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As filed with the Securities and Exchange Commission on February 4, 1998
Registration No. 333-42197
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
PRE-EFFECTIVE AMENDMENT NO. 1 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)
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DELAWARE 6036 BEING APPLIED FOR
(State or Other Jurisdiction of (Primary Standard Industrial (IRS Employer Identification No.)
Incorporation or Organization) Classification Code Number)
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13th & "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
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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Proposed Maximum Proposed Maximum
Title of each Class of Amount to Offering Price Aggregate Amount of
Securities to be Registered be Registered Per Share Offering Price(2) Registration Fee
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Common Stock $.01 par value(1) 9,777,904 Shares $20.00 $195,558,080 (3)
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Participation Interests (4) -- $15,049,386 (5)
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(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) Registration fee previously paid with Form S-1 filed on December 12, 1997.
(4) 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.
(5) 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.
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[To be used in connection with sales to Participants in the First Federal
Lincoln Bank Savings Plan]
PROSPECTUS SUPPLEMENT
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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" PAGES ___ TO __ OF THE PROSPECTUS.
THE DATE OF THIS PROSPECTUS SUPPLEMENT IS ____________________, 1998.
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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.
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TABLE OF CONTENTS
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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
FINANCIAL STATEMENTS..................................... A1 to A9
INVESTMENT FORM............................................... 18
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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
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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
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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, and was amended in connection with the Conversion to
provide for the investment in Common Stock. 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
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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
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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:
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(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.
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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.
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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.
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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, 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. After the Conversion, at the discretion of the
Bank, the "Matching Contribution" portion of Participants' 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 4.90 6.77 5.15
</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" PAGES ____ TO ____ 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 of the Employer Stock Fund is the Delaware Charter Guarantee & Trust
Company. The Trustee with respect to the investment funds other than the
Employer Stock Fund is the Principal Financial Group. Pursuant to the terms of
the Plan, the Trustee receives, holds and invests the contributions to the Plan
in trust and distributes them to Participants and beneficiaries in accordance
with the
11
<PAGE>
terms of the Plan and the directions of the Plan Administrator. The Trustee is
responsible for investment of the assets of the Trust.
REPORTS TO PLAN PARTICIPANTS
The 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).
12
<PAGE>
FEDERAL INCOME TAX CONSEQUENCES
The following is only a brief summary of certain federal income tax aspects
of the Plan which are of general application under the Code and is not intended
to be a complete or definitive description of the federal income tax
consequences of participating in or receiving distributions from the Plan. The
summary is necessarily general in nature and does not purport to be complete.
Moreover, statutory provisions are subject to change, as are their
interpretations, and their application may vary in individual circumstances.
Finally, the consequences under applicable state and local income tax laws may
not be the same as under the federal income tax laws. PARTICIPANTS ARE URGED TO
CONSULT THEIR TAX ADVISORS WITH RESPECT TO ANY DISTRIBUTION FROM THE PLAN AND
TRANSACTIONS INVOLVING THE PLAN.
The Plan will be submitted to the IRS in a timely manner for a
determination that it is qualified under Section 401(a) and 401(k) of the Code,
and that the related Trust is exempt from tax under Section 501(a) of the Code.
A plan that is "qualified" under these sections of the Code is afforded special
tax treatment which include the following: (1) The sponsoring employer is
allowed an immediate tax deduction for the amount contributed to the Plan each
year; (2) Participants pay no current income tax on amounts contributed by the
employer on their behalf; and (3) earnings of the plan are tax-deferred thereby
permitting the tax-free accumulation of income and gains on investments. The
Plan will be administered to comply in operation with the requirements of the
Code as of the applicable effective date of any change in the law. The Bank
expects to timely adopt any amendments to the Plan that may be necessary to
maintain the qualified status of the Plan under the Code. Following such an
amendment, the Bank will submit the Plan to the IRS for a determination that the
Plan, as amended, continues to qualify under Sections 401(a) and 501(a) of the
Code and that it continues to satisfy the requirements for a qualified cash or
deferred arrangement under Section 401(k) of the Code. Should the Plan receive
from the IRS an adverse determination letter regarding its tax exempt status,
all participants would generally recognize income equal to their vested interest
in the Plan, the participants would not be permitted to transfer amounts
distributed from the Plan to an IRA or to another qualified retirement plan, and
the Bank may be denied certain deductions taken with respect to the Plan.
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.
13
<PAGE>
Averaging Rules. The portion of the total taxable amount of a Lump Sum
---------------
Distribution that is attributable to participation after 1973 in this Plan or in
any other profit-sharing plan maintained by the Bank (the "ordinary income
portion") will be taxable generally as ordinary income for federal income tax
purposes. However, a Participant who has completed at least five years of
participation in this Plan before the taxable year in which the distribution is
made, or a beneficiary who receives a Lump Sum Distribution on account of the
Participant's death (regardless of the period of the Participant's participation
in this Plan or any other profit-sharing plan maintained by the Employers), may
elect to have the ordinary income portion of such Lump Sum Distribution taxed
according to a special averaging rule ("five-year averaging"). The election of
the special averaging rules may apply only to one Lump Sum Distribution received
by the Participant or beneficiary, provided such amount is received on or after
the Participant turns 59-1/2 and the recipient elects to have any other Lump Sum
Distribution from a qualified plan received in the same taxable year taxed under
the special averaging rule. Under a special grandfather rule, individuals who
turned 50 by 1986 may elect to have their Lump Sum Distribution taxed under
either the five-year averaging rule or under the prior law ten-year averaging
rule. Such individuals also may elect to have that portion of the Lump Sum
Distribution attributable to the participant's pre-1974 participation in the
Plan taxed at a flat 20% rate as gain from the sale of a capital asset.
Common Stock Included in Lump Sum Distribution. If a Lump Sum Distribution
----------------------------------------------
includes Common Stock, the distribution generally will be taxed in the manner
described above, except that the total taxable amount will be reduced by the
amount of any net unrealized appreciation with respect to such Common Stock,
i.e., the excess of the value of such Common Stock at the time of the
distribution over its cost or other basis of the securities to the Trust. The
tax basis of such Common Stock to the Participant or beneficiary for purposes of
computing gain or loss on its subsequent sale will be the value of the Common
Stock at the time of distribution less the amount of net unrealized
appreciation. Any gain on a subsequent sale or other taxable disposition of
such Common Stock, to the extent of the amount of net unrealized appreciation at
the time of distribution, will be considered long-term capital gain regardless
of the holding period of such Common Stock. Any gain on a subsequent sale or
other taxable disposition of the Common Stock in excess of the amount of net
unrealized appreciation at the time of distribution will be considered either
short-term, 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
14
<PAGE>
"eligible rollover distribution" means any amount distributed from the Plan
except: (1) a distribution that is (a) one of a series of substantially equal
periodic payments (not less frequently than annually) made for the life (or life
expectancy) of the Participant or the joint lines of the Participant and his or
her designated beneficiary, or (b) for a specified period of ten years or more;
(2) any amount that is required to be distributed under the minimum distribution
rules; and (3) any other distributions excepted under applicable federal law.
The tax law change described above did not modify the special tax treatment of
Lump Sum Distributions, that are not rolled over or transferred i.e., forward
averaging, capital gains tax treatment and the nonrecognition of net unrealized
appreciation, discussed earlier.
ERISA AND OTHER QUALIFICATION
As noted above, the Plan is subject to certain provisions of 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
15
<PAGE>
under the Securities Act or some other exemption from registration, and will not
be permitted to use this Prospectus in connection with any such resale. In
general, the amount of the Bank's Common Stock which any such affiliate may
publicly resell pursuant to Rule 144 in any three-month period may not exceed
the greater of one percent of the Bank's Common Stock then outstanding or the
average weekly trading volume reported on the 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
Table of Contents
December 31, 1996 and 1995
================================================================================
Independent Auditors' Report A-2
Statements of Net Assets Available for Plan Benefits A-3
Statements of Changes in Net Assets Available for Pension Benefits A-4
Notes to Financial Statements A-5 - A-9
<TABLE>
<CAPTION>
Schedule
<S> <C>
Item 27a - Schedule of Assets Held for Investment Purposes 1
Item 27d - Schedule of Reportable Transactions 2
</TABLE>
A-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
A-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.
A-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.
A-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)
A-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)
A-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>
A-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.
A-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.
A-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 16.
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>
============================================================================================================================
SUBSCRIPTION PRICE(1) ESTIMATED UNDERWRITING ESTIMATED
COMMISSIONS AND OTHER FEES AND NET PROCEEDS(3)
EXPENSES(2)
<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 ___________________, 1998.
<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) HOLDERS OF DEPOSIT ACCOUNTS (AS MORE PARTICULARLY DESCRIBED
HEREIN) OF 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"). Upon completion of the Subscription
Offering, and subject to the prior rights of holders of subscription rights, the
Company will offer 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 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 (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."
2
<PAGE>
THE SUBSCRIPTION OFFERING 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. The Community Offering
and/or any Syndicated Community Offering must be completed within 45 days after
the close of the Subscription Offering, 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 ___________, 2000. See "The Conversion --
Subscription Offering and Subscription Rights" and "-- 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>
INSERT MAP PAGE 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.
<TABLE>
<CAPTION>
<S> <C>
Risk Factors........................... A purchase of the Common Stock involves a substantial degree of risk. Eligible
Account Holders, Supplemental Eligible Account Holders, Other 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
13/th/ & "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 13/th/ & "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 single-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."
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
The First Federal Lincoln Foundation.... The Plan of Conversion provides for the establishment of a charitable foundation in
connection with the Conversion. The Foundation, which will be incorporated under
Delaware law as a non-stock corporation, will be funded with a contribution by the
Company equal to 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. Upon completion of the Subscription
Offering, and subject to the prior rights of holders of subscription rights, any
shares of Common Stock not subscribed for in the Subscription Offering will be
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.
Deposit accounts which will provide subscription rights consist of any "savings
account," as defined by the Plan consistent with OTS regulations. Pursuant to the
Plan, deposit accounts do not include any demand accounts maintained at the Bank. 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."
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
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. Neither the Company nor the Bank
will take any action to further the payment of capital dividends for one year
following the Conversion without prior approval by the OTS. See "Use of Proceeds."
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Dividend Policy........................ Upon Conversion, the Board of Directors of the Company will have the authority to
declare dividends on the Common Stock, subject to statutory and regulatory
requirements. In the future, the Board of Directors of the Company may consider a
policy of paying cash dividends on the Common Stock. However, no decision has been
made with respect to such dividends, if any. Additionally, in connection with the
Conversion, the Company and the Bank have committed to the OTS that during the one-
year period following the consummation of the Conversion, the Company will not take
any action to further the payment of a return of capital dividend without prior
approval by the OTS. See "Dividend Policy."
Benefits of the Conversion to
Management............................ Among the benefits to the Bank and the Company anticipated from the Conversion is the
ability to attract and retain personnel through the use of stock options and other
stock related benefit programs. Subsequent to the Conversion, the Company intends to
adopt 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 to
purchase approximately 2.7% or 2.0% 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 20.2% or 19.7% 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."
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Goodwill Litigation.................... The Bank has filed a lawsuit (the "Goodwill Litigation") in the United States Court
of Federal Claims against the United States Government ("Government"), contending
that the Government breached its contracts with the Bank in connection with three
separate 1982 supervisory merger transactions and that the Government deprived the
Bank of its property rights without due process. The Goodwill Litigation was stayed
pending the resolution on appeal of United States v. Winstar Corporation, No. 95-865,
and other consolidated cases (the "Winstar Cases"). The United States Supreme Court
affirmed a decision granting summary judgment to the plaintiffs in the Winstar Cases
on the issue of the Government's liability and remanded the proceedings for a
determination of the amount of damages. The United States Court of Federal Claims
issued a case management order governing the procedure for all cases similar to the
Winstar Cases, including the Bank's. Based on the current status of proceedings, the
Bank does not expect to litigate its case for at least two years. No claim for
specific damages has been filed pending a determination of the Government's
liability. There can be no assurance as to the amount of any damages that may be
awarded, if any, with respect to the Goodwill Litigation or when such damages, if
any, may be awarded or received by the Bank. The independent appraisal by Keller upon
which the number of shares to be issued in the Conversion is based assigned no value
to any possible recovery by the Bank with regard to the Goodwill Litigation. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Impact of Goodwill Litigation."
Expiration Date for the
Subscription Offering................. The Expiration Date for the Subscription Offering is 12:00 noon, Central time on
_______________, 1998, unless extended by the Bank and the Company, with approval of
the OTS, if necessary. 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."
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 the Conversion, call the Conversion Center at
(402) _____________.
</TABLE>
9
<PAGE>
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA OF THE BANK
The selected consolidated financial and other data of the Bank set forth
below are derived in part from, and should be read in conjunction with, the
Consolidated Financial Statements of the Bank and Notes thereto presented
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AT SEPTEMBER 30, AT JUNE 30,
----------------------------- -------------------------------------------------------
1997(1) 1996(1) 1997 1996 1995 1994 1993
----------------------------- -------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS)
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
------------------------------- ------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS)
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 net
operating loss carryforward.......... -- -- -- -- -- -- 1,200
------- ------- ------- ------- ------- -------- -------
Net income (loss).................... $ 1,643 $(1,706) $ 4,340 $ 5,375 $ 4,059 $(20,248) $ 9,007
======= ======= ======= ======= ======= ======== =======
(See footnotes on next page)
</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)........................ 0.13% 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>
RECENT DEVELOPMENTS
The selected financial and other data presented below at December 31, 1997
and September 30, 1997 and for the six-month periods ended December 31, 1997 and
1996 are derived from unaudited financial data, but, in the opinion of
management, reflect all adjustments (consisting only of normal recurring
adjustments) which are necessary to present fairly the results for such interim
periods. The results of operations for the six months ended December 31, 1997
are not necessarily indicative of the results of operations that may be expected
for the fiscal year ended June 30, 1998.
<TABLE>
<CAPTION>
AT AT
DECEMBER 31, SEPTEMBER 30,
1997 (1) 1997
-------------- --------------
(IN THOUSANDS)
SELECTED CONSOLIDATED FINANCIAL DATA:
<S> <C> <C>
Total assets........................................................... $1,062,114 $1,033,578
Loans receivable, net(2)............................................... 826,110 818,460
Investment securities held-to-maturity(3).............................. 51,687 58,660
Investment securities available-for-sale(3)............................ -- --
Federal funds sold..................................................... 60,000 33,700
FHLB stock............................................................. 7,205 7,060
Mortgage-backed securities held-to-maturity ........................... 77,647 80,413
Mortgage-backed securities available-for-sale(3) ...................... -- 747
Deposits............................................................... 945,256 923,669
FHLB advances.......................................................... 10,549 10,565
Retained earnings...................................................... 82,844 80,562
Allowance for possible loan losses..................................... 7,159 7,022
Non-performing loans................................................... 1,084 1,112
Non-performing assets.................................................. 1,756 2,283
FOR THE SIX MONTHS
ENDED DECEMBER 31,
-------------------------------------
1997 (1) 1996 (1)
----------- ----------
(IN THOUSANDS)
SELECTED OPERATING DATA:
Interest income........................................................ 40,144 38,703
Interest expense....................................................... 24,115 23,666
---------- ----------
Net interest income................................................... 16,029 15,037
Provision for loan losses.............................................. 958 286
---------- ----------
Net interest income after provision for loan losses................... 15,071 14,751
Total noninterest income............................................... 2,364 2,261
Total noninterest expense.............................................. 11,148 16,699
---------- ----------
Income before provision for income taxes and cumulative effect of
change in accounting principle and extraordinary item................. 6,287 313
Income tax expense..................................................... 2,364 216
---------- ----------
Net income............................................................ $ 3,923 $ 97
========== ==========
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
ENDED DECEMBER 31,
---------------------------------
1997 (1) 1996 (1)
----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
SELECTED FINANCIAL RATIOS AND OTHER DATA(4):
PERFORMANCE RATIOS:
Return on average assets .75% 0.02%
Return on average retained earnings 9.71 0.26
Average retained earnings to average assets 7.70 7.20
Retained earnings to total assets
at end of period 7.80 7.21
Net interest rate spread(5) 2.78 2.65
Net interest margin (6) 3.17 3.02
Average interest-earning assets to average
interest-bearing liabilities 108.10 107.55
Total noninterest expense to average assets 2.12 3.23
Efficiency ratio(7) 60.61 96.54
Net interest income to operating expenses 143.78 90.05
REGULATORY CAPITAL RATIOS(8):
Leveraged capital 7.78 7.18
Total risk-based capital 13.96 14.26
ASSET QUALITY RATIOS:
Total non-performing loans(9) $ 1,084 $ 1,629
Real estate owned, net 672 1,203
Total non-performing assets(10) 1,756 2,832
Non-performing loans as a percent of
loans(9)(11) .13% .21%
Non-performing assets as a percent of total
assets(10) .17 .27
Allowance for possible loan losses as
a percent of loans(2)(11) .86 .78
Allowance for possible loan losses as a percent of total
non-performing loans 660.42 374.83
OTHER DATA:
Number of full service customer facilities 58 58
</TABLE>
_________________
(1) The data presented for the six months ended December 31, 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 six months ended
December 31, 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 December 31, 1997 and 1996, and June 30,
1997, 1996, 1995, 1994 and 1993, was $7.16 million, $6.11 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 payment of the special SAIF assessment during the six
months ended December 31, 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 REO.
(11) Loans include loans held for investment, net, excluding the allowance for
possible loan losses.
13
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RECENT DEVELOPMENTS
COMPARISON OF FINANCIAL CONDITION AT DECEMBER 31, 1997 AND SEPTEMBER 30, 1997
Total assets at December 31, 1997, were $1.06 billion, an increase of $28.5
million, or 2.8%, compared to $1.03 billion at September 30, 1997. During the
quarter the Bank's holdings of federal funds increased by $26.3 million to $60
million at December 31, 1997, compared to $33.7 million at September 30, 1997.
This increase was primarily the result of the $21.6 million increase in deposits
during the quarter. Deposits increased to $945.3 million at December 31, 1997,
compared to a balance of $923.7 million at September 30, 1997. Loans
receivable, net, increased by $7.6 million to $826.1 million at December 31,
1997, compared to $818.5 million at September 30, 1997. This loan growth was
primarily due to the $12.7 million increase in consumer loans offset by declines
in mortgage loans. Investment securities and mortgage-backed securities
declined $10.5 million, or 7.5%, from $139.8 million at September 30, 1997, to
$129.3 million at December 31, 1997. Proceeds from their maturities and
amortizations were used to fund the increases in federal funds and loans
receivable, net. Retained earnings at December 31, 1997, were $82.8 million, an
increase of $2.3 million, compared to $80.6 million at September 30, 1997.
COMPARISON OF OPERATING RESULTS FOR THE SIX MONTHS ENDED DECEMBER 31, 1997 AND
DECEMBER 31, 1996.
General. Net income increased $3.8 million to $3.9 million for the six
months ended December 31, 1997, from $.1 million for the six months ended
December 31, 1996. The $.1 million income for the six months ending December
31, 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 was $3.9 million for both six months ended
December 31, 1997 and December 31, 1996. Net interest margin increased $1.0
million to $16.0 million for the six months ended December 31, 1997, from $15.0
million for the six months ended December 31, 1996. This increase in net
interest margin was offset by a higher provision for loan losses and a small
increase in noninterest expenses after excluding the one-time special
assessment.
Interest Income. Interest income for the six months ended December 31,
1997, was $40.1 million, compared to $38.7 million for the six months ended
December 31, 1996, an increase of $1.4 million or 3.6%. 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 six months ended December 31,
1997, was $24.1 million, compared to $23.7 million for the six months ended
December 31, 1996, an increase of $449,000 or 1.9%. The increase in interest
expense was the result of an increase in the average balance of deposits
partially offset by the decrease in the average cost of FHLB advances.
Provision for Loan Losses. During the six months ended December 31, 1997,
the Bank's provision for loan losses was $958,000 compared to $286,000 for the
six months ended December 31, 1996, an increase of $672,000. The increase in
the provision was due primarily as a result of an increase in consumer loans of
$42.4 million to $103.3 million at December 31, 1997, from $60.9 million at
December 31, 1996.
Non-Interest Income. Non-interest income increased by $103,000 to $2.4
million for the six months ended December 31, 1997, from $2.3 million for the
six months ended December 31, 1996.
Non-Interest Expense. Non-interest expense decreased by $5.6 million to
$11.1 million for the six months ended December 31, 1997, from $16.7 million for
the six months ended December 31, 1996. The
14
<PAGE>
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 $843,000 or 8.4%, to $10.8 million for the six months
ended December 31, 1997, from $10.0 million for the six months ended December
31, 1996. The increase was attributable to higher compensation and employee
benefits, due to annual salary increases and increased employee staff, along
with an increase in advertising expenses, related to deposit generation and
marketing of mortgage loans.
15
<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 its 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 single-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 September 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 180 basis point decline in the Bank's NPV Ratio. 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 - Single-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 single-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 single-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 $1.9 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 the 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 Offering.
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 Offering 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,
24
<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 2.7% or 2.0% 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 20.2% 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.
25
<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."
YEAR 2000 COMPLIANCE
As the year 2000 approaches, an important business issue has emerged
regarding how existing application software programs and operating systems can
accommodate this date value. Many existing application software products,
including the Bank's, were designed to accommodate a two-digit year. For
example, "96" is stored on the system and represents 1996. The Bank primarily
utilizes a third-party vendor for processing the primary banking applications.
In addition, the Bank also uses third-party vendor application software for all
ancillary computer applications. The third-party vendor for the Bank's banking
applications is in the process of modifying, upgrading or replacing its computer
applications to insure Year 2000 compliance. In addition, the Bank has
instituted a Year 2000 compliance program whereby the Bank is reviewing the Year
2000 compliance issues that may be faced by its other third-party vendors.
Under such program, the Bank will examine the need for modifications or
replacement of all non-Year 2000 compliant pieces of software. The Bank does
not currently expect that the cost of its Year 2000 compliance program will be
material to its financial condition and believes that it will satisfy such
compliance program by the end of 1998 without material disruption of its
operations. In the event that the Bank's significant suppliers do not
successfully and timely achieve Year 2000 compliance, the Bank's business or
operations could be adversely affected.
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.
26
<PAGE>
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 13/th/ and "N" Streets,
Lincoln, Nebraska 68508, and its telephone number is (402) 475-0521.
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 single-family residences. At September 30, 1997, the
Bank had invested $521.7 million, or 50.5% of total assets, in single-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 13/th/ and "N" Streets,
Lincoln, Nebraska 68508, and its telephone number is (402) 475-0521.
27
<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
HISORICAL 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 ASSET(2) AMOUNT ASSET(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%
======= ===== ======== ===== ======== ===== ======== =====
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 increase in the number of shares whch could
ocur due to an increase in the Estimated Price Range 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.
28
<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 the origination and purchase of
adjustable rate residential loans, as well as non-residential mortgage and
consumer loans 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 the 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
29
<PAGE>
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. 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."
Both the Company and the Bank have committed to the OTS that during the
one-year period following the consummation of the Conversion, the Company will
not take any action to further the payment of a return of capital dividend
without prior approval by the OTS.
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."
30
<PAGE>
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 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.
Additionally, in connection with the Conversion, the Company and the Bank
have committed to the OTS that during the one-year period following the
consummation of the Conversion, the Company will not take any action to further
the payment of a return of capital dividend without prior approval by the
OTS.
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.
31
<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
-----------------------------------------------------
<S>
5,928,750 9,224,438
SHARES 6,975,000 8,021,250 SHARES
(MINIMUM SHARES SHARES (15% ABOVE
OF (MIDPOINT OF (MAXIMUM MAXIMUM OF
BANK ESTIMATED ESTIMATED OF ESTIMATED ESTIMATED
HISTORICAL PRICE RANGE) PRICE RANGE) PRICE RANGE) PRICE RANGE)(1)
------------- ------------- ----------------- --------------- ------------------
(IN THOUSANDS)
<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
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."
32
<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 one-year U.S. Treasury bill rate, rather than an
arithmetic average of the average yield on interest-earning assets and average
rate paid on deposits, has been used to estimate income on net proceeds because
it is believed that the one-year U.S. Treasury bill rate is a more accurate
estimate of the rate that would be obtained on an investment of net proceeds
from the Offering. 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.
33
<PAGE>
<TABLE>
<CAPTION>
AT OR FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1997
--------------------------------------------------------------
<S>
5,928,750 6,975,000 8,021,250 9,224,438
SHARES SOLD SHARES SOLD SHARES SOLD SHARES SOLD
AT $20.00 AT $20.00 AT $20.00 AT $20.00 PER
PER SHARE PER SHARE PER SHARE SHARE (15%
(MINIMUM (MIDPOINT (MAXIMUM ABOVE MAXIMUM
OF ESTIMATED OF ESTIMATED OF ESTIMATED OF ESTIMATED
PRICE RANGE) PRICE RANGE) PRICE RANGE) PRICE RANGE)(6)
------------ ------------ ------------ -------------------
<C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
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)
34
<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
Stock-Based 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.
35
<PAGE>
<TABLE>
<CAPTION>
AT OR FOR THE YEAR ENDED JUNE 30, 1997
---------------------------------------------------------------
<S>
5,928,750 6,975,000 8,021,250 9,224,438
SHARES SOLD SHARES SOLD SHARES SOLD SHARES SOLD
AT $20.00 AT $20.00 AT $20.00 AT $20.00 PER
PER SHARE PER SHARE PER SHARE SHARE (15%
(MINIMUM (MIDPOINT (MAXIMUM ABOVE MAXIMUM
OF ESTIMATED OF ESTIMATED OF ESTIMATED OF ESTIMATED
PRICE RANGE) PRICE RANGE) PRICE RANGE) PRICE RANGE)(6)
---------------------------------------------------------------
<C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Gross proceeds.................................................... $ 118,575 $ 139,500 $ 160,425 $ 184,489
Plus: shares acquired by Charitable Trust Foundation............. 7,115 8,370 9,626 11,069
(equal to 6.00% of stock issued in conversion)............... ---------- ---------- ---------- ----------
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.................... 3,413 4,025 4,637 5,340
to eliminate proceeds from Foundation stock
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.................... $ 0.59 $ 0.59 $ 0.59 $ 0.59
to eliminate proceeds from Foundation stock
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)
36
<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
Stock-Based 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.
37
<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 MAXIMUM
AT THE MINIMUM AT THE MIDPOINT AT THE MAXIMUM AS ADJUSTED
------------------------ ------------------------ ----------------------- ------------------------
WITH NO WITH NO WITH NO WITH NO
FOUNDATION FOUNDATION FOUNDATION FOUNDATION FOUNDATION FOUNDATION FOUNDATION FOUNDATION
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C><C>
Estimated offering amount... $ 118,575 $ 134,640 $ 139,500 $ 158,400 $ 160,525 $ 182,160 $ 184,489 $ 209,484
Pro forma market
capitalization............. 125,690 134,640 147,870 158,400 170,051 182,160 195,558 209,484
Total assets................ 1,136,581 1,148,800 1,155,033 1,169,408 1,173,485 1,190,016 1,194,705 1,213,716
Total liabilities........... 953,016 953,016 953,016 953,016 953,016 953,016 953,016 953,016
Pro forma stockholders'
equity..................... 183,565 195,784 202,017 216,392 220,469 237,000 241,689 260,700
Pro forma consolidated net
earnings................... 2,201 2,306 2,302 2,425 2,403 2,545 2,519 2,682
Pro forma stockholders'
equity per share........... 29.21 29.08 27.32 27.32 25.93 26.02 24.72 24.89
Pro forma consolidated net
earnings per share......... 0.38 0.37 0.34 0.33 0.31 0.30 0.28 0.28
Pro Forma Pricing Ratios:
Offering Price as a
percentage of pro......... 68.47% 68.77% 73.20% 73.20% 77.13% 76.86% 80.91% 80.35%
forma stockholders'
equity per share
Offering price to pro
forma net earnings
per share................ 13.16x 13.45x 14.80x 15.05x 16.30x 16.49x 17.89x 18.00x
Offering price to assets... 11.06% 11.72% 12.80% 13.55% 14.49% 15.31% 16.37% 17.26%
Pro Forma Financial Ratios:
Return on Assets........... 0.77% 0.80% 0.80% 0.83% 0.82% 0.86% 0.84% 0.88%
Return on stockholders'
equity.................... 4.80% 4.71% 4.56% 4.48% 4.36% 4.29% 4.17% 4.11%
Stockholders' equity to
assets.................... 16.15% 17.04% 17.49% 18.50% 18.79% 19.92% 20.23% 21.48%
</TABLE>
38
<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
--------- --------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
(IN THOUSANDS)
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.
39
<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 single-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
40
<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
single-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 MARKET RISK
Market risk is the risk of loss from adverse changes in market prices and
rates. The Company's market risk arises primarily from interest rate risk
inherent in its lending and deposit taking activities. To that end, management
actively monitors and manages its interest rate risk exposure.
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, single-
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.
41
<PAGE>
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 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 single-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."
42
<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 vary from the Bank's internal model primarily due to
differences in assumptions utilized, including estimated
43
<PAGE>
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 September 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 $ 62,140 $(50,908) (45.0)% 6.25% (438) bp
300 76,765 (36,284) (32.1) 7.57 (305)
200 91,104 (21,945) (19.4) 8.82 (180)
100 103,709 (9,340) (8.3) 9.88 (75)
Static 113,049 -- -- 10.62 --
- -100 118,803 5,754 5.1 11.05 43
- -200 120,767 7,718 6.8 11.16 54
- -300 124,233 11,184 9.9 11.39 76
- -400 129,731 16,682 14.8 11.77 115
</TABLE>
__________
(1) Expressed in basis points.
The Bank's change in its NPV at September 30, 1997, based on a rise in
interest rates of 200 basis points was a 19.4% decrease, representing a dollar
decrease in equity value of $21.9 million. In contrast, based on a decline in
interest rates of 200 basis points, the Bank's NPV was estimated to increase
6.8% or $7.8 million at September 30, 1997. The Bank's exposure increases to a
45.0% decrease under a 400 basis point rise in rates, and the NPV is estimated
to increase 14.8% 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.
44
<PAGE>
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
A derivative financial instrument includes futures, forwards, interest rate
swaps, option contracts, and other financial instruments with similar
characteristics. The Bank currently does not enter into futures, forwards,
swaps, or options. However, the Bank is party to financial instruments with
off-balance sheet risk in the normal course of business to meet the financing
needs of its customers. These financial instruments include commitments to
extend credit. These instruments involve, to varying degrees, elements of
credit and interest rate risk in excess of the amount recognized in the
consolidated statements of financial condition. Commitments to extend credit
are agreements to lend to a customer as long as there is no violation of any
condition established in the contract. Commitments generally have fixed
expiration dates and may require collateral from the borrower if deemed
necessary by the Bank. Commitments to extend credit are not recorded as an
asset or liability by the Bank until the instrument is exercised.
Interest rate risk is the potential for economic losses due to future
interest rate changes. These economic losses can be reflected as a loss of
future net interest income and/or a loss of current fair market values. The
objective is to measure the effect on net interest income and to adjust the
balance sheet to minimize the inherent risk while at the same time maximize
income. Management realizes certain risks are inherent and that the goal is to
identify and minimize the risks. Tools used by management include the standard
GAP report and interest rate shock simulation reports. The Bank has no market
risk sensitive instruments held for trading purposes. It appears the Bank's
market risk is reasonable at this time.
Table of Market Risk Sensitive Instruments. The following table shows the
Bank's financial instruments that are sensitive to changes in interest rates,
categorized by expected maturity, and the instruments' fair values at September
30, 1997. Market risk sensitive instruments are generally defined as on- and
off-balance sheet derivatives and other financial instruments.
45
<PAGE>
<TABLE>
<CAPTION>
EXPECTED MATURITY/PRINCIPAL REPAYMENT SEPTEMBER 30,
AVERAGE --------------------------------------------------------------------------------------
INTEREST FAIR
RATE 1998 1999 2000 2001 2002 THEREAFTER TOTAL (1) VALUE (1)
-------- -------- -------- -------- -------- ------- ---------- --------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest Sensitive Assets:
Federal funds sold.............. 5.57% $ 33,700 $ -- $ -- $ -- $ -- $ -- $ 33,700 $ 33,700
Investment securities........... 5.96 41,487 3,007 5,010 7,986 -- 1,170 58,660 58,613
Loans receivable................ 8.26 298,625 111,006 121,728 116,099 70,116 127,826 845,400 833,419
Mortgage-backed securities...... 6.71 36,258 8,502 7,645 7,645 7,645 13,465 81,160 81,550
FHLB stock...................... 7.25 7,060 -- -- -- -- -- 7,060 7,060
-------- -------- -------- -------- ------- -------- ---------- ----------
Total.......................... $417,130 $122,515 $134,383 $131,730 $77,761 $142,461 $1,025,980 $1,014,342
======== ======== ======== ======== ======= ======== ========== ==========
Interest Sensitive Liabilities:
Money market accounts........... 4.68% $ 20,168 $ 20,168 $ 20,168 $ 20,168 $20,168 $191,862 $ 292,702 $ 292,702
Savings accounts................ 1.99 4,128 4,128 3,769 -- -- -- 12,025 12,025
NOW accounts.................... 2.76 13,000 13,000 13,000 13,000 13,000 9,618 74,618 74,618
Certificate accounts............ 5.76 394,055 90,983 14,192 15,790 20,946 1,120 537,086 543,304
FHLB advances................... 5.97 5,050 33 33 5,033 34 382 10,565 10,543
-------- -------- -------- -------- ------- -------- ---------- ----------
Total.......................... $436,401 $128,312 $ 51,162 $ 53,991 $54,148 $202,982 $ 926,996 $ 933,192
======== ======== ======== ======== ======= ======== ========== ==========
Interest-Sensitive Off-Balance
Sheet Items: (2)
Loans serviced for others....... 9.30% 19,835 19,835
Commitments to extend
credit......................... 7.92 23,009 23,009
Unused consumer lines of
credit......................... 8.90 15,978 15,978
Commitments to purchase
loans.......................... 6.36 12,138 12,138
Commitments to sell
loans.......................... 7.47 14,085 14,085
========== ==========
</TABLE>
__________________________
(1) Loans are reduced for nonaccrual loans but are not reduced for the allowance
for loan losses.
(2) Total balance equals the notional amount of off-balance sheet items and
interest rates are the weighted average interest rates of the underlying
loans.
Expected maturities are contractual maturities adjusted for prepayment of
principal. The Bank uses certain assumptions to estimate fair values and
expected maturities. For assets, expected maturities are based upon contractual
maturity, projected repayments and prepayments of principal. The prepayment
experience reflected herein is based on the Bank's historical experience. The
Bank's average prepayment rate on its total fixed-rate portfolio of one- to
four-family and multi-family mortgage loans ranges from 14.0% to 17.0% and 6.0%
to 52.0% on its adjustable-rate portfolio for interest-earning assets. For
deposit liabilities, in accordance with standard industry practice and the
Bank's own historical experience, "decay factors," used to estimate deposit
runoff, were 7.0%, 34.0% and 7.0% for money market deposit accounts, savings
accounts and NOW accounts, respectively. The actual maturities of these
instruments could vary substantially if future prepayments differ from the
Bank's historical experience.
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.
46
<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 1996
---------------------- ---------------------------------- ----------------------------------
AVERAGE AVERAGE
YIELD/ AVERAGE YIELD/ AVERAGE YIELD/
BALANCE COST BALANCE INTEREST COST BALANCE INTEREST COST
------------ --------- ----------- ---------- -------- ---------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS:
Interest-earning assets:
Federal funds sold.............. $ 33,700 5.57% $ 26,750 $ 410 6.13% $ 42,100 $ 649 6.17%
Investment securities(2)........ 65,720 5.96 75,769 1,162 6.13 129,093 1,861 5.77
Mortgage-backed securities(5)... 81,160 6.71 83,732 1,382 6.60 96,009 1,570 6.54
Loans receivable, net(1)........ 818,460 8.26 818,564 17,159 8.38 728,470 15,448 8.48
---------- ---------- ------- ---------- -------
Total interest-earning assets.. 999,040 7.89 1,004,815 20,113 8.01 995,672 19,528 7.85
------ ------- ------ ------- ------
Noninterest-earning assets........ 34,538 36,150 36,344
---------- ---------- ----------
Total assets................... $1,033,578 $1,040,965 $1,032,016
========== ========== ==========
LIABILITIES AND RETAINED EARNINGS:
Interest-bearing liabilities:
NOW accounts.................... $ 74,618 2.76% $ 75,729 $ 525 2.77% $ 78,665 $ 528 2.68%
Regular savings accounts........ 12,025 1.99 12,118 61 2.01 14,439 72 1.99
Money market accounts........... 292,702 4.68 292,138 3,448 4.72 255,681 2,953 4.62
Certificate accounts............ 537,086 5.76 537,404 7,757 5.77 563,992 8,053 5.71
---------- ---------- ------- ---------- -------
Total interest-bearing deposits 916,431 5.12 917,389 11,791 5.14 912,777 11,606 5.09
FHLB advances................... 10,565 5.97 13,316 195 5.86 13,844 235 6.79
---------- ---------- ------- ---------- -------
Total interest-bearing
liabilities................... 926,996 5.13 930,705 11,986 5.15 926,621 11,841 5.11
------ ------- ------ ------- ------
Non-interest-bearing accounts..... 7,238 6,841 6,683
Other liabilities................. 18,782 23,568 24,121
---------- ---------- ----------
Total liabilities.............. 953,016 961,114 957,425
Retained earnings................. 80,562 79,851 74,591
---------- ---------- ----------
Total liabilities and retained
earnings...................... $1,033,578 $1,040,965 $1,032,016
========== ========== ==========
Net interest income/Net interest
rate spread(3)................... 2.76% $ 8,127 2.86% $ 7,687 2.74%
====== ======= ====== ======= ======
Net interest margin(4)............ 3.13% 3.24% 3.09%
====== ====== ======
Ratio of interest-earning assets
to interest-bearing liabilities.. 107.77% 107.96% 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.
47
<PAGE>
<TABLE>
<CAPTION>
FOR THE YEARS ENDED JUNE 30,
-----------------------------------------------------------------------------------------------------
1997 1996 1995
--------------------------------- --------------------------------- -------------------------------
AVERAGE AVERAGE AVERAGE
AVERAGE YIELD/ AVERAGE YIELD/ AVERAGE YIELD/
BALANCE INTEREST COST BALANCE INTEREST COST BALANCE INTEREST COST
------------ --------- -------- --------- ---------- ---------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
ASSETS:
Interest-earning assets:
Federal funds sold......... $ 24,400 $ 1,523 6.24% $ 70,331 $ 4,177 5.94% $ 17,771 $ 1,010 5.68%
Investment securities(2)... 120,170 6,899 5.74 145,685 8,220 5.64 201,928 10,606 5.25
Mortgage-backed
securities(5)............. 91,794 5,982 6.52 91,739 5,967 6.50 90,876 5,784 6.36
Loans receivable, net(1)... 767,973 63,942 8.33 672,321 56,585 8.42 629,488 51,964 8.25
---------- ------- ---------- ------- -------- -------
Total interest-earning
assets................... $1,004,337 78,346 7.80 980,076 74,949 7.65 940,063 69,364 7.38
------- ------ ------- ------ ------- ------
Noninterest-earning assets.. 36,370 34,404 35,612
---------- ---------- --------
Total assets.............. $1,040,707 $1,014,480 $975,675
========== ========== ========
LIABILITIES AND RETAINED
EARNINGS:
Interest-bearing
liabilities:
NOW accounts............... $ 77,400 $ 2,086 2.70% $ 64,032 $ 1,664 2.60% $ 57,469 $ 1,276 2.22%
Regular savings accounts... 13,593 270 1.99 15,466 307 1.98 18,498 395 2.14
Money market accounts...... 271,686 12,599 4.64 228,799 10,448 4.57 206,520 8,815 4.27
Certificate accounts....... 556,974 31,591 5.67 586,991 34,746 5.92 585,721 33,223 5.67
---------- ------- ---------- ------- -------- -------
Total interest-bearing
deposits................. 919,653 46,546 5.06 895,288 47,165 5.27 868,208 43,709 5.03
FHLB advances.............. 12,265 652 5.32 15,921 1,041 6.54 14,801 896 6.05
---------- ------- ---------- ------- -------- -------
Total interest-bearing
liabilities.............. 931,918 47,198 5.06 911,209 48,206 5.29 883,009 44,605 5.05
------- ------ ------- ------ ------- ------
Non-interest-bearing
accounts................... 6,747 5,396 3,134
Other liabilities........... 26,436 26,400 22,429
---------- ---------- --------
Total liabilities......... 965,101 943,005 908,572
Retained earnings........... 75,606 71,475 67,103
---------- ---------- --------
Total liabilities and
retained earnings........ $1,040,707 $1,014,480 $975,675
========== ========== ========
Net interest income/Net
interest rate spread(3).... $31,148 2.74% $26,743 2.36% $24,759 2.33%
======= ====== ======= ====== ======= ======
Net interest margin(4)...... 3.10% 2.73% 2.63%
====== ====== ======
Ratio of interest-earning
assets to interest-
bearing liabilities....... 107.77% 107.56% 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.
48
<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
---------- --------- ------- ------- ------- ------- --------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS)
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
------- ------- ------ ------- ------- ------- ------- ------ -------
Total deposits................. (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.
49
<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 million 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. The growth in consumer loans resulted from the
addition of an equity line of credit product and expanded home equity loan
offerings. 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
50
<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 an increase in consumer loans of $11.3
million to $91.2 million at September 30, 1997, from $79.9 million at June 30,
1997, resulting in an increase of $524,000 in the allowance for loan losses for
consumer loans. In addition, 13 construction loans totaling approximately $1
million were classified special mention by the Bank at September 30, 1997,
resulting in an increase of $100,000 in the allowance for loan losses for these
construction loans.
To the extent the Bank increases its investment in commercial real estate,
commercial and construction loans which entail higher risk than single-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
(from 23 basis points to 6.48 basis points) 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. These
increases were primarily the result of a greater focus on deposit generation in
addition to mortgage volume.
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.
51
<PAGE>
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 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.
52
<PAGE>
The decrease in the provision was due to the decrease in the Bank's 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.
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 due to the decreased assessment rate from 23 basis points to
6.48 basis points. 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.
53
<PAGE>
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 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
54
<PAGE>
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 30, 1996, was primarily the result of prior year state tax refunds of
$451,000, and the reversal of estimated deferred tax liability.
OTHER NONINTEREST EXPENSE
Other noninterest expense consists primarily of telephone expenses, postage
expenses, external bank service charges, and ATM operating charges. None of the
expenses exceed 15% of the total other noninterest expense amount. The changes
in total other noninterest expense as well as the change in the primary
components of this other noninterest expense have remained consistent over the
period from June 30, 1995 to September 30, 1997.
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.
55
<PAGE>
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.
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
56
<PAGE>
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.
Disclosures About Segments of an Enterprise and Related Information. In
June 1997, the FASB issued Statement of Financial Accounting Standards No. 131,
"Disclosures About Segments of an Enterprise and Related Information" ("SFAS No.
131"). This statement requires disclosure for each segment that are similar to
those required under current standards with the addition of quarterly disclosure
requirements and a finer partitioning of geographic disclosures. It requires
limited segment data on a quarterly basis. It also requires geographic data by
county, as opposed to broader geographic regions as permitted under current
standards. SFAS No. 131 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 the Goodwill Litigation against the
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 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 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 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
57
<PAGE>
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 and the Bank filed
its reply to the Government's response. No claim for specific damages has been
filed pending a determination of the Government's liability. 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 single-
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 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,
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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 single-family residences.
At September 30, 1997, loans receivable, net totaled $818.5 million, of which
$521.7 million were single-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, 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 single-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.
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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 JUNE 30,
AT SEPTEMBER 30, ----------------------------------------------------------------
1997 1997 1996 1995
---------------------- ---------------------- -------------------- --------------------
PERCENT PERCENT PERCENT PERCENT
AMOUNT OF TOTAL AMOUNT OF TOTAL AMOUNT OF TOTAL AMOUNT OF TOTAL
---------- ---------- ------- ------------ -------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
Mortgage loans:
Residential:
Single-family............ $521,679 61.71% $531,110 63.08% $487,744 65.87% $455,715 68.49%
Multi-family............. 39,208 4.64 39,167 4.65 27,966 3.78 24,391 3.67
Commercial real estate.... 140,825 16.65 144,139 17.12 146,207 19.74 132,070 19.85
Construction and land..... 50,531 5.98 45,617 5.42 41,112 5.55 25,623 3.85
-------- ------ -------- ------ -------- ------ -------- ------
Total mortgage loans... 752,243 88.98 760,033 90.27 703,029 94.94 637,799 95.86
-------- ------ -------- ------ -------- ------ -------- ------
Commercial and equipment... 1,954 0.23 1,990 0.24 2,246 0.30 1,330 0.20
-------- ------ -------- ------ -------- ------ -------- ------
Consumer loans:
Home equity............... 25,661 3.04 22,407 2.66 12,486 1.69 11,383 1.71
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
Auto loans................ 10,263 1.21 9,224 1.10 4,817 0.65 2,921 0.44
Other..................... 6,184 0.73 6,560 0.78 6,290 0.85 7,757 1.16
-------- ------ -------- ------ -------- ------ -------- ------
Total consumer loans... 91,203 10.79 79,955 9.49 35,204 4.76 26,234 3.94
-------- ------ -------- ------ -------- ------ -------- ------
Total loans receivable..... 845,400 100.00% 841,978 100.00% 740,479 100.00% 665,363 100.00%
====== ====== ====== ======
Allowance for loan losses. (7,022) (6,330) (5,918) (5,642)
Undisbursed proceeds on
construction loans in
process................ (16,908) (17,699) (17,270) (9,656)
Deferred loan origination
fees, net................. (3,010) (3,068) (3,779) (3,842)
-------- -------- -------- --------
Loans receivable, net.. $818,460 $814,881 $713,512 $646,223
======== ======== ======== ========
<CAPTION>
AT JUNE 30,
------------------------------------------
1994 1993
-------------------- -------------------
PERCENT PERCENT
AMOUNT OF TOTAL AMOUNT OF TOTAL
-------- ---------- -------- ----------
<S> <C> <C> <C> <C>
Mortgage loans:
Residential:
Single-family............ $448,782 70.19% $406,449 65.80%
Multi-family............. 27,183 4.25 33,314 5.39
Commercial real estate.... 132,373 20.71 145,112 23.49
Construction and land..... 5,886 0.92 2,304 0.37
-------- ------ -------- ------
Total mortgage loans... 614,224 96.07 587,179 95.05
-------- ------ -------- ------
Commercial and equipment... 92 0.01 155 0.03
-------- ------ -------- ------
Consumer loans:
Home equity............... 11,408 1.78 14,964 2.42
Equity line of credit..... -- -- -- --
Home improvement.......... 3,882 0.61 4,713 0.76
Auto loans................ 2,991 0.47 5,771 0.94
Other..................... 6,801 1.06 4,921 0.80
-------- ------ -------- ------
Total consumer loans... 25,082 3.92 30,369 4.92
-------- ------ -------- ------
Total loans receivable..... 639,398 100.00% 617,703 100.00%
====== ======
Allowance for loan losses. (5,966) (7,581)
Undisbursed proceeds on
construction loans in
process................ (3,922) (1,206)
Deferred loan origination
fees, net................. (4,328) (5,460)
-------- --------
Loans receivable, net.. $625,182 $603,456
======== ========
</TABLE>
60
<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
------------------------------------------------------------------------------
SINGLE- MULTI- COMMERCIAL CONSTRUCTION TOTAL
FAMILY FAMILY REAL ESTATE AND LAND COMMERCIAL CONSUMER LOANS
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS)
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:
Allowance for loan losses............ (7,022)
Undisbursed loan funds............... (16,908)
Deferred loan fees................... (2,155)
Unamortized discounts, net........... ( 855)
--------
Loans receivable, net................... $818,460
========
</TABLE>
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<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
--------------------------------
<S> <C> <C> <C>
(IN THOUSANDS)
Mortgage loans:
Single-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 single-family loans, it is currently the general policy of
the Bank to sell most of the 30-year single-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.
62
<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
single-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 FOR THE YEAR ENDED
ENDED SEPTEMBER 30, 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:
Single-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:
Single-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>
Single-Family Mortgage Lending. The Bank currently offers both fixed-rate
and ARM loans with maturities of up to 30 years secured by single-family
residences. Most of such loans are located in the Bank's primary market area.
Single-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 single-family mortgage loans totaled $521.7
million, or 61.7% of total loans. Of the single-family mortgage loans
outstanding at that date, 51.0% were fixed-rate mortgage loans and 49.0% were
ARM loans.
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<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
single-family loans. From time to time, the Bank will purchase single-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 single-family mortgage loans are underwritten according to FNMA and
FHLMC guidelines. Generally, the Bank originates single-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
64
<PAGE>
instruments contain affirmative language concerning the prospective borrower's
responsibility for 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
single-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
65
<PAGE>
to assure full repayment. See "Risk Factors--Increased Lending Risks Associated
with Construction and Development Lending."
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 184 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 single-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.
66
<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
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<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 single-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.
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<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 NUMBER PRINCIPAL PRINCIPAL PRINCIPAL
NUMBER BALANCE OF BALANCE NUMBER BALANCE NUMBER BALANCE
OF LOANS OF LOANS 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:
Single-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 NUMBER PRINCIPAL PRINCIPAL PRINCIPAL
NUMBER BALANCE OF BALANCE NUMBER BALANCE NUMBER BALANCE
OF LOANS OF LOANS 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:
Single-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>
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<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 single-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:
Single-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.
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<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
---------------------- ------- -------- ------- -------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
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:
Single-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
====== ====== ====== ====== ====== ====== ======
Ratio of net charge-offs during the period
to average loans outstanding during
the period (1)................................ 0.01% 0.03% 0.01% 0.05% 0.09% 0.12% 0.06%
====== ====== ====== ====== ====== ====== ======
</TABLE>
________________________________
(1) Ratio is annualized for the three-month periods.
71
<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
--------- ------------ -------- ------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
Single-family mortgage
loans....................... $ 964 13.73% 61.71% $ 921 15.42% 66.08%
Commercial real estate and
multi-family................ 1,902 27.09 21.29 1,975 33.08 22.11
Construction and land........ 345 4.91 5.98 134 2.24 5.62
Commercial loans............. 10 0.14 0.23 13 0.22 0.33
Consumer loans............... 1,268 18.06 10.79 415 6.95 5.86
Unallocated.................. 2,533 36.07 -- 2,513 42.09 --
------ ------ ------ ------ ------ ------
Total allowance for
loan losses............ $7,022 100.00% 100.00% $5,971 100.00% 100.00%
====== ====== ====== ====== ====== ======
</TABLE>
72
<PAGE>
<TABLE>
<CAPTION>
AT JUNE 30,
--------------------------------------------------------------------------------------------------
1997 1996 1995
--------------------------------- ------------------------------ -------------------------------
PERCENT PERCENT PERCENT
OF LOANS OF LOANS OF LOANS
PERCENT OF IN EACH PERCENT OF IN EACH PERCENT OF IN EACH
ALLOWANCE CATEGORY ALLOWANCE CATEGORY ALLOWANCE CATEGORY
TO TOTAL TO TOTAL TO TOTAL TO TOTAL TO TOTAL TO TOTAL
AMOUNT ALLOWANCE LOANS AMOUNT ALLOWANCE LOANS AMOUNT ALLOWANCE LOANS
------- ----------- --------- ------- ----------- --------- ------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
Single-family mortgage
loans....................... $ 986 15.58% 63.08% $ 918 15.52% 65.87% $ 955 16.93% 68.49%
Commercial real estate
and multi-family........... 1,945 30.73 21.77 2,101 35.50 23.52 2,074 36.76 23.52
Construction and land........ 142 2.24 5.42 113 1.91 5.55 78 1.38 3.85
Commercial loans............. 10 0.16 0.24 12 0.20 0.30 7 0.12 0.20
Consumer loans............... 744 11.75 9.49 315 5.32 4.76 219 3.88 3.94
Unallocated.................. 2,503 39.54 -- 2,459 41.55 -- 2,309 40.93 --
------ ------ ------ ------ ------ ------ ------ ------ ------
Total allowance for
loan losses............ $6,330 100.00% 100.00% $5,918 100.00% 100.00% $5,642 100.00% 100.00%
====== ====== ====== ====== ====== ====== ====== ====== ======
</TABLE>
<TABLE>
<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
Single-family mortgage loans........... $ 979 16.41% 70.19% $ 962 12.69% 65.80%
Commercial real estate
and multi-family..................... 2,201 36.89 24.96 3,691 48.69 28.88
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>
73
<PAGE>
Real Estate Owned. At September 30, 1997, the Bank had $1.2 million of REO
consisting of one single-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.
74
<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
------------- -------- ----------- ----------- ---------- ------- ---------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
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.
75
<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
======= ====== ======= ======= ====== ======= ======= ====== =======
AT JUNE 30,
-----------------------------
1995
---------
PERCENT
AMORTIZED 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
-------- --------- --------------------------------
<S> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
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>
76
<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 MORE THAN 5
ONE YEAR OR YEAR TO YEARS TO MORE THAN
LESS FIVE YEARS 10 YEARS 10 YEARS
---------------------- --------------------- ------------------- ----------------------
WEIGHTED WEIGHTED WEIGHTED WEIGHTED
CARRYING AVERAGE CARRYING AVERAGE CARRYING AVERAGE CARRYING AVERAGE
VALUE YIELD VALUE YIELD VALUE YIELD VALUE YIELD
----------- --------- ---------- --------- -------- --------- ---------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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% $24,018 6.08%
FHLMC....................... -- -- 1,650 7.09 -- -- 10,573 7.08
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% 34,591 6.39%
------- ------- ------ -------
Total adjustable-rate
mortgage-backed
securities................... -- -- -- -- -- -- 29,469 7.05
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% $64,060 6.69%
======= ======= ====== =======
AT SEPTEMBER 30, 1997
-----------------------
TOTAL
-----------------------
CARRYING WEIGHTED
VALUE AVERAGE
YIELD
-------- ---------
(DOLLARS IN THOUSANDS)
<S> <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...................... $33,328 6.24%
FHLMC..................... 12,223 7.08
CMOs...................... 3,217 7.26
REMICs.................... 2,035 6.69
Other..................... 141 9.51
-------
Total fixed-rate
mortgage-backed
securities................. 50,944 6.53%
-------
Total adjustable-rate
mortgage-backed
securities................. 29,469 7.05
Available-for-sale GNMA
mortgage-
backed securities......... 747 6.15%
-------
Total mortgage-backed
securities.................. $81,160 6.71%
=======
</TABLE>
77
<PAGE>
SOURCES OF FUNDS
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
---------- ---------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
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>
78
<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 4.62 228,799 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
======== ====== ======== ====== ======== ======
FOR THE YEAR ENDED JUNE 30,
-----------------------------
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.
79
<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
ONE TWO THREE FOUR FIVE
YEAR YEARS YEARS YEARS YEARS
----- ------- ------- ------- -------
(DOLLARS IN THOUSANDS)
CERTIFICATE ACCOUNTS:
<S> <C> <C> <C> <C> <C>
0 to 3.99%................ $ 96 $ -- $ -- $ -- $ --
4.00 to 4.99%............. 2,707 338 71 14 --
5.00 to 5.99%............. 271,029 19,598 6,722 12,746 5,265
6.00 to 6.99%............. 119,740 70,548 6,914 2,747 15,631
7.00 to 7.99%............. 131 401 49 283 49
8.00 to 8.99%............. 341 100 438 -- --
Over 9.00%................ 13 -- -- -- --
-------- ------- ------- ------- -------
Total $394,057 $90,985 $14,194 $15,790 $20,945
======== ======= ======= ======= =======
PERIOD TO MATURITY FROM
SEPTEMBER 30, 1997
-----------------------------
AT JUNE 30,
------------------------------------------
OVER
FIVE
YEARS TOTAL 1997 1996 1995
---------- --------- ---------- --------- -----------
CERTIFICATE ACCOUNTS:
<S> <C> <C> <C> <C> <C>
0 to 3.99%............. $ -- $ 96 $ 125 $ 435 $ 7,346
4.00 to 4.99%.......... -- 3,130 3,696 14,662 49,261
5.00 to 5.99%.......... 585 315,945 324,209 408,134 174,558
6.00 to 6.99%.......... 525 216,105 206,242 98,944 279,733
7.00 to 7.99%.......... -- 913 975 50,004 65,267
8.00 to 8.99%.......... 5 884 979 1,541 9,330
Over 9.00%............. -- 13 13 12 --
------ -------- -------- -------- --------
Total $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
--------- --------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
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>
80
<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
ORIGINAL YEAR IMPROVEMENTS
LEASED OR LEASED DATE OF LEASE AT SEPTEMBER 30,
LOCATION OWNED OR ACQUIRED EXPIRATION 1997
- --------------------------------- ------------- ----------------- --------------- ----------------
<S> <C> <C> <C> <C>
(IN THOUSANDS)
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. 42/nd/ Street Leased 1996 2001 21
Suite 100
Omaha, Nebraska 68105-2900
135 N. Cotner Street Owned 1966 -- 453
Lincoln, Nebraska 68505-0204
3010 N. 90/th/ Street Leased 1971 2001 14
Omaha, Nebraska 68134-4759
6891 "A" Street Leased 1970 2001 48
Lincoln, Nebraska 68510-4199
2120 1/st/ 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>
81
<PAGE>
<TABLE>
<CAPTION>
NET BOOK VALUE
OF PROPERTY OR
LEASEHOLD
ORIGINAL YEAR IMPROVEMENTS
LEASED OR LEASED DATE OF LEASE AT SEPTEMBER 30,
LOCATION OWNED OR ACQUIRED EXPIRATION 1997
- --------------------------------- ------------- ----------------- --------------- ----------------
<S> <C> <C> <C> <C>
(IN THOUSANDS)
423 West 3/rd/ Street Owned 1991 -- $ 54
Alliance, Nebraska 69301-3307
1811 W. 2/nd/ Street #108 Owned 1977 -- 1,256
Grand Island, Nebraska 68802-2320
3939 Normal Boulevard Leased 1989 1999 12
Lincoln, Nebraska 68506-5217
840 N. 70/th/ 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. 140/th/ Street Owned 1996 1,586
Omaha, Nebraska 68144-2338
5300 S. 56/th/ Street Owned 1989 -- 325
Lincoln, Nebraska 68516-1833
320 Lincoln Avenue Owned 1977 -- 8
Hebron, Nebraska 68370-0003
647 W. 2/nd/ 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. 13/th/ Street Owned 1988 -- 237
Lincoln, Nebraska 68502-4576
1000 E. Court Street Owned 1988 -- 167
Beatrice, Nebraska 68310-0664
</TABLE>
82
<PAGE>
<TABLE>
<CAPTION>
NET BOOK VALUE
OF PROPERTY OR
LEASEHOLD
ORIGINAL YEAR IMPROVEMENTS
LEASED OR LEASED DATE OF LEASE AT SEPTEMBER 30,
LOCATION OWNED OR ACQUIRED EXPIRATION 1997
- --------------------------------- ------------- ----------------- --------------- ----------------
<S> <C> <C> <C> <C>
(IN THOUSANDS)
114 W. 15/th/ Street Owned 1982 -- $ 95
Falls City, Nebraska 68355-0009
1301 "J" Street Owned 1982 -- 198
Auburn, Nebraska 68305-1964
173 S. 3/rd/ 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 33/rd/ Avenue, Suite F Leased 1993 1998 5
Columbus, Nebraska 68601-1309
127 S. 4/th/ Street Leased 1983 1998 2
Albion, Nebraska 68620-0269
203 N. Lincoln Leased 1991 1998 3
West Point, Nebraska 68788-1409
1850 10/th/ 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. 27/th/, 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 3/rd/ Street Leased 1989 1998 6
Red Oak, Iowa 51566-0636
301 E. Washington Owned 1988 -- 82
Clarinda, Iowa 51632-0200
</TABLE>
83
<PAGE>
<TABLE>
<CAPTION>
NET BOOK VALUE
OF PROPERTY OR
LEASEHOLD
ORIGINAL YEAR IMPROVEMENTS
LEASED OR LEASED DATE OF LEASE AT SEPTEMBER 30,
LOCATION OWNED OR ACQUIRED EXPIRATION 1997
- --------------------------------- ------------- ----------------- --------------- ----------------
<S> <C> <C> <C> <C>
(IN THOUSANDS)
203 N. 18/th/ Street Owned 1992 -- $ 79
Marysville, Kansas 66508-0229
411 N. 114/th/ 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 closed 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
84
<PAGE>
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.
85
<PAGE>
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
86
<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
87
<PAGE>
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,
88
<PAGE>
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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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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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 expects to acquire the branches of the Iowa
Bank, surrender or sell the charter of the Iowa Bank, and operate under a single
charter. As a result, 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
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savings institution in another state if the laws of the state of the target
savings institution specifically permit such acquisitions. The states vary in
the extent to which they permit interstate savings and loan holding company
acquisitions.
FEDERAL SECURITIES LAWS
The Company has filed with the SEC a registration statement under the
Securities Act (the "Registration Statement") 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.
<TABLE>
<CAPTION>
NAME POSITION(S) HELD WITH COMPANY
---- -----------------------------
<S> <C>
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
</TABLE>
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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.
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 1994 1999
Chief 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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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 resign, retire, or 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. LUNDSTROM 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 Development, Ms. Young is
responsible for the Bank's marketing, advertising, public relations, market
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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 Messrs. Roschewski and
McConnell and Mrs. Pocras, 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 $2,200 for each
regularly scheduled monthly and special Board meeting, regardless of attendance.
In addition, Mr. Roschewski receives an additional $2,200 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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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
$100,000.
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
-----------------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
--------------------------------------- ------------------------------------------
OTHER SECURITIES
ANNUAL RESTRICTED UNDERLYING LTIP
NAME AND PRINCIPAL FISCAL COMPENSATION STOCK OPTIONS/SARS PAYOUTS
POSITIONS (2) YEAR SALARY($)(1) BONUS($)(2) ($)(3) AWARDS ($)(5) ($)(6)
($)(4)
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <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 $25,916 -- -- -- --
Executive Vice President
and Director of Financial
Services Administration
<CAPTION>
<S> <C>
ALL OTHER
NAME AND PRINCIPAL COMPENSATION
POSITIONS (2) ($)(7)
- ----------------------------------------
<S> <C>
Gilbert G. Lundstrom $ 63,392
President and Chief
Executive Officer
LaVern F. Roschewski $ 4,169
Chairman of the Board
Eugene B. Witkowicz $ 4,424
Executive Vice President,
Treasurer, Chief Financial
Officer and Director of
Finance
Roland P. Maaske $ 4,848
Executive Vice President
and Director of Lending
Larry L. Pfeil $ 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)
payments of above-market preferential earnings on deferred compensation; (c)
payments of earnings with respect to long-term incentive plans prior to
settlement or maturation; (d) tax payment reimbursements; or (e)
preferential discounts on stock. For 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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<PAGE>
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 $350,000. 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 $110,000
and $125,000, 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 defined in the agreements at any time. In the event the
Bank or the Company chooses to terminate the
100
<PAGE>
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. 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
renewed 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 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
101
<PAGE>
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 payments under 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.
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
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<PAGE>
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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<PAGE>
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 will be
dependent upon such individual being an Eligible Account Holder, Supplemental
Eligible Account
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<PAGE>
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. 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
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<PAGE>
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 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
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<PAGE>
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 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."
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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.
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
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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 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.
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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 NUMBER PERCENT OF
NUMBER OF SHARES 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................. $ 530,000 26,500 0.45% 26,500 0.33%
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)............ $3,180,000 159,000 2.68% 159,000 1.98%
========== ======= ==== ======= ====
</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 _______________, 1998.
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. Upon completion of the Subscription Offering, and subject to the
prior rights of holders of subscription rights, shares will 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
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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 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,
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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. Less than a majority of the Bank's directors will also serve as
directors of the Foundation. The initial board of directors of the Foundation
will be comprised of Messrs. Roschewski, Lundstrom, Pfeil and Ludemann, and Ms.
Young, who intend to purchase 25,000, 25,000, 10,000, 5,000 and 5,000 shares of
Common Stock in the Conversion, respectively. At the supermaximum of the
Estimated Price Range, such purchases equal 0.26%, 0.26%, 0.10%, 0.05% and
0.05%, respectively, or 0.72% in the aggregate, of the total number of shares to
be issued in the Conversion, including shares issued to the Foundation. 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. In addition, any person who is a director,
officer or employee of the Bank, or has the power to direct its management or
policies, or otherwise owes a fiduciary duty to the Bank, and will also serve as
a director, officer or employee of the Foundation, is subject to the
requirements of the OTS Conflicts of Interest Regulations.
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
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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 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
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Foundation in any one year shall not exceed 5% of the average market value of
the assets held by the Foundation, except where the board of directors of the
Foundation, by three-fourths vote, determines that the failure to sell an amount
of Common Stock greater than such amount would result in a long-term reduction
of the value of the Foundation's assets 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."
Comparison of Valuation and Other Factors Assuming the Foundation is Not
Established as Part of the Conversion. The Company proposes to capitalize the
Foundation with Common Stock in an amount equal to 6% of the total amount of
Common Stock sold in connection with the Conversion. At the minimum, midpoint,
maximum and 15% above the maximum of the Estimated Price Range, the contribution
to the Foundation would equal 355,725, 418,500, 481,275 and 553,466 shares,
respectively, which would have a value of $7.1 million, $8.4 million, $9.6
million and $11.1 million, respectively, based on the Purchase Price. Such
contribution, once made, will not be recoverable by the Company or the Bank. As
a result of the establishment of the Foundation, the Estimated Price Range, as
estimated by Keller, has decreased and the amount of stock available for sale in
the Offerings has also correspondingly decreased. The amount of the decrease is
803,250, 945,000, 1,081,750 and 1,249,750 shares at the minimum, midpoint,
maximum and 15% above the maximum of the Estimated Price Range, respectively,
which would have a value of $16.1 million, $18.9 million, $21.6 million and
$25.0 million, respectively, based on the Purchase Price. See "Pro Forma Data"
and "Comparison of Valuation and Pro Forma Data Information with No
Foundation."
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,
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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%,
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
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"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 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.
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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
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
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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 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.
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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.
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
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institutions and general conditions in the market for such
securities. Keller did not consider any possible recovery from the Government
with respect to the Goodwill Litigation. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Impact of Goodwill
Litigation."
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
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
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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 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.
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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 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."
Deposit accounts which will provide subscription rights to holders thereof
consist of any "savings accounts," as defined by the Plan consistent with OTS
regulations. Pursuant to the Plan, deposit accounts do not include demand
accounts maintained at the Bank.
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
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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.
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
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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 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 _______________, 2000.
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COMMUNITY OFFERING
Upon completion of the Subscription 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 Company and 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 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 OF THE COMMUNITY OFFERING, PROVIDED
THAT SUCH REJECTION IS NOT IN CONTRAVENTION OF ANY LAW OR REGULATION.
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.
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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 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. For a discussion on how the Offering will be conducted, see
" -- General," "-- Subscription Offering and Subscription Rights," "-- Community
Offering," and "-- Syndicated Community Offering."
PROCEDURE FOR PURCHASING SHARES IN SUBSCRIPTION OFFERING
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
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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 Offering, 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
12:00 noon, Central Time, on the Expiration Date with respect to the
Subscription Offering, or by the date set for the termination of the Community
Offering, which date shall be within 45 days after the close of the Subscription
Offering, or ________, 1998, unless extended by the Bank and the Company with
the approval of the OTS, if necessary. 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 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 Offering
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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 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.
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
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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 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 _______________,
2000. 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
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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;
(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
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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 25% 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.
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 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
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either has the same home as such person or who is a director or officer of the
Bank. Directors are not treated as associates of each other solely because of
their Board membership. For a further discussion of limitations on purchases of
a converting institution's stock at the time of Conversion and subsequent to
Conversion, see "Management of the Bank--Subscriptions by Executive Officers and
Directors," "-- Certain Restrictions on Purchase or Transfer of Shares After
Conversion" and "Restrictions on Acquisition of the Company and the Bank."
LIQUIDATION RIGHTS
In the unlikely event of a complete liquidation of the Bank in its present
mutual form, each depositor would 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.
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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.
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.
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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.
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."
The Company will file, if necessary, 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;
or (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.
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
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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, 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.
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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 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
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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 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
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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 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
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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.
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
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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 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
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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 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
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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 "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.
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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.
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 American
Securities Transfer, Incorporated.
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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.
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(b) of the Exchange Act and, upon such
registration, the Company and the holders of its stock will become subject to
the proxy solicitation rules, reporting requirements and restrictions on stock
purchases and sales by directors, officers and greater than 10% stockholders,
the annual and periodic reporting and certain other requirements of the Exchange
Act. Under the Plan, the Company has undertaken that it will not terminate such
registration for a period of at least three years following the Conversion. In
the event that the Bank amends the Plan to eliminate the concurrent formation of
the Company as part of the Conversion, the Bank will register its stock with the
OTS under Section 12(b) of the Exchange Act and, upon such
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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.
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FIRST FEDERAL LINCOLN BANK AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
THREE-MONTH PERIODS ENDED SEPTEMBER 30, 1997 AND 1996 (UNAUDITED)
AND YEARS ENDED JUNE 30, 1997, 1996 AND 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' 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 Years Ended
June 30, 1997, 1996 and 1995 39
Consolidated Statements of Retained Earnings for the
Three-Month Period Ended September 30, 1997 (unaudited)
and 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
Years Ended June 30, 1997, 1996 and 1995 F-5 to F-7
Notes to Consolidated Financial Statements F-8 to F-32
</TABLE>
All schedules are omitted because they are not required or applicable or the
required information is shown in the financial statement or the notes thereto.
Financial statements of First Lincoln Bancshares, Inc. have not been provided
because First Lincoln Bancshares, Inc. has not conducted any operations to date.
F-1
<PAGE>
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.
/s/ KPMG Peat Marwick LLP
--------------------------------
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,
SEPTEMBER 30, ----------------------------
ASSETS 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
-------------- ------------- -------------
Total assets $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
Total liabilities and retained
earnings $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
Unrealized losses due to adoption of FAS No. 115,
net of deferred income taxes of ($94,665) -- (183,762) (183,762)
Change in unrealized losses, net of income
taxes of $77,167 -- 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 unrealized losses, net of income
taxes of $7,055 -- 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 unrealized losses, net of income
taxes of $5,884 -- 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 unrealized losses, net of income
taxes of $3,711 (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
============ =========== ============ ============ ===========
(Continued)
</TABLE>
F-5
<PAGE>
FIRST FEDERAL LINCOLN BANK AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
- --------------------------------------------------------------------------------
<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
------------ ---------- ----------- ----------- -----------
(Continued)
</TABLE>
F-6
<PAGE>
FIRST FEDERAL LINCOLN BANK AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
- --------------------------------------------------------------------------------
<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>
<CAPTION>
<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), a mutual savings bank, and the following
wholly-owned subsidiaries:
. TMS Corporation of the Americas - the holding company of First Financial
Investments and Insurance, a company which administers the sale of
insurance and securities products; and
. First Federal Lincoln Holding Corporation - the holding company of FFL
Holding Corporation, which is the holding company of First Federal
Lincoln Bank-Iowa, a stock savings bank (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 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.
(Continued)
F-8
<PAGE>
FIRST FEDERAL LINCOLN BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(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
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 the interest method.
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.
(Continued)
F-9
<PAGE>
FIRST FEDERAL LINCOLN BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DATA AS OF AND FOR THE THREE-MONTH PERIODS ENDED
SEPTEMBER 30, 1997 AND 1996 IS UNAUDITED)
- --------------------------------------------------------------------------------
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
PROVISIONS FOR LOSSES, CONTINUED
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.
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. The valuation allowance was
established to reduce the carrying value of the asset for estimated holding
costs and selling expenses.
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.
(Continued)
F-10
<PAGE>
FIRST FEDERAL LINCOLN BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DATA AS OF AND FOR THE THREE-MONTH PERIODS ENDED
SEPTEMBER 30, 1997 AND 1996 IS UNAUDITED)
- --------------------------------------------------------------------------------
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
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.
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.
OVERDRAWN CASH ACCOUNT IN BANK
The Bank has an arrangement with a correspondent bank to write teller checks,
interest checks, and corporate checks on a corporate checking account. The
checks are funded by the Bank on a daily basis.
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
=========== ====== ======= ==========
</TABLE>
(Continued)
F-11
<PAGE>
FIRST FEDERAL LINCOLN BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(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, 1997
------------------------------------------
GROSS UNREALIZED
AMORTIZED ----------------
COST GAINS LOSSES FAIR VALUE
----------- ------- ------- ----------
<S> <C> <C> <C> <C>
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>
<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>
(Continued)
F-12
<PAGE>
FIRST FEDERAL LINCOLN BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DATA AS OF AND FOR THE THREE-MONTH PERIODS ENDED
SEPTEMBER 30, 1997 AND 1996 IS UNAUDITED)
- --------------------------------------------------------------------------------
(2) INVESTMENT SECURITIES, CONTINUED
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 below:
<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
=========== ======= ======= ==========
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
(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, 1997
----------------------------------------------
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
(DATA AS OF AND FOR THE THREE-MONTH PERIODS ENDED
SEPTEMBER 30, 1997 AND 1996 IS UNAUDITED)
- --------------------------------------------------------------------------------
(4) LOANS RECEIVABLE, CONTINUED
<TABLE>
<CAPTION>
JUNE 30,
SEPTEMBER 30, --------------------------
1997 1997 1996
-------------- --------------------------
<S> <C> <C> <C>
Real estate:
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
(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
-------- ------ ------- ------- -------
<S> <C> <C> <C> <C> <C>
Interest income:
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,
$21,828,000, $19,903,000, $23,066,000 and $29,091,000 at September 30, 1997 and
1996 and June 30, 1997, 1996 and 1995, 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, $386,000, $380,000,
$371,000 and $421,000 at September 30, 1997 and 1996 and June 30, 1997, 1996 and
1995, respectively.
(Continued)
F-16
<PAGE>
FIRST FEDERAL LINCOLN BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(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:
JUNE 30,
SEPTEMBER 30, ---------------------
1997 1997 1996
---------- --------- ---------
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
========== ========= =========
(Continued)
F-17
<PAGE>
FIRST FEDERAL LINCOLN BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(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 -- -- -- (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
(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.
The deposits of the Bank are insured up to $100,000 by the Savings Association
Insurance Fund, which is administered by the FDIC and is backed by the full
faith and credit of the U.S. Government.
(Continued)
F-19
<PAGE>
FIRST FEDERAL LINCOLN BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(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
(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:
<TABLE>
<CAPTION>
September 30, JUNE 30,
------------------------ --------------------------------
1997 1996 1997 1996 1995
----------- ---------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Federal:
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
(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
----------- ---------- ----------
<S> <C> <C> <C>
Deferred tax liabilities:
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
(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
(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, 1996 and 1995, respectively, the Bank contributed 66-2/3%, 50% 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
(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:
Total capital (to risk-
weighted assets) $86,765 14.3% *$48,475 *8.0% *$60,593 *10.0%
Core Capital (to adjusted
tangible assets) $80,345 7.8% *$41,369 *4.0% *$51,711 * 5.0%
Tangible Capital (to
tangible assets) $80,345 7.8% *$15,513 *1.5% N/A
Tier I Capital (to risk-
weighted assets) $80,345 13.3% N/A *$36,365 * 6.0%
As of June 30, 1997:
Total capital (to risk-
weighted assets) $84,406 14.2% *$47,640 *8.0% *$59,550 *10.0%
Core Capital (to adjusted
tangible assets) $78,682 7.5% *$41,691 *4.0% *$52,113 * 5.0%
Tangible Capital (to
tangible assets) $78,682 7.5% *$15,634 *1.5% N/A
Tier I Capital (to risk-
weighted assets) $78,682 13.2% N/A *$35,730 * 6.0%
As of June 30, 1996:
Total capital (to risk-
weighted assets) $79,473 15.2% *$41,823 *8.0% *$52,279 *10.0%
Core Capital (to adjusted
tangible assets) $74,262 7.2% *$41,511 *4.0% *$51,889 * 5.0%
Tangible Capital (to
tangible assets) $74,262 7.2% *$15,567 *1.5% N/A
Tier I Capital (to risk-
weighted assets) $74,262 14.2% N/A *$31,367 * 6.0%
</TABLE>
- ------------
* Greater than or equal to.
(Continued)
F-25
<PAGE>
FIRST FEDERAL LINCOLN BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(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.
The following table shows a reconciliation between GAAP capital included in
these consolidated financial statements and consolidated regulatory capital
amounts as presented in the previous table (dollars in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
----------------------------------
TANGIBLE CORE TOTAL
CAPITAL CAPITAL CAPITAL
-------- -------- -------
<S> <C> <C> <C>
GAAP Capital $80,562 80,562 80,562
Plus:
Unrealized losses on securities available for
sale, net 2 2 2
General loan valuation allowance for loan losses -- -- 7,022
Less:
Deposit premium, net of taxes 219 219 219
Real estate held for investment -- -- 602
------- ------ -------
Regulatory Capital $80,345 80,345 86,765
======= ====== =======
JUNE 30, 1997
----------------------------------
TANGIBLE CORE TOTAL
CAPITAL CAPITAL CAPITAL
-------- -------- -------
<S> <C> <C> <C>
GAAP Capital $78,912 78,912 78,912
Plus:
Unrealized losses on securities available for
sale, net 9 9 9
General loan valuation allowance for loan losses -- -- 6,330
Less:
Deposit premium, net of taxes 239 239 239
Real estate held for investment -- -- 606
------- ------------- -------
Regulatory Capital $78,682 78,682 84,406
======= ============= =======
</TABLE>
(Continued)
F-26
<PAGE>
FIRST FEDERAL LINCOLN BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DATA AS OF AND FOR THE THREE-MONTH PERIODS ENDED
SEPTEMBER 30, 1997 AND 1996 IS UNAUDITED)
- --------------------------------------------------------------------------------
(15) REGULATORY CAPITAL REQUIREMENTS, CONTINUED
<TABLE>
<CAPTION>
JUNE 30, 1996
--------------------------
TANGIBLE CORE TOTAL
CAPITAL CAPITAL CAPITAL
-------- ------- -------
<S> <C> <C> <C>
GAAP Capital $74,560 74,560 74,560
Plus:
Unrealized losses on securities available for
sale, net 20 20 20
General loan valuation allowance for loan
losses -- -- 5,836
Less:
Deposit premium, net of taxes 318 318 318
Real estate held for investment -- -- 625
------- ------- -------
Regulatory Capital $74,262 74,262 79,473
======= ======= =======
</TABLE>
(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:
YEARS ENDING JUNE 30
1998 $ 380,000
1999 324,000
2000 177,000
2001 136,000
2002 74,000
----------
$1,091,000
==========
F-27
<PAGE>
FIRST FEDERAL LINCOLN BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DATA AS OF AND FOR THE THREE-MONTH PERIODS ENDED
SEPTEMBER 30, 1997 AND 1996 IS UNAUDITED)
- --------------------------------------------------------------------------------
(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.
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.
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.
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.
(Continued)
F-28
<PAGE>
FIRST FEDERAL LINCOLN BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DATA AS OF AND FOR THE THREE-MONTH PERIODS ENDED
SEPTEMBER 30, 1997 AND 1996 IS UNAUDITED)
- --------------------------------------------------------------------------------
(18) FAIR VALUE OF FINANCIAL INSTRUMENTS, CONTINUED
DEPOSITS
The fair value of commercial, passbook, interest-bearing checking and money
market accounts is the amount payable on demand. 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.
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 estimated fair values of the Bank's financial instruments as of September
30, 1997 and June 30, 1997 and 1996 are presented in the following table. Since
the fair value of commitments to originate loans approximate book value, these
disclosures are not included in the table.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997 JUNE 30, 1997 JUNE 30, 1996
------------------ ----------------- ------------------
CARRYING FAIR CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE VALUE VALUE
-------- ------- --------- ------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Financial Assets:
Cash and due from
banks $ 12,124 12,124 12,748 12,748 13,045 13,045
Federal funds sold 33,700 33,700 3,600 3,600 52,500 52,500
Investment securities 58,660 58,613 94,248 93,974 130,643 129,576
Mortgage-backed
securities 81,160 81,550 86,122 85,969 97,874 96,253
Loans receivable, net 818,460 833,419 814,881 826,821 713,512 718,039
Accrued interest
receivable 6,474 6,474 7,065 7,065 7,183 7,183
Investment in FHLB
stock 7,060 7,060 6,933 6,933 6,313 6,313
======== ======= ======= ======= ======= =======
Financial Liabilities:
Deposits $923,669 922,649 920,120 918,622 929,314 927,819
Overdrawn cash
account in bank 3,681 3,681 5,018 5,018 4,338 4,338
Advances from
borrowers for taxes
and insurance 211 211 1,305 1,305 963 963
Advances from FHLB 10,565 10,543 21,569 21,468 13,599 13,635
Accrued interest
payable 9,324 9,324 8,930 8,930 9,497 9,497
======== ======= ======= ======= ======= =======
</TABLE>
(Continued)
F-29
<PAGE>
FIRST FEDERAL LINCOLN BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DATA AS OF AND FOR THE THREE-MONTH PERIODS ENDED
SEPTEMBER 30, 1997 AND 1996 IS UNAUDITED)
- --------------------------------------------------------------------------------
(18) FAIR VALUE OF FINANCIAL INSTRUMENTS, CONTINUED
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.
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.
(Continued)
F-30
<PAGE>
FIRST FEDERAL LINCOLN BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(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
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 approximately 75 percent 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.
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.
(Continued)
F-31
<PAGE>
FIRST FEDERAL LINCOLN BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(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
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-32
<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
Page
----
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................................
______________________________
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 adjudicatin 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 Opinion of Muldoon, Murphy & Faucette re: legality
5.1 Opinion of Morris, Nichols, Arsht & Tunnell re: legality
8.0 Opinion of Muldoon, Murphy & Faucette re: Federal Tax Matters
8.1 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 LaVern F. Roschewski
10.4 Form of Proposed Employment Agreement between First Federal Lincoln Bank
and Eugene B. Witkowicz
10.5 Form of Proposed Employment Agreement between First Lincoln Bancshares
Inc. and Gilbert G. Lundstrom
10.6 Form of Proposed Employment Agreement between First Lincoln Bancshares
Inc. and LaVern F. Roschewski
10.7 Form of Proposed Employment Agreement between First Lincoln Bancshares
Inc. and Eugene B. Witkowicz
10.8 Form of Proposed Change in Control Agreement between First Federal
Lincoln Bank and certain executive officers*
10.9 Form of Proposed Change in Control Agreement between First Lincoln
Bancshares Inc. and certain executive officers*
10.10 Form of Proposed First Federal Lincoln Bank Employee Severance
Compensation Plan*
10.11 Form of Proposed Management Supplemental Executive Retirement Plan*
10.12 Form of Proposed Supplemental Executive Retirement Plan*
10.13 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
99.3 Draft Subscription Agreement
- ---------------
*Previously filed
(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 February 4, 1998.
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 S. Lundstrom President, Chief Executive February 4, 1998
- ------------------------ Officer and Director
Gilbert G. Lundstrom (principal executive officer)
/s/ Eugene B. Witkowicz Executive Vice President, February 4, 1998
- ------------------------ Treasurer and Chief Financial Officer
Eugene B. Witkowicz (principal financial and
accounting officer)
* Chairman of the Board
- ------------------------
LaVern F. Roschewski
* Director
- ------------------------
Campbell McConnell
* Director
- ------------------------
Ann Lindley Spence
* Director
- ------------------------
Joyce Person Pocras
</TABLE>
*Pursuant to the Power of Attorney filed on December 12, 1997, as Exhibit 24.1
to the S-1 Registration Statement of First Lincoln Bancshares Inc.
<PAGE>
TABLE OF CONTENTS
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 Opinion of Muldoon, Murphy & Faucette re: legality
5.1 Opinion of Morris, Nichols, Arsht & Tunnell re: legality
8.0 Opinion of Muldoon, Murphy & Faucette re: Federal Tax Matters
8.1 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 LaVern F. Roschewski
10.4 Form of Proposed Employment Agreement between First Federal Lincoln Bank
and Eugene B. Witkowicz
10.5 Form of Proposed Employment Agreement between First Lincoln Bancshares
Inc. and Gilbert G. Lundstrom
10.6 Form of Proposed Employment Agreement between First Lincoln Bancshares
Inc. and LaVern F. Roschewski
10.7 Form of Proposed Employment Agreement between First Lincoln Bancshares
Inc. and Eugene B. Witkowicz
10.8 Form of Proposed Change in Control Agreement between First Federal
Lincoln Bank and certain executive officers*
10.9 Form of Proposed Change in Control Agreement between First Lincoln
Bancshares Inc. and certain executive officers*
10.10 Form of Proposed First Federal Lincoln Bank Employee Severance
Compensation Plan*
10.11 Form of Proposed Management Supplemental Executive Retirement Plan*
10.12 Form of Proposed Supplemental Executive Retirement Plan*
10.13 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
99.3 Draft Subscription Agreement
- ---------------
*Previously filed
(P) Filed pursuant to Rule 202 of Regulation S-T.
<PAGE>
As filed with the Securities and Exchange Commission on February 4, 1998
Registration No. 333-42197
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------
EXHIBITS
TO THE
PRE-EFFECTIVE AMENDMENT NO. 1
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>
Exhibit 1.2
8,021,250 Shares
(subject to increase up to 9,224,438 shares
in the event of an oversubscription)
FIRST LINCOLN BANCSHARES INC.
(a Delaware corporation)
Common Stock
(par value $.01 per share)
AGENCY AGREEMENT
, 1998
--------------------
SANDLER O'NEILL & PARTNERS, L.P.
Two World Trade Center, 104th Floor
New York, New York 10048
Ladies and Gentlemen:
First Lincoln Bancshares Inc., a Delaware corporation (the "Company"), and
First Federal Lincoln Bank, a federal savings bank (the "Bank"), hereby confirm
their agreement with Sandler O'Neill & Partners, L.P. ("Sandler O'Neill" or the
"Agent") with respect to the offer and sale by the Company of 8,021,250 shares
(subject to increase up to 9,224,438 shares in the event of an oversubscription)
of the Company's Common Stock, par value $.01 per share (the "Common Stock").
The shares of Common Stock to be sold by the Company are hereinafter called the
"Securities." In addition, as described herein, the Company expects to
contribute shares of Common Stock in an amount equal to 6% of the shares of
Common Stock sold in the Offerings (as hereinafter defined) to The First Federal
Lincoln Foundation (the "Foundation"), such shares hereinafter being referred to
as the "Foundation Shares".
The Securities are being offered for sale and the Foundation Shares are
being contributed in accordance with the plan of conversion (the "Plan") adopted
by the Board of Directors of the Bank pursuant to which the Bank intends to
convert from a federally chartered mutual savings bank to a federally chartered
stock savings bank and issue all of its stock to the Company. Pursuant to the
Plan, the Company is offering to the Bank's tax qualified employee benefit
plans, including the Employee Stock Ownership Plan (the "ESOP") (collectively,
the "Employee Plans"), and to certain of the Bank's depositors and borrowers
rights to subscribe for the Securities in a subscription offering (the
"Subscription Offering"). To the extent Securities are not subscribed for in
the Subscription Offering, such Securities may be offered to certain members of
the general public, with preference given to certain depositors of the
<PAGE>
Bank's wholly-owned subsidiary, First Federal Lincoln Bank - Iowa (the "Iowa
Bank"), and certain natural persons residing in the counties in which the Bank's
(including the Iowa Bank's) offices are located, in a direct community offering
(the "Community Offering" and together with the Subscription Offering, as each
may be extended or reopened from time to time, the "Subscription and Community
Offering") to be commenced following the Subscription Offering. It is currently
anticipated by the Bank and the Company that any Securities not subscribed for
in the Subscription and Community Offering will be offered, subject to Section 3
hereof, in a syndicated community offering (the "Syndicated Community
Offering"). The Subscription and Community Offering and the Syndicated
Community Offering are hereinafter referred to collectively as the "Offerings,"
and the conversion of the Bank from mutual to stock form, the acquisition of the
capital stock of the Bank by the Company and the Offerings are hereinafter
referred to collectively as the "Conversion." It is acknowledged that the
number of Securities to be sold in the Conversion may be increased or decreased
as described in the Prospectus (as hereinafter defined). If the number of
Securities is increased or decreased in accordance with the Plan, the term
"Securities" shall mean such greater or lesser number, where applicable.
In connection with the Conversion and pursuant to the terms of the Plan as
described in the Prospectus, the Company has established the Foundation.
Immediately following the consummation of the Conversion, subject to the
approval of the establishment of the Foundation by the members of the Bank and
compliance with certain conditions as may be imposed by regulatory authorities,
the Company will contribute newly issued shares of Common Stock to the
Foundation in an amount equal to 6% of the Securities sold in the Offerings, or
between 355,725 and 481,275 shares of Common Stock (subject to increase in
certain circumstances to 553,466 shares).
The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form S-1 (No. 333-42197), including a
related prospectus, for the registration of the Securities and the Foundation
Shares under the Securities Act of 1933, as amended (the "Securities Act"), has
filed such amendments thereto, if any, and such amended prospectuses as may have
been required to the date hereof by the Commission in order to declare such
registration statement effective, and will file such additional amendments
thereto and such amended prospectuses and prospectus supplements as may
hereafter be required. Such registration statement (as amended to date, if
applicable, and as from time to time amended or supplemented hereafter) and the
prospectuses constituting a part thereof (including in each case all documents
incorporated or deemed to be incorporated by reference therein and the
information, if any, deemed to be a part thereof pursuant to the rules and
regulations of the Commission under the Securities Act, as from time to time
amended or supplemented pursuant to the Securities Act or otherwise (the
"Securities Act Regulations")), are hereinafter referred to as the "Registration
Statement" and the "Prospectus," respectively, except that if any revised
prospectus shall be used by the Company in connection with the Subscription and
Community Offering or the Syndicated Community Offering which differs from the
Prospectus on file at the Commission at the time the Registration Statement
becomes effective (whether or not such revised prospectus is required to be
filed by the Company pursuant to Rule 424(b) of the Securities Act Regulations),
the term "Prospectus" shall refer to such revised prospectus from and after the
time it is first provided to the Agent for such use.
-2-
<PAGE>
Concurrently with the execution of this Agreement, the Company is
delivering to the Agent copies of the Prospectus to be used in the Subscription
and Community Offering. Such Prospectus contains information with respect to
the Bank, the Company and the Common Stock.
SECTION 1. REPRESENTATIONS AND WARRANTIES.
(a) The Company and the Bank jointly and severally represent and
warrant to the Agent as of the date hereof as follows:
(i) The Registration Statement has been declared effective by the
Commission, no stop order has been issued with respect thereto and no
proceedings therefor have been initiated or, to the knowledge of the
Company and the Bank, threatened by the Commission. At the time the
Registration Statement became effective and at the Closing Time referred to
in Section 2 hereof, the Registration Statement complied and will comply in
all material respects with the requirements of the Securities Act and the
Securities Act Regulations and did not and will not contain an untrue
statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not
misleading. The Prospectus, at the date hereof does not and at the Closing
Time referred to in Section 2 hereof will not, include an untrue statement
of a material fact or omit to state a material fact necessary in order to
make the statements therein, in the light of the circumstances under which
they were made, not misleading; provided, however, that the representations
and warranties in this subsection shall not apply to statements in or
omissions from the Registration Statement or Prospectus made in reliance
upon and in conformity with information with respect to the Agent furnished
to the Company in writing by the Agent expressly for use in the
Registration Statement or Prospectus (which the Company and the Bank
acknowledge appears only in the first two paragraphs of the section
captioned "The Conversion-Marketing and Underwriting Arrangements" of the
Prospectus).
(ii) The Company has filed with the Department of the Treasury,
Office of Thrift Supervision (the "OTS") the Company's application for
approval of its acquisition of the Bank (the "Holding Company Application")
on Form H-(e)1-S promulgated under the savings and loan holding company
provisions of the Home Owners' Loan Act, as amended ("HOLA"), and the
regulations promulgated thereunder. The Company has received written
notice from the OTS of its approval of the acquisition of the Bank, such
approval remains in full force and effect and no order has been issued by
the OTS suspending or revoking such approval and no proceedings therefor
have been initiated or, to the knowledge of the Company or the Bank,
threatened by the OTS. At the date of such approval and at the Closing
Time referred to in Section 2, the Holding Company Application complied and
will comply in all material respects with the applicable provisions of HOLA
and the regulations promulgated thereunder.
(iii) Pursuant to the rules and regulations of the OTS governing
the conversion of federally chartered mutual savings banks to stock form
(the "Conversion Regulations"), the Bank has filed with the OTS an
application for conversion on Form AC, and has filed such amendments
thereto and supplementary materials as may have
-3-
<PAGE>
been required to the date hereof (such application, as amended to date, if
applicable, and as from time to time amended or supplemented hereafter, is
hereinafter referred to as the "Conversion Application"), including copies
of the Bank's Proxy Statement, dated ______________, 199__, relating to the
Conversion (the "Proxy Statement"), and the Prospectus. The OTS has, by
letter dated __________, 199__, approved the Conversion Application, such
approval remains in full force and effect and no order has been issued by
the OTS suspending or revoking such approval and no proceedings therefor
have been initiated or, to the knowledge of the Company or the Bank,
threatened by the OTS. At the date of such approval and at the Closing
Time referred to in Section 2, the Conversion Application complied and will
comply in all material respects with the applicable provisions of the
Conversion Regulations.
(iv) At the time of their use, the Proxy Statement and any other
proxy solicitation materials will comply in all material respects with the
applicable provisions of the Conversion Regulations and will not contain an
untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading. The Company and
the Bank will promptly file the Prospectus and any supplemental sales
literature with the Commission and the OTS. The Prospectus and all
supplemental sales literature, as of the date the Registration Statement
became effective and at the Closing Time referred to in Section 2, complied
and will comply in all material respects with the applicable requirements
of the Conversion Regulations and, at or prior to the time of their first
use, will have received all required authorizations of the OTS for use in
final form.
(v) Neither the SEC nor the OTS has, by order or otherwise,
prevented or suspended the use of the Prospectus or any supplemental sales
literature authorized by the Company or the Bank for use in connection with
the Offerings.
(vi) At the Closing Time referred to in Section 2, the Company
and the Bank will have completed the conditions precedent to the Conversion
and the establishment of the Foundation in accordance with the Plan, the
applicable Conversion Regulations and all other applicable laws,
regulations, decisions and orders, including all material terms,
conditions, requirements and provisions precedent to the Conversion imposed
upon the Company or the Bank by the OTS, the Federal Deposit Insurance
Corporation (the "FDIC"), or any other regulatory authority, other than
those which the regulatory authority permits to be completed after the
Conversion.
(vii) Keller & Company, Inc., which prepared the valuation of
the Bank as part of the Conversion, has advised the Company and the Bank in
writing that it satisfies all requirements for an appraiser set forth in
the Conversion Regulations and any interpretations or guidelines issued by
the OTS and the FDIC with respect thereto.
(viii) The accountants who certified the consolidated financial
statements and supporting schedules of the Bank included in the
Registration Statement have advised the Company and the Bank in writing
that they are independent public accountants within the meaning of the Code
of Ethics of the American Institute of
-4-
<PAGE>
Certified Public Accountants (the "AICPA"), and such accountants are, with
respect to the Company, the Bank and each subsidiary of the Bank,
independent certified public accountants as required by the Securities Act
and the Securities Act Regulations.
(ix) The direct and indirect subsidiaries of the Bank are the
Iowa Bank, First Federal Lincoln Holding Corporation - Nebraska, FFL
Holding Corporation -Iowa, TMS Corporation of the Americas, and First
Financial Investments & Insurance Corporation (collectively, the
"Subsidiaries"). Except for the Subsidiaries, the Bank does not, directly
or indirectly, own any equity interest in or control any other corporation,
limited liability company, partnership, joint venture, association, trust
or other business organization.
(x) The consolidated financial statements and the related notes
thereto included in the Registration Statement and the Prospectus present
fairly the financial position of the Company, the Bank and the Subsidiaries
at the dates indicated and the results of operations, retained earnings and
cash flows for the periods specified, and comply as to form in all material
respects with the applicable accounting requirements of the Securities Act
Regulations and the Conversion Regulations; said financial statements have
been prepared in conformity with generally accepted accounting principles
applied on a consistent basis; and the supporting schedules and tables
included in the Registration Statement present fairly the information
required to be stated therein.
(xi) Since the respective dates as of which information is given
in the Registration Statement and the Prospectus, except as otherwise
stated therein (A) there has been no material adverse change in the
financial condition, results of operations, business affairs or prospects
of the Company, the Bank and the Subsidiaries considered as one enterprise,
whether or not arising in the ordinary course of business consistent with
past practice, and (B) except for transactions specifically referred to or
contemplated in the Prospectus, there have been no transactions entered
into by the Company, the Bank or any of the Subsidiaries, other than those
in the ordinary course of business consistent with past practice, which are
material with respect to the Company, the Bank and its subsidiaries,
considered as one enterprise.
(xii) The Company has been duly incorporated and is validly
existing as a 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 and
to enter into and perform its obligations under this Agreement; and the
Company is duly qualified as a foreign corporation to transact business and
is in good standing in the State of Nebraska and in each other jurisdiction
in which such qualification is required, whether by reason of the ownership
or leasing of property or the conduct of business, except where the failure
to so qualify would not have a material adverse effect on the financial
condition, results of operations, business affairs or prospects of the
Company, the Bank and the Subsidiaries, considered as one enterprise.
(xiii) Upon consummation of the Conversion and the contribution
of the Foundation Shares as described in the Prospectus, the authorized,
issued and
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outstanding capital stock of the Company will be as set forth in the
Prospectus under "Capitalization" (except for subsequent issuances, if any,
pursuant to reservations, agreements or employee benefit plans referred to
in the Prospectus); no shares of Common Stock have been or will be issued
and outstanding prior to the Closing Time referred to in Section 2; at the
time of Conversion, the Securities will have been duly authorized for
issuance and, when issued and delivered by the Company pursuant to the Plan
against payment of the consideration calculated as set forth in the Plan
and stated on the cover page of the Prospectus, will be duly and validly
issued and fully paid and nonassessable; the terms and provisions of the
Common Stock and the capital stock of the Company conform to all statements
relating thereto contained in the Prospectus; the certificates representing
the shares of Common Stock conform to the requirements of applicable law
and regulations; and the issuance of the Securities and the Foundation
Shares is not subject to preemptive or other similar rights.
(xiv) The Bank, as of the date hereof, is a federally chartered
savings bank in mutual form and upon consummation of the Conversion will be
a federally chartered savings bank in stock form, in both instances with
full corporate power and authority to own, lease and operate its properties
and to conduct its business as described in the Prospectus; the Iowa Bank,
as of the date hereof, is a federally chartered savings bank with full
corporate power and authority to own, lease and operate its properties and
to conduct its business as described in the Prospectus; the Company, the
Bank and the Subsidiaries have obtained all licenses, permits and other
governmental authorizations currently required for the conduct of their
respective businesses or required for the conduct of their respective
businesses as contemplated by the Holding Company Application and the
Conversion Application, except where the failure to obtain such licenses,
permits or other governmental authorizations would not have a material
adverse effect on the financial condition, results of operations, business
affairs or prospects of the Company, the Bank and the Subsidiaries
considered as one enterprise; all such licenses, permits and other
governmental authorizations are in full force and effect and the Company,
the Bank and the Subsidiaries are in all material respects in compliance
therewith; neither the Company, the Bank nor any of the Subsidiaries has
received notice of any proceeding or action relating to the revocation or
modification of any such license, permit or other governmental
authorization which, singly or in the aggregate, if the subject of an
unfavorable decision, ruling or finding, might have a material adverse
effect on the financial condition, results of operations, business affairs
or prospects of the Company, the Bank and the Subsidiaries, considered as
one enterprise; and each of the Bank and the Iowa Bank is in good standing
under the laws of the United States and is qualified as a foreign
corporation in any jurisdiction in which the failure to so qualify would
have a material adverse effect on the financial condition, results of
operations, business affairs or prospects of the Company, the Bank and the
Subsidiaries considered as one enterprise. The Bank is not required to be
registered as a savings and loan holding company under HOLA.
(xv) The deposit accounts of each of the Bank and the Iowa Bank
are insured by the FDIC up to the applicable limits. Upon consummation of
the Conversion, the liquidation account for the benefit of eligible account
holders and supplemental eligible account holders of the Bank will be duly
established in accordance
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with the requirements of the Conversion Regulations. Each of the Bank and
the Iowa Bank is a "qualified thrift lender" within the meaning of 12
U.S.C. Section 1467a(m).
(xvi) Upon consummation of the Conversion, the authorized
capital stock of the Bank will be 45,000,000 shares of common stock, par
value $1.00 per share (the "Bank Common Stock") and 5,000,000 shares of
preferred stock, par value $1.00 per share (the "Bank Preferred Stock"),
and the issued and outstanding capital stock of the Bank will be 1,000
shares of Bank Common Stock and no shares of the Bank Preferred Stock, and
no shares of Bank Common Stock or Bank Preferred Stock have been or will be
issued prior to the Closing Time referred to in Section 2; and as of
Closing Time referred to in Section 2, all of the issued and outstanding
capital stock of the Bank will be duly authorized, validly issued and fully
paid and nonassessable. The shares of Bank Common Stock to be issued to
the Company will have been duly authorized for issuance and, when issued
and delivered by the Bank pursuant to the Plan against payment of the
consideration calculated as set forth in the Plan and as described in the
Prospectus, will be duly and validly issued and fully paid and
nonassessable, and all such Bank Common Stock will be owned beneficially
and of record by the Company free and clear of any security interest,
mortgage, pledge, lien, encumbrance or legal or equitable claim; the terms
and provisions of the Bank Common Stock and the Bank Preferred Stock
conform to all statements relating thereto contained in the Prospectus, and
the certificates representing the shares of the Bank Common Stock will
conform with the requirements of applicable laws and regulations; the
issuance of the Bank Common Stock is not subject to preemptive or similar
rights; and there are no other warrants, options or rights of any kind to
acquire additional shares of Bank Common Stock or any shares of Bank
Preferred Stock.
(xvii) The Foundation has been duly authorized and incorporated
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; the Foundation will not be a savings and loan
holding company within the meaning of 12 C.F.R. Section 574.2(q) as a
result of the issuance of shares of Common Stock to it in accordance with
the terms of the Plan and in the amounts as described in the Prospectus; no
approvals are required to establish the Foundation and to contribute the
shares of Common Stock thereto as described in the Prospectus other than
those imposed by the OTS and the FDIC; except as specifically disclosed in
the Prospectus and the Proxy Statement, there are no agreements and/or
understandings, written or oral, between the Company and/or the Bank and
the Foundation with respect to the control, directly or indirectly, over
the voting and the acquisition or disposition of the Foundation Shares; at
the time of the Conversion, the Foundation Shares will have been duly
authorized for issuance and, when issued and contributed by the Company
pursuant to the Plan, will be duly and validly issued and fully paid and
nonassessable; and the issuance of the Foundation Shares is not subject to
preemptive or similar rights. The issuance of the Foundation Shares to the
Foundation pursuant to the Plan will constitute an offer and sale of such
shares registered pursuant to the Registration Statement.
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<PAGE>
(xviii) Each Subsidiary has been duly incorporated and is
validly existing as a corporation in good standing under the laws of the
jurisdiction of its incorporation, has full corporate power and authority
to own, lease and operate its properties and to conduct its business as
described in the Registration Statement and Prospectus, and is duly
qualified to transact business and is in good standing in each jurisdiction
in which such qualification is required, whether by reason of the ownership
or leasing of property or the conduct of business, except where the failure
to so qualify would not have a material adverse effect on the financial
condition, results of operations, business affairs or prospects of the
Company, the Bank and the Subsidiaries considered as one enterprise; the
activities of each Subsidiary are permitted to subsidiaries of a federally
chartered savings bank and a savings and loan holding company by the rules,
regulations, resolutions and practices of the OTS; all of the issued and
outstanding capital stock of each Subsidiary has been duly authorized and
validly issued, is fully paid and nonassessable and is owned by the Bank,
directly, free and clear of any security interest, mortgage, pledge, lien,
encumbrance or legal or equitable claim; and there are no warrants, options
or rights of any kind to acquire shares of capital stock of any Subsidiary.
(xix) The Company and the Bank have taken all corporate action
necessary for them to execute, deliver and perform this Agreement, and this
Agreement has been duly executed and delivered by, and is the valid and
binding agreement of, the Company and the Bank, enforceable in accordance
with its terms, except as enforcement thereof may be limited by bankruptcy,
insolvency or other laws affecting the enforceability of the rights of
creditors generally and judicial limitations on the right of specific
performance and except as the enforceability of indemnification and
contribution provisions may be limited by applicable securities laws.
(xx) Subsequent to the respective dates as of which information
is given in the Registration Statement and the Prospectus and prior to the
Closing Time, except as otherwise may be indicated or contemplated therein,
none of the Company, the Bank or any subsidiary of the Bank will have (A)
issued any securities or incurred any liability or obligation, direct or
contingent, or borrowed money, except borrowings in the ordinary course of
business consistent with past practice from the same or similar sources and
in similar amounts as indicated in the Prospectus, or (B) entered into any
transaction or series of transactions which is material in light of the
business of the Company, the Bank and its subsidiaries, taken as a whole,
excluding the origination, purchase and sale of loans or the purchase or
sale of investment securities or mortgaged-backed securities in the
ordinary course of business consistent with past practice.
(xxi) No approval of any regulatory or supervisory or other
public authority is required in connection with the execution and delivery
of this Agreement or the issuance of the Securities and the Foundation
Shares that has not been obtained and a copy of which has been delivered to
the Agent, except as may be required under the"blue sky" or state
securities laws of various jurisdictions.
(xxii) Neither the Company, the Bank nor any of the Subsidiaries
is in violation of its certificate of incorporation, organization
certificate, articles of
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incorporation or charter, as the case may be, or bylaws (and the Bank will
not be in violation of its charter or bylaws in stock form upon
consummation of the Conversion); and neither the Company, the Bank nor any
of the Subsidiaries is in default (nor has any event occurred which, with
notice or lapse of time or both, would constitute a default) in the
performance or observance of any obligation, agreement, covenant or
condition contained in any contract, indenture, mortgage, loan agreement,
note, lease or other instrument to which the Company, the Bank or any of
the Subsidiaries is a party or by which it or any of them may be bound, or
to which any of the property or assets of the Company, the Bank or any of
the Subsidiaries is subject, except for such defaults that would not,
individually or in the aggregate, have a material adverse effect on the
financial condition, results of operations, business affairs or prospects
of the Company, the Bank and the Subsidiaries considered as one enterprise;
and there are no contracts or documents of the Company, the Bank or any of
the Subsidiaries which are required to be filed as exhibits to the
Registration Statement or the Conversion Application which have not been so
filed.
(xxiii) The consummation of the Conversion, the execution,
delivery and performance of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of the Company and the Bank and do not and
will not conflict with or constitute a breach of, or default under, or
result in the creation or imposition of any lien, charge or encumbrance
upon any property or assets of the Company, the Bank or any of the
Subsidiaries pursuant to, any contract, indenture, mortgage, loan
agreement, note, lease or other instrument to which the Company, the Bank
or any of the Subsidiaries is a party or by which it or any of them may be
bound, or to which any of the property or assets of the Company or any of
its subsidiaries is subject, except for such defaults that would not,
individually or in the aggregate, have a material adverse effect on the
financial condition, results of operations, business affairs or prospects
of the Company, the Bank and the Subsidiaries considered as one enterprise;
nor will such action result in any violation of the provisions of the
certificate of incorporation, organization certificate, articles of
incorporation or charter or by-laws of the Company, the Bank or any of the
Subsidiaries, or any applicable law, administrative regulation or
administrative or court decree.
(xxiv) No labor dispute with the employees of the Company, the
Bank or any of the Subsidiaries exists or, to the knowledge of the Company
or the Bank, is imminent or threatened; and the Company and the Bank are
not aware of any existing or threatened labor disturbance by the employees
of any of its principal suppliers or contractors which might be expected to
result in any material adverse change in the financial condition, results
of operations, business affairs or prospects of the Company, the Bank and
the Subsidiaries considered as one enterprise.
(xxv) Each of the Company, the Bank and the Subsidiaries have
good and marketable title to all properties and assets for which ownership
is material to the business of the Company, the Bank or the Subsidiaries
and to those properties and assets described in the Prospectus as owned by
them, free and clear of all liens, charges, encumbrances or restrictions,
except such as are described in the Prospectus or are not
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<PAGE>
material in relation to the business of the Company, the Bank and the
Subsidiaries considered as one enterprise; and all of the leases and
subleases material to the business of the Company, the Bank or the
Subsidiaries under which the Company, the Bank or the Subsidiaries hold
properties, including those described in the Prospectus, are valid and
binding agreements in full force and effect, enforceable in accordance with
their terms.
(xxvi) None of the Company, the Bank nor the Subsidiaries are in
violation of any directive from the Commission, the OTS, the FDIC or any
other governmental authority to make any material change in the method of
conducting their respective businesses; the Bank and the Subsidiaries have
conducted and are conducting their business so as to comply in all material
respects with all applicable statutes, regulations and administrative and
court decrees (including, without limitation, all regulations, decisions,
directives and orders of the Commission, the OTS and the FDIC).
(xxvii) There is no action, suit or proceeding before or by any
court or governmental agency or body, domestic or foreign, now pending, or,
to the knowledge of the Company or the Bank, threatened, against or
affecting the Company, the Bank or any of the Subsidiaries which is
required to be disclosed in the Registration Statement (other than as
disclosed therein), or which might result in any material adverse change in
the financial condition, results of operations, business affairs or
prospects of the Company, the Bank and the Subsidiaries considered as one
enterprise, or which might materially and adversely affect the properties
or assets thereof or which might materially and adversely affect the
consummation of the Conversion or the performance of this Agreement; all
pending legal or governmental proceedings to which the Company, the Bank or
any Subsidiary is a party or of which any of their respective property or
assets is the subject which are not described in the Registration
Statement, including ordinary routine litigation incidental to the
business, are considered in the aggregate not material; and there are no
contracts or documents of the Company or the Bank or any of the
Subsidiaries which are required to be filed as exhibits to the Registration
Statement or the Conversion Application which have not been so filed.
(xxviii) The Bank has obtained opinions of its outside legal and
tax advisors with respect to the legality of the Securities and the
Foundation Shares to be issued and the state and local income tax and
federal income tax consequences of the Conversion (including franchise tax,
sales or use tax, license fee on foreign corporations, stock transfer tax,
real property transfer gain tax and real estate transfer tax), copies of
which are filed as exhibits to the Registration Statement; all material
aspects of the aforesaid opinions are accurately summarized in the
Prospectus; the facts and representations upon which such opinions are
based are truthful, accurate and complete in all material respects; and
neither the Bank (including the Subsidiaries) nor the Company has taken or
will take any action inconsistent therewith.
(xxix) The Company is not required to be registered under the
Investment Company Act of 1940, as amended.
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<PAGE>
(xxx) All of the loans represented as assets on the most recent
consolidated financial statements or consolidated selected financial
information of the Bank included in the Prospectus meet or are exempt from
all requirements of federal, state or local law pertaining to lending,
including without limitation truth in lending (including the requirements
of Regulations Z and 12 C.F.R. Part 226 and Section 563.99), real estate
settlement procedures, consumer credit protection, equal credit opportunity
and all disclosure laws applicable to such loans, except for violations
which, if asserted, would not result in a material adverse effect on the
financial condition, results of operations, business affairs or prospects
of the Company, the Bank and the Subsidiaries considered as one enterprise.
(xxxi) To the knowledge of the Company and the Bank, with the
exception of the intended loan to the ESOP by the Company to enable the
ESOP to purchase shares of Common Stock in an amount of up to 8% of the
Common Stock issued in the Conversion, none of the Company, the Bank or the
Subsidiaries or employees of the Bank or the Subsidiaries has made any
payment of funds of the Company or the Bank or the Subsidiaries as a loan
for the purchase of the Common Stock or made any other payment of funds
prohibited by law, and no funds have been set aside to be used for any
payment prohibited by law.
(xxxii) The Company, the Bank and the Subsidiaries are in
compliance in all material respects with the applicable financial
recordkeeping and reporting requirements of the Currency and Foreign
Transaction Reporting Act of 1970, as amended, and the rules and
regulations thereunder.
(xxxiii) None of the Company, the Bank nor the Subsidiaries nor
any properties owned, operated or held as collateral by the Company, the
Bank or the Subsidiaries is in violation of or liable under any
Environmental Law (as defined below), except for such violations or
liabilities that, individually or in the aggregate, would not have a
material adverse effect on the financial condition, results of operations,
business affairs or prospects of the Company, the Bank and the Subsidiaries
considered as one enterprise. There are no actions, suits or proceedings,
or demands, claims, notices or investigations (including, without
limitation, notices, demand letters or requests for information from any
environmental agency) instituted or pending, or to the knowledge of the
Company or the Bank threatened, relating to the liability of any property
owned, operated or held as collateral by the Company, the Bank or the
Subsidiaries, under any Environmental Law. For purposes of this
subsection, the term "Environmental Law" means any federal, state, local or
foreign law, statute, ordinance, rule, regulation, code, license, permit,
authorization, approval, consent, order, judgment, decree, injunction or
agreement with any regulatory authority relating to (i) the protection,
preservation or restoration of the environment (including, without
limitation, air, water, vapor, surface water, groundwater, drinking water
supply, surface soil, subsurface soil, plant and animal life or any other
natural resource), and/or (ii) the use, storage, recycling, treatment,
generation, transportation, processing, handling, labeling, production,
release or disposal of any substance presently listed, defined, designated
or classified as hazardous, toxic, radioactive or dangerous, or otherwise
regulated, whether by type or by quantity, including any material
containing any such substance as a component.
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(xxxiv) The Company, the Bank and the Subsidiaries have filed
all federal income and state and local income and franchise tax returns
required to be filed and have made timely payments of all taxes shown as
due and payable in respect of such returns, and no deficiency has been
asserted with respect thereto by any taxing authority. The Company and the
Bank have no knowledge of any tax deficiency which has been or could be
asserted against the Company, the Bank or the Subsidiaries.
(xxxv) The Company has received approval, subject to regulatory
approval to consummate the Offerings and issuance, to have the Securities
and the Foundation Shares listed on the American Stock Exchange ("AMEX")
effective as of the Closing Time referred to in Section 2 hereof.
(xxxvi) The Company has filed a registration statement for the
Common Stock under Section 12 of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and such registration statement became
effective concurrent with the effectiveness of the Registration Statement.
(b) Any certificate signed by any officer of the Company or the Bank
or the Subsidiaries and delivered to either of the Agent or to counsel for the
Agent shall be deemed a representation and warranty by the Company and the Bank
to the Agent and to the counsel for the Agent as to the matters covered thereby.
SECTION 2. APPOINTMENT OF SANDLER O'NEILL; SALE AND DELIVERY OF THE
SECURITIES; CLOSING.
On the basis of the representations and warranties herein contained
and subject to the terms and conditions herein set forth, the Company hereby
appoints Sandler O'Neill as its agent to consult with and advise the Company,
and to assist the Company with the solicitation of subscriptions and purchase
orders for Securities, in connection with the Company's sale of Common Stock in
the Subscription and Community Offering and the Syndicated Community Offering.
On the basis of the representations and warranties herein contained, and subject
to the terms and conditions herein set forth, Sandler O'Neill accepts such
appointment and agrees to use its best efforts to assist the Company with the
solicitation of subscriptions and purchase orders for Securities in accordance
with this Agreement; provided, however, that the Agent shall not be obligated to
take any action which is inconsistent with any applicable laws, regulations,
decisions or orders. The services to be rendered by Sandler O'Neill pursuant to
this appointment include the following: (i) consulting as to the securities
marketing implications of any aspect of the Plan or related corporate documents;
(ii) reviewing with the Board of Directors the independent appraiser's appraisal
of the Common Stock; (iii) reviewing all offering docu ments, including the
Prospectus, stock order form and related offering materials (it being understood
that preparation and filing of such documents is the sole responsibility of the
Company and the Bank and their counsel); (iv) assisting in the design and
implementation of a marketing strategy for the Offerings; (v) assisting the
Company and the Bank in obtaining all requisite regulatory approvals; (vi)
assisting Bank management in preparing for meetings with potential investors and
broker-dealers; and (vii) providing such other general advice and assistance as
may be requested to promote the successful completion of the Offerings.
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The appointment of the Agent hereunder shall terminate upon the
earliest to occur of (a) forty-five (45) days after the last day of the
Subscription and Community Offering, unless the Company and the Agent agree in
writing to extend such period and the OTS agrees to extend the period of time in
which the Securities may be sold, or (b) the receipt and acceptance of
subscriptions and purchase orders for all of the Securities, or (c) the
completion of the Syndicated Community Offering.
If any of the Securities remain available after the expiration of both
the Subscrip tion and Community Offering, at the request of the Company and the
Bank, Sandler O'Neill will seek to form a syndicate of registered brokers or
dealers ("Selected Dealers") to assist in the solicitation of purchase orders of
such Securities on a best efforts basis, subject to the terms and conditions set
forth in a selected dealers' agreement (the "Selected Dealers' Agreement"),
substantially in the form set forth in Exhibit A to this Agreement. Sandler
O'Neill will endeavor to limit the aggregate fees to be paid by the Company and
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; provided, however, that the aggregate fees payable to Sander
O'Neill and Selected Dealers shall not exceed 7% of the aggregate purchase price
of the Securities sold by such Selected Dealers. Sander O'Neill will endeavor
to distribute the Securities among the Selected Dealers in a fashion which best
meets the distribution objective of the Company and the requirements of the
Plan, 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 Securities.
In the event the Company is unable to sell at least the total minimum
of the Securities, as set forth on the cover page of the Prospectus, within the
period herein provided, this Agreement shall terminate and the Company shall
refund to any persons who have subscribed for any of the Securities the full
amount which it may have received from them, together with interest as provided
in the Prospectus, and no party to this Agreement shall have any obligation to
the others hereunder, except for the obligations of the Company and the Bank as
set forth in Sections 4, 6(a) and 7 hereof and the obligations of the Agent as
provided in Sections 6(b) and 7 hereof. Appropriate arrangements for placing
the funds received from subscriptions for Securities or other offers to purchase
Securities in special interest-bearing accounts with the Bank until all
Securities are sold and paid for were made prior to the commencement of the
Subscription Offering, with provision for refund to the purchasers as set forth
above, or for delivery to the Company if all Securities are sold.
If at least the total minimum of Securities, as set forth on the cover
page of the Prospectus, are sold, the Company agrees to issue or have issued the
Securities sold and to release for delivery certificates for such Securities at
the Closing Time against payment therefor by release of funds from the special
interest-bearing accounts referred to above. The closing shall be held at the
__________ offices of _________________________, at 10:00 a.m., local time, or
at such other place and time as shall be agreed upon by the parties hereto, on a
business day to be agreed upon by the parties hereto. The Company shall notify
the Agent by telephone, confirmed in writing, when funds shall have been
received for all the Securities. Certificates for Securities shall be delivered
directly to the purchasers thereof in accordance with their directions.
Notwithstanding the foregoing, certificates for Securities purchased through
Selected
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Dealers shall be made available to the Agent for inspection at least 48 hours
prior to the Closing Time at such office as the Agent shall designate. The hour
and date upon which the Company shall release for delivery all of the
Securities, in accordance with the terms hereof, is herein called the "Closing
Time."
The Company will pay any stock issue and transfer taxes which may be
payable with respect to the sale of the Securities.
In addition to reimbursement of the expenses specified in Section 4
hereof, the Agent will receive the following compensation for its services
hereunder:
(a) one and three-eighths percent (1.375%) of the aggregate Purchase
Price (as defined in the Prospectus) of the Securities sold in the Subscription
and Community Offering, excluding the Foundation Shares and shares purchased by
(i) any employee benefit plan of the Company or the Bank established for the
benefit of their respective directors, officers and employees, and (ii) any
director, officer or employee of the Company or the Bank or members of their
immediate families (which term shall mean parents, grandparents, spouse,
siblings, children and grandchildren); and
(b) with respect to any Securities sold by an NASD member firm (other
than Sandler O'Neill) under the Selected Dealers' Agreement in the Syndicated
Community Offering, (i) the compensation payable to Selected Dealers under any
Selected Dealers' Agreement, (ii) any sponsoring dealer's fees, and (iii) a
management fee to Sandler O'Neill of one and three-eighths percent (1.375%).
Any fees payable to Sandler O'Neill for Securities 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 Purchase Price of such Securities.
If this Agreement is terminated by the Agent in accordance with the
provisions of Section 9(a) hereof or the Conversion is terminated by the
Company, no fee shall be payable by the Company to Sandler O'Neill; however, the
Company shall reimburse the Agent for all of its reasonable out-of-pocket
expenses incurred prior to termination, including the reasonable fees and
disbursements of counsel for the Agent in accordance with the provisions of
Section 4 hereof.
All fees payable to the Agent hereunder shall be payable in
immediately available funds at Closing Time, or upon the termination of this
Agreement, as the case may be. In recognition of the long lead times involved
in the conversion process, the Bank agrees to make advance payments to the Agent
in the aggregate amount of $50,000, $25,000 of which has been previously paid
and the remaining $25,000 of which shall be payable upon execution hereof, which
shall be credited against any fees or reimbursement of expenses payable
hereunder.
SECTION 3. COVENANTS OF THE COMPANY. The Company and the Bank
covenant with the Agent as follows:
(a) The Company and the Bank will prepare and file such amendments or
supplements to the Registration Statement, the Prospectus, the Conversion
Application and the Proxy Statement as may hereafter be required by the
Securities Act Regulations or the
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Conversion Regulations or as may hereafter be requested by the Agent. Following
completion of the Subscription and Community Offering, in the event of a
Syndicated Community Offering, the Company and the Bank will (i) promptly
prepare and file with the Commission a post-effective amendment to the
Registration Statement relating to the results of the Subscription and Community
Offering, any additional information with respect to the proposed plan of
distribution and any revised pricing information or (ii) if no such post-
effective amendment is required, will file with the Commission a prospectus or
prospectus supplement containing information relating to the results of the
Subscription and Community Offering and pricing information pursuant to Rule 424
of the Securities Act Regulations, in either case in a form acceptable to the
Agent. The Company and the Bank will notify the Agent immediately, and confirm
the notice in writing, (i) of the effectiveness of any post-effective amendment
of the Registration Statement, the filing of any supplement to the Prospectus
and the filing of any amendment to the Conversion Application, (ii) of the
receipt of any comments from the OTS or the Commission with respect to the
transactions contemplated by this Agreement or the Plan, (iii) of any request by
the Commission or the OTS for any amendment to the Registration Statement or the
Conversion Application or any amendment or supplement to the Prospectus or for
additional information, (iv) of the issuance by the OTS of any order suspending
the Offerings or the use of the Prospectus or the initiation of any proceedings
for that purpose, (v) of the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement or the initiation of
any proceedings for that purpose, and (vi) of the receipt of any notice with
respect to the suspension of any qualification of the Securities for offering or
sale in any jurisdiction. The Company and the Bank will make every reasonable
effort to prevent the issuance of any stop order and, if any stop order is
issued, to obtain the lifting thereof at the earliest possible moment.
(b) The Company and the Bank will give the Agent notice of its
intention to file or prepare any amendment to the Holding Company Application,
the Conversion Application or the Registration Statement (including any post-
effective amendment) or any amendment or supplement to the Prospectus (including
any revised prospectus which the Company proposes for use in connection with the
Syndicated Community Offering of the Securities which differs from the
prospectus on file at the Commission at the time the Registration Statement
becomes effective, whether or not such revised prospectus is required to be
filed pursuant to Rule 424(b) of the Securities Act Regulations), will furnish
the Agent with copies of any such amendment or supplement a reasonable amount of
time prior to such proposed filing or use, as the case may be, and will not file
any such amendment or supplement or use any such prospectus to which the Agent
or counsel for the Agent may object.
(c) The Company and the Bank will deliver to the Agent as many signed
copies and as many conformed copies of the Holding Company Application, the
Conversion Application and the Registration Statement as originally filed and of
each amendment thereto (including exhibits filed therewith or incorporated by
reference therein) as the Agent may reasonably request, and from time to time
such number of copies of the Prospectus as the Agent may reasonably request.
(d) During the period when the Prospectus is required to be delivered,
the Company and the Bank will comply, at their own expense, with all
requirements imposed upon them by the OTS, by the applicable Conversion
Regulations, as from time to time in force, and
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by the Securities Act, the Securities Act Regulations, the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), and the rules and regulations of
the Commission promulgated thereunder, including, without limitation, Regulation
M under the Exchange Act, so far as necessary to permit the continuance of sales
or dealing in shares of Common Stock during such period in accordance with the
provisions hereof and the Prospectus.
(e) If any event or circumstance shall occur as a result of which it
is necessary, in the opinion of counsel for the Agent, to amend or supplement
the Prospectus in order to make the Prospectus not misleading in the light of
the circumstances existing at the time it is delivered to a purchaser, the
Company and the Bank will forthwith amend or supplement the Prospectus (in form
and substance satisfactory to counsel for the Agent) so that, as so amended or
supplemented, the Prospectus will not include an untrue statement of a material
fact or omit to state a material fact necessary in order to make the statements
therein, in the light of the circumstances existing at the time it is delivered
to a purchaser, not misleading, and the Company and the Bank will furnish to the
Agent a reasonable number of copies of such amendment or supplement. For the
purpose of this subsection, the Company and the Bank will each furnish such
information with respect to itself as the Agent may from time to time reasonably
request.
(f) The Company and the Bank will take all necessary action, in
cooperation with the Agent, to qualify the Securities for offering and sale
under the applicable securities laws of such states of the United States and
other jurisdictions as the Conversion Regulations may require and as the Agent
and the Company have agreed; provided, however, that the Company and the Bank
shall not be obligated to file any general consent to service of process or to
qualify as a foreign corporation in any jurisdiction in which it is not so
qualified. In each jurisdiction in which the Securities have been so qualified,
the Company and the Bank will file such statements and reports as may be
required by the laws of such jurisdiction to continue such qualification in
effect for a period of not less than one year from the effective date of the
Registration Statement.
(g) The Company authorizes Sandler O'Neill and any Selected Dealers to
act as agent of the Company in distributing the Prospectus to persons entitled
to receive subscription rights and other persons to be offered Securities having
record addresses in the states or jurisdictions set forth in a survey of the
securities or "blue sky" laws of the various jurisdictions in which the
Offerings will be made (the "Blue Sky Survey").
(h) The Company will make generally available to its security holders
as soon as practicable, but not later than 60 days after the close of the period
covered thereby, an earnings statement (in form complying with the provisions of
Rule 158 of the Securities Act Regulations) covering a twelve month period
beginning not later than the first day of the Company's fiscal quarter next
following the "effective date" (as defined in said Rule 158) of the Registration
Statement.
(i) During the period ending on the third anniversary of the
expiration of the fiscal year during which the closing of the transactions
contemplated hereby occurs, the Company will furnish to its stockholders as soon
as practicable after the end of each such fiscal year an annual report
(including consolidated statements of financial condition and consolidated
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statements of income, stockholders' equity and cash flows, certified by
independent public accountants) and, as soon as practicable after the end of
each of the first three quarters of each fiscal year (beginning with the fiscal
quarter ending after the effective date of the Registration Statement),
consolidated summary financial information of the Company, the Bank and its
subsidiaries for such quarter in reasonable detail. In addition, such annual
report and quarterly consolidated summary financial information shall be made
public through the issuance of appropriate press releases at the same time or
prior to the time of the furnishing thereof to stockholders of the Company.
(j) During the period ending on the third anniversary of the
expiration of the fiscal year during which the closing of the transactions
contemplated hereby occurs, the Company will furnish to the Agent (i) as soon as
publicly available, a copy of each report or other document of the Company
furnished generally to stockholders of the Company or furnished to or filed with
the Commission under the Exchange Act or any national securities exchange or
system on which any class of securities of the Company is listed, and (ii) from
time to time, such other information concerning the Company as the Agent may
reasonably request.
(k) The Company and the Bank will conduct the Conversion including the
formation and operation of the Foundation in all material respects in accordance
with the Plan, the Conversion Regulations and all other applicable regulations,
decisions and orders, including all applicable terms, requirements and
conditions precedent to the Conversion imposed upon the Company or the Bank by
the OTS.
(l) The Company and the Bank will use the net proceeds received by
them from the sale of the Securities in the manner specified in the Prospectus
under "Use of Proceeds."
(m) The Company will maintain the effectiveness of the Exchange Act
Registration Statement for not less than three years and will comply in all
material respects with its filing obligation under the Exchange Act. The
Company will use its best efforts to effect and maintain the listing of the
Common Stock on AMEX for not less than three years.
(n) The Company and the Bank will take such actions and furnish such
information as are reasonably requested by the Agent in order for the Agent to
ensure compliance with the National Association of Securities Dealers, Inc.'s
"Interpretation Relating to Free-Riding and Withholding."
(o) Other than in connection with any employee benefit plan or
arrangement described in the Prospectus, the Company will not, without the prior
written consent of the Agent, sell or issue, contract to sell or otherwise
dispose of, any shares of Common Stock other than the Securities for a period of
180 days following the Closing Time.
(p) During the period beginning on the date hereof and ending on the
later of the third anniversary of the Closing Time or the date on which the
Agent receives full payment in satisfaction of any claim for indemnification or
contribution to which it may be entitled pursuant to Sections 6 or 7,
respectively, neither the Company nor the Bank shall, without the prior written
consent of the Agent, which consent shall not be unreasonably withheld, take or
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permit to be taken any action that could result in the Bank Common Stock
becoming subject to any security interest, mortgage, pledge, lien or
encumbrance.
(q) The Company and the Bank will comply with the conditions imposed
by or agreed to with the OTS in connection with its approval of the Holding
Company Application and with the FDIC in connection with their approval or non-
objection of, or non-objection to, the Conversion Application including those
conditions relating to the establishment and the operation of the Foundation;
the Company and the Bank shall use their best efforts to ensure that the
Foundation submits within the time frames required by applicable law a request
to the Internal Revenue Service to be recognized as a tax-exempt organization
under Section 501(c)(3) of the Internal Revenue Code of 1986, as amended (the
"Code"); the Company and the Bank will take no action which will result in the
possible loss of the Foundation's tax exempt status; and neither the Company nor
the Bank will contribute any additional assets to the Foundation until such time
that such additional contributions will be deductible for federal and state
income tax purposes.
(r) During the period ending on the first anniversary of the Closing
Time, the Bank will, and will cause the Iowa Bank to, comply with all applicable
laws and regulations necessary for each of the Bank and the Iowa Bank to
continue to be a "qualified thrift lender" within the meaning of 12 U.S.C.
Section 1467a(m).
(s) The Company shall not deliver the Securities until the Company and
the Bank have satisfied each condition set forth in Section 5 hereof, unless
such condition is waived in writing by the Agent.
(t) The Company or the Bank will furnish to Sandler O'Neill as early
as practicable prior to the Closing Time, but no later than two (2) full
business days prior thereto, a copy of the latest available unaudited interim
consolidated financial statements of the Bank and its subsidiaries which have
been read by KPMG Peat Marwick LLP, as stated in their letters to be furnished
pursuant to subsections (e) and (f) of Section 5 hereof.
(u) The Company will promptly register as a savings and loan holding
company under HOLA following the Closing Time.
(v) Prior to the Closing Date, each of the Company and the Bank will
conduct its business in compliance in all material respects with all applicable
federal and state laws, rules, regulations, decisions, directives and orders
including, all decisions, directives and orders of the OTS.
(w) The Bank will not amend the Plan in any manner that would affect
the sale of the Securities or the terms of this Agreement.
(x) The Company and the Bank will not, prior to the Closing Time,
incur any liability or obligation, direct or contingent, or enter into any
material transaction, other than in the ordinary course of business consistent
with past practice, except as contemplated by the Prospectus.
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(y) The Company and the Bank will use all reasonable efforts to comply
with, or cause to be complied with, the conditions precedent to the several
obligations of the Agent specified in Section 5 hereof.
SECTION 4. PAYMENT OF EXPENSES. The Company and the Bank jointly and
severally agree to pay all expenses incident to the performance of their
obligations under this Agreement, including but not limited to (i) the cost of
obtaining all securities and bank regulatory approvals, (ii) the printing and
filing of the Registration Statement as originally filed and of each amendment
thereto, (iii) the preparation, issuance and delivery of the certificates for
the Securities to the purchasers in the Offerings, (iv) the fees and
disbursements of the Company's and the Bank's counsel, accountants, appraiser
and other advisors, (v) the qualification of the Securities under securities
laws in accordance with the provisions of Section 3(f) hereof, including filing
fees and the fees and disbursements of the Agent's counsel in connection
therewith and in connection with the preparation of the Blue Sky Survey, (vi)
the printing and delivery to the Agent (in such quantities as the Agent shall
reasonably request) of copies of the Registration Statement as originally filed
and of each amendment thereto and the printing and delivery of the Prospectus
and any amendments or supplements thereto to the purchasers in the Offerings and
the Agent (in such quantities as the Agent shall reasonably request), (vii) the
printing and delivery to the Agent of copies of a Blue Sky Survey, and (viii)
the fees and expenses incurred in connection with the listing of the Securities
on AMEX. In the event the Agent incurs any such fees and expenses on behalf of
the Bank or the Company, the Bank will reimburse the Agent for such fees and
expenses whether or not the Conversion is consummated; provided, however, that
the Agent shall not incur any substantial expenses on behalf of the Bank or the
Company pursuant to this Section without the prior approval of the Bank.
The Company and the Bank jointly and severally agree to pay certain
expenses incident to the performance of the Agent's obligations under this
Agreement, regardless of whether the Conversion is consummated, including (i)
the filing fees paid or incurred by the Agent in connection with all filings
with the National Association of Securities Dealers, Inc., and (ii) all
reasonable out of pocket expenses incurred by the Agent relating to the
Offerings, including, without limitation, advertising, promotional, syndication
and travel expenses and fees and expenses of the Agent's counsel. All fees and
expenses to which the Agent is entitled to reimbursement under this paragraph of
this Section 4 shall be due and payable upon receipt by the Company or the Bank
of a written accounting therefor setting forth in reasonable detail the expenses
incurred by the Agent.
SECTION 5. CONDITIONS OF AGENT'S OBLIGATIONS. The Company, the Bank
and the Agent agree that the issuance and the sale of Securities and all
obligations of the Agent hereunder are subject to the accuracy of the
representations and warranties of the Company and the Bank herein contained as
of the date hereof and the Closing Time, to the accuracy of the statements of
officers and directors of the Company and the Bank made pursuant to the
provisions hereof, to the performance by the Company and the Bank of their
obligations hereunder, and to the following further conditions:
(a) No stop order suspending the effectiveness of the Registration
Statement shall have been issued under the Securities Act or proceedings
therefor initiated or threatened
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by the Commission, no order suspending the Offerings or authorization for final
use of the Prospectus shall have been issued or proceedings therefor initiated
or threatened by the OTS and no order suspending the sale of the Securities in
any jurisdiction shall have been issued.
(b) At Closing Time, the Agent shall have received:
(1) The favorable opinion, dated as of Closing Time, of Muldoon,
Murphy & Faucette, special counsel for the Company and the Bank, in
form and substance satisfactory to counsel for the Agent, to the
effect that:
(i) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the
State of Delaware.
(ii) The Company has full corporate power and authority to
own, lease and operate its properties and to conduct its business
as described in the Registration Statement and the Prospectus and
to enter into and perform its obligations under this Agreement.
(iii) The Company is duly qualified as a foreign
corporation to transact business and is in good standing in the
State of Nebraska and in each other jurisdiction in which such
qualification is required whether by reason of the ownership or
leasing of property or the conduct of business, except where the
failure to so qualify would not have a material adverse effect
upon the financial condition, results of operations, business
affairs or prospects of the Company, the Bank and the
Subsidiaries, considered as one enterprise.
(iv) Upon consummation of the Conversion, and the issuance
of the Foundation Shares to the Foundation immediately upon
completion thereof, the authorized, issued and outstanding
capital stock of the Company will be as set forth in the
Prospectus under "Capitalization" and no shares of Common Stock
have been or will be issued and outstanding prior to the Closing
Time.
(v) The Securities and the Foundation Shares have been duly
and validly authorized for issuance and sale and, when issued and
delivered by the Company pursuant to the Plan against payment of
the consideration calculated as set forth in the Plan, or
contributed by the Company pursuant to the Plan in the case of
the Foundation Shares, as the case may be, will be duly and
validly issued and fully paid and nonassessable.
(vi) The issuance of the Securities and the Foundation
Shares is not subject to preemptive or other similar rights
arising by operation of law or under the Company's certificate of
incorporation or, to the best of their knowledge and information
after due inquiry, otherwise.
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<PAGE>
(vii) The Bank has been at all times since the date hereof
and prior to the Closing Time duly organized, and is validly
existing and in good standing under the laws of the United States
of America as a federally chartered savings bank of mutual form,
and, at Closing Time, has become duly organized, validly existing
and in good standing under the laws of the United States of
America as a federally chartered savings bank of stock form, in
both instances with full corporate power and authority to own,
lease and operate its properties and to conduct its business as
described in the Registration Statement and the Prospectus; and
the Bank is duly qualified as a foreign corporation in each
jurisdiction in which the failure to so qualify would have a
material adverse effect upon the financial condition, results of
operations, business affairs or prospects of the Bank. The Bank
is not required to register as a savings and loan holding company
under HOLA.
(viii) The Bank and the Iowa Bank are each members in good
standing of the Federal Home Loan Bank of Topeka and the deposit
accounts of the Bank and the Iowa Bank are each insured by the
FDIC up to the applicable limits.
(ix) The Iowa Bank is validly existing and in good standing
under the laws of the United States of America as a federally
chartered savings bank of stock form. Each other Subsidiary of
the Bank has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the jurisdiction
of its incorporation, and each of the Iowa Bank and the other
Subsidiaries has full corporate power and authority to own, lease
and operate its properties and to conduct its business as
described in the Registration Statement and is duly qualified as
a foreign corporation to transact business and is in good
standing in each jurisdiction in which the failure to so qualify
would have a material adverse effect upon the financial
condition, results of operations, business affairs or prospects
of the Company, the Bank and the Subsidiaries, taken as a whole;
the activities of each Subsidiary are permitted to subsidiaries
of a savings association holding company and of a federally
chartered savings bank by the rules, regulations, resolutions and
practices of the OTS; all of the issued and outstanding capital
stock of each Subsidiary (including the Iowa Bank) has been duly
authorized and validly issued, is fully paid and nonassessable
and is owned by the Bank, directly or through subsidiaries, free
and clear of any security interest, mortgage, pledge, lien,
encumbrance, claim or equity.
(x) The Foundation has been duly incorporated 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; the Foundation is
not a savings and loan holding company within the meaning of 12
C.F.R. Section 574.2(q) as a result of the
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issuance of shares of Common Stock to it in accordance with the
terms of the Plan and in the amounts as described in the
Prospectus; no approvals are required to establish the Foundation
and to contribute the shares of Common Stock thereto as described
in the Prospectus other than those set forth in any written
notice or order of approval or non-objection of the Conversion,
the Conversion Application or the Holding Company Application,
copies of which were provided to the Agent prior to the Closing
Time; and the issuance of the Foundation Shares to the Foundation
constitute an offer and sale of such shares pursuant to the
Registration Statement.
(xi) Upon consummation of the Conversion, all of the issued
and outstanding capital stock of the Bank when issued and
delivered pursuant to the Plan against payment of consideration
calculated as set forth in the Plan and set forth in the
Prospectus, will be duly authorized and validly issued and fully
paid and nonassessable, and all such capital stock will be owned
beneficially and of record by the Company free and clear of any
security interest, mortgage, pledge, lien, encumbrance, claim or
equity.
(xii) The OTS has duly approved the Holding Company
Application and the Conversion Application and no action is
pending, or to the best of such counsel's knowledge after due
inquiry, threatened respecting the Holding Company Application or
the Conversion Application or the acquisition by the Company of
all of the Bank's issued and outstanding capital stock; the
Holding Company Application and the Conversion Application comply
with the applicable requirements of the OTS, includes all
documents required to be filed as exhibits thereto, and is, to
the best of such counsel's knowledge and information after due
inquiry, truthful, accurate and complete; and the Company is duly
authorized to become a savings association holding company and is
duly authorized to own all of the issued and outstanding capital
stock of the Bank to be issued pursuant to the Plan.
(xiii) The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been
duly and validly authorized by all necessary action on the part
of each of the Company and the Bank, and this Agreement
constitutes the legal, valid and binding agreement of each of the
Company and the Bank, enforceable in accordance with its terms,
except as rights to indemnity and contribution hereunder may be
limited under applicable law (it being understood that such
counsel may avail itself of customary exceptions concerning the
effect of bankruptcy, insolvency or similar laws and the
availability of equitable remedies); the execution and delivery
of this Agreement, the incurrence of the obligations herein set
forth and the consummation of the transactions contemplated
herein will not result in any violation of the provisions of the
charter or by-laws of the Company,
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the Bank or any of the Subsidiaries; and, to the best of such
counsel's knowledge after due inquiry, the execution and delivery
of this Agreement, the incurrence of the obligations herein set
forth and the consummation of the transactions contemplated
herein will not conflict with or constitute a breach of, or
default under, and no event has occurred which, with notice or
lapse of time or both, would constitute a default under, or
result in the creation or imposition of any lien, charge or
encumbrance, that, individually or in the aggregate, would have a
material adverse effect on the financial condition, results of
operations, business affairs or prospects of the Company, the
Bank and the Subsidiaries considered as one enterprise, upon any
property or assets of the Company, the Bank or the Subsidiaries
pursuant to any contract, indenture, mortgage, loan agreement,
note, lease or other instrument to which the Company, the Bank or
the Subsidiaries is a party or by which any of them may be bound,
or to which any of the property or assets of the Company, the
Bank or the Subsidiaries is subject.
(xiv) The Prospectus has been duly authorized by the OTS
for final use pursuant to the Conversion Regulations and no
action is pending, or to the best of such counsel's knowledge
after due inquiry, is threatened, by the OTS to revoke such
authorization.
(xv) The Registration Statement is effective under the
Securities Act and no stop order suspending the effectiveness of
the Registration Statement has been issued under the Securities
Act or, to the best of such counsel's knowledge after due
inquiry, proceedings therefor initiated or threatened by the
Commission.
(xvi) No further approval, authorization, consent or other
order of any public board or body is required in connection with
the execution and delivery of this Agreement, the issuance of the
Securities and the consummation of the Conversion, except as may
be required under the securities or Blue Sky laws of various
jurisdictions as to which no opinion need be rendered.
(xvii) At the time the Registration Statement became
effective, the Registration Statement (other than the financial
statements and statistical data included therein, as to which no
opinion need be rendered) complied as to form in all material
respects with the requirements of the Securities Act and the
Securities Act Regulations and the Conversion Regulations.
(xviii) The Common Stock conforms to the description
thereof contained in the Prospectus, and the form of certificate
used to evidence the Common Stock is in due and proper form and
complies with all applicable statutory requirements.
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(xix) To the best of such counsel's knowledge after due
inquiry, there are no legal or governmental proceedings pending
or threatened against or affecting the Company, the Bank or the
Subsidiaries which are required, individually or in the
aggregate, to be disclosed in the Registration Statement and
Prospectus, other than those disclosed therein, and all pending
legal or governmental proceedings to which the Company, the Bank
or any of the Subsidiaries is a party or to which any of their
property is subject which are not described in the Registration
Statement, including ordinary routine litigation incidental to
the business, are, considered in the aggregate, not material.
(xx) The information in the Prospectus under "Dividend
Policy," "Federal and State Taxation," "Regulation," "The
Conversion," "Restrictions on Acquisitions of the Company and the
Bank," "Description of Capital Stock of the Company" and
"Description of Capital Stock of the Bank," to the extent that it
constitutes matters of law, summaries of legal matters, documents
or proceedings, or legal conclusions, has been reviewed by them
and is complete and accurate in all material respects.
(xxi) To the best of such counsel's knowledge after due
inquiry, there are no contracts, indentures, mortgages, loan
agreements, notes, leases or other instruments required to be
described or referred to in the Registration Statement or to be
filed as exhibits thereto other than those described or referred
to therein or filed as exhibits thereto, the descriptions thereof
or references thereto are correct, and no default exists, and no
event has occurred which, with notice or lapse of time or both,
would constitute a default, in the due performance or observance
of any material obligation, agreement, covenant or condition
contained in any contract, indenture, mortgage, loan agreement,
note, lease or other instrument so described, referred to or
filed.
(xxii) The Plan has been duly authorized by the Board of
Directors of the Company and the Board of Directors of the Bank
and, to the best of such counsel's knowledge after due inquiry,
the OTS's approval of the Plan remains in full force and effect;
the Bank's charter has been amended, effective upon consummation
of the Conversion and the filing of such amended charter with the
OTS, to authorize the issuance of permanent capital stock; to the
best of such counsel's knowledge after due inquiry, the Company
and the Bank have conducted the Conversion in all material
respects in accordance with applicable requirements of the
Conversion Regulations, the Plan and all other applicable
regulations, decisions and orders thereunder, including all
material applicable terms, conditions, requirements and
conditions precedent to the Conversion imposed upon the Company
or the Bank by the OTS and, to the best of such counsel's
knowledge after due inquiry, no order has been issued by the OTS
to suspend the Offerings and no action for such purpose has been
instituted or threatened by the OTS; and, to the best of such
counsel's
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knowledge after due inquiry, no person has sought to obtain
review of the final action of the OTS in approving the Plan or
the Holding Company Application.
(xxiii) To the best of such counsel's knowledge after due
inquiry, the Company and the Bank and the Subsidiaries have
obtained all licenses, permits and other governmental
authorizations currently required for the conduct of their
respective businesses as described in the Registration Statement
and the Prospectus, and all such licenses, permits and other
governmental authorizations are in full force and effect, and the
Company and the Bank and the Subsidiaries are in all material
respects complying therewith.
(xxiv) Neither the Company, the Bank nor any of the
Subsidiaries is in violation of its charter (and the Bank will
not be in violation of its charter in stock form upon
consummation of the Conversion) or, to the best of such counsel's
knowledge after due inquiry, in default (nor has any event
occurred which, with notice or lapse of time or both, would
constitute a default) in the performance or observance of any
obligation, agreement, covenant or condition contained in any
contract, indenture, mortgage, loan agreement, note, lease or
other instrument to which the Company, the Bank or any of the
Subsidiaries is a party or by which the Company, the Bank or any
of the Subsidiaries or any of their property may be bound.
(xxv) The Company is not required to be registered as an
investment company under the Investment Company Act of 1940.
(2) The favorable opinion, dated as of Closing Time, of Foley &
Lardner, counsel for the Agent, with respect to the matters set forth
in Section 5(b)(1)(i), (iv), (v), (vi) (solely as to preemptive rights
arising by operation of law), (xiii) (solely as to the execution,
delivery and enforceability of this Agreement), (xvii) and (xviii) and
such other matters as the Agent may reasonably require.
(3) In giving their opinions required by subsections (b)(l) and
(b)(2), respectively, of this Section, Muldoon, Murphy & Faucette and
Foley & Lardner shall each additionally state that nothing has come to
their attention that would lead them to believe that the Registration
Statement (except for financial statements and schedules and other
financial or statistical data included therein, as to which counsel
need make no statement), at the time it became effective, contained an
untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary to make the statements
therein not misleading or that the Prospectus (except for financial
statements and schedules and other financial or statistical data
included therein, as to which counsel need make no statement), at the
time the Registration Statement became effective or at Closing Time,
included an untrue statement of a material fact or omitted to
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state a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made,
not misleading. In giving their opinions, Muldoon, Murphy & Faucette
and Foley & Lardner may rely as to matters of fact on certificates of
officers and directors of the Company and the Bank and certificates of
public officials, and as to certain matters of Delaware law upon the
opinion of ______________, which opinions shall be in form and
substance satisfactory to counsel for the Agent.
(c) At Closing Time referred to in Section 2, the Company and the Bank
shall have satisfied in all material respects the conditions precedent to the
Conversion in accordance with the Plan, the applicable Conversion Regulations
and all other applicable laws, regulations, decisions and orders, including all
terms, conditions, requirements and provisions precedent to the Conversion
imposed upon the Company or the Bank by the OTS, or any other regulatory
authority other than those which the OTS permits to be competed after the
Conversion.
(d) At Closing Time, there shall not have been, since the date hereof
or since the respective dates as of which information is given in the
Registration Statement and the Prospectus, any material adverse change in the
financial condition, results of operations, business affairs or prospects of the
Company, the Bank and the Subsidiaries considered as one enterprise, whether or
not arising in the ordinary course of business consistent with past practice,
and the Agent shall have received a certificate of the chief executive officer
of the Company and of the Bank and the chief financial or chief accounting
officer of the Company and of the Bank, dated as of Closing Time, to the effect
that (i) there has been no such material adverse change, (ii) there shall have
been no material transaction entered into by the Company or the Bank or the
Subsidiaries from the latest date as of which the financial condition of the
Company or the Bank is set forth in the Registration Statement and the
Prospectus other than transactions referred to or contemplated therein and
transactions in the ordinary cause of business consistent with past practice,
(iii) neither the Company, the Bank, nor the Iowa Bank shall have received from
the OTS any direction (oral or written) to make any material change in the
method of conducting its business with which it has not complied (which
direction, if any, shall have been disclosed to the Agent) or which materially
and adversely would affect the business affairs, financial condition, results of
operations or prospects of the Company, the Bank or the Subsidiaries, (iv) the
representations and warranties in Section 1 hereof are true and correct with the
same force and effect as though expressly made at and as of the Closing Time,
(v) the Company and the Bank have complied with all agreements and satisfied all
conditions on their part to be performed or satisfied at or prior to Closing
Time, (vi) no stop order suspending the effectiveness of the Registration
Statement has been issued and no proceedings for that purpose have been
initiated or threatened by the Commission and (vii) no order suspending the
Offerings or the authorization for final use of the Prospectus has been issued
and no proceedings for that purpose have been initiated or threatened by the OTS
or the FDIC and no person has sought to obtain regulatory or judicial review of
the action of the OTS in approving the Plan in accordance with the Conversion
Regulations nor has any person sought to obtain regulatory or judicial review of
the action of the OTS in approving the Holding Company Application.
(e) At the time of the execution of this Agreement, the Agent shall
have received from KPMG Peat Marwick LLP a letter dated such date, in form and
substance satisfactory to the Agent, to the effect that (i) they are independent
public accountants with
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respect to the Company, the Bank and the Subsidiaries within the meaning of the
Code of Ethics of the American Institute of Certified Public Accountants, the
Securities Act and the Securities Act Regulations and the Conversion
Regulations; (ii) it is their opinion that the consolidated financial statements
and supporting schedules included in the Registration Statement and covered by
their opinions therein comply as to form in all material respects with the
applicable accounting requirements of the Securities Act and the Securities Act
Regulations; (iii) based upon limited procedures as agreed upon by the Agent and
KPMG Peat Marwick LLP set forth in detail in such letter, nothing has come to
their attention which causes them to believe that (A) the unaudited financial
statements and supporting schedules of the Bank and the Subsidiaries included in
the Registration Statement do not comply as to form in all material respects
with the applicable accounting requirements of the Securities Act, the
Securities Act Regulations and the Conversion Regulations or are not presented
in conformity with generally accepted accounting principles applied on a basis
substantially consistent with that of the audited financial statements included
in the Registration Statement and the Prospectus, (B) the unaudited amounts of
net interest income and net income set forth under "Selected Consolidated
Financial and Other Data of the Bank" in the Registration Statement and the
Prospectus do not agree with the amounts set forth in unaudited consolidated
financial statements as of and for the dates and periods presented under such
captions or such amounts were not determined on a basis substantially consistent
with that used in determining the corresponding amounts in the audited financial
statements included in the Registration Statement, (C) at a specified date not
more than five days prior to the date of this Agreement, there has been any
increase in the consolidated long term or short term debt of the Bank and the
Subsidiaries or any decrease in consolidated total assets, the allowance for
loan losses, total deposits or net worth of the Bank and the Subsidiaries, in
each case as compared with the amounts shown in the _____________, 199__ balance
sheet included in the Registration Statement or, (D) during the period from
______________, 199__ to a specified date not more than five days prior to the
date of this Agreement, there were any decreases, as compared with the
corresponding period in the preceding year, in total interest income, net
interest income, net interest income after provision for loan losses, income
before income tax expense or net income of the Bank and the Subsidiaries, except
in all instances for increases or decreases which the Registration Statement and
the Prospectus disclose have occurred or may occur; and (iv) in addition to the
examination referred to in their opinions and the limited procedures referred to
in clause (iii) above, they have carried out certain specified procedures, not
constituting an audit, with respect to certain amounts, percentages and
financial information which are included in the Registration Statement and the
Prospectus and which are specified by the Agent, and have found such amounts,
percentages and financial information to be in agreement with the relevant
accounting, financial and other records of the Company, the Bank and the
Subsidiaries identified in such letter.
(f) At Closing Time, the Agent shall have received from KPMG Peat
Marwick LLP a letter, dated as of Closing Time, to the effect that they reaffirm
the statements made in the letter furnished pursuant to subsection (d) of this
Section, except that the specified date referred to shall be a date not more
than five days prior to Closing Time.
(g) At Closing Time, the Securities shall have been approved for
listing on AMEX upon notice of issuance.
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(h) At Closing Time, the Agent shall have received a letter from
Keller & Company, Inc., dated as of the Closing Time, confirming its appraisal.
(i) At Closing Time, counsel for the Agent shall have been furnished
with such documents and opinions as they may require for the purpose of enabling
them to pass upon the issuance and sale of the Securities as herein contemplated
and related proceedings, or in order to evidence the accuracy of any of the
representations or warranties, or the fulfillment of any of the conditions,
herein contained; and all proceedings taken by the Company in connection with
the issuance and sale of the Securities as herein contemplated shall be
satisfactory in form and substance to the Agent and counsel for the Agent.
(j) At any time prior to Closing Time, (i) there shall not have
occurred any material adverse change in the financial markets in the United
States or elsewhere or any outbreak of hostilities or escalation thereof or
other calamity or crisis the effect of which, in the judgment of the Agent, are
so material and adverse as to make it impracticable to market the Securities or
to enforce contracts, including subscriptions or orders, for the sale of the
Securities, and (ii) trading generally on either AMEX or the New York Stock
Exchange shall not have been suspended, and minimum or maximum prices for
trading shall not have been fixed, or maximum ranges for prices for securities
have been required, by either of said Exchanges or by order of the Commission or
any other governmental authority, and a banking moratorium shall not have been
declared by either Federal or New York authorities.
SECTION 6. INDEMNIFICATION.
(a) The Company and the Bank, jointly and severally, agree to
indemnify and hold harmless the Agent, each person, if any, who controls the
Agent, within the meaning of Section 15 of the Securities Act or Section 20 of
the Exchange Act, and its respective partners, directors, officers, employees
and agents as follows:
(i) from and against any and all loss, liability, claim, damage
and expense whatsoever, as incurred, related to or arising out of the
Conversion (including, without limitation, as a result of any breach of any
representation, warranty or covenant made by the Company or the Bank in
this Agreement) or any action taken by the Agent where acting as agent of
the Company or the Bank or otherwise as described in Section 2 hereof;
(ii) from and against any and all loss, liability, claim, damage
and expense whatsoever, as incurred, based upon or arising out of any
untrue statement or alleged untrue statement of a material fact contained
in the Registration Statement (or any amendment thereto), or the omission
or alleged omission therefrom of a material fact required to be stated
therein or necessary to make the statements therein not misleading or
arising out of any untrue statement or alleged untrue statement of a
material fact contained in the Prospectus (or any amendment or supplement
thereto) or the omission or alleged omission therefrom of a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading;
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(iii) from and against any and all loss, liability, claim,
damage and expense whatsoever, as incurred, to the extent of the aggregate
amount paid in settlement of any litigation, or any investigation or
proceeding by any governmental agency or body, commenced or threatened, or
of any claim whatsoever described in clauses (i) or (ii) above, if such
settlement is effected with the written consent of the Company or the Bank,
which consent shall not be unreasonably withheld; and
(iv) from and against any and all expense whatsoever, as incurred
(including, subject to Section 6(c) hereof, the fees and disbursements of
counsel chosen by the Agent), reasonably incurred in investigating,
preparing for or defending against any litigation, or any investigation,
proceeding or inquiry by any governmental agency or body, commenced or
threatened, or any claim whatsoever described in clauses (i) or (ii) above,
to the extent that any such expense is not paid under (i), (ii) or (iii)
above;
provided, however, that this indemnity agreement shall not apply to any loss,
liability, claim, damage or expense to the extent arising out of any untrue
statement or alleged untrue statement of a material fact contained in the
Prospectus (or any amendment or supplement thereto) or the omission or alleged
omission therefrom of a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading which was made in reliance upon and in conformity with written
information relating to the Agent furnished to the Company or the Bank by the
Agent expressly for use in the Prospectus (or any amendment or supplement
thereto), which information the Company and the Bank acknowledge is included
only in the first two paragraphs of the section captioned "The Conversion-
Marketing and Underwriting Arrangements" of the Prospectus (the "Agent
Information").
(b) The Agent agrees to indemnify and hold harmless the Company, the
Bank, their directors, each of their officers who signed the Registration
Statement, and each person, if any, who controls the Company within the meaning
of Section 15 of the Securities Act or Section 20 of the Exchange Act against
any and all loss, liability, claim, damage and expense described in the
indemnity contained in subsection (a) of this Section, as incurred, but only
with respect to untrue statements or omissions, or alleged untrue statements or
omissions, of a material fact made in the Prospectus (or any amendment or
supplement thereto) in reliance upon and in conformity with the Agent
Information.
(c) Each indemnified party shall give notice as promptly as reasonably
practicable to each indemnifying party of any action commenced against it in
respect of which indemnity may be sought hereunder, but failure to so notify an
indemnifying party shall not relieve such indemnifying party from any obligation
to provide indemnification hereunder unless such indemnifying party is
materially prejudiced by the failure to provide such notice or relieve such
indemnifying party from any liability which it may have otherwise than on
account of this Agreement. An indemnifying party may participate at its own
expense in the defense of any such action. In no event shall the indemnifying
parties be liable for fees and expenses of more than one counsel (in addition to
no more than one local counsel in each separate jurisdiction in which any action
or proceeding is commenced) separate from their own counsel for all indemnified
parties in connection with any one action or separate but similar or related
actions in the same jurisdiction arising out of the same general allegations or
circumstances.
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<PAGE>
(d) The Company and the Bank also agree that the Agent shall not have
any liability (whether direct or indirect, in contract or tort or otherwise) to
the Bank, the Company, its security holders or the Bank's or the Company's
creditors relating to or arising out of the engagement of the Agent pursuant to,
or the performance by the Agent of the services contemplated by, this Agreement,
except to the extent that any loss, claim, damage or liability is found in a
final judgment by a court of competent jurisdiction to have resulted primarily
from the Agent's bad faith, willful misconduct or gross negligence.
(e) In addition to, and without limiting, the provisions of Section
(6)(a)(iv) hereof, in the event that the Agent, any person, if any, who controls
the Agent within the meaning of Section 15 of the Securities Act or Section 20
of the Exchange Act or any of its partners, directors, officers, employees or
agents is requested or required to appear as a witness or otherwise gives
testimony in any action, proceeding, investigation or inquiry brought by or on
behalf of or against the Company, the Bank, the Agent or any of its respective
affiliates or any participant in the transactions contemplated hereby in which
the Agent or such person or agent is not named as a defendant, the Company and
the Bank jointly and severally agree to reimburse the Agent or such other
persons for all reasonable and necessary out-of-pocket expenses incurred by it
or them in connection with preparing or appearing as a witness or otherwise
giving testimony and to compensate the Agent in an amount to be mutually agreed
upon.
SECTION 7. CONTRIBUTION. In order to provide for just and equitable
contribution in circumstances in which the indemnity agreement provided for in
Section 6 hereof is for any reason held to be unenforceable by the indemnified
parties although applicable in accordance with its terms, the Company, the Bank
and the Agent shall contribute to the aggregate losses, liabilities, claims,
damages and expenses of the nature contemplated by said indemnity agreement
incurred by the Company or the Bank and the Agent, as incurred, in such
proportions (i) that the Agent is responsible for that portion represented by
the percentage that the maximum aggregate marketing fees appearing on the cover
page of the Prospectus bears to the maximum aggregate gross proceeds appearing
thereon and the Company and the Bank are jointly and severally responsible for
the balance or (ii) if, but only if, the allocation provided for in clause (i)
is for any reason held unenforceable, in such proportion as is appropriate to
reflect not only the relative benefits to the Company and the Bank on the one
hand and the Agent on the other, as reflected in clause (i), but also the
relative fault of the Company and the Bank on the one hand and the Agent on the
other, as well as any other relevant equitable considerations; provided,
however, that no person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. For purposes of this Section, each person, if any, who
controls the Agent within the meaning of Section 15 of the Securities Act or
Section 20 of the Exchange Act shall have the same rights to contribution as the
Agent, and each director of the Company, each director of the Bank, each officer
of the Company who signed the Registration Statement, and each person, if any,
who controls the Company or the Bank within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act shall have the same rights to
contribution as the Company and the Bank. Notwithstanding anything to the
contrary set forth herein, to the extent permitted by applicable law, in no
event shall the Agent be required to contribute an aggregate amount in excess of
the aggregate marketing fees to which the Agent is entitled and actually paid
pursuant to this Agreement.
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<PAGE>
SECTION 8. REPRESENTATIONS, WARRANTIES AND AGREEMENTS TO SURVIVE
DELIVERY. All representations, warranties and agreements contained in this
Agreement, or contained in certificates of officers of the Company or the Bank
submitted pursuant hereto, shall remain operative and in full force and effect,
regardless of any investigation made by or on behalf of the Agent or any
controlling person, or by or on behalf of the Company, and shall survive
delivery of the Securities.
SECTION 9. TERMINATION OF AGREEMENT.
(a) The Agent may terminate this Agreement, by notice to the Company,
at any time at or prior to Closing Time (i) if there has been, since the date of
this Agreement or since the respective dates as of which information is given in
the Registration Statement, any material adverse change in the financial
condition, results of operations, business affairs or prospects of the Company
or the Bank, or the Company, the Bank and the Subsidiaries considered as one
enterprise, whether or not arising in the ordinary course of business, or (ii)
if there has occurred any material adverse change in the financial markets in
the United States or elsewhere or any outbreak of hostilities or escalation
thereof or other calamity or crisis the effect of which, in the judgment of the
Agent, are so material and adverse as to make it impracticable to market the
Securities or to enforce contracts, including subscriptions or orders, for the
sale of the Securities, (iii) or if trading generally on either AMEX or the New
York Stock Exchange has been suspended, or minimum or maximum prices for trading
have been fixed, or maximum ranges for prices for securities have been required,
by either of said Exchanges or by order of the Commission or any other
governmental authority, or if a banking moratorium has been declared by either
Federal or New York authorities, (iv) if any condition specified in Section 5
shall not have been fulfilled when and as required to be fulfilled; (v) if there
shall have been such material adverse change in the condition or prospects of
the Company or the Bank or the prospective market for the Company's securities
as in the Agent's good faith opinion would make it inadvisable to proceed with
the offering, sale or delivery of the Securities; (vi) if in the Agent's good
faith opinion, the price for the Securities established by Keller & Company,
Inc. is not reasonable or equitable under then prevailing market conditions, or
(vii) if the Conversion is not consummated on or prior to June 30, 1999.
(b) If this Agreement is terminated pursuant to this Section, such
termination shall be without liability of any party to any other party except as
provided in Section 4 hereof relating to the reimbursement of expenses and
except that the provisions of Sections 6 and 7 hereof shall survive any
termination of this Agreement.
SECTION 10. NOTICES. All notices and other communications hereunder
shall be in writing and shall be deemed to have been duly given if mailed or
transmitted by any standard form of telecommunication. Notices to the Agent
shall be directed to the Agent at Two World Trade Center, 104th Floor, New York,
New York 10048, attention of Catherine A. Lawton, Principal; notices to the
Company and the Bank shall be directed to either of them at 13th & "N" Streets,
Lincoln, Nebraska 68508, attention of ______________________,
__________________.
SECTION 11. PARTIES. This Agreement shall inure to the benefit of
and be binding upon the Agent, the Company and the Bank and their respective
successors. Nothing expressed or mentioned in this Agreement is intended or
shall be construed to give any person,
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<PAGE>
firm or corporation, other than the Agent, the Company and the Bank and their
respective successors and the controlling persons and officers and directors
referred to in Sections 6 and 7 and their heirs and legal representatives, any
legal or equitable right, remedy or claim under or in respect of this Agreement
or any provision herein or therein contained. This Agreement and all conditions
and provisions hereof and thereof are intended to be for the sole and exclusive
benefit of the Agent, the Company and the Bank and their respective successors,
and said controlling persons and officers and directors and their heirs and
legal representatives, and for the benefit of no other person, firm or
corporation.
SECTION 12. ENTIRE AGREEMENT; AMENDMENT. This Agreement represents
the entire understanding of the parties hereto with reference to the
transactions contemplated hereby and supersedes any and all other oral or
written agreements heretofore made, except for the engagement letter dated
October 7, 1997, by and between the Agent and the Company and the Bank, relating
to the Agent's providing conversion agent services to the Company and the Bank
in connection with the Conversion. No waiver, amendment or other modification
of this Agreement shall be effective unless in writing and signed by the parties
hereto.
SECTION 13. GOVERNING LAW AND TIME. This Agreement shall be governed
by and construed in accordance with the laws of the State of New York applicable
to agreements made and to be performed in said State without regard to the
conflicts of laws provisions thereof. Unless otherwise noted, specified times
of day refer to Eastern time.
SECTION 14. SEVERABILITY. Any term or provision of this Agreement
which is invalid or unenforceable in any jurisdiction shall, as to that
jurisdiction, be ineffective to the extent of such invalidity or
unenforceability without rendering invalid or unenforceable the remaining terms
and provisions of this Agreement or affecting the validity or enforceability of
any of the terms or provisions of this Agreement in any other jurisdiction. If
any provision of this Agreement is so broad as to be unenforceable, the
provision shall be interpreted to be only so broad as is enforceable.
SECTION 15. HEADINGS. Sections headings are not to be considered
part of this Agreement, are for convenience and reference only, and are not to
be deemed to be full or accurate descriptions of the contents of any paragraph
or subparagraph.
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to the Company a counterpart hereof, whereupon
this instrument, along with all counterparts, will become a binding agreement
between the Agent, the Company and the Bank in accordance with its terms.
Very truly yours,
FIRST LINCOLN BANCSHARES INC.
By: ___________________________________
Title:
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<PAGE>
FIRST FEDERAL LINCOLN BANK
By: ____________________________________
Title:
CONFIRMED AND ACCEPTED,
as of the date first above written:
Sandler O'Neill & Partners, L.P.
By: Sandler O'Neill & Partners Corp.,
the sole general partner
By: _________________________________
[Name]
Vice President
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<PAGE>
Exhibit A
---------
FIRST LINCOLN BANCSHARES INC.
9,224,438 Shares
(Maximum Offered in Conversion)
Common Stock
(Par Value $0.01 Per Share)
SELECTED DEALER'S AGREEMENT
__________, 1998
We have agreed to assist First Lincoln Bancshares Inc. (the "Company") in
connection with the offer and sale of shares (the "Shares") of Common Stock, par
value $0.01 per share, of the Company, to be issued in connection with the
conversion of First Federal Lincoln Bank, a federally chartered savings bank
(the "Bank"), from mutual to stock form. The Company in connection with its
plan to effect such conversion, offered 9,224,438 Shares for subscription by
certain of the Bank's depositors and the Bank's employee stock ownership plan in
a subscription offering, and certain members of the general public in a
concurrent direct community offering. The Shares which were not subscribed for
pursuant to such subscription and direct community offerings are being offered
to the public in a syndicated community offering (the "Syndicated Community
Offering") in accordance with the conversion regulations of the Office of Thrift
Supervision (the "OTS"). The Shares, the bases on which the number of Shares to
be issued may change, and certain of the terms on which they are being offered
are more fully described in the enclosed Prospectus (the "Prospectus").
We are offering to Selected Dealers (of which you are one) the opportunity
to participate in the solicitation of offers to buy the Shares in the Syndicated
Community Offering and we will pay you a fee in the amount of ______________
percent (_______) of the dollar amount of the Shares sold on behalf of the
Company by you. The number of Shares sold by you shall be determined based on
the authorized designation of your firm on the order form or forms for such
Shares accompanying the funds transmitted for payment therefor (whether in the
form of a check payable to the Bank or a withdrawal from an existing account at
the Bank) to the special account established by the Company for the purpose of
holding such funds. It is understood, of course, that payment of your fee will
be made only out of compensation received by us for the Shares sold on behalf of
the Company by you, as evidenced in accordance with the preceding sentence. The
Bank has requested us to invite you to become a "Sponsoring Dealer," that is, a
Selected Dealer who solicits offers which result in the sale on behalf of the
Bank of at least _________ Shares. You may become a Sponsoring Dealer (subject
to your fulfillment of the requirement in the preceding sentence) by checking
the box on the confirmation at the end of this letter. If you become a
Sponsoring Dealer, you shall be entitled to an additional fee in the amount of
____ percent (______%) of the dollar amount of the Shares sold on behalf of the
Company by you as evidenced in the manner set forth above.
<PAGE>
Each order form for the purchase of Shares must set forth the identity,
---- --------
address and tax identification number of each person ordering Shares regardless
- ------- --- -------------- ------
of whether the Shares will be registered in street name or in the purchaser's
name. Such order form should clearly identify your firm.
As soon as practicable after all the Shares are sold, we will remit to you,
out of our compensation as provided above, the fees to which you are entitled
hereunder, including your Sponsoring Dealer fee.
This offer is made subject to the terms and conditions herein set forth and
is made only to Selected Dealers which are (i) members in good standing of the
National Association of Securities Dealers, Inc. ("NASD") which agree to comply
with all applicable rules of the NASD, including, without limitation, the NASD's
Interpretation With Respect to Free-Riding and Withholding and Rule 2740 of the
NASD's Conduct Rules, or (ii) foreign dealers not eligible for membership in the
NASD which agree (A) not to sell any Shares within the United States, its
territories or possessions or to persons who are citizens thereof or resident
therein and (B) in making other sales to comply with the above-mentioned NASD
Interpretation, Rules 2730, 2740 and 2750 of the above-mentioned Conduct Rules
as if they were NASD members and Rule 2420 of such Conduct Rules as it applies
to non-member brokers or dealers in a foreign country.
Orders for Shares will be strictly subject to confirmation and we, acting
on behalf of the Company, reserve the right in our absolute discretion to reject
any order in whole or in part, to accept or reject orders in the order of their
receipt or otherwise, and to allot. Neither you nor any other person is
authorized by the Company, the Bank or by us to give any information or make any
representations other than those contained in the Prospectus in connection with
the sale of any of the Shares. No Selected Dealer is authorized to act as agent
for us when soliciting offers to buy the Shares from the public or otherwise.
No Selected Dealer shall engage in any transaction prohibited by Regulation M
promulgated under the Securities Exchange Act of 1934 with respect to the
Company's Common Stock during the offering.
We and each Selected Dealer assisting in selling Shares pursuant hereto
agree to comply with the applicable requirements of the Securities Exchange Act
of 1934 and applicable rules and regulations issued by the Federal Reserve Board
and the OTS. In addition, we and each Selected Dealer confirm that the
Securities and Exchange Commission interprets Rule 15c2-8 promulgated under the
Securities Exchange Act of 1934 as requiring that a prospectus be supplied to
each person who is expected to receive a confirmation of sale 48 hours prior to
delivery of such person's order form.
We and each Selected Dealer further agree to the extent that our customers
desire to pay for Shares with funds held by or to be deposited with us, in
accordance with the interpretation of the Securities and Exchange Commission of
Rule 15c2-4 promulgated under the Securities Exchange Act of 1934 either (a)
upon receipt of an executed order form or direction to execute an order form on
behalf of a customer to forward the syndicated community offering price for the
Shares ordered on or before 12:00 noon on the business day following receipt or
execution
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<PAGE>
of an order form by us to the Bank for deposit in a segregated account or (b) to
solicit indications of interest in which event (i) we will subsequently contact
any customers indicating interest to confirm the interest and give instructions
to execute and return an order form or to receive authorization to execute an
order form on their behalf, (ii) we will mail acknowledgements of receipt of
orders to each customer confirming interest on the business day following such
confirmation, (iii) we will debit accounts of such customers on the fifth
business day (the "debit date") following receipt of the confirmation referred
to in (i), and (iv) we will forward completed order forms together with such
funds to the Bank on or before 12:00 noon on the next business day following the
debit date for deposit in a segregated account. We acknowledge that if the
procedure in (b) is adopted, our customer's funds are not required to be in
their accounts until the debit date. We and each Selected Dealer further
acknowledge that, in order to use the foregoing "sweep arrangements," we comply
with the net capital requirements for broker/dealers under Rule 15c3-1(a)(1) of
the Securities Exchange Act of 1934.
Unless earlier terminated by us, this Agreement shall terminate 45 full
business days after the date hereof, but may be extended by us for an additional
period or periods not exceeding 30 full business days in the aggregate. We may
terminate this Agreement or any provisions hereof at any time by written or
telegraphic notice to you. Of course, our obligations hereunder are subject to
the successful completion of the offering, including the sale of all of the
Shares.
You agree that at any time or times prior to the termination of this
Agreement you will, upon our request, report to us the number of Shares sold on
behalf of the Company by you under this Agreement.
We shall have full authority to take such actions as we may deem advisable
in respect to all matters pertaining to the offering. We shall be under no
liability to you except for lack of good faith and for obligations expressly
assumed by us in this Agreement.
Upon application to us, we will inform you as to the states in which we
believe the Shares have been qualified for sale under, or are exempt from the
requirements of, the respective blue sky laws of such states, but we assume no
responsibility or obligation as to your rights to sell Shares in any state.
Additional copies of the Prospectus and any supplements thereto will be
supplied in reasonable quantities upon request.
Any notice from us to you shall be deemed to have been duly given if
mailed, telephoned or telegraphed to you at the address to which this Agreement
is mailed.
This Agreement shall be construed in accordance with the laws of the State
of New York.
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<PAGE>
Please confirm your agreement hereto by signing and returning the
confirmation accompanying this letter at once to us at Sandler O'Neill &
Partners, L.P., Two World Trade Center, 104th Floor, New York, New York 10048.
The enclosed duplicate copy will evidence the agreement between us.
Very truly yours,
SANDLER O'NEILL & PARTNERS, L.P.
By:____________________________
CONFIRMED AND ACCEPTED
as of the date first above written:
_____________________________________
By:__________________________________
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<PAGE>
[MULDOON, MURPHY & FAUCETTE LETTERHEAD APPEARS HERE]
Exhibit 5.0
February 4, 1998
Board of Directors
First Lincoln Bancshares Inc.
13th & "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 (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 12, 1997 and as amended on February 4, 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
February 4, 1998
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
February 4, 1998
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,
/S/ MULDOON, MURPHY & FAUCETTE
------------------------------------
MULDOON, MURPHY & FAUCETTE
Attachment: Opinion of Morris, Nichols, Arsht & Tunnell
<PAGE>
EXHIBIT 5.1
[MORRIS, NICHOLS, ARSHT & TUNNELL LETTERHEAD APPEARS HERE]
February 3, 1998
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 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"), and 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").
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 Statement"), including the prospectus constituting a part thereof
(the "Prospectus"), a consent of the sole incorporator of the
<PAGE>
Muldoon, Murphy & Faucette
February 3, 1998
Page 2
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") and
the form of stock certificate approved by the Board to represent shares of
Common Stock. We have also obtained a certificate of the Delaware Secretary of
State as to the Company'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
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.
<PAGE>
Muldoon, Murphy & Faucette
February 3, 1998
Page 3
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 or the Conversion,
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 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
<PAGE>
Muldoon, Murphy & Faucette
February 3, 1998
Page 4
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.
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
<PAGE>
Muldoon, Murphy & Faucette
February 3, 1998
Page 5
offer to acquire the Company on constituencies other than stock holders in
evaluating any such offer.
Very truly yours,
/s/ Morris, Nichols, Arsht & Tunnell
<PAGE>
[LETTERHEAD OF MULDOON, MURPHY & FAUCETTE APPEARS HERE]
Exhibit 8.0
February 4, 1998
Board of Directors
First Lincoln Bancshares Inc.
13th & N Streets
Lincoln, Nebraska 68508
Board of Directors
First Federal Lincoln Bank
13th & 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
February 4, 1998
Page 2
We have made such inquiries and have examined such documents and records as
we have deemed appropriate for the purpose of this opinion. In rendering this
opinion, we have received certain standard representations of the 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 derived 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
February 4, 1998
Page 3
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 transaction, 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
February 4, 1998
Page 4
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 withdrawal deposits 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 withdrawal
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
February 4, 1998
Page 5
(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 purchase 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
February 4, 1998
Page 6
(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 by virture 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
February 4, 1998
Page 7
generated nor carried forward a net operating loss for federal tax
purposes in the past three 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 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
February 4, 1998
Page 8
(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 withdrawal 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 withdrawal 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
February 4, 1998
Page 9
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,
/s/ Muldoon, Murphy & Faucette
------------------------------------
MULDOON, MURPHY & FAUCETTE
<PAGE>
[LETTERHEAD OF KPMG PEAT MARWICK APPEARS HERE]
Exhibit 8.1
February 4, 1998
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
February 4, 1998.
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
February 4, 1998
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. 77-2716(1)-77-2716(8)).
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Page 3
Board of Directors
Board of Trustees
February 4, 1998
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).
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Page 4
Board of Directors
Board of Trustees
February 4, 1998
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(a)-(e)).
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Page 5
Board of Directors
Board of Trustees
February 4, 1998
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,
/s/ KPMG Peat Marwick LLP
<PAGE>
EXHIBIT 10.3
FIRST FEDERAL LINCOLN BANK
THREE-YEAR
EMPLOYMENT AGREEMENT
This AGREEMENT ("Agreement") is made effective as of ____________, 1998 by
and among First Federal Lincoln Bank (the "Bank"), a federally-chartered savings
bank, with its principal administrative office at 13th and N Streets, Lincoln,
Nebraska 68508, First Federal Lincoln Bank - Iowa (the "Iowa Bank"), a
federally-chartered savings bank and wholly-owned subsidiary of the Bank, with
its principal administrative office at 295 S. Main, Council Bluffs, Iowa 51502
and First Lincoln Bancshares Inc. (the "Holding Company"), a corporation
organized under the laws of the State of Delaware and the holding company for
the Bank and the Iowa Bank, and LaVern F. Roschewski (the "Executive").
WHEREAS, the Bank and the Iowa Bank wish to assure themselves of the
services of the Executive for the period provided in this Agreement; and
WHEREAS, the Executive is willing to serve in the employ of the Bank and
the Iowa Bank for said period.
NOW, THEREFORE, in consideration of the mutual covenants herein contained,
and upon the other terms and conditions hereinafter provided, the parties hereby
agree as follows:
1. POSITION AND RESPONSIBILITIES.
During the period of his employment hereunder, the Executive shall serve as
Chief Executive Officer of the Iowa Bank with responsibility for, among other
things, the operation and management of the Bank's activities in Iowa. The
Executive shall render administrative and management services to the Iowa Bank
such as are customarily performed by persons situated in a similar executive
capacity. During said period, the Executive also agrees to serve as Chairman of
the Board of Directors of the Bank, an executive officer position, with
responsibility for, among other things, calling meetings of the board of
directors of the Bank, presiding at such meetings and exercising certain
oversight responsibilities through service on various management committees of
the Bank. During the term of this Agreement, (a) the Bank and the Holding
Company, respectively, agree to elect the Executive to the Boards of Directors
of the Bank and the Iowa Bank, respectively, and further, the Bank and the Iowa
Bank agree to elect the Executive as Chairman of the respective Boards of
Directors and the Executive agrees to serve in such capacities, and (b) the
Holding Company agrees to nominate the Executive for election to the Board of
Directors of the Holding Company and, if the Director is so elected, to elect
the Executive as Chairman of the Board of Directors of the Holding Company and
the Executive agrees to serve in such capacity. The Executive's principal place
of employment shall be 13/th/ and N Streets, Lincoln, Nebraska 68508.
<PAGE>
2. TERMS AND DUTIES.
(a) The period of the Executive's employment under this Agreement shall
commence 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 on each anniversary
thereafter, the Board of Directors of the Bank ("Bank Board") may extend the
Agreement an additional year such that the remaining term of the Agreement shall
be three (3) years. The Executive shall abstain from any vote regarding an
extension of the term of this Agreement. The Bank Board will review the
Agreement and the Executive's performance annually for purposes of determining
whether to extend the Agreement and the rationale and results thereof shall be
included in the minutes of the Board's meeting. The Bank Board shall give
notice to the Executive as soon as possible after such review as to whether it
intends to extend the Agreement.
(b) During the period of the Executive's employment hereunder, except for
periods of absence occasioned by illness, vacation periods, and leaves of
absence, the Executive shall devote substantially all his business time,
attention, skill, and efforts to the faithful performance of his duties
hereunder including activities and services related to the organization,
operation and management of the Bank and the Iowa Bank and participation in
community and civic organizations; provided, however, that, with the approval of
the Bank Board, as evidenced by a resolution adopted from time to time, the
Executive may serve, or continue to serve, on the boards of directors of, and
hold any other offices or positions in, companies or organizations, which will
not present any conflict of interest with the Bank or the Iowa Bank, or
materially affect the performance of the Executive's duties pursuant to this
Agreement.
(c) Notwithstanding anything herein to the contrary, the Executive's
employment with the Bank and/or the Iowa Bank may be terminated by the Bank or
the Executive during the term of this Agreement, subject to the terms and
conditions of this Agreement.
3. COMPENSATION AND REIMBURSEMENT.
The Executive shall receive compensation and reimbursement under this
Agreement, as follows:
(a) The Bank shall pay the Executive a base salary of $110,000 per year
("Base Salary"), payable in accordance with the normal payroll practices of the
Bank. Base Salary shall include any amounts of compensation deferred by the
Executive under any tax-qualified retirement or welfare benefit plan or any
other deferred compensation arrangement maintained by the Bank. During the
period of this Agreement, the Executive's Base Salary shall be reviewed by the
Bank Board at least annually with the Bank Board making its first review no
later than one year from the date of this Agreement. The Bank Board may
increase the Executive's Base Salary at any time during the term of this
Agreement and the resulting annual salary attributable to such increase shall
become the "Base Salary" for all purposes of this Agreement from the date of
such increase.
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<PAGE>
(b) Discretionary Bonuses. The Executive shall be entitled to participate
in an equitable manner with all other executive officers of the Bank in
discretionary bonuses as authorized and declared by the Bank Board to executive
employees. No other compensation provided for in this Agreement shall be deemed
a substitute for the Executive's right to participate in such bonuses when and
as declared by the Bank Board.
(c) The Executive shall be entitled to receive fees for serving as a
director of the Holding Company and/or the Bank and for serving as Chairman of
the Board of the Holding Company and/or the Bank or as a member of any committee
as received by other members of the Boards of Directors of the Holding Company
and/or the Bank.
(d) The Executive shall be entitled to participate in any employee benefit
plans, arrangements and perquisites substantially equivalent to those in which
the Executive was participating or with respect to which the Executive was
deriving a benefit immediately prior to the beginning of the term of this
Agreement, and the Bank will not, without the Executive's prior written consent,
make any changes in such plans, arrangements or perquisites which would
adversely affect the Executive's rights or benefits thereunder, except to the
extent such changes are made applicable to all employees participating in such
plans, arrangements or perquisites on a non-discriminatory basis. Without
limiting the generality of the foregoing provisions of this Subsection (d),
during the term of the Agreement, the Executive shall be entitled to participate
in and receive benefits under all plans relating to stock options, restricted
stock awards, stock purchases, pension, thrift, profit-sharing, employee stock
ownership, supplemental retirement, group life insurance, medical and other
health and welfare benefit coverage, education, cash or stock bonuses, and other
retirement or employee benefits or combinations thereof, that are now or
hereafter maintained for the benefit of the Bank's executive employees or for
its employees generally. Further, with respect to any plan regarding stock
options, restricted stock awards, and stock purchases, the Executive shall be
entitled to receive benefits in an equitable manner with all other executive
officers taking into consideration the Executive's positions as Chairman of the
Board of the Bank, with executive responsibilities, Chief Executive Officer of
the Iowa Bank with responsibility for, among other things, the operation of the
Iowa Bank as its senior executive and executive management of the Bank's
activities in Iowa, and Chairman of the Board of the Holding Company. Nothing
paid to the Executive under any such plan or arrangement will be deemed to be in
lieu of other compensation to which the Executive is entitled under this
Agreement.
(e) The Bank shall pay or reimburse the Executive for all reasonable travel
and other expenses incurred in the performance of the Executive's obligations
under this Agreement.
4. PAYMENTS TO THE EXECUTIVE UPON AN EVENT OF TERMINATION.
(a) The provisions of this Section shall apply upon the occurrence of an
"Event of Termination" (as hereinafter defined) during the term of this
Agreement. As used in this Agreement, subject to Section 24, an "Event of
Termination" shall mean and include any one or more of the following: (i) the
termination by the Iowa Bank or the Bank of the Executive's employment hereunder
for any reason other than a termination governed by Section 5(a) hereof, or
Termination
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<PAGE>
for Cause, as defined in Section 7 hereof, (ii) the Executive's resignation from
the employ of the Iowa Bank or the Bank upon any (A) failure by the Bank, the
Iowa Bank or the Holding Company to elect, reelect, appoint, reappoint,
nominate, or renominate the Executive to any corporate office set forth in
Section 1 unless consented to by the Executive, (B) material change in the
Executive's functions, authorities, duties, or responsibilities, which change
would cause the Executive's position to become one of lesser responsibility,
importance, or scope than the position described in Section 1 unless consented
to by the Executive, (C) relocation of the Executive's principal place of
employment by more than 25 miles from its location at the effective date of this
Agreement, unless consented to by the Executive, (D) material reduction in the
benefits and perquisites to the Executive from those being provided as of the
effective date of this Agreement, unless consented to by the Executive, or (E) a
liquidation or dissolution of the Bank or Holding Company, or (F) breach of this
Agreement by the Bank or the Iowa Bank or the Holding Company. Upon the
occurrence of any Event of Termination, the Executive shall have the right to
elect to terminate his employment under this Agreement by resignation upon not
less than thirty (30) days prior written notice given within six full months
after the Event of Termination.
(b) Upon the occurrence of an Event of Termination, on the "Date of
Termination", as defined in Section 8, the Bank shall pay or provide to the
Executive, or, in the event of his death subsequent to the Event of Termination,
his beneficiary or beneficiaries, or his estate, as the case may be, the
following:
(i) the Base Salary and bonuses in accordance with Sections 3(a) and
3(b), respectively, that would have been paid to the Executive for the
remaining term of this Agreement had the Event of Termination not occurred,
plus the value, as calculated by a recognized firm customarily performing
such valuation, of any stock options or related rights which as of the Date
of Termination have been granted to the Executive but are not exercisable
by the Executive and the value of any restricted stock or related rights
which have been granted to the Executive, but in which the executive does
not have a non-forfeitable or fully-vested interest as of the Date of
Termination; and (ii) all benefits, including health insurance, in
accordance with Section 3(d), that would have been provided to the
Executive for the remaining term of this Agreement had the Event of
Termination not occurred; provided, however, that any payments pursuant to
this subsection and subsection 4(c) below, shall not, in the aggregate,
exceed three times the Executive's "average annual compensation" (as
defined in Section 5(c) below) for the five most recent taxable years that
the Executive has been employed by the Bank or such lesser number of years
in the event that the Executive shall have been employed by the Bank for
less than five years. In the event the Bank is not in compliance with its
minimum capital requirements or if such payments pursuant to this
subsection (b) would cause the Bank's capital to be reduced below its
minimum regulatory capital requirements, such payments shall be deferred
until such time as the Bank or successor thereto is in capital compliance.
At the election of the Executive, which election is to be made
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<PAGE>
prior to an Event of Termination, such payments shall be made in a lump sum
as of the Executive's Date of Termination. In the event that no election is
made, payment to the Executive will be made on a monthly basis in
approximately equal installments during the remaining term of the
Agreement.
(c) Upon the occurrence of an Event of Termination, the Bank will cause to
be continued life, medical, dental and disability coverage substantially
identical to the coverage maintained by the Bank or the Holding Company for the
Executive prior to his termination at no premium cost to the Executive, except
to the extent such coverage may be changed in its application to all Bank or
Holding Company employees. Such coverage shall cease upon the third anniversary
of the Event of Termination, unless otherwise provided for in a separate
agreement entered into by the Executive and the Bank or the Holding Company.
5. CHANGE IN CONTROL.
(a) 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 of the current report on Form 8-K, as in
effect on the date hereof, pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"); or (ii) results in a
Change in Control of the 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
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 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 waiting
periods.
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<PAGE>
(b) If a Change in Control has occurred pursuant to Section 5(a) or the
Board has determined that a Change in Control has occurred, the Executive shall
be entitled to the benefits provided in paragraphs (c), and (d) of this Section
5 upon his subsequent termination of employment at any time during the term of
this Agreement due to: (1) the Executive's dismissal or (2) the Executive's
voluntary resignation following any demotion, loss of office or significant
authority or responsibility, material reduction in annual compensation or
benefits or relocation of his principal place of employment by more than 25
miles from its location immediately prior to the Change in Control, unless such
termination is because of his death or termination for Cause.
(c) Upon the Executive's entitlement to benefits pursuant to Section 5(b),
the Bank shall pay or provide to the Executive, or in the event of his
subsequent death, his beneficiary or beneficiaries, or his estate, as the case
may be, the greater of: (i) the Base Salary and bonuses in accordance with
Sections 3(a) and 3(b), respectively, that would have been paid to the Executive
for the remaining term of this Agreement had the event described in subsection
(b) of this Section 5 not occurred, plus the value, as calculated by a
recognized firm customarily performing such valuation, of any stock options or
related rights which as of the Date of Termination have been granted to the
Executive, but are not exercisable by the Executive and the value of any
restricted stock or related rights which have been granted to the Executive, but
in which the executive does not have a non-forfeitable or fully-vested interest
as of the Date of Termination, and all benefits, including health insurance, in
accordance with Section 3(d) that would have been provided to the Executive for
the remaining term of this Agreement had the event described in subsection (b)
of this Section (5) not occurred; or (ii) three (3) times the Executive's
Average Annual Compensation (as herein defined) for the five (5) most recent
taxable years that the Executive has been employed by the Bank or such lesser
number of years in the event that the Executive shall have been employed by the
Bank for less than five (5) years. Such Average Annual Compensation shall
include all taxable income paid by the Bank, the Iowa Bank or the holding
company, including but not limited to, Base Salary, commissions and bonuses, as
well as contributions on the 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 expense items without accountability or business purpose or that do
not meet the IRS requirements for deductibility by the Institution; provided
however, that any payment under this provision and subsection 5(d) below shall
not exceed three (3) times the Executive's average annual compensation. In the
event the Bank is not in compliance with its minimum capital requirements or if
such payments would cause the Bank's capital to be reduced below its minimum
regulatory capital requirements, such payments shall be deferred until such time
as the Bank or successor thereto is in capital compliance. At the election of
the Executive, which election is to be made prior to a Change in Control, such
payment shall be made in a lump sum as of the Executive's Date of Termination.
In the event that no election is made, payment to the Executive will be made in
approximately equal installments on a monthly basis over a period of thirty-six
(36) months following the Executive's termination. Such payments shall not be
reduced in the event the Executive obtains other employment following
termination of employment.
(d) Upon the Executive's entitlement to benefits pursuant to Section 5(b),
the Bank will cause to be continued life, medical, dental and disability
coverage substantially identical to the
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coverage maintained by the Bank for the Executive prior to his severance at no
premium cost to the Executive, except to the extent that such coverage may be
changed in its application for all Bank employees on a non-discriminatory basis.
Such coverage and payments shall cease upon the expiration of thirty-six (36)
months following the Date of Termination.
6. CHANGE OF CONTROL RELATED PROVISIONS.
Notwithstanding the provisions of Section 5, in no event shall the
aggregate payments or benefits to be made or afforded to the 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 dollar
($1.00) less than an amount equal to three (3) times the Executive's "base
amount", as determined in accordance with said Section 280G. The allocation of
the reduction required hereby among the Termination Benefits provided by Section
5 shall be determined by the Executive.
7. TERMINATION FOR CAUSE OR IN THE EVENT OF DEATH OR DISABILITY
(a) The term "Termination for Cause" shall mean termination because of the
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, the
Executive shall not be deemed to have been Terminated for Cause unless and until
there shall have been delivered to him a Notice of Termination which shall
include a copy of a resolution duly adopted by the affirmative vote of not less
than a majority of the members of the Board at a meeting of the Board called and
held for that purpose (after reasonable notice to the 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, the Executive's conduct
justified a finding of Termination for Cause and specifying the particulars
thereof in detail. The Executive shall not have the right to receive
compensation or other benefits for any period after Termination for Cause.
During the period beginning on the date of the Notice of Termination for Cause
pursuant to Section 8 hereof through the Date of Termination for Cause, stock
options and related limited rights granted to the Executive under any stock
option plan shall not be exercisable, nor shall any unvested awards granted to
the Executive under any stock benefit plan of the Bank, the Holding Company or
any subsidiary or affiliate thereof, vest. At the Date of Termination for
Cause, such stock options and related limited rights and such unvested awards
shall become null and void and shall not be exercisable by or delivered to the
Executive at any time subsequent to such Termination for Cause.
(b) The Executive's employment shall terminate automatically upon the
Executive's death during the term of this Agreement. If the Bank determines in
good faith that the "Disability" (as defined below) of the Executive has
occurred, it may give to the Executive written notice in accordance with Section
8 of its intention to terminate this Agreement. In such event, the Executive's
employment with the Bank shall terminate effective on the 30th day after
receipt of the
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<PAGE>
notice by the Executive, provided that, within 30 days after such receipt, the
Executive shall not have returned to full-time performance of the Executive's
duties. For purposes of this Agreement, "Disability" means a condition,
resulting from bodily injury or disease or mental impairment that renders, and
for a six consecutive month period has rendered, the Executive unable to perform
his duties under this Agreement. Disability shall be determined by a physician
or group of physicians selected by the Bank or its insurance carriers and
acceptable to the Executive or the Executive's legal representative. If the
employment of the Executive under this Agreement shall terminate because of
death or Disability, the Bank shall pay to the Executive or the Executive's
estate or representative, as the case may be, the Base Salary and discretionary
bonus for the fiscal year in which the termination occurs, prorated for the
number of weeks during which the Executive was employed by the Bank during such
fiscal year. In addition, the Executive or his designated beneficiary, as the
case may be, shall receive such amounts as are provided for in the disability
policy or life insurance policy provided by the Bank for the benefit of the
Executive; provided, further, that the Executive shall be provided with coverage
under a disability policy that will provide him with payments that would have at
least equaled those made under this Agreement for the term of the Agreement had
the Executive not incurred a Disability.
8. NOTICE.
(a) Any purported termination by the Bank or by the Executive shall be
communicated by Notice of Termination to the other party hereto. For purposes
of this Agreement, a "Notice of Termination" shall mean a written notice which
shall indicate the specific termination provision in this Agreement relied upon
and shall set forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination of the Executive's employment under the
provision so indicated.
(b) "Date of Termination" shall mean the date specified in the Notice of
Termination (which, in the case of a Termination for Cause, shall not be less
than thirty days from the date such Notice of Termination is given).
(c) If, within thirty (30) days after any Notice of Termination is given,
the party receiving such Notice of Termination notifies the other party that a
dispute exists concerning the termination, the Date of Termination shall be the
date on which the dispute is finally determined, either by mutual written
agreement of the parties, by a binding arbitration award, or by a final
judgment, order or decree of a court of competent jurisdiction (the time for
appeal therefrom having expired and no appeal having been perfected) and
provided further that the Date of Termination shall be extended by a notice of
dispute only if such notice is given in good faith and the party giving such
notice pursues the resolution of such dispute with reasonable diligence.
Notwithstanding the pendency of any such dispute, in the event the Executive is
terminated for reasons other than Termination for Cause the Bank will continue
to pay the Executive his Base Salary in effect when the notice giving rise to
the dispute was given until the earlier of: (1) the resolution of the dispute in
accordance with this Agreement; or (2) the expiration of the remaining term of
this Agreement as determined as of the Date of Termination. Amounts paid under
this Section are in addition to all other amounts due
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under this Agreement and shall not be offset against or reduce any other amounts
due under this Agreement.
9. POST-TERMINATION OBLIGATIONS.
(a) All payments and benefits to the Executive under this Agreement shall
be subject to the Executive's compliance with this Section 9 for one (1) full
year after the earlier of the expiration of this Agreement or termination of the
Executive's employment with the Bank. The Executive shall, upon reasonable
notice, furnish such information and assistance to the Bank as may reasonably be
required by the Bank in connection with any litigation in which it or any of its
subsidiaries or affiliates is, or may become, a party.
(b) The Executive shall not be required to mitigate the amount of any
salary or other payment or benefit provided for in this Agreement by seeking
other employment or otherwise, nor shall the amount of any payment or benefit
provided for in this Agreement be reduced by any compensation earned by the
Executive as the result of employment by another employer, by retirement
benefits after the date of termination or otherwise.
10. NON-COMPETITION AND NON-DISCLOSURE.
(a) Upon any termination of the Executive's employment hereunder pursuant
to Section 4 hereof, the Executive agrees not to compete with the Bank for a
period of one (1) year following such termination in any city, town or county in
which the Executive's normal business office is located and the Bank has an
office or has filed an application for regulatory approval to establish an
office, determined as of the effective date of such termination, except as
agreed to pursuant to a resolution duly adopted by the Board. The Executive
agrees that during such period and within said cities, towns and counties, the
Executive shall not work for or advise, consult or otherwise serve with,
directly or indirectly, any entity whose business materially competes with the
depository, lending or other business activities of the Bank. The parties
hereto, recognizing that irreparable injury will result to the Bank, its
business and property in the event of the Executive's breach of this Subsection
10(a) agree that in the event of any such breach by the Executive, the Bank will
be entitled, in addition to any other remedies and damages available, to an
injunction to restrain the violation hereof by the Executive, the Executive's
partners, agents, servants, employees and all persons acting for or under the
direction of the Executive. Nothing herein will be construed as prohibiting the
Bank from pursuing any other remedies available to the Bank for such breach or
threatened breach, including the recovery of damages from the Executive.
(b) The Executive recognizes and acknowledges that the knowledge of the
business activities and plans for business activities of the Bank and affiliates
thereof, as it may exist from time to time, is a valuable, special and unique
asset of the business of the Bank. The Executive will not, during or after the
term of his employment, disclose any knowledge of the past, present, planned or
considered business activities of the Bank or affiliates thereof to any person,
firm, corporation, or other entity for any reason or purpose whatsoever.
Notwithstanding the foregoing, the Executive may disclose any knowledge of
banking, financial and/or economic principles, concepts or ideas
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<PAGE>
which are not solely and exclusively derived from the business plans and
activities of the Bank. Further, the Executive may disclose information
regarding the business activities of the Bank to the OTS and the Federal Deposit
Insurance Corporation ("FDIC") pursuant to a formal regulatory request. In the
event of a breach or threatened breach by the Executive of the provisions of
this Section, the Bank will be entitled to an injunction restraining the
Executive from disclosing, in whole or in part, the knowledge of the past,
present, planned or considered business activities of the Bank or affiliates
thereof, or from rendering any services to any person, firm, corporation, other
entity to whom such knowledge, in whole or in part, has been disclosed or is
threatened to be disclosed. Nothing herein will be construed as prohibiting the
Bank from pursuing any other remedies available to the Bank for such breach or
threatened breach, including the recovery of damages from the Executive.
11. SOURCE OF PAYMENTS.
(a) All payments provided in this Agreement shall be timely paid in cash or
check from the general funds of the Bank. The Holding Company, however,
unconditionally guarantees payment and provision of all amounts and benefits due
hereunder to the 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.
(b) Notwithstanding any provision herein to the contrary, to the extent
that payments and benefits, as provided by this Agreement, are paid to or
received by the Executive under the Employment Agreement dated _____________,
1998, between the Executive and the Holding Company, such compensation payments
and benefits paid by the Holding Company will be subtracted from any amounts due
simultaneously to the Executive under similar provisions of this Agreement.
Payments pursuant to this Agreement and the Holding Company Agreement shall be
allocated in proportion to the services rendered and time expended on such
activities by the Executive as determined by the Holding Company and the Bank on
a quarterly basis.
12. EFFECT ON PRIOR AGREEMENTS AND EXISTING BENEFITS PLANS.
This Agreement contains the entire understanding between the parties hereto
and supersedes any prior employment agreement between the Bank or any
predecessor of the Bank and the Executive, except that this Agreement shall not
affect or operate to reduce any benefit or compensation inuring to the Executive
of a kind elsewhere provided. No provision of this Agreement shall be
interpreted to mean that the Executive is subject to receiving fewer benefits
than those available to him without reference to this Agreement.
13. NO ATTACHMENT.
(a) Except as required by law, no right to receive payments under this
Agreement shall be subject to anticipation, commutation, alienation, sale,
assignment, encumbrance, charge, pledge, or hypothecation, or to execution,
attachment, levy, or similar process or assignment by operation
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<PAGE>
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, the
Executive and the Bank and their respective successors and assigns.
14. MODIFICATION AND WAIVER.
(a) This Agreement may not be modified or amended except by an instrument
in writing signed by the parties hereto.
(b) No term or condition of this Agreement shall be deemed to have been
waived, nor shall there be any estoppel against the enforcement of any provision
of this Agreement, except by written instrument of the party charged with such
waiver or estoppel. No such written waiver shall be deemed a continuing waiver
unless specifically stated therein, and each such waiver shall operate only as
to the specific term or condition waived and shall not constitute a waiver of
such term or condition for the future as to any act other than that specifically
waived.
15. REQUIRED PROVISIONS.
(a) The Bank may terminate the Executive's employment at any time, but any
termination by the Bank, other than Termination for Cause, shall not prejudice
the Executive's right to compensation or other benefits under this Agreement.
The Executive shall not have the right to receive compensation or other benefits
for any period after Termination for Cause as defined in Section 7 hereinabove.
(b) If the 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 the 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 the 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(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.
(d) If the Bank is in default as defined in Section 3(x)(1) of the Federal
Deposit Insurance Act, 12 U.S.C. (S)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.
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<PAGE>
(e) All obligations of the Bank under this contract shall be terminated,
except to the extent determined that continuation of the contract is necessary
for the continued operation of the institution: (i) by the Director of the OTS
(or his designee), the FDIC or the Resolution Trust Corporation, at the time the
FDIC 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, 12 U.S.C. (S)1823(c); or (ii) by the Director of the OTS (or his designee)
at the time the Director (or his designee) approves a supervisory merger to
resolve problems related to the operations 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 the Executive pursuant to this Agreement, or
otherwise, are subject to and conditioned upon compliance with 12 U.S.C.
(S)1828(k) and 12 C.F.R. (S)545.121 and any rules and regulations promulgated
thereunder.
16. REINSTATEMENT OF BENEFITS UNDER SECTION 15(b).
In the event the Executive is suspended and/or temporarily prohibited from
participating in the conduct of the Bank's affairs by a notice described in
Section 15(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 the Executive will be entitled to receive all of the
termination benefits provided for under Section 5 of this Agreement upon the
Bank's receipt of a dismissal of charges in the Notice.
17. 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.
18. 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.
19. 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 superseded by federal law.
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<PAGE>
20. ARBITRATION.
Any dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by arbitration, conducted before a panel
of three arbitrators sitting in a location selected by the Executive within
fifty (50) miles from the location of the Bank, in accordance with the
Commercial Arbitration 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 the 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.
In the event any dispute or controversy arising under or in connection with
the Executive's termination is resolved in favor of the Executive, whether by
judgment, arbitration or settlement, the Executive shall be entitled to the
payment of all back-pay, including salary, bonuses and any other cash
compensation, fringe benefits and any compensation and benefits due the
Executive under this Agreement.
21. PAYMENT OF COSTS AND LEGAL FEES.
All reasonable costs and legal fees paid or incurred by the Executive
pursuant to any dispute or question of interpretation relating to this Agreement
shall be paid or reimbursed by the Bank if the Executive is successful on the
merits pursuant to a legal judgment, arbitration or settlement.
22. INDEMNIFICATION.
(a) The Bank shall provide the Executive (including his heirs, executors
and administrators) with coverage under a standard directors' and officers'
liability insurance policy at its expense, and shall indemnify the 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 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.
23. 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 or the Holding Company,
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.
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<PAGE>
24. SALE, TRANSFER OR MERGER OF THE IOWA BANK.
Notwithstanding the provisions of Section 4 or any other provision of
this Agreement, any action with respect to the Executive's position as Chief
Executive Officer of the Iowa Bank in connection with or resulting from a sale,
merger, transfer or similar reorganization of the Iowa Bank shall not be deemed
an Event of Termination if, following such action, the Executive succeeds to an
executive officer position of the Bank.
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<PAGE>
SIGNATURES
IN WITNESS WHEREOF, First Federal Lincoln Bank, First Federal Lincoln Bank
- - Iowa and First Lincoln Bancshares Inc. have caused this Agreement to be
executed and their seals to be affixed hereunto by their duly authorized
officers and directors, and the Executive has signed this Agreement, on the
_____ day of _________, 1998.
ATTEST: FIRST FEDERAL LINCOLN BANK
By:
- ----------------------------- -----------------------------------
Patricia A. Young Director
Secretary For the Entire Board of Directors
[SEAL]
ATTEST: FIRST FEDERAL LINCOLN BANK - IOWA
By:
- ----------------------------- -----------------------------------
Patricia A. Young President
Secretary
[SEAL]
ATTEST: FIRST LINCOLN BANCSHARES INC.
(Guarantor)
By:
- ----------------------------- -----------------------------------
Patricia A. Young Director
Secretary For the Entire Board of Directors
[SEAL]
WITNESS:
- ----------------------------- -----------------------------------
LaVern F. Roschewski
Executive
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<PAGE>
EXHIBIT 10.4
FIRST FEDERAL LINCOLN BANK
TWO-YEAR
EMPLOYMENT AGREEMENT
This AGREEMENT ("Agreement") is made effective as of ____________, 1998 by
and among First Federal Lincoln Bank (the "Bank"), a federally-chartered savings
institution, with its principal administrative office at 13th and N Streets,
Lincoln, Nebraska 68508, First Lincoln Bancshares Inc., a corporation organized
under the laws of the State of Delaware, the holding company for the Bank (the
"Holding Company"), and Eugene B. Witkowicz (the "Executive").
WHEREAS, the Bank wishes to assure itself of the services of the Executive
for the period provided in this Agreement; and
WHEREAS, the Executive is willing to serve in the employ of the Bank on a
full-time basis for said period.
NOW, THEREFORE, in consideration of the mutual covenants herein contained,
and upon the other terms and conditions hereinafter provided, the parties hereby
agree as follows:
1. POSITION AND RESPONSIBILITIES.
During the period of his employment hereunder, the Executive agrees to
serve as Executive Vice President, Treasurer, Chief Financial Officer and
Director of Finance of the Bank. The Executive shall render administrative and
management services to the Bank such as are customarily performed by persons
situated in a similar executive capacity. During said period, the Executive
also agrees to serve, if elected, as an officer and director of the Holding
Company or any subsidiary of the Bank. The Executive's principal place of
employment shall be 13/th/ and N Streets, Lincoln, Nebraska 68508.
2. TERMS AND DUTIES.
(a) The period of the Executive's employment under this Agreement shall
commence as of the date first above written and shall continue for a period of
twenty-four (24) full calendar months thereafter. Commencing on the first
anniversary date of this Agreement, and continuing on each anniversary
thereafter, the board of directors of the Bank ("Board") may extend the
Agreement an additional year such that the remaining term of the Agreement shall
be two (2) years unless the Executive elects not to extend the term of this
Agreement by giving written notice in accordance with Section 8 of this
Agreement. The Board will review the Agreement and the Executive's performance
annually for purposes of determining whether to extend the Agreement and the
rationale and results thereof shall be included in the minutes of the Board's
meeting. The Board shall give notice to the Executive as soon as possible after
such review as to whether the Agreement is to be extended.
<PAGE>
(b) During the period of the Executive's employment hereunder, except for
periods of absence occasioned by illness, vacation periods, and leaves of
absence, the Executive shall devote substantially all his business time,
attention, skill, and efforts to the faithful performance of his duties
hereunder including activities and services related to the organization,
operation and management of the Bank and participation in community and civic
organizations; provided, however, that, with the approval of the Board, as
evidenced by a resolution of such Board, from time to time, the Executive may
serve, or continue to serve, on the boards of directors of, and hold any other
offices or positions in, companies or organizations, which, in such Board's
judgment, will not present any conflict of interest with the Bank, or materially
affect the performance of the Executive's duties pursuant to this Agreement.
(c) Notwithstanding anything herein to the contrary, the Executive's
employment with the Bank may be terminated by the Bank or the Executive during
the term of this Agreement, subject to the terms and conditions of this
Agreement.
3. COMPENSATION AND REIMBURSEMENT.
(a) The Bank shall pay the Executive as compensation a salary of $125,000
per year ("Base Salary") in accordance with the Bank's payroll practices. Base
Salary shall include any amounts of compensation deferred by the Executive under
any qualified or unqualified plan maintained by the Bank. During the period of
this Agreement, the Executive's Base Salary shall be reviewed by the Board at
least annually; the first such review will be made no later than one year from
the date of this Agreement. The Board may increase the Executive's Base Salary
at any time during the term of this Agreement and the resulting annual salary
attributable to such increase shall become the "Base Salary" for purposes of
this Agreement from the date of such increase. In addition to the Base Salary
provided in this Section 3(a), the Bank shall also provide the Executive, at no
premium cost to the Executive, with all such other benefits as are provided
uniformly to permanent full-time employees of the Bank.
(b) Discretionary Bonuses. The Executive shall be entitled to participate
in an equitable manner with all other executive officers of the Bank in
discretionary bonuses as authorized and declared by the Board to executive
employees. No other compensation provided for in this Agreement shall be deemed
a substitute for the Executive's right to participate in such bonuses when and
as declared by the Board.
(c) The Executive shall be entitled to participate in any employee benefit
plans, arrangements and perquisites substantially equivalent to those in which
the Executive was participating or with respect to which the Executive was
deriving a benefit immediately prior to the beginning of the term of this
Agreement, and the Bank will not, without the Executive's prior written consent,
make any changes in such plans, arrangements or perquisites which would
materially adversely affect the Executive's rights or benefits thereunder,
except to the extent such changes are made applicable to all Bank employees on a
non-discriminatory basis. Without limiting the generality of the foregoing
provisions of this Subsection (c), during the term of this Agreement the
Executive shall be entitled to participate in and receive benefits under all
plans relating to stock
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<PAGE>
options, restricted stock awards, stock purchases, pension, thrift, profit-
sharing, employee stock ownership, supplemental retirement, group life
insurance, medical and other health and welfare benefit coverage, education,
cash or stock bonuses, and other retirement or employee benefits or combinations
thereof, that are now or hereafter maintained for the benefit of the Bank's
executive employees or for its employees generally. Further, with respect to any
plan regarding stock options, restricted stock awards, and stock purchases, the
Executive shall be entitled to receive benefits in an equitable manner with all
other executive officers taking into consideration the Executive's positions
with the Bank, the Iowa Bank and the Holding Company. Nothing paid to the
Executive under any such plan or arrangement will be deemed to be in lieu of
other compensation to which the Executive is entitled under this Agreement.
(d) The Bank shall pay or reimburse the Executive for all reasonable travel
and other expenses incurred in the performance of the Executive's obligations
under this Agreement.
4. PAYMENTS TO THE EXECUTIVE UPON AN EVENT OF TERMINATION.
(a) The provisions of this Section shall apply upon the occurrence of an
"Event of Termination" (as hereinafter defined) during the term of this
Agreement. As used in this Agreement, an "Event of Termination" shall mean and
include any one or more of the following: (i) the termination by the Bank of
the Executive's full-time employment hereunder for any reason other than a
termination governed by Section 5(a) hereof, or Termination for Cause, as
defined in Section 7 hereof; (ii) the Executive's resignation from the Bank's
employ upon any (A) failure to elect or reelect or to appoint or reappoint the
Executive to the positions set forth in Section 1 , unless consented to by the
Executive, (B) material change in the Executive's functions, authorities,
duties, or responsibilities, which change would cause the Executive's position
to become one of lesser responsibility, importance, or scope than the position
described in Section 1 unless consented to by the Executive, (C) relocation of
the Executive's principal place of employment by more than 25 miles from its
location at the effective date of this Agreement, unless consented to by the
Executive, (D) material reduction in the benefits and perquisites to the
Executive from those being provided as of the effective date of this Agreement,
unless consented to by the Executive, or (E) liquidation or dissolution of the
Bank or Holding Company, or (F) breach of this Agreement by the Bank. Upon the
occurrence of any Event of Termination, the Executive shall have the right to
elect to terminate his employment under this Agreement by resignation upon not
less than thirty (30) days prior written notice given within six full months
after the Event of Termination.
(b) Upon the occurrence of an Event of Termination, on the "Date of
Termination", as defined in Section 8, the Bank shall be obligated to pay or
provide to the Executive, or, in the event of his death subsequent to the Event
of Termination, his beneficiary or beneficiaries, or his estate, as the case may
be, an amount equal to the sum of: (i) the Base Salary and bonuses in
accordance with Sections 3(a) and 3(b), respectively, that the Executive would
have earned if he had continued his employment with the Bank during the
remaining term of the Agreement; and (ii) all benefits, including health
insurance, that would have been paid to the Executive in accordance with Section
3(c) if the Executive had continued his employment with the Bank during the
remaining term of the Agreement; provided, however, that any payments pursuant
to this subsection and subsection 4(c)
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<PAGE>
below, shall not, in the aggregate, exceed three times the Executive's "average
annual compensation" (as defined in Section 5(c)) for the five most recent
taxable years that the Executive has been employed by the Bank or such lesser
number of years in the event that the Executive shall have been employed by the
Bank for less than five years. In the event the Bank is not in compliance with
its minimum capital requirements or if such payments pursuant to this subsection
(b) would cause the Bank's capital to be reduced below its minimum regulatory
capital requirements, such payments shall be deferred until such time as the
Bank or successor thereto is in capital compliance. At the election of the
Executive, which election is to be made prior to an Event of Termination, such
payments shall be made in a lump sum as of the Executive's Date of Termination.
In the event that no election is made, payment to the Executive will be made on
a monthly basis in approximately equal installments during the remaining term of
the Agreement.
(c) Upon the occurrence of an Event of Termination, the Bank will cause to
be continued life, medical, dental and disability coverage substantially
identical to the coverage maintained by the Bank or the Holding Company for the
Executive prior to his termination at no premium cost to the Executive, except
to the extent such coverage may be changed in its application to all Bank or
Holding Company employees. Such coverage shall cease upon the third anniversary
of the Event of Termination, unless otherwise provided for in a separate
agreement entered into by the Executive and the Bank or the Holding Company.
5. CHANGE IN CONTROL.
(a) 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 of the current report on Form 8-K, as in
effect on the date hereof, pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"); or (ii) results in a
Change in Control of the 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
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 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
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<PAGE>
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 waiting periods.
(b) If a Change in Control has occurred pursuant to Section 5(a) or the
Board has determined that a Change in Control has occurred, the Executive shall
be entitled to the benefits provided in paragraphs (c), and (d) of this Section
5 upon his subsequent termination of employment at any time during the term of
this Agreement due to: (1) the Executive's dismissal or (2) the Executive's
voluntary resignation following any demotion, loss of title, office or
significant authority or responsibility, material reduction in annual
compensation or benefits or relocation of his principal place of employment by
more than 25 miles from its location immediately prior to the Change in Control,
unless such termination is because of his death or termination for Cause.
(c) Upon the Executive's entitlement to benefits pursuant to Section 5(b),
the Bank shall pay the Executive, or in the event of his subsequent death, his
beneficiary or beneficiaries, or his estate, as the case may be, a sum equal to
the greater of: (1) the Base Salary and bonuses in accordance with Sections 3(a)
and 3(b), respectively, and all benefits, including health insurance in
accordance with Section 3(c), that would have been paid to the Executive for the
remaining term of this Agreement had the event described in subsection (b) of
this Section 5 not occurred; or (2) three (3) times the Executive's "average
annual compensation" for the five (5) most recent taxable years that the
Executive has been employed by the Bank or such lesser number of years in the
event that the Executive shall have been employed by the Bank for less than five
(5) years. Such "average annual compensation" shall include Base Salary,
commissions, bonuses, contributions on the 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 expense items without accountability or business
purpose or that do not meet the IRS requirements for deductibility by the
Institution; provided however, that any payment under this provision and
subsection 5(d) below shall not exceed three (3) times the Executive's average
annual compensation. In the event the Bank is not in compliance with its
minimum capital requirements or if such payments would cause the Bank's capital
to be reduced below its minimum regulatory capital requirements, such payments
shall be deferred until such time as the Bank or successor thereto is in capital
compliance. At the election of the Executive, which election is to be made
prior to a Change in Control, such payment shall be made in a lump sum as of the
Executive's Date of Termination. In the event that no election is made, payment
to the Executive will be made in approximately equal installments on a monthly
basis over a period of thirty-six (36) months following the Executive's
termination. Such payments shall not be reduced in the event the Executive
obtains other employment following termination of employment.
(d) Upon the Executive's entitlement to benefits pursuant to Section 5(b),
the Bank will cause to be continued life, medical, dental and disability
coverage substantially identical to the coverage maintained by the Bank for the
Executive prior to his severance at no premium cost to the Executive, except to
the extent that such coverage may be changed in its application for all Bank
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employees on a non-discriminatory basis. Such coverage and payments shall cease
upon the expiration of twenty-four (24) months following the Date of
Termination.
6. CHANGE OF CONTROL RELATED PROVISIONS.
Notwithstanding the provisions of Section 5, in no event shall the
aggregate payments or benefits to be made or afforded to the 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 dollar
($1.00) less than an amount equal to three (3) times the Executive's "base
amount", as determined in accordance with said Section 280G. The allocation of
the reduction required hereby among the Termination Benefits provided by Section
5 shall be determined by the Executive.
7. TERMINATION FOR CAUSE OR IN THE EVENT OF DEATH OR DISABILITY.
(a) The term "Termination for Cause" shall mean termination because of the
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, the
Executive shall not be deemed to have been Terminated for Cause unless and until
there shall have been delivered to him a Notice of Termination which shall
include a copy of a resolution duly adopted by the affirmative vote of not less
than a majority of the members of the Board at a meeting of the Board called and
held for that purpose (after reasonable notice to the 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, the Executive's conduct
justified a finding of Termination for Cause and specifying the particulars
thereof in detail. The Executive shall not have the right to receive
compensation or other benefits for any period after Termination for Cause.
During the period beginning on the date of the Notice of Termination for Cause
pursuant to Section 8 hereof through the Date of Termination for Cause, stock
options and related limited rights granted to the Executive under any stock
option plan shall not be exercisable, nor shall any unvested awards granted to
the Executive under any stock benefit plan of the Bank, the Holding Company or
any subsidiary or affiliate thereof, vest. At the Date of Termination for
Cause, such stock options and related limited rights and such unvested awards
shall become null and void and shall not be exercisable by or delivered to the
Executive at any time subsequent to such Termination for Cause.
(b) The Executive's employment shall terminate automatically upon the
Executive's death during the term of this Agreement. If the Bank determines in
good faith that the "Disability" (as defined below) of the Executive has
occurred, it may give to the Executive written notice in accordance with Section
8 of its intention to terminate this Agreement. In such event, the Executive's
employment with the Bank shall terminate effective on the 30/th/ day after
receipt of the notice by the Executive, provided that, within 30 days after such
receipt, the Executive shall not have returned to full-time performance of the
Executive's duties. For purposes of this Agreement,
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"Disability" means a condition, resulting from bodily injury or disease or
mental impairment that renders, and for a six consecutive month period has
rendered, the Executive unable to perform his duties under this Agreement.
Disability shall be determined by a physician or group of physicians selected by
the Bank or its insurance carriers and acceptable to the Executive or the
Executive's legal representative. If the employment of the Executive under this
Agreement shall terminate because of death or Disability, the Bank shall pay to
the Executive or the Executive's estate or representative, as the case may be,
the Base Salary and discretionary bonus for the fiscal year in which the
termination occurs, prorated for the number of weeks during which the Executive
was employed by the Bank during such fiscal year. In addition, the Executive or
his designated beneficiary, as the case may be, shall receive such amounts as
are provided for in the disability policy or life insurance policy provided by
the Bank for the benefit of the Executive; provided, further, that the Executive
shall be provided with coverage under a disability policy that will provide him
with payments that would have at least equaled those made under this Agreement
for the term of the Agreement had the Executive not incurred a Disability.
8. NOTICE.
(a) Any purported termination by the Bank or by the Executive shall be
communicated by Notice of Termination to the other party hereto. For purposes
of this Agreement, a "Notice of Termination" shall mean a written notice which
shall indicate the specific termination provision in this Agreement relied upon
and shall set forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination of the Executive's employment under the
provision so indicated.
(b) "Date of Termination" shall mean the date specified in the Notice of
Termination (which, in the case of a Termination for Cause, shall not be less
than thirty days from the date such Notice of Termination is given).
(c) If, within thirty (30) days after any Notice of Termination is given,
the party receiving such Notice of Termination notifies the other party that a
dispute exists concerning the termination, the Date of Termination shall be the
date on which the dispute is finally determined, either by mutual written
agreement of the parties, by a binding arbitration award, or by a final
judgment, order or decree of a court of competent jurisdiction (the time for
appeal therefrom having expired and no appeal having been perfected) and
provided further that the Date of Termination shall be extended by a notice of
dispute only if such notice is given in good faith and the party giving such
notice pursues the resolution of such dispute with reasonable diligence.
Notwithstanding the pendency of any such dispute, in the event the Executive is
terminated for reasons other than Termination for Cause the Bank will continue
to pay the Executive his Base Salary in effect when the notice giving rise to
the dispute was given until the earlier of: (1) the resolution of the dispute in
accordance with this Agreement; or (2) the expiration of the remaining term of
this Agreement as determined as of the Date of Termination. Amounts paid under
this Section are in addition to all other amounts due under this Agreement and
shall not be offset against or reduce any other amounts due under this
Agreement.
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<PAGE>
9. POST-TERMINATION OBLIGATIONS.
(a) All payments and benefits to the Executive under this Agreement shall
be subject to the Executive's compliance with this Section 9 for one (1) full
year after the earlier of the expiration of this Agreement or termination of the
Executive's employment with the Bank. The Executive shall, upon reasonable
notice, furnish such information and assistance to the Bank as may reasonably be
required by the Bank in connection with any litigation in which it or any of its
subsidiaries or affiliates is, or may become, a party.
(b) The Executive shall not be required to mitigate the amount of any
salary or other payment or benefit provided for in this Agreement by seeking
other employment or otherwise, nor shall the amount of any payment or benefit
provided for in this Agreement be reduced by any compensation earned by the
Executive as the result of employment by another employer, by retirement
benefits after the date of termination or otherwise.
10. NON-COMPETITION AND NON-DISCLOSURE.
(a) Upon any termination of the Executive's employment hereunder pursuant
to Section 4 hereof, the Executive agrees not to compete with the Bank for a
period of one (1) year following such termination in any city, town or county in
which the Executive's normal business office is located and the Bank has an
office or has filed an application for regulatory approval to establish an
office, determined as of the effective date of such termination, except as
agreed to pursuant to a resolution duly adopted by the Board. The Executive
agrees that during such period and within said cities, towns and counties, the
Executive shall not work for or advise, consult or otherwise serve with,
directly or indirectly, any entity whose business materially competes with the
depository, lending or other business activities of the Bank. The parties
hereto, recognizing that irreparable injury will result to the Bank, its
business and property in the event of the Executive's breach of this Subsection
10(a) agree that in the event of any such breach by the Executive, the Bank will
be entitled, in addition to any other remedies and damages available, to an
injunction to restrain the violation hereof by the Executive, the Executive's
partners, agents, servants, employees and all persons acting for or under the
direction of the Executive. Nothing herein will be construed as prohibiting the
Bank from pursuing any other remedies available to the Bank for such breach or
threatened breach, including the recovery of damages from the Executive.
(b) The Executive recognizes and acknowledges that the knowledge of the
business activities and plans for business activities of the Bank and affiliates
thereof, as it may exist from time to time, is a valuable, special and unique
asset of the business of the Bank. The Executive will not, during or after the
term of his employment, disclose any knowledge of the past, present, planned or
considered business activities of the Bank or affiliates thereof to any person,
firm, corporation, or other entity for any reason or purpose whatsoever.
Notwithstanding the foregoing, the Executive may disclose any knowledge of
banking, financial and/or economic principles, concepts or ideas which are not
solely and exclusively derived from the business plans and activities of the
Bank. Further, the Executive may disclose information regarding the business
activities of the Bank to the OTS and the Federal Deposit Insurance Corporation
("FDIC") pursuant to a formal regulatory
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<PAGE>
request. In the event of a breach or threatened breach by the Executive of the
provisions of this Section, the Bank will be entitled to an injunction
restraining the Executive from disclosing, in whole or in part, the knowledge of
the past, present, planned or considered business activities of the Bank or
affiliates thereof, or from rendering any services to any person, firm,
corporation, other entity to whom such knowledge, in whole or in part, has been
disclosed or is threatened to be disclosed. Nothing herein will be construed as
prohibiting the Bank from pursuing any other remedies available to the Bank for
such breach or threatened breach, including the recovery of damages from the
Executive.
11. SOURCE OF PAYMENTS.
(a) All payments provided in this Agreement shall be timely paid in cash or
check from the general funds of the Bank. The Holding Company, however,
unconditionally guarantees payment and provision of all amounts and benefits due
hereunder to the 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.
(b) Notwithstanding any provision herein to the contrary, to the extent
that payments and benefits, as provided by this Agreement, are paid to or
received by the Executive under the Employment Agreement dated _____________,
1998, between the Executive and the Holding Company, such compensation payments
and benefits paid by the Holding Company will be subtracted from any amounts due
simultaneously to the Executive under similar provisions of this Agreement.
Payments pursuant to this Agreement and the Holding Company Agreement shall be
allocated in proportion to the services rendered and time expended on such
activities by the Executive as determined by the Holding Company and the Bank on
a quarterly basis.
12. EFFECT ON PRIOR AGREEMENTS AND EXISTING BENEFITS PLANS.
This Agreement contains the entire understanding between the parties hereto
and supersedes any prior employment agreement between the Bank or any
predecessor of the Bank and the Executive, except that this Agreement shall not
affect or operate to reduce any benefit or compensation inuring to the Executive
of a kind elsewhere provided. No provision of this Agreement shall be
interpreted to mean that the Executive is subject to receiving fewer benefits
than those available to him without reference to this Agreement.
13. NO ATTACHMENT.
(a) Except as required by law, no right to receive payments under this
Agreement shall be subject to anticipation, commutation, alienation, sale,
assignment, encumbrance, charge, pledge, or hypothecation, or to execution,
attachment, levy, or similar process or assignment by operation of law, and any
attempt, voluntary or involuntary, to affect any such action shall be null,
void, and of no effect.
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<PAGE>
(b) This Agreement shall be binding upon, and inure to the benefit of, the
Executive and the Bank and their respective successors and assigns.
14. MODIFICATION AND WAIVER.
(a) This Agreement may not be modified or amended except by an instrument
in writing signed by the parties hereto.
(b) No term or condition of this Agreement shall be deemed to have been
waived, nor shall there be any estoppel against the enforcement of any provision
of this Agreement, except by written instrument of the party charged with such
waiver or estoppel. No such written waiver shall be deemed a continuing waiver
unless specifically stated therein, and each such waiver shall operate only as
to the specific term or condition waived and shall not constitute a waiver of
such term or condition for the future as to any act other than that specifically
waived.
15. REQUIRED PROVISIONS.
(a) The Bank may terminate the Executive's employment at any time, but any
termination by the Bank, other than Termination for Cause, shall not prejudice
the Executive's right to compensation or other benefits under this Agreement.
The Executive shall not have the right to receive compensation or other benefits
for any period after Termination for Cause as defined in Section 7 herein above.
(b) If the 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 the 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 the 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(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.
(d) If the Bank is in default as defined in Section 3(x)(1) of the Federal
Deposit Insurance Act, 12 U.S.C. (S)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.
(e) All obligations of the Bank under this contract shall be terminated,
except to the extent determined that continuation of the contract is necessary
for the continued operation of the institution: (i) by the Director of the OTS
(or his designee), the FDIC or the Resolution Trust
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Corporation, at the time the FDIC 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, 12 U.S.C. (S)1823(c); or (ii) by the Director
of the OTS (or his designee) at the time the Director (or his designee) approves
a supervisory merger to resolve problems related to the operations 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 the Executive pursuant to this Agreement, or
otherwise, are subject to and conditioned upon compliance with 12 U.S.C.
(S)1828(k) and 12 C.F.R. (S)545.121 and any rules and regulations promulgated
thereunder.
16. REINSTATEMENT OF BENEFITS UNDER SECTION 15(b).
In the event the Executive is suspended and/or temporarily prohibited from
participating in the conduct of the Bank's affairs by a notice described in
Section 15(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 the Executive will be entitled to receive all of the
termination benefits provided for under Section 5 of this Agreement upon the
Bank's receipt of a dismissal of charges in the Notice.
17. 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.
18. 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.
19. 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 superseded by federal law.
20. ARBITRATION.
Any dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by arbitration, conducted before a panel
of three arbitrators sitting in a location selected by the Executive within
fifty (50) miles from the location of the Bank, in accordance with the
Commercial Arbitration Rules of the American Arbitration Association then in
effect. Judgment
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may be entered on the arbitrator's award in any court having jurisdiction;
provided, however, that the 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.
In the event any dispute or controversy arising under or in connection with
the Executive's termination is resolved in favor of the Executive, whether by
judgment, arbitration or settlement, the Executive shall be entitled to the
payment of all back-pay, including salary, bonuses and any other cash
compensation, fringe benefits and any compensation and benefits due the
Executive under this Agreement.
21. PAYMENT OF COSTS AND LEGAL FEES.
All reasonable costs and legal fees paid or incurred by the Executive
pursuant to any dispute or question of interpretation relating to this Agreement
shall be paid or reimbursed by the Bank if the Executive is successful on the
merits pursuant to a legal judgment, arbitration or settlement.
22. INDEMNIFICATION.
(a) The Bank shall provide the Executive (including his heirs, executors
and administrators) with coverage under a standard directors' and officers'
liability insurance policy at its expense, and shall indemnify the 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 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.
23. 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 or the Holding Company,
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.
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<PAGE>
SIGNATURES
IN WITNESS WHEREOF, First Federal Lincoln Bank and first Lincoln Bancshares
Inc. have caused this Agreement to be executed and their seals to be affixed
hereunto by their duly authorized officers and directors, and the Executive has
signed this Agreement, on the _____ day of _________, 1998.
ATTEST: FIRST FEDERAL LINCOLN BANK
______________________________ By: ______________________________
Patricia A. Young LaVern F. Roschewski
Secretary For the Entire Board of Directors
[SEAL]
ATTEST: FIRST LINCOLN BANCSHARES INC.
(Guarantor)
_______________________________ By: _______________________________
Patricia A. Young LaVern F. Roschewski
Secretary For the Entire Board of Directors
[SEAL]
WITNESS:
________________________________ _________________________________
Eugene B. Witkowicz
Executive
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EXHIBIT 10.5
FIRST LINCOLN BANCSHARES INC.
EMPLOYMENT AGREEMENT
This AGREEMENT ("Agreement") is made effective as of______________, 1998 by
and between First Lincoln Bancshares Inc. (the "Holding Company"), a corporation
organized under the laws of Delaware with its principal offices at 13/th/ and N
Streets, Lincoln, Nebraska 68508 and Gilbert G. Lundstrom (the "Executive").
Any reference to the "Bank" herein shall mean First Federal Lincoln Bank or any
successor thereto.
WHEREAS, the Holding Company wishes to assure itself of the services of the
Executive for the period provided in this Agreement; and
WHEREAS, the Executive is willing to serve in the employ of the Holding
Company on a full-time basis for said period.
NOW, THEREFORE, in consideration of the mutual covenants herein contained,
and upon the other terms and conditions hereinafter provided, the parties hereby
agree as follows:
1. POSITION AND RESPONSIBILITIES.
During the period of the Executive's employment hereunder, the Executive
agrees to serve as President and Chief Executive Officer of the Holding Company.
The Executive shall render administrative and management services to the Holding
Company such as are customarily performed by persons in a similar executive
capacity. During said period, the Executive also agrees to serve, if elected,
as President and Chief Executive Officer of any subsidiary of the Holding
Company other than First Federal Lincoln Bank-Iowa. During the term of this
Agreement, the Holding Company agrees (a) to elect the Executive to the Board of
Directors of the Bank and (b) to nominate the Executive for election to the
Board of Directors of the Holding Company and the Executive agrees to serve in
such capacity. The Executive's principal place of employment shall be 13/th/
and N Streets, Lincoln, Nebraska 68508.
2. TERMS.
(a) The period of the Executive's employment under this Agreement shall
commence 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 the 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.
<PAGE>
(b) During the period of the Executive's employment hereunder, except for
periods of absence occasioned by illness, vacation periods, and leaves of
absence, the Executive shall devote substantially all his business time,
attention, skill, and efforts to the faithful performance of his duties
hereunder, including activities and services related to the organization,
operation and management of the Holding Company and its direct or indirect
subsidiaries (the "Subsidiaries") and participation in community, professional
and civic organizations. The Executive may serve, or continue to serve, on the
boards of directors of, and hold any other offices or positions in, companies or
organizations, which will not present any conflict of interest with the Holding
Company or the Subsidiaries, or materially affect the performance of the
Executive's duties pursuant to this Agreement.
(c) Notwithstanding anything herein to the contrary, the Executive's
employment with the Holding Company may be terminated by the Holding Company or
the Executive during the term of this Agreement, subject to the terms and
conditions of this Agreement. Moreover, in the event the Executive is
terminated or suspended from his position with the Bank, the Executive shall not
perform, in any respect, directly or indirectly, during the pendency of his
temporary or permanent suspension or termination from the Bank, duties and
responsibilities formerly performed at the Bank as part of his duties and
responsibilities as President and Chief Executive Officer of the Holding
Company.
3. COMPENSATION AND REIMBURSEMENT.
The Executive shall receive compensation and reimbursement under this
Agreement, as follows:
(a) The Executive shall be entitled to a salary from the Holding Company or
the Subsidiaries of $350,000 per year ("Base Salary"), payable in accordance
with the normal payroll practices of the Bank, but not less frequently than
monthly. Base Salary shall include any amounts of compensation deferred by the
Executive under any tax-qualified retirement or welfare benefit plan or any
other deferred compensation arrangement. During the period of this Agreement,
the Executive's Base Salary shall be reviewed by the Board at least annually,
with the Board making its first review no later than one year from the date of
this Agreement. The Board may increase the Executive's Base Salary at any time
during the term of this Agreement and the resulting annual salary attributable
to such increase shall become the "Base Salary" for purposes of this Agreement
from the date of such increase.
(b) Discretionary Bonuses. The Executive shall be entitled to participate
---------------------
in an equitable manner with all other executive officers of the Holding Company
in discretionary bonuses as authorized by the Board to executive employees. No
other compensation provided for in this Agreement shall be deemed a substitute
for the Executive's right to participate in such bonuses when and as declared by
the Board.
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(c) The Executive shall be entitled to receive fees for serving as a
director of the Holding Company and/or the Bank or as a member of any committee
as received by other members of the Boards of Directors of the Holding Company
and/or the Bank.
(d) The Executive shall be entitled to participate in any employee benefit
plans, arrangements and perquisites substantially equivalent to those in which
the Executive was participating or with respect to which the Executive was
deriving a benefit immediately prior to the beginning of the term of this
Agreement, and the Holding Company and the Subsidiaries will not, without the
Executive's prior written consent, make any changes in such plans, arrangements
or perquisites which would adversely affect the Executive's rights or benefits
thereunder, except to the extent that such changes are made applicable to all
employees participating in such plans, arrangements, or perquisites on a non-
discriminatory basis. Without limiting the generality of the foregoing
provisions of this Subsection (d), the Executive shall be entitled to
participate in and receive benefits under all plans relating to stock options,
restricted stock awards, stock purchases, pension, thrift, profit-sharing,
employee stock ownership, supplemental retirement, group life insurance, medical
and other health and welfare benefit coverage, education, cash or stock bonuses,
and other retirement or employee benefits or combinations thereof, that are now
or hereafter maintained for the benefit of the Holding Company's and
Subsidiaries' executive employees or employees generally. Further, with respect
to any plan regarding stock options, restricted stock awards, and stock
purchases, the Executive shall be entitled to receive benefits in an equitable
manner with all other executive officers, taking into consideration the
Executive's positions with the Holding Company and the Subsidiaries. Nothing
paid to the Executive under any such plan or arrangement will be deemed to be in
lieu of other compensation to which the Executive is entitled under this
Agreement.
(e) The Holding Company shall pay or reimburse the Executive for all
reasonable travel and other expenses incurred in the performance of the
Executive's obligations under this Agreement.
4. PAYMENTS TO THE EXECUTIVE UPON AN EVENT OF TERMINATION.
(a) The provisions of this Section shall apply upon the occurrence of an
Event of Termination (as herein defined) during the term of this Agreement. As
used in this Agreement, an "Event of Termination" shall mean and include any one
or more of the following: (i) the termination by the Holding Company of the
Executive's full-time employment hereunder for any reason other than termination
governed by Section 5(a) hereof, or Termination for Cause, as defined in Section
7 hereof; (ii) the Executive's resignation from the Holding Company's employ,
upon, any (A) failure to elect or reelect or to appoint or reappoint the
Executive as President and Chief Executive Officer, unless consented to by the
Executive, (B) material change in the Executive's functions, duties, or
responsibilities with the Holding Company or its Subsidiaries, which change
would cause the Executive's position to become one of lesser responsibility,
importance, or scope than the position described in Section 1 unless consented
to by the Executive, (C) relocation of the Executive's principal place of
employment by more than 25 miles from its location at the effective date of this
Agreement, unless consented to by the
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Executive, (D) material reduction in the benefits and perquisites to the
Executive from those being provided as of the effective date of this Agreement,
unless consented to by the Executive, (E) liquidation or dissolution of the
Holding Company or the Bank, or (F) breach of this Agreement by the Holding
Company. Upon the occurrence of any Event of Termination, the Executive shall
have the right to elect to terminate his employment under this Agreement by
resignation upon not less than thirty (30) days prior written notice given
within six full calendar months after the Event of Termination.
(b) Upon the occurrence of an Event of Termination, on the "Date of
Termination", as defined in Section 8, the Holding Company shall pay or provide
to the Executive, or, in the event of his death subsequent to the Event of
Termination, his beneficiary or beneficiaries, or his estate, as the case may
be, the following: (i) the Base Salary and bonuses in accordance with Sections
3(a) and 3(b), respectively, that would have been paid to the Executive for the
remaining term of this Agreement had the Event of Termination not occurred, plus
the value, as calculated by a recognized firm customarily performing such
valuations, of any stock options or related rights which, as of the Date of
Termination, have been granted to the Executive but are not exercisable by the
Executive and the value of any restricted stock or related rights which have
been granted to the Executive but in which the Executive does not have a non-
forfeitable or fully-vested interest as of the Date of Termination; and (ii) all
benefits, including health insurance, in accordance with Section 3(d), that
would have been provided to the Executive for the remaining term of this
Agreement had the Event of Termination not occurred. At the election of the
Executive, which election is to be made prior to an Event of Termination, such
payments shall be made in a lump sum. In the event that no election is made,
payment to the Executive will be made on a monthly basis in approximately equal
installments during the remaining term of the Agreement.
(c) Upon the occurrence of an Event of Termination, the Holding Company
will cause to be continued life, medical, dental and disability coverage
substantially equivalent to the coverage maintained by the Holding Company or
its Subsidiaries for the Executive prior to his termination at no premium cost
to the Executive. Such coverage shall cease upon the expiration of the
remaining term of this Agreement, unless otherwise provided for in a separate
agreement entered into by the Executive and the Bank or the Holding Company.
5. CHANGE IN CONTROL.
(a) For purposes of this Agreement, a "Change in Control" of the Holding
Company or the Bank 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, and the
Rules and Regulations promulgated by the Office of Thrift Supervision (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
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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
or right to acquire such securities except for any voting securities of the Bank
purchased by the Holding Company and any voting securities purchased by any
employee benefit plan of the Holding Company or its Subsidiaries, or (B)
individuals who constitute the Board on the date hereof (the "Incumbent Board")
cease for any reason to constitute at least a majority thereof, provided that
any person becoming a director subsequent to the date hereof whose election was
approved by a vote of at least three-quarters of the directors comprising the
Incumbent Board, or whose nomination for election by the Company's stockholders
was approved by a Nominating Committee solely composed of members which are
Incumbent Board members, shall be, for purposes of this clause (B), considered
as though he were a member of the Incumbent Board, or (C) a plan of
reorganization, merger, consolidation, sale of all or substantially all the
assets of the Bank or the Holding Company or similar transaction occurs or is
effectuated 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 has been distributed soliciting proxies from
stockholders of the Holding Company, by someone other than the current
management of the Holding Company, seeking stockholder approval of a plan of
reorganization, merger or consolidation of the Holding Company or 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.
(b) If a Change in Control has occurred pursuant to Section 5(a) or the
Board has determined that a Change in Control has occurred, the Executive shall
be entitled to the benefits provided in paragraphs (c) and (d), of this Section
5.
(c) Upon the Executive's entitlement to benefits pursuant to Section 5(b),
the Holding Company shall pay or provide to the Executive, or in the event of
his subsequent death, his beneficiary or beneficiaries, or his estate, as the
case may be, the greater of: (i) the Base Salary and bonuses in accordance with
Sections 3(a) and 3(b), respectively, that would have been paid to the Executive
for the remaining term of this Agreement had the event described in subsection
(b) of this Section 5 not occurred, plus the value, as calculated by a
recognized firm customarily performing such valuations, of any stock options or
related rights which, as of the Date of Termination have been granted to the
Executive but are not exercisable by the Executive and the value of any
restricted stock or related rights which have been granted to the Executive but
in which the Executive does not have a non-forfeitable or fully-vested interest
as of the Date of Termination, and all benefits, including health insurance, in
accordance with Section 3(d) that would have been paid to the Executive for the
remaining term of this Agreement had the event
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described in subsection (b) of this Section 5 not occurred; or (ii) three (3)
times the Executive's Average Annual Compensation (as herein defined) for the
five (5) preceding taxable years. Such Average Annual Compensation shall include
all taxable income paid by the Holding Company or the Subsidiaries, including
but not limited to, Base Salary, commissions and bonuses, as well as
contributions on behalf of the Executive to any pension and profit sharing plan,
severance payments, directors or committee fees and fringe benefits paid or to
be paid to the Executive during such years. At the election of the Executive,
which election is to be made prior to a Change in Control, such payment shall be
made in a lump sum. In the event that no election is made, payment to the
Executive will be made on a monthly basis in approximately equal installments
during the remaining term of the Agreement.
(d) Upon the Executive's entitlement to benefits pursuant to Section 5(b),
the Company will cause to be continued life, medical, dental and disability
coverage substantially equivalent to the coverage maintained by the Bank for the
Executive at no premium cost to the Executive prior to his severance. Such
coverage and payments shall cease upon the expiration of sixty (60) months
following the Change in Control, unless otherwise provided for in a separate
agreement entered into by the Executive and the Bank or the Holding Company.
6. CHANGE OF CONTROL RELATED PROVISIONS.
In each calendar year that the Executive is entitled to receive payments or
benefits under the provisions of this Employment Agreement, the Holding Company
shall determine if an excess parachute payment (as defined in Section 4999 of
the Internal Revenue Code of 1986, as amended, and any successor provision
thereto, (the "Code")) exists. Such determination shall be made after taking
any reductions permitted pursuant to Section 280G of the Code and the
regulations thereunder. Any amount determined to be an excess parachute payment
after taking into account such reductions shall be hereafter referred to as the
"Initial Excess Parachute Payment". As soon as practicable after a Change in
Control, the Initial Excess Parachute Payment shall be determined. Upon the
Date of Termination following a Change in Control, the Holding Company shall pay
the Executive, subject to applicable withholding requirements under applicable
state or federal law, an amount equal to:
(1) twenty (20) percent of the Initial Excess Parachute Payment (or such
other amount equal to the tax imposed under Section 4999 of the Code);
and
(2) such additional amount (tax allowance) as may be necessary to
compensate the Executive for the payment by the Executive of state and
federal income and excise taxes on the payment provided under clause
(1) and on any payments under this Clause (2). In computing such tax
allowance, the payment to be made under Clause (1) shall be multiplied
by the "gross up percentage" ("GUP"). The GUP shall be determined as
follows:
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Tax Rate
GUP = __________
1- Tax Rate
The "Tax Rate" for purposes of computing the GUP shall be the sum of
the highest marginal federal and state income and employment-related
tax rates, including any applicable excise tax rates, applicable to
the Executive in the year in which the payment under Clause (1) is
made.
(3) Notwithstanding the foregoing, if it shall subsequently be
determined in a final judicial determination or a final administrative
settlement to which the Executive is a party that the excess parachute payment
as defined in Section 4999 of the Code, reduced as described above, is more than
the Initial Excess Parachute Payment (such different amount being hereafter
referred to as the "Determinative Excess Parachute Payment") then the Holding
Company's independent accountants shall determine the amount (the "Adjustment
Amount") the Holding Company must pay to the Executive in order to put the
Executive in the same position as the Executive would have been if the Initial
Excess Parachute Payment had been equal to the Determinative Excess Parachute
Payment. In determining the Adjustment Amount, independent accountants of the
Holding Company shall take into account any and all taxes (including any
penalties and interest) paid by or for the Executive or refunded to the
Executive or for the Executive's benefit. As soon as practicable after the
Adjustment Amount has been so determined, the Holding Company shall pay the
Adjustment Amount to the Executive. In no event however, shall the Executive
make any payment under this paragraph to the Holding Company.
7. TERMINATION FOR CAUSE OR IN THE EVENT OF DEATH OR DISABILITY
(a) The term "Termination for Cause" shall mean termination because of the
Executive's personal dishonesty, willful misconduct, any breach of fiduciary
duty involving personal profit, intentional failure to perform stated duties,
willful violation of any law, rule, regulation (other than traffic violations or
similar offenses), final cease and desist order or material breach of any
provision of this Agreement. Notwithstanding the foregoing, the Executive shall
not be deemed to have been terminated for Cause unless and until there shall
have been delivered to him a Notice of Termination which shall include a copy of
a resolution duly adopted by the affirmative vote of not less than three-fourths
of the members of the Board at a meeting of the Board called and held for that
purpose (after reasonable notice to the 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, the Executive was guilty of conduct justifying
Termination for Cause and specifying the particulars thereof in detail. The
Executive shall not have the right to receive compensation or other benefits for
any period after Termination for Cause. During the period beginning on the
date of the Notice of Termination for Cause pursuant to Section 8 hereof through
the Date of Termination, stock options and related limited rights granted to the
Executive under
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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 the Executive at any time
subsequent to such Termination for Cause.
(b) The Executive's employment shall terminate automatically upon the
Executive's death during the term of this Agreement. If the Holding Company
determines in good faith that the "Disability" (as defined below) of the
Executive has occurred, it may give to the Executive written notice in
accordance with Section 8 of its intention to terminate this Agreement. In such
event, the Executive's employment with the Holding Company shall terminate
effective on the 30/th/ day after receipt of the notice by the Executive,
provided that, within 30 days after such receipt, the Executive shall not have
returned to full-time performance of the Executive's duties. For purposes of
this Agreement, "Disability" means a condition, resulting from bodily injury or
disease or mental impairment that renders, and for a six consecutive month
period has rendered, the Executive unable to perform his duties under this
Agreement. Disability shall be determined by a physician or group of physicians
selected by the Holding Company or its insurance carriers and acceptable to the
Executive or the Executive's legal representative. If the employment of the
Executive under this Agreement shall terminate because of death or Disability,
the Holding Company shall pay to the Executive or the Executive's estate or
representative, as the case may be, the Base Salary and discretionary bonus for
the fiscal year in which the termination occurs, prorated for the number of
weeks during which the Executive was employed by the Holding Company during such
fiscal year. In addition, the Executive or his designated beneficiary, as the
case may be, shall receive such amounts as are provided for in the disability
policy or life insurance policy provided by the Holding Company for the benefit
of the Executive; provided, further, that the Executive shall be provided with
coverage under a disability policy that will provide him with payments that
would have at least equaled those made under this Agreement for the term of the
Agreement had the Executive not incurred a Disability.
8. NOTICE.
(a) Any purported termination by the Holding Company or by the Executive
shall be communicated by Notice of Termination to the other party hereto. For
purposes of this Agreement, a "Notice of Termination" shall mean a written
notice which shall indicate the specific termination provision in this Agreement
relied upon and shall set forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of the Executive's employment under
the provision so indicated.
(b) "Date of Termination" shall mean the date specified in the Notice of
Termination (which, in the case of a Termination for Cause, shall not be less
than thirty (30) days from the date such Notice of Termination is given).
(c) If, within thirty (30) days after any Notice of Termination is given,
the party receiving such Notice of Termination notifies the other party that a
dispute exists concerning the termination, except upon the occurrence of a
Change in Control and voluntary termination by the
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Executive in which case the Date of Termination shall be the date specified in
the Notice, the Date of Termination shall be the date on which the dispute is
finally determined, either by mutual written agreement of the parties, by a
binding arbitration award, or by a final judgment, order or decree of a court of
competent jurisdiction (the time for appeal therefrom having expired and no
appeal having been perfected) and provided further that the Date of Termination
shall be extended by a notice of dispute only if such notice is given in good
faith and the party giving such notice pursues the resolution of such dispute
with reasonable diligence. Notwithstanding the pendency of any such dispute, the
Holding Company will continue to pay the Executive his full compensation in
effect when the notice giving rise to the dispute was given (including, but not
limited to, Base Salary) and continue him as a participant in all compensation,
benefit and insurance plans in which he was participating when the notice of
dispute was given, until the dispute is finally resolved in accordance with this
Agreement. Amounts paid under this Section are in addition to all other amounts
due under this Agreement and shall not be offset against or reduce any other
amounts due under this Agreement.
9. POST-TERMINATION OBLIGATIONS.
(a) All payments and benefits to the Executive under this Agreement shall
be subject to the Executive's compliance with this Section 9 for one (1) full
year after the earlier of the expiration of this Agreement or termination of the
Executive's employment with the Holding Company. The Executive shall, upon
reasonable notice, furnish such information and assistance to the Holding
Company as may reasonably be required by the Holding Company in connection with
any litigation in which it or any of its subsidiaries or affiliates is, or may
become, a party.
(b) The Executive shall not be required to mitigate the amount of any
salary or other payment or benefit provided for in this Agreement by seeking
other employment or otherwise, nor shall the amount of any payment or benefit
provided for in this Agreement be reduced by any compensation earned by the
Executive as the result of employment by another employer, by retirement
benefits after the date of termination or otherwise.
10. NON-COMPETITION AND NON-DISCLOSURE.
(a) Upon any termination of the Executive's employment hereunder pursuant
to Section 4 hereof, the Executive agrees not to compete with the Holding
Company or its Subsidiaries for a period of one (1) year following such
termination in any city, town or county in which the Executive's normal business
office is located and the Holding Company or any of its Subsidiaries has an
office or has filed an application for regulatory approval to establish an
office, determined as of the effective date of such termination, except as
agreed to pursuant to a resolution duly adopted by the Board. The Executive
agrees that during such period and within said cities, towns and counties, the
Executive shall not work for or advise, consult or otherwise serve with,
directly or indirectly, any entity whose business materially competes with the
depository, lending or other business activities of the Holding Company or its
Subsidiaries. The parties hereto, recognizing that irreparable injury will
result to the Holding Company or its Subsidiaries, its business and property in
the event of the Executive's breach of this Subsection
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10(a) agree that in the event of any such breach by the Executive, the Holding
Company or its Subsidiaries, will be entitled, in addition to any other remedies
and damages available, to an injunction to restrain the violation hereof by the
Executive, the Executive's partners, agents, servants, employees and all persons
acting for or under the direction of the Executive. The Executive represents and
admits that in the event of the termination of his employment pursuant to
Section 7 hereof, the Executive's experience and capabilities are such that the
Executive can obtain employment in a business engaged in other lines and/or of a
different nature than the Holding Company or its Subsidiaries, and that the
enforcement of a remedy by way of injunction will not prevent the Executive from
earning a livelihood. Nothing herein will be construed as prohibiting the
Holding Company or its Subsidiaries from pursuing any other remedies available
to the Holding Company or its Subsidiaries for such breach or threatened breach,
including the recovery of damages from the Executive.
(b) The Executive recognizes and acknowledges that the knowledge of the
business activities and plans for business activities of the Holding Company and
its Subsidiaries as it may exist from time to time, is a valuable, special and
unique asset of the business of the Holding Company and its Subsidiaries. The
Executive will not, during or after the term of his employment, disclose any
knowledge of the past, present, planned or considered business activities of the
Holding Company and its Subsidiaries thereof to any person, firm, corporation,
or other entity for any reason or purpose whatsoever unless expressly authorized
by the Board of Directors or required by law. Notwithstanding the foregoing,
the Executive may disclose any knowledge of banking, financial and/or economic
principles, concepts or ideas which are not solely and exclusively derived from
the business plans and activities of the Holding Company. In the event of a
breach or threatened breach by the Executive of the provisions of this Section,
the Holding Company will be entitled to an injunction restraining the Executive
from disclosing, in whole or in part, the knowledge of the past, present,
planned or considered business activities of the Holding Company or its
Subsidiaries or from rendering any services to any person, firm, corporation,
other entity to whom such knowledge, in whole or in part, has been disclosed or
is threatened to be disclosed. Nothing herein will be construed as prohibiting
the Holding Company from pursuing any other remedies available to the Holding
Company for such breach or threatened breach, including the recovery of damages
from the Executive.
11. SOURCE OF PAYMENTS.
(a) All payments provided in this Agreement shall be timely paid in cash or
check from the general funds of the Holding Company subject to Section 11(b).
(b) Notwithstanding any provision herein to the contrary, to the extent
that payments and benefits, as provided by this Agreement, are paid to or
received by the Executive under the Employment Agreement dated_______________,
1998, between the Executive and the Bank, such compensation payments and
benefits paid by the Bank will be subtracted from any amount due simultaneously
to the Executive under similar provisions of this Agreement. Payments pursuant
to this Agreement and the Executive's employment agreement entered into with the
Bank on October 27, 1993, and as amended from time to time ("Bank Agreement")
shall be
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allocated in proportion to the level of activity and the time expended on such
activities by the Executive as determined by the Holding Company and the Bank on
a quarterly basis.
12. EFFECT ON PRIOR AGREEMENTS AND EXISTING BENEFITS PLANS.
This Agreement contains the entire understanding between the parties hereto
and supersedes any prior employment agreement between the Holding Company and
the Executive, except that this Agreement shall not amend, terminate, impact or
affect or operate to reduce any provision of the Bank Agreement, or other
agreement incorporated in the Bank Agreement or any benefit or compensation
inuring to the Executive of a kind elsewhere provided. No provision of this
Agreement shall be interpreted to mean that the Executive is subject to
receiving fewer benefits than those available to him without reference to this
Agreement.
13. NO ATTACHMENT.
(a) Except as required by law, no right to receive payments under this
Agreement shall be subject to anticipation, commutation, alienation, sale,
assignment, encumbrance, charge, pledge, or hypothecation, or to execution,
attachment, levy, or similar process or assignment by operation of law, and any
attempt, voluntary or involuntary, to affect any such action shall be null,
void, and of no effect.
(b) This Agreement shall be binding upon, and inure to the benefit of, the
Executive and the Holding Company and their respective successors and assigns.
14. MODIFICATION AND WAIVER.
(a) This Agreement may not be modified or amended except by an instrument
in writing signed by the parties hereto.
(b) No term or condition of this Agreement shall be deemed to have been
waived, nor shall there be any estoppel against the enforcement of any provision
of this Agreement, except by written instrument of the party charged with such
waiver or estoppel. No such written waiver shall be deemed a continuing waiver
unless specifically stated therein, and each such waiver shall operate only as
to the specific term or condition waived and shall not constitute a waiver of
such term or condition for the future as to any act other than that specifically
waived.
15. SEVERABILITY.
If, for any reason, any provision of this Agreement, or any part of any
provision, is held invalid, such invalidity shall not affect any other provision
of this Agreement or any part of such provision not held so invalid, and each
such other provision and part thereof shall to the full extent consistent with
law continue in full force and effect.
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16. HEADINGS FOR REFERENCE ONLY.
The headings of sections and paragraphs herein are included solely for
convenience of reference and shall not control the meaning or interpretation of
any of the provisions of this Agreement.
17. GOVERNING LAW.
This Agreement shall be governed by the laws of the State of Nebraska,
unless otherwise specified herein.
18. ARBITRATION.
Any dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by arbitration, conducted before a panel
of three arbitrators sitting in a location selected by the Executive within
fifty (50) miles from the location of the Bank, in accordance with the
Commercial Arbitration Rules of the Arbitration American Arbitration Association
then in effect. Judgment may be entered on the arbitrator's award in any court
having jurisdiction; provided, however, that the 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.
In the event any dispute or controversy arising under or in connection with
the Executive's termination is resolved in favor of the Executive, whether by
judgment, arbitration or settlement, the Executive shall be entitled to the
payment of all back-pay, including salary, bonuses and any other cash
compensation, fringe benefits and any compensation and benefits due the
Executive under this Agreement.
19. PAYMENT OF LEGAL FEES.
All reasonable legal fees paid or incurred by the Executive pursuant to any
dispute or question of interpretation relating to this Agreement shall be paid
or reimbursed by the Holding Company, if the Executive is successful pursuant to
a legal judgment, arbitration or settlement.
20. INDEMNIFICATION.
(a) The Holding Company shall provide the Executive (including his heirs,
executors and administrators) with coverage under a standard directors' and
officers' liability insurance policy at its expense and shall indemnify the
Executive (and his heirs, executors and administrators) to the fullest extent
permitted under Delaware law against all expenses and liabilities reasonably
incurred by him in connection with or arising out of any action, suit or
proceeding in which he may be involved by reason of his having been a director
or officer of the Holding Company (whether or not he continues to be a director
or officer at the time of incurring
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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 the 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.
21. SUCCESSOR TO THE HOLDING COMPANY.
The Holding Company shall require any successor or assignee, whether direct
or indirect, by purchase, merger, consolidation or otherwise, to all or
substantially all the business or assets of the 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.
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SIGNATURES
IN WITNESS WHEREOF, First Lincoln Bancshares Inc. has caused this Agreement
to be executed and its seal to be affixed hereunto by its duly authorized
officer and its directors, and the Executive has signed this Agreement, on the
_______ day of _________, 1998.
ATTEST: FIRST LINCOLN BANCSHARES INC.
________________________ By: ____________________________
Patricia A. Young LaVern F. Roschewski
Secretary Chairman
For the Entire Board of Directors
[SEAL]
WITNESS:
________________________ By: ____________________________
Patricia A. Young Gilbert G. Lundstrom
Secretary Executive
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EXHIBIT 10.6
FIRST LINCOLN BANCSHARES INC.
EMPLOYMENT AGREEMENT
This AGREEMENT ("Agreement") is made effective as of______________, 1998 by
and between First Lincoln Bancshares Inc. (the "Holding Company"), a corporation
organized under the laws of Delaware with its principal offices at 13/th/ and N
Streets, Lincoln, Nebraska 68508, and LaVern F. Roschewski (the "Executive").
Any reference to the "Bank" herein shall mean First Federal Lincoln Bank or any
successor thereto.
WHEREAS, the Holding Company wishes to assure itself of the services of the
Executive for the period provided in this Agreement; and
WHEREAS, the Executive is willing to serve in the employ of the Holding
Company for said period.
NOW, THEREFORE, in consideration of the mutual covenants herein contained,
and upon the other terms and conditions hereinafter provided, the parties hereby
agree as follows:
1. POSITION AND RESPONSIBILITIES.
During the period of the Executive's employment hereunder, the Executive
shall serve as Chief Executive Officer of First Federal Lincoln Bank-Iowa (the
"Iowa Bank") a subsidiary of the Bank, with responsibility for, among other
things, operation and management of the Bank's activities in Iowa, Chairman of
the Board of the Bank, an executive position, with responsibility for, among
other things, calling meetings of the board of directors of the Bank, presiding
at such meetings and exercising certain oversight responsibilities through
service on various management committees of the Bank, and Chairman of the Board
of the Holding Company, an executive position with responsibility for, among
other things, determining the order of business and procedures at meetings of
shareholders and presiding at such meetings, calling special meetings of the
board of directors of the holding company and presiding at such meetings. The
Executive shall render administrative and management services to the Bank, the
Iowa Bank and the Holding Company such as are customarily performed by persons
in similar executive capacities. During the term of this Agreement, the Holding
Company agrees (a) to elect the Executive to the Board of Directors of the Bank
and (b) to nominate the executive for election to the Board of Directors of the
Holding Company and, if the Executive is so elected, to elect the Executive as
Chairman of the Board of Directors of the Holding Company, an executive
position, and the Executive agrees to serve in such capacity. The Executive's
principal place of employment shall be 13th and N Streets, Lincoln, Nebraska
68508. The Executive also agrees to serve, if elected, as an officer or director
of any subsidiary of the Holding Company.
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2. TERMS.
(a) The period of the Executive's employment under this Agreement shall
commence 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 the Executive elects not to extend the term of the
Agreement by giving written notice to the other party in accordance with Section
8 of this Agreement, in which case the term of this Agreement shall be fixed and
shall end on the third anniversary of the date of such written notice.
(b) During the period of the Executive's employment hereunder, except for
periods of absence occasioned by illness, vacation periods, and leaves of
absence, the Executive shall devote substantially all his business time,
attention, skill, and efforts to the faithful performance of his duties
hereunder, including activities and services related to the organization,
operation and management of the Holding Company, the Bank and the Iowa Bank, its
direct and indirect subsidiaries, (the "Subsidiaries") and participation in
community, professional and civic organizations; provided, however, that, with
the approval of the Board, as evidenced by a resolution adopted from time to
time, the Executive may serve, or continue to serve, on the boards of directors
of, and hold any other offices or positions in, companies or organizations,
which will not present any conflict of interest with the Holding Company or the
Subsidiaries, or materially affect the performance of the Executive's duties
pursuant to this Agreement.
(c) Notwithstanding anything herein to the contrary, the Executive's
employment with the Holding Company, the Bank or the Iowa Bank may be terminated
by the Holding Company or the Executive during the term of this Agreement,
subject to the terms and conditions of this Agreement. However, the Executive
shall not perform, in any respect, directly or indirectly, during the pendency
of his temporary or permanent suspension or termination from the Bank or the
Iowa Bank, duties and responsibilities formerly performed at the Bank or the
Iowa Bank as part of his duties and responsibilities as Chairman of the Board of
the Holding Company.
3. COMPENSATION AND REIMBURSEMENT.
The Executive shall receive compensation and reimbursement under this
Agreement as follows:
(a) The Executive shall be entitled to a salary from the Holding Company or
the Subsidiaries of $110,000 per year ("Base Salary") payable in accordance with
the normal payroll practices of the Bank. Base Salary shall include any amounts
of compensation deferred by the Executive under any tax-qualified retirement or
welfare benefit plan or any other deferred compensation arrangement maintained
by the Holding Company and its Subsidiaries. During the period of this
Agreement, the Executive's Base Salary shall be reviewed by the Board at least
annually, with the Board making its first review no later than one year from the
date of this
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Agreement. The Board may increase the Executive's Base Salary at any time during
the term of this Agreement and the resulting annual salary attributable to such
increase shall become the "Base Salary" for purposes of this Agreement from the
date of such increase.
(b) Discretionary Bonuses. The Executive shall be entitled to participate
in an equitable manner with all other executive officers of the Holding Company
in discretionary bonuses as authorized and declared by the Board to executive
employees. No other compensation provided for in this Agreement shall be deemed
a substitute for the Executive's right to participate in such bonuses when and
as declared by the Board.
(c) The Executive shall be entitled to receive fees for serving as a
director of the Holding Company and/or the Bank and for serving as Chairman of
the Board of the Holding Company and/or the Bank or as a member of any committee
as received by other members of the Boards of Directors of the Holding Company
and/or the Bank.
(d) The Executive shall be entitled to participate in any employee benefit
plans, arrangements and perquisites substantially equivalent to those in which
the Executive was participating or with respect to which the Executive was
deriving a benefit immediately prior to the beginning of the term of this
Agreement, and the Holding Company and its Subsidiaries will not, without the
Executive's prior written consent, make any changes in such plans, arrangements
or perquisites which would adversely affect the Executive's rights or benefits
thereunder, except to the extent that such changes are made applicable to all
employees participating in such plans, arrangements or perquisites on a non-
discriminatory basis. Without limiting the generality of the foregoing
provisions of this Subsection (d), the Executive shall be entitled to
participate in and receive benefits under all plans relating to stock options,
restricted stock awards, stock purchases, pension, thrift, profit-sharing,
employee stock ownership, supplemental retirement, group life insurance, medical
and other health and welfare benefit coverage, education, cash or stock bonuses,
and other retirement or employee benefits or combinations thereof, that are now
or hereafter maintained for the benefit of the Holding Company's and
Subsidiaries' executive employees or employees generally. Further, with respect
to any plan regarding stock options, restricted stock awards, and stock
purchases, the Executive shall be entitled to receive benefits in an equitable
manner with all other executive officers taking into consideration the
Executive's positions as Chairman of the Board of the Holding Company, Chief
Executive Officer of the Iowa Bank with responsibility for, among other things,
the operation of the Iowa Bank as its senior executive and executive management
of the Bank's activities in Iowa, and Chairman of the Board of the Bank, with
executive responsibilities. Nothing paid to the Executive under any such plan
or arrangement will be deemed to be in lieu of other compensation to which the
Executive is entitled under this Agreement.
(e) The Holding Company shall pay or reimburse the Executive for all
reasonable travel and other expenses incurred in the performance of the
Executive's obligations under this Agreement.
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4. PAYMENTS TO THE EXECUTIVE UPON AN EVENT OF TERMINATION.
(a) The provisions of this Section shall apply upon the occurrence of an
"Event of Termination" (as herein defined) during the Executive's term of
employment under this Agreement. As used in this Agreement, subject to Section
22, an "Event of Termination" shall mean and include any one or more of the
following: (i) the termination by the Bank, the Iowa Bank or the Holding
Company of the Executive's employment hereunder for any reason other than
termination governed by Section 5(a) hereof, or Termination for Cause, as
defined in Section 7 hereof; (ii) the Executive's resignation from the employ of
the Holding Company, the Bank or the Iowa Bank, upon any (A) failure by the
Bank, the Iowa Bank or the Holding Company to elect, reelect, appoint,
reappoint, nominate or renominate the Executive to any corporate office set
forth in Section 1, unless consented to by the Executive, (B) material change in
the Executive's functions, authorities, duties, or responsibilities with the
Holding Company or its Subsidiaries, which change would cause the Executive's
position to become one of lesser responsibility, importance, or scope than the
position described in Section 1, unless consented to by the Executive, (C)
relocation of the Executive's principal place of employment by more than 25
miles from its location at the effective date of this Agreement, unless
consented to by the Executive, (D) material reduction in the benefits and
perquisites to the Executive from those being provided as of the effective date
of this Agreement, unless consented to by the Executive, (E) liquidation or
dissolution of the Holding Company or the Bank, or (F) breach of this Agreement
by the Holding Company. Upon the occurrence of any Event of Termination, the
Executive shall have the right to elect to terminate his employment under this
Agreement by resignation upon not less than thirty (30) days prior written
notice given within six full calendar months after the Event of Termination.
(b) Upon the occurrence of an Event of Termination, on the "Date of
Termination," as defined in Section 8, the Holding Company shall pay or provide
to the Executive, or, in the event of his death subsequent to the Event of
Termination, his beneficiary or beneficiaries, or his estate, as the case may
be, the following: (i) the Base Salary and bonuses in accordance with Sections
3(a) and 3(b), respectively, that would have been paid to the Executive for the
remaining term of this Agreement had the Event of Termination not occurred, plus
the value, as calculated by a recognized firm customarily performing such
valuations, of any stock options or related rights which, as of the Date of
Termination, have been granted to the Executive but are not exercisable and the
value of any restricted stock or related rights which have been granted to the
Executive but in which the Executive does not have a non-forfeitable or fully-
vested interest as of the Date of Termination; and (ii) all benefits, including
health insurance, in accordance with Section 3(d), that would have been paid or
provided to the Executive for the remaining term of this Agreement had the Event
of Termination not occurred. At the election of the Executive, which election
is to be made prior to an Event of Termination, such payments shall be made in a
lump sum. In the event that no election is made, payment to the Executive will
be made on a monthly basis in approximately equal installments during the
remaining term of the Agreement.
(c) Upon the occurrence of an Event of Termination, the Holding Company
will cause to be continued life, medical, dental and disability coverage
substantially equivalent to the coverage
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maintained by the Holding Company or its Subsidiaries for the Executive prior to
his termination at no premium cost to the Executive. Such coverage shall cease
upon the expiration of the remaining term of this Agreement, unless otherwise
provided for in a separate agreement entered into by the Executive and the Bank
or the Holding Company.
5. CHANGE IN CONTROL.
(a) For purposes of this Agreement, a "Change in Control" of the Holding
Company or the Bank 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, and the
Rules and Regulations promulgated by the Office of Thrift Supervision (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 or right to
acquire such securities except for any voting securities of the Bank purchased
by the Holding Company and any voting securities purchased by any employee
benefit plan of the Holding Company or its Subsidiaries, or (B) individuals who
constitute the Board on the date hereof (the "Incumbent Board") cease for any
reason to constitute at least a majority thereof, provided that any person
becoming a director subsequent to the date hereof whose election was approved by
a vote of at least three-quarters of the directors comprising the Incumbent
Board, or whose nomination for election by the Company's stockholders was
approved by a Nominating Committee solely composed of members which are
Incumbent Board members, shall be, for purposes of this clause (B), considered
as though he were a member of the Incumbent Board, or (C) a plan of
reorganization, merger, consolidation, sale of all or substantially all the
assets of the Bank or the Holding Company or similar transaction occurs or is
effectuated 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 has been distributed soliciting proxies from
stockholders of the Holding Company, by someone other than the current
management of the Holding Company, seeking stockholder approval of a plan of
reorganization, merger or consolidation of the Holding Company or 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.
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(b) If a Change in Control has occurred pursuant to Section 5(a) or the
Board has determined that a Change in Control has occurred, the Executive shall
be entitled to the benefits provided in paragraphs (c) and (d), of this Section
5.
(c) Upon the Executive's entitlement to benefits pursuant to Section 5(b),
the Holding Company shall pay or provide to the Executive, or in the event of
his subsequent death, his beneficiary or beneficiaries, or his estate, as the
case may be the greater of: (i) the Base Salary and bonuses in accordance with
Sections 3(a) and 3(b), respectively, that would have been paid to the Executive
for the remaining term of this Agreement had the event described in subsection
(b) of this Section 5 not occurred, plus the value, as calculated by a
recognized firm customarily performing such valuations, of any stock options or
related rights which, as of the Date of Termination, have been granted to the
Executive but are not exercisable, and the value of any restricted stock or
related rights which have been granted to the Executive but in which the
Executive does not have a non-forfeitable or fully-vested interest as of the
Date of Termination, and all benefits, including health insurance, in accordance
with Section 3(d) that would have been provided to the Executive for the
remaining term of this Agreement had the event described in subsection (b) of
this Section (5) not occurred; or (ii) three (3) times the Executive's Average
Annual Compensation (as herein defined) for the five (5) preceding taxable
years. Such annual compensation shall include all taxable income paid by the
Holding Company or the Subsidiaries, including but not limited to, Base Salary,
commissions and bonuses as well as contributions on behalf of the Executive to
any pension and profit sharing plan, severance payments, directors or committee
fees and fringe benefits paid or to be paid to the Executive during such years.
At the election of the Executive, which election is to be made prior to a Change
in Control, such payment shall be made in a lump sum. In the event that no
election is made, payment to the Executive will be made on a monthly basis in
approximately equal installments during the remaining term of the Agreement.
Such payments shall not be reduced in the event the Executive obtains other
employment following termination of employment.
(d) Upon the Executive's entitlement to benefits pursuant to Section 5(b),
the Company will cause to be continued life, medical, dental and disability
coverage substantially equivalent to the coverage maintained by the Bank for the
Executive at no premium cost to the Executive prior to his severance. Such
coverage and payments shall cease upon the expiration of sixty (60) months
following the Change in Control, unless otherwise provided for in a separate
agreement entered into by the Executive and the Bank or the Holding Company.
6. CHANGE OF CONTROL RELATED PROVISIONS.
In each calendar year that the Executive is entitled to receive payments or
benefits under the provisions of this Employment Agreement, the Holding Company
shall determine if an excess parachute payment (as defined in Section 4999 of
the Internal Revenue Code of 1986, as amended, and any successor provision
thereto, (the "Code")) exists. Such determination shall be made after taking
any reductions permitted pursuant to Section 280G of the Code and the
regulations thereunder. Any amount determined to be an excess parachute payment
after taking into account such reductions shall be hereafter referred to as the
"Initial Excess Parachute Payment". As soon as
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practicable after a Change in Control, the Initial Excess Parachute Payment
shall be determined. Upon the Date of Termination following a Change in Control,
the Holding Company shall pay the Executive, subject to applicable withholding
requirements under applicable state or federal law, an amount equal to:
(1) twenty (20) percent of the Initial Excess Parachute Payment (or such
other amount equal to the tax imposed under Section 4999 of the Code);
and
(2) such additional amount (tax allowance) as may be necessary to
compensate the Executive for the payment by the Executive of state and
federal income and excise taxes on the payment provided under clause
(1) and on any payments under this Clause (2). In computing such tax
allowance, the payment to be made under Clause (1) shall be multiplied
by the "gross up percentage" ("GUP"). The GUP shall be determined as
follows:
Tax Rate
GUP = __________
1- Tax Rate
The "Tax Rate" for purposes of computing the GUP shall be the sum of
the highest marginal federal and state income and employment-related
tax rates, including any applicable excise tax rates, applicable to
the Executive in the year in which the payment under Clause (1) is
made.
(3) Notwithstanding the foregoing, if it shall subsequently be determined
in a final judicial determination or a final administrative settlement to which
the Executive is a party that the excess parachute payment as defined in Section
4999 of the Code, reduced as described above, is more than the Initial Excess
Parachute Payment (such different amount being hereafter referred to as the
"Determinative Excess Parachute Payment") then the Holding Company's independent
accountants shall determine the amount (the "Adjustment Amount") the Holding
Company must pay to the Executive in order to put the Executive in the same
position as the Executive would have been if the Initial Excess Parachute
Payment had been equal to the Determinative Excess Parachute Payment. In
determining the Adjustment Amount, independent accountants of the Holding
Company shall take into account any and all taxes (including any penalties and
interest) paid by or for the Executive or refunded to the Executive or for the
Executive's benefit. As soon as practicable after the Adjustment Amount has
been so determined, the Holding Company shall pay the Adjustment Amount to the
Executive. In no event however, shall the Executive make any payment under this
paragraph to the Holding Company.
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7. TERMINATION FOR CAUSE OR IN THE EVENT OF DEATH OR DISABILITY.
(a) The term "Termination for Cause" shall mean termination because of the
Executive's personal dishonesty, willful misconduct, any breach of fiduciary
duty involving personal profit, intentional failure to perform stated duties,
willful violation of any law, rule, regulation (other than traffic violations or
similar offenses), final cease and desist order or material breach of any
provision of this Agreement. Notwithstanding the foregoing, the Executive shall
not be deemed to have been terminated for Cause unless and until there shall
have been delivered to him a Notice of Termination which shall include a copy of
a resolution duly adopted by the affirmative vote of not less than three-fourths
of the members of the Board at a meeting of the Board called and held for that
purpose (after reasonable notice to the 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, the Executive was guilty of conduct justifying
Termination for Cause and specifying the particulars thereof in detail. The
Executive shall not have the right to receive compensation or other benefits for
any period after Termination for Cause. During the period beginning on the
date of the Notice of Termination for Cause pursuant to Section 8 hereof through
the Date of Termination, stock options and related limited rights granted to the
Executive under any stock option plan shall not be exercisable nor shall any
unvested awards granted to the 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 the Executive at any time subsequent to such Termination for Cause.
(b) The Executive's employment shall terminate automatically upon the
Executive's death during the term of this Agreement. If the Holding Company
determines in good faith that the "Disability" (as defined below) of the
Executive has occurred, it may give to the Executive written notice in
accordance with Section 8 of its intention to terminate this Agreement. In such
event, the Executive's employment with the Holding Company shall terminate
effective on the 30/th/ day after receipt of the notice by the Executive,
provided that, within 30 days after such receipt, the Executive shall not have
returned to full-time performance of the Executive's duties. For purposes of
this Agreement, "Disability" means a condition, resulting from bodily injury or
disease or mental impairment that renders, and for a six consecutive months
period has rendered, the Executive unable to perform his duties under this
Agreement. Disability shall be determined by a physician or group of physicians
selected by the Holding Company or its insurance carriers and acceptable to the
Executive or the Executive's legal representative. If the employment of the
Executive under this Agreement shall terminate because of death or Disability,
the Holding Company shall pay to the Executive or the Executive's estate or
representative, as the case may be, the Base Salary and discretionary bonus for
the fiscal year in which the termination occurs, prorated for the number of
weeks during which the Executive was employed by the Holding Company during such
fiscal year. In addition, the Executive or his designated beneficiary, as the
case may be, shall receive such amounts as are provided for in the disability
policy or life insurance policy provided by the Holding Company for the benefit
of the Executive; provided, further, that the Executive shall be provided with
coverage under a disability policy that will provide him with payments that
would have at least
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equaled those made under this Agreement for the term of the Agreement had the
Executive not incurred a Disability.
8. NOTICE.
(a) Any purported termination by the Holding Company or by the Executive
shall be communicated by Notice of Termination to the other party hereto. For
purposes of this Agreement, a "Notice of Termination" shall mean a written
notice which shall indicate the specific termination provision in this Agreement
relied upon and shall set forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of the Executive's employment under
the provision so indicated.
(b) "Date of Termination" shall mean the date specified in the Notice of
Termination (which, in the case of a Termination for Cause, shall not be less
than thirty (30) days from the date such Notice of Termination is given).
(c) If, within thirty (30) days after any Notice of Termination is given,
the party receiving such Notice of Termination notifies the other party that a
dispute exists concerning the termination, except upon the occurrence of a
Change in Control and voluntary termination by the Executive in which case the
Date of Termination shall be the date specified in the Notice, the Date of
Termination shall be the date on which the dispute is finally determined, either
by mutual written agreement of the parties, by a binding arbitration award, or
by a final judgment, order or decree of a court of competent jurisdiction (the
time for appeal therefrom having expired and no appeal having been perfected)
and provided further that the Date of Termination shall be extended by a notice
of dispute only if such notice is given in good faith and the party giving such
notice pursues the resolution of such dispute with reasonable diligence.
Notwithstanding the pendency of any such dispute, the Holding Company will
continue to pay the Executive his full compensation in effect when the notice
giving rise to the dispute was given (including, but not limited to, Base
Salary) and continue him as a participant in all compensation, benefit and
insurance plans in which he was participating when the notice of dispute was
given, until the dispute is finally resolved in accordance with this Agreement.
Amounts paid under this Section are in addition to all other amounts due under
this Agreement and shall not be offset against or reduce any other amounts due
under this Agreement.
9. POST-TERMINATION OBLIGATIONS.
(a) All payments and benefits to the Executive under this Agreement shall
be subject to the Executive's compliance with this Section 9 for one (1) full
year after the earlier of the expiration of this Agreement or termination of the
Executive's employment with the Holding Company. The Executive shall, upon
reasonable notice, furnish such information and assistance to the Holding
Company as may reasonably be required by the Holding Company in connection with
any litigation in which it or any of its subsidiaries or affiliates is, or may
become, a party.
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(b) The Executive shall not be required to mitigate the amount of any
salary or other payment or benefit provided for in this Agreement by seeking
other employment or otherwise, nor shall the amount of any payment or benefit
provided for in this Agreement be reduced by any compensation earned by the
Executive as the result of employment by another employer, by retirement
benefits after the date of termination or otherwise.
10. NON-COMPETITION AND NON-DISCLOSURE.
(a) Upon any termination of the Executive's employment hereunder pursuant
to Section 4 hereof, the Executive agrees not to compete with the Holding
Company or its Subsidiaries for a period of one (1) year following such
termination in any city, town or county in which the Executive's normal business
office is located and the Holding Company or any of its Subsidiaries has an
office or has filed an application for regulatory approval to establish an
office, determined as of the effective date of such termination, except as
agreed to pursuant to a resolution duly adopted by the Board. The Executive
agrees that during such period and within said cities, towns and counties, the
Executive shall not work for or advise, consult or otherwise serve with,
directly or indirectly, any entity whose business materially competes with the
depository, lending or other business activities of the Holding Company or its
Subsidiaries. The parties hereto, recognizing that irreparable injury will
result to the Holding Company or its Subsidiaries, its business and property in
the event of the Executive's breach of this Subsection 10(a) agree that in the
event of any such breach by the Executive, the Holding Company or its
Subsidiaries, will be entitled, in addition to any other remedies and damages
available, to an injunction to restrain the violation hereof by the Executive,
the Executive's partners, agents, servants, employees and all persons acting for
or under the direction of the Executive. The Executive represents and admits
that in the event of the termination of his employment pursuant to Section 7
hereof, the Executive's experience and capabilities are such that the Executive
can obtain employment in a business engaged in other lines and/or of a different
nature than the Holding Company or its Subsidiaries, and that the enforcement of
a remedy by way of injunction will not prevent the Executive from earning a
livelihood. Nothing herein will be construed as prohibiting the Holding Company
or its Subsidiaries from pursuing any other remedies available to the Holding
Company or its Subsidiaries for such breach or threatened breach, including the
recovery of damages from the Executive.
(b) The Executive recognizes and acknowledges that the knowledge of the
business activities and plans for business activities of the Holding Company and
its Subsidiaries as it may exist from time to time, is a valuable, special and
unique asset of the business of the Holding Company and its Subsidiaries. The
Executive will not, during or after the term of his employment, disclose any
knowledge of the past, present, planned or considered business activities of the
Holding Company and its Subsidiaries thereof to any person, firm, corporation,
or other entity for any reason or purpose whatsoever unless expressly authorized
by the Board of Directors or required by law. Notwithstanding the foregoing, the
Executive may disclose any knowledge of banking, financial and/or economic
principles, concepts or ideas which are not solely and exclusively derived from
the business plans and activities of the Holding Company. In the event of a
breach or threatened breach by the Executive of the provisions of this Section,
the Holding Company will be entitled to an
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injunction restraining the Executive from disclosing, in whole or in part, the
knowledge of the past, present, planned or considered business activities of the
Holding Company or its Subsidiaries or from rendering any services to any
person, firm, corporation, other entity to whom such knowledge, in whole or in
part, has been disclosed or is threatened to be disclosed. Nothing herein will
be construed as prohibiting the Holding Company from pursuing any other remedies
available to the Holding Company for such breach or threatened breach, including
the recovery of damages from the Executive.
11. SOURCE OF PAYMENTS.
(a) All payments provided in this Agreement shall be timely paid in cash or
check from the general funds of the Holding Company subject to Section 11(b).
(b) Notwithstanding any provision herein to the contrary, to the extent
that payments and benefits, as provided by this Agreement, are paid to or
received by the Executive under the Employment Agreement dated_______________,
1998, between the Executive and the Bank, such compensation payments and
benefits paid by the Bank will be subtracted from any amount due simultaneously
to the Executive under similar provisions of this Agreement. Payments pursuant
to this Agreement and the Bank Agreement shall be allocated in proportion to the
level of activity and the time expended on such activities by the Executive as
determined by the Holding Company and the Bank on a quarterly basis.
12. EFFECT ON PRIOR AGREEMENTS AND EXISTING BENEFITS PLANS.
This Agreement contains the entire understanding between the parties hereto
and supersedes any prior employment agreement between the Holding Company and
the Executive, except that this Agreement shall not amend, terminate, impact or
affect or operate to reduce any provision of the Bank Agreement, or other
agreement incorporated in the Bank Agreement or any benefit or compensation
inuring to the Executive of a kind elsewhere provided. No provision of this
Agreement shall be interpreted to mean that the Executive is subject to
receiving fewer benefits than those available to him without reference to this
Agreement.
13. NO ATTACHMENT.
(a) Except as required by law, no right to receive payments under this
Agreement shall be subject to anticipation, commutation, alienation, sale,
assignment, encumbrance, charge, pledge, or hypothecation, or to execution,
attachment, levy, or similar process or assignment by operation of law, and any
attempt, voluntary or involuntary, to affect any such action shall be null,
void, and of no effect.
(b) This Agreement shall be binding upon, and inure to the benefit of, the
Executive and the Holding Company and their respective successors and assigns.
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14. MODIFICATION AND WAIVER.
(a) This Agreement may not be modified or amended except by an instrument
in writing signed by the parties hereto.
(b) No term or condition of this Agreement shall be deemed to have been
waived, nor shall there be any estoppel against the enforcement of any provision
of this Agreement, except by written instrument of the party charged with such
waiver or estoppel. No such written waiver shall be deemed a continuing waiver
unless specifically stated therein, and each such waiver shall operate only as
to the specific term or condition waived and shall not constitute a waiver of
such term or condition for the future as to any act other than that specifically
waived.
15. SEVERABILITY.
If, for any reason, any provision of this Agreement, or any part of any
provision, is held invalid, such invalidity shall not affect any other provision
of this Agreement or any part of such provision not held so invalid, and each
such other provision and part thereof shall to the full extent consistent with
law continue in full force and effect.
16. HEADINGS FOR REFERENCE ONLY.
The headings of sections and paragraphs herein are included solely for
convenience of reference and shall not control the meaning or interpretation of
any of the provisions of this Agreement.
17. GOVERNING LAW.
This Agreement shall be governed by the laws of the State of Nebraska,
unless otherwise specified herein.
18. ARBITRATION.
Any dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by arbitration, conducted before a panel
of three arbitrators sitting in a location selected by the Executive within
fifty (50) miles from the location of the Bank, in accordance with the
Commercial Arbitration 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 the 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.
In the event any dispute or controversy arising under or in connection with
the Executive's termination is resolved in favor of the Executive, whether by
judgment, arbitration or settlement, the Executive shall be entitled to the
payment of all back-pay, including salary, bonuses and any other
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cash compensation, fringe benefits and any compensation and benefits due the
Executive under this Agreement.
19. PAYMENT OF LEGAL FEES.
All reasonable legal fees paid or incurred by the Executive pursuant to any
dispute or question of interpretation relating to this Agreement shall be paid
or reimbursed by the Holding Company, if the Executive is successful pursuant to
a legal judgment, arbitration or settlement.
20. INDEMNIFICATION.
(a) The Holding Company shall provide the Executive (including his heirs,
executors and administrators) with coverage under a standard directors' and
officers' liability insurance policy at its expense and shall indemnify the
Executive (and his heirs, executors and administrators) to the fullest extent
permitted under Delaware law against all expenses and liabilities reasonably
incurred by him in connection with or arising out of any action, suit or
proceeding in which he may be involved by reason of his having been a director
or officer of the Holding Company (whether or not he continues to be a director
or officer at the time of incurring such expenses or liabilities), such expenses
and liabilities to include, but not be limited to, judgments, court costs and
attorneys' fees and the cost of reasonable settlements.
(b) Any payments made to the 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.
21. SUCCESSOR TO THE HOLDING COMPANY.
The Holding Company shall require any successor or assignee, whether direct
or indirect, by purchase, merger, consolidation or otherwise, to all or
substantially all the business or assets of the 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.
22. SALE, TRANSFER OR MERGER OF THE IOWA BANK.
Notwithstanding the provisions of Section 4 or any other provision of
this Agreement, any action with respect to the Executive's position as Chief
Executive Officer of the Iowa Bank in connection with or resulting from a sale,
merger, transfer or similar reorganization of the Iowa Bank shall not be deemed
an Event of Termination if, following such action, the Executive succeeds to an
executive officer position of the Bank.
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SIGNATURES
IN WITNESS WHEREOF, First Lincoln Bancshares Inc. has caused this Agreement
to be executed and its seal to be affixed hereunto by its duly authorized
officer and its directors, and the Executive has signed this Agreement, on the
_______ day of _________, 1998.
ATTEST: HOLDING COMPANY.
____________________________ By: ____________________________
Patricia A. Young ____________________________
Secretary Director
For the Entire Board of Directors
[SEAL]
WITNESS:
____________________________ By: ____________________________
Patricia A. Young LaVern F. Roschewski
Secretary Executive
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EXHIBIT 10.7
FIRST LINCOLN BANCSHARES INC.
TWO-YEAR
EMPLOYMENT AGREEMENT
This AGREEMENT ("Agreement") is made effective as of _____________, 1998,
by and between First Lincoln Bancshares Inc. (the "Holding Company"), a
corporation organized under the laws of Delaware, with its principal
administrative office at 13th and N Streets, Lincoln, Nebraska 68508 and Eugene
B. Witkowicz (the "Executive"). Any reference to "Bank" herein shall mean First
Federal Lincoln Bank or any successor thereto.
WHEREAS, the Holding Company wishes to assure itself of the services of the
Executive for the period provided in this Agreement; and
WHEREAS, the Executive is willing to serve in the employ of the Holding
Company on a full-time basis for said period.
NOW, THEREFORE, in consideration of the mutual covenants herein contained,
and upon the other terms and conditions hereinafter provided, the parties hereby
agree as follows:
1. POSITION AND RESPONSIBILITIES.
During the period of the Executive's employment hereunder, the Executive
agrees to serve as Executive Vice President, Treasurer and Chief Financial
Officer of the Holding Company. The Executive shall render administrative and
management services to the Holding Company such as are customarily performed by
persons in a similar executive capacity. During said period, the Executive also
agrees to serve, if elected, as an officer and director of any direct or
indirect subsidiary of the Holding Company. The Executive's principal place of
employment shall be 13th and N Streets, Lincoln, Nebraska 68508.
2. TERMS AND DUTIES.
(a) The period of the Executive's employment under this Agreement shall
commence as of the date first above written and shall continue for a period of
twenty-four (24) 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 the 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 second anniversary of the date of such written notice.
(b) During the period of the Executive's employment hereunder, except for
periods of absence occasioned by illness, vacation periods, and leaves of
absence, the Executive shall devote substantially all his business time,
attention, skill, and efforts to the faithful performance of his
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duties hereunder including activities and services related to the organization,
operation and management of the Holding Company and its direct or indirect
subsidiaries (the "Subsidiaries") and participation in community and civic
organizations; provided, however, that, with the approval of the Board, as
evidenced by a resolution of such Board, from time to time, the Executive may
serve, or continue to serve, on the boards of directors of, and hold any other
offices or positions in, companies or organizations, which, in such Board's
judgment, will not present any conflict of interest with the Holding Company or
the Subsidiaries, or materially affect the performance of the Executive's duties
pursuant to this Agreement.
(c) Notwithstanding anything herein contained to the contrary, the
Executive's employment with the Holding Company may be terminated by the Holding
Company or the Executive during the term of this Agreement, subject to the terms
and conditions of this Agreement. Moreover, in the event the Executive is
terminated or suspended from his position with the Bank, the Executive shall not
perform, in any respect, directly or indirectly, during the pendency of his
temporary or permanent suspension or termination from the Bank, duties and
responsibilities formerly performed at the Bank as part of his duties and
responsibilities as Executive Vice President, Treasurer and Chief Financial
Officer of the Holding Company.
3. COMPENSATION AND REIMBURSEMENT.
(a) The Executive shall be entitled to a salary from the Holding Company or
the Subsidiaries of $125,000 per year ("Base Salary"), payable in accordance
with the payor's normal payroll practices. Base Salary shall include any
amounts of compensation deferred by the Executive under any qualified or
unqualified plan maintained by the Holding Company and its Subsidiaries. During
the period of this Agreement, the Executive's Base Salary shall be reviewed by
the Board at least annually, with the Board making the first review no later
than one year from the date of this Agreement. The Board may increase the
Executive's Base Salary at any time during the term of this Agreement and the
resulting annual salary attributable to such increase shall become the "Base
Salary" for purposes of this Agreement from the date of such increase. In
addition to the Base Salary provided in this Section 3(a), the Holding Company
shall also provide the Executive, at no premium cost to the Executive, with all
such other benefits as provided uniformly to permanent full-time employees of
the Holding Company and its Subsidiaries.
(b) Discretionary Bonuses. The Executive shall be entitled to participate
in an equitable manner with all other executive officers of the Holding Company
in discretionary bonuses as authorized and declared by the Board to executive
employees. No other compensation provided for in this Agreement shall be deemed
a substitute for the Executive's right to participate in such bonuses when and
as declared by the Board.
(c) The Executive shall be entitled to participate in any employee benefit
plans, arrangements and perquisites substantially equivalent to those in which
the Executive was participating or with respect to which the Executive was
deriving a benefit immediately prior to the beginning of the term of this
Agreement, and the Holding Company and its Subsidiaries will not, without the
Executive's prior written consent, make any changes in such plans, arrangements
or
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perquisites which would adversely affect the Executive's rights or benefits
thereunder, except to the extent that such changes are made applicable to all
Holding Company and Bank employees eligible to participate in such plans,
arrangements and perquisites on a non-discriminatory basis. Without limiting
the generality of the foregoing provisions of this Subsection (c), during the
term of this Agreement the Executive shall be entitled to participate in and
receive benefits under all plans relating to stock options, restricted stock
awards, stock purchases, pension, thrift, profit-sharing, employee stock
ownership, supplemental retirement, group life insurance, medical and other
health and welfare benefit coverage, education, cash or stock bonuses, and other
retirement or employee benefits or combinations thereof, that are now or
hereafter maintained for the benefit of the Bank's executive employees or for
its employees generally. Further, with respect to any plan regarding stock
options, restricted stock awards, and stock purchases, the Executive shall be
entitled to receive benefits in an equitable manner with all other executive
officers taking into consideration the Executive's positions with the Bank and
the Holding Company. Nothing paid to the Executive under any such plan or
arrangement will be deemed to be in lieu of other compensation to which the
Executive is entitled under this Agreement.
(d) The Holding Company shall pay or reimburse the Executive for all
reasonable travel and other expenses incurred in the performance of the
Executive's obligations under this Agreement.
4. PAYMENTS TO THE EXECUTIVE UPON AN EVENT OF TERMINATION.
(a) The provisions of this Section shall apply upon the occurrence of an
"Event of Termination" (as hereinafter defined) during the term of this
Agreement. As used in this Agreement, an "Event of Termination" shall mean and
include any one or more of the following: (i) the termination by the Holding
Company of the Executive's full-time employment hereunder for any reason other
than termination governed by Section 5(a) hereof, or for Cause, as defined in
Section 7 hereof; (ii) the Executive's resignation from the Holding Company's
employ, upon, any (A) failure to elect or reelect or to appoint or reappoint the
Executive to the positions set forth in Section 1, unless consented to by the
Executive, (B) material change in the Executive's functions, duties, or
responsibilities with the Holding Company or the Subsidiaries, which change
would cause the Executive's position to become one of lesser responsibility,
importance, or scope than the position described in Section 1 unless consented
to by the Executive, (C) relocation of the Executive's principal place of
employment by more than 25 miles from its location at the effective date of this
Agreement, unless consented to by the Executive, (D) material reduction in the
benefits and perquisites to the Executive from those being provided as of the
effective date of this Agreement, unless consented to by the Executive, (E)
liquidation or dissolution of the Holding Company or the Bank, or (F) breach of
this Agreement by the Holding Company. Upon the occurrence of any Event of
Termination, the Executive shall have the right to elect to terminate his
employment under this Agreement by resignation upon not less than thirty (30)
days prior written notice given within six full calendar months after the Event
of Termination.
(b) Upon the occurrence of an Event of Termination, on the "Date of
Termination", as defined in Section 8, the Holding Company shall be obligated to
pay or provide to the Executive, or, in the event of his death subsequent to the
Event of Termination, his beneficiary or beneficiaries,
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or his estate, as the case may be, a sum equal to the sum of: (i) the Base
Salary and bonuses in accordance with the Section 3(a) and 3(b), respectively,
that the Executive would have earned if he had continued his employment with the
Holding Company for the remaining term of this Agreement; and (ii) all benefits,
including health insurance, that would have been paid to the Executive in
accordance with section 3(c) if the Executive had continued his employment with
the Holding Company during the remaining term of the Agreement. At the election
of the Executive, which election is to be made prior to an Event of Termination,
such payments shall be made: (a) in a lump sum as of the Executive's Date of
Termination, (b) on a bi-weekly basis in approximately equal installments during
the remaining term of the Agreement or (c) on an annual basis in approximately
equal installments during the remaining term of the Agreement. In the event that
no election is made, payment to the Executive will be made on a monthly basis in
approximately equal installments during the remaining term of the Agreement.
(c) Upon the occurrence of an Event of Termination, the Holding Company
will cause to be continued life, medical, dental and disability coverage
substantially equivalent to the coverage maintained by the Holding Company or
its Subsidiaries for Executive prior to his termination at no premium cost to
the Executive. Such coverage shall cease upon the third anniversary of the Date
of Termination, unless otherwise provided for in separate agreements entered
into by the Executive and the Bank or Holding Company.
5. CHANGE IN CONTROL.
(a) For purposes of this Agreement, a "Change in Control" of the Holding
Company or the Bank 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 (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 or right to
acquire such securities except for any voting securities of the Bank purchased
by the Holding Company and any voting securities purchased by any employee
benefit plan of the Holding Company or its Subsidiaries; or (B) individuals who
constitute the Board on the date hereof (the "Incumbent Board") cease for any
reason to constitute at least a majority thereof, provided that any person
becoming a director subsequent to the date hereof whose election was approved by
a vote of at least three-quarters of the directors comprising the Incumbent
Board, or whose nomination for election by the Company's stockholders was
approved by a Nominating Committee solely composed of members which are
Incumbent Board members, shall be, for purposes of this clause (B), considered
as though he were
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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 or is effectuated 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
has been distributed soliciting proxies from stockholders of the Holding
Company, by someone other than the current management of the Holding Company,
seeking stockholder approval of a plan of reorganization, merger or
consolidation of the Holding Company or 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.
(b) If a Change in Control has occurred pursuant to Section 5(a) or the
Board has determined that a Change in Control has occurred, the Executive shall
be entitled to the benefits provided in paragraphs (c) and, (d), of this Section
5.
(c) Upon the Executive's entitlement to benefits pursuant to Section 5(b),
the Holding Company shall pay or provide to the Executive, or in the event of
his subsequent death, his beneficiary or beneficiaries, or his estate, as the
case may be, as severance pay or liquidated damages, or both, a sum equal to the
greater of: (i) the Base Salary and bonuses in accordance with Sections 3(a)
and 3(b), respectively, and all benefits, including health insurance, in
accordance with Section 3(c), that would have been paid to the executive for the
remaining term of this Agreement had the event described in subsection (b) of
the Section 5 not occurred. ; or (ii) three (3) times the Executive's "average
annual compensation" for the five (5) preceding taxable years. Such annual
compensation shall include Base Salary, commissions, bonuses, contributions on
behalf of the Executive to any pension and profit sharing plan, severance
payments, directors or committee fees and fringe benefits paid or to be paid to
the Executive during such years. At the election of the Executive, which
election is to be made prior to a Change in Control, such payment shall be made:
(a) in a lump sum, (b) on a bi-weekly basis in approximately equal installments
over a period of twenty-four (24) months following the Executive's termination,
or (c) on an annual basis in approximately equal installments over a period of
twenty-four (24) months following the Executive's termination. In the event
that no election is made, payment to the Executive will be made on a monthly
basis in approximately equal installments during the remaining term of the
Agreement.
(d) Upon the Executive's entitlement to benefits pursuant to Section 5(b),
the Company will cause to be continued life, medical, dental and disability
coverage substantially equivalent to the coverage maintained by the Bank for the
Executive at no premium cost to the Executive prior to his severance. Such
coverage and payments shall cease upon the third anniversary of the Change in
Control, unless otherwise provided for in a separate agreement entered into by
the Executive and the Bank on Holding Company.
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6. CHANGE OF CONTROL RELATED PROVISIONS.
In each calendar year that the Executive is entitled to receive payments or
benefits under the provisions of this Employment Agreement, the Holding Company
shall determine if an excess parachute payment (as defined in Section 4999 of
the Internal Revenue Code of 1986, as amended, and any successor provision
thereto, (the "Code")) exists. Such determination shall be made after taking
any reductions permitted pursuant to Section 280G of the Code and the
regulations thereunder. Any amount determined to be an excess parachute payment
after taking into account such reductions shall be hereafter referred to as the
"Initial Excess Parachute Payment". As soon as practicable after a Change in
Control, the Initial Excess Parachute Payment shall be determined. Upon the Date
of Termination following a Change in Control, the Holding Company shall pay the
Executive, subject to applicable withholding requirements under applicable state
or federal law, an amount equal to:
(1) twenty (20) percent of the Initial Excess Parachute Payment (or such
other amount equal to the tax imposed under Section 4999 of the Code);
and
(2) such additional amount (tax allowance) as may be necessary to
compensate the Executive for the payment by the Executive of state and
federal income and excise taxes on the payment provided under clause
(1) and on any payments under this Clause (2). In computing such tax
allowance, the payment to be made under Clause (1) shall be multiplied
by the "gross up percentage" ("GUP"). The GUP shall be determined as
follows:
Tax Rate
GUP = __________
1- Tax Rate
The "Tax Rate" for purposes of computing the GUP shall be the sum of
the highest marginal federal and state income and employment-related
tax rates, including any applicable excise tax rates, applicable to
the Executive in the year in which the payment under Clause (1) is
made.
(3) Notwithstanding the foregoing, if it shall subsequently be
determined in a final judicial determination or a final administrative
settlement to which the Executive is a party that the excess parachute payment
as defined in Section 4999 of the Code, reduced as described above, is more than
the Initial Excess Parachute Payment (such different amount being hereafter
referred to as the "Determinative Excess Parachute Payment") then the Holding
Company's independent accountants shall determine the amount (the "Adjustment
Amount") the Holding Company must pay to the Executive in order to put the
Executive in the same position as the Executive would have been if the Initial
Excess Parachute Payment had been equal to the Determinative Excess Parachute
Payment. In determining the Adjustment Amount, independent accountants of the
Holding Company shall take into account any and all taxes (including any
penalties and interest) paid by or
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for the Executive or refunded to the Executive or for the Executive's benefit.
As soon as practicable after the Adjustment Amount has been so determined, the
Holding Company shall pay the Adjustment Amount to the Executive. In no event
however, shall the Executive make any payment under this paragraph to the
Holding Company.
7. TERMINATION FOR CAUSE OR IN THE EVENT OF DEATH OR DISABILITY.
(a) The term "Termination for Cause" shall mean termination because of:
The Executive's personal dishonesty willful misconduct, breach of fiduciary duty
involving personal profit, intentional failure to perform stated duties, willful
violation of any law, rule, regulation (other than traffic violations or similar
offenses), final cease and desist order or material breach of any provision of
this Agreement which results in a material loss to the Bank or the Holding
Company, or the Executive's Conviction of a crime or act involving moral
turpitude or a final judgement rendered against the Executive based upon actions
of the Executive which involve moral turpitude. For purposes of this Section, no
act, or the failure to act, on the Executive's part shall be "willful" unless
done, or omitted to be done, not in good faith and without reasonable belief
that the action or omission was in the best interest of the Holding Company or
its Subsidiaries. Notwithstanding the foregoing, the Executive shall not be
deemed to have been terminated for Cause unless and until there shall have been
delivered to him a Notice of Termination which shall include a copy of a
resolution duly adopted by the affirmative vote of not less than three-fourths
of the members of the Board at a meeting of the Board called and held for that
purpose (after reasonable notice to the 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, the Executive was guilty of conduct justifying
Termination for Cause and specifying the particulars thereof in detail. The
Executive shall not have the right to receive compensation or other benefits for
any period after Termination for Cause. During the period beginning on the date
of the Notice of Termination for Cause pursuant to Section 8 hereof through the
Date of Termination, stock options and related limited rights granted to the
Executive under any stock option plan shall not be exercisable nor shall any
unvested awards granted to the Executive under any stock benefit plan of the
Holding Company or its Subsidiaries vest. At the Date of Termination, such
stock options and related limited rights and such unvested awards shall become
null and void and shall not be exercisable by or delivered to the Executive at
any time subsequent to such Date of Termination for Cause.
(b) The Executive's employment shall terminate automatically upon the
Executive's death during the term of this Agreement. If the Holding Company
determines in good faith that the "Disability" (as defined below) of the
Executive has occurred, it may give to the Executive written notice in
accordance with Section 8 of its intention to terminate this Agreement. In such
event, the Executive's employment with the Holding Company shall terminate
effective on the 30/th/ day after receipt of the notice by the Executive,
provided that, within 30 days after such receipt, the Executive shall not have
returned to full-time performance of the Executive's duties. For purposes of
this Agreement, "Disability" means a condition, resulting from bodily injury or
disease or mental impairment that renders, and for a six consecutive months
period has rendered, the Executive unable to perform his duties under this
Agreement. Disability shall be determined by a physician or group of physicians
selected by the Holding Company or its insurance carriers and acceptable to the
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Executive or the Executive's legal representative. If the employment of the
Executive under this Agreement shall terminate because of death or Disability,
the Holding Company shall pay to the Executive or the Executive's estate or
representative, as the case may be, the Salary and discretionary bonus for the
fiscal year in which the termination occurs, prorated for the number of weeks
during which the Executive was employed by the Holding Company during such
fiscal year. In addition, the Executive or his designated beneficiary, as the
case may be, shall receive such amounts as are provided for in the disability
policy or life insurance policy provided by the Holding Company for the benefit
of the Executive; provided, further, that the Executive shall be provided with
coverage under a disability policy that will provide him with payments that
would have at least equaled those made under this Agreement for the term of the
Agreement had the Executive not incurred a Disability.
8. NOTICE.
(a) Any purported termination by the Holding Company or by the Executive
shall be communicated by Notice of Termination to the other party hereto. For
purposes of this Agreement, a "Notice of Termination" shall mean a written
notice which shall indicate the specific termination provision in this Agreement
relied upon and shall set forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of the Executive's employment under
the provision so indicated.
(b) "Date of Termination" shall mean the date specified in the Notice of
Termination (which, in the case of a Termination for Cause, shall not be less
than thirty (30) days from the date such Notice of Termination is given);
provided, however, that if a dispute regarding the Executive's termination
exists, the "Date of Termination" shall be determined in accordance with Section
8(c) of this Agreement.
(c) If, within thirty (30) days after any Notice of Termination is given,
the party receiving such Notice of Termination notifies the other party that a
dispute exists concerning the termination, except upon the occurrence of a
Change in Control and voluntary termination by the Executive in which case the
Date of Termination shall be the date specified in the Notice, the Date of
Termination shall be the date on which the dispute is finally determined, either
by mutual written agreement of the parties, by a binding arbitration award, or
by a final judgment, order or decree of a court of competent jurisdiction (the
time for appeal therefrom having expired and no appeal having been perfected)
and provided further that the Date of Termination shall be extended by a notice
of dispute only if such notice is given in good faith and the party giving such
notice pursues the resolution of such dispute with reasonable diligence.
Notwithstanding the pendency of any such dispute, the Holding Company will
continue to pay the Executive his full compensation in effect when the notice
giving rise to the dispute was given (including, but not limited to, Base
Salary) and continue him as a participant in all compensation, benefit and
insurance plans in which he was participating when the notice of dispute was
given, until the dispute is finally resolved in accordance with this Agreement.
Amounts paid under this Section are in addition to all other amounts due under
this Agreement and shall not be offset against or reduce any other amounts due
under this Agreement.
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9. POST-TERMINATION OBLIGATIONS.
(a) All payments and benefits to the Executive under this Agreement shall
be subject to the Executive's compliance with this Section 9 for one (1) full
year after the earlier of the expiration of this Agreement or termination of the
Executive's employment with the Holding Company. The Executive shall, upon
reasonable notice, furnish such information and assistance to the Holding
Company as may reasonably be required by the Holding Company in connection with
any litigation in which it or any of its subsidiaries or affiliates is, or may
become, a party.
(b) The Executive shall not be required to mitigate the amount of any
salary or other payment or benefit provided for in this Agreement by seeking
other employment or otherwise, nor shall the amount of any payment or benefit
provided otherwise, nor shall the amount of any payment or benefit provided for
in this Agreement be reduced by any compensation earned by the Executive as the
result of employment by another employer, by retirement benefits after the date
of termination or otherwise.
10. NON-COMPETITION AND NON-DISCLOSURE.
(a) Upon any termination of the Executive's employment hereunder pursuant
to Section 4 hereof, the Executive agrees not to compete with the Holding
Company or its Subsidiaries for a period of one (1) year following such
termination in any city, town or county in which the Executive's normal business
office is located and the Holding Company or any of its Subsidiaries has an
office or has filed an application for regulatory approval to establish an
office, determined as of the effective date of such termination, except as
agreed to pursuant to a resolution duly adopted by the Board. The Executive
agrees that during such period and within said cities, towns and counties, the
Executive shall not work for or advise, consult or otherwise serve with,
directly or indirectly, any entity whose business materially competes with the
depository, lending or other business activities of the Holding Company or its
Subsidiaries. The parties hereto, recognizing that irreparable injury will
result to the Holding Company or its Subsidiaries, its business and property in
the event of the Executive's breach of this Subsection 10(a) agree that in the
event of any such breach by the Executive, the Holding Company or its
Subsidiaries will be entitled, in addition to any other remedies and damages
available, to an injunction to restrain the violation hereof by the Executive,
the Executive's partners, agents, servants, employees and all persons acting for
or under the direction of the Executive. The Executive represents and admits
that in the event of the termination of his employment pursuant to Section 7
hereof, the Executive's experience and capabilities are such that the Executive
can obtain employment in a business engaged in other lines and/or of a different
nature than the Holding Company or its Subsidiaries, and that the enforcement of
a remedy by way of injunction will not prevent the Executive from earning a
livelihood. Nothing herein will be construed as prohibiting the Holding Company
or its Subsidiaries from pursuing any other remedies available to the Holding
Company or its Subsidiaries for such breach or threatened breach, including the
recovery of damages from the Executive.
(b) The Executive recognizes and acknowledges that the knowledge of the
business activities and plans for business activities of the Holding Company and
its Subsidiaries as it may
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exist from time to time, is a valuable, special and unique asset of the business
of the Holding Company and its Subsidiaries. The Executive will not, during or
after the term of his employment, disclose any knowledge of the past, present,
planned or considered business activities of the Holding Company and its
Subsidiaries thereof to any person, firm, corporation, or other entity for any
reason or purpose whatsoever unless expressly authorized by the Board of
Directors or required by law. Notwithstanding the foregoing, the Executive may
disclose any knowledge of banking, financial and/or economic principles,
concepts or ideas which are not solely and exclusively derived from the business
plans and activities of the Holding Company. In the event of a breach or
threatened breach by the Executive of the provisions of this Section, the
Holding Company will be entitled to an injunction restraining the Executive from
disclosing, in whole or in part, the knowledge of the past, present, planned or
considered business activities of the Holding Company or its Subsidiaries or
from rendering any services to any person, firm, corporation, other entity to
whom such knowledge, in whole or in part, has been disclosed or is threatened to
be disclosed. Nothing herein will be construed as prohibiting the Holding
Company from pursuing any other remedies available to the Holding Company for
such breach or threatened breach, including the recovery of damages from the
Executive.
11. SOURCE OF PAYMENTS.
(a) All payments provided in this Agreement shall be timely paid in cash or
check from the general funds of the Holding Company subject to this Section
11(b).
(b) Notwithstanding any provision herein to the contrary, to the extent
that payments and benefits, as provided by this Agreement, are paid to or
received by the Executive under the Employment Agreement dated ___________,
1998, between the Executive and the Bank, such compensation payments and
benefits paid by the Bank will be subtracted from any amount due simultaneously
to the Executive under similar provisions of this Agreement. Payments pursuant
to this Agreement and the Bank Agreement shall be allocated in proportion to the
level of activity and the time expended on such activities by the Executive as
determined by the Holding Company and the Bank on a quarterly basis.
12. EFFECT ON PRIOR AGREEMENTS AND EXISTING BENEFITS PLANS.
This Agreement contains the entire understanding between the parties hereto
and supersedes any prior employment agreement between the Holding Company and
the Executive, except that this Agreement shall not amend, terminate, impact or
affect or operate to reduce any provision of the Bank Agreement, or other
agreement incorporated in the Bank Agreement or any benefit or compensation
inuring to the Executive of a kind elsewhere provided. No provision of this
Agreement shall be interpreted to mean that the Executive is subject to
receiving fewer benefits than those available to him without reference to this
Agreement.
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13. NO ATTACHMENT.
(a) Except as required by law, no right to receive payments under this
Agreement shall be subject to anticipation, commutation, alienation, sale,
assignment, encumbrance, charge, pledge, or hypothecation, or to execution,
attachment, levy, or similar process or assignment by operation of law, and any
attempt, voluntary or involuntary, to affect any such action shall be null,
void, and of no effect.
(b) This Agreement shall be binding upon, and inure to the benefit of, the
Executive and the Holding Company and their respective successors and assigns.
14. MODIFICATION AND WAIVER.
(a) This Agreement may not be modified or amended except by an instrument
in writing signed by the parties hereto.
(b) No term or condition of this Agreement shall be deemed to have been
waived, nor shall there be any estoppel against the enforcement of any provision
of this Agreement, except by written instrument of the party charged with such
waiver or estoppel. No such written waiver shall be deemed a continuing waiver
unless specifically stated therein, and each such waiver shall operate only as
to the specific term or condition waived and shall not constitute a waiver of
such term or condition for the future as to any act other than that specifically
waived.
15. SEVERABILITY.
If, for any reason, any provision of this Agreement, or any part of any
provision, is held invalid, such invalidity shall not affect any other provision
of this Agreement or any part of such provision not held so invalid, and each
such other provision and part thereof shall to the full extent consistent with
law continue in full force and effect.
16. HEADINGS FOR REFERENCE ONLY.
The headings of sections and paragraphs herein are included solely for
convenience of reference and shall not control the meaning or interpretation of
any of the provisions of this Agreement.
17. GOVERNING LAW.
This Agreement shall be governed by the laws of the State of Delaware,
unless otherwise specified herein.
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18. ARBITRATION.
Any dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by arbitration, conducted before a panel
of three arbitrators sitting in a location selected by the Executive within
fifty (50) miles from the location of the Bank, in accordance with the
Commercial Arbitration 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 the 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.
In the event any dispute or controversy arising under or in connection with
the Executive's termination is resolved in favor of the Executive, whether by
judgment, arbitration or settlement, the Executive shall be entitled to the
payment of all back-pay, including salary, bonuses and any other cash
compensation, fringe benefits and any compensation and benefits due the
Executive under this Agreement.
19. PAYMENT OF LEGAL FEES.
All reasonable legal fees paid or incurred by the Executive pursuant to any
dispute or question of interpretation relating to this Agreement shall be paid
or reimbursed by the Holding Company, if the Executive is successful pursuant to
a legal judgment, arbitration or settlement.
20. INDEMNIFICATION.
(a) The Holding Company shall provide the Executive (including his heirs,
executors and administrators) with coverage under a standard directors' and
officers' liability insurance policy at its expense, and shall indemnify the
Executive (and his heirs, executors and administrators) to the fullest extent
permitted under Delaware law against all expenses and liabilities reasonably
incurred by him in connection with or arising out of any action, suit or
proceeding in which he may be involved by reason of his having been a director
or officer of the Holding Company (whether or not he continues to be a director
or officer at the time of incurring such expenses or liabilities), such expenses
and liabilities to include, but not be limited to, judgments, court costs and
attorneys' fees and the cost of reasonable settlements.
(b) Any payments made to the 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.
12
<PAGE>
21. SUCCESSOR TO THE HOLDING COMPANY.
The Holding Company shall require any successor or assignee, whether direct
or indirect, by purchase, merger, consolidation or otherwise, to all or
substantially all the business or assets of the 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.
13
<PAGE>
SIGNATURES
IN WITNESS WHEREOF, First Lincoln Bancshares Inc. has caused this Agreement
to be executed and its seal to be affixed hereunto by its duly authorized
officer and its directors, and the Executive has signed this Agreement, on the
___ day of _______________, 1998.
ATTEST: FIRST LINCOLN BANCSHARES INC.
_____________________________ By: _______________________________
Patricia A. Young LaVern F. Roschewski
Secretary For the Entire Board of Directors
[SEAL]
WITNESS:
_____________________________ By: _______________________________
Patricia A. Young Eugene B. Witkowicz
Secretary Executive
14
<PAGE>
EXHIBIT 23.1
[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.
/s/ KPMG Peat Marwick LLP
Lincoln, Nebraska
February 4, 1998
<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 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
February 4, 1998
<PAGE>
Exhibit 99.2
GIFT INSTRUMENT
CHARITABLE GIFT TO THE FIRST FEDERAL LINCOLN FOUNDATION
First Lincoln Bancshares Inc., Lincoln, Nebraska (the "Company"),
desires to make a gift of its common stock, par value $.01 per share to The
First Federal Lincoln Foundation (the "Foundation"), a nonprofit corporation
organized under the laws of the State of Delaware. The purpose of the donation
is to establish a bond between First Lincoln Bancshares Inc. and the community
in which it and its affiliates operate to enable the community to share in the
potential growth and success of the Company and its affiliates over the long
term. To that end, First Lincoln Bancshares Inc. now gives, transfers, and
delivers to the Foundation _________ shares of its common stock, par value $.01
per share, or total consideration of $_________, subject to the following
conditions:
1. The Foundation will use the donation solely for charitable purposes,
including community development, in the communities in which the Company and its
affiliates operate in accordance with the provisions of the Foundation's
Certificate of Incorporation.
2. Consistent with the Company's intent to form a long-term bond between
the Company and the community, the amount of Common Stock that may be sold by
the Foundation in any one year shall not exceed 5% of the market value of the
assets held by the Foundation, except that this restriction will not prohibit
the board of directors of the Foundation from selling a greater amount of Common
Stock in any one year if the board of directors of the Foundation determines
that the failure to sell a greater amount of the Common Stock held by the
Foundation would: (a) result in a long-term reduction of the value of the
Foundation's assets relative to their then current value that would jeopardize
the Foundation's capacity to carry out its charitable purposes; or (b) otherwise
jeopardize the Foundation's tax-exempt status.
3. The Common Stock contributed to the Foundation by the Company shall,
for so long as such shares are held by the Foundation, be considered by the
Company to be voted in the same ratio as all other shares of Common Stock of the
Company which are voted on each and every proposal considered by stockholders of
the Company, provided, however, that if this Condition No. 3 is waived by the
Office of Thrift Supervision pursuant to Office of Thrift Supervision Order No.
_______, dated ______, 1998 (a copy of which is attached hereto), then this
Condition No. 3 shall become void and of no effect.
Dated: _______, 1998 First Lincoln Bancshares Inc.
By:
--------------------------------------
Gilbert G. Lundstrom
President and
Chief Executive Officer
<PAGE>
LOGO: First Federal Lincoln Bank
Subscription & Community
Offering Stock Order Form
--------------------------------
Bank Use
--------------------------------
First Federal Lincoln Bank Expiration Date
Conversion Center for Stock Order Forms:
XX Street Day, Month XX, 1998
Lincoln, Nebraska XXXXX 12:00 Noon, Central Time
(XXX) XXX-XXXX
- --------------------------------------------------------------------------------
IMPORTANT-PLEASE NOTE: A properly completed original stock order form must be
used to subscribe for Common Stock. Copies of this form are not required to be
accepted. Please read the Stock Ownership Guide and Stock Order Form
instructions as you complete this form.
- --------------------------------------------------------------------------------
(1) Number of Shares (2) Total Payment Due
- -------------------------- --------------------------
Subscription Price
X $ 20.00 =
- -------------------------- --------------------------
- --------------------------------------------------------------------------------
The minimum number of shares that may be subscribed for is 25 and the maximum
number of shares that may be subscribed for in the Subscription and Community
Offering is XX,XXX shares. See instructions.
- --------------------------------------------------------------------------------
[_] (3) Employee/Officer/Director Information
Check here if you are an employee, officer or director of First Federal
Lincoln Bank or a member of such person's immediate family living in the
same household.
- --------------------------------------------------------------------------------
(4) Method of Payment/Check ---------------------------
Enclosed is a check, bank draft or money order Check Amount
made payable to First Federal Lincoln Bank in
the amount indicated in this box. ---------------------------
See Item 4 of the Stock Order Form instructions for orders on an aggregate
basis equal to or exceeding to or exceeding $50,000.00.
- --------------------------------------------------------------------------------
(5) Method of Payment/Withdrawal
The Undersigned authorizes withdrawal from the following account(s) at First
Federal Lincoln Bank. Individual Retirement Accounts maintained at First
Federal Lincoln Bank cannot be used. There is no penalty for early
withdrawal used for this payment.
---------------------------------------------------------------------------
Account Number(s) Withdrawal Amount(s) Bank Use
---------------------------------------------------------------------------
---------------------------------------------------------------------------
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Total Withdrawal Amount
---------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(6) Purchaser Information
a. [_] Check here if you are an Eligible Account Holder of First Federal with a
deposit account(s) totalling $50.00 or more on ______ XX, 199X. List
account(s) below.
b. [_] Check here if you are a Supplemental Eligible Account Holder with a
deposit account(s) totalling $50.00 or more on _____ XX, 199X. List
account(s) below.
c. [_] Check here if you were a depositor as of _____ X, 199X or a borrower
with a loan(s) outstanding as of _____ X, 199X which continued to be
outstanding as of _____ X, 199X. List account(s) or loan(s) below.
---------------------------------------------------------------------------
Account Title (Names on Accounts) Account Number(s) Bank Use
---------------------------------------------------------------------------
---------------------------------------------------------------------------
---------------------------------------------------------------------------
---------------------------------------------------------------------------
---------------------------------------------------------------------------
PLEASE NOTE: FAILURE TO LIST ALL YOUR ACCOUNTS MAY RESULT IN THE LOSS OF PART
OR ALL OF YOUR SUBSCRIPTION RIGHTS. IF ADDITIONAL SPACE IS NEEDED, PLEASE
UTILIZE THE BACK OF THIS STOCK ORDER FORM.
- --------------------------------------------------------------------------------
(7) Stock Registration/Form of Stock Ownership [ ][ ][ ]-[ ][ ]-[ ][ ][ ][ ]
[_] Individual [_] Joint Tenants [_] Tenants in Common
[_] Fiduciary (i.e. trust, estate, etc.) [_] Company/Corp/Partnership
[_] Uniform Transfers to Minors Act [_] IRA or other Qualified Plan-
Beneficial Owners SS#
(8) Name(s) in which stock is to be registered (PLEASE PRINT CLEARLY)*
ADDING THE NAME(S) OF OTHER PERSON(S) WHO ARE
NOT OWNERS OF YOUR QUALIFYING ACCOUNT(S) WILL
RESULT IN YOUR ORDER BECOMING NULL AND VOID
- --------------------------------------------------------------------------------
Name(s) Social Security # or Tax ID
- --------------------------------------------------------------------------------
Name(s) continued Social Security # or Tax ID
- --------------------------------------------------------------------------------
Street Address County of Residence
- --------------------------------------------------------------------------------
City State Zip Code
- ------------------------------------------------------
(9) Telephone - Daytime ( ) Evening ( )
- ------------------------------------------------------
- --------------------------------------------------------------------------------
[_] (10) NASD Affiliation - Check here if you are a member of the National
Association of Securities Dealers, Inc. ("NASD"), a person associated with
an NASD member, a member of the immediate family of any such person to whose
support such person contributes, directly or indirectly, or the holder of an
account in which an NASD member or person associated with an NASD member has
a beneficial interest. To comply with conditions under which an exemption
from the NASD's Interpretation With Respect to Free-Riding and Withholding
is available, you agree, if you have checked the NASD Affiliation box, (i)
not to sell, transfer or hypethocate the stock for a period of three months
following issuance, and (ii) to report this subscription in writing to the
applicable NASD member within one day of payment thereof.
- --------------------------------------------------------------------------------
[_] (11) Associates - Acting in Concert
Check here, and complete the reverse side of this form, if you or any
associates (as defined on the reverse side of this form) or persons acting
in concert with you have submitted other orders for shares in the
Subscription and/or Community Offerings.
- --------------------------------------------------------------------------------
(12) Acknowledgment - To be effective, this Stock Order Form and
accompanying Certification Form must be properly completed and physically
received by First Federal Lincoln Bank no later than 12:00 Noon, Central
Time, on Day, Month Date, 1998, unless extended; otherwise this Stock Order
Form and all subscription rights will be void. The undersigned agrees that
after receipt by First Federal Lincoln Bank, this Stock Order Form may not
be modified, withdrawn or canceled without the Bank's consent and if
authorization to withdraw from deposit accounts at the Bank has been given
as payment for shares; the amount authorized for withdrawal shall not
otherwise be available for withdrawal by the undersigned. Under penalty of
perjury, I hereby certify that the Social Security or Tax ID Number and the
information provided on this Stock Order Form is true, correct and complete,
that I am not subject to back-up withholding, and that I am purchasing
solely for my own account and that there is no agreement or understanding
regarding the sale or transfer of such shares, or my right to subscribe for
shares herewith. It is understood that this Stock Order Form will be
accepted in accordance with, and subject to, the terms and conditions of the
Plan of Conversion of the Bank described in the accompanying Prospectus. The
undersigned hereby acknowledges receipt of the Prospectus at least 48 hours
prior to delivery of this Stock Order Form to the Bank. Federal regulations
prohibit any person from transferring, or entering into any agreement,
directly or indirectly, to transfer the legal or beneficial ownership of
subscription rights or the underlying securities to the account of another.
First Federal Lincoln Bank and First Lincoln Bancshares Inc. will pursue any
and all legal and equitable remedies in the event they become aware of the
transfer of subscription rights and will not honor orders known by them to
involve such transfer.
- --------------------------------------- --------------------------------------
Signature Date Signature Date
- --------------------------------------- --------------------------------------
BANK USE ONLY
====================
====================
--------------------
BANK USE ONLY
====================
A SIGNED CERTIFICATION FORM MUST ACCOMPANY ALL STOCK ORDER FORMS
- --------------------------------------------------------------------------------
<PAGE>
Item (6)a,(6)b,(6)c-continued
- --------------------------------------------------------------------------------
Account Title (Names on Accounts) Account Number(s)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Item (11)-(continued)
List below all other orders submitted by you or Associates (as defined) or
by persons acting in concert with you.
- --------------------------------------------------------------------------------
Name(s) listed on other Stock Order Forms Number of Shares Ordered
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
"Associate" is defined as: (i) any corporation or organization (other than the
Bank or a majority-owned subsidiary of the Bank) of which such person is a
director, officer or partner or is, directly or indirectly, the beneficial owner
of 10% or more of any class of equity securities; (ii) any trust or other estate
in which such person has a substantial beneficial interest or as to which such
person serves as a trustee or in a similar fiduciary capacity; provided,
however, such term shall not include First Lincoln Bancshares Inc.'s or First
Federal Lincoln Bank's employee benefit plans 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 or the Holding Company or any subsidiaries thereof.
Directors of the Bank or the Holding Company are not treated as associates
solely because of their Board memberships.
<PAGE>
================================================================================
YOU MUST SIGN THE FOLLOWING CERTIFICATION IN ORDER TO PURCHASE STOCK
CERTIFICATION FORM
I ACKNOWLEDGE THAT THIS SECURITY IS NOT A DEPOSIT OR ACCOUNT AND IS NOT
FEDERALLY INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION,
AND IS NOT INSURED OR GUARANTEED BY FIRST FEDERAL LINCOLN BANK, THE FEDERAL
GOVERNMENT OR BY ANY GOVERNMENT AGENCY. THE ENTIRE AMOUNT OF AN INVESTOR'S
PRINCIPAL IS SUBJECT TO LOSS.
If anyone asserts that this security is federally insured or guaranteed, or
is as safe as an insured deposit, I should call ________________,
________________ located at ____________________ at (XXX) XXX-XXXX.
I further certify that, before purchasing the Common Stock, par value $.01
per share, of First Lincoln Bancshares Inc. (the "Company"), the proposed
holding company for First Federal Lincoln Bank, I received a Prospectus of
the Company dated ____________, 199X relating to such offer of Common Stock.
The Prospectus that I received contains disclosure concerning the nature of
the Common Stock being offered by the Company and describes the risks
involved in the investment in this Common Stock, including but not limited to
the:
1. (page )
2. (page )
3. (page )
4. (page )
5. (page )
6. (page )
7. (page )
8. (page )
9. (page )
10. (page )
11. (page )
12. (page )
13. (page )
14. (page )
THIS CERTIFICATION MUST BE SIGNED IN ORDER TO PURCHASE STOCK
----------------------------------- -----------------------------------
Signature Date Signature Date
----------------------------------- -----------------------------------
----------------------------------- -----------------------------------
Name (Please Print) Date Name (Please Print) Date
----------------------------------- -----------------------------------
================================================================================
<PAGE>
[Logo] FIRST LINCOLN BANCSHARES, INC.
================================================================================
Stock Ownership Guide
Individual
Include the first name, middle initial and last name of the shareholder. Avoid
the use of two initials. Please omit words that do not affect ownership rights,
such as "Mrs.", "Mr.", "Dr.", "special account", "single person", etc.
- --------------------------------------------------------------------------------
Joint Tenants
Joint tenants with right of survivorship may be specified to identify two or
more owners. When stock is held by joint tenants with right of survivorship,
ownership is intended to pass automatically to the surviving joint tenant(s)
upon the death of any joint tenant. All parties must agree to the transfer or
sale of shares held by joint tenants.
- --------------------------------------------------------------------------------
Tenants in Common
Tenants in common may also be specified to identify two or more owners. When
stock is held by tenants in common, upon the death of one co-tenant, ownership
of the stock will be held by the surviving co-tenant(s) and by the heirs of the
deceased co-tenant. All parties must agree to the transfer or sale of shares
held by tenants in common.
- --------------------------------------------------------------------------------
Uniform Transfer to Minors Act ("UTMA")
Stock may be held in the name of a custodian for a minor under the Uniform
Transfers to Minors Act of each state. There may be only one custodian and one
minor designated on a stock certificate. The standard abbreviation for Custodian
is "CUST", while the Uniform Transfers to Minors Act is "UTMA". Standard U.S.
Postal Service state abbreviations should be used to describe the appropriate
state. For example, stock held by John Doe as custodian for Susan Doe under the
Nebraska Uniform Transfers to Minors Act will be abbreviated John Doe. CUST
Susan Doe UTMA NE (use minor's social security number).
- --------------------------------------------------------------------------------
Fiduciaries
Information provided with respect to stock to be held in a fiduciary capacity
must contain the following:
. The name(s) of the fiduciary, if an individual, list the first name, middle
initial and last name. If a corporation, list the full corporate title
(name). If an individual and a corporation, list the corporation's title
before the individual.
. The fiduciary capacity, such as administrator, executor, personal
representative, conservator, trustee, committee, etc.
. A description of the document governing the fiduciary relationship, such as a
trust agreement or court order. Documentation establishing a fiduciary
relationship may be required to register your stock in a fiduciary capacity.
. The date of the document governing the relationship, except that the date of
a trust created by a will need not be included in the description.
. The name of the maker, donor or testator and the name of the beneficiary.
An example of fiduciary ownership of stock in the case of a trust is: John Doe,
Trustee Under Agreement Dated 10-1-87 for Susan Doe.
================================================================================
================================================================================
Stock Order Form Instructions
Items 1 and 2-
Fill in the number of shares that you wish to purchase and the total payment
due. The amount due is determined by multiplying the number of shares by the
subscription price of $20.00 per share. The minimum purchase in the Subscription
and Community Offerings is 25 shares. In the Subscription Offering, the maximum
purchase by each Eligible Account Holder, Supplemental Eligible Account Holder
or other member is $XXX,XXX (XX,XXX shares), and the maximum purchase in the
Community Offering by any person, together with Associates or persons acting in
concert is $XXX,XXX (XX,XXX shares). However, no person, together with
Associates and persons acting in concert with such person, may purchase in the
aggregate more than 1.0% of the shares offered. Based on the offering of
XX,XXX,XXX shares 1.0% amounts to XXX,XXX shares. Eligible Account Holders
desiring to purchase shares in the Community Offering must do so by obtaining
from the Conversion Center an additional Stock Order Form and submitting a
completed additional Stock Order Form which indicates the number of shares to be
purchased in the Community Offering. First Federal Lincoln Bank and First
Lincoln Bancshares Inc. have reserved the right to reject the subscription of
any order received in the Community Offering, in whole or in part.
- --------------------------------------------------------------------------------
Item 3-
Please check this box to indicate whether you are an employee, officer or
director of First Federal Lincoln Bank or a member of such person's immediate
family living in the same household.
- --------------------------------------------------------------------------------
Item 4-
Payment for shares may be made in cash (only if delivered by you in person to a
branch office of First Federal Lincoln Bank) or by check, bank draft or money
order payable to First Federal Lincoln Bank. Your funds will earn interest at
the Bank's passbook rate of interest until the Conversion is completed. DO NOT
MAIL CASH TO PURCHASE STOCK! Please insert the total check(s) amount in this
box if your method of payment is by check, bank draft or money order. Orders on
an aggregate basis equal to or exceeding $50,000 must be accompanied by an
official bank or certified check, check issued by a NASD-registered
broker-dealer or by withdrawal authorization from a deposit account at the Bank.
- --------------------------------------------------------------------------------
Item 5-
If you pay for your stock by a withdrawal from a deposit account at First
Federal Lincoln Bank, insert the account number(s) and the amount of your
withdrawal authorization for each account. The total amount withdrawn should
equal the amount of your stock purchase. There will be no penalty assessed for
early withdrawals from certificate accounts used for stock purchases. This form
of payment may not be used if your account is an Individual Retirement Account
or Qualified Plan.
- --------------------------------------------------------------------------------
Item 6-
a. Please check this box if you are an Eligible Account Holder with a deposit
account(s) totalling $50.00 or more on ______XX, 199X.
b. Please check this box if you are a Supplemental Eligible Account Holder with
a deposit account(s) totalling $50.00 or more on ______XX, 199X.
c. Please check this box if you were a depositor as of ______X, 199X or a
borrower with a loan outstanding as of ____X, 199X which continued to be
outstanding as of ____XX, 199X.
Please list all names on the account(s) and all account number(s) of accounts
you had at these dates in order to insure proper identification of your purchase
rights. Please note: Failure to list all your accounts may result in the loss of
part or all of your subscription rights.
- --------------------------------------------------------------------------------
Item 7,8 and 9-
The stock transfer industry has developed a uniform system of shareholder
registrations that will be used in the issuance of your First Lincoln Bancshares
Inc. Common Stock. Please complete items 7,8 and 9 as fully and accurately as
possible, and be certain to supply your social security or Tax I.D. number(s)
and your daytime and evening telephone number(s). We may need to call you if we
cannot execute your order as given. If you have any questions regarding the
registration of your stock, please consult your legal advisor. Stock ownership
must be registered in one of the ways described above under "Stock Ownership
Guide".
- --------------------------------------------------------------------------------
Item 10-
Please check this box if you are a member of the NASD or if this item otherwise
applies to you.
- --------------------------------------------------------------------------------
Item 11-
Please check this box if you or any associate (as defined on the reverse side of
the Stock Order Form) or person acting in concert with you has submitted
another order for shares and complete the reverse side of the Stock Order Form.
- --------------------------------------------------------------------------------
Item 12-
Please sign and date the Stock Order Form and Certification Form where
indicated. Before you sign, review the Stock Order Form, including the
acknowledgement, and the Certification Form. Normally, one signature is
required. An additional signature is required only when payment is to be made
by withdrawal from a deposit account that requires multiple signatures to
withdraw funds.
- --------------------------------------------------------------------------------
You may mail your completed Stock Order Form and Certification Form in the
envelope that has been provided, or you may deliver your Stock Order Form and
Certification Form to any branch of First Federal Lincoln Bank. Your Stock
Order Form and Certification Form, properly completed, and payment in full (or
withdrawal authorization) at the subscription price must be physically received
by First Federal Lincoln Bank no later than 12:00 noon, Central time, on
__________, _____________ 1998 or it will become void. If you have any remaining
questions, or if you would like assistance in completing your Stock Order Form
and Certification Form, you may call our Conversion Center Monday through Friday
from 10:00 a.m. to 4:00 p.m.
================================================================================
