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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 24, 1997
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-1
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
EFC BANCORP, INC.
ELGIN FINANCIAL CENTER, S.B.
401(k) EMPLOYEE BENEFIT PLAN
(exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 6036 BEING APPLIED FOR
(state or other jurisdiction of (Primary Standard Industrial (IRS Employer Identification
incorporation or organization) Classification Code Number) No.)
</TABLE>
1695 LARKIN AVENUE
ELGIN, ILLINOIS 60123
(847) 741-3900
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
BARRETT J. O'CONNOR
PRESIDENT AND CHIEF EXECUTIVE OFFICER
ELGIN FINANCIAL CENTER, S.B.
1695 LARKIN AVENUE
ELGIN, ILLINOIS 60123
(847) 741-3900
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
COPIES TO:
DOUGLAS P. FAUCETTE, ESQUIRE
MARY M. SJOQUIST, ESQUIRE
ANN E. COX, ESQUIRE
KENT M. KRUDYS, ESQUIRE
MULDOON, MURPHY & FAUCETTE
5101 WISCONSIN AVENUE, N.W.
WASHINGTON, D.C. 20016
(202) 362-0840
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. /X/
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, 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 number of the earlier effective registration statement for the same
offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
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CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE AGGREGATE OFFERING REGISTRATION
SECURITIES TO BE REGISTERED BE REGISTERED PER SHARE PRICE (2) FEE
<S> <C> <C> <C> <C>
Common Stock $.01 par value(1) 7,055,802 Shares $10.00 $70,558,020 $21,380
--
Participation Interests (3) -- $ 1,962,093 (4)
</TABLE>
(1) Includes shares of Common Stock to be issued to the Elgin Financial
Foundation, a private foundation.
(2) Estimated solely for the purpose of calculating the registration fee.
(3) In addition, pursuant to Rule 416(c) under the Securities Act, this
Registration Statement also covers an indeterminate amount of interests
to be offered or sold pursuant to the employee benefit plan described
herein.
(4) The securities of EFC Bancorp, Inc. to be purchased by Elgin Financial
Center, S.B. 401(k) Savings Plan are included in the amount shown for Common
Stock. Accordingly, no separate fee is required for the participation
interests. In accordance with Rule 457(h) of the Securities Act, as amended,
the registration fee has been calculated on the basis of the number of
shares of Common Stock that may be purchased with the current assets of such
Plan.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(A), MAY
DETERMINE.
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[To be used in connection with sales to Participants in the Elgin Financial
Center S.B. 401(k) Employee Benefit Plan]
PROSPECTUS SUPPLEMENT
EFC BANCORP, INC.
ELGIN FINANCIAL CENTER, S.B.
__________Participation Interests
ELGIN FINANCIAL CENTER, S.B.
401(k) EMPLOYEE BENEFIT PLAN
This Prospectus Supplement relates to the offer and sale to participants
(the "Participants") in the Elgin Financial Center, S.B. 401(k) Employee
Benefit Plan (the "Plan") of participation interests and shares of common
stock, par value $.01 per share of EFC Bancorp, Inc. (the "Common Stock"), as
set forth herein.
In connection with the proposed conversion of Elgin Financial Center,
S.B. (the "Bank") from a mutual savings bank to a stock savings bank (the
"Conversion"), the Plan permits the investment of Plan assets in Common Stock
of EFC Bancorp, Inc. (the "Holding Company"). The Plan permits Participants
to direct the trustee of the Plan (the "Trustee") to invest in Common Stock
with amounts in the Plan attributable to such Participants. Such investments
in Common Stock would be made by means of the EFC Bancorp, Inc. Stock Fund
(the "Employer Stock Fund"). Based upon the value of the Plan assets at July
31, 1997, _______shares of Common Stock could be purchased with Plan assets
(assuming a purchase price of $10.00 per share). This Prospectus Supplement
relates to the initial election of Participants to direct that all or a
portion of their accounts be invested in the Employer Stock Fund in
connection with the Conversion and also to elections by Participants to
direct that all or a portion of their accounts be invested in the Employer
Stock Fund after the Conversion.
The Prospectus dated _____________, 1997 of the Holding Company (the
"Prospectus"), which is attached to this Prospectus Supplement, includes
detailed information with respect to the Conversion, the Common Stock and the
financial condition, results of operations and business of the Bank. This
Prospectus Supplement, which provides detailed information with respect to
the Plan, should be read only in conjunction with the Prospectus and should
be retained for future reference.
For a discussion of certain factors that should be considered by each
Participant, see "Risk Factors."
The date of this Prospectus Supplement is _____________, 1997.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, THE COMMISSIONER OF BANKS AND REAL ESTATE OF THE STATE OF
ILLINOIS ("COMMISSIONER"), THE FEDERAL DEPOSIT INSURANCE CORPORATION, OR ANY
OTHER STATE OR FEDERAL AGENCY OR ANY STATE SECURITIES COMMISSION, NOR HAS SUCH
COMMISSION OR OTHER AGENCY OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
THE SHARES OF COMMON STOCK OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS OR
DEPOSITS AND ARE NOT FEDERALLY INSURED OR GUARANTEED, NOR ARE THE SHARES OF
COMMON STOCK GUARANTEED BY THE COMPANY OR THE BANK. THE ENTIRE AMOUNT OF A
PURCHASER'S PRINCIPAL IS SUBJECT TO LOSS.
No person has been authorized to give any information or to make any
representations other than those contained in the Prospectus or this Prospectus
Supplement, and, if given or made, such information or representations must not
be relied upon as having been authorized by the Bank or the Plan. This
Prospectus Supplement does not constitute an offer to sell or solicitation of an
offer to buy any securities in any jurisdiction to any person to whom it is
unlawful to make such offer or solicitation in such jurisdiction. Neither the
delivery of this Prospectus Supplement and the Prospectus nor any sale made
hereunder shall under any circumstances create any implication that there has
been no change in the affairs of the Bank or the Plan since the date hereof, or
that the information herein contained or incorporated by reference is correct as
of any time subsequent to the date hereof.
<PAGE>
TABLE OF CONTENTS
THE OFFERING............................................................. 1
Securities Offered..................................................... 1
Election to Purchase Common Stock in the Conversion.................... 1
Value of Participation Interests....................................... 1
Method of Directing Transfer........................................... 2
Time for Directing Transfer............................................ 2
Irrevocability of Transfer Direction................................... 2
Direction to Purchase Common Stock After the Conversion................ 2
Purchase Price of Common Stock......................................... 3
Nature of a Participant's Interest in the Common Stock................. 3
Voting and Tender Rights of Common Stock............................... 3
DESCRIPTION OF THE PLAN.................................................. 4
Introduction........................................................... 4
Eligibility and Participation.......................................... 5
Contributions Under the Plan........................................... 5
Limitations on Contributions........................................... 6
Investment of Contributions............................................ 8
Benefits Under the Plan................................................ 11
Withdrawals and Distributions From the Plan............................ 11
Administration of the Plan............................................. 12
Reports to Plan Participants........................................... 13
Plan Administrator..................................................... 13
Amendment and Termination.............................................. 13
Merger, Consolidation or Transfer...................................... 14
Federal Income Tax Consequences........................................ 14
ERISA and Other Qualification.......................................... 16
Restrictions on Resale................................................. 16
SEC Reporting and Short-Swing Profit Liability......................... 17
EXPERTS.................................................................. 18
LEGAL OPINIONS........................................................... 18
<PAGE>
THE OFFERING
Securities Offered
The securities offered hereby are participation interests in the Plan. Up
to ___ shares (assuming the actual purchase price is $10.00 per share) of Common
Stock may be acquired by the Plan to be held in the Employer Stock Fund. The
Holding Company is the issuer of the Common Stock. The Common Stock to be
issued hereby is conditioned on the consummation of the Conversion. A
Participant's investment in units in the Employer Stock Fund in the
Conversion is subject to the priority set forth in the Plan of Conversion.
Information with regard to the Plan is contained in this Prospectus
Supplement and information with regard to the Conversion and the financial
condition, results of operations and business of the Bank is contained in the
attached Prospectus. The address of the principal executive office of the Bank
is 1695 Larkin Avenue, Elgin Illinois 60123. The Bank's telephone number is
(847) 741-3900.
Election to Purchase Common Stock in the Conversion
The Plan permits each Participant to direct that all or part of the funds
which represent his or her beneficial interest in the assets of the Plan may be
transferred to an investment fund that will invest in Common Stock (the Employer
Stock Fund) and, to the extent shares are available to use such funds to
purchase Common Stock issued in connection with the Conversion, and to purchase
Common Stock in the open market. If there is not enough Common Stock in the
Conversion to fill all subscriptions, the Common Stock would be apportioned and
the Plan may not be able to purchase all of the Common Stock requested by the
Participants. In such case, the Trustee will purchase shares in the open market
after the Conversion to fulfill Participants' requests. Such purchases may be at
prices higher than the purchase price in the Conversion. The ability of each
Participant to invest in the Employer Stock Fund in the Conversion pursuant to
directions to transfer all or a portion of their beneficial assets in the Plan
will be based on such Participant's status as an Eligible Account Holder or
Supplemental Eligible Account Holder pursuant to the Plan of Conversion, the
subscription priorities set forth in the Plan of Conversion and the availability
of Common Stock. The Trustee of the Plan will follow the Participants'
directions. Funds not transferred to the Employer Stock Fund will remain in the
other investment funds of the Plan as directed by the Participant on the
attached Enrollment and Investment Application.
Value of Participation Interests
The market value of the assets of the Plan, as of July 31, 1997, was
$_________ and each Participant was informed of the value of his or her
beneficial interest in the Plan. This value represented the past contributions
to the Plan by the Employers and the Participants and any earnings or losses
thereon, less previous withdrawals.
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Method of Directing Transfer
The last page of this Prospectus Supplement is a form to direct a transfer
to the Employer Stock Fund (the "Investment Form"). If a Participant wishes to
transfer all or part (in multiples of not less than ___%) of his or her
beneficial interest in the assets of the Plan to the Employer Stock Fund being
established in connection with the Conversion, he or she should indicate that
decision in part 2 of the Investment Form. If a Participant does not wish to
make such an election, he or she does not need to take any action.
Time for Directing Transfer
The deadline for submitting a direction to transfer amounts to the Employer
Stock Fund which will purchase Common Stock issued in connection with the
Conversion is ten days prior to the Expiration Date of the Offering. The
Investment Form should be returned to the Bank's Human Resources Department by
___:___ p.m. on such date.
Irrevocability of Transfer Direction
A Participant's direction to transfer amounts credited to such Participant's
account in the Plan to the Employer Stock Fund in connection with the Conversion
shall be irrevocable. Participants, however, will be able to direct the
investment of their accounts ("Accounts") after the Conversion under the Plan as
explained below.
Direction to Purchase Common Stock after the Conversion
After the Conversion, a Participant shall be able to direct that a
certain percentage (in multiples of not less than ___%) of the net value of
such Participant's interests in the trust fund established for the Plan (the
"Trust Fund") be transferred to the Employer Stock Fund and invested in
Common Stock, or to the other investment funds available under the Plan.
Alternatively, a Participant may direct that a certain percentage of such
Participant's interest in the Employer Stock Fund be transferred to the Trust
Fund to be invested in accordance with the terms of the Plan. Participants
will be permitted to direct that future contributions made to the Plan by or
on their behalf will be invested in Common Stock. Following the initial
election, the allocation of a Participant's interest in the Employer Stock
Fund may be changed once each calendar quarter in any plan year by filing a
written notice with the plan administrator at least ten days before the
effective date of the change. Special restrictions apply to transfers
directed by those Participants who are officers, directors and principal
shareholders of the Bank who are subject to the provisions of Section 16(b)
of the Securities Exchange Act of 1934, as amended (the "1934 Act").
Purchase Price of Common Stock
The funds transferred to the Employer Stock Fund for the purchase of Common
Stock in connection with the Conversion will be used by the Trustee to purchase
2
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shares of Common Stock. The price to be paid by the Trust Fund for such shares
of Common Stock will be the same price as is paid by all persons who purchase
shares of Common Stock in the Conversion.
Common Stock purchased by the Trustee after the Conversion will be acquired
in open market transactions. The prices paid by the Trustee for shares of Common
Stock will not exceed "adequate consideration" as defined in Section 3(18) of
the Employee Retirement Income Security Act of 1974, as amended ("ERISA").
Transaction fees associated with purchase, sale or transfer of the Common Stock
after the Conversion will be paid by _____________.
Nature of a Participant's Interest in the Common Stock
The Common Stock will be held in the name of the Trustee for the Plan, as
trustee. Each Participant has an allocable interest in the investment funds
of the Plan but not in any particular assets of the Plan. Accordingly, a
specific number of shares of Common Stock will not be directly attributable
to the account of any Participant. Earnings, e.g., gains and losses, are
allocated to the Account of a Participant based on units in the Employer
Stock Fund held by the Participants. Therefore, earnings with respect to a
Participant's Account should not be affected by the investment designations
(including investments in Common Stock) of other Participants.
Voting and Tender Rights of Common Stock
The Trustee generally will exercise voting and tender rights attributable
to all Common Stock held by the Trust Fund as directed by Participants with
interests in the Employer Stock Fund. With respect to each matter as to which
holders of Common Stock have a right to vote, each Participant will be
allocated a number of voting instruction rights reflecting such Participant's
proportionate interest in the Employer Stock Fund. The number of shares of
Common Stock held in the Employer Stock Fund that are voted in the
affirmative and negative on each matter shall be proportionate to the number
of voting instruction rights exercised in the affirmative and negative,
respectively. In the event of a tender offer for Common Stock, the Plan
provides that each Participant will be allotted a number of tender
instruction rights reflecting such Participant's proportionate interest in
the Employer Stock Fund. The percentage of shares of Common Stock held in the
Employer Stock Fund that will be tendered will be the same as the percentage
of the total number of tender instruction rights that are exercised in favor
of tendering. The remaining shares of Common Stock held in the Employer Stock
Fund will not be tendered. The Plan makes provision for Participants to
exercise their voting instruction rights and tender instruction rights on a
confidential basis.
DESCRIPTION OF THE PLAN
I. Introduction
The Plan was established as the Elgin Federal Financial Center 401(k)
Employee Benefit Plan (the "Plan"). In connection with the Conversion, the Plan
is being amended to provide for additional investment alternatives, including,
but not limited to, an Employer Stock Fund. The Plan is a cash or deferred
3
<PAGE>
arrangement established in accordance with the requirements under Section 401(a)
and Section 401(k) of the Internal Revenue Code of 1986 (the "Code"). The Plan
will be submitted to the Internal Revenue Service (the "IRS") in a timely manner
for a determination that the Plan, as amended and restated, is qualified under
Section 401(a) of the Code, and that its related trust(s) are qualified under
Section 501(a) of the Code.
The Bank intends that the Plan, in operation, will comply with the
requirements under Section 401(a) and Section 401(k) of the Code. The Bank will
adopt any amendments to the Plan that may be necessary to ensure the qualified
status of the Plan under the Code and applicable Treasury Regulations.
Employee Retirement Income Security Act. The Plan is an "individual account
plan" other than a "money purchase pension plan" within the meaning of ERISA. As
such, the Plan is subject to all of the provisions of Title I (Protection of
Employee Benefit Rights) and Title II (Amendments to the Internal Revenue Code
Relating to Retirement Plans) of ERISA, except the funding requirements
contained in Part 3 of Title I of ERISA which by their terms do not apply to an
individual account plan (other than a money purchase pension plan). The Plan is
not subject to Title IV (Plan Termination Insurance) of ERISA. Neither the
funding requirements contained in Part 3 of Title I of ERISA nor the plan
termination insurance provisions contained in Title IV of ERISA will be extended
to Participants (as defined below) or beneficiaries under the Plan.
APPLICABLE FEDERAL LAW REQUIRES THE PLAN TO IMPOSE SUBSTANTIAL RESTRICTIONS
ON THE RIGHT OF A PLAN PARTICIPANT TO WITHDRAW AMOUNTS HELD FOR HIS BENEFIT
UNDER THE PLAN PRIOR TO THE PARTICIPANT'S TERMINATION OF EMPLOYMENT WITH THE
BANK. A SUBSTANTIAL FEDERAL TAX PENALTY MAY ALSO BE IMPOSED ON WITHDRAWALS MADE
PRIOR TO THE PARTICIPANT'S ATTAINMENT OF AGE 59-1/2, REGARDLESS OF WHETHER SUCH
A WITHDRAWAL OCCURS DURING HIS EMPLOYMENT WITH THE BANK OR AFTER TERMINATION OF
EMPLOYMENT.
Reference to Full Text of Plan. The following statements are summaries
of certain provisions of the Plan. They are not complete and are qualified in
their entirety by the full text of the Plan. Copies of the Plan are available
to all employees by filing a request with the Plan Administrator, at Elgin
Financial Center, S.B., 1695 Larkin Avenue, Elgin, Illinois 60123. The Plan
Administrator's telephone number is (847) 741-3900. Each employee is urged to
read carefully the full text of the Plan.
II. Eligibility and Participation
Any salaried employee of the Employer is eligible to participate in the Plan
as soon as the employee reaches age 20 and completes six months of service with
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the Employer. Employees covered by a collective bargaining agreement which does
not expressly provide for their coverage under the Plan and leased employees are
not eligible to participate in the Plan.
As of July 31, 1997, there were approximately ____ employees eligible to
participate in the Plan, and ____ employees had elected to participate in the
Plan.
III. Contributions Under the Plan
401(k) Plan Contributions. Subject to certain limitations on
contributions, each Participant in the Plan is permitted to elect to reduce
such Participant's Compensation (as defined below) pursuant to a
"Compensation Reduction Agreement" by an amount not less than 2% and not more
than 10% and have that amount contributed to the Plan on such Participant's
behalf. Such amounts are credited to the Participant's "Basic Contribution
Account." See "Section IV Limitations on Contributions" below. For purposes
of the Plan, "Compensation" means the base compensation receivable by an
Employee from the Employer for the calendar year prior to any reductions
pursuant to the Compensation Reduction Agreement. Compensation includes
salary, Basic Contributions, wages, overtime and wage continuation payments
to an employee who is absent due to an illness or disability of a short-term
nature. "Compensation" does not include commissions, expense allowances,
severance pay, fees, bonuses, incentive payments, contributions other than
Basic Contributions made to the Plan and contributions made by the Employer
to any other pension, insurance welfare or other employee benefit plan. As of
January 1, 1997, the annual compensation of each Participant taken into
account under the Plan is limited to $160,000 (adjusted for increases in the
cost of living as permitted by the Code). Generally, a Participant may elect
to modify the amount contributed to the Plan under such participant's
Compensation Reduction Agreement not more often than once in any calendar
quarter by providing notice to the Plan Administrator at least 10 days before
commencement of the first day of the payroll period for which the
modification is to become effective. However, special restrictions apply to
persons subject to Section 16 of the 1934 Act. Basic Contributions are
transferred by the Employer to the Trustee of the Plan.
Notwithstanding the preceding, a Participant who receives a hardship
distribution under the terms of the Plan may not be eligible to make additional
contributions under a Compensation Reduction Agreement or have matching
contributions made on his behalf for a period of twelve (12) months after the
receipt of the hardship distribution.
Employer Contributions. The Employer contributes to the Plan for each Plan
Year 100% of the Participant's Basic Contributions. Such amounts are credited to
the Participant's "Matching Contribution Account." After the Conversion, at the
discretion of the Bank, the Employer contributions may be credited to the
Participant's Account in Elgin Financial Center, S.B. Employee Stock Ownership
Plan. At its discretion, the Employer may make an additional contribution to the
Plan as of the end of the Plan Year in an amount determined by the Employer for
the purpose of ensuring that the Plan complies with Section 401(k) of the Code.
Such amounts are credited to Participants' "Special Contribution Accounts" based
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<PAGE>
on each Participant's compensation. Special Contributions may be made only to
the accounts of non-highly compensated employees.
IV. Limitations on Contributions
Limitations on Annual Additions and Benefits. Pursuant to the requirements
of the Code, the Plan provides that the amount of contributions allocated to
each Participant's Basic Contribution Account and Matching Contribution Account
during any Plan Year may not exceed the lesser of 25% of the Participant's
Section 415 Compensation for the Plan Year or $30,000 (adjusted for increases in
the cost of living as permitted by the Code). A Participant's Section 415
Compensation is a Participant's Compensation, excluding any Employer
contribution to the Plan or to any other plan of deferred compensation or any
distributions from a plan of deferred compensation. In addition, annual
additions shall be limited to the extent necessary to prevent the limitations
set forth in the Code for all of the qualified defined benefit plans and defined
contribution plans maintained by the Bank from being exceeded. To the extent
that these limitations would be exceeded by reason of excess annual additions
with respect to a Participant, such excess will be disposed of as follows:
(i) Any excess amount in the Participant's Account will be used to reduce
the Employer's contributions for such Participant in the next Limitation Year,
and each succeeding Limitation Year if necessary;
(ii) If, an excess amount still exists, and the Participant is not covered
by the Plan at the end of the Limitation Year, the excess amount will be held
unallocated in a suspense account which will then be applied to reduce future
Employer contributions for all remaining Participants in the next Limitation
Year, and each succeeding Limitation Year if necessary;
(iii) If a suspense account is in existence at any time during the
Limitation Year, it will not participate in the allocation of investment gains
and losses.
Limitation on 401(k) Plan Contributions. The annual amount of deferred
Compensation under a Compensation Reduction Agreement of a Participant (when
aggregated with any elective deferrals of the Participant under a simplified
employee pension plan or a tax-deferred annuity) may not exceed $7,000 adjusted
for increases in the cost of living as permitted by the Code (the limitation for
1997 is $9,500). Contributions in excess of this limitation ("excess deferrals")
will be included in the Participant's gross income for federal income tax
purposes in the year they are made. In addition, any such excess deferral will
again be subject to federal income tax when distributed by the Plan to the
Participant, unless the excess deferral (together with any income allocable
thereto) is distributed to the Participant not later than the first April 15th
following the close of the taxable year in which the excess deferral is made.
Any income on the excess deferral that is distributed not later than such date
shall be treated, for federal income tax purposes, as earned and received by the
Participant in the taxable year in which the excess deferral is made.
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Limitation on Plan Contributions for Highly Compensated Employees.
Sections 401(k) and 401(m) of the Code limit the amount of Deferred
Compensation that may be made to the Plan in any Plan Year on behalf of
Highly Compensated Employees (defined below) in relation to the amount of
Deferred Compensation made by or on behalf of all other employees eligible to
participate in the Plan. Specifically, the actual deferral percentage (i.e.,
the average of the ratios, calculated separately for each eligible employee
in each group, by dividing the amount of Deferred Compensation credited to
the Basic Contribution Account of such eligible employee by such eligible
employee's compensation for the Plan Year) of the Highly Compensated
Employees may not exceed the greater of (i) 125% of the actual deferral
percentage of all other eligible employees, or (ii) the lesser of (x) 200% of
the actual deferral percentage of all other eligible employees, or (y) the
actual deferral percentage of all other eligible employees plus two
percentage points. In addition, the actual contribution percentage for such
Plan Years (i.e., the average of the ratios calculated separately for each
eligible employee in each group, by dividing the amount of voluntary employee
and employer matching contributions credited to the Matching Contribution
Account and Special Contribution Account of such eligible employee by such
eligible employee's compensation for the Plan Year) of the Highly Compensated
Employees may not exceed the greater of (i) 125% of the actual contribution
percentage of all other eligible employees, or (ii) the lesser of (x) 200% of
the actual contribution percentage of all other eligible employees, or (y)
the actual contribution percentage of all other eligible employees plus two
percentage points.
In general, a Highly Compensated Employee includes any employee who, (1) was
a five percent owner of the Employer at any time during the year or preceding
year; or (2) had compensation for the preceding year in excess of $80,000 and,
if the Employer so elects, was in the top 20% of employees by compensation for
such year. The dollar amounts in the foregoing sentence are for 1997. Such
amounts are adjusted annually to reflect increases in the cost of living.
In addition, the compensation of an employee who is a family member of a 5%
owner, or one of the ten most highly compensated employees during the relevant
period is aggregated with that of the Highly Compensated Employee. All such
family members are treated as a single employee with respect to the application
of the limitations on Highly Compensated Employees.
In order to prevent the disqualification of the Plan, any amount
contributed by Highly Compensated Employees that exceed the average deferral
limitation in any Plan Year ("excess contributions"), together with any
income allocable thereto, must be distributed to such Highly Compensated
Employees before the close of the following Plan Year. However, the Employer
will be subject to a 10% excise tax on any excess contributions unless such
excess contributions, together with any income allocable thereto, either are
recharacterized or are distributed before the close of the first 2 1/2 months
following the Plan Year to which such excess contributions relate.
Top-Heavy Plan Requirements. If for any Plan Year the Plan is a Top-Heavy
Plan (as defined below), then (i) the Bank may be required to make certain
minimum contributions to the Plan on behalf of non-key employees (as defined
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below), and (ii) certain additional restrictions would apply with respect to
the combination of annual additions to the Plan and projected annual benefits
under any defined benefit plan maintained by the Bank.
In general, the Plan will be regarded as a "Top-Heavy Plan" for any Plan
Year if, as of the last day of the preceding Plan Year, the aggregate balance of
the Accounts of Participants who are Key Employees exceeds 60% of the aggregate
balance of the Accounts of all Participants. Key Employees generally include any
employee who, at any time during the Plan Year or any of the four preceding Plan
Years, is (1) an officer of the Bank having annual compensation in excess of
$60,000 who is in an administrative or policy-making capacity, (2) one of the
ten employees having annual compensation in excess of $30,000 and owning,
directly or indirectly, the largest interests in the Bank, (3) a 5% owner of the
Bank, (i.e., owns directly or indirectly more than 5% of the stock of the Bank,
or stock possessing more than 5% of the total combined voting power of all stock
of the Bank) or (4) a 1% owner of the Bank having annual compensation in excess
of $150,000. The dollar amounts in the foregoing sentence are for 1997.
V. Investment of Contributions
All amounts credited to Participants' Accounts under the Plan are held in
the Plan Trust (the "Trust") which is administered by the Trustee appointed by
the Bank's Board of Trustees.
Prior to [insert date of Prospectus here], the Accounts of a Participant
held in the Trust have been invested by the Trustee at the direction of the
Participant in the following funds:
Certificate of Deposit Fund: This fund invests in certificates of deposit
of the Bank.
Participants in the Plan may direct the Trustee to invest all or a portion
of his Basic Contribution Account, Matching Contribution Account, Rollover
Account and Special Contribution Account in the Employer Stock Fund.
Once in any calendar quarter a Participant may elect (in increments of
____%), to have both past and future contributions and additions to the
Participant's Basic Contribution Account and Rollover Account invested in the
Employer Stock Fund or the Certificate of Deposit Fund. Participants may also
elect to have past contributions to their Matching Contribution Accounts
invested in either the Employer Stock Fund or the Certificate of Deposit Fund.
Effective January 1, 1998, Participants may also invest in the _________ funds.
Participants Matching Contribution Accounts may be invested in Employer Stock
under the proposed terms of the Elgin Financial Center, S.B. Employee Stock
Ownership Plan being implemented by the Bank. These elections will be effective
on the effective date of the Participant's written notice to the plan
administrator, provided such notice is filed with the administrator at least 10
days before it is to become effective. Any amounts credited to a Participant's
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Account for which investment directions are not given will be invested in
______________ Fund in accordance with the terms of the Plan.
A Participant who receives a loan from the Plan has a separate account
established under the Plan. The amount of the loan is obtained from the
Investment Accounts in which the Borrower's accounts are invested on a pro-rata
basis according to the terms of the Plan. The balance of a Participant's loan
account represents the unpaid principal and interest (if any) of such
participant's loan from the Plan. Repayments of principal and payments of
interest on loans are invested by the Trustee in the same manner as if the
repayment were a contribution.
The Participants interest in the Employer Stock Fund consists of units whose
value is related to a pro rata portion of the net asset value ("NAV") of the
Employer Stock Fund. The NAV is determined daily and all realized and unrealized
gains, dividends, and expenses are used to calculate the NAV. For purposes of
such valuation, all assets of the Trust are valued at their fair market value.
A. Previous Funds.
Prior to _________________, contributions under the Plan were invested in
the Bank's Certificate of Deposit Fund specified above. The annual percentage
return on this fund for the prior three years was:
1996 1995 1994
----- ----- ----
Certificate of Deposit Fund
B. The Employer Stock Fund.
The Employer Stock Fund will consist of investments in Common Stock made on
and after the effective date of the Conversion. Each Participant's proportionate
undivided beneficial interest in the Employer Stock Fund is measured by units.
Each day a unit value will be calculated by determining the market value of the
Common Stock actually held and adding to that any cash held by the Trustee. This
total will be divided by the number of units outstanding to determine the unit
value of the Employer Stock Fund.
On the occasion of the payment of a cash dividend, the unit value will be
determined before the dividend is distributed. The Trustee may use the dividend
to purchase additional shares of Common Stock, thereby increasing the total
value of the Employer Stock Fund, and the value of each unit. The Board of
Directors of the Holding Company may consider a policy of paying cash dividends
on the Common Stock in the future; however, no decision as to the amount or
timing of cash dividends, if any, has been made. The Trustee will, to the extent
practicable, use all amounts held by it in the Employer Stock Fund to purchase
9
<PAGE>
shares of Common Stock of the Bank. It is expected that all purchases will be
made at prevailing market prices. Under certain circumstances, the Trustee may
be required to limit the daily volume of shares purchased. Pending investment in
Common Stock, assets held in the Employer Stock Fund will be placed in bank
deposits and other short-term investments.
Any brokerage commissions, transfer fees and other expenses incurred in the
sale and purchase of Common Stock for the Employer Stock Fund will be paid out
of a cash account managed by the trustee. Therefore, although Participants'
accounts will not be directly adjusted for such fees, the market value of their
accounts will be reduced.
As of the date of this Prospectus Supplement, none of the shares of Common
Stock have been issued or are outstanding and there is no established market for
the Common Stock. Accordingly, there is no record of the historical performance
of the Employer Stock Fund. Performance will be dependent upon a number of
factors, including the financial condition and profitability of the Holding
Company and the Bank and market conditions for the Common Stock generally. See
"Market for the Common Stock" in the Prospectus.
Investments in the Employer Stock Fund may involve certain special risks in
investments in Common Stock of the Company. For a discussion of these risk
factors, see "Risk Factors" in the Prospectus.
VI. Benefits Under the Plan
Vesting. A Participant, at all times, has a fully vested, nonforfeitable
interest in his Basic Contribution Account and the earnings thereon under the
Plan. A Participant vests in his Matching Contribution Account under the Plan
according to the following schedule:
Period of Service Vested Percentage
----------------- ------------------
less than 2 years 0%
2 years 20%
3 years 40%
4 years 60%
5 years 80%
6 years 100%
VII. Withdrawals and Distributions From the Plan
Withdrawals Prior to Termination of Employment. Subject to the hardship
distribution rules under the Plan, a Participant may withdraw all or a portion
of his (i) Basic Contribution Account, (ii) Rollover Contribution Account and
(iii) the vested interest in his Matching Contribution Account. The hardship
distribution requirements ensure that Participants have a true financial need
before a withdrawal may be made.
10
<PAGE>
A Participant may make a withdrawal from his Basic Contribution Account,
Rollover Contribution Account, and Matching Contribution Account after he turns
59 1/2. A Participant after attaining age 59 1/2 may withdraw contributions to
his Basic Contribution Account, contributions to his Rollover Contribution
Account or the vested portion of his Matching Contribution Account at any time.
However, such withdrawals may not be made more often than two times during any
Plan Year.
Distribution Upon Retirement, Disability or Termination of Employment.
Payment of benefits to a Participant who retires, incurs a disability, or
otherwise terminates employment generally shall be made in a lump sum cash
payment as soon as administratively feasible after such termination of
employment if the vested value of the Participant's Account is $3,500 or less.
If the vested portion of the Participant's Account balance is greater than
$3,500, the Participant may request a distribution (subject to the minimum
distribution rules) in a lump sum payment: (a) as soon as administratively
possible after termination, (b) as of any Valuation Date up to 13 months after
termination or (c) as of the date the Participant attains normal retirement age.
At the request of the Participant, the distribution may include an in kind
distribution of Common Stock of the Holding Company equal to the number of
shares that can be purchased with the Participant's balance in the Employer
Stock Fund. Benefit payments ordinarily shall be made not later than 60 days
following the end of the Plan Year in which occurs the latest of the
Participant's: (i) termination of employment; (ii) the attainment of age 65 or
(iii) 10th anniversary of commencement of participation in the Plan; but in no
event later than the April 1 following the calendar year in which the
Participant attains age 70 1/2. However, if the vested portion of the
Participant's Account balances exceeds $3,500, no distribution shall be made
from the Plan prior to the Participant's attaining age 65 unless the Participant
elects to receive an earlier distribution.
Distribution upon Death. A Participant who dies prior to the benefit
commencement date for retirement, disability or termination of employment, and
who has a surviving spouse shall have his benefits paid to the surviving spouse
in a lump sum as soon as administratively possible following the date of his
death, unless the Participant elected prior to his death or the beneficiary so
elects within 90 days of the Participant's death, to receive such distribution
in a lump sum payment as of any Valuation Date which occurs within one year of
the Participant's death. With respect to an unmarried Participant, and in the
case of a married Participant with spousal consent to the designation of another
beneficiary, payment of benefits to the beneficiary of a deceased Participant
shall be made in the form of a lump-sum payment in cash or in Common Stock in
the same manner described above as to a Participant with a surviving spouse.
Nonalienation of Benefits. Except with respect to federal income tax
withholding and as provided with respect to a qualified domestic relations order
(as defined in the Code), benefits payable under the Plan shall not be subject
in any manner to anticipation, alienation, sale, transfer, assignment, pledge,
encumbrance, charge, garnishment, execution, or levy of any kind, either
voluntary or involuntary, and any attempt to anticipate, alienate, sell,
transfer, assign, pledge, encumber, charge or otherwise dispose of any rights to
benefits payable under the Plan shall be void.
11
<PAGE>
Administration of the Plan
The Trustee with respect to the Plan is the named fiduciary of the Plan for
purposes of Section 402 of ERISA.
Trustees. The Trustee is appointed by the Board of Directors of the Bank to
serve at its pleasure. The current Trustees of the Plan are Edward J. Weidner,
John J. Brittain and Barrett J. O'Connor. However, an additional Trustee may be
appointed to hold funds invested in the Employer Stock Fund.
The Trustee receives, holds and invests the contributions to the Plan in
trust and distributes them to Participants and beneficiaries in accordance with
the terms of the Plan and the directions of the Plan Administrator. The Trustee
is responsible for investment of the assets of the Trust.
Reports to Plan Participants
The Administrator (as defined below) will furnish to each Participant a
statement at least quarterly showing (i) the balance in the Participant's
Account as of the end of that period, (ii) the amount of contributions allocated
to such participant's Account for that period, and (iii) the adjustments to such
participant's Account to reflect earnings or losses (if any).
Plan Administrator
Pursuant to the terms of the Plan, the Plan is administered by one or more
persons who are appointed by and who serve at the pleasure of the Bank (the
"Administrator"). Currently, the Trustees of the Plan serve as Plan
Administrator. The address and telephone number of the Administrator is c/o 1695
Larkin Avenue, Elgin, Illinois 60123; (847) 741-3900. The Administrator is
responsible for the administration of the Plan, interpretation of the provisions
of the Plan, prescribing procedures for filing applications for benefits,
preparation and distribution of information explaining the Plan, maintenance of
Plan records, books of account and all other data necessary for the proper
administration of the Plan, and preparation and filing of all returns and
reports relating to the Plan which are required to be filed with the U.S.
Department of Labor and the IRS, and for all disclosures required to be made to
Participants, Beneficiaries and others under Sections 104 and 105 of ERISA.
Amendment and Termination
It is the intention of the Bank to continue the Plan indefinitely.
Nevertheless, the Bank may terminate the Plan at any time. If the Plan is
terminated in whole or in part, then regardless of other provisions in the Plan,
each employee affected by such termination shall have a fully vested interest in
his Accounts. The Bank reserves the right to make, from time to time, any
amendment or amendments to the Plan which do not cause any part of the Trust to
be used for, or diverted to, any purpose other than the exclusive benefit of
12
<PAGE>
Participants or their beneficiaries; provided, however, that the Bank may make
any amendment it determines necessary or desirable, with or without retroactive
effect, to comply with ERISA.
Merger, Consolidation or Transfer
In the event of the merger or consolidation of the Plan with another
plan, or the transfer of the Trust assets to another plan, the Plan requires
that each Participant would (if either the Plan or the other plan then
terminated) receive a benefit immediately after the merger, consolidation or
transfer which is equal to or greater than the benefit he would have been
entitled to receive immediately before the merger, consolidation or transfer
(if the Plan had then terminated).
Federal Income Tax Consequences
The following is only a brief summary of certain federal income tax aspects
of the Plan which are of general application under the Code and is not intended
to be a complete or definitive description of the federal income tax
consequences of participating in or receiving distributions from the Plan. The
summary is necessarily general in nature and does not purport to be complete.
Moreover, statutory provisions are subject to change, as are their
interpretations, and their application may vary in individual circumstances.
Finally, the consequences under applicable state and local income tax laws may
not be the same as under the federal income tax laws. Participants are urged to
consult their tax advisors with respect to any distribution from the Plan and
transactions involving the Plan.
The Plan will be submitted to the IRS in a timely manner for a determination
that it is qualified under Section 401(a) and 401(k) of the Code, and that the
related Trust is exempt from tax under Section 501(a) of the Code. A plan that
is "qualified" under these sections of the Code is afforded special tax
treatment which include the following: (1) The sponsoring employer is allowed an
immediate tax deduction for the amount contributed to the Plan each year; (2)
Participants pay no current income tax on amounts contributed by the employer on
their behalf; and (3) earnings of the plan are tax-deferred thereby permitting
the tax-free accumulation of income and gains on investments. The Plan will be
administered to comply in operation with the requirements of the Code as of the
applicable effective date of any change in the law. The Bank expects to timely
adopt any amendments to the Plan that may be necessary to maintain the qualified
status of the Plan under the Code. Following such an amendment, the Bank will
submit the Plan to the IRS for a determination that the Plan, as amended,
continues to qualify under Sections 401(a) and 501(a) of the Code and that it
continues to satisfy the requirements for a qualified cash or deferred
arrangement under Section 401(k) of the Code. Should the Plan receive from the
IRS an adverse determination letter regarding its tax exempt status, all
participants would generally recognize income equal to their vested interest in
the Plan, the participants would not be permitted to transfer amounts
distributed from the Plan to an IRA or to another qualified retirement plan, and
the Bank may be denied certain deductions taken with respect to the Plan.
13
<PAGE>
Lump Sum Distribution. A distribution from the Plan to a Participant or the
beneficiary of a Participant will qualify as a Lump Sum Distribution if it is
made: (i) within one taxable year of the Participant or beneficiary; (ii) on
account of the Participant's death, disability or separation from service, or
after the Participant attains age 59 1/2; and (iii) consists of the balance to
the credit of the Participant under this Plan and all other profit sharing
plans, if any, maintained by the Bank. The portion of any Lump Sum Distribution
that is required to be included in the Participant's or beneficiary's taxable
income for federal income tax purposes (the "total taxable amount") consists of
the entire amount of such Lump Sum Distribution less the amount of after-tax
contributions, if any, made by the Participant to any other profit sharing plans
maintained by the Bank which is included in such distribution.
Averaging Rules. The portion of the total taxable amount of a Lump Sum
Distribution that is attributable to participation after 1973 in this Plan or
in any other profit-sharing plan maintained by the Bank (the "ordinary income
portion") will be taxable generally as ordinary income for federal income tax
purposes. However, a Participant who has completed at least five years of
participation in this Plan before the taxable year in which the distribution
is made, or a beneficiary who receives a Lump Sum Distribution on account of
the Participant's death (regardless of the period of the Participant's
participation in this Plan or any other profit-sharing plan maintained by the
Employers), may elect to have the ordinary income portion of such Lump Sum
Distribution taxed according to a special averaging rule ("five-year
averaging"). The election of the special averaging rules may apply only to
one Lump Sum Distribution received by the Participant or beneficiary,
provided such amount is received on or after the Participant turns 59-1/2 and
the recipient elects to have any other Lump Sum Distribution from a qualified
plan received in the same taxable year taxed under the special averaging
rule. Under a special grandfather rule, individuals who turned 50 by 1986 may
elect to have their Lump Sum Distribution taxed under either the five-year
averaging rule or under the prior law ten-year averaging rule. Such
individuals also may elect to have that portion of the Lump Sum Distribution
attributable to the participant's pre-1974 participation in the Plan taxed at
a flat 20% rate as gain from the sale of a capital asset.
Common Stock Included in Lump Sum Distribution. If a Lump Sum Distribution
includes Common Stock, the distribution generally will be taxed in the manner
described above, except that the total taxable amount will be reduced by the
amount of any net unrealized appreciation with respect to such Common Stock,
i.e., the excess of the value of such Common Stock at the time of the
distribution over its cost or other basis of the securities to the Trust. The
tax basis of such Common Stock to the Participant or beneficiary for purposes of
computing gain or loss on its subsequent sale will be the value of the Common
Stock at the time of distribution less the amount of net unrealized
appreciation. Any gain on a subsequent sale or other taxable disposition of such
Common Stock, to the extent of the amount of net unrealized appreciation at the
time of distribution, will be considered long-term capital gain regardless of
the holding period of such Common Stock. Any gain on a subsequent sale or other
taxable disposition of the Common Stock in excess of the amount of net
unrealized appreciation at the time of distribution will be considered either
short-term capital gain or long-term capital gain depending upon the length of
the holding period of the Common Stock. The recipient of a distribution may
14
<PAGE>
elect to include the amount of any net unrealized appreciation in the total
taxable amount of such distribution to the extent allowed by the regulations to
be issued by the IRS.
Distributions: Rollovers and Direct Transfers to Another Qualified Plan
or to an IRA. Pursuant to a change in the law, effective January 1, 1993,
virtually all distributions from the Plan may be rolled over to another
qualified Plan or to an IRA without regard to whether the distribution is a
Lump Sum Distribution or a Partial Distribution. Effective January 1, 1993,
Participants have the right to elect to have the Trustee transfer all or any
portion of an "eligible rollover distribution" directly to another plan
qualified under Section 401(a) of the Code or to an IRA. If the Participant
does not elect to have an "eligible rollover distribution" transferred
directly to another qualified plan or to an IRA, the distribution will be
subject to an mandatory federal withholding tax equal to 20% of the taxable
distribution. An "eligible rollover distribution" means any amount
distributed from the Plan except: (1) a distribution that is (a) one of a
series of substantially equal periodic payments (not less frequently than
annually) made for the life (or life expectancy) of the Participant or the
joint lines of the Participant and his or her designated beneficiary, or (b)
for a specified period of ten years or more; (2) any amount that is required
to be distributed under the minimum distribution rules; and (3) any other
distributions excepted under applicable federal law. The tax law change
described above did not modify the special tax treatment of Lump Sum
Distributions, that are not rolled over or transferred i.e., forward
averaging, capital gains tax treatment and the nonrecognition of net
unrealized appreciation, discussed earlier.
ERISA and Other Qualification
As noted above, the Plan is subject to certain provisions of the Employee
Retirement Income Security Act of 1974, as amended, and will be submitted to the
IRS for a determination that it is qualified under Section 401(a) of the Code.
The foregoing is only a brief summary of certain federal income tax aspects
of the Plan which are of general application under the Code and is not intended
to be a complete or definitive description of the federal income tax
consequences of participating in or receiving distributions from the Plan.
Accordingly, each Participant is urged to consult a tax advisor concerning the
federal, state and local tax consequences of participating in and receiving
distributions from the Plan.
Restrictions on Resale
Any person receiving a distribution of shares of Common Stock under the Plan
who is an "affiliate" of the Bank as the term "affiliate" is used in Rules 144
and 405 under the Securities Act of 1933, as amended (the "Securities Act")
(e.g., directors, officers and substantial shareholders of the Bank) may reoffer
or resell such shares only pursuant to a registration statement filed under the
Securities Act assuming the availability thereof, pursuant to Rule 144 or some
other exemption of the registration requirements of the Securities Act Any
person who may be an "affiliate" of the Bank may wish to consult with counsel
15
<PAGE>
before transferring any Common Stock owned by him. In addition, Participants are
advised to consult with counsel as to the applicability of Section 16 of the
1934 Act which may restrict the sale of Common Stock where acquired under the
Plan, or other sales of Common Stock.
Persons who are not deemed to be "affiliates" of the Bank at the time of
resale will be free to resell any shares of Common Stock to them under the Plan,
either publicly or privately, without regard to the Registration and Prospectus
delivery requirements of the Securities Act or compliance with the restrictions
and conditions contained in the exemptive rules thereunder. An "affiliate" of
the Bank is someone who directly or indirectly, through one or more
intermediaries, controls, is controlled by, or is under common control, with the
Bank. Normally, a director, principal officer or major shareholder of a
corporation may be deemed to be an "affiliate" of that corporation. A person who
may be deemed an "affiliate" of the Bank at the time of a proposed resale will
be permitted to make public resales of the Bank's Common Stock only pursuant to
a "reoffer" Prospectus or in accordance with the restrictions and conditions
contained in Rule 144 under the Securities Act or some other exemption from
registration, and will not be permitted to use this Prospectus in connection
with any such resale. In general, the amount of the Bank's Common Stock which
any such affiliate may publicly resell pursuant to Rule 144 in any three-month
period may not exceed the greater of one percent of the Bank's Common Stock then
outstanding or the average weekly trading volume reported on the National
Association of Securities Dealers Automated Quotation System during the four
calendar weeks prior to the sale. Such sales may be made only through brokers
without solicitation and only at a time when the Bank is current in filing the
reports required of it under the 1934 Act.
SEC Reporting and Short-Swing Profit Liability
Section 16 of the 1934 Act imposes reporting and liability requirements on
officers, directors and persons beneficially owning more than ten percent of
public companies such as the Holding Company. Section 16(a) of the 1934 Act
requires the filing of reports of beneficial ownership. Within ten days of
becoming a person subject to the reporting requirements of Section 16(a), a Form
3 reporting initial beneficial ownership must be filed with the Securities and
Exchange Commission. Certain changes in beneficial ownership, such as purchases,
sales, gifts and participation in savings and retirement plans must be reported
periodically, either on a Form 4 within ten days after the end of the month in
which a change occurs, or annually on a Form 5 within 45 days after the close of
the Bank's fiscal year. Participation in the Employer Stock Fund of the Plan by
officers, directors and persons beneficially owning more than ten percent of
Common Stock of the Holding Company must be reported to the SEC annually on a
Form 5 by such individuals. At July 31, 1997, ____% of the Plan assets were
allocated to executive officers.
In addition to the reporting requirements described above, Section 16(b) of
the 1934 Act provides for the recovery by the Holding Company of profits
realized by any officer, director or any person beneficially owning more than
ten percent of the Holding Company's Common Stock ("Section 16(b) Persons")
resulting from the purchase and sale or sale and purchase of the Holding
Company's Common Stock within any six-month period.
16
<PAGE>
The SEC has adopted rules that provide exemption from the profit recovery
provisions of Section 16(b) for participant-directed employer security
transactions within an employee benefit plan, such as the Plan, provided
certain requirements are met. These requirements generally involve
restrictions upon the timing of elections to acquire or dispose of employer
securities for the accounts of Section 16(b) Persons.
Except for distributions of Common Stock due to death, disability,
retirement, termination of employment or under a qualified domestic relations
order, Section 16(b) Persons are required to hold shares of Common Stock
distributed from the Plan for six months following such distribution.
EXPERTS
The financial statements and schedule of Elgin Financial Center, S.B.
401(k) Employee Benefit Plan as of December 31, 1996 and 1995 and for the
years then ended have been included herein in reliance upon the report of
_____________, independent certified public accountants, appearing elsewhere
herein, and upon the authority of said firm as experts in accounting and
auditing.
LEGAL OPINIONS
The validity of the issuance of the Common Stock will be passed upon by
Muldoon, Murphy & Faucette, Washington, D.C., which firm acted as special
counsel for the Bank in connection with the Bank's Conversion from a mutual
savings bank to a stock based organization.
17
<PAGE>
Elgin Financial Center, S.B.
401(k) Employee Benefit Plan
Investment Form
Name of Plan Participant:______________________
Social Security Number:________________________
1. Instructions. In connection with the proposed Conversion of Elgin
Financial Center, S.B. from a mutual savings bank to a stock based organization
(the "Conversion"), Elgin Financial Center, S.B. 401(k) Employee Benefit Plan
("Plan") permits participants to direct their current account balances for their
Basic Contribution Account, Company Contribution Account and Rollover Account
into a new fund: the Employer Stock Fund. The percentage of a participant's
account transferred at the direction of the participant into the Employer Stock
Fund will be used to purchase shares of common stock of EFC Bancorp, Inc. (the
"Common Stock").
To direct a transfer of all or a part of the funds credited to your
accounts to the Employer Stock Fund, you should complete and file this form
with the Human Resources Department, no later than 10 days prior to the
expiration date of the Offering ( ___________, 1997.) A representative for
the Plan Administrator will retain a copy of this form and return a copy to
you. If you need any assistance in completing this form, please contact
__________ at (847) 741-3900. If you do not complete and return this form to
the Plan Administrator by ______________, the funds credited to your accounts
under the Plan will continue to be invested in accordance with your prior
investment direction, or in accordance with the terms of the Plan if no
investment direction has been provided.
2. Investment Directions. I hereby authorize the Plan Administrator to
direct the Trustee to invest the following percentage (in multiples of not less
than ____%) of my Basic Contribution Account, Company Contribution Account and
Rollover Account in the Employer Stock Fund:
Certificate of Deposit Fund ___%
Note: The total percentage of directed investments, above, may not exceed
100%.
3. Status. Enter information below for all accounts you had at the
Eligibility Record Date (_________, 1996) and the Supplemental Eligibility
Record Date ________________ ,1997).
Account Title
(Names on Account) Account Number Date Opened
- ------------------ -------------- -----------
_______________________________________________________________
_______________________________________________________________
_______________________________________________________________
_______________________________________________________________
_______________________________________________________________
If additional space is needed, please use the back of this form.
18
<PAGE>
4. Acknowledgment of Participant. I understand that this Investment Form
shall be subject to all of the terms and conditions of the Plan. I acknowledge
that I have received a copy of the Prospectus and the Prospectus Supplement.
_______________________________ ____________________
SIGNATURE OF PARTICIPANT DATE
- -------------------------------------------------------------------------------
Acknowledgment of Receipt by Administrator. This Investment Form was
received by the Plan Administrator and will become effective on the date
noted below.
_______________________________________ _____________________
Date
By:____________________________________
THE PARTICIPATION INTERESTS REPRESENTED BY COMMON STOCK OFFERED HEREBY ARE
NOT DEPOSIT ACCOUNTS AND ARE NOT INSURED BY THE BANK INSURANCE FUND OR THE
SAVINGS ASSOCIATION INSURANCE FUND OF THE FEDERAL DEPOSIT INSURANCE CORPORATION
OR ANY OTHER GOVERNMENT AGENCY AND ARE NOT GUARANTEED BY THE COMPANY OR BANK.
THE COMMON STOCK IS SUBJECT TO INVESTMENT RISK, INCLUDING THE POSSIBLE LOSS OF
THE PRINCIPAL INVESTED.
19
<PAGE>
[To be used in connection with the Syndicated Community Offering only]
SYNDICATED PROSPECTUS SUPPLEMENT
EFC Bancorp, Inc.
(Proposed Holding Company for Elgin Financial Center, S.B.)
______ Shares of Common Stock
EFC Bancorp, Inc. (the "Company"), a Delaware corporation, is offering
for sale in a syndicated community offering (the "Syndicated Community
Offering") _____ shares, at a per share price of $ _________, of its common
stock, $0.01 par value (the "Common Stock"), to be issued upon the conversion
of Elgin Financial Center, S.B., Elgin, Illinois (the "Bank") from an
Illinois chartered mutual savings bank to an Illinois chartered stock savings
bank and the issuance of the Bank's outstanding capital stock to the Company
pursuant to a plan of conversion (the "Plan of Conversion"). The remaining
______ shares of the Common Stock have been subscribed for in subscription
and community offerings (the "Subscription and Community Offerings") by the
Bank's holders of deposit accounts with the Bank with a balance of $100 or
more as of July 31, 1996, by the Elgin Financial Center, S.B. Employee Stock
Ownership Plan, a tax-qualified employee benefit plan, and related trust (the
"ESOP"), by holders of deposit accounts with a balance of $100 or more as of
September 30, 1997, and then by certain members of the general public. See
"The Conversion -General." Contained herein is the Prospectus in the form
used in the Subscription and Community Offerings. The purchase price for all
shares purchased in the Syndicated Community Offering will be the same as the
price paid by subscribers in the Subscription and Community Offerings (the
"Purchase Price"). The Purchase Price of $10.00 per share is the amount to be
paid for each share at the time a purchase order is submitted. See the cover
page of the Prospectus and the table below for information as to the method
by which the range within which the number of shares offered may vary and the
method of subscribing for shares of the Common Stock. For a discussion of
certain factors that should be considered by each prospective investor, see
"Risk Factors" on pages ____ through ____.
Funds submitted to the Bank with purchase orders will earn interest at
the Bank's passbook rate of interest from the date of receipt until
completion or termination of the Conversion. The Syndicated Community
Offering will expire no later than __________, 1998, unless extended by the Bank
and the Company with the approval of the Commissioner of Banks and Real
Estate of the State of Illinois and the Federal Deposit Insurance
Corporation, if necessary. Such extensions may not go beyond __________, 1999.
If an extension of time has been granted, all subscribers will be notified of
such extension, and of their rights to confirm their subscriptions, or to
modify or rescind their subscriptions and have their funds returned promptly
with interest, and of the time period within which the subscriber must notify
the Bank of his intention to confirm, modify or rescind his subscription. If
an affirmative response to any resolicitation is not received by the Bank and
the Company from subscribers, such orders will be rescinded and all funds
will be returned promptly with interest. The minimum number of shares which
may be purchased is 25 shares. Except for the ESOP, which may purchase up to
8% of the total number of shares of
<PAGE>
Common Stock issued in the Conversion, no person, together with associates of
and persons acting in concert with such person, may purchase in the Community
Offering and the Syndicated Community Offering more than $200,000 of the
aggregate value of Common Stock offered in the Conversion. See "Plan of
Conversion-- Limitations on Common Stock Purchases." The Company reserves the
right, in its absolute discretion, to accept or reject, in whole or in part,
any or all subscriptions in the Syndicated Community Offering.
The Company and the Bank have engaged Charles Webb & Company ("Webb"), a
Division of Keefe, Bruyette & Woods, Inc. ("KBW") to assist them in the sale
of the Common Stock in the Syndicated Community Offering. It is anticipated
that Webb will use the services of other registered broker-dealers ("Selected
Dealers") and that fees to Webb and such Selected Dealers will be an amount
not to exceed 5.5% of the aggregate Purchase Price of the shares sold in the
Syndicated Community Offering. Neither Webb nor any Selected Dealer shall
have any obligation to take or purchase any shares of Common Stock in the
Syndicated Community Offering.
[The Company has received conditional approval to have its Common Stock
listed on the American Stock Exchange ("AMEX") under the symbol "EFC" upon
completion of the Conversion.] 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. The
absence or discontinuance of a market may have an adverse impact on both the
price and liquidity of the stock.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION, THE OFFICE OF THE COMMISSIONER OF BANKS AND REAL
ESTATE OF THE STATE OF ILLINOIS, THE FEDERAL DEPOSIT INSURANCE CORPORATION OR
ANY STATE SECURITIES COMMISSION, OR ANY OTHER AGENCY, NOR HAS SUCH
COMMISSION, BOARD, DEPARTMENT, CORPORATION OR ANY STATE SECURITIES COMMISSION
OR OTHER AGENCY 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 DEPOSIT ACCOUNTS AND
ARE NOT INSURED OR GUARANTEED BY THE BANK INSURANCE FUND OR THE SAVINGS
ASSOCIATION INSURANCE FUND OF THE FEDERAL DEPOSIT INSURANCE CORPORATION OR
ANY OTHER GOVERNMENT AGENCY AND ARE NOT GUARANTEED BY THE COMPANY OR THE
BANK. THE COMMON STOCK IS SUBJECT TO INVESTMENT RISK, INCLUDING THE POSSIBLE
LOSS OF THE PRINCIPAL INVESTED.
2
<PAGE>
<TABLE>
<CAPTION>
ESTIMATED ESTIMATED NET PROCEEDS
UNDERWRITING ESTIMATED NET OF SUBSCRIP-
SYNDICATED COMMISSIONS PROCEEDS OF TION, COMMUNITY
COMMUNITY AND OTHER SYNDICATED AND SYNDICATED
OFFERING FEES AND COMMUNITY COMMUNITY
PRICE EXPENSES(1) OFFERING OFFERINGS(2)(3)
------------- ------------------- ------------------- -----------------------
<S> <C> <C> <C> <C>
Minimum Per Share................................ $ 10.00 $ $ $
Midpoint Per Share............................... $ 10.00 $ $ $
Maximum Per Share................................ $ 10.00 $ $ $
Total Minimum(4)................................. $ $ $ $
Total Midpoint................................... $ $ $ $
Total Maximum(5)................................. $ $ $ $
Total Maximum, As Adjusted(6).................... $ $ $ $
</TABLE>
- ------------------------
(1) Consists of a pro rata allocation of estimated expenses of the Bank and
the Company in connection with the Conversion (other than estimated fees
to be paid to Webb for services in connection with the Subscription and
Community Offerings) and estimated compensation of Webb and Selected
Dealers in connection with the sale of the remaining shares in the
Syndicated Community Offering which fees are estimated to be $___________
and $________ at the minimum and the maximum of the estimated price range
and may be deemed to be underwriting fees. The information under "Pro
Forma Data" in the Prospectus was based on the assumptions stated
therein, which may differ from the estimates used for this table. See
"The Conversion--Marketing and Underwriting Arrangements" for a more
detailed discussion of fee arrangements.
(2) The Company applied to retain up to 50% of the net proceeds. The balance
of the net proceeds will be transferred to the Bank in exchange for all
of the capital stock of the Bank to be issued in connection with the
Conversion.
(3) The net proceeds of the Subscription and Community Offerings (based upon
the sale of the ______ shares subscribed for at a price of $10.00 per
share and after allocation of a pro rata portion of the estimated
expenses relating to the Conversion) are estimated to be $_________.
(4) Based on an estimated price range of $________ to $________ at $10.00 per
share (the "Estimated Price Range). The Total Minimum reflects the sale
of _______ shares at a per share price of $10.00, leaving a total of ______
shares to be sold in the Syndicated Community Offering.
(5) Gives effect to an increase in the number of shares which could occur due
to an increase in the Estimated Price Range of up to 15% to reflect
changes in market and financial conditions following commencement of the
offerings. See "The Conversion--Stock Pricing." For a discussion of the
distribution and allocation of the additional shares, see "The
Conversion--Subscription Rights and Limitations on Common Stock
Purchases."
Charles Webb & Company
a Division of Keefe Bruyette & Woods, Inc.
------------------------------------------
The date of this Prospectus Supplement is , 1997.
3
<PAGE>
PROSPECTUS
EFC BANCORP, INC.
(PROPOSED HOLDING COMPANY FOR ELGIN FINANCIAL CENTER, S.B.)
5,681,000 SHARES OF COMMON STOCK
EFC Bancorp, Inc. (the "Company" or "EFC Bancorp"), a Delaware corporation,
is offering up to 5,681,000 shares of its common stock, par value $.01 per share
(the "Common Stock"), in connection with the conversion of Elgin Financial
Center, S.B. (the "Bank" or "Elgin") from an Illinois state-chartered mutual
savings bank to an Illinois state-chartered stock savings bank and the issuance
of the Bank's capital stock to the Company pursuant to the Bank's plan of
conversion (the "Plan" or "Plan of Conversion"). The simultaneous conversion of
the Bank to stock form, the issuance of the Bank's stock to the Company and the
offer and sale of the Common Stock by the Company are herein referred to as the
"Conversion." In certain circumstances, the Company may increase the amount of
Common Stock offered hereby up to 6,533,150 shares. See Footnote 4 to the table
below.
(continued on following page)
------------------------
FOR ADDITIONAL INFORMATION ON HOW TO SUBSCRIBE FOR COMMON STOCK, PLEASE CALL
THE CONVERSION CENTER AT (847) ___ -____.
FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY EACH
PROSPECTIVE INVESTOR, SEE "RISK FACTORS" ON PAGES ___ THROUGH ___.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, THE ILLINOIS COMMISSIONER OF BANKS AND REAL ESTATE, THE
FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY STATE SECURITIES COMMISSION, OR ANY
OTHER AGENCY, NOR HAS SUCH COMMISSION, OFFICE, CORPORATION OR ANY STATE
SECURITIES COMMISSION OR OTHER AGENCY PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE SHARES OF COMMON STOCK OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS OR
DEPOSITS AND ARE NOT INSURED OR GUARANTEED BY THE BANK INSURANCE FUND OR THE
SAVINGS ASSOCIATION INSURANCE FUND OF THE FEDERAL DEPOSIT INSURANCE CORPORATION
OR ANY OTHER GOVERNMENT AGENCY AND ARE NOT GUARANTEED BY THE COMPANY OR BANK.
THE COMMON STOCK IS SUBJECT TO INVESTMENT RISK, INCLUDING THE POSSIBLE LOSS OF
THE PRINCIPAL INVESTED.
<TABLE>
<CAPTION>
ESTIMATED UNDERWRITING
COMMISSIONS AND OTHER FEES
SUBSCRIPTION PRICE (1) AND EXPENSES(2) ESTIMATED NET PROCEEDS(3)
---------------------- -------------------------- -------------------------
<S> <C> <C> <C>
Minimum Per Share.................... $10.00 $0.27 $9.73
Midpoint Per Share................... $10.00 $0.24 $9.76
Maximum Per Share.................... $10.00 $0.21 $9.79
Total Minimum(1)..................... $41,990,000 $1,113,000 $40,877,000
Total Midpoint(1).................... $49,400,000 $1,198,000 $48,202,000
Total Maximum (1).................... $56,810,000 $1,283,000 $55,527,000
Total Maximum, as adjusted(4)........ $65,331,500 $1,380,000 $63,951,500
</TABLE>
(1) Determined in accordance with an independent appraisal prepared by FinPro,
Inc. ("FinPro") dated October 20 1997, which states that the estimated pro
forma market value of the Common Stock being offered for sale in the
Conversion ranged from $42.0 million to $56.8 million with a midpoint of
$49.4 million taking into account the contribution to the Elgin Financial
Foundation of an amount of Common Stock equal to 8% of the Common Stock
sold in the Conversion (the "Valuation Range"). The independent appraisal of
FinPro is based upon estimates and projections that are subject to change
and the valuation must not be construed as a recommendation as to the
advisability of purchasing the Common Stock nor an assurance that a
purchaser of Common Stock will thereafter be able to sell the Common Stock
at prices within the Valuation Range. Based on the Valuation Range, the
Board of Directors of the Company and the Board of Directors of the Bank
established an estimated price range of the Common Stock being offered for
sale in the Conversion within the Valuation Range of $42.0 million to $56.8
million (the "Estimated Price Range") or between 4,199,000 and 5,681,000
shares of Common Stock issued at the $10.00 per share price (the "Purchase
Price") to be paid for each share of Common Stock subscribed for or
purchased in the Offering. See "The Conversion--Stock Pricing."
(2) Consists of the estimated costs to the Bank and the Company arising from the
Conversion, including estimated fixed expenses of approximately $685,000,
and marketing fees to be paid to Charles Webb & Company ("Webb"), a Division
of Keefe, Bruyette & Woods, Inc. ("KBW"), estimated to be between $428,000
and $598,000 at the minimum and maximum of the Estimated Price Range,
respectively. See "The Conversion--Marketing and Underwriting Arrangements."
The actual fees and expenses may vary from the estimates. See "Pro Forma
Data" for the assumptions used to arrive at these estimates.
(3) Actual net proceeds may vary substantially from estimated amounts depending
upon the number of shares sold in the Offerings and other factors. Includes
the purchase of shares of Common Stock by the Elgin Financial Center, S.B.
Employee Stock Ownership Plan and related trust (the "ESOP") which is
intended to be funded by a loan to the ESOP from the Company or from a third
party, which will be deducted from the Company's stockholders' equity. See
"Use of Proceeds" and "Pro Forma Data."
(4) As adjusted to reflect the sale of up to an additional 15% of the Common
Stock which may be offered at the Purchase Price, without resolicitation of
subscribers or any right of cancellation, due to regulatory considerations,
changes in market or general financial and economic conditions. See "Pro
Forma Data" and "The Conversion--Stock Pricing." For a discussion of the
distribution and allocation of the additional shares, if any, see "The
Conversion--Subscription Offering and Subscription Rights," "--Community
Offering" and "--Limitations on Common Stock Purchases."
------------------------
CHARLES WEBB & COMPANY
A DIVISION OF KEEFE BRUYETTE & WOODS, INC.
------------------
The date of this Prospectus is December , 1997.
<PAGE>
(continued from previous page)
Non-transferable rights to subscribe for the Common Stock in a
Subscription Offering (the "Subscription Offering") have been granted in the
following order of priority to: (1) the Bank's Eligible Account Holders
(defined as holders of deposit accounts totalling $100 or more as of July 31,
1996); (2) the Company's and Bank's tax-qualified employee benefit plans
(collectively, the "Employee Plans"), including the ESOP which intends to
subscribe for up to 8% of the Common Stock issued in connection with the
Conversion (including shares issued to the Elgin Financial Foundation (the
"Foundation")); (3) the Bank's Supplemental Eligible Account Holders (defined
as holders of deposit accounts totalling $100 or more as of September 30,
1997); and (4) Other Voting Members of the Bank (defined as depositors of the
Bank as of __________, 1997 (the "Voting Record Date")). Subscription rights
are non-transferable. Persons found to be transferring subscription rights
will be subject to forfeiture of such rights and possible further sanctions
and penalties. Concurrently, and subject to the prior rights of holders of
subscription rights, the Company is offering the shares of Common Stock not
subscribed for in the Subscription Offering for sale in a community offering
to certain members of the general public (the "Community Offering") with a
preference given to natural persons residing in Kane, Cook and McHenry
Counties, Illinois (the Bank's "Local Community") (such natural persons
herein referred to as "Preferred Subscribers"). Shares not subscribed for in
the Subscription and Community Offerings will be offered to certain members
of the general public in a syndicated community offering (the "Syndicated
Community Offering") (the Subscription Offering, Community Offering and the
Syndicated Community Offering are referred to collectively as the
"Offerings").
Except for the ESOP, no Eligible Account Holder or Supplemental Eligible
Account Holder may, in their respective capacities as such, purchase in the
Subscription Offering more than $200,000 of Common Stock; no person, together
with associates and persons acting in concert with such person, may purchase in
the Community Offering and Syndicated Community Offering more than $200,000 of
Common Stock; and no person, together with associates of and persons acting in
concert with such person, may purchase in the aggregate more than the overall
maximum purchase limitation of 1.0% of the total number of shares of Common
Stock offered in the Conversion exclusive of any shares issued pursuant to an
increase in the Estimated Price Range of up to 15%; provided, however, such
purchase limitations may be increased and the amount that may be subscribed for
may be increased or decreased at the sole discretion of the Bank and Company
without further approval of subscribers or the Bank's members. The minimum
purchase is 25 shares. See "The Conversion--Subscription Offering and
Subscription Rights," "--Community Offering" and "--Limitations on Common Stock
Purchases."
Pursuant to the Plan, the Company intends to establish a charitable
foundation in connection with the Conversion. The Plan provides that the Bank
and the Company will create the Elgin Financial Foundation and fund the
Foundation with shares of Common Stock contributed by the Company from
authorized but unissued shares, in an amount equal to 8% of the number of shares
of Common Stock sold in the Conversion. The Foundation will be dedicated to
charitable purposes within the Bank's local community. For a discussion of the
Foundation and its effects on the Conversion, see "Risk Factors--Establishment
of the Charitable Foundation," "Pro Forma Data," and "The Conversion
- - Establishment of Charitable Foundation."
The Bank has engaged Webb to consult with and advise the Company and the
Bank in the Offerings and Webb has agreed to use its best efforts to assist the
Company with the solicitation of subscriptions and purchase orders for shares of
Common Stock in the Offerings. Webb is not obligated to take or purchase any
shares of Common Stock in the Offerings. The Bank and the Company will pay a fee
to Webb which will be based on the aggregate Purchase Price of the Common Stock
sold in the Offerings. The Company and the Bank have agreed to indemnify Webb
against certain liabilities arising under the Securities Act of 1933, as amended
(the "Securities Act"). See "The Conversion--Marketing and Underwriting
Arrangements."
The Subscription and Community Offerings will terminate at 12:00 Noon,
Central time, on __________, 1998 (the "Expiration Date") unless extended by the
Bank and the Company, with the approval of the Commissioner of Banks and Real
Estate of the State of Illinois (the "Commissioner") and the Federal Deposit
Insurance Corporation (the "FDIC"), if necessary. Orders submitted are
irrevocable until the completion of the Conversion; provided, that if the
Conversion is not completed within 45 days after the close of the Subscription
and Community Offerings, unless such period has been extended with the consent
of the Commissioner and FDIC, if necessary, all subscribers will have their
funds returned promptly with interest, and all withdrawal authorizations will be
cancelled. Such extensions may not go beyond __________, 1999. See "The
Conversion--Procedure for Purchasing Shares in Subscription and Community
Offerings."
The Company has received conditional approval to have its Common Stock
listed on the American Stock Exchange ("AMEX") under the symbol "EFC" upon
completion of the Conversion. 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 the Common
Stock will trade at or above the Purchase Price. To the extent an active and
liquid trading market does not develop, the liquidity and market value of the
Common Stock may be adversely affected. See "Risk Factors--Absence of Market for
Common Stock" and "Market for the Common Stock."
2
<PAGE>
[MAP GOES HERE]
3
<PAGE>
SUMMARY OF THE CONVERSION AND THE OFFERINGS
The following summary of the Conversion and the Offerings is qualified in
its entirety by the more detailed information appearing elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
<S> <C>
Risk Factors.................... A purchase of the Common Stock involves a substantial
degree of risk. Eligible Account Holders, Supplemental
Eligible Account Holders, Other Voting Members and other
prospective investors should carefully consider the
matters set forth under "Risk Factors." The shares of Common
Stock offered hereby are not insured or guaranteed by the
FDIC or any other government agency and are not guaranteed
by the Company or Bank.
EFC Bancorp, Inc................ EFC Bancorp is a Delaware corporation organized at the
direction of Elgin Financial Center, S.B. to become a
savings and loan holding company and own all of the Bank's
capital stock to be issued upon its conversion from mutual
form to stock form. To date, the Company has not engaged in
any business. Its executive office is located at 1695
Larkin Avenue, Elgin, Illinois 60123 and its telephone
number is (847) 741-3900.
Elgin Financial Center, S.B..... The Bank is an Illinois state-chartered mutual savings
bank. At July 31, 1997, the Bank had total assets of $324.4
million, total deposits of $262.3 million and retained
earnings of $31.3 million. The Bank is located at 1695
Larkin Avenue, Elgin, Illinois 60123 and its telephone
number is (847) 741-3900.
The Conversion and
Reasons for Conversion........ The Board of Directors of the Bank has adopted a Plan of
Conversion pursuant to which the Bank intends to convert
to an Illinois state-chartered stock savings bank and
issue all of its stock to the Company. The Company is
offering shares of its Common Stock in the Offerings in
connection with the Bank's Conversion. Management believes
the Conversion offers a number of advantages,
including:(i) providing a larger capital base on which to
operate; (ii) providing enhanced future access to capital
markets; (iii) providing enhanced ability to diversify
into other financial services related activities; and (iv)
providing enhanced ability to increase its presence in the
communities it serves through the acquisition or
establishment of branch offices or the acquisition of
other financial institutions. The Conversion and the
Offerings are subject to approval by the Commissioner and
non-objection by the FDIC, and approval of members of the
Bank eligible to vote at a special meeting to be held on
__________, 1998 (the "Special Meeting").The Commissioner issued
an approval letter on ____________, 1997 and the FDIC issued a
notice of intent not to object to the Conversion on
_____________, 1997. See The Conversion--General.
Elgin Financial Foundation...... The Bank's Plan of Conversion provides for the
establishment of a charitable foundation in connection
with the Conversion. The Foundation, which will be
incorporated under Delaware law as a non-stock
corporation, will be funded with a contribution by the
Company equal to 8% of the Common Stock sold in the
Conversion. The authority for the affairs of the Foundation
will be vested in the Board of Directors of the
Foundation, all of whom are existing Directors of the
Company or the Bank or officers of the Company or the
Bank. See The "Conversion - Establishment of the Charitable
Foundation".
</TABLE>
4
<PAGE>
<TABLE>
<S> <C>
Terms of the Offering........... The shares of Common Stock to be sold in connection with
the Conversion are being offered at a fixed price of
$10.00 per share in the Subscription Offering pursuant to
subscription rights in the following order of priority
to: (i) Eligible Account Holders; (ii) the Employee Plans,
including the ESOP; (iii) Supplemental Eligible Account
Holders; and (iv) Other Voting Members. Concurrently, and
subject to the prior rights of holders of subscription
rights, any shares of Common Stock not subscribed for in
the Subscription Offering are being offered in the
Community Offering at $10.00 per share to certain members
of the general public with a preference given to Preferred
Subscribers. Subscription rights will expire if not
exercised by 12:00 Noon, Central time, on _______, 1998,
unless extended by the Bank and the Company, with the
approval of the Commissioner and the FDIC, if
necessary. See "The Conversion--Subscription Offering and
Subscription Rights" and "--Community Offering."
Procedure for Ordering Shares
and Prospectus Delivery....... Forms to order Common Stock offered in the Subscription
Offering and the Community Offering will be preceded or
accompanied by a Prospectus. Any person receiving a stock
order and certification form who desires to subscribe for
shares must do so prior to the Expiration Date by
delivering to the Bank a properly executed stock order and
certification form together with full payment. Once
tendered, subscription orders cannot be revoked or
modified without the consent of the Bank. To ensure that
each purchaser receives a prospectus at least 48 hours
prior to the Expiration Date in accordance with Rule
15c2-8 of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), no prospectus will be mailed any later
than five days prior to the Expiration Date or hand
delivered any later than two days prior to such date. The
Bank is not obligated to accept subscriptions not
submitted on an original stock order form. See "The
Conversion -- Procedure for Purchasing Shares in
Subscription and Community Offerings."
Form of Payment for Shares...... Payment for subscriptions may be made: (i) in cash (if
delivered in person and only at the Conversion Center);
(ii) by check or money order; or (iii) by authorization of
withdrawal from deposit accounts maintained at the Bank. No
wire transfers will be accepted. See "Conversion --
Procedure for Purchasing Shares in Subscription and
Community Offerings."
Nontransferability of
Subscription Rights........... The subscription rights of Eligible Account Holders,
Supplemental Eligible Account Holders, Other Voting
Members and the Employee Plans, including the ESOP, are
nontransferable. See "The Conversion -- Restrictions on
Transfer of Subscription Rights and Shares."
</TABLE>
5
<PAGE>
<TABLE>
<S> <C>
Purchase Limitations............ No Eligible Account Holder, Supplemental Eligible Account
Holder or Other Voting Member may purchase in the
Subscription Offering more than $200,000 of Common
Stock. No person, together with associates and persons
acting in concert with such person, may purchase in the
Community Offering and the Syndicated Community Offering
more than $200,000 of Common Stock. No person, together
with associates or persons acting in concert with such
person, may purchase in the aggregate more than 1% of the
Common Stock offered. However, the Employee Plans,
including the ESOP, may purchase up to 10% of the Common
Stock issued, including shares issued to the
Foundation. Pursuant to the Plan of Conversion, it is the
intent of the ESOP to purchase 8% of the Common Stock
issued, including shares issued to the Foundation. The
minimum purchase is 25 shares of Common Stock. At any time
during the Conversion and without approval of the Bank's
depositors or a resolicitation of subscribers, the Bank
and the Company may, in their sole discretion, decrease
the maximum purchase limitation below $200,000 of Common
Stock; however, such amount may not be reduced to less
than 0.10% of the Common Stock offered. Additionally, at
any time during the Conversion, the Bank and the Company
may, in their sole discretion, increase the maximum
purchase limitation in the Subscription and Community
Offerings to an amount in excess of $200,000 up to a
maximum of 5% of the shares to be issued in the
Conversion. Similarly, the 1.0% overall maximum purchase
limitation may be increased up to 5% of the total shares
of Common Stock offered in the Conversion.
Securities Offered and Purchase
Price......................... The Company is offering between 4,199,000 and 5,681,000
shares of Common Stock at a Purchase Price of $10.00 per
share. The maximum of the Estimated Price Range may be
increased by up to 15% and the maximum number of shares of
Common Stock to be issued may be increased up to 6,533,150
shares due to regulatory considerations and changes in
market or general financial or economic conditions. See "The
Conversion -- Stock Pricing" and "-- Number of Shares to be
Issued."
Appraisal....................... The Purchase Price per share has been fixed at $10.00. The
total number of shares to be issued in the Conversion is
based upon an independent appraisal prepared by FinPro,
dated as of October 20, 1997, which states that the
estimated pro forma market value of the Common Stock
ranged from $42.0 million to $56.8 million. The final
aggregate value will be determined at the time of closing
of the Offerings and is subject to change due to changing
market conditions and other factors. See "The
Conversion--Stock Pricing."
Use of Proceeds................. The Company will use 50% of the net proceeds of the
Offerings to purchase all of the outstanding common stock
of the Bank to be issued in the Conversion. A portion of
net proceeds retained by the Company will be used for
general business activity, including a loan by the Company
directly to the ESOP to enable the ESOP to purchase up to
8% of the stock issued in connection with the Conversion,
including shares issued to the Foundation. The
Company intends to initially invest the remaining net
proceeds in mortgage-backed and mortgage related
securities and other investment-grade marketable
securities. The Bank intends to utilize net proceeds for
general business purposes. See "Use of Proceeds."
</TABLE>
6
<PAGE>
<TABLE>
<S> <C>
Dividend Policy................. Upon Conversion, the Board of Directors of the Company
will have the authority to declare dividends on the Common
Stock, subject to statutory and regulatory requirements. In
the future, the Board of Directors of the Company may
consider a policy of paying cash dividends on the Common
Stock. However, no decision has been made with respect to
such dividends, if any. "See Dividend Policy."
Benefits of the Conversion to
Management.................... Among the benefits to the Bank and the Company anticipated
from the Conversion is the ability to attract and retain
personnel through the use of stock options and other stock
related benefit programs. Subsequent to the Conversion, the
Company intends to adopt a Stock Program (as defined
herein) and Stock Option Plan (as defined herein) for the
benefit of directors, officers and employees. If such
benefit plans are adopted within one year after the
Conversion, such plans will be subject to stockholders'
approval at a meeting of stockholders which may not be
held earlier than six months after the Conversion. The
Company intends to adopt a stock benefit plan which would
provide for the granting of Common Stock to officers,
directors and employees of the Bank and Company in an
amount equal to 4% of the Common Stock issued in the
Conversion, including shares issued to the Foundation (the
"Stock Program"). The Company also intends to adopt a stock
option plan which would provide the Company with the
ability to grant options to officers, directors and
employees of the Bank and Company to purchase Common Stock
equal to 10% of the number of shares of Common Stock
issued in the Conversion, including shares issued to the
Foundation (the "Stock Option Plan"). Additionally, certain
officers of the Company and the Bank will be provided with
employment agreements or change in control agreements
which provide such officers with employment rights and/or
payments upon their termination of service following a
change in control. For a further description of the Stock
Program and Stock Option Plan, see "Risk Factors--Stock
Based Benefits to Management, Employment Contracts and
Change in Control Payments" and "Management of the
Bank--Benefit Plans." See "Management of the Bank
- Subscriptions of Executive Officers and Directors,"
"Restrictions on Acquisition of the Company and the
Bank--Restrictions in the Company's Certificate of
Incorporation and Bylaws," and "The
Conversion--Establishment of the Charitable Foundation."
Voting Control of Officers and
Directors..................... Directors and executive officers of the Bank and the
Company expect to purchase approximately 6.9% or 5.1% of
shares of Common Stock outstanding, based upon the minimum
and the maximum of the Estimated Price Range,
respectively. Assuming the implementation of the ESOP,
Stock Program and Stock Option Plan, and shares purchased
directly by directors and executive officers of the Bank
and the Company, directors, executive officers and
employees have the potential to control the voting of
approximately 23.5% of the Common Stock at the maximum of
the Estimated Price Range, including shares issued to the
Foundation. Additionally, the Foundation will hold Common
Stock in an amount equal to 7.4% of the Common Stock sold
in the Conversion, with such shares of Common Stock to be
voted in the same ratio as all other shares of the
Company's Common Stock. See "The Conversion--Establishment
of the Charitable Foundation," "Management of the
Bank--Subscriptions of Executive Officers and Directors,"
and "Restrictions on Acquisition of the Company and the
Bank - Restrictions in the Company's Certificate of
Incorporation and Bylaws."
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Expiration Date for the
Subscription Offering......... The Expiration Date for the Subscription Offering is 12:00
Noon, Central time on ________, 1998 unless extended by the
Bank and the Company. See "The Conversion -- Subscription
Offering and Subscription Rights."
Expiration Date for the
Community Offering............ The Expiration Date for the Community Offering is 12:00
Noon, Central time on _____, 1998, unless extended by the
Bank and the Company. See "The Conversion -- Community
Offering."
Market for Stock................ As a mutual institution, the Bank has never issued capital
stock and, consequently, there is no existing market for
the Common Stock. The Company has received conditional
approval to have its Common Stock listed on the AMEX under
the symbol "EFC" subject to the completion of the Conversion
and compliance with certain conditions. See "Market for the
Common Stock."
No Board Recommendations........ The Bank's Board of Directors and the Company's Board of
Directors are not making any recommendations to depositors
or other potential investors regarding whether such
persons should purchase the Common Stock. An investment in
the Common Stock must be made pursuant to each investor's
evaluation of his or her best interests.
Conversion Center............... If you have any questions regarding Conversion, call the
Conversion Center at (847) __________.
</TABLE>
8
<PAGE>
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA OF THE BANK
Set forth below are selected consolidated financial and other data of the
Bank. These financial data are derived in part from, and should be read in
conjunction with, the Consolidated Financial Statements of the Bank and Notes
thereto presented elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AT JULY 31, AT DECEMBER 31,
---------------------- ----------------------------------------------------------
1997(1) 1996(1) 1996 1995 1994 1993 1992
---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
(UNAUDITED) (IN THOUSANDS)
Selected Consolidated Financial Data:
Total assets.......................... $ 324,361 $ 306,350 $ 315,910 $ 298,043 $ 274,069 $ 267,147 $ 252,298
Loans receivable, net................. 242,172 232,284 237,678 220,937 202,543 174,617 165,337
Investment securities available for
sale(2)............................. 38,203 36,247 37,543 30,707 29,782 28,587 27,188
Mortgage-backed securities, net,
available for sale(3)............... 19,732 23,662 21,975 24,520 26,725 29,761 29,761
Deposits.............................. 262,252 251,546 253,114 248,142 239,423 239,260 230,323
FHLB advances......................... 24,000 20,000 29,000 15,000 6,500 -- --
Retained earnings..................... 31,330 28,494 29,913 27,862 23,352 21,027 17,704
</TABLE>
<TABLE>
<CAPTION>
FOR THE SEVEN MONTHS
ENDED
JULY 31, FOR THE FISCAL YEAR ENDED DECEMBER 31,
-------------------- -----------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
(UNAUDITED) (IN THOUSANDS)
Selected Operating Data:
Interest income................................ $ 14,212 $ 13,421 $ 23,421 $ 21,432 $ 19,528 $ 19,597 $ 20,785
Interest expense............................... 7,603 7,154 12,513 11,157 9,106 9,338 11,474
--------- --------- --------- --------- --------- --------- ---------
Net interest income before provision for loan
losses....................................... 6,609 6,267 10,908 10,275 10,422 10,259 9,311
Provision for loan losses...................... 21 39 54 72 90 93 206
--------- --------- --------- --------- --------- --------- ---------
Net interest income after provision for loan
losses....................................... 6,588 6,228 10,854 10,203 10,332 10,166 9,105
Noninterest income............................. 448 465 802 674 569 677 614
Noninterest expense............................ 4,284 3,996 8,482 6,370 6,102 5,421 4,538
--------- --------- --------- --------- --------- --------- ---------
Earnings before income tax expense and
cumulative effect of change in accounting
principle.................................... 2,752 2,697 3,174 4,507 4,799 5,422 5,181
Income tax expense............................. 936 967 1,132 1,746 1,843 2,086 1,924
--------- --------- --------- --------- --------- --------- ---------
Earnings before cumulative effect of change in
accounting principle......................... 1,816 1,730 2,042 2,761 2,956 3,336 3,257
Cumulative effect of change in accounting for
income taxes................................. -- -- -- -- -- -- 306
--------- --------- --------- --------- --------- --------- ---------
Net earnings................................... $ 1,816 $ 1,730 $ 2,042 $ 2,761 $ 2,956 $ 3,336 $ 2,951
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
</TABLE>
(Continued on following page)
9
<PAGE>
<TABLE>
<CAPTION>
AT OR FOR THE SEVEN
MONTHS ENDED
JULY 31, FOR THE FISCAL YEAR ENDED DECEMBER 31,
-------------------- -----------------------------------------------------
1997(1) 1996(1) 1996 1995 1994 1993 1992
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
(UNAUDITED)
(IN THOUSANDS)
Selected Financial Ratios and Other Data(3):
Performance Ratios:
Return on average assets................... 0.97% 0.98% 0.66% 0.97% 1.09% 1.28% 1.31%
Return on average retained earnings........ 10.24 10.33 7.09 10.64 12.92 16.98 18.03
Average retained earnings to average
assets................................... 9.43 9.45 9.33 8.36 9.11 7.53 6.60
Retained earnings to total assets at end of
period................................... 9.66 9.30 9.34 9.33 8.52 7.87 7.02
Net interest rate spread(4)................ 3.01 2.98 2.96 3.06 3.50 4.57 4.35
Net interest margin(5)..................... 3.59 3.61 3.59 3.65 3.93 4.53 4.26
Average interest-earning assets to average
interest-bearing liabilities............. 114.49 115.22 115.19 114.95 112.61 98.69 97.93
Total noninterest expense to average
assets................................... 2.29 2.29 2.79 2.26 2.30 2.39 2.07
Efficiency ratio(6)........................ 60.71 59.36 72.43 58.18 55.52 49.57 45.72
Net interest income to operating
expenses................................. 154.27 156.83 128.60 161.30 170.80 189.25 205.18
Regulatory Capital Ratios(7):
Leverage capital........................... 9.51 9.40 9.33 9.24 8.68 7.96 7.10
Total risk-based capital................... 17.40 16.93 16.49 16.26 15.82 17.04 15.15
Asset Quality Data and Ratios:
Total non-performing loans(8).............. $ 409 $ 588 $ 516 $ 789 $ 543 $ 1,088 $ 155
Real estate owned, net..................... -- -- 67 477 581 770 1,125
Total non-performing assets(9)............. 409 588 583 1,266 1,124 1,858 1,280
Allowance for loan losses.................. 829 793 808 754 682 592 500
Non-performing loans as a percent of
loans(8)(10)............................. 0.17% 0.25% 0.22% 0.36% 0.27% 0.62% 0.09%
Non-performing assets as a percent of total
assets(9)................................ 0.13 0.19 0.19 0.43 0.41 0.70 0.51
Allowance for possible loan losses as a
percent of loans(10)..................... 0.34 0.34 0.34 0.34 0.34 0.34 0.31
Allowance for possible loan losses as a
percent of total non-performing
loans(8)................................. 202.70 134.90 156.60 95.60 125.60 54.40 332.30
Net charge-offs as a percent of
loans(10)................................ -- -- -- -- -- -- .02
Other Data:
Number of customer facilities................ 6 7 6 7 7 6 6
</TABLE>
(1) The data presented for the seven months ended July 31, 1997 and 1996 was
derived from unaudited consolidated financial statements and reflect, in the
opinion of management, all adjustments (consisting only of normal recurring
adjustments) which are necessary to present fairly the results for such
interim periods. Interim results at and for the seven months ended July 31,
1997 are not necessarily indicative of the results that may be expected for
the year ending December 31, 1997.
(2) The Bank adopted Statement of Financial Accounting Standards ("SFAS") No.
115, "Accounting for Certain Investments in Debt and Equity Securities,"
("SFAS No. 115"), as of January 1, 1994.
(3) Asset Quality Ratios and Regulatory Capital Ratios are end of period ratios.
With the exception of end of period ratios, all ratios are based on average
monthly balances during the indicated periods and are annualized where
appropriate.
(4) The net interest rate spread represents the difference between the weighted
average yield on average interest-earning assets and the weighted average
cost of average interest-bearing liabilities.
(5) The net interest margin represents net interest income as a percent of
average interest-earning assets.
(6) The efficiency ratio represents the ratio of non-interest expense divided by
the sum of net interest income and non-interest income.
(7) For definitions and further information relating to the Bank's regulatory
capital requirements, see "Regulation and Supervision--Regulations--Capital
Requirements." See "Regulatory Capital Compliance" for the Bank's pro forma
capital levels as a result of the Offerings.
(8) Non-performing loans consist of all non-accrual loans and all other loans 90
days or more past due. It is the Bank's policy to generally cease accruing
interest on all loans 90 days or more past due. See "Business of the
Bank--Delinquent Loans, Classified Assets and Real Estate Owned."
(9) Non-performing assets consist of non-performing loans and real estate owned,
net ("REO").
(10) Loans represent loans receivable net, excluding the allowance for loan
losses.
10
<PAGE>
RISK FACTORS
The following special considerations, in addition to those discussed
elsewhere in this Prospectus, should be considered by investors in deciding
whether to purchase the Common Stock offered hereby.
Sensitivity to Increases in Interest Rates
The Bank's profitability, like that of most financial institutions, 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 securities, and its interest expense on interest-bearing liabilities, such
as its deposits and borrowed funds. Accordingly, the Bank's results of
operations and financial condition are largely dependent on movements in market
interest rates and its ability to manage its assets and liabilities in response
to such movements.
The Bank emphasizes investment in adjustable-rate loans ("ARMs"). At July
31, 1997, 59.0% of the Bank's total loans receivable had adjustable interest
rates and its loan portfolio had an average weighted maturity of 18.1 years.
However, while still emphasizing the origination of ARMs, in an effort to
increase its volume of one- to four-family residential loan originations, the
Bank recently, adopted certain changes to its loan pricing strategies which may
expose it to increased interest rate risk. In this regard, the Bank has
determined to price its fixed-rate one- to four-family residential mortgage
loans more aggressively. Previously, the Bank had typically priced such loans at
above market rates in order to control the amount of originations of such loans.
In response to customer demand, however, the Bank has determined that it can
increase its lending volume by pricing its fixed-rate loans more competitively.
At July 31, 1997, $11.4 million, or 19.8%, of the Bank's investment
securities had adjustable interest rates and its securities portfolio had a
weighted average maturity of 9.5 years. As part of interest bearing liabilities,
the Bank had $82.1 million of certificates of deposit with maturities of one
year or less and $9.8 million of deposits over $100,000. Such deposits tend to
be less stable sources of funding as compared to core deposits and at July 31,
1997 represented 33.13% of the Bank's interest-bearing liabilities. As a result,
the ratio of the Bank's interest-earning assets repricing or maturing within one
year or less as compared to its interest-bearing liabilities maturing or
repricing in one year or less ("one year gap position") was negative 20.74%. Due
to the Bank's level of deposits which may reprice at rates faster than its core
deposits, the Bank's cost of funds may increase at a greater rate in a rising
interest rate environment than if it had a greater amount of core deposits
which, in turn, may adversely affect net interest income and net income.
Accordingly, in a rising interest rate environment, the Bank's interest-bearing
liabilities may adjust upwardly more rapidly than its yield on its
adjustable-rate loans, adversely affecting the Bank's net interest rate spread,
net interest income and net income.
Significant increases in the level of market interest rates also may
adversely affect the fair value of the Bank's securities and other
interest-earning assets. At July 31, 1997, $46.5 million, or 80.3%, of the
Bank's securities had fixed interest rates. Generally, the value of fixed-rate
instruments fluctuates inversely with changes in interest rates. As a result,
increases in interest rates could result in decreases in the market value of
interest-earning assets which could adversely affect the Bank's results of
operations if sold or, in the case of interest-earning assets classified as
available-for-sale, the Bank's retained earnings if retained. Increases in
market interest rates also can affect the type (fixed-rate or adjustable-rate)
and amount of loans originated by the Bank and the average life of loans and
securities, which can adversely impact the yields earned on the Bank's loan and
securities portfolio. In periods of decreasing interest rates, the average life
of loans held by the Bank may be shortened to the extent increased prepayment
activity occurs during such periods which, in turn, may result in the Bank
investing funds from such prepayments in lower yielding assets. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Management of Interest Rate Risk."
Potential Low Return on Equity Following the Conversion
At July 31, 1997, the Bank's ratio of net worth to assets was 9.66%. The
Company's equity position will be significantly increased as a result of the
Conversion. On a pro forma basis as of July 31, 1997, assuming the sale of
Common Stock at the midpoint of the Estimated Price Range, the Company's ratio
of equity to assets would exceed 20.3%. The Company's ability to deploy this new
capital through investments in interest-bearing assets, such as loans and
securities, which bear rates of return comparable to its current investments,
will be significantly affected by industry
11
<PAGE>
competition for such investments. The Company currently anticipates that it
will take time to prudently deploy such capital. In addition, the issuance of
authorized but unissued shares of Common Stock to the Foundation will
adversely impact the Company's earnings per share on a going-forward basis.
As a result, the Company's return on equity initially is expected to be below
its historical return on equity and may be below peer group institutions
after the Conversion.
Increased Lending Risks Associated with Commercial Real Estate, Multi-Family
Real Estate, Construction and Land and Commercial Business Lending
At July 31, 1997, the Bank's commercial real estate, multi-family real
estate, construction and land and commercial loan portfolios totalled $50.3
million, or 20.7% of total loans and 16.0% of total interest-earning assets. At
that date, commercial real estate loans totalled $11.9 million, or 4.9% of total
loans, multi-family real estate loans totalled $20.9 million, or 8.6% of total
loans, construction and land loans totalled $14.7 million, or 6.0% of total
loans and commercial loans totalled $2.8 million, or 1.1% of total loans.
Additionally at such date, the Bank had $12.3 million of outstanding commitments
to fund commercial real estate, multi-family, construction and land and
commercial loans.
Although the Bank's level of commercial real estate, multi-family real
estate, construction and land and commercial lending has historically been
relatively modest in comparison to its one- to four-family residential lending,
the Bank has recently increased its emphasis on commercial real estate and
commercial business loans. In this regard, the Bank has hired two experienced
commercial loan originators with the primary responsibility of increasing
commercial real estate and commercial business loan volume. Commercial real
estate and multi-family loans are generally viewed as exposing the lender to a
greater risk of loss than one- to four-family residential loans. Repayment of
commercial real estate and multi-family loans generally is dependent, in large
part, on sufficient income from the property to cover operating expenses and
debt service. Economic events and government regulations, which are outside the
control of the borrower or lender, could impact the value of the security for
the loan or the future cash flow of the affected properties. Additionally,
although commercial real estate and multi-family values have stabilized in
recent periods, the decline in real estate and multi-family values experienced
in the Bank's primary market area in the late 1980s and early 1990s was more
pronounced with respect to commercial real estate and multi-family properties
than one- to four-family residential properties. Construction financing is also
generally considered to involve a higher degree of credit risk than long-term
financing on improved, owner-occupied real estate as the risk of loss on such
loans is dependent largely upon the accuracy of the initial estimate of the
property's value at completion of construction compared to the estimated cost
(including interest) of construction. If the estimate of value proves to be
inaccurate, the property securing the loan, when completed, may have a value
which is insufficient to assure full repayment of the loan.
The Bank also makes secured and unsecured commercial business loans.
Unsecured commercial business loans are generally considered to involve a
higher degree of risk than secured commercial business loans and real estate
lending, due to the absence of collateral securing the loan. Secured
commercial business loans are generally secured by equipment, leases,
inventory and accounts receivable. Accordingly, the value of the collateral
securing the Bank's commercial business loans may not be as easy to ascertain
as compared to real property, and such collateral may depreciate over time
and may not be as readily saleable as compared to real property. Both secured
and unsecured commercial business loans are often substantially dependent
upon the success of the borrower's business. Accordingly, commercial business
loans involve a greater degree of risk than a one- to four-family mortgage
loan and other types of mortgage loans. See "Business of the Bank--Lending
Activities."
As a consequence of the Bank's planned increased emphasis on and increased
investment in commercial real estate, and commercial business loans, the Bank
intends to increase the level of its provision for loan losses, over that
provided in past years, during the balance of 1997 and in 1998 and will closely
monitor its provisioning in the future. Such additional or increased provisions
for loan losses would adversely affect the Bank's net income. Management
believes the current allowance reserve is fully adequate at July 31, 1997. The
planned provisions are intended to increase the reserve commensurate with
increases in portfolio risk. See "Business of the Bank--Lending
Activities--Allowance for Loan Losses."
Effects of the Establishment of the Charitable Foundation
Pursuant to the Plan, the Company intends to voluntarily establish a
charitable foundation in connection with the Conversion. The Plan provides that
the Bank and the Company will establish the Foundation, which will be
12
<PAGE>
incorporated under Delaware law as a non-stock corporation and will be funded
with shares of Common Stock contributed by the Company. The contribution of
Common Stock to the Foundation will be dilutive to the interests of stockholders
and will have an adverse impact on the reported earnings of the Company in 1998,
the year in which the Foundation will be funded.
Dilution of Stockholders' Interests. The Company proposes to fund the
Foundation with Common Stock of the Company in an amount equal to 8% of the
Common Stock to be sold in the Conversion. At the minimum, midpoint and maximum
of the Estimated Price Range, the contribution to the Foundation would equal
335,920, 395,200 and 454,480 shares, with a value of $3.4 million, $4.0 million
and $4.5 million, respectively, based on the Purchase Price of $10.00 per share.
Assuming the sale of Common Stock at the maximum of the Estimated Price Range,
upon completion of the Conversion and establishment of the Foundation, the
Company will have 6,135,480 shares issued and outstanding of which the
Foundation will own 454,480 shares, or 7.4%. As a result, persons purchasing
shares of Common Stock in the Conversion will have their ownership and voting
interests in the Company diluted by 7.4%, as compared to completing the
Conversion without the Foundation. See "Pro Forma Data."
Impact on Earnings. The contribution of Common Stock to the Foundation will
have an adverse impact on the Company's earnings in the year in which the
contribution is made. The Company will recognize the full expense in the amount
of the contribution of Common Stock to the Foundation in the quarter in which it
occurs, which is expected to be the first quarter of 1998. The amount of the
contribution will range from $3.4 million to $4.5 million, based on the minimum
and maximum of the Estimated Price Range. The contribution expense will be
partially offset by the tax benefit related to the contribution. The Company and
the Bank have been advised by their independent tax advisors that the
contribution to the Foundation will be tax deductible, subject to an annual
limitation based on 10% of the Company's annual taxable income before the
charitable contribution deduction. Assuming a contribution of $4.5 million in
Common Stock (based on the maximum of the Estimated Price Range), the Company
estimates a net tax effected expense of $2.9 million (based upon a 37.0% tax
rate). If the Foundation had been established at December 31, 1996, the Bank
would have reported a net income of $200,000, excluding the effect of the SAIF
Special Assessment (as defined herein), rather than reporting net income of $2.0
million for the year ended December 31, 1996. If the Foundation had been
established at December 31, 1996, the Bank would have reported a net loss of
$900,000 for the year ended December 31, 1996, including the effect of the SAIF
Special Assessment. Management cannot predict earnings for 1998, but expects
that the establishment and funding of the Foundation will have an adverse impact
on the Company's earnings for the year. Due to the contribution to the
Foundation, the Bank expects in the future to reduce the amount of its current
charitable contributions within its community. The Company and the Bank do not
currently anticipate making additional contributions to the Foundation within
the first five years following the initial contribution.
Tax Considerations. The Company and the Bank have been advised by their
independent tax advisors that an organization created for the above purposes
would qualify as a Section 501(c)(3) exempt organization under the Internal
Revenue Code of 1986, as amended (the "Code"), and would be classified as a
private foundation. The Foundation will submit a request to the IRS to be
recognized as an exempt organization. The Company and the Bank have received an
opinion of their independent tax advisors that the Foundation would qualify as a
Section 501(c)(3) exempt organization under the Code, except that such opinion
does not consider the impact of the condition agreed to by the Foundation that
Common Stock issued to the Foundation be voted in the same ratio as all other
shares of the Company's Common Stock on all proposals considered by stockholders
of the Company. See "The Conversion--Establishment of the Charitable
Foundation." Consistent with this condition, in the event that the Company or
the Foundation receives an opinion of their legal counsel that compliance with
the voting restriction would have the effect of causing the Foundation to lose
its tax-exempt status, or otherwise have a material and adverse tax consequence
on the Foundation or subject the Foundation to an excise tax under Section 4941
of the Code, the FDIC will waive such voting restriction upon submission of a
legal opinion by the Company or the Foundation that is satisfactory to the FDIC.
The independent tax advisors' opinion further provides that there is substantial
authority for the position that the Company's contribution of its own stock to
the Foundation would not constitute an act of self-dealing, and that the Company
would be entitled to a deduction in the amount of the fair market value of the
stock at the time of the contribution less the nominal par value that the
Foundation is required to pay to the Company for such stock, subject to an
annual limitation based on 10% of the Company's annual taxable income before the
charitable contribution deduction. The Company, however, would be able to carry
forward any unused portion of the deduction for five years following the
contribution. Thus, while the Company would have received a charitable
contribution deduction of approximately $4.5 million in 1996 (based upon the
sale of stock at the maximum of the Estimated Price Range and a contribution of
$4.5 million of Common Stock and
13
<PAGE>
the Bank's pre-tax income for 1996), the Company is permitted under the Code
to carryover the excess contribution in the five following years. Assuming
the sale of Common Stock at the maximum of the Estimated Price Range, the
Company estimates that substantially all of the deduction should be
deductible over the six-year period. Although the Company and the Bank have
received an opinion of their independent tax advisors that the Company will
be entitled to the deduction for the charitable 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 Company's tax benefit related to the Foundation would have to be fully
expensed, resulting in a further reduction in earnings in the year in which
the IRS makes such a determination.
Comparison of Valuation and Other Factors Assuming the Foundation is Not
Established as Part of the Conversion. The establishment of the Foundation
was taken into account by FinPro in determining the estimated pro forma
market value of the Common Stock of the Company. The aggregate price of the
shares of Common Stock being offered in the Subscription and Community
Offerings is based upon the independent appraisal prepared by FinPro of the
estimated pro forma market value of the Common Stock of the Company. The pro
forma aggregate price of the Common Stock being offered for sale in the
Conversion is currently estimated to be between $42.0 million and $56.8
million, with a midpoint of $49.4 million. The pro forma price to book ratio
and the pro forma price to earnings ratio, are 71.58% and 11.90x,
respectively, at the midpoint of the Estimated Price Range. In the event that
the Conversion did not include the Foundation, FinPro has estimated that the
estimated pro forma market value of the Common Stock would be $58.1 million
at the midpoint based on a pro forma price to book ratio and the pro forma
price to earnings ratio that are approximately the same as the independent
appraisal at 71.58% and 12.15x, respectively. The amount of Common Stock
being offered for sale in the Conversion at the midpoint of the Estimated
Price Range is approximately $8.7 million less than the estimated amount of
Common Stock that would be offered in the Conversion without the Foundation
based on the estimate provided by FinPro. Accordingly, certain account
holders of the Bank who subscribe to purchase Common Stock in the
Subscription Offering would receive fewer shares depending on the size of a
depositor's stock order and the amount of his or her qualifying deposits in
the Bank and the overall level of subscriptions. See "Comparison of Valuation
and Pro Forma Information with No Foundation." This estimate by FinPro was
prepared solely for purposes of providing Eligible Account Holders and
subscribers with information with which to make an informed decision on the
Conversion.
The decrease in the amount of Common Stock being offered as a result of the
contribution of Common Stock to the Foundation will not have a significant
effect on the Company 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
leverage and risk-based capital ratios at July 31, 1997 were 9.51% and 17.40%,
respectively. Assuming the sale of shares at the midpoint of the Estimated Price
Range, the Bank's pro forma leverage and risk-based capital ratios at July 31,
1997 would be 19.76% and 38.75%, respectively. On a consolidated basis, the
Company's pro forma stockholders' equity would be $74.6 million, or
approximately 20.29% of pro forma consolidated assets, assuming the sale of
shares at the midpoint of the Estimated Price Range. Pro forma stockholders'
equity per share and pro forma net earnings per share would be $13.97 and $0.49,
respectively. If the Foundation was not being established in the Conversion,
based on the FinPro estimate, the Company's pro forma stockholders' equity would
be approximately $81.2 million, or approximately 21.69% of pro forma
consolidated assets at the midpoint of the estimate, and pro forma stockholders'
equity per share and pro forma net earnings per share would be substantially
similar with the Foundation as without the establishment of the Foundation. See
"Comparison of Valuation and Pro Forma Information with No Foundation."
Potential Anti-Takeover Effect. Upon completion of the Conversion, the
Foundation will own 7.4% of the total shares of the Company's Common Stock
outstanding. Such shares will be owned solely by the Foundation and the
Foundation's Board of Directors will exercise sole voting power over such
shares. As the Foundation's Board of Directors will be comprised initially of
members of the Board of Directors of the Company or the Bank or officers of the
Company or the Bank, management of the Company and the Bank may benefit to the
extent that the Board of Directors of the Foundation determines to vote the
shares of Common Stock held by the Foundation in favor of proposals supported by
the Company and the Bank. Furthermore, in such an event, when the Foundation's
shares are combined with shares purchased directly by officers and directors of
the Company, shares held by the Stock Program trust, and shares held by the ESOP
trust, the aggregate of such shares could exceed 20% of the Company's
outstanding Common Stock, which could enable management to defeat stockholder
proposals requiring 80% approval. Consequently, such potential voting control
might preclude takeover attempts that certain stockholders deem to be in
14
<PAGE>
their best interest, and might tend to perpetuate management. However, since
the ESOP shares are allocated to all eligible employees of the Bank, and any
unallocated shares will be voted by an independent trustee, and because the
Stock Program must first be approved by stockholders no sooner than six
months following completion of the Conversion, and awards under such proposed
plans may be granted to employees other than executive officers and
Directors, management of the Company does not expect to have voting control
of all shares covered by the ESOP and other stock-based benefit plans. See
"--Certain Anti-Takeover Provisions--Voting Control of Officers and
Directors." Moreover, as the Foundation sells its shares of Common Stock over
time, its ownership interest and voting power in the Company is expected to
decrease.
Potential Challenges. The establishment and funding of a charitable
foundation as part of a conversion of a mutual savings institution to stock
form is innovative and has, to the Bank's knowledge, been done in a limited
number of instances. As such, the Foundation is subject to the Commissioner's
approval of the Conversion and the FDIC's nonobjection to the Conversion, and
may also be subject to potential challenges notwithstanding that the Board of
Directors of the Company and the Board of Directors of the Bank have
carefully considered the various factors involved in the establishment of the
Foundation in reaching their determination to establish the Foundation as
part of the Conversion. See "The Conversion--Establishment of the Charitable
Foundation--Purpose of the Foundation." If challenges were to be instituted
seeking to require the Bank to eliminate establishment of the Foundation in
connection with the Conversion, no assurances can be made that the resolution
of such challenges 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 relief against the Company or the Bank.
Additionally, if the Company and the Bank are forced to eliminate the
Foundation, the Company may be required to resolicit subscribers in the
Offerings.
Highly Competitive Industry and Geographic Area
The Bank faces significant competition in its primary market area both in
attracting deposits and in originating loans. All of the Bank's offices are
located in Kane, the western-most part of Cook and the southern-most part of
McHenry Counties, Illinois, which are suburbs located northwest of the City of
Chicago. The Chicago metropolitan area is a highly competitive market, and one
which has expanded outward to gradually include Kane, western Cook and southern
McHenry Counties within its perimeter. The Bank's share of deposits in Kane,
Cook and McHenry Counties amounts to approximately 4.9%, 0.02% and 0.08%,
respectively. The Bank faces direct competition from a significant number of
financial institutions operating in its market area, many with a state-wide or
regional presence, and, in some cases, a national presence. This competition
arises from commercial banks, savings banks, mortgage banking companies, credit
unions and other providers of financial services, many of which are
significantly larger than the Bank and, therefore, have greater financial and
marketing resources than those of the Bank. As the Chicago metropolitan area
continues to expand outward, the continued profitability of the Bank will
depend, in part, upon its ability to compete successfully in its market area.
See "Business of the Bank-- Market Area."
Certain Anti-Takeover Provisions
Provisions in the Company's and the Bank's Governing Instruments. Certain
provisions of the Company's Certificate of Incorporation and Bylaws,
particularly a provision limiting voting rights, and the Bank's Articles of
Incorporation (the "Articles of Incorporation") and Bylaws, as well as certain
federal and state regulations, assist the Company in maintaining its status as
an independent publicly owned corporation. These provisions provide for, among
other things, supermajority voting, staggered boards of directors, noncumulative
voting for directors, limits on the calling of special meetings of shareholders,
limits on the ability to vote Common Stock in excess of 10% of outstanding
shares, and certain uniform price provisions for certain business combinations.
The Illinois Office of Banks and Real Estate ("OBRE") regulations prohibit, for
a period of three years following the date of conversion, offers to acquire or
the acquisition of beneficial ownership of more than 10% of the outstanding
stock of the Bank. The Bank's stock Articles of Incorporation also prohibit, for
five years, the acquisition, directly or indirectly, of the beneficial ownership
of more than 10% of the Bank's equity securities. Any person, or group acting in
concert, violating this restriction may not vote the Bank's or Company's
securities in excess of 10%. These provisions in the Bank's and the Company's
governing instruments may discourage potential proxy contests and other
potential takeover attempts, particularly those which have not been negotiated
with the Board of Directors, and thus, generally may serve to perpetuate current
management. See "Restrictions on Acquisition of the Company and the Bank."
15
<PAGE>
Voting Control of Officers and Directors. Directors and executive
officers of the Bank and the Company expect to purchase approximately 6.9% or
5.1% of the shares of Common Stock to be issued in the Conversion, based upon
the minimum and the maximum of the Estimated Price Range, respectively.
Assuming the implementation of, exclusive of shares that may be attributable
to directors and officers through the Stock Program, the Stock Option Plan
and the ESOP, and shares purchased directly by directors and executive
officers of the Bank and the Company, directors, executive officers and
employees have the potential to control the voting of approximately 23.5% of
the Company Stock at the maximum of the Estimated Price Range. Additionally,
the Foundation will hold Common Stock in an amount equal to 7.4% of the
Common Stock sold in the Conversion with such shares of Common Stock to be
voted in the same ratio as all other shares of the Company's Common Stock.
Management's potential voting control could, together with additional
stockholder support, defeat stockholder proposals requiring 80% approval of
stockholders. As a result, this potential voting control may preclude
takeover attempts that certain stockholders deem to be in their best interest
and may tend to perpetuate existing management. See "Restrictions on
Acquisition of the Company and the Bank - Restrictions in the Company's
Certificate of Incorporation and Bylaws" and "The Conversion--Establishment
of the Charitable Foundation."
Absence of Market For Common Stock
The Company, as a newly organized company, has never issued capital stock,
and consequently, there is no established market for its Common Stock at this
time. The Company has received conditional approval to have its Common Stock
listed on the AMEX under the symbol "EFC" upon completion of the Conversion. A
public trading market having the desirable characteristics of depth, liquidity
and orderliness depends upon the existence of willing buyers and sellers at any
given time, the presence of which is dependent upon the individual decisions of
buyers and sellers over which the Company has no control. Accordingly, there can
be no assurance that an active and liquid trading market for the Common Stock
will develop or that, if developed, will continue, nor is there any assurance
that purchasers of the Common Stock will be able to sell their shares at or
above the Purchase Price. The absence or discontinuance of a market for the
Common Stock would have an adverse impact on both the price and liquidity of the
Common Stock. See "Market for Common Stock."
Stock-Based Benefits to Management, Employment Contracts and Change in Control
Payments
Stock Program. The Company intends to adopt the Stock Program which would
provide stock grants of Common Stock to non-employee directors and selected
officers and employees of the Company and Bank and intends to seek stockholder
approval of such plans at a meeting of stockholders following the Conversion,
which may be held no earlier than six months after completion of the Conversion.
The Company expects to acquire Common Stock on behalf of the Stock Program in an
amount equal to 4% of the Common Stock issued in connection with the Conversion,
including shares issued to the Foundation, or 181,397 shares and 245,419 shares
at the minimum and maximum of the Estimated Price Range, respectively. These
shares will be acquired either through open market purchases or from authorized
but unissued Common Stock. See "--Possible Dilutive Effect of Stock Program and
Stock Option Plan."
Although no specific award determinations have been made, the Company
anticipates that it will provide awards under the Stock Program to the
directors and selected officers and employees of the Company and Bank to the
extent permitted by applicable regulations. These shares granted under the
Stock Program will be awarded at no cost to the recipients. Under the terms
of the Stock Program, an independent trustee will vote unallocated shares in
the same proportion as it receives instructions from recipients with respect
to allocated shares which have not been earned and distributed. Recipients
will vote allocated shares. The plan trustee will not vote allocated shares
which have not been distributed if it does not receive instructions from the
recipient. The specific terms of the Stock Program intended to be adopted and
the amounts of awards thereunder have not yet been determined by the Board of
Directors, and any such determination will include consideration of various
factors, including but not limited to, the financial condition of the
Company, current and past performance of plan participants and tax and
securities law and regulation requirements. The stock-based benefits provided
under the Stock Program and Stock Option Plan, discussed below, may be
provided under separate plans established for officers and employees and
non-employee directors or such benefits may be provided for under a single
master stock-based benefit plan adopted by the Company which would
incorporate the benefits and features of the separate plans (the "Master
Stock-Based Benefit Plan"). Additionally, the granting or vesting of awards
under such benefit plans may be conditioned upon the achievement of
individual or company-wide performance goals, including the achievement by
the Company or Bank of specified levels of net income or returns on
16
<PAGE>
equity or assets. The implementation of such Stock Program may result in
increased compensation expenses to the Company and may have a dilutive effect
on existing stockholders. See "Management of the Bank--Benefit Plans--Stock
Program" and "--Possible Dilutive Effect of Stock Program and Stock Option
Plan."
Stock Option Plan. The Company also intends to adopt stock-based benefit
plans which would provide options to purchase Common Stock ("Stock Options") to
officers, employees and non-employee directors of the Company and Bank (the
"Stock Option Plan") and intends to seek stockholder approval of such plans at a
meeting of stockholders following the Conversion, which may be held no earlier
than six months after completion of the Conversion. Although no specific
determinations have been made, the Company expects that non-employee directors
and selected officers and employees of the Company and Bank will be granted
options to purchase Common Stock in an amount equal to 10% of the Common Stock
issued in connection with the Conversion, including shares issued to the
Foundation (or 453,492 shares and 613,548 shares at the minimum and maximum of
the Estimated Price Range, respectively). It is currently intended that the
exercise price of the Stock Options will be equal to the fair market value of
the underlying Common Stock on the date of grant. Stock Options will permit such
directors, officers and employees to benefit from any increase in the market
value of the shares in excess of the exercise price at the time of exercise.
Recipients of Stock Options will not be required to pay for the shares until the
date of exercise. The specific terms of the Stock Option Plan intended to be
adopted and amounts and awards thereunder have not yet been determined by the
Board and any such determination will include consideration of various factors,
including but not limited to, the financial condition of the Company, current
and past performance of award recipients and tax and securities law and
regulation requirements. The Stock Options discussed above may be provided under
a single stock option plan, may be granted under separate stock option plans for
officers and employees and non-employee directors or may be provided for under
the Master Stock-Based Benefit Plan which would incorporate the features and
benefits of the separate stock option plans and the Stock Program, and benefits
awarded thereunder may be conditioned upon the achievement of individual or
company-wide performance goals, including the achievement by the Company or Bank
of specified levels of net income or returns on equity or assets. The
implementation of such Stock Option Plan may have a dilutive effect upon
existing stockholders of the Company to the extent option exercises are
satisfied with authorized but unissued shares. See "--Possible Dilutive Effect
of Stock Program and Stock Option Plan" and "Management of the Bank - Benefit
Plans--Stock Option Plan."
Change In Control Provisions. The Company and the Bank intend to enter into
employment or change in control agreements with certain officers of the Bank and
Company which will provide for benefits and cash payments in the event of their
termination following a change in control of the Company or Bank. These
provisions may have the effect of increasing the cost of acquiring the Company
or Bank, thereby discouraging future attempts to take over the Company or the
Bank. Additionally, the Bank intends to adopt an employee severance compensation
plan, which similarly provides a cash payment and benefits to eligible employees
upon such employees' termination following a change in control of the Company or
Bank, also may have the effect of increasing the cost of acquiring the Company
or Bank. Based on current salaries, cash payments to be paid in the event of a
change in control pursuant to the terms of the employment agreements, change in
control agreements and the employee severance compensation plan would be
approximately $________ million. However, the actual amount to be paid in the
event of a change in control of the Bank or the Company cannot be estimated at
this time because the actual amount is based on the average salary of the
employee and other factors existing at the time of the change in control. See
"Restrictions on Acquisition of the Company and the Bank - Restrictions in the
Company's Certificate of Incorporation and Bylaws," "Management of the Bank -
Employment Agreements," "--Change in Control Agreements," "--Employee Severance
Compensation Plan," "--Benefit Plans - Stock Option Plan" and "--Benefit
Plans--Stock Program."
Possible Dilutive Effect of Stock Program and Stock Option Plan
Following the Conversion, the Stock Program will acquire an amount of
shares equal to 4% of the shares of Common Stock issued in the Conversion,
either through open market purchases or the issuance of authorized but
unissued shares of Common Stock from the Company. If the Stock Program are
funded by the issuance of authorized but unissued shares, the voting
interests of existing shareholders will be diluted by approximately 3.6%.
Also following the Conversion, the Company intends to implement the Stock
Option Plan which will provide directors and selected employees of the
Company and the Bank with Stock Options to purchase authorized but unissued
shares in an amount equal to 10% of the Common Stock issued in the
Conversion. If all of the Stock Options intended to be granted were
17
<PAGE>
to be exercised using authorized but unissued Common Stock and if the Stock
Program were funded with authorized but unissued shares, the voting interests
of existing stockholders would be diluted by approximately 11.5%.
Possible Adverse Income Tax Consequences of the Distribution of Subscription
Rights
The Bank has received an opinion of FinPro that subscription rights granted
to Eligible Account Holders have no value. However, this opinion is not binding
on the IRS. If the subscription rights granted to Eligible Account Holders or
Supplemental Eligible Account Holders are deemed to have an ascertainable value,
such recipients could be taxed upon receipt or exercise of such subscription
rights. Additionally, the Bank could recognize a gain for tax purposes on such
distribution. Whether subscription rights are considered to have ascertainable
value is an inherently factual determination. See "The Conversion-- Effects of
Conversion" and "--Tax Aspects."
Possible Increase in Estimated Price Range and Number of Shares Issued
The number of shares to be sold in the Conversion may be increased as a
result of an increase in the Estimated Price Range of up to 15% to reflect
changes in market and financial conditions following the commencement of the
Subscription and Community Offerings. In the event that the Estimated Price
Range is so increased, it is expected that the Company will sell up to 6,533,150
shares of Common Stock at the Purchase Price for an aggregate purchase price of
up to $65.3 million. An increase in the number of shares issued will decrease a
subscriber's pro forma net earnings per share and stockholders' equity per share
and will increase the Company's pro forma consolidated stockholders' equity and
net earnings. Such an increase will also increase the Purchase Price as a
percentage of pro forma stockholders' equity per share and net earnings per
share.
No Fairness Opinion
The Bank has engaged Webb as a financial and marketing advisor, and Webb has
agreed to assist the Bank and the Company in its solicitation of subscriptions
and purchase orders for Common Stock in the Offerings. Webb has not prepared any
report or opinion constituting recommendations or advice to the Bank. In
addition, Webb has expressed no opinion as to the prices at which Common Stock
to be issued in the Offerings may trade. Furthermore, Webb has not verified the
accuracy or completeness of the information contained in the Prospectus or the
Proxy Statement. See "The Conversion--Marketing and Underwriting Arrangements."
Potential Delays of Consummation of the Conversion
Orders submitted in the Subscription Offering, Community Offering and/or
Syndicated Community Offering are irrevocable. The Company and the Bank
expect to complete the Conversion within the time periods indicated in this
Prospectus. Nevertheless, it is possible that several factors, including, but
not limited to, a delay in receiving regulatory approval of the final updated
appraisal prepared by FinPro, a delay in processing orders in the event the
Offerings are oversubscribed or a delay caused by a regulatory or legal
challenge to the establishment and funding of the Foundation or other actions
taken in connection with the Conversion could significantly delay the
completion of the Conversion. Subscribers will have no access to subscription
funds and/or shares of Common Stock until the Conversion is completed or
terminated. In the event the Conversion is terminated, subscribers will be
refunded their subscription funds, together with interest at a rate equal to
the Bank's interest rate paid on passbook accounts, or will have their
withdrawal authorization terminated. See "The Conversion."
EFC BANCORP, INC.
EFC Bancorp is a Delaware corporation recently organized at the direction
of the Board of Directors of the Bank for the purpose of acquiring all of the
capital stock of the Bank to be issued in the Conversion. The Company expects
to receive approval from the Office of Thrift Supervision ("OTS") to become a
savings and loan holding company and, upon completion of the Conversion, will
be subject to regulation by the OTS. See "The Conversion--General" and
"Regulation and Supervision - Holding Company Regulation." Upon consummation
of the Conversion, the Company will have no significant assets other than all
of the shares of the Bank's capital stock acquired in the Conversion and an
amount equal to 50% of the net proceeds of the Conversion, including the loan
to the ESOP, and
18
<PAGE>
will have no significant liabilities. The Company intends to use a
portion of the net proceeds it retains to loan to the ESOP funds to enable the
ESOP to purchase up to 8% of the stock issued in connection with the Conversion,
including shares issued to the Foundation. The remaining net proceeds will be
used for general business activities, including the funding of the Stock Program
and Stock Option Plan. Initially, net proceeds are expected to be invested by
the Company and the Bank in primarily mortgage-backed and mortgage-related
securities and other investment-grade marketable securities. See "Use of
Proceeds." The management of the Holding Company is set forth under "Management
of the Company." Initially, the Company will neither own nor lease any property,
but will instead use the premises, equipment and furniture of the Bank. At the
present time, the Company does not intend to employ any persons other than
certain officers who are currently officers of the Bank but will utilize the
support staff of the Bank from time to time. Additional employees will be hired
as appropriate to the extent the Company expands its business in the future.
Management believes that the holding company structure will provide the
Company additional flexibility to diversify its business activities through
existing or newly formed subsidiaries (which subsidiaries could be financial
institutions), or through acquisitions of or mergers with other financial
institutions and financial services related companies. Although there are no
current arrangements, understandings or agreements regarding any such
opportunities, the Company will be in a position after the Conversion, subject
to regulatory limitations and the Company's financial position, to take
advantage of any such acquisition and expansion opportunities that may arise.
The initial activities of the Company are anticipated to be funded by the
proceeds to be retained by the Company, income thereon and through dividends
from the Bank.
The Company's executive office is located at the administrative offices of
the Bank, 1695 Larkin Avenue, Elgin, Illinois 60123. Its telephone number is
(847) 741-3900.
ELGIN FINANCIAL CENTER, S.B.
The Bank was originally organized in 1924 as a federally-chartered mutual
savings and loan association. It reorganized in the 1980s to become Elgin
Federal Financial Center, a federally-chartered mutual savings association,
and again on July 1, 1996 to become Elgin Financial Center, S.B., an Illinois
state-chartered mutual savings bank. The Bank's deposit accounts are insured
to the maximum allowable amount by the Savings Association Insurance Fund
("SAIF") as administered by the FDIC. Including the Bank's principal office,
which is located in Elgin, Illinois, the Bank services its customers from
three full-service banking facilities located in Elgin and two full service
banking facilities located in Algonquin and West Dundee, Illinois. At July
31, 1997, the Bank had total assets of $324.4 million, total deposits of
$262.3 million, retained earnings of $31.3 million and had a leverage capital
ratio of 9.51% and a total risk-based capital ratio of 17.4%. See "Regulation
and Supervision--Regulations--Capital Requirements."
The Bank is a community-oriented savings institution whose principal
business consists of accepting retail deposits from the general public in its
primary market area, consisting of those areas surrounding its full-service
branch offices, and investing those deposits together with funds generated
from operations and borrowings primarily in mortgage loans secured by one- to
four-family residences and, to a much lesser extent, multi-family and
commercial real estate loans, construction and land loans, commercial
business loans, home equity loans, and automobile and passbook savings loans.
The Bank also invests in mortgage-backed securities, securities issued by the
U.S. Government, and other investments permitted by applicable laws and
regulations. The Bank's primary market area for lending consists of Kane,
western Cook and southern McHenry Counties. See "Business of the Bank."
At July 31, 1997, the Bank's gross loan portfolio totalled $243.6
million, or 75.1% of total assets, of which $185.5 million were one- to
four-family residential mortgage loans, $20.9 million were multi-family real
estate loans, $11.9 million were commercial real estate loans, $14.7 million
were construction and land loans, $2.8 were commercial business loans and
$7.7 million were consumer loans, consisting of primarily home equity lines
of credit and commercial business loans and, to a much lesser extent,
automobile and passbook savings loans. The Bank originates one- to
four-family mortgage loans generally secured by properties located in the
Bank's primary market area. See "Business of the Bank."
19
<PAGE>
The Bank's securities investment activities primarily consist of investments
in mortgage-backed securities and U.S. Government obligations. At July 31, 1997,
the Bank's securities portfolio totalled $57.9 million, or 17.9% of total
assets, all of which was categorized as available-for-sale. At July 31, 1997,
the Bank's mortgage-backed securities portfolio totalled $19.7 million, or 6.1%
of total assets, all of which was classified as available-for-sale and consisted
of mortgage-backed securities, guaranteed or issued by Governmental-sponsored
and federal agencies such as the Federal National Mortgage Association ("FNMA"),
Federal Home Loan Mortgage Corporation ("FHLMC") and Government National
Mortgage Association ("GNMA"). The Bank's investment securities generally
consist of United States Government obligations. See "Business of the
Bank--Investment Activities."
At July 31, 1997, the Bank's deposit accounts totalled $262.3 million or
89.5% of total liabilities, of which $112.1 million, or 42.74%, were comprised
of passbook saving accounts, retail checking/negotiable order of withdrawal
("NOW") accounts, money market accounts and commercial checking accounts
(collectively, "core deposits"). In addition to core deposits, the Bank had
$150.2 million of certificate accounts, or 51.3% of total liabilities, of which
$82.1 million were certificates of deposit with maturities of one year or less
and $9.8 million were certificates of deposit with balances of $100,000 or more
("jumbo deposits").
The Bank's executive office is located at 1695 Larkin Avenue, Elgin,
Illinois 60123. Its telephone number is (847) 741-3900.
ELGIN FINANCIAL FOUNDATION
In furtherance of the Bank's commitment to its local community, the
Bank's Plan of Conversion provides for the establishment of a charitable
foundation in connection with the Conversion. The Plan provides that the Bank
and the Company will create the Elgin Financial Foundation, which will be
incorporated under Delaware law as a non-stock corporation. The Foundation
will be funded with shares of Common Stock contributed by the Company, as
further described below. The Company and the Bank believe that the funding of
the Foundation with Common Stock of the Company is a means of establishing a
common bond between the Bank and its community and thereby enables the Bank's
community to share in the potential growth and success of the Company over
the long term. While the Bank has made charitable contributions in the past,
the Bank has not previously formed a charitable foundation nor has it made
contributions to charitable organizations of the magnitude of the
contribution that will be made to the Foundation in the Conversion. By
further enhancing the Bank's visibility and reputation in its local
community, the Bank believes that the Foundation will enhance the long-term
value of the Bank's community banking franchise. See "The
Conversion--Establishment of the Charitable Foundation--Structure of the
Foundation."
The members of the Foundation will be the Board of Directors of the
Foundation. The authority for the affairs of the Foundation will be vested in
the Board of Directors of the Foundation, which initially will be comprised of
existing Directors of the Company or the Bank or officers of the Company or the
Bank, who will receive no fees for serving on the Foundation's Board of
Directors. The Directors of the Foundation will be responsible for establishing
the policies of the Foundation with respect to grants or donations by the
Foundation, consistent with the purposes for which the Foundation was
established. Although no formal policy governing Foundation grants exists at
this time, the Foundation's Board of Directors will adopt such a policy upon
establishment of the Foundation. The Directors of the Foundation will also be
responsible for directing the activities of the Foundation, including the
management of the Common Stock held by the Foundation. However, establishment of
the Foundation is subject to certain regulatory conditions, including a
requirement that the Common Stock of the Company held by the Foundation be voted
in the same ratio as all other shares of the Company's Common Stock on all
proposals considered by stockholders of the Company. See "The
Conversion--Establishment of the Charitable Foundation."
The Company proposes to fund the Foundation by contributing to the
Foundation immediately following the Conversion a number of shares of authorized
but unissued Common Stock equal to 8% of the Common Stock sold in the Offerings,
or 335,920, 395,200 and 454,480 shares at the minimum, midpoint and maximum,
respectively, of the Estimated Price Range, respectively. Such contribution,
once made, will not be recoverable by the Company or the Bank. Assuming the sale
of shares at the maximum of the Estimated Price Range and the issuance of shares
to the Foundation, the Company will have 6,135,480 shares issued and
outstanding, of which the Foundation will own 454,480 shares, or 7.4%. Due to
the issuance of additional shares of Common Stock to the Foundation, persons
purchasing shares in the Conversion will have their ownership and voting
interests in the Company diluted by
20
<PAGE>
7.4%. See "Pro Forma Data." The establishment of the Foundation was taken
into account in determining the estimated pro forma market value of the
Common Stock. In the event the Conversion did not include the Foundation,
FinPro has estimated that the pro forma market value of the Common Stock
would be $58.1 million at the midpoint of the Estimated Price Range rather
than $49.4 million. See "Risk Factors--Effects of the Establishment of the
Charitable Foundation--Comparison of Valuation and Other Factors Assuming the
Foundation is Not Established as Part of the Conversion" and "Pro Forma Data."
As a result of the establishment of the Foundation, the Company will
recognize an expense of the full amount of the contribution, which is
expected to be offset in part by a corresponding tax benefit, during the
quarter in which the contribution is made, which is expected to be the first
quarter of 1998. Such expense will reduce earnings and have a material impact
on the Company's earnings for the fiscal year in which it is made. While
management cannot predict earnings for 1998, it expects that the
establishment and funding of the Foundation will have an adverse impact on
the Company's earnings for the year in which it is made. Assuming a
contribution of $4.5 million in Common Stock in 1998, based on the maximum of
the Estimated Price Range and assuming a tax rate of 37.0%, the Company
estimates a net tax effected expense of $2.9 million (based on a tax rate of
37.0%). If the Foundation had been established at December 31, 1996, the Bank
would have recorded a net loss of $900,000 rather than recording net income
of $2.0 million for the year ended December 31, 1996, based on an assumed tax
rate of 37.0% and including the effect of the SAIF Special Assessment. If the
Foundation had been established at December 31, 1996, the Bank would have
recorded net income of $200,000, excluding the effect of the SAIF Special
Assessment, rather than reporting net income of $2.0 million for the year
ended December 31, 1996. Due to the contribution to the Foundation, the Bank
expects in the future to reduce the amount of its current charitable
contributions within its community. The Bank does not anticipate making
future charitable contributions to the Foundation during the first five years
following the initial contribution to the Foundation. For further discussion
of the Foundation and its impact on purchasers in the Conversion, see "Risk
Factors - Effects of the Establishment of the Charitable
Foundation," "Pro Forma Data" and "The Conversion - Effects of the
Establishment of the Charitable Foundation."
The establishment and funding of a charitable foundation as part of a
conversion of a mutual savings institution to stock form is innovative and has
only been done in a limited number of instances. As such, the establishment of
the Foundation in connection with the Conversion and the Commissioner's approval
and FDIC's non-objection to the Plan of Conversion may be subject to potential
challenges which could result in delays in the Conversion. See "Risk
Factors--Effects of the Establishment of the Charitable Foundation - Potential
Challenges."
21
<PAGE>
REGULATORY CAPITAL COMPLIANCE
At July 31, 1997, the Bank exceeded each of its regulatory capital
requirements. Set forth below is a summary of the Bank's compliance with the
FDIC capital standards as of July 31, 1997, on an historical and pro forma basis
assuming that the indicated number of shares were sold as of such date and
receipt by the Bank of 50% of the net proceeds. For purposes of the table below,
the amount expected to be borrowed by the ESOP and the cost of its shares
expected to be acquired by the Stock Program are deducted from pro forma
regulatory capital.
<TABLE>
<CAPTION>
<S> <C> <C>
HISTORICAL AT
JULY 31, 1997
------------------
PERCENT
OF
AMOUNT ASSETS(2)
------- ---------
<S> <C> <C>
GAAP Capital(3)............ $31,331 9.66%
------- ---------
------- ---------
Leverage Capital:
Capital Level(4)....... $30,622 9.44%
Requirement(5)......... 12,883 4.00
------- ---------
Excess................. $17,739 5.44%
------- ---------
------- ---------
Risk-Based Capital:
Capital Level(4)(6).... $31,433 17.40%
Requirement............ 14,451 8.00
------- ---------
Excess................. $16,982 9.40%
------- ---------
------- ---------
<CAPTION>
PRO FORMA AT JULY 31, 1997 BASED UPON THE SALE AT $10.00 PER SHARE
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
6,533,150 SHARES
4,199,000 SHARES 4,940,000 SHARES 5,681,000 SHARES (15% ABOVE MAXIMUM
(MINIMUM OF THE (MIDPOINT OF THE (MAXIMUM OF THE OF THE
ESTIMATED ESTIMATED ESTIMATED ESTIMATED
PRICE RANGE) PRICE RANGE) PRICE RANGE) PRICE RANGE)(1)
------------------ ------------------ ------------------ ------------------
PERCENT PERCENT PERCENT PERCENT
OF OF OF OF
AMOUNT ASSETS(2) AMOUNT ASSETS(2) AMOUNT ASSETS(2) AMOUNT ASSETS(2)
------- --------- ------- --------- ------- --------- ------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
GAAP Capital(3)............ $48,142 14.11% $51,164 14.86% $54,187 15.61% $57,682 16.44%
------- --------- ------- --------- ------- --------- ------- ---------
------- --------- ------- --------- ------- --------- ------- ---------
Leverage Capital:
Capital Level(4)....... $47,433 13.90% $50,455 14.66% $53,478 15.40% $56,953 16.24%
Requirement(5)......... 13,555 4.00 13,676 4.00 13,797 4.00 13,936 4.00
------- --------- ------- --------- ------- --------- ------- ---------
Excess................. $33,877 9.90% $36,779 10.66% $39,680 11.40% $43,017 12.24%
------- --------- ------- --------- ------- --------- ------- ---------
------- --------- ------- --------- ------- --------- ------- ---------
Risk-Based Capital:
Capital Level(4)(6).... $47,433 25.78% $50,455 27.33% $53,478 28.87% $56,953 30.63%
Requirement............ 14,720 8.00 14,769 8.00 14,817 8.00 14,873 8.00
------- --------- ------- --------- ------- --------- ------- ---------
Excess................. $32,712 17.78% $35,686 19.33% $38,660 20.87% $42,080 22.63%
------- --------- ------- --------- ------- --------- ------- ---------
------- --------- ------- --------- ------- --------- ------- ---------
</TABLE>
- ------------------------
(1) As adjusted to give effect to an increase in the number of shares which
could occur due to an increase in the Estimated Price Range of up to 15% as
a result of regulatory considerations as changes in market or general
financial or economic conditions following the commencement of the
Subscription and Community Offerings.
(2) Leverage capital levels are shown as a percentage of average assets.
Risk-based capital levels are calculated on the basis of a percentage of
risk-weighted assets.
(3) GAAP defined as Generally Accepted Accounting Principles.
(4) Pro forma capital levels assume receipt by the Bank of 50% of the net
proceeds from the shares of Common Stock sold at the minimum, midpoint
and maximum of the Estimated Price Range. These levels also assume
funding by the Bank of the Stock Program equal to 4% of the Common Stock
issued and repayment of the Company's loan to the ESOP to enable the ESOP
to purchase 8% of the Common Stock issued valued at the minimum, midpoint
and maximum of the Estimated Price Range. See "Management of the
Bank--Benefit Plans" for a discussion of the Stock Program and ESOP.
(5) The current leverage capital requirement for savings banks is 3% of total
adjusted assets for savings banks that receive the highest supervisory
rating for safety and soundness and that are not experiencing or
anticipating significant growth. The current leverage capital ratio
applicable to all other savings banks is 4% to 5%. See "Regulation and
Supervision--Regulations--Capital Requirements." The Company will not be
subject to regulatory capital requirements.
(6) Assumes net proceeds are invested in assets that carry a risk-weighting
equal to the actual risk weighting of the Bank's assets as of July 31, 1997.
22
<PAGE>
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
the net proceeds from the sale of the Common Stock will be between $40.9 million
and $55.5 million (or $64.0 million if the Estimated Price Range is increased by
15%). See "Pro Forma Data" and "The Conversion--Stock Pricing" as to the
assumptions used to arrive at such amounts. The Company will be unable to
utilize any of the net proceeds of the Offerings until the consummation of the
Conversion.
The Company will purchase all of the outstanding capital stock of the Bank
to be issued upon Conversion in exchange for 50% of the net proceeds of the
Offerings. Based on net proceeds of $40.9 million to $55.5 million, the Company
expects to utilize between $20.5 million and $27.8 million of net proceeds to
purchase the common stock of the Bank. Such portion of net proceeds received by
the Bank from the Company will be added to the Bank's general funds which the
Bank currently intends to utilize for general corporate purposes, including
investment in loans and securities. The Bank may also use such funds for the
expansion of its facilities, including the construction of a new branch in 1998,
and to expand operations through acquisitions of other financial institutions,
branch offices or other financial services companies within the Bank's primary
market area. To the extent that the stock-based benefit programs which the
Company or the Bank intend to adopt subsequent to the Conversion are not funded
with authorized but unissued common stock of the Company, the Company or Bank
may use net proceeds from the Conversion to fund the purchase of stock to be
awarded under such stock benefit programs. See "Risk Factors - Stock-Based
Benefits to Management, Employment Contracts and Change in Control Payments" and
"Management of the Bank--Benefit Plans--Stock Option Plan" and "--Stock
Program."
The Company intends to use a portion of the net proceeds it retains (i.e.,
50% of the net proceeds, which based on net proceeds of $40.9 million to $55.5
million will be between $20.5 million and $27.8 million) to make a loan directly
to the ESOP to enable the ESOP to purchase in the Conversion, or in the open
market to the extent Common Stock is not available to fill the ESOP's
subscription, 8% of the Common Stock issued in connection with the Conversion,
including shares issued to the Foundation. Based upon the sale of 4,199,000
shares or 5,681,000 shares at the minimum and maximum of the Estimated Price
Range, and the issuance of shares to the Foundation, the amount of the loan to
the ESOP would be $3.6 million or $4.9 million, respectively (or $5.6 million if
the Estimated Price Range is increased by 15%), with a term of 15 years at the
prevailing prime rate of interest, which currently is 8.5%. The Company and Bank
may alternatively choose to fund the ESOP's stock purchases through a loan by a
third party financial institution. See "Management of the Bank--Benefit Plans -
ESOP." The remaining net proceeds retained by the Company will initially be
invested in mortgage-backed and mortgage-related securities and other investment
grade marketable securities.
The net proceeds retained by the Company may also be used to support the
future expansion of operations through branch acquisitions, the establishment
of branch offices and the acquisition of savings associations and commercial
banks or their assets, including those located within the Bank's market area
or diversification into other banking related businesses. The Company and the
Bank have no current arrangements, understandings or agreements regarding any
such transactions. The Company, upon the Conversion, will be a unitary
savings and loan holding company, which under existing laws would not be
restricted as to the types of business activities in which it may engage. See
"Regulation and Supervision - Holding Company Regulation" for a description
of certain regulations applicable to the Company.
Upon completion of the Conversion, the Board of Directors of the Company
will have the authority to adopt stock repurchase plans, subject to statutory
and regulatory requirements. Unless previously approved, the Company,
pursuant to applicable regulations, may not repurchase any Common Stock in
the first year after conversion. If approval is obtained to repurchase common
stock during the first year after conversion, then such repurchase may not be
greater than 5% of the capital stock issued. Further, the Company may not
repurchase any of its Common Stock if the repurchases would cause the Bank to
become "undercapitalized" within the meaning of the FDIC prompt corrective
action regulation. See "Regulation and Supervision--Prompt Corrective
Regulatory Action." In addition, the FDIC prohibits an insured mutual state
savings bank which has converted from the mutual to stock form of ownership
from repurchasing its capital stock within one year following the date of its
conversion to stock form, except that stock repurchases of no greater than 5%
of a bank's outstanding capital stock may be repurchased during this one-year
period where compelling and valid business reasons are established to the
satisfaction of the FDIC.
23
<PAGE>
Based upon facts and circumstances following the Conversion and subject to
applicable regulatory requirements, the Board of Directors may determine to
repurchase stock in the future. Such facts and circumstances may include but not
be limited to: (i) market and economic factors such as the price at which the
stock is trading in the market, the volume of trading, the attractiveness of
other investment alternatives in terms of the rate of return and risk involved
in the investment, the ability to increase the book value and/or earnings per
share of the remaining outstanding shares, and the opportunity to improve the
Company's return on equity; (ii) the avoidance of dilution to stockholders by
not having to issue additional shares to cover the exercise of stock options or
to fund employee stock benefit plans; and (iii) any other circumstances in which
repurchases would be in the best interests of the Company and its shareholders.
In the event the Company determines to repurchase stock, such repurchases may be
made at market prices which may be in excess of the Purchase Price in the
Conversion. To the extent that the Company repurchases stock at market prices in
excess of the Purchase Price in the Conversion, such repurchases may have a
dilutive effect upon the interests of existing stockholders. Any stock
repurchases will be subject to the determination of the Board of Directors that
both the Company and the Bank will be capitalized in excess of all applicable
regulatory requirements after any such repurchases and that such capital will be
adequate, taking into account, among other things, the level of non-performing
and other risk assets, the Company's and the Bank's current and projected
results of operations and asset/liability structure, the economic environment,
tax and other considerations. See "The Conversion--Certain Restrictions on
Purchase or Transfer of Shares after Conversion."
DIVIDEND POLICY
Upon Conversion, the Board of Directors of the Company will have the
authority to declare dividends on the Common Stock, subject to statutory and
regulatory requirements. Following the Conversion, the Board of Directors
intends to consider a policy of paying cash dividends on the Common Stock.
However, no decision has been made as to the amount or timing of such dividends,
if any.
Pursuant to Illinois law, a savings bank is required to maintain at all
times total capital of not less than 3% of total assets. Prior approval of
the Commissioner is required before any dividends on capital stock that
exceed 50% of a savings bank's net profits that year may be declared in that
calendar year. The Bank will not be permitted to pay dividends on its common
stock or repurchase shares of its common stock if its stockholder's equity
would be reduced below the amount required for the liquidation account. See
"Regulation and Supervision--Regulations." Section 38 of the Federal Deposit
Insurance Act ("FDIA") would prohibit the Bank from making a dividend if it
were "undercapitalized" or if such dividend would result in the institution
becoming "undercapitalized."
Unlike the Bank, the Company is not subject to the restrictions imposed by
the Illinois State Banking Law on the payment of dividends to its stockholders,
although the source of such dividends will be, in part, dependent upon dividends
from the Bank in addition to the net proceeds retained by the Company and
earnings thereon. The Company is subject, however, to the requirements of
Delaware law, which generally limit dividends to an amount equal to the excess
of the net assets of the Company (the amount by which total assets exceed total
liabilities) over its statutory capital, or if there is no such excess, to its
net profits for the current and/or immediately preceding fiscal year.
MARKET FOR THE COMMON STOCK
The Company was recently formed and has never issued capital stock. The
Bank, as a mutual institution, has never issued capital stock. The Company has
received conditional approval to have its Common Stock listed on the AMEX under
the symbol "EFC" subject to the completion of the Conversion. Such approval is
subject to various conditions, including completion of the Conversion and the
satisfaction of applicable listing criteria. There can be no assurance that the
Common Stock will be able to meet the applicable listing criteria in order to
maintain its listing on the AMEX or that an active and liquid trading market
will develop or, if developed, will be maintained. 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
Common Stock at any given time, which is not within the control of the Company.
No assurance can be given that an investor will be able to resell the Common
Stock at or above the Purchase Price of the Common Stock after the Conversion.
See "Risk Factors--Absence of Market for Common Stock."
24
<PAGE>
CAPITALIZATION
The following table presents the historical capitalization of the Bank at
July 31, 1997, and the pro forma consolidated capitalization of the Company
after giving effect to the Conversion, including the issuance of shares to
the Foundation, based upon the sale of the number of shares indicated in the
table and the other assumptions set forth under "Pro Forma Data."
<TABLE>
<CAPTION>
COMPANY PRO FORMA BASED UPON SALE AT $10.00 PER SHARE
--------------------------------------------------------
<S> <C> <C> <C> <C> <C>
6,533,150
4,199,000 4,940,000 5,681,000 SHARES
SHARES SHARES SHARES (15% ABOVE
(MINIMUM OF (MIDPOINT OF (MAXIMUM OF MAXIMUM OF
BANK ESTIMATED ESTIMATED ESTIMATED ESTIMATED
HISTORICAL PRICE RANGE) PRICE RANGE) PRICE RANGE) PRICE RANGE)(1)
---------- ------------ ------------ ------------ --------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Deposits (2).............................. $ 262,252 $ 262,252 $ 262,252 $ 262,252 $ 262,252
FHLB Advances............................. 24,000 24,000 24,000 24,000 24,000
---------- ------------ ------------ ------------ --------------
Total deposits and borrowed funds......... $ 286,252 $ 286,252 $ 286,252 $ 286,252 $ 286,252
---------- ------------ ------------ ------------ --------------
---------- ------------ ------------ ------------ --------------
Stockholders' equity:
Preferred Stock, $.01 par
value,2,000,000 shares authorized;
none to be issued..................... $ -- $ -- $ -- $ -- $ --
Common Stock, $.01 par value, 25,000,000
shares authorized; shares to be issued
as reflected.......................... -- 45 53 61 71
Additional paid-in capital(3)........... -- 44,191 52,101 60,011 69,108
Retained earnings(4).................... 31,331 31,331 31,331 31,331 31,331
Less:
Expense of contributions to
Foundation............................ -- 3,359 3,952 4,545 5,227
Plus:
Tax effect of contribution to
Foundation(5)......................... -- 1,243 1,462 1,682 1,934
Less:
Common Stock acquired by the ESOP(6).... -- 3,628 4,268 4,908 5,645
Common Stock acquired by the Stock
Program(7)............................ -- 1,814 2,134 2,454 2,822
---------- ------------ ------------ ------------ --------------
Total stockholders' equity................ $ 31,331 $ 68,009 $ 74,593 $ 81,178 $ 88,750
---------- ------------ ------------ ------------ --------------
---------- ------------ ------------ ------------ --------------
</TABLE>
- ------------------------
(1) As adjusted to give effect to an increase in the number of shares which
could occur due to an increase in the Estimated Price Range of up to 15% as
a result of regulatory considerations or changes in market or general
financial and economic conditions following the commencement of the
Subscription and Community Offerings.
(2) Does not reflect withdrawals from deposit accounts for the purchase of
Common Stock in the Conversion. Such withdrawals would reduce pro forma
deposits by the amount of such withdrawals.
(3) Reflects the issuance of shares sold in the Offerings and the issuance of
additional shares of Common Stock to the Foundation at a value of $10.00 per
share. No effect has been given to the issuance of additional shares of
Common Stock pursuant to the Company's Stock Option Plan intended to be
adopted by the Company and presented for approval of stockholders at a
meeting of stockholders following the Conversion. The Stock Option Plan
would provide the grant of stock options to purchase an amount of Common
Stock equal to 10% of the shares of Common Stock issued in the Conversion.
See "Management of the Bank--Benefit Plans--Stock Option Plan."
(4) The retained earnings of the Bank will be substantially restricted after the
Conversion. See "The Conversion--Liquidation Rights."
(5) Represents the tax effect of the contribution of Common Stock to the
Foundation based on a 37.0% tax rate. The realization of the deferred tax
benefit is limited annually to 10% of the Company's annual taxable income,
subject to the ability of the Company to carry forward any unused portion of
the deduction for five years following the year in which the contribution is
made.
(6) Assumes that 8% of the shares issued in connection with the Conversion,
including shares issued to the Foundation, will be purchased by the ESOP and
the funds used to acquire the ESOP shares will be borrowed from the Company.
The Common Stock acquired by the ESOP is reflected as a reduction of
stockholders' equity. See "Management of the Bank--Benefit Plans--ESOP" and
"--Benefit Plans - Stock Program."
(7) Assumes that, subsequent to the Conversion, an amount equal to 4% of the
shares of Common Stock sold in the Conversion and issued to the Foundation
is purchased by the Stock Program through open market purchases. The Common
Stock purchased by the Stock Program is reflected as a reduction of
stockholder's equity. See "Risk Factors--Possible Dilutive Effect of Stock
Program and Stock Option Plan," Footnote 2 to the tables under "Pro Forma
Data" and "Management of the Bank - Benefit Plans--Stock Program."
25
<PAGE>
PRO FORMA DATA
The actual net proceeds from the sale of the Common Stock cannot be
determined until the Conversion is completed. However, net proceeds are
currently estimated to be between $40.9 million and $55.5 million based upon the
following assumptions: (i) $4.1 million will be sold to executive officers,
Directors and employees of the Bank and Company, the ESOP will purchase 8% of
the Common Stock issued in connection with the Conversion, including shares
issued to the Foundation, and the remaining shares will be sold in the
Subscription and Community Offerings; (ii) Webb will receive a fee equal to
1.25% of the aggregate Purchase Price of the shares sold in the Subscription
Offering and Community Offering, except that no fee will be paid with respect to
shares purchased by the Employee Plans, including the ESOP, officers, employees,
Directors of the Bank and Company and members of their immediate families; (iii)
the Company will issue to the Foundation an amount of Common Stock equal to
8% of the Common Stock sold in the Conversion from authorized but unissued
shares; and (iv) Conversion expenses, excluding the marketing fees paid to Webb,
will be approximately $685,000. Actual Conversion expenses may vary from those
estimated.
Pro forma consolidated net income of the Company for the seven months ended
July 31, 1997 and for the year ended December 31, 1996 have been calculated as
if the Common Stock had been sold at the beginning of the respective periods and
the net proceeds had been invested at 5.52% (the one year U.S. Treasury bill
rate as of July 31, 1997). The tables do not reflect the effect of withdrawals
from deposit accounts for the purchase of Common Stock. The pro forma after-tax
yield for the Company and the Bank is assumed to be 3.48% for both the seven
months ended July 31, 1997 and the year ended December 31, 1996 (based on an
assumed tax rate of 37%). Historical and pro forma per share amounts have been
calculated by dividing historical and pro forma amounts by the indicated number
of shares of Common Stock, as adjusted to give effect to the purchase of shares
by the ESOP and the effect of the issuance of shares to the Foundation. No
effect has been given in the pro forma stockholders' equity calculations for the
assumed earnings on the net proceeds. As discussed under "Use of Proceeds," the
Company will retain 50% of the net Conversion proceeds.
The following pro forma information may not be representative of the
financial effects of the foregoing transactions at the dates on which such
transactions actually occur and should not be taken as indicative of future
results of operations. Pro forma consolidated stockholders' equity represents
the difference between the stated amount of assets and liabilities of the
Company. The pro forma stockholders' equity is not intended to represent the
fair market value of the Common Stock and may be greater than amounts that
would be available for distribution to stockholders in the event of
liquidation.
The following tables summarize historical data of the Bank and pro forma
data of the Company at or for the seven months ended July 31, 1997 and year
ended December 31, 1996, based on the assumptions set forth above and in the
table and should not be used as a basis for projections of market value of
the Common Stock following the Conversion. The tables below give effect to
the Stock Program, which is expected to be adopted by the Company following
the Conversion and presented to stockholders for approval at a meeting of
stockholders. See Footnote 2 to the tables and "Management of the Bank--
Benefit Plans--Stock Program." No effect has been given in the tables to the
possible issuance of additional shares reserved for future issuance pursuant
to the Stock Option Plan to be adopted by the Board of Directors of the
Company and presented to stockholders for approval at a meeting of
stockholders, nor does book value as presented give any effect to the
liquidation account to be established for the benefit of Eligible Account
Holders or, in the event of liquidation of the Bank, to the tax effect of the
bad debt reserve and other factors. See Footnote 3 to the tables below, "The
Conversion--Liquidation Rights" and "Management of the Bank--Benefit
Plans--Stock Option Plan." The following table at or for the year ended
December 31, 1996 gives effect to the issuance of authorized but unissued
shares of the Company's Common Stock to the Foundation concurrently with the
completion of the Conversion. The Valuation Range, as set forth herein and in
the tables below, takes into account the dilutive impact of the issuance of
shares to the Foundation.
26
<PAGE>
<TABLE>
<CAPTION>
AT OR FOR THE SEVEN MONTHS ENDED JULY 31, 1997
--------------------------------------------------------------------
4,199,000 4,940,000 6,533,150
SHARES SOLD SHARES SOLD AT 5,681,000 SHARES SOLD AT
AT $10.00 PER $10.00 PER SHARES SOLD AT $10.00 PER SHARE
SHARE SHARE $10.00 PER SHARE (15% ABOVE
(MINIMUM (MIDPOINT (MAXIMUM OF MAXIMUM OF
OF ESTIMATED OF ESTIMATED ESTIMATED PRICE ESTIMATED PRICE
PRICE RANGE) PRICE RANGE) RANGE) RANGE)(7)
------------- --------------- ----------------- -----------------
<S> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Gross proceeds......................................... $ 41,990 $ 49,400 $ 56,810 $ 65,332
Plus: Shares issued to the Foundation (equal to 8% of
stock issued in Conversion).................... 3,359 3,952 4,545 5,227
------------- ------- ------- -------
Pro forma market capitalization........................ $ 45,349 $ 53,352 $ 61,355 $ 70,559
------------- ------- ------- -------
------------- ------- ------- -------
Gross proceeds......................................... $ 41,990 $ 49,400 $ 56,810 $ 65,332
Less: Offering expenses and commissions................ (1,113) (1,198) (1,283) (1,380)
------------- ------- ------- -------
Estimated net proceeds................................. 40,877 48,202 55,527 63,952
Less: Common Stock purchased by ESOP................... (3,628) (4,268) (4,908) (5,645)
Common Stock purchased by Stock Program.......... (1,814) (2,134) (2,454) (2,822)
------------- ------- ------- -------
Estimated net proceeds, as adjusted.................. $ 35,435 $ 41,800 $ 48,165 $ 55,485
------------- ------- ------- -------
------------- ------- ------- -------
Net income(1):
Historical........................................... $ 1,816 $ 1,816 $ 1,816 $ 1,816
Pro forma income on net proceeds, as adjusted........ 719 849 978 1,126
Less: Pro forma ESOP adjustment(2)..................... (89) (105) (120) (138)
Pro forma Stock Program adjustment(3)............ (133) (157) (180) (207)
------------- ------- ------- -------
Pro forma net income............................ $ 2,313 $ 2,403 $ 2,494 $ 2,597
------------- ------- ------- -------
------------- ------- ------- -------
Per share net income(1):
Historical........................................... $ 0.43 $ 0.37 $ 0.32 $ 0.28
Pro forma income on net proceeds, as adjusted........ 0.17 0.17 0.17 0.17
Less: Pro forma ESOP adjustment(2)..................... (0.02) (0.02) (0.02) (0.02)
Pro forma Stock Program adjustment(3)............ (0.03) (0.03) (0.03) (0.03)
------------- ------- ------- -------
Pro forma net income per share.................. $ 0.55 $ 0.49 $ 0.44 $ 0.40
------------- ------- ------- -------
------------- ------- ------- -------
Stockholders' equity:
Historical........................................... $ 31,331 $ 31,331 $ 31,331 $ 31,331
Estimated net proceeds............................... 40,877 48,202 55,527 63,952
Plus: Tax benefit of Foundation...................... 1,243 1,462 1,682 1,934
Less: Common Stock acquired by ESOP(2)............... (3,628) (4,268) (4,908) (5,645)
Less: Common Stock acquired by Stock Program(3)...... (1,814) (2,134) (2,454) (2,822)
------------- ------- ------- -------
Pro forma stockholders' equity(3)(4)(5)............ $ 68,009 $ 74,593 $ 81,178 $ 88,750
------------- ------- ------- -------
------------- ------- ------- -------
Stockholders' equity per share(3)(6):
Historical........................................... $ 6.91 $ 5.87 $ 5.11 $ 4.44
Estimated net proceeds............................... 9.01 9.03 9.05 9.06
Plus: Tax benefit of Foundation...................... 0.27 0.27 0.27 0.27
Less: Common Stock acquired by ESOP(2)............... (0.80) (0.80) (0.80) (0.80)
Common Stock acquired by Stock Program(3)...... (0.40) (0.40) (0.40) (0.40)
------------- ------- ------- -------
Pro forma stockholders' equity per
share(3)(4)(5)................................... $ 14.99 $ 13.97 $ 13.23 $ 12.57
------------- ------- ------- -------
------------- ------- ------- -------
Offering price as a percentage of pro forma
stockholders' equity per share....................... 66.71% 71.58% 75.59% 79.55%
Offering price to pro forma net earnings per
share(7)............................................. 10.61x 11.90x 13.26x 14.58x
</TABLE>
(See footnotes on next page)
27
<PAGE>
- ------------------------------
(1) Does not give effect to the non-recurring expense that will be recognized
in 1998 as a result of the establishment of the Foundation. In that
event, the Company will recognize an after-tax expense for the amount of
the contribution to the Foundation which is expected to be $2.1 million,
$2.5 million, $2.9 million and $3.3 million at the minimum, midpoint,
maximum and maximum as adjusted, of the Estimated Price Range,
respectively.
(2) It is assumed that 8% of the shares of Common Stock issued in connection
with the Conversion, including shares issued to the Foundation, will be
purchased by the ESOP. For purposes of this table, the funds used to acquire
such shares are assumed to have been borrowed by the ESOP from the Company.
The amount to be borrowed is reflected as a reduction of stockholders'
equity. The Bank intends to make annual contributions to the ESOP in an
amount at least equal to the principal and interest requirement of the debt.
The Bank's total annual payment of the ESOP debt is based upon 15 equal
annual installments of principal, with an assumed interest rate at 8.50%.
The pro forma net earnings assumes: (i) that the Bank's contribution to the
ESOP is equivalent to the debt service requirement for the seven months
ended July 31, 1997, and was made at the end of the period; (ii) that
14,108, 15,598, 19,088 and 21,951 shares at the minimum, midpoint, maximum
and 15% above the maximum of the range, respectively, were committed to be
released during the seven months ended July 31, 1997 at an average fair
value of $10.00 per share in accordance with SOP 93-6; and (iii) only the
ESOP shares committed to be released were considered outstanding for
purposes of the net earnings per share calculations. See "Management of the
Bank--Benefit Plans--ESOP."
(3) Gives effect to the Stock Program expected to be adopted by the Company
following the Conversion and presented for approval at a meeting of
stockholders. If the Stock Program is approved by stockholders, the Stock
Program intends to acquire an amount of Common Stock equal to 4% of the
shares of Common Stock issued in connection with the Conversion, including
shares issued to the Foundation, or 181,397, 213,408, 245,419 and 282,232
shares of Common Stock at the minimum, midpoint, maximum and 15% above the
maximum of the Estimated Price Range, respectively, either through open
market purchases, if permissible, or from authorized but unissued shares of
Common Stock or treasury stock of the Company, if any. In calculating the
pro forma effect of the Stock Program, it is assumed that the shares were
acquired by the Stock Program at the beginning of the period presented in
open market purchases at the Purchase Price and that 20% of the amount
contributed was an amortized expense during such period. The issuance of
authorized but unissued shares of the Company's Common Stock to the Stock
Program instead of open market purchases would dilute the voting interests
of existing stockholders by approximately 3.8% and pro forma net earnings
per share would be $0.53, $0.47, $0.41 and $0.38 at the minimum, midpoint,
maximum and 15% above the maximum of the range, respectively and pro forma
stockholders' equity per share would be $14.42, $13.44, $12.72 and $12.09 at
the minimum, midpoint, maximum and 15% above the maximum of the range,
respectively. There can be no assurance that the actual purchase price of
the shares granted under the Stock Program will be equal to the Purchase
Price. See "Management of the Bank--Benefit Plans--Stock Program."
(4) No effect has been given to the issuance of additional shares of Common
Stock pursuant to the Stock Option Plan expected to be adopted by the
Company following the Conversion. The Company expects to present the Stock
Option Plan for approval at a meeting of stockholders. If the Stock Option
Plan is approved by stockholders, an amount equal to 10% of the Common Stock
issued in connection with the Conversion, including shares issued to the
Foundation, or 453,492, 533,520, 613,548 and 705,580 shares at the minimum,
midpoint, maximum and 15% above the maximum of the Estimated Price Range,
respectively, will be reserved for future issuance upon the exercise of
options to be granted under the Stock Option Plan. The issuance of Common
Stock pursuant to the exercise of options under the Stock Option Plan will
result in the dilution of existing stockholders' interests. Assuming all
options were exercised at the end of the period at an exercise price of
$10.00 per share, the pro forma net earnings per share would be $0.50,
$0.44, $0.40 and $0.36, respectively, and the pro forma stockholders' equity
per share would be $13.63, $12.71, $12.03 and $11.43, respectively. See
"Risk Factors--Possible Dilutive Effect of Stock Program and Stock Option
Plan" and "Management of the Bank--Benefit Plans--Stock Option Plan."
(5) The retained earnings of the Bank will continue to be substantially
restricted after the Conversion. See "Dividend Policy," "The
Conversion--Liquidation Rights."
(6) Stockholders' equity per share data is based upon 4,534,920, 5,335,200,
6,135,480 and 7,055,802 shares outstanding representing shares sold in the
conversion, shares contributed to the Foundation and shares purchased by the
ESOP and Stock Program.
(7) As adjusted to give effect to an increase in the number of shares which
could occur due to an increase in the Estimated Price Range of up to 15% as
a result of regulatory considerations or changes in market or general
financial and economic conditions following the commencement of the
Subscription and Community Offerings.
28
<PAGE>
<TABLE>
<CAPTION>
AT OR FOR THE YEAR ENDED DECEMBER 31, 1996
-----------------------------------------------------------
6,533,150
4,199,000 4,940,000 5,681,000 SHARES SOLD AT
SHARES SOLD SHARES SOLD SHARES SOLD $10.00 PER
AT AT AT SHARE (15%
$10.00 PER $10.00 PER $10.00 PER ABOVE
SHARE SHARE SHARE MAXIMUM OF
(MINIMUM (MIDPOINT (MAXIMUM OF ESTIMATED
OF ESTIMATED OF ESTIMATED ESTIMATED PRICE
PRICE RANGE) PRICE RANGE) PRICE RANGE) RANGE)(7)
------------- ------------- ------------- --------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Gross proceeds.................................... $ 41,990 $ 49,400 $ 56,810 $ 65,332
Plus: Shares issued to the Foundation
(equal to 8% of stock issued in
Conversion)................................. 3,359 3,952 4,545 5,227
--------- --------- --------- ----------
Pro forma market capitalization................... $ 45,349 $ 53,352 $ 61,355 $ 70,559
--------- --------- --------- ----------
--------- --------- --------- ----------
Gross proceeds.................................... $ 41,990 $ 49,400 $ 56,810 $ 65,332
Less: Offering expenses and
commissions............................ (1,113) (1,198) (1,283) (1,380)
--------- --------- --------- ----------
Estimated net proceeds............................ 40,877 48,202 55,527 63,952
Less: Common Stock purchased
by ESOP................................ (3,628) (4,268) (4,908) (5,645)
Common Stock purchased
by Stock Program....................... (1,814) (2,134) (2,454) (2,822)
--------- --------- --------- ----------
Estimated net proceeds, as adjusted............ $ 35,435 $ 41,800 $ 48,165 $ 55,485
--------- --------- --------- ----------
--------- --------- --------- ----------
Net income(1):
Historical..................................... $ 2,042 $ 2,042 $ 2,042 $ 2,042
Pro forma income on net proceeds,
as adjusted................................ 1,233 1,455 1,676 1,931
Less: Pro forma ESOP adjustment(2)............... (152) (179) (206) (237)
Pro forma Stock Program
adjustment(3)............................. (229) (269) (309) (356)
--------- --------- --------- ----------
Pro forma net income....................... $ 2,894 $ 3,049 $ 3,203 $ 3,380
--------- --------- --------- ----------
--------- --------- --------- ----------
Per share net income(1):
Historical..................................... $ 0.49 $ 0.41 $ 0.36 $ 0.31
Pro forma income on net proceeds,
as adjusted................................ 0.29 0.29 0.30 0.30
Less: Pro forma ESOP adjustment(2)............... (0.04) (0.04) (0.04) (0.04)
Pro forma Stock Program
adjustment(3)............................. (0.05) (0.05) (0.05) (0.05)
--------- --------- --------- ----------
Pro forma net income per share......... $ 0.69 $ 0.61 $ 0.57 $ 0.52
--------- --------- --------- ----------
--------- --------- --------- ----------
Stockholders' equity:
Historical..................................... $ 29,513 $ 29,513 $ 29,513 $ 29,513
Estimated net proceeds......................... 40,877 48,202 55,527 63,952
Plus: Tax benefit of Foundation............... 1,243 1,462 1,682 1,934
Less: Common Stock acquired
by ESOP(2)........................... (3,628) (4,268) (4,908) (5,645)
Less: Common Stock acquired
by Stock Program(3).................. (1,814) (2,134) (2,454) (2,822)
--------- --------- --------- ----------
Pro forma stockholders'
equity(3)(4)(5)......................... $ 66,191 $ 72,775 $ 79,360 $ 86,932
--------- --------- --------- ----------
--------- --------- --------- ----------
Stockholders' equity per share(3)(6):
Historical..................................... $ 6.51 $ 5.53 $ 4.81 $ 4.18
Estimated net proceeds......................... 9.01 9.03 9.05 9.06
Plus: Tax benefit of Foundation............... 0.27 0.27 0.27 0.27
Less: Common Stock acquired by ESOP(2)........ (0.80) (0.80) (0.80) (0.80)
Common Stock acquired
by Stock Program(3).................. (0.40) (0.40) (0.40) (0.40)
--------- --------- --------- ----------
Pro forma stockholders' equity
per share(3)(4)(5)................... $ 14.59 $ 13.63 $ 12.93 $ 12.31
--------- --------- --------- ----------
--------- --------- --------- ----------
Offering price as a percentage of
pro forma stockholders' equity
per share....................................... 68.54% 73.37% 77.34% 81.23%
Offering price to pro forma net
earnings per share(7)........................... 14.49x 16.39x 17.54x 19.23x
</TABLE>
(See footnotes on next page)
29
<PAGE>
- ------------------------
(1) Does not give effect to the non-recurring expense that will be recognized in
1998 as a result of the establishment of the Foundation. In that event, the
Company will recognize an after-tax expense for the amount of the
contribution to the Foundation which is expected to be $2.1 million, $2.5
million, $2.9 million and $3.3 million at the minimum, midpoint, maximum and
maximum as adjusted, of the Estimated Price Range, respectively.
(2) It is assumed that 8% of the shares of Common Stock issued in connection
with the Conversion, including shares issued to the Foundation, will be
purchased by the ESOP. For purposes of this table, the funds used to acquire
such shares are assumed to have been borrowed by the ESOP from the Company.
The amount to be borrowed is reflected as a reduction of stockholders'
equity. The Bank intends to make annual contributions to the ESOP in an
amount at least equal to the principal and interest requirement of the debt.
The Bank's total annual payment of the ESOP debt is based upon 15 equal
annual installments of principal, with an assumed interest rate at 8.50%.
The pro forma net earnings assumes: (i) that the Bank's contribution to the
ESOP is equivalent to the debt service requirement for the year ended
December 31, 1996, and was made at the end of the period; (ii) that 24,186,
28,454, 32,723 and 37, 631 shares at the minimum, midpoint, maximum and 15%
above the maximum of the range, respectively, were committed to be released
during the year ended December 31, 1996 at an average fair value of $10.00
per share in accordance with SOP 93-6; and (iii) only the ESOP shares
committed to be released were considered outstanding for purposes of the net
earnings per share calculations. See "Management of the Bank--Benefit
Plans--ESOP."
(3) Gives effect to the Stock Program expected to be adopted by the Company
following the Conversion and presented for approval at a meeting of
stockholders. If the Stock Program is approved by stockholders, the Stock
Program intends to acquire an amount of Common Stock equal to 4% of the
shares of Common Stock issued in connection with the Conversion, including
shares issued to the Foundation, or 181,397, 213,408, 245,419 and 282,232
shares of Common Stock at the minimum, midpoint, maximum and 15% above the
maximum of the Estimated Price Range, respectively, either through open
market purchases, if permissible, or from authorized but unissued shares of
Common Stock or treasury stock of the Company, if any. In calculating the
pro forma effect of the Stock Program, it is assumed that the shares were
acquired by the Stock Program at the beginning of the period presented in
open market purchases at the Purchase Price and that 20% of the amount
contributed was an amortized expense during such period. The issuance of
authorized but unissued shares of the Company's Common Stock to the Stock
Program instead of open market purchases would dilute the voting interests
of existing stockholders by approximately 3.8% and pro forma net earnings
per share would be $0.66, $0.59, $0.54 and $0.50 at the minimum, midpoint,
maximum and 15% above the maximum of the range, respectively and pro forma
stockholders' equity per share would be $14.03, $13.12, $12.44 and $11.85 at
the minimum, midpoint, maximum and 15% above the maximum of the range,
respectively. There can be no assurance that the actual purchase price of
the shares granted under the Stock Program will be equal to the Purchase
Price. See "Management of the Bank--Benefit Plans--Stock Program."
(4) No effect has been given to the issuance of additional shares of Common
Stock pursuant to the Stock Option Plan expected to be adopted by the
Company following the Conversion. The Company expects to present the Stock
Option Plan for approval at a meeting of stockholders. If the Stock Option
Plan is approved by stockholders, an amount equal to 10% of the Common Stock
issued in connection with the Conversion, including shares issued to the
Foundation, or 453,492, 533,520, 613,548 and 705,580 shares at the minimum,
midpoint, maximum and 15% above the maximum of the Estimated Price Range,
respectively, will be reserved for future issuance upon the exercise of
options to be granted under the Stock Option Plan. The issuance of Common
Stock pursuant to the exercise of options under the Stock Option Plan will
result in the dilution of existing stockholders' interests. Assuming all
options were exercised at the end of the period at an exercise price of
$10.00 per share, the pro forma net earnings per share would be $0.62,
$0.56, $0.51 and $0.47, respectively, and the pro forma stockholders' equity
per share would be $13.27, $12.40, $11.76 and $11.20, respectively. See
"Risk Factors--Possible Dilutive Effect of Stock Program and Stock Option
Plan" and See "Management of the Bank--Benefit Plans--Stock Option Plan."
(5) The retained earnings of the Bank will continue to be substantially
restricted after the Conversion. See "Dividend Policy," "The
Conversion--Liquidation Rights."
(6) Stockholders' equity per share data is based upon 4,534,920, 5,335,200,
6,135,480 and 7,055,802 shares outstanding representing shares sold in the
conversion, shares contributed to the Foundation and shares purchased by the
ESOP and Stock Program.
(7) As adjusted to give effect to an increase in the number of shares which
could occur due to an increase in the Estimated Price Range of up to 15% as
a result of regulatory considerations or changes in market or general
financial and economic conditions following the commencement of the
Subscription and Community Offerings.
30
<PAGE>
COMPARISON OF VALUATION AND PRO FORMA INFORMATION WITH NO FOUNDATION
In the event that the Foundation was not being established as part of the
Conversion, FinPro has estimated that the pro forma aggregate market
capitalization of the Company would be approximately $58.1 million, at the
midpoint, which is approximately $4.7 million greater than the pro forma
aggregate market capitalization of the Company if the Foundation is included,
and would result in approximately an $8.7 million increase, or 17.6%, in the
amount of Common Stock offered for sale in the Conversion. The pro forma price
to book ratio and pro forma price to earnings ratio would be the same under both
the current appraisal and the estimate of the value of the Company without the
Foundation. Further, assuming the midpoint of the Estimated Price Range, pro
forma stockholders' equity per share and pro forma earnings per share would be
substantially the same with the Foundation as without the Foundation. In this
regard, pro forma stockholders' equity and pro forma net income per share would
be $13.97 and $0.48, respectively, at the midpoint of the estimate, assuming no
Foundation, and $13.97 and $0.49, respectively, with the Foundation. The pro
forma price to book ratio and the pro forma price to earnings ratio are 71.58%
and 12.15x, respectively, at the midpoint of the estimate, assuming no
Foundation and are 71.58% and 11.90x, respectively, with the Foundation. There
is no assurance that in the event the Foundation was not formed that the
appraisal prepared at that time would have concluded that the pro forma market
value of the Company would be the same as that estimated herein. Any appraisal
prepared at that time would be based on the facts and circumstances existing at
that time, including, among other things, market and economic conditions.
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 Price Range, assuming the Conversion was completed at
July 31, 1997.
<TABLE>
<CAPTION>
AT THE MAXIMUM,
AT THE MINIMUM AT THE MIDPOINT AT THE MAXIMUM AS ADJUSTED
------------------------ ------------------------ ------------------------ ------------------------
WITH NO WITH NO WITH NO WITH NO
FOUNDATION FOUNDATION FOUNDATION FOUNDATION FOUNDATION FOUNDATION FOUNDATION FOUNDATION
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Estimated offering
amount............... $ 41,990 $ 49,385 49,400 $ 58,100 $ 56,810 $ 66,815 $ 65,332 $ 76,837
Pro forma market
capitalization....... 45,349 49,385 53,352 58,100 61,355 66,815 70,559 78,837
Total assets........... 361,039 366,618 367,623 374,187 374,208 381,756 381,780 390,461
Total liabilities...... 293,031 293,031 293,031 293,031 293,031 293,031 293,031 293,031
Pro forma stockholders'
equity............... 68,009 73,588 74,593 81,157 81,178 88,726 88,750 97,431
Pro forma consolidated
net earnings......... 2,313 2,432 2,403 2,542 2,494 2,654 2,597 2,781
Pro forma stockholders'
equity per share..... $ 14.99 $ 14.90 $ 13.97 $ 13.97 $ 13.23 $ 13.28 $ 12.57 $ 12.68
Pro forma consolidated
net earnings per
share................ $ 0.55 $ 0.54 $ 0.49 $ 0.48 $ 0.44 $ 0.43 $ 0.40 $ 0.40
Pro Forma Pricing
Ratios:
Offering price as a
percentage of pro
forma stockholders'
equity per share.... 66.71% 67.11% 71.58% 71.58% 75.59% 75.30% 79.55% 78.86%
Offering price to pro
forma net earnings
per share........... 10.61x 10.80x 11.90x 12.15x 13.26x 13.57x 14.58x 14.58x
Pro Forma Market
Capitalization to
assets.............. 12.56% 13.47% 14.51% 15.53% 16.40% 17.50% 18.48% 19.68%
Pro Forma Financial
Ratios:
Return on assets...... 1.10% 1.14% 1.12% 1.16% 1.14% 1.19% 1.17% 1.22%
Return on stockholders'
equity.............. 5.83% 5.67% 5.52% 5.37% 5.27% 5.13% 5.02% 4.89%
Stockholders' equity to
assets.............. 18.84% 20.07% 20.29% 21.69% 21.69% 23.24% 23.25% 24.95%
</TABLE>
31
<PAGE>
ELGIN FINANCIAL CENTER, S.B. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
The following Consolidated Statements of Operations of the Bank and
subsidiaries for each of the years in the three-year period ended December
31, 1996 have been audited by KPMG Peat Marwick LLP, independent certified
public accountants, whose report thereon appears elsewhere in this
Prospectus. With respect to information for the seven months ended July 31,
1997 and 1996, which is unaudited, in the opinion of management, all
adjustments necessary for a fair presentation of such interim periods have
been included and are of a normal recurring nature. Results for the seven
months ended July 31, 1997 are not necessarily indicative of the results that
may be expected for the year ended December 31, 1997. These statements should
be read in conjunction with the Consolidated Financial Statements and Notes
thereto and Management's Discussion and Analysis of Financial Condition and
Results of Operations included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
FOR THE SEVEN MONTHS FOR THE YEAR
ENDED JULY 31, ENDED DECEMBER 31,
-------------------- -------------------------------
1997 1996 1996 1995 1994
--------- --------- --------- --------- ---------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Interest income:
Loans secured by real estate.......................... $ 11,018 $ 10,455 $ 18,113 $ 16,650 $ 14,885
Other loans........................................... 505 460 839 602 323
Mortgage-backed securities............................ 848 1,000 1,695 1,873 1,965
Investment securities and other....................... 1,841 1,506 2,774 2,307 2,355
--------- --------- --------- --------- ---------
Total interest income............................. 14,212 13,421 23,421 21,432 19,528
--------- --------- --------- --------- ---------
Interest expense:
Savings deposits...................................... 6,743 6,654 11,351 10,443 9,021
Borrowed money........................................ 860 500 1,162 714 85
--------- --------- --------- --------- ---------
Total interest expense............................ 7,603 7,154 12,513 11,157 9,106
--------- --------- --------- --------- ---------
Net interest income before provision for loan losses....... 6,609 6,267 10,908 10,275 10,422
Provision for loan losses.................................. 21 39 54 72 90
--------- --------- --------- --------- ---------
Net interest income after provision for loan losses........ 6,588 6,228 10,854 10,203 10,332
--------- --------- --------- --------- ---------
Noninterest income:
Service fees.......................................... 336 298 541 491 498
Real estate and insurance commissions................. 79 46 60 62 26
Gain on sale of foreclosed real estate................ 8 57 121 12 --
Loss on sale of mutual funds.......................... -- -- -- -- (91)
Loss on sale of investment securities
available-for-sale.................................. -- -- -- (3) --
Other................................................. 25 64 80 112 136
--------- --------- --------- --------- ---------
Total noninterest income.......................... 448 465 802 674 569
--------- --------- --------- --------- ---------
Noninterest expense:
Compensation and benefits............................. 2,160 1,950 3,419 2,992 2,810
Office building, net.................................. 186 147 274 231 210
Depreciation and repairs.............................. 339 289 501 421 333
Data processing....................................... 181 165 276 236 290
Federal insurance premiums............................ 95 330 1,970 544 551
Provision for loss on foreclosed real estate.......... -- -- -- -- 90
NOW account operating expenses........................ 138 123 214 217 205
Other................................................. 1,185 992 1,828 1,729 1,613
--------- --------- --------- --------- ---------
Total noninterest expense.................................. 4,284 3,996 8,482 6,370 6,102
--------- --------- --------- --------- ---------
Earnings before income taxes............................... 2,752 2,697 3,174 4,507 4,799
Income tax expense......................................... 936 967 1,132 1,746 1,843
--------- --------- --------- --------- ---------
Net earnings...................................... $ 1,816 $ 1,730 $ 2,042 $ 2,761 $ 2,956
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
See accompanying "Notes to Consolidated Financial Statements" presented
elsewhere in the Prospectus.
32
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
The Company has only recently been formed and, accordingly has no results of
operations. The Bank's results of operations are dependent primarily on net
interest income, which is the difference between the interest income earned on
the Bank's interest-earning assets, such as loans and investments, and the
interest expense on its interest-bearing liabilities, such as deposits and
borrowings. The Bank also generates non-interest income such as service charges
and other fees. The Bank's non-interest expenses primarily consist of employee
compensation and benefits, depreciation and repairs, federal deposit insurance
premiums, data processing fees, office building expenses and other operating
expenses. The Bank's results of operations are also significantly affected by
general economic and competitive conditions, particularly changes in market
interest rates, government policies and actions of regulatory agencies. The Bank
exceeded all of its regulatory capital requirements at July 31, 1997. See
"Regulatory Capital Compliance" for a discussion of the historical and pro forma
capital of the Bank and capital requirements. See also "Regulation--Federal
Savings Institution Regulation - Capital Requirements."
Management Strategy
The Bank operates as a consumer-oriented savings bank, offering traditional
savings deposit and loan products to its local community. In recent years, the
Bank's strategy has been to maintain profitability while managing its mutual
capital position and limiting its credit and interest rate risk exposure. To
accomplish these objectives, the Bank has sought to: (1) control credit risk by
emphasizing the origination of single-family, owner-occupied residential
mortgage loans and consumer loans, consisting primarily of home equity loans;
(2) offer superior service and competitive rates to increase the core deposit
base consistent with its capital management goals; (3) invest funds in excess of
loan demand in mortgage-backed and investment securities; (4) control operating
expenses; and (5) reduce exposure to interest rate risk by emphasizing the
origination of adjustable-rate mortgage ("ARM") loans, with terms of up to 30
years and interest rates which adjust every one, two or three years from the
outset of the loan, or which adjust annually after a three, five or seven year
initial fixed period. The Bank also offers fixed-rate loans with terms ranging
from ten to 30 years, emphasizing those with terms of less than 30 years to
further reduce interest rate risk exposure.
In recent years, most locally headquartered competitors in the Bank's market
area have been acquired by larger, regional financial institutions, resulting in
a reduced presence of local, community-based banks. The Bank believes that this
reduction of community-based institutions has created opportunities for the
Bank, as one of the few remaining locally headquartered financial institutions
in its market area, to achieve controlled asset growth and moderate geographic
expansion. To take advantage of this perceived opportunity, the Bank intends to:
(1) maintain its traditional community thrift orientation as a provider of
residential mortgage products; (2) more aggressively develop and market new and
existing non-deposit products, secured and unsecured commercial lending,
commercial real estate lending and commercial deposit accounts; and (3) increase
the Bank's market share through the continued establishment and/or acquisition
of additional branch locations.
Maintaining Community Orientation. Management is seeking to maintain the
value of the Bank's existing franchise in its primary market area, which is
based in large part upon its long-standing reputation for a high level of
customer service in the delivery of traditional thrift products and services
and active community involvement. It intends to maintain its community
orientation by continuing to emphasize and expand upon its traditional
deposit and loan products, primarily single-family residential mortgages.
Many of the Bank's directors and senior officers belong to service or
community organizations within the local market area. The Bank encourages
such participation in the belief that it contributes to the Bank's community
presence. The Bank further intends to enhance its community involvement
through the establishment of a charitable foundation. See "The
Conversion--Establishment of a Charitable Foundation," and "Management of the
Bank--Biographical Information."
Expansion of Products and Services Offered. To take advantage of a
perceived opportunity created by the reduced presence of community-based
financial institutions in its primary market area, the Bank intends to expand
its customer services and product lines in an effort to increase volume, thereby
generating increased interest and fee income.
33
<PAGE>
The Bank will maintain its emphasis on the origination of one- to four-
family residential mortgage loans. While the Bank believes it has priced its
adjustable-rate loan products aggressively, it has historically priced its
fixed-rate products above market in order to de-emphasize the origination of
such loans. Recently, however, the Bank has begun pricing its fixed-rate loan
products more competitively in order to increase such originations. The Bank
also intends to place increased emphasis on other existing products and
services which include, but are not limited to, non-deposit products, secured
and unsecured commercial business lending, commercial real estate lending and
commercial deposit accounts. At the same time, the Bank is considering the
introduction of new products and services, including credit and debit cards,
telephonic banking and eventually, home banking. See "Business of the Bank."
Management believes that the diversification of the Bank's loan products may
expose it to a higher degree of credit risk than is involved in the Bank's one-
to four-family residential mortgage lending activity. As a result, the Bank
intends to increase the level of its provision for loan losses in future periods
over that experienced in past years.
Increasing Market Share. Management is also seeking to increase the Bank's
market share through expansion of the branch network, as well as through
expansion of the product and customer base. Within the last year, the Bank has
concentrated on the upgrade and expansion of its branch facilities, including
interior renovations of its home office, increased drive-through and ATM
facilities and the relocation in 1996 of a branch within Elgin to a more heavily
traveled location, in order to accommodate an increased customer base. The Bank
has also sought to increase its market presence through the establishment of a
Web site, through which the Bank advertises its loan and deposit rates.
The Bank plans to acquire property in the neighboring community of Huntley,
on which it intends to construct a new branch office during 1998. See "Business
of the Bank--Properties." The Huntley location represents an expansion of the
Bank's current market area. The Company and the Bank may use a portion of the
net Conversion proceeds to open additional branch offices, although the Bank is
seeking only moderate geographic expansion within the immediate future. Neither
the Company nor the Bank have any additional pending agreements or
understandings regarding acquisitions of any specific branch offices at this
time. See "Use of Proceeds."
Management of Interest Rate Risk
The principal objective of the Bank's interest rate risk management is to
evaluate the interest rate risk inherent in certain balance sheet accounts,
determine the level of risk appropriate given the Bank's business strategy,
operating environment, capital and liquidity requirements and performance
objectives, and manage the risk consistent with the Board of Directors' approved
guidelines. Through such management, the Bank seeks to reduce the vulnerability
of its operations to changes in interest rates. The Bank's Board of Directors
reviews the Bank's interest rate risk position on a quarterly basis. The Bank's
Asset/ Liability Committee is comprised of the Bank's entire Board of Directors
and members of senior management. The Committee is responsible for reviewing the
Bank's activities and strategies, the effect of those strategies on the Bank's
net interest margin, the market value of the portfolio and the effect that
changes in the interest rates will have on the Bank's portfolio and the Bank's
exposure limits.
In recent years, the Bank has utilized the following strategies to manage
interest rate risk: (1) emphasizing the origination and retention of
adjustable-rate mortgage loans and shorter-term fixed-rate mortgage loans and
consumer loans consisting primarily of home equity lines of credit and (2)
investing in short-term and adjustable-rate securities which may generally
bear lower yields as compared to longer-term investments, but which better
position the Bank for increases in market interest rates. See, however,
"--Management Strategy" for information on the Bank's repricing strategy
which may increase the level of fixed-rate loans in the Bank's portfolio. The
Bank currently does not participate in hedging programs, interest rate swaps
or other activities involving the use of off-balance sheet derivative
financial instruments.
Gap Analysis. The matching of assets and liabilities may be analyzed by
examining the extent to which such assets and liabilities are "interest rate
sensitive" and by monitoring a bank's interest rate sensitivity "gap." An
asset or liability is said to be interest rate sensitive within a specific
time period if it will mature or reprice within that time period. The
interest rate sensitivity gap is defined as the difference between the amount
of interest-earning assets maturing or repricing within a specific time
period and the amount of interest-bearing liabilities maturing or repricing
within that same time period. At July 31, 1997, the Bank's one-year gap
position, the difference between the amount
34
<PAGE>
of interest-earning assets maturing or repricing within one year and
interest-bearing liabilities maturing or repricing within one year, was
(20.74)%. A gap is considered positive when the amount of interest rate
sensitive assets exceeds the amount of interest rate sensitive liabilities. A
gap is considered negative when the amount of interest rate sensitive
liabilities exceeds the amount of interest rate sensitive assets.
Accordingly, during a period of rising interest rates, an institution with a
negative gap position would be in a worse position to invest in higher
yielding assets which, consequently, may result in the cost of its
interest-bearing liabilities increasing at a rate faster than its yield on
interest-earning assets than if it had a positive gap. Conversely, during a
period of falling interest rates, an institution with a negative gap would
tend to have its interest-bearing liabilities repricing downward at a faster
rate than its interest-earning assets as compared to an institution with a
positive gap which, consequently, may tend to positively affect the growth of
its net interest income.
The following table sets forth the amounts of interest-earning assets and
interest-bearing liabilities outstanding at July 31, 1997, which are anticipated
by the Bank, based upon certain assumptions, to reprice or mature in each of the
future time periods shown (the "GAP Table"). Except as stated below, the amount
of assets and liabilities shown which reprice or mature during a particular
period were determined in accordance with the earlier of term to repricing or
the contractual maturity of the asset or liability. The table sets forth an
approximation of the projected repricing of assets and liabilities at July 31,
1997, on the basis of contractual maturities, anticipated prepayments, and
scheduled rate adjustments within a three month period and subsequent selected
time intervals. For loans on residential properties, adjustable-rate loans, and
fixed-rate loans, actual repricing and maturity dates were used. Mortgage-backed
securities were assumed to prepay at rates between 18.4% and 21.4% annually.
Savings accounts were assumed to decay at 16.54%, 11.54%, 33.07%, 9.40%, 6.79%,
9.83% and 7.84%, money market savings accounts were assumed to decay at 16.07%,
16.07%, 32.15%, 21.78%, 8.49%, 4.91% and 0.51%, and NOW accounts were assumed to
decay at 13.84%, 13.84%, 27.69%, 15.14%, 10.01%, 12.57% and 6.91% for the
periods of three months or less, three to six months, six to 12 months, one to
three years, three to five years, five to ten years and more than ten years,
respectively. These assumptions are generally based on the OTS's deposit decay
guidelines at June 30, 1997. Prepayment and deposit decay rates can have a
significant impact on the Bank's estimated gap. While the Bank believes such
assumptions to be reasonable, there can be no assurance that assumed prepayment
rates and decay rates will approximate actual future loan prepayment and deposit
withdrawal activity. See "Business of the Bank--Lending Activities,"
"--Investment Activities" and "--Sources of Funds."
35
<PAGE>
<TABLE>
<CAPTION>
AT JULY 31, 1997
-------------------------------------------------------------------------------------------------
3 MORE THAN MORE THAN MORE THAN 1 MORE THAN MORE THAN
MONTHS 3 MONTHS TO 6 MONTHS TO YEAR TO 3 YEARS TO 5 YEARS TO MORE THAN
OR LESS 6 MONTHS 1 YEAR 3 YEARS 5 YEARS 10 YEARS 10 YEARS TOTAL
--------- ----------- ----------- ------------ ---------- ---------- ----------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets(1):
Short-term deposits.......... $ 13,799 $ -- $ -- $ -- $ -- $ -- $ -- $ 13,799
Investment securities(2)..... -- -- 6,980 10,991 6,563 8,682 3,999 37,215
Mortgage-backed and
mortgage-related
securities(2).............. 1,761 529 1,593 7,169 3,153 3,533 1,905 19,643
Mortgage loans, net(3)....... 14,142 12,390 19,710 73,644 15,664 12,488 84,672 232,710
Other loans.................. 8,815 21 117 800 516 221 -- 10,490
FHLB stock................... 2,051 -- -- -- -- -- -- 2,051
--------- --------- --------- --------- --------- --------- --------- ---------
Total interest-earning assets... 40,568 12,940 28,400 92,604 25,896 24,924 90,576 315,908
--------- --------- --------- --------- --------- --------- --------- ---------
Interest-bearing liabilities:
Money market savings
accounts.................... 4,369 4,369 8,740 5,921 2,313 1,335 139 27,186
Passbook savings accounts.... 8,485 8,485 16,965 4,822 3,483 5,043 4,018 51,301
NOW accounts................. 3,420 3,420 6,842 3,741 2,473 3,016 1,708 24,710
Certificates of deposit...... 28,417 23,782 29,894 59,124 8,980 31 -- 150,233
FHLB advances................ -- -- 2,000 12,000 10,000 -- -- 24,000
--------- --------- --------- --------- --------- --------- --------- ---------
Total interest-bearing
liabilities............. 44,691 40,056 64,441 85,608 27,249 9,520 5,865 277,430
--------- --------- --------- --------- --------- --------- --------- ---------
Interest sensitivity gap(4)..... $ (4,123) $ (27,116) $ (36,041) $ 6,996 $ (1,353) $ 15,404 $ 84,711
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Cumulative interest sensitivity
gap........................... $ (4,123) $ (31,239) $ (67,280) $ (60,284) $ (61,637) $ (46,233) $ 38,478
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Cumulative interest sensitivity
gap as a percentage of total
assets........................ (1.27)% (9.63)% (20.74)% (18.59)% (19.00)% (14.25)% 11.86%
Cumulative interest sensitivity
gap as a percentage of total
interest-earning assets....... (1.31)% (9.89)% (21.30)% (19.08)% (19.51)% (14.63)% 12.18%
Cumulative net interest-earning
assets as a percentage of
cumulative interest-bearing
liabilities................... 90.77% 63.14% 54.90% 74.33% 76.48% 82.98% 113.87%
</TABLE>
- ------------------------
(1) Interest-earning assets are included in the period in which the balances are
expected to be redeployed and/or repriced as a result of anticipated
prepayments, scheduled rate adjustments, and contractual maturities.
(2) Investment and mortgage-backed securities available for sale are shown at
amortized cost.
(3) For purposes of the gap analysis, the allowance for loan losses and
non-performing loans have been excluded.
(4) Interest sensitivity gap represents the difference between net
interest-earning assets and interest-bearing liabilities.
36
<PAGE>
Certain shortcomings are inherent in the method of analysis
presented in the GAP Table. For example, although certain assets and
liabilities may have similar maturities or periods to repricing, they may
react in different degrees to changes in market interest rates. Also, the
interest rates on certain types of assets and liabilities may fluctuate in
advance of changes in market interest rates, while interest rates on other
types may lag behind changes in market rates. Additionally, certain assets,
such as adjustable-rate loans, have features which restrict changes in
interest rates both on a short-term basis and over the life of the asset.
Further, in the event of changes in interest rates, prepayment and early
withdrawal levels would likely deviate significantly from those assumed in
calculating the table. Finally, the ability of many borrowers to service
their adjustable-rate loans may decrease in the event of an interest rate
increase.
Net Portfolio Value. The Bank's interest rate sensitivity is monitored
by management through the use of a Net Portfolio Value Model which generates
estimates of the change in the Bank's net portfolio value ("NPV") over a
range of interest rate scenarios. NPV is the present value of expected cash
flows from assets, liabilities, and off-balance sheet contracts. The NPV
ratio, under any interest rate scenario, is defined as the NPV in that
scenario divided by the market value of assets in the same scenario. The
model assumes estimated loan prepayment rates, reinvestment rates and deposit
decay rates similar to the assumptions utilized for the GAP Table. The
Sensitivity Measure is the decline in the NPV ratio, in basis points, caused
by a 2% increase or decrease in rates, whichever produces a larger decline.
The higher the institution's Sensitivity Ratio, the greater its exposure to
interest rate risk is considered to be. The following NPV Table sets forth
the Bank's NPV as of July 31, 1997.
<TABLE>
<CAPTION>
NPV AS % OF PORTFOLIO
CHANGE IN NET PORTFOLIO VALUE VALUE OF ASSETS
INTEREST RATES -------------------------------- ----------------------
IN BASIS POINTS % %
(RATE SHOCK) AMOUNT $ CHANGE CHANGE NPV RATIO CHANGE
- --------------- --------- ---------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
400 $ 25,233 $ (18,447) (42.23)% 8.00% (38.41)%
300 29,599 (14,081) (32.24) 9.24 (28.87)
200 34,508 (9,172) (21.00) 10.59 (18.48)
100 39,122 (4,558) (10.43) 11.82 (9.01)
Static 43,680 -- -- 12.99 --
(100) 46,765 3,085 7.06 13.75 5.85
(200) 48,962 5,282 12.09 14.27 9.85
(300) 50,047 6,367 14.58 14.50 11.62
(400) 48,096 4,416 10.11 13.98 7.62
</TABLE>
As is the case with the GAP Table, certain shortcomings are inherent in
the methodology used in the above interest rate risk measurements. Modeling
changes in NPV require the making of certain assumptions which may or may not
reflect the manner in which actual yields and costs respond to changes in
market interest rates. In this regard, the NPV Table presented assumes that
the composition of the Bank's interest sensitive assets and liabilities
existing at the beginning of a period remains constant over the period being
measured and also assumes that a particular change in interest rates is
reflected uniformly across the yield curve regardless of the duration to
maturity or repricing of specific assets and liabilities. Accordingly,
although the NPV Table provides an indication of the Bank's interest rate
risk exposure at a particular point in time, such measurements are not
intended to and do not provide a precise forecast of the effect of changes in
market interest rates on the Bank's net interest income and will differ from
actual results.
Analysis of Net Interest Income
Net interest income represents the difference between income on
interest-earning assets and expense on interest-bearing liabilities. Net
interest income depends on the relative amounts of interest-earning assets
and interest-bearing liabilities and the interest rate earned or paid on them.
37
<PAGE>
Average Balance Sheet. The following table sets forth certain
information relating to the Bank at July 31, 1997 and for the seven months
ended July 31, 1997 and 1996 and for the years ended December 31, 1996, 1995
and 1994. The average yields and costs are derived by dividing income or
expense by the average balance of interest-earning assets or interest-bearing
liabilities, respectively, for the periods shown and reflect annualized
yields and costs. Average balances are derived from average monthly balances.
The yields and costs include fees which are considered adjustments to yields.
<TABLE>
<CAPTION>
FOR THE SEVEN MONTHS ENDED JULY 31,
------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
AT JULY 31, 1997 1997 1996
--------------------- -------------------------------- --------------------------------
<CAPTION>
WEIGHTED AVERAGE AVERAGE
ACTUAL AVERAGE AVERAGE YIELD/ AVERAGE YIELD/
BALANCE RATE BALANCE INTEREST COST BALANCE INTEREST COST
---------- --------- ---------- --------- --------- ---------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Assets:
Interest-earning assets:
Short-term deposits............. $ 13,799 5.72% $ 10,896 $ 162 2.56% $ 8,155 $ 93 1.96%
Investment securities........... 38,203 7.17 38,047 1,599 7.24 33,672 1,342 6.86
Mortgage-backed and
mortgage-related securities... 19,732 7.14 20,570 848 7.10 23,606 1,000 7.29
Mortgage loans, net............. 231,828 7.96 233,596 11,018 8.12 223,214 10,455 8.06
Other loans..................... 10,343 8.65 10,274 505 8.46 8,318 460 9.52
FHLB stock...................... 2,051 6.75 2,051 80 6.72 2,009 71 6.09
---------- --------- ---------- --------- --------- ---------- --------- ---------
Total interest-earning
assets...................... 313,905 7.73 315,434 14,212 7.76 298,974 13,421 7.73
--------- --------- --------- --------- ---------
Noninterest-earning assets........ 10,456 6,644 4,325
---------- ---------- ----------
Total assets.................. $ 324,361 $ 322,078 $ 303,299
---------- ---------- ----------
---------- ---------- ----------
Liabilities and Retained Earnings:
Interest-bearing liabilities:
Deposits:
Money market accounts........... 27,186 3.41 27,591 550 3.43 27,765 557 3.45
Passbook savings accounts....... 51,301 3.02 48,366 835 2.97 46,451 809 3.00
NOW accounts.................... 24,710 1.82 25,597 302 2.03 27,004 345 2.20
Certificates of deposit......... 150,233 5.90 148,324 5,056 5.87 143,943 4,943 5.91
---------- --------- ---------- --------- --------- ---------- --------- ---------
Total deposits................ 253,430 4.65 249,878 6,743 4.65 245,163 6,654 4.67
FHLB advances................... 24,000 5.70 25,642 860 5.77 14,310 500 6.02
---------- --------- ---------- --------- --------- ---------- --------- ---------
Total interest-bearing
liabilities................. 277,430 4.74 275,520 7,603 4.75 259,473 7,154 4.75
--------- --------- --------- --------- ---------
Noninterest-bearing liabilities... 15,601 16,198 15,165
---------- ---------- ----------
Total liabilities............. 293,031 291,718 274,638
Total retained earnings........... 31,330 30,360 28,661
---------- ---------- ----------
Total liabilities and retained
earnings...................... $ 324,361 $ 322,078 $ 303,299
---------- ---------- ----------
---------- ---------- ----------
Net interest income............... $ 6,609 $ 6,267
--------- ---------
--------- ---------
Interest rate spread.............. 2.99% 3.01% 2.98%
--------- --------- ---------
--------- --------- ---------
Net interest margin as a percent
of interest-earning assets...... 3.61% 3.61%
--------- ---------
--------- ---------
Ratio of interest-earning assets
to interest-bearing
liabilities..................... 113.01% 114.49% 115.22%
--------- --------- ---------
--------- --------- ---------
</TABLE>
38
<PAGE>
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------------------------------
1996 1995 1994
---------------------------- ---------------------------- ------------------------------
<CAPTION>
AVERAGE AVERAGE AVERAGE
ACTUAL YIELD/ ACTUAL YIELD/ ACTUAL YIELD/
BALANCE INTEREST COST BALANCE INTEREST COST BALANCE INTEREST COST
--------- -------- -------- --------- -------- -------- -------- -------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Assets:
Interest-earning assets:
Short-term deposits...... $ 7,987 $ 144 1.80% $ 7,632 $ 149 1.95% $ 11,861 $ 299 2.52%
Investment securities.... 36,367 2,494 6.86 29,578 2,033 6.87 29,008 1,945 6.71
Mortgage-backed and
mortgage-related
securities............. 22,839 1,695 7.42 26,805 1,873 6.99 30,105 1,965 6.53
Mortgage loans, net...... 226,240 18,113 8.01 209,481 16,650 7.95 189,089 14,885 7.87
Other loans.............. 8,753 839 9.59 5,930 602 10.15 3,498 323 9.23
FHLB stock............... 2,026 136 6.71 1,894 125 6.60 1,879 111 5.91
-------- ------- ------ -------- ------- ------ -------- ------- ------
Total interest-earning
assets............... 304,212 23,421 7.70 281,320 21,432 7.62 265,440 19,528 7.36
------- ------ ------- ------ ------- ------
Noninterest-earning
assets................... 4,452 3,506 5,921
-------- -------- --------
Total assets........... $308,664 $284,826 $271,361
-------- -------- --------
-------- -------- --------
LIABILITIES AND RETAINED
EARNINGS:
Interest-bearing
liabilities:
Deposits:
Money market accounts.... 27,657 920 3.33 32,343 1,117 3.45 41,385 1,310 3.17
Passbook savings
accounts............... 46,048 1,391 3.02 47,945 1,439 3.00 54,004 1,611 2.98
NOW accounts............. 26,666 571 2.14 25,972 581 2.24 27,279 599 2.20
Certificates of deposit.. 144,044 8,469 5.88 127,030 7,306 5.75 111,549 5,501 4.93
-------- ------- ------ -------- ------- ------ -------- ------- ------
Total deposits......... 244,415 11,351 4.64 233,290 10,443 4.48 234,217 9,021 3.85
FHLB advances............ 19,683 1,162 5.90 11,451 714 6.24 1,503 85 5.66
-------- ------- ------ -------- ------- ------ -------- ------- ------
Total interest-bearing
liabilities.......... 264,098 12,513 4.74 244,741 11,157 4.56 235,720 9,106 3.86
------- ------ ------- ------ ------- ------
Noninterest-bearing
liabilities.............. 15,764 14,142 12,759
-------- -------- --------
Total liabilities...... 279,862 258,883 248,479
Total retained earnings.... 28,802 25,943 22,882
-------- -------- --------
Total liabilities and
retained earnings...... $308,664 $284,826 $271,361
-------- -------- --------
-------- -------- --------
Net interest income........ $10,908 $10,275 $10,422
------- ------- -------
------- ------- -------
Interest rate spread....... 2.96% 3.06% 3.50%
------ ------ ------
------ ------ ------
Net interest margin as a
percent of interest-
earning assets........... 3.59% 3.65% 3.93%
------ ------ ------
------ ------ ------
Ratio of interest-earning
assets to interest-
bearing liabilities...... 115.19% 114.95% 112.61%
------ ------ ------
------ ------ ------
</TABLE>
39
<PAGE>
Rate/Volume Analysis. The following table presents the extent to which
changes in interest rates and changes in the volume of interest-earning
assets and interest-bearing liabilities have affected the Bank's interest
income and interest expense during the periods indicated. Information is
provided in each category with respect to: (i) changes attributable to
changes in volume (changes in volume multiplied by prior rate); (ii) changes
attributable to changes in rate (changes in rate multiplied by prior volume);
and (iii) the net change. The changes attributable to the combined impact of
volume and rate have been allocated proportionately to the changes due to
volume and the changes due to rate.
<TABLE>
<CAPTION>
SEVEN MONTHS ENDED YEAR ENDED
JULY 31, 1997 DECEMBER 31, 1996
COMPARED TO COMPARED TO
SEVEN MONTHS ENDED YEAR ENDED
JULY 31, 1996 DECEMBER 31, 1995
--------------------------------- ---------------------------------
INCREASE (DECREASE) INCREASE (DECREASE)
DUE TO DUE TO
---------------------- ----------------------
<CAPTION>
VOLUME RATE NET VOLUME RATE NET
----------- --------- --------- ----------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Interest-Earning Assets:
Short-term deposits................................ $ 36 $ 33 $ 69 $ (12) $ 7 $ (5)
Investment securities.............................. 180 77 257 464 (3) 461
Mortgage-backed and mortgage-related securities,
net.............................................. (126) (26) (152) (289) 111 (178)
Mortgage loans, net................................ 485 78 563 1,337 126 1,463
Other loans........................................ 150 (105) 45 272 (35) 237
FHLB stock......................................... 2 7 9 9 2 11
----- --------- --------- ----- --------- ---------
Total interest-earning assets.................... 727 64 791 1,781 208 1,989
----- --------- --------- ----- --------- ---------
Interest-Bearing Liabilities:
Money market accounts.............................. (3) (4) (7) (159) (38) (197)
Passbook savings accounts.......................... 43 (17) 26 (58) 10 (48)
NOW accounts....................................... (17) (26) (43) 16 (26) (10)
Certificates of deposit............................ 187 (74) 113 995 168 1,163
FHLB advances...................................... 410 (50) 360 489 (41) 448
----- --------- --------- ----- --------- ---------
Total interest-bearing liabilities............... 620 (171) 449 1,283 73 1,356
----- --------- --------- ----- --------- ---------
Net change in net interest income.................... $ 107 $ 235 $ 342 $ 498 $ 135 $ 633
----- --------- --------- ----- --------- ---------
----- --------- --------- ----- --------- ---------
<CAPTION>
YEAR ENDED
DECEMBER 31, 1995
COMPARED TO
YEAR ENDED
DECEMBER 31, 1994
---------------------------------
<S> <C> <C> <C>
INCREASE (DECREASE)
DUE TO
----------------------
VOLUME RATE NET
----------- --------- ---------
<S> <C> <C> <C>
Interest-Earning Assets:
Short-term deposits................................ $ (92) $ (58) $ (150)
Investment securities.............................. 40 48 88
Mortgage-backed and mortgage-related securities,
net.............................................. (225) 133 (92)
Mortgage loans, net................................ 1,613 152 1,765
Other loans........................................ 244 35 279
FHLB stock......................................... 1 13 14
----------- --------- ---------
Total interest-earning assets.................... 1,581 323 1,904
----------- --------- ---------
Interest-Bearing Liabilities:
Money market accounts.............................. (303) 110 (193)
Passbook savings accounts.......................... (183) 11 (172)
NOW accounts....................................... (29) 11 (18)
Certificates of deposit............................ 821 984 1,805
FHLB advances...................................... 620 9 629
----------- --------- ---------
Total interest-bearing liabilities............... 926 1,125 2,051
----------- --------- ---------
Net change in net interest income.................... $ 655 $ (802) $ (147)
----------- --------- ---------
----------- --------- ---------
</TABLE>
40
<PAGE>
Comparison of Financial Condition at July 31, 1997 and December 31, 1996
Total assets at July 31, 1997 were $324.4 million, an increase of $8.5
million, or 2.7%, compared to $315.9 million at December 31, 1996. The
component change in assets was primarily in cash and cash equivalents and an
increase in loans receivable. Cash and cash equivalents increased by $5.3
million to a balance of $16.3 million at July 31, 1997 compared to $11.0
million at December 31, 1996. This increase was primarily due to an increase
of $4.6 million, or 50.0%, in funds held in the FHLB-Chicago daily investment
deposit account which totalled $13.8 million at July 31, 1997 as compared to
$9.2 million at December 31, 1996. Loans receivable, net increased by $4.5
million to $242.2 million at July 31, 1997 as compared to $237.7 million at
December 31, 1996. The increase in loans receivable, net, was primarily
attributable to a $4.0 million increase in the Bank's one- to four-family
mortgage loan portfolio during the seven month period from December 31, 1996
to July 31, 1997. The growth in total assets was funded by a $9.1 million, or
3.6%, increase in savings deposits which totalled $262.3 million at July 31,
1997, compared to $253.1 million at December 31, 1996. Retained earnings
increased by $1.8 million, or 6.3%, to $30.6 million as compared to $28.8
million at December 31, 1996. The increases in assets and retained earnings
were offset by advance repayments to the FHLB-Chicago of $5.0 million, which
reduced the level of outstanding borrowed funds to $24.0 million at July 31,
1997 from $29.0 million at December 31, 1996.
Comparison of Financial Condition at December 31, 1996 and December 31, 1995
Total assets at December 31, 1996 were $315.9 million, an increase of
$17.9 million, or 6.0%, compared to $298.0 million at December 31, 1995. The
increase in total assets was primarily the result of an increase in the
Bank's lending portfolio. Loans receivable, net, increased $16.8 million, or
7.6%, to $237.7 at December 31, 1996 from $220.9 million at December 31,
1995. The increase in loans receivable, net, during 1996 resulted primarily
from the increase of $15.5 million in one-to four-family mortgage loans.
Investments, including mortgage-backed securities, investment securities and
FHLB-Chicago daily investment deposits and stock, decreased by $600,000, or
0.81%, to $70.8 million at December 31, 1996 from $71.4 million at December
31, 1995. The increase in total assets was funded, in part, by a $5.0
million, or 2.0%, increase in savings deposits which totalled $253.1 million
at December 31, 1996, compared to $248.1 million at December 31, 1995.
Borrowings from the FHLB-Chicago also increased to $29.0 million at December
31, 1996 from $15.0 million at December 31, 1995. The $14 million, or 93.3%
increase in borrowings was the result of a highly competitive savings deposit
market during 1996.
Comparison of Operating Results for the Seven Months Ended July 31, 1997 and
July 31, 1996
General
The Bank's net income increased by $100,000, or 5.9%, to $1.8 million for
the seven months ended July 31, 1997, from $1.7 million for the seven months
ended July 31, 1996. This increase in net income was primarily attributable
to an increase of $342,000 in net interest income before provision for loan
losses, partially offset by an increase in total non-interest expense of
$288,000.
Interest Income
Interest income increased by $791,000, or 6.0%, to $14.2 million for the
seven months ended July 31, 1997, when compared with the same period in 1996.
This increase resulted from a combination of an increase in interest-earning
assets and an increase in average yield. The largest component was an
increase of $563,000 in mortgage loan interest income for the seven months
ended July 31, 1997. This resulted from an increase in the average balance of
$18.8 million, and an increase in the yield of 3 basis points. Overall, the
average yield on the Bank's interest-earning assets increased by 3 basis
points to 7.76% for the seven months ended July 31, 1997 from 7.73% for the
seven months ended July 31, 1996. The average balance of interest-earning
assets increased by $16.4 million, or 5.5%, to $315.4 million for the seven
months ended July 31, 1997 from $299.0 million for the seven months ended
July 31, 1996.
41
<PAGE>
Interest Expense
Interest expense increased by $449,000, or 6.3%, to $7.6 million for the
seven months ended July 31, 1997, from $7.2 million for the seven months ended
July 31, 1996. This increase resulted from the combination of an increase in
the average balance of deposits and advances outstanding, offset by a
decrease in the average rate paid on those deposits and advances. The average
rate paid on total deposits decreased to 4.65% for the seven months ended
July 31, 1997 from 4.67% for the seven months ended July 31, 1996. The rate
paid on FHLB-Chicago advances decreased to 5.77% for the seven months ended
July 31, 1997 from 6.02% for the seven months ended July 31, 1996. The
average balance of interest-bearing liabilities increased by $16.1 million,
or 6.2%, to $275.5 million at July 31, 1997 from $259.4 million at July 31,
1996. This increase reflects a $4.8 million increase in the deposit accounts,
with the remaining $11.3 million increase attributable to increase on
advances from the FHLB-Chicago.
Net Interest Income Before Provision for Loan Losses
Net interest income before provision for loan losses increased $343,000,
or 5.5%, to $6.6 million for the seven months ended July 31, 1997 from $6.3
million for the comparable period in 1996. This increase was primarily
attributable to a 3 basis point increase in the average interest rate spread
to 3.01% for the seven months ended July 31, 1997 as compared to 2.98% for
the same period in 1996 and a $400,000 increase in the excess of average
interest-earning assets over average interest-bearing liabilities.
Provision for Loan Losses
The Bank's provision for loan losses decreased by $18,000, or 46.2%, to
$21,000 for the seven months ended July 31, 1997 from $39,000 for the
comparable period in 1996. At July 31, 1997 and 1996, the ratio of the
allowance for loan losses to non-performing loans was 202.7% and 134.9%,
respectively, and the ratio of the allowance for loan losses to total loans
remained constant at 0.34%. There were no charge-offs during the seven months
ended July 31, 1997 and 1996. Management believes that the provision for loan
losses and the allowance for loan losses are currently reasonable and
adequate to cover any known losses and any losses reasonably expected in the
existing loan portfolio. However, based upon the Bank's recent changes in its
underwriting standards and increased emphasis on commercial real estate and
commercial business lending, the Bank expects to increase its allowance for
loan losses over future periods. While management estimates loan losses using
the best available information, no assurance can be given that future
additions to the allowance will not be necessary based on changes in economic
and real estate market conditions, further information obtained regarding
known problem loans, identification of additional problem loans and other
factors, both within and outside of management's control.
Non-Interest Income
Non-interest income decreased $17,000, or 3.7%, to $448,000 for the seven
months ended July 31, 1997 from $465,000 for the seven months ended July 31,
1996. Real estate and insurance commissions and service fees increased
$38,000 and $33,000, respectively, for the seven months ended July 31, 1997
and 1996. This increase, however, was offset by a decrease in gain on sale of
foreclosed real estate to $8,000 for the seven months ended July 31, 1997
from $57,000 for the comparable period in 1996 as well as a decrease in
miscellaneous other income of $38,000 during those same periods.
Non-Interest Expense
Non-interest expense increased by $288,000, or 7.2%, to $4.3 million for
the seven months ended July 31, 1997 from $4.0 million for the same period in
1996. Compensation and benefits increased by $210,000, or 10.8%, primarily
due to a combination of annual salary increases and the addition of staff
during 1997. Other operating expenses, including advertising, marketing,
insurance, postage, communications and other office expense increased by
$193,000 in the aggregate, or 19.5%. Management continues to emphasize the
importance of expense management and control
42
<PAGE>
in order to continue to provide expanded banking service to a growing market
base. Federal insurance premiums decreased by $235,000 directly related to
the change in deposit insurance premium rates from 23 cents per $100 of
deposits prior to October 1, 1996 to 6.5 cents per $100 of deposits
subsequent to that date. The Bank expects that salary and benefits expense
may increase after the Conversion, primarily as a result of the adoption of
various employee benefit plans and compensation adjustments contemplated in
connection with the Conversion. In this regard, the proposed ESOP, which
intends to purchase 8% of the Common Stock issued in the Conversion,
including shares issued to the Foundation, and the Stock Program which, if
implemented, would purchase an amount of Common Stock equal to 4% of the
Common stock issued in the Conversion, including shares issued to the
Foundation, will result in increased salary and benefits expense as interest
on and amortization of the ESOP loan and amortization of the Stock Program
awards will be reflected as compensation expense. See "Management of the
Bank--Benefit Plans."
Income Tax Expense
Income tax expense was $936,000 for the seven months ended July 31, 1997,
compared to $967,000 for the seven months ended July 31, 1996. The decrease
in the provision for income taxes was primarily the result of a decrease in
the effective income tax rate to 34.0% for the seven months ended July 31,
1997 from 35.8% for the comparable period in 1996. Earnings before income tax
expense increased by $55,000, or 2.0%, during the same period. This increase
partially offset the effect of the decline in the effective rate.
Comparison of Operating Results for the Years Ended December 31, 1996 and 1995
General
The Bank's net income for the year ended december 31, 1996 decreased
$719,000, or 26.0%, to $2.0 million from $2.8 million for the year ended
december 31, 1995. The decrease was primarily due to the special one-time
assessment on SAIF member institutions, including the Bank, to recapitalize
the Saif. As required in the deposit insurance funds act of 1996 (the "Funds
Act"), the FDIC imposed a special assessment of 65.7 cents per $100 of SAIF
assessable deposits held as of March 31, 1995, payable on november 27, 1996
(the "SAIF Special Assessment") The Saif Special Assessment was recognized by
the Bank in the quarter ended September 30, 1996. The Saif Special Assessment
resulted in an increase in deposit insurance premiums of $1.5 million for the
year ended December 31, 1996 ($1.0 million, net of tax). Other non-interest
expense also increased by $99,000 in 1996. These decreases were offset, in
part, by an increase of $632,000 in net interest income before provision for
loan losses and a decrease in income tax expense of $614,000.
Interest Income
Interest income increased by $2.0 million, or 9.3%, to $23.4 million for
the year ended December 31, 1996 from $21.4 million for the year ended
December 31, 1995. The increase was primarily due to the combination of an
increase in interest-earning assets and an increase in the average yield. The
average yield on the Bank's interest-earning assets increased by 8 basis
points to 7.70% for the year ended December 31, 1996 from 7.62% for the year
ended December 31, 1995. The average balance of interest-earning assets
increased by $22.3 million, or 8.1%, to $304.2 million for the year ended
December 31, 1996 from $281.3 million for the year ended December 31, 1995.
Interest Expense
Interest expense increased by $1.4 million, or 12.1%, to $12.5 million
for the year ended December 31, 1996 from $11.1 million for the year ended
December 31, 1995. This increase was primarily due to the combination of an
increase in the average balance of deposits outstanding and an increase in
the average rate paid on those deposits. The average rate paid on average
interest-bearing liabilities increased to 4.64% for the year ended December
31, 1996 from 4.48% for the year ended December 31, 1995. This increase was
primarily attributed to an increase in average rates paid on certificates of
deposit, from 5.75% to 5.88%, even though most other categories of deposit
accounts experienced rate decreases in average rates paid. An additional
factor contributing to the increase in interest expense was the overall
increase in total average deposits which increased $11.2 million, or 4.8%, to
$244.4 million for the year ended December 31, 1996 from $233.3 million for
the year ended December 31, 1995. In addition, the average balance of
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<PAGE>
FHLB-Chicago advances increased by $8.2 million to $19.7 million for the year
ended December 31, 1996 from $11.5 million for the year ended December 31,
1995.
Net Interest Income Before Provision for Loan Losses
Net interest income before provision for loan losses increased $632,000 ,
or 6.2%, to $10.9 million for the year ended December 31, 1996 from $10.3
million for the same period in 1995. The increase was due to a combination of
an increase in average interest-earning assets in excess of interest-bearing
liabilities of $3.5 million, offset by the effect of a 10 basis point decline
in interest rate spread.
Provision for Loan Losses
The provision for loan losses decreased by $18,000, or 25.0%, to $54,000
for the year ended December 31, 1996 from $72,000 for the same period in
1995. The ratio of the allowance for loan losses to non-performing loans was
156.6% and 95.6% at December 31, 1996 and 1995, respectively, and the ratio
of the allowance for loan losses to total loans remained constant at .34% at
such respective dates. Also, there were no charge-offs for the years ended
December 31, 1996 and 1995.
Non-Interest Income
Non-interest income increased $128,000, or 19.0%, to $802,000 for the
year ended December 31, 1996 from $674,000 for the year ended December 31,
1995. This increase was primarily due to gains on the sale of foreclosed real
estate amounting to $121,000 for the year ended December 31, 1996. This
represented a $109,000 increase over 1995.
Non-Interest Expense
Non-interest expense increased by $2.1 million, or 33.2%, to $8.5 million
for the year ended December 31, 1996 from $6.4 million for the year ended
December 31, 1995. Federal deposit insurance premiums increased by $1.5
million as a result of the SAIF Special Assessment of 65.7 cents per $100 of
assessable SAIF deposits effective September 30, 1996. Compensation and
benefits expense increased $427,000, or 14.3%, to $3.4 million for the year
ended December 31, 1996 from $3.0 million for the year ended December 31,
1995. This was primarily attributable to normal salary increases, staff
additions and general wage increases for non-officer employees. This increase
was initiated at the beginning of 1996 in an attempt to remain competitive
and continue to attract qualified employees to serve the Bank's customer
base. Collectively, the remaining non-interest expenses increased by
$259,000, to $3.1 million for the year ended December 31, 1996 from $2.8
million for the year ended December 31, 1995. Increases in this category were
primarily in the areas of data processing, depreciation and occupancy. Data
processing expense increased $40,000, or 16.9%, to $276,000 for the year
ended December 31, 1996 from $236,000 for the year ended December 31, 1995.
This increase was due to service bureau costs associated with increased
automation and improvements to the data processing system. Depreciation and
repair expense increased $80,000, or 19.0%, to $501,000 for the year ended
December 31, 1996 from $421,000 for the year ended December 31, 1995. This
increase was due to the Bank's efforts to continue to upgrade computer
equipment and branch facilities. Overall occupancy expense increased by
$43,000, or 18.6%, to $274,000 for the year ended December 31, 1996 from
$231,000 for the year ended December 31, 1995.
Income Tax Expense
Income tax expense decreased $614,000, or 35.1%, to $1.1 million for the
year ended December 31, 1996 from $1.7 million for the year ended December
31, 1995, due to a combination of a decrease of earnings before income tax,
as well as a decrease in the effective tax rate. Earnings before income taxes
decreased by $1.3 million. The effective tax rate was 35.7% for the year
ended December 31, 1996 compared to an effective tax rate of 38.7% for 1995.
44
<PAGE>
Comparison of Operating Results for the Years Ended December 31, 1995 and
December 31, 1994
General
Net income decreased $195,000, or 6.6%, to $2.8 million for the year
ended December 31, 1995 from $3.0 million for the year ended December 31,
1994. This decrease was due, in part, to a decrease of $147,000 in net
interest income before provision for loan losses and an increase of $268,000
in non-interest expense. These changes were offset by an increase in
non-interest income of $105,000 and a decrease in income tax expense of
$97,000.
Interest Income
Interest income increased by $1.9 million, or 9.7%, to $21.4 million for
the year ended December 31, 1995 from $19.5 million for the year ended
December 31, 1994. The increase primarily resulted from increases in both the
yield and the average balance of interest-earning assets. The average yield
on the Bank's interest-earning assets increased 26 basis points to 7.62% for
the year ended December 31, 1995 from 7.36% for the year ended December 31,
1994. The average balance of interest-earning assets increased by $15.9
million, or 6.0%, to $281.3 million for the year ended December 31, 1995 from
$265.4 million for the year ended December 31, 1994, primarily as a result of
a $20.4 million increase in average mortgage loans, net.
Interest Expense
Interest expense increased by $2.1 million, or 22.5% to $11.2 million for
the year ended December 31, 1995 from $9.1 million for the year ended
December 31, 1994. The increase in interest expense was due primarily to a
combination of increases in average rate and the average balance of
interest-bearing liabilities. The average balance of interest-bearing
liabilities increased $9.0 million, or 3.8%, to $244.7 million for the year
ended December 31, 1995 from $235.7 million for the year ended December 31,
1994. The average rate paid on average interest-bearing liabilities increased
by 70 basis points to 4.56% for the year ended December 31, 1995 from 3.86%
for the year ended December 31, 1994.
Net Interest Income Before Provision for Loan Losses
Net interest income before provision for loan losses decreased by
$147,000, or 1.4%, to $10.3 million for the year ended December 31, 1995 from
$10.4 million for the year ended December 31, 1994. The decrease was
primarily the result of a 44 basis point decrease in interest rate spread to
3.06% for the year ended December 31, 1995 from 3.50% for the year ended
December 31, 1994 offset by a net increase of $6.9 million in
interest-bearing assets over interest-bearing liabilities to $36.6 million
for the year ended December 31, 1995 from $29.7 million for the year ended
December 31, 1994.
Provision for Loan Losses
The provision for loan losses decreased by $18,000, or 20.0%, to $72,000
for the year ended December 31, 1995 from $90,000 for the year ended December
31, 1994. The ratio of the allowance for loan losses to non-performing loans
was 95.6% and 125.6% at December 31, 1995 and 1994, respectively, and the
ratio of the allowance for loan losses to total loans was .34% for each of
such respective dates.
Non-Interest Income
Non-interest income increased by $105,000, or 18.4%, to $674,000 for the
year ended December 31, 1995 from $569,000 for the year ended December 31,
1994. This increase was primarily due to a $91,000 loss on the sale of mutual
funds occurring in 1994. The Bank did not incur any similar losses in 1995.
45
<PAGE>
Non-Interest Expense
Non-interest expense increased by $268,000, or 4.4%, to $6.4 million for the
year ended December 31, 1995 from $6.1 million for the year ended December 31,
1994. This increase was primarily the result of increases in compensation and
benefits and depreciation and repairs. Compensation and benefits increased
$182,000, or 6.5%, to $3.0 million for the year ended December 31, 1995 from
$2.8 million for the year ended December 31, 1994. This increase is primarily
attributable to normal salary increases. Depreciation and repair expense also
increased by $88,000, or 26.4% to $421,000 for the year ended December 31, 1995
from $333,000 for the year ended December 31, 1994 reflecting the Bank's efforts
to continue to upgrade computer equipment and branch facilities.
Income Tax Expense
Income tax expense decreased by $97,000, or 5.3%, to $1.7 million for the
year ended December 31, 1995 from $1.8 million for the year ended December 31,
1994. This decrease was primarily due to a $292,000 reduction in earnings before
income tax to $4.5 million for the year ended December 31, 1995 from $4.8
million for the year ended December 31, 1994. The effective tax rate was 38.7%
for the year ended December 31, 1995 compared to 38.4% for the year ended
December 31, 1994.
Liquidity and Capital Resources
The Bank's primary sources of funds are savings deposits, proceeds from the
principal and interest payments on loans and proceeds from the maturation of
securities and, to a lesser extent, borrowings from FHLB-Chicago. While
maturities and scheduled amortization of loans and securities are predictable
sources of funds, deposit outflows and mortgage prepayments are greatly
influenced by general interest rates, economic conditions and competition.
The primary investing activities of the Bank are the origination of
primarily residential one-to four-family loans and, to a lesser extent,
multi-family and commercial real estate, construction and land, commercial and
consumer loans and the purchase of mortgage-backed and mortgage-related
securities. During the seven months ended July 31, 1997 and the years ended
December 31, 1996, and 1995, the Bank's loan originations totalled $38.0
million, $73.5 million and $59.3 million, respectively. Purchases of
mortgage-backed securities totalled $2.1 million, and $2.6 million, for the
seven months ended July 31, 1997 and the year ended December 31, 1996,
respectively. These activities were funded primarily by deposit growth and
principal repayments on loans and mortgage-backed securities. The Bank
experienced a net increase in total deposits of $9.2 million, $5.0 million, $8.7
million and $163,000 for the seven months ended July 31, 1997 and the years
ended December 31, 1996, 1995, and 1994, respectively. Deposit flows are
affected by the level of interest rates, the interest rates and products offered
by the local competitors, the Bank and other factors.
The Bank's most liquid assets are cash and interest-bearing demand accounts.
The levels of these assets are dependent on the Bank's operating, financing,
lending and investing activities during any given period. At July 31, 1997, cash
and interest-bearing demand accounts totalled $16.3 million, or 5.0% of total
assets. The Bank closely monitors its liquidity position on a daily basis. On a
longer-term basis, the Bank maintains a strategy of investing in various lending
products as described in greater detail under "Business of the Bank--Lending
Activities." In the event the Bank should require funds beyond its ability to
generate them internally, additional sources of funds are available through FHLB
advances. See "Business of the Bank--Sources of Funds--Borrowed Funds." At July
31, 1997, the Bank had $24.0 million of outstanding FHLB borrowings.
Outstanding commitments to originate first mortgage loans totalled $4.7
million at July 31, 1997. Management of 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 July 31, 1997 totalled $82.1 million. From July 31, 1996 to July 31,
1997, the Bank experienced a 85.2% retention rate of funds maturing from
certificates of deposit. Based upon this experience and the Bank's current
pricing strategy, management believes that a significant portion of such
deposits will remain with the Bank.
At July 31, 1997, the Bank exceeded all of its regulatory capital
requirements with a leverage capital level of $30.6 million, or 9.51% of
adjusted assets, which is above the required level of $12.9 million and
risk-based capital of
46
<PAGE>
$31.4 million, or 17.4% of adjusted assets, which is above the required level
of $14.5 million, or 8.00%. See "Regulatory Capital Compliance."
Impact of Inflation and Changing Prices
The Consolidated Financial Statements and Notes thereto presented herein
have been prepared in accordance with GAAP, which generally require the
measurement of financial position and operating results in terms of historical
dollar amounts without considering the changes in the relative purchasing power
of money over time due to inflation. The impact of inflation is reflected in the
increased cost of the Bank's operations. Unlike industrial companies, nearly all
of the assets and liabilities of the Bank are monetary in nature. As a result,
interest rates have a greater impact on the Bank's performance than do the
effects of general levels of inflation. Interest rates do not necessarily move
in the same direction or to the same extent as the price of goods and services.
Impact of Accounting Standards
The Bank will be required to account for the ESOP under SOP 93-6. SOP 93-6
measures compensation expense recorded by employers for leveraged ESOPs using
the fair value of ESOP shares. Under SOP 93-6, the Company will recognize
compensation cost equal to the fair value of the ESOP shares during the periods
in which they become committed to be released. To the extent that the fair value
of the Bank's ESOP shares differ from the cost of such shares, this differential
will be charged or credited to equity. Employers with internally leveraged ESOPs
will not report the loan receivable from the ESOP as an asset and will not
report the ESOP debt as a liability. See "Management of the Bank--Benefit
Plans--ESOP."
In November 1995, the FASB issued 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
Company to choose either the new fair value based method, or the current
accounting prescribed by Accounting Principles Board ("APB") Opinion 25, using
the 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 APB Opinion 25. SFAS No. 123 applies to all stock-based employee compensation
plans in which an employer grants shares of its stock or other equity
instruments to employees except for employee stock ownership plans. SFAS No. 123
also applies to plans in which the employer incurs liabilities to employees in
amounts based on the price of the employer's stock, (e.g., stock option plans,
stock purchase plans, restricted stock plans, and stock appreciation rights).
SFAS No. 123 also specifies the accounting for transactions in which a company
issues stock options or other equity instruments for services provided by
nonemployees or to acquire goods or services from outside suppliers or vendors.
The recognition provisions of SFAS No. 123 for companies choosing to adopt the
new fair value based method of accounting for stock-based compensation
arrangements may be adopted immediately and will apply to all transactions
entered into in fiscal years then beginning after December 15, 1995. The
disclosure provisions of SFAS No. 123 are effective for fiscal years beginning
after December 15, 1995, however, disclosure of the pro forma net earnings and
earnings per share, as if the fair value method of accounting for stock-based
compensation had been elected is required for all awards granted in fiscal years
beginning after December 31, 1994. The Company expects to account for its
stock-based compensation arrangements as prescribed in APB Opinion 25 upon the
consummation of the Conversion.
In June 1996, the FASB issued SFAS No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities" ("SFAS No.
125"), which supersedes FASB Statements No. 76, "Extinguishments of Debt,"
and No. 77, "Reporting by Transferors for Transfers of Receivables with
Recourse." This statement amends FASB Statement No. 115, "Accounting for
Certain Investments in Debt and Equity Securities," and amends and extends to
all servicing assets and liabilities, the accounting standards for mortgage
servicing rights not set forth in SFAS No. 65, and supersedes SFAS No. 122.
SFAS No. 125 provides accounting and reporting standards for transfers and
servicing of financial assets and extinguishments of liabilities. After a
transfer of financial assets, an entity recognizes the financial and
servicing assets it controls and the liabilities it has incurred,
derecognizes financial assets when control has been surrendered, and
derecognizes liabilities when extinguished. SFAS No. 125 provides consistent
standards for distinguishing transfers of financial assets that are sales
from transfers that are secured borrowings. A transfer of financial assets in
which the transferor surrenders control over those assets is accounted for as
a sale to the extent that consideration other than beneficial interests in
the transferred assets is received in exchange.
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<PAGE>
SFAS No. 125 further requires that liabilities and derivatives incurred or
obtained by transferors as part of a transfer of financial assets be initially
measured at fair value, if practicable. It also requires that servicing assets
and other retained interests in the transferred assets be measured by allocating
the previous carrying amount between the assets sold, if any, and retained
interest, if any, based on their relative fair values on the date of the
transfer. SFAS No. 125 also requires that servicing assets and liabilities be
subsequently measured by (a) amortization in proportion to and over the period
of estimated net servicing income or loss and (b) assessment for asset
impairment or increased obligation based on their fair values. SFAS No. 125
requires that debtors reclassify financial assets pledged as collateral and that
secured parties recognize those assets and their obligation to return them to
certain circumstances in which the secured party has taken control of those
assets. SFAS No. 125 requires that a liability be derecognized if and only if
either (i) the debtor pays the creditor and is relieved of its obligation or the
liability of (ii) the debtor is legally released from being the primary obligor
under the liability either judicially or by the creditor. Therefore, a liability
is not considered extinguished by an in-substance defeasance.
SFAS No. 125 is effective for transfers and servicing of financial assets
and extinguishments of liabilities occurring after December 31, 1996, and was
adopted by the Bank on January 1, 1997. Such adoption was not material to the
Bank.
In February 1997, the FASB issued SFAS Statement No. 128, "Earnings per
Share" ("SFAS No. 128"). This Statement establishes standards for computing and
presenting earnings per share ("EPS"). Basic EPS excludes dilution and is
computed by dividing income available to common stockholders by the weighted
average number of common shares outstanding for the period. Diluted EPS reflects
the potential dilution that could occur if securities to issue common stock were
exercised or converted into common stock and is computed similarly to fully
diluted EPS pursuant to APB Opinion No. 15, "Earnings per Share." Dual
presentation of basic and diluted earnings per share are required on the face of
the income statement for all public entities with complex capital structures.
This Statement supersedes Opinion No. 15, is effective for financial statements
issued for periods ending after December 15, 1997 and is not expected to have a
material impact on the Company.
In February 1997, the FASB issued SFAS No. 129, "Disclosure of Information
about Capital Structure" ("SFAS No. 129") which establishes standards for
disclosing information about an entity's capital structure. This Statement
continues the previous disclosure requirements found in APB Opinions No. 10,
"Omnibus Opinion--1996," and No. 15, "Earnings Per Share," and FASB Statement
No. 47, "Disclosure of Long-Term Obligations" and eliminates the exemption of
nonpublic entities from certain disclosure requirements of Opinion 15.
Additionally, this Statement consolidates capital disclosure requirements for
ease of retrieval and greater visibility to nonpublic entities. This Statement
is effective for financial statements for periods ending after December 15, 1997
and is not expected to have a material impact on the Company.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income"
("Statement No. 130"). This Statement establishes standards for reporting and
displaying comprehensive income and its components within the consolidated
financial statements. Comprehensive income is defined in FASB Concepts Statement
6 as the "change in equity of a business enterprise during a period from
transactions and other events and circumstances from nonowner sources. It
includes all changes in equity during a period except those resulting from
investments by owners and distributions to owners." The Statement is effective
for fiscal years beginning after December 15, 1997 and is not expected to have a
material impact on the Company's results of operations.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information" which establishes standards for the way
that public business enterprises report information about operating segments in
annual financial statements. This Statement requires that those enterprises
report selected information about operating segments in interim financial
reports issued to shareholders. This Statement supersedes FASB Statement No. 14,
"Financial Reporting for Segments of a Business Enterprise." Operating segments
are components of an enterprise about which separate financial information is
available that is evaluated regularly by the chief operating decision maker in
deciding how to allocate resources and in assessing performance. This Statement
is effective for financial statements for periods beginning after December 15,
1997 and is not expected to have a material impact on the Company.
48
<PAGE>
BUSINESS OF THE COMPANY
General
The Company was organized in October 1997 at the direction of the Board of
Directors of the Bank for the purpose of becoming a holding company to own all
of the outstanding capital stock of the Bank. Upon consummation of the
Conversion, it is anticipated that the Bank will become a wholly-owned
subsidiary of the Company. Upon the consummation of the Conversion, the Company
will be a savings and loan holding company regulated by the OTS. See "Regulation
and Supervision--Holding Company Regulation."
The Company is currently not an operating company. Following the Conversion,
in addition to directing, planning and coordinating the business activities of
the Bank, the Company will initially invest net proceeds it retains primarily in
mortgage-backed and mortgage-related securities and other investment-grade
marketable securities. In addition, the Company intends to fund the loan to the
ESOP to enable the ESOP to subscribe for 8% of the Common Stock issued in
connection with the Conversion, including shares issued to the Foundation;
however, a third-party lender may be utilized to lend funds to the ESOP. See
"Use of Proceeds." In the future, the Company may acquire or organize other
operating subsidiaries, including other financial institutions and financial
services companies. The Bank has recently acquired land in the neighboring
community of Huntley upon which the Bank intends to construct a new full-service
branch office. It is anticipated that such branch will be completed in late
1998. With the exception of the foregoing branch, there are presently no other
agreements, understandings or plans for an expansion of the Company's
operations. Initially, the Company will neither own nor lease any property from
any third party, but will instead use the premises, equipment and furniture of
the Bank. At the present time, the Company does not intend to employ any persons
other than certain officers of the Bank, who will not be separately provided
cash compensation by the Company. The Company may utilize the support staff of
the Bank from time to time, if needed. Additional employees will be hired as
appropriate to the extent the Company expands its business in the future.
BUSINESS OF THE BANK
General
The Bank is a community-oriented savings institution which was originally
organized in 1924 as a federally-chartered mutual savings and loan
association. The Bank reorganized in the 1980s to become Elgin Federal
Financial Center, a federally-chartered mutual savings association, and again
on July 1, 1996 to become Elgin Financial Center, S.B., an Illinois
state-chartered mutual savings bank. The Bank's principal business consists
of the acceptance of retail deposits from the general public in the areas
surrounding its full-service branch offices and the investment of those
deposits, together with funds generated from operations and borrowings,
primarily in one- to four-family residential mortgage loans and, to a lesser
extent, multi-family and commercial real estate loans, construction and land
loans, commercial business loans, home equity loans, and automobile and
passbook savings loans. The Bank originates all of its loans for investment.
The Bank also invests primarily in government insured or guaranteed
mortgage-backed securities and U.S. Government obligations. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations
- -Management Strategy." The Bank's revenues are derived principally from the
interest on its mortgage, consumer and commercial business loans and
securities and from servicing fees. The Bank's primary sources of funds are
retail savings deposits and, to a lesser extent, advances from the
FHLB-Chicago.
Market Area
Headquartered in largely suburban Kane County, Illinois, the Bank has been,
and intends to continue to be, a community-oriented financial institution
offering a variety of financial services to meet the needs of the communities it
serves. The Bank currently operates four full-service banking facilities in
Elgin and two full-service banking facilities in Algonquin and West Dundee,
Illinois. The Bank also intends to expand its operations by constructing a new
full-service branch facility in Huntley, Illinois which is expected to be
operational in late 1998. See "--Lending Activities--Properties." The Bank's
primary lending and deposit gathering area is concentrated around the areas
where its full-service banking facilities are located which the Bank generally
considers to be its primary market area.
49
<PAGE>
Elgin is located on U.S. Interstate 90 (the Northwest tollway) in the Fox
River Valley approximately 38 miles northwest of downtown Chicago and 25 miles
west of O'Hare International Airport. Interstate 90 provides easy access to the
City of Chicago and is a major corridor of suburban growth for Chicago. As the
Chicago suburbs have expanded into Kane County, western Cook County and southern
McHenry County, Elgin has experienced a positive influx of new residents and
employers. The economy in the Bank's primary market area has also historically
benefitted from the presence of well-known companies such as Motorola, Inc.,
First Card, Panasonic, Sears, Roebuck & Co., Safety Kleen Corp. and Ameritech
Corp. Other employment and economic activity is provided by a variety of
wholesale and retail trade, hospitals and a riverboat gambling facility located
on the Fox River in Elgin.
Competition
The Bank faces significant competition both in making loans and in
attracting deposits. The State of Illinois has a high density of financial
institutions, many of which are branches of significantly larger institutions
which have greater financial resources than the Bank, all of which are
competitors of the Bank to varying degrees. The Bank's competition for loans
comes principally from savings banks, savings and loan associations, commercial
banks, mortgage banking companies, credit unions, insurance companies and other
financial service companies. Its most direct competition for deposits has
historically come from savings and loan associations, savings banks, commercial
banks and credit unions. The Bank faces additional competition for deposits from
non-depository competitors such as the mutual fund industry, securities and
brokerage firms and insurance companies. Competition may also increase as a
result of the lifting of restrictions on the interstate operations of financial
institutions. There are approximately 15 financial institutions with operations
in Elgin and approximately 30 financial institutions with operations in the
Bank's primary market area..
Lending Activities
Loan Portfolio Composition. The types of loans that the Bank may
originate are subject to federal and state laws and regulations. Interest
rates charged by the Bank on loans are affected principally by the demand for
such loans, the supply of money available for lending purposes and the rates
offered by its competitors. These factors are, in turn, affected by general
and economic conditions, monetary policies of the federal government,
including the Federal Reserve Board ("FRB"), legislative tax policies and
governmental budgetary matters.
The Bank's loan portfolio primarily consists of first mortgage loans secured
by one- to four-family residences most of which are located in its primary
market area and all of which are located in northern Illinois. At July 31, 1997,
the Bank's gross loan portfolio totalled $243.6 million, of which $185.5 million
were one- to four-family residential mortgage loans, or 76.2% of total loans. At
such date, the remainder of the loan portfolio consisted of $20.9 million of
multi-family loans, or 8.6% of total loans; $11.9 million of commercial real
estate loans, or 4.9% of total loans; $14.7 million of construction and land
loans, or 6.0% of total loans; $2.8 million of commercial loans, or 1.1% of
total loans; and $7.7 million of consumer loans, or 3.2% of total loans
consisting of $6.6 million of home equity lines of credit, $519,000 of secured
and unsecured personal loans and $649,000 of automobile loans. The Bank has not
sold loans in recent years and had no mortgage loans held for sale at July 31,
1997 and at each of the five years ended December 31, 1996. At that same date,
58.5% of the Bank's mortgage loans had adjustable interest rates, most of which
were indexed to the one year Constant Maturity Treasury ("CMT") Index.
50
<PAGE>
The following table sets forth the composition of the Bank's loan portfolio
in dollar amounts and in percentages of the respective portfolios at the dates
indicated.
<TABLE>
<CAPTION>
AT DECEMBER 31,
----------------------------------------------------------------------
AT JULY 31, 1997 1996 1995 1994
---------------------- ---------------------- ---------------------- ----------------------
PERCENT PERCENT PERCENT PERCENT
AMOUNT OF TOTAL AMOUNT OF TOTAL AMOUNT OF TOTAL AMOUNT OF TOTAL
--------- ----------- --------- ----------- --------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
Mortgage loans:
One- to
four-family........ $ 185,516 76.2% $ 181,480 75.9% $ 165,956 74.5% $ 150,429 73.7%
Multi-family......... 20,948 8.6 22,040 9.2 23,290 10.5 21,083 10.3
Commercial real
estate............. 11,945 4.9 9,953 4.2 9,750 4.4 12,981 6.4
Construction and
land............... 14,665 6.0 16,089 6.7 16,253 7.3 15,058 7.4
--------- ----- --------- ----- --------- ----- --------- -----
Total mortgage
loans............ 233,074 95.7 229,562 96.0 215,249 96.7 199,551 97.8
--------- ----- --------- ----- --------- ----- --------- -----
Other loans:
Home equity loans.... 6,579 2.7 5,759 2.4 4,337 1.9 1,878 .9
Commercial........... 2,789 1.1 2,764 1.1 1,830 .8 1,449 .7
Auto loans........... 649 .3 637 .3 658 .3 495 .2
Loans on savings
accounts........... 448 .2 393 .2 417 .2 480 .2
Other................ 71 -- 112 -- 149 .1 307 .2
--------- ----- --------- ----- --------- ----- --------- -----
Total other
loans............ 10,536 4.3 9,665 4.0 7,391 3.3 4,609 2.2
--------- ----- --------- ----- --------- ----- --------- -----
Total loans
receivable........... 243,610 100.0% 239,227 100.0% 222,640 100.0% 204,160 100.0%
--------- ----- --------- ----- --------- ----- --------- -----
----- ----- ----- -----
Less:
Unearned discounts... -- -- 109 98
Deferred loan fees... 609 741 840 837
Allowance for loan
losses............. 829 808 754 682
--------- --------- --------- ---------
Loans receivable,net... $ 242,172 $ 237,678 $ 220,937 $ 202,543
--------- --------- --------- ---------
--------- --------- --------- ---------
<CAPTION>
----------------------------------------------
1993 1992
---------------------- ----------------------
PERCENT PERCENT
AMOUNT OF TOTAL AMOUNT OF TOTAL
--------- ----------- --------- -----------
<S> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
Mortgage loans:
One- to
four-family........ $133,711 75.7% $ 130,120 77.7%
Multi-family......... 21,285 12.1 20,105 12.0
Commercial real
estate............. 10,407 5.9 9,132 5.5
Construction and
land............... 8,247 4.6 6,588 3.9
-------- ----- --------- -----
Total mortgage
loans............ 173,650 98.3 165,945 99.1
-------- ----- --------- -----
Other loans:
Home equity loans.... -- -- -- --
Commercial........... 1,958 1.1 584 .3
Auto loans........... 191 .1 156 .1
Loans on savings
accounts........... 457 .3 606 .4
Other................ 345 .2 242 .1
-------- ----- --------- -----
Total other
loans............ 2,951 1.7 1,588 .9
-------- ----- --------- -----
Total loans
receivable........... 176,601 100.0% 167,533 100.0%
-------- ----- -------- -----
----- -----
Less:
Unearned discounts... 279 350
Deferred loan fees... 1,113 1,346
Allowance for loan
losses............. 592 500
-------- ---------
Loans receivable,net... $174,617 $165,337
-------- ---------
-------- ---------
</TABLE>
51
<PAGE>
Loan Originations. The Bank's mortgage lending activities are conducted
primarily by its loan personnel operating at its six branch offices. All loans
originated by the Bank are underwritten by the Bank pursuant to the Bank's
policies and procedures. The Bank originates both adjustable-rate and fixed-rate
mortgage loans, commercial loans and consumer loans. The Bank's ability to
originate fixed- or adjustable-rate loans is dependent upon the relative
customer demand for such loans, which is affected by the current and expected
future level of interest rates. It is the general policy of the Bank to retain
all loans originated in its portfolio.
During the seven months ended July 31, 1997 and the years ended December 31,
1996 and December 31, 1995, the Bank originated $14.4 million, $21.0 million
and $17.0 million of fixed-rate one-to four-family residential mortgage loans,
respectively, and during the seven months ended July 31, 1997 and for the years
ended December 31, 1996 and December 31, 1995, the Bank originated $8.5 million,
$24.0 million and $21.3 million of adjustable-rate one- to four-family
residential mortgage loans, respectively, all of which were retained by the
Bank. Based upon the Bank's investment needs and market opportunities, the Bank
participates in loans, primarily multi-family real estate mortgage loans,
secured by property located in southern Wisconsin and, to a lesser extent, in
Minnesota, and had $12.3 million of purchased loan participation interests at
July 31, 1997. See "--Multi-Family and Commercial Real Estate Lending."
52
<PAGE>
The following tables set forth the Bank's loan originations, purchases and
principal repayments for the periods indicated. All loans originated by the Bank
are held for investment. The Bank sold no loans during these periods.
<TABLE>
<CAPTION>
FOR THE SEVEN
MONTHS FOR THE YEAR ENDED DECEMBER 31,
ENDED JULY 31,
-------------------- -------------------------------
1997 1996 1996 1995 1994
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
(IN THOUSANDS)
Gross loans(1):
Balance outstanding at beginning of period.............................. $ 239,227 $ 222,640 $ 222,640 $ 204,160 $ 176,601
--------- --------- --------- --------- ---------
Loans originated(2)
One-to four-family.................................................. 22,872 29,329 44,954 38,317 43,247
Multi-family........................................................ -- 1,341 1,341 246 3,337
Commercial real estate.............................................. 450 477 1,158 145 2,780
Construction and land............................................... 9,217 8,597 16,458 12,348 21,236
Home equity......................................................... 2,318 3,374 5,274 4,674 4,100
Commercial business................................................. 2,538 2,165 3,381 2,351 801
Auto loans.......................................................... 265 184 346 545 573
Loans on savings accounts........................................... 330 175 472 386 394
Other............................................................... 50 70 96 323 814
--------- --------- --------- --------- ---------
Total loans originated.............................................. 38,040 45,712 73,480 59,335 77,282
Loans purchased....................................................... -- 1,699 1,700 2,399 4,191
--------- --------- --------- --------- ---------
Total loans originated and purchased................................ 38,040 47,411 75,180 61,734 81,473
Less:
Principal repayments.................................................. (36,007) (36,275) (58,633) (43,960) (48,716)
Transfers to real estate owned........................................ -- -- (66) (115) (12)
Change in loans in process............................................ 2,350 124 106 821 (5,186)
--------- --------- --------- --------- ---------
Total loans receivable at end of period............................... $ 243,610 $ 233,900 $ 239,227 $ 222,640 $ 204,160
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
- ------------------------
(1) Gross loans exclude unearned discounts, deferred loan fees and the allowance
for loan losses.
(2) Amounts for each period include loans in process at period end.
53
<PAGE>
Loan Maturity and Repricing. The following table shows the contractual
maturity of the Bank's loan portfolio at July 31, 1997. The table does not
include prepayments or scheduled principal amortization. Prepayments and
scheduled principal amortization on mortgage loans totalled $36.0 million, $36.3
million, $58.6 million, $43.9 million, and $48.7 million for the seven months
ended July 31, 1997 and July 31, 1996 and for the years ended
December 31, 1996, 1995 and 1994, respectively. All loans originated by the
Bank are held for investment.
<TABLE>
<CAPTION>
AT JULY 31, 1997
--------------------------------------------------------------------------------------------------
ONE- TO LOANS ON
FOUR- MULTI- COMMERCIAL CONSTRUCTION HOME COMMERCIAL AUTO SAVINGS
FAMILY FAMILY REAL ESTATE AND LAND EQUITY BUSINESS LOANS ACCOUNTS
---------- --------- ----------- ------------ --------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS)
Amounts due:
Within one year... $ 371 $ 93 $ 43 $ 5,386 $ 49 $ 1,673 $ 48 $ 186
---------- --------- ----------- ------------ --------- ----------- ----- -----
After one year:...
More than one
year to three
years......... 250 -- 1,541 6,820 2,596 245 364 262
More than three
years to five
years......... 1,871 127 399 5 3,934 635 228 --
More than five
years to 10
years......... 10,579 1,336 2,732 447 -- 236 9 --
More than 10
years to 20
years......... 45,979 7,370 4,688 1,957 -- -- -- --
More than 20
years......... 126,466 12,022 2,542 50 -- -- -- --
---------- --------- ----------- ------------ --------- ----------- ----- -----
Total due after
July 31,
1998.......... 185,145 20,855 11,902 9,279 6,530 1,116 601 262
---------- --------- ----------- ------------ --------- ----------- ----- -----
Total amount due
(gross)....... $ 185,516 $ 20,948 $ 11,945 $ 14,665 $ 6,579 $ 2,789 $ 649 $ 448
---------- --------- ----------- ------------ --------- ----------- ----- -----
---------- --------- ----------- ------------ --------- ----------- ----- -----
Less:
Deferred loan
fees, net.....
Allowance for
loan losses...
Total loans, net....
<CAPTION>
TOTAL
LOANS
OTHER RECEIVABLE
----------- ----------
<S> <C> <C>
Amounts due:
Within one year... $13 $ 7,862
--- ----------
After one year:...
More than one
year to three
years......... 26 12,104
More than three
years to five
years......... 32 7,231
More than five
years to 10
years......... -- 15,339
More than 10
years to 20
years......... -- 59,994
More than 20
years......... -- 141,080
--- ----------
Total due after
July 31,
1998.......... 58 235,748
--- ----------
Total amount due
(gross)....... $71 243,610
--- ----------
--- ----------
Less:
Deferred loan
fees, net..... (609)
Allowance for
loan losses... (829)
----------
Total loans, net.... $ 242,172
----------
----------
</TABLE>
54
<PAGE>
The following table sets forth at July 31, 1997, the dollar amount of gross
loans receivable contractually due after July 31, 1998, and whether such loans
have fixed interest rates or adjustable interest rates.
<TABLE>
<CAPTION>
DUE AFTER JULY 31, 1998
-------------------------------
FIXED ADJUSTABLE TOTAL
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Mortgage loans:
One- to four-family.......................................... $ 77,046 $ 108,099 $ 185,145
Multi-family................................................. 2,139 18,716 20,855
Commercial real estate....................................... 6,263 5,639 11,902
Construction and land........................................ 7,411 1,868 9,279
--------- --------- ---------
Total mortgage loans....................................... 92,859 134,322 227,181
Home equity.................................................... -- 6,530 6,530
Commercial loans............................................... 861 255 1,116
Auto loans..................................................... 601 -- 601
Loans on savings accounts...................................... 262 -- 262
Other.......................................................... 58 -- 58
--------- --------- ---------
Total loans.................................................... $ 94,641 $ 141,107 $ 235,748
--------- --------- ---------
--------- --------- ---------
</TABLE>
One- to Four-Family Lending. The Bank currently offers both fixed-rate and
adjustable-rate mortgage ("ARM") loans with maturities up to 30 years secured by
one- to four-family residences substantially all of which are located in the
Bank's primary market area. One- to four-family mortgage loan originations are
generally obtained from the Bank's in-house loan representatives, from existing
or past customers, through advertising, and through referrals from local
builders, real estate brokers and attorneys. At July 31, 1997, the Bank's one-to
four-family mortgage loans totalled $185.5 million, or 76.2%, of total loans. Of
the one-to four-family mortgage loans outstanding at that date, 41.6% were
fixed-rate mortgage loans and 58.4% were ARM loans.
The Bank currently offers fixed-rate mortgage loans with terms from ten to
30 years. These loans have generally been priced at or slightly above current
market rates for such loans. In order to increase its volume of originations,
the Bank has recently revised its pricing strategies to price its fixed-rate
mortgage loans more competitively and to eliminate the additional 50 basis
points charged on loans with loan-to-value ("LTV") ratios between 80.0%--89.9%.
See "Risk Factors--Interest Rate Risk." Management believes that the Bank may
charge slightly above market rates of interest due to its competitive advantage
of generally not charging finance fees, credit fees or appraisal fees associated
with such loans. The Bank currently offers a number of ARM loans with terms of
up to 30 years and interest rates which adjust every one, two or three years
from the outset of the loan or which adjust annually after a three, five or
seven year initial fixed period. The interest rates for the Bank's ARM loans are
indexed to the one year CMT Index. The Bank originates ARM loans with initially
discounted rates, often known as "teaser rates." The Bank's ARM loans generally
provide for periodic (not more than 2 1/2%) and overall (not more than 7%) caps
on the increase or decrease in the interest rate at any adjustment date and over
the life of the loan. However, interest rates on the Bank's ARM loans may never
adjust to be less than the initial rate of interest charged on any such loan.
The origination of adjustable-rate residential mortgage loans, as opposed to
fixed-rate residential mortgage loans, helps reduce the Bank's exposure to
increases in interest rates. However, adjustable-rate loans generally pose
credit risks not inherent in fixed-rate loans, primarily because as interest
rates rise, the underlying payments of the
55
<PAGE>
borrower rise, thereby increasing the potential for default. Periodic and
lifetime caps on interest rate increases help to reduce the risks associated
with adjustable-rate loans but also limit the interest rate sensitivity of
such loans.
The Bank originates all mortgage loans for its own portfolio. Generally,
the Bank originates one- to four-family residential mortgage loans in amounts
up to 95% of the appraised value or selling price of the property securing
the loan. Private mortgage insurance ("PMI") may be required for loans with a
LTV ratio of greater than 80% with the exception of certain loans in the
Bank's "First-Time Home Buyer" and "American Dream Loan" programs, which
allow for a 95% LTV ratio but do not require PMI. Mortgage loans originated
by the Bank generally include due-on-sale clauses which provide the Bank with
the contractual right to deem the loan immediately due and payable in the
event the borrower transfers ownership of the property without the Bank's
consent. Due-on-sale clauses are an important means of adjusting the yields
on the Bank's fixed-rate mortgage loan portfolio and the Bank has generally
exercised its rights under these clauses. The Bank requires fire, casualty,
title and, in certain cases, flood insurance on all properties securing real
estate loans made by the Bank.
In an effort to provide financing for first-time and moderate income home
buyers, the Bank offers its own First-Time Home Buyer and American Dream Loan
programs. These programs offer single-family residential mortgage loans to
qualified individuals. These loans are offered with adjustable- and fixed-rates
of interest and terms of up to 30 years. Such loans must be secured by a single
family owner-occupied unit. These loans are originated using the same
underwriting guidelines as are the Bank's other one- to four-family mortgage
loans. Such loans are originated in amounts up to 95% of the lower of the
property's appraised value or the sale price. Private mortgage insurance is not
required on such loans.
Multi-Family and Commercial Real Estate Lending. The Bank originates
multi-family and commercial real estate loans that are generally secured by five
or more unit apartment buildings and properties used for business purposes such
as small office buildings or retail facilities located in the Bank's primary
market area. The Bank's multi-family and commercial real estate underwriting
policies provide that such real estate loans may be made in amounts up to 75% of
the appraised value of the property, subject to the Bank's current
loans-to-one-borrower limit, which at July 31, 1997 was $6.3 million. The Bank's
multi-family and commercial real estate loans may be made with terms up to 20
years and are offered with interest rates that adjust periodically. In reaching
its decision on whether to make a multi-family or commercial real estate loan,
the Bank considers the net operating income of the property, the borrower's
expertise, credit history and profitability and the value of the underlying
property. The Bank has generally required that the properties securing these
real estate loans have debt service coverage ratios (the ratio of earnings
before debt service to debt service) of at least 1.00x. Environmental impact
surveys are generally required for all commercial real estate loans. Generally,
all multi-family and commercial real estate loans made to corporations,
partnerships and other business entities require personal guarantees by the
principals. On an exception basis, the Bank may not require a personal guarantee
on such loans depending on the creditworthiness of the borrower and the amount
of the downpayment and other mitigating circumstances. The Bank's multi-family
real estate loan portfolio at July 31, 1997 was $20.9 million, or 8.6% of total
loans and the Bank's commercial real estate loan portfolio at such date was
$11.9 million, or 4.9% of total loans. The largest multi-family or commercial
real estate loan in the Bank's portfolio (excluding loan participation
interests) at July 31, 1997 was a performing $1.8 million commercial real estate
loan secured by a strip shopping center located in South Elgin, Illinois.
The Bank also purchases up to 90% participation interests in multi-family
loans secured by real estate, most of which is located outside of the Bank's
primary market area in southern Wisconsin and Minnesota. When determining
whether to participate in such loans, the Bank will underwrite its participation
interest according to its own underwriting standards. The Bank will generally
hedge against participating in problematic loans by participating in those loans
which have been in existence for one to two years and, accordingly, possess a
positive payment history. At July 31, 1997, the Bank had $8.7 million in
multi-family real estate loan participation interests, or 41.6% of multi-family
loans and 3.6% of total loans.
Loans secured by multi-family and commercial real estate properties
generally involve larger principal amounts and a greater degree of risk than
one- to four-family residential mortgage loans. Because payments on loans
secured by multi-family and commercial real estate properties are often
dependent on successful operation or management of the properties, repayment of
such loans may be subject to adverse conditions in the real estate market or the
economy. The
56
<PAGE>
Bank seeks to minimize these risks through its underwriting standards. See
"Risk Factors--Increased Lending Risks Associated with Commercial Real
Estate, Multi-Family, Construction and Land and Commercial Business Lending."
Construction and Land Lending. The Bank originates fixed-rate construction
loans for the development of residential property primarily located in the
Bank's market area. Construction loans are offered primarily to experienced
local developers operating in the Bank's primary market area and, to a lesser
extent, to individuals for the construction of their residence. The majority of
the Bank's construction loans are originated primarily to finance the
construction of one- to four-family, owner-occupied residential real estate and,
to a lesser extent, multi-family real estate properties located in the Bank's
primary market area. Construction loans are generally offered with terms up to
12 months and may be made in amounts up to 80% of the appraised value of the
property, as improved. Construction loan proceeds are disbursed periodically in
increments as construction progresses and as inspections by the Bank's lending
officers warrant.
The Bank also originates fixed-rate land loans to local developers for the
purpose of developing the land for sale. Such loans are secured by a lien on the
property, are limited to 75% of the appraised value of the secured property and
have terms of up to three years. The principal of the loan is reduced as lots
are sold and released. The Bank's land loans are generally secured by properties
located in its primary market area. Generally, if the borrower is a corporation,
partnership or other business entity, personal guarantees by the principals are
required.
At July 31, 1997, the Bank's largest construction or land loan was a
performing loan with a $2.5 million carrying balance secured by land for the
development of single-family residences located in Elgin. At July 31, 1997, the
Bank had $14.7 million of construction and land loans which amounted to 6.0% of
the Bank's total loans.
Construction and land financing is generally considered to involve a higher
degree of credit risk than long-term financing on improved, owner-occupied real
estate. Risk of loss on a construction loan is dependent largely upon the
accuracy of the initial estimate of the property's value at completion of
construction or development compared to the estimated cost (including interest)
of construction and other assumptions, including the estimated time to sell
residential properties. If the estimate of value proves to be inaccurate, the
Bank may be confronted with a project, when completed, having a value which is
insufficient to assure full repayment. See "Risk Factors--Increased Lending
Risks Associated with Commercial Real Estate, Multi-Family, Construction and
Land and Commercial Lending."
Commercial Business Lending. The Bank also originates commercial business
loans in the forms of term loans and lines of credit to small- and medium-sized
businesses operating in the Bank's primary market area. Such loans are generally
secured by equipment, leases, inventory, accounts receivable and marketable
securities; however, the Bank also makes unsecured commercial business loans.
The maximum amount of a commercial business loan is limited by the Bank's
loans-to-one-borrower limit which, at July 31, 1997, was $6.3 million. Depending
on the collateral used to secure the loans, commercial loans are made in amounts
up to 80% of the value of the property securing the loan. Term loans are
generally offered with fixed rates of interest and terms of up to five years.
All term loans fully amortize during the term of such loan. Business lines of
credit have adjustable rates of interest and terms of up to one year. Business
lines of credit adjust on a daily basis and are indexed to the prime rate as
published in The Wall Street Journal. The Bank also issues both secured and
unsecured letters of credit to business customers of the Bank. Acceptable
collateral includes an assigned deposit account with the Bank, real estate or
marketable securities. Letters of credit have a maximum term of 36 months.
In making commercial business loans, the Bank considers primarily the
financial resources of the borrower, the borrower's ability to repay the loan
out of net operating income, the Bank's lending history with the borrower and
the value of the collateral. Generally, if the borrower is a corporation,
partnership or other business entity, personal guarantees by the principals
are required. However, personal guarantees may not be required on such loans
depending on the creditworthiness of the borrower and other mitigating
circumstances. The Bank's largest commercial loan at July 31, 1997 was
$246,000. At such date, the Bank had $318,000 of unadvanced commercial lines
of credit. At July 31, 1997, the Bank had $2.8 million of commercial loans
which amounted to 1.1% of the Bank's total loans. In an effort to increase
its emphasis on commercial business loans, the Bank has recently hired two
experienced commercial loan originators with the primary responsibility of
increasing commercial business loan volume.
57
<PAGE>
Unlike mortgage loans, which generally are made on the basis of the
borrower's ability to make repayment from his or her employment or other income,
and which are secured by real property whose value tends to be more easily
ascertainable, commercial loans are of higher risk and typically are made on the
basis of the borrower's ability to make repayment from the cash flow of the
borrower's business. As a result, the availability of funds for the repayment of
commercial loans may be substantially dependent on the success of the business
itself. Further, any collateral securing such loans may depreciate over time,
may be difficult to appraise and may fluctuate in value. See "Risk
Factors--Increased Lending Risks Associated with Commercial Real Estate,
Multi-Family, Construction and Land and Commercial Business Lending."
Consumer Lending. Consumer loans at July 31, 1997 amounted to $7.7 million,
or 3.2% of the Bank's total loans, and consisted primarily of home equity lines
of credit and, to a significantly lesser extent, secured and unsecured personal
loans and new and used automobile loans. Such loans are generally originated in
the Bank's primary market area and generally are secured by real estate, deposit
accounts, personal property and automobiles.
Substantially all of the Bank's home equity lines of credit are secured by
second mortgages on owner-occupied single-family residences located in the
Bank's primary market area. At July 31, 1997, these loans totalled $6.6 million,
or 2.7% of the Bank's total loans and 85.7% of consumer loans. Home equity lines
of credit generally have adjustable-rates of interest which adjust on a monthly
basis. The adjustable-rate of interest charged on such loans is indexed to the
prime rate as reported in The Wall Street Journal. Home equity lines of credit
generally have an 18% lifetime limit on interest rates. Generally, the maximum
combined LTV ratio on home equity lines of credit is 89.9% if the Bank holds the
first mortgage lien on the property and 80% if the Bank does not hold the first
mortgage lien. The underwriting standards employed by the Bank for home equity
lines of credit include a determination of the applicant's credit history and an
assessment of the applicant's ability to meet existing obligations and payments
on the proposed loan and the value of the collateral securing the loan. The
stability of the applicant's monthly income may be determined by verification of
gross monthly income from primary employment and, additionally, from any
verifiable secondary income. Creditworthiness of the applicant is of primary
consideration.
The Bank also originates other types of consumer loans consisting of secured
and unsecured personal loans and new and used automobile loans. Secured personal
loans are generally secured by deposit accounts. Unsecured personal loans
generally have a maximum borrowing limitation of $25,000 and generally require a
debt ratio of 38%. Automobile loans have a maximum borrowing limitation of 80%
of the sale price of the automobile, except that existing customers of the Bank
who meet certain underwriting criteria may borrow up to 100% of the sale price
of the automobile. At July 31, 1997, personal loans (both secured and unsecured)
totalled $519,000, or 0.2% of the Bank's total loans and 6.7% of consumer loans;
and automobile loans totalled $649,000, or 0.3% of total loans and 8.4% of
consumer loans.
With respect to automobile loans, full-time employees of the Bank, other
than executive offices and directors, who satisfy certain lending criteria and
the general underwriting standards of the Bank receive an interest rate 1% less
than that which is offered to the general public; provided, however, that the
discounted interest rate is at no time less than 75 basis points above the
Bank's overall cost of funds, rounded to the highest quarter percentage point.
Loan secured by rapidly depreciable assets such as automobiles or that are
unsecured entail greater risks than one-to four-family residential mortgage
loans. In such cases, repossessed collateral for a defaulted loan may not
provide an adequate source of repayment of the outstanding loan balance, since
there is a greater likelihood of damage, loss or depreciation of the underlying
collateral. Further, consumer loan collections on these loans are dependent on
the borrower's continuing financial stability and, therefore, are more likely to
be adversely affected by job loss, divorce, illness or personal bankruptcy.
Finally, the application of various federal and state laws, including federal
and state bankruptcy and insolvency laws, may limit the amount which can be
recovered on such loans in the event of a default.
Loans-to-One Borrower Limitations. The Illinois Savings Bank Act imposes
limitations on the aggregate amount of loans that an Illinois chartered savings
bank can make to any one borrower. Under the Illinois Savings Bank Act the
permissible amount of loans-to-one borrower is the greater of $500,000 (for a
savings bank meeting its minimum capital requirements) or 20% of a savings
bank's total capital plus general loan loss reserves. In addition, a savings
bank may make loans in an amount equal to an additional 10% of the savings
bank's capital plus general loan loss reserves if the loans are 100% secured
by readily marketable collateral. Under Illinois law, a savings bank's capital
consists of
58
<PAGE>
capital stock and noncumulative perpetual preferred stock, related paid-in
capital, retained earnings and other forms of capital deemed to be qualifying
capital by the FDIC. Illinois law also permits an institution with capital in
excess of 6% of assets to request permission of the Commissioner to lend up
to 30% of the institution's total capital and general loan loss reserves to
one borrower for the development of residential housing properties within
Illinois. The Bank has received the approval of the Commissioner to utilize
the 30% limitation with respect to three current borrowers. At July 31, 1997,
the Bank's ordinary limit on loans-to-one borrower under the Illinois Savings
Bank Act was $6.3 million. The 30% limitation equaled $9.4 million at that
date. At July 31, 1997, the Bank's five largest groups of loans-to-one
borrower ranged from $3.2 million to $5.1 million, with the largest single
loan in such groups being a $2.5 million loan secured by land for the
development of single-family residences, located in Elgin. At July 31, 1997,
there were no loans exceeding the 20% limitation. A substantial portion of
each large group of loans is secured by real estate. At July 31, 1997, all of
such loans were performing in accordance with their terms.
Loan Approval Procedures and Authority. The Board of Directors establishes
the lending policies and loan approval limits of the Bank. The Board of
Directors has established the Loan Committee (the "Committee") of the Board
which considers and approves all loans within its designated authority as
established by the Board. In addition, the Board of Directors has authorized
certain officers of the Bank (the "designated officers") to consider and approve
all loans within their designated authority as established by the Board.
The Board of Directors has authorized the following persons and groups of
persons to approve loans up to the amounts indicated: one- to four-family
mortgage loans up to $150,000 and home equity lines of credit ("HELOC") up to
$50,000 may be approved by any of the designated officers; one- to four-family
mortgage loans in excess of $150,000 and up to $250,000 and HELOCs in excess of
$50,000 and up to $100,000 may be approved by two of the designated officers;
one- to four-family mortgage loans in excess of $250,000 and up to $500,000 and
HELOCs in excess of $100,000 must be approved by the Committee; and one- to
four-family mortgage loans in excess of $500,000 must be approved by the Board
of Directors. Multi-family real estate loans secured by five to 16 units and
having less than a 50% LTV may be approved by two of the designated officers;
any multi-family real estate loan with a LTV greater than 50% must be approved
by the Committee; and all other multi-family real estate loans, including
purchasing a participation interest from another lender, must be approved by
either the Committee or the Board of Directors. All commercial real estate loans
must be approved by either the Committee or the Board of Directors.
Construction loans in amounts up to $150,000 may be approved by any of
the designated officers; construction loans in excess of $150,000 and up to
$250,000 and loans on building lots up to $50,000 may be approved by two of
the designated officers; construction loans in excess of $250,000 and up to
$500,000 and loans of building lots in excess of $50,000 must be approved by
the Committee; all construction loans in excess of $500,000 and all vacant
land loans must be approved by either the Committee or the Board of Directors.
Commercial loans in amounts up to $10,000 may be approved by any of the
designated officers; commercial loans in excess of $10,000 and up to $25,000 may
be approved by two of the designated officers; commercial loans in excess of
$25,000 and up to $500,000 require the approval of the Committee; and commercial
loans in excess of $500,000 require the approval of the Board of Directors.
With respect to consumer loans (except for the Bank's HELOCs), unsecured
loans in amounts up to $10,000 and automobile loans up to $30,000 may be
approved by any of the designated officers; unsecured loans in excess of $10,000
and up to $25,000 and secured loans in amounts up to $25,000 may be approved by
two of the designated officers; unsecured loans in excess of $25,000, automobile
loans in excess of $30,000 and secured loans in excess of $25,000 and up to
$250,000 must be approved by the Committee; and secured loans in excess of
$250,000 as well as any loan secured by a leasehold interest must be approved by
the Board of Directors.
UNDERWRITING. With respect to all loans originated by the Bank, upon
receipt of a completed loan application from a prospective borrower, a credit
report is ordered and certain other information is verified by an independent
credit agency. If necessary, additional financial information may be required.
An appraisal of real estate intended to secure a proposed loan generally is
required to be performed by the Bank's "in-house" appraisers or outside
appraisers approved by the Bank. For proposed mortgage loans, the Board annually
approves independent appraisers used by the Bank and approves the Bank's
appraisal policy. The Bank's policy is to obtain title and hazard insurance on
all mortgage
59
<PAGE>
loans and flood insurance when necessary and the Bank may require borrowers
to make payments to a mortgage escrow account for the payment of property
taxes.
In an effort to increase its volume of one- to four-family loan
originations, the Bank recently adopted certain changes to its underwriting
standards and loan pricing strategies which may expose it to increased interest
rate risk. Based upon the Bank's review of its existing underwriting standards,
its minimal charge-off experience and the gain on the sale of foreclosed real
estate experienced in recent periods, management recently determined to increase
its debt to equity ratios required on one-to four-family mortgage loans. At July
31, 1997, the Bank's ratio of nonperforming loans to total loans was .17%, and
its ratio of nonperforming assets to total assets was .13%. The Bank had no real
estate owned as of July 31, 1997, and had $67,000 of real estate owned at
December 31, 1996. There have been no charge-offs in the last five years. See
"--Delinquent Loans, Classified Assets and Real Estate Owned."
Previously, the Bank's one- to four-family lending policy permitted the
investment in mortgage loans where the borrower's monthly mortgage and prorated
real estate tax payments were less than 28% of the borrower's gross income, and
where the borrower's total monthly obligations did not exceed 38% of the
borrower's gross income. Under the Bank's revised policy and in order to qualify
more borrowers, the Bank will invest in loans with the threshold ratios of 32%
and 43%, respectively. It is also the general practice of the Bank not to
require private mortgage insurance, although the Bank retains the right to
require such insurance on any loan with a loan to value ratio in excess of
89.9%, with the exception of its "First-Time Home Buyer" and "American Dream
Loan" programs. In addition, the Bank had historically priced its one- to four-
family loans with loan to value ratios of between 80.0% and 89.9% at 50 basis
points higher than loans with loan to value ratios of less than 80.0%, again in
an effort to control the origination of such loans. The Bank has recently
eliminated the price differential between loans with loan to value ratios of
less than 80.0% and between 80.0% and 89.90% as a means of attracting more
borrowers. The Bank believes that its underwriting standards, as revised, are
sufficient to allow it to adequately assess the creditworthiness of prospective
borrowers. There can be no assurances, however, that increasing the permissible
debt coverage ratios and loan-to-value ratios permitted for borrowers will not
result in the Bank experiencing increased delinquencies and defaults on loans.
Delinquent Loans, Classified Assets and Real Estate Owned
Delinquencies, Classified Assets and Real Estate Owned. Reports listing all
delinquent accounts are generated and reviewed by management on a monthly basis
and the Board of Directors performs a monthly review of all loans or lending
relationships delinquent 45 days or more. The procedures taken by the Bank with
respect to delinquencies vary depending on the nature of the loan, period and
cause of delinquency and whether the borrower is habitually delinquent. When a
borrower fails to make a required payment on a loan, the Bank takes a number of
steps to have the borrower cure the delinquency and restore the loan to current
status. The Bank generally sends the borrower a written notice of non-payment
after the loan is first past due. The Bank's guidelines provide that telephone,
written correspondence and/ or face-to-face contact will be attempted to
ascertain the reasons for delinquency and the prospects of repayment. When
contact is made with the borrower at any time prior to foreclosure, the Bank
will attempt to obtain full payment, offer to work out a repayment schedule with
the borrower to avoid foreclosure or, in some instances, accept a deed in lieu
of foreclosure. In the event payment is not then received or the loan not
otherwise satisfied, additional letters and telephone calls generally are made.
If the loan is still not brought current or satisfied and it becomes necessary
for the Bank to take legal action, which typically occurs after a loan is 90
days or more delinquent, the Bank will commence foreclosure proceedings against
any real property that secured the loan. If a foreclosure action is instituted
and the loan is not brought current, paid in full, or refinanced before the
foreclosure sale, the property securing the loan generally is sold at
foreclosure and, if purchased by the Bank, becomes real estate owned.
Federal regulations and the Bank's internal policies require that the Bank
utilize an internal asset classification system as a means of reporting problem
and potential problem assets. The Bank currently classifies problem and
potential problem assets as "Substandard," "Doubtful" or "Loss" assets. An asset
is considered Substandard if it is inadequately protected by the current net
worth and paying capacity of the obligor or of the collateral pledged, if any.
Substandard assets include those characterized by the distinct possibility that
the Bank will sustain some loss if the deficiencies are not corrected. Assets
classified as Doubtful have all of the weaknesses inherent in those classified
Substandard with the added characteristic that the weaknesses present make
collection or liquidation in full, on the basis of currently existing facts,
conditions and values, highly questionable and improbable. Assets classified as
Loss are those considered uncollectible and of such little value that their
continuance as assets, without the establishment of a
60
<PAGE>
specific loss reserve, is not warranted. Assets which do not currently expose
the Bank to a sufficient degree of risk to warrant classification in one of
the aforementioned categories but possess weaknesses are required to be
designated "Special Mention."
When the Bank classifies one or more assets, or portions thereof, as
Substandard or Doubtful, it is required to establish an allowance for possible
loan losses in an amount deemed prudent by management unless the loss of
principal appears to be remote. When the Bank classifies one or more assets, or
portions thereof, as Loss, it is required either to establish a specific
allowance for losses equal to 100% of the amount of the assets so classified or
to charge off such amount.
The Bank's determination as to the classification of its assets and the
amount of its valuation allowances is subject to review by the FDIC and
Commissioner, which can order the establishment of additional general or
specific loss allowances. The FDIC, in conjunction with the other federal
banking agencies, recently adopted an interagency policy statement on the
allowance for loan and lease losses. The policy statement provides guidance
for financial institutions on both the responsibilities of management for the
assessment and establishment of adequate allowances and guidance for banking
agency examiners to use in determining the adequacy of general valuation
guidelines. Generally, the policy statement recommends that institutions have
effective systems and controls to identify, monitor and address asset quality
problems; that management has analyzed all significant factors that affect
the collectibility of the portfolio in a reasonable manner; and that
management has established acceptable allowance evaluation processes that
meet the objectives set forth in the policy statement. While the Bank
believes that it has established an adequate allowance for possible loan
losses, there can be no assurance that regulators, in reviewing the Bank's
loan portfolio, will not request the Bank to materially increase at that time
its allowance for possible loan losses, thereby negatively affecting the
Bank's financial condition and earnings at that time. Although management
believes that adequate specific and general loan loss allowances have been
established, future provisions are dependent upon future events such as loan
growth and portfolio diversification and, as such, further additions to the
level of specific and general loan loss allowances may become necessary.
The Bank reviews and classifies its assets on a quarterly basis and the
Board of Directors reviews the results of the reports on a quarterly basis. The
Bank classifies its assets in accordance with the management guidelines
described above. At July 31, 1997, the Bank had $515,000, or .16%, of assets
designated as Substandard, consisting of six mortgage loans secured by
single-family owner-occupied residences and one unsecured consumer loan, no
loans classified as Doubtful and $18,000 of assets classified as Loss consisting
of one unsecured consumer loan. At July 31, 1997, the Bank had $1.3 million, or
.40%, of assets designated as Special Mention, consisting of five construction
loans all to the same builder/borrower which loans are secured by real estate
for the development of single-family town homes. At July 31, 1997, these
classified assets totalled $2.0 million, representing .81% of loans receivable.
61
<PAGE>
The following tables set forth delinquencies in the Bank's loan portfolio
past due 60 days or more:
<TABLE>
<CAPTION>
AT JULY 31, 1997 AT DECEMBER 31, 1996
------------------------------------------------------ --------------------------
60-89 DAYS 90 DAYS OR MORE 60-89 DAYS
-------------------------- -------------------------- --------------------------
PRINCIPAL PRINCIPAL PRINCIPAL
NUMBER BALANCE NUMBER BALANCE NUMBER BALANCE
OF LOANS OF LOANS OF LOANS OF LOANS OF LOANS OF LOANS
------------- ----------- ------------- ----------- ------------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
One- to four-family..................... 6 $ 366 4 $ 364 6 $ 589
Multi-family............................ -- -- -- -- -- --
Commercial real estate.................. -- -- -- -- 1 159
Construction and land................... -- -- -- -- -- --
Home equity............................. 2 36 1 10 -- --
Commercial business..................... -- -- -- -- 1 46
Auto loans.............................. 3 23 -- -- 1 1
Loans on savings accounts............... -- -- -- -- -- --
Other................................... -- -- 1 35 -- --
------ ------ ------ ------- ----- -----
Total.............................. 11 $ 425 6 $ 409 9 $ 795
------ ------ ------ ------- ----- -----
------ ------ ------ ------- ----- -----
Delinquent loans to total loans(1)...... .18% .17% .33%
------ ------- -----
------ ------- -----
<CAPTION>
90 DAYS OR MORE
--------------------------
PRINCIPAL
NUMBER BALANCE
OF LOANS OF LOANS
------------- -----------
<S> <C> <C>
One- to four-family..................... 6 $ 428
Multi-family............................ -- --
Commercial real estate.................. -- --
Construction and land................... -- --
Home equity............................. -- --
Commercial business..................... 2 22
Auto loans.............................. -- --
Loans on savings accounts............... -- --
Other................................... 3 66
---- ------
Total................................... 11 $ 516
---- ------
---- ------
Delinquent loans to total loans(1)...... .22%
------
------
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31, 1995 AT DECEMBER 31, 1994
------------------------------------------------------ --------------------------
60-89 DAYS 90 DAYS OR MORE 60-89 DAYS
-------------------------- -------------------------- --------------------------
PRINCIPAL PRINCIPAL PRINCIPAL
NUMBER BALANCE NUMBER BALANCE NUMBER BALANCE
OF LOANS OF LOANS OF LOANS OF LOANS OF LOANS OF LOANS
------------- ----------- ------------- ----------- ------------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
One- to four-family..................... 3 $ 243 9 $ 787 7 $ 531
Multi-family............................ 1 51 -- -- -- --
Commercial real estate.................. -- -- -- -- -- --
Construction and land................... -- -- -- -- -- --
Home equity............................. -- -- -- -- -- --
Commercial business..................... -- -- -- -- -- --
Auto loans.............................. -- -- 1 2 1 7
Loans on savings accounts............... -- -- -- -- -- --
Other................................... -- -- -- -- -- --
Total................................... 4 $ 294 10 $ 789 8 $ 538
------- --------- ------- --------- ------- ---------
------- --------- ------- --------- ------- ---------
Delinquent loans to total loans(1)...... .13% .36% .27%
--------- --------- ---------
--------- --------- ---------
<CAPTION>
90 DAYS OR MORE
--------------------------
PRINCIPAL
NUMBER BALANCE
OF LOANS OF LOANS
------------- -----------
<S> <C> <C>
One- to four-family..................... 7 $ 440
Multi-family............................ -- --
Commercial real estate.................. 1 88
Construction and land................... 2 15
Home equity............................. -- --
Commercial business..................... -- --
Auto loans.............................. -- --
Loans on savings accounts............... -- --
Other................................... -- --
---- ---------
Total................................... 10 $ 543
---- ---------
---- ---------
Delinquent loans to total loans(1)...... .27%
---------
---------
</TABLE>
- ------------------------
(1) Total loans represent gross loans receivable less deferred loan fees and
unearned discounts.
62
<PAGE>
NONPERFORMING ASSETS. The following table sets forth information
regarding nonperforming loans and REO. At July 31, 1997, the Bank had no REO
in its portfolio. It is the general policy of the Bank to cease accruing
interest on loans 90 days or more past due and to fully reserve for all
previously accrued interest. For the seven months ended July 31, 1997 and
July 31, 1996 and for each of the five years ended December 31, 1996, the
amount of additional interest income that would have been recognized on
non-accrual loans if such loans had continued to perform in accordance with
their contractual terms was $9,000, $24,000, $35,000, $60,000, $46,000,
$27,000, and $93,000, respectively.
<TABLE>
<CAPTION>
AT JULY 31, AT DECEMBER 31,
------------------- -----------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
-------- --------- --------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Nonperforming loans:
Mortgage loans:
One- to four-family.......... $ 364 $ 588 $ 428 $ 787 $ 440 $ 266 $ 155
Commercial real estate....... -- -- -- -- 88 -- --
Construction and land........ -- -- -- -- 15 818 --
------- --------- --------- --------- --------- --------- ---------
Total mortgage loans........ 364 588 428 787 543 1,084 155
------- --------- --------- --------- --------- --------- ---------
Other loans:
Home equity.................. 10 -- -- -- -- -- --
Commercial business loans.... -- -- 22 -- -- -- --
Auto loans................... -- -- -- 2 -- -- --
Other........................ 35 -- 66 -- -- 4 --
------- --------- --------- --------- --------- --------- ---------
Total other loans........... 45 -- 88 2 -- 4 --
------- --------- --------- --------- --------- --------- ---------
Total nonperforming loans... 409 588 516 789 543 1,088 155
------- --------- --------- --------- --------- --------- ---------
Real estate owned, net(1)..... -- -- 67 477 581 770 1,125
------- --------- --------- --------- --------- --------- ---------
Total nonperforming assets.. $ 409 $ 588 $ 583 $ 1,266 $ 1,124 $ 1,858 $ 1,280
------- --------- --------- --------- --------- --------- ---------
------- --------- --------- --------- --------- --------- ---------
Nonperforming loans as a
percent of loans(2)(3)...... .17% .25% .22% .36% .27% .62% .09%
Nonperforming assets as a
percent of total assets(3).. .13% .19% .19% .43% .41% .70% .51%
</TABLE>
- ------------------------
(1) REO balances are shown net of related loss allowances.
(2) Loans receivable, net, excluding the allowance for loan losses.
(3) Nonperforming assets consist of nonperforming loans and REO.
63
<PAGE>
Nonperforming loans totalled $409,000 as of July 31, 1997, and included
four one- to four-family loans, with an aggregate balance of $364,000 and
$45,000 in consumer loans.
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is maintained through provisions for loan
losses based on management's on-going evaluation of the risks inherent in its
loan portfolio in consideration of the trends in its loan portfolio, the
national and regional economies and the real estate market in the Bank's
primary lending area. The allowance for loan losses is maintained at an
amount management considers adequate to cover estimated losses in its loan
portfolio which are deemed probable and estimable based on information
currently known to management. The Bank's loan loss allowance determinations
also incorporate factors and analyses which consider the potential principal
loss associated with the loan, costs of acquiring the property securing the
loan through foreclosure or deed in lieu thereof, the periods of time
involved with the acquisition and sale of such property, and costs and
expenses associated with maintaining and holding the property until sale and
the costs associated with the Bank's inability to utilize funds for other
income producing activities during the estimated holding period of the
property.
As of July 31, 1997, the Bank's allowance for loan losses was $829,000,
or 0.34%, of total loans and 202.7% of nonperforming loans as compared to
$808,000, or 0.34%, of total loans and 156.6% of nonperforming loans as of
December 31, 1996. The Bank had total nonperforming loans of $409,000 and
$516,000 at July 31, 1997 and December 31, 1996, respectively, and
nonperforming loans to total loans of 0.17% and 0.22%, respectively. The Bank
will continue to monitor and modify its allowance for loan losses as
conditions dictate. Management believes that, based on information available
at July 31, 1997, the Bank's allowance for loan losses was sufficient to
cover losses inherent in its loan portfolio at that time. Based upon the
Bank's plan to increase its emphasis on non-one- to four-family mortgage
lending, the Bank expects to increase its allowance for loan losses over
future periods depending upon the then current conditions. See "Risk
Factors." However, no assurances can be given that the Bank's level of
allowance for loan losses will be sufficient to cover future loan losses
incurred by the Bank or that future adjustments to the allowance for loan
losses will not be necessary if economic and other conditions differ
substantially from the economic and other conditions used by management to
determine the current level of the allowance for loan losses. In addition,
the FDIC and the Commissioner, as an integral part of their examination
processes, periodically review the Bank's allowance for loan losses. Such
agencies may require the Bank to make additional provisions for estimated
loan losses based upon judgments different from those of management.
64
<PAGE>
The following table sets forth activity in the Bank's allowance for loan
losses for the periods set forth in the table.
<TABLE>
<CAPTION>
AT OR FOR THE
SEVEN MONTHS AT OR FOR THE YEAR ENDED
ENDED JULY 31, DECEMBER 31,
-------------------- -------------------------------
1997 1996 1996 1995 1994
--------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Balance at beginning of period..................................... $ 808 $ 754 $ 754 $ 682 $ 592
Provision for loan losses.......................................... 21 39 54 72 90
Total charge-offs.................................................. -- -- -- -- --
--------- --------- --------- --------- ---------
Balance at end of period........................................... $ 829 $ 793 $ 808 $ 754 $ 682
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Allowance for loan losses as a percent of loans(1)................. .34% .34% .34% .34% .34%
Allowance for loan losses as a percent of nonperforming loans(2)... 202.7% 134.9% 156.6% 95.6% 125.6%
<CAPTION>
1993 1992
--------- ---------
<S> <C> <C>
Balance at beginning of period..................................... $ 500 $ 319
Provision for loan losses.......................................... 92 206
Total charge-offs.................................................. -- (25)
--------- ---------
Balance at end of period........................................... $ 592 $ 500
--------- ---------
--------- ---------
Allowance for loan losses as a percent of loans(1)................. .34% .31%
Allowance for loan losses as a percent of nonperforming loans(2)... 54.4% 332.3%
</TABLE>
- ------------------------
(1) Loans receivable, net, excluding the allowance for loan losses.
(2) Nonperforming assets consist of nonperforming loans and REO.
65
<PAGE>
The following tables set forth the Bank's percent of allowance for loan
losses to total allowance and the percent of loans to total loans in each of the
categories listed at the dates indicated.
<TABLE>
<CAPTION>
AT JULY 31,
----------------------------------------------------------------------------------
1997 1996
--------------------------------------- -----------------------------------------
PERCENT OF PERCENT OF
PERCENT OF LOANS IN PERCENT OF LOANS IN
ALLOWANCE EACH ALLOWANCE EACH
TO TOTAL CATEGORY TO TO TOTAL CATEGORY TO
AMOUNT ALLOWANCE TOTAL LOANS AMOUNT ALLOWANCE TOTAL LOANS
----------- ----------- ------------- ----------- ----------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
One- to four-family.............. $ 102 12.3% 76.2% $ 100 12.6% 75.3%
Multi-family..................... 21 2.5 8.6 23 2.9 9.7
Commercial real estate........... 120 14.5 4.9 128 16.1 4.2
Construction and land............ 188 22.7 6.0 220 27.7 7.0
Home equity...................... 133 16.0 2.7 111 14.0 2.3
Commercial business.............. 38 4.6 1.1 69 8.7 1.0
Auto loans....................... 13 1.6 0.3 12 1.5 0.3
Loans on savings accounts........ -- -- 0.2 -- -- 0.2
Other............................ 8 1.0 -- 9 1.1 --
Unallocated...................... 206 24.8 -- 121 15.4 --
----------- ----------- ------------- ----------- ----------- -------------
Total allowance for loan losses.. $ 829 100.0% 100.0% $ 793 100.0% 100.0%
----------- ----------- ------------- ----------- ----------- -------------
----------- ----------- ------------- ----------- ----------- -------------
</TABLE>
(continued on next page)
66
<PAGE>
<TABLE>
<CAPTION>
AT DECEMBER 31,
------------------------------------------------------------------
1996 1995
--------------------------------- -------------------------------
PERCENT OF PERCENT OF
PERCENT OF LOANS IN PERCENT OF LOANS IN
ALLOWANCE EACH ALLOWANCE EACH
TO TOTAL CATEGORY TO TO TOTAL CATEGORY TO
AMOUNT ALLOWANCE TOTAL LOANS AMOUNT ALLOWANCE TOTAL LOANS
------ ---------- ----------- ------ ---------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
One- to four-family.. $ 99 12.3% 75.9% $100 13.3% 74.5%
Multi-family......... 20 2.5 9.2 21 2.8 10.5
Commercial real
estate............. 149 18.4 4.2 120 15.9 4.4
Construction and
land............... 205 25.4 6.7 156 20.7 7.3
Home equity.......... 115 14.2 2.4 87 11.5 1.9
Commercial business
loans.............. 61 7.5 1.1 29 3.8 0.8
Auto loans........... 13 1.6 0.3 14 1.9 0.3
Loans on savings
accounts........... -- -- 0.2 -- -- 0.2
Other................ 19 2.4 -- 97 12.9 0.1
Unallocated.......... 127 15.7 -- 130 17.2 --
---- ----- ----- ---- ----- -----
Total allowance for
loan losses........ $808 100.0% 100.0% $754 100.0% 100.0%
---- ----- ----- ---- ----- -----
---- ----- ----- ---- ----- -----
<CAPTION>
1994 1993 1992
--------------------------------- ------------------------------- -------------------------------
PERCENT OF PERCENT OF PERCENT OF
PERCENT OF LOANS IN PERCENT OF LOANS IN PERCENT OF LOANS IN
ALLOWANCE EACH ALLOWANCE EACH ALLOWANCE EACH
TO TOTAL CATEGORY TO TO TOTAL CATEGORY TO TO TOTAL CATEGORY TO
AMOUNT ALLOWANCE TOTAL LOANS AMOUNT ALLOWANCE TOTAL LOANS AMOUNT ALLOWANCE TOTAL LOANS
------ ---------- ----------- ------ ---------- ----------- ------ ---------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
One- to four-family.. $ 91 13.4% 73.7% $ 74 12.5% 75.7% $ 69 13.8% 77.7%
Multi-family......... 21 3.1 10.3 21 3.5 12.1 20 4 12
Commercial real
estate............. 138 20.2 6.3 104 17.6 5.9 91 18.2 5.5
Construction and
land............... 138 20.2 7.4 109 18.4 4.6 46 9.2 3.9
Home equity.......... 38 5.6 0.9 -- -- -- -- -- --
Commercial business
loans.............. 24 3.5 0.7 35 5.9 1.1 9 1.8 0.3
Auto loans........... 11 1.6 0.3 4 0.7 0.1 3 0.6 0.1
Loans on savings
accounts........... -- -- 0.2 -- -- 0.3 -- -- 0.4
Other................ 84 12.3 0.2 141 23.8 0.2 228 45.6 0.1
Unallocated.......... 137 20.1 -- 104 17.6 -- 34 6.8 --
---- ----- ----- ---- ----- ----- ---- ----- -----
Total allowance for
loan losses........ $682 100.0% 100.0% $592 100.0% 100.0% $500 100.0% 100.0%
---- ----- ----- ---- ----- ----- ---- ----- -----
---- ----- ----- ---- ----- ----- ---- ----- -----
</TABLE>
<PAGE>
REAL ESTATE OWNED. At July 31, 1997, the Bank had no REO in its
portfolio. When the Bank does acquire property through foreclosure or deed in
lieu of foreclosure, it is initially recorded at the lower of the recorded
investment in the corresponding loan or the fair value of the related assets
at the date of foreclosure, less costs to sell. Thereafter, if there is a
further deterioration in value, the Bank provides for a specific valuation
allowance and charges operations for the diminution in value.
INVESTMENT ACTIVITIES
The Board of Directors sets the investment policy and procedures of the
Bank. This policy generally provides that investment decisions will be made
based on the safety of the investment, liquidity requirements of the Bank
and, to a lesser extent, potential return on the investments. In pursuing
these objectives, the Bank considers the ability of an investment to provide
earnings consistent with factors of quality, maturity, marketability and risk
diversification. While the Board of Directors has final authority and
responsibility for the securities investment portfolio, the Bank has
established an Investment Committee comprised of six Directors to supervise
the Bank's investment activities. The Bank's Investment Committee meets
monthly and evaluates all investment activities for safety and soundness,
adherence to the Bank's investment policy, and assurance that authority
levels are maintained.
The Bank currently does not participate in hedging programs, interest
rate swaps, or other activities involving the use of off-balance sheet
derivative financial instruments. Similarly, the Bank does not invest in
mortgage-related securities which are deemed to be "high risk," or purchase
bonds which are not rated investment grade.
Mortgage-Backed Securities. The Bank currently purchases mortgage-backed
securities in order to: (i) generate positive interest rate spreads with
minimal administrative expense; and (ii) lower its credit risk as a result of
the guarantees provided by FHLMC, FNMA, and GNMA. The Bank invests in
mortgage-backed securities insured or guaranteed by FNMA, FHLMC and GNMA. At
July 31, 1997, mortgage-backed securities totalled $19.7 million, or 6.1%, of
total assets and 6.4% of total interest earning assets, all of which was
classified as available-for-sale. At July 31, 1997, 56.5% of the
mortgage-backed securities were backed by adjustable-rate loans and 43.5%
were backed by fixed-rate loans. The mortgage-backed securities portfolio had
coupon rates ranging from 6.50% to 8.00% and had a weighted average yield of
7.14% at July 31, 1997. The estimated fair value of the Bank's
mortgage-backed securities at July 31, 1997, was $19.7 million, which is
$100,000 more than the amortized cost of $19.6 million.
Mortgage-backed securities are created by the pooling of mortgages and
issuance of a security with an interest rate which is less than the interest
rate on the underlying mortgage. Mortgage-backed securities typically
represent a participation interest in a pool of single-family or multi-family
mortgages, although the Bank focuses its investments on mortgage-backed
securities backed by single-family mortgages. The issuers of such securities
(generally U.S. Government agencies and government sponsored enterprises,
including FNMA, FHLMC and GNMA) pool and resell the participation interests
in the form of securities to investors such as the Bank and guarantee the
payment of principal and interest to investors. Mortgage-backed securities
generally yield less than the loans that underlie such securities because of
the cost of payment guarantees and credit enhancements. In addition,
mortgage-backed securities are usually more liquid than individual mortgage
loans and may be used to collateralize certain liabilities and obligations of
the Bank. Investments in mortgage-backed securities involve a risk that
actual prepayments will be greater than estimated prepayments over the life
of the security, which may require adjustments to the amortization of any
premium or accretion of any discount relating to such instruments thereby
reducing the net yield on such securities. There is also reinvestment risk
associated with the cash flows from such securities or in the event such
securities are redeemed by the issuer. In addition, the market value of such
securities may be adversely affected by changes in interest rates. The Bank
estimates prepayments for its mortgage-backed securities at purchase to
ensure that prepayment assumptions are reasonable considering the underlying
collateral for the mortgage-backed securities at issue and current mortgage
interest rates and to determine the yield and estimated maturity of its
mortgage-backed security portfolio. Of the Bank's $19.7 million
mortgage-backed securities portfolio at July 31, 1997, $3.3 million with a
weighted average yield of 7.00% had contractual maturities within five years
and $16.4 million with a weighted average yield of 7.17% had contractual
maturities over five years. However, the actual maturity of a mortgage-backed
security may be less than its stated maturity due to prepayments of the
underlying mortgages. Prepayments that are faster than anticipated may
shorten the life of the security and may result in a loss of any premiums
paid and thereby reduce the net yield on such securities. Although
prepayments of underlying mortgages depend on many factors, the difference
between the interest rates on the underlying mortgages and the prevailing
mortgage interest rates generally is the most significant determinant of the
rate of prepayments. During periods of declining mortgage interest rates,
refinancing generally increases and accelerates the prepayment of the
underlying mortgages and the related security. Under such circumstances, the
Bank may be
68
<PAGE>
subject to reinvestment risk because, to the extent that the Bank's
mortgage-backed securities prepay faster than anticipated, the Bank may not
be able to reinvest the proceeds of such repayments and prepayments at a
comparable rate.
U.S. Government Obligations. At July 31, 1997, the Bank's U.S. Government
securities portfolio totalled $38.2 million, all of which were classified as
available-for-sale. Such portfolio primarily consists of short- to
medium-term (maturities of one to five years) securities.
The following table sets forth the composition of the Bank's investment
and mortgage-backed and mortgage-related securities portfolios in dollar
amounts and in percentages at the dates indicated:
<TABLE>
<CAPTION>
AT DECEMBER 31,
------------------------------------------------------------------
AT JULY 31,
1997 1996 1995 1994
---------------------- ---------------------- ---------------------- -----------------
PERCENT PERCENT PERCENT PERCENT
OF OF OF OF
AMOUNT TOTAL AMOUNT TOTAL AMOUNT TOTAL AMOUNT TOTAL
--------- ----------- --------- ----------- --------- ----------- --------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Investment securities:
U.S. Government obligations........ $ 38,203 65.9% $ 37,543 63.1% $ 30,707 55.6% $ 29,782 52.7%
--------- ----- --------- ----- --------- ----- --------- -----
Mortgage-backed securities:
FHLMC.............................. 5,696 9.8 6,474 10.9 9,021 16.3 10,031 17.8
GNMA............................... 9,423 16.3 10,369 17.4 11,876 21.5 12,663 22.4
FNMA............................... 4,613 8.0 5,132 8.6 3,623 6.6 4,031 7.1
--------- ----- --------- ----- --------- ----- --------- -----
Total mortgage-backed securities.. 19,732 34.1 21,975 36.9 24,520 44.4 26,725 47.3
--------- ----- --------- ----- --------- ----- --------- -----
Total securities.................. $ 57,935 100.0% $ 59,518 100.0% $ 55,227 100.0% $ 56,508 100.0%
--------- ----- --------- ----- --------- ----- --------- -----
--------- ----- --------- ----- --------- ----- --------- -----
</TABLE>
69
<PAGE>
The following table sets forth the Bank's securities activities for the
periods indicated. All investment securities in the Bank's portfolio are
classified as available-for-sale.
<TABLE>
<CAPTION>
FOR THE SEVEN MONTHS FOR THE YEAR
ENDED JULY 31, ENDED DECEMBER 31,
--------------------- -------------------------------
1997 1996 1996 1995 1994
---------- --------- --------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Beginning balance........................................ $59,518 $ 55,227 $ 55,227 $ 56,508 $ 61,132
------- --------- --------- --------- ---------
------- --------- --------- --------- ---------
Investment securities purchased.......................... 10,792 12,333 24,596 11,517 14,495
Mortgage-backed securities purchased..................... 2,093 2,550 2,550 -- 4,100
Less:
Sale of investment securities............................ -- -- -- 1,999 3,000
Principal repayments on mortgage-backed securities....... 4,382 3,189 5,042 4,005 5,693
Maturities of investment securities...................... 10,113 6,103 17,150 10,500 11,000
Realized losses received on sales
of mortgage-backed securities........................... -- -- -- (3) --
Net amortization of premium.............................. (22) (13) (49) (861) (314)
Change in net unrealized gains (losses) on
available-for-sale securities.......................... (3) 923 712 (2,842) 3,840
------- --------- --------- --------- ---------
Ending balance........................................... $57,935 $ 59,909 $ 59,518 $ 55,227 $ 56,508
------- --------- --------- --------- ---------
------- --------- --------- --------- ---------
</TABLE>
70
<PAGE>
The following table sets forth at the dates indicated certain information
regarding the amortized cost and market values of the Bank's investment and
mortgage-backed and mortgage-related securities, all of which was classified
as available-for-sale.
<TABLE>
<CAPTION>
AT DECEMBER 31,
----------------------------------------------------------------------
AT JULY 31, 1997 1996 1995 1994
------------------------- ---------------------- ---------------------- ----------------------
AMORTIZED MARKET AMORTIZED MARKET AMORTIZED MARKET AMORTIZED MARKET
COST VALUE COST VALUE COST VALUE COST VALUE
-------------- --------- ----------- --------- ----------- --------- ----------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Investment securities:
U.S. Government obligations.. $ 37,125 $ 38,203 $ 36,519 $ 37,543 $ 29,070 $ 30,707 $ 29,506 $ 29,781
---------- --------- --------- --------- --------- --------- --------- ---------
Mortgage-backed securities:
GNMA......................... 9,376 9,423 10,348 10,369 11,918 11,877 13,504 12,664
FNMA......................... 4,543 4,613 5,071 5,132 3,529 3,623 4,171 4,031
FHLMC........................ 5,724 5,696 6,507 6,474 8,925 9,020 10,383 10,030
---------- --------- --------- --------- --------- --------- --------- ---------
Total mortgage-backed
securities.................. 19,643 19,732 21,926 21,975 24,372 24,520 28,058 26,725
---------- --------- --------- --------- --------- --------- --------- ---------
Total securities.............. $ 56,858 $ 57,935 $ 58,445 $ 59,518 $ 53,442 $ 55,227 $ 57,564 $ 56,507
---------- --------- --------- --------- --------- --------- --------- ---------
---------- --------- --------- --------- --------- --------- --------- ---------
</TABLE>
71
<PAGE>
The table below sets forth certain information regarding the carrying value,
weighted average yields and contractual maturities of the Bank's securities
portfolio, all of which was classified as available-for-sale, as of July 31,
1997.
<TABLE>
<CAPTION>
AT JULY 31, 1997
------------------------------------------------------------------------------------------------------
MORE THAN ONE MORE THAN FIVE
ONE YEAR OR LESS YEAR TO FIVE YEARS YEARS TO TEN YEARS MORE THAN TEN YEARS
------------------------ ------------------ ------------------ -------------------
WEIGHTED WEIGHTED WEIGHTED WEIGHTED
CARRYING AVERAGE CARRYING AVERAGE CARRYING AVERAGE CARRYING AVERAGE
VALUE YIELD VALUE YIELD VALUE YIELD VALUE YIELD
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Mortgage-backed
securities:
FHLMC................... $ -- -- $ 1,242 6.70% $ 1,681 6.71% $ 2,773 7.37%
GNMA.................... -- -- -- -- -- -- 9,423 7.16
FNMA.................... -- -- 2,047 7.18 90 8.41 2,476 7.26
----------- ----------- ----------- -----------
Total mortgage-
backed
securities........ -- -- 3,289 -- 1,771 -- 14,672 --
----------- ----------- ----------- -----------
U.S. Government
obligations............. 7,007 5.66% 18,503 7.59 8,677 7.23 4,015 8.10
Total securities.... $ 7,007 -- $ 21,792 -- $ 10,448 -- $ 18,687 --
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
<CAPTION>
TOTAL
------------------------
WEIGHTED
CARRYING AVERAGE
VALUE YIELD
----------- -----------
<S> <C> <C>
(DOLLARS IN THOUSANDS)
Mortgage-backed
securities:
FHLMC................... $ 5,696 7.03%
GNMA.................... 9,423 7.16
FNMA.................... 4,613 7.25
-----------
Total mortgage-
backed
securities........ 19,732 --
-----------
U.S. Government
obligations............. 38,203 7.17
Total securities.... $ 57,934 --
-----------
-----------
</TABLE>
72
<PAGE>
SOURCES OF FUNDS
GENERAL. Deposits, repayments and prepayments of loans, cash flows
generated from operations and FHLB advances are the primary sources of the
Bank's funds for use in lending, investing and for other general purposes.
DEPOSITS. The Bank offers a variety of deposit accounts with a range of
interest rates and terms. The Bank's deposit accounts consist of savings, retail
checking/NOW accounts, commercial checking accounts, money market accounts, club
accounts and certificate of deposit accounts. The Bank offers certificate of
deposit accounts with balances in excess of $100,000 at preferential rates
(jumbo certificates) and also offers Individual Retirement Accounts ("IRAs") and
other qualified plan accounts.
At July 31, 1997, the Bank's deposits totalled $262.3 million, or 94.69%, of
interest-bearing liabilities. For the year ended December 31, 1996, the average
balance of core deposits (savings, NOW, money market and non-interest-bearing
checking accounts) totalled $108.9 million, or 43.6% of total average deposits.
At July 31, 1997, the Bank had a total of $150.2 million in certificates of
deposit, of which $82.1 million had maturities of one year or less reflecting
the shift in deposit accounts from savings accounts to shorter-term certificate
accounts that has occurred in recent years. For the year ended December 31,
1996, the average balance of core deposits represented approximately 36.8% of
total deposits and certificate accounts represented 56.9%, as compared to core
deposits representing 43.0% of total deposits and certificate accounts
representing 57.2% of deposits for the year ended December 31, 1995. See "Risk
Factors--Sensitivity to Increases in Interest Rates." Although the Bank has a
significant portion of its deposits in core deposits, management monitors
activity on the Bank's core deposits and, based on historical experience and the
Bank's current pricing strategy, believes it will continue to retain a large
portion of such accounts. The Bank is not limited with respect to the rates it
may offer on deposit products.
The flow of deposits is influenced significantly by general economic
conditions, changes in money market rates, prevailing interest rates and
competition. The Bank's deposits are obtained predominantly from the areas in
which its branch offices are located. The Bank relies primarily on customer
service and long-standing relationships with customers to attract and retain
these deposits; however, market interest rates and rates offered by competing
financial institutions affect the Bank's ability to attract and retain deposits.
The Bank uses traditional means of advertising its deposit products, including
radio and print media and generally does not solicit deposits from outside its
market area. While certificate accounts in excess of $100,000 are accepted by
the Bank, and may be subject to preferential rates, the Bank does not actively
solicit such deposits as such deposits are more difficult to retain than core
deposits. The Bank's policies do not permit the use of brokered deposits.
73
<PAGE>
The following table presents the deposit activity of the Bank for the
periods indicated.
<TABLE>
<CAPTION>
FOR THE
SEVEN MONTHS FOR THE YEAR ENDED
ENDED JULY 31, DECEMBER 31,
-------------------- -------------------------------
1997 1996 1996 1995 1994
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
(IN THOUSANDS)
Net deposits (withdrawals).................................... $ 4,006 $ (1,697) $ (4,834) $ (418) $ (7,855)
Interest credited on deposit accounts......................... 5,132 5,101 9,806 9,137 8,018
--------- --------- --------- --------- ---------
Total increase in deposit accounts............................ $ 9,138 $ 3,404 $ 4,972 $ 8,719 $ 163
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
The increase in net deposits for the seven months ended July 31, 1997 is
primarily attributable to the Bank's receipt of $4.0 million in municipal
deposits from a local County government body. Such deposits are placed for bid
every 30 days and there is, therefore, no assurance that the Bank will retain
the deposits. While the Bank has not in the past aggressively sought such
municipal deposits, it may do so in the future. The receipt of such deposits
may be used as an alternative to borrowing from FHLB-Chicago in the event
that rates charged are competitive.
At July 31, 1997, the Bank had outstanding $9.8 million in certificate of
deposit accounts in amounts of $100,000 or more, maturing as follows:
<TABLE>
<CAPTION>
WEIGHTED
MATURITY PERIOD AMOUNT AVERAGE RATE
- ------------------------------------------------------------------------------------------ --------- -------------
<S> <C> <C>
(DOLLARS IN THOUSANDS)
Three months or less...................................................................... $ 3,089 5.68%
Over three through six months............................................................. 2,905 5.62
Over six through 12 months................................................................ 2,793 5.94
Over 12 months............................................................................ 1,035 6.21
--------- ------
Total..................................................................................... $ 9,822 5.61%
--------- ------
--------- ------
</TABLE>
74
<PAGE>
The following table sets forth the distribution of the Bank's deposit
accounts for the periods indicated and the weighted average interest rates on
each category of deposits presented.
<TABLE>
<CAPTION>
AT JULY 31, 1997
-------------------------------------
PERCENT WEIGHTED
OF TOTAL AVERAGE
BALANCE DEPOSITS RATE
--------- ----------- -------------
<S> <C> <C> <C>
(DOLLARS IN THOUSANDS)
Money market accounts....................................... $ 27,186 10.68% 3.41
Passbook savings accounts................................... 51,301 18.73 3.02
NOW accounts................................................ 24,710 9.91 1.82
Non-interest-bearing accounts............................... 8,822 3.20 --
--------- --------
Total..................................................... 112,019 42.52 2.61
Certificates of deposit................................. 150,233 57.48 5.90
--------- --------
Total deposits........................................ $ 262,252 100.00% 4.54
--------- --------
--------- --------
<CAPTION>
AT DECEMBER 31, 1996
--------------------------------------
PERCENT WEIGHTED
OF TOTAL AVERAGE
BALANCE DEPOSITS RATE
--------- ----------- ----------
<S> <C> <C> <C>
Money market accounts....................................... $ 28,102 11.01% 3.40
Passbook savings accounts................................... 45,868 18.35 3.00
NOW accounts................................................ 26,809 10.62 1.86
Non-interest-bearing accounts............................... 7,594 2.65 --
--------- -----------
Total..................................................... 108,373 42.63 2.64
Certificates of deposit................................. 144,741 57.37 5.90
--------- -----------
Total deposits........................................ $ 253,114 100.00% 4.50
--------- -----------
--------- -----------
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31, 1995
------------------------------------
PERCENT WEIGHTED
OF TOTAL AVERAGE
BALANCE DEPOSITS RATE
--------- ----------- -------------
<S> <C> <C> <C>
(DOLLARS IN THOUSANDS)
Money market accounts...................................... $ 29,663 13.54% 3.45
Passbook savings accounts.................................. 46,059 20.07 3.03
NOW accounts............................................... 28,106 10.87 1.96
Non-interest-bearing accounts.............................. 5,912 2.32 --
--------- -----------
Total.................................................... 109,740 46.80 2.76
Certificates of deposit................................ 138,402 53.2 6.15
--------- ----------- ---
Total deposits....................................... $ 248,142 100.00% 4.63
--------- -----------
--------- -----------
<CAPTION>
AT DECEMBER 31, 1994
--------------------------------------
PERCENT WEIGHTED
OF TOTAL AVERAGE
BALANCE DEPOSITS RATE
--------- ----------- ----------
<S> <C> <C> <C>
Money market accounts...................................... $ 37,770 17.26% 3.41
Passbook savings accounts.................................. 52,816 22.52 3.06
NOW accounts............................................... 27,849 11.38 2.20
Non-interest-bearing accounts.............................. 6,506 2.30 --
Total.................................................... --------- -----------
Certificates of deposit................................ 124,941 53.46 2.76
Total deposits....................................... 114,482 46.54 5.32
--------- -----------
$ 239,423 100.00% 4.01
--------- -----------
--------- -----------
</TABLE>
75
<PAGE>
The following table presents, by various rate categories, the amount of
certificate of deposit accounts outstanding at the dates indicated.
<TABLE>
<CAPTION>
PERIOD TO MATURITY FROM JULY 31, 1997
-----------------------------------------------------------
LESS THAN ONE TO TWO TO THREE TO TOTAL
ONE TWO THREE FOUR FOUR TO JULY 31,
YEAR YEARS YEARS YEARS FIVE YEARS 1997
----------- --------- --------- ----------- ----------- --------
<CAPTION>
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Certificate accounts:
0 to 4.00%........................ $ 460 $ -- $ -- $ -- $ -- $ 460
4.01 to 5.00%..................... 1,723 -- 25 -- -- 1,748
5.01 to 6.00%..................... 70,972 22,959 6,089 3,405 418 103,843
6.01 to 7.00%..................... 8,946 22,181 7,730 4,594 601 44,052
7.01 to 8.00%..................... -- 6 124 -- -- 130
8.01 to 9.00%..................... -- -- -- -- -- --
Over 9.01%........................ -- -- -- -- -- --
----------- --------- --------- ----------- ---------- ---------
Total at July 31, 1997.......... $ 82,101 $45,146 $ 13,968 $ 7,999 $ 1,019 $ 150,233
----------- --------- --------- ----------- ---------- ---------
----------- --------- --------- ----------- ---------- ---------
<CAPTION>
AT DECEMBER 31,
-------------------------------
1996 1995 1994
--------- --------- ---------
Certificate accounts:
0 to 4.00%........................ $ 443 $ 839 $ 14,294
4.01 to 5.00%..................... 2,680 7,100 31,552
5.01 to 6.00%..................... 106,101 69,248 45,724
6.01 to 7.00%..................... 35,382 60,609 18,636
7.01 to 8.00%..................... 129 606 4,276
8.01 to 9.00%..................... 6 -- --
Over 9.01%........................ -- -- --
--------- --------- ---------
Total at July 31, 1997.......... $ 144,741 $ 138,402 $ 114,482
--------- --------- ---------
--------- --------- ---------
</TABLE>
76
<PAGE>
BORROWED FUNDS. The following table sets forth certain information
regarding the Bank's borrowed funds at or for the periods ended on the dates
indicated:
<TABLE>
<CAPTION>
AT OR FOR THE SEVEN
MONTHS ENDED JULY AT OR FOR THE YEAR ENDED
31, DECEMBER 31,
-------------------- -------------------------------
1997 1996 1996 1995 1994
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
FHLB advances:
Average balance outstanding............................... $ 25,642 $ 14,310 $ 19,683 $ 11,451 $ 1,503
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Maximum amount outstanding at any month-end during the
period.................................................. $ 30,000 $ 20,000 $ 32,000 $ 16,500 $ 8,000
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Balance outstanding at end of period...................... $ 24,000 $ 20,000 $ 29,000 $ 15,000 $ 6,500
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Weighted average interest rate during the period.......... 5.77% 6.02% 5.90% 6.24% 5.59%
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Weighted average interest rate at end of period........... 5.70% 6.29% 5.67% 5.97% 6.35%
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
77
<PAGE>
SUBSIDIARY ACTIVITIES
FOX VALLEY SERVICE CORPORATION OF ELGIN. Fox Valley Service Corporation
of Elgin ("Fox Valley") is the Bank's wholly-owned subsidiary which was
incorporated in March 1974 for the purpose of entering into joint-venture
real estate development projects. Fox Valley is currently inactive.
ELGIN AGENCY, INC. Elgin Agency, Inc. ("EAI") is the wholly-owned
subsidiary of Fox Valley. EAI is a service corporation that sells tax-deferred
annuity products on an agency basis. EAI has one outside salesperson who is
employed on a commission basis.
PROPERTIES
The Bank conducts its business through an executive and full-service branch
office located in Elgin and five other full-service branch offices. In addition,
in early 1998, the Bank plans to purchase vacant land located in neighboring
Huntley, Illinois for a new full-service branch office which office is expected
to become operational in late 1998. This plan is contingent upon the expansion
of certain real estate development projects in the Huntley area. The Company
believes that the Bank's current facilities are adequate to meet the present and
immediately foreseeable needs of the Bank and the Company.
<TABLE>
<CAPTION>
ORIGINAL NET BOOK VALUE
YEAR OF PROPERTY OR
LEASED LEASED DATE OF LEASEHOLD
OR OR LEASE IMPROVEMENTS AT
LOCATION OWNED ACQUIRED EXPIRATION JULY 31, 1997
- ---------------------------------------------------------------- --------- ----------- ------------- -------------------
<S> <C> <C> <C> <C>
(IN THOUSANDS)
EXECUTIVE/MAIN/BRANCH OFFICE:
1695 Larkin Avenue.............................................. Owned 1973 -- $ 710
Elgin, Illinois 60123
BRANCH OFFICES:
850 Summit Street............................................... Owned 1983 -- 390
Elgin, Illinois 60120
176 East Chicago Avenue......................................... Owned 1953 -- 193
Elgin, Illinois 60120
1000 S. McLean Boulevard........................................ Leased 1996 2011 173
Elgin, Illinois 60123
390 South Eighth Street......................................... Owned 1980 -- 1,130
Route 31 & Village Quarter Road
West Dundee, Illinois 60118
123 South Randall Road.......................................... Leased 1993 1998 123
Algonquin, Illinois 60102
OTHER PROPERTIES:
44 South Lyle Street............................................ Owned 1986 -- 73
Elgin, Illinois 60123(1)
1665 Larkin Avenue.............................................. Owned 1996 -- 775
Elgin, Illinois 60123(2)
</TABLE>
- ------------------------
(1) The Property consists of one commercial retail unit and a parking lot. The
property is located across the street from the Bank's main office and the
parking lot is utilized by Bank customers and employees.
(2) The property is located immediately adjacent to the Bank's main office and
consists of commercial office space and a parking lot. A portion of the
property has been utilized by the Bank in the expansion of its
"drive-through" teller operations.
78
<PAGE>
LEGAL PROCEEDINGS
The Bank is not involved in any pending legal proceedings other than routine
legal proceedings occurring in the ordinary course of business. Such routine
legal proceedings, in the aggregate, are believed by management to be immaterial
to the financial condition and results of operations of the Bank.
PERSONNEL
As of July 31, 1997, the Bank had 93 full-time employees and 28 part-time
employees. The employees are not represented by a collective bargaining unit and
the Bank considers its relationship with its employees to be good. See
"Management of the Bank--Benefit Plans" for a description of certain
compensation and benefit programs offered to the Bank's employees.
FEDERAL AND STATE TAXATION
FEDERAL TAXATION
GENERAL. The Company and the Bank will report their income on a
consolidated basis, using a calendar year and the accrual method of
accounting and will be subject to federal income taxation in the same manner
as other corporations with some exceptions, including particularly the Bank's
treatment of its reserve for bad debts discussed below. The following
discussion of tax matters is intended only as a summary and does not purport
to be a comprehensive description of the tax rules applicable to the Bank or
the Company. The Bank had been last audited by the IRS for the five-year
period ended 1984. The Bank was also audited by the State of Illinois for the
three-year period ended 1994. Both audits resulted in adjustments which were
immaterial to the Bank's financial statements.
BAD DEBT RESERVES. The Small Business Job Protection Act of 1996 (the
"1996 Act"), which was enacted on August 20, 1996, made significant changes
to provisions of the Code relating to a savings institution's use of bad debt
reserves for federal income tax purposes and requires such institutions to
recapture (i.e. take into income) certain portions of their accumulated bad
debt reserves. The effect of the 1996 Act on the Bank is discussed below.
Prior to the enactment of the 1996 Act, the Bank was permitted to establish
tax reserves for bad debts and to make annual additions thereto, which
additions, within specified formula limits, were deducted in arriving at the
Bank's taxable income. The Bank's deduction with respect to "qualifying
loans," which are generally loans secured by certain interests in real
property, could be computed using an amount based on a six-year moving
average of the Bank's actual loss experience (the "Experience Method"), or a
percentage equal to 8% of the Bank's taxable income (the "PTI Method"),
computed without regard to this deduction and with additional modifications
and reduced by the amount of any permitted addition to the non-qualifying
reserve. The Bank's deduction with respect to non-qualifying loans was
required to be computed under the Experience Method.
THE 1996 ACT. Under the 1996 Act, for its current and future taxable
years, as a "Small Bank" the Bank is permitted to make additions to its tax
bad debt reserves under an Experience Method based on total loans. However,
the Bank is required to recapture (i.e. take into income) over a six year
period the excess of the balance of its tax bad debt reserves as of December
31, 1995 over the balance of such reserves as of December 31, 1987. The
recapture was suspended for 1996 because the Bank met certain residential
loan requirements. If the Bank continues to meet the residential loan
requirements in 1997, the six-year recapture period will begin in 1998. As of
December 31, 1995, the Bank's tax bad debt reserve exceeded the balance of
such reserve as of December 31, 1987 by $2.2 million. However, the Bank will
not incur an additional tax liability related to its tax bad debt reserves as
the Bank has previously provided deferred taxes on the recapture amount.
DISTRIBUTIONS. Under the 1996 Act, if the Bank makes "non-dividend
distributions" to the Company, such distributions will be considered to have
been made from the Bank's unrecaptured tax bad debt reserves (including the
balance of its reserves as of December 31, 1987) to the extent thereof, and
an amount based on the amount distributed (but not in excess of the amount of
such reserves) will be included in the Bank's income. The term "non-dividend
distributions" is defined as distributions in excess of the Bank's current
and accumulated earnings and profits, as calculated for federal income tax
purposes, distributions in redemption of stock, and distributions in partial
or complete liquidation. Dividends paid out of the Bank's current or
accumulated earnings and profits will not cause this pre-1988 reserve to be
included in the Bank's income.
79
<PAGE>
The amount of additional taxable income created from a non-dividend
distribution is an amount that, when reduced by the tax attributable to the
income, is equal to the amount of the distribution. Thus, if, after the
Conversion, the Bank makes a non-dividend distribution to the Company,
approximately one and one-half times the amount of such distribution (but not
in excess of the amount of such reserves) would be includable in income for
federal income tax purposes, assuming a 35% federal corporate income tax
rate. See "Regulation and Supervision" and "Dividend Policy" for limits on
the payment of dividends by the Bank. The Bank does not intend to pay
dividends that would result in a recapture of any portion of its tax bad debt
reserves.
CORPORATE ALTERNATIVE MINIMUM TAX. The Code imposes a tax on alternative
minimum taxable income ("AMTI") at a rate of 20%. Only 90% of AMTI can be
offset by net operating loss carryforwards. The adjustment to AMTI based on
book income will be an amount equal to 75% of the amount by which a
corporation's adjusted current earnings exceeds its AMTI (determined without
regard to this adjustment and prior to reduction for net operating losses).
In addition, for taxable years beginning after December 31, 1986 and before
January 1, 1996, an environmental tax of .12% of the excess of AMTI (with
certain modifications) over $2 million, is imposed on corporations, including
the Bank, whether or not an Alternative Minimum Tax ("AMT") is paid. The Bank
does not expect to be subject to the AMT.
DIVIDENDS RECEIVED DEDUCTION AND OTHER MATTERS. The Company may exclude
from its income 100% of dividends received from the Bank as a member of the same
affiliated group of corporations. The corporate dividends received deduction is
generally 70% in the case of dividends received from unaffiliated corporations
with which the Company and the Bank will not file a consolidated tax return,
except that if the Company and the Bank own more than 20% of the stock of a
corporation distributing a dividend, then 80% of any dividends received may be
excluded.
STATE TAXATION
ILLINOIS STATE TAXATION. The Bank and its subsidiaries are required to
file Illinois income tax returns and pay tax at an effective tax rate of
7.18% of Illinois taxable income. For these purposes, Illinois taxable income
generally means federal taxable income subject to certain modifications the
primary one of which is the exclusion of interest income on United States
obligations.
The Bank and its subsidiaries file one combined corporation return for State
of Illinois income tax purposes.
DELAWARE STATE TAXATION. As a Delaware holding company not earning income
in Delaware, the Company is exempted from Delaware Corporate income tax but is
required to file an annual report with and pay an annual franchise tax to the
State of Delaware.
REGULATION AND SUPERVISION
GENERAL
The Bank is an Illinois State chartered mutual savings bank and its deposit
accounts are insured up to applicable limits by the FDIC under the SAIF. The
Bank is subject to extensive regulation by the Commissioner, as its chartering
authority, and by the FDIC, as the deposit insurer. The Bank must file reports
with the Commissioner and the FDIC concerning its activities and financial
condition, in addition to obtaining regulatory approvals prior to entering into
certain transactions such as establishing branches and mergers with, or
acquisitions of, other depository institutions. There are periodic examinations
by the Commissioner and the FDIC to assess the Bank's compliance with various
regulatory requirements and financial condition. This regulation and supervision
establishes a framework of activities in which a savings bank can engage and is
intended primarily for the protection of the insurance fund and depositors. The
regulatory structure also gives the regulatory authorities extensive discretion
in connection with their supervisory and enforcement activities and examination
policies, including policies with respect to the classification of assets and
the establishment of adequate loan loss reserves for regulatory purposes. Any
change in such regulation, whether by the Commissioner, the FDIC or through
legislation, could have a material adverse impact on the Company and the Bank
and their operations and stockholders. The Holding Company will also be required
to file certain reports with, and otherwise comply with the rules and
regulations, of the OTS, the Commissioner and of the Securities and Exchange
Commission ("SEC") under the federal securities laws. Certain of the regulatory
requirements applicable to the Bank and to the Holding Company are referred to
below or elsewhere herein.
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The Commissioner has established a schedule for the assessment of
"supervisory fees" upon all Illinois savings banks to fund the operations of
the Commissioner. These supervisory fees are computed on the basis of each
savings bank's total assets (including consolidated subsidiaries) and are
payable at the end of each calendar quarter. A schedule of fees has also
been established for certain filings made by Illinois savings banks with the
Commissioner. The Commissioner also assesses fees for examinations conducted
by the Commissioner's staff, based upon the number of hours spent by the
Commissioner's staff performing the examination. During the year ended
December 31, 1996, the Bank paid approximately $66,000 in supervisory fees
and expenses.
REGULATIONS
CAPITAL REQUIREMENTS. Under the Illinois Savings Bank Act ("ISBA") and
the regulations of the Commissioner, an Illinois savings bank must maintain a
minimum level of total capital equal to the higher of 3% of total assets or
the amount required to maintain insurance of deposits by the FDIC. The
Commissioner has the authority to require an Illinois savings bank to
maintain a higher level of capital if the Commissioner deems such higher
level necessary based on the savings bank's financial condition, history,
management or earnings prospects. The FDIC has also adopted risk-based
capital guidelines to which the Bank is subject. The guidelines establish a
systematic analytical framework that makes regulatory capital requirements
more sensitive to differences in risk profiles among banking organizations.
The Bank is required to maintain certain levels of regulatory capital in
relation to regulatory risk-weighted assets. The ratio of such regulatory
capital to regulatory risk-weighted assets is referred to as the Bank's
"risk-based capital ratio." Risk-based capital ratios are determined by
allocating assets and specified off-balance sheet items to four risk-weighted
categories ranging from 0% to 100%, with higher levels of capital being
required for the categories perceived as representing greater risk.
These guidelines divide a savings bank's capital into two tiers. The
first tier ("Tier I") includes common equity, retained earnings, certain
non-cumulative perpetual preferred stock (excluding auction rate issues) and
minority interests in equity accounts of consolidated subsidiaries, less
goodwill and other intangible assets (except mortgage servicing rights and
purchased credit card relationships subject to certain limitations).
Supplementary ("Tier II") capital includes, among other items, cumulative
perpetual and long-term limited-life preferred stock, mandatory convertible
securities, certain hybrid capital instruments, term subordinated debt and
the allowance for loan and lease losses, subject to certain limitations, less
required deductions. Savings banks are required to maintain a total
risk-based capital ratio of 8%, of which at least 4% must be Tier I capital.
In addition, the FDIC has established regulations prescribing a minimum
Tier I leverage ratio (Tier I capital to adjusted total assets as specified
in the regulations). These regulations provide for a minimum Tier I leverage
ratio of 3% for banks that meet certain specified criteria, including that
they have the highest examination rating and are not experiencing or
anticipating significant growth. All other banks are required to maintain a
Tier I leverage ratio of 3% plus an additional cushion of at least 100 to 200
basis points. The FDIC may, however, set higher leverage and risk-based
capital requirements on individual institutions when particular circumstances
warrant. Savings banks experiencing or anticipating significant growth are
expected to maintain capital ratios, including tangible capital positions,
well above the minimum levels.
The following is a summary of the Bank's regulatory capital at July 31,
1997:
<TABLE>
<S> <C>
GAAP Capital to Total Assets................................... 9.66%
Total Capital to Risk-Weighted Assets.......................... 17.40%
Tier I Leverage Ratio.......................................... 9.51%
</TABLE>
In August 1995, the FDIC, along with the other federal banking agencies,
adopted a regulation providing that the agencies will take account of the
exposure of a bank's capital and economic value to changes in interest rate
risk in assessing a bank's capital adequacy. According to the agencies,
applicable considerations include the quality of the bank's interest rate
risk management process, the overall financial condition of the bank and the
level of other risks at the bank for which capital is needed. Institutions
with significant interest rate risk may be required to hold additional
capital. The agencies also have issued a joint policy statement providing
guidance on interest rate risk management, including a discussion of the
critical factors affecting the agencies' evaluation of interest rate risk in
connection with capital adequacy. The agencies have determined not to proceed
with a previously issued proposal to develop a supervisory framework for
measuring interest rate risk and an explicit capital component for interest
rate risk.
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STANDARDS FOR SAFETY AND SOUNDNESS. Federal law requires each federal
banking agency to prescribe for depository institutions under its jurisdiction
standards relating to, among other things: internal controls; information
systems and audit systems; loan documentation; credit underwriting; interest
rate risk exposure; asset growth; compensation; fees and benefits; and such
other operational and managerial standards as the agency deems appropriate. The
federal banking agencies adopted final regulations and Interagency Guidelines
Establishing Standards for Safety and Soundness (the "Guidelines") to implement
these safety and soundness standards. The Guidelines set forth the safety and
soundness standards that the federal banking agencies use to identify and
address problems at insured depository institutions before capital becomes
impaired. The Guidelines address internal controls and information systems,
internal audit system, credit underwriting, loan documentation, interest rate
risk exposure, asset growth, asset quality, earnings and compensation, and fees
and benefits. If the appropriate federal banking agency determines that an
institution fails to meet any standard prescribed by the Guidelines, the agency
may require the institution to submit to the agency an acceptable plan to
achieve compliance with the standard, as required by the Federal Deposit
Insurance Act, as amended, ("FDI Act"). The final regulation establishes
deadlines for the submission and review of such safety and soundness compliance
plans.
LENDING RESTRICTIONS. Under the ISBA, the Bank is prohibited from making
secured or unsecured loans for business, corporate, commercial or
agricultural purposes representing in the aggregate an amount in excess of
15% of its total assets, unless the Commissioner authorizes in writing a
higher percentage limit for such loans upon the request of an institution.
The Bank is also subject to a loans-to-one borrower limitation. Under the
ISBA, the total loans and extensions of credit, both direct and indirect, by
the Bank to any person (other than the United States or its agencies, the
State of Illinois or its agencies, and any municipal corporation for money
borrowed) outstanding at one time must not exceed the greater of $500,000 or
20% of the Bank's total capital plus general loan loss reserves. In addition,
the Bank may make loans in an amount equal to an additional 10% of the Bank's
capital plus general loan loss reserves if the loans are 100% secured by
readily marketable collateral. See "Business of the Bank--Lending
Activities--Loans-to-One Borrower Limitations."
The FDIC and the other federal banking agencies have adopted regulations
that prescribe standards for extensions of credit that (i) are secured by real
estate or (ii) are made for the purpose of financing the construction or
improvements on real estate. The FDIC regulations require each institution to
establish and maintain written internal real estate lending standards that are
consistent with safe and sound banking practices and appropriate to the size of
the institution and the nature and scope of its real estate lending activities.
The standards also must be consistent with accompanying FDIC guidelines, which
include loan-to-value limitations for the different types of real estate loans.
Institutions are also permitted to make a limited amount of loans that do not
conform to the proposed loan-to-value limitations so long as such exceptions are
reviewed and justified appropriately. The guidelines also list a number of
lending situations in which exceptions to the loan-to-value standard are
justified.
DIVIDEND LIMITATIONS. Under the ISBA, dividends may only be declared
when the total capital of the Bank is greater than that required by Illinois
law. Dividends may be paid by the Bank out of its net profits (i.e., earnings
from current operations, plus actual recoveries on loans, investments, and
other assets after deducting all current expenses, including dividends or
interest on deposit accounts, additions to reserves as may be required by the
Commissioner, actual losses, accrued dividends on preferred stock, if any,
and all state and federal taxes). The written approval of the Commissioner
must be obtained, however, before a savings bank having total capital of less
than 6% of total assets may declare dividends in any year in an amount in
excess of 50% of its net profits for that year. A savings bank may not
declare dividends in excess of its net profits in any year without the
approval of the Commissioner. Finally, the Bank will be unable to pay
dividends in an amount which would reduce its capital below the greater of
(i) the amount required by the FDIC capital regulations or otherwise
specified by the FDIC, (ii) the amount required by the Commissioner or (iii)
the amount required for the liquidation account to be established by the Bank
in connection with the Conversion. The Commissioner and the FDIC also have
the authority to prohibit the payment of any dividends by the Bank if the
Commissioner or the FDIC determines that the distribution would constitute an
unsafe or unsound practice. For the year ended December 31, 1996, the Bank's
net income was $2.0 million, and the Bank could have paid dividends with the
written approval of the Commissioner.
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THRIFT RECHARTERING. The Bank is subject to extensive regulation and
supervision as a savings institution. In addition, the Company, as a savings and
loan holding company, will be subject to extensive regulation and supervision.
Such regulations, which affect the Bank on a daily basis, may be changed at any
time, and the interpretation of the relevant law and regulations is also subject
to change by the authorities who examine the Bank and interpret those laws and
regulations. Any change in the regulatory structure or the applicable statutes
or regulations, whether by the Commissioner, the OTS, the FDIC or the Congress,
could have a material impact on the Company, the Bank, its operations or the
Conversion.
Recently enacted legislation provides that the Bank Insurance Fund
("BIF") and the SAIF will merge on January 1, 1999 if there are no more
savings associations as of that date. Several bills have been introduced in
the current Congress that would eliminate the federal thrift charter and the
OTS. The bills would require that all federal savings associations convert to
national banks or state depository institutions by no later than January 1,
1998 in one bill and June 30, 1998 in the other, and would treat all state
savings associations, such as the Bank, as state banks for purposes of
federal banking laws. Subject to a narrow grandfathering provision, all
savings and loan holding companies would become subject to the same
regulation and activities restrictions as bank holding companies under the
pending legislative proposals. Under one proposal, a state-chartered savings
association's activities would be limited to those engaged in prior to the
date of enactment of final legislation. Such proposals would not affect
existing branching rights of state-chartered savings associations. The
legislative proposals would also abolish the OTS and transfer its functions
to the federal bank regulators with respect to the institutions and to the
Board of Governors of the Federal Reserve Board with respect to the
regulation of holding companies. The Bank is unable to predict whether the
legislation will be enacted or, given such uncertainty, determine the extent
to which the legislation, if enacted, would affect its business. The Bank is
also unable to predict whether the SAIF and BIF will eventually be merged.
PROMPT CORRECTIVE REGULATORY ACTION
Federal law requires, among other things, that federal bank regulatory
authorities take "prompt corrective action" with respect to banks that do not
meet minimum capital requirements. For these purposes, the law establishes
five capital tiers: well capitalized, adequately capitalized,
undercapitalized, significantly undercapitalized, and critically
undercapitalized.
The FDIC has adopted regulations to implement the prompt corrective
action legislation. Among other things, the regulations define the relevant
capital measures for the five capital categories. An institution is deemed to
be "well capitalized" if it has a total risk-based capital ratio of 10% or
greater, a Tier I risk-based capital ratio of 6% or greater, and a leverage
ratio of 5% or greater, and is not subject to a regulatory order, agreement
or directive to meet and maintain a specific capital level for any capital
measure. An institution is deemed to be "adequately capitalized" if it has a
total risk-based capital ratio of 8% or greater, a Tier I risk-based capital
ratio of 4% or greater, and generally a leverage ratio of 4% or greater. An
institution is deemed to be "undercapitalized" if it has a total risk-based
capital ratio of less than 8%, a Tier I risk-based capital ratio of less than
4%, or generally a leverage ratio of less than 4%. An institution is deemed
to be "significantly undercapitalized" if it has a total risk-based capital
ratio of less than 6%, a Tier I risk-based capital ratio of less than 3%, or
a leverage ratio of less than 3%. An institution is deemed to be "critically
undercapitalized" if it has a ratio of tangible equity (as defined in the
regulations) to total assets that is equal to or less than 2%.
"Undercapitalized" banks are subject to growth, capital distribution
(including dividend) and other limitations and are required to submit a capital
restoration plan. A bank's compliance with such plan is required to be
guaranteed by any company that controls the undercapitalized institutions in an
amount equal to the lesser of 5.0% of the Bank's total assets when deemed
undercapitalized or the amount necessary to achieve the status of adequately
capitalized. If an "undercapitalized" bank fails to submit an acceptable plan,
it is treated as if it is "significantly undercapitalized." "Significantly
undercapitalized" banks are subject to one or more of a number of additional
restrictions, including but not limited to an order by the FDIC to sell
sufficient voting stock to become adequately capitalized, requirements to reduce
total assets and cease receipt of deposits from correspondent banks or dismiss
directors or officers, and restrictions on interest rates paid on deposits,
compensation of executive officers and capital distributions by the parent
holding company. "Critically undercapitalized" institutions also may not,
beginning 60 days after becoming "critically undercapitalized," make any payment
of principal or interest on certain subordinated debt or extend credit for a
highly leveraged transaction or enter into any material transaction outside the
ordinary course of business. In addition,
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"critically undercapitalized" institutions are subject to appointment of a
receiver or conservator. Generally, subject to a narrow exception, the
appointment of a receiver or conservator is required for a "critically
undercapitalized" institution within 270 days after it obtains such status.
TRANSACTIONS WITH AFFILIATES
Under current federal law, transactions between depository institutions
and their affiliates are governed by Sections 23A and 23B of the Federal
Reserve Act. An affiliate of a savings bank is any company or entity that
controls, is controlled by, or is under common control with the savings bank,
other than a subsidiary. In a holding company context, at a minimum, the
parent holding company of a savings bank and any companies which are
controlled by such parent holding company are affiliates of the savings bank.
Generally, Section 23A limits the extent to which the savings bank or its
subsidiaries may engage in "covered transactions" with any one affiliate to
an amount equal to 10% of such savings bank's capital stock and surplus, and
contains an aggregate limit on all such transactions with all affiliates to
an amount equal to 20% of such capital stock and surplus. The term "covered
transaction" includes the making of loans or other extensions of credit to an
affiliate; the purchase of assets from an affiliate, the purchase of, or an
investment in, the securities of an affiliate; the acceptance of securities
of an affiliate as collateral for a loan or extension of credit to any
person; or issuance of a guarantee, acceptance, or letter of credit on behalf
of an affiliate. Section 23A also establishes specific collateral
requirements for loans or extensions of credit to, or guarantees, acceptances
on letters of credit issued on behalf of an affiliate. Section 23B requires
that covered transactions and a broad list of other specified transactions be
on terms substantially the same, or no less favorable, to the savings bank or
its subsidiary as similar transactions with nonaffiliates.
Further, Section 22(h) of the Federal Reserve Act restricts a savings
bank with respect to loans to directors, executive officers, and principal
stockholders. Under Section 22(h), loans to directors, executive officers and
stockholders who control, directly or indirectly, 10% or more of voting
securities of a savings bank, and certain related interests of any of the
foregoing, may not exceed, together with all other outstanding loans to such
persons and affiliated entities, the savings bank's total capital and
surplus. Section 22(h) also prohibits loans above amounts prescribed by the
appropriate federal banking agency to directors, executive officers, and
shareholders who control 10% or more of voting securities of a stock savings
bank, and their respective related interests, unless such loan is approved in
advance by a majority of the board of directors of the savings bank. Any
"interested" director may not participate in the voting. The loan amount
(which includes all other outstanding loans to such person) as to which such
prior board of director approval is required, is the greater of $25,000 or 5%
of capital and surplus or any loans over $500,000. Further, pursuant to
Section 22(h), loans to directors, executive officers and principal
shareholders must be made on terms substantially the same as offered in
comparable transactions to other persons, except that such insiders may
receive preferential loans made pursuant to a benefit or compensation program
that is widely available to the Bank's employees and does not give preference
to the insider over the employees. Section 22(g) of the Federal Reserve Act
places additional limitations on loans to executive officers.
ENFORCEMENT
The Commissioner and FDIC have extensive enforcement authority over
Illinois-chartered savings banks, including the Bank. This enforcement
authority includes, among other things, the ability to assess civil money
penalties, to issue cease and desist orders and to remove directors and
officers. In general, these enforcement actions may be initiated in response
to violations of laws and regulations and to unsafe or unsound practices.
The FDIC has authority under federal law to appoint a conservator or
receiver for an insured savings bank under certain circumstances. The FDIC is
required, with certain exceptions, to appoint a receiver or conservator for
an insured state savings bank if that savings bank was "critically
undercapitalized" on average during the calendar quarter beginning 270 days
after the date on which the savings bank became "critically
undercapitalized." For this purpose, "critically undercapitalized" means
having a ratio of tangible capital to total assets of less than 2%. See
"--Prompt Corrective Regulatory Action." The FDIC may also appoint itself as
conservator or receiver for a state savings bank under certain circumstances
on the basis of the institution's financial condition or upon the occurrence
of certain events, including: (i) insolvency (whereby the assets of the
savings bank are less than its liabilities to depositors and others); (ii)
substantial dissipation of assets or earnings through violations of law or
unsafe or unsound practices; (iii) existence of an unsafe or unsound
condition to transact business; (iv) likelihood that the savings bank will be
unable
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to meet the demands of its depositors or to pay its obligations in the
normal course of business; and (v) insufficient capital, or the incurring or
likely incurring of losses that will deplete substantially all of the
institution's capital with no reasonable prospect of replenishment of capital
without federal assistance.
INSURANCE OF DEPOSIT ACCOUNTS
Deposits of the Bank are presently insured by the SAIF. Both the SAIF and
the BIF (the deposit insurance fund that covers most commercial bank deposits),
are statutorily required to be recapitalized to a 1.25% of insured reserve
depositsratio. Until recently, members of the SAIF and BIF were paying average
deposit insurance premiums of between 24 and 25 basis points. The BIF met the
required reserve in 1995, whereas the SAIF was not expected to meet or exceed
the required level until 2002 at the earliest. This situation was primarily due
to the statutory requirement that SAIF members make payments on bonds issued in
late 1980s by the Financing Corporation ("FICO") to recapitalize the predecessor
to the SAIF.
In view of the BIF's achieving the 1.25% ratio, the FDIC ultimately adopted
a new assessment rate schedule of from 0 to 27 basis points under which 92% of
BIF members paid an annual premium of only $2,000. With respect to SAIF member
institutions, the FDIC adopted a final rule retaining the previously existing
assessment rate schedule applicable to SAIF member institutions of 23 to 31
basis points. As long as the premium differential continued, it may have had
adverse consequences for SAIF members, including reduced earnings and an
impaired ability to raise funds in the capital markets. In addition, SAIF
members, such as the Bank could have been placed at a substantial competitive
disadvantage to BIF members with respect to pricing of loans and deposits and
the ability to achieve lower operating costs.
On September 30, 1996, the President of the United States signed into law
the Deposit Insurance Funds Act of 1996 (the "Funds Act") which, among other
things, imposed a special one-time assessment on SAIF member institutions,
including the Bank, to recapitalize the SAIF. As required by the Funds Act, the
FDIC imposed a special assessment of 65.7 basis points on SAIF assessable
deposits held as of March 31, 1995, payable November 27, 1996 (the "SAIF Special
Assessment"). The SAIF Special Assessment was recognized by the Bank as an
expense in the quarter ended December 31, 1996 and is generally tax deductible.
The SAIF Special Assessment paid by the Bank amounted to $1.5 million.
The Funds Act also spread the obligations for payment of the FICO bonds
across all SAIF and BIF members. Beginning on January 1, 1997, BIF deposits were
assessed for a FICO payment of 1.3 basis points, while SAIF deposits pay 6.48
basis points. Full pro rata sharing of the FICO payments between BIF and SAIF
members will occur on the earlier of January 1, 2000 or the date of the BIF and
SAIF are merged. The Funds Act specifies that the BIF and SAIF will be merged on
January 1, 1999, provided no savings associations remain as of that time.
As a result of the Funds Act, the FDIC voted to effectively lower SAIF
assessments to 0 to 27 basis points as of January 1, 1997, a range comparable to
that of BIF members. SAIF members will also continue to make the FICO payments
described above. The FDIC also lowered the SAIF assessment schedule for the
fourth quarter of 1996 to 18 to 27 basis points. Management cannot predict the
level of FDIC insurance assessments on an on-going basis, whether the savings
association charter will be eliminated or whether the BIF and SAIF will
eventually be merged.
The Bank's assessment rate for the year ended December 31, 1996 ranged from
6.5 to 23 basis points, excluding the SAIF Special Assessment rate of 65.7 basis
points, and the regular premium paid was $2.0 million. A significant increase in
SAIF insurance premiums would likely have an adverse effect on the operating
expenses and results of operations of the Bank.
Under the FDI Act, insurance of deposits may be terminated by the FDIC upon
a finding that the institution has engaged in unsafe or unsound practices, is in
an unsafe or unsound condition to continue operations or has violated any
applicable law, regulation, rule, order or condition imposed by the FDIC. The
management of the Bank does not know of any practice, condition or violation
that might lead to termination of deposit insurance.
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FEDERAL RESERVE SYSTEM
The Federal Reserve Board regulations require depository institutions to
maintain non-interest-earning reserves against their transaction accounts
(primarily NOW and regular checking accounts). The Federal Reserve Board
regulations generally require that reserves be maintained against aggregate
transaction accounts as follows: for that portion of transaction accounts
aggregating $49.3 million or less (subject to adjustment by the Federal Reserve
Board) the reserve requirement is 3%; and for accounts greater than $49.3
million, the reserve requirement is $1.5 million plus 10% (subject to adjustment
by the Federal Reserve Board between 8% and 14%) against that portion of total
transaction accounts in excess of $49.3 million. The first $4.4 million of
otherwise reservable balances (subject to adjustments by the Federal Reserve
Board) are exempted from the reserve requirements. The Bank is in compliance
with the foregoing requirements. Because required reserves must be maintained in
the form of either vault cash, a non-interest-bearing account at a Federal
Reserve Bank or a pass-through account as defined by the Federal Reserve Board,
the effect of this reserve requirement is to reduce the Bank's interest-earning
assets. Federal Home Loan Bank ("FHLB") System members are also authorized to
borrow from the Federal Reserve "discount window," but Federal Reserve Board
regulations require institutions to exhaust all FHLB sources before borrowing
from a Federal Reserve Bank.
COMMUNITY REINVESTMENT ACT
Under the Community Reinvestment Act, as amended ("CRA"), as implemented by
FDIC regulations, a savings bank has a continuing and affirmative obligation
consistent with its safe and sound operation 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 FDIC, in connection
with its examination of a savings institution, 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 by such institution. The
FIRREA amended the CRA to require, effective July 1, 1990, public disclosure of
an institution's CRA rating and require the FDIC to provide a written evaluation
of an institution's CRA performance utilizing a four-tiered descriptive rating
system which replaced the five-tiered numerical rating system. The Bank's latest
CRA rating, received from the FDIC was "Satisfactory."
FEDERAL HOME LOAN BANK SYSTEM
The Bank is a member of the FHLB System, which consists of 12 regional
FHLBs. The FHLB provides a central credit facility primarily for member
institutions. The Bank, as a member of the FHLB, is required to acquire and hold
shares of capital stock in the FHLB in an amount at least equal to 1% of the
aggregate principal amount of its unpaid residential mortgage loans and similar
obligations at the beginning of each year, or 1/20 of its advances (borrowings)
from the FHLB, whichever is greater. The Bank was in compliance with this
requirement with an investment in FHLB stock at July 31, 1997 of $2.1 million.
FHLB advances must be secured by specified types of collateral and all long-term
advances may only be obtained for the purpose of providing funds for residential
housing finance. At July 31, 1997, the Bank had $24.0 million in FHLB advances.
The FHLBs are required to provide funds for the resolution of insolvent
thrifts and to contribute funds for affordable housing programs. These
requirements could reduce the amount of dividends that the FHLBs pay to their
members and could also result in the FHLBs imposing a higher rate of interest on
advances to their members. For the seven months ended July 31, 1997 and 1996 and
the years ended December 31, 1996, 1995 and 1994, cash dividends from the FHLB
to the Bank amounted to approximately $80,000, $70,000, $137,000, $125,000 and
$112,000, respectively. Further, there can be no assurance that the impact of
recent or future legislation on the FHLBs will not also cause a decrease in the
value of the FHLB stock held by the Bank.
HOLDING COMPANY REGULATION
Federal law allows a state savings bank that qualifies as a "qualified
thrift lender" ("QTL"), discussed below, to elect to be treated as a savings
association for purposes of the savings and loan holding company provisions of
the Home Owners' Loan Act, as amended ("HOLA"). Such election would result in
its holding company being regulated
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as a savings and loan holding company by the OTS rather than as a bank
holding company by the Federal Reserve Board. The Bank has made such election
and has applied to the OTS to become a savings and loan holding company.
Assuming the application is approved, the Company will be regulated as a
non-diversified unitary savings and loan holding company within the meaning
of the HOLA. As such, the Company will be required to register with the OTS
and will be subject to OTS regulations, examinations, supervision and
reporting requirements. In addition, the OTS has enforcement authority over
the Company and its non-savings institution subsidiaries. Among other things,
this authority permits the OTS to restrict or prohibit activities that are
determined to be a serious risk to the subsidiary savings institution.
Additionally, the Bank will be required to notify the OTS at least 30 days
before declaring any dividend to the Company. Because the Bank is chartered
under Illinois law, the Company will also be subject to registration with and
regulation by the Commissioner under the ISBA.
As a unitary savings and loan holding company, the Company generally will
not be restricted under existing laws as to the types of business activities in
which it may engage. Upon any non-supervisory acquisition by the Company of
another savings association as a separate subsidiary, the Company would become a
multiple savings and loan holding company and would be subject to extensive
limitations on the types of business activities in which it could engage. The
HOLA limits the activities of a multiple savings and loan holding company and
its non-insured institution subsidiaries primarily to activities permissible for
bank holding companies under Section 4(c)(8) of the Bank Holding Company Act, as
amended ("BHC Act"), subject to the prior approval of the OTS, and to other
activities authorized by OTS regulation. Multiple savings and loan holding
companies are prohibited from acquiring or retaining, with certain exceptions,
more than 5% of a non-subsidiary company engaged in activities other than those
permitted by the HOLA. Recently proposed legislation would treat all savings and
loan holding companies as bank holding companies and would limit the activities
of such companies to those permissible for bank holding companies.
The HOLA prohibits a savings and loan holding company, directly or
indirectly, or through one or more subsidiaries, from acquiring more than 5% of
the voting stock of another savings institution or holding company thereof or
from acquiring such an institution or company by merger, consolidation or
purchase of its assets, without prior written approval of the OTS. In evaluating
applications by holding companies to acquire savings institutions, the OTS must
consider the financial and managerial resources and future prospects of the
company and institution involved, the effect of the acquisition on the risk to
the insurance funds, the convenience and needs of the community and competitive
factors.
The OTS is prohibited from approving any acquisition that would result in a
multiple savings and loan holding company controlling savings institutions in
more than one state, except: (i) interstate supervisory acquisitions by savings
and loan holding companies; and (ii) the acquisition of a savings institution in
another state if the laws of the state of the target savings institution
specifically permit such acquisitions. The states vary in the extent to which
they permit interstate savings and loan holding company acquisitions.
In order to elect and continue to be regulated as a savings and loan holding
company by the OTS (rather than as a bank holding company by the Federal Reserve
Board), the Bank must continue to qualify as a QTL. In order to qualify as a
QTL, the Bank must maintain compliance with a Qualified Thrift Lender Test ("QTL
Test"). Under the QTL Test, a savings institution is required to maintain at
least 65% of its "portfolio assets" (total assets less: (i) specified liquid
assets up to 20% of total assets; (ii) intangibles, including goodwill; and
(iii) the value of property used to conduct business) in certain "qualified
thrift investments" (primarily residential mortgages and related investments,
including certain mortgage-backed and related securities) in at least 9 months
out of each 12 month period. A holding company of a savings institution that
fails the QTL test must either convert to a bank holding company and thereby
become subject to the regulation and supervision of the Federal Reserve Board or
operate under certain restrictions. As of July 31, 1997, the Bank maintained in
excess of 65% of its portfolio assets in qualified thrift investments. The Bank
also met the QTL test in each of the prior 12 months and, therefore, met the QTL
test. Recent legislative amendments have broadened the scope of "qualified
thrift investments" that go toward meeting the QTL test to fully include credit
card loans, student loans and small business loans.
INTERSTATE BANKING AND BRANCHING
The Company, as a savings and loan holding company, will be limited under
HOLA with respect to its acquisition of a savings association located in a
state other than Illinois. In general, a savings and loan holding
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company may not acquire an additional savings association subsidiary that is
located in a state other than the home state of its first savings association
subsidiary unless such an interstate acquisition is permitted by the statutes
of such other state. Many states permit such interstate acquisitions if the
statutes of the home state of the acquiring savings and loan holding company
satisfy various reciprocity conditions. Illinois is one of a number of states
that permit, subject to the reciprocity conditions of the ISBA, out-of-state
bank and savings and loan holding companies to acquire Illinois savings
institutions.
In contrast, bank holding companies are generally authorized to acquire
banking subsidiaries in more than one state irrespective of any state law
restrictions on such acquisitions. The Riegle-Neal Interstate Banking and
Branching Efficiency Act of 1994 ("Interstate Banking Act"), which was enacted
on September 29, 1994, permits approval under the BHC Act of the acquisition of
a bank located outside of the holding company's home state regardless of whether
the acquisition is permitted under the law of the state of the acquired bank.
The Federal Reserve Board may not approve an acquisition under the BHC Act that
would result in the acquiring holding company controlling more than 10% of the
deposits in the United States or more than 30% of the deposits in any particular
state.
In the past, branching across state lines was not generally available to a
state bank such as the Bank. The Interstate Banking Act permitted, beginning
June 1, 1997, the responsible federal banking agencies to approve merger
transactions between banks located in different states. The Interstate Banking
Act also permitted a state to "opt in" to the provisions of the Interstate
Banking Act prior to June 1, 1997, and permits a state to "opt out" of the
provisions of the Interstate Banking Act by adopting appropriate legislation
before that date. Accordingly, the Interstate Banking Act permits a bank, such
as the Bank, to acquire branches in a state other than Illinois unless the other
state has opted out of the Interstate Banking Act. The Interstate Banking Act
also authorizes de novo branching into another state if the host state enacts a
law expressly permitting out of state banks to establish such branches within
its borders.
The Interstate Banking Act may facilitate the further consolidation of the
banking industry. The effect of the Interstate Banking Act on the Bank, if any,
is likely to occur as banking institutions, state legislators, and bank
regulators respond to the new federal regulatory structure. The states will have
to establish appropriate corporate law, tax and regulatory structures to adjust
to the growth of new interstate banks.
FEDERAL SECURITIES LAWS
The Company has filed with the SEC a registration statement under the
Securities Act for the registration of the Common Stock to be issued pursuant to
the Conversion. Upon completion of the Conversion, the Company's Common Stock
will be registered with the SEC under the Exchange Act. The Company will then be
subject to the information, proxy solicitation, insider trading restrictions and
other requirements under the Exchange Act.
The registration under the Securities Act of shares of the Common Stock to
be issued in the Conversion does not cover the resale of such shares. Shares of
the Common Stock purchased by persons who are not affiliates of the Company may
be resold without registration. Shares purchased by an affiliate of the Company
will be subject to the resale restrictions of Rule 144 under the Securities Act.
If the Company meets the current public information requirements of Rule 144
under the Securities Act, each affiliate of the Company who complies with the
other conditions of Rule 144 (including those that require the affiliate's sale
to be aggregated with those of certain other persons) would be able to sell in
the public market, without registration, a number of shares not to exceed, in
any three-month period, the greater of (i) 1% of the outstanding shares of the
Company or (ii) the average weekly volume of trading in such shares during the
preceding four calendar weeks. Provision may be made in the future by the
Company to permit affiliates to have their shares registered for sale under the
Securities Act under certain circumstances.
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MANAGEMENT OF THE COMPANY
Directors of the Company
The Board of Directors of the Company is divided into three classes, each
of which contains one-third of the Board. The directors shall be elected by
the stockholders of the Company for staggered three year terms, or until
their successors are elected and qualified. One class of directors,
consisting of Messrs. James J. Kovac, Ralph W. Helm and Vincent C. Norton,
has a term of office expiring at the first annual meeting of stockholders, a
second class, consisting of Messrs. Leo M. Flanagan, Jr., Peter A. Traeger
and Scott H. Budd, has a term expiring at the second annual meeting of
stockholders and a third class, consisting of Messrs. John J. Brittain,
Barrett J. O'Connor and Thomas I. Anderson, has a term of office expiring at
the third annual meeting of stockholders. The biographical information of
each Director is set forth under "Management of the Bank--Biographical
Information." It is currently intended that Directors of the Company will
receive no additional fees for their services as Directors of the Company.
Executive Officers of the Company
The following individuals are executive officers of the Company and hold
the offices set forth below opposite their names. The biographical
information for each executive officer is set forth under "Management of the
Bank--Biographical Information."
NAME POSITION(S) HELD WITH THE COMPANY
- ------------------------------------ ---------------------------------------
John J. Brittain.................... Chairman of the Board
Leo M. Flanagan, Jr................. Vice Chairman of the Board
Barrett J. O'Connor................. President and Chief Executive Officer
James J. Kovac...................... Senior Vice President and Chief
Financial Officer
Ursula Wilson....................... Corporate Secretary
The executive officers of the Company are elected annually and hold
office until their respective successors have been elected and qualified or
until death, resignation, retirement or removal by the Board of Directors.
Since the formation of the Company, none of the executive officers,
Directors or other personnel has received remuneration from the Company.
Information concerning the principal occupations, employment and other
information concerning the directors and officers of the Company during the
past five years is set forth under "Management of the Bank--Biographical
Information."
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MANAGEMENT OF THE BANK
Directors of the Bank
The Directors of the Company are also Directors of the Bank. Upon
consummation of the Conversion, the current Directors of the Bank will become
Directors of the stock chartered Bank. The following table sets forth certain
information regarding the Board of Directors of the Bank.
<TABLE>
<CAPTION>
POSITION(S) HELD DIRECTOR TERM
NAME AGE(1) WITH THE BANK SINCE EXPIRES
- ----------------------- ----------- ----------------------- ----------- -----------
<S> <C> <C> <C> <C>
John J. Brittain....... 66 Director and Chairman 1962 2000
of the Board
Leo M. Flanagan, Jr.... 54 Director and Vice 1980 1999
Chairman of the Board
Barrett J. O'Connor.... 56 Director, President and 1984 2000
Chief Executive Officer
James J. Kovac......... 48 Director, Senior Vice 1986 1998
President and Chief
Financial Officer
Vincent C. Norton...... 64 Director and Vice 1974 1998
President-Loan
Origination
Thomas I. Anderson..... 60 Director 1986 2000
Ralph W. Helm, Jr...... 64 Director 1991 1998
Peter A. Traeger....... 38 Director 1994 1999
Scott H. Budd.......... 40 Director 1995 1999
</TABLE>
- ------------------------
(1) As of July 31, 1997.
Executive Officers of the Bank Who Are Not Directors
The following table sets forth certain information regarding the
executive officers of the Bank who are not also directors.
POSITION(S) HELD
NAME AGE(1) WITH THE BANK
- ----------------------- ------ ------------------------------------------
Jerry L. Gosse......... 61 Vice President and Compliance Officer
James R. Schneff....... 45 Vice President-Lending
Sandra L. Sommers...... 54 Vice President-Savings
Joseph E. Stanczak..... 45 Vice President and Treasurer
- ------------------------
(1) As of July 31, 1997.
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The executive officers of the Bank are elected annually and will hold
office in the converted Bank until the annual meeting of the Board of
Directors of the Bank held immediately after the first annual meeting of
stockholders of the Bank subsequent to Conversion, and until their successors
are elected and qualified or until death, resignation, retirement or removal
by the Board of Directors. Officers are re-elected by the Board of Directors
annually.
Biographical Information
Directors of the Bank
John J. Brittain is Chairman of the Board of Directors and an officer of
the Bank. Mr. Brittain was elected to the Board of Directors in 1962 and has
served as Chairman of the Board since 1980. Mr. Brittain is a partner in the
law firm of Brittain & Ketcham, P.C., located in Elgin, Illinois. Brittain &
Ketcham, P.C. serves as the Bank's legal counsel. Mr. Brittain is a member of
the Asset/Liability, Investment, Loan, Executive and Compensation Committees.
Leo M. Flanagan, Jr., is Vice Chairman of the Board of Directors and an
officer of the Bank. Mr. Flanagan has been a member of the Board of Directors
since 1980 and has served as Vice Chairman of the Board since 1996. Mr.
Flanagan is a partner in the law firm of Brittain & Ketcham, P.C., located in
Elgin, Illinois. Brittain & Ketcham, P.C., serves as the Bank's legal
counsel. Mr. Flanagan is a member of the Asset/Liability, Audit, Compliance,
CRA, Investment, Loan and Executive Committees.
Barrett J. O'Connor is President and Chief Executive Officer of the Bank.
Mr. O'Connor has been employed by the Bank since 1978. From 1978 to 1992, Mr.
O'Connor held various positions with the Bank. In 1992, Mr. O'Connor became
Chief Executive Officer and, in 1994, became President. He has been a
Director of the Bank since 1984. Mr. O'Connor is a member of the
Asset/Liability, Investment, Loan, Executive and Compensation Committees.
James J. Kovac, a certified public accountant, has been Senior Vice
President and Chief Financial Officer of the Bank since 1992. He has also
been a Director of the Bank since 1986. Mr. Kovac is a member of the
Asset/Liability, Compliance, CRA, Investment, Loan and Executive Committees.
Vincent C. Norton has served as a Director of the Bank since 1974. In
1993, Mr. Norton was named Vice President-Loan Origination. Prior to becoming
an officer of the Bank, he was Finance Manager for an Elgin-based automobile
dealership. Mr. Norton is a member of the Asset/Liability, CRA and Loan
Committees.
Thomas I. Anderson has served on the Bank's Board of Directors since
1986. Mr. Anderson is President of W.J. Dennis & Company. W.J. Dennis &
Company packages and distributes weather stripping and related products. He
is a member of Asset/Liability, Audit, Compliance, Investment, Loan and
Compensation Committees.
Ralph W. Helm, Jr., has served on the Bank's Board of Directors since
1991. Mr. Helm is President of Ralph Helm Inc., a retail seller and service
of outdoor power equipment. He is a member of the Asset/ Liability, Audit,
Loan and Compensation Committees.
Peter A. Traeger has been a member of the Bank's Board of Directors since
1994. Mr. Traeger is President and Chief Executive Officer of Artistic Carton
Company, a manufacturer of recycled paperboard and folding cartons. He is a
member of the Asset/Liability, Audit, Compliance, Compensation, CRA and Loan
Committees.
Scott H. Budd has been a member of the Bank's Board of Directors since
1995. Mr. Budd is a representative of the investment and consulting firm of
Edward Jones. He is a member of the Asset/ Liability, Audit, Investment and
Loan Committees.
Executive Officers of the Bank Who Are Not Directors
Jerry L. Gosse joined the Bank in 1994 as Vice President and Compliance
Officer. He is primarily responsible for monitoring the Bank's compliance
with applicable laws and regulations. Prior to joining the Bank, Mr. Gosse
was employed, for a combined 28 years, with the Federal Home Loan Bank Board
(the predecessor to the OTS), the FHLB-Chicago and the OTS.
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James R. Schneff has been employed by the Bank since 1974. He was named
Vice President-Lending in 1983. Mr. Schneff operates as the chief lending
officer of the Bank overseeing all mortgage and consumer lending operations.
Mr. Schneff is a member of the Asset/Liability and CRA Committees.
Sandra L. Sommers joined the Bank in 1960. She was named Vice
President-Savings in 1977. Ms. Sommers is responsible for the Bank's retail
savings department and is a member of the Asset/Liability Committee.
Joseph E. Stanczak has been employed by the Bank since 1973. From 1973 to
1985, Mr. Stanczak held various positions with the Bank. In 1985, he was
named Vice President-Treasurer of the Bank and is primarily responsible for
data processing and branch operations. Mr. Stanczak is a member of the Asset/
Liability Committee.
Meetings and Committees of the Boards of Directors of the Bank and the
Company
The Bank's Board of Directors meets monthly and may have additional
special meetings as may be called in the manner specified in the Bylaws.
During the year ended December 31, 1996, the Board held 14 meetings. For the
year ended December 31, 1996, no Director attended fewer than 75% in the
aggregate of the total number of meetings of the Board or Committees on which
such Director served.
The Board of Directors of the Bank has established the following
committees:
The Executive Committee consists of Messrs. Brittain, Flanagan, O'Connor
and Kovac. The purposes of this committee are to evaluate issues of major
importance to the Bank and to approve the Bank's annual budget. The committee
meets weekly or on an as-needed basis and met 20 times in 1996.
The Audit Committee consists of Messrs. Flanagan, Anderson, Helm, Traeger
and Budd. The Bank's internal auditor reports to this committee. This
committee is responsible for reviewing audit reports and management's actions
regarding the implementation of audit findings. The committee generally meets
on an as-needed basis and met three times in 1996.
The Compliance Committee consists of Messrs. Flanagan, Kovac, Anderson
and Traeger. The Bank's Compliance Officer reports to this Committee. This
committee is responsible for reviewing internal and regulatory agency reports
regarding compliance with all relevant laws and regulations and monitoring
management's response to such reports. The committee generally meets on an
as-needed basis and met four times in 1996.
The Investment Committee consists of Messrs. Brittain, Flanagan,
O'Connor, Kovac, Anderson and Budd. This committee is responsible for all
matters regarding the Bank's investment activities. The committee meets
monthly and met 13 times in 1996.
The Loan Committee consists of the entire Board of Directors of the Bank.
This committee establishes the Bank's lending policies and approves large
loans within its delegated authority. See "Business of the Bank--Lending
Activities -- Loan Approval Procedures and Authority." The committee meets
weekly or on an as-needed basis and met 28 times in 1996.
The Asset/Liability Committee consists of the entire Board of Directors,
Ms. Sommers and Messrs. Schneff, Stanczak and Robert W. Mogler, a Vice
President of the Bank. This committee reviews the workout solutions of
problem loans, and approves the classification of assets and the
establishment of adequate valuation allowances. The committee meets on a
quarterly basis and met four times in 1996.
The Compensation Committee consists of Messrs. Anderson, Helm, Traeger
and Budd as voting members and Messrs. Brittain and O'Connor as ex-officio
members. This Committee is responsible for all matters regarding compensation
and fringe benefits. The Committee meets on an as-needed basis.
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The CRA Committee consists of Messrs. Flanagan, Kovac, Norton, Traeger
and Schneff. This committee is responsible for monitoring the Bank's
compliance with the Community Reinvestment Act of 1977 and ensuring that the
Bank serves the various credit needs of individuals and businesses in its
delineated market area. The committee generally meets on an as-needed basis.
The Board of Directors of the Company has established the following
committees: the Audit Committee consisting of Messrs. Anderson, Helm, Traeger
and Budd; the Pricing Committee consisting of the entire Board of Directors;
and the Compensation Committee consisting of Messrs. Anderson, Helm, Traeger
and Budd.
Compensation of Directors
All Directors of the Bank receive a fee of $2,000 for each regular and
special Board meeting which they attend. All outside Directors of the Bank
receive a fee of $200 to $250 (depending on the committee) for each committee
meeting attended, except that no fees are paid for attending a meeting of the
Executive, Compensation or CRA Committees.
Advisory Directors
The Bank maintains a Board of Advisory Directors which consists of former
Directors of the Bank. Pursuant to the Bank's bylaws, Directors must retire
in the year they reach age 70 and any Director who retires because of such
age limitation is eligible to be elected as an Advisory Director. Advisory
Directors have no vote and receive meeting fees as determined by resolution
of the Directors of the Bank, currently $750 for each Board meeting attended.
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Executive Compensation
Summary Compensation Table. The following table sets forth the cash
compensation paid by the Bank as well as certain other compensation paid or
accrued for services rendered in all capacities during the year ended
December 31, 1996, to the Chief Executive Officer and the three highest paid
executive officers of the Bank who received salary and bonus in excess of
$100,000 ("Named Executive Officers").
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
--------------------------------------
ANNUAL COMPENSATION(1) AWARDS
------------------------------------ --------------------------- PAYOUTS
OTHER SECURITIES ---------
ANNUAL RESTRICTED UNDERLYING LTIP ALL OTHER
NAME AND PRINCIPAL COMPENSATION STOCK AWARDS OPTIONS/SARS PAYOUTS COMPENSATION
POSITIONS YEAR SALARY($) BONUS($) ($)(2) ($)(3) (#)(4) ($)(5) ($)(6)
- ----------------------- --------- ---------- --------- ------------- ------------ ------------- --------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Barrett J. O'Connor 1996 $150,500 $30,000 -- -- -- -- $9,500
President and Chief
Executive Officer
James J. Kovac 1996 133,000 25,000 -- -- -- -- 9,500
Senior Vice President
and Chief Financial
Officer
John J. Brittain 1996 118,000 20,000 -- -- -- -- 8,271
Chairman of the
Board
Vincent C. Norton 1996 91,000 16,000 -- -- -- -- 5,790
Vice President--
Loan Origination
</TABLE>
- ------------------------
(1) Under Annual Compensation, the column titled "Salary" includes directors'
fees and amounts deferred by the Named Executive Officer under the Bank's
401(k) Plan.
(2) For 1996, there were no (a) perquisites over the lesser of $50,000 or 10%
of the individual's total salary and bonus for the year; (b) payments of
above-market preferential earnings on deferred compensation; (c) payments
of earnings with respect to long-term incentive plans prior to settlement
or maturation; (d) tax payment reimbursements; or (e) preferential
discounts on stock. For 1996, the Bank had no restricted stock or stock
related plans in existence.
(3) Does not include awards pursuant to the Stock Program, which may be
granted in conjunction with a meeting of shareholders of the Company,
subject to regulatory and shareholder approval, as such awards were not
earned, vested or granted in 1996. For a discussion of the terms of the
Stock Program which is intended to be adopted by the Company, see
"--Benefit Plans--Stock Program." For 1996, the Bank had no stock plans
in existence.
(4) No stock options or SARs were earned or granted in 1996. For a discussion
of the Stock Option Plan which is intended to be adopted by the Company,
see "Benefit Plans - Stock Option Plan."
(5) For 1996, there were no payouts or awards under any long-term incentive
plan.
(6) Other compensation includes the Bank's matching contribution under the
Bank's 401(k) Plan.
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Employment Agreements
Upon the Conversion, the Bank and the Company each intend to enter into
employment agreements with Messrs. O'Connor and Kovac (individually, the
"Executive") (collectively, the "Employment Agreements"). The Employment
Agreements are intended to ensure that the Bank and the Company will be able
to maintain a stable and competent management base after the Conversion. The
continued success of the Bank and the Company depends to a significant degree
on the skills and competence of the above referenced officers.
The Employment Agreements provide for three-year terms for each
Executive. The term of the Employment Agreements shall be extended on a daily
basis unless written notice of non-renewal is given by the Board of
Directors. The Employment Agreements provide that the Executive's base salary
will be reviewed annually. The base salaries which will be effective for such
Employment Agreements for Messrs. O'Connor and Kovac will be $________ and
$_______, respectively. In addition to the base salary, the Employment
Agreements provide for, among other things, participation in stock benefits
plans and other fringe benefits applicable to executive personnel. The
Employment Agreements provide for termination by the Bank or the Company for
cause, as defined in the Employment Agreements, at any time. In the event the
Bank or the Company chooses to terminate the Executive's employment for
reasons other than for cause, or in the event of the Executive's resignation
from the Bank and the Company upon: (i) failure to re-elect the Executive to
his current offices; (ii) a material change in the Executive's functions,
duties or responsibilities; (iii) a relocation of the Executive's principal
place of employment by more than 25 miles; (iv) a reduction in the benefits
and perquisites being provided to the Executive in the Employment Agreement;
(v) liquidation or dissolution of the Bank or the Company; or (vi) a breach
of the Employment Agreement by the Bank or the Company, the Executive or, in
the event of death, his beneficiary would be entitled to receive an amount
equal to the remaining base salary payments due to the Executive for the
remaining term of the Employment Agreement and the contributions that would
have been made on the Executive's behalf to any employee benefit plans of the
Bank and the Company during the remaining term of the Employment Agreement.
The Bank and the Company would also continue and pay for the Executive's
life, health, dental and disability coverage for the remaining term of the
Employment Agreement. Upon any termination of the Executive, the Executive is
subject to a one year non-competition agreement.
Under the Employment Agreements, if voluntary or involuntary termination
follows a change in control of the Bank or the Company, the Executive or, in
the event of the Executive's death, his beneficiary, would be entitled to a
severance payment equal to the greater of: (i) the payments due for the
remaining terms of the agreement; or (ii) three times the average of the five
preceding taxable years' annual compensation. The Bank and the Company would
also continue the Executive's life, health, and disability coverage for
thirty-six months. Notwithstanding that both the Bank and Company Employment
Agreements provide for a severance payment in the event of a change in
control, the Executive would only be entitled to receive a severance payment
under one agreement.
Payments to the Executive under the Bank's Employment Agreement will be
guaranteed by the Company in the event that payments or benefits are not paid
by the Bank. Payment under the Company's Employment Agreement would be made
by the Company. All reasonable costs and legal fees paid or incurred by the
Executive pursuant to any dispute or question of interpretation relating to
the Employment Agreements shall be paid by the Bank or Company, respectively,
if the Executive is successful on the merits pursuant to a legal judgment,
arbitration or settlement. The Employment Agreements also provide that the
Bank and Company shall indemnify the Executive to the fullest extent
allowable under Illinois and Delaware law, respectively. In the event of a
change in control of the Bank or the Company, the total amount of payments
due under the Agreements, based solely on cash compensation paid to the
officers who will receive Employment Agreements over the past five fiscal
years and excluding any benefits under any employee benefit plan which may be
payable, would be approximately $__________.
Change in Control Agreements
Upon Conversion, the Bank intends to enter into three-year Change in
Control Agreements with Messrs. Brittain and Norton and four other executive
officers of the Bank, none of whom will be covered by employment contracts.
The Company intends to enter into three-year Change in Control Agreements
with Mr. Brittain and one other executive officer. The Change in Control
Agreements shall be extended on a daily basis unless written notice of
non-renewal is given by the Board of Directors. The Change in Control
Agreements will provide that in the
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event that voluntary or involuntary termination follows a change in control
of the Company or the Bank, the officer would be entitled to receive a
severance payment equal to three times the officer's average annual
compensation for the five most recent taxable years. The Bank would also
continue and pay for the officer's life, health and disability coverage for
thirty-six months following termination. In the event of a change in control
of the Company or the Bank, the total payments that would be due under the
Change in Control Agreements, based solely on the current annual compensation
paid to the officers covered by the Change in Control Agreements and
excluding any benefits under any employee benefit plan which may be payable,
would be approximately $__________.
Employee Severance Compensation Plan
The Bank's Board of Directors intends to, upon Conversion, establish the
Elgin Financial Center, S.B. Employee Severance Compensation Plan ("Severance
Plan") which will provide eligible employees with severance pay benefits in
the event of a change in control of the Bank or the Company following
Conversion. Management personnel with Employment Agreements or Change in
Control Agreements are not eligible to participate in the Severance Plan.
Generally, employees are eligible to participate in the Severance Plan if
they have completed at least one year of service with the Bank. The Severance
Plan vests in each participant a contractual right to the benefits such
participant is entitled to thereunder. Under the Severance Plan, in the event
of a change in control of the Bank or the Company, eligible employees who are
terminated from or terminate their employment within one year (for reasons
specified under the Severance Plan), will be entitled to receive a severance
payment. If the participant, whose employment has terminated, has completed
at least one year of service, the participant will be entitled to a cash
severance payment equal to one-twelfth of annual compensation for each year
of service up to a maximum of 199% of annual compensation. Such payments may
tend to discourage takeover attempts by increasing costs to be incurred by
the Bank in the event of a takeover. In the event the provisions of the
Severance Plan are triggered, the total amount of payments that would be due
thereunder, based solely upon current salary levels, would be approximately
$__________. However, it is management's belief that substantially all of the
Bank's employees would be retained in their current positions in the event of
a change in control, and that any amount payable under the Severance Plan
would be considerably less than the total amount that could possibly be paid
under the Severance Plan.
Benefit Plans
Retirement Plan. The Bank sponsors a defined benefit pension plan known
as the Elgin Federal Financial Center Retirement Trust ("Retirement Plan").
The Retirement Plan is intended to satisfy the tax qualification requirements
of Section 401(a) of the Code. The Bank is in the process of terminating the
Retirement Plan in connection with the Conversion.
Employees are eligible to participate in the Retirement Plan on the
January 1 coincident with or otherwise next following the later of an
employee's 21st birthday and the six month anniversary of the employee's date
of employment, regardless of the number of hours of service credited. The
Retirement Plan defines "Employee" as any individual employed by the Bank or
its affiliates or any leased employee who is deemed to be an employee under
Section 414(n) of the Code.
The Retirement Plan provides for a normal retirement benefit to
participants upon retirement at or after the later of (i) attainment of age
65 or (ii) the fifth anniversary of initial participation in the plan. The
annual normal retirement benefit for a participant under the Retirement Plan
equals (i) 1.15% of a participant's "Final Average Compensation" (as defined
in the plan) plus .605% of the participant's "Final Average Compensation" in
excess of "Covered Compensation" (as defined in the plan) multiplied by the
"Benefit Service" (as defined in the plan) plus (ii) the greater of 2% of a
participant's "Final Average Compensation" times his "Benefit Service" minus
50% of a participant's primary Social Security Benefit or $100, multiplied by
a fraction, the numerator of which is a participant's service as of December
31, 1988 and the denominator of which is a participant's service on his
normal retirement date.
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A participant may also become eligible to receive an early retirement
benefit upon the (i) attainment of age 55; and (ii) completion of 10 years of
service. Early retirement benefits are generally calculated in the same
manner as a participant's normal retirement benefits but may be actuarially
reduced if paid prior to the participant's "Normal Retirement Date" (as
defined by the plan). Participants generally become vested in their benefits
under the Retirement Plan upon completing at least five years of Service.
The plan generally pays benefits in the form of a straight life annuity
with respect to unmarried participants and in the form of a 50% qualified
joint and survivor annuity (with the spouse as designated beneficiary) for
married participants. Other forms of benefit payments, including a lump sum,
are available under the Retirement Plan.
The following table sets forth the estimated annual benefits payable
under the Retirement Plan upon a participant's retirement at age 65 for
__________, 1997, expressed in the form of a straight life annuity. Covered
compensation under the Retirement Plan basically includes the base salary for
participants, and does not consider any cash bonus amounts. The benefits
listed in the table below for the Retirement Plan are not subject to a
deduction for social security benefits or any other offset amount.
FINAL Years of Service
AVERAGE ----------------------------------------------------------------
COMPENSATION 15 20 25 30 35 40
- ------------ --------- --------- --------- --------- --------- ---------
$50,000..... 9,797 13,328 17,956 22,831 27,849 24,896
100,000.... 23,876 33,270 43,203 53,407 63,765 57,149
150,000.... 38,939 53,704 69,007 84,581 100,310 90,057
200,000.... 40,674 55,977 71,691 87,610 103,645 93,316
250,000.... 41,391 56,900 72,736 88,737 104,831 94,546
300,000.... 45,313 63,590 82,187 100,943 119,790 110,058
350,000.... 49,764 71,220 92,995 114,930 120,000 120,000
400,000.... 54,215 78,850 103,805 120,000 120,000 120,000
450,000.... 58,665 86,481 114,615 120,000 120,000 120,000
500,000.... 63,117 94,111 120,000 120,000 120,000 120,000
550,000.... 67,568 101,741 120,000 120,000 120,000 120,000
The approximate years of service, as of January 1, 1997, for the named
executive officers are as follows:
NAMED EXECUTIVE OFFICER YEARS OF SERVICE
- ----------------------- -------------------
John J. Brittain............................. 10
Barrett J. O'Connor.......................... 18
James J. Kovac............................... 7
Vincent C. Norton............................ 4
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401(k) Plan. The Bank also sponsors the Elgin Financial Center, S.B.
401(k) Employee Benefit Plan ("401(k) Plan"), a tax-qualified profit sharing
and salary reduction plan under Sections 401(a) and 401(k) of the Code.
Generally, employees other than (i) employees who are collective bargaining
unit employees and employees who are non-resident aliens or (ii) leased
employees, become eligible to participate in the 401(k) Plan upon the
attainment of age 20 and the completion of six months of service. Under the
401(k) Plan, participants may make salary reduction contributions equal to 2%
to 10% of their compensation or the legally permissible limit (currently
$9,500). The Bank matches 100% of the compensation deferred by a participant.
Participants are always 100% vested in their salary reduction
contributions. Participants become 20% vested in Bank matching contributions
after the completion of two years of service with the Bank. Participants'
vested interest in Bank matching contribution increase by 20% for each
additional year of service completed, so that after the completion of 6 years
of service, participants are 100% vested in Bank matching contributions. A
participant who terminates employment due to death, disability, or retirement
immediately becomes fully vested in the Bank's matching contributions
credited to his or her account regardless of the participant's years of
service. A participant's vested portion of his or her 401(k) Plan account is
distributable from the 401(k) Plan upon the termination of the participant's
employment, death, disability or retirement. In addition, a participant may
be eligible for hardship withdrawals and loans under the 401(k) Plan. Any
distribution made to a participant prior to the participant's attainment of
age 59 1/2 is subject to a 10% excise tax in addition to federal income
taxes. The Board of Directors may at any time discontinue the Bank's
contributions to employee accounts. For the years ended December 31, 1996,
1995 and 1994, the Bank's matching contributions to the 401(k) Plan were
$138,000, $122,000 and $117,000, respectively.
The 401(k) Plan currently permits participants to invest their 401(k)
plan account balances in a single investment vehicle. The Bank intends to
implement additional investment alternatives, including but not limited to,
an employer stock fund (the "Employer Stock Fund." ) The Employer Stock Fund
will be invested primarily in shares of Common Stock. A participant's ability
to direct all or some of his or her vested account to purchase Common Stock
in the Offering will be dependent upon such individual being an Eligible
Account Holder, Supplemental Eligible Account Holder, or Other Member. No
401(k) Plan participant may purchase more than $200,000 in aggregate value of
the Common Stock in the Conversion (subject to the overall purchase
limitations) through 401(k) Plan Subscription Rights. The trustee may follow
the voting directions of 401(k) Plan participants investing in the Employer
Stock Fund; provided that the trustee determines such voting is consistent
with its fiduciary duties.
ESOP. In connection with the Conversion, the Bank also intends to
implement an employee stock ownership plan ("ESOP"). An ESOP is a
tax-qualified retirement plan designed to invest primarily in employer
securities. At the Bank's discretion, the Bank's matching contributions that
otherwise would be made to the 401(k) Plan may be made to the ESOP. The Bank
will make contributions to the ESOP on behalf of all ESOP participants. The
ESOP will provide eligible employees with the opportunity to receive a Bank
funded retirement benefit based on the value of the Common Stock. The Bank
anticipates that the eligibility requirements for the ESOP will be similar to
those of the 401(k) Plan.
The ESOP intends to purchase 8.0% of the Common Stock issued in
connection with the Conversion, including shares issued to the Foundation. As
part of the Conversion and in order to fund the ESOP's purchase of the Common
Stock to be issued in the Conversion, the ESOP intends to borrow funds from
the Company equal to 100% of the aggregate purchase price of the Common Stock
to be purchased by the ESOP. Alternatively, the Company and Bank may choose
to fund the ESOP's purchase of stock through a loan from a third party
financial institution. The Common Stock purchased by the ESOP with the loan
proceeds will serve as collateral for the loan, as described below. The term
of the ESOP loan will be 15 years and the trustee will repay the loan
principally from the Company's or the Bank's contributions to the ESOP. The
Bank may use matching contributions made with respect to ESOP participants'
401(k) salary reduction contributions and other discretionary contributions
to meet the ESOP loan obligations. Additionally, any dividends that may be
paid on unallocated stock held by the ESOP will also be used to repay the
ESOP loan. Subject to receipt of any necessary regulatory approvals or
opinions, the Bank may make additional contributions to the ESOP for
repayment of the loan or to reimburse the Company for contributions made by
it. The interest rate for the loan is expected to be at or near the prime
rate.
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Shares of Common Stock purchased by the ESOP with the loan proceeds will
initially be pledged as collateral for the loan, and will be held in a
suspense account until released for allocation among participants as the loan
is repaid. The trustee will release the pledged shares annually from the
suspense account in an amount proportional to the repayment of the ESOP loan
for each plan year. The released shares will then be allocated to the
accounts of ESOP participants as follows: First, for each eligible ESOP
participant, a portion of the shares released for the plan year will be
allocated to a special "matching" account under the ESOP equal in value to
the amount of matching contribution, if any, and/or if applicable, that such
participant would be entitled to under the terms of the 401(k) Plan for the
plan year. Second, the remaining shares which have been released for the plan
year will be allocated to each eligible participant's general ESOP account
based on the ratio of each such participant's base compensation to the total
base compensation of all eligible ESOP participants. Participants will vest
in their ESOP account at a rate of 20% annually commencing after the
completion of two years of service, with 100% vesting upon the completion of
6 years of service. Participants will also become fully vested in their
accounts if their service terminates due to death, retirement, disability, or
upon the occurrence of a change in control. The ESOP may reallocate
forfeitures among remaining participants, in the same proportion as
contributions. Benefits under the ESOP will become payable upon death,
retirement, early retirement, or separation from service. The annual
contributions to the ESOP are not fixed, so benefits payable under the ESOP
cannot be estimated.
In connection with the establishment of the ESOP, the Board of Directors
will appoint a Committee of the Board of Directors and officers of the Bank
to administer the ESOP (the "ESOP Committee"). The Bank anticipates that this
Committee will appoint an unrelated trustee for the ESOP and the 401(k) Plan
Employer Stock Fund prior to the Conversion. The ESOP Committee may instruct
the trustee regarding investment of funds contributed to the ESOP and the
401(k) Plan Employee Stock Fund. The ESOP trustee, subject to its fiduciary
duties, must vote all allocated shares held in the ESOP in accordance with
the instructions of the participating employees. Subject to its fiduciary
duties under the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), the trustee will vote unallocated shares and allocated shares for
which participants provide no instructions in a manner calculated to most
accurately reflect the instructions it has received from participants
regarding the allocated stock for which it has received instructions.
Management Supplemental Executive Retirement Plan. The Bank intends to
implement a non-tax qualified Management Supplemental Executive Retirement
Plan ("Management SERP") to provide certain officers and highly compensated
employees with additional retirement benefits. The Management SERP benefit is
intended to make up benefits lost under the ESOP allocation procedures to
participants who retire prior to the complete repayment of the ESOP loan. At
the retirement of a participant, the benefits under the SERP are determined
by first: (i) projecting the number of shares that would have been allocated
to the participant under the ESOP if they had been employed throughout the
period of the ESOP loan (measured from the participant's first date of ESOP
participation); and (ii) reducing the number determined by (i) above by the
number of shares actually allocated to the Participant's account under the
ESOP; and second, by multiplying the number of shares that represent the
difference between such figures by the average fair market value of the
Common Stock over the preceding five years. Benefits under the Management
SERP vest in 20% annual increments over a five-year period commencing as of
the date of a Participant's participation in the Management SERP. The vested
portion of the Management SERP Participant's benefits are payable upon the
retirement of the Participant upon or after the attainment of age 65 or in
accordance with the requirements of early retirement under the Retirement
Plan.
The Bank anticipates establishing an irrevocable grantor's trust
("grantor's trust") to hold the assets of the Management SERP. This trust
would be funded with contributions from the Bank for the purpose of providing
the benefits promised under the terms of the Management SERP. The grantor's
trust may hold a variety of assets including the Common Stock, other
securities, insurance contracts and cash. The Management SERP participants
have only the rights of unsecured creditors with respect to the trust's
assets, and will not recognize income with respect to benefits provided by
the Management SERP until such benefits are received by the participants. The
assets of the grantor's trust are considered part of the general assets of
the Bank and are subject to the claims of the Bank's creditors in the event
of the Bank's insolvency. Earnings on the trust's assets are taxable to the
Bank.
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Supplemental Executive Retirement Plan. The Code limits the amount of
compensation that may be considered when determining benefits that are
payable under tax-qualified plans, such as the ESOP (the "Code Limit"), and
further limits the amount that can be contributed on behalf of any employee
in any year with respect to tax-qualified defined contribution plans, such as
the ESOP and 401(k) Plan. To provide benefits to make up for the reduction in
benefits flowing from these limits, the Bank intends to implement a
Supplemental Executive Retirement Plan ("SERP"). The SERP is an "unfunded"
plan which is subject to the creditors of the employer. The Bank intends to
establish a grantor trust to hold assets to satisfy the Bank's SERP
obligations.
Stock Option Plan. Following the Conversion, the Board of Directors of
the Company intends to adopt a stock-based benefit plan which would provide
for the granting of options to purchase Common Stock to certain individuals.
Currently, the Company anticipates granting stock options under a single
stock-based incentive plan which will combine the features of the Stock
Program and the Stock Option Plan ("Master Stock-based Benefit Plan")
covering full-time employees and outside directors of the Company and its
affiliates. However, it is possible that the Company may establish a separate
option plan solely for outside directors. At a meeting of stockholders of the
Company following the Conversion, which under applicable regulations may not
be held earlier than six months after the completion of the Conversion, the
Board of Directors intends to present the Stock Option Plan or the Master
Stock-based Benefit Plan to stockholders for approval. The Company
anticipates reserving an amount equal to 10% of the shares of Common Stock
issued in the Conversion, including shares issued to the Foundation (or
613,548 shares based upon the issuance of 6,135,480 shares), for issuance
under the Stock Option Plan or Master Stock-based Benefit Plan.
The Company intends to design the stock option benefits provided under
the Stock Option Plan to attract and retain qualified personnel in key
positions, provide officers and key employees with a proprietary interest in
the Company as an incentive to contribute to the success of the Company and
reward key employees for outstanding performance. The Company may condition
the granting or vesting of stock options on the achievement of individual or
Company-wide performance goals, including the achievement by the Company or
the Bank of specified levels of net income, asset growth, return on equity or
other specific financial performance goals. The Company anticipates that the
Stock Option Plan will provide for the grant of: (i) options for employees to
purchase the Company's Common Stock intended to qualify as incentive stock
options under Section 422 of the Code ("Incentive Stock Options"); (ii)
options for all participants that do not qualify as incentive stock options
("Non-Statutory Stock Options"); and (iii) Limited Rights (discussed below)
which participants may exercise only upon a change in control of the Bank or
the Company. Unless sooner terminated, the Stock Option Plan will be in
effect for a period of ten years from the earlier of adoption by the Board of
Directors or approval by the Company's stockholders. The Company intends to
grant options with Limited Rights at an exercise price equal to the fair
market value of the underlying Common Stock on the date of grant. Subject to
any applicable regulations, upon exercise of "Limited Rights" in the event of
a change in control, the employee will be entitled to receive a lump sum cash
payment equal to the difference between the exercise price of the related
option and the fair market value of the shares of common stock subject to the
option on the date of exercise of the right in lieu of purchasing the stock
underlying the option. The Company anticipates that all options granted
contemporaneously with stockholder approval of the Incentive Option Plan will
qualify as Incentive Stock Options to the extent permitted under Section 422
of the Code.
A committee of the Board of Directors will administer the Stock Option
Plan and will determine which officers and employees may receive options and
Limited Rights, whether such options will qualify as Incentive Stock Options,
the number of shares subject to each option, the exercise price of each
option, the manner of exercise of the options and the time when such options
become exercisable.
If the Company adopts an option plan in the form described above, an
employee will not realize taxable income upon grant or exercise of any
Incentive Stock Option, provided that the employee does not dispose of the
shares received through the exercise of such option for at least one year
after the date the employee receives the stock in connection with the option
exercise and two years after the date of grant of the option (a
"disqualifying disposition"). The Company may not take a compensation expense
deduction with respect to the grant or exercise of Incentive Stock Options,
unless the employee disposes of the shares in a disqualifying disposition. In
the case of a Non-Statutory Stock Option and in the case of a disqualifying
disposition of an Incentive Stock Option, an employee will be deemed to
receive ordinary income upon exercise of the stock option in an amount equal
to the amount by which the fair market value of the Common Stock on the date
of exercise exceeds the exercise price of the option. The amount of taxable
100
<PAGE>
income realized by an optionee upon the exercise of a Non-Statutory Stock
Option or due to a disqualifying disposition of shares acquired through the
exercise of an Incentive Stock Option are a deductible expense for tax
purposes by the Company. Upon the exercise of a Limited Right, the option
holder realizes taxable income equal to the amount paid to him or her upon
exercise of the right and the Company receives a deduction equal to that same
amount.
Stock options under an option plan adopted by the Company would become
vested and exercisable in the manner specified by the committee responsible
for administering the plan, subject to applicable regulations. The Company
anticipates options granted in connection with the Incentive Option Plan will
remain exercisable for at least three months following the date on which the
employee ceases to perform services for the Bank or the Company, except that
in the event of death or disability, in which cases options accelerate and
become fully vested and remain exercisable for up to one year thereafter, or
such longer period as determined by the Company. However, any Incentive Stock
Options exercised more than three months following the date the employee
ceases to perform services as an employee, other than termination due to
death or disability, would be treated for tax purposes as a Non-Statutory
Stock Option. The Company also anticipates that in the event of retirement,
if the optionee continues to perform services as a Director, Advisory
Director, or consultant on behalf of the Bank, the Company or an affiliate,
unvested options would continue to vest in accordance with their original
vesting schedule until the optionee ceases to serve as a Director, Advisory
Director or consultant. If the Stock Option Plan is adopted in the form
described above, the Company, if requested by the optionee, could elect, in
exchange for vested options, to pay the optionee, or beneficiary in the event
of death, the amount by which the fair market value of the Common Stock
exceeds the exercise price of the options on the date of the employee's
termination of employment.
All options granted to outside directors under an option plan must, by
law, be Non-Statutory Stock Options and would vest and become exercisable in
a manner specified by the committee, subject to applicable regulations, and
would expire upon the earlier of ten years following the date of grant or one
year following the date the optionee ceases to be a Director, Director
Emeritus, Advisory Director or consultant. In the event of the death or
disability of a participant, all previously granted options would immediately
vest and become fully exercisable.
The Company also intends that the Stock Option Plan described above
provide for accelerated vesting of previously granted options in the event of
a change in control of the Company or the Bank. A change in control would be
defined in the plan document and would generally occur when a person or group
of persons acting in concert acquires beneficial ownership of 20% or more of
any class of equity security of the Company or the Bank or in the event of a
tender or exchange offer, merger or other form of business combination, sale
of all or substantially all of the assets of the Company or the Bank or
contested election of directors which resulted in the replacement of a
majority of the Board of Directors by persons not nominated by the directors
in office prior to the contested election.
Stock Program. Following the Conversion, the Company intends to
establish the Stock Program which would provide for the grant of stock awards
to officers, employees and non-employee directors of the Bank and Company as
a method of providing officers, employees and non-employee directors of the
Bank and Company with a proprietary interest in the Company in a manner
designed to encourage such persons to remain with the Bank. The benefits
under the Stock Program may be provided for under either a separate plan for
officers and employees and a separate plan for outside directors or under the
Master Stock-based Benefit Plan which would combine the features of the Stock
Program with the Stock Option Plan. The Company intends to present the Stock
Program or the Master Stock-based Benefit Plan for stockholder approval at a
meeting of stockholders, which pursuant to applicable regulations, the
Company may hold no earlier than six months after the completion of the
Conversion.
The Bank or Company expects to contribute funds to the Stock Program to
enable such plan or a trust established for the Plan, to acquire, in the
aggregate, an amount equal to 4% of the shares of Common Stock issued in the
Conversion, including shares issued to the Foundation (or 245,419 shares
based upon the issuance of 6,135,480 shares). The Company will acquire these
shares through open market purchases or from authorized but unissued shares.
Although no specific award determinations have been made, the Company
anticipates that it will provide stock awards to the directors and employees
of the Company or Bank or their affiliates to the extent permitted by
applicable regulations. Shares of Common Stock granted pursuant to the Stock
Program will be awarded at no cost to the recipients.
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A committee of the Board of Directors will administer the Stock Program.
Stock awards will not be transferable or assignable. The Board intends to
appoint an independent fiduciary to serve as trustee of a trust established
pursuant to the Stock Program. The Company may make allocations and grants to
officers and employees under the Stock Program in the form of non
performance-based grants and/or performance-based grants. The Company may
make the granting or vesting of stock awards under the Stock Program
conditioned upon the achievement of individual or Company-wide performance
goals, including the Company's or Bank's achievement of specified levels of
net income, return on assets, return on equity or other specified financial
performance goals and will be subject to applicable regulations.
In the event of death, stock awards will become 100% vested. In the event
of disability, stock awards would be 100% vested upon termination of
employment of an officer or employee, or upon termination of service as a
director. In the event of retirement, if the participant continues to perform
services as a Director, Advisory Director or consultant on behalf of the
Bank, the Company or an affiliate or, in the case of a retiring Director,
Advisory Director or as a consulting director, unvested stock awards will
continue to vest in accordance with their original vesting schedule until the
recipient ceases to perform such services at which time any unvested stock
awards would lapse.
The Company intends that, subject to any applicable regulations, the
Stock Program described above would provide for accelerated vesting of shares
granted under the Stock Program in the event of a change in control of the
Bank or Company. A change in control, which will be defined in the plan
document, generally occurs when a person or group of persons acting in
concert acquires beneficial ownership of 20% or more of a class of equity
securities of the Company or the Bank or in the event of a tender or exchange
offer, merger or other form of business combination, sale of all or
substantially all of the assets of the Company or the Bank or contested
election of directors which results in the replacement of a majority of the
Board of Directors by persons not nominated by the directors in office prior
to the contested election.
When shares become vested in accordance with the Stock Program described
above, the participants will recognize taxable income equal to the fair
market value of the Common Stock at that time. The Company may take a
deduction equal to that amount for the year in which it becomes taxable to
the individual. When shares become vested and are actually distributed in
accordance with the Stock Program, the participants also receive amounts
equal to any accrued dividends with respect thereto. Prior to vesting,
recipients of grants may direct the voting of the shares awarded to them.
Shares not subject to grants and shares allocated subject to the achievement
of performance goals will be voted by the trustee of the Stock Program in
accordance to the directions provided by individuals with respect to shares
subject to grants. Vested shares will be distributed to recipients as soon as
practicable following the day on which they are vested.
In the event that additional authorized but unissued shares are acquired
by the Stock Program after the Conversion, the interests of existing
shareholders would be diluted. See "Pro Forma Data."
Transactions With Certain Related Persons
Federal regulations require that all loans or extensions of credit to
executive officers and directors must be made on substantially the same
terms, including interest rates and collateral, as those prevailing at the
time for comparable transactions with the general public and must not involve
more than the normal risk of repayment or present other unfavorable features.
In addition, loans made to a director or executive officer in excess of the
greater of $25,000 or 5% of the Bank's capital and surplus (up to a maximum
of $500,000) must be approved in advance by a majority of the disinterested
members of the Board of Directors.
The Bank offers directors, officers and full-time employees of the Bank
who satisfy certain criteria and the general underwriting standards of the
Bank, ARM loans with interest rates which may be up to 1% below the rates
offered to the Bank's other customers, the Employee Mortgage Rate ("EMR").
The EMR is limited to the purchase or refinance of a director's, officer's or
employee's owner-occupied primary residence. Loan application fees are waived
for all EMR loans. The EMR normally ceases upon termination of employment.
Upon termination of the EMR, the interest rate reverts to the contract rate
in effect at the time that the loan was originated. All other terms and
conditions contained in the original mortgage and note continue to remain in
effect. With the exception of EMR loans, the Bank
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currently makes loans to its executive officers, directors and employees on
the same terms and conditions offered to the general public. Loans made by
the Bank to its directors and executive officers are made in the ordinary
course of business, on substantially the same terms (except for EMR loans),
including collateral, as those prevailing at the time for comparable
transactions with other persons and do not involve more than the normal risk
of collectibility or present other unfavorable features. As of July 31, 1997,
19 of the Bank's executive officers or directors had loans with outstanding
balances totalling $2.0 million in the aggregate. All such loans were made by
the Bank in the ordinary course of business, with no favorable terms (except
for EMR loans) and such loans do not involve more than the normal risk of
collectibility or present unfavorable features.
The Company intends that all transactions between the Company and its
executive officers, directors, holders of 10% or more of the shares of any
class of its Common Stock and affiliates thereof, will contain terms no less
favorable to the Company than could have been obtained by it in arms-length
negotiations with unaffiliated persons and will be approved by a majority of
independent outside directors of the Company not having any interest in the
transaction.
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Subscriptions of Executive Officers and Directors
The following table sets forth the number of shares of Common Stock that
the executive officers and directors, and their associates, propose to
purchase, assuming shares of Common Stock are issued at the minimum and
maximum of the Estimated Price Range and that sufficient shares will be
available to satisfy their subscriptions. The table also sets forth the total
expected beneficial ownership of Common Stock as to all directors and
executive officers as a group.
<TABLE>
<CAPTION>
AT THE MINIMUM AT THE MAXIMUM
OF THE ESTIMATED OF THE ESTIMATED
PRICE RANGE(1) PRICE RANGE(1)
------------------------------ ------------------------
AS A
AS A PERCENT PERCENT
NUMBER OF SHARES NUMBER OF SHARES
NAME AMOUNT OF SHARES OFFERED OF SHARES OFFERED
- ------------------------------------------------- ------------ ----------- ------------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
John J. Brittain................................. $ 200,000 20,000 0.48% 20,000 0.35%
Leo M. Flanagan, Jr.............................. 125,000 12,500 0.30 12,500 0.22
Barrett J. O'Connor.............................. 200,000 20,000 0.48 20,000 0.35
James J. Kovac................................... 383,000 38,300 0.91 38,300 0.67
Vincent C. Norton................................ 200,000 20,000 0.48 20,000 0.35
Thomas I. Anderson............................... 300,000 30,000 0.71 30,000 0.53
Ralph W. Helm, Jr................................ 400,000 40,000 1.00 40,000 0.70
Peter A. Traeger................................. 200,000 20,000 0.48 20,000 0.35
Scott H. Budd.................................... 50,000 5,000 0.12 5,000 0.09
Jerry L. Gosse................................... 250,000 25,000 0.60 25,000 0.44
James R. Schneff................................. 200,000 20,000 0.48 20,000 0.35
Sandra L. Sommers................................ 200,000 20,000 0.48 20,000 0.35
Joseph E. Stanczak............................... 200,000 20,000 0.48 20,000 0.35
------------ -------- ------ --------- ------
All directors and executive officers as a group
(13)........................................... $ 2,908,000 290,800 6.93% 290,800 5.12%
------------ -------- ------ --------- ------
------------ -------- ------ --------- ------
</TABLE>
- ------------------------
(1) Includes proposed subscriptions, if any, by associates. Does not include
orders by the ESOP. Intended purchases by the ESOP are expected to be 8%
of the shares issued in the Conversion, including shares issued to the
Foundation. Also does not include shares to be contributed to the
Foundation equal to 8% of the Common Stock sold, Common Stock which may
be awarded under the Stock Program to be adopted equal to 4% of the
Common Stock issued in the Conversion, including shares issued to the
Foundation, and Common Stock which may be purchased pursuant to options
which may be granted under the Stock Option Plan equal to 10% of the
number of shares of Common Stock issued in the Conversion, including
shares issued to the Foundation.
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THE CONVERSION
THE BOARD OF DIRECTORS OF THE BANK AND THE COMMISSIONER OF BANKS AND REAL
ESTATE OF THE STATE OF ILLINOIS HAVE APPROVED THE PLAN OF CONVERSION, SUBJECT
TO APPROVAL BY THE MEMBERS OF THE BANK ENTITLED TO VOTE ON THE MATTER AND THE
SATISFACTION OF CERTAIN OTHER CONDITIONS. HOWEVER, SUCH APPROVAL BY THE
COMMISSIONER DOES NOT CONSTITUTE A RECOMMENDATION OR ENDORSEMENT OF THE PLAN
OF CONVERSION BY SUCH AGENCY.
General
On August 12, 1997, the Bank's Board of Directors unanimously adopted the
Plan of Conversion pursuant to which the Bank will be converted from an
Illinois-chartered mutual savings bank to an Illinois-chartered stock savings
bank. It is currently intended that all of the capital stock of the Bank
will be held by the Company, which is incorporated under Delaware law. The
Plan has been approved by the Commissioner and the Bank has received a notice
of intent not to object to the Plan from the FDIC, subject to, among other
things, approval of the Plan by the Bank's members. A special meeting of the
Bank's members has been called for this purpose to be held on _______,
1998 (the "Special Meeting").
The Company expects to receive approval from the OTS to become a savings
and loan holding company and to acquire all of the common stock of the Bank
to be issued in the Conversion. The Company plans to retain 50% of the net
proceeds from the sale of the Common Stock and to use the remaining 50% to
purchase all of the common stock of the Bank to be issued in the Conversion.
The Conversion will be effected only upon completion of the sale of all of
the shares of Common Stock of the Company or all of the common stock of the
Bank, if the holding company form of organization is not utilized, to be
issued in the Conversion.
The Plan provides that the Board of Directors of the Bank, at any time
prior to the issuance of the Common Stock and for any reason, may decide not
to use the holding company form of organization in implementing the
Conversion. Such reasons may include possible delays resulting from
overlapping regulatory processing, or policies or conditions, which could
adversely affect the Bank's or the Company's ability to consummate the
Conversion and transact its business after the Conversion as contemplated
herein and in accordance with the Bank's operating policies. In the event
that such a decision is made, the Bank will withdraw the Company's
registration statement from the SEC and will take all steps necessary to
complete the Conversion without the Company, including filing any necessary
documents with the Commissioner. In such event, and provided there is no
regulatory action, directive or other consideration upon which basis the Bank
determines not to complete the Conversion, if permitted by the Commissioner,
the Bank will issue and sell the common stock of the Bank and subscribers
will be notified of the elimination of the Company and resolicited (i.e., be
permitted to affirm their orders, in which case they will need to
affirmatively reconfirm their subscriptions prior to the expiration of the
resolicitation offering or their funds will be promptly refunded with
interest, or be permitted to modify or rescind their subscriptions) and
notified of the time period within which the subscriber must affirmatively
notify the Bank of his intention to affirm, modify or rescind his
subscription. The following description of the Plan assumes that a holding
company form of organization will be used in the Conversion. In the event
that a holding company form of organization is not used, all other pertinent
terms of the Plan as described below will apply to the conversion of the Bank
from the mutual to stock form of organization and the sale of the Bank's
common stock.
The Plan provides generally that (i) the Bank will convert from a mutual
savings bank to a capital stock savings bank and (ii) the Company will offer
Common Stock for sale in the Subscription Offering to Eligible Account
Holders, Employee Plans, including the ESOP, Supplemental Eligible Account
Holders, and Other Voting Members. Concurrently, shares will be offered in
the Community Offering to certain members of the general public, subject to
the prior rights of holders of subscription rights. It is anticipated that
all shares not subscribed for in the Subscription and Community Offerings
will be offered for sale by the Company to the general public in a Syndicated
Community Offering. The Bank and Company have the right to accept or reject,
in whole or in part, any orders to purchase shares of the Common Stock
received in the Community Offering or Syndicated Community Offering.
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The aggregate price of the shares of Common Stock to be sold in the
Conversion will be determined based upon an independent appraisal prepared by
FinPro of the estimated pro forma market value of the Common Stock giving
effect to the Conversion. All shares of Common Stock to be issued and sold
in the Conversion will be sold at the same price. FinPro's independent
appraisal will be updated and the final price of the shares will be
determined at the completion of the Subscription and Community Offerings, if
all shares are subscribed for, or at the completion of the Syndicated
Community Offering. The independent appraisal has been performed by FinPro,
a consulting firm experienced in the valuation and appraisal of savings
institutions. See "-- Stock Pricing" for a determination of the estimated pro
forma market value of the Common Stock.
The following is a brief summary of material aspects of the Conversion.
The summary is qualified in its entirety by reference to the provisions of
the Plan. A copy of the Plan is available upon written request from the Bank
and is available for inspection at each branch office of the Bank. The Plan
is also filed as an Exhibit to the Registration Statement of which this
Prospectus is a part, copies of which may be obtained from the SEC. See
"Additional Information."
Establishment of the Charitable Foundation
General. In furtherance of the Bank's commitment to its local community,
the Plan of Conversion provides for the establishment of a charitable
foundation in connection with the Conversion. The Plan provides that the
Bank and the Company will establish the Foundation, which will be
incorporated under Delaware law as a non-stock corporation, and will fund the
Foundation with Common Stock of the Company, as further described below. The
Company and the Bank believe that the funding of the Foundation with Common
Stock of the Company is a means of establishing a common bond between the
Bank and its community and thereby enables the Bank's community to share in
the potential growth and success of the Company over the long-term. By
further enhancing the Bank's visibility and reputation in its local
community, the Bank believes that the Foundation will enhance the long-term
value of the Bank's community banking franchise. The Foundation will be
dedicated to charitable purposes within the Bank's local community, including
community development activities.
Purpose of the Foundation. The purpose of the Foundation is to provide
funding to support charitable causes and community development activities.
In recent years, the Bank has emphasized community lending and community
development activities within the Bank's local community. The Bank received
a "satisfactory" Community Reinvestment Act ("CRA") rating in its last
CRA examination. The Foundation is being formed as a complement to the
Bank's existing community activities, not as a replacement for such
activities. The Bank intends to continue to emphasize community lending and
community development activities following the Conversion. However, such
activities are not the Bank's sole corporate purpose. The Foundation,
conversely, will be completely dedicated to community activities and the
promotion of the charitable causes, and may be able to support such
activities in manners that are not presently available to the Bank. Since
the Bank has a satisfactory record of serving its community under the CRA and
already engages in community development activities, the Bank believes that
the Foundation will enable the Company and the Bank to assist their local
community in areas beyond community development and lending. The Bank
believes the establishment of the Foundation will enhance its current
activities under the CRA. In this regard, the Board of Directors believes
the establishment of a charitable foundation is consistent with the Bank's
commitment to community service. The Board further believes that the funding
of the Foundation with Common Stock of the Company is a means of enabling the
Bank's community to share in the potential growth and success of the Company
long after completion of the Conversion. The Foundation will accomplish that
goal by providing for continued ties between the Foundation and Bank, thereby
forming a partnership with the Bank's community. The establishment of the
Foundation will also enable the Company and the Bank to develop a unified
charitable donation strategy and will centralize the responsibility for
administration and allocation of corporate charitable funds. Charitable
foundations have been formed by other financial institutions for this
purpose, among others. The Bank, however, does not expect the contribution
to the Foundation to take the place of the Bank's traditional community
lending and charitable activities.
Structure of the Foundation. The Foundation will be incorporated under
Delaware law as a non-stock corporation. Pursuant to the Foundation's Bylaws,
the Foundation's Board of Directors will be comprised of nine members, all of
whom are existing Directors of the Company or the Bank or officers of the
Company or the Bank. A Nominating Committee of the Board, which is to be
comprised of a minimum of three members of the board, will nominate
individuals eligible for election to the board of directors. The members of
the Foundation, who are comprised
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of its Board members, will elect the Directors at the annual meeting of the
Foundation from those nominated by the Nominating Committee. Directors will
be divided into three classes with each class appointed for three-year terms.
The certificate of incorporation of the Foundation provides that the
corporation is organized exclusively for charitable purposes, including
community development, as set forth in Section 501(c)(3) of the Code. The
Foundation's certificate of incorporation further provides that no part of
the net earnings of the Foundation will inure to the benefit of, or be
distributable to, its directors, officers or members.
The authority for the affairs of the Foundation will be vested in the
Board of Directors of the Foundation. The Directors of the Foundation will
be responsible for establishing the policies of the Foundation with respect
to grants or donations by the Foundation, consistent with the purposes for
which the Foundation was established. Although no formal policy governing
Foundation grants exists at this time, the Foundation's Board of Directors
will adopt such a policy upon establishment of the Foundation. As directors
of a nonprofit corporation, directors of the Foundation will at all times be
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 purpose for which the Foundation is established. The
Directors of the Foundation will also be responsible for directing the
activities of the Foundation, including the management of the Common Stock of
the Company held by the Foundation. However, all shares of Common Stock held
by the Foundation will be voted in the same ratio as all other shares of the
Company's Common Stock on all proposals considered by stockholders of the
Company; provided, however, that, if the pro-rata voting requirement would:
(i) cause a violation of the law of the State of Delaware; (ii) would cause
the Foundation to lose its tax-exempt status, or cause the Internal Revenue
Service to deny the Foundation's request for a determination that it is an
exempt organization or otherwise have a material and adverse tax consequence
on the Foundation; or (iii) would cause the Foundation to be subject to an
excise tax under Section 4941 of the Code, the FDIC shall waive such voting
requirement. In order for the FDIC to waive such voting requirement, the
Company's or the Foundation's legal counsel must render an opinion
satisfactory to the FDIC that compliance with the voting requirement would
have the effect described in clauses (i), (ii) or (iii) above. Under those
circumstances, the FDIC shall grant a waiver of the voting requirement upon
submission of such legal opinion(s) by the Company or the Foundation that are
satisfactory to the FDIC. In the event that the FDIC were to waive the
voting requirement, the directors would direct the voting of the Common Stock
held by the Foundation.
The Foundation's place of business will be located at the Company's
administrative offices and initially the Foundation is expected to have no
employees but will utilize the members of the staff of the Company or the
Bank. The Board of Directors of the Foundation will appoint such officers as
may be necessary to manage the operations of the Foundation.
The Company intends to capitalize the Foundation with Common Stock of the
Company in an amount equal to 8% of the total amount of Common Stock to be
sold in connection with the Conversion. At the minimum, midpoint and maximum
of the Estimated Price Range, the contribution to the Foundation would equal
335,920, 395,200 and 454,480 shares, which would have a market value of $3.4
million, $4.0 million and $4.5 million, respectively, assuming the Purchase
Price of $10.00 per share. The Company and the Bank determined to fund the
Foundation 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 Company and the Bank over the
long-term. The funding of the Foundation with stock also provides the
Foundation with a potentially larger endowment than if the Company
contributed cash to the Foundation since, as a shareholder, the Foundation
will share in the potential growth and success of the Company. As such, the
contribution of stock to the Foundation has the potential to provide a
self-sustaining funding mechanism which reduces the amount of cash that the
Company, if it were not making the stock donation, would have to contribute
to the Foundation in future years in order to maintain a level amount of the
Charitable grants and donations.
The Foundation will 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, 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. As a private foundation under Section 501(c)(3) of the
Code, the Foundation will be required to distribute annually in grants or
donations, a minimum of 5% of the average fair market value of its net
investment assets. 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
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market value of the assets held by the Foundation, except where the Board of
Directors of the Foundation 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. Upon completion
of the Conversion and the contribution of shares to the Foundation
immediately following the Conversion, the Company would have 4,534,920,
5,335,200 and 6,135,480 shares issued and outstanding at the minimum,
midpoint and maximum of the Estimated Price Range. Because the Company will
have an increased number of shares outstanding, the voting and ownership
interests of shareholders in the Company's common stock would be diluted by
7.4%, as compared to their interests in the Company if the Foundation was not
established. For additional discussion of the dilutive effect, see "Pro
Forma Data."
Tax Considerations. The Company and the Bank have been advised by their
independent tax advisors that an organization created for the above purposes
will qualify as a Section 501(c)(3) exempt organization under the Code, and
will be classified as a private foundation. The Foundation will submit a
request to the IRS to be recognized as an exempt organization. As long as the
Foundation files its application for tax-exempt status within 15 months from
the date of its organization, and provided 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. The Company's independent
accountants, however, have not rendered any advice on the regulatory
condition to the contribution agreed to by the Foundation which requires that
all shares of Common Stock of the Company held by the Foundation must be
voted in the same ratio as all other outstanding shares of Common Stock of
the Company on all proposals considered by stockholders of the Company.
Consistent with the condition, in the event that the Company or the
Foundation receives an opinion of their legal counsel that compliance with
this voting restriction would have the effect of causing the Foundation to
lose its tax-exempt status or otherwise have a material and adverse tax
consequence on the Foundation, or subject the Foundation to an excise tax
under Section 4941 of the Code, the FDIC will waive such voting restriction
upon submission of a legal opinion(s) by the Company or the Foundation
satisfactory to the FDIC. See "-- Regulatory Conditions Imposed on the
Foundation."
Under Delaware law, the 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 be within reasonable limits as to amount
and purpose to be valid. Under the Code, the Company may deduct up to 10% of
its taxable income before the charitable contribution deduction in any one
year and any contributions made by the Company in excess of the deductible
amount will be deductible over each of the five succeeding taxable years,
subject to a 10% limitation each year. The Company and the Bank believe that
the Conversion presents a unique opportunity to establish and fund a
charitable foundation given the substantial amount of additional capital
being raised in the Conversion. In making such a determination, the Company
and the Bank considered the dilutive impact of the contribution of Common
Stock to the Foundation on the amount of Common Stock available to be offered
for sale in the Conversion. Based on such consideration, the 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 Price Range, the Company would have pro forma consolidated capital
of $74.6 million or 20.29% of pro forma consolidated assets and the Bank's
pro forma leverage and risk-based capital ratios would be 19.76% and 38.75%,
respectively. See "Regulatory Capital Compliance," "Capitalization," and
"Comparison of Valuation and Pro Forma Information with No Foundation."
Thus, the amount of the contribution will not adversely impact the financial
condition of the Company and the Bank and the Company and the Bank therefore
believe that the amount of the charitable contribution is reasonable given
the Company's and the Bank's pro forma capital positions. As such, the
Company and the Bank believe that the contribution does not raise safety and
soundness concerns.
The Company and the Bank have received an opinion of their independent
tax advisors that the Company's contribution of its own stock to the
Foundation would not constitute an act of self-dealing, and that the Company
will be entitled to a deduction in the amount of the fair market value of the
stock at the time of the contribution, subject to a limitation based on 10%
of the Company's annual taxable income before the charitable contribution
deduction. The Company, however, would be able to carry forward any unused
portion of the deduction for five years following the contribution. If the
Foundation had been established in 1996, assuming the sale of the Common
Stock at the maximum Estimated Price Range, the Company would have received a
charitable contribution deduction of approximately $4.5 million (based on the
Bank's pre-tax income for 1996, an assumed tax rate of 37.0% and a
contribution of Common Stock equal to $4.5 million). The Company is
permitted under the Code to carry over the excess contribution over the
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five year period following the contribution to the Foundation. Assuming the
close of the Offerings at the midpoint of the Estimated Price Range, the
Company estimates that all of the deduction should be deductible over the
six-year period. Neither the Company nor the Bank expect to make any further
contributions to the Foundation within the first five years following the
initial contribution. After that time, the Company and the Bank may consider
future contributions to the Foundation. Any such decisions would be based on
an assessment of, among other factors, the financial condition of the Company
and the Bank at that time, the interests of shareholders and depositors of
the Company and the Bank, and the financial condition and operations of the
Foundation.
Although the Company and the Bank have received an opinion of their
independent tax advisors that the Company is entitled to a deduction for the
charitable 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 Company's tax benefit
related to the 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 -- Effects of the Establishment
of the Charitable Foundation."
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.
Purposes of Conversion
The Bank, as an Illinois-chartered mutual savings bank, does not have
stockholders and has no authority to issue capital stock. By converting to
the capital stock form of organization, the Bank will be structured in the
form used by commercial banks, most business entities and a growing number of
savings institutions. The Conversion will be important to the future growth
and performance of the Bank by providing a larger capital base on which the
Bank may operate, enhanced future access to capital markets, enhanced ability
to diversify into other financial services related activities and enhanced
ability to render services to the public.
The holding company form of organization would provide additional
flexibility to diversify the Bank's business activities through existing or
newly formed subsidiaries, or through acquisitions of or mergers with both
mutual and stock financial institutions, as well as other companies.
Although there are no current arrangements, understandings or agreements
regarding any such opportunities, the Company will be in a position after the
Conversion, subject to regulatory limitations and the Company's financial
position, to take advantage of any such opportunities that may arise. While
there are benefits associated with the holding company form of organization,
such form of organization may involve additional costs associated with its
maintenance and regulation as a savings and loan company, such as additional
administrative expenses, taxes and regulatory filings or examination fees.
The potential impact of Conversion upon the Bank's capital base is
significant. At July 31, 1997, the Bank had Tier I Leverage capital of $30.6
million, or 9.51% of total assets. Assuming that $48.2 million (based on the
$49.4 million at the midpoint of the Estimated Price Range) of net proceeds
are realized from the sale of Common Stock (see "Pro Forma Data" for the
basis of this assumption) and assuming that 50% of the net proceeds are used
by the Company to purchase the capital stock of the Bank, the Bank's Tier I
Leverage capital would increase to $51.2 million, resulting in a pro forma
leverage capital ratio of 14.69% giving effect to the Conversion. In the
event that the holding company form of organization is not utilized and all
the net proceeds, at the midpoint of the Estimated Price Range, are retained
by the Bank, the Bank's core capital would increase to $72.4 million,
resulting in a pro forma leverage capital ratio of 19.76% at July 31, 1997.
The investment of the net proceeds from the sale of the Common Stock will
provide the Bank with additional income to further increase its capital
position.
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After completion of the Conversion, the unissued Common Stock and
preferred stock authorized by the Company's Certificate of Incorporation will
permit the Company, subject to market conditions and applicable regulatory
approvals, to raise additional equity capital through further sales of
securities, and to issue securities in connection with possible acquisitions.
At the present time, the Company has no plans with respect to additional
offerings of securities, other than the issuance of additional shares upon
exercise of stock options under the Stock Option Plan or Master Stock-Based
Benefit Plan or the possible issuance of authorized but unissued shares to
the Stock Program or Master Stock-Based Benefit Plan. Following the
Conversion, the Company will also be able to use stock-based benefit plans to
attract and retain executive and other personnel for itself and its
subsidiaries. See "Management of the Bank -- Executive Compensation."
Effects of Conversion
General. Each depositor in a mutual savings bank has both a deposit
account in the institution and a pro rata ownership interest in the net worth
of the institution based upon the balance in his or her account, which
interest may only be realized in the event of a liquidation of the
institution. However, this ownership interest is tied to the depositor's
account and has no tangible market value separate from such deposit account.
Any depositor who opens a deposit account obtains a pro rata ownership
interest in the net worth of the institution without any additional payment
beyond the amount of the deposit. A depositor who reduces or closes his
account receives a portion or all of the balance in the account but nothing
for his ownership interest in the net worth of the institution, which is lost
to the extent that the balance in the account is reduced.
Consequently, mutual savings bank depositors normally have no way to
realize the value of their ownership interest, which may have realizable
value only in the unlikely event that the mutual savings bank is liquidated.
In such event, the depositors of record at that time, as owners, would have a
claim to share pro rata in any residual surplus and reserves after other
claims, including claims of depositors to the amounts of their deposits, are
paid.
When a mutual savings bank converts to stock form, depositors lose all
rights to the net worth of the mutual savings bank, except to the extent
depositors have rights to claim a pro rata share of funds representing the
liquidation account established in connection with the Conversion.
Additionally, permanent nonwithdrawable capital stock is created and offered
to depositors which represents the ownership of the institution's net worth.
The Common Stock is separate and apart from deposit accounts and cannot be
and is not insured by the FDIC or any other governmental agency.
Certificates are issued to evidence ownership of the permanent stock. The
stock certificates are transferable, and therefore the stock may be sold or
traded if a purchaser is available with no effect on any deposit account the
seller may hold in the institution.
No assets of the Company or the Bank will be distributed in connection
with the Conversion other than pursuant to the payment of expenses incurred
in connection therewith.
Continuity. While the Conversion is being accomplished, the normal
business of the Bank of accepting deposits and making loans will continue
without interruption. The Bank will continue to be subject to regulation by
the Commissioner and the FDIC. After Conversion, the Bank will continue to
provide services for depositors and borrowers under current policies by its
present management and staff.
The Directors of the Bank at the time of Conversion will serve as
Directors of the Bank after the Conversion. The Directors of the Company
will consist of the same individuals who will serve on the Board of Directors
of the Bank. All officers of the Bank at the time of Conversion will retain
their positions after the Conversion.
Effect on Deposit Accounts. Under the Plan, each depositor in the Bank
at the time of Conversion will automatically continue as a depositor after
the Conversion, and each deposit account will remain the same with respect to
deposit balance, interest rate and other terms. Each such account will be
insured by the FDIC to the same extent as before the Conversion. Depositors
will continue to hold their existing passbooks and other evidences of their
accounts.
Effect on Loans. No loan outstanding from the Bank will be affected by
the Conversion, and the amount, interest rate, maturity and security for each
loan will remain as it was contractually fixed prior to the Conversion.
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Effect on Voting Rights of Members. At present, all depositors of the
Bank are members of, and have voting rights in, the Bank as to all matters
requiring membership action. Upon Conversion, depositors will cease to be
members and will no longer be entitled to vote at meetings of the Bank. Upon
Conversion, all voting rights in the Bank will be vested in the Company as
the sole stockholder of the Bank. Exclusive voting rights with respect to
the Company will be vested in the holders of Common Stock. Depositors of the
Bank will not have voting rights after the Conversion except to the extent
that they become stockholders of the Company through the purchase of Common
Stock.
Tax Effects. The Bank has received opinions with regard to Federal and
Illinois income taxation which indicate that the adoption and implementation
of the Plan of Conversion set forth herein will not be taxable for Federal or
Illinois income tax purposes to the Bank or its Eligible Account Holders or
Supplemental Eligible Account Holders or the Company, subject to the
limitations and qualifications in such opinions. See "-- Tax Aspects."
Effect on Liquidation Rights. If a mutual savings bank were to
liquidate, all claims of creditors (including those of depositors, to the
extent of deposit balances) would be paid first. Thereafter, if there were
any assets remaining, depositors would have a claim to receive such remaining
assets, pro rata, based upon the deposit balances in their deposit accounts
immediately prior to liquidation. In the unlikely event that the Bank were
to liquidate after Conversion, all claims of creditors (including those of
depositors, to the extent of their deposit balances) would also be paid
first, followed by distribution of the "liquidation account," if any, to
certain depositors (as described in "-- Liquidation Rights," below), with any
assets remaining thereafter distributed to the Company as the holder of the
Bank's capital stock. Pursuant to the rules and regulations of the
Commissioner and the FDIC, a post-Conversion merger, consolidation, sale of
bulk assets or similar combination or transaction with another insured
savings institution would not be considered a liquidation and in such a
transaction, the liquidation account would be required to be assumed by the
surviving institution.
Stock Pricing
The Plan of Conversion requires that the purchase price of the Common
Stock must be based on the appraised pro forma market value of the Common
Stock, as determined on the basis of an independent appraisal. The Bank and
the Company have retained FinPro to make such appraisal. For its services in
making such appraisal, FinPro will receive a fee of $29,000 including fees
related to the preparation of a business plan for the Company and Bank, and
will be reimbursed for certain of its expenses. The Bank and the Company
have agreed to indemnify FinPro and its employees and affiliates against
certain losses (including any losses in connection with claims under the
federal securities laws) arising out of its services as the independent
appraiser, except where FinPro's liability results from its negligence or
willful misconduct.
An appraisal has been made by FinPro in reliance upon the information
contained in this Prospectus, including the Consolidated Financial
Statements. FinPro also considered the following factors, among others: the
present and projected operating results and financial condition of the
Company and the Bank, including liquidity, capitalization, asset composition,
funding mix, amount of intangible assets owned, and level of interest rate
risk; the economic, demographic and competitive aspects of the Bank's
existing marketing area; the quality and depth of the Bank's management;
certain historical, financial and other information relating to the Bank; a
comparative evaluation of the operating and financial statistics of the Bank
with those of other savings institutions; the aggregate size of the offering
of the Common Stock; the impact of Conversion on the Bank's net worth and
earnings potential; the proposed dividend policy of the Company and the Bank;
the trading market for securities of comparable institutions and general
conditions in the market for such securities; and recent regulatory matters.
In particular, the appraisal considered the Bank's financial condition and
projected and historical operating results, including income and expense
trends, asset size, loan portfolio composition, non-performing loans and
assets, interest rate sensitivity position, capital position, and yields on
assets and costs of liabilities in comparison to other publicly-traded
thrifts with assets greater than or equal to $250 million and less than or
equal to $500 million located in the States of Illinois and Indiana. The
Board of Directors of the Bank and Board of Directors of the Company have
reviewed the appraisal of FinPro in determining the reasonableness and
adequacy of such appraisal consistent with applicable regulations and have
reviewed the methodology and reasonableness of assumptions utilized by FinPro
in the preparation of such appraisal and established the Estimated Price in a
manner consistent with this appraisal.
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On the basis of the foregoing, FinPro has advised the Company and the
Bank that, in its opinion dated as of October 20, 1997, the estimated pro
forma market value of the Common Stock being sold in connection with the
Conversion ranged from a minimum of $42.0 million to a maximum of $56.8
million (the "Valuation Price Range") with a midpoint of $49.4 million. The
Board of Directors established the Estimated Price Range of $42.0 million to
$56.8 million within the Valuation Price Range based on the issuance of
4,199,000 to 5,681,000 shares at the Purchase Price of $10.00 per share. The
Estimated Price Range may be amended with the approval of the Commissioner
and FDIC, if required, if necessitated by subsequent developments in the
financial condition of the Company or the Bank or market conditions generally.
Such appraisal, however, is not intended, and must not be construed, as a
recommendation of any kind as to the advisability of purchasing such shares
of Common Stock. FinPro did not independently verify the Consolidated
Financial Statements and other information provided by the Bank, nor did
FinPro value independently the assets or liabilities of the Bank. The
appraisal considers the Bank as a going concern and should not be considered
as an indication of the liquidation value of the Bank. Moreover, because such
appraisal is necessarily based upon estimates and projections of a number of
matters, all of which are subject to change from time to time, no assurance
can be given that persons purchasing such shares in the Conversion will
thereafter be able to sell such shares at prices at or above the Purchase
Price or in the range of the foregoing valuation of the pro forma market
value thereof.
Following commencement of the Subscription and Community Offerings, the
maximum of the Estimated Price Range may be increased up to 15% and the
number of shares of Common Stock being sold in the Conversion may be
increased to 6,533,150 shares due to regulatory considerations, or changes in
the market and general financial and economic conditions, without the
resolicitation of subscribers. See "-- Limitations on Common Stock Purchases"
as to the method of distribution and allocation of additional shares that may
be issued in the event of an increase in the Estimated Price Range to fill
unfilled orders in the Subscription and Community Offerings.
No sale of shares of Common Stock in the Conversion may be consummated
unless prior to such consummation FinPro confirms that nothing of a material
nature has occurred which, taking into account all relevant factors, would
cause it to conclude that the aggregate price is materially incompatible with
the estimate of the pro forma valuation of the aggregate market value of the
Common Stock at the time of the sale of the Common Stock. If such is not the
case, a new Estimated Price Range may be set, a new Subscription and
Community Offering and/or Syndicated Community Offering may be held or such
other action may be taken as the Company and the Bank shall determine and the
Commissioner and FDIC may permit.
Copies of the appraisal report of FinPro including any amendments
thereto, and the detailed memorandum of the appraiser setting forth the
method and assumptions for such appraisal are available for inspection at the
main office of the Bank and the other locations specified under "Additional
Information."
Number of Shares to be Issued
Depending upon market or financial conditions following the commencement
of the Subscription and Community Offerings, the total number of shares to be
sold in the Conversion may be increased or decreased without a resolicitation
of subscribers, provided that the product of the total number of shares times
the price per share is not below the minimum of the Estimated Price Range or
more than 15% above the maximum of the Estimated Price Range. Based on a
fixed purchase price of $10.00 per share and FinPro estimate of the pro forma
market value of the Common Stock ranging from a minimum of $42.0 million to
a maximum, as increased by 15%, of $56.8 million, the number of shares of
Common Stock expected to be sold is between a minimum of 4,199,000 shares and
a maximum, as adjusted by 15%, of 5,681,000 shares. The actual number of
shares issued between this range will depend on a number of factors and shall
be determined by the Bank and Company subject to the approval of the
Commissioner and FDIC.
In the event market or financial conditions change so as to cause the
aggregate purchase price of the shares to be below the minimum of the
Estimated Price Range or more than 15% above the maximum of the Estimated
Price Range, if the Plan is not terminated by the Company and the Bank after
consultation with the Commissioner and FDIC, purchasers will be resolicited
(i.e., permitted to continue their orders, in which case they will need to
affirmatively reconfirm their subscriptions prior to the expiration of the
resolicitation offering or their subscription funds will be
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promptly refunded, or be permitted to modify or rescind their subscriptions).
Any change in the Estimated Price Range must be approved by the Commissioner
and FDIC. If the number of shares issued in the Conversion is increased due
to an increase of up to 15% in the Estimated Price Range to reflect changes
in market or financial conditions, persons who subscribed for the maximum
number of shares will not be given the opportunity to subscribe for an
adjusted maximum number of shares. See "-- Limitations on Common Stock
Purchases."
An increase in the number of shares to be issued in the Conversion as a
result of an increase in the estimated pro forma market value would decrease
both a subscriber's ownership interest and the Company's pro forma net
earnings and stockholders' equity on a per share basis while increasing pro
forma net earnings and stockholders' equity on an aggregate basis. A
decrease in the number of shares to be issued in the Conversion would
increase both a subscriber's ownership interest and the Company's pro forma
net earnings and stockholders' equity on a per share basis while decreasing
pro forma net earnings and stockholder's equity on an aggregate basis. For a
presentation of the effects of such changes, see "Pro Forma Data."
The number of shares to be issued and outstanding as a result of the sale
of Common Stock in the Conversion will be increased by a number of shares
equal to 8% of the Common Stock issued in the Conversion to fund the
Foundation. Assuming the sale of shares in the Offerings at the maximum of
the Estimated Price Range, the Company will issue 454,480 shares of its
Common Stock from authorized but unissued shares to the Foundation
immediately following the completion of the Conversion. In that event, the
Company will have total shares of Common Stock outstanding of 6,135,480
shares. Of that amount, the Foundation will own 7.4%. Funding the
Foundation with authorized but unissued shares will have the effect of
diluting the ownership and voting interests of persons purchasing shares in
the Conversion by 7.4% since a greater number of shares will be outstanding
upon completion of the Conversion than would be if the Foundation were not
established. See "Pro Forma Data."
Subscription Offering and Subscription Rights
In accordance with the Plan of Conversion, rights to subscribe for the
purchase of Common Stock have been granted under the Plan of Conversion to
the following persons in the following order of descending priority: (1)
holders of deposit accounts with the Bank who had a balance of $100 or more
as of July 31, 1996 ("Eligible Account Holders"); (2) the Employee Plans,
including the ESOP; (3) holders of deposit accounts with a balance of $100 or
more as of September 30, 1997 ("Supplemental Eligible Account Holders"); and
(4) Depositors of the Bank as of the Voting Record Date ("Other Voting
Members"). All subscriptions received will be subject to the availability
of Common Stock after satisfaction of all subscriptions of all persons having
prior rights in the Subscription Offering and to the maximum and minimum
purchase limitations set forth in the Plan of Conversion and as described
below under "-- Limitations on Common Stock Purchases."
Priority 1: Eligible Account Holders. Each Eligible Account Holder will
receive, without payment therefor, first priority, nontransferable
subscription rights to subscribe for in the Subscription Offering up to the
amount permitted to be purchased in the Community Offering, currently
$200,000 of Common Stock, subject to the overall maximum purchase limitation.
See "-- Limitations on Common Stock Purchases." Subscription rights received
by officers and directors of the Bank and their associates based on increased
deposits in the Bank in the one-year period preceding July 31, 1996 will be
subordinated to all other subscription rights of Eligible Account Holders.
In the event that Eligible Account Holders exercise subscription rights
for a number of shares of Common Stock in excess of the total number of such
shares eligible for subscription, the shares of Common Stock will be
allocated so as to permit each subscribing Eligible Account Holder to
purchase a number of shares sufficient to make his total allocation equal to
the lesser of 100 shares or the number of shares subscribed for. Thereafter,
unallocated shares will be allocated among the remaining subscribing Eligible
Account Holders whose subscriptions remain unfilled in the proportion that
the amounts of their respective qualifying deposits bear to the total amount
of qualifying deposits of all remaining Eligible Account Holders whose
subscriptions remain unfilled.
To ensure proper allocation of stock, each Eligible Account Holder must
list on his or her stock order form all accounts in which such Eligible
Account Holder has an ownership interest. Failure to list an account could
result in less shares being allocated than if all accounts had been
disclosed.
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Priority 2: Employee Plans. To the extent that there are sufficient
shares remaining after satisfaction of the subscriptions by Eligible Account
Holders, the Employee Plans, including the ESOP, will receive, without
payment therefor, second priority, nontransferable subscription rights to
purchase, in the aggregate, up to 10% of Common Stock issued in the
Conversion, including any increase in the number of shares of Common Stock to
be issued in the Conversion after the date hereof as a result of an increase
of up to 15% in the maximum of the Estimated Price Range. The ESOP intends
to purchase 8% of the shares to be issued in connection with the Conversion,
including shares issued to the Foundation, or 362,794 shares and 490,838
shares, based on the issuance of 4,534,920 shares and 6,135,480 shares,
respectively. Subscriptions by the ESOP will not be aggregated with shares
of Common Stock purchased directly by or which are otherwise attributable to
any other participants in the Subscription and Community Offerings, including
subscriptions of any of the Bank's directors, officers, employees or
associates thereof. See "Management of the Bank -- Benefit Plans -- ESOP."
Priority 3: Supplemental Eligible Account Holders. To the extent there
are sufficient shares remaining after the satisfaction of subscriptions by
Eligible Account Holders and the Employee Plans, each Supplemental Eligible
Account Holder will receive, without payment therefor, as third priority,
nontransferable subscription rights to subscribe for in the Subscription
Offering up to the amount permitted to be purchased in the Community
Offering, currently $200,000 of Common Stock, subject to the overall maximum
purchase limitation. See "-- Limitations on Common Stock Purchases."
In the event that Supplemental Eligible Account Holders exercise
subscription rights for a number of shares of Common Stock in excess of the
total number of shares eligible for subscription after the satisfaction of
subscriptions by Eligible Account Holders and the Employee Plans, the shares
of Common Stock will be allocated so as to permit each subscribing
Supplemental Eligible Account Holder, to the extent possible, to purchase a
number of shares sufficient to make his total allocation equal to the lesser
of 100 shares or the number of shares subscribed for. Thereafter,
unallocated shares will be allocated among the remaining subscribing
Supplemental Eligible Account Holders whose subscriptions remain unfilled in
the proportion that the amounts of their respective qualifying deposits bear
to the total amount of qualifying deposits of all remaining Supplemental
Eligible Account Holders whose subscriptions remain unfilled.
To ensure proper allocation of stock, each Supplemental Eligible Account
Holder must list on his or her stock order form all accounts in which such
Supplemental Eligible Account Holder has an ownership interest. Failure to
list an account could result in less shares being allocated than if all
accounts had been disclosed. The subscription rights received by Eligible
Account Holders will be applied in partial satisfaction of the subscription
rights to be received as a Supplemental Eligible Account Holder.
Priority 4: Other Voting Members. To the extent there are sufficient
shares remaining after the satisfaction of subscriptions by Eligible Account
Holders, the Employee Plans and Supplemental Eligible Account Holders, each
Other Voting Member will receive, without payment therefor, as fourth
priority, nontransferable subscription rights to subscribe for in the
Subscription Offering up to the amount permitted to be purchased in the
Community Offering, currently $200,000 of Common Stock, subject to the
overall maximum purchase limitation. See "-- Limitations on Common Stock
Purchases."
In the event that Other Voting Members exercise subscription rights for a
number of shares of Common Stock in excess of the total number of shares
eligible for subscription after the satisfaction of subscriptions by Eligible
Account Holders, the Employee Plans and Supplemental Eligible Account
Holders, the shares of Common Stock will be allocated so as to permit each
subscribing Other Voting Members, to the extent possible, to purchase a
number of shares sufficient to make his total allocation equal to the lesser
of 100 shares or the number of shares subscribed for. Thereafter,
unallocated shares will be allocated among the remaining subscribing Other
Voting Members whose subscriptions remain unfilled in the proportion that the
amounts of their respective qualifying deposits bear to the total amount of
qualifying deposits of all remaining Other Voting Members whose subscriptions
remain unfilled.
To ensure proper allocation of stock, each Other Voting Member must list
on his or her stock order form all accounts in which such Other Voting Member
has an ownership interest. Failure to list an account could result in less
shares being allocated than if all accounts had been disclosed.
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Expiration Date for the Subscription Offering. The Subscription Offering
will expire on the Expiration Date ( _________________, 1998) at 12:00 Noon,
Central time, unless extended for up to 45 days by the Bank and Company or
such additional periods with the approval of the Commissioner and FDIC, if
required. Subscription rights which have not been exercised prior to the
Expiration Date will become void. The Bank will not execute orders until all
shares of Common Stock have been subscribed for or otherwise sold. If all
shares have not been subscribed for or sold within 45 days after the
Expiration Date, unless such period is extended with the consent of the
Commissioner and FDIC, all funds delivered to the Bank pursuant to the
Subscription Offering will be returned promptly to the subscribers with
interest and all withdrawal authorizations will be canceled. If an extension
beyond the 45 day period following the Expiration Date is granted, the Bank
will notify subscribers of the extension of time and of any rights of
subscribers to modify or rescind their subscriptions and have their funds
returned promptly with interest, and of the time period within which
subscribers must affirmatively notify the Bank of their intention to confirm,
modify, or rescind their subscription. If an affirmative response to any
resolicitation is not received by the Company from a subscriber, such order
will be rescinded and all subscription funds will be promptly returned with
interest. Such extensions may not go beyond _______________, 1999.
Community Offering
To the extent that shares remain available for purchase after
satisfaction of all subscriptions of Eligible Account Holders, the ESOP,
Supplemental Eligible Account Holders and Other Voting Members, the Bank has
determined to offer shares pursuant to the Plan to certain members of the
general public, with preference given to natural persons residing in Kane and
McHenry Counties, Illinois ("Preferred Subscribers"). Such persons, together
with associates of and persons acting in concert with such persons, may
purchase up to $200,000 of Common Stock, subject to the maximum overall
purchase limitation and exclusive of shares issued pursuant to an increase in
the Estimated Price Range by up to 15%. See "-- Limitations on Common Stock
Purchases." This amount may be increased to up to a maximum of 5% of the
Common Stock issued or decreased to less than $200,000 at the discretion of
the Company and the Bank, subject to the approval of the Commissioner and the
FDIC. The opportunity to subscribe for shares of Common Stock in the
Community Offering category is subject to the right of the Bank and the
Company, in its sole discretion, to accept or reject any such orders, in
whole or in part, either at the time of receipt of an order or as soon as
practicable following the Expiration Date. The Community Offering may be
commenced at any time during the Subscription Offering or subsequent thereto.
Subject to the foregoing, if the amount of stock remaining is
insufficient to fill the orders of preferred subscribers after completion of
the Subscription and Community Offerings and the filling of institutional
investor orders, such stock will be allocated first to each preferred
subscriber whose order is accepted by the Bank, in an amount equal to the
lesser of 100 shares or the number of shares subscribed for by each such
preferred subscriber, if possible. Thereafter, unallocated shares will be
allocated among the preferred subscribers whose order remains unsatisfied on
a 100 shares per order basis until all such orders have been filled or the
remaining shares have been allocated. If there are any shares remaining,
shares will be allocated to other persons of the general public who purchase
in the Community Offering applying the same allocation described above for
preferred subscribers.
Residents of Foreign Countries and Certain States
The Company and the Bank will make reasonable efforts to comply with the
securities laws of all states in the United States in which persons entitled
to subscribe for stock pursuant to the Plan reside. The Plan provides that
the Bank and the Company are not required to offer stock in the Subscription
Offering to any person who resides in a foreign country.
Marketing and Underwriting Arrangements
The Bank and the Company have engaged Webb as a financial and marketing
advisor to advise the Company and the Bank with respect to the Subscription
and Community Offerings. Webb is a registered broker-dealer and is a member
of the National Association of Securities Dealers, Inc. ("NASD"). Webb will
assist the Company and the Bank in the Conversion by, among other things: (i)
developing marketing materials; (ii) targeting potential investors in the
Subscription Offering and other investors eligible to participate in the
Community Offering; (iii) soliciting potential investors by phone or in
person; (iv) training management and staff to perform tasks in connection
with the Conversion;
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(v) managing and setting up the Conversion Center; (vi) managing the
subscription campaign; and (vii) the solicitation of proxies.
The Bank will pay Webb a management advisory fee equal to 1.25% of the
dollar value of all stock sold in the Subscription and Community Offerings.
Such amount is exclusive of any shares sold to the ESOP, directors, officers
and employees and members of their immediate families. Such fees will be
paid upon completion of the Conversion. Webb shall be reimbursed for its
expenses, including its legal fees, in an amount not to exceed $60,000. Webb
has not prepared any report or opinion constituting a recommendation or
advice to the Company or the Bank or to persons who subscribe in the
Offerings, nor has it prepared an opinion as to the fairness to the Company
or the Bank of the Purchase Price or the terms of the Offerings. Webb
expresses no opinion as to the prices at which Common Stock to be issued in
the Offerings may trade. The Bank has agreed to indemnify Webb against
certain liabilities including certain liabilities under the Securities Act
and certain misrepresentations or breaches by the Company or the Bank
relating to the agreement with Webb.
In the event any shares of Common Stock are unsold after completion of
the Subscription and Community Offerings, at the request of the Company and
the Bank, Webb will seek to form a syndicate of registered broker-dealers to
assist in the sale of such Common Stock on a best efforts basis, subject to
the terms and conditions set forth in the selected dealers agreement. Webb
will endeavor to distribute the Common Stock among dealers in a fashion which
best meets the distribution objectives of the Bank and the Plan of
Conversion. Webb will be paid a fee not to exceed 5.5% of the aggregate
Purchase Price of the shares of Common Stock sold by them. Webb will pass
onto selected broker-dealers, who assist in the Syndicated Community
Offering, an amount competitive with gross underwriting discounts charged at
such time for comparable amounts of stock sold at a comparable price per
share in a similar market environment. Fees with respect to purchases
effected with the assistance of a selected broker-dealer other than Webb
shall be transmitted by Webb to such broker-dealer. Total marketing fees to
Webb are expected to be $428,000 and $598,000 at the minimum and maximum of
the Estimated Price Range, respectively. See "Pro Forma Data" for the
assumptions used to arrive at these estimates.
Crowe, Chizek will perform conversion and records management services for
the Bank in the Conversion and will receive a fee for this service of $18,000
plus reimbursement of reasonable out-of-pocket expenses not to exceed $1,000.
Directors and executive officers of the Company and Bank may participate
in the solicitation of offers to purchase Common Stock. Questions of
prospective purchasers will be directed to executive officers or registered
representatives. Other employees of the Bank may participate in the Offering
in ministerial capacities or providing clerical work in effecting a sales
transaction. Such other employees have been instructed not to solicit offers
to purchase Common Stock or provide advice regarding the purchase of Common
Stock. The Company will rely on Rule 3a4-1 under the Exchange Act, and sales
of Common Stock will be conducted within the requirements of Rule 3a4-1, so
as to permit officers, directors and employees to participate in the sale of
Common Stock. No officer, director or employee of the Company or the Bank
will be compensated in connection with his participation by the payment of
commissions or other remuneration based either directly or indirectly on the
transactions in the Common Stock.
Procedure for Purchasing Shares in Subscription and Community Offerings
To ensure that each purchaser receives a prospectus at least 48 hours
before the Expiration Date in accordance with Rule 15c2-8 of the Exchange
Act, no prospectus will be mailed any later than five days prior to such date
or hand delivered any later than two days prior to such date. Execution of
the stock order form and certification form will confirm receipt or delivery
in accordance with Rule 15c2-8. Stock order and certification forms will
only be distributed with a prospectus.
To purchase shares in the Subscription and Community Offerings, an
executed stock order form and certification 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 stock order form), must be received by the Bank
at any of its offices by 12:00 Noon, Central time, on the Expiration Date.
Stock order forms which are not received by such time or are executed
defectively or are received without full payment (or appropriate withdrawal
instructions) are not required to be accepted. In addition, the Bank and
Company are not
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obligated to accept orders submitted on photocopied or facsimilied stock
order forms and will not accept stock order forms unaccompanied by an
executed certification form. Notwithstanding the foregoing, the Company and
Bank shall have the right, each in their sole discretion, to permit
institutional investors to submit irrevocable orders together with a legally
binding commitment for payment and to thereafter pay for the shares of Common
Stock for which they subscribe in the Community Offering at any time prior to
48 hours before the completion of the Conversion. The 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 stock order form may not be modified, amended or rescinded without
the consent of the Bank unless the Conversion has not been completed within
45 days after the end of the Subscription and Community Offerings, unless
such period has been extended.
In order to ensure that Eligible Account Holders and Supplemental
Eligible Account Holders are properly identified as to their stock purchase
priorities, depositors as of the Eligibility Record Date (July 31, 1996), the
Supplemental Eligibility Record Date (_____________, 1997) and/or the Voting
Record Date (______________, 1997) must list all accounts on the stock order
form giving all names in each account and the account number.
Payment for subscriptions may be made (i) in cash if delivered in person
at the Conversion Center, (ii) by check, bank draft or money order, or (iii)
by authorization of withdrawal from deposit accounts maintained with the
Bank. No wire transfers will be accepted. Interest will be paid on payments
made by cash, check, bank draft or money order at the Bank's passbook rate of
interest from the date payment is received until the completion or
termination of the Conversion. If payment is made by authorization of
withdrawal from deposit accounts, the funds authorized to be withdrawn from a
deposit account will continue to accrue interest at the contractual rates
until completion or termination of the Conversion, but a hold will be placed
on such funds, thereby making them unavailable to the depositor until
completion or termination of the Conversion.
If a subscriber authorizes the Bank to withdraw the amount of the
purchase price from his deposit account, the Bank will do so as of the
effective date of the Conversion. The Bank will waive any applicable
penalties for early withdrawal from certificate accounts. If the remaining
balance in a certificate account is reduced below the applicable minimum
balance requirement at the time that the funds actually are transferred under
the authorization, the certificate will be canceled at the time of the
withdrawal, without penalty, and the remaining balance will earn interest at
the Bank's passbook rate.
If the ESOP subscribes for shares during the Subscription Offering, the
ESOP will not be required to pay for the shares subscribed for at the time it
subscribes, but rather, may pay for such shares of Common Stock subscribed
for at the Purchase Price upon consummation of the Subscription and Community
Offering, if all shares are sold, or upon consummation of the Syndicated
Community Offering if shares remain to be sold in such offering; provided,
that there is in force from the time of its subscription until such time, a
loan commitment from an unrelated financial institution or the Company to
lend to the ESOP, at such time, the aggregate Purchase Price of the shares
for which it subscribed.
Owners of self-directed IRAs and other Qualified Plan accounts, such as
Keogh accounts, may use the assets of such IRAs and other Qualified Plan
accounts, to purchase shares of Common Stock in the Subscription and
Community Offerings, provided that such IRAs or other Qualified Plan accounts
are not maintained at the Bank. Persons with self-directed IRAs or Qualified
Plan accounts maintained at the Bank must have their accounts transferred to
an unaffiliated institution or broker to purchase shares of Common Stock in
the Subscription and Community Offerings. In addition, the provisions of
ERISA and IRS regulations require that officers, directors and ten percent
shareholders who use self-directed IRA or Qualified Plan account funds to
purchase shares of Common Stock in the Subscription and Community Offerings,
make such purchases for the exclusive benefit of the IRAs or Qualified Plan
accounts. For further information regarding the transfer of the
above-mentioned accounts, please call the Conversion Center at (847)
___________.
Certificates representing shares of Common Stock purchased will be mailed
to purchasers at the address specified in properly completed stock 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.
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Restrictions on Transfer of Subscription Rights and Shares
Pursuant to the rules and regulations of the Commissioner and the FDIC,
no person with subscription rights may transfer or enter into any agreement
or understanding to transfer the legal or beneficial ownership of the
subscription rights issued under the Plan or the shares of Common Stock to be
issued upon their exercise. Such rights may be exercised only by the person
to whom they are granted and only for his or her account. Each person
exercising such subscription rights will be required to certify that he or
she is purchasing shares solely for his or her own account and that he or she
has no agreement or understanding regarding the sale or transfer of such
shares. The 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 Company will pursue any and all legal and equitable
remedies (including forfeiture) 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.
Syndicated Community Offering
As a final step in the Conversion, the Plan provides that, if feasible,
all shares of Common Stock not purchased in the Subscription and Community
Offerings, if any, will be offered for sale to the general public in a
Syndicated Community Offering through a syndicate of registered
broker-dealers to be formed and managed by Webb acting as agent of the
Company to assist the Company and the Bank in the sale of the Common Stock.
The Company and the Bank have the right to reject orders in whole or in part
in their sole discretion in the Syndicated Community Offering. Neither Webb
nor any registered broker-dealer shall have any obligation to take or
purchase any shares of the Common Stock in the Syndicated Community Offering,
however, Webb has agreed to use its best efforts in the sale of shares in the
Syndicated Community Offering.
The price at which Common Stock is sold in the Syndicated Community
Offering will be determined as described above under "-- Stock Pricing."
Subject to the overall maximum purchase limitation, no person, together with
any associate or group of persons acting in concert, will be permitted to
subscribe in the Syndicated Community Offering for more than $200,000 of
Common Stock; provided, however, that shares of Common Stock purchased in the
Community Offering by any persons, together with associates of or persons
acting in concert with such persons, will be aggregated with purchases in the
Syndicated Community Offering and be subject to an overall maximum purchase
limitation of 1.0% of the shares offered, exclusive of an increase in shares
issued pursuant to an increase in the Estimated Price Range by up to 15%.
Payments made in the form of a check, bank draft, money order or in cash
will earn interest at the Bank's passbook rate of interest from the date such
payment is actually received by the Bank until completion or termination of
the Conversion.
In addition to the foregoing, if a syndicate of broker-dealers ("selected
dealers") is formed to assist in the Syndicated Community Offering, a
purchaser may pay for his shares with funds held by or deposited with a
selected dealer. If an order form is executed and forwarded to the selected
dealer or if the selected dealer is authorized to execute the order form on
behalf of a purchaser, the selected dealer is required to forward the order
form and funds to the Bank for deposit in a segregated account on or before
12:00 noon of the business day following receipt of the order form or
execution of the order form by the selected dealer. Alternatively, selected
dealers may solicit indications of interest from their customers to place
orders for shares. Such selected dealers shall subsequently contact their
customers who indicated an interest and seek their confirmation as to their
intent to purchase. Those indicating an intent to purchase shall execute
order forms and forward them to their selected dealer or authorize the
selected dealer to execute such forms. The selected dealer will acknowledge
receipt of the order to its customer in writing on the following business day
and will debit such customer's account on the third business day after the
customer has confirmed his intent to purchase (the "debit date") and on or
before 12:00 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.
Although purchasers' funds are not required to be in their accounts with
selected dealers until the debit date in the event that such alternative
procedure is employed once a confirmation of an intent to purchase has been
received by the selected dealer, the purchaser has no right to rescind his
order.
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Certificates representing shares of Common Stock purchased, together with
any refund due, will be mailed to purchasers at the address specified in the
order form, as soon as practicable following consummation of the sale of the
Common Stock. Any certificates returned as undeliverable will be disposed of
in accordance with applicable law.
The Syndicated Community Offering will terminate no more than 45 days
following the Subscription Expiration Date, unless extended by the Company
with the approval of the Commissioner and FDIC. Such extensions may not be
beyond _______________, 1999. See "-- Stock Pricing" above for a discussion
of rights of subscribers, if any, in the event an extension is granted.
Limitations on Common Stock Purchases
The Plan includes the following limitations on the number of shares of
Common Stock which may be purchased during the Conversion:
(1) No less than 25 shares;
(2) Each Eligible Account Holder may subscribe for and purchase in the
Subscription Offering up to the amount permitted to be purchased in
the Community Offering, currently $200,000 of Common Stock, subject
to the overall maximum purchase limitation described in (8) below;
(3) The Employee Plans, including the ESOP, are permitted to purchase,
in the aggregate, up to 10% of the shares of Common Stock issued in
the Conversion, including shares issued in the event of an increase
in the Estimated Price Range of 15%, and the ESOP intends to
purchase 8% of the shares of Common Stock issued sold in connection
with the Conversion, including shares issued to the Foundation;
(4) Each Supplemental Eligible Account Holder may subscribe for and
purchase in the Subscription Offering up to the amount permitted to
be purchased in the Community Offering, currently $200,000 of Common
Stock, subject to the overall maximum purchase limitation described
in (8) below;
(5) Each Other Voting Member may subscribe for and purchase in the
Subscription Offering up to the amount permitted to be purchased in
the Community Offering, currently $200,000 of Common Stock, subject
to the overall maximum purchase limitation described in (8) below;
(6) Persons purchasing shares of Common Stock in the Community Offering,
together with associates of and groups of persons acting in concert
with such persons, may purchase in the Community Offering up to
$200,000 of Common Stock, subject to the overall maximum purchase
limitation described in (8) below;
(7) Persons purchasing shares of Common Stock in the Syndicated
Community Offering, together with associates of and persons acting
in concert with such persons, may purchase in the Syndicated
Community Offering up to $200,000 of Common Stock subject to the
overall maximum purchase limitation described in (8) below and,
provided further, that shares of Common Stock purchased in the
Community Offering by any persons, together with associates of and
persons acting in concert with such persons, will be aggregated with
purchases in the Syndicated Community Offering in applying the
$200,000 purchase limitation;
(8) Eligible Account Holders, Supplemental Eligible Account Holders and
Other Voting Members may purchase stock in the Community Offering
and Syndicated Community Offering, subject to the purchase
limitations described in (6) and (7) above, provided that, except
for the ESOP, the overall maximum number of shares of Common Stock
subscribed for or purchased in all categories of the Conversion by
any person, together with associates of and groups of persons acting
in concert with such persons, shall not exceed 1.0% of the shares of
Common Stock offered in the Conversion and exclusive of an increase
in the total number of shares issued due to an increase in the
Estimated Price Range of up to 15%; and
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(9) No more than 20% of the total number of shares issued in the
Conversion may be purchased by Directors and officers of the Bank or
Company and their associates in the aggregate, excluding purchases
by the ESOP.
Subject to any required regulatory approval and the requirements of
applicable laws and regulations, but without further approval of depositors
of the Bank or subscribers for Common Stock, both the individual amount
permitted to be subscribed for and the overall maximum purchase limitation
may be increased to up to a maximum of 5% of the Common Stock to be issued at
the sole discretion of the Company and the Bank. If such amount is
increased, subscribers for the maximum amount will be, and certain other
large subscribers in the sole discretion of the Bank may be, given the
opportunity to increase their subscriptions up to the then applicable limit.
The overall maximum purchase limitation may not be reduced to less than
1.0%, and the individual amount permitted to be subscribed for may not be
reduced by the Bank to less than .10% without the further approval of members
or resolicitation of subscribers. An Eligible Account Holder or Supplemental
Eligible Account Holder may not purchase individually in the Subscription
Offering the overall maximum purchase limit of 1.0% of the shares offered,
but may make such purchase, together with associates of and persons acting in
concert with such person, by also purchasing in other available categories of
the Conversion, subject to availability of shares and the maximum overall
purchase limit for purchases in the Conversion.
The term "associate" of a person is defined to mean: (i) any corporation
(other than the Bank or a majority-owned subsidiary of the Bank) of which
such person is an officer, partner or 10% stockholder; (ii) any trust or
other estate in which such person has a substantial beneficial interest or
serves as a director or in a similar fiduciary capacity; provided, however,
such term shall not include any employee stock benefit plan of the Bank in
which such person has a substantial beneficial interest or serves as a
director or in a similar fiduciary capacity; and (iii) any relative or spouse
of such person, or any relative of such spouse, who either has the same home
as such person or who is a director or officer of the Bank. Directors are not
treated as associates of each other solely because of their Board membership.
For a further discussion of limitations on purchases of a converting
institution's stock at the time of Conversion and subsequent to Conversion,
see "Management of the Bank -- Subscriptions by Executive Officers and
Directors," "-- Certain Restrictions on Purchase or Transfer of Shares After
Conversion" and "Restrictions on Acquisition of the Company and the Bank."
Liquidation Rights
In the unlikely event of a complete liquidation of the Bank in its
present mutual form, each depositor would have a claim to receive their pro
rata share of any assets of the Bank remaining after payment of claims of all
creditors (including the claims of all depositors to the withdrawal value of
their accounts). To the extent there are remaining assets, a depositor would
have a claim to receive a pro rata share of any such remaining assets in the
same proportion as the value of such depositor's deposit accounts to the
total value of all deposit accounts in the Bank at the time of liquidation.
After the Conversion, each depositor, in the event of a complete liquidation,
would have a claim as a creditor of the same general priority as the claims
of all other general creditors of the Bank. However, except as described
below, their claim would be solely in the amount of the balance in their
deposit account plus accrued interest. Such depositor would not have an
interest in the value or assets of the Bank above that amount.
The Plan provides for the establishment, upon the completion of the
Conversion, of a special "liquidation account" for the benefit of Eligible
Account Holders and Supplemental Eligible Account Holders in an amount equal
to the surplus and reserves of the Bank as of the date of its latest balance
sheet contained in the final Prospectus used in connection with the
Conversion. Such liquidation account will not be reflected as an asset or
liability on the Company's or the Bank's financial statements
subsequent to the Conversion. Eligible Account Holders and Supplemental
Eligible Account Holders, if they were to continue to maintain their deposit
account at the Bank, would, on a complete liquidation of the Bank, have a
claim to an interest in the liquidation account after payment of all
creditors prior to any payment to the stockholders of the Bank. Each
Eligible Account Holder and Supplemental Eligible Account Holder would have
an initial interest in such liquidation account for each deposit account,
demand account, NOW account, money market deposit account, and certificate of
deposit account, with a balance of $100 or more held in the Bank on July 31,
1996 and ____________, 1997, respectively ("Deposit Account"). Each Eligible
Account Holder and Supplemental Eligible Account Holder will have a claim to
a pro rata interest in the total liquidation account for each
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of his Deposit Accounts based on the proportion that the balance of each such
Deposit Account on the July 31, 1996 eligibility record date or the
____________, 1997 Supplemental Eligibility Record Date bore to the balance
of all qualifying deposits of all Eligible Account Holders and Supplemental
Eligible Account Holders on such date.
If, however, at the close of business on the last day of any period for
which the Bank or Company has prepared audited financial statements
subsequent to the effective date of the Conversion ("annual closing date"),
the amount in any deposit account is less than the amount in such deposit
account on any other annual closing date, then such person's interest in the
liquidation account relating to such deposit account would be reduced from
time to time by the proportion of any such reduction, and such interest will
cease to exist if such deposit account is withdrawn or closed. For purposes
of the liquidation account, time deposit accounts shall be deemed to be
closed upon maturity regardless of any renewal thereof. In addition, no
interest in the liquidation account would ever be increased despite any
subsequent increase in the related deposit account. Any assets remaining
after the above liquidation rights of Eligible Account Holders and
Supplemental Eligible Account Holders are satisfied would be distributed to
the Company as the sole stockholder of the Bank.
Tax Aspects
Consummation of the Conversion is expressly conditioned upon the receipt
by the Bank of either a favorable ruling from the IRS or an opinion of
counsel with respect to federal income taxation, and an opinion of its
independent auditors with respect to certain Illinois state taxation, to the
effect that the Conversion will not be a taxable transaction to the Company,
the Bank, Eligible Account Holders or Supplemental Eligible Account Holders,
except as noted below. The federal and Illinois tax consequences will remain
unchanged in the event that a holding company form of organization is not
utilized.
No private ruling has been requested from the IRS with respect to the
proposed Conversion. Instead, the Bank has received an opinion of its
counsel, Muldoon, Murphy & Faucette, which has been filed with the SEC as an
exhibit to the Company's Registration Statement to the effect that for
federal income tax purposes, among other matters: (i) the Bank's change in
form from mutual to stock ownership will constitute a reorganization under
section 368(a)(1)(F) of the Internal Revenue Code and neither the Bank nor
the Company will recognize any gain or loss as a result of the Conversion;
(ii) no gain or loss will be recognized by the Bank or the Company upon the
purchase of the Bank's capital stock by the Company or by the Company upon
the purchase of its Common Stock in the Conversion; (iii) no gain or loss
will be recognized by Eligible Account Holders or Supplemental Eligible
Account Holders upon the issuance to them of deposit accounts in the Bank in
its stock form plus their interests in the liquidation account in exchange
for their deposit accounts in the Bank; (iv) the tax basis of the depositors'
deposit accounts in the Bank immediately after the Conversion will be the
same as the basis of their deposit accounts immediately prior to the
Conversion; (v) the tax basis of each Eligible Account Holder's or
Supplemental Eligible Account Holder's interest in the liquidation account
will be zero; (vi) no gain or loss will be recognized by Eligible Account
Holders or Supplemental Eligible Account Holders upon the distribution to
them of nontransferable subscription rights to purchase shares of the Common
Stock, provided that the amount to be paid for the Common Stock is equal to
the fair market value of such stock; and (vii) the tax basis to the
stockholders of the Common Stock of the Company purchased in the Conversion
will be the amount paid therefor and the holding period for the shares of
Common Stock purchased by such persons will begin on the date on which their
subscription rights are exercised. KPMG Peat Marwick LLP has opined, subject
to the limitations and qualifications in its opinion, that: the foregoing
tax effects of the Conversion under Illinois law are substantially the same
as they are under Federal law. Certain portions of both the Federal and the
state tax opinions are based upon the opinion of FinPro that subscription
rights issued in connection with the Conversion will have no value.
In the opinion of FinPro, which opinion is not binding on the IRS, the
subscription rights do not have any value, based on the fact that such rights
are acquired by the recipients without cost, are nontransferable and of short
duration, and afford the recipients the right only to purchase the Common
Stock at a price equal to its estimated fair market value, which will be the
same price as the Purchase Price for the unsubscribed shares of Common Stock.
If the subscription rights granted to eligible subscribers are deemed to
have an ascertainable value, such recipients could be taxed either on the
receipt or exercise of such subscription rights.
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Unlike private rulings, an opinion of counsel is not binding on the IRS
and the IRS could disagree with conclusions reached therein. In the event of
such disagreement, there can be no assurance that the IRS would not prevail
in a judicial or administrative proceeding.
Certain Restrictions on Purchase or Transfer of Shares After Conversion
All shares of Common Stock purchased in connection with the Conversion by
a Director or an executive officer of the Bank or Company will be subject to
a restriction that the shares not be sold for a period of one year following
the Conversion, except in the event of the death of such Director or
executive officer. Each certificate for such restricted shares will bear a
legend giving notice of this restriction on transfer, and instructions will
be issued to the effect that transfer within such time period of any
certificate or record ownership of such shares other than as provided above
is a violation of such restriction. Any shares of Common Stock issued at a
later date as a stock dividend, stock split, or otherwise, with respect to
such restricted stock will be subject to the restriction that they may not be
sold for a period of one year following the Conversion. The Directors and
executive officers of the Bank or Company will also be subject to the insider
trading rules promulgated pursuant to the Exchange Act.
Purchases of outstanding shares of Common Stock of the Company by
Directors, executive officers (or any person who was an executive officer or
Director of the Bank after adoption of the Plan of Conversion) and their
associates during the three-year period following Conversion may be made only
through a broker or dealer registered with the SEC, except with the prior
written approval of the Commissioner. This restriction does not apply,
however, to the purchase of Common Stock pursuant to the Stock Program or
Stock Option Plan.
Interpretation, Amendment and Termination
All interpretations of the Plan by the Board of Directors of the Bank will
be final, subject to the authority of the Commissioner and FDIC. The Plan
provides that, if deemed necessary or desirable by the Board of Directors of
the Bank and upon notification to the Commissioner, the Plan may be
substantively amended or terminated by the Board of Directors prior to
approval by the Commissioner and the solicitation of proxies from members;
amendment or termination of the Plan thereafter requires the approval of the
Commissioner and FDIC. The Plan will terminate if the Offerings are not
completed within 12 months of the date of the Special Meeting, subject to
further extension by the Commissioner.
RESTRICTIONS ON ACQUISITION OF THE COMPANY AND THE BANK
General
The Bank's Plan of Conversion provides for the Conversion of the Bank from
the mutual to the stock form of organization and, in connection therewith, new
Articles of Incorporation and Bylaws to be adopted by members of the Bank
eligible to vote at the Special Meeting. The Plan also provides for the
concurrent formation of a holding company. See "The Conversion - General."
As described below and elsewhere herein, certain provisions in the Company's
Certificate of Incorporation and Bylaws and in its management remuneration
provided for in the Conversion, together with provisions of Delaware corporate
law, may have anti-takeover effects. In addition, the Bank's Articles of
Incorporation and Bylaws and management remuneration provided for in the
Conversion may also have anti-takeover effects. Finally, regulatory
restrictions may make it difficult for persons or companies to acquire control
of either the Company or the Bank.
Restrictions in the Company's Certificate of Incorporation and Bylaws
General. A number of provisions of the Company's Certificate of
Incorporation and Bylaws deal with matters of corporate governance and certain
rights of stockholders. The following discussion is a general summary of
certain provisions of the Company's Certificate of Incorporation and Bylaws
and certain other statutory and regulatory provisions relating to stock
ownership and transfers, the Board of Directors and business combinations,
which might be deemed to have a potential "anti-takeover" effect. These
provisions may have the effect of discouraging a future takeover attempt which
is not approved by the Board of Directors but which individual Company
stockholders may deem to be in their best interests or in which stockholders
may receive a substantial premium for their shares over then
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current market prices. As a result, stockholders who might desire to
participate in such a transaction may not have an opportunity to do so. Such
provisions will also render the removal of the current Board of Directors or
management of the Company more difficult. The following description of
certain of the provisions of the Certificate of Incorporation and Bylaws of
the Company is necessarily general and reference should be made in each case
to such Certificate of Incorporation and Bylaws, which are incorporated
herein by reference. See "Additional Information" as to how to obtain a copy
of these documents.
Limitation on Voting Rights. The Certificate of Incorporation of the
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. Beneficial ownership is determined
pursuant to Rule 13d-3 of the General Rules and Regulations promulgated
pursuant to the Exchange Act, and includes shares beneficially owned by such
person or any of his affiliates (as defined in the Certificate of
Incorporation), shares which such person or his affiliates have the right to
acquire pursuant to any agreement, arrangement or understanding or upon the
exercise of conversion rights, exchange rights, warrants or options or
otherwise and shares as to which such person and his affiliates have sole or
shared voting or investment power, but shall not include shares that are
subject to a publicly solicited revocable proxy and that are not otherwise
deemed to be beneficially owned by such person and his affiliates. No
Director or officer (or any affiliate thereof) of the Company shall, solely by
reason of any or all of such Directors or officers acting in their capacities
as such, be deemed to beneficially own any shares beneficially owned by any
other Director or officer (or affiliate thereof) nor will the ESOP or any
similar plan of the Company or the Bank or any director with respect thereto
(solely by reason of such director's capacity) be deemed to beneficially own
any shares held under any such plan. The Certificate of Incorporation of the
Company further provides that the provisions limiting voting rights may only
be amended upon the vote of the holders of at least 80% of the voting power of
all then outstanding shares of capital stock entitled to vote thereon (after
giving effect to the provision limiting voting rights).
Board of Directors. The Board of Directors of the Company is divided into
three classes, each of which shall contain approximately one-third of the
whole number of the members of the Board. Each class shall serve a staggered
term, with approximately one-third of the total number of Directors being
elected each year. The Company's Certificate of Incorporation and Bylaws
provide that the size of the Board shall be determined by a majority of the
Whole Board of Directors. The Certificate of Incorporation and the Bylaws
provide that any vacancy occurring in the Board, including a vacancy created
by an increase in the number of Directors or resulting from death,
resignation, retirement, disqualification, removal from office or other cause,
shall be filled for the remainder of the unexpired term exclusively by a
majority vote of the Directors then in office. The classified Board is
intended to provide for continuity of the Board of Directors and to make it
more difficult and time consuming for a stockholder group to fully use its
voting power to gain control of the Board of Directors without the consent of
the incumbent Board of Directors of the Company. Directors may be removed by
the shareholders only for cause by the affirmative vote of the holders of at
least 80% of the voting power of all then outstanding shares of capital stock
entitled to vote thereon.
In the absence of these provisions, the vote of the holders of a majority
of the shares could remove the entire Board, with or without cause, and
replace it with persons of such holders choice.
Cumulative Voting, Special Meetings and Action by Written Consent. The
Certificate of Incorporation does not provide for cumulative voting for any
purpose. Moreover, special meetings of stockholders of the Company may be
called only by a resolution adopted by a majority of the Whole Board of
Directors of the Company. The Certificate of Incorporation also provides that
any action required or permitted to be taken by the stockholders of the
Company may be taken only at an annual or special meeting and prohibits
stockholder action by written consent in lieu of a meeting.
Authorized Shares. The Certificate of Incorporation authorizes the
issuance of 25 million shares of Common Stock and two million shares of
preferred stock. The shares of Common Stock and preferred stock were
authorized in an amount greater than that to be issued in the Conversion to
provide the Company's Board of Directors with as much flexibility as possible
to effect, among other transactions, financings, acquisitions, stock
dividends, stock splits and employee stock options. However, these additional
authorized shares may also be used by the Board of Directors consistent with
its fiduciary duty to deter future attempts to gain control of the Company.
The Board of Directors also has sole authority to determine the terms of any
one or more series of preferred stock, including voting rights, conversion
rates, and liquidation preferences. As a result of the ability to fix voting
rights for a series of preferred stock, the Board
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has the power to the extent consistent with its fiduciary duty to issue a
series of preferred stock to persons friendly to management in order to
attempt to block a post-tender offer merger or other transaction by which a
third party seeks control, and thereby assist management to retain its
position. The Company's Board currently has no plans for the issuance of
additional shares, other than the issuance of shares in the Conversion,
including shares contributed to the Foundation, and the issuance of
additional shares upon exercise of stock options.
Stockholder Vote Required to Approve Business Combinations with Interested
Stockholders. The Certificate of Incorporation requires the approval of the
holders of at least 80% of the Company's outstanding shares of voting stock
entitled to vote thereon to approve certain "Business Combinations" with an
"Interested Stockholder," each as defined therein, and related transactions.
Under Delaware law, absent this provision, business combinations, including
mergers, consolidations and sales of all or substantially all of the assets of
a corporation must, subject to certain exceptions, be approved by the vote of
the holders of only a majority of the outstanding shares of Common Stock of
the Company and any other affected class of stock. Under the Certificate of
Incorporation, the approval of the holders of at least 80% of the shares of
capital stock entitled to vote thereon is required for any business
combination involving an Interested Stockholder (as defined below) except (i)
in cases where the proposed transaction has been approved by a majority of
those members of the Company's Board of Directors who are unaffiliated with
the Interested Stockholder and were Directors prior to the time when the
Interested Stockholder became an Interested Stockholder or (ii) if the
proposed transaction meets certain conditions set forth therein which are
designed to afford the stockholders a fair price in consideration for their
shares. In each such case, where stockholder approval is required, the
approval of only a majority of the outstanding shares of voting stock is
sufficient. The term "Interested Stockholder" is defined to include, among
others, any individual, a group acting in concert, corporation, partnership,
association or other entity (other than the Company or its subsidiary) who or
which is the beneficial owner, directly or indirectly, of 10% or more of the
outstanding shares of voting stock of the Company. This provision of the
Certificate of Incorporation applies to any "Business Combination," which is
defined to include: (i) any merger or consolidation of the Company or any of
its subsidiaries with any Interested Stockholder or Affiliate (as defined in
the Certificate of Incorporation) of an Interested Stockholder or any
corporation which is, or after such merger or consolidation would be, an
Affiliate of an Interested Stockholder; (ii) any sale, lease, exchange,
mortgage, pledge, transfer, or other disposition to or with any Interested
Stockholder or Affiliate of 25% or more of the assets of the Company or
combined assets of the Company and its subsidiary; (iii) the issuance or
transfer to any Interested Stockholder or its Affiliate by the Company (or any
subsidiary) of any securities of the Company (or any subsidiary) in exchange
for any cash, securities or other property the value of which equals or
exceeds 25% of the fair market value of the Common Stock of the Company; (iv)
the adoption of any plan for the liquidation or dissolution of the Company
proposed by or on behalf of any Interested Stockholder or Affiliate thereof;
and (v) any reclassification of securities, recapitalization, merger or
consolidation of the Company with any of its subsidiaries which has the effect
of increasing the proportionate share of Common Stock or any class of equity
or convertible securities of the Company or subsidiary owned directly or
indirectly, by an Interested Stockholder or Affiliate thereof. The Directors
and executive officers of the Bank are purchasing in the aggregate
approximately 5.1% of the shares of the Common Stock based on the maximum of
the Estimated Price Range. In addition, the ESOP intends to purchase 8% of
the Common Stock issued in connection with the Conversion, including shares
issued to the Foundation. Additionally, the Company expects to acquire 4% of
the Common Stock issued in connection with the Conversion, including shares
issued to the Foundation, on behalf of the Stock Program and expects to grant
options to issue an amount equal to 10% of the Common Stock issued in
connection with the Conversion, including shares issued to the Foundation,
under the Stock Option Plan to directors and executive officers. As a result,
Directors, executive officers and employees have the potential to control the
voting of approximately 23.5% of the Company's Common Stock on a fully diluted
basis at the maximum of the Estimated Price Range, thereby enabling them to
prevent the approval of the transactions requiring the approval of at least
80% of the Company's outstanding shares of voting stock described herein
above.
Evaluation of Offers. The Certificate of Incorporation of the Company
further provides that the Board of Directors of the Company, when evaluating
any offer of another "Person" (as defined therein), to (i) make a tender or
exchange offer for any equity security of the Company, (ii) merge or
consolidate the Company with another corporation or entity or (iii) purchase
or otherwise acquire all or substantially all of the properties and assets of
the Company, may, in connection with the exercise of its judgment in
determining what is in the best interest of the Company and the stockholders
of the Company, give due consideration to all relevant factors, including,
without limitation, those factors that directors of any subsidiary (including
the Bank) may consider in evaluating any action that may result in a change or
potential change of control of such subsidiary, and the social and economic
effects of acceptance of such offer on:
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the Company's present and future customers and employees and those of its
subsidiaries (including the Bank); the communities in which the Company and
the Bank operate or are located; the ability of the Company to fulfill its
corporate objectives as a bank holding company; and the ability of the Bank
to fulfill the objectives of a stock savings bank under applicable statutes
and regulations. By having these standards in the Certificate of
Incorporation of the Company, the Board of Directors may be in a stronger
position to oppose such a transaction if the Board concludes that the
transaction would not be in the best interest of the Company, even if the
price offered is significantly greater than the then market price of any
equity security of the Company.
Amendment of Certificate of Incorporation and Bylaws. Amendments to the
Company's Certificate of Incorporation must be approved by a majority vote of
its Board of Directors and also by a majority of the outstanding shares of its
voting stock, provided, however, that an affirmative vote of the holders of at
least 80% of the outstanding voting stock entitled to vote (after giving
effect to the provision limiting voting rights) is required to amend or repeal
certain provisions of the Certificate of Incorporation, including the
provision limiting voting rights, the provisions relating to approval of
certain business combinations, calling special meetings, the number and
classification of Directors, Director and officer indemnification by the
Company and amendment of the Company's Bylaws and Certificate of
Incorporation. The Company's Bylaws may be amended by a majority of the Whole
Board of Directors, or by a vote of the holders of at least 80% (after giving
effect to the provision limiting voting rights) of the total votes eligible to
be voted at a duly constituted meeting of stockholders.
Certain Bylaw Provisions. The Bylaws of the Company also require a
stockholder who intends to nominate a candidate for election to the Board of
Directors, or to raise new business at an annual stockholder meeting to give
at least 90 days' advance notice to the Secretary of the Company. The notice
provision requires a stockholder who desires to raise new business to provide
certain information to the Company concerning the nature of the new business,
the stockholder and the stockholder's interest in the business matter.
Similarly, a stockholder wishing to nominate any person for election as a
Director must provide the Company with certain information concerning the
nominee and the proposing stockholder.
Anti-Takeover Effects of the Company's Certificate of Incorporation and Bylaws
and Management Remuneration Adopted in Conversion
The provisions described above are intended to reduce the Company's
vulnerability to takeover attempts and certain other transactions which have
not been negotiated with and approved by members of its Board of Directors.
Certain provisions of the Stock Option Plan and Stock Program provide for
accelerated benefits to participants in the event of a change in control of
the Company or the Bank or a tender or exchange offer for their stock. See
"Management of the Bank - Benefit Plans - Stock Option Plan," and "- Benefit
Plans - Stock Program." The Company and the Bank have also entered into
agreements with key officers and intends to establish the Severance
Compensation Plan which will provide such officers and eligible employees with
additional payments and benefits on the officer's termination in connection
with a change in control of the Company or the Bank. See "Management of the
Bank - Employment Agreements," "- Change in Control Agreements" and "-
Employee Severance Compensation Plan." The foregoing provisions and
limitations may make it more difficult for companies or persons to acquire
control of the Bank. Additionally, the provisions could deter offers to
acquire the outstanding shares of the Company which might be viewed by
stockholders to be in their best interests.
The Company's Board of Directors believes that the provisions of the
Certificate of Incorporation and Bylaws are in the best interest of the
Company and its stockholders. An unsolicited non-negotiated takeover proposal
can seriously disrupt the business and management of a corporation and cause
it great expense. Accordingly, the Board of Directors believes it is in the
best interests of the Company and its stockholders to encourage potential
acquirors to negotiate directly with management and that these provisions will
encourage such negotiations and discourage non-negotiated takeover attempts.
Delaware Corporate Law
The State of Delaware has a statute designed to provide Delaware
corporations with additional protection against hostile takeovers. The
takeover statute, which is codified in Section 203 of the Delaware General
Corporate
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Law ("Section 203"), is intended to discourage certain takeover practices by
impeding the ability of a hostile acquiror to engage in certain transactions
with the target company.
In general, Section 203 provides that a "Person" (as defined therein) who
owns 15% or more of the outstanding voting stock of a Delaware corporation (an
"Interested Stockholder") may not consummate a merger or other business
combination transaction with such corporation at any time during the
three-year period following the date such "Person" became an Interested
Stockholder. The term "business combination" is defined broadly to cover a
wide range of corporate transactions including mergers, sales of assets,
issuances of stock, transactions with subsidiaries and the receipt of
disproportionate financial benefits.
The statute exempts the following transactions from the requirements of
Section 203: (i) any business combination if, prior to the date a person
became an Interested Stockholder, the board of directors approved either the
business combination or the transaction which resulted in the stockholder
becoming an Interested Stockholder; (ii) any business combination involving a
person who acquired at least 85% of the outstanding voting stock in the
transaction in which he became an Interested Stockholder, excluding, for
purposes of determining the number of shares outstanding, shares owned by the
corporation's directors who are also officers and certain employee stock
plans; (iii) any business combination with an Interested Stockholder that is
approved by the board of directors and by a two-thirds vote of the outstanding
voting stock not owned by the Interested Stockholder; and (iv) certain
business combinations that are proposed after the corporation had received
other acquisition proposals and which are approved or not opposed by a
majority of certain continuing members of the board of directors. A
corporation 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 Section 203. At the present time, the Board of Directors does not
intend to propose any such amendment.
Restrictions in the Bank's New Articles of Incorporation and Bylaws
Although the Board of Directors of the Bank is not aware of any effort that
might be made to obtain control of the Bank after Conversion, the Board of
Directors believes that it is appropriate to adopt certain provisions
permitted by the ISBA and rules and regulations of the Commissioner to protect
the interests of the converted Bank and its stockholders from any hostile
takeover. Such provisions may, indirectly, inhibit a change in control of the
Company, as the Bank's sole stockholder. See "Risk Factors - Certain
Anti-Takeover Provisions."
The Bank's Articles of Incorporation will contain a provision whereby the
acquisition of beneficial ownership of more than 10% of the issued and
outstanding shares of any class of equity securities of the Bank by any person
(i.e., any individual, corporation, group acting in concert, trust,
partnership, joint stock company or similar organization), either directly or
through an affiliate thereof, will be prohibited for a period of five years
following the date of completion of the Conversion. Any stock in excess of
10% acquired in violation of the charter provision will not be counted as
outstanding for voting purposes. This limitation shall not apply to any
transaction in which the Bank forms a holding company without a change in the
respective beneficial ownership interests of its stockholders other than
pursuant to the exercise of any dissenter or appraisal rights. In the event
that holders of revocable proxies for more than 10% of the shares of the
Common Stock of the Company seek, among other things, to elect one-third or
more of the Company's Board of Directors, to cause the Company's stockholders
to approve the acquisition or corporate reorganization of the Company or to
exert a continuing influence on a material aspect of the business operations
of the Company, which actions could indirectly result in a change in control
of the Bank, the Board of Directors of the Bank will be able to assert this
provision of the Bank's Articles of Incorporation against such holders.
Although the Board of Directors of the Bank is not currently able to determine
when and if it would assert this provision of the Bank's Articles of
Incorporation, the Board of Directors, in exercising its fiduciary duty, may
assert this provision if it were deemed to be in the best interests of the
Bank, the Company and its stockholders. It is unclear, however, whether this
provision, if asserted, would be successful against such persons in a proxy
contest which could result in a change in control of the Bank indirectly
through a change in control of the Company.
126
<PAGE>
In addition, stockholders will not be permitted to call a special meeting
of stockholders or to cumulate their votes in the election of Directors.
Furthermore, the Bank's Bylaws provide for the election of three classes of
directors to staggered terms. The staggered terms of the Board of Directors
could have an anti-takeover effect by making it more difficult for a majority
of shares to force an immediate change in the Board of Directors since only
one-third of the Board is elected each year. The purpose of these provisions
is to assure stability and continuity of management of the Bank in the years
immediately following the Conversion.
Finally, the Articles of Incorporation provide for the issuance of shares
of preferred stock on such terms, including conversion and voting rights, as
may be determined by the Bank's Board of Directors without stockholder
approval. Although the Bank has no arrangements, understandings or plans at
the present time for the issuance or use of the shares of undesignated
preferred stock (the "Preferred Stock") proposed to be authorized, the Board
of Directors believes that the availability of such shares will provide the
Bank with increased flexibility in structuring possible future financings and
acquisitions and in meeting other corporate needs which may arise. In the
event of a proposed merger, tender offer or other attempt to gain control of
the Bank of which management does not approve, it might be possible for the
Board of Directors to authorize the issuance of one or more series of
Preferred Stock with rights and preferences which could impede the completion
of such a transaction. An effect of the possible issuance of such Preferred
Stock, therefore, may be to deter a future takeover attempt. The Board of
Directors does not intend to issue any Preferred Stock except on terms which
the Board deems to be in the best interest of the Bank and its then existing
stockholders.
Regulatory Restrictions
OTS Regulations. The OTS, pursuant to the Change in Bank Control Act,
requires all persons seeking control of a savings institution and, therefore,
indirectly its holding company, to obtain regulatory approval prior to
offering to obtain control. The Change in Bank Control Act generally provides
that no "person," acting directly or indirectly or through or in concert with
one or more other persons, may acquire directly or indirectly "control," as
that term is defined in OTS regulations, of an OTS-regulated savings and loan
holding company without giving at least 60 days' written notice to the OTS and
providing the OTS an opportunity to disapprove the proposed acquisition. Such
acquisitions of control may be disapproved if it is determined, among other
things, that (i) the acquisition would substantially less competition; (ii)
the financial condition of the acquiring person might jeopardize the financial
stability of the savings institution or prejudice the interests of its
depositors; or (iii) the competency, experience or integrity of the acquiring
person or the proposed management personnel indicates that it would not be in
the interest of the depositors or the public to permit the acquisition of
control by such person. Such change in control restrictions on the
acquisition of holding company stock are not limited to a set time period but
will apply for as long as the regulations are in effect. Persons holding
revocable or irrevocable proxies may be deemed to be beneficial owners of such
securities under OTS regulations and therefore prohibited from voting all or
the portion of such proxies in excess of the 10% aggregate beneficial
ownership limit. Such regulatory restrictions may prevent or inhibit proxy
contests for control of the Company or the Bank which have not received prior
regulatory approval.
Illinois Change in Control Regulations. Prior approval of the Commissioner
is also required before any action is taken that causes any "person," as
the term is defined in the regulations, to acquire direct or indirect control
of a banking institution. Control is presumed to exist if any person directly
or indirectly owns, controls or holds with power to vote 10% or more of the
voting stock of a savings bank or of any company that owns, controls or holds
with power to vote 10% or more of the voting stock of a savings bank.
Accordingly, prior approval of the Commissioner would be required before any
company could acquire 10% or more of the Common Stock of the Company.
FRB Regulations. In the event the Bank does not qualify to be a QTL,
attempts to acquire control of the Bank become subject to regulations of the
FRB under the Change in Bank Control Act.
127
<PAGE>
DESCRIPTION OF CAPITAL STOCK OF THE COMPANY
General
The Company is authorized to issue 25 million shares of Common Stock having
a par value of $.01 per share and two million shares of preferred stock having
a par value of $.01 per share (the "Preferred Stock"). Based on the sale of
Common Stock in connection with the Conversion and issuance of authorized but
unissued Common Stock in an amount equal to 8% of the Common Stock sold in the
Conversion to the Foundation, the Company currently expects to issue up to
7,055,802 shares of Common Stock (based on the maximum of the Estimated Price
Range, as adjusted by 15%) and no shares of Preferred Stock in the Conversion.
Except for shares issued in connection with the Conversion, the Company
presently does not have plans to issue Common Stock. Each share of the
Company's Common Stock will have the same relative rights as, and will be
identical in all respects with, each other share of Common Stock. Upon
payment of the Actual Purchase Price for the Common Stock, in accordance with
the Plan of Conversion, all such stock will be duly authorized, fully paid and
nonassessable.
The Common Stock of the Company will represent nonwithdrawable capital,
will not be an account of an insurable type, and will not be insured by the
FDIC.
Common Stock
Dividends. The Company can pay dividends out of statutory surplus or from
certain net profits if, as and when declared by its Board of Directors. The
payment of dividends by the Company is subject to limitations which are
imposed by law and applicable regulations. See "Dividend Policy" and
"Regulation and Supervision." The holders of Common Stock of the Company will
be entitled to receive and share equally in such dividends as may be declared
by the Board of Directors of the Company out of funds legally available
therefor. If the Company issues Preferred Stock, the holders thereof may have
a priority over the holders of the Common Stock with respect to dividends.
Voting Rights. Upon the Conversion, the holders of Common Stock of the
Company will possess exclusive voting rights in the Company. They will elect
the Company's Board of Directors and act on such other matters as are required
to be presented to them under Delaware law or as are otherwise presented to
them by the Board of Directors. Except as discussed in "Restrictions on
Acquisition of the Company and the Bank," each holder of Common Stock will be
entitled to one vote per share. Stockholders will not have any right to
cumulate votes in the election of Directors. If the Company issues Preferred
Stock, holders of the Preferred Stock may also possess voting rights. Certain
matters require an 80% stockholder vote (after giving effect to the provision
limiting voting rights). See "Restrictions on Acquisition of the Company and
the Bank."
As an Illinois-chartered mutual savings bank, corporate powers and control
of the Bank are vested in its Board of Directors, who elect the officers of
the Bank and who fill any vacancies on the Board of Directors as it exists
upon Conversion. Subsequent to Conversion, voting rights will be vested
exclusively in the owners of the shares of capital stock of the Bank, which
will be the Company, and voted at the direction of the Company's Board of
Directors. Consequently, the holders of the Common Stock will not have direct
control of the Bank.
Liquidation. In the event of any liquidation, dissolution or winding up of
the Bank, the Company, as holder of the Bank's capital stock would be entitled
to receive, after payment or provision for payment of all debts and
liabilities of the Bank (including all deposit accounts and accrued interest
thereon) and after distribution of the balance in the special liquidation
account to Eligible Account Holders and Supplemental Eligible Account Holders
(see "The Conversion - Liquidation Rights"), all assets of the Bank available
for distribution. In the event of liquidation, dissolution or winding up of
the Company, the holders of its Common Stock would be entitled to receive,
after payment or provision for payment of all of its debts and liabilities,
all of the assets of the Company available for distribution. If Preferred
Stock is issued, the holders thereof may have a priority over the holders of
the Common Stock in the event of liquidation or dissolution.
128
<PAGE>
Preemptive Rights; Redemption. Holders of the Common Stock of the Company
will not be entitled to preemptive rights with respect to any shares which may
be issued. The Common Stock is not subject to redemption.
Indemnification and Limit on Liability. The Company's Certificate of
Incorporation contains provisions which limit the liability of directors,
officers and employees of the Company and indemnify such individuals. Such
provisions provide that 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, by
reason of the fact that he or she is or was a director or officer of the
Company shall be indemnified and held harmless by the Company to the fullest
extent authorized by the Delaware General Corporation Law against all expense,
liability and loss reasonably incurred. Under certain circumstances, the
right to indemnification shall include the right to be paid by the Company the
expenses incurred in defending any such proceeding in advance of its final
disposition. In addition, a Director of the Company shall not be personally
liable to the Company or its stockholders for monetary damages except for
liability for any breach of the duty of loyalty, for acts or omissions not in
good faith or which involve intentional misconduct or knowing violation of the
law, under Section 174 of the Delaware General Corporation, or for any
transaction from which the Director derived an improper personal benefit.
Preferred Stock
None of the shares of the Company's authorized Preferred Stock will be
issued in the Conversion. Such stock may be issued with such designations,
powers, preferences and rights as the Board of Directors may from time to time
determine. The Board of Directors can, without stockholder approval, issue
Preferred Stock with voting, dividend, liquidation and conversion rights which
could dilute the voting strength of the holders of the Common Stock and may
assist management in impeding an unfriendly takeover or attempted change in
control. The Company presently does not have plans to issue Preferred Stock.
DESCRIPTION OF CAPITAL STOCK OF THE BANK
General
In the event the holding company form of organization is not utilized in
connection with the Conversion, the Bank may offer shares of its common stock
in connection with the Conversion. The following is a discussion of the
capital stock of the Bank.
The Articles of Incorporation of the Bank, to be effective upon the
Conversion, authorize the issuance of capital stock consisting of 25 million
shares of common stock, par value $0.01 per share, and two million shares of
preferred stock, par value $0.01 per share, which preferred stock may be
issued in series and classes having such rights, preferences, privileges and
restrictions as the Board of Directors may determine. Each share of common
stock of the Bank will have the same relative rights as, and will be identical
in all respects with, each other share of common stock. After the Conversion,
the Board of Directors will be authorized to approve the issuance of common
stock up to the amount authorized by the Articles of Incorporation without the
approval of the Bank's stockholders. Assuming that the holding company form
of organization is utilized, all of the issued and outstanding common stock of
the Bank will be held by the Company as the Bank's sole stockholder. The
capital stock of the Bank will represent non-withdrawable capital, will not be
an account of an insurable type, and will not be insured by the FDIC.
Common Stock
Dividends. The holders of the Bank's common stock will be entitled to
receive and to share equally in such dividends as may be declared by the Board
of Directors of the Bank out of funds legally available therefor. See
"Dividend Policy" for certain restrictions on the payment of dividends and
"Federal and State Taxation - Federal Taxation" for a discussion of the
consequences of the payment of cash dividends from income appropriated to bad
debt reserves.
Voting Rights. Immediately after the Conversion, the holders of the Bank's
common stock will possess exclusive voting rights in the Bank. Each holder of
shares of common stock will be entitled to one vote for each share held.
Shareholders shall not be entitled to cumulate their votes for the election of
directors. See "Restrictions on
129
<PAGE>
Acquisition of the Company and the Bank -Anti-Takeover Effects of the
Company's Certificate of Incorporation and Bylaws and Management Remuneration
Adopted in Conversion."
Liquidation. In the event of any liquidation, dissolution, or winding up
of the Bank, the holders of common stock will be entitled to receive, after
payment of all debts and liabilities of the Bank (including all deposit
accounts and accrued interest thereon), and distribution of the balance in the
special liquidation account to Eligible Account Holders and Supplemental
Eligible Account Holders, all assets of the Bank available for distribution in
cash or in kind. If additional preferred stock is issued subsequent to the
Conversion, the holders thereof may also have priority over the holders of
common stock in the event of liquidation or dissolution.
Preemptive Rights; Redemption. Holders of the common stock of the Bank
will not be entitled to preemptive rights with respect to any shares of the
Bank which may be issued. Upon receipt by the Bank of the full specified
purchase price therefor, the common stock will be fully paid and
non-assessable.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is [Transfer Agent].
EXPERTS
The consolidated financial statements of the Bank and its subsidiaries as
of December 31, 1996 and 1995 and for each of the years in the three-year
period ended December 31, 1996, have been included herein in reliance upon the
report of KPMG Peat Marwick LLP, independent certified public accountants,
appearing elsewhere herein, and upon the authority of said firm as experts in
accounting and auditing.
FinPro, Inc. has consented to the publication herein of the summary of its
report to the Bank and Company setting forth its opinion as to the estimated
pro forma market value of the Common Stock upon Conversion and its opinion
with respect to subscription rights.
LEGAL AND TAX OPINIONS
The legality of the Common Stock and the federal income tax consequences of
the Conversion will be passed upon for the Bank and Company by Muldoon, Murphy
& Faucette, Washington, D.C., special counsel to the Bank and Company. The
federal income tax consequences of Elgin Financial Foundation will be passed
upon for the Bank and the Company by KPMG Peat Marwick LLP, independent
certified public accountants who have served as the Bank's and the
Company's independent tax advisors. Muldoon, Murphy & Faucette will rely
as to certain matters of Delaware law on the opinion of Morris, Nichols, Arsht
& Tunnell. Illinois State income tax consequences will be passed upon by KPMG
Peat Marwick LLP. Certain legal matters will be passed upon for Webb by
Elias, Matz, Tiernan & Herrick.
ADDITIONAL INFORMATION
The Company has filed with the SEC a registration statement under the
Securities Act with respect to the Common Stock offered hereby. As permitted
by the rules and regulations of the SEC, this Prospectus does not contain all
the information set forth in the registration statement. Such information,
including the Conversion Valuation Appraisal Report, which is an exhibit to
the Registration Statement, can be examined without charge at the public
reference facilities of the SEC located at 450 Fifth Street, N.W., Washington,
D.C. 20549, and copies of such material can be obtained from the SEC at
prescribed rates. In addition, the SEC maintains a web site
(http://www.sec.gov) that contains reports, proxy and information statements
and other information regarding registrants that file electronically with the
SEC, including the Company. The Conversion Valuation Appraisal Report may
also be inspected by members of the Bank at the offices of the Bank during
normal business hours. This Prospectus contains a description of the material
terms and features of all material contracts, reports or exhibits to the
registration statement required to be described; however, the statements
contained in this Prospectus as to the contents of any contract or other
document
130
<PAGE>
filed as an exhibit to the registration statement are, of necessity, brief
descriptions thereof and are not necessarily complete; each such statement is
qualified by reference to such contract or document.
The Bank has filed an application for approval of conversion with the
Commissioner and the FDIC. This Prospectus omits certain information
contained in that application. The application may be examined at the offices
of the Commissioner, Offices of Banks and Real Estate, 310 S. Michigan Avenue,
21st Floor, Chicago, Illinois 60604 and 500 E. Monroe Street, Springfield,
Illinois 62701.
The Company has filed with the Office of Thrift Supervision an Application
to Form a Holding Company. This Prospectus omits certain information
contained in such Application. Such Application may be inspected at the
offices of the OTS, 1700 G Street, N.W., Washington, D.C. 20552.
In connection with the Conversion, the Company will register its Common
Stock with the SEC under Section 12(b) of the Exchange Act, and, upon such
registration, the Company and the holders of its 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 Company has undertaken that it will not
terminate such registration for a period of at least three years following the
Conversion. In the event that the Bank amends the Plan to eliminate the
concurrent formation of the Company as part of the Conversion, the Bank will
register its stock with the Federal Deposit Insurance Corporation under
Section 12(b) of the Exchange Act and, upon such registration, the Bank and
the holders of its stock will become subject to the same obligations and
restrictions.
A copy of the Plan of Conversion, Certificate of Incorporation and the
Bylaws of the Company and the Articles of Incorporation and Bylaws of the Bank
are available without charge from the Bank. The Bank's principal office is
located at 1695 Larkin Avenue, Elgin, Illinois and its telephone number is
(847) 741-3900.
131
<PAGE>
ELGIN FINANCIAL CENTER, S.B. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
----
Independent Auditors' Report...................................... F-2
Consolidated Balance Sheets as of July 31, 1997 (unaudited) and
December 31, 1996 and 1995........................................ F-3
Consolidated Statements of Operations for the Seven Months
Ended July 31, 1997 and 1996 (unaudited) and for the Years
Ended December 31, 1996, 1995 and 1994............................ 32
Consolidated Statements of Changes in Retained Earnings for the
Seven Months Ended July 31, 1997 (unaudited) and for the Years
Ended December 31, 1996, 1995 and 1994............................ F-4
Consolidated Statements of Cash Flows for the Seven Months Ended
July 31, 1997 and 1996 (unaudited) and for the Years Ended
December 31, 1996, 1995 and 1994.................................. F-5
Notes to Consolidated Financial Statements........................ F-6 to F-23
All schedules are omitted because they are not required or applicable, or
the required information is shown in the financial statements or notes
thereto.
The financial statements of EFC Bancorp, Inc. have been omitted because EFC
Bancorp, Inc. has not yet issued any stock, has no assets and no liabilities,
and has not conducted any business other than of an organizational nature.
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Elgin Financial Center, SB:
We have audited the accompanying consolidated balance sheets of Elgin
Financial Center, SB and subsidiaries (Savings Bank) as of December 31, 1996
and 1995, and the related consolidated statements of operations, changes in
retained earnings, and cash flows for each of the years in the three-year
period ended December 31, 1996. These consolidated financial statements are
the responsibility of the Savings Bank's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Elgin
Financial Center, SB and subsidiaries as of December 31, 1996 and 1995, and
the results of their operations and their cash flows for each of the years in
the three-year period ended December 31, 1996 in conformity with generally
accepted accounting principles.
/s/ KPMG Peat Marwick LLP
-----------------------
KPMG Peat Marwick LLP
Chicago, Illinois
February 28, 1997, except for note 15
as to which the date is August 12, 1997
F-2
<PAGE>
ELGIN FINANCIAL CENTER, SB
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
July 31, 1997 (unaudited) and
December 31, 1996 and 1995
<TABLE>
<CAPTION>
DECEMBER 31,
JULY 31, -----------------------------
1997 1996 1995
-------------- ---------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Assets
Cash and cash equivalents:
On hand and in banks............................................. $ 1,781,455 1,716,441 1,192,257
Time deposits.................................................... 14,529,903 9,236,569 14,160,751
Loans receivable, net.............................................. 242,171,767 237,678,469 220,936,677
Mortgage-backed securities available-for-sale, at fair value....... 19,731,884 21,975,429 24,520,254
Investment securities available-for-sale, at fair value............ 38,202,555 37,543,381 30,707,161
Foreclosed real estate, net of allowance for loss of $281,836 at
December 31, 1995................................................ -- 66,801 477,087
Stock in Federal Home Loan Bank of Chicago, at cost................ 2,051,000 2,051,000 1,903,400
Accrued interest receivable........................................ 865,461 988,531 959,810
Office properties and equipment, net............................... 4,837,335 4,342,468 3,068,538
Other assets....................................................... 190,108 310,686 117,047
-------------- ------------- -------------
Total assets....................................................... $ 324,361,468 315,909,775 298,042,982
-------------- ------------- -------------
-------------- ------------- -------------
Liabilities and Retained Earnings
Liabilities:
Savings deposits................................................. 262,251,827 253,113,945 248,141,560
Borrowed money................................................... 24,000,000 29,000,000 15,000,000
Advance payments by borrowers for taxes and insurance............ 549,751 431,758 488,324
Income taxes payable............................................. 1,892,550 1,453,179 2,135,780
Accrued expenses and other liabilities........................... 4,336,813 2,398,129 4,415,219
-------------- ------------- -------------
Total liabilities.................................................. 293,030,941 286,397,011 270,180,883
-------------- ------------- -------------
Retained earnings, substantially restricted........................ 30,622,452 28,806,333 26,763,775
Net unrealized gain on securities available-for-sale, net of
taxes............................................................ 708,075 706,431 1,098,324
-------------- ------------- -------------
Total retained earnings............................................ 31,330,527 29,512,764 27,862,099
Commitments and contingencies (notes 12 and 13)
-------------- ------------- -------------
Total liabilities and retained earnings............................ $ 324,361,468 315,909,775 298,042,982
-------------- ------------- -------------
-------------- ------------- -------------
See accompanying notes to consolidated financial statements.
</TABLE>
F-3
<PAGE>
ELGIN FINANCIAL CENTER, SB
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN RETAINED EARNINGS
For the seven months ended July 31, 1997 (unaudited) and
the years ended December 31, 1996, 1995, and 1994
<TABLE>
<CAPTION>
NET UNREALIZED
GAIN
(LOSS) ON MUTUAL
FUNDS AND
SECURITIES
RETAINED AVAILABLE-FOR-SALE,
EARNINGS NET OF TAXES TOTAL
------------- ------------------ ------------
<S> <C> <C> <C>
Balance at December 31, 1993.................................... $ 21,045,487 (18,023) 21,027,464
Implementation of change in accounting for investment
securities, net of taxes...................................... -- 1,712,000 1,712,000
Net earnings.................................................... 2,956,833 -- 2,956,833
Change in net unrealized gain (loss) on securities
available-for-sale, net of taxes.............................. -- (2,343,977) (2,343,977)
------------- ---------- ------------
Balance at December 31, 1994.................................... 24,002,320 (650,000) 23,352,320
Net earnings.................................................... 2,761,455 -- 2,761,455
Change in net unrealized gain (loss) on securities
available-for-sale, net of taxes.............................. -- 1,748,324 1,748,324
------------- ---------- ------------
Balance at December 31, 1995.................................... 26,763,775 1,098,324 27,862,099
Net earnings.................................................... 2,042,558 -- 2,042,558
Change in net unrealized gain (loss) on securities
available-for-sale, net of taxes.............................. -- (391,893) (391,893)
------------- ---------- ------------
Balance at December 31, 1996.................................... 28,806,333 706,431 29,512,764
Net earnings (unaudited)........................................ 1,816,119 -- 1,816,119
Change in net unrealized gain (loss) on securities
available-for-sale, net of taxes (unaudited).................. -- 1,644 1,644
------------- ---------- ------------
Balance at July 31, 1997 (unaudited)............................ $ 30,622,452 708,075 31,330,527
------------- ---------- ------------
------------- ---------- ------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
ELGIN FINANCIAL CENTER, SB
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the seven months ended July 31, 1997 and 1996 (unaudited), and
the years ended December 31, 1996, 1995, and 1994
<TABLE>
<CAPTION>
SEVEN MONTHS ENDED
JULY 31, YEAR ENDED DECEMBER 31,
---------------------------- ----------------------------
1997 1996 1996 1995 1994
------------- ------------- ------------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net earnings............................ $ 1,816,119 1,729,738 2,042,558 2,761,455 2,956,833
Adjustments to reconcile net earnings to
net cash provided by operating
activities:
Amortization of premiums and discounts,
net................................. (23,482) (75,181) (158,823) (848,384) (770,313)
Provision for loan losses............. 21,000 39,000 54,000 72,000 90,000
Provision for loss on foreclosed real
estate.............................. -- -- -- -- 90,000
Deferred income tax expense (benefit). 88,890 14,674 (28,827) 24,467 41,427
Depreciation of office properties and
equipment........................... 218,337 197,123 277,040 307,226 191,062
Loss on sale of investment securities
available-for-sale.................. -- -- -- 2,500 --
Loss on sale of mutual funds.......... -- -- -- -- 91,495
Gain on sale of foreclosed real estate (7,915) (57,343) (120,694) (11,603) --
Federal Home Loan Bank of Chicago stock
dividend............................ -- -- -- (28,700) --
Decrease (increase) in accrued interest
receivable and other assets, net.... 243,648 (55,919) (222,360) 54,643 (329,216)
Increase (decrease) in income taxes
payable, accrued expenses and other
liabilities, net.................... 2,406,105 (918,676) (2,407,034) 1,126,755 (1,700,202)
------------- ------------- ------------- ------------- -------------
Net cash provided by (used in) operating
activities.............................. 4,762,702 873,416 (564,140) 3,460,359 661,086
------------- ------------- ------------- ------------- -------------
Cash flows from investing activities:
Net increase in loans receivable........ (4,514,298) (10,155,510) (15,054,037) (16,195,721) (22,368,122)
Purchases of loans receivable........... -- (1,168,489) (1,699,164) (2,399,164) (5,191,349)
Purchases of mortgage-backed securities
available-for-sale.................... (2,092,886) (2,550,065) (2,550,065) -- (4,100,180)
Principal payments on mortgage-backed
securities available-for-sale......... 4,382,100 3,188,516 5,041,964 4,003,647 5,693,438
Maturities of investment securities
available-for-sale.................... 10,112,751 6,103,020 17,149,808 10,500,000 11,000,000
Purchases of investment securities
available-for-sale.................... (10,791,415) (12,333,200) (24,595,960) (11,518,728) (14,494,375)
Proceeds from sale of investment
securities available-for-sale......... -- -- -- 1,997,500 3,000,000
Purchase of stock in Federal Home Loan
Bank of Chicago....................... -- (147,600) (147,600) (8,800) --
Redemption of stock in Federal Home Loan
Bank of Chicago....................... -- -- -- -- 77,900
Purchases of office properties and
equipment............................. (713,204) (460,531) (1,550,970) (1,127,239) (565,883)
Proceeds from sale of foreclosed real
estate................................ 74,716 534,430 597,781 106,359 203,082
Proceeds from sale of mutual funds...... -- -- -- -- 3,908,506
------------- ------------- ------------- ------------- -------------
Net cash used in investing activities..... (3,542,236) (16,989,429) (22,808,243) (14,642,146) (22,836,983)
------------- ------------- ------------- ------------- -------------
Cash flows from financing activities:
Net increase in deposits................ 9,137,882 3,404,171 4,972,385 8,718,723 162,589
Proceeds from borrowed money............ 49,000,000 18,000,000 38,500,000 53,500,000 14,500,000
Repayments on borrowed money............ (54,000,000) (13,000,000) (24,500,000) (45,000,000) (8,000,000)
------------- ------------- ------------- ------------- -------------
Net cash provided by financing
activities.............................. 4,137,882 8,404,171 18,972,385 17,218,723 6,662,589
------------- ------------- ------------- ------------- -------------
Net increase (decrease) in cash and cash
equivalents............................. 5,358,348 (7,711,842) (4,399,998) 6,036,936 (15,513,308)
Cash and cash equivalents at beginning of
period.................................. 10,953,010 15,353,008 15,353,008 9,316,072 24,829,380
------------- ------------- ------------- ------------- -------------
Cash and cash equivalents at end of
period.................................. $ 16,311,358 7,641,166 10,953,010 15,353,008 9,316,072
------------- ------------- ------------- ------------- -------------
Supplemental disclosures of cash flow
information:
Cash paid during the year for:
Interest.............................. $ 6,894,968 6,482,001 12,527,236 11,122,168 9,095,130
Income taxes.......................... 481,857 860,500 1,447,113 1,425,000 2,100,000
Noncash investing activities--transfer of
loans to foreclosed real estate....... -- -- 66,801 115,188 11,538
------------- ------------- ------------- ------------- -------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
ELGIN FINANCIAL CENTER, SB
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
July 31, 1997 (unaudited) and December 31, 1996 and 1995
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Effective July 1, 1996, Elgin Federal Financial Center completed its
conversion from a federally chartered mutual savings association to a state
charted savings bank and changed its name to Elgin Financial Center, SB (the
Savings Bank).
The accounting and reporting policies of the Savings Bank conform to
generally accepted accounting principles and to general practice within the
banking industry. In preparing the consolidated financial statements,
management is required to make estimates and assumptions that affect the
reported amounts of assets and liabilities as of the date of the consolidated
balance sheet and revenues and expenses for the period. Actual results could
differ from these estimates.
The following describes the more significant policies which the Savings Bank
follows in preparing and presenting its consolidated financial statements.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Elgin Financial
Center, SB and its wholly owned subsidiaries. All significant intercompany
accounts and transactions have been eliminated in consolidation.
The Savings Bank is principally engaged in the business of attracting
deposits and investing these funds, together with borrowings, to originate
primarily one-to-four family residential mortgages and construction loans and
to purchase securities.
LOANS RECEIVABLE
Loans receivable are stated at unpaid principal balances less deferred loan
fees, unearned discounts, and the allowance for loan losses. Premiums and
discounts on purchased loans are amortized and accreted to interest income
using the level yield method over the remaining period to contractual
maturity.
Certain loan origination fees and direct costs associated with loan
originations are deferred. Net deferred fees are amortized as yield
adjustments over the contractual life of the related loans using the
level-yield method.
The allowance for loan losses is provided by charges to operations. The
balance of the allowance is based on management's review of the inherent
credit risk in the loan portfolio and current economic conditions. Regulatory
examiners may require the Savings Bank to recognize additions to the
allowance based upon their judgments about information available to them at
the time of their examination.
Allowance for losses on specific loans and real estate owned is charged to
operations when any permanent decline reduces the market value to less than
the loan principal balance or carrying value less estimated costs to sell
foreclosed real estate.
Management, considering current information and events regarding the
borrower's ability to repay their obligations, considers a loan to be
impaired when it is probable that the Savings Bank will be unable to collect
all amounts due according to the contractual terms of the note agreement,
including principal and interest.
F-6
<PAGE>
ELGIN FINANCIAL CENTER, SB
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A loan is generally classified as non-accrual when collectibility is in doubt
and the loan is contractually past due three months or more. When a loan is
placed on non-accrual status, previously accrued, but unpaid interest is
reversed against interest income. Income on such loans is subsequently
recorded to the extent that cash is received and where future collection of
principal is probable. Loans past due three months or more are considered
impaired. The amount of impairment for individual loans is measured based on
the fair value of the collateral, if the loan is collateral dependent, or
alternatively, at the present value of expected future cash flows discounted
at the loan s effective interest rate. Certain groups of small balance
homogenous loans represented by installment and consumer credit and
residential real estate loans are excluded from the impairment provisions. As
of and for the seven months ended July 31, 1997 (unaudited) and as of and for
the twelve months ended December 31, 1996 and 1995, the Savings Bank did not
have any impaired loans, as defined.
INVESTMENT SECURITIES AND MORTGAGE-BACKED SECURITIES
The Savings Bank classifies its investment and mortgage-backed securities in
one of three categories: trading, available-for-sale, or held to maturity.
Securities which the Savings Bank has the positive intent and ability to hold
to maturity are classified as held to maturity and measured at amortized
cost. Securities purchased for the purpose of being sold in the near term are
classified as trading securities and measured at fair value with any change
in fair value included in earnings. All other securities that are not
classified as held to maturity or trading are classified as
available-for-sale. Securities classified as available-for-sale are measured
at fair value with any changes in fair value reflected as a separate
component of retained earnings, net of related tax effects. Gains and losses
on the sale of such securities are determined using the specific
identification method. The Savings Bank has no trading securities.
Discounts and premiums on mortgage-backed securities purchased are accreted
and amortized to maturity, using a method which approximates the effective
interest method. For investment securities, the straight-line method based
upon the contractual life of the security is principally used which
approximates the effective interest method.
OFFICE PROPERTIES AND EQUIPMENT
Office properties and equipment are stated at cost less accumulated
depreciation. Depreciation is computed for financial reporting purposes
principally on the straight-line basis over the estimated useful lives (5 to
20 years) of the respective assets.
INCOME TAXES
Deferred income taxes arise from the recognition of certain items of income
and expense for tax purposes in years different from those in which they are
recognized in the consolidated financial statements. Deferred tax assets and
liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing
assets and liabilities and their respective tax bases (temporary differences).
Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which the temporary
differences are expected to be recovered or settled. The effect on deferred
tax assets and liabilities of a change in tax rates is recognized as income
in the period that includes the enactment date.
FORECLOSED REAL ESTATE
Foreclosed real estate represents real estate acquired through foreclosure
which is recorded at the lower of cost (principal balance of the former first
mortgage loan plus costs of obtaining title and possession) or net realizable
value, at the date of foreclosure. After foreclosure, additional reserves are
recorded as necessary to reflect further impairment of the estimated net
realizable value.
F-7
<PAGE>
ELGIN FINANCIAL CENTER, SB
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CASH AND CASH EQUIVALENTS
For purposes of the consolidated statements of cash flows, the Savings Bank
considers cash on hand and in banks and certificates of deposit with an
original maturity of three months or less as cash and cash equivalents.
BASIS OF PRESENTATION
Certain amounts for prior years have been reclassified to conform to the
current year presentation.
UNAUDITED FINANCIAL INFORMATION
The accompanying unaudited financial information as of and for the period
ended July 31, 1997 and 1996 has been prepared pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain information
and footnote disclosures normally included in annual financial statements
prepared in accordance with generally accepted accounting principles have
been omitted pursuant to such rules and regulations. In the opinion of
management, all adjustments necessary for a fair presentation for the periods
presented have been reflected and are of a normal and recurring nature.
Results of operations for the interim periods are not necessarily indicative
of the results to be expected for the year.
(2) LOANS RECEIVABLE, NET
Loans receivable, net are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
JULY 31, ---------------------------
1997 1996 1995
-------------- ------------- ------------
(UNAUDITED)
<S> <C> <C> <C>
Mortgage loans:
One-to-four family residential....... $ 185,516,148 181,480,551 165,956,124
Multifamily.......................... 20,948,261 22,039,921 23,290,170
Commercial........................... 11,944,640 9,953,276 9,750,094
Construction and land................ 14,664,898 16,088,691 16,253,215
-------------- ------------- -------------
Total mortgage loans.................. 233,073,947 229,562,439 215,249,603
-------------- ------------- -------------
Other loans:
Home equity loans.................... 6,578,696 5,758,455 4,337,186
Commercial........................... 2,788,501 2,764,108 1,829,677
Auto loans........................... 649,000 636,829 657,363
Loans on savings accounts............ 447,991 392,803 417,227
Other................................ 71,083 112,131 148,702
-------------- ------------- -------------
Total other loans..................... 10,535,271 9,664,326 7,390,155
-------------- ------------- -------------
Total loans receivable................ 243,609,218 239,226,765 222,639,758
-------------- ------------- -------------
Less:
Unearned discounts................... -- -- 109,392
Deferred loan fees................... 608,770 740,615 840,008
Allowance for loan losses............ 828,681 807,681 753,681
-------------- ------------- -------------
Loans receivable, net................. $ 242,171,767 237,678,469 220,936,677
-------------- ------------- -------------
</TABLE>
F-8
<PAGE>
ELGIN FINANCIAL CENTER, SB
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Activity in the allowance for loan losses is summarized as follows:
<TABLE>
<CAPTION>
SEVEN MONTHS
ENDED
JULY 31, YEAR ENDED DECEMBER 31,
--------------------- -------------------------------
1997 1996 1996 1995 1994
---------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Balance at beginning of year.............................. $ 807,681 753,681 753,681 681,681 591,681
Provision for loan losses................................. 21,000 39,000 54,000 72,000 90,000
Charge-offs............................................... -- -- -- -- --
---------- --------- --------- --------- ---------
Balance at end of period.................................. $ 828,681 792,681 807,681 753,681 681,681
---------- --------- --------- --------- ---------
</TABLE>
Loans receivable in arrears three months or more and on non accrual status
or in the process of foreclosure are as follows:
<TABLE>
<CAPTION>
NUMBER PERCENT OF
OF GROSS LOANS
LOANS AMOUNT RECEIVABLE
------------- ---------- ---------------
<S> <C> <C> <C>
July 31, 1997 (unaudited)...................... 5 $ 373,935 .15%
December 31, 1996.............................. 6 428,460 .18
December 31, 1995.............................. 8 739,607 .32
December 31, 1994.............................. 10 542,973 .25
</TABLE>
The Savings Bank makes loans to their officers, and directors and to
associates of such persons. These loans were made in the ordinary course of
business on the same terms and conditions, including interest rates and
collateral, as those prevailing at the time for comparable transactions with
other customers and do not involve more than a normal risk. As of July 31,
1997 and December 31, 1996 and 1995, the outstanding balance on such loans
was approximately $2,022,000 (unaudited), $2,258,000 and $1,692,000,
respectively.
F-9
<PAGE>
ELGIN FINANCIAL CENTER, SB
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(3) MORTGAGE-BACKED SECURITIES AND
INVESTMENT SECURITIES AVAILABLE-FOR-SALE
The amortized cost and estimated fair value of mortgage-backed securities
and investment securities available-for-sale are summarized as follows:
<TABLE>
<CAPTION>
JULY 31, 1997 (UNAUDITED)
---------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
------------- ---------- ---------- ------------
<S> <C> <C> <C> <C>
Mortgage-backed securities:
Federal Home Loan Mortgage Corporation.................... $ 5,723,662 43,688 (71,402) 5,695,948
Federal National Mortgage Association..................... 4,543,259 78,432 (9,102) 4,612,589
Government National Mortgage Association.................. 9,376,369 62,806 (15,828) 9,423,347
------------- ---------- ---------- ------------
19,643,290 184,926 (96,332) 19,731,884
Investment securities United States Government
obligations............................................... 37,215,049 1,013,590 (26,084) 38,202,555
------------- ---------- ---------- ------------
$ 56,858,339 1,198,516 (122,416) 57,934,439
------------- ---------- ---------- ------------
------------- ---------- ---------- ------------
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1996
---------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
------------- ---------- ---------- ------------
<S> <C> <C> <C> <C>
Mortgage-backed securities:
Federal Home Loan Mortgage Corporation.................... $ 6,507,222 53,298 (86,195) 6,474,325
Federal National Mortgage Association..................... 5,070,682 75,515 (13,896) 5,132,301
Government National Mortgage Association.................. 10,347,731 63,567 (42,495) 10,368,803
------------- ---------- ---------- ------------
21,925,635 192,380 (142,586) 21,975,429
Investment securities United States Government
obligations............................................... 36,519,572 1,085,786 (61,977) 37,543,381
------------- ---------- ---------- ------------
$ 58,445,207 1,278,166 (204,563) 59,518,810
------------- ---------- ---------- ------------
------------- ---------- ---------- ------------
</TABLE>
F-10
<PAGE>
ELGIN FINANCIAL CENTER, SB
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
<TABLE>
<CAPTION>
DECEMBER 31, 1995
----------------------
<S> <C> <C> <C> <C>
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
------------- ---------- ---------- ------------
Mortgage-backed securities:
Federal Home Loan Mortgage
Corporation............................................. $ 8,924,961 184,215 (88,511) 9,020,665
Federal National Mortgage Association..................... 3,528,768 94,183 -- 3,622,951
Government National Mortgage Association.................. 11,918,250 67,868 (109,480) 11,876,638
------------- --------- ---------- ------------
24,371,979 346,266 (197,991) 24,520,254
Investment securities -
United States Government obligations...................... 29,069,544 1,642,449 (4,832) 30,707,161
------------- --------- --------- ------------
$ 53,441,523 1,988,715 (202,823) 55,227,415
------------- --------- --------- ------------
------------- --------- --------- ------------
</TABLE>
There were no sales of mortgage-backed securities available-for-sale for the
seven months ended July 31, 1997 and 1996 (unaudited) or for the years ended
December 31, 1996, 1995, and 1994. Proceeds from the sale of an investment
security available-for-sale during 1995 totaled $1,997,500. There was a
realized loss of $2,500 on the sale. There were no sales of investment
securities available-for-sale for the seven months ended July 31, 1997 and
1996 (unaudited) or for the years ended December 31, 1996 and 1994.
The amortized cost and estimated fair value of investment securities
available-for-sale at July 31, 1997 and December 31, 1996 by contractual
maturity are shown below. Expected maturities may differ from contractual
maturities because borrowers may have the right to prepay obligations.
<TABLE>
<CAPTION>
JULY 31, 1997 DECEMBER 31, 1996
--------------------------- --------------------------
<S> <C> <C> <C> <C>
AMORTIZED ESTIMATED AMORTIZED ESTIMATED
COST FAIR VALUE COST FAIR VALUE
------------- ------------ ------------ ------------
(UNAUDITED)
Due in one year or less................................. $ 6,979,822 7,006,600 7,997,896 8,024,000
Due after one year through five years................... 17,553,999 18,502,782 18,127,842 19,162,573
Due after five years through ten years.................. 8,681,947 8,676,973 8,394,662 8,337,908
Due after ten years..................................... 3,999,281 4,016,200 1,999,172 2,018,900
------------- ---------- ---------- ----------
$ 37,215,049 38,202,555 36,519,572 37,543,381
------------- ---------- ---------- ----------
------------- ---------- ---------- ----------
</TABLE>
F-11
<PAGE>
ELGIN FINANCIAL CENTER, SB
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(4) Accrued Interest Receivable
Accrued interest receivable is summarized as follows:
<TABLE>
<CAPTION>
JULY 31, DECEMBER 31,
----------- --------------------
1997 1996 1995
----------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C>
Loans receivable............................................................... $ 217,512 251,313 264,169
Mortgage-backed securities..................................................... 157,462 173,458 168,445
Investment securities.......................................................... 490,487 563,760 527,196
--------- ------- --------
$ 865,461 988,531 959,810
--------- ------- --------
--------- ------- --------
</TABLE>
(5) Office Properties and Equipment
A summary of office properties and equipment at cost is summarized as
follows:
<TABLE>
<CAPTION>
JULY 31, DECEMBER 31,
------------ ----------------------
1997 1996 1995
------------ ---------- ----------
(UNAUDITED)
<S> <C> <C> <C>
Land...................................................................... $ 705,910 705,910 520,910
Land improvements......................................................... 176,862 174,362 171,506
Office buildings.......................................................... 3,947,109 3,707,221 2,639,083
Furniture, fixtures, and equipment........................................ 3,542,340 3,071,524 2,776,548
------------ --------- ---------
8,372,221 7,659,017 6,108,047
Less accumulated depreciation............................................. 3,534,886 3,316,549 3,039,509
------------ --------- ---------
$ 4,837,335 4,342,468 3,068,538
------------ --------- ---------
------------ --------- ---------
</TABLE>
Depreciation expense was $218,337 and $197,123 for the seven months ended
July 31, 1997 and 1996 (unaudited), respectively, and $277,040, $307,226, and
$191,062, for the years ended December 31, 1996, 1995, and 1994, respectively.
F-12
<PAGE>
ELGIN FINANCIAL CENTER, SB
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(6) SAVINGS DEPOSITS
Savings deposit balances are summarized as follows:
<TABLE>
<CAPTION>
JULY 31, STATED OR DECEMBER 31, STATED OR DECEMBER 31,
1997 (UNAUDITED) WEIGHTED 1996 WEIGHTED 1995
------------------------ AVERAGE ---------------------- AVERAGE -----------------
AMOUNT PERCENT RATE AMOUNT PERCENT RATE AMOUNT PERCENT
------------ ----------- ---------- ------------ --------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance by interest rate:
Commercial checking accounts.. $ 6,712,040 2.6 % --% $ 6,009,027 2.4% --% $ 5,911,868 2.4%
NOW accounts--noninterest- 2,109,700 0.8 -- 1,585,413 0.6 -- -- --
bearing...
NOW accounts--interest 24,710,424 9.4 1.82 26,809,040 10.6 1.86 28,106,256 11.3
bearing...
Passbook.... 51,300,831 19.5 3.02 45,867,908 18.1 3.00 46,058,489 18.6
Money market accounts.. 27,185,485 10.4 3.41 28,101,904 11.1 3.40 29,662,824 12.0
Certificate accounts:
Fixed rates..... 92,497,872 35.3 5.75 89,326,785 35.3 5.70 87,434,336 35.2
Individual retirement accounts-
18-48 month fixed and variable
rate 47,913,808 18.2 6.26 46,518,933 18.4 6.26 43,221,298
Jumbo certificates (with a
minimum denomination of
$100,000).. 9,821,667 3.8 5.61 8,894,935 3.5 6.03 7,746,489 3.1
------------ ----- ---- ------------ ---- ------ ----------- -----
150,233,347 57.3 144,740,653 57.2 138,402,123 55.7
------------ ----- ---- ------------ ---- ------ ----------- -----
$262,251,827 100.0 % 4.65% $ 253,113,945 100.0% 4.50% $ 248,141,560 100.0%
------------ ----- ---- ------------ ---- ------ ----------- -----
------------ ----- ---- ------------ ---- ------ ----------- -----
Contractual maturity of
certificate accounts
(rounded):
Under 12 months.... 82,103,000 54.7 % 77,755,000 53.7% 75,908,000 54.9%
12 months to 36 months 59,114,000 39.3 56,897,000 39.3 42,774,000 30.9
Over 36 months.... 9,016,000 6.0 10,089,000 7.0 19,720,000 14.2
------------ ----- ---- ------------ ---- ------ ----------- -----
$150,233,000 100.0 % $ 144,741,000 100.0% $ 138,402,000 100.0%
------------ ----- ---- ------------ ---- ------ ----------- -----
------------ ----- ---- ------------ ---- ------ ----------- -----
</TABLE>
<TABLE>
STATED OR
WEIGHTED
AVERAGE
RATE
---------
<S> <C>
Balance by interest rate:
Commercial checking accounts.. --%
NOW accounts--noninterest-
bearing... --
NOW accounts--interest
bearing... 1.96
Passbook.... 3.03
Money market accounts.. 3.45
Certificate accounts:
Fixed rates..... 6.03
Individual retirement accounts-
18-48 month fixed and variable
rate 6.47
Jumbo certificates (with a
minimum denomination of
$100,000).. 5.78
----
4.63%
</TABLE>
F-13
<PAGE>
ELGIN FINANCIAL CENTER, SB
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Interest expense on savings deposits is summarized as follows:
<TABLE>
<CAPTION>
SEVEN MONTHS ENDED
JULY 31, YEAR ENDED DECEMBER 31,
------------------------ --------------------------------------------
1997 1996 1996 1995 1994
------------ ---------- ----------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Passbook accounts.......... $ 834,665 808,788 1,391,200 1,439,301 1,610,567
NOW accounts............... 302,154 344,846 571,006 581,327 599,017
Money market accounts...... 550,348 557,122 919,705 1,117,320 1,310,438
Certificate accounts....... 5,055,747 4,942,769 8,469,568 7,305,136 5,500,860
------------ --------- ---------- ---------- ---------
$ 6,742,914 6,653,525 11,351,479 10,443,084 9,020,882
------------ --------- ---------- ---------- ---------
------------ --------- ---------- ---------- ---------
</TABLE>
(7) BORROWED MONEY
Borrowed money is summarized as follows:
<TABLE>
<CAPTION>
WEIGHTED WEIGHTED OUTSTANDING
INTEREST OUTSTANDING INTEREST RATE BALANCE
RATE BALANCE DECEMBER 31, DECEMBER 31,
JULY 31, JULY 31, -------------------- --------------------
MATURITY 1997 1997 1996 1995 1996 1995
--------- ----------- ----------- --------- --------- --------- ---------
(IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
Advances from the Federal
Home Loan Bank of Chicago:..................... 1/29/96 -- % $ -- -- % 5.80% $ -- 3,000
11/13/96 -- -- -- 5.72 -- 4,000
12/10/96 -- -- -- 6.07 -- 2,000
1/3/97 -- -- 5.55 -- 15,000 --
3/18/97 -- -- 5.51 -- 3,000 --
5/27/97 -- -- 5.52 -- 5,000 --
6/19/97 -- -- 6.09 6.09 2,000 2,000
6/19/98 6.16 2,000 6.16 6.16 2,000 2,000
2/21/00 5.48 10,000 -- -- -- --
6/26/00 6.32 2,000 6.32 6.32 2,000 2,000
6/18/02 5.71 10,000 -- -- -- --
----------- ----------- --------- --------- --------- ---------
5.70% $ 24,000 5.67% 5.97% $29,000 15,000
----------- ----------- --------- --------- --------- ---------
----------- ----------- --------- --------- --------- ---------
</TABLE>
The Savings Bank adopted a collateral pledge agreement whereby it has agreed
to at all times keep on hand, free of all other pledges, liens, and
encumbrances, performing first mortgage loans with unpaid principal balances
aggregating no less than 167% of the outstanding secured advances from the
Federal Home Loan Bank of Chicago. The carrying value of the collateral was
approximately $185,142,000 and $181,052,000 at July 31, 1997 (unaudited) and
December 31, 1996, respectively. All stock in the Federal Home Loan Bank of
Chicago is also pledged as additional collateral for these advances.
F-14
<PAGE>
ELGIN FINANCIAL CENTER, SB
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(8) INCOME TAXES
Income tax expense is summarized as follows:
<TABLE>
<CAPTION>
SEVEN MONTHS ENDED
JULY 31, YEAR ENDED DECEMBER 31,
--------------------- ----------------------------------
1997 1996 1996 1995 1994
---------- --------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Current:
Federal............................................. $ 754,685 858,167 1,039,689 1,537,366 1,617,928
State............................................... 92,768 94,022 120,856 183,857 183,655
---------- ------- --------- --------- ---------
847,453 952,189 1,160,545 1,721,223 1,801,583
Deferred:
Federal............................................. 72,514 12,101 (23,484) 17,987 35,250
State............................................... 16,376 2,573 (5,343) 6,480 6,177
---------- ------- --------- --------- ---------
88,890 14,674 (28,827) 24,467 41,427
---------- ------- --------- --------- ---------
Total income tax expense............................ $ 936,343 966,863 1,131,718 1,745,690 1,843,010
---------- ------- --------- --------- ---------
---------- ------- --------- --------- ---------
</TABLE>
The actual Federal income tax expense differs from the expected income tax
expense for those periods (computed by applying the statutory U.S. federal
corporate tax rate of 34% to earnings before income taxes) as follows:
<TABLE>
<CAPTION>
SEVEN MONTHS ENDED
JULY 31, YEAR ENDED DECEMBER 31,
--------------------- ----------------------------------
1997 1996 1996 1995 1994
---------- --------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Tax expense based on the statutory U.S.
federal corporate tax rate.......................... $ 935,837 916,844 1,079,254 1,532,429 1,631,947
State income taxes, net of federal benefit.......... 59,521 62,055 76,239 87,639 125,290
Other, net.......................................... (59,015) (12,036) (23,775) 125,622 85,773
---------- -------- --------- --------- ---------
$ 936,343 966,863 1,131,718 1,745,690 1,843,010
---------- -------- --------- --------- ---------
---------- -------- --------- --------- ---------
</TABLE>
F-15
<PAGE>
ELGIN FINANCIAL CENTER, SB
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The tax effects of existing temporary differences that give rise to
significant portions of the deferred tax assets and deferred tax liabilities
are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
JULY 31, ----------------------------
1997 1996 1995
- --------------------------------------------------------------- ------------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Deferred tax assets:
Allowances for loan losses................................... $ 341,251 352,981 310,366
Capital loss carryforward.................................... 39,324 37,677 37,677
Future federal benefit for state tax expense................. 94,120 88,491 64,569
Other........................................................ -- -- 1,812
------------- ------------- -------------
Gross deferred tax assets...................................... 474,695 479,149 414,424
Valuation allowance.......................................... (39,324) (37,677) (37,677)
------------- ------------- -------------
Net deferred tax assets........................................ 435,371 441,472 376,747
Deferred tax liabilities:
FHLB stock dividends......................................... (134,780) (134,780) (134,780)
Unrealized gain on securities available-for-sale............. (368,025) (367,172) (687,568)
Loan fees.................................................... (290,361) (300,656) (299,350)
Depreciation................................................. (111,606) (82,530) (100,581)
Tax bad debt reserve in excess of base year amount........... (949,049) (885,041) (887,463)
Other........................................................ (75,114) -- (51,130)
------------- ------------- -------------
Gross deferred tax liabilities................................. (1,928,935) (1,770,179) (2,160,872)
------------- ------------- -------------
Net deferred tax liability..................................... $ (1,493,564) (1,328,707) (1,784,125)
------------- ------------- -------------
</TABLE>
The valuation allowance for deferred tax assets at July 31, 1997 (unaudited)
and December 31, 1996 and 1995 was $39,324, $37,677 and $37,677, respectively
and represents the tax effect of a capital loss carryforward of $95,495 and
$91,495, respectively. Capital losses can only be utilized to offset capital
gains and are limited to a five-year carryforward. Based on the Savings Bank's
historical lack of capital gains, a valuation allowance has been
established for the entire amount of the deferred capital loss carryforward,
which will expire in 1999.
Retained earnings at July 31, 1997 (unaudited) and December 31, 1996 includes
approximately $2,328,000, for which no provision for Federal or state income
tax has been made. This amount represents allocation of income to bad debt
deductions for tax purposes only. Due to the 1996 tax law change, this amount
would only be recognized for tax purposes under certain conditions. At this
time none of the conditions for recognition have occurred and management does
not foresee the occurrence of any condition that would cause recognition in
the future.
F-16
<PAGE>
ELGIN FINANCIAL CENTER, SB
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(9)EMPLOYEE BENEFIT PLANS
401(k) PLAN AND TRUST
The Savings Bank adopted the Elgin Federal Financial Center 401(k) Employee
Benefit Plan and Trust (Plan), effective November 1, 1986, for the exclusive
benefit of eligible employees and their beneficiaries. The Plan is a
qualified plan covering all employees of the Savings Bank who have completed
at least six months of service for the Savings Bank and are age 20 or older.
The Plan also provides benefits in the event of death, disability, or other
termination of employment. Participants may make contributions to the Plan
from 2% to 10% of their earnings, subject to Internal Revenue Service
limitations. Matching contributions can be made at the Savings Bank's
discretion each Plan year. The contributions made by the Savings Bank during
1996, 1995, and 1994 were approximately $138,000, $122,000, and $117,000,
respectively. There were no contributions during the seven months ended July
31, 1997 and 1996 (unaudited).
PENSION PLAN
The Savings Bank has a defined benefit pension plan covering all salaried
employees meeting certain eligibility requirements. The plan is
noncontributory and the Savings Bank is funding all of the required annual
contributions.
The Savings Bank s pension plan financial data as of December 31, 1996 and
1995 are as follows:
<TABLE>
<CAPTION>
FUNDED STATUS 1996 1995
- ----------------------------------------------------------------------- -------------- ------------
<S> <C> <C>
Actuarial present value of benefit obligations
accumulated benefit obligation, including vested
benefits of $955,658 and $931,147 at
December 31, 1996 and 1995........................................... $ 1,051,433 1,013,787
-------------- ------------
Projected benefit obligation........................................... (1,665,245) (1,676,357)
Plan assets at fair value.............................................. 1,442,329 1,190,851
-------------- ------------
Plan assets less than projected benefit obligation..................... (222,916) (485,506)
Unrecognized net gain from past experience different from that assumed
and effects of changes in assumptions................................ 70,281 342,917
Remaining unrecognized net asset....................................... (1,400) (19,345)
Unrecognized prior service cost........................................ 7,173 9,393
-------------- ------------
Accrued pension cost................................................... $ (146,862) (152,541)
-------------- ------------
</TABLE>
F-17
<PAGE>
ELGIN FINANCIAL CENTER, SB
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Net periodic pension expense is summarized as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
<S> <C> <C> <C>
1996 1995 1994
---------- ---------- ----------
Service cost.................................................................. $ 124,177 101,447 112,149
Interest cost on projected benefit obligation................................. 118,333 100,371 95,302
Actual loss (return) on plan assets........................................... (176,362) (296,375) 53,982
Net amortization and deferral................................................. 74,774 215,152 (129,815)
---------- ---------- ----------
Net periodic pension expense.................................................. $ 141,922 120,595 131,618
---------- ---------- ----------
Assumptions used in expense calculations were:
Discount rates.............................................................. 7.75% 7.25% 8.75%
Rates of increase in compensation levels.................................... 6.00% 6.00% 6.00%
Expected long-term rate of return on assets................................. 8.00% 8.00% 8.00%
---------- ---------- ----------
</TABLE>
(10)SPECIAL ASSESSMENT
Legislation to recapitalize the Savings Association Insurance Fund (the SAIF)
was signed into law on September 30, 1996. The Savings Bank was required to
record a special assessment associated with the capitalization of the SAIF
totaling $1,543,323 in September 1996. This one-time charge was paid in the
fourth quarter of 1996.
(11)REGULATORY CAPITAL REQUIREMENTS
The Savings Bank is subject to regulatory capital requirements administered
by State and Federal regulatory 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 classification are also subject to
qualitative judgments by the regulators about components, risk weightings,
and other factors.
Quantitative measures established by regulation to ensure adequacy require
the Savings Bank to maintain minimum amounts and ratios as set forth below.
Management believes, as of July 31, 1997 (unaudited) and December 31, 1996,
that the Savings Bank meets all capital adequacy requirement to which it is
subject.
As of July 31, 1997 (unaudited) and December 31, 1996, the most recent
notification from the Federal Deposit Insurance Corporation categorized the
Savings Bank as well capitalized under the regulatory framework for prompt
corrective action. There are no conditions or events since that notification
that management believes have changed the institution's category.
F-18
<PAGE>
ELGIN FINANCIAL CENTER, SB
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The Savings Bank's actual capital amounts and ratios are as follows:
<TABLE>
<CAPTION>
TO BE WELL
FOR CAPITAL CAPITALIZED
ADEQUACY UNDER PROMPT
ACTUAL PURPOSES CORRECTIVE ACTION
------------------------ ---------------------- ----------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
----------- ----- ----------- ----- ----------- -----
<S> <C> <C> <C> <C> <C> <C>
July 31, 1997 (unaudited):
Total capital (to risk weighted assets)............. $31,433,000 17.4% $14,451,000 8.0% $18,064,000 10.0%
Tier I capital (to risk weighted assets)............ 30,622,000 17.0 7,226,000 4.0 10,839,000 6.0
Tier I capital (to average assets).................. 30,622,000 9.5 12,883,000 4.0 16,104,000 5.0
December 31, 1996:
Total capital (to risk weighted assets)............. 29,596,000 16.5 14,356,000 8.0 17,945,000 10.0
Tier I capital (to risk weighted assets)............ 28,806,000 16.1 7,178,000 4.0 10,767,000 6.0
Tier I capital (to average assets).................. 28,806,000 9.4 12,314,000 4.0 15,392,000 5.0
---------- ----- ---------- ------- ---------- -----
</TABLE>
(12) CONTINGENCIES
During an Office of Thrift Supervision (OTS) examination in 1993, it was
noted that the Savings Bank was incorrectly calculating certain annual
percentage rate disclosures on certain adjustable rate first mortgage loans.
The OTS has requested the Savings Bank to make reimbursement to affected
customers to adjust for the payments that they have made on these loans to
date, and in certain cases, to reduce the amounts of future payments due on
these loans to reflect the disclosed annual percentage rates.
On the advice of counsel the Savings Bank has thus far declined to make the
adjustments for the loans originated prior to their 1992 OTS Report of
Examination in accordance with a 1993 United States Court of Appeals
decision. In the opinion of management and Savings Bank legal counsel the
aforementioned Court of Appeals decision was correctly decided and if
followed in Illinois should provide a meritorious defense to the OTS request.
It is reasonably possible that the OTS will seek an administrative or
judicial ruling as to whether the Savings Bank's defense is meritorious. The
Savings Bank's exposure in this matter is estimated to range from $300,000 to
$350,000.
F-19
<PAGE>
ELGIN FINANCIAL CENTER, SB
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As to certain adjustable rate mortgage loans made subsequent to the Savings
Bank's 1992 Report of Examination, the Savings Bank made reimbursements of
approximately $60,000 and is reducing total future interest payments on
certain affected loans by approximately $200,000, spread over a period of
years. This future interest amount may be less if the affected loans are
repaid prior to their scheduled repayment terms. Interest payments were
reduced by approximately $10,000 and $11,000 and $45,000 and $22,000 for the
seven months ended July 31, 1997 and 1996 (unaudited) and during 1996 and
1995, respectively.
There are various other matters of litigation pending against the Company
that have arisen during the normal course of business. Based upon discussions
with legal counsel, management believes that the aggregated liability, if
any, resulting from these matters will not be material to the financial
results of the Savings Bank.
(13) CONCENTRATIONS OF CREDIT RISK AND FINANCIAL INSTRUMENTS WITH
OFF-BALANCE SHEET RISK
Substantially all of the Savings Bank's mortgage loans are secured by
single-family homes in Kane County. For loans originated, the Savings Bank
evaluates each customer s creditworthiness on a case-by-case basis.
Management believes the Savings Bank has a diversified loan portfolio and
concentration of lending activities that does not result in an acute
dependency upon the economic conditions of the lending area. Purchased
participation loans are secured by properties primarily in the southern
Wisconsin area and to a lesser extent by properties in the Chicagoland area.
The Savings Bank is party to financial instruments with off-balance sheet
risk in the normal course of business to meet the financing needs of its
customers. Those financial instruments primarily include commitments to
extend credit. Commitments to extend credit are agreements to lend to a
customer so long as there is no violation of any condition established in the
contract. The Savings Bank evaluates each customer s creditworthiness on a
case-by-case basis. The amount of collateral obtained is based on management
s credit evaluation of the customer. The Savings Bank s exposure to credit
loss in the event of nonperformance by the customer is represented by the
contractual amount of those financial instruments. At July 31, 1997 and
December 31, 1996 and 1995, the Savings Bank had the following commitments:
<TABLE>
<CAPTION>
DECEMBER 31,
JULY 31, ----------------------
1997 1996 1995
------------ ---------- ----------
(UNAUDITED)
<S> <C> <C> <C>
First mortgage loans...................................................... 4,683,000 $ 4,119,000 6,720,000
Construction loans........................................................ 4,640,000 6,369,000 6,130,000
Unused lines of credit.................................................... 4,666,000 5,925,000 5,048,000
Letters of credit......................................................... 3,025,000 2,545,000 2,979,000
------------ ---------- ----------
</TABLE>
F-20
<PAGE>
ELGIN FINANCIAL CENTER, SB
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(14) FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, Disclosures about Fair
Value of Financial Instruments (Statement No. 107), requires the disclosure
of estimated fair values of all asset, liability, and off-balance sheet
financial instruments. The estimated fair value amounts under Statement No.
107 have been determined as of a specific point in time utilizing various
available market information, assumptions, and appropriate valuation
methodologies. Accordingly, the estimated fair values presented herein are
not necessarily representative of the underlying value of the Savings Bank.
Rather, the disclosures are limited to reasonable estimates of the fair value
of only the Savings Bank s financial instruments. The use of assumptions and
various valuation techniques, as well as the absence of secondary markets for
certain financial instruments, will likely reduce the comparability of fair
value disclosures between financial institutions. The Savings Bank does not
plan to sell most of its assets or settle most of its liabilities at these
fair values.
The estimated fair values of the Savings Bank's financial instruments are set
forth in the following table.
<TABLE>
<CAPTION>
DECEMBER 31,
JULY 31, ------------------------------------------
1997 1996 1995
-------------------- -------------------- --------------------
CARRYING FAIR CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE AMOUNT VALUE
- --------------------------------------------------------- --------- --------- --------- --------- --------- ---------
(IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Financial assets:
Cash and cash equivalents.............................. $ 16,311 16,311 10,953 10,953 15,353 15,353
Investment securities.................................. 38,203 38,203 37,543 37,543 30,707 30,707
Mortgage-backed securities............................. 19,732 19,732 21,975 21,975 24,520 24,520
Loans receivable, net.................................. 243,610 249,026 239,227 241,832 222,640 224,546
Accrued interest receivable............................ 865 865 989 989 960 960
Stock in FHLB of Chicago............................... 2,051 2,051 2,051 2,051 1,903 1,903
--------- --------- --------- --------- --------- ---------
Financial liabilities:
Nonmaturing deposits................................... 112,019 112,019 108,373 108,373 109,739 109,739
Deposits with stated maturities........................ 150,233 150,550 144,741 145,332 138,402 139,699
Borrowed money......................................... 24,000 23,973 29,000 28,991 15,000 15,092
Accrued interest payable............................... 811 811 103 103 117 117
--------- --------- --------- --------- --------- ---------
</TABLE>
The following methods and assumptions are used by the Savings Bank in
estimating the fair value amounts for its financial instruments.
CASH AND CASH EQUIVALENTS
The carrying value of cash and cash equivalents approximates fair value due
to the short period of time between origination of the instrument and its
expected realization.
INVESTMENT SECURITIES, MORTGAGE-BACKED SECURITIES, AND FHLB STOCK
The fair value of investment securities and mortgage-backed securities are
estimated using quoted market prices. The fair value of FHLB stock is based
on its redemption value.
F-21
<PAGE>
ELGIN FINANCIAL CENTER, SB
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
LOANS RECEIVABLE
The fair value of loans receivable is based on contractual cash flows
adjusted for prepayment assumptions, discounted using the current rate at
which similar loans would be made to borrowers with similar credit ratings
and remaining terms to maturity.
ACCRUED INTEREST RECEIVABLE AND PAYABLE
The carrying value of accrued interest receivable and payable approximates
fair value due to the relatively short period of time between accrual and
expected realization.
DEPOSITS
The fair value of deposits with no stated maturity, such as commercial
checking, passbook savings, NOW, and money market accounts are disclosed as
the amount payable on demand.
The fair value of fixed-maturity deposits is the present value of the
contractual cash flows discounted using interest rates currently being
offered for deposits with similar remaining terms to maturity. If the fair
value estimate is less than the amount payable on demand at December 31, the
fair value disclosed is the amount payable on demand as per Statement 107.
BORROWED FUNDS
The carrying value of adjustable rate FHLB advances approximates fair value
as the advances reprice to a market interest rate on a daily basis. The fair
value of fixed rate FHLB advances is the present value of the contractual
cash flows discounted by the current rate offered for similar remaining
maturities.
(15) CONVERSION TO STOCK FORM OF OWNERSHIP (UNAUDITED)
On August 12, 1997, the Board of Directors adopted a Plan of Conversion (the
Plan) whereby the Savings Bank will convert from a state chartered savings
bank to a state chartered stock savings bank. The Plan is subject to approval
of regulatory authorities and members at a special meeting. The stock of the
Savings Bank will be issued to a holding company (the Company) formed in
connection with the conversion. Pursuant to the Plan, shares of capital stock
of the holding company are expected to be offered initially for subscription
by eligible members of the Savings Bank and certain other persons as of
specified dates subject to various subscription priorities as provided in the
Plan. The capital stock will be offered at a price to be determined by the
Board of Directors based upon an appraisal to be made by an independent
appraisal firm. The exact number of shares to be offered will be determined
by the Board of Directors in conjunction with the determination of the price
at which the shares will be sold. At least the minimum number of shares
offered in the conversion must be sold. Any stock not purchased in the
subscription offering will be sold in a community offering.
The Plan provides that when the conversion is completed, a "Liquidation
Account" will be established in an amount equal to the retained earnings of
the Savings Bank as of the date of the most recent financial statements
contained in the final conversion prospectus. The Liquidation Account is
established to provide a limited priority claim on the assets of the Savings
Bank to qualifying depositors (Eligible and Supplemental Eligible Account
Holders) who continue to maintain deposits in the Savings Bank after
conversion. In the unlikely event of a complete liquidation of the Savings
Bank, and only in such an event, each Eligible Account Holder would then
receive from the Liquidation Account a liquidation distribution based on his
proportionate share of the then total remaining qualifying deposits.
F-22
<PAGE>
ELGIN FINANCIAL CENTER, SB
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Pursuant to the Plan, the Company intends to establish a Charitable
Foundation (the Foundation) in connection with the Conversion. The Plan
provides that the Savings Bank and the Company will create the Foundation and
donate an amount of the Company's common stock equal to 8.0% of the common
stock to be issued in the Conversion. The Foundation is being formed as a
complement to the Savings Bank's existing community activities and will be
dedicated to community activities and the promotion of charitable causes.
The Foundation will submit a request to the Internal Revenue Service to be
recognized as a tax-exempt organization and would likely be classified as a
private foundation. A contribution of common stock to the Foundation by the
Company would be tax deductible, subject to an annual limitation based on 10%
of the Company's annual taxable income. The Company, however, would be able
to carry forward any unused portion of the deduction for five years following
the contribution. Upon funding the Foundation, the Company will recognize an
expense in the full amount of the contribution, offset in part by the
corresponding tax benefit, during the quarter in which the contribution is
made.
Current regulations allow the Savings Bank to pay dividends on its stock
after the conversion if its regulatory capital would not thereby be reduced
below the amount then required for the aforementioned Liquidation Account.
Also, capital distribution regulations limit the Savings Bank's ability to
make capital distributions which include dividends, stock redemptions or
repurchases, cash-out mergers, interest payments on certain convertible debt
and other transactions charged to the capital account based on their capital
level and supervisory condition. Federal regulations also preclude any
repurchase of the stock of the Savings Bank or its holding company for one
year after conversion except where compelling and valid business reasons are
established and approved by the FDIC. The Savings Bank has retained the
services of both an underwriting firm and legal counsel for the specific
purpose of implementing the Savings Bank's plan of conversion. At July 31,
1997 (unaudited), the Savings Bank has not incurred any costs relating to
these services.
F-23
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
No dealer, salesman or any other person has been authorized to give any
information or to make any representation other than as contained in this
Prospectus in connection with the offering made hereby, and, if given or made,
such other information or representation must not be relied upon as having been
authorized by EFC Bancorp, Inc., Elgin Financial Center, S.B. or Charles Webb &
Company. 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 EFC Bancorp, Inc. or Elgin Financial Center, S.B. since
any of the dates as of which information is furnished herein or since the date
hereof.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Summary.........................................
Selected Consolidated Financial and Other Data
of the Bank...................................
Risk Factors....................................
EFC Bancorp, Inc................................
Elgin Financial Center, S.B.....................
Elgin Financial Foundation......................
Regulatory Capital Compliance...................
Use of Proceeds.................................
Dividend Policy.................................
Market for the Common Stock.....................
Capitalization..................................
Pro Forma Data..................................
Comparison of Valuation and Pro Forma
Information with No Foundation................
Consolidated Statements of Operations...........
Management's Discussion and
Analysis of Financial Condition and Results of
Operations....................................
Business of the Company.........................
Business of the Bank............................
Federal and State Taxation......................
Regulation and Supervision......................
Management of the Company.......................
Management of the Bank..........................
The Conversion..................................
Restrictions on Acquisition of the
Company and the Bank..........................
Description of Capital Stock of the Company.....
Description of Capital Stock of the Bank........
Transfer Agent and Registrar....................
Experts.........................................
Legal and Tax Opinions..........................
Additional Information..........................
Index to Financial Statements...................
</TABLE>
------------------------
UNTIL ______________ , 1997 OR 25 DAYS AFTER COMMENCEMENT OF THE
SYNDICATED COMMUNITY OFFERING, IF ANY, WHICHEVER IS LATER, ALL DEALERS
EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, 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.
5,681,000 SHARES
[LOGO]
EFC BANCORP, INC.
(PROPOSED HOLDING COMPANY FOR ELGIN FINANCIAL CENTER, S.B.)
COMMON STOCK
(PAR VALUE $0.01 PER SHARE)
---------------------
PROSPECTUS
---------------------
Charles Webb & Company
A Division of Keefe, Bruyette & Woods, Inc.
December _______, 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.(1)
<TABLE>
<S> <C>
SEC filing................................................................ $ 21,380
ICBRE filing fee.......................................................... 10,000
OTS filing fee............................................................ 2,000
NASD filing fee........................................................... 7,556
Stock Market listing fee.................................................. 32,500
Printing, postage and mailing............................................. 125,000
Legal fees and expenses (including underwriter's counsel)................. 215,000
Accounting fees and expenses.............................................. 150,000
Appraisers' fees and expenses (including business plan)................... 29,000
Marketing fees and selling commissions.................................... 695,000
Underwriter's expenses.................................................... 20,000
Conversion agent fees and expenses........................................ 19,000
Transfer agent fees and expenses.......................................... 10,000
Certificate printing...................................................... 5,000
Telephone, temporary help and other equipment............................. 10,000
Miscellaneous............................................................. 28,564
---------
TOTAL................................................................. $1,380,000
---------
---------
</TABLE>
- ------------------------
(1) Unless otherwise noted, based upon the registration and issuance of
7,055,802 shares at $10.00 per share.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
In accordance with the General Corporation Law of the State of Delaware
(being Chapter 1 of Title 8 of the Delaware Code), Articles 10 and 11 of the
Registrant's Certificate of Incorporation provide as follows:
TENTH:
A. Each person who was or is made a party or is threatened to be made a
party to or is otherwise involved in any action, suit or proceeding, whether
civil, criminal, administrative or investigative (hereinafter a "proceeding"),
by reason of the fact that he or she is or was a Director or an Officer of the
Corporation or is or was serving at the request of the Corporation as a
Director, Officer, employee or agent of another corporation or of a partnership,
joint venture, trust or other enterprise, including service with respect to an
employee benefit plan (hereinafter an "indemnitee"), whether the basis of such
proceeding is alleged action in an official capacity as a Director, Officer,
employee or agent, or in any other capacity while serving as a Director,
Officer, employee or agent, shall be indemnified and held harmless by the
Corporation to the fullest extent authorized by the Delaware General Corporation
Law, as the same exists or may hereafter be amended (but, in the case of any
such amendment, only to the extent that such amendment permits the Corporation
to provide broader indemnification rights than such law permitted the
Corporation to provide prior to such amendment), against all expense, liability
and loss (including attorneys' fees, judgments, fines, ERISA excise taxes or
penalties and amounts paid in settlement) reasonably incurred or suffered by
such indemnitee in connection therewith; provided, however, that, except as
provided in Section C hereof with respect to proceedings to enforce rights to
indemnification, the Corporation shall indemnify any such indemnitee in
connection with a proceeding (or part thereof) initiated by such indemnitee only
if such proceeding (or part thereof) was authorized by the Board of Directors of
the Corporation.
II-1
<PAGE>
B. The right to indemnification conferred in Section A of this Article
TENTH shall include the right to be paid by the Corporation the expenses
incurred in defending any such proceeding in advance of its final disposition
(hereinafter 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, services to an employee benefit
plan) shall be made only upon delivery to the Corporation of an undertaking
(hereinafter an "undertaking"), by or on behalf of such indemnitee, to repay
all amounts so advanced if it shall ultimately be determined by final
judicial decision from which there is no further right to appeal (hereinafter
a "final adjudication") that such indemnitee is not entitled to be
indemnified for such expenses under this Section or otherwise. The rights to
indemnification and to the advancement of expenses conferred in Sections A
and B of this Article TENTH shall be contract rights and such rights shall
continue as to an indemnitee who has ceased to be a Director, Officer,
employee or agent and shall inure to the benefit of the indemnitee's heirs,
executors and administrators.
C. If a claim under Section A or B of this Article TENTH is not paid in full
by the Corporation within sixty days after a written claim has been received by
the Corporation, except in the case of a claim for an advancement of expenses,
in which case the applicable period shall be twenty days, the indemnitee may at
any time thereafter bring suit against the Corporation to recover the unpaid
amount of the claim. If successful in whole or in part in any such suit, or in a
suit brought by the Corporation to recover an advancement of expenses pursuant
to the terms of an undertaking, the indemnitee shall be entitled to be paid also
the expenses of prosecuting or defending such suit. In (i) any suit brought by
the indemnitee to enforce a right to indemnification hereunder (but not in a
suit brought by the indemnitee to enforce a right to an advancement of expenses)
it shall be a defense that, and (ii) in any suit by the Corporation to recover
an advancement of expenses pursuant to the terms of an undertaking the
Corporation shall be entitled to recover such expenses upon a final adjudication
that, the indemnitee has not met any applicable standard for indemnification set
forth in the Delaware General Corporation Law. Neither the failure of the
Corporation (including its Board of Directors, independent legal counsel, or its
stockholders) to have made a determination prior to the commencement of such
suit that indemnification of the indemnitee is proper in the circumstances
because the indemnitee has met the applicable standard of conduct set forth in
the Delaware General Corporation Law, nor an actual determination by the
Corporation (including its Board of Directors, independent legal counsel, or its
stockholders) that the indemnitee has not met such applicable standard of
conduct, shall create a presumption that the indemnitee has not met the
applicable standard of conduct or, in the case of such a suit brought by the
indemnitee, be a defense to such suit. In any suit brought by the indemnitee to
enforce a right to indemnification or to an advancement of expenses hereunder,
or by the Corporation to recover an advancement of expenses pursuant to the
terms of an undertaking, the burden of proving that the indemnitee is not
entitled to be indemnified, or to such advancement of expenses, under this
Article TENTH or otherwise shall be on the Corporation.
D. The rights to indemnification and to the advancement of expenses
conferred in this Article TENTH shall not be exclusive of any other right which
any person may have or hereafter acquire under any statute, the Corporation's
Certificate of Incorporation, Bylaws, agreement, vote of stockholders or
Disinterested Directors or otherwise.
E. The Corporation may maintain insurance, at its expense, to protect itself
and any Director, Officer, employee or agent of the Corporation or subsidiary or
Affiliate or another corporation, partnership, joint venture, trust or other
enterprise against any expense, liability or loss, whether or not the
Corporation would have the power to indemnify such person against such expense,
liability or loss under the Delaware General Corporation Law.
F. The Corporation may, to the extent authorized from time to time by the
Board of Directors, grant rights to indemnification and to the advancement of
expenses to any employee or agent of the Corporation to the fullest extent of
the provisions of this Article TENTH with respect to the indemnification and
advancement of expenses of Directors and Officers of the Corporation.
ELEVENTH:
A Director of this Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a Director, except for liability: (i) for any breach of the Director's
duty of loyalty to the
II-2
<PAGE>
Corporation or its stockholders; (ii) for acts or omissions not in good faith
or which involve intentional misconduct or a knowing violation of law; (iii)
under Section 174 of the Delaware General Corporation Law; or (iv) for any
transaction from which the Director derived an improper personal benefit. If
the Delaware General Corporation Law is amended to authorize corporate action
further eliminating or limiting the personal liability of Directors, then the
liability of a Director of the Corporation shall be eliminated or limited to
the fullest extent permitted by the Delaware General Corporation Law, as so
amended.
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.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
None.
II-3
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
The exhibits and financial statement schedules filed as a part of this
Registration Statement are as follows:
(a) List of Exhibits (filed herewith unless otherwise noted)
<TABLE>
<C> <S>
1.1 Engagement Letter between Elgin Financial Center, S.B. and Charles Webb & Company, a Division
of Keefe, Bruyette & Woods, Inc.
1.2 Draft Form of Agency Agreement between Elgin Financial Center, S.B. and Charles Webb & Company,
a Division of Keefe, Bruyette & Woods, Inc.*
2.1 Plan of Conversion (including the Amended and Restated Articles of Incorporation and Stock
Bylaws of Elgin Financial Center, S.B.)
3.1 Certificate of Incorporation of EFC Bancorp, Inc.
3.2 Bylaws of EFC Bancorp, Inc.
3.3 Amended and Restated Articles of Incorporation and Stock Bylaws of Elgin Financial Center, S.B.
(See Exhibit 2.1 hereto)
4.0 Draft Stock Certificate of EFC Bancorp, Inc.
5.0 Draft Opinion of Muldoon, Murphy & Faucette re: legality
5.1 Draft Opinion of Morris, Nichols, Arsht & Tunnell re: legality
8.0 Draft Opinion of Muldoon, Murphy & Faucette re: Federal Tax Matters
8.1 Draft Opinion of KPMG Peat Marwick, LLP re: State Tax Matters
10.1 Form of Elgin Financial Center, S.B. Employee Stock Ownership Plan and Trust
10.2 Draft ESOP Loan Commitment Letter and ESOP Loan Documents
10.3 Form of Proposed Employment Agreement between Elgin Financial Center, S.B. and certain
executive officers
10.4 Form of Proposed Employment Agreement between EFC Bancorp, Inc. and certain executive officers
10.5 Form of Proposed Change in Control Agreement between Elgin Financial Center, S.B. and certain
executive officers
10.6 Form of Proposed Change in Control Agreement between EFC Bancorp, Inc. and certain executive
officers
10.7 Form of Proposed Elgin Financial Center, S.B. Employee Severance Compensation Plan
10.8 Form of Elgin Financial Center, S.B. Supplemental Executive Retirement Plan*
10.9 Form of Elgin Financial Center, S.B. Management Supplemental Executive Retirement Plan*
23.1 Consent of KPMG Peat Marwick, LLP
23.2 Consent of Muldoon, Murphy & Faucette
23.3 Consent of Morris, Nichols, Arsht & Tunnell
23.4 Consent and Subscription Rights Opinion of FinPro, Inc.
24.1 Powers of Attorney
27.0 Financial Data Schedule
99.1 Appraisal Report of FinPro, Inc. (P)
99.2 Draft of Elgin Financial Foundation Gift Instrument*
</TABLE>
- ------------------------
* To be filed by amendment
(P) Filed pursuant to Rule 202 of Regulation S-T.
II-4
<PAGE>
(b) Financial Statement Schedules
All schedules have been omitted as not applicable or not required under
the rules of Regulation S-X.
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;
(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 will be governed by the final adjudication of
such issue.
II-5
<PAGE>
CONFORMED
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 Elgin, State of Illinois,
on October 24, 1997.
EFC BANCORP, INC.
By: /s/ BARRETT J. O'CONNOR
- ----------------------------------------------
Barrett J. O'Connor
PRESIDENT, CHIEF EXECUTIVE
OFFICER AND DIRECTOR
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
NAME TITLE DATE
- ----------------------------------- ------------------------- ----------------
President, Chief
/s/ BARRETT J. O,CONNOR Executive Officer and
- ----------------------------------- Director (principal October 24, 1997
Barrett J. O,Connor executive officer)
Senior Vice President,
/s/ JAMES J. KOVAC Chief Financial Officer
- ----------------------------------- and Director (principal October 24, 1997
James J. Kovac accounting and financial
officer)
/s/ JOHN J. BRITTAIN
- ----------------------------------- Director and Chairman of October 24, 1997
John J. Brittain the Board
/s/ LEO M. FLANAGAN, JR.
- ----------------------------------- Director and Vice October 24, 1997
Leo M. Flanagan, Jr. Chairman of the Board
/s/ VINCENT C. NORTON
- ----------------------------------- Director October 24, 1997
Vincent C. Norton
/s/ THOMAS I. ANDERSON
- ----------------------------------- Director October 24, 1997
Thomas I. Anderson
/s/ RALPH W. HELM, JR.
- ----------------------------------- Director October 24, 1997
Ralph W. Helm, Jr.
/s/ PETER A. TRAEGER
- ----------------------------------- Director October 24, 1997
Peter A. Traeger
/s/ SCOTT H. BUDD
- ----------------------------------- Director October 24, 1997
Scott H. Budd
II-6
<PAGE>
As filed with the Securities and Exchange Commission on October 24, 1997
Registration No. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
EXHIBITS
TO THE
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
EFC BANCORP, INC.
(Exact name of registrant as specified in its charter)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
LIST OF EXHIBITS (FILED HEREWITH UNLESS OTHERWISE NOTED)
<TABLE>
<C> <S>
1.1 Engagement Letter between Elgin Financial Center, S.B. and Charles Webb & Company, a Division
of Keefe, Bruyette & Woods, Inc.
1.2 Draft Form of Agency Agreement between Elgin Financial Center, S.B. and Charles Webb & Company,
a Division of Keefe, Bruyette & Woods, Inc.*
2.1 Plan of Conversion (including the Amended and Restated Articles of Incorporation and Stock
Bylaws of Elgin Financial Center, S.B.)
3.1 Certificate of Incorporation of EFC Bancorp, Inc.
3.2 Bylaws of EFC Bancorp, Inc.
3.3 Amended and Restated Articles of Incorporation and Stock Bylaws of Elgin Financial Center, S.B.
(See Exhibit 2.1 hereto)
4.0 Draft Stock Certificate of EFC Bancorp, Inc.
5.0 Draft Opinion of Muldoon, Murphy & Faucette re: legality
5.1 Draft Opinion of Morris, Nichols, Arsht & Tunnell re: legality
8.0 Draft Opinion of Muldoon, Murphy & Faucette re: Federal Tax Matters
8.1 Draft Opinion of KPMG Peat Marwick, LLP re: State Tax Matters
10.1 Form of Elgin Financial Center, S.B. Employee Stock Ownership Plan and Trust
10.2 Draft ESOP Loan Commitment Letter and ESOP Loan Documents
10.3 Form of Proposed Employment Agreement between Elgin Financial Center, S.B. and certain
executive officers
10.4 Form of Proposed Employment Agreement between EFC Bancorp, Inc. and certain executive officers
10.5 Form of Proposed Change in Control Agreement between Elgin Financial Center, S.B. and certain
executive officers
10.6 Form of Proposed Change in Control Agreement between EFC Bancorp, Inc. and certain executive
officers
10.7 Form of Proposed Elgin Financial Center, S.B. Employee Severance Compensation Plan
10.8 Form of Elgin Financial Center, S.B. Supplemental Executive Retirement Plan*
10.9 Form of Elgin Financial Center, S.B. Management Supplemental Executive Retirement Plan*
23.1 Consent of KPMG Peat Marwick, LLP
23.2 Consent of Muldoon, Murphy & Faucette
23.3 Consent of Morris, Nichols, Arsht & Tunnell
23.4 Consent and Subscription Rights Opinion of FinPro, Inc.
24.1 Powers of Attorney
27.0 Financial Data Schedule
99.1 Appraisal Report of FinPro, Inc. (P)
99.2 Draft of Elgin Financial Foundation Gift Instrument*
</TABLE>
- ------------------------
* To be filed by amendment
(P) Filed pursuant to Rule 202 of Regulation S-T.
<PAGE>
Exhibit 1.1 Engagement Letter between Elgin Financial Center, S.B. and
Charles Webb & Company, a Division of Keefe, Bruyette & Woods,
Inc.
<PAGE>
[LETTERHEAD]
September 2, 1997
John J. Brittain, Esq.
Chairman
Elgin Financial Center, SB
1695 Larkin Ave.
Elgin, Illinois 60123
Dear Mr. Brittain:
This proposal is in connection with Elgin Financial Center, SB's (the "Bank")
intention to convert from a mutual to a capital stock form of organization (the
"Conversion"). In order to effect the Conversion, it is contemplated that all
of the Bank's common stock to be outstanding pursuant to the Conversion will be
issued to a holding company (the "Company") to be formed by the Bank, and that
the Company will offer and sell shares of its common stock first to eligible
persons (pursuant to the Bank's Plan of Conversion) in a Subscription and
Community Offering.
Charles Webb & Company ("Webb"), a Division of Keefe, Bruyette and Woods, Inc.
("KBW"), will act as the Bank's and the Company's exclusive financial advisor
and marketing agent in connection with the Conversion. This letter sets forth
selected terms and conditions of our engagement.
1. Advisory/Conversion Services. As the Bank's and Company's financial
advisor and marketing agent, Webb will provide the Bank and the Company with a
comprehensive program of conversion services designed to promote an orderly,
efficient, cost-effective and long-term stock distribution. Webb will provide
financial and logistical advice to the Bank and the Company concerning the
offering and related issues. Webb will assist the Bank and provide conversion
enhancement services intended to maximize stock sales in the Subscription
Offering and to residents of the Bank's market area, if necessary, in the
Community Offering.
Webb shall provide financial advisory services to the Bank which are typical in
connection with an equity offering and include, but are not limited to, overall
financial analysis of the client with a focus on identifying factors which
impact the valuation of the common stock and provide the appropriate
recommendations for the betterment of the equity valuation.
Additionally, post conversion financial advisory services will include advice on
shareholder relations, NASDAQ listing, dividend policy (for both regular and
special dividends), stock repurchase strategy and communication with market
makers. Prior to the closing of the offering,
<PAGE>
Mr. John J. Brittain
September 2, 1997
Page 2 of 6
Webb shall furnish to client a Post-Conversion reference manual which will
include specifics relative to these items. (The nature of the services to be
provided by Webb as the Bank's and the Company's financial advisor and marketing
agent are further described in Exhibit A attached hereto.)
2. Preparation of Offering Documents. The Bank, the Company and their counsel
will draft the Registration Statement, Application for Conversion, Prospectus
and other documents to be used in connection with the Conversion. Webb will
attend meetings to review these documents and advise you on their form and
content. Webb and its counsel will draft appropriate agency agreement and
related documents as well as marketing materials other than the Prospectus.
3. Due Diligence Review. Prior to filing the Registration Statement,
Application for Conversion or any offering or other documents naming Webb as the
Bank's and the Company's financial advisor and marketing agent, Webb and their
representatives will undertake substantial investigations to learn about the
Bank's business and operations ("due diligence review") in order to confirm
information provided to us and to evaluate information to be contained in the
Bank's and/or the Company's offering documents. The Bank agrees that it will
make available to Webb all relevant information, whether or not publicly
available, which Webb reasonably requests, and will permit Webb to discuss with
management the operations and prospects of the Bank. Webb will treat all
material non-public information as confidential. The Bank acknowledges that
Webb will rely upon the accuracy and completeness of all information received
from the Bank, its officers, directors, employees, agents and representatives,
accountants and counsel including this letter to serve as the Bank's and the
Company's financial advisor and marketing agent.
4. Regulatory Filings. The Bank and/or the Company will cause appropriate
offering documents to be filed with all regulatory agencies including, the
Securities and Exchange Commission ("SEC"), the National Association of
Securities Dealers ("NASD"), Federal Deposit Insurance Corporation ("FDIC"),
Office of Thrift Supervision ("OTS") and such state securities commissioners as
may be determined by the Bank.
5. Agency Agreement. The specific terms of the conversion services,
conversion offering enhancement and syndicated offering services contemplated in
this letter shall be set forth in an Agency Agreement between Webb and the Bank
and the Company to be executed prior to commencement of the offering, and dated
the date that the Company's Prospectus is declared effective and/or authorized
to be disseminated by the appropriate regulatory agencies, the SEC, the NASD,
the OTS, the FDIC, and such state securities commissioners and other regulatory
agencies as required by applicable law.
6. Representations, Warranties and Covenants. The Agency Agreement will
provide for customary representations, warranties and covenants by the Bank and
Webb, and for the Company to indemnify Webb and their controlling persons (and,
if applicable, the members of
<PAGE>
Mr. John J. Brittain
September 2, 1997
Page 3 of 6
the selling group and their controlling persons), provided however, that the
Bank and the Company will not be liable in any such case to the extent that any
request for indemnification (i) arises out of or is based upon any untrue
statement of a material fact or the omission of a material fact required to be
stated therein or necessary to make the statements therein not misleading
contained in any proxy statement or prospectus (preliminary or final), or any
amendment thereto, or any of the applications, notices, filings or documents
related thereto made in reliance on and in conformity with written information
furnished to the Bank by Webb expressly for use therein, or (ii) is attributable
to the negligence, willful misconduct or bad faith of Webb, provided that the
Bank or Company is not providing indemnification or reimbursement to any other
person for liabilities arising from such person's negligence, willful misconduct
or bad faith, and for Webb to indemnify the Bank and the Company against certain
liabilities, including, without limitation, liabilities under the Securities Act
of 1933.
7. Fees. For the services hereunder, the Bank and/or Company shall pay the
following fees to Webb at closing unless stated otherwise:
(a) A Management Fee of $40,000 payable in four consecutive monthly
installments of $10,000 commencing with the signing of this letter.
Such fees shall be deemed to have been earned when due. Should the
Conversion be terminated for any reason not attributable to the action
or inaction of Webb, Webb shall have earned and be entitled to be paid
fees accruing through the stage at which point the termination
occurred.
(b) A Success Fee of 1.25% of the aggregate Purchase Price of Common Stock
sold in the conversion, excluding shares purchased by the Bank's
officers, directors, or employees (or members of their immediate
families) plus any ESOP, tax-qualified or stock based compensation
plans (except IRA's) or similar plan created by the Bank for some or
all of its directors or employees. The Management Fee described in
7(a) will be applied against the Success Fee.
(c) If any shares of the Company's stock remain available after the
subscription offering, at the request of the Bank, Webb will seek to
form a syndicate of registered broker-dealers to assist in the sale of
such common stock on a best efforts basis, subject to the terms and
conditions set forth in the selected dealers agreement. Webb will
endeavor to distribute the common stock among dealers in a fashion
which best meets the distribution objectives of the Bank and the Plan
of Conversion. Webb will be paid a fee not to exceed 5.5% of the
aggregate Purchase Price of the shares of common stock sold by them.
Webb will pass onto selected broker-dealers, who assist in the
syndicated community, an amount competitive with gross underwriting
discounts charged at such time for comparable amounts of stock sold at
a comparable price per share in a similar
<PAGE>
Mr. John J. Brittain
September 2, 1997
Page 4 of 6
market environment. Fees with respect to purchases effected with the
assistance of a broker/dealer other than Webb shall be transmitted by
Webb to such broker/dealer. The decision to utilize selected
broker-dealers will be made by the Bank upon consultation with Webb.
In the event, with respect to any stock purchases, fees are paid
pursuant to this subparagraph 7(c), such fees shall be in lieu of, and
not in addition to, payment pursuant to subparagraph 7(a) and 7(b).
8. Additional Services. Webb further agrees to provide financial advisory
assistance to the Company and the Bank for a period of one year following
completion of the Conversion, including formation of a dividend policy and share
repurchase program, assistance with shareholder reporting and shareholder
relations matters, general advice on mergers and acquisitions and other related
financial matters, without the payment by the Company and the Bank of any fees
in addition to those set forth in Section 7 hereof. Nothing in this Agreement
shall require the Company and the Bank to obtain such services from Webb.
Following this initial one year term, if both parties wish to continue the
relationship, a fee will be negotiated and an agreement entered into at that
time.
9. Expenses. The Bank will bear those expenses of the proposed offering
customarily borne by issuers, including, without limitation, regulatory
filing fees, SEC, "Blue Sky," and NASD filing and registration fees; the fees
of the Bank's accountants, attorneys, appraiser, transfer agent and
registrar, printing, mailing and marketing and syndicate expenses associated
with the Conversion; the fees set forth in Section 7; and fees for "Blue Sky"
legal work. If Webb incurs expenses on behalf of the Bank for any of the
aforementioned matters, the Bank will reimburse Webb for such expenses.
Webb shall be reimbursed for reasonable out-of-pocket expenses, including
costs of travel, meals and lodging, photocopying, telephone, facsimile and
couriers and reasonable fees and expenses of their counsel. Reimbursement
for Webb's total out-of-pocket expenses shall not exceed $60,000, of which
$40,000 shall be for legal fees, without the prior consent of the Bank and
Company. The selection of such counsel will be done by Webb, with the
approval of the Bank.
10. Conditions. Webb's willingness and obligation to proceed hereunder shall
be subject to, among other things, satisfaction of the following conditions
in Webb's opinion, which opinion shall have been formed in good faith by Webb
after reasonable determination and consideration of all relevant factors: (a)
legally sufficient disclosure of all relevant material, financial and other
information in the disclosure documents; (b) no material adverse change in
the condition or operations of the Bank subsequent to the execution of the
agreement; and (c) no adverse market conditions at the time of offering which
in Webb's opinion make the sale of the shares by the Company inadvisable.
<PAGE>
Mr. John J. Brittain
September 2, 1997
Page 5 of 6
12. Benefit. This Agreement shall inure to the benefit of the parties hereto
and their respective successors and to the parties indemnified pursuant to
the terms and conditions of the Agency Agreement and their successors, and
the obligations and liabilities assumed hereunder by the parties hereto shall
be binding upon their respective successors provided, however, that this
Agreement shall not be assignable by Webb.
13. Definitive Agreement. This letter reflects Webb's present intention of
proceeding to work with the Bank on its proposed conversion. It does not
create a binding obligation on the part of the Bank, the Company or Webb
except as to the agreement to maintain the confidentiality of non-public
information set forth in Section 3, the payment of certain fees as set forth
in Section 7(a) and the assumption of expenses as set forth in Section 9, and
the mutual indemnification provisions set forth in Section 6, all of which
shall constitute the binding obligations of the parties hereto and which
shall survive the termination of this Agreement or the completion of the
services furnished hereunder and shall remain operative and in full force and
effect. You further acknowledge that any report or analysis rendered by Webb
pursuant to this engagement is rendered for use solely by the management of
the Bank and its agents in connection with the Conversion. Accordingly, you
agree that you will not provide any such information to any other person
without our prior written consent.
Webb acknowledges that in offering the Company's stock no person will be
authorized to give any information or to make any representation not
contained in the offering prospectus and related offering materials filed as
part of a registration statement to be declared effective in connection with
the offering. Accordingly, Webb agrees that in connection with the offering
it will not give any unauthorized information or make any unauthorized
representation. We will be pleased to elaborate on any of the matters
discussed in this letter at your convenience.
<PAGE>
Mr. John J. Brittain
September 2, 1997
Page 6 of 6
If the foregoing correctly sets forth our mutual understanding, please so
indicate by signing and returning the original copy of this letter to the
undersigned.
Very truly yours,
CHARLES WEBB & COMPANY,
A DIVISION OF KEEFE, BRUYETTE & WOODS, INC.
By: /s/ John Bruno
--------------------------------
John Bruno
ELGIN FINANCIAL CENTER, SB
By: /s/ John J. Brittain Date: Sept. 5, 1997
-------------------------------- ---------------------
John J. Brittain
Chairman
cc: Barrett J. O'Connor
<PAGE>
EXHIBIT A
CONVERSION SERVICES PROPOSAL
TO ELGIN FINANCIAL CENTER, SB
Charles Webb & Company provides thrift institutions converting from mutual to
stock form of ownership with a comprehensive program of conversion services
designed to promote an orderly, efficient, cost-effective and long-term stock
distribution. The following list is representative of the conversion services,
if appropriate, we propose to perform on behalf of the Bank.
General Services
Assist management and legal counsel with the design of the transaction
structure.
Analyze and make recommendations on bids from printing, transfer agent, and
appraisal firms.
Assist officers and directors in obtaining bank loans to purchase stock, if
requested.
Assist in drafting and distribution of press releases as required or
appropriate.
Conversion Offering Enhancement Services
Establish and manage Stock Information Center at the Bank. Stock Information
Center personnel will track prospective investors; record stock orders; mail
order confirmations; provide the Bank's senior management with daily reports;
answer customer inquiries; and handle special situations as they arise.
Assign Webb's personnel to be at the Bank through completion of the Subscription
and Community Offerings to manage the Stock Information Center. If so desired
by the Bank, Webb's personnel will also meet with prospective shareholders at
individual and community information meetings, solicit local investor interest
through a tele-marketing campaign, answer inquiries, and otherwise assist in the
sale of stock in the Subscription and Community Offerings. This effort will be
lead by a Principal of Webb/KBW.
Provide proxy solicitation, member vote tabulation and act as inspector of
election at the special meeting of members.
Create target investor list based upon review of the Bank's depositor base.
Provide intensive financial and marketing input for drafting of the prospectus.
<PAGE>
Conversion Offering Enhancement Services- Continued
Prepare other marketing materials, including prospecting letters and brochures,
and media advertisements.
Arrange logistics of community information meeting(s) as required.
Prepare audio-visual presentation by senior management for community information
meeting(s).
Prepare management for question-and-answer period at community information
meeting(s).
Attend and address community information meeting(s) and be available to answer
questions.
Broker-Assisted Sales Services.
Arrange for broker information meeting(s) as required.
Prepare audio-visual presentation for broker information meeting(s).
Prepare script for presentation by senior management at broker information
meeting(s).
Prepare management for question-and-answer period at broker information
meeting(s).
Attend and address broker information meeting(s) and be available to answer
questions.
Produce confidential broker memorandum to assist participating brokers in
selling the Bank's common stock.
Aftermarket Support Services.
Webb, through Keefe, Bruyette & Woods, Inc., will provide market making and
on-going research of the Company. In addition, Webb will use its best efforts
to secure a commitment from at least one additional NASD firm to provide market
making services.
Conversion Agent Services
Webb will utilize the services of Crowe, Chizek & Company for aggregation of
accounts. The services provided will be a part of a separate agreement between
the Bank and Crowe Chizek. Crowe Chizek has advised Webb that the fees of Crowe
Chizek are estimated to be $18,000.
<PAGE>
Exhibit 2.1 Plan of Conversion (including the Amended and Restated Articles
of Incorporation and Stock Bylaws of Elgin Financial Center,
S.B.)
<PAGE>
PLAN OF CONVERSION FOR
ELGIN FINANCIAL CENTER, S. B.
1. INTRODUCTION
This Plan of Conversion ("Plan") provides for the conversion of Elgin
Financial Center, S.B., Elgin, Illinois ("INSTITUTION") into a
state-chartered capital stock savings bank under the name Elgin Financial
Center, S.B. The Board of Directors of the INSTITUTION currently
contemplates that all of the stock of the INSTITUTION shall be held by a
Delaware corporation (the "Holding Company"). The Board of Directors has
carefully considered the alternatives available to the INSTITUTION with
respect to its corporate structure and has determined that a mutual to stock
conversion as described in this Plan is in the best interests of the
INSTITUTION, its depositors and the community served by the INSTITUTION. The
Board of Directors believes that the decline in mutuality is placing mutual
savings associations, such as the INSTITUTION, at a disadvantage to the
increasing base of stock thrift and commercial bank institutions. The
restructuring of the INSTITUTION into the capital stock form of organization
will enable the INSTITUTION to expand the INSTITUTION'S franchise, compete
more effectively with commercial banks and other financial institutions for
new business opportunities, and as a stock institution, to increase its
equity capital base and access the capital markets when needed. The use of
the Holding Company, if so utilized, would also provide greater
organizational and operating flexibility. Shares of capital stock of the
INSTITUTION will be sold to the Holding Company and the Holding Company will
offer the Conversion Stock upon the terms and conditions set forth herein to
the Eligible Account Holders, the Employee Plans established by the
INSTITUTION or Holding Company, the Supplemental
<PAGE>
Eligible Account Holders and the Other Voting Members in the respective
priorities set forth in this Plan. Any shares of Conversion Stock not
subscribed for by the foregoing classes of persons will be offered for sale
to certain members of the public either directly by the INSTITUTION and the
Holding Company through a Community Offering or a Syndicated Community
Offering or through an underwritten firm commitment public offering or
through a combination thereof. In the event that the INSTITUTION decides not
to utilize the Holding Company in conversion, Conversion Stock of the
INSTITUTION, in lieu of the Holding Company, will be sold as set forth above
and in the respective priorities set forth in this Plan. In addition to the
foregoing, the INSTITUTION and the Holding Company intend to provide
employment or severance agreements to certain management employees and
certain other benefits to the Directors, officers and employees of the
INSTITUTION as described in the Prospectus for the Conversion Stock.
In furtherance of the INSTITUTION's commitment to its community, this
Plan provides for the establishment of a charitable foundation as part of the
Conversion. The charitable foundation is intended to complement the
INSTITUTION's existing community reinvestment activities in a manner that
will allow the INSTITUTION's local community to share in the growth and
profitability of the Holding Company and the INSTITUTION over the long term.
Consistent with the INSTITUTION's goal, the Holding Company intends to donate
to the charitable foundation immediately following the Conversion a number of
shares of its authorized but unissued Common Stock in an amount up to 8% of
the common stock issued in the Conversion.
This Plan, which has been unanimously approved by the Board of Directors
of the INSTITUTION present at a duly called meeting of the Board, must also
be approved by the Eligible Account Holders of the INSTITUTION by: (1) the
affirmative vote of at least two-thirds of the total
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outstanding votes of members; and, (2) if required by the FDIC, the
affirmative vote of at least a majority of the amount of votes eligible to be
cast at the Special Meeting. The Board of Directors shall appoint an
independent custodian and tabulator to receive and hold proxies to be voted
at the Special Meeting and count the votes cast in favor of and in opposition
to the Plan. Prior to the submission of this Plan to the Eligible Account
Holders for consideration, the Plan must be approved by the Illinois
Commissioner of Banks And Real Estate or his or her designees
("Commissioner") and the Plan must be not objected to by the FDIC.
2. DEFINITIONS
For the purposes of this Plan, the following terms have the following
meanings:
Account Holder - The term Account Holder means any Person holding a Deposit
Account in the INSTITUTION.
Acting in Concert - The term "Acting in Concert" means (i) knowing
participation in a joint activity or interdependent conscious parallel action
towards a common goal whether or not pursuant to an express agreement; (ii) a
combination or pooling of voting or other interests in the securities of an
issuer for a common purpose pursuant to any contract, understanding,
relationship, agreement or other arrangement, whether written or otherwise; or
(iii) a person or company which acts in concert with another person or company
("other party") shall also be deemed to be acting in concert with any person or
company who is also acting in concert with that other party, except that any
Tax-Qualified Employee Stock Benefit Plan or Non-Tax-Qualified Employee Stock
Benefit Plan will not be deemed to be acting in concert with any other
Tax-Qualified Employee Stock Benefit Plan or Non-Tax-Qualified Employee Stock
Benefit Plan or with its Director or a person who serves
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in a similar capacity solely for the purpose of determining whether stock
held by the Director and stock held by the plan will be aggregated.
Actual Purchase Price - The term Actual Purchase Price means the per
share price at which the Conversion Stock is ultimately sold in accordance
with the terms hereof.
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 INSTITUTION or a majority-owned subsidiary of the INSTITUTION)
of which such Person is an officer or partner or is, directly or indirectly,
the beneficial owner of 10 percent or more of any class of equity securities,
(ii) any trust or other estate in which such person has a substantial
beneficial interest or as to which such person serves as Director or in a
similar fiduciary capacity except that: (a) for the purposes of Sections 8
and 12 hereof, the term "Associate" does not include any Non-Tax-Qualified
Employee Stock Benefit Plan or any Tax-Qualified Employee Stock Benefit Plan
in which a person has a substantial beneficial interest or serves as a
Director or in a similar fiduciary capacity; and (b) for purposes of
aggregating total shares that may be held by Officers and Directors the term
"Associate" does not include any Tax-Qualified or Non-Tax-Qualified Employee
Stock Benefit Plan, and (iii) any relative or spouse of such Person, or any
relative of such spouse, who has the same home as such Person or who is a
Director, Director or Officer of the INSTITUTION or the Holding Company, if
utilized, or any of its parents or subsidiaries.
Commissioner - The term Commissioner means the Commissioner of Banks And
Real Estate for the State of Illinois.
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Community Offering - The term Community Offering means the offering for
sale to certain members of the general public directly by the INSTITUTION or
the Holding Company, if utilized, of any shares not subscribed for in the
Subscription Offering.
Conversion - The term Conversion shall mean (a) the amendment of the
Bank's Articles of Incorporation to authorize the issuance of capital stock
in accordance with the Savings Bank Act and the Conversion Regulations and to
otherwise conform to the requirements of an Illinois stock savings bank and
(b) the issuance of the capital stock of the Bank in accordance with this
Plan.
Conversion Regulations - The term Conversion Regulations shall mean Part
1075, Subpart O of the Regulations of the Office of Banks and Real Estate and
the regulations of the Federal Deposit Insurance Corp., but only to the
extent such regulations conflict with Part 1075, Subpart O of the Regulations
of the Office of Banks and Real Estate.
Conversion Stock - The term Conversion Stock means the $.01 par value
common stock offered and issued by the Holding Company or the $.01 par value
Common Stock offered and issued by the INSTITUTION, if the Holding Company
form of organization is not utilized, upon conversion.
Deposit Account - The term Deposit Account means all deposits of the
INSTITUTION as defined in Section 7001 of the Savings Bank Act of Illinois,
and includes without limitation, certificates of deposit, checking, savings,
time, demand, negotiable orders of withdrawal (NOW), money market and
passbook accounts maintained by the INSTITUTION.
Director - The term Director shall mean a member of the Board of
Directors of the INSTITUTION.
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Effective Date - The term Effective Date shall mean the effective date of
the Conversion and shall be the date of consummation of the Conversion in
accordance with the Conversion Regulations.
Eligible Account Holder - The term Eligible Account Holder means any
person holding a Qualifying Deposit at the INSTITUTION on the Eligibility
Record Date.
Eligibility Record Date - The term Eligibility Record Date means the date
for determining Eligible Account Holders in the INSTITUTION and is July 31,
1996.
Employees - The term Employees means all Persons who are employed by the
INSTITUTION.
Employee Plans - The term Employee Plans means the Tax-Qualified Employee
Stock Benefit Plans, including the Employee Stock Ownership Plan ("ESOP"),
approved or ratified by the Board of Directors of the INSTITUTION or the
Board of Directors of the Holding Company.
Estimated Price Range - The term Estimated Price Range means the range of
minimum and maximum aggregate values determined by the Board of Directors of
the INSTITUTION within which the aggregate amount of Common Stock sold in the
Conversion will fall. The Estimated Price Range will be within the estimated
pro forma market value of the Conversion Stock as determined by the
Independent Appraiser prior to the Subscription Offering and as it may be
amended from time to time thereafter.
FDIC - The term FDIC means the Federal Deposit Insurance Corporation.
Holding Company - The term Holding Company means the Delaware corporation
formed for the purpose of acquiring all of the shares of capital stock of the
INSTITUTION to be issued upon its conversion to stock form unless the Holding
Company form of organization is not utilized. Shares of common stock of the
Holding Company will be issued in the Conversion to Participants
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and others in a Subscription, Community, Syndicated Community, or
underwritten firm commitment public offering, or through a combination
thereof.
Independent Appraiser - The term Independent Appraiser means an appraiser
retained by the INSTITUTION to prepare an appraisal of the pro forma market
value of the Conversion Stock.
Institution - The term INSTITUTION means Elgin Financial Center, S.B.,
Elgin, Illinois.
Local Community - The term Local Community means all counties in which
the INSTITUTION has its home office or a branch office.
Maximum Subscription Price - The term Maximum Subscription Price means
the amount per share of Conversion Stock to be paid initially by Participants
in the Subscription Offering and persons in the Community Offering.
Member - The term Member means any Person who qualifies as a member of
the INSTITUTION in accordance with its mutual articles of incorporation and
bylaws and the laws of the State of Illinois.
Officer - The term Officer means an executive officer of the INSTITUTION
which includes the Chief Executive Officer, President, Executive Vice
President, Senior Vice President, Vice President in charge of principal
business functions, Secretary and Controller and any Person participating in
major policy making functions of the INSTITUTION.
Order Form - The term Order Form means any form together with attached
cover letter, sent by the INSTITUTION to any Participant or Person containing
among other things a description of the alternatives available to such Person
under the Plan and by which any such Person may make elections regarding
subscriptions for Conversion Stock in the Subscription and Community
Offerings.
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Other Voting Member - The term Other Voting Member means a Voting Member
who is not an Eligible Account Holder or Supplemental Eligible Account Holder.
Participants - The term Participants means the Employee Plans, Eligible
Account Holders, Supplemental Eligible Account Holders and Other Voting
Members.
Person - The term Person means an individual, a corporation, a
partnership, an association, a joint-stock company, a trust (including
Individual Retirement Accounts and KEOGH Accounts), any unincorporated
organization, a government or political subdivision thereof or any other
entity.
Plan - The term Plan means this Plan of Conversion of the INSTITUTION as
it exists on the date hereof and as it may hereafter be amended in accordance
with its terms.
Prospectus - The term Prospectus shall mean the offering circular or
prospectus utilized to offer Conversion Stock in accordance with the Plan of
Conversion.
Public Offering - The term Public Offering means the underwritten, firm
commitment offering to the public through one or more underwriters.
Qualifying Deposit - The term Qualifying Deposit means the aggregate of
one or more Deposit Accounts in the INSTITUTION with an aggregate balance of
$100 or more at the close of business on the Eligibility Record Date.
Deposit Accounts with aggregate total deposit balances of less than $100
shall not constitute a Qualifying Deposit.
Savings Bank Act - The term Savings Bank Act shall mean the Savings Bank
Act of the State of Illinois.
SEC - The term SEC refers to the Securities and Exchange Commissioner.
Special Meeting - The term Special Meeting means the special meeting of
members, and any adjournments thereof, held to consider and vote upon this
Plan.
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Subscription Offering - The term Subscription Offering means the offering
of Conversion Stock for purchase through Order Forms to Participants.
Subscription Price Range - The term Subscription Price Range is the per
share price range established by the INSTITUTION prior to commencement of the
Subscription and Community Offerings, and is based on the valuation of the
Independent Appraiser.
Supplemental Eligible Account Holder - The term Supplemental Eligible
Account Holder means any person (other than an Eligible Account Holder)
holding a Qualifying Deposit, except Officers, Directors and their
Associates, as of the Supplemental Eligibility Record Date.
Supplemental Eligibility Record Date - The term Supplemental Eligibility
Record Date means the supplemental record date for determining Supplemental
Eligible Account Holders of the INSTITUTION. The Supplemental Eligibility
Record Date shall be the last day of the calendar quarter preceding the
Commissioner's approval of the application for conversion.
Syndicated Community Offering - The term Syndicated Community Offering
means the offering of Conversion Stock following the Subscription and
Community Offerings through a syndicate of broker-dealers.
Syndicated Community Offering Price - The term Syndicated Community
Offering price means the per share price submitted with orders for shares of
Conversion Stock in the Syndicated Community Offering.
Tax-Qualified Employee Stock Benefit Plan - The term Tax-Qualified
Employee Stock Benefit Plan means any defined benefit plan or defined
contribution plan, 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. For
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purposes of Section 9 of this Plan, the INSTITUTION'S profit sharing and/or
401 plan shall be considered a Tax-Qualified Employee Stock Benefit Plan only
to the extent of the unallocated funds, if any, over which investment
authority is vested solely with the trustee(s) of those plans. The
INSTITUTION or Holding Company may make scheduled discretionary contributions
to a Tax-Qualified Employee Stock Benefit Plan provided such contributions do
not cause the INSTITUTION to fail to meet its regulatory capital requirement.
A "Non-Tax-Qualified Employee Stock Benefit Plan" is any defined benefit
plan or defined contribution plan which is not so qualified.
Voting Members - The term Voting Members means those Persons who at the
close of business on the Voting Record Date are entitled to vote as members
of the INSTITUTION in accordance with its mutual articles of incorporation
and bylaws and the laws of the State of Illinois.
Voting Record Date - The term Voting Record Date means the date fixed by
the Directors in accordance with the Conversion Regulations for determining
eligibility to vote at the Special Meeting.
3. PROCEDURE FOR CONVERSION
After approval of the Plan by the Board of Directors of the INSTITUTION,
the Plan shall be submitted together with all other requisite material to the
Commissioner for approval or waiver, if necessary, and shall be submitted to
the FDIC with all other requisite material for non-objection. Promptly upon
adoption of the Plan by the Board of Directors, the INSTITUTION will cause
notice of the adoption of the Plan by the Board of Directors of the
INSTITUTION to be published in a newspaper having general circulation in each
community in which an office of the INSTITUTION is located and will issue a
press release containing the material terms of Conversion. Following
approval by the Commissioner and non-objection by the FDIC and receipt of all
necessary waivers
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by the Commissioner, if necessary, the Plan will be submitted to a vote of
the Voting Members at the Special Meeting called for that purpose. The
Special Meeting shall be held upon written notice given no less than 10 days
nor more than 40 days from the last date on which such Notice is mailed to
Voting Members. The notice of the Special Meeting, proxy card and proxy
statement or short-form proxy statement shall be sent to each Voting Member.
Separate and readily distinguishable postage-paid envelopes shall be provided
for the return of proxy cards and Order Forms. At the Special Meeting, each
depositor shall be entitled to cast one vote per $100.00 of the aggregate
withdrawal value of all the depositor's accounts and shall have the vote of
one share of any fraction of $100.00 in person or by proxy. Each borrower
whose loan continues to be outstanding as of the Voting Record Date will be
entitled to cast one vote in addition to any other vote the borrower may
otherwise have. No member shall be entitled to cast more than 1,000 votes.
The Commissioner shall be notified of the results of the Special Meeting
promptly after the conclusion of the Special Meeting by a certificate signed
by the President and Chief Executive Officer and Secretary of the Bank. The
Plan must be approved by: 1) the affirmative vote of at least two-thirds of
the total outstanding votes of members; and, 2) if required by the FDIC, the
affirmative vote of at least a majority of the amount of votes entitled to be
cast at such Special Meeting. In such event, the Bank will take all other
necessary steps to effect the Conversion subject to the terms and conditions
of this Plan. If the Plan is not so approved upon conclusion of the Special
Meeting and any adjournments thereof, the Plan shall terminate, the Bank will
remain in mutual form and all funds submitted in the Subscription Offering
and Community Offering and Syndicated Community Offering will be returned to
subscribers, with interest as provided herein, and all withdrawal
authorizations will be canceled. The Conversion will terminate if the sale
of all shares of Conversion
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Stock is not completed within twelve months from the date of the Special
Meeting (subject to extension by the Commissioner).
The Board of Directors of the INSTITUTION intends to take all necessary
steps to form the Holding Company, including the filing of an Application with
the Commissioner and the appropriate regulatory authority which will govern the
activities of the Holding Company. In the event that the Holding Company is
utilized, upon conversion the INSTITUTION will issue its capital stock to the
Holding Company and the Holding Company will issue and sell the Conversion Stock
in accordance with this Plan.
The Board of Directors of the INSTITUTION may determine for any reason at
any time prior to the issuance of the Conversion Stock not to utilize a
holding company form of organization in the Conversion, in which case, the
Holding Company's Registration Statement will be withdrawn from the SEC, the
INSTITUTION will take all steps necessary to complete the conversion from the
mutual to the stock form of organization, including filing any necessary
documents with the Commissioner, FDIC and the appropriate regulatory
authority which will govern the activities of the Holding Company, and will
issue and sell the Conversion Stock in accordance with this Plan. In such
event, any subscriptions or orders received for Conversion Stock of the
Holding Company shall be deemed to be subscriptions or orders for Conversion
Stock of the INSTITUTION and the INSTITUTION shall take such steps as
permitted or required by the Commissioner, FDIC or the SEC. Any references
to the Holding Company in this Plan shall mean the INSTITUTION in the event
the Holding Company is eliminated in Conversion.
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The Board of Directors of the Bank also intend to take all necessary
steps to establish the charitable foundation and to fund such charitable
foundation in the manner set forth in Section 7A hereof, subject to the
approval of Voting Members.
The Conversion Stock will not be insured by the FDIC. The INSTITUTION
will not knowingly lend funds or otherwise extend credit to any Person to
purchase shares of the Conversion Stock.
4. HOLDING COMPANY APPLICATIONS AND APPROVALS
The Holding Company shall make timely applications for any requisite
regulatory approvals, including an Application with the Commissioner and the
appropriate regulatory authority which will govern the activities of the
Holding Company and a Registration Statement to be filed with the SEC. The
INSTITUTION shall be a wholly-owned subsidiary of the Holding Company unless
the Holding Company is eliminated in the Conversion.
5. SALE OF CONVERSION STOCK
The Conversion Stock will be offered simultaneously in the Subscription
Offering to the Eligible Account Holders, Employee Plans, Supplemental
Eligible Account Holders and Other Voting Members in the respective
priorities set forth in Sections 8 through 11 of this Plan. The Subscription
Offering may be commenced as early as the mailing of the Proxy Statement for
the Special Meeting and must be commenced in time to complete the Conversion
within the time period specified in Section 3.
Any shares of Conversion Stock not subscribed for in the Subscription
Offering will be offered for sale in the Community Offering as provided in
Section 12 of this Plan. The Subscription Offering may be commenced prior to
the Special Meeting and, in that event, the Community
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Offering may also be commenced prior to the Special Meeting and may commence
concurrently with the Subscription Offering. The offer and sale of
Conversion Stock prior to the Special Meeting shall, however, be conditioned
upon approval of the Plan by the Voting Members.
If feasible, any shares of Conversion Stock remaining after the
Subscription and Community Offerings, will be sold in a Syndicated Community
Offering or alternatively in a Public Offering, as determined by the Holding
Company and the INSTITUTION, as provided in Section 13 of this Plan in a
manner that will achieve the widest distribution of the Conversion Stock.
The sale of all Conversion Stock subscribed for in the Subscription and
Community Offerings will be consummated simultaneously on the date the sale
of Conversion Stock in the Syndicated Community Offering or Public Offering
is consummated and only if all unsubscribed for Conversion Stock is sold.
The INSTITUTION may elect to offer to pay fees on a per share basis to
qualifying brokers, as determined by the INSTITUTION in its sole discretion,
who assist Persons in determining to purchase shares in the Subscription and
Community Offerings.
6. NUMBER OF SHARES AND PURCHASE PRICE OF CONVERSION STOCK
The total number of shares (or a range thereof) of Conversion Stock to be
issued and offered for sale will be determined jointly by the Board of
Directors of the INSTITUTION and Board of Directors of the Holding Company,
if the holding company form of organization is utilized, immediately prior to
the commencement of the Subscription and Community Offerings, subject to
adjustment thereafter if necessitated by market or financial conditions, with
the approval of the Commissioner and FDIC, if necessary. In particular, the
total number of shares may be increased by up to 15% of the number of shares
offered in the Subscription and Community Offering if the Estimated Price
Range is increased subsequent to the commencement of the Subscription and
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Community Offering to reflect changes in market and financial conditions and
the Actual Purchase Price in the aggregate is not more than 15% above the
maximum of the Estimated Price Range.
All shares sold in the Conversion will be sold at a uniform price per
share referred to in this Plan as the Actual Purchase Price in accordance
with the Conversion Regulations. The aggregate purchase price for all shares
of Conversion Stock shall equal the estimated consolidated pro forma market
value of the Holding Company as of the Effective Date and will not be
inconsistent with the estimated consolidated pro forma market value of the
Holding Company established immediately prior to the commencement of the
Subscription and Community Offerings. The estimated consolidated pro forma
market value of the INSTITUTION or the Holding Company, if utilized, will be
determined for such purpose by the Independent Appraiser in accordance with
the Conversion Regulations. Prior to the commencement of the Subscription
and Community Offerings, an Estimated Price Range will be established, which
range will vary within 15% above to 15% below the average of the minimum and
maximum of such price range. The number of shares of Conversion Stock to be
issued and the purchase price per share may be increased or decreased by the
INSTITUTION. In the event that the aggregate purchase price of the
Conversion Stock is below the minimum of the Estimated Price Range, or
materially above the maximum of the Estimated Price Range, resolicitation of
purchasers may be required, provided that up to a 15% increase above the
maximum of the Estimated Price Range will not be deemed material so as to
require a resolicitation. Any such resolicitation shall be effected in such
manner and within such time as the INSTITUTION shall establish, with the
approval of the Commissioner and FDIC, if required. Up to a 15% increase in
the number of shares to be issued which is supported by an appropriate change
in the estimated
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pro forma market value of the Holding Company will not be deemed to be
material so as to require a solicitation of subscriptions.
Based upon the independent valuation as updated prior to the commencement
of the Subscription and Community Offerings, the Board of Directors of the
Holding Company, (if a holding company form of organization is utilized) and
the Board of Directors of the INSTITUTION will fix the Maximum Subscription
Price and the Subscription Price Range. If upon completion of the
Subscription and Community Offerings all of the Conversion Stock is
subscribed for, or if because of a limited number of unsubscribed shares or
otherwise a Syndicated Community Offering or Public Offering cannot be
effected, the Actual Purchase Price for each share of Conversion Stock will
be jointly determined by the INSTITUTION and Holding Company (if a holding
company form of organization is utilized) as follows: (a) the estimated
aggregate pro forma market value of the INSTITUTION or the Holding Company,
as the case may be, immediately after conversion as determined by the
Independent Appraiser, expressed in terms of a specific aggregate dollar
amount rather than as a range, upon completion of the Subscription and
Community Offerings or other sale of all of the Conversion Stock shall be
divided by (b) the total number of shares of Conversion Stock to be issued
and sold.
If there is a Syndicated Community Offering or Public Offering of shares
of Conversion Stock not subscribed for in the Subscription and Community
Offerings, the price per share at which the Conversion Stock is sold in such
Syndicated Community Offering or Public Offering shall be not greater than
the maximum nor less than the minimum of the Subscription Price Range on a
per share basis as the INSTITUTION may determine subject to approval by the
Commissioner and FDIC, if required. Upon consummation of the sale in the
Syndicated Community Offering or Public Offering
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of the shares of Conversion Stock unsubscribed for in the Subscription and
Community Offerings, the Syndicated Community Offering or Public Offering
Price will become the Actual Purchase Price paid for all shares of Conversion
Stock in the Subscription, Community and Syndicated Community or Public
Offerings.
Notwithstanding the foregoing, no sale of Conversion Stock may be
consummated unless, prior to such consummation, the Independent Appraiser
confirms to the INSTITUTION and Holding Company, if utilized, and to the
Commissioner and FDIC, if required that, to the best knowledge of the
Independent Appraiser, nothing of a material nature has occurred which,
taking into account all relevant factors, would cause the Independent
Appraiser to conclude that the aggregate value of the Conversion Stock at the
Actual Purchase Price is incompatible with its estimate of the aggregate
consolidated pro forma market value of the Holding Company or the INSTITUTION
if no Holding Company is utilized. If such confirmation is not received, the
INSTITUTION may cancel the Subscription and Community Offerings and/or the
Syndicated Community Offering, and/or the Public Offering, extend the
Conversion, establish a new Subscription Price Range and/or Estimated Price
Range, extend, reopen or hold new Subscription and Community Offerings and/or
Syndicated Community Offering and/or Public Offering or take such other
action as the Commissioner may permit.
The per share difference, if any, between the Actual Purchase Price and
the Maximum Subscription Price or amount submitted in the Syndicated
Community Offering or Public Offering will be refunded to all Persons who
shall have paid the Maximum Subscription Price or amount submitted in the
Syndicated Community Offering or the Public Offering for such shares, unless
such
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difference is applied to the purchase of additional whole shares in
accordance with the instructions of such Persons.
The Conversion Stock to be issued in the Conversion shall be fully paid
and nonassessable.
7. PURCHASE BY THE HOLDING COMPANY OF THE STOCK OF THE INSTITUTION
Upon the consummation of the sale of all of the Conversion Stock, and in
the event that a holding company form of organization is utilized, the
Holding Company will purchase from the INSTITUTION all of the capital stock
of the INSTITUTION to be issued by the INSTITUTION in the conversion in
exchange for the Conversion proceeds that are not to be retained by the
Holding Company.
The Holding Company will retain 50% of the proceeds of the Conversion.
Assuming the Holding Company is not eliminated, a lesser percentage may be
acceptable in the judgment of the Board of Directors. The INSTITUTION
believes that the Conversion proceeds will provide economic strength to the
Holding Company and the INSTITUTION for the future in a highly competitive
and regulated environment and would facilitate the possible expansion through
acquisitions of financial service organizations, possible diversification
into other related businesses and for other business and investment purposes,
including the possible payment of dividends and possible future repurchases
of the Conversion Stock as permitted by the Commissioner. If during the
conversion process the Board of Directors of the INSTITUTION determines not
to complete the conversion utilizing a holding company form of organization,
capital stock of the INSTITUTION will be issued and sold in accordance with
the Plan. The above activities may also be engaged in by the INSTITUTION if
the Holding Company is eliminated.
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7A. ESTABLISHMENT AND FUNDING OF CHARITABLE FOUNDATION
As part of the Conversion, the Holding Company and the INSTITUTION intend
to establish a charitable foundation that will qualify as an exempt
organization under Section 501(c)(3) of the Internal Revenue Code ( the
"Foundation") and to donate to the Foundation from authorized, but unissued,
shares of Common Stock of the Holding Company in an amount up to 8% of the
number of shares of Common Stock sold in the Conversion. The Foundation is
being formed in connection with the Conversion in order to complement the
INSTITUTION's existing community reinvestment activities and to share with
the INSTITUTION's local community a part of the INSTITUTION's financial
success as a locally headquartered, community minded, financial services
institution. The funding of the Foundation with Common Stock of the Holding
Company accomplishes this goal as it enables the community to share in the
growth and profitability of the Holding Company and the INSTITUTION over the
long-term.
The Foundation will be dedicated to the promotion of charitable purposes
including community development, grants or donations to support housing
assistance, not-for-profit community groups and other types of organizations
or civic minded projects. The Foundation will annually distribute total
grants to assist charitable organizations or to fund projects within its
local community of not less than 5% of the average fair value of Foundation
assets each year. In order to serve the purposes for which it was formed and
maintain its Section 501(c)(3) qualification, the Foundation may sell, on an
annual basis, a limited portion of the Common Stock contributed to it by the
Holding Company.
The board of directors of the Foundation will be comprised of individuals
who are officers and/or directors of the INSTITUTION. The board of directors
of the Foundation will be responsible
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for establishing the polices of the Foundation with respect to grants or
donations, consistent with the stated purposes of the Foundation.
The establishment and funding of the Foundation as part of the Conversion
is subject to the approval of the Commissioner and, if applicable, the FDIC.
8. SUBSCRIPTION RIGHTS OF ELIGIBLE ACCOUNT HOLDERS (FIRST PRIORITY)
A. Each Eligible Account Holder shall receive, without payment, as a
first priority, nontransferable subscription rights to subscribe for shares
of Conversion Stock equal to the amount permitted to be subscribed for in the
Community Offering, which amount, pursuant to Section 12, currently is
$200,000 of the total offering of Conversion Stock, but which may be
increased to 5.0% of the Conversion Stock offered or decreased to 0.10% of
the Conversion Stock offered without the further approval of Voting Members
or resolicitation of subscribers, subject to the maximum purchase limitation
specified in Section 14A and the minimum purchase limitation in Section 14C.
B. In the event that Eligible Account Holders exercise Subscription
Rights for a number of shares of Conversion Stock in excess of the total
number of such shares eligible for subscription, the shares of Conversion
Stock shall be allocated among the subscribing Eligible Account Holders so as
to permit each subscribing Eligible Account Holder, to the extent possible,
to purchase a number of shares sufficient to make his or her total allocation
of Conversion Stock equal to the lesser of 100 shares or the number of shares
subscribed for by the Eligible Account Holder. Any shares remaining after
that allocation will be allocated among the subscribing Eligible Account
Holders whose subscriptions
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remain unsatisfied in the proportion that the amount of the Qualifying
Deposit of each remaining Eligible Account Holder whose subscription remains
unsatisfied bears to the total amount of the Qualifying Deposits of all
subscribing Eligible Account Holders whose subscriptions remain unsatisfied,
provided, however, that no fractional shares shall be issued. If any shares
remain after the above allocations, such shares shall then be allocated among
those remaining Eligible Account Holders whose subscriptions remain unfilled,
on the same principle until all available shares have been allocated or all
subscriptions satisfied.
C. Subscription rights as Eligible Account Holders received by
Directors and Officers and their Associates which are based on their
increased deposits in the INSTITUTION during the one (1) year period
preceding the Eligibility Record Date shall be subordinated to the
Subscription Rights of all other Eligible Account Holders.
9. SUBSCRIPTION RIGHTS OF THE EMPLOYEE PLANS (SECOND PRIORITY)
Each Employee Plan purchasing stock shall receive, as second priority
after the filling of subscriptions of Eligible Account Holders,
nontransferable subscription rights to purchase in the Subscription Offering
the number of shares of Conversion Stock requested by any such plan, subject
to the purchase limitations set forth in Section 14. If, after the filling
of subscriptions of Eligible Account Holders, a sufficient number of shares
of Conversion Stock is not available to fill the subscriptions by any such
plan, the subscription by such plan shall be filled to the maximum extent
possible.
The Employee Plans shall not be deemed to be associates or affiliates of
or Persons Acting in Concert with any Director or Officer of the Holding
Company or the INSTITUTION.
10. SUBSCRIPTION RIGHTS OF SUPPLEMENTAL ELIGIBLE ACCOUNT HOLDERS
(THIRD PRIORITY)
A. Each Supplemental Eligible Account Holder shall receive, as third
priority, after the filling of subscriptions of the Eligible Account Holders
and Employee Plans, nontransferable
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subscription rights to subscribe for shares of Conversion Stock equal to an
amount up to the greater of: the amount permitted to be subscribed for in
the Community Offering which amount, pursuant to Section 12, currently is
$200,000 of the total offering of Conversion Stock, but which may be
increased to 5.0% of the Conversion Stock offered or decreased to less than
0.10% of the Conversion Stock offered without the further approval of Voting
Members or resolicitation of subscribers, subject to the maximum purchase
limitation specified in Section 14A and the minimum purchase limitation
specified in Section 14C.
B. In the event that Supplemental Eligible Account Holders exercise
subscription rights for a number of shares of Conversion Stock in excess of
the total number of such shares eligible for subscription, the shares of
Conversion Stock shall be allocated among the subscribing Supplemental
Eligible Account Holders so as to permit each subscribing Supplemental
Eligible Account Holder, to the extent possible, to purchase a number of
shares sufficient to make his or her total allocation of Conversion Stock
equal to the lesser of 100 shares or the number of shares subscribed for by
the Supplemental Eligible Account Holder. Any shares remaining after that
allocation will be allocated among the remaining subscribing Supplemental
Eligible Account Holders whose subscriptions remain unsatisfied in the
proportion that the amount of the Qualifying Deposit of each remaining
Supplemental Eligible Account Holder whose subscription remains unsatisfied
bears to the total amount of the Qualifying Deposits of all remaining
Supplemental Eligible Account Holders whose subscriptions remain unsatisfied
provided, however, that no fractional shares shall be issued. If any shares
remain after the above allocations, such shares shall then be allocated among
those remaining Supplemental Eligible Account Holders whose subscriptions
remain unfilled on the same principle until all available shares have been
allocated or all subscriptions satisfied.
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C. Subscription rights received by an Eligible Account Holder pursuant
to Section 8 shall be applied in partial satisfaction of the subscription
rights to be received as a Supplemental Eligible Account Holder pursuant to
this Section 10.
11. SUBSCRIPTION RIGHTS OF OTHER VOTING MEMBERS
(a) Subject to the limitation of Section 14 hereof, each Other Voting
Member shall receive, without payment, non-transferable Subscription Rights
to purchase up to the greater of (i) the maximum purchase limitation as may
be established for the Community Offering or (ii) one-tenth of 1% of the
total offering of shares in the Subscription Offering, in each case if and
only to the extent that shares of Conversion Stock are available for purchase
after taking into account the shares of Conversion Stock purchased by
Eligible Account Holders, the ESOP and Supplemental Eligible Account Holders
through the exercise of Subscription Rights under Sections 8, 9 and 10 hereof.
(b) If, pursuant to this Section 11, Other Voting Members subscribe for
a number of shares of Conversion Stock in excess of the total number of
shares of Conversion Stock remaining, available shares shall be allocated
among subscribing Other Voting Members on a pro rata basis in the same
proportion as each Other Voting Members' subscription bears to the total
subscriptions of all subscribing Other Members.
12. COMMUNITY OFFERING (FIFTH PRIORITY)
If less than the total number of shares of Conversion Stock to be
subscribed for in the Conversion are sold in the Subscription Offering, it is
expected that shares remaining unsubscribed for will be made available for
purchase in the Community Offering as a fifth priority to certain members of
the general public, which may subscribe together with any Associate or group
of persons Acting in Concert for up to $200,000 of Conversion Stock subject
to the maximum purchase
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limitation specified in Section 14A and the minimum purchase limitation
specified in Section 14C; provided, however, that the amount permitted to be
purchased in the Community Offering may be increased to 5% or decreased to
0.10% without the further approval of Voting Members. The shares may be made
available in the Community Offering through a direct community marketing
program which may provide for utilization of a broker, dealer, consultant or
investment banking firm, experienced and expert in the sale of savings
institutions securities. Such entities may be compensated on a fixed fee
basis or on a commission basis, or a combination thereof. Any excess of
shares will be available for purchase by the general public with preference
given to natural persons residing in the INSTITUTION'S Local Community (such
natural persons are hereinafter referred to as "Preferred Subscribers"). The
INSTITUTION shall make distribution of the Conversion Stock to be sold in the
Community Offering in such a manner as to promote a wide distribution of
Conversion Stock. The INSTITUTION reserves the right to reject any or all
orders, in whole or in part, which are received in the Community Offering.
If the Preferred Subscribers in the Community Offering, whose orders
would otherwise be accepted, subscribe for more shares than are available for
purchase, the shares available to them will be allocated among the Preferred
Subscribers in the manner which permits each such person to the extent
possible, to purchase the number of shares necessary to make his total
allocation of Conversion Stock equal to the lesser of 100 shares or the
number of shares subscribed for by such persons with preference given to
Preferred Subscribers. Thereafter, unallocated shares will be allocated among
the Preferred Subscribers whose subscriptions remain unsatisfied on a 100
shares per order basis until all such orders have been filled or the
remaining shares have been allocated. To the extent that there are shares
remaining after all subscriptions by Preferred Subscribers, any
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remaining shares will be allocated among members of the general public using
the foregoing allocation as applied to Preferred Subscribers. The
INSTITUTION may establish all other terms and conditions of such offer.
It is expected that the Community Offering will commence concurrently
with the Subscription Offering. The Community Offering must be completed
within 45 days after the completion of the Subscription Offering unless
otherwise extended with the approval of the Commissioner and FDIC, if
necessary.
13. SYNDICATED COMMUNITY OFFERING OR PUBLIC OFFERING
If feasible, all shares of Conversion Stock not subscribed for in the
Subscription and Community Offerings will be sold in a Syndicated Community
Offering, subject to such terms, conditions and procedures as may be
determined by the INSTITUTION, in a manner that will achieve the widest
distribution of the Conversion Stock subject to the right of the INSTITUTION
to accept or reject in whole or in part all subscriptions in the Syndicated
Community Offering. In the Syndicated Community Offering, any person,
together with any Associate or group of persons acting in concert, may
purchase up to $200,000 of Conversion Stock subject to the maximum purchase
limitation specified in Section 14A and the minimum purchase limitation
specified in Section 14C; provided, however, that this amount may be
increased to 5% or decreased to 0.10% without the further approval of Voting
Members. The shares purchased by any Person together with any Associate or
group of persons acting in concert pursuant to Section 12 shall be counted
toward meeting the maximum purchase limitation found in this Section.
Provided that the Subscription Offering has commenced, the INSTITUTION may
commence the Syndicated Community Offering at any time after the mailing to
the Members of the Proxy Statement to be used in connection with
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the Special Meeting, provided that the completion of the offer and sale of
the Conversion Stock shall be conditioned upon the approval of this Plan by
the Voting Members. If the Syndicated Community Offering is not sooner
commenced pursuant to the provisions of the preceding sentence, the
Syndicated Community Offering will be commenced as soon as practicable
following the date upon which the Subscription and Community Offerings
terminate.
Alternatively, if a Syndicated Community Offering is not held, and the
INSTITUTION and the Holding Company determine to continue the Conversion, the
INSTITUTION shall have the right to sell any shares of Conversion Stock
remaining following the Subscription and Community Offerings in an
underwritten firm commitment Public Offering. The provisions of Section 14
hereof shall not be applicable to sales to underwriters for purposes of such
an offering but shall be applicable to the sales by the underwriters to the
public. The price to be paid by the underwriters in such an offering shall
be equal to the Actual Purchase Price less an underwriting discount to be
negotiated among such underwriters and the INSTITUTION, which will in no
event exceed an amount deemed to be acceptable by the Commissioner and FDIC,
if necessary.
If for any reason a Syndicated Community Offering or an underwritten firm
commitment public offering of shares of Conversion Stock not sold in the
Subscription and Community Offerings cannot be effected, or in the event that
any residue of shares of Conversion Stock not exceeding one percent of the
aggregate shares issued is not sold in the Subscription and Community
Offerings or in the Syndicated Community or underwritten firm commitment
Public Offering, other arrangements will be made for the disposition of
unsubscribed shares by the INSTITUTION, if possible. Such other purchase
arrangements will be subject to the approval of the Commissioner and FDIC, if
necessary.
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14. LIMITATION ON PURCHASES
In addition to the maximum amount of Conversion Stock that may be
subscribed for in Sections 8, 9, 10, 11, 12 and 13, the following limitations
shall apply to all purchases of shares of Conversion Stock:
A. The maximum number of shares of Conversion Stock which may be
subscribed for or purchased in all categories in the Conversion by any Person
or Participant, together with any Associate or group or persons Acting in
Concert, shall not exceed 1.0% of the Conversion Stock offered, except for
the Employee Plans which may subscribe for up to 10% of the Conversion Stock
issued; provided, however, that Directors and Officers of the INSTITUTION and
the Holding Company shall not be deemed to be associates or acting together
or in concert solely as a result of their board membership or employment.
B. The maximum number of shares of Conversion Stock which may be
purchased by Directors of both the INSTITUTION and the Holding Company as
Eligible Account Holders in the aggregate shall not exceed 20% of the total
number of shares of Conversion Stock issued.
C. A minimum of 25 shares of Conversion Stock must be purchased by each
Person purchasing shares in the Conversion to the extent those shares are
available; provided, however, that in the event the minimum number of shares
of Conversion Stock purchased times the price per share exceeds $500, then
such minimum purchase requirement shall be reduced to such number of shares
which when multiplied by the price per share shall not exceed $500, as
determined by the Board.
If the number of shares of Conversion Stock otherwise allocable pursuant
to Sections 8 through 13, inclusive, to any Person or that Person's
Associates would be in excess of the maximum number of shares permitted as
set forth above, the number of shares of Conversion Stock allocated
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to each such person shall be reduced to the lowest limitation applicable to
that Person, and then the number of shares allocated to each group consisting
of a Person and that Person's Associates shall be reduced so that the
aggregate allocation to that Person and his or her Associates complies with
the above maximums, and such maximum number of shares shall be reallocated
among that Person and his or her Associates as they may agree, or in the
absence of an agreement, in proportion to the shares subscribed by each
(after first applying the maximums applicable to each Person, separately).
Depending upon market or financial conditions, the Board of Directors of
the INSTITUTION and the Board of Directors of the Holding Company, with the
approval of the Commissioner, if necessary, and without further approval of
the Voting Members, may decrease the maximum purchase limitation applicable
to Persons to 0.10% of the Conversion Stock offered, provided, however, the
maximum purchase limitation applicable to all Persons, together with
Associates and Persons acting in concert in the Subscription Offering may not
be decreased below 1.0% of the Conversion Stock offered. The Board of
Directors of the INSTITUTION and Board of Directors of the Holding Company
with the approval of the Commissioner, if necessary, and without further
approval of Voting Members, may decrease the maximum purchase limitation
applicable to Persons together with Associates and Persons Acting in Concert
in the Community or Syndicated Community Offering or Public Offering to 0.10%
of the Conversion Stock offered. In addition, the Board of Directors of the
INSTITUTION and Board of Directors of the Holding Company with the approval
of the Commissioner and FDIC, if necessary, and without further approval of
Voting Members, may increase the purchase limitations in this Plan, provided
that the maximum purchase limitations may not be increased in the
Subscription Offering or Community Offering to a percentage in excess of 5%
of the Conversion Stock offered. If the INSTITUTION or the Holding
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Company, as the case may be, increases the maximum purchase limitations, the
INSTITUTION or the Holding Company, as the case may be, is only required to
resolicit Persons who subscribed for the maximum purchase amount and may, in
the sole discretion of the INSTITUTION or the Holding Company, as the case
may be, resolicit certain other large subscribers. Requests to purchase
additional shares of the Conversion Stock in the event that the purchase
limitation is so increased will be determined by the Board of Directors of
the INSTITUTION and the Holding Company in their sole discretion.
Prior to the Effective Date of the Conversion, no Person shall offer to
transfer, or enter into any agreement or understanding to transfer the legal
or beneficial ownership of any Subscription Rights or shares of Conversion
Stock, except pursuant to this Plan of Conversion. Each Person purchasing
Conversion Stock in the conversion shall be deemed to confirm that such
purchase does not conflict with the above purchase limitations contained in
this Plan.
For a period of three years following the conversion, no Officer or
Director (or any person who was an Officer or Director at any time after the
date on which the Board of Directors adopts this Plan) of the INSTITUTION or
the Holding Company or their Associates shall, without the prior written
approval of the Commissioner, purchase or acquire direct or indirect
beneficial ownership of any outstanding shares of common stock of the
INSTITUTION or the Holding Company, as the case may be, except from a
broker-dealer registered with the SEC. This provision shall not apply to the
exercise of any options pursuant to a stock option plan or purchases of
common stock of the INSTITUTION or the Holding Company, as the case may be,
made by or held by any Tax-Qualified Employee Stock Benefit Plan or
Non-Tax-Qualified Employee Stock Benefit Plan of the
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INSTITUTION or the Holding Company (including the Employee Plans) which may
be attributable to any Officer or Director.
15. PAYMENT FOR CONVERSION STOCK
All payments for Conversion Stock subscribed for in the Subscription,
Community and Syndicated Community Offerings must be delivered in full to the
INSTITUTION, together with a properly completed and executed Order Form, or
purchase order in the case of the Syndicated Community Offering, on or prior
to the expiration date specified on the Order Form or purchase order, as the
case may be, unless such date is extended by the INSTITUTION; provided,
however, that if the Employee Plans subscribe for shares during the
Subscription Offering, such plans will not be required to pay for the shares
at the time they subscribe but rather may pay for such shares of Conversion
Stock subscribed for by such plans at the Actual Purchase Price upon
consummation of the Conversion, provided that, in the case of the ESOP there
is in force from the time of its subscription until the consummation of the
Conversion, a loan commitment from the Holding Company or from an unrelated
financial institution to lend to the ESOP, at such time, the aggregated
Maximum Subscription Price of the shares for which it subscribed. The
Holding Company or the INSTITUTION may make scheduled discretionary
contributions to an Employee Plan provided such contributions from the
INSTITUTION, if any, do not cause the INSTITUTION to fail to meet its
regulatory capital requirement.
Notwithstanding the foregoing, the INSTITUTION and the Holding Company,
if utilized, shall have the right, in their sole discretion, to permit
institutional investors to submit contractually irrevocable orders in the
Community Offering and to thereafter submit payment for the Conversion Stock
for which they are subscribing in the Community Offering at any time prior to
48 hours before
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the completion of the Conversion, unless such 48 hour period is waived by the
INSTITUTION and the Holding Company in their sole discretion.
Payment for Conversion Stock subscribed for shall be made either in cash
(if delivered in person), check or money order. Alternatively, subscribers
in the Subscription and Community Offerings may pay for the shares subscribed
for by authorizing the INSTITUTION on the Order Form to make a withdrawal
from the subscriber's Deposit Account at the INSTITUTION in an amount equal
to the purchase price of such shares. Funds for which a withdrawal is
authorized will remain in the subscriber's Deposit Account but may not be
used by the subscriber until the Conversion Stock has been sold or the 45-day
period (or such longer period as may be approved by the Commissioner)
following the Subscription and Community Offering has expired, whichever
occurs first. Thereafter, the withdrawal will be given effect only to the
extent necessary to satisfy the subscription (to the extent it can be filled)
at the purchase price per share. Interest will continue to be earned on any
amounts authorized for withdrawal until such withdrawal is given effect.
Such authorized withdrawal from a certificate account shall be without
penalty as to premature withdrawal. Any remaining balance in a Deposit
Account will earn interest after such withdrawal at the rate and manner
applicable to such Deposit Account, provided, that if the authorized
withdrawal is from a certificate account, and the remaining balance does not
meet the applicable minimum balance requirement, without penalty, the
remaining balance will earn interest at the same rate and manner as a
comparable balance in a passbook account. Interest will be paid by the
INSTITUTION at not less than the passbook annual rate on payments for
Conversion Stock received in cash or by check. Such interest will be paid
from the date payment is received by the INSTITUTION until consummation or
termination of the conversion. If for any reason the
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conversion is not consummated, all payments made by subscribers in the
Subscription, Community and Syndicated Community Offerings will be refunded
to them with interest. In case of amounts authorized for withdrawal from
Deposit Accounts, refunds will be made by cancelling the authorization for
withdrawal. The INSTITUTION is prohibited by regulation from knowingly
making any loans or granting any lines of credit for the purchase of stock in
the conversion, and therefore, will not do so.
16. MANNER OF EXERCISING SUBSCRIPTION RIGHTS THROUGH ORDER FORMS
As soon as practicable after the Prospectus prepared by the Holding
Company and INSTITUTION has been declared effective by the Commissioner, FDIC
and the SEC, if the holding company form of organization is utilized,
Prospectus and Order Forms will be distributed to the Employee Plans, all
Eligible Account Holders and Supplemental Eligible Account Holders at their
last known addresses appearing on the records of the INSTITUTION for the
purpose of subscribing to shares of Conversion Stock in the Subscription
Offering and will be made available for use by those Persons entitled to
purchase in the Community Offering. Notwithstanding the foregoing, the
INSTITUTION may elect to mail a Prospectus and Order Form only to those
Participants who request such materials by returning a postage-paid card to
the Holding Company and the INSTITUTION by a date specified in the letter
informing them of their Subscription Rights. Under such circumstances, the
Subscription Offering shall not be closed until the expiration of 30 days
after the mailing by the Holding Company and the INSTITUTION of the
postage-paid card to Participants.
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Each Order Form will be preceded or accompanied by a Prospectus
describing the Holding Company, if utilized, the INSTITUTION, the Conversion
Stock and the Subscription and Community Offerings. Each Order Form will
contain, among other things, the following:
A. A specified date by which all Order Forms must be received by the
INSTITUTION, which date shall be not less than twenty (20) days, nor more
than forty-five (45) days, following the date on which the Order Forms are
mailed by the INSTITUTION, and which date will constitute the termination of
the Subscription Offering.
B. The purchase price per share for shares of Conversion Stock to be
sold in the Subscription and Community Offerings;
C. A description of the minimum and maximum number of shares of
Conversion Stock which may be subscribed for pursuant to the exercise of
Subscription Rights or otherwise purchased in the Community Offering;
D. Instructions as to how the recipient of the Order Form is to
indicate thereon the number of shares of Conversion Stock for which such
person elects to subscribe and the available alternative methods of payment
therefor;
E. An acknowledgment that the recipient of the Order Form has received
a final copy of the Prospectus prior to execution of the Order Form;
F. Specifically designated blank spaces for dating and signing the
Order Form;
G. Indicate the consequences of failing to properly complete and return
the Order Form, including a statement to the effect that all subscription
rights are nontransferable, will be void at the end of the Subscription
Offering, and can only be exercised by delivering within the subscription
period such properly completed and executed Order Form, together with cash
(if delivered in
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person), check or money order in the full amount of the purchase price as
specified in the Order Form for the shares of Conversion Stock for which the
recipient elects to subscribe in the Subscription Offering (or by authorizing
on the Order Form that the INSTITUTION withdraw said amount from the
subscriber's Deposit Account at the INSTITUTION) to the INSTITUTION; and
H. A statement to the effect that the executed Order Form, once
received by the INSTITUTION, may not be modified or amended by the subscriber
without the consent of the INSTITUTION.
Notwithstanding the above, the INSTITUTION and the Holding Company
reserve the right in their sole discretion to accept or reject orders
received on photocopied or facsimilied order forms.
17. UNDELIVERED, DEFECTIVE OR LATE ORDER FORM: INSUFFICIENT PAYMENT
In the event Order Forms (a) are not delivered and are returned to the
INSTITUTION by the United States Postal Service or the INSTITUTION is unable
to locate the addressee, (b) are not received back by the INSTITUTION or are
received by the INSTITUTION after the expiration date specified thereon, (c)
are defectively filled out or executed, (d) are not accompanied by the full
required payment, or, in the case of institutional investors in the Community
Offering, by delivering irrevocable orders together with a legally binding
commitment to pay in cash, check, money order or wire transfer the full
amount of the purchase price prior to 48 hours before the completion of the
Conversion, unless waived by the INSTITUTION, for the shares of Conversion
Stock subscribed for (including cases in which deposit accounts from which
withdrawals are authorized are insufficient to cover the amount of the
required payment), or (e) are not mailed pursuant to a "no mail" order placed
in effect by the account holder, the subscription rights of the person to
whom such
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rights have been granted will lapse as though such person failed to return
the contemplated Order Form within the time period specified thereon;
provided, however, that the INSTITUTION may, but will not be required to,
waive any immaterial irregularity on any Order Form or require the submission
of corrected Order Forms or the remittance of full payment for subscribed
shares by such date as the INSTITUTION may specify. The interpretation of
the INSTITUTION of terms and conditions of the Plan and of the Order Forms
will be final, subject to the authority of the Commissioner and FDIC.
18. RESTRICTIONS ON RESALE OR SUBSEQUENT DISPOSITION
A. All shares of Conversion Stock purchased or acquired (either
directly or indirectly) by Directors or Officers of the INSTITUTION or the
Holding Company on original issue (or otherwise beneficially owned
immediately after such original issuance) in the conversion shall be subject
to the restriction that, except as provided in Section 18B, below, or as may
be approved by the Commissioner, such shares shall not be sold for a period
of one (l) year following the date of purchase.
B. The restriction on disposition of shares of Conversion Stock set
forth in Section 18A above shall not apply to the following:
(i) Any exchange of such shares in connection with a merger or
acquisition involving the INSTITUTION or the Holding Company,
as the case may be, which has been approved by the
Commissioner; and
(ii) Any disposition of such shares following the death or judicial
declaration of incompetency of such Director or Executive
Officer.
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C. With respect to all shares of Conversion Stock subject to
restrictions on resale or subsequent disposition, each of the following
provisions shall apply:
(i) Each certificate representing shares restricted within the
meaning of Section 18A, above, shall bear a legend prominently
stamped on its face giving notice of the restriction;
(ii) Appropriate instructions shall be issued to the stock transfer
agent for the INSTITUTION or the Holding Company, as the case
may be, with respect to applicable restrictions on transfer of
such restricted stock; and
(iii) Any shares of capital stock of the INSTITUTION or the Holding
Company, as the case may be, issued as a stock dividend, stock
split, or otherwise with respect to any such restricted stock
may not be sold until the restrictions respecting such
originally restricted stock are terminated, and any
certificate for such shares shall bear a legend advising of
such restrictions.
19. VOTING RIGHTS OF STOCKHOLDERS
Upon conversion, the holders of the capital stock of the INSTITUTION
shall have the exclusive voting rights with respect to the INSTITUTION as
specified in its charter. The holders of the common stock of the Holding
Company (if a holding company form of organization is utilized) shall have
the exclusive voting rights with respect to the Holding Company.
20. ESTABLISHMENT OF LIQUIDATION ACCOUNT
The INSTITUTION shall establish at the time of conversion a liquidation
account in an amount equal to its net worth (determined in accordance with
generally accepted accounting principles) as set forth in the latest
statement of financial condition contained in the proxy statement.
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The liquidation account will be maintained by the INSTITUTION for the benefit
of the Eligible Account Holders who continue to maintain their Deposit
Accounts at the INSTITUTION in the event of a complete liquidation of the
Bank following the Conversion. Each Eligible Account Holder shall, with
respect to each Deposit Account, hold a related inchoate interest in a
portion of the liquidation account balance, in relation to each Deposit
Account balance at the Eligibility Record Date or to such balance as it may
be subsequently reduced, as hereinafter provided. The initial liquidation
account balance shall not be increased, and shall be subject to downward
adjustment to the extent of any downward adjustment of any subaccount balance
of any Eligible Account Holder in accordance with the Conversion Regulations.
In the unlikely event of a complete liquidation of the INSTITUTION (and
only in such event), following all liquidation payments to creditors
(including those to Account Holders to the extent of their Accounts) each
Eligible Account Holder shall be entitled to receive a liquidating
distribution from the liquidation account, in the amount of the then adjusted
subaccount balance for his Deposit Account then held, before any liquidation
distribution may be made to any holders of the INSTITUTION's capital stock.
No merger, consolidation, purchase of bulk assets with assumption of Deposit
Accounts and other liabilities, or similar transactions with an FDIC-insured
institution, in which the INSTITUTION is not the surviving institution, shall
be deemed to be a complete liquidation for this purpose. In such
transactions, the liquidation account shall be assumed by the surviving
institution.
The initial subaccount balance for a Deposit Account held by an Eligible
Account Holder shall be determined by multiplying the opening balance in the
liquidation account by a fraction, the numerator of which is the amount of
such Eligible Account Holder's Qualifying Deposit and the
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denominator of which is the total amount of all Qualifying Deposits of all
Eligible Account Holders in the INSTITUTION. Such initial subaccount balance
shall not be increased, but shall be subject to downward adjustment as
described below.
If, at the close of business on the last day of any period for which the
INSTITUTION or the Holding Company, as the case may be, has prepared audited
financial statements subsequent to the effective date of conversion, the
deposit balance in the Deposit Account of an Eligible Account Holder is less
than the lesser of (i) the balance in the Deposit Account at the close of
business on the last day of any period for which the INSTITUTION or the
Holding Company, as the case may be, has prepared audited financial
statements subsequent to the Eligibility Record Date, or (ii) the amount in
such Deposit Account as of the Eligibility Record Date, the subaccount
balance for such Deposit Account shall be adjusted by reducing such
subaccount balance in an amount proportionate to the reduction in such
deposit balance. In the event of such downward adjustment, the subaccount
balance shall not be subsequently increased, notwithstanding any subsequent
increase in the deposit balance of the related Deposit Account. If any such
Deposit Account is closed, the related subaccount shall be reduced to zero.
For purposes of this Section and the Conversion Regulations, a time account
shall be deemed to be closed upon its maturity date regardless of any renewal
thereof. A distribution of each subaccount balance may be made only in the
event of a complete liquidation of the Bank subsequent to the Conversion and
only out of funds available for such purpose after payment of all creditors.
The Bank shall not be required to set aside funds for the purpose of
establishing the liquidation account, and the creation and maintenance of the
liquidation account shall not operate to restrict the use or application of
any of the net worth accounts of the INSTITUTION, except that the
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INSTITUTION shall not declare or pay a cash dividend on, or repurchase any
of, its capital stock if the effect thereof would cause its net worth to be
reduced below the amount required for the liquidation account.
21. TRANSFER OF DEPOSIT ACCOUNTS AND CONTINUITY OF THE INSTITUTION
Upon conversion, each Deposit Account Holder having a Deposit Account at
the INSTITUTION at the time of conversion will continue to have a Deposit
Account, without payment therefor, in the same amount and subject to the same
terms and conditions (except for voting and liquidation rights) as in effect
prior to the conversion.
After conversion, the INSTITUTION will succeed to all the rights, powers,
franchises, debts, liabilities, interests, duties and obligations of the
INSTITUTION before conversion, including but not limited to all rights and
interests of the INSTITUTION in and to its assets and properties, whether
real, personal or mixed. All of the insured deposits of the INSTITUTION will
continue to be insured by the FDIC to the extent provided by applicable law.
22. RESTRICTIONS ON ACQUISITION OF THE INSTITUTION AND HOLDING COMPANY
A. In accordance with Conversion Regulations, except with the prior
approval of the Commissioner, no Person or group of Persons acting in
concert, other than the Holding Company (if a holding company form of
organization is utilized), for a period of three years following the
Effective Date of the Conversion, 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 INSTITUTION.
B. 1. The Articles of Incorporation of the converted INSTITUTION
contains a provision stipulating that no Person or group of Persons acting in
concert, except the Holding Company (if a
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holding company form of organization is utilized), for a period of five years
following the date of conversion 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 INSTITUTION, without the prior written approval of
the Commissioner. In addition, such Articles of Incorporation will also
provide that for a period of three years following conversion shares
beneficially owned in violation of the above-described provision shall not be
entitled to vote and shall not be voted by any person or counted as voting
stock in connection with any matter submitted to stockholders for a vote. In
addition, special meetings of the stockholders relating to changes in control
or amendment of the Articles of Incorporation may only be called by the Board
of Directors, and shareholders shall not be permitted to cumulate their votes
for the election of directors.
B. 2. The Certificate of Incorporation of the Holding Company, if a
holding company form of organization is utilized, will contain a provision
stipulating that in no event shall any record owner of any outstanding shares
of the Holding Company's common stock who beneficially owns in excess of 10%
of such outstanding shares be entitled or permitted to any vote in respect to
any shares held in excess of 10%. In addition, the Certificate of
Incorporation and Bylaws of the Holding Company contain provisions which
provide for staggered terms of the directors, noncumulative voting for
directors, limitations on the calling of special meetings, a fair price
provision for certain business combinations and certain notice requirements.
C. For the purposes of this Section 22.B.1:
(i) The term "person" includes an individual, a group acting in
concert, a corporation, a partnership, an association, a joint
stock company, a trust, an unincorporated organization or
similar company, a syndicate or any other
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group formed for the purpose of acquiring, holding or disposing
of securities of an insured institution;
(ii) The term "offer" includes every offer to buy or 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;
(iii) The term "acquire" includes every type of acquisition, whether
effected by purchase, exchange, operation of law or otherwise;
and
(iv) The term "security" includes non-transferable subscription
rights issued pursuant to a plan of conversion as well as a
"security" as defined in 15 U.S.C. Section 78c(a)(10).
23. PAYMENT OF DIVIDENDS AND REPURCHASE OF STOCK
The INSTITUTION shall not declare or pay a cash dividend on, or
repurchase any of, its capital stock if the effect thereof would cause its
regulatory capital to be reduced below the greatest of the amount required
for the Liquidation Account; the amount required by the Commissioner; or the
amount required by federal law. Otherwise, the INSTITUTION may declare
dividends or make capital distributions in accordance with applicable law and
regulations.
24. AMENDMENT OF PLAN
If deemed necessary or desirable, the Plan may be substantively amended
at any time prior to solicitation of proxies from Voting Members to vote on
the Plan by the INSTITUTION's Board of Directors, and at any time thereafter
by such vote of such Board of Directors with the concurrence of the
Commissioner and FDIC. Amendment of the Plan may be necessary as a result of
comments from the Commissioner and FDIC. Any amendment to the Plan made
after approval by the Eligible Account Holders with the approval of the
Commissioner and FDIC shall not necessitate further approval by the Eligible
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Account Holders unless otherwise required by the Commissioner and FDIC. The
Plan may be terminated by majority vote of the INSTITUTION's Board of
Directors at any time prior to the Special Meeting to vote on this Plan, and
at any time thereafter with the concurrence of the Commissioner and FDIC.
By adoption of the Plan, the Voting Members of the INSTITUTION authorize
the Board of Directors to amend or terminate the Plan under the circumstances
set forth in this Section.
25. ARTICLES OF INCORPORATION AND BYLAWS
The INSTITUTION shall take all appropriate steps to amend its Articles of
Incorporation to read in the form of Articles of Incorporation for an
Illinois stock savings bank as specified in the Savings Bank Act and the
regulations of the Office of Banks and Real Estate and approved by the Board
of Directors of the INSTITUTION. By their approval of the Plan, the members
of the INSTITUTION will thereby approve and adopt such amended Articles of
Incorporation. The INSTITUTION shall also take all appropriate steps to
adopt Bylaws legally sufficient for an Illinois stock savings bank. The name
of the converted INSTITUTION shall be Elgin Financial Center, S.B.
26. CONSUMMATION OF CONVERSION
The conversion of the INSTITUTION shall be deemed to take place and be
effective upon the completion of all requisite organizational procedures for
amending Articles of Incorporation for an Illinois stock savings bank for the
INSTITUTION and sale of all Conversion Stock.
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27. REGISTRATION AND MARKETING
Within the time period required by applicable laws and regulations, the
INSTITUTION or the Holding Company, as the case may be, will register the
securities issued in connection with the conversion pursuant to the
Securities Exchange Act of 1934 and will not deregister such securities for a
period of at least three years thereafter, except that the maintenance of
registration for three years requirement may be fulfilled by any successor to
the INSTITUTION or any holding company of the INSTITUTION. In addition, the
INSTITUTION/Holding Company will use its best efforts to encourage and assist
a market-maker to establish and maintain a market for the Conversion Stock
and to list those securities on a national or regional securities exchange or
the NASDAQ system.
28. RESIDENTS OF FOREIGN COUNTRIES AND CERTAIN STATES
The INSTITUTION 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 of Conversion Stock pursuant to the Plan reside. No
Person will be issued subscription rights or be permitted to purchase shares
of Conversion Stock in the Subscription Offering if such Person resides in a
foreign country.
29. EXPENSES OF CONVERSION
The INSTITUTION shall use its best efforts to assure that expenses
incurred by it in connection with the conversion shall be reasonable.
30. CONDITIONS TO CONVERSION
The conversion of the INSTITUTION pursuant to this Plan is expressly
conditioned upon the following:
(a) Prior receipt by the INSTITUTION of either rulings of the United
States Internal Revenue Service and the Illinois taxing authorities, or
opinions of counsel or independent auditors,
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substantially to the effect that the conversion will not result in any
adverse federal or state tax consequences to Eligible Account Holders or to
the INSTITUTION and the Holding Company before or after the conversion;
(b) The sale of all of the Conversion Stock offered in the conversion;
and
(c) The completion of the conversion within the time period specified in
Section 3 of this Plan.
31. INTERPRETATION
All interpretations of this Plan and application of its provisions to
particular circumstances by a majority of the Board of Directors of the
INSTITUTION shall be final, subject to the authority of the Commissioner and
FDIC.
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EXHIBIT I
ARTICLES OF INCORPORATION
of
ELGIN FINANCIAL CENTER, S.B.
ARTICLE ONE. CORPORATE TITLE
The full name of the savings bank is Elgin Financial Center, S.B. ("Savings
Bank").
ARTICLE TWO. OFFICE
The business office of the Savings Bank shall be located at 1695 Larkin
Avenue, in the City of Elgin, County of Kane, State of Illinois.
ARTICLE THREE. DURATION
The duration of the savings bank shall be perpetual.
ARTICLE FOUR. DIRECTORS
The Savings Bank shall be under the direction of a Board of Directors. The
initial number of directors to be elected shall be nine (9). The number of
directors to be elected may from time to time be changed as provided in the
Savings Bank's bylaws, but in no event shall the number of directors elected
be less than five (5).
ARTICLE FIVE. DEPOSITS
The Deposit Accounts which the Savings Bank may issue shall be all accounts
that are permissible under applicable laws and regulations.
ARTICLE SIX. PURPOSE AND POWERS
The purpose of the Savings Bank is to pursue any or all of the lawful
objectives of an Illinois savings bank chartered under the Illinois Savings
Bank Act (the "Act"), including, but not limited to, taking of an unlimited
dollar amount of deposits and the making of loans, and to exercise all 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,
<PAGE>
regulations and orders of the Commissioner of Banks and Real Estate for the
State of Illinois (the "Commissioner").
ARTICLE SEVEN. CAPITAL STOCK
The total number of shares of all classes of the capital stock which the
Savings Bank has authority to issue is twenty-seven million (27,000,000), of
which twenty-five million (25,000,000) shall be common stock, par value $0.01
per share and of which two million (2,000,000) shall be preferred stock, par
value $0.01 per share. The shares may be issued from time to time as
authorized by the Board of Directors without the approval of stockholders
except as otherwise provided in this Article Seven or to the extent that such
approval is required by governing law, rule, or regulation. The
consideration for the issuance of the shares shall be paid in full before
their issuance and shall not be less than the par value. Neither promissory
notes nor future services shall constitute payment or part payment for the
issuance of shares of the Savings Bank. The consideration for the shares
shall be cash, tangible or intangible property (to the extent direct
investment in such property would be permitted to the Savings Bank), labor,
or services actually performed for the Savings Bank or any combination of the
foregoing. In the absence of actual fraud in the transaction, the value of
such property, labor, or services, as determined by the Board of Directors of
the Savings Bank, shall be conclusive. Upon payment of such consideration,
such shares shall be deemed to be fully paid and nonassessable. In the case
of a stock dividend, that part of the surplus of the Savings Bank which is
transferred to stated capital upon the issuance of shares as a share dividend
shall be deemed to be the consideration for their issuance.
Except for shares issuable in connection with the conversion of the
Savings Bank from the mutual to the stock form of capitalization, no shares
of capital stock (including shares issuable upon conversion, exchange, or
exercise of other securities) shall be issued, directly or indirectly, to
officers, directors, or controlling persons of the Savings Bank other than as
part of a general public offering or as qualifying shares to a director,
unless their issuance or the plan under which they would be issued has been
approved by a majority of the total votes eligible to be cast at a legal
meeting.
Nothing contained in this Article 7 (or in any supplementary articles
hereto) shall entitle the holders of any class or series of capital stock to
vote as a separate class or series or to more than one vote per share, except
as to the cumulation of votes for the election of directors: provided, that
this restriction on voting separately by class or series shall not apply:
(i) To any provision which would authorize the holders of preferred
stock, voting as a class or series, to elect some members of the
Board of Directors, less than a majority thereof, in the event of
default in the payment of dividends on any class or series of
preferred stock;
(ii) To any provision which would require the holders of preferred
stock, voting as a class or series, to approve the merger or
consolidation of the Savings Bank with another corporation or the
sale, lease, or conveyance (other than by mortgage or
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pledge) of properties or business in exchange for securities of a
corporation other than the Savings Bank if the preferred stock is
exchanged for securities of such other corporation: Provided, That
no provision may require such approval for transactions undertaken
with the assistance or pursuant to the direction of the
Commissioner or the Federal Deposit Insurance Corporation;
(iii) To any amendment which would adversely change the specific terms of
any class or series of capital stock as set forth in this Section 5
(or in any supplementary sections hereto), including any amendment
which would create or enlarge any class or series ranking prior
thereto in rights and preferences. An amendment which increases
the number of authorized shares of any class or series of capital
stock, or substitutes the surviving Savings Bank in a merger or
consolidation for the Savings Bank, shall not be considered to be
such an adverse change.
A description of the different classes and series (if any) of the Savings
Bank's capital stock and a statement of the designations, and the relative
rights, preferences, and limitations of the shares of each class of and
series (if any) of capital stock are as follows:
A. Common Stock. Except as provided in this Article 7 (or in any
supplementary articles hereto) 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, or
retirement fund, or other retirement payments, if any, to which
such holders are respectively entitled in preference to the common
stock, then dividends may be paid on the common stock and on any
class or series of stock entitled to participate therewith as to
dividends out of any assets legally available for the payment of
dividends.
In the event of any liquidation, dissolution, or winding up of the
Savings Bank, the holders of the common stock (and the holders of
any class or series of stock entitled to participate with the
common stock in the distribution of assets) shall be entitled to
receive, in cash or in kind, the assets of the Savings Bank
available for distribution remaining after: (i) payment or
provision for payment of the Savings Bank's debts and liabilities;
(ii) distributions or provision for distributions in settlement of
its liquidation account; and (iii) distributions or provision for
distributions to holders of any class or series of stock having
preference over the common stock in the liquidation, dissolution,
or winding up of the Savings Bank. Each share of common
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stock shall have the same relative rights as and be identical in
all respects with all the other shares of common stock.
B. Preferred Stock. The Savings Bank may provide in supplementary
sections to its articles of incorporation 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
articles of incorporation. 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 the shares of
such series;
(d) Whether the shares of such series shall be redeemable and, if
so, the price(s) at which, and the terms and conditions on
which, such shares may be redeemed;
(e) The amount(s) payable upon the shares of such series in the
event of voluntary or involuntary liquidation, dissolution, or
winding up of the Savings Bank;
(f) Whether the shares of such series shall be entitled to the
benefit of a sinking or retirement fund to be applied to the
purchase or redemption of such shares, and if so entitled, the
amount of such fund and the manner of its application,
including the price(s) at which such shares may be redeemed or
purchased through the application of such fund;
(g) Whether the shares of such series shall be convertible into,
or exchangeable for, shares of any other class or classes of
stock of the Savings Bank and, if so, the conversion price(s)
or the rate(s) of exchange, and the adjustments thereof, if
any, at which such conversion or exchange may be made, and any
other terms and conditions of such conversion or exchange;
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(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 articles, any authorized class of preferred stock into series,
and, within the limitations set forth in this section and the remainder of
these articles of incorporation, 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 article adopted by the Board of Directors, the Savings Bank
shall file with the Commissioner a dated copy of that supplementary article
establishing and designating the series and fixing and determining the
relative rights and preferences thereof.
ARTICLE EIGHT. CERTAIN PROVISIONS APPLICABLE FOR FIVE YEARS
Notwithstanding anything contained in the Savings Bank's articles of
incorporation or bylaws to the contrary, for a period of five years from the
date of consummation of the conversion of the Savings Bank from mutual to
stock form, the following provision shall apply:
Beneficial Ownership Limitation. Except for sales of stock required by
the federal insurer of accounts or the Commissioner of Banks and Real
Estate, no person shall directly or indirectly offer to acquire or
acquire the beneficial ownership of more than 10 percent of any class of
any equity security of the Savings Bank. This limitation shall not apply
to a transaction in which the Savings Bank forms a holding company
without a 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 employee stock
benefit plan. In the event shares are acquired in violation of this
Article, 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 provision, the following
definitions apply: the term "person" includes an individual, a group
acting in concert, a corporation, a partnership, an association, a joint
stock company, a trust, any unincorporated organization or similar
company, a syndicate or any other group formed
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to acquire, hold or dispose of the equity securities of the Savings Bank;
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; the term "acquire" includes every type of acquisition, whether
effected by purchase, exchange, operation of law or otherwise; and the
term "acting in concert" means knowing participation in a joint activity
or conscious parallel action towards a common goal whether pursuant to an
express agreement, or 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.
ARTICLE NINE. PREEMPTIVE RIGHTS
Holders of the capital stock of the Savings Bank shall not be entitled to
preemptive rights with respect to any shares of the Savings Bank which may be
issued.
ARTICLE TEN. LIQUIDATION ACCOUNT
Pursuant to the requirements of the Act and regulations of the
Commissioner, the Savings Bank shall establish and maintain a liquidation
account for the benefit of its savings account holders as of July 31, 1996
("Eligible Account Holders") and _____________ ("Supplemental Account
Holders"). In the event of a complete liquidation of the Savings Bank, it
shall comply with such regulations with respect to the amount and the
priorities on liquidation of the inchoate interest of each of the Savings
Bank's Eligible Account Holders and Supplemental Account Holders in the
liquidation account, to the extent it is still in existence; provided,
however, that an inchoate interest in the liquidation account shall not
entitle such account holder to any voting rights at meetings of the Savings
Bank's stockholders.
ARTICLE ELEVEN. AMENDMENT OF ARTICLES OF INCORPORATION
Except as otherwise provided by law, no amendment, addition, alteration,
change, or repeal of these Articles of Incorporation shall be made, unless
such is first proposed by the Board of Directors of the Savings Bank and
thereafter approved by the stockholders by a majority of the total votes
eligible to be cast at a legal meeting.
ARTICLE TWELVE. CUMULATIVE VOTING LIMITATION
Stockholders shall not be permitted to cumulate their votes for the
election of directors.
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ARTICLE THIRTEEN. QUORUM
The quorum required for action of the stockholders (except as otherwise
provided by law) is a majority of votes which all stockholders of the Savings
Bank are entitled to cast.
ARTICLE FOURTEEN. SPECIAL MEETINGS
Special Meetings of stockholders relating to changes in control of the
Savings Bank or amendments to these Articles of Incorporation shall be called
only upon direction of the Board of Directors.
Dated this _____ day of ___________ 199_.
ELGIN FINANCIAL CENTER, S.B.
Attest: ________________________ By: _____________________________________
Ursula Wilson Barrett J. O'Connor
Secretary President and Chief Executive Officer
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EXHIBIT II
BYLAWS OF
ELGIN FINANCIAL CENTER, S.B.
ARTICLE I. BUSINESS OFFICE
The business office of Elgin Financial Center, S.B. ("Savings Bank") shall
be located at 1695 Larkin Avenue, in the City of Elgin, County of Kane, State of
Illinois.
ARTICLE II. SHAREHOLDERS
Section l. Place of Meetings. All annual and special meetings of
shareholders shall be held at the home office of the Savings Bank or at such
other place in the County in which the principal place of business of the
Savings Bank is located as the board of directors may determine.
Section 2. Annual Meeting. The date of the annual meeting of the
shareholders shall be the third Wednesday in January of each year.
Section 3. Special Meetings. For a period of five years from the date of
the completion of the conversion of the Savings Bank from mutual to stock form,
special meetings of the shareholders relating to a change in control of the
Savings Bank or to an amendment of the Articles of Incorporation of the Savings
Bank may be called only by the board of directors. Thereafter, special meetings
of the shareholders for any purpose or purposes, unless otherwise prescribed by
the regulations of the Commissioner of Banks and Real Estate, State of Illinois
("Commissioner"), 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 the outstanding capital stock
of the Savings Bank entitled to vote at the meeting. Such written request shall
state the purpose or purposes of the meeting and shall be delivered at the home
office of the Savings Bank addressed to the chairman of the board, the president
or the secretary.
Section 4. Conduct of Meetings. Annual and special meetings shall be
conducted in accordance with the most current edition of Robert's Rules of Order
unless otherwise prescribed by the Illinois Savings Bank Act (the "Act") or
regulations of the Commissioner 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. (a) Notice of an annual meeting shall be
published once not fewer than 10 days nor more than 40 days before the date of
the meeting. The notice shall also be posted in a conspicuous place in each
office of the Savings Bank. The notice must state the time, place, and purpose
of the meeting.
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(b) For any special meeting or for any annual meeting that is to consider
any proposition that requires an affirmative vote of two-thirds of the
shareholders or any proposition to amend the Articles of Incorporation of the
Savings Bank, the notice must be by mail, postmarked between 10 and 40 days
before the date of the meeting, and must also be posted at the Savings Bank's
offices as if for an annual meeting, beginning on the date notice is given. All
notices must state the time, place, and purpose of the meeting. If mailed, such
notice shall be deemed to be delivered when deposited in the mail, addressed to
the shareholder at the address as it appears on the stock transfer books or
records of the Savings Bank as of the record date prescribed in Section 6 of
this Article II, with postage prepaid.
(c) 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 40 days and not fewer than 10 days prior to the date on which the
particular action, requiring such determination of shareholders, is to be taken.
When a determination of shareholders entitled to vote at any meeting of
shareholders has been made as provided in this section, such determination shall
apply to any adjournment.
Section 7. Voting Lists. At least 20 days before each meeting of the
shareholders, the officer or agent having charge of the stock transfer books for
shares of the Savings Bank shall make a complete list of the shareholders
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 Savings 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 the 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 paragraph, the board of directors may
elect to follow the procedures prescribed by the Act or in regulations of the
Commissioner as now or hereafter in effect.
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Section 8. Quorum. A majority of the outstanding shares of the Savings
Bank entitled to vote, represented in person or by proxy, shall constitute a
quorum at a meeting of shareholders. If less than a majority of the outstanding
shares is represented at a meeting, a majority of the shares so represented may
adjourn the meeting from time to time without further notice. At such adjourned
meeting at which a quorum shall be present or represented, any business may be
transacted which might have been transacted at the meeting as originally
notified. The shareholders present at a duly organized meeting may continue to
transact business until adjournment, notwithstanding the withdrawal of enough
shareholders to constitute less than a quorum.
Section 9. Proxies. At all meetings of shareholders, a shareholder may
vote by proxy executed in writing by the shareholder or by his duly authorized
attorney in fact. No proxy shall be voted at any meeting unless such proxy
shall have been placed on file with the secretary of the Savings Bank for
verification at least ten (10) business days prior to the date on which such
meeting shall convene. Proxies solicited on behalf of the management shall be
voted as directed by the shareholder or, in the absence of such direction, as
determined by a majority of the board of directors. No proxy shall be valid
more than eleven months from the date of its execution except for a proxy
coupled with an interest.
Section 10. Voting of Shares in the Name of Two or More Persons. When
ownership stands in the name of two or more persons, in the absence of written
directions to the Savings Bank to the contrary, at any meeting of the
shareholders of the Savings Bank any one or more of such shareholders may cast,
in person or by proxy, all votes to which such ownership is entitled. In the
event an attempt is made to cast conflicting votes, in person or by proxy, by
the several persons in whose names shares of stock stand, the vote or votes to
which those persons are entitled shall be cast as directed by a majority of
those holding such and present in person or by proxy at such meeting, but no
votes shall be cast for such stock if a majority cannot agree.
Section 11. Voting of Shares by Certain Holders. Shares standing in the
name of another corporation may be voted by any officer, agent or proxy as the
bylaws of such corporation may prescribe, or, in the absence of such provision,
as the board of directors of such corporation may determine. Shares held by an
administrator, executor, guardian or conservator may be voted by him, either in
person or by proxy, without a transfer of such shares into his name. Shares
standing in the name of a trustee may be voted by him, either in person or by
proxy, but no trustee shall be entitled to vote shares held by him without a
transfer of such shares into his name. Shares standing in the name of a
receiver may be voted by such receiver, and shares held by or under the control
of a receiver may be voted by such receiver without the transfer into his name
if authority to do so is contained in an appropriate order of the court or other
public authority by which such receiver was appointed.
A 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.
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Neither treasury shares of its own stock held by the Savings Bank, nor
shares held by another corporation, if a majority of the shares entitled to vote
for the election of directors of such other corporation are held by the Savings
Bank, shall be voted at any meeting or counted in determining the total number
of outstanding shares at any given time for purposes of any meeting.
Section 12. Cumulative Voting. Shareholders of the Savings Bank shall not
be permitted to cumulate their votes with respect to the election of directors.
Section 13. Inspectors of Election. In advance of any meeting of
shareholders, the board of directors may appoint any persons other than nominees
for office as inspectors of election to act at such meeting or any adjournment.
The number of inspectors shall be either one or three. Any such appointment
shall not be altered at the meeting. If inspectors of election are not so
appointed, the chairman of the board or the president may, or on the request of
not fewer than 10 percent of the votes represented at the meeting shall, make
such appointment at the meeting. If appointed at the meeting, the majority of
the votes present shall determine whether one or three inspectors are to be
appointed. In case any person appointed as inspector fails to appear or fails
or refuses to act, the vacancy may be filled by appointment by the board of
directors in advance of the meeting, or at the meeting by the chairman of the
board or the president.
Unless otherwise prescribed by the Act or regulations of the Commissioner,
the duties of such inspectors shall include: determining the number of shares
and the voting power of each share, the shares represented at the meeting, the
existence of a quorum, and the authenticity, validity and effect of proxies;
receiving votes, ballots, or consents; hearing and determining all challenges
and questions in any way arising in connection with the rights to vote; counting
and tabulating all votes or consents; determining the result; and such acts as
may be proper to conduct the election or vote with fairness to all shareholders.
Section 14. Nominating Committee. The Chairman of the Board, subject to
the approval of the board of directors, may appoint a nominating committee of
not less than three (3) members for selecting the nominees for election as
directors. The nominating committee shall deliver written nominations to the
secretary of the Savings Bank at least ten (10) days prior to the date of the
annual or special meeting at which the election is to take place. No
nominations for directors except those made by the nominating committee shall be
voted upon at the annual or special meeting unless other nominations by
shareholders are made in writing and delivered to the secretary of the Savings
Bank at least five (5) days prior to the date of the annual or special meeting.
Ballots bearing the names of all persons nominated by the nominating committee
and by shareholders shall be provided for use at the annual or special meeting.
However, if the nominating committee shall fail or refuse to act as herein
provided prior to the annual or special meeting, or if no nominating committee
has been appointed, or in the event of death or refusal to serve as a nominee,
nominations for directors may be made at the annual or special meeting by any
shareholder entitled to vote and shall be voted upon.
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Section 15. New Business. Any new business to be taken up at the annual
meeting shall be stated in writing and filed with the secretary of the Savings
Bank at least ten (10) days before the date of the annual meeting, and all
business so stated, proposed, and filed shall be considered at the annual
meeting, but no other proposal shall be acted upon at the annual meeting. Any
shareholder may make any other proposal at the annual meeting and the same may
be discussed and considered, but unless stated in writing and filed with the
secretary at least 5 days before the meeting, such proposal shall be laid over
for action at an adjourned, special, or annual meeting of the shareholders
taking place 30 days or more thereafter. This provision shall not prevent the
consideration and approval or disapproval at the annual meeting of reports of
officers, directors and committees; but in connection with such reports no new
business shall be acted upon at such annual meeting unless stated and filed as
herein provided.
Section 16. Informal Action by Shareholders. Any action required to be
taken at a meeting of shareholders, or any other action which may be taken at a
meeting of the 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 l. General Powers. The business and affairs of the Savings Bank
shall be under the direction of its board of directors. The board of directors
shall annually elect a chairman of the board and a president from among its
members and shall designate, when present, either the chairman of the board or
the president to preside at its meetings.
Section 2. Number and Term. The board of directors shall consist of nine
(9) 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 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 Savings
Bank unless the Savings Bank is a wholly owned subsidiary of a holding company.
Section 5. Special Meetings. Special meetings of the board of directors
may be called by the Commissioner of Banking and Real Estate, or by the
president and the secretary and shall be called by either the president or
secretary upon request in writing signed by a majority of directors. At least
twelve hours' notice must be received by each director of the time, place and
purpose of such meeting. A meeting may be held on shorter notice if all
directors consent. No business shall
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be considered at any special meeting except that specified in the call
without consent of all of the directors.
Section 6. Notice. Written notice of any special meeting shall be given
to each director at least 24 hours prior thereto when delivered personally or by
telegram, or at least five days prior thereto when delivered by mail at the
address at which the director is most likely to be reached. Such notice shall
be deemed to be delivered when deposited in the mail so addressed, with postage
prepaid if mailed, 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 the Act or regulations of
the Commissioner or by these bylaws.
Section 9. Action Without a Meeting. Any action required or permitted to
be taken by the board of directors at a meeting may be taken without a meeting
if a consent in writing, setting forth the action so taken, shall be signed by
all of the directors.
Section 10. Resignation. Any director may resign at any time by sending a
written notice of such resignation to the home office of the Savings Bank
addressed to the chairman of the board or president. Unless otherwise specified
such resignation shall take effect upon receipt by the chairman of the board or
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 in 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.
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Section 12. Advisory Directors. Advisory directors may be appointed and
their compensation for services (in an amount not to exceed those fees paid to
voting directors) determined by resolution of the board of directors of the
Savings Bank. Only former directors of the Savings Bank (including former
directors of other savings banks and associations which have merged with, or
otherwise been acquired by the Savings Bank) shall be eligible to serve as
advisory directors. Advisory directors shall be available for consultation with
an advice to the management of the Savings Bank. Advisory directors may attend
meetings of the board of directors, but shall have no vote on any matter acted
upon by such board.
Section 13. Presumption of Assent. A director of the Savings Bank who is
present at a meeting of the board of directors at which action on any Savings
Bank matter is taken shall be presumed to have assented to the action taken
unless his dissent or abstention shall be entered in the minutes of the meeting
or unless he shall file a written dissent to such action with the person acting
as the secretary of the meeting before the adjournment thereof or shall forward
such dissent by registered mail to the secretary of the Savings Bank within five
days after the date a copy of the minutes of the meeting is received. Such
right to dissent shall not apply to a director who voted in favor of such
action.
Section 14. Removal of Directors. At a meeting of shareholders called
expressly for that purpose, any director may be removed for cause by a vote of
the holders of a majority of the shares then entitled to vote at an election of
directors. Whenever the holders of the shares of any class are entitled to
elect one or more directors by the provisions of the Articles of Incorporation
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.
Section 15. Age Limitation. No person shall be eligible for election,
reelection, appointment, or reappointment to the board of directors of the
Savings Bank if such person is then more than 70 years of age. No directors
shall serve beyond the annual meeting of the Savings Bank immediately following
his attainment of 70 years of age. This age limitation shall not apply to a
person serving as an advisory director of the Savings Bank.
Section 16. Indemnification. Every person shall be indemnified or
reimbursed by the Savings Bank for reasonable expenses including liabilities
(other than adjudicated liabilities to the Savings Bank) actually incurred by
him in connection with any action, suit or proceeding, civil or criminal to
which he is a party by reason of the fact that he or she is or was a Director or
Officer of the Savings Bank or is or was serving, at the request of the Savings
Bank or because of his or her capacity as an Officer or Director of the Savings
Bank, as a Director or officer of any other corporation or organization;
provided, however, (1) that no person shall be so indemnified or reimbursed in
relation to any matter in such action, suit or proceeding as to which he or she
shall have been finally adjudged guilty of or liable for willful misconduct,
gross neglect of duty, or criminal acts in the performance of his duties to the
Savings Bank; (2) that no person is subject to an Order of Removal, Suspension,
or Industry wide Prohibition; (3) that no person is subject to a
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final order assessing civil money penalties or requiring affirmative action
by an individual or individuals in the form of payments to a Savings Bank;
and (4) that no person shall be so indemnified or reimbursed for amounts paid
in compromise settlement of any matter in such action, suit or proceeding
except with the approval of (a) a court of competent jurisdiction, or (b) the
holders of a majority of the outstanding shares of the Savings Bank, or (c)
the Board of Directors acting by a vote of Directors not parties to the same
or substantially the same suit or proceeding, constituting a majority of the
whole number of the Directors. The Savings Bank may purchase and maintain
insurance against its liability to indemnify any person pursuant to the
preceding sentence, and may purchase and maintain insurance on behalf of any
such person against any liability asserted against him or her or expense or
liability incurred by him or her in, or arising out of, any capacity
described in the preceding sentence whether or not he or she is entitled to
indemnification from the Savings Bank under the provisions of such sentence,
provided, however, that the Savings Bank may not pay premiums for insurance
for indemnification of any such person in respect of matters as to which he
or she is adjudged guilty of or liable for willful misconduct, gross neglect
of duty or criminal acts. Notwithstanding the foregoing provisions of this
Bylaw, it is intended hereby to afford the Officers and Directors of the
Savings Bank indemnity to the highest degree permitted or contemplated by any
policy of indemnity or liability insurance carried by the Savings Bank. The
foregoing right of indemnification or reimbursement shall not be exclusive of
other rights to which such persons may be entitled as a matter of law.
Section 17. Director Liability. A director is not personally liable to
the Savings Bank or its shareholders for monetary damages for breach of their
fiduciary duty; provided, however, that such liability is not eliminated or
limited for any of the following:
A. An act or omission that is grossly negligent;
B. A breach of the duty of loyalty to the Savings Bank or its
shareholders;
C. Acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law;
D. A transaction from which the director derived an improper personal
benefit; or
E. An act or omission occurring before the effective date of this Section
17 of Article 3, of the bylaws of the Savings Bank.
ARTICLE IV. EXECUTIVE AND OTHER COMMITTEES
Section l. Appointment. The Chairman of the Board shall appoint all
committees, standing or special, as may be deemed necessary to carry out the
corporate powers of the Savings Bank and shall provide for the filling of
vacancies on such committees.
Section 2. Authority. The executive committee, when the board of
directors is not in session, shall have and may exercise all of the authority of
the board of directors except to the extent, if any, that such authority shall
be limited by the resolution appointing the executive committee; and except also
that the executive committee shall not have the authority of the board of
directors with reference to: the declaration of dividends; the amendment of the
Articles of Incorporation or bylaws
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of the Savings Bank, or recommending to the shareholders a plan of merger,
consolidation, or conversion; the sale, lease or other disposition of all or
substantially all of the property and assets of the Savings Bank otherwise
than in the usual and regular course of its business; a voluntary dissolution
of the Savings Bank; a revocation of any of the foregoing; or the approval of
a transaction in which any member of the executive committee, directly or
indirectly, has any material beneficial interest.
Section 3. Tenure. Subject to the provisions of Section 8 of this Article
IV, each member of the executive committee shall hold office until the next
regular annual meeting of the board of directors following his or her
designation and until a successor is designated as a member of the executive
committee.
Section 4. Meetings. Regular meetings of the executive committee may be
held without notice at such times and places as the executive committee may fix
from time to time by resolution. Special meetings of the executive committee
may be called by any member thereof upon not less than one day's notice stating
the place, date and hour of the meeting, which notice may be written or oral.
Any member of the executive committee may waive notice of any meeting and no
notice of any meeting need be given to any member thereof who attends in person.
The notice of a meeting of the executive committee need not state the business
proposed to be transacted at the meeting.
Section 5. Quorum. A majority of the members of the executive committee
shall constitute a quorum for the transaction of business at any meeting
thereof, and action of the executive committee must be authorized by the
affirmative vote of a majority of the members present at a meeting at which a
quorum is present.
Section 6. Action Without a Meeting. Any action required or permitted to
be taken by the executive committee at a meeting may be taken without a meeting
if a consent in writing, setting forth the action so taken, shall be signed by
all of the members of the executive committee.
Section 7. Vacancies. Any vacancy in the executive committee may be
filled by a resolution adopted by a majority of the full board of directors.
Section 8. Resignations and Removal. Any member of the executive
committee may be removed at any time with or without cause by resolution adopted
by a majority of the full board of directors. Any member of the executive
committee may resign from the executive committee at any time by giving written
notice to the president or secretary of the Savings Bank. Unless otherwise
specified, such resignation shall take effect upon its receipt; the acceptance
of such resignation shall not be necessary to make it effective.
Section 9. Procedure. The executive committee shall elect a presiding
officer from its members and may fix its own rules of procedure which shall not
be inconsistent with these bylaws. It shall keep regular minutes of its
proceedings and report the same to the board of directors for its information at
the meeting held next after the proceedings shall have occurred.
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Section 10. Other Committees. The board of directors may by resolution
establish an audit, loan, or other committees composed of directors as they may
determine to be necessary or appropriate for the conduct of the business of the
Savings Bank and may prescribe the duties, constitution and procedures thereof.
ARTICLE V. OFFICERS
Section l. Positions - Election - Duties. The officers of the Savings Bank
shall consist of a president, one or more vice presidents, a secretary and a
treasurer, who shall have such powers and duties as may be assigned to them by
law or these Bylaws. Any two or more offices may be held by the same person
except that one person shall not hold the offices of president and secretary.
The directors may leave unfilled any office except those of present, vice
president, secretary and treasurer. In addition to the foregoing offices, there
may be elected one or more assistant secretaries and assistant treasurers, or an
assistant secretary and treasurer, whose duties shall be to assist the principal
secretary and treasurer or secretary and treasurer and in the absence of such
principal officers or in the case of their inability to act, such assistants
shall be vested with all of the powers and duties of their respective
principals. Any one of such officers may be designated to act as the executive
officer of the Savings Bank. All officers shall hold office until their
successors are elected and qualified.
President. The president (in the absence of resolution of the Board to the
contrary) shall preside at all meetings of the shareholders and directors and
shall be an ex officio member of all committees. He shall advise and assist all
officers of the Savings Bank in the discharge of their duties.
Vice President. The seniority of the vice presidents shall be determined
at the time they are elected, and they shall preside at meetings and serve in
the absence of the president according to such rank. They shall perform the
duties of the president in case of his/her absence or inability to act, and
assist the president and executive officer in the discharge of their duties as
the directors may determine. The directors may designate additional duties to
be performed by the vice president.
Secretary. The secretary shall keep the minutes of the meetings of the
shareholders and of the directors; be custodian of the seal of the corporation
and see that the seal is affixed to all documents the execution of which
requires the same; keep a record of the names and addresses of the officers and
directors, including any changes thereof, and notify the Commissioner of Banks
and Real Estate of any such change and in general perform all duties incident to
the office of the secretary.
Treasurer. The treasurer, with the approval of the directors, shall
designate the bank or banks to be used as depositories for the funds of the
Savings Bank. He/she shall exercise all duties incident to the office of
treasurer and shall have additional duties as may be assigned to him/her by the
directors.
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Executive Officer - Title, Powers and Duties. The President shall be the
executive officer of the Savings Bank. In addition to his other powers and
duties, he shall be responsible for the following: keeping the books and
accounts, receiving and safekeeping all monies, securities and other property of
the Savings Bank; accounting for all receipts, fees and charges of every
character for services on behalf of the Savings Bank to any member or
prospective member; recording conveyances to the Savings Bank, mortgages and
other papers required to be recorded; such action from time to time as may be
necessary to keep insured the interests of the Savings Bank in any property;
protection of the interests of the Savings Bank in all tax or special assessment
sales, forfeitures or foreclosures; reports of the financial condition of the
Savings Bank at the annual meeting of the members and meetings of the directors;
filing annual and such other reports with the Commissioner of Banks and Real
Estate as may be required, including the publication thereof, causing notices
for annual and special meetings in accordance with legal requirements; and
keeping records of any transaction that directors, officers, employees, or
agents may have in connection with the Savings Bank's shares or other property,
it being incumbent upon them to report the same to him/her.
Section 2. Election and Term of Office. The officers of the Savings Bank
shall be elected annually at the first meeting of the board of directors held
after each annual meeting of the shareholders. If the election of officers is
not held at such meeting, such election shall be held as soon thereafter as
possible. Each officer shall hold office until a successor has been duly
elected and qualified or until the officer's death, resignation or removal in
the manner hereinafter provided. Election or appointment of an officer,
employee or agent shall not of itself create contractual rights. The board of
directors may authorize the Savings Bank to enter into an employment contract
with any officer in accordance with the Act or regulations of the Commissioner;
but no such contract shall impair the right of the board of directors to remove
any officer at any time in accordance with Section 3 of this Article V.
Section 3. Removal. Any officer may be removed by the board of directors
whenever in its judgment the best interests of the Savings Bank will be served
thereby, but such removal, other than for cause, shall be without prejudice to
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.
Section 6. Age Limitation. No person shall be eligible for election,
reelection, appointment, or reappointment as an officer of the Savings Bank if
such person is then more than 70 years of age. No officer shall serve beyond
the annual meeting of the Savings Bank immediately following his attainment of
70 years of age.
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ARTICLE VI. CONTRACTS, LOANS, CHECKS AND DEPOSITS
Section l. Contracts. To the extent permitted by the Act or the
regulations of the Commissioner, and except as otherwise prescribed by these
bylaws with respect to certificates for shares, the board of directors may
authorize any officer, employee, or agent of the Savings Bank to enter into any
contract or execute and deliver any instrument in the name of and on behalf of
the Savings Bank. Such authority may be general or confined to specific
instances.
Section 2. Loans. No loans shall be contracted on behalf of the Savings
Bank and no evidence of indebtedness shall be issued in its name unless
authorized by the board of directors. Such authority may be general or confined
to specific instances.
Section 3. Checks, Drafts, Etc. All checks, drafts or other orders for
the payment of money, notes or other evidences of indebtedness issued in the
name of the Savings Bank shall be signed by one or more officers, employees or
agents of the Savings Bank in such manner as shall from time to time be
determined by the board of directors.
Section 4. Deposits. All funds of the Savings Bank not otherwise employed
shall be deposited from time to time to the credit of the Savings Bank in any
duly authorized depositories as the board of directors may select.
ARTICLE VII. CERTIFICATES FOR SHARES
AND THEIR TRANSFER
Section l. Certificates for Shares. Certificates representing shares of
capital stock of the Savings Bank shall be in such form as shall be determined
by the board of directors in accordance with the Act or the regulations of the
Commissioner. Such certificates shall be signed by the chief executive officer
or by any other officer of the Savings Bank authorized by the board of
directors, attested by the secretary or an assistant secretary, and sealed with
the corporate seal or a facsimile thereof. The signatures of such officers upon
a certificate may be facsimiles if the certificate is manually signed on behalf
of a transfer agent or a registrar, other than the Savings Bank itself or one of
its employees. Each certificate for shares of capital stock shall be
consecutively numbered or otherwise identified. The name and address of the
person to whom the shares are issued, with the number of shares and date of
issue, shall be entered on the stock transfer books of the Savings Bank. All
certificates surrendered to the Savings Bank for transfer shall be canceled and
no new certificate shall be issued until the former certificate for a like
number of shares has been surrendered and canceled, except that in case of a
lost or destroyed certificate, a new certificate may be issued upon such terms
and indemnity to the Savings Bank as the board of directors may prescribe.
Section 2. Transfer of Shares. Transfer of shares of capital stock of the
Savings Bank shall be made only on its stock transfer books. Authority for such
transfer shall be given only by the holder of record or by his legal
representative, who shall furnish proper evidence of such authority, or by his
attorney authorized by a duly executed power of attorney and filed with the
Savings Bank.
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Such transfer shall be made only on surrender for cancellation of
the certificate for such shares. The person in whose name shares of capital
stock stand on the books of the Savings Bank shall be deemed by the Savings Bank
to be the owner for all purposes.
ARTICLE VIII. EXECUTION OF INSTRUMENTS
The president, or a vice president, and secretary, or an assistant
secretary, shall sign all documents and instruments in writing required by the
directors or authorized by them to be executed on behalf of the Savings Bank.
Acting jointly with the secretary, or an assistant secretary, the president, or
a vice president, may release or partially release mortgages upon the repayment
in full or partial payment of loans.
ARTICLE IX. CAPITAL ACCOUNTS
If authorized by the Articles of Incorporation or by an amendment thereto,
capital stock shares may be issued in the amount set forth in the Articles of
Incorporation and shall be in conformity with all applicable provisions of the
Savings Bank Act and these Bylaws relating to same.
Cash dividends may be declared annually, semiannually or quarterly on
capital stock shares in accordance with the Savings Bank Act. A stock dividend
may be declared out of undivided profits at any time.
ARTICLE X. DEPOSIT ACCOUNTS
Deposit accounts may be issued on such terms as the board of directors may
prescribe and shall be in accord with all applicable laws and regulations. The
Board of Directors shall have power to reject any application for a savings
account.
ARTICLE XI. FISCAL YEAR; ANNUAL AUDIT
The fiscal year of the Savings Bank shall end on December 31 of each year.
The Savings 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 XII. DIVIDENDS
Subject to the terms of the Savings Bank's Articles of Incorporation, the
Act and the regulations and orders of the Commissioner, the board of directors
may, from time to time, declare, and the Savings Bank may pay, dividends on its
outstanding shares of capital stock.
ARTICLE XIII. CORPORATE SEAL
The board of directors shall provide a Savings Bank seal, which shall be a
disk with the words "Elgin Financial Center, SB" in the margin and "Incorporated
1924 Seal" in the center, and shall be in the custody of the Secretary.
ARTICLE XIV. AMENDMENTS
These bylaws may be amended or repealed and new Bylaws may be adopted at
any meeting of the directors by a majority vote of the directors present at the
meeting, but, no amendment shall be effective until approved by the Commissioner
of Banks and Real Estate in accordance with the Savings Bank Act. Provided,
however, that no vote shall be taken upon a proposed amendment or repeal or the
adoption of new Bylaws, unless and until the directors have been notified in
writing of such proposal and furnished with a copy of the proposed amendment or
new Bylaws at least 48 hours prior to the meeting.
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Exhibit 3.1 Certificate of Incorporation of EFC Bancorp, Inc.
<PAGE>
State of Delaware
Office of the Secretary of State PAGE 1
________________________________
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF
DELAWARE, DO HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT
COPY OF THE CERTIFICATE OF INCORPORATION OF "EFC BANCORP, INC.",
FILED IN THIS OFFICE ON THE TENTH DAY OF OCTOBER, A.D. 1997,
AT 4:20 O'CLOCK P.M.
A CERTIFIED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO
THE NEW CASTLE COUNTY RECORDER OF DEEDS FOR RECORDING.
/s/ Edward J. Freel
[SEAL] ___________________________________
Edward J. Freel, Secretary of State
2807431 8100 AUTHENTICATION: 8699751
971343775 DATE: 10-14-97
<PAGE>
CERTIFICATE OF INCORPORATION
OF
EFC BANCORP, INC.
FIRST: The name of the Corporation is EFC Bancorp, 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 the State of Delaware.
FOURTH:
A. The total number of shares of all classes of stock which the
Corporation shall have authority to issue is twenty-seven million
(27,000,000) consisting of:
1. Two million (2,000,000) shares of Preferred Stock, par value one
cent ($.01) per share (the "Preferred Stock"); and
2. Twenty-five million (25,000,000) shares of Common Stock, par
value one cent ($.01) per share (the "Common Stock").
B. The Board of Directors is authorized, subject to any limitations
prescribed by law, to provide for the issuance of the shares of Preferred
Stock in series, and by filing a certificate pursuant to the applicable law
of the State of Delaware (such certificate being hereinafter referred to as
a "Preferred Stock Designation"), to establish from time to time the number
of shares to be included in each such series, and to fix the designation,
powers, preferences, and rights of the shares of each such series and any
qualifications, limitations or restrictions thereof. The number of
authorized shares of Preferred Stock may be increased or decreased (but not
below the number of shares thereof then outstanding) by the affirmative
vote of the holders of a majority of the Common Stock, without a vote of
the holders of the Preferred Stock, or of any series thereof, unless a vote
of any such holders is required pursuant to the terms of any Preferred
Stock Designation.
C. 1. Notwithstanding any other provision of this Certificate 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
<PAGE>
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 by any record owner by virtue of the provisions
hereof in respect of Common Stock beneficially owned by such
person beneficially owning shares in excess of the Limit
shall be a number equal to the total number of votes which a
single record owner of all Common Stock beneficially owned
by such person would be entitled to cast, (subject to the
provisions of this Article FOURTH) multiplied by a fraction,
the numerator of which is the number of shares of such class
or series which are both beneficially owned by such person
and owned of record by such record owner and the denominator
of which is the total number of shares of Common Stock
beneficially owned by such person owning shares in excess of
the Limit.
2. The following definitions shall apply to this Section C of
this Article FOURTH:
a. "Affiliate" shall have the meaning ascribed to it in
Rule 12b-2 of the General Rules and Regulations under
the Securities Exchange Act of 1934, as amended, as in
effect on the date of filing of this Certificate of
Incorporation.
b. "Beneficial ownership" shall be determined pursuant to
Rule 13d-3 of the General Rules and Regulations under
the Securities Exchange Act of 1934, as amended, (or
any successor rule or statutory provision), or, if said
Rule 13d-3 shall be rescinded and there shall be no
successor rule or provision thereto, pursuant to said
Rule 13d-3 as in effect on the date of filing of this
Certificate of Incorporation; provided, however, that a
person shall, in any event, also be deemed the
"beneficial owner" of any Common Stock:
(1) which such person or any of its affiliates
beneficially owns, directly or indirectly; or
(2) which such person or any of its affiliates has:
(i) the right to acquire (whether such right is
exercisable immediately or only after the passage
of time), pursuant to any agreement, arrangement
or understanding (but shall not be deemed to be
the beneficial owner of any voting shares solely
by reason of an agreement, contract, or other
arrangement with this Corporation to effect any
transaction which is described in any one or more
of clauses 1 through 5 of
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Section A of Article EIGHTH of this Certificate of
Incorporation ("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; and provided further, however, that:
(1) no Director or Officer of this Corporation (or
any Affiliate of any such Director or Officer)
shall, solely by reason of any or all of such
Directors or Officers acting in their capacities
as such, be deemed, for any purposes hereof, to
beneficially own any Common Stock beneficially
owned by any other such Director or Officer (or
any Affiliate thereof); and (2) neither any
employee stock ownership or similar plan of this
Corporation or any subsidiary of this Corporation,
nor any trustee with respect thereto or any
Affiliate of such trustee (solely by reason of
such capacity of such trustee), shall be deemed,
for any purposes hereof, to beneficially own any
Common Stock held under any such plan. For
purposes only of computing the percentage of
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
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to any agreement, or upon the exercise of
conversion rights, warrants or options, or
otherwise.
c. The "Limit" shall mean 10% of the then-outstanding
shares of Common Stock.
d. A "person" shall include an individual, a firm, a group
acting in concert, a corporation, a partnership, an
association, a joint venture, a pool, a joint stock
company, a trust, an unincorporated organization or
similar company, a syndicate or any other group formed
for the purpose of acquiring, holding or disposing of
securities or any other entity.
3. The Board of Directors shall have the power to construe and
apply the provisions of this section and to make all
determinations necessary or desirable to implement such
provisions, including but not limited to matters with
respect to: (i) the number of shares of Common Stock
beneficially owned by any person; (ii) whether a person is
an affiliate of another; (iii) whether a person has an
agreement, arrangement, or understanding with another as to
the matters referred to in the definition of beneficial
ownership; (iv) the application of any other definition or
operative provision of the section to the given facts; or
(v) any other matter relating to the applicability or effect
of this section.
4. The Board of Directors shall have the right to demand that
any person who is reasonably believed to beneficially own
Common Stock in excess of the Limit (or holds of record
Common Stock beneficially owned by any person in excess of
the Limit) supply the Corporation with complete information
as to: (i) the record owner(s) of all shares beneficially
owned by such person who is reasonably believed to own
shares in excess of the Limit; and (ii) any other factual
matter relating to the applicability or effect of this
section as may reasonably be requested of such person.
5. Except as otherwise provided by law or expressly provided in
this Section C, the presence, in person or by proxy, of the
holders of record of shares of capital stock of the
Corporation entitling the holders thereof to cast a majority
of the votes (after giving effect, if required, to the
provisions of this Section C) entitled to be cast by the
holders of shares of capital stock of the Corporation
entitled to vote shall constitute a quorum at all meetings
of the stockholders, and every reference in this Certificate
of Incorporation to a majority or other proportion of
capital stock (or the holders thereof) for purposes of
determining any quorum requirement or any requirement for
stockholder consent or approval shall
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<PAGE>
be deemed to refer to such majority or other proportion of
the votes (or the holders thereof) then entitled to be cast
in respect of such capital stock.
6. Any constructions, applications, or determinations made by
the Board of Directors pursuant to this section in good
faith and on the basis of such information and assistance as
was then reasonably available for such purpose shall be
conclusive and binding upon the Corporation and its
stockholders.
7. In the event any provision (or portion thereof) of this
Section C shall be found to be invalid, prohibited or
unenforceable for any reason, the remaining provisions (or
portions thereof) of this Section shall remain in full force
and effect, and shall be construed as if such invalid,
prohibited or unenforceable provision had been stricken
herefrom or otherwise rendered inapplicable, it being the
intent of this Corporation and its stockholders that each
such remaining provision (or portion thereof) of this
Section C remain, to the fullest extent permitted by law,
applicable and enforceable as to all stockholders, including
stockholders owning an amount of stock over the Limit,
notwithstanding any such finding.
FIFTH: The following provisions are inserted for the management of the
business and the conduct of the affairs of the Corporation, and for further
definition, limitation and regulation of the powers of the Corporation and of
its Directors and stockholders:
A. The business and affairs of the Corporation shall be managed by
or under the direction of the Board of Directors. In addition to the
powers and authority expressly conferred upon them by statute or by this
Certificate of Incorporation or the Bylaws of the Corporation, the
Directors are hereby empowered to exercise all such powers and do all such
acts and things as may be exercised or done by the Corporation.
B. The Directors of the Corporation need not be elected by written
ballot unless the Bylaws so provide.
C. Any action required or permitted to be taken by the stockholders
of the Corporation must be effected at a duly called annual or special
meeting of stockholders of the Corporation and may not be effected by any
consent in writing by such stockholders.
D. Special meetings of stockholders of the Corporation may be called
only by the Board of Directors pursuant to a resolution adopted by a
majority of the Whole Board or as otherwise provided in the Bylaws. The
term "Whole Board" shall mean the total number of authorized directorships
(whether or not there exist any vacancies in previously authorized
directorships at the time any such resolution is presented to the Board for
adoption).
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SIXTH:
A. The number of Directors shall be fixed from time to time
exclusively by the Board of Directors pursuant to a resolution adopted by a
majority of the Whole Board. The Directors shall be divided into three
classes, as nearly equal in number as reasonably possible, with the term of
office of the first class to expire at the first annual meeting of
stockholders, the term of office of the second class to expire at the
annual meeting of stockholders one year thereafter and the term of office
of the third class to expire at the annual meeting of stockholders two
years thereafter with each Director to hold office until his or her
successor shall have been duly elected and qualified. At each annual
meeting of stockholders following such initial classification and election,
Directors elected to succeed those Directors whose terms expire shall be
elected for a term of office to expire at the third succeeding annual
meeting of stockholders after their election with each Director to hold
office until his or her successor shall have been duly elected and
qualified.
B. Subject to the rights of holders of any series of Preferred Stock
outstanding, the newly created directorships resulting from any increase in
the authorized number of Directors or any vacancies in the Board of
Directors resulting from death, resignation, retirement, disqualification,
removal from office or other cause may be filled only by a majority vote of
the Directors then in office, though less than a quorum, and Directors so
chosen shall hold office for a term expiring at the annual meeting of
stockholders at which the term of office of the class to which they have
been chosen expires. No decrease in the number of Directors constituting
the Board of Directors shall shorten the term of any incumbent Director.
C. Advance notice of stockholder nominations for the election of
Directors and of business to be brought by stockholders before any meeting
of the stockholders of the Corporation shall be given in the manner
provided in the Bylaws of the Corporation.
D. Subject to the rights of holders of any series of Preferred Stock
then outstanding, any Director, or the entire Board of Directors, may be
removed from office at any time, but only for cause and only by the
affirmative vote of the holders of at least 80 percent of the voting power
of all of the then-outstanding shares of capital stock of the Corporation
entitled to vote generally in the election of Directors (after giving
effect to the provisions of Article FOURTH of this Certificate of
Incorporation ("Article FOURTH")), voting together as a single class.
SEVENTH: The Board of Directors is expressly empowered to adopt, amend or
repeal Bylaws of the Corporation. Any adoption, amendment or repeal of the
Bylaws of the Corporation by the Board of Directors shall require the approval
of a majority of the Whole Board. The stockholders shall also have power to
adopt, amend or repeal the Bylaws of the Corporation; provided, however, that,
in addition to any vote of the holders of any class or series of stock of this
Corporation required by law or by this Certificate of Incorporation, the
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<PAGE>
affirmative vote of the holders of at least 80 percent of the voting power of
all of the then-outstanding shares of the capital stock of the Corporation
entitled to vote generally in the election of Directors (after giving effect to
the provisions of Article FOURTH), voting together as a single class, shall be
required to adopt, amend or repeal any provisions of the Bylaws of the
Corporation.
EIGHTH:
A. In addition to any affirmative vote required by law or this
Certificate of Incorporation, and except as otherwise expressly provided in
this Article EIGHTH:
1. any merger or consolidation of the Corporation or any
Subsidiary (as hereinafter defined) with: (i) any
Interested Stockholder (as hereinafter defined); or (ii) any
other corporation (whether or not itself an Interested
Stockholder) which is, or after such merger or consolidation
would be, an Affiliate (as hereinafter defined) of an
Interested Stockholder; or
2. any sale, lease, exchange, mortgage, pledge, transfer or
other disposition (in one transaction or a series of
transactions) to or with any Interested Stockholder, or any
Affiliate of any Interested Stockholder, of any assets of
the Corporation or any Subsidiary having an aggregate Fair
Market Value (as hereinafter defined) equaling or exceeding
25% or more of the combined assets of the Corporation and
its Subsidiaries; or
3. the issuance or transfer by the Corporation or any
Subsidiary (in one transaction or a series of transactions)
of any securities of the Corporation or any Subsidiary to
any Interested Stockholder or any Affiliate of any
Interested Stockholder in exchange for cash, securities or
other property (or a combination thereof) having an
aggregate Fair Market Value (as hereinafter defined)
equaling or exceeding 25% of the combined Fair Market Value
of the outstanding common stock of the Corporation and its
Subsidiaries, except for any issuance or transfer pursuant
to an employee benefit plan of the Corporation or any
Subsidiary thereof; or
4. the adoption of any plan or proposal for the liquidation or
dissolution of the Corporation proposed by or on behalf of
an Interested Stockholder or any Affiliate of any Interested
Stockholder; or
5. any reclassification of securities (including any reverse
stock split), or recapitalization of the Corporation, or any
merger or consolidation of the Corporation with any of its
Subsidiaries or any other transaction (whether or not with
or into or otherwise involving an Interested Stockholder)
which has the effect, directly or indirectly, of increasing
7
<PAGE>
the proportionate share of the outstanding shares of any
class of equity or convertible securities of the Corporation
or any Subsidiary which is directly or indirectly owned by
any Interested Stockholder or any Affiliate of any
Interested Stockholder;
shall require the affirmative vote of the holders of at least 80% of the
voting power of the then-outstanding shares of stock of the Corporation
entitled to vote in the election of Directors (the "Voting Stock") (after
giving effect to the provisions of Article FOURTH), voting together as a
single class. Such affirmative vote shall be required notwithstanding the
fact that no vote may be required, or that a lesser percentage may be
specified, by law or by any other provisions of this Certificate of
Incorporation or any Preferred Stock Designation in any agreement with any
national securities exchange or otherwise.
The term "Business Combination" as used in this Article EIGHTH shall
mean any transaction which is referred to in any one or more of paragraphs
1 through 5 of Section A of this Article EIGHTH.
B. The provisions of Section A of this Article EIGHTH shall not be
applicable to any particular Business Combination, and such Business
Combination shall require only the affirmative vote of the majority of the
outstanding shares of capital stock entitled to vote after giving effect to
the provisions of Article FOURTH, or such vote (if any), as is required by
law or by this Certificate of Incorporation, if, in the case of any
Business Combination that does not involve any cash or other consideration
being received by the stockholders of the Corporation solely in their
capacity as stockholders of the Corporation, the condition specified in the
following paragraph 1 is met or, in the case of any other Business
Combination, all of the conditions specified in either of the following
paragraphs 1 or 2 are met:
1. The Business Combination shall have been approved by a majority
of the Disinterested Directors (as hereinafter defined).
2. All of the following conditions shall have been met:
a. The aggregate amount of the cash and the Fair Market Value
as of the date of the consummation of the Business
Combination of consideration other than cash to be received
per share by the holders of Common Stock in such Business
Combination shall at least be equal to the higher of the
following:
(1) (if applicable) the Highest Per Share Price (as
hereinafter defined), including any brokerage
commissions, transfer taxes and soliciting dealers'
fees, paid by the Interested Stockholder or any of its
Affiliates for any shares of Common Stock acquired by
it: (i) within the two-year period immediately prior
to the first public
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<PAGE>
announcement of the proposal of the Business
Combination (the "Announcement Date"); or (ii) in the
transaction in which it became an Interested
Stockholder, whichever is higher; or
(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; or
(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; or
(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
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form used to acquire the largest number of shares of such
class of Voting Stock previously acquired by the Interested
Stockholder. The price determined in accordance with
subparagraph B.2 of this Article EIGHTH shall be subject to
appropriate adjustment in the event of any stock dividend,
stock split, combination of shares or similar event.
d. After such Interested Stockholder has become an Interested
Stockholder and prior to the consummation of such Business
Combination: (1) except as approved by a majority of the
Disinterested Directors (as hereinafter defined), there
shall have been no failure to declare and pay at the regular
date therefor any full quarterly dividends (whether or not
cumulative) on any outstanding stock having preference over
the Common Stock as to dividends or liquidation; (2) there
shall have been: (i) no reduction in the annual rate of
dividends paid on the Common Stock (except as necessary to
reflect any subdivision of the Common Stock), except as
approved by a majority of the Disinterested Directors; and
(ii) an increase in such annual rate of dividends as
necessary to reflect any reclassification (including any
reverse stock split), recapitalization, reorganization or
any similar transaction which has the effect of reducing the
number of outstanding shares of the Common Stock, unless the
failure to so increase such annual rate is approved by a
majority of the Disinterested Directors, and (3) neither
such Interested Stockholder or any of its Affiliates shall
have become the beneficial owner of any additional shares of
Voting Stock except as part of the transaction which results
in such Interested Stockholder becoming an Interested
Stockholder.
e. After such Interested Stockholder has become an Interested
Stockholder, such Interested Stockholder shall not have
received the benefit, directly or indirectly (except
proportionately as a stockholder), of any loans, advances,
guarantees, pledges or other financial assistance or any tax
credits or other tax advantages provided, directly or
indirectly, by the Corporation, whether in anticipation of
or in connection with such Business Combination or
otherwise.
f. A proxy or information statement describing the proposed
Business Combination and complying with the requirements of
the Securities Exchange Act of 1934, as amended, and the
rules and regulations thereunder (or any subsequent
provisions replacing such Act, and the rules or regulations
thereunder) shall be mailed to stockholders of the
Corporation at least 30 days prior to the consummation of
such Business Combination (whether or not such proxy or
information statement is required to be mailed pursuant to
such Act or subsequent provisions).
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C. For the purposes of this Article EIGHTH:
1. A "Person" shall include an individual, a firm, a group
acting in concert, a corporation, a partnership, an
association, a joint venture, a pool, a joint stock company,
a trust, an unincorporated organization or similar company,
a syndicate or any other group formed for the purpose of
acquiring, holding or disposing of securities or any other
entity.
2. "Interested Stockholder" shall mean any person (other than
the Corporation or any Holding Company or Subsidiary
thereof) who or which:
a. is the beneficial owner, directly or indirectly, of
more than 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, as amended.
3. For purposes of this Article EIGHTH, "beneficial ownership"
shall be determined in the manner provided in Section C of
Article FOURTH hereof.
4. "Affiliate" and "Associate" shall have the respective
meanings ascribed to such terms in Rule 12b-2 of the General
Rules and Regulations under the Securities Exchange Act of
1934, as in effect on the date of filing of this Certificate
of Incorporation.
5. "Subsidiary" means any corporation of which a majority of
any class of equity security is owned, directly or
indirectly, by the Corporation; provided, however, that for
the purposes of the definition of Interested Stockholder set
forth in Paragraph 2 of this Section C, the term
"Subsidiary" shall mean only a corporation of which a
majority of each
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class of equity security is owned, directly or indirectly,
by the Corporation.
6. "Disinterested Director" means any member of the Board of
Directors who is unaffiliated with the Interested
Stockholder and was a member of the Board of Directors prior
to the time that the Interested Stockholder became an
Interested Stockholder, and any Director who is thereafter
chosen to fill any vacancy of the Board of Directors or who
is elected and who, in either event, is unaffiliated with
the Interested Stockholder and in connection with his or her
initial assumption of office is recommended for appointment
or election by a majority of Disinterested Directors then on
the Board of Directors.
7. "Fair Market Value" means:
a. in the case of stock, the highest closing sales price
of the stock during the 30-day period immediately
preceding the date in question of a share of such stock
on the National Association of Securities Dealers
Automated Quotation System or any system then in use,
or, if such stock is admitted to trading on a principal
United States securities exchange registered under the
Securities Exchange Act of 1934, as amended, Fair
Market Value shall be the highest sale price reported
during the 30-day period preceding the date in
question, or, if no such quotations are available, the
Fair Market Value on the date in question of a share of
such stock as determined by the Board of Directors in
good faith, in each case with respect to any class of
stock, appropriately adjusted for any dividend or
distribution in shares of such stock or any stock split
or reclassification of outstanding shares of such stock
into a greater number of shares of such stock or any
combination or reclassification of outstanding shares
of such stock into a smaller number of shares of such
stock; and
b. in the case of property other than cash or stock, the
Fair Market Value of such property on the date in
question as determined by the Board of Directors in
good faith.
8. Reference to "Highest Per Share Price" shall in each case
with respect to any class of stock reflect an appropriate
adjustment for any dividend or distribution in shares of
such stock or any stock split or reclassification of
outstanding shares of such stock into a greater number of
shares of such stock or any combination or reclassification
of outstanding shares of such stock into a smaller number of
shares of such stock.
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9. In the event of any Business Combination in which the
Corporation survives, the phrase "consideration other than
cash to be received" as used in Subparagraphs (a) and (b) of
Paragraph 2 of Section B of this Article EIGHTH shall
include the shares of Common Stock and/or the shares of any
other class of outstanding Voting Stock retained by the
holders of such shares.
D. A majority of the 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 Fair Market Value of the
Common Stock of the Corporation and its Subsidiaries. A majority of the
Disinterested Directors shall have the further power to interpret all of
the terms and provisions of this Article EIGHTH.
E. Nothing contained in 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 percent of the voting power
of all of the then-outstanding shares of the Voting Stock (after giving
effect to the provisions of Article FOURTH), voting together as a single
class, shall be required to alter, amend or repeal this Article EIGHTH.
NINTH: The Board of Directors of the Corporation, when evaluating any
offer of another Person (as defined in Article EIGHTH hereof) to: (A) make a
tender or exchange offer for any equity security of the Corporation; (B) merge
or consolidate the Corporation with another corporation or entity; or (C)
purchase or otherwise acquire all or substantially all of the properties and
assets of the Corporation, may, in connection with the exercise of its judgment
in determining what is in the best interest of the Corporation and its
stockholders, give due consideration to all relevant factors, including, without
limitation, those factors that Directors of any subsidiary of the Corporation
may consider in evaluating any action that may result in a change or potential
change in the control of the subsidiary, and the social and economic effect of
acceptance of such offer: on the Corporation's present and future customers and
employees and those of its Subsidiaries (as defined in Article EIGHTH hereof);
on the communities in which the Corporation and its Subsidiaries operate or are
located; on the ability of the Corporation to fulfill its corporate objective as
a savings and loan holding company under applicable laws and
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regulations; and on the ability of its subsidiary savings bank to fulfill the
objectives of a stock form savings bank under applicable statutes and
regulations.
TENTH:
A. Each person who was or is made a party or is threatened to be
made a party to or is otherwise involved in any action, suit or proceeding,
whether civil, criminal, administrative or investigative (hereinafter a
"proceeding"), by reason of the fact that he or she is or was a Director or
an Officer of the Corporation or is or was serving at the request of the
Corporation as a Director, Officer, employee or agent of another
corporation or of a partnership, joint venture, trust or other enterprise,
including service with respect to an employee benefit plan (hereinafter an
"indemnitee"), whether the basis of such proceeding is alleged action in an
official capacity as a Director, Officer, employee or agent or in any other
capacity while serving as a Director, Officer, employee or agent, shall be
indemnified and held harmless by the Corporation to the fullest extent
authorized by the Delaware General Corporation Law, as the same exists or
may hereafter be amended (but, in the case of any such amendment, only to
the extent that such amendment permits the Corporation to provide broader
indemnification rights than such law permitted the Corporation to provide
prior to such amendment), against all expense, liability and loss
(including attorneys' fees, judgments, fines, ERISA excise taxes or
penalties and amounts paid in settlement) reasonably incurred or suffered
by such indemnitee in connection therewith; provided, however, that, except
as provided in Section C hereof with respect to proceedings to enforce
rights to indemnification, the Corporation shall indemnify any such
indemnitee in connection with a proceeding (or part thereof) initiated by
such indemnitee only if such proceeding (or part thereof) was authorized by
the Board of Directors of the Corporation.
B. The right to indemnification conferred in Section A of this
Article TENTH shall include the right to be paid by the Corporation the
expenses incurred in defending any such proceeding in advance of its final
disposition (hereinafter and "advancement of expenses"); provided, however,
that, if the Delaware General Corporation Law requires, an advancement of
expenses incurred by an indemnitee in his or her capacity as a Director or
Officer (and not in any other capacity in which service was or is rendered
by such indemnitee, including, without limitation, services to an employee
benefit plan) shall be made only upon delivery to the Corporation of an
undertaking (hereinafter an "undertaking"), by or on behalf of such
indemnitee, to repay all amounts so advanced if it shall ultimately be
determined by final judicial decision from which there is no further right
to appeal (hereinafter a "final adjudication") that such indemnitee is not
entitled to be indemnified for such expenses under this Section or
otherwise. The rights to indemnification and to the advancement of
expenses conferred in Sections A and B of this Article TENTH shall be
contract rights and such rights shall continue as to an indemnitee who has
ceased to be a Director, Officer, employee or agent and shall inure to the
benefit of the indemnitee's heirs, executors and administrators.
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C. If a claim under Section A or B of this Article TENTH is not paid
in full by the Corporation within sixty days after a written claim has been
received by the Corporation, except in the case of a claim for an
advancement of expenses, in which case the applicable period shall be
twenty days, the indemnitee may at any time thereafter bring suit against
the Corporation to recover the unpaid amount of the claim. If successful
in whole or in part in any such suit, or in a suit brought by the
Corporation to recover an advancement of expenses pursuant to the terms of
an undertaking, the indemnitee shall be entitled to be paid also the
expenses of prosecuting or defending such suit. In (i) any suit brought by
the indemnitee to enforce a right to indemnification hereunder (but not in
a suit brought by the indemnitee to enforce a right to an advancement of
expenses) it shall be a defense that, and (ii) in any suit by the
Corporation to recover an advancement of expenses pursuant to the terms of
an undertaking the Corporation shall be entitled to recover such expenses
upon a final adjudication that, the indemnitee has not met any applicable
standard for indemnification set forth in the Delaware General Corporation
Law. Neither the failure of the Corporation (including its Board of
Directors, independent legal counsel, or its stockholders) to have made a
determination prior to the commencement of such suit that indemnification
of the indemnitee is proper in the circumstances because the indemnitee has
met the applicable standard of conduct set forth in the Delaware General
Corporation Law, nor an actual determination by the Corporation (including
its Board of Directors, independent legal counsel, or its stockholders)
that the indemnitee has not met such applicable standard of conduct, shall
create a presumption that the indemnitee has not met the applicable
standard of conduct or, in the case of such a suit brought by the
indemnitee, be a defense to such suit. In any suit brought by the
indemnitee to enforce a right to indemnification or to an advancement of
expenses hereunder, or by the Corporation to recover an advancement of
expenses pursuant to the terms of an undertaking, the burden of proving
that the indemnitee is not entitled to be indemnified, or to such
advancement of expenses, under this Article TENTH or otherwise shall be on
the Corporation.
D. The rights to indemnification and to the advancement of expenses
conferred in this Article TENTH shall not be exclusive of any other right
which any person may have or hereafter acquire under any statute, the
Corporation's Certificate of Incorporation, Bylaws, agreement, vote of
stockholders or Disinterested Directors or otherwise.
E. The Corporation may maintain insurance, at its expense, to
protect itself and any Director, Officer, employee or agent of the
Corporation or subsidiary or Affiliate or another corporation, partnership,
joint venture, trust or other enterprise against any expense, liability or
loss, whether or not the Corporation would have the power to indemnify such
person against such expense, liability or loss under the Delaware General
Corporation Law.
F. The Corporation may, to the extent authorized from time to time
by the Board of Directors, grant rights to indemnification and to the
advancement of expenses to any
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employee or agent of the Corporation to the fullest extent of the
provisions of this Article TENTH with respect to the indemnification and
advancement of expenses of Directors and Officers of the Corporation.
ELEVENTH: A Director of this Corporation shall not be personally liable to
the Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a Director, except for liability: (i) for any breach of the Director's
duty of loyalty to the Corporation or its stockholders; (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law; (iii) under Section 174 of the Delaware General Corporation
Law; or (iv) for any transaction from which the Director derived an improper
personal benefit. If the Delaware General Corporation Law is amended to
authorize corporate action further eliminating or limiting the personal
liability of Directors, then the liability of a Director of the Corporation
shall be eliminated or limited to the fullest extent permitted by the Delaware
General Corporation Law, as so amended.
Any repeal or modification of the foregoing paragraph by the stockholders
of the Corporation shall not adversely affect any right or protection of a
Director of the Corporation existing at the time of such repeal or modification.
TWELFTH: The Corporation reserves the right to amend or repeal any
provision contained in this Certificate of Incorporation in the manner
prescribed by the laws of the State of Delaware and all rights conferred upon
stockholders are granted subject to this reservation; provided, however, that,
notwithstanding any other provision of this Certificate of Incorporation or any
provision of law which might otherwise permit a lesser vote or no vote, but in
addition to any vote of the holders of any class or series of the stock of this
Corporation required by law or by this Certificate of Incorporation, the
affirmative vote of the holders of at least 80 percent of the voting power of
all of the then-outstanding shares of the capital stock of the Corporation
entitled to vote generally in the election of Directors (after giving effect to
the provisions of Article FOURTH), voting together as a single class, shall be
required to amend or repeal this Article TWELFTH, Section C of Article FOURTH,
Sections C or D of Article FIFTH, Article SIXTH, Article SEVENTH, Article EIGHTH
or Article TENTH.
THIRTEENTH: The name and mailing address of the sole incorporator are as
follows:
Name Mailing Address
---- ---------------
Andrew M. Johnston Morris, Nichols, Arsht & Tunnell
1201 North Market Street
P.O. Box 1347
Wilmington, Delaware 19899-1347
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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 and do certify that the facts herein stated
are true, and accordingly, have hereto set my hand this 10th day of October,
1997.
/S/ ANDREW M. JOHNSTON
---------------------------
Andrew M. Johnston
Incorporator
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CONSENT OF INCORPORATOR
OF
EFC BANCORP, INC.
THE UNDERSIGNED, being the sole incorporator of EFC Bancorp, Inc., a
Delaware corporation, hereby adopts the following resolutions pursuant to
Section 108(c) of the Delaware General Corporation Law:
RESOLVED, that the Bylaws attached hereto are hereby adopted as and for the
Bylaws of this corporation.
RESOLVED, that each of the following persons is hereby elected to serve as
a director of the corporation for the terms indicated or until his successor is
elected and qualified and that they shall constitute the initial Board of
Directors of the corporation:
Terms of office to expire at the first annual meeting of stockholders:
James J. Kovac
Vincent C. Norton
Ralph W. Helm, Jr.
Terms of office to expire at the second annual meeting:
Leo M. Flanagan, Jr.
Peter A. Traeger
Scott H. Budd
Terms of office to expire at the third annual meeting:
John J. Brittain
Barrett J. O'Connor
Thomas I. Anderson
/s/ Andrew M. Johnston
---------------------------------
Andrew M. Johnston
Incorporator
Dated: October 10, 1997
<PAGE>
Exhibit 3.2 Bylaws of EFC Bancorp, Inc.
<PAGE>
EFC BANCORP, INC.
BYLAWS
ARTICLE I - STOCKHOLDERS
Section 1. Annual Meeting.
An annual meeting of the stockholders, for the election of Directors to
succeed those whose terms expire and for the transaction of such other
business as may properly come before the meeting, shall be held at such
place, on such date, and at such time as the Board of Directors shall each
year fix, which date shall be within thirteen (13) months subsequent to the
later of the date of incorporation or the last annual meeting of stockholders.
Section 2. Special Meetings.
Subject to the rights of the holders of any class or series of preferred
stock of the Corporation, special meetings of stockholders of the Corporation
may be called only by the Board of Directors pursuant to a resolution adopted
by a majority of the total number of Directors which the Corporation would
have if there were no vacancies on the Board of Directors (hereinafter the
"Whole Board").
Section 3. Notice of Meetings.
Written notice of the place, date, and time of all meetings of the
stockholders shall be given, not less than ten (10) nor more than sixty (60)
days before the date on which the meeting is to be held, to each stockholder
entitled to vote at such meeting, except as otherwise provided herein or
required by law (meaning, here and hereinafter, as required from time to time
by the Delaware General Corporation Law or the Certificate of Incorporation
of the Corporation).
When a meeting is adjourned to another place, date or time, written
notice need not be given of the adjourned meeting if the place, date and time
thereof are announced at the meeting at which the adjournment is taken;
provided, however, that if the date of any adjourned meeting is more than
thirty (30) days after the date for which the meeting was originally noticed,
or if a new record date is fixed for the adjourned meeting, written notice of
the place, date, and time of the adjourned meeting shall be given in
conformity herewith. At any adjourned meeting, any business may be
transacted which might have been transacted at the original meeting.
Section 4. Quorum.
At any meeting of the stockholders, the holders of a majority of all of
the shares of the stock entitled to vote at the meeting, present in person or
by proxy (after giving effect to the provisions
<PAGE>
of Article FOURTH of the Corporation's Certificate of Incorporation), shall
constitute a quorum for all purposes, unless or except to the extent that the
presence of a larger number may be required by law. Where a separate vote by
a class or classes is required, a majority of the shares of such class or
classes present in person or represented by proxy (after giving effect to the
provisions of Article FOURTH of the Corporation's Certificate of
Incorporation) shall constitute a quorum entitled to take action with respect
to that vote on that matter.
If a quorum shall fail to attend any meeting, the chairman of the meeting
or the holders of a majority of the shares of stock entitled to vote who are
present, in person or by proxy, may adjourn the meeting to another place,
date, or time.
If a notice of any adjourned special meeting of stockholders is sent to
all stockholders entitled to vote thereat, stating that it will be held with
those present in person or by proxy constituting a quorum, then except as
otherwise required by law, those present in person or by proxy at such
adjourned meeting shall constitute a quorum, and all matters shall be
determined by a majority of the votes cast at such meeting.
Section 5. Organization.
Such person as the Board of Directors may have designated or, in the
absence of such a person, the Chairman of the Board of the Corporation or, in
his or her absence, such person as may be chosen by the holders of a majority
of the shares entitled to vote who are present, in person or by proxy, shall
call to order any meeting of the stockholders and act as chairman of the
meeting. In the absence of the Secretary of the Corporation, the secretary
of the meeting shall be such person as the chairman appoints.
Section 6. Conduct of Business.
(a) The chairman of any meeting of stockholders shall determine the
order of business and the procedures at the meeting, including such
regulation of the manner of voting and the conduct of discussion as seem to
him or her in order. The date and time of the opening and closing of the
polls for each matter upon which the stockholders will vote at the meeting
shall be announced at the meeting.
(b) At any annual meeting of the stockholders, only such business
shall be conducted as shall have been brought before the meeting: (i) by or
at the direction of the Board of Directors or (ii) by any stockholder of the
Corporation who is entitled to vote with respect thereto and who complies
with the notice procedures set forth in this Section 6(b). For business to
be properly brought before an annual meeting by a stockholder, the business
must relate to a proper subject matter for stockholder action and the
stockholder must have given timely notice thereof in writing to the Secretary
of the Corporation. To be timely, a stockholder's notice must be delivered
or mailed to and received at the principal executive offices of the
Corporation not less than ninety (90) days prior to the date of the annual
meeting; provided, however, that in the event that less than one
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hundred (100) days' notice or prior public disclosure of the date of the
meeting is given or made to stockholders, notice by the stockholder to be
timely must be 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 or such public disclosure was 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 proposing such
business; (iii) the class and number of shares of the Corporation's capital
stock that are beneficially owned by such stockholder; and (iv) any material
interest of such stockholder in such business. Notwithstanding anything in
these Bylaws to the contrary, no business shall be brought before or
conducted at an annual meeting except in accordance with the provisions of
this Section 6(b). The Officer of the Corporation or other person presiding
over the annual meeting shall, if the facts so warrant, determine and declare
to the meeting that business was not properly brought before the meeting in
accordance with the provisions of this Section 6(b) and, if he should so
determine, he shall so declare to the meeting and any such business so
determined to be not properly brought before the meeting shall not be
transacted.
At any special meeting of the stockholders, only such business shall be
conducted as shall have been brought before the meeting by or at the
direction of the Board of Directors.
(c) Only persons who are nominated in accordance with the
procedures set forth in these Bylaws shall be eligible for election as
Directors. Nominations of persons for election to the Board of Directors of
the Corporation may be made at a meeting of stockholders at which directors
are to be elected only: (i) by or at the direction of the Board of
Directors; or (ii) by any stockholder of the Corporation entitled to vote for
the election of Directors at the meeting who complies with the notice
procedures set forth in this Section 6(c). Such nominations, other than
those made by or at the direction of the Board of Directors, shall be made by
timely notice in writing to the Secretary of the Corporation. To be timely,
a stockholder's notice shall be delivered or mailed to and received at the
principal executive offices of the Corporation not less than ninety (90) days
prior to the date of the meeting; provided, however, that in the event that
less than one hundred (100) days' notice or prior disclosure 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 10th
day following the day on which such notice of the date of the meeting was
mailed or such public disclosure was made. Such stockholder's notice shall
set forth: (i) as to each person whom such stockholder proposes to nominate
for election or re-election as a Director, all information relating to such
person that is required to be disclosed in solicitations of proxies for
election of directors, or is otherwise required, in each case pursuant to
Regulation 14A under the Securities Exchange Act of 1934, as amended
(including such person's written consent to being named in the proxy
statement as a nominee and to serving as a director if elected); and (ii) as
to the stockholder giving the notice (x) the name and address, as they appear
on the Corporation's books, of such stockholder and (y) the class and number
of shares of the Corporation's capital stock that are beneficially owned by
such stockholder. At the request of the Board of Directors, 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
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<PAGE>
in a stockholder's notice of nomination which pertains to the nominee. No
person shall be eligible for election as a Director of the Corporation unless
nominated in accordance with the provisions of this Section 6(c). The
Officer of the Corporation or other person presiding at the meeting shall, if
the facts so warrant, determine that a nomination was not made in accordance
with such provisions and, if he or she shall so determine, he or she shall so
declare to the meeting and the defective nomination shall be disregarded.
Section 7. Proxies and Voting.
At any meeting of the stockholders, every stockholder entitled to vote
may vote in person or by proxy authorized by an instrument in writing filed
in accordance with the procedure established for the meeting. Any facsimile
telecommunication or other reliable reproduction of the writing or
transmission created pursuant to this paragraph may be substituted or used in
lieu of the original writing or transmission for any and all purposes for
which the original writing or transmission could be used, provided that such
copy, facsimile telecommunication or other reproduction shall be a complete
reproduction of the entire original writing or transmission.
All voting, including on the election of Directors but excepting where
otherwise required by law or by the governing documents of the Corporation,
may be made by a voice vote; provided, however, that upon demand therefor by
a stockholder entitled to vote or his or her proxy, a stock vote shall be
taken. Every stock vote shall be taken by ballot, each of which shall state
the name of the stockholder or proxy voting and such other information as may
be required under the procedures established for the meeting. The
Corporation shall, in advance of any meeting of stockholders, appoint one or
more inspectors to act at the meeting and make a written report thereof. The
Corporation may designate one or more persons as alternate inspectors to
replace any inspector who fails to act. If no inspector or alternate is able
to act at a meeting of stockholders, the person presiding at the meeting
shall appoint one or more inspectors to act at the meeting. Each inspector,
before entering upon the discharge of his duties, shall take and sign an oath
faithfully to execute the duties of inspector with strict impartiality and
according to the best of his ability.
All elections shall be determined by a plurality of the votes cast, and
except as otherwise required by law or the Certificate of Incorporation, all
other matters shall be determined by a majority of the votes cast.
Section 8. Stock List.
A complete list of stockholders entitled to vote at any meeting of
stockholders, arranged in alphabetical order for each class of stock and
showing the address of each such stockholder and the number of shares
registered in his or her name, shall be open to the examination of any such
stockholder, for any purpose germane to the meeting, during ordinary business
hours for a period of at least ten (10) days prior to the meeting, either at
a place within the city where the meeting is to be held, which place shall be
specified in the notice of the meeting, or if not so specified, at the place
where the meeting is to be held.
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The stock list shall also be kept at the place of the meeting during the
whole time thereof and shall be open to the examination of any such
stockholder who is present. This list shall presumptively determine the
identity of the stockholders entitled to vote at the meeting and the number
of shares held by each of them.
Section 9. Consent of Stockholders in Lieu of Meeting.
Subject to the rights of the holders of any class 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 an annual or special
meeting of stockholders of the Corporation and may not be effected by any
consent in writing by such stockholders.
ARTICLE II -- BOARD OF DIRECTORS
Section 1. General Powers, Number, Term of Office and Limitations.
The business and affairs of the Corporation shall be under the direction
of its Board of Directors. The number of Directors who shall constitute the
Whole Board shall be such number as the Board of Directors shall from time to
time have designated, except that in the absence of such designation shall be
nine. The Board of Directors shall annually elect a Chairman of the Board
from among its members who shall, when present, preside at its meetings.
The Directors, other than those who may be elected by the holders of any
class or series of Preferred Stock, shall be divided, with respect to the
time for which they severally hold office, into three classes, with the term
of office of the first class to expire at the first annual meeting of
stockholders, the term of office of the second class to expire at the annual
meeting of stockholders one year thereafter and the term of office of the
third class to expire at the annual meeting of stockholders two years
thereafter, with each Director to hold office until his or her successor
shall have been duly elected and qualified. At each annual meeting of
stockholders, Directors elected to succeed those Directors whose terms then
expire shall be elected for a term of office to expire at the third
succeeding annual meeting of stockholders after their election, with each
Director to hold office until his or her successor shall have been duly
elected and qualified.
Section 2. Vacancies and Newly Created Directorships.
Subject to the rights of the holders of any class or series of Preferred
Stock, and unless the Board of Directors otherwise determines, newly created
directorships resulting from any increase in the authorized number of
directors or any vacancies in the Board of Directors resulting from death,
resignation, retirement, disqualification, removal from office or other cause
may be filled only by a majority vote of the Directors then in office, though
less than a quorum, and Directors so chosen shall hold office for a term
expiring at the annual meeting of stockholders at which the term of office of
the class to which they have been elected expires and until such Director's
successor shall have
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been duly elected and qualified. No decrease in the number of authorized
directors constituting the Board shall shorten the term of any incumbent
Director.
Section 3. Regular Meetings.
Regular meetings of the Board of Directors shall be held at such place or
places, on such date or dates, and at such time or times as shall have been
established by the Board of Directors and publicized among all Directors. A
notice of each regular meeting shall not be required.
Section 4. Special Meetings.
Special meetings of the Board of Directors may be called by one-third
(1/3) of the Directors then in office (rounded up to the nearest whole
number), by the Chairman of the Board or the President or, in the event that
the Chairman of the Board or President are incapacitated or otherwise unable
to call such meeting, by the Secretary, and shall be held at such place, on
such date, and at such time as they, or he or she, shall fix. Notice of the
place, date, and time of each such special meeting shall be given each
Director by whom it is not waived by mailing written notice not less than
five (5) days before the meeting or by telegraphing or telexing or by
facsimile transmission of the same not less than twenty-four (24) hours
before the meeting. Unless otherwise indicated in the notice thereof, any
and all business may be transacted at a special meeting.
Section 5. Quorum.
At any meeting of the Board of Directors, a majority of the Whole Board
shall constitute a quorum for all purposes. If a quorum shall fail to attend
any meeting, a majority of those present may adjourn the meeting to another
place, date, or time, without further notice or waiver thereof.
Section 6. Participation in Meetings By Conference Telephone.
Members of the Board of Directors, or of any committee thereof, may
participate in a meeting of such Board or committee by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other and such participation shall
constitute presence in person at such meeting.
Section 7. Conduct of Business.
At any meeting of the Board of Directors, business shall be transacted in
such order and manner as the Board may from time to time determine, and all
matters shall be determined by the vote of a majority of the Directors
present, except as otherwise provided herein or required by law. Action may
be 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.
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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.
Section 9. Compensation of Directors.
Directors, as such, may receive, pursuant to resolution of the Board of
Directors, fixed fees and other compensation for their services as Directors,
including, without limitation, their services as members of committees of the
Board of Directors.
Section 10. Advisory Directors.
Advisory directors may be appointed and their compensation for services
(in an amount not to exceed those fees paid to voting directors) determined
by resolution of the board of directors of the Corporation. Only former
directors of the Corporation (including former directors of other
corporations which have merged with, or otherwise been acquired by the
Corporation) shall be eligible to serve as advisory directors. Advisory
directors shall be available for consultation with an advice to the
management of the Corporation. Advisory directors may attend meetings of the
board of directors, but shall have no vote on any matter acted upon such
board.
Section 11. Age Limitation.
No person shall be eligible for election, reelection, appointment, or
reappointment to the board of directors of the Corporation is such person is
then more than 70 years of age. No directors shall serve beyond the annual
meeting of the Corporation immediately following his attainment of 70 years
of age. This age limitation shall not apply to a person serving as an
advisor director of the Corporation.
ARTICLE III -- COMMITTEES
Section 1. Committees of the Board of Directors.
The Board of Directors, by a vote of a majority of the Board of
Directors, may from time to time designate committees of the Board, with such
lawfully delegable powers and duties as it thereby confers, to serve at the
pleasure of the Board and shall, for these committees and any others provided
for herein, elect a Director or Directors to serve as the member or members,
designating, if it desires, other Directors as alternate members who may
replace any absent or disqualified member at any meeting of the committee.
Any committee so designated may exercise the power and authority of the Board
of Directors to declare a dividend, to authorize the issuance of stock or to
adopt a certificate of ownership and merger pursuant to Section 253 of the
Delaware General Corporation Law if the resolution which designates the
committee or a supplemental resolution of the Board of
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Directors shall so provide. In the absence or disqualification of any member
of any committee and any alternate member in his or her place, the member or
members of the committee present at the meeting and not disqualified from
voting, whether or not he or she or they constitute a quorum, may by
unanimous vote appoint another member of the Board of Directors to act at the
meeting in the place of the absent or disqualified member.
Section 2. Conduct of Business.
Each committee may determine the procedural rules for meeting and
conducting its business and shall act in accordance therewith, except as
otherwise provided herein or required by law. Adequate provision shall be
made for notice to members of all meetings. The quorum requirements for each
such committee shall be a majority of the members of such committee unless
otherwise determined by the Board of Directors by a majority vote of the
Board of Directors which such quorum determined by a majority of the Board
may be one-third of such members and all matters considered by such
committees 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 shall appoint a Nominating Committee of the Board,
consisting of not less than three (3) members. The Nominating Committee
shall have authority: (a) to review any nominations for election to the
Board of Directors made by a stockholder of the Corporation pursuant to
Section 6(c)(ii) of Article I of these Bylaws in order to determine
compliance with such Bylaw; and (b) to recommend to the Whole Board nominees
for election to the Board of Directors to replace those Directors whose terms
expire at the annual meeting of stockholders next ensuing.
ARTICLE IV -- OFFICERS
Section 1. Generally.
(a) The Board of Directors as soon as may be practicable after the
annual meeting of stockholders shall choose a Chairman of the Board, Chief
Executive Officer, a President, one or more Vice Presidents, a Secretary and
a Treasurer and from time to time may choose such other officers as it may
deem proper. The Chairman of the Board shall be chosen from among the
Directors. Any number of offices may be held by the same person.
(b) The term of office of all Officers shall be until the next
annual election of Officers and until their respective successors are chosen
but any Officer may be removed from office at any time by the affirmative
vote of a majority of the authorized number of Directors then constituting
the Board of Directors.
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(c) All Officers chosen by the Board of Directors shall have such
powers and duties as generally pertain to their respective Offices, subject
to the specific provisions of this ARTICLE IV. Such officers shall also have
such powers and duties as from time to time may be conferred by the Board of
Directors or by any committee thereof.
(d) The Board of Directors may, except as otherwise required by
law, remove any Officer of the Corporation with or without cause, and from
time to time, devolve the powers and duties of any Officer upon any other
person for the time being, and to confer upon any Officer of the Corporation
the power to appoint, remove or suspend subordinate officers, employees and
agents.
Section 2. Chairman of the Board of Directors.
The Chairman of the Board shall, subject to the provisions of these
Bylaws and to the direction of the Board of Directors, serve in general
executive capacity and unless the Board has designated another person, when
present, shall preside at all meetings of the stockholders of the
Corporation. The Chairman of the Board shall perform all duties and have all
powers which are commonly incident to the office of Chairman of the Board or
which are delegated to him or her by the Board of Directors. He or she shall
have power to sign all stock certificates, contracts and other instruments of
the Corporation which are authorized.
Section 3. President and Chief Executive Officer.
The President and Chief Executive Officer (the "President") shall have
general responsibility for the management and control of the business and
affairs of the Corporation and shall perform all duties and have all powers
which are commonly incident to the offices of President and Chief Executive
Officer or which are delegated to him or her by the Board of Directors.
Subject to the direction of the Board of Directors, the President and Chief
Executive Officer shall have power to sign all stock certificates, contracts
and other instruments of the Corporation which are authorized and shall have
general supervision of all of the other Officers (other than the Chairman of
the Board), employees and agents of the Corporation.
Section 4. Vice President.
The Vice President or Vice Presidents shall perform the duties of the
President in his absence or during his inability to act. In addition, the
Vice Presidents shall perform the duties and exercise the powers usually
incident to their respective offices and/or such other duties and powers as
may be properly assigned to them by the Board of Directors, the Chairman of
the Board or the President. A Vice President or Vice Presidents may be
designated as Executive Vice President or Senior Vice President.
9
<PAGE>
Section 5. Secretary.
The Secretary or Assistant Secretary shall issue notices of meetings,
shall keep their minutes, shall have charge of the seal and the corporate
books, shall perform such other duties and exercise such other powers as are
usually incident to such office and/or such other duties and powers as are
properly assigned thereto by the Board of Directors, the Chairman of the
Board or the President. Subject to the direction of the Board of Directors,
the Secretary shall have the power to sign all stock certificates.
Section 6. Treasurer.
The Treasurer shall be the Comptroller of the Corporation and shall have
the responsibility for maintaining the financial records of the Corporation.
He or she shall make such disbursements of the funds of the Corporation as
are authorized and shall render from time to time an account of all such
transactions and of the financial condition of the Corporation. The
Treasurer shall also perform such other duties as the Board of Directors may
from time to time prescribe. Subject to the direction of the Board of
Directors, the Treasurer shall have the power to sign all stock certificates.
Section 7. Assistant Secretaries and Other Officers.
The Board of Directors may appoint one or more Assistant Secretaries and
such other Officers who shall have such powers and shall perform such duties
as are provided in these Bylaws or as may be assigned to them by the Board of
Directors, the Chairman of the Board or the President.
Section 8. Action with Respect to Securities of Other Corporations.
Unless otherwise directed by the Board of Directors, the President or any
Officer of the Corporation authorized by the President shall have power to
vote and otherwise act on behalf of the Corporation, in person or by proxy,
at any meeting of stockholders of or with respect to any action of
stockholders of any other corporation in which this Corporation may hold
securities and otherwise to exercise any and all rights and powers which this
Corporation may possess by reason of its ownership of securities in such
other corporation.
Section 9. Age Limitation.
No person shall be eligible for election, reelection, appointment, or
reappointment as an officer of the Corporation if such person is then more
than 70 years of age. No officer shall serve beyond the annual meeting of
the Corporation immediately following his attainment of 70 years of age.
10
<PAGE>
ARTICLE V -- STOCK
Section 1. Certificates of Stock.
Each stockholder shall be entitled to a certificate signed by, or in the
name of the Corporation by, the Chairman of the Board or the President, and
by the Secretary or an Assistant Secretary, or any Treasurer or Assistant
Treasurer, certifying the number of shares owned by him or her. Any or all
of the signatures on the certificate may be by facsimile.
Section 2. Transfers of Stock.
Transfers of stock shall be made only upon the transfer books of the
Corporation kept at an office of the Corporation or by transfer agents
designated to transfer shares of the stock of the Corporation. Except where
a certificate is issued in accordance with Section 4 of Article V of these
Bylaws, an outstanding certificate for the number of shares involved shall be
surrendered for cancellation before a new certificate is issued therefor.
Section 3. Record Date.
In order that the Corporation may determine the stockholders entitled to
notice of or to vote at any meeting of stockholders, or to receive payment of
any dividend or other distribution or allotment of any rights or to exercise
any rights in respect of any change, conversion or exchange of stock or for
the purpose of any other lawful action, the Board of Directors may fix a
record date, which record date shall not precede the date on which the
resolution fixing the record date is adopted and which record date shall not
be more than sixty (60) nor less than ten (10) days before the date of any
meeting of stockholders, nor more than sixty (60) days prior to the time for
such other action as hereinbefore described; provided, however, that if no
record date is fixed by the Board of Directors, the record date for
determining stockholders entitled to notice of or to vote at a meeting of
stockholders shall be at the close of business on the day next preceding the
day on which notice is given or, if notice is waived, at the close of
business on the next day preceding the day on which the meeting is held, and,
for determining stockholders entitled to receive payment of any dividend or
other distribution or allotment or rights or to exercise any rights of
change, conversion or exchange of stock or for any other purpose, the record
date shall be at the close of business on the day on which the Board of
Directors adopts a resolution relating thereto.
A determination of stockholders of record entitled to notice of or to
vote at a meeting of stockholders shall apply to any adjournment of the
meeting; provided, however, that the Board of Directors may fix a new record
date for the adjourned meeting.
11
<PAGE>
Section 4. Lost, Stolen or Destroyed Certificates.
In the event of the loss, theft or destruction of any certificate of
stock, another may be issued in its place pursuant to such regulations as the
Board of Directors may establish concerning proof of such loss, theft or
destruction and concerning the giving of a satisfactory bond or bonds of
indemnity.
Section 5. Regulations.
The issue, transfer, conversion and registration of certificates of stock
shall be governed by such other regulations as the Board of Directors may
establish.
ARTICLE VI -- NOTICES
Section 1. Notices.
Except as otherwise specifically provided herein or required by law, all
notices required to be given to any stockholder, Director, Officer, employee
or agent shall be in writing and may in every instance be effectively given
by hand delivery to the recipient thereof, by depositing such notice in the
mails, postage paid, or by sending such notice by prepaid telegram or
mailgram or other courier. Any such notice shall be addressed to such
stockholder, Director, Officer, employee or agent at his or her last known
address as the same appears on the books of the Corporation. The time when
such notice is received, if hand delivered, or dispatched, if delivered
through the mails or by telegram or mailgram or other courier, shall be the
time of the giving of the notice.
Section 2. Waivers.
A written waiver of any notice, signed by a stockholder, Director,
Officer, employee or agent, whether before or after the time of the event for
which notice is to be given, shall be deemed equivalent to the notice
required to be given to such stockholder, Director, Officer, employee or
agent. Neither the business nor the purpose of any meeting need be specified
in such a waiver.
ARTICLE VII -- MISCELLANEOUS
Section 1. Facsimile Signatures.
In addition to the provisions for use of facsimile signatures elsewhere
specifically authorized in these Bylaws, facsimile signatures of any officer
or officers of the Corporation may be used whenever and as authorized by the
Board of Directors or a committee thereof.
12
<PAGE>
Section 2. Corporate Seal.
The Board of Directors may provide a suitable seal, containing the name
of the Corporation, which seal shall be in the charge of the Secretary. If
and when so directed by the Board of Directors or a committee thereof,
duplicates of the seal may be kept and used by the Treasurer or by an
Assistant Secretary or an assistant to the Treasurer.
Section 3. Reliance Upon Books, Reports and Records.
Each Director, each member of any committee designated by the Board of
Directors, and each Officer of the Corporation shall, in the performance of
his or her duties, be fully protected in relying in good faith upon the books
of account or other records of the Corporation and upon such information,
opinions, reports or statements presented to the Corporation by any of its
Officers or 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 Bylaws which requires that an act be
done or not be done a specified number of days prior to an event or that an
act be done during a period of a specified number of days prior to an event,
calendar days shall be used, the day of the doing of the act shall be
excluded, and the day of the event shall be included.
Section 6. Adoption of Regulations.
The Board of Directors may, except as otherwise required by law, adopt
from time to time regulations, not inconsistent with these Bylaws, for the
management of the Corporation's business and affairs.
ARTICLE VIII -- AMENDMENTS
The Board of Directors may amend, alter or repeal these Bylaws at any
meeting of the Board, provided notice of the proposed change was given not
less than two (2) days prior to the meeting. The stockholders shall also
have power to amend, alter or repeal these Bylaws at any meeting of
stockholders provided notice of the proposed change was given in the notice
of the meeting; provided, however, that, notwithstanding any other provisions
of the Bylaws or any provision of law which might otherwise permit a lesser
vote or no vote, but in addition to any affirmative vote of the holders of
any particular class or series of the voting stock required by law, the
Certificate of
13
<PAGE>
Incorporation, any Preferred Stock Designation or these Bylaws, the
affirmative votes of the holders of at least 80% of the voting power of all
the then-outstanding shares of the Voting Stock, voting together as a single
class, shall be required to alter, amend or repeal any provisions of these
Bylaws.
The above Bylaws are effective as of October , 1997, the date of
incorporation of EFC Bancorp, Inc.
14
<PAGE>
Exhibit 4.0 Draft Stock Certificate of EFC Bancorp, Inc.
<PAGE>
COMMON STOCK COMMON STOCK
PAR VALUE $.01 SEE REVERSE FOR CERTAIN DEFINITIONS
CUSIP __________
EFC BANCORP, INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
THIS CERTIFIES THAT
S P E C I M E N
is the owner of:
FULLY PAID AND NONASSESSABLE SHARES OF COMMON STOCK $.01 PAR VALUE PER SHARE OF
EFC BANCORP, INC.
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 and the shares represented
hereby are issued and shall be held subject to all the provisions of the
Certificate of Incorporation of the Corporation and any amendments thereto
(copies of which are on file with the Transfer Agent), to all of which
provisions the holder by acceptance hereof, assents.
This certificate is not valid unless countersigned and registered by the
Transfer Agent and Registrar. The shares represented by this Certificate are
not insured by the Federal Deposit Insurance Corporation or any other government
agency.
IN WITNESS THEREOF, EFC Bancorp, Inc. has caused this certificate to
be executed by the facsimile signatures of its duly authorized officers and has
caused a facsimile of its corporate seal to be hereunto affixed.
Dated: [SEAL]
President Secretary
<PAGE>
EFC BANCORP, INC.
The shares represented by this certificate are subject to a limitation
contained in the Certificate of Incorporation to the effect that in no event
shall any record owner of any outstanding common stock which is beneficially
owned, directly or indirectly, by a person who beneficially owns in excess of
10% of the outstanding shares of common stock (the "Limit") be entitled or
permitted to any vote in respect of shares held in excess of the Limit.
The Board of Directors of the Corporation is authorized by resolution(s),
from time to time adopted, to provide for the issuance of serial preferred
stock in series and to fix and state the voting powers, designations,
preferences and relative, participating, optional, or other special rights of
the shares of each such series and the qualifications, limitations and
restrictions thereof. The Corporation will furnish to any shareholder upon
request and without charge a full description of each class of stock and any
series thereof.
The shares represented by this certificate may not be cumulatively voted
on any matter. Pursuant to the Certificate of Incorporation, the affirmative
vote of the holders of at least 80% of the voting stock of the Corporation,
voting together as a single class, shall be required to approve certain
business combinations and other transactions, or to amend certain provisions
of the Certificate of Incorporation.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM -- as tenants UNIF GIFTS MIN ACT - ________ custodian ________
in common (Cust) (Minor)
TEN ENT -- as tenants under Uniform Gifts to Minors Act
by the entireties ____________________
(State)
JT TEN -- as joint tenants with right
of survivorship and not as
tenants in common
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
IDENTIFICATION NUMBER OF ASSIGNEE
_______________________________________________________________________________
Please print or typewrite name and address including postal 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
Corporation 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.
SIGNATURE GUARANTEED: _________________________________________________________
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE
GUARANTOR INSTITUTION (BANKS, STOCKBROKERS, SAVINGS AND
LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN AN
APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM), PURSUANT
TO S.E.C. RULE 17Ad-15
<PAGE>
Exhibit 5.0 Draft Opinion of Muldoon, Murphy & Faucette re: legality
<PAGE>
____________, 1997
Board of Directors
Elgin Financial Center, S.B.
1695 Larkin Avenue
Elgin, Illinois 60213
Re: The Offering of up to ___________ Shares of EFC Bancorp, Inc. Common
Stock
Gentlemen:
You have requested our opinion concerning certain matters of Delaware law
in connection with the conversion of Elgin Financial Center, S.B. (the "Bank"),
an Illinois state-chartered savings bank, from the mutual form of ownership to
the stock form of ownership (the "Conversion"), and the related subscription
offering, community offering and syndicated community offering (the "Offerings")
by EFC Bancorp, Inc., a Delaware corporation (the "Company"), of up to
___________ shares of its common stock, par value $.01 per share, ("Common
Stock"), (___________ shares if the Estimated Valuation Range is increased up to
15% to reflect changes in market and financial conditions following commencement
of the Offerings).
In connection with your request for our opinion, you have provided to us
and we have reviewed the Company's certificate of incorporation filed with the
Delaware Secretary of State on October 10, 1997 (the "Certificate of
Incorporation"); the Company's Bylaws; the Company's Registration Statement on
Form S-1, as filed with the Securities and Exchange Commission initially on
October __, 1997 (the "Registration Statement"); the Plan of Conversion; a
consent of the sole incorporator of the Company; resolutions of the Board of
Directors of the Company (the "Board") concerning the organization of the
Company, and the ESOP and; the Offerings and designation of a Pricing Committee
of the Board; and the form of stock certificate approved by the Board to
represent shares of Common Stock. We have also been furnished a certificate of
the Delaware Secretary of State certifying the Company's good standing as a
Delaware corporation. Capitalized terms used but not defined herein shall have
the meaning given them in the Certificate of Incorporation.
<PAGE>
Board of Directors
Elgin Financial Center, S.B.
____________, 1997
Page 2
In rendering this opinion, we have relied upon the opinion of Morris,
Nichols, Arsht & Tunnell as to matters of Delaware law, upon which opinion we
believe we are justified in relying. We have examined the opinion of Morris,
Nichols, Arsht & Tunnell, which opinion is in form satisfactory to us.
We understand that the Company will loan to the trust for the Bank's
Employee Stock Ownership Plan (the "ESOP") the funds which the ESOP Trust will
use to purchase shares of Common Stock for which the ESOP Trust subscribes
pursuant to the Offerings and for purposes of rendering the opinion set forth in
paragraph 2 below, we assume that: (a) the Board has duly authorized the loan
to the ESOP Trust (the "Loan"); (b) the ESOP serves a valid corporate purpose;
(c) the Loan will be made at an interest rate and on other terms that are fair
to the Company; (d) the terms of the Loan will be set forth in customary and
appropriate documents including, without limitation, a promissory note
representing the indebtedness of the ESOP Trust to the Company as a result of
the Loan; and (e) the closing for the Loan and for the sale of Common Stock to
the ESOP Trust will be held after the closing for the sale of the other shares
of Common Stock sold in the Offerings and the receipt by the Company of the
proceeds thereof.
Based upon and subject to the foregoing, and limited in all respects to
matters of Delaware law, it is our opinion that:
1. The Company has been duly organized and is validly existing in good
standing as a corporation under the laws of the State of Delaware.
2. Upon the due adoption by the Pricing Committee of a resolution fixing
the number of shares of Common stock to be sold in the Offerings, the Common
Stock to be issued in the Offerings (including the shares to be issued to the
ESOP Trust) will be duly authorized and, when such shares are sold and paid for
in accordance with the terms set forth in the Prospectus and such resolution of
the Pricing Committee, and certificates representing such shares in the form
provided to us are duly and properly issued, will be validly issued, fully paid
and nonassessable.
The following provisions of the Certificate of Incorporation may not be
given effect by a court applying Delaware law, but in our opinion the failure to
give effect to such provisions will not affect the duly authorized, validly
issued, fully paid and nonassessable status of the Common Stock:
1. (a) Subsections C.3 and C.6 of Article FOURTH and Section D of
Article EIGHTH, which grant the Board the authority to construe
and apply the provisions of those Articles, subsection C.4 of
Article FOURTH, to the
<PAGE>
Board of Directors
Elgin Financial Center, S.B.
____________, 1997
Page 3
extent that subsection obligates any person to provide to the
Board the information such subsection authorizes the Board to
demand, and the provision of subsection C.7 of Article EIGHTH
empowering the Board to determine the Fair Market Value of
property offered or paid for the Company's stock by an
Interested Stockholder, in each case to the extent, if any,
that a court applying Delaware law were to impose equitable
limitations upon such authority; and
(b) Article NINTH of the Certificate of Incorporation, which
authorizes the Board to consider the effect of any offer to
acquire the Company on constituencies other than stockholders in
evaluating any such offer.
This opinion is furnished solely for your benefit and may not be relied
upon by any other person. We consent to the filing of this opinion as an
exhibit to the Registration Statement on Form S-1, Notice of the Application for
Conversion, and the Application for Conversion and to the use of the name of our
firm where it appears in the Registration Statement, Notice of the Application
for Conversion, Application for Conversion and in the Prospectus.
Very truly yours,
MULDOON, MURPHY & FAUCETTE
Attachment: Opinion of Morris, Nichols, Arsht & Tunnell
<PAGE>
Exhibit 5.1 Draft Opinion of Morris, Nichols, Arsht & Tunnell re: legality.
<PAGE>
October 23, 1997 Draft
[Morris, Nichols, Arsht & Tunnell Letterhead]
[Date]
Muldoon, Murphy & Faucette
5101 Wisconsin Avenue, N.W.
Washington, DC 20016
Ladies and Gentlemen:
You have requested our opinion concerning certain matters of
Delaware law in connection with (i) the conversion of Elgin Financial Center,
S.B., an Illinois chartered savings bank (the "Bank"), from the mutual form
of ownership to stock form of ownership (the "Conversion"), (ii) in
connection with the conversion, the concurrent issuance of the Bank's
outstanding capital stock to EFC Bancorp, Inc., a Delaware corporation (the
"Company"), and the subscription and community offering (the "Offering") by
the Company of up to 5,681,000 shares of its common stock, par value $.01 per
share (the "Common Stock"), and (iii) the sale of up to 454,480 shares of
Common Stock (the "Foundation Shares") to Elgin Financial Foundation, a
Delaware non-stock corporation (the "Foundation"), pursuant to the Charitable
Gift to Elgin Financial dated as of ________________ ___, 1997 by the Company
(the "Gift Instrument").
In connection with your request for our opinion, you have provided to
us, and we have reviewed, the Company's certificate of
<PAGE>
Muldoon, Murphy & Faucette
[Date]
Page 2
incorporation (the "Certificate of Incorporation"), its by-laws, the
Registration Statement on Form S-1 filed with the Securities and Exchange
Commission in connection with the Offering (the "Registration Statement"),
including the prospectus constituting a part thereof (the "Prospectus"), a
consent of the sole incorporator of the Company, resolutions of the Board of
Directors of the Company (the "Board") concerning, inter alia, the
organization of the Company, the Offering and the designation of a Pricing
Committee of the Board (the "Pricing Committee"), the form of stock
certificate approved by the Board to represent shares of Common Stock, the
Foundation's certificate of incorporation (the "Foundation Certificate of
Incorporation"), its bylaws, a consent of the sole incorporator of the
Foundation, and the Gift Instrument. We have also obtained a certificate of
the Delaware Secretary of State as to the Company's and the Foundation's good
standnig as Delaware corporations. Capitalized terms used but not defined
herein shall have the meanings given them in the Certificate of Incorporation.
We understand that the Company will loan to the Bank's Employee Stock
Ownership Plan (the "ESOP") the funds the ESOP will use to purchase the shares
of Common Stock for which the ESOP has subscribed as part of the Offering. In
this regard, we have assumed, for purposes of rendering the opinion set forth in
paragraph 2 below, that: (a) the Board has duly authorized the loan
<PAGE>
Muldoon, Murphy & Faucette
[Date]
Page 3
to the ESOP (the "Loan"); (b) the Loan serves a valid corporate purpose; (c)
the Loan will be made at an interest rate and on other terms that are fair to
the Company; (d) the terms of the Loan will be set forth in customary and
appropriate documents including, without limitation, a promissory note
representing the indebtedness of the ESOP to the Company as a result of the
Loan; and (e) the closing for the Loan and for the sale of Common Stock to
the ESOP will be held after the closing for the sale of the other shares of
Common Stock sold in the Offering and the receipt by the Company of the
proceeds thereof.
We call your attention to the fact that the opinions expressed
herein are limited in all respects to matters of Delaware corporate law. We
express no opinion concerning the requirements of any other law, rule or
regulation, state or federal, applicable to the Bank, the Company, the
Offering, the Conversion, or the Foundation, including, without limitation,
those applicable to state chartered savings banks or their holding companies.
Based upon and subject to the foregoing, it is our opinion that:
1. The Company has been duly organized and is validly existing in
good standing as a corporation under the laws of the State of Delaware, with
the corporate power and authority to own its property and conduct its
business as now conducted as described in the Prospectus.
<PAGE>
Muldoon, Murphy & Faucette
[Date]
Page 4
2. Upon the due adoption by the Pricing Committee of a resolution
fixing the number of shares of Common Stock to be sold in the Offering, the
Common Stock to be issued in the Offering (including the shares to be issued
to the ESOP) will be duly authorized and, when such shares are sold and paid
for in accordance with the terms set forth in the Prospectus and such
resolution of the Pricing Committee, and certificates representing such
shares in the form provided to us are duly and properly issued, will be
validly issued, fully paid and nonassessable, with no personal liability for
the payment of the Company's debts arising solely by virtue of the ownership
thereof; such issuance and sale will not be in violation of or subject to any
preemptive rights provided for by Delaware law or by the Certificate of
Incorporation.
3. The Foundation has been duly organized and is validly existing
as a non-stock corporation in good standing under the laws of the State of
Delaware with corporate power and authority to own, lease, and operate its
properties and to conduct its business as described in the Prospectus.
4. No approvals of any Delaware governmental agency, bureau,
commission, department or other organization is required to establish the
Foundation and to issue and sell the Foundation Shares to the Foundation as
described in the Prospectus pursuant to the Gift Instrument; provided,
however, that we express no opinion
<PAGE>
Muldoon, Murphy & Faucette
[Date]
Page 5
with respect to the Delaware Securities Act (6 Del. C. Section 7301 et seq.).
5. The Foundation Shares have been duly and validly authorized for
issuance and sale, and when issued and delivered by the Company as provided
in the Gift Instrument against payment therefor, and a certificate
representing such shares in the form provided to us is duly and properly
issued, such shares will be duly and validly issued, fully paid and
non-assessable, with no personal liability for the payment of the Company's
debts arising solely by virtue of the ownership thereof; such issuance and
sale will not be in violation of or subject to any preemptive rights provided
for by Delaware law or the Certificate of Incorporation.
The following provisions of the Certificate of Incorporation may not
be given effect by a court applying Delaware law, but in our opinion the
failure to give effect to such provisions will not affect the duly
authorized, validly issued, fully paid and nonassessable status of the Common
Stock:
(a) Subsections C.3 and C.6 of Article FOURTH and Section D of
Article EIGHTH, which grant the Board the authority to construe and apply the
provisions of those Articles, subsection C.4 of Article FOURTH, to the extent
that provision obligates any person to provide to the Board the information
such subsection authorizes the Board to demand, and the provision of Section
C.7 of Article EIGHTH empowering the Board to determine the Fair Market
<PAGE>
Muldoon, Murphy & Faucette
[Date]
Page 6
Value of property offered or paid for the Company's stock by an Interested
Stockholder, to the extent, if any, that a court applying Delaware law were
to impose equitable limitations upon the authority of the directors of the
Company under such provisions.
(b) Article NINTH of the Certificate of Incorporation, which
purports to permit the Board to consider the effect of any offer to acquire
the Company on constituencies other than stockholders in evaluating any such
offer.
Very truly yours,
<PAGE>
Exhibit 8.0 Draft Opinion of Muldoon, Murphy & Faucette re: Federal Tax
Matters
<PAGE>
DRAFT: __________________, 1997
Board of Directors
EFC Bancorp, Inc.
1695 Larkin Avenue
Elgin, Illinois 60123
Board of Directors
Elgin Financial Center, S.B.
1695 Larkin Avenue
Elgin, Illinois 60123
Re: Certain Federal Tax Consequences of the Conversion of Elgin Financial
Center, S.B. from an Illinois state-chartered Mutual Savings Bank to
an Illinois state-chartered Stock Savings Bank and the Issuance of
Common Stock of Elgin Financial Center, S.B. to EFC Bancorp, Inc.,
pursuant to a Plan of Conversion, and the Sale of EFC Bancorp, Inc.
Stock (the "Conversion")
Ladies and Gentlemen:
You have requested an opinion on certain federal income tax consequences
of the proposed conversion of Elgin Financial Center, S.B. (the "Bank") from
an Illinois state-chartered mutual savings bank to an Illinois
state-chartered stock savings bank and the issuance of the Bank's capital
stock to EFC Bancorp, Inc., a Delaware corporation (the "Company" or the
"Holding Company"), pursuant to the plan of conversion adopted by the Board
of Directors on August 12, 1997 (the "Plan of Conversion").
The proposed transaction is described in the Prospectus and the Plan of
Conversion, and the tax consequences of the proposed transaction will be as
set forth in the section of this letter entitled "FEDERAL TAX OPINION."
<PAGE>
Board of Directors
DRAFT:__________________, 1997
Page 2
We have made such inquiries and have examined such documents and
records as we have deemed appropriate for the purpose of this opinion. In
rendering this opinion, we have received certain standard representations of
the Company and the Bank concerning the Company and the Bank as well as the
transaction ("Representations"). These Representations are required to be
furnished prior to the execution of this letter and again prior to the
closing of the Conversion. We will rely upon the accuracy of the
Representations of the Company and the Bank and the statements of facts
contained in the examined documents, particularly the Plan of Conversion. We
have also assumed the authenticity of all signatures, the legal capacity of
all natural persons and the conformity to the originals of all documents
submitted to us as copies. Each capitalized term used herein, unless
otherwise defined, has the meaning set forth in the Plan of Conversion. We
have assumed that the Conversion will be consummated strictly in accordance
with the terms of the Plan of Conversion.
The Plan of Conversion and the Prospectus contain a detailed description
of the Conversion. These documents as well as the Representations to be
provided by the Company and the Bank are incorporated in this letter as part
of the statement of the facts.
As a mutual savings bank, the Bank has never been authorized to issue
stock. Instead, the proprietary interest in the reserves and undivided
profits of the Bank belong to the deposit account holders of the Bank,
hereinafter sometimes referred to as "depositors." A depositor of the Bank
has a right to share, pro rata, with respect to the withdrawal value of his
respective deposit account in any liquidation proceeds distributed in the
event the Bank is ever liquidated. In addition, a depositor of the Bank is
entitled to interest on his account balance as fixed and paid by the Bank.
In order to provide organizational and economic strength to the Bank,
the Board of Directors has adopted the Plan of Conversion whereby the Bank
will convert itself into an Illinois state-chartered stock savings bank (the
"Converted Bank"), the stock of which will be held entirely by the Holding
Company. In the event that the Holding Company is utilized, upon Conversion,
the Bank will issue its capital stock to the Holding Company and the Holding
Company will issue and sell the Conversion Stock in accordance with the Plan
of Conversion. The aggregate sales price of the Common Stock issued in the
Conversion will be based on an independent appraiser's valuation of the
estimated pro forma market value of the Common Stock of the Converted Bank.
The Conversion and sale of the Common Stock will be subject to approval by
the Illinois Commissioner of Banks and Real Estate and the Federal Deposit
Insurance Corporation (the "FDIC") and the approval of the Voting Members.
Establishment of Liquidation Account. The Bank shall establish at the
time of Conversion a liquidation account in an amount equal to its net worth as
set forth in the latest statement of financial condition contained in the Proxy
Statement. The liquidation account will be maintained by the Bank for the
benefit of the Eligible Account Holders who continue to
<PAGE>
Board of Directors
DRAFT:__________________, 1997
Page 3
maintain their savings accounts at the Bank. Each Eligible Account Holder
shall, with respect to his savings account, hold a related inchoate interest
in a portion of the liquidation account balance, in relation to his savings
account balance on the Eligibility Record Date or to such balance as it may
be subsequently reduced.
In the unlikely event of a complete liquidation of the Bank (and only in
such event), following all liquidation payments to creditors (including those
to account holders to the extent of their savings accounts) each Eligible
Account Holder shall be entitled to receive a liquidating distribution from
the liquidation account, in the amount of the then adjusted subaccount
balance for his savings account then held, before any liquidation
distribution may be made to any holders of the Bank's capital stock. No
merger, consolidation, purchase of bulk assets with assumption of savings
accounts and other liabilities, or similar transaction with an FDIC
institution, in which the Bank is not the surviving institution, shall be
deemed to be a complete liquidation for this purpose. In such transactions,
the liquidation account shall be assumed by the surviving institution.
Establishment of Foundation. As part of the Conversion, the Company and
the Bank intend to establish a charitable foundation that will qualify as an
exempt organization under Section 501(c)(3) of the Internal Revenue Code (the
"Foundation") and to donate to the Foundation from authorized, but unissued,
shares of Common Stock of the Holding Company in an amount up to 8.0% of the
number of shares of Common Stock sold in the Conversion. The Foundation is
intended to further the Converted Bank's long term commitment to its
community. The Plan of Conversion provides that the Foundation is intended to
complement the Bank's existing community reinvestment activities so as to
allow the local community to share in the growth and profitability of the
Holding Company and the Converted Bank over the long term. In the event
that the Foundation does not receive the prerequisite approval, the Bank may
determine to complete the Conversion without the Foundation.
The Foundation will be dedicated to the promotion of charitable purposes
including community development, grants or donations to support housing
assistance, not-for-profit community groups and other types of organizations
or civic minded projects. The Foundation will annually distribute total
grants to assist charitable organizations or to fund projects within its
local community of not less than 5% of the average fair value of Foundation
assets each year. In order to serve the purposes for which it was formed and
to maintain its Section 501(c)(3) qualification, under the Plan of
Conversion, the Foundation may sell, on an annual basis, a limited portion of
the Common Stock contributed to it by the Holding Company.
* * *
<PAGE>
Board of Directors
DRAFT:__________________, 1997
Page 4
You have provided the following representations concerning this
transaction:
(a) The fair market value of the withdrawable deposit accounts plus
interests in the liquidation account of the Converted Bank to be
constructively received under the Plan of Conversion will, in each
instance, be equal to the fair market value of the withdrawable
deposit accounts (plus the related interest in the residual equity
of the Bank) deemed to be surrendered in exchange therefor.
(b) If an individual's total deposits in the Bank equal or exceed $100
as of the Eligibility Record Date, then no amount of that
individual's total deposits will be excluded from participating in
the liquidation account. The fair market value of the deposit
accounts of the Bank which have a balance of less than $100 on the
Eligibility Record Date will be less than 1% of the total fair
market value of all deposit accounts of the Bank.
(c) Immediately following the Conversion, the Eligible Account Holders
of the Bank will own all of the outstanding interests in the
liquidation account and will own such interest solely by reason of
their ownership of deposits in the Bank immediately before the
Conversion.
(d) After the Conversion, the Converted Bank will continue the business
of the Bank in the same manner as prior to the Conversion. The
Converted Bank has no plan or intention and the Holding Company has
no plan or intention to cause the Converted Bank to sell its assets
other than in the ordinary course of business.
(e) The Holding Company has no plan or intention to sell, liquidate or
otherwise dispose of the stock of the Converted Bank other than in
the ordinary course of business.
(f) The Holding Company and the Converted Bank have no current plan or
intention to redeem or otherwise acquire any of the Common Stock
issued in the Conversion transaction.
(g) Immediately after the Conversion, the assets and liabilities of the
Converted Bank will be identical to the assets and liabilities of
the Bank immediately prior to the Conversion, plus the net proceeds
from the sale of the Converted Bank's common stock to the Holding
Company and any liability associated with indebtedness incurred by
the Employee Plans in the acquisition of Common Stock by the
Employee Plans.
<PAGE>
Board of Directors
DRAFT:__________________, 1997
Page 5
(h) The Bank, Converted Bank and the Holding Company are corporations
within the meaning of section 7701(a)(3) of the Internal Revenue
Code of 1986, as amended (the "Code").
(i) None of the shares of the Common Stock to be purchased by the
depositor-employees of the Bank in the Conversion will be issued or
acquired at a discount. However, shares may be given to certain
Directors and employees as compensation by means of the Employee
Plans. Compensation to be paid to such Directors and
depositor-employees will be commensurate with amounts paid to third
parties bargaining at arm's length for similar services.
(j) The fair market value of the assets of the Bank, which will be
transferred to the Converted Bank in the Conversion, will equal or
exceed the sum of the liabilities of the Bank which will be assumed
by the Converted Bank and any liabilities to which the transferred
assets are subject.
(k) The Bank is not under the jurisdiction of a bankruptcy or similar
court in any Title 11 or similar case within the meaning of section
368(a)(3)(A) of the Code.
(l) Upon the completion of the Conversion, the Holding Company will own
and hold 100% of the issued and outstanding capital stock of the
Converted Bank and no other shares of capital stock of the
Converted Bank will be issued and/or outstanding. At the time of
the Conversion, the Converted Bank does not have any plan or
intention to issue additional shares of its stock following the
transaction. Further, no shares of preferred stock of the Converted
Bank will be issued and/or outstanding.
(m) Upon the completion of the Conversion, there will be no rights,
warrants, contracts, agreements, commitments or understandings with
respect to the capital stock of the Converted Bank, nor will there
be any securities outstanding which are convertible into the
capital stock of the Converted Bank.
(n) No cash or property will be given to Eligible Account Holders,
Supplemental Eligible Account Holders, or others in lieu of (a)
nontransferable subscription rights, or (b) an interest in the
liquidation account of the Converted Bank.
(o) The Bank utilizes a reserve for bad debts in accordance with
section 593 of the Code and, following the Conversion, for federal
income tax purposes, to the extent allowed under the Code, the
Converted Bank shall continue to utilize the experience method to
calculate its reserve for bad debts in accordance with section 593.
<PAGE>
Board of Directors
DRAFT:__________________, 1997
Page 6
(p) The Bank currently satisfies the 60% "qualified assets" test of
section 7701(a)(19) of the Code. Management expects the Converted
Bank to be able to continue to satisfy the test in the future. The
Converted Bank will also satisfy the "qualified thrift lender"
tests set out in sections 301 and 303 of the Financial Institutions
Reform, Recovery and Enforcement Act of 1989.
(q) Depositors will pay the expenses of the Conversion solely
applicable to them, if any. The Holding Company and the Bank will
each pay expenses of the transaction attributable to them and will
not pay any expenses solely attributable to the depositors or to
the Holding Company shareholders.
(r) The exercise price of the subscription rights received by the
Bank's Eligible Account Holders, Supplemental Eligible Account
Holders, and other holders of subscription rights to purchase
Holding Company Common Stock will be equal to the fair market value
of the stock of the Holding Company at the time of the completion
of the Conversion as determined by an independent appraisal.
(s) The proprietary interests of the Eligible Account Holders and the
Supplemental Eligible Account Holders in the Bank arise solely by
virtue of the fact that they are account holders in the Bank.
(t) There is no plan or intention for the Converted Bank to be
liquidated or merged with another corporation following this
proposed transaction.
(u) The liabilities of the Bank assumed by the Converted Bank plus the
liabilities, if any, to which the transferred assets are subject
were incurred by the Bank in the ordinary course of its business
and are associated with the assets transferred.
(v) The Bank currently has no net operating losses for federal tax
purposes, and has no such losses available for carryover to future
tax years. The Bank has neither generated nor carried forward a
net operating loss for federal tax purposes in the past ten tax
years.
LIMITATIONS ON OPINION
Our opinions expressed herein are based solely upon current provisions
of the Internal Revenue Code of 1986, as amended, including applicable
regulations thereunder and current judicial and administrative authority.
Any future amendments to the Code or applicable regulations, or new judicial
decisions or administrative interpretations, any of which could be
retroactive in effect, could cause us to modify our opinion. No opinion is
expressed herein with regard to the federal, state, or city tax consequences
of the Conversion under any section of the
<PAGE>
Board of Directors
DRAFT:__________________, 1997
Page 7
Code, or with respect to any aspect of the transaction, except if and to the
extent specifically addressed.
FEDERAL TAX OPINION
Based solely upon the foregoing representations and information and
assuming the transaction occurs in accordance with the Plan of Conversion
(and taking into consideration the limitations noted throughout this
opinion), it is our opinion that under current federal income tax law:
(1) Pursuant to the Conversion, the changes at the corporate level
other than changes in the form of organization will be
insubstantial. Based upon that fact and the fact that the equity
interest of a depositor in a mutual savings bank is more nominal
than real, unlike that of a shareholder of a corporation, the
Conversion of the Bank from a mutual savings bank to a stock
savings bank is a tax-free reorganization since it is a mere change
in identity, form or place of organization within the meaning of
section 368(a)(1)(F) of the Code (see Rev. Rul. 80-105, 1980-1 C.B.
78). Neither the Bank nor the Converted Bank shall recognize gain
or loss as a result of the Conversion. The Bank and the Converted
Bank shall each be "a party to a reorganization" within the meaning
of section 368(b) of the Code.
(2) No gain or loss shall be recognized by the Converted Bank or the
Holding Company on the receipt by the Converted Bank of money from
the Holding Company in exchange for shares of the Converted Bank's
capital stock or by the Holding Company upon the receipt of money
from the sale of its Common Stock (Section 1032(a) of the Code).
(3) The basis of the assets of the Bank in the hands of the Converted
Bank shall be the same as the basis of such assets in the hands of
the Bank immediately prior to the Conversion (Section 362(b) of the
Code).
(4) The holding period of the assets of the Bank in the hands of the
Converted Bank shall include the period during which the Bank held
the assets (Section 1223(2) of the Code).
(5) No gain or loss shall be recognized by the Eligible Account Holders
and the Supplemental Eligible Account Holders of the Bank on the
issuance to them of withdrawable deposit accounts in the Converted
Bank plus interests in the liquidation account of the Converted
Bank (in the case of Eligible Account Holders) in exchange for
their deposit accounts in the Bank or to the other
<PAGE>
Board of Directors
DRAFT:__________________, 1997
Page 8
depositors on the issuance to them of withdrawable deposit accounts
(Section 354(a) of the Code).
(6) Provided that the amount to be paid for such stock pursuant to the
subscription rights is equal to the fair market value of the stock,
no gain or loss will be recognized by Eligible Account Holders and
Supplemental Eligible Account Holders upon the distribution to them
of the nontransferable subscription rights to purchase shares of
stock in the Holding Company (Section 356(a)). Gain realized, if
any, by the Eligible Account Holders and Supplemental Eligible
Account Holders on the distribution to them of nontransferable
subscription rights to purchase shares of Common Stock will be
recognized but only in an amount not in excess of the fair market
value of such subscription rights (Section 356(a)). Eligible
Account Holders and Supplemental Eligible Account Holders will not
realize any taxable income as a result of the exercise by them of
the nontransferable subscription rights (Rev. Rul. 56-572, 1956-2
C.B. 182).
(7) The basis of the deposit accounts in the Converted Bank to be
received by the Eligible Account Holders, Supplemental Eligible
Account Holders and other depositors of the Bank will be the same
as the basis of their deposit accounts in the Bank surrendered in
exchange therefor (Section 358(a)(1) of the Code). The basis of
the interests in the liquidation account of the Converted Bank to
be received by the Eligible Account Holders shall be zero (Rev.
Rul. 71-233, 1971-1 C.B. 113). The basis of the Holding Company
Common Stock to its stockholders will be the purchase price thereof
plus the basis, if any, of nontransferable subscription rights
(Section 1012 of the Code). Accordingly, assuming the
nontransferable subscription rights have no value, the basis of the
Common Stock to the Eligible Account Holders and Supplemental
Eligible Account Holders will be the amount paid therefor. The
holding period of the Common Stock purchased pursuant to the
exercise of subscription rights shall commence on the date on which
the right to acquire such stock was exercised (Section 1223(6) of
the Code).
Our opinion under paragraph (6) above is predicated on the
representation that no person shall receive any payment, whether in money or
property, in lieu of the issuance of subscription rights. Our opinion under
paragraphs (6) and (7) above assumes that the subscription rights to purchase
shares of Common Stock received by Eligible Account Holders and Supplemental
Eligible Account Holders have a fair market value of zero. We understand
that you have received a letter from FinPro, Inc. that the subscription
rights do not have any value. We express no view regarding the valuation of
the subscription rights.
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
<PAGE>
Board of Directors
DRAFT:__________________, 1997
Page 9
rights are exercised) and Holding Company and/or the Converted Bank may be
taxable on the distribution of the subscription rights.
* * *
Since this letter is rendered in advance of the closing of this
transaction, we have assumed that the transaction will be consummated in
accordance with the Plan of Conversion as well as all the information and
representations referred to herein. Any change in the transaction could
cause us to modify our opinion.
We consent to the inclusion of this opinion as an exhibit to the Form
S-1 Registration Statement of Holding Company and the Notice of Application
for Conversion to be filed with the FDIC (the "Notice") and the Application
for Conversion to be filed with the Illinois Office of Banks and Real Estate
(the "Application") and the references to and summary of this opinion in such
Form S-1 Registration Statement, Notice and Application.
Sincerely,
MULDOON, MURPHY & FAUCETTE
<PAGE>
Exhibit 8.1 Draft Opinion of KPMG Peat Marwick LLP re: State Tax Matters
<PAGE>
October 24, 1997
Board of Directors
Elgin Financial Center, S.B.
1695 Larkin Avenue
Elgin, Illinois 60123
Board of Directors
EFC Bancorp, Inc.
1695 Larkin Avenue
Elgin, Illinois 60123
Re: State of Illinois Tax Consequences of the Conversion of Elgin
Financial Center, S.B. from an Illinois Chartered Mutual Savings Bank
to an Illinois Chartered Stock Savings Bank and Sale of Common Stock
of EFC Bancorp, Inc.
You have requested an opinion of the potential State of Illinois income tax
consequences of the proposed conversion of Elgin Financial Center, S.B. from
an Illinois chartered mutual savings bank ("Elgin Savings") to an Illinois
chartered stock savings bank ("Elgin Savings Stock") and the acquisition of
Elgin Savings Stock's capital stock by EFC Bancorp, Inc. ("EFC"), a newly
formed holding company in the state of Delaware, pursuant to the plan
("Plan") of conversion ("Conversion").
You have submitted for our consideration the prospectus (Prospectus) for the
Conversion of Elgin Savings from the mutual to stock form of organization.
Based upon our review of the Prospectus and our understanding of the Facts
(as detailed in Section I) and your Representations (as detailed in Section
II), we have rendered our opinion (in Section III) regarding the potential
State of Illinois income tax effect of the proposed Conversion.
Our opinion is restricted solely to the State of Illinois income tax
consequences discussed herein regarding the Conversion of Elgin Savings
<PAGE>
Page 2
Board of Directors
Elgin Financial Center, S.B.
October 24, 1997
from the mutual to the stock form of organization, the issuance of Elgin
Savings Stock's outstanding shares to EFC, and the granting of
non-transferable rights to subscribe to EFC's stock to eligible account
holders, tax qualified employee benefit plans, including an employer's stock
ownership plan ("ESOP"), supplemental eligible account holders and other
voting members and certain other recipients. We express no opinion regarding
matters not expressly addressed herein and no inference should be made
regarding any matter not expressly addressed.
This opinion is exclusively for the use of EFC, Elgin Savings Stock and Elgin
Savings in their submission to the Office of Thrift Supervision or other
appropriate governmental body or agency for approval of the proposed
Conversion and related transactions described herein and is not to be used
for any other purpose without our written consent. We do consent to the
inclusion of this opinion as an Exhibit to the Form S-1 Registration
Statement of EFC and the references to this opinion in such Registration
Statement.
Our conclusions reflect our professional judgment based on the facts and
representations delineated herein as well as existing tax authorities that
are subject to change. Any changes in facts, representations, or in existing
tax authority could, of course, affect our conclusions. Further, our opinion
represents merely our view of the transactions. No assurance can be given
that either the Treasury, the Internal Revenue Service, or the Illinois
Department of Revenue will agree with our opinion. The views of the Internal
Revenue Service and the Illinois Department of Revenue may differ from those
expressed herein.
SECTION I
STATEMENT OF FACTS
Elgin Savings, with administrative offices in Elgin, Illinois, is a state
chartered mutual savings bank. As a mutual savings bank, Elgin Savings has
<PAGE>
Page 3
Board of Directors
Elgin Financial Center, S.B.
October 24, 1997
never been authorized to issue stock. Instead, the proprietary interest in
the reserves and undivided profits of Elgin Savings belong to the deposit
account holders of Elgin Savings, hereinafter sometimes referred to as
"depositors". A depositor of Elgin Savings has a right to share, pro rata,
with respect to the withdrawal value of his respective deposit account in any
liquidation proceeds distributed in the event Elgin Savings is ever
liquidated. In addition, a depositor of Elgin Savings is entitled to
interest on his account balance as fixed and paid by Elgin Savings.
In order to provide organizational and economic strength to Elgin Savings,
the Board of Directors adopted a plan of conversion ("Plan of Conversion")
whereby Elgin Savings will convert itself into an Illinois chartered stock
savings bank (Elgin Savings Stock), the stock of which will be held entirely
by EFC, a newly organized Delaware corporation. EFC will acquire the stock
of Elgin Savings Stock by purchase, using proceeds received from the sale of
its own stock under the Plan of Conversion. In connection with the
Conversion, EFC will issue shares of its $.01 par value common stock ("Common
Stock") in the Subscription and Community Offering. The price of the Common
Stock will be based on FinPro's, an independent appraiser, valuation of the
estimated proforma market value of the Common Stock as determined by the
estimated total proforma market value of Elgin Savings Stock and EFC after
conversion. The Conversion will be subject to the approval of the Office of
Thrift Supervision, Department of Treasury ("OTS").
In accordance with the Plan of Conversion, non-transferable rights to
subscribe for the purchase of Common Stock have been granted under the Plan
of Conversion to the following persons in a subscription offering
("Subscription Offering"), (1) holders of qualifying deposit accounts of $100
or more as of the close of business on July 31, 1996 ("Eligible Account
Holders"), (2) EFC's tax qualified stock employee benefit plans including the
Employee Stock Ownership Plan ("Employee Plans"), (3) Supplemental Eligible
Account Holders, a term which is defined to mean any person who is a holder
of a qualified deposit account of $100 or more at Elgin Savings as of
September 30, 1997, and (4) members of Elgin Savings, consisting of
<PAGE>
Page 4
Board of Directors
Elgin Financial Center, S.B.
October 24, 1997
depositors and borrowers of Elgin Savings as of the voting record date other
than Eligible Account Holders or Supplemental Eligible Account Holders
("Other Voting Members"). All subscriptions received will be subject to the
availability of Common Stock after satisfaction of all subscriptions of all
persons having prior rights in the Subscription Offering and to the maximum
and minimum purchase limitations set forth in the Plan of Conversion.
Currently, and subject to the prior rights of holders of subscription rights,
any shares of Common Stock not subscribed for in the Subscription Offering
will be offered in a community offering ("Community Offering") to certain
members of the general public, with preference given to natural persons
residing in the Kane, Cook, and McHenry counties in Illinois, in which Elgin
Savings maintains an office. It is anticipated that all shares not
subscribed for in the Subscription and Community Offerings will be offered by
EFC to the general public in a syndicated community offering ("Syndicated
Community Offering").
Except for the ESOP, no Eligible Account Holder or Supplemental Eligible
Account Holder may purchase in the Subscription Offering more than $200,000
of Common Stock; no person, together with associates and persons acting in
concert with such person, may purchase in the Community Offering and the
Syndicated Community Offering more than $200,000 of Common Stock.
EFC intends to establish a charitable foundation ("Foundation") incorporated
under Delaware law as a non-stock corporation, in connection with the
Conversion. The Plan provides that Elgin Savings Stock and EFC will create
the Foundation and EFC will contribute to the Foundation a number of shares
of its Common Stock equal to 8% of the number of shares of Common Stock sold
in the Conversion. The Foundation will pay EFC an amount equal to the
aggregate par value of the stock donated. The Foundation will be dedicated
to charitable purposes within Elgin Savings Stock's local community.
The Conversion will not affect Elgin Savings' deposit accounts, individual
account balances or existing FDIC insurance coverage, nor will it affect
Elgin Savings' loan accounts, loan balances or the obligations of the
borrowers to
<PAGE>
Page 5
Board of Directors
Elgin Financial Center, S.B.
October 24, 1997
Elgin Savings. Upon Conversion, voting rights with respect to Elgin Savings'
corporate matters shall vest exclusively in EFC, which will be the sole
shareholder of Elgin Savings Stock's stock.
Elgin Savings Stock will continue, after completion of the Conversion, to
provide existing services to depositors and borrowers pursuant to existing
policies and will maintain existing offices, management and employees. Elgin
Savings Stock will continue to be insured by the FDIC up to applicable limits
and will continue to be regulated by the FDIC. The affairs of Elgin Savings
Stock will be directed by the existing Board of Directors of Elgin Savings,
who will become directors of Elgin Savings Stock. Elgin Savings' depositors
will pay expenses of the Conversion solely attributable to them, if any,
Elgin Savings and EFC will each pay their own expenses of the Conversion and
will not pay any expenses solely attributable to the shareholders of EFC.
The proposed Conversion of Elgin Savings does not include a receivership,
foreclosure or similar proceeding before a federal or state agency involving
a financial institution.
After the Conversion, each depositor of Elgin Savings Stock shall have a
claim upon complete liquidation of Elgin Savings Stock to receive their pro
rata share of any assets of Elgin Savings Stock remaining after payment of
claims of all creditors. The claim of a depositor shall be limited to his
(her) pro rata share of the remaining assets in the ratio of the value of the
depositor's account balance plus accrued interest to the total value of all
depositors' accounts plus accrued interest at the time of liquidation.
A liquidation account for the benefit of Eligible Account Holders and
Supplemental Eligible Account Holders shall be established upon Conversion in
an amount equal to the surplus and reserves ("Net Worth") of Elgin Savings as
of the latest balance sheet contained in the final Prospectus used in
connection with the Conversion. After Conversion, each Eligible Account
Holder and Supplemental Eligible Account Holder shall be entitled, upon a
complete liquidation of Elgin Savings Stock, to such Holder's pro rata
<PAGE>
Page 6
Board of Directors
Elgin Financial Center, S.B.
October 24, 1997
interest in the liquidation account. The establishment of the liquidation
account will not operate to restrict the use of application of any of the Net
Worth accounts of Elgin Savings Stock, except that Elgin Savings Stock will
not declare or pay cash dividends or repurchase any of its stock if the
result thereof would be to reduce its Net Worth below the amount required for
the liquidation account. Each Eligible Account Holder and Supplemental
Eligible Account Holder will have a pro rata interest in the total
liquidation account for the amount each of Holder's deposit accounts on July
31, 1996 and September 30, 1997, respectively, the eligibility record dates,
bore to the balance of all Deposit Accounts in Elgin Savings on such dates.
If however, at the close of business on the last day of any period for which
Elgin Savings Stock or EFC has prepared audited financial statements
subsequent to the effective date of the Conversion ("Annual Closing Date"),
the amount in any Deposit Account is less than the amount in such Deposit
Account on any other Annual Closing Date, then an Eligible Account Holder's
or Supplemental Eligible Account Holder's interest in the liquidation account
relating to such Deposit Account would be reduced from time to time by the
proportion of any such reduction, and such interest will cease to exist if
such Deposit Account is withdrawn or closed. In addition, no interest in the
liquidation account would ever be increased despite any subsequent increase
in the related Deposit Account. Any assets remaining after the above
liquidation rights of Eligible Account Holders and Supplemental Eligible
Account Holders are satisfied would be distributed to EFC as the sole
stockholder of Elgin Savings Stock.
The assets and liabilities, including deposits, of Elgin Savings shall become
the assets and liabilities of Elgin Savings Stock. All account balances at
the termination of operations under Elgin Savings' charter will be
transferred by operation of law intact to Elgin Savings Stock.
<PAGE>
Page 7
Board of Directors
Elgin Financial Center, S.B.
October 24, 1997
SECTION II
REPRESENTATIONS
You have also provided the following representations concerning this
transaction:
(1) Elgin Savings' Eligible Account Holders, Supplemental Eligible
Account Holders, and Other Voting Members, and Elgin Savings'
Employees will pay the expenses of the Conversion solely
applicable to them, if any. EFC and Elgin Savings will each pay
expenses of the transaction attributable to them and will not pay
any expenses solely attributable to the depositors or to EFC's
shareholders.
(2) The proposed transactions do not involve the payment to EFC,
Elgin Savings, or Elgin Savings Stock of financial
assistance from Federal agencies within the meaning of
Notice 89-102, 1989-40, C.B.1.
(3) The fair market value of the withdrawable deposit accounts
plus interest in the liquidation account of Elgin Savings
Stock to be constructively received under the Plan of
Conversion will, in each instance, be equal to the fair
market value of the withdrawable deposit accounts in Elgin
Savings surrendered in exchange therefor.
(4) No amount of an individual's total qualifying deposits in
Elgin Savings as of the eligibility record dates will be excluded
from participating in the liquidation account.
(5) No Eligible Account Holder or Supplemental Eligible Account
Holder as of the eligibility record dates will be excluded from
participating in the liquidation account.
<PAGE>
Page 8
Board of Directors
Elgin Financial Center, S.B.
October 24, 1997
(6) None of the shares of Common Stock to be purchased by the
depositor-employees of Elgin Savings will be issued or acquired
at a discount. However, shares will be given to certain
employees as compensation by means of Elgin Savings Stock's
stock award plans. Compensation to be paid to such
depositor-employees will be commensurate with amounts paid to
third parties bargaining at arm's length for similar services.
(7) No cash or property will be given to Eligible Account Holders, or
Supplemental Eligible Account Holders, or others in lieu of (a)
non-transferable subscription rights, or (b) an interest in the
liquidation account of Elgin Savings Stock.
(8) The exercise price of the subscription rights received by Elgin
Savings' Eligible Account Holders or Supplemental Eligible
Account Holders to purchase EFC Common Stock will be equal to the
fair market value of the stock of EFC at the time of the
completion of the proposed transactions determined by an
independent appraisal and they will have no purchase price
advantage.
(9) The Eligible Account Holders' or Supplemental Eligible Account
Holders' proprietary interest in Elgin Savings arise solely by
virtue of the fact that they are account holders in Elgin
Savings. None of the compensation to be received by Eligible
Account Holders-Employees or Supplemental Eligible Account
Holder-Employees of Elgin Savings will be separate consideration
for any of their deposits in Elgin Savings.
(10) To the best of knowledge of management of Elgin Savings, there is
not now, nor will there be at the time of reorganization, any
plan or intention on the part of the depositors in Elgin Savings
to withdraw their deposits from Elgin Savings Stock following the
Conversion.
<PAGE>
Page 9
Board of Directors
Elgin Financial Center, S.B.
October 24, 1997
(11) All distributions to deposit holders in their capacity as deposit
holders (except for normal interest payments made by Elgin
Savings) will, in the aggregate, constitute less than one percent
of the fair market value of the net assets of Elgin Savings.
(12) Elgin Savings has received an opinion from FinPro ("FinPro
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
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 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
Conversion stock.
(13) EFC has no plan or intention to sell, liquidate or otherwise
dispose of the stock of Elgin Savings Stock or sell the assets of
Elgin Savings Stock other than in the ordinary course of
business.
(14) EFC and Elgin Savings Stock have no current plan or intention to
redeem or otherwise acquire any of the shares of Common Stock
issued in the Conversion transaction.
(15) Elgin Savings, Elgin Savings Stock, and EFC are corporations
within the meaning of Section 7701(a)(3) of the Internal Revenue
Code of 1986, as amended (the "Code") and are not investment
companies within the meaning of Code Section 368(a)(2)(F)(iii)
and (iv).
(16) Upon the completion of the Conversion, EFC will own and hold 100%
of the issued and outstanding capital stock of Elgin Savings
Stock and no other shares of capital stock of Elgin Savings Stock
will be issued and/or outstanding. At the time of the
Conversion, Elgin Savings Stock does not have any plan or
intention to issue additional shares of its stock following the
transaction. Further, no
<PAGE>
Page 10
Board of Directors
Elgin Financial Center, S.B.
October 24, 1997
shares of preferred stock of Elgin Savings Stock, if any, will be
issued and/or outstanding.
(17) There is no plan or intention for Elgin Savings Stock to be
liquidated or merged with another corporation following this
proposed transaction.
(18) If all of the net proceeds from the sale of conversion stock had
been contributed by EFC to Elgin Savings Stock in exchange for
common stock of Elgin Savings Stock in the transaction, as
opposed to EFC retaining a portion of such net proceeds (the
"retained proceeds,") and Elgin Savings Stock immediately
thereafter made a distribution of the retained proceeds to EFC,
Elgin Savings Stock 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 tax bad
debt reserves of Elgin Savings Stock under Code Section 593(e).
(19) After the Conversion, Elgin Savings Stock will continue the
business of Elgin Savings in the same manner as prior to the
Conversion. Following the Conversion, Elgin Savings Stock has no
plan or intention and EFC has no plan or intention to cause Elgin
Savings Stock to sell its assets other than in the ordinary
course of business.
(20) Elgin Savings Stock has no plan or intention to issue additional
shares of stock following the proposed transaction, other than
shares that may be issued to employees and/or directors pursuant
to certain stock option or stock award plans or that may be
issued to employee benefit plans.
(21) Immediately after the Conversion, the assets and liabilities of
Elgin Savings Stock will be identical to the assets and
liabilities of Elgin Savings immediately prior to the Conversion,
plus substantially all
<PAGE>
Page 11
Board of Directors
Elgin Financial Center, S.B.
October 24, 1997
the net proceeds from the sale of Elgin Savings Stock's common
stock to EFC.
(22) The fair market value of the assets of Elgin Savings, which will
be transferred to Elgin Savings Stock in the Conversion, will be
equal to or exceed the sum of the liabilities of Elgin Savings
which will be assumed by Elgin Savings Stock and any liabilities
to which the transferred assets are subject. Elgin Savings will
have a positive regulatory net worth at the time of the
transaction.
(23) The applicable authority, as defined in Code Section
368(a)(3)(D), has not made the certification of insolvency
described in Code Section 368(a)(3)(D), nor will such
certification be made prior to or otherwise in connection with
the proposed transaction. Elgin Savings is not under the
jurisdiction of a Bankruptcy or similar court.
(24) Upon the completion of the Conversion, there will be no rights,
warrants, contracts, agreements, or commitments or understanding
with respect to the capital stock of Elgin Savings Stock, nor
will there be any securities outstanding which are convertible
into the capital stock of Elgin Savings Stock.
(25) The liabilities of Elgin Savings assumed by Elgin Savings Stock
plus the liabilities, if any, to which the transferred assets are
subject were incurred by Elgin Savings in the ordinary course of
its business and are associated with the assets transferred.
(26) Elgin Savings will not have any Federal net operating loss
carryovers but will have a small capital loss carryover at the
time of the Conversion.
(27) The tax basis of Elgin Savings Stock's assets (excluding cash,
goodwill and any marketable security whose fair market value is
at least 95% of its adjusted basis) immediately before the
acquisition
<PAGE>
Page 12
Board of Directors
Elgin Financial Center, S.B.
October 24, 1997
of its stock by EFC does not exceed the fair market value of
Elgin Savings Stock's assets by more than 15%. Further, the
difference between the fair market value of Elgin Savings Stock's
assets, within the meaning of Code Section 382(h), and its tax
basis in such assets immediately before the acquisition of its
shares by EFC is not greater than the lesser of (a) $10,000,000
or (b) 15% of the fair market value of its assets.
(28) 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 Elgin
Savings immediately preceding the transaction) will in the
aggregate constitute less than 1% of the net assets of Elgin
Savings and any such expenses and distributions will be paid by
Elgin Savings Stock from the proceeds of the sale of the
Conversion stock.
SECTION III
OPINION
The State of Illinois has adopted federal law as currently amended as the
starting point for computing Illinois taxable income [35 ILCS 5/203(b)].
Income tax terms are defined in relation to the Internal Revenue code [35
ILCS 5/102]. Taxpayers are required to use the same taxable year and
accounting methods as are used in computing federal taxable income [35 ILCS
5/401(a) and 5/402(a)].
For State of Illinois tax purposes, the Internal Revenue Code and
related regulations, rulings and case law are controlling unless
specifically provided in the Illinois statutes. There are no specific
provisions in the Illinois statutes governing the proposed
transactions. Thus, our opinion below addresses our view as to the
Federal income tax consequences of the proposed transactions which, as
indicated above, should also be the Illinois income tax consequences.
<PAGE>
Page 13
Board of Directors
Elgin Financial Center, S.B.
October 24, 1997
Based solely upon the facts and representations listed above and
provided that the facts and representations are correct, we render the
following opinion with respect to the Federal and State of Illinois
income tax consequences of the proposed transaction. Our opinion is
only applicable to the tax effects of those Internal Revenue Code
Sections specifically discussed below. No opinion is expressed nor
can any inferences be drawn as to the applicability of any other Code
Section.
1. The proposed Conversion of Elgin Savings from an Illinois
chartered mutual savings bank ("Elgin Savings") to an Illinois
chartered stock savings bank ("Elgin Savings Stock") will
constitute a tax-free reorganization within the meaning of Code
Section 368(a)(1)(F), and no gain or loss will be recognized to
Elgin Savings or Elgin Savings Stock as a result or such
Conversion.
2. No gain or loss will be recognized to Elgin Savings Stock upon
the receipt of money from EFC in exchange for common stock of
Elgin Savings Stock [Code Section 1032(a)].
3. No gain or loss will be recognized by EFC upon the receipt of
money for stock issued in the Conversion. [Code Section
1032(a)].
4. The assets of Elgin Savings Stock following the proposed
Conversion will have the same basis as in the hands of Elgin
Savings immediately before the Conversion [Code Section 362(b)].
5. The holding period of Elgin Savings Stock's assets following the
proposed Conversion will include the period such assets were held
by Elgin Savings immediately before the Conversion [Code Section
1223(2)].
6. No gain or loss will be recognized by Eligible Account Holders or
Supplemental Eligible Account Holders of Elgin Savings upon the
issuance to them of accounts in Elgin Savings Stock in the same
dollar amount as their accounts in Elgin Savings, plus interests
in the
<PAGE>
Page 14
Board of Directors
Elgin Financial Center, S.B.
October 24, 1997
liquidation account of Elgin Savings Stock, because the fair
market value of the withdrawable accounts coupled with the
liquidation account interest in Elgin Savings Stock at the time
of the Conversion is deemed to be equal to the basis of the
accounts in Elgin Savings (Code Section 1001; see Paulsen v.
Commissioner, 469 U.S. 131, 139 (1985), quoting Society for
Savings v. Bowers, 349 U.S. 143 (1955); but see Revenue Rulings
69-3, 1969-1 CB 103 and 69-646, 1969-2 CB54, the interest
received rises to the level of "stock" and, thus, Code Section
354 applies).
7. Provided that the amount to be paid for such stock pursuant to
the subscription rights is equal to the fair market value of the
stock, no gain or loss will be recognized by Eligible Account
Holders, Supplemental Eligible Account Holders, Other Voting
Members, directors, officers, and employees of Elgin Savings,
upon the distribution to them of stock in EFC [Code Section
356(a)]. Gain realized, if any, by the Eligible Account Holders,
Supplemental Eligible Account Holders, and other recipients on
the distribution to them of the nontransferable subscription
rights to purchase shares of Common Stock will be recognized but
only in an amount not in excess of the fair market value of such
subscription rights [Code Section 356(a)]. Eligible Account
Holders, Supplemental Eligible Account Holders, and other
recipients will not realize any taxable income as a result of the
exercise by them of the non-transferable subscription rights
(Rev. Rul. 56-572, 1956-2 C.B. 182). This opinion is predicated
on the representation that no person shall receive any payment in
lieu of the issuance of subscription rights and upon the FinPro
Opinion that the subscription rights do not have any value.
However, notwithstanding the FinPro Opinion, if the subscription
rights are subsequently found to have a fair market value, income
may be recognized by the various recipients of the subscription
rights (in certain cases whether or not the rights are exercised)
and EFC and Elgin Savings Stock may be taxable on the
distribution of subscription rights (Code Section 311).
<PAGE>
Page 15
Board of Directors
Elgin Financial Center, S.B.
October 24, 1997
8. Pursuant to Code Section 1012, the basis of the savings accounts
in Elgin Savings Stock to be constructively received by the
account holders of Elgin Savings will be equal to the cost of
such property. The cost will be the fair market value of their
savings account in Elgin Savings Stock constructively received in
exchange for their savings account in Elgin Savings. For this
purpose, the fair market value of the deposit accounts in Elgin
Savings Stock after the proposed Conversion will be equal to the
basis the Eligible Account Holders and Supplemental Eligible
Account Holders have in their deposits in Elgin Savings
immediately before the proposed Conversion. The basis for each
account holder's interest in the liquidation account of Elgin
Savings Stock will be equal to the cost of such property. The
cost will be the same as the fair market value of the proprietary
interest received in Elgin Savings Stock, in exchange for their
proprietary interest in Elgin Savings. The account holders'
interest in the liquidation account in Elgin Savings Stock will
be deemed to have a basis and fair market value equal to zero.
[See Paulsen v. Commissioner, 469 U.S. at 139 (1985) and Rev.
Rul. 71-233, 1971-1 C.B. 113].
9. The basis of EFC's stock to its stockholders will be the purchase
price paid for such stock plus the basis, if any, of
non-transferable subscription rights (Code Section 1012).
Accordingly, assuming the subscription rights have no value, the
basis of the Common Stock to the Eligible Account Holders and
Supplemental Eligible Account Holders will be the amount paid for
such stock. Our opinion is predicated upon the FinPro Opinion
that the subscription rights do not have any value. The holding
period of the Common Stock purchased pursuant to the exercise of
subscription rights shall commence on the date on which the right
to acquire such stock was exercised [Code Section 1223 (6)].
10. For purposes of Code Section 381, Elgin Savings Stock will be
treated as if there had been no reorganization. Accordingly, the
taxable year of Elgin Savings will not end on the effective date
of the
<PAGE>
Page 16
Board of Directors
Elgin Financial Center, S.B.
October 24, 1997
Conversion and the tax attributes of Elgin Savings will be taken
into account by Elgin Savings Stock as if there had been no
reorganization [Treasury Regulation Section 1.381(b)-(1)(a)(2)].
The part of the taxable year of Elgin Savings before the
Conversion through Elgin Savings' normal year end will constitute
a single taxable year of Elgin Savings Stock (Revenue Ruling
57-276, 1957-1 C.B. 126).
11. Pursuant to the provisions of Code Section 381(c)(2) and Treasury
Regulation Section 1.381(c)(2)-1, Elgin Savings Stock will
succeed and take into account the earnings and profits of Elgin
Savings as of the date of the Conversion. The Conversion will
not diminish the accumulated earnings and profits of Elgin
Savings Stock available for the subsequent distribution of
dividends within the meaning of Code Section 316 and Treasury
Regulations Section 1.312-11(b) and (c) as well as the
application of Code Section 593(e).
12. Pursuant to the provisions of Code Section 381(c)(3) and Treasury
Regulation Section 1.381(c)(3)-1, and subject to the restrictions
therein, Elgin Savings Stock will succeed to and take into
account capital loss carryovers, if any, of Elgin Savings in its
first taxable year ending after the date of the Conversion
subject to the limitations of Code Section 382, if applicable.
13. Pursuant to the provisions of Code Section 381(c)(4) and Treasury
Regulation Section 1.381(c)(4)-1(a)(1)(ii), Elgin Savings Stock
will succeed to and take into account, immediately after the
Conversion, those accounts of Elgin Savings that represent "Base
Year" tax bad debt reserves as defined in the Small Business Job
Protection Act of 1996. Such Base Year tax bad debt reserves
will not be required to be restored to the gross income of Elgin
Savings or Elgin Savings Stock for the taxable year of the
Conversion, and the Base Year tax bad debt reserves will have the
same character in the hands of Elgin Savings Stock as they would
have in the hands of Elgin Savings if no transfer occurred.
<PAGE>
Page 17
Board of Directors
Elgin Financial Center, S.B.
October 24, 1997
14. The creation of the liquidation account on the records of Elgin
Savings Stock will have no effect on Elgin Savings Stock's or
Elgin Savings' taxable income, deductions, or distributions to
shareholders under Code Section 593(e).
15. Pursuant to the provisions of Code Section 381(c)(1) and Treasury
Regulation Section 1.381(c)(1)-1, and subject to restrictions
therein, Elgin Savings Stock will succeed to and take into
account net operating loss carryovers, if any, of Elgin Savings
in its first taxable year ending after the date of the
Conversion, subject to the limitations of Code Section 382, if
applicable.
16. EFC's acquisition of the stock of Elgin Savings Stock will result
in an ownership change of Elgin Savings Stock within the meaning
of Code Section 382(b)(2). Accordingly, if Elgin Savings Stock
had any net operating loss carryovers or net built-in losses,
their use in the future years would be limited to the product of
the pre-ownership fair market value of Elgin Savings Stock and
the long-term Federal tax-exempt rate on the effective date of
the ownership change or, if higher, the rate in effect for either
of the two calendar months immediately preceding the ownership
change [Code Sections 382(a)(1) and 382 (f)(1)].
17. The limitations on the deduction of built-in deductions pursuant
to Treasury Regulations Section 1.1502-15(a) and built-in losses
pursuant to Code Section 382(h)(3)(B)(i) with respect to Elgin
Savings Stock's assets upon the acquisition of its shares by EFC
will not apply.
<PAGE>
Page 18
Board of Directors
Elgin Financial Center, S.B.
October 24, 1997
SUMMARY
Based on the foregoing, it is our view that there should be no
material adverse State of Illinois income tax consequences to EFC,
Elgin Savings (mutual or stock), Eligible Account Holders or
Supplemental Eligible Account Holders and other recipients of
Conversion stock, as a result of the proposed transactions. However,
as indicated earlier, our opinion is based upon the facts and
representations detailed herein as well as current Federal and State
of Illinois income tax law, related cases, rulings, etc. Any changes
in the proposed transactions or in Federal and State of Illinois
income tax law prior to consummation of the proposed transactions or
which are retroactive in effect, could cause us to modify our opinion.
We consent to the inclusion of this opinion as an exhibit to the Form
S-1 Registration Statement of EFC and the references to and summary of
this opinion in such Registration Statement.
Very truly yours,
<PAGE>
Exhibit 10.1 Form of Elgin Financial Center, S.B. Employee Stock Ownership Plan
and Trust
<PAGE>
FORM OF
ELGIN FINANCIAL CENTER, S.B.
EMPLOYEE STOCK OWNERSHIP PLAN
Effective___________, 199__
<PAGE>
FORM OF
ELGIN FINANCIAL CENTER, S.B.
EMPLOYEE STOCK OWNERSHIP PLAN
CERTIFICATION
I, Barrett O'Connor, President and Chief Executive Officer of Elgin
Financial Center, S.B., an Illinois chartered stock savings bank (the "Bank"),
hereby certify that the attached Elgin Financial Center, S.B. Employee Stock
Ownership Plan, effective ________, 199__ was adopted at a duly held meeting of
the Board of Directors of the Bank on [Date].
ATTEST: ELGIN FINANCIAL CENTER, S.B.
________________________ By: _______________________________
________________________ Barrett O'Connor
Secretary President and Chief Executive Officer
DATE:_____________________________
<PAGE>
C O N T E N T S
Section 1. Plan Identity...................................................1
1.1 Name.................................................1
1.2 Purpose..............................................1
1.3 Effective Date. .....................................1
1.4 Fiscal Period........................................1
1.5 Single Plan for All Employers........................1
1.6 Interpretation of Provisions.........................1
Section 2. Definitions.....................................................1
Section 3: Eligibility and Participation...................................9
3.1 Initial Eligibility..................................9
3.2 Terminated Employees.................................9
3.3 Certain Employees Ineligible.........................9
3.4 Participation and Reparticipation....................9
Section 4. Employer Contributions and Credits.............................10
4.1 Discretionary Contributions.........................10
4.2 Contributions for Stock Obligations. ...............10
4.3 Definitions Related to Contributions. ..............11
4.4 Conditions as to Contributions......................11
Section 5. Limitations on Contributions and Allocations...................12
5.1 Limitation on Annual Additions......................12
5.2 Coordinated Limitation With Other Plans.............12
5.3 Effect of Limitations...............................13
5.4 Limitations as to Certain Section 1042
Transactions........................................14
5.5 Limitations as to Certain Participants..............14
Section 6. Trust Fund and Its Investment..................................16
6.1 Creation of Trust Fund...............................16
6.2 Stock Fund and Investment Fund. .....................16
6.3 Acquisition of Stock.................................16
6.4 Participants' Option to Diversify. ..................17
Section 7. Voting Rights and Dividends on Stock...........................17
7.1 Voting and Tendering of Stock........................17
7.2 Dividends on Stock...................................18
<PAGE>
Section 8. Adjustments to Accounts........................................18
8.1 Adjustments for Transactions.........................18
8.2 Valuation of Investment Fund.........................19
8.3 Adjustments for Investment Experience. ..............19
8.4 Adjustments for Capital Changes......................19
Section 9. Vesting of Participants' Interests.............................19
9.1 Deferred Vesting in Accounts.........................19
9.2 Computation of Vesting Years.........................20
9.3 Full Vesting Upon Certain Events.....................20
9.4 Full Vesting Upon Plan Termination...................21
9.5 Forfeiture, Repayment, and Restoral..................21
9.6 Accounting for Forfeitures...........................22
9.7 Vesting and Nonforfeitability........................22
Section 10. Payment of Benefits............................................22
10.1 Benefits for Participants............................22
10.2 Benefits on a Participant's Death....................23
10.3 Marital Status.......................................23
10.4 Delay in Benefit Determination.......................24
10.5 Accounting for Benefit Payments......................24
10.6 Options to Receive and Sell Stock....................24
10.7 Restrictions on Disposition of Stock.................25
10.8 Direct Transfer of Eligible Plan Distributions.......25
Section 11. Rules Governing Benefit Claims and Review of Appeals...........26
11.1 Claim for Benefits...................................26
11.2 Notification by Committee............................26
11.3 Claims Review Procedure..............................27
Section 12. The Committee and Its Functions................................27
12.1 Authority of Committee. .............................27
12.2 Identity of Committee................................27
12.3 Duties of Committee..................................27
12.4 Valuation of Stock...................................28
12.5 Compliance with ERISA................................28
12.6 Action by Committee..................................28
12.7 Execution of Documents...............................28
12.8 Adoption of Rules....................................29
12.9 Responsibilities to Participants.....................29
<PAGE>
12.10 Alternative Payees in Event of Incapacity............29
12.11 Indemnification by Employers.........................29
12.12 Nonparticipation by Interested Member................29
Section 13. Adoption, Amendment, or Termination of the Plan................30
13.1 Adoption of Plan by Other Employers..................30
13.2 Adoption of Plan by Successor........................30
13.3 Plan Adoption Subject to Qualification...............30
13.4 Right to Amend or Terminate..........................30
Section 14. Miscellaneous Provisions.......................................31
14.1 Plan Creates No Employment Rights....................31
14.2 Nonassignability of Benefits.........................31
14.3 Limit of Employer Liability..........................31
14.4 Treatment of Expenses................................32
14.5 Number and Gender....................................32
14.6 Nondiversion of Assets...............................32
14.7 Separability of Provisions...........................32
14.8 Service of Process...................................32
14.9 Governing State Law..................................32
14.10 Special Rules for Persons Subject to Section 16(b)
Requirements.........................................32
Section 15. Top-Heavy Provisions...........................................32
15.1 Determination of Top-Heavy Status....................32
15.2 Minimum Contributions................................34
15.3 Minimum Vesting......................................35
<PAGE>
FORM OF
ELGIN FINANCIAL CENTER, S.B.
EMPLOYEE STOCK OWNERSHIP PLAN
Section 1. Plan Identity.
1.1 Name. The name of this Plan is "Elgin Financial Center, S.B.
Employee Stock Ownership Plan."
1.2 Purpose. The purpose of this Plan is to describe the terms and
conditions under which contributions made pursuant to the Plan will be credited
and paid to the Participants and their Beneficiaries.
1.3 Effective Date. The Effective Date of this Plan is ________,
199__.
1.4 Fiscal Period. This Plan shall be operated on the basis of a
January 1-December 31 fiscal year for the purposes of keeping the Plan's books
and records and distributing or filing any reports or returns required by law.
1.5 Single Plan for All Employers. This Plan shall be treated as a
single plan with respect to all participating Employers for the purpose of
crediting contributions and forfeitures and distributing benefits,
determining whether there has been any termination of Service, and applying
the limitations set forth in Section 5.
1.6 Interpretation of Provisions. The Employers intend this Plan
and the Trust to be a qualified stock bonus plan under Section 401(a) of the
Code and an employee stock ownership plan within the meaning of Section
407(d)(6) of ERISA and Section 4975(e)(7) of the Code. The Plan is intended
to have its assets invested primarily in qualifying employer securities of
one or more Employers within the meaning of Section 407(d)(5) of ERISA and
Section 4975 (e)(8) of the Code, and to satisfy any requirement under ERISA
or the Code applicable to such a plan. Accordingly, the Plan and Trust
Agreement shall be interpreted and applied in a manner consistent with this
intent and shall be administered at all times and in all respects in a
nondiscriminatory manner.
Section 2. Definitions. The following capitalized words and phrases shall
have the meanings specified when used in this Plan and in the Trust Agreement,
unless the context clearly indicates otherwise:
"Account" means a Participant's interest in the assets accumulated under
this Plan, as expressed in terms of a separate account balance which is
periodically adjusted to reflect his Employer's contributions, the Plan's
investment experience, and distributions and forfeitures.
<PAGE>
"Active Participant" means any Employee who has satisfied the eligibility
requirements of Section 3 and who qualifies as an Active Participant for a
particular Plan Year under Section 4.3.
"Bank" means Elgin Financial Center, S.B., and any entity which succeeds to
the business of the Bank and adopts this Plan as its own pursuant to Section
13.2.
"Beneficiary" means the person or persons who are designated by a
Participant to receive benefits payable under the Plan on the Participant's
death. In the absence of any designation, or if all the designated
Beneficiaries shall die before the Participant dies or shall die before all
benefits have been paid, the Participant's Beneficiary shall be his surviving
Spouse, if any, or his estate if he is not survived by a Spouse. The Committee
may rely upon the advice of the Participant's executor or administrator as to
the identity of the Participant's Spouse.
"Break in Service" means any five or more consecutive 12-month periods
beginning January 1 in which an Employee has 500 or fewer Hours of Service per
period. Solely for this purpose, an Employee shall be considered employed for
his normal hours of paid employment during a Recognized Absence, unless he does
not resume his Service at the end of the Recognized Absence. Further, if an
Employee is absent for any period (i) by reason of the Employee's pregnancy,
(ii) by reason of the birth of the Employee's child, (iii) by reason of the
placement of a child with the Employee in connection with the Employee's
adoption of the child, or (iv) for purposes of caring for such child for a
period beginning immediately after such birth or placement, the Employee shall
be credited with the Hours of Service which would normally have been credited
but for such absence, up to a maximum of 501 Hours of Service, in the first
12-month period which would otherwise be counted toward a Break in Service.
"Code" means the Internal Revenue Code of 1986, as amended.
"Committee" means the committee responsible for the administration of this
Plan in accordance with Section 12.
"Disability" means a condition which renders the Participant totally and
permanently disabled due to sickness or injury, such disability is likely to be
continuous and permanent, and such disability renders the Participant unable to
continue a like gainful occupation. In any event, the Committee's good faith
decision as to whether a Participant's Service has been terminated by Disability
shall be final and conclusive.
"Early Retirement" means retirement on or after a Participant's attainment
of age ___.
"Effective Date" means _____________-, 199_.
"Employee" means any individual who is or has been employed by the Bank.
"Employee" also means an individual employed by a leasing organization who,
pursuant to an agreement between
2
<PAGE>
an Employer and the leasing organization, has performed services for the
Employer and any related persons (within the meaning of Section 414(n)(6) of
the Code) on a substantially full-time basis for more than one year, if such
services are of a type historically performed by employees in the Employer's
business field. However, such a "leased employee" shall not be considered an
Employee if (i) he participates in a money purchase pension plan sponsored by
the leasing organization which provides for immediate participation,
immediate full vesting, and an annual contribution of at least 10 percent of
the Employee's Total Compensation, and (ii) leased employees do not
constitute more than 20 percent of the Employer's total work force (including
leased employees, but excluding Highly Paid Employees and any other employees
who have not performed services for the Employer on a substantially full-time
basis for at least one year).
"Employer" means the Bank or any Affiliate within the purview of Sections
414(b), (c) or (m) and 415(h) of the Code, any other corporation, partnership,
or proprietorship which adopts this Plan with the Bank's consent pursuant to
Section 13.1, and any entity which succeeds to the business of any Employer and
adopts the Plan pursuant to Section 13.2.
"Entry Date" means January 1 and July 1.
"ERISA" means the Employee Retirement Income Security Act of 1974 (P.L.
93-406, as amended).
"Highly Compensated Employee" means an Employee who: (A) owned more than
five percent of the outstanding equity interest or the outstanding voting
interest in any Employer during the year or the preceding year, or (B) for the
preceding year (i) had Total Compensation exceeding $80,000 (as adjusted
pursuant to Section 415(d) of the Code), and, (ii) if the Employer elects with
respect to a preceding year, was among the most highly compensated one-fifth of
all Employees for such preceding year. For this purpose:
(a) "Total Compensation" shall include any amount which is excludable
from the Employee's gross income for tax purposes pursuant to Sections 125,
402(e)(3), 402(h)(1)(B), or 403(b) of the Code.
(b) The number of Employees in "the most highly compensated one-fifth
of all Employees" shall be determined by taking into account all
individuals working for all related employer entities described in the
definition of "Service", but excluding any individual who has not completed
six months of Service, who normally works fewer than 17-1/2 hours per week
or in fewer than six months per year, who has not reached age 21, whose
employment is covered by a collective bargaining agreement, or who is a
nonresident alien who receives no earned income from United States sources.
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(c) A former Employee shall be treated as a Highly Compensated
Employee if such Employee was a Highly Compensation Employee when such
Employee separated from service, or if such Employee was a highly paid
Employee at any time after attaining age 55.
(d) The determination of who is a Highly Compensated Employee,
including the determinations of the number and identity of Employees in the
top-paid group and the compensation that is considered, will be made in
accordance with Section 414(q) of the Code and the regulations thereunder.
"Holding Company" means EFC Bancorp, Inc., the holding company of Elgin
Financial Center, S.B., and any entity which succeeds to the business of the
Holding Company.
"Hours of Service" means hours to be credited to an Employee under the
following rules:
(a) Each hour for which an Employee is paid or is entitled to be paid
for services to an Employer is an Hour of Service.
(b) Each hour for which an Employee is directly or indirectly paid or
is entitled to be paid for a period of vacation, holidays, illness,
disability, lay-off, jury duty, temporary military duty, or leave of
absence is an Hour of Service. However, except as otherwise specifically
provided, no more than 501 Hours of Service shall be credited for any
single continuous period in which an Employee performs no duties. Further,
no Hours of Service shall be credited on account of payments made solely
under a plan maintained to comply with worker's compensation, unemployment
compensation, or disability insurance laws, or to reimburse an Employee for
medical expenses.
(c) Each hour for which back pay (ignoring any mitigation of damages)
is either awarded or agreed to by an Employer is an Hour of Service.
However, no more than 501 Hours of Service shall be credited for any single
continuous period during which an Employee would not have performed any
duties.
(d) Hours of Service shall be credited in any one period only under
one of the foregoing paragraphs (a), (b) and (c); an Employee may not get
double credit for the same period.
(e) If an Employer finds it impractical to count the actual Hours of
Service for any class or group of non-hourly Employees, each Employee in
that class or group shall be credited with 45 Hours of Service for each
weekly pay period in which he has at least one Hour of Service. However,
an Employee shall be credited only for his normal working hours during a
paid absence.
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(f) Hours of Service to be credited on account of a payment to an
Employee (including back pay) shall be recorded in the period of Service
for which the payment was made. If the period overlaps two or more Plan
Years, the Hours of Service credit shall be allocated in proportion to the
respective portions of the period included in the several Plan Years.
However, in the case of periods of 31 days or less, the Administrator may
apply a uniform policy of crediting the Hours of Service to either the
first Plan Year or the second.
(g) In all respects an Employee's Hours of Service shall be counted
as required by Section 2530.200b-2(b) and (c) of the Department of Labor's
regulations under Title I of ERISA.
"Investment Fund" means that portion of the Trust Fund consisting of assets
other than Stock.
"Normal Retirement Age" means a the later of the Participant's 65th
birthday or the fifth anniversary of the Participant's participation in the
Plan.
"Normal Retirement Date" means the first day of the month coincident with
or next following attainment of Normal Retirement Age.
"Participant" means any Employee who is participating in the Plan, or who
has previously participated in the Plan and still has a balance credited to his
Account.
"Plan" means Elgin Financial Center, S.B. Employee Stock Ownership Plan,
as set forth herein, and as amended from time to time.
"Plan Year" means the 12 consecutive month period commencing January 1 and
ending December 31 of each year.
"Recognized Absence" means a period for which --
(a) an Employer grants an Employee a leave of absence for a limited
period, but only if an Employer grants such leaves on a
nondiscriminatory basis; or
(b) an Employee is temporarily laid off by an Employer because of a
change in business conditions; or
(c) an Employee is on active military duty, but only to the extent
that his employment rights are protected by the Military
Selective Service Act of 1967 (38 U.S.C. sec. 2021).
"Service" means an Employee's period(s) of employment or self-employment
with an Employer, excluding for initial eligibility purposes any period in which
the individual was a
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nonresident alien and did not receive from an Employer any earned income
which constituted income from sources within the United States. An Employee's
Service shall include any service which constitutes service with a
predecessor employer within the meaning of Section 414(a) of the Code. An
Employee's Service shall also include any service with an entity which is not
an Employer, but only either (i) for a period after 1975 in which the other
entity is a member of a controlled group of corporations or is under common
control with other trades and businesses within the meaning of Sections
414(b) or 414(c) of the Code, and a member of the controlled group or one of
the trades and businesses is an Employer, or (ii) for a period after 1979 in
which the other entity is a member of an affiliated service group within the
meaning of Section 414(m) of the Code, and a member of the affiliated service
group is an Employer.
"Spouse" means the individual, if any, to whom a Participant is lawfully
married on the date benefit payments to the Participant are to begin, or on the
date of the Participant's death, if earlier.
"Stock" means shares of the voting common stock or preferred stock meeting
the requirements of Section 409(e)(3) of the Code issued by an Employer or an
affiliated corporation.
"Stock Fund" means that portion of the Trust Fund consisting of Stock.
"Stock Obligation" means an indebtedness arising from any extension of
credit to the Plan or the Trust which was obtained for the purpose of buying
Stock and which satisfies the requirements set forth in Section 6.3.
"Total Compensation" means a Participant's wages, salary, overtime,
bonuses, commissions, and any other amounts received for personal services
rendered while in Service from any Employer or an affiliate (within the purview
of Section 414(b), (c), and (m) of the Code), plus his earned income from any
such entity as defined in Section 401(c)(2) of the Code if he is self-employed.
"Total Compensation" shall include (i) severance payments and amounts paid as a
result of termination, (ii) amounts excludable from gross income under Section
911 of the Code, (iii) amounts described in Sections 104(a)(3), 105(a), and
105(h) of the Code to the extent includable in gross income, (iv) amounts
received from an Employer for moving expenses which are not deductible under
Section 217 of the Code, (v) amounts includable in gross income in the year of,
and on account of, the grant of a nonqualified stock option, (vi) amounts
includable in gross income pursuant to Section 83(b) of the Code, and (vii)
amounts includable in gross income under an unfunded nonqualified plan of
deferred compensation, but shall exclude (viii) Employer contributions to or
amounts received from a funded or qualified plan of deferred compensation, (ix)
Employer contributions to a simplified employee pension account to the extent
deductible under Section 219 of the Code, (x) Employer contributions to a
Section 403(b) annuity contract, and (xi) amounts includable in gross income
pursuant to Section 83(a) of the Code, (xii) amounts includable in gross income
upon the exercise of nonqualified stock option or upon the disposition of stock
acquired under any stock option, and (xiii) any other amounts expended by the
Employer on the Participant's behalf which are excludable from his income or
which receive special tax benefits. A
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Participant's Total Compensation shall exclude any compensation in any
limitation year in excess of the limit currently in effect under Section
401(a)(17) of the Code.
"Trust" or "Trust Fund" means the trust fund created under this Plan.
"Trust Agreement" means the agreement between the Bank and the Trustee
concerning the Trust Fund. If any assets of the Trust Fund are held in a
co-mingled Trust Fund with assets of other qualified retirement plans, "Trust
Agreement" shall be deemed to include the trust agreement governing that
co-mingled Trust Fund. With respect to the allocation of investment
responsibility for the assets of the Trust Fund, the provisions of Section 2 of
the Trust Agreement are incorporated herein by reference.
"Trustee" means one or more corporate persons and individuals selected from
time to time by the Bank to serve as trustee or co-trustees of the Trust Fund.
"Unallocated Stock Fund" means that portion of the Stock Fund consisting of
the Plan's holding of Stock which has been acquired in exchange for one or more
Stock Obligations and which has not yet been allocated to the Participant's
Accounts in accordance with Section 4.2.
"Valuation Date" means the last day of the Plan Year and each other date as
of which the Committee shall determine the investment experience of the
Investment Fund and adjust the Participants' Accounts accordingly.
"Valuation Period" means the period following a Valuation Date and ending
with the next Valuation Date.
"Vesting Year" means a unit of Service credited to a Participant pursuant
to Section 9.2 for purposes of determining his vested interest in his Account.
Section 3: Eligibility and Participation.
3.1 Initial Eligibility. An Employee shall enter the Plan as of the Entry
Date coinciding with or on the next date an Employee completes an eligibility
computation period with the Employer, during which the Employee completes at
least _________ Hours of Service for the Employer and attains age____.
However, if an Employee is not in active Service with an Employer on the
date he would otherwise first enter the Plan, his entry shall be deferred until
the next day he is in Service.
For purposes of this Plan, a Participant's initial eligibility computation
period shall be the six consecutive month period beginning with the day a
Participant first completes an Hour of Service. A Participant's subsequent
eligibility computation periods shall be the Plan Year, commencing with
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the Plan Year which includes the first anniversary of the day the Participant
first completed an Hour of Service.
3.2 Terminated Employees. No Employee shall have any interest or rights
under this Plan if he is never in active Service with an Employer on or after
the Effective Date.
3.3 Certain Employees Ineligible. No Employee shall be eligible to
participate in the Plan while he is employed by a division or subsidiary of the
Holding Company, other than the Bank, unless such division or subsidiary has,
with the approval of the Bank, adopted the Plan for its Employees.
Additionally, no Employee shall participate in the Plan who is a non-resident
alien, while his Service is an hourly-paid Employee, or is a non-resident alien
covered by a collective bargaining agreement between an Employer and the
Employee's collective bargaining representative if (i) retirement benefits have
been the subject of good faith bargaining between the Employer and the
representative and (ii) the collective bargaining agreement does not provide for
the Employee's participation in the Plan and a leased employee as defined under
Section 414(n)(2) of the Code.
3.4 Participation and Reparticipation. Subject to the satisfaction of the
foregoing requirements, an Employee shall participate in the Plan during each
period of his Service from the date on which he first becomes eligible until his
termination. For this purpose, an Employee returning within five years of his
or her termination who previously satisfied the initial eligibility requirements
shall re-enter the Plan as of the date of his return to Service with an
Employer.
Section 4. Employer Contributions and Credits.
4.1 Discretionary Contributions. Each Employer shall from time to time
contribute, with respect to a Plan Year, such amounts as it may determine from
time to time. An Employer shall have no obligation to contribute any amount
under this Plan except as so determined in its sole discretion. The Employers'
contributions and available forfeitures for a Plan Year shall be credited as of
the last day of the year to the Accounts of the Active Participants in
proportion to their amounts of Cash Compensation while a Participant.
4.2 Contributions for Stock Obligations. If the Trustee, upon
instructions from the Committee, incurs any Stock Obligation upon the purchase
of Stock, the Employer shall, subject to the provisions of the Bank's plan of
conversion and any regulatory prohibitions, contribute for each Plan Year an
amount sufficient to cover all payments of principal and interest as they come
due under the terms of the Stock Obligation. If there is more than one Stock
Obligation, the Employers shall designate the one to which any contribution is
to be applied. The Employer's obligation to make contributions under this
Section 4.2 shall be reduced to the extent of any investment earnings realized
on such contributions and any dividends paid by the Employers on Stock held in
the Unallocated Stock Account, which earnings and dividends shall be applied to
the Stock Obligation related to that Stock.
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In each Plan Year in which Employer contributions, earnings on
contributions, or dividends on unallocated Stock are used as payments under a
Stock Obligation, a certain number of shares of the Stock acquired with that
Stock Obligation which is then held in the Unallocated Stock Fund shall be
released for allocation among the Participants. The number of shares released
shall bear the same ratio to the total number of those shares then held in the
Unallocated Stock Fund (prior to the release) as (i) the principal and interest
payments made on the Stock Obligation in the current Plan Year bears to (ii) the
sum of (i) above, and the remaining principal and interest payments required (or
projected to be required on the basis of the interest rate in effect at the end
of the Plan Year) to satisfy the Stock Obligation.
At the direction of the Committee, the current and projected payments of
interest under a Stock Obligation may be ignored in calculating the number of
shares to be released in each year if (i) the Stock Obligation provides for
annual payments of principal and interest at a cumulative rate that is not less
rapid at any time than level annual payments of such amounts for 10 years, (ii)
the interest included in any payment is ignored only to the extent that it would
be determined to be interest under standard loan amortization tables, and (iii)
the term of the Stock Obligation, by reason of renewal, extension, or
refinancing, has not exceeded 10 years from the original acquisition of the
Stock.
For these purposes, each Stock Obligation, the Stock purchased with it, and
any dividends on such Stock, shall be considered separately. The Stock released
from the Unallocated Stock Fund in any Plan Year shall be credited as of the
last day of the year to the Accounts of the Active Participants in proportion to
their amounts of Cash Compensation earned while a Participant.
4.3 Definitions Related to Contributions. For the purposes of this Plan,
the following terms have the meanings specified:
"Active Participant" means a Participant who has satisfied the eligibility
requirements under Section 3. However, a Participant shall not qualify as an
Active Participant unless (i) he is in active Service with an Employer as of the
last day of the Plan Year, or (ii) he is on a Recognized Absence as of that
date, or (iii) his Service terminated during the Plan Year by reason of Normal
Retirement, Early Retirement, Disability or death.
"Cash Compensation" means the Participant's wages subject to federal income
tax withholding as reported on Form W-2, less reimbursements and other expense
allowances; cash and non-cash fringe benefits (whether or not taxable); moving
expenses; deferred compensation; welfare benefit; and bonuses. A Participant's
Cash Compensation shall exclude any compensation in excess of the limit
currently in effect under Section 401(a)(17) of the Code and elective
contributions that are made by the Employer on behalf of the Employee that are
not includible in gross income under: a Section 125 cafeteria plan, and a
Section 402(a)(8) qualified cash or deferred arrangement. In addition to other
applicable limitations set forth in the Plan, and notwithstanding any provision
of the Plan to the contrary, the annual compensation of each employee taken in
to account under the Plan shall not exceed the Omnibus Budget Reconciliation Act
of 1993 ("OBRA 1993") annual
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compensation limit. The OBRA 1993 annual compensation limit is $150,000, as
adjusted by the Commissioner of the Internal Revenue Service for increases in
the cost-of-living in accordance with Section 401(a)(17)(B) of the Code. The
cost-of-living adjustment in effect for a calendar year applies to any
period, not exceeding 12 months, over which compensation is determined (the
"Determination Period") beginning in such calendar year. If a Determination
Period consists of fewer than 12 months, the OBRA 1993 annual compensation
limitation will be multiplied by a fraction, the numerator of which is the
number of months in the Determination Period, and the denominator of which is
12.
4.4 Conditions as to Contributions. Employers' contributions shall in any
event be subject to the limitation set forth in Section 5. Contributions may be
made in the form of cash, or securities and other property to the extent
permissible under ERISA, including Stock, and shall be held by the Trustee in
accordance with the Trust Agreement. In addition to the provisions of Section
13.3 for the return of an Employer's contributions in connection with a failure
of the Plan to qualify initially under the Code, any amount contributed by an
Employer due to a good faith mistake of fact, or based upon a good faith but
erroneous determination of its deductibility under Section 404 of the Code,
shall be returned to the Employer within one year after the date on which the
contribution was originally made, or within one year after its nondeductibility
has been finally determined. However, the amount to be returned shall be
reduced to take account of any adverse investment experience within the Trust
Fund in order that the balance credited to each Participant's Account is not
less that it would have been if the contribution had never been made.
Section 5. Limitations on Contributions and Allocations.
5.1 Limitation on Annual Additions. Notwithstanding the provisions of
Section 4, the annual addition to a Participant's Accounts under this and any
other defined contribution plans maintained by the Employers or an affiliate
(within the purview of Sections 414(b), (c), and (m) and Section 415(h) of the
Code, which affiliate shall be deemed an Employer for this purpose) shall not
exceed for any limitation year an amount equal to the lesser of --
5.1-1 $30,000, or the one-fourth of the dollar limitation currently
in effect under Section 415(b)(1)(A) of the Code; or
5.1-2 25 percent of the Participant's Total Compensation for such
limitation year.
For purposes of this Section 5.1 and the following Section 5.2, the "annual
addition" to a Participant's Accounts means the sum of (i) the Employer
contributions and Employee forfeitures credited to a Participant's Accounts with
respect to a limitation year, plus (ii) the Participant's total voluntary
contributions for that year. The $30,000 and Section 415(b)(1)(A) limitations
referred to shall, for each limitation year, be automatically adjusted to the
new dollar limitations determined by the Commissioner of Internal Revenue for
the calendar year beginning in that limitation year. Notwithstanding the
foregoing, if the special limitations on annual additions described in Section
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415(c)(6) of the Code applies, the limitations described in this section shall
be adjusted accordingly. A "limitation year" means each 12 consecutive month
period beginning January 1.
5.2 Coordinated Limitation With Other Plans. For Plan Years commencing
prior to December 31, 1999, aside from the limitation prescribed by Section 5.1
with respect to the annual addition to a Participant's Accounts for any single
limitation year, if a Participant has ever participated in one or more defined
benefit plans maintained by an Employer or an affiliate, then the benefits
provided under the defined benefit plan on his account shall be limited on a
cumulative basis so that the sum of his defined contribution plan fraction and
his defined benefit plan fraction does not exceed one. For this purpose:
5.2-1 A Participant's defined contribution plan fraction with respect
to a Plan Year shall be a fraction, (i) the numerator of which is the sum
of the annual additions to his accounts under all defined contribution
plans (whether or not terminated) maintained by the Employer for the
current year and all prior limitation years (including annual additions of
the Participant's nondeductible employee contributions to all defined
benefit plans, whether or not terminated, maintained by an Employer, and
the annual additions attributable to all welfare benefit plans, individual
medical accounts, and simplified employee pensions maintained by the
Employer), and (ii) the denominator of which is the sum of the lesser of
the following amounts -A- and -B- determined for the current limitation
year and each prior limitation year of Service with an Employer: -A- is
1.25 times the dollar limitation determined under Section 415(c)(1)(A) of
the Code, or 1.0 times such dollar limitation if the Plan is top-heavy, and
-B- is 35 percent of the Participant's Total Compensation for such year.
If the Employee was a Participant as of the end of the first limitation
year beginning after December 31, 1986 in one or more defined contribution
plans maintained by an Employer which plan(s) were in existence on May 6,
1986, and if the sum of this fraction and the defined benefit fraction
(described below) would otherwise exceed 1.0 under the terms of this Plan,
the numerator of this fraction will be adjusted. To affect this
adjustment, an amount equal to the product of the excess of the sum of the
fractions over 1.0, multiplied by the denominator of this fraction shall be
permanently subtracted from the numerator of this fraction. This
adjustment shall be calculated using the fractions as they would be
computed as of the end of the last limitation year beginning before January
1, 1987, and disregarding any changes in the terms and conditions of the
Plan made after May 5, 1986, but using the limitation applicable under
Section 415 of the Code for the first limitation year beginning on or after
January 1, 1987.
5.2-2 A Participant's defined benefit plan fraction with respect to a
limitation year shall be a fraction, (i) the numerator of which is his
projected annual benefit payable at normal retirement under the Employers'
defined benefit plans, and (ii) the denominator of which is the lesser of
(a) 1.25 times $90,000, or 1.0 times such dollar limitation if the Plan is
top-heavy, and (b) 1.4 times the Participant's average Total Compensation
during his highest-paid three consecutive limitation years.
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Notwithstanding the preceding, for Plan Years commencing after December 31,
1999, this Section 5.2 shall no longer be applicable.
5.3 Effect of Limitations. The Committee shall take whatever action may
be necessary from time to time to assure compliance with the limitations set
forth in Sections 5.1 and 5.2. Specifically, the Committee shall see that each
Employer restrict its contributions for any Plan Year to an amount which, taking
into account the amount of available forfeitures, may be completely allocated to
the Participants consistent with those limitations. Where the limitations would
otherwise be exceeded by any Participant, further allocations to the Participant
shall be curtailed to the extent necessary to satisfy the limitations. Where an
excessive amount is contributed on account of a mistake as to one or more
Participants' compensation, or there is an amount of forfeitures which may not
be credited in the Plan Year in which it becomes available, the amount shall be
held in a suspense account to be allocated in lieu of any Employer contributions
in future years until it is eliminated, and to be returned to the Employer if it
cannot be credited consistent with these limitations before the termination of
the Plan.
5.4 Limitations as to Certain Section 1042 Transactions. Aside from the
limitations set forth in Section 5.1 and 5.2, if the Plan acquires any Stock in
a transaction as to which a selling shareholder or the estate of a deceased
shareholder is claiming the benefit of Section 1042 of the Code, the Committee
shall see that none of such Stock, and no other assets in lieu of such Stock,
are allocated to the Accounts of certain Participants in order to comply with
Section 409(n) of the Code.
This restriction shall apply at all times to a Participant who owns (taking
into account the attribution rules under Section 318(a) of the Code, without
regard to the exception for employee plan trusts in Section 318(a)(2)(B)(i) more
than 25 percent of any class of stock of a corporation which issued the Stock
acquired by the Plan, or another corporation within the same controlled group,
as defined in Section 409(l)(4) of the Code (any such class of stock hereafter
called a "Related Class"). For this purpose, a Participant who owns more than
25 percent of any Related Class at any time within the one year preceding the
Plan's purchase of the Stock shall be subject to the restriction as to all
allocations of the Stock, but any other Participant shall be subject to the
restriction only as to allocations which occur at a time when he owns more than
25 percent of any Related Class.
Further, this restriction shall apply to the selling shareholder claiming
the benefit of Section 1042 and any other Participant who is related to such a
shareholder within the meaning of Section 267(b) of the Code, during the period
beginning on the date on which the Plan purchases the Stock and ending 10 years
after the later of (i) the date of such purchase, and (ii) the date of the
allocation under Section 4.2 attributable to the final payment on whatever Stock
Obligations were incurred with the purchase.
This restriction shall not apply to any Participant who is a lineal
descendant of a selling shareholder if the aggregate amounts allocated under the
Plan for the benefit of all such descendants do not exceed five percent of the
Stock acquired from the shareholder.
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5.5 Limitations as to Certain Participants. Aside from the limitations
set forth in Section 5.1 and 5.2, in no event shall more than one third of the
Employer contributions to the Plan be allocated to the Accounts of highly
compensated Participants (within the meaning of Section 414(q) of the Code).
The Committee shall take whatever action may be necessary from time to time to
assure compliance with the limitations set forth in this Section 5.5.
Specifically, the Committee shall, beginning with the Participants whose Cash
Compensation amounts are in excess of the limit under Section 401(a)(17) of the
Code, reduce the amount of Cash Compensation of such highly compensated
Participants on a pro-rata basis per individual that would otherwise be taken
into account for purposes of allocating benefits under Section 4.2 of this Plan.
If, in order to satisfy this Section 5.5, such Participants' Cash Compensation
amount per individual must be reduced to an amount that is lower than the Cash
Compensation amount of the next most highly compensated Participant (the
"breakpoint amount"), then, for purposes of allocating benefits under Section
4.2 of the Plan, the Cash Compensation amounts of all Participants shall be
reduced to an amount not to exceed such breakpoint amount.
Section 6. Trust Fund and Its Investment.
6.1 Creation of Trust Fund. All amounts received under the Plan from an
Employer and investments shall be held as the Trust Fund pursuant to the terms
of this Plan and of the Trust Agreement between the Bank and the Trustee. The
benefits described in this Plan shall be payable only from the assets of the
Trust Fund, and none of the Bank, any other Employer, its board of directors or
trustees, its stockholders, its officers, its employees, the Committee, and the
Trustee shall be liable for payment of any benefit under this Plan except from
the Trust Fund.
6.2 Stock Fund and Investment Fund. The Trust Fund held by the Trustee
shall be divided into the Stock Fund, consisting entirely of Stock, and the
Investment Fund, consisting of all assets of the Trust other than Stock. The
Trustee shall have no investment responsibility for the Stock Fund, but shall
accept any Employer contributions made in the form of Stock, and shall acquire,
sell, exchange, distribute, and otherwise deal with and dispose of Stock in
accordance with the instructions of the Committee.
6.3 Acquisition of Stock. From time to time the Committee may, in its
sole discretion, direct the Trustee to acquire Stock from the issuing Employer
or from shareholders, including shareholders who are or have been Employees,
Participants, or fiduciaries with respect to the Plan. The Trustee shall pay
for such Stock no more than its fair market value, which shall be determined
conclusively by the Committee pursuant to Section 12.4. The Committee may
direct the Trustee to finance the acquisition of Stock by incurring or assuming
indebtedness to the seller or another party which indebtedness shall be called a
"Stock Obligation". Any Stock Obligation shall be subject to the following
conditions and limitations:
6.3-1 A Stock Obligation shall be for a specific term, shall not be
payable on demand except in the event of default, and shall bear a
reasonable rate of interest.
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6.3-2 A Stock Obligation may, but need not, be secured by a
collateral pledge of either the Stock acquired in exchange for the Stock
Obligation, or the Stock previously pledged in connection with a prior
Stock Obligation which is being repaid with the proceeds of the current
Stock Obligation. No other assets of the Plan and Trust may be used as
collateral for a Stock Obligation, and no creditor under a Stock Obligation
shall have any right or recourse to any Plan and Trust assets other than
Stock remaining subject to a collateral pledge.
6.3-3 Any pledge of Stock to secure a Stock Obligation must provide
for the release of pledged Stock in connection with payments on the Stock
Obligations in the ratio prescribed in Section 4.2.
6.3-4 Repayments of principal and interest on any Stock Obligation
generally shall be made by the Trustee from cash contributions designated
for such payments, from earnings on such contributions, and from cash
dividends received on Stock held in the Unallocated Stock Fund.
6.4 Participants' Option to Diversify. The Committee shall provide for a
procedure under which each Participant may, during the first five years of a
certain six-year period, elect to have up to 25 percent of the value of his
Account committed to alternative investment options within the Investment Fund.
For the sixth year in this period, the Participant may elect to have up to 50
percent of the value of his Account committed to other investments. The
six-year period shall begin with the Plan Year following the first Plan Year in
which the Participant has both reached aged 55 and completed 10 years of
participation in the Plan; a Participant's election to diversify his Account
must be made within the 90-day period immediately following the last day of each
of the six Plan Years. The Committee shall see that the Investment Fund
includes a sufficient number of investment options to comply with Section
401(a)(28)(B) of the Code. The Trustee shall comply with any investment
directions received from Participants in accordance with the procedures adopted
from time to time by the Committee under this Section 6.4.
Section 7. Voting Rights and Dividends on Stock.
7.1 Voting and Tendering of Stock. The Trustee generally shall vote all
shares of Stock held under the Plan. However, if any Employer has
registration-type class of securities within the meaning of Section 409(e)(4) of
the Code, or if a matter submitted to the holders of the Stock involves a
merger, consolidation, recapitalization, reclassification, liquidation,
dissolution, or sale of substantially all assets of an entity, then (i) the
shares of Stock which have been allocated to Participants' Accounts shall be
voted by the Trustee in accordance with the Participants' written instructions,
and (ii) the Trustee shall vote any shares of Stock which have been allocated to
Participants' Accounts but for which no written instructions have been received
and any unallocated Stock in a manner calculated to most accurately reflect the
instructions it has received from Participants regarding the allocated Stock.
In the event no shares of Stock have been allocated to
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Participants' Accounts at the time Stock is to be voted, each Participant
shall be deemed to have one share of Stock allocated to his or her account
for the sole purpose of providing the Trustee with voting instructions.
Notwithstanding any provision hereunder to the contrary, all shares of Stock
which have been allocated to Participants' Accounts and for which the Trustee
has received no written instructions and all unallocated shares of Stock must
be voted by the Trustee in a manner determined by the Trustee to be solely in
the interest of the Participants and Beneficiaries. Whenever such voting
rights are to be exercised, the Employers, the Committee, and the Trustee
shall see that all Participants and Beneficiaries are provided with the same
notices and other materials as are provided to other holders of the Stock,
and are provided with adequate opportunity to deliver their instructions to
the Trustee regarding the voting of Stock allocated to their Accounts. The
instructions of the Participants with respect to the voting of allocated
shares hereunder shall be confidential.
7.1-1 In the event of a tender offer, Stock shall be tendered by the
Trustee in the same manner as set forth above with respect to the voting of
Stock. Notwithstanding any provision hereunder to the contrary, Stock must
be tendered by the Trustee in a manner determined by the Trustee to be
solely in the interest of the Participants and Beneficiaries.
7.2 Dividends on Stock. Dividends on Stock which are received by the
Trustee in the form of additional Stock shall be retained in the Stock Fund, and
shall be allocated among the Participant's Accounts and the Unallocated Stock
Fund in accordance with their holdings of the Stock on which the dividends have
been paid. Dividends on Stock credited to Participants' Accounts which are
received by the Trustee in the form of cash shall, at the direction of the
Company paying the dividends, either (i) be credited to the Accounts in
accordance with Section 8.3 and invested as part of the Investment Fund, (ii) be
distributed immediately to the Participants in proportion with the Participants'
Account balance; (iii) be distributed to the Participants within 90 days of the
close of the Plan Year in which paid in proportion with the Participants'
Account balance; or (iv) be used to repay principal and interest on the Stock
Obligation used to acquire Stock on which the dividends were paid. Dividends on
Stock held in the Unallocated Stock Fund which are received by the Trustee in
the form of cash shall be applied as soon as practicable to payments of
principal and interest under the Stock Obligation incurred with the purchase of
the Stock.
Section 8. Adjustments to Accounts.
8.1 Adjustments for Transactions. An Employer contribution pursuant to
Section 4.1 shall be credited to the Participants' Accounts as of the last day
of the Plan Year for which it is contributed. Stock released from the
Unallocated Stock Fund upon the Trust's repayment of a Stock Obligation pursuant
to Section 4.2 shall be credited to the Participants' Accounts as of the last
day of the Plan Year in which the repayment occurred. Any excess amounts
remaining from the use of, or the use of the proceeds of, a sale of Stock from
the Unallocated Stock Fund to repay a Stock Obligation shall be allocated as of
the last day of the Plan Year in which the repayment occurred among the
Participants' Accounts as earnings, in proportion to the opening balance in each
Account
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and shall not be deemed annual additions within the meaning of Section
415(c)(2) of the Code. Any benefit which is paid to a Participant or
Beneficiary pursuant to Section 10 shall be charged to the Participant's
Account as of the first day of the Valuation Period in which it is paid. Any
forfeiture or restoral shall be charged or credited to the Participant's
Account as of the first day of the Valuation Period in which the forfeiture
or restoral occurs pursuant to Section 9.6.
8.2 Valuation of Investment Fund. As of each Valuation Date, the Trustee
shall prepare a balance sheet of the Investment Fund, recording each asset
(including any contribution receivable from an Employer) and liability at its
fair market value. Any liability with respect to short positions or options and
any item of accrued income or expense and unrealized appreciation or
depreciation shall be included; provided, however, that such an item may be
estimated or excluded if it is not readily ascertainable unless estimating or
excluding it would result in a material distortion. The Committee shall then
determine the net gain or loss of the Investment Fund since the preceding
Valuation Date, which shall mean the entire income of the Investment Fund,
including realized and unrealized capital gains and losses, net of any expenses
to be charged to the general Investment Fund and excluding any contributions by
the Employer. The determination of gain or loss shall be consistent with the
balance sheets of the Investment Fund for the current and preceding Valuation
Dates.
8.3 Adjustments for Investment Experience. Any net gain or loss of the
Investment Fund during a Valuation Period, as determined pursuant to Section
8.2, shall be allocated as of the last day of the Valuation Period among the
Participants' Accounts in proportion to the opening balance in each Account, as
adjusted for benefit payments and forfeitures during the Valuation Period,
without regard to whatever Stock may be credited to an Account.
8.4 Adjustments for Capital Changes. In the event of any change in the
outstanding shares of Stock by reason of any stock dividend or split,
recapitalization, merger, consolidation, spin-off, reorganization, combination
or exchange of shares, or other similar corporate change, or other increase or
decrease in such shares effected without receipt or payment of consideration by
the bank issuing the Stock, the Committee shall adjust the number of shares of
Stock allocated to the Participants' Accounts to prevent dilution or enlargement
of such Accounts.
Section 9. Vesting of Participants' Interests.
9.1 Deferred Vesting in Accounts. A Participant's vested interest in his
Account shall be based on his Vesting Years in accordance with the following
table, subject to the balance of this Section 9:
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Vesting Percentage of
Years Interest Vested
----------------- ----------------
Less than 2 years 0%
2 years 20%
3 years 40%
4 years 60%
5 years 80%
6 years or more 100%
9.2 Computation of Vesting Years. For purposes of this Plan, a "Vesting
Year" means each 12-month period beginning with his initial Service with the
Employer. However, a Participant's Vesting Years shall be computed subject to
the following conditions and qualifications:
(a) A Participant's vested interest in his Account accumulated before
a Break in Service shall be determined without regard to any
Service after the Break. Notwithstanding the foregoing, in the
event a Participant has an eligibility computation period (as
defined in Section 3.1 of the Plan) during which he performs 500
or fewer Hours of Service (a "one year Break in Service"), and
then returns to Service prior to having a Break in Service, his
Service performed both before and after his break in employment
shall be taken into account in determining his Vesting Years.
Generally, if a Participant has a Break in Service before his
interest in his Account has become vested to some extent, he
shall lose credit for any Vesting Year before the Break in
Service. However, if a Participant separates from Service before
his interest in his Account has become vested to some extent, and
returns to Service after a Break in Service, the Participant's
Vesting Years both prior to and after the Break in Service will
count as Vesting Years for his Account accumulated after the
Break if the number of the Participant's consecutive one year
breaks in Service is less than the number of years of Service
prior to the Break in Service.
(b) Unless otherwise specifically excluded, a Participant's Vesting
Years shall include any period of active military duty to the
extent required by the Military Selective Service Act of 1967 (38
U.S.C. Section 2021).
9.3 Full Vesting Upon Certain Events. Notwithstanding Section 9.1, a
Participant's interest in his Account shall fully vest on the Participant's
Normal Retirement Date, provided the Participant is in Service on or after that
date. The Participant's interest shall also fully vest in the event that his
Service is terminated by Early Retirement, Disability or by death or upon the
occurrence of a Change in Control of the Bank or the Holding Company.
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For purposes of this Section 9.3, a Change in Control of the Bank or the
Holding Company shall mean an event of a nature that: (i) would be required to
be reported in response to Item 1(a) of the current report on Form 8-K, as in
effect on the date hereof, pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 (the "Exchange Act"); or (ii) results in a Change in
Control of the Bank or the Company within the meaning of the Change in Bank
Control Act and the Rules and Regulations promulgated by the Federal Deposit
Insurance Corporation ("FDIC") at 12 C.F.R. Section 303.4(a) with respect to the
Bank and the Board of Governors of the Federal Reserve System ("FRB") at 12
C.F.R. Section 225.41(b) with respect to the Holding Company, as in effect on
the date hereof; or (iii) results in a transaction requiring prior FRB approval
under the Bank Holding Company Act of 1956 and the regulations promulgated
thereunder by the FRB at 12 C.F.R. Section 225.11, as in effect on the date
hereof except for the Holding Company's acquisition of the Bank; or (iv) without
limitation such a Change in Control shall be deemed to have occurred at such
time as (A) any "person" (as the term is used in Sections 13(d) and 14(d) of the
Exchange Act) is or becomes the "beneficial owner" (as defined in Rule 13d-3
under the Exchange Act), directly or indirectly, of securities of the Bank or
the Holding Company representing 20% or more of the Bank's or the Holding
Company's outstanding securities except for any securities of the Bank purchased
by the Holding Company in connection with the conversion of the Bank to the
stock form and any securities purchased by any tax qualified employee benefit
plan of the Bank; or (B) individuals who constitute the Board of Directors 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 same Nominating Committee serving under an Incumbent Board, shall be, for
purposes of this clause (B), considered as though he were a member of the
Incumbent Board; or (C) a plan of reorganization, merger, consolidation, sale of
all or substantially all the assets of the Bank or the Holding Company or
similar transaction occurs in which the Bank or Holding Company is not the
resulting entity; or (D) solicitations of shareholders of the Holding Company,
by someone other than the current management of the Holding Company, seeking
stockholder approval of a plan of reorganization, merger or consolidation of the
Holding Company or Bank or similar transaction with one or more corporations as
a result of which the outstanding shares of the class of securities then subject
to the plan or transaction are exchanged for or converted into cash or property
or securities not issued by the Bank or the Holding Company shall be
distributed; or (E) a tender offer is made for 20% or more of the voting
securities of the Bank or the Holding Company.
9.4 Full Vesting Upon Plan Termination. Notwithstanding Section 9.1, a
Participant's interest in his Account shall fully vest if he is in active
Service upon termination of this Plan or upon the permanent and complete
discontinuance of contributions by his Employer. In the event of a partial
termination, the interest of each Participant who is in Service shall fully vest
with respect to that part of the Plan which is terminated.
9.5 Forfeiture, Repayment, and Restoral. If a Participant's Service
terminates before his interest in his Account is fully vested, that portion
which has not vested shall be forfeited if he either
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(i) receives a distribution of his entire vested benefit, or (ii) has a Break
in Service. If a Participant who has received his entire vested interest
returns to Service before he has a Break in Service, he may repay to the
Trustee an amount equal to the distribution. The Participant may repay such
amount at any time within five years after he has returned to Service. The
amount shall be credited to his Account as of the last day of the Plan Year
in which it is repaid; an additional amount equal to the portion of his
Account which was previously forfeited shall be restored to his Account at
the same time from other Employees' forfeitures and, if such forfeitures are
insufficient, from a special contribution by his Employer for that year. In
the case of a terminated Participant who does not receive a distribution of
his entire vested interest and whose Service resumes after a Break in
Service, any undistributed balance from his prior participation which was not
forfeited shall be maintained as a fully vested subaccount with his Account.
If a portion of a Participant's Account is forfeited, assets other that Stock
must be forfeited before any Stock may be forfeited. In the case of a
Participant who has incurred a Break in Service and then returns to Service,
all years of Service after the Break in Service will be disregarded for the
purpose of vesting his Account accrued before the Break in Service, but both
pre-Break and post-Break Service will count for the purpose of vesting the
Participant's Account that accrues after the Break in Service. If a
Participant's Service terminates prior to his Account having become vested,
such Participant shall be deemed to have received a distribution of his
entire vested interest as of the Valuation Date next following his
termination of Service.
9.6 Accounting for Forfeitures. A forfeiture shall be charged to the
Participant's Account as of the first day of the first Valuation Period in which
the forfeiture becomes certain pursuant to Section 9.5. Except as otherwise
provided in that Section, a forfeiture shall be added to the contributions of
the terminated Participant's Employer which are to be credited to other
Participants pursuant to Section 4.1 as of the last day of the Plan Year in
which the forfeiture becomes certain.
9.7 Vesting and Nonforfeitability. A Participant's interest in his
Account which has become vested shall be nonforfeitable for any reason.
Section 10. Payment of Benefits.
10.1 Benefits for Participants. A Participant whose Service ends for any
reason shall receive the vested portion of his Account in a single payment on a
date selected by the Committee. That date shall be on or before the 60th day
after the end of the Plan Year in which his Service ends. Notwithstanding the
foregoing, if the balance credited to his Account exceeds $3,500, his benefits
shall not be paid before the latest of his 65th birthday or the tenth
anniversary of the year in which he commenced participation in the Plan, unless
he elects an early payment date in a written election filed with the Committee.
A Participant may modify such an election at any time, provided any new benefit
payment date is at least 30 days after a modified election is delivered to the
Committee. Such an election is not valid unless it is made after the
Participant has received the required notice under Section 1.411(a)-11(c) of the
Income Tax Regulations that provides a general description of the material
features of a lump sum distribution and the Participant's right to defer receipt
of his benefit. The Notice shall be provided no less than 30 days and no more
than 90 days before the first
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day on which all events have occurred which entitle the Participant to such
benefit. Written consent of the Participant to the distribution generally
may not be made within 30 days of the date the Participant receives the
notice and shall not be made more than 90 days from the date the Participant
receives the notice. However, a distribution may be made less than 30 days
after the notice provided under Section 1.411(a)-11(c) of the Income Tax
Regulations is given, if:
(a) the Committee clearly informs the Participant that he has a right
to 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
(b) the Participant, after receiving the notice, affirmatively elects
a distribution.
With respect to all Participants other than those who are 5% owners within
the meaning of Section 416 of the Code, such Participant's benefits shall be
paid by April 1st of the later of (i) the calendar year in which he reaches age
71-1/2, or (ii) the calendar year in which he retires. With respect to all
Participants who are 5% owners within the meaning of Section 416 of the Code,
such Participants benefits shall be paid by April 1st of the calendar year in
which he reaches age 71-1/2.
10.2 Benefits on a Participant's Death. If a Participant dies before his
benefits are paid pursuant to Section 10.1, the balance credited to his Account
shall be paid to his Beneficiary in a single distribution on or before the 60th
day after the end of the Plan Year in which he died. The benefits from that
portion of the Account committed to the Investment Fund shall be calculated on
the basis of the most recent Valuation Date before the date of payment.
If a married Participant dies before his benefit payments begin, then
unless he has specifically elected otherwise the Committee shall cause the
balance in his Account to be paid to his Spouse. No election by a married
Participant of a different Beneficiary shall be valid unless the election is
accompanied by the Spouse's written consent, which (i) must acknowledge the
effect of the election, (ii) must explicitly provide either that the designated
Beneficiary may not subsequently be changed by the Participant without the
Spouse's further consent, or that it may be changed without such consent, and
(iii) must be witnessed by the Committee, its representative, or a notary
public. This requirement shall not apply if the Participant establishes to the
Committee's satisfaction that the Spouse may not be located.
10.3 Marital Status. The Committee shall from time to time take whatever
steps it deems appropriate to keep informed of each Participant's marital
status. Each Employer shall provide the Committee with the most reliable
information in the Employer's possession regarding its Participants' marital
status, and the Committee may, in its discretion, require a notarized affidavit
from any Participant as to his marital status. The Committee, the Plan, the
Trustee, and the Employers shall be fully protected and discharged from any
liability to the extent of any benefit payments made as a result of the
Committee's good faith and reasonable reliance upon information obtained from a
Participant and his Employer as to his marital status.
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10.4 Delay in Benefit Determination. If the Committee is unable to
determine the benefits payable to a Participant or Beneficiary on or before the
latest date prescribed for payment pursuant to Section 10.1 or 10.2, the
benefits shall in any event be paid within 60 days after they can first be
determined, with whatever makeup payments may be appropriate in view of the
delay.
10.5 Accounting for Benefit Payments. Any benefit payment shall be charged
to the Participant's Account as of the first day of the Valuation Period in
which the payment is made.
10.6 Options to Receive and Sell Stock. Unless ownership of virtually all
Stock is restricted to active Employees and qualified retirement plans for the
benefit of Employees pursuant to the certificates of incorporation or by-laws of
the Employers issuing Stock, a terminated Participant or the Beneficiary of a
deceased Participant may instruct the Committee to distribute the Participant's
entire vested interest in his Account in the form of Stock. In that event, the
Committee shall apply the Participant's vested interest in the Investment Fund
to purchase sufficient Stock from the Stock Fund or from any owner of stock to
make the required distribution. In all other cases, the Participant's vested
interest in the Stock Fund shall be distributed in shares of Stock, and his
vested interest in the Investment Fund shall be distributed in cash.
Any Participant who receives Stock pursuant to Section 10.1, and any person
who has received Stock from the Plan or from such a Participant by reason of the
Participant's death or incompetency, by reason of divorce or separation from the
Participant, or by reason of a rollover contribution described in Section 402(c)
of the Code, shall have the right to require the Employer which issued the Stock
to purchase the Stock for its current fair market value (hereinafter referred to
as the "put right"). The put right shall be exercisable by written notice to
the Committee during the first 60 days after the Stock is distributed by the
Plan, and, if not exercised in that period, during the first 60 days in the
following Plan Year after the Committee has communicated to the Participant its
determination as to the Stock's current fair market value. However, the put
right shall not apply to the extent that the Stock, at the time the put right
would otherwise be exercisable, may be sold on an established market in
accordance with federal and state securities laws and regulations. If the put
right is exercised, the Trustee may, if so directed by the Committee in its sole
discretion, assume the Employer's rights and obligations with respect to
purchasing the Stock.
The Employer or the Trustee, as the case may be, may elect to pay for the
Stock in equal periodic installments, not less frequently than annually, over a
period not longer than five years from the 30th day after the put right is
exercised, with adequate security and interest at a reasonable rate on the
unpaid balance, all such terms to be set forth in a promissory note delivered to
the seller with normal terms as to acceleration upon any uncured default.
Nothing contained herein shall be deemed to obligate any Employer to
register any Stock under any federal or state securities law or to create or
maintain a public market to facilitate the transfer or disposition of any Stock.
The put right described herein may only be exercised by a person described in
the second preceding paragraph, and may not be transferred with any Stock to
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any other person. As to all Stock purchased by the Plan in exchange for any
Stock Obligation, the put right be nonterminable. The put right for Stock
acquired through a Stock Obligation shall continue with respect to such Stock
after the Stock Obligation is repaid or the Plan ceases to be an employee
stock ownership plan. Except as provided above, in accordance with the
provisions of Sections 54.4975-7(b)(4) of the Treasury Regulations, no Stock
acquired with the proceeds of a Stock Obligation may be subject to any put,
call or other option or buy-sell or similar arrangement while held by and
when distributed from the Plan, whether the Plan is then an employee stock
ownership plan.
10.7 Restrictions on Disposition of Stock. Except in the case of Stock
which is traded on an established market, a Participant who receives Stock
pursuant to Section 10.1, and any person who has received Stock from the Plan or
from such a Participant by reason of the Participant's death or incompetency, by
reason of divorce or separation from the Participant, or by reason of a rollover
contribution described in Section 402(c) of the Code, shall, prior to any sale
or other transfer of the Stock to any other person, first offer the Stock to the
issuing Employer and to the Plan at its current fair market value. This
restriction shall apply to any transfer, whether voluntary, involuntary, or by
operation of law, and whether for consideration or gratuitous. Either the
Employer or the Trustee may accept the offer within 14 days after it is
delivered. Any Stock distributed by the Plan shall bear a conspicuous legend
describing the right of first refusal under this Section 10.7, as well as any
other restrictions upon the transfer of the Stock imposed by federal and state
securities laws and regulations.
10.8 Direct Transfer of Eligible Plan Distributions. A Participant or
Beneficiary may direct that an "eligible rollover distribution" (as defined
below) included in such payment be paid directly to an "eligible retirement
plan" (as defined below).
To effect such a direct transfer, the Participant or Beneficiary must
notify the Committee that a direct transfer is desired and provide to the
Committee the eligible retirement plan to which the payment is to be made. Such
notice shall be made in such form and at such time as the Committee may
prescribe. Upon receipt of such notice, the Committee shall direct the Trustee
to make a trustee-to-trustee transfer of the eligible rollover distribution to
the eligible retirement plan so specified.
For purposes of this Section 10.8, an "eligible rollover distribution"
shall have the meaning set forth in Section 402(c)(4) of the Code and any
regulations promulgated thereunder. To the extent such meaning is not
inconsistent with the above references, an eligible rollover distribution shall
mean any distribution of all or any portion of the Participant's Account, except
that such term shall not include any distribution which is one of a series of
substantially equal periodic payments (not less frequently than annually) made
(i) for the life (or life expectancy) of the Participant or the joint lives (or
joint life expectancies) of the Participant and a designated Beneficiary, or
(ii) for a period of ten years or more. Further, the term "eligible rollover
distribution shall not include any distribution required to be made under
Section 401(a)(9) of the Code.
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For purposes of this Section 10.8, an "eligible retirement plan" shall have
the meaning set forth in Section 402(c)(8) of the Code and any regulations
promulgated thereunder. To the extent such meaning is not inconsistent with the
above references, an eligible retirement plan shall mean: (i) an individual
retirement account described in Section 408(a) of the Code; (ii) an individual
retirement annuity described in Section 408(b) of the Code (other than an
endowment contract), (iii) a qualified trust described in Section 401(a) of the
Code and exempt under Section 501(a) of the Code, and (iv) an annuity plan
described in Section 403(a) of the Code.
Section 11. Rules Governing Benefit Claims and Review of Appeals.
11.1 Claim for Benefits. Any Participant or Beneficiary who qualifies
for the payment of benefits shall file a claim for his benefits with the
Committee on a form provided by the Committee. The claim, including any
election of an alternative benefit form, shall be filed at least 30 days before
the date on which the benefits are to begin. If a Participant or Beneficiary
fails to file a claim by the 30th day before the date on which benefits become
payable, he shall be presumed to have filed a claim for payment for the
Participant's benefits in the standard form prescribed by Sections 10.1 or 10.2
11.2 Notification by Committee. Within 90 days after receiving a
claim for benefits (or within 180 days, if special circumstances require an
extension of time and written notice of the extension is given to the
Participant or Beneficiary within 90 days after receiving the claim for
benefits), the Committee shall notify the Participant or Beneficiary whether the
claim has been approved or denied. If the Committee denies a claim in any
respect, the Committee shall set forth in a written notice to the Participant or
Beneficiary:
(i) each specific reason for the denial;
(ii) specific references to the pertinent Plan provisions on which the
denial is based;
(iii) a description of any additional material or information which
could be submitted by the Participant or Beneficiary to support
his claim, with an explanation of the relevance of such
information; and
(iv) an explanation of the claims review procedures set forth in
Section 11.3.
11.3 Claims Review Procedure. Within 60 days after a Participant or
Beneficiary receives notice from the Committee that his claim for benefits has
been denied in any respect, he may file with the Committee a written notice of
appeal setting forth his reasons for disputing the Committee's determination.
In connection with his appeal the Participant or Beneficiary or his
representative may inspect or purchase copies of pertinent documents and records
to the extent not inconsistent with other Participants' and Beneficiaries'
rights of privacy. Within 60 days after receiving a notice of
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appeal from a prior determination (or within 120 days, if special
circumstances require an extension of time and written notice of the
extension is given to the Participant or Beneficiary and his representative
within 60 days after receiving the notice of appeal), the Committee shall
furnish to the Participant or Beneficiary and his representative, if any, a
written statement of the Committee's final decision with respect to his
claim, including the reasons for such decision and the particular Plan
provisions upon which it is based.
Section 12. The Committee and Its Functions.
12.1 Authority of Committee. The Committee shall be the "plan
administrator" within the meaning of ERISA and shall have exclusive
responsibility and authority to control and manage the operation and
administration of the Plan, including the interpretation and application of its
provisions, except to the extent such responsibility and authority are otherwise
specifically (i) allocated to the Bank, the Employers, or the Trustee under the
Plan and Trust Agreement, (ii) delegated in writing to other persons by the
Bank, the Employers, the Committee, or the Trustee, or (iii) allocated to other
parties by operation of law. The Committee shall have exclusive responsibility
regarding decisions concerning the payment of benefits under the Plan. The
Committee shall have full investment responsibility with respect to the
Investment Fund except to the extent, if any, specifically provided in the Trust
Agreement. In the discharge of its duties, the Committee may employ
accountants, actuaries, legal counsel, and other agents (who also may be
employed by an Employer or the Trustee in the same or some other capacity) and
may pay their reasonable expenses and compensation.
12.2 Identity of Committee. The Committee shall consist of three or more
individuals selected by the Bank. Any individual, including a director,
trustee, shareholder, officer, or Employee of an Employer, shall be eligible to
serve as a member of the Committee. The Bank shall have the power to remove any
individual serving on the Committee at any time without cause upon 10 days
written notice, and any individual may resign from the Committee at any time
upon 10 days written notice to the Bank. The Bank shall notify the Trustee of
any change in membership of the Committee.
12.3 Duties of Committee. The Committee shall keep whatever records may be
necessary to implement the Plan and shall furnish whatever reports may be
required from time to time by the Bank. The Committee shall furnish to the
Trustee whatever information may be necessary to properly administer the Trust.
The Committee shall see to the filing with the appropriate government agencies
of all reports and returns required of the plan Committee under ERISA and other
laws.
Further, the Committee shall have exclusive responsibility and authority
with respect to the Plan's holdings of Stock and shall direct the Trustee in all
respects regarding the purchase, retention, sale, exchange, and pledge of Stock
and the creation and satisfaction of Stock Obligations. The Committee shall at
all times act consistently with the Bank's long-term intention that the Plan, as
an
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employee stock ownership plan, be invested primarily in Stock. Subject to
the direction of the Committee with respect to Stock Obligations pursuant to
the provision of Section 4.2, and subject to the provisions of Sections 6.4
and 10.6 as to Participants' rights under certain circumstances to have their
Accounts invested in Stock or in assets other than Stock, the Committee shall
determine in its sole discretion the extent to which assets of the Trust
shall be used to repay Stock Obligations, to purchase Stock, or to invest in
other assets to be selected by the Committee or an investment manager. No
provision of the Plan relating to the allocation or vesting of any interests
in the Stock Fund or the Investment Fund shall restrict the Committee from
changing any holdings of the Trust, whether the changes involve an increase
or a decrease in the Stock or other assets credited to Participants'
Accounts. In determining the proper extent of the Trust's investment in
Stock, the Committee shall be authorized to employ investment counsel, legal
counsel, appraisers, and other agents to pay their reasonable expenses and
compensation.
12.4 Valuation of Stock. If the valuation of any Stock is not established
by reported trading on a generally recognized public market, the Committee shall
have the exclusive authority and responsibility to determine its value for all
purposes under the Plan. Such value shall be determined as of each Valuation
Date, and on any other date as of which the Plan purchases or sells such Stock.
The Committee shall use generally accepted methods of valuing stock of similar
corporations for purposes of arm's length business and investment transactions,
and in this connection the Committee shall obtain, and shall be protected in
relying upon, the valuation of such Stock as determined by an independent
appraiser experienced in preparing valuations of similar businesses.
12.5 Compliance with ERISA. The Committee shall perform all acts necessary
to comply with ERISA. Each individual member or employee of the Committee shall
discharge his duties in good faith and in accordance with the applicable
requirements of ERISA.
12.6 Action by Committee. All actions of the Committee shall be governed
by the affirmative vote of a number of members which is a majority of the total
number of members currently appointed, including vacancies. The members of the
Committee may meet informally and may take any action without meeting as a
group.
12.7 Execution of Documents. Any instrument executed by the Committee
shall be signed by any member or employee of the Committee.
12.8 Adoption of Rules. The Committee shall adopt such rules and
regulations of uniform applicability as it deems necessary or appropriate for
the proper administration and interpretation of the Plan.
12.9 Responsibilities to Participants. The Committee shall determine which
Employees qualify to enter the Plan. The Committee shall furnish to each
eligible Employee whatever summary plan descriptions, summary annual reports,
and other notices and information may be required under
25
<PAGE>
ERISA. The Committee also shall determine when a Participant or his
Beneficiary qualifies for the payment of benefits under the Plan. The
Committee shall furnish to each such Participant or Beneficiary whatever
information is required under ERISA (or is otherwise appropriate) to enable
the Participant or Beneficiary to make whatever elections may be available
pursuant to Sections 6 and 10, and the Committee shall provide for the
payment of benefits in the proper form and amount from the assets of the
Trust Fund. The Committee may decide in its sole discretion to permit
modifications of elections and to defer or accelerate benefits to the extent
consistent with applicable law and the best interests of the individuals
concerned.
12.10 Alternative Payees in Event of Incapacity. If the Committee
finds at any time that an individual qualifying for benefits under this Plan is
a minor or is incompetent, the Committee may direct the benefits to be paid, in
the case of a minor, to his parents, his legal guardian, a custodian for him
under the Uniform Transfers to Minors Act, or the person having actual custody
of him, or, in the case of an incompetent, to his Spouse, his legal guardian, or
the person having actual custody of him, the payments to be used for the
individual's benefit. The Committee and the Trustee shall not be obligated to
inquire as to the actual use of the funds by the person receiving them under
this Section 12.10, and any such payment shall completely discharge the
obligations of the Plan, the Trustee, the Committee, and the Employers to the
extent of the payment.
12.11 Indemnification by Employers. Except as separately agreed in
writing, the Committee, and any member or employee of the Committee, shall be
indemnified and held harmless by the Employers, jointly and severally, to the
fullest extent permitted by law against any and all costs, damages, expenses,
and liabilities reasonably incurred by or imposed upon it or him in connection
with any claim made against it or him or in which it or he may be involved by
reason of its or his being, or having been, the Committee, or a member or
employee of the Committee, to the extent such amounts are not paid by insurance.
12.12 Nonparticipation by Interested Member. Any member of the
Committee who also is a Participant in the Plan shall take no part in any
determination specifically relating to his own participation or benefits, unless
his abstention would leave the Committee incapable of acting on the matter.
Section 13. Adoption, Amendment, or Termination of the Plan.
13.1 Adoption of Plan by Other Employers. With the consent of the Bank,
any entity may become a participating Employer under the Plan by (i) taking such
action as shall be necessary to adopt the Plan, (ii) becoming a party to the
Trust Agreement establishing the Trust Fund, and (iii) executing and delivering
such instruments and taking such other action as may be necessary or desirable
to put the Plan into effect with respect to the entity's Employees.
13.2 Adoption of Plan by Successor. In the event that any Employer shall
be reorganized by way of merger, consolidation, transfer of assets or otherwise,
so that an entity other than an
26
<PAGE>
Employer shall succeed to all or substantially all of the Employer's
business, the successor entity may be substituted for the Employer under the
Plan by adopting the Plan and becoming a party to the Trust Agreement.
Contributions by the Employer shall be automatically suspended from the
effective date of any such reorganization until the date upon which the
substitution of the successor entity for the Employer under the Plan becomes
effective. If, within 90 days following the effective date of any such
reorganization, the successor entity shall not have elected to become a party
to the Plan, or if the Employer shall adopt a plan of complete liquidation
other than in connection with a reorganization, the Plan shall be
automatically terminated with respect to Employees of the Employer as of the
close of business on the 90th day following the effective date of the
reorganization, or as of the close of business on the date of adoption of a
plan of complete liquidation, as the case may be.
13.3 Plan Adoption Subject to Qualification. Notwithstanding any other
provision of the Plan, the adoption of the Plan and the execution of the Trust
Agreement are conditioned upon their being determined initially by the Internal
Revenue Service to meet the qualification requirements of Section 401(a) of the
Code, so that the Employers may deduct currently for federal income tax purposes
their contributions to the Trust and so that the Participants may exclude the
contributions from their gross income and recognize income only when they
receive benefits. In the event that this Plan is held by the Internal Revenue
Service not to qualify initially under Section 401(a), the Plan, may be amended
retroactively to the earliest date permitted by U.S. Treasury Regulations in
order to secure qualification under Section 401(a). If this Plan is held by the
Internal Revenue Service not to qualify initially under Section 401(a) either as
originally adopted or as amended, each Employer's contributions to the Trust
under this Plan (including any earnings thereon) shall be returned to it and
this Plan shall be terminated. In the event that this Plan is amended after its
initial qualification and the Plan as amended is held by the Internal Revenue
Service not to qualify under Section 401(a), the amendment may be modified
retroactively to the earliest date permitted by U.S. Treasury Regulations in
order to secure approval of the amendment under Section 401(a).
13.4 Right to Amend or Terminate. The Bank intends to continue this Plan
as a permanent program. However, each participating Employer separately
reserves the right to suspend, supersede, or terminate the Plan at any time and
for any reason, as it applies to that Employer's Employees, and the Bank
reserves the right to amend, suspend, supersede, merge, consolidate, or
terminate the Plan at any time and for any reason, as it applies to the
Employees of all Employers. No amendment, suspension, supersession, merger,
consolidation, or termination of the Plan shall reduce any Participant's or
Beneficiary's proportionate interest in the Trust Fund, or shall divert any
portion of the Trust Fund to purposes other than the exclusive benefit of the
Participants and their Beneficiaries prior to the satisfaction of all
liabilities under the Plan. Except as is required for purposes of compliance
with the Code or ERISA, each as amended from time to time, neither the
provisions of Section 4.1 and 4.2 relating to the crediting of contributions,
forfeitures and shares of Stock released from the Unallocated Stock Fund, nor
any other provision of the Plan relating to the allocation of benefits to
Participants, may be amended more frequently than once every six months.
Moreover, there shall not be any transfer of assets to a successor plan or
merger or consolidation with another
27
<PAGE>
plan unless, in the event of the termination of the successor plan or the
surviving plan immediately following such transfer, merger, or consolidation,
each participant or beneficiary would be entitled to a benefit equal to or
greater than the benefit he would have been entitled to if the plan in which
he was previously a participant or beneficiary had terminated immediately
prior to such transfer, merger, or consolidation. Following a termination of
this Plan by the Bank, the Trustee shall continue to administer the Trust and
pay benefits in accordance with the Plan as amended from time to time and the
Committee's instructions.
Section 14. Miscellaneous Provisions.
14.1 Plan Creates No Employment Rights. Nothing in this Plan shall be
interpreted as giving any Employee the right to be retained as an Employee by an
Employer, or as limiting or affecting the rights of an Employer to control its
Employees or to terminate the Service of any Employee at any time and for any
reason, subject to any applicable employment or collective bargaining
agreements.
14.2 Nonassignability of Benefits. No assignment, pledge, or other
anticipation of benefits from the Plan will be permitted or recognized by the
Employers, the Committee, or the Trustee. Moreover, benefits from the Plan
shall not be subject to attachment, garnishment, or other legal process for
debts or liabilities of any Participant or Beneficiary, to the extent permitted
by law. This prohibition on assignment or alienation shall apply to any
judgment, decree, or order (including approval of a property settlement
agreement) which relates to the provision of child support, alimony, or property
rights to a present or former Spouse, child or other dependent of a Participant
pursuant to a State domestic relations or community property law, unless the
judgment, decree, or order is determined by the Committee to be a qualified
domestic relations order within the meaning of Section 414(p) of the Code.
14.3 Limit of Employer Liability. The liability of the Employers with
respect to Participants under this Plan shall be limited to making contributions
to the Trust from time to time, in accordance with Section 4.
14.4 Treatment of Expenses. All expenses incurred by the Committee and the
Trustee in connection with administering this Plan and Trust Fund shall be paid
by the Trustee from the Trust Fund to the extent the expenses have not been paid
or assumed by the Employers or by the Trustee.
14.5 Number and Gender. Any use of the singular shall be interpreted to
include the plural, and the plural the singular. Any use of the masculine,
feminine, or neuter shall be interpreted to include the masculine, feminine, or
neuter, as the context shall require.
14.6 Nondiversion of Assets. Except as provided in Sections 5.3 and 13.3,
under no circumstances shall any portion of the Trust Fund be diverted to or
used for any purpose other than
28
<PAGE>
the exclusive benefit of the Participants and their Beneficiaries prior to
the satisfaction of all liabilities under the Plan.
14.7 Separability of Provisions. If any provision of this Plan is held to
be invalid or unenforceable, the other provisions of the Plan shall not be
affected but shall be applied as if the invalid or unenforceable provision had
not been included in the Plan.
14.8 Service of Process. The agent for the service of process upon the
Plan shall be the president of the Bank, or such other person as may be
designated from time to time by the Bank.
14.9 Governing State Law. This Plan shall be interpreted in accordance
with the laws of the State of Illinois to the extent those laws are applicable
under the provisions of ERISA.
14.10 Special Rules for Persons Subject to Section 16(b) Requirements.
Notwithstanding anything herein to the contrary, any former Participant who is
subject to the provisions of Section 16(b) of the Securities Exchange Act of
1934, who becomes eligible to again participate in the Plan, may not become a
Participant prior to the date that is six months from the date such former
Participant terminated participation in the Plan.
In addition, any person subject to the provisions of Section 16(b) of the
1934 Act receiving a distribution of Stock from the Plan must hold such Stock
for a period of six months commencing with the date of distribution. However,
this restriction will not apply to Stock distributions made in connection with
death, retirement, disability or termination of employment, or made pursuant to
the terms of a qualified domestic relations order.
Section 15. Top-Heavy Provisions.
15.1 Determination of Top-Heavy Status. The Committee shall determine on a
regular basis whether each Plan Year is or is not a "Top-Heavy Year" for
purposes of implementing the provisions of Sections 15.2, and 15.3, which apply
only to the extent the Plan is top-heavy or super top-heavy within the meaning
of Section 416 and the Treasury Regulations promulgated thereunder. In making
this determination, the Committee shall use the following definitions and
principles:
15.1-1 The "Employer" includes all business entities which are
considered commonly controlled or affiliated within the meaning of Sections
414(b), 414(c), and 414(m) of the Code.
15.1-2 The "plan aggregation group" includes each qualified
retirement plan maintained by the Employer (i) in which a Key Employee is a
Participant during the Plan Year, (ii) which enables any plan described in
clause (i) to satisfy the requirements of Section 401(a)(4) or 410 of the
Code, or (iii) which provides contributions or benefits
29
<PAGE>
comparable to those of the plans described in clauses (i) and (ii) and
which is designated by the Committee as part of the plan aggregation group.
15.1-3 The "determination date," with respect to the first Plan Year
of any plan, means the last day of that Plan Year, and with respect to each
subsequent Plan Year, means the last day of the preceding Plan Year. If
any other plan has a determination date which differs from this Plan's
determination date, the top-heaviness of this Plan shall be determined on
the basis of the other plan's determination date falling within the same
calendar years as this Plan's determination date.
15.1-4 A "Key Employee," with respect to a Plan Year, means an
Employee who at any time during the five years ending on the top-heavy
determination date for the Plan Year has received compensation from an
Employer and has been (i) an officer of the Employer having Total
Compensation greater than 50 percent of the limit then in effect under
Section 415(b)(1)(A) of the Code, (ii) one of the 10 Employees owning the
largest interests in the Employer having Total Compensation greater than
the limit then in effect under Section 415(c)(1)(A), (iii) an owner of more
than five percent of the outstanding equity interest or the outstanding
voting interest in any Employer, or (iv) an owner of more than one percent
of the outstanding equity interest or the outstanding voting interest in an
Employer whose Total Compensation exceeds $150,000. In determining which
individuals are Key Employees, the rules of Section 416(i) of the Code and
Treasury Regulations promulgated thereunder shall apply. The Beneficiary
of a Key Employee shall also be considered a Key Employee.
15.1-5 A "Non-key Employee" means an Employee who at any time during
the five years ending on the top-heavy determination date for the Plan Year
has received compensation from an Employer and who has never been a Key
Employee, and the Beneficiary of any such Employee.
15.1-6 The "aggregated benefits" for any Plan Year means (i) the
adjusted account balances in defined contribution plans on the
determination date, plus (ii) the adjusted value of accrued benefits in
defined benefit plans, calculated as of the annual valuation date
coinciding with or next preceding the determination date, with respect to
Key Employees and Non-key Employees under all plans within the plan
aggregation group which includes this Plan. For this purpose, the
"adjusted account balance" for and the "adjusted value of accrued benefit"
for any Employee shall be increased by all plan distributions made with
respect to the Employee during the five years ending on the determination
date. Further, the adjusted account balance under a plan shall not include
any amount attributable to a rollover contribution or similar transfer to
the plan initiated by an Employee and made after 1983, unless both plans
involved are maintained by the Employer, in which event the transferred
amount shall be counted in the transferee plan and ignored for all purposes
in the transferor plan. Finally, the adjusted value of accrued benefits
under any defined benefit plan shall be
30
<PAGE>
determined by assuming whichever actuarial assumptions were applied by the
Pension Benefit Guaranty Corporation to determine the sufficiency of plan
assets for plans terminating on the valuation date.
15.1-7 This Plan shall be "top-heavy" for any Plan Year in which the
aggregated benefits of the Key Employees exceed 60 percent of the total
aggregated benefits for both Key Employees and Non-key Employees.
15.1-8 This Plan shall be "super top-heavy" for any Plan Year in
which the aggregated benefits of the Key Employees exceed 90 percent of the
total aggregated benefits for both Key Employees and Non-key Employees.
15.1-9 A "Top-Heavy Year" means a Plan Year in which the Plan is
top-heavy.
15.2 Minimum Contributions. For any Top-Heavy Year, each Employer shall
make a special contribution on behalf of each Participant to the extent that the
total allocations to his Account pursuant to Section 4 is less than the lesser
of (i) four percent of his Total Compensation for that year, or (ii) the highest
ratio of such allocation to Total Compensation received by any Key Employee for
that year. For purposes of the special contribution of this Section 15.2, a Key
Employee's Total Compensation shall include amounts the Key Employee elected to
defer under a qualified 401(k) arrangement. Such a special contribution shall
be made on behalf of each Participant who is employed by an Employer on the last
day of the Plan Year, regardless of the number of his Hours of Service, and
shall be allocated to his Account.
For any Plan Year when (1) the Plan is top-heavy and (2) a Non-key Employee
is a Participant in both this Plan and a defined benefit plan included in the
plan aggregation group which is top heavy, the sum of the Employer contributions
and forfeitures allocated to the Account of each such Non-key Employee shall be
equal to at least five percent (5%) of such Non-key Employee's Total
Compensation for that year.
15.3 Minimum Vesting. If a Participant's vested interest in his Account is
to be determined in a Top-Heavy Year, it shall be based on the following
"top-heavy table":
Vesting Percentage of
Years Interest Vested
------------ -----------------
fewer than 3 0
3 or more 100%
31
<PAGE>
FORM OF
TRUST AGREEMENT
BETWEEN
ELGIN FINANCIAL CENTER, S.B.
AND
------------------------
FOR THE
ELGIN FINANCIAL CENTER, S.B.
EMPLOYEE STOCK OWNERSHIP TRUST
<PAGE>
CONTENTS
Page No.
--------
Section 1 Creation of Trust 1
Section 2 Investment of Trust Fund and
Administrative Powers of the
Trustee 2
Section 3 Compensation and Indemnification
of Trustee and Payment of Expenses
and Taxes 7
Section 4 Records and Valuation 8
Section 5 Instructions from Committee 8
Section 6 Change of Trustees 9
Section 7 Miscellaneous 9
<PAGE>
This TRUST AGREEMENT dated_____________ BETWEEN Elgin Financial Center,
S.B., an Illinois-chartered savings bank with its principal office at
1695 Larkin Avenue, Elgin, Illinois (hereinafter called the "Company"), AND
________________, with offices at________________ (hereinafter called the
"Trustee"),
W I T N E S S E T H T H A T:
WHEREAS, effective____________, the Company approved and adopted an
employee stock ownership plan for the benefit of its employees, Elgin Financial
Center, S.B. Employee Stock Ownership Plan, (hereinafter called the "Plan"); and
WHEREAS, the Company has authorized the execution of this Trust Agreement
and has appointed_________________ as Trustee of the Trust Fund created pursuant
to the Plan; and
WHEREAS,________________ has agreed to act as trustee and to hold and
administer the assets of the Plan in accordance with the terms of this Trust
Agreement;
NOW, THEREFORE, the Company and the Trustee agree as follows:
Section 1. Creation of Trust.
1.1 Trustee.________________ shall be trustee of the Trust Fund created
in accordance with and in furtherance of the Plan, and shall serve as Trustee
until its removal or resignation in accordance with Section 6.
1.2 Trust Fund. The Trustee hereby agrees to accept contributions from
the Employer as defined in the Plan and amounts transferred from other
qualified retirement plans from time to time in accordance with the terms of
the Plan. All such property and contributions, together with income thereon
and increments thereto, shall constitute the "Trust Fund" to be held in
accordance with the terms of the Trust Agreement.
1.3 Incorporation of Plan. An instrument entitled "Elgin Financial
Center, S.B. Employee Stock Ownership Plan" is incorporated herein by
reference, and this Trust Agreement shall be interpreted consistently with
that Plan. All words and phrases defined in that Plan shall have the same
meaning when used in this Trust Agreement.
1.4 Name. The name of this trust shall be "Elgin Financial Center, S.B.
Employee Stock Ownership Trust."
1.5 Nondiversion of Assets. In no event shall any part of the corpus or
income of the Trust Fund be used for, or diverted to, purposes other than for
the exclusive benefit of the Participants and their Beneficiaries prior to
the satisfaction of all liabilities under the Plan, except to the extent that
assets may be returned to the Employer in accordance with the Plan where the
-1-
<PAGE>
Plan fails to qualify initially under Section 401(a) of the Code, or where
they are attributable to contributions made by mistake of fact or conditioned
upon their deductibility.
Section 2. Investment of Trust Fund and Administrative Powers of the
Trustee.
2.1 Stock and Other Investments. The basic investment policy of the
Plan shall be to invest primarily in Stock of the Employer for the exclusive
benefit of the Participants and their Beneficiaries. The Committee shall
have full and complete investment authority and responsibility with respect
to the purchase, retention, sale, exchange, and pledge of Stock and the
payment of Acquisition Loans, and the Trustee shall not deal in any way with
Stock except in accordance with the written instructions of the Committee.
The Trustee shall invest, or keep invested, all or a portion of the Trust
Fund in Stock, and shall pay Acquisition Loans out of assets of the Trust
Fund, as instructed from time to time by the Committee. The Trustee shall
invest any balance of the Trust Fund (the "Investment Fund") in such other
property as the Committee, in its sole discretion, shall deem advisable,
subject to any delegation of such investment responsibility pursuant to
Section 2.2. Nothing contained herein shall provide investment discretion
authority or any like kind responsibility in regard to the assets of the
Trust Fund.
In connection with instructions to acquire Stock, the Trustee may
purchase newly issued or outstanding Stock from an Employer or any other
holders of Stock, including Participants, Beneficiaries, and Plan
fiduciaries. All purchases and sales of Stock shall be made by the Trustee
at fair market value as determined by the Committee in good faith and in
accordance with any applicable requirement under ERISA. Such purchases may
be made with assets of the Trust Fund, with funds borrowed for this purpose
(with or without guarantees of repayment to the lender by an Employer), or by
any combination of the foregoing.
Notwithstanding any other provision of this Trust Agreement or the Plan,
neither the Committee nor Trustee shall make any purchase, sale, exchange,
investment, pledge, valuation, or loan, or take any other action involving
those assets for which it is responsible which (i) is inconsistent with the
policy of the Plan and Trust, (ii) is inconsistent with the prudence and
diversification requirements set forth in Sections 404(a)(1)(B) and (C) of
ERISA (to the extent such requirements apply to an employee stock ownership
plan and trust), (iii) is prohibited by Section 406 or 407 of ERISA, or (iv)
would impair the qualification of the Plan or the exemption of the Trust
under Sections 401 and 501 of the Code.
2.2 Delegation of Investment Responsibility. The Committee may, by
written notice, direct the Trustee to segregate any portion or all of the
Investment Fund into one or more separate accounts for each of which full
investment responsibility will be delegated to an investment manager
appointed in such notice pursuant to Section 402(c)(3) of ERISA (hereinafter
a "Manager"). For any separate account where the Trustee is to maintain
custody of the assets, the Trustee and the Manager shall agree upon
procedures for the transmittal of investment instructions from the Manager to
the Trustee, and the Trustee may provide the
-2-
<PAGE>
Manager with such documents as may be necessary to authorize the Manager to
effect transactions directly on behalf of the segregated account.
Further, the Committee may, by written notice, direct the Trustee to
segregate any portion or all of the Investment Fund into one or more separate
accounts for each of which full investment responsibility will be delegated
to an insurance company through one or more group annuity contracts, deposit
administration contracts, or similar contracts, which may provide for
investments in any commingled separate accounts established under such
contracts. An insurance company shall be a Manager with respect to any
amounts held under such a contract except to the extent the insurer's assets
are not deemed assets of the Plan and Trust Fund pursuant to Section
401(b)(2) of ERISA. The allocation of amounts held under such a contract
among the insurer's general account and one or more individual or commingled
separate accounts shall be determined by the Company except as otherwise
agreed by the Company and the insurer.
Any Manager shall have all of the powers given to the Trustee pursuant to
Section 2.3 with respect to the portion of the Trust Fund committed to its
investment discretion and control. The Trustee shall be responsible for the
safekeeping of any assets which remain in its custody, but in no event shall
the Trustee be under any duty to question or make any inquiry or suggestion
regarding the action or inaction of a Manager or an insurer or the
advisability of acquiring, retaining, or disposing of any asset of a
segregated account. The Employer shall indemnify and hold the Trustee
harmless from any and all costs, damages, expenses, and liabilities which the
Trustee may incur by reason of any action taken or omitted to be taken by the
Trustee upon directions from the Committee, a Manager, or an insurer pursuant
to this Section 2.2.
2.3 Trustee Powers. In addition to and not by way of limitation upon
the fiduciary powers granted to it by law, the Trustee shall have the
following specific powers, subject to the limitations set forth in Section
2.1:
2.3-1 to receive, hold, manage, invest and reinvest the money or other
property which constitutes the Trust Fund, without distinction between
principal and income;
2.3-2 to hold funds uninvested temporarily without liability for
interest thereon, and to deposit funds in one or more savings or similar
accounts with any banks and savings and loan associations which are insured
by an instrumentality of the federal government, including the Trustee if it
is such an institution.
2.3-3 at the direction of the Committee, to invest or reinvest the
whole or any portion of the money or other property which constitutes the
Trust Fund in such common or preferred stocks, investment trust shares,
mutual funds, commingled trust funds, partnership interests, bonds, notes, or
other evidences of indebtedness, and real and personal property as the
Trustee in its absolute judgment and discretion may deem to be for the best
interests of the Trust Fund, regardless of nondiversification to the extent
that such nondiversification is clearly prudent, and regardless of whether
any such investment or property is authorized by law regarding the
-3-
<PAGE>
investment of trust funds, of a wasting asset nature, temporarily nonincome
producing, or within or without the United States;
2.3-4 to invest in common and preferred stocks, bonds, notes, or other
obligations of any corporation or business enterprise in which an Employer or
its owners may own an interest;
2.3-5 at the direction of the Committee, to exchange any investment or
property, real or personal, for other investments or properties at such time
and upon such terms as the Trustee shall deem proper;
2.3-6 at the direction of the Committee, to sell, transfer, convey or
otherwise dispose of any investment or property, real or personal, for cash
or on credit, in such manner and upon such terms and conditions as the
Trustee shall deem advisable, and no person dealing with the Trustee shall be
under any duty to inquire as to the validity, expediency, or propriety of any
such sale or as to the application of the purchase money paid to the Trustee;
2.3-7 to hold any investment or property in the name of the Trustee,
with or without the designation of any fiduciary capacity, or in name of a
nominee, or unregistered, or in such other form that title may pass by
delivery; provided, however, that the Trustee's records always show that such
investment or property belongs to the Trust Fund and the Trustee shall not be
relieved hereby of its responsibility to maintain safe custody of the Trust
Fund;
2.3-8 to organize one or more corporations to hold, manage, or liquidate
any property, including real estate, owned or acquired by the Trust Fund if
in the sole discretion of the Trustee the organization of such corporation or
corporations is for the best interest of the Trust;
2.3-9 to extend the time for payment of, to modify, to renew, or to
release security from any mortgage, note or other evidence of indebtedness,
or to take advantage of or waive any default; to foreclose mortgages and bid
in property under foreclosure or to take title to property by conveyance in
lieu of foreclosure, either with or without the payment of additional
consideration;
2.3-10 to vote in person or by proxy all stocks and other securities
having voting privileges; to exercise or refrain from exercising any option
or privilege with respect to stocks and other securities, including any right
or privilege to subscribe for or otherwise to acquire stocks and other
securities; or to sell any such right or privilege; to assent to and join in
any plan of refinance, merger, consolidation, reorganization or liquidation
of any corporation or other enterprise in which this Trust may have an
interest, to deposit stocks and other securities with any committee formed to
effectuate the same, to pay any expense incidental thereto, to exchange
stocks and other securities for those which may be issued pursuant to any
such plan, and to retain as an investment the stocks and other securities
received by the Trustee; and to deposit any investment in a voting trust;
notwithstanding the preceding, participants and beneficiaries shall be
entitled to direct the manner in which stock allocated to their respective
accounts are to be
-4-
<PAGE>
voted on all matters. All stock which has been allocated to participant's
accounts for which the Trustee has received no written direction and all
unallocated Employer securities will be voted by the Trustee in direct
proportion to any participant directions received and solely in the interest
of the participants and beneficiaries. Whenever such voting rights are to be
exercised, the Employer, the Committee and the Trustee shall see that all
participants and beneficiaries are provided with adequate opportunity to
deliver their instructions to the Trustee regarding voting of stock allocated
to their accounts. The instructions of the participants with respect to the
voting of allocated shares hereunder shall be confidential;
2.3-11 to abandon any property, real or personal, which the Trustee
shall consider to be worthless or not of sufficient value to warrant its
keeping or protecting; to abstain from the payment of taxes, water rents,
assessments, repairs, maintenance, and upkeep of any such property; to permit
any such property to be lost by tax sale or other proceedings, and to convey
any such property for a nominal consideration or without consideration;
2.3-12 to borrow money from an Employer or from others (including the
Trustee), and to enter into installment contracts, for the purchase of Stock
upon such terms and conditions and at such reasonable rates of interest as
the Committee may deem to be advisable, to issue its promissory notes as
Trustee to evidence such debt, to secure the payment of such notes by
pledging any property of the Trust Fund, and to authorize the holders of any
such notes to pledge them to secure obligations of the holders and in
connection therewith to repledge any assets of the Trust as security
therefor; provided that, with respect to any extension of credit to the Trust
involving, as a lender or guarantor, an Employer or another "disqualified
person" within the meaning of Section 4975(e)(2) of the Code --
(a) each loan or installment contract is primarily for the benefit of
Participants and Beneficiaries of the Plan;
(b) any interest on a loan or installment contract does not exceed a
reasonable rate;
(c) the proceeds of any loan shall be used only to acquire Stock, to repay
the loan, or to repay a previous loan meeting these conditions, and
the subject of any installment contract shall be only the Trust's
purchase of Stock;
(d) any collateral pledged to a creditor by the Trustee shall consist only
of the assets purchased with borrowed funds or received in accordance
with an installment contract and the creditor shall have no recourse
against the Trust Fund except with respect to the collateral (although
the creditor may have recourse against an Employer as guarantor);
(e) payments with respect to a loan or installment contract shall be made
only from those amounts contributed by the Employer to the Trust Fund,
from amounts earned on such contributions, and from cash dividends
received on unallocated Stock held by the Trust as collateral for such
an obligation; and
(f) upon the payment of any portion of balance due on a loan or upon any
installment payment, a proportionate part of any assets originally
pledged as collateral for such indebtedness shall be released from
encumbrance in accordance with Section
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<PAGE>
4.2 of the Plan and the Committee shall at least annually advise the
Trustee of the number of shares of Stock so released and the proper
allocation of such shares under the terms of the Plan;
2.3-13 to manage and operate any real property which shall at any time
constitute an asset of the Trust Fund; to make repairs, alterations, and
improvements thereto; to insure such property against loss by fire or other
casualty; to lease or grant options for the sale of such property, which
lease or option may be for a period of time which may extend beyond the life
of this Trust; and to take any other action or enter into any other contract
respecting such property which is consistent with the best interests of the
Trust;
2.3-14 to pay any and all reasonable and normal expenses incurred in
connection with the exercise of any power, right, authority or discretion
granted herein, and, upon prior notice to the Company, to employ and
compensate agents, investment counsel, custodians, actuaries, attorneys, and
accountants in such connection;
2.3-15 to employ and consult with any legal counsel, who also may be
counsel to an Employer or the Administrator, with respect to the meaning or
construction of this Trust Agreement, the extent of the Trustee's obligations
and duties hereunder, and whether the Trustee should take or decline to take
a particular action hereunder, and the Trustee shall be fully protected with
respect to any action taken or omitted by it in good faith pursuant to such
advice;
2.3-16 to defend any action or proceeding instituted against the Trust
Fund, to institute any action on behalf of the Trust Fund, and to compromise
or submit to arbitration any dispute concerning the Trust Fund;
2.3-17 to make, execute, acknowledge and deliver any and all documents
of transfer and conveyance and any and all other instruments that may be
necessary or appropriate to carry out the powers herein granted;
2.3-18 to commingle the Trust Fund created pursuant hereto, in whole or
in part, in a single trust with all or any portion of any other trust fund,
assigning an undivided interest to each such commingled trust fund, provided
that such commingled trust is itself exempt from taxation pursuant to Section
501(a) of the Code, or its successor Section; and provided further that the
trust agreement governing such commingled trust shall be deemed incorporated
by reference in the Plan;
2.3-19 where two or more trusts governed by this Trust Agreement have an
undivided interest in any property, to credit the income from such property
to such trusts in proportion to their undivided interests, and when non pro
rata distributions of property or money are made from such trusts, to make
appropriate adjustments to the undivided fractional interests of such trusts;
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<PAGE>
2.3-20 to invest all or any portion of the Trust Fund in one or more
group annuity contracts, deposit administration contracts, and other such
contracts with insurance companies, including any commingled separate
accounts established under such contracts;
2.3-21 generally, with respect to all cash, stocks and other securities,
and property, both real and personal, received or held in the Trust Fund by
the Trustee, to exercise all the same rights and powers as are or may be
lawfully exercised by persons owning cash, or stocks and other securities, or
such property in their own right; and to do all other acts, whether or not
expressly authorized, which it may deem necessary or proper for the
protection of the Trust Fund; and
2.3-22 whenever more than two persons shall qualify to act as
co-trustees, to exercise and perform every power (including discretionary
powers), authority or duty by the concurrence of a majority of them the same
effect as if all had joined therein, except that the unanimous vote of such
persons shall be necessary to determine the number (one or more) and identity
of persons who may sign checks, make withdrawals from financial institutions,
have access to safe deposit boxes, or direct the sale of trust assets and the
disposition of the proceeds.
2.4 Brokerage. If permitted in writing by the Committee, the Trustee
shall have the power and authority to be exercised in its sole discretion at
any time and from time to time to issue and place orders for the purchase or
sale of securities with qualified brokers and dealers. Such orders may be
placed with such qualified brokers and/or dealers who also provide investment
information or other research or statistical services to the Trustee in its
capacity as a fiduciary or investment manager for other clients.
Section 3. Compensation and Indemnification of Trustee and Payment of
Expenses and Taxes.
3.1 Fees and Expenses from Fund. Compensation of Trustee. In
consideration for rendering services pursuant to this Trust Agreement the
Trustee shall be paid fees in accordance with the Trustee's fee schedule as
in effect from time to time. Fee changes resulting in fee increases shall be
effective upon not less than 30 days' notice to the Company. In addition,
the Trustee shall be reimbursed for any reasonable expenses, including
reasonable attorneys' fees, incurred in the administration of the Trust
created hereby. Fees and expenses shall be allocated to Participant Accounts,
if any, unless paid directly by the Employer. All compensation and expenses
of the Trustee shall be paid out of the Trust Fund or by the Employer as
specified in the Plan. If and to the extent the Trust Fund shall not be
sufficient, such compensation and expenses shall be paid by the Employer upon
demand. If payment is due but not paid by the Employer, such amount shall be
paid from the assets of the Trust Fund. The Trustee is hereby empowered to
withdraw all such compensation and expenses which are 60 days past due from
the Trust Fund, and, in furtherance thereof, liquidate any assets of the
Trust Fund, without further authorization or direction from or by any person.
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<PAGE>
3.2 Indemnification. Notwithstanding any other provision of this Trust
Agreement, any individual designated as a trustee hereunder shall be
indemnified and held harmless by the Employer to the fullest extent permitted
by law against any and all costs, damages, expenses and liabilities
including, but not limited to attorneys' fees and disbursements reasonably
incurred by or imposed upon such individual in connection with any claim made
against him or in which he may be involved by reason of his being, or having
been, a trustee hereunder, to the extent such amounts are not satisfied by
insurance maintained by the Employer, except liability which is adjudicated
to have resulted from the gross negligence or willful misconduct of the
Trustee by reason of any action so taken. Further, any corporate trustee and
its officers, directors and agents may be indemnified and held harmless by
the Employer to the fullest extent permitted by law against any and all
costs, damages, expenses and liabilities including, but not limited to
attorneys' fees and disbursements reasonably incurred by or imposed upon such
persons and/or corporation in connection with any claim made against it or
them or in which it or them may be involved by reason of its being, or having
been, a trustee hereunder as may be agreed between the Employer and such
trustee, except liability which is adjudicated to have resulted from the
gross negligence or willful misconduct of the Trustee by reason of any action
so taken.
3.3 Expenses. All expenses of administering this Trust and the Plan,
whether incurred by the Trustee or the Committee, shall be paid by the
Trustee from the Trust Fund to the extent such expenses shall not have been
assumed by the Employer.
3.4 Taxes. All taxes that may be levied or assessed upon or in respect
of the Trust Fund shall be paid from the Trust Fund. The Trustee shall
notify the Committee of any proposed or final assessments of taxes and may
assume that any such taxes are lawfully levied or assessed unless the
Committee advises it in writing to the contrary within fifteen days after
receiving the above notice from the Trustee. In such case, the Trustee, if
requested by the Committee in writing, shall contest the validity of such
taxes in any manner deemed appropriate by the Committee; the Employer may
itself contest the validity of any such taxes, in which case the Committee
shall so notify the Trustee and the Trustee shall have no responsibility or
liability respecting such contest. If either party to this Agreement
contests any such proposed levy or assessments, the other party shall provide
such information and cooperation as the party conducting the contest shall
reasonably request.
Section 4. Records and Valuation.
4.1 Records. The Trustee, and any investment manager appointed pursuant
to Section 2.2, shall maintain accurate and detailed records and accounts of
all investments, receipts, disbursements and other transactions made by it
with respect to the Trust Fund, and all accounts, books and records relating
thereto shall be open at all reasonable time to inspection and audit by the
Committee and the Employer.
4.2 Valuation. From time to time upon the request of the Committee, but
at least annually as of the last day of each Plan Year, the Trustee shall
prepare a balance sheet of the
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<PAGE>
Investment Fund in accordance with Section 8.2 of the Plan and shall deliver
copies of the balance sheet to the Committee and the Employer.
4.3 Discharge of Trustee. Ninety days after the filing of any balance
sheet under Section 4.2 or any accounting under Section 6, the Trustee shall
be forever released and discharged from any liability or accountability other
than for gross negligence or wilful misconduct on the part of the Trustee to
anyone with respect to the transactions shown or reflected in such balance
sheet or accounting, except with respect to any acts or transactions as to
which the Committee, within such ninety-day period, files written objections
with the Trustee. The written approval of the Committee of any balance sheet
or accounting so filed by the Trustee, or the Committee's failure to file
written objections within ninety days, shall be a settlement of such balance
sheet or accounting as against all persons, and shall forever release and
discharge the Trustee from any liability of accountability to anyone with
respect to the transactions shown or reflected in such balance sheet or
accounting other than liability arising out of the Trustee's gross negligence
or wilful misconduct. If a statement of objections is filed by the Committee
and the Committee is satisfied that its objections should be withdrawn or if
the balance sheet or accounting is adjusted to its satisfaction, the
Committee shall indicate its approval of the balance sheet or accounting in a
written statement filed with the Trustee and the Trustee shall be forever
released and discharged from any liability of accountability to anyone in
accordance with the immediately preceding sentence. If an objection is not
settled by the Committee and the Trustee, the Trustee may start a proceeding
for a judicial settlement of the balance sheet or accounting in any court of
competent jurisdictions; the only parties that need be joined in such a
proceeding are the Trustee, the Committee, the Employer and any other parties
whose participation is required by law.
4.4 Right to Judicial Settlement. Nothing in this Agreement shall
prevent the Trustee from having its account settled by a court of competent
jurisdiction at any time. The only parties that need be joined in any such
proceeding are the Employer, the Committee, the Trustee and any other parties
whose participation is required by law.
Section 5. Instructions from Committee.
5.1 Certification of Members and Employees. From time to time the
Company shall certify to the Trustee in writing the names of the individuals
comprising the Committee and shall furnish to the Trustee specimens of their
signatures and the signatures of their agents, if any. The Trustee shall be
entitled to presume that the identities of such individuals and their agents
are unchanged until it receives a certification from the Company notifying it
of any changes.
5.2 Instructions to Trustee.
(a) The Trustee shall pay benefits and administrative expenses under the
Plan only when it receives (and in accordance with) written instructions of
the Committee indicating the amount of the payment and the name and address
of the recipient in accordance with the terms of the Plan. The Trustee need
not inquire into whether any payment the Committee instructs it to make
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<PAGE>
is consistent with the terms of the Plan or applicable law or otherwise
proper. Any payment made by the Trustee in accordance with such instructions
shall be a complete discharge and acquittance to the Trustee. If the
Committee advises the Trustee that benefits have become payable with respect
to a Participant's interest in the Trust Fund but does not instruct the
Trustee as to the manner of payment, the Trustee shall hold the Participant's
interest in the Trust until it receives written instructions from the
Committee as to the manner of payment. The Trustee shall not pay benefits
from the Trust Fund without such instructions, even though it may be informed
from other sources, including, without limitation, a Participant or
Beneficiary, that benefits are payable under the Plan. The Trustee shall
have no responsibility to determine when, to whom or in what amount benefits
and expenses are payable under the Plan. Further, the Trustee shall have no
power, authority or duty to interpret the Plan or inquire into the decisions
or determinations of the Committee, or to question the instructions given to
it by the Committee. If the Committee so directs, the Trustee shall
segregate amounts payable with respect to the interest in the Plan of any
Participant and administer them separately from the rest of the Trust Fund in
accordance with the Committee's instructions.
(b) The Trustee may require the Committee to certify in writing that any
payment of benefits or expenses it instructs the Trustee to make pursuant to
Section 5.2(a) above is: (i) in accordance with the terms of the Plan and/or
(ii) one which the Committee is authorized by the Plan and any other
applicable instruments to direct and/or (iii) made for the exclusive purpose
of providing benefits to Participants and Beneficiaries, or defraying
reasonable expenses of Plan administration and/or (iv) not made to a party in
interest (within the meaning of ERISA Section 3(14)), and/or (v) not a
prohibited transaction (within the meaning of Code Section 4975 and ERISA
Section 406). If the Trustee requests, instructions to pay benefits shall be
made by the Committee on forms prepared by the Trustee to include any or all
of the above representations. The Trustee shall be fully protected in
relying on the truth of any such representation by the Committee and shall
have no duty to investigate whether such representations are correct or to
see to the application of any amounts paid to and received by the recipient.
5.3 Plan Change. In the event of an amendment, merger, division, or
termination of the Plan, the Trustee shall continue to disburse funds and to
take other proper actions in accordance with the instructions of the
Committee.
Section 6. Change of Trustees.
The Company may at any time remove any person or entity serving as a
trustee hereunder by giving to such person or entity written notice of
removal and, if applicable, the name and address of the successor trustee.
Any person or entity serving as a trustee hereunder may resign at any time by
giving written notice to the Company. Any such removal or resignation shall
take effect within 30 days after notice has been given by the trustee or by
the Company, as the case may be. Within those 30 days, the removed or
resigned trustee shall transfer, pay over and deliver any portion of the
Trust Fund in its possession or control (less an appropriate reserve for any
unpaid fees, expenses, and liabilities) and all pertinent records to the
successor or remaining
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<PAGE>
trustee; provided, however, that any assets which are invested in a
collective fund or in some other manner which prevents their immediate
transfer shall be transferred and delivered to the successor trustee as soon
as may be practicable. Thereafter, the removed or resigned trustee shall
have no liability for the Trust Fund or for its administration by the
successor or remaining trustee, but shall render an accounting to the
Committee of its administration of the Trust Fund to the date on which its
trusteeship shall have been terminated. The Company may also, upon 30 days'
notice to each person currently serving as a trustee, appoint one or more
persons to serve as co-trustees hereunder.
Section 7. Miscellaneous.
7.1 Right to Amend. This Trust Agreement may be amended from time to
time by an instrument executed by the Company; provided, however, that any
amendment affecting the powers, duties or liabilities of the Trustee must be
approved by the Trustee, and provided, further, that no amendment may divert
any portion of the Trust Fund to purposes other than the exclusive benefit of
the Participants and their Beneficiaries prior to the satisfaction of all
liabilities for benefits. Any amendment shall apply to the Trust Fund as
constituted at the time of the amendment as well as to that portion of the
Trust Fund which is subsequently acquired.
7.2 Compliance with ERISA. In the exercise of its powers and the
performance of its duties, the Trustee shall act in good faith and in
accordance with the applicable requirements under ERISA. Except as may be
otherwise required by ERISA, the Trustee shall not be required to furnish any
bond in any jurisdiction for the performance of its duties and, if a bond is
required despite this provision, no surety shall be required on it.
7.3 Nonresponsibility for Funding. The Trustee shall be under no duty
to enforce the payment of any contributions and shall not be responsible for
the adequacy of the Trust Fund to satisfy any obligations for benefits,
expenses, and liabilities under the Plan.
7.4 Reports. The Trustee shall file any report which it is required by
law to file with any governmental authority with respect to this Trust, and
the Committee shall furnish to the Trustee whatever information is necessary
to prepare the report.
7.5 Dealings with Trustee. Persons dealing with the Trustee, including
but not limited to banks, brokers, dealers, and insurers, shall be under no
obligation to inquire concerning the validity of anything which the Trustee
purports to do, nor need any person see to the proper application of any
money paid or any property transferred upon the order of the Trustee or to
inquire into the Trustee's authority as to any transaction.
7.6 Limitation Upon Responsibilities. The Trustee shall have no
responsibilities with respect to the Plan or Trust other than those
specifically enumerated or explicitly allocated to it under this Trust
Agreement or the provisions of ERISA. All other responsibilities are
retained
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<PAGE>
and shall be performed by one or more of the Employer, the Committee, and
such advisors or agents as they choose to engage.
The Trustee may execute any of the trusts or powers hereof and perform
any of its duties by or through attorneys, agents, receivers or employees and
shall not be answerable for the conduct of the same if chosen with reasonable
care and shall be entitled to advice of counsel concerning all matters of
trust hereof and the duties hereunder, and may in all cases pay such
reasonable compensation to all such attorneys, agents, receivers and
employees as may reasonably be employed in connection with the trusts hereof.
The Trustee may act upon the opinion or advice of any attorney (who may be
the attorney for the trustee or attorney for the Committee), approved by the
Trustee in the exercise of reasonable care. The Trustee shall not be
responsible for any loss or damage resulting from any action or non-action in
good faith in reliance upon such opinion or advice.
The Trustee shall be protected in acting upon any notice, request,
consent, certificate, order, affidavit, letter, telegram or other paper or
document believed to be genuine and correct and to have been signed or sent
by the proper person or persons, and the Trustee shall be under no duty to
make any investigation or inquiry as to any statement contained in any such
writing but may accept the same as conclusive evidence of the truth and
accuracy of the statements therein contained.
The Trustee shall not be liable for other than its gross negligence or
willful misconduct. Except in the case of gross negligence or wilful
misconduct on the part of the Trustee, the Trustee in its corporate capacity
shall not be liable for claims of any persons in any manner regarding the
Plan; such claims shall be limited to the Trust Fund. Unless the Trustee
participates knowingly in, or knowingly undertakes to conceal, an act or
omission of the Committee or any other fiduciary, knowing such act or
omission to be a breach of fiduciary responsibility, the Trustee shall be
under no liability for any loss of any kind which may result by reason of
such act or omission.
Before taking any action hereunder at the request or direction of the
Committee, the Trustee may require that indemnity in form and amount
satisfactory to the Trustee be furnished for the reimbursement of any and all
costs and expenses to which it may be put including, without limitation,
reasonable attorneys' fees and to protect it against all liability, except
liability which is adjudicated to have resulted from the gross negligence or
willful misconduct of the Trustee by reason of any action so taken.
No provision of this Agreement shall require the Trustee to expend or
risk its own funds or otherwise incur any financial liability in the
performance of any of its duties hereunder, or in the exercise of any of its
rights or powers, if it shall have reasonable grounds for believing that
repayment of such funds or adequate indemnity against such risk or liability
is not reasonably assured to it.
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<PAGE>
7.7 Qualification of Plan and Trust. The Trustee shall be fully
protected in assuming that the Plan and Trust meet the requirements of Code
Section 401 and 501, respectively, and all the applicable provisions of ERISA
unless it is advised to the contrary in writing by the Committee or a
governmental agency.
7.8 Party in Interest Information. The Employer shall provide the
Trustee with such information concerning the relationship between any person
or organization and the Plan as the Trustee reasonably requests in order to
determine whether such person or organization is a party in interest with
respect to the Plan within the meaning of ERISA Section 3(14).
7.9 Disputes. If a dispute arises as to the payment of any funds or
delivery of any assets by the Trustee, the Trustee may withhold such payment
or delivery until the dispute is determined by a court of competent
jurisdiction or finally settled in writing by the parties concerned.
7.10 Successor Trustees. This Trust Agreement shall apply to any person
who shall be appointed to succeed the person currently appointed as the
Trustee; and any reference herein to the Trustee shall be deemed to include
any one or more individuals or corporations or any combination thereof who or
which hall at any time act as a co-trustee or as the sole trustee.
7.11 Governing State Law. This Trust Agreement shall be interpreted in
accordance with the laws of the State of Illinois to the extent those laws
may be applicable under the provisions of ERISA.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
ATTEST: ELGIN FINANCIAL CENTER, S.B.
By:
- ------------------- --------------------------
Corporate Secretary Chief Executive Officer
ATTEST: --------------------
as TRUSTEE
By:
- -------------------- --------------------------
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<PAGE>
Exhibit 10.2 Draft ESOP Loan Commitment Letter and ESOP Loan Documents
<PAGE>
[EFC BANCORP, INC. LETTERHEAD]
, 1997
----------
EFC Bancorp, Inc.
1695 Larkin Avenue
Elgin, Illinois 60123
Dear :
-----------------
This letter confirms EFC Bancorp, Inc.'s commitment to fund a leveraged
ESOP in an amount up to $_________. The commitment is subject to the
following terms and conditions:
1. Lender: EFC Bancorp, Inc. (the "Company").
2. Borrower: Elgin Financial Center, S.B. Employee Stock Ownership Plan.
3. Trustee: _____________________________________.
4. Security: Unallocated shares of stock of the Company held in the
Elgin Financial Center, S.B. Employee Stock Ownership Plan.
5. Maturity: Up to 15 years from takedown.
6. Amortization: Equal annual principal and interest payments
7. Pricing:
a. [____%] or [the Prime Rate as published in the Wall Street Journal
on the date of the loan transaction].
8. Interest Payments:
a. Annual on a 360 day basis.
<PAGE>
9. Funding: In full by ____________________, unless such date is waived
by the Company.
10. Prepayment: Voluntary prepayments are prermitted at any time.
11. Conditions Precedent to Closing: Receipt by the Company of all
supporting loan documents in a form and with terms and conditions
satisfactory to the Company and its counsel. Consummation of the
transaction will also be contingent upon no material adverse change
occurring in the condition of Elgin Financial Center, S.B. or the
Company.
12. Closing Date: Not later than ___________, unless such date is waived
by the Company.
If the terms and conditions are agreeable to you, please indicate your
acceptance by signing the enclosed copy and returning it to my attention.
Sincerely,
Lending Officer
Accepted on Behalf of
Elgin Financial Center, S.B.
By: Date:
------------------------------ ---------------------------
Barrett O'Connor
President and Chief Executive Officer
<PAGE>
FORM OF
ELGIN FINANCIAL CENTER, S.B.
EMPLOYEE STOCK OWNERSHIP TRUST
LOAN AND SECURITY AGREEMENT
Elgin Financial Center, S.B.
1695 Larkin Avenue
Elgin, Illinois 60123
_______________ , 1997
Gentlemen:
The undersigned,________________________ ("Trustee"), not individually but
solely as Trustee under the Elgin Financial Center, S.B. Employee Stock
Ownership Trust (the "Trust") effective ____________ (the "Borrower"), applies
to you for your commitment, subject to all of the terms and conditions hereof
and on the basis of the representations hereinafter set forth, to make a loan
available to the Borrower as hereinafter set forth. EFC Bancorp, Inc. is
hereinafter referred to as the "Lender". The term "Bank" as used herein refers
to the sponsoring employer of the Elgin Financial Center, S.B. Employee Stock
Ownership Plan (the "ESOP").
SECTION ONE. THE TERM LOAN.
1.1 Amount and Terms. Subject to and upon the terms and conditions herein
set forth, the Lender agrees to lend amounts to the Borrower from time to time
during the period of this agreement up to but not including _________(the
"Maturity Date") in an aggregate principal amount sufficient to permit the
Borrower to acquire a number of shares ("Shares") of common stock, par value
$0.01 ("Common Stock") of EFC Bancorp, Inc., a Delaware corporation, and the
Holding Company of the Bank, equal to 8% of the Shares issued in connection with
the conversion of the Bank from the mutual to stock form ("Loan Amount").
The Loan is intended to be an "exempt loan" as described in Section 4975(d)
of the Internal Revenue Code of 1986, as amended (the "Code"), as defined in
Section 54.4975-7(b) of the Treasury Regulations (the "Regulations"), as
described in Section 408(b)(3) of the Employee Retirement Income Security Act of
1974, as amended ("ERISA") and as described in Department of Labor Regulations
Section 2550.408b-3 (collectively, the "Exempt Loan Rules").
1.2 The Note. The disbursement of the Loan pursuant to Section 1.1 hereof
shall be made against and evidenced by a promissory note of the Borrower in the
form annexed hereto as Exhibit A (the "Note"), such Note to bear interest as
hereinafter provided, and to mature in
<PAGE>
_______ (__) equal annual installments consisting of both principal and
interest amortized over a _______ (__) year period in an amount sufficient to
repay all borrowed amounts plus interest, commencing on __________________
and on the last day of each and every ___________ each year thereafter,
except that the final installment in the amount of all principal and interest
not sooner paid shall be due on________________, the final maturity thereof.
Without regard to the principal amount of the Note stated on its face, the
actual principal amount at any time outstanding and owed by the Borrower on
account of the Note shall be the amount of the disbursement of the Loan made by
the Lender under Section 1.1 hereof less all payments of principal actually
received by the Lender. The amount of such disbursement made by the Lender and
any repayments of principal thereof shall be recorded by the Lender on its books
or records or, at its option, endorsed on the reverse side of the Note by the
Lender and the unpaid principal balance at any time so recorded or endorsed by
the Lender shall be prima facie evidence in any court or other proceedings
brought to enforce the Note of the principal amount remaining unpaid thereon.
1.3 Exempt Loan Rules. Notwithstanding anything to the contrary contained
in this Loan and Security Agreement (the "Agreement") or in the Note, the
Borrower shall be obligated to make repayments of the Loan only to the extent
that such repayments when added to the repayments theretofore made during the
applicable plan year would not exceed an amount which would cause the
limitations of Section 415 of the Code to be exceeded for any ESOP participant.
Except as set forth in the next succeeding sentence and to the extent
permitted by applicable law, including, without limitation, the Exempt Loan
Rules, the principal amount of the Loan and any interest thereon shall be
payable solely from contributions (other than contributions of employer
securities) made to the Trust in accordance with the ESOP, and cash dividends
received on the Shares, to enable the Borrower to pay its obligations under the
Loan and from earnings attributable to the Shares and the investment of such
contributions and dividends.
The Lender acknowledges and agrees that it shall have no other recourse
against the Borrower for repayment of the Loan and that it shall have no
recourse against assets of the ESOP included in the Trust other than pursuant to
Sections 3 and 8 hereof.
SECTION TWO. INTEREST AND FEES.
2.1 Interest Rate. The Loan shall bear interest (which the Borrower
hereby promises to pay) prior to maturity (whether by lapse of time,
acceleration or otherwise) at a rate per annum equal at all times to the
Interest Rate as defined in Section 10.3 hereof.
2.2 Basis and Payment Dates. All interest accruing on the Note prior to
maturity shall be due and payable on a annual basis on the last day of each year
(commencing
<PAGE>
____________) and at maturity (unless prepaid in whole prior to such date,
then on the date of such prepayment in whole) and interest accruing after
maturity shall be due and payable upon demand. All interest on the Note
shall be computed on the basis of a year of 360 days.
SECTION THREE. COLLATERAL.
3.1 Grant of Security Interest-Pledged Shares. The Borrower hereby
grants, pledges and assigns to the Lender all Shares of the issued and
outstanding common stock, par value $.01 per share all of which were either (i)
purchased by the Borrower from the proceeds of the disbursement of the Loan;
(ii) acquired by the Borrower with the proceeds of a prior exempt loan within
the meaning of Section 54.4975-7(b) of the Regulations, and pledged as
collateral for such prior exempt loan, where the balance of such prior exempt
loan has been repaid with the proceeds of the disbursement of the Loan (the
"Pledged Shares" being hereinafter referred to as the "Collateral"). The
Pledged Shares shall be evidenced by a stock certificate. The assignment and
pledge herein granted and provided for is made and given to secure and shall
secure the prompt payment of principal of and interest on the Note as and when
the same becomes due and payable and the payment, observance and performance of
any and all obligations and liabilities arising under or provided for in this
Agreement or the Note or any of them in each instance as the same may be amended
or modified and whether now existing or hereafter arising.
3.2 Further Assurances. The Borrower covenants and agrees that it will at
any time and from time to time as requested by the Lender execute and deliver
such further instruments and do and perform such other acts as the Lender may
reasonably deem necessary or desirable to provide for or perfect the lien of the
Lender in the Collateral hereunder.
3.3 Voting. Upon the occurrence of a Default or an Event of Default
hereunder, the Lender shall have the right to transfer the Collateral or any
part thereof into its name or into the name of its nominee. The Lender shall
not be entitled to vote the Pledged Shares unless and until an Event of Default
has occurred and so long as the same shall not have been waived by the Lender.
3.4 Partial Releases. The Lender agrees, provided always that no
Default or Event of Default shall have occurred and be continuing, as
promptly as is practicable after__________ in each year (the period
commencing_____________ and ending______________ and each subsequent 12-month
period ending on_______________ being hereinafter referred to as a "Plan
Year"), to release that number of Pledged Shares then being held to secure
the Loan which is equal to the number of such Pledged Shares held as of the
last day of the Plan Year multiplied by a fraction, the numerator of which is
the aggregate amount of all principal and interest payments made on the Note
during the Plan Year and the denominator of which is the sum of the numerator
plus the unpaid principal and interest of the Note as of the last day of such
Plan Year.
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SECTION FOUR. PAYMENTS.
4.1 Place and Application. All payments of principal, interest, fees and
all other amounts payable hereunder shall be made to the Lender at 1695 Larkin
Avenue, Elgin, Illinois 60123 for the account of the Lender (or at such other
place for the account of the Lender as the Lender may from time to time in
writing specify to the Borrower) in immediately available and freely
transferable funds at the place of payment. All payments shall be paid in full
without setoff or counterclaim and without reduction for and free from any and
all taxes, levies, duties, fees, charges, deductions, withholdings, restrictions
or conditions of any nature imposed by any government or any political
subdivision or taxing authority thereof.
4.2 Prepayments. The Borrower shall have the privilege of prepaying in
whole or in part the Note at any time upon giving three (3) Business Days' prior
notice to the Lender, each such prepayment to be made by the payment of the
principal amount to be prepaid and accrued interest thereon to the date fixed
for prepayment. All such prepayments shall be made without premium or penalty.
Prepayments shall first be applied to the several installments of the Note in
the inverse order of their respective maturities.
SECTION FIVE. REPRESENTATIONS AND WARRANTIES.
The Borrower represents and warrants to the Lender as follows:
5.1 The Trust is a duly organized, validly existing employee stock
ownership trust.
5.2 The proceeds of the disbursement of the Loan shall be applied in their
entirety to the payment of the purchase price for the Pledged Shares.
5.3 The Borrower has full right, power and authority to enter into this
Agreement, to make the borrowings hereunder provided for, to issue the Note in
evidence thereof and to perform each and all of the matters and things herein
and therein provided for and this Agreement does not, and the Note when issued
will not, nor will the performance or observance by the Borrower of any of the
matters or things herein or therein provided, contravene any provision of law or
the Trust or any other covenant or agreement affecting the Trust or any of its
assets. As of the date of the disbursement of the Loan, the Pledged Shares will
be fully paid and non-assessable and the Pledged Shares will be owned by the
Borrower free and clear of all liens, charges and encumbrances whatsoever,
except for any lien of Lender provided for herein.
5.4 Except as disclosed to the Lender in writing, there is no litigation
or governmental proceeding pending, nor to the knowledge of the Borrower
threatened, against the ESOP and Trust.
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5.5 The ESOP and Trust have no material liabilities, whether absolute or
contingent, except for those heretofore disclosed to the Lender.
SECTION SIX. REPRESENTATIONS AND WARRANTIES OF THE LENDER
The Lender represents and warrants that:
6.1 The Lender is a corporation duly organized under the laws of the State
of Delaware, and is validly existing and in good standing under the laws of the
State of Delaware. The Lender has full power and authority and legal right to
make and perform this Agreement.
6.2 The execution, delivery and performance by the Lender of this
Agreement have been duly authorized by all necessary action by the Lender is not
will not violate any provisions of law applicable to the Lender, any rules,
regulations or orders applicable to the Lender or any judgments or decrees
binding upon the Lender. This Agreement is a valid and legally binding
obligation of the Lender enforceable against the Lender in accordance with its
terms, subject to applicable bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and similar laws affecting credits' rights generally
and the general principles of equity (regardless of whether considered in a
proceeding at law or in equity).
6.3 No authorizations, approvals or consents of, and no filings or
registrations with, any governmental regulatory authority or agency are required
for the execution, delivery or performance by the Lender of this Agreement, or
any transaction contemplated hereby, or for the validity or enforceability
against the Lender hereof except as have already been received or accomplished.
6.4 The execution, delivery and performance of the Agreement and the
consummation of the transactions contemplated hereby will not violate, conflict
with or constitute a default under (i) any of the provisions of the Lender's
Certificate of Incorporation or Bylaws, (ii) any provision of any agreement,
instrument, order, arbitration award, judgment or decree to which the Lender is
a party or by which it is or its assets are bound (iii) any statute, rule or
regulation of any federal, state or local government or agency applicable to the
Lender, except in any such case (i), (ii), (iii) above, for any such conflicts,
violations, defaults which either individually or in the aggregate do not have a
material adverse effect on the business properties of the Lender and its
subsidiaries, taken as a whole.
6.5 The Bank has taken such actions as are required by applicable law to
be taken by it to establish the ESOP and the Trust.
6.6 There is no action, suit, investigation or proceeding pending, or to
the best knowledge of the Bank, threatened against or affecting the ESOP before
any court or governmental department, agency or instrumentality.
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6.7 The Loan will be an "exempt loan" as that term is defined under
Section 54.4975-7(b)(1)(iii) of the Regulations, provided the ESOP Committee
determines that the interest rate is not more than reasonable; and the
transactions contemplated by this Agreement are not "prohibited transactions"
within the meaning of Section 4975 of the Code or Section 406(a) of ERISA.
6.8 Except as otherwise provided in this Agreement, the Shares are not
subject to any restriction on transfer under applicable Federal securities law
and may be freely traded over-the-counter.
SECTION SEVEN. CONDITIONS PRECEDENT.
The obligation of the Lender to make the Loan shall be subject to
satisfaction of the following conditions precedent:
7.1 The Lender shall have received executed originals of this Agreement
and the Note duly signed and properly completed.
7.2 The Lender shall have received either (i) the certificate evidencing
all the Pledged Shares together with duly executed blank stock power therefore
or (ii) if such Pledged Shares are not yet available, a duly executed agreement
to pledge such stock in the form attached hereto as Exhibit B (in which event
such certificate and stock power will be delivered within __ days of the date of
the Lender makes the Loan).
7.3 The Lender shall have received copies (executed or certified, as may
be appropriate) of all legal documents or proceedings taken in connection with
the execution and delivery of this Agreement and the Note.
SECTION EIGHT. COVENANTS.
Borrower covenants and agrees that so long as any amount remains unpaid on
the Note or the Commitment is outstanding, except to the extent compliance in
any case or cases is waived in writing by the Lender:
8.1 Compliance. The Borrower will comply with all requirements of the
Code, ERISA and any other law, rule or regulation applicable to it as such laws,
rules or regulations affect the ESOP or the Trust.
8.2 Reports.
(a) The Borrower will maintain a system of accounting for the ESOP
and the Trust in accordance with sound accounting practice and will, from
time to time, furnish to
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the Lender and its duly authorized representatives, such information and
data with respect to the financial condition of the ESOP and the Trust
as the Lender may reasonably request.
(b) Without any request the Borrower will furnish to the Lender
promptly after knowledge thereof shall have come to the attention of the
Borrower, written notice of the occurrence of any Default or Event of
Default hereunder or of any threatened or pending litigation or
governmental proceeding against the Plan or the Trust.
8.3 Determination Letter. The Bank shall apply for a determination letter
from the Internal Revenue Service that the Plan and the Trust, taken together,
qualify as an employee stock ownership plan for purposes of Section 4975(e)(7)
of the Code and the rules and regulations thereunder.
SECTION NINE. EVENTS OF DEFAULT AND REMEDIES.
9.1 Event of Default. Any one or more of the following shall constitute
an Event of Default hereunder:
(a) The Borrower shall default in the payment of principal and/or
interest in respect of the Note or any other amounts payable under this
Agreement when due;
(b) Any representation, warranty or statement made by the Borrower
herein or in connection with the making of the Loan proves to be incorrect
in any material respect as of the date of the issuance or making thereof;
(c) The Borrower shall default in the due performance or observance
by it of any term, covenant or agreement (other than those referred to in
subparts (a) and (b), inclusive, of this Section 9.1) contained in this
Agreement and such default shall continue unremedied for a period of 30
days after notice to the Borrower by the Lender or any other holder of the
Note;
(d) The ESOP shall be terminated prior to the expiration of the term
of this Agreement.
9.2 Limitations on Use of Trust Assets. When any Event of Default
described in subsections (a) to (c), of Section 9.1 has occurred and is
continuing, the Lender or the holder of the Note shall have no rights to assets
of the Trust other than (i) contributions (other than contributions of employer
securities) that are made by the Lender to enable the Borrower to meet its
obligations pursuant to the Loan, cash dividends received by the Borrower on the
Shares and earnings attributable to the investment of such contributions and
dividends and (ii) the Pledged Stock; provided further, however, that the value
of Trust assets transferred to the Lender as a
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result of an Event of Default shall not exceed the amount of the repayment
then in default, and, provided further, that so long as the Lender is a
"party in interest" within the meaning of ERISA Section 3(14) or a
"disqualified person" within the meaning of Section 4975(e)(2) of the Code, a
transfer of Trust assets upon default shall be made only if, and to the
extent of, the Borrower's failure to meet the loan's payment schedule.
9.3 Rights Upon an Event of Default. When any Event of Default has
occurred and is continuing the Lender may, in addition to such other rights or
remedies as it may have, then or at any time or times thereafter exercise with
respect to the Collateral any and all of the rights, options and remedies of a
secured party under the Uniform Commercial Code of Illinois (the "UCC")
including without limitation the sale of all or any part of the Collateral at
any brokers' board or any public or private sale, provided, however that the
Lender shall only be able to exercise such rights and remedies to the extent of
all interest and principal payments which are due and payable as of the date of
the Event of Default and provided further that prior to such exercise the Lender
shall release from the Collateral so much thereof as it would have been required
to release under Section 3.4 hereof if the period from the previous
__________ __ to the date of such release constituted a Plan Year and no Event
of Default had occurred. The net proceeds of any such sale, after deducting all
costs and expenses incurred in the collection, protection, sale and delivery of
the Collateral (which expenses Borrower promises to pay) shall be applied first
to the payment of any costs and expenses incurred by the Lender in selling or
otherwise disposing of the Collateral, second, to the payment of the principal
of and the interest on the Note, and, third, ratably as among any other items of
the indebtedness hereby secured. Any surplus remaining after the full payment
and satisfaction of the foregoing shall be returned to the Borrower or to
whomsoever a court of competent jurisdiction shall determine to be entitled
thereto. Any requirement of said UCC as to reasonable notice shall be met by
the Lender personally delivering or mailing notice (by certified mail - return
receipt requested) to the Borrower at its address as provided in Section 11.6
hereof at least ten (10) days prior to the event giving rise to the requirement
of such notice. In connection with any offer, solicitation or sale of the
Collateral, the Lender may restrict bidders and otherwise proceed in whatever
manner it reasonably believes appropriate in order to comply or assure
compliance with applicable legal requirements pertaining to the offer and sale
of securities of the same type as the Collateral.
9.4 ERISA Restrictions. The number of shares of Pledged Stock as to which
the Lender may exercise the rights set forth in this Section 9 may not exceed
that number of shares (then remaining subject to pledge hereunder) which is then
equal in current value to the amount in default under the Note. The remedies
set forth in this Section 9 may only be exercised to the extent consistent with
the restrictions on remedies set forth in Section 408(b)(3) of ERISA and the
regulations thereunder and Section 4975(d)(3) of the Code and the regulations
thereunder.
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SECTION TEN. DEFINITIONS.
10.1 The term "Business Day" shall mean any day on which savings
institutions are generally open for business in Illinois other than a Saturday
or Sunday.
10.2 The term "Event of Default" shall mean any event condition specified
as such in Section 9.1 hereof and the term "Default" shall mean any event or
condition which, with the lapse of time, the giving of notice, or both would
constitute an Event of Default.
Capitalized terms defined elsewhere in this Agreement shall have the
meanings as defined in all provisions hereof.
10.3 The term "Interest Rate" shall mean prime rate as published in the
Wall Street Journal on____________________
SECTION ELEVEN. MISCELLANEOUS.
11.1 Holidays. If any principal of the Note shall fall due on Saturday,
Sunday or on another day which is a legal holiday for savings institutions in
the State of Illinois interest at the rate the Note bears for the period prior
to maturity shall continue to accrue on such principal from the stated due date
thereof to and including the next succeeding Business Day on which the same is
payable.
11.2 No Waiver, Cumulative Remedies. No delay or failure on the part of
the Lender or the part of the holder of the Note in the exercise of any power
or right shall preclude any other or further exercise thereof, or the exercise
of any other power or right, and the rights and remedies hereunder of the Lender
and of any holder of the Note are cumulative to, and not exclusive of, any
rights or remedies which any of them would otherwise have.
11.3 Amendments, Etc. No amendment, modification, termination or waiver of
any provision of this Agreement or of the Note nor consent to any departure by
the Borrower therefrom, shall in any event be effective unless the same shall be
in writing and signed by the Lender, and then such consent, modification or
waiver shall be effective only in the specific instance and for the specific
purpose for which given. No notice to or demand on the Borrower in any case
shall entitle the Borrower to any other further notice or demand in similar or
other circumstances.
11.4. Survival of Representations. All representations and warranties
made herein or in certificates given in connection with the Loan shall survive
the execution and delivery of this Agreement and of the Note, and shall continue
in full force and effect with respect to the date as of which they were made as
long as any credit is in use or available hereunder.
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11.5 Payments. So long as the Lender is the holder of the Note, the
Borrower will promptly and punctually pay the principal of and interest on the
Note without presentment of the Note and without any notation of any such
payment being made on the Note.
11.6 Addresses for Notices. All communications provided for herein shall
be in writing and shall be deemed to have been given or made when served
personally or when deposited in the United States mail addressed, if to the
Borrower at _______________________ Trust Officer; if to the Lender at 1695
Larkin Avenue, Elgin, Illinois 60123 or at such other address as shall be
designated by any party hereto in a written notice to each other party pursuant
to this Section 11.6.
11.7 Headings. Article and Section headings used in this Agreement are for
convenience or reference only and are not a part of this Agreement for any other
purpose.
11.8 Severability of Provisions. Any provision of this Agreement which is
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such unenforceability without impairing the enforceability of
the remaining provisions hereof affecting the enforceability of such provision
in any other jurisdiction.
11.9 Counterparts. This Agreement may be executed in any number of
counterparts, and by different parties hereto on separate counterparts, and all
such counterparts taken together shall be deemed to constitute one and the same
instrument.
11.10 Binding Nature, Governing Law, Etc. This Agreement shall be
binding upon the Borrower and its successors and assigns and shall inure to the
benefit of the Lender and the benefit of its successors and assigns, including
any subsequent holder of the Note. To the extent not preempted by Federal law,
this Agreement and the rights and duties of the parties hereto shall be
construed and determined in accordance with the laws of the State of Illinois
without regard to principles of conflicts of laws. This Agreement constitutes
the entire understanding of the parties with respect to the subject matter
hereof and any prior agreements, whether written or oral, with respect thereto
are superseded hereby.
11.11 Concerning the Borrower. The term "Borrower" as used herein
shall mean and include the undersigned as Trustee of the Trust and its
successors in trust not individually but solely as Trustee under that certain
Elgin Financial Center, S.B. Employee Stock Ownership Trust
effective___________________, by and between the undersigned and Elgin Financial
Center, S.B. and this Agreement shall be binding upon the undersigned and its
successors and assigns and upon the trust estate. The undersigned assumes no
personal or individual liability or responsibility for payment of the
indebtedness evidenced by the Note or for observance or performance of the
covenants and agreements herein contained or for the truthfulness of the
representations and warranties herein contained, the undersigned having executed
this Agreement
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and the Note solely in its capacity as trustee as aforesaid to
bind the undersigned, its successors in trust and the trust estates.
11.12 Limited Liability. Anything contained herein or in the Note to
the contrary notwithstanding, the sole and only recourse of the Lender and any
other holder of the Note for payment of the obligations hereunder and under the
Note , as against the Borrower for the payment of the obligations hereunder and
under the Note shall be to (i) the Collateral, (ii) contributions, other than
employer securities not constituting Collateral hereunder, made to the ESOP and
the Trust by sponsoring employers to enable the Borrower to meet its obligations
hereunder and under the Note, and (iii) earnings attributable to the Pledged
Shares and to the investment of such employer contributions, but only to the
extent of the failure of the Borrower to meet the payment schedule of the Loan
provided for herein. The Trust assets may be transferred to Lender upon the
occurrence of a Default or an Event of Default hereunder only upon and to the
extent of the failure of the Plan to meet the payment schedule of the Loan. In
no event may the value of the Trust assets so transferred exceed the amount of
the default.
11.13 Lender's Duty of Care. It is agreed and understood that the
Lender's duty with respect to the Collateral shall be solely to use
reasonable care in the custody and preservation of the Collateral in the
Lender's possession, which shall not include any steps necessary to preserve
rights against prior parties.
All provisions in this Agreement shall be construed so as to maintain (i)
the ESOP as a qualified leveraged employee stock ownership plan under Sections
401(a) and 4975(e)(7) of the Code, (ii) the Trust as exempt from taxation under
Section 501(a) of the Code, and (iii) the Loan as an "exempt loan" under the
Exempt Loan Rules.
[Remainder of this page intentionally left blank]
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Upon your acceptance hereof in the manner hereinafter set forth, this
Agreement shall constitute a contract between us for the uses and purposes
hereinabove set forth.
Dated as of this ___ day of__________________
_________________, and its successors in trust, as
Trustee under that certain Elgin Financial Center,
S.B. Employee Stock Ownership Trust effective
______________ by and between the undersigned and
Elgin Financial Center, S.B.
By___________________________________
Accepted and agreed to at Elgin, Illinois as of the date last above written.
By___________________________________
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EXHIBIT A
PROMISSORY NOTE
Amount sufficient to satisfy the Loan Amount _________, 199__
Elgin, Illinois
For VALUE RECEIVED, the undersigned,_______________, not individually but
solely as Trustee under that certain Elgin Financial Center, S.B. Employee Stock
Ownership Trust effective ______________ by and between the undersigned
("Borrower") and Elgin Financial Center, S.B. promises to pay to the order of
EFC Bancorp, Inc. (the "Lender") at its office at 1695 Larkin Avenue, Elgin,
Illinois 60123, the aggregate unpaid principal amount of all loan amounts or
advances under the loan made to the Borrower under Section 1.1 of the Loan and
Security Agreement hereinafter referred to in _______ (__) consecutive annual
equal installments, consisting of both principal and interest, amortized over a
_______ (__) year period in an amount sufficient to repay all borrowed amounts
plus interest, payable annually on ________________, and on the last business
day of each and every_________ in each year thereafter, except that the final
installment in the amount of all principal and interest not sooner paid shall be
due on ______________, the final maturity hereof.
The Borrower promises to pay interest (computed on the basis of a year of
360 days) at said office on the balance of principal from time to time remaining
outstanding and unpaid hereon at the rate per annum equal at all times to the
Interest Rate as defined in Section 10.3 of the Loan and Security Agreement (as
defined below) on the last business day of each and every ______________,
commencing ______________, and in each year thereafter and on the final maturity
date of this Note. On demand, the Borrower promises to pay interest on any
overdue principal hereof (whether by lapse of time, acceleration, or otherwise)
until paid at the stated rate.
This Note is issued under the terms and provisions of that certain Elgin
Financial Center, S.B. Employee Stock Ownership Trust Loan and Security
Agreement bearing even date herewith by and between the Borrower and the Lender
(the "Loan and Security Agreement") and this Note and the holder hereof are
entitled to all the benefits and security provided for by or referred to in such
Loan and Security Agreement.
This Note may be declared due prior to its express maturity and voluntary
prepayments may be made hereon, all in the events, on the terms and in the
manner as provided in such Loan and Security Agreement.
Recourse for the payment of this Note has been limited by the provisions of
the Loan and Security Agreement and this Note is expressly made subject to such
provisions. This Note shall
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be governed by and construed in accordance with the laws of Illinois without
regard to principles of conflicts of laws. The Borrower hereby waives
presentment for payment and demand.
Upon the occurrence of an Event of Default as such term is defined in the
Loan and Security Agreement at the option of the Lender, all amounts payable by
the Borrower to the Lender under the terms of this Note may immediately become
due and payable by the Borrower to the Lender pursuant to the provisions of
Section 9.2 of the Loan and Security Agreement, and the Lender shall have all of
the rights, powers, and remedies available under the terms of this Note, any of
the other documents evidencing and securing this Loan and all applicable laws.
The Borrower and all endorsers, guarantors, and other parties who may now or in
the future be primarily or secondarily liable for the payment of the
indebtedness evidenced by this Note hereby severally waive presentment, protest
and demand, notice of protest, notice of demand and of dishonor and non-payment
of this Note and expressly agree that this Note any payment hereunder may be
extended from time to time without in any way affecting the liability of the
Borrower, guarantors and endorsers.
________________and its successors in trust,
as Trustee under that certain Elgin Financial
Center, S.B. Employee Stock Ownership Trust
effective _____________ by and between the
undersigned and Elgin Financial Center, S.B.
By:___________________________
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EXHIBIT B
SECURITY AGREEMENT
INSTRUMENTS OR NEGOTIABLE DOCUMENTS TO BE DEPOSITED
For new value contemporaneously given by EFC Bancorp, Inc., ("Lender") to
the undersigned ("Borrower"), the receipt whereof is hereby acknowledged, the
Borrower does hereby grant a security interest to said Lender in the instruments
or negotiable documents hereafter described ("Collateral"), in all of which
Collateral the Borrower warrants that the Borrower has good, valid and effective
rights to the ownership and possession thereof and to the grant of the security
interest hereby made:
All Shares of the common stock, par value $.01 per share, of EFC Bancorp,
Inc., a Delaware corporation, acquired with the proceeds of the Loan
Amount.
Borrower agrees to deliver said collateral to said Lender not later than
the close of business on ________________, said date being within____ days
from the date hereof.
Said security interest secures the payment of all indebtedness and
liabilities as undertaken in the Loan and Security Agreement to which this is a
part, now existing or hereafter arising, and the Lender has all the rights with
respect to said Collateral and said security interest as more fully set forth in
the form of secured note or notes executed and delivered by the undersigned to
said Lender prior hereto or contemporaneously herewith.
This agreement, including matters of interpretation and construction, and
the rights of the Lender and the duties and obligations of the debt hereunder
are to be determined in accordance with the laws of the State of Illinois,
particularly the Uniform Commercial Code, except where preempted by federal law.
Dated at Elgin, Illinois the ____ day of ____________.
____________________, and its successors
in trust, as Trustee under that certain
Elgin Financial Center, S.B. Employee
Stock Ownership Trust effective
_____________ by and between the
undersigned and Elgin Financial Center,
S.B.
By:_________________________________
<PAGE>
Exhibit 10.3 Form of Proposed Employment Agreement between Elgin Financial
Center, S.B. and certain executive officers
<PAGE>
FORM OF
ELGIN FINANCIAL CENTER, S.B.
EMPLOYMENT AGREEMENT
This AGREEMENT ("Agreement") is made effective as of _______________,
1997 by and among Elgin Financial Center, S.B. (the "Institution"), a state
chartered savings institution, with its principal administrative office at
1695 Larkin Avenue, Elgin, Illinois, 60123, EFC Bancorp, Inc., a corporation
organized under the laws of the State of Delaware, the holding company for
the Institution (the "Holding Company"), and ______________ ("Executive").
WHEREAS, the Institution wishes to assure itself of the services of
Executive for the period provided in this Agreement; and
WHEREAS, Executive is willing to serve in the employ of the Institution
on a full-time basis for said period.
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, and upon the other terms and conditions hereinafter provided, the
parties hereby agree as follows:
1. POSITION AND RESPONSIBILITIES.
During the period of his employment hereunder, Executive agrees to serve
as [Title] of the Institution. Executive shall render administrative and
management services to the Institution such as are customarily performed by
persons situated in a similar executive capacity. During said period,
Executive also agrees to serve, if elected, as an officer and director of the
Holding Company or any subsidiary of the Institution.
2. TERMS AND DUTIES.
(a) The period of Executive's employment under this Agreement shall be
deemed to have commenced as of the date first above written and shall
continue for a period of thirty-six (36) full calendar months thereafter.
Commencing on the effective date of this Agreement, the term of this
Agreement shall be extended for one day each day until such time as the
disinterested members of the board of directors of the Institution ("Board")
or Executive elects not to extend the term of this Agreement by giving
written notice in accordance with Section 8 of this Agreement. The Board
will review the Agreement and Executive's performance annually for purposes
of determining whether to extend the Agreement and the rationale and results
thereof shall be included in the minutes of the Board's meeting. The Board
shall give notice to the Executive as soon as possible after such review as
to whether the Agreement is to be extended.
(b) During the period of Executive's employment hereunder, except for
periods of absence occasioned by illness, reasonable vacation periods, and
reasonable leaves of absence, Executive shall devote substantially all his
business time, attention, skill, and efforts to the
<PAGE>
faithful performance of his duties hereunder including activities and
services related to the organization, operation and management of the
Institution and participation in community and civic organizations; provided,
however, that, with the approval of the Board, as evidenced by a resolution
of such Board, from time to time, Executive may serve, or continue to serve,
on the boards of directors of, and hold any other offices or positions in,
companies or organizations, which, in such Board's judgment, will not present
any conflict of interest with the Institution, or materially affect the
performance of Executive's duties pursuant to this Agreement.
(c) Notwithstanding anything herein to the contrary, Executive's
employment with the Institution may be terminated by the Institution or the
Executive during the term of this Agreement, subject to the terms and
conditions of this Agreement.
3. COMPENSATION AND REIMBURSEMENT.
(a) The Institution shall pay Executive as compensation a salary of
$___________ per year ("Base Salary"). Base Salary shall include any amounts
of compensation deferred by Executive under any qualified or unqualified plan
maintained by the Institution. Such Base Salary shall be payable bi-weekly.
During the period of this Agreement, Executive's Base Salary shall be
reviewed at least annually; the first such review will be made no later than
one year from the date of this Agreement. Such review shall be conducted by
the Board or by a Committee of the Board, delegated such responsibility by
the Board. The Committee or the Board may increase Executive's Base Salary.
Any increase in Base Salary shall become the "Base Salary" for purposes of
this Agreement. In addition to the Base Salary provided in this Section
3(a), the Institution shall also provide Executive, at no premium cost to
Executive, with all such other benefits as are provided uniformly to
full-time employees of the Institution.
(b) The Executive shall be entitled to participate in any employee
benefit plans, arrangements and perquisites substantially equivalent to those
in which Executive was participating or otherwise deriving benefit from
immediately prior to the beginning of the term of this Agreement, and the
Institution will not, without Executive's prior written consent, make any
changes in such plans, arrangements or perquisites which would materially
adversely affect Executive's rights or benefits thereunder; except to the
extent such changes are made applicable to all Institution employees on a
non-discriminatory basis. Without limiting the generality of the foregoing
provisions of this Subsection (b), Executive shall be entitled to participate
in or receive benefits under any employee benefit plans, including, but not
limited to, retirement plans, supplemental retirement plans, pension plans,
profit-sharing plans, stock or option plans, health-and-accident plans,
medical coverage or any other employee benefit plan or arrangement made
available by the Institution in the future to its senior executives and key
management employees, subject to and on a basis consistent with the terms,
conditions and overall administration of such plans and arrangements.
Executive shall be entitled to incentive compensation and bonuses as provided
in any plan or arrangement of the Institution in which Executive is eligible
to participate. Nothing paid to the Executive under any such plan or
arrangement will be deemed to be in lieu of other compensation to which the
Executive is entitled under this Agreement.
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(c) In addition to the Base Salary provided for by paragraph (a) of this
Section 3 and other compensation provided for by paragraph (b) of this
Section 3, the Institution shall pay or reimburse Executive for all
reasonable travel and other reasonable expenses incurred by Executive
performing his obligations under this Agreement and may provide such
additional compensation in such form and such amounts as the Board may from
time to time determine.
4. PAYMENTS TO EXECUTIVE UPON AN EVENT OF TERMINATION.
(a) Upon the occurrence of an Event of Termination (as herein defined)
during the Executive's term of employment under this Agreement, the
provisions of this Section shall apply. As used in this Agreement, an "Event
of Termination" shall mean and include any one or more of the following: (i)
the termination by the Institution or the Holding Company of Executive's
full-time employment hereunder for any reason other than a termination
governed by Section 5(a) hereof or Termination for Cause, as defined in
Section 7 hereof; (ii) Executive's resignation from the Institution's employ
upon any of the following: (A) unless consented to by the Executive, failure
to elect or reelect or to appoint or reappoint Executive as [Title] or
failure to nominate or re-nominate Executive as a Director of the Institution
or Holding Company to the extent Executive was serving as a Director as of
the effective date of this Agreement, (B) a material change in Executive's
function, duties, or responsibilities, which change would cause Executive's
position to become one of lesser responsibility, importance, or scope from
the position and attributes thereof described in Section 1, above, unless
consented to by Executive, (C) a reduction in the benefits and perquisites to
the Executive from those being provided as of the effective date of this
Agreement, unless consented to by the Executive, (D) a relocation of
Executive's principal peace of employment by more than 25 miles from his
location immediately prior to the Event of Termination, (E) a liquidation or
dissolution of the Institution or Holding Company, or (F) breach of this
Agreement by the Institution. Upon the occurrence of any event described in
clauses (A), (B), (C), (D), (E) or (F), above, Executive shall have the right
to elect to terminate his employment under this Agreement by resignation upon
not less than sixty (60) days prior written notice given within six full
months after the event giving rise to said right to elect.
(b) Upon the occurrence of an Event of Termination, on the Date of
Termination, as defined in Section 8, the Institution shall be obligated to
pay Executive, or, in the event of his subsequent death, his beneficiary or
beneficiaries, or his estate, as the case may be a sum equal to the sum of:
(i) the amount of the remaining payments that the Executive would have earned
if he had continued his employment with the Institution during the remaining
term of this Agreement at the Executive's Base Salary at the Date of
Termination; and (ii) the amount equal to the annual contributions or
payments that would have been made on Executive's behalf to any employee
benefit plans of the Institution or the Holding Company or for any benefit or
perquisite which would have been provided to Executive during the remaining
term of this Agreement based on contributions or payments made (on an
annualized basis) at the Date of Termination; provided, however, that any
payments pursuant to this subsection and subsection 4(c) below shall not, in
the aggregate, exceed three times Executive's average annual compensation for
the five most recent taxable years that Executive has been employed by the
Institution or such lesser number of years in the event that Executive shall
have been employed by the Institution for less
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than five years. In the event the Institution is not in compliance with its
minimum capital requirements or if such payments pursuant to this subsection
(b) would cause the Institution's capital to be reduced below its minimum
regulatory capital requirements, such payments shall be deferred until such
time as the Institution or successor thereto is in capital compliance. At
the election of the Executive, which election is to be made prior to an Event
of Termination, such payments shall be made (a) in a lump sum as of the
Executive's Date of Termination, (b) on a bi-weekly basis in approximately
equal installments during the remaining term of the Agreement or (c) on an
annual basis in approximately equal installments during the remaining term of
the Agreement. Such payments shall not be reduced in the event the Executive
obtains other employment following termination of employment.
(c) Upon the occurrence of an Event of Termination, the Institution will
cause to be continued life, medical, dental and long-term or other disability
coverage substantially identical to the coverage maintained by the
Institution or the Holding Company for Executive prior to his termination at
no premium cost to the Executive, except to the extent such coverage may be
changed in its application to all Institution or Holding Company employees.
Such coverage shall cease upon the expiration of the remaining term of this
Agreement.
5. CHANGE IN CONTROL.
(a) For purposes of this Agreement, a "Change in Control" of the
Institution or Holding Company shall mean an event of a nature that: (i)
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, as amended (the "Exchange Act"); or
(ii) results in a Change in Control of the Institution or the Holding Company
within the meaning of the Change in Bank Control Act and the Rules and
Regulations promulgated by the Federal Deposit Insurance Corporation ("FDIC")
at 12 C.F.R. Section 303.4(a), with respect to the Institution, and the Rules
and Regulations promulgated by the Office of Thrift Supervision ("OTS") (or
its predecessor agency), with respect to the Holding Company, as in effect on
the date of this Agreement; or (iii) without limitation such a Change in
Control shall be deemed to have occurred at such time as (A) any "person" (as
the term is used in Sections 13(d) and 14(d) of the Exchange Act) is or
becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange
Act), directly or indirectly, of voting securities of the Institution or the
Holding Company representing 20% or more of the Institution's or the Holding
Company's outstanding voting securities or right to acquire such securities
except for any voting securities of the Institution purchased by the Holding
Company and any voting securities purchased by any employee benefit plan of
the Institution or the Holding Company, or (B) individuals who constitute the
Board on the date hereof (the "Incumbent Board") cease for any reason to
constitute at least a majority thereof, provided 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 same Nominating Committee serving under an Incumbent Board,
shall be, for purposes of this clause (B), considered as though he were a
member of the Incumbent Board, or (C) a plan of reorganization, merger,
consolidation, sale of all or
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substantially all the assets of the Institution or the Holding Company or
similar transaction occurs in which the Institution or Holding Company is not
the resulting entity, or (D) a proxy statement has been distributed
soliciting proxies from stockholders of the Holding Company, by someone other
than the current management of the Holding Company, seeking stockholder
approval of a plan of reorganization, merger or consolidation of the Holding
Company or Institution or similar transaction with one or more corporations
as a result of which the outstanding shares of the class of securities then
subject to such plan or transaction are exchanged for or converted into cash
or property or securities not issued by the Institution or the Holding
Company, or (E) a tender offer is made for 20% or more of the voting
securities of the Stock Institution or Holding Company then outstanding.
(b) If a Change in Control has occurred pursuant to Section 5(a) or the
Board has determined that a Change in Control has occurred, Executive shall
be entitled to the benefits provided in paragraphs (c) and (d) of this
Section 5 upon his subsequent termination of employment at any time during
the term of this Agreement due to: (1) Executive's dismissal or (2)
Executive's voluntary resignation following any demotion, loss of title,
office or significant authority or responsibility, material reduction in
annual compensation or benefits or relocation of his principal place of
employment by more than 25 miles from its location immediately prior to the
Change in Control, unless such termination is because of his death,
disability, retirement or termination for Cause.
(c) Upon Executive's entitlement to benefits pursuant to Section 5(b),
the Institution shall pay Executive, or in the event of his subsequent death,
his beneficiary or beneficiaries, or his estate, as the case may be, a sum
equal to the greater of: (i) the payments due for the remaining term of the
Agreement; or (ii) three (3) times Executive's average annual compensation
for the five (5) most recent taxable years that Executive has been employed
by the Institution or such lesser number of years in the event that Executive
shall have been employed by the Institution for less than five (5) years.
Such average annual compensation shall include Base Salary, commissions,
bonuses, contributions on Executive's behalf to any pension and/or profit
sharing plan, severance payments, retirement payments, directors or committee
fees and fringe benefits paid or to be paid to the Executive in any such year
and payment of any expense items without accountability or business purpose
or that do not meet the Internal Revenue Service requirements for
deductibility by the Institution; provided, however, that any payment under
this provision and subsection 5(d) below shall not exceed three (3) times the
Executive's average annual compensation. In the event the Institution is not
in compliance with its minimum capital requirements or if such payments would
cause the Institution's capital to be reduced below its minimum regulatory
capital requirements, such payments shall be deferred until such time as the
Institution or successor thereto is in capital compliance. At the election
of the Executive, which election is to be made prior to a Change in Control,
such payment shall be made: (a) in a lump sum as of the Executive's Date of
Termination, (b) on a bi-weekly basis in approximately equal installments
over a period of thirty-six (36) months following the Executive's
termination, or (c) on an annual basis in approximately equal installments
over a period of thirty-six (36) months following the Executive's
termination. Such payments shall not
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be reduced in the event Executive obtains other employment following
termination of employment.
(d) Upon the Executive's entitlement to benefits pursuant to Section
5(b), the Institution will cause to be continued life, medical, dental and
long-term or other disability coverage substantially identical to the
coverage maintained by the Institution for Executive prior to his severance
at no premium cost to the Executive, except to the extent that such coverage
may be changed in its application for all Institution employees on a
non-discriminatory basis. Such coverage and payments shall cease upon the
expiration of thirty-six (36) months following the Date of Termination.
6. CHANGE OF CONTROL RELATED PROVISIONS.
Notwithstanding the provisions of Section 5, in no event shall the
aggregate payments or benefits to be made or afforded to Executive under said
paragraphs (the "Termination Benefits") constitute an "excess parachute
payment" under Section 280G of the Internal Revenue Code of 1986, as amended,
or any successor thereto, and in order to avoid such a result, Termination
Benefits will be reduced, if necessary, to an amount (the "Non-Triggering
Amount"), the value of which is one dollar ($1.00) less than an amount equal
to three (3) times Executive's "base amount", as determined in accordance
with said Section 280G. The allocation of the reduction required hereby
among the Termination Benefits provided by Section 5 shall be determined by
Executive.
7. TERMINATION FOR CAUSE.
The term "Termination for Cause" shall mean termination because of: 1)
Executive's personal dishonesty, willful misconduct, breach of fiduciary duty
involving personal profit, intentional failure to perform stated duties,
willful violation of any law, rule, regulation (other than traffic violations
or similar offenses), final cease and desist order or material breach of any
provision of this Agreement which results in a material loss to the
Institution or the Holding Company, or 2) Executive's conviction of a crime
or act involving moral turpitude or a final judgement rendered against
Executive based upon actions of Executive which involve moral turpitude. For
the purposes of this Section 7, no act, or the failure to act, on Executive's
part shall be "willful" unless done, or omitted to be done, not in good faith
and without reasonable belief that the action or omission was in the best
interests of the Institution or its affiliates. Notwithstanding the
foregoing, Executive shall not be deemed to have been Terminated for Cause
unless and until there shall have been delivered to him a Notice of
Termination which shall include a copy of a resolution duly adopted by the
affirmative vote of not less than a majority of the members of the Board at a
meeting of the Board called and held for that purpose (after reasonable
notice to Executive and an opportunity for him, together with counsel, to be
heard before the Board), finding that in the good faith opinion of the Board,
Executive was guilty of conduct justifying Termination for Cause and
specifying the particulars thereof in detail. Executive shall not have the
right to receive compensation or other benefits for any period after the Date
of Termination for Cause. During the period beginning on the date of the
Notice of
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Termination for Cause pursuant to Section 8 hereof through the Date of
Termination for Cause, stock options and related limited rights granted to
Executive under any stock option plan shall not be exercisable nor shall any
unvested awards granted to Executive under any stock benefit plan of the
Institution, the Holding Company or any subsidiary or affiliate thereof,
vest. At the Date of Termination for Cause, such stock options and related
limited rights and any unvested awards shall become null and void and shall
not be exercisable by or delivered to Executive at any time subsequent to
such Termination for Cause.
8. NOTICE.
(a) Any purported termination by the Institution or by Executive shall
be communicated by Notice of Termination to the other party hereto. For
purposes of this Agreement, a "Notice of Termination" shall mean a written
notice which shall indicate the specific termination provision in this
Agreement relied upon and shall set forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of Executive's
employment under the provision so indicated.
(b) "Date of Termination" shall mean the date specified in the Notice of
Termination (which, in the case of a Termination for Cause, shall not be less
than thirty days from the date such Notice of Termination is given);
provided, however, that if a dispute regarding the Executive's termination
exists, the "Date of Termination" shall be determined in accordance with
Section 8(c) of this Agreement.
(c) If, within thirty (30) days after any Notice of Termination is
given, the party receiving such Notice of Termination notifies the other
party that a dispute exists concerning the termination, the Date of
Termination shall be the date on which the dispute is finally determined,
either by mutual written agreement of the parties, by a binding arbitration
award, or by a final judgment, order or decree of a court of competent
jurisdiction (the time for appeal therefrom having expired and no appeal
having been perfected) and, provided further, that the Date of Termination
shall be extended by a notice of dispute only if such notice is given in good
faith and the party giving such notice pursues the resolution of such dispute
with reasonable diligence. Notwithstanding the pendency of any such dispute,
in the event the Executive is terminated for reasons other than Termination
for Cause, the Institution will continue to pay Executive his Base Salary in
effect when the notice giving rise to the dispute was given until the earlier
of: 1) the resolution of the dispute in accordance with this Agreement or 2)
the expiration of the remaining term of this Agreement as determined as of
the Date of Termination. Amounts paid under this Section are in addition to
all other amounts due under this Agreement and shall not be offset against or
reduce any other amounts due under this Agreement.
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9. POST-TERMINATION OBLIGATIONS.
All payments and benefits to Executive under this Agreement shall be
subject to Executive's compliance with this Section 9 for one (1) full year
after the earlier of the expiration of this Agreement or termination of
Executive's employment with the Institution. Executive shall, upon
reasonable notice, furnish such information and assistance to the Institution
as may reasonably be required by the Institution in connection with any
litigation in which it or any of its subsidiaries or affiliates is, or may
become, a party.
10. NON-COMPETITION AND NON-DISCLOSURE.
(a) Upon any termination of Executive's employment hereunder pursuant to
Section 4 hereof, Executive agrees not to compete with the Institution for a
period of one (1) year following such termination in any city, town or county
in which the Executive's normal business office is located and the
Institution has an office or has filed an application for regulatory approval
to establish an office, determined as of the effective date of such
termination, except as agreed to pursuant to a resolution duly adopted by the
Board. Executive agrees that during such period and within said cities,
towns and counties, Executive shall not work for or advise, consult or
otherwise serve with, directly or indirectly, any entity whose business
materially competes with the depository, lending or other business activities
of the Institution. The parties hereto, recognizing that irreparable injury
will result to the Institution, its business and property in the event of
Executive's breach of this Subsection 10(a) agree that in the event of any
such breach by Executive, the Institution, will be entitled, in addition to
any other remedies and damages available, to an injunction to restrain the
violation hereof by Executive, Executive's partners, agents, servants,
employees and all persons acting for or under the direction of Executive.
Nothing herein will be construed as prohibiting the Institution from pursuing
any other remedies available to the Institution for such breach or threatened
breach, including the recovery of damages from Executive.
(b) Executive recognizes and acknowledges that the knowledge of the
business activities and plans for business activities of the Institution and
affiliates thereof, as it may exist from time to time, is a valuable, special
and unique asset of the business of the Institution. Executive will not,
during or after the term of his employment, disclose any knowledge of the
past, present, planned or considered business activities of the Institution
or affiliates thereof to any person, firm, corporation, or other entity for
any reason or purpose whatsoever. Notwithstanding the foregoing, Executive
may disclose any knowledge of banking, financial and/or economic principles,
concepts or ideas which are not solely and exclusively derived from the
business plans and activities of the Institution. Further, Executive may
disclose information regarding the business activities of the Institution to
the Commissioner of Banks and Real Estate of the State of Illinois
("Commissioner"), OTS and the Federal Deposit Insurance Corporation ("FDIC")
pursuant to a formal regulatory request. In the event of a breach or
threatened breach by Executive of the provisions of this Section, the
Institution will be entitled to an injunction restraining Executive from
disclosing, in whole or in part, the knowledge of the past, present, planned
or considered business activities of the Institution or affiliates thereof,
or from rendering
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any services to any person, firm, corporation, other entity to whom such
knowledge, in whole or in part, has been disclosed or is threatened to be
disclosed. Nothing herein will be construed as prohibiting the Institution
from pursuing any other remedies available to the Institution for such breach
or threatened breach, including the recovery of damages from Executive.
11. SOURCE OF PAYMENTS.
(a) All payments provided in this Agreement shall be timely paid in cash
or check from the general funds of the Institution. The Holding Company,
however, unconditionally guarantees payment and provision of all amounts and
benefits due hereunder to Executive and, if such amounts and benefits due
from the Institution are not timely paid or provided by the Institution, such
amounts and benefits shall be paid or provided by the Holding Company.
(b) Notwithstanding any provision herein to the contrary, to the extent
that payments and benefits, as provided by this Agreement, are paid to or
received by Executive under the Employment Agreement effective as of
______________, 1997, between Executive and the Holding Company, such
compensation payments and benefits paid by the Holding Company will be
subtracted from any amounts due simultaneously to Executive under similar
provisions of this Agreement. Payments pursuant to this Agreement and the
Holding Company Agreement shall be allocated in proportion to the services
rendered and time expended on such activities by Executive as determined by
the Holding Company and the Institution on a quarterly basis.
12. EFFECT ON PRIOR AGREEMENTS AND EXISTING BENEFITS PLANS.
This Agreement contains the entire understanding between the parties
hereto and supersedes any prior employment agreement between the Institution
or any predecessor of the Institution and Executive, except that this
Agreement shall not affect or operate to reduce any benefit or compensation
inuring to Executive of a kind elsewhere provided. No provision of this
Agreement shall be interpreted to mean that Executive is subject to receiving
fewer benefits than those available to him without reference to this
Agreement.
13. NO ATTACHMENT.
(a) Except as required by law, no right to receive payments under this
Agreement shall be subject to anticipation, commutation, alienation, sale,
assignment, encumbrance, charge, pledge, or hypothecation, or to execution,
attachment, levy, or similar process or assignment by operation of law, and
any attempt, voluntary or involuntary, to affect any such action shall be
null, void, and of no effect.
(b) This Agreement shall be binding upon, and inure to the benefit of,
Executive and the Institution and their respective successors and assigns.
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14. MODIFICATION AND WAIVER.
(a) This Agreement may not be modified or amended except by an
instrument in writing signed by the parties hereto.
(b) No term or condition of this Agreement shall be deemed to have been
waived, nor shall there be any estoppel against the enforcement of any
provision of this Agreement, except by written instrument of the party
charged with such waiver or estoppel. No such written waiver shall be deemed
a continuing waiver unless specifically stated therein, and each such waiver
shall operate only as to the specific term or condition waived and shall not
constitute a waiver of such term or condition for the future as to any act
other than that specifically waived.
15. REQUIRED PROVISIONS.
(a) Any payments made to Executive pursuant to this Agreement, or
otherwise, are subject to and conditioned upon compliance with 12 U.S.C.
Section 1828(k) and any rules and regulations promulgated thereunder,
including 12 C.F.R. Part 359.
16. SEVERABILITY.
If, for any reason, any provision of this Agreement, or any part of any
provision, is held invalid, such invalidity shall not affect any other
provision of this Agreement or any part of such provision not held so
invalid, and each such other provision and part thereof shall to the full
extent consistent with law continue in full force and effect.
17. HEADINGS FOR REFERENCE ONLY.
The headings of sections and paragraphs herein are included solely for
convenience of reference and shall not control the meaning or interpretation
of any of the provisions of this Agreement.
18. GOVERNING LAW.
The validity, interpretation, performance and enforcement of this
Agreement shall be governed by the laws of the State of Illinois.
19. ARBITRATION.
Any dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by arbitration, conducted before a
panel of three arbitrators sitting in a location selected by Executive within
fifty (50) miles from the location of the Institution, in accordance with the
rules of the American Arbitration Institution then in effect. Judgment may
be entered on the arbitrator's award in any court having jurisdiction;
provided, however, that Executive shall be entitled to seek specific
performance of his right to be paid until the Date of
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Termination during the pendency of any dispute or controversy arising under
or in connection with this Agreement.
20. PAYMENT OF COSTS AND LEGAL FEES.
In the event any dispute or controversy arising under or in connection
with Executive's termination is resolved in favor of the Executive, whether
by judgment, arbitration or settlement, Executive shall be entitled to the
payment of: (1) all legal fees incurred by Executive in resolving such
dispute or controversy, and (2) any back-pay, including salary, bonuses and
any other cash compensation, fringe benefits and any compensation and
benefits due Executive under this Agreement.
21. INDEMNIFICATION.
(a) The Institution shall provide Executive (including his heirs,
executors and administrators) with coverage under a standard directors' and
officers' liability insurance policy at its expense and shall indemnify
Executive (and his heirs, executors and administrators) to the fullest extent
permitted under Illinois law against all expenses and liabilities reasonably
incurred by him in connection with or arising out of any action, suit or
proceeding in which he may be involved by reason of his having been a
director or officer of the Institution (whether or not he continues to be a
director or officer at the time of incurring such expenses or liabilities),
such expenses and liabilities to include, but not be limited to, judgments,
court costs and attorneys' fees and the cost of reasonable settlements.
22. SUCCESSOR TO THE INSTITUTION.
The Institution shall require any successor or assignee, whether direct
or indirect, by purchase, merger, consolidation or otherwise, to all or
substantially all the business or assets of the Institution or the Holding
Company, expressly and unconditionally to assume and agree to perform the
Institution's obligations under this Agreement, in the same manner and to the
same extent that the Institution would be required to perform if no such
succession or assignment had taken place.
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SIGNATURES
IN WITNESS WHEREOF, Elgin Financial Center, S.B. and EFC Bancorp, Inc.
have caused this Agreement to be executed and their seals to be affixed
hereunto by their duly authorized officers and directors, and Executive has
signed this Agreement, on the ______ day of ___________, 1997.
ATTEST: ELGIN FINANCIAL CENTER, S.B.
_______________________ By: _______________________________________
Ursula Wilson [Name]
Secretary For The Board of Directors
[SEAL]
ATTEST: EFC BANCORP, INC.
(Guarantor)
_______________________ By: _______________________________________
Ursula Wilson [Name]
Secretary For The Board of Directors
[SEAL]
WITNESS:
_______________________ _______________________________________
[Name]
Executive
<PAGE>
Exhibit 10.4 Form of Proposed Employment Agreement between EFC Bancorp, Inc.
and certain executive officers
<PAGE>
FORM OF
EFC BANCORP, INC.
EMPLOYMENT AGREEMENT
This AGREEMENT ("Agreement") is made effective as of ________________, by
and between EFC Bancorp, Inc. (the "Holding Company"), a corporation
organized under the laws of Delaware, with its principal offices at 1695
Larkin Avenue, Elgin, Illinois 60123, and _________________ ("Executive").
Any reference to "Institution" herein shall mean Elgin Financial Center, S.B.
or any successor thereto.
WHEREAS, the Holding Company wishes to assure itself of the services of
Executive for the period provided in this Agreement; and
WHEREAS, the Executive is willing to serve in the employ of the Holding
Company on a full-time basis for said period.
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, and upon the other terms and conditions hereinafter provided, the
parties hereby agree as follows:
1. POSITION AND RESPONSIBILITIES.
During the period of Executive's employment hereunder, Executive agrees
to serve as the [Title] of the Holding Company. The Executive shall render
administrative and management services to the Holding Company such as are
customarily performed by persons in a similar executive capacity. During
said period, Executive also agrees to serve, if elected, as an officer and
director of any subsidiary of the Holding Company.
2. TERMS.
(a) The period of Executive's employment under this Agreement shall be
deemed to have commenced as of the date first above written and shall
continue for a period of thirty-six (36) full calendar months thereafter.
Commencing on the date of the execution of this Agreement, the term of this
Agreement shall be extended for one day each day until such time as the board
of directors of the Holding Company (the "Board") or Executive elects not to
extend the term of the Agreement by giving written notice to the other party
in accordance with Section 8 of this Agreement, in which case the term of
this Agreement shall be fixed and shall end on the third anniversary of the
date of such written notice.
(b) During the period of Executive's employment hereunder, except for
periods of absence occasioned by illness, reasonable vacation periods, and
reasonable leaves of absence, Executive shall devote substantially all his
business time, attention, skill, and efforts to the
<PAGE>
faithful performance of his duties hereunder including activities and
services related to the organization, operation and management of the Holding
Company and its direct or indirect subsidiaries ("Subsidiaries") and
participation in community and civic organizations; provided, however, that,
with the approval of the Board, as evidenced by a resolution of such Board,
from time to time, Executive may serve, or continue to serve, on the boards
of directors of, and hold any other offices or positions in, companies or
organizations, which, in such Board's judgment, will not present any conflict
of interest with the Holding Company or its Subsidiaries, or materially
affect the performance of Executive's duties pursuant to this Agreement.
(c) Notwithstanding anything herein contained to the contrary,
Executive's employment with the Holding Company may be terminated by the
Holding Company or Executive during the term of this Agreement, subject to
the terms and conditions of this Agreement. However, Executive shall not
perform, in any respect, directly or indirectly, during the pendency of his
temporary or permanent suspension or termination from the Institution, duties
and responsibilities formerly performed at the Institution as part of his
duties and responsibilities as [Title] of the Holding Company.
3. COMPENSATION AND REIMBURSEMENT.
(a) The Executive shall be entitled to a salary from the Holding Company
or its Subsidiaries of $________ per year ("Base Salary"). Base Salary shall
include any amounts of compensation deferred by Executive under any qualified
or unqualified plan maintained by the Holding Company and its Subsidiaries.
Such Base Salary shall be payable bi-weekly. During the period of this
Agreement, Executive's Base Salary shall be reviewed at least annually; the
first such review will be made no later than one year from the date of this
Agreement. Such review shall be conducted by the Board or by a Committee of
the Board delegated such responsibility by the Board. The Committee or the
Board may increase Executive's Base Salary. Any increase in Base Salary
shall become the "Base Salary" for purposes of this Agreement. In addition
to the Base Salary provided in this Section 3(a), the Holding Company shall
also provide Executive, at no premium cost to Executive, with all such other
benefits as provided uniformly to permanent full-time employees of the
Holding Company and its Subsidiaries.
(b) The Executive shall be entitled to participate in any employee
benefit plans, arrangements and perquisites substantially equivalent to those
in which Executive was participating or otherwise deriving benefit from
immediately prior to the beginning of the term of this Agreement, and the
Holding Company and its Subsidiaries will not, without Executive's prior
written consent, make any changes in such plans, arrangements or perquisites
which would materially adversely affect Executive's rights or benefits
thereunder, except to the extent that such changes are made applicable to all
Holding Company and Institution employees eligible to participate in such
plans, arrangements and perquisites on a non-discriminatory basis. Without
limiting the generality of the foregoing provisions of this Subsection (b),
Executive shall be entitled to participate in or receive benefits under any
employee benefit plans, including, but not limited to, retirement plans,
supplemental retirement plans, pension plans, profit-sharing plans,
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stock or option plans, health-and-accident plans, medical coverage or any
other employee benefit plan or arrangement made available by the Holding
Company and its Subsidiaries in the future to its senior executives and key
management employees, subject to and on a basis consistent with the terms,
conditions and overall administration of such plans and arrangements.
Executive shall be entitled to incentive compensation and bonuses as provided
in any plan or arrangement of the Holding Company and its Subsidiaries in
which Executive is eligible to participate. Nothing paid to the Executive
under any such plan or arrangement will be deemed to be in lieu of other
compensation to which the Executive is entitled under this Agreement.
(c) In addition to the Base Salary provided for by paragraph (a) of this
Section 3 and other compensation provided for by paragraph (b) of this
Section 3, the Holding Company shall pay or reimburse Executive for all
reasonable travel and other reasonable expenses incurred in the performance
of Executive's obligations under this Agreement and may provide such
additional compensation in such form and such amounts as the Board may from
time to time determine.
4. PAYMENTS TO EXECUTIVE UPON AN EVENT OF TERMINATION.
(a) Upon the occurrence of an Event of Termination (as herein defined)
during the Executive's term of employment under this Agreement, the
provisions of this Section shall apply. As used in this Agreement, an "Event
of Termination" shall mean and include any of the following: (i) the
termination by the Holding Company of Executive's full-time employment
hereunder for any reason other than termination governed by Section 5(a)
hereof, or for Cause, as defined in Section 7 hereof; (ii) Executive's
resignation from the Holding Company's employ, upon, any (A) unless consented
to by the Executive, failure to elect or reelect or to appoint or reappoint
Executive as [TITLE] or failure to nominate or renominate Executive as a
Director of the Institution or Holding Company to the extent Executive was
serving as a Director as of the date of this Agreement, (B) a material change
in Executive's function, duties, or responsibilities with the Holding Company
or its Subsidiaries, which change would cause Executive's position to become
one of lesser responsibility, importance, or scope from the position and
attributes thereof described in Section 1, above, unless consented to by the
Executive, (C) a reduction in the benefits and perquisites to the Executive
from those being provided as of the effective date of this Agreement, unless
consented to by the Executive, (D) a relocation of Executive's principle
place of employment by more than 25 miles from his location immediately prior
to the Event of Termination, (E) a liquidation or dissolution of the Holding
Company or the Institution, or (F) breach of this Agreement by the Holding
Company. Upon the occurrence of any event described in clauses (A), (B),
(C), (D), (E) or (F), above, Executive shall have the right to elect to
terminate his employment under this Agreement by resignation upon not less
than sixty (60) days prior written notice given within six full calendar
months after the event giving rise to said right to elect.
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(b) Upon the occurrence of an Event of Termination, on the Date of
Termination, as defined in Section 8, the Holding Company shall be obligated
to pay Executive, or, in the event of his subsequent death, his beneficiary
or beneficiaries, or his estate, as the case may be, a sum equal to the sum
of: (i) the amount of the remaining payments that the Executive would have
earned if he had continued his employment with the Institution during the
remaining term of this Agreement at the Executive's Base Salary at the Date
of Termination; and (ii) the amount equal to the annual contributions or
payments that would have been made on Executive's behalf to any employee
benefit plans of the Institution or the Holding Company during the remaining
term of this Agreement based on contributions or payments made (on an
annualized basis) at the Date of Termination. At the election of the
Executive, which election is to be made prior to a Change in Control, such
payment shall be made: (a) in a lump sum as of the Executive's Date of
Termination, (b) on a bi-weekly basis in approximately equal installments
during the remaining term of the Agreement, or (c) on an annual basis in
approximately equal installments during the remaining term of the Agreement.
Such payments shall not be reduced in the event the Executive obtains other
employment following termination of employment.
(c) Upon the occurrence of an Event of Termination, the Holding Company
will cause to be continued life, medical, dental and disability coverage
substantially equivalent to the coverage maintained by the Holding Company or
its Subsidiaries for Executive prior to his termination at no premium cost to
the Executive. Such coverage shall cease upon the expiration of the
remaining term of this Agreement.
5. CHANGE IN CONTROL.
(a) For purposes of this Agreement, a "Change in Control" of the Holding
Company or the Institution shall mean an event of a nature that: (i) would be
required to be reported in response to Item 1(a) of the current report on
Form 8-K, as in effect on the date hereof, pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934 (the "Exchange Act"); or (ii) results in
a Change in Control of the Bank or the Holding Company within the meaning of
the Change in Bank Control Act and the Rules and Regulations promulgated by
the Federal Deposit Insurance Corporation ("FDIC") at 12 C.F.R. Section
303.4(a), with respect to the Institution, and the Rules and Regulations
promulgated by the Office of Thrift Supervision ("OTS") (or its predecessor
agency), with respect to the Holding Company, as in effect on the date of
this Agreement; or (iii) without limitation such a Change in Control shall be
deemed to have occurred at such time as (A) any "person" (as the term is used
in Sections 13(d) and 14(d) of the Exchange Act) is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of voting securities of the Institution or the
Holding Company representing 20% or more of the Institution's or the Holding
Company's outstanding voting securities or right to acquire such securities
except for any voting securities of the Institution purchased by the Holding
Company and any voting securities purchased by any employee benefit plan of
the Holding Company or its Subsidiaries, or (B) individuals who constitute
the Board on the date hereof (the "Incumbent Board") cease for any reason to
constitute at least a majority thereof, provided that any person becoming a
director subsequent to the date hereof whose election was
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approved by a vote of at least three-quarters of the directors comprising the
Incumbent Board, or whose nomination for election by the Company's
stockholders was approved by a Nominating Committee solely composed of
members which are Incumbent Board members, shall be, for purposes of this
clause (B), considered as though he were a member of the Incumbent Board, or
(C) a plan of reorganization, merger, consolidation, sale of all or
substantially all the assets of the Institution or the Holding Company or
similar transaction occurs or is effectuated in which the Institution or
Holding Company is not the resulting entity, or (D) a proxy statement has
been distributed soliciting proxies from stockholders of the Holding Company,
by someone other than the current management of the Holding Company, seeking
stockholder approval of a plan of reorganization, merger or consolidation of
the Holding Company or Institution with one or more corporations as a result
of which the outstanding shares of the class of securities then subject to
such plan or transaction are exchanged for or converted into cash or property
or securities not issued by the Institution or the Holding Company shall be
distributed, or (E) a tender offer is made for 20% or more of the voting
securities of the Institution or Holding Company then outstanding.
(b) If a Change in Control has occurred pursuant to Section 5(a) or the
Board has determined that a Change in Control has occurred, Executive shall
be entitled to the benefits provided in paragraphs (c) and (d), of this
Section 5 upon his subsequent termination of employment at any time during
the term of this Agreement due to (i) Executive's dismissal, or (ii)
Executive's voluntary resignation following any demotion, loss of title,
office or significant authority or responsibility,reduction in the annual
compensation or material reduction in benefits or relocation of his principal
place of employment by more than 25 miles from its location immediately prior
to the change in control, unless such termination is because of his death or
termination for Cause.
(c) Upon the Executive's entitlement to benefits pursuant to Section
5(b), the Holding Company shall pay Executive, or in the event of his
subsequent death, his beneficiary or beneficiaries, or his estate, as the
case may be, as severance pay or liquidated damages, or both, a sum equal to
the greater of: (i) the payments due for the remaining term of the Agreement;
or (ii) three (3) times Executive's annual compensation for the most
recently completed year. Such annual compensation shall include Base Salary,
commissions, bonuses, contributions or accruals on behalf of Executive to any
pension and profit sharing plan, any benefits to be paid or received under
any stock-based benefit plan, severance payments, directors or committee fees
and fringe benefits paid or to be paid to the Executive during such years.
At the election of the Executive, which election is to be made prior to a
Change in Control, such payment shall be made: (a) in a lump sum, (b) on a
bi-weekly basis in approximately equal installments over a period of
thirty-six (36) months following the Executive's termination, or (c) on an
annual basis in approximately equal installments over a period of thirty-six
(36) months following the Executive's termination. Such payments shall not
be reduced in the event Executive obtains other employment following
termination of employment.
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(d) Upon the Executive's entitlement to benefits pursuant to Section
5(b), the Company will cause to be continued life, medical, dental and
long-term or other disability coverage substantially equivalent to the
coverage maintained by the Institution for Executive at no premium cost to
Executive prior to his severance. Such coverage and payments shall cease
upon the expiration of thirty-six (36) months following the Change in Control.
6. CHANGE OF CONTROL RELATED PROVISIONS.
In each calendar year that Executive is entitled to receive payments or
benefits under the provisions of this Employment Agreement, the Holding
Company shall determine if an excess parachute payment (as defined in Section
4999 of the Internal Revenue Code of 1986, as amended, and any successor
provision thereto, (the "Code")) exists. Such determination shall be made
after taking any reductions permitted pursuant to Section 280G of the Code
and the regulations thereunder. Any amount determined to be an excess
parachute payment after taking into account such reductions shall be
hereafter referred to as the "Initial Excess Parachute Payment". As soon as
practicable after a Change in Control, the Initial Excess Parachute Payment
shall be determined. Upon the Date of Termination following a Change in
Control, the Holding Company shall pay Executive, subject to applicable
withholding requirements under applicable state or federal law, an amount
equal to:
(1) twenty (20) percent of the Initial Excess Parachute Payment (or such
other amount equal to the tax imposed under Section 4999 of the Code);
and
(2) such additional amount (tax allowance) as may be necessary to
compensate Executive for the payment by Executive of state and federal
income and excise taxes on the payment provided under clause (1) and
on any payments under this Clause (2). In computing such tax
allowance, the payment to be made under Clause (1) shall be multiplied
by the "gross up percentage" ("GUP"). The GUP shall be determined as
follows:
Tax Rate
GUP = ------------
1- Tax Rate
The "Tax Rate" for purposes of computing the GUP shall be the sum of
the highest marginal federal and state income and employment-related
tax rates, including any applicable excise tax rates, applicable to
the Executive in the year in which the payment under Clause (1) is
made.
(3) Notwithstanding the foregoing, if it shall subsequently be
determined in a final judicial determination or a final administrative
settlement to which Executive is a party that the excess parachute payment as
defined in Section 4999 of the Code, reduced as described
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above, is more than the Initial Excess Parachute Payment (such different
amount being hereafter referred to as the "Determinative Excess Parachute
Payment") then the Holding Company's independent accountants shall determine
the amount (the "Adjustment Amount") the Holding Company must pay to the
Executive in order to put the Executive in the same position as the Executive
would have been if the Initial Excess Parachute Payment had been equal to the
Determinative Excess Parachute Payment. In determining the Adjustment
Amount, independent accountants of the Holding Company shall take into
account any and all taxes (including any penalties and interest) paid by or
for Executive or refunded to Executive or for Executive's benefit. As soon
as practicable after the Adjustment Amount has been so determined, the
Holding Company shall pay the Adjustment Amount to Executive. In no event
however, shall Executive make any payment under this paragraph to the Holding
Company.
7. TERMINATION FOR CAUSE.
The term "Termination for Cause" shall mean termination because of: 1)
Executive's personal dishonesty, willful misconduct, breach of fiduciary duty
involving personal profit, intentional failure to perform stated duties,
willful violation of any law, rule, regulation (other than traffic violations
or similar offenses), final cease and desist order or material breach of any
provision of this Agreement which results in a material loss to the
Institution or the Holding Company, or 2) Executive's conviction of a crime
or act involving moral turpitude or a final judgement rendered against
Executive based upon actions of Executive which involve moral turpitude. For
the purposes of this Section, no act, or the failure to act, on Executive's
part shall be "willful" unless done, or omitted to be done, not in good faith
and without reasonable belief that the action or omission was in the best
interests of the Bank or its affiliates. Notwithstanding the foregoing,
Executive shall not be deemed to have been terminated for Cause unless and
until there shall have been delivered to him a Notice of Termination which
shall include a copy of a resolution duly adopted by the affirmative vote of
not less than three-fourths of the members of the Board at a meeting of the
Board called and held for that purpose (after reasonable notice to Executive
and an opportunity for him, together with counsel, to be heard before the
Board), finding that in the good faith opinion of the Board, Executive was
guilty of conduct justifying Termination for Cause and specifying the
particulars thereof in detail. The Executive shall not have the right to
receive compensation or other benefits for any period after Termination for
Cause. During the period beginning on the date of the Notice of Termination
for Cause pursuant to Section 8 hereof through the Date of Termination, stock
options and related limited rights granted to Executive under any stock
option plan shall not be exercisable nor shall any unvested awards granted to
Executive under any stock benefit plan of the Institution, the Holding
Company or any subsidiary or affiliate thereof, vest. At the Date of
Termination, such stock options and related limited rights and any such
unvested awards shall become null and void and shall not be exercisable by or
delivered to Executive at any time subsequent to such Termination for Cause.
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8. NOTICE.
(a) Any purported termination by the Holding Company or by Executive
shall be communicated by Notice of Termination to the other party hereto.
For purposes of this Agreement, a "Notice of Termination" shall mean a
written notice which shall indicate the specific termination provision in
this Agreement relied upon and shall set forth in reasonable detail the facts
and circumstances claimed to provide a basis for termination of Executive's
employment under the provision so indicated.
(b) "Date of Termination" shall mean the date specified in the Notice of
Termination (which, in the case of a Termination for Cause, shall not be less
than thirty (30) days from the date such Notice of Termination is given);
provided, however, that if a dispute regarding the Executive's termination
exists, the "Date of Termination" shall be determined in accordance with
Section 8(c) of this Agreement.
(c) If, within thirty (30) days after any Notice of Termination is
given, the party receiving such Notice of Termination notifies the other
party that a dispute exists concerning the termination, except upon the
occurrence of a Change in Control and voluntary termination by the Executive
in which case the Date of Termination shall be the date specified in the
Notice, the Date of Termination shall be the date on which the dispute is
finally determined, either by mutual written agreement of the parties, by a
binding arbitration award, or by a final judgment, order or decree of a court
of competent jurisdiction (the time for appeal therefrom having expired and
no appeal having been perfected) and; provided, further, that the Date of
Termination shall be extended by a notice of dispute only if such notice is
given in good faith and the party giving such notice pursues the resolution
of such dispute with reasonable diligence. Notwithstanding the pendency of
any such dispute, the Holding Company will continue to pay Executive his full
compensation in effect when the notice giving rise to the dispute was given
(including, but not limited to, Base Salary) and continue him as a
participant in all compensation, benefit and insurance plans in which he was
participating when the notice of dispute was given, until the dispute is
finally resolved in accordance with this Agreement. Amounts paid under this
Section are in addition to all other amounts due under this Agreement and
shall not be offset against or reduce any other amounts due under this
Agreement.
9. POST-TERMINATION OBLIGATIONS.
All payments and benefits to Executive under this Agreement shall be
subject to Executive's compliance with this Section 9 for one (1) full year
after the earlier of the expiration of this Agreement or termination of
Executive's employment with the Holding Company. Executive shall, upon
reasonable notice, furnish such information and assistance to the Holding
Company as may reasonably be required by the Holding Company in connection
with any litigation in which it or any of its subsidiaries or affiliates is,
or may become, a party.
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10. NON-COMPETITION AND NON-DISCLOSURE.
(a) Upon any termination of Executive's employment hereunder pursuant to
Section 4 hereof, Executive agrees not to compete with the Holding Company or
its Subsidiaries for a period of one (1) year following such termination in
any city, town or county in which the Executive's normal business office is
located and the Holding Company or any of its Subsidiaries has an office or
has filed an application for regulatory approval to establish an office,
determined as of the effective date of such termination, except as agreed to
pursuant to a resolution duly adopted by the Board. Executive agrees that
during such period and within said cities, towns and counties, Executive
shall not work for or advise, consult or otherwise serve with, directly or
indirectly, any entity whose business materially competes with the
depository, lending or other business activities of the Holding Company or
its Subsidiaries. The parties hereto, recognizing that irreparable injury
will result to the Holding Company or its Subsidiaries, its business and
property in the event of Executive's breach of this Subsection 10(a) agree
that in the event of any such breach by Executive, the Holding Company or its
Subsidiaries, will be entitled, in addition to any other remedies and damages
available, to an injunction to restrain the violation hereof by Executive,
Executive's partners, agents, servants, employees and all persons acting for
or under the direction of Executive. Executive represents and admits that in
the event of the termination of his employment pursuant to Section 7 hereof,
Executive's experience and capabilities are such that Executive can obtain
employment in a business engaged in other lines and/or of a different nature
than the Holding Company or its Subsidiaries, and that the enforcement of a
remedy by way of injunction will not prevent Executive from earning a
livelihood. Nothing herein will be construed as prohibiting the Holding
Company or its Subsidiaries from pursuing any other remedies available to the
Holding Company or its Subsidiaries for such breach or threatened breach,
including the recovery of damages from Executive.
(b) Executive recognizes and acknowledges that the knowledge of the
business activities and plans for business activities of the Holding Company
and its Subsidiaries as it may exist from time to time, is a valuable,
special and unique asset of the business of the Holding Company and its
Subsidiaries. Executive will not, during or after the term of his employment,
disclose any knowledge of the past, present, planned or considered business
activities of the Holding Company and its Subsidiaries thereof to any person,
firm, corporation, or other entity for any reason or purpose whatsoever
unless expressly authorized by the Board of Directors or required by law.
Notwithstanding the foregoing, Executive may disclose any knowledge of
banking, financial and/or economic principles, concepts or ideas which are
not solely and exclusively derived from the business plans and activities of
the Holding Company. Further, Executive may disclose information regarding
the business activities of the Bank or Holding Company to the Commissioner of
Banks and Real Estate of the State of Illinois ("Commissioner"), OTS and the
Federal Deposit Insurance Corporation ("FDIC") pursuant to a formal
regulatory request. In the event of a breach or threatened breach by the
Executive of the provisions of this Section, the Holding Company will be
entitled to an injunction restraining Executive from disclosing, in whole or
in part, the knowledge of the past, present, planned or considered business
activities of the Holding Company or its Subsidiaries or from rendering any
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services to any person, firm, corporation, other entity to whom such
knowledge, in whole or in part, has been disclosed or is threatened to be
disclosed. Nothing herein will be construed as prohibiting the Holding
Company from pursuing any other remedies available to the Holding Company for
such breach or threatened breach, including the recovery of damages from
Executive.
11. SOURCE OF PAYMENTS.
(a) All payments provided in this Agreement shall be timely paid in cash
or check from the general funds of the Holding Company subject to Section
11(b).
(b) Notwithstanding any provision herein to the contrary, to the extent
that payments and benefits, as provided by this Agreement, are paid to or
received by Executive under the Employment Agreement dated as of
_________________, between Executive and the Institution, such compensation
payments and benefits paid by the Institution will be subtracted from any
amount due simultaneously to Executive under similar provisions of this
Agreement. Payments pursuant to this Agreement and the Institution Agreement
shall be allocated in proportion to the level of activity and the time
expended on such activities by the Executive as determined by the Holding
Company and the Institution on a quarterly basis.
12. EFFECT ON PRIOR AGREEMENTS AND EXISTING BENEFITS PLANS.
This Agreement contains the entire understanding between the parties
hereto and supersedes any prior employment agreement between the Holding
Company or any predecessor of the Holding Company and Executive, except that
this Agreement shall not affect or operate to reduce any benefit or
compensation inuring to the Executive of a kind elsewhere provided. No
provision of this Agreement shall be interpreted to mean that Executive is
subject to receiving fewer benefits than those available to him without
reference to this Agreement.
13. NO ATTACHMENT.
(a) Except as required by law, no right to receive payments under this
Agreement shall be subject to anticipation, commutation, alienation, sale,
assignment, encumbrance, charge, pledge, or hypothecation, or to execution,
attachment, levy, or similar process or assignment by operation of law, and
any attempt, voluntary or involuntary, to affect any such action shall be
null, void, and of no effect.
(b) This Agreement shall be binding upon, and inure to the benefit of,
Executive and the Holding Company and their respective successors and assigns.
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14. MODIFICATION AND WAIVER.
(a) This Agreement may not be modified or amended except by an
instrument in writing signed by the parties hereto.
(b) No term or condition of this Agreement shall be deemed to have been
waived, nor shall there be any estoppel against the enforcement of any
provision of this Agreement, except by written instrument of the party
charged with such waiver or estoppel. No such written waiver shall be deemed
a continuing waiver unless specifically stated therein, and each such waiver
shall operate only as to the specific term or condition waived and shall not
constitute a waiver of such term or condition for the future as to any act
other than that specifically waived.
15. SEVERABILITY.
If, for any reason, any provision of this Agreement, or any part of any
provision, is held invalid, such invalidity shall not affect any other
provision of this Agreement or any part of such provision not held so
invalid, and each such other provision and part thereof shall to the full
extent consistent with law continue in full force and effect.
16. HEADINGS FOR REFERENCE ONLY.
The headings of sections and paragraphs herein are included solely for
convenience of reference and shall not control the meaning or interpretation
of any of the provisions of this Agreement.
17. GOVERNING LAW.
This Agreement shall be governed by the laws of the State of Delaware,
unless otherwise specified herein.
18. ARBITRATION.
Any dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by arbitration, conducted before a
panel of three arbitrators sitting in a location selected by the Executive
within fifty (50) miles from the location of the Institution, in accordance
with the rules of the American Arbitration Association then in effect.
Judgment may be entered on the arbitrator's award in any court having
jurisdiction; provided, however, that Executive shall be entitled to seek
specific performance of his right to be paid until the Date of Termination
during the pendency of any dispute or controversy arising under or in
connection with this Agreement.
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19. PAYMENT OF COSTS AND LEGAL FEES AND REINSTATEMENT OF BENEFITS.
In the event any dispute or controversy arising under or in connection
with Executive's termination is resolved in favor of the Executive, whether
by judgment, arbitration or settlement, Executive shall be entitled to the
payment of: (1) all legal fees incurred by Executive in resolving such
dispute or controversy, and (2) any back-pay, including salary, bonuses and
any other cash compensation, fringe benefits and any compensation and
benefits due Executive under this Agreement.
20. INDEMNIFICATION.
The Holding Company shall provide Executive (including his heirs,
executors and administrators) with coverage under a standard directors' and
officers' liability insurance policy at its expense and shall indemnify
Executive (and his heirs, executors and administrators) to the fullest extent
permitted under Delaware law against all expenses and liabilities reasonably
incurred by him in connection with or arising out of any action, suit or
proceeding in which he may be involved by reason of his having been a
director or officer of the Holding Company (whether or not he continues to be
a director or officer at the time of incurring such expenses or liabilities),
such expenses and liabilities to include, but not be limited to, judgments,
court costs and attorneys' fees and the cost of reasonable settlements.
21. SUCCESSOR TO THE HOLDING COMPANY.
The Holding Company shall require any successor or assignee, whether
direct or indirect, by purchase, merger, consolidation or otherwise, to all
or substantially all the business or assets of the Institution or the Holding
Company, expressly and unconditionally to assume and agree to perform the
Holding Company's obligations under this Agreement, in the same manner and to
the same extent that the Holding Company would be required to perform if no
such succession or assignment had taken place.
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SIGNATURES
IN WITNESS WHEREOF, EFC Bancorp, Inc. has caused this Agreement to be
executed and its seal to be affixed hereunto by its duly authorized officer
and its directors, and Executive has signed this Agreement, on the ______ day
of __________, 1997.
ATTEST: EFC BANCORP, INC.
By:
- ------------------------------ ----------------------------------------
Ursula Wilson [Name]
Secretary For the Board of Directors
[SEAL]
WITNESS:
By:
- ------------------------------ ----------------------------------------
[Name]
Executive
<PAGE>
Exhibit 10.5 Form of Proposed Change in Control Agreement between Elgin
Financial Center, S.B. and certain executive officers
<PAGE>
FORM OF
ELGIN FINANCIAL CENTER, S.B.
THREE YEAR CHANGE IN CONTROL AGREEMENT
This AGREEMENT is made effective as of ________________ by and among Elgin
Financial Center, S.B. (the "Institution"), a state chartered savings
institution, with its principal administrative office at 1695 Larkin Avenue,
Elgin, Illinois 60123, ______________ ("Executive"), and EFC Bancorp, Inc. (the
"Holding Company"), a corporation organized under the laws of the State of
Delaware which is the holding company of the Institution.
WHEREAS, the Institution recognizes the substantial contribution Executive
has made to the Institution and wishes to protect Executive's position therewith
for the period provided in this Agreement; and
WHEREAS, Executive has agreed to serve in the employ of the Institution.
NOW, THEREFORE, in consideration of the contribution and responsibilities
of Executive, and upon the other terms and conditions hereinafter provided, the
parties hereto agree as follows:
1. TERM OF AGREEMENT.
The period of this Agreement shall be deemed to have commenced as of the
date first above written and shall continue for a period of thirty-six (36) full
calendar months thereafter. Commencing on the date of the execution of this
Agreement, the term of this Agreement shall be extended for one day each day
until such time as the board of directors of the Institution (the "Board") or
Executive elects not to extend the term of the Agreement by giving written
notice to the other party in accordance with Section 4 of this Agreement, in
which case the term of this Agreement shall be fixed and shall end on the third
anniversary of the date of such written notice.
2. CHANGE IN CONTROL.
(a) Upon the occurrence of a Change in Control of the Institution or the
Holding Company (as herein defined) followed at any time during the term of this
Agreement by the termination of Executive's employment, other than for Cause,
as defined in Section 2(c) hereof, the provisions of Section 3 shall apply.
Upon the occurrence of a Change in Control, Executive shall have the right to
elect to voluntarily terminate his employment at any time during the term of
this Agreement following any demotion, loss of title, office or significant
authority, material reduction in his annual compensation or benefits, or
relocation of his principal place of employment by more than 25 miles from its
location immediately prior to the Change in Control; provided, however, the
Executive may consent in writing to any such demotion, loss, reduction or
relocation. The effect of any written consent of the Executive under this
Section 2 (a) shall be strictly limited to the terms specified in such written
consent.
<PAGE>
(b) For purposes of this Agreement, a "Change in Control" of the
Institution or Holding Company shall mean an event of a nature that: (i) 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, as amended (the "Exchange Act"); or (ii)
results in a Change in Control of the Institution or the Holding Company within
the meaning of the Change in Bank Control Act and the Rules and Regulations
promulgated by the Federal Deposit Insurance Corporation ("FDIC") at 12 C.F.R.
Section 303.4(a), with respect to the Institution, and the Rules and Regulations
promulgated by the Office of Thrift Supervision ("OTS") (or its predecessor
agency), with respect to the Holding Company, as in effect on the date of this
Agreement; or (iii) without limitation such a Change in Control shall be deemed
to have occurred at such time as (A) any "person" (as the term is used in
Sections 13(d) and 14(d) of the Exchange Act) is or becomes the "beneficial
owner" (as defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of voting securities of the Institution or the Holding Company
representing 20% or more of the Institution's or the Holding Company's
outstanding voting securities or right to acquire such securities except for any
voting securities of the Institution purchased by the Holding Company and any
voting securities purchased by any employee benefit plan of the Institution or
the Holding Company, or (B) individuals who constitute the Board on the date
hereof (the "Incumbent Board") cease for any reason to constitute at least a
majority thereof, provided 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 same Nominating
Committee serving under an Incumbent Board, shall be, for purposes of this
clause (B), considered as though he were a member of the Incumbent Board, or (C)
a plan of reorganization, merger, consolidation, sale of all or substantially
all the assets of the Institution or the Holding Company or similar transaction
occurs in which the Institution or Holding Company is not the resulting entity,
or (D) a proxy statement has been distributed soliciting proxies from
stockholders of the Holding Company, by someone other than the current
management of the Holding Company, seeking stockholder approval of a plan of
reorganization, merger or consolidation of the Holding Company or Institution or
similar transaction with one or more corporations as a result of which the
outstanding shares of the class of securities then subject to such plan or
transaction are exchanged for or converted into cash or property or securities
not issued by the Institution or the Holding Company, or (E) a tender offer is
made for 20% or more of the voting securities of the Stock Institution or
Holding Company then outstanding.
(c) Executive shall not have the right to receive termination benefits
pursuant to Section 3 hereof upon Termination for Cause. The term "Termination
for Cause" shall mean termination because of: 1) Executive's personal
dishonesty, willful misconduct, breach of fiduciary duty involving personal
profit, intentional failure to perform stated duties, willful violation of any
law, rule, regulation (other than traffic violations or similar offenses), final
cease and desist order or material breach of any provision of this Agreement
which results in a material loss to the Institution or the Holding Company, or
2) Executive's conviction of a crime or act involving moral turpitude or a final
judgement rendered against Executive based upon actions of
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Executive which involve moral turpitude. For the purposes of this Section,
no act, or the failure to act, on Executive's part shall be "willful" unless
done, or omitted to be done, not in good faith and without reasonable belief
that the action or omission was in the best interests of the Bank or its
affiliates. Notwithstanding the foregoing, Executive shall not be deemed to
have been Terminated for Cause unless and until there shall have been
delivered to him a Notice of Termination which shall include a copy of a
resolution duly adopted by the affirmative vote of not less than a majority
of the members of the Board at a meeting of the Board called and held for
that purpose (after reasonable notice to Executive and an opportunity for
him, together with counsel, to be heard before the Board), finding that in
the good faith opinion of the Board, Executive was guilty of conduct
justifying Termination for Cause and specifying the particulars thereof in
detail. Executive shall not have the right to receive compensation or other
benefits for any period after Termination for Cause. During the period
beginning on the date of the Notice of Termination for Cause pursuant to
Section 4 hereof through the Date of Termination, stock options and related
limited rights granted to Executive under any stock option plan shall not be
exercisable nor shall any unvested awards granted to Executive under any
stock benefit plan of the Institution, the Holding Company or any subsidiary
or affiliate thereof vest. At the Date of Termination, such stock options
and related limited rights and such unvested awards shall become null and
void and shall not be exercisable by or delivered to Executive at any time
subsequent to such Date of Termination for Cause.
3. TERMINATION BENEFITS.
(a) Upon the occurrence of a Change in Control, followed at any time
during the term of this Agreement by the voluntary or involuntary termination of
Executive's employment, other than for Termination for Cause, the Institution
shall be obligated to pay Executive, or in the event of his subsequent death,
his beneficiary or beneficiaries, or his estate, as the case may be, a sum equal
to three (3) times Executive's average annual compensation for the five most
recent taxable years that Executive has been employed by the Institution or such
lesser number of years in the event that Executive shall have been employed by
the Institution for less than five years. Such annual compensation shall
include base salary, commissions, bonuses, any other cash compensation,
contributions or accruals on behalf of Executive to any pension and profit
sharing plan, benefits received or to be received under any stock-based benefit
plan, severance payments, director or committee fees and fringe benefits paid or
to be paid to the Executive during such years. At the election of Executive
which election is to be made prior to a Change in Control, such payment shall be
made: (a) in a lump sum, (b) on a bi-weekly basis in approximately equal
installments over a period of thirty-six (36) months, or (c) on an annual basis
in approximately equal installments over a period of thirty-six (36) months.
(b) Upon the occurrence of a Change in Control of the Institution or the
Holding Company followed at any time during the term of this Agreement by
Executive's voluntary or involuntary termination of employment, other than for
Termination for Cause, the Institution shall cause to be continued life, medical
and disability coverage substantially identical to the coverage maintained by
the Institution or Holding Company for Executive prior to his severance,
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except to the extent such coverage may be changed in its application to all
Institution or Holding Company employees on a nondiscriminatory basis. Such
coverage and payments shall cease upon the expiration of thirty-six (36) full
calendar months from the Date of Termination.
4. CHANGE OF CONTROL RELATED PROVISIONS.
Notwithstanding the provisions of Section 3, in no event shall the
aggregate payments or benefits to be made or afforded to Executive under said
paragraphs (the "Termination Benefits") constitute an "excess parachute payment"
under Section 280G of the Internal Revenue Code of 1986, as amended, or any
successor thereto, and in order to avoid such a result, Termination Benefits
will be reduced, if necessary, to an amount (the "Non-Triggering Amount"), the
value of which is one dollar ($1.00) less than an amount equal to three (3)
times Executive's "base amount", as determined in accordance with said Section
280G. The allocation of the reduction required hereby among the Termination
Benefits provided by Section 5 shall be determined by Executive.
5. NOTICE OF TERMINATION.
(a) Any purported termination by the Institution or by Executive in
connection with a Change in Control shall be communicated by Notice of
Termination to the other party hereto. For purposes of this Agreement, a
"Notice of Termination" shall mean a written notice which shall indicate the
specific termination provision in this Agreement relied upon and shall set forth
in reasonable detail the facts and circumstances claimed to provide a basis for
termination of Executive's employment under the provision so indicated.
(b) "Date of Termination" shall mean the date specified in the Notice of
Termination (which, in the instance of Termination for Cause, shall not be less
than thirty (30) days from the date such Notice of Termination is given);
provided, however, that if a dispute regarding the Executive's termination
exists, the "Date of Termination" shall be determined in accordance with Section
5(c) of this Agreement.
(c) If, within thirty (30) days after any Notice of Termination is given,
the party receiving such Notice of Termination notifies the other party that a
dispute exists concerning the termination, the Date of Termination shall be the
date on which the dispute is finally determined, either by mutual written
agreement of the parties, by a binding arbitration award, or by a final
judgment, order or decree of a court of competent jurisdiction (the time for
appeal therefrom having expired and no appeal having been perfected) and
provided further that the Date of Termination shall be extended by a notice of
dispute only if such notice is given in good faith and the party giving such
notice pursues the resolution of such dispute with reasonable diligence.
Notwithstanding the pendency of any such dispute in connection with a Change in
Control, in the event that the Executive is terminated for reasons other than
Termination for Cause, the Institution will continue to pay Executive the
payments and benefits due under this Agreement in effect when the notice giving
rise to the dispute was given (including, but not limited to his
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<PAGE>
annual salary) until the earlier of: (1) the resolution of the dispute in
accordance with this Agreement; or (2) the expiration of the remaining term
of this Agreement as determined as of the Date of Termination.
6. SOURCE OF PAYMENTS.
It is intended by the parties hereto that all payments provided in this
Agreement shall be paid in cash or check from the general funds of the
Institution. Further, the Holding Company guarantees such payment and provision
of all amounts and benefits due hereunder to Executive and, if such amounts and
benefits due from the Institution are not timely paid or provided by the
Institution, such amounts and benefits shall be paid or provided by the Holding
Company.
7. EFFECT ON PRIOR AGREEMENTS AND EXISTING BENEFIT PLANS.
This Agreement contains the entire understanding between the parties hereto
and supersedes any prior agreement between the Institution and Executive, except
that this Agreement shall not affect or operate to reduce any benefit or
compensation inuring to Executive of a kind elsewhere provided. No provision of
this Agreement shall be interpreted to mean that Executive is subject to
receiving fewer benefits than those available to him without reference to this
Agreement.
Nothing in this Agreement shall confer upon Executive the right to continue
in the employ of Institution or shall impose on the Institution any obligation
to employ or retain Executive in its employ for any period.
8. NO ATTACHMENT.
(a) Except as required by law, no right to receive payments under this
Agreement shall be subject to anticipation, commutation, alienation, sale,
assignment, encumbrance, charge, pledge, or hypothecation, or to execution,
attachment, levy, or similar process or assignment by operation of law, and any
attempt, voluntary or involuntary, to affect any such action shall be null,
void, and of no effect.
(b) This Agreement shall be binding upon, and inure to the benefit of,
Executive, the Institution and their respective successors and assigns.
9. MODIFICATION AND WAIVER.
(a) This Agreement may not be modified or amended except by an instrument
in writing signed by the parties hereto.
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(b) No term or condition of this Agreement shall be deemed to have been
waived, nor shall there be any estoppel against the enforcement of any provision
of this Agreement, except by written instrument of the party charged with such
waiver or estoppel. No such written waiver shall be deemed a continuing waiver
unless specifically stated therein, and each such waiver shall operate only as
to the specific term or condition waived and shall not constitute a waiver of
such term or condition for the future or as to any act other than that
specifically waived.
10. REQUIRED REGULATORY PROVISIONS.
(a) Any payments made to Executive pursuant to this Agreement, or
otherwise, are subject to and conditioned upon compliance with 12 U.S.C. Section
1828(k) and any rules and regulations promulgated thereunder, including 12
C.F.R. Part 359.
11. SEVERABILITY.
If, for any reason, any provision of this Agreement, or any part of any
provision, is held invalid, such invalidity shall not affect any other provision
of this Agreement or any part of such provision not held so invalid, and each
such other provision and part thereof shall to the full extent consistent with
law continue in full force and effect.
12. HEADINGS FOR REFERENCE ONLY.
The headings of sections and paragraphs herein are included solely for
convenience of reference and shall not control the meaning or interpretation of
any of the provisions of this Agreement. In addition, references to the
masculine shall apply equally to the feminine.
13. GOVERNING LAW.
The validity, interpretation, performance, and enforcement of this
Agreement shall be governed by the laws of the State of Illinois.
14. ARBITRATION.
Any dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by arbitration, conducted before a panel
of three arbitrators sitting in a location selected by Executive within fifty
(50) miles from the location of the Institution's main office, in accordance
with the rules of the American Arbitration Association then in effect. Judgment
may be entered on the arbitrator's award in any court having jurisdiction;
provided, however, that Executive shall be entitled to seek specific performance
of his right to be paid until the Date of Termination during the pendency of any
dispute or controversy arising under or in connection with this Agreement.
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15. PAYMENT OF COSTS AND LEGAL FEES.
All reasonable costs and legal fees paid or incurred by Executive pursuant
to any dispute or question of interpretation relating to this Agreement shall be
paid or reimbursed by the Institution (which payments are guaranteed by the
Holding Company pursuant to Section 5 hereof) if Executive is successful
pursuant to a legal judgment, arbitration or settlement.
16. INDEMNIFICATION.
The Institution shall provide Executive (including his heirs, executors and
administrators) with coverage under a standard directors' and officers'
liability insurance policy at its expense and shall indemnify Executive (and his
heirs, executors and administrators) to the fullest extent permitted under
Illinois law against all expenses and liabilities reasonably incurred by him in
connection with or arising out of any action, suit or proceeding in which he may
be involved by reason of his having been a director or officer of the
Institution (whether or not he continues to be a director or officer at the time
of incurring such expenses or liabilities), such expenses and liabilities to
include, but not be limited to, judgments, court costs and attorneys' fees and
the cost of reasonable settlements.
17. SUCCESSOR TO THE INSTITUTION.
The Institution shall require any successor or assignee, whether direct or
indirect, by purchase, merger, consolidation or otherwise, to all or
substantially all the business or assets of the Institution, expressly and
unconditionally to assume and agree to perform the Institution's obligations
under this Agreement, in the same manner and to the same extent that the
Institution would be required to perform if no such succession or assignment had
taken place.
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SIGNATURES
IN WITNESS WHEREOF, Elgin Financial Center, S.B. and EFC Bancorp, Inc. have
caused this Agreement to be executed by their duly authorized officers, and
Executive has signed this Agreement, on the ______ day of ____________, 1997.
ATTEST: ELGIN FINANCIAL CENTER, S.B.
_______________________________ By: ___________________________
Ursula Wilson
Secretary
SEAL
ATTEST: EFC BANCORP, INC.
(Guarantor)
______________________________ By: ___________________________
Ursula Wilson
Secretary
SEAL
WITNESS:
__________________________________ _________________________________
[Name]
Executive
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Exhibit 10.6 Form of Proposed Change in Control Agreement between EFC
Bancorp, Inc. and certain executive officers
<PAGE>
FORM OF
EFC BANCORP, INC.
THREE YEAR CHANGE IN CONTROL AGREEMENT
This AGREEMENT is made effective as of ________________, by and between
EFC Bancorp, Inc. (the "Holding Company"), a corporation organized under the
laws of the State of Delaware, with its office at 1695 Larkin Avenue, Elgin,
Illinois _____ and _________________ ("Executive"). The term "Institution"
refers to Elgin Financial Center, S.B., the wholly-owned subsidiary of the
Holding Company or any successor thereto.
WHEREAS, the Holding Company recognizes the substantial contribution
Executive has made to the Holding Company and wishes to protect his position
therewith for the period provided in this Agreement; and
WHEREAS, Executive has agreed to serve in the employ of the Holding
Company or an affiliate thereof.
NOW, THEREFORE, in consideration of the contribution and responsibilities
of Executive, and upon the other terms and conditions hereinafter provided,
the parties hereto agree as follows:
1. TERM OF AGREEMENT.
The period of this Agreement shall be deemed to have commenced as of the
date first above written and shall continue for a period of thirty-six (36)
full calendar months thereafter. Commencing on the date of the execution of
this Agreement, the term of this Agreement shall be extended for one day each
day until such time as the board of directors of the Holding Company (the
"Board") or Executive elects not to extend the term of the Agreement by
giving written notice to the other party in accordance with Section 4 of this
Agreement, in which case the term of this Agreement shall be fixed and shall
end on the third anniversary of the date of such written notice.
2. CHANGE IN CONTROL.
(a) Upon the occurrence of a Change in Control of the Holding Company
(as herein defined) followed at any time during the term of this Agreement by
the termination of Executive's employment, the provisions of Section 3 shall
apply. Upon the occurrence of a Change in Control, Executive shall have the
right to elect to voluntarily terminate his employment at any time during the
term of this Agreement following any demotion, loss of title, office or
significant authority, material reduction in annual compensation or material
reduction in benefits, or relocation of his principal place of employment by
more than 25 miles from its location immediately prior to the Change in
Control unless such termination is because of death or termination for Cause.
<PAGE>
(b) For purposes of this Agreement, a "Change in Control" of the Holding
Company or the Institution shall mean an event of a nature that: (i) would be
required to be reported in response to Item 1(a) of the current report on
Form 8-K, as in effect on the date hereof, pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934 (the "Exchange Act"); or (ii) results in
a Change in Control of the Bank or the Holding Company within the meaning of
the Change in Bank Control Act and the Rules and Regulations promulgated by
the Federal Deposit Insurance Corporation ("FDIC") at 12 C.F.R. Section
303.4(a), with respect to the Institution and the Rules and Regulations
promulgated by the Office of Thrift Supervision ("OTS") (or its predecessor
agency), as in effect on the date hereof with respect to the Holding Company;
or (iii) without limitation such a Change in Control shall be deemed to have
occurred at such time as (A) any "person" (as the term is used in Sections
13(d) and 14(d) of the Exchange Act) is or becomes the "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of
voting securities of the Institution or the Holding Company representing 20%
or more of the Institution's or the Holding Company's outstanding voting
securities or right to acquire such securities except for any voting
securities of the Institution purchased by the Holding Company and any voting
securities purchased by any employee benefit plan of the Holding Company or
its Subsidiaries, or (B) individuals who constitute the Board on the date
hereof (the "Incumbent Board") cease for any reason to constitute at least a
majority thereof, provided 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 Company's stockholders was approved by a
Nominating Committee solely composed of members which are Incumbent Board
members, shall be, for purposes of this clause (B), considered as though he
were a member of the Incumbent Board, or (C) a plan of reorganization,
merger, consolidation, sale of all or substantially all the assets of the
Institution or the Holding Company or similar transaction occurs or is
effectuated in which the Institution or Holding Company is not the resulting
entity; or (D) a proxy statement has been distributed soliciting proxies from
stockholders of the Holding Company, by someone other than the current
management of the Holding Company, seeking stockholder approval of a plan of
reorganization, merger or consolidation of the Holding Company or Institution
with one or more corporations as a result of which the outstanding shares of
the class of securities then subject to such plan or transaction are
exchanged for or converted into cash or property or securities not issued by
the Institution or the Holding Company shall be distributed, or (E) a tender
offer is made for 20% or more of the voting securities of the Institution or
Holding Company then outstanding.
(c) Executive shall not have the right to receive termination benefits
pursuant to Section 3 hereof upon Termination for Cause. The term
"Termination for Cause" shall mean termination because of: 1) Executive's
personal dishonesty, willful misconduct, breach of fiduciary duty involving
personal profit, intentional failure to perform stated duties, willful
violation of any law, rule, regulation (other than traffic violations or
similar offenses), final cease and desist order or material breach of any
provision of this Agreement which results in a material loss to the
Institution or the Holding Company, or 2) Executive's conviction of a crime
or act involving moral turpitude or a final judgement rendered against
Executive based upon actions of Executive which involve moral turpitude. For
the purposes of this Section, no act, or the failure to act, on Executive's
part shall be "willful" unless done, or omitted to be done, not in good faith
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and without reasonable belief that the action or omission was in the best
interests of the Bank or its affiliates. Notwithstanding the foregoing,
Executive shall not be deemed to have been Terminated for Cause unless and
until there shall have been delivered to him a copy of a resolution duly
adopted by the affirmative vote of not less than three-fourths of the members
of the Board at a meeting of the Board called and held for that purpose
(after reasonable notice to Executive and an opportunity for him, together
with counsel, to be heard before the Board), finding that in the good faith
opinion of the Board, Executive was guilty of conduct justifying Termination
for Cause and specifying the particulars thereof in detail. Executive shall
not have the right to receive compensation or other benefits for any period
after Termination for Cause. During the period beginning on the date of the
Notice of Termination for Cause pursuant to Section 4 hereof through the Date
of Termination, stock options and related limited rights granted to Executive
under any stock option plan shall not be exercisable nor shall any unvested
awards granted to Executive under any stock benefit plan of the Institution,
the Holding Company or any subsidiary or affiliate thereof, vest. At the
Date of Termination, such stock options and related limited rights and any
such unvested awards shall become null and void and shall not be exercisable
by or delivered to Executive at any time subsequent to such Termination for
Cause.
3. TERMINATION BENEFITS.
(a) Upon the occurrence of a Change in Control, followed at any time
during the term of this Agreement by the voluntary or involuntary termination
of Executive's employment, other than for Termination for Cause, the Holding
Company shall be obligated to pay Executive, or in the event of his
subsequent death, his beneficiary or beneficiaries, or his estate, as the
case may be, a sum equal to three (3) times Executive's average annual
compensation for the five most recent taxable years that Executive has been
employed by the Institution or such lesser number of years in the event that
Executive shall have been employed by the Institution for less than five
years. Such annual compensation shall include base salary, commissions,
bonuses, any other cash compensation, contributions or accruals on behalf of
Executive to any pension and profit sharing plan, severance payments,
director or committee fees and fringe benefits paid or to be paid to the
Executive during such years. At the election of Executive which election is
to be made prior to a Change in Control, such payment shall be made in a lump
sum. In the event that no election is made, payment to Executive will be
made on a monthly basis in approximately equal installments during the
remaining term of this Agreement.
(b) Upon the occurrence of a Change in Control of the Institution or the
Holding Company followed at any time during the term of this Agreement by
Executive's termination of employment, other than for Termination for Cause,
the Holding Company shall cause to be continued life, medical and disability
coverage substantially identical to the coverage maintained by the
Institution for Executive prior to his severance, except to the extent such
coverage may be changed in its application to all Institution employees.
Such coverage and payments shall cease upon expiration of thirty-six (36)
full calendar months following the Date of Termination.
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<PAGE>
4. CHANGE OF CONTROL RELATED PROVISIONS.
In each calendar year that Executive is entitled to receive payments or
benefits under the provisions of this Agreement, the Holding Company shall
determine if an excess parachute payment (as defined in Section 4999 of the
Internal Revenue Code of 1986, as amended, and any successor provision
thereto, (the "Code")) exists. Such determination shall be made after taking
any reductions permitted pursuant to Section 280G of the Code and the
regulations thereunder. Any amount determined to be an excess parachute
payment after taking into account such reductions shall be hereafter referred
to as the "Initial Excess Parachute Payment". As soon as practicable after a
Change in Control, the Initial Excess Parachute Payment shall be determined.
Upon the Date of Termination following a Change in Control, the Holding
Company shall pay Executive, subject to applicable withholding requirements
under applicable state or federal law, an amount equal to:
(1) twenty (20) percent of the Initial Excess Parachute Payment (or such
other amount equal to the tax imposed under Section 4999 of the
Code); and
(2) such additional amount (tax allowance) as may be necessary to
compensate Executive for the payment by Executive of state and
federal income and excise taxes on the payment provided under clause
(1) and on any payments under this Clause (2). In computing such
tax allowance, the payment to be made under Clause (1) shall be
multiplied by the "gross up percentage" ("GUP"). The GUP shall be
determined as follows:
Tax Rate
GUP = _____________
1- Tax Rate
The "Tax Rate" for purposes of computing the GUP shall be the sum of
the highest marginal federal and state income and employment-related
tax rates, including any applicable excise tax rates, applicable to
the Executive in the year in which the payment under Clause (1) is
made.
(3) Notwithstanding the foregoing, if it shall subsequently be
determined in a final judicial determination or a final
administrative settlement to which Executive is a party that the
excess parachute payment as defined in Section 4999 of the Code,
reduced as described above, is more than the Initial Excess
Parachute Payment (such different amount being hereafter referred to
as the "Determinative Excess Parachute Payment") then the Holding
Company's independent accountants shall determine the amount (the
"Adjustment Amount") the Holding Company must pay to the Executive
in order to put the Executive in the same position as the Executive
would have been if the Initial Excess Parachute Payment
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had been equal to the Determinative Excess Parachute Payment. In
determining the Adjustment Amount, independent accountants of the
Holding Company shall take into account any and all taxes (including
any penalties and interest) paid by or for Executive or refunded to
Executive or for Executive's benefit. As soon as practicable after
the Adjustment Amount has been so determined, the Holding Company
shall pay the Adjustment Amount to Executive. In no event however,
shall Executive make any payment under this paragraph to the Holding
Company.
5. NOTICE OF TERMINATION.
(a) Any purported termination by the Holding Company, or by Executive
shall be communicated by Notice of Termination to the other party hereto.
For purposes of this Agreement, a "Notice of Termination" shall mean a
written notice which shall indicate the specific termination provision in
this Agreement relied upon and shall set forth in detail the facts and
circumstances claimed to provide a basis for termination of Executive's
employment under the provision so indicated.
(b) "Date of Termination" shall mean the date specified in the Notice of
Termination (which, in the case of Termination for Cause, shall not be less
than thirty (30) days from the date such Notice of Termination is given);
provided, however, that if a dispute regarding the Executive's termination
exists, the "Date of Termination" shall be determined in accordance with
Section 5(c) of this Agreement.
(c) If, within thirty (30) days after any Notice of Termination is
given, the party receiving such Notice of Termination notifies the other
party that a dispute exists concerning the termination, the Date of
Termination shall be the date on which the dispute is finally determined,
either by mutual written agreement of the parties, by a binding arbitration
award, or by a final judgment, order or decree of a court of competent
jurisdiction (the time for appeal therefrom having expired and no appeal
having been perfected) and provided further that the Date of Termination
shall be extended by a notice of dispute only if such notice is given in good
faith and the party giving such notice pursues the resolution of such dispute
with reasonable diligence. Notwithstanding the pendency of any such dispute
in connection with a Change in Control, in the event that the Executive is
terminated for reasons other than Termination for Cause, the Institution will
continue to pay Executive the payments and benefits due under this Agreement
in effect when the notice giving rise to the dispute was given (including,
but not limited to his annual salary) until the earlier of: (1) the
resolution of the dispute in accordance with this Agreement; or (2) the
expiration of the remaining term of this Agreement as determined as of the
Date of Termination.
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<PAGE>
6. SOURCE OF PAYMENTS.
It is intended by the parties hereto that all payments provided in this
Agreement shall be paid in cash or check from the general funds of the
Holding Company. Further, the Holding Company guarantees such payment and
provision of all amounts and benefits due hereunder to Executive and, if such
amount and benefits due from the Institution are not timely paid or provided
by the Institution, such amounts and benefits shall be paid and provided by
the Holding Company.
7. EFFECT ON PRIOR AGREEMENTS AND EXISTING BENEFIT PLANS.
This Agreement contains the entire understanding between the parties
hereto and supersedes any prior agreement between the Holding Company and
Executive, except that this Agreement shall not affect or operate to reduce
any benefit or compensation inuring to Executive of a kind elsewhere
provided. No provision of this Agreement shall be interpreted to mean that
Executive is subject to receiving fewer benefits than those available to him
without reference to this Agreement.
Nothing in this Agreement shall confer upon Executive the right to
continue in the employ of the Holding Company or shall impose on the Holding
Company any obligation to employ or retain Executive in its employ for any
period.
8. NO ATTACHMENT.
(a) Except as required by law, no right to receive payments under this
Agreement shall be subject to anticipation, commutation, alienation, sale,
assignment, encumbrance, charge, pledge, or hypothecation, or to execution,
attachment, levy, or similar process or assignment by operation of law, and
any attempt, voluntary or involuntary, to affect any such action shall be
null, void, and of no effect.
(b) This Agreement shall be binding upon, and inure to the benefit of,
Executive, the Holding Company and their respective successors and assigns.
9. MODIFICATION AND WAIVER.
(a) This Agreement may not be modified or amended except by an
instrument in writing signed by the parties hereto.
(b) No term or condition of this Agreement shall be deemed to have been
waived, nor shall there be any estoppel against the enforcement of any
provision of this Agreement, except by written instrument of the party
charged with such waiver or estoppel. No such written waiver shall be deemed
a continuing waiver unless specifically stated therein, and each such waiver
shall operate only as to the specific term or condition waived and shall not
constitute a waiver of such term or condition for the future or as to any act
other than that specifically waived.
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<PAGE>
10. EFFECT OF ACTION UNDER INSTITUTION AGREEMENT.
Notwithstanding any provision herein to the contrary, to the extent that
payments and benefits are paid to or received by Executive under the
Institution Agreement between Executive and Institution, the amount of such
payments and benefits paid by the Institution will be subtracted from any
amount due simultaneously to Executive under similar provisions of this
Agreement.
11. SEVERABILITY.
If, for any reason, any provision of this Agreement, or any part of any
provision, is held invalid, such invalidity shall not affect any other
provision of this Agreement or any part of such provision not held so
invalid, and each such other provision and part thereof shall to the full
extent consistent with law continue in full force and effect.
12. HEADINGS FOR REFERENCE ONLY.
The headings of sections and paragraphs herein are included solely for
convenience of reference and shall not control the meaning or interpretation
of any of the provisions of this Agreement. In addition, references herein
to the masculine shall apply to both the masculine and the feminine.
13. GOVERNING LAW.
The validity, interpretation, performance, and enforcement of this
Agreement shall be governed by the laws of the State of Delaware.
14. ARBITRATION.
Any dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by arbitration, conducted before a
panel of three arbitrators sitting in a location selected by Executive within
fifty (50) miles from the location of the Holding Company, in accordance with
the rules of the American Arbitration Association then in effect. Judgment
may be entered on the arbitrator's award in any court having jurisdiction;
provided, however, that Executive shall be entitled to seek specific
performance of his right to be paid until the Date of Termination during the
pendency of any dispute or controversy arising under or in connection with
this Agreement.
15. PAYMENT OF COSTS AND LEGAL FEES.
All reasonable legal fees paid or incurred by Executive pursuant to any
dispute or question of interpretation relating to this Agreement shall be
paid or reimbursed by the Holding Company if Executive is successful pursuant
to a legal judgment, arbitration or settlement.
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16. INDEMNIFICATION.
The Holding Company shall provide Executive (including his heirs,
executors and administrators) with coverage under a standard directors' and
officers' liability insurance policy at its expense, or in lieu thereof,
shall indemnify Executive (and his heirs, executors and administrators) to
the fullest extent permitted under Delaware law and as provided in the
Holding Company's certificate of incorporation against all expenses and
liabilities reasonably incurred by him in connection with or arising out of
any action, suit or proceeding in which he may be involved by reason of his
having been a director or officer of the Holding Company (whether or not he
continues to be a director or officer at the time of incurring such expenses
or liabilities), such expenses and liabilities to include, but not be limited
to, judgments, court costs and attorneys' fees and the cost of reasonable
settlements.
17. SUCCESSOR TO THE HOLDING COMPANY.
The Holding Company shall require any successor or assignee, whether
direct or indirect, by purchase, merger, consolidation or otherwise, to all
or substantially all the business or assets of the Institution or the Holding
Company, expressly and unconditionally to assume and agree to perform the
Holding Company's obligations under this Agreement, in the same manner and to
the same extent that the Holding Company would be required to perform if no
such succession or assignment had taken place.
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SIGNATURES
IN WITNESS WHEREOF, EFC Bancorp, Inc. has caused this Agreement to be
executed by its duly authorized officer, and Executive has signed this
Agreement, on the __th day of ________, 1997.
ATTEST: EFC BANCORP, INC.
_____________________________ By: ___________________________
Ursula Wilson
Secretary
WITNESS:
_____________________________ _________________________________
[NAME]
Executive
Seal
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Exhibit 10.7 Form of Proposed Elgin Financial Center, S.B. Employee Severance
Compensation Plan
<PAGE>
FORM OF
ELGIN FINANCIAL CENTER, S.B.
EMPLOYEE SEVERANCE COMPENSATION PLAN
PLAN PURPOSE
The purpose of the Elgin Financial Center, S.B. Employee Severance
Compensation Plan is to assure for Elgin Financial Center, S.B. (the "Bank") the
services of Employees of the Bank in the event of a Change in Control
(capitalized terms are defined in section 2.1) of the EFC Bancorp, Inc. (the
"Holding Company") or the Bank. The benefits contemplated by the Plan recognize
the value to the Bank of the services and contributions of the Employees of the
Bank and the effect upon the Bank resulting from the uncertainties of continued
employment, reduced Employee benefits, management changes and relocations that
may arise in the event of a Change in Control of the Bank or the Holding
Company. The Bank's and the Holding Company's Boards of Directors believe that
it is in the best interests of the Bank and the Holding Company to provide
Employees of the Bank who have been with the Bank for a minimum of five years
with such benefits in order to defray the costs and changes in Employee status
that could follow a Change in Control. The Board of Directors believes that the
Plan will also aid the Bank in attracting and retaining highly qualified
individuals who are essential to its success and the Plan's assurance of fair
treatment of the Bank's Employees will reduce the distractions and other adverse
effects on Employees' performance in the event of a Change in Control.
ARTICLE I
ESTABLISHMENT OF PLAN
1.1 Establishment of Plan
As of the Effective Date of the Plan as defined herein, the Bank hereby
establishes an employee severance compensation plan to be known as the "Elgin
Financial Center, S.B. Employee Severance Compensation Plan." The purposes of
the Plan are as set forth above.
1.2 Applicability of Plan
The benefits provided by this Plan shall be available to all Employees of
the Bank, who, at or after the Effective Date, meet the eligibility requirements
of Article III, except for those executive officers who have entered into, or
who enter into in the future, and continue to be subject to an employment or
change in control agreement with the Employer.
1.3 Contractual Right to Benefits
This Plan establishes and vests in each Participant a contractual right to
the benefits to which each Participant is entitled hereunder, enforceable by the
Participant against the Employer, Bank, or both.
<PAGE>
ARTICLE II
DEFINITIONS AND CONSTRUCTION
2.1 Definitions
Whenever used in the Plan, the following terms shall have the meanings set
forth below.
(a) "Annual Compensation" of a Participant means and includes all wages,
salary, bonus, and cash compensation, if any, paid (including accrued amounts)
by an Employer as consideration for the Participant's service during the 12
months ended the date as of which Annual Compensation is to be determined, which
are or would be includable in the gross income of the Participant receiving the
same for federal income tax purposes.
(b) "Bank" means Elgin Financial Center, S.B. or any successor as provided
for in Article VII hereof.
(c) "Change in Control" shall mean an event of a nature that: (i) would be
required to be reported in response to Item 1(a) of the current report on Form
8-K, as in effect on the date hereof, pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 (the "Exchange Act"); or (ii) results in a
Change in Control of the Bank or the Holding Company within the meaning of the
Change in Bank Control Act and the Rules and Regulations promulgated by the
Federal Deposit Insurance Corporation ("FDIC") at 12 C.F.R. Section 303.4(a)
with respect to the Bank and the Board of Governors of the Federal Reserve
System ("FRB") at 12 C.F.R. Section 225.41(b) with respect to the Holding
Company, as in effect on the date hereof; or (iii) results in a transaction
requiring prior FRB approval under the Bank Holding Company Act of 1956 and the
regulations promulgated thereunder by the FRB at 12 C.F.R. Section 225.11, as in
effect on the date hereof except for the Holding Company's acquisition of the
Bank; or (iv) without limitation such a Change in Control shall be deemed to
have occurred at such time as (A) any "person" (as the term is used in Sections
13(d) and 14(d) of the Exchange Act) is or becomes the "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of
securities of the Bank or the Holding Company representing 20% or more of the
Bank's or the Holding Company's outstanding securities except for any securities
of the Bank purchased by the Holding Company in connection with the conversion
of the Bank to the stock form and any securities purchased by any tax qualified
employee benefit plan of the Bank; or (B) individuals who constitute the Board
of Directors 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 same Nominating Committee serving under an Incumbent Board, shall be, for
purposes of this clause (B), considered as though he were a member of the
Incumbent Board; or (C) a plan of reorganization, merger, consolidation, sale of
all or substantially all the assets of the Bank or the Holding Company or
similar transaction occurs in which the Bank or Holding Company is not the
resulting entity; or (D) solicitations of shareholders of the Holding Company,
by someone other than the current management of the Holding Company, seeking
stockholder approval of a plan of reorganization, merger or
2
<PAGE>
consolidation of the Holding Company or Bank or similar transaction with one
or more corporations as a result of which the outstanding shares of the class
of securities then subject to the plan or transaction are exchanged for or
converted into cash or property or securities not issued by the Bank or the
Holding Company shall be distributed; or (E) a tender offer is made for 20%
or more of the voting securities of the Bank or the Holding Company.
(d) "Disability" means the permanent and total inability by reason of
mental or physical infirmity, or both, of an employee to perform the work
customarily assigned to him . Additionally, a medical doctor selected or
approved by the Board of Directors must advise the Board that it is either not
possible to determine if or when such Disability will terminate or that it
appears probable that such Disability will be permanent during the remainder of
said employees lifetime.
(e) "Effective Date" means the date the Plan is approved by the Board of
Directors of the Bank, or such other date as the Board shall designate in its
resolution approving the Plan.
(f) "Employee" means any Employee of the Bank or any subsidiary thereof
who has completed at least one year of service with the Bank, or any subsidiary
thereof, provided, however, that any Employee who is covered or hereinafter
becomes covered by an employment contract or change in control agreement with
the Employer shall not be considered to be an Employee for purposes of this
Plan.
(g) "Expiration Date" means a date ten (10) years from the Effective Date
unless earlier terminated pursuant to Section 8.2 or extended pursuant to
Section 8.1.
(h) "Employer" means the Bank or a subsidiary of the Bank or a parent of
the Bank which has adopted the Plan pursuant to Article VI hereof.
(i) "Just Cause" shall mean termination because of Participant's personal
dishonesty, incompetence, willful misconduct, any breach of fiduciary duty
involving personal profit, intentional failure or unjustified neglect to perform
stated duties, conviction of or pleading guilty or nolo contendere to any crime
or offense punishable as a felony or to any crime or offense involving moral
turpitude, or violation of any final cease-and desist order. In determining
incompetence, the acts or omissions shall be measured against standards
generally prevailing in the savings institutions industry.
(j) "Leave of Absence" and "LOA" mean (i) the taking of an authorized or
approved leave of absence under the provisions of the federal Family and Medical
Leave Act ("FMLA"), (ii) any state law providing qualitatively similar benefits
as the FMLA, or (iii) a leave of absence authorized under the policies of the
Bank. "Leave of Absence" and "LOA" are defined in this paragraph for the
exclusive purposes of this Plan.
(k) "Payment" means the payment of severance compensation as provided in
Article IV hereof.
3
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(l) "Participant" means an Employee who meets the eligibility requirements
of Article III.
(m) "Plan" means Elgin Financial Center, S.B. Employee Severance
Compensation Plan.
(n) "Year of Service" means each consecutive 12 month period, beginning
with an Employee's date of hire and running without a termination of employment
in which an Employee is credited with at least one hour of service in each of
the 12 calendar months in such period. The taking of a LOA shall not eliminate
a period of time from being a Year of Service if such period of time otherwise
qualifies as such. Further if a particular 12 month period of time would not
otherwise qualify under the Plan as a Year of Service because one hour of
service is not credited during each month of such period due to the taking of a
LOA, then such period of time shall be deemed to be a Year of Service for all
other sections of this Plan.
2.2 Applicable Law
The laws of the State of Illinois shall be the controlling law in all
matters relating to the Plan to the extent not preempted by Federal law.
2.3 Severability
If a provision of this Plan shall be held illegal or invalid, the
illegality or invalidity shall not affect the remaining parts of the Plan and
the Plan shall be construed and enforced as if the illegal or invalid provision
had not been included.
ARTICLE III
ELIGIBILITY
3.1 Participation
The term Participant shall include all Employees of the Bank who have
completed at least one (1) Year of Service with the Bank at the time of any
termination pursuant to Section 4.2 herein. Notwithstanding the foregoing,
persons who have entered into and continue to be covered by an employment
contract or change in control agreement with the Employer shall not be entitled
to participate in this Plan.
3.2 Duration of Participation
A Participant shall cease to be a Participant in the Plan when the
Participant ceases to be an Employee of an Employer, unless such Participant is
entitled to a Payment as provided in the Plan. A Participant entitled to
receipt of a Payment shall remain a Participant in this Plan until the full
amount of such Payment has been paid to the Participant.
4
<PAGE>
ARTICLE IV
PAYMENTS
4.1 Right to Payment
A Participant shall be entitled to receive from its respective Employer a
Payment in the amount provided in Section 4.3 if there has been a Change in
Control of the Bank or the Holding Company and if, within one (1) year
thereafter, the Participant's employment by an Employer shall terminate for any
reason specified in Section 4.2, whether the termination is voluntary or
involuntary. A Participant shall not be entitled to a Payment if termination
occurs by reason of death, voluntary retirement, voluntary termination other
than for reasons specified in Section 4.2, Disability, or for Just Cause.
4.2 Reasons for Termination
Following a Change in Control, a Participant shall be entitled to a Payment
if employment by an Employer is terminated, voluntarily or involuntarily, for
any one or more of the following reasons:
(a) The Employer reduces the Participant's base salary or rate of
compensation as in effect immediately prior to the Change in Control.
(b) The Employer materially changes Participant's function, duties or
responsibilities which would cause Participant's position to be one of lesser
responsibility, importance or scope with the Employer than immediately prior to
the change in control.
(c) The Employer requires the Participant to change the location of
the Participant's job or office, so that such Participant will be based at a
location more than thirty (30) miles from the location of the Participant's job
or office immediately prior to the Change in Control provided that such new
location is not closer to Participant's home.
(d) The Employer materially reduces the benefits and perquisites
available to the Participant immediately prior to the Change in Control,
provided, however, that a material reduction in benefits and perquisites
generally provided to all Employees of the Bank on a nondiscriminatory basis
would not trigger a payment pursuant to this Plan.
(e) A successor to the Bank fails or refuses to assume the Bank's
obligations under this Plan, as required by Article VII.
(f) The Bank or any successor to the Bank breaches any other
provisions of this Plan.
(g) The Employer terminates the employment of a Participant at or
after a Change in Control other than for Just Cause.
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<PAGE>
4.3 Amount of Payment
(a) Each Participant entitled to a Payment under this Plan shall
receive from the Bank, a lump sum cash payment equal to one-twelfth of Annual
Compensation for each year of service up to a maximum of 199% of Annual
Compensation.
(b) Notwithstanding the provisions of (a) above, if a Payment to a
Participant who is a Disqualified Individual shall be in an amount which
includes an Excess Parachute Payment, the Payment hereunder to that Participant
shall be reduced to the maximum amount which does not include an Excess
Parachute Payment. The terms "Disqualified Individual" and "Excess Parachute
Payment" shall have the same meaning as defined in Section 280G of the Internal
Revenue Code of 1986, as amended, or any successor section thereof.
The Participant shall not be required to mitigate damages on the amount of
the Payment by seeking other employment or otherwise, nor shall the amount of
such Payment be reduced by any compensation earned by the Participant as a
result of employment after termination of employment hereunder.
4.4 Time of Payment
The Payment to which a Participant is entitled shall be paid to the
Participant by the Employer or the successor to the Employer, in cash and in
full, not later than twenty (20) business days after the termination of the
Participant's employment. If any Participant should die after termination of
the employment but before all amounts have been paid, such unpaid amounts shall
be paid to the Participant's named beneficiary, if living, otherwise to the
personal representative on behalf of or for the benefit of the Participant's
estate.
ARTICLE V
OTHER RIGHTS AND BENEFITS NOT AFFECTED
5.1 Other Benefits
Neither the provisions of this Plan nor the Payment provided for hereunder
shall reduce any amounts otherwise payable, or in any way diminish the
Participant's rights as an Employee of an Employer, whether existing now or
hereafter, under any benefit, incentive, retirement, stock option, stock bonus,
stock ownership or any employment agreement or other plan or arrangement.
5.2 Employment Status
This Plan does not constitute a contract of employment or impose on the
Participant or the Participant's Employer any obligation to retain the
Participant as an Employee, to change the status of the Participant's
employment, or to change the Employer's policies regarding termination of
employment.
6
<PAGE>
ARTICLE VI
PARTICIPATING EMPLOYERS
6.1 Upon approval by the Board of Directors of the Bank, this Plan may be
adopted by any Subsidiary or Parent of the Bank. Upon such adoption, the
Subsidiary or Parent shall become an Employer hereunder and the provisions of
the Plan shall be fully applicable to the Employees of that Subsidiary or
Parent. The term "Subsidiary" means any corporation in which the Bank, directly
or indirectly, holds a majority of the voting power of its outstanding shares of
capital stock. The term "Parent" means any corporation which holds a majority
of the voting power of the Bank's outstanding shares of capital stock.
ARTICLE VII
SUCCESSOR TO THE BANK
7.1 The Bank shall require any successor or assignee, whether direct or
indirect, by purchase, merger, consolidation or otherwise, to all or
substantially all the business or assets of the Bank, expressly and
unconditionally to assume and agree to perform the Bank's obligations under this
plan, in the same manner and to the same extent that the Bank would be required
to perform if no such succession or assignment had taken place.
ARTICLE VIII
DURATION, AMENDMENT AND TERMINATION
8.1 Duration
If a Change in Control has not occurred, this Plan shall expire as of the
Expiration Date, unless sooner terminated as provided in Section 8.2, or unless
extended for an additional period or periods by resolution adopted by the Board
of Directors of the Bank.
Notwithstanding the foregoing, if a Change in Control occurs this Plan
shall continue in full force and effect, and shall not terminate or expire until
such date as all Participants who become entitled to Payments hereunder shall
have received such Payments in full.
8.2 Amendment and Termination
The Plan may be terminated or amended in any respect by resolution adopted
by a majority of the Board of Directors of the Bank, unless a Change in Control
has previously occurred. If a Change in Control occurs, the Plan no longer
shall be subject to amendment, change, substitution, deletion, revocation or
termination in any respect whatsoever.
7
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8.3 Form of Amendment
The form of any proper amendment or termination of the Plan shall be a
written instrument signed by a duly authorized officer or officers of the Bank,
certifying that the amendment or termination has been approved by the Board of
Directors. A proper amendment of the Plan automatically shall effect a
corresponding amendment to each Participant's rights hereunder. A proper
termination of the Plan automatically shall effect a termination of all
Participants' rights and benefits hereunder.
8.4 No Attachment
(a) Except as required by law, no right to receive payments under
this Plan shall be subject to anticipation, commutation, alienation, sale,
assignment, encumbrance, charge, pledge, or hypothecation, or to execution,
attachment, levy, or similar process or assignment by operation of law, and any
attempt, voluntary or involuntary, to affect such action shall be null, void,
and of no effect.
(b) This Plan shall be binding upon, and inure to the benefit of,
Employee and the Bank and their respective successors and assigns.
ARTICLE IX
LEGAL FEES AND EXPENSES
9.1 All reasonable legal fees and other expenses paid or incurred by a
party hereto pursuant to any dispute or question of interpretation relating to
this Plan shall be paid or reimbursed by the prevailing party in any legal
judgment, arbitration or settlement.
ARTICLE X
REQUIRED PROVISIONS
10.1 The Bank may terminate the Employee's employment at any time, but any
termination by the Bank, other than Termination for Cause, shall not prejudice
Employee's right to compensation or other benefits under this Agreement.
Employee shall not have the right to receive compensation or other benefits for
any period after termination for Just Cause as defined in Section 2.1
hereinabove.
10.2 If the Employee is suspended and/or temporarily prohibited from
participating in the conduct of the Bank's affairs by a notice served under
Section 8(e)(3) or 8(g)(1) of the Federal Deposit Insurance Act, 12 U.S.C.
Section 1818(e)(3) or (g)(1), the Bank's obligations under this contract shall
be suspended as of the date of service, unless stayed by appropriate
proceedings. If the charges in the notice are dismissed, the Bank may in its
discretion (i) pay the Employee all or part of the compensation withheld while
their contract obligations were suspended and (ii) reinstate (in whole or in
part) any of the obligations which were suspended.
8
<PAGE>
10.3 If the Employee is removed and/or permanently prohibited from
participating in the conduct of the Bank's affairs by an order issued under
Section 8(e)(4) or 8(g)(1) of the Federal Deposit Insurance Act, 12 U.S.C.
Section 1818(e)(4) or (g)(1), all obligations of the Bank under this contract
shall terminate as of the effective date of the order, but vested rights of the
contracting parties shall not be affected.
10.4 If the Bank is in default as defined in Section 3(x)(1) of the Federal
Deposit Insurance Act, 12 U.S.C. Section 1813(x)(1), all obligations of the
Bank under this contract shall terminate as of the date of default, but this
paragraph shall not affect any vested rights of the contracting parties.
ARTICLE XI
ADMINISTRATIVE PROVISIONS
11.1 Plan Administrator. The administrator of the Plan shall be under the
supervision of the Board of Directors of the Bank or a Committee appointed by
the Board (the "Board"). It shall be a principal duty of the Board to see that
the Plan is carried out in accordance with its terms, for the exclusive benefit
of persons entitled to participate in the Plan without discrimination among
them. The Board will have full power to administer the Plan in all of its
details subject, however, to the requirements of ERISA. For this purpose, the
Board's powers will include, but will not be limited to, the following
authority, in addition to all other powers provided by this Plan: (a) to make
and enforce such rules and regulations as it deems necessary or proper for the
efficient administration of the Plan; (b) to interpret the Plan, its
interpretation thereof in good faith to be final and conclusive on all persons
claiming benefits under the Plan; (c) to decide all questions concerning the
Plan and the eligibility of any person to participate in the Plan; (d) to
compute the amount of Payment that will be payable to any Participant or other
person in accordance with the provisions of the Plan, and to determine the
person or persons to whom such benefits will be paid; (e) to authorize
Payments; (f) to appoint such agents, counsel, accountants, consultants and
actuaries as may be required to assist in administering the Plan; and (g) to
allocate and delegate its responsibilities under the Plan and to designate other
persons to carry out any of its responsibilities under the Plan, any such
allocation, delegation or designation to be by written instrument and in
accordance with Section 405 of ERISA.
11.2 Named fiduciary. The Board will be a "named fiduciary" for purposes
of Section 402(a)(1) of ERISA with authority to control and manage the operation
and administration of the Plan, and will be responsible for complying with all
of the reporting and disclosure requirements of Part 1 of Subtitle B of Title I
of ERISA.
11.3 Claims and review procedures.
(a) Claims procedure. If any person believes he is being denied any
rights or benefits under the Plan, such person may file a claim in writing
with the Board. If any such claim is wholly or partially denied, the Board
will notify such person of its decision in writing. Such notification will
be written in a manner calculated to be understood by such person and will
contain (i) specific reasons for the denial, (ii) specific reference to
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<PAGE>
pertinent Plan provisions, (iii) a description of any additional material
or information necessary for such person to perfect such claim and an
explanation of why such material or information is necessary and (iv)
information as to the steps to be taken if the person wishes to submit a
request for review. Such notification will be given within 90 days after
the claim is received by the Board (or within 180 days, if special
circumstances require an extension of time for processing the claim, and if
written notice of such extension and circumstances is given to such person
within the initial 90 day period). If such notification is not given
within such period, the claim will be considered denied as of the last day
of such period and such person may request a review of his claim.
(b) Review procedure. Within 60 days after the date on which a
person receives a written notice of a denied claim (or, if applicable,
within 60 days after the date on which such denial is considered to have
occurred) such person (or his duly authorized representative) may (i) file
a written request with the Board for a review of his denied claim and of
pertinent documents and (ii) submit written issues and comments to the
Board. The Board will notify such person of its decision in writing. Such
notification will be written in a manner calculated to be understood by
such person and will contain specific reasons for the decision as well as
specific references to pertinent Plan provisions. The decision on review
will be made within 60 days after the request for review is received by the
Board (or within 120 days, if special circumstances require an extension of
time for processing the requests such as an election by the Board to hold a
hearing, and if written notice of such extension and circumstances is given
to such person within the initial 60 day period). If the decision on
review is not made within such period, the claim will be considered denied.
11.4 Nondiscriminatory exercise of authority. Whenever, in the
administration of the Plan, any discretionary action by the Board is
required, the Board shall exercise its authority in a nondiscriminatory
manner so that all persons similarly situated will receive substantially the
same treatment.
11.5 Indemnification of Board. The Bank will indemnify and defend to the
fullest extent permitted by law any person serving on the Board or as a member
of a committee designated as Board (including any person who formerly served as
a Board member or as a member of such committee) against all liabilities,
damages, costs and expenses (including attorneys fees and amounts paid in
settlement of any claims approved by the Bank) occasioned by any act or omission
to act in connection with the Plan, if such act or omission is in good faith.
11.6 "Plan Year" means the period beginning on the Effective Date and
ending on _____________ and the 12 consecutive-month period ending each year
thereafter.
11.7 Benefits solely from general assets. The benefits provided hereunder
will be paid solely from the general assets of the Bank. Nothing herein will be
construed to require the Bank or the Board to maintain any fund or segregate any
amount for the benefit of any Participant, and no Participant or other person
shall have any claim against, right to, or security or other interest in, any
fund, account or asset of the Bank from which any payment under the Plan may be
made.
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Having been adopted by its Board of Directors on __________________, this Plan
is executed by its duly authorized officers this __th day of __________, 199__.
Attest ELGIN FINANCIAL CENTER, S.B.
By:
- ------------------------------ ------------------------------
Secretary
<PAGE>
Exhibit 23.1 Consent of KPMG Peat Marwick LLP
<PAGE>
[Letterhead]
The Board of Directors
Elgin Financial Center, SB
We consent to the use of our reports included herein and to the reference to our
Firm under the heading "Experts" and "Legal and Tax Opinions" in the
prospectus/Form S-1 registration statement.
/s/ KPMG Peat Marwick LLP
Chicago, Illinois
October 24, 1997
<PAGE>
Exhibit 23.2 Consent of Muldoon, Murphy & Faucette
<PAGE>
MULDOON, MURPHY & FAUCETTE
CONSENT
We hereby consent to the references to this firm and our opinions in the
Registration Statement on Form S-1 filed by EFC Bancorp, Inc., and all
amendments thereto; the Form H(e)1-S for EFC Bancorp, Inc. and all amendments
thereto; the Application for Conversion filed by Elgin Financial Center, S.B.
(the "Bank") with the Office of Banks and Real Estate of the State of
Illinois and all amendments thereto; and, the Notice and Application for
Elgin Financial Center, S.B. filed with the Federal Deposit Insurance
Corporation and all amendments thereto, relating to the conversion of the
Bank from an Illinois state-chartered mutual savings bank to an Illinois
state-chartered stock savings bank, the concurrent issuance of the Bank's
outstanding capital stock to EFC Bancorp, Inc., a holding company formed for
such purpose, and the offering of EFC Bancorp, Inc.'s common stock.
/s/ Muldoon, Murphy & Faucette
MULDOON, MURPHY & FAUCETTE
Dated this 24th day of
October, 1997
<PAGE>
Exhibit 23.3 Consent of Morris, Nichols, Arsht & Tunnell
<PAGE>
[Letterhead]
October 24, 1997
Muldoon, Murphy & Faucette
5101 Wisconsin Avenue, N.W.
Washington, D.C. 20016
Ladies and Gentlemen:
We hereby consent to the references to this firm and our opinions in
the Registration Statement on Form S-1 by EFC Bancorp, Inc., a Delaware
corporation (the "Company"), and all amendments thereto, the Application for
Conversion filed by Elgin Financial Center, S.B. (the "Bank") and all amendments
thereto, and the Notice and Application for Conversion for Elgin Financial
Center, S.B., filed by the Bank with the Federal Deposit Insurance Corporation,
and all amendments thereto, relating to the conversion of the Bank from an
Illinois state chartered mutual savings bank to an Illinois state chartered
stock savings bank, the concurrent issuance of the Bank's outstanding capital
stock to the Company, a holding company formed for such purpose, and the
offering of the Company's common stock.
Very truly yours,
/s/ Morris, Nichols, Arsht & Tunnell
<PAGE>
Exhibit 23.4 Consent and Subscription Rights Letter of FinPro, Inc.
<PAGE>
[Letterhead]
October 22, 1997
Board of Directors
Elgin Financial Center, S.B.
1695 Larkin Avenue
Elgin, Illinois 60123
Dear Board Members:
We hereby consent to the use of our firm's name, FinPro, Inc. ("FinPro") and
the reference to our firm as experts in the Application for Conversion to be
filed by Elgin Financial Center, S.B. and any amendments thereto and
references to our opinion regarding subscription rights filed as an exhibit
to the applications referred to hereafter. We also consent to the use of our
firm's name in the Registration Statement Form S-1 to be filed by EFC
Bancorp, Inc. with the Securities and Exchange Commission and all amendments
thereto, and to the statements with respect to us and the references to our
Valuation Appraisal Report and in the said Application for Conversion and any
amendments thereto and in the Notice and Application for Conversion filed by
Elgin Financial Center, S.B., Elgin, Illinois.
Very Truly Yours,
FinPro, Inc.
/s/ DONALD J. MUSSO
Donald J. Musso
Liberty Corner, New Jersey
October 22, 1997
<PAGE>
[Letterhead]
October 22, 1997
Board of Directors
Elgin Financial Center, S.B.
1695 Larkin Avenue
Elgin, Illinois 60123
Dear Board Members:
All capitalized terms not otherwise defined in this letter have the meanings
given such terms in the Plan of Conversion, as amended (the "Plan") adopted
by the Board of Directors of Elgin Financial Center, S.B. (the "Bank"),
whereby the Bank will convert from a state mutual savings bank to a state
stock savings bank and issue all of the Bank's outstanding capital stock to
EFC Bancorp, Inc. (the "Company"). Simultaneously, the Company will issue
shares of common stock.
We understand that in accordance with the Plan, Subscription Rights to
purchase shares of the Conversion Stock are to be issued to (i) Eligible
Account Holders; and (ii) the ESOP; together 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 Conversion Stock at the same price as will
be paid by members of the general public in the Community Offering, but
without undertaking any independent investigation of state or federal law or
the position of the Internal Revenue Service with respect to this issue, we
are of the opinion that:
(1)the Subscription Rights will have no ascertainable market value; and
(2)the price at which the Subscription Rights are excercisable will not
be more or less than the pro forma market value of the shares upon
issuance.
Changes in the local and national economy, the legislative and regulatory
environment, the stock market, interest rates, and other external forces
(such as natural disasters or significant world events) may occur from time
to time, often with great unpredictability and may materially impact the
value of thrift stocks as a whole or the Company's value alone. Accordingly,
no assurance can be given that persons who subscribe to shares of Conversion
Stock in the conversion will thereafter be able to buy or sell such shares at
the same price paid in the Subscription Offering.
Very Truly Yours,
FinPro, Inc.
/s/ DONALD J. MUSSO
Donald J. Musso
President
<PAGE>
Exhibit 24.1 Powers of Attorney
<PAGE>
CONFORMED
POWERS OF ATTORNEY
KNOW ALL MEN BY THESE PRESENT, that each person whose signature appears
below constitutes and appoints Barrett J. O'Connor and James J. Kovac as the
true and lawful attorneys-in-fact and agents with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities to sign any or all amendments to the Application for Conversion and
the Form S-1 Registration Statement, and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the Office of the
Commissioner of Banks and Real Estate, State of Illinois or the U.S. Securities
and Exchange Commission, respectively, granting unto said attorneys-in-fact and
agents full power and authority to do and perform each and every act and things
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 that said
attorneys-in-fact and agents or his substitute or substitutes, may lawfully do
or cause to be done by virtue hereof.
Pursuant to the requirements of Section 1075.2210(c) of the Illinois
Administrative rules and the Securities Act of 1933, as amended, and any rules
and regulations promulgated thereunder, the foregoing Powers of Attorney
prepared in conjunction with the Application for Conversion and the Form S-1
Registration Statement have been duly signed by the following persons in the
capacities and on the dates indicated.
NAME DATE
/s/ Barrett J. O'Connor October 24, 1997
- ----------------------------------
Barrett J. O'Connor
President, Chief Executive Officer
and Director
(principal executive officer)
EFC Bancorp, Inc.
President, Chief Executive Officer
and Director
(principal executive officer)
Elgin Financial Center, S.B.
/s/ James J. Kovac October 24, 1997
- ----------------------------------
James J. Kovac
Senior Vice President, Chief Financial Officer
and Director
(principal financial and accounting officer)
EFC Bancorp, Inc.
Senior Vice President, Chief Financial Officer
and Director
(principal accounting and financial officer)
Elgin Financial Center, S.B.
<PAGE>
/s/ John J. Brittain October 24, 1997
- ----------------------------------
John J. Brittain
Chairman of the Board and Director
EFC Bancorp, Inc.
Chairman of the Board and Director
Elgin Financial Center, S.B.
/s/ Leo M. Flanagan, Jr. October 24, 1997
- ----------------------------------
Leo M. Flanagan, Jr.
Vice Chairman of the Board and Director
EFC Bancorp, Inc.
Vice Chairman of the Board and Director
Elgin Financial Center, S.B.
/s/ Vincent C. Norton October 24, 1997
- ----------------------------------
Vincent C. Norton
Director
EFC Bancorp, Inc.
Vice President - Loan Origination and Director
Elgin Financial Center, S.B.
/s/ Thomas I. Anderson October 24, 1997
- ----------------------------------
Thomas I. Anderson
Director
EFC Bancorp, Inc.
Director
Elgin Financial Center, S.B.
/s/ Ralph W. Helm, Jr. October 24, 1997
- ----------------------------------
Ralph W. Helm, Jr.
Director
EFC Bancorp, Inc.
Director
Elgin Financial Center, S.B.
<PAGE>
/s/ Peter A. Traeger October 24, 1997
- ----------------------------------
Peter A. Traeger
Director
EFC Bancorp, Inc.
Director
Elgin Financial Center, S.B.
/s/ Scott H. Budd October 24, 1997
- ----------------------------------
Scott H. Budd
Director
EFC Bancorp, Inc.
Director
Elgin Financial Center, S.B.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION FROM THE FORM S-1 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 7-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUL-31-1997
<CASH> 1,781
<INT-BEARING-DEPOSITS> 14,530
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 57,934
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 243,001
<ALLOWANCE> 829
<TOTAL-ASSETS> 324,361
<DEPOSITS> 262,252
<SHORT-TERM> 2,000
<LIABILITIES-OTHER> 6,779
<LONG-TERM> 22,000
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITIES-AND-EQUITY> 0
<INTEREST-LOAN> 11,523
<INTEREST-INVEST> 2,689
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 14,212
<INTEREST-DEPOSIT> 6,743
<INTEREST-EXPENSE> 7,603
<INTEREST-INCOME-NET> 6,609
<LOAN-LOSSES> 21
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 4,284
<INCOME-PRETAX> 2,752
<INCOME-PRE-EXTRAORDINARY> 2,752
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,816
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<YIELD-ACTUAL> 7.73
<LOANS-NON> 409
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 808
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 829
<ALLOWANCE-DOMESTIC> 829
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 206
</TABLE>
