As filed with the Securities and Exchange Commission on July 21, 1997
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-------------
FIRST SECURITYFED FINANCIAL, INC.
(Exact name of registrant as specified in its charter)
Delaware 6035 Applied For
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation Classification Code Number) Identification No.)
or organization)
936 North Western Avenue, Chicago, Illinois 60622-4695 (773) 772-4500
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
-------------
Julian E. Kulas
President and Chief Executive Officer
First SecurityFed Financial, Inc.
936 North Western Avenue
Chicago, Illinois 60622-4695
(773) 772-4500
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
-------------
Please send copies of all communications to:
Kip A. Weissman, P.C.
Martin L. Meyrowitz, P.C.
SILVER, FREEDMAN & TAFF, L.L.P.
(A limited liability partnership including professional corporations)
1100 New York Avenue, N.W.
Seventh Floor, East Tower
Washington, DC 20005
(202) 414-6100
-------------
Approximate date of commencement of proposed sale to the public:
As soon as practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are being offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
==============================================================================================================================
Title of Each Amount Proposed Maximum Proposed Maximum
Class of Securities to be Offering Price Aggregate Offering Amount of
to be Registered Registered(1) Per Share(1) Price(1) Registration Fee
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.01 par value 5,695,000 shares $10.00 $56,950,000 $17,258
==============================================================================================================================
</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
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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<PAGE>
Prospectus
[LOGO]
FIRST SECURITYFED FINANCIAL, INC.
(Proposed Holding Company for First Security Federal Savings Bank)
$10.00 Per Share
4,735,000 Shares of Common Stock
(Anticipated Maximum)
First SecurityFed Financial, Inc. (the "Holding Company") is offering up to
4,735,000 shares of common stock, par value $0.01 per share (the "Common
Stock"), in connection with the conversion of First Security Federal Savings
Bank ("First Security" or the "Bank") from a federally chartered mutual savings
bank to a federally chartered stock savings bank and the issuance of all of
First Security's outstanding stock to the Holding Company (the "Conversion").
Pursuant to the Bank's plan of conversion (the "Plan of Conversion" or the
"Plan"), non-transferable rights to subscribe for the Common Stock
("Subscription Rights") have been given to (i) First Security's depositors with
account balances of $50 or more as of December 31, 1995 ("Eligible Account
Holders"), (ii) tax-qualified employee plans of First Security and the Holding
Company ("Tax-Qualified Employee Plans"), provided, however, that the
Tax-Qualified Employee Plans shall have first priority Subscription Rights to
the extent that the total number of shares of Common Stock sold in the
Conversion exceeds the maximum of the Estimated Valuation Range as defined
below, (iii) First Security's depositors with account balances of $50 or more as
of __________ __, 1997 ("Supplemental Eligible Account Holders"), (iv) certain
of its other members ("Other Members"), and (v) its employees, officers and
directors (the "Subscription Offering.)
(continued on next page)
--------------------
FOR ADDITIONAL INFORMATION ON HOW TO SUBSCRIBE, PLEASE CALL
THE STOCK CENTER AT (___) ___-____.
--------------------
FOR A DISCUSSION OF CERTAIN FACTORS TO BE CONSIDERED, 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 THE FEDERAL DEPOSIT
INSURANCE CORPORATION, NOR HAS SUCH COMMISSION, OFFICE OR CORPORATION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
THE SHARES OF COMMON
STOCK OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS OR
SAVINGS DEPOSITS AND ARE NOT INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION
OR ANY OTHER GOVERNMENT AGENCY.
================================================================================
Estimated
Underwriting Fees, Estimated Net
Purchase Commissions and Conversion
Price(1) Other Expenses(2) Proceeds(3)
-------- ----------------- -----------
Per Share(4).................... $10.00 $0.23 $9.77
Minimum Total................... $34,990,000 $908,000 $34,082,000
Midpoint Total.................. $41,170,000 $965,000 $40,205,000
Maximum Total................... $47,350,000 $1,022,000 $46,328,000
Maximum Total, As Adjusted(5)... $54,450,000 $1,087,000 $53,363,000
================================================================================
(1) Determined on the basis of an appraisal prepared by FinPro, Inc. ("FinPro")
dated July 18, 1997, which states that the estimated aggregate pro forma
market value of the Common Stock to be sold in the Conversion ranged from
$34,990,000 to $47,350,000 or between 3,490,000 shares and 4,735,000 shares
of Common Stock at $10.00 per share. See "The Conversion - Stock Pricing
and Number of Shares to be Issued."
(2) Consists of the estimated costs to the Bank and the Holding Company arising
from the Conversion, including the payment to Friedman, Billings, Ramsey &
Co., Inc. ("FBR") of estimated expenses of $25,000 and estimated sales
commissions ranging from $_______ (at the minimum) to $_______ (at the
maximum) in connection with the sale of shares in the Offering. Such fees
may be deemed to be underwriting fees. See "Use of Proceeds" and "Pro Forma
Data" for the assumptions used to arrive at these estimates. The Holding
Company has agreed to indemnify FBR against certain liabilities, including
liabilities arising under the Securities Act of 1933, as amended (the
"Securities Act"). See "The Conversion - Marketing Arrangements" for a more
detailed description of underwriting fees, commissions and expenses.
(3) Net Conversion proceeds may vary from the estimated amounts, depending on
the Purchase Price, the number of shares issued and the number of shares
sold subject to commissions. The actual number of shares of Common Stock to
be issued in the Conversion will not be determined until after the close of
the Offering.
(4) Assumes the sale of the midpoint number of shares. If the minimum, maximum
or 15% above the maximum number of shares are sold, estimated expenses per
share would be $0.26 $0.22 or $0.20 respectively, resulting in estimated
net Conversion proceeds per share of $9.74, $9.78 or $9.80, respectively.
(5) As adjusted to give effect to the sale of up to an additional _______
shares (15% above the maximum of the Estimated Valuation Range) which may
be offered in the Conversion without the resolicitation of subscribers or
any right of cancellation, to reflect changes in market and financial
conditions following the commencement of the Offering. See "Pro Forma
Data," and "The Conversion - Stock Pricing and Number of Shares to be
Issued."
Friedman, Billings, Ramsey & Co., Inc.
The date of this Prospectus is ________ __, 1997
<PAGE>
(continued from prior page)
Subscription Rights are non-transferrable. Persons found to be selling or
otherwise transferring their right to purchase stock in the Subscription
Offering or purchasing Common Stock on behalf of another person will be subject
to forfeiture of such rights and possible further sanctions and penalties
imposed by the Office of Thrift Supervision (the "OTS"), an agency of the United
States Government. Subject to the prior rights of holders of Subscription Rights
and to market conditions, the Holding Company may also offer the Common Stock
for sale through FBR in a direct community offering (the "Direct Community
Offering") and/or a public offering to selected persons to whom this prospectus
is delivered (the "Public Offering" and when referred to together with the
Subscription Offering and the Direct Community Offering, if any, the
"Offering"). Depending on market conditions and availability of shares, the
shares of Common Stock may be offered for sale in the Public Offering on a
best-efforts basis by a selling group of selected broker-dealers to be managed
by FBR. The Bank and the Holding Company reserve the right, in their absolute
discretion, to accept or reject, in whole or in part, any or all orders in the
Public Offering.
The total number of shares to be issued in the Conversion will be based
upon an appraised valuation of the estimated aggregate pro forma market value of
the Holding Company and the Bank as converted. The purchase price per share
("Purchase Price") has been fixed at $10.00. Based on the current valuation
range of the shares to be sold of $34,990,000 to $47,350,000 (the "Estimated
Valuation Range"), the Holding Company is offering up to 4,735,000 shares.
Depending upon the market and financial conditions at the time of the completion
of the Public Offering, if any, the total number of shares to be issued in the
Conversion may be increased or decreased from the 4,735,000 shares offered
hereby, provided that the product of the total number of shares multiplied by
the price per share remains within, or does not exceed by more than 15% the
maximum of the Estimated Valuation Range. If the aggregate Purchase Price of the
Common Stock sold in the Conversion is below $34,990,000 or above $54,450,000,
or if the Offering is extended beyond ______ ___, 1997, subscribers will be
permitted to modify or cancel their subscriptions and to have their subscription
funds returned promptly with interest. Under such circumstances, if subscribers
take no action, their subscription funds will be promptly returned to them with
interest. In all other circumstances, subscriptions are irrevocable by
subscribers. See "The Conversion - Offering of Holding Company Common Stock."
In addition to the shares of the Common Stock to be issued in the
Conversion, the Holding Company intends, subject to member approval, to
contribute, or sell for a price equal to their aggregate par value ($2,500),
250,000 shares of the Common Stock to the Heritage Foundation of First Security
Federal Savings Bank, Inc. (the "Foundation"), a charitable foundation
previously created by the Bank. The purpose of the Foundation is to provide
charitable benefits to persons and organizations residing within the communities
in which the Bank operates. The proposed contribution to the Foundation is
subject to the approval of the Bank's members at the Special Meeting being held
to consider the Plan of Conversion. For a discussion of the Foundation and its
effects on the Conversion, including what would happen if members do not approve
the proposed contribution to the Foundation, see "Risk Factors -- Contribution
to the Charitable Foundation," "Pro Forma Data," and "The Conversion --
Contribution to the Charitable Foundation."
With the exception of the Tax-Qualified Employee Plans, no Eligible Account
Holder, Supplemental Eligible Account Holder or Other Member may purchase in
their capacity as such in the Subscription Offering more than $250,000 of Common
Stock; no person, together with associates of and persons acting in concert with
such person, may purchase more than $250,000 of Common Stock in the Public
Offering and no person, together with associates of and persons acting in
concert with such person, may purchase more than $750,000 of Common Stock. Under
certain circumstances, the maximum purchase limitations may be increased or
decreased at the sole discretion of the Bank and the Holding Company up to 9.99%
of the total number of shares of Common Stock sold in the Conversion or down to
one percent of shares of Common Stock offered in the Conversion. The minimum
purchase is 25 shares. See "The Conversion - Additional Purchase Restrictions."
The Bank and the Holding Company have engaged FBR as financial advisor and agent
to consult, advise and assist in the distribution of shares of Common Stock, on
a best-efforts basis in the Offering including, if necessary, managing selected
broker-dealers to assist in selling stock in the Public Offering. For such
services, FBR will receive a marketing fee of 1.0% of the total dollar amount of
Common Stock sold in the Conversion, excluding purchases by directors, officers,
employees and their immediate family members, and the employee stock ownership
and benefit plans of the Bank and the Holding Company. If selected dealers are
used, the selected dealers will receive a fee estimated to be up to 4.5% of the
aggregate Purchase Price for all shares of Common Stock sold in the Public
Offering through such selected dealers. Such fees may be deemed to be
underwriting commissions. FBR and the selected dealers may be deemed to be
underwriters. See "The Conversion - Marketing Arrangements" and "The Conversion
- - Offering of Holding Company Common Stock."
The Subscription Offering will expire at 12:00 Noon, Chicago, Illinois
Time, on ___________, 1997 ("Expiration Date"), unless extended by the Board of
Directors up to an additional 45 days with the approval of the OTS, if
necessary, but without additional notice to subscribers. To subscribe for shares
of Common Stock in the Subscription Offering, the Holding Company must receive
(at any office of the Bank) a properly executed stock order and certification
form (together, the "Order Form") along with full payment at $10.00 per share
(or appropriate instructions authorizing a withdrawal from a deposit account at
the Bank) for all shares for which subscription is made by the Expiration Date.
The date by which orders must be received in the Public Offering, if any, will
be set by the Holding Company at the time of such offering provided that, if
such offering is extended beyond ________ 1997, each subscriber will have the
right to modify or rescind their order. Subscriptions paid by check, bank draft
or money order will be placed in a segregated account at the Bank and will earn
interest at the Bank's passbook rate from the date of receipt until completion
or termination of the Conversion. Payments authorized by withdrawal from deposit
accounts at the Bank will continue to earn interest at the contractual rate
until the Conversion is completed or terminated; these funds will be otherwise
unavailable to the depositor until such time. 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. Once tendered,
subscription orders cannot be revoked or modified without the consent of the
Bank and the Holding Company. The Holding Company is not obligated to accept
orders submitted on photocopied or facsimile Order Forms. If the Conversion is
not consummated within 45 days after the last day of the Subscription Offering
and the OTS consents to an extension of time to complete the Conversion,
subscribers will be given the right to increase, decrease or rescind their
orders. Such extensions may not go beyond _________, 1999.
The Holding Company has received preliminary approval to have the Common
Stock listed on the Nasdaq Stock Market under the symbol "____." Prior to this
offering there has not been a public market for the Common Stock, and there can
be no assurance that an active and liquid trading market for the Common Stock
will develop or that resales of the Common Stock can be made at or above the
Purchase Price. See "Market for Common Stock" and "The Conversion - Stock
Pricing and Number of Shares to be Issued."
2
<PAGE>
[MAP TO COME]
3
<PAGE>
PROSPECTUS SUMMARY
The following summary does not purport to be complete and is qualified
in its entirety by the detailed information and financial statements appearing
elsewhere herein.
First SecurityFed Financial, Inc.
The Holding Company, First SecurityFed Financial, Inc., was recently
formed by First Security under the laws of Delaware for the purpose of becoming
a savings and loan holding company which will own all of the outstanding capital
stock that First Security will issue in connection with the Conversion.
Immediately following the Conversion, the only significant assets of the Holding
Company will be the capital stock of First Security, a note evidencing the
Holding Company's loan to the ESOP and up to approximately 50% of the net
proceeds from the Offering, less the amount of the ESOP loan. See "Use of
Proceeds." Upon completion of the Conversion, the Holding Company's business
initially will consist only of the business of First Security. See "First
SecurityFed Financial, Inc."
First Security
General. First Security is a federally chartered mutual savings bank
headquartered in Chicago, Illinois. While the Bank was originally chartered in
1928, the modern chapter of the Bank did not begin until 1964 when the prior
board of directors resigned and President Kulas and eleven other community
leaders assumed director positions. At that time, the Bank had less than
$300,000 of assets and did not have federal deposit insurance. By the end of
1966, the assets of the Bank more than tripled and the Bank's board of
directors, by pledging their own deposits to an agency of the federal
government, had secured federal deposit insurance. Since that time, First
Security has grown steadily by focusing on the needs of its customers, many of
whom are persons of Ukrainian, Polish, Eastern European and Latin American
descent, and by remaining extremely active in community affairs within its
principal market areas.
First Security currently serves the financial needs of communities in
its market area through its main office located at 936 North Western Avenue,
Chicago, Illinois 60622-4695 and from branch offices located in Chicago,
Illinois, Philadelphia, Pennsylvania and Rolling Meadows, Illinois. Its deposits
are insured up to applicable limits by the Federal Deposit Insurance Corporation
("FDIC"). At April 30, 1997, First Security had total assets of $260.0 million,
deposits of $219.0 million and equity of $30.0 million (or 11.54% of total
assets).
First Security has been, and intends to continue to remain, an
independent, community oriented, financial institution. First Security's
business involves attracting deposits from the general public and using such
deposits, together with other funds, to originate primarily one- to four-family
residential mortgages and, to a lesser extent, commercial real estate,
multi-family, consumer and other loans primarily in its market area. At April
30, 1997, $137.5 million, or 81.32%, of the Bank's total loan portfolio
consisted of one- to four-family residential mortgage loans. The Bank also
invests in mortgage-backed and other securities and other permissible
investments. See "Business Investment Activities - Securities" and "-
Mortgage-Backed and Related Securities."
4
<PAGE>
Financial and operational highlights of the Bank include the following:
Profitability. First Security historically has been very profitable.
During each of the fiscal years ended December 31, 1992 through December 31,
1995, the Bank reported net income of between $3.0 million and $3.4 million.
During the same periods the Bank's return on average assets ("ROAA") ranged from
1.76% to 1.34%, while its return on average equity ("ROAE") ranged from 17.12%
to 11.64%. For the year ended December 31, 1996, First Security reported net
income of $452,000, which equated to an ROAA of 0.18% and an ROAE of 1.50%. The
decline in profitability for 1996 was primarily attributable to a mandatory $1.3
million one time assessment to recapitalize the Savings Association Insurance
Fund and a $2.5 million contribution to the Foundation. See "Risk Factors -
Stock Contribution to Charitable Foundation." For the four months ended April
30, 1997, the Bank recorded net income of $761,000, resulting in an annualized
ROAA and ROAE of 0.88% and 7.65%, respectively. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
Capital Strength. As a result of its historic profitability and
commitment to maintaining a high level of capital, First Security has been able
to maintain a strong equity to assets ratio. For each of the fiscal years ended
from December 31, 1993 through December 31, 1996, the Bank's equity to assets
ratio exceeded 11%. At April 30, 1997, the Bank had total equity of $30.0
million, or 11.54% of total assets, which substantially exceeded all of the
applicable regulatory capital requirements with tangible, core and risk-based
capital ratios of 11.4%, 11.4% and 24.4%, respectively. Assuming on a pro forma
basis that $41.2 million, the midpoint of the Estimated Valuation Range, of
shares were sold in the Conversion and approximately 50% of the net proceeds
were contributed by the Holding Company to the Bank, as of April 30, 1997, the
Bank's capital would have been $44.8 million (16.3% of assets). See "Pro Forma
Regulatory Capital Analysis."
Asset Quality. One of the principal aims of First Security's operating
strategy is to maintain a high level of asset quality. The Board has sought to
achieve this goal by emphasizing the origination of one- to four-family
residential mortgage loans in the Bank's market area and by investing in
government-backed or investment grade mortgage-backed and other securities. The
Bank's ratio of non-performing assets to total assets was 0.87% at April 30,
1997. At that date, First Security had no real estate owned.
Core Deposits. The Bank historically has been very successful at
attracting and retaining "core" deposits, which consist primarily of passbook,
NOW and money market accounts. The Bank continues to utilize customer service,
marketing initiatives and community outreach programs in order to maintain and
expand its deposit base. At April 30, 1997, $90.8 million, or 41.4% of the
Bank's total deposits consisted of passbook, NOW and money market accounts.
These accounts generally carry lower interest rates and are believed by the
Board to be more resistant to interest rate changes than certificate accounts.
Niche Strategy. First Security has long been extremely active in
community affairs within its urban market areas which are home to many persons
of Ukrainian, Polish, Eastern European and, more recently, Latin American
descent. Although the Bank historically has focused its operations on the
Chicago market, the Bank purchased in 1994 from the Resolution Trust Corporation
the deposits and many of the loans of Ukrainian Savings and Loan Association, a
5
<PAGE>
Philadelphia, Pennsylvania based thrift located in a community with an ethnic
composition similar to that of the Bank's Chicago urban market areas. As a
result of the Bank's marketing efforts and community involvement, the deposits
of its Philadelphia branch have increased from approximately $22.3 million at
June 24, 1994 to approximately $50.0 million at April 30, 1997.
The Board believes that additional opportunities for future expansion
may exist in other metropolitan areas with demographics similar to those of the
Bank's Chicago and Philadelphia markets. However, there can be no assurance that
the Bank will be able to identify any such additional opportunities, or
successfully conclude a transaction to take advantage of them.
Strong Community Orientation. The Board of Directors strongly believes
that the Bank's success is closely tied to its focus on the financial and other
needs of its community members, many of whom are of Ukrainian, Polish, Eastern
European or, to a lesser extent, Latin American descent. In an attempt to better
serve its customers, all of the Bank's directors and employees are fluent in at
least one language in addition to English. In addition, the Bank encourages its
employees to be active in the community, and substantially all of the Bank's
employees and its directors and senior officers are active in local charitable
community service organizations. Finally, the Bank itself has been highly active
in community affairs as demonstrated by the formation and funding of a
charitable foundation. See "Stock Contribution to Charitable Foundation."
The Board strongly believes that the Bank can maintain the community
orientation which has been so important to its operations only by remaining
independent. The Board believes that the Bank is well positioned to maintain
independent, community oriented operations into the next century and beyond.
Stock Contribution to Charitable Foundation
As a reflection of the Bank's long-standing commitment to the local
community, in 1996, the Bank established The Heritage Foundation of First
Security Federal Savings Bank, Inc. a private charitable foundation under the
Illinois General Not-For-Profit Corporation Act, (the "Foundation"). The
Foundation was established as a means of supporting the needs of the local
community while simultaneously increasing the visibility and reputation of the
Bank. The Foundation was initially funded by the Bank through several cash
contributions aggregating $2.5 million, all of which were accrued by the Bank
during the fourth quarter of 1996. In addition, under the Plan and subject to
member approval, the Holding Company will contribute to the Foundation 250,000
shares of its Common Stock (the "Stock Contribution"). The Stock Contribution
will be either in the form of a direct contribution or a sale of the shares for
their aggregate par value ($2,500). The Holding Company believes that the Stock
Contribution will be fully tax-deductible for both federal and state income tax
purposes.
The Holding Company and the Bank believe that the funding of the
Foundation with Common Stock of the Holding Company is a means of reinforcing
the bond among the Bank and the communities in which the Bank operates, thereby
enabling such communities to share in the potential growth and success of the
Holding Company over the long-term. Although the Stock Contribution will result
in a reduction in the Holding Company's conversion appraisal (but not in its pro
forma capital per share or earnings per share), the Board believes that the
6
<PAGE>
Stock Contribution will enhance the long term value of the Bank by increasing
customer loyalty as well as the size of its customer base. The Board believes
that customer loyalty and community support are critical for the success of
community oriented institutions such as the Bank.
The Board believes that the Stock Contribution will facilitate the
support of charitable activities even during periods when the Holding Company
may not be in a position to support such activities. (Similarly, the Stock
Contribution could enable the Foundation to offset the impact of variations in
contribution levels from the Holding Company by accumulating funds during
periods of relatively large contributions and disbursing such funds during
periods of relatively small contributions.) In addition, the Board believes that
the Stock Contribution will have a highly beneficial public relations impact.
Finally, the Board believes that the Stock Contribution will facilitate the
participation of non-Holding Company personnel in charitable activities. The
Board believes that the Foundation and the making of the Stock Contribution on
the terms described herein represents an opportunity to make a significant
charitable contribution which will benefit the Holding Company and the Bank at a
time when they have adequate capital, are not yet subject to possible earnings
pressure resulting from the Holding Company's status as a public company and
there is a need for charitable funding in the Bank's market area.
The Foundation has been established to qualify as a private foundation
under the Internal Revenue Code of 1986, as amended (the "Code"). As a private
foundation, the Foundation is required to distribute annually in grants or
donations at least 5% of its net investment assets. The Foundation is dedicated
to the promotion of charitable purposes within the communities in which the Bank
operates, including, but not limited to, providing grants or donations to
community groups, cultural activities, youth and elder care and other types of
organizations or projects. While the Foundation is authorized to engage directly
in charitable activities, in order to limit overhead costs, it is currently
anticipated that the Foundation's primary activity will consist of making grants
to other charitable organizations.
The authority for the affairs of the Foundation is vested in the Board
of Trustees of the Foundation which is currently comprised of Chairman
Nadzikewycz, President Kulas and Director Gawryk, each of whom is also currently
a member of the Bank's Board of Directors. Such persons excused themselves from
the Bank Board's vote on the Stock Contribution. Under the terms of the
Foundation's articles of incorporation, new trustees may be selected only by the
Foundation's Board of Trustees.
The Foundation's articles of incorporation provide that the earnings of
the Foundation shall not result in any private benefit for its members, trustees
or officers. In addition, it is anticipated that the Foundation will adopt a
conflicts of interest policy to protect against inappropriate benefits for
trustees or officers of the Foundation and any related parties. While these
provisions would not prohibit the payment of reasonable compensation for
services rendered, the members of the Board of Trustees do not currently receive
fees for service on the Board.
The Trustees of the Foundation are responsible for establishing and
carrying out the policies of the Foundation with respect to grants or donations
by the Foundation, consistent with the purposes for which the Foundation was
established. The Trustees of the Foundation are also responsible for directing
the activities of the Foundation, including the management of the shares of
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<PAGE>
Common Stock held by the Foundation; provided, however, that the voting of any
such shares will be subject to applicable OTS policy regarding foundations.
Under the terms of the OTS letter approving the conversion application, when
matters are presented for a stockholder vote, the shares of Common Stock held by
the Foundation must be voted in the same ratio as all other shares of the Common
Stock. Under such circumstances, the Board and management of the Holding Company
would derive no additional voting control from such shares. However, in the
event that the OTS were to waive this voting restriction, the Foundation's Board
of Trustees would exercise voting control over such shares. Since the
Foundation's Board of Trustees currently consists of three Holding Company
directors, in the event that the OTS were to waive this restriction, the number
of shares over which the Board of Directors of the Holding Company is deemed to
exercise voting control could increase.
It is currently anticipated that the Foundation will adopt a policy
addressing affiliated transactions between the Foundation and the Holding
Company or the Bank. Any transactions between the Foundation and the Bank will
comply with applicable provisions of Sections 23A and 23B of the Federal Reserve
Act, as amended. Additionally, the Holding Company (but not the Bank) may
provide office space and administrative support to the Foundation without
charge.
Under applicable IRS regulations, the Foundation will be authorized to
purchase shares of the Holding Company's Common Stock in the open market,
subject to certain restrictions. However, it is not currently anticipated that
the Foundation will purchase any such shares. The OTS has informed the Holding
Company that any purchases of Common Stock in the open market would be
considered to be purchases by the Holding Company for the purpose of the OTS
limitations on post-conversion stock repurchases. See "Use of Proceeds."
If approved by members, the Stock Contribution will be made within
twelve months following the completion of the Conversion. However, as discussed
below, the Holding Company will recognize the expense related to the Stock
Contribution in the quarter in which the Conversion is completed. Once made, the
Stock Contribution will not be recoverable by the Holding Company or the Bank.
The Foundation may receive working capital from any dividends that may be paid
on the Holding Company's Common Stock in the future and, subject to applicable
federal and state laws, from loans collateralized by the Common Stock or from
the proceeds of the sale of any of the Common Stock in the open market from time
to time as may be permitted to provide the Foundation with additional liquidity.
One of the conditions imposed on the Stock Contribution by the Holding Company
is that the amount of Common Stock that may be sold by the Foundation in any one
year shall not exceed 5% of the average market value of the assets held by the
Foundation, except where the Board of Trustees of the Foundation, by
three-fourths vote, determines that the failure to sell an amount of Common
Stock greater than such amount would result in a long-term reduction in the
value of the Foundation's assets and as such would jeopardize the Foundation's
capacity to carry out its charitable purposes. The Stock Contribution is also
subject to certain conditions imposed by the OTS in connection with its approval
of the Conversion. See "The Conversion -- Stock Contribution to the Charitable
Foundation." and "-- Regulatory Conditions Imposed on the Foundation." Assuming
the sale of shares at the maximum of the Estimated Valuation Range, the Company
will have 4,985,000 shares issued and outstanding, of which the Foundation will
own 250,000 shares or 5.0%. Due to the additional issuance of shares
8
<PAGE>
of Common Stock to the Foundation, persons purchasing shares in the Conversion
will have their ownership and voting interests in the Company diluted. See "Pro
Forma Data."
If the Stock Contribution is approved by the Bank's members, the
Holding Company will recognize a $2.5 million expense (offset in part by a
corresponding tax benefit), during the quarter in which the Conversion is
completed, which is expected to be the third or fourth quarter of fiscal 1997.
Such expense will likely eliminate earnings in the quarter in which it is
recognized and have a material adverse impact on the Holding Company's earnings
for fiscal year 1997. Assuming a contribution valued at $2.5 million, the
Holding Company estimates a net tax-effected expense of $1.5 million. If the
Stock Contribution had been expensed during the four month period ended April
30, 1997, the Bank would have reported a net loss of $739,000 for the four
months ended April 30, 1997 rather than net income of $761,000. For further
discussion of the Foundation and its impact on purchasers of Common Stock in the
Conversion, see "Risk Factors Stock Contribution to a Charitable Foundation" and
"Pro Forma Data."
Because the Stock Contribution will result in dilution, it will reduce
the estimated pro forma market value of the stock to be sold by approximately
$4.8 million at the midpoint of the Estimated Valuation Range. As a result, the
pro forma capital of the Holding Company will be $3.8 million lower at the
midpoint of the Estimated Valuation Range than it would have been without the
Stock Contribution. However, because of the lower number of shares which are
being offered (as a result of the lower appraisal), per share capital and
earnings are expected to be approximately the same. See "Comparison of Valuation
and Pro Forma Information With No Stock Contribution."
As a result of the $4.8 million reduction in the estimated pro forma
market value of the stock to be sold caused by the Stock Contribution, the
amount of shares expected to be purchased by directors and executive officers,
assuming the sale of the midpoint number of shares, increased from 5.4% to 6.0%
of the shares sold. See "The Conversion--Participation by the Board and
Executive Officers." However, it should also be noted that their stock incentive
awards, which are calculated as a percentage of the conversion shares, will be
reduced by the reduction in the estimated pro forma market value of the stock to
be sold caused by the Stock Contribution.
The Stock Contribution is subject to the approval of a majority of the
total outstanding votes of the Bank's members eligible to be cast at the Special
Meeting. The Stock Contribution will be considered as a separate matter from the
vote to approve the Plan of Conversion. If the Bank's members approve the Plan
of Conversion, but not the Stock Contribution, the Bank intends to complete the
Conversion without the Stock Contribution. Failure to approve the Stock
Contribution may materially increase the aggregate pro forma market value of the
Common Stock being offered since the Estimated Valuation Range, as set forth
herein, takes into account the after-tax impact of the Stock Contribution. If
the pro forma market value of the shares of the Common Stock to be sold without
the Stock Contribution is either greater than $54.5 million or less than $35.0
million or if the OTS otherwise requires a resolicitation of subscribers, the
Bank will establish a new Estimated Valuation Range and commence a
resolicitation of subscribers (i.e., subscribers will be permitted to continue
or modify their orders, in which case they will need to affirmatively reconfirm
their subscriptions prior to the expiration of the resolicitation offering or
their subscription funds will be promptly refunded with interest.) Any change in
the Estimated Valuation Range must be approved by the OTS. See "Pro Forma Data,"
"Comparison of Valuation and
9
<PAGE>
Pro Forma Information With No Stock Contribution," and "The Conversion--Stock
Contribution to the Charitable Foundation" and "The Conversion--Stock Pricing."
The Conversion
The Offering is being made in connection with the conversion of First
Security from a federally chartered mutual savings bank to a federally chartered
stock savings bank and the formation of First SecurityFed Financial, Inc. as the
holding company of First Security. The 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 on ______ __, 1997. After the Conversion, the Bank's
current voting members (who include certain deposit account holders and
borrowers) will have no voting rights in First Security and will have no voting
rights in the Holding Company unless they become Holding Company stockholders.
Eligible Account Holders and Supplemental Eligible Account Holders, however,
will have certain liquidation rights in the Bank. See "The Conversion Effects of
Conversion to Stock Form on Depositors and Borrowers of the Bank - Liquidation
Rights."
The Offering. The shares of Common Stock to be issued in the Conversion
are being offered at a Purchase Price of $10.00 per share in the Subscription
Offering pursuant to nontransferable Subscription Rights in the following order
of priority: (i) Eligible Account Holders (i.e., depositors whose accounts in
the Bank totaled $50.00 or more on December 31, 1995); (ii) Tax-Qualified
Employee Plans; provided, however, that the Tax Qualified Employee Plans shall
have first priority Subscription Rights to the extent that the total number of
shares of Common Stock sold in the Conversion exceeds the maximum of the
Estimated Valuation Range; (iii) Supplemental Eligible Account Holders (i.e.,
depositors whose accounts in the Bank totaled $50.00 or more on ________ __,
____); (iv) Other Members (i.e., depositors as of ________ __, ____ and certain
borrowers of the Bank as of ________ __, ____ and _______ __, ____); and (v)
employees, officers and directors of the Bank. Subscription Rights received in
any of the foregoing categories will be subordinated to the Subscription Rights
received by those in a prior category. Subscription Rights will expire if not
exercised by noon, Chicago, Illinois time, on ______ _, ____, unless extended
(the "Expiration Date").
Subject to the prior rights of holders of Subscription Rights and
market conditions at or near the completion of the Subscription Offering, any
shares of Common Stock not subscribed for in the Subscription Offering may be
offered at the same price in a Public Offering and/or Direct Community Offering
through FBR to selected persons to whom this prospectus is delivered. To order
Common Stock in connection with the Public Offering and/or Direct Community
Offering, if any, an executed Order Form and full payment at $10.00 per share in
the form of a check, bank draft or money order must be received by FBR prior to
the termination of such offerings. The date by which orders must be received in
the Public Offering and/or Direct Community Offering, if any, will be set by the
Holding Company at the time of such offering provided that if the Offering is
extended beyond _____ _, 1997, each subscriber will have the right to modify or
rescind his or her subscription. The Holding Company and the Bank reserve the
absolute right to accept or reject any orders in the Public Offering and Direct
Community Offering, in whole or in part.
10
<PAGE>
If necessary, shares of Common Stock may also be offered in connection
with the Public Offering for sale on a best-efforts basis by selected dealers
managed by FBR. See "The Conversion -- Public Offering and Direct Community
Offering."
The Bank and the Holding Company have engaged FBR to consult with and
advise the Holding Company and the Bank with respect to the Offering, and FBR
has agreed to solicit subscriptions and purchase orders for shares of Common
Stock in the Offering. Neither FBR nor any selected broker-dealers will have any
obligation to purchase shares of Common Stock in the Offering. FBR will receive
for its services a marketing fee of 1.0% of the total dollar amount of Common
Stock sold in the Conversion (excluding purchases by directors, officers,
employees and members of their immediate families, the Foundation and the
employee benefit plans of the Holding Company and the Bank, and shares sold by
selected broker-dealers). To the extent selected broker-dealers are utilized in
connection with the sale of shares in the Public Offering, the selected dealers
will receive a fee of up to 4.5% and FBR will receive a fee of 1.0% of the
aggregate Purchase Price for all shares of Common Stock sold through such
broker-dealers. FBR will also receive reimbursement for certain expenses
incurred in connection with the Offering. The Holding Company has agreed to
indemnify FBR against certain liabilities, including certain liabilities under
the Securities Act of 1933, as amended ("Securities Act"). See "The Conversion -
Marketing Arrangements."
The Bank has established a Stock Center, which will be managed by FBR,
to coordinate the Offering, and answer questions about the Offering received by
telephone. All subscribers will be instructed to mail payment to the Stock
Center or deliver payment directly to one of the Bank's offices. In addition,
representatives of FBR will be available to answer questions at the Bank's
Philadelphia, Pennsylvania office. Payment for shares of Common Stock may be
made by cash (if delivered in person), check or money order or by authorization
of withdrawal from deposit accounts maintained with the Bank. Such funds will
not be available for withdrawal and will not be released until the Conversion is
completed or terminated. See "The Conversion - Method of Payment for
Subscriptions."
Purchase Limitations. The Plan of Conversion places limitations on the
number of shares which may be purchased in the Conversion by various categories
of persons. With the exception of the Tax-Qualified Employee Plans, no Eligible
Account Holder, Supplemental Eligible Account Holder, Other Member or director,
officer or employee may purchase in their capacity as such in the Subscription
Offering more than $250,000 of Common Stock; no person, together with associates
of and persons acting in concert with such person, may purchase more than
$250,000 of Common Stock in the Public Offering; and no person or group of
persons acting in concert (other than the Tax-Qualified Employee Plans) may
purchase more than $750,000 of Common Stock in the Conversion. The minimum
purchase limitation is 25 shares of Common Stock. These purchase limits may be
increased or decreased consistent with the Office of Thrift Supervision ("OTS")
regulations at the sole discretion of the Holding Company and the Bank. See "The
Conversion - Offering of Holding Company Common Stock."
Restrictions on Transfer of Subscription Rights. Prior to the
completion of the Conversion, no person may transfer or enter into any agreement
or understanding to transfer the legal or beneficial ownership of the
subscription rights issued under the Plan or the shares of Common Stock to be
11
<PAGE>
issued upon their exercise. Persons found to be selling or otherwise
transferring their right to purchase stock in the Subscription Offering or
purchasing Common Stock on behalf of another person will be subject to
forfeiture of such rights and possible federal penalties and sanctions. See "The
Conversion -- Restrictions on Transfer of Subscription Rights and Shares."
Stock Pricing and Number of Shares of Common Stock to be Issued in the
Conversion. The Purchase Price of the Common Stock is $10.00 per share and is
the same for all purchasers. The aggregate pro forma market value of the Holding
Company and First Security, as converted, was estimated by FinPro, which is
experienced in appraising converting thrift institutions, to be the Estimated
Valuation Range. The Board of Directors has reviewed the Estimated Valuation
Range as stated in the appraisal and compared it with recent stock trading
prices as well as recent pro forma market value estimates for other financial
institutions. The Board of Directors has also reviewed the appraisal report,
including the assumptions and methodology utilized therein, and determined that
it was not unreasonable.
Depending on market and financial conditions at the time of the
completion of the Offering, the total number of shares of Common Stock to be
issued in the Conversion may be increased or decreased significantly from the
4,735,000 shares offered hereby and the Purchase Price may be decreased.
However, subscribers will be permitted to modify or rescind their subscriptions
if the product of the total number of shares to be sold multiplied by the price
per share is less than $35.0 million or more than $54.5 million. The appraisal
is not intended to be, and must not be interpreted as, a recommendation of any
kind as to the advisability of voting to approve the Conversion or of purchasing
shares of Common Stock. The appraisal considers First Security and the Holding
Company only as going concerns and should not be considered as any indication of
the liquidation value of First Security or the Holding Company. Moreover, the
appraisal is necessarily based on many factors which change from time to time.
There can be no assurance that persons who purchase shares in the Offering will
be able to sell such shares at prices at or above the Purchase Price. See "Pro
Forma Data" and "The Conversion - Stock Pricing and Number of Shares to be
Issued" for a description of the manner in which such valuation was made and the
limitations on its use.
Purchases by Directors and Executive Officers
The directors and executive officers of First Security intend to
purchase, for investment purposes and at the same price as the shares are sold
to other investors in the Conversion, approximately $2.1 million of Common
Stock, or 6.0%, 5.1% or 4.4% of the shares to be sold in the Conversion at the
minimum, midpoint and maximum of the Estimated Valuation Range, respectively. In
addition, an amount of shares equal to an aggregate of 8% of the shares to be
issued in the Conversion, including the shares to be issued pursuant to the
Stock Contribution, is anticipated to be purchased by the ESOP. See "The
Conversion -- Participation by the Board and Executive Officers."
12
<PAGE>
Potential 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 Holding Company and the Bank. All employees of the Bank are
eligible to participate in the ESOP after they attain age 21 and complete one
year of service. The Bank's contribution to the ESOP is allocated among
participants on the basis of their relative compensation. Each participant's
account will be credited with cash and shares of Holding Company Common Stock
based upon compensation earned during the year with respect to which the
contribution is made. The ESOP intends to buy up to 8% of the Common Stock
issued in the Conversion, including the shares to be issued pursuant to the
Stock Contribution, (approximately $3.0 million to $4.0 million of the Common
Stock based on the issuance of the minimum and the maximum of the Estimated
Valuation Range and the $10.00 per share Purchase Price). The ESOP will purchase
the shares with funds borrowed from the Holding Company, and it is anticipated
that the ESOP will repay the loans through periodic tax-deductible contributions
from the Bank over a ten-year period. These contributions will increase the
compensation expense of the Bank. See "Management - Benefit Plans - Employee
Stock Ownership Plan" for a description of this plan.
Stock Option and Incentive Plan and Recognition and Retention Plan. The
Board of Directors of the Holding Company intends to adopt a Stock Option and
Incentive Plan (the "Stock Option Plan") and a Recognition and Retention Plan
("RRP") to become effective upon ratification by stockholders following the
Conversion. Certain of the directors and executive officers of the Holding
Company and the Bank will receive awards under these plans. It is currently
anticipated that an amount of shares equal to 10% and 4% of the shares sold in
the Conversion, including the shares to be issued pursuant to the Stock
Contribution, will be reserved for issuance under the Stock Option Plan and RRP,
respectively. Depending upon market conditions in the future, the Holding
Company may purchase shares in the open market to fund these plans. See
"Management - Benefit Plans" for a description of these plans.
Under the proposed Stock Option Plan, it is presently intended that the
directors and executive officers be granted options to purchase, in addition to
the shares to be issued in the Conversion, an amount of shares equal to 8.4% of
the shares issued in the Conversion, including the shares to be issued pursuant
to the Stock Contribution, (or 314,916 and 418,740 shares, respectively, of
Common Stock based on the minimum and maximum of the Estimated Valuation Range)
at an exercise price equal to the market value per share of the Common Stock on
the date of grant. Such options will be awarded at no cost to the recipients and
pose no financial risk to the recipients until exercised. It is presently
anticipated that Julian Kulas, President and Chief Executive Officer, will
receive an option to purchase an amount of shares equal to 2.5% of the shares
issued in the Conversion, including the shares issued pursuant to the Stock
Contribution, (or 93,725 and 124,625 shares, assuming the minimum and maximum of
the Estimated Valuation Range, respectively). See "Management Benefit Plans -
Stock Option and Incentive Plan."
The award and exercise of options pursuant to the Stock Option Plan
will not result in any expense to the Holding Company; however, when the options
are exercised, the interests of existing stockholders will likely be diluted.
13
<PAGE>
It is also intended that directors and executive officers be granted
under the RRP (without any requirement of payment by the grantee) an amount of
shares of restricted stock awards equal to 3.4% of the shares sold in the
Conversion, including the shares issued pursuant to the Stock Contribution, (or
127,466 and 169,490 shares, respectively, based on the minimum and maximum of
the Estimated Valuation Range) which will vest over five years commencing one
year from stockholder ratification and which will have a total value of $1.3
million and $1.7 million based on the Purchase Price of $10.00 per share at the
minimum and maximum of the Estimated Valuation Range, respectively. It is
presently anticipated that President Kulas will receive a restricted stock award
equal to 1.0% of the shares issued in the Conversion, including the shares to be
issued pursuant to the Stock Contribution, (or 37,490 and 49,850 shares,
assuming the minimum and maximum of the Estimated Valuation Range). The
restricted stock award to President Kulas would have an aggregate value ranging
from $374,900 to $498,500 (at the minimum and maximum of the Estimated Valuation
Range) based upon the original Purchase Price of $10.00 per share. See "Risk
Factors - Takeover Defensive Provisions" and "Management - Benefit Plans -
Recognition and Retention Plan."
Following stockholder ratification of the RRP, the RRP will be funded
either with shares purchased in the open market or with authorized but unissued
shares. Based upon the Purchase Price of $10.00 per share, the amount required
to fund the RRP through open-market purchases would range from approximately
$1.5 million (based upon the sale of shares at the minimum of the Estimated
Valuation Range) to approximately $2.0 million (based upon the sale of shares at
the maximum of the Estimated Valuation Range). In the event that the per share
price of the Common Stock increases above the $10.00 per share Purchase Price
following completion of the Offering, the amount necessary to fund the RRP would
also increase. The expense related to the cost of the RRP will be recognized
over the five-year vesting period of the awards made pursuant to such plan. The
use of authorized but unissued shares to fund the RRP would dilute the interests
of stockholders who purchase Common Stock in the Conversion. See "Management -
Benefit Plans - Recognition and Retention Plan."
The Holding Company intends to submit the RRP and the Stock Option Plan
to stockholders for ratification following completion of the Offering, but in no
event prior to six months following the completion of the Conversion. These
plans will only be effective if ratified by the stockholders. In the event the
Stock Option Plan and the RRP are not ratified by stockholders, management may
consider the adoption of alternate incentive plans, although no such plans are
currently contemplated. While the Bank believes that the RRP and the Stock
Option Plan will provide important incentives for the performance and retention
of management, the Bank has no reason to believe that the failure to obtain
shareholder ratification of such plans would result in the departure of any
members of senior management.
Employment and Severance Agreements. The Bank intends to enter into an
employment agreement with President Kulas. It is anticipated that the agreement
will provide for a salary equal to his current salary, will have an initial term
of three years, subject to annual extension for an additional year following the
Bank's annual performance review and will become effective upon the completion
of the Conversion. Under certain circumstances including a change in control, as
defined in the employment agreement, Mr. Kulas will be entitled to a severance
14
<PAGE>
payment in lieu of salary equal to a multiple of his base amount of
compensation, as defined. See "Management - Executive Compensation."
The Bank also intends to enter into change in control severance
agreements with four other executive officers. Such agreements will have initial
terms of 24 months and become effective upon completion of the Conversion. In
the event a covered officer is terminated following a "change in control" (as
defined in the agreements), such officer will be entitled to a severance payment
of 200% of their then current compensation. See "Management - Executive
Compensation - Employment Agreements and Severance Agreements" for the
definition of "change in control" and a more detailed description of these
agreements.
Use of Proceeds
The net proceeds from the sale of Common Stock in the Conversion
(estimated at $29.6 million, $35.0 million, $40.3 million and $46.5 million
based on sales at the minimum, midpoint, maximum and 15% above the maximum of
the Estimated Valuation Range, respectively) will substantially increase the
capital of First Security. See "Pro Forma Data." The Holding Company will
utilize approximately 50% of the net proceeds from the issuance of the Common
Stock to purchase all of the common stock of First Security to be issued upon
Conversion and will retain approximately 50% of the net proceeds. The proceeds
retained by the Holding Company will be invested initially in short-term
investments similar to those currently in the Bank's portfolio. Such proceeds
will subsequently be invested in mortgage-backed securities and investment
securities and will be available for general corporate purposes, including the
possible repurchase of shares of the Common Stock, as permitted by the OTS. The
Holding Company currently has no specific plan to make any such repurchases of
any of its Common Stock. In addition, the Holding Company intends to provide the
funding for the ESOP loan. Based upon the initial Purchase Price of $10.00 per
share, the dollar amount of the ESOP loan would range from $3.0 million (based
upon the sale of shares at the minimum of the Estimated Valuation Range) to $4.0
million (based upon the sale of shares at the maximum of the Estimated Valuation
Range). It is anticipated that the ESOP will repay the loan through periodic
tax-deductible contributions from the Bank over a ten-year period. The interest
rate to be charged by the Holding Company on the ESOP loan will be based upon
the Internal Revenue Service ("IRS") prescribed applicable federal rate at the
time of origination.
Finally, the Holding Company currently intends to use a portion of the
proceeds to fund a Recognition and Retention Plan ("RRP"), subject to
stockholder ratification. Compensation expense related to the RRP will be
recognized as share awards vest. See "Pro Forma Data." Following stockholder
ratification of the RRP, the RRP will be funded either with shares purchased in
the open market or with authorized but unissued shares. Based upon the Purchase
Price of $10.00 per share, the amount required to fund the RRP through
open-market purchases would range from approximately $1.5 million (based upon
the sale of shares at the minimum of the Estimated Valuation Range) to
approximately $2.0 million (based upon the sale of shares at the maximum of the
Estimated Valuation Range). In the event that the per share price of the Common
Stock increases above the $10.00 per share Purchase Price following completion
of the Offering, the amount necessary to fund the RRP would also increase. The
use of authorized but unissued shares to fund the RRP could dilute the interests
of stockholders who purchase Common Stock in the Conversion. See "Management
Benefit Plans - Recognition and Retention Plan."
15
<PAGE>
The net proceeds received by First Security will become part of First
Security's general funds for use in its business and will be used to support the
Bank's existing operations, subject to applicable regulatory restrictions.
Immediately upon the completion of the Conversion, it is anticipated that the
Bank will invest such proceeds into short-term assets. Subsequently, the Bank
intends to redirect the net proceeds to the origination of residential loans
and, to a lesser extent, multi-family and commercial real estate and consumer
loans, subject to market conditions. In addition, a portion of the proceeds may
be used for the creation of one or more de novo branch offices within the
greater Chicago or Philadelphia areas, although the Bank has no specific plans
regarding any new branch offices at this time. Finally, such proceeds will be
available for the acquisition of deposits or assets or both from other
institutions, although no such acquisitions are contemplated at this time.
See "Use of Proceeds" for additional information on the utilization of
the offering proceeds as well as OTS restrictions on repurchases of the Holding
Company's stock.
Dividends
The Holding Company currently has no plans to pay dividends. However,
the Holding Company's Board of Directors may consider a policy of paying
dividends in the future. The declaration and payment of dividends are subject
to, among other things, the Holding Company's financial condition and results of
operations, First Security's compliance with its regulatory capital
requirements, including the fully phased-in capital requirements, tax
considerations, industry standards, economic conditions, regulatory
restrictions, general business practices and other factors. There can be no
assurance as to whether or when the Holding Company will pay a dividend. See
"Dividends."
Market for Common Stock
The Holding Company has received preliminary approval to have the
Common Stock traded on the Nasdaq Stock Market under the symbol "____." In order
to be traded on the Nasdaq Stock Market, there must be at least two market
makers for the Common Stock. FBR has indicated its intention to make a market in
the Holding Company's Common Stock following completion of the Conversion,
depending upon the volume of trading activity in the Common Stock and subject to
compliance with applicable laws and other regulatory requirements. A second
market marker has not yet been secured by the Holding Company. The Holding
Company anticipates that it will be able to secure the two market makers
necessary to enable the Common Stock to be traded on the Nasdaq Stock Market. A
public market having the desirable characteristics of depth, liquidity and
orderliness, however, depends upon the presence in the marketplace of both
willing buyers and sellers of the Common Stock at any given time, which is not
within the control of the Holding Company, First Security or any market maker.
Further, no assurance can be given that an investor will be able to resell the
Common Stock at or above the Purchase Price after the Conversion. See "Market
for Common Stock" and "The Conversion - Stock Pricing and Number of Shares to be
Issued."
16
<PAGE>
Risk Factors
See "Risk Factors" for information regarding certain factors which
should be considered by prospective investors, including interest rate risk
exposure, risks associated with a contribution to a charitable foundation,
competition, takeover defensive provisions contained in the Holding Company's
certificate of incorporation and bylaws, post-conversion overhead expenses,
regulatory oversight, the risk of a delayed offering, the absence of an active
market for the Common Stock and the possible consequences of amendment of the
Plan of Conversion.
17
<PAGE>
SELECTED FINANCIAL INFORMATION
Set forth below are selected financial and other data of the Bank. The
financial data is derived in part from, and should be read in conjunction with
the Consolidated Financial Statements and Notes of the Bank presented elsewhere
in this Prospectus.
In the opinion of management, the unaudited condensed consolidated
financial statements contain all adjustments (consisting only of normal
recurring adjustments) necessary to present fairly the financial condition and
results of operations of First Security as of April 30, 1997 and for the four
month periods ended April 30, 1997 and 1996. Interim results at and for the four
months ended April 30, 1997 are not necessarily indicative of the results that
may be expected for the year ended December 31, 1997.
<TABLE>
<CAPTION>
At December 31,
--------------------------------------------------------------------
At April 30,
1997 1996 1995 1994 1993 1992
---- ---- ---- ---- ---- ----
(In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Selected Financial Condition Data:
Total assets ............................. $260,002 $258,115 $251,922 $227,922 $189,846 $177,443
Cash and cash equivalents ................ 7,104 7,300 19,173 6,800 11,365 8,667
Loans receivable, net(1) ................. 165,914 163,348 144,566 136,207 105,946 97,968
Mortgage-backed securities(2):
Held-to-maturity ....................... 22,389 24,109 25,120 42,621 45,445 37,911
Available-for-sale ..................... 18,616 19,727 20,044 -- -- --
Securities(2)
Held-to-maturity ....................... 28,259 25,779 20,566 17,926 20,804 27,693
Available-for-sale ..................... 8,919 8,997 13,743 15,662 -- --
Deposits ................................. 218,987 219,505 209,387 195,875 161,715 154,559
Total borrowings ......................... 7,500 4,000 10,000 3,000 1,000 1,000
Total equity ............................. 29,950 29,261 29,038 25,555 22,395 19,214
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
Four Months Year Ended
Ended April 30, December 31,
---------------- --------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
---- ---- ---- ---- ---- ---- ----
(In Thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Selected Operations Data:
Total interest income ..................................... $ 6,495 $ 6,124 $19,006 $17,650 $15,710 $13,995 $14,764
Total interest expense .................................... 3,220 3,163 9,494 8,727 6,584 6,068 7,308
------- ------- ------- ------- ------- ------- -------
Net interest income ..................................... 3,275 2,961 9,512 8,923 9,126 7,927 7,456
Provision for loan losses ................................. 574 42 706 136 182 249 184
------- ------- ------- ------- ------- ------- -------
Net interest income after provision for loan losses ....... 2,701 2,919 8,806 8,787 8,944 7,678 7,272
------- ------- ------- ------- ------- ------- -------
Fees and service charges .................................. 116 121 362 378 326 281 229
Gain on sales of securities ............................... -- -- 55 24 5 32 28
Other non-interest income ................................. 81 73 328 454 246 286 171
------- ------- ------- ------- ------- ------- -------
Total non-interest income ................................. 197 194 745 856 577 599 428
Total non-interest expense ................................ 1,657 1,520 8,693(3) 4,690 4,271 3,457 3,173
------- ------- ------- ------- ------- ------- -------
Income before taxes ....................................... 1,241 1,593 858 4,953 5,250 4,820 4,527
Income tax provision ...................................... 480 603 406 1,760 1,825 1,644 1,496
------- ------- ------- ------- ------- ------- -------
Net income ................................................ $ 761 $ 990 $ 452 $ 3,193 $ 3,425 $ 3,176 $ 3,031
======= ======= ======= ======= ======= ======= =======
- -------------
<FN>
(1) The allowance for loan losses at April 30, 1997, December 31, 1996, 1995,
1994, 1993 and 1992 was $1,666,000, $1,520,000, $885,000, $792,000,
$608,000 and $360,000, respectively.
(2) The Bank adopted Statement of Financial Accounting Standards ("SFAS") No.
115, "Accounting for Certain Investments in Debt and Equity Securities,"
effective as of January 1, 1994. Prior to the adoption of SFAS No. 115,
marketable equity securities were carried at the lower of amortized cost or
market value and the remaining securities were carried at amortized cost ,
as adjusted for amortization of premiums and accretion of discounts over
the remaining terms of the securities from the dates of purchase.
(3) Includes $1.3 million SAIF special assessment and $2.5 million cash
contribution to the Foundation.
</FN>
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
Four Months Year Ended
Ended April 30, December 31,
---------------- ------------------------------------------------
1997(1) 1996(1) 1996 1995 1994 1993 1992
------- ------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Selected Financial Ratios and Other Data:
Performance Ratios:
Return on assets (ratio of net income to average
total assets) .......................................... 0.88% 1.19% 0.18%(2) 1.34% 1.62% 1.74% 1.76%
Return on equity (ratio of net income to average equity) 7.65 10.07 1.50 (2) 11.64 14.23 15.21 17.12
Interest rate spread information:
Average during period .............................. 3.45 3.37 3.51 3.61 4.28 4.22 4.16
Net interest margin(4) ............................. 3.96 3.81 3.98 4.00 4.60 4.56 4.54
Ratio of operating expense to average total assets ...... 1.92 1.83 3.45 (2) 1.97 2.03 1.89 1.84
Efficiency Ratio(5) ..................................... 0.48 0.48 0.85 (2) 0.48 0.44 0.41 0.40
Ratio of average interest-earning assets to average
interest-bearing liabilities ....................... 112.96 110.69 111.81 109.93 109.51 109.55 108.56
Quality Ratios:
Non-performing assets to total assets at end of period .. 0.87 1.18 1.44 1.11 0.72 1.05 1.32
Allowance for loan losses to non-performing loans
at end of period ................................... 73.78 33.46 41.30 38.73 55.58 32.02 16.57
Allowance for loan losses to gross loans receivable
at end of period ................................... 0.98 0.52 0.91 0.60 0.57 0.56 0.36
Capital Ratios:
Equity to total assets at end of period(5) .............. 11.63 11.52 11.42 11.52 11.33 11.80 10.83
Average equity to average assets ........................ 11.50 11.84 11.97 11.55 11.42 11.42 10.27
- ------------
<FN>
(1) Ratios for the four-month periods have been annualized.
(2) Excluding the $1.3 million SAIF special assessment and the $2.5 million
cash contribution to the Foundation, net of tax, the return on assets,
return on equity and ratio of operating expense to average total assets
would have been 1.10%, 9.19% and 1.94%, respectively. The efficiency ratio
would have been 0.48.
(3) Net interest income divided by average interest-earning assets.
(4) Ratio is exclusive of unrealized gain (loss) on securities
available-for-sale.
(5) The efficiency ratio represents non-interest expense divided by the sum of
net interest income and non-interest income.
</FN>
</TABLE>
20
<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 Offering.
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. When interest
rates rise, the Bank's net interest income tends to be adversely impacted since
its liabilities tend to reprice more quickly than its assets. Conversely, in a
declining rate environment the Bank's net interest income is generally
positively impacted since its assets tend to reprice more slowly than its
liabilities. 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 generally pay higher
rates of return than savings institutions. Finally, a flattening of the "yield
curve" (i.e., a decline in the difference between long and short term interest
rates), could adversely impact net interest income to the extent that the Bank's
assets have a longer average term than its liabilities.
In managing its asset/liability mix, the Bank often, depending on the
relationship between long- and short-term interest rates, market conditions and
consumer preference, places more emphasis on managing net interest margin than
on better matching the interest rate sensitivity of its assets and liabilities
in an effort to enhance net interest income. In particular, because of customer
demand, a large majority of the Bank's residential loans carry fixed interest
rates. As a result, the Bank will continue to be significantly vulnerable to
changes in interest rates and to decreases in the difference between long and
short term interest rates.
The Bank has taken a number of steps to limit its sensitivity to
interest rate changes. Nevertheless, at March 31, 1997, the most recent date for
which data is available, the Bank's net portfolio value would have declined by
29% and 58%, respectively, in the event of instantaneous 200 and 400 basis point
increases in general interest rates. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations - Asset/Liability Management."
21
<PAGE>
Risks Associated with the Stock Contribution to a Charitable Foundation
The Stock Contribution is subject to the approval of the Bank's members
at the Special Meeting. If approved by members, the Stock Contribution will be
made within 12 months following the completion of the Conversion and will be
expensed when the Conversion is completed, which is expected in the third or
fourth quarter of 1997.
Negative Impact on Earnings. Assuming receipt of approval of the Bank's
members, the Stock Contribution will have an adverse impact on the Holding
Company's earnings. The Holding Company will recognize an expense in the amount
of the $2.5 million ($1.5 million net of taxes) in the quarter in which the
Conversion is completed, which is expected to be the third or fourth quarter of
fiscal 1997. Such expense will reduce earnings and have a material adverse
impact on the Holding Company's earnings in the fiscal quarter and year
recorded. The Holding Company has been advised by its independent accountants
that the Stock Contribution will be tax deductible, subject to a limitation
based on 10% of the Holding Company's annual taxable income. If the Stock
Contribution had been made at April 30, 1997, the Bank would have reported a net
loss of $739,000 for the prior four month period rather than net income of
$761,000.
Dilution of Stockholder's Interests. The Stock Contribution will
involve the donation of 250,000 shares of the Common Stock, or the sale of such
shares for their aggregate par value ($2,500), to the Foundation. Upon
completion of the Conversion and the Stock Contribution, the Holding Company
will have 4,367,000 shares issued and outstanding at the midpoint of the
Estimated Valuation Range, of which the Foundation will own 250,000 shares, or
5.7%. As a result, persons purchasing shares in the Conversion will have their
share ownership and voting interest in the Holding Company diluted by 5.7%. See
"Pro Forma Data."
Possible Nondeductibility of the Stock Contribution. The Foundation has
submitted a request to the Internal Revenue Service ("IRS") to be recognized as
a tax-exempt organization under Section 501(c)(3) of the Code. Assuming that the
Foundation so qualifies, the Holding Company will be entitled to a deduction in
the amount of the Stock Contribution, subject to an annual limitation based on
10% of the Holding Company's annual taxable income. The Holding Company,
however, would be able to carry forward any unused portion of the deduction for
five years following the Stock Contribution for Federal and Illinois tax
purposes. Based on present information, the Holding Company currently estimates
that the Stock Contribution should be fully deductible for federal tax and
Illinois purposes. However, no assurances can be made that the Holding Company
will have sufficient pre-tax income over the five-year period following the year
in which the Stock Contribution is made to utilize fully the carryover related
to the excess contribution. There can be no assurances that the IRS will
recognize the Foundation as a Section 501(c)(3) exempt organization or that any
deductions related to the Stock Contribution, the cash contribution or any other
subsequent contributions will be permitted. In such event, the Holding Company's
tax benefit related to the Foundation would have to be reversed, resulting in a
reduction in earnings in the year in which the IRS makes such a determination.
Potential Change in Valuation and Capital if the Stock Contribution is
Not Made. The Stock Contribution was taken into account by FinPro in determining
the estimated pro forma market value of the Holding Company. The aggregate price
of the shares of Common Stock being offered in the Offering is based upon the
Appraisal. The pro forma aggregate price of the shares being offered for sale in
the Conversion is currently estimated to be between $35.0 million and $54.5
22
<PAGE>
million, with a midpoint of $41.2 million. The pro forma price to book value
ratio and the pro forma price to earnings ratio are 66.23% and 13.33x,
respectively, at the midpoint of the Estimated Valuation Range.
If the Stock Contribution is not part of the Conversion, the Estimated
Valuation Range of the shares being offered is estimated to be between $39.1
million and $60.8 million. This represents an increase of $4.8 million at the
midpoint of the Estimated Valuation Range. In such event the estimated pro forma
stockholders' equity of the Holding Company would be approximately $69.4 million
at the midpoint based on a pro forma price to book ratio of 66.29% and a pro
forma price to earnings ratio of 13.33x. See "Comparison of Valuation and Pro
Forma Information with No Stock Contribution."
The decrease in the amount of Common Stock being offered for sale as a
result of the Stock Contribution will not have a significant effect on the
Holding Company's or the Bank's capital position. The Bank's regulatory capital
is significantly in excess of its regulatory capital requirements and will
further exceed such requirements following the Conversion. The Bank's tangible,
core and risk-based capital ratios at April 30, 1997 were 11.4%, 11.4% and
24.4%, respectively. Assuming the sale of shares at the midpoint of the
Estimated Valuation Range, the Bank's pro forma tangible, core and risk-based
capital ratios at April 30, 1997 would be 16.2%, 16.2% and 35.3%, respectively.
On a consolidated basis, as of April 30, 1997, the Holding Company's pro forma
stockholders' equity would be $65.9 million, assuming the sale of shares at the
midpoint of the Estimated Valuation Range and contribution to the Foundation.
Pro forma stockholders' equity per share at April 30, 1997 and pro forma net
earnings per share for the four months ended April 30, 1997 would be $15.10 and
$0.25, respectively. If the Stock Contribution were not made in the Conversion,
based on the FinPro estimate, the Holding Company's pro forma stockholders'
equity would be approximately $69.4 million at the midpoint of the estimate and
pro forma stockholders' equity per share and pro forma net earnings per share
would be approximately the same with the Stock Contribution as without the Stock
Contribution. See "Comparison of Valuation and Pro Forma Information with No
Stock Contribution."
Potential Anti-Takeover Effect. If the Stock Contribution is approved
by the Bank's members, upon completion of the Conversion, assuming the sale of
the midpoint number of the Conversion shares of the Estimated Valuation Range,
the Foundation would own 5.7% of the Holding Company's outstanding shares. Such
shares will be owned solely by the Foundation; however pursuant to the terms of
the Stock Contribution as mandated by the OTS, the shares of Common Stock of the
Holding Company held by the Foundation must be voted in the same ratio as other
shares of the Holding Company's Common Stock on all proposals considered by the
stockholders of the Holding Company. See "The Conversion -- Stock Contribution
to Charitable Foundation -- Regulatory Conditions Imposed on the Foundation."
The Holding Company and the Foundation will take the necessary steps to provide
such requirement in the Foundation's corporate governance documents. As such,
the Holding Company does not believe the Foundation will have an anti-takeover
effect on the Holding Company. In the event that the OTS were to waive this
voting restriction, the Foundation's Board of Trustees would exercise sole
voting power over such shares and would no longer be subject to the voting
restriction. However, the OTS could impose additional conditions at that time on
the composition of the Board of the Foundation or which otherwise relate to
control of the Common Stock of the Holding Company held by the Foundation. See
"The Conversion -- the Stock Contribution to the Charitable Foundation --
Regulatory Conditions Imposed on the Foundation." If a waiver of the voting
restriction were granted by the OTS and no
23
<PAGE>
further conditions were imposed on the Foundation at that time, management of
the Holding Company and the Bank could benefit to the extent that the Board of
Trustees of the Foundation determines to vote the shares of Common Stock held by
the Foundation in favor of proposals supported by the Holding Company and the
Bank. Furthermore, when the Foundation's shares are combined with shares
purchased directly by executive officers and directors of the Holding Company,
shares issued pursuant to proposed stock benefit plans, and shares held in the
Bank's ESOP, the aggregate of such shares could exceed 20% of the Holding
Company's outstanding Common Stock, which could enable management to defeat
stockholder proposals requiring 80% approval. Consequently, this potential
voting control might preclude takeover attempts that other stockholders deem to
be in their best interest, and might tend to perpetuate management. Since the
ESOP shares are allocated to eligible employees of the Bank, and any unallocated
shares will be voted by an independent trustee, and because awards under the
proposed stock benefit plans may be granted to employees other than executive
officers and directors, management of the Holding Company does not expect to
have voting control of all shares held or to be allocated by the ESOP or other
stock benefit plans. See, "-- Certain Anti-Takeover Provisions Which May
Discourage Takeover Attempts -- Voting Control of Officers and Directors."
There are no agreements or understandings, written or tacit, with
respect to the exercise of either direct or indirect control over the management
or policies of the Holding Company by the Foundation, including agreements
related to voting, acquisition or disposition of the Holding Company's Common
Stock. Finally, as the Foundation sells its shares of Common Stock over time,
its ownership interest and voting power in the Holding Company is expected to
decrease.
Potential Challenges. The funding of a charitable foundation as part of
a conversion is innovative and has occurred on only a few other occasions. As
such, the Stock Contribution may be subject to potential challenges
notwithstanding that the Boards of Directors of the Holding Company and the Bank
have carefully considered the various factors involved in the establishment of
the Foundation in reaching their determination to make the Stock Contribution as
part of the Conversion. See "The Conversion--the Stock Contribution to the
Charitable Foundation" In conjunction with its approval of the Conversion, the
Bank determined to submit the Stock Contribution to a vote of members so that
members have a right to vote on whether the Stock Contribution should be made.
If an action were instituted seeking to require the Bank to eliminate the Stock
Contribution in connection with the Conversion, no assurances can be made that
the resolution of such action would not result in a delay in the consummation of
the Conversion or that any objecting persons would not be ultimately successful
in obtaining such removal or other equitable relief or monetary damages against
the Holding Company or the Bank. Additionally, if the Holding Company and the
Bank are forced to eliminate the Stock Contribution, the Holding Company may be
required to resolicit subscribers in the Offering.
Approval of Members. The Stock Contribution is subject to the approval
of a majority of the total outstanding votes of the Bank's members eligible to
be cast at the Special Meeting. The Stock Contribution will be considered as a
separate matter from the proposal to approve the Plan of Conversion. If the
Bank's members approve the Plan of Conversion, but not the Stock Contribution,
the Bank intends to complete the Conversion without the Stock Contribution.
Failure to approve the Stock Contribution may materially increase the pro forma
24
<PAGE>
market value of the Common Stock being offered for sale in the Offering since
the Estimated Valuation Range, as set forth herein, takes into account the
expense related to the Stock Contribution. If the pro forma market value of the
shares to be sold of the Holding Company stock to be sold without the Stock
Contribution is either greater than $54.5 million or less than $35.0 million or
if the OTS otherwise requires a resolicitation of subscribers, the Bank will
establish a new Estimated Valuation Range and commence a resolicitation of
subscribers (i.e., subscribers will be permitted to continue or modify their
orders, in which case they will need to affirmatively reconfirm their
subscriptions prior to the expiration of the resolicitation offering or their
subscription funds will be promptly refunded with interest.) Any change in the
Estimated Valuation Range must be approved by the OTS. "See The Conversion--
Stock Pricing."
Competition
First Security experiences significant competition in its local market
area in both originating real estate and other loans and attracting deposits.
This competition arises from other savings institutions as well as credit
unions, mortgage banks, commercial banks, mutual funds and, national and local
securities firms. Due to their size, many competitors can achieve certain
economies of scale and as a result offer a broader range of products and
services than the Bank. The Bank attempts to mitigate the effect of such factors
by emphasizing customer service and community outreach. Such competition may
limit First Security's growth in the future. See "Business - Competition."
Geographic Concentration of Business Activities
The Bank's lending and deposit gathering activities are focused
primarily on selected communities of the greater Chicago and Philadelphia areas.
In the event that such communities experienced an economic slow down or a
decline in real estate values, the Bank's results of operations could be
materially adversely affected. See "Business -- Market Area."
Takeover Defensive Provisions
Holding Company and Bank Governing Instruments. Certain provisions of
the Holding Company's Certificate of Incorporation and Bylaws assist the Holding
Company in maintaining its status as an independent publicly owned corporation.
However, such provisions may also block stockholders from approving a potential
takeover of the Holding Company which a majority of such stockholders believe to
be in their best interests. 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, 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 Holding Company as the sole shareholder of the
Bank. The 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
25
<PAGE>
violating this restriction may not vote the 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 Holding 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. 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 OTS approval. Federal law also requires OTS approval prior to the
acquisition of "control" (as defined in OTS regulations) of an insured
institution, including a holding company thereof. See "Restrictions on
Acquisitions of Stock and Related Takeover Defensive Provisions."
Employment Agreement, Severance Agreements and Other Benefit Plans. The
employment agreement, severance agreements, the proposed Stock Option Plan and
the proposed RRP also contain provisions that could have the effect of
discouraging takeover attempts of the Holding Company.
The Bank intends to enter into an employment agreement with President
Kulas and severance agreements with four other executive officers. The
employment agreement provides for an annual base salary in an amount not less
than the employee's current salary and an initial term of three years. The
agreement may be extended for an additional year on each annual anniversary
date, but only if such extensions are approved by the Board of Directors. The
employment agreement also provides for payment of the employee's salary to the
employee for the remainder of the term of the agreement, plus an additional
amount, the sum of which will not exceed a percentage of the employee's base
compensation, in the event there is a "change in control" of the Bank (as
defined in the agreement) where employment terminates involuntarily in
connection with such change in control or within 12 months thereafter.
The Bank also intends to enter into change in control severance
agreements with four other executive officers. Such agreements become effective
upon completion of the Conversion and have initial terms of 24 months. In the
event the officer is terminated following a change in control (as defined in the
agreements), such officer will be entitled to a severance payment equal to 200%
of such employee's annual compensation. Finally, the Bank intends to adopt a
Severance Compensation Plan providing other employees with certain severance
benefits in the event they are terminated within 12 months following a change in
control. For more information regarding these agreements, see "Management -
Executive Compensation."
Possible Dilutive Effects. The issuance of additional shares pursuant
to the proposed Stock Option Plan and RRP will result in a dilution in the
percentage of ownership of the Holding Company of those persons purchasing
Common Stock in the Conversion, assuming that the shares utilized to fund the
proposed Stock Option Plan and RRP awards come from authorized but unissued
26
<PAGE>
shares. Assuming the exercise of all options available under the Stock Option
Plan and the award of all shares available under the RRP, and assuming the use
of authorized but unissued shares, the interest of stockholders will be diluted
by approximately 9.1% and 3.8%, respectively. 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, grants under the
proposed RRP will result in the recording of compensation expense over the
vesting period. See "Pro Forma Data."
Voting Control of Directors and Executive Officers. The directors and
executive officers (13 persons) of the Bank are anticipated to purchase an
aggregate of approximately $2.1 million or approximately 6.0% of the shares
offered in the Conversion at the minimum of the Estimated Valuation Range, or
4.4% of the shares offered in the Conversion at the maximum of the Estimated
Valuation Range, exclusive of shares that may be attributable to directors and
officers through the RRP, the Stock Option Plan and the ESOP, which may give
directors, executive officers and employees the potential to control the voting
of additional Common Stock. In addition, in connection with the Conversion the
Foundation will receive 250,000 shares of Common Stock which, if a waiver of the
voting restriction imposed on such Common Stock is obtained from the OTS, may be
voted as determined by the Trustees of the Foundation who also will be directors
or officers of the Holding Company and the Bank. Management's voting control
could, together with additional stockholder support, defeat stockholder
proposals requiring 80% approval of stockholders. As a result, this voting
control may preclude takeover attempts that certain stockholders deem to be in
their best interest and tend to perpetuate existing management. See
"Restrictions on Acquisition of the Holding Company and the Bank--Restrictions
in the Holding Company's Certificate of Incorporation and Bylaws."
Post Conversion Overhead Expense
After completion of the Conversion, the Holding Company's noninterest
expense is likely to increase as a result of the financial accounting, legal and
tax expenses usually associated with operating as a public company. See
"Regulation - Federal and State Taxation" and "Additional Information." In
addition, it is currently anticipated that the Holding Company will record
additional expense based on the proposed RRP. See "Pro Forma Data" and
"Management - Benefit Plans Recognition and Retention Plan." Finally, the
Holding Company will also record additional expense as a result of the adoption
of the ESOP. See "Management - Benefit Plans - Employee Stock Ownership Plan."
Statement of Position 93-6 "Employers' Accounting for Employee Stock
Ownership Plans" ("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, SOP 93-6 would increase compensation
expense relating to the ESOP to be established in connection with the
Conversion. It is not possible 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 - Impact of New Accounting
Standards" and "Pro Forma Data."
27
<PAGE>
In addition, the Company will experience additional expense in the
quarter in which the Conversion is completed as a result of the Stock
Contribution. See "The Conversion--Stock Contribution to the Charitable
Foundation."
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 Federal Home Loan Bank (the "FHLB") of Chicago and
is subject to certain limited regulation by the Board of Governors of the
Federal Reserve System ("Federal Reserve Board"). As the savings and loan
holding company of the Bank, the Holding Company will be subject to regulation
and oversight by the OTS. 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. 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, the adequacy of an institution's capital and allowance for loan
losses and the assessment of fees to protect the insurance funds. See
"Regulation - Federal Regulation of Savings Associations" and "- Regulatory
Capital Requirements." Any change in such regulation and oversight, whether by
the OTS, the Federal Reserve Board, the FDIC or Congress, could have a material
impact on the Holding Company, the Bank and their respective operations.
Risk of Delayed Offering
The Subscription Offering will expire at ____, Chicago, Illinois time,
on _____ __, 1997 unless extended by the Bank and the Holding Company. Depending
on the availability of shares and market conditions at or near the completion of
the Subscription Offering, the Holding Company may conduct a Public Offering
through FBR. If the Offering is 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
Offering will not be extended as set forth above.
A material delay in the completion of the sale of all unsubscribed
shares in the Public Offering or otherwise may result in a significant increase
in the costs in completing the Conversion. Significant changes in the Bank's
operations and financial condition, the aggregate market value of the shares to
be issued in the Conversion and general market conditions may occur during such
material delay. In the event the Conversion is not consummated within 24 months
after the date of the Special Meeting, OTS regulations would require the Bank to
charge accrued Conversion costs to then-current period operations. See "The
Conversion - Risk of Delayed Offering."
Absence of Active Market for the Common Stock
The Holding Company, as a newly organized company, has never issued
capital stock. Consequently, there is not at this time any market for the Common
Stock. The Common Stock has received preliminary approval for listing on the
Nasdaq National Market under the symbol "____." FBR has agreed to act as a
28
<PAGE>
market maker and to assist the Holding Company in securing a second market maker
to make a market in the Common Stock. However, there can be no assurance that at
least two market makers will be obtained, that the Bank will receive final
approval for listing on the Nasdaq National Market, that an active and liquid
market for the Common Stock will develop or be maintained or that resales of the
Common Stock can be made at or above the Purchase Price. See "Market for Common
Stock."
FIRST SECURITYFED FINANCIAL, INC.
The Holding Company was formed at the direction of First Security in
July 1997 for the purpose of becoming a savings and loan holding company and
owning all of the outstanding stock of the Bank issued in the Conversion. The
Holding Company is incorporated under the laws of the State of Delaware. The
Holding Company is authorized to do business in the State of Illinois, and
generally is authorized to engage in any activity that is permitted by the
Delaware General Corporation Law. The business of the Holding Company initially
will consist only of the business of First Security. The holding company
structure will, however, provide the Holding Company with greater flexibility
than the Bank has to diversify its business activities, through existing or
newly formed subsidiaries, or through acquisitions or mergers of stock financial
institutions, as well as, other companies. Although there are no current
arrangements, understandings or agreements regarding any such activity or
acquisition, the Holding Company will be in a position after the Conversion,
subject to regulatory restrictions, to take advantage of any favorable
acquisition opportunities that may arise.
The assets of the Holding Company will consist initially of the stock
of First Security, a note evidencing the Holding Company's loan to the ESOP and
up to 50% of the net proceeds from the Conversion (less the amount used to fund
the ESOP loan). See "Use of Proceeds." Initially, any activities of the Holding
Company are anticipated to be funded by such retained proceeds and the income
thereon and dividends from First Security, if any. See "Dividends" and
"Regulation Holding Company Regulation." Thereafter, activities of the Holding
Company may also be funded through sales of additional securities, through
borrowings and through income generated by other activities of the Holding
Company. At this time, there are no plans regarding such other activities other
than the intended loan to the ESOP to facilitate its purchase of Common Stock in
the Conversion. See "Management - Benefit Plans - Employee Stock Ownership
Plan."
The executive office of the Holding Company is located at 936 North
Western Avenue, Chicago, Illinois 60622-4695. Its telephone number at that
address is (773) ___-____.
FIRST SECURITY
First Security serves the financial needs of communities in its market
area through its main office located at 936 North Western Avenue, Chicago,
Illinois and its branch offices located in Chicago, Illinois, Philadelphia,
Pennsylvania and Rolling Meadows, Illinois. Its deposits are insured up to
applicable limits by the Federal Deposit Insurance Corporation ("FDIC"). At
April 30, 1997, First Security had total assets of $260.0 million, deposits of
$219.0 million and equity of $30.0 million (or 11.54% of total assets).
First Security has been, and intends to continue to be, an independent,
community oriented, financial institution. First Security's business involves
attracting deposits from the general public and using such deposits, together
29
<PAGE>
with other funds, to originate one- to four-family residential mortgage loans
and, to a lesser extent, multi-family and commercial real estate, consumer and
other loans primarily in its market area. At April 30, 1997, $137.5 million, or
81.32%, of the Bank's total loan portfolio consisted of residential one- to
four-family mortgage loans. See "Business - Lending Activities." The Bank also
invests in mortgage-backed and other securities and other permissible
investments. See "Business - Investment Activities - Securities" and "-
Mortgage-Backed and Related Securities."
The executive office of the Bank is located at 936 North Western
Avenue, Chicago, Illinois 60662-4695. Its telephone number at that address is
(773) 772-4500.
USE OF PROCEEDS
Although the actual net proceeds from the sale of the Common Stock
cannot be determined until the Conversion is completed, it is presently
anticipated that such net proceeds will be between $34.1 million and $46.3
million (or up to $53.4 million in the event of an increase in the aggregate pro
forma market value of the Common Stock of up to 15% above the maximum of the
Estimated Valuation Range). See "Pro Forma Data" and "The Conversion - Stock
Pricing and Number of Shares to be Issued" as to the assumptions used to arrive
at such amounts.
In exchange for all of the common stock of First Security issued in the
Conversion, the Holding Company will contribute approximately 50% of the net
proceeds from the sale of the Holding Company's Common Stock to First Security.
On an interim basis, the proceeds will be invested by the Holding Company and
First Security in short-term investments similar to those currently in the
Bank's portfolio. The specific types and amounts of short-term assets will be
determined based on market conditions at the time of the completion of the
Conversion. In addition, the Holding Company intends to provide the funding for
the ESOP loan. Based upon the initial Purchase Price of $10.00 per share, the
dollar amount of the ESOP loan would range from $3.0 million (based upon the
sale of shares at the minimum of the Estimated Valuation Range) to $4.0 million
(based upon the sale of shares at the maximum of the Estimated Valuation Range).
The interest rate to be charged by the Holding Company on the ESOP loan will be
based upon the IRS prescribed applicable federal rate at the time of
origination. It is anticipated that the ESOP will repay the loan through
periodic tax-deductible contributions from the Bank over a ten-year period.
The net proceeds received by First Security will become part of First
Security's general funds for use in its business and will be used to support the
Bank's existing operations, subject to applicable regulatory restrictions.
Immediately upon the completion of the Conversion, it is anticipated that the
Bank will invest such proceeds into short-term assets. Subsequently, the Bank
will redirect the net proceeds to the origination of loans, subject to market
conditions.
After the completion of the Conversion, the Holding Company will
redirect the net proceeds invested by it in short-term assets into a variety of
mortgage-backed securities and other securities similar to those already held by
the Bank. Also, the Holding Company may use a portion of the proceeds to fund
the RRP, subject to shareholder approval of such plan. Compensation expense
related to the RRP will be recognized as share awards vest. See "Pro Forma
30
<PAGE>
Data." Following stockholder ratification of the RRP, the RRP will be funded
either with shares purchased in the open market or with authorized but unissued
shares. Based upon the initial Purchase Price of $10.00 per share, the amount
required to fund the RRP through open-market purchases would range from
approximately $1.5 million (based upon the sale of shares at the minimum of the
Estimated Valuation Range) to approximately $2.0 million (based upon the sale of
shares at the maximum of the Estimated Valuation Range). In the event that the
per share price of the Common Stock increases above the $10.00 per share
Purchase Price following completion of the Offering, the amount necessary to
fund the RRP would also increase. The use of authorized but unissued shares to
fund the RRP could dilute the holdings of stockholders who purchase Common Stock
in the Conversion. See "Business Lending Activities" and " - Investment
Activities" and "Management - Benefit Plans - Employee Stock Ownership Plan" and
"- Recognition and Retention Plan."
The proceeds may also be utilized by the Holding Company to repurchase
(at prices which may be above or below the initial offering price) shares of the
Common Stock through an open market repurchase program subject to limitations
contained in OTS regulations, although the Holding Company currently has no
specific plan to repurchase any of its stock. In the future, the Board of
Directors of the Holding Company will make decisions on the repurchase of the
Common Stock based on its view of the appropriateness of the price of the Common
Stock as well as the Holding Company's and the Bank's investment opportunities
and capital needs. Under current OTS regulations, no repurchases may be made
within the first year following Conversion except with OTS approval under
"exceptional circumstances." During the second and third years following
Conversion, OTS regulations permit, subject to certain limitations, the
repurchase of up to five percent of the outstanding shares of stock during each
twelve-month period with a greater amount permitted with OTS approval. In
general, the OTS regulations do not restrict repurchases thereafter, other than
limits on the Bank's ability to pay dividends to the Holding Company to fund the
repurchase. For a description of the restrictions on the Bank's ability to
provide the Holding Company with funds through dividends or other distributions,
see "Dividends" and "The Conversion Restrictions on Repurchase of Stock."
The Bank may use a portion of the proceeds to fund the creation of one
or more new branch offices within the greater Chicago or Philadelphia areas,
although the Bank has no specific plans regarding any new branch offices at the
time. In addition, the Holding Company or First Security might consider
expansion through the acquisition of other financial services providers (or
branches, deposits or assets thereof), although there are no specific plans,
negotiations or written or oral agreements regarding any acquisitions at this
time.
DIVIDENDS
The Holding Company currently has no plans to pay dividends. However,
the Holding Company's Board of Directors may consider a policy of paying
dividends in the future. Dividends, when and if paid, will be subject to
determination and declaration by the Board of Directors at its discretion. They
will take into account the Holding Company's consolidated financial condition,
the Bank's regulatory capital requirements, including the fully phased-in
capital requirements, tax considerations, industry standards, economic
conditions, regulatory restrictions, general business practices and other
factors. The Holding Company may also consider making a one time only special
dividend or distribution (including a tax-free return of capital) provided that
31
<PAGE>
the Holding Company will take no steps toward making such a distribution for at
least one year following the completion of the Conversion.
It is not presently anticipated that the Holding Company will conduct
significant operations independent of those of First Security for some time
following the Conversion. As such, the Holding Company does not expect to have
any significant source of income other than earnings on the net proceeds from
the Conversion retained by the Holding Company (which proceeds are currently
estimated to range from $17.0 million to $23.2 million based on the minimum and
the maximum of the Estimated Valuation Range, respectively) and dividends from
First Security, if any. Consequently, the ability of the Holding Company to pay
cash dividends to its stockholders will be dependent upon such retained proceeds
and earnings thereon, and upon the ability of First Security to pay dividends to
the Holding Company. See "Description of Capital Stock - Holding Company Capital
Stock - Dividends." First Security, like all savings associations regulated by
the OTS, is subject to certain restrictions on the payment of dividends based on
its net income, its capital in excess of the regulatory capital requirements and
the amount of regulatory capital required for the liquidation account to be
established in connection with the Conversion. See "The Conversion - Effects of
Conversion to Stock Form on Depositors and Borrowers of the Bank - Liquidation
Rights in Proposed Converted Institution" and "Regulation - Regulatory Capital
Requirements" and "- Limitations on Dividends and Other Capital Distributions."
Earnings allocated to First Security's "excess" bad debt reserves and deducted
for federal income tax purposes cannot be used by First Security to pay cash
dividends to the Holding Company without adverse tax consequences. See
"Regulation - Federal and State Taxation."
MARKET FOR COMMON STOCK
First Security, as a mutual thrift institution, and the Holding
Company, as a newly organized company, have never issued capital stock.
Consequently, there is not at this time an existing market for the Common Stock.
The Common Stock has been preliminarily approved for trading on the Nasdaq Stock
Market under the symbol "____" upon completion of the Conversion. In order to be
quoted on the Nasdaq Stock Market, among other criteria, there must be at least
two market makers for the Common Stock. FBR has agreed, subject to certain
conditions, to act as a market maker for the Holding Company's Common Stock
following the Conversion, and assist in securing a second market maker to do the
same. A public trading market having the desirable characteristics of depth,
liquidity and orderliness depends upon the presence in the marketplace of both
willing buyers and sellers of the Common Stock at any given time. Accordingly,
there can be no assurance that an active and liquid market for the Common Stock
will develop or be maintained or that resales of the Common Stock can be made at
or above the Purchase Price. See "The Conversion - Stock Pricing and Number of
Shares to be Issued."
32
<PAGE>
PRO FORMA DATA
The following table sets forth the historical net income, equity and
per share data of First Security at and for the four months ended April 30, 1997
and the fiscal year ended December 31, 1996, and after giving effect to the
Conversion, the pro forma net income, capital stock and stockholders' equity and
per share data of the Holding Company at and for the four months ended April 30,
1997 and the fiscal year ended December 31, 1996. The pro forma data has been
computed on the assumptions that (i) the specified number of shares of Common
Stock was sold at the beginning of the specified periods and yielded net
proceeds to the Holding Company as indicated, (ii) 250,000 shares were donated
to the Foundation upon the completion of the Conversion, (iii) 50% of such net
proceeds were retained by the Holding Company and the remainder were used to
purchase all of the stock of First Security, and (iv) such net proceeds, less
the amount of the ESOP and RRP funding, were invested by the Bank and Holding
Company at the beginning of the periods to yield a pre-tax return of 5.90% for
the four months ended April 30, 1997 and for the fiscal year ended December 31,
1996. The assumed return is based upon the market yield rate of one-year U.S.
Government Treasury Securities as of April 30, 1997. The use of this current
rate is viewed to be more relevant in the current interest rate environment than
the use of an arithmetic average of the weighted average yield earned by the
Bank on its interest-earning assets and the weighted average rate paid on its
deposits during such periods. In calculating the underwriting fees to be paid as
part of the Offering, the table assumes that (i) no commission was paid on $2.1
million of shares sold to directors, officers and employees, (ii) 8% of the
total shares issued in the Conversion including the Stock Contribution shares
were sold to the ESOP at no commission, and (iii) the remaining shares were sold
at a 1.0% commission. (These assumptions represent management's estimate as to
the distribution of stock orders in the Conversion. However, there can be no
assurance that such estimate will be accurate and that a greater proportion of
shares will not be sold at a higher commission, thus increasing offering
expenses.) Fixed expenses are estimated to be $540,000. Actual Conversion
expenses may be more or less than those estimated because the fees paid to FBR
and other brokers will depend upon the categories of purchasers, the Purchase
Price and market conditions and other factors. The pro forma net income amounts
derived from the assumptions set forth herein should not be considered
indicative of the actual results of operations of the Holding Company that would
have been attained for any period if the Conversion had been actually
consummated at the beginning of such period, and the assumptions regarding
investment yields should not be considered indicative of the actual yields
expected to be achieved during any future period.
The total number of shares to be issued in the Conversion may be
increased or decreased significantly, or the price per share decreased, to
reflect changes in market and financial conditions prior to the close of the
Offering. However, if the aggregate Purchase Price of the Common Stock sold in
the Conversion is below $34,990,000 (the minimum of the Estimated Valuation
Range) or more than $54,450,000 (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."
33
<PAGE>
The following table assumes that the Stock Contribution is approved as
part of the Conversion and therefore gives effect to the issuance of authorized
but unissued shares of the Holding Company's Common Stock to the Foundation
concurrently with the completion of the Conversion.
<TABLE>
<CAPTION>
At or For the Four Months Ended April 30, 1997
---------------------------------------------------------
15% Above
Minimum Midpoint Maximum Maximum
3,749,000 4,367,000 4,985,000 5,695,000
Shares at Shares at Shares at Shares at
$10.00 per $10.00 per $10.00 per $10.00 per
Share Share Share Share
----- ----- ----- -----
(Dollars in Thousands, Except Per Share Amounts)
<S> <C> <C> <C> <C>
Gross proceeds ..................................................... $ 34,990 $ 41,170 $ 47,350 $ 54,450
Plus: Shares issued to Foundation(1) ............................... 2,500 2,500 2,500 2,500
----------- ----------- ----------- -----------
Pro forma market capitalization .................................... $ 37,490 $ 43,670 $ 49,850 $ 56,950
=========== =========== =========== ===========
Gross proceeds ..................................................... $ 34,990 $ 41,170 $ 47,350 $ 54,450
Less offering expenses and commissions ............................. 908 965 1,022 1,087
----------- ----------- ----------- -----------
Estimated net conversion proceeds ................................. 34,082 40,205 46,328 53,363
Less ESOP shares ................................................... (2,999) (3,494) (3,988) (4,556)
Less RRP shares .................................................... (1,500) (1,747) (1,994) (2,278)
----------- ----------- ----------- -----------
Estimated proceeds available for investment(2) .................... $ 29,583 $ 34,964 $ 40,346 $ 46,529
=========== =========== =========== ===========
Net Income:
Historical ....................................................... $ 761 $ 761 $ 761 $ 761
Pro Forma Adjustments:
Net earnings from proceeds(3) ................................... 349 413 476 549
ESOP(4) ......................................................... 60 70 80 91
RRP(5) .......................................................... 60 70 80 91
----------- ----------- ----------- -----------
Pro forma net income(6) ....................................... $ 990 $ 1,034 $ 1,077 $ 1,128
=========== =========== =========== ===========
Net Income Per Share:
Historical(7) .................................................. $ 0.22 $ 0.19 $ 0.17 $ 0.15
Pro forma Adjustments:
Net earnings from proceeds .................................... 0.10 0.10 0.10 0.10
ESOP(3) ....................................................... (0.02) (0.02) (0.02) (0.02)
RRP(5) ........................................................ (0.02) (0.02) (0.02) (0.02)
----------- ----------- ----------- -----------
Pro forma net income per share(5) ......................... $ 0.28 $ 0.25 $ 0.23 $ 0.21
=========== =========== =========== ===========
Ratio of offering price to pro forma net income per share
(annualized) ................................................ 11.90x 13.33x 14.49x 15.87x
Number of shares using SOP 93-6 ................................ 3,454,079 4,023,463 4,592,847 5,246,993
Stockholders' Equity (Book Value)(8):
Historical ....................................................... $ 29,950 $ 29,950 $ 29,950 $ 29,950
Pro Forma Adjustments:
Estimated net Conversion proceeds ................................ 34,082 40,205 46,328 53,363
Plus: Tax benefit of Stock Contribution .......................... 1,000 1,000 1,000 1,000
Less: Common stock acquired by:
ESOP(4) ......................................................... (2,999) (3,494) (3,988) (4,556)
RRP(5) .......................................................... (1,500) (1,747) (1,994) (2,278)
----------- ----------- ----------- -----------
Pro forma stockholder's equity(5) ........................... $ 60,533 $ 65,914 $ 71,296 $ 77,479
=========== =========== =========== ===========
Stockholders' Equity (Book Value)(8):
Per Share(7):
Historical ....................................................... $ 7.99 $ 6.86 $ 6.01 $ 5.26
Pro Forma Adjustments:
Estimated net Conversion proceeds ................................ 9.09 9.21 9.29 9.37
Plus: Tax benefit of Stock Contribution .......................... 0.27 0.23 0.20 0.18
Less: Common stock acquired by:
ESOP(4) ......................................................... (0.80) (0.80) (0.80) (0.80)
RRP(5) .......................................................... (0.40) (0.40) (0.40) (0.40)
----------- ----------- ----------- -----------
Pro forma book value per share(6) ........................... $ 16.15 $ 15.10 $ 14.30 $ 13.61
=========== =========== =========== ===========
Pro forma price to book value ...................................... 61.92% 66.23% 69.93% 73.48%
Number of shares (including Foundation shares) ..................... 3,749,000 4,367,000 4,985,000 5,695,000
</TABLE>
34
<PAGE>
<TABLE>
<CAPTION>
At or For the Year Ended December 31, 1996
---------------------------------------------------------------
15% Above
Minimum Midpoint Maximum Maximum
3,749,000 4,367,000 4,985,000 5,695,000
Shares at Shares at Shares at Shares at
$10.00 per $10.00 per $10.00 per $10.00 per
Share Share Share Share
----- ----- ----- -----
(Dollars in Thousands, Except Per Share Amounts)
<S> <C> <C> <C> <C>
Gross proceeds ..................................................... $ 34,990 $ 41,170 $ 47,350 $ 54,450
Plus: Shares issued to Foundation(1) ............................... 2,500 2,500 2,500 2,500
----------- ----------- ----------- -----------
Pro forma market capitalization .................................... $ 37,490 $ 43,670 $ 49,850 $ 56,950
=========== =========== =========== ===========
Gross proceeds ..................................................... $ 34,990 $ 41,170 $ 47,350 $ 54,450
Less offering expenses and commissions ............................. 908 965 1,022 1,087
----------- ----------- ----------- -----------
Estimated net conversion proceeds ................................. 34,082 40,205 46,328 53,363
Less ESOP shares ................................................... (2,999) (3,494) (3,988) (4,556)
Less RRP shares .................................................... (1,500) (1,747) (1,994) (2,278)
----------- ----------- ----------- -----------
Estimated proceeds available for investment(2) .................... $ 29,583 $ 34,964 $ 40,346 $ 46,529
=========== =========== =========== ===========
Net Income(9):
Historical ....................................................... $ 452 $ 452 $ 452 $ 452
Pro Forma Adjustments:
Net earnings from proceeds(3) ................................... 1,047 1,238 1,428 1,647
ESOP(4) ......................................................... (180) (210) (239) (273)
RRP(4) .......................................................... (180) (210) (239) (273)
----------- ----------- ----------- -----------
Pro forma net income(6) ....................................... $ 1,139 $ 1,270 $ 1,402 $ 1,553
=========== =========== =========== ===========
Net Income Per Share(9):
Historical(7) .................................................. $ 0.13 $ 0.11 $ 0.10 $ 0.09
Pro forma Adjustments:
Net earnings from proceeds .................................... 0.30 0.31 0.31 0.31
ESOP(3) ....................................................... (0.05) (0.05) (0.05) (0.05)
RRP(5) ........................................................ (0.05) (0.05) (0.05) (0.05)
----------- ----------- ----------- -----------
Pro forma net income per share(5) ......................... $ 0.33 $ 0.32 $ 0.31 $ 0.30
=========== =========== =========== ===========
Ratio of offering price to pro forma net income per share ..... 30.30x 31.25x 32.26x 33.33x
Number of shares using SOP 93-6(4) ........................ 3,464,076 4,035,108 4,606,140 5,262,180
Stockholders' Equity (Book Value)(8):
Historical
Pro Forma Adjustments: ............................................. $ 29,261 $ 29,261 $ 29,261 $ 29,261
Estimated net Conversion proceeds ................................ 34,082 40,205 46,328 53,363
Plus: Tax benefit of Stock Contribution .......................... 1,000 1,000 1,000 1,000
Less: Common stock acquired by:
ESOP(4) ......................................................... (2,999) (3,494) (3,988) (4,556)
RRP(5) .......................................................... (1,500) (1,747) (1,994) (2,278)
----------- ----------- ----------- -----------
Pro forma stockholders' equity(5) ........................... $ 59,844 $ 65,225 $ 70,607 $ 76,790
=========== =========== =========== ===========
Stockholders' Equity (Book Value)(8):
Per Share(7):
Historical ....................................................... $ 7.81 $ 6.70 $ 5.87 $ 5.14
Pro Forma Adjustments:
Estimated net Conversion proceeds ................................ 9.09 9.21 9.29 9.37
Plus: Tax benefit of Stock Contribution .......................... 0.27 0.23 0.20 0.18
Less: Common stock acquired by:
ESOP(4) ......................................................... (0.80) (0.80) (0.80) (0.80)
RRP(5) .......................................................... (0.40) (0.40) (0.40) (0.40)
----------- ----------- ----------- -----------
Pro forma book value per share(6) ........................... $ 15.97 $ 14.94 $ 14.16 $ 13.49
=========== =========== =========== ===========
Offering Price Per Share as a Percentage of Pro Forma
Stockholders' Equity Per Share .................................. 62.62% 66.93% 70.62% 74.13%
Number of shares (including Foundation shares) ..................... 3,749,000 4,367,000 4,985,000 5,695,000
- ----------
<FN>
(1) Subject to member approval, the Holding Company intends to contribute
250,000 shares to the Foundation within 12 months following the completion
of the Conversion. See "The Conversion--Stock Contribution to the
Charitable Foundation." Since the contributed shares will be donated or
sold for nominal consideration, they will not add to gross proceeds.
</FN>
</TABLE>
<PAGE>
However, since such shares are issued and outstanding, they add to the
Holding Company's market capitalization.
The amount of the Stock Contribution will be accrued as an expense in the
fiscal quarter in which the Conversion is completed. The pro forma earnings
data does not reflect such non-recurring accrual.
35
<PAGE>
Both the historical and pro forma per share data assume that the Stock
Contribution is made.
(2) Reflects a reduction to net proceeds for the cost of the ESOP and the RRP
(which is subject to shareholder ratification) which it is assumed will be
funded from the net proceeds retained by the Holding Company.
(3) No effect has been given to withdrawals from savings accounts for the
purpose of purchasing Common Stock in the Conversion. For purposes of
calculating pro forma net income, proceeds attributable to purchases by the
ESOP and RRP, which purchases are to be funded by the Holding Company and
the Bank, have been deducted from net proceeds.
(4) It is assumed that 8% of the shares of Common Stock offered in the
Conversion including the shares issued to the Foundation will be purchased
by the ESOP. The funds used to acquire such shares will be borrowed by the
ESOP from the net proceeds from the Conversion retained by the Holding
Company. The Bank intends to make contributions to the ESOP in amounts at
least equal to the principal and interest requirement of the debt. The
Bank's payment of the ESOP debt is based upon equal installments of
principal and interest over a 10-year period. However, assuming the Holding
Company makes the ESOP loan, interest income earned by the Holding Company
on the ESOP debt will offset the interest paid by the Bank. Accordingly,
only the principal payments on the ESOP debt are recorded as an expense
(tax-effected) to the Holding Company on a consolidated basis. The amount
of ESOP debt is reflected as a reduction of stockholders' equity. In the
event that the ESOP were to receive a loan from an independent third party,
both ESOP expense and earnings on the proceeds retained by the Holding
Company would be expected to increase.
(5) Adjustments to both book value and net earnings have been made to give
effect to the proposed open market purchase (based upon an assumed purchase
price of $10.00 per share) following Conversion by the RRP (subject to
stockholder ratification of such plan) of an amount of shares equal to 4%
of the shares of Common Stock sold in the Conversion for the benefit of
certain directors, officers and employees. Funds used by the RRP to
purchase the shares will be contributed to the RRP by the Holding Company
if the RRP is ratified by stockholders following the Conversion. Therefore,
this funding is assumed to reduce the proceeds available for reinvestment.
For financial accounting purposes, the amount of the contribution will be
recorded as a compensation expense (although not an actual expenditure of
funds) over the period of vesting. These grants are scheduled to vest in
equal annual installments over the five years following stockholder
ratification of the RRP. However, all unvested grants will be forfeited in
the case of recipients who fail to maintain continuous service with the
Holding Company or its subsidiaries. In the event the RRP is unable to
purchase a sufficient number of shares of Common Stock to fund the RRP, the
RRP may issue authorized but unissued shares of Common Stock from the
Holding Company to fund the remaining balance. In the event the RRP is
funded by the issuance of authorized but unissued shares in an amount equal
to 4% of the shares sold in the Conversion, the interests of existing
stockholders would be diluted by approximately 3.8%.
In the event that the RRP is funded through authorized but unissued shares,
for the four months ended April 30, 1997 and year ended December 31, 1996,
pro forma net income per share would be $0.28, $0.25, $0.23 and $0.21 and
$0.33, $0.32, $0.31 and $0.30, respectively, and pro forma stockholders'
equity per share would be $15.91, $14.90, $14.14 and $13.47 and $15.73,
$14.75, $14.00 and $13.35, respectively, in each case at the minimum,
midpoint, maximum and 15% above the maximum of the Estimated Valuation
Range.
(6) No effect has been given to the shares to be reserved for issuance under
the proposed Stock Option Plan which is expected to be adopted by the
Holding Company following the Conversion, subject to stockholder approval.
In the event the Stock Option Plan is funded by the issuance of authorized
but unissued shares in an amount equal to 10% of the shares sold in the
Conversion, at $10.00 per share, the interests of existing stockholders
would be diluted as follows: pro forma net income per share for the four
months ended April 30, 1997 and the year ended December 31, 1996 would be
$0.27, $0.24, $0.22 and $0.21 and $0.33, $0.32, $0.31 and $0.30,
respectively, and pro forma stockholders' equity per share would be $15.59,
$14.63, $13.91 and $13.28 and $15.42, $14.49, $13.79 and $13.17,
respectively, in each case at the minimum, midpoint, maximum and 15% above
the maximum of the Estimated Valuation Range. In the alternative, the
Holding Company may purchase shares in the open market to fund the Stock
Option Plan following stockholder approval of such plan. To the extent, the
entire 10% of the shares to be reserved for issuance under the Stock Option
Plan were funded through open market purchases at the Purchase Price of
$10.00 per share, proceeds available for reinvestment would be reduced by
$3,749,000, $4,367,000, $4,985,000 and $5,695,000 at the minimum, midpoint,
maximum and 15% above the maximum of the Estimated Valuation Range. See
"Management Benefit Plans - Stock Option and Incentive Plan."
36
<PAGE>
(7) Historical per share amounts have been computed as if the shares of Common
Stock indicated had been outstanding at the beginning of the periods or on
the dates shown, but without any adjustment of historical net income or
historical equity to reflect the investment of the estimated net proceeds
of the sale of shares in the Conversion as described above. All ESOP shares
have been considered outstanding for purposes of computing book value per
share. Pro forma share amounts have been computed by dividing the pro forma
net income or stockholders' equity (book value) by the number of shares
indicated as outstanding under SOP 93-6.
(8) "Book value" represents the difference between the stated amounts of the
Bank's assets (based on historical cost) and liabilities computed in
accordance with generally accepted accounting principles. The amounts shown
do not reflect the effect of the Liquidation Account which will be
established for the benefit of Eligible and Supplemental Eligible Account
Holders in the Conversion, or the federal income tax consequences of the
restoration to income of the Bank's special bad debt reserves for income
tax purposes which would be required in the unlikely event of liquidation.
See "The Conversion - Effects of Conversion to Stock Form on Depositors and
Borrowers of the Bank" and "Regulation - Federal and State Taxation." The
amounts shown for book value do not represent fair market values or
amounts, if any, distributable to stockholders in the unlikely event of
liquidation.
(9) In the event that 1996 net income were calculated without giving effort to
the non-recurring $1.3 million special deposit insurance assessment and the
$2.5 million cash contribution to the Foundation, 1996 pro forma net income
and net income per share would have been as follows:
15% Above
Minimum Midpoint Maximum Maximum
------- -------- ------- -------
Net Income:
Historical ............... $ 452 $ 452 $ 452 $ 452
Nonrecurring expenses .... 2,276 2,276 2,276 2,276
------- ------- ------- ----
Adjusted historical .... 2,728 2,728 2,728 2,728
Pro Forma Adjustments:
Net earnings from proceeds 1,047 1,238 1,428 1,647
ESOP ..................... (180) (210) (239) (273)
RRP ...................... (180) (210) (239) (273)
------- ------- ------- ----
Pro form net income .. $ 3,415 $ 3,546 $ 3,678 $ 3,829
======= ======= ======= ====
Net Income Per Share:
Historical ............... $ 0.13 $ 0.11 $ 0.10 $ 0.09
Nonrecurring expenses .... 0.66 0.56 0.49 0.43
------- ------- ------- ----
Adjusted historical .... 0.79 0.67 0.59 0.52
Pro Forma Adjustments:
Net earnings from
proceeds ............... 0.30 0.31 0.31 0.31
ESOP ..................... (0.05) (0.05) (0.05) (0.05)
RRP ...................... (0.05) (0.05) (0.05) (0.05)
------- ------- ------- ----
Pro form net income
per share .......... $ 0.99 $ 0.88 $ 0.80 $ 0.73
======= ======= ======= ====
Ratio of offering price to
pro forma net income
per share ................ 10.10x 11.36x 12.50x 13.70x
37
<PAGE>
COMPARISON OF VALUATION AND PRO FORMA INFORMATION WITH NO
STOCK CONTRIBUTION
In the event that the Stock Contribution to the Foundation is not made,
FinPro has estimated that the amount of Common Stock offered for sale in the
Conversion would increase by approximately $3.8 million and that the overall
market capitalization would increase by $3.5 million, all at the midpoint of the
Estimated Valuation Range as of April 30, 1997. Under such circumstances, pro
forma shareholder equity of the Holding Company would be approximately $69.7
million, at the midpoint, which is approximately $3.8 million greater than the
pro forma shareholder equity of the Holding Company would be if the Stock
Contribution is made. The pro forma price to book ratio and pro forma price to
earnings ratio would be approximately the same under both the current appraisal
and the estimate of the value of the Holding Company without the Stock
Contribution. Further, assuming the midpoint of the Estimated Valuation Range,
pro forma stockholders' equity per share and pro forma earnings per share would
be substantially the same with the Stock Contribution as without the Stock
Contribution. In this regard, pro forma stockholders' equity and pro forma net
income per share at and for the period ended April 30, 1997 would be $15.09 and
$0.25, respectively, at the midpoint of the estimate, assuming no Stock
Contribution, and $15.10 and $0.25, respectively, with the Stock Contribution.
The pro forma price to book value ratio and the pro forma price to earnings
ratio at and for the period ended April 30, 1997 are 66.27% and 13.33x,
respectively, at the midpoint of the estimate, assuming no Stock Contribution
and are 66.23% and 13.33x, respectively, with the Stock Contribution. This
estimate by FinPro was prepared at the request of the OTS and is solely for
purposes of providing members with sufficient information with which to make an
informed decision on the Stock Contribution. There is no assurance that in the
event the Stock Contribution is not approved at the Special Meeting of members
that the appraisal prepared at that time would conclude that the pro forma
market value of the Holding Company would be the same as that estimated herein.
If the Stock Contribution is not made, FinPro has estimated that the
maximum, as adjusted, of the Estimated Valuation Range would be $60.8 million.
Nevertheless, if the pro forma market value of the common stock to be sold by
the Holding Company without the Stock Contribution is either greater than $54.5
million or less than $35.0 million or if the OTS otherwise requires a
resolicitation of subscribers, the Bank will establish a new Estimated Valuation
Range and commence a resolicitation of subscribers (i.e., subscribers will be
permitted to continue their orders, in which case they will need to
affirmatively reconfirm their subscriptions prior to the expiration of the
resolicitation offering or their subscription funds will be promptly refunded
witinterest.) Any change in the Estimated Valuation Range must be approved by
the OTS. "See the Conversion--Stock Pricing."
For comparative purposes only, set forth below are certain pricing
ratios and financial data and ratios, at the minimum, midpoint, maximum and
maximum, as adjusted, of the Estimated Valuation Range, assuming the Conversion
was completed at April 30, 1997.
38
<PAGE>
<TABLE>
<CAPTION>
At the Minimum At the Midpoint At the Maximum
------------------------- -------------------------- --------------------------
With No With No With No
Stock Stock Stock Stock Stock Stock
Contribution Contribution Contribution Contribution Contribution Contribution
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Estimated offering amount .................... $ 34,990 $ 39,100 $ 41,170 $ 46,000 $ 47,350 $ 52,900
Pro forma market capitalization .............. 37,490 39,100 43,670 46,000 49,850 52,900
Total assets ................................. 290,585 293,438 295,966 299,447 301,348 305,455
Total liabilities ............................ 230,052 230,052 230,052 230,052 230,052 230,052
Pro forma stockholders' equity ............... 60,533 63,386 65,914 69,395 71,296 75,403
Pro forma consolidated net earnings(1) ....... 990 1,030 1,034 1,079 1,077 1,128
Pro forma stockholders' equity per share ..... 16.15 16.21 15.10 15.09 14.30 14.25
Pro forma consolidated net earnings
per share(1) ............................... 0.28 0.29 0.25 0.25 0.23 0.23
Pro Forma Pricing Ratios:
Offering price as a percentage of pro
forma stockholders' equity per share ..... 61.92 61.69 66.23 66.29 69.93 70.16
Offering price to pro forma net
earnings per share(1) .................... 11.90 11.49 13.33 13.33 14.49 14.49
Offering price to assets ................... 12.90 13.32 14.76 15.36 16.54 17.32
Pro Forma Financial Ratios:
Return on assets(2) ....................... 1.02 1.05 1.05 1.08 1.07 1.11
Return on stockholders' equity(2) ......... 4.91 4.87 4.71 4.66 4.53 4.49
Stockholders' equity to assets ............ 20.83 21.60 22.27 23.17 23.66 24.69
</TABLE>
At the Maximum
as adjusted
-----------------------------
With No
Stock Stock
Contribution Contribution
------------ ------------
Estimated offering amount .................. $ 54,450 $ 60,840
Pro forma market capitalization ............. 56,950 60,840
Total assets ................................ 307,531 312,369
Total liabilities ........................... 230,052 230,052
Pro forma stockholders'equity ............... 77,479 82,318
Pro forma consolidated net earnings(1) ...... 1,128 1,184
Pro forma stockholders' equity per share ..... 13.61 13.53
Pro forma consolidated net earnings
per share(1) ............................... 0.21 0.21
Pro Forma Pricing Ratios:
Offering price as a percentage of pro
forma stockholders'equity per share ........ 73.48 73.91
Offering price to pro forma net earnings
per share(1) ............................... 15.87 15.87
Offering price to assets .................... 18.52 19.48
Pro Forma Financial Ratios:
Return on assets(2) ......................... 1.10 1.14
Return on stockholders' equity(2) ........... 4.37 4.32
Stockholders' equity to assets .............. 25.19 26.35
------------
(1) For the four month period ended April 30, 1997.
(2) Ratios for the four month periods have been annualized.
39
<PAGE>
PRO FORMA REGULATORY CAPITAL ANALYSIS
At April 30, 1997, the Bank would have exceeded each of the OTS capital
requirements. Set forth below is a summary of the Bank's compliance with the OTS
capital standards as of April 30, 1997 based on historical capital and also
assuming that the indicated number of shares were sold as of such date using the
assumptions contained under the caption "Pro Forma Data."
<TABLE>
<CAPTION>
Pro Forma at April 30, 1997
---------------------------------------------------
3,749,000 Shares 4,367,000 Shares
Historical Minimum Midpoint
---------------------- ------------------------ ---------------------
Amount Percent Amount Percent Amount Percent
------ ------- ------ ------- ------ -------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
GAAP Capital(1) .......................... $29,950 11.5% $52,492 15.6% $44,812 16.3%
======= ==== ======= ==== ======= ====
Tangible Capital(2):
Capital level ........................... $29,468 11.4% $42,010 15.4% $44,330 16.2%
Requirement ............................. 3,892 1.5 4,081 1.5 4,116 1.5
----- --- ----- --- ----- ---
Excess .................................. $25,576 9.9% $37,929 13.9% $40,214 14.7%
======= === ======= ==== ======= ====
Core Capital(2):
Capital level ........................... $29,468 11.4% $42,010 15.4% $44,330 16.2%
Requirement(3) .......................... 7,784 3.0 8,162 3.0 8,232 3.0
----- --- ----- --- ----- ---
Excess .................................. $21,684 8.4% $33,848 12.4% $36,098 13.2%
------- --- ------- ---- ------- ----
Risk-Based Capital(2):
Capital level(4) ........................ $31,060 24.4% $43,627 33.6% $45,952 35.3%
Requirement(5) .......................... 10,186 8.0 10,387 8.0 10,424 8.0
------ --- ------ --- ------ ---
Excess .................................. $20,874 16.4% $33,240 25.6% $35,528 27.3%
======= ==== ======= ==== ======= ====
</TABLE>
Pro Forma at April 30, 1997
------------------------------------
5,695,000 Shares
4,985,000 Shares 15% above
Maximum Maximum
--------------- -----------------
Amount Percent Amount Percent
------ ------- ------ -------
(Dollars in Thousands)
GAAP Capital(1) .......................... $47,132 17.0% $49,798 17.8%
======= ==== ======= ====
Tangible Capital(2):
Capital level .......................... $46,650 16.9% $49,316 17.7%
Requirement ............................ 4,151 1.5 4,191 1.5
------- ---- ------- ----
Excess ................................. $42,499 15.4% $45,125 16.2%
======= ==== ======= ====
Core Capital(2):
Capital level .......................... $46,650 16.9% $49,316 17.7%
Requirement(3) ......................... 8,302 3.0 8,382 3.0
------- ---- ------- ----
Excess ................................. $38,348 13.9% $40,934 14.7%
======= ==== ======= ====
Risk-Based Capital(2):
Capital level(4) ....................... $48,277 36.9% $50,949 38.8%
Requirement(5) ......................... 10,461 8.0 10,504 8.0
------- ---- ------- ----
Excess ................................. $37,816 28.9% $40,445 30.8%
======= ==== ======= ====
- ----------
(1) Total equity as calculated under generally accepted accounting principles
("GAAP"). Assumes that the Bank receives 50% of the net proceeds, offset in
part, by the aggregate Purchase Price of Common Stock acquired at a price
of $10.00 per share by the ESOP in the Conversion and the RRP (assuming
stockholder ratification of such plan following completion of the
Conversion).
<PAGE>
(2) Tangible and core capital figures are determined as a percentage of
adjusted total assets; risk-based capital figures are determined as a
percentage of risk-weighted assets. Unrealized gains and losses on debt
securities available for sale are excluded from tangible, core and
risk-based capital.
(3) In April 1991, the OTS proposed a core capital requirement for savings
associations comparable to the requirement for national banks that became
effective on November 30, 1990. This proposed core capital ratio is 3% of
total adjusted assets for thrifts that receive the highest supervisory
rating for safety and soundness ("CAMEL" rating), with a 4% to 5% core
capital requirement for all other thrifts. See "Regulation - Regulatory
Capital Requirements."
(4) Includes $1.7 million of general valuation allowances, of which $1.6
million qualifies as supplementary capital. See "Regulation - Regulatory
Capital Requirements."
(5) Pro forma amounts and percentages assume net proceeds are invested in
assets that carry a 20% risk-weight, such as short-term interest-bearing
deposits.
40
<PAGE>
CAPITALIZATION
Set forth below is the capitalization, including deposits, of First
Security as of April 30, 1997, and the pro forma capitalization of the Holding
Company at the minimum, the midpoint, the maximum and 15% above the maximum of
the Estimated Valuation Range, after giving effect to the Conversion and based
on other assumptions set forth in the table and under the caption "Pro Forma
Data."
<TABLE>
<CAPTION>
Holding Company - Pro Forma Based
Upon Sale at $10.00 per share
----------------------------------------------------
15% Above
Minimum Midpoint Maximum Maximum
Existing 3,749,000 4.367,000 4,985,000 5,695,000
Capitalization Shares Shares Shares Shares
-------------- ------ ------ ------ ------
(In Thousands)
<S> <C> <C> <C> <C> <C>
Deposits(1) ............................................. $ 218,987 $ 218,987 $ 218,987 $ 218,987 $ 218,987
========= ========= ========= ========= =========
Stockholders' Equity:
Serial Preferred Stock ($0.01 par value)
authorized - 500,000 shares; none to be
outstanding ........................................... $ -- $ -- $ -- $ -- $ --
Common Stock ($0.01 par value authorized
- 8,000,000 shares; to be outstanding (as
shown)(2) ............................................. -- 37 43 49 546
Additional paid-in capital ............................ -- 36,545 42,662 48,779 55,863
Retained earnings, substantially
restricted(3) ......................................... 30,226 30,226 30,226 30,226 30,226
Net unrealized loss on securities available for
sale ................................................... (276) (276) (276) (276) (276)
Stock Contribution expense net of tax
benefit ................................................ -- (1,500) (1,500) (1,500) (1,500)
Less:
Common Stock acquired by ESOP(4) ...................... -- (2,999) (3,494) (3,988) (4,556)
Common Stock acquired by RRP(4) ....................... -- (1,500) (1,747) (1,994) (2,278)
--------- --------- --------- --------- ---------
Total Stockholders' Equity(5) ........................... $ 29,950 $ 60,533 $ 65,914 $ 71,296 $ 77,479
========= ========= ========= ========= =========
- ----------
<FN>
(1) No effect has been given to withdrawals from deposit accounts for the
purpose of purchasing Common Stock in the Conversion. Any such withdrawals
will reduce pro forma deposits by the amount of such withdrawals.
(2) Does not reflect the shares of Common Stock that may be reserved for
issuance pursuant to the Stock Option Plan.
(3) See "Dividends" and "Regulation - Limitations on Dividends and Other
Capital Distributions" regarding restrictions on future dividend payments
and "The Conversion - Effects of Conversion to Stock Form on Depositors and
Borrowers of the Bank" regarding the liquidation account to be established
upon Conversion.
(4) Assumes that 8% of the shares sold in the Conversion will be purchased by
the ESOP. The funds used to acquire the ESOP shares will be borrowed from
the Holding Company. The Bank intends to make contributions to the ESOP
sufficient to service and ultimately retire the ESOP's debt over a ten-year
period. Also assumes that an amount of shares equal to 4% of the amount of
shares sold in the Conversion will be acquired by the RRP, following
shareholder ratification of such plan after completion of the Conversion.
In the event that the RRP is funded by the issuance of authorized but
unissued shares in an amount equal to 4% of the shares sold in the
Conversion, the interest of existing stockholders would be diluted by
approximately 3.8%. The amount to be borrowed by the ESOP and the Common
Stock acquired by the RRP is reflected as a reduction of stockholders'
equity. See "Management - Benefit Plans - Employee Stock Ownership Plan"
and "- Recognition and Retention Plan."
(5) If the Stock Contribution is approved by the Bank's members, the amount of
initial contribution will be accrued as an expense in the fiscal quarter in
which the conversion is completed. See "The Conversion--Stock Contribution
to the Charitable Foundation.
</FN>
</TABLE>
41
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
The Bank is a financial intermediary engaged primarily in attracting
deposits from the general public and using such deposits to originate one- to
four-family residential mortgage and, to a lesser extent, multi-family and
commercial real estate, consumer and other loans primarily in its market areas,
and to acquire mortgage-backed and other securities. The Bank's revenues are
derived principally from interest earned on loans and mortgage-backed and other
securities. The operations of the Bank are influenced significantly by general
economic conditions and by policies of financial institution regulatory
agencies, including the OTS and FDIC. The Bank's cost of funds is influenced by
interest rates on competing investments and general market interest rates.
Lending activities are affected by the demand for financing of real estate and
other types of loans, which in turn is affected by the interest rates at which
such financings may be offered.
The Bank's net interest income is dependent primarily upon the
difference or spread between the average yield earned on loans receivable and
securities and the average rate paid on deposits, as well as the relative
amounts of such assets and liabilities. The Bank, like other thrift
institutions, is subject to interest rate risk to the degree that its
interest-bearing liabilities mature or reprice at different times, or on a
different basis, than its interest-earning assets.
Business Strategy
The Bank seeks to obtain a competitive advantage in its deposit
gathering and lending operations by maintaining a high level of community
involvement and by offering a high level of personal service.
In its deposit gathering operations, the Bank uses community outreach
and customer service in an attempt to build and maintain a large volume of
passbook and other non-certificate accounts. These accounts generally carry
lower costs than certificate accounts and are believed to represent primarily
"core" deposits that are less vulnerable to interest rate changes (and
competition from other financial products) than certificate accounts.
In its lending operations, the Bank seeks to obtain high quality
residential and, to a lesser extent, other loans by maintaining a high level of
local visibility, offering a high level of customer service and limiting its
secondary market activities. The Bank's one- to four-family residential loan
balances have increased significantly in recent years as a result of these
efforts. At the same time, asset quality has remained high.
Primarily as a result of its cost of funds and its loan yields, the
Bank has been profitable since 1964. The Board has sought to enhance the Bank's
profitability by controlling expenses and maintaining a relatively steady level
of loan and deposit growth.
42
<PAGE>
The Board believes that the Bank's future success is directly tied to
its ability to maintain and build a loyal customer base through its community
and other activities.
Comparison of Financial Condition at April 30, 1997 and December 31, 1996
Total assets at April 30, 1997 were $260.0 million compared to $258.1
million at December 31, 1996, an increase of $1.9 million, or 0.7%. The increase
in total assets was due primarily to increases in loans receivable, funded by an
increase in Federal Home Loan Bank ("FHLB") advances.
Total liabilities at April 30, 1997 were $230.1 million compared to
$228.9 million at December 31, 1996, an increase of $1.2 million, or 0.5%. The
increase is primarily due to an increase in FHLB advances of $3.5 million,
partially offset by a decrease in advance payments by borrowers for taxes and
insurance of $532,000 as a result of the payment of the first installment of
taxes in 1997.
Total equity at April 30, 1997 was $30.0 million compared to $29.3
million at December 31, 1996. This increase of $700,000, or 2.4%, was a result
of $761,000 in net income for the period, partially offset by a $72,000 increase
in unrealized losses on securities available-for-sale from December 31, 1996 to
April 30, 1997.
Comparison of Financial Condition at December 31, 1996 and December 31, 1995
Total assets at December 31, 1996 were $258.1 million compared to
$251.9 million at December 31, 1995, an increase of $6.2 million, or 2.5%. The
increase in total assets was primarily a result of an increase in net loans
receivable of $18.8 million (most of which was in one- to four-family
residential real estate loans), partially offset by a decrease in cash and cash
equivalents of $11.9 million. In December 1995, management transferred $20.2
million of securities from the held-to-maturity portfolio to the
available-for-sale portfolio in accordance with Statement of Financial
Accounting Standards No. 115 "Accounting for Certain Investments in Debt and
Equity Securities."
Total liabilities at December 31, 1996 were $228.9 million compared to
$222.9 million at December 31, 1995, an increase of $6.0 million, or 2.7%. The
increase was primarily a result of an increase in deposits of $10.1 million.
This increase was partially offset by a decrease in FHLB advances of $6.0
million.
Total equity at December 31, 1996 was $29.3 million compared to $29.0
million at December 31, 1995, an increase of $300,000, or 1.0% as a result of
$452,000 of net income for the period offset by a change in the unrealized gain
(loss) on securities available-for-sale from $25,000 in 1995 to ($204,000) in
1996.
43
<PAGE>
Results of Operations
The Bank's results of operations depend primarily upon the level of net
interest income, which is the difference between the interest income earned on
its interest-earning assets such as loans and securities, and the costs of the
Bank's interest-bearing liabilities, primarily deposits and borrowings. Results
of operations are also dependent upon the level of the Bank's noninterest
income, including fee income and service charges, and affected by the level of
its noninterest expenses, including its general and administrative expenses. Net
interest income depends upon the volume of interest-earnings assets and
interest-bearing liabilities and the interest rate earned or paid on them,
respectively.
Comparison of Operating Results for the Four Months Ended April 30, 1997 and
April 30, 1996
General. Net income for the four months ended April 30, 1997 was
$761,000, a decrease of $229,000, from net income of $990,000 for the four
months ended April 30, 1996. The decrease was primarily due to an increase of
$532,000 in the provision for loan losses, partially offset by an increase in
net interest income of $314,000.
Interest Income. Interest income for the four months ended April 30,
1997 was $6.5 million compared to $6.1 million for the four months ended April
30, 1996, an increase of $371,000, or 6.1%. The increase resulted primarily from
an increase in the average balance of interest-earning assets of $14.9 million,
partially offset by a two basis point decrease in the average yield on
interest-earning assets. The average balance of loans receivable increased from
$145.5 million for the four months ended April 30,1996 to $164.1 million for the
four months ended April 30,1997. The increase in the average balance of loans
receivable was a result of increased demand as well as increased marketing
efforts. The decrease in the average yield on interest-earning assets was
primarily reflective of the decrease in the average yield on loans from 8.65%
for the four months ended April 30, 1996 to 8.51% for the four months ended
April 30, 1997. This decrease was a result of maturities of older, higher rate
loans.
Interest Expense. Interest expense was $3.2 million for the four months
ended April 30, 1997 and 1996. The average balance of interest-bearing
liabilities increased by $9.0 million. This was offset, however, by a decrease
in the average cost of funds from 4.50% for the four months ended April 30, 1996
to 4.39% for the four months ended April 30, 1997. The decrease in the average
cost of funds was a result of the maturity of higher rate certificates of
deposit and the replacement with lower rate certificates as a result of a
decreasing rate environment. The average balance of interest-bearing liabilities
increased largely in the area of certificates of deposit as a result of
increased market demand. In addition, FHLB advances increased to support the
continued loan growth.
Net Interest Income. Net interest income was $3.3 million for the four
months ended April 30, 1997, an increase of $314,000, or 10.6% from net interest
income of $3.0 million for the four months ended April 30, 1996. The increase
was primarily a result of an increase in the ratio of interest-earning assets to
interest-bearing liabilities from 110.69% for the four months ended April 30,
1996 to 112.96% for the four months ended April 30, 1997.
44
<PAGE>
Provision for Loan Losses. The Bank recorded a $574,000 provision for
loan losses for the four months ended April 30, 1997 compared to a $42,000
provision for the four months ended April 30, 1996. The increase in the
provision for loan losses was primarily related to various loans to The Bennett
Funding Group, Inc. ("Bennett Funding") which were secured by equipment leases.
Bennett Funding filed bankruptcy during 1996 and the Bank received a settlement
offer in February 1997. As a result of the proposed settlement, the Bank charged
off $432,000. In addition, the Bank has had significant loan growth over the
past few years and has increased the provision to correspond to the growth in
the portfolio. At April 30, 1997, the Bank's allowance for loan losses totaled
$1.7 million, or .98% of total loans and 73.8% of total non-performing loans.
The amount of the provision and allowance for estimated losses on loans
is influenced by current economic conditions, actual loss experience, industry
trends and other factors, including real estate values, in the Bank's market
area. In addition, various regulatory agencies, as an integral part of their
examination process, periodically review the Bank's allowance for estimated
losses on loans. Such agencies may require the Bank to provide additions to the
allowance based upon judgments which differ from those of management. Although
management uses the best information available and maintains the Bank's
allowance for losses at a level it believes adequate to provide for losses,
future adjustments to the allowance may be necessary due to economic, operating,
regulatory and other conditions that may be beyond the Bank's control.
Non-interest Income. Non-interest income for the four months ended
April 30, 1997 was $197,000 compared to $194,000 for the four months ended April
30, 1996, an increase of $3,000, or 1.5%. The increase was primarily a result of
a $1,000 gain on the sale of real estate owned during the 1997 period compared
to $10,000 in losses on the sale of real estate owned during the 1996 period.
This was partially offset by a decrease in deposit service charges of $5,000.
Non-interest Expense. Non-interest expense was $1.7 million for the
four months ended April 30, 1997 compared to $1.5 million for the four months
ended April 30, 1996, an increase of $137,000, or 9.0%. The increase was
primarily a result of an increase in compensation and benefits of $125,000
primarily due to an employer profit sharing contribution made in April 1997 of
$105,000. The corresponding contribution in 1996 was made subsequent to April
30. Other operating expenses increased $106,000 partially as a result of a
$25,000 loss from a robbery and $34,000 of expenses for real estate owned during
the 1997 period and various other miscellaneous expenses increased slightly.
These items were partially offset by a decrease in federal insurance premiums of
$139,000 as a result of a decrease in rates due to the recapitalization of SAIF
during 1996.
Income Tax Expense. The provision for income taxes totaled $480,000 for
the four months ended April 30, 1997 compared to $603,000 for the four months
ended April 30, 1996. The decrease was primarily due to a decrease in income
before income taxes of $352,000.
45
<PAGE>
Comparison of Operating Results for the Years Ended December 31, 1996 and
December 31, 1995
General Net income for the year ended December 31, 1996 was $452,000
compared to net income of $3.2 million for the year ended December 31, 1995, a
decrease of $2.7 million, or 84.4%. The decrease was primarily a result of a
$1.3 million FDIC special assessment on SAIF insured deposits effective
September 30, 1996 and a $2.5 million accrued expense for contributions to the
Foundation in 1996. In addition, non-interest income decreased $111,000,
primarily as a result of a decrease in gain on sale of real estate owned of
$97,000 combined with a decrease of $37,000 in rental income from real estate
owned. This was partially offset by an increase in gain on sale of securities of
$21,000.
Interest Income. Interest income for the year ended December 31, 1996
was $19.0 million compared to $17.7 million for the year ended December 31,
1995, an increase of $1.3 million, or 7.3%. The increase resulted from the
combination of an increase in the average balance of interest-earning assets and
an increase in the average yield. The yield on average interest-earning assets
increased from 7.92% for the year ended December 31, 1995 to 7.96% for the year
ended December 31, 1996. The average yield on mortgage-backed securities
increased from 6.81% for the year ended December 31, 1995 to 7.81% for the year
ended December 31, 1996 due to the upward repricing of adjustable rate
securities. The average balance of interest-earning assets increased in total by
$15.9 million from $222.9 million for the year ended December 31, 1995 to $238.8
million for the year ended December 31, 1996. Although the yield on average
loans receivable decreased from 8.64% for the year ended December 31, 1995 to
8.59% for the year ended December 31, 1996, the average balance of loans
receivable increased by $12.3 million due to increased market demand. In
addition, the average balance of mortgage-backed securities increased by $5.7
million.
Interest Expense. Interest expense for the year ended December 31, 1996
was $9.5 million compared to $8.7 million for the year ended December 31, 1995,
an increase of $767,000, or 8.8%. The increase in interest expense reflected a
higher interest rate environment, as the average cost of interest-bearing
liabilities increased by 14 basis points from 4.30% for the year ended December
31, 1995 to 4.44% for the year ended December 31, 1996. The average cost of
certificates of deposit increased from 5.35% for the year ended December 31,
1995 to 5.47% for the year ended December 31, 1996. In addition, the average
balance of interest-bearing liabilities increased $10.8 million from $202.8
million for the year ended December 31, 1995 to $213.6 million for the year
ended December 31,1996 as a result of market demand.
Net Interest Income. Net interest income of $9.5 million for the year
ended December 31, 1996 represented an increase of $589,000 from the $8.9
million reported for the year ended December 31, 1995. There was a decrease in
the net interest spread from 3.62% for the year ended December 31, 1995 to 3.52%
for the year ended December 31, 1996. The decrease in the net interest rate
spread was a result of the average cost of interest-bearing deposits increasing
at a more rapid rate than the average yield on interest-earning assets. However,
the ratio of average interest-earning assets to average interest-bearing
liabilities increased from 109.93% for the year ended December 31, 1995 to
111.81% for the year ended December 31, 1996, and the net interest margin
decreased slightly from 4.00% to 3.98% for the same period.
46
<PAGE>
Provision for Loan Losses. The Bank's provision for loan losses for the
year ended December 31, 1996 was $706,000 compared to $136,000 for the year
ended December 31, 1995. The increase in the provision for loan losses was
primarily related to the Bennett Funding loans previously discussed. In
addition, the Bank experienced significant loan growth during 1996 which
resulted in an increase in the allowance for loan losses. Gross loans increased
$19.3 million, or 13.14% from 1995. The allowance for loan losses represented
.91% and .60% of gross loans receivable at December 31, 1996 and 1995,
respectively.
Non-interest Income. Non-interest income for the year ended December
31, 1996 was $745,000 compared to $856,000 for the year ended December 31, 1995,
a decrease of $111,000, or 13.0%. The decrease was the result of a decrease in
the gain on sale of real estate owned of $97,000 combined with a $37,000
decrease in rental income from real estate owned as a result of the sale of the
property. These decreases were partially offset by an increase in gain on the
sale of securities of $21,000,
Non-interest Expense. Non-interest expense was $8.7 million for the
year ended December 31, 1996 compared to $4.7 million for the year ended
December 31, 1995, an increase of $4.0 million, or 85.1%. The increase was
primarily due to a $1.3 million one-time special assessment on SAIF insured
deposits resulting from federal legislation enacted on September 30, 1996,
combined with the $2.5 million contribution accrual to the Foundation.
Income Taxes. The provision for income taxes was $406,000 for the year
ended December 31, 1996 compared to $1.8 million for the year ended December 31,
1995. The decrease was primarily due to a decrease in pretax income of $4.1
million.
Comparison of Operating Results for the Years Ended December 31, 1995 and
December 31, 1994
General. Net income for the year ended December 31, 1995 was $3.2
million compared to $3.4 million for the year ended December 31, 1994, a
decrease of $232,000, or 6.8%. The decrease was primarily a result of a decrease
in net interest income of $203,000 combined with an increase in non-interest
expense of $419,000. This was partially offset by an increase in non-interest
income of $279,000 and a decrease in income taxes of $65,000.
Interest Income. Interest income for the year ended December 31, 1995
was $17.7 million compared to $15.7 million for the year ended December 31,
1994, an increase of $2.0 million, or 12.7%. The increase was primarily a result
of an increase in the average balance of interest earning assets from $198.5
million for the year ended December 31, 1994 to $222.9 million for the year
ended December 31, 1995. This increase was primarily a result of the deployment
of the deposits obtained through the acquisition of the Bank's branch in
Philadelphia in June 1994.
47
<PAGE>
Interest Expense. Interest expense for the year ended December 31, 1995
was $8.7 million compared to $6.6 million for the year ended December 31, 1994,
an increase of $2.1 million, or 31.8%. The increase was the result of an
increase in the average balance of interest-bearing liabilities combined with an
increase in the average cost of funds. The average balance increased by $21.6
million from $181.2 million for the year ended December 31, 1994 to $202.8
million for the year ended December 31, 1995. The increase in the average
balance was primarily a result of the Philadelphia branch acquisition in June
1994. The average cost of funds increased by 67 basis points from 3.63% for the
year ended December 31, 1994 to 4.30% for the year ended December 31, 1995 which
was reflective of a higher interest rate environment.
Net Interest Income. Net interest income for the year ended December
31, 1995 was $8.9 million compared to $9.1 million for the year ended December
31, 1994, a decrease of $203,000, or 2.2%. The decrease in net interest income
was a result of the decrease in the net interest spread from 4.29% for the year
ended December 31, 1994 to 3.62% for the year ended December 31, 1995, as well
as a decrease in the net interest margin from 4.60% to 4.00% for the same
period. These decreases were reflective of the rapid increase in the average
cost of funds while the average yield on earning assets remained stable.
Provision for Loan Losses. The Bank's provision for loan losses for the
year ended December 31, 1995 was $136,000 compared to $182,000 for the year
ended December 31, 1994. The allowance for loan losses represented 0.60% and
0.57% of gross loans receivable at December 31, 1995 and 1994, respectively.
Non-interest Income. Non-interest income for the year ended December
31, 1995 was $856,000 compared to $577,000 for the year ended December 31, 1994,
an increase of $279,000, or 48.4%. The increase was primarily a result of a gain
on the sale of real estate owned of $147,000 in 1995 compared to none in 1994
and the gain on sale of securities of $24,000 in 1995 compared to $5,000 in
1994. In addition, deposit service charges increased $52,000 as a result of
increased deposit balances which were largely the result of the Philadelphia
branch acquisition in June 1994. The Bank also received $48,000 in rental income
on foreclosed real estate in 1995 compared to none in 1994.
Non-interest Expense. Non-interest expense for the year ended December
31, 1995 was $4.7 million compared to $4.3 million for the year ended December
31, 1994, an increase of $419,000, or 9.8%. Several factors contributed to the
increase including an increase in compensation and employee benefits of
$327,000, an increase in Federal insurance premiums of $77,000 and an increase
in other operating expenses of $50,000. These increases were primarily
attributable to the Philadelphia branch acquisition in June 1994.
Income Taxes. The provision for income taxes was $1.8 million for the
years ended December 31, 1995 and 1994 reflecting effective tax rates of 35.5%
and 34.8%, respectively.
48
<PAGE>
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. The table also presents, at April 30, 1997, the weighted average
yields earned on loans, securities and other interest-earning assets, the
weighted average rates paid on savings deposits and the result and interest rate
spread. All average balances are monthly average balances. Non-accruing loans
have been included in the table as loans carrying a zero yield.
<TABLE>
<CAPTION>
Four Months Ended April 30,
At --------------------------------------------------------------------
April 30, 1997(1) 1996(1)
1997 -------------------------------- ---------------------------------
----- Average Interest Average Interest
Yield/ Outstanding Earned/ Yield/ Outstanding Earned/ Yield/
Rate Balance Paid Rate Balance Paid Rate
---- ------- ---- ---- ------- ---- ----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Loans receivable(2) ................. 8.15% $164,115 $ 4,653 8.51% $145,504 $ 4,197 8.65%
Mortgage-backed securities(3) ....... 6.99 36,871 1,025 8.34 38,535 1,032 8.03
Mutual funds(3) ..................... 5.96 5,776 109 5.66 5,776 113 5.87
Agencies/Other(3) ................... 6.97 24,531 388 4.75 24,135 420 5.22
CMOs(3) ............................. 5.70 5,808 106 5.48 6,335 126 5.97
Municipal securities(3) ............. 5.58 5,280 97 5.51 4,868 94 5.79
Federal funds sold .................. 5.63 2,489 46 5.54 3,433 66 5.77
Time deposits ....................... 5.65 200 4 6.00 200 4 6.00
Deposits with other institutions .... 5.48 1,504 34 6.78 2,988 42 4.22
FHLB stock .......................... 6.75 1,709 33 5.79 1,601 30 5.62
------- ------- -------- -------
Total interest-earning assets .... 7.65 248,283 6,495 7.85 233,375 6,124 7.87
Non-interest earning assets.......... 11,141 15,821
------- --------
Total assets...................... $259,424 $249,196
======== ========
Interest-Bearing Liabilities:
Money market ....................... 3.06 $ 5,280 54 3.07 $ 5,523 57 3.10
NOW ................................ 2.23 9,851 69 2.10 9,500 65 2.05
Passbook savings ................... 3.00 71,050 705 2.98 69,524 692 2.99
Certificates of Deposit ............ 5.43 128,209 2,285 5.35 123,288 2,293 5.58
Advances ........................... 5.75 5,400 107 5.94 3,000 56 5.60
------- ------ ------- -----
Total interest-bearing
liabilities .................. 4.42 219,790 3,220 4.39 210,835 3,163 4.50
------ -----
Non-interest bearing liabilities .... 9,794 8,863
------- ------
Total liabilities............... 229,584 219,698
Equity............................... 29,840 29,498
------- -------
Total liabilities and equity...... $259,424 $249,196
======== ========
Net interest-earning spread ......... 3.23% $ 3,275 3.45% $ 2,961 3.37%
====== ==== ====== ====
Margin .............................. 3.96% 3.81%
==== ====
Assets to liabilities ............... 112.96% 110.69%
====== ======
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------------------------------------------------------
1996 1995 1994
------------------------------- -------------------------------- ----------------------------
Average Interest Average Interest Average Interest
Outstanding Earned/ Yield/ Outstanding Earned/ Yield/ Outstanding Earned/ Yield/
Balance Paid Rate Balance Paid Rate Balance Paid Rate
------- ---- ---- ------- ---- ---- ------- ---- ----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Loans receivable(2) ............ $152,147 $ 13,068 8.59% $139,860 $ 12,080 8.64% $122,001 $ 11,118 9.11%
Mortgage-backed securities(3) .. 41,735 3,260 7.81 36,034 2,455 6.81 35,873 2,128 5.93
Mutual funds(3) ................ 5,776 338 5.85 5,776 358 6.20 5,776 326 5.64
Agencies/Other(3) .............. 22,714 1,326 5.83 22,189 1,586 7.15 14,473 1,008 6.96
CMOs(3) ........................ 6,313 413 6.54 6,903 412 5.97 7,976 407 5.10
Municipal securities(3) ........ 4,794 277 5.78 5,199 327 6.29 5,488 378 6.89
Federal funds sold ............. 1,829 118 6.45 3,338 225 6.74 4,385 182 4.15
Time deposits .................. 200 11 5.50 200 9 4.50 200 8 4.00
Deposits with other institutions 1,665 84 5.05 1,942 100 5.15 1,013 79 7.80
FHLB stock ..................... 1,645 111 6.75 1,482 98 6.61 1,278 76 5.95
-------- ------- -------- ------ -------- ------
Total interest-earning assets 238,818 19,006 7.96 222,923 17,650 7.92 198,463 15,710 7.92
Non-interest earning assets .... 13,445 14,702 12,330
-------- -------- --------
Total assets ................ $252,263 $237,625 $210,793
======== ======== ========
Interest-Bearing Liabilities:
Money market ................... $ 5,301 167 3.15 $ 6,234 193 3.10 $ 6,753 214 3.17
NOW ............................ 9,810 202 2.06 9,241 184 1.99 7,849 156 1.99
Passbook savings ............... 70,356 2,120 3.01 70,585 2,113 2.99 68,231 2,047 3.00
Certificates of Deposit ........ 124,797 6,827 5.47 112,963 6,044 5.35 95,557 3,987 4.17
Advances ....................... 3,333 178 5.34 3,769 193 5.12 2,846 180 6.32
-------- ----- -------- ----- ------- -----
Total interest-bearing
liabilities ............... 213,597 9,494 4.44 202,792 8,727 4.30 181,236 6,584 3.63
----- ----- -----
Non-interest bearing liabilities 8,471 7,392 5,480
-------- ------- -------
Total liabilities .......... 222,068 210,184 186,716
Equity .......................... 30,195 27,441 24,077
-------- ------- -------
Total liabilities and equity . $252,263 $237,625 $210,793
======== ======= =======
Net interest-earning spread ..... $ 9,512 3.52% $ 8,923 3.62% $ 9,126 4.29%
====== ==== ===== ==== ===== ====
Margin .......................... 3.98% 4.00% 4.60%
==== ==== ====
Assets to liabilities ........... 111.81% 109.93% 109.51%
======== ======= ======
<FN>
- ---------
(1) Annualized yield/rate.
(2) Calculated net of deferred loan fees, loan discounts, loans in process and
loss reserves.
(3) Calculated based on amortized cost.
</FN>
</TABLE>
49
<PAGE>
The following schedule presents the dollar amount of changes in
interest income and interest expense for major components of interest-earning
assets and interest-bearing liabilities. It distinguishes between the changes
related to outstanding balances and that due to the changes in interest rates.
For each category of interest-earning assets and interest-bearing liabilities,
information is provided on changes attributable to (i) changes in volume (i.e.,
changes in volume multiplied by old rate) and (ii) changes in rate (i.e.,
changes in rate multiplied by old volume). For purposes of this table, changes
attributable to both rate and volume, which cannot be segregated, have been
allocated proportionately to the change due to volume and the change due to
rate.
<TABLE>
<CAPTION>
Four Months Ended
April 30, Year Ended December 31, Year Ended December 31,
1996 vs. 1997 1995 vs. 1996 1994 vs. 1995
---------------------------- --------------------------- ----------------------------
Increase Increase Increase
(Decrease) (Decrease) (Decrease)
Due to Total Due to Total Due to Total
----------------- Increase --------------- Increase --------------- Increase
Volume Rate (Decrease) Volume Rate (Decrease) Volume Rate (Decrease)
------ ---- ---------- ------ ---- ---------- ------ ---- ----------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable ........................ $ 529 $ (73) $ 456 $ 1,056 $ (68) $ 988 $ 1,565 $ (603) $ 962
Mortgage-backed securities .............. (45) 38 (7) 418 387 805 10 317 327
Mutual funds ............................ -- (4) (4) -- (20) (20) -- 32 32
Agencies and other ...................... 7 (39) (32) 37 (297) (260) 551 27 578
CMOs .................................... (10) (10) (20) (37) 38 1 (59) 64 5
Municipal securities .................... 8 (5) 3 (24) (26) (50) (19) (32) (51)
Federal funds sold ...................... (18) (2) (20) (98) (9) (107) (51) 94 43
Time deposits ........................... -- -- -- -- 2 2 -- 1 1
Deposits with other
institutions .......................... (27) 19 (8) (14) (2) (16) 54 (33) 21
FHLB stock .............................. 2 1 3 11 2 13 13 9 22
------- ------- ------- ------- ------- ------- ------- ------- -------
Total interest-earning assets .......... 446 (75) 371 1,349 7 1,356 2,064 (124) $ 1,940
Interest-bearing liabilities:
Money market ............................ (2) (1) (3) (29) 3 (26) (16) (5) (21)
NOW ..................................... 2 2 4 12 6 18 28 -- 28
Passbook Savings ........................ 15 (2) 13 (7) 14 7 70 (4) 66
Certificates of deposit ................. 90 (98) (8) 645 138 783 807 1,250 2,057
Advances ................................ 47 4 51 (23) 8 (15) 51 (38) 13
------- ------- ------- ------- ------- ------- ------- ------- -------
Total interest-earning assets ........... $ 152 $ (95) $ 57 $ 598 $ 169 $ 767 $ 940 $ 1,203 $ 2,143
------- ------- ------- ------- ------- ------- ------- ------- -------
Net interest/spread ...................... $ 294 $ 20 $ 314 $ 751 $ (162) $ 589 $ 1,124 $(1,327) $ (203)
</TABLE>
50
<PAGE>
Asset/Liability Management
In an attempt to manage its exposure to changes in interest rates,
management monitors the Bank's interest rate risk. The Board of Directors
reviews at least quarterly the Bank's interest rate risk position and
profitability. The Board of Directors also reviews the Bank's portfolio,
formulates investment strategies and oversees the timing and implementation of
transactions to assure attainment of the Bank's objectives in the most effective
manner. In addition, the Board reviews on a quarterly basis the Bank's
asset/liability position, including simulations of the effect on the Bank's
capital of various interest rate scenarios.
In managing its asset/liability mix, First Security, depending on the
relationship between long- and short-term interest rates, market conditions and
consumer preference, often places more emphasis on managing short term net
interest margin than on better matching the interest rate sensitivity of its
assets and liabilities in an effort to enhance net interest income. Management
believes that the increased net interest income resulting from a mismatch in the
maturity of its asset and liability portfolios can, during periods of declining
or stable interest rates, provide high enough returns to justify the increased
exposure to sudden and unexpected increases in interest rates.
The Board has taken a number of steps to manage the Bank's
vulnerability to changes in interest rates. First, the Bank has long used
community outreach, customer service and marketing efforts to increase the
Bank's passbook and other non-certificate accounts. At April 30, 1997, $90.8
million or 41.4% of the Bank's deposits consisted of passbook, NOW and money
market accounts. The Bank believes that these accounts represent "core" deposits
which are generally somewhat less interest rate sensitive than other types of
deposit accounts. Second, while the Bank continues to originate 30 year fixed
rate residential loans for portfolio as a result of consumer demand, an
increasing proportion of the Bank's residential loans have terms of 15 years or
less or carry adjustable interest rates. For the four months ended April 30,
1997 and for fiscal 1996, ___% and ___%, respectively, of the Bank's residential
loan originations had original terms of 15 years or less or adjustable interest
rates. Finally, the Bank has focused a significant portion of its investment
activities on securities with adjustable interest rates or terms of five years
or less. At April 30, 1997, $18.9 million or 46.1% of the Bank's mortgage-backed
securities had adjustable interest rates or terms to maturity (or anticipated
average lives in the case of collateralized mortgage obligations) of five years
or less and $11.3 million or 30.4% of the Bank's other securities had adjustable
interest rates or terms to maturity of five years or less based on their
carrying value.
Management utilizes the net portfolio value ("NPV") analysis to
quantify interest rate risk. In essence, this approach calculates the difference
between the present value of liabilities, expected cash flows from assets and
cash flows from off balance sheet contracts. Under OTS regulations, an
institution's "normal" level of interest rate risk in the event of an immediate
and sustained 200 basis point change in interest rates is a decrease in the
institution's NPV in an amount not exceeding 2% of the present value of its
assets. Pursuant to this regulation, thrift institutions with greater than
"normal" interest rate exposure must take a deduction from their total capital
available to meet their risk-based capital requirement. The amount of that
deduction is one-half of the difference between (a) the institution's actual
calculated exposure to the 200 basis point interest rate increase or decrease
51
<PAGE>
(whichever results in the greater pro forma decrease in NPV) and (b) its
"normal" level of exposure which is 2% of the present value of its assets.
Savings institutions, however, with less than $300 million in assets and a total
capital ratio in excess of 12%, will be exempt from this requirement unless the
OTS determines otherwise. The OTS has postponed the implementation of the rule
until further notice. Based upon its asset size and capital level at April 30,
1997, the Bank would qualify for an exemption from this rule; however,
management believes that the Bank would be required to make a deduction from
capital if it were subject to this rule.
Presented below, as of March 31, 1997, is an analysis of the Bank's
estimated interest rate risk as measured by changes in NPV for instantaneous and
sustained parallel shifts in interest rates, up and down 400 basis points in 100
point increments.
Assumed Change $ Change in % Change in
in Interest Rates $ Amount NPV NPV
- ------------------------- ----------------- ----------------- -----------
(Basis Points) (Dollars in Thousands)
+400 $16,073 $(22,210) (58)%
+300 21,571 (16,711) (44)
+200 27,278 (11,005) (29)
+100 33,001 (5,282) (14)
--- 38,282 --- ---
-100 42,378 4,095 11
-200 44,454 6,172 16
-300 47,128 8,845 23
-400 50,448 12,165 32
Certain assumptions utilized in assessing the interest rate risk of
thrift institutions were employed in preparing the preceding table. These
assumptions relate to interest rates, loan prepayment rates, deposit decay
rates, and the market values of certain assets under the various interest rate
scenarios. It was also assumed that delinquency rates will not change as a
result of changes in interest rates although there can be no assurance that this
will be the case. Even if interest rates change in the designated amounts, there
can be no assurance that the Bank's assets and liabilities would perform as set
forth above. In addition, a change in U.S. Treasury rates in the designated
amounts accompanied by a change in the shape of the Treasury yield curve would
cause significantly different changes to the NPV than indicated above.
Liquidity and Capital Resources
The Bank's primary sources of funds are deposits and proceeds from
principal and interest payments on loans and mortgage-backed securities. While
maturities and scheduled amortization of loans and securities are predictable
sources of funds, deposit flows and mortgage prepayments are greatly influenced
by general interest rates, economic conditions and competition. First Security
generally manages the pricing of its deposits to be competitive and to increase
core deposit relationships.
52
<PAGE>
Federal regulations require First Security to maintain minimum levels
of liquid assets. The required percentage has varied from time to time based
upon economic conditions and savings flows and is currently 5% of net
withdrawable savings deposits and borrowings payable on demand or in one year or
less during the preceding calendar month. Liquid assets for purposes of this
ratio include cash, certain time deposits, U.S. Government, government agency
and corporate securities and other obligations generally having remaining
maturities of less than five years. First Security has historically maintained
its liquidity ratio for regulatory purposes at levels in excess of those
required. At April 30, 1997, First Security's liquidity ratio for regulatory
purposes was 8.9%.
The Bank's cash flows are comprised of three primary classifications:
cash flows from operating activities, investing activities and financing
activities. Cash flows provided by operating activities were $382,000 and $1.4
million for the four months ended April 30, 1997 and April 30, 1996
respectively, and $2.1 million, $4.1 million and $3.6 million for the years
ended December 31, 1996, December 31, 1995, and 1994, respectively. Net cash
from investing activities consisted primarily of disbursements for loan
originations and the purchase of investments and mortgage-backed securities,
offset by principal collections on loans, proceeds from maturation and sales of
securities and paydowns on mortgage-backed securities. Net cash from financing
activities consisted primarily of activity in deposit and escrow accounts and
advances from FHLB of Chicago.
The Bank's most liquid assets are cash and 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 April 30, 1997, cash and
short-term investments totaled $7.1 million. The Bank has other sources of
liquidity if a need for additional funds arises, including securities maturing
within one year and the repayment of loans. The Bank may also utilize the sale
of securities available-for-sale and Federal Home Loan Bank advances as a source
of funds.
At April 30, 1997, the Bank had outstanding commitments to originate
loans of $3.3 million, of which $2.7 million had fixed interest rates. These
loans are to be secured by properties located in its market area. The Bank
anticipates that it will have sufficient funds available to meet its current
loan commitments. Certificates of deposit which are scheduled to mature in one
year or less from April 30, 1997 totaled $102.2 million. Management believes
that a significant portion of such deposits will remain with the Bank.
Liquidity management is both a daily and long-term responsibility of
management. First Security adjusts its investments in liquid assets based upon
management's assessment of (i) expected loan demand, (ii) expected deposit
flows, (iii) yields available on interest-earning deposits and investment
securities, and (iv) the objectives of its asset/liability management program.
Excess liquid assets are invested generally in interest-earning overnight
deposits and short- and intermediate-term U.S. Government and agency obligations
and mortgage-backed securities of short duration. If First Security requires
funds beyond its ability to generate them internally, it has additional
borrowing capacity with the FHLB of Chicago. It is anticipated that immediately
upon completion of the Conversion, the Holding Company's and the Bank's liquid
assets will be increased. See "Use of Proceeds."
53
<PAGE>
First Security is subject to various regulatory capital requirements
imposed by the OTS. At April 30, 1997, First Security was in compliance with all
applicable capital requirements on a fully phased-in basis. See "Regulation -
Regulatory Capital Requirements" and "Pro Forma Regulatory Capital Analysis" and
Note 11 of the Notes to the Consolidated Financial Statements.
Impact of Inflation and Changing Prices
The financial statements and related data presented herein have been
prepared in accordance with generally accepted accounting principles which
require the measurement of financial position and operating results in terms of
historical dollars without considering changes in the relative purchasing power
of money over time due to inflation. The primary impact of inflation on the
operations of the Bank is reflected in increased operating costs. Unlike most
industrial companies, virtually all of the assets and liabilities of a financial
institution are monetary in nature. As a result, interest rates, generally, have
a more significant impact on a financial institution's performance than does
inflation. Interest rates do not necessarily move in the same direction or to
the same extent as the prices of goods and services.
Impact of New Accounting Standards
In March 1995, the FASB issued Statement of Financial Accounting
Standards No. 121 ("SFAS No. 121"), "Accounting for the Impairment of Long Lived
Assets and for Long Lived Assets to be Disposed Of." SFAS No. 121 requires that
long lived assets and certain identifiable intangibles be reviewed for
impairment whenever events or circumstances indicate that the carrying amount of
an asset may not be recoverable. However, SFAS No. 121 does not apply to
financial instruments, core deposit intangibles, mortgage and other servicing
rights or deferred tax assets. The adoption of SFAS No. 121 in 1996 did not have
a material impact on the results of operations or financial condition of the
Bank.
In May 1995, the FASB issued Statement of Financial Accounting
Standards No. 122 ("SFAS No. 122"), "Accounting for Mortgage Servicing Rights."
SFAS No. 122 requires an institution that purchases or originates mortgage loans
and sells or securitizes those loans with servicing rights retained to allocate
the cost of the mortgage loans to the mortgage servicing rights and the loans
(without the mortgage servicing rights) based on their relative fair values. In
addition, institutions are required to assess impairment of the capitalized
mortgage servicing portfolio based on the fair value of those rights. SFAS No.
122 is effective for fiscal years beginning after December 15, 1995. SFAS No.
122 was superseded by Statement of Financial Accounting Standards No. 125 after
December 31, 1996. The adoption of SFAS No. 122 in 1996 did not have a material
impact on the results of operations or financial condition of the Bank.
In November 1995, the FASB issued Statement of Financial Accounting
Standards No. 123 ("SFAS No. 123"), "Accounting for Stock Based Compensation,"
("SFAS No. 123"). This statement establishes financial accounting standards for
stock-based employee compensation plans. SFAS No. 123 permits the Bank to choose
either a new fair value based method or the current APB Opinion 25 intrinsic
value based method of accounting for its stock-based compensation arrangements.
SFAS No. 123 requires pro forma disclosures of net earnings and earnings per
share computed as if the fair value based method had been applied in financial
statements of
54
<PAGE>
companies that continue to follow current practice in accounting for such
arrangements under Opinion 25. The disclosure provisions of SFAS No. 123 are
effective for fiscal years beginning after December 15, 1995. Any effect that
this statement will have on the Bank will be applicable upon the consummation of
the Conversion.
In June 1996, the Financial Accounting Standards Board released
Statement of Financial Accounting Standards No. 125 ("SFAS No. 125"),
"Accounting for Transfers and Extinguishments of Liabilities." SFAS No. 125
provides accounting and reporting standards for transfers and servicing of
financial assets and extinguishments of liabilities. SFAS No. 125 requires a
consistent application of a financial-components approach that focuses on
control. Under that approach, after a transfer of financial assets, an entity
recognizes the financial and servicing assets it controls and the liabilities it
has incurred, and derecognizes liabilities when extinguished. SFAS No. 125 also
supersedes SFAS No. 122 and requires that servicing assets and liabilities be
subsequently measured by amortization in proportion to and over the period of
estimated net servicing income or loss and requires assessment for asset
impairment or increases obligations based on their fair values. SFAS No. 125
applies to transfers and extinguishments occurring after December 31, 1996 and
early or retroactive application is not permitted. Because the volume and
variety of certain transactions will make it difficult for some entities to
comply, some provisions have been delayed by SFAS No. 122. The adoption of SFAS
No. 125 did not have a material impact on the financial condition or operations
of the Bank.
In March 1997, the accounting requirements for calculating earnings per
share were revised. Basic earnings per share for 1998 and later will be
calculated solely on average common shares outstanding. Diluted earnings per
share will reflect the potential dilution of stock options and other common
stock equivalents. All prior calculations will be restated to be comparable to
the new methods. The new calculation methods are not expected to significantly
affect future basic earnings per share and diluted earnings per share.
BUSINESS
General
As a community-oriented financial institution, First Security seeks to
serve the financial needs of communities in its market area. First Security's
business involves attracting deposits from the general public and using such
deposits, together with other funds, to originate primarily one- to four-family
residential mortgage loans and, to a lesser extent, multi-family and commercial
real estate, consumer and other loans in its market area. The Bank also invests
in mortgage-backed and other securities and other permissible investments. See
"Risk Factors."
The Bank offers a variety of accounts having a range of interest rates
and terms. The Bank's deposits include passbook and NOW accounts, money market
accounts and certificate accounts with terms of six months to five years. The
Bank solicits deposits only in its primary market area and does not accept
brokered deposits.
55
<PAGE>
Market Area
The Bank's main office is located in Chicago, Illinois and its branch
offices are located in Chicago, Illinois, Philadelphia, Pennsylvania and Rolling
Meadows, Illinois.
The Bank's Western Avenue office is located on the near northwest side
of Chicago in the "Ukrainian Village" community, a middle-income community where
the Bank has focused its operations since 1964. This community is located
approximately two and one half miles to the northwest of downtown Chicago and
approximately three miles west of Lake Michigan. The majority of the community's
many businesses are small and local companies. Residences within the community
consist primarily of two- to four-family flats and single family homes although
there are also mid-size apartment buildings. Real estate values within this
community have risen sharply over the last ten years as "gentrification" has
begun to occur as a result of the community's proximity to downtown Chicago.
The Bank's Milwaukee Avenue office was opened in 1993 and is located in
the "Norwood Park" neighborhood of Chicago. This community is a stable middle
income area which also has many residents of Eastern European descent.
Residences within the community consist primarily of single family homes as well
as two and three flats and small apartment buildings. This area is located
approximately eight miles northwest of downtown Chicago.
The Bank's Philadelphia branch was acquired in 1994 through a purchase
from the Resolution Trust Corporation. The branch is located in a moderate
income neighborhood of Philadelphia known as "Rhawnhurst." The community is the
home to many persons of Eastern European heritage, including new immigrants.
Residences within the community consist primarily of single family row houses
and, to a lesser extent, small apartment buildings.
The Bank's suburban Chicago branch was opened in 1977 and is located in
Rolling Meadows, Illinois, an upper middle class community located to the
northwest of Chicago, near the western border of Palatine, Illinois. Over the
last 20 years, Rolling Meadows has experienced significant population and
commercial growth. However, as a result of competition, the branch's deposit and
loan growth has been modest.
Lending Activities
General. The principal lending activity of the Bank is originating for
its portfolio fixed and, to a much lesser extent, adjustable rate ("ARM")
mortgage loans secured by one- to four-family residences located primarily in
the Bank's market area. First Security also originates multi-family and
commercial real estate, consumer and other loans in its market area. At April
30, 1997, the Bank's loans receivable, net totaled $165.9 million. See "-
Originations of Loans" and "Use of Proceeds."
56
<PAGE>
The following table sets forth the composition of the Bank's loan
portfolio in dollar amounts and in percentages as of the dates indicated.
<TABLE>
<CAPTION>
December 31,
April 30, ------------------------------------------------------
1997 1996 1995
------------------------- ------------------------- ------------------------
Amount Percent Amount Percent Amount Percent
------ ------- ------ ------- ------ -------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Real Estate Loans:
One- to four-family ......... $137,479 81.32% $134,971 81.14% $117,379 79.83%
Multi-family ................ 9,708 5.74 9,374 5.63 7,926 5.39
Commercial .................. 7,661 4.53 7,647 4.60 7,865 5.35
Mixed use(1) ................ 7,764 4.59 8,004 4.81 7,262 4.94
Construction or
development ............... -- -- -- -- -- --
-------- ----- ------- ----- ------- ------
Total real estate loans ... 162,612 96.18 159,996 96.18 140,432 95.51
Consumer loans:
Share loans ................. 1,182 0.70 1,174 0.71 1,570 1.07
Automobile .................. 72 0.04 74 0.04 110 0.07
Home equity ................. 4,006 2.37 3,431 2.06 3,684 2.51
Home improvement ............ 10 0.01 12 0.01 29 0.02
Other ....................... 351 0.20 395 0.24 445 0.30
-------- ----- ------- ----- ------- -----
Total consumer loans ..... 5,621 3.32 5,086 3.06 5,838 3.97
Loans secured by leases ..... 839 0.50 1,272 0.76 759 0.52
-------- ----- ------- ----- ------- -----
Total loans ............... 169,072 100.00% 166,354 100.00% 147,029 100.00%
====== ====== ======
Less:
Loans in process ............ -- -- --
Deferred fees and
discounts ................. 1,492 1,486 1,578
Allowance for losses ........ 1,666 1,520 885
-------- ------ ------
Total loans receivable, net $165,914 $163,348 $144,566
======== ======= =======
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
December 31,
----------------------------------------------------------------------------------
1994 1993 1992
----------------------- ----------------------- ----------------------
Amount Percent Amount Percent Amount Percent
------ ------- ------ ------- ------ -------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Real Estate Loans:
One- to four-family ......................... $110,280 79.53% $ 84,401 77.89% $ 76,102 75.90%
Multi-family ................................ 7,731 5.58 7,632 7.04 6,799 6.78
Commercial .................................. 6,911 4.98 4.973 4.59 6,843 6.82
Mixed use(1) ................................ 7,433 5.36 5,847 5.40 4,355 4.34
Construction or
development ............................... -- -- 185 0.17 429 0.43
-------- ----------- -------- ----------- -------- ----------
Total real estate loans ................... 132,355 95.45 103,038 95.09 94,528 94.27
Consumer loans:
Share loans ................................. 1,328 0.96 1,525 1.41 1,436 1.43
Automobile .................................. 141 0.10 150 0.14 159 0.16
Home equity ................................. 3,870 2.79 3,105 2.87 3,599 3.59
Home improvement ............................ 69 0.05 78 0.07 161 0.16
Other ....................................... 452 0.33 459 0.42 387 0.39
-------- ----------- -------- ----------- -------- ----------
Total consumer loans ..................... 5,860 4.23 5,317 4.91 5,742 5.73
Loans secured by leases ..................... 448 0.32 -- -- -- --
-------- ----------- -------- ----------- -------- ----------
Total loans ............................... 138,663 100.00% 108,355 100.00% 100,270 100.00%
=========== ======== =======
Less:
Loans in process ............................ -- 6 43
Deferred fees and
discounts ................................. 1,664 1,795 1,899
Allowance for losses ........................ 792 608 360
-------- -------- --------
Total loans receivable, net ............... $136,207 $105,946 $97,968
======== ======== ========
- -----------
<FN>
(1) Mixed use refers to real estate on which the borrower both resides and
conducts a business.
</FN>
</TABLE>
57
<PAGE>
The following table shows the composition of the Bank's loan portfolio
by fixed- and adjustable-rate at the dates indicated.
<TABLE>
<CAPTION>
December 31,
April 30, ------------------------------------------------------
1997 1996 1995
------------------------- ------------------------- ------------------------
Amount Percent Amount Percent Amount Percent
------ ------- ------ ------- ------ -------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Fixed-Rate Loans:
Real estate:
One- to four-family ....... $122,397 72.40% $118,308 71.12% $101,015 68.70%
Multi-family .............. 9,504 5.62 9,169 5.51 7,719 5.25
Commercial ................ 6,478 3.83 6,545 3.94 7,370 5.01
Mixed use(1) .............. 7,189 4.25 7,424 4.46 6,666 4.53
Construction or development -- -- -- -- -- --
-------- ------ -------- ------ -------- -----
Total real estate loans ... 145,568 86.10 141,446 85.03 122,770 83.49
Consumer .................... 1,615 0.95 1,655 1.00 2,154 1.46
Loans secured by leases ..... 839 0.50 1,272 0.76 759 0.52
-------- ------ -------- ------ -------- -----
Total fixed-rate loans .... 148,022 87.55 147,804 86.79 125,683 85.47
Adjustable-Rate Loans
Real estate:
One-to-four-family ........ 15,082 8.92 16,663 10.02 16,364 11.13
Multi-family .............. 204 0.12 205 0.12 207 0.14
Commercial ................ 1,183 0.70 1,102 0.66 495 0.34
Mixed use ................. 575 0.34 580 0.35 596 0.41
Consumer .................... 4,006 2.37 3,431 2.06 3,684 2.51
-------- ----- ------- ------ ------- -----
Total adjustable-rate loans 21,050 12.45 21,981 13.21 21,346 14.53
-------- ----- ------- ------ ------- -----
Total loans ............... 169,072 100.00% 166,354 100.00% 147,029 100.00%
====== ====== ======
Less:
Loans in process ............ -- -- --
Deferred fees and discounts . 1,492 1,486 1,578
Allowance for losses ........ 1,666 1,520 885
-------- ------- -------
Total loans receivable, net $165,914 $163,348 $144,566
======== ======= =======
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
December 31,
----------------------------------------------------------------------------------
1994 1993 1992
----------------------- ----------------------- ----------------------
Amount Percent Amount Percent Amount Percent
------ ------- ------ ------- ------ -------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Fixed-Rate Loans:
Real estate:
One- to four-family .................. $ 93,139 67.17% $ 76,852 70.93% $ 67,865 67.68%
Multi-family ......................... 7,522 5.43 7,421 6.85 6,799 6.78
Commercial ........................... 6,628 4.78 4,973 4.59 6,843 6.82
Mixed use(1) ......................... 6,790 4.90 5,483 5.06 3,986 3.98
Construction or development .......... -- -- 185 0.17 429 0.43
-------- ---------- -------- ----------- -------- ---------
Total real estate loans .............. 114,079 82.28 94,914 87.60 85,922 85.69
Consumer ............................... 1,990 1.44 2,212 2.04 2,143 2.14
Loans secured by leases ................ 448 0.32 -- -- -- --
-------- ---------- -------- ----------- -------- ---------
Total fixed-rate loans ............... 116,517 84.04 97,126 89.64 88,065 87.83
Adjustable-Rate Loans
Real estate:
One-to-four-family ................... 17,141 12.36 7,549 6.96 8,237 8.22
Multi-family ......................... 209 0.15 211 0.19 -- --
Commercial ........................... 283 0.20 -- -- -- --
Mixed use ............................ 643 0.46 364 0.34 369 0.36
Consumer ............................... 3,870 2.79 3,105 2.87 3,599 3.59
-------- ---------- -------- ----------- -------- ---------
Total adjustable-rate loans .......... 22,146 15.96 11,229 10.36 12,205 12.17
-------- ---------- -------- ---------- -------- --------
Total loans........................... 138,663 100.00% 108,355 100.00% 100,270 100.00%
========== ========== ========
Less:
Loans in process ....................... -- 6 43
Deferred fees and discounts ............ 1,664 1,795 1,899
Allowance for losses ................... 792 608 360
-------- -------- ------
Total loans receivable, net .......... $136,207 $105,946 $ 97,968
======== ======== ======
</TABLE>
58
<PAGE>
The following schedule illustrates the interest rate sensitivity of the
Bank's loan portfolio at April 30, 1997. Mortgages which have adjustable or
renegotiable interest rates are shown as maturing in the period during which the
final payment is due. The schedule does not reflect the effects of possible
prepayments or enforcement of due-on-sale clauses.
<TABLE>
<CAPTION>
Real Estate
-----------------------------------------
Multi-family and
Commercial Real
One- to four-family Estate Consumer and Leases Total
-------------------- ------------------- -------------------- ----------------
Weighted Weighted Weighted Weighted
Average Average Average Average
Amount Rate Amount Rate Amount Rate Amount Rate
------ ---- ------ ---- ------ ---- ------ ----
(Dollars in Thousands)
Due During
Years Ending
April 30,
------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1998 ................................ $ 870 9.30% $ 3,109 10.37% $ 1,130 10.65% $ 5,109 10.25%
1999 ................................ 604 7.98 2,030 8.76 771 8.29 3,405 8.52
2000 to 2002 ........................ 13,092 7.99 12,956 9.31 4,430 8.47 30,478 8.62
2003 to 2007 ........................ 17,314 8.23 2,313 9.68 55 6.58 19,682 8.39
2008 to 2022 ........................ 44,259 8.03 4,138 9.21 74 7.15 48,471 8.13
2023 and following .................. 61,340 7.77 587 7.91 -- -- 61,927 7.77
-------- -------- -------- --------
Total ............................ $137,479 7.94 $ 25,133 9.38% $ 6,460 8.80 $169,072 8.19
======== ======== ======== ========
</TABLE>
The total amount of loans due after April 30, 1998 which have
predetermined interest rates is $149.2 million while the total amount of loans
due after such date which have floating or adjustable interest rates is $14.8
million.
59
<PAGE>
Under federal law, the aggregate amount of loans that the Bank is
permitted to make to any one borrower is generally limited to 15% of unimpaired
capital and surplus (25% if the security for such loan has a "readily
ascertainable" value or 30% for certain residential development loans). At April
30, 1997, based on the above, the Bank's regulatory loans-to-one borrower limit
was approximately $4.5 million. On the same date, the Bank had no borrowers with
outstanding balances in excess of this amount. As of April 30, 1997, the largest
dollar amount outstanding or committed to be lent to one borrower or, group of
related borrowers, related to one residential loan and two commercial real
estate loans totaling $1.2 million secured by the borrower's residence (in a
suburb of Chicago) and two commercial properties (both restaurants) located in
Chicago, Illinois. At April 30, 1997, these loans were performing in accordance
with their terms. As of the same date, there were no other lending relationships
with carrying values in excess of $1.0 million.
All of the Bank's lending is subject to its written underwriting
standards and to loan origination procedures. Decisions on loan applications are
made on the basis of detailed applications and property valuations (consistent
with the Bank's appraisal policy). The loan applications are designed primarily
to determine the borrower's ability to repay and the more significant items on
the application are verified through use of credit reports, financial
statements, tax returns or confirmations. All mortgage loans currently
originated by First Security are approved by the loan committee, currently
comprised of Directors Babyk, Dobrowolsky and Gawryk and Vice President Korb,
and ratified by the full Board of Directors.
The Bank requires title insurance or other evidence of title on its
mortgage loans, as well as fire and extended coverage casualty insurance in
amounts at least equal to the principal amount of the loan or the value of
improvements on the property, depending on the type of loan. The Bank also
requires flood insurance to protect the property securing its interest when the
property is located in a flood plain.
One- to Four-Family Residential Real Estate Lending. The cornerstone of
the Bank's lending program is the origination of loans secured by mortgages on
owner-occupied one- to four-family residences. Historically, the Bank focused
its residential lending activities on fixed rate loans with terms up to 30
years. In the 1980s, in order to reduce the average term to repricing of its
assets, the Bank began to offer 15 year and 10 year fixed rate loans as well as
ARMs (although, as a result of customer preference, the Bank's ARM loan volume
has been limited). Substantially all of the Bank's one- to four-family
residential mortgage originations are secured by properties located in its
market area. All mortgage loans currently originated by the Bank are retained
and serviced by it.
The Bank currently offers fixed-rate mortgage loans with maturities
from 10 to 30 years. The Bank also offers fixed rate balloon products with a 30
year amortization schedule which are due in five or seven years and which, under
certain circumstances, may be extended for an additional term of up to five or
seven years, as applicable. As of April 30, 1997, the Bank had $22.9 million of
fixed rate loans with original terms of 10 years or less (most of which were
five or seven year balloon loans), $38.9 million of fixed rate loans with
60
<PAGE>
original terms of 10-15 years and $60.6 million of fixed rate loans with
original terms of more than 15 years. See "- Originations of Loans."
The Bank also originates fixed rate home equity loans with terms of up
to ten years. These loans are written so that the total balance does not exceed
the lesser of $35,000 or 75% of the appraised value of the security property
when combined with the balance of the first mortgage lien. At April 30, 1997,
the Bank had $786,000 of home equity loans, all of which are classified in the
tabular data as one- to four-family residential loans.
The Bank also offers ARMs which carry interest rates which adjust at a
margin (generally 250 basis points) over the yield on the One Year Average
Monthly U.S. Treasury Constant Maturity Index ("CMT"). Such loans may carry
terms to maturity of up to 30 years. The ARM loans currently offered by the Bank
provide for a cap on annual interest rate changes of 200 basis points and a
lifetime cap generally of 600 basis points over the initial rate. Initial
interest rates offered on the Bank's ARMs may be approximately 100-150 basis
points below the fully indexed rate, although borrowers are qualified at the
fully indexed rate. As a result, the risk of default on these loans may increase
as interest rates increase. At April 30, 1997, one- to four-family ARMs totaled
$15.1 million or 8.92% of the Bank's total loan portfolio.
First Security will generally lend up to 90% of the lesser of the sales
price or appraised value of the security property on owner occupied one- to
four-family loans; provided, however, that private mortgage insurance is
obtained in an amount sufficient to reduce the Bank's exposure to not more than
80% of the sales price or appraised value, as applicable. The loan-to-value
ratio on nonowner occupied, one- to four-family loans is generally 80% of the
lesser of the sales price or appraised value of the security property. Non-owner
occupied one- to four-family loans may pose a greater risk to the Bank than
traditional owner occupied one- to four-family loans. In underwriting one- to
four-family residential real estate loans, the Bank currently evaluates the
borrower's ability to make principal, interest and escrow payments, the
borrower's credit history, the value of the property that will secure the loan
and debt to income ratios.
Residential loans do not currently include prepayment penalties, are
non-assumable and do not produce negative amortization. The Bank's underwriting
practices do not comply in every way with those required by most purchasers in
the secondary market. For instance, some of the Bank's borrowers have the
income/debt service levels below that required by many secondary market
purchasers. They may, however, have other attributes which justify approving a
loan, such as a favorable repayment record with the Bank on previous lending
relationships, favorable cash flow, or other assets which can be used as
additional collateral. The Bank believes that non-compliance with secondary
market standards at the time of origination does not in and of itself cause
credit problems since the Bank has engaged in this type of lending for many
years and its overall delinquency experience on these loans has been
satisfactory to date. The Bank also believes that these policies and procedures
help the Bank maintain and improve its customer relations, which is critical in
the communities the Bank serves.
While the Bank seeks to originate most of its one- to four-family
residential loans in amounts which are less than or equal to the applicable
61
<PAGE>
Federal Home Loan Mortgage Corporation maximum (currently $214,600), the Bank
does make one- to four-family residential loans in amounts in excess of such
maximum. The Bank's delinquency experience on such loans has been similar to its
experience on its other residential loans.
The Bank's residential mortgage loans customarily include due-on-sale
clauses giving the Bank the right to declare the loan immediately due and
payable in the event that, among other things, the borrower sells or otherwise
disposes of the property subject to the mortgage and the loan is not repaid.
Multi-family and Commercial Real Estate Lending. In order to increase
the yield of its loan portfolio and to complement residential lending
opportunities, the Bank from time to time originates permanent multi-family and
commercial real estate loans secured by properties in its primary market area.
At April 30, 1997, the Bank had multi-family loans totaling $9.7 million, or
5.74% of the Bank's total loan portfolio, and $15.4 million in commercial real
estate loans, representing 9.12% of the total loan portfolio.
The Bank's multi-family loan portfolio consists primarily of loans
secured by nine or fewer units. The Bank's commercial real estate loans are
primarily secured by retail stores, small office buildings, store/apartment
complexes, taverns and store front offices.
The Bank's multi-family real estate loans generally carry a maximum
term of 15 years and have fixed rates, although most of these loans are five
year balloons. These loans are generally made in amounts of up to 80% of the
lesser of the appraised value or the purchase price of the property. Most of the
Bank's commercial real estate loans are five year balloon loans with fixed rates
of interest. Also included in the Bank's commercial real estate loans are $1.2
million of lines of credit secured by commercial real estate with floating
interest rates tied to the prime rate of interest. Commercial real estate loans
are generally made in amounts up to 75% of the lesser of the appraised value or
the purchase price of the property.
Appraisals on properties securing multi-family and commercial real
estate loans in excess of $________ are performed by an independent appraiser
designated by the Bank at the time the loan is made. All appraisals on and
multi-family and commercial real estate loans are reviewed by the Bank's loan
committee. In addition, the Bank's underwriting procedures require verification
of the borrower's credit history, income and financial statements, banking
relationships, references and income projections for the property. The Bank
obtains personal guarantees on these loans.
At April 30, 1997, the Bank's largest commercial real estate or
multi-family loan outstanding totaled $729,000 and was secured by a six-unit
office building located in Chicago, Illinois. The loan was performing in
accordance with its terms as of that date.
Multi-family and commercial real estate loans may present a higher
level of risk than loans secured by one- to four-family residences. This greater
risk is due to several factors, including the concentration of principal in a
limited number of loans and borrowers, the effects of general economic
conditions on income producing properties and the increased difficulty of
evaluating and monitoring these types of loans.
62
<PAGE>
Consumer Lending. Management believes that offering consumer loan
products helps to expand the Bank's customer base and to create stronger ties to
its existing customer base. In addition, because consumer loans generally have
shorter terms to maturity and carry higher rates of interest than do residential
mortgage loans, they can be valuable asset/liability management tools. The Bank
originates a variety of different types of consumer loans, including home equity
lines of credit, automobile and deposit account loans for household and personal
purposes. Due to the tax advantages to the borrower of home equity lines of
credit, the Bank has focused its recent consumer lending activities on home
equity lending. At April 30, 1997 consumer loans totaled $5.6 million or 3.32%
of total loans outstanding.
Consumer loan terms vary according to the type and value of collateral,
length of contract and creditworthiness of the borrower. Other than the home
equity lines of credit, the Bank's consumer loans are made at fixed interest
rates, with terms of up to five years.
The Bank's home equity lines of credit are written so that the total
commitment amount, when combined with the balance of the first mortgage lien,
may not exceed 75% of the appraised value of the property. These loans are
written with fixed terms of up to five years and carry interest rates that float
with the prime rate of interest. At April 30, 1997, the Bank's home equity lines
of credit totaled $4.0 million outstanding, or 2.37% of the Bank's total loan
portfolio.
The underwriting standards employed by the Bank for consumer loans
include a determination of the applicant's payment history on other debts and
ability to meet existing obligations and payments on the proposed loan. Although
creditworthiness of the applicant is of primary consideration, the underwriting
process also includes a comparison of the value of the security, if any, in
relation to the proposed loan amount. Consumer loans may entail greater 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. In such cases, any repossessed collateral for a defaulted consumer
loan may not provide an adequate source of repayment of the outstanding loan
balance as a result of the greater likelihood of damage, loss or depreciation.
In addition, consumer loan collections are dependent on the borrower's
continuing financial stability, and thus are more likely to be affected by
adverse personal circumstances. Furthermore, the application of various federal
and state laws, including bankruptcy and insolvency laws, may limit the amount
which can be recovered on such loans.
Originations of Loans
Real estate loans are originated by First Security's staff through
referrals from existing customers or real estate agents.
The Bank's ability to originate loans is dependent upon customer demand
for loans in its market and to a lesser extent, customer service and marketing
efforts. Demand is affected by both the local economy and the interest rate
63
<PAGE>
environment. As a result of the strong real estate market in the Bank's primary
market areas and its emphasis on customer service and community outreach, the
Bank has experienced significant loan growth in recent years. See "-- Market
Area." Under current policy, all loans originated by First Security are retained
in the Bank's portfolio. See "-- One- to Four- Family Residential Lending" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Asset/Liability Management."
In order to supplement loan originations, the Bank has acquired a
substantial amount of mortgage-backed and other securities which are held,
depending on the investment intent, in the "held-to-maturity" or
"available-for-sale" portfolios. See "Investment Activities - Mortgage-Backed
and Related Securities" and Note 2 to the Notes to Financial Statements. In
addition, depending on market conditions, the Bank may also consider the
purchase of residential loans from other lenders, although it has not done so
since 1994.
As a reflection of the Bank's emphasis on customer service, the Bank
has not sold loans in the past and does not intend to do so in the future.
The following table shows the loan origination, purchase and repayment
activities of the Bank for the periods indicated.
<TABLE>
<CAPTION>
Four Months Ended Year Ended
April 30, December 31,
------------------------ --------------------------------------
1997 1996 1996 1995 1994
---- ---- ---- ---- ----
(In Thousands)
<S> <C> <C> <C> <C> <C>
Originations by type:
Adjustable rate:
Real estate - one- to four-family ............... $ 126 $ 368 $ 3,067 $ 1,682 $ 9,521
-------- -------- -------- -------- --------
Total adjustable-rate ..................... 126 368 3,067 1,682 9,521
-------- -------- -------- -------- --------
Fixed rate:
Real estate - one- to four-family ............... 10,727 10,615 34,696 20,024 21,893
- multi-family .................. 1,321 1,525 4,329 1,921 1,664
- commercial ..................... -- 492 682 1,215 5,708
Non-real estate - consumer ...................... 544 1,072 2,039 1,824 1,434
Loan secured by leases ........................ -- 500 500 750 748
-------- -------- -------- -------- --------
Total fixed-rate .......................... 12,592 14,204 42,246 25,734 31,447
-------- -------- -------- -------- --------
Total loans originated .................... 12,718 14,572 45,313 27,416 40,968
-------- -------- -------- -------- --------
Purchases:
Real estate - one- to four-family ............... -- -- -- -- 13,232
-------- -------- -------- -------- --------
Total loans purchased ..................... -- -- -- -- 13,232
-------- -------- -------- -------- --------
Principal repayments ............................... (10,000) (11,074) (25,988) (19,050) (23,892)
-------- -------- -------- -------- --------
Total reductions ........................... (10,000) (11,074) (25,988) (19,050) (23,892)
-------- -------- -------- -------- --------
Increase (decrease) in other
items, net ..................................... (152) 26 (543) (7) (47)
-------- -------- -------- -------- --------
Net increase ............................... $ 2,566 $ 3,524 $ 18,782 $ 8,359 $ 30,261
======== ======== ======== ======== ========
</TABLE>
64
<PAGE>
Delinquencies and Non-Performing Assets
Delinquency Procedures. When a borrower fails to make a required
payment on a loan, the Bank attempts to cure the delinquency by contacting the
borrower. Generally, Bank personnel work with the delinquent borrower on a case
by case basis to solve the delinquency. Generally, a late notice is sent on all
delinquent loans followed by a phone call after the thirtieth day of
delinquency. Additional written and verbal contacts may be made with the
borrower between 30 and 60 days after the due date. If the loan is contractually
delinquent for 90 days, the Bank may institute appropriate action to foreclose
on the property. Generally, after 120 days, foreclosure procedures are
initiated. If foreclosed, the property is sold at public sale and may be
purchased by the Bank.
Real estate acquired by First Security as a result of foreclosure or by
deed in lieu of foreclosure is classified as real estate owned until it is sold.
When property is acquired by foreclosure or deed in lieu of foreclosure, it is
recorded at the lower of cost or fair value less estimated selling costs. After
acquisition, all costs incurred in maintaining the property are expensed. Costs
relating to the development and improvement of the property, however, are
capitalized.
65
<PAGE>
The following table sets forth the Bank's loan delinquencies by type,
by amount and by percentage of type at April 30, 1997.
<TABLE>
<CAPTION>
Loans Delinquent For:
----------------------------------------------------------------- Total Loans Delinquent
60-89 Days 90 Days and Over 60 Days or More
---------------------------- ------------------------------ -----------------------------
Percent Percent Percent
of Loan of Loan of Loan
Number Amount Category Number Amount Category Number Amount Category
------ ------ -------- ------ ------ -------- ------ ------ --------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Real Estate:
One- to four-
family .................. 9 $ 352 .26% 11 $ 545 .40% 20 $ 897 .66%
Multi-family ............. -- -- -- 1 14 .14 1 14 .14
Commercial ............... -- -- -- 6 838 5.43 6 838 5.43
Consumer ................... -- -- -- 12 22 .39 12 22 .39
------ ------ ---- ------ ---- ----
Total ...................... 9 $ 352 .21% 30 $1,419 .84% 39 $1,771 1.05%
====== ====== ==== ====== ==== =====
</TABLE>
66
<PAGE>
Classification of Assets. Federal regulations require that each savings
institution classify its own assets on a regular basis. In addition, in
connection with examinations of savings institutions, OTS and FDIC examiners
have authority to identify problem assets and, if appropriate, require them to
be classified. There are three classifications for problem assets: Substandard,
Doubtful and Loss. Substandard assets have one or more defined weaknesses and
are characterized by the distinct possibility that the Bank will sustain some
loss if the deficiencies are not corrected. Doubtful assets have the weaknesses
of Substandard assets, with the additional characteristics that the weaknesses
make collection or liquidation in full on the basis of currently existing facts,
conditions and values questionable, and there is a high possibility of loss. An
asset classified Loss is considered uncollectible and of such little value that
continuance as an asset on the balance sheet of the institution is not
warranted. Assets classified as Substandard or Doubtful require the institution
to establish prudent general allowances for loan losses. If an asset or portion
thereof is classified as a loss, the institution charges off such amount against
the loan loss allowance. If an institution does not agree with an examiner's
classification of an asset, it may appeal this determination to the District
Director of the OTS.
On the basis of management's review of its assets, at April 30, 1997,
the Bank had classified a total of $2.3 million of its loan and other assets as
follows:
At
April 30,
1997
----
(In Thousands)
Substandard........................................... $1,027
Doubtful assets....................................... 1,231
Loss assets........................................... ---
---------
Total........................................... 2,258
=======
General loss allowance................................ 1,666
=======
Specific loss allowance............................... ---
=========
Charge-offs, net...................................... 428
========
First Security's classified assets consist of the non-performing loans
referred to below.
67
<PAGE>
Non-Performing Assets. The table below sets forth the amounts and
categories of non-performing assets in the Bank's loan portfolio. Accrued
interest on loans delinquent more than 90 days is reversed out of income and
credited to an interest reserve account which offsets the amount of capitalized
interest in loans receivable. See Note 1 of the Notes to Consolidated Financial
Statements. Foreclosed assets include assets acquired in settlement of loans.
<TABLE>
<CAPTION>
December 31,
April 30, -------------------------------------------------------
1997 1996 1995 1994 1993 1992
---- ---- ---- ---- ---- ----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Non-accruing loans:
One- to four-family ...................................... $ 9 $ 9 $ 9 $ 41 $ -- $ --
Commercial real estate ................................... -- -- -- 254 -- --
------ ------ ------ ------ ------ ------
Total ............................................... 9 9 9 295 -- --
Accruing loans delinquent more than 90 days:
One- to four-family ...................................... 536 1,111 971 500 985 1,726
Multi-family ............................................. 14 180 367 330 16 62
Commercial real estate ................................... 625 882 749 257 887 203
Consumer ................................................. 235 226 189 43 11 181
------ ------ ------ ------ ------ ------
Total ............................................... 1,410 2,399 2,276 1,130 1,899 2,172
Foreclosed assets:
One- to four-family ...................................... -- 40 -- -- -- --
Commercial real estate ................................... -- -- 499 207 96 170
------
Total ............................................... -- 40 499 207 96 170
Non-performing leases(1) ................................... 839 1,272 -- -- -- --
------ ------ ------ ------ ------ ------
Total non-performing assets ................................ $2,258 $3,720 $2,784 $1,632 $1,995 $2,342
====== ====== ====== ====== ====== ======
Total as a percentage of total assets ...................... 0.87% 1.44% 1.11% 0.72% 1.05% 1.32%
====== ====== ====== ====== ====== ======
- -------------
<FN>
(1) See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Comparison of Operating Results for the Four
Months Ended April 30, 1997 and April 30, 1996 -- Provision for Loan
Losses" for a discussion of the Bank's Bennett Funding leases.
</FN>
</TABLE>
For the year ended December 31, 1996 and for the four months ended
April 30, 1997, gross interest income (less additions to the interest reserve)
which would have been recorded had the non-accruing loans (and accruing loans
delinquent more than 90 days) been current in accordance with their original
terms amounted to $_____ and $_____, respectively. The amounts that were
included in interest income (less additions to the interest reserve) on such
loans were $_____ and $_____ for the year ended December 31, 1996, and for the
four months ended April 30, 1997, respectively.
Other Loans of Concern. In addition to the non-performing assets set
forth in the table above, as of April 30, 1997, there were no other loans 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 concerns 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.
Management considers the Bank's non-performing and "of concern" assets
in establishing its allowance for loan losses.
68
<PAGE>
The following table sets forth an analysis of the Bank's allowance for
loan losses.
<TABLE>
<CAPTION>
Four Months
Ended
April 30, Year Ended December 31,
---------------- -------------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
---- ---- ---- ---- ---- ---- ----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at beginning of period .................. $ 1,520 $ 885 $ 885 $ 792 $ 608 $ 360 $ 171
Charge-offs:
One- to four-family ........................... -- -- -- -- -- -- --
Multi-family .................................. -- -- -- -- -- -- --
Commercial real estate ........................ -- 50 68 28 -- -- --
Construction or development ................... -- -- -- -- -- -- --
Consumer ...................................... -- -- 3 15 -- 1 --
Leases ........................................ 432 -- -- -- -- -- --
------- ------- ------- ------- ------- ------- -------
432 50 71 43 -- 1 --
Recoveries:
One- to four-family ........................... -- -- -- -- -- -- --
Multi-family .................................. -- -- -- -- -- -- --
Commercial real estate ........................ -- -- -- -- -- -- --
Construction or development ................... -- -- -- -- -- -- --
Consumer ...................................... 4 -- -- -- 2 -- 5
Leases ........................................ -- -- -- -- -- -- --
------- ------- ------- ------- ------- ------- -------
4 -- -- -- 2 -- 5
et (charge-offs) recoveries .................... (428) (50) (71) (43) 2 (1) 5
ditions charged to operations ................. 574 42 706 136 182 249 184
------- ------- ------- ------- ------- ------- -------
Balance at end of period ........................ $ 1,666 $ 877 $ 1,520 $ 885 $ 792 $ 608 $ 360
======= ======= ======= ======= ======= ======= =======
Ratio of net charge-offs
(recoveries) during the period
to average loans outstanding during
the period .................................... 0.26% 0.03% 0.05% (0.03)% ---% ---% ---%
======= ======= ======= ======= ======= ======= =======
Ratio of net charge-offs
(recoveries) during the period to
average non-performing assets .................. 18.95% 1.68% 2.15% (1.88)% (0.10)% 0.04% 0.31%
======= ======= ======= ======= ======= ======= =======
</TABLE>
69
<PAGE>
The distribution of the Bank's allowance for losses on loans
at the dates indicated is summarized as follows:
<TABLE>
<CAPTION>
December 31,
--------------------------------------
April 30, 1997 1996
------------------------------------- --------------------------------------
Percent Percent
of Loans of Loans
Amount Loan in Each Amount Loan in Each
of Loan Amounts Category of Loan Amounts Category
Loss by of Total Loss by of Total
Allowance Category Loans Allowance Category Loans
--------- -------- ----- --------- -------- -----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
One- to four-family ..................... $ 419 $137,479 81.32% $355 $134,971 81.14%
Multi-family ............................ 50 9,708 5.74 56 9,374 5.63
Commercial real estate .................. 311 15,425 9.12 245 15,651 9.41
Construction or
development ............................ -- -- -- -- -- --
Consumer ................................ 69 5,621 3.32 68 5,086 3.06
Loans secured by
leases ................................ 420 839 0.50 318 1,272 0.76
Unallocated ............................. 397 -- -- 478 -- --
-------- -------- ------ -------- -------- -------
Total .............................. $ 1,666 $169,072 100.00% $1,520 $166,354 100.00%
======== ======== ======= ======== ======== =======
</TABLE>
<TABLE>
<CAPTION>
December 31,
-------------------------------------------------------------------------------
1995 1994
------------------------------------- --------------------------------------
Percent Percent
of Loans of Loans
Amount Loan in Each Amount Loan in Each
of Loan Amounts Category of Loan Amounts Category
Loss by of Total Loss by of Total
Allowance Category Loans Allowance Category Loans
--------- -------- ----- --------- -------- -----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
One- to four-family ................. $ 310 $117,379 79.83% $ 284 $110,280 79.53%
Multi-family ........................ 56 7,926 5.39 52 7,731 5.58
Commercial real estate .............. 199 15,127 10.29 233 14,344 10.34
Construction or
development ........................ -- -- -- -- -- --
Consumer ............................ 70 5,838 3.97 71 5,860 4.23
Loans secured by
leases ............................ 76 759 0.52 55 448 0.32
Unallocated ......................... 174 -- -- 97 -- --
-------- -------- ------- -------- -------- ------
Total .......................... $ 885 $147,029 100.00% $ 792 $138,663 100.00%
======== ======== ======= ======== ======== ======
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
December 31,
-------------------------------------------------------------------------------
1993 1992
------------------------------------- --------------------------------------
Percent Percent
of Loans of Loans
Amount Loan in Each Amount Loan in Each
of Loan Amounts Category of Loan Amounts Category
Loss by of Total Loss by of Total
Allowance Category Loans Allowance Category Loans
--------- -------- ----- --------- -------- -----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
One- to four-family ................ $ 225 $ 84,401 77.89% $165 $ 76,102 75.90%
Multi-family ....................... 45 7,632 7.04 20 6,799 6.78
Commercial real estate ............. 206 10,820 9.99 105 11,198 11.16
Construction or
development ....................... 15 185 0.17 15 429 0.43
Consumer ........................... 66 5,317 4.91 45 5,742 5.73
Loans secured by
leases ........................... -- -- -- -- -- --
Unallocated ........................ 51 -- -- 10 -- --
-------- -------- ------- ----- -------- ------
Total ......................... $ 608 $108,355 100.00% $360 $100,270 100.00%
======== ======== ======= ===== ======== ======
</TABLE>
70
<PAGE>
The allowance for loan losses is established through a provision for
loan losses charged to earnings based on management's evaluation of the risk
inherent in its entire loan portfolio. Such evaluation, which includes a review
of all loans of which full collectibility may not be reasonably assured,
considers the market value of the underlying collateral, growth and composition
of the loan portfolio, delinquency trends, adverse situations that may affect
the borrower's ability to repay, prevailing and projected economic conditions
and other factors that warrant recognition in providing for an adequate
allowance for loan losses. In determining the general reserves under these
policies, historical charge-offs and recoveries, changes in the mix and levels
of the various types of loans, net realizable values, the current and
prospective loan portfolio and current economic conditions are considered.
While management believes that it uses the best information available
to determine the allowance for loan losses, unforeseen economic and market
conditions could result in adjustments to the allowance for loan losses, and net
earnings could be significantly affected, if circumstances differ substantially
from the assumptions used in making the final determination.
Investment Activities
General. Generally, the investment policy of First Security is to
invest funds among categories of investments based upon the Bank's
asset/liability management policies, investment quality, loan and deposit
volume, liquidity needs and performance objectives. In accordance with the
Bank's asset/liability management policy, the Bank has recently focused a
significant part of its investment activities on instruments with terms to
repricing or maturity of five years or less.
First Security must maintain minimum levels of investments and other
assets 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, First
Security has maintained liquid assets at levels above the minimum requirements
imposed by the OTS regulations and above levels believed adequate to meet the
requirements of normal operations, including potential deposit outflows. At
April 30, 1997, First Security's liquidity ratio for regulatory purposes was
8.90%. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Asset/Liability Management" and "- Liquidity and Capital
Resources."
Prior to December 31, 1993, the Bank recorded its marketable equity
securities at the lower of cost or current market value and its remaining
investment securities at amortized cost. Unrealized declines in the market value
of marketable equity securities were reflected in the equity section of the
financial statements. Effective January 1, 1994, First Security adopted SFAS
115. As required by SFAS 115, securities are classified into three categories:
trading, held-to-maturity and available-for-sale. Securities that are bought and
held principally for the purpose of selling them in the near term are classified
as trading securities and are reported at fair value with unrealized gains and
losses included in trading account activities in the statement of operations.
Securities that First Security has the positive intent and ability to hold to
maturity are classified as held-to-maturity and reported at amortized cost. All
other securities not classified as trading or held-to-maturity are classified as
available-for-sale. At April 30, 1997, First Security had no securities which
were classified as trading and $27.5 million of mortgage-backed and investment
securities classified as
71
<PAGE>
available-for-sale. Available-for-sale securities are reported at fair value
with unrealized gains and losses included, on an after-tax basis, in a separate
component of retained earnings.
Mortgage-Backed and Related Securities. In order to supplement its
lending activities and achieve its asset/liability management goals, the Bank
invests in mortgage-backed and related securities. As of April 30, 1997, all of
the mortgage-backed and related securities owned by the Bank are issued, insured
or guaranteed either directly or indirectly by a federal agency or are rated
"AAA" by a nationally recognized credit rating agency. However, it should be
noted that, while a (direct or indirect) federal guarantee or a high credit
rating may indicate a high degree of protection against default, they do not
indicate that the securities will be protected from declines in value based on
changes in interest rates or prepayment speeds.
Consistent with its asset/liability management strategy, at April 30,
1997, $18.6 million, or 45.4% of First Security's mortgage-backed and related
securities were available-for-sale. In addition, on the same date, $17.1 million
or 41.7% of the Bank's mortgage-backed and related securities carried adjustable
rates. Finally, as discussed further below, at April 30, 1997, the Bank had $1.8
million of collateralized mortgage obligations ("CMOs") with anticipated average
lives of five years or less. For additional information regarding the Bank's
mortgage-backed securities portfolio, see Note 2 of the Notes to the
Consolidated Financial Statements.
The Bank's CMOs and real estate mortgage investment conduits ("REMICs")
are securities derived by reallocating the cash flows from mortgage-backed
securities or pools of mortgage loans in order to create multiple classes, or
tranches, of securities with coupon rates and average lives that differ from the
underlying collateral as a whole. The terms to maturity of any particular
tranche is dependent upon the prepayment speed of the underlying collateral as
well as the structure of the particular CMO or REMIC. Although a significant
proportion of the Bank's CMOs and REMICs are interests in tranches which have
been structured (through the use of cash flow priority and "support" tranches)
to give somewhat more predictable cash flows, the cash flow and hence the value
of CMOs and REMICs is subject to change.
The Bank invests in CMOs and REMICs as an alternative to mortgage loans
and conventional mortgage-backed securities as part of its asset/liability
management strategy. Management believes that, depending on market conditions,
CMOs and REMICs may represent attractive investment alternatives relative to
other investments due to the wide variety of maturity and repayment options
available. In particular, the Bank has from time to time concluded that short
and intermediate duration CMOs and REMICs (five year or less average life) often
represent a better combination of rate and duration than adjustable rate
mortgage-backed securities.
To assess price volatility, the Federal Financial Institutions
Examination Council ("FFIEC") adopted a policy in 1992 which requires an annual
"stress" test of mortgage derivative securities. This policy, which has been
adopted by the OTS, requires the Bank to annually test its CMOs and other
mortgage-related securities to determine whether they are high-risk or
nonhigh-risk securities. Mortgage derivative products with an average life or
price volatility in excess of a benchmark 30-year, mortgage-backed, pass-through
security are considered high-risk mortgage securities. Under the policy, savings
institutions may generally only invest in low-risk mortgage securities in order
to reduce interest rate risk. In addition, all high-risk mortgage securities
acquired after February 9, 1992 which are classified as high risk at the time of
purchase must be carried in the institution's
72
<PAGE>
trading account or as assets available-for-sale. At March 31, 1997, the most
recent quarterly test date, none of the Bank's mortgage-backed securities were
classified as "high-risk."
73
<PAGE>
The following table sets forth the composition of the Bank's
mortgage-backed securities at the dates indicated.
<TABLE>
<CAPTION>
December 31,
-----------------------------------------------------------------------
April 30, 1997 1996 1995 1994
------------------ -------------------- ------------------- --------------------
Carrying % of Carrying % of Carrying % of Carrying % of
Value Total Value Total Value Total Value Total
----- ----- ----- ----- ----- ----- ----- -----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Mortgage-backed securities
held-to-maturity:
GNMA ............................. $ 8,896 21.69% $ 9,226 21.05% $ 5,142 11.39% $ 7,380 17.32%
FNMA ............................. 3,016 7.36 3,294 7.51 4,526 10.02 8,508 19.96
FHLMC ............................ 5,655 13.79 6,280 14.33 9,806 21.71 19,234 45.13
CMOs/REMICs ...................... 4,822 11.76 5,309 12.11 5,646 12.50 7,499 17.59
------- ------ ------- ------ ------- ------ ------- ------
22,389 54.60 24,109 55.00 25,120 55.62 42,621 100.00
Mortgage-backed securities
available-for-sale:
GNMA ............................. 3,277 7.99 3,425 7.81 2,924 6.47 -- --
FNMA ............................. 6,197 15.11 6,572 14.99 6,383 14.14 -- --
FHLMC ............................ 8,400 20.49 8,985 20.50 9,992 22.12 -- --
CMOs/REMICs ...................... 742 1.81 745 1.70 745 1.65 -- --
------- ------ ------- ------ ------- ------ ------- ------
18,616 45.40 19,727 45.00 20,044 44.38 -- --
------- ------ ------- ------ ------- ------ ------- ------
Total mortgage-backed
securities .................. $41,005 100.00% $43,836 100.00% $45,164 100.00% $42,621 100.00%
======= ====== ======= ====== ======= ====== ======= ======
</TABLE>
74
<PAGE>
The following table sets forth the contractual maturities of the Bank's
mortgage-backed securities at April 30, 1997.
<TABLE>
<CAPTION>
April 30,
Due in 1997
---------------------------------------------------------------------- -----------------------------
6 Months 6 Months 1 to 3 to 5 5 to 10 10 to 20 Over 20 Amortized Carrying
or Less to 1 Year 3 Years Years Years Years Years Cost Value
------- --------- ------- ----- ----- ----- ----- ---- -----
(In Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Federal Home Loan
Mortgage Corporation ..... $ -- $458 $ 1 $ 172 $ 1,785 $ 3,256 $ 8,598 $14,270 $14,055
Federal National
Mortgage Association ..... -- -- 386 -- 1,470 1,179 6,344 9,379 9,213
Government National
Mortgage Association ..... -- -- -- -- 522 718 10,928 12,168 12,173
CMOs and REMICs ............ -- -- 780 -- 1,364 1,244 2,147 5,535 5,564
------ ------- ------- ------- ------- ------- ------- ------- -------
Total ................. $ -- $458 $ 1,167 $ 172 $ 5,141 $ 6,397 $28,017 $41,352 $41,005
====== ======= ======= ======== ======= ======= ======= ======= =======
</TABLE>
75
<PAGE>
As of April 30, 1997, the Bank did not have any mortgage-backed
securities in excess of 10% of retained earnings except for FNMA, FHLMC and GNMA
issues, amounting to $9.2 million, $14.1 million and $12.2 million,
respectively.
The market values of a portion of the Bank's mortgage-backed securities
held-to-maturity have been from time to time lower than their carrying values.
However, for financial reporting purposes, such declines in value are considered
to be temporary in nature since they have been due to changes in interest rates
rather than credit concerns. See Note 2 of the Notes to the Consolidated
Financial Statements.
The following table shows mortgage-backed securities purchase, sale and
repayment activities of the Bank for the periods indicated.
<TABLE>
<CAPTION>
Four Months Ended Year Ended
April 30, December 31,
------------------------- --------------------------------------------
1997 1996 1996 1995 1994
---- ---- ---- ---- ----
(In Thousands)
<S> <C> <C> <C> <C> <C>
Purchases:
Adjustable-rate .............................. $ -- $ 2,396 $ 2,396 $ 8,197 $ 1,460
Fixed-rate ................................... -- -- 4,583 1,498 3,830
CMOs ......................................... -- 510 510 -- 3,446
-------- -------- -------- -------- --------
Total purchases ............................. -- 2,906 7,489 9,695 8,736
Principal repayments ......................... (2,872) (1,169) (8,639) (6,999) (11,211)
Discount/premium net change .................. (2) -- 16 (39) (349)
Fair value net change ........................ (39) (76) (194) (114) --
-------- -------- -------- -------- --------
Net increase (decrease) ..................... $ (2,913) $ 1,661 $ (1,328) $ 2,543 $ (2,824)
======== ======== ======== ======== ========
</TABLE>
The Bank's holdings of mortgage-backed securities are a significant
portion of the Bank's total assets. Since pass-through mortgage-backed
securities generally carry a yield approximately 50 to 100 basis points below
that of the corresponding type of residential loan (due to the implied federal
agency guarantee fee and the retention of a servicing spread by the loan
servicer), and the Bank's CMOs and REMICs also carry lower yields (due to the
implied federal agency guarantee and because such securities tend to have
shorter actual durations than 30 year loans), in the event that the proportion
of the Bank's assets consisting of mortgage-backed and related securities
increases, the Bank's asset yields could be somewhat adversely affected. The
Bank will evaluate mortgage-backed and related securities purchases in the
future based on its asset/liability objectives, market conditions and
alternative investment opportunities.
Other Securities. Federally chartered savings institutions have the
authority to invest in various types of liquid assets, including United States
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.
76
<PAGE>
In order to complement its lending and mortgage-backed securities, and
to increase its holding of short and intermediate term assets, the Bank invests
in liquid investments and in high-quality investments, such as U.S. Treasury and
agency obligations. At April 30, 1997 and December 31, 1996, the Bank's
securities portfolio totaled $37.2 million and $34.8 million, respectively. At
April 30, 1997, the Bank did not own any other securities of a single issuer
which exceeded 10% of the Bank's retained earnings, other than federal agency
obligations. See Note 2 of the Notes to the Consolidated Financial Statements
for additional information regarding the Bank's other securities portfolio.
77
<PAGE>
The following table sets forth the composition of the Bank's other
securities and other earning assets at the dates indicated.
<TABLE>
<CAPTION>
December 31,
--------------------------------------------------------------------
April 30, 1997 1996 1995 1994
--------------- ------------------- ----------------- -----------------------
Carrying % of Carrying % of Carrying % of Carrying % of
Value Total Value Total Value Total Value Total
----- ----- ----- ----- ----- ----- ----- -----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Securities held-to-maturity:
Federal agency obligations ............ $22,801 61.33% $20,320 58.43% $15,445 45.02% $12,452 37.07%
Municipal bonds ....................... 5,207 14.01 5,208 14.98 4,768 13.90 5,120 15.25
Corporate Notes ....................... 251 0.67 251 0.72 353 1.02 354 1.05
------- --------- ------- --------- ------- ---------- ------- ------
28,259 76.01 25,779 74.13 20,566 59.94 17,926 53.37
Securities available-for sale:
US government securities .............. 3,321 8.93 3,350 9.63 7,936 23.13 10,203 30.38
Mutual Funds .......................... 5,598 15.06 5,645 16.23 5,737 16.72 5,389 16.04
Other Equity .......................... -- -- 2 0.01 70 0.21 70 0.21
------- --------- ------- --------- ------- ---------- ------- ------
8,919 23.99 8,997 25.87 13,743 40.06 15,662 46.63
------- --------- ------- --------- ------- ---------- ------- ------
Total securities ................. $37,178 100.00% $34,776 100.00% $34,309 100.00% $33,588 100.00%
======= ========= ======= ========= ======= ========== ======= ======
Average remaining life of
securities: .......................... _______ _______ _______ _______
Other earning assets:
Interest-earning deposits
with banks ........................... $ 904 18.24% $ 2,713 44.58% $ 9,490 71.12% $ 1,588 38.68%
FHLB stock ............................ 1,852 37.37 1,673 27.49 1,553 11.64 1,318 32.10
Federal funds sold .................... 2,000 40.35 1,500 24.65 2,100 15.74 1,000 24.35
Time deposit in other
financial institutions ............... 200 4.04 200 3.28 200 1.50 200 4.87
------- --------- ------- --------- ------- ---------- ------- ------
Total ........................... $ 4,956 100.00% $6,086 100.00% $13,343 100.00% $4,106 100.00%
======= ========= ======= ========= ======= ========== ======= ======
</TABLE>
78
<PAGE>
The composition and maturities of the other securities portfolio,
excluding FHLB stock, are indicated in the following table.
<TABLE>
<CAPTION>
April 30, 1997
---------------------------------------------------------------------------
Less Than 1 to 5 5 to 10 Over
1 Year Years Years 10 years Total Securities
------ ----- ----- -------- ----------------------
Amortized Amortized Amortized Amortized Amortized Fair
Cost Cost Cost Cost Cost Value
---- ---- ---- ---- ---- -----
Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
US government securities ........... $ 999 $ 1,991 $ -- 259 $ 3,249 $ 3,321
Federal agency obligations(1) ...... -- 2,444 15,347 5,010 22,801 22,801(1)
Municipal bonds .................... 100 1,448 2,175 1,484 5,207 5,221
Corporate notes .................... 250 -- -- -- 250 251
------- ------- ------- ------ ------- -------
Total securities ................... $ 1,349 $ 5,883 $17,522 $ 6,753 $31,507 $31,594
======= ======= ======= ======= ======= =======
Weighted average yield ............. 6.89% 6.31% 6.76% 7.20% 6.74%
======= ======= ======= ======= =======
- ----------------
<FN>
(1) $26 million are callable securities.
</FN>
</TABLE>
See Note 2 of the Notes to the Consolidated Financial Statements for a
discussion of the Bank's securities portfolio.
Sources of Funds
General. The Bank's primary sources of funds are deposits, payments
(including prepayments) of loan principal, interest earned on loans and
securities, repayments of securities, borrowings and funds provided from
operations.
Deposits. First Security offers deposit accounts having a wide range of
interest rates and terms. The Bank's deposits consist of passbook, NOW, money
market and various certificate accounts. The Bank relies primarily on
competitive pricing and customer service to attract and retain these deposits.
The Bank's customers may access their accounts through any of the Bank's five
offices and five automated teller machines ("ATMs"). In addition, the Bank's
customers may access their accounts through several nationwide ATM networks. The
Bank only solicits deposits in its market area and does not currently use
brokers to obtain deposits.
The Bank manages the pricing of its deposits in keeping with its
asset/liability management, profitability and growth objectives. The variety of
deposit accounts offered by the Bank has allowed it to be competitive in
obtaining funds and to respond with flexibility to changes in consumer demand.
However, as some customers have become more interest rate conscious, the Bank
has become more susceptible to short-term fluctuations in its certificate of
deposit flows.
Management believes that the "core" portion of the Bank's regular
savings, NOW and money market accounts, which amounted to $90.8 million or 41.4%
of total deposits at April 30, 1997, can have a lower cost and be more resistant
to interest rate changes (and competing non-depository financial products) than
certificate accounts. The Bank utilizes customer service, community outreach and
marketing initiatives in an effort to build and maintain the volume of such
deposits. However, there can be no assurance as to whether the Bank will be able
to maintain or increase its core deposits in the future.
79
<PAGE>
The table below sets forth the Bank's deposit flows for the periods
indicated.
<TABLE>
<CAPTION>
Four Months Ended Year Ended
April 30, December 31,
----------------------------- ----------------------------------------------
1997 1996 1996 1995 1994
---- ---- ---- ---- ----
(Dollars In Thousands)
<S> <C> <C> <C> <C> <C>
Opening balance...................... $ 219,505 $ 209,387 $ 209,387 $ 195,875 $ 161,715
Deposits............................. 122,486 114,416 347,280 348,404 344,471
Withdrawals.......................... (125,591) (113,652) (346,192) (343,039) (316,340)
Interest credited.................... 2,587 2,602 9,030 8,147 6,029
----------- ---------- ---------- ---------- ----------
Ending balance....................... $ 218,987 $212,753 $219,505 $209,387 $195,875
========= ======== ======== ======== ========
Net increase (decrease).............. $ (518) $ 3,366 $ 10,118 $ 13,512 $ 34,160
=========== ========== ========= ========= =========
Percent increase (decrease).......... (0.24)% 1.61% 4.83% 6.90% 21.12%
===== ==== ==== ==== =====
</TABLE>
80
<PAGE>
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>
April 30, December 31,
------------------------------------ ---------------------------------------------------------
1997 1996 1996 1995 1994
----------------- ---------------- ---------------- ---------------- -----------------
Percent Percent Percent Percent Percent
Amount of Total Amount of Total Amount of Total Amount of Total Amount of Total
------ -------- ------ -------- ------ -------- ------ -------- ------ --------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Transactions and
Savings Deposits
Passbook Accounts 3.00% ....... $ 71,203 32.5% $ 69,509 32.7% $ 71,167 32.4% $ 69,631 33.3% $ 73,548 37.5%
NOW Accounts 2.23% ............ 14,505 6.6 13,077 6.1 14,509 6.6 13,262 6.3 11,673 6.0
Money Market Accounts 3.06% ... 5,137 2.3 5,488 2.6 5,107 2.3 5,612 2.7 6,928 3.5
-------- ----- -------- ----- -------- ----- -------- ----- -------- -----
Total Non-Certificates ........ 90,845 41.4 88,074 41.4 90,783 41.3 88,505 42.3 92,149 47.0
Certificates:
0.00 - 3.99% .................. -- -- 35 -- 119 0.1 310 0.1 20,075 10.2
4.00 - 5.99% .................. 114,663 52.4 106,459 50.0 116,397 53.0 87,775 41.9 76,704 39.2
6.00 - 7.99% .................. 13,365 6.1 18,023 8.5 12,094 5.5 32,629 15.6 6,238 3.2
8.00 - 9.00% .................. 114 0.1 162 0.1 112 0.1 168 0.1 709 0.4
-------- ----- -------- ----- -------- ----- ------ ----- ------ -----
Total Certificates ............ 128,142 58.6 124,679 58.6 128,722 58.7 120,882 57.7 103,726 53.0
-------- ----- -------- ----- -------- ----- ------- ----- ------- -----
Total Deposits ................ $218,987 100.0% $212,753 100.0% $219,505 100.0% $209,387 100.0% $195,875 100.0%
======== ===== ======== ===== ======== ===== ======= ===== ======= =====
- -------
<FN>
(1) Includes $_____ from not for profit organizations.
</FN>
</TABLE>
81
<PAGE>
The following table shows rate and maturity information for the Bank's
certificates of deposit as of April 30, 1997.
<TABLE>
<CAPTION>
Less Than 1 to 2 2 to 3 3 to 4 4 to 5 Greater
1 Year Years Years Years Years than 5 Years Total
------ ----- ----- ----- ----- ------------ -----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
4.00 - 4.99%.......... $ 8,774 $ 18 $ --- $ --- $ --- $ --- $ 8,792
5.00 - 5.99%.......... 91,255 10,136 1,910 961 1,609 --- 105,871
6.00 - 6.99%.......... 1,888 95 4,433 1,671 2,695 --- 10,782
7.00 - 7.99%.......... 229 --- 1,629 102 623 --- 2,583
8.00 - 8.99%.......... 18 46 --- --- --- 50 114
---------- ---------- --------- --------- --------- ------- -----------
$102,164 $10,295 $7,972 $2,734 $4,927 50 $128,142
======== ======= ====== ====== ====== ======= ========
</TABLE>
The following table indicates the amount of the Bank's certificates of
deposit and other deposits by time remaining until maturity as of April 30,
1997.
<TABLE>
<CAPTION>
Maturity
----------------------------------------------------------------
Over Over
3 Months 3 to 6 6 to 12 Over
or Less Months Months 12 Months Total
-------------- -------------- -------------- -------------- ----------
(In Thousands)
<S> <C> <C> <C> <C> <C>
Certificates of deposit less than
$100,000................................... $30,123 $26,170 $22,571 $17,639 $ 96,503
Certificates of deposit $100,000
or more.................................... 10,033 7,876 5,391 8,339 31,639
-------- -------- -------- -------- --------
Total certificates of deposit.......... $40,156 $34,046 $27,962 $25,978 $128,142
======= ======= ======= ======= ========
</TABLE>
For additional information regarding the composition of the Bank's
deposits, see Note 7 of the Notes to the Consolidated Financial Statements.
Borrowings. First Security's other available sources of funds include
advances from the FHLB of Chicago and other borrowings. The Bank's FHLB advances
to date have primarily consisted of subsidized borrowings to fund special
housing programs. As a member of the FHLB of Chicago, the Bank is required to
own capital stock in the FHLB of Chicago and is authorized to apply for advances
from the FHLB of Chicago. Each FHLB credit program has its own interest rate,
which may be fixed or variable, and range of maturities. The FHLB of Chicago may
prescribe the acceptable uses for these advances, as well as limitations on the
size of the advances and repayment provisions. See Note 8 of the Notes to the
Consolidated Financial Statements.
82
<PAGE>
The following table sets forth the maximum month-end balance and
average balance of FHLB advances for the periods indicated.
<TABLE>
<CAPTION>
Four Months Ended Year Ended
April 30, December 31,
----------------------- ---------------------------------------
1997 1996 1996 1995 1994
---- ---- ---- ---- ----
(Dollars In Thousands)
<S> <C> <C> <C> <C> <C>
Maximum Balance:
FHLB Advances............................. $7,500 $3,000 $4,000 $10,000 $3,000
Average Balance:
FHLB Advances............................. $5,400 $3,000 $3,333 $3,769 $2,846
Weighted average interest rate of
FHLB advances............................. 5.75% 5.17% 5.25% 5.25% 6.30%
</TABLE>
Subsidiary Activities
As a federally chartered savings bank, First Security is permitted by
OTS regulations to invest up to 2% of its assets in the stock of, or loans to,
service corporation subsidiaries, and may invest an additional 1% of its assets
in service corporations where such additional funds are used for inner-city or
community development purposes. In addition to investments in service
corporations, federal institutions are permitted to invest an unlimited amount
in operating subsidiaries engaged solely in activities which a federal savings
association may engage in directly.
At April 30, 1997, First Security had one wholly owned service
corporation, Western Security Corporation ("Western" or the "Subsidiary").
Western, an Illinois corporation, was incorporated November 1977 for the purpose
of offering customers and members of the general public credit, life, mortgage
and disability insurance. First Security's investment in Western was $47,000 as
of April 30, 1997. Western recognized net income (loss) of $(6,000) during the
four months ended April 30, 1997 and $3,000 during the year ended December 31,
1996.
Competition
First Security faces strong competition both in originating real estate
loans and in attracting deposits. Competition in originating loans comes
primarily from credit unions, mortgage bankers, commercial banks and other
savings institutions, which also make loans secured by real estate located in
the Bank's market area. First Security competes for loans principally on the
basis of the interest rates and loan fees it charges, the types of loans it
originates, community outreach and the quality of services it provides to
borrowers.
Competition for those deposits is principally from credit unions,
commercial banks, mutual funds, securities firms and other savings institutions
located in the same communities. The ability of the Bank to attract and retain
deposits depends on its ability to provide an investment opportunity that
satisfies the requirements of investors as to rate of return, liquidity, risk,
convenient locations and other factors. The Bank competes for these deposits by
offering competitive rates, convenient business hours, community outreach and a
customer oriented staff.
83
<PAGE>
Properties
The following table sets forth information concerning the main office
and each branch office of the Bank at April 30, 1997. At April 30, 1997, the
Bank's premises had an aggregate net book value of approximately $3.8 million.
<TABLE>
<CAPTION>
Year Net Book Value
Acquired/ Owned or at
Location Established Leased April 30, 1997 Deposits
-------- ----------- ------ -------------- --------
(In Thousands)
<S> <C> <C> <C> <C>
Main Office:
936 North Western Avenue 1964 Owned $1,340 $143,958
Chicago, Illinois 60622-4695
Branch Offices:
2166 Plum Grove Road 1977 Leased(1) 4 11,444
Rolling Meadows, Illinois 60008
820 N. Western Avenue 1983 Owned 257 2,266
Chicago, Illinois 60622
5670 N. Milwaukee Avenue 1993 Owned 1,197 11,321
Chicago, Illinois 60646
7918 Bustleton Avenue 1994 Owned 663 49,998
Philadelphia, Pennsylvania 19152
- ---------
<FN>
(1) The lease expires in July 1997.
</FN>
</TABLE>
The Bank believes that its current facilities are adequate to meet the
present and foreseeable future needs of the Bank and the Holding Company.
However, in the future, the Bank may consider the addition of one or more new
branches within the Chicago or Philadelphia areas.
The Bank's depositor and borrower customer files are maintained by an
independent data processing company. The net book value of the data processing
and computer equipment utilized by the Bank at April 30, 1997 was approximately
$110,700.
Legal Proceedings
From time to time, First Security is involved as plaintiff or defendant
in various legal proceedings arising in the normal course of its business. While
the ultimate outcome of these various legal proceedings cannot be predicted with
certainty, it is the opinion of management that the resolution of these legal
actions should not have a material effect on the Holding Company's and the
Bank's financial position or results of operations.
84
<PAGE>
REGULATION
General
First Security is a federally chartered savings bank, the deposits of
which are federally insured and backed by the full faith and credit of the
United States Government. Accordingly, First Security is subject to broad
federal regulation and oversight extending to all its operations. First Security
is a member of the FHLB of Chicago and is subject to certain limited regulation
by the Board of Governors of the Federal Reserve System ("Federal Reserve
Board"). As the savings and loan holding company of First Security, the Holding
Company also is subject to federal regulation and oversight. The purpose of the
regulation of the Holding Company and other holding companies is to protect
subsidiary savings associations. First Security is a member of the Savings
Association Insurance Fund ("SAIF") and the deposits of First Security are
insured by the FDIC. As a result, the FDIC has certain regulatory and
examination authority over First Security.
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, First Security is required to file
periodic reports with the OTS and is subject to periodic examinations by the OTS
and the FDIC. The last regular OTS and FDIC examinations of First Security were
as of June 30, 1996 and April 23 1990, respectively. Under agency scheduling
guidelines, it is likely that another examination will be initiated in the near
future. When these examinations are conducted by the OTS and the FDIC, the
examiners may require First Security to provide for higher general or specific
loan loss reserves. All savings associations are subject to a semi-annual
assessment, based upon the savings association's total assets, to fund the
operations of the OTS.
The OTS also has extensive enforcement authority over all savings
institutions and their holding companies, including First Security and the
Holding Company. This enforcement authority includes, among other things, the
ability to assess civil money penalties, to issue cease-and-desist or removal
orders and to initiate injunctive actions. In general, these enforcement actions
may be initiated for violations of laws and regulations and unsafe or unsound
practices. Other actions or inactions may provide the basis for enforcement
action, including misleading or untimely reports filed with the OTS. Except
under certain circumstances, public disclosure of final enforcement actions by
the OTS is required.
In addition, the investment, lending and branching authority of First
Security is prescribed by federal laws and it is prohibited from engaging in any
activities not permitted by such laws. For instance, no savings institution may
invest in non-investment grade corporate debt securities. In addition, the
permissible level of investment by federal associations in loans secured by
non-residential real property may not exceed 400% of total capital, except with
approval of the OTS. Federal savings associations are also generally authorized
to branch nationwide. First Security is in compliance with the noted
restrictions.
85
<PAGE>
First Security's general permissible lending limit for
loans-to-one-borrower is equal to the greater of $500,000 or 15% of unimpaired
capital and surplus (except for loans fully secured by certain readily
marketable collateral, in which case this limit is increased to 25% of
unimpaired capital and surplus). At April 30, 1997, First Security's lending
limit under this restriction was $4.5 million. Assuming the sale of the minimum
number of shares in the Conversion at April 30, 1997, that limit would be
increased to $6.4 million. First Security is in compliance with the
loans-to-one-borrower limitation.
The OTS, as well as the other federal banking agencies, has adopted
guidelines establishing safety and soundness standards on such matters as loan
underwriting and documentation, internal controls and audit systems, interest
rate risk exposure and compensation and other employee benefits. Any institution
which fails to comply with these standards must submit a compliance plan. 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 proposed additional guidelines on asset quality and earnings
standards. No assurance can be given as to whether or in what form the proposed
regulations will be adopted.
Insurance of Accounts and Regulation by the FDIC
First Security is a member of the SAIF, which is administered by the
FDIC. Deposits are insured up to applicable limits by the FDIC and such
insurance is backed by the full faith and credit of the United States
Government. As insurer, the FDIC imposes deposit insurance premiums and is
authorized to conduct examinations of and to require reporting by FDIC-insured
institutions. It also may prohibit any FDIC-insured institution from engaging in
any activity the FDIC determines by regulation or order to pose a serious risk
to the FDIC. The FDIC also has the authority to initiate enforcement actions
against savings associations, after giving the OTS an opportunity to take such
action, and may terminate the deposit insurance if it determines that the
institution has engaged in unsafe or unsound practices or is in an unsafe or
unsound condition.
The FDIC's deposit insurance premiums are assessed through a risk-based
system under which all insured depository institutions are placed into one of
nine categories and assessed insurance premiums based upon their level of
capital and supervisory evaluation. Under the system, institutions classified as
well capitalized (i.e., a core capital ratio of at least 5%, a ratio of Tier 1
or core capital to risk-weighted assets ("Tier 1 risk-based capital") of at
least 6% and a risk-based capital ratio of at least 10%) and considered healthy
pay the lowest premium while institutions that are less than adequately
capitalized (i.e., core or Tier 1 risk-based capital ratios of less than 4% or a
risk-based capital ratio of less than 8%) and considered of substantial
supervisory concern pay the highest premium. Risk classification of all insured
institutions will be made by the FDIC for each semi-annual assessment period.
The FDIC is authorized to increase assessment rates, on a semiannual
basis, if it determines that the reserve ratio of the SAIF will be less than the
designated reserve ratio of 1.25% of SAIF-insured deposits. In setting these
increased assessments, the FDIC must seek to restore the reserve ratio to that
designated reserve level, or such higher reserve ratio as established by the
FDIC. The FDIC may also impose special assessments on SAIF members to repay
amounts borrowed from the United States Treasury or for any other reason deemed
necessary by the FDIC.
86
<PAGE>
For the first six months of 1995, the assessment schedule for BIF
members and SAIF members ranged from .23% to .31% of deposits. As is the case
with the SAIF, the FDIC is authorized to adjust the insurance premium rates for
banks that are insured by the BIF of the FDIC in order to maintain the reserve
ratio of the BIF at 1.25% of BIF insured deposits. As a result of the BIF
reaching its statutory reserve ratio the FDIC revised the premium schedule for
BIF insured institutions to provide a range of .04% to .31% of deposits. The
revisions became effective in the third quarter of 1995. In addition, the BIF
rates were further revised, effective January 1996, to provide a range of 0% to
.27%. The SAIF rates, however, were not adjusted. At the time the FDIC revised
the BIF premium schedule, it noted that, absent legislative action (as discussed
below), the SAIF would not attain its designated reserve ratio until the year
2002. As a result, SAIF insured members would continue to be generally subject
to higher deposit insurance premiums than BIF insured institutions until, all
things being equal, the SAIF attains its required reserve ratio.
In order to eliminate this disparity and any competitive disadvantage
between BIF and SAIF member institutions with respect to deposit insurance
premiums, legislation to recapitalize the SAIF was enacted in September 1996.
The legislation provides for a one-time assessment to be imposed on all deposits
assessed at the SAIF rates, as of March 31, 1995, in order to recapitalize the
SAIF. It also provides for the merger of the BIF and the SAIF on January 1, 1999
if no savings associations then exist. The special assessment rate was
established at .657% of deposits and the assessment was paid in November 1996.
Based on First Security's level of SAIF deposits at March 31, 1995, First
Security's assessment was approximately $1.3 million on a pre-tax basis. This
special assessment significantly increased noninterest expense and adversely
affected the Bank's results of operations for the year ended December 31, 1996.
Prior to the enactment of the legislation, a portion of the SAIF
assessment imposed on savings associations was used to repay obligations issued
by a federally chartered corporation to provide financing ("FICO") for resolving
the thrift crisis in the 1980s. Although the FDIC has proposed that the SAIF
assessment be equalized with the BIF assessment schedule, effective October 1,
1996, SAIF-insured institutions will continue to be subject to a FICO assessment
as a result of this continuing obligation. Although the legislation also now
requires assessments to be made on BIF-assessable deposits for this purpose,
effective January 1, 1997, that assessment will be limited to 20% of the rate
imposed on SAIF assessable deposits until the earlier of December 31, 1999 or
when no savings association continues to exist, thereby imposing a greater
burden on SAIF member institutions such as First Security. Thereafter, however,
assessments on BIF-member institutions will be made on the same basis as
SAIF-member institutions. The rates established by the FDIC to implement this
requirement for all FDIC-insured institutions are a 6.5 basis points assessment
on SAIF deposits and 1.5 basis points on BIF deposits until BIF insured
institutions participate fully in the assessment.
Regulatory Capital Requirements
Federally insured savings associations, such as First Security, 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 associations. These capital requirements
must be generally as stringent as the comparable capital requirements for
national banks. The OTS is also authorized to impose capital requirements in
excess of these standards on individual associations on a case-by-case basis.
87
<PAGE>
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 First Security stock and related income. In addition,
all intangible assets, other than a limited amount of purchased mortgage
servicing rights, must be deducted from tangible capital for calculating
compliance with the requirement. At April 30, 1997, First Security had $332,000
of intangible assets recorded as assets on its financial statements, as a result
of its acquisition of assets and assumption of liabilities from the Resolution
Trust Corporation in 1994. See Note 6 of the Notes to Consolidated Financial
Statements.
The OTS regulations establish special capitalization requirements for
savings associations that own subsidiaries. In determining compliance with the
capital requirements, all subsidiaries engaged solely in activities permissible
for national banks or engaged in certain other activities solely as agent for
its customers are "includable" subsidiaries that are consolidated for capital
purposes in proportion to the association's level of ownership. For excludable
subsidiaries the debt and equity investments in such subsidiaries are deducted
from assets and capital.
Assuming the Bank would have been subject to the OTS capital
requirements, at April 30, 1997, First Security had tangible capital of $29.5
million, or 11.4% of adjusted total assets, which is approximately $25.6 million
above the minimum requirement of 1.5% of adjusted total assets in effect on that
date. On a pro forma basis, after giving effect to the sale of the minimum,
midpoint and maximum number of shares of Common Stock offered in the Conversion
and investment of 50% of the net proceeds in assets not excluded for tangible
capital purposes, First Security would have had tangible capital equal to 15.4%,
16.2% and 16.9%, respectively, of adjusted total assets at April 30, 1997, which
is $37.9 million, $40.2 million and $42.5 million, respectively, above the
requirement.
The capital standards also require core capital equal to at least 3% of
adjusted total assets. Core capital generally consists of tangible capital plus
certain intangible assets, including a limited amount of purchased credit card
relationships. As a result of the prompt corrective action provisions discussed
below, however, a savings association must maintain a core capital ratio of at
least 4% to be considered adequately capitalized unless its supervisory
condition is such to allow it to maintain a 3% ratio.
At April 30, 1997, First Security had core capital equal to $29.5
million, or 11.4% of adjusted total assets, which is $21.7 million above the
minimum leverage ratio requirement of 3% as in effect on that date. On a pro
forma basis, after giving effect to the sale of the minimum, midpoint and
maximum number of shares of Common Stock offered in the Conversion and
investment of 50% of the net proceeds in assets not excluded from core capital,
First Security would have had core capital equal to 15.4%, 16.2% and 16.9%,
respectively, of adjusted total assets at April 30, 1997, which is $33.8
million, $36.1 million and $38.3 million, respectively, above the requirement.
The OTS risk-based requirement requires savings associations to have
total capital of at least 8% of risk-weighted assets. Total capital consists of
core capital, as defined above, and supplementary capital. Supplementary capital
88
<PAGE>
consists of certain permanent and maturing capital instruments that do not
qualify as core capital and general valuation loan and lease loss allowances up
to a maximum of 1.25% of risk-weighted assets. Supplementary capital may be used
to satisfy the risk-based requirement only to the extent of core capital. The
OTS is also authorized to require a savings association to maintain an
additional amount of total capital to account for concentration of credit risk
and the risk of non-traditional activities. At April 30, 1997, First Security
had $1.7 million of general loss reserves of which $1.6 million qualifies as
supplementary capital, which was less than 1.25% of risk-weighted assets.
Certain exclusions from capital and assets are required to be made for
the purpose of calculating total capital. Such exclusions consist of equity
investments (as defined by regulation) and that portion of land loans and
nonresidential construction loans in excess of an 80% loan-to-value ratio and
reciprocal holdings of qualifying capital instruments. First Security had no
such exclusions from capital and assets at April 30, 1997.
In determining the amount of risk-weighted assets, all assets,
including certain off-balance sheet items, will be multiplied by a risk weight,
ranging from 0% to 100%, based on the risk inherent in the type of asset. For
example, the OTS has assigned a risk weight of 50% for prudently underwritten
permanent one- to four-family first lien mortgage loans not more than 90 days
delinquent and having a loan to value ratio of not more than 80% at origination
unless insured to such ratio by an insurer approved by the FNMA or FHLMC.
The OTS has adopted a final rule that requires every savings
association with more than normal interest rate risk exposure to deduct from its
total capital, for purposes of determining compliance with such requirement, an
amount equal to 50% of its interest-rate risk exposure multiplied by the present
value of its assets. This exposure is a measure of the potential decline in the
net portfolio value of a savings association, greater than 2% of the present
value of its assets, based upon a hypothetical 200 basis point increase or
decrease in interest rates (whichever results in a greater decline). Net
portfolio value is the present value of expected cash flows from assets,
liabilities and off-balance sheet contracts. The rule provides for a two quarter
lag between calculating interest rate risk and recognizing any deduction from
capital. The rule will not become effective until the OTS evaluates the process
by which savings associations may appeal an interest rate risk deduction
determination. It is uncertain as to when this evaluation may be completed. Any
savings association with less than $300 million in assets and a total capital
ratio in excess of 12% is exempt from this requirement unless the OTS determines
otherwise. Based upon its capital level and assets size at April 30, 1997, First
Security would qualify for an exemption from the requirement.
On April 30, 1997, First Security had total capital of $31.1 million
(including $29.5 million in core capital and $1.6 million in qualifying
supplementary capital) and risk-weighted assets of $127.5 million; or total
capital of 24.4% of risk-weighted assets. This amount was $20.9 million above
the 8% requirement in effect on that date. On a pro forma basis, after giving
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effect to the sale of the minimum, midpoint and maximum number of shares of
Common Stock offered in the Conversion, the infusion to First Security of 50% of
the net Conversion proceeds and the investment of those proceeds to First
Security in 20% risk-weighted government securities, First Security would have
had total capital of 33.6%, 35.3% and 36.9%, respectively, of risk-weighted
assets, which is above the current 8% requirement by $33.2 million, $35.5
million and $37.8 million, respectively.
The OTS and the FDIC are authorized and, under certain circumstances
required, to take certain actions against savings associations that fail to meet
their capital requirements. The OTS is generally required to take action to
restrict the activities of an "undercapitalized association" (generally defined
to be one with less than either a 4% core capital ratio, a 4% Tier 1
risked-based capital ratio or an 8% risk-based capital ratio). Any such
association must submit a capital restoration plan and until such plan is
approved by the OTS may not increase its assets, acquire another institution,
establish a branch or engage in any new activities, and generally may not make
capital distributions. The OTS is authorized to impose the additional
restrictions that are applicable to significantly undercapitalized associations.
As a condition to the approval of the capital restoration plan, any
company controlling an undercapitalized association must agree that it will
enter into a limited capital maintenance guarantee with respect to the
institution's achievement of its capital requirements.
Any savings association that fails to comply with its capital plan or
is "significantly undercapitalized" (i.e., Tier 1 risk-based or core capital
ratios of less than 3% or a risk-based capital ratio of less than 6%) must be
made subject to one or more of additional specified actions and operating
restrictions which may cover all aspects of its operations and include a forced
merger or acquisition of the association. An association that becomes
"critically undercapitalized" (i.e., a tangible capital ratio of 2% or less) is
subject to further mandatory restrictions on its activities in addition to those
applicable to significantly undercapitalized associations. In addition, the OTS
must appoint a receiver (or conservator with the concurrence of the FDIC) for a
savings association, with certain limited exceptions, within 90 days after it
becomes critically undercapitalized. Any undercapitalized association is also
subject to the general enforcement authority of the OTS and the FDIC, including
the appointment of a conservator or a receiver.
The OTS is also generally authorized to reclassify an association into
a lower capital category and impose the restrictions applicable to such category
if the institution is engaged in unsafe or unsound practices or is in an unsafe
or unsound condition.
The imposition by the OTS or the FDIC of any of these measures on First
Security may have a substantial adverse effect on First Security's operations
and profitability and the value of the Common Stock purchased in the Conversion.
Holding Company stockholders do not have preemptive rights, and therefore, if
the Holding Company is directed by the OTS or the FDIC to issue additional
shares of Common Stock, such issuance may result in the dilution in the
percentage of ownership of the Holding Company of those persons purchasing
shares in the Conversion.
Limitations on Dividends and Other Capital Distributions
OTS regulations impose various restrictions on savings associations
with respect to their ability to make distributions of capital, which include
dividends, stock redemptions or repurchases, cash-out mergers and other
transactions charged to the capital account. OTS regulations also prohibit a
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savings association from declaring or paying any dividends or from repurchasing
any of its stock if, as a result, the regulatory capital of the association
would be reduced below the amount required to be maintained for the liquidation
account established in connection with its mutual to stock conversion. See "The
Conversion--Effects of Conversion to Stock Form on Depositors and Borrowers of
the Bank" and "-Restrictions on Repurchase of Stock."
Generally, savings associations, such as First Security, that before
and after the proposed distribution meet their capital requirements, may make
capital distributions during any calendar year equal to the greater of 100% of
net income for the year-to-date plus 50% of the amount by which the lesser of
the association's tangible, core or risk-based capital exceeds its capital
requirement for such capital component, as measured at the beginning of the
calendar year, or 75% of its net income for the most recent four quarter period.
However, an association deemed to be in need of more than normal supervision by
the OTS may have its dividend authority restricted by the OTS. First Security
may pay dividends in accordance with this general authority.
Savings associations proposing to make any capital distribution need
only submit written notice to the OTS 30 days prior to such distribution.
Savings associations that do not, or would not meet their current minimum
capital requirements following a proposed capital distribution, however, must
obtain OTS approval prior to making such distribution. The OTS may object to the
distribution during that 30-day period notice based on safety and soundness
concerns. See "- Regulatory Capital Requirements."
The OTS has proposed regulations that would revise the current capital
distribution restrictions. Under the proposal a savings association that is a
subsidiary of a holding company may make a capital distribution with notice to
the OTS provided that it has a CAMEL 1 or 2 rating, is not of supervisory
concern, and would remain adequately capitalized (as defined in the OTS prompt
corrective action regulations) following the proposed distribution. Savings
associations that would remain adequately capitalized following the proposed
distribution but do not meet the other noted requirements must notify the OTS 30
days prior to declaring a capital distribution. The OTS stated it will generally
regard as permissible that amount of capital distributions that do not exceed
50% of the institution's excess regulatory capital plus net income to date
during the calendar year. A savings association may not make a capital
distribution without prior approval of the OTS and the FDIC if it is
undercapitalized before, or as a result of, such a distribution. As under the
current rule, the OTS may object to a capital distribution if it would
constitute an unsafe or unsound practice. No assurance may be given as to
whether or in what form the regulations may be adopted.
Liquidity
All savings associations, including First Security, 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 First Security
includes in liquid assets, see "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Liquidity and Capital
Resources." This liquid asset ratio requirement may vary from time to time
(between 4% and 10%) depending upon economic conditions and savings flows of all
savings associations. At the present time, the minimum liquid asset ratio is 5%.
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In addition, short-term liquid assets (e.g., cash, certain time
deposits, certain bankers acceptances and short-term United States Treasury
obligations) currently must constitute at least 1% of the association's average
daily balance of net withdrawable deposit accounts and current borrowings.
Penalties may be imposed upon associations for violations of either liquid asset
ratio requirement. At April 30, 1997, First Security was in compliance with both
requirements, with an overall liquid asset ratio of 8.90% and a short-term
liquid assets ratio of 5.60%
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 GAAP.
Under the policy statement, management must support its classification of and
accounting for loans and securities (i.e., whether held-to-maturity,
available-for-sale or trading) with appropriate documentation. First Security is
in compliance with these amended rules.
The OTS has adopted an amendment to its accounting regulations, which
may be made more stringent than GAAP by the OTS, 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.
Qualified Thrift Lender Test
All savings associations, including First Security, 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 April 30, 1997, First Security met the test with 78.5% of its
portfolio assets in qualified thrift investments and has always met the test
since its effectiveness.
Any savings association that fails to meet the QTL test must convert to
a national bank charter, unless it requalifies as a QTL and thereafter remains a
QTL. If an association does not requalify and converts to a national bank
charter, it must remain SAIF-insured until the FDIC permits it to transfer to
the BIF. If such an association has not yet requalified or converted to a
national bank, its new investments and activities are limited to those
permissible for both a savings association and a national bank, and it is
limited to national bank branching rights in its home state. In addition, the
association is immediately ineligible to receive any new FHLB borrowings and is
subject to national bank limits for payment of dividends. If such association
has not requalified or converted to a national bank within three years after the
failure, it must divest of all investments and cease all activities not
permissible for a national bank. In addition, it must repay promptly any
outstanding FHLB borrowings, which may result in prepayment penalties. If any
association that fails the QTL test is controlled by a holding company, then
within one year after the failure, the holding company must register as a bank
holding company and become subject to all restrictions on bank holding
companies. See "- Holding Company Regulation."
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Community Reinvestment Act
Under the Community Reinvestment Act ("CRA"), every FDIC insured
institution has a continuing and affirmative obligation consistent with safe and
sound banking practices to help meet the credit needs of its entire community,
including low and moderate income neighborhoods. The CRA does not establish
specific lending requirements or programs for financial institutions nor does it
limit an institution's discretion to develop the types of products and services
that it believes are best suited to its particular community, consistent with
the CRA. The CRA requires the OTS, in connection with the examination of First
Security, to assess the institution's record of meeting the credit needs of its
community and to take such record into account in its evaluation of certain
applications, such as a merger or the establishment of a branch, by First
Security. An unsatisfactory rating may be used as the basis for the denial of an
application by the OTS.
The federal banking agencies, including the OTS, have recently revised
the CRA regulations and the methodology for determining an institution's
compliance with the CRA. Due to the heightened attention being given to the CRA
in the past few years, First Security may be required to devote additional funds
for investment and lending in its local community. First Security was examined
for CRA compliance in April 1996 and received a rating of satisfactory.
Transactions with Affiliates
Generally, transactions between a savings association 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 First Security include the Holding Company
and any company which is under common control with First Security. 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.
Holding Company Regulation
The Holding Company will be a unitary savings and loan holding company
subject to regulatory oversight by the OTS. As such, the Holding Company is
required to register and file reports with the OTS and is subject to regulation
and examination by the OTS. In addition, the OTS has enforcement authority over
the Holding Company and its non-savings association subsidiaries which also
permits the OTS to restrict or prohibit activities that are determined to be a
serious risk to the subsidiary savings association.
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As a unitary savings and loan holding company, the Holding Company
generally is not subject to activity restrictions. If the Holding Company
acquires control of another savings association as a separate subsidiary, it
would become a multiple savings and loan holding company, and the activities of
the Holding Company and any of its subsidiaries (other than First Security or
any other SAIF-insured savings association) would become subject to such
restrictions unless such other associations each qualify as a QTL and were
acquired in a supervisory acquisition.
If First Security fails the QTL test, the Holding Company must obtain
the approval of the OTS prior to continuing after such failure, directly or
through its other subsidiaries, any business activity other than those approved
for multiple savings and loan holding companies or their subsidiaries. In
addition, within one year of such failure the Holding Company must register as,
and will become subject to, the restrictions applicable to bank holding
companies. The activities authorized for a bank holding company are more limited
than are the activities authorized for a unitary or multiple savings and loan
holding company. See "- Qualified Thrift Lender Test."
The Holding Company must obtain approval from the OTS before acquiring
control of any other SAIF-insured association. Such acquisitions are generally
prohibited if they result in a multiple savings and loan holding company
controlling savings associations in more than one state. However, such
interstate acquisitions are permitted based on specific state authorization or
in a supervisory acquisition of a failing savings association.
Federal Securities Law
The stock of the Holding Company is registered with the SEC under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). The Holding
Company is subject to the information, proxy solicitation, insider trading
restrictions and other requirements of the SEC under the Exchange Act.
Holding Company stock held by persons who are affiliates (generally
officers, directors and principal stockholders) of the Holding Company may not
be resold without registration or unless sold in accordance with certain resale
restrictions. If the Holding Company meets specified current public information
requirements, each affiliate of the Holding Company is able to sell in the
public market, without registration, a limited number of shares in any
three-month period.
Federal Reserve System
The Federal Reserve Board requires all depository institutions to
maintain non-interest bearing reserves at specified levels against their
transaction accounts (primarily checking, NOW and Super NOW checking accounts).
At April 30, 1997, First Security 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
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associations to exhaust other reasonable alternative sources of funds, including
FHLB borrowings, before borrowing from the Federal Reserve Bank.
Federal Home Loan Bank System
First Security is a member of the FHLB of Chicago, which is one of 12
regional FHLBs, that administers the home financing credit function of savings
associations. Each FHLB serves as a reserve or central bank for its members
within its assigned region. It is funded primarily from proceeds derived from
the sale of consolidated obligations of the FHLB System. It makes loans to
members (i.e., advances) in accordance with policies and procedures, established
by the board of directors of the FHLB, which are subject to the oversight of the
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. The aggregate amount of advances cannot exceed 20 times the amount of
FHLB stock held by the institutions.
As a member, First Security is required to purchase and maintain stock
in the FHLB of Chicago. At April 30, 1997, First Security had $1.9 million in
FHLB stock, which was in compliance with this requirement. In past years, First
Security has received substantial dividends on its FHLB stock. Over the past
five calendar years such dividends have averaged 6.12% and were 6.8% for
calendar year 1996. As a result of their holdings, the Bank could borrow up to
$38.0 million from the FHLB.
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 First Security's FHLB stock may result in a corresponding
reduction in First Security's capital.
For the year ended December 31, 1996, dividends paid by the FHLB of
Chicago to First Security totaled $111,000, which constitute a $13,000 increase
from the amount of dividends received in calendar year 1995. The $33,000
dividend received for the four months ended April 30, 1997 reflects an
annualized rate of 5.8%, which is 100 basis points less than the rate for
calendar 1996.
Federal and State Taxation
In August 1996, legislation was enacted that repeals the reserve method
of accounting used by many thrifts to calculate their bad debt reserve for
federal income tax purposes. As a result, small thrifts such as the Bank must
recapture that portion of the reserve that exceeds the balance of its reserves
as of the close of its 1987 tax year. The legislation also requires thrifts to
account for bad debts for federal income tax purposes on the same basis as
commercial banks for tax years beginning after December 31, 1995. The recapture
will occur over a six-year period, the commencement of which will be delayed
until the first taxable year beginning after December 31, 1997, provided the
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institution meets certain residential lending requirements. The management of
the Company does not believe that the legislation will have a material impact on
the Company or the Bank.
In addition to the regular income tax, corporations, including savings
associations such as First Security, 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..
To the extent earnings appropriated to a savings association's bad debt
reserves for "qualifying real property loans" and deducted for federal income
tax purposes exceed the allowable amount of such reserves computed under the
experience method and to the extent of the association's supplemental reserves
for losses on loans ("Excess"), such Excess may not, without adverse tax
consequences, be utilized for the payment of cash dividends or other
distributions to a shareholder (including distributions on redemption,
dissolution or liquidation) or for any other purpose (except to absorb bad debt
losses). As of December 31, 1996, First Security's excess for tax purposes
totaled approximately $2.0 million.
First Security files its federal, state and local income tax returns on
a calendar year basis using the accrual method of accounting.
First Security has not been audited by the IRS with respect to
consolidated federal income tax returns in the past five years. With respect to
years examined by the IRS, either all deficiencies have been satisfied or
sufficient reserves have been established to satisfy asserted deficiencies. In
the opinion of management, any examination of still open returns (including
returns of subsidiary and predecessors of, or entities merged into, First
Security) would not result in a deficiency which could have a material adverse
effect on the financial condition of First Security and its consolidated
subsidiary.
Illinois Taxation. For Illinois income tax purposes, the Bank is taxed
at an effective rate equal to 7.18% of Illinois taxable income. For these
purposes, "Illinois Taxable Income" generally means federal taxable income,
subject to certain adjustments (including the addition of interest income on
state and municipal obligations and the exclusion of interest income on United
States Treasury obligations).
Delaware Taxation. As a Delaware holding company, the Holding Company
is exempted from Delaware corporate income tax but is required to file an annual
report with and pay an annual fee to the State of Delaware. The Holding Company
is also subject to an annual franchise tax imposed by the State of Delaware.
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MANAGEMENT
Directors and Executive Officers of the Holding Company and of the Bank
Directors and Executive Officers of the Holding Company. The Board of
Directors of the Holding Company currently consists of nine members. The
directors of the Holding Company are currently comprised of the directors of the
Bank. See "- Board of Directors of the Bank." Directors of the Holding Company
serve three-year staggered terms so that approximately one-third of the
directors will be elected at each annual meeting of stockholders. The terms of
the current directors of the Holding Company are the same as that of the Bank's
board. Upon the completion of the Conversion, the Holding Company intends to pay
directors a fee of $850 per board meeting attended and $100 per committee
meeting attended. For information regarding stock options and restricted stock
proposed to be awarded to directors following stockholder ratification of such
plans, see "- Benefit Plans."
The executive officers of the Holding Company are elected annually and
hold office until their respective successors have been elected and qualified or
until death, resignation or removal by the Board of Directors. The following
table sets forth information regarding executive officers of the Holding
Company. Each executive officer of the Holding Company has held his or her
position since the incorporation of the Holding Company in July 1997.
Name Title
---- -----
Julian Kulas President and Chief Executive Officer
Harry I. Kucewicz Treasurer and Chief Financial Officer
Mary H. Korb Vice-President - Lending
Irene S. Subota Vice-President - Savings
Adrian Hawryliw Vice President - Philadelphia Branch Manager
The Holding Company does not initially intend to pay executive officers
any fees in addition to fees payable to such persons as executive officers of
the Bank. For information regarding compensation of directors and executive
officers of the Bank, see "Management - Director Compensation" and "- Executive
Compensation." For information regarding stock options and restricted stock
proposed to be awarded to directors and executive officers following stockholder
ratification of the Holding Company's stock-based plans, see "- Benefit Plans."
Board of Directors of the Bank. Prior to the Conversion, the direction
and control of the Bank, as a mutual savings institution, was 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 nine members. The
directors serve three-year staggered terms so that approximately one-third of
the directors are elected at each annual meeting of members. Because the Holding
Company will own all of the issued and outstanding shares of capital stock of
the Bank after the Conversion, directors of the Holding Company will elect the
directors of the Bank.
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The following table sets forth certain information regarding the
directors of the Bank.
<TABLE>
<CAPTION>
Director Term
Name Position(s) Held With the Bank Age(1) Since Expires
---- ------------------------------ ------ ----- -------
<S> <C> <C> <C> <C>
Steve Babyk Director 50 1993 2000
Lila Maria Bodnar Director and Recording Secretary 38 1995 1998
Myron Dobrowolsky Director 63 1985 2000
Terry Gawryk Director and Secretary 43 1981 1999
Julian Kulas Director, President and Chief Executive Officer 62 1964 1998
George Kawka Director 53 1986 1998
Paul Nadzikewycz Chairman of the Board 58 1973 2000
Jaroslav H. Sydorenko Director 55 1993 1999
Chrysta Wereszczak Director 41 1993 1999
- --------------------
<FN>
(1) At April 30, 1997.
</FN>
</TABLE>
The business experience of each director of the Holding Company for at
least the past five years is set forth below.
Steve Babyk. Mr. Babyk has worked at Union Tank Car Company since 1969
and is currently the Director of Fleet Leasing. Mr. Babyk is primarily
responsible for the care and leasing of over 50,000 railroad cars in the United
States, Canada and Mexico.
Lila Maria Bodnar. Ms. Bodnar was an accountant with the First National
Bank of Chicago from 1981 to 1985 and was a manager in the accounting department
of the Chicago branch of the Bank of Montreal from 1985 to 1991. Ms. Bodnar has
a Masters of Business Administration from Loyola University, Chicago, Illinois.
Myron Dobrowolsky. Mr. Dobrowolsky has been a construction project
manager with the engineering firm of Dames and Moore, Chicago, Illinois since
1991. Previously, Mr. Dobrowolsky was an engineer with the Illinois Highway
Department.
Terry Gawryk. Mr. Gawryk has practiced law in Chicago, Illinois since
1979.
Julian Kulas. Mr. Kulas has served as the President and Chief Executive
Officer of the Bank since 1964. Mr. Kulas has also been engaged in the private
practice of law since 1959. Mr. Kulas is extremely active in community affairs
and holds a variety of positions on not-for-profit organizations. Mr. Kulas has
been a Commissioner on the Chicago Commission on Human Relations since 1981.
George Kawka. Mr. Kawka has been a senior architectural/engineering
project manager with PAL Telecom Group since 1994 and was previously a senior
project manager with AIC Security Systems, all in Chicago, Illinois.
Paul Nadzikewycz. Mr. Nadzikewycz, a licensed podiatrist, has been a
self-employed investor focusing primarily on real estate since 1987. In
addition, since January 1997, Mr. Nadzikewycz has served as President and Chief
Executive Officer of Oakley Assoc. Ltd., a legal software developer.
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Jaroslav H. Sydorenko. Mr. Sydorenko has been a credit manager at
Kanematsu USA, Inc., an import/export trading company located in Chicago,
Illinois since 1985.
Chrysta Wereszczak. Ms. Wereszczak was employed by the Unisys
Corporation from 1982 to 1989 in a variety of positions, including Financial
Manager and Regional Financial Analyst. She is currently involved with B&B
Formica, a manufacturing business she owns with her spouse. Ms. Wereszczak is a
member of the St. Nicholas School Board.
Executive Officers Who Are Not Directors. Each of the executive
officers of the Bank will retain his or her office in the converted Bank.
Officers are elected annually by the Board of Directors of the Bank. The
business experience of the executive officers who are not also directors is set
forth below.
Harry Kucewicz. Mr. Kucewicz, age 40, is currently serving as the
Treasurer and Chief Operating and Financial Officer of the Bank. He began
working at the Bank in 1978 as the Controller. He was elected Treasurer and
Chief Financial Officer in 1990 and Chief Operating Officer in August 1994.
Mary H. Korb. Ms. Korb, age 49, is currently Vice President - Lending
of the Bank. In such capacity, Ms. Korb supervises all aspects of the Bank's
lending operations including lending compliance. Ms. Korb has been with the Bank
since 1970 and has served in her present capacity since March 1991.
Irene S. Subota. Ms. Subota, age 51, currently serves as Vice President
- - Savings of the Bank. In such capacity, Ms. Subota is in charge of all aspects
of the Bank's savings function including compliance. Ms. Subota has been
employed by the Bank since 1973 and has served in her current position since
1992.
Adrian Hawryliw. Mr. Hawryliw, age 61, has served as Philadelphia
Branch Manager of the Bank since 1994 when the Philadelphia, Pennsylvania branch
was acquired from the Resolution Trust Corporation and is currently a Vice
President of the Bank. Mr. Hawryliw is responsible for supervising operations of
the Philadelphia, Pennsylvania branch, including business development, retail
deposits, real estate lending, accounting and marketing. He has over 34 years of
banking experience in the Philadelphia area, holding various positions including
Chief Financial Officer and Vice President/ Investments for other area
institutions.
Indemnification
The Certificate of Incorporation of the Holding Company provides that a
director or officer of the Holding Company shall be indemnified by the Holding
Company to the fullest extent authorized by the General Corporation Law of the
State of Delaware against all expenses, liability and loss reasonably incurred
or suffered by such person in connection with his activities as a director or
officer of the Holding Company or as a director or officer of another company,
if the director or officer held such position at the request of the Holding
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Company. Delaware law requires that such director, officer, employee or agent,
in order to be indemnified, must have acted in good faith and in a manner
reasonably believed to be not opposed to the best interests of the Holding
Company, and, with respect to any criminal action or proceeding, did not have
reasonable cause to believe his or her conduct was unlawful.
The Certificate of Incorporation and Delaware law also provide that the
indemnification provisions of such Certificate and the statute are not exclusive
of any other right which a person seeking indemnification may have or later
acquire under any statute, provision of the Certificate of Incorporation, Bylaws
of the Holding Company, agreement, vote of stockholders or disinterested
directors or otherwise.
These provisions may have the effect of deterring shareholder
derivative actions, since the Holding Company may ultimately be responsible for
expenses for both parties to the action. A similar effect would not be expected
for third-party claims.
In addition, the Certificate of Incorporation and Delaware law also
provide that the Holding Company may maintain insurance, at its expense, to
protect itself and any director, officer, employee or agent of the Holding
Company or another corporation, partnership, joint venture, trust or other
enterprise against any expense, liability or loss, whether or not the Holding
Company has the power to indemnify such person against such expense, liability
or loss under the Delaware General Corporation Law. The Holding Company may
obtain such insurance.
Meetings and Committees of Board of Directors
The Bank. The Bank's Board of Directors meets on a monthly basis. The
Board of Directors met 13 times during the fiscal year ended December 31, 1996.
During fiscal 1996, 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 or she served.
The Bank has standing Executive, Audit, Salary Review, Loan and
Investment Committees.
The Executive Committee provides oversight of Board-related matters
in-between regularly scheduled Board Meetings. The Executive Committee is
comprised of Director Gawryk and President Julian Kulas. This committee met
approximately five times during fiscal year 1996.
The Audit Committee is comprised of Directors Bodnar, Sydorenko and
Wereszczak. This Committee oversees and reviews the Bank's financial and
internal control matters. The Audit Committee also reviews the Bank's audited
financial statements with the Bank's outside auditors and the Report of the
Examination with the OTS examiners, either separately or with the full Board.
This committee met four times in 1996.
The Salary Review Committee oversees and reviews the Bank's
compensation policies and sets the compensation levels for Executive Management.
This committee is comprised of Directors Gawryk, Nadzikewycz, Wereszczak and
Babyk and met three times in 1996.
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The Loan Committee is composed of Directors Dobrowolsky, Gawryk, and
Babyk and Vice-President Korb. The Loan Committee reviews loan applications
weekly and sets interest rates for all loan types. The Loan Committee met 24
times in 1996.
The Investment Committee is composed of President Kulas, Vice President
Hawryliw, Treasurer Kucewicz and Director Bodnar. This committee meets at least
once a month to handle the investments for the Bank and the implementation of
the Bank's strategy as it relates to interest rate risk and reinvestment
options. The Investment Committee met eight times in 1996.
The Holding Company. The Board of Directors of the Holding Company has
established standing Executive, Audit and Nominating Committees.
Director Compensation
Directors of the Bank are paid a monthly fee of $850 for service on the
Board of Directors. Chairman Paul Nadzikewycz and Recording Secretary Lila Maria
Bodnar each receive an additional fee of $250 per month. Directors receive
additional compensation of $100 for each committee meeting attended.
Executive Compensation
The following table sets forth information concerning the compensation
accrued for services in all capacities to First Security for the fiscal year
ended December 31, 1996 for the Bank's President and Chief Executive Officer. No
other executive officer's aggregate annual compensation (salary plus bonus)
exceeded $100,000 in fiscal 1996.
Summary Compensation Table
<TABLE>
<CAPTION>
Long Term Compensation
Annual Compensation(1) Awards
------------------------------------- ----------------------------
Other Annual Restricted Stock Options/ All Other
Name and Principal Position Year Salary($) Bonus($) Compensation($) Award ($)(2) SARs (#)(2) Compensation($)
--------------------------- ---- --------- -------- --------------- ------------ ----------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Julian E. Kulas
President, Chief Executive Officer
and Director 1996 $127,966 $5,419 $7,800 --- --- $22,240(3)
- ----------
<FN>
(1) In accordance with the transitional provisions applicable to the revised
rules on executive officer and director compensation disclosure adopted by
the SEC, as informally interpreted by the SEC's Staff, Summary Compensation
information is excluded for the fiscal years ended December 31, 1995 and
1994.
(2) Pursuant to the proposed Stock Option Plan, the Holding Company intends to
grant Mr. Kulas an option to purchase a number of shares equal to 2.5%
(93,725 shares at the minimum and 124,625 shares at the maximum of the
Estimated Valuation Range) of the total number of shares of Common Stock
issued in the Conversion at an exercise price equal to the market value per
share of the Common Stock on the date of grant. See "- Stock Option and
Incentive Plan." In addition, pursuant to the proposed RRP, the Holding
Company intends to grant to Mr. Kulas a number of shares of restricted
stock equal to 1.0% (37,490 shares at the minimum and 49,850 shares at the
maximum of the Estimated Valuation Range) of the total number of shares of
Common Stock sold in the Conversion. See "- Recognition and Retention
Plan."
(3) This amount consists of $22,240 received through the Bank's Profit Sharing
Plan.
</FN>
</TABLE>
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Employment Agreement and Severance Agreements. The Bank intends to
enter into an employment agreement with President Kulas providing for an initial
term of three years and change in control severance agreements with executive
officers Kucewicz, Korb, Subota and Hawryliw providing for an initial term of
two years. The agreements have been filed with the OTS as part of the
application of the Holding Company for approval to become a savings and loan
holding company.
Mr. Kulas' employment agreement will become effective upon completion
of the Conversion and provide for an annual base salary in an amount not less
than his current salary and provide for an annual extension subject to the
performance of an annual formal evaluation by disinterested members of the Board
of Directors of the Bank. The agreement also provides for termination upon the
employee's death, for cause or in certain events specified by OTS regulations.
The employment agreement is terminable by the employee upon 90 days' notice to
the Bank.
The employment agreement provides for payment to Mr. Kulas of an amount
equal to 299% of his five-year annual average base compensation, in the event
there is a "change in control" of the Bank where employment involuntarily
terminates in connection with such change in control or within twelve months
thereafter. For the purposes of the employment agreement, a "change in control"
is defined as any event which would require the filing of an application for
acquisition of control or notice of change in control pursuant to 12 C.F.R. ss.
574.3 or 4. Such events are generally triggered prior to the acquisition or
control of 10% of the Holding Company's common stock. See "Restrictions on
Acquisitions of Stock and Related Takeover Defensive Provisions." If the
employment of Mr. Kulas had been terminated as of April 30, 1997 under
circumstances entitling him to severance pay as described above, he would have
been entitled to receive a lump sum cash payment of approximately $382,600. The
agreement also provides for the continued coverage for the remainder of the term
of his contract should he be involuntarily terminated in the event of change in
control.
The Bank intends to enter into change in control severance agreements
with officers Kucewicz, Korb, Subota and Hawryliw. The agreements become
effective upon completion of the Conversion and provide for an initial term of
24 months. The agreements provide for extensions of one year, on each
anniversary of the effective date of the agreement, subject to a formal
performance evaluation performed by disinterested members of the Board of
Directors of the Bank. The agreements provide for termination for cause or in
certain events specified by OTS regulations.
The agreements provide for a lump sum payment to the employee of 200%
of their annual base compensation and the continued payment for the remaining
term of the contract of life and health insurance coverage maintained by the
Bank in the event there is a "change in control" of the Bank where employment
terminates involuntarily within 12 months of such change in control. This
termination payment is subject to reduction to the extent it is non-deductible
for federal income tax purposes. For the purposes of the agreements, a "change
in control" is defined as any event which would require the filing of an
application for acquisition of control or notice of change in control pursuant
to 12 C.F.R. ss. 574.3 or 4 or any successor regulation. Such events are
generally triggered prior to the acquisition of control of 10% of the Company's
Common Stock. See "Restrictions on Acquisitions of Stock and Related Takeover
Defensive Provisions."
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Employee Severance Compensation Plan. The Bank's Board of Directors has
established the First Security Employee Severance Compensation Plan which will
provide certain employees with severance pay benefits in the event of a change
in control of the Bank or the Holding Company following Conversion. Management
personnel with individual employment agreements or change in control severance
agreements are not eligible to participate in the Severance Compensation Plan.
The purpose of the Severance Compensation Plan is to recognize the valuable
services and contributions of the Bank's employees and the uncertainties
relating to continuing employment, reduced employee benefits, management changes
and relocations in the event of a change in control. Under the Severance
Compensation Plan, in the event of a change in control, eligible employees who
are terminated or voluntarily terminate employment (for reasons specified under
the Severance Compensation Plan), within one year of a change in control will be
entitled to receive a severance payment. Payments pursuant to the Severance
Compensation Plan are equal to the product of two weeks salary (as defined in
the Severance Compensation Plan) times the number of years of service up to a
maximum of twelve years in the case of officers or seven years in the case of
other employees. In general, the Severance Compensation Plan may be amended or
terminated by the Board of Directors by a majority vote at any time prior to a
change in control but may not be amended or terminated thereafter.
Benefit Plans
General. First Security currently provides insurance benefits to its
employees, including health and life insurance, subject to certain deductibles
and copayments. First Security also maintains a profit sharing plan for the
benefit of its employees.
Profit Sharing Plan. The Bank maintains a tax-exempt profit sharing
plan and trust (the "Profit Sharing Plan"). All employees serving at least 1,000
hours per year are eligible to participate subject to certain vesting and other
qualifying factors. The Bank anticipates that future profit sharing
contributions will be reduced in order to offset, in part, the expense of the
ESOP.
Prior to the completion of the Conversion, the Bank intends to amend
the Profit Sharing Plan in order to give the participants the opportunity to
direct some or all of their vested interests into Holding Company Common Stock.
Employee Stock Ownership Plan. The Boards of Directors of First
Security and the Holding Company have approved the adoption of an ESOP for the
benefit of employees of First Security. The ESOP is also 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 funded with a loan from the
Holding Company. The interest rate of the ESOP loan will be equal to the
applicable federal interest rate as determined by the Internal Revenue Service
for the month in which the loan is made, as calculated pursuant to Section
1274(d) of the Code.
GAAP generally requires that any borrowing by the ESOP from an
unaffiliated lender be reflected as a liability in the Holding Company's
Financial Statements, whether or not such borrowing is guaranteed by, or
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constitutes a legally binding contribution commitment of, the Holding Company or
the Bank. The funds used to acquire the ESOP shares will be borrowed from the
Holding Company. Since the Holding Company will finance the ESOP debt, the ESOP
debt will be eliminated through consolidation and no liability will be reflected
on the Holding Company's financial statements. In addition, shares purchased
with borrowed funds will, to the extent of the borrowings, be excluded from
stockholders' equity, representing unearned compensation to employees for future
services not yet performed. Consequently, if the ESOP purchases already-issued
shares in the open market, the Holding Company's consolidated liabilities will
increase to the extent of the ESOP's borrowings, and total and per share
stockholders' equity will be reduced to reflect such borrowings. If the ESOP
purchases newly issued shares from the Holding Company, total stockholders'
equity would neither increase nor decrease, but per share stockholders' equity
and per share net income would decrease because of the increase in the number of
outstanding shares. In either case, as the borrowings used to fund ESOP
purchases are repaid, total stockholders' equity will correspondingly increase.
All employees of the Bank are eligible to participate in the ESOP after
they attain age 21 and complete one year of service. The Bank's contribution to
the ESOP is allocated among participants on the basis of their relative
compensation. Each participant's account will be credited with cash and shares
of Holding Company Common Stock based upon compensation earned during the year
with respect to which the contribution is made. Contributions credited to a
participant's account become fully vested upon such participant's completing six
years of service. Credit will be given for prior years of service for vesting
purposes. ESOP participants are entitled to receive distributions from their
ESOP accounts only upon termination of service. Distributions will be made in
cash and in whole shares of the Holding Company's Common Stock. Fractional
shares will be paid in cash. Participants will not incur a tax liability until a
distribution is made.
Each participating employee is entitled to instruct the trustee of the
ESOP as to how to vote the shares allocated to his or her account. The trustee
will not be affiliated with the Holding Company or First Security Federal
Savings Bank.
The ESOP may be amended by the Board of Directors, except that no
amendment may be made which would reduce the interest of any participant in the
ESOP trust fund or divert any of the assets of the ESOP trust fund for purposes
other than the benefit of participants or their beneficiaries.
Stock Option and Incentive Plan. Among the benefits to the Bank
anticipated from the Conversion is the ability to attract and retain personnel
through the prudent use of stock options and other stock-related incentive
programs. The Board of Directors of the Holding Company intends to adopt the
Stock Option Plan, subject to ratification by stockholders of the Holding
Company at a meeting to be held not earlier than six months after completion of
the Conversion. Under the terms of the proposed Stock Option Plan, stock options
covering shares representing an aggregate of up to 10% of the shares of Common
Stock issued in the Conversion including the Stock Contribution may be granted
to directors, officers and employees of the Holding Company or its subsidiaries
under the Stock Option Plan.
Options granted under the Stock Option Plan may be either options that
qualify under the Code as "incentive stock options" (options that afford
preferable tax treatment to recipients upon compliance with certain restrictions
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and that do not normally result in tax deductions to the employer) or options
that do not so qualify. The exercise price of stock options granted under the
Stock Option Plan is required to be at least equal to the fair market value per
share of the stock on the date of grant. All grants are made in consideration of
past and future services rendered to the Bank, and in an amount deemed necessary
to encourage the continued retention of the officers and directors who are
considered necessary for the continued success of the Bank. In this regard, all
options are intended to vest in five equal annual installments commencing one
year from the date of grant, subject to the continued service of the holder of
such option.
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.
Limited SARs may be granted at the time of, and must be related to, the
grant of a stock option or SAR. The exercise of one will reduce to that extent
the number of shares represented by the other. Limited SARs will be exercisable
only for the 45 days following the expiration of the tender or exchange offer,
during which period the related stock option or SAR will be exercisable.
However, no SAR or Limited SAR will be exercisable by a 10% beneficial owner,
director or senior officer within six months of the date of its grant. The
Holding Company has no present intention to grant any SARs or Limited SARs.
The proposed Stock Option Plan will be administered by the Holding
Company's Salary Review Committee which will consist of at least two
disinterested directors. The Salary Review Committee will select the recipients
and terms of awards made pursuant to the Stock Option Plan. OTS regulations
limit the amount of shares that may be awarded pursuant to stock-based plans to
each individual officer, each non-employee director and all non-employee
directors as a group to 25%, 5% and 30%, respectively, of the total shares
reserved for issuance under each such stock-based plan.
The Salary Review Committee, presently consisting of non-employee
Directors Terry Gawryk, Chrysta Wereszczak and Steve Babyk, intends to grant
options in amounts expressed as a percentage of the shares issued in the
Conversion, as follows: President Kulas - 2.5% and to all executive officers as
a group (5 persons) - 5.4%. In addition, under the terms of the Stock Option
Plan, the Chairman of the Board and each non-employee director of the Holding
Company at the time of stockholder ratification of the Stock Option Plan will be
granted an option to purchase shares of Common Stock equal to .5% and .314%,
respectively, of the shares sold in the Conversion, including the Stock
Contribution. The remaining balance of the available awards is unallocated and
reserved for future use. All options will expire 10 years after the date such
option was granted, which, for the option grants listed above, is expected to be
the date of stockholder ratification of the Stock Option Plan. All proposed
option grants to officers are subject to modification by the Salary Review
Committee based upon its performance evaluation of the option recipients at the
time of stockholder ratification of the Stock Option Plan following completion
of the Conversion.
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After stockholder ratification, the Stock Option Plan will be funded
either with shares purchased in the open market or with authorized but unissued
shares of Common Stock. The use of authorized but unissued shares to fund the
Stock Option Plan could dilute the holdings of stockholders who purchased Common
Stock in the Conversion. See "Pro Forma Data." In no event will the Stock Option
Plan acquire an amount of shares, which, in the aggregate, represent more than
10% of the shares issued in the Conversion.
Under SEC regulations, so long as certain criteria are met, an optionee
may be able to exercise the option at the Purchase Price and immediately sell
the underlying shares at the then-current market price without incurring
short-swing profit liability. This ability to exercise and immediately resell,
which under the SEC regulations applies to stock option plans in general, allows
the optionee to realize the benefit of an increase in the market price for the
stock without the market risk which would be associated with a required holding
period for the stock after payment of the exercise price. Under SEC regulations,
the short-swing liability period now runs for six months before and after the
option grant. All grants are subject to ratification of the Stock Option Plan by
stockholders of the Holding Company following completion of the Conversion.
Recognition and Retention Plan. The Holding Company intends to
establish the RRP in order to provide employees with a proprietary interest in
the Holding Company in a manner designed to encourage such persons to remain
with the Holding Company and the Bank. The RRP will be subject to ratification
by stockholders at a meeting to be held not earlier than six months after the
completion of the Conversion. The Holding Company will contribute funds to the
RRP to enable it to acquire in the open market or from authorized but unissued
shares (with the decision between open market or authorized but unissued shares
based on the Holding Company's future stock price, alternate investment
opportunities and capital needs), following stockholder ratification of such
plan, an amount of stock equal to 4.0% of the shares of Common Stock issued in
the Conversion, including the shares to be issued to the Foundation.
The Salary Review Committee of the Board of Directors of the Holding
Company will administer the proposed RRP. Under the terms of the proposed RRP,
awards ("Awards") can be granted to key employees in the form of shares of
Common Stock held by the RRP. Awards are non-transferable and non-assignable.
OTS regulations limit the amount of shares that may be awarded pursuant to
stock-based plans to each individual officer, each non-employee director and all
non-employee directors as a group to 25%, 5% and 30%, respectively, of the total
shares reserved for issuance under each such stock-based plan.
Recipients will earn (i.e., become vested in), over a period of time,
the shares of Common Stock covered by the Award. Awards made pursuant to the RRP
will vest in five equal annual installments commencing one year from the date of
grant. Awards will be 100% vested upon termination of employment due to death or
disability. In addition, no awards under the RRP to directors and executive
officers shall vest in any year in which the Bank is not meeting all of its
fully phased-in capital requirements. When shares become vested and are actually
distributed in accordance with the RRP, but in no event prior to such time, the
participants will also receive amounts equal to any accrued dividends with
respect thereto. Earned shares are distributed to recipients as soon as
practicable following the date on which they are earned.
The Salary Review Committee presently intends to grant restricted stock
awards at the Purchase Price, in amounts expressed as a percentage of the shares
sold in the Conversion, as follows: to President Kulas - 1.0% and to all
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executive officers as a group (5 persons) - 2.2%. Pursuant to the terms of the
proposed RRP, the Chairman of the Board and each non-employee director of the
Holding Company at the time of stockholder ratification of the RRP will be
awarded an amount of shares equal to .2% and .125%, respectively, of the shares
sold in the Conversion. All proposed RRP awards to officers of the Bank are
subject to modification by the Salary Review Committee based upon its
performance evaluation of the award recipients at the time of stockholder
ratification of the RRP following completion of the Conversion.
After stockholder ratification, the RRP will be funded either with
shares purchased in the open market or with authorized but unissued shares of
Common Stock issued to the RRP by the Holding Company. The use of authorized but
unissued shares to fund the RRP could dilute the holdings of stockholders who
had purchased Common Stock in the Conversion. In the event the RRP purchases
stock in the open market at prices above the initial Purchase Price, the total
RRP expense may be above that disclosed under the caption "Pro Forma Data." In
no event will the RRP acquire an amount of shares which, in the aggregate,
represent more than 4.0% of the shares issued in the Conversion.
Certain Transactions
The Bank follows a policy of granting loans to the Bank's directors,
officers and employees. The loans to executive officers and directors are made
in the ordinary course of business and on the same terms and conditions as those
of comparable transactions prevailing at the time (except that the underwriter's
fee is waived), 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 to directors and executive officers cannot exceed 5% of the
Bank's capital and unimpaired surplus, whichever is greater, unless a majority
of the Board of Directors approves the credit in advance and the individual
requesting the credit abstains from voting. Loans to all directors and executive
officers and their associates, including outstanding balances and commitments
totaled $48,000 at April 30, 1997, which was 0.2% of the Bank's retained
earnings at that date. There were no loans to any single director, executive
officer or their affiliates made at preferential rates or terms which in the
aggregate exceeded $60,000 during the three most recent fiscal years.
THE CONVERSION
The Board of Directors of the Bank and the OTS have approved the Plan
of Conversion. OTS approval does not constitute a recommendation or endorsement
of the Plan of Conversion. Certain terms used in the following summary of the
material terms of the Conversion are defined in the Plan of Conversion, a copy
of which may be obtained by contacting First Security.
General
The Board of Directors of the Bank unanimously adopted the Plan,
subject to approval by the OTS and the members of the Bank. Pursuant to the
Plan, the Bank will convert from a federally chartered mutual savings bank to a
federally chartered stock savings bank, with the concurrent formation of a
holding company.
The Conversion will be accomplished through amendment of the Bank's
federal charter to authorize capital stock, at which time the Bank will become a
wholly owned subsidiary of the Holding Company. The Conversion will be accounted
for as a pooling of interests.
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Subscription Rights have been granted to the Eligible Account Holders
as of December 31, 1995, Tax-Qualified Employee Plans of the Bank and Holding
Company, Supplemental Eligible Account Holders as of _______, 1997, Other
Members, and directors, officers, and employees of the Bank. Additionally,
subject to the availability of shares and market conditions at or near the
completion of the Subscription Offering, the Common Stock may be offered for
sale in a Direct Community Offering to selected persons on a best-efforts basis
through FBR. See "- Offering of Holding Company Common Stock." Subscriptions for
shares will be subject to the maximum and minimum purchase limitations set forth
in the Plan of Conversion.
Stock Contribution to the Charitable Foundation
General. As a reflection of the Bank's long-standing commitment to the
local community, the Bank established during 1996 The Heritage Foundation of
First Security Federal Savings Bank, Inc., a private charitable foundation under
the Illinois General Not For Profit Corporation Act (the "Foundation"). The
Foundation was established as a means of supporting the needs of the local
community while simultaneously increasing the visibility and reputation of the
Bank. The Foundation was initially funded by the Bank through a series of cash
contributions aggregating $2.5 million, all of which were accrued by the Bank
during the fourth quarter of 1996. In addition, under the Plan and subject to
member approval, the Holding Company will contribute to the Foundation 250,000
shares of its Common Stock. The Stock Contribution will either be in the form of
a direct contribution or a sale of the shares for their aggregate par value
($2,500).
The Stock Contribution will be considered as a separate matter from the
proposal to approve the Plan of Conversion. If the Bank's members approve the
Plan of Conversion, but not the Stock Contribution, the Bank intends to complete
the Conversion without the Stock Contribution. Failure to approve the Stock
Contribution may materially affect the pro forma market value of the Common
Stock. If the resulting pro forma market value of the Common Stock to be sold in
the Offering is less than $35.0 million or more than $54.5 million, or if the
OTS otherwise requires a resolicitation, the Bank will establish a new Estimated
Price Range and commence a resolicitation of subscribers. In the event of a
resolicitation, unless an affirmative response is received within a specified
period of time, all funds will be promptly returned to investors, as described
elsewhere herein. See "-- Stock Pricing and - Number of Shares to be Issued."
Purpose of the Stock Contribution. The purpose of the Foundation is to
provide funding to support charitable purposes within the communities in which
the Bank operates. The Bank has long emphasized community lending and community
development activities and currently has a satisfactory rating under the
Community Reinvestment Act ("CRA"). The Foundation is a complement to the Bank's
existing community activities, not a replacement for such activities.
The Foundation is a means of supporting the needs of the local
community while simultaneously increasing the visibility and reputation of the
Bank. The Holding Company and the Bank believe that the funding of the
Foundation with Common Stock of the Holding Company is a means of establishing a
common bond between the Bank and the communities in which the Bank operates
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thereby enabling such communities to share in the potential growth and success
of the Holding Company over the long-term. Although the Stock Contribution will
result in a reduction in the Holding Company's conversion appraisal and pro
forma capital (although not in its pro forma capital per share), the Board
believes that the Stock Contribution will enhance the long term value of the
Bank's franchise by increasing customer loyalty as well as the size of its
customer base. The Board believes that customer loyalty and community support
are critical for the success of community oriented institutions such as the
Bank.
The Board believes that the Stock Contribution will enable the
Foundation to support charitable activities during periods when the Holding
Company may not be in a position to support such activities. (Similarly, the
Stock Contribution would enable the Foundation to offset the impact of
variations in contribution levels by accumulating funds during periods of
relatively large contributions from the Holding Company and disbursing such
funds during periods of relatively small contributions.) In addition, the Board
believes that the Stock Contribution will have a highly beneficial public
relations impact. Finally, the Board believes that the Stock Contribution will
facilitate the participation of non-Holding Company personnel in charitable
activities. The Board believes that the Stock Contribution represents an
opportunity to make a significant charitable contribution which will benefit the
Holding Company and the Bank at a time when they have adequate capital, they are
not yet subject to possible earnings pressure resulting from the Holding
Company's status as a public company and there is a need for charitable
donations in the Bank's market area.
Structure of the Foundation. The Foundation is a private foundation
under the Code. As a private foundation, the Foundation will be required to
distribute annually in grants or donations at least 5% of its net investment
assets. The Foundation is dedicated to the promotion of charitable purposes
within the communities in which the Bank operates, including, but not limited
to, providing grants or donations to support cultural activities, not-for-profit
medical facilities, elder and youth care, community groups and other types of
organizations or projects. While the Foundation is authorized to engage directly
in charitable activities, in order to limit overhead costs, the Foundation's
primary activity currently consists of making grants to other charitable
organizations.
The authority for the affairs of the Foundation is vested in the Board
of Trustees of the Foundation which will initially be comprised of Chairman
Nadzikewycz, President Kulas and Director Gawryk. Although all of the
Foundation's initial trustees were selected by the Bank, future Foundation
trustees may be nominated and elected only by its Board of Trustees. As a
result, the Board of Trustees is self-perpetuating.
The Foundation's articles of incorporation provide that the earnings of
the Foundation shall not result in any private benefit for its members, trustees
or officers. In addition, it is anticipated that the Foundation will adopt a
conflicts of interest policy to protect against inappropriate insider benefits.
While these provisions would not prohibit the payment of reasonable compensation
for services rendered, it is not currently contemplated that the members of the
Board of Trustees will receive fees for such service. Initially, it is not
contemplated that the Foundation will have any paid employees.
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The trustees are responsible for establishing and carrying out the
policies of the Foundation with respect to grants or donations by the
Foundation, consistent with the purposes for which the Foundation was
established. The trustees of the Foundation are also responsible for directing
the activities of the Foundation, and managing its assets.
While the Foundation does not currently intend to purchase any shares
of the Common Stock on the open market, it is authorized to do so. The OTS has
informed the Holding Company that any such purchases would be deemed to be
repurchases by the Holding Company for the purposes of the OTS restrictions on
post-conversion stock repurchases. See "Use of Proceeds."
Under the order of the OTS approving the Bank's conversion application,
all shares of Common Stock held by the Foundation, including those acquired
pursuant to the Stock Contribution, must be voted in the same ratio as all other
shares of the Holding Company's Common Stock on all proposals considered by
stockholders of the Holding Company; provided, however, that the OTS will waive
this voting restriction under certain circumstances if compliance with the
restriction would: (i) cause a violation of the law of the State of Illinois and
the OTS determines that federal law would not preempt the application of the
laws of the State of Illinois to the Foundation; (ii) cause the Foundation to
lose its tax-exempt status or otherwise have a material and adverse tax
consequence on the Foundation; or (iii) cause the Foundation to be subject to an
excise tax under Section 4941 of the Code. In order for the OTS to waive such
voting restriction, the Holding Company's or the Foundation's legal counsel must
render an opinion satisfactory to OTS that compliance with the voting
restriction would have the effect described in clauses (i), (ii) or (iii) above.
Under those circumstances, the OTS will grant a waiver of the voting
restrictions upon submission of such legal opinion(s) by the Holding Company or
the Foundation. In the event that the OTS waives the voting restriction, the
trustees would direct the voting of the Common Stock held by the Foundation.
However, a condition to the OTS approval of the Conversion provides that in the
event such voting restriction is waived or becomes unenforceable, the Director
of the OTS, or his designees, at that time may impose conditions on the
composition of the board of trustees of the Foundation or such other conditions
or restrictions relating to the control of the Common Stock held by the
Foundation, any of which could limit the ability of the board of trustees of the
Foundation to control the voting of the Common Stock held by the Foundation.
There are no agreements or understandings with trustees of the
Foundation regarding the exercise of control directly or indirectly, over the
management or policies of the Holding Company or the Bank, including agreements
related to voting, acquisition or disposition of the Holding Company's stock. As
trustees of a nonprofit corporation, trustees of the Foundation are at all times
bound by their fiduciary duty to advance the Foundation's charitable goals, to
protect the assets of the Foundation and to act in a manner consistent with the
charitable purposes for which the Foundation is established.
It is currently anticipated that the Foundation will adopt a policy
addressing affiliated transactions between the Foundation and the Holding
Company or the Bank. Transactions between the Foundation and the Bank will
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comply with applicable provisions of Sections 23A and 23B of the Federal Reserve
Act, as amended. Additionally, the Holding Company (but not the Bank) may
provide office space and administrative support to the Foundation without
charge.
The Stock Contribution. The Foundation was initially funded with an
aggregate of $2.5 million of contributions from the Bank. These contributions
were accrued during 1996. In addition, under the terms of the Plan, the Holding
Company will contribute, either in the form of a donation or in a sale for their
aggregate par value ($.01 per share), 250,000 shares to the Foundation, subject
to stockholder approval. Such Stock Contribution, once made, will not be
recoverable by the Holding or the Bank. The Holding Company and the Bank
determined to make the Stock Contribution with Common Stock rather than cash
because it desired to form a bond with its community in a manner that would
allow the community to share in the potential growth and success of the Holding
Company and the Bank over the long term. The funding of the Stock Contribution
with stock also provides the Foundation with a potentially larger endowment than
if the Holding Company contributed cash to the Foundation since, as a
shareholder, the Foundation will share in the potential growth and success of
the Holding Company. As such, the Stock Contribution of stock to the Foundation
has the potential to provide a self-sustaining funding mechanism which reduces
the amount of cash that the Holding Company, if it were not making the stock
contribution, would have to contribute to the Foundation in future years in
order to maintain a level amount of charitable grants and donations.
One of the conditions imposed on the gift of Common Stock by the
Holding Company is that the amount of Common Stock that may be sold by the
Foundation in any one year shall not exceed 5% of the average market value of
the assets held by the Foundation, except where the board of directors of the
Foundation, by three-fourths vote, determines that the failure to sell an amount
of common stock greater than such amount would result in a long-term reduction
of the value of the Foundation's assets and as such would jeopardize the
Foundation's capacity to carry out its charitable purposes. While there may be
greater risk associated with a one-stock portfolio in comparison to a
diversified portfolio, the Holding Company believes any such risk is mitigated
by the ability of the Foundation's trustees to sell more than 5% of its stock in
such circumstances. Upon completion of the Conversion and the Stock
Contribution, the Holding Company would have 3,749,000, 4,367,000 and 4,985,000
shares issued and outstanding at the minimum, midpoint and maximum of the
Estimated Price Range. Because the Holding Company will have an increased number
of shares outstanding, the voting and ownership interest of shareholders in the
Holding Company's common stock would be diluted by 5.7% at the midpoint, as
compared to their interests in the Holding Company if the Stock Contribution
were not made. For additional discussion of the dilutive effect, see "Comparison
of Valuation and Pro Forma Information With No Stock Contribution" and "Pro
Forma Data."
If the Stock Contribution is approved by the members, the Holding
Company will recognize a $2.5 million expense (offset, in part, by a
corresponding tax deduction), during the quarter in which the Conversion is
completed, which is expected to be the third or fourth quarter of fiscal 1997.
Assuming the contribution of $2.5 million of stock, the Holding Company
estimates a net tax effected expense of $1.5 million. Such expense will likely
eliminate earnings in the quarter recognized and have a material adverse impact
on the Holding Company's earnings for fiscal
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year 1997. If the Stock Contribution had been made at April 30, 1997, the Bank
would have reported a net loss of $739,000 for the four months ended April 30,
1997 rather than net income of $761,000. For further discussion of the
Foundation and its impact on purchasers in the Conversion, see "Risk Factors -
Risks Associated with the Stock Contribution to the Charitable Foundation" and
"Pro Forma Data."
Although the Stock Contribution will be accrued in the third or fourth
quarter of 1997 as described above, such contribution may be paid at any time
during the twelve month period following the completion of the Conversion. The
reason for permitting the Holding Company to pay the Stock Contribution in more
than one tax year is that the five year tax carry forward period commences on
the date of payment rather than the date of accrual and thus that, by paying the
initial contribution over more than one tax year, the Holding Company can
lengthen the period over which the Stock Contribution may be carried forward for
tax purposes. See "--Tax Considerations" below.
Because the funding of the Foundation will result in dilution, it
reduced the estimated value of the stock to be sold in the Conversion by
approximately $3.8 million at the midpoint of the Estimated Valuation Range. As
a result, the pro forma capital of the Holding Company will be $3.8 million
lower at the midpoint of the Estimated Valuation Range than it would have been
without the Foundation. However, because of the lower number of shares which are
being offered (as a result of the lower appraisal), per share capital and
earnings will be essentially identical. See "Comparison of Valuation and Pro
Forma Information with No Stock Contribution."
As a result of the $3.8 million reduction in the amount of shares
offered for sale in the Offering caused by the Stock Contribution, the amount of
shares purchased by directors and executive officers, assuming the sale of the
midpoint number of shares, increased from 4.6% to 5.1% of the shares sold. See
"The Conversion--Participation by the Board and Executive Officers."
Tax Considerations. The Holding Company has been advised by its
independent accountants that the Foundation qualifies as a 501(c)(3) exempt
organization under the Code, and is classified as a private foundation rather
than a public charity. A private foundation typically receives its support from
one person or one corporation whereas a public charity receives its support from
the public. The Foundation has submitted a request to the IRS to be recognized
as an exempt organization. As long as the IRS approves the application, the
effective date of the Foundation's status as a Section 501(c)(3) organization
will be the date of its organization.
A legal opinion of the OTS which addresses the establishment of
charitable foundations by savings associations opines that as a general rule
funds contributed to a charitable foundation should not exceed the deductible
limitation set forth in the Code, and if an association's contributions exceed
the deductible limit, such action must be justified by the board of directors.
In addition, under Delaware law, the Holding Company is authorized by statute to
make charitable contributions and case law has recognized the benefits of such
contributions to a Delaware corporation. In this regard, Delaware case law
provides that a charitable gift must merely be within reasonable limits as to
amount and purpose to be valid. Under the Code, the Holding Company may deduct
up to 10% of its taxable income in any one year and any contributions made by
the Holding Company in excess of the deductible amount will be deductible for
federal tax purposes over each of the five succeeding taxable years. The Holding
Company and the Bank believe that the conversion presents a unique opportunity
to make the stock contribution given the substantial amount of additional
capital being
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raised in the Conversion. In making such a determination, the Holding Company
and the Bank considered the dilutive impact of the Stock Contribution on the
conversion appraisal. See "Comparison of Valuation and Pro Forma Information
with No Stock Contribution." Based on such considerations, the Holding Company
and Bank believe that the contribution to the Foundation in excess of the 10%
annual limitation is justified given the Bank's capital position and its
earnings, the substantial additional capital being raised in the Conversion and
the potential benefits of the Foundation to the Bank's community. In this
regard, assuming the sale of the Common Stock at the midpoint of the Estimated
Valuation Range, the Holding Company would have pro forma consolidated capital
of $65.9 million and the Bank's pro forma tangible, core and risk-based capital
ratios would be 16.2%, 16.2% and 35.3%, respectively. See "Regulatory Capital
Compliance," "Capitalization," and "Comparison of Valuation and Pro Forma
Information with No Stock Contribution." Thus, the amount of the contribution
will not adversely impact the financial condition of the Holding Company and the
Bank, and the Holding Company and the Bank therefore believe that the amount of
the charitable contribution is reasonable given the Holding Company and the
Bank's pro forma capital positions. As such, the Holding Company and the Bank
believe that the contribution does not raise safety and soundness concerns.
The Holding Company and the Bank have received an opinion of their
independent accountants that the Holding Company's contribution of its own stock
to the Foundation will not constitute an act of self-dealing, and that the
Holding Company will be entitled to a deduction in the amount of the $2.5
million, subject to a limitation based on 10% of the Holding Company's annual
taxable income. The Holding Company, however, would be able to carry forward any
unused portion of the deduction for five years following the year in which the
contribution is made for federal and Illinois tax purposes.
The Holding Company currently estimates that substantially all of the
Stock Contribution should be deductible. However, no assurances can be made that
the Holding Company will have sufficient pre-tax income over the periods
following the year in which the contributions are made to utilize fully the
carryover related to the excess contribution.
Although the Holding Company has received an opinion of its independent
accountants that the Holding Company is entitled to a deduction for the Stock
Contribution, there can be no assurances that the IRS will recognize the
Foundation as a Section 501(c)(3) exempt organization or that the deduction will
be permitted. In such event, the Holding Company's contribution to the
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foundation would be expensed without tax benefit, resulting in a reduction in
earnings in the year in which the IRS makes such a determination. See "Risk
Factors - Risks Associated with the Stock Contribution to the Charitable
Foundation." In cases of willful, flagrant or repeated acts or failures to act
which result in violations of the IRS rules governing private foundations, a
private foundation's status as a private foundation may be involuntarily
terminated by the IRS. In such event, the managers of a private foundation could
be liable for excise taxes based on such violations and the private foundation
could be liable for a termination tax under the Code. The Foundation's
certificate of incorporation provides that it shall have a perpetual existence.
In the event, however, the Foundation were subsequently dissolved as a result of
a loss of its tax exempt status, the Foundation would be required under the Code
and its articles of incorporation to distribute any assets remaining in the
Foundation at that time for one or more exempt purposes within the meaning of
Section 501(c)(3) of the Code, or to distribute such assets to the federal
government, or to a state or local government, for a public purpose.
As a private foundation, earnings and gains, if any, from the sale of
Common Stock or other assets are exempt from federal and state corporate
taxation. However, investment income, such as interest, dividends and capital
gains, will be subject to a federal excise tax of 2.0%. The Foundation will be
required to make an annual filing with the IRS within four and one-half months
after the close of the Foundation's fiscal year to maintain its tax-exempt
status. The Foundation will be required to publish a notice that the annual
information return will be available for public inspection for a period of 180
days after the date of such public notice. The information return for a private
foundation must include, among other things, an itemized list of all grants made
or approved, showing the amount of each grant, the recipient, any relationship
between a grant recipient and the Foundation's managers and a concise statement
of the purpose of each grant.
Regulatory Conditions Imposed on the Foundation. The Stock Contribution
is subject to the following conditions imposed by the OTS: (i) the Foundation
will be subject to examination by the OTS, at the Foundation's own expense; (ii)
the Foundation must comply with supervisory directives imposed by the OTS; (iii)
the Foundation will provide annual reports to the OTS describing grants made and
grant recipients; (iv) the Foundation will operate in accordance with written
policies adopted by the board of trustees, including a conflict of interest
policy; (v) the Foundation will not engage in self-dealing and will comply with
all laws necessary to maintain its tax-exempt status; and (vi) any shares of
Common Stock of the Holding Company held by the Foundation must be voted in the
same ratio as all other shares of the Holding Company's Common Stock on all
proposals considered by stockholders of the Holding Company; provided, however,
that the OTS will waive this voting restriction under certain circumstances if
compliance with the voting restriction would: (a) cause a violation of the law
of the State of Illinois and the OTS determines the federal law does not preempt
the application of the laws of the State of Illinois to the Foundation; (b)
cause the Foundation to lose its tax-exempt status or otherwise have a material
and adverse tax consequence on the Foundation; or (c) cause the Foundation to be
subject to an excise tax under Section 4941 of the Code. In order for the OTS to
waive such voting restriction, the Holding Company's or the Foundation's legal
counsel must render an opinion satisfactory to OTS that compliance with the
voting restriction would have the effect described in clauses (a), (b) or (c)
above. Under those circumstances, the OTS will grant a waiver of the voting
restriction upon submission of such opinion(s) by the Holding Company or the
Foundation. There can be no assurances that either a legal or tax opinion
addressing these issues will be rendered, or if rendered, that the OTS will
grant an unconditional waiver of the voting restriction. In this regard, a
condition to the OTS approval of the Conversion provides that in the event such
voting restriction is waived or becomes unenforceable, the Director of the OTS,
or his designees, at that time may impose conditions on the composition of the
board of trustees of the Foundation to control the voting of Common Stock held
by the Foundation. In no event will the voting restriction survive the sale of
shares of the Common Stock held by the Foundation.
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The Stock Contribution is subject to the approval of a majority of the
total outstanding votes of the Bank's members eligible to be cast at the Special
Meeting. The Stock Contribution will be considered as a separate matter from
approval of the Plan of Conversion. If the Bank's members approve the Plan of
Conversion, but not the Stock Contribution, the Bank intends to complete the
Conversion without the Stock Contribution. Failure to approve the Foundation may
materially increase the pro forma market value of the Common Stock being offered
since the Estimated Valuation Range, as set forth herein, takes into account the
after-tax impact of the Stock Contribution. See "Pro Forma Data."
Business Purposes
First Security has several business purposes for the Conversion. The
sale of Holding Company Common Stock will have the immediate result of providing
the Bank with additional equity capital in order to support the expansion of its
existing operations, subject to market conditions. See "Business." 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 that part of the net Conversion
proceeds paid by the Holding Company to the Bank is expected to provide
additional operating income to further increase the Bank's capital on a
continuing basis.
The Board of Directors of the Bank believes that a holding company
structure could facilitate the acquisition of both mutual and stock savings
institutions in the future as well as other companies. If a multiple holding
company structure is utilized in a future acquisition, the acquired savings
institution would be able to operate on a more autonomous basis as a wholly
owned subsidiary of the Holding Company rather than as a division of the Bank.
For example, the acquired savings institution could retain its own directors,
officers and corporate name as well as having representation on the Board of
Directors of the Holding Company. As of the date hereof, there are no plans or
understandings regarding the acquisition of any other institutions.
The Board of Directors of the Bank also believes that a holding company
structure can facilitate the diversification of the Bank's business activities.
While diversification will be maximized if a unitary holding company structure
is utilized because the types of business activities permitted to a unitary
holding company are broader than those of a multiple holding company, either
type of holding company may engage in a broader range of activities than may a
thrift institution directly. Currently, there are no plans that the Holding
Company engage in any material activities apart from holding the shares of the
Bank and investing the remaining net proceeds from the sale of Common Stock in
the Conversion.
The preferred stock and additional common stock of the Holding Company
being authorized in the Conversion will be available for future acquisitions and
for issuance and sale to raise additional equity capital, generally without
stockholder approval or ratification, but subject to market conditions. Although
the Holding Company currently has no plans with respect to future issuances of
equity securities, the more flexible operating structure provided by the Holding
Company and the stock form of ownership is expected to assist the Bank in
competing more aggressively with other financial institutions in its principal
market area.
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The 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 Conversion will permit the Bank's
members to become stockholders of the Holding Company, thereby allowing members
to own stock in the financial organization in which they maintain deposit
accounts or with which they have a borrowing relationship. Such ownership should
encourage stockholders to promote the Bank to potential customers, thereby
further contributing to the Bank's earnings potential.
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 Conversion to Stock Form on Depositors and Borrowers of the Bank
Voting Rights. Deposit account holders will have no voting rights in
the converted Bank or the Holding Company and will therefore not be able to
elect directors of either entity or to control their affairs. These rights are
currently accorded to deposit account holders with regard to the Bank.
Subsequent to Conversion, voting rights will be vested exclusively 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. Each purchaser of
Holding Company Common Stock shall be entitled to vote on any matters to be
considered by the Holding Company stockholders. A stockholder will be entitled
to one vote for each share of Common Stock owned, subject to certain limitations
applicable to holders of 10% or more of the shares of the Common Stock. See
"Description of Capital Stock."
Deposit Accounts and Loans. The general terms of the 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 Silver, Freedman &
Taff, L.L.P. with regard to federal income taxation, and an opinion from Crowe
Chizek & Co. with regard to Illinois taxation, to the effect that the adoption
and implementation of the Plan of Conversion set forth herein will not be
taxable for federal or Illinois tax purposes to the Bank or the Holding Company.
See "- Income Tax Consequences."
Liquidation Rights. The Bank has no plans to liquidate, either before
or subsequent to the completion of the Conversion. However, if there should ever
be a complete liquidation, either before or after Conversion, deposit account
holders would receive the protection of insurance by the FDIC up to applicable
limits. Subject thereto, liquidation rights before and after Conversion would be
as follows:
Liquidation Rights in Present Mutual Institution. In addition to the
protection of FDIC insurance up to applicable limits, in the event of a
complete liquidation of the Bank, each holder of a deposit account in
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the Bank in its present mutual form would receive his or her 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 or her deposit account was to the
aggregate balance in all deposit accounts in the Bank at the time of
liquidation.
Liquidation Rights in Proposed Converted Institution. After Conversion,
each deposit account holder, in the event of a complete liquidation of
the Bank, 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 or her deposit account plus accrued
interest. The holder would have no interest in the assets 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 (i.e., eligible depositors at
December 31, 1995) and Supplemental Account Holders (eligible
depositors at ________ __, 1997) in an amount equal to the net worth of
the Bank as of the date of its latest consolidated statement of
financial condition contained in the final prospectus relating to the
sale of shares of Holding Company Common Stock in the Conversion. Each
Eligible Account Holder and Supplemental Eligible Account Holder would
have an initial interest in such liquidation account for each deposit
account held in the Bank on the qualifying date. An Eligible Account
Holder and 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 or her account on December
31, 1995 and ________ __, 1997, respectively, was to the aggregate
balance in all deposit accounts of Eligible Account Holders and
Supplemental Eligible Account Holders on such dates. However, if the
amount in the deposit account of an Eligible Account Holder or
Supplemental Eligible Account Holder on any annual closing date of the
Bank is less than the lowest amount in such account on December 31,
1995 or _________ __, 1997 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 deposit account
were closed.
In addition, the interest in the special liquidation account would
never be increased despite any increase in the balance of the account
holders' related accounts after Conversion, and would only decrease.
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Any assets remaining after the above liquidation rights of Eligible
Account Holders and Supplemental Eligible Account Holders were
satisfied would be distributed to the Holding Company as the sole
stockholder of the 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 is the
surviving institution, is deemed to be a complete liquidation for
purposes of distribution of the liquidation account and, in any such
transaction, the liquidation account would be assumed to the full
extent authorized by regulations of the OTS as then in effect. The OTS
has stated that the consummation of a transaction of the type described
in the preceding sentence in which the surviving entity is not a
SAIF-insured institution would be reviewed on a case-by-case basis to
determine whether the transaction should constitute a "complete
liquidation" requiring distribution of any then remaining balance in
the liquidation account. While the 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.
Common Stock. For information as to the characteristics of the Common
Stock to be issued under the Plan of Conversion, see "Dividends" and
"Description of Capital Stock." Common Stock issued under the Plan of Conversion
cannot, and will not, be insured by the FDIC or any other governmental agency.
The Bank will continue, immediately after completion of the Conversion,
to provide its services to depositors and borrowers pursuant to its existing
policies and will maintain the existing management and employees of the Bank.
Other than for payment of certain expenses incident to the Conversion, no assets
of the Bank will be distributed in the Conversion. First Security 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 First Security will continue to be directed
by the existing Board of Directors and management.
Offering of Holding Company Common Stock
Under the Plan of Conversion, 4,735,000 shares of Holding Company
Common Stock will be offered for sale, subject to certain restrictions described
below, initially through the Offering. Federal conversion regulations require,
with certain exceptions, that all shares offered in a conversion be sold in
order for the conversion to become effective.
The Subscription Offering will expire at noon, Chicago, Illinois time,
on ________, 1997 (the "Subscription Expiration Date") unless extended by the
Bank and the Holding Company. Depending on the availability of shares and market
conditions at or near the completion of the Subscription Offering, the Holding
Company may effect a Public Offering of shares to selected persons through FBR.
To order Common Stock in connection with the Public Offering and Direct
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Community Offering, if any, an executed stock order and account withdrawal
authorization and certification must be received by FBR prior to the termination
of the Public Offering and Direct Community Offering. The date by which orders
must be received in the Public Offering, if any, will be set by the Holding
Company at the time of such offering. OTS regulations require that all shares to
be offered in the Conversion be sold within a period ending not more than 45
days after the Subscription Expiration Date (or such longer period as may be
approved by the OTS) or, despite approval of the Plan of Conversion by members,
the Conversion will not be effected and First Security will remain in mutual
form. This period expires on _____, 1997, unless extended with the approval of
the OTS. In addition, if the Offering is extended beyond _____, 1997, all
subscribers will have the right to modify or rescind their subscriptions and to
have their subscription funds returned promptly with interest. In the event that
the Conversion is not effected, all funds submitted and not previously refunded
pursuant to the Offering will be promptly refunded to subscribers with interest
at the Bank's current passbook rate and all withdrawal authorizations will be
terminated.
Stock Pricing and Number of Shares to be Issued
Federal regulations require that the aggregate purchase price of the
securities of a thrift institution sold in connection with its conversion must
be based on an appraised aggregate market value of the institution as converted
(i.e., taking into account the expected receipt of proceeds from the sale of the
securities in the conversion), as determined by an independent valuation.
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 Bank and the Holding Company upon Conversion.
FinPro will receive a fee of approximately $23,000 for its appraisal in
addition to its reasonable out-of-pocket expenses incurred in connection with
the appraisal. FinPro has also agreed to assist in the preparation of the Bank's
business plan and to perform certain records management services for the Bank
for such fee. The Bank has agreed to indemnify FinPro under certain
circumstances against liabilities and expenses (including legal fees) arising
out of, related to, or based upon the Conversion.
FinPro has prepared an appraisal of the estimated pro forma market
value of the Bank as converted. The FinPro appraisal concluded that, at April
30, 1997, an appropriate range for the estimated pro forma market value of the
common stock to be sold in the Offering was from a minimum of $34,990,000 to a
maximum of $47,350,000 with a midpoint of $41,170,000. Assuming that the shares
are sold at $10.00 per share in the Conversion, the estimated number of shares
to be issued in the Conversion (not including the Stock Contribution) is
expected to be between 3,499,000 and 4,735,000. The Purchase Price of $10.00 per
share was determined by discussion among the Boards of Directors of the Bank,
the Holding Company and FinPro, taking into account, among other factors, (i)
the requirement under OTS regulations that the Common Stock be offered on a
manner that would achieve the widest distribution of shares and (ii) liquidity
in the Common Stock subsequent to the Conversion.
The appraisal involved a comparative evaluation of the operating and
financial statistics of the Bank with those of other thrift institutions. The
appraisal also took into account such other factors as the market for thrift
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institution stocks generally, prevailing economic conditions, both nationally
and in Illinois, which affect the operations of thrift institutions, the
competitive environment within which the Bank operates and the effect of the
Bank becoming a subsidiary of the Holding Company. No detailed individual
analysis of the separate components of the Holding 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 Offering be
sold at the same price per share. The Board of Directors reviewed the appraisal,
including the methodology and the appropriateness of the assumptions utilized by
FinPro and determined that in its opinion the appraisal was not unreasonable.
The Estimated Valuation Range may be amended with the approval of the OTS in
connection with changes in the financial condition or operating results of the
Bank or market conditions generally. As described below, an amendment to the
Estimated Valuation Range above $54,450,000 would not be made without a
resolicitation of subscriptions and/or proxies except in limited circumstances.
If, upon completion of the Offering, at least the minimum number of
shares are subscribed for, FinPro, after taking into account factors similar to
those involved in its prior appraisal, will determine its estimate of the pro
forma market value of the Bank and the Holding Company upon Conversion, as of
the close of the Offering.
If, based on the estimate of FinPro, the aggregate pro forma market
value is not within the Estimated Valuation Range, FinPro, upon the consent of
the OTS, will determine a new Estimated Valuation Range ("Amended Valuation
Range"). If the aggregate pro forma market value of the stock to be sold in the
Offering has increased in the Amended Valuation Range to an amount that does not
exceed $54,450,000 (i.e., 15% above the maximum of the Estimated Valuation
Range), then the number of shares to be issued may be increased to accommodate
such increase in value without a resolicitation of subscriptions and/or proxies.
In such event the Bank and the Holding Company do not intend to resolicit
subscriptions and/or proxies unless the Bank and the Holding Company then
determine, after consultation with the OTS, that circumstances otherwise require
such a resolicitation. If, however, the aggregate pro forma market value of the
Common Stock to be sold of the Holding Company, at that time is less than $35.0
million or more than $54.5 million, a resolicitation of subscribers and/or
proxies may be made, the Plan of Conversion may be terminated or such other
actions as the OTS may permit may be taken. In the event that upon completion of
the Offering, the pro forma market value of the Common Stock to be sold is below
$35.0 million or above $54.5 million (15% above the maximum of the Estimated
Valuation Range), the Holding Company intends to file the revised appraisal with
the SEC by post-effective amendment to its Registration Statement on Form S-1.
See "Additional Information." If the Plan of Conversion is terminated, all funds
would be returned promptly with interest at the rate of the Bank's current
passbook rate, and holds on funds authorized for withdrawal from deposit
accounts would be released. If there is a resolicitation of subscriptions,
subscribers will be given the opportunity to cancel or change their
subscriptions and to the extent subscriptions are so canceled or reduced, funds
will be returned with interest at the Bank's current passbook rate and holds on
funds authorized for withdrawal from deposit accounts will be released or
reduced. Stock subscriptions received by the Holding Company and the Bank may
not be withdrawn by the subscriber and, if accepted by the Holding Company and
the Bank, are final. If the Conversion is not completed prior to ______________
(two years after the date of the Special Meeting), the Plan of Conversion will
automatically terminate.
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Any increase in the total number of shares of Common Stock to be
offered in the Conversion will dilute a subscriber's percentage ownership
interest and will reduce the pro forma net income and net worth on a per share
basis. A decrease in the number of shares to be issued in the Conversion will
increase a subscriber's proportionate ownership interest and will increase both
pro forma net income and net worth on a per share basis while decreasing that
amount on an aggregate basis.
No sale of the shares will take place unless, prior thereto, FinPro
confirms to 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 Purchase Price on an aggregate basis is incompatible with its
estimate of the aggregate pro forma market value of the Holding Company and the
Bank as converted at the time of the sale. If, however, the facts do not justify
such a statement, the Offering or other sale may be canceled, a new Estimated
Valuation Range set and new offering held.
In preparing its valuation of the pro forma market value of the Bank
and the Holding Company upon Conversion, FinPro relied upon and assumed the
accuracy and completeness of all financial and statistical information provided
by the Bank and the Holding 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 Holding Company or independently value the assets or
liabilities of the Bank and the Holding Company. The appraisal is not intended
to be, and must not be interpreted as, a recommendation of any kind as to the
advisability of voting to approve the Conversion or of purchasing shares of
Common Stock. The appraisal considers First Security and the Holding Company
only as going concerns and should not be considered as any indication of the
liquidation value of First Security or the Holding Company. Moreover, the
appraisal is necessarily based on many factors which change from time to time.
There can be no assurance that persons who purchase shares in the Conversion
will be able to sell such shares at prices at or above the Purchase Price.
Subscription Offering
In accordance with OTS regulations, 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 aggregate balance of $50 or more as
of December 31, 1995), (2) the Holding Company and the Bank's Tax-Qualified
Employee Plans; provided, however, that the Tax-Qualified Employee Plans shall
have first priority Subscription Rights to the extent that the total number of
shares of Common Stock sold in the Conversion exceeds the maximum of the
Estimated Valuation Range; (3) Supplemental Eligible Accounts Holders (deposit
account holders of the Bank maintaining a balance of $50 or more as of _____ __,
1997), (4) Other Members (depositors of the Bank at the close of business on
________ and Borrowers of the Bank on ________________ and _________, 1997, the
voting record date for the Special Meeting) and (5) officers, directors and
employees of the Bank. All subscriptions received will be subject to the
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availability of Holding Company Common Stock after satisfaction of all
subscriptions of all persons having prior rights in the Subscription Offering,
and to the maximum and minimum purchase limitations set forth in the Plan of
Conversion.
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 this Category in an amount equal to the greater of $250,000 of Common Stock,
one-tenth of one percent (.10%) of the total shares offered in the Conversion,
or 15 times the product (rounded down to the next whole number) obtained by
multiplying the total number of shares of Common Stock to be issued by a
fraction of which the numerator is the amount of the qualifying deposits of the
Eligible Account Holder and the denominator is the total amount of the
qualifying deposit of the Eligible Account Holders in the Bank, in each case on
the Eligibility Record Date. To the extent shares are oversubscribed in this
category, 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 amount of shares
of Common Stock issued in the Subscription Offering on a second priority basis.
However, such plans shall not, in the aggregate, purchase more than 10% of the
Holding Company Common Stock issued. The ESOP intends to purchase a total of 8%
of the Common Stock issued in the Conversion, including the shares issued
pursuant to the Stock Contribution, under this category. Subscription Rights
received pursuant to this category shall be subordinated to all rights received
by Eligible Account Holders to purchase shares pursuant to Category No. 1;
provided, however, that notwithstanding any provision of the Plan of Conversion
to the contrary, the Tax-Qualified Employee Plans shall have first priority
Subscription Rights to the extent that the total number of shares of Common
Stock sold in the Conversion exceeds the maximum of the Estimated Valuation
Range.
Category No. 3 is reserved for the Bank's Supplemental Eligible Account
Holders. Subscription Rights to purchase shares under this category will be
allocated among Supplemental Eligible Account Holders to permit each such
depositor to purchase shares in this Category in an amount equal to the greater
of $250,000 of Common Stock, one-tenth of one percent (.10%) of the total shares
of Common Stock offered in the Conversion, or 15 times the product (rounded down
to the next whole number) obtained by multiplying the total number of shares of
Common Stock to be issued by a fraction of which the numerator is the amount of
the qualifying deposit of the Supplemental Eligible Account Holder and the
denominator is the total amount of the qualifying deposit of the Supplemental
Eligible Account Holders in the converting Bank in each case on ______ __, 1997
(the "Supplemental Eligibility Record Date"), subject to the overall purchase
limitation after satisfying the subscriptions of Eligible Account Holders and
Tax Qualified Employee Plans. Any non-transferable Subscription Rights received
by an Eligible Account Holder shall reduce, to the extent thereof, the
subscription rights to be distributed to such person as a Supplemental Eligible
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Account Holder. In the event of an oversubscription for shares, the shares
available shall be allocated first to permit each subscribing Supplemental
Eligible Account Holder, to the extent possible, to purchase a number of shares
sufficient to make his total allocation (including the number of shares, if any,
allocated in accordance with Category No. 1) equal to 100 shares, and thereafter
among each subscribing Supplemental Eligible Account Holder pro rata in the same
proportion that his Qualifying Deposit bears to the total Qualifying Deposits of
all subscribing Supplemental Eligible Account Holders whose subscriptions remain
unsatisfied.
Category No. 4 provides, to the extent that shares are then available
after satisfying the subscriptions of Eligible Account Holders, Tax-Qualified
Employee Plans and Supplemental Eligible Account Holders, for the issuance of
Subscription Rights to Other Members to purchase in this Category up to the
greater of $250,000 of Common Stock, or one-tenth of one percent (.10%) of the
Common Stock offered in the Conversion. In the event of an oversubscription, 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.
Category No. 5 provides for the issuance of Subscription Rights to
officers, directors and employees of the Bank, to purchase in this Category up
to $250,000 of the Common Stock to the extent that shares are available after
satisfying the subscriptions of eligible subscribers in preference Categories 1,
2, 3 and 4. The total number of shares which may be purchased under this
Category may not exceed 20% of the number of shares of Holding Company Common
Stock. In the event of an oversubscription, the available shares will be
allocated pro rata among all subscribers in this category based on the number of
shares ordered by each subscriber.
Public Offering and Direct Community Offering
To the extent that shares remain available and subject to market
conditions at or near the completion of the Subscription Offering, the Holding
Company may offer shares pursuant to the Plan to selected persons in a Public
Offering and/or Direct Community Offering on a best-efforts basis through FBR in
such a manner as to promote a wide distribution of the Common Stock. Any orders
received in connection with the Public Offering and Direct Community Offering if
any, will receive a lower priority than orders properly made in the Subscription
Offering by persons properly exercising Subscription Rights. In addition
depending on market conditions, FBR may utilize selected broker-dealers
("Selected Dealers") in connection with the sale of shares in the Public
Offering, if any. Common Stock sold in the Public Offering and Direct Community
Offering will be sold at $10.00 per share and hence will be sold at the same
price as all other shares in the Conversion. The Holding Company and the Bank
have the right to reject orders, in whole or in part, in their sole discretion
in the Public Offering and Direct Community Offering.
No person, together with any associate or group of persons acting in
concert, will be permitted to purchase more than $250,000 of Common Stock in the
Public Offering and Direct Community Offering. To order Common Stock in
connection with the Public Offering or Direct Community Offering, if any, an
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executed stock order and account withdrawal authorization and certification must
be received by FBR prior to the termination of such Offering. The date by which
orders must be received in the Public Offering and Direct Community Offering
will be set by the Holding Company at the time of commencement of such offering;
provided however, if the Offering is extended beyond _______, 1997, each
subscriber will have the opportunity to maintain, modify or rescind his or her
subscription. In such event, all subscription funds will be promptly returned
with interest to each subscriber unless he or she affirmatively indicates
otherwise.
It is estimated that the Selected Dealers will receive a negotiated
commission of up to 4.5% of the Common Stock sold by the Selected Dealers,
payable by the Holding Company, and FBR will also receive a fee of 1.0% of
Common Stock sold by such firms. Such fees in the aggregate will not exceed
5.5%. See "- Marketing Arrangements.
FBR may enter into agreements with Selected Dealers to assist in the
sale of shares in the Public Offering. Selected Dealers may only solicit
indications of interest from their customers to place orders with the Holding
Company as of a certain date ("Order Date") for the purchase of shares of
Conversion Stock with the authorization of FBR. When and if FBR and the Holding
Company believe that enough indications of interest and orders have been
received to consummate the Conversion, FBR will request, as of the Order Date,
Selected Dealers to submit orders to purchase shares for which they have
received indications of interest from their customers. Selected Dealers will
send confirmation of the orders to such customers on the next business day after
the Order Date. Customers who authorize Selected Dealers to debit their
brokerage accounts are required to have the funds for payment in their account
on but not before the closing date of the Conversion. On the closing date,
Selected Dealers will remit funds to the account that the Holding Company
established for each Selected Dealer. Each customer's funds so forwarded to the
Holding Company, along with all other accounts held in the same title, will be
insured up to the applicable legal limit. After payment has been received by the
Holding Company from Selected Dealers, funds will earn interest at the Bank's
passbook rate until the completion of the Offering. In the event the Conversion
is not consummated as described above, funds with interest will be returned
promptly to the Selected Dealers, who, in turn, will promptly credit their
customers' brokerage account.
In the event the Holding Company determines to conduct a Public
Offering and/or Direct Community Offering, persons to whom a prospectus is
delivered may subscribe for shares of Common Stock by submitting a completed
stock order and account withdrawal authorization (provided by FBR) and an
executed certification along with immediately available funds (which may be
obtained by debiting a FBR account) to FBR by not later than the public offering
expiration date (as established by the Holding Company). Promptly upon receipt
of available funds, together with a properly executed stock order and account
withdrawal authorization and certification, FBR will forward such funds to First
Security to be deposited in a subscription escrow account.
If a subscription in the Public Offering and/or Direct Community
Offering is accepted, promptly after the completion of the Conversion, a
certificate for the appropriate amount of shares will be forwarded to FBR as
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nominee for the beneficial owner. In the event that a subscription is not
accepted or the Conversion is not consummated, the Bank will promptly refund
with interest the subscription funds to FBR which will then return the funds to
subscribers' accounts. If the aggregate pro forma market value of the Common
Stock to be sold in the Offering is less than $35.0 million or more than $54.5
million, each subscriber will have the right to modify or rescind his or her
subscription.
The opportunity to subscribe for shares of Common Stock in the Public
Offering and/or Direct Community Offering is subject to the right of the Bank
and the Holding Company, in their sole discretion, to accept or reject any such
orders in whole or in part.
Additional Purchase Restrictions
The Plan also provides for certain additional limitations to be placed
upon the purchase of shares in the Conversion. Specifically, no person (other
than a Tax-Qualified Employee Plan) by himself or herself or with an associate,
and no group of persons acting in concert, may subscribe for or purchase more
than $750,000 of Common Stock. For purposes of this limitation, an associate of
a person does not include a Tax-Qualified Employee Plan or Non-Tax Qualified
Employee Plan in which the person has a substantial beneficial interest or
serves as a trustee or in a similar fiduciary capacity. Moreover, for purposes
of this paragraph, shares held by one or more Tax Qualified or Non-Tax Qualified
Employee Plans attributed to a person shall not be aggregated with shares
purchased directly by or otherwise attributable to that person except for that
portion of a plan which is self-directed by a person. See "- Stock Pricing and
Number of Shares to be Issued" regarding potential changes in Subscription
Rights in the event of a decrease in the number of shares to be issued in the
Conversion. Officers and directors and their associates may not purchase, in the
aggregate, more than 30% of the shares to be sold in the Conversion. For
purposes of the Plan, the members of the Board of Directors are not deemed to be
acting in concert solely by reason of their Board membership. For purposes of
this limitation, an associate of an officer or director does not include a
Tax-Qualified Employee Plan. Moreover, any shares attributable to the officers
and directors and their associates, but held by a Tax-Qualified Employee Plan
(other than that portion of a plan which is self-directed) shall not be included
in calculating the number of shares which may be purchased under the limitations
in this paragraph. Shares purchased by employees who are not officers or
directors of the 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
Holding Company or the Bank or a majority-owned subsidiary of the Holding
Company or the Bank) of which a person is an officer or partner or is, directly
or indirectly, the beneficial owner of 10% or more of any class of equity
security; (ii) any trust or other estate in which such person has a substantial
beneficial interest or as to which such person serves as trustee or in a similar
fiduciary capacity; and (iii) any relative or spouse of such person or any
relative of such spouse who has the same home as such person or who is a
director or officer of the Holding Company or the Bank or any subsidiary of the
Holding Company or the Bank.
The Boards of Directors of the Holding Company and the Bank, in their
sole discretion, may increase the maximum purchase limitations referred to above
up to 9.99% of the total shares to be offered in the Offering, provided that
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orders for shares exceeding 5.0% of the shares being offered in the Offering
shall not exceed, in the aggregate, 10% of the shares being offered in the
Offering or decrease the maximum purchase limitation to one percent of the
Common Stock offered in the Conversion. Requests to purchase additional shares
of Common Stock under this provision will be allocated by the Boards of
Directors on a pro rata basis giving priority in accordance with the priority
rights set forth above. Depending on market and financial conditions, the Boards
of Directors of the Holding Company and the Bank, with the approval of the OTS
and without further approval of the members, may increase or decrease any of the
above purchase limitations.
To the extent that shares are available, each subscriber must subscribe
for a minimum of 25 shares. In computing the number of shares to be allocated,
all numbers will be rounded down to the next whole number.
Common Stock purchased in the Conversion will be freely transferable
except for shares purchased by executive officers and directors of the Bank or
the Holding Company. See "- Restrictions on Transfer of Subscription Rights and
Shares."
Marketing Arrangements
First Security has retained FBR, a broker-dealer registered with the
Securities and Exchange Commission (the "SEC") and a member of the National
Association of Securities Dealers, Inc. (the "NASD"), to consult with and advise
the Bank and to assist in the distribution of shares in the Offering on a
best-efforts basis. Among the services FBR will perform are (i) training and
educating First Security employees, who will be performing certain ministerial
functions in the Offering, regarding the mechanics and regulatory requirements
of the stock sale process, (ii) keeping records of orders for shares of Common
Stock, (iii) targeting First Security's sales efforts including preparation of
marketing materials, (iv) assisting in the collection of proxies from Members
for use at the Special Meeting, and (v) providing its registered stock
representatives to staff the Stock Center and meeting with and assisting
potential subscribers. For its services, FBR will receive a success fee of 1.0%
of the aggregate Purchase Price of Common Stock sold in the Offering, excluding
Common Stock purchased by directors, officers and employees of the Bank, or
members of their immediate families and purchases by tax-qualified plans. A
management fee of $20,000, is being applied against this fee. If the Offering is
terminated before completion, FBR will be entitled to retain such payments
already accrued or received.
To the extent registered broker-dealers are utilized, the Holding
Company will pay a fee (to be negotiated, but not to exceed 4.5% of the
aggregate Purchase Price of shares of Common Stock sold in the Public Offering
and Direct Community Offering) to such Selected Dealers, including any
sponsoring dealer fees. The Holding Company will also pay FBR a fee of 1.0% of
the aggregate Purchase Price of shares of Common Stock sold in the Offering by
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Selected Dealers, which together with the fee to be paid to Selected Dealers
will result in an aggregate fee not to exceed 5.5% of the Common Stock sold in
the Offering. Fees paid to FBR and to any other broker-dealer may be deemed to
be underwriting fees, and FBR and such other broker-dealers may be deemed to be
underwriters. The Holding Company has agreed to reimburse FBR for its reasonable
out-of-pocket expenses (not to exceed $50,000), and its legal fees and expenses
(not to exceed $37,500) and to indemnify FBR against certain claims or
liabilities, including certain liabilities under the Securities Act.
In the event there is a Public Offering or Direct Community Offering,
procedures may be implemented to permit a purchaser to pay for his or her shares
with funds held by or deposited with FBR or a "Selected Dealer." See "- Public
Offering and Direct Community Offering."
Directors and executive officers of the Holding Company and the Bank
may, to a limited extent, participate in the solicitation of offers to purchase
Common Stock. Sales will be made from a Stock Center located away from the
publicly accessible areas (including teller windows) of the Bank's offices.
Other employees of the Bank may participate in the 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. Other questions of prospective purchasers will be
directed to executive officers or registered representatives of FBR. Such other
employees have been instructed not to solicit offers to purchase Common Stock or
provide advice regarding the purchase of Common Stock. To the extent permitted
under applicable law, directors and executive officers of the Holding Company
and the Bank may participate in the solicitation of offers to purchase Common
Stock, except in the State of Texas where only a representative of FBR will be
able to offer and sell securities to Texas residents. The Holding Company will
rely on Rule 3a4-1 under the Exchange Act and sales of Common Stock will be
conducted within the requirements of Rule 3a4-1, so as to permit officers,
directors and employees to participate in the sale of Common Stock. No officer,
director or employee of the Holding Company or the 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.
A Stock Center will be established at the Bank's headquarters office,
in an area separated from the Bank's banking operations. In addition,
representatives of FBR will be available to answer questions at a designated
area in the Bank's Philadelphia office which is located away from publicly
accessible areas of that office. No sales activities will be conducted in the
public areas of the Bank's offices, but persons will be able to obtain a
Prospectus and sales information at such places, and employees will inform
prospective purchasers to direct their questions to the Stock Center and will
provide such persons with the telephone number of the Stock Center. Completed
stock orders will be accepted at such places, and will be promptly forwarded to
the Stock Center for processing. No officer, director or employee of 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.
The Bank and the Holding Company will make reasonable efforts to comply
with the securities laws of all states in the United States in which persons
entitled to subscribe for shares, pursuant to the Plan of Conversion, reside.
However, no shares will be offered or sold under the Plan of Conversion to any
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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 Holding Company determine that compliance with the securities law of
such state would be impracticable for reasons of cost or otherwise, including,
but not limited to, a requirement that the Bank or the Holding Company or any of
their officers, directors or employees register, under the securities laws of
such state, as a broker, dealer, salesmen or agent. No payments will be made in
lieu of the granting of Subscription Rights to any such person.
Method of Payment for Subscriptions
To purchase shares in the Subscription Offering, an executed Order Form
with the required payment for each share subscribed for, or with appropriate
authorization for withdrawal from the Bank's deposit account (which may be given
by completing the appropriate blanks in the order form), must be received by the
Bank by noon, Chicago, Illinois time, on __________, 1997. Order forms which are
not received by such time or are executed defectively or are received without
full payment (or appropriate withdrawal instructions) are not required to be
accepted.
To order Common Stock in connection with the Public Offering and/or
Direct Community Offering, if any, an executed stock order and account
withdrawal authorization must be received by FBR prior to the termination of
such offering. The date by which orders must be received in the Public Offering
and Direct Community Offering will be set by the Holding Company at the time of
commencement of such offerings, if any; provided however, if the Offering is
extended beyond _____, 1997, each subscriber will have the opportunity to
maintain, modify or rescind his or her subscription. In such event, all
subscription funds will be promptly returned with interest to each subscriber
unless he or she affirmatively indicates otherwise. In addition, the Holding
Company and the Bank are not obligated to accept orders submitted on photocopies
or facsimile order forms.
The Holding Company and the Bank have the right to waive or permit the
correction of incomplete or improperly executed forms, but do not represent that
they will do so. Once received, an executed Order Form or stock order and
account withdrawal authorization may not be modified, amended or rescinded
without the consent of the Holding Company and the Bank unless the Conversion
has not been completed by _____, 1997.
Payment for subscriptions in the Subscription Offering, may be made (i)
in cash if delivered in person at the office of the Bank, (ii) by check or money
order or (iii) by authorization of withdrawal from deposit accounts maintained
with the Bank. Interest will be paid on payments made by cash, check, bank draft
or money order, whether or not the Conversion is complete or terminated, at the
Bank's current passbook rate from the date payment is received until the
completion or termination of the Conversion. If payment is made by authorization
of withdrawal from deposit or certificate accounts, the funds authorized to be
withdrawn from such account will continue to accrue interest at the contractual
rates until completion or termination of the Conversion. Such funds will be
unavailable to the depositor until completion or termination of the Conversion.
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If a subscriber authorizes the Bank to withdraw the amount of the
Purchase Price from his certificate account, the Bank will do so as of the
effective date of Conversion. The Bank will waive any applicable penalties for
early withdrawal from certificate accounts at First Security for the purpose of
purchasing Common Stock. If the remaining balance in a certificate account is
reduced below the applicable minimum balance requirement at the time that the
funds actually are transferred under the authorization, the rate paid on the
remaining balance of the certificate will earn interest at the then-current
passbook rate.
A depositor interested in using his or her IRA funds to purchase Common
Stock must do so through a self-directed IRA. Since the Bank does not offer such
accounts, it will allow a depositor to make a trustee-to-trustee transfer of the
IRA funds to a trustee offering a self-directed IRA program with the agreement
that such funds will be used to purchase the Holding Company's Common Stock in
the Offering. There will be no early withdrawal or IRS interest penalties for
such transfers. The new trustee would hold the Common Stock in a self-directed
account in the same manner as the Bank now holds the depositor's IRA funds. An
annual administrative fee may be payable to the new trustee. Depositors
interested in using funds in a Bank IRA to purchase Common Stock should contact
the Stock Center at the Bank as soon as possible so that the necessary forms may
be forwarded for execution and returned prior to the Expiration Date.
The ESOP will not be required to pay for the shares subscribed for at
the time it subscribes, but rather, may pay for such shares of Common Stock
subscribed for the Purchase Price upon consummation of the Conversion, provided
that there is in force from the time of its subscription until such time, a loan
commitment to lend to the ESOP, at such time, the aggregate Purchase Price of
the shares for which it subscribed.
For information regarding the submission of orders in connection with
the Public Offering and Direct Community Offering, see "- Public Offering and
Direct Community Offering."
All refunds and any interest due will be paid after completion of the
Conversion. Certificates representing shares of Common Stock purchased will be
mailed to purchasers at the last address of such persons appearing on the
records of the Bank, or to such other address as may be specified in properly
completed order forms, as soon as practicable following consummation of the sale
of all shares of Common Stock. Any certificates returned as undeliverable will
be disposed of in accordance with applicable law.
To ensure that each purchaser receives a prospectus at least 48 hours
prior to the Expiration Date in accordance with Rule 15c2-8 under the Exchange
Act, no prospectus will be mailed any later than five days prior to such date or
hand delivered any later than two days prior to such date. Execution of the
Order Form will confirm receipt or delivery in accordance with Rule 15c2-8.
Order Forms will only be distributed with a prospectus. The Bank will accept for
processing only orders submitted on original Order Forms. Photocopies or
facsimile copies of Order Forms will not be accepted. Payment by cash, check,
money order, bank draft or debit authorization to an existing account at the
Bank must accompany the Order Form. No wire transfers will be accepted.
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In order to ensure that Eligible Account Holders, Supplemental Eligible
Account Holders and Other Members are properly identified as to their stock
purchase priorities, depositors as of the Eligibility Record Date (December 31,
1995), Supplemental Eligibility Record Date (_______ __, 1997) and/or the Voting
Record Date (_____ __, 1997) must list all accounts on the Order Form giving all
names on each account and the account number as of the applicable record date.
In addition to the foregoing, if shares are offered through Selected
Dealers, a purchaser may pay for his shares with funds held by or deposited with
a Selected Dealer. If an Order Form is executed and forwarded to the Selected
Dealer or if the Selected Dealer is authorized to execute the Order Form on
behalf of a purchaser, the Selected Dealer is required to forward the Order Form
and funds to the Bank for deposit in a segregated account on or before noon of
the business day following receipt of the Order Form or execution of the Order
Form by the Selected Dealer. Alternatively, Selected Dealers may solicit
indications of interest from their customers who indicated an interest and seek
their confirmation as to their intent to purchase. Those indicating an intent to
purchase shall forward executed Order Forms to their Selected Dealer or
authorize the Selected Dealer to execute such forms. The Selected Dealer will
acknowledge receipt of the order to its customer in writing on the following
business day and will debit such customer's account on the third business day
after the customer has confirmed his intent to purchase (the "debit date") and
on or before noon of the next business day following the debit date will send
Order Forms and funds to the Bank for deposit in a segregated account. If such
alternative procedure is employed, purchasers' funds are not required to be in
their accounts with Selected Dealers until the debit date.
Restrictions on Transfer of Subscription Rights and Shares
Prior to the completion of the Conversion, the OTS conversion
regulations prohibit any person with subscription rights, including the Eligible
Account Holders, Tax-Qualified Employee Plans, Supplemental Eligible Account
Holders, Other Members and employees, officers and directors, from transferring
or entering into any agreement or understanding to transfer the legal or
beneficial ownership of the subscription rights issued under the Plan or the
shares of Common Stock to be issued upon their exercise. Such rights may be
executed only by the person to whom they are granted and only for his account.
Each person exercising such subscription rights will be required to certify that
he is purchasing shares solely for his own account and that he has no agreement
or understanding regarding the sale or transfer of such shares. The OTS
regulations also prohibit any person from offering or making an announcement of
an offer or intent to make an offer to purchase such subscription rights or
shares of Common Stock prior to the completion of the Conversion.
The Bank and the Holding Company may pursue any and all legal and
equitable remedies in the event they become aware of the transfer of
subscription rights and will not honor orders known by them to involve the
transfer of such rights.
Except as to directors and executive officers of the Bank and the
Holding Company, the shares of Common Stock sold in the Conversion will be
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freely transferable. Shares purchased by directors, executive officers or their
associates in the Conversion shall be subject to the restrictions that said
shares shall not be sold during the period of one year following the date of
purchase, except in the event of the death of the stockholder. Accordingly,
stock certificates issued by the Holding Company to directors, executive
officers and their associates shall bear a legend giving appropriate notice of
such restriction and, in addition, the Bank and the Holding Company will give
appropriate instructions to the transfer 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. Holding Company stock (like the stock of most companies)
is subject to the requirements of the Securities Act. Accordingly, Holding
Company stock may be offered and sold only in compliance with registration
requirements or pursuant to an applicable exemption from registration.
Holding Company stock received in the Conversion by persons who are not
"affiliates" of the Holding Company may be resold without registration. Shares
received by affiliates of the Holding Company (primarily the directors, officers
and principal stockholders of the Holding Company) will be subject to the resale
restrictions of Rule 144 under the Securities Act, which are discussed below.
Rule 144 generally requires that there be publicly available certain
information concerning the Holding Company, and that sales thereunder be made in
routine brokerage transactions or through a market maker. If the conditions of
Rule 144 are satisfied, each affiliate (or group of persons acting in concert
with one or more affiliates) is entitled to sell in the public market, without
registration, in any three-month period, a number of shares which does not
exceed the greater of (i) 1% of the number of outstanding shares of Holding
Company stock, or (ii) if the stock is admitted to trading on a national
securities exchange or reported through the automated quotation system of a
registered securities bank, the average weekly reported volume of trading during
the four weeks preceding the sale.
Participation by the Board and Executive Officers
The directors and executive officers of First Security have indicated
their intention to purchase in the Conversion an aggregate of $2.1 million of
Common Stock, equal to 6.0%, 5.1%, 4.4% or 3.8% of the number of shares to be
issued in the Offering, at the minimum, midpoint, maximum and 15% above the
maximum of the Estimated Valuation Range, respectively. The following table sets
forth information regarding Subscription Rights to Common Stock intended to be
exercised by each of the directors of the Bank, including members of their
immediate family and their IRAs, and by all directors and executive officers as
a group. The following table assumes that 4,117,000 shares, the midpoint of the
Estimated Valuation Range, of Common Stock are issued at the Purchase Price of
$10.00 per share and that sufficient shares will be available to satisfy the
subscriptions indicated. The table does not include shares to be purchased
through the ESOP or awarded under the proposed RRP or proposed Stock Option
Plan.
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<TABLE>
<CAPTION>
Number of
Aggregate Shares at Percent of
Purchase $10.00 Shares at
Name Title Price per Share(1) Midpoint
---- ----- ----- ------------ --------
<S> <C> <C> <C>
Julian Kulas Director, President and Chief Executive Officer $500,000 50,000
Paul Nadzikewycz Chairman of the Board 500,000 50,000
Steve Babyk Director 150,000 15,000
Lila Maria Bodnar Director, Recording Secretary 10,000 1,000
Myron Dobrowolsky Director 50,000 5,000
Terry Gawryk Director, Secretary 100,000 10,000
George Kawka Director 200,000 20,000
Jaroslav H. Sydorenko Director 10,000 1,000
Chrysta Wereszczak Director 100,000 10,000
Harry I. Kucewicz Chief Operating Officer, Treasurer 200,000 20,000
Mary H. Korb Vice President - Lending 100,000 10,000
Irene S. Subota Vice President - Savings 100,000 10,000
Adrian Hawryliw Vice President - Philadelphia Manager 100,000 10,000
----------- --------
Total $2,120,000 212,000
========== =======
- -----------
<FN>
(1) Does not include subscriptions by the ESOP, or options which are intended
to be granted under the proposed Stock Option Plan or restricted stock
awards which are intended to be granted under the proposed RRP, subject to
stockholder ratification of such plans.
</FN>
</TABLE>
Risk of Delayed Offering
The completion of the sale of all unsubscribed shares in the Offering
will be dependent, in part, upon the Bank's operating results and market
conditions at the time of the Offering. Under the Plan of Conversion, all shares
offered in the Conversion must be sold within a period ending 24 months from the
date of the Special Meeting. While the Bank and the Holding Company anticipate
completing the sale of shares offered in the Conversion within this period, if
the Board of Directors of the Bank and the Holding Company are of the opinion
that economic conditions generally or the market for publicly traded thrift
institution stocks make undesirable a sale of the Common Stock, then the
Offering may be delayed until such conditions improve.
A material delay in the completion of the sale of all unsubscribed
shares in the Public Offering or otherwise may result in a significant increase
in the costs of completing the Conversion. Significant changes in the Bank's
operations and financial condition, the aggregate market value of the shares to
be issued in the Conversion and general market conditions may occur during such
material delay. In the event the Conversion is not consummated within 24 months
after the date of the Special Meeting of Members, the Bank would charge accrued
Conversion costs to then current period operations.
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Approval, Interpretation, Amendment and Termination
All interpretations of the Plan of Conversion, as well as the
completeness and validity of order forms and stock order and account withdrawal
authorizations, will be made by the Bank and the Holding Company and will be
final, subject to the authority of the OTS and the requirements of applicable
law. The Plan of Conversion provides that, if deemed necessary or desirable by
the Boards of Directors of the Bank and the Holding Company, the Plan of
Conversion may be substantively amended by the Boards of Directors of the Bank
and the Holding Company, as a result of comments from regulatory authorities or
otherwise, at any time with the concurrence of the OTS and the SEC. In the event
the Plan of Conversion is substantially amended, other than a change in the
maximum purchase limits set forth herein, the Holding Company intends to notify
subscribers of the change and to refund subscription funds with interest unless
subscribers affirmatively elect to increase, decrease or maintain their
subscriptions. The Plan of Conversion will terminate if the sale of all shares
is not completed within 24 months after the date of the Special Meeting of
Members. The Plan of Conversion may be terminated by the Boards of Directors of
the Holding Company and the Bank with the concurrence of the OTS, at any time. A
specific resolution approved by a two-thirds vote of the Boards of Directors of
the Holding Company and the Bank would be required to terminate the Plan of
Conversion prior to the end of such 24-month period.
Restrictions on Repurchase of Stock
For a period of three years following Conversion, the Holding Company
may not repurchase any shares of its capital stock, except in the case of an
offer to repurchase on a pro rata basis made to all holders of capital stock of
the Holding Company. Any such offer shall be subject to the prior approval of
the OTS. Furthermore, the Holding Company may not repurchase any of its stock
(i) if the result thereof would be to reduce the regulatory capital of the 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 Holding Company may repurchase its capital stock
provided (i) no repurchases occur within one year following the Conversion
(subject to certain exceptions), (ii) repurchases during the second and third
year after conversion are part of an open market stock repurchase program that
does not allow for a repurchase of more than 5% of the Holding Company's
outstanding capital stock during a 12- month period, (iii) the repurchases do
not cause the Bank to become undercapitalized, and (iv) the Holding Company
provides notice to the OTS at lease 10 days prior to the commencement of a
repurchase program and the OTS does not object to such regulations. In addition,
the above limitations do not preclude repurchases of capital stock by the
Holding Company in the event applicable federal regulatory limitations are
subsequently liberalized.
Income Tax Consequences
Consummation of the Conversion is expressly conditioned upon prior
receipt by the Bank of either a ruling from the IRS or an opinion of Silver,
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Freedman & Taff, L.L.P. with respect to federal taxation, and an opinion of
Crowe, Chizek and Company LLP with respect to Illinois taxation, to the effect
that consummation of the Conversion will not be taxable to the converted Bank or
the Holding Company. The full text of the Silver, Freedman & Taff, L.L.P.
opinion, the FinPro Letter (hereinafter defined) and the Crowe, Chizek and
Company LLP opinion, which opinions are summarized herein, were filed with the
SEC as exhibits to the Holding Company's Registration Statement on Form S-1. See
"Additional Information."
An opinion which is summarized below has been received from Silver,
Freedman & Taff, L.L.P. with respect to the proposed Conversion of the Bank to
the stock form. The Silver, Freedman Taff, L.L.P. opinion states that (i) the
Conversion will qualify as a reorganization under Section 368(a)(1)(F) of the
Internal Revenue Code of 1986, as amended, and no gain or loss will be
recognized to the Bank in either its mutual form or its stock form by reason of
the proposed Conversion, (ii) no gain or loss will be recognized to the Bank in
its stock form upon the receipt of money and other property, if any, from the
Holding Company for the stock of the Bank; and no gain or loss will be
recognized to the Holding Company upon the receipt of money for Common Stock of
the Holding Company; (iii) the assets of the Bank in either its mutual or its
stock form will have the same basis before and after the Conversion; (iv) the
holding period of the assets of the Bank in its stock form will include the
period during which the assets were held by the Bank in its mutual form prior to
Conversion; (v) gain, if any, will be realized by the depositors of the Bank
upon the constructive issuance to them of withdrawable deposit accounts of the
Bank in its stock form, nontransferable subscription rights to purchase Holding
Company Common Stock and/or interests in the Liquidation Account (any such gain
will be recognized by such depositors, but only in an amount not in excess of
the fair market value of the subscription rights and Liquidation Account
interests received); (vi) the basis of the account holder's savings accounts in
the Bank after the Conversion will be the same as the basis of his or her
savings accounts in the Bank prior to the Conversion; (vii) the basis of each
account holder's interest in the Liquidation Account is assumed to be zero;
(viii) based on the FinPro Letter, as hereinafter defined, the basis of the
subscription rights will be zero; (ix) the basis of the Holding Company Common
Stock to its stockholders will be the purchase price thereof; (x) a
stockholder's holding period for Holding Company Common Stock acquired through
the exercise of subscription rights shall begin on the date on which the
subscription rights are exercised and the holding period for the Conversion
Stock purchased in the Offering will commence on the date following the date on
which such stock is purchased; (xi) the Bank in its stock form will succeed to
and take into account the earnings and profits or deficit in earnings and
profits, of the Bank, in its mutual form, as of the date of Conversion; (xii)
the Bank, immediately after Conversion, will succeed to and take into account
the bad debt reserve accounts of the Bank, in mutual form, and the bad debt
reserves will have the same character in the hands of the Bank after Conversion
as if no Conversion had occurred; and (xiii) the creation of the Liquidation
Account will have no effect on the Bank's taxable income, deductions or addition
to reserve for bad debts either in its mutual or stock form.
The opinion from Silver, Freedman & Taff, L.L.P. is based, among other
things, on certain assumptions, including the assumptions that the exercise
price of the Subscription Rights to purchase Holding Company Common Stock will
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be approximately equal to the fair market value of that stock at the time of the
completion of the proposed Conversion. With respect to the Subscription Rights,
the Bank will receive a letter from FinPro (the "FinPro Letter") which, based on
certain assumptions, will conclude that the Subscription Rights to be received
by Eligible Account Holders, Supplemental Eligible Account Holders and other
eligible subscribers do not have any economic value at the time of distribution
or at the time the Subscription Rights are exercised, whether or not a Public
Offering takes place.
The Bank has also received an opinion of Silver, Freedman & Taff,
L.L.P. 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 exercise of
non-transferable Subscription Rights to purchase shares of Holding Company
Common Stock at fair market value; (ii) no taxable income will be recognized by
borrowers, directors, officers and employees of the Bank on the receipt or
exercise of Subscription Rights to purchase shares of Holding Company Common
Stock at fair market value; and (iii) no taxable income will be realized by the
Bank or Holding Company on the issuance of Subscription Rights to eligible
subscribers to purchase shares of Holding Company Common Stock at fair market
value.
Notwithstanding the FinPro Letter, if the Subscription Rights are
subsequently found to have a fair market value and are deemed a distribution of
property, it is Silver, Freedman & Taff, L.L.P.'s opinion that gain or income
will be recognized by various recipients of the Subscription Rights (in certain
cases, whether or not the rights are exercised) and the Bank and/or the Holding
Company may be taxable on the distribution of the Subscription Rights.
With respect to Illinois taxation, the Bank has received an opinion
from Crowe, Chizek and Company LLP to the effect that the Illinois tax
consequences to the Bank, in its mutual or stock form, the Holding Company,
eligible account holders, parties receiving Subscription Rights, parties
purchasing conversion stock, and other parties participating in the Conversion
will be the same as the federal income tax consequences described above.
Unlike a private letter ruling, the opinions of Silver, Freedman &
Taff, L.L.P. and Crowe, Chizek and Company 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 Delaware or Illinois tax authorities.
RESTRICTIONS ON ACQUISITIONS OF STOCK AND
RELATED TAKEOVER DEFENSIVE PROVISIONS
Although the Boards of Directors of the Bank and the Holding Company
are not aware of any effort that might be made to obtain control of the Holding
Company after Conversion, the Board of Directors, as discussed below, believe
that it is appropriate to include certain provisions as part of the Holding
Company's certificate of incorporation to protect the interests of the Holding
Company and its stockholders from takeovers which the Board of Directors of the
Holding Company might conclude are not in the best interests of the Bank, the
Holding Company or the Holding Company's stockholders.
The following discussion is a general summary of material provisions of
the Holding Company's certificate of incorporation and bylaws and certain other
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regulatory provisions which may be deemed to have an "anti-takeover" effect. The
following description of certain of these provisions is necessarily general and,
with respect to provisions contained in the Holding Company's certificate of
incorporation and bylaws and the 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 Conversion Application filed with the OTS and the Holding
Company's Registration Statement filed with the SEC. See "Additional
Information."
Provisions of the Holding Company's Certificate of Incorporation and Bylaws
Directors. Certain provisions of the Holding Company's certificate of
incorporation and bylaws will impede changes in majority control of the Board of
Directors. The Holding Company's certificate of incorporation provides that the
Board of Directors of the Holding Company will be divided into three classes,
with directors in each class elected for three-year staggered terms except for
the initial directors. Thus, assuming a Board of nine directors, it would take
two annual elections to replace a majority of the Holding Company's Board. The
Holding Company's certificate of incorporation also provides that the size of
the Board of Directors may be increased or decreased only by a majority vote of
the whole Board or by a vote of 80% of the shares eligible to be voted at a duly
constituted meeting of stockholders called for such purpose. The bylaws also
pro- vide that any vacancy occurring in the Board of Directors, including a
vacancy created by an increase in the number of directors, shall be filled for
the remainder of the unexpired term by a majority vote of the directors then in
office. Finally, the bylaws impose certain notice and information requirements
in connection with the nomination by stockholders of candidates for election to
the Board of Directors or the proposal by stockholders of business to be acted
upon at an annual meeting of stockholders.
The certificate of incorporation provides that a director may only be
removed for cause by the affirmative vote of 80% of the shares eligible to vote.
Restrictions on Call of Special Meetings. The certificate of
incorporation of the Holding Company provides that a special meeting of
stockholders may be called only pursuant to a resolution of the Board of
Directors and for only such business as directed by the Board. Stockholders are
not authorized to call a special meeting.
Absence of Cumulative Voting. The Holding Company's certificate of
incorporation does not provide for cumulative voting rights in the election of
directors.
Authorization of Preferred Stock. The certificate of incorporation of
the Holding Company authorizes 500,000 shares of serial preferred stock, $.01
par value. The Holding Company is authorized to issue preferred stock from time
to time in one or more series subject to applicable provisions of law, and the
Board of Directors is authorized to fix the designations, powers, preferences
and relative participating, optional and other special rights of such shares,
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including voting rights (which could be multiple or as a separate class) and
conversion rights. In the event of a proposed merger, tender offer or other
attempt to gain control of the Holding Company that the Board of Directors does
not approve, it might be possible for the Board of Directors to authorize the
issuance of a series of preferred stock with rights and preferences that would
impede the completion of such a transaction. If the Holding Company issued any
preferred stock which disparately reduced the voting rights of the Common Stock
within the meaning of Rule 19c-4 under the Exchange Act, the Common Stock could
be required to be delisted from the Nasdaq System. An effect of the possible
issuance of preferred stock, therefore, may be to deter a future takeover
attempt. The Board of Directors has no present plans or understandings for the
issuance of any preferred stock and does not intend to issue any preferred stock
except on terms which the Board deems to be in the best interests of the Holding
Company and its stockholders.
Limitation on Voting Rights. The certificate of incorporation of the
Holding Company provides that in no event shall any record owner of any
outstanding Common Stock which is beneficially owned, directly or indirectly, by
a person who beneficially owns in excess of 10% of the then outstanding shares
of Common Stock (the "Limit"), be entitled or permitted to any vote in respect
of the shares held in excess of the Limit. This limitation would not inhibit any
person from soliciting (or voting) proxies from other beneficial owners for more
than 10% of the Common Stock or from voting such proxies. Beneficial ownership
is to be determined pursuant to Rule 13d-3 of the General Rules and Regulations
of the Exchange Act, and in any event includes shares beneficially owned by any
affiliate of such person, shares which such person or his affiliates (as defined
in the certificate of incorporation) have the right to acquire upon the exercise
of conversion rights or options and shares as to which such person and his
affiliates have or share investment or voting power but shall not include shares
beneficially owned by directors, officers and employees of the Bank or the
Holding Company. This provision will be enforced by the Board of Directors to
limit the voting rights of persons beneficially owning more than 10% of the
stock and thus could be utilized in a proxy contest or other solicitation to
defeat a proposal that is desired by a majority of the stockholders.
Procedures for Certain Business Combinations. The Holding Company's
certificate of incorporation requires that certain business combinations
(including transactions initiated by management) between the Holding Company (or
any majority-owned subsidiary thereof) and a 10% or more stockholder either (i)
be approved by at least 80% of the total number of outstanding voting shares,
voting as a single class, of the Holding Company, (ii) be approved by two-thirds
of the continuing Board of Directors (i.e., persons serving prior to the 10%
stockholder becoming such) or (iii) involve consideration per share generally
equal to that paid by such 10% stockholder when it acquired its block of stock.
It should be noted that, since the Board and management (13 persons)
intend to purchase approximately $2.1 million of the shares offered in the
Conversion and may control the voting of additional shares through the ESOP and
proposed RRP and Stock Option Plan, the Board and management may be able to
block the approval of combinations requiring an 80% vote even where a majority
of the stockholders vote to approve such combinations.
Amendment to Certificate of Incorporation and Bylaws. Amendments to the
Holding Company's certificate of incorporation must be approved by the Holding
Company's Board of Directors and also by a majority of the outstanding shares of
the Holding Company's voting stock, provided, however, that approval by at least
80% of the outstanding voting stock is generally required for certain provisions
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(i.e., provisions relating to number, classification, election and removal of
directors; amendment of bylaws; call of special stockholder meetings; offers to
acquire and acquisitions of control; director liability; certain business
combinations; power of indemnification; and amendments to provisions relating to
the foregoing in the certificate of incorporation).
The bylaws may be amended by a majority vote of the Board of Directors
or the affirmative vote of at least 80% of the total votes eligible to be voted
at a duly constituted meeting of stockholders.
Purpose and Takeover Defensive Effects of the Holding Company's
Certificate of Incorporation and Bylaws. The Board of Directors of the Bank
believes that the provisions described above are prudent and will reduce the
Holding Company's vulnerability to takeover attempts and certain other
transactions which have not been negotiated with and approved by its Board of
Directors. These provisions will also assist the Bank in the orderly deployment
of the conversion proceeds into productive assets during the initial period
after the Conversion. The Board of Directors believes these provisions are in
the best interest of the Bank and of the Holding Company and its stockholders.
In the judgment of the Board of Directors, the Holding Company's Board will be
in the best position to determine the true value of the Holding Company and to
negotiate more effectively for what may be in the best interests of its
stockholders. Accordingly, the Board of Directors believes that it is in the
best interests of the Holding Company and its stockholders to encourage
potential acquirors to negotiate directly with the Board of Directors of the
Holding Company and that these provisions will encourage such negotiations and
discourage hostile takeover attempts. It is also the view of the Board of
Directors that these provisions should not discourage persons from proposing a
merger or other transaction at prices reflective of the true value of the
Holding Company and which is in the best interests of all stockholders.
Attempts to take over financial institutions and their holding
companies have recently become increasingly common. Takeover attempts which have
not been negotiated with and approved by the Board of Directors present to
stockholders the risk of a takeover on terms which may be less favorable than
might otherwise be available. A transaction which is negotiated and approved by
the Board of Directors, on the other hand, can be carefully planned and
undertaken at an opportune time in order to obtain maximum value for the Holding
Company and its stockholders, with due consideration given to matters such as
the management and business of the acquiring corporation and maximum strategic
development of the Holding Company's assets.
An unsolicited takeover proposal can seriously disrupt the business and
management of a corporation and cause it great expense. Although a tender offer
or other takeover attempt may be made at a price substantially above then
current market prices, such offers are sometimes made for less than all of the
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outstanding shares of a target company. As a result, stockholders may be
presented with the alternative of partially liquidating their investment at a
time that may be disadvantageous, or retaining their investment in an enterprise
which is under different management and whose objectives may not be similar to
those of the remaining stockholders. The concentration of control, which could
result from a tender offer or other takeover attempt, could also deprive the
Holding Company's remaining stockholders of the benefits of certain protective
provisions of the Exchange Act, if the number of beneficial owners becomes less
than the 300 required for Exchange Act registration.
Despite the belief of the Bank and the Holding Company as to the
benefits to stockholders of these provisions of the Holding Company's
certificate of incorporation and bylaws, these provisions may also have the
effect of discouraging a future takeover attempt which would not be approved by
the Holding Company's Board, but pursuant to which stockholders may receive a
substantial premium for their shares over then current market prices. As a
result, stockholders who might desire to participate in such a transaction may
not have any opportunity to do so. Such provisions will also render the removal
of the Holding Company's Board of Directors and of management more difficult.
The Board will enforce the voting limitation provisions of the charter in proxy
solicitations and accordingly could utilize these provisions to defeat proposals
that are favored by a majority of the stockholders. The Boards of Directors of
the Bank and the Holding Company, however, have concluded that the potential
benefits outweigh the possible disadvantages.
Pursuant to applicable law, at any annual or special meeting of its
stockholders after the Conversion, the Holding Company may adopt additional
charter provisions regarding the acquisition of its equity securities that would
be permitted to a Delaware corporation. The Holding Company and the Bank do not
presently intend to propose the adoption of further restrictions on the
acquisition of the Holding Company's equity securities.
Other Restrictions on Acquisitions of Stock
Delaware Anti-Takeover Statute. The Delaware General Corporation Law
(the "DGCL") provides that buyers who acquire more than 15% of the outstanding
stock of a Delaware corporation, such as the Holding Company, are prohibited
from completing a hostile takeover of such corporation for three years. However,
the takeover can be completed if (i) the buyer, while acquiring the 15%
interest, acquires at least 85% of the corporation's outstanding stock (the 85%
requirement excludes shares held by directors who are also officers and certain
shares held under employee stock plans), or (ii) the takeover is approved by the
target corporation's board of directors and two-thirds of the shares of
outstanding stock of the corporation (excluding shares held by the bidder).
However, these provisions of the DGCL do not apply to Delaware
corporations with less than 2,000 stockholders or which do not have voting stock
listed on a national exchange or listed for quotation with a registered national
securities association. No prediction can be made as to whether the Holding
Company will be listed on Nasdaq National Market or have 2,000 stockholders.
First Security may exempt itself from the requirements of the statute by
adopting an amendment to its Certificate of Incorporation or Bylaws electing not
to be governed by this provision. At the present time, the Board of Directors
does not intend to propose any such amendment.
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Federal Regulation. A federal regulation prohibits any person prior to
the completion of a conversion from transferring, or entering into any agreement
or understanding to transfer, the legal or beneficial ownership of the
subscription rights issued under a plan of conversion or the stock to be issued
upon their exercise. This regulation also prohibits any person prior to the
completion of a conversion from offering, or making an announcement of an offer
or intent to make an offer, to purchase such subscription rights or stock. For
three years following conversion, this regulation prohibits any person, without
the prior approval of the OTS, from acquiring or making an offer to acquire (if
the offer is opposed by the savings association) more than 10% of the stock of
any converted savings institution if such person is, or after consummation of
such acquisition would be, the beneficial owner of more than 10% of such stock.
In the event that any person, directly or indirectly, violates this regulation,
the securities beneficially owned by such person in excess of 10% may not be
counted as shares entitled to vote and may not be voted by any person or counted
as voting shares in connection with any matter submitted to a vote of
stockholders. Like the charter provisions outlined above, these federal
regulations can make a change in control more difficult, even if desired by the
holders of the majority of the shares of the stock. The Board of Directors
reserves the right to ask the OTS or other federal regulators to enforce these
restrictions against persons seeking to obtain control of the Holding Company,
whether in a proxy solicitation or otherwise. The policy of the Board is that
these legal restrictions must be observed in every case, including instances in
which an acquisition of control of the Holding Company is favored by a majority
of the stockholders.
Federal law provides that no company, "directly or indirectly or acting
in concert with one or more persons, or through one or more subsidiaries, or
through one or more transactions," may acquire "control" of a savings
association at any time without the prior approval of the OTS. In addition,
federal regulations require that, prior to obtaining control of a savings
association, a person, other than a company, must give 60 days' prior notice to
the OTS and have received no OTS objection to such acquisition of control. Any
company that acquires such control becomes a "savings and loan holding company"
subject to registration, examination and regulation as a savings and loan
holding company. Under federal law (as well as the regulations referred to
below) the term "savings association" includes state and federally chartered
SAIF-insured institutions and federally chartered savings banks whose accounts
are insured by the FDIC's BIF and holding companies thereof.
Control, as defined under federal law, in general means ownership,
control of or holding irrevocable proxies representing more than 25% of any
class of voting stock, control in any manner of the election of a majority of a
savings association's directors, or a determination by the OTS that
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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 OTS 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 OTS regulations
provide that persons or companies which acquire beneficial ownership exceeding
10% or more of any class of a savings association's stock must file with the OTS
a certification that the holder is not in control of such institution, is not
subject to a rebuttable determination of control and will take no action which
would result in a determination or rebuttable determination of control without
prior notice to or approval of the OTS, as applicable.
DESCRIPTION OF CAPITAL STOCK
Holding Company Capital Stock
The 8,500,000 shares of capital stock authorized by the Holding Company
certificate of incorporation are divided into two classes, consisting of
8,000,000 shares of Common Stock (par value $.01 per share) and 500,000 shares
of serial preferred stock (par value $.01 per share). The Holding Company
currently expects to issue (not including the Stock Contribution) between
3,499,000 and 4,735,000 shares (subject to increase to 5,445,000) of Common
Stock in the Conversion and no shares of serial preferred stock. The aggregate
par value of the issued shares will constitute the capital account of the
Holding Company on a consolidated basis. Upon payment of the Purchase Price, all
shares issued in the Conversion will be duly authorized, fully paid and
nonassessable. The balance of the purchase price of Common Stock, less expenses
of Conversion, will be reflected as paid-in capital on a consolidated basis. See
"Capitalization."
Each share of the Common Stock will have the same relative rights and
will be identical in all respects with each other share of the Common Stock. The
Common Stock of the Holding Company will represent non-withdrawable capital,
will not be of an insurable type and will not
be insured by the FDIC.
Under Delaware law, the holders of the Common Stock will possess
exclusive voting power in the Holding Company. Each stockholder will be entitled
to one vote for each share held on all matters voted upon by stockholders,
subject to the limitation discussed under "Restrictions on Acquisitions of Stock
and Related Takeover Defensive Provisions - Provisions of the Holding Company's
Certificate of Incorporation and Bylaws - Limitation on Voting Rights." If the
Holding Company issues preferred stock subsequent to the Conversion, holders of
the preferred stock may also possess voting powers.
Liquidation or Dissolution. In the event of any liquidation,
dissolution or winding up of the Bank, the Holding Company, as the sole holder
of the Bank's capital stock would be entitled to receive, after payment or
provision for payment of all debts and liabilities of the Bank (including all
deposit accounts and accrued interest thereon) and after distribution of the
balance in the special liquidation account to Eligible and Supplemental Account
Holders, all assets of the Bank available
141
<PAGE>
for distribution. In the event of liquidation, dissolution or winding up of the
Holding Company, the holders of its Common Stock would be entitled to receive,
after payment or provision for payment of all its debts and liabilities, all of
the assets of the Holding Company available for distribution. See "The
Conversion - Effects of Conversion to Stock Form on Depositors and Borrowers of
the Bank." If preferred stock is issued subsequent to the Conversion, the
holders thereof may have a priority over the holders of Common Stock in the
event of liquidation or dissolution.
No Preemptive Rights. Holders of the Common Stock will not be entitled
to preemptive rights with respect to any shares which may be issued. The Common
Stock will not be subject to call for redemption, and, upon receipt by the
Holding Company of the full purchase price therefor, each share of the Common
Stock will be fully paid and nonassessable.
Preferred Stock. After Conversion, the Board of Directors of the
Holding Company will be authorized to issue preferred stock in series and to fix
and state the voting powers, designations, preferences and relative,
participating, optional or other special rights of the shares of each such
series and the qualifications, limitations and restrictions thereof. Preferred
stock may rank prior to the Common Stock as to dividend rights, liquidation
preferences, or both, and may have full or limited voting rights. The holders of
preferred stock will be entitled to vote as a separate class or series under
certain circumstances, regardless of any other voting rights which such holders
may have.
Except as discussed above, the Holding Company has no present plans for
the issuance of the additional authorized shares of Common Stock or for the
issuance of any shares of preferred stock. In the future, the authorized but
unissued and unreserved shares of Common Stock will be available for general
corporate purposes, including but not limited to possible issuance as stock
dividends or stock splits, in future mergers or acquisitions, under a cash
dividend reinvestment and stock purchase plan, in a future underwritten or other
public offering, or under a stock based employee plan. The authorized but
unissued shares of preferred stock will similarly be available for issuance in
future mergers or acquisitions, in a future underwritten public offering or
private placement or for other general corporate purposes. Except as described
herein or as otherwise required to approve the transaction in which the
additional authorized shares of common stock or authorized shares of preferred
stock would be issued, no stockholder approval will be required for the issuance
of these shares. Accordingly, the Board of Directors of the Holding Company,
without stockholder approval, can issue preferred stock with voting and
conversion rights which could adversely affect the voting power of the holders
of Common Stock.
Restrictions on Acquisitions. See "Restrictions on Acquisitions of
Stock and Related Takeover Defensive Provisions" for a description of certain
provisions of the Holding Company's certificate of incorporation and bylaws
which may affect the ability of the Holding Company's stockholders to
participate in certain transactions relating to acquisitions of control of the
Holding Company.
Dividends. The Holding Company's Board of Directors may consider a
policy of paying cash dividends on the Common Stock in the future. No decision
has been made, however, as to the amount or timing of such dividends, if any.
The declaration and payment of dividends are subject to, among other things, the
Holding Company's then current and projected consolidated operating
142
<PAGE>
results, financial condition, regulatory restrictions, future growth plans and
other factors the Board deems relevant. Therefore, no assurance can be given
that any dividends will be declared.
The ability of the Holding Company to pay cash dividends to its
stockholders will be dependent, in part, upon the ability of the Bank to pay
dividends to the Holding Company. OTS regulations do not permit the Bank to
declare or pay a cash dividend on its stock or repurchase shares of its stock if
the effect thereof would be to cause its regulatory capital to be reduced below
the amount required for the liquidation account or to meet applicable regulatory
capital requirements. See "Regulation - Limitations on Dividends and Other
Capital Distributions" for information regarding OTS regulations governing the
Bank's ability to pay dividends to the Holding Company.
Delaware law generally limits dividends of the Holding Company to an
amount equal to the excess of its net assets over its paid-in capital or, if
there is no such excess, to its net earnings for the current and immediately
preceding fiscal year. In addition, as the Holding Company does not anticipate,
for the immediate future, engaging in activities other than (i) investing in
cash, short-term securities and investment and mortgage-backed securities
similar to those invested in by the Bank and (ii) holding the stock of First
Security, the Holding Company's ability to pay dividends will be limited, in
part, by the Bank's ability to pay dividends, as set forth above.
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 Holding Company without adverse tax consequences. See
"Regulation - Federal and State Taxation."
LEGAL AND TAX MATTERS
The legality of the Common Stock and the federal income tax
consequences of the Conversion will be passed upon for First Security by the
firm of Silver, Freedman & Taff, L.L.P. (a limited liability partnership
including professional corporations), 7th Floor, East Tower, 1100 New York
Avenue, NW, Washington, DC 20005. Silver, Freedman & Taff, L.L.P. has consented
to the references herein to its opinions. The Illinois income tax consequences
of the Conversion will be passed upon by Crowe, Chizek and Company LLP. Crowe,
Chizek and Company LLP has consented to references herein to its opinion. FBR
has been represented in the Conversion by Chapman and Cutler, 111 West Monroe
Street, Chicago, Illinois 60603.
EXPERTS
The consolidated financial statements of First Security as of December
31, 1996 and 1995 and for the three year period ended December 31, 1996 included
in this Prospectus have been audited by Crowe, Chizek and Company LLP,
independent auditors, as indicated in their report which is included herein and
has been so included in reliance upon such report, given the authority of that
firm as experts in accounting and auditing.
FinPro has consented to the inclusion herein of the summary of its
letter to the Bank setting forth its opinion as to the estimated pro forma
market value of the Holding Company and the Bank as converted and to the
reference to its opinion that subscription rights received by Eligible Account
143
<PAGE>
Holders, Supplemental Eligible Account Holders and other eligible subscribers do
not have any economic value.
ADDITIONAL INFORMATION
The Holding 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. However,
the prospectus does contain a description of the material provisions of the
documents contained therein. Such information can be examined without charge at
the public reference facilities of the SEC located at 450 Fifth Street, NW,
Washington, DC 20549, and copies of such material can be obtained from the SEC
at prescribed rates. In addition, the SEC maintains a Web site. The address of
the SEC's 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 which
describe only the material provisions of 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 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,
NW, Washington, DC 20552 and at the Chicago District Office of the OTS, Suite
1300, 200 West Madison Street, Chicago, Illinois 60606, without charge.
In connection with the Conversion, the Holding Company will register
the Common Stock with the SEC under Section 12(g) of the Exchange Act, and, upon
such registration, the Holding Company and the holders of its Common Stock will
become subject to the proxy solicitation rules, reporting requirements and
restrictions on stock purchases and sales by directors, officers and greater
than 10% stockholders, the annual and periodic reporting and certain other
requirements of the Exchange Act. Under the Plan, the Holding Company has
undertaken that it will not terminate such registration for a period of at least
three years following the Conversion.
A copy of the Certificate of Incorporation and Bylaws of the Holding
Company are available without charge from the Bank.
144
<PAGE>
1ST SECURITY FEDERAL SAVINGS BANK AND SUBSIDIARY
Chicago, Illinois
CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996, 1995, and 1994
April 30, 1997 and 1996 (Unaudited)
CONTENTS
REPORT OF INDEPENDENT AUDITORS ............................................ F-2
FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS .......................................... F-3
CONSOLIDATED STATEMENTS OF INCOME .................................... F-4
CONSOLIDATED STATEMENTS OF EQUITY .................................... F-5
CONSOLIDATED STATEMENTS OF CASH FLOWS ................................ F-6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ........................... F-8
All schedules are omitted because the required information
is not applicable or is included in the Consolidated
Financial Statements and related notes.
Financial Statements of the Holding Company have
not been provided because __________ has
not conducted any operations to date and
has not been capitalized.
F-1.
<PAGE>
[CROWE CHIZEK LOGO]
REPORT OF INDEPENDENT AUDITORS
Board of Directors
1st Security Federal Savings Bank
Chicago, Illinois
We have audited the accompanying consolidated balance sheets of 1st Security
Federal Savings Bank and Subsidiary as of December 31, 1996 and 1995, and the
related consolidated statements of income, equity, and cash flows for each of
the three years in the period ended December 31, 1996. These financial
statements are the responsibility of the Savings Bank's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of 1st Security Federal
Savings Bank and Subsidiary at December 31, 1996 and 1995, and the results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1996, in conformity with generally accepted accounting
principles.
/s/ Crowe, Chizek and Company LLP
_____________________________
Crowe, Chizek and Company LLP
Oak Brook, Illinois
February 8, 1997
F-2.
<PAGE>
1ST SECURITY FEDERAL SAVINGS BANK AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
December 31, 1996 and 1995
April 30, 1997 (Unaudited)
(Dollars in thousands)
- --------------------------------------------------------------------------------
(Unaudited) December 31,
April 30, ----------------------
1997 1996 1995
---- ---- ----
ASSETS
Cash and due from bank ................... $ 5,104 $ 5,800 $ 17,073
Federal funds sold ....................... 2,000 1,500 2,100
--------- --------- ---------
Total cash and cash equivalents ...... 7,104 7,300 19,173
Time deposits in other financial
institutions ............................ 200 200 200
Securities available-for-sale ............ 27,535 28,724 33,787
Securities held-to-maturity (fair
value of $50,007 in 1997, $49,881
in 1996 and $46,115 in 1995) ............ 50,648 49,888 45,686
Loans, net of allowance for loan losses .. 165,914 163,348 144,566
Federal Home Loan Bank stock, at cost .... 1,852 1,673 1,553
Premises and equipment, net .............. 3,845 3,923 4,006
Accrued interest receivable .............. 1,949 1,764 1,616
Intangible assets ........................ 332 352 419
Real estate owned ........................ -- 40 499
Other assets ............................. 623 903 417
--------- --------- ---------
Total assets ......................... $ 260,002 $ 258,115 $ 251,922
========= ========= =========
LIABILITIES
Deposits ................................. $ 218,987 $ 219,505 $ 209,387
Advance payments by borrowers for
taxes and insurance ..................... 1,586 2,118 1,681
Advances from Federal Home Loan Bank ..... 7,500 4,000 10,000
Accrued interest payable and other
liabilities ............................. 1,979 3,231 1,816
--------- --------- ---------
Total liabilities .................... 230,052 228,854 222,884
EQUITY
Retained earnings ........................ 30,226 29,465 29,013
Net unrealized gain (loss) on securities
available-for-sale, net of income taxes . (276) (204) 25
--------- --------- ---------
Total equity ......................... 29,950 29,261 29,038
--------- --------- ---------
Total liabilities and equity ...... $ 260,002 $ 258,115 $ 251,922
========= ========= =========
- --------------------------------------------------------------------------------
See accompanying notes to consoldiated financial statements.
F-3.
<PAGE>
1ST SECURITY FEDERAL SAVINGS BANK AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
Years ended December 31, 1996, 1995, and 1994
Four months ended April 30, 1997 and 1996 (Unaudited)
(Dollars in thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(Unaudited)
April 30, December 31,
---------------------- -------------------------------------
1997 1996 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Interest and dividend income
Loans ............................... $ 4,653 $ 4,197 $ 13,068 $ 12,080 $ 11,118
Securities
Taxable .......................... 497 533 1,664 1,944 1,334
Tax-exempt ....................... 97 94 277 327 378
Mortgage-backed securities .......... 1,131 1,158 3,673 2,867 2,535
Federal funds sold and other
interest earning assets ........... 117 142 324 432 345
-------- -------- -------- -------- --------
6,495 6,124 19,006 17,650 15,710
Interest expense
NOW and money market ................ 123 122 369 377 370
Passbook savings .................... 705 692 2,120 2,113 2,047
Certificates of deposit ............. 2,285 2,293 6,827 6,044 3,987
Federal Home Loan Bank
advances and other borrowings ..... 107 56 178 193 180
-------- -------- -------- -------- --------
3,220 3,163 9,494 8,727 6,584
-------- -------- -------- -------- --------
Net interest income ..................... 3,275 2,961 9,512 8,923 9,126
Provision for loan losses ............... 574 42 706 136 182
------- -------- -------- -------- --------
Net interest income after
provision for loan losses ............. 2,701 2,919 8,806 8,787 8,944
Noninterest income
Deposit service charges ............. 116 121 362 378 326
Insurance commissions ............... 15 18 54 58 58
Net gain on sales and calls of
securities .......... -- -- 55 24 5
Net gain (loss) on sale of real
estate owned ...................... 1 (10) 50 147 --
Other income ........................ 65 65 224 249 188
-------- -------- -------- -------- --------
197 194 745 856 577
Noninterest expense
Compensation and benefits ........... 851 726 2,411 2,370 2,043
Occupancy and equipment ............. 225 209 678 630 610
Data processing ..................... 94 87 269 260 282
SAIF assessment ..................... -- -- 1,293 -- --
Federal insurance premiums .......... 43 182 553 521 444
Charitable and foundation
contributions ..................... 43 21 2,558 67 100
Other expense ....................... 401 295 931 842 792
-------- -------- -------- -------- --------
1,657 1,520 8,693 4,690 4,271
-------- -------- -------- -------- --------
Income before income taxes .............. 1,241 1,593 858 4,953 5,250
Income tax provision .................... 480 603 406 1,760 1,825
-------- -------- -------- -------- --------
Net income .............................. $ 761 $ 990 $452 $ 3,193 $ 3,425
======== ======== ======== ======== ========
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
F-4.
<PAGE>
1ST SECURITY FEDERAL SAVINGS BANK AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF EQUITY
Years ended December 31, 1996, 1995, and 1994
Four months ended April 30, 1997 (Unaudited)
(Dollars in thousands)
- --------------------------------------------------------------------------------
Unrealized
Gain (Loss)
on Securities
Retained Available-
Earnings for-Sale Total
-------- -------- -----
Balance at January 1, 1994 .................. $ 22,395 $ -- $ 22,395
Net income .................................. 3,425 -- 3,425
Effect of adopting SFAS No. 115, as of
January 1, 1994, net of income
taxes of $189 ............................. -- 295 295
Change in valuation allowance for
securities available-for-sale, net
of income taxes of $358 ................... -- (560) (560)
-------- -------- --------
Balance at December 31, 1994 ............... 25,820 (265) 25,555
Net income .................................. 3,193 -- 3,193
Reclassification of securities from
held-to-maturity to available-for-sale,
net of income taxes of $44 ................ -- 114 114
Change in valuation allowance for
securities available-for-sale, net of
income taxes of $141 ...................... -- 176 176
-------- -------- --------
Balance at December 31, 1995 ................ 29,013 25 29,038
Net income .................................. 452 -- 452
Change in valuation allowance for
securities available-for-sale, net of
income taxes of $146 ...................... -- (229) (229)
-------- -------- --------
Balance at December 31, 1996 ................ 29,465 (204) 29,261
Net income (unaudited) ...................... 761 -- 761
Change in valuation allowance for
securities available- for-sale,
net of income taxes of $47 (unaudited) .... -- (72) (72)
-------- -------- --------
Balance at April 30, 1997 (unaudited) ....... $ 30,226 $ (276) $ 29,950
======== ======== ========
- --------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
F-5.
<PAGE>
1ST SECURITY FEDERAL SAVINGS BANK AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 1996, 1995, and 1994
Four months ended April 30, 1997 and 1996 (Unaudited)
(Dollars in thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(Unaudited)
April 30, December 31,
------------------ --------------------------------
1997 1996 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities
Net income $ 761 $ 990 $ 452 $ 3,193 $ 3,425
Adjustments to reconcile net income
to net cash from operating activities
Depreciation and amortization
of intangibles 121 99 358 329 268
Net amortization (accretion) of
securities 36 -- (90) 138 318
Net gain on sales and calls of
securities -- -- (55) (24) (5)
Provision for loan losses 574 42 706 136 182
Net (gain) loss on real estate owned (1) 10 (50) (79) --
Deferred loan origination fees 2 (12) (80) (75) (118)
Federal Home Loan Bank
stock dividend -- -- -- (20) --
Provision for deferred income taxes 24 -- (937) 135 212
Net change in:
Accrued interest receivable (185) (97) (148) 119 (618)
Accrued interest payable 465 391 (4) 217 52
Other assets 302 180 (141) 182 (215)
Other liabilities (1,717) (240) 2,129 (190) 59
------- ------- -------- -------- --------
Net cash provided by
operating activities 382 1,363 2,140 4,061 3,560
Cash flows from investing activities
Purchase of securities available-for-sale -- (1,985) (2,989) -- (3,973)
Purchase of securities held-to-maturity (3,598) (9,951) (20,129) (30,451) (20,131)
Proceeds from sales of securities
available-for-sale -- -- -- 1,504 --
Proceeds from calls and maturities
of securities 1,000 5,850 15,814 20,112 2,167
Net loan originations (3,151) (3,566) (19,548) (8,696) (16,360)
Principal payments on mortgage-
backed and related securities 2,872 3,519 7,965 5,916 10,436
Purchase of Federal Home Loan
Bank stock (179) (120) (215) (171)
Acquisition of Ukrainian Federal
Savings and Loan Association
branch, net of cash -- -- -- -- 8,308
Net change in federal funds purchased -- -- -- -- (2,000)
Property and equipment expenditures (15) (24) (189) (119) (759)
Real estate owned expenditures -- 53 (5) (44) --
Proceeds from sale of real estate owned 41 75 614 79 --
------- ------- -------- -------- --------
Net cash used in investing activities (3,030) (6,149) (18,587) (11,914) (22,483)
</TABLE>
- --------------------------------------------------------------------------------
(Continued)
F-6
<PAGE>
1ST SECURITY FEDERAL SAVINGS BANK AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 1996, 1995, and 1994
Four months ended April 30, 1997 and 1996 (Unaudited)
(Dollars in thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(Unaudited)
April 30, December 31,
------------------ --------------------------------
1997 1996 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Cash flows from financing activities
Net change in deposits $ (516) $ 3,372 $ 10,137 $ 13,568 $ 11,931
Net change in advance payments
by borrowers for taxes and insurance (532) (369) 437 (342) 428
Change in advances from Federal
Home Loan Bank 3,500 (7,000) (6,000) 7,000 2,000
------- -------- -------- -------- --------
Net cash provided by
(used in) financing activities 2,452 (3,997) 4,574 20,226 14,359
------- -------- -------- -------- --------
Net change in cash and cash equivalents (196) (8,783) (11,873) 12,373 (4,564)
Cash and cash equivalents at
beginning of period 7,300 19,173 19,173 6,800 11,364
------- -------- -------- -------- --------
Cash and cash equivalents at
end of period $ 7,104 $ 10,390 $ 7,300 $ 19,173 $ 6,800
======= ======== ======== ======== ========
Supplemental disclosures of
cash flow information
Cash paid during the period for
Interest $ 2,755 $ 2,773 $ 9,498 $ 8,510 $ 6,352
Income taxes 218 451 1,497 1,620 1,658
Schedule of noncash investing
and financing activities
Transfer of securities from
held-to-maturity to available-
for-sale -- -- -- 20,158 --
Real estate acquired in settlement
of loans -- -- 140 276 --
Purchase of branch savings bank
Fair value of assets acquired $ 13,965
Cash received 8,308
--------
Liabilities assumed $ 22,273
========
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
F-7
<PAGE>
1ST SECURITY FEDERAL SAVINGS BANK AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996, 1995, and 1994
April 30, 1997 and 1996 (Unaudited)
(Table amounts in thousands)
- --------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation and Nature of Business: The consolidated financial
statements include the accounts of 1st Security Federal Savings Bank (Savings
Bank) and its wholly-owned subsidiary, Western Security Service Corporation.
Significant intercompany accounts and transactions have been eliminated. The
consolidated financial statements for the four-month periods ended April 30,
1997 and 1996 are unaudited, but in the opinion of management, reflect all
necessary adjustments, consisting only of normal recurring items necessary for
fair presentation. The Savings Bank's revenues primarily arise from interest
income from residential real estate loans, with operations conducted through its
main office, three branches in Cook County, and one branch in Philadelphia,
Pennsylvania.
Use of Estimates: In preparing financial statements, management must make
estimates and assumptions. These estimates and assumptions affect the amounts
reported for assets, liabilities, income, and expenses, as well as affecting the
disclosures provided. Actual results could differ from the current estimates.
The collectibility of loans, fair values of financial instruments, and status of
contingencies are particularly subject to change.
Securities: Securities are classified as held-to-maturity when the Savings Bank
has the positive intent and ability to hold those securities to maturity.
Accordingly, they are stated at cost, adjusted for amortization of premiums and
accretion of discounts. All other securities are classified as
available-for-sale since the Savings Bank may decide to sell those securities in
response to changes in market interest rates, liquidity needs, changes in yields
or alternative investments, and for other reasons. These securities are carried
at market value with unrealized gains and losses charged or credited, net of
income taxes, to a valuation allowance included as a separate component of
retained earnings. Realized gains and losses on disposition are based on the net
proceeds and the adjusted carrying amounts of the securities sold, using the
specific identification method.
Real Estate Owned: Real estate owned represents property obtained through
foreclosure or in settlement of debt obligations and is carried at the lower of
cost (fair value at date of foreclosure) or fair value less estimated selling
expenses. Valuation allowances are recognized when the fair value less selling
expenses is less than the cost of the asset. Changes in the valuation allowance
are charged or credited to income.
Allowance for Loan Losses: Because some loans may not be repaid in full, an
allowance for loan losses is maintained. Increases to the allowance are recorded
by a provision for loan losses charged to expense. Estimating the risk of loss
and the amount of loss on any loan is necessarily subjective. Accordingly, the
valuation allowance is maintained at levels considered adequate to cover
possible losses that are currently anticipated based on delinquencies, property
appraisals,
- --------------------------------------------------------------------------------
(Continued)
F-8
<PAGE>
1ST SECURITY FEDERAL SAVINGS BANK AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996, 1995, and 1994
April 30, 1997 and 1996 (Unaudited)
(Table amounts in thousands)
- --------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
past loss experience, general economic conditions, information about specific
borrower situations including their financial position, and other factors and
estimates which are subject to change over time. While management may
periodically allocate portions of the allowance for specific problem loan
situations, including impaired loans discussed below, the whole allowance is
available for any charge-offs that occur. Loans are charged off in whole or in
part when management's estimate of the undiscounted cash flows from the loan are
less than the recorded investment in the loan, although collection efforts
continue and future recoveries may occur.
Statement of Financial Accounting Standards (SFAS) No. 114, as amended by SFAS
No. 118, was adopted at January 1, 1995. Under these statements, loans
considered to be impaired are reduced to the present value of expected future
cash flows or to the fair value of collateral, by allocating a portion of the
allowance for loan losses to such loans. If these allocations cause the
allowance for loan losses to require increase, such increase is reported as a
provision for loan losses. The adoption of this statement did not have a
material effect on the financial statements.
Smaller balance homogenous loans are defined as residential first mortgage loans
secured by one-to-four family residences, residential construction loans, and
share loans and are evaluated collectively for impairment. Commercial real
estate loans are evaluated individually for impairment. Normal loan evaluation
procedures, as described in the second preceding paragraph, are used to identify
loans which must be evaluated for impairment. In general, loans classified as
doubtful or loss are considered impaired while loans classified as substandard
are individually evaluated for impairment. Depending on the relative size of the
credit relationship, late or insufficient payments of 30 to 90 days will cause
management to reevaluate the credit under its normal loan evaluation procedures.
While the factors which identify a credit for consideration for measurement of
impairment, or nonaccrual, are similar, the measurement considerations differ. A
loan is impaired when the economic value estimated to be received is less than
the value implied in the original credit agreement. A loan is placed on
nonaccrual when payments are more than 90 days past due unless the loan is
adequately collateralized and in the process of collection. Although impaired
loan and nonaccrual loan balances are measured differently, impaired loan
disclosures under SFAS Nos. 114 and 118 are not expected to differ significantly
from nonaccrual and renegotiated loan disclosures.
- --------------------------------------------------------------------------------
(Continued)
F-9
<PAGE>
1ST SECURITY FEDERAL SAVINGS BANK AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996, 1995, and 1994
April 30, 1997 and 1996 (Unaudited)
(Table amounts in thousands)
- --------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Recognition of Income on Loans: Interest on real estate and certain consumer
loans is accrued over the term of the loans based upon the principal balance
outstanding. Where serious doubt exists as to the collectibility of a loan, the
accrual of interest is discontinued. Under SFAS No. 114 as amended by SFAS No.
118, the carrying values of impaired loans are periodically adjusted to reflect
cash payments, revised estimates of future cash flows, and increases in the
present value of expected cash flows due to the passage of time. Cash payments
representing interest income are reported as such. Other cash payments are
reported as reductions in carrying value, while increases or decreases due to
changes in estimates of future payments and due to the passage of time are
reported as adjustments to the allowance for loan losses. If these adjustments
cause the allowance for loan losses to require adjustment, such adjustment is
reported as an adjustment to the provision for loan losses.
Loan fees, net of direct loan origination costs, are deferred and amortized over
the contractual life of the loan as a yield adjustment.
Premises and Equipment: Premises and equipment are stated at cost less
accumulated depreciation. Depreciation is computed using the straight-line
method over the estimated useful lives of the respective premises and equipment.
Maintenance and repairs are charged to expense as incurred and improvements
which extend the useful lives of assets are capitalized.
Income Taxes: The provision for income taxes is based on an asset and liability
approach in accordance with SFAS No. 109. The asset and liability approach
requires the recognition of deferred tax assets and liabilities for the expected
future tax consequences of temporary differences between the carrying amounts
and the tax bases of assets and liabilities.
Statement of Cash Flows: Cash and cash equivalents include cash on hand, amounts
due from banks, and daily federal funds sold. The Savings Bank reports net cash
flows for customer loan transactions, deposit transactions, and time deposits in
other financial institutions.
Reclassifications: Certain prior period items have been reclassified to conform
to the current period's presentation.
- --------------------------------------------------------------------------------
(Continued)
F-10
<PAGE>
1ST SECURITY FEDERAL SAVINGS BANK AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996, 1995, and 1994
April 30, 1997 and 1996 (Unaudited)
(Table amounts in thousands)
- --------------------------------------------------------------------------------
NOTE 2 - SECURITIES
The Bank's securities are as follows:
<TABLE>
<CAPTION>
(Unaudited)
April 30, 1997
-----------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
<S> <C> <C> <C> <C>
Securities available-for-sale
U.S. government and agencies $ 3,249 $ 87 $ (15) $ 3,321
Mutual funds 5,775 -- (177) 5,598
------- ----- -------- -------
9,024 87 (192) 8,919
Mortgage-backed securities
Federal Home Loan Mortgage Corporation 8,615 8 (223) 8,400
Government National Mortgage Association 3,272 27 (22) 3,277
Federal National Mortgage Association 6,363 11 (177) 6,197
Collateralized mortgage obligations 713 29 -- 742
------- ----- -------- -------
18,963 75 (422) 18,616
------- ----- -------- -------
$27,987 $ 162 $ (614) $27,535
======= ===== ======== =======
Securities held-to-maturity
U.S. government agencies $22,801 $ 1 $ (404) $22,398
States and political subdivisions 5,207 87 (73) 5,221
Corporate notes 251 -- -- 251
------- ----- -------- -------
28,259 88 (477) 27,870
Mortgage-backed securities
Federal Home Loan Mortgage Corporation 5,655 59 (158) 5,556
Government National Mortgage Association 8,896 102 (80) 8,918
Federal National Mortgage Association 3,016 17 (85) 2,948
Collateralized mortgage obligations 4,822 -- (107) 4,715
------- ----- -------- -------
22,389 178 (430) 22,137
------- ----- -------- -------
$50,648 $ 266 $ (907) $50,007
======= ===== ======== =======
</TABLE>
- --------------------------------------------------------------------------------
(Continued)
F-11
<PAGE>
1ST SECURITY FEDERAL SAVINGS BANK AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996, 1995, and 1994
April 30, 1997 and 1996 (Unaudited)
(Table amounts in thousands)
- --------------------------------------------------------------------------------
NOTE 2 - SECURITIES (Continued)
<TABLE>
<CAPTION>
December 31, 1996
-----------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
<S> <C> <C> <C> <C>
Securities available-for-sale
U.S. government and agencies $ 3,245 $ 105 $ -- $ 3,350
Mutual funds 5,776 32 (163) 5,645
Other equity investments 2 -- -- 2
------- ----- -------- -------
9,023 137 (163) 8,997
Mortgage-backed securities
Federal Home Loan Mortgage Corporation 9,238 16 (269) 8,985
Government National Mortgage Association 3,399 39 (13) 3,425
Federal National Mortgage Association 6,685 14 (127) 6,572
Collateralized mortgage obligations 713 32 -- 745
------- ----- -------- -------
20,035 101 (409) 19,727
------- ----- -------- -------
$29,058 $ 238 $ (572) $28,724
======= ===== ======== =======
Securities held-to-maturity
U.S. government agencies $20,320 $ 41 $ (81) $20,280
States and political subdivisions 5,208 150 (15) 5,343
Corporate notes 251 -- -- 251
------- ----- -------- -------
25,779 191 (96) 25,874
Mortgage-backed securities
Federal Home Loan Mortgage Corporation 6,280 89 (190) 6,179
Government National Mortgage Association 9,226 142 (43) 9,325
Federal National Mortgage Association 3,294 19 (42) 3,271
Collateralized mortgage obligations 5,309 -- (77) 5,232
------- ----- -------- -------
24,109 250 (352) 24,007
------- ----- -------- -------
$49,888 $ 441 $ (448) $49,881
======= ===== ======== =======
</TABLE>
- --------------------------------------------------------------------------------
(Continued)
F-12
<PAGE>
1ST SECURITY FEDERAL SAVINGS BANK AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996, 1995, and 1994
April 30, 1997 and 1996 (Unaudited)
(Table amounts in thousands)
- --------------------------------------------------------------------------------
NOTE 2 - SECURITIES (Continued)
On December 29, 1995, the Savings Bank reclassified a portion of its
held-to-maturity securities to available-for-sale in accordance with "A Guide to
Implementation of Statement No. 115 on Accounting for Certain Investments in
Debt and Equity Securities" in order to improve the Savings Bank's flexibility
in meeting liquidity needs. The amortized cost and unrealized gain on securities
transferred to available-for-sale were $20,157,729 and $113,950, respectively.
<TABLE>
<CAPTION>
December 31, 1995
-----------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
<S> <C> <C> <C> <C>
Securities available-for-sale
U.S. government and agencies $ 7,743 $ 195 $ (2) $ 7,936
Mutual funds 5,776 42 (81) 5,737
Other equity investments 70 -- -- 70
------- ----- -------- -------
13,589 237 (83) 13,743
Mortgage-backed securities
Federal Home Loan Mortgage Corporation 10,101 17 (126) 9,992
Government National Mortgage Association 2,901 44 (21) 2,924
Federal National Mortgage Association 6,436 18 (71) 6,383
Collateralized mortgage obligations 720 25 -- 745
------- ----- -------- -------
20,158 104 (218) 20,044
------- ----- -------- -------
$33,747 $ 341 $ (301) $33,787
======= ===== ======== =======
Securities held-to-maturity
U.S. government agencies $15,446 $ 93 $ (20) $15,519
States and political subdivisions 4,768 207 (5) 4,970
Corporate notes 352 1 -- 353
------- ----- -------- -------
20,566 301 (25) 20,842
Mortgage-backed securities
Federal Home Loan Mortgage Corporation 9,806 258 (283) 9,781
Government National Mortgage Association 5,142 233 (28) 5,347
Federal National Mortgage Association 4,526 35 (47) 4,514
Collateralized mortgage obligations 5,646 20 (35) 5,631
------- ----- -------- -------
25,120 546 (393) 25,273
------- ----- -------- -------
$45,686 $ 847 $ (418) $46,115
======= ===== ======== =======
</TABLE>
- --------------------------------------------------------------------------------
(Continued)
F-13
<PAGE>
1ST SECURITY FEDERAL SAVINGS BANK AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996, 1995, and 1994
April 30, 1997 and 1996 (Unaudited)
(Table amounts in thousands)
- --------------------------------------------------------------------------------
NOTE 2 - SECURITIES (Continued)
There were no sales of securities during the four months ended April 30, 1997
(unaudited) or during 1996. The Savings Bank recognized a gain of $4,447 on the
sale of one security available for sale during 1995. Call premiums on debt
securities of $55,376 and $19,625 were recognized by the Savings Bank during
1996 and 1995, respectively.
The carrying values and fair values of debt securities, by contractual maturity,
are shown below. Expected maturities will differ from contractual maturities
because borrowers may have the right to call or prepay obligations with or
without call or prepayment penalties.
<TABLE>
<CAPTION>
(Unaudited)
April 30, 1997 December 31, 1996
-------------------- --------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
---- ----- ---- -----
<S> <C> <C> <C> <C>
Securities available-for-sale
Due in one year or less $ 999 $ 1,002 $ 997 $ 1,007
Due after one year through five years 1,991 1,977 1,989 1,989
Due after ten years 259 342 259 354
------- ------- ------- -------
3,249 3,321 3,245 3,350
Mutual funds 5,775 5,598 5,776 5,645
Other equity investments -- -- 2 2
Mortgage-backed securities
and collateralized mortgage obligations 18,963 18,616 20,035 19,727
------- ------- ------- -------
24,738 24,214 25,813 25,374
------- ------- ------- -------
$27,987 $27,535 $29,058 $28,724
======= ======= ======= =======
Securities held-to-maturity
Due in one year or less $ 351 $ 353 $ 351 $ 356
Due after one year through five years 5,944 5,784 3,244 3,273
Due after five years through ten years 15,472 15,395 14,289 14,353
Due after ten years 6,492 6,338 7,895 7,892
------- ------- ------- -------
28,259 27,870 25,779 25,874
Mortgage-backed securities and
collateralized mortgage obligations 22,389 22,137 24,109 24,007
------- ------- ------- -------
$50,648 $50,007 $49,888 $49,881
======= ======= ======= =======
</TABLE>
There was one security in the amount of $250,000 pledged to secure government
deposits at December 31, 1996. There were no securities pledged at December 31,
1995.
- --------------------------------------------------------------------------------
(Continued)
F-14
<PAGE>
1ST SECURITY FEDERAL SAVINGS BANK AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996, 1995, and 1994
April 30, 1997 and 1996 (Unaudited)
(Table amounts in thousands)
- --------------------------------------------------------------------------------
NOTE 3 - LOANS RECEIVABLE
Loans receivable consisted of the following:
<TABLE>
<CAPTION>
(Unaudited) December 31,
April 30, -----------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
First mortgage loans, including loans purchased
Secured by one-to-four-family residences $ 137,479 $ 134,971 $ 117,379
Secured by multifamily residences 9,708 9,374 7,926
Secured by commercial real estate 15,425 15,651 15,127
--------- --------- ---------
162,612 159,996 140,432
Home equity loans 4,006 3,431 3,684
Less
Net deferred loan origination fees (1,472) (1,470) (1,550)
--------- --------- ---------
Total mortgage loans 165,146 161,957 142,566
Consumer and other loans
Automobile 72 74 110
Share loans 1,182 1,174 1,570
Improvement 10 12 29
Loans secured by leases 839 1,272 759
Other 351 395 445
--------- --------- ---------
2,454 2,927 2,913
Less unearned discounts (20) (16) (28)
--------- --------- ---------
Total consumer and other loans 2,434 2,911 2,885
Less allowance for loan losses (1,666) (1,520) (885)
--------- --------- ---------
$ 165,914 $ 163,348 $ 144,566
========= ========= =========
</TABLE>
The principal balance of loans on nonaccrual status at April 30, 1997
approximated $9,000 (unaudited). The principal balance of loans on nonaccrual
status at December 31, 1996 and 1995 approximated $9,000 in both years. The
Savings Bank maintains an allowance for uncollected interest for mortgage loans
with payments past due. The allowance was approximately $94,000 (unaudited),
$93,000 and $89,000 at April 30, 1997, and December 31, 1996 and 1995,
respectively.
- --------------------------------------------------------------------------------
(Continued)
F-15
<PAGE>
1ST SECURITY FEDERAL SAVINGS BANK AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996, 1995, and 1994
April 30, 1997 and 1996 (Unaudited)
(Table amounts in thousands)
- --------------------------------------------------------------------------------
NOTE 4 - ALLOWANCE FOR LOAN LOSSES
Activity in the allowance for loan losses is summarized as follows:
(Unaudited)
April 30, December 31,
----------------- -------------------------
1997 1996 1996 1995 1994
---- ---- ---- ---- ----
Balance, beginning of period $ 1,520 $ 885 $ 885 $ 792 $608
Provision for loan losses 574 42 706 136 182
Net (charge-offs) recoveries (428) (50) (71) (43) 2
------- ----- ------- ----- ----
Balance, end of period $ 1,666 $ 877 $ 1,520 $ 885 $792
======= ===== ======= ===== ====
Information regarding impaired loans is as follows:
(Unaudited)
For the For the
Four Months Year
Ended Ended
April 30, December 31,
1997 1996
---- ----
Average investment in impaired loans $1,055 $1,087
Interest income recognized on impaired loans
including interest income recognized on cash basis -- 11
Interest income recognized on impaired loans on
cash basis -- 11
April 30, December 31,
1997 1996
---- ----
Balance of impaired loans $ 839 $1,272
Less portion for which no allowance for loan
Losses is allocated -- --
------ ------
Portion of impaired loan balance for which an
allowance for credit losses is allocated $ 839 $1,272
====== ======
Portion of allowance for loan losses allocated
to the impaired loan balance $ 420 $ 318
====== ======
There were no impaired loans at December 31, 1995.
- --------------------------------------------------------------------------------
(Continued)
F-16
<PAGE>
1ST SECURITY FEDERAL SAVINGS BANK AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996, 1995, and 1994
April 30, 1997 and 1996 (Unaudited)
(Table amounts in thousands)
- --------------------------------------------------------------------------------
NOTE 5 - PREMISES AND EQUIPMENT
Premises and equipment consisted of the following:
(Unaudited) December 31,
April 30, --------------------
1997 1996 1995
---- ---- ----
Land $ 545 $ 545 $ 545
Buildings and improvements 3,609 3,620 3,528
Furniture and equipment 1,920 1,894 1,796
Real estate acquired for future expansion 377 377 377
------- ------- -------
Total cost 6,451 6,436 6,246
Less accumulated depreciation (2,606) (2,513) (2,240)
------- ------- -------
$ 3,845 $ 3,923 $ 4,006
======= ======= =======
NOTE 6 - INTANGIBLE ASSETS
Intangible assets, which arose from the Savings Bank's acquisition of assets and
assumption of liabilities from the Resolution Trust Corporation consisted of the
following:
(Unaudited) December 31,
April 30, --------------------
1997 1996 1995
---- ---- ----
Excess of purchase price over net
assets acquired $ 156 $ 156 $ 156
Core deposit intangible assets 377 377 377
----- 533 533
Less accumulated amortization (201) (181) (114)
----- ----- -----
Intangible assets, net $ 332 $ 352 $ 419
===== ===== =====
The excess of purchase price over net assets acquired is being amortized over
fifteen years in relation to the remaining lives of the long-term earning assets
acquired. Amortization charged to expense was $3,467 in the four months ended
April 30, 1997 and 1996 (unaudited). Amortization charged to expense was
$10,400, $10,430, and $5,255 in the years ended December 31, 1996, 1995, and
1994, respectively.
- --------------------------------------------------------------------------------
(Continued)
F-17
<PAGE>
1ST SECURITY FEDERAL SAVINGS BANK AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996, 1995, and 1994
April 30, 1997 and 1996 (Unaudited)
(Table amounts in thousands)
- --------------------------------------------------------------------------------
NOTE 6 - INTANGIBLE ASSETS (Continued)
The core deposit intangible assets were determined in consideration of the value
of non-interest-bearing demand, NOW, savings, and money market deposit accounts
assumed. The valuation method estimated annual cash flow differentials of the
core deposit interest and handling costs of alternative funds sources, such as
certificates of deposit, and then discounted such cash flow differentials to
their present value. The core deposit intangible asset is being amortized over
ten years on an accelerated method. Amortization charged to expense in the four
months ended April 30, 1997 and 1996 was $17,001 and $18,833, respectively
(unaudited). Amortization charged to expense in the years ended December 31,
1996, 1995, and 1994 was $56,500, $64,000, and $34,000, respectively.
NOTE 7 - DEPOSITS
Certificate of deposit accounts with balances of $100,000 or more totaled
$31,639,423 (unaudited), $39,439,746 and $33,879,449 at April 30, 1997, December
31, 1996 and December 31, 1995, respectively. Deposits greater than $100,000 are
not insured.
At April 30, 1997 (unaudited), the scheduled maturities of certificates of
deposit are as follows:
April 30, 1998 $102,164
April 30, 1999 10,295
April 30, 2000 7,972
April 30, 2001 2,734
April 30, 2002 and thereafter 4,977
--------
$128,142
========
At December 31, 1996, the scheduled maturities of certificates of deposit are as
follows:
December 31, 1997 $105,026
December 31, 1998 11,166
December 31, 1999 3,240
December 31, 2000 5,645
December 31, 2001 and thereafter 3,645
--------
$128,722
========
- --------------------------------------------------------------------------------
(Continued)
F-18
<PAGE>
1ST SECURITY FEDERAL SAVINGS BANK AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996, 1995, and 1994
April 30, 1997 and 1996 (Unaudited)
(Table amounts in thousands)
- --------------------------------------------------------------------------------
NOTE 8 - ADVANCES FROM FEDERAL HOME LOAN BANK
Advances from the Federal Home Loan Bank of Chicago were as follows:
Principal Balance
-------------------------------
Contractual Frequency (Unaudited) December 31,
Maturity Interest of Rate April 30, ------------------
Date Rate Adjustment 1997 1996 1995
---- ---- ---------- ---- ---- ----
March 17, 1996 5.72% Fixed $ -- $ -- $ 1,000
February 11, 1997 4.80 Fixed -- 2,000 2,000
March 18, 1997 5.51 Fixed -- 1,000 --
June 17, 1997 5.56 Fixed 2,500 -- --
February 11, 1998 5.88 Fixed 2,000 -- --
March 20, 1998 5.91 Fixed 1,000 1,000 --
February 21, 2000 5.48 Fixed 1,000 -- --
February 21, 2000 6.08 Fixed 1,000 -- --
Open line 5.31 Daily -- -- 7,000
------ ------ -------
$7,500 $4,000 $10,000
====== ====== =======
The Savings Bank maintains a collateral pledge agreement covering secured
advances whereby the Savings Bank has agreed to at all times keep on hand, free
of all other pledges, liens, and encumbrances, whole first mortgage loans on
improved residential property not more than 90 days delinquent, aggregating no
less than 167% of the outstanding secured advances from the Federal Home Loan
Bank of Chicago.
NOTE 9 - INCOME TAXES
An analysis of the provision for income taxes is as follows:
(Unaudited)
For the Four Months Ended For the Years Ended
April 30, December 31,
------------- ------------------------------
1997 1996 1996 1995 1994
---- ---- ---- ---- ----
Current
Federal $380 $482 $ 1,132 $1,377 $1,372
State 76 121 211 248 241
Deferred 24 -- (1,117) 135 212
Valuation allowance -- -- 180 -- --
---- ---- ------- ------ ------
$480 $603 $ 406 $1,760 $1,825
==== ==== ======= ====== ======
- --------------------------------------------------------------------------------
(Continued)
F-19
<PAGE>
1ST SECURITY FEDERAL SAVINGS BANK AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996, 1995, and 1994
April 30, 1997 and 1996 (Unaudited)
(Table amounts in thousands)
- --------------------------------------------------------------------------------
NOTE 9 - INCOME TAXES (Continued)
The net deferred tax asset (liability) included in the accompanying balance
sheets consist of the following:
(Unaudited) December 31,
April 30, ------------------
1997 1996 1995
---- ---- ----
Deferred tax assets
Bad debts $ 72 $ 42 $ --
Amortization of intangible assets 39 36 23
Contribution carryforward 772 851 --
Unrealized loss on securities
available-for-sale 177 130 --
------- ------- -----
1,060 1,059 23
Deferred tax liabilities
Bad debts -- -- (208)
Depreciation (97) (102) (117)
FHLB stock dividend (65) (65) (65)
Loan fees (323) (340) (328)
Unrealized gain on securities
available-for-sale -- -- (16)
------- ------- -----
(485) (507) (734)
Valuation allowance on deferred tax assets (180) (180) --
------- ------- -----
Total deferred tax asset (liability) $ 395 $ 372 $(711)
======= ======= =====
The valuation allowance at April 30, 1997 and December 31, 1996 reflects
management's estimate of temporary deductible differences that may not be
realized.
- --------------------------------------------------------------------------------
(Continued)
F-20
<PAGE>
1ST SECURITY FEDERAL SAVINGS BANK AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996, 1995, and 1994
April 30, 1997 and 1996 (Unaudited)
(Table amounts in thousands)
- --------------------------------------------------------------------------------
NOTE 9 - INCOME TAXES (Continued)
The difference between the provision for income taxes shown on the consolidated
statements of income and amounts computed by applying the statutory federal
income tax rate to income before taxes follows:
<TABLE>
<CAPTION>
(Unaudited)
For the Four Months Ended
April 30,
---------------------------------------
1997 1996
---------------- ----------------
<S> <C> <C> <C> <C>
Provision for federal income taxes computed
at statutory rate of 34% $ 422 34.0% $ 542 34.0%
Tax-exempt income (30) (2.4) (30) (1.9)
State income taxes, net of federal income tax benefit 72 5.8 77 4.8
Other 16 1.3 14 1.0
----- ---- ----- ----
$ 480 38.7% $ 603 37.9%
===== ==== ===== ====
</TABLE>
<TABLE>
<CAPTION>
For the Years Ended
December 31,
--------------------------------------------------------------
1 9 9 6 1 9 9 5 1 9 9 4
----------------- ------------------- -------------------
<S> <C> <C> <C> <C> <C> <C>
Provision for federal income
taxes computed at statutory
rate of 34% $ 292 34.0% $ 1,684 34.0% $ 1,785 34.0%
Tax-exempt income (85) (9.9) (2.1) (120) (2.3)
State income taxes, net of
federal income tax benefit 37 4.3 197 4.0 204 3.9
Other (18) (2.1) (19) (.4) (44) (.8)
Valuation allowance 180 21.0 -- -- -- --
----- ---- ------- ---- ------- ----
$ 406 47.3% $ 1,760 35.5% $ 1,825 34.8%
===== ==== ======= ==== ======= ====
</TABLE>
The Savings Bank has qualified under provisions of the Internal Revenue Code
which permit it to deduct from taxable income a provision for bad debts which
differs from the provision charged to income on the financial statements.
Retained earnings at April 30, 1997 (unaudited) and December 31, 1996 and 1995
include approximately $2,023,000 for which no deferred federal income tax
liability has been recorded. Tax legislation passed August 1996 now requires all
thrift institutions to deduct a provision for bad debts for tax purposes based
on actual loss experience and recapture the excess bad debt reserve accumulated
in the tax years after 1987. The related amount of deferred tax liability which
must be recaptured is $573,000 and is payable over a six-year period, starting
no later than 1998.
- --------------------------------------------------------------------------------
(Continued)
F-21
<PAGE>
1ST SECURITY FEDERAL SAVINGS BANK AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996, 1995, and 1994
April 30, 1997 and 1996 (Unaudited)
(Table amounts in thousands)
- --------------------------------------------------------------------------------
NOTE 10 - COMMITMENTS AND CONTINGENCIES
The Savings Bank is party to financial instruments with off-balance-sheet risk
in the normal course of business to meet financing needs of its customers. These
financial instruments include commitments to fund loans and previously approved
unused lines of credit. The Savings Bank's exposure to credit loss in the event
of nonperformance by the parties to these financial instruments is represented
by the contractual amount of the instruments. The Savings Bank uses the same
credit policy for commitments as it uses for on-balance-sheet items. The
contract amount of these financial instruments is summarized as follows:
(Unaudited) December 31,
April 30, ------------------
1997 1996 1995
---- ---- ----
Commitments to extend credit $3,322 $1,802 $1,542
Unused lines of credit 4,371 4,186 2,498
At April 30, 1997 (unaudited) and December 31, 1996, commitments to extend
credit consist of $2,673,000 and $1,253,000 of fixed rate and $649,000 and
$549,000 of variable rate loan commitments. The fixed rate loan commitments have
rates ranging from 7.375% to 8.875%. These commitments are due to expire within
90 days of issuance. Since many commitments expire without being used, the
amounts above do not necessarily represent future cash commitments. Collateral
may be obtained upon exercise of a commitment. The amount of collateral is
determined by management and may include commercial and residential real estate
and other business and consumer assets.
The Savings Bank's principal loan customers are located in Chicago, Illinois and
Philadelphia, Pennsylvania. Most loans are secured by specific collateral,
including residential and commercial real estate.
The deposits of savings institutions are presently insured by the Savings
Association Insurance Fund (SAIF), which, along with the Bank Insurance Fund
(BIF), is one of the two insurance funds administered by the Federal Deposit
Insurance Corporation (FDIC). Due to the inadequate capitalization of the SAIF,
a recapitalization plan was signed into law on September 30, 1996 which required
a special assessment of approximately .65% of all SAIF-insured deposit balances
as of March 31, 1995. The Bank's assessment of $1,292,882 is reflected in the
1996 statement of income.
The Savings Bank established The Heritage Foundation of First Security Federal
Savings Bank, Inc. (the Foundation) in December 1996. The Foundation is a
not-for-profit charitable foundation. In 1996, the Board approved a $2,500,000
unconditional contribution to the Foundation, of which $250,000 was paid in
1996. An additional $1,850,000 was funded through April 30, 1997. The remaining
$400,000 (unaudited) is included in other liabilities in the balance sheet at
April 30, 1997.
- --------------------------------------------------------------------------------
(Continued)
F-22
<PAGE>
1ST SECURITY FEDERAL SAVINGS BANK AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996, 1995, and 1994
April 30, 1997 and 1996 (Unaudited)
(Table amounts in thousands)
- --------------------------------------------------------------------------------
NOTE 11 - REGULATORY MATTERS
The Savings Bank is subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet minimum capital
requirements can initiate certain mandatory, and possibly additional
discretionary, actions by regulators that, if undertaken, could have a direct
material effect on the Savings Bank's financial statements. Under capital
adequacy guidelines and the regulatory framework for prompt corrective action,
the Savings Bank must meet specific capital guidelines that involve quantitative
measures of the Savings Bank's assets, liabilities, and certain
off-balance-sheet items as calculated under regulatory accounting practices. The
Savings Bank's capital amounts and classifications are also subject to
qualitative judgments by the regulators about components, risk weightings, and
other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Savings Bank to maintain minimum amounts and ratios (set forth in
the table below) of Total and Tier I capital (as defined in the regulations) to
risk-weighted assets (as defined), and of Tier I capital (as defined) to average
assets (as defined). Management believes, as of April 30, 1997, that the Savings
Bank meets all capital adequacy requirements to which it is subject.
As of April 30, 1997, the most recent notification from the Office of Thrift
Supervision categorized the Savings Bank as well capitalized under the
regulatory framework for prompt corrective action. To be categorized as well
capitalized, the Savings Bank must maintain minimum Total risk-based, Tier I
risk-based, and Tier I leverage ratios as set forth in the following table.
There are no conditions or events since that notification that management
believes have changed the Savings Bank's category.
The Savings Bank's actual capital amounts and ratios are also presented in the
table.
<TABLE>
<CAPTION>
To be Well Capitalized
For Capital Under Prompt Corrective
Actual Adequacy Purposes Action Provisions
--------------- ----------------- -----------------------
(Unaudited) Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
As of April 30, 1997:
Total capital (to
risk-weighted assets) $31,492 24.7% $10,186 8.0% $12,733 10.0%
Tier I Capital (to risk-
weighted assets) 29,468 23.1 5,093 4.0 7,640 6.0
Tier I Capital (to
average assets) 29,468 11.4 10,377 4.0 12,971 5.0
</TABLE>
- --------------------------------------------------------------------------------
(Continued)
F-23
<PAGE>
1ST SECURITY FEDERAL SAVINGS BANK AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996, 1995, and 1994
April 30, 1997 and 1996 (Unaudited)
(Table amounts in thousands)
- --------------------------------------------------------------------------------
NOTE 11 - REGULATORY MATTERS (Continued)
<TABLE>
<CAPTION>
To be Well Capitalized
For Capital Under Prompt Corrective
Actual Adequacy Purposes Action Provisions
--------------- ----------------- -----------------------
(Unaudited) Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
As of April 30, 1997:
Total capital (to
risk-weighted assets) $30,556 24.3% $10,045 8.0% $12,556 10.0%
Tier I Capital (to risk-
weighted assets) 29,036 23.1 5,022 4.0 7,534 6.0
Tier I Capital (to
average assets) 29,036 11.4 10,193 4.0 12,742 5.0
</TABLE>
NOTE 12 - RELATED PARTY TRANSACTIONS
The Savings Bank has lending transactions with directors, executive officers,
and their associates. Loans to these individuals totaled approximately $48,000
(unaudited), $50,511 and $316,000 at April 30, 1997, December 31, 1996 and
December 31, 1995, respectively.
NOTE 13 - FAIR VALUES OF FINANCIAL INSTRUMENTS
The approximate carrying amount and estimated fair value of financial
instruments are as follows:
<TABLE>
<CAPTION>
(Unaudited) December 31,
April 30, -------------------------------------------------------
1 9 9 7 1 9 9 6 1 9 9 5
------------------------ ------------------------- -------------------------
Approximate Estimated Approximate Estimated Approximate Estimated
Carrying Fair Carrying Fair Carrying Fair
Amount Value Amount Value Amount Value
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Financial assets
Cash and cash equivalents $ 7,104 $ 7,104 $ 7,300 $ 7,300 $ 19,173 $ 19,173
Time deposits in other
financial institutions 200 200 200 200 200 200
Securities available-for-sale 27,535 27,535 28,724 28,724 33,787 33,787
Securities held-to-maturity 50,648 50,007 49,888 49,881 45,686 46,115
Loans, net of allowance for
loan losses 165,914 169,903 163,348 165,738 144,566 148,670
Accrued interest receivable 1,949 1,949 1,764 1,764 1,616 1,616
Financial liabilities
NOW accounts (19,642) (19,642) (19,616) (19,616) (18,874) (18,874)
Savings (71,203) (71,203) (71,167) (71,167) (69,631) (69,631)
Time deposits (128,142) (128,594) (128,722) (128,805) (120,882) (121,032)
Advance payments by borrowers
for taxes and insurance (1,586) (1,586) (2,118) (2,118) (1,681) (1,681)
Advances from Federal
Home Loan Bank (7,500) (7,489) (4,000) (3,995) (10,000) (9,852)
Accrued interest payable (998) (998) (533) (533) (537) (537)
</TABLE>
- --------------------------------------------------------------------------------
(Continued)
F-24
<PAGE>
1ST SECURITY FEDERAL SAVINGS BANK AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996, 1995, and 1994
April 30, 1997 and 1996 (Unaudited)
(Table amounts in thousands)
- --------------------------------------------------------------------------------
NOTE 13 - FAIR VALUES OF FINANCIAL INSTRUMENTS (Continued)
For purposes of the above, the following assumptions were used:
Cash and Cash Equivalents: The fair value for cash and cash equivalents is based
on their carrying value due to the short-term nature of these assets.
Securities: The fair value of securities is based on the quoted market value for
the individual security or its equivalent.
Loans: The fair value for loans has been determined by calculating the present
value of future cash flows based on the current rate the Savings Bank would
charge for similar loans with similar maturities at April 30, 1997, December 31,
1996 and December 31, 1995, applied for an estimated time period until the loan
is assumed to be repriced or repaid.
Deposit Liabilities: The fair value for time deposits has been determined by
calculating the present value of future cash flows based on estimates of rates
the Savings Bank would pay on such deposits at April 30, 1997, December 31, 1996
and December 31, 1995, applied for the time period until maturity. The estimated
fair value of NOW and savings accounts is assumed to approximate carrying value
as management establishes rates on these deposits at a level that approximates
the local market area.
Advances from Federal Home Loan Bank: The fair value for the Federal Home Loan
Bank advances was determined by calculating the present value of future cash
flows using the current rate for an advance with a similar length to maturity.
Accrued Interest: The fair value of accrued interest receivable and payable is
assumed to equal the carrying value.
Off-Balance-Sheet Instruments: Off-balance-sheet items consist principally of
unfunded loan commitments. The fair value of these commitments is not material.
Other assets and liabilities of the Savings Bank not defined as financial
instruments, such as property and equipment, are not included in the above
disclosures. Also not included are nonfinancial instruments typically not
recognized in financial statements such as the value of core deposits, loan
servicing rights, customer goodwill, and similar items.
While the above estimates are based on judgments of the most appropriate
factors, there is no assurance that if the Savings Bank disposed of these items
on April 30, 1997, December 31, 1996 and December 31, 1995, the fair value would
have been achieved, because the market value may differ depending on the
circumstances. The fair values at April 30, 1997, December 31, 1996 and December
31, 1995 should not necessarily be considered to apply at subsequent dates.
- --------------------------------------------------------------------------------
(Continued)
F-25
<PAGE>
1ST SECURITY FEDERAL SAVINGS BANK AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996, 1995, and 1994
April 30, 1997 and 1996 (Unaudited)
(Table amounts in thousands)
- --------------------------------------------------------------------------------
NOTE 14 - ADOPTION OF PLAN OF CONVERSION (UNAUDITED)
On June 23, 1997, the Board of Directors of the Savings Bank, subject to
regulatory approval and approval by the members of the Savings Bank, adopted a
Plan of Conversion to convert from a federal mutual savings bank to a federal
stock savings bank with the concurrent formation of a holding company and the
adoption of a federal thrift charter. The conversion is expected to be
accomplished through the amendment of the Savings Bank's charter and the sale of
the holding company's common stock in an amount equal to the consolidated pro
forma market value of the holding company and the Savings Bank after giving
effect to the conversion. A subscription offering of the shares of common stock
will be offered initially to the Savings Bank's eligible deposit account
holders, then to other members of the Savings Bank. Any shares of the holding
company's common stock not sold in the subscription offering will be offered for
sale to the general public, giving preference to the Savings Bank's market area.
The Board of Directors of the Savings Bank or the holding company intend to
adopt an Employee Stock Ownership Plan and various stock option and incentive
plans, subject to ratification by the stockholders of the holding company after
conversion, if such stockholder approval is required by any regulatory body
having jurisdiction to require such approval. In addition, the Board of
Directors is authorized to enter into employment contracts with key employees.
At the time of conversion, the Savings Bank will establish a liquidation account
in an amount equal to its total net worth as of the latest statement of
financial condition appearing in the final prospectus. The liquidation account
will be maintained for the benefit of eligible depositors who continue to
maintain their accounts at the Savings Bank after the conversion. The
liquidation account will be reduced annually to the extent that eligible
depositors have reduced their qualifying deposits. Subsequent increases will not
restore an eligible account holder's interest in the liquidation account. In the
event of a complete liquidation, each eligible depositor will be entitled to
receive a distribution from the liquidation account in an amount proportionate
to the current adjusted qualifying balances for accounts then held. The
liquidation account balance is not available for payment of dividends.
Conversion costs will be deferred and deducted from the proceeds of the shares
sold in the conversion. If the conversion is not completed, all costs will be
charged to expense. At April 30, 1997, no expenses have been deferred.
- --------------------------------------------------------------------------------
<PAGE>
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 Holding
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 qualified to do
so, or to any person to whom it is unlawful to make such offer or solicitation
in such jurisdiction. Neither the delivery of this Prospectus nor any sale
hereunder shall under any circumstances create any implication that there has
been no change in the affairs of the Holding 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............................ 18
Risk Factors.............................................. 21
First SecurityFed Financial, Inc.......................... 29
First Security ........................................... 29
Use of Proceeds........................................... 30
Dividends................................................. 31
Market for Common Stock................................... 32
Pro Forma Data............................................ 33
Comparison of Valuation and Pro Forma Information
With No Stock Contribution............................... 38
Pro Forma Regulatory Capital Analysis..................... 40
Capitalization............................................ 41
Management's Discussion and Analysis of Financial
Condition and Results of Operations.................... 42
Business ................................................. 55
Regulation................................................ 85
Management ............................................... 97
The Conversion............................................ 107
Restrictions on Acquisitions of Stock and Related
Takeover Defensive Provisions.......................... 135
Description of Capital Stock.............................. 141
Legal and Tax Matters..................................... 143
Experts................................................... 143
Additional Information.................................... 144
Index to Financial Statements............................. F-1
----------
Until the later of ________, 1997 or 25 days after commencement of the
offering of Common Stock, all dealers effecting transactions in the registered
securities, whether or not participating in this distribution, may be required
to deliver a prospectus. This is in addition to the obligation of dealers to
deliver a prospectus when acting as underwriters and with respect to their
unsold allotments or subscriptions.
<PAGE>
_______ Shares
FIRST SECURITYFED FINANCIAL, INC.
(Proposed Holding Company
for First Security Federal Savings Bank)
COMMON STOCK
----------
PROSPECTUS
----------
FRIEDMAN, BILLINGS, RAMSEY & CO., INC.
_______, 1997
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
Set forth below is an estimate of the amount of fees and expenses (other
than underwriting discounts and commissions) to be incurred in connection with
the issuance of the shares.
SEC registration fees............................................... $ 17,258
NASD fee............................................................ 6,200
Nasdaq registration fee............................................. 32,000
OTS filing fees..................................................... 14,400
Counsel fees and expenses........................................... 135,000
Accounting fees and expenses........................................ 80,000
Appraisal and business plan fees and expenses....................... 25,000
Conversion agent fees and expenses.................................. 17,000
Marketing agent's expenses.......................................... 25,000
Marketing agent's fee............................................... 365,000
Marketing agent's counsel fees and expenses......................... 37,500
Printing, postage and mailing....................................... 120,000
Blue sky fees and expenses.......................................... 5,000
Other expenses...................................................... 25,642
--------
TOTAL.......................................................... $905,000
========
- ---------
(1) Based on maximum of Estimated Valuation Range and assumptions set forth
under "Pro Forma Data" in the Prospectus.
Item 14. Indemnification of Directors and Officers
Article Eleventh of the Holding Company's Certificate of Incorporation
provides for indemnification of directors and officers of the Holding Company
against any and all liabilities, judgments, fines and reasonable settlements,
costs, expenses and attorneys' fees incurred in any actual, threatened or
potential proceeding, except to the extent that such indemnification is limited
by Delaware law and such law cannot be varied by contract or bylaw. Article
Eleventh also provides for the authority to purchase insurance with respect
thereto.
Section 145 of the General Corporation Law of the State of Delaware
authorizes a corporation's Board of Directors to grant indemnity under certain
circumstances to directors and officers, when made, or threatened to be made,
parties to certain proceedings by reason of such
II-1
<PAGE>
status with the corporation, against judgments, fines, settlements and expenses,
including attorneys' fees. In addition, under certain circumstances such persons
may be indemnified against expenses actually and reasonably incurred in defense
of a proceeding by or on behalf of the corporation. Similarly, the corporation,
under certain circumstances, is authorized to indemnify directors and officers
of other corporations or enterprises who are serving as such at the request of
the corporation, when such persons are made, or threatened to be made, parties
to certain proceedings by reason of such status, against judgments, fines,
settlements and expenses, including attorneys' fees; and under certain
circumstances, such persons may be indemnified against expenses actually and
reasonably incurred in connection with the defense or settlement of a proceeding
by or in the right of such other corporation or enterprise. Indemnification is
permitted where such person (i) was acting in good faith; (ii) was acting in a
manner he reasonably believed to be in or not opposed to the best interests of
the corporation or other corporation or enterprise, as appropriate; (iii) with
respect to a criminal proceeding, has no reasonable cause to believe his conduct
was unlawful; and (iv) was not adjudged to be liable to the corporation or other
corporation or enterprise (unless the court where the proceeding was brought
determines that such person is fairly and reasonably entitled to indemnity).
Unless ordered by a court, indemnification may be made only following a
determination that such indemnification is permissible because the person being
indemnified has met the requisite standard of conduct. Such determination may be
made (i) by the Board of Directors of the Holding Company by a majority vote of
a quorum consisting of directors not at the time parties to such proceeding; or
(ii) if such a quorum cannot be obtained or the quorum so directs, then by
independent legal counsel in a written opinion; or (iii) by the stockholders.
Section 145 also permits expenses incurred by directors and officers in
defending a proceeding to be paid by the corporation in advance of the final
disposition of such proceedings upon the receipt of an undertaking by the
director or officer to repay such amount if it is ultimately determined that he
is not entitled to be indemnified by the corporation against such expenses.
Item 15. Recent Sales of Unregistered Securities
The Registrant is newly incorporated, solely for the purpose of acting as
the holding company of First Security Federal Savings Bank pursuant to the Plan
of Conversion (filed as Exhibit 2 herein), and no sales of its securities have
occurred to date, other than the sale of one share of the Registrant's stock to
its incorporator for the purpose of qualifying the Registrant to do business in
Illinois.
II-2
<PAGE>
Item 16. Exhibits and Financial Statement Schedules
(a) Exhibits:
1.1 Letter Agreement regarding marketing and consulting services
with Friedman, Billings, Ramsey & Co., Inc.
1.2 Form of Agency Agreement*
2 Plan of Conversion
3.1 Certificate of Incorporation of the Holding Company
3.2 Bylaws of the Holding Company
3.3 Charter of First Security Federal Savings Bank in stock form
3.4 Bylaws of First Security Federal Savings Bank in stock form
4 Form of Stock Certificate of the Holding Company
5 Opinion of Silver, Freedman & Taff, L.L.P. with respect to legality
of stock
8.1 Opinion of Silver, Freedman & Taff, L.L.P. with respect to Federal
income tax consequences of the Conversion
8.2 Opinion of Crowe, Chizek and Company LLP with respect to Illinois
income tax consequences of the Conversion*
8.3 FinPro Letter with respect to estimated pro forma market value and
Subscription Rights
10.1 Employee Stock Ownership Plan
10.2 Form of Proposed Stock Option and Incentive Plan
10.3 Form of Proposed Recognition and Retention Plan
10.4 Profit Sharing Plan*
10.5 Form of Employment Agreement with Julian E. Kulas
10.6 Form of Change-In-Control Severance Agreement with Harry I. Kucewicz
10.7 Form of Change-In-Control Severance Agreement with Mary H. Korb
10.8 Form of Change-In-Control Severance Agreement with Irene S. Subota
10.9 Form of Change-In-Control Severance Agreement with Adrian Hawryliw
21 Subsidiaries
23.1 Consent of Silver, Freedman & Taff, L.L.P.
23.2 Consent of Crowe, Chizek and Company LLP
23.3 Consent of FinPro
24 Power of Attorney (set forth on signature page)
99.1 Appraisal*
99.2 Proxy Statement and form of proxy to be furnished to First Security
Federal Savings Bank account holders
99.3 Stock Order Form and Order Form Instructions
99.4 Question and Answer Brochure
99.5 Advertising, Training and Community Informational Meeting Materials
- ----------
* To be filed by amendment.
II-3
<PAGE>
Item 17. Undertakings
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(i) To include any Prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the Prospectus any facts or events arising after the
effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set
forth in the Registration Statement; and
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement
or any material change to such information in the Registration
Statement.
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
Registration Statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and it will be governed by the final adjudication
of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant
II-4
<PAGE>
to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to
be part of this Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new Registration Statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized in the City of Chicago, State of Illinois
on July 15, 1997.
FIRST SECURITYFED FINANCIAL, INC.
By: /s/ Julian E. Kulas
---------------------------------------------------
Julian E. Kulas, President, Chief Executive Officer
and Director
(Duly Authorized Representative)
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Julian E. Kulas, his true and lawful
attorney-in-fact and agent, with full power of substitution and re-substitution,
for him and in his name, place and stead, in any and all capacities, to sign any
and all amendments (including post-effective amendments) to this Registration
Statement, and to file the same, with all exhibits thereto, and all other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorney-in-fact and agent full power and authority to do and
perform each and every act and thing requisite and necessary to be done, as
fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all said attorney-in-fact and agent or his substitutes
or substitute may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
/s/ Julian E. Kulas /s/ Steve Babyk
- -------------------------------------- ----------------------------
Julian E. Kulas Steve Babyk
President, Chief Executive Officer and Director
Director
(Principal Executive Officer)
Date: July 15, 1997 Date: July 15, 1997
/s/ Lila Maria Bodnar /s/ Myron Dobrowolsky
- -------------------------------------- ----------------------------
Lila Maria Bodnar Myron Dobrowolsky
Recording Secretary and Director Director
Date: July 15, 1997 Date: July 15, 1997
II-6
<PAGE>
/s/ Terry Gawryk /s/ George Kawka
- -------------------------------------- ----------------------------
Terry Gawryk George Kawka
Secretary and Director Director
Date: July 15, 1997 Date: July 15, 1997
/s/ Paul Nadzikewycz /s/ Jaroslay H. Sydorenko
- -------------------------------------- ----------------------------
Paul Nadzikewycz Jaroslav H. Sydorenko
Chairman of the Board Director
Date: July 15, 1997 Date: July 15, 1997
/s/ Chrysta Wereszczak
- --------------------------------------
Chrysta Wereszczak
Director
Date: July 15, 1997
II-7
<PAGE>
EXHIBIT INDEX
Exhibits:
1.1 Letter Agreement regarding marketing and consulting services with
Friedman, Billings, Ramsey & Co., Inc.
1.2 Form of Agency Agreement*
2 Plan of Conversion
3.1 Certificate of Incorporation of the Holding Company
3.2 Bylaws of the Holding Company
3.3 Charter of First Security Federal Savings Bank in stock form
3.4 Bylaws of First Security Federal Savings Bank in stock form
4 Form of Stock Certificate of the Holding Company
5 Opinion of Silver, Freedman & Taff, L.L.P. with respect to legality
of stock
8.1 Opinion of Silver, Freedman & Taff, L.L.P. with respect to Federal
income tax consequences of the Conversion
8.2 Opinion of Crowe, Chizek and Company LLP with respect to Illinois
income tax consequences of the Conversion*
8.3 FinPro Letter with respect to estimated pro forma market value and
Subscription Rights
10.1 Employee Stock Ownership Plan
10.2 Form of Proposed Stock Option and Incentive Plan
10.3 Form of Proposed Recognition and Retention Plan
10.4 Profit Sharing Plan*
10.5 Form of Employment Agreement with Julian E. Kulas
10.6 Form of Change-In-Control Severance Agreement with Harry I. Kucewicz
10.7 Form of Change-In-Control Severance Agreement with Mary H. Korb
10.8 Form of Change-In-Control Severance Agreement with Irene S. Subota
10.9 Form of Change-In-Control Severance Agreement with Adrian Hawryliw
21 Subsidiaries
23.1 Consent of Silver, Freedman & Taff, L.L.P.
23.2 Consent of Crowe, Chizek and Company LLP
23.3 Consent of FinPro
24 Power of Attorney (set forth on signature page)
99.1 Appraisal*
99.2 Proxy Statement and form of proxy to be furnished to First Security
Federal Savings Bank account holders
99.3 Stock Order Form and Order Form Instructions
99.4 Question and Answer Brochure
99.5 Advertising, Training and Community Informational Meeting Materials
- ----------
* To be filed by amendment.
Exhibit 1.1
May 29, 1997
Board of Directors
Attn.: Julian E. Kulas, President & CEO
First Security Federal Savings Bank, FSB
936 North Western Avenue
Chicago, IL 60622
RE: Conversion Stock Marketing Services
Ladies and Gentlemen:
This letter sets forth the terms of the proposed engagement between Friedman,
Billings, Ramsey and Co., Inc. ("FBR") and First Security Federal Savings Bank,
FSB ("First Security"), concerning our Investment Banking Services in connection
with the Reorganization of First Security from a federally chartered mutual
savings bank to a holding company form of organization, and the sale of stock in
First Security's newly formed holding company (the "Holding Company"). FBR
understands that it is the intention of First Security to remain an independent
company after the completion of the Offering (as defined below). However, First
Security acknowledges that FBR does not control, and cannot guarantee, the level
of concentration of ownership of stock of First Security after completion of the
Offering.
FBR is prepared to assist First Security in connection with the offering of its
shares of common stock during the Subscription Offering and Community Offering
as such terms are defined in First Security's Plan of Conversion (together, the
"Offering"). The specific terms (including those related to indemnification) of
the services contemplated hereunder shall be set forth in a definitive sales
agency agreement (the "Agreement") between FBR and First Security to be executed
prior to the date the prospectus is declared effective by the appropriate
regulatory authorities. The price of the shares during the Subscription Offering
and Community Offering will be the price established by First Security's Board
of Directors, based upon an independent appraisal as approved by the appropriate
regulatory authorities, provided such price is mutually acceptable to FBR and
First Security.
In connection with the Subscription Offering and Community Offering, FBR will
render the following services:
1. Act as the Financial Advisor to First Security 2. Create marketing
materials and formulate a marketing plan 3. Conduct training for all
Directors and Employees concerning the Conversion 4. Manage Stock Center
and staff with FBR personnel 5. Assist First Security and Attorneys with
listing on NASDAQ
<PAGE>
6. Assist First Security with the proxy solicitation
After the Offering, FBR intends to provide:
1. After market support as a Market Maker for First Security
2. Research coverage of First Security
3. For a period of twelve months following the completion of the
conversion, FBR will continue to act as Financial Advisor for First
Security without further remuneration.
At the appropriate time, FBR, in conjunction with its counsel, will conduct an
examination of the relevant documents and records of First Security as FBR deems
necessary and appropriate. First Security will make all documents, records and
other information deemed necessary by FBR or its counsel available to them upon
request.
For its services in connection with the Offering, FBR will receive the following
compensation and reimbursement from First Security:
1. A management fee of $20,000 payable as follows: $10,000 upon the
signing of this letter and $10,000 upon receiving OTS approval of the
Conversion Application. Should the Reorganization be terminated for
any reason not attributable to the action or inaction of FBR, FBR
shall have earned and be entitled to be paid fees accruing through the
stage at which point the termination occurred.
2. A marketing fee of 1.0% of the aggregate Purchase Price of Common
Stock sold in the Subscription Offering and Community Offering,
excluding those shares purchased (i) by First Security officers,
directors, or employees (or members of their immediate families), or
(ii) by any ESOP, tax-qualified or stock compensation plans (except
IRA's) or similar plan created by First Security for some or all of
its directors or employees or (iii) by any charitable foundation
created by First Security or the Holding Company. The management fee
of $20,000 will be credited against the marketing fee.
3. The foregoing commissions are to be payable to FBR at closing as
defined in the Agreement to be entered into between FBR and First
Security.
4. FBR shall be reimbursed for reasonable expenses incurred by them,
including legal fees. Legal fees for FBR's outside counsel shall not
exceed $35,000 and out-of-pocket expenses incurred by FBR's outside
counsel shall not exceed $2,500. FBR's other out-of-pocket expenses
are not expected to exceed $50,000. Should FBR's expenses, excluding
legal fees and out-of-pocket expenses incurred by FBR's outside
counsel, exceed $50,000, First Security must approve such expenses
above that amount for FBR to be reimbursed. FBR's reasonable expenses,
including both legal fees and other out-
<PAGE>
of-pocket expenses, shall be reimbursed as described above whether or
not the Agreement is consummated.
It is further understood that First Security will pay all other expenses of the
Reorganization including but not limited to its attorneys' fees, NASD filing
fees, filing and registration fees and fees of either FBR's blue sky attorneys
or other blue sky attorneys relating to any required state securities law
filings, telephone charges, air freight, supplies, transfer agent charges, fees
relating to auditing and accounting and costs of printing all documents
necessary in connection with the foregoing. FBR agrees that either Robert A.
Kotecki or David H. Neiswander will be on-site every day First Security is open
for business (including Saturdays) managing the stock offering center during the
marketing period of First Security's stock.
For purposes of FBR's obligation to file certain documents and to make certain
representations to the NASD in connection with the Reorganization, First
Security warrants that: (a) First Security has not privately placed any
securities within the last 18 months; (b) there have been no material dealings
within the last 12 months between First Security and any NASD member or any
person related to or associated with any such member; (c) none of the officers
or directors of First Security has any affiliation with the NASD; (d) except as
contemplated by this engagement letter with FBR, First Security has no financial
or management consulting contracts outstanding with any other person; (e) First
Security has not granted FBR a right of first refusal with respect to the
underwriting of any future offering of First Security stock; and (f) there has
been no intermediary between FBR and First Security in connection with the
public offering of First Security shares, and no person is being compensated in
any manner for providing such service.
First Security and the Holding Company (the "Indemnitors") jointly and severally
agree to indemnify and hold harmless FBR and its affiliates (as defined in Rule
405 under the Securities Act of 1933, as amended) and their respective
directors, officers, employees, agents and controlling persons (FBR and each
such person being an "Indemnified Party") from and against any and all losses,
claims, damages and liabilities (or actions, including shareholder actions, in
respect thereof), joint or several, to which such Indemnified Party may become
subject under any applicable federal or state law, or otherwise, which are
reasonably related to or result from the performance by FBR of the services
contemplated by, or the engagement of FBR pursuant to, this letter agreement and
will promptly reimburse any Indemnified Party for all reasonable expenses
(including reasonable counsel fees and expenses) as they are incurred in
connection with the investigation of, preparation for or defense arising
therefrom, whether or not such Indemnified Party is a party and whether or not
such claim, action or proceeding is initiated or brought by the Indemnitors. The
Indemnitors will not be liable to any Indemnified Party under the foregoing
indemnification and reimbursement provisions, (i) for any settlement by an
Indemnified Party effected without its prior written consent; (ii) to the extent
that any loss, claim, damage or liability is found in a final judgment by a
court to have resulted primarily from FBR's gross negligence or willful
misconduct; (iii) to the extent any loss, claim, damage or liability is based on
a false or misleading oral statement by an FBR employee or representative which
is not consistent with the Holding Company's prospectus or marketing materials
or (iv) to the extent any loss, claim, damage or liability is based on false or
misleading statements, based on information originally supplied by FBR expressly
for the use in SEC filed documents. FBR shall repay to the Indemnitors any
amounts paid by the Indemnitors for reimbursement of FBR's expenses in the event
that such expenses were incurred in relation to an act or omission with respect
to which it is finally determined that FBR has acted with gross
<PAGE>
negligence or willful misconduct. The Indemnitors also agree that no Indemnified
Party shall have any liability (whether direct or indirect, in contract or tort
or otherwise) to the Indemnitors or their security holders or creditors related
to or arising out of the engagement of FBR pursuant to, or the performance by
FBR of the services contemplated by, this letter agreement except to the extent
that any loss, claim, damage or liability is found in a final judgment by a
court to have resulted from FBR's gross negligence or willful misconduct.
Promptly after receipt by an Indemnified Party of notice of any intention or
threat to commence an action, suit or proceeding or notice of the commencement
of any action, suit or proceeding, such Indemnified Party will, if a claim in
respect thereof is to be made against First Security pursuant hereto, promptly
notify First Security in writing of the same. In case any such action is brought
against any Indemnified Party and such Indemnified Party notifies First Security
of the commencement thereof, First Security may elect to assume the defense
thereof, with counsel reasonably satisfactory to such Indemnified Party, and an
Indemnified Party may retain counsel to participate in the defense of any such
action, provided, however, that in no event shall First Security be required to
pay fees and expenses for more than one firm of attorneys representing
Indemnified Parties.
If the indemnification provided for in this letter agreement is for any reason
held unenforceable by an Indemnified Party, the Indemnitors agree to contribute
to the losses, claims, damages and liabilities for which such indemnification is
held unenforceable (i) in such proportion as is appropriate to reflect the
relative benefits to the Indemnitors, on the one hand, and FBR on the other
hand, of the Transaction as completed (whether or not the Transaction is
consummated) or, (ii) if (but only if) the allocation provided for in clause (i)
is for any reason unenforceable, in such proportion as is appropriate to reflect
not only the relative benefits referred to in clause (i) but also the relative
fault of the Indemnitors, on the one hand, and FBR, on the other hand, as well
as any other relevant equitable considerations. Each of the parties hereto (on
its own behalf and, to the extent permitted by applicable law, on behalf of its
stockholders) waives all right to trial by jury in any action, proceeding or
counteraction (whether based upon contract, or otherwise) related to or arising
out of our engagement pursuant to, or the performance by us of the services
contemplated by, this Letter Agreement.
Notwithstanding any provision in this letter to the contrary, First Security
shall not provide indemnification or contribution as contemplated under the
terms of this letter if such indemnification or contribution would cause First
Security to violate the provisions of Section 23A or 23B of the Federal Reserve
Act.
This letter is merely a statement of intent and is not a binding legal agreement
except as to (4) above (with regard to the obligation to reimburse FBR for
reasonable expenses to be incurred prior to the execution of the Agreement), and
the indemnity described above. While FBR and First Security agree in principle
to the contents hereof and the purpose to proceed promptly, and in good faith,
to work out the arrangements with respect to the proposed Offering, any legal
obligations between FBR and First Security shall be only as set forth in a duly
executed Agreement. Such Agreement shall be in the form and content satisfactory
to, among other things, there being in FBR's opinion no material adverse change
in the condition or obligations of First Security or no market conditions which
might render the Offering by First Security inadvisable.
<PAGE>
The validity and interpretation of this Agreement shall be governed by,
construed and enforced in accordance with, the laws of the Commonwealth of
Virginia, applicable to agreements made and to be fully performed therein
(excluding the conflicts of laws rules).
Please acknowledge your agreement to the foregoing by signing below and
returning to FBR one copy of this letter along with a payment of $10,000. This
proposal is open for your acceptance for a period of thirty (30) days from the
date hereof.
Very truly yours,
FRIEDMAN, BILLINGS, RAMSEY & CO., INC.
By: /s/ Robert A. Kotecki
------------------------
Robert A. Kotecki
Title: Senior Vice President
Date:
Agreed and Accepted to this 29th day of May, 1997.
First Security Federal Savings Bank, FSB
On behalf of First Security and on behalf of the Holding Company to be formed
By: /s/ Julian E. Kulas
------------------------
Julian E. Kulas
Title: President/CEO
Ratified and approved this 29th day of May, 1997.
On behalf of the Holding Company
By: /s/ Julian E. Kulas
------------------------
Julian E. Kulas
Title: President/CEO
Exhibit 2
First Security Federal Savings Bank
Chicago, Illinois
AMENDED PLAN OF CONVERSION
From Mutual to Stock Form of Organization
I. GENERAL
On June 23, 1997, the Board of Directors of First Security Federal
Savings Bank (the "Bank") adopted and on the same day the Board amended this a
Plan of Conversion whereby the Bank would convert from a mutual savings
institution to a stock savings institution. The Plan includes, as part of the
conversion, the concurrent formation of a holding company, to be named in the
future. 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 Holding Company
and 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 or a Public 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.
In furtherance of the Bank's long term commitment to its community, the
Plan provides that, in connection with the Conversion, the Holding Company will
make a donation to The Heritage Foundation of First Security Federal Savings
Bank, Inc., a charitable foundation originally established by the Bank, of
250,000 shares of its stock. Under the terms of the Plan, this donation will be
subject to the approval of the voting members of the Bank. In the event that the
donation is not approved, the Bank may determine to complete the Conversion
without the donation.
II. DEFINITIONS
Acting in Concert: The term "acting in concert" shall have the same
meaning given it in '574.2(c) of the Rules and Regulations of the OTS.
Actual Subscription Price: The price per share, determined as provided
in Section V 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
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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 V hereof.
Bank: First Security Federal Savings Bank or such other name as the
institution may adopt.
Conversion: 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.
Converted Bank: The federally chartered stock savings institution
resulting from the Conversion of the Bank in accordance with the Plan.
Deposit Account: Any withdrawable or repurchasable account or deposit
in the Bank.
Direct Community Offering: The offering to the general public of any
unsubscribed shares which may be effected as provided in Section V hereof.
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.
Foundation: The Heritage Foundation of First Security Federal Savings
Bank.
Holding Company: A corporation which upon completion of the Conversion
will own all of the outstanding common stock of the Converted Bank, and the
name of which will be selected in the future.
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.
Local Community: The geographic area encompassing Cook County, Illinois
and Philadelphia County, Pennsylvania.
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,
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<PAGE>
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, and its
successors.
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 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.
Public Offering: The offering for sale through the Underwriters to
selected members of the general public of any shares of Holding Company
Conversion Stock not subscribed for in the Subscription Offering or the Direct
Community Offering, if any.
Public Offering Price: The price per share at which any unsubscribed
shares of Holding Company Conversion Stock are initially offered for sale in the
Public Offering.
Qualifying Deposit: The aggregate balance of $50 or more 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.
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<PAGE>
Subscription Offering: The offering of shares of Holding Company
Conversion Stock for subscription and purchase pursuant to Section V 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 to subscribe for shares of Holding Company Conversion Stock in the
Subscription Offering.
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.
Underwriters: The investment banking firm or firms agreeing to offer
and sell Holding Company Conversion Stock in the Public Offering.
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 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 to be prepared and filed with the OTS, an Application on Form
H-(e)1 (or other applicable form) to be prepared and filed with the OTS and
a Registration Statement on Form S-1 to be prepared and filed with the SEC.
E. Upon receipt of notice from the OTS to do so, the Bank shall notify its
Members that it has filed the Application for Approval of Conversion by
posting notice in each of its offices and by publishing notice in a
newspaper having general circulation in each community in which the Bank
maintains an office.
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<PAGE>
IV. CONVERSION PROCEDURE
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
Offering, also offer the Holding Company Conversion Stock to and accept
subscriptions from other Persons in a Direct Community Offering or a Public
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 V 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 and Direct Community Offering
will be not less than 20 days nor more than 45 days unless extended by the Bank.
Upon completion of the Subscription Offering and the Direct Community Offering,
if any, any unsubscribed shares of Holding Company Conversion Stock may be sold
through the Underwriters to selected members of the general public in the Public
Offering. If for any reason all of the shares are not sold in the Subscription
Offering, the Direct Community Offering, if any, and the Public Offering, if
any, the Holding Company and the Bank will use their best efforts to obtain
other purchasers, subject to OTS approval. Completion of the sale of all shares
of Holding Company Conversion Stock not sold in the Subscription 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. 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 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.
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<PAGE>
The aggregate price for which all shares of Holding Company
Conversion Stock will be issued 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, following completion of the Subscription Offering and
Direct Community Offering, if any, a Public Offering is effected,
the Actual Subscription Price for each share of Holding Company
Conversion Stock will be the same as the Public Offering Price at
which unsubscribed shares of Holding Company Conversion Stock are
initially offered for sale by the Underwriters in the Public
Offering.
If, upon completion of the Subscription Offering, Public
Offering, if any, and Direct Community Offering, if any, all of
the Holding Company Conversion Stock is subscribed for or only a
limited number of shares remain unsubscribed for, subject to Part
VII hereof, 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 Holding Company Conversion Stock, by
the total number of shares of Holding Company Conversion Stock to
be issued 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 $250,000, or one-tenth of one
percent (.10%) of the total offering of shares, 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
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<PAGE>
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 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 $250,000, or one-tenth of one
percent (.10%) of the total offering of shares, or 15 times
the product (rounded down to the next whole number)
obtained by multiplying the total number of shares of
common stock to be issued by a fraction of which the
numerator is the amount of the qualifying deposit of the
Supplemental Eligible Account Holder and the denominator is
the total amount of 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.
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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 $250,000, or
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.
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 20% 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 $250,000 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. Public Offering and Direct Community Offering
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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 may involve
an offering of all unsubscribed shares directly to the
general public with a preference to those natural persons
residing in the Local Community. The Direct Community
Offering, if any, shall be for a period of not less than 20
days nor 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 Holding Company Conversion
Stock will be offered and sold in the Direct Community
Offering, if any, 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 $250,000 of Holding
Company Conversion Stock in the Direct Community Offering,
if any. Further, the Bank may limit total subscriptions
under this Section V.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 Direct 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 Local
Community, then to cover the orders of any other person
subscribing for shares in the Community Offering so that
each such person may receive 1,000 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 V.C. Further, the Bank and the
Holding Company may, at their sole discretion, elect to
forego a Direct Community Offering and instead effect a
Public Offering as described below.
2. Any shares of Holding Company Conversion Stock not sold in
the Subscription Offering or in the Direct Community
Offering, if any, may then be sold through the Underwriters
to selected members of the general public in the Public
Offering. It is expected that the Public Offering will
commence as soon as practicable after termination of the
Subscription Offering and the Direct Community Offering, if
any. The Bank and the Holding Company, in their sole
discretion, may reject any subscription, in whole or in
part, received in the Public Offering. The Public Offering
shall be completed within 45 days after the termination of
the Subscription Offering, unless such period is extended as
provided in Section IV hereof. No person, by himself or
herself, or with an Associate or group of Persons acting in
concert, may purchase more than $250,000 in the Public
Offering, if any.
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3. If for any reason any shares remain unsold after the
Subscription Offering, the Public Offering, if any, and the
Direct Community Offering, if any, 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 an amount of shares
equal to $750,000. 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.
2. Directors and Officers and their Associates may not purchase
in all categories in the Conversion an aggregate of more
than 30% 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 Conversion shall not exceed, in
the aggregate, 10% of the shares being offered in the
Conversion. 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 V.
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 V, 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.
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Each Person purchasing 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
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. Except as permitted by
applicable regulations, 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. A
repurchase of qualifying shares of a director shall not be
deemed to be a repurchase for purposes of this Section
V.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
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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 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 or waived subsequent to regulatory approval
of the Plan.
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 acknowledgement 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
(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
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<PAGE>
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 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
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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.
VI. 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. The name of
the Bank, as converted, will be "First Security Federal Savings
Bank." 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.
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.
VII. ESTABLISHMENT AND FUNDING OF CHARITABLE FOUNDATION
As part of the Conversion, and notwithstanding any other statement herein
to the contrary, the Holding Company intends to issue 250,000 shares of its
Common Stock from its authorized but unissued shares to the Heritage Foundation
of First Security Federal Savings Bank, Inc., a charitable organization
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created under Section 501(c)(3) of the Internal Revenue Code (the "Foundation").
Such issuance (the "Contribution") shall be in the form of either a direct
contribution or a sale for the aggregate amount of their par value. The
Contribution is being made in connection with the Conversion in order to
complement the Bank's existing community reinvestment activities and to support
the communities in which the Bank operates. The Contribution is expected to be
completed not later than twelve months after the completion of the Conversion.
The Foundation is dedicated to the promotion of charitable purposes within
the communities in which the Bank operates, including, but not limited to,
grants or donations to support not-for-profit medical facilities, cultural
activities, community groups and other types of organizations or projects. As a
private Foundation, the Foundation is required to distribute annually in grants
or donations at least 5% of its net investment assets.
The authority for the affairs of the Foundation is vested in the Board of
Trustees of the Foundation, none of whom may vote as directors of the Bank or
the Holding Company on the Donation.
The Contribution is subject to the approval of a majority of the total
outstanding votes of the Bank's members eligible to be cast at the Special
Meeting. The Contribution will be considered as a separate matter from approval
of the Plan of Conversion. If the Bank's members approve the Plan of Conversion,
but not the Contribution, the Bank intends to complete the Conversion without
the Contribution. Failure to approve the Contribution may materially increase
the pro forma market value of the Common Stock being offered since the estimated
valuation range takes into account the after-tax impact of the Donation. If such
an event occurs, the Bank would be required to resolicit subscribers. For
comparison purposes, voting members will be provided with a projection of the
pro forma market value of the Conversion Stock, an estimated price range and
certain selected pro forma data that would result if the Conversion were
consummated without the Contribution.
VIII. HOLDING COMPANY CERTIFICATE OF INCORPORATION
A copy of the proposed certificate of incorporation of the Holding Company
will be made available to members 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 Conversion will thereupon become a director of the Converted
Bank.
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 soon as permitted by applicable regulation.
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
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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 Conversion, the Holding Company will register its
stock with the SEC pursuant to the Exchange Act. In connection with the
registration, the Holding Company will undertake not to deregister such stock,
without the approval of the OTS, for a period of three years thereafter.
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. The Holding Company will also use its best
efforts to cause its common stock to be quoted on the National Association of
Securities Dealers, Inc. Automated Quotations System or to be listed on a
national or regional securities exchange.
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
Conversion. All Deposit Accounts will continue to be insured by the SAIF 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 and/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 and/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. For Deposit Accounts in existence at both dates,
separate subaccounts shall be determined on the basis of the Qualifying Deposits
in such Deposit Accounts on such record dates. Such initial subaccount balance
shall not be increased, and it shall be subject to downward adjustment as
provided below.
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If the deposit balance in any 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 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 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 SAIF, shall be considered
to be a complete liquidation. In such transactions, the liquidation account
shall be assumed by the surviving institution.
XV. RESTRICTIONS ON ACQUISITION OF CONVERTED BANK
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.
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. In the event
that the Bank determines that for tax purposes or otherwise it is in the best
interest of the Bank to convert from a federal mutual to a federal stock
institution without the concurrent formation of a holding company, the Plan may
be substantively amended, with OTS approval, in such respects as the Board of
Directors of the Bank deems appropriate to reflect such change from a holding
company conversion to a direct conversion. In the event the Plan is so amended,
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common stock of the Bank will be substituted for Holding Company Conversion
Stock in the Subscription, Direct Community or Public Offerings, and subscribers
will be resolicited as described in Section V hereof. Any amendments to the Plan
(including amendments to reflect the elimination of the concurrent holding
company formation) 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 federal taxation, and either a ruling of the
Illinois taxation authorities or an opinion of tax counsel or other tax advisor
with respect to Illinois 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 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.
P-19
Exhibit 3.1
CERTIFICATE OF INCORPORATION
OF
FIRST SECURITYFED FINANCIAL, INC.
FIRST: The name of the Corporation is First SecurityFed Financial, Inc.
(hereinafter sometimes referred to as the "Corporation").
SECOND: The address of the registered office of the Corporation in the
State of Delaware is Corporation Trust Center, 1209 Orange Street, in the City
of Wilmington, County of New Castle. The name of the registered agent at that
address is The Corporation Trust Company.
THIRD: The purpose of the Corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General Corporation
Law of Delaware.
FOURTH:
A. The total number of shares of all classes of stock which the
Corporation shall have the authority to issue is eight million five hundred
thousand (8,500,000) consisting of:
1. five hundred thousand (500,000) shares of preferred stock, par
value one cent ($.01) per share (the "Preferred Stock"); and
2. eight million (8,000,000) shares of common stock, par value
one cent ($.01) per share (the "Common Stock").
B. The Board of Directors is hereby expressly authorized, subject to
any limitations prescribed by law, to provide for the issuance of the
shares of Preferred Stock in series, and by filing a certificate pursuant
to the applicable law of the State of Delaware (such certificate being
hereinafter referred to as a "Preferred Stock Designation"), to establish
from time to time the number of shares to be included in each such series,
and to fix the designation, powers, preferences and rights of the shares of
each such series and any qualifications, limitations or restrictions
thereof. The number of authorized shares of the Preferred Stock may be
increased or decreased (but not below the number of shares thereof then
outstanding) by the affirmative vote of the holders of a majority of the
Common Stock, without a vote of the holders of the Preferred Stock, or of
any series thereof, unless a vote of any such holders is required pursuant
to the terms of any Preferred Stock Designation.
C. 1. Notwithstanding any other provision of this Certificate of
Incorporation, in no event shall any record owner of any outstanding Common
Stock which is beneficially owned, directly or indirectly, by a person who,
as of any record date for the determination of stockholders entitled to
vote on any matter, beneficially owns in excess of 10% of the
then-outstanding shares of Common Stock (the "Limit"), be entitled, or
permitted to any vote in respect of the shares held in excess of the Limit.
The number of votes which may be cast
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by any record owner by virtue of the provisions hereof in respect of Common
Stock beneficially owned by such person owning shares in excess of the Limit
shall be a number equal to the total number of votes which a single record owner
of all Common Stock owned by such person would be entitled to cast, multiplied
by a fraction, the numerator of which is the number of shares of such class or
series 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:
(a) An "affiliate" of a specified person shall mean a person
that directly, or indirectly through one or more intermediaries,
controls, or is controlled by, or is under common control with,
the person specified.
(b) "Beneficial ownership" shall be determined pursuant to
Rule 13d-3 of the General Rules and Regulations under the
Securities Exchange Act of 1934 (or any successor rule or
statutory provision), or, if said Rule 13d-3 shall be rescinded
and there shall be no successor rule or statutory provision
thereto, pursuant to said Rule 13d-3 as in effect on June 1,
1997; provided, however, that a person shall, in any event, also
be deemed the "beneficial owner" of any Common Stock:
(1) which such person or any of its affiliates
beneficially owns, directly or indirectly; or
(2) which such person or any of its affiliates has (i)
the right to acquire (whether such right is exercisable
immediately or only after the passage of time), pursuant to
any agreement, arrangement or understanding (but shall not
be deemed to be the beneficial owner of any voting shares
solely by reason of an agreement, contract, or other
arrangement with this Corporation to effect any transaction
which is described in any one or more of the clauses of
Section A of Article EIGHTH) or upon the exercise of
conversion rights, exchange rights, warrants, or options or
otherwise, or (ii) sole or shared voting or investment power
with respect thereto pursuant to any agreement, arrangement,
understanding, relationship or otherwise (but shall not be
deemed to be the beneficial owner of any voting shares
solely by reason of a revocable proxy granted for a
particular meeting of stockholders, pursuant to a public
solicitation of proxies for such meeting, with respect to
shares of which neither such person nor any such affiliate
is otherwise deemed the beneficial owner); or
(3) which are beneficially owned, directly or
indirectly, by any other person with which such first
mentioned person or any of its affiliates acts as a
partnership, limited partnership, syndicate or other group
pursuant to any agreement, arrangement or understanding for
the purpose of acquiring, holding, voting or disposing of
any shares of capital stock of this Corporation;
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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) shall, solely by reason of such capacity of such
trustee, be deemed, for any purposes hereof, to beneficially
own any Common Stock held under any such plan. For purposes
of computing the percentage beneficial ownership of Common
Stock of a person, the outstanding Common Stock shall
include shares deemed owned by such person through
application of this subsection but shall not include any
other Common Stock which may be issuable by this Corporation
pursuant to any agreement, or upon exercise of conversion
rights, warrants or options, or otherwise. For all other
purposes, the outstanding Common Stock shall include only
Common Stock then outstanding and shall not include any
Common Stock which may be issuable by this Corporation
pursuant to any agreement, or upon the exercise of
conversion rights, warrants or options, or otherwise.
(c) A "person" shall mean any individual, firm, corporation,
or other entity.
(d) The Board of Directors shall have the power to construe
and apply the provisions of this section and to make all
determinations necessary or desirable to implement such
provisions, including but not limited to matters with respect to
(1) the number of shares of Common Stock beneficially owned by
any person, (2) whether a person is an affiliate of another, (3)
whether a person has an agreement, arrangement, or understanding
with another as to the matters referred to in the definition of
beneficial ownership, (4) the application of any other definition
or operative provision of this Section to the given facts, or (5)
any other matter relating to the applicability or effect of this
Section.
3. The Board of Directors shall have the right to demand that any
person who is reasonably believed to beneficially own Common Stock in
excess of the Limit (or holds of record Common Stock beneficially
owned by any person in excess of the Limit) (a "Holder in Excess")
supply the Corporation with complete information as to (a) the record
owner(s) of all shares beneficially owned by such Holder in Excess,
and (b) any other factual matter relating to the applicability or
effect of this section as may reasonably be requested of such Holder
in Excess. The Board of Directors shall further have the right to
receive from any Holder in Excess reimbursement for all expenses
incurred by the Board in connection with its investigation of any
matters relating to the applicability or effect of this section on
such Holder in Excess, to the extent such investigation is deemed
appropriate by the Board of Directors as a result of the Holder in
Excess refusing to supply the Corporation with the information
described in the previous sentence.
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4. Except as otherwise provided by law or expressly provided in
this Section C, the presence, in person or by proxy, of the holders of
record of shares of capital stock of the Corporation entitling the
holders thereof to cast one-third of the votes (after giving effect,
if required, to the provisions of this Section) entitled to be cast by
the holders of shares of capital stock of the Corporation entitled to
vote shall constitute a quorum at all meetings of the stockholders,
and every reference in this Certificate of Incorporation to a majority
or other proportion of capital stock (or the holders thereof) for
purposes of determining any quorum requirement or any requirement for
stockholder consent or approval shall be deemed to refer to such
majority or other proportion of the votes (or the holders thereof)
then entitled to be cast in respect of such capital stock.
5. Any constructions, applications, or determinations made by the
Board of Directors, pursuant to this Section in good faith and on the
basis of such information and assistance as was then reasonably
available for such purpose, shall be conclusive and binding upon the
Corporation and its stockholders.
6. In the event any provision (or portion thereof) of this
Section C shall be found to be invalid, prohibited or unenforceable
for any reason, the remaining provisions (or portions thereof) of this
Section shall remain in full force and effect, and shall be construed
as if such invalid, prohibited or unenforceable provision had been
stricken herefrom or otherwise rendered inapplicable, it being the
intent of this Corporation and its stockholders that each such
remaining provision (or portion thereof) of this Section C remain, to
the fullest extent permitted by law, applicable and enforceable as to
all stockholders, including stockholders owning an amount of stock
over the Limit, notwithstanding any such finding.
FIFTH: The following provisions are inserted for the management of the
business and the conduct of the affairs of the Corporation, and for further
definition, limitation and regulation of the powers of the Corporation and of
its directors and stockholders:
A. The business and affairs of the Corporation shall be managed by or
under the direction of the Board of Directors. In addition to the powers
and authority expressly conferred upon them by Statute or by this
Certificate of Incorporation or the By-laws of the Corporation, the
directors are hereby empowered to exercise all such powers and do all such
acts and things as may be exercised or done by the Corporation.
B. The directors of the Corporation need not be elected by written
ballot unless the By-laws so provide.
C. Subject to the rights of holders of any class or series of
Preferred Stock, any action required or permitted to be taken by the
stockholders of the Corporation must be effected at a duly called annual or
special meeting of stockholders of the Corporation and may not be effected
by any consent in writing by such stockholders.
D. Subject to the rights of holders of any class or series of
Preferred Stock, special meetings of stockholders of the Corporation may be
called only by the Board of Directors
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<PAGE>
pursuant to a resolution adopted by a majority of the total number of
directors which the Corporation would have if there were no vacancies on
the Board of Directors (the "Whole Board").
E. Stockholders shall not be permitted to cumulate their votes for the
election of directors.
SIXTH:
A. The number of directors shall be fixed from time to time
exclusively by the Board of Directors pursuant to a resolution adopted by a
majority of the Whole Board. The directors, other than those who may be
elected by the holders of any class or series of Preferred Stock, shall be
divided into three classes, as nearly equal in number as reasonably
possible, with the term of office of the first class to expire at the
conclusion of the first annual meeting of stockholders, the term of office
of the second class to expire at the conclusion of the annual meeting of
stockholders one year thereafter and the term of office of the third class
to expire at the conclusion of the annual meeting of stockholders two years
thereafter, with each director to hold office until his or her successor
shall have been duly elected and qualified. At each annual meeting of
stockholders following such initial classification and election, directors
elected to succeed those directors whose terms expire shall be elected for
a term of office to expire at the third succeeding annual meeting of
stockholders after their election, with each director to hold office until
his or her successor shall have been duly elected and qualified.
B. Subject to the rights of the holders of any series of Preferred
Stock then outstanding, newly created directorships resulting from any
increase in the authorized number of directors or any vacancies in the
Board of Directors resulting from death, resignation, retirement,
disqualification, removal from office or other cause may be filled only by
a majority vote of the directors then in office, though less than a quorum,
and directors so chosen shall hold office for a term expiring at the annual
meeting of stockholders at which the term of office of the class to which
they have been elected expires, and until such director's successor shall
have been duly elected and qualified. No decrease in the number of
directors constituting the Board of Directors shall shorten the term of any
incumbent director.
C. Advance notice of stockholder nominations for the election of
directors and of business to be brought by stockholders before any meeting
of the stockholders of the Corporation shall be given in the manner
provided in the By-laws of the Corporation.
D. Subject to the rights of the holders of any series of Preferred
Stock then outstanding, any directors, or the entire Board of Directors,
may be removed from office at any time, but only for cause and only by the
affirmative vote of the holders of at least 80% of the voting power of all
of the then-outstanding shares of capital stock of the Corporation entitled
to vote generally in the election of directors (after giving effect to the
provisions of Article FOURTH of this Certificate of Incorporation), voting
together as a single class.
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SEVENTH: The Board of Directors is expressly empowered to adopt, amend or
repeal the By-laws of the Corporation. Any adoption, amendment or repeal of the
By-laws of the Corporation by the Board of Directors shall require the approval
of a majority of the Whole Board. The stockholders shall also have power to
adopt, amend or repeal the By-laws of the Corporation. In addition to any vote
of the holders of any class or series of stock of this Corporation required by
law or by this Certificate of Incorporation, the affirmative vote of the holders
of at least 80% of the voting power of all of the then-outstanding shares of the
capital stock of the Corporation entitled to vote generally in the election of
directors (after giving effect to the provisions of Article FOURTH hereof),
voting together as a single class, shall be required to adopt, amend or repeal
any provisions of the By-laws of the Corporation.
EIGHTH:
A. In addition to any affirmative vote required by law or this
Certificate of Incorporation, and except as otherwise expressly provided in
this Section:
1. any merger or consolidation of the Corporation or any
Subsidiary (as hereinafter defined) with (a) any Interested
Stockholder (as hereinafter defined) or (b) any other corporation
(whether or not itself an Interested Stockholder) which is, or after
such merger or consolidation would be, an Affiliate (as hereinafter
defined) of an Interested Stockholder; or
2. any sale, lease, exchange, mortgage, pledge, transfer or other
disposition (in one transaction or a series of transactions) to or
with any Interested Stockholder, or any Affiliate of any Interested
Stockholder, of any assets of the Corporation or any Subsidiary having
an aggregate Fair Market Value (as hereafter defined) equaling or
exceeding 25% or more of the combined assets of the Corporation and
its Subsidiaries; or
3. the issuance or transfer by the Corporation or any Subsidiary
(in one transaction or a series of transactions) of any securities of
the Corporation or any Subsidiary to any Interested Stockholder or any
Affiliate of any Interested Stockholder in exchange for cash,
securities or other property (or a combination thereof) having an
aggregate Fair Market Value equaling or exceeding 25% of the combined
assets of the Corporation and its Subsidiaries except pursuant to an
employee benefit plan of the Corporation or any Subsidiary thereof; or
4. the adoption of any plan or proposal for the liquidation or
dissolution of the Corporation proposed by or on behalf of any
Interested Stockholder or any Affiliate of any Interested Stockholder;
or
5. any reclassification of securities (including any reverse
stock split), or recapitalization of the Corporation, or any merger or
consolidation of the Corporation with any of its Subsidiaries or any
other transaction (whether or not with or into or otherwise involving
an Interested Stockholder) which has the effect, directly or
indirectly,
6
<PAGE>
of increasing the proportionate share of the outstanding shares of any
class of equity or convertible securities of the Corporation or any
Subsidiary which is directly or indirectly owned by any Interested
Stockholder or any Affiliate of any Interested Stockholder (a
"Disproportionate Transaction"); provided, however, that no such
transaction shall be deemed a Disproportionate Transaction if the
increase in the proportionate ownership of the Interested Stockholder
or Affiliate as a result of such transaction is no greater than the
increase experienced by the other stockholders generally;
shall require the affirmative vote of the holders of at least 80% of the voting
power of the then-outstanding shares of stock of the Corporation entitled to
vote in the election of directors (the "Voting Stock"), voting together as a
single class. Such affirmative vote shall be required notwithstanding the fact
that no vote may be required, or that a lesser percentage may be specified, by
law or by any other provisions of this Certificate of Incorporation or any
Preferred Stock Designation or in any agreement with any national securities
exchange or quotation system or otherwise.
The term "Business Combination" as used in this Article EIGHTH shall mean
any transaction which is referred to in any one or more of paragraphs 1 through
5 of Section A of this Article EIGHTH.
B. The provisions of Section A of this Article EIGHTH shall not be
applicable to any particular Business Combination, and such Business
Combination shall require only the affirmative vote of the majority of the
outstanding shares of capital stock entitled to vote, or such vote as is
required by law or by this Certificate of Incorporation, if, in the case of
any Business Combination that does not involve any cash or other
consideration being received by the stockholders of the Corporation solely
in their capacity as stockholders of the Corporation, the condition
specified in the following paragraph 1 is met or, in the case of any other
Business Combination, all of the conditions specified in either of the
following paragraphs 1 and 2 are met:
1. The Business Combination shall have been approved by a
majority of the Disinterested Directors (as hereinafter defined).
2. All of the following conditions shall have been met:
(a) The aggregate amount of the cash and the Fair Market
Value as of the date of the consummation of the Business
Combination of consideration other than cash to be received per
share by the holders of Common Stock in such Business Combination
shall at least be equal to the higher of the following:
(1) (if applicable) the Highest Per Share Price,
including any brokerage commissions, transfer taxes and
soliciting dealers' fees, paid by the Interested Stockholder
or any of its Affiliates for any shares of Common Stock
acquired by it (i) within the two-year period immediately
prior to the first public announcement of the proposal of
the Business
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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 Section B.2
of this Article EIGHTH shall be subject
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to appropriate adjustment in the event of any stock dividend,
stock split, combination of shares or similar event.
(d) After such Interested Stockholder has become an
Interested Stockholder and prior to the consummation of such
Business Combination; (i) except as approved by a majority of the
Disinterested Directors, there shall have been no failure to
declare and pay at the regular date therefor any full quarterly
dividends (whether or not cumulative) on any outstanding stock
having preference over the Common Stock as to dividends or
liquidation; (ii) there shall have been (X) no reduction in the
annual rate of dividends paid on the Common Stock (except as
necessary to reflect any subdivision of the Common Stock), except
as approved by a majority of the Disinterested Directors, and (Y)
an increase in such annual rate of dividends as necessary to
reflect any reclassification (including any reverse stock split),
recapitalization, reorganization or any similar transaction which
has the effect of reducing the number of outstanding shares of
Common Stock, unless the failure to so increase such annual rate
is approved by a majority of the Disinterested Directors; and
(iii) neither such Interested Stockholder nor any of its
Affiliates shall have become the beneficial owner of any
additional shares of Voting Stock except as part of the
transaction which results in such Interested Stockholder becoming
an Interested Stockholder.
(e) After such Interested Stockholder has become an
Interested Stockholder, such Interested Stockholder shall not
have received the benefit, directly or indirectly (except
proportionately as a stockholder), of any loans, advances,
guarantees, pledges or other financial assistance or any tax
credits or other tax advantages provided by the Corporation,
whether in anticipation of or in connection with such Business
Combination or otherwise.
(f) A proxy or information statement describing the proposed
Business Combination and complying with the requirements of the
Securities Exchange Act of 1934 and the rules and regulations
thereunder (or any subsequent provisions replacing such Act,
rules or regulations) shall be mailed to stockholders of the
Corporation at least 30 days prior to the consummation of such
Business Combination (whether or not such proxy or information
statement is required to be mailed pursuant to such Act or
subsequent provisions).
C. For the purposes of this Article EIGHTH:
1. A "Person" shall include an individual, a group acting in
concert, a corporation, a partnership, an association, a joint
venture, a pool, a joint stock company, a trust, an unincorporated
organization or similar company, a syndicate or any other group formed
for the purpose of acquiring, holding or disposing of securities.
2. "Interested Stockholder" shall mean any Person (other than the
Corporation or any holding company or Subsidiary thereof) who or
which:
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(a) is the beneficial owner, directly or indirectly, of more
than 10% of the voting power of the outstanding Voting Stock; or
(b) is an Affiliate of the Corporation and at any time
within the two-year period immediately prior to the date in
question was the beneficial owner, directly or indirectly, of 10%
or more of the voting power of the then-outstanding Voting Stock;
or
(c) is an assignee of or has otherwise succeeded to any
shares of Voting Stock which were at any time within the two-year
period immediately prior to the date in question beneficially
owned by any Interested Stockholder, if such assignment or
succession shall have occurred in the course of a transaction or
series of transactions not involving a public offering within the
meaning of the Securities Act of 1933.
3. A Person shall be a "beneficial owner" of any Voting Stock:
(a) which such Person or any of its Affiliates or Associates
(as hereinafter defined) beneficially owns, directly or
indirectly within the meaning of Rule 13d-3 under the Securities
Exchange Act of 1934, as in effect on June 1, 1997; or
(b) which such Person or any of its Affiliates or Associates
has (i) the right to acquire (whether such right is exercisable
immediately or only after the passage of time), pursuant to any
agreement, arrangement or understanding or upon the exercise of
conversion rights, exchange rights, warrants or options, or
otherwise, or (ii) the right to vote pursuant to any agreement,
arrangement or understanding (but neither such Person nor any
such Affiliate or Associate shall be deemed to be the beneficial
owner of any shares of Voting Stock solely by reason of a
revocable proxy granted for a particular meeting of stockholders,
pursuant to a public solicitation of proxies for such meeting,
and with respect to which shares neither such Person nor any such
Affiliate or Associate is otherwise deemed the beneficial owner);
or
(c) which are beneficially owned, directly or indirectly
within the meaning of Rule 13d-3 under the Securities Exchange
Act of 1934, as in effect on June 1, 1997, by any other Person
with which such Person or any of its Affiliates or Associates has
any agreement, arrangement or understanding for the purposes of
acquiring, holding, voting (other than solely by reason of a
revocable proxy as described in Subparagraph (b) of this
Paragraph 3) or in disposing of any shares of Voting Stock;
provided, however, that, in the case of any employee stock ownership
or similar plan of the Corporation or of any Subsidiary in which the
beneficiaries thereof possess the right to vote any shares of Voting
Stock held by such plan, no such plan nor any trustee with
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respect thereto (nor any Affiliate of such trustee), solely by reason
of such capacity of such trustee, shall be deemed, for any purposes
hereof, to beneficially own any shares of Voting Stock held under any
such plan.
4. For the purpose of determining whether a Person is an
Interested Stockholder pursuant to Section C.2., the number of shares
of Voting Stock deemed to be outstanding shall include shares deemed
owned through application of this Section C.3. but shall not include
any other shares of Voting Stock which may be issuable pursuant to any
agreement, arrangement or understanding, or upon exercise of
conversion rights, warrants or options, or otherwise.
5. "Affiliate" and "Associate" shall have the respective meanings
ascribed to such terms in Rule 12b-2 of the General Rules and
Regulations under the Securities Exchange Act of 1934, as in effect on
June 1, 1997
6. "Subsidiary" means any corporation of which a majority of any
class of equity security is owned, directly or indirectly, by the
Corporation; provided, however, that for the purposes of the
definition of Interested Stockholder set forth in this Section C.2.,
the term "Subsidiary" shall mean only a corporation of which a
majority of each class of equity security is owned, directly or
indirectly, by the Corporation.
7. "Disinterested Director" means any member of the Board of
Directors who is unaffiliated with the Interested Stockholder and was
a member of the Board of Directors prior to the time that the
Interested Stockholder became an Interested Stockholder, and any
director who is thereafter chosen to fill any vacancy on the Board of
Directors or who is elected and who, in either event, is unaffiliated
with the Interested Stockholder, and in connection with his or her
initial assumption of office is recommended for appointment or
election by a majority of Disinterested Directors then on the Board of
Directors.
8. "Fair Market Value" means: (a) in the case of stock, the
highest closing sales price of the stock during the 30-day period
immediately preceding the date in question of a share of such stock of
the Nasdaq System or any system then in use, or, if such stock is
admitted to trading on a principal United States securities exchange
registered under the Securities Exchange Act of 1934, Fair Market
Value shall be the highest sale price reported during the 30-day
period preceding the date in question, or, if no such quotations are
available, the Fair Market Value on the date in question of a share of
such stock as determined by the Board of Directors in good faith, in
each case with respect to any class of stock, appropriately adjusted
for any dividend or distribution in shares of such stock or in
combination or reclassification of outstanding shares of such stock
into a smaller number of shares of such stock, and (b) in the case of
property other than cash or stock, the Fair Market Value of such
property on the date in question as determined by the Board of
Directors in good faith.
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9. Reference to "Highest Per Share Price" shall in each case with
respect to any class of stock reflect an appropriate adjustment for
any dividend or distribution in shares of such stock or any stock
split or reclassification of outstanding shares of such stock into a
greater number of shares of such stock or any combination or
reclassification of outstanding shares of such stock into a smaller
number of shares of such stock.
10. In the event of any Business Combination in which the
Corporation survives, the phrase "consideration other than cash to be
received" as used in Sections B.2.(a) and B.2.(b) of this Article
EIGHTH shall include the shares of Common Stock and/or the shares of
any other class of outstanding Voting Stock retained by the holders of
such shares.
D. A majority of the Disinterested Directors of the Corporation shall
have the power and duty to determine for the purposes of this Article
EIGHTH, on the basis of information known to them after reasonable inquiry,
(a) whether a person is an Interested Stockholder; (b) the number of shares
of Voting Stock beneficially owned by any person; (c) whether a person is
an Affiliate or Associate of another; and (d) whether the assets which are
the subject of any Business Combination have, or the consideration to be
received for the issuance or transfer of securities by the Corporation or
any Subsidiary in any Business Combination has an aggregate Fair Market
Value equaling or exceeding 25% of the combined assets of the Corporation
and its Subsidiaries. A majority of the Disinterested Directors shall have
the further power to interpret all of the terms and provisions of this
Article EIGHTH.
E. Nothing contained in this Article EIGHTH shall be construed to
relieve any Interested Stockholder from any fiduciary obligation imposed by
law.
F. Notwithstanding any other provisions of this Certificate of
Incorporation or any provision of law which might otherwise permit a lesser
vote or no vote, but in addition to any affirmative vote of the holders of
any particular class or series of the Voting Stock required by law, this
Certificate of Incorporation or any Preferred Stock Designation, the
affirmative vote of the holders of at least 80% of the voting power of all
of the then-outstanding shares of the Voting Stock, voting together as a
single class, shall be required to alter, amend or repeal this Article
EIGHTH.
NINTH: The Board of Directors of the Corporation, when evaluating any offer
of another Person (as defined in Article EIGHTH hereof) to (A) make a tender or
exchange offer for any equity security of the Corporation, (B) merge or
consolidate the Corporation with another corporation or entity or (C) purchase
or otherwise acquire all or substantially all of the properties and assets of
the Corporation, may, in connection with the exercise of its judgment in
determining what is in the best interest of the Corporation and its
stockholders, give due consideration to all relevant factors, including, without
limitation, the social and economic effect of acceptance of such offer on the
Corporation's present and future customers and employees and those of its
Subsidiaries (as defined in Article EIGHTH hereof); on the communities in which
the Corporation and its Subsidiaries operate or are located; on the ability of
the Corporation to fulfill its corporate
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objectives as a financial institution holding company and on the ability of its
subsidiary financial institution to fulfill the objectives of a federally
insured financial institution under applicable statutes and regulations.
TENTH:
A. Except as set forth in Section B of this Article TENTH, in addition
to any affirmative vote of stockholders required by law or this Certificate
of Incorporation, any direct or indirect purchase or other acquisition by
the Corporation of any Equity Security (as hereinafter defined) of any
class from any Interested Person (as hereinafter defined) shall require the
affirmative vote of the holders of at least 80% of the Voting Stock of the
Corporation that is not beneficially owned (for purposes of this Article
TENTH beneficial ownership shall be determined in accordance with Section
C.2(b) of Article FOURTH hereof) by such Interested Person, voting together
as a single class. Such affirmative vote shall be required notwithstanding
the fact that no vote may be required, or that a lesser percentage may be
specified, by law or by any other provisions of this Certificate of
Incorporation or any Preferred Stock Designation or in any agreement with
any national securities exchange or quotation system, or otherwise. Certain
defined terms used in this Article TENTH are as set forth in Section C
below.
B. The provisions of Section A of this Article TENTH shall not be
applicable with respect to:
1. any purchase or other acquisition of securities made as part
of a tender or exchange offer by the Corporation or a Subsidiary
(which term, as used in this Article TENTH, is as defined in the first
clause of Section C.6 of Article EIGHTH hereof) of the Corporation to
purchase securities of the same class made on the same terms to all
holders of such securities and complying with the applicable
requirements of the Securities Exchange Act of 1934 and the rules and
regulations thereunder (or any subsequent provision replacing such
Act, rules or regulations);
2. any purchase or acquisition made pursuant to an open market
purchase program approved by a majority of the Board of Directors,
including a majority of the Disinterested Directors (which term, as
used in this Article TENTH, is as defined in Article EIGHTH hereof);
or
3. any purchase or acquisition which is approved by a majority of
the Board of Directors, including a majority of the Disinterested
Directors, and which is made at no more than the Market Price (as
hereinafter defined), on the date that the understanding between the
Corporation and the Interested Person is reached with respect to such
purchase (whether or not such purchase is made or a written agreement
relating to such purchase is executed on such date), of shares of the
class of Equity Security to be purchased.
C. For the purposes of this Article TENTH:
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1. The term Interested Person shall mean any Person (other than
the Corporation, Subsidiaries of the Corporation, pension, profit
sharing, employee stock ownership or other employee benefit plans of
the Corporation and its Subsidiaries, entities organized or
established by the Corporation or any of its Subsidiaries pursuant to
the terms of such plans and trustees and fiduciaries with respect to
any such plan acting in such capacity) that is the direct or indirect
beneficial owner of 5% or more of the Voting Stock of the Corporation,
and any Affiliate or Associate of any such person.
2. The Market Price of shares of a class of Equity Security on
any day shall mean the highest sale price of shares of such class of
Equity Security on such day, or, if that day is not a trading day, on
the trading day immediately preceding such day, on the national
securities exchange or the Nasdaq System or any other system then in
use on which such class of Equity Security is traded.
3. The term Equity Security shall mean any security described in
Section 3(a)(11) of the Securities Exchange Act of 1934, as in effect
on June 1, 1997, which is traded on a national securities exchange or
the Nasdaq System or any other system then in use.
4. For purposes of this Article TENTH, all references to the term
Interested Stockholder in the definition of Disinterested Director
shall be deemed to refer to the term Interested Person.
ELEVENTH:
A. Each person who was or is made a party or is threatened to be made
a party to or is otherwise involved in any action, suit or proceeding,
whether civil, criminal, administrative or investigative (hereinafter a
"proceeding"), by reason of the fact that he or she is or was a director or
an officer of the Corporation or is or was serving at the request of the
Corporation as a director or officer of another corporation, including,
without limitation, any Subsidiary (as defined in Article EIGHTH herein),
partnership, joint venture, trust or other enterprise, including service
with respect to an employee benefit plan (hereinafter an "indemnitee"),
whether the basis of such proceeding is alleged action in an official
capacity as a director or officer or in any other capacity while serving as
a director or officer, shall be indemnified and held harmless by the
Corporation to the fullest extent authorized by the Delaware General
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.
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B. The right to indemnification conferred in Section A of this Article
shall include the right to be paid by the Corporation the expenses incurred
in defending any such proceeding in advance of its final disposition
(hereinafter an "advancement of expenses"); provided, however, that, if the
Delaware General Corporation Law requires, an advancement of expenses
incurred by an indemnitee in his or her capacity as a director or officer
(and not in any other capacity in which service was or is rendered by such
indemnitee, including, without limitation, service to an employee benefit
plan) shall be made only upon delivery to the Corporation of an undertaking
(hereinafter an "undertaking"), by or on behalf of such indemnitee, to
repay all amounts so advanced if it shall ultimately be determined by final
judicial decision from which there is no further right to appeal
(hereinafter a "final adjudication"), that such indemnitee is not entitled
to be indemnified for such expenses under this Section or otherwise. The
rights to indemnification and to the advancement of expenses conferred in
Sections A and B of this Article shall be contract rights and such rights
shall continue as to an indemnitee who has ceased to be a director or
officer and shall inure to the benefit of the indemnitee's heirs, executors
and administrators.
C. If a claim under Section A or B of this Article is not paid in full
by the Corporation within 60 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 20 days, the
indemnitee may at any time thereafter bring suit against the Corporation to
recover the unpaid amount of the claim. If successful in whole or in part
in any such suit, or in a suit brought by the Corporation to recover an
advancement of expenses pursuant to the terms of an undertaking, the
indemnitee shall also be entitled to be paid the expense of prosecuting or
defending such suit. In (1) 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 (2) 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 or otherwise shall be on the
Corporation.
D. The rights to indemnification and to the advancement of expenses
conferred in this Article shall not be exclusive of any other right which
any person may have or hereafter
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acquire under any statute, the Corporation's Certificate of Incorporation,
By-laws, agreement, vote of stockholders or Disinterested Directors or
otherwise.
E. The Corporation may maintain insurance, at its expense, to protect
itself and any director, officer, employee or agent of the Corporation or
another corporation, partnership, joint venture, trust or other enterprise
against any expense, liability or loss, whether or not the Corporation
would have the power to indemnify such person against such expense,
liability or loss under the Delaware General Corporation Law.
F. The Corporation may, to the extent authorized from time to time by
a majority vote of the disinterested directors, grant rights to
indemnification and to the advancement of expenses to any employee or agent
of the Corporation to the fullest extent of the provisions of this Article
with respect to the indemnification and advancement of expenses of
directors and officers of the Corporation.
TWELFTH: A director of this Corporation shall not be personally liable to
the Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (A) for any breach of the director's
duty of loyalty to the Corporation or its stockholders, (B) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (C) under Section 174 of the Delaware General Corporation Law,
or (D) for any transaction from which the director derived an improper personal
benefit. If the Delaware General Corporation Law is hereafter amended to further
eliminate or limit the personal liability of directors, then the liability of a
director of the Corporation shall be eliminated or limited to the fullest extent
permitted by the Delaware General Corporation Law, as so amended.
Any repeal or modification of the foregoing paragraph by the stockholders
of the Corporation shall not adversely affect any right or protection of a
director of the Corporation existing at the time of such repeal or modification.
THIRTEENTH: The Corporation reserves the right to amend or repeal any
provision contained in this Certificate of Incorporation in the manner
prescribed by the laws of the State of Delaware and all rights conferred upon
stockholders are granted subject to this reservation; provided, however, that,
notwithstanding any other provision of this Certificate of Incorporation or any
provision of law which might otherwise permit a lesser vote or no vote, but in
addition to any vote of the holders of any class or series of the stock of this
Corporation required by law or by this Certificate of Incorporation, the
affirmative vote of the holders of at least 80% of the voting power of all of
the then-outstanding shares of the capital stock of the Corporation entitled to
vote generally in the election of directors (after giving effect to the
provisions of Article FOURTH), voting together as a single class, shall be
required to amend or repeal this Article THIRTEENTH, Sections B or C of Article
FOURTH, Sections C or D of Article FIFTH, Article SIXTH, Article SEVENTH,
Article EIGHTH, Article TENTH or Article ELEVENTH.
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FOURTEENTH: The name and mailing address of the sole incorporator are as
follows:
NAME MAILING ADDRESS
Julian E. Kulas First Security Federal Savings Bank
936 North Western Avenue
Chicago, Illinois 60622-4695
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I, THE UNDERSIGNED, being the incorporator, for the purpose of forming
a corporation under the laws of the State of Delaware, do make, file and record
this Certificate of Incorporation, do certify that the facts herein stated are
true, and, accordingly, have hereto set my hand this 10th day of July 1997.
/s/ Julian E. Kulas
Julian E. Kulas, Sole Incorporator
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Exhibit 3.2
FIRST SECURITYFED FINANCIAL, INC.
BY-LAWS
ARTICLE I
STOCKHOLDERS
Section 1. Annual Meeting.
An annual meeting of the stockholders, for the election of directors to
succeed those whose terms expire and for the transaction of such other business
as may properly come before the meeting, shall be held at such place, on such
date, and at such time as the Board of Directors shall each year fix.
Section 2. Special Meetings.
Subject to the rights of the holders of any class or series of preferred
stock of the Corporation, special meetings of stockholders of the Corporation
may be called only by the Board of Directors pursuant to a resolution adopted by
a majority of the total number of directors which the Corporation would have if
there were no vacancies on the Board of Directors (hereinafter the "Whole
Board").
Section 3. Notice of Meetings.
Written notice of the place, date, and time of all meetings of the
stockholders shall be given, not less than ten nor more than 60 days before the
date on which the meeting is to be held, to each stockholder entitled to vote at
such meeting, except as otherwise provided herein or required by law (meaning,
here and hereinafter, as required from time to time by the Delaware General
Corporation Law or the Certificate of Incorporation of the Corporation).
When a meeting is adjourned to another place, date or time, written notice
need not be given of the adjourned meeting if the place, date and time thereof
are announced at the meeting at which the adjournment is taken; provided,
however, that if the date of any adjourned meeting is more than 30 days after
the date for which the meeting was originally noticed, or if a new record date
is fixed for the adjourned meeting, written notice of the place, date and time
of the adjourned meeting shall be given in conformity herewith. At any adjourned
meeting, any business may be transacted which might have been transacted at the
original meeting.
Section 4. Quorum.
At any meeting of the stockholders, the holders of at least one-third of
all of the shares of the stock entitled to vote at the meeting, present in
person or by proxy, shall constitute a quorum for all purposes, unless or except
to the extent that the presence of a larger number may be required by law. Where
a separate vote by a class or classes is required, a majority of the shares
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of such class or classes, present in person or represented by proxy, shall
constitute a quorum entitled to take action with respect to that vote on that
matter.
If a quorum shall fail to attend any meeting, the chairman of the meeting
or the holders of a majority of the shares of stock entitled to vote who are
present, in person or by proxy, may adjourn the meeting to another place, date
or time.
If a notice of any adjourned special meeting of stockholders is sent to all
stockholders entitled to vote thereat, stating that it will be held with those
present constituting a quorum, then except as otherwise required by law, those
present at such adjourned meeting shall constitute a quorum, and all matters
shall be determined by a majority of the votes cast at such meeting.
Section 5. Organization.
Such person as the Board of Directors may have designated or, in the
absence of such a person, the President of the Corporation or, in his or her
absence, such person as may be chosen by the holders of a majority of the shares
entitled to vote who are present, in person or by proxy, shall call to order any
meeting of the stockholders and act as chairman of the meeting. In the absence
of the Secretary of the Corporation, the secretary of the meeting shall be such
person as the chairman appoints.
Section 6. Conduct of Business.
(a) The chairman of any meeting of stockholders shall determine the
order of business and the procedure at the meeting, including such
regulation of the manner of voting and the conduct of discussion as seem to
him or her in order.
(b) At any annual meeting of the stockholders, only such business
shall be conducted as shall have been brought before the meeting (i) by or
at the direction of the Board of Directors or (ii) by any stockholder of
the Corporation who is entitled to vote with respect thereto and who
complies with the notice procedures set forth in this Section 6(b). For
business to be properly brought before an annual meeting by a stockholder,
the stockholder must have given timely notice thereof in writing to the
Secretary of the Corporation. To be timely, a stockholder's notice must be
delivered or mailed to and received at the principal executive offices of
the Corporation not less than 60 days prior to the anniversary of the
preceding year's annual meeting; provided, however, that in the event that
the date of the annual meeting is advanced by more than 20 days, or delayed
by more than 60 days from such anniversary date, notice by the stockholder
to be timely must be so delivered not later than the close of business on
the later of the 60th day prior to such annual meeting or the tenth day
following the day on which notice of the date of the annual meeting was
mailed or public announcement of the date of such meeting is first made. A
stockholder's notice to the Secretary shall set forth as to each matter
such stockholder proposes to bring before the annual meeting (i) a brief
description of the business desired to be brought before the annual meeting
and the reasons for conducting such business at the annual meeting, (ii)
the name and address, as they appear on the Corporation's books, of the
stockholder who proposed such business, (iii) the class and number of
shares of the Corporation's capital stock that are beneficially owned by
such stockholder and (iv) any material interest of such stockholder in such
business. Notwithstanding anything in these Bylaws to the contrary, no
business shall be brought before or conducted at an annual meeting except
in accordance with the provisions of this Section 6(b). The officer of the
Corporation or other person presiding over the annual meeting shall, if the
facts so warrant, determine and 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 or she should so determine, he or she shall
so declare to the meeting and any such business so determined to be not
properly brought before the meeting shall not be transacted.
At any special meeting of the stockholders, only such business shall
be conducted as shall have been brought before the meeting by or at the
direction of the Board of Directors.
(c) Only persons who are nominated in accordance with the procedures
set forth in these By-laws shall be eligible for election as directors.
Nominations of persons for election to the Board of Directors of the
Corporation may be made at a meeting of stockholders at which directors are
to be elected only (i) by or at the direction of the Board of Directors or
(ii) by any stockholder of the Corporation entitled to vote for the
election of directors at the meeting who complies with the notice
procedures set forth in this Section 6(c). Such nominations, other than
those made by or at the direction of the Board of Directors, shall be made
by timely notice in writing to the Secretary of the Corporation. 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 70 days
prior to the date of the meeting; provided, however, that in the event that
less than 80 days' notice or public announcement of the date of the meeting
is given or made to stockholders, notice by the stockholder to be timely
must be so received not later than the close of business on the tenth day
following the day on which such notice of the date of the meeting was
mailed. Such stockholder's notice shall set forth (x) 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 (y) as to the stockholder giving the
notice: (A) the name and address, as they appear on the Corporation's
books, of such stockholder and (B) the class and number of shares of the
Corporation's capital stock that are beneficially owned by such
stockholder. At the request of the Board of Directors, any person nominated
by the Board of Directors for election as a director shall furnish to the
Secretary of the Corporation that information required to be set forth in a
stockholder's notice of nomination which pertains to the nominee. No person
shall be eligible for election as a director of the Corporation unless
nominated in accordance with the provisions of this Section 6(c). The
officer of the Corporation or other person presiding at the meeting shall,
if the facts so warrant, determine that a nomination was not made in
accordance with such provisions and, if he or she should so determine, he
or she shall so declare to the meeting and the defective nomination shall
be disregarded.
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Section 7. Proxies and Voting.
At any meeting of the stockholders, every stockholder entitled to vote may
vote in person or by proxy authorized by an instrument in writing (or as
otherwise permitted under applicable law) by the stockholder or his duly
authorized attorney-in-fact filed in accordance with the procedure established
for the meeting. Proxies solicited on behalf of the management shall be voted as
directed by the stockholder or in the absence of such direction, as determined
by a majority of the Board of Directors. No proxy shall be valid after eleven
months from the date of its execution except for a proxy coupled with an
interest.
Each stockholder shall have one vote for every share of stock entitled to
vote which is registered in his or her name on the record date for the meeting,
except as otherwise provided herein or in the Certificate of Incorporation of
the Corporation or as required by law.
All voting, including on the election of directors but excepting where
otherwise required by law, may be by a voice vote; provided, however, that upon
demand therefore by a stockholder entitled to vote or his or her proxy, a stock
vote shall be taken. Every stock vote shall be taken by ballot, each of which
shall state the name of the stockholder or proxy voting and such other
information as may be required under the procedure established for the meeting.
Every vote taken by ballot shall be counted by an inspector or inspectors
appointed by the chairman of the meeting.
All elections shall be determined by a plurality of the votes cast, and
except as otherwise required by law or as provided in the Certificate of
Incorporation, all other matters shall be determined by a majority of the votes
cast.
Section 8. Stock List.
The officer who has charge of the stock transfer books of the Corporation
shall prepare and make, in the time and manner required by applicable law, a
list of stockholders entitled to vote and shall make such list available for
such purposes, at such places, at such times and to such persons as required by
applicable law. The stock transfer books shall be the only evidence as to the
identity of the stockholders entitled to examine the stock transfer books or to
vote in person or by proxy at any meeting of stockholders.
Section 9. Consent of Stockholders in Lieu of Meeting.
Subject to the rights of the holders of any class or series of preferred
stock of the Corporation, any action required or permitted to be taken by the
stockholders of the Corporation must be effected at a duly called annual or
special meeting of stockholders of the Corporation and may not be effected by
any consent in writing by such stockholders.
Section 10. Inspectors of Election
The Board of Directors shall, in advance of any meeting of stockholders,
appoint one or more persons as inspectors of election, to act at the meeting or
any adjournment thereof and make a written report thereof, in accordance with
applicable law.
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ARTICLE II
BOARD OF DIRECTORS
Section 1. General Powers, Number and Term of Office.
The business and affairs of the Corporation shall be managed by or under
the direction of the Board of Directors. The number of directors shall be as
provided for in the Certificate of Incorporation. The Board of Directors shall
annually elect a Chairman of the Board and a President from among its members
and shall designate, when present, either the Chairman of the Board or the
President to preside at its meetings.
The directors, other than those who may be elected by the holders of any
class or series of preferred stock, shall be divided into three classes, as
nearly equal in number as reasonably possible, with the term of office of the
first class to expire at the conclusion of the first annual meeting of
stockholders, the term of office of the second class to expire at the conclusion
of the annual meeting of stockholders one year thereafter and the term of office
of the third class to expire at the conclusion of the annual meeting of
stockholders two years thereafter, with each director to hold office until his
or her successor shall have been duly elected and qualified. At each annual
meeting of stockholders, commencing with the first annual meeting, directors
elected to succeed those directors whose terms expire shall be elected for a
term of office to expire at the third succeeding annual meeting of stockholders
after their election, with each director to hold office until his or her
successor shall have been duly elected and qualified.
Section 2. Vacancies and Newly Created Directorships.
Subject to the rights of the holders of any class or series of preferred
stock then outstanding, newly created directorships resulting from any increase
in the authorized number of directors or any vacancies in the Board of Directors
resulting from death, resignation, retirement, disqualification, removal from
office or other cause may be filled only by a majority 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.
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Section 4. Special Meetings.
Special meetings of the Board of Directors may be called by one-third (1/3)
of the directors then in office (rounded up to the nearest whole number) or by
the President and shall be held at such place, on such date, and at such time as
they or he or she shall fix. Notice of the place, date, and time of each such
special meeting shall be given to each director by whom it is not waived by
mailing written notice not less than five days before the meeting or by
telegraphing or telexing or by facsimile transmission of the same not less than
24 hours before the meeting. Unless otherwise indicated in the notice thereof,
any and all business may be transacted at a special meeting.
Section 5. Quorum.
At any meeting of the Board of Directors, a majority of the authorized
number of directors then constituting the Board shall constitute a quorum for
all purposes. If a quorum shall fail to attend any meeting, a majority of those
present may adjourn the meeting to another place, date, or time, without further
notice or waiver thereof.
Section 6. Participation in Meetings By Conference Telephone.
Members of the Board of Directors, or of any committee thereof, may
participate in a meeting of such Board or committee by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other and such participation shall
constitute presence in person at such meeting.
Section 7. Conduct of Business.
At any meeting of the Board of Directors, business shall be transacted in
such order and manner as the Board may from time to time determine, and all
matters shall be determined by the vote of a majority of the directors present,
except as otherwise provided herein or required by law. Action may be taken by
the Board of Directors without a meeting if all members thereof consent thereto
in writing, and the writing or writings are filed with the minutes of
proceedings of the Board of Directors.
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:
(i) To declare dividends from time to time in accordance with law;
(ii) To purchase or otherwise acquire any property, rights or
privileges on such terms as it shall determine;
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(iii) 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;
(iv) 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; (v) To confer upon any officer of the
Corporation the power to appoint, remove and suspend subordinate officers,
employees and agents;
(v) To confer upon any officer of the Corporation the power to
appoint, remove and suspend subordinate officers, employees and agents;
(vi) 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;
(vii) 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,
(viii) To adopt from time to time regulations, not inconsistent with
these By-laws, for the management of the Corporation's business and
affairs.
Section 9. Compensation of Directors.
Directors, as such, may receive, pursuant to resolution of the Board
of Directors, fixed fees and other compensation for their services as
directors, including, without limitation, their services as members of
committees of the Board of Directors.
ARTICLE III
COMMITTEES
Section 1. Committees of the Board of Directors.
The Board of Directors, by a vote of a majority of the Board of Directors,
may from time to time designate committees of the Board, with such lawfully
delegable powers and duties as it thereby confers, to serve at the pleasure of
the Board and shall, for those committees and any others provided for herein,
elect a director or directors to serve as the member or members, designating, if
it desires, other directors as alternate members who may replace any absent or
disqualified member at any meeting of the committee. Any committee so designated
may exercise the power and authority of the Board of Directors to declare a
dividend, to authorize the issuance of stock or to adopt a certificate of
ownership and merger pursuant to Section 253 of the Delaware General Corporation
Law if the resolution which designated the committee or a supplemental
resolution of the Board of Directors shall so provide. In the absence or
disqualification of any member of any committee and any alternate member in his
or her place, the member or members of the committee present at the meeting and
not disqualified from voting, whether or not he or she or they constitute a
quorum, may by unanimous vote appoint
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another member of the Board of Directors to act at the meeting in the place of
the absent or disqualified member.
Section 2. Conduct of Business.
Each committee may determine the procedural rules for meeting and
conducting its business and shall act in accordance therewith, except as
otherwise provided herein or required by law. Adequate provision shall be made
for notice to members of all meetings; one-third (1/3) of the members shall
constitute a quorum unless the committee shall consist of one or two members, in
which event one member shall constitute a quorum; and all matters shall be
determined by a majority vote of the members present. Action may be taken by any
committee without a meeting if all members thereof consent thereto in writing,
and the writing or writings are filed with the minutes of the proceedings of
such committee.
Section 3. Nominating Committee.
The Board of Directors may appoint a Nominating Committee of the Board,
consisting of not less than three members, one of which shall be the President
if, and only so long as, the President remains in office as a member of the
Board of Directors. The Nominating Committee shall have authority (i) to review
any nominations for election to the Board of Directors made by a stockholder of
the Corporation pursuant to Section 6(c)(ii) of Article I of these By-laws in
order to determine compliance with such By-law and (ii) to recommend to the
Whole Board nominees for election to the Board of Directors to replace those
directors whose terms expire at the annual meeting of stockholders next ensuing.
ARTICLE IV
OFFICERS
Section 1. Generally.
(a) The Board of Directors as soon as may be practicable after the
annual meeting of stockholders shall choose a President, a Secretary and a
Treasurer and from time to time may choose such other officers as it may
deem proper. The President shall be chosen from among the directors. Any
number of offices may be held by the same person.
(b) The term of office of all officers shall be until the next annual
election of officers and until their respective successors are chosen, but
any officer may be removed from office at any time by the affirmative vote
of a majority of the authorized number of directors then constituting the
Board of Directors.
(c) All officers chosen by the Board of Directors shall each have such
powers and duties as generally pertain to their respective offices, subject
to the specific provisions of this Article IV. Such officers shall also
have such powers and duties as from time to time may be conferred by the
Board of Directors or by any committee thereof.
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Section 2. President.
The President shall be the chief executive officer and, subject to the
control of the Board of Directors, shall have general power over the management
and oversight of the administration and operation of the Corporation's business
and general supervisory power and authority over its policies and affairs. The
President shall see that all orders and resolutions of the Board of Directors
and of any committee thereof are carried into effect.
Each meeting of the stockholders and of the Board of Directors shall be
presided over by such officer as has been designated by the Board of Directors
or, in his or her absence, by such officer or other person as is chosen at the
meeting. The Secretary or, in his or her absence, the General Counsel of the
Corporation or such officer as has been designated by the Board of Directors or,
in his or her absence, such officer or other person as is chosen by the person
presiding, shall act as secretary of each such meeting.
Section 3. Vice President.
The Vice President or Vice Presidents, if any, shall perform the duties of
the President in the President's 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 from time to time by the Board of
Directors, the Chairman of the Board or the President.
Section 4. Secretary.
The Secretary or an Assistant Secretary shall issue notices of meetings,
shall keep their minutes, shall have charge of the seal and the corporate books,
shall perform such other duties and exercise such other powers as are usually
incident to such offices and/or such other duties and powers as are properly
assigned thereto by the Board of Directors, the Chairman of the Board or the
President.
Section 5. Treasurer.
The Treasurer shall have charge of all monies and securities of the
Corporation, other than monies and securities of any division of the Corporation
which has a treasurer or financial officer appointed by the Board of Directors,
and shall keep regular books of account. The funds of the Corporation shall be
deposited in the name of the Corporation by the Treasurer with such banks or
trust companies or other entities as the Board of Directors from time to time
shall designate. The Treasurer shall sign or countersign such instruments as
require his or her signature, shall perform all such duties and have all such
powers as are usually incident to such office and/or such other duties and
powers as are properly assigned to him or her by the Board of Directors, the
Chairman of the Board or the President, and may be required to give bond,
payable by the Corporation, for the faithful performance of his duties in such
sum and with such surety as may be required by the Board of Directors.
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Section 6. Assistant Secretaries and Other Officers.
The Board of Directors may appoint one or more assistant secretaries and
one or more assistants to the Treasurer, or one appointee to both such
positions, which officers shall have such powers and shall perform such duties
as are provided in these By-laws or as may be assigned to them by the Board of
Directors, the Chairman of the Board or the President.
Section 7. Action with Respect to Securities of Other Corporations
Unless otherwise directed by the Board of Directors, the President, or any
officer of the Corporation authorized by the President, shall have power to vote
and otherwise act on behalf of the Corporation, in person or by proxy, at any
meeting of stockholders of or with respect to any action of stockholders of any
other corporation in which this Corporation may hold securities and otherwise to
exercise any and all rights and powers which this Corporation may possess by
reason of its ownership of securities in such other Corporation.
ARTICLE V
STOCK
Section 1. Certificates of Stock.
Each stockholder shall be entitled to a certificate signed by, or in the
name of the Corporation by, the President or a Vice President, and by the
Secretary or an Assistant Secretary, or the Treasurer or an Assistant Treasurer,
certifying the number of shares owned by him or her. Any or all of the
signatures on the certificate may be by facsimile.
Section 2. Transfers of Stock.
Transfers of stock shall be made only upon the transfer books of the
Corporation kept at an office of the Corporation or by transfer agents
designated to transfer shares of the stock of the Corporation. Except where a
certificate is issued in accordance with Section 4 of Article V of these
By-laws, an outstanding certificate for the number of shares involved shall be
surrendered for cancellation before a new certificate is issued therefore.
Section 3. Record Date.
In order that the Corporation may determine the stockholders entitled to
notice of or to vote at any meeting of stockholders, or to receive payment of
any dividend or other distribution or allotment of any rights or to exercise any
rights in respect of any change, conversion or exchange of stock or for the
purpose of any other lawful action, the Board of Directors may fix a record
date, which record date shall not precede the date on which the resolution
fixing the record date is adopted and which record date shall not be more than
60 nor less than ten days before the date of any meeting of stockholders, nor
more than 60 days prior to the time for such other action as hereinbefore
described; provided, however, that if no record date is fixed by the Board of
Directors, the record date for determining stockholders entitled to notice of or
to vote
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at a meeting of stockholders shall be at the close of business on the day next
preceding the day on which notice is given or, if notice is waived, at the close
of business on the day next preceding the day on which the meeting is held, and,
for determining stockholders entitled to receive payment of any dividend or
other distribution or allotment of rights or to exercise any rights of change,
conversion or exchange of stock or for any other purpose, the record date shall
be at the close of business on the day on which the Board of Directors adopts a
resolution relating thereto.
A determination of stockholders of record entitled to notice of or to vote
at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board of Directors may fix a new record date for the
adjourned meeting.
Section 4. Lost, Stolen or Destroyed Certificates.
In the event of the loss, theft or destruction of any certificate of stock,
another may be issued in its place pursuant to such regulations as the Board of
Directors may establish concerning proof of such loss, theft or destruction and
concerning the giving of a satisfactory bond or bonds of indemnity.
Section 5. Regulations.
The issue, transfer, conversion and registration of certificates of stock
shall be governed by such other regulations as the Board of Directors may
establish.
ARTICLE VI
NOTICES
Section 1. Notices.
Except as otherwise specifically provided herein or required by law, all
notices required to be given to any stockholder, director, officer, employee or
agent shall be in writing and may in every instance be effectively given by hand
delivery to the recipient thereof, by depositing such notice in the mail,
postage paid, by sending such notice by prepaid telegram or mailgram or by
sending such notice by facsimile machine or other electronic transmission. Any
such notice shall be addressed to such stockholder, director, officer, employee
or agent at his or her last known address as the same appears on the books of
the Corporation. The time when such notice is received, if hand delivered or
dispatched, if delivered through the mail, by telegram or mailgram or by
facsimile machine or other electronic transmission, shall be the time of the
giving of the notice.
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Section 2. Waivers.
A written waiver of any notice, signed by a stockholder, director, officer,
employee or agent, whether before or after the time of the event for which
notice is to be given, shall be deemed equivalent to the notice required to be
given to such stockholder, director, officer, employee or agent. Neither the
business nor the purpose of any meeting need be specified in such a waiver.
ARTICLE VII
MISCELLANEOUS
Section 1. Facsimile Signatures.
In addition to the provisions for use of facsimile signatures elsewhere
specifically authorized in these By-laws, facsimile signatures of any officer or
officers of the Corporation may be used whenever and as authorized by the Board
of Directors or a committee thereof.
Section 2. Corporate Seal.
The Board of Directors may provide a suitable seal, containing the name of
the Corporation, which seal shall be in the charge of the Secretary. If and when
so directed by the Board of Directors or a committee thereof, duplicates of the
seal may be kept and used by the Treasurer or by an Assistant Secretary or
Assistant Treasurer.
Section 3. Reliance upon Books, Reports and Records.
Each director, each member of any committee designated by the Board of
Directors, and each officer of the Corporation shall, in the performance of his
or her duties, be fully protected in relying in good faith upon the books of
account or other records of the Corporation and upon such information, opinions,
reports or statements presented to the Corporation by any of its officers or
employees, or committees of the Board of Directors so designated, or by any
other person as to matters which such director or committee member reasonably
believes are within such other person's professional or expert competence and
who has been selected with reasonable care by or on behalf of the Corporation.
Section 4. Fiscal Year.
The fiscal year of the Corporation shall be as fixed by the Board of
Directors.
Section 5. Time Periods.
In applying any provision of these By-laws which requires that an act be
done or not be done a specified number of days prior to an event or that an act
be done during a period of a specified number of days prior to an event,
calendar days shall be used, the day of the doing of the act shall be excluded
and the day of the event shall be included.
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ARTICLE VIII
AMENDMENTS
The By-laws of the Corporation may be adopted, amended or repealed as
provided in Article SEVENTH of the Certificate of Incorporation of the
Corporation.
12
Exhibit 3.3
Charter of
FIRST SECURITY FEDERAL SAVINGS BANK
SECTION 1. Corporate title. The full corporate title of the bank is First
Security Federal Savings Bank.
SECTION 2. Office. The home office of the bank shall be located in the City
of Chicago, County of Cook, in the State of Illinois.
SECTION 3. Duration. The duration of the bank is perpetual.
SECTION 4. Purpose and Powers. The purpose of the bank is to pursue any or
all of the lawful objectives of a federal bank chartered under section 5 of the
Home Owners' Loan Act and to exercise all of the express, implied, and
incidental powers conferred thereby and by all acts amendatory thereof and
supplemental thereto, subject to the Constitution and laws of the United States
as they are now in effect, or as they may hereafter be amended, and subject to
all lawful and applicable rules, regulations, and orders of the Office of Thrift
Supervision ("Office").
SECTION 5. Capital Stock. The total number of shares of all classes of the
capital stock which the bank has the authority to issue is three million
(3,000,000) of which two million five hundred thousand (2,500,000) shall be
common stock of par value of $.01 per share, and of which five hundred thousand
(500,000) shall be serial preferred stock of par value $.01 per share. The
shares may be issued from time to time as authorized by the board of directors
without further approval of stockholders, except as otherwise provided in this
Section 5 or to the extent that such approval is required by governing law, rule
or regulation. The consideration for the issuance of the shares shall be paid in
full before their issuance and shall not be less than the par value. Neither
promissory notes nor future services shall constitute payment or part payment
for the issuance of shares of the 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 bank, or any combination of the foregoing. In the
absence of actual fraud in the transaction, the value of such property, labor,
or services, as determined by the board of directors of the 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 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 issuable in connection with the conversion of the bank
from the mutual to the stock form of organization, 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 bank other than as part of a general public offering
or as qualifying shares to a director, unless their issuance or the plan under
which they would be issued has been approved by a majority of the total votes
eligible to be cast at a legal meeting.
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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 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 bank if the preferred stock
is exchanged for securities of such other corporation: Provided, That no
provision may require such approval for transactions undertaken with the
assistance or pursuant to the direction of the Office; or the Federal
Deposit Insurance Corporation.
(iii) To any amendment which would adversely change the specific terms
of any class or series of capital stock as set forth in this Section 5 (or
in any supplementary sections hereto), including any amendment which would
create or enlarge any class or series ranking prior thereto in rights and
preferences. An amendment which increases the number of authorized shares
of any class or series of capital stock, or substitutes the surviving bank
in a merger or consolidation for the bank, shall not be considered to be
such an adverse change.
A description of the different classes and series (if any) of the bank's
capital stock and a statement of the designations, and the relative rights,
preferences, and limitations of the shares of each class and series (if any) of
capital stock are as follows:
A. Common Stock. Except as provided in this Section 5 (or in any
supplementary sections thereto) the holders of the common stock shall
exclusively possess all voting power. Each holder of shares of 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 the payment of dividends, the full amount of
dividends and of sinking fund, retirement fund, or other retirement payments, if
any, to which such holders are respectively entitled in preference to the common
stock, then dividends may be paid on the common stock and on any class or series
of stock entitled to participate therewith as to dividends out of any assets
legally available for the payment of dividends.
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In the event of any liquidation, dissolution, or winding up of the 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 bank
available for distribution remaining after: (i) Payment or provision for payment
of the bank's debts and liabilities; (ii) distributions or provision for
distributions in settlement of its liquidation account; and (iii) distributions
or provisions for distributions to holders of any class or series of stock
having preference over the common stock in the liquidation, dissolution, or
winding up of the bank. Each share of common stock shall have the same relative
rights as and be identical in all respects with all the other shares of common
stock.
B. Preferred Stock. The bank may provide in supplementary sections to its
charter for one or more classes of preferred stock, which shall be separately
identified. The shares of any class may be divided into and issued in series,
with each series separately designated so as to distinguish the shares thereof
from the shares of all other series and classes. The terms of each series shall
be set forth in a supplementary section to the charter. All shares of the same
class shall be identical except as to the following relative rights and
preferences, as to which there may be variations between different series:
(a) The distinctive serial designation and the number of shares
constituting such series;
(b) The dividend rate or the amount of dividends to be paid on the
shares of such series, whether dividends shall be cumulative and, if so,
from which date(s), the payment date(s) for dividends, and the
participating or other special rights, if any, with respect to dividends;
(c) The voting powers, full or limited, if any, of shares of such
series;
(d) Whether the shares of such series shall be redeemable and, if so,
the price(s) at which, and the terms and conditions on which, such shares
may be redeemed;
(e) The amount(s) payable upon the shares of such series in the event
of voluntary or involuntary liquidation, dissolution, or winding up of the
bank;
(f) Whether the shares of such series shall be entitled to the benefit
of a sinking or retirement fund to be applied to the purchase or redemption
of such shares, and if so entitled, the amount of such fund and the manner
of its application, including the price(s) at which such shares may be
redeemed or purchased through the application of such fund;
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(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 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 bank shall
file with the Secretary to the Office a dated copy of that supplementary section
of this charter established 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 bank
shall not be entitled to preemptive rights with respect to any shares of the
bank which may be issued.
SECTION 7. Liquidation Account. Pursuant to the requirements of the
Office's regulations (12 C.F.R. Part 563b) the bank shall establish and maintain
a liquidation account for the benefit of its savings account holders as of
December 31, 1995 ("eligible savers") and June 30, 1997 ("supplemental eligible
savers"). In the event of a complete liquidation of the bank, it shall comply
with such regulations with respect to the amount and the priorities on
liquidation of each eligible saver's and supplemental eligible saver's inchoate
interest in the liquidation account, to the extent it is still in existence:
Provided, That an eligible saver's and supplemental eligible saver's inchoate
interest in the liquidation account shall not entitle such eligible saver or
supplemental eligible saver to any voting rights at meetings of the bank's
stockholders.
SECTION 8. Certain Provisions Applicable for Five Years. Notwithstanding
anything contained in the bank's charter or bylaws to the contrary, for a period
of five years from the date of completion of the conversion of the bank from
mutual to stock form, the following provisions shall apply:
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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 bank. This limitation shall not apply to a
transaction in which the bank forms a holding company without change in the
respective beneficial ownership interests of its stockholders other than
pursuant to the exercise of any dissenter and appraisal rights, the purchase of
shares by underwriters in connection with a public offering, or the purchase of
shares by a tax-qualified employee stock benefit plan which is exempt from the
approval requirements under Section 574.3(c)(1)(vi) of the Office's regulations.
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 stockholders for a vote.
For purposes of this Section 8, the following definitions apply:
(1) The term "person" includes an individual, a group acting in
concert, a corporation, a partnership, a bank, 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 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. Stockholders shall not be permitted to
cumulate their votes for election of directors.
C. Call for Special Meetings. Special meetings of stockholders relating to
changes in control of the bank or amendments to its charter shall be called only
upon direction of the board of directors.
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SECTION 9. Directors. The bank shall be under the direction of a board of
directors. The authorized number of directors, as stated in the bank's bylaws,
shall not be fewer than five nor more than fifteen except when a greater number
is approved by the Director of the Office.
SECTION 10. Amendment of charter. Except as provided in Section 5, no
amendment, addition, alteration, change, or repeal of this charter shall be
made, unless such is first proposed by the board of directors of the bank, then
preliminarily approved by the Office, which preliminary approval may be granted
by the Office pursuant to regulations specifying preapproved charter amendments,
and thereafter approved by the stockholders by a majority of the total votes
eligible to be cast at a legal meeting. Any amendment, addition, alteration,
change, or repeal so acted upon shall be effective upon filing with the Office
in accordance with regulatory procedures or on such other date as the Office may
specify in its preliminary approval.
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FIRST SECURITY FEDERAL SAVINGS BANK
ATTEST:__________________ By:__________________________
Terry Gawryk Julian E. Kulas
Secretary President and Chief Executive
Officer
DIRECTOR OF THE OFFICE OF
THRIFT SUPERVISION
ATTEST:__________________ By:__________________________
Secretary of the Office of Director of the Office of
Thrift Supervision Thrift Supervision
Declared effective this ____ day of ____________.199__
7
Exhibit 3.4
BYLAWS OF
FIRST SECURITY FEDERAL SAVINGS BANK
ARTICLE I
HOME OFFICE
The home office of the bank shall be in the City of Chicago, in the County
of Cook, in the State of Illinois.
ARTICLE II
SHAREHOLDERS
Section 1. Place of Meetings. All annual and special meetings of
shareholders shall be held at the home office of the bank or at such other place
in the state in which the principal place of business of the bank is located as
the board of directors may determine.
Section 2. Annual Meeting. A meeting of shareholders of the bank for the
election of directors and for the transaction of any other business of the bank
shall be held annually within 120 days after the end of the bank's fiscal year
on the fourth Wednesday of each April, if not a legal holiday, and if a legal
holiday, then on the next day following which is not a legal holiday, at 2:00
p.m., or at such other date and time within such 120-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 bank entitled to vote at the
meeting. Such written request shall state the purpose or purposes of the meeting
and shall be delivered to the home office of the bank addressed to the chairman
of the board, the president, or the secretary.
Section 4. Conduct of Meetings. Annual and special meetings shall be
conducted in accordance with the most current edition of Robert's Rules of Order
unless otherwise prescribed by regulations of the Office or these bylaws. The
board of directors shall designate, when present, either the chairman of the
board or president to preside at such meetings.
Section 5. Notice of Meetings. Written notice stating the place, day and
hour of the meeting and the purpose(s) for which the meeting is called shall be
delivered not fewer than 10 nor more than 50 days before the date of the
meeting, either personally or by mail, by or at the direction of the chairman of
the board, the president, or the secretary, or the directors calling the
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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 bank as of the record date pre scribed 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 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 bank shall make a complete list of the shareholders entitled to
vote at such meeting, or any adjournment, arranged in alphabetical order, with
the address and the number of shares held by each. This list of shareholders
shall be kept on file at the home office of the bank and shall be subject to
inspection by any shareholder 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 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 para graph, 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 bank
entitled to vote, represented in person or by proxy, shall constitute a quorum
at a meeting of shareholders. If less than a majority of the outstanding shares
is represented at a meeting, a majority of the shares so represented may adjourn
the meeting from time to time without further notice. At such adjourned meeting
at which a quorum shall be present or represented, any business may be
transacted which might have been transacted at the meeting as originally
notified. The shareholders present at a duly organized meeting may continue to
transact business until adjournment, notwithstanding the withdrawal of enough
shareholders to constitute less than a quorum.
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Section 9. Proxies. At all meetings of shareholders, a shareholder may vote
by proxy executed in writing by the shareholder or by his or her duly authorized
attorney in fact. Proxies 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 bank to the contrary, at any meeting of the shareholders of
the bank any one or more of such shareholders may cast, in person or by proxy,
all votes to which such ownership is entitled. In the event an attempt is made
to cast conflicting votes, in person or by proxy, by the several persons in
whose names shares of stock stand, the vote or votes to which those persons are
entitled shall be cast as directed by a majority of those holding such stock and
present in person or by proxy at such meeting, but no votes shall be cast for
such stock if a majority cannot agree.
Section 11. Voting of Shares by Certain Holders. Shares standing in the
name of another corporation may be voted by any officer, agent, or proxy as the
bylaws of such corporation may prescribe, or, in the absence of such provision,
as the board of directors of such corporation may determine. Shares held by an
administrator, executor, guardian, or conservator may be voted by him or her,
either in person or by proxy, without a transfer of such shares into his or her
name. Shares standing in the name of a trustee may be voted by him or her,
either in person or by proxy, but no trustee shall be entitled to vote shares
held by him or her without a transfer of such shares into his or her name.
Shares standing in the name of a receiver may be voted by such receiver, and
shares held by or under the control of a receiver may be voted by such receiver
without the transfer into his or her name if authority to do so is contained in
an appropriate order of the court or other public authority by which such
receiver was appointed.
A shareholder whose shares are pledged shall be entitled to vote such
shares until the shares have been transferred into the name of the pledgee, and
thereafter the pledgee shall be entitled to vote the shares so transferred.
Neither treasury shares of its own stock held by the bank nor shares held
by another corporation, if a majority of the shares entitled to vote for the
election of directors of such other corporation are held by the bank, shall be
voted at any meeting or counted in determining the total number of outstanding
shares at any given time for purposes of any meeting.
Section 12. Cumulative Voting. Unless otherwise provided in the charter of
the bank, every shareholder entitled to vote at an election for directors shall
have the right to vote, in person or by proxy, the number of shares owned by the
shareholder for as many persons as there are directors to be elected and for
whose election the shareholder has a right to vote, or to cumulate the votes by
giving one candidate as many votes as the number of such directors to be elected
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multiplied by the number of shares shall equal or by distributing such votes on
the same principle among any number of candidates.
Section 13. Inspectors of Election. In advance of any meeting of
shareholders, the board of directors may appoint any 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 or three. Any such appointment
shall not be altered at the meeting. If inspectors of election are not so
appointed, the chairman of the board or the president may, or on the request of
not fewer than 10 percent of the votes represented at the meeting shall, make
such appointment at the meeting. If appointed at the meeting, the majority of
the votes present shall determine whether one or three inspectors are to be
appointed. In case any person appointed as inspector fails to appear or fails or
refuses to act, the vacancy may be filled by appointment by the board of
directors in advance of the meeting or at the meeting by the chairman of the
board or the president.
Unless otherwise prescribed by regulations of the Office, the duties of
such inspectors shall include: determining the number of shares and the voting
power of each share, the shares repre sented at the meeting, the existence of a
quorum, and the authenticity, validity and effect of proxies: receiving votes,
ballots, or consents; hearing and determining all challenges and questions in
any way arising in connection with the rights to vote; counting and tabulating
all votes or consents; determining the result; and such acts as may be proper to
conduct the election or vote with fairness to all shareholders.
Section 14. Nominating Committee. The board of directors shall act as a
nominating committee for selecting the management nominees for election as
directors. Except in the case of a nominee substituted as a result of the death
or other incapacity of a management nominee, the nominating committee shall
deliver written nominations to the secretary at least 20 days prior to the date
of the annual meeting. Upon delivery, such nominations shall be posted in a
conspicuous place in each office of the bank. No nominations for directors
except those made by the nominating committee shall be voted upon at the annual
meeting unless other nominations by shareholders are made in writing and
delivered to the secretary of the bank at least five days prior to the date of
the annual meeting. Upon delivery, such nominations shall be posted in a
conspicuous place in each office of the bank. Ballots bearing the names of all
the persons nominated by the nominating committee and by shareholders shall be
provided for use at the annual meeting. However, if the nominating committee
shall fail or refuse to act at least 20 days prior to the annual meeting,
nominations for directors may be made at the annual meeting by any shareholder
entitled to vote and shall be voted upon.
Section 15. New Business. At an annual meeting of shareholders only
such new business shall be conducted, and only such proposals shall be acted
upon, as shall have been properly brought before the meeting. For any new
business proposed by management to be properly brought before the annual
meeting, such new business shall be approved by the board of directors, either
directly or through its approval of proxy solicitation materials related
thereto, and shall be stated in writing and filed with the secretary of the bank
at least 20 days before the date of the
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annual meeting, and all business so stated, proposed and filed shall be
considered at the annual meeting. Any shareholder may make any other proposal at
the annual meeting and the same may be discussed and considered, but unless
properly brought before the meeting such proposal shall not be acted upon at the
meeting. For a proposal to be properly brought before an annual meeting by a
shareholder, the shareholder must have given timely notice thereof in writing to
the secretary of the bank. To be timely, a shareholder's notice must be
delivered to or received at the principal executive offices of the bank, not
less than 20 days prior to the meeting; provided, however, that in the event
that less than 30 days notice of the date of the meeting is given to
shareholders (which notice shall be accompanied by a proxy or information
statement which describes each matter proposed by the board of directors to be
acted upon at the meeting), notice by the shareholder to be timely must be so
received not later than the close of business on the 10th day following the day
on which such notice of the date of the annual meeting was mailed. A
shareholder's notice to the secretary shall set forth as to each matter the
shareholder proposes to bring before the annual meeting: (a) a brief description
of the proposal desired to be brought before the annual meeting; (b) the name
and address of the shareholder proposing such business and (c) the class and
number of shares of the bank which are owned of record by the shareholder.
Notwithstanding anything in the bylaws to the contrary, no business shall be
conducted at an annual meeting except in accordance with the procedures set
forth in this Section 15.
Section 16. Informal Action by Shareholders. Any action required to be
taken at a meeting of 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 bank shall be
under the direction of its board of directors. The board of directors shall
annually elect a chairman of the board and a president from among its members
and shall designate, when present, either the chairman of the board or the
president to preside at its meetings.
Section 2. Number and Term. The board of directors shall consist of nine
members and shall be divided into three classes as nearly equal in number as
possible. The members of each class shall be elected for a term of three years
and until their successors are elected and qualified. One class shall be elected
by ballot annually.
Section 3. Regular Meetings. A regular meeting of the board of directors
shall be held without other notice than this bylaw immediately after, and at the
same place as, the annual meeting of shareholders. The board of directors may
provide, by resolution, the time and place,
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within the bank's normal lending territory, for the holding of additional
regular meetings without other notice than such resolution.
Section 4. Qualification. Each director shall at all times be the
beneficial owner of not less than 100 shares of capital stock of the bank unless
the bank is a wholly owned subsidiary of a holding company.
Section 5. Special Meetings. Special meetings of the board of directors may
be called by or at the request of the chairman of the board, the president, or
one-third of the directors. The persons authorized to call special meetings of
the board of directors, may fix any place, within the bank's normal lending
territory, as the place for holding any special meeting of the board of direc
tors called by such persons.
Members of the board of directors may participate in special meetings by
means of conference telephone or similar communications equipment by which all
persons participating in the meeting can hear each other. Such participation
shall constitute presence in person but shall not constitute attendance for the
purpose of compensation pursuant to Section 12 of this Article.
Section 6. Notice. Written notice of any special meeting shall be given to
each director at least two days prior thereto when delivered personally or by
telegram or at least five days prior thereto when delivered by mail at the
address at which the director is most likely to be reached. Such notice shall be
deemed to be delivered when deposited in the mail so addressed, with postage
prepaid if mailed or when delivered to the telegraph company if sent by
telegram. Any director may waive notice of any meeting by a writing filed with
the secretary. The attendance of a director at a meeting shall constitute a
waiver of notice of such meeting, except where a director attends a meeting for
the express purpose of objecting to the transaction of any business because the
meeting is not lawfully called or convened. Neither the business to be
transacted at, nor the purpose of, any meeting of the board of directors need be
specified in the notice or waiver of notice of such meeting.
Section 7. Quorum. A majority of the number of directors fixed by Section 2
of this Article III shall constitute a quorum for the transaction of business at
any meeting of the board of directors; but if less than such majority is present
at a meeting, a majority of the directors present may adjourn the meeting from
time to time. Notice of any adjourned meeting shall be given in the same manner
as prescribed by Section 6 of this Article III.
Section 8. Manner of Acting. The act of the majority of the directors
present at a meeting at which a quorum is present shall be the act of the board
of directors, unless a greater number is prescribed by regulation of the Office
or by these bylaws.
Section 9. Action Without a Meeting. Any action required or permitted to be
taken by the board of directors at a meeting may be taken without a meeting if a
consent in writing, setting forth the action so taken, shall be signed by all of
the directors.
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Section 10. Resignation. Any director may resign at any time by sending a
written notice of such resignation to the home office of the bank addressed to
the chairman of the board or the president. Unless otherwise specified, such
resignation shall take effect upon receipt by the chairman of the board or the
president. More than three consecutive absences from regular meetings of the
board of directors, unless excused by resolution of the board of directors,
shall automatically constitute a resignation, effective when such resignation is
accepted by the board of directors.
Section 11. Vacancies. Any vacancy occurring on the board of directors may
be filled by the affirmative vote of a majority of the remaining directors
although less than a quorum of the board of directors. A director elected to
fill a vacancy shall be elected to serve until the next election of directors by
the shareholders. Any directorship to be filled by reason of an increase in the
number of directors may be filled by election by the board of directors for a
term of office continuing only until the next election of directors by the
shareholders.
Section 12. Compensation. Directors, as such, may receive a stated salary
for their services. By resolution of the board of directors, a reasonable fixed
sum, and reasonable expenses of attendance, if any, may be allowed for actual
attendance at each regular or special meeting of the board of directors. Members
of either standing or special committees may be allowed such compensation for
actual attendance at committee meetings as the board of directors may determine.
Section 13. Presumption of Assent. A director of the bank who is present at
a meeting of the board of directors at which action on any bank matter is taken
shall be presumed to have assented to the action taken unless his or her dissent
or abstention shall be entered in the minutes of the meeting or unless he or she
shall file a written dissent to such action with the person acting as the
secretary of the meeting before the adjournment thereof or shall forward such
dissent by registered mail to the secretary of the bank within five days after
the date a copy of the minutes of the meeting is received. Such right to dissent
shall not apply to a director who voted in favor of such action.
Section 14. Removal of Directors. At a meeting of shareholders called
expressly for that purpose, any director may be removed for cause by a vote of
the holders of a majority of the shares then entitled to vote at an election of
directors. If less than the entire board is to be removed, no one of the
directors may be removed if the votes cast against the removal would be
sufficient to elect a director if then cumulatively voted at an election of the
class of directors of which such director is a part. Whenever the holders of the
shares of any class are entitled to elect one or more directors by the
provisions of the charter or supplemental sections thereto, the provisions of
this section shall apply, in respect to the removal of a director or directors
so elected, to the vote of the holders of the outstanding shares of that class
and not to the vote of the outstanding shares as a whole.
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ARTICLE IV
EXECUTIVE AND OTHER COMMITTEES
Section 1. Appointment. The board of directors, by resolution adopted by a
majority of the full board, may designate the chief executive officer and one or
more of the other directors to constitute an executive committee. The
designation of any committee pursuant to this Article IV and the delegation of
authority shall not operate to relieve the board of directors, or any director,
of any responsibility imposed by law or regulation.
Section 2. Authority. The executive committee, when the board of directors
is not in session, shall have and may exercise all of the authority of the board
of directors except to the ex tent, 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 bank, or recommending to the shareholders a plan of merger,
consolidation, or conversion; the sale, lease, or other disposition of all or
substantially all of the property and assets of the bank otherwise than in the
usual and regular course of its business; a voluntary dissolution of the bank; a
revocation of any of the foregoing; or the approval of a transaction in which
any member of the executive committee, directly or indirectly, has any material
beneficial interest.
Section 3. Tenure. Subject to the provisions of Section 8 of this Article
IV, each member of the executive committee shall hold office until the next
regular annual meeting of the board of directors following his or her
designation and until a successor is designated as a member of the executive
committee.
Section 4. Meetings. Regular meetings of the executive committee may be
held without notice at such times and places as the executive committee may fix
from time to time by resolution. Special meetings of the executive committee may
be called by any member thereof upon not less than one day's notice stating the
place, date, and hour of the meeting, which notice may be written or oral. Any
member of the executive committee may waive notice of any meeting and no notice
of any meeting need be given to any member thereof who attends in person. The
notice of a meeting of the executive committee need not state the business
proposed to be transacted at the meeting.
Section 5. Quorum. A majority of the members of the executive committee
shall constitute a quorum for the transaction of business at any meeting
thereof, and action of the executive committee must be authorized by the
affirmative vote of a majority of the members present at a meeting at which a
quorum is present.
Section 6. Action Without a Meeting. Any action required or permitted to be
taken by the executive committee at a meeting may be taken without a meeting if
a consent in writing, setting forth the action so taken, shall be signed by all
of the members of the executive committee.
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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 bank. Unless otherwise specified, such
resignation shall take effect upon its receipt; the acceptance of such
resignation shall not be necessary to make it effective.
Section 9. Procedure. The executive committee shall elect a presiding
officer from its members and may fix its own rules of procedure which shall not
be inconsistent with these bylaws. It shall keep regular minutes of its
proceedings and report the same to the board of directors for its information at
the meeting held next after the proceedings shall have occurred.
Section 10. Other Committees. The board of directors may by resolution
establish an audit, loan or other committee composed of directors as they may
determine to be necessary or appropriate for the conduct of the business of the
bank and may prescribe the duties, constitution and procedures thereof.
ARTICLE V
OFFICERS
Section 1. Positions. The officers of the bank shall be a president, one or
more vice presidents, a secretary and a chief financial officer, each of whom
shall be elected by the board of directors. The Board of Directors may also
designate the Chairman of the Board as an officer. The president shall be the
chief executive officer, unless the board of directors designates the chairman
of the board as chief executive officer. The president shall be a director of
the bank. The offices of the secretary and chief financial officer may be held
by the same person and a vice president may also be either the secretary or the
chief financial officer. The board of directors may designate one or more vice
presidents as executive vice president or senior vice president. The board of
directors may also elect or authorize the appointment of such other officers as
the business of the bank may require. The officers shall have such authority and
perform such duties as the board of directors may from time to time authorize or
determine. In the absence of action by the board of directors, the officers
shall have such powers and duties as generally pertain to their respective
offices.
Section 2. Election and Term of Office. The officers of the bank shall be
elected annually at the first meeting of the board of directors held after each
annual meeting of the shareholders. If the election of officers is not held at
such meeting, such election shall be held as soon thereafter as possible. Each
officer shall hold office until a successor has been duly elected
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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 bank to enter into an employment contract with any officer in
accordance with regulations of the Office; but no such contract shall impair the
right of the board of directors to remove any officer at any time in accordance
with Section 3 of this Article V.
Section 3. Removal. Any officer may be removed by the board of directors
whenever in its judgment the best interests of the bank will be served thereby,
but such removal, other than for cause, shall be without prejudice to the
contractual rights, if any, of the person so removed.
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 di rectors may authorize any officer, employee, or
agent of the bank to enter into any contract or execute and deliver any
instrument in the name of and on behalf of the bank. Such authority may be
general or confined to specific instances.
Section 2. Loans. No loans shall be contracted on behalf of the bank and no
evidence of indebtedness shall be issued in its name unless authorized by the
board of directors. Such authority may be general or confined to specific
instances.
Section 3. Checks, Drafts, etc. All checks, drafts or other orders for the
payment of money, notes or other evidences of indebtedness issued in the name of
the bank shall be signed by one or more officers, employees or agents of the
bank in such manner as shall from time to time be determined by the board of
directors.
Section 4. Deposits. All funds of the bank not otherwise employed shall be
deposited from time to time to the credit of the bank in any duly authorized
depositories as the board of directors may select.
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ARTICLE VII
CERTIFICATES FOR SHARES AND THEIR TRANSFER
Section 1. Certificates for Shares. Certificates representing shares of
capital stock of the bank shall be in such form as shall be determined by the
board of directors and approved by the Office. Such certificates shall be signed
by the chief executive officer or by any other officer of the bank authorized by
the board of directors, attested by the secretary or an assistant secretary, and
sealed with the corporate seal or a facsimile thereof. The signatures of such
officers upon a certificate may be facsimiles if the certificate is manually
signed on behalf of a transfer agent or a registrar other than the bank itself
or one of its employees. Each certificate for shares of capital stock shall be
consecutively numbered or otherwise identified. The name and address of the
person to whom the shares are issued, with the number of shares and date of
issue, shall be entered on the stock transfer books of the bank. All
certificates surrendered to the bank for transfer shall be cancelled and no new
certificate shall be issued until the former certificate for a like number of
shares has been surrendered or cancelled, except that in case of a lost or
destroyed certificate, a new certificate may be issued upon such terms and
indemnity to the bank as the board of directors may prescribe.
Section 2. Transfer of Shares. Transfer of shares of capital stock of the
bank shall be made only on its stock transfer books. Authority for such transfer
shall be given only by the holder of record or by his or her legal
representative, who shall furnish proper evidence of such authority, or by his
or her attorney authorized by a duly executed power of attorney and filed with
the bank. Such transfer shall be made only on surrender for cancellation of the
certificate for such shares. The person in whose name shares of capital stock
stand on the books of the bank shall be deemed by the bank to be the owner for
all purposes.
ARTICLE VIII
FISCAL YEAR; ANNUAL AUDIT
The fiscal year of the bank shall end on the last day of December of each
year. The bank shall be subject to an annual audit as of the end of its fiscal
year by independent public accountants appointed by and responsible to the board
of directors. The appointment of such accountants shall be subject to annual
ratification by the shareholders.
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ARTICLE IX
DIVIDENDS
Subject to the terms of the bank's charter and the regulations and orders
of the Office, the board of directors may, from time to time, declare, and the
bank may pay, dividends on its outstanding shares of capital stock.
ARTICLE X
CORPORATE SEAL
The board of directors shall provide a bank seal which shall be two
concentric circles between which shall be the name of the bank. The year of
incorporation or an emblem may appear in the center.
ARTICLE XI
AMENDMENTS
These bylaws may be amended in a manner consistent with the regulations of
the Office at any time by a majority of the full board of directors or by a
majority of the votes cast by the shareholders of the bank at any legal meeting.
12
NUMBER 002
COMMON STOCK
CUSIP No. ___________
FIRST SECURITYFED FINANCIAL, INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
This Certifies that
is the owner of
FULLY PAID AND NONASSESSABLE SHARES OF COMMON STOCK, PAR VALUE $.01 PER
SHARE OF
FIRST SECURITYFED FINANCIAL, INC. (the "Corporation"), a Delaware corporation.
The shares represented by this certificate are transferable only on the stock
transfer books of the Corporation by the holder of record hereof, or by his duly
authorized attorney or legal representative, upon the surrender of this
certificate properly endorsed. This certificate is not valid until countersigned
and registered by the Corporation's transfer agent and registrar. This security
is not a deposit or account and is not federally insured or guaranteed.
IN WITNESS WHEREOF, the Corporation has caused this certificate to be
executed by the facsimile signatures of its duly authorized officers and has
caused a facsimile of its corporate seal to be hereunto affixed.
DATED____________________________
_________________________________ ____________________________________
Terry Gawryk, Corporate Secretary Julian E. Kulas, President and Chief
[Seal] Executive Officer
Countersigned and Registered
____________________________
Transfer Agent and Registrar
<PAGE>
FIRST SECURITYFED FINANCIAL, INC.
The shares represented by this certificate are issued subject to all
the provisions of the certificate of incorporation and bylaws of the Corporation
as from time to time amended (copies of which are on file at the principal
executive offices of the Corporation).
The Corporation's certificate of incorporation provides that no
"person" (as defined in the certificate of incorporation) who "beneficially
owns" (as defined in the certificate of incorporation) in excess of 10% of the
outstanding shares of the Corporation shall be entitled to vote any shares held
in excess of such limit. This provision of the certificate of incorporation
shall not apply to an acquisition of securities of the Corporation by an
employee stock purchase plan or other employee benefit plan of the Corporation
or any of its subsidiaries.
The Corporation's certificate of incorporation also includes a
provision the general effect of which is to require the affirmative vote of the
holders of 80% of the outstanding voting shares of the Corporation to approve
certain "business combinations" (as defined in the certificate of incorporation)
between the Corporation and a stockholder owning in excess of 10% of the
outstanding shares of the Corporation. However, only the affirmative vote of a
majority of the outstanding shares or such vote as is otherwise required by law
(rather than the 80% voting requirement) is applicable to the particular
transaction if it is approved by a majority of the "disinterested directors" (as
defined in the certificate of incorporation) or, alternatively, the transaction
satisfies certain minimum price and procedural requirements. The Corporation's
certificate of incorporation also contains a provision which requires the
affirmative vote of holders of at least 80% of the outstanding voting shares of
the Corporation which are not beneficially owned by the "interested person" (as
defined in the certificate of incorporation) to approve the direct or indirect
purchase or other acquisition by the Corporation of any "equity security" (as
defined in the certificate of incorporation) from such interested person.
The Corporation will furnish to any stockholder upon request and
without charge a full statement of the powers, designations, preferences and
relative participating, optional or other special rights of each authorized
class of stock or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights, to the extent that the same have
been fixed, and of the authority of the board of directors to designate the same
with respect to other series. Such request may be made to the Corporation or to
its transfer agent and registrar.
The following abbreviations, when used in the inscription on the face
of this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common UNIF GIFT MIN ACT______Custodian_________
TEN ENT - as tenants by the entirety (Cust) (Minor)
JT TEN - as joint tenants with right Under Uniform Gift to Minors Act-________
of survivorship and not as (State)
tenants in common. UNIF TRANS MIN ACT______Custodian________
(Cust) (Minor)
Under Uniform Transfers to Minors Act-_____
(State)
Additional abbreviations may also be used though not in
the above list.
For Value Received,____________________hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- ------------------------------
- ------------------------------
___________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
_____________________________Shares of Common Stock represented by the within
certificate, and do hereby irrevocably constitute and appoint________________
Attorney to transfer the said shares on the books of the within named
Association with full power of substitution in the premises.
Dated________________ _________________________________________________________
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE
NAME AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY
PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT OR ANY
CHANGE WHATEVER.
Exhibit 5
[SILVER FREEDMAN & TAFF, L.L.P. LETTERHEAD]
July 17, 1997
The Board of Directors
First SecurityFed Financial, Inc.
936 North Western Avenue
Chicago, Illinois 60622-4695
Re: Registration Statement Under the Securities Act of 1933
Gentlemen:
This opinion is rendered in connection with the Registration Statement to
be filed on Form S-1 with the Securities and Exchange Commission under the
Securities Act of 1933 relating to the 5,695,000 shares of Common Stock of First
SecurityFed Financial, Inc. (the "Company"), par value $.01 per share, to be
issued. As counsel, we have reviewed the Certificate of Incorporation of the
Company and such other documents as we have deemed appropriate for the purpose
of this opinion. We are rendering this opinion as of the time the Registration
Statement referred to above becomes effective.
Based on the foregoing, we are of the opinion that the shares of Common
Stock of the Company covered by the aforesaid Registration Statement will, when
sold, be validly issued, fully paid and non-assessable shares of Common Stock of
the Company.
Very truly yours,
/s/SILVER FREEDMAN & TAFF, L.L.P.
SILVER FREEDMAN & TAFF, L.L.P.
[SILVER, FREEDMAN & TAFF, L.L.P. LETTERHEAD]
July 18, 1997
Board of Directors
First Security Federal Savings Bank
936 North Western Avenue
Chicago, Illinois 60622-4695
RE: Federal Income Tax Opinion Relating To The Conversion Of First
Security Federal Savings Bank From A Federally-Chartered Mutual
Savings Bank To A Federally-Chartered Stock Savings Bank Under Section
368(a)(1)(F) of the Internal Revenue Code of 1986, As Amended
Gentlemen:
In accordance with your request set forth hereinbelow is the opinion of
this firm relating to the federal income tax consequences of the conversion of
First Security Federal Savings Bank ("Mutual") from a federally-chartered mutual
savings bank to a federally-chartered stock savings bank ("Stock Bank") pursuant
to the provisions of Section 368(a)(1)(F) of the Internal Revenue Code of 1986,
as amended (the "Code").
Capitalized terms used herein which are not expressly defined herein shall
have the meaning ascribed to them in the Amended Plan of Conversion dated June
23, 1997 (the "Plan").
The following assumptions have been made in connection with our opinions
hereinbelow:
<PAGE>
Board of Directors
First Security Federal Savings Bank
July 18, 1997
Page 2
- --------------------------------------------------------------------------------
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. No amount of the savings accounts and deposits of Mutual, as of the
Eligibility Record Date or the Supplemental Eligibility Record Date, will be
excluded from participating in the liquidation account of Stock Bank. To the
best of the knowledge of the management of Mutual there is not now, nor will
there be at the time of the Conversion, any plan or intention, on the part of
the depositors in Mutual to withdraw their deposits following the Conversion.
Deposits withdrawn immediately prior to or immediately subsequent to the
Conversion (other than maturing deposits) are considered in making these
assumptions.
3. Holding Company and Stock Bank each have no plan or intention to redeem
or otherwise acquire any of the Holding Company Conversion Stock to be issued in
the proposed transaction.
4. Immediately following the consummation of the proposed transaction,
Stock Bank will possess the same assets and liabilities as Mutual held
immediately prior to the proposed transaction, plus substantially all of the net
proceeds from the sale of its stock to Holding Company except for assets used to
pay expenses of the Conversion. The liabilities transferred to Stock Bank were
incurred by Mutual in the ordinary course of business.
5. No cash or property will be given to deposit account holders in lieu of
Subscription Rights or an interest in the liquidation account of Stock Bank.
6. Following the Conversion, Stock Bank will continue to engage in its
business in substantially the same manner as Mutual engaged in business prior to
the Conversion, and it has no plan or intention to sell or otherwise dispose of
any of its assets, except in the ordinary course of business.
7. There is no plan or intention for Stock Bank to be liquidated or merged
with another corporation following the consummation of the Conversion.
8. The fair market value of each savings account plus an interest in the
liquidation account of Stock Bank will, in each instance, be approximately equal
to the fair market value of each savings account of Mutual plus the interest in
the residual equity of Mutual surrendered in exchange therefor.
<PAGE>
Board of Directors
First Security Federal Savings Bank
July 18, 1997
Page 3
- --------------------------------------------------------------------------------
9. Mutual, Stock Bank and Holding Company are each corporations within the
meaning of Section 7701(a)(3) of the Code.
10. 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.
11. Both Stock Bank and Holding Company have no plan or intention, either
currently or at the time of Conversion, to issue additional shares of common
stock following the proposed transaction, other than (a) 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 and (b) up to
250,000 shares of Holding Company Common Stock to the Heritage Foundation of
First Security Federal Savings Bank, Inc., a charitable organization created
under Section 501 (c)(3) of the Code (the "Foundation").
12. If all of the net proceeds from the sale of Holding Company Conversion
Stock had been contributed by Holding Company to Stock Bank in exchange for
common stock of Stock Bank in the transaction, as opposed to Holding Company
retaining a portion of such net proceeds (the "retained proceeds"), and Stock
Bank immediately thereafter made a distribution of the retained proceeds to
Holding Company, Stock Bank would have sufficient current and accumulated
earnings and profits for tax purposes such that the distribution would not
result in the recapture of any portion of the bad debt reserves of Stock Bank.
13. Assets used to pay expenses of the Conversion and all distributions
(except for regular, normal interest payments and other payments in the normal
course of business made by Mutual immediately preceding the transaction) will in
the aggregate constitute less than 1% of the net assets of Mutual and any such
expenses and distributions will be paid by Stock Bank from the proceeds of the
sale of Holding Company Conversion Stock.
14. All distributions to deposit account holders in their capacity as
deposit account holders (except for regular, normal interest payments made by
Mutual), will, in the aggregate, constitute less than 1% of the fair market
value of the net assets of Mutual.
15. At the time of the proposed transaction, the fair market value of the
assets of Mutual on a going concern basis (including intangibles) will equal or
exceed the amount of its liabilities plus the amount of liabilities to which
such assets are subject. Mutual will have a positive regulatory net worth at the
time of the Conversion.
16. Mutual is not under the jurisdiction of a court in a Title 11 or
similar case within the meaning of Section 368(a)(3)(A) of the Code. The
proposed transaction does not involve
<PAGE>
Board of Directors
First Security Federal Savings Bank
July 18, 1997
Page 4
- --------------------------------------------------------------------------------
a receivership, foreclosure, or similar proceeding before a federal or state
agency involving a financial institution to which Section 585 of the Code
applies.
17. Mutual's Eligible Account Holders and Supplemental Eligible Account
Holders will pay expenses of the Conversion solely attributable to them, if any.
18. The liabilities of Mutual assumed by Stock Bank plus the liabilities,
if any, to which the transferred assets are subject were incurred by Mutual in
the ordinary course of its business and are associated with the assets being
transferred.
19. There will be no purchase price advantage for Mutual's deposit account
holders who purchase Holding Company Conversion Stock.
20. Neither Mutual nor Stock Bank is an investment company as defined in
Sections 368(a)(2)(F)(iii) and (iv) of the Code.
21. None of the compensation to be received by any deposit account
holder-employees of Mutual or Holding Company will be separate consideration
for, or allocable to, any of their deposits in Mutual. No interest in the
liquidation account of Stock Bank will be received by any deposit account
holder-employees as separate consideration for, or will otherwise be allocable
to, any employment agreement, and the compensation paid to each deposit account
holder-employee, during the twelve-month period preceding or subsequent to the
Conversion, will be for services actually rendered and will be commensurate with
amounts paid to the third parties bargaining at arm's-length for similar
services. No shares of Holding Company Conversion Stock will be issued to or
purchased by any deposit account holder-employee of Mutual or Holding Company at
a discount or as compensation in the proposed transaction.
22. No creditors of Mutual or the depositors in their role as creditors,
have taken any steps to enforce their claims against Mutual by instituting
bankruptcy or other legal proceedings, in either a court or appropriate
regulatory agency, that would eliminate the proprietary interests of the Members
prior to the Conversion of Mutual including depositors as the equity holders of
Mutual.
23. The proposed transaction does not involve the payment to Stock Bank or
Mutual of financial assistance from federal agencies within the meaning of
Notice 89-102, 1989-40 C.B. 1.
24. On a per share basis, the purchase price of Holding Company Conversion
Stock will be equal to the fair market value of such stock at the time of the
completion of the proposed transaction.
<PAGE>
Board of Directors
First Security Federal Savings Bank
July 18, 1997
Page 5
- --------------------------------------------------------------------------------
25. Mutual has received or will receive an opinion from FINPRO Financial
Services, Inc. ("Appraiser's Opinion"), which concludes that the Subscription
Rights to be received by Eligible Account Holders, Supplemental Eligible Account
Holders and other eligible subscribers do not have any ascertainable fair market
value, since they are acquired by the recipients without cost, are
non-transferable and of short duration, and afford the recipients a right only
to purchase Holding Company Conversion Stock at a price equal to its estimated
fair market value, which will be the same price as the Public Offering Price for
unsubscribed shares of Holding Company Conversion Stock.
26. Mutual will not have any net operating losses, capital loss carryovers
or built- in losses at the time of the Conversion.
As part of the Conversion, Holding Company intends to donate to the
Foundation up to 250,000 shares of its Common Stock. The funding of the
Foundation as part of the Conversion is subject to separate approval by a
majority of the total outstanding votes of the eligible votes to be cast by
Members of Mutual at the Special Meeting of Members. In the event that the
Foundation does not receive the prerequisite approval, Mutual intends to
complete the Conversion without funding the Foundation.
The Plan provides that the Foundation has been formed to further the Stock
Bank's long-term commitment to its community. The Plan states that the
Foundation is intended to complement Mutual's existing community reinvestment
activities so as to allow the local community to share in the growth and
profitability of the Holding Company and Stock Bank over the long term.
The Foundation will be dedicated to the promotion of charitable purposes
within Mutual's local community, including, but not limited to grants or
donations to support not-for-profit medical facilities, cultural activities,
community groups and other types of organizations or projects. The Foundation
will annually distribute total grants and donations to assist charitable
organizations or to fund projects within its local community of not less than
five percent (5%) of the average fair value of the Foundation's assets each
year.
<PAGE>
Board of Directors
First Security Federal Savings Bank
July 18, 1997
Page 6
- --------------------------------------------------------------------------------
OPINION
Based solely on the assumptions set forth hereinabove and our analysis and
examination of applicable federal income tax laws, rulings, regulations,
judicial precedents and the Appraiser's Opinion, we are of the opinion that if
the transaction is undertaken in accordance with the above assumptions:
(1) The Conversion will constitute a reorganization within the meaning of
Section 368(a)(1)(F) of the Code. Neither Mutual nor Stock Bank will recognize
any gain or loss as a result of the transaction (Rev. Rul. 80-105, 1980-1 C.B.
78). Mutual and Stock Bank will each be a party to a reorganization within the
meaning of Section 368(b) of the Code.
(2) Stock Bank will recognize no gain or loss upon the receipt of money and
other property, if any, in the Conversion, in exchange for its shares. (Section
1032(a) of the Code.)
(3) No gain or loss will be recognized by Holding Company upon the receipt
of money for Holding Company Conversion Stock. (Section 1032(a) of the Code.)
(4) The basis of Mutual's assets in the hands of Stock Bank will be the
same as the basis of those assets in the hands of Mutual immediately prior to
the transaction. (Section 362(b) of the Code.)
(5) Stock Bank's holding period of the assets of Mutual will include the
period during which such assets were held by Mutual prior to the Conversion.
(Section 1223(2) of the Code).
(6) Stock Bank, for purposes of Section 381 of the Code, will be treated as
if there had been no reorganization. The tax attributes of Mutual enumerated in
Section 381(a) of the Code will be taken into account by Stock Bank as if there
had been no reorganization. Accordingly, the tax year of Mutual will not end on
the effective date of the Conversion. The part of the tax year of Mutual before
the Conversion will be includible in the tax year of Stock Bank after the
Conversion. Therefore, Mutual will not have to file a federal income tax return
for the portion of the tax year prior to the Conversion. (Rev. Rul. 57-276,
1957-1 C.B. 126).
(7) Depositors will realize gain, if any, upon the constructive issuance to
them of withdrawable deposit accounts of Stock Bank, Subscription Rights and/or
interests in the liquidation account of Stock Bank. Any gain resulting therefrom
will be recognized, but only in an amount not in excess of the fair market value
of the liquidation accounts and/or Subscription Rights received. The liquidation
accounts will have nominal, if any, fair market value. Based solely on the
<PAGE>
Board of Directors
First Security Federal Savings Bank
July 18, 1997
Page 7
- --------------------------------------------------------------------------------
accuracy of the conclusion reached in the Appraiser's Opinion, and our reliance
on such opinion, that the Subscription Rights have no value at the time of
distribution or exercise, no gain or loss will be required to be recognized by
depositors upon receipt or distribution of Subscription Rights. (Section 1001 of
the Code); See Paulsen v. Commissioner, 469 U.S. 131,139 (1985). Likewise, based
solely on the accuracy of the aforesaid conclusion reached in the Appraiser's
Opinion, and our reliance thereon, we give the following opinions: (a) no
taxable income will be recognized by the borrowers, directors, officers and
employees of Mutual upon the distribution to them of Subscription Rights or upon
the exercise or lapse of the Subscription Rights to acquire Holding Company
Conversion Stock at fair market value; (b) no taxable income will be realized by
the depositors of Mutual as a result of the exercise or lapse of the
Subscription Rights to purchase Holding Company Conversion Stock at fair market
value. Rev. Rul. 56-572, 1956-2 C.B. 182; and (c) no taxable income will be
realized by Mutual, Stock Bank or Holding Company on the issuance or
distribution of Subscription Rights to depositors of Mutual to purchase shares
of Holding Company Conversion Stock at fair market value. (Section 311 of the
Code.)
Notwithstanding the Appraiser's Opinion, if the Subscription Rights are
subsequently found to have a fair market value, income may be recognized by
various recipients of the Subscription Rights (in certain cases, whether or not
the rights are exercised) and Holding Company and/or Stock Bank may be taxable
on the distribution of the Subscription Rights. (Section 311 of the Code). In
this regard, the Subscription Rights may be taxed partially or entirely at
ordinary income tax rates.
(8) The creation of the liquidation account on the records of Stock Bank
will have no effect on Mutual's or Stock Bank's taxable income, deductions, or
tax bad debt reserve.
(9) A depositor's basis in the savings deposits of Stock Bank will be the
same as the basis of his savings deposits in Mutual. (Section 1012 of the Code).
Based upon the Appraiser's Opinion, the basis of the Subscription Rights will be
zero. The basis of the interest in the liquidation account of Stock Bank
received by Eligible Account Holders and Supplemental Eligible Account Holders
will be equal to the cost of such property, i.e., the fair market value of the
proprietary interest in Mutual, which in this transaction we assume to be zero.
(10) The basis of Holding Company Conversion Stock to its shareholders will
be the purchase price thereof. (Section 1012 of the Code).
(11) A shareholder's holding period for Holding Company Conversion Stock
acquired through the exercise of the Subscription Rights shall begin on the date
on which the Subscription Rights are exercised. (Section 1223(6) of the Code).
The holding period for the Holding Company Conversion Stock purchase pursuant to
the direct community offering, public
<PAGE>
Board of Directors
First Security Federal Savings Bank
July 18, 1997
Page 8
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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).
(12) Regardless of any book entries that are made for the establishment of
a liquidation account, the reorganization will not diminish the accumulated
earnings and profits of Mutual available for the subsequent distribution of
dividends, within the meaning of Section 316 of the Code. Section 1.312-11(b)
and (c) of the Regulations. Stock Bank will succeed to and take into account the
earnings and profits or deficit in earnings and profits, of Mutual as of the
date of Conversion.
The above opinions are effective to the extent that Mutual is solvent. No
opinion is expressed about the tax treatment of the transaction if Mutual is
insolvent. Whether or not Mutual is solvent will be determined at the end of the
taxable year in which the transaction is consummated.
No opinion is expressed as to the tax treatment of the transaction under
the provisions of any of the other sections of the Code and Income Tax
Regulations which may also be applicable thereto, or to the tax treatment of any
conditions existing at the time of, or effects resulting from, the transaction
which are not specifically covered by the opinions set forth above. No opinion
is expressed as to the tax treatment of the establishment or funding of the
Foundation.
Respectfully submitted,
SILVER, FREEDMAN & TAFF, L.L.P.
/s/ Silver, Freedmen & Taff, L.L.P.
-----------------------------------
Exhibit 8.3
July 18, 1997
Board of Directors
First Security Federal Savings Bank
936 North Western Avenue
Chicago, IL 60622
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 First Security
Federal Savings Bank (the "Bank"), whereby the Bank will convert from a
federally chartered mutual savings institution to a federally chartered stock
savings institution and issue shares of Common Stock 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) Supplemental Eligible Account Holders; (iii) Other Members and ;
(iv) 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:
the Subscription Rights will have no ascertainable market value; and
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
FIRST SECURITYFED FINANCIAL, INC.
EMPLOYEE STOCK OWNERSHIP PLAN
Effective as of January 1, 1997
<PAGE>
FIRST SECURITYFED FINANCIAL, INC.
EMPLOYEE STOCK OWNERSHIP PLAN
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
PREAMBLE 1
ARTICLE I DEFINITION OF TERMS AND CONSTRUCTION
1.1 Definitions
<S> <C>
(a) "Act" 2
(b) "Administrator" 2
(c) "Annual Additions" 2
(d) "Authorized Leave of Absence" 2
(e) "Beneficiary" 2
(f) "Board of Directors" 2
(g) "Break" 3
(h) "Code" 3
(i) "Compensation" 3
(j) "Date of Hire" 3
(k) "Disability" 3
(l) "Disability Retirement Date" 3
(m) "Early Retirement Date" 3
(n) "Effective Date" 3
(o) "Eligibility Period" 3
(p) "Employee" 4
(q) "Employer" 4
(r) "Employer Securities" 4
(s) "Entry Date" 4
(t) "Exempt Loan" 4
(u) "Former Participant" 4
(v) "Fund" 4
(w) "Hour of Service" 4
(x) "Investment Adjustments" 5
(y) "Limitation Year" 5
</TABLE>
i
<PAGE>
<TABLE>
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Page
<S> <C>
(z) "Normal Retirement Date" 5
(aa) "Participant" 5
(bb) "Plan" 5
(cc) "Plan Year" 5
(dd) "Qualified Domestic Relations Order" 5
(ee) "Retirement" 6
(ff) "Service" 6
(gg) "Sponsor" 6
(hh) "Trust Agreement" 6
(ii) "Trustee" 6
(jj) "Valuation Date" 6
(kk) "Year of Service" 7
1.2 Plurals and Gender 7
1.3 Incorporation of Trust Agreement 7
1.4 Headings 7
1.5 Severability 7
1.6 References to Governmental Regulations 8
ARTICLE II PARTICIPATION
2.1 Commencement of Participation 9
2.2 Termination of Participation 9
2.3 Resumption of Participation 9
2.4 Determination of Eligibility 10
ARTICLE III CREDITED SERVICE
3.1 Service Counted for Eligibility Purposes 11
3.2 Service Counted for Vesting Purposes 11
3.3 Credit for Pre-Break Service 11
3.4 Service Credit During Authorized Leaves 11
3.5 Service Credit During Maternity or
Paternity Leave 12
3.6 Ineligible Employees 12
</TABLE>
ii
<PAGE>
<TABLE>
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Page
ARTICLE IV CONTRIBUTIONS
<S> <C>
4.1 Employee Stock Ownership Contributions 13
4.2 Time and Manner of Employee Stock Ownership
Contributions 13
4.3 Records of Contributions 14
4.4 Erroneous Contributions 14
ARTICLE V ACCOUNTS, ALLOCATIONS AND INVESTMENTS
5.1 Establishment of Separate Participant
Accounts 16
5.2 Establishment of Suspense Account 16
5.3 Allocation of Earnings, Losses and Expenses 17
5.4 Allocation of Forfeitures 17
5.5 Allocation of Annual Employee Stock
Ownership Contributions 17
5.6 Limitation on Annual Additions 18
5.7 Erroneous Allocations 21
5.8 Value of Participant's Interest in Fund 21
5.9 Investment of Account Balances 21
ARTICLE VI RETIREMENT, DEATH AND DESIGNATION
OF BENEFICIARY
6.1 Normal Retirement 22
6.2 Early Retirement 22
6.3 Disability Retirement 22
6.4 Death Benefits 22
6.5 Designation of Death Beneficiary and
Manner of Payment 23
ARTICLE VII VESTING AND FORFEITURES
7.1 Vesting on Death, Disability, Normal Retirement 24
7.2 Vesting on Termination of Participation 24
7.3 Disposition of Forfeitures 24
</TABLE>
iii
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<TABLE>
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Page
ARTICLE VIII EMPLOYEE STOCK OWNERSHIP RULES
<S> <C>
8.1 Right to Demand Employer Securities 26
8.2 Voting Rights 26
8.3 Nondiscrimination in Employee Stock Owner-
ship Contributions 26
8.4 Dividends 27
8.5 Exempt Loans 27
8.6 Exempt Loan Payments 29
8.7 Put Option 30
8.8 Diversification Requirements 30
8.9 Independent Appraiser 31
ARTICLE IX PAYMENTS AND DISTRIBUTIONS
9.1 Payments on Termination of Service
- In General 32
9.2 Commencement of Payments 32
9.3 Mandatory Commencement of Benefits 33
9.4 Required Beginning Dates 35
9.5 Form of Payment 36
9.6 Payments Upon Termination of Plan 36
9.7 Distribution Pursuant to Qualified
Domestic Relations Orders 36
9.8 Cash-Out Distributions 37
9.9 ESOP Distribution Rules 37
9.10 Withholding 38
9.11 Waiver of 30-day Notice 38
9.12 Re-employed Veterans 39
ARTICLE X PROVISIONS RELATING TO TOP-HEAVY PLANS
10.1 Top-Heavy Rules to Control 40
10.2 Top-Heavy Plan Definitions 40
10.3 Calculation of Accrued Benefits 42
10.4 Determination of Top-Heavy Status 43
10.5 Determination of Super Top-Heavy Status 43
10.6 Minimum Contribution 44
10.7 Vesting 45
10.8 Maximum Benefit Limitation 45
</TABLE>
iv
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<TABLE>
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ARTICLE XI ADMINISTRATION
<S> <C>
11.1 Appointment of Administrator 46
11.2 Resignation or Removal of Administrator 46
11.3 Appointment of Successors: Terms of
Office, Etc. 46
11.4 Powers and Duties of Administrator 46
11.5 Action by Administrator 48
11.6 Participation by Administrators 48
11.7 Agents 48
11.8 Allocation of Duties 48
11.9 Delegation of Duties 48
11.10 Administrator's Action Conclusive 49
11.11 Compensation and Expenses of
Administrator 49
11.12 Records and Reports 49
11.13 Reports of Fund Open to Participants 49
11.14 Named Fiduciary 49
11.15 Information from Employer 50
11.16 Reservation of Rights by Employer 50
11.17 Liability and Indemnification 50
11.18 Service as Trustee and Administrator 50
ARTICLE XII CLAIMS PROCEDURE
12.1 Notice of Denial 51
12.2 Right to Reconsideration 51
12.3 Review of Documents 51
12.4 Decision by Administrator 51
12.5 Notice by Administrator 52
ARTICLE XIII AMENDMENTS, TERMINATION AND MERGER
13.1 Amendments 53
13.2 Consolidation, Merger or Other
Transactions of Employer 53
13.3 Consolidation or Merger of Trust 54
13.4 Bankruptcy or Insolvency of Employer 54
13.5 Voluntary Termination 55
13.6 Partial Termination of Plan or Permanent
Discontinuance of Contributions 55
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v
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<TABLE>
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ARTICLE XIV MISCELLANEOUS
<S> <C>
14.1 No Diversion of Funds 56
14.2 Liability Limited 56
14.3 Incapacity 56
14.4 Spendthrift Clause 56
14.5 Benefits Limited to Fund 57
14.6 Cooperation of Parties 57
14.7 Payments Due Missing Persons 57
14.8 Governing Law 57
14.9 Nonguarantee of Employment 58
14.10 Counsel 58
</TABLE>
vi
<PAGE>
FIRST SECURITYFED FINANCIAL, INC.
EMPLOYEE STOCK OWNERSHIP PLAN
PREAMBLE
Effective as of January 1, 1997, First SecurityFed Financial, Inc., a
Delaware corporation, (the "Sponsor"), has adopted the First SecurityFed
Financial, Inc. Employee Stock Ownership Plan in order to enable Participants
ato share in the growth and prosperity of the Sponsor and its wholly owned
subsidiary, First Security Federal Savings Bank, and to provide Participants
with an opportunity to accumulate capital for their future economic security by
accumulating funds to provide retirement, death and disability benefits. The
Plan is a stock bonus plan designed to meet the requirements of an employee
stock ownership plan as described at Section 4975(e)(7) of the Code and Section
407(d)(6) of ERISA. The primary purpose of the employee stock ownership plan is
to invest in employer securities. The Sponsor intends that the Plan will qualify
under Sections 401(a) and 501(a) of the Code and will comply with the provisions
of ERISA. The Plan has been drafted to comply with the Tax Reform Act of 1986,
the Omnibus Budget Reconciliation Act of 1986, the Omnibus Budget Reconciliation
Act of 1987, the Technical and Miscellaneous Revenue Act of 1988, the Revenue
Reconciliation Act of 1989, the Omnibus Budget Reconciliation Act of 1993, and
the Small Business Job Protection Act of 1996.
The terms of this Plan shall apply only with respect to Employees of the
Employer on and after January 1, 1997.
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ARTICLE I
DEFINITION OF TERMS AND CONSTRUCTION
1.1 Definitions.
Unless a different meaning is plainly implied by the context, the following
terms as used in this Plan shall have the following meanings:
(a) "Act" shall mean the Employee Retirement Income Security Act of 1974,
as amended from time to time, or any successor statute.
(b) "Administrator" shall mean the administrative committee provided for in
Article XI.
(c) "Annual Additions" shall mean, with respect to each Participant, the
sum of those amounts allocated to the Participant's accounts under this Plan and
under any other qualified defined contribution plan to which the Employer
contributes for any Limitation Year, consisting of the following:
(1) Employer contributions;
(2) Forfeitures; and
(3) Voluntary contributions (if any).
(d) "Authorized Leave of Absence" shall mean an absence from Service with
respect to which the Employee may or may not be entitled to Compensation and
which meets any one of the following requirements:
(1) Service in any of the armed forces of the United States for up to
36 months, provided that the Employee resumes Service within 90 days after
discharge, or such longer period of time during which such Employee's
employment rights are protected by law; or
(2) Any other absence or leave expressly approved and granted by the
Employer which does not exceed 24 months, provided that the Employee
resumes Service at or before the end of such approved leave period. In
approving such leaves of absence, the Employer shall treat all Employees on
a uniform and nondiscriminatory basis.
(e) "Beneficiary" shall mean such persons as may be designated by the
Participant to receive benefits after the death of the Participant, or such
persons designated by the Administrator to receive benefits after the death of
the Participant, all as provided in Section 6.5.
(f) "Board of Directors" shall mean the Board of Directors of the Sponsor.
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(g) "Break" shall mean a Plan Year during which an Employee fails to
complete more than 500 Hours of Service.
(h) "Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time, or any successor statute.
(i) "Compensation" shall mean the amount of remuneration paid to an
Employee by the Employer, after the date on which the Employee becomes a
Participant, for services rendered to the Employer during a Plan Year, including
base salary, bonuses, overtime and commissions, and any amount of compensation
contributed pursuant to a salary reduction election under Code Section 401(k)
and any amount of compensation contributed to a cafeteria plan described at
Section 125 of the Code, but excluding amounts paid by the Employer or accrued
with respect to this Plan or any other qualified or non-qualified unfunded plan
of deferred compensation or other employee welfare plan to which the Employer
contributes, payments for group insurance, medical benefits, reimbursement for
expenses, and other forms of extraordinary pay, and excluding amounts accrued
for a prior year. Notwithstanding anything herein to the contrary, the annual
Compensation of each Participant taken into account under the Plan for any Plan
Year shall not exceed $150,000, as adjusted from time to time in accordance with
Section 415(d) of the Code.
(j) "Date of Hire" shall mean the date on which a person shall perform his
first Hour of Service. Notwithstanding the foregoing, in the event a person
incurs one or more consecutive Breaks after his initial Date of Hire which
results in the forfeiture of his pre-Break Service pursuant to Section 3.3, his
"Date of Hire" shall thereafter be the date on which he completes his first Hour
of Service after such Break or Breaks.
(k) "Disability" shall mean a physical or mental impairment which prohibits
a Participant from engaging in any occupation for wages or profit and which has
caused the Social Security Administration to classify the individual as
"disabled" for purposes of Social Security.
(l) "Disability Retirement Date" shall mean the first day of the month
after which a Participant incurs a Disability.
(m) "Early Retirement Date" shall mean the first day of the month
coincident with or next following the date on which a Participant attains age 55
and completes 5 Years of Service.
(n) "Effective Date" shall mean January 1, 1997.
(o) "Eligibility Period" shall mean the period of 12 consecutive months
commencing on an Employee's Date of Hire. Succeeding eligibility computation
periods after the initial eligibility computation period shall be based on Plan
Years which include the first anniversary of an Employee's Date of Hire.
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(p) "Employee" shall mean any person employed by the Employer, including
officers but excluding directors in their capacity as such; provided, however,
that the term "Employee" shall not include leased employees, employees regularly
employed outside the employer's own offices in connection with the operation and
maintenance of buildings or other properties acquired through foreclosure or
deed, and any employee included in a unit of employees covered by a
collective-bargaining agreement with the Employer that does not expressly
provide for participation of such employees in this Plan, where there has been
good-faith bargaining between the Employer and employees' representatives on the
subject of retirement benefits.
(q) "Employer" shall mean First SecurityFed Financial, Inc., a Delaware
corporation, and its wholly owned subsidiary, First Robinson Savings Bank, N.A.,
or any successors to the aforesaid corporations by merger, consolidation or
otherwise, which may agree to continue this Plan, or any affiliated or
subsidiary corporation or business organization of any Employer which, with the
consent of the Sponsor, shall agree to become a party to this Plan.
(r) "Employer Securities" shall mean the common stock issued by First
SecurityFed Financial, Inc., a Delaware corporation.
(s) "Entry Date" shall mean each January 1 and July 1, so long as this Plan
shall remain in effect.
(t) "Exempt Loan" shall mean a loan described at Section 4975(d)(1) of the
Code to the Trustee to purchase Employer Securities for the Plan, made or
guaranteed by a disqualified person, as defined at Section 4975(e)(2) of the
Code, including, but not limited to, a direct loan of cash, a purchase money
transaction, an assumption of an obligation of the Trustee, an unsecured
guarantee or the use of assets of such disqualified person as collateral for
such a loan.
(u) "Former Participant" shall mean any previous Participant whose
participation has terminated but who has a vested interest in the Plan which has
not been distributed in full.
(v) "Fund" shall mean the Fund maintained by the Trustee pursuant to the
Trust Agreement in order to provide for the payment of the benefits specified in
the Plan.
(w) "Hour of Service" shall mean each hour for which an Employee is
directly or indirectly paid or entitled to payment by an Employer for the
performance of duties or for reasons other than the performance of duties (such
as vacation time, holidays, sickness, disability, paid lay-offs, jury duty and
similar periods of paid nonworking time). To the extent not otherwise included,
Hours of Service shall also include each hour for which back pay, irrespective
of mitigation of damages, is either awarded or agreed to by the Employer. Hours
of working time shall be credited on the basis of actual hours worked, even
though compensated at a premium rate for overtime or other reasons. In computing
and crediting Hours of Service for an Employee under this Plan, the rules set
forth in Sections 2530.200b-2(b) and (c) of the Department of Labor Regulations
shall apply, said Sections being herein
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incorporated by reference. Hours of Service shall be credited to the Plan Year
or other relevant period during which the services were performed or the
nonworking time occurred, regardless of the time when Compensation therefor may
be paid. Any Employee for whom no hourly employment records are kept by the
Employer shall be credited with 45 Hours of Service for each calendar week in
which he would have been credited with a least one Hour or Service under the
foregoing provisions, if hourly records were available. Effective January 1,
1985, for absences commencing on or after that date, solely for purposes of
determining whether a Break for participation and vesting purposes has occurred
in an Eligibility Period or Plan Year, an individual who is absent from work for
maternity or paternity reasons shall receive credit for the Hours of Service
which would otherwise have been credited to such individual but for such
absence, or in any case in which such hours cannot be determined, 8 Hours of
Service per day of such absence. For purposes of this Section 1.1(w), an absence
from work for maternity or paternity reasons means an absence (1) by reason of
the pregnancy of the individual, (2) by reason of a birth of a child of the
individual, (3) by reason of the placement of a child with the individual in
connection with the adoption of such child by such individual, or (4) for
purposes of caring for such child for a period beginning immediately following
such birth or placement. The Hours of Service credited under this provision
shall be credited (1) in the computation period in which the absence begins if
the crediting is necessary to prevent a Break in that period, or (2) in all
other cases, in the following computation period.
(x) "Investment Adjustments" shall mean the increases and/or decreases in
the value of a Participant's accounts attributable to earnings, gains, losses
and expenses of the Fund, as set forth in Section 5.3.
(y) "Limitation Year" shall mean the Plan Year.
(z) "Normal Retirement Date" shall mean the first day of the month
coincident with or during which a Participant attains age 65 and completes the
fifth anniversary of his participation in the Plan.
(aa) "Participant" shall mean an Employee who has met all of the
eligibility requirements of the Plan and who is currently included in the Plan
as provided in Article II hereof.
(bb) "Plan" shall mean the First SecurityFed Financial, Inc. Employee Stock
Ownership Plan, as described herein or as hereafter amended from time to time.
(cc) "Plan Year" shall mean any 12 consecutive month period commencing on
January 1 and ending on December 31.
(dd) "Qualified Domestic Relations Order" shall mean any judgment, decree
or order (including approval of a property settlement agreement) that relates to
the provision of child support, alimony, marital property rights to a spouse,
former spouse, child or other dependent of the Participant (all such persons
hereinafter termed "alternate payee") and is made pursuant to a State domestic
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relations law (including community property law) and, further, that creates or
recognizes the existence of an alternate payee's right to, or assigns to an
alternate payee the right to receive all or a portion of the benefits payable
with respect to a Participant and that clearly specifies the following:
(1) the name and last known mailing address (if available) of the
Participant and the name and mailing address of each alternate payee to
which the order relates;
(2) the amount or percentage of the Participant's benefits to be paid
to an alternate payee or the manner in which the amount is to be
determined; and
(3) the number of payments or period for which payments are required.
A domestic relations order is not a Qualified Domestic Relations Order if
it:
(1) requires the Plan to provide any type or form of benefit or any
option not otherwise provided under the Plan; or,
(2) requires the Plan to provide increased benefits, or
(3) requires payment of benefits to an alternate payee that is
required to be paid to another alternate payee under a previously existing
Qualified Domestic Relations Order.
(ee) "Retirement" shall mean termination of employment which qualifies as
early, normal or Disability retirement as described in Article VI.
(ff) "Service" shall mean employment with the Employer.
(gg) "Sponsor" shall mean First SecurityFed Financial, Inc., a Delaware
corporation.
(hh) "Trust Agreement" shall mean the agreement, dated ________, 1997 by
and between First SecurityFed Financial, Inc., a Delaware corporation, and
____________________, of ___________, __________.
(ii) "Trustee" shall mean the Trustee or Trustees by whom the assets of the
Plan are held, as provided in the Trust Agreement, or his or their successors.
(jj) "Valuation Date" shall mean the last day of each Plan Year. The
Trustee may make additional valuations, at the instruction of the Administrator,
but in no event may the Administrator request additional valuations by the
Trustee more frequently than quarterly. Whenever such date falls on a Saturday,
Sunday or holiday, the preceding business day shall be the Valuation Date.
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(kk) "Year of Service" shall mean any Plan Year during which an Employee
has completed at least 1,000 Hours of Service, except as otherwise specified in
Article III, in the determination of Years of Service for eligibility and
vesting purposes under this Plan, the term "Year of Service" shall also mean any
Plan Year during which an Employee has completed at least 1,000 Hours of Service
with an entity that is:
(1) a member of a controlled group including the Employer, while it is
a member of such controlled group (within the meaning of Section 414(b) of
the Code);
(2) in a group of trades or businesses under common control with the
Employer, while it is under common control (within the meaning of Section
414(c) of the Code);
(3) a member of an affiliated service group including the Employer,
while it is a member of such affiliated service group (within the meaning
of Section 414(m) of the Code); or
(4) a leasing organization, under the circumstances described in
Section 414(n) of the Code.
1.2 Plurals and Gender.
Where appearing in the Plan and the Trust Agreement, the masculine gender
shall include the feminine and neuter genders, and the singular shall include
the plural, and vice versa, unless the context clearly indicates a different
meaning.
1.3 Incorporation of Trust Agreement.
The Trust Agreement, as the same may be amended from time to time, is
intended to be and hereby is incorporated by reference into this Plan and for
all purposes shall be deemed a part of the Plan.
1.4 Headings.
The headings and sub-headings in this Plan are inserted for the convenience
of reference only and are to be ignored in any construction of the provisions
hereof.
1.5 Severability.
In case any provision of this Plan shall be held illegal or void, such
illegality or invalidity shall not affect the remaining provisions of this Plan,
but shall be fully severable, and the Plan shall be construed and enforced as if
said illegal or invalid provisions had never been inserted herein.
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1.6 References to Governmental Regulations.
References in this Plan to regulations issued by the Internal Revenue
Service, the Department of Labor, or other governmental agencies shall include
all regulations, rulings, procedures, releases and other position statements
issued by any such agency.
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ARTICLE II
PARTICIPATION
2.1 Commencement of Participation.
(a) Any Employee who completes at least 1,000 Hours of Service during his
Eligibility Period or during any Plan Year beginning after his Date of Hire
shall initially become a Participant on the Entry Date coincident with or next
following the later of the following dates, provided he is employed by the
Employer on that Entry Date:
(1) The date which is 12 months after his Date of Hire; and
(2) The date on which he attains age 21.
(b) Any Employee who had satisfied the requirements set forth in Section
2.1(a) during the 12-month period prior to the Effective Date shall become a
Participant on the Effective Date, provided he is still employed by the Employer
on the Effective Date.
2.2 Termination of Participation.
After commencement or resumption of his participation, an Employee shall
remain a Participant during each consecutive Plan Year thereafter until the
earliest of the following dates:
(a) His actual Retirement date;
(b) His date of death; or
(c) The last day of a Plan Year during which he incurs a Break.
2.3 Resumption of Participation.
(a) Any Participant whose employment terminates and who resumes Service
before he incurs a Break shall resume participation immediately on the date he
is reemployed.
(b) Except as otherwise provided in Section 2.3(c), any Participant who
incurs one or more Breaks and resumes Service shall resume participation
retroactively as of the first day of the first Plan Year in which he completes a
Year of Service after such Break(s).
(c) Any Participant who incurs one or more Breaks and resumes Service, but
whose pre-Break Service is not reinstated to his credit pursuant to Section 3.3,
shall be treated as a new Employee and shall again be required to satisfy the
eligibility requirements contained in Section 2.1 before resuming participation
on the appropriate Entry Date, as specified in Section 2.1.
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2.4 Determination of Eligibility.
The Administrator shall determine the eligibility of Employees in
accordance with the provisions of this Article. For each Plan Year, the Employer
shall furnish the Administrator a list of all Employees, indicating the original
date of their reemployment with the Employer and any Breaks they may have
incurred.
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ARTICLE III
CREDITED SERVICE
3.1 Service Counted for Eligibility Purposes.
Except as provided in Section 3.3, all Years of Service completed by an
Employee shall be counted in determining his eligibility to become a Participant
on and after the Effective Date, whether such Service was completed before or
after the Effective Date.
3.2 Service Counted for Vesting Purposes.
All Years of Service completed by an Employee (including Years of Service
completed prior to the Effective Date) shall be counted in determining his
vested interest in this Plan, except the following:
(a) Service which is disregarded under the provisions of Section 3.3;
(b) Service prior to the Effective Date of this Plan if such Service would
have been disregarded under the "break in service" rules (within the meaning of
Section 1.411(a)-5(b)(6) of the Treasury Regulations).
3.3 Credit for Pre-Break Service.
Upon his resumption of participation following one or a series of
consecutive Breaks, an Employee's pre-Break Service shall be reinstated to his
credit for all purposes of this Plan only if either:
(a) He was vested in any portion of his accrued benefit at the time the
Break(s) began; or
(b) The number of his consecutive Breaks does not equal or exceed the
greater of 5 or the number of his Years of Service credited to him before the
Breaks began.
Except as provided in the foregoing, none of an Employee's Service prior to
one or a series of consecutive Breaks shall be counted for any purpose in
connection with his participation in this Plan thereafter.
3.4 Service Credit During Authorized Leaves.
An Employee shall receive no Service credit under Section 3.1 or
3.2 during any Authorized Leave of Absence. However, solely for the purpose of
determining whether he has incurred a Break during any Plan Year in which he is
absent from Service for one or more Authorized Leaves of Absence, he shall be
credited with 45 Hours of Service for each week during any such leave period.
Notwithstanding the foregoing, if an Employee fails to return to Service on or
before the end of a leave period, he shall be deemed to have terminated Service
as of the first day of such leave period and his credit for Hours of Service,
determined under this Section 3.4, shall be revoked. Notwithstanding anything
contained herein to the contrary, an Employee who is absent by reason of
military service as set forth in Section 1.1(d)(1) shall be given Service credit
under this Plan for such military leave period to the extent, and for all
purposes, required by law.
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3.5 Service Credit During Maternity or Paternity Leave.
Effective for absences beginning on or after January 1, 1985, for purposes
of determining whether a Break has occurred for participation and vesting
purposes, an individual who is on maternity or paternity leave as described in
Section 1.1(w), shall be deemed to have completed Hours of Service during such
period of absence, all in accordance with Section 1.1(w). Notwithstanding the
foregoing, no credit shall be given for such Hours of Service unless the
individual furnishes to the Administrator such timely information as the
Administrator may reasonably require to determine:
(a) that the absence from Service was attributable to one of the maternity
or paternity reasons enumerated in Section 1.1(w); and
(b) the number of days for which such absence lasted.
In no event, however, shall any credit be given for such leave other than for
determining whether a Break has occurred.
3.6 Ineligible Employees.
Notwithstanding any provisions of this Plan to the contrary, any person who
is employed by the Employer, but who is ineligible to participate in this Plan,
either because of his failure
(a) To meet the eligibility requirements contained in Article II; or
(b) To be an Employee, as defined in Section 1.1(p), shall, nevertheless,
earn Years of Service for eligibility and vesting purposes pursuant to the rules
contained in this Article III. However, such a person shall not be entitled to
receive any contributions hereunder unless and until he becomes a Participant in
this Plan, and then, only during his period of participation.
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ARTICLE IV
CONTRIBUTIONS
4.1 Employee Stock Ownership Contributions.
(a) Subject to all of the provisions of this Article IV, for each Plan Year
commencing on or after the Effective Date, the Employer shall make an Employee
Stock Ownership contribution to the Fund, in such amount as may be determined by
the Board of Directors in its discretion. Such contribution shall be in the form
of cash or Employer Securities. In determining the value of Employer Securities
transferred to the Fund as an Employee Stock Ownership contribution, the
Administrator may determine the average of closing prices of such securities for
a period of up to 90 consecutive days immediately preceding the date on which
the securities are contributed to the Fund. In the event that the Employer
Securities are not readily tradable on an established securities market, the
value of the Employer Securities transferred to the Fund shall be determined by
an independent appraiser in accordance with Section 8.9.
(b) In no event shall such contribution by the Employer exceed for any Plan
Year the maximum amount that may be deducted by the Employer under Section 404
of the Code, nor shall such contribution cause the Employer to violate its
regulatory capital requirements. Each Employee Stock Ownership contribution by
the Employer shall be deemed to be made on the express condition that the Plan,
as then in effect, shall be qualified under Sections 401 and 501 of the Code and
that the amount of such contribution shall be deductible from the Employer's
income under Section 404 of the Code.
4.2 Time and Manner of Employee Stock Ownership Contributions.
(a) The Employee Stock Ownership contribution (if any) for each Plan Year
shall be paid to the Trustee in one lump sum or installments at any time on or
before the expiration of the time prescribed by law (including any extensions)
for filing of the Employer's federal income tax return for its fiscal year
ending concurrent with or during such Plan Year. Any portion of the Employee
Stock Ownership contribution for each Plan Year that may be made prior to the
last day of the Plan Year shall be maintained by the Trustee in the Employee
Stock Ownership suspense account described in Section 5.2 until the last day of
such Plan Year.
(b) If an Employee Stock Ownership contribution for a Plan Year is
paid after the close of the Employer's fiscal year which ends concurrent with or
during such Plan Year but on or prior to the due date (including any extensions)
for filing of the Employer's federal income tax return for such fiscal year, it
shall be considered, for allocation purposes, as an Employee Stock Ownership
contribution to the Fund for the Plan Year for which it was computed and
accrued, unless such contribution is accompanied by a statement to the Trustee,
signed by a representative of the Employer,
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which specifies that the Employee Stock Ownership contribution is made with
respect to the Plan Year in which it is received by the Trustee. Any Employee
Stock Ownership contribution paid by the Employer during any Plan Year but after
the due date (including any extensions) for filing of its federal income tax
return for the fiscal year of the Employer ending on or before the last day of
the preceding Plan Year shall be treated, for allocation purposes, as an
Employee Stock Ownership contribution to the Fund for the Plan Year in which the
contribution is paid to the Trustee.
(c) Notwithstanding anything contained herein to the contrary, no Employee
Stock Ownership contribution shall be made for any year during which a
"limitations account" created pursuant to Section 5.6(c)(2) is in existence
until the balance of such limitations account has been reallocated in accordance
with Section 5.6(c)(2).
4.3 Records of Contributions.
The Employer shall deliver at least annually to the Trustee, with respect
to the contributions contemplated in Section 4.1, a certificate of the
Administrator, in such form as the Trustee shall approve, setting forth:
(a) The aggregate amount of contributions, if any, to the Fund for such
Plan Year;
(b) The names, Internal Revenue Service identifying numbers and current
residential addresses of all Participants in the Plan;
(c) The amount and category of contributions to be allocated to each such
Participant; and
(d) Any other information reasonably required for the proper operation of
the Plan.
4.4 Erroneous Contributions.
(a) Notwithstanding anything herein to the contrary, upon the Employer's
request, a contribution which was made by a mistake of fact, or conditioned upon
the initial qualification of the Plan, under Code Section 401, or upon the
deductibility of the contribution under Section 404 of the Code, shall be
returned to the Employer by the Trustee within one year after the payment of the
contribution, the denial of the qualification or the disallowance of the
deduction (to the extent disallowed), whichever is applicable; provided,
however, that in the case of denial of the initial qualification of the Plan, a
contribution shall not be returned unless an Application for Determination has
been timely filed with the Internal Revenue Service. Any portion of a
contribution returned pursuant to this Section 4.4 shall be adjusted to reflect
its proportionate share of the losses of the fund, but shall not be adjusted to
reflect any earnings or gains. Notwithstanding any provisions of this Plan to
the contrary, the right or claim of any Participant or Beneficiary to any asset
of the Fund or any benefit under this Plan shall be subject to and limited by
this Section 4.4.
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(b) In no event shall voluntary Employee contributions be accepted.
Any such voluntary Employee contributions (and any earnings attributable
thereto) mistakenly received by the Trustee shall promptly be returned to the
Participant.
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ARTICLE V
ACCOUNTS, ALLOCATIONS AND INVESTMENTS
5.1 Establishment of Separate Participant Accounts.
The Administrator shall establish and maintain separate individual accounts
for Participants in the Plan and for each Former Participant in accordance with
the provisions of this Article V. Such separate accounts shall be for accounting
purposes only and shall not require a segregation of the Fund, and no
Participant, Former Participant or Beneficiary shall acquire any right to or
interest in any specific assets of the Fund as a result of the allocations
provided for under this Plan, except where segregation is expressly provided for
in this Plan.
(a) Employee Stock Ownership Accounts.
The Administrator shall establish a separate Employee Stock Ownership
Account in the Fund for each Participant. The account shall be credited as of
the last day of each Plan Year with the amounts allocated to the Participant
under Sections 5.4 and 5.5. The Administrator may establish subaccounts
hereunder, an Employer Stock Account reflecting a Participant's interest in
Employer Securities held by the Trust and an Other Investments Account
reflecting the Participant's interest in his Employee Stock Ownership Account
other than Employer Securities.
(b) Distribution Accounts.
In any case where distribution of a terminated Participant's vested
interest in the Plan is to be deferred, the Administrator shall establish a
separate, nonforfeitable account in the Fund to which the balance in his
Employee Stock Ownership Account in the Plan shall be transferred after such
Participant incurs a Break. Unless the Former Participant's distribution
accounts are segregated for investment purposes pursuant to section 9.4, they
shall share in Investment Adjustments.
(c) Other Accounts.
The Administrator shall establish such other separate accounts for each
Participant as may be necessary or desirable for the convenient administration
of the Fund.
5.2 Establishment of Suspense Accounts.
The Administrator shall establish separate accounts to be known as
"suspense accounts." There shall be credited to such appropriate suspense
accounts any Employee Stock Ownership contributions that may be made prior to
the last day of the Plan Year, as provided in Section 4.2. The suspense accounts
shall share proportionately as to time and amount in any Investment Adjustments.
As of the last day of each Plan Year, the balance of the Employee Stock
Ownership suspense account
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shall be added to the Employee Stock Ownership contribution and allocated to the
Employee Stock Ownership Accounts of Participants as provided in Section 5.5,
except as provided herein. In the event that the Plan takes an Exempt Loan, the
Employer Securities purchased thereby shall be allocated to a separate Exempt
Loan Suspense Account, from which allocations shall be made in accordance with
Section 8.5.
5.3 Allocation of Earnings, Losses and Expenses.
As of each Valuation Date, any increase or decrease in the net worth of the
aggregate Employee Stock Ownership Accounts held in the Fund attributable to
earnings, losses, expenses and unrealized appreciation or depreciation in each
such aggregate Account, as determined by the Trustee pursuant to the Trust
Agreement, shall be credited to or deducted from the appropriate suspense
accounts and all Participants' Employee Stock Ownership Accounts (except
segregated distribution accounts described in Section 5.1(b) and the
"limitations account" described in Section 5.6(c)(4)) in the proportion that the
value of each such Account (determined immediately prior to such allocation and
before crediting any Employee Stock Ownership contributions and forfeitures for
the current Plan Year but after adjustment for any transfer to or from such
Accounts and for the time such funds were in such Accounts) bears to the value
of all Employee Stock Ownership Accounts.
5.4 Allocation of Forfeitures.
As of the last day of each Plan Year, all forfeitures attributable to the
Employee Stock Ownership Accounts which are then available for reallocation
shall be, as appropriate, added to the Employee Stock Ownership contribution (if
any) for such year and allocated among the Participants' Employee Stock
Ownership Accounts, as appropriate, in the manner provided in Sections 5.5 and
5.6.
5.5 Allocation of Annual Employee Stock Ownership Contributions.
As of the last day of each Plan Year for which the Employer shall make an
Employee Stock Ownership contribution, the Administrator shall allocate the
Employee Stock Ownership contribution (including reallocable forfeitures) for
such Plan Year to the Employee Stock Ownership account of each Participant who
completed at least 1,000 Hours of Service during that Plan Year, provided that
he is still employed by the Employer on the last day of the Plan Year. Such
allocation shall be made in the same proportion that each such Participant's
Compensation for such Plan Year bears to the total Compensation of all such
Participants for such Plan Year, subject to Section 5.6. Notwithstanding the
foregoing, if a Participant attains his Normal Retirement Date and terminates
Service prior to the last day of the Plan Year but after completing 1,000 Hours
of Service, he shall be entitled to an allocation based on his Compensation
earned prior to his termination and during the Plan Year. Furthermore, if a
Participant completes 1,000 Hours of Service and is on a Leave of Absence on the
last day of the Plan Year because of pregnancy or other medical reason, such a
Participant shall be entitled to an allocation based on his Compensation earned
during such Plan Year.
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5.6 Limitation on Annual Additions.
(a) Notwithstanding any provisions of this Plan to the contrary, the total
Annual Additions credited to a Participant's accounts under this Plan (and under
any other defined contribution plan to which the Employer contributes) for any
Limitation Year shall not exceed the lesser of:
(1) 25% of the Participant's compensation for such Limitation Year; or
(2) $30,000 (or, if greater, one-fourth of the defined benefit dollar
limitation set forth in Section 415(b)(1)(A) of the Code). Whenever
otherwise allowed by law, the maximum amount of $30,000 shall be
automatically adjusted annually for cost-of-living increases in accordance
with Section 415(d) of the Code and the highest such increase effective at
any time during the Limitation Year shall be effective for the entire
Limitation Year, without any amendment to this Plan.
(b) Solely for the purpose of this Section 5.6, the term "compensation" is
defined as wages, salaries, and fees for professional services and other amounts
received (without regard to whether or not an amount is paid in cash) for
personal services actually rendered in the course of employment with the
Employer maintaining the Plan to the extent that the amounts are includable in
gross income (including, but not limited to, commissions paid to salesmen,
compensation for services on the basis of a percentage of profits, commissions
on insurance premiums, tips, bonuses, fringe benefits, and reimbursements or
other expense allowances under a nonaccountable plan (as described in Treas.
Regs. Section 1.62-2(c)), and excluding the following:
(1) Employer contributions to a plan of deferred compensation which
are not includible in the Employee's gross income for the taxable year in
which contributed, or Employer contributions under a simplified employee
pension plan to the extent such contributions are deductible by the
Employee, or any distributions from a plan of deferred compensation;
(2) Amounts realized from the exercise of a non-qualified stock
option, or when restricted stock (or property) held by the employee either
becomes freely transferable or is no longer subject to a substantial risk
of forfeiture;
(3) Amounts realized from the sale, exchange or other disposition of
stock acquired under a qualified stock option; and
(4) Other amounts which received special tax benefits, or
contributions made by the employer (whether or not under a salary reduction
agreement) towards the purchase of an annuity contract described in section
403(b) of the Code (whether or not the contributions are actually
excludable from the gross income of the Employee).
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(c) In the event that the limitations on Annual Additions described in this
Section 5.6(a) above are exceeded with respect to any Participant in any
Limitation Year, then the contributions allocable to the Participant for such
year shall be reduced to the minimum extent required by such limitations in the
following order of priority:
(1) If any further reductions in Annual Additions are necessary, then
the Employee Stock Ownership contributions and forfeitures allocated during
such Limitation Year to the Participant's Employee Stock Ownership Account
shall be reduced. The amount of any such reductions in the Employee Stock
Ownership contributions and forfeitures shall be reallocated to all other
Participants in the same manner as set forth under Sections 5.4 and 5.5.
(2) Any amounts which cannot be reallocated to other Participants in a
current Limitation Year in accordance with Section 5.6(c)(1) above because
of the limitations contained in Sections 5.6(a) and (d) shall be credited
to an account designated as the "limitations account" and carried forward
to the next and subsequent Limitation Years until it can be reallocated to
all Participants as set forth in Sections 5.4, and 5.5, as appropriate. No
Investment Adjustments shall be allocated to this limitations account. In
the next and subsequent Limitation Years, all amounts in the limitations
account must be allocated in the manner described in Sections 5.4 and 5.5,
as appropriate, before any Employee Stock Ownership contributions may be
made to this Plan for that Limitation Year.
(3) The Administrator shall determine to what extent the Annual
Additions to any Participant's Employee Stock Ownership Account must be
reduced in each Limitation Year. The Administrator shall reduce the Annual
Additions to all other qualified, tax-exempt retirement plans maintained by
the Employer in accordance with the terms contained therein for required
reductions or reallocations mandated by Section 415 of the Code before
reducing any Annual Additions in this Plan.
(4) In the event this Plan is voluntarily terminated by the Employer
under Section 13.5, any amounts credited to the limitations account
described in Section 5.6(c)(2) above which have not be reallocated as set
forth herein shall be distributed to the Participants who are still
employed by the Employer on the date of termination, in the proportion that
each Participant's Compensation bears to the Compensation of all
Participants.
(d) The Annual Additions credited to a Participant's accounts for each
Limitation Year are further limited so that in the case of an Employee who is a
Participant in both this Plan and any qualified defined benefit plan
(hereinafter referred to as a "pension plan") of the Employer, the sum of (1)
and (2) below will not exceed 1.0:
(1) (A) The projected annual normal retirement benefit of a
Participant under the pension plan, divided by
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(B) The lesser of:
(i) The product of 1.25 multiplied by the dollar limitation
in effect under Section 415(b)(1)(A) of the Code for such
Limitation Year, or
(ii) The product of 1.4 multiplied by the amount of
compensation which may be taken into account under Section
415(b)(1)(B) of the Code for the Participant for such Limitation
Year; plus
(2) (A) The sum of Annual Additions credited to the Participant under
this Plan for all Limitation Years, divided by:
(B) The sum of the lesser of the following amounts determined for
such Limitation Year and for each prior year of service with the
Employer:
(i) The product of 1.25 multiplied by the dollar limitation
in effect under Section 415(b)(1)(A) of the Code for such
Limitation Year, or
(ii) The product of 1.4 multiplied by the amount of
compensation which may be taken into account under Section
415(b)(1)(B) of the Code for the Participant for such Limitation
Year.
The Administrator may, in calculating the defined contribution plan
fraction described in Section 5.6(d)(2), elect to use the transitional rule
pursuant to Section 415(e)(6) of the Code, if applicable. If the sum of the
fractions produced above will exceed 1.0, even after the use of the "fresh
start" rule contained in Section 235 of the Tax Equity and Fiscal Responsibility
Act of 1982 ("TEFRA"), if applicable, then the same provisions as stated in
Section 5.6(c) above shall apply. If, even after the reductions provided for in
Section 5.6(c), the sum of the fractions still exceed 1.0, then the benefits of
the Participant provided under the pension plan shall be reduced to the extent
necessary, in accordance with Treasury Regulations issued under the Code. Solely
for the purposes of this Section 5.6(d), the term "years of service" shall mean
all years of service defined by Treasury Regulations issued under Section 415 of
the Code.
(e) In the event that the Employer is a member of (1) a controlled group of
corporations or a group of trades or businesses under common control (as
described in Section 414(b) or (c) of the Code, as modified by Section 415(h)
thereof), or (2) an affiliated service group (as described in Section 414(m) of
the Code), the Annual Additions credited to any Participant's accounts in any
such Limitation Year shall be further limited by reason of the existence of all
other qualified retirement plans maintained by such affiliated corporations,
other entities under common control or other members of the affiliated service
group, to the extent such reduction is required by Section 415 of the Code and
the regulations promulgated thereunder. The Administrator shall determine if any
such
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reduction in the Annual Additions to a Participant's accounts is required for
this reason, and if so, the same provisions as stated in 5.6(c) and (d) above
shall apply.
(f) Annual Additions shall not include any Employer contributions which are
used by the Trust to pay interest on an Exempt Loan nor any forfeitures of
Employer Securities purchased with the proceeds of an Exempt Loan, provided that
not more than one-third of the Employer contributions are allocated to
Participants who are among the group of employees deemed "highly compensated
employees" within the meaning of Code Section 414(q).
5.7 Erroneous Allocations.
No Participant shall be entitled to any Annual Additions or other
allocations to his accounts in excess of those permitted under Sections 5.3,
5.4, 5.5, and 5.6. If it is determined at anytime that the Administrator and/or
Trustees have erred in accepting and allocating any contributions or forfeitures
under this Plan, or in allocating Investment Adjustments, or in excluding or
including any person as a Participant, then the Administrator, in a uniform and
nondiscriminatory manner, shall determine the manner in which such error shall
be corrected and shall promptly advise the Trustee in writing of such error and
of the method for correcting such error. The accounts of any or all Participants
may be revised, if necessary, in order to correct such error.
5.8 Value of Participant's Interest in Fund.
At any time, the value of a Participant's interest in the Fund shall
consist of the aggregate value of his Employee Stock Ownership Account and his
distribution account, if any, determined as of the next-preceding Valuation
Date. The Administrator shall maintain adequate records of the cost basis of
Employer Securities allocated to each Participant's Employer Stock Ownership
Account.
5.9 Investment of Account Balances.
The Employee Stock Ownership Accounts shall be invested primarily in
Employer Securities. Employer Securities shall constitute at least 51% of the
assets of all Employee Stock Ownership Accounts. All sales of Employer
Securities by the Trustee attributable to the Employee Stock Ownership Accounts
of all Participants shall be charged pro rata to the Employee Stock Ownership
Accounts of all Participants.
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ARTICLE VI
RETIREMENT, DEATH AND DESIGNATION OF BENEFICIARY
6.1 Normal Retirement.
A Participant who reaches his Normal Retirement Date and who shall retire
at that time shall thereupon be entitled to retirement benefits based on the
value of his interest in the Fund, payable pursuant to the provisions of Section
9.1. A Participant who remains in Service after his Normal Retirement Date shall
not be entitled to any retirement benefits until his actual termination of
Service thereafter (except as provided in Section 9.3(g)) and he shall meanwhile
continue to participate in this Plan.
6.2 Early Retirement.
A Participant who reaches his Early Retirement Date may retire at such time
(or, at his election, as of the first day of any month thereafter prior to his
Normal Retirement Date) and shall thereupon be entitled to retirement benefits
based on the value of his interest in the Fund, payable pursuant to the
provisions of Section 9.1.
6.3 Disability Retirement.
In the event a Participant incurs a Disability, he may retire on his
Disability Retirement Date and shall thereupon be entitled to retirement
benefits based on the value of his interest in the Fund, payable pursuant to the
provisions of Section 9.1.
6.4 Death Benefits.
(a) Upon the death of a Participant before his Retirement or other
termination of Service, the value of his interest in the Fund shall be payable
pursuant to the provisions of Section 9.1. The Administrator shall direct the
Trustee to distribute his interest in the Fund to any surviving Beneficiary
designated by the Participant or, if none, to such persons designated by the
Administrator pursuant to Section 6.5.
(b) Upon the death of a Former Participant, the Administrator shall direct
the Trustee to distribute any undistributed balance of his interest in the Fund
to any surviving Beneficiary designated by him or, if none, to such persons
designated by the Administrator pursuant to Section 6.5.
(c) The Administrator may require such proper proof of death and such
evidence of the right of any person to receive the interest in the Fund of a
deceased Participant or Former Participant as the Administrator may deem
desirable. The Administrator's determination of death and of the right of any
person to receive payment shall be conclusive.
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6.5 Designation of Death Beneficiary and Manner of Payment.
(a) Each Participant shall have the right to designate a Beneficiary or
Beneficiaries to receive the sum or sums to which he may be entitled upon his
death. The Participant may also designate the manner in which any death benefits
under this Plan shall be payable to his Beneficiary, provided that such
designation is in accordance with Section 9.4. Such designation of Beneficiary
and manner of payment shall be in writing and delivered to the Administrator,
and shall be effective when received by the Administrator. The Participant shall
have the right to change such designation by notice in writing to the
Administrator. Such change of Beneficiary or the manner of payment shall become
effective upon its receipt by the Administrator. Any such change shall be deemed
to revoke all prior designations.
(b) If a Participant shall fail to designate validly a Beneficiary or if no
designated Beneficiary survives the Participant, his interest in the Fund shall
be paid to the person or persons in the first of the following classes of
successive preference Beneficiaries surviving at the death of the Participant:
the Participant's (1) widow or widower, (2) children, (3) parents, and (4)
estate. The Administrator shall decide what Beneficiaries, if any, shall have
been validly designated, and its decision shall be binding and conclusive on all
persons.
(c) Notwithstanding the foregoing, if a Participant has been married
throughout the 12 month period preceding the date of his death, the sum or sums
to which he may be entitled under this Plan upon his death shall be paid to his
spouse, unless the Participant's spouse shall have consented to the election of
another Beneficiary. Such a spousal consent shall be in writing and shall be
witnessed either by a representative of the Plan or a notary public. If it is
established to the satisfaction of the Administrator that such spousal consent
cannot be obtained because there is no spouse, because the spouse cannot be
located, or other reasons prescribed by governmental regulations, the consent of
the spouse may be waived, and the Participant may designate a Beneficiary or
Beneficiaries other than his spouse.
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ARTICLE VII
VESTING AND FORFEITURES
7.1 Vesting on Death, Disability and Normal Retirement.
Unless his participation in this Plan shall have terminated prior thereto,
upon a Participant's death, Disability or upon his attainment of Normal
Retirement Date (whether or not he actually retires at that time) while he is
still employed by the Employer, the Participant's entire interest in the Fund
shall be fully vested and nonforfeitable.
7.2 Vesting on Termination of Participation.
Upon termination of his participation in this Plan for any reason other
than death, Disability, or Normal Retirement, a Participant shall be vested in a
percentage of his Employee Stock Ownership Account, such vested percentages to
be determined under the following table, based on the Years of Service
(including Years of Service prior to the Effective Date) credited to him for
vesting purposes at the time of his termination of participation:
Years of Service Completed Percentage Vested
Less than 5 0%
5 or more 100%
Any portion of the Participant's Employee Stock Ownership Account which is
not vested at the time he incurs a Break shall thereupon be forfeited and
disposed of pursuant to Section 7.3. Distribution of the vested portion of a
terminated Participant's interest in the Plan may be authorized by the
Administrator in any manner permitted under Section 9.1.
7.3 Disposition of Forfeitures.
(a) In the event a Participant incurs a Break and subsequently resumes both
his Service and his participation in the Plan prior to incurring at least 5
Breaks, the forfeitable portion of his Employee Stock Ownership Account shall be
reinstated to the credit of the Participant as of the date he resumes
participation.
(b) In the event a Participant terminates Service and subsequently incurs a
Break and receives a distribution, or in the event a Participant does not
terminate Service, but incurs at least 5 Breaks, or in the event that a
Participant terminates Service and incurs at least 5 Breaks but has not received
a distribution, then the forfeitable portion of his Employer Account, including
Investment Adjustments, shall be reallocated to other Participants, pursuant to
Section 5.4 as of the date the Participant incurs such Break or Breaks, as the
case may be.
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(c) In the event a former Participant who had received a distribution from
the Plan is rehired, he shall repay the amount of his distribution before the
earlier of 5 years after the date of his rehire by the Employer, or the close of
the first period of 5 consecutive Breaks commencing after the withdrawal in
order for any forfeited amounts to be restored to him.
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ARTICLE VIII
EMPLOYEE STOCK OWNERSHIP PROVISIONS
8.1 Right to Demand Employer Securities.
A Participant entitled to a distribution from his Employee Stock Ownership
Account shall be entitled to demand that his interest in the Account be
distributed to him in the form of Employer Securities, all subject to Section
9.9. In the event that the Employer Securities are not readily tradable on an
established market, the Participant shall be entitled to require that the
Employer repurchase the Employer Securities under a fair valuation formula, as
provided by governmental regulations. The Participant or Beneficiary shall be
entitled to exercise the put option described in the preceding sentence for a
period of not more than 60 days following the date of distribution of Employer
Securities to him. If the put option is not exercised within such 60-day period,
the Participant or Beneficiary may exercise the put option during an additional
period of not more than 60 days after the beginning of the first day of the
first Plan Year following the Plan Year in which the first put option period
occurred, all as provided in regulations promulgated by the Secretary of the
Treasury.
8.2 Voting Rights.
Each Participant with an Employee Stock Ownership Account shall be entitled
to direct the Trustee as to the manner in which the Employer Securities in such
Account are to be voted. Employer Securities held in the Employee Stock
Ownership Suspense Account or the Exempt Loan Suspense Account shall be voted by
the Trustee on each issue with respect to which shareholders are entitled to
vote in the manner directed by the majority of the Participants who directed the
Trustee as to the manner of voting their shares in the Employee Stock Ownership
Accounts with respect to such issue. Prior to the initial allocation of shares,
the Trustee shall be entitled to vote the shares in the Suspense Account without
prior direction from the Participants or the Administrator. In the event that a
Participant fails to give timely voting instructions to the Trustee with respect
to the voting of his allocated Employer Securities, the Trustee shall be
entitled to vote such shares in its discretion.
8.3 Nondiscrimination in Employee Stock Ownership Contributions.
In the event that the amount of the Employee Stock Ownership
contributions that would be required in any Plan Year to make the scheduled
payments on an Exempt Loan would exceed the amount that would otherwise be
deductible by the Employer for such Plan Year under Code Section 404, then no
more than one-third of the Employee Stock Ownership contributions for the Plan
Year, which is also the Employer's taxable year, shall be allocated to the group
of Employees who, during the Plan Year or the preceding Plan Year:
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(a) Was at any time a 5 percent owner of the Employer;
(b) Received compensation from the Employer in excess of $75,000, as
adjusted under Code Section 414(q);
(c) Received compensation from the Employer in excess of $50,000, as
adjusted under Code Section 414(q), and was in the "top-paid group" of employees
(as defined below) for such year; or
(d) Was at any time an officer and received compensation greater than 50
percent of the amount in effect under Code Section 415(b)(1)(A), as adjusted for
cost-of-living increases permitted under Code Section 415(d)(1), but without
regard to any adjustment under Code Section 415(c)(6)(A).
An Employee shall be deemed a member of the "top-paid group" of employees for a
given Plan Year if such Employee is in the group of the top 20% of the employees
of the Employer when ranked on the basis of compensation.
8.4 Dividends.
Dividends paid with respect to Employer Securities credited to a
Participant's Employee Stock Ownership account as of the record date for the
dividend payment may be paid in cash to the Participants, pursuant to the
directions of the Board of Directors of the Sponsor. If the Board of Directors
shall direct that the aforesaid dividends shall be paid directly to
Participants, the quarterly dividends paid with respect to such Employer
Securities shall be paid to the Plan, from which dividend distributions in cash
shall be made to the Participants with respect to the Employer Securities in
their Employee Stock Ownership Accounts within 90 days of the close of the Plan
Year in which the dividends were paid. Dividends on Employer Securities obtained
pursuant to an Exempt Loan and still held in the Suspense Account may be used to
make payments on an Exempt Loan, as described in Section 8.5.
8.5 Exempt Loans.
(a) The Sponsor may direct the Trustee to obtain Exempt Loans. The Exempt
Loan may take the form of (i) a loan from a bank or other commercial lender to
purchase Employer Securities (ii) a loan from the Employer to the Plan; or (iii)
an installment sale of Employer Securities to the Plan. The proceeds of any such
Exempt Loan shall be used, within a reasonable time after the Exempt Loan is
obtained, only to purchase Employer Securities, repay the Exempt Loan, or repay
any prior Exempt Loan. Any such Exempt Loan shall provide for no more than a
reasonable rate of interest and shall be without recourse against the Plan. The
number of years to maturity under the Exempt Loan must be definitely
ascertainable at all times. The only assets of the Plan that may be given as
collateral for an Exempt Loan are Employer Securities acquired with the proceeds
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of the Exempt Loan and Employer Securities that were used as collateral for a
prior Exempt Loan repaid with the proceeds of the current Exempt Loan. Such
Employer Securities so pledged shall be placed in an Exempt Loan Suspense
Account. No person or institution entitled to payment under an Exempt Loan shall
have recourse against Trust assets other than the aforesaid collateral, Employer
Stock Ownership contributions (other than contributions of Employer Securities)
that are available under the Plan to meet obligations under the Exempt Loan and
earnings attributable to such collateral and the investment of such
contributions. All Employee Stock Ownership contributions paid during the Plan
Year in which an Exempt Loan is made (whether before or after the date the
proceeds of the Exempt Loan are received), all Employee Stock Ownership
contributions paid thereafter until the Exempt Loan has been repaid in full, and
all earnings from investment of such Employee Stock Ownership contributions,
without regard to whether any such Employee Stock Ownership contributions and
earnings have been allocated to Participants' Employee Stock Ownership Accounts,
shall be available to meet obligations under the Exempt Loan as such obligations
accrue, or prior to the time such obligations accrue, unless otherwise provided
by the Employer at the time any such contribution is made. Any pledge of
Employer Securities shall provide for the release of shares so pledged upon the
payment of any portion of the Exempt Loan.
(b) For each Plan Year during the duration of the Exempt Loan, the number
of shares of Employer Securities released from such pledge shall equal the
number of encumbered shares held immediately before release for the current Plan
Year multiplied by a fraction. The numerator of the fraction is the sum of
principal and interest paid in such Plan Year. The denominator of the fraction
is the sum of the numerator plus the principal and interest to be paid for all
future years. Such years will be determined without taking into account any
possible extension or renewal periods. If interest on any Exempt Loan is
variable, the interest to be paid in future years under the Exempt Loan shall be
computed by using the interest rate applicable as of the end of the Plan Year.
(c) Notwithstanding the foregoing, the Trustee may obtain an Exempt Loan
pursuant to the terms of which the number of Employer Securities to be released
from encumbrance shall be determined solely with reference to principal
payments. In the event that such an Exempt Loan is obtained, annual payments of
principal and interest shall be at a cumulative rate that is not less rapid at
any time than level payments of such amounts for not more than 10 years. The
amount of interest in any such annual loan repayment shall be disregarded only
to the extent that it would be determined to be interest under standard loan
amortization tables. The requirement set forth in the preceding sentence shall
not be applicable from the time that, by reason of a renewal, extension, or
refinancing, the sum of the expired duration of the Exempt Loan, the renewal
period, the extension period, and the duration of a new Exempt Loan exceeds 10
years.
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8.6 Exempt Loan Payments.
(a) Payments of principal and interest on any Exempt Loan during a Plan
Year shall be made by the Trustee (as directed by the Administrator) only from
(1) Employee Stock Ownership contributions to the Trust made to meet the Plan's
obligation under an Exempt Loan (other than contributions of Employer
Securities) and from any earnings attributable to Employer Securities held as
collateral for an Exempt Loan and investments of such contributions (both
received during or prior to the Plan Year); (2) the proceeds of a subsequent
Exempt Loan made to repay a prior Exempt Loan; and (3) the proceeds of the sale
of any Employer Securities held as collateral for an Exempt Loan. Such
contribution and earnings shall be accounted for separately by the Plan until
the Exempt Loan is repaid.
(b) Employer Securities released by reason of the payment of principal or
interest on an Exempt Loan from amounts allocated to Participants' Employee
Stock Ownership Accounts shall immediately upon payment be allocated as set
forth in Section 5.5.
(c) The Employer shall contribute to the Trust sufficient amounts to enable
the Trust to pay principal and interest on any such Exempt Loans as they are
due, provided however that no such contribution shall exceed the limitations in
Section 5.6. In the event that such contributions by reason of the limitations
in Section 5.6 are insufficient to enable the Trust to pay principal and
interest on such Exempt Loan as it is due, then upon the Trustee's request the
Employer shall:
(1) Make an Exempt Loan to the Trust in sufficient amounts to meet
such principal and interest payments. Such new Exempt Loan shall be
subordinated to the prior Exempt Loan. Securities released from the pledge
of the prior Exempt Loan shall be pledged as collateral to secure the new
Exempt Loan. Such Employer Securities will be released from this new pledge
and allocated to the Employee Stock Ownership Accounts of the Participants
in accordance with applicable provisions of the Plan;
(2) Purchase any Employer Securities pledged as collateral in an
amount necessary to provide the Trustee with sufficient funds to meet the
principal and interest repayments. Any such sale by the Plan shall meet the
requirements of Section 408(e) of ERISA; or
(3) Any combination of the foregoing. However, the Employer shall not,
pursuant to the provisions of this subsection, do, fail to do or cause to
be done any act or thing which would result in a disqualification of the
Plan as an Employee Stock Ownership Plan under the Code.
(d) Except as provided in Section 8.1 above and notwithstanding any
amendment to or termination of the Plan which causes it to cease to qualify
as an Employee Stock Ownership plan within the meaning of Section
4975(e)(7) of the Code, or any repayment of an Exempt Loan, no shares of
Employer Securities acquired with the proceeds of an Exempt Loan obtained
by the Trust to purchase Employer Securities may be subject to a put, call
or other option, or buy-sell or similar arrangement while such shares are
held by the Plan or when such Shares are distributed from the Plan.
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8.7 Put Option.
If a Participant exercises a put option (as set forth in Section 8.1) with
respect to Employer Securities that were distributed as part of a total
distribution pursuant to which a Participant's Employee Stock Ownership Account
is distributed to him in a single taxable year, the Employer or the Plan may
elect to pay the purchase price of the Employer Securities over a period not to
exceed 5 years. Such payments shall be made in substantially equal installments
not less frequently than annually over a period beginning not later than 30 days
after the exercise of the put option. Reasonable interest shall be paid to the
Participant with respect to the unpaid balance of the purchase price and
adequate security shall be provided with respect thereto. In the event that a
Participant exercises a put option with respect to Employer Securities that are
distributed as part of an installment distribution, the amount to be paid for
such securities shall be paid not later than 30 days after the exercise of the
put option.
8.8 Diversification Requirements
Each Participant who has completed at least 10 years of participation in
the Plan and has attained age 55 may elect within 90 days after the close of
each Plan Year during his "qualified election period" to direct the Plan as to
the investment of at least 25 percent of his Employee Stock Ownership Account
(to the extent such percentage exceeds the amount to which a prior election
under this Section 8.8 had been made). For purposes of this Section 8.8, the
term "qualified election period" shall mean the 5-Plan-Year period beginning
with the Plan Year after the Plan Year in which the Participant attains age 55
(or, if later, beginning with the Plan Year after the first Plan Year in which
the Employee first completes at least 10 years of participation in the Plan). In
the case of the Employee who has attained age 60 and completed 10 years of
participation in the prior Plan Year and in the case of the election year in
which any other Participant who has met the minimum age and service requirements
for diversification can make his last election hereunder, he shall be entitled
to direct the Plan as to the investment of at least 50 percent of his Employee
Stock Ownership Account (to the extent such percentage exceeds the amount to
which a prior election under this Section 8.8 had been made). The Plan shall
make available at least 3 investment options (not inconsistent with regulations
prescribed by the Department of Treasury) to each Participant making an election
hereunder. The Plan shall be deemed to have met the requirements of this Section
if the portion of the Participant's Employee Stock Ownership Account covered by
the election hereunder is distributed to the Participant or his designated
Beneficiary within 90 days after the period during which the election may be
made. In the absence of such a distribution, the Trustee shall implement the
Participant's election within 90 days following the expiration of the qualified
election period.
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8.9 Independent Appraiser.
An independent appraiser meeting the requirements of Code Section 170(a)(1)
shall value the Employer Securities in those Plan Years when such securities are
not readily tradable on an established securities market.
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ARTICLE IX
PAYMENTS AND DISTRIBUTIONS
9.1 Payments on Termination of Service - In General.
All benefits provided under this Plan shall be funded by the value of a
Participant's vested interest in the Fund. As soon as practicable after a
Participant's Retirement, death or termination of Service, the Administrator
shall ascertain the value of his vested interest in the Fund, as provided in
Article V, and the Administrator shall hold or dispose of the same in accordance
with the following provisions of this Article IX.
9.2 Commencement of Payments.
(a) Distributions upon Retirement or Death. Upon a Participant's Retirement
or Death, payment of benefits under this Plan shall, unless the Participant
otherwise elects (in accordance with Section 9.3), commence no later than 6
months after the close of the Plan Year in which occurs the date of the
Participant's Retirement or death.
(b) Distribution following Termination of Service. Unless a Participant
elects otherwise, if a Participant terminates Service prior to Retirement or
death, he shall be accorded an opportunity to commence receipt of distributions
from his Accounts within six (6) months after the Valuation Date next following
the date of his termination of service. A Participant who terminates Service
with a deferred vested benefit shall be entitled to receive from the
Administrator a statement of his benefits. In the event that a Participant
elects not to commence receipt of distributions from his Accounts in accordance
with this Section 9.2(b), after the Participant incurs a Break, the
Administrator shall transfer his deferred vested interest to a distribution
account. If a Participant's vested Employer Account does not exceed (or at the
time of any prior distribution did not exceed) $3,500, the Plan Administrator
may distribute the vested portion of his Employer Account as soon as
administratively feasible without the consent of the Participant or his spouse.
(c) Distribution of Accounts Greater Than $3,500. If the value of a
Participant's vested Account balance exceeds (or at the time of any prior
distribution exceeded) $3,500, and the Account balance is immediately
distributable, the Participant must consent to any distribution of such Account
balance. The Plan Administrator shall notify the Participant of the right to
defer any distribution until the Participant's Account balance is no longer
immediately distributable. The consent of the Participant shall not be required
to the extent that a distribution is required to satisfy Code ss401(a)(9) or
Code ss415.
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9.3 Mandatory Commencement of Benefits.
(a) Unless a Participant elects otherwise, in writing, distribution of
benefits will begin no later than the 60th day after the latest of the close of
the Plan Year in which (i) the Participant attains age 65, (ii) occurs the tenth
anniversary of the year in which the Participant commenced participation in the
Plan Year, or (iii) the Participant terminates Service with the Employer.
(b) In the event that the Plan shall be subsequently amended to provide for
a form of distribution other than a lump sum, as of the first distribution
calendar year, distributions, if not made in a lump sum, may be made only over
one of the following periods (or a combination thereof):
(i) the life of the Participant,
(ii) the life of the Participant and the designated beneficiary,
(iii) a period certain not extending beyond the life expectancy of the
Participant, or
(iv) a period certain not extending beyond the joint and last survivor
expectancy of the Participant and a designated beneficiary.
(c) In the event that the Plan shall be subsequently amended to provide for
a form of distribution other than a lump sum, if the participant's interest is
to be distributed in other than a lump sum, the following minimum distribution
rules shall apply on or after the required beginning date:
(i) If a Participant's benefit is to be distributed over (1) a period
not extending beyond the life expectancy of the Participant or the joint
life and last survivor expectancy of the Participant and the Participant's
designated beneficiary or (2) a period not extending beyond the life
expectancy of the designated beneficiary, the amount required to be
distributed for each calendar year, beginning with distributions for the
first distribution calendar year, must at least equal the quotient obtained
by dividing the Participant's benefit by the applicable life expectancy.
(ii) For calendar years beginning after December 31, 1988, the amount
to be distributed each year, beginning with distributions for the first
distribution calendar year shall not be less than the quotient obtained by
dividing the Participant's benefit by the lesser of (1) the applicable life
expectancy or (2) if the Participant's spouse is not the designated
beneficiary, the applicable divisor determined from the table set forth in
Q&A-4 of section 1.401(a)(9)-2 of the Proposed Regulations. Distributions
after the death of the participant shall be distributed using the
applicable life expectancy in sub-section (iii) above as the relevant
divisor without regard to Proposed Regulations 1.401(a)(9)-2.
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(iii) The minimum distribution required for the Participant's first
distribution calendar year must be made on or before the Participant's
required beginning date. The minimum distribution for other calendar years,
including the minimum distribution for the distribution calendar year in
which the employee's required beginning date occurs, must be made on or
before December 31 of the distribution calendar year.
(d) If a Participant dies after a distribution has commenced in accordance
with Section 8.3(b) but before his entire interest has been distributed to him,
the remaining portion of such interest shall be distributed to his Beneficiary
at least as rapidly as under the method of distribution in effect as of the date
of his death.
(e) If a Participant shall die before the distribution of his interest in
the Plan has begun, the entire interest of the Participant shall be distributed
by December 31 of the calendar year containing the fifth anniversary of the
death of the Participant, except in the following events:
(i) If any portion of the Participant's interest is payable to (or for
the benefit of) a designated beneficiary over a period not extending beyond
the life expectancy of such beneficiary and such distributions begin not
later than December 31 of the calendar year immediately following the
calendar year in which the Participant died.
(ii) If any portion of the Participant's interest is payable to (or
for the benefit of) the Participant's spouse over a period not extending
beyond the life expectancy of such spouse and such distributions begin no
later than December 31 of the calendar year in which the Participant would
have attained age 70-1/2.
If the Participant has not made a distribution election by the time of his
death, the Participant's designated beneficiary shall elect the method of
distribution no later than the earlier of (1) December 31 of the calendar year
in which distributions would be required to begin under this Article or (2)
December 31 of the calendar year which contains the fifth anniversary of the
date of death of the Participant. If the Participant has no designated
beneficiary, or if the designated beneficiary does not elect a method of
distribution, distribution of the Participant's entire interest shall be
completed by December 31 of the calendar year containing the fifth anniversary
of the Participant's death.
(f) For purposes of this Article, the life expectancy of a Participant and
his spouse may be redetermined but not more frequently than annually. The life
expectancy (or joint and last survivor expectancy) shall be calculated using the
attained age of the Participant (or designated beneficiary) as of the
Participant's (or designated beneficiary's) birthday in the applicable calendar
year reduced by one for each calendar year which has elapsed since the date life
expectancy was first calculated. If life expectancy is being recalculated, the
applicable life expectancy shall be the life expectancy as so recalculated. The
applicable calendar year shall be the first distribution calendar year, and if
life expectancy is being recalculated, such succeeding calendar year. Unless
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otherwise elected by the Participant (or his spouse, if applicable) by the time
distributions are required to begin, life expectancies shall be recalculated
annually. Any such election not to recalculate shall be irrevocable and shall
apply to all subsequent years. The life expectancy of a nonspouse beneficiary
may not be recalculated.
(g) For purposes of Section 9.3(b) and 9.3(e), any amount paid to a child
shall be treated as if it had been paid to a surviving spouse if such amount
will become payable to the surviving spouse upon such child reaching majority
(or other designated event permitted under regulations).
(h) For distributions beginning before the Participant's death, the first
distribution calendar year is the calendar year immediately preceding the
calendar year which contains the Participant's required beginning date. For
distributions beginning after the Participant's death, the first distribution
calendar year is the calendar year in which distributions are required to begin
pursuant to this Article.
9.4 Required Beginning Dates.
(a) General Rule. The required beginning date of a Participant is the first
day of April of the calendar year following the calendar year in which the
participant attains age 70-1/2. However, for Plan Years commencing after
December 31, 1996, such required beginning date shall apply only to 5-percent
owners.
(b) Transitional rules. The required beginning date of a Participant who
attains age 70-1/2 before January 1, 1988, shall be determined in accordance
with (1) or (2) below:
(1) Non-5-percent owners. The required beginning date of a Participant
who is not a 5-percent owner is the first day of April of the calendar year
following the calendar year in which the later of retirement or attainment
or age 70-1/2 occurs.
(2) 5-percent owners. The required beginning date of a Participant who
is a 5-percent owner during any year beginning after December 31, 1989, is
the first day of April following the later of:
(i) the calendar year in which the Participant attains age
70-1/2, or
(ii) the earlier of the calendar year with or within which ends
the Plan Year in which the Participant becomes a 5-percent owner, or
the calendar year in which the Participant retires.
The required beginning date of a Participant who is not a 5-percent owner
who attains age 70-1/2 during 1988 and who has not retired as of January 1,
1989, is April 1, 1990. Commencing
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January 1, 1997, however, the required beginning date of such a Participant
shall be April 1 of the calendar year following the later of either: (i) the
calendar year in which the Participant attains age 70-1/2, or (ii) the calendar
year in which the Participant retires.
(c) 5-percent owner. A Participant is treated as a 5-percent owner for
purposes of this section if such Participant is a 5-percent owner as defined in
section 416(i) of the Code (determined in accordance with section 416 but
without regard to whether the plan is top-heavy) at any time during the Plan
Year ending with or within the calendar year in which such owner attains age
66-1/2 or any subsequent Plan Year. Once distributions have begun to a 5-percent
owner under this section, they must continue to be distributed, even if the
Participant ceases to be a 5-percent owner in a subsequent year.
9.5 Form of Payment.
Each Participant's vested interest shall be distributed in a lump sum
payment. Notwithstanding the preceding sentence, but subject to Section 9.3, the
Administrator may not distribute a lump sum when the present value of a
Participant's total Account balances is in excess of $3,500 without the
Participant's consent. This form of payment shall be the normal form of
distribution. Furthermore, however, in the event that the Administrator must
commence distributions, as required by Section 9.4 herein, with respect to an
Employee who has attained age 70-1/2 and is still employed by the Employer, if
the Employee does not elect a lump sum distribution, payments shall be made in
installments in such amounts as shall satisfy the minimum distribution rules of
Section 9.3.
9.6 Payments Upon Termination of Plan.
Upon termination of this Plan pursuant to Sections 13.2, 13.4, 13.5 or
13.6, the Administrator shall continue to perform its duties and the Trustee
shall make all payments upon the following terms, conditions and provisions: All
interests of Participants shall immediately become fully vested; the value of
the interests of all Participants shall be determined within 60 days after such
termination, and the Administrator shall have the same powers to direct the
Trustee in making payments as contained in Sections 9.1 and 13.5.
9.7 Distributions Pursuant to Qualified Domestic Relations Orders.
Upon receipt of a domestic relations order, the Administrator shall notify
promptly the Participant and any alternate payee of receipt of the order and the
Plan's procedure for determining whether the order is a Qualified Domestic
Relations Order. While the issue of whether a domestic relations order is a
Qualified Domestic Relations Order is being determined, if the benefits would
otherwise be paid, the Administrator shall segregate in a separate account in
the Plan the amounts that would be payable to the alternate payee during such
period if the order were a Qualified Domestic Relations Order. If within 18
months the order is determined to be a Qualified Domestic
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Relations Order, the amounts so segregated, along with the interest or
investment earnings attributable thereto shall be paid to the alternate payee.
Alternatively, if within 18 months, it is determined that the order is not a
Qualified Domestic Relations Order or if the issue is still unresolved, the
amounts segregated under this Section 9.6, with the earnings attributable
thereto, shall be paid to the Participant or Beneficiary who would have been
entitled to such amounts if there had been no order. The determination as to
whether the order is qualified shall be applied prospectively. Thus, if the
Administrator determines that the order is a Qualified Domestic Relations Order
after the 18-month period, the Plan shall not be liable for payments to the
alternative payee for the period before the order is determined to be a
Qualified Domestic Relations Order.
9.8 Cash-Out Distributions
If a Participant receives a distribution of the entire present value of his
vested Account balances under this Plan because of the termination of his
participation in the Plan, the Plan shall disregard a Participant's Service with
respect to which such cash-out distribution shall have been made, in computing
his accrued benefit under the Plan in the event that a Former Participant shall
again become an Employee and become eligible to participate in the Plan. Such a
distribution shall be deemed to be made on termination of participation in the
Plan if it is made not later than the close of the second Plan Year following
the Plan Year in which such termination occurs. The forfeitable portion of a
Participant's accrued benefit shall be restored upon repayment to the Plan by
such former Participant of the full amount of the cash-out distribution,
provided that the former Participant again becomes an Employee. Such repayment
must be made by the Employee not later than the end of the 5-year period
beginning with the date of the distribution. Forfeitures required to be restored
by virtue of such repayment shall be restored from the following sources in the
following order of preference: (i) current forfeitures; (ii) additional employee
stock ownership contributions, as appropriate and as subject to Section 5.6; and
(iii) investment earnings of the Fund. In the event that a Participant's
interest in the Plan is totally forfeitable, a Participant shall be deemed to
have received a distribution of zero upon his termination of Service. In the
event of a return to Service within 5 years of the date of his deemed
distribution, the Participant shall be deemed to have repaid his distribution in
accordance with the rules of this Section 9.8.
9.9 ESOP Distribution Rules.
Notwithstanding any provision of this Article IX to the contrary, the
distribution of a Participant's Employee Stock Ownership Account (unless the
Participant elects otherwise in writing), shall commence as soon as
administratively feasible as of the first Valuation Date coincident with or next
following his death, disability or termination of Service, but not later than 1
year after the close of the Plan Year in which the Participant separates from
Service by reason of the attainment of his Normal Retirement Date, disability,
death or separation from Service. In addition, all distributions hereunder
shall, to the extent that the Participant's Account is invested in Employer
Securities, be made in the form of Employer Securities. Fractional shares,
however, may be distributed in the form of cash.
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9.10 Withholding.
(a) Notwithstanding any provision of the Plan to the contrary that would
otherwise limit a distributee's election under this Article IX, a distributee
may elect, at the time and in the manner prescribed by the Plan Administrator,
to have any portion of an "eligible rollover distribution" paid directly to an
"eligible retirement plan" specified by the distributee in a "direct rollover."
(b) For purposes of this Section 9.10, an "eligible rollover distribution"
is any distribution of all or any portion of the balance to the credit of the
distributee, except that an "eligible rollover distribution" does not include:
any distribution that is one of a series of substantially equal periodic
payments (not less frequently than annually) made for the life (or life
expectancy) of the distributee or the joint lives (or joint life expectancies)
of the distributee and the distributee's designated beneficiary, or for a
specified period of ten years or more; any distribution to the extent such
distribution is required under section 401(a)(9) of the Code; and the portion of
any distribution that is not includible in gross income (determined without
regard to the exclusion for net unrealized appreciation with respect to Employer
Securities).
(c) For purposes of this Section 9.10, an "eligible retirement plan" is an
individual retirement account described in section 408(a) of the Code, an
individual retirement annuity described in section 408(b) of the Code, an
annuity plan described in section 403(a) of the Code, or a qualified trust
described in section 401(a) of the Code, that accepts the distributee's eligible
rollover distribution. However, in the case of an "eligible rollover
distribution" to the surviving spouse, an "eligible retirement plan" is an
individual retirement account or individual retirement annuity.
(d) For purposes of this Section 9.10, a distributee includes a Participant
or former Participant. In addition, the Participant's or former Participant's
surviving spouse and the Participant's or former Participant's spouse or former
spouse who is the alternate payee under a qualified domestic relations order, as
defined in section 414(p) of the Code, are "distributees" with regard to the
interest of the spouse or former spouse.
(e) For purposes of this Section 9.10, a "direct rollover" is a payment by
the Plan to the "eligible retirement plan" specified by the distributee.
9.11 Waiver of 30-day Notice.
If a distribution is one to which sections 401(a)(11) and 417 of the Code
do not apply, such distribution may commence less than 30 days after the notice
required under section 1.411(a)-11(c)
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of the Income Tax Regulations is given, provided that: (1) the Plan
Administrator clearly informs the Participant that the Participant has a right
to a period of at least 30 days after receiving the notice to consider the
decision of whether or not to elect a distribution (and, if applicable, a
particular distribution option), and (2) the Participant, after receiving the
notice, affirmatively elects a distribution.
9.12 Re-employed Veterans.
Notwithstanding anything to the contrary set forth in the Plan, if an
Employee has been rehired by the Employer and is eligible for the benefits
provided by the Uniformed Services Employment and Reemployment Rights Act by
virtue of his prior military service and by virtue of his having met all the
requirements of that Act for being accorded the benefits provided thereunder, he
shall not be deemed to have incurred a Break because of his period of military
service. The Employee's military service shall be treated as Service hereunder
for eligibility, vesting and benefit accrual purposes. Such Employee shall be
entitled to all Employer contributions to which he otherwise would have been
entitled had he been employed by the Employer during the period of his military
service. In computing contribution amounts dependent upon or limited by the
amount of Compensation the Employee earned or would have earned, the Employee
shall be treated as receiving Compensation from the Employer during the period
of military service equal to the Compensation that Employee otherwise would have
received from the Employer during that period, or, if the Compensation the
Employee otherwise would have received is not reasonably certain, the Employee's
average Compensation from the Employer during the period immediately preceding
the period of military service. Such Employee shall not, however, be credited
with any earnings on any such additional Employer or Employee contributions
described in this Section before the contribution is actually made. Furthermore,
no forfeitures shall be allocated to such Employee's Accounts hereunder for the
period of military service. The rules governing the limitations on all such
contributions that may be required hereunder the Employer shall be governed by
Section 414(u) of the Code and any regulations promulgated thereunder.
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ARTICLE X
PROVISIONS RELATING TO TOP-HEAVY PLANS
10.1 Top-Heavy Rules to Control.
Anything contained in this Plan to the contrary notwithstanding, if for any
Plan Year the Plan is a top-heavy plan, as determined pursuant to Section 416 of
the Code, then the Plan must meet the requirements of this Article X for such
Plan Year.
10.2 Top-Heavy Plan Definitions.
Unless a different meaning is plainly implied by the context, the following
terms as used in this Article X shall have the following meanings:
(a) "Accrued Benefit" shall mean the account balances or accrued benefits
of an Employee, calculated pursuant to Section 10.3.
(b) "Determination Date" shall mean, with respect to any particular Plan
Year of this Plan, the last day of the preceding Plan Year (or, in the case of
the first Plan Year of the Plan, the last day of the first Plan Year). In
addition, the term "Determination Date" shall mean, with respect to any
particular plan year of any plan (other than this Plan) in a Required
Aggregation Group or a Permissive Aggregation Group, the last day of the plan
year of such plan which falls within the same calendar year as the Determination
Date for this Plan.
(c) "Employer" shall mean the Employer (as defined in Section 1.1(q)) and
any entity which is (1) a member of a controlled group including such Employer,
while it is a member of such controlled group (within the meaning of Section
414(b) of the Code), (2) in a group of trades or businesses under common control
with such Employer, while it is under common control (within the meaning of
Section 414(c) of the Code), and (3) a member of an affiliated service group
including such Employer, while it is a member of such affiliated service group
(within the meaning of Section 414(m) of the Code).
(d) "Key Employee" shall mean any Employee or former Employee (or any
Beneficiary of such Employee or former Employee, as the case may be) who, at any
time during the Plan Year or during the 4 immediately preceding Plan Years is
one of the following:
(1) An officer of the Employer who has compensation greater than 50%
of the amount in effect under Code 415(b)(1)(A) for the Plan Year;
provided, however, that no more than 50 Employees (or, if lesser, the
greater of 3 or 10% of the Employees) shall be deemed officers;
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(2) One of the 10 Employees having annual compensation (as defined in
Section 415 of the Code) in excess of the limitation in effect under
Section 415(c)(1)(A) of the Code, and owning (or considered as owning,
within the meaning of Section 318 of the Code) the largest interests in the
Employer;
(3) Any Employee owning (or considered as owning, within the meaning
of Section 318 of the Code) more than 5% of the outstanding stock of the
Employer or stock possessing more than 5% of the total combined voting
power of all stock of the Employer; or
(4) Any Employee having annual compensation (as defined in Section 415
of the Code) of more than $150,000 and who would be described in Section
10.2(d)(3) if "1%" were substituted for "5%" wherever the latter percentage
appears.
For purposes of applying Section 318 of the Code to the provisions of this
Section 10.2(d), Section 318(a)(2)(C) of the Code shall be applied by
substituting "5%" for "50%" wherever the latter percentage appears. In addition,
for purposes of this Section 10.2(d), the provisions of Section 414(b), (c) and
(m) shall not apply in determining ownership interests in the Employer. However,
for purposes of determining whether an individual has compensation in excess of
$150,000, or whether an individual is a Key Employee under Section 10.2(d)(1)
and (2), compensation from each entity required to be aggregated under Sections
414(b), (c) and (m) of the Code shall be taken into account. Notwithstanding
anything contained herein to the contrary, all determinations as to whether a
person is or is not a Key Employee shall be resolved by reference to Section 416
of the Code and any rules and regulations promulgated thereunder.
(e) "Non-Key Employee" shall mean any Employee or former Employee (or any
Beneficiary of such Employee or former Employee, as the case may be) who is not
considered to be a Key Employee with respect to this Plan.
(f) "Permissive Aggregation Group" shall mean all plans in the Required
Aggregation Group and any other plans maintained by the Employer which satisfy
Sections 401(a)(4) and 410 of the Code when considered together with the
Required Aggregation Group.
(g) "Required Aggregation Group" shall mean each plan (including any
terminated plan) of the Employer in which a Key Employee is (or in the case of a
terminated plan, had been) a Participant in the Plan Year containing the
Determination Date or any of the 4 preceding Plan Years, and each other plan of
the Employer which enables any plan of the Employer in which a Key Employee is a
Participant to meet the requirement of Sections 401(a)(4) and 410 of the Code.
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10.3 Calculation of Accrued Benefits.
(a) An Employee's Accrued Benefit shall be equal to:
(1) With respect to this Plan or any other defined contribution plan
(other than a defined contribution pension plan) in a Required Aggregation
Group or a Permissive Aggregation Group, the Employee's account balances
under the respective plan, determined as of the most recent plan valuation
date within a 12-month period ending on the Determination Date, including
contributions actually made after the valuation date but before the
Determination Date (and, in the first plan year of a plan, also including
any contributions made after the Determination Date which are allocated as
of a date in the first plan year).
(2) With respect to any defined contribution pension plan in a
Required Aggregation Group or a Permissive Aggregation Group, the
Employee's account balances under the plan, determined as of the most
recent plan valuation date within a 12-month period ending on the
Determination Date, including contributions which have not actually been
made, but which are due to be made as of the Determination Date.
(3) With respect to any defined benefit plan in a Required Aggregation
Group or a Permissive Aggregation Group, the present value of the
Employee's accrued benefits under the plan, determined as of the most
recent plan valuation date within a 12-month period ending on the
Determination Date, pursuant to the actuarial assumptions used by such
plan, and calculated as if the Employee terminated Service under such plan
as of the valuation date (except that, in the first plan year of a plan, a
current Participant's estimated Accrued Benefit Plan as of the
Determination Date shall be taken into account).
(4) If any individual has not performed services for the Employer
maintaining the Plan at any time during the 5-year period ending on the
Determination Date, any Accrued Benefit for such individual shall not be
taken into account.
(b) The Accrued Benefit of any Employee shall be further adjusted as
follows:
(1) The Accrued Benefit shall be calculated to include all amounts
attributable to both Employer and Employee contributions, but shall exclude
amounts attributable to voluntary deductible Employee contributions, if
any.
(2) The Accrued Benefit shall be increased by the aggregate
distributions made with respect to an Employee under the plan or plans, as
the case may be, during the 5-year period ending on the Determination Date.
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(3) Rollover and direct plan-to-plan transfers shall be taken into
account as follows:
(A) If the transfer is initiated by the Employee and made from a
plan maintained by one employer to a plan maintained by another
unrelated employer, the transferring plan shall continue to count the
amount transferred; the receiving plan shall not count the amount
transferred.
(B) If the transfer is not initiated by the Employee or is made
between plans maintained by related employers, the transferring plan
shall no longer count the amount transferred; the receiving plan shall
count the amount transferred.
(c) If any individual has not performed services for the Employer at any
time during the 5-year period ending on the Determination Date, any accrued
benefit for such individual (and the account of such individual) shall not be
taken into account.
10.4 Determination of Top-Heavy Status.
This Plan shall be considered to be a top-heavy plan for any Plan Year if,
as of the Determination Date, the value of the Accrued Benefits of Key Employees
exceeds 60% of the value of the Accrued Benefits of all eligible Employees under
the Plan. Notwithstanding the foregoing, if the Employer maintains any other
qualified plan, the determination of whether this Plan is top-heavy shall be
made after aggregating all other plans of the Employer in the Required
Aggregation Group and, if desired by the Employer as a means of avoiding
top-heavy status, after aggregating any other plan of the Employer in the
Permissive Aggregation Group. If the required Aggregation Group is top-heavy,
then each plan contained in such group shall be deemed to be top-heavy,
notwithstanding that any particular plan in such group would not otherwise be
deemed to be top-heavy. Conversely, if the Permissive Aggregation Group is not
top-heavy, then no plan contained in such group shall be deemed to be top-heavy,
notwithstanding that any particular plan in such group would otherwise be deemed
to be top-heavy. In no event shall a plan included in a top-heavy Permissive
Aggregation Group be deemed a top-heavy plan unless such plan is also included
in a top-heavy Required Aggregation Group.
10.5 Determination of Super Top-Heavy Status.
The Plan shall be considered to be a super top-heavy plan if, as of the
Determination Date, the Plan would meet the test specified in Section 10.4 above
for classification as a top-heavy plan, except that "90%" shall be substituted
for "60%" whenever the latter percentage appears.
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10.6 Minimum Contribution.
(a) For any year in which the Plan is top-heavy, each Non-Key Employee who
has met the age and service requirements, if any, contained in the Plan, shall
be entitled to a minimum contribution (which may include forfeitures otherwise
allocable) equal to a percentage of such Non-Key Employee's compensation (as
defined in Section 415 of the Code) as follows:
(1) If the Non-Key Employee is not covered by a defined benefit plan
maintained by the Employer, then the minimum contribution under this Plan
shall be 3% of such Non-Key Employee's compensation.
(2) If the Non-Key Employee is covered by a defined benefit plan
maintained by the Employer, then the minimum contribution under this Plan
shall be 5% of such Non-Key Employee's compensation.
(b) Notwithstanding the foregoing, the minimum contribution otherwise
allocable to a Non-Key Employee under this Plan shall be reduced in the
following circumstances:
(1) The percentage minimum contribution required under this Plan shall
in no event exceed the percentage contribution made for the Key Employee
for whom such percentage is the highest for the Plan Year after taking into
account contributions under other defined contribution plans in this Plan's
Required Aggregation Group; provided, however, that this Section 10.7(b)(1)
shall not apply if this Plan is included in a Required Aggregation Group
and this Plan enables a defined benefit plan in such Required Aggregation
Group to meet the requirements of Section 401(a)(4) or 410 of the Code.
(2) No minimum contribution shall be required (or the minimum
contribution shall be reduced, as the case may be) for a Non-Key Employee
under this Plan for any Plan Year if the Employer maintains another
qualified plan under which a minimum benefit or contribution is being
accrued or made on account of such Plan Year, in whole or in part, on
behalf of the Non-Key Employee, in accordance with Section 416(c) of the
Code.
(c) For purposes of this Section 10.6, there shall be disregarded (1) any
Employer contributions attributable to a salary reduction or similar
arrangement, or (2) any Employer contributions to or any benefits under Chapter
21 of the Code (relating to the Federal Insurance Contributions Act), Title II
of the Social Security Act, or any other federal or state law.
(d) For purposes of this Section 10.6, minimum contributions shall be
required to be made on behalf of only those Non-Key Employees, as described in
Section 10.7(a), who have not terminated Service as of the last day of the Plan
Year. If a Non-Key Employee is otherwise entitled to receive a minimum
contribution pursuant to this Section 10.6(d), the fact that such Non-Key
Employee failed to complete 1,000 Hours of Service or failed to make any
mandatory or elective contributions under this Plan, if any are so required,
shall not preclude him from receiving such minimum contribution.
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10.7 Vesting.
(a) For any Plan Year in which the Plan is a top-heavy plan, a
Participant's Employer account shall continue to vest according to the following
schedule:
Years of Service Completed Percentage Vested
Less than 1 0%
1 but less than 2 20%
2 but less than 3 40%
3 but less than 4 60%
4 but less than 5 80%
5 or more 100%
(b) For purposes of Section 10.7(a), the term "year of service" shall have
the same meaning as set forth in Section 1.1(kk), as modified by Section 3.2
(c) If for any Plan Year the Plan becomes top-heavy and the vesting
schedule set forth in Section 10.7(a) becomes effective, then, even if the Plan
ceases to be top-heavy in any subsequent Plan Year, the vesting schedule set
forth in Section 10.7(a) shall remain applicable with respect to any Participant
who has completed 3 Years of Service.
10.8 Maximum Benefit Limitation.
For any Plan Year in which the Plan is a top-heavy plan, Section
5.6(d)(1)(B)(i) and Section 5.6(d)(2)(B)(i)shall be read by substituting "1.0"
for "1.25" wherever the latter figure appears; provided, however, that such
substitution shall not have the effect of reducing any benefit accrued under a
defined benefit plan prior to the first day of the plan year in which this
Section 10.8 becomes applicable.
45
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ARTICLE XI
ADMINISTRATION
11.1 Appointment of Administrator.
This Plan shall be administered by a committee consisting of up to 5
persons, whether or not Employees or Participants, who shall be appointed from
time to time by the Board of Directors to serve at its pleasure. The Sponsor may
require that each person appointed as an Administrator shall signify his
acceptance by filing an acceptance with the Sponsor. The term "Administrator" as
used in this Plan shall refer to the members of the committee, either
individually or collectively, as appropriate. In the event that the Sponsor
shall elect not to appoint any individuals to constitute a committee to
administer the Plan, the Sponsor shall serve as the Administrator hereunder.
11.2 Resignation or Removal of Administrator.
An Administrator shall have the right to resign at any time by giving
notice in writing, mailed or delivered to the Employer and to the Trustee. Any
Administrator who was an employee of the Employer at the time of his appointment
shall be deemed to have resigned as an Administrator upon his termination of
Service. The Board of Directors may, in its discretion, remove any Administrator
with or without cause, by giving notice in writing, mailed or delivered to the
Administrator and to the Trustee.
11.3 Appointment of Successors: Terms of Office, Etc.
Upon the death, resignation or removal of an Administrator, the Employer
may appoint, by Board of Directors' resolution, a successor or successors.
Notice of termination of an Administrator and notice of appointment of a
successor shall be made by the Employer in writing, with copies mailed or
delivered to the Trustee, and the successor shall have all the rights and
privileges and all of the duties and obligations of the predecessor.
11.4 Powers and Duties of Administrator.
The Administrator shall have the following duties and responsibilities in
connection with the administration of this Plan:
(a) To promulgate and enforce such rules, regulations and procedures as
shall be proper for the efficient administration of the Plan, such rules,
regulations and procedures to apply uniformly to all Employees, Participants and
Beneficiaries;
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(b) To determine all questions arising in the administration,
interpretation and application of the Plan, including questions of eligibility
and of the status and rights of Participants, Beneficiaries and any other
persons hereunder;
(c) To decide any dispute arising hereunder strictly in accordance with the
terms of the Plan; provided, however, that no Administrator shall participate in
any matter involving any questions relating solely to his own participation or
benefits under this Plan;
(d) To advise the Employer and the Trustee regarding the known future needs
for funds to be available for distribution in order that the Trustee may
establish investments accordingly;
(e) To correct defects, supply omissions and reconcile inconsistencies to
the extent necessary to effectuate the Plan;
(f) To advise the Employer of the maximum deductible contribution to the
Plan for each fiscal year;
(g) To direct the Trustee concerning all payments which shall be made out
of the Fund pursuant to the provisions of this Plan;
(h) To advise the Trustee on all terminations of Service by Participants,
unless the Employer has so notified the Trustee;
(i) To confer with the Trustee on the settling of any claims against the
Fund;
(j) To make recommendations to the Board of Directors with respect to
proposed amendments to the Plan and the Trust Agreement;
(k) To file all reports with government agencies, Employees and other
parties as may be required by law, whether such reports are initially the
obligation of the Employer, the Plan or the Trustee; and
(l) To have all such other powers as may be necessary to discharge its
duties hereunder.
Reasonable discretion is granted to the Administrator to affect the
benefits, rights and privileges of Participants, Beneficiaries or other persons
affected by this Plan. The Administrator shall exercise reasonable discretion
under the terms of this Plan and shall administer the Plan strictly in
accordance with its terms, such administration to be exercised uniformly so that
all persons similarly situated shall be similarly treated.
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11.5 Action by Administrator.
The Administrator may elect a Chairman and Secretary from among its members
and may adopt rules for the conduct of its business. A majority of the members
then serving shall constitute a quorum for the transaction of business. All
resolutions or other action taken by the Administrator shall be by vote of a
majority of those present at such meeting and entitled to vote. Resolutions may
be adopted or other action taken without a meeting upon written consent signed
by at least a majority of the members. All documents, instruments, orders,
requests, directions, instructions and other papers shall be executed on behalf
of the Administrator by either the Chairman or the Secretary of the
Administrator, if any, or by any member or agent of the Administrator duly
authorized to act on the Administrator's behalf.
11.6 Participation by Administrators.
No Administrator shall be precluded from becoming a Participant in the Plan
if he would be otherwise eligible, but he shall not be entitled to vote or act
upon matters or to sign any documents relating specifically to his own
participation under the Plan, except when such matters or documents relate to
benefits generally. If this disqualification results in the lack of a quorum,
then the Board of Directors shall appoint a sufficient number of temporary
Administrators who shall serve for the sole purpose of determining such a
question.
11.7 Agents.
The Administrator may employ agents and provide for such clerical, legal,
actuarial, accounting, medical, advisory or other services as it deems necessary
to perform its duties under this Plan. The cost of such services and all other
expenses incurred by the Administrator in connection with the administration of
the Plan shall be paid from the Fund, unless paid by the Employer.
11.8 Allocation of Duties.
The duties, powers and responsibilities reserved to the Administrator may
be allocated among its members so long as such allocation is pursuant to written
procedures adopted by the Administrator, in which case, except as may be
required by the Act, no Administrator shall have any liability, with respect to
any duties, powers or responsibilities not allocated to him, for the acts of
omissions of any other Administrator.
11.9 Delegation of Duties.
The Administrator may delegate any of its duties to other employees of the
Employer, to the Trustee with its consent, or to any other person or firm,
provided that the Administrator shall prudently choose such agents and rely in
good faith on their actions.
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11.10 Administrator's Action Conclusive.
Any action on matters within the authority of the Administrator shall be
final and conclusive except as provided in Article XII.
11.11 Compensation and Expenses of Administrator.
No Administrator who is receiving compensation from the Employer as a
full-time employee, as a director or agent, shall be entitled to receive any
compensation or fee for his services hereunder. Any other Administrator shall be
entitled to receive such reasonable compensation for his services as an
Administrator hereunder as may be mutually agreed upon between the Employer and
such Administrator. Any such compensation shall be paid from the Fund, unless
paid by the Employer. Each Administrator shall be entitled to reimbursement by
the Employer for any reasonable and necessary expenditures incurred in the
discharge of his duties.
11.12 Records and Reports.
The Administrator shall maintain adequate records of its actions and
proceedings in administering this Plan and shall file all reports and take all
other actions as it deems appropriate in order to comply with the Act, the Code
and governmental regulations issued thereunder.
11.13 Reports of Fund Open to Participants.
The Administrator shall keep on file, in such form as it shall deem
convenient and proper, all annual reports of the Fund received by the
Administrator from the Trustee, and a statement of each Participant's interest
in the Fund as from time to time determined. The annual reports of the Fund and
the statement of his own interest in the Fund, as well as a complete copy of the
Plan and the Trust Agreement and copies of annual reports to the Internal
Revenue Service, shall be made available by the Administrator to the Employer
for examination by each Participant during reasonable hours at the office of the
Employer, provided, however, that the statement of a Participant's interest
shall not be made available for examination by any other Participant.
11.14 Named Fiduciary.
The Administrator is the named fiduciary for purposes of the Act and shall
be the designated agent for receipt of service of process on behalf of the Plan.
It shall use ordinary care and diligence in the performance of its duties under
this Plan. Nothing in this Plan shall preclude the Employer from indemnifying
the Administrator for all actions under this Plan, or from purchasing liability
insurance to protect it with respect to its duties under this Plan.
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11.15 Information from Employer.
The Employer shall promptly furnish all necessary information to the
Administrator to permit it to perform its duties under this Plan. The
Administrator shall be entitled to rely upon the accuracy and completeness of
all information furnished to it by the Employer, unless it knows or should have
known that such information is erroneous.
11.16 Reservation of Rights by Employer.
Where rights are reserved in this Plan to the Employer, such rights shall
be exercised only by action of the Board of Directors, except where the Board of
Directors, by written resolution, delegates any such rights to one or more
officers of the Employer or to the Administrator. Subject to the rights reserved
to the Board of Directors acting on behalf of the Employer as set forth in this
Plan, no member of the Board of Directors shall have any duties or
responsibilities under this Plan, except to the extent he shall be acting in the
capacity of an Administrator or Trustee.
11.17 Liability and Indemnification.
(a) The Administrator shall perform all duties required of it under this
Plan in a prudent manner. To the extent not prohibited by the Act, the
Administrator shall not be responsible in any way for any action or omission of
the Employer, the Trustee or any other fiduciaries in the performance of their
duties and obligations set forth in this Plan and in the Trust Agreement. To the
extent not prohibited by the Act, the Administrator shall also not be
responsible for any act or omission of any of its agents, or with respect to
reliance upon advice of its counsel (whether or not such counsel is also counsel
to the Employer or the Trustee), provided that such agents or counsel were
prudently chosen by the Administrator and that the Administrator relied in good
faith upon the action of such agent or the advice of such counsel.
(b) The Administrator shall not be relieved from responsibility or
liability for any responsibility, obligation or duty imposed upon it under this
Plan or under the Act. Except for its own gross negligence, willful misconduct
or willful breach of the terms of this Plan, the Administrator shall be
indemnified and held harmless by the Employer against liability or losses
occurring by reason of any act or omission of the Administrator to the extent
that such indemnification does not violate the Act or any other federal or state
laws.
11.18 Service as Trustee and Administrator.
Nothing in this Plan shall prevent one or more Trustees from serving as
Administrator under this Plan.
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ARTICLE XII
CLAIMS PROCEDURE
12.1 Notice of Denial.
If a Participant or his Beneficiary is denied any benefits under this Plan,
either in whole or in part, the Administrator shall advise the claimant in
writing of the amount of his benefit, if any, and the specific reasons for the
denial. The Administrator shall also furnish the claimant at that time with a
written notice containing:
(a) A specific reference to pertinent Plan provisions;
(b) A description of any additional material or information necessary for
the claimant to perfect his claim, if possible, and an explanation of why such
material or information is needed; and
(c) An explanation of the Plan's claim review procedure.
12.2 Right to Reconsideration.
Within 60 days of receipt of the information described in 12.1 above, the
claimant shall, if he desires further review, file a written request for
reconsideration with the Administrator.
12.3 Review of Documents.
So long as the claimant's request for review is pending (including the
60-day period described in Section 12.2 above), the claimant or his duly
authorized representative may review pertinent Plan documents and the Trust
Agreement (and any pertinent related documents) and may submit issues and
comments in writing to the Administrator.
12.4 Decision by Administrator.
A final and binding decision shall be made by the Administrator within 60
days of the filing by the claimant of his request for reconsideration; provided,
however, that if the Administrator feels that a hearing with the claimant or his
representative present is necessary or desirable, this period shall be extended
an additional 60 days.
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12.5 Notice by Administrator.
The Administrator's decision shall be conveyed to the claimant in
writing and shall include specific reasons for the decision, written in a manner
calculated to be understood by the claimant, with specific references to the
pertinent Plan provisions on which the decision is based.
52
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ARTICLE XIII
AMENDMENTS, TERMINATION AND MERGER
13.1 Amendments.
The Employer reserves the right at any time and from time to time, and
retroactively if deemed necessary or appropriate by it, to the extent
permissible under law, to conform with governmental regulations or other
policies, to amend in whole or in part any or all of the provisions of this
Plan, provided that:
(a) No amendment shall make it possible for any part of the Fund to be used
for, or diverted to, purposes other than for the exclusive benefit of
Participants or their Beneficiaries under the Trust Agreement, except to the
extent provided in Section 4.4;
(b) No amendment may, directly or indirectly, reduce the vested portion of
any Participant's interest as of the effective date of the amendment or change
the vesting schedule with respect to the future accrual of Employer
contributions for any Participants unless each Participant with 3 or more Years
of Service with the Employer is permitted to elect to have the vesting schedule
in effect before the amendment used to determine his vested benefit; and
(c) No amendment may eliminate an optional form of benefit.
(d) No amendment may increase the duties of the Trustee without its
consent.
Amendments may be made in the form of Board of Directors' resolutions or
separate written document. Copies of all amendments shall be delivered to the
Trustee.
13.2 Consolidation, Merger or Other Transactions of Employer.
Nothing in this Plan shall prevent the consolidation, merger,
reorganization or liquidation of the Employer, or prevent the sale by Employer
of any or all of its property. Any successor corporation or other entity formed
and resulting from any such transaction shall have the right to become a party
to this Plan by adopting the same by resolution and by appointing a new Trustee
as though the Trustee had resigned in accordance with the Trust Agreement, and
by executing a proper supplemental agreement with the Trustee. If, within 180
days from the effective date of such transaction, such new entity does not
become a party to this Plan as above provided, this Plan shall automatically be
terminated and the Trustee shall make payments to the persons entitled thereto
in accordance with Section 9.5.
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13.3 Consolidation or Merger of Trust.
In the event of any merger or consolidation of the Fund with, or transfer
in whole or in part of the assets and liabilities of the Fund to, another trust
fund held under any other plan of deferred compensation maintained or to be
established for the benefit of all or some of the Participants of this Plan, the
assets of the Fund applicable to such Participants shall be transferred to the
other trust fund only if:
(a) Each Participant would receive a benefit under such successor trust
fund immediately after the merger, consolidation or transfer which is equal to
or greater than the benefit he would have been entitled to receive immediately
before the merger, consolidation or transfer (determined as if this Plan and
such transferee trust fund had then terminated);
(b) Resolutions of the Board of Directors under this Plan, or of any new or
successor employer of the affected Participants, shall authorize such transfer
of assets, and, in the case of the new or successor employer of the affected
Participants, its resolutions shall include an assumption of liabilities with
respect to such Participants' inclusion in the new employer's plan; and
(c) Such other plan and trust are qualified under Sections 401(a) and
501(a) of the Code.
13.4 Bankruptcy or Insolvency of Employer.
In the event of (a) the Employer's legal dissolution or liquidation by any
procedure other than a consolidation or merger, (b) the Employer's receivership,
insolvency, or cessation of its business as a going concern, or (c) the
commencement of any proceeding by or against the Employer under the federal
bankruptcy laws, and similar federal or state statute, or any federal or state
statute or rule providing for the relief of debtors, compensation of creditors,
arrangement, receivership, liquidation or any similar event which is not
dismissed within 30 days, this Plan shall terminate automatically on such date
(provided, however, that if a proceeding is brought against the Employer for
reorganization under Chapter 11 of the United States Bankruptcy Code or any
similar federal or state statute, then this Plan shall terminate automatically
if and when said proceeding results in a liquidation of the Employer, or the
approval of any Plan providing therefor, or the proceeding is converted to a
case under Chapter 7 of the Bankruptcy Code or any similar conversion to a
liquidation proceeding under federal or state law including, but not limited to,
a receivership proceeding). In the event of any such termination as provided in
the foregoing sentence, the Trustee shall make payments to the persons entitled
thereto in accordance with Section 9.5 hereof.
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13.5 Voluntary Termination.
The Board of Directors reserves the right to terminate this Plan at any
time by giving to the Trustee and the Administrator notice in writing of such
desire to terminate. The Plan shall terminate upon the date of receipt of such
notice, the interests of all Participants shall become fully vested, and the
Trustee shall make payments to each Participant or Beneficiary in accordance
with Section 9.5. Alternatively, the Employer, in its discretion, may determine
to continue the Trust Agreement and to continue the maintenance of the Fund, in
which event distributions shall be made upon the contingencies and in all the
circumstances which would have been entitled such distributions on a fully
vested basis, had there been no termination of the Plan.
13.6 Partial Termination of Plan or Permanent Discontinuance of Contributions.
In the event that a partial termination of the Plan shall be deemed to have
occurred, or if the Employer shall discontinue completely its contributions
hereunder, the right of each affected Participant to his interest in the Fund
shall be fully vested. The Employer, in its discretion, shall decide whether to
direct the Trustee to make immediate distribution of such portion of the Fund
assets to the persons entitled thereto or to make distribution in the
circumstances and contingencies which would have controlled such distributions
if there had been no partial termination or discontinuance of contributions.
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ARTICLE XIV
MISCELLANEOUS
14.1 No Diversion of Funds.
It is the intention of the Employer that it shall be impossible for any
part of the corpus or income of the Fund to be used for, or diverted to,
purposes other than for the exclusive benefit of the Participants or their
Beneficiaries, except to extent that a return of the Employer's contribution is
permitted under Section 4.4.
14.2 Liability Limited.
Neither the Employer nor the Administrator, nor any agents, employees,
officers, directors or shareholders of any of them, nor the Trustee, nor any
other person shall have any liability or responsibility with respect to this
Plan, except as expressly provided herein.
14.3 Incapacity.
If the Administrator shall receive evidence satisfactory to it that a
Participant or Beneficiary entitled to receive any benefit under the Plan is, at
the time when such benefit becomes payable, a minor, or is physically or
mentally incompetent to receive such benefit and to give a valid release
therefor, and that another person or an institution is then maintaining or has
custody of such Participant or Beneficiary, and that no guardian, committee or
other representative of the estate of such Participant or Beneficiary shall have
been duly appointed, the Administrator may direct the Trustee to make payment of
such benefit otherwise payable to such Participant or Beneficiary, to such other
person or institution, including a custodian under a Uniform Gifts to Minor Act,
or corresponding legislation (who shall be an adult, a guardian of the minor or
a trust company), and the release of such other person or institution shall be a
valid and complete discharge for the payment of such benefit.
14.4 Spendthrift Clause.
Except as permitted by the Act or the Code, no benefits or other amounts
payable under the Plan shall be subject in any manner to anticipation, sale,
transfer, assignment, pledge, encumbrance, charge or alienation. If the
Administrator determines that any person entitled to any payments under the Plan
has become insolvent or bankrupt or has attempted to anticipate, sell, transfer,
assign, pledge, encumber, charge or otherwise in any manner alienate any benefit
or other amount payable to him under the Plan or that there is any danger of any
levy or attachment or other court process or encumbrance on the part of any
creditor of such person entitled to payments under the Plan against any benefit
or other accounts payable to such person, the Administrator may, at any time, in
its discretion, direct the Trustee to withhold any or all payments to such
person under the Plan and apply the same for the benefit of such person, in such
manner and in such proportion as the Administrator may deem proper.
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14.5 Benefits Limited to Fund.
All contributions by the Employer to the Fund shall be voluntary, and the
Employer shall be under no legal liability to make any such contributions. The
benefits of this Plan shall be only as can be provided by the assets of the
Fund, and no liability for the payment of benefits under the Plan or for any
loss of assets due to any action or inaction of the Trustee shall be imposed
upon the Employer.
14.6 Cooperation of Parties.
All parties to this Plan and any party claiming interest hereunder agree to
perform any and all acts and execute any and all documents and papers which are
necessary and desirable for carrying out this Plan or any of its provisions.
14.7 Payments Due Missing Persons.
The Administrator shall direct the Trustee to make a reasonable effort to
locate all persons entitled to benefits under the Plan; however, notwithstanding
any provision in the Plan to the contrary, if, after a period of 5 years from
the date such benefit shall be due, any such persons entitled to benefits have
not been located, their rights under the Plan shall stand suspended. Before this
provision becomes operative, the Trustee shall send a certified letter to all
such persons at their last known address advising them that their interest in
benefits under the Plan shall be suspended. Any such suspended amounts shall be
held by the Trustee for a period of 3 additional years (or a total of 8 years
from the time the benefits first became payable), and thereafter such amounts
shall be reallocated among current Participants in the same manner that a
current contribution would be allocated. However, if a person subsequently makes
a valid claim with respect to such reallocated amounts and any earnings thereon,
the Plan earnings or the Employer's contribution to be allocated for the year in
which the claim shall be paid shall be reduced by the amount of such payment.
Any such suspended amounts shall be handled in a manner not inconsistent with
regulations issued by the Internal Revenue Service and Department of Labor.
14.8 Governing Law.
This Plan has been executed in the State of Illinois and all questions
pertaining to its validity, construction and administration shall be determined
in accordance with the laws of that State, except to the extent superseded by
the Act.
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14.9 Nonguarantee of Employment.
Nothing contained in this Plan shall be construed as a contract of
employment between the Employer and any Employee, or as a right of any Employee
to be continued in the employment of the Employer, or as a limitation of the
right of the Employer to discharge any of its Employees, with or without cause.
14.10 Counsel.
The Trustee and the Administrator may consult with legal counsel, who may
be counsel for the Employer and for the Administrator or the Trustee (as the
case may be), with respect to the meaning or construction of this Plan and the
Trust Agreement, their respective obligations or duties hereunder or with
respect to any action or proceeding or any question of law, and they shall be
fully protected with respect to any action taken or omitted by them in good
faith pursuant to the advice of legal counsel.
IN WITNESS WHEREOF, the Sponsor has caused these presents to be executed by
its duly authorized officers and its corporate seal to be affixed on this _____
day of July, 1997.
FIRST SECURITYFED FINANCIAL, INC.
ATTEST:
____________________________ By_______________________________
Terry Gawryk, Julian E. Kulas,
Secretary President and Chief Executive
Officer
[Corporate Seal]
58
Exhibit 10.2
FIRST SECURITYFED FINANCIAL, INC.
1997 STOCK OPTION AND INCENTIVE PLAN
1. Plan Purpose. The purpose of the Plan is to promote the long-term
interests of the Corporation and its stockholders by providing a means for
attracting and retaining directors, advisory directors, directors emeriti,
officers and employees of the Corporation and its Affiliates. It is intended
that designated Options granted pursuant to the provisions of this Plan to
persons employed by the Corporation or its Affiliates will qualify as Incentive
Stock Options. Options granted to persons who are not employees will be
Non-Qualified Stock Options.
2. Definitions. The following definitions are applicable to the Plan:
"Affiliate" - means any "parent corporation" or "subsidiary corporation"
of the Corporation, as such terms are defined in Section 424(e) and (f),
respectively, of the Code.
"Bank" - means First Security Federal Savings Bank and any successor
entity.
"Award" - means the grant of an Incentive Stock Option, a Non-Qualified
Stock Option, a Stock Appreciation Right, a Limited Stock Appreciation Right or
any combination thereof, as provided in the Plan.
"Code" - means the Internal Revenue Code of 1986, as amended.
"Committee" - means the Committee referred to in Section 3 hereof.
"Continuous Service" - means the absence of any interruption or termination
of service as a director, advisory director, director emeritus, officer or
employee of the Corporation or an Affiliate, except that when used with respect
to any Options or Rights which at the time of exercise are intended to be
Incentive Stock Options, continuous service means the absence of any
interruption or termination of service as an employee of the Corporation or an
Affiliate. Service shall not be considered interrupted in the case of sick
leave, military leave or any other leave of absence approved by the Corporation
or in the case of transfers between payroll locations of the Corporation or
between the Corporation, its parent, its subsidiaries or its successor. With
respect to any advisory director or director emeritus, continuous service shall
mean availability to perform such functions as may be required of such persons.
"Corporation" - means First SecurityFed Financial, Inc., a Delaware
corporation.
"Employee" - means any person, including an officer or director, who is
employed by the Corporation or any Affiliate.
"ERISA" - means the Employee Retirement Income Security Act of 1974, as
amended.
"Exercise Price" - means (i) in the case of an Option, the price per Share
at which the Shares subject to such Option may be purchased upon exercise of
such Option and (ii) in the case of a Right, the price per Share (other than the
Market Value per Share on the date of exercise and the Offer Price per Share as
defined in Section 10 hereof) which, upon grant, the Committee determines shall
be utilized in calculating the aggregate value which a Participant shall be
entitled to receive pursuant to Sections 9, 10 or 12 hereof upon exercise of
such Right.
"Incentive Stock Option" - means an option to purchase Shares granted by
the Committee pursuant to Section 6 hereof which is subject to the limitations
and restrictions of Section 8 hereof and is intended to qualify under Section
422(b) of the Code.
"Limited Stock Appreciation Right" - means a stock appreciation right with
respect to Shares granted by the Committee pursuant to Sections 6 and 10 hereof.
<PAGE>
"Market Value" - means the average of the high and low quoted sales price
on the date in question (or, if there is no reported sale on such date, on the
last preceding date on which any reported sale occurred) of a Share on the
Composite Tape for the New York Stock Exchange-Listed Stocks, or, if on such
date the Shares are not quoted on the Composite Tape, on the New York Stock
Exchange, or, if the Shares are not listed or admitted to trading on such
Exchange, on the principal United States securi ties exchange registered under
the Securities Exchange Act of 1934 on which the Shares are listed or admitted
to trading, or, if the Shares are not listed or admitted to trading on any such
exchange, the mean between the closing high bid and low asked quotations with
respect to a Share on such date on the NASDAQ System, or any similar system then
in use, or, if no such quotations are available, the fair market value on such
date of a Share as the Committee shall determine.
"Non-Employee Director" - means a director who a) is not currently an
officer or employee of the Corporation; b) is not a former employee of the
Corporation who receives compensation for prior services (other than from a
tax-qualified retirement plan); c) has not been an officer of the Corporation;
d) does not receive remuneration from the Corporation in any capacity other than
as a director; and e) does not possess an interest in any other transactions or
is not engaged in a business relationship for which disclosure would be required
under Item 404(a) or (b) of Regulation S-K.
"Non-Qualified Stock Option" - means an option to purchase Shares granted
by the Committee pursuant to Section 6 hereof which is not intended to qualify
under Section 422(b) of the Code.
"Option" - means an Incentive Stock Option or a Non-Qualified Stock Option.
"Participant" - means any director, advisory director, director emeritus,
officer or employee of the Corporation or any Affiliate who is selected by the
Committee to receive an Award or who is granted an Award pursuant to Section 19
hereof.
"Plan" - means the 1997 Stock Option and Incentive Plan of the Corporation.
"Related" - means (i) in the case of a Right, a Right which is granted in
connection with, and to the extent exercisable, in whole or in part, in lieu of,
an Option or another Right and (ii) in the case of an Option, an Option with
respect to which and to the extent a Right is exercisable, in whole or in part,
in lieu thereof has been granted.
"Right" - means a Limited Stock Appreciation Right or a Stock Appreciation
Right.
"Shares" - means the shares of common stock of the Corporation.
"Stock Appreciation Right" - means a stock appreciation right with respect
to Shares granted by the Committee pursuant to Sections 6 and 9 hereof.
"Ten Percent Beneficial Owner" - means the beneficial owner of more than
ten percent of any class of the Corporation's equity securities registered
pursuant to Section 12 of the Securities Exchange Act of 1934.
3. Administration. The Plan shall be administered by a Committee
consisting of two or more members, each of whom shall be a Non-Employee
Director. The members of the Committee shall be appointed by the Board of
Directors of the Corporation. Except as limited by the express provisions of the
Plan, the Committee shall have sole and complete authority and discretion,
subject to Office of Thrift Supervision Regulations, to (i) select Participants
and grant Awards; (ii) determine the number of Shares to be subject to types of
Awards generally, as well as to individual Awards granted under the Plan; (iii)
determine the terms and conditions upon which Awards shall be granted under the
Plan; (iv) prescribe the form and terms of instruments evidencing such grants;
and (v) establish from time to time regulations for the administration of the
Plan, interpret the Plan, and make all determinations deemed necessary or
advisable for the administration of the Plan.
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A majority of the Committee shall constitute a quorum, and the acts of a
majority of the members present at any meeting at which a quorum is present, or
acts approved in writing by a majority of the Committee without a meeting, shall
be acts of the Committee.
4. Participation in Committee Awards. The Committee may select from time to
time Participants in the Plan from those directors (including advisory directors
and directors emeriti), officers and employees of the Corporation or its
Affiliates who, in the opinion of the Committee, have the capacity for
contributing to the successful performance of the Corporation or its Affiliates.
5. Shares Subject to Plan. Subject to adjustment by the operation of
Section 11 hereof, the maximum number of Shares with respect to which Awards may
be made under the Plan is 10% of the total Shares issued in the Bank's
conversion to the capital stock form. The Shares with respect to which Awards
may be made under the Plan may be either authorized and unissued shares or
issued shares heretofore or hereafter reacquired and held as treasury shares.
Shares which are subject to Related Rights and Related Options shall be counted
only once in determining whether the maximum number of Shares with respect to
which Awards may be granted under the Plan has been exceeded. An Award shall not
be considered to have been made under the Plan with respect to any Option or
Right which terminates and new Awards may be granted under the Plan with respect
to the number of Shares as to which such termination has occurred.
6. General Terms and Conditions of Options and Rights. The Committee shall
have full and complete authority and discretion, subject to Office of Thrift
Supervision Regulations and except as expressly limited by the Plan, to grant
Options and/or Rights and to provide the terms and conditions (which need not be
identical among Participants) thereof. In particular, the Committee shall
prescribe the following terms and conditions: (i) the Exercise Price of any
Option or Right, which shall not be less than the Market Value per Share at the
date of grant of such Option or Right, (ii) the number of Shares subject to, and
the expiration date of, any Option or Right, which expiration date shall not
exceed ten years from the date of grant, (iii) the manner, time and rate
(cumulative or otherwise) of exercise of such Option or Right, and (iv) the
restrictions, if any, to be placed upon such Option or Right or upon Shares
which may be issued upon exercise of such Option or Right. As required by Office
of Thrift Supervision Regulations, each non-employee director of the Corporation
may not be granted Awards with respect to more than 5% of the total shares
subject to the Plan and all non-employee directors of the Corporation, in the
aggregate, may not be granted Awards with respect to more than 30% of the total
shares subject to the Plan. Notwithstanding the foregoing and subject to
compliance with applicable Office of Thrift Supervision Regulations, no
individual shall be granted Awards in any calendar year with respect to more
than 25% of the total shares subject to the Plan in any calendar year or during
the entire term of the Plan.
Any Award made pursuant to this Plan, which Award is subject to the
requirements of Office of Thrift Supervision Regulations, shall vest in five
equal annual installments with the first installment vesting on the one-year
anniversary of the date of grant, except in the event of death or disability. In
the event Office of Thrift Supervision Regulations are amended (the "Amended
Regulations") to permit shorter vesting periods, any Award made pursuant to this
Plan, which Award is subject to the requirements of such Amended Regulations,
may vest, at the sole discretion of the Committee, in accordance with such
Amended Regulations.
Furthermore, at the time of any Award, the Participant shall enter into an
agreement with the Corporation in a form specified by the Committee, agreeing to
the terms and conditions of the Award and such other matters as the Committee,
in its sole discretion, shall determine (the "Option Agreement").
7. Exercise of Options or Rights.
(a) Except as provided herein, an Option or Right granted under the Plan shall
be exercisable during the lifetime of the Participant to whom such Option
or Right was granted only by such Participant and, except as provided in
paragraphs (c) and (d) of this Section 7, no such Option or Right may be
exercised unless at the time such Participant exercises such Option or
Right, such Participant has maintained Continuous Service since the date of
grant of such Option or Right.
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(b) To exercise an Option or Right under the Plan, the Participant to whom
such Option or Right was granted shall give written notice to the
Corporation in form satisfactory to the Committee (and, if partial
exercises have been permitted by the Committee, by specifying the number
of Shares with respect to which such Participant elects to exercise such
Option or Right) together with full payment of the Exercise Price, if any
and to the extent required. The date of exercise shall be the date on
which such notice is received by the Corporation. Payment, if any is
required, shall be made either (i) in cash (including check, bank draft or
money order) or (ii) by delivering (A) Shares already owned by the
Participant and having a fair market value equal to the applicable
exercise price, such fair market value to be determined in such
appropriate manner as may be provided by the Committee or as may be
required in order to comply with or to conform to requirements of any
applicable laws or regulations, or (B) a combination of cash and such
Shares.
(c) If a Participant to whom an Option or Right was granted shall cease to
maintain Continuous Service for any reason (excluding death, disability
and termination of employment by the Corporation or any Affiliate for
cause), such Participant may, but only within the period of three months
immediately succeeding such cessation of Continuous Service and in no
event after the expiration date of such Option or Right, exercise such
Option or Right to the extent that such Participant was entitled to
exercise such Option or Right at the date of such cessation, provided,
however, that such right of exercise after cessation of Continuous Service
shall not be available to a Participant if the Committee otherwise
determines and so provides in the applicable instrument or instruments
evidencing the grant of such Option or Right. If a Participant to whom an
Option or Right was granted shall cease to maintain Continuous Service by
reason of death or disability then, unless the Committee shall have
otherwise provided in the instrument evidencing the grant of an Option or
Right, all Options and Rights granted and not fully exercisable shall
become exercisable in full upon the happening of such event and shall
remain so exercisable (i) in the event of death for the period described
in paragraph (d) of this Section 7 and (ii) in the event of disability for
a period of one year following such date. If the Continuous Service of a
Participant to whom an Option or Right was granted by the Corporation is
terminated for cause, all rights under any Option or Right of such
Participant shall expire immediately upon the effective date of such
termination.
(d) In the event of the death of a Participant while in the Continuous Service
of the Corporation or an Affiliate or within the three-month period
referred to in paragraph (c) of this Section 7, the person to whom any
Option or Right held by the Participant at the time of his death is
transferred by will or the laws of descent and distribution, or in the
case of an Award other than an Incentive Stock Option, pursuant to a
qualified domestic relations order, as defined in the Code or Title 1 of
ERISA or the rules thereunder may, but only to the extent such Participant
was entitled to exercise such Option or Right upon his death as provided
in paragraph (c) above, exercise such Option or Right at any time within a
period of one year succeeding the date of death of such Participant, but
in no event later than ten years from the date of grant of such Option or
Right. Following the death of any Participant to whom an Option was
granted under the Plan, irrespective of whether any Related Right shall
have theretofore been granted to the Participant or whether the person
entitled to exercise such Related Right desires to do so, the Committee
may, as an alternative means of settlement of such Option, elect to pay to
the person to whom such Option is transferred by will or by the laws of
descent and distribution, or in the case of an Option other than an
Incentive Stock Option, pursuant to a qualified domestic relations order,
as defined in the Code or Title I of ERISA or the rules thereunder, the
amount by which the Market Value per Share on the date of exercise of such
Option shall exceed the Exercise Price of such Option, multiplied by the
number of Shares with respect to which such Option is properly exercised.
Any such settlement of an Option shall be considered an exercise of such
Option for all purposes of the Plan.
8. Incentive Stock Options. Incentive Stock Options may be granted only to
Participants who are Employees. Any provision of the Plan to the contrary
notwithstanding, (i) no Incentive Stock Option shall be granted more than ten
years from the date the Plan is adopted by the Board of Directors of the
Corporation and no Incentive Stock Option shall be exercisable more than ten
years from the date such Incentive Stock Option is granted, (ii) the Exercise
Price of any Incentive Stock Option shall not be less than the Market Value per
Share on the date such Incentive Stock Option is granted, (iii) any Incentive
Stock Option shall not be transferable by the Participant to whom such Incentive
Stock Option is granted other than by will or the laws of descent and
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distribution, and shall be exercisable during such Participant's lifetime only
by such Participant, (iv) no Incentive Stock Option shall be granted to any
individual who, at the time such Incentive Stock Option is granted, owns stock
possessing more than ten percent of the total combined voting power of all
classes of stock of the Corporation or any Affiliate unless the Exercise Price
of such Incentive Stock Option is at least 110 percent of the Market Value per
Share at the date of grant and such Incentive Stock Option is not exercisable
after the expiration of five years from the date such Incentive Stock Option is
granted, and (v) the aggregate Market Value (determined as of the time any
Incentive Stock Option is granted) of the Shares with respect to which Incentive
Stock Options are exercisable for the first time by a Participant in any
calendar year shall not exceed $100,000.
9. Stock Appreciation Rights. A Stock Appreciation Right shall, upon its
exercise, entitle the Participant to whom such Stock Appreciation Right was
granted to receive a number of Shares or cash or combination thereof, as the
Committee in its discretion shall determine, the aggregate value of which (i.e.,
the sum of the amount of cash and/or Market Value of such Shares on date of
exercise) shall equal (as nearly as possible, it being understood that the
Corporation shall not issue any fractional shares) the amount by which the
Market Value per Share on the date of such exercise shall exceed the Exercise
Price of such Stock Appreciation Right, multiplied by the number of Shares with
respect of which such Stock Appreciation Right shall have been exercised. A
Stock Appreciation Right may be Related to an Option or may be granted
independently of any Option as the Committee shall from time to time in each
case determine. At the time of grant of an Option the Committee shall determine
whether and to what extent a Related Stock Appreciation Right shall be granted
with respect thereto, provided, however, and notwithstanding any other provision
of the Plan, that if the Related Option is an Incentive Stock Option, the
Related Stock Appreciation Right shall satisfy all the restrictions and
limitations of Section 8 hereof as if such Related Stock Appreciation Right were
an Incentive Stock Option and as if other rights which are Related to Incentive
Stock Options were Incentive Stock Options. In the case of a Related Option,
such Related Option shall cease to be exercisable to the extent of the Shares
with respect to which the Related Stock Appreciation Right was exercised. Upon
the exercise or termination of a Related Option, any Related Stock Appreciation
Right shall terminate to the extent of the Shares with respect to which the
Related Option was exercised or terminated.
10. Limited Stock Appreciation Rights. At the time of grant of an Option or
Stock Appreciation Right to any Participant, the Committee shall have full and
complete authority and discretion to also grant to such Participant a Limited
Stock Appreciation Right which is Related to such Option or Stock Appreciation
Right, provided, however and notwithstanding any other provision of the Plan,
that if the Related Option is an Incentive Stock Option, the Related Limited
Stock Appreciation Right shall satisfy all the restrictions and limitations of
Section 8 hereof as if such Related Limited Stock Appreciation Right were an
Incentive Stock Option and as if all other Rights which are Related to Incentive
Stock Options were Incentive Stock Options. Subject to vesting requirements
contained in 12 C.F.R. s 563b.3(g)(4) or any successor regulation, a Limited
Stock Appreciation Right shall be exercisable only during the period beginning
on the first day following the date of expiration of any "offer" (as such term
is hereinafter defined) and ending on the forty-fifth day following such date.
A Limited Stock Appreciation Right shall, upon its exercise, entitle the
Participant to whom such Limited Stock Appreciation Right was granted to receive
an amount of cash equal to the amount by which the "Offer Price per Share" (as
such term is hereinafter defined) or the Market Value on the date of such
exercise, as shall have been provided by the Committee in its discretion at the
time of grant, shall exceed the Exercise Price of such Limited Stock
Appreciation Right, multiplied by the number of Shares with respect to which
such Limited Stock Appreciation Right shall have been exercised. Upon the
exercise of a Limited Stock Appreciation Right, any Related Option and/or
Related Stock Appreciation Right shall cease to be exercisable to the extent of
the Shares with respect to which such Limited Stock Appreciation Right was
exercised. Upon the exercise or termination of a Related Option or Related Stock
Appreciation Right, any Related Limited Stock Appreciation Right shall terminate
to the extent of the Shares with respect to which such Related Option or Related
Stock Appreciation Right was exercised or terminated.
For the purposes of this Section 10, the term "Offer" shall mean any
tender offer or exchange offer for Shares other than one made by the
Corporation, provided that the corporation, person or other entity making the
offer acquires pursuant to such offer either (i) 25% of the Shares outstanding
immediately prior to the commencement of such offer or (ii) a number of Shares
which, together with all other Shares acquired in any tender offer or exchange
offer (other than one made by the Corporation) which expired within sixty days
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of the expiration date of the offer in question, equals 25% of the Shares
outstanding immediately prior to the commencement of the offer in question. The
term "Offer Price per Share" as used in this Section 10 shall mean the highest
price per Share paid in any Offer which Offer is in effect any time during the
period beginning on the sixtieth day prior to the date on which a Limited Stock
Appreciation Right is exercised and ending on the date on which such Limited
Stock Appreciation Right is exercised. Any securities or property which are part
or all of the consideration paid for Shares in the Offer shall be valued in
determining the Offer Price per Share at the higher of (A) the valuation placed
on such securities or property by the corporation, person or other entity making
such Offer or (B) the valuation placed on such securities or property by the
Committee.
11. Adjustments Upon Changes in Capitalization. In the event of any change
in the outstanding Shares subsequent to the effective date of the Plan by reason
of any reorganization, recapitalization, stock split, stock dividend,
combination or exchange of shares, merger, consolidation or any change in the
corporate structure or Shares of the Corporation, the maximum aggregate number
and class of shares as to which Awards may be granted under the Plan and the
number, class and exercise price of shares with respect to which Awards
theretofore have been granted under the Plan shall be appropriately adjusted by
the Committee, whose determination shall be conclusive.
12. Effect of Merger. In the event of any merger, consolidation or
combination of the Corporation (other than a merger, consolidation or
combination in which the Corporation is the continuing entity and which does not
result in the outstanding Shares being converted into or exchanged for different
securities, cash or other property, or any combination thereof) pursuant to a
plan or agreement the terms of which are binding upon all stockholders of the
Corporation (except to the extent that dissenting stockholders may be entitled,
under statutory provisions or provisions contained in the certificate or
articles of incorporation, to receive the appraised or fair value of their
holdings), any Participant to whom an Option or Right has been granted at least
six months prior to such event shall have the right (subject to the provisions
of the Plan and any limitation or vesting period applicable to such Option or
Right), thereafter and during the term of each such Option or Right, to receive
upon exercise of any such Option or Right an amount equal to the excess of the
fair market value on the date of such exercise of the securities, cash or other
property, or combination thereof, receivable upon such merger, consolidation or
combination in respect of a Share over the Exercise Price of such Right or
Option, multiplied by the number of Shares with respect to which such Option or
Right shall have been exercised. Such amount may be payable fully in cash, fully
in one or more of the kind or kinds of property payable in such merger,
consolidation or combination, or partly in cash and partly in one or more of
such kind or kinds of property, all in the discretion of the Committee.
13. Assignments and Transfers. No Award nor any right or interest of a
Participant under the Plan in any instrument evidencing any Award under the Plan
may be assigned, encumbered or transferred except, in the event of the death of
a Participant, by will or the laws of descent and distribution or in the case of
Awards other than Incentive Stock Options pursuant to a qualified domestic
relations order, as defined in the Code or Title I of ERISA or the rules
thereunder.
14. Employee Rights Under the Plan. No director, officer or employee shall
have a right to be selected as a Participant nor, having been so selected, to be
selected again as a Participant and no director, officer, employee or other
person shall have any claim or right to be granted an Award under the Plan or
under any other incentive or similar plan of the Corporation or any Affiliate.
Neither the Plan nor any action taken thereunder shall be construed as giving
any employee any right to be re tained in the employ of the Corporation or any
Affiliate.
15. Delivery and Registration of Stock. The Corporation's obligation to
deliver Shares with respect to an Award shall, if the Committee so requests, be
conditioned upon the receipt of a representation as to the investment intention
of the Participant to whom such Shares are to be delivered, in such form as the
Committee shall determine to be necessary or advisable to comply with the
provisions of the Securities Act of 1933 or any other Federal, state or local
securities legislation or regulation. It may be provided that any representation
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requirement shall become inoperative upon a registration of the Shares or other
action eliminating the necessity of such representation under such Securities
Act or other securities legislation. The Corporation shall not be required to
deliver any Shares under the Plan prior to (i) the admission of such shares to
listing on any stock exchange or other system on which Shares may then be
listed, and (ii) the completion of such registration or other qualification of
such Shares under any state or Federal law, rule or regulation, as the Committee
shall determine to be necessary or advisable.
16. Withholding Tax. The Corporation shall have the right to deduct from
all amounts paid in cash with respect to the exercise of a Right under the Plan
any taxes required by law to be withheld with respect to such cash payments.
Where a Participant or other person is entitled to receive Shares pursuant to
the exercise of an Option or Right pursuant to the Plan, the Corporation shall
have the right to require the Participant or such other person to pay the
Corporation the amount of any taxes which the Corporation is required to
withhold with respect to such Shares, and may, in its sole discretion, withhold
sufficient Shares to cover the amount of taxes which the Corporation is required
to withhold.
17. Amendment or Termination. The Board of Directors of the Corporation
may amend, suspend or terminate the Plan or any portion thereof at any time,
subject to Office of Thrift Supervision Regulations, but (except as provided in
Section 11 hereof) no amendment shall be made without approval of the
stockholders of the Corporation which shall (i) increase the aggregate number of
Shares with respect to which Awards may be made under the Plan, (ii) materially
increase the benefits accruing to Participants, (iii) materially change the
requirements as to eligibility for participation in the Plan or (iv) change the
class of persons eligible to participate in the Plan; provided, however, that no
such amendment, suspension or termination shall impair the rights of any
Participant, without his consent, in any Award theretofore made pursuant to the
Plan.
18. Effective Date and Term of Plan. The Plan shall become effective upon
its ratification by stockholders of the Corporation. It shall continue in effect
for a term of ten years unless sooner terminated under Section 17 hereof.
19. Initial Grant. By, and simultaneously with, the ratification of this
Plan by the stockholders of the Corporation, the Chairman of the Board of the
Corporation, each other member of the Board of Directors of the Corporation and
each director emeritus at the time of stockholder ratification of this Plan who
is not a full-time Employee is hereby granted a ten-year, Non-Qualified Stock
Option to purchase .5%, .314% and .05%, respectively, of the shares sold in the
Conversion at an Exercise Price per share equal to the Market Value per share of
the Shares on the date of grant. Each such Option shall be evidenced by a
Non-Qualified Stock Option Agreement in a form approved by the Board of
Directors and shall be subject in all respects to the terms and conditions of
this Plan, which are controlling. All Options granted pursuant to this section
shall vest in five equal annual installments with the first installment vesting
on the first anniversary of the date of grant, subject to the Director
maintaining Continuous Service with the Corporation or its Affiliates since the
date of grant. All Options granted pursuant to this Section 19 shall be rounded
down to the nearest whole share to the extent necessary to ensure that no
Options to purchase stock representing fractional shares are granted.
7
Exhibit 10.3
FIRST SECURITYFED FINANCIAL, INC.
1997 RECOGNITION AND RETENTION PLAN
1. Plan Purpose. The purpose of the Plan is to promote the long-term
interests of the Corporation and its stockholders by providing a means for
attracting and retaining directors, executive officers and employees of the
Corporation and its Affiliates.
2. Definitions. The following definitions are applicable to the Plan:
"Award" - means the grant of Restricted Stock pursuant to the terms of
Section 12 of the Plan or by the Committee, as provided in the Plan.
"Affiliate" - means any "parent corporation" or "subsidiary corporation" of
the Corporation, as such terms are defined in Section 424(e) and (f),
respectively, of the Code.
"Bank" - means First Security Federal Savings Bank, a savings institution
and its successors.
"Beneficiary" - means the person or persons designated by a Participant to
receive any benefits payable under the Plan in the event of such Participant's
death. Such person or persons shall be designated in writing on forms provided
for this purpose by the Committee and may be changed from time to time by
similar written notice to the Committee. In the absence of a written
designation, the Beneficiary shall be the Participant's surviving spouse, if
any, or if none, his estate.
"Code" - means the Internal Revenue Code of 1986, as amended.
"Committee" - means the Committee of the Board of Directors of the
Corporation referred to in Section 6 hereof.
"Continuous Service" - means the absence of any interruption or termination
of service as a director, director emeritus, advisory director, executive
officer or employee of the Corporation or any Affiliate. Service shall not be
considered interrupted in the case of sick leave, military leave or any other
leave of absence approved by the Corporation or any Affiliate or in the case of
transfers between payroll locations of the Corporation or its Affiliates or
between the Corporation, its Affiliates or its successor. With respect to any
director emeritus or advisory director, continuous service shall mean
availability to perform such functions as may be required of such individuals.
"Conversion" - means the conversion of the Bank from the mutual to the
stock form of organization.
"Corporation" - means First SecurityFed Financial, Inc., a Delaware
corporation.
"Disability" - means any physical or mental impairment which qualifies an
employee, director, director emeritus or advisor director for disability
benefits under any applicable long-term disability plan maintained by the Bank
or an Affiliate, or, if no such plan applies to such individual, which renders
such employee or director, in the judgment of the Committee, unable to perform
his customary duties and responsibilities.
"ERISA" - means the Employee Retirement Income Security Act of 1974, as
amended.
"Non-Employee Director" - means a director who a) is not currently an
officer or employee of the Corporation; b) is not a former employee of the
Corporation who receives compensation for prior services (other than from a
tax-qualified retirement plan); c) has not been an officer of the Corporation;
d) does not receive remuneration from the Corporation in any capacity other than
as a director; and e) does not possess an interest in any other transactions or
is not engaged in a business relationship for which disclosure would be required
under Item 404(a) or (b) of Regulation S-K.
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"Participant" - means any director, director emeritus, advisory director,
executive officer or employee of the Corporation or any Affiliate who is
selected by the Committee to receive an Award or a director who is granted an
award pursuant to Section 12.
"Plan" - means the 1997 Recognition and Retention Plan of the Corporation.
"Restricted Period" - means the period of time selected by the Committee
for the purpose of determining when restrictions are in effect under Section 3
hereof with respect to Restricted Stock awarded under the Plan.
"Restricted Stock" - means Shares which have been contingently awarded to a
Participant by the Committee subject to the restrictions referred to in Section
3 hereof, so long as such restrictions are in effect.
"Shares" - means the common stock, par value $0.01 per share, of the
Corporation.
3. Terms and Conditions of Restricted Stock. The Committee shall have full
and complete authority, subject to the limitations of the Plan, to grant Awards
and, in addition to the terms and conditions contained in paragraphs (a) through
(f) of this Section 3, to provide such other terms and conditions (which need
not be identical among Participants) in respect of such Awards, and the vesting
thereof, as the Committee shall determine, subject to Office of Thrift
Supervision Regulations.
(a) At the time of an award of Restricted Stock, the Committee shall establish
for each Participant a Restricted Period, during which or at the expiration
of which, as the Committee shall determine and provide in the agreement
referred to in paragraph (d) of this Section 3, the Shares awarded as
Restricted Stock shall vest, and subject to any such other terms and
conditions as the Committee shall provide, shares of Restricted Stock may
not be sold, assigned, transferred, pledged, voted or otherwise encumbered
by the Participant, except as hereinafter provided, during the Restricted
Period. Except for such restrictions, and subject to paragraphs (c) and (e)
of this Section 3 and Section 4 hereof, the Participant as owner of such
shares shall have all the rights of a stockholder.
No director who is not an employee of the Corporation shall be granted
Awards with respect to more than 5% of the total shares subject to the
Plan. All non-employee directors of the Corporation, in the aggregate, may
not be granted Awards with respect to more than 30% of the total shares
subject to the Plan and no individual shall be granted Awards with respect
to more than 25% of the total shares subject to the Plan. No Awards shall
begin vesting earlier than one year from the date the Plan is approved by
stockholders of the Corporation and no Award shall vest at a rate in excess
of 20% per year, except in the event of death or disability. In the event
Office of Thrift Supervision Regulations are amended (the "Amended
Regulations") to permit shorter vesting periods, any Award made pursuant to
this Plan, which Award is subject to the requirements of such Amended
Regulations, may vest, at the sole discretion of the Committee, in
accordance with such Amended Regulations.
Subject to compliance with Office of Thrift Supervision Regulations, the
Committee shall have the authority, in its discretion, to accelerate the
time at which any or all of the restrictions shall lapse with respect to an
Award, or to remove any or all of such restrictions, whenever it may
determine that such action is appropriate by reason of changes in
applicable tax or other laws or other changes in circumstances occurring
after the commencement of such Restricted Period.
(b) Except as provided in Section 5 hereof, if a Participant ceases to maintain
Continuous Service for any reason (other than death or disability), unless
the Committee shall otherwise determine, all Shares of Restricted Stock
theretofore awarded to such Participant and which at the time of such
termination of Continuous Service are subject to the restrictions imposed
by paragraph (a) of this Section 3 shall upon such termination of
Continuous Service be forfeited and returned to the Corporation. If a
Participant ceases to maintain Continuous Service by reason of death or
disability, Restricted Stock then still subject to restrictions imposed by
paragraph (a) of this Section 3 will be free of those restrictions.
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(c) Each certificate in respect of Shares of Restricted Stock awarded under the
Plan shall be registered in the name of the Participant and deposited by
the Participant, together with a stock power endorsed in blank, with the
Corporation and shall bear the following (or a similar) legend:
The transferability of this certificate and the shares of stock
represented hereby are subject to the terms and conditions (including
forfeiture) contained in the 1997 Recognition and Retention Plan of
First SecurityFed Financial, Inc. Copies of such Plan are on file in
the offices of the Secretary of First SecurityFed Financial, Inc., 936
N. Western Avenue, Chicago, Illinois 60622-4695.
(d) At the time of any Award, the Participant shall enter into an Agreement
with the Corporation in a form specified by the Committee, agreeing to the
terms and conditions of the Award and such other matters as the Committee,
in its sole discretion, shall determine (the "Restricted Stock Agreement").
(e) The payment to the Participant of dividends or other distributions declared
or paid on such shares by the Corporation shall be deferred until the
lapsing of the restrictions imposed under paragraph (a) of this Section 3,
and such dividends or other distributions shall be held by the Corporation
for the account of the Participant until such time. There shall be credited
at the end of each year (or portion thereof) interest on the amount of the
deferred dividends or other distributions at a rate per annum as the
Committee, in its discretion, may determine. Payment of deferred dividends
or other distributions, together with interest accrued thereon, shall be
made upon the earlier to occur of the lapsing of the restrictions imposed
under paragraph (a) of this Section 3 or upon death or disability of the
Participant. Shares of Restricted Stock subject to restriction on the date
of any shareholder vote shall be voted by an independent party to be named
by the Committee.
(f) At the lapsing of the restrictions imposed by paragraph (a) of this Section
3, the Corporation shall deliver to the Participant (or where the relevant
provision of paragraph (b) of this Section 3 applies in the case of a
deceased Participant, to his legal representative, beneficiary or heir) the
certificate(s) and stock power deposited with it pursuant to paragraph (c)
of this Section 3 and the Shares represented by such certificate(s) shall
be free of the restrictions referred to in paragraph (a) of this Section 3.
4. Adjustments Upon Changes in Capitalization. In the event of any change
in the outstanding Shares subsequent to the effective date of the Plan by reason
of any reorganization, recapitalization, stock split, stock dividend,
combination or exchange of shares, merger, consolidation or any change in the
corporate structure or Shares of the Corporation, the maximum aggregate number
and class of shares as to which Awards may be granted under the Plan and the
number and class of shares with respect to which Awards theretofore have been
granted under the Plan shall be appropriately adjusted by the Committee, whose
determination shall be conclusive. Any shares of stock or other securities
received as a result of any of the foregoing by a Participant with respect to
Restricted Stock shall be subject to the same restrictions and the
certificate(s) or other instruments representing or evidencing such shares or
securities shall be legended and deposited with the Corporation in the manner
provided in Section 3 hereof.
5. Assignments and Transfers. During the Restricted Period, no Award nor
any right or interest of a Participant under the Plan in any instrument
evidencing any Award under the Plan may be assigned, encumbered or transferred
except (i) in the event of the death of a Participant, by will or the laws of
descent and distribution, or (ii) pursuant to a qualified domestic relations
order as defined in the Code or Title I of ERISA or the rules thereunder.
3
<PAGE>
6. Administration. The Plan shall be administered by a Committee consisting
of two or more members, each of whom shall be a Non-Employee Director. The
members of the Committee shall be appointed by the Board of Directors of the
Corporation. Except as limited by the express provisions of the Plan, the
Committee shall have sole and complete authority and discretion, subject to
Office of Thrift Supervision Regulations, to (i) select Participants and grant
Awards; (ii) determine the number of Shares to be subject to types of Awards
generally, as well as individual Awards granted under the Plan; (iii) determine
the terms and conditions upon which Awards shall be granted under the Plan; (iv)
prescribe the form and terms of instruments evidencing such grants; and (v)
establish from time to time regulations for the administration of the Plan,
interpret the Plan, and make all determinations deemed necessary or advisable
for the administration of the Plan. The Committee may maintain, and update from
time to time as appropriate, a list designating selected directors as
Non-Employee Directors. The purpose of such list shall be to evidence the status
of such individuals as Non-Employee Directors and the Board of Directors may
appoint to the Committee any individual actually qualifying as a Non-Employee
Directors regardless of whether identified as such on said list.
A majority of the Committee shall constitute a quorum, and the acts of a
majority of the members present at any meeting at which a quorum is present, or
acts approved in writing by a majority of the Committee without a meeting, shall
be acts of the Committee.
7. Shares Subject to Plan. Subject to adjustment by the operation of
Section 4 hereof, the maximum number of Shares with respect to which Awards may
be made under the Plan is 4% of the total Shares issued in the Association's
Conversion. The Shares with respect to which Awards may be made under the Plan
may be either authorized and unissued Shares or issued Shares heretofore or
hereafter reacquired and held as treasury Shares. An Award shall not be
considered to have been made under the Plan with respect to Restricted Stock
which is forfeited and new Awards may be granted under the Plan with respect to
the number of Shares as to which such forfeiture has occurred.
The Corporation's obligation to deliver Shares with respect to an Award
shall, if the Committee so requests, be conditioned upon the receipt of a
representation as to the investment intention of the Participant to whom such
Shares are to be delivered, in such form as the Committee shall determine to be
necessary or advisable to comply with the provisions of the Securities Act of
1933 or any other Federal, state or local securities legislation or regulation.
It may be provided that any representation requirement shall become inoperative
upon a registration of the Shares or other action eliminating the necessity of
such representation under such Securities Act or other securities legislation.
The Corporation shall not be required to deliver any Shares under the Plan prior
to (i) the admission of such shares to listing on any stock exchange on which
Shares may then be listed, and (ii) the completion of such registration or other
qualification of such Shares under any state or Federal law, rule or regulation,
as the Committee shall determine to be necessary or advisable.
8. Employee Rights Under the Plan. No director, director emeritus, advisory
director, officer or employee shall have a right to be selected as a Participant
nor, having been so selected, to be selected again as a Participant and no
director, officer, employee or other person shall have any claim or right to be
granted an Award under the Plan or under any other incentive or similar plan of
the Corporation or any Affiliate. Neither the Plan nor any action taken
thereunder shall be construed as giving any officer or employee any right to be
retained in the employ of the Corporation, the Bank or any Affiliate.
9. Withholding Tax. Upon the termination of the Restricted Period with
respect to any shares of Restricted Stock (or at such earlier time, if any, that
an election is made by the Participant under Section 83(b) of the Code, or any
successor provision thereto, to include the value of such shares in taxable
income), the Corporation may, in its sole discretion, withhold from any payment
or distribution made under this Plan sufficient Shares or withhold sufficient
cash to cover any applicable withholding and employment taxes. The Corporation
shall have the right to deduct from all dividends paid with respect to shares of
Restricted Stock the amount of any taxes which the Corporation is required to
withhold with respect to such dividend payments. No discretion or choice shall
be conferred upon any Participant with respect to the form, timing or method of
any such tax withholding.
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10. Amendment or Termination. The Board of Directors of the Corporation may
amend, suspend or terminate the Plan or any portion thereof at any time, subject
to Office of Thrift Supervision Regulations, but (except as provided in Section
4 hereof) no amendment shall be made without approval of the stockholders of the
Corporation which shall (i) increase the aggregate number of Shares with respect
to which Awards may be made under the Plan, (ii) materially increase the
benefits accruing to Participants, (iii) materially change the requirements as
to eligibility for participation in the Plan or (iv) change the class of persons
eligible to participate in the Plan; provided, however, that no such amendment,
suspension or termination shall impair the rights of any Participant, without
his consent, in any Award theretofore made pursuant to the Plan.
11. Term of Plan. The Plan shall become effective upon its ratification by
the stockholders of the Corporation. It shall continue in effect for a term of
ten years unless sooner terminated under Section 11 hereof.
12. Director Awards. By, and simultaneously with, the ratification of this
Plan by the stockholders of the Corporation, the Chairman of the Board of the
Corporation, each other member of the Board of Directors of the Corporation who
is not a full-time employee of the Corporation and each director emeritus is
hereby granted an Award equal to .2%, .125% and .02%, respectively, of the
shares sold in the Conversion. Each of the Awards granted in this Section 12
shall be earned in five equal annual installments, with the first installment
vesting on the first anniversary of the date of grant, as long as the director
maintains Continuous Service with the Corporation or its affiliates, provided,
however, that no Award shall be earned in any fiscal year in which the Bank
fails to meet all of its fully phased-in capital requirements.
5
Exhibit 10.5
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement") is made and entered into as of this
________ day of ______________________, 1997, by and between First Security
Federal Savings Bank (hereinafter referred to as the "Association" whether in
mutual or stock form), and Julian E. Kulas (the "Employee").
WHEREAS, the Employee is currently serving as the President and Chief
Executive Officer of the Association; and
WHEREAS, the Association has adopted a plan of conversion whereby the
Association will convert to capital stock form as the subsidiary of First
SecurityFed Financial, Inc. (the "Holding Company"), subject to the approval of
the Association's members and the Office of Thrift Supervision (the
"Conversion"); and
WHEREAS, the board of directors of the Association ("Board of Directors")
recognizes that, as is the case with publicly held corporations generally, the
possibility of a change in control of the Holding Company and/or the Association
may exist and that such possibility, and the uncertainty and questions which it
may raise among management, may result in the departure or distraction of key
management personnel to the detriment of the Association, the Holding Company
and their respective stockholders; and
WHEREAS, the Board of Directors believes it is in the best interests of the
Association to enter into this Agreement with the Employee in order to assure
continuity of management of the Association and to reinforce and encourage the
continued attention and dedication of the Employee to his assigned duties
without distraction in the face of potentially disruptive circumstances arising
from the possibility of a change in control of the Holding Company or the
Association, although no such change is now contemplated; and
WHEREAS, the Board of Directors has approved and authorized the execution
of this Agreement with the Employee to take effect as stated in Section 2
hereof;
NOW, THEREFORE, in consideration of the foregoing and of the respective
covenants and agreements of the parties herein, it is AGREED as follows:
1. Definitions.
(a) The term "Change in Control" means (1) an event of a nature that (i)
results in a change in control of the Association or the Holding Company within
the meaning of the Home Owners' Loan Act of 1933 and 12 C.F.R. Part 574 as in
effect on the date hereof; or (ii) would be required to be reported in response
to Item 1 of the current report on Form 8-K, as in effect on the date hereof,
pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 (the
"Exchange Act"); (2) any person (as the term is used in Sections 13(d) and 14(d)
of the Exchange Act) is or becomes the beneficial owner (as defined in Rule
13d-3 under the Exchange Act), directly or indirectly of securities of the
Association or the Holding Company representing 20% or more of the Association's
or the Holding Company's outstanding securities; (3) individuals who are members
of the board of directors of the Association or the Holding Company on the date
hereof (the "Incumbent Board") cease for any reason to constitute at least a
majority thereof, provided that any person becoming a director subsequent to the
date hereof whose election was approved by a vote of at least three-quarters of
the directors comprising the Incumbent Board, or whose nomination for election
by the Holding Company's stockholders was approved by the nominating committee
serving under an Incumbent Board, shall be considered a member of the Incumbent
Board; or (4) a plan of reorganization, merger consolidation, sale of all or
substantially all of the assets of the Association or the Holding Company or a
similar transaction in which the Association or the Holding Company is not the
resulting entity. The term "change in control" shall not include an acquisition
of securities by an employee benefit plan of the Association or the Holding
Company or the acquisition of securities of the Association by the Holding
Company in connection with the Conversion. In the application of 12 C.F.R. Part
574 to a determination of a Change in Control, determinations to be made by the
OTS or its Director under such regulations shall be made by the Board of
Directors.
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(b) The term "Commencement Date" means the date of completion of the
Conversion.
(c) The term "Date of Termination" means the earlier of (1) the date upon
which the Association gives notice to the Employee of the termination of his
employment with the Association or (2) the date upon which the Employee ceases
to serve as an Employee of the Association.
(d) The term "Involuntarily Termination" means termination of the
employment of Employee without his express written consent, and shall include a
material diminution of or interference with the Employee's duties,
responsibilities and benefits as President and Chief Executive Officer of the
Association, including (without limitation) any of the following actions unless
consented to in writing by the Employee: (1) a change in the principal workplace
of the Employee to a location outside of a 30 mile radius from the Association's
headquarters office as of the date hereof; (2) a material reduction in the
number or seniority of other Association personnel reporting to the Employee or
a material reduction in the frequency with which, or in the nature of the
matters with respect to which such personnel are to report to the Employee,
other than as part of a Association- or Holding Company-wide reduction in staff;
(3) a material adverse change in the Employee's salary, perquisites, benefits,
contingent benefits or vacation, other than as part of an overall program
applied uniformly and with equitable effect to all members of the senior
management of the Association or the Holding Company; (4) a material permanent
increase in the required hours of work or the workload of the Employee; and (5)
a material demotion of the Employee. The term "Involuntary Termination" does not
include Termination for Cause or termination of employment due to retirement,
death, disability or suspension or temporary or permanent prohibition from
participation in the conduct of the Association's affairs under Section 8 of the
Federal Deposit Insurance Act ("FDIA").
(e) The terms "Termination for Cause" and "Terminated for Cause" mean
termination of the employment of the Employee because of the Employee's personal
dishonesty, incompetence, willful misconduct, breach of a fiduciary duty
involving personal profit, intentional failure to perform stated duties, willful
violation of any law, rule, or regulation (other than traffic violations or
similar offenses) or final cease-and-desist order, or material breach of any
provision of this Agreement. The Employee shall not be deemed to have been
Terminated for Cause unless and until there shall have been delivered to the
Employee a copy of a resolution, duly adopted by the affirmative vote of not
less than a majority of the entire membership of the Board of Directors of the
Association at a meeting of the Board called and held for such purpose (after
reasonable notice to the Employee and an opportunity for the Employee, together
with the Employee's counsel, to be heard before the Board), stating that in the
good faith opinion of the Board the Employee has engaged in the conduct
described in the preceding sentence and specifying the particulars thereof in
detail.
2
<PAGE>
2. Term. The term of this Agreement shall be a period of three years
commencing on the Commencement Date, subject to earlier termination as provided
herein. Beginning on the first annual anniversary date following the
Commencement Date, and on each annual anniversary date thereafter, the term of
this Agreement shall be extended for a period of one year in addition to the
then-remaining term, provided that (1) the Association has not given notice to
the Employee in writing at least 90 days prior to such renewal date that the
term of this Agreement shall not be extended further; and (2) prior to such
renewal date, the Board of Directors of the Association has explicitly reviewed
and approved the extension. Reference herein to the term of this Agreement shall
refer to both such initial term and such extended terms.
3. Employment. The Employee is employed as the President and Chief
Executive Officer of the Association. As President and Chief Executive Officer,
Employee shall render such administrative and management services as are
customarily performed by persons situated in similar executive capacities, and
shall have such other powers and duties of an officer of the Association as the
Board of Directors may prescribe from time to time.
4. Compensation.
(a) Salary. The Association agrees to pay the Employee during the term of
this Agreement the salary established by the Board of Directors, which shall be
at least the Employee's salary in effect as of the Commencement Date. The amount
of the Employee's salary shall be reviewed by the Board of Directors, beginning
not later than the first anniversary of the Commencement Date. Adjustments in
salary or other compensation shall not limit or reduce any other obligation of
the Association under this Agreement. The Employee's salary in effect from time
to time during the term of this Agreement shall not thereafter be reduced.
(b) Discretionary Bonuses. The Employee shall be entitled to participate in
an equitable manner with all other executive officers of the Association in
discretionary bonuses as authorized and declared by the Board of Directors to
its executive employees. No other compensation provided for in this Agreement
shall be deemed a substitute for the Employee's right to participate in such
bonuses when and as declared by the Board of Directors.
(c) Expenses. The Employee shall be entitled to receive prompt
reimbursement for all reasonable expenses incurred by the Employee in performing
services under this Agreement in accordance with the policies and procedures
applicable to the executive officers of the Association, provided that the
Employee accounts for such expenses as required under such policies and
procedures.
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<PAGE>
5. Benefits.
(a) Participation in Retirement and Employee Benefit Plans. The Employee
shall be entitled to participate in all plans relating to pension, thrift,
profit-sharing, group life insurance, medical and dental coverage, education,
cash bonuses, and other retirement or employee benefits or combinations thereof,
in which the Association's executive officers participate. In addition, the
Employee shall be entitled to be considered for benefits under all of the stock
and stock option related plans adopted for the benefit of the Association's
executive or other employees.
(b) Fringe Benefits. The Employee shall be eligible to participate in, and
receive benefits under, any other fringe benefit plans which are or may become
applicable to the Association's executive officers.
6. Vacations; Leave. The Employee shall be entitled to annual paid vacation
in accordance with the policies established by the Association's Board of
Directors for executive employees and to voluntary leave of absence, with or
without pay, from time to time at such times and upon such conditions as the
Board of Directors of the Association may determine in its discretion.
7. Termination of Employment.
(a) Involuntary Termination. The Board of Directors may terminate the
Employee's employment at any time, but, except in the case of Termination for
Cause, termination of employment shall not prejudice the Employee's right to
compensation or other benefits under this Agreement. In the event of Involuntary
Termination other than in connection with or within twelve (12) months after a
Change in Control, (1) the Association shall pay to the Employee during the
remaining term of this Agreement, his salary at the rate in effect immediately
prior to the Date of Termination, payable in such manner and at such times as
such salary would have been payable to the Employee under Section 2 if the
Employee had continued to be employed by the Association, and (2) the
Association shall provide to the Employee during the remaining term of this
Agreement health benefits as maintained by the Association for the benefit of
its executive officers from time to time during the remaining term of the
Agreement.
(b) Termination for Cause. In the event of termination for cause, the
Association shall pay the Employee his salary through the date of termination,
and the Association shall have no further obligation to the Employee under this
Agreement.
(c) Voluntary Termination. The Employee's employment may be voluntarily
terminated by the Employee at any time upon 90 days written notice to the
Association or upon such shorter period as may be agreed upon between the
Employee and the Board of Directors of the Association. In the event of such
voluntary termination, the Association shall be obligated to continue to pay the
Employee his salary and benefits only through the date of termination, at the
time such payments are due, and the Association shall have no further obligation
to the Employee under this Agreement.
(d) Change in Control. In the event of Involuntary Termination in
connection with or within 12 months after a change in control which occurs at
any time while the Employee is employed under this Agreement, the Association
shall, subject to Section 8 of this Agreement, (1) pay to the Employee in a lump
sum in cash within 25 business days after the Date of Termination an amount
equal to 299% of the Employee's "base amount" as defined in Section 280G of the
Internal Revenue Code of 1986, as amended (the "Code"); and (2) provide to the
Employee during the remaining term of this Agreement such health benefits as are
maintained for executive officers of the Association from time to time during
the remaining term of this Agreement.
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<PAGE>
(e) Death; Disability. In the event of the death of the Employee while
employed under this Agreement and prior to any termination of employment, the
Employee's estate, or such person as the Employee may have previously designated
in writing, shall be entitled to receive from the Association the salary of the
Employee through the last day of the calendar month in which the Employee died.
If the Employee becomes disabled as defined in the Association's then current
disability plan or if the Employee is otherwise unable to serve in his present
capacity, the Employee shall be entitled to receive group and other disability
income benefits of the type then provided by the Association for executive
officers. In the event of such disability, this Agreement shall not be
suspended. However, the Association shall be obligated to pay the Employee
compensation pursuant to Sections 4(a) and (b) hereof only to the extent the
Employee's salary, in the absence of such disability, would exceed (on an after
tax basis) the disability income benefits received pursuant to this paragraph.
In addition, the Association shall have the right, upon resolution of its Board,
to discontinue paying cash compensation pursuant to Sections 4(a) and (b)
beginning six months following a determination that Employee qualifies for the
foregoing disability income benefits.
(f) Temporary Suspension or Prohibition. If the Employee is suspended
and/or temporarily prohibited from participating in the conduct of the
Association's affairs by a notice served under Section 8(e)(3) or (g)(1) of the
FDIA, 12 U.S.C. ' 1818(e)(3) and (g)(1), the Association's obligations under
this Agreement shall be suspended as of the date of service, unless stayed by
appropriate proceedings. If the charges in the notice are dismissed, the
Association may in its discretion (1) pay the Employee all or part of the
compensation withheld while its obligations under this Agreement were suspended
and (ii) reinstate in whole or in part any of its obligations which were
suspended.
(g) Permanent Suspension or Prohibition. If the Employee is removed and/or
permanently prohibited from participating in the conduct of the Association's
affairs by an order issued under Section 8(e)(4) or (g)(1) of the FDIA, 12
U.S.C. ' 1818(e)(4) and (g)(1), all obligations of the Association under this
Agreement shall terminate as of the effective date of the order, but vested
rights of the contracting parties shall not be affected.
(h) Default of the Association. If the Association is in default (as
defined in Section 3(x)(1) of the FDIA), all obligations under this Agreement
shall terminate as of the date of default, but this provision shall not affect
any vested rights of the contracting parties.
(i) Termination by Regulators. All obligations under this Agreement shall
be terminated, except to the extent determined that continuation of this
Agreement is necessary for the continued operation of the Association: (1) by
the Director of the Office of Thrift Supervision (the "Director") or his or her
designee, at the time the Federal Deposit Insurance Corporation or the
Resolution Trust Corporation enters into an agreement to provide assistance to
or on behalf of the Association under the authority contained in Section 13(c)
of the FDIA; or (2) by the Director or his or her designee, at the time the
Director or his or her designee approves a supervisory merger to resolve
problems related to operation of the Association or when the Association is
determined by the Director to be in an unsafe or unsound condition. Any rights
of the parties that have already vested, however, shall not be affected by any
such action.
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<PAGE>
(j) Section 563.39(b). So long as 12 C.F.R. ' 563.39(b)(1995) remains in
effect and applicable to the Association, in the event that any of the
termination provisions of this Agreement conflict with 12 C.F.R. '
563.39(b)(1995), the latter shall prevail.
8. Certain Reduction of Payments by the Association.
(a) Notwithstanding any other provisions of this Agreement, if payments
under this Agreement, together with any other payments received or to be
received by the Employee in connection with a Change in Control would cause any
amount to be nondeductible by the Association or the Holding Company for federal
income tax purposes pursuant to Section 280G of the Code, then benefits under
this Agreement shall be reduced (not less than zero) to the extent necessary so
as to maximize payments to the Employee without causing any amount to become
nondeductible by the Association or the Holding Company. The Employee shall
determine the allocation of such reduction among payments to the Employee.
(b) Any payments made to the Employee pursuant to this Agreement, or
otherwise, are subject to and conditioned upon their compliance with 12 U.S.C.
1828(k) and any regulations promulgated thereunder.
(c) Notwithstanding any other provisions of this Agreement, payments under
Section 7 of this Agreement shall not exceed three times the Employee's average
annual compensation based on the most recent five taxable years.
9. No Mitigation. The Employee shall not be required to mitigate the amount
of any salary or other payment or benefit provided for in this Agreement by
seeking other employment or otherwise, nor shall the amount of any payment or
benefit provided for in this Agreement be reduced by any compensation earned by
the Employee as the result of employment by another employer, by retirement
benefits after the date of termination or otherwise.
10. Attorneys Fees. In the event the Association exercises its right of
Termination for Cause, but it is determined by a court of competent jurisdiction
or by an arbitrator pursuant to Section 18 that cause did not exist for such
termination, or if in any event it is determined by any such court or arbitrator
that the Association has failed to make timely payment of any amounts owed to
the Employee under this Agreement, the Employee shall be entitled to
reimbursement for all reasonable costs, including attorneys' fees, incurred in
challenging such termination or collecting such amounts. Such reimbursement
shall be in addition to all rights to which the Employee is otherwise entitled
under this Agreement.
11. No Assignments.
(a) his Agreement is personal to each of the parties hereto, and neither
party may assign or delegate any of its rights or obligations hereunder without
first obtaining the written consent of the other party; provided, however, that
the Association shall require any successor or assign (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Association, by an
assumption agreement in form and substance satisfactory to the Employee, to
expressly assume and agree to perform this Agreement in the same manner and to
the same extent that the Association would be required to perform it if no such
succession or assignment had taken place. Failure of the Association to obtain
such an assumption agreement prior to the effectiveness of any such succession
or assignment shall be a breach of this Agreement and shall entitle the Employee
to compensation from the Association in the same amount and on the same terms as
the compensation pursuant to Section 7(d) hereof. For purposes of implementing
the provisions of this Section 12(a), the date on which any such succession
becomes effective shall be deemed the Date of Termination.
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<PAGE>
(b) This Agreement and all rights of the Employee hereunder shall inure to
the benefit of and be enforceable by the Employee's personal and legal
representatives, executors, administrators, successors, heirs, distributees,
devisees and legatees. If the Employee should die while any amounts would still
be payable to the Employee hereunder if the Employee had continued to live, all
such amounts, unless otherwise provided herein, shall be paid in accordance with
the terms of this Agreement to the Employee's devisee, legatee or other designee
or if there is no such designee, to the Employee's estate.
12. Notice. For the purposes of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when personally delivered or sent by certified
mail, return receipt requested, postage prepaid, to the Association at its home
office the attention of the Board of Directors with a copy to the Secretary of
the Association, or, if the Employee, to such home or other address as the
Employee has most recently provided in writing to the Association.
13. Amendments. No amendments or additions to this Agreement shall be
binding unless in writing and signed by both parties, except as herein otherwise
provided.
14. Paragraph Headings. The paragraph headings used in this Agreement are
included solely for convenience and shall not affect, or be used in connection
with, the interpretation of this Agreement.
15. Severability. The provisions of this Agreement shall be deemed
severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability of the other provisions hereof.
16. Governing Law. This Agreement shall be governed by the laws of the
United States to the extent applicable and otherwise by the laws of the State of
Illinois.
17. Arbitration. Any dispute or controversy arising under or in connection
with this Agreement shall be settled exclusively by arbitration in accordance
with the rules of the American Arbitration Association then in effect. Judgment
may be entered on the arbitrator's award in any court having jurisdiction.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year first above written.
THIS AGREEMENT CONTAINS A BINDING ARBITRATION PROVISION WHICH MAY BE
ENFORCED BY THE PARTIES.
ATTEST: FIRST SECURITY FEDERAL SAVINGS BANK
____________________________ By: _______________________________
Lila Maria Bodnar, Secretary Paul Nadzikewycz
Its: Chairman
EMPLOYEE
_______________________________
Julian E. Kulas
8
Exhibit 10.6
CHANGE IN CONTROL SEVERANCE AGREEMENT
THIS CHANGE IN CONTROL SEVERANCE AGREEMENT ("Agreement") is made and
entered into as of this _______ day of __________________, 1997, by and between
First Security Federal Savings Bank (hereinafter referred to as the
"Association" whether in mutual or stock form), and Harry I. Kucewicz (the
"Employee").
WHEREAS, the Employee is currently serving as Treasurer and Chief Operating
and Financial Officer of the Association; and
WHEREAS, the Association has adopted a plan of conversion whereby the
Association will convert to capital stock form as the subsidiary of First
SecurityFed Financial, Inc. (the "Holding Company"), subject to the approval of
the Association's members and the Office of Thrift Supervision (the
"Conversion"); and
WHEREAS, the board of directors of the Association ("Board of Directors")
recognizes that, as is the case with publicly held corporations generally, the
possibility of a change in control of the Holding Company and/or the Association
may exist and that such possibility, and the uncertainty and questions which it
may raise among management, may result in the departure or distraction of key
management personnel to the detriment of the Association, the Holding Company
and their respective stockholders; and
WHEREAS, the Board of Directors believes it is in the best interests of the
Association to enter into this Agreement with the Employee in order to assure
continuity of management of the Association and to reinforce and encourage the
continued attention and dedication of the Employee to the Employee's assigned
duties without distraction in the face of potentially disruptive circumstances
arising from the possibility of a change in control of the Holding Company or
the Association, although no such change is now contemplated; and
WHEREAS, the Board of Directors has approved and authorized the execution
of this Agreement with the Employee to take effect as stated in Section 2
hereof;
NOW, THEREFORE, in consideration of the foregoing and of the respective
covenants and agreements of the parties herein, it is AGREED as follows:
1. Definitions.
(a) The term "Change in Control" means (1) an event of a nature that (i)
results in a change in control of the Association or the Holding
Company within the meaning of the Home Owners' Loan Act of 1933 and 12
C.F.R. Part 574 as in effect on the date hereof; or (ii) would be
required to be reported in response to Item 1 of the current report on
Form 8-K, as in effect on the date hereof, pursuant to Section 13 or
15(d) of the Securities Exchange Act of 1934 (the "Exchange Act"); (2)
any person (as the term is used in Section 13(d) and 14(d) of the
Exchange Act) is or becomes the beneficial owner (as defined in Rule
13d-3 under the Exchange Act), directly or indirectly of securities of
the Association or the Holding Company representing 20% or more of the
Association's or the Holding Company's outstanding securities; (3)
individuals who are members of the board of directors of the
Association or the Holding Company on the date hereof (the "Incumbent
Board") cease for any reason to constitute at least a majority
thereof, provided that any person becoming a director subsequent to
the date hereof whose election was approved by a vote of at least
three-quarters of the directors comprising the Incumbent Board, or
whose nomination for election by the Holding Company's stockholders
was approved by the nominating committee serving under an Incumbent
Board, shall be considered a member of the Incumbent Board; or (4) a
reorganization, merger, consolidation, sale of all or substantially
all of the assets of the Association or the Holding Company or a
similar transaction in which the Association or the Holding Company is
not the resulting entity. The term "Change in Control" shall not
include an acquisition of securities by an employee benefit plan of
the Association or the Holding Company or the acquisition of
securities of the Association by the Holding Company in connection
with the Conversion.
1
<PAGE>
(b) The term "Commencement Date" means the date of completion of the
Association's conversion to stock form
(c) The term "Date of Termination" means the earlier of (1) the date upon
which the Association gives notice to the Employee of the termination
of the Employee's employment with the Association or (2) the date upon
which the Employee ceases to serve as an employee of the Association.
(d) The term "Involuntary Termination" means termination of the employment
of Employee without the Employee's express written consent, and shall,
subject to the last sentence in this paragraph, include a material
diminution of or interference with the Employee's duties,
responsibilities and benefits as Treasurer and Chief Operating and
Financial Officer of the Association, including (without limitation)
any of the following actions unless consented to in writing by the
Employee: (1) a change in the principal workplace of the Employee to a
location outside of a 30 mile radius from the Association's
headquarters office as of the date hereof; (2) a material demotion of
the Employee; (3) a material reduction in the number or seniority of
other Association personnel reporting to the Employee or a material
reduction in the frequency with which, or in the nature of the matters
with respect to which, such personnel are to report to the Employee,
other than as part of a Association- or Holding Company-wide reduction
in staff; (4) a material adverse change in the Employee's salary,
other than as part of an overall program applied uniformly and with
equitable effect to all members of the senior management of the
Association or the Holding Company; and (5) a material permanent
increase in the required hours of work or the workload of the
Employee. The term "Involuntary Termination" does not include
Termination for Cause or termination of employment due to retirement,
death, disability or suspension or temporary or permanent prohibition
from participation in the conduct of the Association's affairs under
Section 8 of the Federal Deposit Insurance Act ("FDIA") and shall not
include a material diminution of or interference with the Employee's
duties, responsibilities and benefits unless the employee or the
Association submits written notice of involuntary termination within
120 days thereof.
(e) The terms "Termination for Cause" and "Terminated For Cause" mean
termination of the employment of the Employee because of the
Employee's personal dishonesty, incompetence, willful misconduct,
breach of a fiduciary duty involving personal profit, intentional
failure to perform stated duties, willful violation of any law, rule,
or regulation (other than traffic violations or similar offenses) or
final cease-and-desist order, or material breach of any provision of
this Agreement.
2. Term. The term of this Agreement shall be a period of two years commencing
on the Commencement Date, subject to earlier termination as provided
herein. Beginning on the first anniversary of the Commencement Date, and on
each anniversary thereafter until the first anniversary of the Commencement
Date after the Employee reaches age 65, the term of this Agreement shall be
extended for a period of one year in addition to the then-remaining term,
provided that, prior to such anniversary, the Board of Directors of the
Association explicitly reviews and approves the extension. Reference herein
to the term of this Agreement shall refer to both such initial term and
such extended terms.
2
<PAGE>
3. Severance Benefits; Regulatory Provisions.
(a) Involuntary Termination in Connection With a Change in Control. In the
event of Involuntary Termination in connection with or within 24
months after a Change in Control which occurs during the term of this
Agreement, the Association shall, subject to Section 4 of this
Agreement, (1) pay to the Employee in a lump sum in cash within 25
business days after the Date of Termination an amount equal to 200% of
the Employee's "base amount" as defined in Section 280G of the
Internal Revenue Code of 1986, as amended (the "Code"); and (2)
provide to the Employee during the remaining term of this Agreement
such health insurance benefits as the Association maintained for
executive officers at the Date of Termination on terms as favorable to
the Employee as applied at the Date of Termination. The total of
payments to the Employee under this section shall not exceed three
times his average compensation from the Association over the five most
recent taxable years (or, if employed by the Association for a shorter
period, over the period of his employment by the Association).
(b) Temporary Suspension or Prohibition. If the Employee is suspended
and/or temporarily prohibited from participating in the conduct of the
Association's affairs by a notice served under Section 8(e)(3) or
(g)(1) of the FDIA, 12 U.S.C. ' 1818(e)(3) and (g)(1), the
Association's obligations under this Agreement shall be suspended as
of the date of service, unless stayed by appropriate proceedings. If
the charges in the notice are dismissed, the Association may in its
discretion (i) pay the Employee all or part of the compensation
withheld while its obligations under this Agreement were suspended and
(ii) reinstate in whole or in part any of its obligations which were
suspended.
(c) Permanent Suspension or Prohibition. If the Employee is removed and/or
permanently prohibited from participating in the conduct of the
Association's affairs by an order issued under Section 8(e)(4) or
(g)(1) of the FDIA, 12 U.S.C. ' 1818(e)(4) and (g)(1), all obligations
of the Association under this Agreement shall terminate as of the
effective date of the order, but vested rights of the contracting
parties shall not be affected.
(d) Default of the Association. If the Association is in default (as
defined in Section 3(x)(1) of the FDIA), all obligations under this
Agreement shall terminate as of the date of default, but this
provision shall not affect any vested rights of the contracting
parties.
(e) Termination by Regulators. All obligations under this Agreement shall
be terminated, except to the extent determined that continuation of
this Agreement is necessary for the continued operation of the
Association: (1) by the Director of the Office of Thrift Supervision
(the "Director") or his or her designee, at the time the Federal
Deposit Insurance Corporation or the Resolution Trust Corporation
enters into an agreement to provide assistance to or on behalf of the
Association under the authority contained in Section 13(c) of the
FDIA; or (2) by the Director or his or her designee, at the time the
Director or his or her designee approves a supervisory merger to
resolve problems related to operation of the Association or when the
Association is determined by the Director to be in an unsafe or
unsound condition. Any rights of the parties that have already vested,
however, shall not be affected by any such action.
3
<PAGE>
4. Certain Reduction of Payments by the Association.
(a) Notwithstanding any other provision of this Agreement, if the value
and amounts of benefits under this Agreement, together with any other
amounts and the value of benefits received or to be received by the
Employee in connection with a Change in Control would cause any amount
to be nondeductible by the Association or the Holding Company for
federal income tax purposes pursuant to Section 280G of the Code, then
amounts and benefits under this Agreement shall be reduced (not less
than zero) to the extent necessary so as to maximize amounts and the
value of benefits to the Employee without causing any amount to become
nondeductible by the Association or the Holding Company pursuant to or
by reason of such Section 280G. The Employee shall determine the
allocation of such reduction among payments and benefits to the
Employee.
(b) Any payments made to the Employee pursuant to this Agreement, or
otherwise, are subject to and conditioned upon their compliance with
12 U.S.C. ' 1828(k) and any regulations promulgated thereunder.
5. No Mitigation. The Employee shall not be required to mitigate the amount of
any salary or other payment or benefit provided for in this Agreement by
seeking other employment or otherwise, nor shall the amount of any payment
or benefit provided for in this Agreement be reduced by any compensation
earned by the Employee as the result of employment by another employer, by
retirement benefits after the date of termination or otherwise.
6. Attorneys and/or Fees. If the Employee is purportedly Terminated for Cause
and the Association denies payments and/or benefits under Section 3(a) of
this Agreement on the basis that the Employee experienced Termination for
Cause rather than Involuntary Termination, but it is determined by a court
of competent jurisdiction or by an arbitrator pursuant to Section 13 that
cause as contemplated by Section 2(e) of this Agreement did not exist for
termination of the Employee's employment, or if in any event it is
determined by any such court or arbitrator that the Association has failed
to make timely payment of any amounts or provision of any benefits owed to
the Employee under this Agreement, the Employee shall be entitled to
reimbursement for all reasonable costs, including attorneys' fees, incurred
in challenging such termination of employment or collecting such amounts or
benefits. Such reimbursement shall be in addition to all rights to which
the Employee is otherwise entitled under this Agreement.
7. No Assignments.
(a) This Agreement is personal to each of the parties hereto, and neither
party may assign or delegate any of its rights or obligations
hereunder without first obtaining the written consent of the other
party; provided, however, that the Association shall require any
successor or assign (whether direct or indirect, by purchase, merger,
consolidation or otherwise) to all or substantially all of the
business and/or assets of the Association, by an assumption agreement
in form and substance satisfactory to the Employee, to expressly
assume and agree to perform this Agreement in the same manner and to
the same extent that the Association would be required to perform it
if no such succession or assignment had taken place. Failure of the
Association to obtain such an assumption agreement prior to the
effectiveness of any such succession or assignment shall be a breach
of this Agreement and shall entitle the Employee to compensation from
the Association in the same amount and on the same terms as the
compensation pursuant to Section 3(a) hereof. For purposes of
implementing the provisions of this Section 7(a), the date on which
any such succession becomes effective shall be deemed the Date of
Termination.
4
<PAGE>
(b) This Agreement and all rights of the Employee hereunder shall inure to
the benefit of and be enforceable by the Employee's personal and legal
representatives, executors, administrators, successors, heirs,
distributees, devisees and legatees. If the Employee should die while
any amounts would still be payable to the Employee hereunder if the
Employee had continued to live, all such amounts, unless otherwise
provided herein, shall be paid in accordance with the terms of this
Agreement to the Employee's devisee, legatee or other designee or if
there is no such designee, to the Employee's estate.
8. Notice. For the purposes of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and shall
be deemed to have been duly given when personally delivered or sent by
certified mail, return receipt requested, postage prepaid, to the
Association at its home office, to the attention of the Board of Directors
with a copy to the Secretary of the Association, or, if to the Employee, to
such home or other address as the Employee has most recently provided in
writing to the Association.
9. Amendments. No amendments or additions to this Agreement shall be binding
unless in writing and signed by both parties, except as herein otherwise
provided.
10. Headings. The headings used in this Agreement are included solely for
convenience and shall not affect, or be used in connection with, the
interpretation of this Agreement.
11. Severability. The provisions of this Agreement shall be deemed severable
and the invalidity or unenforceability of any provision shall not affect
the validity or enforceability of the other provisions hereof.
12. Governing Law. This Agreement shall be governed by the laws of the United
States to the extent applicable and otherwise by the laws of the State of
Illinois.
13. Arbitration. Any dispute or controversy arising under or in connection with
this Agreement shall be settled exclusively by arbitration in accordance
with the rules of the American Arbitration Association then in effect.
Judgment may be entered on the arbitrator's award in any court having
jurisdiction.
5
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year first above written.
THIS AGREEMENT CONTAINS A BINDING ARBITRATION PROVISION WHICH MAY BE
ENFORCED BY THE PARTIES.
ATTEST: FIRST SECURITY FEDERAL SAVINGS BANK
_____________________________ ___________________________________
Lila Maria Bodnar, Secretary By: Julian E. Kulas
Its: President and Chief
Executive Officer
EMPLOYEE
___________________________________
Harry I. Kucewicz
6
Exhibit 10.7
CHANGE IN CONTROL SEVERANCE AGREEMENT
THIS CHANGE IN CONTROL SEVERANCE AGREEMENT ("Agreement") is made and
entered into as of this _______ day of __________________, 1997, by and between
First Security Federal Savings Bank (hereinafter referred to as the
"Association" whether in mutual or stock form), and Mary H. Korb (the
"Employee").
WHEREAS, the Employee is currently serving as Vice President-Lending of the
Association; and
WHEREAS, the Association has adopted a plan of conversion whereby the
Association will convert to capital stock form as the subsidiary of First
SecurityFed Financial, Inc. (the "Holding Company"), subject to the approval of
the Association's members and the Office of Thrift Supervision (the
"Conversion"); and
WHEREAS, the board of directors of the Association ("Board of Directors")
recognizes that, as is the case with publicly held corporations generally, the
possibility of a change in control of the Holding Company and/or the Association
may exist and that such possibility, and the uncertainty and questions which it
may raise among management, may result in the departure or distraction of key
management personnel to the detriment of the Association, the Holding Company
and their respective stockholders; and
WHEREAS, the Board of Directors believes it is in the best interests of the
Association to enter into this Agreement with the Employee in order to assure
continuity of management of the Association and to reinforce and encourage the
continued attention and dedication of the Employee to the Employee's assigned
duties without distraction in the face of potentially disruptive circumstances
arising from the possibility of a change in control of the Holding Company or
the Association, although no such change is now contemplated; and
WHEREAS, the Board of Directors has approved and authorized the execution
of this Agreement with the Employee to take effect as stated in Section 2
hereof;
NOW, THEREFORE, in consideration of the foregoing and of the respective
covenants and agreements of the parties herein, it is AGREED as follows:
1. Definitions.
(a) The term "Change in Control" means (1) an event of a nature that (i)
results in a change in control of the Association or the Holding
Company within the meaning of the Home Owners' Loan Act of 1933 and 12
C.F.R. Part 574 as in effect on the date hereof; or (ii) would be
required to be reported in response to Item 1 of the current report on
Form 8-K, as in effect on the date hereof, pursuant to Section 13 or
15(d) of the Securities Exchange Act of 1934 (the "Exchange Act"); (2)
any person (as the term is used in Section 13(d) and 14(d) of the
Exchange Act) is or becomes the beneficial owner (as defined in Rule
13d-3 under the Exchange Act), directly or indirectly of securities of
the Association or the Holding Company representing 20% or more of the
Association's or the Holding Company's outstanding securities; (3)
individuals who are members of the board of directors of the
Association or the Holding Company on the date hereof (the "Incumbent
Board") cease for any reason to constitute at least a majority
thereof, provided that any person becoming a director subsequent to
the date hereof whose election was approved by a vote of at least
three-quarters of the directors comprising the Incumbent Board, or
whose nomination for election by the Holding Company's stockholders
was approved by the nominating committee serving under an Incumbent
Board, shall be considered a member of the Incumbent Board; or (4) a
reorganization, merger, consolidation, sale of all or substantially
all of the assets of the Association or the Holding Company or a
similar transaction in which the Association or the Holding Company is
not the resulting entity. The term "Change in Control" shall not
include an acquisition of securities by an employee benefit plan of
the Association or the Holding Company or the acquisition of
securities of the Association by the Holding Company in connection
with the Conversion.
1
<PAGE>
(b) The term "Commencement Date" means the date of completion of the
Association's conversion to stock form
(c) The term "Date of Termination" means the earlier of (1) the date upon
which the Association gives notice to the Employee of the termination
of the Employee's employment with the Association or (2) the date upon
which the Employee ceases to serve as an employee of the Association.
(d) The term "Involuntary Termination" means termination of the employment
of Employee without the Employee's express written consent, and shall,
subject to the last sentence in this paragraph, include a material
diminution of or interference with the Employee's duties,
responsibilities and benefits as Vice President-Lending of the
Association, including (without limitation) any of the following
actions unless consented to in writing by the Employee: (1) a change
in the principal workplace of the Employee to a location outside of a
30 mile radius from the Association's headquarters office as of the
date hereof; (2) a material demotion of the Employee; (3) a material
reduction in the number or seniority of other Association personnel
reporting to the Employee or a material reduction in the frequency
with which, or in the nature of the matters with respect to which,
such personnel are to report to the Employee, other than as part of a
Association- or Holding Company-wide reduction in staff; (4) a
material adverse change in the Employee's salary, other than as part
of an overall program applied uniformly and with equitable effect to
all members of the senior management of the Association or the Holding
Company; and (5) a material permanent increase in the required hours
of work or the workload of the Employee. The term "Involuntary
Termination" does not include Termination for Cause or termination of
employment due to retirement, death, disability or suspension or
temporary or permanent prohibition from participation in the conduct
of the Association's affairs under Section 8 of the Federal Deposit
Insurance Act ("FDIA") and shall not include a material diminution of
or interference with the Employee's duties, responsibilities and
benefits unless the employee or the Association submits written notice
of involuntary termination within 120 days thereof.
(e) The terms "Termination for Cause" and "Terminated For Cause" mean
termination of the employment of the Employee because of the
Employee's personal dishonesty, incompetence, willful misconduct,
breach of a fiduciary duty involving personal profit, intentional
failure to perform stated duties, willful violation of any law, rule,
or regulation (other than traffic violations or similar offenses) or
final cease-and-desist order, or material breach of any provision of
this Agreement.
2. Term. The term of this Agreement shall be a period of two years
commencing on the Commencement Date, subject to earlier termination as
provided herein. Beginning on the first anniversary of the
Commencement Date, and on each anniversary thereafter until the first
anniversary of the Commencement Date after the Employee reaches age
65, the term of this Agreement shall be extended for a period of one
year in addition to the then-remaining term, provided that, prior to
such anniversary, the Board of Directors of the Association explicitly
reviews and approves the extension. Reference herein to the term of
this Agreement shall refer to both such initial term and such extended
terms.
2
<PAGE>
3. Severance Benefits; Regulatory Provisions.
(a) Involuntary Termination in Connection With a Change in Control. In the
event of Involuntary Termination in connection with or within 24
months after a Change in Control which occurs during the term of this
Agreement, the Association shall, subject to Section 4 of this
Agreement, (1) pay to the Employee in a lump sum in cash within 25
business days after the Date of Termination an amount equal to 200% of
the Employee's "base amount" as defined in Section 280G of the
Internal Revenue Code of 1986, as amended (the "Code"); and (2)
provide to the Employee during the remaining term of this Agreement
such health insurance benefits as the Association maintained for
executive officers at the Date of Termination on terms as favorable to
the Employee as applied at the Date of Termination. The total of
payments to the Employee under this section shall not exceed three
times his average compensation from the Association over the five most
recent taxable years (or, if employed by the Association for a shorter
period, over the period of his employment by the Association).
(b) Temporary Suspension or Prohibition. If the Employee is suspended
and/or temporarily prohibited from participating in the conduct of the
Association's affairs by a notice served under Section 8(e)(3) or
(g)(1) of the FDIA, 12 U.S.C. ' 1818(e)(3) and (g)(1), the
Association's obligations under this Agreement shall be suspended as
of the date of service, unless stayed by appropriate proceedings. If
the charges in the notice are dismissed, the Association may in its
discretion (i) pay the Employee all or part of the compensation
withheld while its obligations under this Agreement were suspended and
(ii) reinstate in whole or in part any of its obligations which were
suspended.
(c) Permanent Suspension or Prohibition. If the Employee is removed and/or
permanently prohibited from participating in the conduct of the
Association's affairs by an order issued under Section 8(e)(4) or
(g)(1) of the FDIA, 12 U.S.C. ' 1818(e)(4) and (g)(1), all obligations
of the Association under this Agreement shall terminate as of the
effective date of the order, but vested rights of the contracting
parties shall not be affected.
(d) Default of the Association. If the Association is in default (as
defined in Section 3(x)(1) of the FDIA), all obligations under this
Agreement shall terminate as of the date of default, but this
provision shall not affect any vested rights of the contracting
parties.
(e) Termination by Regulators. All obligations under this Agreement shall
be terminated, except to the extent determined that continuation of
this Agreement is necessary for the continued operation of the
Association: (1) by the Director of the Office of Thrift Supervision
(the "Director") or his or her designee, at the time the Federal
Deposit Insurance Corporation or the Resolution Trust Corporation
enters into an agreement to provide assistance to or on behalf of the
Association under the authority contained in Section 13(c) of the
FDIA; or (2) by the Director or his or her designee, at the time the
Director or his or her designee approves a supervisory merger to
resolve problems related to operation of the Association or when the
Association is determined by the Director to be in an unsafe or
unsound condition. Any rights of the parties that have already vested,
however, shall not be affected by any such action.
3
<PAGE>
4. Certain Reduction of Payments by the Association.
(a) Notwithstanding any other provision of this Agreement, if the value
and amounts of benefits under this Agreement, together with any other
amounts and the value of benefits received or to be received by the
Employee in connection with a Change in Control would cause any amount
to be nondeductible by the Association or the Holding Company for
federal income tax purposes pursuant to Section 280G of the Code, then
amounts and benefits under this Agreement shall be reduced (not less
than zero) to the extent necessary so as to maximize amounts and the
value of benefits to the Employee without causing any amount to become
nondeductible by the Association or the Holding Company pursuant to or
by reason of such Section 280G. The Employee shall determine the
allocation of such reduction among payments and benefits to the
Employee.
(b) Any payments made to the Employee pursuant to this Agreement, or
otherwise, are subject to and conditioned upon their compliance with
12 U.S.C. ' 1828(k) and any regulations promulgated thereunder.
5. No Mitigation. The Employee shall not be required to mitigate the amount of
any salary or other payment or benefit provided for in this Agreement by
seeking other employment or otherwise, nor shall the amount of any payment
or benefit provided for in this Agreement be reduced by any compensation
earned by the Employee as the result of employment by another employer, by
retirement benefits after the date of termination or otherwise.
6. Attorneys and/or Fees. If the Employee is purportedly Terminated for Cause
and the Association denies payments and/or benefits under Section 3(a) of
this Agreement on the basis that the Employee experienced Termination for
Cause rather than Involuntary Termination, but it is determined by a court
of competent jurisdiction or by an arbitrator pursuant to Section 13 that
cause as contemplated by Section 2(e) of this Agreement did not exist for
termination of the Employee's employment, or if in any event it is
determined by any such court or arbitrator that the Association has failed
to make timely payment of any amounts or provision of any benefits owed to
the Employee under this Agreement, the Employee shall be entitled to
reimbursement for all reasonable costs, including attorneys' fees, incurred
in challenging such termination of employment or collecting such amounts or
benefits. Such reimbursement shall be in addition to all rights to which
the Employee is otherwise entitled under this Agreement.
7. No Assignments.
(a) This Agreement is personal to each of the parties hereto, and neither
party may assign or delegate any of its rights or obligations
hereunder without first obtaining the written consent of the other
party; provided, however, that the Association shall require any
successor or assign (whether direct or indirect, by purchase, merger,
consolidation or otherwise) to all or substantially all of the
business and/or assets of the Association, by an assumption agreement
in form and substance satisfactory to the Employee, to expressly
assume and agree to perform this Agreement in the same manner and to
the same extent that the Association would be required to perform it
if no such succession or assignment had taken place. Failure of the
Association to obtain such an assumption agreement prior to the
effectiveness of any such succession or assignment shall be a breach
of this Agreement and shall entitle the Employee to compensation from
the Association in the same amount and on the same terms as the
compensation pursuant to Section 3(a) hereof. For purposes of
implementing the provisions of this Section 7(a), the date on which
any such succession becomes effective shall be deemed the Date of
Termination.
4
<PAGE>
(b) This Agreement and all rights of the Employee hereunder shall inure to
the benefit of and be enforceable by the Employee's personal and legal
representatives, executors, administrators, successors, heirs,
distributees, devisees and legatees. If the Employee should die while
any amounts would still be payable to the Employee hereunder if the
Employee had continued to live, all such amounts, unless otherwise
provided herein, shall be paid in accordance with the terms of this
Agreement to the Employee's devisee, legatee or other designee or if
there is no such designee, to the Employee's estate.
8. Notice. For the purposes of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and shall
be deemed to have been duly given when personally delivered or sent by
certified mail, return receipt requested, postage prepaid, to the
Association at its home office, to the attention of the Board of Directors
with a copy to the Secretary of the Association, or, if to the Employee, to
such home or other address as the Employee has most recently provided in
writing to the Association.
9. Amendments. No amendments or additions to this Agreement shall be binding
unless in writing and signed by both parties, except as herein otherwise
provided.
10. Headings. The headings used in this Agreement are included solely for
convenience and shall not affect, or be used in connection with, the
interpretation of this Agreement.
11. Severability. The provisions of this Agreement shall be deemed severable
and the invalidity or unenforceability of any provision shall not affect
the validity or enforceability of the other provisions hereof.
12. Governing Law. This Agreement shall be governed by the laws of the United
States to the extent applicable and otherwise by the laws of the State of
Illinois.
13. Arbitration. Any dispute or controversy arising under or in connection with
this Agreement shall be settled exclusively by arbitration in accordance
with the rules of the American Arbitration Association then in effect.
Judgment may be entered on the arbitrator's award in any court having
jurisdiction.
5
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year first above written.
THIS AGREEMENT CONTAINS A BINDING ARBITRATION PROVISION WHICH MAY BE
ENFORCED BY THE PARTIES.
ATTEST: FIRST SECURITY FEDERAL SAVINGS BANK
___________________________________ ___________________________________
Lila Maria Bodnar, Secretary By: Julian E. Kulas
Its: President and Chief
Executive Officer
EMPLOYEE
___________________________________
Mary H. Korb
6
Exhibit 10.8
CHANGE IN CONTROL SEVERANCE AGREEMENT
THIS CHANGE IN CONTROL SEVERANCE AGREEMENT ("Agreement") is made and
entered into as of this _______ day of __________________, 1997, by and between
First Security Federal Savings Bank (hereinafter referred to as the
"Association" whether in mutual or stock form), and Irene S. Subota (the
"Employee").
WHEREAS, the Employee is currently serving as Vice President-Savings of the
Association; and
WHEREAS, the Association has adopted a plan of conversion whereby the
Association will convert to capital stock form as the subsidiary of First
SecurityFed Financial, Inc. (the "Holding Company"), subject to the approval of
the Association's members and the Office of Thrift Supervision (the
"Conversion"); and
WHEREAS, the board of directors of the Association ("Board of Directors")
recognizes that, as is the case with publicly held corporations generally, the
possibility of a change in control of the Holding Company and/or the Association
may exist and that such possibility, and the uncertainty and questions which it
may raise among management, may result in the departure or distraction of key
management personnel to the detriment of the Association, the Holding Company
and their respective stockholders; and
WHEREAS, the Board of Directors believes it is in the best interests of the
Association to enter into this Agreement with the Employee in order to assure
continuity of management of the Association and to reinforce and encourage the
continued attention and dedication of the Employee to the Employee's assigned
duties without distraction in the face of potentially disruptive circumstances
arising from the possibility of a change in control of the Holding Company or
the Association, although no such change is now contemplated; and
WHEREAS, the Board of Directors has approved and authorized the execution
of this Agreement with the Employee to take effect as stated in Section 2
hereof;
NOW, THEREFORE, in consideration of the foregoing and of the respective
covenants and agreements of the parties herein, it is AGREED as follows:
1. Definitions.
(a) The term "Change in Control" means (1) an event of a nature that (i)
results in a change in control of the Association or the Holding
Company within the meaning of the Home Owners' Loan Act of 1933 and 12
C.F.R. Part 574 as in effect on the date hereof; or (ii) would be
required to be reported in response to Item 1 of the current report on
Form 8-K, as in effect on the date hereof, pursuant to Section 13 or
15(d) of the Securities Exchange Act of 1934 (the "Exchange Act"); (2)
any person (as the term is used in Section 13(d) and 14(d) of the
Exchange Act) is or becomes the beneficial owner (as defined in Rule
13d-3 under the Exchange Act), directly or indirectly of securities of
the Association or the Holding Company representing 20% or more of the
Association's or the Holding Company's outstanding securities; (3)
individuals who are members of the board of directors of the
Association or the Holding Company on the date hereof (the "Incumbent
Board") cease for any reason to constitute at least a majority
thereof, provided that any person becoming a director subsequent to
the date hereof whose election was approved by a vote of at least
three-quarters of the directors comprising the Incumbent Board, or
whose nomination for election by the Holding Company's stockholders
was approved by the nominating committee serving under an Incumbent
Board, shall be considered a member of the Incumbent Board; or (4) a
reorganization, merger, consolidation, sale of all or substantially
all of the assets of the Association or the Holding Company or a
similar transaction in which the Association or the Holding Company is
not the resulting entity. The term "Change in Control" shall not
include an acquisition of securities by an employee benefit plan of
the Association or the Holding Company or the acquisition of
securities of the Association by the Holding Company in connection
with the Conversion.
1
<PAGE>
(b) The term "Commencement Date" means the date of completion of the
Association's conversion to stock form
(c) The term "Date of Termination" means the earlier of (1) the date upon
which the Association gives notice to the Employee of the termination
of the Employee's employment with the Association or (2) the date upon
which the Employee ceases to serve as an employee of the Association.
(d) The term "Involuntary Termination" means termination of the employment
of Employee without the Employee's express written consent, and shall,
subject to the last sentence in this paragraph, include a material
diminution of or interference with the Employee's duties,
responsibilities and benefits as Vice President-Savings of the
Association, including (without limitation) any of the following
actions unless consented to in writing by the Employee: (1) a change
in the principal workplace of the Employee to a location outside of a
30 mile radius from the Association's headquarters office as of the
date hereof; (2) a material demotion of the Employee; (3) a material
reduction in the number or seniority of other Association personnel
reporting to the Employee or a material reduction in the frequency
with which, or in the nature of the matters with respect to which,
such personnel are to report to the Employee, other than as part of a
Association- or Holding Company-wide reduction in staff; (4) a
material adverse change in the Employee's salary, other than as part
of an overall program applied uniformly and with equitable effect to
all members of the senior management of the Association or the Holding
Company; and (5) a material permanent increase in the required hours
of work or the workload of the Employee. The term "Involuntary
Termination" does not include Termination for Cause or termination of
employment due to retirement, death, disability or suspension or
temporary or permanent prohibition from participation in the conduct
of the Association's affairs under Section 8 of the Federal Deposit
Insurance Act ("FDIA") and shall not include a material diminution of
or interference with the Employee's duties, responsibilities and
benefits unless the employee or the Association submits written notice
of involuntary termination within 120 days thereof.
(e) The terms "Termination for Cause" and "Terminated For Cause" mean
termination of the employment of the Employee because of the
Employee's personal dishonesty, incompetence, willful misconduct,
breach of a fiduciary duty involving personal profit, intentional
failure to perform stated duties, willful violation of any law, rule,
or regulation (other than traffic violations or similar offenses) or
final cease-and-desist order, or material breach of any provision of
this Agreement.
2. Term. The term of this Agreement shall be a period of two years commencing
on the Commencement Date, subject to earlier termination as provided
herein. Beginning on the first anniversary of the Commencement Date, and on
each anniversary thereafter until the first anniversary of the Commencement
Date after the Employee reaches age 65, the term of this Agreement shall be
extended for a period of one year in addition to the then-remaining term,
provided that, prior to such anniversary, the Board of Directors of the
Association explicitly reviews and approves the extension. Reference herein
to the term of this Agreement shall refer to both such initial term and
such extended terms.
2
<PAGE>
3. Severance Benefits; Regulatory Provisions.
(a) Involuntary Termination in Connection With a Change in Control. In the
event of Involuntary Termination in connection with or within 24
months after a Change in Control which occurs during the term of this
Agreement, the Association shall, subject to Section 4 of this
Agreement, (1) pay to the Employee in a lump sum in cash within 25
business days after the Date of Termination an amount equal to 200% of
the Employee's "base amount" as defined in Section 280G of the
Internal Revenue Code of 1986, as amended (the "Code"); and (2)
provide to the Employee during the remaining term of this Agreement
such health insurance benefits as the Association maintained for
executive officers at the Date of Termination on terms as favorable to
the Employee as applied at the Date of Termination. The total of
payments to the Employee under this section shall not exceed three
times his average compensation from the Association over the five most
recent taxable years (or, if employed by the Association for a shorter
period, over the period of his employment by the Association).
(b) Temporary Suspension or Prohibition. If the Employee is suspended
and/or temporarily prohibited from participating in the conduct of the
Association's affairs by a notice served under Section 8(e)(3) or
(g)(1) of the FDIA, 12 U.S.C. ' 1818(e)(3) and (g)(1), the
Association's obligations under this Agreement shall be suspended as
of the date of service, unless stayed by appropriate proceedings. If
the charges in the notice are dismissed, the Association may in its
discretion (i) pay the Employee all or part of the compensation
withheld while its obligations under this Agreement were suspended and
(ii) reinstate in whole or in part any of its obligations which were
suspended.
(c) Permanent Suspension or Prohibition. If the Employee is removed and/or
permanently prohibited from participating in the conduct of the
Association's affairs by an order issued under Section 8(e)(4) or
(g)(1) of the FDIA, 12 U.S.C. ' 1818(e)(4) and (g)(1), all obligations
of the Association under this Agreement shall terminate as of the
effective date of the order, but vested rights of the contracting
parties shall not be affected.
(d) Default of the Association. If the Association is in default (as
defined in Section 3(x)(1) of the FDIA), all obligations under this
Agreement shall terminate as of the date of default, but this
provision shall not affect any vested rights of the contracting
parties.
(e) Termination by Regulators. All obligations under this Agreement shall
be terminated, except to the extent determined that continuation of
this Agreement is necessary for the continued operation of the
Association: (1) by the Director of the Office of Thrift Supervision
(the "Director") or his or her designee, at the time the Federal
Deposit Insurance Corporation or the Resolution Trust Corporation
enters into an agreement to provide assistance to or on behalf of the
Association under the authority contained in Section 13(c) of the
FDIA; or (2) by the Director or his or her designee, at the time the
Director or his or her designee approves a supervisory merger to
resolve problems related to operation of the Association or when the
Association is determined by the Director to be in an unsafe or
unsound condition. Any rights of the parties that have already vested,
however, shall not be affected by any such action.
3
<PAGE>
4. Certain Reduction of Payments by the Association.
(a) Notwithstanding any other provision of this Agreement, if the value
and amounts of benefits under this Agreement, together with any other
amounts and the value of benefits received or to be received by the
Employee in connection with a Change in Control would cause any amount
to be nondeductible by the Association or the Holding Company for
federal income tax purposes pursuant to Section 280G of the Code, then
amounts and benefits under this Agreement shall be reduced (not less
than zero) to the extent necessary so as to maximize amounts and the
value of benefits to the Employee without causing any amount to become
nondeductible by the Association or the Holding Company pursuant to or
by reason of such Section 280G. The Employee shall determine the
allocation of such reduction among payments and benefits to the
Employee.
(b) Any payments made to the Employee pursuant to this Agreement, or
otherwise, are subject to and conditioned upon their compliance with
12 U.S.C. ' 1828(k) and any regulations promulgated thereunder.
5. No Mitigation. The Employee shall not be required to mitigate the amount of
any salary or other payment or benefit provided for in this Agreement by
seeking other employment or otherwise, nor shall the amount of any payment
or benefit provided for in this Agreement be reduced by any compensation
earned by the Employee as the result of employment by another employer, by
retirement benefits after the date of termination or otherwise.
6. Attorneys and/or Fees. If the Employee is purportedly Terminated for Cause
and the Association denies payments and/or benefits under Section 3(a) of
this Agreement on the basis that the Employee experienced Termination for
Cause rather than Involuntary Termination, but it is determined by a court
of competent jurisdiction or by an arbitrator pursuant to Section 13 that
cause as contemplated by Section 2(e) of this Agreement did not exist for
termination of the Employee's employment, or if in any event it is
determined by any such court or arbitrator that the Association has failed
to make timely payment of any amounts or provision of any benefits owed to
the Employee under this Agreement, the Employee shall be entitled to
reimbursement for all reasonable costs, including attorneys' fees, incurred
in challenging such termination of employment or collecting such amounts or
benefits. Such reimbursement shall be in addition to all rights to which
the Employee is otherwise entitled under this Agreement.
7. No Assignments.
(a) This Agreement is personal to each of the parties hereto, and neither
party may assign or delegate any of its rights or obligations
hereunder without first obtaining the written consent of the other
party; provided, however, that the Association shall require any
successor or assign (whether direct or indirect, by purchase, merger,
consolidation or otherwise) to all or substantially all of the
business and/or assets of the Association, by an assumption agreement
in form and substance satisfactory to the Employee, to expressly
assume and agree to perform this Agreement in the same manner and to
the same extent that the Association would be required to perform it
if no such succession or assignment had taken place. Failure of the
Association to obtain such an assumption agreement prior to the
effectiveness of any such succession or assignment shall be a breach
of this Agreement and shall entitle the Employee to compensation from
the Association in the same amount and on the same terms as the
compensation pursuant to Section 3(a) hereof. For purposes of
implementing the provisions of this Section 7(a), the date on which
any such succession becomes effective shall be deemed the Date of
Termination.
4
<PAGE>
(b) This Agreement and all rights of the Employee hereunder shall inure to
the benefit of and be enforceable by the Employee's personal and legal
representatives, executors, administrators, successors, heirs,
distributees, devisees and legatees. If the Employee should die while
any amounts would still be payable to the Employee hereunder if the
Employee had continued to live, all such amounts, unless otherwise
provided herein, shall be paid in accordance with the terms of this
Agreement to the Employee's devisee, legatee or other designee or if
there is no such designee, to the Employee's estate.
8. Notice. For the purposes of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and shall
be deemed to have been duly given when personally delivered or sent by
certified mail, return receipt requested, postage prepaid, to the
Association at its home office, to the attention of the Board of Directors
with a copy to the Secretary of the Association, or, if to the Employee, to
such home or other address as the Employee has most recently provided in
writing to the Association.
9. Amendments. No amendments or additions to this Agreement shall be binding
unless in writing and signed by both parties, except as herein otherwise
provided.
10. Headings. The headings used in this Agreement are included solely for
convenience and shall not affect, or be used in connection with, the
interpretation of this Agreement.
11. Severability. The provisions of this Agreement shall be deemed severable
and the invalidity or unenforceability of any provision shall not affect
the validity or enforceability of the other provisions hereof.
12. Governing Law. This Agreement shall be governed by the laws of the United
States to the extent applicable and otherwise by the laws of the State of
Illinois.
13. Arbitration. Any dispute or controversy arising under or in connection with
this Agreement shall be settled exclusively by arbitration in accordance
with the rules of the American Arbitration Association then in effect.
Judgment may be entered on the arbitrator's award in any court having
jurisdiction.
5
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year first above written.
THIS AGREEMENT CONTAINS A BINDING ARBITRATION PROVISION WHICH MAY BE
ENFORCED BY THE PARTIES.
ATTEST: FIRST SECURITY FEDERAL SAVINGS BANK
___________________________________ ___________________________________
Lila Maria Bodnar, Secretary By: Julian E. Kulas
Its: President and Chief
Executive Officer
EMPLOYEE
___________________________________
Irene S. Subota
6
Exhibit 10.9
CHANGE IN CONTROL SEVERANCE AGREEMENT
THIS CHANGE IN CONTROL SEVERANCE AGREEMENT ("Agreement") is made and
entered into as of this _______ day of __________________, 1997, by and between
First Security Federal Savings Bank (hereinafter referred to as the
"Association" whether in mutual or stock form), and Adrian Hawryliw (the
"Employee").
WHEREAS, the Employee is currently serving as Vice-President and
Philadelphia Branch Manager of the Association; and
WHEREAS, the Association has adopted a plan of conversion whereby the
Association will convert to capital stock form as the subsidiary of First
SecurityFed Financial, Inc. (the "Holding Company"), subject to the approval of
the Association's members and the Office of Thrift Supervision (the
"Conversion"); and
WHEREAS, the board of directors of the Association ("Board of Directors")
recognizes that, as is the case with publicly held corporations generally, the
possibility of a change in control of the Holding Company and/or the Association
may exist and that such possibility, and the uncertainty and questions which it
may raise among management, may result in the departure or distraction of key
management personnel to the detriment of the Association, the Holding Company
and their respective stockholders; and
WHEREAS, the Board of Directors believes it is in the best interests of the
Association to enter into this Agreement with the Employee in order to assure
continuity of management of the Association and to reinforce and encourage the
continued attention and dedication of the Employee to the Employee's assigned
duties without distraction in the face of potentially disruptive circumstances
arising from the possibility of a change in control of the Holding Company or
the Association, although no such change is now contemplated; and
WHEREAS, the Board of Directors has approved and authorized the execution
of this Agreement with the Employee to take effect as stated in Section 2
hereof;
NOW, THEREFORE, in consideration of the foregoing and of the respective
covenants and agreements of the parties herein, it is AGREED as follows:
1. Definitions.
(a) The term "Change in Control" means (1) an event of a nature that (i)
results in a change in control of the Association or the Holding
Company within the meaning of the Home Owners' Loan Act of 1933 and 12
C.F.R. Part 574 as in effect on the date hereof; or (ii) would be
required to be reported in response to Item 1 of the current report on
Form 8-K, as in effect on the date hereof, pursuant to Section 13 or
15(d) of the Securities Exchange Act of 1934 (the "Exchange Act"); (2)
any person (as the term is used in Section 13(d) and 14(d) of the
Exchange Act) is or becomes the beneficial owner (as defined in Rule
13d-3 under the Exchange Act), directly or indirectly of securities of
the Association or the Holding Company representing 20% or more of the
Association's or the Holding Company's outstanding securities; (3)
individuals who are members of the board of directors of the
Association or the Holding Company on the date hereof (the "Incumbent
Board") cease for any reason to constitute at least a majority
thereof, provided that any person becoming a director subsequent to
the date hereof whose election was approved by a vote of at least
three-quarters of the directors comprising the Incumbent Board, or
whose nomination for election by the Holding Company's stockholders
was approved by the nominating committee serving under an Incumbent
Board, shall be considered a member of the Incumbent Board; or (4) a
reorganization, merger, consolidation, sale of all or substantially
all of the assets of the Association or the Holding Company or a
similar transaction in which the Association or the Holding Company is
not the resulting entity. The term "Change in Control" shall not
include an acquisition of securities by an employee benefit plan of
the Association or the Holding Company or the acquisition of
securities of the Association by the Holding Company in connection
with the Conversion.
1
<PAGE>
(b) The term "Commencement Date" means the date of completion of the
Association's conversion to stock form
(c) The term "Date of Termination" means the earlier of (1) the date upon
which the Association gives notice to the Employee of the termination
of the Employee's employment with the Association or (2) the date upon
which the Employee ceases to serve as an employee of the Association.
(d) The term "Involuntary Termination" means termination of the employment
of Employee without the Employee's express written consent, and shall,
subject to the last sentence in this paragraph, include a material
diminution of or interference with the Employee's duties,
responsibilities and benefits as Treasurer and Vice-President and
Philadelphia Branch Manager of the Association, including (without
limitation) any of the following actions unless consented to in
writing by the Employee: (1) a change in the principal workplace of
the Employee to a location outside of a 30 mile radius from the
Association's headquarters office as of the date hereof; (2) a
material demotion of the Employee; (3) a material reduction in the
number or seniority of other Association personnel reporting to the
Employee or a material reduction in the frequency with which, or in
the nature of the matters with respect to which, such personnel are to
report to the Employee, other than as part of a Association- or
Holding Company-wide reduction in staff; (4) a material adverse change
in the Employee's salary, other than as part of an overall program
applied uniformly and with equitable effect to all members of the
senior management of the Association or the Holding Company; and (5) a
material permanent increase in the required hours of work or the
workload of the Employee. The term "Involuntary Termination" does not
include Termination for Cause or termination of employment due to
retirement, death, disability or suspension or temporary or permanent
prohibition from participation in the conduct of the Association's
affairs under Section 8 of the Federal Deposit Insurance Act ("FDIA")
and shall not include a material diminution of or interference with
the Employee's duties, responsibilities and benefits unless the
employee or the Association submits written notice of involuntary
termination within 120 days thereof.
(e) The terms "Termination for Cause" and "Terminated For Cause" mean
termination of the employment of the Employee because of the
Employee's personal dishonesty, incompetence, willful misconduct,
breach of a fiduciary duty involving personal profit, intentional
failure to perform stated duties, willful violation of any law, rule,
or regulation (other than traffic violations or similar offenses) or
final cease-and-desist order, or material breach of any provision of
this Agreement.
2. Term. The term of this Agreement shall be a period of two years commencing
on the Commencement Date, subject to earlier termination as provided
herein. Beginning on the first anniversary of the Commencement Date, and on
each anniversary thereafter until the first anniversary of the Commencement
Date after the Employee reaches age 65, the term of this Agreement shall be
extended for a period of one year in addition to the then-remaining term,
provided that, prior to such anniversary, the Board of Directors of the
Association explicitly reviews and approves the extension. Reference herein
to the term of this Agreement shall refer to both such initial term and
such extended terms.
2
<PAGE>
3. Severance Benefits; Regulatory Provisions.
(a) Involuntary Termination in Connection With a Change in Control. In the
event of Involuntary Termination in connection with or within 24
months after a Change in Control which occurs during the term of this
Agreement, the Association shall, subject to Section 4 of this
Agreement, (1) pay to the Employee in a lump sum in cash within 25
business days after the Date of Termination an amount equal to 200% of
the Employee's "base amount" as defined in Section 280G of the
Internal Revenue Code of 1986, as amended (the "Code"); and (2)
provide to the Employee during the remaining term of this Agreement
such health insurance benefits as the Association maintained for
executive officers at the Date of Termination on terms as favorable to
the Employee as applied at the Date of Termination. The total of
payments to the Employee under this section shall not exceed three
times his average compensation from the Association over the five most
recent taxable years (or, if employed by the Association for a shorter
period, over the period of his employment by the Association).
(b) Temporary Suspension or Prohibition. If the Employee is suspended
and/or temporarily prohibited from participating in the conduct of the
Association's affairs by a notice served under Section 8(e)(3) or
(g)(1) of the FDIA, 12 U.S.C. ' 1818(e)(3) and (g)(1), the
Association's obligations under this Agreement shall be suspended as
of the date of service, unless stayed by appropriate proceedings. If
the charges in the notice are dismissed, the Association may in its
discretion (i) pay the Employee all or part of the compensation
withheld while its obligations under this Agreement were suspended and
(ii) reinstate in whole or in part any of its obligations which were
suspended.
(c) Permanent Suspension or Prohibition. If the Employee is removed and/or
permanently prohibited from participating in the conduct of the
Association's affairs by an order issued under Section 8(e)(4) or
(g)(1) of the FDIA, 12 U.S.C. ' 1818(e)(4) and (g)(1), all obligations
of the Association under this Agreement shall terminate as of the
effective date of the order, but vested rights of the contracting
parties shall not be affected.
(d) Default of the Association. If the Association is in default (as
defined in Section 3(x)(1) of the FDIA), all obligations under this
Agreement shall terminate as of the date of default, but this
provision shall not affect any vested rights of the contracting
parties.
(e) Termination by Regulators. All obligations under this Agreement shall
be terminated, except to the extent determined that continuation of
this Agreement is necessary for the continued operation of the
Association: (1) by the Director of the Office of Thrift Supervision
(the "Director") or his or her designee, at the time the Federal
Deposit Insurance Corporation or the Resolution Trust Corporation
enters into an agreement to provide assistance to or on behalf of the
Association under the authority contained in Section 13(c) of the
FDIA; or (2) by the Director or his or her designee, at the time the
Director or his or her designee approves a supervisory merger to
resolve problems related to operation of the Association or when the
Association is determined by the Director to be in an unsafe or
unsound condition. Any rights of the parties that have already vested,
however, shall not be affected by any such action.
3
<PAGE>
4. Certain Reduction of Payments by the Association.
(a) Notwithstanding any other provision of this Agreement, if the value
and amounts of benefits under this Agreement, together with any other
amounts and the value of benefits received or to be received by the
Employee in connection with a Change in Control would cause any amount
to be nondeductible by the Association or the Holding Company for
federal income tax purposes pursuant to Section 280G of the Code, then
amounts and benefits under this Agreement shall be reduced (not less
than zero) to the extent necessary so as to maximize amounts and the
value of benefits to the Employee without causing any amount to become
nondeductible by the Association or the Holding Company pursuant to or
by reason of such Section 280G. The Employee shall determine the
allocation of such reduction among payments and benefits to the
Employee.
(b) Any payments made to the Employee pursuant to this Agreement, or
otherwise, are subject to and conditioned upon their compliance with
12 U.S.C. ' 1828(k) and any regulations promulgated thereunder.
5. No Mitigation. The Employee shall not be required to mitigate the amount of
any salary or other payment or benefit provided for in this Agreement by
seeking other employment or otherwise, nor shall the amount of any payment
or benefit provided for in this Agreement be reduced by any compensation
earned by the Employee as the result of employment by another employer, by
retirement benefits after the date of termination or otherwise.
6. Attorneys and/or Fees. If the Employee is purportedly Terminated for Cause
and the Association denies payments and/or benefits under Section 3(a) of
this Agreement on the basis that the Employee experienced Termination for
Cause rather than Involuntary Termination, but it is determined by a court
of competent jurisdiction or by an arbitrator pursuant to Section 13 that
cause as contemplated by Section 2(e) of this Agreement did not exist for
termination of the Employee's employment, or if in any event it is
determined by any such court or arbitrator that the Association has failed
to make timely payment of any amounts or provision of any benefits owed to
the Employee under this Agreement, the Employee shall be entitled to
reimbursement for all reasonable costs, including attorneys' fees, incurred
in challenging such termination of employment or collecting such amounts or
benefits. Such reimbursement shall be in addition to all rights to which
the Employee is otherwise entitled under this Agreement.
7. No Assignments.
(a) This Agreement is personal to each of the parties hereto, and neither
party may assign or delegate any of its rights or obligations
hereunder without first obtaining the written consent of the other
party; provided, however, that the Association shall require any
successor or assign (whether direct or indirect, by purchase, merger,
consolidation or otherwise) to all or substantially all of the
business and/or assets of the Association, by an assumption agreement
in form and substance satisfactory to the Employee, to expressly
assume and agree to perform this Agreement in the same manner and to
the same extent that the Association would be required to perform it
if no such succession or assignment had taken place. Failure of the
Association to obtain such an assumption agreement prior to the
effectiveness of any such succession or assignment shall be a breach
of this Agreement and shall entitle the Employee to compensation from
the Association in the same amount and on the same terms as the
compensation pursuant to Section 3(a) hereof. For purposes of
implementing the provisions of this Section 7(a), the date on which
any such succession becomes effective shall be deemed the Date of
Termination.
4
<PAGE>
(b) This Agreement and all rights of the Employee hereunder shall inure to
the benefit of and be enforceable by the Employee's personal and legal
representatives, executors, administrators, successors, heirs,
distributees, devisees and legatees. If the Employee should die while
any amounts would still be payable to the Employee hereunder if the
Employee had continued to live, all such amounts, unless otherwise
provided herein, shall be paid in accordance with the terms of this
Agreement to the Employee's devisee, legatee or other designee or if
there is no such designee, to the Employee's estate.
8. Notice. For the purposes of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and shall
be deemed to have been duly given when personally delivered or sent by
certified mail, return receipt requested, postage prepaid, to the
Association at its home office, to the attention of the Board of Directors
with a copy to the Secretary of the Association, or, if to the Employee, to
such home or other address as the Employee has most recently provided in
writing to the Association.
9. Amendments. No amendments or additions to this Agreement shall be binding
unless in writing and signed by both parties, except as herein otherwise
provided.
10. Headings. The headings used in this Agreement are included solely for
convenience and shall not affect, or be used in connection with, the
interpretation of this Agreement.
11. Severability. The provisions of this Agreement shall be deemed severable
and the invalidity or unenforceability of any provision shall not affect
the validity or enforceability of the other provisions hereof.
12. Governing Law. This Agreement shall be governed by the laws of the United
States to the extent applicable and otherwise by the laws of the State of
Illinois.
13. Arbitration. Any dispute or controversy arising under or in connection with
this Agreement shall be settled exclusively by arbitration in accordance
with the rules of the American Arbitration Association then in effect.
Judgment may be entered on the arbitrator's award in any court having
jurisdiction.
5
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year first above written.
THIS AGREEMENT CONTAINS A BINDING ARBITRATION PROVISION WHICH MAY BE
ENFORCED BY THE PARTIES.
ATTEST: FIRST SECURITY FEDERAL SAVINGS BANK
___________________________________ ___________________________________
Lila Maria Bodnar, Secretary By: Julian E. Kulas
Its: President and Chief
Executive Officer
EMPLOYEE
___________________________________
Adrian Hawryliw
6
Exhibit 21
SUBSIDIARIES OF THE REGISTRANT
<TABLE>
<CAPTION>
Percent Jurisdiction of
of Incorporation
Parent Subsidiary Ownership or Organization
------ ---------- --------- ---------------
<S> <C> <C> <C>
First SecurityFed First Security Federal Savings 100% Federal
Financial, Inc. Bank
First Security Federal Western Security Corporation 100 Illinois
Savings Bank
</TABLE>
Exhibit 23.1
[SILVER, FREEDMAN & TAFF, L.L.P. LETTERHEAD]
CONSENT OF COUNSEL
We consent to the use of our opinions, to the incorporation by
reference of such opinions as an exhibits to the Form S-1 and to the reference
to our firm under the headings "The Conversion Income Tax Consequences" and
"Legal and Tax Matters" in the Prospectus included in this Form S-1. In giving
this consent, we do not admit that we are within the category of persons whose
consent is required under Section 7 of the Securities Act of 1933, as amended,
or the rules and regulations of the Securities and Exchange Commission
thereunder.
/s/ SILVER, FREEDMAN & TAFF, L.L.P.
SILVER, FREEDMAN & TAFF, L.L.P.
Washington, D.C.
July 17, 1997
Exhibit 23.2
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
1st Security Federal Savings Bank
We consent to the use in this Registration Statment on Form S-1 filed with the
Securities and Exchange Commission and Form AC filed with the Office of Thrift
Supervision on July 21, 1997, of our report dated February 8, 1997, on the
financial statements of 1st Security Federal Savings Bank. We also consent to
the reference to us under the headings "The Conversion - Income Tax
Consequences" and "-The Contribution" and "-Effects of Conversion to Stock Form
on Depositors and Borrowers of the Bank"; "Experts"; and "Legal and Tax Matters"
in this Registration Statement on Forms S-1 and AC.
/s/ Crowe, Chizek and Company LLP
Crowe, Chizek and Company LLP
Oak Brook, Illinois
July 21, 1997
Exhibit 23.3
July 18, 1997
Board of Directors
First Security Federal Savings Bank
936 North Western Avenue
Chicago, IL 60622
Dear Board Members:
We hereby consent to the use of our firm's name, FinPro, Inc. ("FinPro") in the
Form AC Application for Conversion and the prospectus included therein filed by
First Security Federal Savings Bank and any amendments thereto, for the
Valuation Appraisal Report ("Report") regarding the valuation of First Security
Federal Savings Bank provided by FinPro, and our opinion regarding subscription
rights filed as exhibits to the 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 of First Security Federal Savings Bank
and any amendments thereto.
Very Truly Yours,
/s/ Donald J. Musso
Donald J. Musso
Liberty Corner, New Jersey
July 18, 1997
Exhibit 99.2
FIRST SECURITY FEDERAL SAVINGS BANK
936 North Western Avenue
Chicago, Illinois 60622-4695
(773) 772-4500
----------
NOTICE OF SPECIAL MEETING OF MEMBERS
----------
Notice is hereby given that a Special Meeting of Members (the "Special
Meeting") of First Security Federal Savings Bank ("First Security" or the
"Bank") will be held at the main office of the Bank located at 936 North Western
Avenue, Chicago, Illinois, on ________ __, 1997 at __:__ _.m., Chicago, Illinois
Time. The purpose of this Special Meeting is to consider and vote upon:
1. A plan to convert the Bank from a federally chartered mutual savings
bank to a federally chartered stock savings bank, including the
adoption of a federal stock savings bank charter and bylaws, with the
concurrent sale of all the Bank's common stock to First SecurityFed
Financial, Inc., a Delaware corporation (the "Holding Company"), and
sale by the Holding Company of shares of its common stock;
2. The contribution of 250,000 shares of the Holding Company common stock
to The Heritage Foundation of First Security Federal Savings Bank, Inc.
(the "Foundation") a private charitable foundation under the Illinois
General Not-For-Profit Corporation Act dedicated to the promotion of
charitable purposes within the communities in which the Bank operates;
and
such other business as may properly come before the Special Meeting or any
adjournment thereof. Management is not aware of any such other business.
The members who shall be entitled to notice of and to vote at the
Special Meeting and any adjournment thereof are depositors of the Bank at the
close of business on _______ __, 1997 and borrowers of the Bank as of ________
__, ____ and _______ __, 1997 who continue to be depositors and borrowers as of
the date of the Special Meeting. In the event there are not sufficient votes for
approval of the Plan of Conversion at the time of the Special Meeting, the
Special Meeting may be adjourned from time to time in order to permit further
solicitation of proxies.
BY ORDER OF THE BOARD OF DIRECTORS
Paul Nadzikewycz
Chairman of the Board
Chicago, Illinois
________ __, 1997
- --------------------------------------------------------------------------------
YOUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE
FOR APPROVAL OF THE PLAN OF CONVERSION BY COMPLETING THE
ENCLOSED PROXY CARD AND RETURNING IT IN THE ENCLOSED
POSTAGE-PAID ENVELOPE AS SOON AS POSSIBLE.
YOUR VOTE IS VERY IMPORTANT.
- --------------------------------------------------------------------------------
<PAGE>
SUMMARY OF PROPOSED CONVERSION
This summary does not purport to be complete and is qualified in its
entirety by the more detailed information contained in the remainder of this
Proxy Statement and the accompanying Prospectus.
Under its present "mutual" form of organization, First Security 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 Holding Company (the "Conversion"). The Holding Company will
offer and sell its common stock (the "Common Stock") in an offering to (1)
account holders with an account balance of $50 or more on December 31, 1995
("Eligible Account Holders"), (2) tax-qualified employee plans of the Bank and
the Holding Company ("Tax- Qualified Employee Plans") provided, however, that
the Tax-Qualified Employee Plans shall have first priority Subscription Rights
to the extent that the total number of shares of Common Stock sold in the
Conversion exceeds the maximum of the appraisal range, (3) account holders of
the Bank with an account balance of $50 or more as of __________ __, 1997
("Supplemental Eligible Account Holders"), (4) certain other members of the Bank
as of ________ __, 1997 who are not Eligible or Supplemental Eligible Account
Holders ("Other Members") and (5) employees, officers and directors of the Bank
(the "Subscription Offering"). It is anticipated that Tax-Qualified Employee
Plans will purchase 8% of the Common Stock sold in the Conversion.
To the extent the Common Stock is not all sold to the persons in the
foregoing categories, the Holding Company may offer and sell the remainder of
the Common Stock in a direct community offering ("Direct Community Offering") or
public offering ("Public Offering") through Friedman, Billings, Ramsey & Co.,
Inc. ("FBR") to selected persons to whom a prospectus (the "Prospectus") is
delivered. The Subscription Offering and the Public Offering and/or Direct
Community Offering are referred to collectively as the "Offering." Voting and
liquidation rights with respect to the Bank would thereafter be held by the
Holding Company, except to the limited extent of the liquidation account (the
"Liquidation Account") that will be established for the benefit of Eligible and
Supplemental Eligible Account Holders of the Bank and voting and liquidation
rights in the Holding Company would be held only by those persons who become
stockholders of the Holding Company through purchase of shares of its Common
Stock. See "Description of the Plan of Conversion - Principal Effects of
Conversion - Liquidation Rights of Depositor Members."
THE CONVERSION WILL NOT AFFECT THE BALANCE, INTEREST RATE OR FEDERAL
INSURANCE PROTECTION OF ANY SAVINGS DEPOSIT, AND NO PERSON WILL BE OBLIGATED TO
PURCHASE ANY STOCK IN THE CONVERSION.
Business Purposes
for Conversion Net Conversion proceeds are expected to increase the
capital of First Security, which will support the
expansion of its financial services to the public.
The conversion to stock form and the use of a
holding company structure are also expected to
enhance its ability to expand through possible
mergers and acquisitions (although no such
transactions are contemplated at this time) and will
facilitate its future access to the capital markets.
The Bank will continue to be subject to
comprehensive regulation and examination by the
Office of Thrift Supervision, Department of Treasury
("OTS") and the Federal Deposit Insurance
Corporation ("FDIC").
i
<PAGE>
Subscription Offering As part of the Conversion, Common Stock is being
offered for sale in the Subscription Offering, in
the priorities summarized below, to the 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. If necessary, all shares of Common Stock
not purchased in the Subscription Offering, if any,
may be offered in connection with the Public
Offering and/or Direct Community Offering for sale
to selected persons through FBR.
Subscription Rights of
Eligible Account Holders Each Eligible Account Holder has been given
non-transferable rights to subscribe for an amount
equal to the greater of $250,000 of Common Stock,
one-tenth of one percent of the total number of
shares offered in the Subscription Offering or 15
times the product (rounded down to the whole next
number) obtained by multiplying the total number of
shares to be issued by a fraction of which the
numerator is the amount of qualifying deposits of
such subscriber and the denominator is the total
qualifying deposits of all account holders in this
category on the qualifying date.
Subscription Rights of
Tax-Qualified
Employee Plans The Bank's Tax-Qualified Employee Plans have been
given non-transferable rights to subscribe,
individually and in the aggregate, for up to 10% of
the total number of shares sold in the Conversion
after satisfaction of subscriptions of Eligible
Account Holders. Notwithstanding the foregoing, to
the extent orders for shares exceed the maximum of
the appraisal range, Tax-Qualified Employee Plans
shall be afforded a first priority to purchase
shares sold above the maximum of the appraisal
range. It is anticipated that Tax-Qualified Employee
Plans will purchase 8% of the Common Stock sold in
the Conversion.
Subscription Rights of
Supplemental Eligible
Account Holders After satisfaction of subscriptions of Eligible
Account Holders and Tax- Qualified Employee Plans,
each Supplemental Eligible Account Holder (other
than directors and officers of the Bank) has been
given non-transferable rights to subscribe for an
amount equal to the greater of $250,000 of Common
Stock, one-tenth of one percent of the total number
of shares offered in the Conversion or 15 times the
product (rounded down to the whole next number)
obtained by multiplying the total number of shares
to be issued by a fraction of which the numerator is
the amount of qualifying deposits of such subscriber
and the denominator is the total qualifying deposits
of all account holders in this category on the
qualifying date. The subscription rights of each
Supplemental Eligible Account Holder shall be
reduced to the extent of such person's subscription
rights as an Eligible Account Holder.
Subscription Rights of
Other Members Each Other Member has been given non-transferable
rights to subscribe for an amount equal to the
greater of $250,000 of Common Stock or one-tenth of
one percent of the total number of shares offered in
the Conversion after satisfaction of the
subscriptions of the Bank's Eligible Account
Holders, Tax-Qualified Employee Plans and
Supplemental Eligible Account Holders.
ii
<PAGE>
Subscription Rights of
Bank Personnel Each individual employee, officer and director of
the Bank has been given the right to subscribe for
an amount equal to the greater of $250,000 of Common
Stock after satisfaction of the subscriptions of
Eligible Account Holders, Tax-Qualified Employee
Plans, Supplemental Eligible Account Holders and
Other Members. Total shares subscribed for by the
employees, officers and directors in this category
may not exceed 20% of the total shares offered in
the Conversion.
Public Offering and/or
Direct Community Offering Subject to prior rights of holders of subscription
rights, the Holding Company may also offer the
Common Stock for sale to selected persons through
FBR in a Public Offering and/or Direct Community
Offering.
Purchase Limitations No person may purchase more than $250,000 of Common
Stock in the Subscription Offering. No person,
together with associates, and persons acting in
concert, may purchase more than $750,000 of Common
Stock in the Conversion. No person, together with
associates of and persons acting in concert with
such person, may purchase more than $250,000 of
Common Stock in the Public Offering and/or Direct
Community Offering. The aggregate purchases of
directors and executive officers and their
associates may not exceed 30% of the total number of
shares offered in the Conversion. These purchase
limitations do not apply to the Bank's Tax-Qualified
Employee Plans.
Expiration Date of the
Subscription Offering All subscriptions for Common Stock in connection
with the Subscription Offering must be received by
noon, Chicago, Illinois Time on _____ __, 199_.
How to Subscribe for
Shares For information on how to subscribe for Common Stock
being offered in the Subscription Offering, please
read the Prospectus and the order form and
instructions accompanying this Proxy Statement.
Subscriptions will not become effective until the
Plan of Conversion has been approved by the Bank's
members and all of the Common Stock offered in the
Conversion has been subscribed for or sold in the
Offering or through such other means as may be
approved by the OTS.
Price of Common Stock All sales of Common Stock in the Offering will be
made at the same price per share which is currently
expected to be $10.00 per share on the basis of an
independent appraisal of the pro forma market value
of the Bank and the Holding Company upon Conversion.
On the basis of a preliminary appraisal by FinPro,
Inc. ("FinPro"), which has been reviewed by the OTS,
a minimum of _________ and a maximum of _________
shares will be offered in the Conversion. See "The
Conversion - Stock Pricing and Number of Shares to
be Issued" in the Prospectus.
Tax Consequences The Bank has received an opinion from its special
counsel, Silver, Freedman & Taff, L.L.P., stating
that the Conversion is a nontaxable reorganization
under Section 368(a)(1)(F) of the Internal Revenue
Code. The Bank has also received an opinion from
Crowe, Chizek and Company LLP ("Crowe Chizek")
stating that the Conversion will not be a taxable
transaction for Illinois 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.
iii
<PAGE>
YOUR BOARD OF DIRECTORS URGES YOU TO VOTE FOR
THE PLAN OF CONVERSION
SUMMARY OF PROPOSED STOCK CONTRIBUTION TO CHARITABLE FOUNDATION
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.
As a reflection of the Bank's long-standing commitment to the local
community, in 1996, the Bank established The Heritage Foundation of First
Security Federal Savings Bank, Inc., a private charitable foundation under the
Illinois General Not-For-Profit Corporation Act. The Foundation was established
as a means of supporting the needs of the local community while simultaneously
increasing the visibility and reputation of the Bank. The Foundation was
initially funded by the Bank through several cash contributions aggregating $2.5
million, all of which were accrued by the Bank during the fourth quarter of
1996. In addition, under the Plan and subject to member approval, the Holding
Company will contribute to the Foundation 250,000 shares of its Common Stock
(the "Stock Contribution"). The Stock Contribution will be either in the form of
a direct contribution or a sale of the shares for their aggregate par value
($.01 per share). The Holding Company believes that the Stock Contribution will
be fully tax-deductible at $10.00 per share for both federal tax and state
income tax purposes.
Purpose of the Stock
Contribution The Holding Company and the Bank believe that the
funding of the Foundation with Common Stock of the
Holding Company is a means of reinforcing the bond
among the Bank and the communities in which the Bank
operates, thereby enabling such communities to share
in the potential growth and success of the Holding
Company over the long-term. Although the Stock
Contribution will result in a reduction in the
Holding Company's conversion appraisal (but not in
its pro forma capital per share or earnings per
share), the Board believes that the Stock
Contribution will enhance the long term value of the
Bank's franchise by increasing customer loyalty as
well as the size of its customer base. The Board
believes that customer loyalty and community support
are critical for the success of community oriented
institutions such as the Bank.
The Board believes that the Stock Contribution will
facilitate the support of charitable activities even
during periods when the Holding Company may not be
in a position to support such activities.
(Similarly, the Stock Contribution could enable the
Foundation to offset the impact of variations in
contribution levels from the Holding Company by
accumulating funds during periods of relatively
large contributions and disbursing such funds during
periods of relatively small contributions.) In
addition, the Board believes that the Stock
Contribution will have a highly beneficial public
relations impact. Finally, the Board believes that
the Stock Contribution will facilitate the
participation of non-Holding Company personnel in
charitable activities. The Board believes that the
Stock Contribution on the terms described herein
represents an opportunity to make a significant
charitable contribution which will benefit the
Holding Company and the Bank at a time when they
have adequate capital, are not yet subject to
possible earnings pressure resulting from the
Holding Company's status as a public company and
there is a need for charitable funding in the Bank's
market area.
iv
<PAGE>
Structure of the
Foundation The Foundation is a private foundation under the
Internal Revenue Code of 1986, as amended (the
"Code"). As a private foundation, the Foundation is
required to distribute annually in grants or
donations at least 5% of its net investment assets.
The Foundation is dedicated to the promotion of
charitable purposes within the communities in which
the Bank operates, including, but not limited to,
providing grants or donations to community groups,
cultural activities, youth and elder care and other
types of organizations or projects. While the
Foundation is authorized to engage directly in
charitable activities, in order to limit overhead
costs, it is currently anticipated that the
Foundation's primary activity will consist of making
grants to other charitable organizations.
The authority for the affairs of the Foundation is
vested in the Board of Trustees of the Foundation
which is comprised of Chairman Nadzikewycz,
President Kulas and Director Gawryk. Such persons
excused themselves from voting on the Stock
Contribution. Under the terms of the Foundation's
articles of incorporation, new trustees may be
selected only by the Foundation's Board of Trustees.
The Foundation's articles of incorporation provide
that the earnings of the Foundation shall not result
in any private benefit for its members, trustees or
officers. In addition, it is anticipated that the
Foundation will adopt a conflicts of interest policy
to protect against inappropriate benefits for
trustees or officers. While these provisions would
not prohibit the payment of reasonable compensation
for services rendered, the members of the Board of
Trustees do not currently receive fees for service
on the Board.
The Stock Contribution If approved by members, the Stock Contribution will
be made within twelve months following the
completion of the Conversion. However, as discussed
below, the Holding Company will recognize the
expense related to the Stock Contribution in the
quarter in which the Conversion is completed. Once
made, the Stock Contribution will not be recoverable
by the Company or the Bank. The Foundation may
receive working capital from any dividends that may
be paid on the Company's Common Stock in the future
and, subject to applicable federal and state laws,
from loans collateralized by the Common Stock or
from the proceeds of the sale of any of the Common
Stock in the open market from time to time as may be
permitted to provide the Foundation with additional
liquidity. One of the conditions imposed on the gift
of Common Stock by the Company is that the amount of
Common Stock that may be sold by the Foundation in
any one year shall not exceed 5% of the average
market value of the assets held by the Foundation,
except where the Board of Trustees of the
Foundation, by three-fourths vote, determines that
the failure to sell an amount of Common Stock
greater than such amount would result in a long-term
reduction in the value of the Foundation's assets
and as such would jeopardize the Foundation's
capacity to carry out its charitable purposes. The
Stock Contribution is also subject to certain
conditions imposed by the OTS in connection with its
approval of the Conversion.
v
<PAGE>
The Stock Contribution is subject to the approval of
a majority of the total outstanding votes of the
Bank's members eligible to be cast at the Special
Meeting. The Stock Contribution will be considered
as a separate matter from the vote to approve the
Plan of Conversion. If the Bank's members approve
the Plan of Conversion, but not the Stock
Contribution, the Bank intends to complete the
Conversion without the Stock Contribution.
Regulatory Conditions
Imposed on the Foundation The Stock Contribution is subject to the following
conditions imposed by the OTS: (i) the Foundation
will be subject to examination by the OTS, at the
Foundation's own expense; (ii) the Foundation must
comply with supervisory directives imposed by the
OTS; (iii) the Foundation will provide annual
reports to the OTS describing grants made and grant
recipients; (iv) the Foundation will operate in
accordance with written policies adopted by the
board of directors, including a conflict of interest
policy; (v) the Foundation will not engage in
self-dealing and will comply with all laws necessary
to maintain its tax-exempt status; and (vi) any
shares of Common Stock of the Holding Company held
by the Foundation must be voted in the same ratio as
all other shares of the Holding Company's Common
Stock on all proposals considered by stockholders of
the Holding Company; provided, however, that the OTS
will waive this voting restriction under certain
circumstances if compliance with the voting
restriction would: (a) cause a violation of the law
of the State of Illinois and the OTS determines the
federal law does not preempt the application of the
laws of the State of Illinois to the Foundation; (b)
cause the Foundation to lose its tax-exempt status
or otherwise have a material and adverse tax
consequence on the Foundation; or (c) cause the
Foundation to be subject to an excise tax under
Section 4941 of the Code. In order for the OTS to
waive such voting restriction, the Holding Company's
or the Foundation's legal counsel must render an
opinion satisfactory to OTS that compliance with the
voting restriction would have the effect described
in clauses (a), (b) or (c) above. Under those
circumstances, the OTS will grant a waiver of the
voting restriction upon submission of such
opinion(s) by the Holding Company or the Foundation.
YOUR BOARD OF DIRECTORS URGES YOU TO VOTE FOR
THE STOCK CONTRIBUTION TO THE HERITAGE FOUNDATION OF
FIRST SECURITY FEDERAL SAVINGS BANK, INC.
vi
<PAGE>
FIRST SECURITY FEDERAL SAVINGS 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 First Security Federal
Savings Bank ("First Security" or the "Bank") of the proxies to be voted at the
Special Meeting of Members (the "Special Meeting") of the Bank to be held at the
Bank's main office located at 936 North Western Avenue, Chicago, Illinois
60622-4695, on ________ __, 1997 at __:__ _.m., Chicago, Illinois 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 "Conversion") from a federally chartered mutual savings bank into
a federally chartered stock savings bank, the concurrent sale of all the common
stock of the stock savings bank to First SecurityFed Financial, Inc. (the
"Holding Company"), a Delaware corporation, and the sale by the Holding Company
of shares of its common stock (the "Common Stock") The Special Meeting is also
being held to consider and vote upon the contribution of 250,000 shares of
common stock of the Holding Company to The Heritage Foundation of First Security
Federal Savings Bank, Inc. ("the Foundation"), a charitable organization
dedicated to the promotion of charitable purposes within the communities in
which the Bank operates and such other business as may properly come before the
meeting and any adjournment thereof.
RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS OF THE BANK UNANIMOUSLY RECOMMENDS THAT YOU VOTE
TO APPROVE THE PLAN OF CONVERSION AND IN FAVOR OF THE CONTRIBUTION TO THE
HERITAGE FOUNDATION OF FIRST SECURITY FEDERAL SAVINGS BANK , INC. OF 250,000
SHARES OF HOLDING COMPANY COMMON STOCK.
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
Holding Company, which was recently formed to become the holding company of the
Bank, will substantially increase the Bank's net worth. The Holding Company will
exchange 50% of the net proceeds from the sale of the Common Stock for the
common stock of the Bank to be issued upon Conversion. The Holding Company
expects to retain the balance of the net proceeds as its initial capitalization,
a portion of which the Holding Company intends to lend to the ESOP to fund its
purchase of Common Stock. This increased capital will support the expansion of
the 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 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.
The Board of Directors of the Holding Company intends to adopt a stock option
and incentive plan and a recognition and retention plan, subject to approval of
Holding Company stockholders following completion of the Conversion. 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.
As a reflection of the Bank's long-standing commitment to the local
community, in 1996, the Bank established The Heritage Foundation of First
Security Federal Savings Bank, Inc., a private charitable foundation under the
Illinois General Not-For-Profit Corporation Act. The Foundation was established
as a means of supporting the needs of the local community while simultaneously
increasing the visibility and reputation of the Bank. The Foundation was
initially funded by the Bank through several cash contributions aggregating $2.5
million, all of which were accrued by the Bank during the fourth quarter of
1996. In addition, under the Plan and subject to member approval, the Holding
1
<PAGE>
Company will contribute to the Foundation 250,000 shares of its Common Stock
(the "Stock Contribution"). The Stock Contribution will be either in the form of
a direct contribution or a sale of the shares for their aggregate par value
($.01 per share). The Holding Company believes that the Stock Contribution will
be fully tax-deductible at $10.00 per share for both federal tax and state
income tax purposes.
The Holding Company and the Bank believe that the funding of the
Foundation with Common Stock of the Holding Company is a means of reinforcing
the bond among the Bank and the communities in which the Bank operates, thereby
enabling such communities to share in the potential growth and success of the
Holding Company over the long-term. Although the Stock Contribution will result
in a reduction in the Holding Company's conversion appraisal (but not in its pro
forma capital per share or earnings per share), the Board believes that the
Stock Contribution will enhance the long term value of the Bank's franchise by
increasing customer loyalty as well as the size of its customer base. The Board
believes that customer loyalty and community support are critical for the
success of community oriented institutions such as the Bank.
Voting in favor of the Contribution to the Foundation will not obligate
any person to purchase any Common Stock.
THE OFFICE OF THRIFT SUPERVISION ("OTS") HAS APPROVED THE PLAN OF
CONVERSION SUBJECT TO THE APPROVAL OF THE 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.
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 depositors of record as of the close of business
on the Voting Record Date and borrowers as of ________ __, ____ and the Voting
Record Date who continue to be depositors and borrowers as of the date of the
Special Meeting will be entitled to vote at the Special Meeting or any
adjournment thereof.
Each depositor member (including IRA and Keogh account beneficiaries)
will be entitled at the Special Meeting to cast one vote for each $100, or
fraction thereof, of the aggregate withdrawal value of all of such depositor's
accounts in the Bank as of the Voting Record Date, up to a maximum of 1,000
votes. In general, accounts held in different ownership capacities will be
treated as separate memberships for purposes of applying the 1,000 vote
limitation. For example, if two persons hold a $100,000 account in their joint
names and each of the persons also holds a separate account for $100,000 in his
own name, each person would be entitled to 1,000 votes for each separate account
and they would together be entitled to cast 1,000 votes on the basis of the
joint account. Where no proxies are received from IRA and Keogh account
beneficiaries, after due notification, the Bank, as trustee of these accounts,
is entitled to vote these accounts in favor of the Plan of Conversion. Each
member borrower is entitled to one vote in addition to any other vote the
borrower may otherwise have.
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. Approval of the contribution of 250,000 shares of
Holding Company Common Stock to the Foundation will also require the affirmative
vote of a majority of the total outstanding votes of the Bank's members eligible
to be cast at the Special Meeting. As of _______ __, 1997, the Bank had
approximately ______ members who were entitled to cast a total of approximately
_________ 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.
2
<PAGE>
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 and the establishment of the charitable
foundation. 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 and 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 or the Foundation. As a result,
failure to vote may have the same effect as a vote against the Plan of
Conversion and the Foundation.
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. In addition,
FBR will assist the Bank in the solicitation of proxies. 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.
DESCRIPTION OF THE PLAN OF CONVERSION
The Plan of Conversion to be presented for approval at the Special
Meeting provides for the Conversion to be accomplished through adoption of
amended charter and bylaws for the Bank to authorize the issuance of capital
stock along with the concurrent formation of a holding company. As part of the
Conversion, the Plan of Conversion provides for the subscription offering (the
"Subscription Offering") of the Common Stock to the 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 __________ __, 1997); (iv) Other Members (deposit account holders
eligible to vote at the Special Meeting who are not as Eligible Account Holders
or Supplemental Eligible Account Holders); and (v) the 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 Conversion. If necessary, all shares
of Common Stock not purchased in the Subscription Offering, if any, may be
offered to selected persons in connection with the Public Offering and/or Direct
Community Offering through FBR.
THE SUBSCRIPTION OFFERING HAS COMMENCED AS OF THE DATE OF MAILING OF
THIS PROXY STATEMENT. A PROSPECTUS EXPLAINING THE TERMS OF THE SUBSCRIPTION
OFFERING, INCLUDING HOW TO ORDER AND PAY FOR SHARES AND DESCRIBING THE BUSINESS
OF THE 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 OFFERING EXPIRES AT NOON, CHICAGO, ILLINOIS 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 Holding Company with the approval of the OTS. This 45-day period expires
________ __, 1997 unless the Subscription Offering is extended. If this is not
possible, an occurrence that is currently not anticipated, the Board of
Directors of the Bank and the Holding Company will consult with the OTS to
determine an appropriate alternative method of selling all unsubscribed shares
offered in the Conversion. The Plan of Conversion provides that the Conversion
must be completed within 24 months after the date of the Special Meeting.
The Public Offering and/or Direct Community Offering or any other sale
of the unsubscribed shares will be made as soon as practicable after the
completion of the Subscription Offering. No sales of shares may be completed,
either in the Subscription Offering or otherwise, unless the Plan of Conversion
is approved by the members of the Bank.
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The commencement and completion of the 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 Public Offering and/or Direct Community
Offering or other sale of the Common Stock to be offered in the Conversion. If
delays are experienced, significant changes may occur in the estimated pro forma
market value of the Holding Company's Common Stock, together with corresponding
changes in the offering price and the net proceeds realized by the Bank and the
Holding Company from the sale of the Common Stock. The Bank and the Holding
Company may also incur substantial additional printing, legal, accounting and
other expenses in completing the Conversion.
The following is a brief summary of the Conversion and is qualified in
its entirety by reference to the Plan of Conversion, a complete copy of which is
attached hereto. The Bank's federal stock charter and bylaws that will become
effective upon completion of the Conversion are available from the Bank upon
request. A copy of the Holding Company's articles of incorporation and bylaws
are also available from the Bank upon request.
Principal Effects of Conversion
Depositors. The Conversion will not change the amount, interest rate,
withdrawal rights or federal insurance protection of deposit accounts, or affect
deposit accounts in any way other than with respect to voting and liquidation
rights as discussed below.
Borrowers. The rights and obligations of borrowers under their loan
agreements with the 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 Members. 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 Holding 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 Holding Company through the purchase of its Common Stock.
Voting rights in the Holding Company will be held exclusively by its
stockholders.
Liquidation Rights of Depositor Members. Currently, in the unlikely
event of liquidation of the 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 Conversion and then to the Holding 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 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 Holding 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 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 ________ __, 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
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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. Under federal law, the stock savings bank resulting from the
Conversion will be deemed to be a continuation of the mutual savings bank rather
than a new entity and will continue to have all of the rights, privileges,
properties, assets and liabilities of the Bank prior to the Conversion. The
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
Conversion, other than to pay the expenses incident thereto. After the
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
Conversion will not cause any change in the executive officers or directors of
the Bank.
Tax Consequences. Consummation of the Conversion is expressly
conditioned upon prior receipt of either a ruling of the United States Internal
Revenue Service ("IRS") or an opinion letter of the Bank's counsel with respect
to federal taxation, and either a ruling of the Illinois taxation authorities or
an opinion letter with respect to Illinois taxation, to the effect that the
Conversion will not be a taxable transaction to the Holding Company, the Bank or
the Bank's deposit account holders receiving subscription rights.
The Bank has received an opinion of its special counsel, Silver,
Freedman & Taff, L.L.P., to the effect that (i) the Conversion will qualify as a
reorganization under Section 368(a)(1)(F) of the Internal Revenue Code of 1986,
as amended, and no gain or loss will be recognized to the Bank in either its
mutual form or its stock form by reason of the proposed Conversion, (ii) no gain
or loss will be recognized to the Bank in its stock form upon the receipt of
money and other property, if any, from the Holding Company for the stock of the
Bank; and no gain or loss will be recognized to the Holding Company upon the
receipt of money for Common Stock of the Holding Company; (iii) the assets of
the Bank in either its mutual or its stock form will have the same basis before
and after the Conversion; (iv) the holding period of the assets of the Bank in
its stock form will include the period during which the assets were held by the
Bank in its mutual form prior to Conversion; (v) gain, if any, will be realized
by the depositors of the Bank upon the constructive issuance to them of
withdrawable deposit accounts of the Bank in its stock form, nontransferable
subscription rights to purchase Holding Company Common Stock and/or interests in
the Liquidation Account (any such gain will be recognized by such depositors,
but only in an amount not in excess of the fair market value of the subscription
rights and Liquidation Account interests received); (vi) the basis of the
account holder's savings accounts in the Bank after the Conversion will be the
same as the basis of his or her savings accounts in the Bank prior to the
Conversion; (vii) the basis of each account holder's interest in the Liquidation
Account is assumed to be zero; (viii) based on the FinPro Letter, as hereinafter
defined, the basis of the subscription rights will be zero; (ix) the basis of
the Holding Company Common Stock to its stockholders will be the purchase price
thereof; (x) a stockholder's holding period for Holding Company Common Stock
acquired through the exercise of subscription rights shall begin on the date on
which the subscription rights are exercised and the holding period for the
Conversion Stock purchased in the Offering will commence on the date following
the date on which such stock is purchased; (xi) the Bank in its stock form will
succeed to and take into account the earnings and profits or deficit in earnings
and profits, of the Bank, in its mutual form, as of the date of Conversion;
(xii) the Bank, immediately after Conversion, will succeed to and take into
account the bad debt reserve accounts of the Bank, in mutual form, and the bad
debt reserves will have the same character in the hands of the Bank after
Conversion as if no Conversion had occurred; and (xiii) the creation of the
Liquidation Account will have no effect on the Bank's taxable income, deductions
or addition to reserve for bad debts either in its mutual or stock form.
The opinion from Silver, Freedman & Taff, L.L.P. is based, among other
things, on certain assumptions, including the assumptions that the exercise
price of the Subscription Rights to purchase Holding Company Common Stock will
be approximately equal to the fair market value of that stock at the time of the
completion of the proposed Conversion. With respect to the Subscription Rights,
the Bank will receive a letter from FinPro (the "FinPro Letter") which, based on
certain assumptions, will conclude that the Subscription Rights to be received
by Eligible Account Holders, Supplemental Eligible Account Holders and other
eligible subscribers do not have any economic value at the time of distribution
or at the time the Subscription Rights are exercised, whether or not a Direct
Community or Public Offering takes place.
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The Bank has also received an opinion of Silver, Freedman & Taff,
L.L.P. 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 exercise of
non-transferable Subscription Rights to purchase shares of Holding Company
Common Stock at fair market value; (ii) no taxable income will be recognized by
borrowers, directors, officers and employees of the Bank on the receipt or
exercise of Subscription Rights to purchase shares of Holding Company Common
Stock at fair market value; and (iii) no taxable income will be realized by the
Bank or Holding Company on the issuance of Subscription Rights to eligible
subscribers to purchase shares of Holding Company Common Stock at fair market
value.
Notwithstanding the FinPro Letter, if the Subscription Rights are
subsequently found to have a fair market value and are deemed a distribution of
property, it is Silver, Freedman & Taff, L.L.P.'s opinion that gain or income
will be recognized by various recipients of the Subscription Rights (in certain
cases, whether or not the rights are exercised) and the Bank and/or the Holding
Company may be taxable on the distribution of the Subscription Rights.
With respect to Illinois taxation, the Bank has received an opinion
from Crowe, Chizek and Company LLP to the effect that the Illinois tax
consequences to the Bank, in its mutual or stock form, the Holding Company,
eligible account holders, parties receiving Subscription Rights, parties
purchasing conversion stock, and other parties participating in the Conversion
will be the same as the federal income tax consequences described above.
Unlike a private letter ruling, the opinions of Silver, Freedman &
Taff, L.L.P. and Crowe, Chizek and Company 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 Delaware or Illinois tax authorities.
Approval, Interpretation, Amendment and Termination
Under the Plan of Conversion, the letter from the OTS giving approval
thereto, and applicable regulations, consummation of the Conversion is subject
to the satisfaction of the following conditions: (a) approval of the Plan of
Conversion by members of the 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 Conversion; and (c) receipt of favorable rulings or
opinions of counsel as to the federal and Illinois tax consequences of the
Conversion.
The Plan of Conversion may be substantively amended by the Boards of
Directors of the Bank and the Holding Company with the concurrence of the OTS.
If the Plan of Conversion is amended, proxies which have been received prior to
such amendment will not be resolicited unless otherwise required by the OTS.
Also, as required by the federal regulations, the Plan of Conversion provides
that the transactions contemplated thereby may 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 Holding Company of the Plan of Conversion and of the order forms and
related materials for the Subscription Offering will be final, except as regards
or affects the OTS.
Judicial Review
Section 5(i)(2)(B) of the Home Owners' Loan Act, as amended, 12 U.S.C.
ss.1464(i)(2)(B) and Section 563b.8(u) of the Rules and Regulations promulgated
thereunder (12 C.F.R. Section 563b.8(u)) provide: (i) that persons aggrieved by
a final action of the OTS which approves, with or without conditions, or
disapproves a plan of conversion, may obtain review of such final action only by
filing a written petition in the United States Court of Appeals for the circuit
in which the principal office or residence of such person is located, or in the
United States Court of Appeals for the District of Columbia, requesting that the
final action of the OTS be modified, terminated or set aside, and (ii) that such
petition must be filed within 30 days after publication of notice of such final
action in the Federal Register, or 30 days after the date of mailing of the
notice and proxy statement for the meeting of the converting institution's
members at which the conversion is to be voted on, whichever is later. The
notice of the Special Meeting of the 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.
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DESCRIPTION OF THE STOCK CONTRIBUTION TO THE
HERITAGE FOUNDATION OF FIRST SECURITY FEDERAL SAVINGS BANK, INC.
Stock Contribution to the Charitable Foundation
General. As a reflection of the Bank's long-standing commitment to the
local community, the Bank established during 1996 The Heritage Foundation of
First Security Federal Savings Bank, Inc., a private charitable foundation under
the Illinois General Not For Profit Corporation Act. The Foundation was
established as a means of supporting the needs of the local community while
simultaneously increasing the visibility and reputation of the Bank. The
Foundation was initially funded by the Bank through a series of cash
contributions aggregating $2.5 million, all of which were accrued by the Bank
during the fourth quarter of 1996. In addition, under the Plan and subject to
member approval, the Holding Company will contribute to the Foundation 250,000
shares of its Common Stock. The Stock Contribution will either be in the form of
a direct contribution or a sale of the shares for their aggregate par value
($.01 per share).
The Stock Contribution will be considered as a separate matter from the
proposal to approve the Plan of Conversion. If the Bank's members approve the
Plan of Conversion, but not the Stock Contribution, the Bank intends to complete
the Conversion without the Stock Contribution. Failure to approve the Stock
Contribution may materially affect the pro forma market value of the Common
Stock. If the resulting pro forma market value of the Common Stock (not
including the shares to be issued pursuant to the Stock Contribution) is less
than $____ million or more than $____ million, or if the OTS otherwise requires
a resolicitation, the Bank will establish a new Estimated Price Range and
commence a resolicitation of subscribers. In the event of a resolicitation,
unless an affirmative response is received within a specified period of time,
all funds will be promptly returned to investors, as described elsewhere herein.
See "The Conversion -- Stock Pricing and Number of Shares to be Issued" in the
Prospectus.
Purpose of the Stock Contribution. The purpose of the Foundation is to
provide funding to support charitable purposes within the communities in which
the Bank operates. The Bank has long emphasized community lending and community
development activities and currently has a satisfactory rating under the
Community Reinvestment Act ("CRA"). The Foundation is a complement to the Bank's
existing community activities, not a replacement for such activities.
The Foundation is a means of supporting the needs of the local
community while simultaneously increasing the visibility and reputation of the
Bank. The Holding Company and the Bank believe that the funding of the
Foundation with Common Stock of the Holding Company is a means of establishing a
common bond between the Bank and the communities in which the Bank operates
thereby enabling such communities to share in the potential growth and success
of the Holding Company over the long-term. Although the Stock Contribution will
result in a reduction in the Holding Company's conversion appraisal and pro
forma capital (although not in its pro forma capital per share), the Board
believes that the Stock Contribution will enhance the long term value of the
Bank's franchise by increasing customer loyalty as well as the size of its
customer base. The Board believes that customer loyalty and community support
are critical for the success of community oriented institutions such as the
Bank.
The Board believes that the Stock Contribution will enable the
Foundation to support charitable activities during periods when the Holding
Company may not be in a position to support such activities. (Similarly, the
Stock Contribution would enable the Foundation to offset the impact of
variations in contribution levels by accumulating funds during periods of
relatively large contributions from the Holding Company and disbursing such
funds during periods of relatively small contributions.) In addition, the Board
believes that the Stock Contribution will have a highly beneficial public
relations impact. Finally, the Board believes that the Stock Contribution will
facilitate the participation of non-Holding Company personnel in charitable
activities. The Board believes that the Stock Contribution represents an
opportunity to make a significant charitable contribution which will benefit the
Holding Company and the Bank at a time when they have adequate capital, they are
not yet subject to possible earnings pressure resulting from the Holding
Company's status as a public company and there is a need for charitable
donations in the Bank's market area.
Structure of the Foundation. The Foundation is a private foundation
under the Code. As a private foundation, the Foundation will be required to
distribute annually in grants or donations at least 5% of its net investment
assets. The Foundation is dedicated to the promotion of charitable purposes
within the communities in which the Bank operates, including, but not limited
to, providing grants or donations to support cultural activities, not-for-profit
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medical facilities, elder and youth care, community groups and other types of
organizations or projects. While the Foundation is authorized to engage directly
in charitable activities, in order to limit overhead costs, the Foundation's
primary activity currently consists of making grants to other charitable
organizations.
The authority for the affairs of the Foundation is vested in the Board
of Trustees of the Foundation which will initially be comprised of Chairman
Nadzikewycz, President Kulas and Director Gawryk. Although all of the
Foundation's initial trustees were selected by the Bank, future Foundation
trustees may be nominated and elected only by its Board of Trustees. As a
result, the Board of Trustees is self-perpetuating.
The Foundation's articles of incorporation provide that the earnings of
the Foundation shall not result in any private benefit for its members,
directors or officers. In addition, it is anticipated that the Foundation will
adopt a conflicts of interest policy to protect against inappropriate insider
benefits. While these provisions would not prohibit the payment of reasonable
compensation for services rendered, it is not currently contemplated that the
members of the Board of Trustees will receive fees for such service. Initially,
it is not contemplated that the Foundation will have any paid employees.
The trustees are responsible for establishing and carrying out the
policies of the Foundation with respect to grants or donations by the
Foundation, consistent with the purposes for which the Foundation was
established. The trustees of the Foundation are also responsible for directing
the activities of the Foundation, and managing its assets.
While the Foundation does not currently intend to purchase any shares
of the Common Stock on the open market, it is authorized to do so. The OTS has
informed the Holding Company that any such purchases would be deemed to be
repurchases by the Holding Company for the purposes of the OTS restrictions on
post-conversion stock repurchases.
Under the order of the OTS approving the Bank's conversion application,
all shares of Common Stock held by the Foundation, including those acquired
pursuant to the Stock Contribution, must be voted in the same ratio as all other
shares of the Holding Company's Common Stock on all proposals considered by
stockholders of the Holding Company; provided, however, that the OTS will waive
this voting restriction under certain circumstances if compliance with the
restriction would: (i) cause a violation of the law of the State of Illinois and
the OTS determines that federal law would not preempt the application of the
laws of the State of Illinois to the Foundation; (ii) cause the Foundation to
lose its tax-exempt status or otherwise have a material and adverse tax
consequence on the Foundation; or (iii) cause the Foundation to be subject to an
excise tax under Section 4941 of the Code. In order for the OTS to waive such
voting restriction, the Holding Company's or the Foundation's legal counsel must
render an opinion satisfactory to OTS that compliance with the voting
restriction would have the effect described in clauses (i), (ii) or (iii) above.
Under those circumstances, the OTS will grant a waiver of the voting
restrictions upon submission of such legal opinion(s) by the Holding Company or
the Foundation. In the event that the OTS waives the voting restriction, the
trustees would direct the voting of the Common Stock held by the Foundation.
However, a condition to the OTS approval of the Conversion provides that in the
event such voting restriction is waived or becomes unenforceable, the Director
of the OTS, or his designees, at that time may impose conditions on the
composition of the board of trustees of the Foundation or such other conditions
or restrictions relating to the control of the Common Stock held by the
Foundation, any of which could limit the ability of the board of trustees of the
Foundation to control the voting of the Common Stock held by the Foundation.
There are no agreements or understandings with trustees of the
Foundation regarding the exercise of control directly or indirectly, over the
management or policies of the Holding Company or the Bank, including agreements
related to voting, acquisition or disposition of the Holding Company's stock. As
trustees of a nonprofit corporation, trustees of the Foundation are at all times
bound by their fiduciary duty to advance the Foundation's charitable goals, to
protect the assets of the Foundation and to act in a manner consistent with the
charitable purposes for which the Foundation is established.
It is currently anticipated that the Foundation will adopt a policy
addressing affiliated transactions between the Foundation and the Holding
Company or the Bank. Transactions between the Foundation and the Bank will
comply with applicable provisions of Sections 23A and 23B of the Federal Reserve
Act, as amended. Additionally, the Holding Company (but not the Bank) may
provide office space and administrative support to the Foundation without
charge.
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The Stock Contribution. The Foundation was initially funded with an
aggregate of $2.5 million of contributions from the Bank. These contributions
were accrued during 1996. In addition, under the terms of the Plan, the Holding
Company will contribute, either in the form of a donation in a sale for their
aggregate par value ($.01 per share), 250,000 shares to the Foundation, subject
to stockholder approval. Such Stock Contribution, once made, will not be
recoverable by the Holding or the Bank. The Holding Company and the Bank
determined to make the Stock Contribution with Common Stock rather than cash
because it desired to form a bond with its community in a manner that would
allow the community to share in the potential growth and success of the Holding
Company and the Bank over the long term. The funding of the Stock Contribution
with stock also provides the Foundation with a potentially larger endowment than
if the Holding Company contributed cash to the Foundation since, as a
shareholder, the Foundation will share in the potential growth and success of
the Holding Company. As such, the Stock Contribution of stock to the Foundation
has the potential to provide a self-sustaining funding mechanism which reduces
the amount of cash that the Holding Company, if it were not making the stock
contribution, would have to contribute to the Foundation in future years in
order to maintain a level amount of charitable grants and donations.
One of the conditions imposed on the gift of Common Stock by the
Holding Company is that the amount of Common Stock that may be sold by the
Foundation in any one year shall not exceed 5% of the average market value of
the assets held by the Foundation, except where the board of directors of the
Foundation, by three-fourths vote, determines that the failure to sell an amount
of common stock greater than such amount would result in a long-term reduction
of the value of the Foundation's assets and as such would jeopardize the
Foundation's capacity to carry out its charitable purposes. While there may be
greater risk associated with a one-stock portfolio in comparison to a
diversified portfolio, the Holding Company believes any such risk is mitigated
by the ability of the Foundation's trustees to sell more than 5% of its stock in
such circumstances. Upon completion of the Conversion and the Stock
Contribution, the Holding Company would have _______ , _______ and _______
shares issued and outstanding at the minimum, midpoint and maximum of the
Estimated Price Range. Because the Holding Company will have an increased number
of shares outstanding, the voting and ownership interest of shareholders in the
Holding Company's common stock would be diluted by __%, as compared to their
interests in the Holding Company if the Stock Contribution were not made. For
additional discussion of the dilutive effect, see "Comparison of Valuation and
Pro Forma Information With No Foundation" and "Pro Forma Data" in the
Prospectus.
If the Stock Contribution is approved by the members, the Holding
Company will recognize a $2.5 million expense (offset, in part, by a
corresponding tax deduction), during the quarter in which the Conversion is
completed, which is expected to be the third or fourth quarter of fiscal 1997.
Assuming an initial contribution of $2.5 million of stock, the Holding Company
estimates a net tax effected expense of $1.5 million. Such expense will likely
eliminate earnings in the quarter recognized and have a material adverse impact
on the Holding Company's earnings for fiscal year 1997. If the Stock
Contribution had been made at April 30, 1997, the Bank would have reported a net
loss of $_______ for the four months ended April 30, 1997 rather than net income
of $761,000. For further discussion of the Foundation and its impact on
purchasers in the Conversion, see "Risk Factors - Risks Associated with the
Stock Contribution to the Charitable Foundation" and "Pro Forma Data" in the
Prospectus.
Although the Stock Contribution will be accrued in the third or fourth
quarter of 1997 as described above, such contribution may be paid at any time
during the twelve month period following the completion of the Conversion. The
reason for permitting the Holding Company to pay the Stock Contribution in more
than one tax year is that the five year tax carry forward period commences on
the date of payment rather than the date of accrual and thus that, by paying the
initial contribution over a more than one tax year, the Holding Company can
lengthen the period over which the Stock Contribution may be carried forward for
tax purposes. See "--Tax Considerations" below.
Because the funding of the Foundation will result in dilution, it
reduced the conversion appraisal by approximately $___ million at the midpoint
of the Estimated Valuation Range. As a result, the pro forma capital of the
Holding Company will be $___ million lower at the midpoint of the Estimated
Valuation Range than it would have been without the Foundation. However, because
of the lower number of shares which are being offered (as a result of the lower
appraisal), per share capital and earnings will be essentially identical. See
"Comparison of Valuation and Pro Forma Information with No Stock Contribution"
in the Prospectus.
9
<PAGE>
As a result of the $___ million reduction of appraisal caused by the
Stock Contribution, the amount of shares purchased by directors and executive
officers, assuming the sale of the midpoint number of shares, increases from
___% to ___% of the shares sold. See "The Conversion--Participation by the Board
and Executive Officers" in the Prospectus.
Tax Considerations. The Holding Company has been advised by its
independent accountants that the Foundation qualifies as a 501(c)(3) exempt
organization under the Code, and is classified as a private foundation rather
than a public charity. A private foundation typically receives its support from
one person or one corporation whereas a public charity receives its support from
the public. The Foundation has submitted a request to the IRS to be recognized
as an exempt organization. As long as the IRS approves the application, the
effective date of the Foundation's status as a Section 501(c)(3) organization
will be the date of its organization.
A legal opinion of the OTS which addresses the establishment of
charitable foundations by savings associations opines that as a general rule
funds contributed to a charitable foundation should not exceed the deductible
limitation set forth in the Code, and if an association's contributions exceed
the deductible limit, such action must be justified by the board of directors.
In addition, under Delaware law, the Holding Company is authorized by statute to
make charitable contributions and case law has recognized the benefits of such
contributions to a Delaware corporation. In this regard, Delaware case law
provides that a charitable gift must merely be within reasonable limits as to
amount and purpose to be valid. Under the Code, the Holding Company may deduct
up to 10% of its taxable income in any one year and any contributions made by
the Holding Company in excess of the deductible amount will be deductible for
federal tax purposes over each of the five succeeding taxable years. The Holding
Company and the Bank believe that the conversion presents a unique opportunity
to make the Stock Contribution given the substantial amount of additional
capital being raised in the Conversion. In making such a determination, the
Holding Company and the Bank considered the dilutive impact of the Stock
Contribution on the conversion appraisal. See "Comparison of Valuation and Pro
Forma Information with No Stock Contribution" in the Prospectus. Based on such
considerations, the Holding Company and Bank believe that the contribution to
the Foundation in excess of the 10% annual limitation is justified given the
Bank's capital position and its earnings, the substantial additional capital
being raised in the Conversion and the potential benefits of the Foundation to
the Bank's community. In this regard, assuming the sale of the Common Stock at
the midpoint of the Estimated Valuation Range, the Holding Company would have
pro forma consolidated capital of $____ million of the Bank's pro forma
tangible, core and risk-based capital ratios would be ____%, ____% and ____%,
respectively. See "Regulatory Capital Compliance," "Capitalization," and
"Comparison of Valuation and Pro Forma Information with No Stock Contribution"
in the Prospectus. Thus, the amount of the contribution will not adversely
impact the financial condition of the Holding Company and the Bank, and the
Holding Company and the Bank therefore believe that the amount of the charitable
contribution is reasonable given the Holding Company and the Bank's pro forma
capital positions. As such, the Holding Company and the Bank believe that the
contribution does not raise safety and soundness concerns.
The Holding Company and the Bank have received an opinion of their
independent accountants that the Holding Company's contribution of its own stock
to the Foundation will not constitute an act of self-dealing, and that the
Holding Company will be entitled to a deduction in the amount of the $2.5
million, subject to a limitation based on 10% of the Holding Company's annual
taxable income. The Holding Company, however, would be able to carry forward any
unused portion of the deduction for five years following the year in which the
contribution is made for federal and Illinois tax purposes.
The Holding Company currently estimates that substantially all of the
Stock Contribution should be deductible. However, no assurances can be made that
the Holding Company will have sufficient pre-tax income over the periods
following the year in which the contributions are made to utilize fully the
carryover related to the excess contribution.
Although the Holding Company has received an opinion of its independent
accountants that the Holding Company is entitled to a deduction for the Stock
Contribution, there can be no assurances that the IRS will recognize the
Foundation as a Section 501(c)(3) exempt organization or that the deduction will
be permitted. In such event, the Holding Company's contribution to the
foundation would be expensed without tax benefit, resulting in a reduction in
earnings in the year in which the IRS makes such a determination. See "Risk
Factors - Risks Associated with the Stock Contribution to the Charitable
Foundation" in the Prospectus. In cases of willful, flagrant or repeated acts or
failures to act which result in violations of the IRS rules governing private
foundations, a private foundation's status
10
<PAGE>
as a private foundation may be involuntarily terminated by the IRS. In such
event, the managers of a private foundation could be liable for excise taxes
based on such violations and the private foundation could be liable for a
termination tax under the Code. The Foundation's certificate of incorporation
provides that it shall have a perpetual existence. In the event, however, the
Foundation were subsequently dissolved as a result of a loss of its tax exempt
status, the Foundation would be required under the Code and its articles of
incorporation to distribute any assets remaining in the Foundation at that time
for one or more exempt purposes within the meaning of Section 501(c)(3) of the
Code, or to distribute such assets to the federal government, or to a state or
local government, for a public purpose.
As a private foundation, earnings and gains, if any, from the sale of
Common Stock or other assets are exempt from federal and state corporate
taxation. However, investment income, such as interest, dividends and capital
gains, will be subject to a federal excise tax of 2.0%. The Foundation will be
required to make an annual filing with the IRS within four and one-half months
after the close of the Foundation's fiscal year to maintain its tax-exempt
status. The Foundation will be required to publish a notice that the annual
information return will be available for public inspection for a period of 180
days after the date of such public notice. The information return for a private
foundation must include, among other things, an itemized list of all grants made
or approved, showing the amount of each grant, the recipient, any relationship
between a grant recipient and the Foundation's managers and a concise statement
of the purpose of each grant.
Regulatory Conditions Imposed on the Foundation. The Stock Contribution
is subject to the following conditions imposed by the OTS: (i) the Foundation
will be subject to examination by the OTS, at the Foundation's own expense; (ii)
the Foundation must comply with supervisory directives imposed by the OTS; (iii)
the Foundation will provide annual reports to the OTS describing grants made and
grant recipients; (iv) the Foundation will operate in accordance with written
policies adopted by the board of directors, including a conflict of interest
policy; (v) the Foundation will not engage in self-dealing and will comply with
all laws necessary to maintain its tax-exempt status; and (vi) any shares of
Common Stock of the Holding Company held by the Foundation must be voted in the
same ratio as all other shares of the Holding Company's Common Stock on all
proposals considered by stockholders of the Holding Company; provided, however,
that the OTS will waive this voting restriction under certain circumstances if
compliance with the voting restriction would: (a) cause a violation of the law
of the State of Illinois and the OTS determines the federal law does not preempt
the application of the laws of the State of Illinois to the Foundation; (b)
cause the Foundation to lose its tax-exempt status or otherwise have a material
and adverse tax consequence on the Foundation; or (c) cause the Foundation to be
subject to an excise tax under Section 4941 of the Code. In order for the OTS to
waive such voting restriction, the Holding Company's or the Foundation's legal
counsel must render an opinion satisfactory to OTS that compliance with the
voting restriction would have the effect described in clauses (a), (b) or (c)
above. Under those circumstances, the OTS will grant a waiver of the voting
restriction upon submission of such opinion(s) by the Holding Company or the
Foundation. There can be no assurances that either a legal or tax opinion
addressing these issues will be rendered, or if rendered, that the OTS will
grant an unconditional waiver of the voting restriction. In this regard, a
condition to the OTS approval of the Conversion provides that in the event such
voting restriction is waived or becomes unenforceable, the Director of the OTS,
or his designees, at that time may impose conditions on the composition of the
board of trustees of the Foundation to control the voting of Common Stock held
by the Foundation. In no event will the voting restriction survive the sale of
shares of the Common Stock held by the Foundation.
The Stock Contribution is subject to the approval of a majority of the
total outstanding votes of the Bank's members eligible to be cast at the Special
Meeting. The Stock Contribution will be considered as a separate matter from
approval of the Plan of Conversion. If the Bank's members approve the Plan of
Conversion, but not the Stock Contribution, the Bank intends to complete the
Conversion without the Stock Contribution. Failure to approve the Foundation may
materially increase the pro forma market value of the Common Stock being offered
since the Estimated Valuation Range, as set forth herein, takes into account the
after-tax impact of the Stock Contribution. See "Pro Forma Data" in the
Prospectus.
ADDITIONAL INFORMATION
The information contained in the accompanying Prospectus, including a
more detailed description of the Plan of Conversion, consolidated financial
statements of the Bank and a description of the capitalization and business of
the
11
<PAGE>
Bank and the Holding Company, including the Bank's directors and executive
officers and their compensation, the anticipated use of the net proceeds from
the sale of the Common Stock, the stock contribution to The Heritage Foundation
of First Security Federal Savings Bank, Inc. and a description of the Common
Stock, is intended to help you evaluate the Conversion and the establishment of
the Foundation and is incorporated herein by 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 Information Center at (___)
___-____.
IMPORTANT: YOU MAY BE ENTITLED TO VOTE IN MORE THAN ONE CAPACITY.
PLEASE SIGN, DATE AND PROMPTLY RETURN EACH PROXY CARD YOU RECEIVE.
----------
THIS PROXY STATEMENT IS NOT AN OFFER TO SELL OR THE SOLICITATION OF AN
OFFER TO BUY STOCK. THE OFFER WILL BE MADE ONLY BY THE PROSPECTUS.
THE COMMON STOCK IS NOT A DEPOSIT OR ACCOUNT AND IS NOT FEDERALLY
INSURED OR GUARANTEED.
12
<PAGE>
REVOCABLE PROXY
FIRST SECURITY FEDERAL SAVINGS BANK
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF FIRST
SECURITY FEDERAL SAVINGS BANK
The undersigned member of First Security Federal Savings Bank (the
"Bank") hereby appoints the Board of Directors of the Bank as proxies to cast
all votes which the undersigned member is entitled to cast at a Special Meeting
of Members to be held at the Bank's office located at 936 North Western Avenue,
Chicago, Illinois 60622-4965, at the hour and date stated in the Proxy
Statement, and at any and all adjournments and postponements thereof, and to act
with respect to all votes that the undersigned would be entitled to cast, if
then personally present, in accordance with the instructions on the reverse side
hereof to vote FOR or AGAINST:
1) The adoption of the Plan of Conversion to convert the Bank from a
federally chartered mutual savings bank to a federally chartered
stock savings bank, including the adoption of a federal stock
savings bank charter and bylaws, with the simultaneous issuance
of its common stock to First SecurityFed Financial, Inc., a
Delaware corporation (the "Holding Company") and sale by the
Holding Company of shares of its Common Stock; and
2) The contribution of 250,000 shares of Holding Company Common
Stock to The Heritage Foundation of First Security Federal
Savings Bank, Inc. (the "Foundation") a private charitable
foundation dedicated to the promotion of charitable purposes
within the communities in which the Bank operates.
This proxy will be voted as directed by the undersigned member. UNLESS
CONTRARY DIRECTION IS GIVEN, THIS PROXY WILL BE VOTED FOR ADOPTION OF THE PLAN
OF CONVERSION AND IN FAVOR OF THE STOCK CONTRIBUTION TO THE FOUNDATION. In
addition, this proxy will be voted at the discretion of the Board of Directors
upon any other matter as may properly come before the Special Meeting.
The undersigned member may revoke this proxy at any time before it is
voted by delivering to the Secretary of the Bank either by a written revocation
of the proxy or a duly executed proxy bearing a later date, or by appearing at
the Special Meeting and voting in person. The undersigned member hereby
acknowledges receipt of the Notice of Special Meeting and Proxy Statement.
(IMPORTANT: PLEASE VOTE, DATE AND SIGN ON REVERSE SIDE)
<PAGE>
FIRST SECURITY FEDERAL SAVINGS BANK
Please Mark Votes Below
Approval of the Plan of Conversion
FOR o AGAINST o DATE: , 1997
---------------
Approval of the Contribution to the Foundation
FOR o AGAINST o DATE: , 1997
---------------
X
----------------------------------
X
----------------------------------
IMPORTANT: Please sign your name
exactly as it appears on this proxy.
Joint accounts need only one
signature. When signing as an
attorney, administrator, agent,
corporation, officer, executor,
trustee or guardian, etc., please
add your full title to your
signature.
NOTE: IF YOU RECEIVE MORE THAN ONE PROXY CARD, PLEASE SIGN AND RETURN ALL
CARDS IN THE ACCOMPANYING ENVELOPE.
Exhibit 99.3
STOCK ORDER FORM & First SecurityFed Financial, Inc.
CERTIFICATION FORM (Holding Company for First Security Federal Savings Bank)
Note: Please read the Stock Order Form Guide and Instructions on the back of
this form before completion.
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Deadline
- --------------------------------------------------------------------------------
The Subscription Offering ends at Noon, Chicago, Illinois, Time, XXXXX XX, 1997.
Your Stock Order Form and Certification Form, properly executed and with the
correct payment, must be received at the address on the bottom of this form by
this deadline, or it will be considered void.
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Number of Shares
- --------------------------------------------------------------------------------
(1) Number of Shares Price Per Share (2) Total Amount Due
-------------------- --------------------
X $10.00 =
-------------------- --------------------
(minimum 25)
The minimum number of shares that may be subscribed for is 25 and the maximum
purchase is 250,000 shares in the Subscription and Public Offering,
respectively. No person, together with the associates of and persons acting in
concert with such persons, may purchase more than 750,000 shares of the Common
Stock in the Conversion. The price per share is based on a valuation that is
subject to review prior to filling individual stock orders.
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Method of Payment
- --------------------------------------------------------------------------------
(3) [ ] Enclosed is a check, bank draft or money order payable to First
SecurityFed for $___________ (or cash if presented in person).
(4) [ ] I authorize First Security Federal Savings Bank to make withdrawals from
my First Security account(s) shown below, and understand that the
amounts will not otherwise be available for withdrawal:
Account Number(s) Amount(s)
------------------------------------------------------------------
$
------------------------------------------------------------------
------------------------------------------------------------------
------------------------------------------------------------------
------------------------------------------------------------------
Total Withdrawal $
---------
There is no penalty for early withdrawals used for this payment.
To withdraw from an account with checking privileges, please write a check.
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Purchaser Information
- --------------------------------------------------------------------------------
(5) [ ] Check here if you are a director, officer or employee of First Security
Federal Savings Bank or a member of such person's immediate family.
[ ] Check here if you are a depositor or a borrower and enter below
information for all accounts you had at the Eligibility Record Date
(12/31/95) or Voting Record Date (XXXXX, 1997). If additional space is
needed, please utilize the back of this form. Please confirm account(s)
by initialing here. ______________
Account Title (Names on Accounts) Account Number
------------------------------------------------------------------
----------------------------------------------------
------------------------------------------------------------------
----------------------------------------------------
------------------------------------------------------------------
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<PAGE>
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Stock Registration
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(6) Form of Stock Ownership
[ ] Individual [ ] Corporation
[ ] Joint Tenants [ ] Partnership
[ ] Tenants in Common [ ] Individual Retirement Account
[ ] Uniform Transfer to Minors [ ] Fiduciary/Trust (Under
[ ] Uniform Gift to Minors Agreement Dated______________)
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(7) Name Social Security or Tax I.D.
----------------------------------------------------------------------------
Name Daytime Telephone
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Street Address Evening Telephone
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City State Zip Code County of Residence
----------------------------------------------------------------------------
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NASD Affiliation (This section applies to those individuals who meet the
delineated criteria)
- --------------------------------------------------------------------------------
[ ] Check here if you are a member of the National Association of Securities
Dealers, Inc. ("NASD"), a person associated with an NASD member, a member of the
immediate family of any such person to whose support such person contributes,
directly or indirectly, or the holder of an account in which an NASD member or
person associated with an NASD member has a beneficial interest. To comply with
conditions under which an exemption from the NASD's Interpretation With Respect
to Free-Riding and Withholding is available, you agree, if you have checked the
NASD affiliation box: (i) not to sell, transfer or hypothecate the stock for a
period of 90 days following the issuance and (ii) to report this subscription in
writing to the applicable NASD member within one day of the payment therefor.
- --------------------------------------------------------------------------------
Acknowledgment
- --------------------------------------------------------------------------------
By signing below, I acknowledge receipt of the Prospectus dated XXXXX, 1997 and
the provisions therein and understand I may not change or revoke my order once
it is received by First SecurityFed Financial . I also certify that this stock
order is for my account only and there is no agreement or understanding
regarding any further sale or transfer of these shares. Federal regulations
prohibit any persons from transferring, or entering into any agreement directly
or indirectly to transfer, the legal or beneficial ownership of conversion
subscription rights or the underlying securities to the account of another
person. First Security Federal Savings Bank will pursue any and all legal and
equitable remedies in the event it becomes aware of the transfer of subscription
rights and will not honor orders known by it to involve such transfer.
Under penalties of perjury, I further certify that: (1) the social security
number or taxpayer identification number given above is correct; and (2) I am
not subject to backup withholding. You must cross out this item, (2) above, if
you have been notified by the Internal Revenue Service that you are subject to
backup withholding because of underreporting interest or dividends on your tax
return.
- --------------------------------------------------------------------------------
Signature
- --------------------------------------------------------------------------------
Sign and date this form. When purchasing as a custodian, corporate officer,
etc., include your full title. An additional signature is required only if
payment is by withdrawal from an account that requires more than one signature
to withdraw funds.
YOUR ORDER WILL BE FILLED IN ACCORDANCE WITH THE PROVISIONS OF THE PROSPECTUS.
THIS ORDER IS NOT VALID IF NOT SIGNED. If you need help completing this Form,
you may call the Stock Information Center at (800) XXX-XXXX.
- --------------------------------------------------------------------------------
Authorized Signature Title (if applicable) Date
- --------------------------------------------------------------------------------
Authorized Signature Title (if applicable) Date
- --------------------------------------------------------------------------------
THE SHARES OF COMMON STOCK OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS AND ARE NOT
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, SAVINGS ASSOCIATION
INSURANCE FUND OR ANY OTHER GOVERNMENTAL AGENCY.
- --------------------------------------------------------------------------------
FOR OFFICE USE ONLY
Date Rec'd ___/___/___ Order # ____________ Batch ____________
Check # ______________ Category ____________
Amount $______________ Initials ____________
- --------------------------------------------------------------------------------
STOCK INFORMATION CENTER
936 North Western Avenue
Chicago, Illinois 60622-4695
(800) XXX-XXXX
<PAGE>
First SecurityFed Financial Inc.
Stock Order Form
Guide and Instructions
- --------------------------------------------------------------------------------
Stock Ownership Guide
- --------------------------------------------------------------------------------
Individual
The Stock is to be registered in an individual's name only. You may not list
beneficiaries for this ownership.
Joint Tenants
Joint tenants with right of survivorship identifies two or more owners. When
stock is held by joint tenants with rights of survivorship, ownership
automatically passes to the surviving joint tenant(s) upon the death of any
joint tenant. You may not list beneficiaries for this ownership.
Tenants in Common
Tenants in common may also identify two or more owners. When stock is to be held
by tenants in common, upon the death of one co-tenant, ownership of the stock
will be held by the surviving co-tenant(s) and by the heirs of the the deceased
co-tenant. All parties must agree to the transfer or sale of shares held by
tenants in common. You may not list beneficiaries for this ownership.
Individual Retirement Account
Individual Retirement Account ("IRA") holders may make stock purchases from
their deposits through a prearranged "trustee-to-trustee" transfer. Stock may
only be held in a self-directed IRA. First Security Federal Savings Bank does
not offer a self-directed IRA. Please contact the Stock Center if you have any
questions about your IRA account. There will be no early withdrawal or IRS
penalties incurred by these transactions.
Uniform Gift to Minors
For residents of many states, stock may be held in the name of a custodian for
the benefit of a minor under the Uniform Transfer to Minors Act. For residents
in other states, stock may be held in a similar type of ownership under the
Uniform Gift to Minors Act of the individual states. For either ownership, the
minor is the actual owner of the stock with the adult custodian being
responsible for the investment until the child reaches legal age.
Instructions: See your legal advisor if you are unsure about the correct
registration of your stock.
On the first "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.
Corporation/Partnership
Corporations/Partnerships may purchase stock. Please provide the
Corporation/Partnership's legal name and Tax I.D. To have depositor rights, the
Corporation/Partnership must have an account in the legal name. Please contact
the Stock Center to verify depositor rights and purchase limitations.
Fiduciary/Trust
Generally, fiduciary relationships (such as Trusts, Estates, Guardianships,
etc.) are established under a form of trust agreement or 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 trustee, executor, personal
representative, etc.
On the second "Name" line, print either the name of the maker, donor or testator
OR the name of the beneficiary. Following the name, indicate the type of legal
document establishing the fiduciary relationship (agreement, court order, etc.).
In the blank after "Under Agreement Dated", fill in the date of the document
governing the relationship. The date of the document need not be provided for a
trust created by a will.
An example of a fiduciary ownership of stock in the case of a trust is: John D.
Smith, Trustee for Thomas A. Smith Under Agreement Dated 06/09/87.
<PAGE>
- --------------------------------------------------------------------------------
Item Instruction
- --------------------------------------------------------------------------------
Items 1 and 2 -
Fill in the number of shares that you wish to purchase and the total payment
due. The amount due is determined by multiplying the number of shares by the
subscription price of $10.00 per share. The minimum purchase is 25 shares. The
maximum purchase amount in the Conversion by any person is 250,000 shares in the
Subscription and Public Offering. No person, together with associates of and
persons acting in concert with such person, may purchase more than 750,000
shares of the Common Stock in the Conversion.
First Security Federal Savings Bank has reserved the right to reject the
subscription of any order received in the Public Offering, if any, in whole or
in part.
Item 3 -
Payment for shares may be made in cash (only if delivered by you in person) by
check, bank draft or money order made payable to First SecurityFed Financial. DO
NOT MAIL CASH. If you choose to make a cash payment, take your Stock Order Form,
signed Certification Form, and payment in person to an office of First Security
Federal Savings Bank. Your funds will earn interest at First Security Federal
SAvings Bank's passbook rate, currently x.00% per annum.
Item 4 -
To pay by withdrawal from a savings account or certificate at First Security
Federal Savings Bank, insert the account number(s) and the amount(s) you wish to
withdraw from each account. If more than one signature is required to withdraw,
each must sign in the Signature box on the front of this form. To withdraw from
an account with checking privileges, please write a check. No early withdrawal
penalty will be charged on funds used to purchase stock. A hold will be placed
on the account(s) for the amount(s) you show. Payments will remain in
certificate account(s) until the stock offering closes and will continue to earn
interest at the account rate until then. However, if a partial withdrawal
reduces the balance of a certificate account to less than the applicable
minimum, the remaining balance will thereafter earn interest at the passbook
rate.
Item 5 -
Please check this box if you were a depositor on the Eligibility Record Date
(December 31, 1995), and/or a depositor or borrower on the Voting Record Date
(XXXXXX xx, 1997) and list all the names on the account(s) and all account
number(s) of those accounts you had at these dates to ensure proper
identification of your purchase rights.
Account Title (Names on Accounts) Account Number
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Items 6 and 7 -
The stock transfer industry has developed a uniform system of shareholder
registrations that we will use in the issuance of First SecurityFed Financial,
Inc. common stock. Print the name(s) in which you want the stock registered and
the mailing address of the registration. Include the first name, middle initial
and last name of the shareholder. Avoid the use of two initials. Please omit
words that do not affect ownership rights, such as "Mrs.", "Mr.", "Dr.",
"special account", etc.
Subscription rights are not transferable. If you are a qualified member, to
protect your priority over other purchasers as described in the Prospectus, you
must take ownership as your account relationship is established. If you, as a
qualified member, include a non-qualified member on your order, your priority
will be lowered.
Enter the Social Security or Tax I.D. number of one registered owner. This
registered owner must be listed on the first "Name" line. Be sure to include
your telephone number because we will need to contact you if we cannot execute
your order as given. Review the Stock Ownership Guide on this page and refer to
the instructions for Uniform Gift to Minors/Uniform Transfer to Minors and
Fiduciaries.
<PAGE>
CERTIFICATION FORM
(This Form Must Accompany A Signed Stock Order Form)
I ACKNOWLEDGE THAT THE SHARES OF COMMON STOCK, NO PAR VALUE PER SHARE
("COMMON STOCK"), OF FIRST SECURITYFED FINANCIAL, INC. ("CORPORATION"), THE
PROPOSED HOLDING COMPANY FOR FIRST SECURITY FEDERAL SAVINGS BANK ("FIRST
SECURITY"), ARE NOT FEDERALLY INSURED AND ARE NOT GUARANTEED BY THE CORPORATION,
FIRST SECURITY OR THE FEDERAL GOVERNMENT.
If anyone asserts that the shares of Common Stock are federally insured or
guaranteed, or are as safe as an insured deposit, I should call the Office of
Thrift Supervision Central Regional Director, Ronald N. Karr, at (312) 917-5000.
I further certify that, before purchasing the shares of Common Stock of the
Corporation, I received a copy of the Prospectus dated _____________, 1997 which
discloses the nature of the shares of Common Stock being offered thereby and
describes the following risks involved in an investment in the Common Stock
under the heading "Risk Factors" beginning on page __ of the Prospectus:
1. Interest Rate Risk Exposure (Page__)
2. Risk Associated with the Stock Contribution to a Charitable Foundation
(Page__)
3. Competition (Page__)
4. Geographic Concentration of Business Activities (Page__)
5. Takeover Defense Provisions (Page__)
6. Post Conversion Overhead Expense (Page__)
7. Regulatory Oversight (Page__)
8. Risk of Delayed Offering (Page__)
9. Absence of Active Market for the Common Stock (Page__)
Signature:_______________________
Signature:_______________________
(Note: All parties named in registration must sign Certification Form)
Date: ____________
Exhibit 99.4
STOCK
OFFERING
QUESTIONS
and
ANSWERS
FIRST
SECURITYFED
FINANCIAL, INC.
<PAGE>
STOCK OFFERING
QUESTIONS & ANSWERS
Facts About the Conversion
The Board of Directors of First Security Federal Savings Bank ("First Security")
unanimously adopted a Plan of Conversion to convert (the "Conversion") from a
federal mutual savings bank to an federal stock savings bank.
This brochure answers some of the most frequently asked questions about the
Conversion and about your opportunity to invest in First SecurityFed Financial,
Inc., ("the Company"), the holding company for First Security.
Investment in the stock of First SecurityFed Financial, Inc. involves certain
risks. For a discussion of these risks and other factors, investors are urged to
read the accompanying Prospectus.
Why is First Security converting to stock form?
The stock form of ownership is used by most business corporations and an
increasing number of savings institutions. Through the sale of the stock, First
Security will raise additional capital enabling it to:
o support and expand its current financial and other services.
o allow customers and friends to purchase stock and share in the Holding
Company's and First Security's future.
Will the Conversion affect any of my deposit accounts or loans?
No. The Conversion will have no effect on the balance or terms of any savings
account or loan, and your deposits will continue to be federally insured by the
Federal Deposit Insurance Corporation ("FDIC") to the maximum legal limit. Your
savings account is not being converted to stock.
Who is eligible to purchase stock in the subscription and community offerings?
Certain past and present customers of First Security, First Security's Employee
Stock Ownership Plan, and members of the general public.
How many shares of stock are being offered and at what price?
First Security Financial is offering up to X,XXXX shares of common stock at a
price of $10.00 per share through the Prospectus.
How much stock may I buy?
The minimum order is 25 shares. The maximum purchase is $250,000 however, no
person, together with associates of and persons acting in concert with such
person, may purchase more than $750,000 of the common stock sold.
Do members have to buy stock?
No. However, the Conversion will allow First Security's depositors and borrowers
an opportunity to buy stock and become charter shareholders of the holding
company for the local financial institution with which they do business.
<PAGE>
How do I order stock?
A properly executed Stock Order Form and the Certification Form (together, the
"Order Form") with full payment must be received at one of the Bank's branches
by 12:00 Noon XXXXX, xx, 1997. Instructions for completing your Stock Order Form
and Certification Form are found on the back of the Order Form. The Company is
not obligated to accept orders submitted on photocopied or facsimile Order
Forms. Once tendered, subscription orders cannot be revoked or modified without
the consent of the Bank and the Company.
How may I pay for my shares of stock?
First, you may pay for stock by check, cash or money order. Interest will be
paid by First Security on these funds at the passbook rate, which is currently
X.XX% per annum, from the day the funds are received until the completion or
termination of the Conversion. Second, you may authorize us to withdraw funds
from your First Security savings account or certificate of deposit for the
amount of funds you specify for payment. You will not have access to these funds
from the day we receive your order until the completion or termination of the
Conversion.
How do I register the shares of stock?
The stock transfer industry has developed a uniform system of shareholder
registrations that we will use in the issuance of First SecurityFed Financial
Inc. common stock. A detailed listing and explanation of the various
registrations can be found on the back of the Order Form. Please note:
Subscription rights are not transferable. If you are a qualified member, to
protect your priority over other purchasers as described in the Prospectus, you
must take ownership as your account relationship is established. If you, as a
qualified member, include a non-qualified member on your order, your priority
will be lowered.
Can I purchase shares using funds in my First Security IRA account?
Federal regulations do not permit the purchase of conversion stock from your
existing First Security IRA account. A depositor interested in using his or her
IRA funds to purchase Common Stock must do so through a self-directed IRA. Since
the Bank does not offer such accounts, it will allow a depositor to make a
trustee-to-trustee transfer of the IRA funds to a trustee offering a
self-directed IRA program with the agreement that such funds will be used to
purchase the Company's Common Stock in the Offering. There will be no early
withdrawal or IRS interest penalties for such transfers. The new trustee would
hold the Common Stock in a self-directed account in the same manner as the Bank
now holds the depositor's IRA funds. An annual administrative fee may be payable
to the new trustee. Depositors interested in using funds in a Bank IRA to
purchase Common Stock should contact the Stock Center at the Bank as soon as
possible so that the necessary forms may be forwarded for execution and returned
prior to the Expiration Date.
Will the stock be insured?
No. Like any other common stock, First SecurityFed Financial's stock will not be
insured.
<PAGE>
Will dividends be paid on the stock?
First SecurityFed Financial has no plans to pay dividends. However, the Board of
Directors may consider a policy to pay a cash dividend in the future, subject to
regulatory limits and requirements.
How will the stock be traded?
First SecurityFed Financial's stock has received preliminary approval to trade
over-the-counter through the Nasdaq National Market under the symbol "XXXX".
However, no assurances can be given that an active and liquid market will
develop.
Are officers and directors of First Security planning to purchase stock?
Yes! First Security's executive officers and directors plan to purchase, in the
aggregate, $2.12 million worth of stock or approximately ____% of the stock
offered at the midpoint of the offering range.
Must I pay a commission?
No. You will not be charged a commission or fee on the purchase of shares in the
Conversion.
What is the Charitable Foundation?
As a reflection of the Bank's long-standing commitment to the local community,
in 1996 the Bank established The Heritage Foundation of First Security Federal
Savings Bank, Inc., a private charitable foundation. The Foundation was
established as a means of supporting the needs of the local community while
simultaneously increasing the visibility and reputation of the Bank. The
Foundation was initially funded by the Bank through several cash contributions
aggregating $2.5 million. In addition, subject to member approval, the Company
will contribute 250,000 shares of its common stock.
Should I vote?
Yes. Your "Yes" vote is very important!
Why did I get several proxy cards?
If you have more than one account, you could receive more than one proxy card,
depending on the ownership structure of your accounts. PLEASE VOTE, SIGN AND
RETURN ALL PROXY CARDS!
How many votes do I have?
Your proxy card(s) show the number of votes you have. Every depositor entitled
to vote may cast one vote for each $100, and a proportionate fractional vote for
any fraction thereof, on deposit as of the voting record date.
May I vote in person at the special meeting?
Yes, but we would still like you to sign and mail your proxy today. If you
decide to revoke your proxy you may do so by giving notice at the special
meeting.
FOR ADDITIONAL INFORMATION YOU MAY CALL OUR STOCK CENTER AT (800) XXX-XXXX.
The shares of common stock offered in the Conversion are not savings accounts or
deposits and are not insured by the Federal Deposit Insurance Corporation, the
Bank Insurance Fund, the Savings Association Insurance Fund or any other
government agency.This is not an offer to sell or a solicitation of an offer to
buy stock. The offer will be made only by the Prospectus.
Exhibit 99.5
[Blue Sky Letter - FBR Letterhead]
To Members and Friends of First Security:
Friedman, Billings, Ramsey & Co., Inc., a member of the National Association of
Securities Dealers ("NASD"), is assisting First Security Federal Savings Bank
("First Security") in its conversion from a federal mutual savings bank to an
federal stock savings bank and the concurrent offering of shares of common stock
by its holding company, First SecurityFed Financial, Inc. (the "Holding
Company").
At the request of the Holding Company, we are enclosing materials explaining
this process and your options, including an opportunity to invest in shares of
the Holding Company's common stock being offered to customers and the community
through ____________, 1997. Please read the enclosed offering materials
carefully. The Holding Company has asked us to forward these documents to you in
view of certain requirements of the securities laws in your state.
If you have any questions, please visit our Stock Center at the Bank's
headquarters office at 936 North Western Avenue in Chicago, Illinois 60622 or
our satellite Stock Center at the Bank's Philadelphia branch at 7918 Bustleton
Avenue, Philadelphia, Pennsylvania 19152. Also, please feel free to call the
Stock Center at (800) ___-____ or, for the Philadelphia Stock Center, (610)
___-____ .
Sincerely,
Friedman, Billings, Ramsey & Co., Inc.
<PAGE>
[Dear Member "Dark Blue Sky" & Foreign Accounts - First Security Letterhead]
____________,1997
Dear Member:
We are pleased to announce that First Security Federal Savings Bank
(the "Bank" or "First Security") is converting from a federal mutual savings
bank to a federal stock savings bank (the "Conversion") and forming a stock
holding company, First SecurityFed Financial, Inc. (the "Company"). In
conjunction with the Conversion, the Company is offering shares of common stock
in a subscription and community offering to certain of our depositors, our
Employee Stock Ownership Plan and some members of the general public pursuant to
a Plan of Conversion (the "Offering").
Unfortunately, the Company is unable to either offer or sell its common
stock to you because the small number of eligible subscribers in your
jurisdiction makes registration or qualification of the common stock under the
securities laws of your jurisdiction impractical, for reasons of cost or
otherwise. Accordingly, this letter should not be considered an offer to sell or
a solicitation of an offer to buy the common stock of the Company.
However, as a member of First Security, you have the right to vote on
the Plan of Conversion at the Special Meeting of Members to be held on
__________, 1997. Therefore, enclosed is a proxy card, a Proxy Statement (which
includes the Notice of the Special Meeting), a Prospectus (which contains
information incorporated into the Proxy Statement) and a return envelope for
your proxy card.
I invite you to attend the Special Meeting on __________, 1997.
However, if you are unable to attend, please complete the enclosed proxy card
and return it in the enclosed envelope.
Sincerely,
Julian E. Kulas
President and Chief Executive Officer
The shares of common stock being offered in this offering are not savings
accounts or deposits and are not insured by the Federal Deposit Insurance
Corporation, the Bank Insurance Fund or the Savings Association Insurance Fund
or any other government agency. This is not an offer to sell or a solicitation
of an offer to buy stock.
<PAGE>
[Dear Member Letter, First Security Letterhead]
__________, 1997
Dear Member:
We are pleased to announce that First Security Federal Savings Bank
("First Security" or the "Bank") is converting from a mutual savings bank to a
stock savings bank (the "Conversion"). In conjunction with the Conversion, First
SecurityFed Financial, Inc., the newly-formed holding company for First
Security, is offering shares of common stock in a subscription offering and
public offering to certain of our depositors, our Employee Stock Ownership Plan,
and some members of the general public pursuant to a Plan of Conversion.
The Board of Directors of First Security feels that the Conversion will
offer a number of advantages, such as an opportunity for depositors and
customers of First Security to become shareholders. Please remember:
* Your accounts at First Security will continue to be insured up to the
maximum legal limit by the Federal Deposit Insurance Corporation ("FDIC").
* There will be no change in the balance, interest rate, or maturity of any
deposit accounts because of the Conversion.
* Members have a right, but no obligation, to buy stock before it is offered
to the public.
* Like all stock, stock issued in this offering will not be insured by the
FDIC.
Enclosed are materials describing the stock offering. We urge you to
read these materials carefully. If you are interested in purchasing the common
stock of First SecurityFed Financial, Inc., you must submit your Stock Order
Form, Certification Form, and payment prior to 12:00 noon, ___________, 1997.
If you have any questions, please visit our Stock Center at the Bank's
headquarters office at 936 North Western Avenue in Chicago, Illinois 60622 or
our satellite Stock Center at the Bank's Philadelphia branch at 7918 Bustleton
Avenue, Philadelphia, Pennsylvania 19152. Also, please feel free to call the
Stock Center at (800) ___-____ or, for the Philadelphia Stock Center, (610)
___-____.
Sincerely,
Julian E. Kulas
President and Chief Executive Officer
The shares of common stock being offered in this offering are not savings
accounts or deposits and are not insured by the Federal Deposit Insurance
Corporation, the Bank Insurance Fund or the Savings Association Insurance Fund
or any other government agency. This is not an offer to sell or a solicitation
of an offer to buy stock. The offer will be made only by the Prospectus.
<PAGE>
[Dear Friend Letter -First Security Letterhead]
__________, 1997
Dear Friend:
We are pleased to announce that First Security Federal Savings Bank
("First Security" or the "Bank") is converting from a mutual savings bank to a
stock savings bank (the "Conversion"). In conjunction with the Conversion, First
SecurityFed Financial, Inc., the newly-formed holding company for First
Security, is offering shares of common stock in a subscription offering and
public offering to certain of our depositors, our Employee Stock Ownership Plan,
and some members of the general public pursuant to a Plan of Conversion.
Because we believe you may be interested in learning more about the
merits of First SecurityFed Financial, Inc.'s stock as an investment, we are
sending you the following materials which describe the stock offering.
PROSPECTUS: This document provides detailed information about the business
and results from operations at First Security and the proposed stock
offering.
QUESTIONS AND ANSWERS: Key questions and answers about the stock offering
are found in this pamphlet.
STOCK ORDER FORM & CERTIFICATION FORM: These forms are used to purchase
stock by returning them with your payment in the enclosed business reply
envelope. The deadline for ordering stock is 12:00 p.m., noon,
____________, 1997.
As a friend of First Security, you will have the opportunity to buy
stock directly from First SecurityFed Financial, Inc. without commission or fee.
If you have any questions, please visit our Stock Center at the Bank's
headquarters office at 936 North Western Avenue in Chicago, Illinois 60622 or
our satellite Stock Center at the Bank's Philadelphia branch at 7918 Bustleton
Avenue, Philadelphia, Pennsylvania 19152. Also, please feel free to call the
Stock Center at (800) ___-____ or, for the Philadelphia Stock Center, (610)
___-____.
We are pleased to offer you this opportunity to become a charter
shareholder of First SecurityFed Financial, Inc.
Sincerely,
Julian E. Kulas
President and Chief Executive Officer
The shares of common stock being offered in this offering are not savings
accounts or deposits and are not insured by the Federal Deposit Insurance
Corporation, the Bank Insurance Fund or the Savings Association Insurance Fund
or any other government agency. This is not an offer to sell or a solicitation
of an offer to buy stock. The offer will be made only by the Prospectus.
<PAGE>
(Prospective Investor Letter -First Security letterhead)
________, 1997
Dear Prospective Investor:
We are pleased to announce that First Security Federal Savings Bank
("First Security" or the "Bank") is converting from a mutual savings bank to a
stock savings bank (the "Conversion"). In conjunction with the Conversion, First
SecurityFed Financial, Inc., the newly-formed holding company for First
Security, is offering shares of common stock in a subscription offering and
public offering to certain of our depositors, our Employee Stock Ownership Plan,
and some members of the general public pursuant to a Plan of Conversion.
Because we believe you may be interested in learning more about the
merits of First SecurityFed Financial, Inc.'s stock as an investment, we are
sending you the following materials which describe the stock offering.
PROSPECTUS: This document provides detailed information about the business
and results from operations at First Security and the proposed stock
offering.
QUESTIONS AND ANSWERS: Key questions and answers about the stock offering
are found in this pamphlet.
STOCK ORDER FORM & CERTIFICATION FORM: These forms are used to purchase
stock by returning them with your payment in the enclosed business reply
envelope. The deadline for ordering stock is 12:00 p.m., noon,
____________, 1997.
Through this offering you have the opportunity to buy stock directly
from the Bank, without commission or fee. In case of oversubscription of orders
for stock, orders will be allocated pursuant to the Bank's Plan of Conversion
described in the Prospectus.
If you have any questions, please visit our Stock Center at the Bank's
headquarters office at 936 North Western Avenue in Chicago, Illinois 60622 or
our satellite Stock Center at the Bank's Philadelphia branch at 7918 Bustleton
Avenue, Philadelphia, Pennsylvania 19152. Also, please feel free to call the
Stock Center at (800) ___-____ or, for the Philadelphia Stock Center, (610)
___-____.
Sincerely,
Julian E. Kulas
President and Chief Executive Officer
The shares of common stock being offered in this offering are not savings
accounts or deposits and are not insured by the Federal Deposit Insurance
Corporation, the Bank Insurance Fund or the Savings Association Insurance Fund
or any other government agency. This is not an offer to sell or a solicitation
of an offer to buy stock. The offer will be made only by the Prospectus.
<PAGE>
Proxy Gram
We recently forwarded to you a proxy statement and letter advising that the
Board of Directors of First Security Federal Savings Bank had received
regulatory approval to convert from a mutual to a stock form of ownership.
Your vote on our Plan of Conversion has not yet been received. Failure to Vote
has the Same Effect as Voting Against the Plan of Conversion and Stock Offering.
Your vote is important to us, and we, therefore, are requesting that you sign
the enclosed duplicate proxy card and return it promptly in the enclosed
postage-paid envelope.
Voting for the Plan does not obligate you to purchase stock or affect the terms
or insurance on your accounts.
The Board of Directors unanimously recommends that you vote "FOR" the Plan.
FIRST SECURITY FEDERAL SAVINGS BANK
Julian E. Kulas
President and Chief Executive Officer
If you mailed the proxy, please accept our thanks and disregard this request.
For further information call (xxx) xxx-xxxx.
The shares of common stock being offered in this offering are not savings
accounts or deposits and are not insured by the Federal Deposit Insurance
Corporation, the Bank Insurance Fund or the Savings Association Insurance Fund
or any other government agency. This is not an offer to sell or a solicitation
of an offer to buy stock. The offer is made only by the Prospectus.
<PAGE>
Marketing Banner : 8'x 2'
Become a Charter Shareholder
In Your Community Bank!
First SecurityFed Financial, Inc.
<PAGE>
Community Meeting Invitation Cards
You Are Cordially Invited......
to an informational Community Investor Meeting regarding the mutual to stock
conversion of First Security Federal Savings Bank and the offering of common
stock by First SecurityFed Financial, Inc., the Bank's newly-formed holding
company. We invite all of our members and interested community members to a
presentation given by the Bank's management team and representatives from
Friedman, Billings, Ramsey & Co., an investment banking firm assisting the Bank
in the conversion and offering process. The presentation will highlight the
financial condition and operating results of the Bank as well as the
opportunities and risks in purchasing the common stock of First SecurityFed
Financial, Inc.
Please call the Stock Center at (800) xxx-xxxx if you have any questions.
Date:
Place:
Time:
Date:
Place:
Time:
Date:
Place:
Time:
Date:
Place:
Time:
<PAGE>
(Oversubscription Letter- check, First SecurityFed Financial Letterhead]
_________, 1997
Dear Subscriber:
I want to thank you for your interest in First SecurityFed Financial, Inc.
common shares. We are extremely proud of the overwhelming support we received
from our customers and the community as we successfully completed the sale of
xxx,xxx shares of common stock.
However, due to the oversubscription of our common shares during the
Subscription Offering, we regret we were unable to fill a portion of your order.
Enclosed is a refund check for the amount of your order we were unable to fill
plus interest. The stock certificates for the balance of your order are being
sent to you directly from our transfer agent, XXXXXXX.
If you continue to be interested in acquiring common shares of First SecurityFed
Financial Inc., the following brokerage firms have indicated their intent to
make a market in our stock. You may contact any of them for assistance.
[List of Market Makers]
Again, thank you for your interest. If you have any questions, please do not
hesitate to contact me.
Sincerely,
Julian E. Kulas
President and Chief Executive Officer
