<PAGE>
As filed with the Securities and Exchange Commission on December 12, 1997
Registration No. 333-__________
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-1
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
FIRST LINCOLN BANCSHARES INC.
FIRST FEDERAL LINCOLN BANK
SAVINGS PLAN
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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<S> <C> <C>
DELAWARE 6036 BEING APPLIED FOR
(state or other jurisdiction of (Primary Standard Industrial (IRS Employer Identification No.)
incorporation of organization) Classification Code Number)
</TABLE>
13/TH/ & "N" STREETS
LINCOLN, NEBRASKA 68508
(402) 475-0521
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
GILBERT G. LUNDSTROM
PRESIDENT AND CHIEF EXECUTIVE OFFICER
FIRST FEDERAL LINCOLN BANK
LINCOLN, NEBRASKA 68508
(402) 475-0521
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Copies to:
DOUGLAS P. FAUCETTE, ESQUIRE
GEORGE W. MURPHY, JR. , ESQUIRE
JOSEPH G. PASSAIC, JR., ESQUIRE
JOHN R. HALL, 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
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<S> <C> <C> <C> <C>
Title of each Class of Amount to Proposed Maximum Proposed Maximum Amount of
Securities to be Registered be Registered Offering Price Aggregate Offering Registration
Per Share Price (2) Fee
-------------------------------------------------------------------------------------------------------------
Common Stock 9,777,904 $20.00 $195,558,080 $57,690
$.01 par value(1) Shares
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Participation (3) ------- $ 15,049,386 (4)
Interests
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</TABLE>
(1) Includes shares of Common Stock to be issued to the First Federal Lincoln
Foundation, a private foundation.
(2) Estimated solely for the purpose of calculating the registration fee.
(3) In addition, this registration Statement also covers an indeterminate
amount of interests to be offered or sold pursuant to the First Federal
Lincoln Bank Savings Plan.
(4) The securities of First Lincoln Bancshares Inc. to be purchased by First
Federal Lincoln Bank 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.
<PAGE>
[To be used in connection with the Syndicated Community Offering only]
SYNDICATED PROSPECTUS SUPPLEMENT
FIRST LINCOLN BANCSHARES INC.
(PROPOSED HOLDING COMPANY FOR FIRST FEDERAL LINCOLN BANK)
__________ SHARES OF COMMON STOCK
First Lincoln Bancshares 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 $20.00, of its common
stock, par value $.01 per share (the "Common Stock"), to be issued upon the
conversion (the "Conversion") of First Federal Lincoln Bank, Lincoln, Nebraska
(the "Bank") from a federally chartered mutual savings bank to a federally
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 $50 or more as of June 30, 1996, by the First Federal Lincoln
Bank Employee Stock Ownership Plan, a tax-qualified employee benefit plan, and
related trust (the "ESOP"), by holders of deposit accounts with a balance of $50
or more as of ______________, 1997, by certain other account holders and
borrowers of the Bank 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 $20.00 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.
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 _______________, 199_, unless extended by the Bank and the Company
with the approval of the Office of Thrift Supervision (the "OTS"). Such
extensions may not go beyond _______________, 199_. 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 10% 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 more than the total
number of shares offered in the Community Offering and the Syndicated Community
Offering that could be purchased for $500,000 at the Purchase Price and no
person, together with associates of and persons acting in concert with such
person, may purchase more than 1% of the total number of shares issued in the
Conversion. See "Plan of Conversion - Subscription Rights and 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 Sandler, O'Neill & Partners, L.P.
("Sandler O'Neill") as financial advisors to assist them in the sale of the
Common Stock in the Syndicated Community Offering. It is anticipated that
Sandler O'Neill will use the services of other registered broker-dealers
("Selected Dealers") and that fees to Sandler O'Neill and such Selected Dealers
will not exceed 7% of the aggregate Purchase Price of the shares sold in the
Syndicated Community Offering. Neither Sandler O'Neill 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 under the symbol "FLF." 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 THRIFT SUPERVISION, DEPARTMENT OF THE
TREASURY, OR ANY OTHER FEDERAL AGENCY OR ANY STATE SECURITIES COMMISSION, NOR
HAS SUCH COMMISSION, OFFICE, OTHER AGENCY OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
THE SHARES OF COMMON STOCK OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS OR DEPOSITS
AND ARE NOT FEDERALLY INSURED OR GUARANTEED.
2
<PAGE>
<TABLE>
<CAPTION>
Estimated Estimated Net Pro-
Underwriting Estimated Net ceeds of Subscrip-
Commissions Proceeds of tion, Community
Syndicated and Other Syndicated and Syndicated
Community Fees and Community Community
Offering Price Expenses(1) Offering Offerings(2)(3)
=========================================================================================================
<S> <C> <C> <C> <C>
Minimum Per Share $20.00 $ $ $
- ---------------------------------------------------------------------------------------------------------
Midpoint Per Share $20.00 $ $ $
- ---------------------------------------------------------------------------------------------------------
Maximum Per Share $20.00 $ $ $
- ---------------------------------------------------------------------------------------------------------
Total Minimum(4) $ $ $ $
- ---------------------------------------------------------------------------------------------------------
Total Midpoint $ $ $ $
- ---------------------------------------------------------------------------------------------------------
Total Maximum(4) $ $ $ $
- ---------------------------------------------------------------------------------------------------------
Total Maximum, As Adjusted(5) $ $ $ $
=========================================================================================================
</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 Sandler O'Neill for services in connection with the Subscription and
Community Offerings) and estimated compensation of Sandler O'Neill and
Selected Dealers in connection with the sale of the remaining shares in the
Syndicated Community Offering which fees are estimated to be $__________
million and $__________ million 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 $20.00 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 $20.00
per share (the "Estimated Price Range"). The Total Minimum reflects the
sale of __________ shares at a per share price of $20.00, 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."
SANDLER O'NEILL & PARTNERS, L.P.
_________________________________
The date of this Prospectus Supplement is _______________, 1997.
3
<PAGE>
[To be used in connection with sales to Participants in the First Federal
Lincoln Bank Savings Plan]
PROSPECTUS SUPPLEMENT
- ---------------------
FIRST LINCOLN BANCSHARES INC.
FIRST FEDERAL LINCOLN BANK
Participation Interests
FIRST FEDERAL LINCOLN BANK
SAVINGS PLAN
This Prospectus Supplement relates to the offer and sale to participants
(the "Participants") in First Federal Lincoln Bank Savings Plan (the "Plan") of
participation interests and shares of common stock, par value $.01 per share of
First Lincoln Bancshares Inc. (the "Common Stock"), as set forth herein.
In connection with the proposed conversion of First Federal Lincoln Bank
(the "Bank") from a federally-chartered mutual savings bank to a federally-
chartered capital stock savings bank (the "Conversion"), the Plan has been
amended to permit the investment of Plan assets in Common Stock of First Lincoln
Bancshares Inc. (the "Holding Company"). The amended Plan will permit
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 First Lincoln
Bancshares Inc. Stock Fund (the "Employer Stock Fund"). Based upon the value of
the Plan assets at September 30, 1997, 752,469 shares of Common Stock could be
purchased with Plan assets (assuming a purchase price of $20.00 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 _______________________________, 1998 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 ____________________, 1998.
<PAGE>
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE OFFICE
OF THRIFT SUPERVISION 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>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
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....................................... 3
Introduction............................................. 3
Eligibility and Participation............................ 4
Contributions Under the Plan............................. 5
Limitations on Contributions............................. 5
Investment of Contributions.............................. 8
Benefits Under the Plan.................................. 10
Withdrawals and Distributions From the Plan.............. 10
Administration of the Plan............................... 11
Reports to Plan Participants............................. 12
Plan Administrator....................................... 12
Amendment and Termination................................ 12
Merger, Consolidation or Transfer........................ 13
Federal Income Tax Consequences.......................... 13
ERISA and Other Qualification............................ 15
Restrictions on Resale................................... 15
SEC Reporting and Short-Swing Profit Liability........... 16
EXPERTS....................................................... 17
LEGAL OPINIONS................................................ 17
</TABLE>
<PAGE>
THE OFFERING
SECURITIES OFFERED
The securities offered hereby are participation interests in the Plan. Up
to 752,469 shares (assuming the actual purchase price is $20.00 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. All eligible employees of
the Bank (hereinafter referred to as the "Employer"), except those who are paid
solely on a retainer or fee basis, may participate in the Plan. The Common Stock
to be issued hereby is conditioned on the consummation of the Conversion. A
Participant's investment 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 13th & "N" Streets, Lincoln, Nebraska, 68501. The Bank's telephone number is
(402) 475-0521.
ELECTION TO PURCHASE COMMON STOCK IN THE CONVERSION
In connection with the Bank's Conversion, the Plan has been amended to
permit 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 September 30, 1997, was
$15,049,386. Each Participant was informed of the value of his or her beneficial
interest in the Plan. This
1
<PAGE>
value represented the past contributions to the Plan by the Employer and the
Participants and any earnings or losses thereon, less previous withdrawals.
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 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
percentage 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 by filing a written notice with the plan administrator
or utilizing the Plan's "Teletouch" system. 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").
2
<PAGE>
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
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 through the cash portion of each
Participant's Account.
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 will have actual shares of Common Stock credited to
their Account. All Employer Stock Fund transactions to purchase or sell Common
Stock after the Conversion will take place on the open market.
VOTING AND TENDER RIGHTS OF COMMON STOCK
Each Participant with an investment in the Employer Stock Fund shall be
entitled to direct the Trustee as to the exercise of all voting powers over
shares of Common Stock credited to his or her Account. Specifically, each
Participant with an investment in the Employer Stock Fund shall have the right
to participate in voting with respect to the approval or disapproval of any
corporate merger or consolidation, recapitalization, reclassification,
liquidation, dissolution, sale of substantially all assets of a trade or
business, or such similar transaction as may be prescribed in the Treasury
Regulations.
DESCRIPTION OF THE PLAN
I. INTRODUCTION
The Plan was established effective August 1, 1978 as the First Federal
Lincoln Bank Savings Plan. The Plan is a cash or deferred 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
3
<PAGE>
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, L.F.
Roschewski, 13th & "N" Streets, Lincoln, Nebraska 68501. The Plan
Administrator's telephone number is (402) 475-0521. Each employee is urged to
read carefully the full text of the Plan.
II. ELIGIBILITY AND PARTICIPATION
Any employee of the Employer, who completes 1,000 hours of service (except
those who are paid solely on a retainer or fee basis), is eligible to
participate in the Plan as soon as the employee completes one year of service
with the Employer. An eligible employee becomes an active participant in the
Plan on the 1st day of the month following the month he or she has met the Plan
eligibility requirements. In order to commence participation, an employee must
submit an elective deferral agreement ("Elective Deferral Agreement") before the
pay period in which the eligible employee desires to enter the Plan.
As of September 30, 1997, there were approximately 288 employees eligible
to participate in the Plan, and 272 employees had elected to participate in the
Plan.
4
<PAGE>
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 an Elective Deferral
Agreement by an amount not less than 1% and not more than 15% and have that
amount contributed to the Plan on such Participant's behalf. Such amounts are
credited to the Participant's Account. See "Section IV Limitations on
Contributions" below. For purposes of the Plan, "Compensation" means base
salary minus bonuses, commissions, overtime pay, and any other special
compensation over $6,000. "Compensation" does not include expense repayments
or other allowances, fringe benefits, moving expenses, deferred compensation and
welfare benefits. As of January 1, 1998, 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 Elective Deferral Agreement by providing written notice to the
Plan Administrator 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 an Elective Deferral Agreement or have matching
contributions made on his behalf for a period of twelve (12) months after the
receipt of a hardship distribution.
Employer Contributions. The Employer currently makes a contribution to
----------------------
the Plan of an amount equal to 75% of each Participant's elective deferral
contribution to his or her Account. However, the Employer contributions only
apply to the first 6% of a Participant's elective deferral contribution. After
the Conversion, at the discretion of the Bank, the Employer contributions may be
credited to the Participant's Account in First Federal Lincoln Bank Employee
Stock Ownership Plan.
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 Account during any Plan Year may not exceed the lesser of 25%
of the Participant's (S)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
(S)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:
5
<PAGE>
(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 an Elective Deferral 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
1998 is $10,000). 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.
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 Elective Deferral 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 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.
6
<PAGE>
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 1998. 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
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 (as defined below) 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.
7
<PAGE>
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 a trustee appointed by the
Bank's Board of Directors (the "Trustee").
Prior to [insert date of Prospectus here], Participant Account balances
have been invested in the following accounts at the direction of the
Participants:
a. 5-Year Guaranteed Interest Account;
b. 2-Year Guaranteed Interest Account;
c. Bond & Mortgage Account;
d. Bond Emphasis Balanced Account;
e. Stock Emphasis Balance Account;
f. Stock Index 500 Account;
g. U.S. Stock Account;
h. Real Estate Account;
i. International Stock Account; and
j. Money Market Account
The Plan, as amended effective _______, 1997, now provides that in addition
to the Funds specified above, a Participant who is employed by the Bank may
direct the Trustee to invest all or a portion of his Account in the Employer
Stock Fund.
Participants in the Plan may direct the Trustee to invest all or a portion
of his or her Account in the Employer Stock Fund.
A Participant may elect to have both past and future contributions and
additions to the Participant's Account invested either in the Employer Stock
Fund or among such other Funds. Participants' "Matching Contribution" portion
of their Accounts may be invested in Employer Stock under the proposed terms of
the First Federal Lincoln Bank 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 in a timely fashion. After the Conversion,
elections may be made through the Plan's "Teletouch" system. Any amounts
credited to a Participant's Account for which investment directions are not
given will be invested in the 2-Year Guaranteed Interest Account in accordance
with the terms of the Plan.
The value of a Participant's Employer Stock Fund portion of his or her
Account will be the value of the shares of Common Stock held in the
Participant's Account, as determined by the price established by the American
Stock Exchange. Any dividends payable on the Common Stock held in a
Participant's Account will be reinvested in additional shares of Common Stock.
8
<PAGE>
A. Plan Investments.
-----------------
The annual percentage return on the Plan's investments for the prior three
years was:
<TABLE>
<CAPTION>
1996 1995 1994
----------------------
<S> <C> <C> <C>
a. 5-Year Guaranteed Interest Account 6.03% 6.30% 6.92%
b. 2-Year Guaranteed Interest Account 5.10 5.65 4.01
c. Bond & Mortgage Account 3.94 18.41 (2.05)
d. Bond Emphasis Balanced Account 10.02 19.82 (1.76)
e. Stock Emphasis Balanced Account 16.34 22.3 (0.24)
f. Stock Index 500 Account 22.5 37.07 1.05
g. U.S. Stock Account 24.13 33.1 0.29
h. Real Estate Account 9.63 7.82 5.14
i. International Stock Account 24.32 14.41 (2.3)
j. Money Market Account
</TABLE>
B. The Employer Stock Fund.
-----------------------
The Employer Stock Fund will consist of cash and investments in Common
Stock made on and after the effective date of the Conversion. The cash portion
of the Employer Stock Fund is used to hold excess cash left over when processing
transactions. The Plan Trustee will purchase shares of Common Stock for
Participants' Accounts. The value of the shares credited to a Participant's
Account will be the fair market value of the Common Stock on the date of
purchase. The value of a Participant's Account is updated on a daily basis.
On the occasion of the payment of a cash dividend, the Trustee may use the
dividend to purchase additional shares of Common Stock. 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
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 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 the cash portion of each Participant's Account on a pro rata basis.
9
<PAGE>
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 the Elective Deferral Contribution portion of his or her Account
and the earnings thereon under the Plan. A Participant vests in his or her
Matching Contributions under the Plan according to the following schedule:
<TABLE>
<CAPTION>
Period of Service Vested Percentage
----------------- -----------------
<S> <C>
less than 5 years 0%
5 years or more 100
</TABLE>
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 or her (i) Elective Deferral Contributions and (ii) the vested interest
in his or her Matching Contributions. The hardship distribution requirements
ensure that Participants have a true financial need before a withdrawal may be
made.
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 $5,000 or less.
If the vested portion of the Participant's Account balance is greater than
$5,000, the Participant may request a distribution (subject to the minimum
distribution rules) in a lump sum payment or in installments: (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. In lieu of a cash distribution, a Participant may request that
any portion of the Participant's vested Account held in Common Stock be
distributed in kind. Fractional shares valued as of the most recent Valuation
Date will be paid in cash. The distribution will include any dividends (cash or
stock) on such whole shares or any additional shares of Common Stock
10
<PAGE>
received as a result of a stock split or any other adjustment to such whole
shares of Common Stock since the Valuation Date preceding the date of
distribution. Benefit payments ordinarily will 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 or has ever exceeded $5,000, 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 or installment payments 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 or installment payments 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 or in installment
payments 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.
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(s) is appointed by the Board of Trustees of the Bank
--------
to serve at its pleasure. The current Trustees of the Plan are L.F. Roschewski,
Gil Lundstrom, Patricia Young, Roland Maaske, Larry Pfeil, Eugene Witkowicz,
Paula Luther and Roger Ludemann (referred collectively herein as the "Trustee").
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.
11
<PAGE>
REPORTS TO PLAN PARTICIPANTS
The Plan Administrator will furnish to each Participant a statement showing
(i) the balance in the Participant's Account as of the end of that period, (ii)
the amount of contributions credited to such participant's Account for that
period, and (iii) for investments in the Employer Stock Fund, the number of
shares held in the Account.
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.
Currently, the Plan Administrator is L.F. Roschewski, Chairman of the Board of
the Bank. The address and telephone number of the Plan Administrator is c/o
First Federal Lincoln Bank, 13th & N Streets, Lincoln, Nebraska 68501. The Plan
Administrator is responsible for the administration of the Plan, interpretation
of the provisions of the Plan, prescribing procedures for filing applications
for benefits, preparation and distribution of information explaining the Plan,
maintenance of Plan records, books of account and all other data necessary for
the proper administration of the Plan, and preparation and filing of all returns
and reports relating to the Plan which are required to be filed with the U.S.
Department of Labor and the IRS, and for all disclosures required to be made to
Participants, Beneficiaries and others under Sections 104 and 105 of ERISA.
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
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
12
<PAGE>
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.
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
13
<PAGE>
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, mid-term or long-term capital gain depending upon the length of the
holding period of the Common Stock. The recipient of a distribution may elect
to include the amount of any net unrealized appreciation in the total taxable
amount of such distribution to the extent allowed by the regulations 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 individual retirement account ("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
14
<PAGE>
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 ERISA 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
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
15
<PAGE>
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 American Stock Exchange 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 September 30, 1997, 11.98% 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.
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.
16
<PAGE>
EXPERTS
The financial statements and schedule of the First Federal Lincoln Bank
Savings Plan as of December 31, 1996 and 1995 and for the years then ended 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.
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>
FIRST FEDERAL LINCOLN BANK SAVINGS PLAN
Investment Form
---------------
Name of Plan Participant:
---------------------------
Social Security Number:
-----------------------------
1. INSTRUCTIONS. In connection with the proposed Conversion of First
------------
Federal Lincoln Bank from a mutual savings bank to a stock based organization
(the "Conversion"),First Federal Lincoln Bank Savings Plan ("Plan") has been
amended to permit participants to direct their current account balances for
their 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 First
Lincoln Bancshares 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 (_____________, 1998.) 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 Paula Luther at
(402) 473-6124 . 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 percentages of my Account in the Employer
Stock Fund:
a. 5-Year Guaranteed Interest Account _____%*
b. 2-Year Guaranteed Interest Account _____%*
c. Bond & Mortgage Account _____%
d. Bond Emphasis Balanced Account_________%
e. Stock Emphasis Balanced Account ___________%
f. Stock Index 500 Account_________%
g. U.S. Stock Account _____%
h. Real Estate Account _____%
i. International Stock Account ______%
j. Money Market Account ______%
NOTE: The total percentage of directed investments, above, may not exceed 100%.
* A penalty may be incurred as a result of early withdrawals from these
accounts.
3. PURCHASER INFORMATION. The ability of participants in the Plan to
purchase Common Stock in the Conversion and to direct their current account
balances into the Employer Stock Fund is based upon the participant's status as
an Eligible Account Holder and/or Supplemental Eligible Account Holder. Please
indicate your status.
a. [_] Eligible Account Holder - Check here if you were a depositor with
$50.00 or more on deposit with First Federal Lincoln Bank as of June
30, 1996.
b. [_] Supplemental Eligible Account Holder - Check here if you were a
depositor with $50.00 or more on deposit with First Federal Lincoln
Bank as of December 31, 1997, but are not an Eligible Account
Holder.
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.
- --------------- --------
By: Date
--------------
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.
18
<PAGE>
FIRST FEDERAL LINCOLN BANK SAVINGS PLAN
Table of Contents
December 31, 1996 and 1995
================================================================================
Independent Auditors' Report F-2
Statements of Net Assets Available for Plan Benefits F-3
Statements of Changes in Net Assets Available for Pension Benefits F-4
Notes to Financial Statements F-5 - F-9
<TABLE>
<CAPTION>
Schedule
<S> <C>
Item 27a - Schedule of Assets Held for Investment Purposes 1
Item 27d - Schedule of Reportable Transactions 2
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
Employee Benefit Committee
First Federal Lincoln Bank
Lincoln, Nebraska:
We were engaged to audit the financial statements and schedules of First Federal
Lincoln Bank Savings Plan as of December 31, 1996 and 1995, and for the years
then ended. These financial statements and schedules are the responsibility of
the Plan's management.
As permitted by 29 CFR 2520.103-8 of the Department of Labor's Rules and
Regulations for Reporting and Disclosure under the Employee Retirement Income
Security Act of 1974, the plan administrator instructed us not to perform, and
we did not perform, any auditing procedures with respect to the information
summarized in note 6, which was certified by the Principal Financial Group, Des
Moines, Iowa, the Insurer of the Plan, except for comparing the information with
related information included in the financial statements. We have been informed
by the plan administrator that the Insurer holds the Plan's investment assets
and executes investment transactions. A certification has been obtained by the
plan administrator from the Insurer as of and for the years ended December 31,
1996 and 1995, that the information provided to the plan administrator by the
Insurer is complete and accurate.
Because of the significance of the information that we did not audit, we are
unable to, and do not, express an opinion on the accompanying financial
statements and schedules taken as a whole. The form and content of the
information included in the financial statements and schedules, other than that
derived from the information certified by the Insurer, have been audited by us
in accordance with generally accepted auditing standards and, in our opinion,
are presented in compliance with the Department of Labor's Rules and Regulations
for Reporting and Disclosure under the Employee Retirement Income Security Act
of 1974.
KPMG Peat Marwick LLP
/s/ KPMG Peat Marwick LLP
June 13, 1997
Lincoln, Nebraska
F-2
<PAGE>
FIRST FEDERAL LINCOLN BANK SAVINGS PLAN
Statements of Net Assets Available for Plan Benefits
December 31, 1996 and 1995
================================================================================
<TABLE>
<CAPTION>
1996 1995
Pooled funds on deposit with the Insurer (notes 3, 4 and 6):
<S> <C> <C>
Guaranteed interest account $ 3,593,187 3,785,944
U.S. stock account 4,723,942 3,588,100
International stock account 1,246,399 862,310
Stock index 500 account 737,961 423,780
Money market account 774,330 727,006
Real estate account 323,960 278,339
Bond and mortgage account 1,546,539 1,438,417
Bond emphasis balanced account 246,737 205,354
Stock emphasis balanced account 238,231 178,887
---------- ----------
Net assets available for plan benefits $13,431,286 11,488,137
========== ==========
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE>
FIRST FEDERAL LINCOLN BANK SAVINGS PLAN
Statement of Changes in Net Assets Available for Plan Benefits with Fund
Information
Year ended December 31, 1996 with comparative totals for 1995
================================================================================
<TABLE>
<CAPTION>
1996
-------------------------------------------------------------------------------------
Guaranteed U.S. International Stock Money Real
interest stock stock index 500 market estate
account account account account account account
<S> <C> <C> <C> <C> <C> <C>
Investment income
(note 6) $ 217,389 915,688 235,291 123,745 36,341 28,218
Contributions:
Employer 48,258 74,955 31,741 19,995 14,487 9,720
Employee 137,488 143,643 66,381 44,079 29,346 19,140
--------- --------- --------- --------- --------- ---------
Total contri-
butions 185,746 218,598 98,122 64,074 43,833 28,860
--------- --------- --------- --------- --------- ---------
Total additions 403,135 1,134,286 333,413 187,819 80,174 57,078
--------- --------- --------- --------- --------- ---------
Benefits to participants 198,054 82,528 112,601 11,034 33,777 15,532
Transfers and
adjustments 397,272 (84,478) (163,366) (137,436) (997) (4,082)
Other 566 394 89 40 70 7
--------- --------- --------- --------- --------- ---------
Total deductions 595,892 (1,556) (50,676) (126,362) 32,850 11,457
Net increase
(decrease) (192,757) 1,135,842 384,089 314,181 47,324 45,621
Beginning of year 3,785,944 3,588,100 862,310 423,780 727,006 278,339
--------- --------- --------- --------- --------- ---------
End of year $3,593,187 4,723,942 1,246,399 737,961 774,330 323,960
========= ========= ========= ========= ========= =========
<CAPTION>
1996
------------------------------------------------------
Bond Stock
Bond and emphasis emphasis
mortgage balanced balanced
account account account Total 1995
<S> <C> <C> <C> <C> <C>
Investment income
(note 6) 58,086 22,051 33,114 1,669,923 1,701,405
Contributions:
Employer 27,915 4,880 7,494 239,445 209,230
Employee 55,168 11,186 14,983 521,414 537,628
--------- --------- --------- ---------- ----------
Total contri-
butions 83,083 16,066 22,477 760,859 746,858
--------- --------- --------- ---------- ----------
Total additions 141,169 38,117 55,591 2,430,782 2,448,263
--------- --------- --------- ---------- ----------
Benefits to participants 21,929 976 1,395 477,826 630,467
Transfers and
adjustments 11,013 (4,271) (5,169) 8,486 21,502
Other 105 29 21 1,321 1,056
--------- --------- --------- ---------- ----------
Total deductions 33,047 (3,266) (3,753) 487,633 653,025
Net increase
(decrease) 108,122 41,383 59,344 1,943,149 1,795,238
Beginning of year 1,438,417 205,354 178,887 11,488,137 9,692,899
--------- --------- --------- ---------- ----------
End of year 1,546,539 246,737 238,231 13,431,286 11,488,137
========= ========= ======== ========== ==========
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE>
FIRST FEDERAL LINCOLN BANK SAVINGS PLAN
Notes to Financial Statements
December 31, 1996 and 1995
================================================================================
(1) Summary of Significant Accounting Policies
Basis of Presentation
The accompanying financial statements of the First Federal Lincoln Bank
Savings Plan (Plan) have been prepared on an accrual basis and present
the net assets available for plan benefits and the changes in those net
assets. The Plan is sponsored by First Federal Lincoln Bank (Bank).
Administration
The Plan, established August 1, 1978 and restated as of January 1, 1989,
is a defined contribution 401(k) profit sharing plan and is administered
by the Employee Benefit Committee. The Bank has entered into an
Immediate Participation Guarantee Contract with the Principal Financial
Group (Insurer). The Bank directs the Insurer to make investments under
the group contract in accordance with elections made by the
participants. The Bank has no reversionary interest in the Plan.
Costs of administering the Plan are paid by the Bank.
Investments and Valuations
The Plan's investments are stated at fair value except for its
guaranteed interest account which is valued at contract value (note 3).
The Plan's other investment accounts are unit investments in pooled
separate accounts of the Insurer. Each pooled separate account is valued
at fair value by the Insurer at the close of each business day.
Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires the plan administrator to make
estimates and assumptions that affect the reported amounts of net assets
available for plan benefits and the reported changes in those net assets
during the reporting period. Actual results could differ from those
estimates.
(2) Description of Plan
The following description of the Plan provides only general information.
Participants should refer to the Plan agreement for a more complete
description of the Plan's provisions.
Eligibility
The Plan requires that employees complete one year of service to be
eligible for participation in the Plan. A year of service is defined as
any period of 12 consecutive months beginning on the date of employment
or any January 1, thereafter, during which the employee has at least
1,000 hours of service. The employee must make an election to
participate in the Plan and agree to make contributions to the Plan by
payroll deductions.
(Continued)
F-5
<PAGE>
FIRST FEDERAL LINCOLN BANK SAVINGS PLAN
Notes to Financial Statements
Page 2
================================================================================
(2) Description of Plan, Continued
Contributions
Employees can contribute from 1 percent to 15 percent of their salary to
the Plan. All participant contributions are fully vested and
nonforfeitable at all times. The Bank will contribute, through June 30,
1996, 50 percent of the employee's contribution up to a maximum of 6
percent of the employee's salary. Beginning July 1, 1996, the Bank will
contribute 66-2/3 percent of the employee's contribution up to a maximum
of 6 percent of the employee's salary (including bonus, commission,
overtime or other special compensation up to $6,000), provided
accumulated net income, earnings or profits allow. The Bank funds its
liability bi-weekly as the participants' contributions are made. The
Bank may make additional contributions to the Plan not to exceed the
maximum amount deductible from the Bank's income under the Internal
Revenue Code.
Benefits
Plan participants become 100 percent vested in the Bank's matching
contributions after five years of service. Participant accounts are
credited with the participant's contribution, an allocation of the
Bank's contribution and Plan earnings. Benefits to which a participant
is entitled are provided from the participant's account.
Benefits upon retirement are payable as a single lump-sum or as a
fixed-period annuity upon participant election. Participants may also
elect to receive a taxable distribution of any part of their vested
account balance prior to retirement if Plan hardship requirements are
met. Payment of benefits are recorded when paid.
Plan Termination
Although the Bank has not expressed any intention to do so, it has the
right under the Plan to discontinue its contributions at anytime and to
terminate the Plan subject to the provisions of Employee Retirement
Income Security Act of 1974 (ERISA). In the event of Plan termination,
the entire value of each participant's account will be fully vested and
nonforfeitable.
Nonassignability
The account of any participant shall not be subject to seizure for the
payment of debts or judgments of the participant. However, a court of
law, by an appropriate qualified domestic relations order, can assign
part of a participant's benefit to an alternate payee.
Amendments
The Plan can be amended at any time by the Bank's Board of Directors,
but such amendment may not deprive any participant of his or her vested
interest.
(Continued)
F-6
<PAGE>
FIRST FEDERAL LINCOLN BANK SAVINGS PLAN
Notes to Financial Statements
Page 3
================================================================================
(3) Guaranteed Interest Account with Insurer
The Plan entered into a guaranteed interest account with the Insurer who
maintains the contributions in a pooled account. The guaranteed interest
account is credited with earnings on the underlying investments and charged
for plan withdrawals and administrative expenses charged by the Insurer.
The guaranteed interest account is included in the financial statements at
contract value, (which represents contributions made under the contract,
plus earnings, less withdrawals and administrative expenses), because it is
fully benefit responsive. For example, participants may ordinarily direct
the withdrawal or transfer of all or a portion of their investment at
contract value. There are no reserves against contract value for credit
risk of the contract issuer or otherwise. The fair value of the guaranteed
interest account at December 31, 1996 and 1995 was $3,584,318 and
$3,785,944, respectively. The average yield and crediting interest rates
were approximately 6 percent for 1996 and 1995. The crediting interest rate
is based on an agreed-upon formula with the issuer, but cannot be less than
zero percent.
(4) Investments
The following table presents the investments that represent five percent or
more of the Plan's net assets available for benefits at December 31, 1996.
<TABLE>
<CAPTION>
Pooled funds on deposit with the Insurer:
<S> <C>
Guaranteed interest account $ 3,593,187
U.S. stock account 4,723,942
International stock account 1,246,399
Stock index 500 account 737,961
Money market account 774,330
Bond and mortgage account 1,546,539
==========
</TABLE>
(5) Federal Income Taxes
Management of the Bank believes the Plan is operating in accordance with
its qualified status under the provisions of sections 401(a) and 401(k) of
the Internal Revenue Code and is, therefore, exempt from Federal income tax
under section 501(a) of the Code. The Plan received a favorable
determination letter dated March 6, 1995 from the Internal Revenue Service.
(6) Insurer Transactions
The Plan administrator has received the following information from the
Insurer and a statement certifying such information is accurate and
complete. Information included in the accompanying financial statements and
information in the supplemental schedules is presented in reliance solely
upon their certification.
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Investments at contract value $ 13,431,286 11,488,137
========== ==========
Investment income $ 1,669,923 1,701,405
========== ==========
</TABLE>
F-7
<PAGE>
FIRST FEDERAL LINCOLN BANK SAVINGS PLAN Schedule 1
Item 27a - Schedule of Assets Held for Investment Purposes
December 31, 1996, as Reported by the Insurer
================================================================================
<TABLE>
<CAPTION>
Current or
contract
Cost value
<S> <C> <C>
Pooled funds on deposit with the Insurer:
Guaranteed interest account $ 3,593,187 3,593,187
U.S. stock account 845,130 4,723,942
International stock account 862,594 1,246,399
Stock index 500 account 494,764 737,961
Money market account 669,462 774,330
Real estate account 265,387 323,960
Bond and mortgage account 1,182,918 1,546,539
Bond emphasis balanced account 195,425 246,737
Stock emphasis balanced account 185,032 238,231
--------- ----------
$ 8,293,899 13,431,286
========= ==========
</TABLE>
See accompanying independent auditors' report.
F-8
<PAGE>
FIRST FEDERAL LINCOLN BANK SAVINGS PLAN Schedule 2
Item 27d - Schedule of Reportable Transactions
December 31, 1996, as Reported by the Insurer
================================================================================
Series of transactions, when aggregated, involving an amount in excess of 5
percent of current value of plan assets:
<TABLE>
<CAPTION>
Current
value of
asset on Net
Description Series of Purchase Selling Cost of transaction gain
of assets transactions price price asset date or loss
<S> <C> <C> <C> <C> <C> <C>
Purchase of guaranteed
interest account 38 $ 708,799 -- -- 708,799 --
== ========= ========= ========= ======= ======
Sale of guaranteed interest
account 34 $ -- 1,118,921 1,118,921 -- --
== ========= ========= ========= ======= ======
</TABLE>
See accompanying independent auditors' report.
F-9
<PAGE>
PROSPECTUS
FIRST LINCOLN BANCSHARES INC.
(PROPOSED HOLDING COMPANY FOR FIRST FEDERAL LINCOLN BANK)
8,021,250 SHARES OF COMMON STOCK
First Lincoln Bancshares Inc. (the "Company"), a Delaware corporation, is
offering up to 8,021,250 shares of its common stock, par value $.01 per share
(the "Common Stock"), in connection with the conversion of First Federal Lincoln
Bank (the "Bank" or "Lincoln") from a federally-chartered mutual savings bank to
a federally-chartered capital stock savings bank 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 to 9,224,438 shares. See Footnote 4 to the table
below.
(continued on following page)
FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY EACH
PROSPECTIVE INVESTOR, SEE "RISK FACTORS" BEGINNING ON PAGE 12.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, THE OFFICE OF THRIFT SUPERVISION, OR ANY OTHER
FEDERAL AGENCY OR ANY STATE SECURITIES COMMISSION, NOR HAS SUCH
COMMISSION, OFFICE OR OTHER AGENCY OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
THE SHARES OF COMMON STOCK OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS OR DEPOSITS
AND ARE NOT INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION
("FDIC"), THE BANK INSURANCE FUND ("BIF"), THE SAVINGS ASSOCIATION
INSURANCE FUND ("SAIF") OR ANY OTHER GOVERNMENT AGENCY NOR ARE
THEY INSURED OR GUARANTEED BY THE BANK OR THE COMPANY. THE
COMMON STOCK IS SUBJECT TO INVESTMENT RISK, INCLUDING
THE POSSIBLE LOSS OF PRINCIPAL INVESTED.
<TABLE>
<CAPTION>
=================================================================================================================================
ESTIMATED UNDERWRITING
COMMISSIONS AND OTHER FEES AND ESTIMATED
SUBSCRIPTION PRICE(1) EXPENSES(2) NET PROCEEDS(3)
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Minimum Per Share.......................... $20.00 $0.51 $19.49
- ---------------------------------------------------------------------------------------------------------------------------------
Midpoint Per Share......................... $20.00 $0.48 $19.52
- ---------------------------------------------------------------------------------------------------------------------------------
Maximum Per Share.......................... $20.00 $0.45 $19.55
- ---------------------------------------------------------------------------------------------------------------------------------
Total Minimum(1)........................... $118,575,000 $3,050,504 $115,524,496
- ---------------------------------------------------------------------------------------------------------------------------------
Total Midpoint(1).......................... $139,500,000 $3,313,795 $136,186,205
- ---------------------------------------------------------------------------------------------------------------------------------
Total Maximum(1)........................... $160,425,000 $3,577,177 $156,847,823
- ---------------------------------------------------------------------------------------------------------------------------------
Total Maximum, as adjusted(4).............. $184,488,800 $3,879,669 $180,609,131
=================================================================================================================================
</TABLE>
(1) Determined in accordance with an independent appraisal prepared by
Keller & Company, Inc. ("Keller") dated November 12, 1997, which states
that the aggregate estimated pro forma market value of the Common Stock
being offered for sale ranged from $118,575,000 to $160,425,000, with a
midpoint of $139,500,000 (the "Valuation Range") and which takes into
account shares to be issued to the First Federal Lincoln Foundation
(the "Foundation"). Based on the Valuation Range, the Board of
Directors of the Company (the "Board of Directors") established the
estimated price range of $118.6 million to $160.4 million (the
"Estimated Price Range"), or between 5,928,750 and 8,021,250 shares of
Common Stock at the $20.00 price per share (the "Purchase Price") to be
paid for each share of Common Stock subscribed for or purchased in the
Offerings (as described herein). The independent appraisal of Keller 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 such shares nor an assurance that a
purchaser will thereafter be able to sell such shares at prices in the
range of the foregoing valuation. See "The Conversion --Stock Pricing"
and "-- Number of Shares to be Issued."
(2) Consists of the estimated costs to the Bank and the Company arising
from the Conversion, including estimated fixed expenses of $1.6 million
and marketing fees to be paid to Sandler O'Neill & Partners, L.P.
("Sandler O'Neill"), estimated to be $1,450,504 and $1,977,177 at the
minimum and the maximum of the Estimated Price Range, respectively. See
"The Conversion --Marketing and Underwriting Arrangements." See "Pro
Forma Data" for the assumptions used to arrive at these estimates. The
actual fees and expenses may vary from the estimates.
(3) Actual net proceeds may vary substantially from estimated amounts
depending on the number of shares sold in each of the Offerings and
other factors. Includes the purchase of shares of Common Stock by the
First Federal Lincoln Bank Employee Stock Ownership Plan and related
trust (the "ESOP") and funded by a loan to the ESOP, by the Company or
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 conditions 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 "-- Limitation on Common Stock Purchases."
__________________________________
SANDLER O'NEILL & PARTNERS, L.P.
__________________________________
The date of this Prospectus is ___________________, 1997.
<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: (1) DEPOSITORS WHOSE ACCOUNTS IN THE BANK TOTALED $50 OR MORE ON
JUNE 30, 1996 ("ELIGIBLE ACCOUNT HOLDERS"); (2) 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 FIRST FEDERAL
LINCOLN FOUNDATION (THE "FOUNDATION")); (3) DEPOSITORS WHOSE ACCOUNTS IN THE
BANK TOTALLED $50 OR MORE ON DECEMBER 31, 1997 ("SUPPLEMENTAL ELIGIBLE ACCOUNT
HOLDERS"); AND (4) MEMBERS OF THE BANK CONSISTING OF DEPOSITORS OF THE BANK AS
OF __________, 1997, THE VOTING RECORD DATE ("VOTING RECORD DATE") FOR THE
SPECIAL MEETING (AS DEFINED HEREIN), AND BORROWERS WITH LOANS OUTSTANDING AS OF
JUNE 1, 1995, WHICH CONTINUE TO BE OUTSTANDING AS OF THE VOTING RECORD DATE,
OTHER THAN THOSE MEMBERS WHO OTHERWISE QUALIFY AS ELIGIBLE ACCOUNT HOLDERS OR
SUPPLEMENTAL ELIGIBLE ACCOUNT HOLDERS ("OTHER MEMBERS"). SUBSCRIPTION RIGHTS ARE
NON-TRANSFERABLE. PERSONS FOUND TO BE TRANSFERRING SUBSCRIPTION RIGHTS WILL BE
SUBJECT TO THE FORFEITURE OF SUCH RIGHTS AND POSSIBLE FURTHER SANCTIONS AND
PENALTIES IMPOSED BY THE OFFICE OF THRIFT SUPERVISION ("OTS"). 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 with preference given first, to depositors in First Federal Lincoln Bank-
Iowa (the "Iowa Bank") whose accounts in the Iowa Bank totaled $50 or more on
June 30, 1996, and second, to natural persons residing in certain specified
counties in Nebraska, Kansas and Iowa (the Bank's "Local Community") (the
"Community Offering") (such natural persons are 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 and Community Offerings and the Syndicated Community Offering are
referred to collectively as the "Offerings").
Except for 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
Foundation, no Eligible Account Holder or Supplemental Eligible Account Holder
or Other Member may, in their respective capacities as such, purchase in the
Subscription Offering more than $500,000 of Common Stock; no person, together
with associates of and persons acting in concert with such person, may purchase
in the Community Offering and Syndicated Community Offering more than $500,000
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% of the total number of shares of Common Stock
offered in the Conversion; provided, however, that the overall maximum 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 or the Company without
further approval of the Bank's members. See "The Conversion - Subscription
Offering and Subscription Rights," "-- Community Offering" and "-- Limitations
on Common Stock Purchases." The minimum purchase is 25 shares.
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 Foundation, which will be incorporated under
Delaware law as a non-stock corporation, and will be funded with shares of
Common Stock contributed by the Company in an amount equal to 6% of the number
of shares of Common Stock sold in the Conversion. The Foundation will be
dedicated to charitable purposes within the communities in which the Bank
operates. The establishment of the Foundation is subject to the approval of the
Bank's members at the special meeting being held to consider the Plan of
Conversion. For a discussion of the Foundation and the effects on the
Conversion, including if the members do not approve the establishment of the
Foundation, see "Risk Factors -- Establishment of the Charitable Foundation,"
"Pro Forma Data," and "The Conversion -- Establishment of Charitable
Foundation."
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 OTS, 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 OTS, if necessary, all subscribers will have their funds
returned promptly with interest, and all withdrawal authorizations will be
canceled. Such extensions may not go beyond _______, 199__. See "The Conversion
2
<PAGE>
- -- Subscription Offering and Subscription Rights," "-- 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 "FLF" 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. The absence or discontinuance of a
market may have an adverse impact on both the price and liquidity of the Common
Stock. See "Risk Factors -- Absence of Market for Common Stock."
3
<PAGE>
[MAP OF FIRST FEDERAL LINCOLN BANK OFFICES APPEARS HERE]
4
<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.
Risk Factors..................... A purchase of the Common Stock involves a
substantial degree of risk. Eligible Account
Holders, Supplemental Eligible Account
Holders, Other 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, BIF OR
SAIF OR ANY OTHER GOVERNMENT AGENCY AND ARE
NOT GUARANTEED BY THE COMPANY OR THE BANK.
First Lincoln Bancshares Inc..... First Lincoln Bancshares Inc. is a Delaware
corporation organized at the direction of the
Bank 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 13th & "N"
Streets, Lincoln, Nebraska 68508 and its
telephone number is (402) 475-0521.
First Federal Lincoln Bank....... The Bank is a federally-chartered mutual
savings bank. At September 30, 1997, the Bank
had total assets of $1.03 billion, total
deposits of $923.7 million and total retained
earnings of $80.6 million. The Bank is
located at 13th & "N" Streets, Lincoln,
Nebraska 68508, and its telephone number is
(402) 475-0521. At September 30, 1997, the
Bank operated 58 offices in Nebraska,
southwest Iowa and northern Kansas. The Iowa
offices are operated as the Iowa Bank, which
is a wholly-owned subsidiary of the Bank.
Except where the context requires otherwise,
references to the Bank herein include the
Iowa Bank. The Bank has historically operated
as a community-oriented savings institution
providing one- to four-family residential
mortgage loans and a variety of retail
deposit products to consumers throughout the
Bank's market area. Following adoption of a
new long-term strategic plan in 1994, the
Bank has implemented a strategy to operate as
a consumer-oriented community bank
concentrating on the origination and purchase
of adjustable-rate residential loans and
short-term consumer loans, the origination
for sale of longer-term fixed-rate mortgage
loans and increased investment in other
short-term and variable-rate loans and
investments.
The Conversion and
Reasons for Conversion......... The Board of Directors of the Bank has
adopted the Plan of Conversion pursuant to
which the Bank intends to convert to a
federally-chartered capital 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 Conversion. Management
believes the Conversion offers a number of
advantages, including: (i) providing a larger
capital base with 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 OTS,
and approval of members of the Bank eligible
to vote at a special meeting to be held on
__________, 1998 (the "Special Meeting"). The
OTS issued an approval letter on _______,
1998. See "The Conversion--General."
- --------------------------------------------------------------------------------
5
<PAGE>
- --------------------------------------------------------------------------------
The First Federal Lincoln The Plan of Conversion provides for the
Foundation................... 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 6% 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."
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 $20.00 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 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 $20.00 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
OTS, 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); (ii) by check,
bank draft or money order; or (iii) by
authorization of withdrawal from deposit
accounts maintained at the Bank. Orders for
Common Stock submitted by subscribers in the
Subscription Offering which aggregate to
$50,000 or more must be paid by official bank
or certified check or by withdrawal
authorization from a deposit account of 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 Members and the Employee
Plans, including the ESOP, are
nontransferable. See "The Conversion -
Restrictions on Transfer of Subscription
Rights and Shares."
- --------------------------------------------------------------------------------
6
<PAGE>
- --------------------------------------------------------------------------------
Purchase Limitations............. No Eligible Account Holder, Supplemental
Eligible Account Holder or Other Member may
purchase in the Subscription Offering more
than $500,000 of Common Stock. No person,
together with associates or persons acting in
concert with such person, may purchase in the
Community Offering and the Syndicated
Community Offering more than $500,000 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 $500,000 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 $500,000 up to a
maximum of 5% of the shares to be issued in
the Conversion. Similarly, the 1% 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 5,928,750 and
8,021,250 shares of Common Stock at a
Purchase Price of $20.00 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 9,224,438 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 $20.00. The total number of shares to be
issued in the Conversion is based upon an
independent appraisal prepared by Keller,
dated as of November 12, 1997, which states
that the estimated pro forma market value of
the Common Stock ranged from $118,575,000 to
$160,425,000. 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. The remaining net
proceeds will be retained by the Company.
Funds retained by the Company will be used
for general business activities, including a
loan by the Company 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 securities, primarily federal
funds and short-term mortgage-backed and
mortgage-related securities. The Bank intends
to utilize net proceeds for general business
purposes. See "Use of Proceeds."
Dividend Policy.................. 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."
- --------------------------------------------------------------------------------
7
<PAGE>
- --------------------------------------------------------------------------------
Benefits of the Conversion to Among the benefits to the Bank and the
Management..................... 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
one or more stock-based benefit plans to
provide stock options, restricted stock
awards and certain related rights to
directors, officers and employees
(hereinafter individually or collectively
referred to as the "Stock-Based Incentive
Plan"). If the Stock-Based Incentive Plan is
adopted within one year after the Conversion,
it 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
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 Company also intends the
plan to 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.
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-Based
Incentive Plan, see "Risk Factors - Stock
Based Benefits to Management and Directors,
Employment Contracts and Change in Control
Payments" and "Management of the Bank -
Benefits." See "Management of the Bank -
Subscriptions by 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 2.5% or 1.8% of shares of
Common Stock outstanding, based upon the
minimum and the maximum of the Estimated
Price Range, including shares issued to the
Foundation, respectively. Additionally,
assuming the implementation of the ESOP and
the Stock-Based Incentive Plan, directors,
executive officers and employees have the
potential to control the voting of
approximately 20.0% or 19.5% of the Common
Stock at the minimum and the maximum of the
Estimated Price Range, including shares
issued to the Foundation, respectively. See
"Management of the Bank -Subscriptions by
Executive Officers and Directors," and
"Restrictions on Acquisition of the Company
and the Bank - Restrictions in the Company's
Certificate of Incorporation and Bylaws."
Expiration Date for the The Expiration Date for the Subscription
Subscription Offering.......... 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."
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 applied to have its Common
Stock listed on the AMEX under the symbol
"FLF" subject to the completion of the
Conversion and compliance with certain
conditions. See "Market for the Common
Stock."
- --------------------------------------------------------------------------------
8
<PAGE>
- --------------------------------------------------------------------------------
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
(402)_____________.
- --------------------------------------------------------------------------------
9
<PAGE>
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA OF THE BANK
The selected consolidated financial and other data of the Bank set forth
below is 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 SEPTEMBER 30, AT JUNE 30,
-------------------- -------------------------------------------------------
1997(1) 1996(1) 1997 1996 1995 1994 1993
--------- --------- ---------- ---------- ---------- --------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
SELECTED CONSOLIDATED FINANCIAL DATA:
Total assets................................. $1,033,578 $1,024,812 $1,042,335 $1,037,855 $982,818 $984,620 $1,082,836
Loans receivable, net(2)..................... 818,460 748,655 814,881 713,512 646,223 625,182 603,456
Investment securities held-to-
maturity(3)............................... 58,660 119,508 94,248 130,643 168,834 202,280 50,069
Investment securities available-for-sale(3) -- -- -- -- 994 979 200,484
Federal funds sold........................... 33,700 17,200 3,600 52,500 30,600 45,200 154,000
FHLB stock................................... 7,060 6,417 6,933 6,313 5,639 8,416 8,416
Mortgage-backed securities held-to
maturity................................... 80,413 93,237 85,372 97,030 91,297 68,247 298
Mortgage-backed securities
available-for-sale(3)...................... 747 821 750 843 1,955 2,090 11,266
Deposits..................................... 923,669 912,229 920,120 929,314 864,064 896,761 935,880
FHLB advances................................ 10,565 14,582 21,569 13,598 23,632 3,665 38,000
Retained earnings............................ 80,562 72,856 78,912 74,560 69,172 65,147 85,395
Allowance for possible loan losses........... 7,022 5,971 6,330 5,918 5,642 5,966 7,581
Non-performing loans......................... 1,112 729 1,814 2,796 3,852 865 3,805
Non-performing assets........................ 2,283 2,045 3,276 4,187 7,058 9,090 9,263
</TABLE>
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED
SEPTEMBER 30, FOR THE YEAR ENDED JUNE 30,
-------------------- -------------------------------------------------------
1997(1) 1996(1) 1997 1996 1995 1994 1993
--------- --------- ---------- ---------- ---------- --------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
SELECTED OPERATING DATA:
Interest income................... $20,113 $19,528 $78,346 $74,949 $69,364 $67,883 $82,678
Interest expense.................. 11,986 11,841 47,198 48,206 44,605 43,652 51,374
------- ------- ------- ------- ------- ------- -------
Net interest income............. 8,127 7,687 31,148 26,743 24,759 24,231 31,304
Provision for loan losses......... 713 96 450 598 243 (480) 815
------- ------- ------- ------- ------- -------- -------
Net interest income after provision
for loan losses............... 7,414 7,591 30,698 26,145 24,516 24,711 30,489
Total noninterest income.......... 891 921 3,586 3,901 3,039 169 4,085
Total noninterest expense(12)..... 5,707 11,123 27,249 22,136 20,852 47,262 25,196
------- ------- ------- ------- ------- -------- -------
Income (loss) before provision for
income taxes and cumulative effect of
change in accounting principle and
extraordinary item.............. 2,598 (2,611) 7,035 7,910 6,703 (22,382) 9,378
Income tax expense (benefit)...... 955 (905) 2,695 2,535 2,644 180 1,571
------- ------- ------- ------- ------- -------- -------
Income (loss) before cumulative effect
of change in accounting principle and
extraordinary item............ 1,643 (1,706) 4,340 5,375 4,059 (22,562) 7,807
Cumulative effect of change in
accounting for income taxes..... -- -- -- -- -- 2,314 --
Extraordinary item, utilization of
operating loss carryforward..... -- -- -- -- -- -- 1,200
------- ------- ------- ------- ------- -------- -------
Net income (loss)............... $ 1,643 $(1,706) $ 4,340 $ 5,375 $ 4,059 $(20,248) $ 9,007
======= ======= ======= ======= ======= ======== =======
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
AT OR FOR THE THREE
MONTHS ENDED
SEPT. 30, AT OR FOR THE FISCAL YEAR ENDED AT JUNE 30,
----------------------- --------------------------------------------------------
1997(1) 1996(1) 1997 1996 1995 1994 1993
------------ --------- ---------- ---------- ---------- ---------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
SELECTED FINANCIAL RATIOS AND OTHER DATA(4):
PERFORMANCE RATIOS:
Return on average assets........................ 0.63% (0.66)% 0.42% 0.53% 0.42% (1.96)% 0.81%
Return on average retained earnings............. 8.23 (9.15) 5.74 7.52 6.05 (23.70) 11.03
Average retained earnings to average
assets........................................ 7.67 7.23 7.26 7.05 6.88 8.26 7.36
Retained earnings to total assets
at end of period.............................. 7.79 7.11 7.57 7.18 7.04 6.62 7.89
Net interest rate spread(5)..................... 2.86 2.74 2.74 2.36 2.33 2.25 2.78
Net interest margin(6).......................... 3.24 3.09 3.10 2.73 2.63 2.48 3.00
Average interest-earning assets to
average interest-bearing liabilities.......... 107.96 107.45 107.77 107.56 106.46 105.23 104.57
Total noninterest expense to average assets..... 2.19 4.31 2.62 2.18 2.14 4.57 2.27
Efficiency ratio(7)............................. 63.28 129.22 78.45 72.24 75.01 193.70 71.20
Net interest income to operating expenses....... 142.40 69.11 114.31 120.81 118.74 51.27 124.24
REGULATORY CAPITAL RATIOS(8):
Leveraged capital............................... 7.77 7.09 7.55 7.16 7.04 6.58 6.52
Total risk-based capital........................ 14.32 14.52 14.17 15.20 15.52 14.77 14.81
ASSET QUALITY RATIOS:
Total non-performing loans(9)................... $ 1,112 $ 729 $1,814 $2,796 $3,852 $ 865 $3,805
Real estate owned, net.......................... 1,171 1,316 1,462 1,391 3,206 8,225 5,458
Total non-performing assets(10)................. 2,283 2,045 3,276 4,187 7,058 9,090 9,263
Non-performing loans as a percent of
loans(9)(11).................................. 013% 0.10% 0.22% 0.39% 0.59% 0.14% 0.62%
Non-performing assets as a percent of
total assets(10).............................. 0.21 0.20 0.31 0.40 0.72 0.92 0.86
Allowance for possible loan losses as
a percent of loans(2)(11)..................... 0.85 0.79 0.77 0.82 0.87 0.95 1.24
Allowance for possible loan losses as
a percent of total
non-performing loans.......................... 631.47 819.07 348.95 211.66 146.47 689.71 199.24
OTHER DATA:
Number of full service customer facilities........ 58 57 58 56 55 55 58
</TABLE>
_____________________
(1) The data presented for the three months ended Sept. 30, 1997 and 1996 were
derived from unaudited consolidated financial statements and reflect, in
the opinion of management, all adjustments (consisting only of normal
recurring adjustments) which are necessary to present fairly the results
for such interim periods. Interim results at and for the three months
ended Sept. 30, 1997, are not necessarily indicative of the results that
may be expected for the fiscal year ending June 30, 1998.
(2) The allowance for loan losses at Sept. 30, 1997 and 1996, and June 30,
1997, 1996, 1995, 1994 and 1993, was $7.02 million, $5.97 million, $6.33
million, $5.92 million, $5.64 million, $5.97 million and $7.58 million,
respectively.
(3) The Bank adopted Statement of Financial Accounting Standards ("SFAS") No.
115, "Accounting for Certain Investments in Debt and Equity Securities,"
as of July 1, 1994. Prior to that date, investments in mortgage-backed
securities available-for-sale were recorded at the lower of amortized cost
or fair value.
(4) 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.
(5) 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.
(6) The net interest margin represents net interest income as a percent of
average interest-earning assets.
(7) The efficiency ratio represents the ratio of non-interest expense divided
by the sum of net interest income and non-interest income. This ratio was
affected by the write-off of goodwill during the year ended June 30, 1994,
and the payment of the special SAIF assessment during the three months
ended September 30, 1996.
(8) For definitions and further information relating to the Bank's regulatory
capital requirements, see "Regulation and Supervision - Capital
Requirements." See "Regulatory Capital Compliance" for the Bank's pro
forma capital levels as a result of the Offerings.
(9) Non-performing loans consist of all loans 90 days or more past due. It is
the Bank's policy to cease accruing interest on all loans 90 days or more
past due. See "Business of the Bank - Delinquent Loans, Real Estate Owned
and Classified Assets."
(10) Non-performing assets consist of non-performing loans and real estate
owned, net ("REO").
(11) Loans include loans held for investment, net, excluding the allowance for
possible loan losses.
(12) In the year ended June 30, 1994, management determined that the intangible
asset, goodwill, had no continuing value to the Bank and, therefore, wrote
off the remaining amount of approximately $22.3 million.
11
<PAGE>
RISK FACTORS
The following risk factors, 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 investments, and its interest expense on interest-bearing liabilities, such
as deposits and borrowings. Accordingly, the Bank's results of operations and
financial condition are largely dependent on movements in market interest rates
and its ability to manage it assets in response to such movements.
At September 30, 1997, the Bank's total interest-bearing liabilities
maturing or repricing within one year exceeded its total interest-earning assets
maturing or repricing in the same time period by $7.0 million, representing a
cumulative one-year interest sensitivity gap as a percentage of total assets of
negative 0.68%. Accordingly, in a rapidly rising interest rate environment, the
cost of the Bank's interest-bearing liabilities will generally increase at a
rate faster than the yield on its interest-earning assets thereby adversely
affecting the Bank's net interest income. Increases in interest rates also could
adversely 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, in
turn, could adversely impact the yields earned on the Bank's loan and securities
portfolios as well as the amount of secondary market activity in which the Bank
engages. The Bank attempts to manage its interest rate risk by selling most
longer-term, fixed-rate one- to four-family loans, emphasizing the origination
of and retaining adjustable-rate and shorter-term fixed-rate loans, purchasing
adjustable-rate loans and investing in securities with shorter stated or
estimated maturities. One method of analyzing an institution's exposure to
interest rate risk is by measuring the change in the institution's Net Portfolio
Value ("NPV") under various interest rate scenarios. NPV is the present value of
expected cash flows from assets, liabilities and off-balance sheet contracts. An
NPV Ratio, in any interest rate scenario, is defined as the NPV in that scenario
divided by the market value of assets in the same scenario. The sensitivity
measure is the decline in the NPV Ratio, in basis points, caused by a 2%
increase or decrease in rates, whichever produces the larger decline. The higher
an institution's sensitivity measure is, the greater its exposure to interest
rate risk is considered to be. As of June 30, 1997, the most recent date for
which information is available, the Bank's sensitivity measure, as measured by
the OTS, indicated that a 2% increase in interest rates would cause a 220 basis
point decline in the Bank's NPV Ratio. This NPV Ratio sensitivity measure
exceeds the thresholds at which the Bank could be required to hold additional
risk-based capital under OTS regulation, if so determined by the OTS. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Management of Interest Rate Risk."
Increases in market interest rates would result in an increase in the
interest rates on the Bank's adjustable-rate loans, thereby causing higher loan
payment amounts by the borrowers which, in turn, may result in elevated
delinquencies on such loans. Increases in the level of interest rates may also
adversely affect the value of the Bank's investment and mortgage-backed
securities and other interest-earning assets and, in turn, its results of
operations or retained earnings. At September 30, 1997, the Bank's investment
securities, including mortgage-backed securities, held-to-maturity had an
estimated fair value of $139.4 million, which was $343,000 greater than their
amortized cost. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Management of Interest Rate Risk," "Business of
Bank-Lending Activities -- One- to Four-Family Lending" and " -- Investment
Activities."
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POTENTIAL LOW RETURN ON EQUITY FOLLOWING THE CONVERSION
At September 30, 1997, the Bank's ratio of retained earnings to total
assets was 7.79%. The Company's equity position will be significantly increased
as a result of the Conversion. On a pro forma basis as of September 30, 1997,
assuming the sale of Common Stock at the midpoint of the Estimated Price Range,
the Company's ratio of equity to assets would be approximately 17.49%. The
Company's ability to deploy this new capital through investments in interest-
earning assets, such as loans and securities, which bear rates of return
comparable to its current investments, will be significantly affected by
industry competition for such investments. The Company currently anticipates
that it will take time to prudently deploy such capital. 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.
Additionally, due to the implementation of stock-based benefit plans such as the
ESOP and the Stock-Based Incentive Plan, the Company's future compensation
expense will be increased, thereby, adversely affecting its net income and
return on equity.
INCREASED LENDING RISKS ASSOCIATED WITH MULTI-FAMILY, COMMERCIAL REAL ESTATE AND
COMMERCIAL LOANS
At September 30, 1997, the Bank's multi-family, commercial real estate
and commercial loan portfolios totaled $182.0 million, or 21.5% of total loans
receivable. Of this amount, $39.2 million, or 21.5%, consisted of multi-family
loans, $140.8 million, or 77.4%, consisted of commercial real estate loans, and
$2.0 million, or 1.1%, consisted of commercial loans. Multi-family, commercial
real estate and commercial loans are generally viewed as exposing the lender to
greater credit risk than one- to four-family residential loans and typically
involve higher loan principal amounts. Repayment of multi-family and commercial
real estate loans generally is dependent, in large part, on sufficient income
from the property to cover operating expenses and debt service. The Bank
attempts to offset the risks associated with multi-family and commercial real
estate lending primarily by originating such loans on a selective basis, by
lending to individuals who will be actively involved in the management of the
property and who have proven management experience, and by making such loans
with lower loan-to-value ratios than one- to four-family loans. Additionally,
the Bank generally requires personal guarantees from the borrowers of its multi-
family and commercial real estate loans. Economic events and government
regulations, which are outside the control of the borrower or lender, could
impact the value of the property securing the loan or the future cash flow of
the affected properties. See "Business of the Bank - Lending Activities."
INCREASED LENDING RISKS ASSOCIATED WITH CONSTRUCTION AND DEVELOPMENT LOANS
At September 30, 1997, the Bank had total outstanding construction and
development loans of $50.5 million, or 6.0% of total loans receivable.
Construction and development financing is generally considered to involve a
higher degree of credit risk than long-term financing on improved, owner-
occupied real estate because 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 or development 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. See "Business of the Bank --
Lending Activities."
ESTABLISHMENT OF THE CHARITABLE FOUNDATION
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 establish the Foundation, which will be incorporated under
Delaware law as a non-stock corporation and will be funded with shares of Common
Stock contributed by the Company. Establishment of the Foundation is subject to
the approval of the Bank's
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members at the Special Meeting. If approved by members, the establishment of the
Foundation will be dilutive to the voting and ownership interests of
stockholders and will have an adverse impact on the operating results of the
Company in fiscal 1998, possibly resulting in an operating loss in fiscal 1998,
the fiscal year in which the Foundation is established.
Dilution of Stockholders' Interests. The Company proposes to establish
the Foundation with Common Stock in an amount equal to 6% of the Common Stock
sold in the Conversion. At the minimum, midpoint and maximum of the Estimated
Price Range, the contribution to the Foundation would be 355,725, 418,500, and
481,275 shares, with a value of $7.1 million, $8.4 million and $9.6 million,
respectively, based on the Purchase Price of $20.00 per share. Upon completion
of the Conversion and establishment of the Foundation, the Company will have
8,502,525 shares issued and outstanding at the maximum of the Estimated Price
Range, of which the Foundation will own 481,275 shares, or 5.7%. AS A RESULT,
PERSONS PURCHASING SHARES IN THE CONVERSION WILL HAVE THEIR OWNERSHIP AND VOTING
INTERESTS IN THE COMPANY DILUTED BY 5.7%. SEE "PRO FORMA DATA."
Negative Impact on Earnings. Assuming receipt of approval of the Bank's
members, establishment of the Foundation will have an adverse impact on the
Company's and the Bank's earnings in the year in which the contribution is made.
The Company will recognize an expense in the amount of the contribution to the
Foundation in the quarter in which it occurs, which is expected to be the third
quarter of fiscal 1998. Such expense will reduce earnings and have a material
adverse impact on the Company's earnings for the year. The amount of the
contribution will range from $7.1 million to $9.6 million, depending on the
amount of Common Stock sold in the Conversion. The contribution expense will be
partially offset by the tax deductibility of the expense in an amount equal to
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 the
stock. The Company and Bank have been advised by their independent accountants
that the contribution to the Foundation will be tax deductible, subject to a
limitation based on 10% of the Company annual taxable income. Assuming a
contribution of $9.6 million in Common Stock, based on the maximum of the
Estimated Price Range, the Company estimates a net tax effected expense of $6.2
million. If the Foundation had been established at June 30, 1997, the Bank would
have reported a net loss of $1.8 million for fiscal 1997 rather than reporting
net income of $4.3 million. In addition to the contribution to the Foundation,
the Bank expects in the future to continue to make some charitable contributions
within its community.
Possible Nondeductibility of the Contribution. The Company and the Bank
have been advised by their independent accountants that the Foundation will
qualify as a Section 501(c)(3) exempt organization under the Code, and will be
classified as a private foundation. In this regard, the Foundation will submit a
request to the Internal Revenue Service ("IRS") to be recognized as a tax-exempt
organization. The independent accountants' opinion, however, does not consider
the impact of the regulatory condition on the gift imposed by the OTS which
requires the shares of Common Stock held by the Foundation to be voted in the
same ratio as all other shares of the Common Stock on all proposals considered
by stockholders of the Company. See "The Conversion -- Establishment of the
Charitable Foundation -- Regulatory Conditions Imposed on the Foundation." In
the event that the Company or the Foundation receives an opinion of their tax
counsel satisfactory to OTS that compliance with the voting restriction would
have the effect of causing the Foundation to lose its tax exempt status,
otherwise have material adverse tax consequences on the Foundation or subject
the Foundation to an excise tax under Section 4941 of the Code, the OTS will
waive such voting restriction upon submission of such opinion(s) by the Company
or the Foundation. The independent accountants' opinion further provides that
the Company's contribution of its own stock to the Foundation should 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 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. The Company, however, would be able to
carry forward
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any unused portion of the deduction for five years following the contribution
for federal tax purposes. Thus, while the Company expects to receive a
charitable contribution deduction of approximately $1.7 million in calendar year
1998, based on the maximum of the Estimated Price Range, the Company is
permitted under the Code to carry over the excess contribution over a five-year
period following the year in which the contribution is initially made for
federal tax purposes, subject to the 10% annual limitation. For state income tax
purposes, the Company does not anticipate receiving a full tax benefit for the
charitable contribution in Nebraska, and will receive no tax benefit in Iowa and
Kansas. Assuming the sale of Common Stock at the midpoint of the Estimated Price
Range, the Company estimates that all of the deduction should be deductible for
federal tax purposes over the combined six-year period. However, no assurances
can be made that the Company will have sufficient pre-tax income over the five-
year period following the year in which the contribution is initially made to
utilize fully the carryover related to the excess contribution. Although the
Company and the Bank have received an opinion of their independent accountants
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, there would be no tax benefit related to the
Foundation.
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 Keller in determining the estimated pro forma market
value 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 conducted by Keller of the estimated pro forma market
value of the Company. The pro forma aggregate price of the shares being offered
for sale in the Conversion is currently estimated to be between $118.6 million
and $160.4 million, with a midpoint of $139.5 million. Based on the appraisal,
the pro forma market capitalization of the Bank at the midpoint, including
shares contributed to the Foundation, is $147.9 million. At September 30, 1997,
the pro forma price to book ratio and the pro forma price to earnings ratio are
73.20% and 14.80x, respectively, at the midpoint of the Estimated Price Range.
In the event that the Conversion did not include the Foundation, Keller has
estimated that the estimated pro forma market capitalization of the Bank would
be approximately $158.4 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 73.20% and 15.05x, respectively. If the
Foundation was not part of the Conversion, the pro forma market value of the
shares being offered is estimated to be between $134.6 million and $182.2
million. See "Comparison of Valuation and Pro Forma Information with No
Foundation." This estimate by Keller was prepared at the request of the OTS and
is solely for purposes of providing depositors with sufficient information with
which to make an informed decision on the Foundation. There is no assurance that
if the Foundation is not approved the appraisal prepared at that time would
conclude that the pro forma market value of the Company would be the same as the
amount 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.
The Bank believes that the establishment of the Foundation is in the
best interests of the Bank, its depositors, its prospective stockholders and the
communities in which it operates. The Foundation is integrally tied to the
Bank's business of operating a community banking institution and the Bank
believes that the Foundation will have a positive impact on the Bank's long-term
franchise value. The amount of Common Stock being offered in the Conversion at
the midpoint of the Estimated Price Range is approximately $18.9 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 Keller.
Accordingly, certain depositors of the Bank who subscribe to purchase Common
Stock in the Subscription Offering may receive fewer shares depending on the
appraisal valuation at that time, the number of shares sold based on that
appraisal, the size of a depositor's stock order, the amount of his or her
qualifying deposits in the Bank and the overall level of subscriptions. The
decrease in the amount of Common Stock being offered will not have a significant
effect on the
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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 tangible, leverage
and risk-based capital ratios at September 30, 1997, were 7.77%, 7.77% and
14.32%, respectively. Assuming the sale of shares at the midpoint of the
Estimated Price Range, the Bank's pro forma tangible, leverage and risk-based
capital ratios at September 30, 1997 would be 12.06%, 12.06% and 21.73%,
respectively. On a consolidated basis, the Company's pro forma stockholders'
equity would be $202.0 million or approximately 17.49% 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 $27.32 and $0.34, respectively. If the Foundation was not being
established in the Conversion, based on the Keller estimate, the Company's pro
forma stockholders' equity would be approximately $216.4 million or
approximately 18.50% 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 approximately the same 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. If approved by the Bank's members, upon
completion of the Conversion, the Foundation will own 5.7% of the total shares
of the Company's Common Stock outstanding. Such shares will be owned solely by
the Foundation; however, pursuant to the terms of the contribution as mandated
by the OTS, the shares of Common Stock held by the Foundation must be voted in
the same ratio as all other shares of the Common Stock on all proposals
considered by the stockholders of the Company. See "The Conversion--
Establishment of the Charitable Foundation" -- "Regulatory Conditions Imposed on
the Foundation." The Company and the Foundation will take the necessary steps to
provide such requirement in the Foundation's corporate governance documents. As
such, the Company does not believe the Foundation will have an anti-takeover
effect on the Company. In the event that the OTS were to waive this voting
restriction, the Foundation's Board of Directors would exercise sole voting
power over such shares and would no longer be subject to the restriction.
However, the OTS could impose additional conditions at that time on the
composition of the Board of Directors of the Foundation or which otherwise
relate to control of the Common Stock held by the Foundation. See "The
Conversion -- Establishment of the Charitable Foundation -- Regulatory
Conditions Imposed on the Foundation." If a waiver of the voting restriction
were granted by the OTS and no further conditions were imposed on the Foundation
at that time, 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 the event of such a waiver, when the
Foundation's shares are combined with shares purchased directly by officers and
directors of the Company, shares held by proposed stock benefit plans, if
approved by stockholders, and shares held in the Bank's ESOP, 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, this potential voting control might preclude takeover attempts
that certain stockholders deem to be in their best interest, and might tend to
perpetuate management. 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 awards under the proposed stock benefit 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
held or allocated by the ESOP or other stock benefit plans. See " -- Certain
Anti-Takeover Provisions Which May Discourage Takeover Attempts -- Voting
Control of Officers and Directors."
Further, there will be no agreements or understandings, written or
tacit, with respect to the exercise of either direct or indirect control over
the management or policies of the Company by the Foundation which may discourage
takeover attempts, including agreements related to voting, acquisition or
disposition of the Common Stock. Finally, as the Foundation sells its shares of
Common Stock over time, its ownership interest and voting power in the Company
are expected to decrease.
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Potential Challenges. The establishment and funding of a charitable
foundation as part of a conversion is innovative and has been done in a limited
number of instances in connection with a conversion. As such, the Foundation may
be subject to potential challenges notwithstanding that the Boards of Directors
of the Company and the Bank have carefully considered the various factors
involved in the establishment of the Foundation in reaching its determination to
establish the Foundation as part of the Conversion. See "The Conversion --
Establishment of the Charitable Foundation -- Purpose of Foundation." In
conjunction with its approval of the Conversion, the Bank determined to submit
the Foundation for a vote of members so that members have a right to vote on
whether the Foundation should be established as part of the Conversion. If
certain parties were to institute an action 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 action would not result in a
delay in the consummation of the Conversion or that any objecting persons would
not be ultimately successful in obtaining such removal or other equitable relief
or monetary damages against the 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.
Approval of Members. Establishment of the Foundation is subject to the
approval of a majority of the total outstanding votes of the Bank's members
eligible to be cast at the Special Meeting. The Foundation will be considered as
a separate matter from approval of the Plan of Conversion. If the Bank's members
approve the Plan of Conversion, but not the establishment of the Foundation, the
Bank intends to complete the Conversion without the establishment of the
Foundation. Failure to approve the Foundation may materially increase the pro
forma market value of the Common Stock being offered for sale in the Offerings
since the Valuation Range, as set forth herein, takes into account the dilutive
impact of the issuance of shares to the Foundation. If the pro forma market
value of the Common Stock without the Foundation is either greater than $182.2
million or less than $134.6 million, the Bank will establish a new Estimated
Price Range and commence a resolicitation of subscribers (i.e., subscribers will
be permitted to continue their orders, in which case they will need to reconfirm
affirmatively their subscriptions prior to the expiration of the resolicitation
offering or their subscriptions funds will be promptly refunded with interest at
the Bank's passbook rate of interest, or be permitted to increase, decrease, or
cancel their subscriptions). Any change in the Estimated Price Range must be
approved by the OTS. See "The Conversion -- Stock Pricing." A resolicitation, if
any, following the conclusion of the Subscription and Community Offerings would
not exceed 45 days unless further extended by the OTS for periods of up to 90
days not to extend beyond _______________, 1999.
HIGHLY COMPETITIVE INDUSTRY AND GEOGRAPHIC AREA
The Bank faces significant competition in its market area both in
attracting deposits and in originating loans. The Bank's primary market area,
Nebraska, southwest Iowa and northern Kansas, is a highly competitive market.
The population of the market area is relatively small and population growth is
moderate. The Bank faces direct competition from a significant number of
financial service providers 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 brokers, 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 a result of its
highly competitive market, the Bank generally has paid and continues to pay a
relatively high rate of interest on its deposit accounts. Payment of a high rate
of interest on deposit accounts may adversely affect net interest income, which
is the difference between interest income on interest-earning assets and
interest expense on interest-bearing liabilities. Competition for loans,
particularly for more interest sensitive loans, within the Bank's market area,
has caused the Bank to rely more heavily on purchased loans both inside and
outside of its market area. See "Business of the Bank--Market Area and
Competition" and "--Lending Activities."
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PURCHASED LOANS OUTSIDE THE BANK'S MARKET AREA AND CONCENTRATION IN CERTAIN
GEOGRAPHIC AREAS
The Bank's purchase of loans outside its market area may involve
greater risk because the Bank may not have the same depth of experience or
knowledge of the areas in which the property securing the loans is located. Some
of the properties may be located in states which are experiencing adverse
economic conditions, including a general softening in real estate markets and
the local economies, which may result in increased loan delinquencies and loan
losses. Additionally, regulations and practices regarding the liquidation of
properties (e.g., foreclosure) and the rights of mortgagors in default vary
greatly from state to state, and these restrictions may limit the Bank's ability
to foreclose on a property or seek other recovery. Because purchased loans have
been somewhat concentrated in the states of California, Arizona and Colorado,
the Bank may be subject to loan delinquencies and loan losses resulting from
adverse conditions affecting that region of the country. See "Business of the
Bank -- Market Areas and Competition" and " -- Lending Activities."
FINANCIAL INSTITUTION REGULATION AND POSSIBLE LEGISLATION
The Bank is subject to extensive regulation and supervision as a
federal savings association. In addition, the Company, as a savings and loan
holding company, is 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 OTS, the FDIC or the Congress, could have a
material impact on the Company, the Bank, its operations or the Bank's
Conversion. See "Regulation."
Recently enacted legislation provides that the BIF (the deposit
insurance fund that covers most commercial bank deposits) 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. A bill recently reported by
the House Banking Committee would require federal thrifts to become national
banks or state banks or savings banks within two years after enactment or they
would, by operation of law, become national banks. Under the proposed
legislation, a national bank resulting from a converted federal thrift could
continue to engage in activities, including holding any assets, in which it was
lawfully engaged on the day before the date of enactment. Branches operated on
the day before enactment could be retained regardless of their permissibility
for national banks. Subject to a grandfathering provision, all savings and loan
holding companies would become subject to the same regulation and activities
restrictions as bank holding companies. The grandfathering could be lost under
certain circumstances, such as a change in control of the holding company. The
legislative proposal 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.
Legislation regarding bad debt recapture was signed into law in August
1996 effective for tax years beginning on or after January 1, 1996. The
legislation requires recapture of reserves accumulated after 1987. The recapture
tax on post-1987 reserves must be paid over a six-year period starting in 1996.
The payment of the tax can be deferred in each of 1996 and 1997 if an
institution originates at least the same average annual principal amount of
mortgage loans that it originated in the six years prior to 1996. See "Federal
and State Taxation -- Federal Taxation -- Bad Debt Reserve."
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STOCK-BASED BENEFITS TO MANAGEMENT AND DIRECTORS, EMPLOYMENT CONTRACTS AND
CHANGE IN CONTROL PAYMENTS
Stock-Based Incentive Plan. The Company intends to adopt the Stock-
Based Incentive Plan which would provide for the granting of options, restricted
stock and certain related rights to eligible officers, employees and directors
of the Company and Bank. The Stock-Based Incentive Plan may consist of one or
more separate plans. While the Company currently anticipates granting stock
options and restricted stock awards under a single plan, it may establish
separate plans for directors and employees (including officers). The Company
plans to seek stockholder approval of such plan(s) at a meeting of stockholders
following the Conversion which, under current OTS regulations, may be held no
earlier than six months after completion of the Conversion. Assuming the receipt
of stockholder approval, the Company expects to acquire or issue an amount equal
to 10% of the shares of Common Stock issued in the Conversion, including shares
issued to the Foundation, or 628,447 shares and 850,252 shares at the minimum
and maximum of the Estimated Price Range, respectively, for stock options. In
addition, the Company expects to acquire or issue an amount equal to 4% of the
shares of Common Stock issued in the Conversion, including shares issued to the
Foundation, or 251,379 shares and 340,101 shares at the minimum and maximum of
the Estimated Price Range, respectively, for stock awards. These shares will be
acquired either through open market purchases or from authorized but unissued
Common Stock. See "-- Possible Dilutive Effect of Stock-Based Incentive
Compensation Plan."
Under the Stock-Based Incentive Plan (or any separate plans for
directors and employees), stock awards would be granted in the form of non-
transferable, non-assignable shares of Common Stock. The Board of Directors
intends to appoint an independent trustee who will vote unallocated stock awards
in the same proportion as it receives instructions from recipients with respect
to allocated shares which have not been earned and distributed. The trustee will
not vote allocated shares which have not been distributed if it does not receive
instructions from the recipient.
The Stock-Based Incentive Plan (or any separate plan for employees)
also intends to provide for the grant of options to purchase Common Stock. The
exercise price of options will be equal to the fair market value of the
underlying Common Stock on the date of grant. Such options will permit such
officers and directors to benefit from any increase in the market value of the
shares in excess of the exercise price at the time of exercise. Officers and
directors receiving such options will not be required to pay for the shares
until the date of exercise. The award of restricted stock and exercise of non-
statutory stock options (and disqualifying dispositions of stock acquired
through the exercise of Incentive Stock Options) will result in additional
compensation expense to the Company and, accordingly, may result in an increase
in the overall compensation expense in future periods. See "Management of the
Bank -- Benefits -- Stock-Based Incentive Plan."
Although no specific award or option determinations have been made, the
Company anticipates that it will provide awards and/or options to the directors,
officers and employees to the extent permitted by applicable regulations.
Current OTS regulations provide that, with respect to any such benefit plan
which is implemented within one year after consummation of the Conversion, no
individual may receive more than 25% of the shares of any such plan and non-
employee directors may not receive more than 5% individually, or 30% in the
aggregate, of the shares awarded under any such plan.
The Board of Directors, in determining specific allocations and grants
of stock awards and stock options, will consider 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.
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Employee Stock Ownership Plan. In connection with the Conversion,
certain officers and employees of the Bank and the Company will obtain the
benefit of stock ownership through the establishment of the Employee Stock
Ownership Plan ("ESOP"), which is a tax-qualified plan for the benefit of all
eligible employees, including executive officers, of the Bank. The ESOP intends
to purchase in the Subscription Offering up to 8% of the Common Stock issued in
the Conversion, including the issuance of shares to the Foundation, or 502,758
shares and 680,202 shares at the minimum and maximum of the Estimated Price
Range. The ESOP will be funded over time by the Bank, and the Bank will allocate
shares of Common Stock to employees of the Bank who are Participants in the ESOP
at no cost to the ESOP beneficiaries. See "Management of the Bank -- Benefits --
Employee Stock Ownership Plan."
Employment Contracts and Change in Control Provisions. Employment and
change in control agreements with certain officers and the employee severance
compensation plan provide for benefits and cash payments in the event of a
change in control of the Company or the Bank. The provisions in such agreements
and plan would provide the recipient with a change in control payment in the
event of the recipient's involuntary or, in certain circumstances, voluntary
termination of employment subsequent to a change in control of the Company or
the Bank. These provisions may have the effect of increasing the cost of
acquiring the Company, thereby discouraging future attempts to take over the
Company or the 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 an employee severance compensation plan
(assuming all eligible employees qualified for the full benefit) would be
approximately $10.6 million. However, the actual amount to be paid in the event
of a change in control of the Company or Bank 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," "-- Benefits -- Stock-Based Incentive Plan."
POSSIBLE DILUTIVE EFFECT OF STOCK-BASED INCENTIVE PLAN
Following the Conversion, the Stock-Based Incentive Plan will acquire
an amount of shares equal to 4% of the shares of Common Stock issued in the
Conversion, including shares issued to the Foundation, either through open
market purchases or the issuance of authorized but unissued shares of Common
Stock from the Company. If the Stock-Based Incentive Plan is funded by the
issuance of authorized but unissued shares, the voting interests of existing
stockholders at that time will be diluted by 3.8%. Also following the
Conversion, directors, officers and employees will be granted options under the
Stock-Based Incentive Plan. Although no specific determinations have been made,
the Company expects that executive officers and directors will be granted
options to purchase authorized but unissued shares in an amount equal to 10% of
the Common Stock issued in the Conversion. Under certain circumstances, such
options may be exercised and sold on the same day, thereby eliminating any risk
to officers and directors in exercising options in the event that the market
price exceeds the exercise price. If all of the options were to be exercised
using authorized but unissued Common Stock and the Stock-Based Incentive Plan
were funded with authorized but unissued shares, the voting interests of
existing stockholders at that time would be diluted by 9.1%.
CERTAIN ANTI-TAKEOVER PROVISIONS WHICH MAY DISCOURAGE TAKEOVER ATTEMPTS
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 Stock Charter
and Bylaws, as well as certain federal regulations, assist the Company in
maintaining its status as an independent publicly owned corporation. These
provisions provide for, among other things, supermajority voting on certain
matters, staggered boards of directors, non-cumulative voting for directors,
20
<PAGE>
limits on the calling of special meetings, limits on voting shares in excess of
10% of outstanding shares, and certain uniform price provisions for certain
business combinations. The Bank's Stock Charter also prohibits, for five years,
the acquisition or offer to acquire, directly or indirectly, the beneficial
ownership of more than 10% of the Bank's equity securities. Any person violating
this restriction may not vote the Bank'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 existing management. For a more detailed
discussion of these provisions, see "Restrictions on Acquisitions of the Company
and the Bank."
Voting Control of Officers and Directors. Directors and executive
officers of the Bank and the Company expect to purchase approximately 2.5% or
1.8% 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,
exclusive of shares that may be attributable to directors and officers through
the Stock-Based Incentive Plan and the ESOP, which plans may give directors,
executive officers and employees the potential to control the voting of an
additional 20.0% of the Company's Common Stock based upon the minimum of the
Estimated Price Range, assuming all such plans were funded with authorized but
unissued shares. In addition, the Foundation will be funded with a contribution
by the Company equal to 6% of the Common Stock sold in the Conversion, which if
a waiver of the voting restriction imposed on such Common Stock is obtained from
the OTS, may be voted as determined by the directors of the Foundation who also
will be directors or officers of the Company and Bank. 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."
ABSENCE OF MARKET FOR COMMON STOCK
The Company and the Bank have never issued capital stock. The Company
has received conditional approval to have its Common Stock quoted on the AMEX
under the symbol "FLF" upon completion of the Conversion. However, there can be
no assurance that an active and liquid trading market for the Common Stock will
develop or, once developed, will continue, nor can there be any assurances 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 the Common Stock."
POSSIBLE INCREASE IN ESTIMATED PRICE RANGE AND NUMBER OF SHARES ISSUED
The number of shares to be issued in the Conversion, including shares
issued to the Foundation 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 issue up to 9,224,438 shares of Common Stock at
the Purchase Price for an aggregate purchase price of up to $184.5 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.
21
<PAGE>
POSSIBLE ADVERSE INCOME TAX CONSEQUENCES OF THE DISTRIBUTION OF SUBSCRIPTION
RIGHTS
The Bank has received an opinion of Keller that pursuant to Keller's
valuation, subscription rights granted to Eligible Account Holders, Supplemental
Eligible Account Holders and Other Members, have no value. However, such
valuation is not binding on the IRS. If the subscription rights granted to
Eligible Account Holders, Supplemental Eligible Account Holders and Other
Members are deemed to have an ascertainable value, receipt of such rights could
result in taxable gain to those Eligible Account Holders, Supplemental Eligible
Account Holders and Other Members who receive and/or exercise the subscription
rights in an amount equal to such value. Additionally, the Bank could recognize
a gain for tax purposes on such distribution. Whether subscription rights are
considered to have ascertainable value is an inherently factual determination.
See "The Conversion -- Effects of Conversion" and "-- Tax Aspects."
FIRST LINCOLN BANCSHARES INC.
The Company was organized in November 1997 at the direction of the
Board of Directors of the Bank for the purpose of acquiring all of the capital
stock to be issued by the Bank in the Conversion. The Company has received
approval from the OTS to become a savings and loan holding company and, as such,
will be subject to regulation by the OTS. See "The Conversion -- General." Upon
consummation of the Conversion, the Company will conduct business initially as a
multiple savings and loan holding company controlling both the Bank and the Iowa
Bank. As a multiple savings and loan holding company, the Company will be
subject to certain restrictions on activities in which it may engage in addition
to controlling the Bank and the Iowa Bank. See "Regulation -- Holding Company
Regulation." After completion of the Conversion, the Company's assets will
consist of all of the outstanding shares of the Bank's capital stock issued to
the Company in the Conversion, that portion of the net proceeds of the Offerings
retained by the Company and all of the outstanding shares of capital stock of
the Iowa Bank. The Company intends to use part of the net proceeds it retains to
loan funds to the ESOP to enable the ESOP to purchase 8% of the Common Stock
issued in the Conversion, including shares issued to the Foundation. The Company
intends to initially deposit the remaining proceeds with the Bank. See "Use of
Proceeds." The Company and Bank may, however, alternatively choose to fund the
ESOP through a loan to the ESOP trust by a third-party financial institution.
Immediately after the Conversion, the Company will have no significant
liabilities. The management of the 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
officers of the Company who are also 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 with additional flexibility to diversify, should it decide to do so, its
business activities through existing or newly-formed subsidiaries, or through
acquisitions of other financial institutions and financial services related
companies. In addition, management believes that 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 acquisition and expansion
opportunities that may arise. There are no current arrangements, understandings
or agreements, written or oral, regarding any such opportunities or
transactions. The initial activities of the Company are anticipated to be funded
by the net proceeds retained by the Company and earnings thereon or,
alternatively, through dividends from the Bank.
The Company's executive offices are located at 13th and "N" Streets,
Lincoln, Nebraska 68508, and its telephone number is (402) 475-0521.
22
<PAGE>
FIRST FEDERAL LINCOLN BANK
The Bank was organized as a savings and loan association in 1907 and
received its federal charter and insurance of its accounts in June 1935. The
Bank operates as a community bank and its corporate philosophy has traditionally
been focused on providing a competitive array of financial products and services
to consumers within its market area. The Bank's business primarily consists of
accepting deposits from customers and investing those funds primarily in
mortgage loans secured by one- to four-family residences. At September 30, 1997,
the Bank had invested $521.7 million, or 50.5% of total assets, in one- to four-
family mortgage loans. At that date, the Bank's investment in non-residential
mortgage loans totaled $180.0 million, or 17.4% of total assets, its investment
in cash deposits and investment securities, consisting primarily of U.S.
Government and agency obligations, totaled $104.5 million, or 10.1% of total
assets, and mortgage-backed securities, primarily consisting of those guaranteed
by government agencies such as Freddie Mac ("FHLMC") and Ginnie Mae ("GNMA"),
totaled $81.2 million, or 7.9% of total assets. Remaining assets were primarily
multi-family mortgages, commercial real estate loans, consumer loans,
construction loans, commercial loans and corporate office buildings and land. At
September 30, 1997, the Bank's deposit accounts totaled $923.7 million, or 96.9%
of total liabilities. The Bank also uses advances from the Federal Home Loan
Bank of Topeka ("FHLB") as a source of funds. At September 30, 1997, such
advances totaled $10.6 million, or 1.1% of total liabilities.
The Bank operates its Iowa offices as the Iowa Bank, which is a
separately chartered federal savings bank. The Iowa Bank is wholly-owned by the
Bank through two wholly-owned subsidiary corporations and initially resulted
from the 1988 supervisory conversion and merger of two federal savings and loan
associations acquired by the Bank with financial assistance from the Federal
Savings and Loan Insurance Corporation ("FSLIC"). Following the Conversion, the
Bank will consider engaging in a merger or other form of combination transaction
with the Iowa Bank. See "Regulation -- Holding Company Regulation."
The Bank is subject to extensive regulation, supervision and
examination by the OTS, its primary regulator, and the FDIC, which insures its
deposits. As of September 30, 1997, the Bank exceeded all regulatory capital
requirements with tangible, core and risk-based capital of $80.3 million, $80.3
million and $86.8 million, respectively. Additionally, the Bank's regulatory
capital was in excess of the amount necessary for the Bank to be deemed "well
capitalized" under the Federal Deposit Insurance Corporation Improvement Act of
1991 ("FDICIA"). See "Regulatory Capital Compliance" and "Regulation." The Bank
is a member of the FHLB which is one of the twelve regional banks which comprise
the Federal Home Loan Bank system. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business of the Bank."
The Bank's executive offices are located at 13th and "N" Streets,
Lincoln, Nebraska 68508, and its telephone number is (402) 475-0521.
23
<PAGE>
REGULATORY CAPITAL COMPLIANCE
At September 30, 1997, the Bank exceeded all regulatory capital
requirements. See "Regulation -- Federal Savings Institution Regulation --
Capital Requirements." Set forth below is a summary of the Bank's compliance
with the regulatory capital standards as of September 30, 1997, on a 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
the shares expected to be acquired by the Stock-Based Incentive Plan are
deducted from pro forma regulatory capital.
<TABLE>
<CAPTION>
First Federal Lincoln Bank
Pro Forma at September 30, 1997 Based Upon the Sale at $20.00 Per Share
-----------------------------------------------------------------------------------
5,928,750 Shares 8,021,250 Shares
(Minimum of 6,975,000 Shares (Maximum of
Historical at Estimated (Midpoint of Estimated Estimated
September 30, 1997 Price Range) Price Range) Price Range)
--------------------- -------------------- ---------------------- -----------------------
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........... $80,562 7.79% $123,241 11.45% $130,911 12.08% $138,580 12.70%
======== ===== ======== ===== ======== ===== ======== =====
Tangible Capital:
Capital Level........ $80,345 7.77 $123,024 11.43% $130,694 12.06% $138,363 12.68%
Requirement.......... 15,513 1.50 16,141 1.50 16,256 1.50 16,371 1.50
------- ---- -------- ---- -------- ---- -------- ----
Excess............... $64,832 6.27% $106,883 9.93% $114,438 10.56% $121,992 11.18%
======= ==== ======== ===== ======== ===== ======== =====
Core Capital:
Capital Level........ $80,345 7.77% $123,024 11.43% $130,694 12.06% $138,363 12.68%
Requirement(3)....... 41,369 4.00 43,050 4.00 43,348 4.00 43,655 4.00
------- ---- -------- ---- -------- ---- -------- ----
Excess............... $38,976 3.77% $ 79,974 7.43% $ 87,346 8.06% $ 94,708 8.68%
======= ==== ======== ===== ======== ===== ======== =====
Risk-Based Capital:
Capital Level(4)(5).. $86,765 14.32% $129,444 20.64% $137,114 21.73% $144,783 22.80%
Requirement.......... 48,475 8.00 50,182 8.00 50,489 8.00 50,795 8.00
------- ---- -------- ---- -------- ---- -------- ----
Excess............... $38,290 6.32% $ 79,262 12.64% $ 86,625 13.73% $ 93,988 14.80%
======= ==== ======== ===== ======== ===== ======== =====
<CAPTION>
----------------------
9,224,438 SHARES
(15% ABOVE
MAXIMUM OF
ESTIMATED
PRICE RANGE)(1)
----------------------
PERCENT
OF
AMOUNT ASSETS(2)
--------- ----------
<S> <C> <C>
GAAP Capital........... $147,399 13.39%
======== =====
Tangible Capital:
Capital Level........ $147,182 13.38%
Requirement.......... 16,503 1.50
-------- ----
Excess............... $130,679 11.88%
======== =====
Core Capital:
Capital Level........ $147,182 13.38%
Requirement(3)....... 44,008 4.00
-------- ----
Excess............... $103,174 9.38%
======== =====
Risk-Based Capital:
Capital Level(4)(5).. $153,602 24.02%
Requirement.......... 51,148 8.00
-------- ----
Excess............... $102,454 16.02%
======== =====
</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) Tangible capital levels are shown as a percentage of tangible assets. Core
capital levels are shown as a percentage of total adjusted assets. Risk-
based capital levels are shown as a percentage of risk-weighed assets.
(3) The current OTS core capital requirement for savings associations is 3% of
total adjusted assets. The OTS has proposed core capital requirements which
would require a core capital ratio of 3% of total adjusted assets for
thrifts that receive the highest supervisory rating for safety and
soundness and a 4% to 5% core capital ratio requirement for all other
thrifts. See "Regulation -- Federal Savings Institution Regulation --
Capital Requirements."
(4) Assumes net proceeds are invested in assets that carry a 50% risk-
weighting.
(5) The difference between equity under generally accepted accounting
principles ("GAAP") and regulatory risk-based capital is attributable to
the addition of the general valuation allowance of $7,022,000 and other
assets that are required to be deducted of $602,000 at September 30, 1997.
24
<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 $115.5 million and $156.8 million (or $180.6 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, with
the remaining net proceeds to be retained by the Company. Based on net proceeds
of $156.8 million, the Company expects to utilize $78.4 million of net proceeds
to purchase the common stock of the Bank. Such portion of net proceeds will be
added to the Bank's general funds which the Bank currently intends to utilize
for general corporate purposes, including new loan fundings and to fund stock-
based benefit plans. The Bank may also use such funds for the expansion of its
facilities, and to expand operations through acquisitions of other financial
institutions, branch offices or other financial services companies. The Bank has
not yet determined the approximate amount of net proceeds to be used for any of
the purposes mentioned above.
The Company intends to use a portion of the net proceeds to make a loan
directly to the ESOP to enable the ESOP to purchase 8% of the Common Stock
issued in the Conversion, including shares issued to the Foundation. The Company
and Bank may alternatively choose to fund the ESOP's stock purchases through a
loan by a third-party financial institution. The remaining net proceeds retained
by the Company will initially be invested in a deposit account at the Bank.
Based upon the sale of 5,928,750 shares or 8,021,250 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 $10.1 million or $13.6
million, respectively (or $15.6 million if the Estimated Price Range is
increased by 15%) to be repaid over a twelve-year period at the prevailing prime
rate of interest, which currently is 8.5%. See "Management of the Bank -
Benefits--Employee Stock Ownership Plan and Trust."
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 smaller financial
institutions or their assets, including those located within the Bank's market
area or diversification into other banking related businesses. The Company has
no current arrangements, understandings or agreements regarding any such
opportunities or transactions. The Company, upon the Conversion, will be a
multiple savings and loan holding company, which under existing laws would be
restricted as to the types of business activities in which it may engage. See
"Regulation -- 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 approved by the OTS, the Company,
pursuant to OTS regulations, will be prohibited from repurchasing any shares of
the Common Stock for three years except (i) for an offer to all stockholders on
a pro rata basis, or (ii) for the repurchase of qualifying shares of a director.
Notwithstanding the foregoing and except as provided below, beginning one year
following completion of the Conversion, the OTS regulations permit the Company
to repurchase its Common Stock so long as: (i) the repurchases within the
following two years are part of an open-market program not involving greater
than 5% of its outstanding capital stock during a 12-month period; (ii) the
repurchases do not cause the Bank to become "undercapitalized" within the
meaning of the OTS prompt corrective action regulation; and (iii) the Company
provides to the Regional Director of the OTS no later than 10 days prior to the
commencement of a repurchase program written notice containing a full
25
<PAGE>
description of the program to be undertaken and such program is not disapproved
by the Regional Director. See "Regulation -- Prompt Corrective Regulatory
Action." In addition, under current OTS policies, repurchases may be allowed in
the first year following Conversion and in amounts greater than 5% in the second
and third years following Conversion provided there are valid and compelling
business reasons for such repurchases and the OTS does not object to such
repurchases.
Based upon facts and circumstances following 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 are
not limited to: (i) market and economic factors such as the price at which the
stock is trading in the market, the volume of trading, the attractiveness of
other investment alternatives in terms of the rate of return and risk involved
in the investment, the ability to increase the book value and/or earnings per
share of the remaining outstanding shares, and the 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 stockholders.
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.
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. In the future, the Board of Directors intends to
consider a policy of paying cash or stock dividends on the Common Stock.
However, no decision has been made with respect to the payment of dividends.
Declarations of dividends by the Board of Directors, if any, will depend upon a
number of factors, including the amount of net proceeds retained by the Company
in the Conversion, investment opportunities available to the Company or the
Bank, capital requirements, regulatory limitations, the Company's and the Bank's
financial condition and results of operations, tax considerations and general
economic conditions. No assurances can be given, however, that any dividends
will be paid or, if commenced, will continue to be paid.
The Bank will not be permitted to pay dividends to the Company on its
capital stock if its stockholders' equity would be reduced below the amount
required for the liquidation account. See "The Conversion-- Liquidation Rights."
For information concerning federal regulations which apply to the Bank in
determining the amount of proceeds which may be retained by the Company and
regarding a savings institution's ability to make capital distributions,
including payment of dividends to its holding company, see "Federal and State
Taxation -- Federal Taxation -- Distributions" and "Regulation -- Federal
Savings Institution Regulation -- Limitation on Capital Distributions."
Unlike the Bank, the Company is not subject to OTS regulatory
restrictions on the payment of dividends to its stockholders, although the
source of such dividends will be dependent on the net proceeds retained by the
Company and earnings thereon and may be dependent, in part, upon dividends from
the Bank. The Company is subject, however, to the requirements of Delaware law,
which generally limit dividends to
26
<PAGE>
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
(generally defined as the aggregate par value of the outstanding shares of the
Company's capital stock having a par value plus the amount of the consideration
paid for shares of the Company's capital stock without par value) 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 and Bank have not previously issued capital stock and,
consequently, there is no established market for the Common Stock. The Company
has received conditional approval to have its Common Stock listed on the AMEX
under the symbol "FLF" upon 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.
27
<PAGE>
CAPITALIZATION
The following table presents the unaudited historical consolidated
capitalization of the Bank at September 30, 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 $20.00 PER SHARE
----------------------------------------------------
9,224,438
5,928,750 SHARES
SHARES 6,975,000 8,021,250 (15% ABOVE
(MINIMUM SHARES SHARES MAXIMUM OF
OF (MIDPOINT OF (MAXIMUM ESTIMATED
BANK ESTIMATED ESTIMATED OF ESTIMATED (PRICE
HISTORICAL PRICE RANGE) PRICE RANGE) PRICE RANGE) RANGE)(1)
------------- ------------ ------------- ------------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Deposit accounts(2)............................ $923,669 $923,669 $923,669 $923,669 $923,669
FHLB advances.................................. 10,565 10,565 10,565 10,565 10,565
-------- -------- -------- -------- --------
Total deposit accounts and FHLB advances....... $934,234 $934,234 $934,234 $934,234 $934,234
======== ======== ======== ======== ========
Stockholders' equity:
Preferred Stock, $.01 par value, 10,000,000
shares authorized; none to be issued...... $ -- $ -- $ -- $ -- $ --
Common Stock, $.01 par value, 60,000,000
shares authorized; shares to be issued
as reflected.............................. -- 63 74 85 98
Additional paid-in capital(3)............... -- 115,461 136,112 156,763 180,511
Retained earnings(4)........................ 80,562 80,562 80,562 80,562 80,562
Expense of contribution to Foundation.......... -- 7,115 8,370 9,626 11,069
Tax-effected contribution to the Foundation(5). -- (4,554) (5,357) (6,161) (7,084)
Less: Common Stock acquired by the ESOP(6).... -- (10,055) (11,829) (13,604) (15,645)
Common Stock acquired by --
the Stock-Based Incentive Plan(7).... -- (5,027) (5,915) (6,802) (7,822)
-------- -------- -------- --------
Total stockholders' equity..................... $ 80,562 $183,565 $202,017 $220,469 $241,689
======== ======== ======== ======== ========
</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) No effect has been given to the issuance of additional shares of Common
Stock to the Foundation at a value of $20.00 per share or to the issuance
of additional shares pursuant to the Stock-Based Incentive Plan intended
to be adopted by the Company and presented for approval of stockholders at
a meeting of stockholders to take place no sooner than six months
following the Conversion. If approved by the stockholders of the Company,
an amount equal to 10% of the shares of Common Stock issued in the
Conversion, including shares issued to the Foundation, will be reserved
for issuance upon the exercise of options to be granted under the
Stock-Based Incentive Plan. See "Risk Factors -- Possible Dilutive Effect
of Stock-Based Incentive Plan," Footnote 3 to the tables under "Pro Forma
Data" and "Management of the Bank -- Benefits -- Stock-Based Incentive
Plan."
(4) The retained earnings of the Bank will be substantially restricted after
the Conversion. See "The Conversion -- Liquidation Rights" and "Regulation
-- Federal Savings Institution Regulation -- Limitations on Capital
Distributions."
(5) Represents the value of the contribution of Common Stock to the Foundation
at $20.00 per share reduced by the associated tax benefit of $2.6 million,
$3.0 million, $3.5 million and $4.0 million at the minimum, midpoint,
maximum and 15% above the maximum of the range, respectively. The
realization of the federal 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. For state income tax purposes,
the Company does not anticipate receiving a full tax benefit for the
charitable contribution in Nebraska, and will receive no tax benefit in
Iowa and Kansas.
(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 that the funds used to acquire such 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 -- Benefits --
Employee Stock Ownership Plan and Trust."
(7) Assumes that no sooner than six months following 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-Based Incentive Plan
through open market purchases at the offering price of $20.00 per share.
The Common Stock purchased by the Stock-Based Incentive Plan is reflected
as a reduction of stockholders' equity. Implementation of the Stock-Based
Incentive Plan is subject to the approval of the Company's stockholders at
a meeting following the Conversion. See "Risk Factors -- Possible Dilutive
Effect of Stock-Based Incentive Plan," Footnote 3 to the tables under "Pro
Forma Data" and "Management of the Bank -- Benefits -- Stock-Based
Incentive Plan."
28
<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 $115.5 million and $156.8 million (or $180.6
million in the event the Estimated Price Range is increased by 15%) based upon
the following assumptions: (i) 100% of the shares of Common Stock will be sold
in the Subscription Offering to Eligible Account Holders, the ESOP and
Supplemental Eligible Account Holders; (ii) directors, officers and employees of
the Bank and members of their immediate families (collectively, "Insiders") will
purchase an aggregate of $3.0 million of Common Stock and the ESOP will purchase
8% of the Common Stock issued in connection with the Conversion, including
shares issued to the Foundation; (iii) Sandler O'Neill will receive a fee equal
to 1.375% of the aggregate Purchase Price of shares sold in the Subscription and
Community Offerings, excluding shares purchased by directors, officers,
employees and any immediate family member thereof and the ESOP for which Sandler
O'Neill will not receive a fee; and (iv) Conversion expenses, excluding the
marketing fees paid to Sandler O'Neill, will be approximately $1.6 million.
Actual Conversion expenses may vary from those estimated.
Pro forma consolidated net income of the Company for the three months
ended September 30, 1997, and for the year ended June 30, 1997, 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 5.31% (the one year
U.S. Treasury bill rate as of June 30, 1997). The tables below do not reflect
the effect of withdrawals from deposit accounts for the purchase of Common Stock
or the effect of any possible use of the net Conversion proceeds. The pro forma
after-tax yields for the Company and the Bank are assumed to be 3.40% for the
three months ended September 30, 1997, based on an effective tax rate of 36.0%,
and 3.40% for the year ended June 30, 1997, based on an effective tax rate of
36.0%. Historical and pro forma net earnings per share amounts have been
calculated by dividing historical and pro forma amounts by the indicated number
of shares of Common Stock issued, as adjusted to give effect to the purchase of
shares by the ESOP and the issuance of shares to the Foundation. Historical and
pro forma stockholders' equity per share amounts have been calculated by
dividing historical and pro forma amounts by the indicated number of shares of
Common Stock issued.
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 stated in an amount 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 on a consolidated basis at or for the three months
ended September 30, 1997, and at or for the year ended June 30, 1997, 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-Based Incentive Plan,
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 3 to the tables and "Management of the Bank-- Benefits-- Stock-Based
Incentive Plan." No effect has been given in the tables to the possible issuance
of additional shares reserved for future issuance of stock options pursuant to
the Stock-Based Incentive 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 give any effect to the liquidation account to be established
for the benefit of Eligible Account Holders and Supplemental 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 4 to the tables below, "The
Conversion-- Liquidation Rights" and "Management of the Bank-- Benefits--Stock-
Based Incentive Plan." THE FOLLOWING TABLE ASSUMES THAT THE FOUNDATION IS
APPROVED AS PART OF THE CONVERSION AND THEREFORE 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 TABLE BELOW, TAKES INTO ACCOUNT THE DILUTIVE IMPACT OF
THE ISSUANCE OF SHARES TO THE FOUNDATION.
29
<PAGE>
<TABLE>
<CAPTION>
AT OR FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1997
-------------------------------------------------------
9,224,438
SHARES SOLD
5,928,750 6,975,000 8,021,250 AT $20.00 PER
SHARES SOLD SHARES SOLD SHARES SOLD SHARE (15%
AT $20.00 AT $20.00 AT $20.00 ABOVE
PER SHARE PER SHARE PER SHARE MAXIMUM
(MINIMUM (MIDPOINT (MAXIMUM OF ESTIMATED
OF ESTIMATED OF ESTIMATED OF ESTIMATED PRICE
PRICE RANGE) PRICE RANGE) PRICE RANGE) RANGE)(6)
------------ ------------- ------------- -------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Gross proceeds......................................................... $118,575 $139,500 $160,425 $184,489
Plus: shares acquired by Charitable Trust Foundation
(equal to 6.00% of stock issued in conversion).................. 7,115 8,370 9,626 11,069
-------- -------- -------- --------
Pro Forma Market Capitalization........................................ $125,690 $147,870 $170,051 $195,558
======== ======== ======== ========
Gross proceeds......................................................... $118,575 $139,500 $160,425 $184,489
Less: offering expenses and commissions............................... (3,051) (3,314) (3,577) (3,880)
-------- -------- -------- --------
Estimated net proceeds from Conversion................................. 115,524 136,186 156,848 180,609
Less: shares purchased by ESOP in open market at $20.00............... (10,055) (11,829) (13,604) (15,645)
Less: shares purchased by Stock-Based Incentive Plan.................. (5,027) (5,915) (6,802) (7,822)
-------- -------- -------- --------
Total estimated net proceeds, as adjusted......................... $100,442 $118,442 $136,442 $157,142
======== ======== ======== ========
Net income(1):
Historical.......................................................... $1,643 $1,643 $1,643 $1,643
Pro forma income on net proceeds, as adjusted
to eliminate proceeds from Foundation stock....................... 853 1,006 1,159 1,335
Pro forma ESOP adjustment(2)........................................ (134) (158) (181) (209)
Pro forma Stock-Based Incentive Plan adjustment(3).................. (161) (189) (218) (250)
-------- -------- -------- --------
Pro forma net income............................................ $2,201 $2,302 $2,403 $2,519
======== ======== ======== ========
Per share net income(1):
Historical.......................................................... $ 0.28 $ 0.24 $ 0.21 $ 0.18
Pro forma income on net proceeds, as adjusted
to eliminate proceeds from Foundation stock....................... $ 0.15 $ 0.15 $ 0.15 $ 0.15
Pro forma ESOP adjustment(2)........................................ (0.02) (0.02) (0.02) (0.02)
Pro forma Stock-Based Incentive Plan adjustment(3).................. (0.03) (0.03) (0.03) (0.03)
-------- -------- -------- --------
Pro forma net income per share.................................. $ 0.38 $ 0.34 $ 0.31 $ 0.28
======== ======== ======== ========
Stockholders' equity:
Historical.......................................................... $ 80,562 $ 80,562 $ 80,562 $ 80,562
Estimated net proceeds from Conversion.............................. 115,524 136,186 156,848 180,609
Plus: Tax Benefit of Foundation..................................... 2,561 3,013 3,465 3,985
Less: Common Stock acquired by ESOP(2).............................. (10,055) (11,829) (13,604) (15,645)
Less: Common Stock acquired by Stock-Based Incentive Plan(3)........ (5,027) (5,915) (6,802) (7,822)
-------- -------- -------- --------
Pro forma stockholders' equity(3)(4)(5)......................... $183,565 $202,017 $220,469 $241,689
======== ======== ======== ========
Stockholders' equity per share:
Historical.......................................................... $12.82 $10.89 $ 9.47 $ 8.24
Estimated net proceeds from Conversion.............................. 18.38 18.42 18.45 18.47
Plus: Tax Benefit of Foundation..................................... 0.41 0.41 0.41 0.41
Less: Common Stock acquired by ESOP(2).............................. (1.60) (1.60) (1.60) (1.60)
Less: Common Stock acquired by Stock-Based Incentive Plan(3)........ (0.80) (0.80) (0.80) (0.80)
-------- -------- -------- --------
Pro forma stockholders' equity per share(3)(4)(5)............... $29.21 $27.32 $25.93 $24.72
======== ======== ======== ========
Offering price as a percent of pro forma stockholders' equity per share 68.47% 73.20% 77.13% 80.91%
Offering price to pro forma net income per share....................... 13.16 14.80 16.30 17.89
</TABLE>
(Footnotes on next page)
30
<PAGE>
_______________
(1) Does not give effect to the non-recurring expense that will be recognized
in the third quarter of fiscal 1998 if the establishment of the
Foundation is approved. 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 $4.5 million, $5.4 million, $6.2 million, and
$7.1 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 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 12
equal annual installments of principal, with an assumed interest rate at
8.5%. The pro forma net earnings assume: (i) that the Bank's contribution
to the ESOP is equivalent to the debt service requirement for the three
months ended September 30, 1997, and was made at the end of the period;
(ii) that 41,897, 49,290, 56,684 and 65,186 shares at the minimum,
midpoint, maximum and 15% above the maximum of the range, respectively,
were committed to be released during the three months ended September 30,
1997, at an average fair value of $20.00 per share in accordance with
Statement of Position ("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--
Benefits --Employee Stock Ownership Plan and Trust."
(3) Gives effect to the Stock-Based Incentive Plan expected to be adopted by
the Company following the Conversion and presented for approval at a
meeting of stockholders. The Stock-Based Incentive Plan intends to
acquire an amount of Common Stock equal to 4% of the shares of Common
Stock sold in the Conversion and issued to the Foundation, or 251,379,
295,740, 340,101 and 391,116 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. Funds used by the Stock-Based Incentive Plan to
purchase the shares will be contributed to the Stock-Based Incentive Plan
by the Bank. In calculating the pro forma effect of the Stock-Based
Incentive Plan, it is assumed that the shares were acquired by the Stock-
Based Incentive Plan at the beginning of the period presented in open
market purchases at the Purchase Price and that 5% of the amount
contributed was an amortized expense during such period. The issuance of
authorized but unissued shares of the Common Stock to the Stock-Based
Incentive Plan 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 $0.37, $0.33, $0.30, and $0.28, at the
minimum, midpoint, maximum and 15% above the maximum of the range,
respectively, and pro forma shareholders' equity per share would be
$28.86, $27.04, $25.70 and $24.54 at the minimum, midpoint, maximum, and
15% above the maximum of the range, respectively. There can be no
assurance that stockholder approval of the Stock-Based Incentive Plan
will be obtained, or that the actual purchase price of the shares will be
equal to the Purchase Price. See "Management of the Bank --Benefits--
Stock-Based Incentive Plan."
(4) No effect has been given to the issuance of additional shares of Common
Stock for stock option awards pursuant to the Stock-Based Incentive Plan
expected to be adopted by the Company following the Conversion. The
Company expects to present the Stock-Based Incentive Plan for approval at
a meeting of stockholders. An amount equal to 10% of the Common Stock
issued in the Conversion, including shares issued to the Foundation, or
628,447, 739,350, 850,252 and 977,790 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 StockBased Incentive Plan. The issuance
of Common Stock pursuant to the exercise of options under the Stock-Based
Incentive 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 $20.00 per share, the pro forma net earnings per
share would be $0.36, $0.32, $0.30, and $0.27, respectively, and the pro
forma stockholders' equity per share would be $28.37, $26.66, $25.39, and
$24.29, respectively. See "Management of the Bank --Benefits--Stock-Based
Incentive Plan."
(5) The retained earnings of the Bank will continue to be substantially
restricted after the Conversion. See "Dividend Policy," "The Conversion--
Liquidation Rights" and "Regulation --Federal Savings Institution
Regulation --Limitation on Capital Distributions."
(6) 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.
31
<PAGE>
<TABLE>
<CAPTION>
AT OR FOR THE YEAR ENDED JUNE 30, 1997
---------------------------------------------------------
9,224,438
SHARES SOLD
5,928,750 6,975,000 8,021,250 $20.00 PER
SHARES SOLD SHARES SOLD SHARES SOLD SHARE (15%
AT $20.00 AT $20.00 AT $20.00 ABOVE
PER SHARE PER SHARE PER SHARE MAXIMUM
(MINIMUM (MIDPOINT (MAXIMUM OF ESTIMATED
ESTIMATED OF ESTIMATED OF ESTIMATED PRICE
PRICE RANGE) PRICE RANGE) PRICE RANGE) RANGE)(6)
------------ ------------- ------------- -------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Gross proceeds............................................ $118,575 $139,500 $160,425 $184,489
Plus: shares acquired by Charitable Trust Foundation
(equal to 6.00% of stock issued in conversion)... 7,115 8,370 9,626 11,069
---------- ---------- ---------- ---------
Pro Forma Market Capitalization........................... $125,690 $147,870 $170,051 $195,558
========== ========== ========== =========
Gross proceeds............................................ $118,575 $139,500 $160,425 $184,489
Less: offering expenses and commissions.................. (3,051) (3,314) (3,577) (3,880)
---------- ---------- ---------- ---------
Estimated net proceeds from Conversion.................... 115,524 136,186 156,848 180,609
Less: shares purchased by ESOP in open market at $20.00.. (10,055) (11,829) (13,604) (15,645)
Less: shares purchased by Stock-Based Incentive Plan..... (5,027) (5,915) (6,802) (7,822)
---------- ---------- ---------- ----------
Total estimated net proceeds, as adjusted.......... $100,442 $118,442 $136,442 $157,142
========== ========== ========== ==========
Net income(1):
Historical............................................. $4,340 $4,340 $4,340 $4,340
Pro forma income on net proceeds, as adjusted
to eliminate proceeds from Foundation stock.......... 3,413 4,025 4,637 5,340
Pro forma ESOP adjustment(2)........................... (536) (631) (725) (834)
Pro forma Stock-Based Incentive Plan adjustment(3)..... (643) (757) (871) (1,001)
------- ------- ------- --------
Pro forma net income............................. $6,574 $6,977 $7,381 $7,845
======= ======= ======= ========
Per share net income(1):
Historical............................................. $0.74 $0.63 $0.55 $0.48
Pro forma income on net proceeds, as adjusted
to eliminate proceeds from Foundation stock.......... $ 0.59 $ 0.59 $ 0.59 $ 0.59
Pro forma ESOP adjustment(2)........................... (0.09) (0.09) (0.09) (0.09)
Pro forma Stock-Based Incentive Plan adjustment(3)..... (0.11) (0.11) (0.11) (0.11)
------- ------- ------- -------
Pro forma net income per share................... $1.13 $1.02 $0.94 $0.87
======= ======= ======= =======
Stockholders' equity:
Historical............................................. $ 78,912 $ 78,912 $ 78,912 $ 78,912
Estimated net proceeds from Conversion................. 115,524 136,186 156,848 180,609
Plus: Tax Benefit of Foundation........................ 2,561 3,013 3,465 3,985
Less: Common Stock acquired by ESOP(2)................. (10,055) (11,829) (13,604) (15,645)
Less: Common Stock acquired by Stock-Based Incentive Plan(3) (5,027) (5,915) (6,802) (7,822)
--------- --------- --------- ---------
Pro forma stockholders' equity(3)(4)(5).......... $181,915 $200,367 $218,819 $240,039
========= ========= ========= =========
Stockholders' equity per share:
Historical............................................. $12.56 $10.67 $ 9.28 $ 8.07
Estimated net proceeds from Conversion................. 18.38 18.42 18.45 18.47
Plus: Tax Benefit of Foundation........................ 0.41 0.41 0.41 0.41
Less: Common Stock acquired by ESOP(2)................. (1.60) (1.60) (1.60) (1.60)
Less: Common Stock acquired by Stock-Based Incentive Plan(3) (0.80) (0.80) (0.80) (0.80)
-------- -------- -------- --------
Pro forma stockholders' equity per share(3)(4)(5) $28.95 $27.10 $25.74 $24.55
======== ======== ======== ========
Offering price as a percent of pro forma stockholders'
equity per share.......................................... 69.09% 73.80% 77.71% 81.47%
Offering price to pro forma net income per share.......... 17.72 19.64 21.35 23.10
</TABLE>
(Footnotes on next page)
32
<PAGE>
_______________
(1) Does not give effect to the non-recurring expense that will be recognized
in the third quarter of fiscal 1998 if the establishment of the
Foundation is approved. 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 $4.5 million, $5.4 million, $6.2 million, and
$7.1 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 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 12
equal annual installments of principal, with an assumed interest rate at
8.5%. The pro forma net earnings assume: (i) that the Bank's contribution
to the ESOP is equivalent to the debt service requirement for the year
ended June 30, 1997, and was made at the end of the period; (ii) that
41,897, 49,290, 56,684 and 65,186 shares at the minimum, midpoint,
maximum and 15% above the maximum of the range, respectively, were
committed to be released during the year ended June 30, 1997, at an
average fair value of $20.00 per share in accordance with Statement of
Position ("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 --Benefits --Employee
Stock Ownership Plan and Trust."
(3) Gives effect to the Stock-Based Incentive Plan expected to be adopted by
the Company following the Conversion and presented for approval at a
meeting of stockholders. The Stock-Based Incentive Plan intends to
acquire an amount of Common Stock equal to 4% of the shares of Common
Stock sold in the Conversion and issued to the Foundation, or 251,379,
295,740, 340,101 and 391,116 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. Funds used by the Stock-Based Incentive Plan to
purchase the shares will be contributed to the Stock-Based Incentive Plan
by the Bank. In calculating the pro forma effect of the Stock-Based
Incentive Plan, it is assumed that the shares were acquired by the Stock-
Based Incentive Plan at the beginning of the period presented in open
market purchases at the Purchase Price and that 5% of the amount
contributed was an amortized expense during such period. The issuance of
authorized but unissued shares of the Common Stock to the Stock-Based
Incentive Plan 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 $1.11, $1.00, $0.93, and $0.86 at the
minimum, midpoint, maximum, and 15% above the maximum of the range,
respectively, and pro forma stockholders' equity per share would be
$28.60, $26.83, $25.52 and $24.37 at the minimum, midpoint, maximum, and
15% above the maximum of the range, respectively. There can be no
assurance that stockholder approval of the Stock-Based Incentive Plan
will be obtained, or that the actual purchase price of the shares will be
equal to the Purchase Price. See "Management of the Bank--Benefits--
Stock-Based Incentive Plan."
(4) No effect has been given to the issuance of additional shares of Common
Stock for stock option awards pursuant to the Stock-Based Incentive Plan
expected to be adopted by the Company following the Conversion. The
Company expects to present the Stock-Based Incentive Plan for approval at
a meeting of stockholders. An amount equal to 10% of the Common Stock
issued in the Conversion, including shares issued to the Foundation, or
628,447, 739,350, 850,252 and 977,790 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 StockBased Incentive Plan. The issuance
of Common Stock pursuant to the exercise of options under the Stock-Based
Incentive 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 $20.00 per share, the pro forma net earnings per
share would be $1.08, $0.99, $0.92, and $0.85, respectively, and the pro
forma stockholders' equity per share would be $28.13, $26.46, $25.21, and
$24.14, respectively. See "Management of the Bank--Benefits --Stock-Based
Incentive Plan."
(5) The retained earnings of the Bank will continue to be substantially
restricted after the Conversion. See "Dividend Policy," "The Conversion--
Liquidation Rights" and "Regulation --Federal Savings Institution
Regulation --Limitation on Capital Distributions."
(6) 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.
33
<PAGE>
COMPARISON OF VALUATION AND PRO FORMA INFORMATION WITH NO FOUNDATION
In the event that the Foundation was not established as part of the
Conversion, Keller has estimated that the pro forma market capitalization of the
Bank would be approximately $158.4 million, at the midpoint, which is
approximately $10.5 million greater than the pro forma market capitalization of
the Bank if the Foundation is approved by members of the Bank and would result
in approximately an $18.9 million increase, or 13.5%, 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 approximately 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 per share and pro forma net income per
share would be $27.32 and $0.33, respectively, at the midpoint of the estimate,
assuming no Foundation, and $27.32 and $0.34, respectively, with the Foundation.
The pro forma price to book ratio and the pro forma price to earnings ratio are
73.20% and 15.05x, respectively, at the midpoint of the estimate, assuming no
Foundation and are 73.20% and 14.80x, respectively, with the Foundation. This
estimate by Keller was prepared at the request of the OTS and is solely for
purposes of providing members with sufficient information with which to make an
informed decision on the Foundation. There is no assurance that in the event the
Foundation is not approved at the Special Meeting of members that the appraisal
prepared at that time would conclude that the pro forma market value of the
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 September 30, 1997.
<TABLE>
<CAPTION>
AT THE MINIMUM AT THE MIDPOINT
------------------------------- ------------------------------
WITH NO WITH NO
FOUNDATION FOUNDATION FOUNDATION FOUNDATION
------------- ------------- ------------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Estimated offering amount.............. $ 118,575 $ 134,640 $ 139,500 $ 158,400
Pro forma market capitalization........ 125,690 134,640 147,870 158,400
Total assets........................... 1,136,581 1,148,800 1,155,033 1,169,408
Total liabilities...................... 953,016 953,016 953,016 953,016
Pro forma stockholders' equity......... 183,565 195,784 202,017 216,392
Pro forma consolidated net earnings.... 2,201 2,306 2,302 2,425
Pro forma stockholders' equity per share 29.21 29.08 27.32 27.32
Pro forma consolidated net earnings
per share............................ 0.38 0.37 0.34 0.33
Pro Forma Pricing Ratios:
Offering Price as a percentage of pro 68.47% 68.77% 73.20% 73.20%
forma stockholders' equity per share
Offering price to pro forma net earnings
per share.......................... 13.16x 13.45x 14.80x 15.05x
Offering price to assets............. 11.06% 11.72% 12.80% 13.55%
Pro Forma Financial Ratios:
Return on Assets..................... 0.77% 0.80% 0.80% 0.83%
Return on stockholders' equity....... 4.80% 4.71% 4.56% 4.48%
Stockholders' equity to assets....... 16.15% 17.04% 17.49% 18.50%
<CAPTION>
AT THE MAXIMUM,
AT THE MAXIMUM AS ADJUSTED
--------------------------- ---------------------------
WITH NO WITH NO
FOUNDATION FOUNDATION FOUNDATION FOUNDATION
------------- ------------ ------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Estimated offering amount.............. $ 160,525 $ 182,160 $ 184,489 $ 209,484
Pro forma market capitalization........ 170,051 182,160 195,558 209,484
Total assets........................... 1,173,485 1,190,016 1,194,705 1,213,716
Total liabilities...................... 953,016 953,016 953,016 953,016
Pro forma stockholders' equity......... 220,469 237,000 241,689 260,700
Pro forma consolidated net earnings.... 2,403 2,545 2,519 2,682
Pro forma stockholders' equity per share 25.93 26.02 24.72 24.89
Pro forma consolidated net earnings
per share............................ 0.31 0.30 0.28 0.28
Pro Forma Pricing Ratios:
Offering Price as a percentage of pro 77.13% 76.86% 80.91% 80.35%
forma stockholders' equity per share
Offering price to pro forma net earnings
per share.......................... 16.30x 16.49x 17.89x 18.00x
Offering price to assets............. 14.49% 15.31% 16.37% 17.26%
Pro Forma Financial Ratios:
Return on Assets..................... 0.82% 0.86% 0.84% 0.88%
Return on stockholders' equity....... 4.36% 4.29% 4.17% 4.11%
Stockholders' equity to assets....... 18.79% 19.92% 20.23% 21.48%
</TABLE>
34
<PAGE>
FIRST FEDERAL LINCOLN BANK AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
The following Consolidated Statements of Income of the Bank and
subsidiaries for each of the years in the three fiscal years ended June 30,
1997, have been audited by KPMG Peat Marwick LLP, independent certified public
accountants, whose reports thereon are included elsewhere in this Prospectus.
With respect to the information for the three months ended September 30, 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 three months ended September
30, 1997, are not necessarily indicative of the results that may be expected for
the fiscal year ending June 30, 1998. These Consolidated Statements of Income
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 THREE MONTHS FOR THE YEAR
ENDED SEPTEMBER 30, ENDED JUNE 30,
-------------------------- ----------------------------------------
1997 1996 1997 1996 1995
------------- ------------ ------------- ------------ -------------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Interest income:
Loans..................................... $17,159 $15,448 $63,942 $56,585 $51,964
Investment securities..................... 1,162 1,861 6,899 8,220 10,606
Mortgage-backed securities................ 1,382 1,570 5,982 5,967 5,784
Other interest-earning assets............. 410 649 1,523 4,177 1,010
--------- --------- -------- -------- --------
Total interest income.................. 20,113 19,528 78,346 74,949 69,364
--------- --------- -------- -------- --------
Interest expense:
Deposit accounts.......................... 11,791 11,606 46,546 47,165 43,709
FHLB advances............................. 195 235 652 1,041 896
--------- --------- -------- -------- --------
Total interest expense................. 11,986 11,841 47,198 48,206 44,605
--------- --------- -------- -------- --------
Net interest income before
provision for loan losses............ 8,127 7,687 31,148 26,743 24,759
Provision for loan losses.................... 713 96 450 598 243
--------- --------- -------- -------- --------
Net interest income after
provision for loan losses............ 7,414 7,591 30,698 26,145 24,516
--------- --------- -------- -------- --------
Noninterest income:
Fees and service charges.................. 405 525 1,690 1,535 1,181
Income from real estate operations, net... 121 136 547 612 706
Other income.............................. 210 185 952 358 710
Net gain on sales of:
Trading securities..................... -- -- -- 5 2
Investment and mortgage-backed
securities, available for sale...... -- 1 1 5 --
Loans receivable held for sale......... 144 74 389 359 92
Loans receivable held in portfolio..... -- -- -- 101 --
Real estate owned and held
for investment....................... 11 -- 7 926 348
--------- --------- -------- -------- --------
Total noninterest income............... 891 921 3,586 3,901 3,039
--------- --------- -------- -------- --------
Noninterest expense:
Salaries and employee benefits............ 3,121 2,758 11,463 11,106 9,878
Net occupancy expense..................... 1,058 985 4,018 4,073 4,443
Federal insurance premiums................ 149 6,269 6,989 2,187 2,174
Data processing........................... 303 292 1,154 1,032 1,549
Advertising............................... 151 98 700 732 561
Other expense............................. 925 721 2,925 3,006 2,247
--------- --------- -------- -------- --------
Total noninterest expense.............. 5,707 11,123 27,249 22,136 20,852
--------- --------- -------- -------- --------
Income (loss) before income taxes...... 2,598 (2,611) 7,035 7,910 6,703
Income tax expense (benefit) ............. 955 (905) 2,695 2,535 2,644
--------- --------- -------- -------- --------
Net income (loss)...................... $ 1,643 $ (1,706) $ 4,340 $ 5,375 $ 4,059
========= ========= ======== ======== ========
</TABLE>
See accompanying notes to Consolidated Financial Statements.
35
<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 income earned on its
loan and investment portfolios and its cost of funds, consisting of the interest
paid on deposits and borrowings. Results of operation are also affected by the
Bank's provision for loan losses, loan sale activities and loan servicing. The
Bank's noninterest expense principally consists of compensation and employee
benefits, office occupancy and equipment expense, federal deposit insurance
premiums, data processing, advertising and business promotion and other
expenses. Results of operations are also significantly affected by general
economic and competitive conditions, particularly changes in interest rates,
government policies and actions of regulatory authorities. Future changes in
applicable law, regulations or government policies may materially impact the
Bank.
MANAGEMENT STRATEGY
The Bank has historically operated as a traditional savings institution
providing one- to four-family residential mortgage loans and a variety of retail
deposit products and services to consumers throughout the Bank's market area.
Since its organization in 1907, and particularly in recent decades, the Bank has
enjoyed a relatively steady pattern of asset growth. Through a series of
acquisitions of savings associations and the establishment of additional branch
offices between 1971 and 1995, the Bank expanded its operations from the Lincoln
and Omaha area to a large region encompassing Nebraska, southwest Iowa and
northern Kansas. Three of those acquisitions received financial assistance from
the FSLIC and three of the acquisitions resulted in the creation of supervisory
goodwill as an asset of the Bank. Supervisory goodwill ("Supervisory Goodwill")
was an intangible asset that resulted from the application of the purchase
method of accounting to acquisitions of failing thrift institutions that were
acquired with the encouragement of the Federal Home Loan Bank Board. Supervisory
Goodwill is the subject of litigation by the Bank against the United States
government in the United States Court of Federal Claims. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Impact of Goodwill Litigation." The Bank is one of the most well-recognized
financial institutions in its market area. Its extensive retail office network
throughout its region offers customers the convenience of visiting an office
near where they live or work. The Bank's strategy includes continuing to develop
its reputation for service, competitive products, innovations and a small
"hometown" perception that has earned the loyalty of its customers throughout
the region. The Bank will also seek to enhance its leadership position and
involvement in the communities it serves through the establishment of a
charitable foundation. See "The Conversion -- Establishment of a Charitable
Foundation."
As a result of the enactment of the Financial Institutions Reform,
Recovery and Enforcement Act of 1989 ("FIRREA"), new capital requirements were
imposed on the thrift industry that mandated certain levels of "tangible
capital," "core capital," and "risk-based capital," and defined those terms so
as to exclude, following a five-year transition period, intangible assets, such
as goodwill, from the calculation of the various capital requirements. The Bank
continued to exceed all capital requirements following FIRREA but in response to
the more stringent capital requirements adopted by the OTS as a result of FIRREA
and the mandatory phase-out of Supervisory Goodwill as an asset for purposes of
calculating capital, the Bank adopted a strategic policy to reduce deposits,
consolidate offices, centralize operations, and reduce noninterest expenses. As
a result of these policies, the Bank's ratios of tangible capital to tangible
assets, core capital to tangible assets and risk-based capital to risk-weighted
assets increased from 2.9% to 7.18%, 4.4% to 7.18%, and 8.06% to 14.26%,
respectively, from December 31, 1990 to December 31, 1996. On
36
<PAGE>
January 1, 1994, the Bank hired a new president and began the development of a
new long-term strategic plan, which was adopted in 1994 and began to be
implemented in 1995. Pursuant to that plan, the Bank began to rely more heavily
on investments in loans and particularly adjustable-rate mortgage ("ARM") loans,
consumer loans and commercial real estate loans instead of investment
securities. The Bank also stabilized assets in 1995 and employed a modest asset
growth strategy in 1996 as a means to continue to build capital. The Bank
supported its growth with a greater emphasis on retail deposits in place of
borrowings. The Bank's objectives include originating and purchasing ARMs on
one-to four-family residential properties; selling longer-term fixed-rate
mortgage loans; aggressive marketing and retention of short-term consumer loans,
primarily home equity loans and home improvement loans; and generally
concentrating investment in shorter-term and variable-rate products. The Bank
has also established as goals increasing interest margins and improving
operational efficiency.
Because of limited demand for ARM loans in the Bank's market area and
the competition among financial service providers for such loans, and in order
to support its growth in short-term consumer loans and other more interest-
sensitive products, the Bank has increasingly relied upon purchased loans from
brokers. See "Business of the Bank."
Management believes the Bank's financial position provides the
opportunity to expand in existing markets or grow through strategic
acquisitions. Acquisitions may improve operational efficiencies through
economies of scale and strengthen the Bank's geographic diversification. The
Company and the Bank may use a portion of the Conversion proceeds to establish
new branch offices or acquire other financial institutions. However, neither the
Company nor the Bank have any pending agreements or understandings regarding
acquisitions of any specific financial institutions or branch offices. See "Use
of Proceeds." Management also believes profitable market share growth in
selected product areas can be achieved through a more aggressive marketing and
pricing approach.
MANAGEMENT OF INTEREST RATE RISK
The principal objective of the Bank's interest rate risk management
function is to evaluate the interest rate risk included in certain balance sheet
accounts, determine the level of risk appropriate given the Bank's business
strategy, operating environment, capital and liquidity requirements and
performance objectives, and manage the risk consistent with Board of Directors'
approved guidelines. Through such management, the Bank seeks to reduce the
vulnerability of its operations to changes in interest rates. The Bank monitors
its interest rate risk as such risk relates to its operating strategies. The
Bank's Board of Directors has established an Asset/Liability Committee,
responsible for reviewing its asset/liability policies and interest rate risk
position, which meets on a monthly basis and reports trends and interest rate
risk position to the Board of Directors on a quarterly basis. The extent of the
movement of interest rates is an uncertainty that could have a negative impact
on the earnings of the Bank. See "Risk Factors -- Sensitivity to Increase in
Interest Rates."
In recent years, the Bank has primarily utilized the following
strategies to manage interest rate risk: (1) emphasizing the origination and
purchase for portfolio retention of adjustable-rate and shorter-term fixed-rate,
one- to four-family mortgage loans; (2) originating and selling in the secondary
market longer-term, fixed-rate mortgage loans; and (3) investing primarily in
short-term U.S. Government securities or mortgage-backed securities with
adjustable interest rates.
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
and 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
37
<PAGE>
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 September 30, 1997, the Bank's
cumulative interest rate gap (which is the difference between the amount of
interest-earning assets maturing or repricing within one year and interest-
bearing liabilities maturing or repricing within one year) as a percentage of
total assets, was a negative 0.7%. 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.
During a period of rising interest rates, a negative gap would tend to affect
adversely net interest income while a positive gap would tend to result in an
increase in net interest income. Conversely, during a period of falling interest
rates, a negative gap would tend to result in an increase in net interest income
while a positive gap would tend to affect adversely net interest income.
The following table sets forth the amounts of interest-earning assets
and interest-bearing liabilities outstanding at September 30, 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
September 30, 1997, on the basis of contractual maturities, anticipated
prepayments, and scheduled rate adjustments within a three-month period and
subsequent selected time intervals. The loan amounts in the table reflect
principal balances expected to be redeployed and/or repriced as a result of
contractual amortization and anticipated prepayments of adjustable-rate loans
and fixed-rate loans, and as a result of contractual rate adjustments on
adjustable-rate loans. Annual prepayment rates for adjustable-rate and fixed-
rate one- to four-family and multi-family mortgage loans are assumed to range
from 14.0% to 17.0% and 6.0% to 52.0%, respectively. The annual prepayment rate
for mortgage-backed securities is assumed to be 13.0%. Money market deposit
accounts, savings accounts and negotiable order of withdrawal ("NOW") accounts
are assumed to have annual decay rates of 7.0%, 34.0% and 17.0%, respectively.
See "Business of the Bank -- Lending Activities," "-- Investment Activities" and
"-- Sources of Funds."
38
<PAGE>
<TABLE>
<CAPTION>
AT SEPTEMBER 30, 1997
--------------------------------------------------------------------------------
MORE THAN MORE THAN
3 3 MONTHS MORE THAN MORE THAN 3 YEARS MORE
MONTHS TO 6 MONTHS TO 1 YEAR TO TO THAN TOTAL
OR LESS 6 MONTHS 1 YEAR 3 YEARS 5 YEARS 5 YEARS AMOUNT
----------- ---------- ----------- ---------- ----------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets(1):
Investment securities(2)......... $ 38,701 $ 6,984 $ 29,502 $ 8,017 $ 7,986 $ 1,170 $ 92,360
Loans receivable(3).............. 129,773 73,055 95,797 232,734 186,215 127,826 845,400
Mortgage-backed securities....... 14,809 2,680 18,769 16,146 15,291 13,465 81,160
FHLB stock....................... 7,060 -- -- -- -- -- 7,060
--------- --------- -------- ------- --------- -------- ---------
Total interest-earning assets.. 190,343 82,719 144,068 256,897 209,492 142,461 1,025,980
--------- --------- -------- ------- --------- -------- ---------
Interest-bearing liabilities:
Money market accounts............ 5,042 5,042 10,084 40,336 40,336 191,862 292,702
Savings accounts................. 1,032 1,032 2,064 7,897 -- -- 12,025
NOW accounts..................... 3,250 3,250 6,500 26,000 26,000 9,618 74,618
Certificate accounts............. 74,929 105,508 201,338 117,455 36,736 1,120 537,086
FHLB advances.................... 5,016 17 17 66 5,067 382 10,565
--------- --------- -------- ------- --------- -------- ---------
Total interest-bearing liabilities 89,269 114,849 220,003 191,754 108,139 202,982 926,996
--------- --------- -------- ------- --------- -------- ---------
Interest-earning assets less
interest-bearing liabilities.... $101,074 $(32,130) $(75,935) $65,143 $101,353 $(60,521) $ 98,984
======== ========= ========= ======= ======== ========= =========
Cumulative interest-rate
sensitivity gap(4)............. $101,074 $ 68,944 $ (6,991) $58,152 $159,505 $ 98,984
======== ======== ========= ======= ======== =========
Cumulative interest-rate gap as
a percentage of total assets
at September 30, 1997........... 9.78% 6.67% (0.68)% 5.63% 15.43% 9.58%
Cumulative interest-earning assets
as a percentage of cumulative
interest-bearing liabilities at
September 30, 1997.............. 213.22% 133.78% 98.35% 109.44% 122.03% 110.68%
</TABLE>
_________________
(1) Interest earnings 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) Includes Federal funds sold.
(3) For purposes of the gap analysis, loans receivable includes
non-performing loans gross of the allowance for loan losses, undisbursed
loan funds, unamortized discounts and deferred loan fees.
(4) Interest sensitivity gap represents the difference between net interest-
bearing assets and interest-bearing liabilities.
Certain shortcomings are inherent in the method of analysis presented
in the foregoing table. For example, although certain assets and liabilities may
have similar maturities or periods to repricing, they may react to 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 change 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 model which internally generates estimates of
the change in the Bank's 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 OTS also produces a similar analysis using its own model, based
upon data submitted on the Bank's quarterly Thrift Financial Reports, the
results of which may
39
<PAGE>
vary from the Bank's internal model primarily due to differences in assumptions
utilized, including estimated loan prepayment rates, reinvestment rates and
deposit decay rates. See "Regulation -- Federal Savings Institution Regulation."
The following table sets forth the Bank's NPV as of June 30, 1997, as calculated
by the OTS.
<TABLE>
<CAPTION>
NPV AS % OF PORTFOLIO
CHANGE IN NET PORTFOLIO VALUE VALUE OF ASSETS
INTEREST RATES ------------------------------------------------- --------------------------------
IN BASIS POINTS % NPV
(RATE SHOCK) AMOUNT $ CHANGE CHANGE RATIO CHANGE(1)
- ------------------ -------------- -------------- -------------- -------------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
400 $53,984 $(57,195) (51.4)% 5.42% (496) bp
300 69,328 (41,851) (37.6) 6.83 (356)
200 84,739 (26,440) (23.8) 8.19 (220)
100 99,257 (11,923) (10.7) 9.42 (97)
Static 111,180 -- -- 10.39 --
-100 119,354 8,174 7.3 11.02 63
-200 122,263 11,083 10.0 11.20 81
-300 124,217 13,037 11.7 11.30 92
-400 129,290 18,111 16.3 11.65 127
</TABLE>
__________
(1) Expressed in basis points.
The Bank's change in its NPV at June 30, 1997, based on a rise in
interest rates of 200 basis points was a 23.8% decrease, representing a dollar
decrease in equity value of $26.4 million. In contrast, based on a decline in
interest rates of 200 basis points, the Bank's NPV was estimated to increase
10.0% or $11.1 million at June 30, 1997. The Bank's exposure increases to a
51.4% decrease under a 400 basis point rise in rates, and the NPV is estimated
to increase 16.3% based on a 400 basis point decrease in rates.
The Bank is aware of its interest rate risk exposure under rapidly
rising rates and more modest exposure under falling rates. Due to the Bank's
recognition of the need to control its interest rate exposure, the Bank has
focused on being active in the origination and purchase of ARMs, construction
loans and adjustable-rate multi-family and commercial real estate loans and
plans to continue this lending strategy with an increased emphasis on short-term
consumer loans.
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 model 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 measurements and
net interest income models provide 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.
40
<PAGE>
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
also depends upon the relative amounts of interest-earning assets and interest-
bearing liabilities and the interest rate earned or paid on them.
41
<PAGE>
Average Balance Sheet. The following table sets forth certain information
relating to the Bank at and for the three months ended September 30, 1997 and
1996, and for the years ended June 30, 1997, 1996 and 1995. 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 except where noted otherwise and reflect annualized yields and
costs. Average balances are derived from average month-end balances. Management
does not believe that the use of average monthly balances instead of average
daily balances has caused any material differences in the information presented.
The yields and costs include fees which are considered adjustments to yields.
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED SEPTEMBER 30,
----------------------------------------
AT SEPTEMBER 30, 1997 1997
---------------------- ----------------------------------------
AVERAGE
YIELD/ AVERAGE YIELD/
BALANCE COST BALANCE INTEREST COST
---------- --------- ----------- ----------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
ASSETS:
Interest-earning assets:
Federal funds sold.................................... $ 33,700 5.57% $ 26,750 $ 410 6.13%
Investment securities(2).............................. 65,720 5.96 75,769 1,162 6.13
Mortgage-backed securities(5)......................... 81,160 6.71 83,732 1,382 6.60
Loans receivable, net(1).............................. 818,460 8.26 818,564 17,159 8.38
---------- ----------- -------
Total interest-earning assets...................... 999,040 7.89 1,004,815 20,113 8.01
------ ------- ------
Noninterest-earning assets............................ 34,538 36,150
---------- -----------
Total assets....................................... $1,033,578 $ 1,040,965
========== ===========
LIABILITIES AND RETAINED EARNINGS:
Interest-bearing liabilities:
NOW accounts.......................................... $ 74,618 2.76% $ 75,729 $ 525 2.77%
Regular savings accounts.............................. 12,025 1.99 12,118 61 2.01
Money market accounts................................. 292,702 4.68 292,138 3,448 4.72
Certificate accounts.................................. 537,086 5.76 537,404 7,757 5.77
---------- ----------- --------
Total interest-bearing deposits.................... 916,431 5.12 917,389 11,791 5.14
FHLB advances......................................... 10,565 5.97 13,316 195 5.86
---------- ----------- --------
Total interest-bearing liabilities................. 926,996 5.13 930,705 11,986 5.15
------ ----------- --------
Non-interest-bearing accounts............................. 7,238 6,841
Other liabilities......................................... 18,782 23,568
---------- ----------
Total liabilities.................................. 953,016 961,114
Retained earnings......................................... 80,562 79,851
---------- ----------
Total liabilities and retained earnings............ $1,033,578 $1,040,965
========== ==========
Net interest income/Net interest rate spread(3)........... 2.76% $ 8,127 2.86%
====== ======== ======
Net interest margin(4).................................... 3.13% 3.24%
====== ======
Ratio of interest-earning assets to interest-
bearing liabilities..................................... 107.77% 107.96%
====== ======
<CAPTION>
FOR THE THREE MONTHS ENDED SEPTEMBER 30,
-----------------------------------------
1996
-----------------------------------------
AVERAGE
AVERAGE YIELD/
BALANCE INTEREST COST
---------- ----------- ------------
<S> <C> <C> <C>
ASSETS:
Interest-earning assets:
Federal funds sold................................. $ 42,100 $ 649 6.17%
Investment securities(2)........................... 129,093 1,861 5.77
Mortgage-backed securities(5)...................... 96,009 1,570 6.54
Loans receivable, net(1)........................... 728,470 15,448 8.48
---------- -------
Total interest-earning assets................... 995,672 19,528 7.85
-------- ------
Noninterest-earning assets............................. 36,344
----------
Total assets.................................... $1,032,016
==========
LIABILITIES AND RETAINED EARNINGS:
Interest-bearing liabilities:
NOW accounts....................................... $ 78,665 $ 528 2.68%
Regular savings accounts........................... 14,439 72 1.99
Money market accounts.............................. 255,681 2,953 4.62
Certificate accounts............................... 563,992 8,053 5.71
--------- -------
Total interest-bearing deposits................. 912,777 11,606 5.09
FHLB advances...................................... 13,844 235 6.79
--------- -------
Total interest-bearing liabilities.............. 926,621 11,841 5.11
------- ------
Non-interest-bearing accounts.......................... 6,683
Other liabilities...................................... 24,121
----------
Total liabilities............................... 957,425
Retained earnings...................................... 74,591
------
Total liabilities and retained earnings......... $1,032,016
==========
Net interest income/Net interest rate spread(3)........ $ 7,687 2.74%
======= ======
Net interest margin(4)................................. 3.09%
======
Ratio of interest-earning assets to interest-
bearing liabilities.................................. 107.45%
======
</TABLE>
_____________
(1) Amount is net of deferred loan origination costs, undisbursed proceeds of
construction loans in process, allowance for loan losses and includes non-
performing loans.
(2) Includes investment securities available-for-sale and held-to-maturity and
stock in the FHLB.
(3) Net interest rate spread represents the difference between the weighted
average yield on interest-earning assets and the weighted average cost of
interest-bearing liabilities.
(4) Net interest margin represents net interest income as a percentage of
average interest-earning assets.
(5) Includes mortgage-backed securities available-for-sale and held-to-
maturity.
42
<PAGE>
<TABLE>
<CAPTION>
FOR THE YEARS ENDED JUNE 30,
--------------------------------------------------------------------------
1997 1996
------------------------------------ ----------------------------------
AVERAGE AVERAGE
AVERAGE YIELD/ AVERAGE YIELD/
BALANCE INTEREST COST BALANCE INTEREST COST
----------- ---------- ----------- ----------- ---------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Interest-earning assets:
Federal funds sold................................ $ 24,400 $ 1,523 6.24% $ 70,331 $ 4,177 5.94%
Investment securities(2).......................... 120,170 6,899 5.74 145,685 8,220 5.64
Mortgage-backed securities(5)..................... 91,794 5,982 6.52 91,739 5,967 6.50
Loans receivable, net(1).......................... 767,973 63,942 8.33 672,321 56,585 8.42
---------- ------- ---------- -------
Total interest-earning assets................... $1,004,337 78,346 7.80 980,076 74,949 7.65
------- ------ ------- ------
Noninterest-earning assets........................... 36,370 34,404
---------- ----------
Total assets.................................... $1,040,707 $1,014,480
========== ==========
LIABILITIES AND RETAINED EARNINGS:
Interest-bearing liabilities:
NOW accounts...................................... $ 77,400 $ 2,086 2.70% $ 64,032 $ 1,664 2.60%
Regular savings accounts.......................... 13,593 270 1.99 15,466 307 1.98
Money market accounts............................. 271,686 12,599 4.64 228,799 10,448 4.57
Certificate accounts.............................. 556,974 31,591 5.67 586,991 34,746 5.92
---------- ------- ---------- -------
Total interest-bearing deposits................. 919,653 46,546 5.06 895,288 47,165 5.27
FHLB advances..................................... 12,265 652 5.32 15,921 1,041 6.54
---------- ------- ---------- -------
Total interest-bearing liabilities.............. 931,918 47,198 5.06 911,209 48,206 5.29
------- ------ ------- ------
Non-interest-bearing accounts........................ 6,747 5,396
Other liabilities.................................... 26,436 26,400
---------- ----------
Total liabilities............................... 965,101 943,005
Retained earnings.................................... 75,606 71,475
---------- ----------
Total liabilities and retained earnings......... $1,040,707 $1,014,480
========== ==========
Net interest income/Net interest
rate spread(3)..................................... $31,148 2.74% $26,743 2.36%
======= ====== ======= ======
Net interest margin(4)............................... 3.10% 2.73%
====== ======
Ratio of interest-earning assets to interest-
bearing liabilities................................ 107.77% 107.56%
====== ======
<CAPTION>
FOR THE YEARS ENDED JUNE 30,
-------------------------------------
1995
-------------------------------------
AVERAGE
AVERAGE YIELD/
BALANCE INTEREST COST
---------- ---------- ----------
<S> <C> <C> <C>
ASSETS:
Interest-earning assets:
Federal funds sold................................ $ 17,771 $ 1,010 5.68%
Investment securities(2).......................... 201,928 10,606 5.25
Mortgage-backed securities(5)..................... 90,876 5,784 6.36
Loans receivable, net(1).......................... 629,488 51,964 8.25
--------- ------
Total interest-earning assets................... 940,063 69,364 7.38
------ ----
Noninterest-earning assets........................... 35,612
---------
Total assets.................................... $ 975,675
=========
LIABILITIES AND RETAINED EARNINGS:
Interest-bearing liabilities:
NOW accounts...................................... $ 57,469 $ 1,276 2.22%
Regular savings accounts.......................... 18,498 395 2.14
Money market accounts............................. 206,520 8,815 4.27
Certificate accounts.............................. 585,721 33,223 5.67
-------- ------
Total interest-bearing deposits................. 868,208 43,709 5.03
FHLB advances..................................... 14,801 896 6.05
--------- ---
Total interest-bearing liabilities.............. 883,009 44,605 5.05
------ ----
Non-interest-bearing accounts........................ 3,134
Other liabilities.................................... 22,429
---------
Total liabilities............................... 908,572
Retained earnings.................................... 67,103
---------
Total liabilities and retained earnings......... $ 975,675
=========
Net interest income/Net interest
rate spread(3).....................................
$24,759 2.33%
Net interest margin(4)............................... ======= ====
2.63%
Ratio of interest-earning assets to interest- ====
bearing liabilities................................ 106.46%
======
</TABLE>
_____________
(1) Amount is net of deferred loan origination costs, undisbursed proceeds of
construction loans in process, allowance for loan losses and includes non-
performing loans.
(2) Includes investment securities available-for-sale and held-to-maturity and
stock in the FHLB.
(3) Net interest rate spread represents the difference between the weighted
average yield on interest-earning assets and the weighted average cost of
interest-bearing liabilities.
(4) Net interest margin represents net interest income as a percentage of
average interest-earning assets.
(5) Includes mortgage-backed securities
available-for-sale and held-to-maturity.
43
<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 on a proportional basis between changes in rate and volume.
<TABLE>
<CAPTION>
THREE MONTHS ENDED YEAR ENDED YEAR ENDED
SEPTEMBER 30, 1997 JUNE 30, 1997 JUNE 30, 1996
COMPARED TO COMPARED TO COMPARED TO
THREE MONTHS ENDED YEAR ENDED YEAR ENDED
SEPTEMBER 30, 1996 JUNE 30, 1996 JUNE 30, 1995
-------------------------- --------------------------- ---------------------------
INCREASE INCREASE INCREASE
(DECREASE) (DECREASE) (DECREASE)
DUE TO DUE TO DUE TO
----------------- ----------------- -----------------
VOLUME RATE NET VOLUME RATE NET VOLUME RATE NET
-------- ------- ------- -------- ------- -------- -------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Federal funds sold........................ $ (235) $ (4) $ (239) $(2,855) $ 201 $(2,654) $ 3,119 $ 48 $ 3,167
Investment securities..................... (1,415) 716 (699) (1,464) 143 (1,321) (3,127) 741 (2,386)
Mortgage-backed securities................ (284) 96 (188) 3 12 15 55 128 183
Loans receivable, net..................... 2,891 (1,180) 1,711 6,843 514 7,357 3,547 1,074 4,621
------ ------ ------ ------- ------- ------- ------- ------ -------
Total interest-earning assets....... 957 (372) 585 2,527 870 3,397 3,594 1,991 5,585
------ ------ ------ ------- ------- ------- ------- ------ -------
Interest-bearing liabilities:
NOW accounts.............................. (76) 73 (3) 356 66 422 156 232 388
Savings accounts.......................... (16) 5 (11) (39) 2 (37) (60) (28) (88)
Money market accounts..................... 430 65 495 1,989 162 2,151 989 644 1,633
Certificate accounts...................... (795) 499 (296) (1,728) (1,427) (3,155) 71 1,452 1,523
------ ------ ------ ------- ------- ------- ------- ------ -------
(457) 642 185 578 (1,197) (619) 1,156 2,300 3,456
FHLB advances............................. (9) (31) (40) (215) (174) (389) 70 75 145
------ ------ ------ ------- ------- ------- ------- ------ -------
Total interest-bearing
liabilities...................... (466) 611 145 363 (1,371) (1,008) 1,226 2,375 3,601
------ ------ ------ ------- ------- ------- ------- ------ -------
Net change in net interest income........... $1,423 $ (983) $ 440 $ 2,164 $ 2,241 $ 4,405 $ 2,368 $ (384) $ 1,984
====== ====== ====== ======= ======= ======= ======= ====== =======
</TABLE>
COMPARISON OF FINANCIAL CONDITION AT SEPTEMBER 30, 1997, AND JUNE 30, 1997.
Total assets at September 30, 1997, were $1.03 billion, a decrease of
$8.8 million, or 0.8%, compared to $1.04 billion at June 30, 1997. The decrease
was primarily due to the Bank's use of maturity and prepayment proceeds from
investment securities, federal funds and mortgage-backed securities to paydown
FHLB advances. As a result, aggregate holdings in investment securities, federal
funds and mortgage-backed securities decreased by $10.5 million to $173.5
million at September 30, 1997, compared to $184.0 million at June 30, 1997. FHLB
advances decreased by $11.0 million to $10.6 million at September 30, 1997,
compared to $21.6 million at June 30, 1997.
Loans receivable, net, increased by $3.5 million to $818.4 million at
September 30, 1997, compared to $814.9 million at June 30, 1997. The growth in
loans receivable, net, was primarily due to a $11.2 million increase in
purchased consumer loans which was offset in part by a decline of $7.8 million
in mortgage loans.
44
<PAGE>
Total deposits at September 30, 1997, were $923.7 million, an increase of
$3.6 million, compared to $920.1 million at June 30, 1997. Retained earnings at
September 30, 1997, were $80.6 million, an increase of $1.7 million, compared to
$78.9 at June 30, 1997
COMPARISON OF FINANCIAL CONDITION AT JUNE 30, 1997, AND JUNE 30, 1996.
Total assets increased by $4.5 million, or 0.4% from $1.038 billion at
June 30, 1996, to $1.042 billion at June 30, 1997.
During that period, the Bank also experienced a shift in the composition
of its asset portfolio. Loans receivable, net, increased by $101.4 million, or
14.2%, from $713.5 million at June 30, 1996, to $814.9 million at June 30, 1997.
This growth was primarily due to increased purchases and originations of ARM
products and consumer loans. ARM loans increased by $76.3 million, or 22.0%,
from $346.9 million at June 30, 1996, to $423.2 million at June 30, 1997, while
consumer loans increased $44.8 million, or 127.1%, from $35.2 million at June
30, 1996, to $80.0 million at June 30, 1997.
The funding for the increased net loans receivable was realized from the
maturities and prepayments of investment securities and mortgage-backed
securities and a reduction in federal funds. Investment securities and mortgage-
backed securities declined $48.1 million, or 21.1%, from $228.5 million at June
30, 1996, to $180.4 million at June 30, 1997, while federal funds declined $48.9
million, or 93.1%, from $52.5 million at June 30, 1996, to $3.6 million at June
30, 1997. Total deposits at June 30, 1997, were $920.1 million, a decrease of
$9.2 million, or 1.0%, compared to $929.3 million at June 30, 1996. The decrease
was primarily due to a decrease of $37.5 million, or 6.5%, in certificate
accounts to $536.2 million at June 30, 1997, from $573.7 million at June 30,
1996, offset, by an increase of $29.3 million, or 8.4%, in net increases in
money market, savings and NOW accounts.
As a result of an increase in net income of $4.3 million for the year
ended June 30, 1997, retained earnings at June 30, 1997, were $78.9 million,
compared to $74.6 million at June 30, 1996.
COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1997,
AND SEPTEMBER 30, 1996.
General. Net income increased $3.3 million to $1.6 million for the three
months ended September 30, 1997, from a $1.7 million loss for the three months
ended September 30, 1996. The loss for the three months ending September 30,
1996, was the result of a one-time special assessment charge of $5.7 million to
fully capitalize the SAIF. Excluding the net of tax impact of the one-time
special assessment, net income decreased from $2.1 million for the three months
ended September 30, 1996, to $1.6 million for the three months ended September
30, 1997. The decrease was due in part to higher non-interest expenses and a
higher provision for loan losses, partially offset by an increase in interest
income.
Interest Income. Interest income for the three months ended September 30,
1997, was $20.1 million, compared to $19.5 million for the three months ended
September 30, 1996, an increase of $585,000, or 3.0%. The increase in interest
income was the result of a shift in the asset composition from lower-yielding
investment securities to higher-yielding loans.
Interest Expense. Interest expense for the three months ended September
30, 1997, was $12.0 million, compared to $11.8 million for the three months
ended September 30, 1996, an increase of $145,000, or 1.2%. The increase in
interest expense was the result of an increase in the average cost of deposits
partially offset by the decrease in both the average balance and average cost of
FHLB advances
45
<PAGE>
Provision for Loan Losses. During the three months ended September 30,
1997, the Bank's provision for loan losses was $713,000 compared to $96,000 for
the three months ended September 30, 1996, an increase of $617,000. The increase
in the provision was due primarily to management's assessment of its loan
portfolio, the growth in the portfolio and the level of non-performing loans.
To the extent the Bank increases its investment in commercial real
estate, commercial and construction loans which entail higher risk than one-to-
four family loans, the Bank may deem it appropriate to increase its allowance
for loan losses through additional loan loss provisions which may adversely
affect net income.
Management of the Bank is responsible for the determination of the level
of the allowance for loan losses. The allowance for loan losses is maintained at
a level sufficient to provide for estimated losses based on evaluating known and
inherent risks in the loan portfolio and upon management's continuing analysis
of the factors underlying the qualify of the loan portfolio. These factors
include changes in the size and composition of the loan portfolio, actual loan
loss experience, current and anticipated economic conditions, detailed analysis
of individual loans for which full collectibility may not be assured, and
determination of the existence and realizable value of the collateral guarantees
securing the loan. Additions to this allowance are charged to earnings. In
addition, various regulatory agencies, as an integral part of their examination
process, periodically review the Bank's allowance for loan losses. Such agencies
may require the Bank to provide additions to the allowance based upon judgments
different from management. Although management uses the best information
available, future adjustments to the allowance may be necessary due to economic,
operating, regulatory and other conditions beyond the Bank's control.
Non-Interest Income. Non-interest income decreased by $30,000 to $891,000
for the three months ended September 30, 1997, from $921,000 for the three
months ended September 30, 1996. The decrease was primarily due to a decline in
loan commitment fees.
Non-Interest Expense. Non-interest expense decreased by $5.4 million to
$5.7 million for the three months ended September 30, 1997, from $11.1 million
for the three months ended September 30, 1996. The decrease was attributable to
a significant reduction of premium assessments on savings deposits by the FDIC
and the one-time special assessment charged in September 1996. Excluding federal
insurance premiums, aggregate non-interest expense items increased $704,000 or
14.4%, to $5.6 million for the three months ended September 30, 1997, from $4.9
million for the three months ended September 30, 1996. The increase was
attributable to higher compensation and employee benefits, due to annual salary
increases and increased employee staff, along with increased sales promotion and
advertising expenses.
Provision for Income Taxes. Income tax expense increased $1.9 million for
the three months ended September 30, 1997. The increase in the provision for
income taxes was the result of the $5.2 million increase in earnings before
income taxes for the three months ended September 30, 1997, as compared to the
three months ended September 30, 1996.
COMPARISON OF OPERATING RESULTS FOR THE YEARS ENDED JUNE 30, 1997 AND JUNE 30,
1996.
General. Net income decreased $1.1 million, or 23.8%, to $4.3 million for
the year ended June 30, 1997, from $5.4 million for the year ended June 30,
1996. The decrease was the result of a one-time special assessment charge of
$5.7 million in September 1996, to fully capitalize the SAIF. Excluding the net
of tax impact of the one-time special assessment, net income increased from $5.4
million for the year ended June 30, 1996, to $8.0 million for the year ended
June 30, 1997. The increase was due primarily to an increase in net interest
income, which is the principal source of income for the Bank and represents the
difference between total interest and fees earned on loans, mortgage-backed
securities and other investments and total
46
<PAGE>
interest paid on deposits and borrowings. The increase in net interest income
resulted from an increase in the interest spread to 2.74% for the year ended
June 30, 1997, from 2.36% for the year ended June 30, 1996. The increase in
balances and rates of interest-earning assets was greater than the increase in
the balances and a lowering of rates on interest-bearing liabilities as the Bank
focused on higher yielding assets and increasing loan volume. The loan-to-
deposit ratio increased to 88.6% at June 30, 1997, from 76.8% at June 30, 1996.
Excluding the $5.7 million special assessment, for the year ended June 30, 1997,
non-interest income decreased by $315,000 for the year ended June 30, 1997,
which was offset by a $587,000 decrease in non-interest expense.
Interest Income. Interest income for the year ended June 30, 1997, was
$78.3 million, compared to $74.9 million for the year ended June 30, 1996, an
increase of $3.4 million or 4.5%. Interest income from loans accounted for all
of the increase, with decreases in interest income on investment securities and
other interest-earning assets offsetting some of the increase. The increase in
interest income on loans of $7.3 million to $63.9 million for the year ended
June 30, 1997, from $56.6 million for the year ended June 30, 1996, was a result
of growth in the average balance of loans outstanding, partially offset by a
decline in the average yield. The average balance of loans receivable increased
$95.7 million, while the yield on these loans declined to 8.33% for 1997, from
8.42% for 1996. The growth in loans was attributable to an increase in the
origination and purchase of residential ARM loans and an increase in originated
and purchased construction and consumer loans. During the year ended June 30,
1997, the Bank increased the amount of equity line of credit loans in the
portfolio to $20.0 million, from $7.3 million for the year ended June 30, 1996,
an increase of $12.7 million or 174.0%.
Interest income on investment securities, federal funds and other
interest-earning assets decreased $4.0 million to $8.4 million for the year
ended June 30, 1997, compared to $12.4 million for the year ended June 30, 1996.
The average balance decreased $71.4 million to $144.6 million for the year ended
June 30, 1997, from $216.0 million for the year ended June 30, 1996. The average
yield on investment securities and other interest-earning assets increased to
5.82% for the year ended June 30, 1997, from 5.74% for the year ended June 30,
1996. The decreased balances of these maturing investments were primarily used
to fund the increase in loan balances.
Interest Expense. Interest expense for the year ended June 30, 1997, was
$47.2 million, compared to $48.2 million for the year ended June 30, 1996, a
decrease of 1.0 million, or 2.1%. The decrease in interest expense was primarily
the result of a decrease in the average cost of interest-bearing deposits to
5.06% for the year ended June 30, 1997, from 5.27% for the year ended June 30,
1996, even though the average balance increased to $919.7 million for 1997,
compared to $895.2 million for 1996, an increase of $24.5 million.
Provisions for Loan Losses. The Bank's provision for loan losses was
$450,000 for the year ended June 30, 1997, compared to $598,000 for the year
ended June 30, 1996. The $450,000 provision was used to increase the Bank's
allowance for loan losses as the loan portfolio increased by $101.0 million to
$842.0 million at June 30, 1997, from $740.0 million at June 30, 1996. The 1997
provision was based on management's evaluation of its loan portfolio and real
estate market conditions. In particular, management considered the continued
growth in the portfolio, as well as the decrease in its non-performing loans.
The Bank's non-performing loans as a percentage of total loans improved from
0.39% at June 30, 1996, to 0.22% at June 30, 1997. At June 30, 1997, the Bank's
allowance for loan losses as a percentage of total non-performing loans was
348.95%, compared to 211.66% at June 30, 1996. At June 30, 1997, the Bank's
allowance for loan losses as a percentage of loans receivable, net, was 0.77%,
compared to 0.82% at June 30, 1996.
47
<PAGE>
Non-Interest Income. Other non-interest income decreased to $3.6 million
for the year ended June 30, 1997, from $3.9 million for the year ended June 30,
1996. This decrease was primarily due to the decrease in gains on the sale of
real estate owned ("REO") of $819,000 to $7,000 for the year ended June 30,
1997, from $826,000 for the year ended June 30, 1996. This decrease was offset
by fees and service charges, which consist of deposit product fees, loan
servicing fees and other loan fees, which increased by $155,000 in 1997, as
compared to 1996. Other increases of $65,000 came from net commissions received
on the sale of annuities and mutual funds in 1997 as compared to 1996. Included
in the year ended June 30, 1996, were net losses on the disposal of computer
software, equipment and the lease termination fee paid on the mainframe computer
(the Bank outsourced its computer processing to a third party in June 1995) in
the amount of $271,000.
Non-Interest Expense. Non-interest expense increased by $5.1 million or
23.1%, from $22.1 million for the year ended June 30, 1996, to $27.2 million for
the year ended June 30, 1997, primarily due to the one-time special SAIF
assessment of $5.7 million. Regular SAIF assessments decreased by $925,000 to
$1.3 million for the year ended June 30, 1997, from $2.2 million for the year
ended June 30, 1996. Salaries and employee benefit costs increased by $356,000
to $11.5 million for the year ended June 30, 1997, or 3.1%, from $11.1 million
for the year ended June 30, 1996. The increase was attributable to annual salary
increases. Excluding the one-time SAIF special assessment, non-interest expense
actually decreased by $587,000 for the year ended June 30, 1997.
Provision for Income Taxes. Total income tax expense was $2.7 million for
the year ended June 30, 1997, compared to $2.6 million for the year ended June
30, 1996. The effective tax rate for 1997 was 38.3%, an increase of 6.2% over
the 32.1% effective tax rate for 1996. The lower effective tax rate for the year
ended June 30, 1996, was primarily the result of prior year state tax refunds of
$451,000 and the reversal of estimated deferred tax liability.
COMPARISON OF OPERATING RESULTS FOR THE YEARS ENDED JUNE 30, 1996, AND JUNE 30,
1995.
General. Net income increased $1.3 million, or 32.4%, to $5.4 million for
the year ended June 30, 1996, from $4.1 million for the year ended June 30,
1995. The increase was due primarily to an increase in net interest income. The
increase in balances and rates of interest-earning assets was greater than the
increase in balances and rates of interest-bearing liabilities as the Bank
focused on higher yielding assets and increasing lending volume. The Bank's
loans-to-deposits ratio increased to 76.8% at June 30, 1996, from 74.8% at June
30, 1995. Additionally, the Bank sold its credit card operation for $101,000 and
recorded net gains on the sale of REO and real estate held for investment of
$926,000 for the year ended June 30, 1996. This was offset by an increase in
non-interest expense of $1.3 million. The increase was due to increased
compensation and benefit expenses of $1.2 million for overtime, vacation and
severance payments incurred for the conversion process of outsourcing the Bank's
data processing system to a third-party provider and increases in staff.
Interest Income. Interest income for the year ended June 30, 1996, was
$74.9 million, compared to $69.4 million for the year ended June 30, 1995, an
increase of $5.5 million, or 7.9%. Increased interest income on loans accounted
for substantially all of the increase. The increase in interest income on loans
was a result of growth in the average balance of loans outstanding combined with
an increase in the average yield. The average balance of loans receivable
increased $42.8 million, while the yield on such loans increased to 8.42% for
the year ended June 30, 1996, from 8.25% for the year ended June 30, 1995.
The growth in lending was attributable to increased origination and
purchases of residential ARM loans and a more focused attention to the
generation of residential construction and consumer loans. During 1996 the Bank
also entered the equity line of credit market and by year end had generated $7.3
million of
48
<PAGE>
these loans for its loan portfolio. The increase in average yield for 1996 over
1995 was a direct result of generating higher-yielding construction and equity
line of credit loans, and also, the upward rate adjustments on the Bank's
"teaser" ARM loans which were offered initially at low rates to attract
borrowers.
Interest income on mortgage-backed securities increased $183,000 for the
year ended June 30, 1996, compared to the year ended June 30, 1995. The average
balance of mortgage-backed securities increased by $863,000 for the year ended
June 30, 1996, compared to the year ended June 30, 1995. The yield on this
portfolio increased to 6.50% from 6.36%, primarily due to the repricing of
adjustable-rate securities. Interest income on investment securities decreased
$2.4 million for the year ended June 30, 1996, compared to the year ended June
30, 1995. The average balance of investment securities declined by $56.2 million
for the year ended June 30, 1996, compared to the year ended June 30, 1995,
primarily due to the funding of loans with proceeds from maturing investment
securities.
Interest Expense. Interest expense for the year ended June 30, 1996, was
$48.2 million, compared to $44.6 million for the year ended June 30, 1995, an
increase of $3.6 million, or 8.1%. The increase in interest expense was the
result of a $27.1 million increase in the average balance of interest-bearing
deposits and an increase in the average cost of deposits to 5.27% for the year
ended June 30, 1996, from 5.03% for the year ended June 30, 1995. The increase
in average cost was due to a higher rate environment.
Provision for Loan Losses. During the year ended June 30, 1996, the
Bank's provision for loan losses was $598,000 compared to $243,000 for the year
ended June 30, 1995, an increase of $355,000. The increase was mainly due to the
increase in loans which grew $75.0 million to $740.0 million at June 30, 1996,
from $665.0 million at June 30, 1995. With the provision for loan losses in 1996
of $598,000, the total allowance for loan losses increased by $276,000 to $5.9
million at June 30, 1996, from $5.6 million at June 30, 1995.
Non-Interest Income. Non-interest income increased by $863,000 to $3.9
million for the year ended June 30, 1996, from $3.0 million for the year ended
June 30, 1995. The increase was primarily due to increases of $478,000 in gains
on the sale of REO and $354,000 in fees and service charges collected from loan
and deposit customers. Additionally, the Bank also realized a gain of $101,000
on the sale of its credit card portfolio and an increase of $266,000 on the sale
of loans held-for-sale. These increases during 1996 were offset by a loss of
$271,000 on the disposal of computer software and the lease termination fees
paid on the mainframe computer when the Bank outsourced its data processing
system to a third party.
Non-Interest Expense. Non-interest expense increased to $22.1 million for
the year ended June 30, 1996, from $20.9 million for the year ended June 30,
1995, an increase of $1.3 million. Salary and benefit expenses increased $1.2
million to $11.1 million for the year ended June 30, 1996, from $9.9 million for
the year ended June 30, 1995. Attributable to this increase were annual salary
adjustments of $433,000, or 4.5%; $500,000 for increased employee staff
associated with the Bank's expanded lending areas, and $295,000 for severance
and overtime payments made to staff personnel involved in the conversion process
of outsourcing the data processing system. Occupancy, data processing and other
expense items decreased by $127,000 to $8.1 million for the year ended June 30,
1996, from $8.2 million for the year ended June 30, 1995. This decrease was
primarily attributed to the data processing conversion. Advertising expenses
increased $171,000 to $732,000 for the year ended June 30, 1996, from $561,000
for the year ended June 30, 1995. The increase was primarily the result of a
greater focus on deposit generation in addition to mortgage volume.
Provision for Income Taxes. Income tax expense was $2.5 million for the
year ended June 30, 1996, compared to $2.6 million for the year ended June 30,
1995. The effective tax rate for 1996 was 32.1%, a decrease of 7.3% over the
39.4% effective tax rate for 1995. The decrease in the effective tax rate for
June
49
<PAGE>
30, 1996, was primarily the result of prior year state tax refunds of $451,000,
and the reversal of estimated deferred tax liability.
LIQUIDITY AND CAPITAl RESOURCES
The Bank's primary sources of funds are deposits, principal and interest
payments on loans, mortgage-backed and investment securities and FHLB advances.
While maturities and scheduled amortization of loans are predictable sources of
funds, deposit flows and mortgage prepayments are greatly influenced by general
interest rates, economic conditions and competition. The Bank has continued to
maintain the required levels of liquid assets as defined by OTS regulations.
This requirement of the OTS, which may be varied at the direction of the OTS
depending upon economic conditions and deposit flows, is based upon a percentage
of deposits and short-term borrowings. The Bank's currently required liquidity
ratio is 5.0%. At September 30, 1997 and 1996, the Bank's liquidity ratios were
11.9% and 14.9%, respectively, and at June 30, 1997, 1996, 1995, 1994, and 1993,
the Bank's liquidity ratios were 12.4%, 19.1%, 23.0%, 27.8% and 22.8%,
respectively.
At September 30, 1997, the Bank exceeded all of its regulatory capital
requirements with a tangible capital level of $80.3 million, or 7.8%, of total
adjusted assets, which is above the required level of $15.5 million, or 1.5%;
core capital of $80.3 million, or 7.8%, of total adjusted assets, which is above
the required level of $41.4 million, or 4.0%; and risk-based capital of $86.8
million, or 14.3%, of risk-weighted assets, which is above the required level of
$48.5 million, or 8.0%. See "Regulatory Capital Compliance."
The Bank's most liquid assets are cash and cash equivalents and
investment securities. The levels of these assets are dependent on the Bank's
operating, financing, lending and investing activities during any given period.
At September 30, 1997, cash and cash equivalents and investment securities
totaled $104.3 million, or 10.1% of total assets.
The Bank has other sources of liquidity if a need for additional funds
arises, including FHLB advances. At September 30, 1997, the Bank had $10.6
million in advances outstanding from the FHLB, and at September 30, 1997, had an
additional overall borrowing capacity from the FHLB of $403.0 million. Depending
on market conditions, the pricing of deposit products and FHLB advances, the
Bank may continue to rely on FHLB borrowing to fund asset growth.
At September 30, 1997, the Bank had commitments to originate and purchase
loans and unused outstanding lines of credit and undisbursed proceeds of
construction mortgages totaling $68.8 million. The Bank anticipates that it will
have sufficient funds available to meet its current loan origination
commitments. Certificate accounts, including IRA and KEOGH accounts, which are
scheduled to mature in less than one year from September 30, 1997, totalled
$394.1 million. The Bank expects that substantially all of the maturing
certificate accounts will be retained by the Bank at maturity.
IMPACT OF INFLATION AND CHANGING PRICES
The Consolidated Financial Statements and Notes thereto presented herein
have been prepared in accordance with GAAP, which require the measurement of
financial position and operating results generally 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 prices of goods and services.
50
<PAGE>
IMPACT OF NEW ACCOUNTING STANDARDS
Accounting for Stock-Based Compensation. In November 1995, the FASB
issued Statement of Financial Accounting Standards No. 123, "Accounting for
Stock Based Compensation" ("SFAS No. 123"). This statement establishes financial
accounting standards for stock-based employee compensation plans. SFAS No. 123
permits the Bank to choose either a new fair value based method or the current
Accounting Principles Board ("APB") Opinion 25 intrinsic value based method of
accounting for its stock-based compensation arrangements. SFAS No. 123 requires
pro forma disclosures of net earnings and earnings per share computed as if the
fair value based method had been applied in financial statements of companies
that continue to follow current practice in accounting for such arrangements
under 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-
Based Incentive Plan, stock purchase plans, restricted stock plans, and stock
appreciation rights). The statement 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 that begin 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. Any effect that this statement will have on the Bank will be
applicable upon the consummation of the Conversion. The Bank has elected to
continue to follow the APB Opinion 25 method upon adoption, but will provide pro
forma disclosure as if the fair value method had been applied.
Reporting Comprehensive Income. In June 1997, the FASB issued Statement
of Financial Accounting Standards No. 130, "Reporting Comprehensive Income"
("SFAS No. 130"). This statement establishes standards for the reporting and
displaying of comprehensive income and its components in a full set of financial
statements. Comprehensive income is the total of reported net income and all
other revenues, expenses, gains and losses that under generally accepted
accounting principles bypass reported net income. SFAS No. 130 requires that
comprehensive income be reported in a financial statement that is displayed with
the same prominence as other financial statements with the aggregate amount of
comprehensive income reported in that same financial statement. SFAS No. 130
permits the statement of changes in stockholders' equity be used to meet this
requirement. Companies are encouraged, but not required, to display the
components of other comprehensive income below the total for net income in the
statement of operations or in a separate statement of comprehensive income.
Companies are also required to display the cumulative total of other
comprehensive income for the period as a separate component of equity in the
statement of financial position. This statement is effective for fiscal years
beginning after December 15, 1997, or July 1, 1998 for the Bank.
IMPACT OF GOODWILL LITIGATION
On August 7, 1995, the Bank initiated a lawsuit (the "Goodwill
Litigation") against the United States Government ("Government") in the United
States Court of Federal Claims. The suit contends that the Government breached
its contracts with the Bank in connection with three separate 1982 supervisory
merger transactions. The breach occurred through the enactment of FIRREA in
1989, which mandated the imposition of new capital requirements on the thrift
industry, required certain levels of "tangible capital," and "risk-based
capital," and defined those terms to exclude, following a five-year transition
period, intangible assets such as goodwill from the calculation of the various
capital requirements. (First Federal
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<PAGE>
Lincoln Bank v. The United States, No. 95-518-C). The complaint also raises
claims against the Government for unconstitutional taking and deprivation of
property rights without due process. The contracts arose in connection with the
Bank's acquisition by merger of three federal savings and loan associations in
1982, pursuant to which the Bank alleges the Government agreed that the Bank
would have the right to use the purchase method of accounting in each of the
three mergers and include the approximately $41 million in resulting Supervisory
Goodwill as a capital asset amortizing over a 25-year period for purposes of
meeting applicable regulatory net worth requirements. The Goodwill Litigation
was stayed pending the resolution on appeal of the Winstar Cases (defined below)
which present issues similar to those presented by the Bank in the Goodwill
Litigation.
On July 1, 1996, the United States Supreme Court issued its opinion in
United States v. Winstar Corporation, No. 95-865, which affirmed the decisions
of the United States Court of Appeals for the Fourth Federal Circuit and the
United States Court of Federal Claims in various consolidated cases (the
"Winstar Cases") in granting summary judgment to the plaintiff thrift
institutions on the liability portion of their breach of contract claims against
the Government. The Supreme Court held that the Government breached certain
express contracts when Congress enacted FIRREA, and the Supreme Court remanded
the proceedings for a determination of the appropriate measure and amount of
damages which, as of the date of this prospectus, have not been finally
litigated.
The United States Court of Federal Claims issued a Case Management
Order ("CMO") in all of the cases similar to the Winstar Cases ("Winstar-related
Cases"), including the Bank's. The CMO sets forth procedures for all of the
plaintiffs and the Government to follow relating to the exchange of documents
and other discovery, filing of partial summary judgment motions with respect to
liability only, discovery on damages issues and the timing of all of the
Winstar-related Cases being set for liability and/or damage trials. Pursuant to
the CMO, the Bank filed a motion for partial summary judgment as to the
Government's liability to the Bank for breach of contract in each of the three
subject matter transactions. Pursuant to the CMO, the Government filed its
response to the Bank's motion. Based upon the current status of the proceedings
in the Winstar-related Cases and the CMO and subsequent procedural orders, the
Goodwill Litigation is not expected to be set for trial for at least two years.
The amount of damages the Bank has suffered as a result of the Government's
breach of contract has not yet been determined. In addition, although the
decision of the Supreme Court in the Winstar Cases as to liability has been
rendered, there can be no assurance that the court will not reach a different
conclusion in the Goodwill Litigation or any other Winstar-related case. There
can also be no assurance as to the amount of any damages that may be awarded
with respect to the Goodwill Litigation or when such damages may be awarded or
received by the Bank.
BUSINESS OF THE BANK
GENERAL
The Bank's principal business has been and continues to be attracting
retail deposits from the general public in the areas surrounding its 57 offices
and investing those deposits, together with funds generated from operations and
borrowings, primarily in adjustable-rate and shorter-term fixed-rate one- to
four-family residential mortgage loans. The Bank originates loans for investment
and loans for sale in the secondary market, generally retaining adjustable rate
loans and selling longer-term fixed rate loans. To a lesser extent, the Bank
invests in multi-family, commercial real estate, construction and land, consumer
and commercial loans. In addition to loans it originates in areas surrounding
its branches, the Bank purchases loans from loan brokers secured by properties
located in other western states. Loan sales are made from loans designated as
being held for sale or originated for sale during the period. The Bank's
revenues are derived principally from interest on its mortgage loans, and to a
lesser extent, interest and dividends on its investment and
52
<PAGE>
mortgage-backed securities and loan servicing income. The Bank's primary sources
of funds are deposits, principal and interest payments on loans and mortgage-
backed securities, FHLB advances and proceeds from the sale of loans.
MARKET AREA AND COMPETITION
The Bank is a community-oriented savings institution offering a variety
of financial products and services to meet the needs of the communities it
serves. The Bank's deposit gathering is concentrated in the communities
surrounding its 57 offices located in Nebraska, Marshall and Rooks Counties in
northern Kansas and seven counties in southwest Iowa. The Bank invests primarily
in loans secured by first or second mortgages on properties located in areas
surrounding its offices. It also invests to a lesser extent in loans on
properties outside of its Nebraska, Kansas, and Iowa market areas, primarily in
other Western and Midwestern states.
The Bank's home office is located in Lincoln, Nebraska, which is the
state capital and home of the University of Nebraska at Lincoln. The region in
which the Bank's offices are located was once dominated by agriculture, but now
consists of a blend of industries, major urban centers, and significant
corporate investment. The region's population is nearly 1.8 million persons and
more than 90% of the individuals in the Bank's primary market area live in
Nebraska. The region continues to experience a migration from rural communities
to the Omaha and Lincoln metropolitan areas, as well as other mid-sized regional
growth centers scattered throughout the Bank's primary market area. After a
moderate decline between 1984 and 1986, median household income in Nebraska has
steadily increased. According to the 1990 census, the majority of Nebraska
households had incomes between $15,000 and $49,999 with nearly 16.3% of all
households with incomes above $50,000.
The Bank faces significant competition both in generating loans and in
attracting deposits. The Bank's primary market area is highly competitive and
the Bank faces direct competition from a significant number of financial service
providers, many with a state-wide or regional presence and, in some cases, a
national presence. Many of these financial service providers are significantly
larger and have greater financial resources than the Bank. The Bank's
competition for loans comes principally from commercial banks, savings banks,
credit unions, mortgage brokers, mortgage banking companies and insurance
companies. Due to the Bank's increasing emphasis on the acquisition of ARM loans
for retention in its portfolio, and because the demand for such loans is limited
in the Bank's market area in the recent interest rate environment, competition
for such loans and for other shorter-term interest-sensitive loans has caused
the Bank to increase its reliance upon purchases of loans from selected brokers,
particularly in California, Arizona and Colorado. The Bank's most direct
competition for deposits has historically come from savings banks and
associations and commercial banks and credit unions. In addition, the Bank faces
increasing competition for deposits from non-bank institutions such as brokerage
firms and insurance companies in such instruments as short-term money market
funds, corporate and government securities funds, mutual funds and annuities.
Competition may also increase as a result of the lifting of restrictions on the
interstate operations of financial institutions. See "Risk Factors -- Highly
Competitive Industry and Geographic Area."
LENDING ACTIVITIES
Loan Portfolio Composition. A significant amount of the Bank's loan
portfolio consists of first mortgage loans secured by one- to four-family
residences. At September 30, 1997, loans receivable, net totaled $818.5 million,
of which $521.7 million were one- to four-family, residential mortgage loans, or
61.7% of the Bank's total loans receivable. At such date, the remainder of the
loan portfolio consisted of: $39.2 million of multi-family residential loans, or
4.6% of total loans receivable; $140.8 million of commercial real estate loans,
or 16.7% of total loans receivable; $50.5 million of construction and land
loans,
53
<PAGE>
or 6.0% of total loans receivable; and $91.2 million of consumer loans, or 10.8%
of total loans receivable, consisting of $21.8 million of equity lines of
credit, $25.6 million of home equity loans, $27.3 million of home improvement
loans, $10.3 million of auto loans and $6.2 million of other consumer loans. The
Bank had $1.5 million of mortgage loans held for sale at September 30, 1997,
consisting of one- to four-family fixed-rate mortgage loans. At that same date,
49.5% of the Bank's residential mortgage loans and construction and land loans,
excluding mortgage loans held for sale, had adjustable interest rates, most of
which are indexed to the one-year U.S. Treasury Constant Maturity Yield ("CMT
Index").
The types of loans that the Bank may purchase and originate are subject
to federal and state laws and regulations. Interest rates charged by the Bank on
loans are affected by the demand for such loans and the supply of money
available for lending purposes and the rates offered by competitors. These
factors are, in turn, affected by, among other things, economic conditions,
monetary policies of the federal government, including the Federal Reserve
Board, and legislative tax policies.
54
<PAGE>
The following table sets forth the composition of the Bank's loan
portfolio in dollar amounts and as a percentage of the portfolio at the dates
indicated.
<TABLE>
<CAPTION>
AT SEPTEMBER 30, AT JUNE 30,
-------------------------------------------------------------------------
1997 1997 1996 1995 1994
------------------- ------------------- ------------------ ------------------- -----------
PERCENT PERCENT PERCENT PERCENT
AMOUNT OF TOTAL AMOUNT OF TOTAL AMOUNT OF TOTAL AMOUNT OF TOTAL AMOUNT
-------- --------- --------- --------- --------- -------- -------- --------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Mortgage loans:
Residential:
One- to four-family........... $521,679 61.71% $531,110 63.08% $487,744 65.87% $455,715 68.49% $448,782
Multi-family.................. 39,208 4.64 39,167 4.65 27,966 3.78 24,391 3.67 27,183
Commercial real estate........... 140,825 16.65 144,139 17.12 146,207 19.74 132,070 19.85 132,373
Construction and land............ 50,531 5.98 45,617 5.42 41,112 5.55 25,623 3.85 5,886
-------- ------ -------- ----- -------- ----- -------- ----- --------
Total mortgage loans........ 752,243 88.98 760,033 90.27 703,029 94.94 637,799 95.86 614,224
-------- ------ -------- ----- -------- ----- -------- ----- -------
Commercial and equipment............ 1,954 0.23 1,990 0.24 2,246 0.30 1,330 0.20 92
-------- ------ -------- ----- -------- ----- -------- ----- -------
Consumer loans:
Home equity ..................... 25,661 3.04 22,407 2.66 12,486 1.69 11,383 1.71 11,408
Equity line of credit............ 21,784 2.58 19,992 2.37 7,341 0.99 -- -- --
Home improvement................. 27,311 3.23 21,772 2.58 4,270 0.58 4,173 0.63 3,882
Auto loans....................... 10,263 1.21 9,224 1.10 4,817 0.65 2,921 0.44 2,991
Other............................ 6,184 0.73 6,560 0.78 6,290 0.85 7,757 1.16 6,801
-------- ------ -------- ----- -------- ----- -------- ----- -------
Total consumer loans........ 91,203 10.79 79,955 9.49 35,204 4.76 26,234 3.94 25,082
-------- ------ -------- ----- -------- ----- -------- ----- -------
Total loans receivable.............. 845,400 100.00% 841,978 100.00% 740,479 100.00% 665,363 100.00% 639,398
====== ====== ====== ======
Allowance for loan losses........ (7,022) (6,330) (5,918) (5,642) (5,966)
Undisbursed proceeds on
construction loans in process.. (16,908) (17,699) (17,270) (9,656) (3,922)
Deferred loan origination fees, net. (3,010) (3,068) (3,779) (3,842) (4,328)
-------- -------- -------- -------- --------
Loans receivable, net....... $818,460 $814,881 $713,512 $646,223 $625,182
======== ======== ======== ======== ========
<CAPTION>
---------------------------------
1993
------------ ------------------
Percent Percent
of Total Amount of Total
--------- --------- --------
<S> <C> <C> <C>
Mortgage loans:
Residential:
One- to four-family........... 70.19% $406,449 65.80%
Multi-family.................. 4.25 33,314 5.39
Commercial real estate........... 20.71 145,112 23.49
Construction and land............ 0.92 2,304 0.37
------ --------- ------
Total mortgage loans........ 96.07 587,179 95.05
------ --------- ------
Commercial and equipment............ 0.01 155 0.03
------ --------- ------
Consumer loans:
Home equity ..................... 1.78 14,964 2.42
Equity line of credit............ -- -- --
Home improvement................. 0.61 4,713 0.76
Auto loans....................... 0.47 5,771 0.94
Other............................ 1.06 4,921 0.80
------ --------- ------
Total consumer loans........ 3.92 30,369 4.92
------ --------- ------
Total loans receivable.............. 100.00% 617,703 100.00%
====== ======
Allowance for loan losses........ (7,581)
Undisbursed proceeds on
construction loans in process.. (1,206)
Deferred loan origination fees, net. (5,460)
---------
Loans receivable, net....... $603,456
=========
</TABLE>
55
<PAGE>
Loan Maturity. The following table shows the remaining contractual
maturity of the Bank's loans at September 30, 1997. The table does not include
the effect of future principal prepayments.
<TABLE>
<CAPTION>
AT SEPTEMBER 30, 1997
-------------------------------------------------------------------------------------
ONE- TO
FOUR- MULTI- COMMERCIAL CONSTRUCTION Total
FAMILY FAMILY REAL ESTATE AND LAND COMMERCIAL Consumer Loans
------- ------- ------------ ------------- ----------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Amounts due:
One year or less........................... $13,730 $ 7 $4,556 $45,101 $ 37 $4,404 $ 67,835
------- -------- ------ ------- ------ ------ --------
After one year:
More than one year to three years......... 2,468 3,807 16,663 5,146 1,159 9,892 39,135
More than three years to five years....... 10,500 2,817 3,046 152 758 62,547 79,820
More than five years to 10 years.......... 44,053 31,324 114,943 132 -- 14,296 204,748
More than 10 years to 20 years............ 174,306 1,253 1,617 -- -- 64 177,240
More than 20 years........................ 276,622 -- -- -- -- -- 276,622
-------- -------- -------- ------- ------ ------- -------
Total due after September 30, 1998........ 507,949 39,201 136,269 5,430 1,917 86,799 777,565
-------- -------- -------- ------- ------ ------- --------
Total amount due.......................... $521,679 $39,208 $140,825 $50,531 $1,954 $91,203 845,400
======== ======== ======== ======= ====== =======
Less: (7,022)
Allowance for loan losses......................................................................................... (16,908)
Undisbursed loan funds............................................................................................ (2,155)
Deferred loan fees................................................................................................ (855)
Unamortized discounts, net........................................................................................ --------
Loans receivable, net............................................................................................... $818,460
========
</TABLE>
56
<PAGE>
The following table sets forth, at September 30, 1997, the dollar
amount of loans, excluding mortgage loans held for sale, contractually due after
September 30, 1998, and whether such loans have fixed interest rates or
adjustable interest rates.
<TABLE>
<CAPTION>
DUE AFTER SEPTEMBER 30, 1998
--------------------------------------------------
FIXED ADJUSTABLE TOTAL
--------------- --------------- --------------
(IN THOUSANDS)
<S> <C> <C> <C>
Mortgage loans:
One- to four-family..................................... $261,989 $245,960 $507,949
Multi-family............................................ 5,930 33,271 39,201
Commercial real estate.................................. 15,737 120,532 136,269
Construction and land................................... 816 4,614 5,430
---------- ---------- ---------
Total mortgage loans............................... 284,472 404,377 688,849
Commercial loans............................................. 1,917 -- 1,917
Consumer loans............................................... 72,452 14,347 86,799
-------- -------- --------
Total loans receivable............................. $358,841 $418,724 $777,565
======== ======== ========
</TABLE>
Origination, Sale and Servicing of Loans. The Bank's mortgage lending
activities are conducted primarily through its branch offices and through a
network of approximately 5 active loan correspondents and wholesale loan brokers
approved by the Bank. All loans originated by the Bank, either through internal
sources or through loan correspondents, are underwritten pursuant to the Bank's
policies and procedures. For fiscal 1997, and the three months ended September
30, 1997, the Bank's loan correspondents originated $71.7 million and $3.2
million in loans, respectively. The Bank originates both adjustable-rate and
fixed-rate loans. The Bank's ability to originate and purchase 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. The recent interest rate environment has caused the Bank to increase its
reliance on purchasing ARM loans for retention in its portfolio.
Generally, all adjustable-rate mortgage loans originated by the Bank
are originated for investment. While the Bank has in the past, from time to
time, retained fixed-rate one- to four-family loans, it is currently the general
policy of the Bank to sell most of the 30-year one- to four-family fixed-rate
mortgage loans and retain for portfolio adjustable-rate loans and shorter term
fixed-rate loans with maturities of 15 years or less.
At September 30, 1997, the Bank was servicing its portfolio of $658.9
million of loans receivable, net and mortgage loans held for sale and $19.8
million of loans for others, primarily consisting of conforming fixed-rate loans
sold by the Bank. Loan servicing includes collecting and remitting loan
payments, accounting for principal and interest, contacting delinquent
mortgagors, supervising foreclosures and property dispositions in the event of
unremedied defaults, making certain insurance and tax payments on behalf of the
borrowers and generally administering the loans. In the past, the Bank has
recognized gains from excess servicing, which is the present value of any
difference between the interest rate charged to the borrower and the interest
rate paid to the purchaser after deducting a normal servicing fee, and is
recognizable as an adjustment to the cash gain or loss. The excess servicing
gain or loss is dependent on prepayment estimates and discount rate assumptions.
The gross servicing fee income from loans originated and purchased is generally
0.25% to 0.50% of the total balance of the loan serviced. In the past, the Bank
recognized the present value of the income attributable to excess servicing
rights upon the sale of loans.
57
<PAGE>
During the fiscal years ended June 30, 1997, and June 30, 1996, the
Bank originated $97.7 million and $96.1 million of fixed-rate and adjustable-
rate one- to four-family loans, respectively, of which $49.7 million and $45.5
million, respectively, were retained by the Bank. The Bank's current policy is
generally to retain only those fixed-rate loans originated with a term of 15
years or less. The Bank recognizes, at the time of sale, the gain or loss on the
sale of the loans based on the difference between the net proceeds received and
the carrying value of the loans sold.
The following table sets forth the Bank's loan originations, purchases,
sales and principal repayments for the periods indicated:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED SEPTEMBER 30, FOR THE YEAR ENDED JUNE 30,
-------------------------- ---------------------------------------
1997 1996 1997 1996 1995
------------ ------------- ------------ ------------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
TOTAL LOANS:
Beginning balance.............................. $814,881 $713,512 $713,512 $646,223 $625,182
-------- -------- -------- -------- --------
Loans originated:
One - to four-family................... 38,395 23,638 97,688 96,065 40,869
Multi-family........................... 4,065 1,510 19,476 7,137 6,011
Commercial real estate................. 4,554 6,247 19,798 36,807 21,871
Construction and land.................. 16,332 13,452 52,064 48,825 15,931
Commercial............................. 308 543 1,954 1,513 1,347
Consumer: 16,602 10,999 50,215 28,566 16,914
-------- ------- --------- -------- --------
Total loans originated............. 80,256 56,389 241,195 218,913 102,943
-------- ------- --------- -------- --------
LOANS PURCHASED:
One- to four-family.................... 3,204 29,067 71,689 70,572 24,904
Residential construction............... -- -- -- -- 15,593
Consumer loans......................... 9,510 6,027 28,069 18 --
-------- -------- --------- -------- --------
Total loans purchased.............. 12,714 35,094 99,758 70,590 40,497
-------- -------- --------- -------- --------
Total.............................. 907,851 804,995 1,054,465 935,726 768,622
LESS:
Principal repayments........................ 72,244 47,841 191,137 169,649 99,035
Sales of loans.............................. 16,971 8,374 48,084 50,557 22,547
Transfer to REO and loan charge-offs........ 176 125 363 2,008 817
-------- -------- --------- -------- --------
Loans receivable............................... $818,460 $748,655 $814,881 $713,512 $646,223
======== ======== ========= ======== ========
</TABLE>
One-to Four-Family Mortgage Lending. The Bank currently offers both
fixed-rate and ARM loans with maturities of up to 30 years secured by one- to
four-family residences. Most of such loans 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, from mortgage brokers, and through referrals from members of the
Bank's local communities. At September 30, 1997, the Bank's oneto four-family
mortgage loans totaled $521.7 million, or 61.7% of total loans. Of the one- to
four-family mortgage loans outstanding at that date, 51.0% were fixed-rate
mortgage loans and 49.0% were ARM loans.
58
<PAGE>
The Bank currently offers fixed-rate mortgage loans with terms from 15
to 30 years. The Bank sells most of the 30-year fixed-rate residential loans
that it originates. The Bank generally retains for its portfolio shorter-term,
fixed-rate loans with maturities of 15 years or less and all adjustable-rate
one-to four-family loans. From time to time, the Bank will purchase one-to four-
family mortgage loans secured by real estate located primarily in the Midwest.
Such loans are purchased with servicing retained by the seller.
The Bank currently offers a number of ARM loans with terms of up to 30
years and interest rates which initially adjust one, two, three or five years
from the outset of the loan and thereafter annually or biannually for the
duration of the loan. The interest rates for the Bank's ARM loans are indexed to
either the one-year or two-year CMT Index or the U.S. Treasury Bill. The Bank
originates ARM loans initially with "teaser rates." The Bank's ARM loans
generally provide for periodic (not more than 2%) caps on the increase or
decrease in the interest rate at any adjustment date. Currently, the Bank has a
rate ceiling for the life of the loan of 11.875%.
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 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.
Most one- to four-family mortgage loans are underwritten according to
FNMA and FHLMC guidelines. Generally, the Bank originates one- to four-family
residential mortgage loans in amounts up to 80% of the lower of the appraised
value or the selling price of the property securing the loan and up to 95% of
the appraised value or selling price if private mortgage insurance ("PMI") is
obtained. 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.
Commercial Real Estate and Multi-Family Lending. The Bank invests in
commercial real estate loans that are secured by properties generally used for
business purposes such as office buildings, retail facilities, and multi-family
housing structures. Those loans are made on properties located primarily in
Lincoln and Omaha, Nebraska and in selected areas of the western states.
Commercial real estate loans are typically generated through loan brokers in
communities outside of Lincoln and Omaha. The Bank's underwriting procedures
provide generally that commercial real estate loans may be made in amounts up to
75% of the value of the security property and any loan exceeding that value
ratio must be supported by documentation of the relevant factors justifying the
deviation which is reviewed by the Bank's Board of Directors on a quarterly
basis. Commercial property loans exceeding established loan to value limits may
not exceed 30% of the Bank's capital. All commercial loans are underwritten at
the Bank's centralized Loan Underwriting Department at the Bank's home office.
In underwriting these loans, the Bank considers all aspects of the ability and
willingness of each borrower to repay the debt. The Bank considers the
borrower's income, probable continuation of income and credit history. The Bank
currently invests in commercial real estate loans with a loan amount up to $10.0
million and for terms of up to 15 years. Loans in excess of $3.0 million must be
presented to and approved by the Bank's Board of Directors. 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 125%. In addition, the Bank requires that security
instruments contain affirmative language concerning the prospective borrower's
responsibility for
59
<PAGE>
compliance with laws and regulations (including environmental, health and
safety) and for protecting the environmental conditions of the security
property. A phase one environmental assessment report, prepared in conformance
with the Bank's environmental risk policy, is obtained if the loan is in excess
of $750,000, or if there is any known indication of contamination at the
security property. The Bank's multi-family real estate loan portfolio at
September 30, 1997 was $39.2 million, or 4.6% of total loans, and the Bank's
commercial real estate loan portfolio at such date was $140.8 million, or 16.7%
of total loans. The largest multi-family or commercial real estate loan at
September 30, 1997 was a $7.4 million loan serviced by the Bank and secured by
property located in Nebraska.
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. 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
and a concentration of loans in a geographic region may be subject to greater
risk because of the potential for adverse economic conditions affecting that
region. The Bank seeks to minimize these risks through its underwriting
standards. See "Risk Factors -- Increased Lending Risks Associated with Multi-
Family, Commercial Real Estate and Commercial Loans."
Special Loan Program. The Bank makes loans to mortgage brokers to fund
home loans originated by the broker from the date of the closing of the home
loan until funding of the purchase of the home loan by an investor pursuant to a
previously executed agreement. The duration of such loans ordinarily does not
exceed 21 days and the loan is secured by a conditional assignment of the home
purchaser's loan. The amount of the loan is limited to the principal amount of
the note of the home purchaser. At September 30, 1997, the Bank's investment in
such loans totalled $11.7 million. In underwriting these loans, the Bank
considers the borrower's experience in the home loan lending market, asset size,
income level and credit history. To reduce risks associated with these loans, a
compensating depository account and maintenance of a minimal tangible net worth
are required.
Construction Lending. The Bank offers residential construction loans
for either presold or speculative homes both as temporary and as permanent
financing. The Bank generates such residential construction loans primarily
through direct contact with home builders, and most such loans involve
properties located in the Omaha and Lincoln metropolitan areas. Such loans
require that the Bank review plans, specifications and cost estimates and that
the contractor be known to the Bank to be reputable. The amount of construction
advances to be made, together with the sum of previous disbursements, may not
exceed the percentage of completion of the construction. Maximum loan-to-value
limits applicable to such loans generally are as follows: 95% for loans up to
the maximum amount established by FNMA and FHLMC from time to time (currently
$214,600); 80% for loans up to $250,000; and 75% for loans up to $350,000. At
September 30, 1997, the Bank's largest residential construction loans were
performing loans each with an outstanding principal balance of $500,000, secured
by single-family residences located in Gretna and Omaha, Nebraska. At that date,
residential construction loans totaled $37.3 million, or 4.4% of the Bank's
total outstanding loans.
Construction and development 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 Construction and Development
Lending."
60
<PAGE>
Consumer and Other Lending. Consumer loans, including primarily home
equity loans and home improvement loans as well as other loans for consumer
purposes, at September 30, 1997, amounted to $91.2 million or 10.8% of the
Bank's total loans. These loans include home improvement, automobile, equity
lines of credit, home equity, recreational vehicle, personal, and student loans.
Most of these loans have maturities of less than 60 months. The Bank generally
offers home equity loans in amounts up to $100,000 with a term of 60 months or
less and a loan-to-value ratio up to 100% of value or with terms from 61 months
to 120 months and a loan-to-value ratio up to 90% of value. The Bank offers home
improvement loans in amounts up to $75,000 with a term of 60 months or less and
a loan-to-value ratio up to 100% of value or with terms of 61 months to 120
months and loan-to-value ratios of 90% of value. The Bank offers automobile
loans in amounts up to $50,000 with 60 month terms and loan-to-value ratios of
85% for new cars and 75% for used cars. The Bank offers loans on recreational
vehicles in amounts up to $50,000 with terms up to l84 months and loan-to-value
ratios of 75% of the retail price. Boat loans and motorcycle loans are offered
in amounts up to $25,000 and $5,000 respectively with loan-to-value ratios of 60
% of the sales price. The Bank also offers 36 month personal, unsecured loans in
amounts up to $10,000 and loans on deposit accounts or stocks in amounts up to
$50,000. Student loans are offered through the Nebraska Higher Education Loan
Program and insured by the Nebraska Student Loan Program.
Loans 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. At September 30, 1997, the
Bank's consumer loans 90 days or more delinquent totaled $44,000.
Commercial Lending. At September 30, 1997, the Bank had $2.0 million in
commercial loans which amounted to 0.2% of total loans receivable. The Bank does
not currently anticipate that commercial lending activity will significantly
increase in the immediate future.
Loan Approval Procedures and Authority. The Board of Directors of the
Bank establishes the lending policies and procedures of the Bank. All general
lending policies are set on an ongoing basis by the Asset/Liability Committee
("ALCO") composed of the following officers of the Bank: Chairman; President;
Executive Vice Presidents: Director of Lending, Director of Financial Services,
Director of Marketing and Employee Development, Director of Consumer Services,
Director of Finance; and a First Vice President Controller. Pursuant to
established policies, the Chairman, President or Director of Lending may approve
consumer loans and residential loans up to the maximum amount permitted for the
Bank under applicable regulations.
Loans on commercial real estate and construction loans may be approved
up to $500,000 by a designated First Vice President and the Director of Lending
with ratification by the ALCO; in excess of $500,000 by any three of a
designated First Vice President, Director of Lending, President, and Chairman,
with ratification by the ALCO.
For loan amounts in excess of $3.0 million, approval of the Board of
Directors of the Bank is required.
61
<PAGE>
DELINQUENT LOANS, CLASSIFIED ASSETS AND REAL ESTATE OWNED
Delinquencies and Classified Assets. 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 30 days or more and all REO. 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, 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 secures 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 REO.
Federal regulations and the Bank's Asset Classification Policy require
that the Bank utilize an internal asset classification system as a means of
reporting problem and potential problem assets. The Bank has incorporated the
OTS internal asset classifications as a part of its credit monitoring system.
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 insured institution
will sustain "some loss" if the deficiencies are not corrected. Assets
classified as "Doubtful" have all of the weaknesses inherent in those classified
"Substandard" with the added characteristic that the weaknesses present make
"collection or liquidation in full," on the basis of currently existing facts,
conditions, and values, "highly questionable and improbable." Assets classified
as "Loss" are those considered "uncollectible" and of such little value that
their continuance as assets without the establishment of a specific loss reserve
is not warranted. Assets which do not currently expose the insured institution
to sufficient risk to warrant classification in one of the aforementioned
categories but possess weaknesses are required to be designated "Special
Mention."
When an insured institution classifies one or more assets, or portions
thereof, as Substandard or Doubtful, it is required to establish a general
valuation allowance for loan losses in an amount deemed prudent by management.
General valuation allowances represent loss allowances which have been
established to recognize the inherent risk associated with lending activities,
but which, unlike specific allowances, have not been allocated to particular
problem assets. When an insured institution classifies 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 asset so classified or
to charge off such amount.
A savings institution's determination as to the classification of its
assets and the amount of its valuation allowances is subject to review by the
OTS which can order the establishment of additional general or specific loss
allowances. The OTS, in conjunction with the other federal banking agencies, has
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
62
<PAGE>
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.
Although management believes that, based on information currently available to
it at this time, its allowance for loan losses is adequate, actual losses are
dependent upon future events and, as such, further additions to the level of
allowances for loan losses may become necessary.
The ALCO reviews and classifies assets on a monthly basis and the Board
of Directors reviews the results of the reports on a quarterly basis. The Bank
classifies assets in accordance with the management guidelines described above.
At September 30, 1997, the Bank had $2.3 million of assets designated as
Substandard which consisted of REO and mortgage and consumer loans. At that same
date the Bank had no loans designated as Doubtful or Loss. As of September 30,
1997, the Bank had a total of 13 one- to four-family loans, totaling $1.0
million, designated as Special Mention. At September 30, 1997, the largest loan
designated as Special Mention was a residential construction loan with a
carrying balance of $180,000.
At September 30, 1997, the Bank had no loans with a balance of $500,000
or more which had been adversely classified or identified as a problem loan.
63
<PAGE>
The following table sets forth the delinquencies in the Bank's loan
portfolio as of the dates indicated.
<TABLE>
<CAPTION>
AT SEPTEMBER 30, 1997 AT JUNE 30, 1997
---------------------------------------- ----------------------------------------
30-89 DAYS 90 DAYS OR MORE 30-89 DAYS 90 DAYS OR MORE
------------------- ------------------- ------------------- -------------------
PRINCIPAL PRINCIPAL PRINCIPAL PRINCIPAL
NUMBER BALANCE NUMBER BALANCE NUMBER BALANCE NUMBER BALANCE
OF LOANS OF LOANS OF LOANS OF LOANS OF LOANS OF LOANS OF LOANS OF LOANS
-------- --------- -------- --------- -------- --------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Mortgage loans:
One- to four-family................. 59 $2,485 28 $1,068 44 $1,620 17 $ 920
Multi-family........................ 2 751 -- -- 1 8 1 762
Commercial real estate.............. -- -- -- -- -- -- 1 110
Construction and land............... 1 14 -- -- -- -- -- --
--- -------- --- --------- --- -------- --- --------
Total mortgage loans............ 62 3,250 28 1,068 45 1,628 19 1,792
Consumer loans........................ 48 495 10 44 42 292 3 22
--- -------- --- --------- --- -------- --- --------
Total loans........................... 110 $3,745 38 $1,112 87 $1,920 22 $1,814
=== ======== === ========= === ======== === ========
Delinquent loans to total loans....... 0.44% 0.13% 0.23% 0.22%
==== ==== ==== ====
</TABLE>
<TABLE>
<CAPTION>
AT JUNE 30, 1996 AT JUNE 30, 1995
---------------------------------------- ----------------------------------------
30-89 DAYS 90 DAYS OR MORE 30-89 DAYS 90 DAYS OR MORE
------------------- ------------------- ------------------- -------------------
PRINCIPAL PRINCIPAL PRINCIPAL PRINCIPAL
NUMBER BALANCE NUMBER BALANCE NUMBER BALANCE NUMBER BALANCE
OF LOANS OF LOANS OF LOANS OF LOANS OF LOANS OF LOANS OF LOANS OF LOANS
-------- --------- -------- --------- -------- --------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Mortgage loans:
One- to four-family................. 12 $250 13 $ 714 6 $270 10 $ 255
Multi-family........................ -- -- 1 1,302 -- -- 1 1,302
Commercial real estate.............. -- -- 1 759 -- -- 3 2,273
Construction and land............... -- -- -- -- 1 165 -- --
--- ------ --- --------- --- ----- --- --------
Total mortgage loans............ 12 250 15 2,775 7 435 14 3,830
Consumer loans........................ 9 42 4 21 33 122 25 87
--- ------ --- --------- --- ----- --- --------
Total loans........................... 21 $292 19 $2,796 40 $557 39 $3,917
=== ====== === ========= === ===== === ========
Delinquent loans to total loans....... 0.04% 0.39% 0.08% 0.59%
==== ==== ==== ====
</TABLE>
64
<PAGE>
Non-Accrual Loans and REO. The following table sets forth information
regarding non-accrual loans and REO. At September 30, 1997, non-accrual loans
totaled $1.1 million, consisting of 38 loans, and REO totaled $1.2 million
consisting of one one- to four-family property and two commercial real estate
properties. It is the policy of the Bank to cease accruing interest on loans 90
days or more past due and to charge off all accrued interest. For the three
months ended September 30, 1997, and the year ended June 30, 1997, 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 $48,000 and $115,000, respectively. On July 1, 1995, the Bank adopted
Statement of Financial Accounting Standards No. 114 "Accounting by Creditors for
Impairment of a Loan," as amended by SFAS No. 118. Total impaired loans,
including non-accrual and restructured loans, were $5.0 million and $4.3 million
at June 30, 1997, and June 30, 1996, respectively. At September 30, 1997, such
impaired loans totalled $2.9 million.
<TABLE>
<CAPTION>
AT SEPTEMBER 30, AT JUNE 30,
------------------ --------------------------------------------------
1997 1996 1997 1996 1995 1994 1993
-------- -------- -------- -------- -------- --------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Non-accrual loans:
Mortgage loans:
One- to four-family................... $1,068 $ 699 $ 920 $ 714 $ 255 $ 820 $ 1,082
Multi-family.......................... -- -- 762 1,302 1,302 -- 2,706
Commercial real estate................ -- -- 110 759 2,273 -- --
Construction and land................. -- 26 -- -- -- -- --
-------- -------- -------- -------- -------- -------- ---------
Total mortgage loans............... 1,068 725 1,792 2,775 3,830 820 3,788
Consumer................................... 44 4 22 21 22 45 17
-------- -------- -------- -------- -------- -------- ---------
Total nonaccrual loans................... 1,112 729 1,814 2,796 3,852 865 3,805
Real estate owned, net (1).................... 1,171 1,316 1,462 1,391 3,206 8,225 5,458
-------- -------- -------- -------- -------- -------- ---------
Total non-performing assets........ $2,283 $2,045 $3,276 $4,187 $7,058 $9,090 $9,263
======== ======== ======== ======== ======== ======== =========
Allowance for loan losses as a percent
of total loans receivable(2)................ 0.85% 0.79% 0.77% 0.82% 0.87% 0.95% 1.24%
Allowance for loans losses as a percent
of non-performing loans(3)................... 631.47% 819.07% 348.95% 211.66% 146.47% 689.71% 199.24%
Non-performing loans as a percent of
total loans receivable(2)(3)................ 0.13% 0.10% 0.22% 0.39% 0.59% 0.14% 0.62%
Non-performing assets as a percent of
total assets(3)............................. 0.21% 0.20% 0.31% 0.40% 0.72% 0.92% 0.86%
</TABLE>
- ---------------
(1) REO balances are shown net of related loss allowances.
(2) Total loans include loans receivable, less undisbursed loan funds, deferred
loan fees and unamortized premiums and discounts.
(3) Non-performing assets consist of non-performing loans and REO. Non-
performing loans consist of all loans 90 days or more past due.
65
<PAGE>
Allowance for Loan Losses. The allowance for loan losses is established
through a provision for loan losses based on management's evaluation of the
risks inherent in its loan portfolio and the general economy. The allowance for
loan losses is maintained at an amount management considers adequate to cover
estimated losses in loans receivable which are deemed probable and estimable
based on information currently known to management. The allowance is based upon
a number of factors, including current economic conditions, actual loss
experience and industry trends. In addition, various regulatory agencies, as an
integral part of their examination process, 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. As of September 30, 1997, the Bank's allowance for loan losses
was 0.85% of total loans receivable as compared to 0.77% as of June 30, 1997.
The Bank had non-accrual loans of $1.1 million and $1.8 million at September 30,
1997, and June 30, 1997, respectively. The Bank will continue to monitor and
modify its allowances for loan losses as conditions dictate. While management
believes the Bank's allowance for loan losses is sufficient to cover losses
inherent in its loan portfolio at this time, 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.
The following table sets forth activity in the Bank's allowance for
loan losses for the periods indicated.
<TABLE>
<CAPTION>
AT OR FOR THE THREE
MONTHS ENDED
SEPTEMBER 30, AT OR FOR THE YEAR ENDED JUNE 30,
------------------- --------------------------------------------------
1997 1996 1997 1996 1995 1994 1993
--------- -------- --------- --------- -------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at beginning of period............ $6,330 $5,918 $5,918 $5,642 $5,966 $7,581 $7,685
Provision for loan losses................ 713 96 450 598 243 (902) 274
Charge-offs:
Mortgage loans:
One- to four-family.............. 7 41 44 16 83 45 13
Multi-family..................... -- -- -- -- -- -- --
Commercial real estate........... -- -- -- 75 374 672 382
Construction and land............ -- -- -- -- -- -- --
Commercial loans................. -- -- -- -- -- -- --
Consumer loans:
Home Equity...................... -- -- -- -- 1 3 7
Home improvement loans........... -- -- -- -- -- -- --
Auto loans....................... 2 -- -- -- -- -- --
Equity lines of credit........... -- -- -- -- -- -- --
Credit cards .................... -- -- 10 250 113 -- --
Other............................ 16 7 10 9 8 10 6
--------- -------- -------- ---------- ------------------- ---------
Total charge-offs............. 25 48 64 350 579 730 408
Recoveries................................ 4 5 26 28 12 17 30
--------- -------- -------- --------- --------- --------- ---------
Balance at end of period.................. $7,022 $5,971 $6,330 $5,918 $5,642 $5,966 $7,581
========= ======== ======== ========= ======== ========= =========
</TABLE>
66
<PAGE>
The following tables set forth the Bank's percent of allowance for loan
losses to total allowance for loans losses and the percent of loans to total
loans in each of the categories listed at the dates indicated.
<TABLE>
<CAPTION>
AT SEPTEMBER 30,
------------------------------------------------------------------------
1997 1996
------------------------------------ ----------------------------------
PERCENT PERCENT
OF LOANS OF LOANS
PERCENT OF IN EACH PERCENT OF IN EACH
ALLOWANCE CATEGORY ALLOWANCE CATEGORY
TO TOTAL TO TOTAL TO TOTAL TO TOTAL
AMOUNT ALLOWANCE LOANS AMOUNT ALLOWANCE LOANS
----------- ---------- ----------- ---------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Residential one- to four-family.......... $ 964 13.73% 61.71% $ 896 15.01% 66.08%
Commercial real estate and multi-family.. 1,153 16.42 21.29 1,172 19.63 22.11
Construction and land.................... 171 2.44 5.98 134 2.24 5.62
Commercial loans......................... 10 0.14 0.23 13 0.22 0.33
Consumer loans........................... 850 12.10 10.79 415 6.95 5.86
Unallocated.............................. 3,874 55.17 -- 3,341 55.95 --
----------- ---------- ----------- ---------- ----------- -----------
Total allowance for loan losses. $7,022 100.00% 100.00% $5,971 100.00% 100.00%
=========== ========== =========== ========== =========== ===========
</TABLE>
67
<PAGE>
<TABLE>
<CAPTION>
At June 30,
-------------------------------------------------------------------
1997 1996
------------------------------------ -----------------------------
Percent Percent
of Loans of Loans
Percent of in Each Percent of in Each
Allowance Category Allowance Category
to Total to Total to Total to Total
Amount Allowance Loans Amount Allowance Loans
---------- ---------- -------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
(Dollars in thousands)
Residential one- to four-family................. $ 986 15.58% 63.08% $ 862 14.57% 65.87%
Commercial real estate 1,291 20.40 21.77 1,410 23.83 23.52
and multi-family..............................
Construction and land........................... 142 2.24 5.42 113 1.91 5.55
Commercial loans................................ 10 0.16 0.24 12 0.20 0.30
Consumer loans.................................. 744 11.75 9.49 315 5.32 4.76
Unallocated..................................... 3,157 49.87 -- 3,206 54.17 --
------- ------- ------- ------- ------- -------
Total allowance for loan losses........ $6,330 100.00% 100.00% $5,918 100.00% 100.00%
====== ====== ====== ====== ====== ======
<CAPTION>
------------------------------------
1995
------------------------------------
Percent
of Loans
Percent of in Each
Allowance Category
to Total to Total
Amount Allowance Loans
---------- ---------- ----------
<C> <C> <C>
Residential one- to four-family................. $ 719 12.74% 68.49%
Commercial real estate 1,677 29.72 23.52
and multi-family..............................
Construction and land........................... 78 1.38 3.85
Commercial loans................................ 7 0.13 0.20
Consumer loans.................................. 219 3.88 3.94
Unallocated..................................... 2,942 52.15 --
------- ------- -------
Total allowance for loan losses........ $5,642 100.00% 100.00%
====== ====== ======
<CAPTION>
At June 30,
------------------------------------------------------------------------
1994 1993
----------------------------------- ----------------------------------
Percent Percent
of Loans of Loans
Percent of in Each Percent of in Each
Allowance Category Allowance Category
to Total to Total to Total to Total
Amount Allowance Loans Amount Allowance Loans
---------- ----------- --------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
(Dollars in thousands)
Residential one- to four-family................. $ 979 16.41% 70.19% $ 962 12.69% 65.80%
Commercial real estate 2,201 36.89 24.96 3,691 48.69 28.88
and multi-family..............................
Construction and land........................... 10 0.17 0.92 6 0.08 0.37
Commercial loans................................ -- -- 0.01 1 0.01 0.03
Consumer loans.................................. 201 3.37 3.92 170 2.24 4.92
Unallocated..................................... 2,575 43.16 -- 2,751 36.29 --
------- -------- -------- ------- ------- -------
Total allowance for loan losses........ $5,966 100.00% 100.00% $7,581 100.00% 100.00%
====== ====== ====== ====== ====== ======
</TABLE>
68
<PAGE>
Real Estate Owned. At September 30, 1997, the Bank had $1.2 million of
REO consisting of one one- to four-family property and two commercial
properties. When the Bank acquires 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. It is the policy of the Bank to have
obtained an appraisal or broker's price opinion on all real estate subject to
foreclosure proceedings prior to the time of foreclosure. It is the Bank's
policy to require appraisals on a periodic basis on foreclosed properties and
conducts inspections on foreclosed properties.
INVESTMENT ACTIVITIES
Federally-chartered savings institutions have the authority to invest
in various types of liquid assets, including United States Treasury obligations,
securities of various federal agencies, certificates of deposit of insured banks
and savings institutions, bankers' acceptances, repurchase agreements and
federal funds. Subject to various restrictions, federally-chartered savings
institutions may also invest their assets in commercial paper, investment-grade
corporate debt securities and mutual funds whose assets conform to the
investments that a federally-chartered savings institution is otherwise
authorized to make directly. Additionally, the Bank must maintain minimum levels
of investments that qualify as liquid assets under OTS regulations. See
"Regulation-- Federal Savings Institution Regulation-- Liquidity." Historically,
the Bank has maintained liquid assets above the minimum OTS requirements and at
a level considered to be adequate to meet its normal daily activities.
The investment policy of the Bank, as approved by the Board of
Directors, requires management to maintain adequate liquidity, generate a
favorable return on investments without incurring undue interest rate and credit
risk and to complement the Bank's lending activities. The Bank primarily
utilizes investments in securities for liquidity management and as a method of
deploying excess funding not utilized for loan originations or sales. Generally,
the Bank's investment policy is more restrictive than the OTS regulations allow
and, accordingly, the Bank has invested primarily in U.S. Government and agency
securities, which qualify as liquid assets under the OTS regulations, federal
funds and U.S. Government sponsored agency issued mortgage-backed securities. As
required by SFAS No. 115, the Bank has established an investment portfolio of
securities that are categorized as held to maturity, available for sale or held
for trading. The Bank generally invests in securities as a method of utilizing
funds not utilized for loan origination activity and as a method of maintaining
liquidity at levels deemed appropriate by management. The Bank does not
currently maintain a portfolio of securities categorized as held for trading.
The substantial majority of the Bank's investment and mortgage-backed securities
are purchased for the held-to-maturity portfolio which portfolio totaled $139.1
million, or 13.5% of assets, at September 30, 1997. At September 30, 1997, the
available-for-sale securities portfolio totaled $747,000. As of September 30,
1997, $57.9 million, of the Bank's investment securities held-to-maturity
consisted of U.S. Government and agency obligations with a weighted average
maturity of nine months.
At September 30, 1997, the Bank had invested $81.2 million in mortgage-
backed securities, or 7.9% of total assets, which were insured by GNMA, FNMA or
FHLMC, of which 99.1% were classified as held to maturity. Of the $81.2 million,
$29.5 million were adjustable-rate with maximum interest rate adjustments of
2.0% annually or 6.0% over the life of the security. 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 changing 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.
69
<PAGE>
The following table sets forth certain information regarding the
amortized cost and fair value of the Bank's investment securities at the dates
indicated.
<TABLE>
<CAPTION>
AT JUNE 30,
------------------------------------------------------------
AT SEPTEMBER 30,
1997 1997 1996 1995
------------------ ------------------ ------------------- -------------------
AMORTIZED FAIR AMORTIZED FAIR AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE COST VALUE COST VALUE
--------- -------- --------- -------- --------- -------- --------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Investment securities:
Held-to-maturity:
U.S. Government and
agency operations............. $57,944 $57,894 $92,930 $92,654 $123,351 $122,285 $159,150 $157,140
Corporate obligations........... 500 503 1,002 1,004 6,367 6,367 8,721 8,720
Other........................... 216 216 316 316 925 924 963 959
-------- -------- -------- -------- --------- -------- --------- --------
Total held-to-maturity........ 58,660 58,613 94,248 93,974 130,643 129,576 168,834 166,819
Available-for-sale(1).............. -- -- -- -- -- -- 1,000 994
-------- -------- -------- -------- --------- -------- --------- --------
Total investment securities... $58,660 $58,613 $94,248 $93,974 $130,643 $129,576 $169,834 $167,813
======== ======== ======== ======== ========= ======== ========= ========
</TABLE>
___________________
(1) Consists of marketable equity securities.
70
<PAGE>
The following table sets forth certain information regarding the
amortized cost and fair values of the Bank's mortgage-backed securities at the
dates indicated.
<TABLE>
<CAPTION>
AT JUNE 30,
----------------------------------------------------------------
AT SEPTEMBER 30, 1997 1997 1996
------------------------------ ------------------------------ --------------------------------
AMORTIZED PERCENT OF FAIR AMORTIZED PERCENT OF FAIR AMORTIZED PERCENT OF FAIR
COST TOTAL(1) VALUE COST TOTAL(1) VALUE COST TOTAL(1) VALUE
--------- ---------- --------- --------- ---------- ------- ---------- ---------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Mortgage-backed securities:
Fixed rate:
FNMA............................ $33,328 41.07% $32,986 $34,915 40.54% $34,233 $40,498 41.37% $39,057
FHLMC........................... 12,223 15.06 12,334 12,835 14.90 12,827 14,689 15.00 14,380
CMOs............................ 3,217 3.96 3,243 3,337 3.87 3,371 3,400 3.47 3,422
REMIC........................... 2,035 2.51 2,039 2,482 2.88 2,479 3,741 3.82 3,728
Other........................... 141 0.17 148 154 0.18 160 206 0.21 214
-------- ------- ------- ------- ------- -------- ------- ------ -------
Total fixed rate.............. 50,944 62.77 50,750 53,723 62.37 53,070 62,534 63.87 60,801
-------- ------- ------- ------- ------- -------- ------- ------ -------
Adjustable rate:
GNMA............................ 23,568 29.04 24,063 24,797 28.79 25,233 27,849 28.45 27,905
FNMA............................ 2,468 3.04 2,504 3,055 3.55 3,084 3,135 3.20 3,163
FHLMC........................... 3,433 4.23 3,486 3,751 4.35 3,786 2,886 2.95 2,915
REMICs.......................... -- -- -- 46 0.05 46 626 0.64 626
-------- ------- ------- ------- ------- -------- ------- ------ -------
Total adjustable rate......... 29,469 36.31 30,053 31,649 36.74 32,149 34,496 35.24 34,609
-------- ------- ------- ------- ------- -------- ------- ------ -------
Total mortgage-backed
securities held-to-maturity. 80,413 99.08 80,803 85,372 99.11 85,219 97,030 99.11 95,410
-------- ------- ------- ------- ------- -------- ------- ------ -------
Available-for-sale GNMA
fixed-rate.................... 749 0.92 747 763 0.89 750 874 0.89 843
-------- ------- ------- ------- ------- -------- ------- ------ -------
Total mortgage-backed
securities................... $81,162 100.00% $81,550 $86,135 100.00% $85,969 $97,904 100.00% $96,253
======== ======= ======= ======= ======= ======== ======= ====== =======
<CAPTION>
------------------------------
1995
------------------------------
AMORTIZED PERCENT OF FAIR
COST TOTAL(1) VALUE
--------- ---------- -------
<S> <C> <C> <C>
Mortgage-backed securities:
Fixed rate:
FNMA.............................. $45,381 48.64% $44,140
FHLMC............................. 15,828 16.97 15,579
CMOs.............................. 1,157 1.24 1,179
REMIC............................. -- -- --
Other............................. 257 0.28 268
--------- ------ -------
Total fixed rate................. 62,623 67.13 61,166
--------- ------ -------
Adjustable rate:
GNMA............................... 19,717 21.13 19,997
FNMA............................... 5,371 5.76 5,438
FHLMC.............................. 3,586 3.84 3,609
REMICs............................. -- -- --
--------- ------ -------
Total adjustable rate............. 28,674 30.73 29,044
--------- ------ -------
Total mortgage-backed
securities held-to- maturity.... 91,297 97.86 90,210
-------- ------ -------
Available-for-sale GNMA
fixed-rate....................... 2,000 2.14 1,955
Total mortgage-backed.............. -------- ------ -------
securities...................... $93,297 100.00% $92,165
======== ====== =======
</TABLE>
__________________
(1) Based on amortized cost.
The following table sets forth the Bank's mortgage-backed securities
activities for the periods indicated.
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED SEPTEMBER 30, FOR THE YEAR ENDED JUNE 30,
-------------------------- ----------------------------------------
1997 1996 1997 1996 1995
----------- ------------ ----------- ------------ -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Beginning balance.................. $86,122 $97,873 $97,873 $93,252 $70,337
Principal repayments........... (4,901) (4,039) (15,066) (16,631) (7,494)
Purchases...................... -- 857 4,172 22,606 30,985
Sales.......................... -- (565) (565) (1,014) --
Gains on sales................. -- 1 1 5 --
(Premium Amortization)......... (61) (69) (293) (345) (576)
----------- ------------ ----------- ------------ -----------
Ending balance..................... $81,160 $94,058 $86,122 $97,873 $93,252
=========== ============ =========== ============ ===========
</TABLE>
71
<PAGE>
The table below sets forth certain information regarding the carrying
value, weighted average yields and contractual maturities of the Bank's
investment securities and mortgage-backed securities as of September 30, 1997.
<TABLE>
<CAPTION>
AT SEPTEMBER 30, 1997
--------------------------------------------------------------------
MORE THAN ONE YEAR MORE THAN 5 YEARS
ONE YEAR OR LESS TO FIVE YEARS TO 10 YEARS
--------------------- --------------------- ----------------------
WEIGHTED WEIGHTED WEIGHTED
CARRYING AVERAGE CARRYING AVERAGE CARRYING AVERAGE
VALUE YIELD VALUE YIELD VALUE YIELD
---------- --------- ---------- ---------- --------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Investment securities:
Held to maturity:
U.S. Government and agency obligations......... $40,977 5.55% $15,967 6.39% $1,000 8.00%
Corporate obligations.......................... 500 6.82 -- -- -- --
Other.......................................... -- -- -- -- 216 8.25
---------- ------- ------
Total investment securities held to maturity..... $41,477 5.57% $15,967 6.39% $1,216 8.04%
========== ======= ======
Mortgage-backed securities:
Fixed-rate:
FNMA......................................... $ 103 8.50% $ 8,497 6.50% $ 710 8.00%
FHLMC........................................ -- -- 1,650 7.09 -- --
CMOs......................................... -- -- 1,161 7.68 2,056 7.03
REMICs....................................... -- -- 1,540 6.75 495 6.50
Other........................................ -- -- 1 8.00 140 9.52
---------- ------- ------
Total fixed-rate mortgage-backed securities...... 103 8.50% 12,849 6.71% 3,401 7.26%
---------- ------- ------
Total adjustable-rate mortgage-backed
securities...................................... -- -- -- -- -- --
Available-for-sale GNMA mortgage-
backed securities.............................. -- -- -- -- 747 6.15%
---------- ------- ------
Total mortgage-backed securities................... $ 103 8.50% $12,849 6.71% $4,148 7.06%
========== ======= ======
<CAPTION>
-------------------------------------------
MORE THAN 10 YEARS TOTAL
--------------------- -------------------
WEIGHTED WEIGHT
CARRYING AVERAGE CARRYING AVERAGE
VALUE YIELD VALUE YIELD
--------- --------- --------- --------
<S> <C> <C> <C> <C>
Investment securities:
Held to maturity:
U.S. Government and agency obligations............... -- --% $57,944 5.82%
Corporate obligations................................ -- -- 500 6.82
Other................................................ -- -- 216 8.25
--------- -------
Total investment securities held to maturity........... $ -- --% $58,660 5.84%
========= =======
Mortgage-backed securities:
Fixed-rate:
FNMA............................................... $ 24,018 6.08% $33,328 6.24%
FHLMC.............................................. 10,573 7.08 12,223 7.08
CMOs............................................... -- -- 3,217 7.26
REMICs............................................. -- -- 2,035 6.69
Other............................................. -- -- 141 9.51
--------- -------
Total fixed-rate mortgage-backed securities............ 34,591 6.39% 50,944 6.53%
--------- -------
Total adjustable-rate mortgage-backed securities....... 29,469 7.05 29,469 7.05
Available-for-sale GNMA mortgage-
backed securities.................................... -- -- 747 6.15%
-------
Total mortgage-backed securities......................... $64,060 6.69% $81,160 6.71%
========= =======
</TABLE>
72
<PAGE>
SOURCES OF FUND
General. Deposits, loan repayments and prepayments, proceeds from sales
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 deposits consist of checking, money market,
savings, NOW, and certificate accounts and Individual Retirement Accounts. More
than 58.1% of the funds deposited in the Bank are in time certificates. For the
three months ended September 30, 1997, core deposits represented 41.1% of total
average deposits. 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 has historically relied
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 significantly 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. The Bank does not
actively solicit certificate accounts in excess of $100,000 or use brokers to
obtain deposits. At September 30, 1997, the weighted average remaining maturity
of the Bank's certificate of deposit accounts was 12 months. Further increases
in short-term certificate of deposit accounts, which tend to be more sensitive
to movements in market interest rates than core deposits, may result in the
Bank's deposit base being less stable than if it had a large amount of core
deposits which, in turn, may result in further increases in the Bank's cost of
deposits.
The following table presents the deposit activity of the Bank for the
periods indicated:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED SEPTEMBER 30, FOR THE YEAR ENDED JUNE 30,
---------------------------- ------------------------------------------------
1997 1996 1997 1996 1995
---------- ------------ ------------ ----------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Net deposits (withdrawals)..................... $(6,488) $(25,942) $(47,944) $30,846 $(56,506)
Interest credited on deposit accounts.......... 10,037 8,857 38,750 34,404 23,809
------ ----- ------ ------ ------
Total increase (decrease) in deposit accounts.. $3,549 $(17,085) $(9,194) $65,250 $(32,697)
====== ========= ======== ======= =========
</TABLE>
At September 30, 1997, the Bank had $27.8 million in certificate
accounts in amounts of $100,000 or more maturing as follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
MATURITY PERIOD AMOUNT RATE
- ------------------------------------------------------- ------------------ -------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Three months or less................................... $ 4,356 5.57%
Over 3 through 6 months................................ 5,109 5.66
Over 6 through 12 months............................... 11,183 5.85
Over 12 months......................................... 7,131 5.92
--------
Total......................................... $ 27,779 5.79%
========
</TABLE>
73
<PAGE>
The following table sets forth the distribution of the Bank's average
deposit accounts for the periods indicated and the weighted average interest
rates on each category of deposits presented. Averages for the periods presented
utilize month-end balances.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED JUNE 30,
----------------------------------------------------------------
FOR THE THREE MONTHS ENDED
SEPTEMBER 30, 1997 1997 1996
------------------------------- ----------------------------------------------------------------
PERCENT PERCENT PERCENT
OF TOTAL WEIGHTED OF TOTAL WEIGHTED OF TOTAL WEIGHTED
AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE DEPOSITS RATE BALANCE DEPOSITS RATE BALANCE DEPOSITS RATE
--------- ---------- ---------- --------- ---------- --------- --------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Non-interest-bearing accounts.. $ 6,841 0.74% --% $ 6,747 0.73% --% $ 5,396 0.60% --%
Money market accounts.......... 292,138 31.61 4.68 271,686 29.33 4.6 228,799 25.40 4.53
Savings accounts............... 12,118 1.31 2.00 13,593 1.47 2.00 15,466 1.72 2.00
NOW accounts................... 75,729 8.19 2.55 77,400 8.35 2.60 64,032 7.11 2.58
--------- ------ -------- ------ -------- ------
Total...................... 386,826 41.85 4.10 369,426 39.88 4.02 313,693 34.83 3.93
--------- ------ -------- ------ -------- ------
Certificate accounts(1):
Less than six months......... 184,453 19.96 5.57 256,737 27.71 5.63 261,043 28.98 5.86
Over 6 through 12 months..... 274,338 29.68 5.83 224,373 24.22 5.78 224,303 24.90 6.04
Over 12 through 36 months.... 63,466 6.87 5.85 63,303 6.83 5.69 97,258 10.80 5.84
Over 36 months............... 15,147 1.64 6.04 12,561 1.36 5.88 4,387 0.49 5.87
--------- ------ -------- ------ -------- ------
Total certificate accounts. 537,404 58.15 5.75 556,974 60.12 5.70 586,991 65.17 5.93
--------- ------ -------- ------ -------- ------
Total average deposits..... $924,230 100.00% 5.06 $926,400 100.00% 5.03 $900,684 100.00% 5.19
========= ====== ======== ====== ======== ======
<CAPTION>
---------------------------------
1995
---------------------------------
PERCENT
OF TOTAL WEIGHTED
AVERAGE AVERAGE AVERAGE
BALANCE DEPOSITS RATE
--------- ---------- ----------
<S> <C> <C> <C>
Non-interest-bearing accounts.. 3,134 0.36% --%
Money market accounts.......... 206,520 23.70 4.27
Savings accounts............... 18,498 2.12 2.00
NOW accounts................... 57,469 6.60 2.24
-------- -------
Total...................... 285,621 32.78 3.67
-------- -------
Certificate accounts(1):
Less than six months......... 257,858 29.59 5.81
Over 6 through 12 months..... 133,277 15.30 6.22
Over 12 through 36 months.... 174,275 20.00 6.32
Over 36 months............... 20,311 2.33 5.58
-------- -------
Total certificate accounts. 585,721 67.22 6.05
-------- -------
Total average deposits..... $871,342 100.00% 5.27
======== =======
</TABLE>
____________________
(1) Based on remaining maturity of certificates.
74
<PAGE>
The following table presents by various rate categories, the amount of
certificate accounts outstanding at the dates indicated and the periods to
maturity of the certificate accounts outstanding at September 30, 1997.
<TABLE>
<CAPTION>
PERIOD TO MATURITY FROM SEPTEMBER 30, 1997
---------------------------------------------------------------
LESS ONE TWO THREE FOUR
THAN TO TO TO TO OVER AT JUNE 30,
ONE TWO THREE FOUR FIVE FIVE ---------------------------
YEAR YEARS YEARS YEARS YEARS YEARS TOTAL 1997 1996 1995
------- -------- ------- ------- ------- ------- ------- --------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CERTIFICATE ACCOUNTS:
0 to 3.99%........... $ 96 $ -- $ -- $ -- $ -- $ -- $ 96 $ 125 $ 435 $ 7,346
4.00 to 4.99%........ 2,707 338 71 14 -- -- 3,130 3,696 14,662 49,261
5.00 to 5.99%........ 271,029 19,598 6,722 12,746 5,265 585 315,945 324,209 408,134 174,558
6.00 to 6.99%........ 119,740 70,548 6,914 2,747 15,631 525 216,105 206,242 98,944 279,733
7.00 to 7.99%........ 131 401 49 283 49 -- 913 975 50,004 65,267
8.00 to 8.99%........ 341 100 438 -- -- 5 884 979 1,541 9,330
Over 9.00%........... 13 -- -- -- -- -- 13 13 12 --
-------- --------- -------- -------- -------- -------- -------- -------- -------- ---------
Total.............. $394,057 $90,985 $14,194 $15,790 $20,945 $1,115 $537,086 $536,239 $573,732 $585,495
======== ========= ======== ======== ======== ======== ======== ======== ======== =========
</TABLE>
Borrowings. The Bank utilizes advances from the FHLB as an alternative
to retail deposits to fund its operations as part of its operating strategy.
These FHLB advances are collateralized primarily by certain of the Bank's
mortgage loans and mortgage-backed securities and secondarily by the Bank's
investment in capital stock of the FHLB. FHLB advances are made pursuant to
several different credit programs, each of which has its own interest rate and
range of maturities. The maximum amount that the FHLB will advance to member
institutions, including the Bank, fluctuates from time to time in accordance
with the policies of the FHLB. See "Regulation-- Federal Home Loan Bank System."
At September 30, 1997, the Bank had $10.6 million in outstanding FHLB advances
and had no other borrowings as compared to $21.6 million at June 30, 1997.
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 THREE
MONTHS ENDED AT OR FOR THE YEAR ENDED
SEPTEMBER 30, JUNE 30,
----------------------- ------------------------------------
1997 1996 1997 1996 1995
---------- ----------- ----------- ---------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
FHLB advances:
Average balance outstanding..................... $13,316 $13,844 $12,265 $15,921 $14,801
Maximum amount outstanding at any
month-end during the period................... 10,565 14,582 21,569 23,632 23,632
Balance outstanding at end of period............ 10,565 14,582 21,569 13,598 23,632
Weighted average interest rate
during the period............................. 5.86% 6.79% 5.32% 6.54% 6.05%
Weighted average interest rate at
end of period................................. 5.97% 6.80% 5.78% 6.87% 6.34%
</TABLE>
75
<PAGE>
SUBSIDIARY ACTIVITIES
The Bank is the parent corporation of five wholly-owned subsidiary
corporations. First Federal Lincoln Holding Corporation-Nebraska holds 100% of
the stock of FFL Holding Corporation-Iowa, which holds 100% of the stock of the
Iowa Bank. The Iowa Bank was established in conjunction with the merger and
acquisition of two insolvent Iowa savings and loan associations on August 12,
1988, with the assistance of the Federal Savings and Loan Insurance Corporation.
The Iowa Bank offers virtually the identical products and service as the Bank
with regional pricing on related products. The Chairman of the Board of the Bank
is the Chief Executive Officer of the Iowa Bank. Other executive officers of the
Iowa Bank hold similar positions with the Bank. TMS Corporation of the Americas
is a direct subsidiary of the Bank and holds all of the stock of First Financial
Investment & Insurance Corporation ("FFIIC"). FFIIC provides a selection of
investment products made available to consumers via licensed representatives in
the Bank's retail office network. Fees generated through annuity, mutual fund
and insurance sales contributed $664,000 in noninterest income during the year
ended June 30, 1997.
PROPERTIES
The Bank currently conducts its business through 57 full service
banking offices located in Nebraska, Kansas and Iowa. The following table sets
forth the Bank's offices as of September 30, 1997.
<TABLE>
<CAPTION>
NET BOOK VALUE
OF PROPERTY OR
LEASEHOLD
IMPROVEMENTS
LEASED OR ORIGINAL YEAR LEASED DATE OF LEASE AT SEPTEMBER 30,
LOCATION OWNED OR ACQUIRED EXPIRATION 1997
- -------------------------------- -------------- -------------------- ------------------- -----------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
ADMINISTRATIVE/HOME OFFICE:
13 & "N" Street Owned 1996 -- $1,824
Lincoln, Nebraska 68508
BRANCH OFFICES:
8820 Arbor Street Owned 1995 -- 424
Omaha, Nebraska 68124-2030
2101 So. 42nd Street Leased 1996 2001 21
Suite 100
Omaha, Nebraska 68105-2900
135 N. Cotner Street Owned 1966 -- 453
Lincoln, Nebraska 68505-0204
3010 N. 90th Street Leased 1971 2001 14
Omaha, Nebraska 68134-4759
6891 "A" Street Leased 1970 2001 48
Lincoln, Nebraska 68510-4199
2120 1st Avenue Owned 1963 -- 147
Kearney, Nebraska 68848-0816
513 "E" Street Leased 1973 1999 2
Fairbury, Nebraska 68352-0022
1612 "K" Street Owned 1989 -- 127
Ord, Nebraska 68862-1048
1301 Main Avenue Owned 1979 -- 138
Crete, Nebraska 68333-0126
</TABLE>
76
<PAGE>
<TABLE>
<CAPTION>
NET BOOK VALUE
OF PROPERTY OR
LEASEHOLD
IMPROVEMENTS
LEASED OR ORIGINAL YEAR LEASED DATE OF LEASE AT SEPTEMBER 30,
LOCATION OWNED OR ACQUIRED EXPIRATION 1997
- -------------------------------- -------------- -------------------- ------------------- -----------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
423 West 3rd Street Owned 1991 -- $ 54
Alliance, Nebraska 69301-3307
1811 W. 2nd Street #108 Owned 1977 -- 1,256
Grand Island, Nebraska 68802-2320
3939 Normal Boulevard Leased 1989 1999 12
Lincoln, Nebraska 68506-5217
840 N. 70th Street Leased 1982 1999 25
Lincoln, Nebraska 68505-2189
521 N. Dewey Street(1) Leased 1997 1998 499
North Platte, Nebraska 69101-3912
5540 South Street, #100(2) Leased 1990 2000 14
Lincoln, Nebraska 68506-2135
211 West "C" Street Leased 1976 1998 1
McCook, Nebraska 69001-0339
14100 "S" Street Owned 1982 -- 349
Omaha, Nebraska 68137-2600
1016 Central Avenue Owned 1977 -- 6
Nebraska City, Nebraska 68410-2337
9628 "M" Street Leased 1989 1998 10
Omaha, Nebraska 68127-2054
2625 S. 140th Street Owned 1996 1,586
Omaha, Nebraska 68144-2338
5300 S. 56th Street Owned 1989 -- 325
Lincoln, Nebraska 68516-1833
320 Lincoln Avenue Owned 1977 -- 8
Hebron, Nebraska 68370-0003
647 W. 2nd Street Leased 1978 1998 7
Hastings, Nebraska 68901-5131
830 S. "E" Street. Owned 1978 -- 6
Broken Bow, Nebraska 68822-0445
609 Howard Avenue Owned 1994 -- 32
St. Paul, Nebraska 68873-2022
6424 Havelock Avenue Owned 1989 -- 182
Lincoln, Nebraska 68507-1331
1028 Toledo Street Leased 1978 1998 --
Sidney, Nebraska 69162-0197
2001 Broadway Owned 1980 -- 406
Scottsbluff, Nebraska 69361-1973
103 E. Main Street Owned 1979 -- 1
Bloomfield, Nebraska 68718-0547
3301 S. 13th Street Owned 1988 -- 237
Lincoln, Nebraska 68502-4576
1000 E. Court Street Owned 1988 -- 167
Beatrice, Nebraska 68310-0664
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
NET BOOK VALUE
OF PROPERTY OR
LEASEHOLD
IMPROVEMENTS
LEASED OR ORIGINAL YEAR LEASED DATE OF LEASE AT SEPTEMBER 30,
LOCATION OWNED OR ACQUIRED EXPIRATION 1997
- -------------------------------- -------------- -------------------- ------------------- -----------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
114 W. 15th Street Owned 1982 -- $ 95
Falls City, Nebraska 68355-0009
1301 "J" Street Owned 1982 -- 198
Auburn, Nebraska 68305-1964
173 S. 3rd Street Owned 1982 -- 21
Tecumseh, Nebraska 68450-0536
314 E. Square Owned 1978 -- 3
Humboldt, Nebraska 68376-0167
608 N. Linden Owned 1982 -- 166
Wahoo, Nebraska 68066-0092
400 Braasch Avenue Owned 1982 -- 270
Norfolk, Nebraska 68701-4020
1616 N. Bell Leased 1988 1998 2
Fremont, Nebraska 68025-1357
2457 33rd Avenue, Suite F Leased 1993 1998 5
Columbus, Nebraska 68601-1309
127 S. 4th Street Leased 1983 1998 2
Albion, Nebraska 68620-0269
203 N. Lincoln Leased 1991 1998 3
West Point, Nebraska 68788-1409
1850 10th Street Owned 1988 -- 49
Gering, Nebraska 69341-2414
1004 Avenue D Owned 1988 -- 65
Gothenburg, Nebraska 69138-1940
29 S. Main Leased 1990 2000 32
Council Bluffs, Iowa 51503-9034
201 S. Locust Owned 1988 -- 107
Glenwood, Iowa 51534-1727
3201 W. Broadway Owned 1996 2025 309
Council Bluffs, Iowa 51501
700 W. Thomas Avenue Owned 1988 -- 111
Shenandoah, Iowa 51601-1746
5533 S. 27th, Suite 101 Leased 1996 2006 160
Lincoln, Nebraska 68512-1611
509 Chestnut Street Leased 1988 1998 18
Atlantic, Iowa 50022-0520
200 S. Jefferson Owned 1988 -- 27
Plainvile, Kansas 67663-0030
201 S. Cedar Owned 1988 -- 22
Stockton, Kansas 67669-0274
519 3rd Street Leased 1989 1998 6
Red Oak, Iowa 51566-0636
301 E. Washington Owned 1988 -- 82
Clarinda, Iowa 51632-0200
</TABLE>
78
<PAGE>
<TABLE>
<CAPTION>
NET BOOK VALUE
OF PROPERTY OR
LEASEHOLD
IMPROVEMENTS
LEASED OR ORIGINAL YEAR LEASED DATE OF LEASE AT SEPTEMBER 30,
LOCATION OWNED OR ACQUIRED EXPIRATION 1997
- -------------------------------- -------------- -------------------- ------------------- -----------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
203 N. 18th Street Owned 1992 -- $ 79
Marysville, Kansas 66508-0229
411 N. 114th Street Leased 1989 1999 55
Omaha, Nebraska 68154-2518
1722 Madison Avenue Owned 1990 -- 271
Council Bluffs, Iowa 51503-5277
205 East Erie Owned 1995 -- 39
Missouri Valley, Iowa 51555-1500
</TABLE>
__________________________
(1) The Bank intends to close this branch office and relocate it as an
owned facility to 222 N. Dewey Street, effective on or about December
31, 1997.
(2) The Bank intends to close this branch office, effective January 31,
1998.
LEGAL PROCEEDINGS
Except for the Goodwill Litigation, the Bank is not involved in any
pending legal proceedings other than routine legal proceedings occurring in the
ordinary course of business. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Impact of Goodwill Litigation."
Such routine legal proceedings, in the aggregate, are believed by management to
be immaterial to the Company's financial condition or results of operations.
PERSONNEL
As of September 30, 1997, the Bank had 337 authorized full-time
employee positions and 29 authorized part-time employee positions. 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-
Benefits" 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
calendar year basis using the accrual method of accounting and will be subject
to federal income taxation in the same manner as other corporations with some
exceptions, including particularly the Bank's reserve for bad debts discussed
below. The following discussion of tax matters is intended only as a summary and
does not purport to be a comprehensive description of the tax rules applicable
to the Bank or the Company. The Bank was last audited by the Internal Revenue
Service ("IRS") in 1993 and in 1996 by the Nebraska State Department of Revenue.
Bad Debt Reserve. Historically, savings institutions such as the Bank
which met certain definitional tests primarily related to their assets and the
nature of their business ("qualifying thrifts") were permitted to establish a
reserve for bad debts and to make annual additions thereto, which may have been
deducted in arriving at their taxable income. The Bank's deductions with respect
to "qualifying real property loans," which are generally loans secured by
certain interest in real property, were computed using an amount based on the
Bank's actual loss experience, or a percentage equal to 8% of the Bank's taxable
income, computed
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with certain modifications and reduced by the amount of any permitted addition
to the non-qualifying reserve. Due to the Bank's loss experience, the Bank
generally recognized a bad debt deduction equal to 8% of taxable income.
In August 1996, the provisions repealing the current thrift bad debt
rules were passed by Congress as part of "The Small Business Job Protection Act
of 1996." The new rules eliminate the 8% of taxable income method for deducting
additions to the tax bad debt reserves for all thrifts for tax years beginning
after December 31, 1995. These rules also require that all thrift institutions
recapture all or a portion of their bad debt reserves added since the base year
(last taxable year beginning before January 1, 1988). The Bank has previously
recorded a deferred tax liability equal to the bad debt recapture and, as such,
the new rules will have no effect on net income or federal income tax expense.
For taxable years beginning after December 31, 1995, the Bank's bad debt
deduction will be equal to net charge-offs. The new rules allow an institution
to suspend the bad debt reserve recapture for the 1996 and 1997 tax years if the
institution's lending activity for those years is equal to or greater than the
institutions average mortgage lending activity for the six taxable years
preceding 1996. For this purpose, only home purchase and home improvement loans
are included and the institution can elect to have the tax years with the
highest and lowest lending activity removed from the average calculation. If an
institution is permitted to postpone the reserve recapture, it must begin its
six year recapture no later than the 1998 tax year. The unrecaptured base year
reserves will not be subject to recapture as long as the institution continues
to carry on the business of banking. In addition, the balance of the pre-1988
bad debt reserves continue to be subject to provision of present law referred to
below that require recapture in the case of certain excess distributions to
shareholders.
Distributions. To the extent that the Bank makes "non-dividend
distributions" to the Company that are considered as made (i) from the reserve
for losses on qualifying real property loans, or (ii) from the supplemental
reserve for losses on loans ("Excess Distributions"), then an amount based on
the amount distributed will be included in the Bank's taxable income. Non-
dividend distributions include distributions in excess of the Bank's current and
accumulated earnings and profits, distributions in redemption of stock, and
distributions in partial or complete liquidation. However, dividends paid out of
the Bank's current or accumulated earnings and profits, as calculated for
federal income tax purposes, will not be considered to result in a distribution
from the Bank's bad debt reserve. Thus, any dividends to the Company that would
reduce amounts appropriated to the Bank's bad debt reserve and deducted for
federal income tax purposes would create a tax liability for the Bank. The
amount of additional taxable income created from an Excess Distribution is an
amount that, when reduced by the tax attributable to the income, is equal to the
amount of the distribution. Thus, if, after the Conversion, the Bank makes a
"non-dividend distribution," then approximately one and one-half times the
amount so used would be includable in gross income for federal income tax
purposes, assuming a 34% corporate income tax rate (exclusive of state and local
taxes). See "Regulation" and "Dividend Policy" for limits on the payment of
dividends of the Bank. The Bank does not intend to pay dividends that would
result in a recapture of any portion of its bad debt reserve.
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 carryovers of which the Bank currently has
none. AMTI is increased by an amount equal to 75% of the amount by which the
Bank's adjusted current earnings exceeds its AMTI. The Bank does not expect to
be subject to the alternative minimum tax.
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 or the Bank own more than 20% of the stock of a
corporation distributing a dividend then 80% of any dividends received may be
deducted.
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STATE AND LOCAL TAXATION
Nebraska Taxation. Under Nebraska law, the Bank presently pays a
franchise tax in lieu of a corporate income tax. The franchise tax is the lesser
of two amounts computed based on the Bank's average deposits and net financial
income, respectively. Presently, the tax is $.47 per $1,000 of average deposits
but not to exceed an amount determined by applying 3.81% to the Bank's net
financial income. Net financial income is the income of the Bank as reported to
the OTS, including its subsidiaries, after ordinary and necessary expenses but
before income taxes.
In addition, the Company will be required to file a Nebraska income tax
return because it will be doing business in Nebraska. For Nebraska tax purposes,
regular corporations are presently taxed at a rate equal to 7.81% of taxable
income. For this purpose, "taxable income" generally means Federal taxable
income, subject to certain adjustments (including addition of interest income on
non-Nebraska municipal obligations and excluding interest income from qualified
U.S. governmental obligations).
Iowa and Kansas Taxation. For both Iowa and Kansas income tax purposes,
the Bank is taxed at a rate equal to 5% and 6 3/4%, respectively, of taxable
income. For this purpose, "taxable income" generally means Federal taxable
income, subject to certain adjustments (including addition of interest income on
state and municipal obligations).
Delaware Taxation. As a Delaware holding company not earning income in
Delaware, the Company is exempt 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
GENERAL
The Bank is subject to extensive regulation, examination and
supervision by the OTS, as its chartering agency, and the FDIC, as the deposit
insurer. The Bank is a member of the FHLB System. The Bank's deposit accounts
are insured up to applicable limits by the SAIF managed by the FDIC. The Bank
must file reports with the OTS and the FDIC concerning its activities and
financial condition in addition to obtaining regulatory approvals prior to
entering into certain transactions such as mergers with, or acquisitions of,
other financial institutions. There are periodic examinations by the OTS and the
FDIC to test the Bank's compliance with various regulatory requirements. This
regulation and supervision establishes a comprehensive framework of activities
in which an institution 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 policies, whether by
the OTS, the FDIC or the Congress, could have a material adverse impact on the
Company, the Bank and their operations. The Company, as a savings and loan
holding company, will also be required to file certain reports with, and
otherwise comply with the rules and regulations of the OTS and of the Securities
and Exchange Commission (the "SEC") under the federal securities laws.
Any change in the regulatory structure or the applicable statutes or
regulations, whether by the OTS, the FDIC or the Congress, could have a material
impact on the Company, the Bank, their operations or the Bank's Conversion.
Congress has been considering in 1997 the elimination of the federal thrift
charter and abolishment of the OTS. The results of such consideration, including
possible enactment of legislation, is uncertain. Therefore, the Bank is unable
to determine the extent to which the results of consideration or
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<PAGE>
possible legislation, if enacted, would affect its business. See "Risk Factors
- -- Financial Institution Regulation and Possible Legislation."
Certain of the regulatory requirements applicable to the Bank and to
the Company are referred to below or elsewhere herein. The description of
statutory provisions and regulations applicable to savings associations set
forth in this Prospectus do not purport to be complete descriptions of such
statutes and regulations and their effects on the Bank and the Company and is
qualified in its entirety by reference to such statutes and regulations.
FEDERAL SAVINGS INSTITUTION REGULATION
Business Activities. The activities of federal savings institutions are
governed by the Home Owners' Loan Act, as amended (the "HOLA") and, in certain
respects, the Federal Deposit Insurance Act ("FDI Act") and the regulations
issued by the agencies to implement these statutes. These laws and regulations
delineate the nature and extent of the activities in which federal associations
may engage. In particular, many types of lending authority for federal
associations, e.g., commercial, non-residential real property loans and consumer
loans, are limited to a specified percentage of the institution's capital or
assets.
Loans-to-One Borrower. Under the HOLA, savings institutions are
generally subject to the national bank limit on loans-to-one borrower.
Generally, this limit is 15% of the Bank's unimpaired capital and surplus, plus
an additional 10% of unimpaired capital and surplus, if such loan is secured by
readily-marketable collateral, which is defined to include certain financial
instruments and bullion. At September 30, 1997, the Bank's general limit on
loans-to-one borrower was $21.7 million. At September 30, 1997, the Bank's
largest aggregate amount of loans-to-one borrower consisted of a $7.4 million
commercial real estate loan located in Nebraska.
QTL Test. The HOLA requires savings institutions to meet a QTL test.
Under the QTL test, a savings association 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 savings association that fails the QTL test must either convert
to a bank charter or operate under certain restrictions. As of September 30,
1997, the Bank maintained 84.3% of its portfolio assets in qualified thrift
investments and, therefore, met the QTL test. Recent legislation has expanded
the extent to which education loans, credit card loans and small business loans
may be considered as "qualified thrift investments."
Limitation on Capital Distributions. OTS regulations impose limitations
upon all capital distributions by a savings institution, such as cash dividends,
payments to repurchase or otherwise acquire its shares, payments to shareholders
of another institution in a cash-out merger and other distributions charged
against capital. The rule establishes three tiers of institutions, which are
based primarily on an institution's capital level and supervisory condition. An
institution, such as the Bank, that exceeds all fully phased-in regulatory
capital requirements before and after a proposed capital distribution ("Tier 1
Bank") and has not been advised by the OTS that it is in need of more than
normal supervision, could, after prior notice to, but without the approval of
the OTS, make capital distributions during a calendar year equal to the greater
of: (i) 100% of its net earnings to date during the calendar year plus the
amount that would reduce by one-half its "surplus capital ratio" (the excess
capital over its fully phased-in capital requirements) at the beginning of the
calendar year; or (ii) 75% of its net earnings for the previous four quarters.
Any additional capital distributions would require prior OTS approval. In the
event the Bank's capital fell below its capital requirements or the OTS notified
it that it was in need of more than normal supervision, the Bank's ability to
make capital distributions could be restricted. In addition, the OTS could
prohibit a proposed capital
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distribution by any institution, which would otherwise be permitted by the
regulation, if the OTS determines that such distribution would constitute an
unsafe or unsound practice.
Liquidity. The Bank is required to maintain an average daily balance of
specified liquid assets equal to a monthly average of not less than a specified
percentage (currently 4%) of its net withdrawable deposit accounts plus short-
term borrowings. Monetary penalties may be imposed for failure to meet this
liquidity requirement. The Bank's average liquidity ratio for the three months
ended September 30, 1997 was 12.0%, which exceeded the applicable requirement.
The Bank has never been subject to monetary penalties for failure to meet its
liquidity requirements. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Reserves."
Assessments. Savings institutions are required by regulation to pay
assessments to the OTS to fund the agency's operations. The general assessment,
paid on a semi-annual basis, is based upon the savings institution's total
assets, including consolidated subsidiaries, as reported in the Bank's latest
quarterly Thrift Financial Report. The assessments paid by the Bank for the year
ended June 30, 1997, totaled $210,000.
Branching. OTS regulations permit federally-chartered savings
associations to branch nationwide under certain conditions. Generally, federal
savings associations may establish interstate networks and geographically
diversify their loan portfolios and lines of business. The OTS authority
preempts any state law purporting to regulate branching by federal savings
associations. The Bank currently operates branch offices in Nebraska and Kansas,
and in Iowa through the Iowa Bank. For a discussion of the impact of proposed
legislation, see "Risk Factors -- Financial Institution Regulation and Possible
Legislation."
Transactions with Related Parties. The Bank's authority to engage in
transactions with related parties or "affiliates" (i.e., any company that
controls or is under common control with an institution, including the Company
and any non-savings institution subsidiaries that the Company may establish) is
limited by Sections 23A and 23B of the Federal Reserve Act ("FRA"). Section 23A
restricts the aggregate amount of covered transactions with any individual
affiliate to 10% of the capital and surplus of the savings institution and also
limits the aggregate amount of transactions with all affiliates to 20% of the
savings institution's capital and surplus. Certain transactions with affiliates
are required to be secured by collateral in an amount and of a type described in
Section 23A and the purchase of low quality assets from affiliates is generally
prohibited. Section 23B generally requires that certain transactions with
affiliates, including loans and asset purchases, must be on terms and under
circumstances, including credit standards, that are substantially the same or at
least as favorable to the institution as those prevailing at the time for
comparable transactions with non-affiliated companies.
The Bank's authority to extend credit to executive officers, directors
and 10% shareholders ("insiders"), as well as entities such persons control, is
governed by Sections 22(g) and 22(h) of the FRA, and Regulation O thereunder.
Among other things, these regulations require such loans to be made on terms and
conditions substantially the same as those offered to unaffiliated individuals
and not involve more than the normal risk of repayment. Recent legislation
created an exception for loans to insiders made pursuant to a benefit or
compensation program that are widely available to all employees of the
institution and do not give preference to insiders over other employees.
Regulation O also places individual and aggregate limits on the amounts of loans
the Bank may make to insiders based, in part, on the Bank's capital position,
and requires certain board approval procedures to be followed.
Enforcement. Under the FDI Act, the OTS has primary enforcement
responsibility over savings institutions and has the authority to bring action
against all "institution-affiliated parties," including stockholders, and any
attorneys, appraisers and accountants who knowingly or recklessly participate in
wrongful action likely to have an adverse effect on an insured institution.
Formal enforcement action may range from the issuance of a capital directive or
cease and desist order to removal of officers or directors,
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receivership, conservatorship or termination of deposit insurance. Civil
penalties cover a wide range of violations and can amount to $25,000 per day, or
$1 million per day in especially egregious cases. Under the FDI Act, the FDIC
has the authority to recommend to the Director of the OTS that enforcement
action be taken with respect to a particular savings institution. If action is
not taken by the Director, the FDIC has authority to take such action under
certain circumstances. Federal and state law also establishes criminal penalties
for certain violations.
Standards for Safety and Soundness. The FDI Act requires each federal
banking agency to prescribe for all insured depository institutions standards
relating to, among other things, internal controls, information systems and
audit systems, loan documentation, credit underwriting, interest rate risk
exposure, asset growth, and compensation, fees and benefits and such other
operational and managerial standards as the agency deems appropriate. The
federal banking agencies have adopted final regulations and Interagency
Guidelines Establishing Standards for Safety and Soundness ("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, 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 FDI Act. The final
regulations establish deadlines for the submission and review of such safety and
soundness compliance plans.
Capital Requirements. The OTS capital regulations require savings
institutions to meet three capital standards: a 1.5% tangible capital standard,
a 3% leverage (core capital) ratio and an 8% risk based capital standard. Core
capital is defined as common stockholder's equity (including retained earnings),
certain non-cumulative perpetual preferred stock and related surplus, minority
interests in equity accounts of consolidated subsidiaries less intangibles other
than certain mortgage servicing rights ("MSRs") and credit card relationships.
The OTS regulations require that, in meeting the leverage ratio, tangible and
risk-based capital standards institutions generally must deduct investments in
and loans to subsidiaries engaged in activities not permissible for a national
bank. In addition, the OTS prompt corrective action regulation provides that a
savings institution that has a leverage capital ratio of less than 4% (3% for
institutions receiving the highest CAMEL examination rating) will be deemed to
be "undercapitalized" and may be subject to certain restrictions. See "-- Prompt
Corrective Regulatory Action."
The risk-based capital standard for savings institutions requires the
maintenance of total capital (which is defined as core capital and supplementary
capital) to risk-weighted assets of 8%. In determining the amount of risk-
weighted assets, all assets, including certain off-balance sheet assets, are
multiplied by a risk-weight of 0% to 100%, as assigned by the OTS capital
regulation based on the risks OTS believes are inherent in the type of asset.
The components of core capital are equivalent to those discussed earlier under
the 3% leverage standard. The components of supplementary capital currently
include cumulative preferred stock, long-term perpetual preferred stock,
mandatory convertible securities, subordinated debt and intermediate preferred
stock and, within specified limits, the allowance for loan and lease losses.
Overall, the amount of supplementary capital included as part of total capital
cannot exceed 100% of core capital.
The OTS has incorporated an interest rate risk component into its
regulatory capital rule. The final interest rate risk rule also adjusts the
risk-weighting for certain mortgage derivative securities. Under the rule,
savings associations with "above normal" interest rate risk exposure would be
subject to a deduction from total capital for purposes of calculating their
risk-based capital requirements. A savings association's interest rate risk is
measured by the decline in the net portfolio value of its assets (i.e., the
difference between incoming and outgoing discounted cash flows from assets,
liabilities and off-balance sheet contracts) that would result from a
hypothetical 200-basis point increase or decrease in market interest rates
divided by the
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estimated economic value of the association's assets, as calculated in
accordance with guidelines set forth by the OTS. A savings association whose
measured interest rate risk exposure exceeds 2% must deduct an interest rate
component in calculating its total capital under the risk-based capital rule.
The interest rate risk component is an amount equal to one-half of the
difference between the institution's measured interest rate risk and 2%,
multiplied by the estimated economic value of the association's assets. That
dollar amount is deducted from an association's total capital in calculating
compliance with its risk-based capital requirement. Under the rule, there is a
two quarter lag between the reporting date of an institution's financial data
and the effective date for the new capital requirement based on that data. A
savings association with assets of less than $300 million and risk-based capital
ratios in excess of 12% is not subject to the interest rate risk component,
unless the OTS determines otherwise. The rule also provides that the Director of
the OTS may waive or defer an association's interest rate risk component on a
case-by-case basis. The OTS has postponed indefinitely the date that the
component will first be deducted from an institution's total capital.
At September 30, 1997, the Bank met each of its capital requirements,
in each case on a fully phased-in basis. See "Regulatory Capital Compliance" for
a table which sets forth in terms of dollars and percentages the OTS tangible,
leverage and risk-based capital requirements, the Bank's historical amounts and
percentages at September 30, 1997, and pro forma amounts and percentages based
upon the issuance of the shares within the Estimated Price Range and assuming
that a portion of the net proceeds are retained by the Company.
THRIFT RECHARTERING
The Deposit Insurance Funds Act of 1996 (the "Funds Act"), which was
enacted in September 1996, provides that the BIF (the deposit insurance fund
that covers most commercial bank deposits) 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. A bill recently reported by the House Banking
Committee would require federal thrifts to become national banks or state banks
or savings banks within two years after enactment or they would, by operation of
law, become national banks. A national bank resulting from a converted federal
thrift could continue to engage in activities, including holding any assets, in
which it was lawfully engaged on the day before the date of enactment. Branches
operated on the day before enactment could be retained regardless of their
permissibility for national banks. Subject to a grandfathering provision, all
savings and loan holding companies would become subject to the same regulation
and activities restrictions as bank holding companies. The grandfathering could
be lost under certain circumstances, such as a change in control of the holding
company. The legislative proposal 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 and what
effect, if any, such merger would have on the Bank.
PROMPT CORRECTIVE REGULATORY ACTION
Under the OTS prompt corrective action regulations, the OTS is required
to take certain supervisory actions against undercapitalized institutions, the
severity of which depends upon the institution's degree of capitalization.
Generally, a savings institution that has a total risk-based capital of less
than 8.0% or a leverage ratio or a Tier 1 capital ratio that is less than 4.0%
is considered to be undercapitalized. A savings institution that has a total
risk-based capital less than 6.0%, a Tier 1 risk-based capital ratio of less
than 3.0% or a leverage ratio that is less than 3.0% is considered to be
"significantly undercapitalized" and a savings institution that has a tangible
capital to assets ratio equal to or less than 2.0% is deemed to be "critically
undercapitalized." Subject to a narrow exception, the banking regulator is
required to appoint a receiver or
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conservator for an institution that is critically undercapitalized. The
regulation also provides that a capital restoration plan must be filed with the
OTS within 45 days of the date an association receives notice that it is
"undercapitalized," "significantly undercapitalized" or "critically
undercapitalized." Compliance with the plan must be guaranteed by any parent
holding company. In addition, numerous mandatory supervisory actions may become
immediately applicable to the institution depending upon its category,
including, but not limited to, increased monitoring by regulators, restrictions
on growth, and capital distributions and limitations on expansion. The OTS could
also take any one of a number of discretionary supervisory actions, including
the issuance of a capital directive and the replacement of senior executive
officers and directors.
INSURANCE OF DEPOSIT ACCOUNTS
The FDIC has adopted a risk-based insurance assessment system. The FDIC
assigns an institution to one of three capital categories based on the
institution's financial information, as of the reporting period ending seven
months before the assessment period. The capital categories are (1) well
capitalized, (2) adequately capitalized or (3) undercapitalized. An institution
is also placed in one of three supervisory subcategories within each capital
group. The supervisory subgroup to which an institution is assigned is based on
a supervisory evaluation provided to the FDIC by the institution's primary
federal regulator and information that the FDIC determines to be relevant to the
institution's financial condition and the risk posed to the deposit insurance
funds. An institution's assessment rate depends on the capital category and
supervisory category to which it is assigned with the most well capitalized,
healthy institutions receiving the lowest rates.
Deposits of the Bank are presently insured by the SAIF. Both the SAIF
and the BIF are statutorily required to achieve and maintain a ratio of
insurance reserves to total insured deposits equal to 1.25%. Until recently,
members of the SAIF and BIF were paying average deposit insurance assessments of
between 24 and 25 basis points. The BIF met the required reserve level 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 the 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 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 September 30, 1996
and is generally tax deductible. The SAIF Special Assessment recorded by the
Bank amounted to $5.7 million on a pre-tax basis and $3.7 million on an after-
tax basis.
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 the BIF and
SAIF are merged.
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<PAGE>
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 federal
thrift charter will be eliminated or whether the BIF and SAIF will eventually be
merged.
The Bank's assessment rate for fiscal 1997 ranged from 6.48 to 23 basis
points, excluding the SAIF Special Assessment rate of 65.7 basis points, and the
regular premium paid for this period was $1.3 million.
The FDIC is authorized to raise the assessment rates in certain
circumstances. The FDIC has exercised this authority several times in the past
and may raise insurance premiums in the future. If such action is taken by the
FDIC, it could have an adverse effect on the earnings 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 or the
OTS. The management of the Bank does not know of any practice, condition or
violation that might lead to termination of deposit insurance.
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 September 30, 1997 of $7.1
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 September 30, 1997, the Bank had $10.6 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 years ended June 30, 1997, 1996 and 1995,
dividends from the FHLB to the Bank amounted to approximately $433,000, $370,000
and $331,000, respectively. If dividends were reduced, the Bank's net interest
income would likely also be reduced. 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.
FEDERAL RESERVE SYSTEM
The Federal Reserve Board regulations require savings institutions to
maintain non-interest-earning reserves against their transaction accounts. The
Federal Reserve Board regulations generally require that reserves be maintained
against aggregate transaction accounts as follows: for accounts aggregating
$47.8 million or less (subject to adjustment by the Federal Reserve Board) the
reserve requirement is 3%; and for accounts greater than $47.8 million, the
reserve requirement is $1.4 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 $47.8 million. The first $4.7 million of
otherwise reservable balances (subject to adjustment by the Federal Reserve
Board) are exempted from the reserve requirements. The Bank is in
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<PAGE>
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. FHLB System members are also authorized to borrow from the
Federal Reserve "discount window," but Federal Reserve Board regulations require
institutions to exhaust all FHLB sources before borrowing from a Federal Reserve
Bank.
HOLDING COMPANY REGULATION
The Company will be a non-diversified multiple savings and loan holding
company within the meaning of the HOLA. It will be a multiple, rather than
unitary, savings and loan holding company because it will control both the Bank
and the Iowa Bank. As a savings and loan holding company, 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 institutions. The Bank must notify the OTS 30 days before declaring any
dividend to the Company.
As a multiple savings and loan holding company, the Company will be
subject to limitations on the types of business activities in which it may
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 (the "BHC Act"), subject to the prior approval of the
OTS, and to other activities authorized by OTS regulation. All of the Bank's
current activities are permissible for subsidiaries of a multiple savings and
loan holding company and the Bank has no current plans to engage in any
activities that would be subject to such limitations. Therefore, the limitations
will have no effect on the current or anticipated business operations of the
Company or the Bank. Following the Conversion, the Bank will consider engaging
in a merger or other form of combination transaction with the Iowa Bank as a
result of which the Company would become a unitary savings and loan holding
company. As a unitary savings and loan holding company, the Company generally
would not be restricted under existing laws as to the types of business
activities in which it may engage, provided that the Bank after the combination
continued to be a QTL. See "-- Federal Savings Institution Regulation-- QTL
Test" for a discussion of the QTL requirements. Previously proposed legislation
would have treated all savings and loan holding companies as bank holding
companies and limited the activities of such companies to those permissible for
bank holding companies. See "Risk Factors -- Financial Institution Regulation
and Possible Legislation."
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,
without prior written approval of the OTS; or from acquiring or retaining, with
certain exceptions, more than 5% of a non-subsidiary holding company or savings
association. The HOLA also prohibits a savings and loan holding company from
acquiring more than 5% of a company engaged in activities other than those
authorized for savings and loan holding companies by the HOLA; or acquiring or
retaining control of a depository institution that is not insured by the FDIC.
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) the approval of 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
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<PAGE>
such acquisitions. The states vary in the extent to which they permit interstate
savings and loan holding company acquisitions.
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 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.
MANAGEMENT OF THE COMPANY
The Board of Directors' of the Company is divided into three classes,
each of which contains approximately 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 Campbell McConnell, has a term of office expiring at the first
annual meeting of stockholders, a second class, consisting of Gilbert G.
Lundstrom and Joyce Person Pocras, has a term of office expiring at the second
annual meeting of stockholders, and a third class, consisting of LaVern F.
Roschewski and Ann Lindley Spence, has a term of office expiring at the third
annual meeting of stockholders. The names and biographical information of the
directors are set forth under "Management of the Bank -- Directors."
The following individuals are the executive officers of the Company and
hold the offices set forth below opposite their names.
NAME POSITION(S) HELD WITH COMPANY
---- -----------------------------
LaVern F. Roschewski............. Chairman of the Board
Gilbert G. Lundstrom............. President and Chief Executive Officer
Eugene B. Witkowicz.............. Executive Vice President, Treasurer and
Chief Financial Officer
Patricia A. Young................ Corporate Secretary
Judith A. Klinkman............... Assistant 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 or removal at the discretion of the Board of Directors.
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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."
MANAGEMENT OF THE BANK
DIRECTORS
The following table sets forth certain information regarding the Board
of Directors of the Bank.
<TABLE>
<CAPTION>
POSITION(S) HELD WITH THE DIRECTOR TERM
NAME AGE(1) BANK SINCE EXPIRES
- ------------------------------------ ---------- -------------------------------- ------------ ------------
<S> <C> <C> <C> <C>
LaVern F. Roschewski................ 66 Chairman of the Board of the 1982 2000
Bank, Chairman of the Board
and Chief Executive Officer
of the Iowa Bank
Gilbert G. Lundstrom................ 56 Director, President and Chief 1994 1999
Executive Officer
Campbell McConnell.................. 69 Director 1974 1998
Ann Lindley Spence.................. 63 Director 1989 2000
Joyce Person Pocras................. 55 Director 1994 1999
</TABLE>
___________________
(1) As of September 30, 1997
EXECUTIVE OFFICERS WHO ARE NOT DIRECTORS
The following table sets forth certain information regarding the
executive officers of the Bank who are not also directors.
<TABLE>
<CAPTION>
NAME AGE(1) POSITION(S) HELD WITH BANK
- ------------------------------------------- ----------- ----------------------------------
<S> <C> <C>
Eugene B. Witkowicz........................ 49 Executive Vice President,
Treasurer, Chief Financial
Officer and Director of Finance
Roland P. Maaske........................... 64 Executive Vice President and
Director of Lending
Larry L. Pfeil............................. 54 Executive Vice President and
Director of Financial Services
Administration
Patricia A. Young.......................... 58 Executive Vice President,
Corporate Secretary and
Director of Marketing and
Employment Development
Roger R. Ludemann.......................... 48 Executive Vice President and
Director of Consumer Services
</TABLE>
_________________
(1) As of September 30, 1997
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<PAGE>
Each of the executive officers of the Bank will retain his/her office
in the converted Bank until their re-election at the annual meeting of the Board
of Directors of the Bank, held immediately after the first annual meeting of
stockholders subsequent to the Conversion, and until their successors are
elected and qualified or until they are removed or replaced. Officers are
subject to re-election by the Board of Directors annually.
BIOGRAPHICAL INFORMATION
DIRECTORS
LAVERN F.ROSCHEWSKI currently serves as Chairman of the Board. Mr.
Roschewski was elected Chairman of the Board and Chief Executive Officer of the
Bank on January 1, 1994, after serving as President and Chief Operating Officer
since January 1984. Effective January 1, 1996, he retired from the position of
Chief Executive Officer. Mr. Roschewski joined the Bank in 1956 and has served
as Internal Auditor, Treasurer, Senior Vice President, Executive Vice President,
Chief Executive Officer and Chairman.
GILBERT G. LYNDSTROM joined the Bank as President, Chief Operating
Officer, and Director on January 1, 1994. Mr. Lundstrom was an attorney and a
managing partner for the Lincoln, Nebraska law firm of Woods & Aitken, where he
practiced law for 25 years. The law firm served as the Bank's general counsel
for the previous seven years. He assumed the additional duties of Chief
Executive Officer on January 1, 1996, and currently serves as an elected
director of the FHLB. Mr. Lundstrom is also a founding director of the National
Council of Federal Home Loan Banks and serves on the Board of Directors of
several for-profit and not-for-profit corporations.
CAMPBELL MCCONNELL is a Professor Emeritus of the Economics Department
of the University of Nebraska-Lincoln. He retired from the University of
Nebraska-Lincoln in 1990.
ANN LINDLEY SPENCE is the retired President of Spence Title Services,
Inc., a title insurance company located in Omaha, Nebraska.
JOYCE PERSON POCRAS was the Bank's Internal Auditor until her
retirement in 1993.
EXECUTIVE OFFICERS WHO ARE NOT DIRECTORS
EUGENE B. WITKOWICZ currently serves as Executive Vice President,
Treasurer and Chief Financial Officer and Director of Finance of the Bank, and
is responsible for managing the corporation's financial administration,
investment portfolio, and budgeting. He began his career at the Bank in 1971 as
an Internal Auditor. He has also served as Controller and Fiscal Department
Manager.
ROLAND P. MAASKE is responsible for the Bank's lending operations. Mr.
Maaske began his career at the Bank in 1961 as a loan trainee and advanced to
become Senior Vice President and Director of Lending in 1981. Mr. Maaske was
promoted to Executive Vice President in 1984.
LARRY L. PFEIL joined the Bank in 1971 as Branch Manager for the
Fairbury office and currently serves as Executive Vice President and Director of
Financial Services Administration. Mr. Pfeil is responsible for the savings
operation and data processing support for the Bank. He has also served as the
Director of Lincoln Area Operations and Director of Central Area Operations.
PATRICIA A. YOUNG joined the Bank in 1958 as a secretary in the
Insurance/Personnel Department. As an Executive Vice President, Corporate
Secretary and Director of Marketing and Employment
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Development, Ms. Young is responsible for the Bank's marketing, advertising,
public relations, market research, and employee training. Ms. Young has also
served as Corporate Secretary to the Board of Directors since 1971.
ROGER R. LUDEMANN joined the Bank in 1995 as Senior Vice President,
Director of Consumer Services. He was promoted to Executive Vice President in
September 1997. He is responsible for the overall development and coordination
of retail banking activities. Prior to joining the Bank, Mr. Ludemann served for
two years as President of Cross Financial Group, and has also served as Senior
Vice President of Retail Banking for American Charter.
COMMITTEES AND MEETINGS OF THE BOARD OF DIRECTORS OF THE BANK AND COMPANY
The Bank's Board of Directors meets once per month and may have
additional special meetings called in the manner specified in the Bylaws. During
fiscal year 1997, no current Director attended less than 75% of the aggregate of
the total number of Board meetings and the total number of committee meetings of
the Board of Directors on which they served.
The Board of Directors of the Bank has established the following
committees:
The Audit Committee consists of Mr. McConnell, Mrs. Pocras and Mrs.
Spence. The purpose of this committee is to review the audit function and
management actions regarding the implementation of audit findings. The committee
meets four times a year.
The Proxy Committee consists of Messrs. Roschewski, Lundstrom and
McConnell, Mrs. Pocras and Mrs. Spence. The primary function of this committee
is to vote the proxies of the members of the Bank at any annual or special
meeting.
The Executive Committee consists of Messrs. Roschewski and McConnell,
and Mrs. Pocras. The purpose of this committee is to act in the absence of the
Board of Directors between meetings of the Board of Directors.
Additionally, the Bank has a number of other management committees
including the Management Committee, Asset/Liability Committee, Charitable
Contributions Committee, Community Investment Committee, Employee Benefit/Ethics
Committee and Safety Committee.
The Board of Directors of the Company has established the following
committees: the Compensation Committee, consisting of Mr. McConnell, Mrs. Pocras
and Mrs. Spence, the Pricing Committee, consisting of Messrs. Lundstrom,
Roschewski and McConnell, and the Audit and Compliance Committee consisting of
Mr. McConnell, Mrs. Pocras and Mrs. Spence.
DIRECTOR COMPENSATION
All directors of the Bank currently receive a fee of $2,100 ($2,200
effective January 1, 1998) for each regularly scheduled monthly and special
Board meeting, regardless of attendance. In addition, Mr. Roschewski receives an
additional $2,100 for each regularly scheduled monthly and special board meeting
for the Chairman of the Board fee. For fiscal 1997, there were two special
meetings of the Board of Directors and no meetings of the Executive Committee.
Members of the Audit Committee receive a fee of one-half the regular Board
meeting fee. Directors also currently receive life and health insurance benefits
through the Bank. Directors of the Company are not expected to receive
additional fees for such service.
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<PAGE>
DIRECTOR EMERITUS
The Bank maintains a Board of Directors Emeritus which currently
consists of four former Directors of the Bank. Pursuant to the Bank's former
bylaws, Directors had to retire in the year they reached age 70. Any Director
who retired because of such age limitation and had either 10 years prior service
on the Board of Directors, or any Director of a merged institution who had
served on the Bank's Board, regardless of length of service, was named a
Director Emeritus upon retirement from the Board. Directors Emeritus are paid a
fee amounting to the full Board fee for the first year. Each year thereafter,
the fee is reduced by 20% of the then payable Board fee until five years have
passed. The four Directors Emeritus are in the last year of payment under this
policy.
Effective January 1, 1998, the Board intends to eliminate the position
of Director Emeritus for directors who retire after that date. Effective as of
that date, the Bank's by-laws will also no longer provide for mandatory
retirement. In connection with these changes, the Bank intends to implement a
plan under which any retiring director with 10 or more years of service,
including service as an employee of the Bank, who agrees to provide consulting
or advisory services to the Board will be entitled to an annual benefit equal to
the then payable Board fee reduced by twenty percent for each additional year in
which the director provides consulting or advisory services to the Board.
DIRECTORS' DEFERRAL PROGRAM
The Bank maintains a deferred compensation program for directors. Under
the deferred compensation program, each director may defer, until retirement,
any portion of his or her annual remuneration for serving as a director. Each
director has the right, under the program, to direct the investment of his or
her deferred fees. A director may change his or her investment direction
quarterly. Payments commence under the program upon the earlier of death,
termination from service, disability, or a change in control of the Bank. Each
director may elect, at the time he or she makes the deferral election, to
receive benefits in the form of a single lump sum payment, a life annuity, a
joint and survivor annuity, or monthly installments (over a period from 2 to 240
months). The Bank intends to modify the program to allow funds in the program to
be invested in the Common Stock.
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EXECUTIVE COMPENSATION
Cash Compensation. The following table sets forth the cash compensation
paid by the Bank for services rendered in all capacities during the fiscal year
ended June 30, 1997, to the Chief Executive Officer and the four highest paid
executive officers of the Bank who received cash compensation in excess of
$100,000.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
LONG-TERM COMPENSATION
--------------------------------
ANNUAL COMPENSATION AWARDS
-------------------------------------------------------------------------------
OTHER SECURITIES
ANNUAL RESTRICTED UNDERLYING
NAME AND PRINCIPAL FISCAL COMPENSATION STOCK AWARDS OPTIONS/SARS
POSITIONS (2) YEAR SALARY($)(1) BONUS($)(2) ($)(3) ($)(4) ($)(5)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Gilbert G. Lundstrom 1997 $311,108 $86,231 -- -- --
President and Chief Executive Officer
LaVern F. Roschewski 1997 $155,816 $20,695 -- -- --
Chairman of the Board
Eugene B. Witkowicz 1997 $104,607 $24,967 -- -- --
Executive Vice President,
Treasurer, Chief Financial
Officer and Director of Finance
Roland P. Maaske 1997 $115,189 $31,293 -- -- --
Executive Vice President and
Director of Lending
Larry L. Pfeil 1997 $114,911 $25,916 -- -- --
Executive Vice President and
Director of Financial Services
Administration
<CAPTION>
--------
PAYOUTS
--------
LTIP ALL OTHER
NAME AND PRINCIPAL FISCAL PAYOUTS COMPENSATION
POSITIONS (2) YEAR ($)(6) ($)(7)
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Gilbert G. Lundstrom 1997 -- $63,392
President and Chief Executive Officer
LaVern F. Roschewski 1997 -- $ 4,169
Chairman of the Board
Eugene B. Witkowicz 1997 -- $ 4,424
Executive Vice President,
Treasurer, Chief Financial
Officer and Director of Finance
Roland P. Maaske 1997 -- $ 4,848
Executive Vice President and
Director of Lending
Larry L. Pfeil 1997 -- $ 4,837
Executive Vice President and
Director of Financial Services
Administration
</TABLE>
(1) Includes directors' fees for the named President and Chief Executive
Officer and the Chairman of the Board.
(2) Represents payments under the Management Incentive Compensation Plan.
(3) For fiscal year 1997, 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)
Executive Vice President and payments of above-market preferential earnings
on deferred compensation; Director of Financial Services (c) payments of
earnings with respect to long-term incentive plans prior to Administration
settlement or maturation; (d) tax payment reimbursements; or (e)
preferential discounts on stock. For fiscal year 1997, the Bank had no
restricted stock or stock related plans in existence.
(4) Does not include awards pursuant to the Stock-Based Incentive Plan, which
may be granted in conjunction with a meeting of stockholders of the
Company, subject to OTS and stockholder approval, as such awards were not
earned, vested or granted in fiscal year 1997. For a discussion of the
terms of the Stock Program, see "- Benefits - Stock-Based Incentive Plan."
For fiscal year 1997, the Bank had no restricted stock plans in existence.
(5) Does not include options, which may be granted in conjunction with a
meeting of stockholders of the Company, subject to OTS and stockholder
approval, because such options were not earned or granted in fiscal year
1997. For a discussion of the terms of grants and vesting of options, see
"-Benefits - Stock-Based Incentive Plan."
(6) For the fiscal year ended June 30, 1997, there were no payouts or awards
under any long-term incentive plan.
(7) Includes contributions by the Bank of $7,487, $4,169, $4,424, $4,848 and
$4,837 to the accounts of Messrs. Lundstrom, Roschewski, Witkowicz, Maaske
and Pfeil, respectively, under the Bank's 401(k) Plan. Also includes life
insurance premiums of $55,905 for Mr. Lundstrom. Such life insurance
policies provide that Mr. Lundstrom may receive a benefit, if any, equal to
the difference between the cash surrender value of the policy and the
premiums paid by the Bank.
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EMPLOYMENT AGREEMENTS
The Bank entered into an employment agreement (the "Bank Employment
Agreement") with Mr. Lundstrom effective January 1, 1994, which was amended and
restated as of February 23, 1995. The employment agreement provides for a three-
year term which is extended on an annual basis, unless either the Board or Mr.
Lundstrom gives written notice of non-renewal. Mr. Lundstrom's Bank Employment
Agreement provides for an annual base salary review by the Board of Directors.
Mr. Lundstrom's current base salary is $320,000. In addition to the base salary,
Mr. Lundstrom's Bank Employment Agreement provides for, among other things,
participation in retirement and executive benefit plans, and other fringe
benefits applicable to executive personnel. The Bank's Board of Directors may
terminate Mr. Lundstrom's Bank Employment Agreement at any time, but any
termination, other than termination for "Cause" (as defined in the agreement)
will not prejudice Mr. Lundstrom's right to compensation or other benefits under
his agreement. In the event of termination for Cause, Mr. Lundstrom has no right
to receive compensation or other benefits, for any period after termination for
Cause with the exception of vested benefits under the Bank's benefit plans or
policies and incentive plans for the benefit of the executive. In the event the
Bank chooses to terminate Mr. Lundstrom's employment for reasons other than
Cause, or in the event Mr. Lundstrom resigns for "Good Reason" (as defined in
the agreement), Mr. Lundstrom or, in the event of his death, his beneficiary,
would be entitled to receive (i) an amount equal to the remaining base salary
payments and bonus due under the agreement in addition to all life, health and
disability benefits provided under the agreement for the remaining term of
employment; (ii) a lump sum cash payment equal to Mr. Lundstrom's "base amount"
of compensation, as defined under Section 280G(b)(3) of the Code, times the
number of years or fractional portion thereof remaining in the term of the
agreement as of the termination date; and (iii) ownership of any split dollar
life insurance policy in Mr. Lundstrom's name.
Upon consummation of the Conversion, the Bank also intends to enter
into employment agreements with Mr. Roschewski and Mr. Witkowicz. The Company
also intends to enter into employment agreements with Mr. Lundstrom, Mr.
Roschewski and Mr. Witkowicz. The proposed Bank and Company employment
agreements (other than Mr. Lundstrom's Bank Employment Agreement) are
collectively referred to herein as the "Employment Agreements." The Employment
Agreements are subject to the review and approval of the OTS and may be amended
as a result of such OTS review. Review of compensation arrangements by the OTS
does not indicate, and should not be construed to indicate, that the OTS has
passed upon the merits of such arrangements. 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 Mr. Lundstrom, Mr. Roschewski and Mr. Witkowicz.
The Employment Agreements provide for a three-year term for Mr.
Lundstrom and Mr. Roschewski, and a two-year term for Mr. Witkowicz. The Bank
Employment Agreements provide that the Board of Directors may annually extend
the agreement for an additional year so that the remaining term shall be three
years in the case of Mr. Lundstrom and Mr. Roschewski, and two years in the case
of Mr. Witkowicz, unless written notice of non-renewal is given by the Board of
Directors after conducting a performance evaluation of the executive. The terms
of the Company Employment Agreements renew on a daily basis with respect to the
contracts of Mr. Lundstrom and Mr. Roschewski, unless written notice of non-
renewal is given by the Board of Directors of the Company. The Board of
Directors may annually extend the Company Employment Agreement of Mr. Witkowicz.
The Bank and Company 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. Roschewski and Witkowicz will be $100,800
and $112,866, 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 similarly situated executive
personnel. The Employment Agreements provide for termination by the Bank or the
Company for cause as
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defined in the 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 or the
Company upon certain conditions, 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 and the contributions that would have been
made on the Executive's behalf to any employee benefit plans of the Bank or the
Company during the remaining term of the Employment Agreements. The Bank and the
Company would also continue and pay for the Executive's life, health and
disability coverage for the remaining term of the Employment Agreement.
Under the Employment Agreements, if voluntary or involuntary
termination follows a change in control of the Bank or the Company, each of the
executives, 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
executive's five preceding taxable years' annual compensation. Under Mr.
Witkowicz's agreement, if voluntary or involuntary termination follows a change
in control of the Bank or the Company, Mr. Witkowicz or, in the event of his
death, his beneficiary, would be entitled to a severance payment equal to the
greater of (i) three times his annual compensation; 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 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 executives under the Bank 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 Employment Agreements would be made by the
Company. Payments under either the Company Employment Agreement or the Bank
Employment Agreement would be offset against payment obligations due
simultaneously under the other Agreement. Therefore, the executive could not
receive duplicate payments. 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
federal and Delaware law, respectively. In the event of a change in control of
the Bank or Company, the total amount of payments due under the Agreements,
based solely on the base salaries to be paid to Messrs. Lundstrom, Roschewski
and Witkowicz effective upon the consummation of the Conversion and excluding
any benefits under any employee benefit plan which may be payable, would be
approximately $2.0 million.
CHANGE IN CONTROL AGREEMENTS
Upon Conversion, the Company and the Bank intend to enter into proposed
three-year Change in Control Agreements (the "CIC Agreements") with Larry Pfeil,
Patricia Young, Roger Ludemann and Gale Furnas, none of whom will be covered by
an Employment Agreement. The terms of the Company CIC Agreements shall be
reviewed on a daily basis unless written notice of non-renewal is given by the
Board of Directors of the Company. The Bank CIC Agreements may be renewed by the
Board of Directors of the Bank for an additional year. The Company CIC
Agreements will provide that in the event of a change in control of the Bank or
the Company, the officer would be entitled to receive a severance payment equal
to three times the average of the officer's five preceding taxable years' annual
compensation. Under the Bank's CIC Agreement, in the event voluntary or
involuntary termination follows a change in control of the Bank or the Company,
the officer would be entitled to the same severance payment provided under the
Company CIC Agreement. The Company and Bank would also continue and pay for the
officer's life, health and disability coverage for 24 months following
termination. Payments to the officer under the Bank's CIC
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Agreements will be guaranteed by the Company in the event that payments or
benefits are not paid by the Bank. Payments under either CIC Agreement would be
offset against payment obligations due simultaneously under the other.
Therefore, the officer could not receive duplicate payments. In the event of a
change in control of the Bank or Company, the total payments that would be due
under the CIC Agreement, based solely on the current annual compensation paid to
the officers covered by the CIC Agreement and excluding any benefits under any
employee benefit plan which may be payable, would be approximately $1.2 million.
In the event payments and benefits under the CICs and Bank employment
agreements, which are contingent upon a change in control, constitute an excess
parachute payment under Section 280G of the Code, such payments would be reduced
to $1.00 less than the excess parachute payment amount. Nevertheless, payments
under the Company employment agreements and payments and benefits under the CICs
and Bank employment agreements together with payment sunder other benefit plans
may constitute an excess parachute payment under Section 280G of the Code,
resulting in the imposition of an excise tax on the recipient and denial of the
deduction for such excess amounts to the Company and the Bank. If an excess
parachute payment occurs as a result of payments under the Company employment
agreements, the Company will reimburse the executive for the excise tax due with
respect to such payment.
EMPLOYEE SEVERANCE COMPENSATION PLAN
Upon consummation of the Conversion, the Bank's Board of Directors
intends to establish the First Federal Lincoln Bank 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. Management personnel with employment or CIC 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 100% 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 were triggered, the total amount of
payments that would be due thereunder, based solely upon current salary levels,
would be approximately $7.8 million. 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.
INSURANCE PLANS
All full-time employees of the Bank, upon completion of the applicable
introductory period, are covered as a group for comprehensive hospitalization,
including major medical and long-term disability insurance. Life insurance is
also provided to employees.
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BENEFITS
Retirement Plan. The Bank maintains the First Federal Savings and Loan
Association of Lincoln Retirement Plan (the "Retirement Plan"), a defined
benefit plan intended to satisfy the tax-qualification requirements of Section
401(a) of the Code. Employees, other than employees paid solely on a retainer or
fee basis, become eligible to participate in the Retirement Plan upon the
attainment of age 21 and the completion of one year of eligibility service.
Following the Conversion, the Bank intends to freeze the future accrual of
benefits under the Retirement Plan in connection with the adoption or amendment
of other qualified employee benefit plans. For purposes of the Retirement Plan,
an employee earns one year of eligibility service when he completes 1,000 hours
of service within a one-year eligibility computation period. An employee's first
eligibility computation period is the one-year period beginning on the
employee's date of hire. Subsequent eligibility computation periods begin on
January 1 and end on December 31.
The Retirement Plan provides for a monthly benefit upon a participant's
retirement at the age of 65, or if later, the fifth anniversary of the
participant's initial participation in the Retirement Plan (i.e., the
participant's "normal retirement date").
The normal monthly retirement benefit for a participant under the
Retirement Plan equals (i) 2% of average monthly compensation multiplied by his
number of years and months of service before January 1, 1978, plus (ii) 1% of
his average monthly compensation multiplied by his number of years and months of
service after January 1, 1978, minus, (iii) the amount of monthly retirement
benefits on the participant's normal retirement date which could have been
provided by either (a) the value of his account as paid to him under the Norfolk
First Federal Savings and Loan Association Money Purchase Plan or (b) that
portion of the value of his account attributable to employer contributions under
the Tri-Federal Savings and Loan Association of Wahoo, NE Profit Sharing Plan,
whichever applies, multiplied by the participant's earned benefit percentage.
For purposes of the Retirement Plan, earned benefit percentage generally equals
the participant's months of service divided by the number of months the
participant will accrue at the later of age 65 or his normal retirement date. A
participant may also receive a benefit on his early retirement date, which is
the date on which he attains age 60 and completes ten years of vesting service.
Benefits received prior to a participant's normal retirement date are reduced by
certain factors set forth in the Retirement Plan. Participants become fully
vested in their benefits under the Retirement Plan upon the completion of five
years of vesting service. Participants also become 100% vested in their benefits
upon the attainment of normal retirement age (age 65).
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The following table sets forth the estimated annual benefits payable
upon retirement at age 65 for the period ended September 30, 1997.
<TABLE>
<CAPTION>
YEARS OF BENEFIT SERVICE
-----------------------------------------------------------------------------------------
FINAL AVERAGE
EARNINGS 15 20 25 30 35
- --------------------- ---------------- ------------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
$50,000 7,500 10,125 15,125 20,125 25,125
$75,000 11,250 15,188 22,688 30,188 37,688
$100,000 15,000 20,250 30,250 40,250 50,250
$125,000 18,750 25,313 37,813 50,313 62,813
$150,000 22,500 30,375 45,375 60,375 75,375
$175,000(1) 24,000 32,400 48,400 64,400 80,400
$200,000(1) 24,000 32,400 48,400 64,400 80,400
$250,000(1) 24,000 32,400 48,400 64,400 80,400
$300,000(1) 24,000 32,400 48,400 64,400 80,400
$350,000(1) 24,000 32,400 48,400 64,400 80,400
$400,000(1) 24,000 32,400 48,400 64,400 80,400
</TABLE>
______________
(1) The maximum amount of annual compensation which the Retirement Plan can
consider in computing benefits is $160,000 for plans years beginning on or
after January 1, 1997 pursuant to Section 401(a)(17) of the Code.
Savings Plan. The Bank maintains the First Federal Savings and Loan
Association of Lincoln Savings Plan (the "401(k) Plan"), a tax-qualified plan
under Section 401(a) of the Code with a cash or deferred arrangement under
Section 401(k) of the Code. Employees, other than employees paid solely on a
retainer or fee basis, become eligible to participate in the 401(k) Plan upon
the completion of one year of entry service. For purposes of the 401(k) Plan, an
employee earns one year of entry service when he completes 1,000 hours of
service within a one-year service period. An employee's first service period is
the one-year period beginning of the employee's date of hire. Subsequent service
periods begin on January 1 and end on December 31.
Under the 401(k) Plan, participants may elect to have the Bank
contribute up to 15% of their compensation to the 401(k) Plan, subject to
certain limitations imposed by the Code. The Bank currently makes matching
contributions to the 401(k) Plan equal to 75% of the first 6% of compensation
deferred by a participant. The Board periodically reviews the level of matching
contributions under the 401(k) Plan and has the discretion to change the amount
of the match from time to time.
Currently, participants in the 401(k) Plan may direct the investment of
their accounts in several types of investment funds. In connection with the
Conversion, the Bank has amended the 401(k) Plan to permit plan participants to
invest their account balances in Common Stock through an Employer Stock Fund.
However, no participant may purchase more than $500,000 in aggregate value of
the Common Stock in the Conversion (subject to the overall purchase limitations)
through 401(k) Plan subscription rights. A participant's ability to direct all
or some of his vested account to purchase Common Stock in the Offering
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will be dependent upon such individual being an Eligible Account Holder,
Supplemental Eligible Account Holder or Other Member. A participant may directly
vote shares of Common Stock held in his or her 401(k) Plan account.
Participants are always 100% vested in their elective deferrals and
related earnings under the 401(k) Plan. Participants become fully vested in
matching contributions and related earnings upon the completion of five years of
vesting service. Participants also become 100% vested in matching contributions
and related earnings upon the earlier of attainment of normal retirement age
(age 65), death, disability, or the satisfaction of the requirements for early
retirement (separation from service on or after the attainment of age 55).
Participants may receive distributions from the 401(k) Plan in the form
of a lump sum payment or monthly installments for a fixed period of time (over
not less than 60 months) with the right to receive a lump sum payment of
remaining benefits at any time during such fixed period.
Management Incentive Compensation Plan. The Bank maintains the First
Federal Lincoln Bank Management Incentive Compensation Plan ("Incentive
Compensation Plan"). The Incentive Compensation Plan is designed to give
officers and key employees an incentive for effectively operating the Bank and
to further its earning power by providing cash payments, equal to a certain
percentage of their base salaries, based on individual and organization
performance. Eligibility in the Incentive Compensation Plan is limited to
individuals the Board believe have a significant opportunity to improve the
profits and growth of the Bank.
Supplemental Executive Retirement Plans. The Bank currently maintains a
supplemental executive retirement plan for Mr. Lundstrom. Under the plan, in
consideration for remaining in the employ of the Bank until his retirement (upon
or after attaining age 65), Mr. Lundstrom will receive a supplemental benefit
for a period of 15 years. Mr. Lundstrom's supplemental benefit equals his
average annual compensation (excluding bonuses and incentive compensation)
during the three years of employment affording the highest average compensation,
reduced by amounts paid under the Retirement Plan or any disability benefits
paid by the Bank, multiplied by 50%.
In the event of disability, the Bank may pay an annual supplemental
benefit for up to ten years or until (i) the discontinuance of such disability
and employment is fully restored, (ii) Mr. Lundstrom becomes eligible for
benefits provided at retirement under the plan, which benefits shall be
exclusive of and in addition to any disability payments, or (iii) death.
The supplemental executive retirement plan is an "unfunded" plan and
represents only a promise on the part of the Bank to pay the benefits provided
for in accordance with its terms.
The Bank intends to implement an additional supplemental executive
retirement plan to provide for supplemental benefits to certain employees whose
benefits under the Retirement Plan, ESOP and/or 401(k) Plan are reduced by
limitations imposed by the Code. From time to time, the Board will designate
which employees may participate in this additional supplemental executive
retirement plan. The Bank may establish a grantor trust in connection with the
plan to satisfy the obligations of the Bank under the plan. The assets of the
grantor trust would be subject to the claims of the Bank's general creditors in
the event of the Bank's insolvency. The grantor trust would be permitted to
invest in a wide-variety of investments, including Company Common Stock.
Employee Stock Ownership Plan. The Bank intends to establish an
Employee Stock Ownership Plan ("ESOP") in connection with the Conversion.
Employees, other than employees paid solely on a retainer or fee basis, employed
with the Bank at the time of the Conversion and employees of the Bank and its
affiliates that adopt the ESOP, including the Company, shall become participants
in the ESOP immediately.
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Eligible employees employed after the Conversion shall become participants in
the ESOP upon the attainment of age 21 and the completion of one year of
service. For purposes of the ESOP, an employee earns one year of service when he
completes 1,000 hours of service within a one-year eligibility computation
period. An employee's first eligibility computation period will be the one-year
period beginning of the employee's date of hire. Subsequent eligibility
computation periods will begin on January 1 and end on December 31. Participants
will become fully vested in their benefits under the ESOP upon the completion of
five years of service (with credit for prior service). Participants will also
become 100% vested in their benefits upon the attainment of normal retirement
age (age 65), death, disability, or upon a change in control of the Bank or
Company. Benefits become payable in a lump sum upon death, retirement,
disability or separation from service.
The ESOP intends to purchase 8% of the Common Stock issued in the
Conversion, including the issuance of shares to the Foundation. As part of the
Conversion and in order to fund the ESOP's purchase of the Common Stock issued
in the Conversion, the ESOP intends to borrow 100% of the aggregate purchase
price of the Common Stock either from the Company or a third party lender. In
either case, the loan will be repaid principally from the Bank's contributions
to the ESOP over a period of 12 years. Subject to receipt of any necessary
regulatory approvals or opinions, the Bank may make contributions to the ESOP
for repayment of the loan since the participants are all employees of the Bank
or reimburse the Company for contributions made by it. Contributions to the ESOP
will be discretionary; however, the Company or the Bank intend to make annual
contributions to the ESOP in an aggregate amount at least equal to the principal
and interest due on the debt. The interest rate for the loan is expected to be
the prime rate on or about the date of Conversion and may be fixed or variable.
The contributions to the ESOP are not fixed, so benefits payable under the ESOP
cannot be estimated.
Shares purchased by the ESOP 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 pledged shares will be
released annually from the suspense account in an amount proportional to the
repayment of the ESOP loan for each plan year. The released shares will be
allocated among the accounts of participants on the basis of the participant's
compensation for the year of allocation relative to all participant's
compensation for the year of allocation.
A committee of the Board of Directors administers the ESOP (the "ESOP
Committee"). An unrelated corporate trustee for the ESOP will be appointed prior
to the Conversion. The ESOP Committee may instruct the trustee regarding
investment of funds contributed to the ESOP. The ESOP trustee, subject to its
fiduciary duty, must vote all allocated shares held in the ESOP in accordance
with the instructions of the participants. The trustee will vote the unallocated
shares (i.e., those held in the suspense account) and allocated shares for which
it receives no instructions in a manner calculated to most accurately reflect
the instructions it has received from participants regarding the allocated
stock; provided, however, that such vote is in accordance with the provisions of
the Employee Retirement Income Security Act of 1974, as amended ("ERISA"). In
the event no shares have been allocated at the time such shares are to be voted,
each participant shall be deemed to have one share allocated to his account for
voting purposes.
Management Supplemental Executive Retirement Plan. The Bank intends to
implement a non-qualified Management Supplemental Executive Retirement Plan
("MSERP") to provide certain employees (designated by the Board) of the Bank and
its affiliates, including the Company, with additional retirement benefits. The
MSERP 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 MSERP are
determined by first: (i) projecting the number of shares that would have been
allocated to the participant under the ESOP if the participant had remained
employed throughout the period of the ESOP loan (measured from the participant's
first date of ESOP participation); and (ii) reducing
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that number 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 MSERP vest
in 20% annual increments over a five-year period commencing as of the date of an
individual's participation in the MSERP. The vested portion of the participant's
benefits are payable upon the participant's retirement. The Bank may establish a
grantor trust in connection with the MSERP to satisfy the obligations of the
Bank with respect to the MSERP. The assets of the grantor trust are subject to
the claims of the Bank's general creditors in the event of the Bank's
insolvency.
Deferred Compensation Programs. The Bank currently maintains deferred
compensation arrangements with approximately 25 individuals, including some
former employees who currently receive benefits pursuant to such arrangements.
The deferred compensation arrangements were established to reward employees for
their valuable services to the Bank. Among the individuals with whom the Bank
maintains deferred compensation arrangements are Messrs. Witkowicz, Maaske,
Pfeil, and Roschewski and Ms. Young.
The arrangements generally provide that the employees will receive a
monthly benefit, beginning at their retirement, for a fixed number of years. If
an employee leaves the employ of the Bank prior to his retirement, he forfeits
any benefit he may have otherwise had under the terms of his arrangement. The
majority of arrangements provide a monthly benefit of approximately of $100 to
$600 for 120 months.
The deferred compensation arrangements are unfunded and represent only
promises on the part of the Bank to pay amounts in the future. The approximate
present value of the benefits payable pursuant to the deferred compensation
arrangements is $779,000.
Stock-Based Incentive Plan. Following the Conversion, the Board of
Directors of the Company intends to adopt one or more stock-based benefit plans
to provide stock options, awards of restricted stock and certain related rights
to eligible officers, employees, and directors of the Company and Bank. The
Company anticipates granting stock options and restricted stock awards under a
single plan. However, it is possible separate plans could be established for
directors and employees (including officers).
At a meeting of stockholders of the Company following the Conversion,
which under applicable OTS regulations may be held no earlier than six months
after the completion of the Conversion, the Board of Directors intends to
present the Stock-Based Incentive Plan or any separate plan(s) to stockholders
for approval. The Company has reserved an amount equal to 10% of the shares of
Common Stock issued in the Conversion, including shares issued to the
Foundation, or 850,252 shares (based upon the issuance of 8,502,525 shares), for
stock options, and 4% of the shares of Common Stock issued in the Conversion,
including shares issued to the Foundation, or 340,101 shares (based upon the
issuance of 8,502,525 shares), for restricted stock awards. OTS regulations
provide that no individual officer or employee of the Bank may receive more than
25% of the stock options available under the Stock-Based Incentive Plan (or any
separate plan for officers and employees) and non-employee directors may not
receive more than 5% individually, or 30% in the aggregate, of the stock options
available under the Stock-Based Incentive Plan (or any separate plan for
directors). OTS regulations also provide that no individual officer or employee
of the Bank may receive more than 25% of the restricted stock awards available
under the Stock-Based Incentive Plan (or any separate plan for officers and
employees) and non-employee directors may not receive more than 5% individually,
or 30% in the aggregate, of the restricted stock awards available under the
Stock-Based Incentive Plan (or any separate plan for directors). The Bank
expects to contribute funds to a trust established in connection with the Stock-
Based Incentive Plan (or any separate plan(s)) to enable 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 340,101 shares (based
upon the issuance of 8,502,525 shares). These shares would be acquired through
open market purchases, if permitted, or from authorized but
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unissued shares. The Board intends to appoint an independent fiduciary to serve
as trustee of a trust to be established in connection with the Stock-Based
Incentive Plan. In the event that additional authorized but unissued shares are
acquired by the Stock-Based Incentive Plan after the Conversion, the interests
of existing shareholders would be diluted. See "Pro Forma Data."
The grants of stock options and restricted stock awards will be
designed to attract and retain qualified personnel in key positions, provide
officers and key employees with a propriety interest in the Company as an
incentive to contribute to the success of the Company and reward key employees
for outstanding performance. All employees of the Company and its subsidiaries,
including the Bank, will be eligible to participate in the Stock-Based Incentive
Plan (or any separate plan for employees). It is expected that the committee
administering the plan will determine which officers and employees will be
granted stock options, restricted stock awards and related rights, including
limited rights. The committee will also determine whether stock options will be
incentive or non-statutory stock options, the number of shares subject to each
stock option and restricted stock award, the exercise price of each non-
statutory stock option, whether stock options may be exercised by delivering
other shares of Common Stock, and when stock options become exercisable or
restricted stock awards vest. Only employees may receive grants of Incentive
Stock Options. Therefore, under the Stock-Based Incentive Plan (or any separate
plan for directors), directors may receive only grants of Non-Statutory Stock
Options.
The Stock-Based Incentive Plan (or any separate plan for employees)
will provide for the grant of: (i) options to purchase the Common Stock intended
to qualify as incentive stock options under Section 422 of the Code ("Incentive
Stock Options"); (ii) options that do not so qualify ("Non-Statutory Stock
Options"); and (iii) limited option rights ("Limited Option Rights"). Limited
Option Rights are exercisable only upon a change in control of the Bank or the
Company. Upon exercise of Limited Option Rights in the event of a change in
control, the employee or director will be entitled to receive a lump sum cash
payment equal to the difference between the exercise price of any unexercised
option, whether exercisable or unexercisable at such time, and the fair market
value of the shares of common stock subject to the stock option on the date of
exercise of the right in lieu of purchasing the stock underlying the stock
option. It is anticipated that all stock options granted contemporaneously with
stockholder approval of the Stock-Based Incentive Plan will qualify as Incentive
Stock Options to the extent permitted under Section 422 of the Code. Unless
sooner terminated, the Stock-Based Incentive 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. Subject to stockholder approval, the Company
intends to grant stock options with Limited Option Rights under the Plan at an
exercise price equal to at least the fair market value of the underlying Common
Stock on the date of grant.
An individual will not be deemed to have received taxable income upon
the grant or exercise of any Incentive Stock Option, provided that such shares
received through the exercise of such option are not disposed of by the employee
for at least one year after the date the stock is received in connection with
the stock option exercise and two years after the date of grant of the stock
option (a "disqualifying disposition"). No compensation deduction will be
available to the Company as a result of the grant or exercise of Incentive Stock
Options unless there has been 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 individual will realize ordinary income upon exercise
of the stock option (or upon the disqualifying disposition) in an amount equal
to the amount by which the exercise price exceeds the fair market value of the
Common Stock purchased by exercising the stock option on the date of exercise.
The amount of any ordinary income realized by an optionee upon the exercise of a
Non-Statutory Stock Option or due to a disqualifying disposition of an Incentive
Stock Option will be a deductible expense to the Company for tax purposes. In
the case of Limited Rights, the option holder will have to include the amount
paid to him or her upon exercise in his gross income for federal income tax
purposes in the year in which the payment is made and the Company will be
entitled to a deduction for federal income tax purposes of the amount paid.
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Under the Stock-Based Incentive Plan (or any separate plans for
directors and employees), restricted stock awards and related Limited Stock
Rights, would be granted in the form of shares of Common Stock held by the
plans. Awards will be non-transferable and non-assignable. Allocations and
grants of restricted stock awards, and related Limited Stock Rights, to officers
and employees may be made in the form of base grants and/or performance grants
(the vesting of which would be contingent upon performance goals established by
the committee administering the plan). In establishing any performance goals,
the committee may utilize the annual financial results of the Bank, actual
performance of the Bank as compared to targeted goals such as the ratio of the
Bank's net worth to total assets, the Bank's return on average assets, or such
other performance standards as determined by the committee with the approval of
the Board of Directors.
Limited Stock Rights would be exercisable by participants upon a change
in control of the Company or Bank as described in the plan. Subject to OTS
regulations, upon the exercise of a Limited Stock Right, the recipient will be
entitled to receive a cash payment equal to the fair market value of all
unvested stock awards in exchange for any rights to such unvested stock awards.
When a participant becomes vested with respect to restricted stock
awards, the participant will realize ordinary income equal to the fair market
value of the Common Stock at the time of vesting (unless the participant made an
election pursuant to Section 83(b) of the Code). The amount of income recognized
by the participants will be a deductible expense for tax purposes for the Bank.
When restricted stock awards become vested and shares of Common Stock are
actually distributed to participants, the participants would receive amounts
equal to any accrued dividends with respect thereto. Prior to vesting,
recipients of stock awards 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 in proportion to the directions
provided with respect to shares subject to grants. Vested shares will be
distributed to recipients as soon as practicable following the day on which they
vest.
If the Stock-Based Incentive Plan (or any separate plans for employees
and directors) is adopted in the form described above, stock awards would become
vested and stock options would become vested and exercisable in the manner
specified by the Company, subject to applicable OTS regulations, which require
that stock options and restricted stock awards begin vesting no earlier than one
year from the date of shareholder approval of the plan and thereafter vest at a
rate of no more than 20% per year. Stock options could be exercisable for three
months following the date on which the employee or director ceases to perform
services for the Bank or the Company, except that in the event of death or
disability, options accelerate and become fully vested and could be exercisable
for up to one year thereafter or such longer period as determined by the
Company. In the case of death or disability, stock options may be exercised for
a period of 12 months. However, any Incentive Stock Options exercised more than
three months following the date the employee ceases to perform services as an
employee would be treated as a Non-Statutory Stock Option. In the event of
retirement, if the optionee continues to perform services as a 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 consultant or director. In the event of death,
disability or normal retirement, the Company, if requested by the optionee, or
the optionee's beneficiary, could elect, in exchange for vested options, to pay
the optionee, or the optionee's 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.
Applicable OTS regulations currently do not permit accelerated vesting
in the event of a change in control of stock options or stock awards granted
under a plan adopted within one year after conversion. Subject to any applicable
regulatory requirements, the Stock-Based Incentive Plan (or any separate plans
for employees and directors) may be amended, subsequent to the expiration of the
one-year period, to provide for accelerated vesting of previously granted
options in the event of a change in control of the Company or
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the Bank. A change in control would generally be considered to 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.
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 currently makes certain consumer loans to its executive
officers, directors and employees on the same terms and conditions offered to
the general public. The Bank's policy provides that all loans made by the Bank
to its executive officers and directors be made in the ordinary course of
business, on substantially the same terms, including collateral, as those
prevailing at the time for comparable transactions with other persons and may
not involve more than the normal risk of collectibility or present other
unfavorable features. As of September 30, 1997, 4 of the Bank's executive
officers or directors had loans with outstanding balances totaling approximately
$427,000 in the aggregate. All such loans were made by the Bank in the ordinary
course of business, with no favorable terms and such loans do not involve more
than the normal risk of collectibility or present unfavorable features.
The Company intends that all transactions in the future 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
arm's 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 BY EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth the number of shares of Common Stock the
Bank's executive officers and directors propose to purchase, assuming shares of
Common Stock are issued at the minimum and maximum of the Estimated Price Range,
giving effect to the shares issued to the Foundation, 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 OF THE AT THE MAXIMUM OF THE
ESTIMATED PRICE RANGE(1) ESTIMATED PRICE RANGE(1)
----------------------------- ----------------------------
AS A AS A
PERCENT OF PERCENT OF
NUMBER OF SHARES NUMBER OF SHARES
NAME AMOUNT SHARES ISSUED SHARES ISSUED
- -------------------------------------- ------------- -------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
LaVern F. Roschewski.................. $500,000 25,000 0.42% 25,000 0.31%
Gilbert G. Lundstrom.................. $500,000 25,000 0.42% 25,000 0.31%
Campbell McConnell.................... $400,000 20,000 0.34% 20,000 0.25%
Ann Lindley Spence.................... $500,000 25,000 0.42% 25,000 0.31%
Joyce Person Pocras................... $250,000 12,500 0.21% 12,500 0.16%
Eugene B. Witkowicz................... $150,000 7,500 0.13% 7,500 0.09%
Roland P. Maaske...................... $200,000 10,000 0.17% 10,000 0.12%
Larry L. Pfeil........................ $200,000 10,000 0.17% 10,000 0.12%
Patricia A. Young..................... $100,000 5,000 0.08% 5,000 0.06%
Roger R. Ludemann..................... $100,000 5,000 0.08% 5,000 0.06%
All Directors and Executive Officers
as a Group (10 persons)............... $2,900,000 145,000 2.45% 145,000 1.81%
========== ======= ===== ======= =====
</TABLE>
______________
(1) Includes proposed subscriptions, if any, by associates. Also includes
funds from the Bank's 401(k) Plan which may be used to purchase shares of
Common Stock under such plan's new employer stock fund investment option.
See "--Benefits--Savings Plan." Does not include subscription 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 6% of the Common Stock sold, Common Stock which may be
awarded under the Stock-Based Incentive Plan 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-Based Incentive 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 OTS 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. SUCH OTS
APPROVAL, HOWEVER, DOES NOT CONSTITUTE A RECOMMENDATION OR ENDORSEMENT OF THE
PLAN BY SUCH AGENCY. THE OTS NEITHER APPROVED NOR DISAPPROVED THE ESTABLISHMENT
OF THE FOUNDATION.
GENERAL
On October 7, 1997, the Bank's Board of Directors unanimously adopted,
subject to approval by the OTS, the Plan pursuant to which the Bank will be
converted from a federally-chartered mutual savings bank to a federally-
chartered capital stock savings bank. It is currently intended that all of the
outstanding capital stock of the Bank will be held by the Company. The Plan was
approved by the OTS, subject to, among other things, approval of the Plan by the
Bank's members. A previously defined meeting of members has been called for this
purpose to be held on _______________, 1997.
The Company has received the approval of the OTS to become a savings
and loan holding company and to acquire all of the capital stock of the Bank to
be issued in the Conversion. The Company plans to purchase the shares of issued
and outstanding capital stock of the Bank in exchange for 50% of the net
proceeds and retain the remaining net proceeds. The Conversion will be effected
only upon completion of the sale of all of the shares of Common Stock to be
issued pursuant to the Plan.
The Plan provides that the Board of Directors of the Bank may, at any
time prior to the issuance of the Common Stock and for any reason, decide not to
use a holding company form. Such reasons may include possible delays resulting
from overlapping regulatory processing or policies which could adversely affect
the Bank's or the Company's ability to consummate the Conversion and transact
its business as contemplated herein and in accordance with the Bank's operating
policies. In the event such a decision is made, the Bank will withdraw the
Company's registration statement from the SEC and take steps necessary to
complete the Conversion without the Company, including filing any necessary
documents with the OTS. In such event, and provided there is no regulatory
action, directive or other consideration upon which basis the Bank determines
not to complete the Conversion, if permitted by the OTS, the Bank will issue and
sell the common stock of the Bank and subscribers will be notified of the
elimination of a holding 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 at the Bank's passbook rate of
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 shares of Common Stock for sale in the Subscription Offering to the Bank's
Eligible Account Holders, the ESOP, Supplemental Eligible Account Holders, and
Other Members. Concurrently, and subject to the prior rights of holders of
subscription rights, shares will
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be offered in a Community Offering with preference given first to certain
accountholders of the Iowa Bank and to natural persons residing in the Bank's
Local Community. 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 has 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 in the Syndicated Community
Offering. See "-- Community Offering" and "-- Syndicated Community Offering."
The aggregate price of the shares of Common Stock to be issued in the
Conversion within the Estimated Price Range, currently estimated to be between
$118.6 million and $160.4 million, will be determined based upon an independent
appraisal, prepared by Keller of the estimated pro forma market value of the
Common Stock. All shares of Common Stock to be issued and sold in the Conversion
will be sold at the same price. The independent appraisal will be affirmed or,
if necessary, updated 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 appraisal has been performed by Keller, a
consulting firm experienced in the valuation and appraisal of savings
institutions. See "-- Stock Pricing" for additional information as to the
determination of the estimated pro forma market value of the Common Stock.
The following is a brief summary of pertinent 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 for inspection at each
branch of the Bank and at the Midwest Region and Washington, D.C., offices of
the OTS.
ESTABLISHMENT OF THE CHARITABLE FOUNDATION
General. In furtherance of the Bank's long-standing 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, as further described below. The Company and the
Bank believe that the funding of the Foundation with Common Stock is a means of
establishing a common bond between the Bank and the communities in which the
Bank operates and thereby enables such communities to share in the potential
growth and success of the Company and the Bank over the long term. By further
enhancing the Bank's visibility and reputation in the communities in which it
operates, the Bank believes that the Foundation will enhance the long-term value
of the Bank's community banking franchise.
The Foundation would be dedicated to the promotion of charitable
purposes within the communities in which the Bank operates, including, but not
limited to, providing grants or donations to support housing assistance, not-for
profit medical facilities, community groups and other types of organizations or
projects. Establishment of the Foundation is subject to the approval of a
majority of the total outstanding votes of the Bank's members eligible to be
cast at the Special Meeting. The Foundation will be considered as a separate
matter from approval of the Plan of Conversion. If the Bank's members approve
the Plan of Conversion, but not the Foundation, the Bank intends to complete the
Conversion without the establishment of the Foundation. Failure to approve the
establishment of the Foundation may materially affect the pro forma market value
of the Common Stock. In such an event, the Bank may establish a new Estimated
Price Range and commence a resolicitation of subscribers. In the event of a
resolicitation, unless an affirmative response is received within a specified
period of time, all funds will be promptly returned to investors, as described
elsewhere herein. See "-- Stock Pricing."
Purpose of the Foundation. The purpose of the Foundation is to provide
funding to support charitable purposes within the communities in which the Bank
operates. The Bank has long emphasized community lending and community
development activities and currently has a "satisfactory" Community
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Reinvestment Act ("CRA") rating. The Foundation is being formed as a complement
to the Bank's existing community activities, not as a replacement for such
activities. Indeed, 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 charitable causes, and may be able to support such activities in
ways that are not presently available to the Bank. Since the Bank has a long-
standing 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. 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 Boards of Directors of the Bank and
the Company also believe that the funding of the Foundation with Common Stock of
the Company is a means of enabling the communities in which the Bank operates to
share in the potential growth and success of the Company long after completion
of the Conversion. The Foundation accomplishes 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 would also enable
the Company and the Bank to develop a unified charitable donation strategy and
would centralize the responsibility for administration and allocation of
corporate charitable funds. 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. The Bank expects in future periods to continue to
make some charitable contributions within its communities.
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 five members, all of
whom will be individuals selected from officers or directors of the Bank or
the Company. The initial board of directors of the Foundation will be comprised
of individuals who are currently directors or officers of the Bank. On an on-
going basis, a Nominating Committee of the board of directors of the Foundation
will nominate individuals eligible for election to the board of directors of the
Foundation. The members of the Foundation, who are comprised of its board
members, will elect the directors at the annual meeting of the Foundation from
those nominated by the Nominating Committee. Only persons serving as directors
of the Foundation qualify as members of the Foundation with voting authority.
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 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 stated 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 will
also be responsible for directing the assets of the Foundation. Pursuant to the
terms of the contribution as mandated by the OTS, all shares of Common Stock
held by the Foundation must 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 the OTS will waive this voting restriction
under certain circumstances if compliance with the restriction would: (i) cause
a violation of the law of the State of Delaware and the OTS determines that
federal law would not preempt the application of the laws of the State of
Delaware to the Foundation; (ii) would cause the Foundation to lose its tax-
exempt status 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. In order for the OTS to waive
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such voting restriction, the Company's or the Foundation's legal counsel must
render an opinion satisfactory to OTS that compliance with the voting
restriction would have the effect described in clauses (i), (ii) or (iii) above.
Under those circumstances, the OTS will grant a waiver of the voting restriction
upon submission of such legal opinion(s) by the Company or the Foundation. In
the event that the OTS waived the voting restriction, the directors would direct
the voting of the Common Stock held by the Foundation. However, a condition to
the OTS approval of the Conversion provides that in the event such voting
restriction is waived or becomes unenforceable, the Director of the OTS, or his
designees, at that time may impose conditions on the composition of the board of
directors of the Foundation or such other conditions or restrictions relating to
the control of the Common Stock held by the Foundation, any of which could limit
the ability of the board of directors of the Foundation to control the voting of
the Common Stock held by the Foundation. There will be no agreements or
understandings with directors of the Foundation regarding the exercise of
control, directly or indirectly, over the management or policies of the Company
or the Bank, including agreements related to voting, acquisition or disposition
of the Common Stock. 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 Company will provide office space and administrative support
services to the Foundation. Initially, the Foundation is expected to have no
employees. The board of directors of the Foundation will appoint such officers
as may be necessary to manage the operations of the Foundation. It is
anticipated that initially such officers will be selected from the board of
directors of the Foundation. Any transaction between the Bank and the Foundation
will comply with the affiliate transaction restrictions set forth in Sections
23A and 23B of the Federal Reserve Act, as amended.
The Company proposes to capitalize the Foundation with Common Stock in
an amount equal to 6% 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 355,725,
418,500 and 481,275 shares, which would have a market value of $7.1 million,
$8.4 million and $9.6 million, respectively, based on the Purchase Price of
$20.00 per share. Such contribution, once made, will not be recoverable by the
Company or the Bank. 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 stockholder, 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 contribution,
would have to contribute to the Foundation in future years in order to maintain
a level amount of charitable grants and donations.
The Foundation would receive working capital from any dividends that
may be paid on the 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
market value of the assets held by the Foundation, except where the board of
directors of the Foundation, by three-fourths vote, determines that the failure
to sell an amount of Common Stock greater than such amount would result in a
long-term
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reduction of the value of the Foundation's assets or would otherwise jeopardize
the Foundation's capacity to carry out its charitable purposes. While there may
be a greater risk associated with a one-stock portfolio in comparison to a
diversified portfolio, the Company believes any such risk is mitigated by the
ability of the Foundation's directors to sell more than 5% of its stock in such
circumstances. Upon completion of the Conversion and the contribution of shares
to the Foundation immediately following the Conversion, the Company would have
6,284,475, 7,393,500 and 8,502,525 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
stockholders in the Company's common stock would be diluted by 5.7%, as compared
to their interests in the Company if the Foundation was not established. For
additional discussion of the dilutive effect, see "Comparison of Valuation and
Pro Forma Information With No Foundation" and "Pro Forma Data."
Tax Considerations. The Company and the Bank have been advised by their
independent accountants that an organization created for the above purposes will
qualify as a 501(c)(3) exempt organization under the Code, and will be
classified as a private foundation rather than a public charity. A private
foundation typically receives its support from one person or one corporation
whereas a public charity receives its support from the public. The Foundation
will submit a request to the IRS to be recognized as an exempt organization
after approval of the Foundation by the Bank's members at the Special Meeting
being held to consider the Conversion. 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 condition of the gift which requires that all shares
of Common Stock held by the Foundation must be voted in the same ratio as all
other shares of the Common Stock, on all proposals considered by stockholders of
the Company. In the event that the Company or the Foundation receives an opinion
of their tax counsel satisfactory to the OTS that compliance with the voting
restriction would cause the Foundation to lose its tax-exempt status, otherwise
have a material adverse tax consequence on the Foundation or subject the
Foundation to an excise tax under Section 4941 of the Code, the OTS will waive
such condition upon submission of such opinion(s) by the Company or the
Foundation. See "-- Regulatory Conditions Imposed on the Foundation."
A legal opinion of the OTS which addresses the establishment of
charitable foundations by savings associations opines that as a general rule
funds contributed to a charitable foundation should not exceed the deductible
limitations set forth in the Code, and if an association's contributions exceed
the deductible limit, such action must be justified by the board of directors.
In addition, under Delaware law, the Company is authorized by statute to make
charitable contributions and case law has recognized the benefits of such
contributions to a Delaware corporation. In this regard, Delaware case law
provides that a charitable gift must merely be within reasonable limits as to
amount and purpose to be valid. Under the Code, the Company may deduct up to 10%
of its taxable income in any one year and any contributions made by the Company
in excess of the deductible amount will be deductible for federal tax purposes
over each of the five succeeding taxable years. 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 Foundation on the amount of Common
Stock available to be offered for sale in the Conversion. See "Comparison of
Valuation and Pro Forma Information with No Foundation." 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 $202.0 million, or 17.49% of consolidated assets and the
Bank's pro forma tangible, core and risk-based capital ratios would be 12.06%,
12.06% and 21.73%,
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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 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
accountants that the Company's contribution of its own stock to the Foundation
will 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 less the nominal par value that the Foundation is
required to pay to the Company for such stock, subject to a 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 year in which the contribution is made for federal tax purposes. Thus, while
the Company expects to receive a charitable contribution deduction of
approximately $1.7 million in calendar year 1998, based on the maximum of the
Estimated Price Range, the Company is permitted under the Code to carryover the
excess contribution over a five-year period for federal income tax purposes,
subject to the 10% annual limitation. For state income tax purposes, the Company
does not anticipate receiving a full tax benefit for the charitable contribution
in Nebraska, and will receive no tax benefit in Iowa and Kansas. 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. However, no assurances can be made that the Company will have sufficient
pre-tax income over the five-year period following the year in which the
contribution was made to fully utilized the carryover related to the excess
contribution. 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 stockholders of the Company and
depositors of the Bank, and the financial condition and operations of the
Foundation.
Although the Company and the Bank have received an opinion of their
independent accountants 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 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 --
Establishment of the Charitable Foundation." In cases of willful, flagrant or
repeated acts or failures to act which result in violations of the IRS rules
governing private foundations, a private foundation's status as a private
foundation may be involuntarily terminated by the IRS. In such event, the
managers of a private foundation could be liable for excise taxes based on such
violations and the private foundation could be liable for a termination tax
under the Code. The Foundation's certificate of incorporation provides that it
shall have a perpetual existence. In the event, however, the Foundation were
subsequently dissolved as a result of a loss of its tax exempt status, the
Foundation would be required under the Code and its certificate of incorporation
to distribute any assets remaining in the Foundation at that time for one or
more exempt purposes within the meaning of Section 501(c)(3) of the Code, or to
distribute such assets to the federal government, or to a state or local
government, for a public purpose.
As a private foundation, earnings and gains, if any, from the sale of
Common Stock or other assets are exempt from federal and state corporate
taxation. However, investment income, such as interest, dividends and capital
gains, will be subject to a federal excise tax of 2.0%. The Foundation will be
required to make an annual filing with the IRS within four and one-half months
after the close of the Foundation's fiscal year to maintain its tax-exempt
status. The Foundation will be required to publish a notice that the
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annual information return will be available for public inspection for a period
of 180 days after the date of such public notice. The information return for a
private foundation must include, among other things, an itemized list of all
grants made or approved, showing the amount of each grant, the recipient, any
relationship between a grant recipient and the Foundation's managers and a
concise statement of the purpose of each grant.
Regulatory Conditions Imposed on the Foundation. Establishment of the
Foundation is subject to the following conditions imposed by the OTS: (i) the
Foundation will be subject to examination by the OTS, at the Foundation's own
expense; (ii) the Foundation must comply with supervisory directives imposed by
the OTS; (iii) the Foundation will provide annual reports to the OTS describing
grants made and grant recipients; (iv) the Foundation will operate in accordance
with written policies adopted by the board of directors, including a conflict of
interest policy; (v) the Foundation will not engage in self-dealing and will
comply with all laws necessary to maintain its tax-exempt status; (vi) any
purchases of Common Stock by the Foundation following the Conversion will be
subject to the OTS regulations on stock repurchases; and (vii) any shares of
Common Stock of the Company held by the Foundation must 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 the OTS will
waive this voting restriction under certain circumstances if compliance with the
voting restriction would: (a) cause a violation of the law of the State of
Delaware and the OTS determines the federal law does not preempt the application
of the laws of the State of Delaware to the Foundation; (b) cause the Foundation
to lose its tax-exempt status or otherwise have a material and adverse tax
consequence on the Foundation; or (c) cause the Foundation to be subject to an
excise tax under Section 4941 of the Code. In order for the OTS to waive such
voting restriction, the Company's or the Foundation's legal counsel must render
an opinion satisfactory to OTS that compliance with the voting restriction would
have the effect described in clauses (a), (b) or (c) above. Under those
circumstances, the OTS will grant a waiver of the voting restriction upon
submission of such opinion(s) by the Company or the Foundation. There can be no
assurances that either a legal or tax opinion addressing these issues will be
rendered, or if rendered, that the OTS will grant an unconditional waiver of the
voting restriction. In this regard, a condition to the OTS approval of the
Conversion provides that in the event such voting restriction is waived or
becomes unenforceable, the Director of the OTS, or his designees, at that time
may impose conditions on the composition of the board of directors of the
Foundation or such other conditions or restrictions relating to the control of
the Common Stock held by the Foundation, any of which could limit the ability of
the board of directors of the Foundation to control the voting of Common Stock
held by the Foundation. In no event will the voting restriction survive the sale
of shares of the Common Stock held by the Foundation.
In addition, establishment of the Foundation is subject to the approval
of a majority of the total outstanding votes of the Bank's members eligible to
be cast at the special meeting being held to consider the Conversion. The
Foundation will be considered as a separate matter from approval of the Plan of
Conversion. If the Bank's members approve the Plan of Conversion, but not the
Foundation, the Bank intends to complete the Conversion without the
establishment of the Foundation. Failure to approve the Foundation may
materially increase the pro forma market value of the Common Stock being offered
for sale in the Offering since the Valuation Range, as set forth herein, takes
into account the dilutive impact of the issuance of shares to the Foundation.
See "Comparison of Valuation and Pro Forma Information With No Foundation."
PURPOSES OF CONVERSION
The Bank, as a federally-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, other business entities and a growing number of savings
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institutions. The Conversion will enhance the Bank's ability to access capital
markets, expand its current operations, acquire other financial institutions or
branch offices, provide affordable home financing opportunities to the
communities it serves or diversify into other financial services to the extent
allowable by applicable law and regulation. The Conversion would also position
the Bank for a conversion to a commercial bank charter if the Board of the Bank
chooses to do so in the future. In determining whether to convert to a
commercial bank charter, the Bank may consider, among other things, the
differences in the regulatory and supervisory structure applicable to the Bank
as a commercial lending institution as opposed to a thrift lending institution.
In particular, a conversion to a commercial bank charter would provide the Bank
with added lending flexibility in that the Bank would not be restricted in the
types or amounts of commercial loans in which it may not currently be able to
invest due to regulations applicable to federal savings institutions. However,
the Bank does not expect to convert to a commercial bank charter at this time.
The holding company form of organization will 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 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.
The potential impact of the Conversion upon the Bank's capital base is
significant. Due to the Bank's capital position, it has sought to limit its
asset growth to a level sustainable by its capital position. The Conversion will
significantly increase the Bank's capital position to a level whereby the Bank
will be better positioned to take advantage of business opportunities and engage
in activities which, prior to Conversion, would have been more difficult for the
Bank to engage in and still continue to meet its status as a "well capitalized"
institution. At September 30, 1997, the Bank had retained earnings, determined
in accordance with GAAP, of $80.6 million, or 7.8% of total assets. An
institution with a ratio of tangible capital to total assets of greater than or
equal to 5.0% is considered to be "well-capitalized" pursuant to OTS
regulations. Assuming that the Company uses 50% of the net proceeds at the
maximum of the Estimated Price Range, the Bank's GAAP capital will increase to
$138.6 million or a ratio of GAAP capital to adjusted assets, on a pro forma
basis, of 12.70% after the Conversion. The investment of the net proceeds from
the sale of the Common Stock is expected to provide the Bank with additional
income to increase further its capital position. The additional capital may also
assist the Bank in offering new programs and expanded services to its customers.
See "Use of Proceeds."
After completion of the Conversion, the authorized but unissued common
and preferred stock authorized by the Company's Certificate of Incorporation
will permit the Company, subject to market conditions and regulatory approval of
an offering, 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-Based Incentive Plan or the possible issuance of
authorized but unissued shares to the Stock-Based Incentive Plan under the
Stock-Based Incentive Plan. Following the Conversion, the Company will also be
able to use stock-related incentive programs 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 institution 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
or in the event the
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institution declares a capital distribution to depositors, subject to applicable
regulations of the OTS. 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 institution depositors normally have no
way to realize the value of their ownership interest, which has realizable value
only in the unlikely event that the mutual savings institution is liquidated or
in the event the institution declares a capital distribution to depositors,
subject to applicable regulations of the OTS. In such event, the depositors of
record at that time, as owners, would 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 institution converts to stock form, permanent
nonwithdrawable capital stock is created to represent 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 capital stock. The
stock certificates are transferable and, therefore, the stock may be sold or
traded if a purchaser is available with no effect on any account the seller may
hold in the institution.
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
OTS and the FDIC. After the Conversion, the Bank will continue to provide
services for depositors and borrowers under current policies by its present
management and staff.
The Directors serving the Bank at the time of Conversion will serve
initially as Directors of the Bank after the Conversion. The Directors of the
Company will consist initially of individuals currently serving on the Board of
Directors of the Bank. All officers of the Bank at the time of Conversion will
retain their positions immediately after 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 such 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 (i.e., up to
$100,000 per depositor). Depositors will continue to hold their existing
certificates, 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 they were contractually fixed prior to the Conversion.
Effect on Voting Rights of Members. At present, all depositors and
certain borrowers of the Bank are members of, and have voting rights in, the
Bank as to all matters requiring membership action. Upon Conversion, depositors
and borrowers 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 and borrowers 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.
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Tax Effects. The Bank has received an opinion of counsel with regard to
federal income taxation and an opinion from KPMG Peat Marwick LLP with regard to
Nebraska, Kansas and Iowa taxation which provide that the adoption and
implementation of the Plan of Conversion set forth herein will not be taxable
for federal, Nebraska, Kansas or Iowa tax purposes to the Bank, its Eligible
Account Holders, or its Supplemental Eligible Account Holders or the Company,
except as discussed below. See "-- Tax Aspects."
Effect on Liquidation Rights. If a mutual savings institution 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 be entitled to 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" to certain depositors (see "--
Liquidation Rights"), 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 OTS, 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 assumed by the surviving institution.
STOCK PRICING
The Plan of Conversion requires that the aggregate 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 valuation. The Bank
and the Company have retained Keller to make such valuation. For its services in
making such appraisal and assisting the Company in the development of its
business plan, Keller will receive a fee not to exceed $33,000, including
expenses. The Bank and the Company have agreed to indemnify Keller and its
employees and affiliates against certain losses (including any losses in
connection with claims under the federal securities laws) arising out of its
services as appraiser, except where Keller's liability results from its
negligence, willful misconduct or bad faith.
An appraisal has been made by Keller in reliance upon the information
contained in this Prospectus, including the Consolidated Financial Statements.
Keller also considered the following factors, among others: the present and
projected operating results and financial condition of the Company and the Bank
and the economic and demographic conditions in the Bank's existing marketing
area; 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 similarly situated publicly-traded savings banks and savings
institutions located in the Bank's primary market area and Midwestern United
States; 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; and the trading market for securities of
comparable institutions and general conditions in the market for such
securities.
On the basis of the foregoing, Keller has advised the Company and the
Bank that, in its opinion, dated as of November 12, 1997, the estimated pro
forma market value of the Common Stock ranged from a minimum of $118.6 million
to a maximum of $160.4 million with a midpoint of $139.5 million. Based upon the
Valuation Range and the Purchase Price of $20.00 per share for the Common Stock
established by the Board of Directors, the Board of Directors has established
the Estimated Price Range of $118.6 million to $160.4 million, with a midpoint
of $139.5 million, and the Company expects to issue between 5,928,750 and
8,021,250 shares of Common Stock. The Board of Directors of the Company and the
Bank have reviewed the appraisal of Keller and in determining the reasonableness
and adequacy of such appraisal consistent with OTS regulations and policies,
have reviewed the methodology and reasonableness of the assumptions utilized by
Keller in the preparation of such appraisal. The Estimated Price Range may be
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amended with the approval of the OTS (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 COMMON STOCK
IN THE OFFERINGS. KELLER DID NOT INDEPENDENTLY VERIFY THE CONSOLIDATED FINANCIAL
STATEMENTS AND OTHER INFORMATION PROVIDED BY THE BANK, NOR DID KELLER 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 COMMON STOCK IN THE CONVERSION WILL THEREAFTER BE ABLE TO SELL COMMON
STOCK AT PRICES AT OR ABOVE THE PURCHASE PRICE OR IN THE RANGE OF THE FOREGOING
VALUATION OF THE PRO FORMA MARKET VALUE THEREOF. SEE "RISK FACTORS -- ABSENCE OF
MARKET FOR COMMON STOCK."
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 to be issued in the Conversion may be increased to
9,224,438 shares due to regulatory considerations, 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.
If all shares of Common Stock are not sold through the Subscription and
Community Offerings, then the Bank and the Company expect to offer the remaining
shares in a Syndicated Community Offering which would occur as soon as
practicable following the close of the Subscription and Community Offerings but
may commence during the Subscription and Community Offerings subject to prior
rights of subscribers. All shares of Common Stock will be sold at the same price
per share in the Syndicated Community Offering as in the Subscription and
Community Offerings. See "-- Syndicated Community Offering."
No sale of shares of Common Stock may be consummated unless, prior to
such consummation, Keller confirms to the Bank, the Company and the OTS that, to
the best of its knowledge, nothing of a material nature has occurred which,
taking into account all relevant factors, including those which would be
involved in a cancellation of the Syndicated Community Offering, would cause
Keller to conclude that the aggregate value of the Common Stock at the Purchase
Price is incompatible with its estimate of the pro forma market value of the
Common Stock of the Company at the time of the Syndicated Community Offering.
Any change which would result in an aggregate purchase price which is below or
more than 15% above the Estimated Price Range would be subject to OTS approval.
If such confirmation is not received, the Bank may extend the Conversion,
extend, reopen or commence new Subscription and Community Offerings or
Syndicated Community Offering, establish a new Estimated Price Range and
commence a resolicitation of all subscribers with the approval of the OTS or
take such other actions as permitted by the OTS in order to complete the
Conversion, or terminate the Plan and cancel the Subscription and Community
Offerings and/or the Syndicated Community Offering. 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 such range, and the Company and the Bank determine to
continue the Conversion, subscribers will be resolicited (i.e., be permitted to
continue their orders, in which case they will need to affirmatively reconfirm
their subscriptions prior to the expiration of the resolicitation offering or
their subscription funds will be promptly refunded with interest at the Bank's
passbook rate of interest, or be permitted to decrease or cancel their
subscriptions). Any change in the Estimated Price Range must be approved by the
OTS. A resolicitation, if any, following the conclusion of the Subscription and
Community Offerings would not exceed 45 days, or if following the Syndicated
Community Offering, 90 days, unless
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further extended by the OTS for periods up to 90 days not to extend beyond
_______________, 199_. If such resolicitation is not effected, the Bank will
return all funds promptly with interest at the Bank's passbook rate of interest
on payments made by check, bank draft or money order.
Copies of the appraisal report of Keller, 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 issued 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 $20.00 per share and Keller's estimate of the pro
forma market value of the Common Stock ranging from a minimum of $118,575,000 to
a maximum, as increased by 15%, of $184,488,800, the number of shares of Common
Stock expected to be sold in the Conversion is between a minimum of 5,928,750
shares and a maximum, as adjusted by 15%, of 9,224,438 shares. The actual number
of shares sold between this range will depend on a number of factors and shall
be determined by the Bank and Company subject to OTS approval, if necessary.
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 OTS, purchasers will be resolicited (i.e., permitted to continue their
orders, in which case they will need to affirmatively reconfirm their
subscriptions prior to the expiration of the resolicitation offering or their
subscription funds will be promptly refunded, or be permitted to modify or
rescind their subscriptions). Any change in the Estimated Price Range must be
approved by the OTS. 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 condition, persons who subscribed for the
maximum number of shares will not be given the opportunity to subscribe for an
adjusted maximum number of shares, except for the ESOP which will be able to
subscribe for such adjusted amount. See "-- Limitations on Common Stock
Purchases."
In the event the members of the Bank approve the establishment of the
Foundation, the number of shares to be issued and outstanding following the
Conversion will be increased by a number of shares equal to 6% of the Common
Stock sold in the Conversion. Assuming the sale of shares in the Offerings at
the maximum of the Estimated Price Range, the Company will issue 481,275 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 8,502,525 shares.
Of that amount, the Foundation will own 5.7%. 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 5.7%
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."
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
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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."
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 a balance of $50 or more as of June 30, 1996 ("Eligible
Account Holders"); (2) the ESOP; (3) holders of deposit accounts with a balance
of $50 or more as of December 31, 1997 ("Supplemental Eligible Account
Holders"); and (4) members of the Bank, consisting of depositors of the Bank as
of __________, 199_, the Voting Record Date, and borrowers with loans
outstanding as of June 1, 1995, which continue to be outstanding as of the
Voting Record Date other than Eligible Account Holders and Supplemental Eligible
Account Holders ("Other 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 greater of the
amount permitted to be purchased in the Community Offering, currently $500,000
of Common Stock, one-tenth of one percent (.10%) of the total offering of shares
of Common Stock or fifteen times the product (rounded down to the next whole
number) obtained by multiplying the total number of shares of Common Stock to be
issued by a fraction of which the numerator is the amount of the Eligible
Account Holder's Qualifying Deposit (defined by the Plan as any deposit account
in the Bank with a balance of $50 or more as of June 30, 1996) and the
denominator is the total amount of Qualifying Deposits of all Eligible Account
Holders, in each case on the Eligibility Record Date, subject to the overall
purchase limitation and exclusive of an increase in the shares issued pursuant
to an increase in the Estimated Price Range of up to 15%. See "-- Limitations on
Common Stock Purchases."
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 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 Common 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 remain
unsatisfied in the proportion that the amount of the Qualifying Deposit of each
Eligible Account Holder whose subscription remains unsatisfied bears to the
total amount of the Qualifying Deposits of all Eligible Account Holders whose
subscriptions remain unsatisfied. If the amount so allocated exceeds the amount
subscribed for by any one or more Eligible Account Holders, the excess shall be
reallocated (one or more times as necessary) among those Eligible Account
Holders whose subscriptions are still not fully satisfied on the same principle
until all available shares have been allocated or all subscriptions satisfied.
To ensure proper allocation of stock, each Eligible Account Holder must
list on his subscription order form all accounts in which he 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 of Eligible
Account Holders who are also Directors or Officers of the Bank or their
associates will be subordinated to the subscription rights of other Eligible
Account Holders to the extent attributable to increased deposits in the 12
months preceding June 30, 1996.
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Priority 2: Employee Stock Ownership Plan. To the extent that there are
sufficient shares remaining after satisfaction of the subscriptions by Eligible
Account Holders, 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 shares issued to the
Foundation, and 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 the Conversion, including shares issued to the
Foundation, or 502,758 shares and 680,202 shares, based on the issuance of
5,928,750 shares and 8,021,250 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--Benefits--Employee Stock Ownership Plan and Trust."
Priority 3: Supplemental Eligible Account Holders. Each Supplemental
Eligible Account Holder will receive, without payment therefor, third priority,
nontransferable subscription rights to subscribe for in the Subscription
Offering up to the greater of the amount permitted to be purchased in the
Community Offering, currently $500,000 of Common Stock, one-tenth of one percent
(.10%) of the total offering of shares of Common Stock or fifteen times the
product (rounded down to the next whole number) obtained by multiplying the
total number of shares of Common Stock to be issued by a fraction of which the
numerator is the amount of the Supplemental Eligible Account Holder's Qualifying
Deposit and the denominator is the total amount of Qualifying Deposits of all
Supplemental Eligible Account Holders, in each case on the Supplemental
Eligibility Record Date, subject to the overall purchase limitation and
exclusive of an increase in the shares issued pursuant to an increase in the
Estimated Price Range of up to 15%. 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 such shares eligible for subscription, the shares of Common
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 Common 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 subscribing
Supplemental Eligible Account Holders whose subscriptions remain unsatisfied in
the proportion that the amount of the Qualifying Deposit of each Supplemental
Eligible Account Holder whose subscription remains unsatisfied bears to the
total amount of the Qualifying Deposits of all Supplemental Eligible Account
Holders whose subscriptions remain unsatisfied. If the amount so allocated
exceeds the amount subscribed for by any one or more Supplemental Eligible
Account Holders, the excess shall be reallocated (one or more times as
necessary) among those Supplemental Eligible Account Holders whose subscriptions
are still not fully satisfied on the same principle until all available shares
have been allocated or all subscriptions satisfied.
To ensure proper allocation of stock, each Supplemental Eligible
Account Holder must list on his subscription order form all accounts in which he
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 to the subscription rights to be received as a Supplemental
Eligible Account Holder.
Priority 4: Other Members. To the extent that there are sufficient
shares remaining after satisfaction of subscriptions by the Eligible Account
Holders, the ESOP and the Supplemental Eligible Account Holders, each Other
Member will receive, without payment therefor, fourth priority nontransferable
subscription rights to subscribe for Common Stock in the Subscription Offering
up to the greater of the amount permitted to be
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purchased in the Community Offering, currently $500,000 of Common Stock, or one-
tenth of one percent (.10%) of the total offering of shares of Common Stock,
subject to the overall purchase limitation and exclusive of an increase in
shares issued pursuant to an increase in the Estimated Price Range of up to 15%.
In the event that Other Members subscribe for a number of shares of
Common Stock which, when added to the shares of Common Stock subscribed for by
the Eligible Account Holders, the employee plans and the Supplemental Eligible
Account Holders is in excess of the total number of shares of Common Stock being
issued, the subscriptions of such Other Members will be allocated among the
subscribing Other Members so as to permit each subscribing Other Member, 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 Other Member. Any shares remaining after
that allocation will be allocated among the subscribing Other Members whose
subscriptions remain unsatisfied pro rata in the same proportion that the number
of votes of a subscribing Other Member on the Voting Record Date bears to the
total votes on the Voting Record Date of all subscribing Other Members whose
subscriptions remain unsatisfied. If the amount so allocated exceeds the amount
subscribed for by any one or more remaining Other Members, the excess shall be
reallocated (one or more times as necessary) among those remaining Other Members
whose subscriptions are still not fully satisfied on the same principle until
all available shares have been allocated or all subscriptions satisfied.
Expiration Date for the Subscription Offering. The Subscription
Offering will expire on _______________, 1998, unless extended for up to 45 days
by the Bank or such additional periods with the approval of the OTS.
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 OTS, 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 the Eligible Account Holders, the ESOP, the
Supplemental Eligible Account Holders and Other Members, the Bank has determined
to offer shares pursuant to the Plan to certain members of the general public.
Any excess of shares available will be available for purchase by the general
public, with preference given to natural persons (such natural persons referred
to as "Preferred Subscribers") first who had deposits with a balance of $50 or
more in the Iowa Bank on the Eligibility Record Date, and second, to natural
persons residing in the counties of Adams, Boone, Box Butte, Buffalo, Cheyenne,
Cuming, Custer, Dawson, Dodge, Douglas, Gage, Hall, Howard, Jefferson, Johnson,
Knox, Lancaster, Lincoln, Madison, Nemaha, Otoe, Platte, Red Willow, Richardson,
Saline, Saunders, Scotts Bluff, Thayer and Valley, Nebraska, the counties of
Marshall and Rooks, Kansas and the counties of Cass, Harrison, Mills,
Montgomery, Page and Pottawattamie, Iowa. Such persons, together with associates
of and persons acting in concert with such persons, may purchase up to $500,000
of Common Stock subject to the maximum purchase limitation and
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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% or decreased to less than $500,000 at the
sole discretion of the Company and the Bank. 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 THEIR SOLE DISCRETION, TO ACCEPT OR REJECT
ANY SUCH ORDERS IN WHOLE OR IN PART EITHER AT THE TIME OF RECEIPT OF AN ORDER OR
AS SOON AS PRACTICABLE FOLLOWING THE EXPIRATION DATE.
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, 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.
PERSONS IN NONQUALIFIED STATES OR FOREIGN COUNTRIES
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. However, 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 or resides
in a state of the United States with respect to which both of the following
apply: (i) a small number of persons otherwise eligible to subscribe for shares
of Common Stock reside in such state; and (ii) the Company or the Bank
determines that compliance with the securities laws of such state would be
impracticable for reasons of cost or otherwise, including but not limited to a
request that the Company and the Bank or their officers, directors or trustees
register as a broker, dealer, salesman or selling agent, under the securities
laws of such state, or a request to register or otherwise qualify the
subscription rights or Common Stock for sale or submit any filing with respect
thereto in such state. Where the number of persons eligible to subscribe for
shares in one state is small, the Bank and the Company will base their decision
as to whether or not to offer the Common Stock in such state on a number of
factors, including the size of accounts held by account holders in the state,
the cost of registering or qualifying the shares or the need to register the
Company, its officers, directors or employees as brokers, dealers or salesmen.
MARKETING AND UNDERWRITING ARRANGEMENTS
The Bank and the Company have engaged Sandler O'Neill as a consultant
and financial advisor in connection with the offering of the Common Stock, and
Sandler O'Neill has agreed to use its best efforts to solicit subscriptions and
purchase orders for shares of Common Stock in the Offerings. Based upon
negotiations between the Bank and the Company concerning fee structure, Sandler
O'Neill will receive a fee equal to 1.375% of the aggregate Purchase Price of
the shares sold in the Subscription and Community Offerings, excluding shares
purchased by directors, officers, employees, and any immediate family member
thereof, and any employee benefit plan of the Company or Bank, including the
ESOP for which Sandler O'Neill will not receive a fee. In the event that a
selected dealers agreement is entered into in connection with a Syndicated
Community Offering, the Bank will pay a fee (to be negotiated at such time under
such agreement) to such selected dealers, any sponsoring dealers fees, and a
management fee to Sandler O'Neill of 1.375% for shares sold by National
Association of Securities Dealers, Inc. member firms pursuant to a selected
dealers agreement; provided, however, that any fees payable to Sandler O'Neill
for Common Stock sold by them pursuant to such a selected dealers agreement
shall not exceed 1.375% of the Purchase Price
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and provided, further, however, that the aggregate fees payable to Sandler
O'Neill and the selected dealers will not exceed 7.0% of the aggregate purchase
price of the Common Stock sold by selected dealers. Fees to Sandler O'Neill and
to any other broker-dealer may be deemed to be underwriting fees, and Sandler
O'Neill and such broker-dealers may be deemed to be underwriters.
Notwithstanding the foregoing, in the event the Offerings are not consummated or
Sandler O'Neill ceases, under certain circumstances after the subscription
solicitation activities are commenced, to provide assistance to the Company,
Sandler O'Neill will be entitled to a fee for its management advisory services
in an amount to be agreed upon by the Bank and Sandler O'Neill, and based upon
the amount of services performed by Sandler O'Neill. The Company and the Bank
have agreed to indemnify Sandler O'Neill for reasonable costs and expenses in
connection with certain claims or liabilities, including certain liabilities
under the Securities Act. Sandler O'Neill has received advances towards its fees
totaling $25,000. Total marketing fees to Sandler O'Neill are expected to be
$1,450,504 and $1,977,177 at the minimum and the maximum of the Estimated Price
Range, respectively. See "Pro Forma Data" for the assumptions used to arrive at
these estimates.
Sandler O'Neill will perform proxy solicitation services, conversion
agent services and records management services for the Bank in the Conversion
and will receive a fee for these services of $50,000.
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 subscriber's deposit account at the Bank (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 5:00 p.m., 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 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 shall have the right, in its
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
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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, Supplemental Eligible
Account Holders and Other Members are properly identified as to their stock
purchase priorities, depositors as of the Eligibility Record Date (June 30,
1996) and/or the Supplemental Eligibility Record Date (December 31, 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 any branch office of the Bank, (ii) by check, bank draft or money
order, or (iii) by authorization of withdrawal from deposit accounts maintained
with the Bank. Orders for Common Stock submitted by subscribers in the
Subscription Offering which aggregate to $50,000 or more must be paid by
official bank or certified check or by withdrawal authorization from a deposit
account of 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 Individual Retirement Accounts ("IRAs") and
Qualified Plans may use the assets of such IRAs and Qualified Plans to purchase
shares of Common Stock in the Subscription and Community Offerings, provided
that such IRAs are not maintained at the Bank. Persons with self-directed IRAs
and Qualified Plans 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 funds and Qualified Plans to purchase
shares of Common Stock in the Subscription and Community Offerings, make such
purchases for the exclusive benefit of the IRAs and Qualified Plans.
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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.
RESTRICTIONS ON TRANSFER OF SUBSCRIPTION RIGHTS AND SHARES
Prior to the completion of the Conversion, the OTS conversion
regulations prohibit any person with subscription rights, including the Eligible
Account Holders, the ESOP, the Supplemental Eligible Account Holders and Other
Members, from transferring or entering into any agreement or understanding to
transfer the legal or beneficial ownership of the subscription rights issued
under the Plan or the shares of Common Stock to be issued upon their exercise.
Such rights may be exercised only by the person to whom they are granted and
only for his account. Each person exercising such subscription rights will be
required to certify that he is purchasing shares solely for his own account and
that he has no agreement or understanding regarding the sale or transfer of such
shares. The 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 Sandler O'Neill 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 Sandler O'Neill 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,
Sandler O'Neill 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 overall purchase limitations, 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 $500,000 of the Common Stock, exclusive of an
increase in shares issued pursuant to an increase in the Estimated Price Range
of up to 15%; 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
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with a selected dealer. If an order form is executed and forwarded to the
selected dealer or if the selected dealer is authorized to execute the order
form on behalf of a purchaser, the selected dealer is required to forward the
order form and funds to the Bank for deposit in a segregated account on or
before noon of the business day following receipt of the order form or execution
of the order form by the selected dealer. Alternatively, selected dealers may
solicit indications of interest from their customers to place orders for shares.
Such selected dealers shall subsequently contact their customers who indicated
an interest and seek their confirmation as to their intent to purchase. Those
indicating an intent to purchase shall execute order forms and forward them to
their selected dealer or authorize the selected dealer to execute such forms.
The selected dealer will acknowledge receipt of the order to its customer in
writing on the following business day and will debit such customer's account on
the third business day after the customer has confirmed his intent to purchase
(the "debit date") and on or before noon of the next business day following the
debit date will send order forms and funds to the 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.
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 OTS. Such extensions may not be beyond _______________,
1998. 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 greater of the amount permitted to
be purchased in the Community Offering, currently $500,000 of
Common Stock, one-tenth of one percent (.10%) of the total
offering of shares of Common Stock or fifteen times the product
(rounded down to the next whole number) obtained by multiplying
the total number of shares of Common Stock to be issued by a
fraction of which the numerator is the amount of the Qualifying
Deposit of the Eligible Account Holder and the denominator is the
total amount of Qualifying Deposits of all Eligible Account
Holders in each case on the Eligibility Record Date subject to the
overall maximum purchase limitation in (8) below 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%;
(3) The ESOP is permitted to purchase in the aggregate up to 10% of
the shares of Common Stock issued in the Conversion, including
shares issued to the Foundation, including shares issued in the
event of an increase in the Estimated Price Range of 15% and
intends to purchase 8% of the shares of Common Stock issued in the
Conversion, including shares issued to the Foundation;
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(4) Each Supplemental Eligible Account Holder may subscribe for and
purchase in the Subscription Offering up to the greater of the
amount permitted to be purchased in the Community Offering,
currently $500,000 of Common Stock, one-tenth of one percent
(.10%) of the total offering of shares of Common Stock or fifteen
times the product (rounded down to the next whole number) obtained
by multiplying the total number of shares of Common Stock to be
issued by a fraction of which the numerator is the amount of the
Qualifying Deposit of the Supplemental Eligible Account Holder and
the denominator is the total amount of Qualifying Deposits of all
Supplemental Eligible Account Holders in such case on the
Supplemental Eligibility Record Date subject to the overall
maximum purchase limitation in (8) below 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%;
(5) Each Other Member may subscribe for and purchase in the
Subscription Offering up to the greater of the amount permitted to
be purchased in the Community Offering, currently $500,000 of
Common Stock, or one-tenth of one percent (.10%) of the total
offering of shares of Common Stock subject to the overall maximum
purchase limitation in (8) below 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%;
(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 $500,000 of Common Stock subject to the overall
maximum purchase limitation in (8) below 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%;
(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
Offering up to $500,000 of Common Stock subject to the overall
maximum purchase limitation in (8) below 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, 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 $500,000
purchase limitation;
(8) Eligible Account Holders, Supplemental Eligible Account Holders
and Other 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
(9) No more than 30% of the total number of shares offered for sale in
the Conversion may be purchased by directors and officers of the
Bank and their associates in the aggregate, excluding purchases by
the ESOP.
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Subject to any required regulatory approval and the requirements of
applicable laws and regulations, but without further approval of the members of
the Bank, 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% 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. In addition, the Boards of
Directors of the Company and the Bank may, in their sole discretion, increase
the maximum purchase limitation referred to above up to 9.99%, provided that
orders for shares exceeding 5% of the shares being offered in the Subscription
and Community Offerings shall not exceed, in the aggregate, 10% of the shares
being offered in the Subscription and Community Offerings. Requests to purchase
additional shares of Common Stock under this provision will be determined by the
Boards of Directors and, if approved, allocated on a pro rata basis giving
priority in accordance with the priority rights set forth herein.
The overall maximum purchase limitation may not be reduced to less than
1% but the individual amount permitted to be subscribed for may be reduced by
the Bank to less than $500,000, subject to paragraphs (2), (4) and (5) above
without the further approval of members or resolicitation of subscribers. An
individual Eligible Account Holder, Supplemental Eligible Account Holder or
Other Member 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 overall maximum purchase limit for
purchases in the Conversion.
In the event of an increase in the total number of shares offered in
the Conversion due to an increase in the Estimated Price Range of up to 15% (the
"Adjusted Maximum"), the additional shares will be allocated in the following
order of priority in accordance with the Plan: (i) to fill the ESOP's
subscription of 8% of the amount of Common Stock issued in the Conversion,
including shares issued to the Foundation, at the Adjusted Maximum number of
shares; (ii) in the event that there is an oversubscription by Eligible Account
Holders, to fill unsatisfied subscriptions of Eligible Account Holders,
exclusive of the Adjusted Maximum; (iii) in the event that there is an
oversubscription by Supplemental Eligible Account Holders, to fill unsatisfied
subscriptions of Supplemental Eligible Account Holders, exclusive of the
Adjusted Maximum; (iv) in the event that there is an oversubscription by Other
Members, to fill unsatisfied subscriptions of Other Members exclusive of the
Adjusted Maximum; and (v) to fill unsatisfied subscriptions in the Community
Offering to the extent possible, exclusive of the Adjusted Maximum, with
preference to institutional investors then a preference to Preferred
Subscribers.
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 trustee 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 trustee 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."
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LIQUIDATION RIGHTS
In the unlikely event of a complete liquidation of the Bank in its
present mutual form, each depositor would receive his pro rata share of any
assets of the Bank remaining after payment of claims of all creditors (including
the claims of all depositors to the withdrawal value of their accounts). Each
depositor's pro rata share of such remaining assets would be in the same
proportion as the value of his deposit account was 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, his claim would be
solely in the amount of the balance in his deposit account plus accrued
interest. He 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. Each
Eligible Account Holder and Supplemental Eligible Account Holder, if he were to
continue to maintain his deposit account at the Bank, would be entitled, on a
complete liquidation of the Bank after the Conversion, to an interest in the
liquidation account 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, including
regular accounts, transaction accounts such as NOW accounts, money market
deposit accounts, and certificates of deposit, with a balance of $50 or more
held in the Bank on June 30, 1996 and December 31, 1997, respectively. Each
Eligible Account Holder and Supplemental Eligible Account Holder will have a pro
rata interest in the total liquidation account based on the proportion that the
balance of his Qualifying Deposits on the Eligibility Record Date or
Supplemental Eligibility Record Date, respectively, bore to the total amount of
all Qualifying Deposits of all Eligible Account Holders and Supplemental
Eligible Account Holders in the Bank. For deposit accounts in existence at both
dates separate subaccounts shall be determined on the basis of the Qualifying
Deposits in such deposit accounts on such respective record dates.
If, however, on any annual closing date subsequent to the Eligibility
Record Date or Supplemental Eligibility Record Date, the amount of the
Qualifying Deposit of an Eligible Account Holder or Supplemental Eligible
Account Holder is less than the amount of the Qualifying Deposit of such
Eligible Account Holder or Supplemental Eligible Account Holder as of the
Eligibility Record Date or Supplemental Eligibility Record Date, respectively,
or less than the amount of the Qualifying Deposits as of the previous annual
closing date, then the interest in the liquidation account relating to such
Qualifying Deposit would be reduced from time to time by the proportion of any
such reduction, and such interest will cease to exist if such Qualifying Deposit
accounts are closed. In addition, no interest in the liquidation account would
ever be increased despite any subsequent increase in the related Qualifying
Deposit. 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 an
independent accountant with respect to Nebraska, Kansas and Iowa law, 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.
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No private ruling will be received from the IRS with respect to the
proposed Conversion. Instead, the Bank has received an opinion of its counsel,
Muldoon, Murphy & Faucette, 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
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 to the Bank or
the Company upon the purchase of the Bank's capital stock by the Company or to
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' 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 and 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 holders of the Common Stock 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 that
the Conversion will not be a taxable transaction to the Company, the Bank,
Eligible Account Holders or Supplemental Eligible Account Holders for Nebraska,
Kansas and Iowa income and/or franchise tax purposes. Certain portions of both
the federal and the state and local tax opinions are based upon the assumption
that the subscription rights issued in connection with the Conversion will have
no value.
Unlike private rulings, an opinion of counsel or an opinion of an
independent accountant 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.
Keller has issued an opinion stating that, pursuant to its valuation,
Keller is of the opinion that the subscription rights do not have any value,
based on the fact that such rights are acquired by the recipients without cost,
are nontransferable and of short duration, and afford the recipients the right
only to purchase 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 shares of
Common Stock sold in the Community Offering. Such valuation 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,
receipt of such rights could be taxable to those Eligible Account Holders or
Supplemental Eligible Account Holders who receive and/or exercise the
subscription rights in an amount equal to such value and the Bank could
recognize gain on such distribution. Eligible Account Holders and Supplemental
Eligible Account Holders are encouraged to consult with their own tax advisor as
to the tax consequences in the event that such subscription rights are deemed to
have an ascertainable value.
INTERPRETATION AND AMENDMENT OF THE PLAN OF CONVERSION
To the extent permitted by law, all interpretations of the Plan by the
Bank will be final. The Plan provides that the Bank's Board of Directors shall
have the discretion to interpret and apply the provisions of the Plan to
particular circumstances and that such interpretation or application shall be
final. This includes any and all interpretations, applications and
determinations made by the Board of Directors on the basis of such information
and assistance as was then reasonably available for such purpose.
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The Plan provides that, if deemed necessary or desirable by the Board
of Directors, the Plan may be substantively amended at any time prior to
solicitation of proxies from members to vote on the Plan by a two-thirds vote of
the Bank's Board of Directors. After submission of the proxy materials to the
members, the Plan may be amended by a two-thirds vote of the Board of Directors
at any time prior to the Special Meeting with the concurrence of the OTS. The
Plan may be amended at any time after the approval of members with the approval
of the OTS and no further approval of the members will be necessary unless
otherwise required by the OTS. By adoption of the Plan, the Bank's members will
be deemed to have authorized amendment of the Plan under the circumstances
described above.
The establishment of the Foundation will be considered as a separate
matter from approval of the Plan of Conversion. If the Bank's members approve
the Plan of Conversion, but not the creation of the Foundation, the Bank intends
to complete the Conversion without the Foundation. Failure to approve the
establishment of the Foundation may materially increase the pro forma market
value of the Common Stock since the Valuation Range, as set forth herein, takes
into account the dilutive impact of the issuance of shares to the Foundation. In
such an event, the Bank may establish a new Estimated Price Range and commence a
resolicitation of subscribers. In the event of a resolicitation, unless an
affirmative response is received within a specified period of time, all funds
will be promptly returned to investors, as described elsewhere herein. See "--
Stock Pricing."
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 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 restricted shares will bear a legend giving notice
of this restriction on transfer, and instructions will be issued to the effect
that any transfer within such time period of any certificate or record ownership
of such shares other than as provided above is a violation of the 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 same restrictions. The directors and executive officers of the Bank will
also be subject to the insider trading rules promulgated pursuant to the
Exchange Act and any other applicable requirements of the federal securities
laws.
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 OTS. This restriction does not apply, however, to
negotiated transactions involving more than 1.0% of the outstanding Common Stock
or to the purchase of stock pursuant to any Stock-Based Incentive Plan to be
established after the Conversion.
Unless approved by the OTS, the Company, pursuant to OTS regulations,
will be prohibited from repurchasing any shares of the Common Stock for three
years except: (i) for an offer to all stockholders on a pro rata basis; or (ii)
for the repurchase of qualifying shares of a director. Notwithstanding the
foregoing, beginning one year following completion of the Conversion the Company
may repurchase its Common Stock so long as: (i) the repurchases within the
following two years are part of an open-market program not involving greater
than 5% of its outstanding capital stock during a twelve-month period; (ii) the
repurchases do not cause the Company to become undercapitalized; and (iii) the
Company provides to the Regional Director of the OTS no later than 10 days prior
to the commencement of a repurchase program written notice containing a full
description of the program to be undertaken and such program is not disapproved
by the Regional Director. In addition, under current OTS policies, repurchases
may be allowed in the first year following Conversion and in amounts greater
than 5% in the second and third years following Conversion,
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provided there are valid and compelling business reasons for such repurchases
and the OTS does not object to such repurchases.
RESTRICTIONS ON ACQUISITION OF THE COMPANY
AND THE BANK
GENERAL
The Plan of Conversion provides for the Conversion of the Bank from the
mutual to the stock form of organization and, in connection therewith, a new
Federal Stock Charter and Bylaws to be adopted by members of the Bank. The Plan
also provides for the concurrent formation of a holding company, which form of
organization may or may not be utilized at the option of the Board of Directors
of the Bank. See "The Conversion-- General." As described below, certain
provisions in the Company's Certificate of Incorporation and Bylaws and in its
management remuneration entered into in connection with the Conversion, together
with provisions of Delaware corporate law, may have anti-takeover effects. In
the event that the holding company form of organization is not utilized, the
Bank's Stock Charter and Bylaws and management remuneration entered into in
connection with the Conversion may have anti-takeover effects as described
below. In addition, 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
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 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 upon the exercise of
conversion rights or options and shares as to which such person and his
affiliates have or share investment or voting power, but shall not include
shares beneficially owned by the ESOP or directors, officers and employees of
the Bank or Company or shares that are subject to a revocable proxy and that are
not otherwise beneficially owned, or deemed by the Company to be beneficially
owned, by such person and his affiliates. The Certificate of Incorporation of
the Company further provides
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that this provision limiting voting rights may only be amended upon the vote of
80% of the outstanding shares of voting stock (after giving effect to the
limitation on 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 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 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. The
Certificate of Incorporation of the Company provides that a director may be
removed from the Board of Directors prior to the expiration of his term only for
cause, upon the vote of 80% of the outstanding shares of voting stock.
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 the 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 60,000,000 shares of Common Stock and 10,000,000 shares of Preferred
Stock. The shares of Common Stock and Preferred Stock were authorized in an
amount greater than that to be issued in the Conversion to provide the Company's
Board of Directors with as much flexibility as possible to effect, among other
transactions, financings, acquisitions, stock dividends, stock splits and to
provide shares for employee benefit plans. 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 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 of Directors currently
has no plans for the issuance of additional shares, other than the issuance of
additional shares pursuant to the terms of the Stock-Based Incentive Plan and
upon exercise of stock options to be issued pursuant to the terms of the Stock-
Based Incentive Plan, all of which are to be established and presented to
stockholders at the first annual meeting after the Conversion.
Stockholder Vote Required to Approve Business Combinations with
Principal Stockholders. The Certificate of Incorporation requires the approval
of the holders of at least 80% of the Company's outstanding shares of voting
stock to approve certain "Business Combinations," 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 two-thirds of the
outstanding shares of Common Stock
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of the Company and any other affected class of stock. Under the Certificate of
Incorporation, at least 80% approval of shareholders is required in connection
with any transaction involving an Interested Stockholder (as defined below)
except (i) in cases where the proposed transaction has been approved in advance
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 which case, if a stockholder vote is required, approval of only a
majority of the outstanding shares of voting stock would be sufficient. The term
"Interested Stockholder" is defined to include any individual, corporation,
partnership or other entity (other than the Company or a subsidiary thereof)
which owns beneficially or controls, directly or indirectly, 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 or into any Interested Stockholder or Affiliate (as defined in
the Certificate of Incorporation) 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 subsidiaries; (iii) the issuance or
transfer to any Interested Stockholder or its Affiliate by the Company (or any
subsidiary) of any securities of the Company in exchange for any assets, cash or
securities 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 which has
the effect of increasing the proportionate share of Common Stock or any class of
equity or convertible securities of the Company 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 1.8% of the
shares of the Common Stock at 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, if at a meeting of stockholders following the Conversion
stockholder approval of the proposed Stock-Based Incentive Plan is received, the
Company expects to acquire 10% of the Common Stock issued in connection with the
Conversion, including shares issued to the Foundation, on behalf of the Stock-
Based Incentive Plan and expects 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-Based Incentive Plan to directors and executive
officers. As a result, assuming the Stock-Based Incentive Plan is approved by
Stockholders, directors, executive officers and employees have the potential to
control the voting of approximately 20.0% of the Common Stock, 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
hereinabove.
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, the Bank and the stockholders of the Company,
give due consideration to all relevant factors, including, without limitation,
the social and economic effects of acceptance of such offer on the Company's
customers and the Bank's present and future account holders, borrowers and
employees; on the communities in which the Company and the Bank operate or are
located; and on the ability of the Company to fulfill its corporate objectives
as a savings and loan holding company and on the ability of the Bank to fulfill
the objectives of a federally-chartered 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
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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 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 its Board
of Directors, or by a vote of 80% 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 a 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. The
provisions of the Employment Agreements, CIC Agreements, Employee Severance
Compensation Plan, or the Stock-Based Incentive Plan to be established may also
discourage takeover attempts by increasing the costs to be incurred by the Bank
and the Company in the event of a takeover. See "Management of the Bank--
Employment Agreements" and "-- Benefits-- Stock-Based Incentive Plan."
The Company's Board of Directors believes that the provisions of the
Certificate of Incorporation, Bylaws and management remuneration plans to be
established are in the best interest of the Company and its stockholders. An
unsolicited non-negotiated proposal can seriously disrupt the business and
management of a corporation and cause it great expense. Accordingly, the Board
of Directors believes it is in the best 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. It is also the Board of Directors'
view that these provisions should not discourage persons from proposing a merger
or other transaction at a price that reflects the true value of the Company and
that otherwise is in the best interest of all stockholders.
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 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.
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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, with the number of shares outstanding
calculated without regard to those shares owned by the corporation's directors
who are also officers and by 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 CHARTER 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 the Conversion, the Board
of Directors believes that it is appropriate to adopt certain provisions
permitted by federal regulations 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 Federal Stock Charter will contain a provision whereby the
acquisition of or offer to acquire 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 Federal Stock 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
Federal Stock Charter 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 Federal Stock Charter, 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.
Finally, for five years after the
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Conversion, stockholders will not be permitted to call a special meeting of
stockholders relating to a change of control of the Bank or a charter amendment
or to cumulate their votes in the election of directors. Furthermore, 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.
Although the Bank has no arrangements, understandings or plans at the
present time, except as described in "Description of Capital Stock of the
Company-- Preferred Stock," for the issuance or use of the shares of
undesignated 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
The Plan of Conversion prohibits any person, prior to the completion of
the Conversion, from transferring, or from entering into any agreement or
understanding to transfer, to the account of another, legal or beneficial
ownership of the subscription rights issued under the Plan or the Common Stock
to be issued upon their exercise. The Plan also prohibits any person, prior to
the completion of the Conversion, from offering, or making an announcement of an
offer or intent to make an offer, to purchase such subscription rights or Common
Stock.
For three years following the Conversion, OTS regulations prohibit any
person from acquiring or making an offer to acquire more than 10% of the stock
of any converted savings institution, except for: (i) offers that, if
consummated, would not result in the acquisition by such person during the
preceding 12-month period of more than 1% of such stock; (ii) offers for up to
25% in the aggregate by the ESOP or other tax qualified plans of the Bank or the
Company; or (iii) offers which are not opposed by the Board of Directors of the
Bank and which receive the prior approval of the OTS. Such prohibition is also
applicable to the acquisition of the stock of the Company. Such acquisition may
be disapproved by the OTS if it is found, among other things, that the proposed
acquisition (a) would frustrate the purposes of the provisions of the
regulations regarding conversions; (b) would be manipulative or deceptive; (c)
would subvert the fairness of the conversion; (d) would be likely to result in
injury to the savings institution; (e) would not be consistent with economical
home financing; (f) would otherwise violate any law or regulation; or (g) would
not contribute to the prudent deployment of the savings institution's conversion
proceeds. In the event that any person, directly or indirectly, violates this
regulation, the securities beneficially owned by such person in excess of 10%
shall not be counted as shares entitled to vote and shall not be voted by any
person or counted as voting shares in connection with any matters submitted to a
vote of stockholders. The definition of beneficial ownership for this regulation
extends to persons holding revocable or irrevocable proxies for the Company's
stock under circumstances that give rise to a conclusive or rebuttable
determination of control under the OTS regulations.
In addition, any proposal to acquire 10% of any class of equity
security of the Company generally would be subject to approval by the OTS under
the Change in Bank Control Act. The OTS requires all persons seeking control of
a savings institution and, therefore, indirectly its holding company, to obtain
137
<PAGE>
regulatory approval prior to offering to obtain control. Federal law 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 a federally-insured
savings institution 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 lessen 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 three years after conversion 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.
DESCRIPTION OF CAPITAL STOCK OF THE COMPANY
GENERAL
The Company is authorized to issue 60,000,000 shares of Common Stock
having a par value of $.01 per share and 10,000,000 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 to the Foundation
of authorized but unissued Common Stock in an amount equal to 6% of the Common
Stock sold in the Conversion, the Company currently expects to issue up to
8,502,525 shares of Common Stock (or 9,777,904 in the event of an increase of
15% in the Estimated Price Range) and no shares of Preferred Stock in the
Conversion. Except as discussed above in "Restrictions on Acquisition of the
Company and the Bank," each share of the Common Stock will have the same
relative rights as, and will be identical in all respects with, each other share
of Common Stock. Upon payment of the Purchase Price for the Common Stock, in
accordance with the Plan, all such stock will be duly authorized, fully paid and
non-assessable.
THE COMMON STOCK OF THE COMPANY 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 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 regulation. See "Dividend Policy" and "Regulation." The
holders of Common Stock 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 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 the Company's Certificate of
Incorporation or as are otherwise presented to them by the Board of Directors.
Except as discussed in
138
<PAGE>
"Restrictions on Acquisition of the Company and the Bank," each holder of Common
Stock will be entitled to one vote per share, and will not have any right to
cumulate votes in the election of directors. If the Company issues Preferred
Stock, holders of the Preferred Stock may also possess voting rights. Certain
matters require an 80% shareholder vote. See "Restrictions on Acquisition of the
Company and the Bank."
As a federal 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 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.
Preemptive Rights. 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.
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 preferences and
designations 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.
DESCRIPTION OF CAPITAL STOCK OF THE BANK
GENERAL
The Federal Stock Charter of the Bank, to be effective upon the
Conversion, authorizes the issuance of capital stock consisting of 45,000,000
shares of common stock, par value $1.00 per share, and 5,000,000 shares of
preferred stock, par value $1.00 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 Federal Stock Charter 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.
139
<PAGE>
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, subject to the right of shareholders to cumulate their votes for the
election of directors. During the five-year period after the effective date of
the Conversion, cumulation of votes will not be permitted. See "Restrictions on
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 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. The common stock will not be subject to redemption. 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 ______________.
EXPERTS
The consolidated financial statements of the Bank and its subsidiaries
as of June 30, 1997 and 1996, and for each of the years in the three-year period
ended June 30, 1997, have been included in this Prospectus, 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.
Keller 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 valuation with
respect to subscription rights.
140
<PAGE>
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 the Company
by Muldoon, Murphy & Faucette, Washington, D.C., special counsel to the Bank and
the Company. Muldoon, Murphy & Faucette will rely as to certain matters of
Delaware law on the opinion of Morris, Nichols, Arsht & Tunnell. The States of
Nebraska, Kansas and Iowa tax consequences of the Conversion and certain matters
related to the Foundation will be passed upon for the Bank and the Company by
KPMG Peat Marwick LLP. Certain legal matters will be passed upon for Sandler
O'Neill by Foley & Lardner.
ADDITIONAL INFORMATION
The Company has filed with the SEC a registration statement under the
Securities Act with respect to the Common Stock offered hereby. As permitted by
the rules and regulations of the SEC, this Prospectus does not contain all the
information set forth in the registration statement. Such information can be
examined without charge at the public reference facilities of the SEC located at
450 Fifth Street, 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. 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. The statements contained
in this Prospectus as to the contents of any contract or other document filed as
an exhibit to the registration statement are, of necessity, brief descriptions
thereof and are not necessarily complete; each such statement is qualified by
reference to such contract or document.
The Bank has filed an application for conversion with the OTS with
respect to the Conversion. Pursuant to the rules and regulations of the OTS,
this Prospectus omits certain information contained in that application. The
application may be examined at the principal office of the OTS, 1700 G Street,
N.W., Washington, D.C. 20552, and at the Office of the Regional Director of the
OTS located at 122 John Carpenter Freeway, Suite 600, Irving, Texas 75039.
In connection with the Conversion, the Company will register its Common
Stock with the SEC under Section 12(g) 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
OTS under Section 12(g) 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 Certificate of Incorporation and the Bylaws of the
Company and the Federal Stock Charter and Bylaws of the Bank and the Certificate
of Incorporation and Bylaws of the Foundation are available without charge from
the Bank.
141
<PAGE>
FIRST FEDERAL LINCOLN BANK AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
------------
<S> <C>
Independent Auditor's Report...................................................... F-2
Consolidated Statements of Financial Condition as of September 30, 1997
(unaudited) and June 30, 1997 and 1996............................................ F-3
Consolidated Statements of Income for the Three-Month Periods Ended
September 30, 1997 and 1996 (unaudited) and for the Years Ended June 30,
1997, 1996 and 1995............................................................... 35
Consolidated Statements of Retained Earnings for the Three-Month Period
Ended September 30, 1997 (unaudited) and for the Years Ended June 30, 1997,
1996 and 1995..................................................................... F-4
Consolidated Statements of Cash Flows for the Three-Month Periods Ended
September 30, 1997 and 1996 (unaudited) and for the Years Ended June 30,
1997, 1996 and 1995............................................................... F-5 to F-7
Notes to Consolidated Financial Statements........................................ F-8 to F-30
</TABLE>
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 First Lincoln Bancshares Inc. have been
omitted because First Lincoln Bancshares 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>
[LETTERHEAD OF PEAT MARWICK LLP APPEARS HERE
INDEPENDENT AUDITORS' REPORT
Board of Directors
First Federal Lincoln Bank:
We have audited the accompanying consolidated statements of financial condition
of First Federal Lincoln Bank and subsidiaries as of June 30, 1997 and 1996, and
the related consolidated statements of income, retained earnings and cash flows
for each of the years in the three-year period ended June 30, 1997. These
financial statements are the responsibility of the Bank's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform our 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 First Federal
Lincoln Bank and subsidiaries at June 30, 1997 and 1996 and the results of their
operations and their cash flows for each of the years in the three-year period
ended June 30, 1997, in conformity with generally accepted accounting
principles.
As described in Note 1 to the consolidated financial statements, the Bank
adopted the provisions of Statement of Financial Accounting Standards (FAS) No.
115, Accounting for Certain Investments in Debt and Equity Securities, on
July 1, 1994.
KPMG Peat Marwick LLP
/s/ KPMG Peat Marwick LLP
Lincoln, Nebraska
August 20, 1997
(October 7, 1997 as to note 21)
F-2
<PAGE>
FIRST FEDERAL LINCOLN BANK AND SUBSIDIARIES
Consolidated Statements of Financial Condition
September 30, 1997 (unaudited) and June 30, 1997 and 1996
================================================================================
<TABLE>
<CAPTION>
June 30,
Assets September 30, ---------------------------
1997 1997 1996
(unaudited)
<S> <C> <C> <C>
Cash and due from banks $ 12,123,731 12,748,083 13,045,330
Federal funds sold 33,700,000 3,600,000 52,500,000
------------- ------------- -------------
Total cash and cash equivalents 45,823,731 16,348,083 65,545,330
Investment securities, held to maturity, at amortized cost
(estimated market value of $58,613,037 (unaudited),
$93,974,136 and $129,576,038 at September 30, 1997
and June 30, 1997 and 1996, respectively) 58,659,904 94,248,200 130,643,090
Mortgage-backed securities:
Held to maturity, at amortized cost (estimated
market value of $80,803,782 (unaudited),
$85,218,664 and $95,410,083 at September 30, 1997
and June 30, 1997 and 1996, respectively) 80,413,202 85,371,877 97,030,479
Available for sale, at estimated market value 746,466 749,960 843,076
Loans receivable, net 818,460,094 814,881,349 713,511,565
Accrued interest receivable 6,474,410 7,065,140 7,183,465
Investment in FHLB stock, at cost 7,059,900 6,933,300 6,313,300
Real estate held for investment, net 601,724 606,316 624,688
Real estate owned, net 1,170,044 1,461,606 1,391,062
Premises and equipment, net 13,044,536 12,823,082 12,904,464
Other assets 1,124,445 1,846,363 1,864,286
------------- ------------- -------------
$ 1,033,578,456 1,042,335,276 1,037,854,805
============= ============= =============
Liabilities and Retained Earnings
Liabilities:
Deposits $ 923,669,334 920,119,585 929,314,129
Overdrawn cash account in bank 3,680,860 5,017,943 4,337,671
Advances from FHLB 10,565,250 21,568,700 13,598,500
Advances from borrowers for taxes and insurance 211,068 1,305,150 962,991
Accrued interest payable 9,324,024 8,930,073 9,497,497
Accrued expenses and other liabilities 5,565,861 6,481,972 5,583,711
------------- ------------- -------------
Total liabilities 953,016,397 963,423,423 963,294,499
------------- ------------- -------------
Retained earnings:
Retained earnings, subject to certain restrictions 80,563,705 78,920,703 74,580,578
Net unrealized losses on securities available for sale (1,646) (8,850) (20,272)
------------- ------------- -------------
Total retained earnings 80,562,059 78,911,853 74,560,306
Commitments and contingencies
------------- ------------- -------------
$ 1,033,578,456 1,042,335,276 1,037,854,805
============= ============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
FIRST FEDERAL LINCOLN BANK AND SUBSIDIARIES
Consolidated Statements of Retained Earnings
Three-Month Period Ended September 30, 1997 (unaudited)
and Years Ended June 30, 1997, 1996 and 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Net unrealized
losses on
securities Total
Retained available retained
earnings for sale earnings
<S> <C> <C> <C>
Balance at June 30, 1994 $ 65,147,000 - 65,147,000
Net income 4,058,979 - 4,058,979
Net unrealized losses due to adoption of
FAS No. 115 - (183,762) (183,762)
Change in net unrealized losses - 149,795 149,795
---------- ------- ----------
Balance at June 30, 1995 69,205,979 (33,967) 69,172,012
Net income 5,374,599 - 5,374,599
Change in net unrealized losses - 13,695 13,695
---------- ------- ----------
Balance at June 30, 1996 74,580,578 (20,272) 74,560,306
Net income 4,340,125 - 4,340,125
Change in net unrealized losses - 11,422 11,422
---------- ------- ----------
Balance at June 30, 1997 78,920,703 (8,850) 78,911,853
Net income (unaudited) 1,643,002 - 1,643,002
Change in net unrealized losses (unaudited) - 7,204 7,204
---------- ------- ----------
Balance at September 30, 1997 (unaudited) $ 80,563,705 (1,646) 80,562,059
========== ======= ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
FIRST FEDERAL LINCOLN BANK AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Three-Month Periods Ended September 30, 1997 and 1996
(unaudited) and Years Ended June 30, 1997, 1996 and 1995
================================================================================
<TABLE>
<CAPTION>
September 30, June 30,
------------------------ ----------------------------------
1997 1996 1997 1996 1995
(unaudited)
<S> <C> <C> <C> <C> <C>
Net cash provided by operating activities $ 2,083,577 1,950,255 6,668,048 6,509,984 11,544,675
---------- ---------- ---------- ---------- ----------
Cash flows from investing activities:
Purchase of investment securities:
Held to maturity - (2,000,000) (12,008,364) (155,092,171) (32,194,735)
Available for sale - - - (947,851) -
Proceeds from maturity of investment securities:
Held to maturity 35,595,000 13,290,000 48,890,000 193,735,586 65,768,002
Available for sale - - - 1,000,000 -
Proceeds from sale of investment
securities, available for sale - - - 948,125 -
Purchase of mortgage-backed securities:
Held to maturity - (290,932) (3,608,460) (22,606,115) (30,985,039)
Available for sale - (563,841) (563,841) - -
Proceeds from sale of mortgage-backed
securities, available for sale - 565,251 565,251 1,014,135 -
Proceeds from principal repayments of
investment and mortgage-backed securities 4,903,044 4,041,154 15,075,393 16,643,264 7,769,192
Increase in loans receivable (4,138,020) (35,078,211) (101,689,876) (69,121,251) (20,638,423)
Proceeds from sale of real estate owned
and held for investment 217,621 - 73,260 5,268,054 5,316,059
Additions to real estate held for investment - - - (1,925) (23,124)
Additions to premises and equipment (647,804) (545,646) (1,539,201) (4,580,909) (2,148,493)
Proceeds from sale of premises and equipment 10,013 3,934 10,028 687,867 15,526
Purchase of FHLB stock - - (187,300) (391,600) (116,300)
Proceeds from redemption of FHLB stock - - - - 2,893,100
Premium paid for First Bank deposits - - - (652,257) -
---------- ---------- ---------- ---------- ----------
Net cash provided by (used in)
investing activities 35,939,854 (20,578,291) (54,983,110) (34,097,048) (4,344,235)
---------- ---------- ---------- ---------- ----------
Cash flows from financing activities:
Net increase (decrease) in deposits 3,549,749 (17,085,246) (9,194,544) 65,250,007 (32,697,003)
Net increase (decrease) in advances from
borrowers for taxes and insurance (1,094,082) (832,711) 342,159 (5,765,135) (556,715)
Proceeds from FHLB advances 5,000,000 1,000,000 37,000,000 - 25,000,000
Repayment of FHLB advances (16,003,450) (16,625) (29,029,800) (10,033,250) (5,033,250)
---------- ---------- ---------- ---------- ----------
Net cash provided by (used in)
financing activities (8,547,783) (16,934,582) (882,185) 49,451,622 (13,286,968)
---------- ---------- ---------- ---------- ----------
Net increase (decrease) in cash
and cash equivalents 29,475,648 (35,562,618) (49,197,247) 21,864,558 (6,086,528)
Cash and cash equivalents at beginning of year 16,348,083 65,545,330 65,545,330 43,680,772 49,767,300
---------- ---------- ---------- ---------- ----------
Cash and cash equivalents at end of year $ 45,823,731 29,982,712 16,348,083 65,545,330 43,680,772
========== ========== ========== ========== ==========
</TABLE>
(Continued)
F-5
<PAGE>
FIRST FEDERAL LINCOLN BANK AND SUBSIDIARIES
Consolidated Statements of Cash Flows, Continued
Page 2
================================================================================
<TABLE>
<CAPTION>
September 30, June 30,
-------------------- ---------------------------------
1997 1996 1997 1996 1995
(unaudited)
<S> <C> <C> <C> <C> <C>
Reconciliation of net income to cash provided
by operating activities:
Net income (loss) $ 1,643,002 (1,706,082) 4,340,125 5,374,599 4,058,979
---------- ---------- ---------- ---------- ----------
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
(Accretion) amortization of investment
and mortgage-backed securities, net 63,337 (86,799) (184,657) (105,376) 106,360
Depreciation and amortization 386,227 373,934 1,579,243 1,493,802 1,409,341
Accretion on loans receivable, net (68,635) (85,510) (249,820) (345,441) (523,885)
Deferred income tax expense (benefit) (160,006) 428,604 700,588 (214,252) 163,681
Provision for loan losses 713,412 95,708 450,240 598,414 243,133
Provision for fixed asset valuation 32,000 - - - -
Proceeds from sales of loans held for sale 16,971,100 8,373,600 48,472,966 50,915,405 22,638,842
Originations and purchases of loans
held for sale (16,826,937) (8,300,233) (48,101,288) (50,556,941)(22,547,129)
Net (gain) loss on sales of:
Trading securities - - - (4,986) (2,326)
Investment and mortgage-backed
securities available for sale - (1,410) (1,410) (5,165) -
Loans receivable held for sale (144,163) (73,367) (389,070) (358,464) (91,713)
Loans receivable held in portfolio - - - (100,969) -
Real estate owned and held for
investment (11,561) - (6,739) (926,226) (347,989)
Premises and equipment 2,702 46,486 49,684 103,749 121,498
FHLB stock dividend (126,600) (103,100) (432,700) (282,400) -
Purchase of trading securities - - - (2,947,514) (1,279,596)
Proceeds from sale of trading securities - - - 2,952,500 1,281,922
Changes in certain assets and liabilities:
Accrued interest receivable 590,730 356,907 118,325 (61,643) (633,413)
Other assets 721,918 (505,396) 17,923 576,859 (785,772)
Overdrawn cash account in bank (1,337,083) (515,720) 680,272 (2,410,841) 6,748,512
Accrued interest payable 393,951 (175,491) (567,424) 466,091 1,320,583
Accrued expenses and other liabilities (759,817) 3,828,124 191,790 2,348,783 (336,353)
---------- ---------- ---------- ---------- ----------
Total adjustments 440,575 3,656,337 2,327,923 1,135,385 7,485,696
---------- ---------- ---------- ---------- ----------
Net cash provided by
operating activities $ 2,083,577 1,950,255 6,668,048 6,509,984 11,544,675
---------- ---------- ---------- ---------- ----------
</TABLE>
(Continued)
F-6
<PAGE>
FIRST FEDERAL LINCOLN BANK AND SUBSIDIARIES
Consolidated Statements of Cash Flows, Continued
Page 3
================================================================================
<TABLE>
<CAPTION>
September 30, June 30,
-------------------- ---------------------------------
1997 1996 1997 1996 1995
(unaudited)
<S> <C> <C> <C> <C> <C>
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 11,592,327 12,016,156 47,765,285 47,739,979 43,284,240
========== ========== =========== =========== ==========
Income taxes, net of refunds $ 1,173,020 1,107,710 2,074,489 1,268,193 1,888,221
========== ========== =========== =========== ==========
Supplemental schedules of noncash investing activities:
Transfers from loans to real estate owned
through foreclosure $ 151,509 76,471 299,175 1,657,789 238,043
========== ========== =========== =========== ==========
Stock dividend from FHLB $ 126,600 103,100 432,700 282,400 -
========== ========== =========== =========== ==========
</TABLE>
In July 1995, the Bank acquired certain assets and liabilities of Missouri
Valley and Clarinda, Iowa branches of First Bank for $871,469. In connection
with this acquisition, liabilities were assumed as follows:
<TABLE>
<S> <C>
Fair value of assets acquired $ 22,144,692
Cash paid for assets (871,469)
Less cash and other assets assumed 219,212
----------
Liabilities assumed $ 21,492,435
==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE>
FIRST FEDERAL LINCOLN BANK AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 1997 and 1996 and June 30, 1997, 1996 and 1995
(Data as of and for the three-month periods ended
September 30, 1997 and 1996 is unaudited)
- --------------------------------------------------------------------------------
(1) Summary of Significant Accounting Policies
Basis of Consolidation
The consolidated financial statements include the accounts of the
First Federal Lincoln Bank (the Bank) and its wholly-owned
subsidiaries, TMS Corporation of the Americas and First Federal
Lincoln Holding Corporation and its subsidiary, FFL Holding
Corporation and its subsidiary, First Federal Lincoln Bank-Iowa
(formerly First Federal Savings and Loan Association of Lincoln-
Iowa). All significant intercompany balances and transactions have
been eliminated in consolidation.
Investment and Mortgage-Backed Securities
Statement of Financial Accounting Standards (FAS) No. 115,
Accounting for Certain Investments in Debt and Equity Securities,
was adopted by the Bank and its subsidiaries on July 1, 1994. The
objective of this standard is to classify the investment and
mortgage-backed securities portfolios between those securities the
Bank intends to hold to maturity, those securities available for
sale and those securities held for trading purposes.
Securities classified as held to maturity are those securities which
the Bank has the ability and positive intent to hold to maturity
regardless of changes in market condition, liquidity needs or
changes in general economic conditions. These securities are stated
at cost, adjusted for amortization of premiums and accretion of
discounts, over the period to maturity using a method which
approximates the interest method.
Securities classified as available for sale are those securities
that the Bank intends to hold for an indefinite period of time, but
not necessarily to maturity. Any decision to sell a security
classified as available for sale would be based on various factors,
including significant movements in interest rates, changes in the
maturity mix of the Bank's assets and liabilities, liquidity needs,
regulatory capital considerations and other similar factors. These
securities are carried at fair value with unrealized gains or losses
reported as increases or decreases in retained earnings, net of the
related deferred tax effect. Realized gains or losses, determined on
the basis of the cost of specific securities sold, are included in
earnings.
Trading securities are those securities which the Bank purchases and
holds principally for the purpose of selling them in the near term.
These securities are carried at fair value with unrealized gains or
losses included in earnings.
Loans Receivable
Loans receivable are stated at unpaid principal balances, less
unearned discounts and premiums and net deferred loan origination
fees. Interest on loans is credited to income as earned, except
interest which is not accrued on loans contractually delinquent
three months or more. Premiums or discounts on purchased loans,
loans acquired through merger and property loans are amortized into
income over the period to maturity using a method which approximates
the interest method.
(Continued)
F-8
<PAGE>
FIRST FEDERAL LINCOLN BANK AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Page 2
(Data as of and for the three-month periods ended
September 30, 1997 and 1996 is unaudited)
- --------------------------------------------------------------------------------
(1) Summary of Significant Accounting Policies, Continued
Loans Receivable, Continued
Loan origination fees received in excess of certain direct
origination costs are deferred and amortized into income over the
life of the loan using the interest method or recognized when the
loan is sold.
The Bank also originates mortgage loans for sale in the secondary
market. Mortgage loans held for sale are carried at the lower of
cost or market value, determined on an individual loan basis.
Provisions for Losses
Provisions for losses on loans, accrued interest and real estate are
charged to earnings when it is determined by management to be
required. Management's periodic evaluation of the adequacy of
allowance accounts is based on the Bank's past loss experience,
known and inherent risks related to the assets, adverse situations
that may affect a borrower's ability to repay, estimated value of
the underlying collateral and current and prospective economic
conditions.
Management believes the allowances for losses on loans and real
estate are adequate. While management uses available information to
recognize losses on loans and real estate, future additions to the
allowances may be necessary based on changes in economic conditions.
In addition, various regulatory agencies, as an integral part of
their examination process, periodically review the Bank's allowances
for losses on loans and real estate. Such agencies may require the
Bank to recognize additions to the allowances based on their
judgments of information available to them at the time of their
examination.
Additionally, accrual of interest and amortization of deferred loan
fees on potential problem loans are excluded from income when, in
the opinion of management, such suspension is warranted. Income is
subsequently recognized only to the extent cash payments are
received until, in management's judgment, the borrower's ability to
make periodic interest and principal payments is back to normal, in
which case the loan is returned to accrual status.
Effective in 1996, the Bank adopted FAS No. 114, Accounting by
Creditors for Impairment of a Loan and FAS No. 118, Accounting by
Creditors for Impairment of a Loan - Income Recognition and
Disclosures. Under the Bank's credit policies and practices, all
nonaccrual and restructured commercial, agricultural, construction
and commercial real estate loans meet the definition of impaired
loans under FAS No. 114 and No. 118. Impaired loans as defined by
FAS No. 114 and No. 118 exclude certain consumer loans and
residential real estate loans classified as nonaccrual. Loan
impairment is measured based on the present value of expected future
cash flows discounted at the loan's effective interest rate or, as a
practical expedient, at the observable market price of the loan or
the fair value of the collateral if the loan is collateral
dependent. The adoption of FAS No. 114 and No. 118 did not have a
material effect on the Bank's financial position or results of
operations.
(Continued)
F-9
<PAGE>
FIRST FEDERAL LINCOLN BANK AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Page 3
(Data as of and for the three-month periods ended
September 30, 1997 and 1996 is unaudited)
- --------------------------------------------------------------------------------
(1) Summary of Significant Accounting Policies, Continued
Estimates
The preparation of consolidated financial statements in conformity
with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amount of
assets and liabilities, disclosure of contingent assets and
liabilities at the date of the consolidated financial statements and
the reported amounts of revenues and expenses during the reporting
period. The allowance for loan losses and related provision as
described above, present the significant area requiring management
judgment and estimate. Actual results could differ from those
estimates.
Real Estate Held for Investment
Real estate properties held for investment are carried at cost,
including cost of improvements, holding costs and amenities incurred
subsequent to acquisition. The portion of interest costs related to
development of real estate is capitalized. Depreciation is computed
using the straight-line method over the estimated useful lives of
the related assets.
Real Estate Owned
Real estate acquired through foreclosure is considered to be held
for sale, thus is initially recorded at estimated fair value
(carrying value). Subsequent to foreclosure, these assets are
carried at the lower of carrying value or fair value, less selling
costs. Change in the valuation allowances for unrealized gains and
losses and income and operating expenses are included in noninterest
income of the current period.
Premises and Equipment
Premises and equipment are stated at cost, less accumulated
depreciation and amortization. Depreciation and amortization are
computed using the straight-line method over the estimated useful
lives of the related assets. Estimated lives are 10 to 50 years for
buildings and improvements and 2 to 10 years for furniture, fixtures
and equipment.
Income Taxes
The Bank files a consolidated Federal income tax return on a
calendar-year basis. Deferred income taxes arise from the
recognition of certain items of revenue and expense for tax purposes
in years different from those in which they are recognized in the
consolidated financial statements.
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities
for financial reporting purposes and the amounts used for income tax
purposes. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years
in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that
includes the enactment date.
(Continued)
F-10
<PAGE>
FIRST FEDERAL LINCOLN BANK AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Page 4
(Data as of and for the three-month periods ended
September 30, 1997 and 1996 is unaudited)
- --------------------------------------------------------------------------------
(1) Summary of Significant Accounting Policies, Continued
Intangible Assets
In July 1995, the Bank acquired certain assets of First Bank, N.A.
in consideration for the assumption of certain liabilities of
approximately $21,500,000 using the purchase method. Goodwill of
$652,257 related to this purchase, representing the cost of
acquisition in excess of the fair value, is being amortized on a
straight-line basis over 5 years.
Reclassifications
Certain prior year amounts have been reclassified to conform with
1997 presentation.
(2) Investment Securities
Investment securities at September 30, 1997 and June 30, 1997 and 1996
are summarized below.
<TABLE>
<CAPTION>
September 30, 1997
------------------------------------------------------------------------------
Gross unrealized
Amortized ----------------------------
cost Gains Losses Fair value
<S> <C> <C> <C> <C>
Held to maturity:
U.S. Government obligations $ 24,980,944 25,880 79,480 24,927,344
U.S. Government agency
obligations 32,963,267 49,233 45,312 32,967,188
Corporate commercial paper 500,000 2,812 - 502,812
Municipal obligations 215,693 - - 215,693
------------ ------ ------- ----------
$ 58,659,904 77,925 124,792 58,613,037
============ ====== ======= ==========
<CAPTION>
June 30, 1997
------------------------------------------------------------------------------
Gross unrealized
Amortized ---------------------------
cost Gains Losses Fair value
<S>
Held to maturity:
U.S. Government obligations $ 32,973,002 24,105 137,263 32,859,844
U.S. Government agency
obligations 59,957,111 23,984 186,471 59,794,624
Corporate commercial paper 1,002,294 1,612 - 1,003,906
Municipal obligations 220,793 - - 220,793
Other 95,000 - 31 94,969
------------ ------ ------- ----------
$ 94,248,200 49,701 323,765 93,974,136
============ ====== ======= ==========
</TABLE>
(Continued)
F-11
<PAGE>
FIRST FEDERAL LINCOLN BANK AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Page 5
(Data as of and for the three-month periods ended
September 30, 1997 and 1996 is unaudited)
================================================================================
(2) Investment Securities, Continued
<TABLE>
<CAPTION>
June 30, 1996
------------------------------------------------------------------
Gross unrealized
Amortized ------------------------
cost Gains Losses Fair value
<S> <C> <C> <C> <C>
Held to maturity:
U.S. Government obligations $ 46,462,031 12,351 411,922 46,062,460
U.S. Government agency
obligations 76,889,419 26,715 693,985 76,222,149
Corporate commercial paper 6,366,654 2,335 1,520 6,367,469
Municipal obligations 734,986 - - 734,986
Other 190,000 - 1,026 188,974
----------- ------ --------- -----------
$ 130,643,090 41,401 1,108,453 129,576,038
=========== ====== ========= ===========
</TABLE>
The amortized cost and estimated fair value of debt securities held to
maturity at September 30, 1997 and June 30, 1997, by contractual
maturity, are shown below. Expected maturities will differ from the
contractual maturities because borrowers may have the right to call or
prepay obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
September 30, 1997 June 30, 1997
----------------------------- -------------------------------
Amortized Fair Amortized Fair
cost value cost value
<S> <C> <C> <C> <C>
Held to maturity:
Due in one year or less $ 52,478,342 52,434,531 64,558,538 64,522,469
Due after one year through five years 5,965,869 5,962,813 29,468,869 29,230,874
Due after five years through ten years 215,693 215,693 220,793 220,793
---------- ---------- ---------- ----------
$ 58,659,904 58,613,037 94,248,200 93,974,136
========== ========== ========== ==========
</TABLE>
Proceeds from sales of investment securities available for sale were
$948,125 during the year ended June 30, 1996. Gross gains of $274 were
realized on those sales.
There were no sales of investment securities held to maturity during the
three-month periods ended September 30, 1997 and 1996 and the years
ended June 30, 1997, 1996 or 1995 or available for sale investment
securities during the three-month periods ended September 30, 1997 and
1996 and the years ended June 30, 1997 and 1995.
(3) Mortgage-Backed Securities
Mortgage-backed securities at September 30, 1997 and June 30, 1997 and
1996, consisting of pass-through certificates, are summarized on the
following page.
(Continued)
F-12
<PAGE>
FIRST FEDERAL LINCOLN BANK AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Page 6
(Data as of and for the three-month periods ended
September 30, 1997 and 1996 is unaudited)
================================================================================
(3) Mortgage-Backed Securities, Continued
<TABLE>
<CAPTION>
September 30, 1997
------------------------------------------------------------
Gross unrealized
Amortized ---------------------
cost Gains Losses Fair value
<S> <C> <C> <C> <C>
Held to maturity:
FNMA $ 33,328,334 65,281 406,996 32,986,619
FHLMC 12,223,471 110,568 - 12,334,039
GNMA - ARMs 23,567,731 495,889 - 24,063,620
FNMA - ARMs 2,467,961 36,327 - 2,504,288
FHLMC - ARMs 3,432,575 53,513 - 3,486,088
FHLMC - CMO 3,216,649 26,339 252 3,242,736
FNMA - REMIC 1,540,199 3,649 - 1,543,848
FHLMC - REMIC 494,837 - - 494,837
Other 141,445 6,262 - 147,707
---------- ------- ------- ----------
$ 80,413,202 797,828 407,248 80,803,782
========== ======= ======= ==========
Available for sale, GNMA $ 748,960 - 2,494 746,466
========== ======= ======= ==========
<CAPTION>
June 30, 1997
--------------------------------------------------------------
Gross unrealized
Amortized --------------------
cost Gains Losses Fair value
<S> <C> <C> <C> <C>
Held to maturity:
FNMA $ 34,914,849 47,946 730,112 34,232,683
FHLMC 12,835,382 31,486 40,145 12,826,723
GNMA - ARMs 24,797,265 436,079 - 25,233,344
FNMA - ARMs 3,055,210 28,848 - 3,084,058
FHLMC - ARMs 3,751,291 34,752 - 3,786,043
FHLMC - CMO 3,337,217 34,159 - 3,371,376
FNMA - REMIC 1,889,644 - 2,089 1,887,555
FHLMC - REMIC 636,984 - - 636,984
Other 154,035 5,863 - 159,898
---------- ------- ------- ----------
$ 85,371,877 619,133 772,346 85,218,664
========== ======= ======= ==========
Available for sale, GNMA $ 763,369 - 13,409 749,960
========== ======= ======= ==========
</TABLE>
(Continued)
F-13
<PAGE>
FIRST FEDERAL LINCOLN BANK AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Page 7
(Data as of and for the three-month periods ended
September 30, 1997 and 1996 is unaudited)
================================================================================
(3) Mortgage-Backed Securities, Continued
<TABLE>
<CAPTION>
June 30, 1996
---------------------------------------------------------------
Gross unrealized
Amortized --------------------
cost Gains Losses Fair value
<S> <C> <C> <C> <C>
Held to maturity:
FNMA $ 40,498,146 47,111 1,487,881 39,057,376
FHLMC 14,688,739 28,879 337,171 14,380,447
GNMA - ARMs 27,849,250 177,924 121,919 27,905,255
FNMA - ARMs 3,135,396 27,389 - 3,162,785
FHLMC - ARMs 2,885,716 28,846 - 2,914,562
FNMA - CMO 589,906 - 369 589,537
FHLMC - CMO 2,810,315 21,618 282 2,831,651
FNMA - REMIC 2,740,955 453 11,633 2,729,775
FHLMC - REMIC 1,626,003 - 1,563 1,624,440
Other 206,053 8,202 - 214,255
---------- ------- --------- ----------
$ 97,030,479 340,422 1,960,818 95,410,083
========== ======= ========= ==========
Available for sale, GNMA $ 873,791 - 30,715 843,076
========== ======= ========= ==========
</TABLE>
As mortgage-backed securities are not due at a single maturity, a
maturity schedule has not been estimated and is not included.
Proceeds from sales of mortgage-backed securities available for sale
were $565,251, $565,251 and $1,014,135 during the three-month period
ended September 30, 1996 and the years ended June 30, 1997 and 1996,
respectively. Gross gains of $1,410, $1,410 and $4,892 were realized on
those sales during the three-month period ended September 30, 1996 and
the years ended June 30, 1997 and 1996, respectively.
There were no sales of held to maturity or available for sale
mortgage-backed securities during the three-month period ended September
30, 1997 or the year ended June 30, 1995.
(4) Loans Receivable
Loans receivable at September 30, 1997 and June 30, 1997 and 1996 are
summarized on the following page.
(Continued)
F-14
<PAGE>
FIRST FEDERAL LINCOLN BANK AND SUBSIDIARIES
Notes to Consolidated Financial Statements
<TABLE>
<CAPTION>
Page 8
(Data as of and for the three-month periods ended
September 30, 1997 and 1996 is unaudited)
- --------------------------------------------------------------------------------
(4) Loans Receivable, Continued
June 30,
September 30, ----------------------
1997 1997 1996
Real estate:
<S> <C> <C> <C>
One-to-four family $ 521,678,914 531,110,247 487,742,820
Commercial real estate, multi-family and land 183,520,134 187,813,261 176,819,061
Construction 47,043,999 41,109,571 38,465,703
Consumer and property improvement loans 93,156,185 81,944,526 37,450,652
----------- ----------- -----------
845,399,232 841,977,605 740,478,236
Less:
Allowance for loan losses (7,022,510) (6,329,897) (5,917,846)
Deferred loan fees (2,154,010) (2,151,012) (2,457,435)
Unearned premiums and discounts 90,181 96,611 (52,134)
Discounts on loans acquired through merger (944,892) (1,013,300) (1,269,333)
Undisbursed portion of loans in process (16,907,907) (17,698,658) (17,269,923)
----------- ----------- -----------
$ 818,460,094 814,881,349 713,511,565
=========== =========== ===========
</TABLE>
In May 1996, the Bank sold the VISA credit card loan portfolio for
approximately $1,483,000 recording a gain of $100,969.
The one-to-four family real estate loans above include $1,502,000,
$1,271,150 and $828,200 of loans held for sale at September 30, 1997 and
June 30, 1997 and 1996, respectively.
The activity in the allowance for loan losses is summarized below:
<TABLE>
<CAPTION>
September 30, June 30,
------------------------ ----------------------------------
1997 1996 1997 1996 1995
<S> <C> <C> <C> <C> <C>
Balance at beginning of year $ 6,329,897 5,917,846 5,917,846 5,642,122 5,965,646
Provision for loan losses 713,412 95,708 450,240 598,414 243,133
Losses charged off (24,872) (48,078) (63,881) (350,081) (578,740)
Recoveries 4,073 5,323 25,692 27,391 12,083
------ ------ ------- ------- -------
Balance at end of year $ 7,022,510 5,970,799 6,329,897 5,917,846 5,642,122
========= ========= ========= ========= =========
</TABLE>
Certain executive officers and directors of the Bank have indebtedness,
in the form of loans, as customers. These loans were made on
substantially the same terms, including interest rates and collateral,
as those prevailing at the time for comparable transactions with other
customers and did not involve more than the normal risk of
collectibility. These loans amounted to approximately $427,000, $722,000
and $750,000 at September 30, 1997 and June 30, 1997 and 1996,
respectively. The change in loans to certain executive officer and
directors include only repayments as the Bank adopted the policy to
cease making loans to officers, directors and employees.
(Continued)
F-15
<PAGE>
FIRST FEDERAL LINCOLN BANK AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Page 9
(Data as of and for the three-month periods ended
September 30, 1997 and 1996 is unaudited)
- --------------------------------------------------------------------------------
(4) Loans Receivable, Continued
The Financial Accounting Standards Board has issued Statements No. 114 and
No. 118. The statements, which were effective for financial statements
issued for fiscal years beginning after December 15, 1994, require
impaired loans be measured at the present value of expected future cash
flows by discounting those cash flows generally at the loan's effective
interest rate or, as a practical expedient, at the loan's observable
market price or the fair value of the collateral if the loan is collateral
dependent. The statements also require troubled debt restructurings
involving a modification of terms be remeasured on a discounted basis. The
Bank adopted these statements on July 1, 1995.
Total impaired loans, including nonaccrual loans and restructured loans,
aggregated approximately $2,920,000, $5,047,000 and $4,313,000 at
September 30, 1997 and June 30, 1997 and 1996, respectively. The average
balances of impaired loans for the three-month period ended September 30,
1997 and the years ended June 30, 1997 and 1996 were approximately
$4,559,000, $4,606,000, and $5,522,000, respectively. Impaired loans were
not subject to a related specific allowance for loan losses at September
30, 1997 and June 30, 1997 and 1996, respectively, because of the net
realizable value of loan collateral, guarantees and other factors.
The effect of non-accrual and restructured loans on interest income is
summarized below:
<TABLE>
<CAPTION>
September 30 June 30
----------------- ----------------------------
1997 1996 1997 1996 1995
Interest income:
<S> <C> <C> <C> <C> <C>
As originally contracted $ 48,000 34,000 115,000 301,000 396,000
As recognized - - - - 23,000
------- ------- -------- -------- --------
Reduction of interest income $ 48,000 34,000 115,000 301,000 373,000
======= ======= ======== ======== ========
</TABLE>
There were no material commitments to lend additional funds to customers
whose loans were classified as impaired at September 30, 1997 and June
30, 1997 and 1996.
The Bank serviced loans for others amounting to approximately
$19,835,000, $19,903,000 and $23,066,000 at September 30, 1997 and June
30, 1997 and 1996, respectively. Loans serviced for others are not
included in the accompanying consolidated statements of financial
condition. Servicing loans for others consists of collecting mortgage
payments, maintaining escrow accounts, disbursing payments to investors
and foreclosure processing. In connection with these loans serviced for
others, the Bank held borrowers' escrow balances of approximately
$380,000, $380,000 and $371,000 at September 30, 1997 and June 30, 1997
and 1996, respectively.
(Continued)
F-16
<PAGE>
FIRST FEDERAL LINCOLN BANK AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Page 10
(Data as of and for the three-month periods ended
September 30, 1997 and 1996 is unaudited)
- --------------------------------------------------------------------------------
(5) Accrued Interest Receivable
Accrued interest receivable at September 30, 1997 and June 30, 1997 and
1996 is summarized below:
<TABLE>
<CAPTION>
June 30,
September 30, -------------------
1997 1997 1996
<S> <C> <C> <C>
Investment securities $ 772,589 1,499,945 1,978,315
Mortgage-backed securities 500,562 526,726 589,234
Loans receivable 5,201,259 5,038,469 4,615,916
--------- --------- ---------
$ 6,474,410 7,065,140 7,183,465
========= ========= =========
</TABLE>
(6) Investment in Federal Home Loan Bank Stock
The investment in Federal Home Loan Bank (FHLB) stock is carried at cost
and the Bank was required to hold approximately $6,693,000, $6,496,000
and $6,036,850 at September 30, 1997 and June 30, 1997 and 1996,
respectively.
(7) Real Estate Held for Investment
Real estate held for investment at September 30, 1997 and June 30, 1997
and 1996 is summarized below:
<TABLE>
<CAPTION>
June 30,
September 30, --------------------
1997 1997 1996
<S> <C> <C> <C>
Land $ 95,300 95,300 95,300
Buildings 643,015 643,015 643,015
------- ------- -------
738,315 738,315 738,315
Less accumulated depreciation (65,591) (60,999) (42,627)
-------- -------- --------
672,724 677,316 695,688
Less valuation allowance (71,000) (71,000) (71,000)
-------- -------- --------
$ 601,724 606,316 624,688
======== ======== ========
</TABLE>
(8) Real Estate Owned
Real estate owned at September 30, 1997 and June 30, 1997 and 1996 is
summarized below:
<TABLE>
<CAPTION>
June 30,
September 30, --------------------
1997 1997 1996
<S> <C> <C> <C>
Real estate owned $ 1,639,846 1,823,408 1,467,302
Less valuation allowance (469,802) (361,802) (76,240)
--------- --------- --------
$ 1,170,044 1,461,606 1,391,062
========= ========= =========
</TABLE>
(Continued)
F-17
<PAGE>
FIRST FEDERAL LINCOLN BANK AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Page 11
(Data as of and for the three-month periods ended
September 30, 1997 and 1996 is unaudited)
- --------------------------------------------------------------------------------
(8) Real Estate Owned, Continued
The activity in the valuation allowance is summarized below:
<TABLE>
<CAPTION>
September 30, June 30,
------------------- ---------------------------------
1997 1996 1997 1996 1995
<S> <C> <C> <C> <C> <C>
Balance at beginning of year $ 361,802 76,240 76,240 787,500 2,229,710
Provision for real estate losses 108,000 93,062 285,562 76,240 (102,409)
Losses charged off, net of
recoveries - - - (787,500) (1,339,801)
--------- ------ ------- ------- ---------
Balance at end of year $ 469,802 169,302 361,802 76,240 787,500
========= ======= ======= ======= =========
</TABLE>
(9) Premises and Equipment
Premises and equipment at September 30, 1997 and June 30, 1997 and 1996
are summarized below:
<TABLE>
<CAPTION>
June 30,
September 30, -----------------------
1997 1997 1996
<S> <C> <C> <C>
Land $ 3,259,405 3,167,447 3,162,841
Buildings 13,445,801 12,996,929 12,220,806
Leasehold improvements 1,906,217 1,905,581 1,859,519
Furniture, fixtures and equipment 5,972,929 5,978,677 5,767,568
Computer equipment 3,425,950 3,393,816 3,190,449
Vehicles 236,436 236,436 207,916
---------- ---------- ----------
28,246,738 27,678,886 26,409,099
Less accumulated depreciation and
amortization (15,202,202) (14,855,804) (13,504,635)
---------- ---------- ----------
$ 13,044,536 12,823,082 12,904,464
========== ========== ==========
</TABLE>
(10) Deposits
Deposits at September 30, 1997 and June 30, 1997 and 1996 are summarized
on the following page.
(Continued)
F-18
<PAGE>
FIRST FEDERAL LINCOLN BANK AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Page 12
(Data as of and for the three-month periods ended
September 30, 1997 and 1996 is unaudited)
- --------------------------------------------------------------------------------
(10) Deposits, Continued
<TABLE>
<CAPTION>
September 30, 1997 June 30, 1997 June 30, 1996
---------------------------- ------------------------------- -------------------------
Weighted Weighted Weighted
average average average
rates Amount rates Amount rates Amount
<S> <C> <C> <C> <C> <C> <C>
Noninterest-bearing
checking - % $ 7,238,903 - % $ 5,643,281 - % $ 6,650,577
Passbook 2.00 12,025,865 2.00 12,201,010 2.00 14,704,722
Interest-bearing 2.55 74,617,483 2.78 75,968,157 3.38 85,640,176
checking 4.68 292,701,663 4.76 290,068,711 4.45 248,586,736
==== ----------- ==== ----------- ==== -----------
Money market 386,583,914 383,881,159 355,582,211
----------- ----------- -----------
41.85% 41.73% 38.26%
====== ====== ======
Certificate accounts:
1.00% to 2.99% 95,681 124,828 430,721
3.00 to 4.99 3,130,947 3,695,652 14,675,521
5.00 to 6.99 532,051,306 530,454,331 507,041,497
7.00 and over 1,807,486 1,963,615 51,584,179
---------- ---------- -----------
5.75% 537,085,420 5.73% 536,238,426 5.74% 573,731,918
==== ----------- ==== ----------- ==== -----------
58.15% 58.27% 61.74%
====== ====== ======
5.06% $ 923,669,334 5.09% $ 920,119,585 5.08% $ 929,314,129
==== =========== ==== =========== ==== ============
100.0% 100.0% 100.0%
===== ===== =====
</TABLE>
At September 30, 1997 and June 30, 1997, scheduled maturities of
certificate accounts are shown below:
<TABLE>
<CAPTION>
September 30, 1997 June 30, 1997
-------------------------------------- -------------------------
Amount Percent Amount Percent
<S> <C> <C> <C> <C>
1998 $ 394,055,005 73.37% $ 358,880,629 66.93%
1999 90,982,812 16.94 129,652,874 24.18
2000 14,192,400 2.64 12,077,139 2.25
2001 15,789,523 2.94 11,179,254 2.08
2002 20,945,653 3.90 22,902,146 4.27
Thereafter 1,120,027 .21 1,546,384 .29
----------- ------ ----------- ------
$ 537,085,420 100.00% $ 536,238,426 100.00%
=========== ====== =========== ======
</TABLE>
At September 30, 1997 and June 30, 1997 and 1996, time deposits over
$100,000 approximated $27,779,000, $11,975,000 and $13,851,000, respectively.
(Continued)
F-19
<PAGE>
FIRST FEDERAL LINCOLN BANK AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Page 13
(Data as of and for the three-month periods ended
September 30, 1997 and 1996 is unaudited)
- --------------------------------------------------------------------------------
(10) Deposits, Continued
Interest expense, by each category of deposits, for the three-month
periods ended September 30, 1997 and 1996 and for the years ended June
30, 1997, 1996 and 1995 is as follows:
<TABLE>
<CAPTION>
September 30, June 30,
--------------------- -------------------------------------
1997 1996 1997 1996 1995
<S> <C> <C> <C> <C> <C>
Passbook accounts $ 60,734 72,200 269,862 306,632 395,354
Interest-bearing
checking accounts 525,146 527,667 2,086,775 1,664,213 1,275,499
Money market accounts 3,448,067 2,952,557 12,598,640 10,447,769 8,815,389
Certificate accounts 7,757,185 8,053,330 31,590,787 34,746,431 33,222,713
---------- ---------- ---------- ---------- ----------
$ 11,791,132 11,605,754 46,546,064 47,165,045 43,708,955
========== ========== ========== ========== ==========
</TABLE>
(11) Advances from FHLB
At September 30, 1997 and June 30, 1997 and 1996, the Bank was indebted
to the FHLB of Topeka on notes maturing as shown below:
<TABLE>
<CAPTION>
June 30,
Interest September 30, ---------------------------
rate range 1997 1997 1996
<S> <C> <C> <C> <C>
1997 6.71 - 7.14% $ - - 13,000,000
1998 5.56 - 11,000,000 -
1999 5.66 5,000,000 5,000,000 -
2002 6.27 5,000,000 5,000,000 -
2009 6.83 565,250 568,700 598,500
---------- ---------- ----------
$ 10,565,250 21,568,700 13,598,500
========== ========== ==========
Weighted-average interest rate 5.97% 5.78% 6.87%
==== ==== ====
</TABLE>
The Bank also has a line of credit of $125,000,000 with the FHLB at an
adjustable interest rate (6.65% and 6.40% at September 30, 1997 and June
30, 1997, respectively) which expires in 1998. There was no outstanding
balance on this line of credit at September 30, 1997 and June 30, 1997
and 1996.
Pursuant to blanket collateral agreements with the FHLB, the advances
are secured by the Bank's FHLB stock, qualifying first mortgage loans
and other investment and mortgage-backed securities totaling
approximately $131,325,000 and $146,746,000 at September 30, 1997 and
June 30, 1997, respectively, which exceeds the amount of outstanding
advances using the collateral valuation schedule method.
(Continued)
F-20
<PAGE>
FIRST FEDERAL LINCOLN BANK AND SUBSIDIARIES
Notes to Consolidated Financial Statements
<TABLE>
<CAPTION>
Page 14
(Data as of and for the three-month periods ended
September 30, 1997 and 1996 is unaudited)
- --------------------------------------------------------------------------------
(12) Advances from Borrowers for Taxes and Insurance
The Bank has a custodial mortgage account with the FHLB of Topeka. At
September 30, 1997 and June 30, 1997 and 1996, the Bank maintained
approximately $6,800,000, $5,700,000 and $6,000,000, respectively, of its
advances from borrowers for taxes and insurance in this trust account. The
related asset and liability balances are not reported in the financial
statements. This account earns a rate equal to the federal funds sold rate
less 15 basis points (5.67% and 6.56% at September 30, 1997 and June 30,
1997, respectively). The funds remain in this account until the Bank
authorizes them to be transferred for disbursement.
(13) Income Taxes
Income tax expense (benefit) for the three-month periods ended September
30, 1997 and 1996 and for the years ended June 30, 1997, 1996 and 1995
consists of the following components:
September 30, June 30,
--------------------- -------------------------------------
1997 1996 1997 1996 1995
Federal:
<S> <C> <C> <C> <C> <C>
Current $ 1,005,106 (1,248,604) 1,699,612 2,867,352 2,282,021
Deferred (160,006) 428,604 700,588 (214,252) 163,681
--------- --------- --------- --------- ---------
845,100 (820,000) 2,400,200 2,653,100 2,445,702
State 109,717 (85,328) 294,436 (117,902) 198,204
--------- --------- --------- --------- ---------
$ 954,817 (905,328) 2,694,636 2,535,198 2,643,906
========= ========= ========= ========= =========
</TABLE>
The actual income tax expense (benefit) differs from the "expected" income
tax expense (computed by applying the statutory 34% Federal tax rate to
income before income tax expense (benefit)) as shown below:
<TABLE>
<CAPTION>
September 30, June 30,
-------------------- ---------------------------------
1997 1996 1997 1996 1995
<S> <C> <C> <C> <C> <C>
"Expected" income tax expense (benefit) $ 883,258 (887,879) 2,391,819 2,689,331 2,278,977
Increase (decrease) resulting from:
Net operating loss carryforward - - - - (34,000)
State income tax deduction 72,413 - 194,327 224,505 (130,815)
Bad debt deduction - - - 267,931 201,270
Gain on sale of real estate owned - 237 1,438 (194,502) 95,045
Change in valuation allowance for
deferred tax assets - - - 372,561 94,457
Tax exempt interest income (1,545) (4,350) (4,866) (17,574) (14,210)
Refund of prior years state taxes, net - - - (302,320) -
Change in estimated deferred tax
liabilities - - - (539,164) 145,261
Other 691 (13,336) 111,918 34,430 7,921
--------- --------- --------- --------- ---------
Total income tax expense (benefit) $ 954,817 (905,328) 2,694,636 2,535,198 2,643,906
========= ========= ========= ========= =========
Effective tax rate 36.8% (34.7%) 38.3% 32.1% 39.4%
========= ========= ========= ========= =========
</TABLE>
(Continued)
F-21
<PAGE>
FIRST FEDERAL LINCOLN BANK AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Page 15
(Data as of and for the three-month periods ended
September 30, 1997 and 1996 is unaudited)
- --------------------------------------------------------------------------------
(13) Income Taxes, Continued
The significant items comprising the Bank's net deferred income tax
liability as of September 30, 1997 and June 30, 1997 and 1996 are shown below:
<TABLE>
<CAPTION>
June 30,
September 30, ---------------------
1997 1997 1996
Deferred tax liabilities:
<S> <C> <C> <C>
Deferred fees on loans $ 770,988 745,468 352,273
Basis in FHLB stock 1,709,529 1,666,485 1,519,367
Fixed asset depreciation 432,258 424,844 235,224
Other 291,733 276,121 259,853
---------- ---------- ----------
Deferred tax liabilities 3,204,508 3,112,918 2,366,717
---------- ---------- ----------
Deferred tax assets:
Net unrealized losses on securities 848 4,559 10,443
Loan fees 851,839 856,822 852,227
Deferred compensation 966,012 921,067 758,835
Amortization of goodwill 172,761 217,099 394,453
Allowance for loan losses 1,424,507 1,114,457 936,100
Discounts on purchased loans 296,783 318,941 399,068
Other 429,369 461,290 503,379
Valuation allowance on deferred tax assets (1,500,000) (1,500,000) (1,500,000)
---------- ---------- ----------
2,642,119 2,394,235 2,354,505
---------- ---------- ----------
Net deferred income tax liability $ 562,389 718,683 12,212
========== ========== ==========
</TABLE>
In assessing the realizability of deferred tax assets, management
considers whether it is more likely than not that some portion or all of
the deferred tax assets will be realized. Management considers the
scheduled reversals of deferred tax liabilities, taxable income and tax
planning strategies in making this assessment in determining the amount
of the valuation allowance.
Retained earnings at September 30, 1997 and June 30, 1997 includes
approximately $7,650,000, at each date, for which no Federal income tax
liability has been provided. Such amount represents the bad debt
reserves for tax purposes which were accumulated in tax years through
the year ended December 31, 1987 (the base year). These amounts
represent allocations of income to bad debt deductions for tax purposes
only. The Small Business Protection Act (Act) passed by Congress during
1996, requires that savings and loan associations recapture into taxable
income bad debt reserves, which were accumulated in taxable years after
December 31, 1987, and which exceeded certain guidelines. The Bank's
recorded deferred tax liability provides for the approximately
$1,100,000 of income tax expense associated with the recapture of loan
loss reserves. Reductions of the remaining allocated retained earnings
for purposes other than tax bad debt losses will create taxable income,
which will be subject to the then current corporate income tax rate.
(Continued)
F-22
<PAGE>
FIRST FEDERAL LINCOLN BANK AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Page 16
(Data as of and for the three-month periods ended
September 30, 1997 and 1996 is unaudited)
- --------------------------------------------------------------------------------
(14) Employee Benefit Plans
Retirement Plan
The Bank has a qualified, noncontributory defined benefit pension
plan covering substantially all full-time employees who are at least
21 years of age and have completed one year of service (at least
1,000 hours). Generally, the plan provides for benefits at normal
retirement age of 65, or five years after Plan entry date, if later,
but may elect reduced benefits with early retirement after
completion of 10 years of service and reaching age 60. The table
below sets forth the plan's funded status at April 1, 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Plan assets, at fair value $ 12,779,562 11,929,854
----------- -----------
Projected benefit obligation:
Actuarial present value of accumulated benefits 9,178,819 9,044,785
Effect of projected salary increases 1,649,665 1,748,789
----------- -----------
Projected benefit obligation 10,828,484 10,793,574
----------- -----------
Excess of plan assets over projected benefit obligation (1,951,078) (1,136,280)
Unrecognized transitional obligation (18,158) (21,790)
Unrecognized net gain from past experience different
from assumptions 2,863,513 1,936,061
----------- -----------
Accrued pension liability $ 894,277 777,991
=========== ===========
</TABLE>
Plan assets are primarily listed stocks, corporate bonds and U.S.
Government securities. At April 1, 1997 and 1996, the expected long-
term rate of return on assets is 8.0%.
At April 1, 1997 and 1996, the projected benefit obligation was
determined using an assumed discount rate of 7.25% and 6.75%,
respectively, and an annual compensation increase of 5.73% at each
date, over the remaining service lives of employees covered under
the plan.
The projected benefit obligation includes vested benefits of
$9,031,632 and $8,895,547 at April 1, 1997 and 1996, respectively.
Net pension cost included the following components for 1997, 1996
and 1995:
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Service cost $ 359,433 343,422 588,255
Interest cost 716,191 683,092 777,350
Actual return on plan assets (1,239,085) (1,668,773) (481,262)
Net amortization and deferral 279,747 832,298 (281,046)
---------- ---------- ----------
Net period pension cost $ 116,286 190,039 603,297
========== ========== ==========
</TABLE>
(Continued)
F-23
<PAGE>
FIRST FEDERAL LINCOLN BANK AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Page 17
(Data as of and for the three-month periods ended
September 30, 1997 and 1996 is unaudited)
- --------------------------------------------------------------------------------
(14) Employee Benefit Plans, Continued
Savings Plan
In addition, the Bank has a defined contribution 401(k) profit
sharing plan. Under the plan, each employee may contribute from 1%
to 15% of their salary. In 1997 and 1996, respectively, the Bank
contributed 66-2/3% and 50%, of the employee's contribution to a
maximum of 6% of the employee's salary (including bonus, commission,
overtime or other special compensation up to $6,000). The 401(k)
plan expense, net of forfeitures, for the three-month periods ended
September 30, 1997 and 1996 and for the years ended June 30, 1997,
1996 and 1995 was $72,875, $65,361, $284,848, $199,645 and $188,279,
respectively.
Deferred Compensation Plan
The Bank has deferred compensation agreements with certain officers
and directors of the Bank. The agreements permit certain officers
and directors to defer a portion of their salary until future years.
The deferred compensation is not available to the officers and
directors until retirement and a minimum numbers of years of
service, death or disability.
The expense related to the agreements was approximately $116,000,
$111,000, $430,000, $244,000 and $268,000 in the three-month periods
ended September 30, 1997 and 1996 and for the years ended June 30,
1997, 1996 and 1995, respectively. The liability, included in
accrued expenses and other liabilities, was approximately
$1,401,000, $1,312,000 and $1,052,000 at September 30, 1997 and June
30, 1997 and 1996, respectively.
(15) Regulatory Capital Requirements
The Bank is subject to various regulatory capital requirements administered
by the Federal banking agencies. Failure to meet minimum capital
requirements can initiate certain mandatory and possibly additional
discretionary actions by regulators that, if undertaken, could have a
direct material effect on the Bank's financial statements. The regulations
require the Bank to meet specific capital adequacy guidelines that involve
quantitative measures of the Bank's assets, liabilities, and certain off-
balance sheet items as calculated under regulatory accounting practices.
The Bank's capital classification is also subject to qualitative judgments
by the regulators about components, risk weightings, and other factors.
Under the Financial Institutions Reform, Recovery and Enforcement Act of
1989 (FIRREA), and in implementing Office of Thrift Supervision regulatory
capital regulations, the Bank must maintain minimum amounts and ratios of
tangible capital to total tangible assets, core (leverage) capital to
adjusted tangible assets, and total (risk-based) capital to risk-weighted
assets. Management believes, as of September 30, 1997, that the Bank meets
all capital adequacy requirements to which it is subject.
(Continued)
F-24
<PAGE>
FIRST FEDERAL LINCOLN BANK AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Page 18
(Data as of and for the three-month periods ended
September 30, 1997 and 1996 is unaudited)
- --------------------------------------------------------------------------------
(15) Regulatory Capital Requirements, Continued
The Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA)
established additional capital regulations which require prompt correction
action against depository institutions in one of the under-capitalized
categories as defined in implementing regulations. In addition to the
prompt corrective actions requirements, FDICIA included significant changes
to the legal and regulatory environment for insured depository
institutions.
As of September 30, 1997, the most recent notification from the Office of
Thrift Supervision, categorized the Bank as well capitalized under the
regulatory framework for prompt corrective action. To be categorized as
well capitalized, the Bank must maintain tangible capital, core (leverage)
capital and total (risk-based) capital ratios as set forth in the table
shown below (dollars in thousands):
<TABLE>
<CAPTION>
To be well
capitalized under
For capital prompt corrective
Actual adequacy purposes action provisions
---------------- ---------------------- -------------------
Amount Ratio Amount Ratio Amount Ratio
<S> <C> <C> <C> <C> <C> <C>
As of September 30, 1997: greater than greater than greater than greater than
Total capital (to risk- or equal to or equal to or equal to or equal to
weighted assets) $86,765 14.3% $ 48,475 8.0% $ 60,593 10.0%
greater than greater than greater than greater than
Core Capital (to adjusted or equal to or equal to or equal to or equal to
tangible assets) $80,345 7.8% $ 41,369 4.0% $ 51,711 5.0%
greater than greater than
Tangible Capital (to or equal to or equal to
tangible assets) $80,345 7.8% $ 15,513 1.5% N/A
greater than greater than
Tier I Capital (to risk- or equal to or equal to
weighted assets) $80,345 13.3% N/A $ 36,365 6.0%
As of June 30, 1997: greater than greater than greater than greater than
Total capital (to risk- or equal to or equal to or equal to or equal to
weighted assets) $84,406 14.2% $ 47,640 8.0% $ 59,550 10.0%
greater than greater than greater than greater than
Core Capital (to adjusted or equal to or equal to or equal to or equal to
tangible assets) $78,682 7.5% $ 41,691 4.0% $ 52,113 5.0%
greater than greater than
Tangible Capital (to or equal to or equal to
tangible assets) $78,682 7.5% $ 15,634 1.5% N/A
greater than greater than
Tier I Capital (to risk- or equal to or equal to
weighted assets) $78,682 13.2% N/A $ 35,730 6.0%
As of June 30, 1996: greater than greater than greater than greater than
Total capital (to risk- or equal to or equal to or equal to or equal to
weighted assets) $79,473 15.2% $ 41,823 8.0% $ 52,279 10.0%
greater than greater than greater than greater than
Core Capital (to adjusted or equal to or equal to or equal to or equal to
tangible assets) $74,262 7.2% $ 41,511 4.0% $ 51,889 5.0%
greater than greater than
Tangible Capital (to or equal to or equal to
tangible assets) $74,262 7.2% $ 15,567 1.5% N/A
greater than greater than
Tier I Capital (to risk- or equal to or equal to
weighted assets) $74,262 14.2% N/A $ 31,367 6.0%
</TABLE>
(Continued)
F-25
<PAGE>
FIRST FEDERAL LINCOLN BANK AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Page 19
(Data as of and for the three-month periods ended
September 30, 1997 and 1996 is unaudited)
- --------------------------------------------------------------------------------
(15) Regulatory Capital Requirements, Continued
The Bank's management believes that with respect to the current
regulations, the Bank will continue to meet its minimum capital
requirements in the foreseeable future. However, events beyond the control
of the Bank, such as increased interest rates or a downturn in the economy
in areas where the Bank has most of its loans, could adversely affect
future earnings and, consequently, the ability of the Bank to meets its
future minimum capital requirements.
(16) Lease Commitments
At September 30, 1997 and 1996 and June 30, 1997, 1996 and 1995, the Bank
was obligated under noncancelable operating leases for office space and
equipment. Certain leases contain escalation clauses providing for
increased rentals based primarily on increases in real estate taxes or in
the average consumer price index. Net rent expense under operating leases,
included in net occupancy expense, was approximately $108,600, $106,600,
$427,200, $710,100 and $1,141,300 for the three-month periods ended
September 30, 1997 and 1996 and for the years ended June 30, 1997, 1996 and
1995, respectively.
The approximate future minimum rental payments projected under the terms of
the leases are as follows:
<TABLE>
<CAPTION>
Years ending June 30
<S> <C>
1998 $ 380,000
1999 324,000
2000 177,000
2001 136,000
2002 74,000
---------
$1,091,000
=========
</TABLE>
(17) Federal Insurance Premiums
In order to fully capitalize the Savings Association Insurance Fund (SAIF),
a one-time assessment was charged to all institutions that had SAIF-insured
deposits. In November 1996, the Bank paid a one-time assessment of
$5,726,833 to the SAIF.
(18) Fair Value of Financial Instruments
Fair value estimates, methods and assumptions are set forth below for
the Bank's financial instruments.
General Assumptions
The Bank assumes the book value of short-term financial instruments,
defined as any items that mature or reprice within six months or
less, approximate their fair value. Short-term financial instruments
consist of cash and cash equivalents, accrued interest receivable,
overdrawn cash account in bank, advances from borrowers for taxes
and insurance and accrued interest payable.
(Continued)
F-26
<PAGE>
FIRST FEDERAL LINCOLN BANK AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Page 20
(Data as of and for the three-month periods ended
September 30, 1997 and 1996 is unaudited)
================================================================================
(18) Fair Value of Financial Instruments, Continued
Investment and Mortgage-Backed Securities
For investment and mortgage-backed securities, fair value equals
quoted market price, if available, or quotations received from
securities dealers. If a quoted market price is not available, fair
value is estimated using quoted market prices for similar
securities, adjusted for differences between the quoted securities
and the securities being valued. See notes 2 and 3, respectively,
for the fair values of investment and mortgage-backed securities.
Investment in FHLB Stock and Advances from FHLB
The fair value of FHLB stock is equivalent to its carrying amount
due to it only being redeemable at par value with the FHLB. The fair
value of advances from FHLB is the estimated market value of similar
advances with comparable maturities at interest rates currently
offered by the FHLB. The fair values of advances from FHLB at
September 30, 1997 and June 30, 1997 and 1996 were approximately
$10,543,00, $21,468,000 and $13,635,000, respectively.
Loans Receivable
Fair values are estimated for portfolios of loans with similar
financial characteristics. Loans are segregated by type, such as
commercial, mortgage and real estate, consumer and other. Each loan
category is further segmented into fixed and adjustable rate
interest terms and by performing and nonperforming categories.
The fair value of performing loans is estimated by discounting the
future contractual cash flows using the current rates at which
similar loans would be made to borrowers with similar credit ratings
and for the same remaining maturities. The allowance for loan
losses, as recorded in these consolidated financial statements, is
considered by management to include a reasonable estimation of the
credit and market risk associated with nonperforming loans.
The fair values of loans receivable at September 30, 1997 and June
30, 1997 and 1996 were approximately $833,419,000, $826,821,000 and
$718,039,000, respectively.
Deposits
The fair value of commercial, passbook, interest-bearing checking
and money market accounts is the amount payable on demand at
September 30, 1997 and June 30, 1997 and 1996. The fair value of
fixed-maturity certificate accounts is based on the discounted value
of contractual cash flows. The discount rate is estimated using the
rates currently offered for deposits of similar remaining
maturities.
The fair values of deposits at September 30, 1997 and June 30, 1997
and 1996 were approximately $922,649,000, $918,622,000 and
$927,819,000, respectively.
(Continued)
F-27
<PAGE>
FIRST FEDERAL LINCOLN BANK AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Page 21
(Data as of and for the three-month periods ended
September 30, 1997 and 1996 is unaudited)
================================================================================
(18) Fair Value of Financial Instruments, Continued
Commitments to Originate Loans
The fair value of commitments to originate loans is estimated using
the fees currently charged to enter into similar agreements, taking
into account the remaining terms of the agreements and the present
credit worthiness of the counterparties. For fixed rate loan
commitments, fair value also considers the difference between
current levels of interest rates and the committed rates.
The fair value of off-balance sheet commitments to originate loans
approximates book value.
Limitations
Fair value estimates are made at a specific point in time, based on
relevant market information and information about the financial
instrument. These estimates are subjective in nature and involve
uncertainties and matters of significant judgment and, therefore,
cannot be determined with precision. Changes in assumptions could
significantly affect the estimates. In addition, the tax
ramifications related to the realization of the unrealized gains and
losses can have a significant effect on fair value estimates and
have not been considered in these estimates.
(19) Commitments, Contingencies and Financial
Instruments with Off-Balance-Sheet Risk
The consolidated financial statements do not reflect various
commitments, contingencies and financial instruments with
off-balance-sheet risk which arise in the normal course of business.
These commitments, contingencies and financial instruments, which
represent credit risk, interest rate risk and liquidity risk, consist of
commitments to extend credit, unsecured lending and litigation arising
in the normal course of business.
At September 30, 1997 and June 30, 1997 and 1996, the Bank had
commitments to originate fixed rate loans of approximately $18,878,000,
$21,140,000 and $23,035,000, respectively, and adjustable rate loans of
approximately $4,131,000, $13,738,000 and $7,153,000, respectively.
Commitments, which are disbursed subject to certain limitations, extend
over periods of time with the majority of executed commitments disbursed
within a twelve-month period. Fixed rate commitments carried interest
rates ranging from 7.25% to 8.375%, 7.25% to 8.625% and 7.25% to 9.25%
at September 30, 1997 and June 30, 1997 and 1996, respectively.
Commitments to extend credit are agreements to lend to customers as long
as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination
clauses and may require payment of a fee. The Bank evaluates each
customer's credit worthiness on a case-by-case basis. The same credit
policies are used in granting lines of credit as for on-balance-sheet
instruments. At September 30, 1997 and June 30, 1997 and 1996, the Bank
had commitments to lend to customers unused consumer lines of credit of
approximately $15,978,000, $14,714,000 and $6,240,000, respectively.
(Continued)
F-28
<PAGE>
FIRST FEDERAL LINCOLN BANK AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Page 22
(Data as of and for the three-month periods ended
September 30, 1997 and 1996 is unaudited)
- --------------------------------------------------------------------------------
(19) Commitments, Contingencies and Financial Instruments
with Off-Balance-Sheet Risk, Continued
At September 30, 1997 and June 30, 1997 and 1996, outstanding commitments
to purchase mortgage loans aggregated approximately $12,138,000, $2,132,000
and $19,027,000, respectively, and commitments to sell mortgage loans
aggregated approximately $14,085,000, $8,033,000 and $8,796,000,
respectively. These commitments extend over varying periods of time with
the majority being settled within a sixty-day period. All loan commitments
at September 30, 1997 and June 30, 1997 and 1996 were at fixed prices.
Included in cash and cash equivalents are Federal funds sold, which are
maintained with other financial institutions representing unsecured lending
at September 30, 1997 and June 30, 1997 and 1996.
The Bank is party to litigation and claims arising in the normal course of
business. Management, after consultation with legal counsel, believes that
the liabilities, if any, arising from such litigation and claims will not
be material to the consolidated financial statements.
(20) Concentration of Credit Risk
The loan portfolio is diversified and most of the Bank's loan portfolio and
current business activity is with customers located within the states of
Nebraska, Iowa, Kansas and Colorado. At September 30, 1997 and June 30,
1997 and 1996, the Bank had commercial real estate loans, which are
considered by management to be of some greater risk of collectibility.
Commercial real estate loans approximated $140,825,000, $144,139,000 and
$146,207,000 at September 30, 1997 and June 30, 1997 and 1996,
respectively. Management believes any future losses related to these types
of loans have been adequately provided for in the allowance for loan
losses.
(21) Conversion to Capital Stock Form of Ownership
On October 7, 1997, the Board of Directors of the Bank adopted a Plan of
Conversion (Plan), as amended, to convert from a federally chartered mutual
savings and loan association to a federally chartered capital stock
association. The Plan, which is subject to approval by the OTS, includes
formation of a holding company and the filing of a registration statement
with the Securities and Exchange Commission. The conversion requires the
approval of the Bank's voting members and involves the sale of the holding
company's common stock. A subscription offering of shares of the holding
company's common stock will be offered in order of the following priorities
to: eligible account holders; employee benefit plans of the Bank;
supplemental eligible account holders and other members. Any remaining
shares not subscribed for by the foregoing will be offered to the public in
a direct community offering.
(Continued)
F-29
<PAGE>
FIRST FEDERAL LINCOLN BANK AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Page 23
(Data as of and for the three-month periods ended
September 30, 1997 and 1996 is unaudited)
- --------------------------------------------------------------------------------
(21) Conversion to Capital Stock Form of Ownership, Continued
Pursuant to the Plan, the holding company intends to establish a Charitable
Foundation in connection with the conversion. The Plan provides that the
Bank and the holding company will create the Foundation and donate an
amount of the holding company's common stock up to 8.0% of the common stock
to be issued in the conversion. The Foundation will be dedicated to
charitable purposes within Nebraska, Southwest Iowa and Northern Kansas
communities where the Bank has its offices and their neighboring
communities and to complement the Bank's existing community activities.
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
holding company would be tax deductible, subject to a limitation based on
10% of the holding company's annual taxable income. The holding company,
however, would be able to carry forward any unused portion of the deduction
for five years following the contribution. Upon funding the Foundation, the
holding company will recognize an expense in the full amount of the
contribution, offset in part by the corresponding tax deduction, during the
quarter in which the contribution is made.
At the time of the conversion, the Bank will establish a liquidation
account in an amount equal to its equity as reflected in the latest
statement of financial condition used in the final conversion prospectus.
The liquidation account will be maintained for the benefit of eligible
account holders and supplemental eligible account holders who continue to
maintain their accounts at the Bank after the conversion. The liquidation
account will be reduced annually to the extent that eligible account
holders and supplemental eligible account holders have reduced their
qualifying deposits as of each anniversary date. Subsequent increases will
not restore an eligible account holder's or supplemental eligible account
holder's interest in the liquidation account. In the event of a complete
liquidation of the Bank, each eligible account holder and supplemental
eligible account holder will be entitled to receive a distribution from the
liquidation account in an amount proportionate to the current adjusted
qualifying balances for accounts then held.
Subsequent to the conversion, the Bank may not declare or pay cash
dividends on or repurchase any of its shares of common stock if the effect
thereof would cause equity to be reduced below applicable regulatory
capital maintenance requirements or if such declaration and payment would
otherwise violate regulatory requirements.
Conversion costs will be deferred and reduce the proceeds from the shares
sold in the conversion. If the conversion is not completed, all costs will
be charged as an expense. There were no deferred costs related to the
conversion at September 30, 1997 and June 30, 1997.
F-30
<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 First Lincoln Bancshares Inc., the Bank or Sandler O'Neill &
Partners, L.P. 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 First Lincoln Bancshares Inc. or the Bank 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...............................................................
First Lincoln Bancshares Inc. .............................................
First Federal Lincoln Bank ................................................
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.......
First Federal Lincoln Bank and its Subsidiaries Consolidated
Statements of Income.....................................................
Management's Discussion and Analysis of Financial
Condition and Results of Operations......................................
Business of the Bank.......................................................
Federal and State Taxation.................................................
Regulation.................................................................
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 of Consolidated Financial Statements.................................
</TABLE>
______________________________
Until __________, 1998, or 25 days after commencement of the Syndicated
Community Offering, if any, whichever is later, all dealers effecting
transactions in the registered securities, whether or not participating in this
distribution, may be required to deliver 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.
8,021,250 Shares
FIRST LINCOLN BANCSHARES INC.
(Proposed Holding Company for
First Federal Lincoln Bank)
COMMON STOCK
____________
PROSPECTUS
____________
______ __, 1998
Sandler O'Neill & Partners, L.P.
================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
OTS filing fee.................................. $ 14,400
SEC filing fee (1).............................. 57,690
NASD filing fee (1)............................. 20,056
AMEX listing fee (1)............................ 37,500
Printing, postage and mailing................... 487,000
Legal fees and expenses......................... 600,000
Accounting fees and expenses.................... 150,000
Appraisers' fees and expenses (including
business plan)................................. 33,000
Marketing fees, selling commissions (1)......... 2,279,669
Underwriter's expense (including underwriter's
counsel fees).................................. 0
Proxy solicitation and record management
fees and expenses.............................. 50,000
Transfer agent fees and expenses................ 15,000
Certificate printing............................ 5,000
Telephone, temporary help and other equipment... 83,000
Blue Sky fees and expenses...................... 15,000
Miscellaneous................................... 32,354
----------
TOTAL........................................... $3,879,669
==========
______________________
(1) Actual expenses based upon the registration of 9,777,904 shares at $20.00
per share. All other expenses are estimated.
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.
<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 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
<PAGE>
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.
<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)
1.1 Engagement Letter between First Federal Lincoln Bank and Sandler
O'Neill & Partners, L.P.
1.2 Draft Form of Agency Agreement*
2.1 Plan of Conversion (including the Federal Stock Charter and Bylaws of
First Federal Lincoln Bank)
3.1 Certificate of Incorporation of First Lincoln Bancshares Inc.
3.2 Bylaws of First Lincoln Bancshares Inc.
3.3 Federal Stock Charter and Bylaws of First Federal Lincoln Bank (See
Exhibit 2.1 hereto)
4.0 Draft Stock Certificate of First Lincoln Bancshares 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 First Federal Lincoln Bank 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 First Federal Lincoln
Bank and certain executive officers*
10.4 Form of Proposed Employment Agreement between First Lincoln Bancshares
Inc. and certain executive officers*
10.5 Form of Proposed Change in Control Agreement between First Federal
Lincoln Bank and certain executive officers
10.6 Form of Proposed Change in Control Agreement between First Lincoln
Bancshares Inc. and certain executive officers
10.7 Form of Proposed First Federal Lincoln Bank Employee Severance
Compensation Plan
10.8 Form of Proposed Management Supplemental Executive Retirement Plan
10.9 Form of Proposed Supplemental Executive Retirement Plan.
10.10 Form of First Federal Lincoln Bank Consultation Plan for Non-Employee
Directors
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 Keller & Company, Inc.
24.1 Powers of Attorney
27.0 Financial Data Schedule
99.1 Appraisal Report of Keller & Company, Inc. (P)
99.2 Draft of First Federal Lincoln Foundation Gift Instrument*
- --------------------------------------
*To be filed by amendment
(P) Filed pursuant to Rule 202 of Regulation S-T.
<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.
<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 County of
Lancaster, State of Nebraska, on December 12, 1997.
First Lincoln Bancshares Inc.
By: /s/ Gilbert G. Lundstrom
----------------------------------
Gilbert G. Lundstrom
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.
<TABLE>
<CAPTION>
Name Title Date
---- ----- ----
<S> <C> <C>
/s/ Gilbert G. Lundstrom President, Chief Executive December 12, 1997
- --------------------------
Gilbert G. Lundstrom Officer and Director
(principal executive officer)
/s/ Eugene B. Witkowicz Executive Vice President, December 12, 1997
- --------------------------
Eugene B. Witkowicz Treasurer and Chief Financial Officer
(principal financial and
accounting officer)
/s/ LaVern F. Roschewski Chairman of the Board December 12, 1997
- ---------------------------
LaVern F. Roschewski
/s/ Campbell McConnell Director December 12, 1997
- ---------------------------
Campbell McConnell
/s/ Ann Lindley Spence Director December 12, 1997
- ---------------------------
Ann Lindley Spence
/s/ Joyce Person Pocras Director December 12, 1997
- ---------------------------
Joyce Person Pocras
</TABLE>
<PAGE>
As filed with the Securities and Exchange Commission on December 12, 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
_______________
FIRST LINCOLN BANCSHARES INC.
FIRST FEDERAL LINCOLN BANK SAVINGS PLAN
(Exact name of registrant as specified in its charter)
================================================================================
<PAGE>
TABLE OF CONTENTS
LIST OF EXHIBITS (FILED HEREWITH UNLESS OTHERWISE NOTED)
<TABLE>
<S> <C>
1.1 Engagement Letter between First Federal Lincoln Bank and Sandler O'Neill & Partners, L.P.
1.2 Draft Form of Agency Agreement*
2.1 Plan of Conversion (including the Federal Stock Charter and Bylaws of First Federal Lincoln Bank)
3.1 Certificate of Incorporation of First Lincoln Bancshares Inc.
3.2 Bylaws of First Lincoln Bancshares Inc.
3.3 Federal Stock Charter and Bylaws of First Federal Lincoln Bank (See Exhibit 2.1 hereto)
4.0 Draft Stock Certificate of First Lincoln Bancshares 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 First Federal Lincoln Bank 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 First Federal Lincoln Bank and certain executive
officers*
10.4 Form of Proposed Employment Agreement between First Lincoln Bancshares Inc. and certain executive
officers*
10.5 Form of Proposed Change in Control Agreement between First Federal Lincoln Bank and certain executive
officers
10.6 Form of Proposed Change in Control Agreement between First Lincoln Bancshares Inc. and certain executive
officers
10.7 Form of Proposed First Federal Lincoln Bank Employee Severance Compensation Plan
10.8 Form of Proposed Management Supplemental Executive Retirement Plan
10.9 Form of Proposed Supplemental Executive Retirement Plan.
10.10 Form of First Federal Lincoln Bank Consultation Plan for Non-Employee Directors
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 Keller & Company, Inc.
24.1 Powers of Attorney
27.0 Financial Data Schedule
99.1 Appraisal Report of Keller & Company, Inc. (P)
99.2 Draft of First Federal Lincoln Foundation Gift Instrument*
</TABLE>
_______________________________________
*To be filed by amendment.
(P) Filed pursuant to Rule 202 of Regulation S-T.
<PAGE>
[LETTERHEAD OF SANDLER O'NEILL & PARTNERS, L.P. APPEARS HERE]
October 7, 1997
Exhibit 1.1
Mr. Gilbert Lundstrom
President and Chief Executive Officer
First Federal Lincoln Bank
13th & N Streets
Lincoln, NE 68508
Dear Mr. Lundstrom:
Sandler O'Neill & Partners, L.P. ("Sandler O'Neill") is pleased to act as
an independent financial advisor to First Federal Lincoln Bank (the "Bank") in
connection with the Bank's proposed conversion from mutual to stock form (the
"Conversion"), including the offer and sale of certain shares of the common
stock of the proposed new holding company for the Bank (the "Holding Company")
to the Bank's eligible account holders in a Subscription Offering, to members of
the Bank's community in a Direct Community Offering and, under certain
circumstances, to the general public in a Syndicated Community Offering
(collectively, the "Offerings"). For purposes of this letter, the term "Actual
Purchase Price" shall mean the price at which the shares of the Holding
Company's common stock are sold in the Conversion. This letter is to confirm
the terms and conditions of our engagement.
ADVISORY SERVICES
- -----------------
Sandler O'Neill will act as a consultant and advisor to the Bank and the
Holding Company and will work with the Bank's management, counsel, accountants
and other advisors in connection with the Conversion and the Offerings. We
anticipate that our services will include the following, each as may be
necessary and as the Bank may reasonably request:
1. Consulting as to the securities marketing implications of any aspect
of the Plan of Conversion or related corporate documents;
2. Reviewing with the Board of Directors the independent appraiser's
appraisal of the common stock, particularly with regard to aspects of
the appraisal involving the methodology employed;
<PAGE>
First Federal Lincoln Bank
October 7, 1997
Page 2
3. Reviewing all offering documents, including the Prospectus, stock
order forms and related offering materials (it being understood that
preparation and filing of such documents will be the responsibility of
the Bank and the Holding Company and their counsel);
4. Assisting in the design and implementation of a marketing strategy for
the Offerings;
5. Assisting in obtaining all requisite regulatory approvals;
6. Assisting Bank management in scheduling and preparing for meetings
with potential investors and broker-dealers; and
7. Providing such other general advice and assistance as may be requested
to promote the successful completion of the Conversion.
FEES
- ----
If the Conversion is consummated, the Bank agrees to pay Sandler O'Neill
for its services hereunder the fees set forth below:
1. a fee of one and three-eighths percent (1.375%) of the aggregate
Actual Purchase Price of the shares of common stock sold in the
Subscription Offering and in the Direct Community Offering, excluding
in each case shares purchased by (i) any benefit plan of the Holding
Company or the Bank established for the benefit of their respective
directors, officers and employees, and (ii) any director, officer or
employee of the Holding Company or the Bank or members of their
immediate families (whether or not living in the same household); and
2. with respect to any shares of the Holding Company's common stock sold
by any NASD member firm (other than Sandler O'Neill) under any
selected dealers agreement in the Syndicated Community Offering, (a)
the sales commission payable to the selected dealer under such
agreement, (b) any sponsoring dealer's fees, and (c) a management fee
to Sandler O'Neill of one and three-eighths percent (1.375%). Any fees
payable to Sandler O'Neill for common stock sold by Sandler O'Neill
under any such agreement shall be limited to an aggregate of one and
three-eighths percent (1.375%) of the Actual Purchase Price of such
shares.
<PAGE>
First Federal Lincoln Bank
October 7, 1997
Page 3
If (i) Sandler O'Neill's engagement hereunder is terminated for any of the
reasons provided for under the second paragraph of the section of this letter
captioned "Definitive Agreement," or (ii) the Conversion is terminated by the
Bank, no fees shall be payable by the Bank to Sandler O'Neill hereunder.
All fees payable to Sandler O'Neill hereunder shall be payable in cash at
the time of the closing of the Conversion. In recognition of the long lead
times involved in the conversion process, the Bank agrees to make advance
payments to Sandler O'Neill in the aggregate amount of $50,000, $25,000 of which
shall be payable upon execution of this letter and the remaining $25,000 of
which shall be payable upon commencement of the Subscription Offering, which
shall be credited against any fees payable hereunder.
SYNDICATED COMMUNITY OFFERING
- -----------------------------
If any shares of the Holding Company's common stock remain available after
the expiration of the Subscription Offering and the Direct Community Offering,
at the request of the Bank and subject to the continued satisfaction of the
conditions set forth in the second paragraph under the caption "Definitive
Agreement" below, Sandler O'Neill will seek to form a syndicate of registered
dealers to assist in the sale of such common stock in a Syndicated Community
Offering on a best efforts basis, subject to the terms and conditions set forth
in a selected dealers agreement. Sandler O'Neill will endeavor to limit the
aggregate fees to be paid by the Bank under any such selected dealers agreement
to an amount competitive with gross underwriting discounts charged at such time
for underwritings of comparable amounts of stock sold at a comparable price per
share in a similar market environment, which shall not exceed 7% of the
aggregate Actual Purchase Price of the shares sold under such agreements, and
shall be subject to the prior approval of the Bank. Sandler O'Neill will
endeavor to distribute the common stock among dealers in a fashion which best
meets the distribution objectives of the Bank and the requirements of the Plan
of Conversion, which may result in limiting the allocation of stock to certain
selected dealers. It is understood that in no event shall Sandler O'Neill be
obligated to act as a selected dealer or to take or purchase any shares of the
Holding Company's common stock.
COSTS AND EXPENSES
- ------------------
Sandler O'Neill shall bear all of its out-of-pocket expenses incurred in
connection with its engagement hereunder, regardless of whether the Conversion
is consummated, including, without limitation, legal fees and disbursements of
Sandler O'Neill's counsel, costs of temporary employees hired by Sandler O'Neill
in connection with its engagement hereunder, advertising, promotional
<PAGE>
First Federal Lincoln Bank
October 7, 1997
Page 4
(including Sandler O'Neill's costs associated with any road shows or investor
meetings), syndication, meals, lodging and travel expenses.
As is customary, the Bank will bear all other expenses incurred in
connection with the Conversion and the Offerings, including, without limitation,
(i) the cost of obtaining all securities and bank regulatory approvals,
including any required NASD filing fees; (ii) the cost of printing and
distributing the offering materials; (iii) the costs of blue sky qualification
(including fees and expenses of blue sky counsel) of the shares in the various
states; (iv) listing fees; and (v) all fees and disbursements of the Bank's and
the Holding Company's counsel, accountants, appraiser and other advisors other
than Sandler O'Neill and its advisors. In the event Sandler O'Neill incurs any
such fees and expenses on behalf of the Bank or the Holding Company, the Bank
will reimburse Sandler O'Neill for such fees and expenses whether or not the
Conversion is consummated; provided, however, that Sandler O'Neill shall not
-------- -------
incur any substantial expenses on behalf of the Bank or the Holding Company
pursuant to this paragraph without the prior approval of the Bank.
POST-CONVERSION GENERAL ADVISORY SERVICES
- -----------------------------------------
If the Conversion is consummated, Sandler O'Neill agrees to act as an
independent financial advisor to the Holding Company, the Bank and their
subsidiaries (referred to collectively in this paragraph as the "Company") in
connection with the Company's general strategic planning ("General Advisory
Services"). In connection with such General Advisory Services, we would expect
to work with the Company's management, its counsel, accountants and other
advisors to assess the Company's strategic alternatives and help implement a
tactical plan to enhance the value of the Company. We anticipate that our
activities would include, as appropriate, those activities outlined in Exhibit A
hereto. Sandler O'Neill shall provide such services at the Company's request
for a period of one year following the completion of the Conversion; provided,
--------
however, that the Company shall reimburse Sandler O'Neill for its reasonable
- -------
out-of-pocket expenses incurred in connection with providing such services.
Thereafter, if both parties wish to continue the relationship, the parties will
enter into a separate advisory services agreement on terms and conditions to be
negotiated at such time. Notwithstanding the above, the Company is under no
obligation to receive or request such services.
DUE DILIGENCE REVIEW
- --------------------
Sandler O'Neill's obligation to perform the services contemplated by this
letter shall be subject to the satisfactory completion of such investigation and
inquiries relating to the Bank and the Holding Company, and their respective
directors, officers, agents and employees, as Sandler
<PAGE>
First Federal Lincoln Bank
October 7, 1997
Page 5
O'Neill and its counsel in their sole discretion may deem appropriate under the
circumstances. In this regard, the Bank agrees that, at its expense, it will
make available to Sandler O'Neill all information which Sandler O'Neill
requests, and will allow Sandler O'Neill the opportunity to discuss with the
Bank's and the Holding Company's management the financial condition, business
and operations of the Bank and the Holding Company. The Bank and the Holding
Company acknowledge that Sandler O'Neill will rely upon the accuracy and
completeness of all information received from the Bank and the Holding Company
and their directors, trustees, officers, employees, agents, independent
accountants and counsel.
BLUE SKY MATTERS
- ----------------
The Bank agrees that if Sandler O'Neill's counsel does not serve as counsel
with respect to blue sky matters in connection with the Offerings, the Bank will
cause the counsel performing such services to prepare a Blue Sky Memorandum
related to the Offerings including Sandler O'Neill's participation therein and
shall furnish Sandler O'Neill a copy thereof addressed to Sandler O'Neill or
upon which such counsel shall state Sandler O'Neill may rely.
CONFIDENTIALITY
- ---------------
Other than disclosure to other firms made part of any syndicate of selected
dealers or as required by law or regulation, Sandler O'Neill agrees that it will
not disclose any Confidential Information relating to the Bank obtained in
connection with its engagement hereunder (whether or not the Conversion is
consummated). As used in this paragraph, the term "Confidential Information"
shall not include information which (i) is or becomes generally available to the
public other than as a result of a disclosure by Sandler O'Neill, (ii) was
available to Sandler O'Neill on a non-confidential basis prior to its disclosure
to Sandler O'Neill by the Bank, or (iii) becomes available to Sandler O'Neill on
a non-confidential basis from a person other than the Bank who is not otherwise
known to Sandler O'Neill to be bound not to disclose such information pursuant
to a contractual, legal or fiduciary obligation.
INDEMNIFICATION
- ---------------
Since Sandler O'Neill will be acting on behalf of the Bank and the Holding
Company in connection with the Conversion, the Holding Company and the Bank
agree to indemnify and hold Sandler O'Neill and its affiliates and their
respective partners, directors, officers, employees, agents and controlling
persons within the meaning of Section 15 of the Securities Act of 1933 or
Section
<PAGE>
First Federal Lincoln Bank
October 7, 1997
Page 6
20 of the Securities Exchange Act of 1934 (Sandler O'Neill and each such person
being an "Indemnified Party") harmless from and against any and all losses,
claims, damages and liabilities, joint or several, to which such Indemnified
Party may become subject under applicable federal or state law, or otherwise,
related to or arising out of the Conversion or the engagement of Sandler O'Neill
pursuant to, or the performance by Sandler O'Neill of the services contemplated
by, this letter, and will reimburse any Indemnified Party for all expenses
(including reasonable legal fees and expenses upon presentation of invoices to
the Bank) as they are incurred, including expenses incurred in connection with
the investigation of, preparation for or defense of any pending or threatened
claim or any action or proceeding arising therefrom, whether or not such
Indemnified Party is a party; provided, however, that the Bank and the Holding
-------- -------
Company will not be liable in any such case to the extent that any such loss,
claim, damage, liability or expense (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 not misleading any statements
contained in any final proxy statement or prospectus, or any amendment or
supplement 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 Sandler O'Neill expressly for use therein, or (ii) is
attributable to the gross negligence, willful misconduct or bad faith of Sandler
O'Neill. If the foregoing indemnification is unavailable for any reason, the
Bank and the Holding Company agree to contribute to such losses, claims,
damages, liabilities and expenses in the proportion that its financial interest
in the Conversion bears to that of Sandler O'Neill.
DEFINITIVE AGREEMENT
- --------------------
Sandler O'Neill and the Bank agree that (a) except as set forth in clause
(b), the foregoing represents the general intention of the Bank and Sandler
O'Neill with respect to the services to be provided by Sandler O'Neill in
connection with the Offerings, which will serve as a basis for Sandler O'Neill
commencing activities, and (b) the only legal and binding obligations of the
Bank, the Holding Company and Sandler O'Neill with respect to the subject matter
hereof shall be (1) those set forth under the captions "Confidentiality" and
"Indemnification," and (2) as set forth in a duly negotiated and executed
definitive Agency Agreement to be entered into prior to the commencement of the
Subscription Offering relating to the services of Sandler O'Neill in connection
with the Offerings. Such Agency Agreement shall be in form and content
satisfactory to Sandler O'Neill, the Bank and the Holding Company and their
respective counsel and shall contain standard indemnification provisions
mutually acceptable to the Bank, the Holding Company and Sandler O'Neill.
Sandler O'Neill's execution of such Agency Agreement shall also be subject
to (i) Sandler
<PAGE>
First Federal Lincoln Bank
October 7, 1997
Page 7
O'Neill's satisfaction with its investigation of the Bank's business, financial
condition and results of operations, (ii) preparation of offering materials that
are satisfactory to Sandler O'Neill and its counsel, (iii) compliance with all
relevant legal and regulatory requirements to the reasonable satisfaction of
Sandler O'Neill's counsel, (iv) agreement that the price established by the
independent appraiser is reasonable and (v) market conditions at the time of the
proposed offering. Sandler O'Neill may terminate this agreement if such Agency
Agreement is not entered into prior to June 30, 1999.
Please confirm that the foregoing correctly sets forth our agreement by
signing and returning to Sandler O'Neill the duplicate copy of this letter
enclosed herewith.
Very truly yours,
Sandler O'Neill & Partners, L.P.
By: Sandler O'Neill & Partners Corp.,
the sole general partner
By: /s/ Mark B. Cohen
---------------------------------
Mark B. Cohen
Vice President
Accepted and agreed to as of
the date first above written:
First Federal Lincoln Bank
By: /s/ Gilbert Lundstrom
-------------------------------------
Gilbert Lundstrom
President and Chief Executive Officer
<PAGE>
EXHIBIT A
GENERAL ADVISORY SERVICES
- --------------------------------------------------------------------------------
1. A review and analysis of the Company's current business and financial
characteristic, including its operating strategies, balance sheet
composition, historical operating performance, branch structure and market
share, and the Company's competitive position relative to selected peer
groups;
2. Creation of a base case financial model to serve as a benchmark for
analyzing alternative strategies and market environments;
3. An analysis of the impact on the franchise value of altering the Company's
dividend policy, implementing a stock repurchase program, or changing the
asset mix or other operating activities;
4. An analysis of the Company's acquisition resources, objectives and capacity
to compete for acquisition opportunities;
5. A summary of recent merger and acquisition trends in the financial services
industry, including tactics employed by others and typical terms and values
involved;
6. A review of other strategic alternatives which could provide long-term
benefits and enhanced value to the Company;
7. A review of the Company's advance defensive preparation plans, including a
comprehensive financial valuation and an analysis of stock ownership and
trading activities;
8. A review with the Board of Directors of the Company of Sandler O'Neill's
findings, with periodic updates as may be requested;
9. Ongoing general advice and counsel to management and the Board of Directors
of the Company with respect to strategic and tactical issues; and
10. Rendering such other financial advisory and investment banking services as
may from time to time be agreed upon by Sandler O'Neill and the Company.
<PAGE>
[LETTERHEAD OF SANDLER O'NEILL & PARTNERS, L.P. APPEARS HERE]
October 7, 1997
Mr. Gilbert Lundstrom
President and Chief Executive Officer
First Federal Lincoln Bank
13th & N Streets
Lincoln, NE 68508
Dear Mr. Lundstrom:
Sandler O'Neill & Partners, L.P. ("Sandler O'Neill") is pleased to act as
conversion agent to First Federal Lincoln Bank (the "Bank") in connection with
the Bank's proposed conversion from mutual to stock form (the "Conversion").
This letter is to confirm the terms and conditions of our engagement.
SERVICES AND FEES
- -----------------
In our role as Conversion Agent, we anticipate that our services will
include the services outlined below, each as may be necessary and as the Bank
may reasonably request:
I. Consolidation of Accounts and Development of a Central File
II. Preparation of Proxy, Order and/or Request Forms
III. Organization and Supervision of the Conversion Center
IV. Proxy Solicitation and Special Meeting Services
V. Subscription Services
Each of these services is further described in Appendix A to this agreement.
For its services hereunder, the Bank agrees to pay Sandler O'Neill a fee of
$50,000. This fee is based upon a total number of unconsolidated accounts of
approximately 100,000. No change in fees will occur as long as the variance in
the number of accounts does not exceed 5%. In the event the actual number of
accounts exceeds the number specified above by more than 5%, the fee will be
proportionately increased.
<PAGE>
First Federal Lincoln Bank
October 7, 1997
Page 2
The fee set forth above is based upon the requirements of current
regulations and the Plan of Conversion as currently contemplated. Any unusual
or additional items or duplication of service required as a result of a material
change in the regulations or the Plan of Conversion or a material delay or other
similar events may result in extra charges which will be covered in a separate
agreement if and when they occur.
All fees under this agreement shall be payable in cash, as follows: (a)
$10,000 payable upon execution of this agreement by the Bank, which shall be
non-refundable; and (b) the balance upon the completion of the Conversion.
COSTS AND EXPENSES
- ------------------
Sandler O'Neill shall bear all of its out-of-pocket expenses incurred in
connection with its engagement hereunder, including, without limitation, costs
of temporary employees hired by Sandler O'Neill in connection with its
engagement hereunder, meals, lodging and travel expenses, telephone, postage,
listings, forms and other similar expenses. As is customary, the Bank will bear
all other expenses incurred in connection with the establishment and operation
of the conversion center and the costs of soliciting votes and stock orders,
including, without limitation, the costs of Bank employees, occupancy costs of
the conversion center, stationery and office supplies, telephone, postage and
delivery costs of communicating with depositors and potential investors in
connection with the Conversion and other similar expenses.
RELIANCE ON INFORMATION PROVIDED
- --------------------------------
The Bank will provide Sandler O'Neill with such information as Sandler
O'Neill may reasonably require to carry out its duties. The Bank recognizes and
confirms that Sandler O'Neill (a) will use and rely on such information in
performing the services contemplated by this agreement without having
independently verified the same, and (b) does not assume responsibility for the
accuracy or completeness of the information. The Bank will also inform Sandler
O'Neill within a reasonable period of time of any changes in the Plan of
Conversion which require changes in Sandler O'Neill's services. If a
substantial expense results from any such change, the parties shall negotiate an
equitable adjustment in the fee.
LIMITATIONS
- -----------
Sandler O'Neill, as Conversion Agent hereunder, (a) shall have no duties or
obligations other than those specifically set forth herein; (b) will be regarded
as making no representations and having no responsibilities as to the validity,
sufficiency, value or genuineness of any order form or any stock certificates or
the shares represented thereby, and will not be required to and will make no
<PAGE>
First Federal Lincoln Bank
October 7, 1997
Page 3
representations as to the validity, value or genuineness of the offer; (c) shall
not be liable to any person, firm or corporation including the Bank by reason of
any error of judgment or for any mistake of law or fact in connection with this
agreement and the performance hereof unless caused by or arising out of its own
bad faith or negligence; (d) will not be obliged to take any legal action
hereunder which might in its judgment involve any expense or liability, unless
it shall have been furnished with reasonable indemnity satisfactory to it; and
(e) may rely on and shall be protected in acting in reliance upon any
certificate, instrument, opinion, notice, letter, telex, telegram, or other
document or security delivered to it and in good faith believed by it to be
genuine and to have been signed by the proper party or parties.
INDEMNIFICATION
- ---------------
The Bank agrees to indemnify and hold Sandler O'Neill and its affiliates
and their respective partners, directors, officers, employees, agents and
controlling persons (Sandler O'Neill and each such person being an "Indemnified
Party") harmless from and against any and all losses, claims, damages and
liabilities, joint or several, to which such Indemnified Party may become
subject under applicable federal or state law, or otherwise, related to or
arising out of the engagement of Sandler O'Neill pursuant to, and the
performance by Sandler O'Neill of the services contemplated by this letter, and
will reimburse any Indemnified Party for all expenses (including reasonable
counsel fees and expenses) as they are incurred, including expenses incurred in
connection with the investigation of, preparation for or defense of any pending
or threatened claim or any action or proceeding arising therefrom, whether or
not such Indemnified Party is a party. The Bank will not be liable under the
foregoing indemnification provision to the extent that any loss, claim, damage,
liability or expense is found in a judgment by a court of competent jurisdiction
(not subsequently overturned on appeal) to have resulted primarily from Sandler
O'Neill's bad faith, willful misconduct or negligence.
MISCELLANEOUS
- -------------
The following addresses shall be sufficient for written notices to each
other:
If to you: First Federal Lincoln Bank
13th & N Streets
Lincoln, NE 68508
Attention: Mr. Gilbert Lundstrom
<PAGE>
First Federal Lincoln Bank
October 7, 1997
Page 4
If to us: Sandler O'Neill & Partners, L.P.
747 Middle Neck Road
Great Neck, NY 11024
Attention: Mr. Mark B. Cohen
The Agreement and appendix hereto constitute the entire Agreement between
the parties with respect to the subject matter hereof and can be altered only by
written consent signed by the parties. This Agreement is governed by the laws of
the State of New York.
Please confirm that the foregoing correctly sets forth our agreement by
signing and returning to Sandler O'Neill the duplicate copy of this letter
enclosed herewith.
Very truly yours,
Sandler O'Neill & Partners, L.P.
By: Sandler O'Neill & Partners Corp.,
the sole general partner
By: /s/ Mark B. Cohen
-----------------------------------
Mark B. Cohen
Vice President
Accepted and agreed to as of
the date first above written:
First Federal Lincoln Bank
By: /s/ Gilbert Lundstrom
-------------------------------------
Gilbert Lundstrom
President and Chief Executive Officer
<PAGE>
APPENDIX A
----------
OUTLINE OF CONVERSION AGENT SERVICES
------------------------------------
I. Consolidation of Accounts
1. Consolidate files in accordance with regulatory guidelines.
2. Accounts from various files are all linked together. The resulting
central file can then be maintained on a regular basis.
3. Our EDP format will be provided to your data processing people.
II. Proxy/Order Form/Request Card Preparation
1. Vote calculation.
2. Stenciling of any combination of proxy cards, request cards and stock
order forms for voting and ordering stock.
3. Target group identification for proxy solicitation and subscription
offering.
III. Organization and Supervision of Conversion Center
1. Advising on and supervising the physical organization of the Conversion
Center, including materials requirements.
2. Assist in the training of all Bank personnel who will be staffing the
conversion center.
3. Establish reporting procedures.
4. On-site supervision of the Conversion Center during the
solicitation/offering period.
IV. Special Meeting Services
1. Direct proxy solicitation.
2. Proxy and ballot tabulation.
3. Act as or support inspector of election.
4. Delete voting record date accounts closed prior to special meeting.
5. Produce final report of vote.
A-1
<PAGE>
V. Subscription Services
1. Produce list of depositors by state (Blue Sky report).
2. Production of subscription rights and research books.
3. Stock order form processing.
4. Acknowledgment letter to confirm receipt of stock order.
5. Daily reports and analysis.
6. Proration calculation and share allocation in the event of an
oversubscription.
7. Produce charter shareholder list.
8. Interface with Transfer Agent for Stock Certificate issuance.
9. Refund and interest calculations.
10. Confirmation letter to confirm purchase of stock.
11. Notification of full/partial rejection of orders.
12. Production of 1099/Debit tape.
A-2
<PAGE>
Exhibit 2.1
________________________________________________________________________________
PLAN OF CONVERSION
FOR
FIRST FEDERAL LINCOLN BANK
AS ADOPTED ON:
OCTOBER 7, 1997
________________________________________________________________________________
<PAGE>
PLAN OF CONVERSION
FOR
FIRST FEDERAL LINCOLN BANK
1. INTRODUCTION
This Plan of Conversion ("Plan") provides for the conversion of First
Federal Lincoln Bank ("BANK") from a federally-chartered mutual savings bank to
a federally-chartered capital stock savings bank. The Board of Directors of the
BANK currently contemplates that all of the stock of the BANK shall be held by a
corporation to be incorporated under Delaware law (the "Holding Company"). The
Board of Directors has carefully considered the alternatives available to the
BANK 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 BANK,
its depositors and the community served by the BANK. The Board of Directors
believes that the decline in mutuality is placing mutual savings associations,
such as the BANK, at a disadvantage to the increasing base of stock thrift and
commercial bank institutions. The restructuring of the BANK into the capital
stock form of organization will enable the BANK to 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 and to enhance the BANK'S ability to
expand its franchise and the products it offers. The use of the Holding
Company, if so utilized, would also provide greater organizational and operating
flexibility. Shares of capital stock of the BANK 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 BANK or Holding
<PAGE>
Company, Supplemental Eligible Account Holders and Other 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 BANK 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 BANK decides not to utilize the Holding Company
in the conversion, Conversion Stock of the BANK, 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 BANK and the Holding Company, as
part of this Plan, intend to implement stock option plans and other stock
benefit plans and will provide employment or severance agreements to certain
management employees and certain other compensation to the directors, officers
and employees of the BANK as described in the prospectus for the Conversion
Stock.
In furtherance of the BANK's long term commitment to its community, this
Plan provides for the establishment of a foundation (the "Foundation") as part
of the Conversion. The Foundation is intended to complement the BANK's existing
community reinvestment activities in a manner that will allow the communities in
which the BANK operates to share in the potential growth and profitability of
the Holding Company and the BANK over the long term. Consistent with the BANK's
goal, the Holding Company intends to donate to the Foundation from its
authorized but unissued common stock up to 8% of the number of shares sold in
the Conversion. The establishment of the Foundation is subject to the approval
of the Voting Members of the BANK. In the event the Foundation is not approved,
the BANK may determine to complete the Conversion without the Foundation.
2
<PAGE>
This Plan, which has been unanimously approved by the Board of Directors of
the BANK, must also be approved by the affirmative vote of a majority of the
total number of outstanding votes entitled to be cast by Voting Members of the
BANK at a special meeting to be called for that purpose. Prior to the
submission of this Plan to the Voting Members for consideration, the Plan must
be approved by the Office of Thrift Supervision (the "OTS").
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 Savings
--------------
Account in the BANK.
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 will not be deemed to be acting in
concert with its trustee or a person who serves in a similar capacity solely for
the purpose of determining whether stock held by the trustee and stock held by
the 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.
3
<PAGE>
Associate - The term Associate when used to indicate a relationship with
---------
any person, means (i) any corporation or organization (other than the BANK or a
majority-owned subsidiary of the BANK) 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 trustee or in a similar fiduciary capacity except that for the
purposes of Sections 9 and 14 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 trustee or in a similar fiduciary capacity, and except that, for
purposes of aggregating total shares that may be held by Officers and Directors
the term "Associate" does not include any Tax-Qualified Employee Stock Benefit
Plan, and (iii) any relative or spouse of such person, or any relative of such
spouse, who has the same home as such person or who is a Director or Officer of
the BANK or the Holding Company, if utilized, or any of its parents or
subsidiaries.
Bank - The term BANK means First Federal Lincoln Bank, Lincoln, Nebraska.
----
Community Offering - The term Community Offering means the offering for
------------------
sale to certain members of the general public with a preference given to
Preferred Subscribers directly by the BANK or the Holding Company, if utilized,
of any shares of Conversion Stock not subscribed for in the Subscription
Offering.
Conversion Stock - The term Conversion Stock means the $.01 par value
----------------
common stock offered and issued by the Holding Company or the $1.00 par value
Common Stock offered and
4
<PAGE>
issued by the BANK, if the Holding Company form of organization is not utilized,
upon conversion.
Director - The term Director means a member of the Board of Directors of
--------
the BANK and, where applicable, a member of the Board of Directors of the
Holding Company.
Eligible Account Holder - The term Eligible Account Holder means any person
-----------------------
holding a Qualifying Deposit on the Eligibility Record Date.
Eligibility Record Date - The term Eligibility Record Date means the date
-----------------------
for determining Eligible Account Holders in the BANK and is June 30, 1996.
Employees - The term Employees means all Persons who are employed by the
---------
BANK but does not include an Officer or Director.
Employee Plans - The term Employee Plans means the Tax Qualified Employee
--------------
Stock Benefit Plans approved by the Board of Directors of the BANK.
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
BANK 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
BANK to be issued upon its conversion to stock form unless the Holding Company
form of organization is not utilized.
5
<PAGE>
Shares of common stock of the Holding Company will be issued in the conversion
to Participants 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 BANK to prepare an appraisal of the pro forma market value of
the Conversion Stock.
Local Community - The term Local Community means all counties in the States
---------------
of Nebraska, Kansas and Iowa in which the BANK maintains a banking office.
Member - The term Member means any Person or entity who qualifies as a
------
member of the BANK pursuant to its charter and bylaws.
OTS - The term OTS means Office of Thrift Supervision of the Department of
---
the Treasury and its successors.
Officer - The term Officer means an executive officer of the BANK which
-------
includes the Chief Executive Officer, President, Executive Vice President,
Senior Vice Presidents, Vice Presidents in charge of principal business
functions, Secretary, Treasurer and Controller and any person performing
functions similar to those performed by the foregoing persons.
Order Form - The term Order Form means any form together with attached
----------
cover letter, sent by the BANK 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 Member - The term Other Member means any person who is a Member of
------------
the BANK (other than an Eligible Account Holder or Supplemental Eligible Account
Holder) at the close of business on the Voting Record Date.
Participants - The term Participants means the Eligible Account Holders,
------------
Employee Plans, Supplemental Eligible Account Holders and Other 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 BANK as it exists
----
on the date hereof and as it may hereafter be amended in accordance with its
terms.
Preferred Subscribers - The term Preferred Subscribers means, in the
---------------------
following order of preference: first, any person holding a deposit in a Savings
Account in First Federal Lincoln Bank - Iowa with a balance of $50 or more at
the close of business on the Eligibility Record Date and second, those members
of the general public which are natural persons residing in the BANK'S Local
Community.
Qualifying Deposit - The term Qualifying Deposit means the balance of each
------------------
Savings Account of $50 or more in the BANK at the close of business on the
Eligibility Record Date or the Supplemental Eligibility Record Date, whichever
may be the case. Savings Accounts with total deposit balances of less than $50
shall not constitute a Qualifying Deposit.
SEC - The term SEC refers to the United States Securities and Exchange
---
Commission.
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Savings Account - The term Savings Account has the same meaning as in
---------------
Section 561.42 of the Rules and Regulations of the OTS and includes certificates
of deposit.
Special Meeting of Members - The term Special Meeting of Members means the
--------------------------
special meeting and any adjournments thereof held to consider and vote upon this
Plan.
Subscription Offering - The term Subscription Offering means the offering
---------------------
of Conversion Stock for purchase through Order Forms to Participants.
Subscription Price - The term 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.
Supplemental Eligibility Record Date - The term Supplemental Eligibility
------------------------------------
Record Date means the supplemental record date for determining Supplemental
Eligible Account Holders of the BANK. The Supplemental Eligibility Record Date
shall be the last day of the calendar quarter preceding the OTS' approval of the
application for conversion.
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.
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.
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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. 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 qualifying as
--------------
voting members of the BANK pursuant to its charter and bylaws.
Voting Record Date - The term Voting Record Date means the date fixed by
------------------
the Directors in accordance with OTS regulations for determining eligibility to
vote at the Special Meeting of Members.
3. PROCEDURE FOR CONVERSION
After approval of the Plan by a vote of not less than 2/3 of the Board of
Directors of the BANK, the Plan shall be submitted together with all other
requisite material to the OTS for its approval. Notice of the adoption of the
Plan by the Board of Directors of the BANK and the submission of the Plan to the
OTS for its approval will be published in a newspaper having general circulation
in each community in which an office of the BANK is located and copies of the
Plan will be made available at each office of the BANK for inspection by the
Members. Upon receipt of notice from the OTS to do so, the BANK also will cause
to be published a notice of the filing with the OTS of an application to convert
in accordance with the provisions of the Plan. Following approval by the OTS,
the Plan will be submitted to a vote of the Voting
9
<PAGE>
Members at the Special Meeting of Members called for that purpose. Upon approval
of the Plan by a majority of the total outstanding votes of the Voting Members,
the BANK will take all other necessary steps pursuant to applicable laws and
regulations to convert the BANK to stock form. The conversion must be completed
within 24 months of the approval of the Plan by the Voting Members, unless a
longer time period is permitted by governing laws and regulations.
The Board of Directors of the BANK intends to take all necessary steps to
form the Holding Company, including the filing of an Application on Form H-(e)1
or H-(e)1-S, if available to the Holding Company, with the OTS. In the event
that the Holding Company is utilized, upon conversion the BANK will issue
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 BANK 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 on Form S-1 will be withdrawn from the SEC, the BANK 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 OTS, 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 BANK without any further action by the BANK or the subscribers for the
Conversion Stock, unless any such further action is required by the SEC or the
OTS, in which case the BANK shall take such necessary action to complete the
Conversion. Any references to the Holding Company in this Plan shall mean the
BANK in the event the Holding Company is eliminated in the Conversion.
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The Board of Directors of the BANK also intend to take all necessary steps
to establish the Foundation, and to fund such Foundation in the manner set forth
in Section 7A hereof, subject to the approval of the Voting Members.
The Conversion Stock will not be insured by the FDIC. The BANK 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 on Form H-(e)1 or an H-(e)1-S, if
available to the Holding Company, to be filed with the OTS and a Registration
Statement on Form S-1 to be filed with the SEC. The BANK 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 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 of
Members and must be commenced in time to complete the Conversion within the time
period specified in Section 3.
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<PAGE>
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 of Members and, in that event, the Community Offering may
also be commenced prior to the Special Meeting of Members. The offer and sale
of Conversion Stock prior to the Special Meeting of Members 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 may be sold in a Syndicated Community
Offering, as provided in Section 13 of this Plan in a manner that will achieve
the widest distribution of the Conversion Stock as determined by the BANK. 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 is consummated and only if all
unsubscribed for Conversion Stock is sold.
The BANK may elect to offer to pay fees on a per share basis to brokers 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 BANK and the 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
12
<PAGE>
OTS, 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 Community Offering to reflect changes in
market and financial conditions.
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. The aggregate purchase
price for all shares of Conversion Stock will not be inconsistent with the
estimated consolidated pro forma market value of the BANK or the Holding
Company, if utilized. The estimated consolidated pro forma market value of the
BANK or the Holding Company, if utilized, will be determined for such purpose by
the Independent Appraiser. 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 midpoint of such range. The number
of shares of Conversion Stock to be issued and the purchase price per share may
be increased or decreased by the BANK. 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. Up to a 15% increase in the number of shares to be issued which
is supported by an appropriate change in the estimated pro forma market value of
the BANK or the Holding Company, if utilized, will not be deemed to be material
so as to require a resolicitation of subscriptions. In the event that the
aggregate purchase price of the Conversion Stock is below the minimum of the
Estimated Price Range or in excess of 15% above the maximum of the
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<PAGE>
Estimated Price Range, and a resolicitation is required, such resolicitation
shall be effected in such manner and within such time as the BANK shall
establish, with the approval of the OTS, if required.
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 BANK will fix the Subscription Price and the range of
the number of shares to be offered. 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 cannot be effected, the total number of shares of Conversion Stock to
be issued and sold will be jointly determined by the BANK and Holding Company
(if a holding company form of organization is utilized) as follows: (a) the
estimated aggregate pro forma market value of the BANK 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 Actual Purchase Price.
If there is a Syndicated Community 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 shall be the Subscription Price.
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<PAGE>
Notwithstanding the foregoing, no sale of Conversion Stock may be
consummated unless, prior to such consummation, the Independent Appraiser
confirms to the BANK and Holding Company, if utilized, and to the OTS that, to
the best knowledge of the Independent Appraiser, nothing of a material nature
has occurred which, taking into account all relevant factors, would cause the
Independent Appraiser to conclude that the aggregate value of 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 BANK
if no Holding Company is utilized. If such confirmation is not received, the
BANK may cancel the Subscription and Community Offerings and/or the Syndicated
Community 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 or take such other
action as the OTS may permit.
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 BANK
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 BANK all of the capital stock of the BANK to be
issued by the BANK in the Conversion in exchange for the Conversion proceeds
that are not permitted to be retained by the Holding Company.
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<PAGE>
The Holding Company will apply to the OTS to retain up to 50% of the
proceeds of the Conversion. Assuming the Holding Company is not eliminated, a
lesser percentage may be acceptable. The BANK believes that the Conversion
proceeds will provide economic strength to the Holding Company and the BANK for
the future in a highly competitive and regulated environment and would
facilitate expansion through acquisitions, diversification into other related
businesses and for other business and investment purposes, including the payment
of dividends and future repurchases of Conversion Stock as permitted by the OTS.
If during the Conversion process the Board of Directors of the BANK determines
not to complete the Conversion utilizing a holding company form of organization,
capital stock of the BANK will be issued and sold in accordance with the Plan.
The above activities may also be engaged in by the BANK if the Holding Company
is eliminated.
7A. ESTABLISHMENT AND FUNDING OF FOUNDATION
As part of the Conversion, the Holding Company and the BANK intend to
establish a Foundation that will qualify as an exempt organization under Section
501(c)(3) of the Internal Revenue Code and to donate to the Foundation 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
BANK's existing community reinvestment activities and to share with the
communities in which the BANK operates a part of the BANK's financial success as
a community-minded, financial services institution. The funding of the
Foundation with Common Stock of the Holding Company accomplishes this goal as it
enables such
16
<PAGE>
communities to share in the potential growth and profitability of the Holding
Company and the BANK over the long-term.
The Foundation will be dedicated to the promotion of charitable purposes
within the communities in which the BANK operates, including, but not limited
to, grants or donations to support housing assistance, scholarships, local
education, not-for-profit medical facilities, not-for-profit community groups
and other types of organizations or civic minded projects. The board of
directors of the Foundation will be responsible for establishing the polices of
the Foundation with respect to grants or donations, consistent with the stated
purposes of the Foundation. 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 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 establishment and funding of the Foundation as part of the Conversion
is subject to the approval of the Voting Members by an affirmative vote of a
majority of the votes eligible to be cast by Voting Members in person or by
proxy at the Special Meeting. In the event that the BANK's Members approve this
Plan, but not the Foundation, the BANK may determine to complete the Conversion
without the establishment of the Foundation and may do so without amending this
Plan or obtaining any further vote of the BANK's Members. Failure of the Voting
Members to approve the Foundation may materially affect the pro forma market
value of the BANK. In such an event, the BANK may establish a new Estimated
Price Range and commence a resolicitation of subscribers. For comparison
purposes, Voting Members will be provided with
17
<PAGE>
a projection of the pro forma market value of the Conversion Stock, an Estimated
Price Range and certain selected pro forma financial data that would result if
the Conversion were consummated without establishment of the Foundation.
8. SUBSCRIPTION RIGHTS OF ELIGIBLE ACCOUNT HOLDERS (FIRST PRIORITY)
A. Each Eligible Account Holder shall receive, as first priority and
without payment, nontransferable 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 $500,000 of the Conversion Stock offered, but which may be
increased to 5% or decreased to less than $500,000 without the further approval
of members or resolicitation of subscribers; one-tenth of one percent (.10%) of
the total offering of shares of Conversion Stock; or fifteen times the product
(rounded down to the next whole number) obtained by multiplying the total number
of shares of Conversion Stock to be issued by a fraction of which the numerator
is the amount of the Qualifying Deposit of the Eligible Account Holder and the
denominator is the total amount of Qualifying Deposits of all Eligible Account
Holders, in each case on the Eligibility Record Date, subject to the maximum
purchase limitation specified in Section 14A and the minimum purchase limitation
specified in Section 14C 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%.
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 shares eligible for
18
<PAGE>
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 Holders. Any shares remaining after that allocation will be allocated
among the subscribing Eligible Account Holders whose subscriptions remain
unsatisfied in the proportion that the amount of the Qualifying Deposit of each
Eligible Account Holder whose subscription remains unsatisfied bears to the
total amount of the Qualifying Deposits of all Eligible Account Holders whose
subscriptions remain unsatisfied. If the amount so allocated exceeds the amount
subscribed for by any one or more Eligible Account Holders, the excess shall be
reallocated (one or more times as necessary) among those Eligible Account
Holders whose subscriptions are still not fully satisfied on the same principle
until all available shares have been allocated or all subscriptions satisfied.
C. Subscription rights as Eligible Account Holders received by Directors
and Officers and their Associates which are based on deposits made by such
persons during the twelve (12) months 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)
The Employee Plans shall receive, without payment, as a 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 such Employee
19
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Plans. If, after the filling of subscriptions of Eligible Account Holders, a
sufficient number of shares are not available to fill the subscriptions by such
Employee Plans, the subscription by such Employee Plans shall be filled to the
maximum extent possible; provided, however, that in the event of an increase in
the total number of shares issued due to an increase in the Estimated Price
Range of up to 15%, the additional shares may be sold to the Employee Plans
subject to the provisions of Section 14.
The Employee Plans shall not be deemed to be an associate or affiliate of
or Person Acting in Concert with any Director or Officer of the Holding Company
or the BANK.
10. SUBSCRIPTION RIGHTS OF SUPPLEMENTAL ELIGIBLE ACCOUNT HOLDERS (THIRD
PRIORITY)
A. Each Supplemental Eligible Account Holder shall receive, as third
priority and without payment, nontransferable 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 $500,000 of the Conversion Stock offered,
but which may be increased to 5% or decreased to less than $500,000 without the
further approval of members or resolicitation of subscribers; one-tenth of one
percent (.10%) of the total offering of Conversion Stock; or fifteen times the
product (rounded down to the next whole number) obtained by multiplying the
total number of shares of Conversion Stock to be issued by a fraction of which
the numerator is the amount of the Qualifying Deposit of the Supplemental
Eligible Account Holder and the denominator is the total amount of the
Qualifying Deposits of all Supplemental Eligible Account Holders in the BANK on
the Supplemental
20
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Eligibility Record Date, subject to the maximum purchase limitation specified in
Section 14A and the minimum purchase limitation specified in Section 14C 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%.
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 shares eligible for subscription, the remaining 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 subscribing Supplemental Eligible Account Holders whose subscriptions
remain unsatisfied in the proportion that the amount of the Qualifying Deposit
of each Supplemental Eligible Account Holder whose subscription remains
unsatisfied bears to the total amount of the Qualifying Deposits of all
Supplemental Eligible Account Holders whose subscriptions remain unsatisfied. If
the amount so allocated exceeds the amount subscribed for by any one or more
Supplemental Eligible Account Holders, the excess shall be reallocated (one or
more times as necessary) among those Supplemental Eligible Account Holders whose
subscriptions are still not fully satisfied on the same principle until all
available shares have been allocated or all subscriptions satisfied.
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.
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11. SUBSCRIPTION RIGHTS OF OTHER MEMBERS (FOURTH PRIORITY)
A. Each Other Member shall receive, without payment, as a fourth priority
after the filling of subscriptions of the Eligible Account Holders, the Employee
Plans, and the Supplemental Eligible Account Holders, nontransferable
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 $500,000
of the Conversion Stock offered, but which may be increased to 5% or decreased
to less than $500,000 without the further approval of members or resolicitation
of subscribers; or one-tenth of one percent (.10%) of the total offering of
shares of Conversion Stock, subject to the maximum purchase limitation specified
in Section 14A and the minimum purchase limitation specified in Section 14C 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%.
B. In the event that Other Members exercise subscription rights for a
number of shares of Conversion Stock in excess of the total number of shares
eligible for subscription, the remaining shares of Conversion Stock shall be
allocated among the subscribing Other Members so as to permit each subscribing
Other Member, 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 Other Member. Any
shares remaining after that allocation will be allocated among the subscribing
Other Members whose subscriptions remain unsatisfied pro rata in the same
proportion that the number of votes of a subscribing Other Member on the Voting
Record Date bears to the total votes on the Voting Record Date of
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all subscribing Other Members. If the amount so allocated exceeds the amount
subscribed for by any one or more remaining Other Members, the excess shall be
reallocated (one or more times as necessary) among those remaining Other Members
whose subscriptions are still not fully satisfied on the same principle until
all available shares have been allocated or all subscriptions satisfied.
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 to certain members of the general public,
which may subscribe together with any Associate or group of persons Acting in
Concert for up to $500,000 of the shares of Conversion Stock offered subject to
the Maximum Overall Purchase Limitation as specified in Section 14A and the
minimum purchase limitation specified in Section 14C 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%; provided, however, that the amount permitted
to be purchased in the Community Offering may be increased to 5% of the
Conversion Stock; or decreased to less than $500,000 without the further
approval of members or resolicitation of subscribers. 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 institution
securities. Such entities may be compensated on a fixed fee basis or on a
commission basis, or a combination thereof. The BANK shall make distribution of
the
23
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Conversion Stock to be sold in the Community Offering in such a manner as to
promote the widest distribution of Conversion Stock. The BANK 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 remaining shares will be allocated among members of the general
public using the foregoing allocation as applied to Preferred Subscribers. The
BANK 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 by the OTS.
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13. SYNDICATED COMMUNITY OFFERING
If feasible, all shares of Conversion Stock not subscribed for in the
Subscription and Community Offerings may be sold in a Syndicated Community
Offering, subject to such terms, conditions and procedures as may be determined
by the BANK, in a manner that will achieve the widest distribution of the
Conversion Stock subject to the right of the BANK 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 $500,000 of the total number of
shares of Conversion Stock offered subject to the maximum purchase limitation
specified in Section 14A and the minimum purchase limitation specified in
Section 14C 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%; provided, however,
that this amount may be increased to 5% or decreased to less than $500,000
without the further approval of members or resolicitation of subscribers. 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 percentage of shares permitted to be purchased pursuant to this Section.
Provided that the Subscription Offering has commenced, the BANK 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 the Special Meeting of
Members, 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
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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, the BANK
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
BANK, which will in no event exceed an amount deemed to be acceptable by the
OTS.
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 can not be effected, or in the event that
any insignificant residue of shares of Conversion Stock is not sold in the
Subscription and Community Offerings or in the Syndicated Community Offering or
an underwritten firm commitment public offering, other purchase arrangements
will be made for the sale of unsubscribed shares by the BANK, if possible. Such
other purchase arrangements will be subject to the approval of the OTS.
14. LIMITATION ON PURCHASES
In addition to the maximum amount of Conversion Stock that may be
subscribed for as set forth in Sections 8, 10, 11, 12 and 13, the following
limitations shall apply to all purchases of shares of Conversion Stock:
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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 (the "Maximum Overall
Purchase Limitation"), except for the Employee Plans which may subscribe for up
to 10% of the Conversion Stock issued and except for certain Eligible Account
Holders and Supplemental Eligible Account Holders which may subscribe for or
purchase shares in accordance with Sections 8 and 10 herein, respectively;
provided, however, in the event that the Maximum Overall Purchase Limitation is
increased to more than 2.0% of the shares of Conversion Stock offered, orders
for Conversion Stock in the Community Offering and in the Syndicated Community
Offering (or, alternatively an underwritten firm commitment public offering), if
any, shall, as determined by the BANK, first be filled to a maximum of 2.0% of
the total number of shares of Conversion Stock offered and thereafter remaining
shares shall be allocated on an equal number of shares basis per order until all
orders have been filled.
B. The maximum number of shares of Conversion Stock which may be
purchased in all categories in the Conversion by Officers and Directors of the
BANK and their Associates in the aggregate shall not exceed 25% 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 of
Conversion Stock which when multiplied by the price per share shall not exceed
$500, as determined by the Board.
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If the number of shares of Conversion Stock otherwise allocable pursuant to
Sections 8, 10, 11, 12 and 13, to any Person or that Person's Associates would
be in excess of the maximum number of shares permitted as set forth above, the
number of shares of Conversion Stock allocated to each such person shall be
reduced to the lowest 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 BANK and the Holding Company, without further approval of the Members, may
decrease or increase the purchase limitations in this Plan, provided that the
maximum purchase limitations may not be increased to a percentage in excess of
5%. Notwithstanding the foregoing, the Maximum Overall Purchase Limitation may
be increased up to 9.99% provided that orders for Conversion Stock exceeding 5%
of the shares being offered shall not exceed, in the aggregate, 10% of the total
offering. If the BANK or the Holding Company, as the case may be, increases the
maximum purchase limitations, the BANK or the Holding Company, as the case may
be, is only required to resolicit Persons who subscribed for the maximum
purchase amount and may, in the sole discretion of the BANK or the Holding
Company, as the case may be, resolicit certain other large subscribers.
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In the event shares of Conversion stock are sold in excess of the maximum
of the Estimated Price Range, (the "Adjusted Maximum") such shares will be
allocated in the following order of priority: (i) to fill the Employee Plans'
subscription to the Adjusted Maximum; (ii) in the event that there is an over
subscription at the Eligible Account Holder level, to fill unfulfilled
subscriptions of Eligible Account Holders exclusive of the Adjusted Maximum in
accordance with Section 8; (iii) in the event there is an over subscription at
the Supplemental Eligible Account Holder level, to fill unfulfilled
subscriptions of Supplemental Eligible Account Holders exclusive of the Adjusted
Maximum in accordance with Section 10; (iv) in the event that there is an over
subscription at the Other Member level, to fill unfulfilled subscriptions of
Other Members exclusive of the Adjusted Maximum in accordance with Section 11;
and (v) to fill unfulfilled Subscriptions in the Community Offering exclusive of
the Adjusted Maximum in accordance with Section 12.
For purposes of this Section 14, the Directors and Officers of the BANK and
the Holding Company shall not be deemed to be Associates or a group affiliated
with each other or otherwise Acting in Concert solely as a result of their being
Directors or Officers of the BANK or the Holding Company.
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, Director
or their Associates shall purchase, without the prior written approval of the
OTS, any outstanding shares of common stock of the BANK or the Holding Company,
as the case may be, except from a broker-dealer registered with the SEC. This
provision shall not apply to negotiated transactions
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involving more than one percent of the outstanding shares of common stock of the
BANK or the Holding Company, as the case may be, the exercise of any options
pursuant to a stock option plan or purchases of common stock of the BANK 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 BANK or the Holding Company (including the Employee Plans) which may be
attributable to any Officer or Director. As used herein, the term "negotiated
transaction" means a transaction in which the securities are offered and the
terms and arrangements relating to any sale are arrived at through direct
communications between the seller or any person acting on its behalf and the
purchaser or his investment representative. The term "investment representative"
shall mean a professional investment advisor acting as agent for the purchaser
and independent of the seller and not acting on behalf of the seller in
connection with the transaction.
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
BANK, 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 BANK; 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
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of the Conversion, provided that, in the case of the employee stock ownership
plan ("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 an
unrelated financial institution to lend to the ESOP, at such time, the aggregate
Subscription Price of the shares for which it subscribed. The BANK may make
scheduled discretionary contributions to an Employee Plan provided such
contributions do not cause the BANK to fail to meet its regulatory capital
requirement.
Notwithstanding the foregoing, the BANK 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 the completion of the Conversion, unless such 48 hour period is
waived by the BANK 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 BANK on the Order Form to make a withdrawal from the
subscriber's Savings Account at the BANK in an amount equal to the purchase
price of such shares. Such authorized withdrawal, whether from a savings
passbook or certificate account, shall be without penalty as to premature
withdrawal. If the authorized withdrawal is from a certificate account, and the
remaining balance does not meet the applicable minimum balance requirement, the
certificate shall be cancelled at the time of withdrawal, without penalty, and
the remaining balance will earn interest at the passbook rate. Funds for which a
withdrawal is authorized will remain in the subscriber's Savings Account but may
not be
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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 OTS) 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. Interest will be paid by the
BANK at not less than the passbook annual rate on payments for Conversion Stock
received in cash or by check or money order. Such interest will be paid from the
date payment is received by the BANK until consummation or termination of the
Conversion. If for any reason the 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 Savings Accounts, refunds will be made by cancelling the
authorization for withdrawal. The BANK 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 BANK has been declared effective by the OTS and the SEC, if the holding
company form of organization is utilized, Order Forms will be distributed to all
Eligible Account Holders, the Employee Plans, the Supplemental Eligible Account
Holders and Other Members at their last
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known addresses appearing on the records of the BANK 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 BANK may elect to send Order Forms
only to those Persons who request them after such notice as is approved by the
OTS and is adequate to apprise all Eligible Account Holders, the Employee Plans,
Supplemental Eligible Account Holders and Other Members of the pendency of the
Subscription Offering has been given. Such notice may be included with the proxy
statement for the Special Meeting of Members and may also be included in a
notice of the pendency of the Conversion and the Special Meeting of Members sent
to all Eligible Account Holders and Supplemental Eligible Account Holders in
accordance with regulations of the OTS.
Each Order Form will be preceded or accompanied by the Prospectus (if a
holding company form of organization is utilized) or the Offering Circular (if
the holding company form of organization is not utilized) describing the Holding
Company, if utilized, the BANK, 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
BANK, which date shall be not less than twenty (20), nor more than forty-five
(45) days, following the date on which the Order Forms are mailed by the BANK,
and which date will constitute the termination of the Subscription Offering;
B. The Subscription Price per share for shares of Conversion Stock to be
sold in the Subscription and Community Offerings;
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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 or Offering Circular, as the case may be, prior to
execution of the Order Form;
F. 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 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 BANK withdraw said amount from the subscriber's Savings Account at the
BANK) to the BANK;
G. A statement to the effect that the executed Order Form, once received
by the BANK, may not be modified or amended by the subscriber without the
consent of the BANK; and
H. A statement with respect to the residence of the subscriber.
Notwithstanding the above, the BANK and the Holding Company will not accept
orders received on photocopied or facsimilied order forms.
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17. UNDELIVERED, DEFECTIVE OR LATE ORDER FORMS: INSUFFICIENT PAYMENT
In the event Order Forms (a) are not delivered and are returned to the BANK
by the United States Postal Service or the BANK is unable to locate the
addressee, (b) are not received back by the BANK or are received by the BANK
after the expiration date specified thereon, (c) are defectively filled out or
executed, (d) are not accompanied by the full required payment, except 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 for the shares of Conversion
Stock subscribed for (including cases in which savings 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 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 BANK 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 BANK may specify. The interpretation of the BANK of terms and conditions of
the Plan and of the Order Forms will be final, subject to the authority of the
OTS.
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18. RESTRICTIONS ON RESALE OR SUBSEQUENT DISPOSITION
A. All shares of Conversion Stock purchased by Directors or Officers of
the BANK or the Holding Company in the Conversion shall be subject to the
restriction that, except as provided in Section 18B, below, or as may be
approved by the OTS, no interest in such shares may be sold or otherwise
disposed of for value for a period of one (1) 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 BANK or the Holding Company, as the case may be, which
has been approved by the OTS; and
(ii) Any disposition of such shares following the death of the
person to whom such shares were initially sold under the terms of the Plan.
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) Instructions shall be issued to the stock transfer agent for
the BANK or the Holding Company, as the case may be, not to recognize or effect
any transfer of any certificate or record of ownership of any such shares in
violation of the restriction on transfer; and
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(iii) Any shares of capital stock of the BANK or the Holding Company,
as the case may be, issued with respect to a stock dividend, stock split, or
otherwise with respect to ownership of outstanding shares of Conversion Stock
subject to the restriction on transfer hereunder shall be subject to the same
restriction as is applicable to such Conversion Stock.
19. VOTING RIGHTS OF STOCKHOLDERS
Upon conversion, the holders of the capital stock of the BANK shall have
the exclusive voting rights with respect to the BANK 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 BANK shall establish at the time of conversion a liquidation account in
an amount equal to its net worth as of the latest practicable date prior to
conversion ("Liquidation Account"). The liquidation account will be maintained
by the BANK for the benefit of the Eligible Account Holders and Supplemental
Eligible Account Holders who continue to maintain their Savings Accounts at the
BANK. Each Eligible Account Holder and Supplemental 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 at the Eligibility Record Date and/or Supplemental Eligibility Record
Date or to such balance as it may be subsequently reduced, as hereinafter
provided.
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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 and Supplemental 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, bulk purchase of assets with assumption of Savings
Accounts and other liabilities, or similar transactions with an FDIC-issued
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.
The initial subaccount balance for a Savings Account held by an Eligible
Account Holder and Supplemental Eligible Account Holder shall be determined by
multiplying the opening balance in the Liquidation Account by a fraction, the
numerator of which is the amount of such Eligible Account Holder's and/or
Supplemental Eligible Account Holder's Qualifying Deposit and the denominator of
which is the total amount of all Qualifying Deposits of all Eligible Account
Holders and Supplemental Eligible Account Holders in the BANK. Such initial
subaccount balance shall not be increased, but shall be subject to downward
adjustment as described below. For Savings Accounts in existence at both dates,
separate subaccounts shall be determined on the basis of the Qualifying Deposits
in such Savings Account on such record dates. Such initial subaccount balances
shall not be increased but shall be subject to downward adjustment as described
below.
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If, at the close of business on any annual closing date, commencing on or
after the effective date of Conversion, the deposit balance in the Savings
Account of an Eligible Account Holder or Supplemental Eligible Account Holder is
less than the lesser of (i) the balance in the Savings Account at the close of
business on any other annual closing date subsequent to the Eligibility Record
Date or Supplemental Eligibility Record Date, or (ii) the amount of the
Qualifying Deposit in such Savings Account, the subaccount balance for such
Savings Account shall be adjusted by reducing such subaccount balance in an
amount proportionate to the reduction in such deposit balance. In the event of
such downward adjustment, the subaccount balance shall not be subsequently
increased, notwithstanding any subsequent increase in the deposit balance of the
related Savings Account. If any such Savings Account is closed, the related
subaccount shall be reduced to zero.
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 BANK.
21. TRANSFER OF SAVINGS ACCOUNTS AND CONTINUITY OF THE BANK
Upon Conversion, each Savings Account Holder having a Savings Account at
the BANK prior to the Conversion will continue to have a Savings 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 the Conversion, the BANK will succeed to all the rights, interests,
duties and obligations of the BANK before the Conversion, including but not
limited to all rights and interests of the BANK in and to its assets and
properties, whether real, personal or mixed. The
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BANK will continue to be a member of the Federal Home Loan Bank System and all
its insured savings deposits will continue to be insured by the FDIC to the
extent provided by applicable law.
22. RESTRICTIONS ON ACQUISITION OF THE BANK AND HOLDING COMPANY
A. In accordance with OTS regulations, for a period of three years from
the date of consummation of the Conversion, no Person, other than the Holding
Company (if a holding company form of organization is utilized), shall directly
or indirectly offer to acquire or acquire the beneficial ownership of more than
10% of any class of an equity security of the BANK without the prior written
consent of the OTS.
B. 1. The charter of the BANK contains a provision stipulating that no
person, except the Holding Company (if a holding company form of organization is
utilized), for a period of five years following the 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 BANK, without the prior
written approval of the OTS. In addition, such charter may also provide that for
a period of five years following the Conversion, shares beneficially owned in
violation of the above-described charter 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
charter may only be called by the Board of Directors, and shareholders shall not
be permitted to cumulate their votes for the election of directors.
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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 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:
(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 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. (S) 78c(a)(10).
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23. PAYMENT OF DIVIDENDS AND REPURCHASE OF STOCK
The BANK 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 (i) the amount required for the Liquidation Account or (ii) the
federal regulatory capital requirement in Section 567.2 of the Rules and
Regulations of the OTS. Otherwise, the BANK may declare dividends, make capital
distributions or repurchase its capital stock 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 Members to vote on the Plan by a
two-thirds vote of the BANK's Board of Directors, and at any time thereafter by
such vote of such Board of Directors with the concurrence of the OTS. Any
amendment to the Plan made after approval by the Members with the approval of
the OTS shall not necessitate further approval by the Members unless otherwise
required by the OTS. The Plan may be terminated by majority vote of the BANK's
Board of Directors at any time prior to the Special Meeting of Members to vote
on the Plan, and at any time thereafter with the concurrence of the OTS.
By adoption of the Plan, the Members of the BANK authorize the Board of
Directors to amend or terminate the Plan under the circumstances set forth in
this Section.
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25. CHARTER AND BYLAWS
By voting to adopt the Plan, members of the BANK will be voting to adopt a
Federal Stock Savings Bank Charter and Bylaws for a Federal Stock Savings Bank
attached as Exhibits I and II to this Plan. The effective date of the BANK's
stock charter and bylaws shall be the date of issuance and sale of the
Conversion Stock as specified by the OTS.
26. CONSUMMATION OF CONVERSION
The Conversion of the BANK shall be deemed to take place and be effective
upon the completion of all requisite organizational procedures for obtaining a
Federal Stock Savings Bank Charter for the BANK and sale of all Conversion
Stock.
27. REGISTRATION AND MARKETING
Within the time period required by applicable laws and regulations, the
BANK 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 BANK or any holding company
of the BANK. In addition, the BANK or Holding Company, as the case may be, 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.
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28. RESIDENTS OF FOREIGN COUNTRIES AND CERTAIN STATES
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
shares of Conversion Stock pursuant to the Plan reside. However, no such 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 or in a state of the United States with respect to which both of
the following apply: A. a small number of Persons otherwise eligible to
subscribe for shares under the Plan reside in such state and; B. the issuance of
subscription rights or the offer or sale of shares of Conversion Stock to such
Persons would require the BANK or the Holding Company, as the case may be, under
the securities laws of such state, to register as a broker, dealer, salesman or
agent or to register or otherwise qualify its securities for sale in such state
and such registration or qualification would be impracticable for reasons of
cost or otherwise.
29. EXPENSES OF CONVERSION
The BANK shall use its best efforts to assure that expenses incurred by it
in connection with the Conversion shall be reasonable.
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30. CONDITIONS TO CONVERSION
The Conversion of the BANK pursuant to this Plan is expressly conditioned
upon the following:
(a) Prior receipt by the BANK of rulings of the United States Internal
Revenue Service and any applicable state taxing authority, or opinions of
counsel, 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
BANK 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 BANK
shall be final, subject to the authority of the OTS.
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EXHIBIT I
FEDERAL STOCK CHARTER
FOR
FIRST FEDERAL LINCOLN BANK
Section 1. Corporate Title.
The full corporate title of the institution is First Federal Lincoln Bank
(the "BANK").
Section 2. Office.
The home office shall be located in the City of Lincoln, in the County of
Lancaster, State of Nebraska.
Section 3. Duration.
The duration of the BANK is perpetual.
Section 4. Purpose and Powers.
The purpose of the BANK is to pursue any or all of the lawful objectives of
a Federal savings bank chartered under Section 5 of the Home Owners' Loan Act
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,
regulations, and orders of the Office of Thrift Supervision ("Office").
Section 5. Capital Stock.
The total number of shares of all classes of the capital stock which the
BANK has authority to issue is fifty million (50,000,000), of which forty-five
million (45,000,000) shall be common stock, par value $1.00 per share and of
which five million (5,000,000) shall be preferred stock, par value $1.00 per
share. The shares may be issued from time to time as authorized by the Board of
Directors without further approval of shareholders except as otherwise provided
in this Section 5 or to the extent that such approval is required by governing
law, rule, or regulation. The consideration for the issuance of the shares shall
be paid in full before their issuance and shall not be less than the par value.
Neither promissory notes nor future services shall constitute payment or part
payment for the issuance of shares of the BANK. The consideration for the shares
shall be cash, tangible or intangible property (to the extent direct investment
in such
<PAGE>
property would be permitted), labor or services actually performed for the BANK,
or any combination of the foregoing. In the absence of actual fraud in the
transaction, the value of such property, labor, or services, as determined by
the Board of Directors of the BANK, shall be conclusive. Upon payment of such
consideration, such shares shall be deemed to be fully paid and nonassessable.
In the case of a stock dividend, that part of the retained earnings of the BANK
that is transferred to common stock or paid-in capital accounts upon the
issuance of shares as a stock dividend shall be deemed to be the consideration
for their issuance.
Except for shares issued in the initial organization or in connection with
the conversion of the 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 BANK other than as part of a
general public offering or as qualifying shares to a director, unless their
issuance or the plan under which they would be issued has been approved by a
majority of the total votes eligible to be cast at a legal meeting.
Nothing contained in this Section 5 (or in any supplementary sections
hereto) shall entitle the holders of any class 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, unless the charter
otherwise provides that there shall be no such cumulative voting: Provided, That
--------
this restriction on voting separately by class or series shall not apply:
(i) To any provision 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 that would require the holders of preferred stock,
voting as a class or series, to approve the merger or consolidation
of the BANK with another corporation or the sale, lease, or
conveyance (other than by mortgage or pledge) of properties or
business in exchange for securities of a corporation other than the
BANK if the preferred stock is exchanged for securities of such other
corporation: Provided, That no provision may require such approval
--------
for transactions undertaken with the assistance or pursuant to the
direction of the Office or the Federal Deposit Insurance Corporation;
(iii) To any amendment which would adversely change the specific terms of
any class or series of capital stock as set forth in this Section 5
(or in any supplementary sections hereto), including any amendment
which would create or enlarge any class or series ranking prior
thereto in rights and preferences. An amendment which increases the
number of authorized shares of any class or series of capital stock,
or substitutes the surviving BANK in a merger or consolidation for
the BANK, shall not be considered to be such an adverse change.
2
<PAGE>
A description of the different classes and series (if any) of the BANK's
capital stock and a statement of the designations, and the relative rights,
preferences, and limitations of the shares of each class of and series (if any)
of capital stock are as follows:
A. Common Stock. Except as provided in this Section 5 (or in any
------------
supplementary sections 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 each
holder, except as to the cumulation of votes for the election of
directors, unless the charter otherwise provides that there shall be
no such cumulative voting.
Whenever there shall have been paid, or declared and set aside for
payment, to the holders of the outstanding shares of any class of
stock having preference over the common stock as to the payment of
dividends, the full amount of dividends and of sinking fund, 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
BANK, the holders of the common stock (and the holders of any class
or series of stock entitled to participate with the common stock in
the distribution of assets) shall be entitled to receive, in cash or
in kind, the assets of the BANK available for distribution remaining
after: (i) payment or provision for payment of the BANK's debts and
liabilities; (ii) distributions or provision for distributions in
settlement of its liquidation account; and (iii) distributions or
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 BANK. Each share of common stock
shall have the same relative rights as and be identical in all
respects with all the other shares of common stock.
B. Preferred Stock. The BANK may provide in supplementary sections to
---------------
its charter for one or more classes of preferred stock, which shall
be separately identified. The shares of any class may be divided into
and issued in series, with each series separately designated so as to
distinguish the shares thereof from the shares of all other series
and classes. The terms of each series shall be set forth in a
supplementary section to the charter. All shares of the same class
shall be identical except as to the following relative rights and
preferences, as to which there may be variations between different
series:
(a) The distinctive serial designation and the number of shares
constituting such series;
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<PAGE>
(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 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 BANK and, if so, the conversion price(s) or the
rate(s) of exchange, and the adjustments thereof, if any, at
which such conversion or exchange may be made, and any other
terms and conditions of such conversion or exchange;
(h) The price or other consideration for which the shares of such
series shall be issued; and
(i) Whether the shares of such series which are redeemed or
converted shall have the status of authorized but unissued
shares of serial preferred stock and whether such shares may
be reissued as shares of the same or any other series of
serial preferred stock.
Each share of each series of serial preferred stock shall have the same
relative rights as and be identical in all respects with all the other shares of
the same series.
The Board of Directors shall have authority to divide, by the adoption of
supplementary charter sections, any authorized class of preferred stock into
series, and, within the limitations set forth in this section and the remainder
of this charter, fix and determine the relative rights and preferences of the
shares of any series so established.
4
<PAGE>
Prior to the issuance of any preferred shares of a series established by a
supplementary charter section adopted by the Board of Directors, the BANK shall
file with the Secretary of the Office a dated copy of that supplementary section
of this charter establishing and designating the series and fixing and
determining the relative rights and preferences thereof.
Section 6. Preemptive Rights.
Holders of the capital stock of the BANK shall not be entitled to
preemptive rights with respect to any shares of the BANK which may be issued.
Section 7. Liquidation Account.
Pursuant to the requirements of the Office's regulations (12 C.F.R.
563b.3), the BANK shall establish and maintain a liquidation account for the
benefit of its savings account holders as of June 30, 1996 and
[_________________] ("eligible savers"). In the event of a complete liquidation
of the BANK, it shall comply with such regulations with respect to the amount
and the priorities on liquidation of each of the BANK's eligible saver's
inchoate interest in the liquidation account, to the extent it is still in
existence: provided, that an eligible saver's inchoate interest in the
liquidation account shall not entitle such eligible saver to any voting rights
at meetings of the BANK's shareholders.
Section 8. Certain Provisions Applicable for Five Years.
Notwithstanding anything contained in the BANK's charter or bylaws to the
contrary, for a period of five years from the date of consummation of the
conversion of the BANK from mutual to stock form, the following provisions shall
apply:
A. Beneficial Ownership Limitation. No person shall directly or
-------------------------------
indirectly offer to acquire or acquire the beneficial ownership of
more than 10 percent of any class of any equity security of the BANK.
This limitation shall not apply to a transaction in which the BANK
forms a holding company in conjunction with conversion, or
thereafter, if such formation is without change in the respective
beneficial ownership interests of the BANK's shareholders other than
pursuant to the exercise of any dissenter and appraisal rights, the
purchase of shares by underwriters in connection with a public
offering, or the purchase of shares by a tax-qualified employee stock
benefit plan which is exempt from the approval requirements under
Section 574.3(c)(1)(vi) of the Office Regulations.
In the event shares are acquired in violation of this Section 8, all
shares beneficially owned by any person in excess of 10 percent shall
be considered "excess shares" and shall not be counted as shares
entitled to vote and shall not be
5
<PAGE>
voted by any person or counted as voting shares in connection with
any matters submitted to the shareholders for a vote.
For the purposes of this Section 8, the following definitions apply:
(i) 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 for the
purpose of acquiring, holding or disposing of the equity
securities of the BANK.
(ii) 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.
(iii) The term "acquire" includes every type of acquisition, whether
effected by purchase, exchange, operation of law or otherwise.
(iv) The term "acting in concert" means (a) knowing participation
in a joint activity or conscious parallel action towards a
common goal whether or not pursuant to an express agreement,
or (b) a combination or pooling of voting or other interests
in the securities of an issuer for a common purpose pursuant
to any contract, understanding, relationship, agreement or
other arrangement, whether written or otherwise.
B. Cumulative Voting Limitation. Shareholders shall not be permitted to
cumulate their votes for the election of directors.
C. Call for Special Meetings. Special meetings of shareholders relating
to changes in control of the BANK or amendments to its charter shall
be called only at the direction of the Board of Directors.
Section 9. Directors.
The BANK shall be under the direction of a Board of Directors. The
authorized number of directors, as stated in the BANK's bylaws, shall be not be
less than five nor more than 15 except when a greater number is approved by the
Office or his or her delegate.
Section 10. Amendment of Charter.
Except as provided in Section 5, no amendment, addition, alteration,
change, or repeal of this charter shall be made, unless such is proposed by the
Board of Directors of the BANK,
6
<PAGE>
approved by the shareholders by a majority of the votes eligible at a legal
meeting unless a higher vote is otherwise required, and approved or preapproved
by the Office.
As adopted by the BANK's members on _________________, to be effective on
the date the BANK converts from mutual to stock form of organization.
FIRST FEDERAL LINCOLN BANK
Attest:_____________________________ By: ________________________________
Patricia A. Young, Secretary Gilbert G. Lundstrom
First Federal Lincoln Bank President and Chief Executive Officer
OFFICE OF THRIFT SUPERVISION
Attest:_____________________________ By: ________________________________
Secretary to the Office Director
Declared effective on
the _____ day of __________, 199_
7
<PAGE>
EXHIBIT II
BYLAWS OF
FIRST FEDERAL LINCOLN BANK
ARTICLE I. HOME OFFICE
The home office of First Federal Lincoln Bank ("BANK") is 13/th/ & "N"
Streets, Lincoln, Nebraska 68508.
ARTICLE II. SHAREHOLDERS
Section l. Place of Meetings. All annual and special meetings of
-----------------------------
shareholders shall be held at the home office of the BANK or at such other place
in the State in which the principal place of business of the BANK is located as
the board of directors may determine.
Section 2. Annual Meeting. A meeting of the shareholders of the BANK for
--------------------------
the election of directors and for the transaction of any other business of the
BANK shall be held annually within 120 days after the end of the BANK's fiscal
year as the board of directors may determine.
Section 3. Special Meetings. For a period of five years from the date of
----------------------------
the completion of the conversion of the BANK from mutual to stock form, special
meetings of the shareholders relating to a change in control of the BANK or to
an amendment of the Charter of the 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 Office of Thrift
Supervision ("OTS"), 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 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 BANK addressed to the chairman of the board, the president or the
secretary.
Section 4. Conduct of Meetings. Annual and special meetings shall be
-------------------------------
conducted in accordance with the most current edition of Robert's Rules of Order
unless otherwise prescribed by regulations of the OTS or these bylaws. The
board of directors shall designate, when present, either the chairman of the
board or president to preside at such meetings.
Section 5. Notice of Meetings. Written notice stating the place, day and
------------------------------
hour of the meeting and the purpose(s) for which the meeting is called shall be
delivered not fewer than 20 nor more than 50 days before the date of the
meeting, either personally or by mail, by or at the direction of the chairman of
the board, the president, the secretary, or the directors calling the meeting,
to each shareholder of record entitled to vote at such meeting. If mailed, such
notice shall be deemed to be delivered when deposited in the mail, addressed to
the shareholder at the address as it appears on the
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<PAGE>
stock transfer books or records of the BANK as of the record date prescribed in
Section 6 of this Article II, with postage prepaid. When any shareholders'
meeting, either annual or special, is adjourned for 30 days or more, notice of
the adjourned meeting shall be given as in the case of an original meeting. It
shall not be necessary to give any notice of the time and place of any meeting
adjourned for less than 30 days or of the business to be transacted at the
meeting, other than an announcement at the meeting at which such adjournment is
taken.
Section 6. Fixing of Record Date. For the purpose of determining
---------------------------------
shareholders entitled to notice of or to vote at any meeting of shareholders or
any adjournment, or shareholders entitled to receive payment of any dividend, or
in order to make a determination of shareholders for any other proper purpose,
the board of directors shall fix in advance a date as the record date for any
such determination of shareholders. Such date in any case shall be not more
than 60 days and, in case of a meeting of shareholders, not fewer than 10 days
prior to the date on which the particular action, requiring such determination
of shareholders, is to be taken. When a determination of shareholders entitled
to vote at any meeting of shareholders has been made as provided in this
section, such determination shall apply to any adjournment.
Section 7. Voting Lists. At least 20 days before each meeting of the
------------------------
shareholders, the officer or agent having charge of the stock transfer books for
shares of the BANK shall make a complete list of the shareholders entitled to
vote at such meeting, or any adjournment, arranged in alphabetical order, with
the address and the number of shares held by each. This list of shareholders
shall be kept on file at the home office of the BANK and shall be subject to
inspection by any shareholder at any time during usual business hours, for a
period of 20 days prior to such meeting. Such list shall also be produced and
kept open at the time and place of the meeting and shall be subject to 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 in (S)552.6(d) of the OTS's
Regulations as now or hereafter in effect.
Section 8. Quorum. A majority of the outstanding shares of the BANK
------------------
entitled to vote, represented in person or by proxy, shall constitute a quorum
at a meeting of shareholders. If less than a majority of the outstanding shares
is represented at a meeting, a majority of the shares so represented may adjourn
the meeting from time to time without further notice. At such adjourned meeting
at which a quorum shall be present or represented, any business may be
transacted which might have been transacted at the meeting as originally
notified. The shareholders present at a duly organized meeting may continue to
transact business until adjournment, notwithstanding the withdrawal of enough
shareholders to constitute less than a quorum.
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<PAGE>
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. Proxies solicited on behalf of the management shall be voted
as directed by the shareholder or, in the absence of such direction, as
determined by a majority of the board of directors. No proxy shall be valid
more than eleven months from the date of its execution except for a proxy
coupled with an interest.
Section 10. Voting of Shares in the Name of Two or More Persons. When
---------------------------------------------------------------
ownership stands in the name of two or more persons, in the absence of written
directions to the BANK to the contrary, at any meeting of the shareholders of
the BANK any one or more of such shareholders may cast, in person or by proxy,
all votes to which such ownership is entitled. In the event an attempt is made
to cast conflicting votes, in person or by proxy, by the several persons in
whose names shares of stock stand, the vote or votes to which those persons are
entitled shall be cast as directed by a majority of those holding such 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.
Neither treasury shares of its own stock held by the BANK, nor shares held
by another corporation, if a majority of the shares entitled to vote for the
election of directors of such other corporation are held by the BANK, shall be
voted at any meeting or counted in determining the total number of outstanding
shares at any given time for purposes of any meeting.
Section 12. Cumulative Voting. Except as otherwise provided in the BANK's
-----------------------------
charter, every shareholder entitled to vote at an election for directors shall
have the right to vote, in person or by proxy, the number of shares owned by the
shareholder for as many persons as there are directors to be elected and for
whose election the shareholder has a right to vote, or to cumulate the votes by
giving one candidate as many votes as the number of such directors to be elected
multiplied by the number of shares shall equal or by distributing such votes on
the same principle among any number of candidates.
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<PAGE>
Section 13. Inspectors of Election. In advance of any meeting of
----------------------------------
shareholders, the board of directors may appoint any persons other than nominees
for office as inspectors of election to act at such meeting or any adjournment.
The number of inspectors shall be either one or three. Any such appointment
shall not be altered at the meeting. If inspectors of election are not so
appointed, the chairman of the board or the president may, or on the request of
not fewer than 10 percent of the votes represented at the meeting shall, make
such appointment at the meeting. If appointed at the meeting, the majority of
the votes present shall determine whether one or three inspectors are to be
appointed. In case any person appointed as inspector fails to appear or fails
or refuses to act, the vacancy may be filled by appointment by the board of
directors in advance of the meeting, or at the meeting by the chairman of the
board or the president.
Unless otherwise prescribed by regulations of the OTS, the duties of such
inspectors shall include: determining the number of shares and the voting power
of each share, the shares represented at the meeting, the existence of a quorum,
and the authenticity, validity and effect of proxies; receiving votes, ballots,
or consents; hearing and determining all challenges and questions in any way
arising in connection with the rights to vote; counting and tabulating all votes
or consents; determining the result; and such acts as may be proper to conduct
the election or vote with fairness to all shareholders.
Section 14. Nominating Committee. The board of directors shall act as a
--------------------------------
nominating committee for selecting the management nominees for election as
directors. Except in the case of a nominee substituted as a result of the death
or other incapacity of a management nominee, the nominating committee shall
deliver written nominations to the secretary at least 20 days prior to the date
of the annual meeting. Upon delivery, such nominations shall be posted in a
conspicuous place in each office of the BANK. No nominations for directors
except those made by the nominating committee shall be voted upon at the annual
meeting unless other nominations by shareholders are made in writing and
delivered to the secretary of the BANK at least five days prior to the date of
the annual meeting. Upon delivery, such nominations shall be posted in a
conspicuous place in each office of the BANK. Ballots bearing the names of all
persons nominated by the nominating committee and by shareholders shall be
provided for use at the annual meeting. However, if the nominating committee
shall fail or refuse to act at least 20 days prior to the annual meeting,
nominations for directors may be made at the annual meeting by any shareholder
entitled to vote and shall be voted upon.
Section 15. New Business. Any new business to be taken up at the annual
------------------------
meeting shall be stated in writing and filed with the secretary of the BANK at
least 5 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
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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 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 five
---------------------------
(5) 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 BANK unless
the BANK is a wholly owned subsidiary of a holding company.
Section 5. Special Meetings. Special meetings of the board of directors
----------------------------
may be called by or at the request of the chairman of the board, the president
or one-third of the directors. The persons authorized to call special meetings
of the board of directors may fix any place, within the BANK's normal lending
territory, as the place for holding any special meeting of the board of
directors called by such persons.
Members of the board of directors may participate in special meetings by
means of conference telephone, or by means of similar communications equipment
by which all persons participating in the meeting can hear each other. Such
participation shall constitute presence in person but shall not constitute
attendance for the purpose of compensation pursuant to Section 12 of this
Article.
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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 regulation of the OTS 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 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.
Section 12. Compensation. Directors, as such, may receive a stated salary
------------------------
for their services. By resolution of the board of directors, a reasonable fixed
sum, and reasonable expenses of attendance, if any, may be allowed for actual
attendance at each regular or special meeting of the
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board of directors. Members of either standing or special committees may be
allowed such compensation for actual attendance at committee meetings as the
board of directors may determine.
Section 13. Presumption of Assent. A director of the BANK who is present
---------------------------------
at a meeting of the board of directors at which action on any BANK matter is
taken shall be presumed to have assented to the action taken unless his 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 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 Charter or supplemental
sections thereto, the provisions of this section shall apply, in respect to the
removal of a director or directors so elected, to the vote of the holders of the
outstanding shares of that class and not to the vote of the outstanding shares
as a whole.
ARTICLE IV. EXECUTIVE AND OTHER COMMITTEES
Section l. Appointment. The board of directors, by resolution adopted by
-----------------------
a majority of the full board, may designate the chief executive officer and two
or more of the other directors to constitute an executive committee. The
designation of any committee pursuant to this Article IV and the delegation of
authority shall not operate to relieve the board of directors, or any director,
of any responsibility imposed by law or regulation.
Section 2. Authority. The executive committee, when the board of
---------------------
directors is not in session, shall have and may exercise all of the authority of
the board of directors except to the extent, if any, that such authority shall
be limited by the resolution appointing the executive committee; and except also
that the executive committee shall not have the authority of the board of
directors with reference to: the declaration of dividends; the amendment of the
Charter or bylaws of the BANK, or recommending to the shareholders a plan of
merger, consolidation, or conversion; the sale, lease or other disposition of
all or substantially all of the property and assets of the BANK otherwise than
in the usual and regular course of its business; a voluntary dissolution of the
BANK; a revocation of any of the foregoing; or the approval of a transaction in
which any member of the executive committee, directly or indirectly, has any
material beneficial interest.
Section 3. Tenure. Subject to the provisions of Section 8 of this Article
------------------
IV, each member of the executive committee shall hold office until the next
regular annual meeting of the board of directors following his or her
designation and until a successor is designated as a member of the executive
committee.
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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 BANK. Unless otherwise specified,
such resignation shall take effect upon its receipt; the acceptance of such
resignation shall not be necessary to make it effective.
Section 9. Procedure. The executive committee shall elect a presiding
---------------------
officer from its members and may fix its own rules of procedure which shall not
be inconsistent with these bylaws. It shall keep regular minutes of its
proceedings and report the same to the board of directors for its information at
the meeting held next after the proceedings shall have occurred.
Section 10. Other Committees. The board of directors may by resolution
----------------------------
establish an audit, loan, or other committees composed of directors as they may
determine to be necessary or appropriate for the conduct of the business of the
BANK and may prescribe the duties, constitution and procedures thereof.
ARTICLE V. OFFICERS
Section l. Positions. The officers of the BANK shall be a president, one
---------------------
or more vice presidents, a secretary and a treasurer, each of whom shall be
elected by the board of directors. The board of directors may also designate
the chairman of the board as an officer. The president may also be designated
by the board of directors as the chief executive officer. The president shall
be a
8
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director of the BANK. The offices of the secretary and treasurer may be held by
the same person and a vice president may also be either the secretary or the
treasurer. The board of directors may designate one or more vice presidents as
executive vice president or senior vice president. The board of directors may
also elect or authorize the appointment of such other officers as the business
of the BANK may require. The officers shall have such authority and perform such
duties as the board of directors may from time to time authorize or determine.
In the absence of action by the board of directors, the officers shall have such
powers and duties as generally pertain to their respective offices.
Section 2. Election and Term of Office. The officers of the BANK shall be
---------------------------------------
elected annually at the first meeting of the board of directors held after each
annual meeting of the shareholders. If the election of officers is not held at
such meeting, such election shall be held as soon thereafter as possible. Each
officer shall hold office until a successor has been duly elected and qualified
or until the officer's death, resignation or removal in the manner hereinafter
provided. Election or appointment of an officer, employee or agent shall not of
itself create contractual rights. The board of directors may authorize the BANK
to enter into an employment contract with any officer in accordance with
regulations of the OTS; but no such contract shall impair the right of the board
of directors to remove any officer at any time in accordance with Section 3 of
this Article V.
Section 3. Removal. Any officer may be removed by the board of directors
-------------------
whenever in its judgment the best interests of the BANK will be served thereby,
but such removal, other than for cause, shall be without prejudice to the
contractual rights, if any, of the person so removed.
Section 4. Vacancies. A vacancy in any office because of death,
---------------------
resignation, removal, disqualification or otherwise, may be filled by the board
of directors for the unexpired portion of the term.
Section 5. Remuneration. The remuneration of the officers shall be fixed
------------------------
from time to time by the board of directors.
ARTICLE VI. CONTRACTS, LOANS, CHECKS AND DEPOSITS
Section l. Contracts. To the extent permitted by regulations of the OTS,
---------------------
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 BANK to enter into any contract or execute and deliver any instrument in
the name of and on behalf of the BANK. Such authority may be general or
confined to specific instances.
Section 2. Loans. No loans shall be contracted on behalf of the BANK and
-----------------
no evidence of indebtedness shall be issued in its name unless authorized by the
board of directors. Such authority may be general or confined to specific
instances.
9
<PAGE>
Section 3. Checks, Drafts, Etc. All checks, drafts or other orders for
--------------------------------
the payment of money, notes or other evidences of indebtedness issued in the
name of the BANK shall be signed by one or more officers, employees or agents of
the BANK in such manner as shall from time to time be determined by the board of
directors.
Section 4. Deposits. All funds of the BANK not otherwise employed shall
--------------------
be deposited from time to time to the credit of the BANK in any duly authorized
depositories as the board of directors may select.
ARTICLE VII. CERTIFICATES FOR SHARES
AND THEIR TRANSFER
Section l. Certificates for Shares. Certificates representing shares of
-----------------------------------
capital stock of the BANK shall be in such form as shall be determined by the
board of directors and approved by the OTS. Such certificates shall be signed
by the chief executive officer or by any other officer of the BANK authorized by
the board of directors, attested by the secretary or an assistant secretary, and
sealed with the corporate seal or a facsimile thereof. The signatures of such
officers upon a certificate may be facsimiles if the certificate is manually
signed on behalf of a transfer agent or a registrar, other than the BANK itself
or one of its employees. Each certificate for shares of capital stock shall be
consecutively numbered or otherwise identified. The name and address of the
person to whom the shares are issued, with the number of shares and date of
issue, shall be entered on the stock transfer books of the BANK. All
certificates surrendered to the BANK for transfer shall be 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 BANK as the board of directors may prescribe.
Section 2. Transfer of Shares. Transfer of shares of capital stock of the
------------------------------
BANK shall be made only on its stock transfer books. Authority for such
transfer shall be given only by the holder of record or by his 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
BANK. Such transfer shall be made only on surrender for cancellation of the
certificate for such shares. The person in whose name shares of capital stock
stand on the books of the BANK shall be deemed by the BANK to be the owner for
all purposes.
ARTICLE VIII. FISCAL YEAR; ANNUAL AUDIT
The fiscal year of the BANK shall end on June 30 of each year. The BANK
shall be subject to an annual audit as of the end of its fiscal year by
independent public accountants appointed by and responsible to the board of
directors. The appointment of such accountants shall be subject to annual
ratification by the shareholders.
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<PAGE>
ARTICLE IX. DIVIDENDS
Subject to the terms of the BANK's Charter and the regulations and orders
of the OTS, the board of directors may, from time to time, declare, and the BANK
may pay, dividends on its outstanding shares of capital stock.
ARTICLE X. CORPORATE SEAL
The board of directors shall provide a BANK seal, which shall be two
concentric circles between which shall be the name of the BANK. The year of
incorporation or an emblem may appear in the center.
ARTICLE XI. AMENDMENTS
These bylaws may be amended in a manner consistent with regulations of the
OTS at any time by a majority vote of the full board of directors, or by a
majority vote of the votes cast by the shareholders of the BANK at any legal
meeting.
11
<PAGE>
Exhibit 3.1
CERTIFICATE OF INCORPORATION
OF
FIRST LINCOLN BANCSHARES INC.
FIRST: Corporate Title. The name of the Corporation is First Lincoln
-----
Bancshares Inc. (hereinafter sometimes referred to as the "Corporation").
SECOND: Registered Office. 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: Purpose. 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: Capital Stock.
------
A. Authorized Shares. The total number of shares of all classes of
stock which the Corporation shall have authority to issue is 70 million
(70,000,000) consisting of:
1. 10 million (10,000,000) shares of Preferred Stock, par value
one cent ($.01) per share (the "Preferred Stock"); and
2. 60 million (60,000,000) shares of Common Stock, par value
one cent ($.01) per share (the "Common Stock").
B. Preferred Stock. 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.
<PAGE>
C. Limitation of Rights.
1. Notwithstanding any other provision of this Certificate of
Incorporation, in no event shall any record owner of any
outstanding Common Stock which is beneficially owned,
directly or indirectly, by a person who, as of any record
date for the determination of stockholders entitled to vote
on any matter, beneficially owns in excess of 10% of the
then-outstanding shares of Common Stock (the "Limit"), be
entitled, or permitted to any vote in respect of the shares
held in excess of the Limit. The number of votes which may
be cast 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
<PAGE>
(2) which such person or any of its affiliates has:
(i) the right to acquire (whether such right is
exercisable immediately or only after the passage
of time), pursuant to any agreement, arrangement
or understanding (but shall not be deemed to be
the beneficial owner of any voting shares solely
by reason of an agreement, contract, or other
arrangement with this Corporation to effect any
transaction which is described in any one or more
of clauses 1 through 5 of Section A of Article
EIGHTH 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
3
<PAGE>
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 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
4
<PAGE>
with complete information as to: (i) the record owner(s) of
all shares beneficially owned by such person who is
reasonably believed to own shares in excess of the Limit;
and (ii) any other factual matter relating to the
applicability or effect of this section as may reasonably be
requested of such person.
5. Except as otherwise provided by law or expressly provided in
this Section C, the presence, in person or by proxy, of the
holders of record of shares of capital stock of the
Corporation entitling the holders thereof to cast a majority
of the votes (after giving effect, if required, to the
provisions of this Section C) entitled to be cast by the
holders of shares of capital stock of the Corporation
entitled to vote shall constitute a quorum at all meetings
of the stockholders, and every reference in this Certificate
of Incorporation to a majority or other proportion of
capital stock (or the holders thereof) for purposes of
determining any quorum requirement or any requirement for
stockholder consent or approval shall be deemed to refer to
such majority or other proportion of the votes (or the
holders thereof) then entitled to be cast in respect of such
capital stock.
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: Directors. 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:
5
<PAGE>
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).
SIXTH: Election of Directors.
-----
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
6
<PAGE>
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: Bylaws. 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 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: Certain Business Combinations.
------
A. Higher Vote Required for Certain Business Combinations. 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
7
<PAGE>
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
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. When Higher Vote is Not Required. The provisions of Section A of
this Article EIGHTH shall not be applicable to any particular Business
Combination, and such
8
<PAGE>
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
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
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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 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.
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<PAGE>
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. Certain Definitions. 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
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<PAGE>
term "Subsidiary" shall mean only a corporation of which a
majority of each class of equity security is owned, directly
or indirectly, by the Corporation.
6. "Disinterested Director" means any member of the Board of
Directors who is unaffiliated with the Interested
Stockholder and was a member of the Board of Directors prior
to the time that the Interested Stockholder became an
Interested Stockholder, and any Director who is thereafter
chosen to fill any vacancy of the Board of Directors or who
is elected and who, in either event, is unaffiliated with
the Interested Stockholder and in connection with his or her
initial assumption of office is recommended for appointment
or election by a majority of Disinterested Directors then on
the Board of Directors.
7. "Fair Market Value" means:
a. in the case of stock, the highest closing sales price
of the stock during the 30-day period immediately
preceding the date in question of a share of such stock
on the National Association of Securities Dealers
Automated Quotation System or any system then in use,
or, if such stock is admitted to trading on a principal
United States securities exchange registered under the
Securities Exchange Act of 1934, as amended, Fair
Market Value shall be the highest sale price reported
during the 30-day period preceding the date in
question, or, if no such quotations are available, the
Fair Market Value on the date in question of a share of
such stock as determined by the Board of Directors in
good faith, in each case with respect to any class of
stock, appropriately adjusted for any dividend or
distribution in shares of such stock or any stock split
or reclassification of outstanding shares of such stock
into a greater number of shares of such stock or any
combination or reclassification of outstanding shares
of such stock into a smaller number of shares of such
stock; and
b. in the case of property other than cash or stock, the
Fair Market Value of such property on the date in
question as determined by the Board of Directors in
good faith.
8. Reference to "Highest Per Share Price" shall in each case
with respect to any class of stock reflect an appropriate
adjustment for any dividend or distribution in shares of
such stock or any stock split or reclassification of
outstanding shares of such stock into a greater
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<PAGE>
number of shares of such stock or any combination or
reclassification of outstanding shares of such stock into a
smaller number of shares of such stock.
9. In the event of any Business Combination in which the
Corporation survives, the phrase "consideration other than
cash to be received" as used in Subparagraphs (a) and (b) of
Paragraph 2 of Section B of this Article EIGHTH shall
include the shares of Common Stock and/or the shares of any
other class of outstanding Voting Stock retained by the
holders of such shares.
D. A majority of the 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: Certain Determinations. 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
14
<PAGE>
in a change or potential change in the control of the subsidiary, and the
social and economic effect of acceptance of such offer: on the Corporation's
present and future customers and employees and those of its Subsidiaries (as
defined in Article EIGHTH hereof); on the communities in which the Corporation
and its Subsidiaries operate or are located; on the ability of the Corporation
to fulfill its corporate objective as a savings and loan holding company under
applicable laws and regulations; and on the ability of its subsidiary savings
bank to fulfill the objectives of a stock form savings bank under applicable
statutes and regulations.
TENTH: Indemnification.
-----
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 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
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<PAGE>
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.
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<PAGE>
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: Limitations of Director's Liability. 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: Amendment of Certificate. 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: Incorporator. The name and mailing address of the sole
----------
incorporator are as follows:
Name Mailing Address
---- --------------------------------
Siobain Perkins Morris, Nichols, Arsht & Tunnell
1201 North Market Street
P.O. Box 1347
Wilmington, Delaware 19899-1347
17
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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 19th day of November,
1997.
/s/ Siobain Perkins
--------------------
Siobain Perkins
Incorporator
18
<PAGE>
Exhibit 3.2
FIRST LINCOLN BANCSHARES INC.
BYLAWS
ARTICLE I - MEETINGS OF STOCKHOLDERS
Section 1. Annual Meeting.
--------- --------------
An annual meeting of the stockholders, for the election of Directors to
succeed those whose terms expire and for the transaction of such other business
as may properly come before the meeting, shall be held at such place, on such
date, and at such time as the Board of Directors shall each year fix, which date
shall be within thirteen (13) months subsequent to the later of the date of
incorporation or the last annual meeting of stockholders.
Section 2. Special Meetings.
--------- ----------------
Subject to the rights of the holders of any class or series of preferred
stock of the Corporation, special meetings of stockholders of the Corporation
may be called only by the Board of Directors pursuant to a resolution adopted by
a majority of the total number of Directors which the Corporation would have if
there were no vacancies on the Board of Directors (hereinafter the "Whole
Board").
Section 3. Notice of Meetings.
--------- ------------------
Written notice of the place, date, and time of all meetings of the
stockholders shall be given, not less than ten (10) nor more than sixty (60)
days before the date on which the meeting is to be held, to each stockholder
entitled to vote at such meeting, except as otherwise provided herein or
required by law (meaning, here and hereinafter, as required from time to time by
the Delaware General Corporation Law or the Certificate of Incorporation of the
Corporation).
When a meeting is adjourned to another place, date or time, written notice
need not be given of the adjourned meeting if the place, date and time thereof
are announced at the meeting at which the adjournment is taken; provided,
however, that if the date of any adjourned meeting is more than thirty (30) days
after the date for which the meeting was originally noticed, or if a new record
date is fixed for the adjourned meeting, written notice of the place, date, and
time of the adjourned meeting shall be given in conformity herewith. At any
adjourned meeting, any business may be transacted which might have been
transacted at the original meeting.
Section 4. Quorum.
--------- ------
At any meeting of the stockholders, the holders of a majority of all of the
shares of the stock entitled to vote at the meeting, present in person or by
proxy (after giving effect to the provisions of Article FOURTH of the
Corporation's Certificate of Incorporation), shall constitute a quorum for all
purposes, unless or except to the extent that the presence of a larger number
may be required by law. Where a separate vote by a class or classes is
required, a majority of the shares of such class
<PAGE>
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, the
President 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 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
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<PAGE>
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 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
3
<PAGE>
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.
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
4
<PAGE>
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 five.
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
been duly elected and qualified. No decrease in the number of authorized
directors constituting the Board shall shorten the term of any incumbent
Director.
5
<PAGE>
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.
6
<PAGE>
Section 8. Powers.
--------- ------
The Board of Directors may, except as otherwise required by law, exercise
all such powers and do all such acts and things as may be exercised or done by
the Corporation, including, without limiting the generality of the foregoing,
the unqualified power:
(1) To declare dividends from time to time in accordance with law;
(2) To purchase or otherwise acquire any property, rights or
privileges on such terms as it shall determine;
(3) To authorize the creation, making and issuance, in such form as
it may determine, of written obligations of every kind, negotiable or non-
negotiable, secured or unsecured, and to do all things necessary in
connection therewith;
(4) To remove any Officer of the Corporation with or without cause,
and from time to time to devolve the powers and duties of any Officer upon
any other person for the time being;
(5) To confer upon any Officer of the Corporation the power to
appoint, remove and suspend subordinate Officers, employees and agents;
(6) To adopt from time to time such stock, option, stock purchase,
bonus or other compensation plans for Directors, Officers, employees and
agents of the Corporation and its subsidiaries as it may determine;
(7) To adopt from time to time such insurance, retirement, and other
benefit plans for Directors, Officers, employees and agents of the
Corporation and its subsidiaries as it may determine;
(8) To adopt from time to time regulations, not inconsistent with
these Bylaws, for the management of the Corporation's business and affairs;
and
(9) To fix the Compensation of officers and employees of the
Corporation and its subsidiaries as it may determine.
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.
7
<PAGE>
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 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.
8
<PAGE>
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.
(c) All Officers chosen by the Board of Directors shall have such
powers and duties as generally pertain to their respective Offices, subject to
the specific provisions of this ARTICLE IV. Such officers shall also have such
powers and duties as from time to time may be conferred by the Board of
Directors or by any committee thereof.
Section 2. Chairman of the Board of Directors.
--------- ----------------------------------
The Chairman of the Board shall, subject to the provisions of these Bylaws
and to the direction of the Board of Directors, serve in a general executive
capacity and when present shall preside at all meetings of the stockholders of
the Corporation. The Chairman of the Board shall perform such duties designated
to him by the Board of Directors and which are delegated to him or her by the
Board of Directors by resolution of the Board of Directors.
Section 3. President and Chief Executive Officer.
--------- -------------------------------------
The President and Chief Executive Officer 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 office 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
9
<PAGE>
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 or the
President. A Vice President or Vice Presidents may be designated as Executive
Vice President or Senior Vice President.
Section 5. Secretary.
--------- ---------
The Secretary or Assistant Secretary shall issue notices of meetings, shall
keep their minutes, shall have charge of the seal and the corporate books, shall
perform such other duties and exercise such other powers as are usually incident
to such office and/or such other duties and powers as are properly assigned
thereto by the Board of Directors 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 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.
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.
12
<PAGE>
ARTICLE VII - MISCELLANEOUS
Section 1. Facsimile Signatures.
--------- --------------------
In addition to the provisions for use of facsimile signatures elsewhere
specifically authorized in these Bylaws, facsimile signatures of any officer or
officers of the Corporation may be used whenever and as authorized by the Board
of Directors or a committee thereof.
Section 2. Corporate Seal.
--------- --------------
The Board of Directors may provide a suitable seal, containing the name of
the Corporation, which seal shall be in the charge of the Secretary. If and
when so directed by the Board of Directors or a committee thereof, duplicates of
the seal may be kept and used by the Treasurer or by an Assistant Secretary or
an assistant to the Treasurer.
Section 3. Reliance Upon Books, Reports and Records.
--------- ----------------------------------------
Each Director, each member of any committee designated by the Board of
Directors, and each Officer of the Corporation shall, in the performance of his
or her duties, be fully protected in relying in good faith upon the books of
account or other records of the Corporation and upon such information, opinions,
reports or statements presented to the Corporation by any of its Officers or
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.
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
13
<PAGE>
stockholders provided notice of the proposed change was given in the notice of
the meeting; provided, however, that, notwithstanding any other provisions of
the Bylaws or any provision of law which might otherwise permit a lesser vote or
no vote, but in addition to any affirmative vote of the holders of any
particular class or series of the voting stock required by law, the Certificate
of Incorporation, any Preferred Stock Designation or these Bylaws, the
affirmative votes of the holders of at least 80% of the voting power of all the
then-outstanding shares of the Voting Stock, voting together as a single class,
shall be required to alter, amend or repeal any provisions of these Bylaws.
The above Bylaws are effective as of November 19, 1997, the date of
incorporation of First Lincoln Bancshares Inc.
14
<PAGE>
Exhibit 4.1
COMMON STOCK COMMON STOCK
PAR VALUE $.01 SEE REVERSE FOR CERTAIN DEFINITIONS
CUSIP __________
FIRST LINCOLN BANCSHARES 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
FIRST LINCOLN BANCSHARES 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, FIRST LINCOLN BANCSHARES 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>
FIRST LINCOLN BANCSHARES 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 in common UNIF GIFTS MIN ACT - _______ custodian________
(Cust) (Minor)
TEN ENT - as tenants by the entireties under Uniform Gifts to Minors Act
____________________
(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 5.1
______________, 1997
Board of Directors
First Lincoln Bancshares Inc.
13/th/ & "N" Streets
Lincoln, Nebraska 68508
Re: The offering of up to 9,777,904 shares of
First Lincoln Bancshares Inc. Common Stock
Gentlemen:
You have requested our opinion concerning certain matters of Delaware law
in connection with the conversion of First Federal Lincoln Bank (the "Bank"), a
federally-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 First
Lincoln Bancshares Inc., a Delaware corporation (the "Company"), of up to
8,502,525 shares of its common stock, par value $.01 per share ("Common
Stock"), (9,777,904 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 November 19, 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
December __, 1997 (the "Registration Statement"); 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, 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
____________, 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 you 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 of Directors of the Company
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 and the shares to be granted to the Foundation) 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:
<PAGE>
Board of Directors
____________, 1997
Page 3
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 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, 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.
We consent to the filing of this opinion as an exhibit to the Registration
Statement on Form S-1 and the Form AC and to the use of the name of our firm
where it appears in the Registration Statement, Form AC and Prospectus.
Very truly yours,
MULDOON, MURPHY & FAUCETTE
Attachment: Opinion of Morris, Nichols, Arsht & Tunnell
<PAGE>
[Morris, Nichols, Arsht & Tunnell Letterhead]
Exhibit 5.1
[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 First Federal Lincoln Bank, a
federally chartered savings bank (the "Bank"), from the mutual form of ownership
to stock form of ownership (the "Conversion"), (ii) the subscription and
community offering (the "Offering"), in connection with the Conversion, by First
Lincoln Bancshares Inc., a Delaware corporation (the "Company"), of up to
8,021,250 shares of its common stock, par value $.01 per share (the "Common
Stock"), and (iii) the sale of up to 481,275 shares of Common Stock (the
"Foundation Shares") to _________________________, a Delaware non-stock
corporation (the "Foundation"), pursuant to the Charitable Gift to [the name of
the Foundation] 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 incorporation (the
"Certificate of Incorporation"), its by-laws, the Registration Statement filed
with the Securities and Exchange Commission in connection with the Offering (the
"Registration
<PAGE>
Muldoon, Murphy & Faucette
[Date]
Page 2
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 standing 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 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
<PAGE>
Muldoon, Murphy & Faucette
[Date]
Page 3
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 federally
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.
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
<PAGE>
Muldoon, Murphy & Faucette
[Date]
Page 4
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 with respect to the Delaware Securities Act (6
Del. C. (S) 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
<PAGE>
Muldoon, Murphy & Faucette
[Date]
Page 5
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 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 stock holders in evaluating any such offer.
Very truly yours,
<PAGE>
DRAFT
________________, 1997
Board of Directors
First Lincoln Bancshares Inc.
13/th/ & N Streets
Lincoln, Nebraska 68508
Board of Directors
First Federal Lincoln Bank
13/th/ & N Streets
Lincoln, Nebraska 68508
Re: Certain Federal Tax Consequences of the Conversion of First Federal
Lincoln Bank from a Federally-chartered Mutual Savings Bank to a
Federally-chartered Capital Stock Savings Bank and the Offer and Sale
of Common Stock of First Lincoln Bancshares Inc. (the "Conversion")
Ladies and Gentlemen:
You have requested an opinion on certain federal income tax consequences of
the proposed conversion of First Federal Lincoln Bank (the "Bank") from a
federally-chartered mutual savings bank to a federally-chartered capital stock
savings bank and the acquisition of the Bank's capital stock by First Lincoln
Bancshares Inc., a Delaware corporation (the "Holding Company"), pursuant to the
plan of conversion adopted by the Board of Directors on October 7, 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
__________________, 1997
Page 2
DRAFT
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 Holding
Company and the Bank concerning the Holding 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
Holding 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 Holding Company and the Bank are incorporated in this letter as part of
the statement of the facts.
First Federal Lincoln Bank, with an administrative office in Lincoln,
Nebraska, is a federally-chartered mutual savings bank. 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 a federally-chartered capital stock savings bank (the
"Converted Bank"), the stock of which will be held entirely by the Holding
Company. Assuming that the Holding Company form of organization is utilized,
the Holding Company will acquire the stock of the Bank by purchase, in exchange
for the Conversion proceeds that are not permitted to be retained by the Holding
Company. The Holding Company will apply to the Office of Thrift Supervision
("OTS") to retain up to 50% of the proceeds received from the 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 OTS and the approval of the
Voting Members .
<PAGE>
Board of Directors
__________________, 1997
Page 3
DRAFT
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 of
the latest practicable date prior to Conversion. The liquidation account will
be maintained by the Bank for the benefit of the Eligible Account Holders and
Supplemental Eligible Account Holders who continue to maintain their Savings
Accounts at the Bank. Each Eligible Account Holder and Supplemental 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 and/or
Supplemental Eligibility Record Date or to such balance as it may be
subsequently reduced, as provided in the Plan of Conversion.
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 and Supplemental 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 (the "Foundation") that
will qualify as an exempt organization under Section 501(c)(3) of the Internal
Revenue Code of 1986, as amended (the "Code") and to donate to the Foundation up
to 8.0% of the number of shares of Common Stock sold in the Conversion. The
establishment and funding of the Foundation as part of the Conversion is subject
to the approval of the Voting Members of the Bank at the Special Meeting of
Members. In the event that the Foundation does not receive the prerequisite
approval, the Bank may determine to complete the Conversion without the
Foundation.
The Plan of Conversion provides that the Foundation is being formed to
further the Converted Bank's long term commitment to its community. The Plan of
Conversion states 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.
The Foundation will be dedicated to the promotion of charitable and
educational purposes within the Bank's Local Community, including, but not
limited to, grants or donations to support housing assistance, scholarships,
local education, not-for-profit medical facilities, not-for-profit community
groups and other types of organizations or civic minded projects. The
Foundation
<PAGE>
Board of Directors
__________________, 1997
Page 4
DRAFT
will annually distribute total grants and donations to assist charitable
organizations or to fund projects within its local community of not less than 5%
of the average fair value of the Foundation assets each year.
* * *
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 $50 as
of the Eligibility Record Date or the Supplemental 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 $50 on the Eligibility Record Date or the Supplemental
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 and
the Supplemental 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.
<PAGE>
Board of Directors
__________________, 1997
Page 5
DRAFT
(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.
(h) The Bank, Converted Bank and the Holding Company are corporations
within the meaning of section 7701(a)(3) of the Internal Revenue 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.
<PAGE>
Board of Directors
__________________, 1997
Page 6
DRAFT
(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 has utilized a reserve for bad debts in accordance with
section 593 and, following the Conversion, to the extent allowed under
the Code, the Converted Bank shall maintain a reserve for bad debts in
accordance with the applicable provisions of the Code.
(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
<PAGE>
Board of Directors
__________________, 1997
Page 7
DRAFT
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 Code 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).
<PAGE>
Board of Directors
__________________, 1997
Page 8
DRAFT
(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 exchange for their deposit accounts in the Bank or to the other
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 of the Bank 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
<PAGE>
Board of Directors
__________________, 1997
Page 9
DRAFT
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, Supplemental Eligible Account
Holders and Other Members have a fair market value of zero. We understand that
you have received a letter from Keller & Company, 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 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 AC
and Form S-1 Registration Statement of First Lincoln Bancshares Inc. and the
references to and summary of this opinion in such Form AC and Form S-1
Registration Statement.
Sincerely,
MULDOON, MURPHY & FAUCETTE
<PAGE>
Exhibit 8.1
December 10, 1997
Board of Directors
First Federal Lincoln Bank
Board of Trustees
P.O. Box 83009
Lincoln, NE 68501-3009
Dear Board Members:
You have requested the opinion of KPMG Peat Marwick LLP ("KPMG") as to the
Nebraska, Iowa, and Kansas state income and/or franchise tax and personal income
tax consequences relating to the proposed conversion of First Federal Lincoln
Bank from a federally chartered mutual savings bank to a federally chartered
stock savings bank (Stock Bank) and the formation of First Lincoln Bancshares
Inc. which will acquire all of the outstanding stock of Stock Bank.
You have submitted to us a copy of the federal income tax opinion ("Federal
Opinion") relating to the federal income tax consequences of the proposed
transaction prepared by your counsel, Muldoon, Murphy and Faucette and dated
December __, 1997.
Our opinion regarding the Nebraska, Iowa, and Kansas State Income and/or
Franchise Tax and personal income tax consequences of the proposed transaction
is based on the same facts, assumptions and conditions contained in the Federal
Opinion. It is also based on existing Nebraska, Iowa, and Kansas State Tax Law.
We have not reviewed the legal documents necessary to effectuate the steps to be
undertaken, and we assume that all steps will be properly effectuated under
state and federal law and will be consistent with the legal documentation.
<PAGE>
Page 2
Board of Directors
Board of Trustees
December 12, 1997
Nebraska Opinion
In our opinion, the Nebraska corporate income, Nebraska franchise, and Nebraska
personal income tax consequences of the proposed transaction are consistent with
the federal income tax consequences of the proposed transaction opined upon in
the Federal Opinion.
For purposes of the Nebraska Corporate Income Tax, Nebraska has adopted federal
taxable income as computed for federal income tax purposes under the Internal
Revenue Code (as currently amended) as the starting point for computing Nebraska
corporate net income (Nebraska Code Sec. 77-2716(1)). Several specific
modifications to federal taxable income are enumerated in the Nebraska Tax Law
in determining income taxable for Nebraska corporate income tax purposes.
However, there are no specific modifications which apply to the proposed
transaction (see Nebraska Code Sec. 72-2716(1)-72-2716(8)).
A "Financial Institution" (as defined in Nebraska Code Sec. 77-3801(4)) is
exempt from corporate income tax, but is required to pay a franchise tax
measured by the institution's average deposits (Nebraska Code Sec. 77-3802(2)).
Net income for franchise tax purposes is used only to limit the amount of
franchise tax imposed based on the average deposits (Nebraska Code Sec.
77-3804). This limit is based on net financial income according to the regular
books (not tax) of the financial institution (Nebraska Code Sec. 77-3801(5)).
Nebraska uses federal adjusted gross income under the Internal Revenue Code as
its starting point for computing net income for personal income tax purposes
(Nebraska Code Sec. 77-2715). There are several specific modifications to
federal adjusted gross income which are enumerated in the Nebraska Statutes to
determine income taxable for Nebraska personal income tax purposes. However,
there are no specific modifications which apply to the proposed transaction (see
Nebraska Code Sec. 72-2716(1)-72-2716(8)).
<PAGE>
Page 3
Board of Directors
Board of Trustees
December 12, 1997
IOWA OPINION
In our opinion, the Iowa corporate income tax, Iowa franchise tax, and the Iowa
personal income tax consequences of the proposed transactions are consistent
with the federal income tax consequences of the proposed transaction opined upon
in the Federal Opinion.
For purposes of the Iowa Corporate Income Tax, Iowa has adopted federal taxable
income as computed for federal income tax purposes under the Internal Revenue
Code (as currently amended), before net operating loss deductions, as the
starting point for computing Iowa corporate net income (Iowa Code Sec. 422.35).
Several specific modifications to federal taxable income are enumerated in the
Iowa Tax Law in determining income taxable for Iowa corporate income tax
purposes. However, there are no specific modifications which apply to the
proposed transaction (see Iowa Code Sec. 422.35.1-Iowa Sec. 422.35.17).
A "Financial Institution" (as defined in Iowa Code Sec. 422.61) is exempt from
corporate income tax, but is required to pay a franchise tax measured by net
income. Net income under the franchise tax rules is defined as income computed
in accordance with Iowa Code Sec. 422.35 (see above) with several additional
adjustments (see Iowa Code Sec. 422.61.3). However, there are no specific
additional adjustments which would apply to the proposed transaction (see Iowa
Code Sec. 422.61.3.a-422.61.3.g)
Iowa uses adjusted gross income as computed for federal income tax purposes
under the Internal Revenue Code as its starting point for computing net income
for personal income tax purposes (Iowa Code Sec. 422.7). There are several
specific modifications to federal adjusted gross income which are enumerated in
the Iowa Statutes to determine income taxable for Iowa personal income tax
purposes. However, there are no specific modifications which apply to the
proposed transaction (see Iowa Code Sec. 422.7.1-422.7.34).
<PAGE>
Page 4
Board of Directors
Board of Trustees
December 12, 1997
KANSAS OPINION
In our opinion, the Kansas corporate income tax, Kansas privilege tax, and the
Kansas personal income tax consequences of the proposed transaction are
consistent with the federal income tax consequences of the proposed transaction
opined upon in the Federal Opinion.
For purposes of the Kansas Corporate Income Tax, Kansas has adopted federal
taxable income as computed for federal income tax purposes under the Internal
Revenue Code (as currently amended) as the starting point for computing Kansas
corporate net income (Kan. Stat. Ann. Sec, 79-32,138(a)). Several specific
modifications to federal taxable income are enumerated in the Kansas Tax Law in
determining income taxable for Kansas corporate income tax purposes. However,
there are no specific modifications which would apply to the proposed
transaction (see Kan. Stat. Ann. Sec. 79-32, 138(b) and 79-32,138(c)).
A federally chartered savings bank is exempt from corporate income tax, but is
required to pay a privilege tax measured on their prior year net income (Kan.
Stat. Ann. Sec. 79-1106). Net income under the privilege tax rules begins with
income computed in accordance with K.S.A. 79-32,138 (see above) with several
modifications and additional adjustments. However, there are no specific
modifications or additional adjustments which would apply to the proposed
transaction (see Kan. Stat. Ann. Sec. 79-1109).
Kansas uses adjusted gross income as properly computed for federal income tax
purposes under the Internal Revenue Code as its starting point for computing net
income for personal income tax purposes (Kan. Stat. Ann. Sec 79-32,117(a)).
There are several specific modifications to federal adjusted gross income which
are enumerated in the Kansas Statutes to determine income taxable for Kansas
personal income tax purposes. However, there are no specific modifications which
would apply to the proposed transaction (see Kan. Stat. Ann. Sec. 79-32,117(b),
79-32,117(c) and 79-32,117(a).
<PAGE>
Page 5
Board of Directors
Board of Trustees
December 12, 1997
LIMITATIONS ON OPINION
Our opinion as expressed above is rendered only with respect to the Nebraska,
Iowa, and Kansas State Income and/or Franchise tax and personal income tax
consequences of specific matters discussed herein, and we express no opinion
with respect to any other federal, state, local or foreign tax matter relating
to the proposed transaction or legal aspect of the offering. Our opinion is
based on the facts and conditions as stated herein, whether directly or by
reference to the Federal Opinion. It is expressly understood and agreed to by
First Lincoln Federal Bank, and First Lincoln Bancshares Inc. that KPMG is
relying solely on the Federal Opinion in all respects relating to the federal
tax consequences of the matters described herein. KPMG has not independently
verified the accuracy of any fact, representation, opinion or other matter
contained in the Federal Tax Opinion and should any fact, representation,
opinion or other matter addressed therein not be correct, it could cause the
Nebraska, Iowa and/or Kansas tax opinion contained herein to also be incorrect.
If any of the facts and conditions are not entirely complete or accurate, it is
imperative that we be informed immediately, as the inaccuracy or incompleteness
could have a material effect on our conclusions. In rendering our opinion, we
are relying upon the relevant provisions of the Internal Revenue Code of 1986,
as amended, and the Nebraska, Kansas and Iowa Statutes, as amended, the
regulations and rules thereunder and judicial and administrative interpretations
thereof, which are subject to change or modification by subsequent legislative,
regulatory, administrative, or judicial decisions. Any such changes could also
have an effect on the validity of our opinion. We undertake no responsibility to
update or supplement our opinion after its issuance. This opinion is not binding
upon any tax authority or any court and no assurance can be given that a
position contrary to that expressed herein will not be asserted by a tax
authority and ultimately sustained by a court.
We consent to the inclusion of this opinion as an exhibit to the Form AC and
Form S-1 Registration Statement of First Lincoln Bancshares Inc. and the
references to and summary of this opinion in such Form AC and Form S-1
Registration Statement.
Very truly yours,
<PAGE>
Page 6
Board of Directors
Board of Trustees
December 12, 1997
KPMG Peat Marwick LLP
- ---------------------
Richard J. Labenz
Partner
<PAGE>
Exhibit 10.1
FORM OF
FIRST FEDERAL LINCOLN BANK
EMPLOYEE STOCK OWNERSHIP PLAN
Effective___________, 199__
<PAGE>
Exhibit 10.1
FORM OF
FIRST FEDERAL LINCOLN BANK
EMPLOYEE STOCK OWNERSHIP PLAN
CERTIFICATION
I, ____________________, __________________________________________ of
First Federal Lincoln Bank (the "Bank"), hereby certify that the attached First
Federal Lincoln Bank Employee Stock Ownership Plan, effective ________, 199__
was adopted at a duly held meeting of the Board of Directors of the Bank on
[DATE].
ATTEST: FIRST FEDERAL LINCOLN BANK
By:
- ------------------------ -------------------------------
Secretary
DATE:
-----------------------------
<PAGE>
C O N T E N T S
<TABLE>
<CAPTION>
<S> <C> <C>
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
------------------------------
4.5 Matching Employer Contributions............................. 12
-------------------------------
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
--------------------------------------
5.6 Nondiscrimination Test for Matching Employer Contributions.. 15
----------------------------------------------------------
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
------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
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
-----------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
12.9 Responsibilities to Participants............................ 29
--------------------------------
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
---------------
</TABLE>
<PAGE>
FORM OF
FIRST FEDERAL LINCOLN BANK
EMPLOYEE STOCK OWNERSHIP PLAN
Section 1. Plan Identity.
--------------
1.1 Name. The name of this Plan is "First Federal Lincoln Bank Employee
-----
Stock Ownership Plan."
1.2 Purpose. The purpose of this Plan is to describe the terms and
--------
conditions under which contributions made pursuant to the Plan will be credited
and paid to the Participants and their Beneficiaries.
1.3 Effective Date. The Effective Date of this Plan is ________, 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 First Federal Lincoln Bank, 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.
"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 an Employer and the leasing organization, has
performed services for the
2
<PAGE>
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 Paid Employee" for any Plan Year beginning before December 31,
1996, means an Employee who, during either of that or the immediately preceding
Plan Year, (i) owned more than five percent of the outstanding equity interest
or the outstanding voting interest in any Employer, (ii) had Total Compensation
exceeding $75,000 (as adjusted pursuant to Section 415(d) of the Code), (iii)
had Total Compensation exceeding $50,000 (as adjusted pursuant to Section 415(d)
of the Code) and was among the most highly compensated one-fifth of all
Employees, or (iv) was at any time an officer of an Employer and had Total
Compensation exceeding $45,000 (or 50 percent of the currently applicable dollar
limit under Section 415(b)(1)(A) of the Code). 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.
3
<PAGE>
(c) The number of individuals counted as "officers" shall not be more
than the lesser of (i) 50 individuals and (ii) the greater of 3 individuals
or 10 percent of the total number of Employees. If no officer earns more
than $45,000 (or the adjusted limit), then the highest paid officer shall
be a Highly Paid Employee.
(d) A former Employee shall be treated as a highly compensated
employee if such Employee was a Highly Paid Employee when such Employee
separated from service, or if such Employee was a Highly Paid Employee at
any time after attaining age 55.
(e) If an Employee is, during a determination year or look-back year,
a family member of either a 5 percent owner who is an active or former
Employee or a highly compensated employee who is one of the 10 most highly
compensated Employees ranked on the basis of compensation paid by the
Employer during such year, then the family member and the 5 percent owner
or top-ten highly compensated Employee shall be aggregated. In such case,
the family member and 5 percent owner or top-ten highly compensated
Employee shall be treated as a single Employee receiving compensation and
Plan contributions or benefits equal to the sum of such compensation and
contributions or benefits of the family member and 5 percent owner or top-
ten highly compensated Employee. For purposes of this section, family
member includes the Spouse, lineal ascendants and descendants of the
Employee or former Employee and the Spouses of such lineal ascendants and
descendants.
For this purpose, the determination year shall be the Plan Year.
The look-back year shall be the twelve-month period immediately preceding
the determination year.
(f) The determination of who is a highly compensated Employee,
including the determinations of the number and identity of Employees in the
top-paid group, the top 100 Employees, the number of Employees treated as
officers and the compensation that is considered, will be made in
accordance with Section 414(q) of the Code and the regulations thereunder.
"Highly Paid Employee" for any Plan Year beginning after December 31, 1996,
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:
4
<PAGE>
(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.
(c) A former Employee shall be treated as a highly compensated
employee if such Employee was a highly paid 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 First Lincoln Bancshares Inc., the holding company
of First Federal Lincoln Bank, 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
5
<PAGE>
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.
(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.
"Matching Employer Contributions" means contributions made by the Employer
pursuant to Section 4.5 to a Participant's Matching Employer Contributions
Account.
"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 the First Federal Lincoln Bank Employee Stock Ownership Plan,
as set forth herein, and as amended from time to time.
6
<PAGE>
"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 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.
7
<PAGE>
"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 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.
8
<PAGE>
"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.
--------------------
(a) All Employees in active Service with the Employer as of the
effective date of the Conversion shall enter the Plan immediately.
(b) All Employees in active Service with the Employer after the
effective date of the Conversion 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 One Year of Service.
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 Section 3.1(b) of this Plan, a Participant's initial
eligibility computation period shall be the twelve 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 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 while he is paid solely
on a retainer or fee basis, or is covered by a collective bargaining agreement
between an Employer and the Employee's collective bargaining representative if
(i) retirement benefits have been the subject of good faith bargaining between
the Employer and the representative and (ii) the collective bargaining agreement
does not provide for the Employee's participation in the Plan. No Employee
shall participate in the Plan while he is actually employed by a leasing
organization rather than an Employer.
9
<PAGE>
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.
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,
10
<PAGE>
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 as follows:
(i) first, subject to the limitations of Section 5.5 hereof, the
number of shares of Stock with a fair market value (valued as of
the time the Matching Employer Contributions are accrued under
the [401(K) PLAN] equal to the Matching Employer Contribution
made on behalf of an Active Participant shall be credited to the
Participant's Matching Employer Contributions Account; and then
(ii) subject to the limitations of Section 5.5. hereof, the number of
shares of Stock that bears the same ratio as the Active
Participant's Cash Compensation bears to the aggregate Cash
Compensation of all Active Participants for the Plan Year shall
be credited to such Participant's Account.
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, Disability or death.
"Cash Compensation" means the Participant's total earnings paid or made
available to the Participant during the Plan Year, excluding bonuses,
commissions, overtime pay, and other special compensation in excess of $6,000.
Compensation shall include elective deferrals excludable from a Participant's
income under Sections 125, 402(e)(3), 402(h), 403(b), or 401(k) of the Code. 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. 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 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
11
<PAGE>
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.
4.5 Matching Employer Contributions. For each Plan Year commencing with
--------------------------------
the ______ Plan Year, the Employer, in its sole discretion, may make a
contribution equal to a percentage of the Employee Basic Contributions made for
the Plan Year on behalf of each Participant under the terms of the [401(K)
PLAN].
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
12
<PAGE>
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
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.
13
<PAGE>
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.
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.
14
<PAGE>
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.
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 (including Matching Employer Contributions)
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.
5.6 Nondiscrimination Test for Matching Employer Contributions.
-----------------------------------------------------------
Notwithstanding anything herein to the contrary the Plan shall meet the
nondiscrimination test of Section 401(m) of the Code (described in Section 5.6-1
and applicable regulations) for each Plan Year. In order to meet the
nondiscrimination test, any or all of the following steps may be taken:
(a) At any time during the Plan Year, the Committee may limit the
amount of Matching Employer Contributions that may be made on
behalf of Highly Compensated Employees;
(b) The Committee may reduce the Matching Employer Contributions made
for the Plan Year to the extent necessary to meet the
requirements of Section 401(m) of Code, in the manner described
in Section 5.7;
(c) The Committee may recommend to the Board that the Employer make
an additional Matching Employer Contribution to the Plan for the
benefit of
15
<PAGE>
Participants who are not Highly Compensated Employees. This
additional allocation may be made based on Participants' Total
Compensation; and
(d) The Committee may take any other steps that the Committee deems
appropriate.
5.6-1 For Plan Years beginning after to December 31, 1996, the
nondiscrimination requirements of Section 401(m) of the Code require that,
in each Plan Year, the Contribution Percentage (defined below) of the
eligible Highly Compensated Employees for such Plan Year does not exceed
the greater of:
(a) The Contribution Percentage of all other eligible Employees for
the preceding Plan Year multiplied by 1.25; or
(b) The lesser of the Contribution Percentage of all other eligible
Employees for the preceding Plan Year multiplied by 2, or the
Contribution Percentage of all other eligible Employees for the
preceding Plan Year plus 2 percentage points.
The Committee may elect to calculate the Contribution Percentages
using the Plan Year rather than the preceding Plan Year, provided however
that if the Committee so elects, the election may only be changed as
provided by the Secretary of the Treasury.
5.6-2 The Contribution Percentage for a group of Employees is the
average of the ratios, calculated separately for each Employee in the
group, of the amount of Matching Employer Contributions that are credited
under the Plan on behalf of each Employee for the Plan Year, to the
Employee's Compensation for the Plan Year. Use of the alternative
limitation shall be subject to the provisions of Treasury Regulation (S)
1.401(m)-2 regarding the multiple use of the alternative deferral tests set
forth in Sections 401(k) and 401(m) of the Code.
5.6-3 Notwithstanding the foregoing, if the test described in Section
56-1 is not satisfied for a Plan Year, the Committee may use any other test
permitted under Section 401(m) of the Code to determine whether the Plan
meets the nondiscrimination requirements of Section 401(m) of the Code.
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
16
<PAGE>
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.
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
17
<PAGE>
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 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
18
<PAGE>
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 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.
19
<PAGE>
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:
Vesting Percentage of
Years Interest Vested
------- ---------------
Less than 5 years 0%
5 years 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
20
<PAGE>
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 Disability or by death or upon the occurrence of a
Change in Control of the Bank or the Holding Company.
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. (S) 303.4(a) with respect to the
Bank and the Board of Governors of the Federal Reserve System ("FRB") at 12
C.F.R. (S) 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. (S) 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
21
<PAGE>
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 (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
22
<PAGE>
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 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.
In all events, a Participant's benefits shall be paid by April 1st of the
calendar year in which he reaches age 71-1/2. A Participant's benefits from
that portion of his Account committed to the Investment Fund shall be calculated
on the basis of the most recent Valuation Date before the day of payment.
For Plan Years beginning after December 31, 1996, 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%
23
<PAGE>
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.
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
24
<PAGE>
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 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
25
<PAGE>
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.
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.
26
<PAGE>
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 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.
27
<PAGE>
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 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
28
<PAGE>
allocation or vesting of any interests in the Stock Fund or the Investment Fund
shall restrict the Committee from changing any holdings of the Trust, whether
the changes involve an increase or a decrease in the Stock or other assets
credited to Participants' Accounts. In determining the proper extent of the
Trust's investment in Stock, the Committee shall be authorized to employ
investment counsel, legal counsel, appraisers, and other agents to pay their
reasonable expenses and compensation.
12.4 Valuation of Stock. If the valuation of any Stock is not established
-------------------
by reported trading on a generally recognized public market, the Committee shall
have the exclusive authority and responsibility to determine its value for all
purposes under the Plan. Such value shall be determined as of each Valuation
Date, and on any other date as of which the Plan purchases or sells such Stock.
The Committee shall use generally accepted methods of valuing stock of similar
corporations for purposes of arm's length business and investment transactions,
and in this connection the Committee shall obtain, and shall be protected in
relying upon, the valuation of such Stock as determined by an independent
appraiser experienced in preparing valuations of similar businesses.
12.5 Compliance with ERISA. The Committee shall perform all acts
----------------------
necessary to comply with ERISA. Each individual member or employee of the
Committee shall discharge his duties in good faith and in accordance with the
applicable requirements of ERISA.
12.6 Action by Committee. All actions of the Committee shall be governed
--------------------
by the affirmative vote of a number of members which is a majority of the total
number of members currently appointed, including vacancies. The members of the
Committee may meet informally and may take any action without meeting as a
group.
12.7 Execution of Documents. Any instrument executed by the Committee
-----------------------
shall be signed by any member or employee of the Committee.
12.8 Adoption of Rules. The Committee shall adopt such rules and
------------------
regulations of uniform applicability as it deems necessary or appropriate for
the proper administration and interpretation of the Plan.
12.9 Responsibilities to Participants. The Committee shall determine
---------------------------------
which Employees qualify to enter the Plan. The Committee shall furnish to each
eligible Employee whatever summary plan descriptions, summary annual reports,
and other notices and information may be required under ERISA. The Committee
also shall determine when a Participant or his Beneficiary qualifies for the
payment of benefits under the Plan. The Committee shall furnish to each such
Participant or Beneficiary whatever information is required under ERISA (or is
otherwise appropriate) to enable the Participant or Beneficiary to make whatever
elections may be available pursuant to Sections 6 and 10, and the Committee
shall provide for the payment of benefits in the proper form and amount from the
assets of the Trust Fund. The Committee may
29
<PAGE>
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 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
30
<PAGE>
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 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
31
<PAGE>
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 the exclusive benefit of the Participants and
their Beneficiaries prior to the satisfaction of all liabilities under the Plan.
32
<PAGE>
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 Nebraska 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 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.
33
<PAGE>
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 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.
34
<PAGE>
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%
35
<PAGE>
FORM OF
TRUST AGREEMENT
BETWEEN
FIRST FEDERAL LINCOLN BANK
AND
________________________
FOR THE
FIRST FEDERAL LINCOLN BANK
EMPLOYEE STOCK OWNERSHIP TRUST
<PAGE>
CONTENTS
<TABLE>
<CAPTION>
Page No.
<S> <C> <C>
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
</TABLE>
<PAGE>
This TRUST AGREEMENT dated_____________ BETWEEN First Federal Lincoln Bank,
a federally-chartered savings institution with its principal office at 13th & N
Streets Lincoln, Nebraska 68508 (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, First Federal
Lincoln Bank 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 "First Federal Lincoln
----------------------
Bank 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 "First Federal Lincoln Bank
-----
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
-5-
<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;
-6-
<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.
-7-
<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
-8-
<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
-9-
<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
-10-
<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
-11-
<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.
-12-
<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 Nebraska 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: FIRST FEDERAL LINCOLN BANK
By:
- ------------------------------ ---------------------------
Corporate Secretary Chief Executive Officer
ATTEST: ------------------------------
as TRUSTEE
By:
- ------------------------------ ------------------------------
-13-
<PAGE>
Exhibit 10.2
[FIRST LINCOLN BANCSHARES INC. LETTERHEAD]
_____________, 1997
First Lincoln Bancshares Inc.
13th & "N" Streets
Lincoln, Nebraska 68508
Dear _______________:
This letter confirms First Lincoln Bancshares 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: First Lincoln Bancshares Inc. (the "Company").
------
2. Borrower: First Federal Lincoln Bank Employee Stock Ownership Plan.
--------
3. Trustee: _____________________.
-------
4. Security: Unallocated shares of stock of the Company held in the
--------
First Federal Lincoln Bank 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 permitted 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 First Federal Lincoln Bank 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
First Federal Lincoln Bank
By: __________________________________ Date: ________________________
Gilbert G. Lundstrom
President, Chief Executive Officer
and Director
<PAGE>
FORM OF
FIRST FEDERAL LINCOLN BANK
EMPLOYEE STOCK OWNERSHIP TRUST
LOAN AND SECURITY AGREEMENT
First Federal Lincoln Bank
13th & N Streets
Lincoln, Nebraska 68508
_______________ , 1997
Gentlemen:
The undersigned,________________________ ("Trustee"), not individually
but solely as Trustee under the First Federal Lincoln Bank 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. First Lincoln Bancshares
Inc. is hereinafter referred to as the "Lender". The term "Bank" as used herein
refers to the sponsoring employer of the First Federal Lincoln Bank 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 First Lincoln Bancshares Inc., a___________
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
2
<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.
3
<PAGE>
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 13th & N
Street, Lincoln, Nebraska 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.
4
<PAGE>
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 _______________, and is validly existing and in good standing under the
laws of the State of ____________. 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.
5
<PAGE>
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.
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.
6
<PAGE>
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 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
7
<PAGE>
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 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.
8
<PAGE>
SECTION TEN. DEFINITIONS.
10.1 The term "Business Day" shall mean any day on which savings
------------
institutions are generally open for business in Nebraska 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 Nebraska 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.
9
<PAGE>
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 13th & N
Streets, Lincoln, Nebraska 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 Nebraska 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
First Federal Lincoln Bank Employee Stock Ownership Trust
effective___________________, by and between the undersigned and First Federal
Lincoln Bank 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
10
<PAGE>
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]
11
<PAGE>
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 First Federal Lincoln
Bank Employee Stock Ownership Trust effective
______________ by and between the undersigned
and First Federal Lincoln Bank
By___________________________________
Accepted and agreed to at Lincoln, Nebraska as of the date last above
written.
By___________________________________
12
<PAGE>
EXHIBIT A
PROMISSORY NOTE
Amount sufficient to satisfy the Loan Amount _________, 199__
Lincoln, Nebraska
For VALUE RECEIVED, the undersigned,_______________, not individually but
solely as Trustee under that certain First Federal Lincoln Bank Employee Stock
Ownership Trust effective ______________ by and between the undersigned
("Borrower") and First Federal Lincoln Bank promises to pay to the order of
First Lincoln Bancshares Inc. (the "Lender") at its office at 13th & N Streets,
Lincoln, Nebraska, 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 First
Federal Lincoln Bank 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 be governed by and construed in accordance with the
laws of Nebraska without regard to
<PAGE>
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 First
Federal Lincoln Bank Employee Stock
Ownership Trust effective _____________
by and between the undersigned and First
Federal Lincoln Bank
By:___________________________
<PAGE>
EXHIBIT B
SECURITY AGREEMENT
INSTRUMENTS OR NEGOTIABLE DOCUMENTS TO BE DEPOSITED
For new value contemporaneously given by First Lincoln Bancshares 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 First Lincoln
Bancshares Inc., a____________ 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 Nebraska,
particularly the Uniform Commercial Code, except where preempted by federal law.
Dated at Lincoln, Nebraska the ____ day of ____________.
____________________, and its successors in
trust, as Trustee under that certain First Federal
Lincoln Bank Employee Stock Ownership Trust
effective _____________ by and between the
undersigned and First Federal Lincoln Bank
By:_________________________________
<PAGE>
EXHIBIT 10.5
FIRST FEDERAL LINCOLN BANK
THREE YEAR CHANGE IN CONTROL AGREEMENT
This AGREEMENT is made effective as of _____________, 1998 by and between
First Federal Lincoln Bank (the "Bank"), a federally-chartered savings
institution, with its principal administrative office 13th and N Streets,
Lincoln, Nebraska 68508, __________________ ("Executive"), and First Lincoln
Bancshares Inc. (the "Holding Company"), a corporation organized under the laws
of the State of Delaware which is the holding company of the Bank.
WHEREAS, the Bank recognizes the substantial contribution Executive has
made to the Bank 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 Bank.
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 term of the First Federal Lincoln Bank Three-Year Change in Control
Agreement (the "Agreement") shall be deemed to have commenced as of the date
first above written and shall continue for a period of thirty-six (36) full
calendar months thereafter. Commencing on the first anniversary date of this
Agreement and continuing at each anniversary date thereafter, the Board of
Directors of the Bank ("Board") may extend the Agreement for an additional year.
The Board will review the Agreement and Executive's performance annually for
purposes of determining whether to extend the Agreement, and the results thereof
shall be included in the minutes of the Board's meeting.
2. CHANGE IN CONTROL.
-----------------
(a) Upon the occurrence of a Change in Control of the Bank 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, 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.
<PAGE>
(b) For purposes of this Plan, a "Change in Control" of the Bank 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 (the "Exchange Act"); or (ii) results in a Change in Control of the
Bank or the Holding Company within the meaning of the Home Owners' Loan Act of
1933, as amended, the Federal Deposit Insurance Act, or the Rules and
Regulations promulgated by the Office of Thrift Supervision ("OTS") (or its
predecessor agency), as in effect on the date hereof (provided, that in applying
the definition of change in control as set forth under the Rules and Regulations
of the OTS, the Board shall substitute its judgment for that of the OTS); or
(iii) without limitation such a Change in Control shall be deemed to have
occurred at such time as (A) any "person" (as the term is used in Sections 13(d)
and 14(d) of the Exchange Act) is or becomes the "beneficial owner" (as defined
in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of
the Bank or the Holding Company representing 25% or more of the Bank's or the
Holding Company's outstanding voting securities or right to acquire such
securities except for any voting securities of the Bank purchased by the Holding
Company in connection with the conversion of the Bank to the stock form and any
voting securities purchased by any employee benefit plan of the Bank 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 Bank or the Holding Company or similar transaction occurs in which
the Bank or Holding Company is not the resulting entity; provided, however, that
such an event listed above will be deemed to have occurred or to have been
effectuated upon the receipt of all required regulatory approvals not including
the lapse of any statutory periods.
(c) Executive shall not have the right to receive termination benefits
pursuant to Section 3 hereof upon Termination for Cause. The term "Termination
for Cause" shall mean termination because of Executive's personal dishonesty,
incompetence, willful misconduct, any breach of fiduciary duty involving
personal profit, intentional failure to perform stated duties, willful violation
of any law, rule, or regulation (other than traffic violations or similar
offenses) or final cease-and-desist order, or material breach of any provision
of this Agreement. 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 Board of Directors of the Bank 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's conduct justified a finding of
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
2
<PAGE>
Notice of 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 Bank,
the Company or any subsidiary or affiliate thereof, vest. At the Date of
Termination for Cause, 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 termination of the Executive's employment due to:
(1) Executive's dismissal or (2) Executive's voluntary termination pursuant to
Section 2(a), unless such termination is due to Termination for Cause, the Bank
and 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, 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 Bank or
such lesser number of years in the event that Executive shall have been employed
by the Bank for less than five 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, 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 Bank; provided however, that any
-------- -------
payment under this provision and subsection 3(b) below shall not exceed three
(3) times the Executive's average annual compensation. 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 Bank 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 Bank shall cause to be continued life, medical and disability
coverage substantially identical to the coverage maintained by the Bank or
Holding Company for Executive prior to his severance, except to the extent such
coverage may be changed in its application to all Bank or Holding Company
employees on a nondiscriminatory basis. Such coverage and payments shall cease
upon the expiration of twenty-four (24) full calendar months from the Date of
Termination.
(c) Notwithstanding the preceding paragraphs of this 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 Code 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
3
<PAGE>
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 the
preceding paragraphs of this Section 3 shall be determined by Executive.
4. NOTICE OF TERMINATION.
---------------------
(a) Any purported termination by the Bank 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).
(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 the Executive is terminated for reasons other than
Termination for Cause, the Bank will continue to pay Executive his full
compensation in effect when the notice giving rise to the dispute was given
(including, but not limited to his annual 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 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.
5. 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 Bank.
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 Bank are not timely paid or provided by the Bank, such
amounts and benefits shall be paid or provided by the Holding Company.
4
<PAGE>
6. EFFECT ON PRIOR AGREEMENTS AND EXISTING BENEFIT PLANS.
-----------------------------------------------------
This Agreement contains the entire understanding between the parties hereto
and supersedes any prior agreement between the Bank and Executive, except that
this Agreement shall not affect or operate to reduce any benefit or compensation
inuring to Executive of a kind elsewhere provided. No provision of this
Agreement shall be interpreted to mean that Executive is subject to receiving
fewer benefits than those available to him without reference to this Agreement.
Nothing in this Agreement shall confer upon Executive the right to continue
in the employ of Bank or shall impose on the Bank any obligation to employ or
retain Executive in its employ for any period.
7. NO ATTACHMENT.
-------------
(a) Except as required by law, no right to receive payments under this
Agreement shall be subject to anticipation, commutation, alienation, sale,
assignment, encumbrance, charge, pledge, or hypothecation, or to execution,
attachment, levy, or similar process or assignment by operation of law, and any
attempt, voluntary or involuntary, to affect any such action shall be null,
void, and of no effect.
(b) This Agreement shall be binding upon, and inure to the benefit of,
Executive, the Bank and their respective successors and assigns.
8. 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.
9. REQUIRED REGULATORY PROVISIONS.
------------------------------
(a) The board of directors may terminate Executive's employment at any
time, but any termination by the board of directors, other than Termination for
Cause, shall not prejudice Executive's right to compensation or other benefits
under this Agreement. Executive shall not have the right to receive compensation
or other benefits for any period after Termination for Cause as defined in
Section 2 hereinabove.
5
<PAGE>
(b) If Executive is suspended from office 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.
(S)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 Executive 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.
(c) If Executive is removed and/or permanently prohibited from
participating in the conduct of the Bank's affairs by an order issued under
Section 8(e)(4) or 8(g)(1) of the Federal Deposit Insurance Act (12 U.S.C.
(S)1818(c)(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.
(d) If the Bank is in default as defined in Section 3(x)(1) of the Federal
Deposit Insurance Act, 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.
(e) All obligations under this contract shall be terminated, except to the
extent determined that continuation of the contract is necessary for the
continued operation of the institution: (i) by the Director of the Office of
Thrift Supervision (or his or her designee) at the time the Federal Deposit
Insurance Corporation enters into an agreement to provide assistance to or on
behalf of the Bank under the authority contained in Section 13(c) of the Federal
Deposit Insurance Act; or (ii) by the Director of the Office of Thrift
Supervision (or his or her designee) at the time the Director (or his or her
designee) approves a supervisory merger to resolve problems related to operation
of the Bank or when the Bank is determined by the Director to be in an unsafe or
unsound condition. Any rights of the parties that have already vested, however,
shall not be affected by such action.
(f) Any payments made to Executive pursuant to this Agreement, or
otherwise, are subject to and conditioned upon compliance with 12 U.S.C.
(S)1828(k) and any rules and regulations promulgated thereunder.
10. REINSTATEMENT OF BENEFITS UNDER SECTION 9(b).
--------------------------------------------
In the event Executive is suspended and/or temporarily prohibited from
participating in the conduct of the Bank's affairs by a notice described in
Section 9(b) hereof (the "Notice") during the term of this Agreement and a
Change in Control, as defined herein, occurs, the Bank will assume its
obligation to pay and Executive will be entitled to receive all of the
termination benefits provided for under Section 3 of this Agreement upon the
Bank's receipt of a dismissal of charges in the Notice.
6
<PAGE>
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 Nebraska but only to the
extent not preempted by Federal law.
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 Bank'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, other
than in the case of a Termination for Cause.
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 Bank (which payments are guaranteed by the Holding
Company pursuant to Section 5 hereof) if Executive is successful on the merits
pursuant to a legal judgment, arbitration or settlement.
16. INDEMNIFICATION.
---------------
(a) The Bank shall provide Executive (including his heirs, executors
and administrators) with coverage under a standard directors' and officers'
liability insurance policy at its expense, and shall indemnify Executive (and
his heirs, executors and administrators) to the fullest extent permitted under
Nebraska 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
7
<PAGE>
may be involved by reason of his having been a director or officer of the Bank
(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 BANK
---------------------
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
Agreement, 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.
8
<PAGE>
SIGNATURES
IN WITNESS WHEREOF, First Federal Lincoln Bank and First Lincoln Bancshares
Inc. have caused this Agreement to be executed by their duly authorized
officers, and Executive has signed this Agreement, on the _____ day of
__________, 1998.
ATTEST: FIRST FEDERAL LINCOLN BANK
_______________________________ By: ___________________________
Secretary
Officer
SEAL
ATTEST: FIRST LINCOLN BANCSHARES INC.
(Guarantor)
______________________________ By: ___________________________
Secretary Officer
SEAL
WITNESS:
______________________________ ________________________________
Executive
9
<PAGE>
EXHIBIT 10.6
FIRST LINCOLN BANCSHARES INC.
THREE YEAR CHANGE IN CONTROL AGREEMENT
This AGREEMENT is made effective as of _____________, 1998, by and between
First Lincoln Bancshares Inc. (the "Holding Company"), a corporation organized
under the laws of the State of Delaware, with its office at 13th and N Streets,
Lincoln, Nebraska 68508, and _________________ ("Executive"). The term "Bank"
refers to First Federal Lincoln Bank 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 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.
2. CHANGE IN CONTROL.
-----------------
(a) Upon the occurrence of a Change in Control of the Holding Company (as
herein defined) 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, 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 Bank or
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 Holding Company within the meaning of the Home
Owners' Loan Act of 1933, as amended, the Federal Deposit Insurance Act, or the
Rules and Regulations promulgated by the Office of Thrift Supervision ("OTS")
(or its predecessor agency), as in effect on the date hereof (provided, that in
applying the definition of change in control as set forth under the rules and
regulations of the OTS, the Board shall substitute its judgment for that of the
OTS); 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 Bank or the Holding Company representing 20% or more of the
Bank's or the Holding Company's outstanding voting securities except for any
voting securities of the Bank purchased by the Holding Company in connection
with the conversion of the Bank to the stock form and any voting securities
purchased by any employee benefit plan of the Bank, 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 Bank or the Holding Company
or similar transaction occurs in which the Bank or Holding Company is not the
resulting entity; provided, however, that such an event listed above will be
deemed to have occurred or to have been effectuated upon the receipt of all
required federal regulatory approvals not including the lapse of any statutory
waiting periods, or (D) a proxy statement is 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 Bank with one
or more corporations as a result of which the outstanding shares of the class of
securities then subject to such plan or transaction are exchanged for or
converted into cash or property or securities not issued by the Bank or the
Holding Company shall be distributed, or (E) a tender offer is made for 20% or
more of the voting securities of the Bank or Holding Company then outstanding.
(c) Executive shall not have the right to receive benefits pursuant to
Section 3 hereof upon Termination for Cause. The term "Termination for Cause"
shall mean termination because of a material loss to the Holding Company or one
of its Subsidiaries caused by Executive's intentional failure to perform stated
duties, personal dishonesty, willful violation of any law, rule, regulation
(other than traffic violations or similar offenses), final cease and desist
order, or any material breach of this Agreement. 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
2
<PAGE>
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 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 Bank,
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. CHANGE IN CONTROL BENEFITS.
--------------------------
(a) Upon the occurrence of a Change in Control 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 Bank or such lesser number
of years in the event that Executive shall have been employed by the Bank for
less than five years. Such annual compensation shall include Base Salary,
commissions, bonuses, contributions 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. Such payments shall
not be reduced in the event Executive obtains other employment following
termination of employment.
(b) Upon the occurrence of a Change in Control of the Bank or the Holding
Company the Holding Company shall cause to be continued life, medical and
disability coverage substantially identical to the coverage maintained by the
Bank for Executive prior to his severance, except to the extent such coverage
may be changed in its application to all Bank employees. Such coverage and
payments shall cease upon expiration of twenty-four (24) full calendar months
following the Change in Control.
(c) Notwithstanding the preceding paragraphs of this Section 3, in the
event that:
(i) the aggregate payments or benefits to be made or afforded to
Executive, which are deemed to be parachute payments as defined
in Section 280G of the Internal Revenue Code of 1986, as amended
(the "Code") or any successor thereof, (the "Termination
Benefits") would be deemed to
3
<PAGE>
include an "excess parachute payment" under Section 280G of the
Code; and
(ii) if such Termination Benefits were reduced 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 and
the Non-Triggering Amount less the product of the marginal rate
of any applicable state and federal income tax and the Non
Triggering Amount would be greater than the aggregate value of
the Termination Benefits (without such reduction) minus (i) the
amount of tax required to be paid by the Executive thereon by
Section 4999 of the Code and further minus (ii) the product of
the Termination Benefits and the marginal rate of any applicable
state and federal income tax,
then the Change in Control Benefits shall be reduced to the Non-Triggering
Amount. The allocation of the reduction required hereby among the Change in
Control Benefits shall be determined by the Executive.
not be offset against or reduce any other amounts due under this Agreement.
4. 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 Bank are not timely paid or provided by the Bank, such
amounts and benefits shall be paid and provided by the Holding Company.
5. 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.
4
<PAGE>
6. 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.
7. 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.
8. REINSTATEMENT OF BENEFITS UNDER BANK AGREEMENT.
----------------------------------------------
In the event Executive is suspended and/or temporarily prohibited from
participating in the conduct of the Bank's affairs by a notice described in
Section 9(b) of the Change-in-Control Agreement between Executive and the Bank
dated _____________, 1998 (the "Bank Agreement") during the term of this
Agreement and a Change in Control, as defined herein, occurs the Holding Company
will assume its obligation to pay and Executive will be entitled to receive all
of the change in control benefits provided for under Section 3 of the Bank
Agreement upon the notification of the Holding Company of the Bank's receipt of
a dismissal of charges in the Notice.
9. EFFECT OF ACTION UNDER BANK AGREEMENT.
--------------------------------------
Notwithstanding any provision herein to the contrary, to the extent that
payments and benefits are paid to or received by Executive under the Bank
Agreement between Executive and Bank, the amount of such payments and benefits
paid by the Bank will be subtracted from any amount due simultaneously to
Executive under similar provisions of this Agreement.
5
<PAGE>
10. 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.
11. 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.
12. GOVERNING LAW.
-------------
The validity, interpretation, performance, and enforcement of this
Agreement shall be governed by the laws of the State of Delaware.
13. 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.
14. PAYMENT OF LEGAL FEES.
---------------------
All reasonable legal fees paid or incurred by Executive pursuant to any
dispute or question of interpretation relating to this Agreement shall be paid
or reimbursed by the Holding Company if Executive is successful pursuant to a
legal judgment, arbitration or settlement.
6
<PAGE>
15. INDEMNIFICATION.
---------------
(a) 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 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.
(b) Any payments made to Executive pursuant to this Section are subject to
and conditioned upon compliance with 12 U.S.C. Section 1828(k) and 12 C.F.R.
Part 359 and any rules or regulations promulgated thereunder.
16. 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 Bank 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.
7
<PAGE>
SIGNATURES
IN WITNESS WHEREOF, First Lincoln Bancshares Inc. has caused this Agreement
to be executed by its duly authorized officer, and Executive has signed this
Agreement, on the _____ day of _________________, 1998.
ATTEST: FIRST LINCOLN BANCSHARES INC.
___________________________________ By: ______________________________
Secretary Officer
WITNESS:
___________________________________ ___________________________________
Executive
Seal
8
<PAGE>
EXHIBIT 10.7
FORM OF
FIRST FEDERAL LINCOLN BANK
EMPLOYEE SEVERANCE COMPENSATION PLAN
PLAN PURPOSE
The purpose of the First Federal Lincoln Bank Employee Severance
Compensation Plan is to assure for First Federal Lincoln Bank (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 First Lincoln Bancshares
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 "First
Federal Lincoln Bank 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 First Federal Lincoln Bank 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. ss. 303.4(a) with
respect to the Bank and the Board of Governors of the Federal Reserve System
("FRB") at 12 C.F.R. ss. 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. ss. 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 full-time 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
<PAGE>
(l) "Participant" means an Employee who meets the eligibility
requirements of Article III.
(m) "Plan" means First Federal Lincoln Bank 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 Nebraska 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.
5
<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 100% 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
<PAGE>
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.
ss.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.
ss.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. ss.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
9
<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.
10
<PAGE>
Having been adopted by its Board of Directors on __________________, this Plan
is executed by its duly authorized officers this __th day of __________, 199__.
Attest FIRST FEDERAL LINCOLN BANK
__________________________ By:_____________________________
Secretary
11
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<S> <C>
ARTICLE I............................................................... 1
PURPOSE OF THE PLAN ............................................. 1
ARTICLE II.............................................................. 2
DEFINITIONS....................................................... 2
2.1 Bank.................................................... 2
----
2.2 Board of Directors ..................................... 2
------------------
2.3 Change in Control....................................... 2
-----------------
2.4 Code.................................................... 3
----
2.5 Committee............................................... 3
---------
2.6 Company................................................. 3
-------
2.7 Company Stock........................................... 3
-------------
2.8 Eligible Employee....................................... 3
-----------------
2.9 Employee................................................ 3
--------
2.10 ERISA................................................... 3
-----
2.11 ESOP.................................................... 3
----
2.12 Nonqualified Plan....................................... 3
-----------------
2.13 Participant............................................. 3
-----------
2.14 SERP Benefit............................................ 3
------------
2.15 SERP.................................................... 3
----
2.16 Termination for Cause................................... 3
---------------------
2.17 Termination of Service.................................. 4
----------------------
ARTICLE III............................................................. 4
PARTICIPATION..................................................... 4
3.1 Eligibility for Participation........................... 4
-----------------------------
3.2 Commencement of Participation........................... 4
-----------------------------
3.3 Vesting................................................. 4
-------
3.4 Termination of Participation............................ 5
----------------------------
ARTICLE IV.............................................................. 5
BENEFITS TO PARTICIPANTS.......................................... 5
4.1 SERP Benefits........................................... 5
-------------
4.2 Form of Benefits........................................ 6
----------------
ARTICLE V............................................................... 6
ADMINISTRATION.................................................... 6
5.1 The Committee........................................... 6
-------------
5.2 Duties of the Committee................................. 6
-----------------------
5.3 Liability of the Committee.............................. 7
--------------------------
5.4 Expenses................................................ 7
--------
</TABLE>
<PAGE>
<TABLE>
<S> <C>
ARTICLE VI.............................................................. 8
AMENDMENT AND TERMINATION......................................... 8
6.1 Amendment and Termination............................... 8
--------------------------
ARTICLE VII............................................................. 8
MISCELLANEOUS PROVISIONS.......................................... 8
7.1 No Right to Continual Employment........................ 8
--------------------------------
7.2 Non-Alienation of Benefits.............................. 8
--------------------------
7.3 Payment if Participant is Incompetent................... 9
-------------------------------------
7.4 Termination for Cause................................... 9
---------------------
7.5 The Bank Sole Source of Benefits........................ 9
--------------------------------
7.6 Lost Participants....................................... 9
-----------------
7.7 Withholding............................................. 9
-----------
7.8 Governing Law...........................................10
-------------
7.9 Operation as Unfunded Nonqualified Plan.................10
---------------------------------------
</TABLE>
(ii)
<PAGE>
FORM OF
FIRST FEDERAL LINCOLN BANK
MANAGEMENT SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
EFFECTIVE _________, ____
WHEREAS, effective ____________, ____, First Federal Lincoln Bank (the
"Bank") adopted the First Federal Lincoln Bank Employee Stock Ownership Plan
(the "ESOP"), a tax-qualified employee stock ownership plan; and
WHEREAS, the ESOP is leveraged with a 12-year exempt loan used to acquire
shares of Company Stock; and
WHEREAS, the final payment with respect to the ESOP loan is scheduled to
be made by the ESOP trustee on _______________; and
WHEREAS, the Bank expects that certain key management employees will
retire from the employ of the Bank prior to final payment of the ESOP loan and
the final allocation of Company Stock acquired with the proceeds of the ESOP
loan; and
WHEREAS, the Board of Directors of the Bank (the "Board of Directors")
desires to implement a plan to provide certain key management employees with
benefits to replace the benefits to which they would have otherwise been
entitled under the ESOP had they remained in the employ of the Bank until the
complete repayment of the ESOP loan and the final allocation of Company Stock
acquired with the proceeds of the ESOP loan;
NOW, THEREFORE, by resolution of the Board of Directors of the Bank, the
First Federal Lincoln Bank Management Supplemental Executive Retirement Plan
(the "SERP") has been established.
ARTICLE I
---------
PURPOSE OF THE PLAN
The purpose of the SERP is to provide certain key management employees of
the Bank who retire prior to complete repayment of the ESOP loan and the final
allocation of Company Stock acquired with the proceeds of the ESOP loan with
benefits to make up lost benefits to which they would otherwise have been
entitled under the terms of the ESOP had they continued their employment with
the Bank until complete repayment of the ESOP loan.
<PAGE>
ARTICLE II
----------
DEFINITIONS
The following definitions shall apply for the purposes of this SERP unless
a different meaning is clearly indicated by the context.
2.1 Bank means First Federal Lincoln Bank, and its successors or assigns.
----
2.2 Board of Directors means the Board of Directors of the Bank, as duly
------------------
constituted from time to time.
2.3 Change in Control of the Company or the Bank means 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 Home Owners' Loan Act of 1933, as amended, the Federal
Deposit Insurance Act, or the Rules and Regulations promulgated by the Office of
Thrift Supervision ("OTS") (or its predecessor agency), as in effect on the date
hereof (provided, that in applying the definition of change in control as set
forth under the rules and regulations of the OTS, the Board shall substitute its
judgment for that of the OTS); 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 Bank or the Holding Company
representing 20% or more of the Bank's or the Holding Company's outstanding
voting securities except for any voting securities of the Bank purchased by the
Holding Company in connection with the conversion of the Bank to the stock form
and any voting securities purchased by any employee benefit plan of the Bank, 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 Bank
or the Holding Company or similar transaction occurs in which the Bank or
Holding Company is not the resulting entity; provided, however, that such an
event listed above will be deemed to have occurred or to have been effectuated
upon the receipt of all required federal regulatory approvals not including the
lapse of any statutory waiting periods, or (D) a proxy statement is 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
Bank 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
2
<PAGE>
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 Holding Company then outstanding.
2.4 Code means the Internal Revenue Code of 1986, as amended.
----
2.5 Committee means the administrative committee appointed by the Board
---------
to administer the SERP pursuant to the terms of Article V hereof.
2.6 Company means First Lincoln Bancshares Inc., the holding company of
-------
the Bank.
2.7 Company Stock means the common stock of the Company.
-------------
2.8 Eligible Employee means an Employee who is eligible for participation
-----------------
in the SERP pursuant to the provisions of Article III hereof.
2.9 Employee means any person, including an officer, who is employed by
--------
the Bank.
2.10 ERISA means the Employee Retirement Income Security Act of 1974, as
-----
amended.
2.11 ESOP means the First Federal Lincoln Bank Employee Stock Ownership
----
Plan.
2.12 Nonqualified Plan means a plan of deferred compensation which does
-----------------
not meet the requirements of Section 401(a) of the Code.
2.13 Participant means any person who participates in the SERP in
-----------
accordance with its terms.
2.14 SERP Benefit means the benefit payable to a Participant pursuant to
------------
the terms of the SERP.
2.15 SERP means this First Federal Lincoln Bank Management Supplemental
----
Executive Retirement Plan, as set forth herein, and as amended from time to
time.
2.16 Termination for Cause means termination of employment because of the
---------------------
Employee's personal dishonesty, incompetence, willful misconduct, breach of
fiduciary duty involving personal profit, intentional failure to perform stated
duties, or willful violation of any law, rule or regulation (other than traffic
violations or similar offenses). The basis for any Employee's Termination for
Cause shall be determined by the Board of Directors in its sole discretion.
3
<PAGE>
2.17 Termination of Service means an Employee's separation from the
-----------
service of the Bank, whether by resignation, discharge, death, disability,
retirement or otherwise.
ARTICLE III
-----------
PARTICIPATION
3.1 Eligibility for Participation.
-----------------------------
Only Eligible Employees may be or become Participants. An Employee shall
become an Eligible Employee for SERP Benefits if:
(a) He is a participant in the ESOP, and
(b) The Board of Directors, in its sole discretion, designates him as
an Eligible Employee.
3.2 Commencement of Participation.
-----------------------------
An Eligible Employee shall become a Participant in the SERP on the date
determined by the Board. However, in no event will an Employee become a
Participant prior to [date].
3.3 Vesting.
-------
A Participant shall vest in his SERP Benefit according to the following
schedule:
<TABLE>
<CAPTION>
Anniversary of SERP Participation Vested Percentage
- --------------------------------- ----------------------------
<S> <C>
1st 20%
2nd 40%
3rd 60%
4th 80%
5th 100%
</TABLE>
Notwithstanding the preceding, a Participant shall vest immediately in his SERP
Benefit upon the occurrence of a Change in Control of the Bank or the Company.
4
<PAGE>
3.4 Termination of Participation.
----------------------------
A Participant's participation in the SERP shall cease on the earlier of
(a) the date of the Participant's Termination of Service, or
(b) the date on which the Participant ceases to be an Eligible
Employee.
ARTICLE IV
----------
BENEFITS TO PARTICIPANTS
4.1 SERP Benefits.
-------------
(a) An individual who satisfies the eligibility requirements of Section
3.1 and becomes a Participant pursuant to Section 3.2 shall be entitled to an
unfunded, unsecured promise from the Bank to receive a SERP Benefit upon
Termination of Service as a result of his attainment of "Normal Retirement Age"
or satisfaction of the requirements for an "Early Retirement Benefit" (as those
terms are defined in the ESOP) under the terms of ESOP.
(b) The SERP Benefit shall be determined by:
(i) projecting the total number of shares of Company Stock that
would have been allocated to the Participant's account under the ESOP
had the Participant continued in the employ of the Bank, measured
from the date the Participant was first eligible to participate in
the ESOP until the ESOP loan would have been repaid in full and the
final allocation of shares of Company Stock acquired with the ESOP
loan would have been made; and then
(ii) reducing the number of shares projected in (i), above, by the
actual number of shares of Company Stock allocated to the
Participant's account under the terms of the ESOP as of the last day
of the final Plan Year in which the Participant was an "Active
Participant" (as defined in the ESOP) in the ESOP; and then
(iii) multiplying the number of shares of Company Stock determined
after application of (ii), above, by the average fair market value of
the Company Stock for the five-year period immediately preceding the
Participant's Termination of Service (or the number of years the
Participant has participated in the SERP if such number is fewer than
five).
The projection of shares required by (i), above, shall be performed by a public
accountant based on assumptions which the Board of Directors has approved as
reasonable at the time the calculation for the SERP Benefit is performed.
5
<PAGE>
4.2 Form of Benefits.
----------------
(a) SERP Benefits shall be payable in a lump sum payment as soon as
practicable after the Participant's Termination of Service. However, the
Committee reserves the right to make payments in a series of periodic payments.
(b) SERP Benefits, at the discretion of the Committee, shall be paid in
cash, Company Stock or some combination thereof.
ARTICLE V
---------
ADMINISTRATION
5.1 The Committee.
-------------
Except for the functions reserved to the Bank or the Board of Directors,
the administration of the SERP shall be the responsibility of the Committee. The
Committee shall consist of three (3) or more persons designated by the Board of
Directors. Members of the Committee shall serve for such terms as the Board of
Directors shall determine and until their successors are designated and
qualified. Any member of the Committee may resign upon at least sixty (60) days
written notice to the Board, or may be removed from office by the Board of
Directors for failure or inability to carry out his responsibilities in an
effective manner.
5.2 Duties of the Committee.
-----------------------
The Committee shall have the power and the duty to take all actions and to
make all decisions necessary or proper to carry out the purpose of the SERP. The
determination of the Committee as to any question involving the general
administration and interpretation of the SERP shall be final, conclusive and
binding. Any discretionary actions to be taken under the SERP by the Committee
shall be uniform in their nature and applicable to all persons similarly
situated. Without limiting the generality of the foregoing, the Committee shall
have the following powers and duties:
(a) the duty to furnish to all Participants, upon request, copies of
the SERP and to require any person to furnish such information as it may request
for the purpose of the proper administration of the SERP as a condition to
receiving any benefits under the SERP;
(b) the duty to make and enforce such rules and regulations and
prescribe the use of such forms as it shall deem necessary for the efficient
administration of the SERP;
(c) the duty to interpret the SERP, and to resolve ambiguities,
inconsistencies and omissions, which findings shall be binding, final and
conclusive;
6
<PAGE>
(d) the duty to decide on questions concerning the SERP in accordance
with the provisions of the SERP;
(e) the duty to determine the amount of benefits which shall be
payable to any person in accordance with the provisions of the SERP and to
provide a full and fair review to any Participant whose claim for benefits has
been denied in whole or in part;
(f) the power to designate a person who may or may not be a member of
the Committee as SERP "Administrator." If the Committee does not so designate an
Administrator, the Bank shall be the SERP Administrator;
(g) the power to allocate any such powers and duties to or among
individual members of the Committee; and
(h) the power to designate persons other than Committee members to
carry out any duty or power which would otherwise be a responsibility of the
Committee or Administrator, under the terms of the SERP.
5.3 Liability of the Committee.
--------------------------
To the extent permitted by law, the Committee and any person to whom it
may delegate any duty or power in connection with administering the SERP, the
Bank, any Employer, and the officers and directors thereof, shall be entitled to
rely conclusively upon, and shall be fully protected in any action taken or
suffered by them in good faith in the reliance upon, any actuary, counsel,
accountant, other specialist, or other person selected by the Committee, or in
reliance upon any tables, valuations, certificates, opinions or reports which
shall be furnished by any of them. Further, to the extent permitted by law, no
member of the Committee, nor the Bank, any Employer, nor the officers or
directors thereof, shall be liable for any neglect, omission or wrongdoing of
any other members of the Committee, agent, officer or employee of the Bank or
any Employer. Any person claiming benefits under the SERP shall look solely to
the Bank for redress.
5.4 Expenses.
--------
All expenses incurred prior to the termination of the SERP that shall
arise in connection with the administration of the SERP (including, but not
limited to administrative expenses, proper charges and disbursements,
compensation and other expenses and charges of any actuary, counsel, accountant,
specialist, or other person who shall be retained or employed by the Committee
in connection with the administration of the SERP), shall be paid by the Bank.
7
<PAGE>
ARTICLE VI
----------
AMENDMENT AND TERMINATION
6.1 Amendment and Termination.
-------------------------
The Board of Directors shall have the power to suspend or terminate the
SERP in whole or in part at any time, and from time to time to extend, modify,
amend or revise the SERP in such respects as the Board of Directors, by
resolution, may deem advisable; provided, however, that no such extension,
modification, amendment, revision, or termination shall deprive a Participant or
any beneficiary of any benefit payable under the SERP at the time of such
extension, modification, amendment, revision, or termination.
ARTICLE VII
-----------
MISCELLANEOUS PROVISIONS
7.1 No Right to Continual Employment.
--------------------------------
The SERP shall not be deemed to constitute a contract of employment
between the Bank and any Employee or other person, whether or not in the employ
of the Bank, nor shall anything herein contained be deemed to give any Employee
or other person, whether or not in the employ of the Bank, any right to be
retained in the employ of the Bank, or to interfere with the right of the Bank
to discharge any Employee at any time and to treat such Employee without any
regard to the effect which such treatment might have upon such Employee as a
Participant of the SERP.
7.2 Non-Alienation of Benefits.
--------------------------
Except as may otherwise be required by law, no distribution or payment
under the SERP to any Participant or beneficiary shall be subject in any manner
to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance or
charge, whether voluntary or involuntary, and any attempt to so anticipate,
alienate, sell, transfer, assign, pledge, encumber or charge the same shall be
void; nor shall any such distribution or payment be in any way liable for or
subject to the debts, contracts, liabilities, engagements or torts of any person
entitled to such distribution or payment. If any Participant or beneficiary is
adjudicated bankrupt or purports to anticipate, alienate, sell, transfer,
assign, pledge, encumber or charge any such distribution or payment, voluntarily
or involuntarily, the Committee, in its sole discretion, may cancel such
distribution or payment or may hold or cause to be held or applied such
distribution or payment, or any part thereof, to or for the benefit of such
Participant or beneficiary, in such manner as the Committee shall direct.
8
<PAGE>
7.3 Payment if Participant is Incompetent.
-------------------------------------
If the Bank determines that any person entitled to payments under the SERP
is incompetent by reason of physical or mental disability, it may cause all
payments thereafter becoming due to such person to be made to any other person
for the benefit of the incompetent person, without responsibility to follow
application of amounts so paid. Payments made pursuant to this provision shall
completely discharge the SERP, the Bank and the Committee.
7.4 Termination for Cause.
---------------------
If any Participant entitled to payments under the SERP separates from
service as a result of Termination for Cause, the Bank may cause all payments
thereafter becoming due to such Participant to be forfeited under the SERP.
7.5 The Bank Sole Source of Benefits.
--------------------------------
The Bank shall be the sole source of benefits under the SERP, and each
Employee, Participant, beneficiary, or any other person who shall claim the
right to any payment or benefit under the SERP shall be entitled to look solely
to the Bank for payment of benefits.
7.6 Lost Participants.
-----------------
If the Bank is unable to make payment to any Participant, beneficiary, or
any other person to whom a payment is due under the SERP, because it cannot
ascertain the identity or whereabouts of such Participant, beneficiary, or other
person after reasonable efforts have been made to identify or locate such person
(including a notice of the payment so due mailed to the last known address of
such Participant, beneficiary, or other person shown on the records of the
Bank), such payment and all subsequent payments otherwise due to such
Participant, beneficiary or other person shall be forfeited twenty-four (24)
months after the date such payment first became due; provided, however, that
such payment and any subsequent payments shall be reinstated, retroactively, no
later than sixty (60) days after the date on which the Participant, beneficiary,
or other person is identified or located.
7.7 Withholding.
-----------
If upon the payment of any benefits under the SERP, the Bank shall be
required to withhold any amounts with respect to such payment by reason of any
federal, state or local tax laws, rules or regulations, then the Bank shall be
entitled to deduct and withhold such amounts from any such payments. In any
event, such person shall make available to the Bank, promptly when requested by
the Bank, sufficient funds or other property to meet the requirements of such
withholding. Furthermore, the Bank shall be entitled to take and authorize such
steps as it may deem advisable in order to have the amounts required to be
withheld made available to the Bank
9
<PAGE>
out of any funds or property due to become due to such person, whether under the
SERP or otherwise.
7.8 Governing Law.
-------------
The provisions of the SERP shall be construed, administered and governed
under applicable federal laws and the laws of the State of Nebraska.
7.9 Operation as Unfunded Nonqualified Plan.
---------------------------------------
The SERP is intended to be an unfunded, Nonqualified Plan maintained
"primarily for the purpose of providing deferred compensation for a select group
of management or highly compensated employees" as that phrase is used for
purposes of Sections 201, 301 and 401 of ERISA. The SERP is not intended to
comply with the requirements of section 401(a) of the Code. The SERP shall be
administered and construed so as to effectuate this intent.
10
<PAGE>
First Federal Lincoln Bank has adopted this SERP, to be executed by a designee
of the Board and duly attested, on this the _____ day of _______, 199__.
ATTEST: FIRST FEDERAL LINCOLN BANK
_______________________ By_______________________
11
<PAGE>
EXHIBIT 10.9
FIRST FEDERAL LINCOLN BANK
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
<PAGE>
<TABLE>
TABLE OF CONTENTS
-----------------
<S> <C>
ARTICLE I......................................................................... 2
Purpose of the Plan......................................................... 2
ARTICLE II........................................................................ 2
Definitions................................................................. 2
2.1 Bank............................................................ 2
----
2.2 Board........................................................... 2
-----
2.3 Code............................................................ 2
----
2.4 Discretionary Contribution...................................... 2
--------------------------
2.5 Eligible Employee............................................... 2
-----------------
2.6 Employee........................................................ 2
--------
2.7 ERISA........................................................... 2
-----
2.8 ESOP............................................................ 2
----
2.9 Former Participant.............................................. 3
------------------
2.10 401(k) Plan .................................................... 3
-----------
2.11 Matching Contribution........................................... 3
---------------------
2.12 Nonqualified Plan............................................... 3
-----------------
2.13 Participant..................................................... 3
-----------
2.14 Period of Participation......................................... 3
-----------------------
2.15 SERP............................................................ 3
----
2.16 Supplemental ESOP Benefit....................................... 3
-------------------------
2.17 Supplemental 401(k) Plan Benefit................................ 3
--------------------------------
2.18 Termination of Service.......................................... 3
----------------------
ARTICLE III....................................................................... 4
Participation............................................................... 4
3.1 Eligibility for Participation................................... 4
-----------------------------
3.2 Supplemental 401(k) Plan Benefit Account........................ 4
----------------------------------------
3.3 Commencement of Participation................................... 5
-----------------------------
3.4 Termination of Participation.................................... 5
----------------------------
ARTICLE IV........................................................................ 5
Benefits to Participants.................................................... 5
4.1 Supplemental Benefits........................................... 5
---------------------
4.2 Benefits Under Previous Benefit Formulas........................ 6
----------------------------------------
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
ARTICLE V......................................................................... 6
Administration.............................................................. 6
5.1 Duties of the Board............................................. 6
-------------------
5.2 Liabilities of the Board........................................ 7
------------------------
5.3 Expenses........................................................ 7
--------
5.4 Unfunded Character of Plan...................................... 7
--------------------------
ARTICLE VI ....................................................................... 7
Amendment and Termination .................................................. 7
6.1 Amendment and Termination....................................... 7
-------------------------
6.2 Vesting and Payment Upon Termination............................ 7
------------------------------------
6.3 Preservation of Benefits on Amendment........................... 8
-------------------------------------
ARTICLE VII....................................................................... 8
Miscellaneous Provisions.................................................... 8
7.1 Governing Law................................................... 8
-------------
7.2 No Right to Continued Employment................................ 8
--------------------------------
7.3 Construction of Language........................................ 8
------------------------
7.4 Non-alienation of Benefits...................................... 8
--------------------------
7.5 Operation as Unfunded Nonqualified Plan......................... 9
---------------------------------------
7.6 Reliance Upon Information....................................... 9
-------------------------
7.5 Effective Date.................................................. 9
--------------
</TABLE>
ii
<PAGE>
WHEREAS, the Board of Directors of First Federal Lincoln Bank ("Bank") has
adopted the First Federal Lincoln Bank 401(k) Savings Plan ("401(k) Plan") and
the First Federal Lincoln Bank Employee Stock Ownership Plan ("ESOP") to provide
benefits to the employees of the Bank; and
WHEREAS, the Internal Revenue Code of 1986, as amended ("Code") imposes
limitations on the amounts that may be contributed by Participants to the 401(k)
Plan, the amount of contributions that may be made to the 401(k) Plan and the
ESOP by the Bank on the behalf of Participants, and limits the amount of
compensation which may be considered in determining benefits under both of these
plans; and
WHEREAS, the Board of Directors of the Bank desires to implement a plan to
provide certain employees with benefits to replace benefits to which they would
be entitled under the 401(k) Plan and the ESOP but for the application of the
limitations imposed by the Code;
THEREFORE, by resolution of the Board of Directors, the Supplemental
Executive Retirement Plan has been adopted.
1
<PAGE>
ARTICLE I
Purpose of the Plan
-------------------
The purpose of the First Federal Lincoln Bank Supplemental Executive
Retirement Plan ("SERP") is to provide designated executives of the Bank with
deferred benefits to which they would otherwise be entitled under the terms of
the 401(k) Plan and the ESOP, but for limitations on benefits and includible
compensation imposed by the Code. This plan is intended to benefit only a select
group of highly compensated employees. The benefits under this SERP will be paid
out of the Bank's general assets exclusively.
ARTICLE II
Definitions
-----------
Wherever appropriate to the purposes of the SERP, capitalized terms shall
have the meanings assigned to them under the 401(k) Plan and the ESOP.
Notwithstanding the preceding, the following definitions shall apply for the
purposes of this SERP unless a different meaning is clearly indicated by the
context.
2.1 Bank means First Federal Lincoln Bank having its principal office at
----
13th & N Streets, Lincoln, Nebraska and its successors or assigns.
2.2 Board means the Board of Directors of the Bank.
-----
2.3 Code means the Internal Revenue Code of 1986, as amended from time
----
to time (including the corresponding provisions of any succeeding law).
2.4 Discretionary Contribution means an amount equal to the discretionary
--------------------------
profit sharing contribution, if any, that would have been allocated to the
Participant's account under the 401(k) Plan but for the application of the
limitations imposed by Section 401(a)(17) and/or 415 of the Code.
2.5 Eligible Employee means an Employee who is eligible for participation
-----------------
in the SERP in accordance with the provisions of Article III.
2.6 Employee means any person, including an officer, who is employed by
--------
the Bank.
2.7 ERISA means the Employee Retirement Income Security Act of 1974, as
-----
amended from time to time (including the corresponding provisions of any
succeeding law).
2.8 ESOP means the First Federal Lincoln Bank Employee Stock Ownership
----
Plan.
2
<PAGE>
2.9 Former Participant means a person whose participation in the SERP
-------------------
has terminated as provided under Section 3.4.
2.10 401(k) Plan means the First Federal Lincoln Bank 401(k) Savings
-----------
Plan, as the same may be amended from time to time (including the
corresponding provisions of any successor qualified 401(k) plan adopted by
the Bank).
2.11 Matching Contribution means an amount equal to the product of (i) the
---------------------
amount such Participant is contributing to the SERP under Section 3.2
subject to any limitation on Employer Matching Contributions under the
401(k) Plan and (ii) the percentage of the Employer Match being made under
the 401(k) Plan during the same period.
2.12 Nonqualified Plan means a plan of deferred compensation which does
-----------------
not meet the requirements of Section 401(a) of the Code.
2.13 Participant means any person who is participating in the SERP in
-----------
accordance with its terms.
2.14 Period of Participation means the period during which a person is a
-----------------------
Participant.
2.15 SERP means this First Federal Lincoln Bank Supplemental Executive
----
Retirement Plan, as amended from time to time.
2.16 Supplemental ESOP Benefit means the benefit provided by this SERP
-------------------------
based on limitations, imposed by Sections 401(a)(17) and/or 415 of the
Code, on the benefits of a Participant under the ESOP.
2.17 Supplemental 401(k) Plan Benefit means the benefit provided by this
--------------------------------
SERP based on limitations, imposed by the Code, on the level of savings
which may be contributed by Participants under the 401(k) Plan. In
particular, the Supplemental 401(k) Plan Benefit shall be a benefit equal
to the amount contributed to the Bank by the Participants, and earnings
thereon, both in accordance with Section 3.2 of this SERP.
2.18 Termination of Service means an Employee's separation from the service
----------------------
of the Bank, whether by resignation, discharge, death, disability,
retirement or otherwise.
3
<PAGE>
ARTICLE III
-----------
Participation
-------------
3.1 Eligibility for Participation.
------------------------------
Only Eligible Employees may be or may become Participants.
(a) An Employee shall become an Eligible Employee for Supplemental 401(k)
Plan Benefits if:
(1) The Board, in its sole discretion, designates him as an Eligible
Employee; and
(2) He is a participant in the 401(k) Plan and his benefits
thereunder would be limited by Sections 401(m), 401(a)(17) and/or 415
of the Code if maximum contributions were made; and
(3) He defers compensation, in the amount defined in Section 3.2.
(b) An Employee shall become an Eligible Employee for Supplemental ESOP
Benefits if:
(1) The Board, in its sole discretion, designates him as an Eligible
Employee; and
(2) He is a Participant in the ESOP and his benefits thereunder are
limited by the application of Sections 401(a)(17) and/or 415 of the
Code.
3.2 Supplemental 401(k) Plan Benefit Account
----------------------------------------
The Bank will accept deferrals of compensation from each Participant who is
an Eligible Employee pursuant to Section 3.1(b) and who elects to participate in
the SERP. Each such Eligible Employee may make annual deferrals of compensation
in an amount up to the amount equal to the difference between (i) the maximum
amount the Participant would be permitted to contribute to the 401(k) Plan for
the given year but for the limitations of Sections 401(m), 401(a)(17), 415, or
any other Section of the Code and (ii) deferrals actually made to the 401(k)
Plan. Amounts returned from the 401(k) Plan because of any discrimination
testing or other limitations on contributions will be deferred into this SERP
without further action on the Participant being required, to the extent such
deferral is permitted under applicable law. If such deferral is not permitted,
Participant's election will be effective with respect to other compensation of
such Participant in an amount equal to such returned monies. The Bank will
establish a memorandum account, maintained as a Supplemental 401(k) Plan Benefit
Account for such Participant on the Bank's books, which will be credited with
the amount of such contributions. The Supplemental 401(k) Plan Benefit Accounts
are not insured by the Federal
4
<PAGE>
Deposit Insurance Corporation and shall be considered an asset of the Bank
subject to the claims of general creditors.
On the first business day of each month, the Bank will credit the
Participant's Supplemental 401(k) Plan Benefits Account with the Matching
Contribution due since the last Matching Contribution. As of the last day of
each Plan Year, the Bank will credit the Participant's Supplemental 401(k)
Account with the Discretionary Contribution due, if any, for such year. All
amounts credited to a Participant's Supplemental 401(k) Plan Benefit Account
shall be credited with interest at a rate equal to the aggregate weighted return
provided to the Participant's Account under the 401(k) Plan. Such interest shall
be credited monthly.
3.3 Commencement of Participation.
-----------------------------
An Eligible Employee shall become a Participant on the date determined by
the Board. However, in no event will an Employee become a Participant prior to
___________, 1998.
3.4 Termination of Participation.
----------------------------
Participation in the Plan shall cease on the: (a) date of the
Participant's Termination of Service; or (b) date on which he ceases to be an
Eligible Employee.
ARTICLE IV
----------
Benefits to Participants
------------------------
4.1 Supplemental Benefits.
---------------------
(a) A Participant who satisfies Section 3.1(a) shall be entitled to an
unfunded, unsecured promise from the Bank of Supplemental 401(k) Plan
Benefits.
(b) A Participant who satisfies Section 3.1(b) of the SERP shall be
entitled to an unfunded, unsecured promise from the Bank of Supplemental
ESOP Benefits.
(c) The Supplemental 401(k) Plan Benefit provided for in Section 3.1(a)
shall be paid commencing upon Termination of Service to the Participant or
his designated beneficiary in the manner and for the period as the
Participant shall have elected with respect to his benefit under the 401(k)
Plan.
(d) Participants shall be vested in the benefits payable under Section
3.1(a), in the same percentage that they are vested in benefits payable
under the 401(k) Plan.
5
<PAGE>
(e) A Participant shall be vested in benefits payable under Section 3.1(b)
of this SERP in the same percentage that such Participant has a vested
interest in his account under the ESOP.
(f) The Supplemental ESOP Benefit provided for in Section 3.1(b) shall be
paid commencing upon Termination of Service to the Participant or his
designated beneficiary in the manner and for the period as the Participant
shall have elected with respect to his benefit under the ESOP.
4.2 Payment to Missing Person.
--------------------------
If the Bank is unable to effect delivery of any amount payable hereunder to
the person entitled thereto, or upon his death, to his personal representative,
it shall so advise the Board and the Board shall give written notice to such
person at his last known address as shown in such Participant's record of
employment. If such person or his personal representative does not present
himself to the Board after ninety days from the date of mailing such notice,
then the Board shall direct such amount, including any amount thereafter
becoming due to such person or his personal representative to be distributed in
the manner provided herein with respect to the death of a Participant. If there
is no valid designation of Beneficiary on file; or, if there can be no
distribution under the foregoing provision, benefit shall be paid over to the
estate of the Participant.
4.3 Release from Liability.
-----------------------
Payment to any Participant, legal representative or Beneficiary, in
accordance with the provisions of this Plan, is deemed to be in full
satisfaction of all claims by the Participant, representative or Beneficiary
against this SERP, the Board, and the Bank. The Board may require such
Participant, legal representative, or Beneficiary as a condition precedent to
payment to execute a receipt and release in such form as shall be determined by
the Board.
ARTICLE V
---------
Administration
--------------
5.1 Duties of the Board.
-------------------
The Board shall have full responsibility for the management, operation,
interpretation and administration of the Plan in accordance with its terms, and
shall have such authority as is necessary or appropriate in carrying out its
responsibilities. Actions taken by the Board pursuant to this Section 5.1 shall
be conclusive and binding upon the Bank, Participants, Former Participants,
Beneficiaries, and other interested parties.
6
<PAGE>
5.2 Liabilities of the Board.
-------------------------
Neither the Board nor its individual members shall be deemed to be a
fiduciary with respect to this Plan; nor shall any of the foregoing individuals
or entities be liable to any Participants, Former Participants or Beneficiaries
in connection with the management, operation, interpretation or administration
of the Plan, any such liability being solely that of the Bank.
5.3 Expenses.
--------
Any expenses incurred in the management, operation, interpretation or
administration of the Plan shall be paid by the Bank. In no event shall the
benefits otherwise payable under this Plan be reduced to offset the expenses
incurred in managing, operating, interpreting or administering the Plan.
5.4 Unfunded Character of Plan.
--------------------------
The SERP shall be unfunded. Neither the Bank nor the Board nor its
individual members shall segregate or otherwise identify specific assets to be
applied to the purposes of the Plan, nor shall any of them be deemed to be a
trustee of any amounts to be paid under the Plan. Any liability of the Bank to
any person with respect to benefits payable under the Plan shall be based solely
upon such contractual obligations, if any, as shall be created by the Plan, and
shall give rise only to a claim against the general assets of the Bank. No such
liability shall he deemed to be secured by any pledge or any other encumbrance
on any specific property of the Bank.
ARTICLE VI
----------
Amendment and Termination
-------------------------
6.1 Amendment and Termination.
--------------------------
Subject to the provisions of Sections 6.2 and 6.3, the Board shall have the
right to amend or terminate the Plan, in whole or in part.
6.2 Vesting and Payment Upon Termination.
------------------------------------
(a) In the event of the termination or partial termination of
this SERP, the rights of all affected parties, if any, to any
benefits accrued to the date of such termination or partial
termination, shall become nonforfeitable.
(b) In the event of the termination of this SERP all benefit
shall be immediately payable to the Participant by the Bank in
whatever form the SERP otherwise
7
<PAGE>
provides, or in the discretion of the Board may be paid in a lump
sum payment of the present value as determined by the Board in
accordance with the assumptions and methodology of Section 7520
of the Code.
6.3 Preservation of Benefits on Amendment.
-------------------------------------
No amendment of this SERP shall reduce the vested and accrued benefits, if
any, of a Participant under this SERP.
ARTICLE VII
-----------
Miscellaneous Provisions
------------------------
7.1 Governing Law.
-------------
The SERP shall be construed, administered, and enforced according to laws
of the State of Nebraska, except to the extent that such laws are pre-empted by
the federal laws of the United States of America.
7.2 No Right to Continued Employment.
--------------------------------
Neither the establishment of the SERP nor any provisions of the SERP, nor
any action of the Board shall be held or construed to confer upon any Employee
the right to a continuation of employment by the Bank. Subject to any employment
contract, the Bank reserves the right to dismiss any Employee or otherwise deal
with any Employee to the same extent as though the SERP had not been adopted.
7.3 Construction of Language.
------------------------
Wherever appropriate in the SERP, words used in the singular may be read in
the plural, words in the plural may be read in the singular, and words importing
the masculine gender shall be deemed equally to refer to the feminine and the
neuter. Any reference to any Article or Section shall be to an Article or
Section of this SERP, unless otherwise indicated.
7.4 Non-alienation of Benefits.
--------------------------
The right to receive a benefit under the SERP shall not be subject in any
manner to anticipation, alienation, or assignment, nor shall such right be
liable for or subject to debts, contracts, liabilities. Should any Participants,
Former Participants, Beneficiaries or other person attempt to anticipate,
alienate or assign his interest in or right to a benefit, or should any person
claiming against him seem to subject such interest or right to legal or
equitable process, all the interest or right of such Participants or Former
Participants, Beneficiaries or ocher person entitled
8
<PAGE>
to benefits under the SERP shall cease, and in that event, such interest or
right shall be held or applied, at the direction of the Board, for or to the
benefit of such Participants, Former Participants, Beneficiaries or other person
or his spouse, children or other dependents in such manner and in such
proportions as the Board may deem proper.
7.5 Operation as Unfunded Nonqualified Plan.
---------------------------------------
The SERP is intended to be an unfunded, Nonqualified Plan maintained
primarily for the purpose of providing deferred compensation for a select group
of management or highly compensated employees. The SERP is not intended to
comply with the requirements of Section 401(a) of the Code. The SERP shall be
administered and construed so as to effectuate this intent.
7.6 Reliance Upon Information
-------------------------
The Board shall not be liable for any decision or action taken in good
faith in connection with the administration of the SERP. Without limiting the
generality of the foregoing, any such decision or action taken by the Board in
reliance upon any information supplied to them by an officer of the Bank, the
Bank's legal counsel, or the Bank's independent accountants in connection with
the administration of the SERP shall be deemed to have been taken in good faith.
7.7 Effective Date
--------------
The SERP shall become effective ___________, 1998.
9
<PAGE>
EXHIBIT 10.10
FORM OF
FIRST FEDERAL LINCOLN BANK
Consultation Plan for Non-Employee Directors
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
FOREWORD
<S> <C>
SECTION 1 DEFINITIONS.......................................... 1
SECTION 2 PARTICIPATION........................................ 2
2.1 Commencement of Participation........................ 2
2.2 Continuation of Participation......................... 2
SECTION 3 RETIREMENT BENEFITS.................................. 3
3.1 Entitlement to Benefits.............................. 3
3.2 Amount of Benefits................................... 4
3.3 Duration of Benefits................................. 4
3.4 Death Benefit........................................ 4
3.5 Suspension of Benefits............................... 4
3.6 Unfunded Plan........................................ 5
SECTION 4 MISCELLANEOUS........................................ 5
4.1 Restriction Against Assignment....................... 5
4.2 Payments in the Event of Incompetence................ 6
4.3 No Right to Continue as Eligible Director............ 6
4.4 Discharge of Plan Obligations........................ 6
SECTION 5 ADMINISTRATION OF THE PLAN........................... 6
5.1 Administration of the Plan........................... 6
5.2 Responsibility of Committee.......................... 6
5.3 Claims Procedure..................................... 7
5.4 Limitation on Liability.............................. 7
5.5 Agent for Service of Process......................... 8
SECTION 6 AMENDMENT OF THE PLAN................................ 8
6.1 Plan Amendments...................................... 8
SECTION 7 DISCONTINUANCE OF THE PLAN........................... 8
7.1 Termination of Plan.................................. 8
SECTION 8 CONSTRUCTION OF THE PLAN............................. 9
8.1 Construction of the Plan............................. 9
8.2 Headings............................................. 9
</TABLE>
<PAGE>
FORM OF
FIRST FEDERAL LINCOLN BANK
CONSULTATION PLAN FOR NON-EMPLOYEE DIRECTORS
FOREWORD
First Federal Lincoln Bank (the "Bank") hereby approves and adopts the First
Federal Lincoln Bank Consultation Plan for Non-Employee Directors (the "Plan")
effective [Date].
The Plan is intended to promote the interests of the Bank by providing for the
continuing advice of retiring eligible members of its Board of Directors and to
provide such eligible members with retirement income.
<PAGE>
SECTION 1
DEFINITIONS
As used herein, the following terms shall have the following respective
meanings, unless a different meaning is required by the context:
1.1 "Bank" means First Federal Lincoln Bank.
----
1.2 "Beneficiary" means the person(s) designated by the Participant on the
-----------
Beneficiary designation form to receive benefits, if any, to which the
Participant was entitled at the time of the Participant's death. If there
is no valid Beneficiary designation form on file at the time of the
Participant's death, the Participant's Spouse shall be the Beneficiary.
1.3 "Board of Directors" means the Board of Directors of the Bank.
------------------
1.4 "Code" mean the Internal Revenue Code of 1986, as amended.
----
1.5 "Committee" means the Committee designated by the Board of Directors to
---------
administer the Plan pursuant to Section 5.
1.6 "Director" means a member of the Board of Directors.
--------
1.7 "Effective Date" means [Date].
--------------
1.8 "Eligible Director" means a member of the Board of Directors who is not an
-----------------
employee of the Bank or any organization that is under common control with
the Bank, as determined under Sections 414(b), (c), (m), or (o) of the
Code.
1.9 "Participant" means an Eligible Director or former Eligible Director who
-----------
participates in the Plan pursuant Section 2.
1.10 "Plan" means the First Federal Lincoln Bank Consultation Plan for Non-
----
Employee Directors as herein set forth, and as may be amended from time to
time.
1.11 "Retirement Date" means the date on which the Participant actually retires
---------------
from Service.
<PAGE>
1.12 "Service" means membership on the Board of Directors as an Eligible
-------
Director, including membership on the Board of Directors as an Eligible
Director prior to the Effective Date, and any time during which the
individual served as an employee of the Bank.
1.14 "Spouse" means the spouse of a Participant at the Participant's date of
------
death.
Except where otherwise clearly indicated by the context, any masculine
terminology used herein shall include the feminine and vice versa and the
definition of any term herein in the singular shall include the plural and vice
versa.
SECTION 2
PARTICIPATION
2.1 Commencement of Participation.
-----------------------------
On and after the Effective Date, all Eligible Directors shall become
Participants in the Plan. Participation shall begin immediately upon on
the later of the Effective Date or the commencement of the individual's
Service as an Eligible Director.
2.2 Continuation of Participation.
-----------------------------
An Eligible Director who has become a Participant shall continue as a
Participant as long as he or she continues to be an Eligible Director or
is entitled to benefits under the Plan.
2
<PAGE>
SECTION 3
RETIREMENT BENEFITS
3.1 Entitlement to Benefits.
-----------------------
(a) A Participant who:
(i) has ten (10) or more years of Service; and
(ii) executes a consulting agreement within 30 days after the
Participant's Retirement Date pursuant to which the
Participant agrees to provide consulting services to the Bank
as requested from time to time by the Board of Directors, not
to exceed four (4) days each month; and
(iii) continues to provide the services agreed to in such consulting
agreement, unless relieved of such services through the
judgement of the Board of Directors under Section 4.2 of the
Plan.
shall have a vested right to receive retirement benefits under the
Plan.
(b) Notwithstanding the requirements of Section 3.1(a), an Eligible
Director who dies while in service as a member of the Board of
Directors shall be entitled to a retirement benefit determined under
Section 3.2.
(c) Notwithstanding the foregoing, no benefits may be paid to a
Participant if a cease and desist order has been entered by the
Office of Thrift Supervision requiring the Participant to cease
participating in the affairs of the Bank.
3
<PAGE>
3.2 Amount of Benefits.
------------------
The annual benefit payable to a Participant shall be equal to the
following percentage of the then current remuneration for active members
of the Board of Directors:
<TABLE>
<CAPTION>
Years
of Participation Percent of Remuneration
---------------- -----------------------
<S> <C>
1 100%
2 80%
3 60%
4 40%
5 20%
</TABLE>
3.3 Duration of Benefits.
--------------------
Retirement benefits determined under Section 3.2 shall be paid monthly, in
installments of 1/12th the annual amount, commencing on the Participant's
Retirement Date.
3.4 Death Benefit.
-------------
If a Participant dies while a Participant in this Plan and prior to
completing five years of participation under the Plan, any remaining
unpaid benefits shall be paid to the Participant's Beneficiary, either in
a single lump sum payment or in monthly installment, at the election of
the Participant's Beneficiary as if the Participant had participated in
the Plan for five full years. If the Participant is not married at the
time of his death, or if the Participant's Beneficiary predeceases him,
any remaining benefit shall be paid to the Participant's estate in a
single lump sum payment as soon as practicable after the date of the
Participant's death or in installment payments, at the election of the
estate. If a Participant's Beneficiary should die prior to receiving all
of the benefits to which he or she otherwise would have been entitled
under this Section 3.4, any remaining benefits payable to the
Participant's Beneficiary shall be paid to the Beneficiary's estate in a
single lump sum payment as soon as practicable after the date of his or
her death.
3.5 Suspension of Benefits.
----------------------
Notwithstanding the foregoing, no payments or portions thereof shall be
made under this Plan if such payment or portion thereof would result in
the Bank failing to meet its minimum capital requirements. Any payments or
portions thereof which have been
4
<PAGE>
suspended shall remain suspended until such time as their payment would
not result in a failure to meet the Bank's minimum capital requirements.
Any portion of benefit payments which have not been suspended will be paid
on an equitable basis, pro rata based upon amounts due each Participant or
Beneficiary, among all eligible Participants and Beneficiaries.
3.6 Unfunded Plan.
-------------
The Plan is intended to constitute an "unfunded" plan for the payment of
deferred compensation. With respect to any payments not yet made to a
Participant, nothing contained herein shall give any such Participant any
rights that are greater than those of a general creditor of the Bank. In
its sole discretion, the Board of Directors may authorize the creation of
trusts or other arrangements to meet the obligations created under the
Plan, provided, however, that, unless the Board of Directors otherwise
determines with the consent of the affected Participant, the existence of
such trusts or other arrangements is consistent with the unfunded status
of the Plan.
SECTION 4
MISCELLANEOUS
4.1 Restriction Against Assignment.
------------------------------
It is a condition of the Plan, and all rights of each Participant shall be
subject thereto, that no right or interest of any Participant in the Plan
and no benefit payable under the Plan shall be subject in any manner to
anticipation, alienation, sale, transfer, assignment, pledge, encumbrance,
or charge, and any action by way of anticipating, alienating, selling,
transferring, assigning, pledging, encumbering, or charging the same shall
be void and of no effect; nor shall any such right, interest or benefit be
in any manner liable for or subject to the debts, contracts, liabilities,
engagements, or torts of the person entitled to such right, interest or
benefit, except as specifically provided in this Plan.
4.2 Payments in the Event of Incompetence.
-------------------------------------
If any person entitled to receive any benefits hereunder is, in the
judgment of the Committee, legally, physically, or mentally incapable of
personally receiving and receipting for any distribution, the Committee
may direct that any distribution due such person, unless claim has been
made therefor by a duly appointed legal
5
<PAGE>
representative, be made to his or her spouse, children or other
dependents, or to a person with whom he or she resides, and any other
distribution so made shall be a complete discharge of the liabilities of
the Plan.
4.3 No Right to Continue as Eligible Director.
-----------------------------------------
The establishment of the Plan shall not be construed as conferring any
rights upon any Eligible Director for continuation of service as an
Eligible Director, nor shall it be construed as limiting in any way the
right of the Bank to treat him without regard to the effect which such
treatment might have upon him as a Participant under the Plan.
4.4 Discharge of Plan Obligations.
-----------------------------
The determination of the Committee as to the identity of the proper payee
of any benefit payment and the amount properly payable shall be
conclusive, and payments in accordance with such determination shall
constitute a complete discharge of all obligations on account thereof.
SECTION 5
ADMINISTRATION OF THE PLAN
5.1 Administration of the Plan.
--------------------------
Administration of the Plan shall be the responsibility of the Committee.
5.2 Responsibility of Committee.
---------------------------
The Committee shall be responsible for the administration, operation and
interpretation of the Plan. The Committee shall establish rules from time
to time for the transaction of its business. It shall have the exclusive
right to interpret the Plan and to decide any and all matters arising
thereunder or in connection with the administration of the Plan, and it
shall endeavor to act, whether by general rules or by particular
decisions, so as not to discriminate in favor of any person or class of
person. Such decisions, actions and records of the Committee shall be
conclusive and binding upon the Bank and all persons having or claiming to
have any right or interest in or under the Plan.
6
<PAGE>
5.3 Claims Procedure.
----------------
In the event that any Participant or other payee claims to be entitled to
a benefit under the Plan, and the Committee determines that such claim
should be denied in whole or in part, the Committee shall, in writing,
notify such claimant within 90 days of receipt of such claim that his or
her claim has been denied, setting forth the specific reasons for such
denial. Such notification shall be written in a manner reasonably expected
to be understood by such Participant or other payee and shall set forth
the pertinent sections of the Plan relied on, and where appropriate, an
explanation of how the claimant can obtain review of such denial. Within
60 days after receipt of such notice, such claimant may request, by
mailing or delivery of written notice to the Committee, a review by the
Committee of the decision denying the claim. If the claimant fails to
request such a review within such 60 day period, it shall be conclusively
determined for all purposes of this Plan that the denial of such claim by
the Committee is correct. If such claimant requests a review within such
60 day period, the Participant or other payee shall have 30 days after
filing a request for review to submit additional written material in
support of the claim. Within 60 days after the later of its receipt of the
request for review or the request to submit additional written material,
the Committee shall determine whether such denial of the claim was correct
and shall notify such claimant in writing of its determination. If such
determination is favorable to the claimant, it shall be binding and
conclusive. If such determination is adverse to such claimant, it shall be
binding and conclusive unless the claimant notifies the Committee within
90 days after the mailing or delivery to him or her by the Committee of
its determination, that the claimant intends to institute legal
proceedings challenging the determination of the Committee, and actually
institutes such legal proceedings within 180 days after such mailing or
delivery.
5.4 Limitation on Liability.
-----------------------
The Committee shall not be liable for any act or omission on its part,
excepting only its own willful misconduct or gross negligence or except as
otherwise expressly provided by applicable law. To the extent permitted by
applicable law, and not otherwise covered by insurance, the Bank shall
indemnify and save harmless the Committee members against any and all
claims, demands, suits or proceedings in connection with the Plan that may
be brought by Participants or by any other person, corporation, entity,
government or agency thereof; provided, however that such indemnification
shall not apply with respect to acts or omissions of willful misconduct or
gross negligence. The Board of Directors, at the
7
<PAGE>
expense of the Bank, may settle such claim or demand asserted, or suit or
proceedings brought, against the Committee when such settlement appears to
be in the best interest of the Bank.
5.5 Agent for Service of Process.
----------------------------
The Committee or such other person as may from time to time be designated
by the Committee shall be the agent for service of process under the Plan.
SECTION 6
AMENDMENT OF THE PLAN
6.1 Plan Amendments.
---------------
This Plan may be wholly or partially amended or otherwise modified at any
time by the Board of Directors, provided, however, that no amendment or
modification shall have any retroactive effect so as to deprive any person
of any benefit already accrued without the consent of such person.
SECTION 7
DISCONTINUANCE OF THE PLAN
7.1 Termination of Plan.
-------------------
The Plan may be terminated at any time by the Board of Directors by
written notice to the Committee at the time acting hereunder. In the event
of the termination of the Plan, Participants with a vested right under
Section 3.1 of the Plan shall continue to receive benefits as described
herein under all the terms of this Plan. No person who at the time of the
termination of this Plan does not then have a fully vested right or who is
otherwise ineligible for payment of benefits shall receive any benefit
under this Plan.
8
<PAGE>
SECTION 8
CONSTRUCTION OF THE PLAN
8.1 Construction of the Plan.
------------------------
The validity of the Plan or any of the provisions thereof shall be
determined under and shall be construed according to the laws of the State
of Nebraska.
8.2 Headings.
--------
Headings or titles to sections or paragraphs in this document are for
convenience of reference only and are not part of the Plan for any other
purposes.
IN WITNESS WHEREOF, and as evidence of the adoption of the Plan by the Bank, it
has caused the same to be signed by its officer duly authorized, and its
corporate seal to be affixed this ___ day of _____________, 1997.
ATTEST: FIRST FEDERAL LINCOLN BANK
____________________ By: ________________________________
Secretary
9
<PAGE>
Exhibit 23.1
[LETTERHEAD OF KPMG PEAT MARWICK LLP APPEARS HERE]
ACCOUNTANTS' CONSENT
The Board of Directors
First Federal Lincoln Bank:
We consent to the use of our reports included herein and to the reference to our
firm under the headings "Experts" and "Legal and Tax Opinions" in the
prospectus.
Our report dated August 20, 1997 (October 7, 1997 as to note 21) refers to a
change in the accounting for securities.
/s/ KPMG Peat Marwick LLP
Lincoln, Nebraska
December 11, 1997
<PAGE>
[KPMG PEAT MARWICK LLP LETTERHEAD APPEARS HERE]
ACCOUNTANTS' CONSENT
The Board of Directors
First Federal Lincoln Bank:
We consent to the use of our report on the financial statements of the First
Federal Lincoln Bank Savings Plan included herein in the savings plan prospectus
supplement.
Our report dated June 13, 1997 disclaims an opinion on the Savings Plan
financial statements as permitted by 29 CFR 2520.103-8 of the Department of
Labor's Rules and Regulations for Reporting and Disclosure under the Employee
Retirement Income Security Act of 1974.
KPMG Peat Marwick LLP
Lincoln, Nebraska
December 11, 1997
<PAGE>
Exhibit 23.2
CONSENT
We hereby consent to the references to this firm and our opinions in the
Registration Statement on Form S-1 filed by First Lincoln Bancshares Inc., and
all amendments thereto and the Application for Conversion on the Form AC filed
by First Federal Lincoln Bank (the "Bank") and all amendments thereto, relating
to the conversion of the Bank from a federally-chartered mutual savings bank to
a federally-chartered stock savings bank, the concurrent issuance of the Bank's
outstanding capital stock to First Lincoln Bancshares Inc., a holding company
formed for such purpose, and the offering of First Lincoln Bancshares Inc.'s
common stock.
MULDOON, MURPHY & FAUCETTE
/s/ Muldoon, Murphy & Faucette
Dated this 12th day of
December, 1997
<PAGE>
Exhibit 23.3
[MORRIS, NICHOLS, ARSHT & TUNNELL LETTTERHEAD APPEARS HERE]
December 12, 1997
Muldoon, Murphy & Faucette
5101 Wisconsin Avenue, N.W.
Washington, DC 20016
Ladies and Gentlemen:
We hereby consent to the filing of our opinion to you concerning
certain matters of Delaware law in connection with the subscription and
community offering (the "Offering") by First Lincoln Bancshares Inc., a Delaware
corporation (the "Company"), of shares of its common stock, par value $.01 per
share, in draft or final form, as an exhibit to (i) the Registration Statement
filed with the Securities and Exchange Commission by the Company in connection
with the Offering, and all amendments thereto, and (ii) the Application for
Conversion filed with the Office of Thrift Supervision in connection with the
conversion of First Federal Lincoln Bank, a federally chartered savings bank,
from the mutual form of ownership to stock form of ownership, and all amendments
thereto, and to the reference to this firm in the "Legal Matters" section of the
Prospectus relating to the Offering.
Very truly yours,
/s/ Morris, Nichols, Arsht & Tunnell
<PAGE>
Exhibit 23.4
[LETTERHEAD OF KELLER & COMPANY, INC. APPEARS HERE]
December 12, 1997
Re: Valuation Appraisal of First Lincoln Bancshares
First Federal Lincoln Bank
Lincoln, Nebraska
We hereby consent to the use of our firm's name, Keller & Company, Inc.
("Keller"), and the reference to our firm as experts in the Application for
Conversion on Form AC to be filed by First Federal Lincoln Bank 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 Form S-1 to be filed by First Lincoln
Bancshares with the Securities and Exchange Commission and any amendments
thereto, and to the statements with respect to us and the references to our
Valuation Appraisal Report and in the said Form AC and any amendments thereto
and in the notice and Application for Conversion filed by First Federal Lincoln
Bank, Lincoln, Nebraska.
Very truly yours,
KELLER & COMPANY, INC.
by: /s/ Michael R. Keller
---------------------
Michael R. Keller
President
<PAGE>
[LETTERHEAD OF KELLER & COMPANY, INC. APPEARS HERE]
December 12, 1997
The Board of Directors
First Federal Lincoln Bank
13th & "N" Streets
Lincoln, Nebraska 68508
Re: Subscription Rights - Conversion of First Federal Lincoln Bank
Lincoln, Nebraska
Gentlemen:
The purpose of this letter is to provide an opinion of the value of the
subscription rights of the "to be issued" common stock of First Lincoln
Bancshares (the "Corporation"), Lincoln, Nebraska in regard to the conversion of
First Federal Lincoln Bank ("First Federal Lincoln" or the "Bank") from a
federal-chartered mutual savings bank to a federal-chartered stock savings bank.
Because the Subscription Rights to purchase shares of Common Stock in First
Lincoln Bancshares, which are to be issued to the depositors of First Federal
Lincoln Bank and the other members of the Bank and will be acquired by such
recipients without cost, will be nontransferable and of short duration and will
afford the recipients the right only to purchase shares of Common Stock at the
same price as will be paid by members of the general public in a Direct
Community Offering, we are of the opinion that:
(1) The Subscription Rights will have no ascertainable fair market value,
and;
(2) The price at which the Subscription Rights are exercisable will not be
more or less than the fair market value of the shares on the date of
the exercise.
Further, it is our opinion that the Subscription Rights will have no economic
value on the date of distribution or at the time of exercise, whether or not a
community offering takes place.
Sincerely,
KELLER & COMPANY, INC.
/s/ Michael R. Keller
- ---------------------
Michael R. Keller
President
<PAGE>
Exhibit 24.1
CONFORMED
POWERS OF ATTORNEY
KNOW ALL MEN BY THESE PRESENT, that each person whose signature appears
below constitutes and appoints Gilbert G. Lundstrom and Eugene B. Witkowicz 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 on
Form AC 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 Thrift Supervision 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 Part 563b of the OTS Rules and Regulations
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 on Form AC 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/ Gilbert G. Lundstrom December 12, 1997
- ---------------------------
Gilbert G. Lundstrom
President, Chief Executive Officer
and Director
(principal executive officer)
First Lincoln Bancshares Inc.
President, Chief Executive Officer
and Director
(principal executive officer)
First Federal Lincoln Bank
/s/ Eugene B. Witkowicz December 12, 1997
- --------------------------
Eugene B. Witkowicz
Executive Vice President, Treasurer and
Chief Financial Officer
(principal financial and accounting officer)
First Lincoln Bancshares Inc.
Executive Vice President, Treasurer, Chief
Financial Officer and Director of Finance
(principal accounting and financial officer)
First Federal Lincoln Bank
<PAGE>
/s/ LaVern F. Roschewski December 12, 1997
- --------------------------
LaVern F. Roschewski
Chairman of the Board
First Lincoln Bancshares Inc.
Chairman of the Board of the Bank
and Chairman of the Board and Chief
Executive Officer of First Federal
Lincoln Bank - Iowa
/s/ Campbell McConnell December 12, 1997
- --------------------------
Campbell McConnell
Director
First Lincoln Bancshares Inc.
Director
First Federal Lincoln Bank
/s/ Ann Lindley Spence December 12, 1997
- --------------------------
Ann Lindley Spence
Director
First Lincoln Bancshares Inc.
Director
First Federal Lincoln Bank
/s/ Joyce Person Pocras December 12, 1997
- --------------------------
Joyce Person Pocras
Director
First Lincoln Bancshares Inc.
Director
First Federal Lincoln Bank
<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> <C>
<PERIOD-TYPE> YEAR 9-MOS
<FISCAL-YEAR-END> JUN-30-1997 JUN-30-1998
<PERIOD-START> JUL-01-1996 JUL-01-1997
<PERIOD-END> JUN-30-1997 SEP-30-1997
<CASH> 12,748 12,124
<INT-BEARING-DEPOSITS> 0 0
<FED-FUNDS-SOLD> 3,600 33,700
<TRADING-ASSETS> 0 0
<INVESTMENTS-HELD-FOR-SALE> 750 746
<INVESTMENTS-CARRYING> 179,620 139,073
<INVESTMENTS-MARKET> 179,193 139,417
<LOANS> 841,978 845,399
<ALLOWANCE> 6,330 7,022
<TOTAL-ASSETS> 1,042,335 1,033,578
<DEPOSITS> 920,120 923,669
<SHORT-TERM> 0 0
<LIABILITIES-OTHER> 21,734 18,782
<LONG-TERM> 21,569 10,565
0 0
0 0
<COMMON> 0 0
<OTHER-SE> 78,912 80,562
<TOTAL-LIABILITIES-AND-EQUITY> 1,042,335 1,033,578
<INTEREST-LOAN> 63,942 17,159
<INTEREST-INVEST> 12,881 2,544
<INTEREST-OTHER> 1,523 410
<INTEREST-TOTAL> 78,346 20,113
<INTEREST-DEPOSIT> 46,546 11,791
<INTEREST-EXPENSE> 47,198 11,986
<INTEREST-INCOME-NET> 31,148 8,127
<LOAN-LOSSES> 450 713
<SECURITIES-GAINS> 1 0
<EXPENSE-OTHER> 27,249 5,707
<INCOME-PRETAX> 7,035 2,598
<INCOME-PRE-EXTRAORDINARY> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 4,340 1,643
<EPS-PRIMARY> 0 0
<EPS-DILUTED> 0 0
<YIELD-ACTUAL> 7.80 8.01
<LOANS-NON> 1,814 1,112
<LOANS-PAST> 0 0
<LOANS-TROUBLED> 3,233 1,808
<LOANS-PROBLEM> 0 0
<ALLOWANCE-OPEN> 5,918 6,330
<CHARGE-OFFS> 64 25
<RECOVERIES> 26 4
<ALLOWANCE-CLOSE> 6,330 7,022
<ALLOWANCE-DOMESTIC> 6,330 7,022
<ALLOWANCE-FOREIGN> 0 0
<ALLOWANCE-UNALLOCATED> 3,157 3,874
</TABLE>
