the contrary, at any meeting of the
shareholders of the association 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 and present in person or by proxy at such
meeting, but no votes shall be cast for such stock if a majority cannot agree.
Section 11. Voting of Shares by Certain Holders. Shares standing in
the name of another corporation may be voted by any officer, agent or proxy
as the bylaws of such corporation may prescribe, or, in the absence of such
provision, as the board of directors of such corporation may determine.
Shares held by an administrator, executor, guardian, or conservator may be
voted by him or her, either in person or by proxy, without a transfer of such
shares into his or her name. Shares standing in the name of a trustee may be
voted by him or her, either in person or by proxy, but no trustee shall be
entitled to vote shares held by him or her without a transfer of such shares
into his or her name. Shares held in trust in an IRA or Keogh Account,
however, may be voted by the association if no other
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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 association 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
association, shall be voted at any meeting or counted in determining the
total number of outstanding shares at any given time for purposes of any
meeting.
Section 12. Inspectors of Election. In advance of any meeting of
shareholders, the board of directors may appoint any person 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 of 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 13. 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 association. 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 association 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
association. 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 14. New Business. Any new business to be taken up at the
annual meting shall be stated in writing and filed with the secretary of the
association at least five days before the date of the annual meeting, and all
business so stated, proposed, and filed shall be considered at the annual
meeting; but no other proposal shall be acted upon at the annual meeting.
Any 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.
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Section 15. 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
association 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
six 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
association unless the association 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
association'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 association 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 business to be transacted at, nor the purpose of, any
meeting of the board of directors need be specified in the notice or waiver
of notice of such meeting.
Section 7. Quorum. A majority of the number of directors fixed by
Section 2 of this Article III shall constitute a quorum for the transaction
of business at any meeting of the board of directors; but if less than such
majority if present at a meeting, a majority of the directors present may
adjourn the meeting from time to time. Notice of any adjourned meeting shall
be given in the same manner as prescribed by Section 5 of this Article III.
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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 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
association 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 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 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 association who
is present at a meeting of the board of directors at which action on any
association 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 association within five days after the date a copy of the
minutes of the meeting is received. Such right to dissent shall not apply to
a director who voted in favor of such action.
Section 14. Removal of Directors. At a meeting of shareholders
called expressly for that purpose, any director may be removed only for cause
by a vote of the holders of a majority of the shares then entitled to vote at
an election of directors. Whenever the holders of the shares of any class
are entitled to elect one or more directors by the provisions of the charter
or supplemental sections thereto, the provisions of this section shall apply,
in respect to the removal of a director or directors so elected, to the vote
of the holders of the outstanding shares of that class and not to the vote of
the outstanding shares as a whole.
ARTICLE IV--EXECUTIVE AND OTHER COMMITTEES
Section 1. Appointment. The board of directors, by resolution
adopted by a majority of the full board, may designate the chief executive
officer and two or more of the other directors to constitute an executive
committee. The designation of any committee pursuant to 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.
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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 association, 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 association otherwise than in the usual and regular course of its
business; a voluntary dissolution of the association; 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 association.
Unless otherwise specified, such resignation shall take effect upon its
receipt; the acceptance of such resignation shall not be necessary to make it
effective.
Section 9. Procedure. The executive committee shall elect a
presiding officer from its members and may fix its own rules of procedure
which shall not be inconsistent with these bylaws. It shall keep regular
minutes of its proceedings and report the same to the board of directors for
its information at the meeting held next after the proceedings shall have
occurred.
Section 10. Other Committees. The board of directors may by
resolution establish an audit, loan, or other committee composed of directors
as it may determine to be necessary or appropriate for the conduct of the
business of the association and may prescribe the duties, constitution, and
procedures thereof.
6
<PAGE>
ARTICLE V--OFFICERS
Section 1. Positions. The officers of the association 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 association 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 association
shall be elected annually at the first meeting of the board of directors held
after each annual meeting of the shareholders. If the election of officers is
not held at such meeting, such election shall be held as soon thereafter as
possible. Each officer shall hold office until a successor has been duly
elected and qualified or until the officer's death, resignation, or removal in
the manner hereinafter provided. Election or appointment of an officer,
employee, or agent shall not of itself create contractual rights. The board of
directors may authorize the association 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 association will
be served thereby, but such removal, other than for cause, shall be without
prejudice to the contractual rights, if any, of the person so removed.
Section 4. Vacancies. A vacancy in any office because of death,
resignation, removal, disqualification, or otherwise may be filled by the
board of directors for the unexpired portion of the term.
Section 5. Remuneration. The remuneration of the officers shall be
fixed from time to time by the board of directors.
ARTICLE VI--CONTRACTS, LOANS, CHECKS, AND DEPOSITS
Section 1. Contracts. To the extent permitted by regulations of the
Office, and except as otherwise prescribed by these bylaws with respect to
certificates for shares, the board of directors may authorize any officer,
employee, or agent of the association to enter into any contract or execute and
deliver any instrument in the name of and on behalf of the association. Such
authority may be general or confined to specific instances.
Section 2. Loans. No loans shall be contracted on behalf of the
association 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 association shall be signed by one or more officers,
employees or agents of the association in such manner as shall from time to
time be determined by the board of directors.
Section 4. Deposits. All funds of the association not otherwise
employed shall be deposited from time to time to the credit of the
association in any duly authorized depositories as the board of directors may
select.
7
<PAGE>
ARTICLE VII--CERTIFICATES FOR SHARES AND THEIR TRANSFER
Section 1. Certificates for Shares. Certificates representing shares
of capital stock of the association 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 association 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 association 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 association. All
certificates surrendered to the association 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 association as the board of directors may
prescribe.
Section 2. Transfer of Shares. Transfer of shares of capital stock
of the association 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 association. 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 association
shall be deemed by the association to be the owner for all purposes.
ARTICLE VIII--FISCAL YEAR
The fiscal year of the association shall end on the 31st of March 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 association's charter and the regulations
and orders of the Office, the board of directors may, from time to time,
declare, and the association may pay, dividends on its outstanding shares of
capital stock.
ARTICLE X--CORPORATE SEAL
The board of directors shall provide an association seal which shall
be two concentric circles between which shall be the name of the association.
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 association at any legal meeting,
and (ii) receipt of any applicable regulatory approval. When an association
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.
8
<PAGE>
EXHIBIT 4
<PAGE>
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
LANDMARK FINANCIAL CORP.
CANAJOHARIE, NEW YORK
$.10 par value common stock--fully paid and non assessable
This certifies that _____________________________ is the owner of __________
shares of the common stock of Landmark Financial Corp. (the "Corporation"), a
Delaware corporation.
The shares evidenced by this certificate are transferable only on the stock
transfer books of the Corporation by the holder of record hereof, in person or
by his duly authorized attorney or legal representative, upon surrender of this
certificate properly endorsed. This Certificate in not valid until
countersigned and registered by the Corporation's transfer agent and registrar.
THIS SECURITY IS NOT A DEPOSIT OR ACCOUNT AND IS NOT FEDERALLY INSURED OR
GUARANTEED.
IN WITNESS WHEREOF, the Corporation has caused this certificate to be executed
by the facsimile signatures of its duly authorized officers and has caused its
seal to be affixed hereto.
Dated:____________________
_____________________________ ____________________________________
Myron Walton, Secretary (SEAL) Gordon E. Coleman, Chief Executive
Officer
<PAGE>
LANDMARK FINANCIAL CORP.
The shares evidenced by this Certificate are subject to a limitation
contained in the Certificate of Incorporation of Landmark Financial Corp. (the
"Corporation") 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 any vote in respect of
shares held in excess of the Limit. The Limit shall not be applicable to an
acquisition of Common Stock by an employee stock purchase plan or other employee
benefit plan of the Corporation or any of its subsidiaries.
The Board of Directors of the Corporation is authorized by resolution or
resolutions, from time to time adopted, to provide for the issuance of serial
preferred stock in series and to fix and state the voting powers, designations,
preferences, 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 Certificate of Incorporation requires the affirmative vote of
the holders of at least 80% of the voting stock of the Corporation, voting
together as a single class, to approve certain business combinations and other
transactions and to amend certain provisions of the Certificate of
Incorporation.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common UNIF GIFT MIN ACT - __________Custodian______
(Cust) (Minor)
TEN ENT - as tenants by the entireties Under Uniform Gifts to Minors Act
JT TEN - as joint tenants with right
of survivorship and not as _______________________________________
tenants in common (State)
Additional abbreviations may also be used though not in the above list
For value received, _____________________________ hereby sell, assign and
transfer unto
- -----------------------------------------------
/ /
/ /
- -----------------------------------------------
PLEASE INSERT SOCIAL SECURITY NUMBER OR OTHER IDENTIFYING NUMBER
_______________________________________________________________________________
(please print or typewrite name and address including postal
zip code of assignee)
_______________________________________________________________________________
___________________________________________________________________Shares of the
Common Stock represented by the within Certificate, and do hereby irrevocably
constitute and appoint ___________________________________________ Attorney to
transfer the said shares on the books of the within named corporation with full
power of substitution in the premises.
Dated, _____________________________
In the presence of Signature:
- ---------------------------------- ------------------------------------
NOTE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME OF THE
STOCKHOLDER(S) AS WRITTEN UPON THE FACE OF THE CERTIFICATE, IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT, OR ANY CHANGE WHATEVER.
P:\WDC\3717WDC7\ORIGINAL\STOCKCRT.HC
<PAGE>
EXHIBIT 5
<PAGE>
[LETTERHEAD OF LUSE LEHMAN GORMAN POMERENK & SCHICK]
June 20, 1997
The Board of Directors
Landmark Community Bank
26 Church Street
Canajoharie, New York 13317-1117
Re: Landmark Financial Corp.
Common Stock Par Value $.10 Per Share
Gentlemen:
You have requested the opinion of this firm as to certain matters in
connection with the offer and sale (the "Offering") of the Landmark Financial
Corp. ("Company") Common Stock par value $.10 per share ("Common Stock"). We
have reviewed the Company's Certificate of Incorporation, Registration
Statement on Form SB-2 ("Form SB-2"), as well as applicable statutes and
regulations governing the Company and the offer and sale of the Common Stock.
We are of the opinion that upon the declaration of effectiveness of the
Form SB-2, the Common Stock, when sold, will be legally issued, fully paid
and non-assessable.
This opinion has been prepared solely for the use of the Company in
connection with the Form SB-2, and should not be used for any other purpose
nor relied upon by any other person (except for the Securities and Exchange
Commission in connection with its processing of the Form SB-2 and prospective
investors in the Offering), without the prior written consent of this firm.
We hereby consent to our firm being referenced under the caption "Legal
Opinions."
Very truly yours,
Luse Lehman Gorman Pomerenk & Schick
A Professional Corporation
By: /s/ Alan Schick
-------------------------------
Alan Schick, Esq.
<PAGE>
EXHIBIT 8.1
<PAGE>
[LETTERHEAD OF LUSE LEHMAN GORMAN POMERENK & SCHICK, P.C.]
(202) 274-2000
June 20, 1997
Board of Directors
Landmark Community Bank
26 Church Street
Canajoharie, New York 13117
Re: Federal Income Tax Consequences Relating to Conversion of
the Bank from a Federal Mutual Savings Institution to a
Federal Stock Savings Institution and the Acquisition of the
Stock Institution's Stock by a Stock Holding Company
------------------------------------------------------------
Gentlemen:
In accordance with your request, set forth below is the opinion of this
firm relating to the federal income tax consequences of the proposed conversion
("Conversion") of Landmark Community Bank (the "Bank") from a federal mutual
savings institution to a federal stock savings institution (the "Stock Bank"),
and the formation of a Delaware holding company to be known as Landmark
Financial Corp. (the "Holding Company"), which will acquire all of the
outstanding stock of the Stock Bank.
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 Bank on April 1, 1997 (the "Plan");
the Federal Mutual Charter and Bylaws of the Bank; and the Certificate of
Incorporation and Bylaws of the Holding Company. In such examination, we have
assumed, and have not independently verified, the authenticity of all original
documents, the accuracy of all copies and the genuineness of all signatures. We
have further assumed the absence of adverse facts not apparent from the face of
the instruments and documents we examined. Terms used but not defined herein,
whether capitalized or not, shall have the same meanings as defined in said
documents.
<PAGE>
LUSE LEHMAN GORMAN POMERENK & SCHICK
A PROFESSIONAL CORPORATION
Board of Directors
Landmark Community Bank
June 20, 1997
Page 2
In issuing our opinion, we have assumed that the Plan has been duly and
validly authorized and has been approved and adopted by the board of
directors of the Bank at a meeting duly called and held; that the Bank will
comply with the terms and conditions of the Plan, and that the various
representations and warranties which are provided to us are accurate,
complete, true and correct. Accordingly, we express no opinion concerning the
effect, if any, of variations from the foregoing. We specifically express no
opinion concerning tax matters relating to the Plan under state and local tax
laws and under Federal income tax laws except on the basis of the documents
and assumptions described above.
In issuing the opinion set forth below, we have relied solely on existing
provisions of the Internal Revenue Code of 1986, as amended (the "Code");
existing and proposed Treasury Regulations (the "Regulations") thereunder;
current administrative rulings, notices and procedures; and court decisions.
Such laws, regulations, administrative rulings, notices and procedures and
court decisions are subject to change at any time. Any such change could
affect the continuing validity of the opinions set forth below. This opinion
is as of the date hereof, and we disclaim any obligation to advise you of any
change in any matter considered herein after the date hereof.
In rendering our opinion, we have assumed that the persons and entities
identified in the Plan of Conversion will at all times comply with the
requirements of Code Section 368(a)(1)(F), the other applicable state and
Federal laws and the representations of the Bank. In addition, we have
assumed that the activities of the persons and entities identified in the
Plan will be conducted strictly in accordance with the Plan. Any variations
may affect the opinions we are rendering.
For purposes of this opinion, we are relying on the representations
provided to us by the Bank, as set forth below.
REPRESENTATIONS
---------------
1. The Conversion is implemented in accordance with the terms of the Plan
and all conditions precedent contained in the Plan shall be performed or waived
prior to the consummation of the Conversion.
2. The fair market value of the withdrawable deposit accounts plus
interests in the liquidation account ("Liquidation Account") of Stock Bank to be
received under the Plan, in each instance, shall be equal to the fair market
value of the membership interests (i.e., withdrawable deposit accounts, voting
and liquidation rights) in the Bank surrendered in exchange therefor.
<PAGE>
LUSE LEHMAN GORMAN POMERENK & SCHICK
A PROFESSIONAL CORPORATION
Board of Directors
Landmark Community Bank
June 20, 1997
Page 3
3. Holding Company and Stock Bank each have no plan or intention to
redeem or otherwise acquire any of the stock issued in the proposed
transaction.
4. To the best of the knowledge of the management of the Bank, there is
no plan or intention by any member of the Bank, who holds more than 1% of the
qualifying deposits in the Bank, and there is no plan or intention on the
part of the remaining members to dispose of their withdrawable deposit
accounts in Stock Bank that would reduce their aggregate interest in the
Liquidation Account as of the Effective Date of the Conversion, to less than
50% of the value of their interests in the Bank as of the same date.
5. Immediately following the consummation of the proposed transaction,
Stock Bank will possess the same assets and liabilities as the Bank held
immediately prior to the proposed transaction, plus proceeds from the sale of
stock of Stock Bank to Holding Company.
6. Assets used to pay expenses of the Conversion (without reference to
the expenses of the Direct Community Offering) and all distributions (except
for regular normal interest payments and other payments in the normal course
of business made by the Bank immediately preceding the transaction) will in
the aggregate constitute less than one percent (1%) of the net assets of the
Bank.
7. Following the proposed transaction, Stock Bank will continue the
historic business of the Bank or use a significant portion of the Bank's
historic business assets in a business.
8. Stock Bank has no plan or intention to sell or otherwise dispose of
any of the assets of the Bank acquired in the proposed transaction, except
for dispositions in the ordinary course of business.
9. There is no plan or intention for Stock Bank to be liquidated or
merged with another corporation following the Conversion.
10. Both Stock Bank and Holding Company have no plan or intention,
either currently or at the time of the Conversion, to issue additional shares
of stock following the proposed transaction, other than shares that may be
issued to employees and/or directors pursuant to certain stock option and
stock incentive plans or that may be issued to employee benefit plans.
11. Stock Bank has no plan or intention to reacquire any of its stock
issued in the proposed transaction.
<PAGE>
LUSE LEHMAN GORMAN POMERENK & SCHICK
A PROFESSIONAL CORPORATION
Board of Directors
Landmark Community Bank
June 20, 1997
Page 4
12. The Bank is not under the jurisdiction of a court in any Title 11 or
similar case within the meaning of Section 368(a)(3)(A).
13. Compensation to be paid to depositor-employees of the Bank, Stock
Bank or Holding Company will be commensurate with amounts paid to third
parties bargaining at arm's length for similar services.
14. No shares of Holding Company Conversion Stock will be issued to or
purchased by depositor-employees of the Bank, Stock Bank or Holding Company
at a discount or as compensation in the proposed transaction.
15. No cash or other property will be given to Eligible Account Holders,
Supplemental Eligible Account Holders, or others in lieu of (a)
non-transferable subscription rights or (b) an interest in the Liquidation
Account of Stock Bank.
16. At the time of the proposed transaction, the fair market value of
the assets of the Bank on a going concern basis will equal or exceed the
amount of its liabilities to be assumed plus the amount of liabilities to
which the transferred assets are subject.
17. Bank, Stock Bank and Holding Company are corporations within the
meaning of Section 7701(a)(3) of the Code.
18 Neither Bank nor Stock Bank is an investment company as defined in
Sections 368(a)(2)(F)(iii) and (iv) of the Code.
19. The exercise price of the subscription rights received by the Bank's
Eligible Account Holders and Supplemental Eligible Account Holders, and Other
Members to purchase Holding Company Stock will be equal to the fair market
value of the Holding Company Conversion Stock at the time of the completion
of the proposed transaction as determined by an independent appraisal.
20. The Bank has received or will receive an opinion from an independent
appraiser to the effect that the subscription rights to be received by
Eligible Account Holders and Supplemental Eligible Account Holders and other
eligible subscribers do not have any ascertainable fair market value.
21. The Bank's depositors will pay expenses of the Conversion solely
attributable to them, if any. Holding Company and the Bank will pay their
own expenses for the transaction and will not pay any expenses solely
attributable to the savings depositors or to the Holding Company
<PAGE>
LUSE LEHMAN GORMAN POMERENK & SCHICK
A PROFESSIONAL CORPORATION
Board of Directors
Landmark Community Bank
June 20, 1997
Page 5
stockholders. The stockholders of Holding Company will pay the expenses
incurred by themselves in connection with the proposed transaction.
22. The Eligible Account Holders', Supplemental Eligible Account
Holders', and Other Members' proprietary interests in the Bank arise solely
by virtue of the fact that they are account holders in the Bank.
23. No creditors of the Bank or the depositors in their role as
creditors, have taken any steps to enforce their claims against the Bank by
instituting bankruptcy or other legal proceedings, in either a court or
appropriate regulatory agency, that would eliminate the proprietary interests
of the members prior to the Conversion of the Bank including depositors as
equity holders of the Bank.
24. The liabilities of the Bank assumed by Stock Bank plus the
liabilities, if any, to which the transferred assets are subject were
incurred by the Bank in the ordinary course of its business and are
associated with the assets transferred.
25. Holding Company has no plan or intention to sell or otherwise
dispose of the stock of Stock Bank received by it in the proposed transaction.
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 Conversion:
1. The change in the form of operation of the Bank from a federal
mutual savings institution to a federal stock savings institution, as
described above, will constitute a reorganization within the meaning of Code
Section 368(a)(1)(F), and no gain or loss will be recognized to either the
Bank or to the Stock Bank as a result of such Conversion. (See Rev. Rul.
80-105, 1980-1 C.B. 78). The Bank and the Stock Bank will each be a party to
a reorganization within the meaning of Section 368(b) of the Code. (Rev.
Rul. 72-206, 1972-1 C.B. 104)
2. No gain or loss will be recognized by the Stock Bank on the receipt
of money from the Holding Company in exchange for shares of common stock of
the Stock Bank. (Section 1032(a) of the Code).
<PAGE>
LUSE LEHMAN GORMAN POMERENK & SCHICK
A PROFESSIONAL CORPORATION
Board of Directors
Landmark Community Bank
June 20, 1997
Page 6
3. The Holding Company will recognize no gain or loss upon receipt of
money from stockholders in exchange for shares of Holding Company Conversion
Stock. (Section 1032(a) of the Code).
4. The assets of the Bank will have the same basis in the hands of the
Stock Bank as in the hands of the Bank immediately prior to the Conversion.
(Section 362(b) of the Code).
5. The holding period of the assets of the Bank to be received by the
Stock Bank will include the period during which the assets were held by the
Bank prior to the Conversion. (Section 1223(2) of the Code).
6. No gain or loss will be recognized by the depositors of the Bank
upon the issuance to them of withdrawable deposit accounts in the Stock Bank
in the same dollar amount and under the same terms as their deposit accounts
in the Bank plus an interest in the Liquidation Account of the Stock Bank, as
described above, in exchange for their deposit accounts in the Bank.
(Section 354(a) of the Code).
7. The basis of the depositors' deposit accounts in the Stock Bank
received by the depositors of the Bank will be the same as the basis of their
deposit accounts in the Bank surrendered in exchange therefor. The basis of
each account holder's interests in the Liquidation Account of the Stock Bank
received by the depositors will be zero, that being the cost of such
property. The basis of the non-transferable subscription rights will be zero,
provided that such subscription rights are not deemed to have a fair market
value and that the subscription price of such stock issuable upon exercise of
such rights is equal to the fair market value of such stock. The basis of
the Holding Company Conversion Stock to its stockholders will be the purchase
price thereof, increased by the basis, if any, of the subscription rights
exercised. (Section 1012 of the Code).
8. Provided that the amount to be paid for Holding Company Stock
pursuant to the exercise of subscription rights is equal to the fair market
value of such Common Stock, no gain or loss will be recognized by depositors
under the Plan upon the distribution to them of non-transferable subscription
rights to purchase shares of Holding Company Conversion Stock. (Rev. Rul.
56-572, 1956-2 C.B. 234).
9. For purposes of Section 381 of the Code, the Stock Bank will be
treated as if there had been no reorganization. Accordingly, the taxable
year of the Bank will not end on the effective date of the Conversion merely
because of the transfer of assets of the Bank to the Stock Bank, and the tax
attributes of the Bank will be taken into account by the Stock Bank as if
there had been no reorganization. (Treas. Reg. Section 1.381(b)-(1)(a)(2)).
<PAGE>
LUSE LEHMAN GORMAN POMERENK & SCHICK
A PROFESSIONAL CORPORATION
Board of Directors
Landmark Community Bank
June 20, 1997
Page 7
10. The part of the taxable year of the Bank before the reorganization
and the part of the taxable year of Stock Bank after the reorganization will
constitute a single taxable year of Stock Bank. See Rev. Rul. 57-276, 1957-1
C.B. 126. Consequently, the Bank will not be required to file a federal
income tax return for any portion of such taxable year solely by reason of
the Conversion. Treas. Reg. Section 1.381(b)-1(a)(2).
11. As provided by Code Section 381(c)(2) and Treas. Reg. Section
1.38(c)(2)-1, Stock Bank will succeed to and take into account the earnings
and profits of the Bank as of the date or dates of transfer.
12. The tax attributes of the Bank enumerated in Code Section 381(c)
will be taken into account by the Stock Bank. Treas. Reg. Section
1.381(b)-1(a)(2).
13. A shareholder's holding period for Holding Company Conversion Stock
acquired through the exercise of the Subscription Rights shall begin on the
date on which the Subscription Rights are exercised. (Section 1223(6) of the
Code.) The holding period for the Holding Company Conversion Stock purchased
pursuant to the Community Offering or under other purchase arrangements will
commence on the date following the date on which such stock is purchased.
(Rev. Rul. 70-598, 1970-2 C.B. 168).
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 on 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.
<PAGE>
LUSE LEHMAN GORMAN POMERENK & SCHICK
A PROFESSIONAL CORPORATION
Board of Directors
Landmark Community Bank
June 20, 1997
Page 8
CONSENT
-------
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement on Form SB-2 or other applicable form ("Registration
Statement") of the Holding Company filed with the Securities and Exchange
Commission with respect to the Conversion and as an exhibit to the
application for Conversion on Form AC ("Form AC") of the Bank filed with the
OTS with respect to the Conversion. We also hereby consent to the references
to this firm in the prospectus which is a part of both the Registration
Statement and the Form AC.
USE OF OPINION
--------------
This opinion is rendered solely for the benefit of the Holding Company,
the Bank and prospective investors in connection with the proposed
transactions described herein and is not to be relied upon or used for any
other purpose without our prior written consent.
Very truly yours,
LUSE LEHMAN GORMAN POMERENK & SCHICK
A Professional Corporation
By: /s/ ALAN SCHICK
---------------------------------
Alan Schick, Esq.
<PAGE>
EXHIBIT 8.2
<PAGE>
HARVAZINSKI & MONTANYE, LLP
CERTIFIED PUBLIC ACCOUNTANTS
21 EVERETT ROAD EXT.
ALBANY, NEW YORK 12205
----------
(518) 453-0636
FAX (518) 459-0208
June 11, 1997
CONFIDENTIAL
------------
Board of Directors
Landmark Community Bank
26 Church Street
Canajoharie, New York 13117
Re: State Tax Consequences Relating to Conversion from
Mutual Savings Institution to Stock Savings Institution
-------------------------------------------------------
Ladies and Gentlemen:
Per your request, following is the opinion of this firm relating to the
state and local tax consequences of the proposed conversion of Landmark
Community Bank (the "Bank") from a federally chartered mutual savings bank to a
federally chartered stock savings bank and the formation of a holding company
parent, Landmark Financial Corp. (the "Holding Company"), to purchase and hold
the stock of the newly-formed federally chartered stock bank (the "Stock Bank")
pursuant to the Plan of Conversion as adopted by the Bank on April 1, 1997 (the
"Plan"). The scope of the firm's opinion and the discussion contained herein
are limited to the following taxes:
- New York State Banking Franchise Tax
- New York State Sales or Use Tax
- New York State License Fee on Foreign Corporations
- New York State Stock Transfer Tax
- New York State Real Estate Transfer Tax
In formulating our opinion, we have examined such documents, corporate
records, and matters of law, as we have deemed necessary for the purposes of
this opinion. In such examination, we have assumed, and have not independently
verified, the authenticity of all original documents, the accuracy of all copies
and the genuineness of all signatures. We have further assumed the absence of
adverse facts not apparent from the face of the instruments and documents we
examined. As to various federal tax law issues and questions of fact material
to the opinions hereinafter set forth, we have relied on the federal tax opinion
prepared by Luse Lehman Gorman Pomerenk & Schick, a Professional Corporation.
In addition, we have assumed, without investigation and without expressing
an opinion, that the Plan has been duly and validly authorized and has been
approved and adopted by the Bank's Board of Directors. Our opinion assumes that
the Bank will comply with the terms and conditions of the Plan and will properly
implement the Plan. The firm's opinion does not, and is not meant to, address
the effects of any variations from the Plan. Any variations may affect the
opinions we are rendering. Our opinion is based on current New York State laws,
regulations thereunder and case law.
<PAGE>
Board of Directors
Landmark Community Bank
June 11, 1997
Page 2
Background
----------
Landmark Community Bank, a federally chartered mutual savings bank
organized pursuant to federal law and operated in New York State, desires to
convert to a federal stock institution which similarly, will be organized
pursuant to federal law and operated in New York State. A Delaware holding
parent company will be formed to acquire and hold the stock of the federal
stock institution.
OPINION
-------
New York State
- --------------
A. New York State Banking Franchise Tax
------------------------------------
For purposes of the New York State banking franchise tax, imposed by
Article 32 of the New York Tax Law, the proposed conversion will be tax-free
(NYS Tax Regulation Section 5-2.8(e)). The New York State banking franchise tax
is based on net income for federal income tax purposes, with some New York
modifications (Tax Law Section 1453 (a)). No adjustments to income are provided
with respect to transactions which are tax-free under Internal Revenue Code
Section 368(a)(1)(F). Thus, no gain or loss will be recognized since the
proposed conversion will constitute a tax-free reorganization within the meaning
of Section 368(a)(1)(F) of the Internal Revenue Code of 1986, as amended (the
"Code" or "IRC"). It should be noted, however, that the Holding Company will be
subject to New York State banking franchise tax and will be required to file a
combined New York State banking franchise tax return with the Stock Bank.
B. New York State Sales or Use Tax
-------------------------------
For purposes of the New York State Sales or Use Tax, imposed by Article 28
of the New York Tax Law, the proposed conversion will be tax-free. New York
State places a tax on the sale or use of tangible personal property. Although
broadly defined, "tangible personal property" does not include intangible
personal property. Stock has been defined by New York case law as intangible
personal property. Thus, no tax liability will be incurred due to the exclusion
of stock from the definition of "tangible personal property".
C. New York State License and Maintenance Fees on Foreign Corporations
-------------------------------------------------------------------
For purposes of the New York State license and maintenance fees on foreign
corporations, the proposed conversion will result in tax liability. No
liability will be incurred from the Stock Bank issuance of stock to Holding
Company, but a license fee will be imposed on the Holding Company. An exemption
exists for certain banking corporations as defined in Tax Law Section 1452, but
the Holding Company will be unable to qualify for the exemption since the
Holding Company will not be engaged in a "banking business." As such, it will
be subject to a license fee at a rate of one-twentieth of one per centum (1/20%)
of the apportioned par value of shares issued by the foreign corporation
(minimum fee is $10). This fee is a one-time tax which would be imposed on any
additional shares issued by the Holding Company in the future. Furthermore, an
annual maintenance fee of $300.00 is imposed.
<PAGE>
Board of Directors
Landmark Community Bank
June 11, 1997
Page 3
D. New York State Stock Transfer Tax
---------------------------------
For purposes of the New York State Stock transfer tax, imposed by
Article 12 of the New York Tax Law, the proposed conversion will be tax-free.
Case law holds that the tax does not apply to a corporation's original
issuance of stock. Thus, no tax will be imposed on the original issuance of
Bank's stock or Holding Company's stock.
E. New York State Real Estate Transfer Tax
---------------------------------------
For purposes of the New York State real estate transfer tax imposed by
Article 31 of the New York Tax Law, the proposed conversion may result in tax
liability. Every conveyance of an interest in real property is subject to the
tax, however, certain exemptions do exist. It should be noted that the issue
of whether a mutual to stock conversion with a publicly-traded foreign holding
company acquiring the stock of the stock institution qualifies as a "mere
change" exemption has not been decided under New York case law or tax law
regulations. Under current regulations and on the basis of private letter
rulings, a position may be taken that the proposed conversion will qualify as a
"mere change" exemption and be tax-free.
ANALYSIS
--------
New York State
- --------------
A. New York State Banking Franchise Tax
------------------------------------
Section 1451 of Article 32 of the New York State Tax Law imposes, annually,
a franchise tax on every banking corporation for the privilege of exercising its
franchise or doing business in New York State in a corporate or organized
capacity.
Section 1455(a) of the Tax Law provides that the basic tax is nine percent
of the taxpayer's entire net income, or portion thereof allocated to New York
State, for the taxable year or part thereof.
Section 1452(a)(2) of the Tax Law provides that every corporation or
association organized under the laws of any other state or country which is
doing a banking business, anywhere, is a banking corporation.
Section 16-2.7 of the Franchise Tax on Banking Corporations Regulations
(hereinafter "Regulations") defines "doing business" as follows:
(a) The term "doing business" is used in a comprehensive sense and
includes all activities which occupy the time or labor of people for
profit. Every corporation organized for profit and carrying out any of
the purposes of its organization is deemed to be doing business for
purposes of the tax. In determining whether a corporation is doing
business, it is immaterial whether its activities actually result in a
profit or a loss.
(b) Whether a corporation is doing business in New York State is
determined by the facts in each case. Consideration is given to such
factors as:
<PAGE>
Board of Directors
Landmark Community Bank
June 11, 1997
Page 4
(1) the nature, continuity, frequency and regularity of the
activities of the corporation in New York State;
(2) the purposes for which the corporation was organized;
(3) the location of its offices and other places of business;
(4) the employment in New York State of agents, officers and
employees; and
(5) the location of the actual seat of management or control of the
corporation.
Further, Section 16-2.7(e) states that a corporation will not be deemed to
be doing business in New York State if its activities in New York State are
limited to such things as:
(1) occasionally acquiring a security interest in real or personal
property located in New York State without otherwise doing
business;
(2) occasionally acquiring title to property located in New York
State through the foreclosure of a security interest without
otherwise doing business ....
Given that the Bank and Holding Company will maintain headquarters and
officers in New York State, both entities will be subject to the tax. The
Holding Company will be required to file a combined New York State banking
franchise tax return with the Stock Bank. Permission must be requested from New
York State to file a combined return (20 NYCRR Section 21-2.5).
Although the entities will be subject to the New York State banking
franchise tax, the proposed conversion, taken as a single transaction will not
result in tax liability. The New York State banking franchise tax is based on
net income for federal income tax purposes with some New York modifications.
Entire net income is defined in section 1453(a) of the Tax Law as "total
net income from all sources which shall be the same as the entire taxable income
(but not alternative minimum taxable income) ... which the taxpayer is required
to report to the United States treasury department ... subject to the
modifications and adjustments hereinafter provided."
Section 1453(b) through (k) of the Tax Law and sections 18-2.3, 18-2.4 and
18-2.5 of the Franchise Tax on Banking Corporations Regulations, promulgated
thereunder, provide for the modifications and adjustments required by section
1453(a) . However, there is no modification or adjustment applicable to a
transaction where, for Federal income tax purposes, the transaction constitutes
a tax-free exchange within the meaning of sections 351 and 368(a)(1)(F) of the
IRC.
Additionally, Section 5-2.8(e) of the Article 9-A Regulations provides that
for purposes of this section, a disposition does not occur where property is
transferred from a corporation as part of a transaction to which section 381(a)
of the Internal Revenue Code applies; e.g., ... a reorganization under ...
section 368(a)(1)(A) (statutory merger or consolidation) ... As there is no
disposition in these cases, an add back is not required provided that the
property continues in qualified use and is acquired by a corporation subject to
tax under article 9-A. Therefore, for purposes of section 1453 of the Tax Law,
such transaction would be treated the same as it is treated for Federal income
tax purposes (Oswego City Savings Bank March 31, 1995. Advisory Opinion,
TSB-A-95(7)C, Advisory Opinion, TSB-A-95(1)I, 3-31-95).
<PAGE>
Board of Directors
Landmark Community Bank
June 11, 1997
Page 5
B. New York State Sales and Use Tax
--------------------------------
New York State imposes a sales and use tax on tangible personal property
and certain enumerated services. Tax Law Section 1101, et seq. The sales tax
is a transactions tax and is imposed on the receipts from the retail sale of
tangible personal property. However, Section 1101(b)(4) of the Tax Law
provides, in pertinent part, as follows:
(iii) The term "retail sale" does not include:
(A) The transfer of tangible personal property to a corporation, solely in
consideration for the issuance of its stock, pursuant to a merger or
consolidation effected under the law of New York or any other
jurisdiction.
Section 526.6(d) of the Sales and Use Tax Regulations provides, in part,
as follows:
(d) Exclusions relating to corporate and partnership transactions. (1) The
following transfers of property are not retail sales:
(i) The transfer of property to a corporation, solely in
consideration for the issuance of its stock, pursuant to a merger
or consideration effected under the law of New York or any other
jurisdiction.
Thus, the proposed conversion will be tax-free for purposes of the New York
State sales and use tax.
C. New York State License Fee on Foreign Corporations
--------------------------------------------------
New York State imposes a license fee on foreign corporations doing business
in the state. The tax is based on the foreign corporation's capital structure
and is separate from the corporate franchise tax. Tax Law Section 181 et seq.
Furthermore, an annual maintenance fee of $300.00 is required. Tax Law Section
181.2. The license tax and maintenance fee are imposed for the privilege of
exercising the corporation's franchise or carrying on business in a corporate
capacity in New York.
Additionally, section 181.1 of the Tax Law provides that a foreign
corporation must pay a license fee for the privilege of carrying on its business
in New York State. This fee is payable only once unless the capital share
structure changes or the amount of capital stock employed in New York State has
increased since the last license fee report, form CT-240, was filed. Advisory
opinion, TSB-A-91(14)C, May 28, 1991.
The Bank will be subject to a license fee at a rate of 5 cents on each
share of no par value stock and one-twentieth of one per centum (1/20%) of the
apportioned par value of shares issued by the foreign corporation. The minimum
fee is $10. This fee is a one-time tax and would be imposed on any additional
shares issued by the Holding Company in the future.
<PAGE>
Board of Directors
Landmark Community Bank
June 11, 1997
Page 6
D. New York State Stock Transfer Tax
---------------------------------
New York State imposes a tax on the sale and transfer of shares of stock on
a transactional basis. Tax Law Section 270 et seq. The original issuance of
stock by a corporation is exempt from the tax. Terminals and Transportation
----------------------------
Corporation v. State, 169 Misc. 703, 8 N.Y.S.2d 282 affirmed 257 App. Div. 1028,
- --------------------
14 N.Y.S.2d 493 (1938). Furthermore, many State Department of Taxation and
Finance Opinions of Counsel confirm this exemption. NYNEX, Advisory Opinion
Petition No. M961003A. Accordingly, no tax will be imposed on the original
issuance of stock pursuant to the proposed conversion.
E. New York State Real Estate Transfer Tax ("NYS RETT")
----------------------------------------------------
New York State imposes a transfer tax on conveyances of interest in realty
located within the state. Tax Law Section 1415. Every conveyance of an
interest in real property located in New York is subject to tax at the time of
transfer of $2.00 for each $500.00 (or fraction thereof) of consideration given
with an additional tax on conveyance of residential real property, where the
consideration is greater than $1,000,000.00. Included in the definition of a
taxable transfer is the transfer of a "controlling interest" in an entity with
New York State real property interests. Tax Law Section 1440. A "controlling
interest" is defined as ownership of fifty percent or more of the combined
voting power of the shares of a corporation (Tax Law Section 1440.2).
The transfer of 100% of the Bank's stock to the Holding Company pursuant to
a proposed conversion will be deemed a transfer of a controlling interest in the
Bank (an entity with an interest in real property located in New York State)
and, thus, potentially subject to the New York State RETT.
Certain exemptions do apply. Tax Law, Section 1405(b)(6) state that to
the extent that a conveyance effectuates a mere change of identity or form of
ownership or organization and there is no change in beneficial ownership, the
real estate transfer tax does not apply.
Some support exists for the contention that the proposed conversion is
tax-free under the "mere change" exemption. Two private letter rulings have
held that the conversion to a mutual savings bank to a stock institution is
exempt from the real estate transfer taxes (the rulings primarily addressed the
repealed New York State Real Property Transfer Gains Tax but the analysis is the
same). It should be noted, however, that both private letter rulings involved
mergers of insolvent banks under IRC Section 368(a)(1)(g). Nevertheless, the
substantive reasoning behind the rulings appear to be applicable to the proposed
conversion. Also, an advisory opinion (Long Shadow, Inc., February 14, 1990)
has held that a tax-free reorganization under IRC Section 368(a)(1)(D) was not
subject to the real estate gains tax. As such, there exists a strong position
that the proposed conversion will qualify as a "mere change" exemption and be
tax-free.
The opinions set forth herein are based on current law, including statutes,
regulations, and judicial and administrative interpretations thereof. Such
statutes and regulations could be amended with retroactive effect, and such
interpretations could change. Additionally, the taxing authorities could
disagree with the conclusions contained in this opinion, and no assurance can be
given that such conclusions would be sustained by a court, if these matters were
contested.
<PAGE>
Board of Directors
Landmark Community Bank
June 11, 1997
Page 7
The opinions set forth herein do not, and are not meant to, address the tax
return filing requirements of New York State. If we can be of further
assistance in the preparation and filing of the relevant state and local tax
returns, please do not hesitate to contact us.
The opinions set forth herein are furnished solely for the benefit of the
Board of Directors of Landmark Community Bank in connection with the proposed
conversion and is not to be relied upon or used for any other purposes without
the firm's prior written consent.
/s/ Harvazinski & Montanye, LLP
<PAGE>
EXHIBIT 8.3
<PAGE>
[FINPRO LETTERHEAD]
June 20, 1997
Board of Directors
Landmark Community Bank
26 Church Street
Canajoharie, New York 13317-1117
Dear Board Members:
All capitalized terms not otherwise defined in this letter have the meanings
given such terms in the Plan of Conversion and Agreement and Plan of
Reorganization (the "Plan") adopted by the Board of Directors of Landmark
Community Bank (the "Bank"), whereby the Bank and a newly formed Delaware-
chartered holding company, Landmark Financial Corp. (the "Company") will
reorganize into the stock holding company structure form of organization, and
issue shares of Common Stock of the Company in a Subscription and Community
Offering.
We understand that in accordance with the Plan, Subscription Rights to
purchase shares of the Company's Common Stock are to be issued to (i)
Eligible Account Holders; (ii) the ESOP; (iii) Supplemental Eligible Account
Holders; (iv) Other Members and; (v) Directors, Officers and Employees,
collectively referred to as the "Recipients". Based solely on our
observation that the Subscription Rights will be available to such Recipients
without cost, will be legally non-transferable and of short duration, and
will afford the Recipients the right only to purchase shares of Common Stock
at the same price as will be paid by members of the general public in the
Direct Community Offering, but without undertaking any independent
investigation of state or federal law or the position of the Internal Revenue
Service with respect to this issue, we are of the belief that:
(1) the Subscription Rights will have no ascertainable market value; and
(2) the price at which the Subscription Rights are excercisable will not
be more or less than the pro forma market value of the shares
upon issuance.
Changes in the local and national economy, the legislative and regulatory
environment, the stock market, interest rates, and other external forces
(such as natural disasters or significant world events) may occur from time
to time, often with great unpredictability and may materially impact the
value of thrift stocks as a whole or the Bank's value alone. Accordingly, no
assurance can be given that persons who subscribe to shares of Common Stock
in the offering will thereafter be able to buy or sell such shares at the
same price paid in the Subscription Offering.
Very Truly Yours,
FinPro, Inc.
/s/ Donald J. Musso
Donald J. Musso
President
<PAGE>
EXHIBIT 10
<PAGE>
LANDMARK COMMUNITY BANK
EMPLOYEE STOCK OWNERSHIP PLAN
(adopted effective January 1, 1997)
<PAGE>
LANDMARK COMMUNITY BANK.
EMPLOYEE STOCK OWNERSHIP PLAN
This Employee Stock Ownership Plan, executed on the ____ day of
_____________, 1997, by Atlantic Liberty Savings F.A., a federal stock savings
bank (the "Bank"),
W I T N E S S E T H T H A T
WHEREAS, the board of directors of the Bank has resolved to adopt an
employee stock ownership plan for eligible employees in accordance with the
terms and conditions presented to the directors;
NOW, THEREFORE, the Bank hereby adopts the following Plan setting forth the
terms and conditions pertaining to contributions by the Employer and the payment
of benefits to Participants and Beneficiaries.
IN WITNESS WHEREOF, the Bank has adopted this Plan and caused this
instrument to be executed by its duly authorized officers as of the above date.
ATTEST:
____________________________ By: _______________________________
Secretary President
<PAGE>
C 0 N T E N T S
Page No.
Section 1. Plan Identity...................................................-1-
1.1 Name.........................................................-1-
1.2 Purpose......................................................-1-
1.3 Effective Date...............................................-1-
1.4 Fiscal Period................................................-1-
1.5 Single Plan for All Employers................................-1-
1.6 Interpretation of Provisions.................................-1-
Section 2. Definitions.....................................................-1-
Section 3. Eligibility for Participation...................................-8-
3.1 Initial Eligibility..........................................-8-
3.2 Definition of Eligibility Year...............................-8-
3.3 Terminated Employees.........................................-8-
3.4 Certain Employees Ineligible.................................-8-
3.5 Participation and Reparticipation............................-8-
3.6 Omission of Eligible Employee................................-8-
3.7 Inclusion of Ineligible Employee.............................-9-
Section 4. Contributions and Credits....................................-9-
4.1 Discretionary Contributions..................................-9-
4.2 Contributions for Stock Obligations..........................-9-
4.3 Definitions Related to Contributions.........................-9-
4.4 Conditions as to Contributions..............................-10-
4.5 Transfers...................................................-10-
Section 5. Limitations on Contributions and Allocations................-10-
5.1 Limitation on Annual Additions..............................-10-
5.2 Coordinated Limitation With Other Plans.....................-12-
5.3 Effect of Limitations.......................................-12-
5.4 Limitations as to Certain Participants......................-13-
Section 6. Trust Fund and Its Investment...............................-13-
6.1 Creation of Trust Fund......................................-13-
6.2 Stock Fund and Investment Fund..............................-13-
6.3 Acquisition of Stock........................................-14-
6.4 Participants' Option to Diversify...........................-14-
Section 7. Voting Rights and Dividends on Stock........................-15-
7.1 Voting and Tendering of Stock...............................-15-
7.2 Dividends on Stock..........................................-16-
(i)
<PAGE>
Page No.
Section 8. Adjustments to Accounts.....................................-16-
8.1 Adjustments for Transactions................................-16-
8.2 Valuation of Investment Fund................................-16-
8.3 Adjustments for Investment Experience.......................-17-
Section 9. Vesting of Participants' Interests..........................-17-
9.3 Full Vesting Upon Certain Events............................-18-
9.4 Full Vesting Upon Plan Termination..........................-19-
9.5 Forfeiture, Repayment, and Restoral.........................-19-
9.6 Accounting for Forfeitures..................................-19-
9.7 Vesting and Nonforfeitability...............................-19-
Section 10. Payment of Benefits.........................................-19-
10.1 Benefits for Participants...................................-19-
10.2 Time for Distribution.......................................-20-
10.3 Marital Status..............................................-21-
10.4 Delay in Benefit Determination..............................-21-
10.5 Accounting for Benefit Payments.............................-21-
10.6 Options to Receive and Sell Stock...........................-21-
10.7 Restrictions on Disposition of Stock........................-22-
10.8 Continuing Loan Provisions;
Creations of Protections and Rights.........................-23-
10.9 Direct Rollover of Eligible Distribution....................-23-
10.10 In Service Distribution of Roll-over Account................-23-
10.11 Waiver of 30 Day Period After Notice of Distribution........-24-
Section 11. Rules Governing Benefit Claims and Review of Appeals........-24-
11.1 Claim for Benefits..........................................-24-
11.2 Notification by Committee...................................-24-
11.3 Claims Review Procedure.....................................-24-
Section 12. The Committee and Its Functions.............................-25-
12.1 Authority of Committee......................................-25-
12.2 Identity of Committee.......................................-25-
12.3 Duties of Committee.........................................-25-
12.4 Valuation of Stock..........................................-25-
12.5 Compliance with ERISA.......................................-26-
12.6 Action by Committee.........................................-26-
12.7 Execution of Documents......................................-26-
12.8 Adoption of Rules...........................................-26-
12.9 Responsibilities to Participants............................-26-
12.10 Alternative Payees in Event of Incapacity...................-26-
12.11 Indemnification by Employers................................-26-
12.12 Nonparticipation by Interested Member.......................-27-
(ii)
<PAGE>
Page No.
Section 13. Adoption, Amendment, or Termination of the Plan.............-27-
13.1 Adoption of Plan by Other Employers.........................-27-
13.2 Adoption of Plan by Successor...............................-27-
13.3 Plan Adoption Subject to Qualification......................-27-
13.4 Right to Amend or Terminate.................................-27-
Section 14. Miscellaneous Provisions....................................-28-
14.1 Plan Creates No Employment Rights...........................-28-
14.2 Nonassignability of Benefits................................-28-
14.3 Limit of Employer Liability.................................-28-
14.4 Treatment of Expenses.......................................-28-
14.5 Number and Gender...........................................-28-
14.6 Nondiversion of Assets......................................-28-
14.7 Separability of Provisions..................................-28-
14.8 Service of Process..........................................-29-
14.9 Governing State Law.........................................-29-
14.10 Employer Contributions Conditioned on Deductibility.........-29-
14.11 Unclaimed Accounts..........................................-29-
14.12 Qualified Domestic Relations Order..........................-29-
Section 15. Top-Heavy Provisions........................................-30-
15.1 Top-Heavy Plan..............................................-30-
15.2 Super Top-Heavy Plan........................................-30-
15.3 Definitions.................................................-31-
15.4 Top-Heavy Rules of Application..............................-32-
15.5 Top-Heavy Ratio.............................................-33-
15.6 Minimum Contributions.......................................-33-
15.7 Minimum Vesting.............................................-34-
15.8 Top-Heavy Provisions Control in Top-Heavy Plan..............-34-
(iii)
<PAGE>
LANDMARK COMMUNITY BANK
EMPLOYEE STOCK OWNERSHIP PLAN
Section 1. Plan Identity.
1.1 Name. The name of this Plan is "Landmark Community Bank Employee
Stock Ownership Plan."
1.2 Purpose. The purpose of this Plan is to describe the terms and
conditions under which contributions made pursuant to the Plan will be credited
and paid to the Participants and their Beneficiaries.
1.3 Effective Date. The Effective Date of this Plan is
___________________, 1997.
1.4 Fiscal Period. This Plan shall be operated on the basis of a January
1 to December 31 fiscal year for the purpose of keeping the Plan's books and
records and distributing or filing any reports or returns required by law.
1.5 Single Plan for All Employers. This Plan shall be treated as a single
plan with respect to all participating Employers for the purpose of crediting
contributions and forfeitures and distributing benefits, determining whether
there has been any termination of Service, and applying the limitations set
forth in Section 5.
1.6 Interpretation of Provisions. The Employers intend this Plan and the
Trust to be a qualified stock bonus plan under Section 401(a) of the Code and an
employee stock ownership plan within the meaning of Section 407(d)(6) of ERISA
and Section 4975(e)(7) of the Code. The Plan is intended to have its assets
invested primarily in qualifying employer securities of one or more Employers
within the meaning of Section 407(d)(3) of ERISA, and to satisfy any requirement
under ERISA or the Code applicable to such a plan.
Accordingly, the Plan and Trust Agreement shall be interpreted and applied
in a manner consistent with this intent and shall be administered at all times
and in all respects in a nondiscriminatory manner.
Section 2. Definitions.
The following capitalized words and phrases shall have the meanings
specified when used in this Plan and in the Trust Agreement, unless the context
clearly indicates otherwise:
"Account" means a Participant's interest in the assets accumulated under
this Plan as expressed in terms of a separate account balance which is
periodically adjusted to reflect his Employer's contributions, the Plan's
investment experience, and distributions and forfeitures.
"Active Participant" means any Employee who has satisfied the eligibility
requirements of Section 3 and who qualifies as an Active Participant for a
particular Plan Year under Section 4.3.
"Bank" means Landmark Community Bank and any entity which succeeds to the
business of Landmark Community Bank and adopts this Plan as its own pursuant to
Section 14.2.
<PAGE>
"Beneficiary" means the person or persons who are designated by a
Participant to receive benefits payable under the Plan on the Participant's
death. In the absence of any designation or if all the designated Beneficiaries
shall die before the Participant dies or shall die before all benefits have been
paid, the Participant's Beneficiary shall be his surviving spouse, if any, or
his estate if he is not survived by a spouse. The Committee may rely upon the
advice of the Participant's executor or administrator as to the identity of the
Participant's spouse.
"Break in Service" means any Plan Year in which an Employee has 500 or
fewer Hours of Service. Solely for this purpose, an Employee shall be
considered employed for his normal hours of paid employment during a Recognized
Absence (said employee shall not be credited with more than 501 Hours of Service
to avoid a Break in Service), unless he does not resume his Service at the end
of the Recognized Absence. Further, if an Employee is absent for any period
beginning on or after January 1, 1985, (i) by reason of the Employee's
pregnancy, (ii) by reason of the birth of the Employee's child, (iii) by reason
of the placement of a child with the Employee in connection with the Employee's
adoption of the child, or (iv) for purposes of caring for such child for a
period beginning immediately after such birth or placement, the Employee shall
be credited with the Hours of Service which would normally have been credited
but for such absence, up to a maximum of 501 Hours of Service.
"Code" means the Internal Revenue Code of 1986, as amended.
"Committee" means the committee responsible for the administration of this
Plan in accordance with Section 12.
"Company" means Landmark Financial Corp., the stock holding company of
Bank.
"Disability" means only a disability which renders the Participant totally
unable, as a result of bodily or mental disease or injury, to perform any duties
for an Employer for which he is reasonably fitted, which disability is expected
to be permanent or of long and indefinite duration. However, this term shall
not include any disability directly or indirectly resulting from or related to
habitual drunkenness or addiction to narcotics, a criminal act or attempt,
service in the armed forces of any country, an act of war, declared or
undeclared, any injury or disease occurring while compensation to the
Participant is suspended, or any injury which is intentionally self-inflicted.
Further, this term shall apply only if (i) the Participant is sufficiently
disabled to qualify for the payment of disability benefits under the federal
Social Security Act or Veterans Disability Act, or (ii) the Participant's
disability is certified by a physician selected by the Committee. Unless the
Participant is sufficiently disabled to qualify for disability benefits under
the federal Social Security Act or Veterans Disability Act, the Committee may
require the Participant to be appropriately examined from time to time by one or
more physicians chosen by the Committee, and no Participant who refuses to be
examined shall be treated as having a Disability. In any event, the Committee's
good faith decision as to whether a Participant's Service has been terminated by
Disability shall be final and conclusive.
"Early Retirement" means retirement on or after a Participant's attainment
of age 55 and the completion of twenty years of Service for an Employer. If the
participant separates from Service before satisfying the age requirement, but
has satisfied the Service requirement, the Participant will be entitled to elect
early retirement upon satisfaction of the age requirement.
"Effective Date" means January 1, 1997.
"Employee" means any individual who is or has been employed or
self-employed by an Employer. "Employee" also means an individual employed
by a leasing organization who, pursuant to an agreement
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between an Employer and the leasing organization, has performed services for
the Employer and any related persons (within the meaning of Section 414(n)(6)
of the Code) on a substantially full-time basis for more than one year, if
such services are performed under the primary direction or control of the
Employer. However, such a "leased employee" shall not be considered an
Employee if (i) he participates in a money purchase pension plan sponsored by
the leasing organization which provides for immediate participation,
immediate full vesting, and an annual contribution of at least 10 percent of
the Employee's Total Compensation, and (ii) leased employees do not
constitute more than 20 percent of the Employer's total work force (including
leased employees, but excluding Highly Paid Employees and any other
employees who have not performed services for the Employer on a substantially
full-time basis for at least one year).
"Employer" means the Bank or any affiliate within the purview of section
414(b), (c) or (m) and 415(h) of the Code, any other corporation, partnership,
or proprietorship which adopts this Plan with the Bank's consent pursuant to
Section 13.1, and any entity which succeeds to the business of any Employer and
adopts the Plan pursuant to Section 13.2.
"Entry Date" means the Effective Date of the Plan and each January 1 and
July 1 of each Plan Year after the Effective Date.
"ERISA" means the Employee Retirement Income Security Act of 1974 (P.L.
93-406, as amended).
"Highly Paid Employee" for any Plan Year means an Employee who, during
either of that or the immediately preceding Plan Year was at any time a five
percent owner of the Employer (as defined in Code Section 416(i)(1)) or had
Total Compensation exceeding $80,000 and was among the most highly compensated
one-fifth of all Employees. For this purpose:
(a) "Total Compensation" shall include any amount which is excludable
from the Employee's gross income for tax purposes pursuant to Sections 125,
402(a)(8), 402(h)(1)(B), or 403(b) of the Code.
(b) The number of Employees in "the most highly compensated one-fifth
of all Employees" shall be determined by taking into account all
individuals working for all related Employer entities described in the
definition of "Service", but excluding any individual who has not completed
six months of Service, who normally works fewer than 17-1/2 hours per week
or in fewer than six months per year, who has not reached age 21, whose
employment is covered by a collective bargaining agreement, or who is a
nonresident alien who receives no earned income from United States sources.
"Hours of Service" means hours to be credited to an Employee under the
following rules:
(a) Each hour for which an Employee is paid or is entitled to be paid
for services to an Employer is an Hour of Service.
(b) Each hour for which an Employee is directly or indirectly paid or
is entitled to be paid for a period of vacation, holidays, illness,
disability, lay-off, jury duty, temporary military duty, or leave of
absence is an Hour of Service. However, except as otherwise specifically
provided, no more than 501 Hours of Service shall be credited for any
single continuous period which an Employee performs no duties. No more
than 501 hours of service will be credited under this paragraph for any
single continuous period (whether or not such period occurs in a single
computation period). Further, no Hours of Service shall be credited on
account of payments made
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solely under a plan maintained to comply with worker's compensation,
unemployment compensation, or disability insurance laws, or to reimburse
an Employee for medical expenses.
(c) Each hour for which back pay (ignoring any mitigation of damages)
is either awarded or agreed to by an Employer is an Hour of Service.
However, no more than 501 Hours of Service shall be credited for any single
continuous period during which an Employee would not have performed any
duties. The same hours of service will not be credited both under
paragraph (a) or (b) as the case may be, and under this paragraph (c).
These hours will be credited to the employee for the computation period or
periods to which the award or agreement pertains rather than the
computation period in which the award agreement or payment is made.
(d) Hours of Service shall be credited in any one period only under
one of the foregoing paragraphs (a), (b) and (c); an Employee may not get
double credit for the same period.
(e) If an Employer finds it impractical to count the actual Hours of
Service for any class or group of non-hourly Employees, each Employee in
that class or group shall be credited with 45 Hours of Service for each
weekly pay period in which he has at least one Hour of Service. However,
an Employee shall be credited only for his normal working hours during a
paid absence.
(f) Hours of Service to be credited on account of a payment to an
Employee (including back pay) shall be recorded in the period of Service
for which the payment was made. If the period overlaps two or more Plan
Years, the Hours of Service credit shall be allocated in proportion to the
respective portions of the period included in the several Plan Years.
However, in the case of periods of 31 days or less, the Administrator may
apply a uniform policy of crediting the Hours of Service to either the
first Plan Year or the second.
(g) In all respects an Employee's Hours of Service shall be counted
as required by Section 2530.200b-2(b) and (c) of the Department of Labor's
regulations under Title I of ERISA.
"Investment Fund" means that portion of the Trust Fund consisting of assets
other than Stock. Notwithstanding the above, assets from the Investment Fund
may be used to purchase Stock in the open market or otherwise, or used to pay on
the Stock Obligation, and shares so purchased will be allocated to a
Participant's Stock Fund.
"Normal Retirement" means retirement on or after a Participant's 65th
birthday.
"Normal Retirement Date" means the date on which a Participant attains age
65.
"Participant" means any Employee who is participating in the Plan, or who
has previously participated in the Plan and still has a balance credited to his
Account.
"Plan Year" means the twelve month period commencing January 1 and ending
December 31, 1997 and each period of 12 consecutive months beginning on January
1 of each succeeding year.
"Recognized Absence" means a period for which --
(a) an Employer grants an Employee a leave of absence for a limited
period, but only if an Employer grants such leave on a nondiscriminatory
basis; or
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(b) an Employee is temporarily laid off by an Employer because of a
change in business conditions; or
(c) an Employee is on active military duty, but only to the extent
that his employment rights are protected by the Military Selective Service
Act of 1967 (38 U.S.C. Sec. 2021).
"Roll Over Account" means the separate account established to hold a
Participant's roll-over contributions and direct transfers.
"Service" means an Employee's period(s) of employment or self-employment
with an Employer, excluding for initial eligibility purposes any period in which
the individual was a nonresident alien and did not receive from an Employer any
earned income which constituted income from sources within the United States.
An Employee's Service shall include any service which constitutes service with a
predecessor employer within the meaning of Section 414(a) of the Code. An
Employee's Service shall also include any service with an entity which is not an
Employer, but only either (i) for a period after 1975 in which the other entity
is a member of a controlled group of corporations or is under common control
with other trades and businesses within the meaning of Section 414(b) or 414(c)
of the Code, and a member of the controlled group or one of the trades and
businesses is an Employer, (ii) for a period after 1979 in which the other
entity is a member of an affiliated service group within the meaning of Section
414(m) of the Code, and a member of the affiliated service group is an Employer,
or (iii) all employers aggregated with the Employer under Section 414(o) of the
Code (but not until the Proposed Regulations under Section 414(o) become
effective).
"Spouse" means the individual, if any, to whom a Participant is lawfully
married on the date benefit payments to the Participant are to begin, or on the
date of the Participant's death, if earlier. A former spouse shall be treated
as the Spouse or surviving spouse to the extent provided under a qualified
domestic relations order as described in section 414(p) of the Code.
"Stock" means shares of the Company's voting common stock or preferred
stock meeting the requirements of Section 409(e)(3) of the Code issued by an
Employer which is a member of the same controlled group of corporations within
the meaning of Code Section 414(b).
"Stock Fund" means that portion of the Trust Fund consisting of Stock.
"Stock Obligation" means an indebtedness arising from any extension of
credit to the Plan or the Trust which satisfies the requirements set forth in
Section 6.3 and which was obtained for any or all of the following purposes:
(i) to acquire qualifying employer securities as defined in Treasury
Regulations Section 54,4975012l
(ii) to repay such Stock Obligation; or
(iii) to repay a prior exempt loan.
"Total Compensation" (a) shall mean:
(i) A Participant's wages, salaries, fees for professional services
and other amounts received (without regard to whether an amount is paid in
cash) for personal services actually rendered in the course of employment
with the Employer while a Participant in the Plan,
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(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, severance payments and
amounts paid as a result of termination, and any deferred compensation
contributions made to this or any other Section 401(k) Plan on behalf of
the Participants), taxable fringe benefits, reimbursements and expense
allowances under a nonaccountable plan (as described in Section
1.62-2(c) of the Treasury Regulations).
(ii) Amounts described in sections 104(a)(3), 105(a), and 105(h), but
only to the extent that these amounts are includable in the gross income of
the employee.
(iii)Amounts paid or reimbursed by the employer for moving expenses
incurred by an employee, but only to the extent that at the time of payment
it is reasonable to believe that these amounts are not deductible by the
employee under section 217.
(iv) The value of a non-qualified stock option granted to an employee
by the employer, but only to the extent that the value of the option is
includable in the gross income of the employee for the taxable year in
which granted.
(v) The amount includable in the gross income of an employee upon
making the election described in section 83(b).
(b) The term "Total Compensation" does not include items such as:
(i) Contributions made by the Employer to a Plan of deferred
compensation to the extent that before the application of Section 415
limitations to the Plan, the contributions are not includable in the gross
income of the Employee for the taxable year in which contributed, except
for deferred compensation contributions made by the Employer to a Section
401(k) Plan on behalf of the Participant. However, for purposes of
computing Code Section 415 annual additions, deferred compensation
contributions made by the Employer to a Section 401(k) Plan on behalf of a
Participant shall be deducted from Total Compensation. In addition,
Employer contributions made on behalf of an Employee to a simplified
employee pension plan described in Code Section 408(k) are not considered
as compensation for the taxable year in which contributed to the extent
such contributions are deductible by the Employee under Code Section
219(b)(7). Additionally, any distributions from a Plan of deferred
compensation are not considered as compensation for Code Section 415
purposes, regardless of whether such amounts are includable in the gross
income of the Employee when distributed. However, any amounts received by
an Employee pursuant to an unfunded non-qualified Plan may be considered as
compensation for Code Section 415 purposes in the year such amounts are
includable in the gross income of the Employee.
(ii) Amounts realized from the exercise of a non-qualified stock
option, or when restricted stock (or property) held by an Employee either
becomes freely transferable or is no longer subject to a substantial risk
of forfeiture.
(iii)Amounts realized from the sale, exchange or other disposition of
stock acquired under a qualified stock option.
(iv) Other amounts which receive special tax benefits, such as
premiums for group term life insurance (but only to the extent that the
premiums are not includable in the gross income of the Employee), or
contributions made by the Employer (whether or not under a salary reduction
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agreement) towards the purchase of an annuity contract described in Code
Section 403(b) (whether or not the contributions are excludable from the
gross income of the Employee).
(c) For Plan Years beginning after December 31, 1993, Total
Compensation in excess of $150,000 (as indexed) shall be disregarded for
all Participants. For purposes of this sub-section, the $150,000 limit
shall be referred to as the "applicable limit" for the Plan Year in
question. Such amount shall be adjusted in such manner as permitted under
Code Section 401(a)(17)(B), effective for the Plan Year which begins within
the applicable calendar year. For purposes of the applicable limit, Total
Compensation shall be prorated over short plan years.
"Trust" or "Trust Fund" means the trust fund created under this Plan.
"Trust Agreement" means the agreement between the Bank and the Trustee
concerning the Trust Fund. If any assets of the Trust Fund are held in a
co-mingled trust fund with assets of other qualified retirement plans, "Trust
Agreement" shall be deemed to include the trust agreement governing that
co-mingled trust fund. With respect to the allocation of investment
responsibility for the assets of the Trust Fund, the provisions of Article II of
the Trust Agreement are incorporated herein by reference.
"Trustee" means one or more corporate persons or individuals selected from
time to time by the Bank to serve as trustee or co-trustees of the Trust Fund.
"Unallocated Stock Fund" means that portion of the Stock Fund consisting of
the Plan's holding of stock which have been acquired in exchange for one or more
Stock obligations and which have not yet been allocated to the Participant's
Accounts in accordance with Section 4.2
"Valuation Date" means the last day of the Plan Year and each other date as
of which the committee shall determine the investment experience of the
Investment Fund and adjust the Participants' accounts accordingly.
"Valuation Period" means the period following a Valuation Date and ending
with the next Valuation Date.
"Vesting Year" means a unit of Service credited to a Participant pursuant
to Section 9.2 for purposes of determining his vested interest in his Account.
Section 3. Eligibility for Participation.
3.1 Initial Eligibility. An Employee shall enter the Plan as of the Entry
Date coincident with or next following the later of the following dates:
(a) the last day of the Employee's first Eligibility Year, and
(b) the Employee's 21st birthday. However, if an Employee is not in
active Service with an Employer on the date he would otherwise first enter
the Plan, his entry shall be deferred until the next day he is in Service.
3.2 Definition of Eligibility Year. An "Eligibility Year" means an
applicable eligibility period (as defined below) in which the Employee has
completed 1,000 Hours of Service for the Employer. For this purpose:
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(a) an Employee's first "eligibility period" is the 12-consecutive
month period beginning on the first day on which he has an Hour of Service,
and
(b) his subsequent eligibility periods will be 12-consecutive month
periods beginning on each January 1 after that first day of Service.
3.3 Terminated Employees. No Employee shall have any interest or rights
under this Plan if he is never in active Service with an Employer on or after
the Effective Date.
3.4 Certain Employees Ineligible. No Employee shall participate in the
Plan while his Service is covered by a collective bargaining agreement between
an Employer and the Employee's collective bargaining representative if (i)
retirement benefits have been the subject of good faith bargaining between the
Employer and the representative and (ii) the collective bargaining agreement
does not provide for the Employee's participation in the Plan. No Employee
shall participate in the Plan while he is actually employed by a leasing
organization rather than an Employer.
3.5 Participation and Reparticipation. Subject to the satisfaction of the
foregoing requirements, an Employee shall participate in the Plan during each
period of his Service from the date on which he first becomes eligible until his
termination. For this purpose, an Employee who returns before five (5)
consecutive Breaks in Service who previously satisfied the initial eligibility
requirements or who returns after 5 consecutive one year Breaks in Service with
a vested account balance in the Plan shall re-enter the Plan as of the date of
his return to Service with an Employer.
3.6 Omission of Eligible Employee. If, in any Plan Year, any Employee who
should be included as a Participant in the Plan is erroneously omitted and
discovery of such omission is not made until after a contribution by his
Employer for the year has been made, the Employer shall make a subsequent
contribution with respect to the omitted Employee in the amount which the said
Employer would have contributed shall be made regardless of whether or not it is
deductible in whole or in part in any taxable year under applicable provisions
of the Code.
3.7 Inclusion of Ineligible Employee. If, in any Plan Year, any person
who should not have been included as a Participant in the Plan is erroneously
included and discovery of such incorrect inclusion is not made until after a
contribution for the year has been made, the Employer shall not be entitled to
recover the contribution made with respect to the ineligible person regardless
of whether or not a deduction is allowable with respect to the ineligible person
shall constitute a Forfeiture for the Plan Year in which the discovery is made.
Section 4. Contributions and Credits.
4.1 Discretionary Contributions. The Employer shall from time to time
contribute, with respect to a Plan Year, such amounts as it may determine from
time to time. The Employer shall have no obligation to contribute any amount
under this Plan except as so determined in its sole discretion. The Employer's
contributions and available forfeitures for a Plan Year shall be credited as of
the last day of the year to the Accounts of the Active Participants in
proportion to their amounts of Cash Compensation.
4.2 Contributions for Stock Obligations. If the Trustee, upon
instructions from the Committee, incurs any Stock Obligation upon the purchase
of Stock, the Employer may contribute for each Plan Year an amount sufficient to
cover all payments of principal and interest as they come due under the terms of
the Stock Obligation. If there is more than one Stock Obligation, the Employer
shall designate the one to which any contribution is to be applied. Investment
earnings realized on Employer contributions
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and any dividends paid by the Employer on Stock held in the Unallocated Stock
Account, shall be applied to the Stock Obligation related to that Stock,
subject to Section 7.2.
In each Plan Year in which Employer contributions, earnings on
contributions, or dividends on unallocated Stock are used as payments under a
Stock Obligation, a certain number of shares of the Stock acquired with that
Stock Obligation which is then held in the Unallocated Stock Fund shall be
released for allocation among the Participants. The number of shares released
shall bear the same ratio to the total number of those shares then held in the
Unallocated Stock Fund (prior to the release) as (i) the principal and interest
payments made on the Stock Obligation in the current Plan Year bears to (ii)
the sum of (i) above, and the remaining principal and interest payments required
(or projected to be required on the basis of the interest rate in effect at the
end of the Plan Year) to satisfy the Stock Obligation.
At the direction of the Committee, the current and projected payments of
interest under a Stock Obligation may be ignored in calculating the number of
shares to be released in each year if (i) the Stock Obligation provides for
annual payments of principal and interest at a cumulative rate that is not less
rapid at any time than level annual payments of such amounts for 10 years, (ii)
the interest included in any payment is ignored only to the extent that it would
be determined to be interest under standard loan amortization tables, and (iii)
the term of the Stock Obligation, by reason of renewal, extension, or
refinancing, has not exceeded 10 years from the original acquisition of the
Stock.
For these purposes, each Stock Obligation, the Stock purchased with it, and
any dividends on such Stock, shall be considered separately. The Stock released
from the Unallocated Stock Fund in any Plan Year shall be credited as of the
last day of the year to the Accounts of the Active Participants in proportion to
their amounts of Cash Compensation.
4.3 Definitions Related to Contributions. For the purposes of this Plan,
the following terms have the meanings specified:
"Active Participant" means a Participant who has satisfied the eligibility
requirements under Section 3 and who has at least 1000 Hours of Service during
the current Plan Year. However, a Participant shall not qualify as an Active
Participant unless (i) he is in active Service with an Employer as of the last
day of the Plan Year, or (ii) he is on a Recognized Absence as of that date, or
(iii) his Service terminated during the Plan Year by reason of Disability,
death, Early or Normal Retirement.
"Cash Compensation" A Participant's Cash Compensation shall include base
salary, bonuses and overtime received by the Participant during the Plan Year
while a Participant in the Plan, and shall also include amounts contributed
under a salary reduction agreement pursuant to Section 401(k) or Section 125 of
the Code.
In the event a Plan Year is a period of less than 12 months for any reason,
then Cash Compensation for the short period shall not exceed the pro rata
portion of this limit created by multiplying a fraction which is the number of
months in the short period divided by twelve times the annual compensation
limit.
4.4 Conditions as to Contributions. Employers' contributions shall in all
events be subject to the limitations set forth in Section 5. Contributions may
be made in the form of cash, or securities and other property to the extent
permissible under ERISA, including Stock, and shall be held by the Trustee in
accordance with the Trust Agreement. In addition to the provisions of Section
13.3 for the return of an Employer's contributions in connection with a failure
of the Plan to qualify initially under the Code, any amount contributed by an
Employer due to a good faith mistake of fact, or based upon a good faith but
erroneous determination of its deductibility under Section 404 of the Code,
shall be returned to the
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Employer within one year after the date on which the contribution was
originally made, or within one year after its nondeductibility has been
finally determined. However, the amount to be returned shall be reduced to
take account of any adverse investment experience within the Trust Fund in
order that the balance credited to each Participant's Account is not less
that it would have been if the contribution had never been made.
4.5 Transfers. This plan shall accept direct and indirect transfers,
including roll-over contributions from other tax-qualified plans, provided,
however, that this Plan shall not accept any direct or indirect transfers from
any other retirement plan that is tax-qualified under Section 401(a) of the Code
and which is subject to the survivor annuity requirements of section 401(a)(11)
and section 417 of the Code.
Section 5. Limitations on Contributions and Allocations.
5.1 Limitation on Annual Additions. Notwithstanding anything herein to
the contrary, allocation of Employer contributions for any Plan Year shall be
subject to the following:
5.1-1 If allocation of Employer contributions in accordance with
Section 4.1 will result in an allocation of more than one-third the total
contributions for a Plan Year to the accounts of Highly Paid Employees,
then allocation of such amount shall be adjusted so that such excess will
not occur.
5.1-2 After adjustment, if any, required by the preceding paragraph,
the annual additions during any Plan Year to any Participant's Account
under this and any other defined contribution plans maintained by the
Employer or an affiliate (within the purview of Section 414(b), (c) and (m)
and Section 415(h) of the Code, which affiliate shall be deemed the
Employer for this purpose) shall not exceed the lesser of $30,000 (or such
other dollar amount which results from cost-of-living adjustments under
Section 415(d) of the Code) or "25 percent of the Participant's Total
Compensation for such limitation year." In the event that annual additions
exceed the aforesaid limitations, they shall be reduced in the following
priority:
(i) If the Participant is covered by the Plan at the end of the Plan
Year, any excess amount at the end of the Plan Year that cannot be
allocated to the Participant's account shall be used to reduce the employer
contribution for such Participant in the next limitation year and any
succeeding limitation years if necessary.
(ii) If the Participant is not covered by the Plan at the end of the
Plan Year, the excess amount will be held unallocated in a suspense
account. The suspense account will be applied to reduce future employer
contributions for all remaining Participants in the next limitation year
and each succeeding limitation year if necessary.
(iii) If a suspense account is in existence at any time during a
limitation year, it will not participate in any allocation of investment
gains and losses. All amounts held in suspense accounts must be allocated
to Participant's accounts before any contributions may be made to the Plan
for the limitation year.
(iv) If a suspense account exists at the time of plan termination,
amounts held in the suspense account that cannot be allocated shall revert
to the Employer.
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5.1-3 For purposes of this Section 5.1 and the following Section 5.2,
the "annual addition" to a Participant's accounts means the sum of (I)
employer contributions, (ii) employee contributions, if any, and (iii)
forfeitures. Annual additions to a defined contribution plan also include
amounts allocated, after March 31, 1984, to an individual medical account,
as defined in Section 415(l)(2) of the Internal Revenue Code, which is part
of a pension or annuity plan maintained by the Employer, amounts derived
from contributions paid or accrued after December 31, 1985, in taxable
years ending after such date, which are attributable to post-retirement
medical benefits allocated to the separate account of a Key Employee under
a welfare benefit fund, as defined in Section 419A(d) of the Internal
Revenue Code, maintained by the Employer. For these purposes, annual
additions to a defined contribution plan shall not include the allocation
of the excess amounts remaining in the Unallocated Stock Fund subsequent to
a sale of stock from such fund in accordance with a transaction described
in Section 8.1 of the Plan. The $30,000 limitations referred to shall, for
each limitation year ending after 1988, be automatically adjusted to the
new dollar limitations determined by the Commissioner of Internal Revenue
for the calendar year beginning in that limitation year.
5.1-4 Notwithstanding the foregoing, if no more than one-third of the
Employer Contributions to the Plan for a year which are deductible under
Section 404(a)(9) of the Code are allocated to Highly Paid Employees
(within the meaning of Section 414(q) of the Internal Revenue Code), the
limitations imposed herein shall not apply to:
(i) forfeitures of employer securities (within the meaning of Section
409 of the Code) under the Plan if such securities were acquired with the
proceeds of a loan described in Section 404(a)(9)(A) of the Code), or
(ii) Employer Contributions to the Plan which are deductible under
Section 404(a)(9)(B) and charged against a Participant's account.
5.1-5 If the Employer contributes amounts, on behalf of Employees
covered by this Plan, to other "defined contribution plans" as defined in
Section 3(34) of ERISA, the limitation on annual additions provided in this
Section shall be applied to annual additions in the aggregate to this Plan
and to such other plans. Reduction of annual additions, where required,
shall be accomplished first by reductions under such other plan pursuant to
the directions of the named Fiduciary for administration of such other
plans or under priorities, if any, established under the terms of such
other plans and then by allocating any remaining excess for this Plan in
the manner and priority set out above with respect to this Plan."
5.1-6 A limitation year shall mean each 12 consecutive month period
beginning each January 1.
5.2 Coordinated Limitation With Other Plans. Aside from the limitation
prescribed by Section 5.1 with respect to the annual addition to a Participant's
accounts for any single limitation year, if a Participant has ever participated
in one or more defined benefit plans maintained by an Employer or an affiliate,
then the accrued benefit shall be limited so that the sum of his defined plan
fraction and his defined contribution plan fraction does not exceed one. For
this purpose:
5.2-1 A Participant's defined contribution plan fraction with respect
to a Plan Year shall be a fraction, (i) the numerator of which is the sum
of the annual additions to his accounts through the current year, and (ii)
the denominator of which is the sum of the lesser of the following amounts
-A- and -B- determined for the current limitation year and each prior
limitation year of
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Service with an Employer: -A- is 1.25 times the dollar limit in effect
for the year under Section 415(c)(1)(A) of the Code, or 1.0 times such
dollar limitation if the Plan is top-heavy, and -B- is 35 percent of the
Participant's Total Compensation for such year. Further, if the
Participant participated in any related defined contribution plan in any
years beginning before 1976, any-excess of the sum of the actual annual
additions to the Participant's accounts for those years over the maximum
annual additions which could have been made in accordance with Section
5.1 shall be ignored, and voluntary contributions by the Participant
during those years shall be taken into account as to each such year only
to the extent that his average annual voluntary contribution in those
years exceeded 10 percent of his average annual Total Compensation in
those years.
5.2-2 A Participant's defined benefit plan fraction with respect to a
limitation year shall be a fraction, (i) the numerator of which is his
projected annual benefit payable at normal retirement under the Employers'
defined benefit plans, and (ii) the denominator of which is the lesser of
(a) 1.25 times $90,000, or 1.0 times such dollar limitation if the Plan is
top-heavy, and (b) 1.4 times the Participant's average Total Compensation
during his highest-paid three consecutive limitation years.
5.3 Effect of Limitations. The Committee shall take whatever action may
be necessary from time to time to assure compliance with the limitations set
forth in Section 5.1 and 5.2. Specifically, the Committee shall see that each
Employer restrict its contributions for any Plan Year to an amount which, taking
into account the amount of available forfeitures, may be completely allocated to
the Participants consistent with those limitations. Where the limitations would
otherwise be exceeded by any Participant, further allocations to the Participant
shall be curtailed to the extent necessary to satisfy the limitations. Where an
excessive amount is contributed on account of a mistake as to one or more
Participants' compensation, or there is an amount of forfeitures which may not
be credited in the Plan Year in which it becomes available, the amount shall be
corrected in accordance with Section 5.1-2 of the Plan.
5.4 Limitations as to Certain Participants. Aside from the limitations
set forth in Section 5.1 and 5.2, if the Plan acquires any Stock in a
transaction as to which a selling shareholder or the estate of a deceased
shareholder is claiming the benefit of Section 1042 of the Code, the Committee
shall see that none of such Stock, and no other assets in lieu of such Stock,
are allocated to the Accounts of certain Participants in order to comply with
Section 409(n) of the Code.
This restriction shall apply at all times to a Participant who owns (taking
into account the attribution rules under Section 318(a) of the Code, without
regard to the exception for employee plan trusts in Section 318(a)(2)(B)(i) more
than 25 percent of any class of stock of a corporation which issued the Stock
acquired by the Plan, or another corporation within the same controlled group,
as defined in Section 409(l)(4) of the Code (any such class of stock hereafter
called a "Related Class"). For this purpose, a Participant who owns more than
25 percent of any Related Class at any time within the one year preceding the
Plan's purchase of the Stock shall be subject to the restriction as to all
allocations of the Stock, but any other Participant shall be subject to the
restriction only as to allocations which occur at a time when he owns more than
25 percent of any Related Class.
Further, this restriction shall apply to the selling shareholder claiming
the benefit of Section 1042 and any other Participant who is related to such a
shareholder within the meaning of Section 267(b) of the Code, during the period
beginning on the date of sale and ending on the later of (1) the date that is
ten years after the date of sale, or (2) the date of the plan allocation
attributable to the final payment of acquisition indebtedness incurred in
connection with the sale.
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This restriction shall not apply to any Participant who is a lineal
descendant of a selling shareholder if the aggregate amounts allocated under the
Plan for the benefit of all such descendants do not exceed five percent of the
Stock acquired from the shareholder.
Section 6. Trust Fund and Its Investment.
6.1 Creation of Trust Fund. All amounts received under the Plan from
Employers and investments shall be held as the Trust Fund pursuant to the terms
of this Plan and of the Trust Agreement between the Bank and the Trustee. The
benefits described in this Plan shall be payable only from the assets of the
Trust Fund, and none of the Bank, any other Employer, its board of directors or
trustees, its stockholders, its officers, its employees, the Committee, and the
Trustee shall be liable for payment of any benefit under this Plan except from
the Trust Fund.
6.2 Stock Fund and Investment Fund. The Trust Fund held by the Trustee
shall be divided into the Stock Fund, consisting entirely of Stock, and the
Investment Fund, consisting of all assets of the Trust other than Stock. The
Trustee shall have no investment responsibility for the Stock Fund, but shall
accept any Employer contributions made in the form of Stock, and shall acquire,
sell, exchange, distribute, and otherwise deal with and dispose of Stock in
accordance with the instructions of the Committee. The Trustee shall have full
responsibility for the investment of the Investment Fund, except to the extent
such responsibility may be delegated from time to time to one or more investment
managers pursuant to Section 2.2 of the Trust Agreement, or to the extent the
Committee directs the Trustee to purchase Stock with the assets in the
Investment Fund.
6.3 Acquisition of Stock. From time to time the Committee may, in its
sole discretion, direct the Trustee to acquire Stock from the issuing Employer
or from shareholders, including shareholders who are or have been Employees,
Participants, or fiduciaries with respect to the Plan. The Trustee shall pay
for such Stock no more than its fair market value, which shall be determined
conclusively by the Committee pursuant to Section 12.4. The Committee may direct
the Trustee to finance the acquisition of Stock by incurring or assuming
indebtedness to the seller or another party which indebtedness shall be called a
"Stock Obligation". The term "Stock Obligation" shall refer to a loan made to
the Plan by a disqualified person within the meaning of Section 4975(e)(2) of
the Code, or a loan to the Plan which is guaranteed by a disqualified person. A
Stock Obligation includes a direct loan of cash, a purchase-money transaction,
and an assumption of an obligation of a tax-qualified employee stock ownership
plan under Section 4975(e)(7) of the Code ("ESOP"). For these purposes, the
term "guarantee" shall include an unsecured guarantee and the use of assets of a
disqualified person as collateral for a loan, even though the use of assets may
not be a guarantee under applicable state law. An amendment of a Stock
Obligation in order to qualify as an "exempt loan" is not a refinancing of the
Stock Obligation or the making of another Stock Obligation. The term "exempt
loan" refers to a loan that satisfies the provisions of this paragraph. A
"non-exempt loan" fails to satisfy this paragraph. Any Stock Obligation shall be
subject to the following conditions and limitations:
6.3-1 A Stock Obligation shall be for a specific term, shall not be
payable on demand except in the event of default, and shall bear a
reasonable rate of interest.
6.3-2 A Stock Obligation may, but need not, be secured by a
collateral pledge of either the Stock acquired in exchange for the Stock
Obligation, or the Stock previously pledged in connection with a prior
Stock Obligation which is being repaid with the proceeds of the current
Stock Obligation. No other assets of the Plan and Trust may be used as
collateral for a Stock Obligation, and no creditor under a Stock Obligation
shall have any right or recourse to any Plan and Trust assets other than
Stock remaining subject to a collateral pledge.
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6.3-3 Any pledge of Stock to secure a Stock Obligation must provide
for the release of pledged Stock in connection with payments on the Stock
obligations in the ratio prescribed in Section 4.2.
6.3-4 Repayments of principal and interest on any Stock Obligation
shall be made by the Trustee only from Employer cash contributions
designated for such payments, from earnings on such contributions, and from
cash dividends received on Stock, in the last case, however, subject to the
further requirements of Section 7.2.
6.3-5 In the event of default of a Stock Obligation, the value of
plan assets transferred in satisfaction of the Stock Obligation must not
exceed the amount of the default. If the lender is a disqualified person
within the meaning of Section 4975 of the Code, a Stock Obligation must
provide for a transfer of plan assets upon default only upon and to the
extent of the failure of the plan to meet the payment schedule of said
Stock Obligation. For purposes of this paragraph, the making of a
guarantee does not make a person a lender."
6.4 Participants' Option to Diversify. The Committee shall provide for a
procedure under which each Participant may, during the qualified election
period, elect to "diversify" a portion of the Employer Stock allocated to his
Account, as provided in Section 401(a)(28)(B) of the Code. An election to
diversity must be made on the prescribed form and filed with the Committee
within the period specified herein. For each of the first five (5) Plan years
in the qualified election period, the Participant may elect to diversify an
amount which does not exceed 25% of the number of shares allocated to his
Account since the inception of the Plan, less all shares with respect to which
an election under this Section has already been made. For the last year of the
qualified election period, the Participant may elect to have up to 50 percent of
the value of his Account committed to other investments, less all shares with
respect to which an election under this Section has already been made. The term
"qualified election period" shall mean the six (6) Plan Year period beginning
with the first Plan Year in which a Participant has both attained age 55 and
completed 10 years of participation in the Plan. A Participant's election to
diversify his Account may be made within each year of the qualified election
period and shall continue for the 90-day period immediately following the last
day of each year in the qualified election period. Once a Participant makes
such election, the Plan must complete diversification in accordance with such
election within 90 days after the end of the period during which the election
could be made for the Plan Year. In the discretion of the Committee, the Plan
may satisfy the diversification requirement by any of the following methods:
6.4-1 The Plan may distribute all or part of the amount subject to
the diversification election.
6.4-2 The Plan may offer the Participant at least three other
distinct investment options, if available under the Plan. The other
investment options shall satisfy the requirements of Regulations under
Section 404(c) of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA").
6.4-3 The Plan may transfer the portion of the Participant's Account
subject to the diversification election to another qualified defined
contribution plan of the Employer that offers at least three investment
options satisfying the requirements of the Regulations under Section 404(c)
of ERISA.
Section 7. Voting Rights and Dividends on Stock.
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7.1 Voting and Tendering of Stock. The Trustee generally shall vote all
shares of Stock held under the Plan in accordance with the written instructions
of the Committee. However, if any Employer has registration-type class of
securities within the meaning of Section 409(e)(4) of the Code, or if a matter
submitted to the holders of the Stock involves a merger, consolidation,
recapitalization, reclassification, liquidation, dissolution, or sale of
substantially all assets of an entity, then (i) the shares of Stock which have
been allocated to Participants' Accounts shall be voted by the Trustee in
accordance with the Participants' written instructions, and (ii) the Trustee
shall vote any unallocated Stock and allocated Stock for which it has received
no voting instructions in the same proportions as it votes the allocated Stock
for which it has received instructions from Participants; provided, however,
that if an exempt loan, as defined in Section 4975(d) of the Code, is
outstanding and the Plan is in default on such exempt loan, as default is
defined in the loan documents, then to the extent that such loan documents
require the lender to exercise voting rights with respect to the unallocated
shares, the loan documents will prevail. In the event no shares of Stock have
been allocated to Participants' Accounts at the time Stock is to be voted and
any exempt loan which may be outstanding is not in default, each Participant
shall be deemed to have one share of Stock allocated to his or her account for
the sole purpose of providing the Trustee with voting instructions.
Notwithstanding any provision hereunder to the contrary, all unallocated
shares of Stock must be voted by the Trustee in a manner determined by the
Trustee to be for the exclusive benefit of the Participants and Beneficiaries.
Whenever such voting rights are to be exercised, the Employers shall provide the
Trustee, in a timely manner, with the same notices and other materials as are
provided to other holders of the Stock, which the Trustee shall distribute to
the Participants. The Participants shall be provided with adequate opportunity
to deliver their instructions to the Trustee regarding the voting of Stock
allocated to their Accounts. The instructions of the Participants' with respect
to the voting of allocated shares hereunder shall be confidential.
7.1-1 In the event of a tender offer, Stock shall be tendered by the
Trustee in the same manner as set forth above with respect to the voting of
Stock. Notwithstanding any provision hereunder to the contrary, Stock must
be tendered by the Trustee in a manner determined by the Trustee to be for
the exclusive benefit of the Participants and Beneficiaries.
7.2 Dividends on Stock. Dividends on Stock which are received by the
Trustee in the form of additional Stock shall be retained in the Stock Fund, and
shall be allocated among the Participant's Accounts and the Unallocated Stock
Fund in accordance with their holdings of the Stock on which the dividends have
been paid. Dividends on Stock credited to Participants' Accounts which are
received by the Trustee in the form of cash shall, at the direction of the
Employer paying the dividends, either (i) be credited to the Accounts in
accordance with Section 8.3 and invested as part of the Investment Fund, (ii) be
distributed immediately to the Participants in proportion with the Participants'
Stock Fund Account balance (iii) be distributed to the Participants within 90
days of the close of the Plan Year in which paid in proportion with the
Participants' Stock Fund Account balance or (iv) be used to make payments on the
Stock Obligation. If dividends on Stock allocated to a Participant's Account
are used to repay the Stock Obligation, Stock with a fair market value equal to
the dividends so used must be allocated to such Participant's Account in lieu of
the dividends. Dividends on Stock held in the Unallocated Stock Fund which are
received by the Trustee in the form of cash shall be allocated to Participants'
Investment Fund Accounts (pro rata based on the Participant's Account balance in
relation to all Participants' Account balances) and shall be applied as soon as
practicable to payments of principal and interest under the Stock Obligation
incurred with the purchase of the Stock.
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Section 8. Adjustments to Accounts.
8.1 Adjustments for Transactions. An Employer contribution pursuant to
Section 4.1 shall be credited to the Participants' Accounts as of the last day
of the Plan Year for which it is contributed, in accordance with Section 4.1.
Stock released from the Unallocated Stock Fund upon the Trust's repayment of a
Stock Obligation pursuant to Section 4.2 shall be credited to the Participants'
Accounts as of the last day of the Plan Year in which the repayment occurred,
pro rata based on the cash applied from such Participant's Account relative to
the cash applied from all Participants' Accounts. Any excess amounts remaining
from the use of proceeds of a sale of Stock from the Unallocated Stock Fund to
repay a Stock Obligation shall be allocated as earnings of the Plan as of the
last day of the Plan Year in which the repayment occurred among the
Participants' Accounts in proportion to the opening balance in each Account.
Any benefit which is paid to a Participant or Beneficiary pursuant to Section 10
shall be charged to the Participant's Account as of the first day of the
Valuation Period in which it is paid. Any forfeiture or restoral shall be
charged or credited to the Participant's Account as of the first day of the
Valuation Period in which the forfeiture or restoral occurs pursuant to Section
9.6.
8.2 Valuation of Investment Fund. As of each Valuation Date, the Trustee
shall prepare a balance sheet of the Investment Fund, recording each asset
(including any contribution receivable from an Employer) and liability at its
fair market value. Any liability with respect to short positions or options and
any item of accrued income or expense and unrealized appreciation or
depreciation shall be included; provided, however, that such an item may be
estimated or excluded if it is not readily ascertainable unless estimating or
excluding it would result in a material distortion. The Committee shall then
determine the net gain or loss of the Investment Fund since the preceding
Valuation Date, which shall mean the entire income of the Investment Fund,
including realized and unrealized capital gains and losses, net of any expenses
to be charged to the general Investment Fund and excluding any contributions by
the Employer. The determination of gain or loss shall be consistent with the
balance sheets of the Investment Fund for the current and preceding Valuation
Dates.
8.3 Adjustments for Investment Experience. Any net gain or loss of the
Investment Fund during a Valuation Period, as determined pursuant to Section
8.2, shall be allocated as of the last day of the Valuation Period among the
Participants' Accounts in proportion to the opening balance in each Account, as
adjusted for benefit payments and forfeitures during the Valuation Period,
without regard to whatever Stock may be credited to an Account. Any cash
dividends received on Stock credited to Participant's Accounts shall be
allocated as of the last day of the Valuation Period among the Participants'
Accounts based on the opening balance in each Participant's Stock Fund Account.
Section 9. Vesting of Participants' Interests.
9.1 Deferred Vesting in Accounts. A Participant's vested interest in his
Account shall be based on his Vesting Years in accordance with the following
Table, subject to the balance of this Section 9:
Vesting Percentage of
Years Interest Vested
-------- ---------------
Fewer than 5 0%
5 or more 100%
9.2 Computation of Vesting Years. For purposes of this Plan, a "Vesting
Year" means generally a calendar year in which an Employee has at least 1,000
Hours of Service, beginning with the first Plan Year in which the Employee has
completed an Hour of Service with the Employer, and including Service with other
employers as provided in the definition of "Service". Notwithstanding the
above, an
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Employee who was employed with Landmark Community Bank, a federal
mutual savings association (the "Mutual Association") which is the predecessor
to the Bank, shall receive credit for vesting purposes for each calendar year of
employment with the Mutual Association in which such Employee completed 1,000
Hours of Service, not to exceed 5 years of credit for vesting purpose (such
years shall also be referred to as "Vesting Years"). However, a Participant's
Vesting Years shall be computed subject to the following conditions and
qualifications:
9.2-1 A Participant's Vesting Years shall not include any Service
prior to the date on which an Employee attains age 18.
9.2-2 A Participant's vested interest in his Account accumulated
before five (5) consecutive Breaks in Service shall be determined without
regard to any Service after such five consecutive Breaks in Service.
Further, if a Participant has five (5) consecutive Breaks in Service before
his interest in his Account has become vested to some extent, pre-Break
years of Service shall not be required to be taken into account for
purposes of determining his post-Break vested percentage.
9.2-3 In the case of a participant who has 5 or more consecutive
1-year Breaks in Service, the participant's pre-break service will count in
vesting of the employer-derived post-break accrued benefit only if either:
(i) such Participant has any nonforfeitable interest in the accrued
benefit attributable to employer contributions at the time of
separation from service, or
(ii) upon returning to service the number of consecutive 1-year Breaks
in Service is less than the number of years of service.
9.2-4 Unless otherwise specifically excluded, a Participant's
Vesting Years shall include any period of active military duty to the
extent required by the Military Selective Service Act of 1967 (38 U.S.C.
Section 2021).
9.2-5 If any amendment changes the vesting schedule, including an
automatic change to or from a top-heavy vesting schedule, any Participant
with three (3) or more Vesting Years may, by filing a written request with
the Employer, elect to have his vested percentage computed under the
vesting schedule in effect prior to the amendment. The election period
must begin not later than the later of sixty (60) days after the amendment
is adopted, the amendment becomes effective, or the Participant is issued
written notice of the amendment by the Employer or the Committee.
9.3 Full Vesting Upon Certain Events.
9.3-1 Notwithstanding Section 9.1, a Participant's interest in his
Account shall fully vest on the Participant's Normal Retirement Date. The
Participant's interest shall also fully vest in the event that his Service is
terminated by Early Retirement, Disability or by death.
9.3-2 The Participant's interest in his Account shall also fully vest
in the event of a "Change in Control" of the Bank, or the Company. For these
purposes, "Change in Control" shall mean an event of a nature that; (i) would be
required to be reported in response to Item 1a of the current report on Form
8-K, as in effect on the date hereof, pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 (the "Exchange Act'); or (ii) results in a
Change in Control of the Bank or the Company within the meaning of the Bank
Holding Company Act of 1956, as amended, and applicable rules and regulations
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promulgated thereunder as in effect at the time of the Change in Control
(collectively, the BHCA"); or (iii) without limitation such a Change in Control
shall be deemed to have occurred at such time as (a) any "Person' (as the term
is used in Sections 13(d) and 14(d) of the Exchange Act) is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly
or indirectly, of securities of the Bank or the Company representing 25% or more
of the Bank's or the Company's outstanding securities except for any securities
of the Bank purchased by the Company in connection with the conversion of the
Bank to the stock form and any securities purchased by the Bank's employee stock
ownership plan and trust; or (b) individuals who constitute the Board on the
date hereof (the "Incumbent Board") cease for any reason to constitute at least
a majority thereof, provided, however, that this sub-section (b) shall not apply
if the Incumbent Board is replaced by the appointment by a Federal banking
agency of a conservator or receiver for the Bank and, provided further that any
person becoming a director subsequent to the date hereof whose election was
approved by a vote of at least two-thirds of the directors comprising the
Incumbent Board or whose nomination for election by the Company's stockholders
was approved by the same Nominating Committee serving under an Incumbent Board,
shall be, for purposes of this clause (b), considered as though he were a member
of the Incumbent Board; or (c) a plan of reorganization, merger, consolidation,
sale of all or substantially all the assets of the Bank or the Company; or (d) a
proxy statement soliciting proxies from stockholders of the Company, by someone
other than the current management of the Company, seeking stockholder approval
of a plan of reorganization, merger or consolidation of the Company or Bank or
similar transaction with one or more corporations as a result of which the
outstanding shares of the class of securities then subject to such plan or
transaction are exchanged for or converted into cash or property or securities
not issued by the Bank or the Company shall be distributed and the requisite
number of proxies approving such plan of reorganization, merger or consolidation
of the Company or Bank are received and voted in favor of such transactions; or
(e) a tender offer is made for 25% or more of the outstanding securities of the
Bank or Company and shareholders owning beneficially or of record 25% or more of
the outstanding securities of the Bank or Company have tendered or offered to
sell their shares pursuant to such tender offer and such tendered shares have
been accepted by the tender offeror.
9.4 Full Vesting Upon Plan Termination. Notwithstanding Section 9.1, a
Participant's interest in his Account shall fully vest if he is in active
Service upon termination of this Plan or upon the permanent and complete
discontinuance of contributions by his Employer. In the event of a partial
termination, the interest of each affected Participant who is in Service shall
fully vest with respect to that part of the Plan which is terminated.
9.5 Forfeiture, Repayment, and Restoral. If a Participant's Service
terminates before his interest in his Account is fully vested, that portion
which has not vested shall be forfeited if he either (i) receives a distribution
of his entire vested interest pursuant to Section 10.1, or (ii) incurs five (5)
consecutive one year Breaks In Service. If a Participant's Service terminates
prior to having any portion of his Account become vested, such Participant shall
be deemed to have a received a distribution of his vested interest as of the
Valuation Date next following his termination of Service.
If a Participant who has received his entire vested interest returns to
Service before he has five (5) consecutive Breaks in Service, he may repay to
the Trustee an amount equal to the distribution. The Participant may repay such
amount at any time within five years after he has returned to Service. The
amount shall be credited to his account at the time it is repaid; an additional
amount equal to that portion of his Account which was previously forfeited shall
be restored to his Account at the same time from other Employees' forfeitures
and, if such forfeitures are insufficient, from a special contribution by his
Employer for that year. A Participant who was deemed to have received a
distribution of his vested interest in the
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Plan shall have his account restored as of the first day on which he performs
an Hour of Service after his return.
9.6 Accounting for Forfeitures. If a portion of a Participant's account
is forfeited, Stock allocated to said Participant's account shall be forfeited
only after other assets are forfeited. If interests in more than one class of
Stock have been allocated to a Participant's account, the Participant must be
treated as forfeiting the same proportion of each class of Stock. A forfeiture
shall be charged to the Participant's Account as of the first day of the first
Valuation Period in which the forfeiture becomes certain pursuant to Section
9.5. Except as otherwise provided in that Section, a forfeiture shall be added
to the contributions of the terminated Participant's Employer which are to be
credited to other Participants pursuant to Section 4.1 as of the last day of the
Plan Year in which the forfeiture becomes certain.
9.7 Vesting and Nonforfeitability. A Participant's interest in his
Account which has become vested shall be nonforfeitable for any reason.
Section 10. Payment of Benefits.
10.1 Benefits for Participants. For a Participant whose Service ends for
any reason, distribution will be made to or for the benefit of the Participant
or, in the case of the Participant's death, his Beneficiary, by either, or a
combination of the following methods:
10.1.1 By payment in a lump sum, in accordance with Section 10.2; or
10.1.2 By payment in a series of substantially equal annual
installments over a period not to exceed five (5) years, provided the
maximum period over which the distribution of a Participant's Account may
be made shall be extended by 1 year, up to five (5) additional years, for
each $100,000 (or fraction thereof) by which such Participant's Account
balance exceeds $500,000 (the aforementioned figures are subject to
cost-of-living adjustments prescribed by the Secretary of the Treasury
pursuant to Section 409(o)(2) of the Code).
The Participant shall elect the manner in which his vested Account balance
will be distributed to him. If a Participant so desires, he may direct how his
benefits are to be paid to his Beneficiary. If a deceased Participant did not
file a direction with the Committee, the Participant's benefits shall be
distributed to his Beneficiary in a lump sum. Notwithstanding the foregoing, if
the balance credited to his Account exceeds $3,500, his benefits shall not be
paid before the latest of his 65th birthday or the tenth anniversary of the year
in which he commenced participation in the Plan unless he elects an early
payment date in a written election filed with the Committee. A Participant may
modify such an election at any time, provided any new benefit payment date is at
least 30 days after a modified election is delivered to the Committee, subject
to the provisions of Section 10.11 hereof.
10.2 Time for Distribution.
10.2.1 Distribution of the balance of a Participant's Account
generally shall commence as soon as practicable after the last day of the
Plan Year next following his termination of Service for any reason, but no
later than one year after the close of the Plan Year:
(i) in which the Participant separates from service by reason of
Normal Retirement, Disability, or death; or
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(ii) which is the fifth Plan Year following the year in which the
Participant resigns or is dismissed, unless he is reemployed before
such date.
10.2.2 Unless the Participant elects otherwise, the distribution of
the balance of a Participant's Account shall commence not later than the 60th
day after the latest of the close of the plan year in which -
(i) the Participant attains the age of 65;
(ii) occurs the tenth anniversary of the year in which the
Participant commenced participation in the Plan; or
(iii) the participant terminates his service with the
Employer.
10.2.3 Notwithstanding anything to the contrary, (1) with respect
to a 5-percent owner (as defined in Code Section 416), distribution of a
Participant's Account shall commence (whether or not he remains in the
employ of the Employer) not later than the April 1 of the calendar year
next following the calendar year in which the Participant attains age 70-
1/2, and (2) with respect to all other Participants, payment of a
Participant's benefit will commence not later than April 1 of the calendar
year following the calendar year in which the Participant attains age
70-1/2, or, if later, the year in which the Participant retires. A
Participant's benefit from that portion of his Account committed to the
Investment Fund shall be calculated on the basis of the most recent
Valuation Date before the date of payment.
10.2.4 Distribution of a Participant's Account balance after his
death shall comply with the following requirements:
(i) If a Participant dies before his distributions have
commenced, distribution of his Account to his Beneficiary shall
commence not later than one year after the end of the Plan Year in
which the Participant died, however, if the Participant's Beneficiary
is his surviving spouse, distributions may commence on the date on
which the Participant would have attained age 70-1/2. In either case,
distributions shall be completed within five years after the they
commence.
(ii) If the Participant dies after distribution has commenced
pursuant to Section 10.1.2 but before his entire interest in the Plan
has been distributed to him, then the remaining portion of that
interest shall, in accordance with Section 401(a)(9) of the Code, be
distributed at least as rapidly as under the method of distribution
being used under Section 10.1.2 at the date of his death.
(iii) If a married Participant dies before his benefit
payments begin, then unless he has specifically elected otherwise the
Committee shall cause the balance in his Account to be paid to his
Spouse. No election by a married Participant of a different
Beneficiary shall be valid unless the election is accompanied by the
Spouse's written consent, which (i) must acknowledge the effect of the
election, (ii) must explicitly provide either that the designated
Beneficiary may not subsequently be changed by the Participant without
the Spouse's further consent, or that it may be changed without such
consent, and (iii) must be witnessed by the Committee, its
representative, or a notary public. (This requirement shall not apply
if the Participant establishes to the Committee's satisfaction that
the Spouse may not be located.)
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10.3 Marital Status. The Committee shall from time to time take whatever
steps it deems appropriate to keep informed of each Participant's marital
status. Each Employer shall provide the Committee with the most reliable
information in the Employer's possession regarding its Participants' marital
status, and the Committee may, in its discretion, require a notarized affidavit
from any Participant as to his marital status. The Committee, the Plan, the
Trustee, and the Employers shall be fully protected and discharged from any
liability to the extent of any benefit payments made as a result of the
Committee's good faith and reasonable reliance upon information obtained from a
Participant and his Employer as to his marital status.
10.4 Delay in Benefit Determination. If the Committee is unable to
determine the benefits payable to a Participant or Beneficiary on or before the
latest date prescribed for payment pursuant to Section 10.1 or 10.2, the
benefits shall in any event be paid within 60 days after they can first be
determined, with whatever makeup payments may be appropriate in view of the
delay.
10.5 Accounting for Benefit Payments. Any benefit payment shall be charged
to the Participant's Account as of the first day of the Valuation Period in
which the payment is made.
10.6 Options to Receive and Sell Stock. Unless ownership of virtually all
Stock is restricted to active Employees and qualified retirement plans for the
benefit of Employees pursuant to the certificates of incorporation or by-laws of
the Employers issuing Stock, a terminated Participant or the Beneficiary of a
deceased Participant may instruct the Committee to distribute the Participant's
entire vested interest in his Account in the form of Stock. In that event, the
Committee shall apply the Participant's vested interest in the Investment Fund
to purchase sufficient Stock from the Stock Fund or from any owner of stock to
make the required distribution. In all other cases, the Participant's vested
interest in the Stock Fund shall be distributed in shares of Stock, and his
vested interest in the Investment Fund shall be distributed in cash.
Any Participant who receives Stock pursuant to Section 10.1, and any person
who has received Stock from the Plan or from such a Participant by reason of the
Participant's death or incompetency, by reason of divorce or separation from the
Participant, or by reason of a rollover contribution described in Section
402(a)(5) of the Code, shall have the right to require the Employer which issued
the Stock to purchase the Stock for its current fair market value (hereinafter
referred to as the "put right"). The put right shall be exercisable by written
notice to the Committee during the first 60 days after the Stock is distributed
by the Plan, and, if not exercised in that period, during the first 60 days in
the following Plan Year after the Committee has communicated to the Participant
its determination as to the Stock's current fair market value. However, the put
right shall not apply to the extent that the Stock, at the time the put right
would otherwise be exercisable, may be sold on an established market in
accordance with federal and state securities laws and regulations. Similarly,
the put option shall not apply with respect to the portion of a Participant's
account which the employee elected to have reinvested under Code Section
401(a)(28)(B). If the put right is exercised, the Trustee may, if so directed
by the Committee in its sole discretion, assume the Employer's rights and
obligations with respect to purchasing the Stock. Notwithstanding anything
herein to the contrary, in the case of a plan established by a Bank (as defined
in Code Section 581), the put option shall not apply if prohibited by a federal
or state law and Participants are entitled to elect their benefits be
distributed in cash.
If a Participant elects to receive his distribution in the form of a lump
sum pursuant to Section 10.1.1 of the Plan, the Employer or the Trustee, as the
case may be, may elect to pay for the Stock in equal periodic installments, not
less frequently than annually, over a period not longer than five years from the
day after the put right is exercised, with adequate security and interest at a
reasonable rate on the unpaid balance, all such terms to be set forth in a
promissory note delivered to the seller with normal terms as to acceleration
upon any uncured default.
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If a Participant elects to receive his distribution in the form of an
installment payment pursuant to Section 10.1.2 of the Plan, the Employer or the
Trustee, as the case may be, shall pay for the Stock distributed in the
installment distribution over a period which shall not exceed 30 days after the
exercise of the put right.
Nothing contained herein shall be deemed to obligate any Employer to
register any Stock under any federal or state securities law or to create or
maintain a public market to facilitate the transfer or disposition of any
Stock. The put right described herein may only be exercised by a person
described in the second preceding paragraph, and may not be transferred with
any Stock to any other person. As to all Stock purchased by the Plan in
exchange for any Stock Obligation, the put right shall be nonterminable. The
put right for Stock acquired through a Stock Obligation shall continue with
respect to such Stock after the Stock Obligation is repaid or the Plan ceases
to be an employee stock ownership plan.
10.7 Restrictions on Disposition of Stock. Except in the case of Stock
which is traded on an established market, a Participant who receives Stock
pursuant to Section 10.1, and any person who has received Stock from the Plan or
from such a Participant by reason of the Participant's death or incompetency, by
reason of divorce or separation from the Participant, or by reason of a rollover
contribution described in Section 402(a)(5) of the Code, shall, prior to any
sale or other transfer of the Stock to any other person, first offer the Stock
to the issuing Employer and to the Plan at the greater of (i) its current fair
market value, or (ii) the purchase price offered in good faith by an independent
third party purchaser. This restriction shall apply to any transfer, whether
voluntary, involuntary, or by operation of law, and whether for consideration or
gratuitous. Either the Employer or the Trustee may accept the offer within 14
days after it is delivered. Any Stock distributed by the Plan shall bear a
conspicuous legend describing the right of first refusal under this Section
10.7, as well as any other restrictions upon the transfer of the Stock imposed
by federal and state securities laws and regulations.
10.8 Continuing Loan Provisions; Creations of Protections and Rights.
Except as otherwise provided in Sections 10.6 and 10.7 and this Section, no
shares of Employer Stock held or distributed by the Trustee may be subject to a
put, call or other option, or buy-sell arrangement. The provisions of this
Section shall continue to by applicable to such Stock even if the Plan ceases to
be an employee stock ownership plan under Section 4975(e)(7) of the Code.
10.9 Direct Rollover of Eligible Distribution. A Participant or
distributee may elect, at the time and in the manner prescribed by the Trustee
or the Committee, to have any portion of an eligible rollover distribution paid
directly to an eligible retirement plan specified by the Participant or
distributee in a direct rollover.
10.9-1 An "eligible rollover" is any distribution that 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 Participant and the Participant's Beneficiary, or for
a specified period of ten years or more; any distribution to the extent
such distribution is required under Code Section 401(a)(9); and the portion
of any distribution that is not included in gross income (determined
without regard to the exclusion for net unrealized appreciation with
respect to employer securities).
10.9-2 An "eligible retirement plan" is an individual retirement
account described in Code Section 401(a), an individual retirement annuity
described in Code Section 408(b), an annuity plan described in Code Section
403(a), or a qualified trust described in Code Section 401(a), that accepts
the distributee's eligible rollover distribution. However, in the case of
an eligible rollover
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distribution to the surviving spouse, an eligible retirement plan is an
individual retirement account or individual retirement annuity.
10.9-3 A "direct rollover" is a payment by the Plan to the eligible
retirement plan specified by the distributee.
10.9-4 The term "distributee" shall refer to a deceased
Participant's spouse or a Participant's former spouse who is the alternate
payee under a qualified domestic relations order, as defined in Code
Section 414(p).
10.10 In Service Distribution of Roll-over Account. Upon the written
election of a Participant delivered to the Committee, all or any portion of the
amounts held in the Participant's Roll-over Account, shall be distributed to the
Participant at any time within 30 days or as soon thereafter as is reasonably
practicable.
10.11 Waiver of 30 Day Period After Notice of Distribution. 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 4.11(a)-11(c) of the Income Tax Regulations is given,
provided that:
(i) the Trustee or Administrative Committee, as applicable,
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 option), and
(ii) the Participant, after receiving the notice, affirmatively
elects a distribution.
Section 11. Rules Governing Benefit Claims and Review of Appeals.
11.1 Claim for Benefits. Any Participant or Beneficiary who qualifies for
the payment of benefits shall file a claim for his benefits with the Committee
on a form provided by the Committee. The claim, including any election of an
alternative benefit form, shall be filed at least 30 days before the date on
which the benefits are to begin. If a Participant or Beneficiary fails to file
a claim by the day before the date on which benefits become payable, he shall be
presumed to have filed a claim for payment for the Participant's benefits in the
standard form prescribed by Sections 10.1 or 10.2
11.2 Notification by Committee. Within 90 days after receiving a claim for
benefits (or within 180 days, if special circumstances require an extension of
time and written notice of the extension is given to the Participant or
Beneficiary within 90 days after receiving the claim for benefits), the
Committee shall notify the Participant or Beneficiary whether the claim has been
approved or denied. If the Committee denies a claim in any respect, the
Committee shall set forth in a written notice to the Participant or Beneficiary:
(i) each specific reason for the denial;
(ii) specific references to the pertinent Plan provisions on which the
denial is based;
(iii) a description of any additional material or information
which could be submitted by the Participant or Beneficiary to support his
claim, with an explanation of the relevance of such information; and
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(iv) an explanation of the claims review procedures set forth in
Section 11.3.
11.3 Claims Review Procedure. Within 60 days after a Participant or
Beneficiary receives notice from the Committee that his claim for benefits has
been denied in any respect, he may file with the Committee a written notice of
appeal setting forth his reasons for disputing the Committee's determination.
In connection with his appeal the Participant or Beneficiary or his
representative may inspect or purchase copies of pertinent documents and records
to the extent not inconsistent with other Participants' and Beneficiaries'
rights of privacy. Within 60 days after receiving a notice of appeal from a
prior determination (or within 120 days, if special circumstances require an
extension of time and written notice of the extension is given to the
Participant or Beneficiary and his representative within 60 days after receiving
the notice of appeal), the Committee shall furnish to the Participant or
Beneficiary and his representative, if any, a written statement of the
Committee's final decision with respect to his claim, including the reasons for
such decision and the particular Plan provisions upon which it is based.
Section 12. The Committee and Its Functions.
12.1 Authority of Committee. The Committee shall be the "plan
administrator" within the meaning of ERISA and shall have exclusive
responsibility and authority to control and manage the operation and
administration of the Plan, including the interpretation and application of
its provisions, except to the extent such responsibility and authority are
otherwise specifically (i) allocated to the Bank, the Employers, or the
Trustee under the Plan and Trust Agreement, (ii) delegated in writing to
other persons by the Bank, the Employers, the Committee, or the Trustee, or
(iii) allocated to other parties by operation of law. The Committee shall
have exclusive responsibility regarding decisions concerning the payment of
benefits under the Plan. The Committee shall have no investment
responsibility with respect to the Investment Fund except to the extent, if
any, specifically provided in the Trust Agreement. In the discharge of its
duties, the Committee may employ accountants, actuaries, legal counsel, and
other agents (who also may be employed by an Employer or the Trustee in the
same or some other capacity) and may pay their reasonable expenses and
compensation.
12.2 Identity of Committee. The Committee shall consists of three or more
individuals selected by the Bank. Any individual, including a director,
trustee, shareholder, officer, or employee of an Employer, shall be eligible to
serve as a member of the Committee. The Bank shall have the power to remove any
individual serving on the Committee at any time without cause upon 10 days
written notice, and any individual may resign from the Committee at any time
upon 10 days written notice to the Bank. The Bank shall notify the Trustee of
any change in membership of the Committee.
12.3 Duties of Committee. The Committee shall keep whatever records may be
necessary to implement the Plan and shall furnish whatever reports may be
required from time to time by the Bank. The Committee shall furnish to the
Trustee whatever information may be necessary to properly administer the Trust.
The Committee shall see to the filing with the appropriate government agencies
of all reports and returns required of the plan Committee under ERISA and other
laws.
Further, the Committee shall have exclusive responsibility and authority
with respect to the Plan's holdings of Stock and shall direct the Trustee in all
respects regarding the purchase, retention, sale, exchange, and pledge of Stock
and the creation and satisfaction of Stock Obligations. The Committee shall at
all times act consistently with the Bank's long-term intention that the Plan, as
an employee stock ownership plan, be invested primarily in Stock. Subject to
the direction of the Board as to the application of Employer contributions to
Stock Obligations, and subject to the provisions of Sections 6.4 and 10.6 as to
Participants' rights under certain circumstances to have their Accounts invested
in Stock or in assets other than Stock, the Committee shall determine in its
sole discretion the extent to which assets of the Trust
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shall be used to repay Stock Obligations, to purchase Stock, or to invest in
other assets to be selected by the Trustee or an investment manager. No
provision of the Plan relating to the allocation or vesting of any interests
in the Stock Fund or the Investment Fund shall restrict the Committee from
changing any holdings of the Trust, whether the changes involve an increase
or a decrease in the Stock or other assets credited to Participants'
Accounts. In determining the proper extent of the Trust's investment in
Stock, the Committee shall be authorized to employ investment counsel, legal
counsel, appraisers, and other agents to pay their reasonable expenses and
compensation.
12.4 Valuation of Stock. If the valuation of any Stock is not established
by reported trading on a generally recognized public market, the Committee shall
have the exclusive authority and responsibility to determine its value for all
purposes under the Plan. Such value shall be determined as of each Valuation
Date, and on any other date as of which the Plan purchases or sells such Stock.
The Committee shall use generally accepted methods of valuing stock of similar
corporations for purposes of arm's length business and investment transactions,
and in this connection the Committee shall obtain, and shall be protected in
relying upon, the valuation of such Stock as determined by an independent
appraiser experienced in preparing valuations of similar businesses.
12.5 Compliance with ERISA. The Committee shall perform all acts necessary
to comply with ERISA. Each individual member or employee of the Committee shall
discharge his duties in good faith and in accordance with the applicable
requirements of ERISA.
12.6 Action by Committee. All actions of the Committee shall be governed
by the affirmative vote of a number of members which is a majority of the total
number of members currently appointed, including vacancies. The members of the
Committee may meet informally and may take any action without meeting as a
group.
12.7 Execution of Documents. Any instrument executed by the Committee
shall be signed by any member or employee of the Committee.
12.8 Adoption of Rules. The Committee shall adopt such rules and
regulations of uniform applicability as it deems necessary or appropriate for
the proper administration and interpretation of the Plan.
12.9 Responsibilities to Participants. The Committee shall determine which
Employees qualify to enter the Plan. The Committee shall furnish to each
eligible Employee whatever summary plan descriptions, summary annual reports,
and other notices and information may be required under ERISA. The Committee
also shall determine when a Participant or his Beneficiary qualifies for the
payment of benefits under the Plan. The Committee shall furnish to each such
Participant or Beneficiary whatever information is required under ERISA (or is
otherwise appropriate) to enable the Participant or Beneficiary to make whatever
elections may be available pursuant to Sections 6 and 10, and the Committee
shall provide for the payment of benefits in the proper form and amount from the
assets of the Trust Fund. The Committee may decide in its sole discretion to
permit modifications of elections and to defer or accelerate benefits to the
extent consistent with applicable law and the best interests of the individuals
concerned.
12.10 Alternative Payees in Event of Incapacity. If the Committee
finds at any time that an individual qualifying for benefits under this Plan is
a minor or is incompetent, the Committee may direct the benefits to be paid, in
the case of a minor, to his parents, his legal guardian, or a custodian for him
under the Uniform Gifts to Minors Act, or, in the case of an incompetent, to his
spouse, or his legal guardian, the payments to be used for the individual's
benefit. The Committee and the Trustee shall not be obligated to inquire as to
the actual use of the funds by the person receiving them under this Section
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12.10, and any such payment shall completely discharge the obligations of the
Plan, the Trustee, the Committee, and the Employers to the extent of the
payment.
12.11 Indemnification by Employers. Except as separately agreed in
writing, the Committee, and any member or employee of the Committee, shall be
indemnified and held harmless by the Employer, jointly and severally, to the
fullest extent permitted by law against any and all costs, damages, expenses,
and liabilities reasonably incurred by or imposed upon it or him in connection
with any claim made against it or him or in which it or he may be involved by
reason of its or his being, or having been, the Committee, or a member or
employee of the Committee, to the extent such amounts are not paid by insurance.
12.12 Nonparticipation by Interested Member. Any member of the
Committee who also is a Participant in the Plan shall take no part in any
determination specifically relating to his own participation or benefits, unless
his abstention would leave the Committee incapable of acting on the matter.
Section 13. Adoption, Amendment, or Termination of the Plan.
13.1 Adoption of Plan by Other Employers. With the consent of the Bank,
any entity may become a participating Employer under the Plan by (i) taking such
action as shall be necessary to adopt the Plan, (ii) becoming a party to the
Trust Agreement establishing the Trust Fund, and (iii) executing and delivering
such instruments and taking such other action as may be necessary or desirable
to put the Plan into effect with respect to the entity's Employees.
13.2 Adoption of Plan by Successor. In the event that any Employer shall
be reorganized by way of merger, consolidation, transfer of assets or otherwise,
so that an entity other than an Employer shall succeed to all or substantially
all of the Employer's business, the successor entity may be substituted for the
Employer under the Plan by adopting the Plan and becoming a party to the Trust
Agreement. Contributions by the Employer shall be automatically suspended from
the effective date of any such reorganization until the date upon which the
substitution of the successor entity for the Employer under the Plan becomes
effective. If, within 90 days following the effective date of any such
reorganization, the successor entity shall not have elected to become a party to
the Plan, or if the Employer shall adopt a plan of complete liquidation other
than in connection with a reorganization, the Plan shall be automatically
terminated with respect to Employees of the Employer as of the close of business
on the 90th day following the effective date of the reorganization, or as of the
close of business on the date of adoption of a plan of complete liquidation, as
the case may be.
13.3 Plan Adoption Subject to Qualification. Notwithstanding any other
provision of the Plan, the adoption of the Plan and the execution of the Trust
Agreement are conditioned upon their being determined initially by the Internal
Revenue Service to meet the qualification requirements of Section 401(a) of the
Code, so that the Employers may deduct currently for federal income tax purposes
their contributions to the Trust and so that the Participants may exclude the
contributions from their gross income and recognize income only when they
receive benefits. In the event that this Plan is held by the Internal Revenue
Service not to qualify initially under Section 401(a), the Plan may be amended
retroactively to the earliest date permitted by U.S. Treasury Regulations in
order to secure qualification under Section 401(a). If this Plan is held by the
Internal Revenue Service not to qualify initially under Section 401(a) either as
originally adopted or as amended, each Employer's contributions to the Trust
under this Plan (including any earnings thereon) shall be returned to it and
this Plan shall be terminated. In the event that this Plan is amended after its
initial qualification and the Plan as amended is held by the Internal Revenue
Service not to qualify under Section 401(a), the amendment may be modified
retroactively to the earliest date permitted by U.S. Treasury Regulations in
order to secure approval of the amendment under Section 401(a).
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13.4 Right to Amend or Terminate. The Bank intends to continue this Plan
as a permanent program. However, each participating Employer separately
reserves the right to suspend, supersede, or terminate the Plan at any time and
for any reason, as it applies to that Employer's Employees, and the Bank
reserves the right to amend, suspend, supersede, merge, consolidate, or
terminate the Plan at any time and for any reason, as it applies to the
Employees of each Employer. No amendment, suspension, supersession, merger,
consolidation, or termination of the Plan shall (i) reduce any Participant's or
Beneficiary's proportionate interest in the Trust Fund, (ii) reduce or restrict,
either directly or indirectly, the benefit provided any Participant prior to the
amendment, or (iii) divert any portion of the Trust Fund to purposes other than
the exclusive benefit of the Participants and their Beneficiaries prior to the
satisfaction of all liabilities under the Plan. Moreover, there shall not be
any transfer of assets to a successor plan or merger or consolidation with
another plan unless, in the event of the termination of the successor plan or
the surviving plan immediately following such transfer, merger, or
consolidation, each participant or beneficiary would be entitled to a benefit
equal to or greater than the benefit he would have been entitled to if the plan
in which he was previously a participant or beneficiary had terminated
immediately prior to such transfer, merger, or consolidation. Following a
termination of this Plan by the Bank, the Trustee shall continue to administer
the Trust and pay benefits in accordance with the Plan as amended from time to
time and the Committee's instructions.
Section 14. Miscellaneous Provisions.
14.1 Plan Creates No Employment Rights. Nothing in this Plan shall be
interpreted as giving any Employee the right to be retained as an Employee by an
Employer, or as limiting or affecting the rights of an Employer to control its
Employees or to terminate the Service of any Employee at any time and for any
reason, subject to any applicable employment or collective bargaining
agreements.
14.2 Nonassignability of Benefits. No assignment, pledge, or other
anticipation of benefits from the Plan will be permitted or recognized by the
Employer, the Committee, or the Trustee. Moreover, benefits from the Plan shall
not be subject to attachment, garnishment, or other legal process for debts or
liabilities of any Participant or Beneficiary, to the extent permitted by law.
This prohibition on assignment or alienation shall apply to any judgment,
decree, or order (including approval of a property settlement agreement) which
relates to the provision of child support, alimony, or property rights to a
present or former spouse, child or other dependent of a Participant pursuant to
a State domestic relations or community property law, unless the judgment,
decree, or order is determined by the Committee to be a qualified domestic
relations order within the meaning of Section 414(p) of the Code, as more fully
set forth in Section 14.2 hereof.
14.3 Limit of Employer Liability. The liability of the Employer with
respect to Participants under this Plan shall be limited to making contributions
to the Trust from time to time, in accordance with Section 4.
14.4 Treatment of Expenses. All expenses incurred by the Committee and the
Trustee in connection with administering this Plan and Trust Fund shall be paid
by the Trustee from the Trust Fund to the extent the expenses have not been paid
or assumed by the Employer or by the Trustee.
14.5 Number and Gender. Any use of the singular shall be interpreted to
include the plural, and the plural the singular. Any use of the masculine,
feminine, or neuter shall be interpreted to include the masculine, feminine, or
neuter, as the context shall require.
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14.6 Nondiversion of Assets. Except as provided in Sections 5.3 and 13.3,
under no circumstances shall any portion of the Trust Fund be diverted to or
used for any purpose other than the exclusive benefit of the Participants and
their Beneficiaries prior to the satisfaction of all liabilities under the Plan.
14.7 Separability of Provisions. If any provision of this Plan is held to
be invalid or unenforceable, the other provisions of the Plan shall not be
affected but shall be applied as if the invalid or unenforceable provision had
not been included in the Plan.
14.8 Service of Process. The agent for the service of process upon the
Plan shall be the president of the Bank, or such other person as may be
designated from time to time by the Bank.
14.9 Governing State Law. This Plan shall be interpreted in accordance
with the laws of the State of New York to the extent those laws are applicable
under the provisions of ERISA.
14.10 Employer Contributions Conditioned on Deductibility. Employer
Contributions to the Plan are conditioned on deductibility under Code Section
404. In the event that the Internal Revenue Service shall determine that all or
any portion of an Employer Contribution is not deductible under that Section,
the nondeductible portion shall be returned to the Employer within one year of
the disallowance of the deduction.
14.11 Unclaimed Accounts. Neither the Employer nor the Trustees shall
be under any obligation to search for, or ascertain the whereabouts of, any
Participant or beneficiary. The Employer or the Trustees, by certified or
registered mail addressed to his last known address of record with the Employer,
shall notify any Participant or beneficiary that he is entitled to a
distribution under this Plan, and the notice shall quote the provisions of this
Section. If the Participant or beneficiary fails to claim his benefits or make
his whereabouts known in writing to the Employer or the Trustees within seven
(7) calendar years after the date of notification, the benefits of the
Participant or beneficiary under the Plan will be disposed of as follows:
(a) If the whereabouts of the Participant is unknown but the
whereabouts of the Participant's beneficiary is known to the Trustees,
distribution will be made to the beneficiary.
(b) If the whereabouts of the Participant and his beneficiary are
unknown to the Trustees, the plan will forfeit the benefit, provided that
the benefit is subject to a claim for reinstatement if the Participant or
Beneficiary make a claim for the forfeited benefit.
Any payment made pursuant to the power herein conferred upon the Trustees
shall operate as a complete discharge of all obligations of the Trustees, to the
extent of the distributions so made.
14.12 Qualified Domestic Relations Order. Section 14.2 shall not apply
to a "qualified domestic relations order" defined in Code Section 414(p), and
such other domestic relations orders permitted to be so treated by Administrator
under the provisions of the Retirement Equity Act of 1984. Further, to the
extent provided under a "qualified domestic relations order", a former spouse of
a Participant shall be treated as the spouse or surviving spouse for all
purposes under the Plan.
In the case of any domestic relations order received by the Plan:
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(a) The Employer or the Plan Committee shall promptly notify the
Participant and any other alternate payee of the receipt of such order and
the Plan's procedures for determining the qualified status of domestic
relations orders, and
(b) Within a reasonable period after receipt of such order, the
Employer or the Plan Committee shall determine whether such order is a
qualified domestic relations order and notify the Participant and each
alternate payee of such determination. The Employer or the Plan Committee
shall establish reasonable procedures to determine the qualified status of
domestic relations orders and to administer distributions under such
qualified orders.
During any period in which the issue of whether a domestic relations order
is a qualified domestic relations order is being determined (by the Employer or
Plan Committee, by a court of competent jurisdiction, or otherwise), the
Employer or the Plan Committee shall segregate in a separate account in the Plan
or in an escrow account the amounts which would have been payable to the
alternate payee during such period if the order had been determined to be a
qualified domestic relations order. If within eighteen (18) months the order
(or modification thereof) is determined to be a qualified domestic relations
order, the Employer or the Plan Committee shall pay the segregated amounts (plus
any interest thereon) to the person or persons entitled thereto. If within
eighteen (18) months it is determined that the order is not a qualified domestic
relations order, or the issue as to whether such order is a qualified domestic
relations order is not resolved, then the Employer or the Plan Committee shall
pay the segregated amounts (plus any interest thereon) to the person or persons
who would have been entitled to such amounts if there had been no order. Any
determination that an order is a qualified domestic relations order which is
made after the close of the eighteen (18) month period shall be applied
prospectively only. The term "alternate payee" means any spouse, former spouse,
child or other dependent of a Participant who is recognized by a domestic
relations order as having a right to receive all, or a portion of, the benefit
payable under a Plan with respect to such Participant.
Section 15. Top-Heavy Provisions.
15.1 Top-Heavy Plan. For any Plan Year beginning after December 31, 1983,
this Plan is top-heavy if any of the following conditions exist:
(a) If the top-heavy ratio for this Plan exceeds sixty percent (60%)
and this Plan is not part of any required aggregation group or permissive
aggregation group;
(b) If this Plan is a part of a required aggregation group (but is
not part of a permissive aggregation group) and the aggregate top-heavy ratio
for the group of Plans exceeds sixty percent (60%); or
(c) If this Plan is a part of a required aggregation group and part
of a permissive aggregation group and the aggregate top-heavy ratio for the
permissive aggregation group exceeds sixty percent (60%).
15.2 Super Top-Heavy Plan For any Plan Year beginning after December 31,
1983, this Plan will be a super top-heavy Plan if any of the following
conditions exist:
(a) If the top-heavy ratio for this Plan exceeds ninety percent (90%)
and this Plan is not part of any required aggregation group or permissive
aggregation group.
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<PAGE>
(b) If this Plan is a part of a required aggregation group (but is
not part of a permissive aggregation group) and the aggregate top-heavy ratio
for the group of Plans exceeds ninety percent (90%), or
(c) If this Plan is a part of a required aggregation group and part
of a permissive aggregation group and the aggregate top-heavy ratio for the
permissive aggregation group exceeds ninety percent (90%).
15.3 Definitions.
In making this determination, the Committee shall use the following definitions
and principles:
15.3-1 The "Determination Date', with respect to the first Plan Year
of any plan, means the last day of that Plan Year, and with respect to each
subsequent Plan Year, means the last day of the preceding Plan Year. If
any other plan has a Determination Date which differs from this Plan's
Determination Date, the top-heaviness of this Plan shall be determined on
the basis of the other plan's Determination Date falling within the same
calendar years as this Plan's Determination Date.
15.3-2 A "Key Employee", with respect to a Plan Year, means an
Employee who at any time during the five years ending on the top-heavy
Determination Date for the Plan Year has received compensation from an
Employer and has been (i) an officer of the Employer having Total
Compensation greater than 50 percent of the limit then in effect under
Section 415(b)(1)(A) of the Code, (ii) one of the 10 Employees owning the
largest interests in the Employer having Total Compensation greater than
the limit then in effect under Section 415(c)(1)(A), (iii) an owner of more
than five percent of the outstanding equity interest or the outstanding
voting interest in any Employer, or (iv) an owner of more than one percent
of the outstanding equity interest or the outstanding voting interest in an
Employer whose annual compensation exceeds $150,000. For purposes of
determining whether an Employee is a Key Employee, annual compensation
means compensation as defined in Section 415(c)(3) of the Code, but
including amounts contributed by the Employee pursuant to a salary
reduction agreement which are excludable from the Employee's gross income
under Section 125, Section 402(e)(3), Section 402(H)(1)(B) or Section
403(b) of the Code. The Beneficiary of a Key Employee shall also be
considered a Key Employee.
15.3-3 A "Non-key Employee" means an Employee who at any time during
the five years ending on the top-heavy Determination Date for the Plan Year
has received compensation from an Employer and who has never been a Key
Employee, and the Beneficiary of any such Employee.
15.3-4 A "required aggregation group" includes (a) each qualified
Plan of the Employer in which at least one Key Employee participates in the
Plan Year containing the Determination Date and any of the four (4)
preceding Plan Years, and (b) any other qualified Plan of the Employer
which enables a Plan described in (a) to meet the requirements of Code
Sections 401(a)(4) and 410. For purposes of the preceding sentence, a
qualified Plan of the Employer includes a terminated Plan maintained by the
Employer within the five (5) year period ending on the Determination Date.
In the case of a required aggregation group, each Plan in the group will be
considered a top-heavy Plan if the required aggregation group is a
top-heavy group. No Plan in the required aggregation group will be
considered a top-heavy Plan if the required aggregation group is not a
top-heavy group. All Employers aggregated under Code Sections 414(b), (c)
or (m) or (o) (but only after the Code Section 414(o) regulations become
effective) are considered a single Employer.
-30-
<PAGE>
15.3-5 A "permissive aggregation group" includes the required
aggregation group of Plans plus any other qualified Plan(s) of the Employer
that are not required to be aggregated but which, when considered as a
group with the required aggregation group, satisfy the requirements of Code
Sections 401(a)(4) and 410 and are comparable to the Plans in the required
aggregation group. No Plan in the permissive aggregation group will be
considered a top-heavy Plan if the permissive aggregation group is not a
top-heavy group. Only a Plan that is part of the required aggregation
group will be considered a top-heavy Plan if the permissive aggregation
group is top-heavy.
15.4 Top-Heavy Rules of Application.
For purposes of determining the value of account balances and the
present value of accrued benefits the following provisions shall apply:
15.4-1 The value of account balances and the present value of accrued
benefits will be determined as of the most recent valuation date that falls
within or ends with the twelve (12) month period ending on the
Determination Date.
15.4-2 For purposes of testing whether this Plan is top-heavy, the
present value of an individual's accrued benefits and an individual's
account balances is counted only once each year.
15.4-3 The account balances and accrued benefits of a Participant
who is not presently a Key Employee but who was a Key Employee in a Plan
Year beginning on or after January 1, 1984 will be disregarded.
15.4-4 For years beginning after December 31, 1984, non-deductible
Voluntary Employee Contributions will be taken into account for purposes of
computing the top-heavy ratio. Employer contributions attributable to a
salary reduction or similar arrangement will be taken into account.
15.4-5 When aggregating Plans, the value of account balances and
accrued benefits will be calculated with reference to the Determination
Dates that fall within the same calendar year.
15.4-6 The present value of the accrued benefits or the amount of
the account balances of an Employee shall be increased by the aggregate
distributions made to such Employee from a Plan of the Employer. No
distribution, however, made from the Plan to an individual (other than the
beneficiary of a deceased Employee who was an Employee within the five (5)
year period ending on the Determination Date) who has not been an Employee
at any time during the five (5) year period ending on the Determination
Date shall be taken into account in determining whether the Plan is
top-heavy. Also, any amounts recontributed by an Employee upon becoming a
Participant in the Plan shall no longer be counted as a distribution under
this paragraph.
15.4-7 The present value of the accrued benefits or the amount of
the account balances of an Employee shall be increased by the aggregate
distributions made to such Employee from a terminated Plan of the Employer,
provided that such Plan (if not terminated) would have been required to be
included in the aggregation group.
15.4-8 Accrued benefits and account balances of an individual shall
not be taken into account for purposes of determining the top-heavy ratios
if the individual has performed no services for the Employer during the
five (5) year period ending on the applicable Determination Date.
Compensation for purposes of this subparagraph shall not include any
payments made to an individual by the Employer pursuant to a qualified or
non-qualified deferred compensation plan.
-31-
<PAGE>
15.4-9 The present value of the accrued benefits or the amount of
the account balances of any Employee participating in this Plan shall not
include any rollover contributions or other transfers voluntarily initiated
by the Employee except as described below. If a rollover was received by
this Plan after December 31, 1983, the rollover or transfer voluntarily
initiated by the Employee was received prior to January 1, 1984, then the
rollover or transfer shall be considered as part of the accrued benefit by
the Plan receiving such rollover or transfer. If this Plan transfers or
rolls over funds to another Plan in a transaction voluntarily initiated by
the Employee after December 31, 1983, then this Plan shall count the
distribution for purposes of determining account balances or the present
value of accrued benefits. A transfer incident to a merger or
consolidation of two or more Plans of the Employer (including Plans of
related Employers treated as a single Employer under Code Section 414), or
a transfer or rollover between Plans of the Employer, shall not be
considered as voluntarily initiated by the Employee.
15.5 Top-Heavy Ratio.
If the Employer maintains one (1) or more defined contribution plans
(including any simplified Employee pension plan) and the Employer has never
maintained any defined benefit plans which have covered or could cover a
Participant in this Plan, the top-heavy ratio is a fraction, the numerator of
which is the sum of the account balances of all Key Employees as of the
Determination Date, and the denominator of which is the sum of the account
balances of all Employees as of the Determination Date. Both the numerator and
denominator of the top-heavy ratio shall be increased to reflect any
contribution which is due but unpaid as of the Determination Date.
If the Employer maintains one (1) or more defined contribution plans
(including any simplified Employee pension plan) and the Employer maintains or
has maintained one (1) or more defined benefit plans which have covered or could
cover a Participant in this Plan, the top-heavy ratio is a fraction, the
numerator of which is the sum of account balances under the defined contribution
plans for all Key Employees and the present value of accrued benefits under the
defined benefit plans for all Key Employees, and the denominator of which is the
sum of the account balances under the defined contribution plans for all
Employees and the present value of accrued benefits under the defined benefit
plans for all Employees.
15.6 Minimum Contributions. For any Top-Heavy Year, each Employer shall
make a special contribution on behalf of each Participant to the extent that the
total allocations to his Account pursuant to Section 4 is less than the lesser
of:
(i) three percent of his Total Compensation for that year, or
(ii) the highest ratio of such allocation to Total Compensation
received by any Key Employee for that year. For purposes of the special
contribution of this Section 15.2, a Key Employee's Total Compensation
shall include amounts the Key Employee elected to defer under a qualified
401(k) arrangement. Such a special contribution shall be made on behalf of
each Participant who is employed by an Employer on the last day of the Plan
Year, regardless of the number of his Hours of Service, and shall be
allocated to his Account.
For any Plan Year when (1) the Plan is top-heavy and (2) a Non-key Employee
is a Participant in both this Plan and a defined benefit plan included in the
plan aggregation group which is top heavy, the sum of the Employer contributions
and forfeitures allocated to the Account of each such Non-key Employee shall be
equal to at least five percent (5%) of such Non-key Employee's Total
Compensation for that year.
-32-
<PAGE>
15.7 Minimum Vesting. If a Participant's vested interest in his Account is
to be determined in a Top-Heavy Year, it shall be based on the following
"top-heavy table":
Vesting Percentage of
Years Interest Vested
------- ----------------
Fewer than 3 years 0%
3 or more 100%
15.8 Top-Heavy Provisions Control in Top-Heavy Plan. In the event this
Plan becomes top-heavy and a conflict arises between the top-heavy provisions
herein set forth and the remaining provisions set forth in this Plan, the
top-heavy provisions shall control.
-33-
<PAGE>
EXHIBIT 23.1
<PAGE>
HARVAZINSKI & MONTANYE, LLP
CERTIFIED PUBLIC ACCOUNTANTS
21 EVERETT ROAD EXT.
ALBANY, NEW YORK 12205
----------------
(518) 453-0636
FAX (518) 459-0208
ACCOUNTANTS' CONSENT
The Board of Directors
Landmark Community Bank
We consent to the use in the Registration Statement of Landmark Financial
Corp. on Form SB-2 and the Application for Conversion on Form AC of our report
dated May 8, 1997, on the Financial statements of Landmark Community Bank as of
March 31, 1997 and 1996, and for the fiscal years ended March 31, 1997 and 1996,
and to the references to our firm under the headings "Legal and Tax Matters" and
"Experts" in the related prospectus.
/s/ Harvazinski & Montanye, LLP
Albany, New York
June 20, 1997
<PAGE>
EXHIBIT 23.2
<PAGE>
[FINPRO LETTERHEAD]
June 20, 1997
Board of Directors
Landmark Community Bank
26 Church Street
Canajoharie, New York 13317-1117
Dear Board Members:
We hereby consent to the use of our firm's name, FinPro, Inc. ("FinPro") in the
Form SB-2 Registration Statement and Amendments thereto of Landmark Financial
Corp. so filed with the Securities and Exchange Commission, the Form AC
Application for Conversion and the prospectus included therein filed by Landmark
Community Bank and any amendments thereto, for the Valuation Appraisal Report
("Report") regarding the valuation of Landmark Community Bank provided by
FinPro, and our opinion regarding subscription rights filed as exhibits to the
Form SB-2 and Form AC referred to above. We also consent to the use of our
firm's name and the inclusion of, summary of and references to our Report and
Opinion in the prospectus included in the Form SB-2, and any amendments thereto.
Very Truly Yours,
/s/ Donald J. Musso
Donald J. Musso
Liberty Corner, New Jersey
June 20, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 709,458
<INT-BEARING-DEPOSITS> 120,000
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 69,324
<INVESTMENTS-HELD-FOR-SALE> 398,000
<INVESTMENTS-CARRYING> 457,000
<INVESTMENTS-MARKET> 445,000
<LOANS> 9,392,212
<ALLOWANCE> 110,000
<TOTAL-ASSETS> 11,325,801
<DEPOSITS> 10,237,301
<SHORT-TERM> 0
<LIABILITIES-OTHER> 18,397
<LONG-TERM> 0
0
0
<COMMON> 0
<OTHER-SE> 956,285
<TOTAL-LIABILITIES-AND-EQUITY> 954,906
<INTEREST-LOAN> 574,962
<INTEREST-INVEST> 103,398
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 688,360
<INTEREST-DEPOSIT> 326,607
<INTEREST-EXPENSE> 326,607
<INTEREST-INCOME-NET> 361,753
<LOAN-LOSSES> 78,000
<SECURITIES-GAINS> 67,056
<EXPENSE-OTHER> 434,060
<INCOME-PRETAX> (54,472)
<INCOME-PRE-EXTRAORDINARY> (54,472)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (36,072)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<YIELD-ACTUAL> 4.00
<LOANS-NON> 47,000
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 32,000
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 110,000
<ALLOWANCE-DOMESTIC> 100
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
<PAGE>
EXHIBIT 99.1
<PAGE>
[letterhead]
May 2, 1997
Mr. Gordon Coleman
EVP and CEO
Landmark Community Bank
26 Church Street
Canajoharie, NY 13317-1117
Dear Mr. Coleman:
FinPro, Inc. ("FinPro") is pleased to submit this proposal to assist Landmark
Community Bank ("the Bank") and a holding company formed to hold the stock of
the Bank (the "Company") in compiling a business plan and in performing an
appraisal on the Bank and the Company in connection with its mutual-to-stock
conversion (the "conversion"). Locally, FinPro has performed similar plans
and appraisals for Little Falls Savings, South Bergen Savings, Wayne Savings,
Prestige Bank, Westwood Savings, Roslyn Savings, Pulaski Savings, First
FS&LA of Carnegie and First Savings of New Jersey in the last twelve months.
The Little Falls appraisal was unique in that it was the first appraisal done
with a concurrent acquisition included in the pro-forma analysis. The
Westwood Savings appraisal was unique in that it was the first New Jersey
State Chartered thrift to undertake a second step conversion and to involve
the Federal Reserve in the appraisal process. The Roslyn Savings Bank
appraisal included a foundation. Both the Pulaski and the Carnegie
appraisals were for the formulation of MHC's.
FinPro would welcome the opportunity to meet with you to show you our work
product. We urge you to compare it with any others offered.
<PAGE>
Landmark Community Bank
May 2, 1997 Page: 2
- -------------------------------------------------------------------------------
Section 1: Services to be Rendered
As part of the Strategic Plan compilation, the following major tasks will be
included:
- - compile a historical trend analysis utilizing the past five year ends
of Regulatory Reports;
- - perform detailed peer analysis;
- - assess competitive situation;
- - analyze the Bank markets and customers from a demographic standpoint;
- - conduct branch market tour and identify competitive positioning,
branching opportunities and market threats;
- - assess the regulatory, social, political and economic environment;
- - document the internal situation assessment;
- - analyze the current ALM position;
- - analyze the CRA position;
- - identify and document strengths and weaknesses;
- - document the Bank's mission statement;
- - document the objectives and goals;
- - document strategies;
- - compile five year projections of performance;
- - prepare assessment of strategic alternatives;
- - conduct one or two planning retreats with the Board and Management to
review strategies;
- - map the Bank's general ledger to FinPro's planning model and to the
Regulatory Reports;
- - assess the Bank from a capital markets perspective including
comparison to national, regional, state and similar size organizations;
- - prepare a written business plan in form and substance satisfactory to
all applicable regulatory authorities for purposes of submission and
dissemination in connection with the application for conversion and
related proxy, offering circular and other documents concerning the
mutual-to-stock conversion of the Bank;
FinPro has attached a typical table of contents for its plans as an exhibit
to this proposal. -
- Confidential -
<PAGE>
Landmark Community Bank
May 2, 1997 Page: 3
- -------------------------------------------------------------------------------
Appraisal
As part of the conversion appraisal services, the following major tasks will
be included:
- - conduct financial due diligence, including on-site interviews of
senior management and reviews of financial and other records;
- - gather an understanding of the banks financial condition,
profitability, risk characteristics, operations and external factors
that might influence or impact the bank;
- - prepare a written detailed valuation report of the Bank and the
Company that is consistent with applicable regulatory guidelines and
standard valuation practices.
- - prepare and deliver an opinion, in form and substance acceptable to
legal and tax counsel of the Bank, to the effect that the subscription
rights granted to eligible account holders, the applicable stock
benefit plans and others in connection with the conversion of the Bank
from a mutual-to-stock form, have no value;
The valuation report will:
- - include an in-depth analysis of the operating results and financial
condition of the Bank;
- - assess the interest rate risk, credit risk and liquidity risk;
- - describe the business strategies of the Bank and the Company, the
market area, competition and potential for the future;
- - include a detailed peer analysis of publicly traded savings
institutions for use in determining appropriate valuation adjustments
based upon multiple factors;
- - include a midpoint proforma valuation along with a range of value
around the midpoint value;
- - comply, in form and substance to all applicable requirements of
regulatory authorities for purposes of its use to establish the
estimated pro-forma market value of the common stock of the Company
following the conversion.
The valuation report may be periodically updated throughout the conversion
process and will be updated at the time of the closing of the stock offering.
FinPro will perform such other services as are necessary or required in
connection with the regulatory review of the appraisal and will respond to
the regulatory comments, if any, regarding the valuation appraisal and any
subsequent updates.
Section 2: Information Requirements of the Bank
To accomplish the tasks set forth in Section 1 of this proposal, the
following information and work effort is expected of the Bank:
- - provide FinPro with all financial and other information, whether or
not publicly available, necessary to familiarize FinPro with the
business and operations of the Bank;
- Confidential -
<PAGE>
Landmark Community Bank
May 2, 1997 Page: 4
- -------------------------------------------------------------------------------
- - allow FinPro the opportunity, from time to time, to discuss the
operation of the Bank business with bank personnel;
- - promptly advise FinPro of any material or contemplated material
transactions which may have an effect on the day-to-day operations of
the Bank;
- - provide FinPro with all support schedules required to compile
Regulatory, Board and Management reports;
- - provide FinPro with offering circular, prospectus and all other
materials relevant to the appraisal function for the conversion;
- - have system download capability;
- - promptly review all work products of FinPro and provide necessary
sign-offs on each work product so that FinPro can move on to the next
phase;
- - provide FinPro with office space to perform its daily tasks. The
office space requirements consists of a table with at least two chairs
along with access to electrical outlets for FinPro's computers and
telephone access for modem communications.
Section 3: Project Deliverables
The following is a list of deliverables that will result from FinPro's effort:
1. Mapping of data from general ledger to plan model
2. Institution Valuation
3. Strategic Business Plan document
Section 4: Term of the Agreement and Staffing
It is anticipated that it will take approximately three weeks of elapsed time
to complete the tasks outlined in this proposal for the business plan
component. During this time, FinPro will be on-site at the Bank's facilities
on a regular basis, during normal business hours.
FinPro will assign Donald J. Musso and Steven P. Musso to this engagement.
Although some back office analytics may be performed by other FinPro staff,
Donald Musso will be the firms point man on this engagement and will be
active in all aspects of this engagement. A biographical sketch of both
Donald and Steven is attached to this proposal.
- Confidential -
<PAGE>
Landmark Community Bank
May 2, 1997 Page: 5
- -------------------------------------------------------------------------------
Section 5: Fees and Expenses
Based on FinPro's understanding of the Bank's situation, FinPro's fees for
providing the services outlined in this proposal will be:
- $6,000 for the business plan component.
- $14,000 for the appraisal
Any work done in compiling tables and schedules will be billed on an hourly
per diem basis.
This fee is payable according to the following schedule:
- prior to starting, a retainer of $3,000; plus
- upon the submission of the business plan to the regulators, a
non-refundable fee of $3,000; plus
- upon submission of the appraisal to the regulators, a
non-refundable fee of $7,000; plus
- upon completion of the offering, a non-refundable fee equal to
the remainder, unless only the plan is selected in which case the
remainder would be due upon regulatory approval of the business
plan.
In addition to any fees that may be payable to FinPro hereunder, the Bank
hereby agrees to reimburse FinPro for all of FinPro's travel and other
out-of-pocket expenses incurred in connection with FinPro's engagement up to
a limit of $1,000, excluding color copies which will be billed on an actual
per page basis. Such out-of-pocket expenses will consist of travel to and
from the Bank's facilities from FinPro's offices, normal delivery charges
such as Federal Express, and costs associated with the actual Plan document
such as black and white copying. It is FinPro policy to provide you with an
itemized accounting of the out-of-pocket expenditures so that you can control
them.
In the event that the Bank shall, for any reason, discontinue the proposed
conversion prior to delivery of the completed documents set forth above, the
Bank agrees to compensate FinPro according to FinPro's standard billing rates
for consulting services based on accumulated time and expenses, not to exceed
the respective fee caps noted above. FinPro's standard hourly rates are as
follows:
- Managing Director Level $250
- Staff Consultant Level $125
If during the course of the proposed transaction, unforeseen events occur so
as to materially change the nature or the work content of the services
described in this contract, the terms of said
- Confidential -
<PAGE>
Landmark Community Bank
May 2, 1997 Page: 6
- -------------------------------------------------------------------------------
contract shall be subject to renegotiation by the Bank and FinPro. Such
unforeseen events shall include, but not be limited to, major changes in the
conversion regulations, appraisal guidelines or processing procedures as they
relate to conversion appraisals, major changes in management or procedures,
operating policies or philosophies, and excessive delays or suspension of
processing of conversion applications by the regulators such that completion
of the conversion transaction requires the preparation by FinPro of a new
appraisal.
FinPro agrees to execute a suitable confidentiality agreement with the Bank.
The Bank acknowledges that all opinions, valuations and advice (written or
oral) given by FinPro to the Bank in connection with FinPro's engagement are
intended solely for the benefit and use of the Bank (and it's directors,
management, and attorneys) in connection with the matters contemplated hereby
and the Bank agrees that no such opinion, valuation, or advice shall be used
for any other purpose, except with respect to the opinion and valuation which
may be used for the proper corporate purposes of the client, or reproduced,
or disseminated, quoted or referred to at any time, in any manner or for any
purpose, nor shall any public references to FinPro be made by the Bank (or
such persons), without the prior written consent of FinPro, which consent
shall not be unreasonably withheld.
Section 6: Representations and Warranties
FinPro, the Bank and the Company agree to the following:
1.) The Bank agrees to make available or to supply to FinPro the
information set forth in Section 2 of this agreement.
2.) The Bank hereby represents and warrants to FinPro that any information
provided to FinPro does not and will not, to the best of the Bank's
knowledge, at the times it is provided to FinPro, contain any untrue
statement of a material fact or fail to state a material fact necessary to
make the statements therein not false or misleading in light of the
circumstances under which they were made.
3.) (a) The Bank agrees that it will indemnify and hold harmless FinPro,
its directors, officers, agents and employees of FinPro or its successors who
act for or on behalf of FinPro in connection with the services called for
under this agreement ( hereinafter referred to as "The Agreement"), from and
against any and all losses, claims, damages and liabilities (including, but
not limited to, all losses and expenses in connection with claims under the
federal securities laws) arising out of or in any way related to the services
provided by FinPro under this agreement, except to the extent arising out of
or attributable to the negligence or willful misconduct of FinPro, its
directors, officers, agents or employees.
(b) FinPro shall give written notice to the Bank of such claim or
facts within thirty days of the assertion of any claim or discovery of
material facts upon which FinPro intends to base a claim for indemnification
hereunder. In the event the Bank elects, within seven days of
- Confidential -
<PAGE>
Landmark Community Bank
May 2, 1997 Page: 7
- -------------------------------------------------------------------------------
the receipt of the original notice thereof, to contest such claim by written
notice to FinPro, FinPro will be entitled to be paid any amounts payable by
the Bank hereunder, together with interest on such costs from the date
incurred at the rate of ten percent (10%) per annum within five days after
the final determination of such contest either by written acknowledgment of
the Bank or a final judgment of a court of competent jurisdiction. If the
Bank does not so elect, FinPro shall be paid promptly and in any event within
thirty days after receipt by the bank of the notice of the claim.
(c) The Bank shall pay for or reimburse the reasonable expenses,
including attorneys' fees, incurred by FinPro in connection with the contest
of any claim subject to indemnification hereunder in advance of the final
determination of any proceeding within thirty days of the receipt of such
request if FinPro furnishes the Bank:
1. a written statement of FinPro's good faith belief that it
is entitled to indemnification hereunder; and
2. a written undertaking by FinPro to repay the advance if
its ultimately is determined in a final adjudication of
such proceeding that it or he is not entitled to such
indemnification.
(d) In the event that the Bank elects to contest the claim, (I)
FinPro will cooperate in Good Faith with the contest, (ii) FinPro will
provide the Bank with an irrevocable power-of-attorney permitting the Bank to
pursue the claim in the name of FinPro, and (iii) FinPro will be prohibited
from settling or compromising the claim without written consent of the Bank.
(e) In the event the Bank does not pay any indemnified loss or make
advance reimbursements of expenses in accordance with the terms of this
agreement, FinPro shall have all remedies available at law or in equity to
enforce such obligation.
It is understood that, in connection with FinPro's above mentioned
engagement, FinPro may also be engaged to act for the Bank in one or more
additional capacities, and that the terms of the original engagement may be
embodied in one or more separate agreements. The provisions of paragraph 3
herein shall apply to the original engagement, any such additional
engagement, any modification of the original engagement or such additional
engagement and shall remain in full force and effect following the
completion or termination of FinPro's engagement(s). This agreement
constitutes the entire understanding of the Bank and FinPro concerning the
subject matter addressed herein, and such contract shall be governed and
construed in accordance with the laws of the State of New Jersey. This
agreement may not be modified, supplemented or amended except by written
agreement executed by both parties.
The Bank and FinPro are not affiliated, and neither the Bank nor FinPro has
an economic interest in, or is held in common with, the other and has not
derived a significant portion of its gross revenues, receipts or net income
for any period from transactions with the other. Please confirm that the
foregoing is in accordance with your understanding and agreement with FinPro
by signing and returning to FinPro the duplicate of the letter enclosed
herewith.
- Confidential -
<PAGE>
Landmark Community Bank
May 2, 1997 Page: 8
- -------------------------------------------------------------------------------
Sincerely:
FinPro, Inc.
By:
/s/ Donald J. Musso /s/ Gordon E. Coleman
___________________________ __________________________________
Donald J. Musso Gordon Coleman
Managing Director EVP and CEO
5/2/97 5-7-97
___________________________ __________________________________
Date Date
c:\finproj\props\Landmark\IPOprop.doc
- Confidential -
<PAGE>
EXHIBIT 99.3
<PAGE>
LANDMARK COMMUNITY BANK
26 Church Street
Canajoharie, New York 13317
(518) 673-2012
------------------------------------
NOTICE OF SPECIAL MEETING OF MEMBERS
------------------------------------
Notice is hereby given that a Special Meeting of Members (the "Special
Meeting") of Landmark Community Bank (the "Bank"), will be held at
____________________________, located at _____________________, Canajoharie, New
York, on ___________, 1997 at ____ _.m., local time. The purpose of this
Special Meeting is to consider and vote upon:
A Plan of Conversion providing for the conversion of the Bank
from a federally chartered mutual savings bank to a federally
chartered stock savings bank as a wholly owned subsidiary of
Landmark Financial Corp. (the "Company"), a newly organized
Delaware corporation formed by the Bank for the purpose of
becoming the holding company for the Bank, the subsequent
conversion of the Bank to either a national bank or a New
York-chartered commercial bank, and the related transactions
provided for in such Plan of Conversion, including the adoption
of a Federal Stock Charter and Bylaws for the Bank and the sale
by the Company to the public of its shares of common stock; and
such other business as may properly come before this Special Meeting or any
adjournment thereof. Management is not aware of any such other business.
The members who shall be entitled to notice of and to vote at the Special
Meeting and any adjournment thereof are depositors and certain borrowers of the
Bank at the close of business on __________, 1997. In the event there are not
sufficient votes for approval of the Plan of Conversion at the time of the
Special Meeting, the Special Meeting may be adjourned from time to time in order
to permit further solicitation of proxies.
BY ORDER OF THE BOARD OF DIRECTORS
Gordon E. Coleman
President and Chief Executive Officer
Canajoharie, New York
_____________, 1997
- -------------------------------------------------------------------------------
YOUR BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE
FOR APPROVAL OF THE PLAN OF CONVERSION BY COMPLETING THE
ENCLOSED PROXY CARD AND RETURNING IT IN THE ENCLOSED
POSTAGE-PAID ENVELOPE AS SOON AS POSSIBLE.
<PAGE>
YOUR VOTE IS VERY IMPORTANT.
- -------------------------------------------------------------------------------
SUMMARY OF PROPOSED CONVERSION
This summary does not purport to be complete and is qualified in its
entirety by the more detailed information contained in the remainder of this
Proxy Statement and the accompanying Prospectus.
Under its present mutual form of organization, the Bank has no
stockholders. Its deposit account holders are members of the Bank and have
voting rights in that capacity. In the unlikely event of liquidation, the
Bank's deposit account holders would have the sole right to receive any assets
of the Bank remaining after payment of its liabilities (including the claims of
all deposit account holders to the withdrawal value of their deposits). Under
the Plan of Conversion (the "Plan of Conversion") to be voted on at the Special
Meeting, the Bank would be converted into a federally chartered savings bank
organized in stock form and all of the Bank's common stock would be sold
concurrently to the Company (the "Stock Conversion"). Subsequently, the Bank
expects to convert from a federally chartered stock savings bank to either a
national bank or a New York-chartered commercial bank (the "Bank Conversion").
References to the Bank include the Bank when organized in stock form, the
national bank, or the New York-chartered commercial bank, as indicated by the
context. The Company will offer and sell its common stock (the "Common Stock")
in a subscription offering (1) to depositors with an account balance of $50 or
more as of December 31, 1995 ("Eligible Account Holders"), (2) tax-qualified
employee stock benefit plans of the Bank ("Tax-Qualified Employee Plans"), (3)
depositors of the Bank with an account balance of $50 or more as of June 30,
1997 ("Supplemental Eligible Account Holders"), (4) depositors of the Bank as of
__________, 1997, other then Eligible or Supplemental Eligible Account Holders,
and borrowers as of April 1, 1997 ("Other Members") and (5) directors, officers
and employees of the Bank (the "Subscription Offering"). Notwithstanding the
foregoing, to the extent orders for shares exceed the maximum of the appraisal
range, Tax-Qualified Employee Plans shall be afforded a first priority to
purchase shares sold above the maximum of the appraisal range. It is
anticipated that Tax-Qualified Employee Plans will purchase 8% of the Common
Stock sold in the Stock Conversion.
Concurrent with, during or following completion of the Subscription
Offering, to the extent the Common Stock is not all sold to the persons in the
foregoing categories, the Company may offer Common Stock to members of the
general public to whom a prospectus (the "Prospectus") has been delivered
("Other Subscribers"), with first preference to natural persons residing in the
County in which the Bank maintains its office (the "Community Offering"). The
Subscription Offering and the Community Offering are referred to collectively as
the "Subscription and Community Offering." Voting and liquidation rights with
respect to the Bank would thereafter be held by the Company, except to the
limited extent of the liquidation account (the "Liquidation Account") that will
be established for the benefit of Eligible Account Holders and Supplemental
Eligible Account Holders of the Bank and voting and liquidation rights in the
Company would be held only by those persons who become stockholders of the
Company through purchase of shares of its Common Stock. See "Description of the
Plan of Conversion - Principal Effects of Conversion - Liquidation Rights of
Depositor Members."
THE CONVERSION WILL NOT AFFECT THE BALANCE, INTEREST RATE OR FEDERAL
INSURANCE PROTECTION OF ANY SAVINGS DEPOSIT, AND NO PERSON WILL BE OBLIGATED TO
PURCHASE ANY STOCK IN THE STOCK CONVERSION.
Business Purposes Net Stock Conversion proceeds are expected to increase
for Conversion the capital of the Bank, which will support the expansion
of its financial services to the public. The conversion
to stock form and the use of a holding company structure
are also expected to enhance its ability to expand
through possible mergers and acquisitions (although no
such transactions are contemplated at this time) and will
facilitate its future access of the Company and the
Converted Bank to the capital markets. The Bank Conversion
shall be deemed to occur and shall be effective upon
completion of all actions necessary or appropriate under
applicable federal statutes and regulations and the
policies of the Office of Thrift Supervision ("OTS") and
either the Office of the Comptroller of the Currency (the
"OCC") or the New York State Banking Department (the
"Department") to complete the conversion of the Converted
Bank, including without limitation the approval of the
Bank Conversion by the Company as the sole stockholder of
the Converted Bank. The Bank Conversion is expected to be
consummated as soon as practicable following the
consummation of the Stock Conversion.
ii
<PAGE>
Subscription and As part of the Stock Conversion, Common Stock is being
Community Offering offered for sale in the Subscription Offering, in the
priorities summarized below, to the Bank's (1) Eligible
Account Holders, (2) Tax-Qualified Employee Plans,
(3) Supplemental Eligible Account Holders (4) Other
Members, and (5) employees, officers and directors. In
addition, in the Community Offering, Other Subscribers may
purchase Common Stock to the extent shares are available
after satisfaction of subscriptions in the Subscription
Offering, with a preference first to natural persons
residing in the County in which the Bank maintains its
offices.
Subscription Rights Each Eligible Account Holder has been given
of Eligible Account non-transferable rights to subscribe for an amount of
Holders shares equal to the greater of (i) $50,000 of the Common
Stock sold in the Stock Conversion; (ii) one-tenth of one
percent of the total offering of shares of Common Stock
in the Stock Conversion, to the extent such shares are
available; or (iii) 15 times the product (rounded down to
the whole next number) obtained by multiplying the total
number of shares to be issued by a fraction of which the
numerator is the amount of qualifying deposits of such
subscriber and the denominator is the total qualifying
deposits of all account holders in this category on the
qualifying date.
Subscription Rights The Bank's Tax-Qualified Employee Plans have been given
of Tax-Qualified non-transferable rights to subscribe, individually and in
Employee Plans the aggregate, for up to 10% of the total number of
shares sold in the Stock Conversion after satisfaction of
subscriptions of Eligible Account Holders. Notwithstanding
the foregoing, to the extent orders for shares exceed
the maximum of the appraisal range, Tax-Qualified Employee
Plans shall be afforded a first priority to purchase
shares sold above the maximum of the appraisal range. It
is anticipated that Tax-Qualified Employee Plans will
purchase 8% of the Common Stock sold in the Stock
Conversion.
Subscription Rights After satisfaction of subscriptions of Eligible Account
of Supplemental Holders and Tax-Qualified Employee Plans, each
Eligible Account Supplemental Eligible Account Holder (other than
Holders directors and officers of the Bank and their associates)
has been given non-transferable rights to subscribe for
an amount of shares equal to the greater of (i) $50,000
of the Common Stock sold in the Stock Conversion;
(ii) one-tenth of one percent of the total offering of
shares of Common Stock in the Stock Conversion, to the
extent such shares are available; or (iii) 15 times the
product (rounded down to the whole next number) obtained
by multiplying the total number of shares to be issued
by a fraction of which the numerator is the amount of
qualifying deposits of such subscriber and the denominator
is the total qualifying deposits of all account holders
in this category on the qualifying date. The subscription
rights of each Supplemental Eligible Account Holder shall
be reduced to the extent of such person's subscription
rights as an Eligible Account Holder.
Subscription Rights Each Other Member has been given non-transferable rights
of Other Members to subscribe for an amount of shares equal to the greater
of (i) $50,000 of the Common Stock sold in the Stock
Conversion; or (ii) one-tenth of one percent of the total
number of shares offered in the Stock Conversion after
satisfaction of the subscriptions of the Bank's Eligible
Account Holders, Tax-Qualified Employee Plans and
Supplemental Eligible Account Holders.
Subscription Rights Each individual employee, officer and director of the
of Bank Personnel Bank has been given the right to subscribe for an amount
of shares equal to $50,000 of the Common Stock sold in
the Stock Conversion after satisfaction of the
subscriptions of Eligible Account Holders, Tax-Qualified
Employee Plans, Supplemental Eligible Account Holders and
Other Members. Total shares subscribed for by the
employees, officers and directors in this category may
not exceed 25% of the total shares sold in the Stock
Conversion.
Purchase No person or entity, together with associates, and
Limitations persons acting in concert, may purchase more than $50,000
of the Common Stock offered in the Stock Conversion based
on the Estimated Valuation Range (as calculated without
giving effect to any increase in such range subsequent to
the date hereof). The Boards of Directors of the Company
and the Bank may,
iii
<PAGE>
in their sole discretion, increase the maximum purchase
limitation up to 9.99% of the shares sold, provided that
orders for shares exceeding 5% shall not exceed in the
aggregate, 10% of the shares offered in the Subscription
Offering. The aggregate purchases of directors and
executive officers and their associates may not exceed
35% of the total number of shares offered in the Stock
Conversion. These purchase limitations do not apply to
the Bank's Tax-Qualified Employee Plans.
Expiration Date of All subscriptions for Common Stock must be received by
Subscription and Noon, Eastern Time on ___________, 1997.
Community Offerings
How to Subscribe For information on how to subscribe for Common Stock
for Shares being offered in the Stock Conversion, please read the
Prospectus and the stock order form and instructions
accompanying this Proxy Statement. Subscriptions will not
become effective until the Plan of Conversion has been
approved by the Bank's members and all of the Common Stock
offered in the Stock Conversion has been subscribed for
or sold in the Subscription and Community Offering or
through such other means as may be approved by the OTS.
Price of Common All sales of Common Stock in the Subscription and
Stock Community Offering will be made at the same price per
share which is currently expected to be $10.00 per share
on the basis of an independent appraisal of the pro forma
market value of the Bank and the Company upon Stock
Conversion. On the basis of a preliminary appraisal by
FinPro, Inc. which has been reviewed by the OTS, a
minimum of 98,000 and a maximum of 152,000 shares will be
offered in the Stock Conversion. See "The Conversion -
Stock Pricing and Number of Shares to be Issued" in the
Prospectus.
Tax Consequences The Bank has received an opinion from its special counsel,
Luse Lehman Gorman Pomerenk & Schick, P.C., stating that
the Stock Conversion is a nontaxable reorganization under
Section 368(a)(1)(F) of the Internal Revenue Code of 1986,
as amended (the "Code"). The Bank also has received an
opinion from Harvazinski & Montanye, LLP stating that the
Stock Conversion will not be a taxable transaction for
New York income tax purposes.
Required Vote Approval of the Plan of Conversion will require the
affirmative vote of a majority of all votes eligible to
be cast at the Special Meeting.
YOUR BOARD OF DIRECTORS URGES YOU TO VOTE FOR
THE PLAN OF CONVERSION
iv
<PAGE>
LANDMARK COMMUNITY BANK
PROXY STATEMENT
SPECIAL MEETING OF MEMBERS TO BE HELD ON _____________, 1997
PURPOSE OF MEETING
This Proxy Statement is being furnished to you in connection with the
solicitation on behalf of the Board of Directors of Landmark Community Bank (the
"Bank") of the proxies to be voted at the Special Meeting of Members (the
"Special Meeting") of the Bank to be held at ___________________________ located
at ___________, New York, on _______________, 1997 at ____ _.m. Eastern Time,
and at any adjournments thereof. The Special Meeting is being held for the
purpose of considering and voting upon a Plan of Conversion under which the Bank
would be converted (the "Stock Conversion") from its present mutual form of
organization into a federally chartered savings bank organized in stock form,
the concurrent sale of all the common stock of the stock savings bank to
Landmark Financial Corp. (the "Company"), a Delaware corporation, and the sale
by the Company of shares of its common stock (the "Common Stock") and the
subsequent conversion of the Bank to either a national bank or a New
York-chartered commercial bank (the "Bank Conversion"), and such other business
as may properly come before the meeting and any adjournment thereof. References
to the Bank include the Bank when organized in stock form, the national bank, or
the New York-chartered commercial bank, as indicated by the context.
RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS OF THE BANK RECOMMENDS THAT YOU VOTE TO APPROVE THE
PLAN OF CONVERSION.
The Bank is currently organized in mutual rather than stock form, meaning
that it has no stockholders and no authority under its federal mutual charter to
issue capital stock. The Bank's Board of Directors has adopted the Plan of
Conversion providing for the Conversion. The sale of Common Stock of the
Company, which was recently formed to become the holding company of the Bank,
will substantially increase the Bank's net worth. The Company will exchange a
portion of the net proceeds from the sale of the Common Stock for the common
stock of the Bank to be issued upon Stock Conversion. The Company expects to
retain the balance of the net proceeds (up to 50%), as its initial
capitalization of which the Company intends to lend funds to the ESOP to fund
its purchase of Common Stock. This increased capital will support the expansion
of the Bank's financial services to the public. The Board of Directors of the
Bank also believes that the conversion to stock form and the use of a holding
company structure will enhance the Bank's ability to expand through possible
mergers and acquisitions (although no such transactions are contemplated at this
time) and will facilitate its future access to the capital markets.
The Board of Directors of the Bank believes that the Stock Conversion will
further benefit the Bank by enabling it to attract and retain key personnel
through prudent use of stock-related incentive compensation and benefit plans.
See "Management - Benefit Plans" in the accompanying Prospectus.
Voting in favor of the Plan of Conversion will not obligate any person to
purchase any Common Stock.
THE OTS HAS APPROVED THE PLAN OF CONVERSION SUBJECT TO THE APPROVAL OF THE
BANK'S MEMBERS AND THE SATISFACTION OF CERTAIN OTHER CONDITIONS. HOWEVER, SUCH
APPROVAL DOES NOT CONSTITUTE A RECOMMENDATION OR ENDORSEMENT OF THE PLAN OF
CONVERSION BY THE OTS.
<PAGE>
INFORMATION RELATING TO VOTING AT THE SPECIAL MEETING
The Board of Directors of the Bank has fixed __________, 1997 as the voting
record date ("Voting Record Date") for the determination of members entitled to
notice of the Special Meeting. All Bank depositors are members of the Bank
under its current charter. All Bank members of record as of the close of
business on the Voting Record Date will be entitled to vote at the Special
Meeting or any adjournment thereof.
Each depositor (including IRA and Keogh account beneficiaries) will be
entitled at the Special Meeting to cast one vote for each $100, or fraction
thereof, of the aggregate withdrawal value of all of such depositor's accounts
in the Bank as of the Voting Record Date, up to a maximum of 500 votes. Each
borrower of the savings bank as of June 9, 1997 shall be able to cast one vote
as a borrower member as long as such borrower's borrowings as of June 9, 1997
remain outstanding as of the Voting Record Date. Joint accounts shall be
entitled to no more than 500 votes, and any owner may cast all the votes unless
notified in writing. In general, accounts held in different ownership
capacities will be treated as separate memberships for purposes of applying the
500 vote limitation. For example, if two persons hold a $50,000 account in
their joint names and each of the persons also holds a separate account for
$50,000 in his own name, each person would be entitled to 500 votes for each
separate account and they would together be entitled to cast 500 votes on the
basis of the joint account. Where no proxies are received from IRA and Keogh
account beneficiaries, after due notification, the Bank, as trustee of these
accounts, is entitled to vote these accounts in favor of the Plan of Conversion.
Approval of the Plan of Conversion requires the affirmative vote of a
majority of the total outstanding votes of the Bank's members eligible to be
cast at the Special Meeting. As of __________, 1997, the Bank had _____ members
who were entitled to cast a total of _______ votes at the Special Meeting.
Bank members may vote at the Special Meeting or any adjournment thereof in
person or by proxy. Any member giving a proxy will have the right to revoke the
proxy at any time before it is voted by giving written notice to the Secretary
of the Bank, provided that such written notice is received by the Secretary
prior to the Special Meeting or any adjournment thereof, or upon request if the
member is present and chooses to vote in person.
All properly executed proxies received by the Board of Directors of the
Bank will be voted in accordance with the instructions indicated thereon by the
members giving such proxies. If no instructions are given, such proxies will be
voted in favor of the Plan of Conversion. If any other matters are properly
presented at the Special Meeting and may properly be voted on, the proxies
solicited hereby will be voted on such matters in accordance with the best
judgment of the proxy holders named thereon. Management is not aware of any
other business to be presented at the Special Meeting.
If a proxy is not executed and is returned or the member does not vote in
person, the Bank is prohibited by OTS regulations from using a previously
executed proxy to vote for the Conversion. As a result, failure to vote may
have the same effect as a vote against the Plan of Conversion.
To the extent necessary to permit approval of the Plan of Conversion,
proxies may be solicited by officers, directors or regular employees of the
Bank, in person, by telephone or through other forms of communication and, if
necessary, the Special Meeting may be adjourned to a later date. Such persons
will be reimbursed by the Bank for their expenses incurred in connection with
such solicitation. The Bank will bear all costs of this solicitation. The
proxies solicited hereby will be used only at the Special Meeting and at any
adjournment thereof.
2
<PAGE>
DESCRIPTION OF THE PLAN OF CONVERSION
The Plan of Conversion to be presented for approval at the Special Meeting
provides for the Conversion to be accomplished through adoption of an amended
charter and bylaws for the Bank to authorize the issuance of capital stock along
with the concurrent formation of a holding company, the subsequent conversion of
the Bank to either a national bank or a New York-chartered commercial bank, and
the related transactions provided for in the Plan of Conversion, including the
adoption of an amended Federal Stock Charter and Bylaws for the Bank. As part
of the Conversion, the Plan of Conversion provides for the Subscription Offering
of the Common Stock to the Bank's (i) Eligible Account Holders (deposit account
holders with an account balance of $50 or more as of December 31, 1995); (ii)
Tax-Qualified Employee Plans, (iii) Supplemental Eligible Account Holders
(deposit account holders with an account balance of $50 or more as of June 30,
1997); (iv) Other Members (certain deposit account holders who are not Eligible
Account Holders or Supplemental Eligible Account Holders and borrowers as of
April 1, 1997); and (v) the Bank's employees, officers and directors.
Notwithstanding the foregoing, to the extent orders for shares exceed the
maximum of the appraisal range, Tax-Qualified Employee Plans shall be afforded a
first priority to purchase shares sold above the maximum of the appraisal range.
It is anticipated that Tax-Qualified Employee Plans will purchase 8% of the
Common Stock sold in the Stock Conversion. Concurrently with, during or
following completion of the Subscription Offering, members of the general
public, with a preference first to natural persons residing in the County in
which the Bank maintains its office, will be afforded the opportunity to
purchase the Common Stock not subscribed for in the Subscription Offering.
THE SUBSCRIPTION OFFERING HAS COMMENCED AS OF THE DATE OF MAILING OF THIS
PROXY STATEMENT. A PROSPECTUS EXPLAINING THE TERMS OF THE SUBSCRIPTION AND
COMMUNITY OFFERING, INCLUDING HOW TO ORDER AND PAY FOR SHARES AND DESCRIBING THE
BUSINESS OF THE BANK AND THE HOLDING COMPANY, ACCOMPANIES THIS PROXY STATEMENT
AND SHOULD BE READ BY ALL PERSONS WHO WISH TO CONSIDER SUBSCRIBING FOR COMMON
STOCK. THE SUBSCRIPTION AND COMMUNITY OFFERING EXPIRES AT NOON, EASTERN TIME ON
___________, 1997 UNLESS EXTENDED BY THE BANK AND THE HOLDING COMPANY.
The federal conversion regulations require that all stock offered in a
conversion must be sold in order for the conversion to become effective. The
conversion regulations require that the offering be completed within 45 days
after completion of the Subscription Offering period unless extended by the Bank
and the Company with the approval of the OTS. This 45-day period expires
__________, 1997 unless the Subscription Offering is extended. If this is not
possible, an occurrence that is currently not anticipated, the Board of
Directors of the Bank and the Company will consult with the OTS to determine an
appropriate alternative method of selling all unsubscribed shares offered in the
Stock Conversion. The Plan of Conversion provides that the Stock Conversion
must be completed within 24 months after the date of the Special Meeting.
The Subscription and Community Offering or any other sale of the
unsubscribed shares will be made as soon as practicable after the date of the
Special Meeting. No sales of shares may be completed, either in the
Subscription and Community Offering or otherwise, unless the Plan of Conversion
is approved by the members of the Bank.
The commencement and completion of the Subscription and Community Offering,
however, is subject to market conditions and other factors beyond the Bank's
control. Due to adverse conditions in the stock market in the past, a number of
converting thrift institutions encountered significant delays in completing
their stock offerings or were not able to complete them at all. No assurance
can be given as to the length of time after approval of the Plan of Conversion
at the Special Meeting that will be required to complete the Subscription and
Community Offering or other sale of the Common Stock to be offered in the Stock
Conversion. If delays are experienced, significant changes may occur in the
estimated pro forma market value of the Common Stock, together with
corresponding changes in the offering price and the net proceeds realized by the
Bank and the Company from the sale of the Common Stock. The Bank and the
Company may also incur substantial additional printing, legal, accounting and
other expenses in completing the Conversion.
3
<PAGE>
The following is a brief summary of the Conversion and is qualified in its
entirety by reference to the Plan of Conversion. The Bank will provide to you a
copy of the Plan of Conversion if you return the enclosed, postage-paid postcard
by ___________, 1997. A copy of the Company's Certificate of Incorporation and
Bylaws are also available from the Bank upon written request.
Principal Effects of Conversion
Depositors. The Conversion will not change the amount, interest rate,
withdrawal rights or federal insurance protection of deposit accounts, or affect
deposit accounts in any way other than with respect to voting and liquidation
rights as discussed below.
Borrowers. The rights and obligations of borrowers under their loan
agreements with the Bank will remain unchanged by the Conversion. The principal
amount, interest rate and maturity date of loans will remain as they were
contractually fixed prior to the Conversion.
Voting Rights of Depositors. Under the Bank's current federal mutual
charter, depositors have voting rights as members of the Bank with respect to
the election of directors and certain other affairs of the Bank. After the
Conversion, exclusive voting rights with respect to all such matters will be
vested in the Company as the sole stockholder of the Bank. Depositors will no
longer have any voting rights, except to the extent that they become
stockholders of the Company through the purchase of its Common Stock. Voting
rights in the Company will be held exclusively by its stockholders.
Liquidation Rights of Depositor Members. Currently, in the unlikely event
of liquidation of the Bank, any assets remaining after satisfaction of all
creditors' claims in full (including the claims of all depositors to the
withdrawal value of their accounts) would be distributed pro rata among the
depositors of the Bank, with the pro rata share of each being the same
proportion of all such remaining assets as the withdrawal value of each
depositor's account is of the total withdrawal value of all accounts in the Bank
at the time of liquidation. After the Conversion, the assets of the Bank would
first be applied, in the event of liquidation, against the claims of all
creditors (including the claims of all depositors to the withdrawal value of
their accounts). Any remaining assets would then be distributed to the persons
who qualified as Eligible Account Holders or Supplemental Eligible Account
Holders under the Plan of Conversion to the extent of their interests in a
"Liquidation Account" that will be established at the time of the completion of
the Stock Conversion and then to the Company as the sole stockholder of the
Bank's outstanding common stock. The Bank's depositors who did not qualify as
Eligible Account Holders or Supplemental Eligible Account Holders would have no
right to share in any residual net worth of the Bank in the event of liquidation
after the Stock Conversion, but would continue to have the right as creditors of
the Bank to receive the full withdrawal value of their deposits prior to any
distribution to the Company as the Bank's sole stockholder. In addition, the
Bank's deposit accounts will continue to be insured by the Federal Deposit
Insurance Corporation ("FDIC") to the maximum extent permitted by law, currently
up to $100,000 per insured account. The Liquidation Account will initially be
established in an amount equal to the net worth of the Bank as of the date of
the Bank's latest statement of financial condition contained in the final
prospectus used in connection with the Stock Conversion. Each Eligible Account
Holder and/or Supplemental Eligible Account Holder will receive an initial
interest in the Liquidation Account in the same proportion as the balance in all
of his qualifying deposit accounts was of the aggregate balance in all
qualifying deposit accounts of all Eligible Account Holders and Supplemental
Eligible Account Holders on December 31, 1995 or June 30, 1997, respectively.
For accounts in existence on both dates, separate subaccounts shall be
determined on the basis of the qualifying deposits in such accounts on the
record dates. However, if the amount in the qualifying deposit account on any
annual closing date of the Bank is less than the lowest amount in such deposit
account on the Eligibility Record Date and/or Supplemental Eligibility Record
Date, and any subsequent annual closing date, this interest in the Liquidation
Account will be reduced by an amount proportionate to such reduction in the
related deposit account and will not thereafter be increased despite any
subsequent increase in the related deposit account. The Bank Conversion shall
not be deemed to be a complete liquidation of the Converted Bank for purposes of
the distribution of the liquidation account. Upon consummation of the Bank
Conversion, the liquidation account and all rights and obligations of the
federally-chartered stock bank in connection therewith, shall be assumed by the
commercial bank.
The Bank. Under federal law, the stock savings bank resulting from the
Stock Conversion will be deemed to be a continuation of the mutual association
rather than a new entity and will continue to have all of the rights,
4
<PAGE>
privileges, properties, assets and liabilities of the Bank prior to the Stock
Conversion. The Stock Conversion will enable the Bank to issue capital stock,
but will not change the general objectives, purposes or types of business
currently conducted by the Bank, and no assets of the Bank will be distributed
in order to effect the Stock Conversion, other than to pay the expenses incident
thereto. After the Stock Conversion, the Bank will remain subject to
examination and regulation by the OTS and will continue to be a member of the
Federal Home Loan Bank System. The Stock Conversion will not cause any change
in the executive officers or directors of the Bank.
The Bank Conversion. Following the Conversion the Bank intends to convert
to either a national bank or commercial bank charter. Following the Bank
Conversion, the commercial bank will be deemed to be a continuation of the
federally-chartered stock bank and will have all the rights, privileges,
properties, assets and liabilities of the federally-chartered stock bank. The
Bank Conversion shall be deemed to occur and shall be effective upon completion
of all actions necessary or appropriate to complete the Bank Conversion. After
the Bank Conversion, the Bank will be subject to examination and regulation by
either the OCC or the Department. The Bank intends to remain a member of the
Federal Home Loan Bank System following the Bank Conversion. The Bank Conversion
will not cause any change in the executive officers or directors of the Bank.
Tax Consequences. Consummation of the Stock Conversion is expressly
conditioned upon prior receipt by the Bank of either a ruling from the Internal
Revenue Service or an opinion of Luse Lehman Gorman Pomerenk & Schick, P.C. with
respect to federal taxation, and a ruling of the New York taxation authorities
or an opinion of Harvazinski & Montanye, LLP with respect to New York taxation,
to the effect that consummation of the Stock Conversion will not be taxable to
the Converted Bank or the Company.
An opinion has been received from Luse Lehman Gorman Pomerenk & Schick,
P.C. with respect to the proposed Stock Conversion of the Bank, to the effect
that (i) the Stock Conversion will qualify as a reorganization under Section
368(a)(1)(F) of the Code, and no gain or loss will be recognized to the Bank in
either its mutual form or its stock form by reason of the proposed Stock
Conversion, (ii) no gain or loss will be recognized to the Bank upon the receipt
of money from the Company for stock of the Bank; and no gain or loss will be
recognized to the Company upon the receipt of money for Common Stock of the
Company; (iii) the assets of the Bank in either its mutual or its stock form
will have the same basis before and after the Stock Conversion; (iv) the holding
period of the assets of the Bank will include the period during which the assets
were held by the Bank in its mutual form prior to conversion; (v) no gain or
loss will be recognized by the depositors of the Bank upon the issuance to them
of withdrawable deposit accounts in the Bank after the Stock Conversion in the
same dollar amount as their deposit accounts in the Bank plus an interest in the
Liquidation Account of the Bank, as described above, in exchange for their
deposit account in the Bank; (vi) the basis of the account holder's deposit
accounts in the Bank after the Stock Conversion will be the same as the basis of
his deposit accounts in the Bank prior to the Stock Conversion; (vii) the basis
of each account holder's interest in the Liquidation Account will be zero;
(viii) the basis of the Common Stock to its shareholders will be the Purchase
Price thereof plus, in the case of stock acquired by account holders, the basis,
if any, in the Subscription Rights; (ix) a shareholder's holding period for
Common Stock acquired through the exercise of Subscription Rights shall begin on
the date on which the Subscription Rights are exercised and the holding period
for Common Stock purchased in the Community Offering or otherwise will commence
on the date following the date on which such stock is purchased; (x) for
purposes of Section 381 of the Code, the Bank will be treated as if there had
been no reorganization, accordingly, the taxable year of the Bank will not end
on the effective date of the Stock Conversion and the tax attributes of the Bank
will be taken into account by the Bank in stock form as if there had been no
reorganization; (xi) the part of the taxable year of the Bank before the
reorganization and the part of the taxable year of the Bank after the
reorganization will constitute a single taxable year of the Bank; (xii) the
Bank, immediately after Stock Conversion, will succeed to and take into account
the earnings and profits of the Bank in mutual form; and (xiii) the tax
attributes of the Bank in mutual form enumerated in Section 381(c) of the Code
will be taken into account by the Bank in stock form.
The opinion from Luse Lehman Gorman Pomerenk & Schick, P.C. is based, among
other things, on certain assumptions, including the assumptions that the
exercise price of the Subscription Rights to purchase Company Common Stock will
be approximately equal to the fair market value of that stock at the time of the
completion of the proposed Stock Conversion. The Company and the Bank have
received a letter issued by FinPro, Inc. ("FinPro") stating that pursuant to
FinPro's valuation, FinPro is of the belief that Subscription Rights issued in
connection with the Stock Conversion will have no value.
5
<PAGE>
The Bank has also received an opinion of Luse Lehman Gorman Pomerenk &
Schick, P.C. to the effect that, based in part on the FinPro Letter: (i) no
taxable income will be realized by depositors as a result of the receipt or
exercise of non-transferable Subscription Rights to purchase shares of Company
Common Stock at fair market value; and (ii) no taxable income will be realized
by the Bank or Company on the issuance of Subscription Rights to eligible
subscribers to purchase shares of Company Common Stock at fair market value.
If it is subsequently established that the Subscription Rights received by
such persons have an ascertainable fair market value, then, in such event, the
Subscription Rights will be taxable to the recipient in the amount of their fair
market value. In this regard, the Subscription Rights may be taxed partially or
entirely at ordinary income tax rates.
With respect to New York taxation, the Bank has received an opinion from
Harvazinski & Montanye, LLP to the effect that, assuming the Stock Conversion
does not result in any federal taxable income, gain or loss to the Bank in its
mutual or stock form, the Company, the account holders, borrowers, officers,
directors and employees and Tax-Qualified Employee Plans of the Bank, the Stock
Conversion should not result in any New York income tax liability to such
entities or persons.
Approval, Interpretation, Amendment and Termination
Under the Plan of Conversion, the letter from the OTS giving approval
thereto, and applicable regulations, consummation of the Conversion is subject
to the satisfaction of the following conditions: (a) approval of the Plan of
Conversion by members of the Bank casting at least a majority of the votes
eligible to be cast at the Special Meeting; (b) sale of all of the Common Stock
to be offered in the Stock Conversion; and (c) receipt of favorable rulings or
opinions of counsel as to the federal and New York tax consequences of the Stock
Conversion. The Bank Conversion is subject to OCC or Department approval of the
conversion of the Bank to a national bank or a New York-chartered commercial
bank and Federal Reserve Board ("FRB") approval of the Company's application to
become a bank holding company, which approvals have not been received as of the
date hereof. If the FRB, the OCC or the Department deny such applications,
significantly delay the approval of such applications, or impose burdensome
conditions on the approval of such applications, the Board of Directors may
elect not to proceed with the Bank Conversion. Unless and until the Bank becomes
a national bank or a New York-chartered commercial bank, the Company will
operate as a savings and loan holding company and the Bank as a federal stock
savings bank. If the Board of Directors elects not to proceed with the Bank
Conversion or to proceed with the Bank Conversion notwithstanding the imposition
of conditions imposed by the OCC, the Department, or the FRB, subscribers for
Common Stock in the Offerings will not be resolicited unless required by
regulatory authority.
The Plan of Conversion may be substantively amended by the Boards of
Directors of the Bank and the Company with the concurrence of the OTS. If the
Plan of Conversion is amended, proxies which have been received prior to such
amendment will not be resolicited unless otherwise required by the OTS. Also,
as required by the federal regulations, the Plan of Conversion provides that the
transactions contemplated thereby may be terminated by the Board of Directors of
the Bank alone at any time prior to the Special Meeting and may be terminated by
the Board of Directors of the Bank at any time thereafter with the concurrence
of the OTS, notwithstanding approval of the Plan of Conversion by the members of
the Bank at the Special Meeting. All interpretations by the Bank and the
Company of the Plan of Conversion and of the Stock Order Forms and related
materials for the Subscription and Community Offering will be final, except as
regards or affects the OTS.
Judicial Review
Section 5(i)(2)(B) of the Home Owners' Loan Act, as amended, 12 U.S.C.
Section 1464(i)(2)(B) and Section 563b.8(u) of the Rules and Regulations
promulgated thereunder (12 C.F.R. Section 563b.8(u)) provide: (i) that persons
aggrieved by a final action of the OTS which approves, with or without
conditions, or disapproves a plan of conversion, may obtain review of such final
action only by filing a written petition in the United States Court of Appeals
for the circuit in which the principal office or residence of such person is
located, or in the United States Court of Appeals for the District of Columbia,
requesting that the final action of the OTS be modified, terminated or set
aside, and (ii) that such petition must be filed within 30 days after
publication of notice of such final action in the Federal Register, or 30 days
after the date of mailing of the notice and proxy statement for the meeting
of the
6
<PAGE>
converting institution's members at which the conversion is to be voted on,
whichever is later. The notice of the Special Meeting of the Bank's members to
vote on the Plan of Conversion described herein is included at the beginning of
this Proxy Statement. The statute and regulation referred to above should be
consulted for further information.
ADDITIONAL INFORMATION
The information contained in the accompanying Prospectus, including a more
detailed description of the Plan of Conversion, financial statements of the Bank
and a description of the capitalization and business of the Bank and the
Company, including the Bank's directors and executive officers and their
compensation, the conversion of the Bank to a national bank, the anticipated use
of the net proceeds from the sale of the Common Stock and a description of the
Common Stock, is intended to help you evaluate the Conversion and is
incorporated herein by this reference.
YOUR VOTE IS VERY IMPORTANT TO US. PLEASE TAKE A MOMENT NOW TO COMPLETE
AND RETURN YOUR PROXY CARD IN THE POSTAGE-PAID ENVELOPE PROVIDED. YOU MAY STILL
ATTEND THE SPECIAL MEETING AND VOTE IN PERSON EVEN THOUGH YOU HAVE VOTED YOUR
PROXY. FAILURE TO SUBMIT A PROXY WILL HAVE THE SAME EFFECT AS VOTING AGAINST
THE CONVERSION.
If you have any questions, please call our Stock Information Center at
(518) _____________.
IMPORTANT: YOU MAY BE ENTITLED TO VOTE IN MORE THAN ONE CAPACITY. PLEASE
SIGN, DATE AND PROMPTLY RETURN EACH PROXY CARD YOU RECEIVE.
--------------------
THIS PROXY STATEMENT IS NOT AN OFFER TO SELL OR THE SOLICITATION OF AN
OFFER TO BUY STOCK. THE OFFER WILL BE MADE ONLY BY THE PROSPECTUS.
THIS SECURITY IS NOT A DEPOSIT OR ACCOUNT AND IS NOT FEDERALLY INSURED OR
GUARANTEED.
7
<PAGE>
REVOCABLE PROXY
SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
LANDMARK COMMUNITY BANK
FOR A SPECIAL MEETING OF MEMBERS
TO BE HELD ON _______________, 1997
The undersigned member of Landmark Community Bank, hereby appoints the full
Board of Directors, with full powers of substitution, as attorneys-in-fact and
agents for and in the name of the undersigned, to vote such votes as the
undersigned may be entitled to vote at the Special Meeting of Members of
Landmark Community Bank, to be held at _____________________________ located at
________________________, New York on _____________, 1997, at ____ _.m., Eastern
time, and at any and all adjournments thereof. They are authorized to cast all
votes to which the undersigned is entitled as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
FOR AGAINST
--- -------
1. The adoption of the Plan of Conversion providing for the --- ---
conversion of the bank from a federally chartered mutual | | | |
savings association to a federally chartered stock savings --- ---
bank as a wholly owned subsidiary of Landmark Financial
Corp. (the "Company"), a newly organized Delaware corporation
formed by the Bank for the purpose of becoming the holding
company for the Bank, the subsequent conversion of the Bank
to either a national bank or a New York-chartered commercial
bank and the related transactions provided for in such Plan
of Conversion, including the adoption of an amended Federal
Stock Charter and Bylaws for the Bank and the sale by the
Company to the public of its shares of Common Stock.
FOR AGAINST
--- -------
2. The grant of authority to the Board of Directors to adjourn --- ---
the Special Meeting if necessary for the purpose of | | | |
soliciting additional votes to approve the Plan. --- ---
</TABLE>
NOTE: The Board of Directors is not aware of any other matter that may
come before the Special Meeting of Members.
- ------------------------------------------------------------------------------
THIS PROXY WILL BE VOTED AS DIRECTED, BUT IF NO INSTRUCTIONS ARE SPECIFIED, THIS
PROXY WILL BE VOTED FOR THE PROPOSITIONS STATED. IF ANY OTHER BUSINESS IS
PRESENTED AT THE MEETING, THIS PROXY WILL BE VOTED BY THE BOARD OF DIRECTORS IN
THEIR BEST JUDGMENT. AT THE PRESENT TIME, THE BOARD OF DIRECTORS KNOWS OF NO
OTHER BUSINESS TO BE PRESENTED AT THE MEETING.
- ------------------------------------------------------------------------------
<PAGE>
Votes will be cast in accordance with the Proxy. Should the undersigned
be present and elect to vote at the Special Meeting or at any adjournment
thereof and after notification to the Secretary of the Bank at said Meeting
of the member's decision to terminate this Proxy, then the power of said
attorney-in-fact or agents shall be deemed terminated and of no further force
and effect.
The undersigned acknowledges receipt of a Notice of Special Meeting of
Members and a Proxy Statement dated _________________, 1997, prior to the
execution of this Proxy.
___________________________
Date
___________________________
Signature
NOTE: Only one signature is required
in the case of a joint account.
- ------------------------------------------------------------------------------
PLEASE COMPLETE, DATE, SIGN AND MAIL THIS PROXY PROMPTLY IN
THE ENCLOSED ENVELOPE.
- ------------------------------------------------------------------------------
<PAGE>
EXHIBIT 99.5
<PAGE>
LANDMARK FINANCIAL CORP.
NUMBER OF SHARES
Fill in the number of shares you wish to purchase and the total amount due.
No fractional shares will be issued. The minimum purchase is 25 shares.
METHOD OF PAYMENT
Check the appropriate box(es). You may pay by check, bank draft or money
order and/or authorize withdrawal from your Landmark Community Bank savings
or certificate account(s). If paying by certified or teller's check, please
make it payable to Landmark Community Bank. Your funds will earn interest at
the Bank's certificate rate per annum until the offering is completed. If
paying by withdrawal, please list the appropriate account number(s); these
designated funds will continue to earn interest from a savings or certificate
account at the same account rate and cannot be withdrawn by you until the
Closing Date, as defined on the front page of the Prospectus.
STOCK REGISTRATION
Print the name(s) in which you want the stock registered. See the reverse
side of this form for registration guidelines.
Enter the social security number (or tax I.D. number) of the registered
owner. Only one number is required.
Indicate the manner in which you wish to take ownership by checking the
appropriate box. If necessary, check other and note ownership such as
corporation, estate or trust. If stock is purchased for a trust, the date of
the trust agreement and trust title must be included.
NASD AFFILIATION
Please refer to the National Association of Securities Dealers, Inc. (NASD)
affiliation section and check the box if applicable. Under the 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 the purchase
of such securities, as established by the NASD.
_____ Check here and initial below if you are a member of the NASD 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 150 days following
issuance, and (ii) to report this purchase order in writing to the applicable
NASD member I am associated with within one day of the payment for the stock.
(Initials)_________
ACKNOWLEDGMENT
Sign and date the form. When purchasing as a custodian, corporate officer,
etc., add your full title to your signature. An additional signature is
required only when payment is by withdrawal from an account that requires
more than one signature to withdraw funds.
DEADLINE
This form along with the Form of Acknowledgment, properly executed and with
the correct payments must be received by Noon, Eastern Time, ___________,
1997 and will be deemed received upon the date and the time of delivery of
the form to our office. Please submit your order using the enclosed
postage-paid envelope or hand-delivering to any Landmark Community Bank
office.
TELEPHONE INFORMATION
Please enter both a daytime and evening telephone number where you may be
reached in the event we cannot execute your order as given.
Daytime Phone ( )______________
Evening Phone ( )______________
STOCK ORDER FORM
Number of Offering Total
Shares Price Amount Due
______ X $ 10.00 =_________
_____ Enclosed is a certified teller's check, bank draft, or money order
payable to Landmark Community Bank for $________.
_____ I authorize withdrawal from the following Landmark Community Bank
account(s):
Account Number(s) Amount
$
$
Total Withdrawal $
_______________________________________________
Name(s) in which your stock is to be registered
_______________________________________________
Name(s) in which your stock is to be registered
_______________________________________________
Address
_______________________________________________
City County
_______________________________________________
State Zip Code
_______________________________________________
Social Security # or Tax ID #
____ Individual _____ Joint Tenants _______ Tenants in Common
_______ Uniform Gift or Transfer to Minors
_______ Other _____________________________________
I (we) acknowledge receipt of the Prospectus and the terms and conditions
described therein. I (we) understand that, after receipt by Landmark
Community Bank, this order may not be modified or withdrawn without the
consent of Landmark Community Bank. Further, I (we) certify that my (our)
purchase does not conflict with the purchase limitations in the Plan of
Conversion, and that the shares being purchased are for my (our) account only
and that there is no present agreement or understanding regarding any
subsequent sale or transfer of such shares. Under penalties of perjury, I
(we) certify that: (1) the Social Security number or Taxpayer Identification
number given above is correct; and (2) I am not subject to backup
withholding. Instructions: You must cross out #2 above if you have been
notified by the Internal Revenue Service that you are subject to withholding
because of under-reporting interest or dividends on your tax return.
I ACKNOWLEDGE THAT THIS SECURITY IS NOT A DEPOSIT OR ACCOUNT AND IS NOT
FEDERALLY INSURED AND IS NOT GUARANTEED BY INVESTORS FEDERAL OR ANY FEDERAL
OR STATE GOVERNMENT OR AGENCY.
If anyone asserts that this security is federally insured or guaranteed, or
is as safe as an insured deposit, I should call the Northwest Regional
Director of the Office of Thrift Supervision, Jersey City, New Jersey at
(201) 413-1000.
I further certify that, before purchasing the Common Stock of Landmark
Financial Corp., I received a Prospectus. The Prospectus that I received
contains disclosure concerning the nature of the security being offered and
describes the risks involved in the investment. See the "Risk Factors"
section of the Prospectus. In executing this Stock Order Form I affirm that
I have read the Prospectus and am aware of the risks associated with
investing in Landmark Financial Corp. Common Stock.
_____________________________________________________
Signature Date
_____________________________________________________
Additional Signature (if required) Date
FOR ASSISTANCE, PLEASE CALL THE STOCK INFORMATION CENTER, LANDMARK
COMMUNITY BANK, AT (___) ___-____ FROM 9:00 A.M. TO 5:00 P.M., EASTERN TIME,
MONDAY THROUGH FRIDAY.
<PAGE>
GUIDELINES FOR REGISTERING STOCK
For reasons of clarity and standardization, the stock transfer industry
has developed uniform stock ownership registration which we will use in
issuing your stock certificate. Common ownership registrations are explained
below. If you have any questions about how your Landmark Financial Corp.
common stock should be registered, see your legal advisor.
To ensure correct registration, please follow the instructions for the
ownership you select.
______________________________________________________________________________
GENERAL INSTRUCTION: - Include the first name, middle initial, and last name
of each person listed. Avoid the use of an initial
in place of the first name.
- Do not use titles such as Mr., Mrs., Dr., etc.
- Omit words that do not affect ownership rights such
as special account, personal property, etc.
______________________________________________________________________________
INDIVIDUAL: Instructions: Print the first name, middle initial, and
last name of the person in whose name the stock is to
be registered. You may not list beneficiaries for this
ownership.
______________________________________________________________________________
JOINT TENANTS: Joint Tenancy with Right of Survivorship identifies two
or more persons as owners of the stock. Upon the death
of one of the owners, ownership automatically passes to
the surviving tenant(s).
Instructions: Print the first name, middle initial, and
last name of each co-tenant. You may not list
beneficiaries for this ownership.
______________________________________________________________________________
UNIFORM GIFTS TO For residents of certain states, stock may be held in
MINORS/UNIFORM the name of a custodian for the benefit of a minor
TRANSFERS TO MINORS: under the Uniform Transfers to Minors Act. For
residents of most other states, stock may be held in a
similar type of ownership under the Uniform Gifts to
Minors Act of the individual states. For either
ownership, the minor is the actual owner of the stock
with the adult custodian being responsible for the
investment until the minor reaches legal age.
Instructions: If you are a New York resident and wish
to register stock in this ownership check Uniform
Transfers to Minors Act. For other states, see your
legal advisor if you are unsure about the correct
registration of your stock.
On the first NAME line, print the first name, middle
initial, and last name of the custodian, with the
abbreviation CUST after the name
Print the first name, middle initial, and last name of
the minor on the second NAME line. Only one custodian
and one minor may be designated.
Please indicate the minor's social security number in
the signature block.
______________________________________________________________________________
OTHER: Generally, fiduciary relationships (such as
Conservatorship, Legal Trust, Guardianship, etc.) are
established under a form of trust agreement or are
pursuant to a court order. Without a legal document
establishing a fiduciary relationship, your stock may
not be registered in a fiduciary capacity.
Instructions: On the first NAME line, print the first
name, middle initial, and last name of the fiduciary if
the fiduciary is an individual. If the fiduciary is a
corporation, list the corporate title on the first NAME
line. Following the name, print the fiduciary title
such as conservator, personal representative, etc.
On the second NAME line, print either the name of the
maker, donor or testator OR the name of the
beneficiary. Following the name, indicate the date and
type of legal document establishing the fiduciary
relationship (agreement, court order, etc.) (Use the
space marked OTHER if necessary). Please contact us if
you have any questions.
EXAMPLE OF A FIDUCIARY REGISTRATION:
John D. Smith Trustee for Tom A. Smith Under Agreement
Dated 06/09/74.
PLEASE NOTE THAT TOTTEN TRUST AND PAYABLE ON DEATH
OWNERSHIPS MAY NOT BE USED IN REGISTERING STOCK.
For example, stock cannot be registered as John Doe
Trustee for Jane Doe or John Doe Payable on Death to
Jane Doe.
______________________________________________________________________________
NASD AFFILIATION: Please refer to the NASD AFFILIATION statement on the
face of this form. If applicable, initial where
indicated and check the box. the National Association
of Securities Dealers, Inc. Interpretation With Respect
to Free-Riding and Withholding (the Interpretation)
restricts the sale of a hot issue (securities that
trade at a premium in the aftermarket) to NASD members,
persons associated with NASD members (i.e., an owner,
director, officer, partner, employee or agent of a NASD
member) and certain members of their families. Such
persons are required to indicate that they will comply
with certain conditions required for an exemption from
the restrictions.
______________________________________________________________________________
F:\CLIENTS\1019 STKORDER.FRM
<PAGE>
EXHIBIT 99.6
<PAGE>
[LETTERHEAD]
May 28, 1997
Board of Directors
Landmark Community Bank
26 Church Street
Canajoharie, New York 13317
RE: Conversion Advisory Services
Gentlemen:
This letter sets forth the terms of the proposed engagement between Trident
Financial Corporation ("TFC") and Landmark Community Bank, Canajoharie, New
York, (the "Bank") concerning our conversion advisory services in connection
with the mutual to stock conversion of the Bank and the issuance of shares of
stock in a newly formed holding company in a subscription and community
offering.
Trident is prepared to act as consultant and advisor in connection with the
offering of shares of common stock of the Bank during the subscription and
community offering as such terms are defined in the Bank's plan of
conversion. In acting as an advisor to the Bank, TFC's activities will
include training the officers and employees of the Bank with respect to
recordkeeping and solicitation of offers to purchase and, generally, advising
the directors and officers as to the mechanics of the community offering
process.
For its services hereunder, TFC will receive the following compensation and
reimbursement from the Bank:
1. A fee in the amount of $20,000 payable $5,000 upon the signing of
this agreement, $15,000 upon the completion of the conversion.
2. Out-of-pocket expenses, not to exceed $5,000 RLB without prior
permission from the Bank, which will be billed at the completion
of the conversion.
3. In the event the conversion of the Bank is terminated, for any
reason, prior to completion, or is delayed for more than six
(6) months from the date of this letter, TFC may, in addition to
reimbursement of its out-of-pocket expenses described in
paragraph 2 above (including legal fees, if any), be entitled
to receive a portion or all of the fee set forth in Paragraph (1)
above. The actual amount of such fee, if any, will be directly
related to the efforts expended by TFC on behalf of the Bank up
to the point the conversion is terminated or delayed and shall not
exceed $20,000.
Any amounts advanced to TFC to which it is not entitled pursuant to the
preceding paragraph shall, after reimbursement of all of TFC's out-of-pocket
expenses, be returned by TFC to the Bank.
<PAGE>
Board of Directors
May 28, 1997
Page 2
The Bank hereby agrees to the full extent permitted by law to indemnify
and hold harmless TFC, its agents, servants, employees and affiliates who act
for or on behalf of TFC in connection with the services called for under this
agreement from and against any and all loss, liability, claim, damage and
expense whatsoever and will further promptly reimburse such persons for any
legal or other expenses reasonably incurred by each or any of them in
investigating, preparing to defend or defending against any such action,
proceeding or claim (whether commenced or threatened) arising out of or based
upon any untrue or alleged untrue statement of a material fact or the
omission or alleged omission of a material fact required to be stated or
necessary to make not misleading any statements contained in the offering
circular or any other document or communication utilized by the Bank in
connection with the stock sale, and of which TFC had no knowledge, or
otherwise arising out of or based upon any violation of federal or state
securities laws by the Bank provided such violation is not the result of
TFC's failure to be properly licensed. The foregoing indemnification shall
remain in full force and effect, regardless of any termination or
cancellation of this agreement and will survive the conversion of the Bank.
Any successor or assign of TFC, its agents, officers, employees and
affiliates, or their legal representatives, shall be entitled to the benefit
of the foregoing indemnification.
This letter sets forth the entire agreement among the parties hereto and
may not be amended, modified or terminated orally, but only by a written
instrument signed by the party against whom enforcement of such amendment,
modification or termination is sought. The agreement evidenced hereby shall
be binding upon, inure to the benefit of and be enforceable by, the
respective successors and assigns of the parties.
Please acknowledge your agreement to the foregoing by signing below and
returning to TFC one copy of this letter, along with the advance payment of
$5,000 described above. This proposal is valid for a period of thirty (30)
days from the date hereof.
Yours very truly,
TRIDENT FINANCIAL CORPORATION
By: -----------------------
R. Lee Burrows, Jr.
Managing Director
Accepted and agreed to this
- --------day of ---------, 1997
LANDMARK COMMUNITY BANK
- ------------------------
Gordon Coleman
Executive Vice President
RLB:cs
